2021 (11) TMI 523 - AT - Income Tax

Tribunal upholds assessee's cross-objections, rejects Revenue's appeal on various tax issues

The Income Tax Officer, Wad – 1 (1) (2), Ahmedabad. Versus M/s. Anunay Fab Pvt. Ltd., C/o. Shiv Shankar Swami, Ahmedabad

The Income Tax Officer, Wad – 1 (1) (2), Ahmedabad. Versus M/s. Anunay Fab Pvt. Ltd., C/o. Shiv Shankar Swami, Ahmedabad - TMI Issues Involved:1. Deletion of addition for non-deduction of TDS on design expenses.2. Deletion of addition for non-deduction of TDS on exhibition expenses.3. Deletion of addition for late payment of employees' contribution to PF/ESI.4. Deletion of disallowance on depreciation, interest, and related expenses on cars.5. Deletion of disallowance of interest payment under Section 36(1)(iii) of the Act.Issue-wise Detailed Analysis:1. Deletion of Addition for Non-Deduction of TDS on Design Expenses:The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 1,31,60,555/- made by the AO for non-deduction of TDS under Section 195 read with Section 40(a)(i) of the Act. The assessee contended that the design expenses were for the purchase of designs/themes from foreign parties, not for technical services, and thus, TDS provisions were not applicable. The CIT(A) agreed with the assessee, stating that the designs were purchased as commodities, not services, and hence, TDS provisions under Section 195 were not applicable. The Tribunal upheld the CIT(A)'s decision, noting that the transaction was an outright purchase and not a service contract, and therefore, TDS was not required.2. Deletion of Addition for Non-Deduction of TDS on Exhibition Expenses:The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 24,18,696/- for payments made to non-residents for exhibition expenses in Germany and Rs. 2,52,641/- for non-deduction of TDS. The assessee argued that the payments were for exhibitions held outside India, and thus, not taxable in India. The CIT(A) found that the payments were indeed for exhibitions in Germany and not in India, and therefore, TDS was not applicable. The Tribunal upheld this finding, confirming that the services were rendered outside India and thus not subject to TDS under Section 195.3. Deletion of Addition for Late Payment of Employees' Contribution to PF/ESI:The AO disallowed Rs. 2,86,495/- for late payment of employees' contribution to PF/ESI. The CIT(A) allowed the deduction for payments made within the grace period but disallowed Rs. 69,773/- paid beyond the grace period. The Tribunal upheld the CIT(A)'s decision, noting that payments made within the grace period are allowable, but any payment beyond the grace period is not deductible.4. Deletion of Disallowance on Depreciation, Interest, and Related Expenses on Cars:The AO disallowed Rs. 6,44,080/- for depreciation, interest, and running expenses on a car registered in the director's name. The CIT(A) allowed 75% of the expenses, recognizing the car's use for business purposes. The Tribunal upheld the CIT(A)'s decision, stating that the car was beneficially owned by the company and used for business purposes, thus eligible for depreciation and related expenses.5. Deletion of Disallowance of Interest Payment under Section 36(1)(iii) of the Act:The AO disallowed Rs. 5,90,700/- for interest on borrowed funds allegedly diverted towards interest-free loans and advances. The CIT(A) deleted the addition, noting that the assessee had sufficient own funds to cover the advances. The Tribunal upheld the CIT(A)'s decision, referencing the presumption that investments are made from own funds when they exceed the interest-free loans and advances.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objections, confirming the CIT(A)'s decisions on all issues. The Tribunal emphasized that the transactions in question were either outright purchases or involved services rendered outside India, thus not attracting TDS provisions. Additionally, it upheld the CIT(A)'s findings on the timely payment of PF/ESI contributions and the beneficial ownership of business assets.