2022 (2) TMI 1203 - AT - Income Tax

ITAT affirms deductions under Section 80IC, dismisses Revenue's appeal on foreign commission payments

The Assistant Commissioner of Income Tax, Circle-2 (1) (1), Ahmedabad Versus M/s. Gujarat Ambuja Exports Ltd.

The ITAT upheld the CIT(A)'s decisions, allowing deductions under Section 80IC for various incomes and deleting the disallowance of foreign commission ... Disallowance u/s 80IC - allowance of claim of deduction u/s. 80IC by the Ld. CIT(A) on incomes pertaining to Interest on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off - Claim denied by A.O holding that they were not in the nature of incomes derived from the business of the assessee for the purposes of being eligible to claim deduction of profits thereon - HELD THAT:- The basis on which the Ld. CIT(A) had allowed the assessee’s claim of deduction u/s. 80IC in relation to income being Interest on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off, being the order of the Ld. CIT(A) for Assessment Year 2012-13 & 2013-14. [2019 (10) TMI 119 - ITAT AHMEDABAD] the same has been upheld by the ITAT. We have noted that the ITAT with respect to the very same nature of incomes as in the impugned order had held that such incomes has affirmed the findings of the Ld.CIT(A) that they are derived from the manufacturing activity and therefore were eligible to claim deduction of profits earned thereon u/s. 80IC of the Act. D.R. was unable to point out any distinguishing fact before us nor was any decision of the higher authorities brought to our notice holding to the contrary. No reason to interfere in the order of the Ld. CIT(A) allowing assessee’s claim of deduction u/s. 80IC of the Act on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off. - Decided against revenue. Disallowance of foreign commission paid to non-residents - CIT-A deleted the addition - HELD THAT:- CIT(A) deleted the disallowance of commission expenses finding that the issue was identical to that in Assessment Year 2013-14 [2019 (10) TMI 119 - ITAT AHMEDABAD] wherein identical disallowance was deleted and further noting on facts that most of the commission agents were same as in Assessment Year 2013-14, while the new commission agents fulfilled the criteria laid down for non deduction of tax at source on the commission so paid.We have also noted that the ITAT has upheld the order of the Ld. CIT(A) in Assessment Year 2013-14. Since the the Ld. D.R. was unable to point out any distinguishing fact before us nor was any decision of the higher authorities brought to our notice holding to the contrary nor any infirmity pointed out in the findings of the Ld.CIT(A) vis a vis the new commission agents, we see no reason to disagree with the Ld.CIT(A).the deletion of disallowance of commission expenses is accordingly upheld. - Decided against revenue. Issues Involved:1. Deduction under Section 80IC of the Income Tax Act, 1961.2. Disallowance of foreign commission paid to non-residents due to non-deduction of tax at source.Issue-wise Detailed Analysis:1. Deduction under Section 80IC of the Income Tax Act, 1961:The primary issue revolves around the allowance of the claim of deduction under Section 80IC by the Commissioner of Income Tax (Appeals) [CIT(A)] on incomes such as Interest on Electricity Deposit, Recovery from Transporters, and Sundry Balances of Vendors written off. The Assessing Officer (A.O.) had denied these deductions, arguing that these incomes were not derived from the business activities of the assessee and thus were ineligible for deduction under Section 80IC.The CIT(A), however, allowed these deductions, referencing previous orders for Assessment Years 2012-13 and 2013-14, which had been confirmed by the ITAT. The CIT(A) had reasoned that these incomes had a direct or indirect nexus with the business activities of the assessee. For instance, the interest on electricity deposits was deemed necessary for obtaining electricity, which is essential for production. Similarly, recoveries from transporters and sundry balances written off were considered directly related to the business operations.The ITAT upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in CIT Vs. Meghalaya Steel Ltd. and the Madras High Court's decision in CIT Vs. Seshasayee Papers & Board Ltd., which supported the view that such incomes could be considered as derived from the business activities and thus eligible for deduction under Section 80IC. The ITAT found no distinguishing facts or contrary decisions that would warrant a different conclusion.2. Disallowance of Foreign Commission Paid to Non-Residents:The second issue pertains to the disallowance of foreign commission payments to non-residents amounting to Rs. 4,55,58,659/- due to non-deduction of tax at source. The A.O. had disallowed these payments, arguing that the income from such commissions was deemed to accrue or arise in India and thus was subject to tax deduction at source under Section 195 of the Income Tax Act.The CIT(A) deleted this disallowance, referencing previous appellate orders for Assessment Years 2012-13 and 2013-14, which had also deleted similar disallowances. The CIT(A) noted that the commission agents did not have a business connection or permanent establishment in India, and the income did not accrue or arise in India. The CIT(A) also considered various evidences provided by the assessee, such as email communications, ledger accounts, certificates of no permanent establishment in India, agreements, invoices, and bank payment details, which supported the non-taxability of these payments in India.The ITAT upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence to demonstrate that the commission payments were made to non-residents who did not have any business connection or permanent establishment in India. The ITAT also referenced the Supreme Court's decision in GE India Technology Centre Pvt. Ltd., which clarified that tax deduction at source under Section 195 is required only if the income is chargeable to tax in India. The ITAT found no merit in the Revenue's appeal and dismissed it.Conclusion:The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The assessee was deemed eligible for deductions under Section 80IC for incomes related to Interest on Electricity Deposit, Recovery from Transporters, and Sundry Balances of Vendors written off. Additionally, the disallowance of foreign commission payments was deleted, as the income from these payments was not taxable in India, and thus no tax deduction at source was required.