2022 (4) TMI 387 - AT - Income Tax

Appeal Partially Allowed, Issues Remanded for Verification and Re-computation

The Tribunal partly allowed the appeal, remanding key issues to the AO for further verification and re-computation. The disallowance of commission paid to ... TDS u/s 195 - disallowance u/s 40(a)(ia) - claim of the assessee in respect of foreign commission expenses - Assessee submitted chart showing details of commission on sale paid to various foreign nationals and domestic persons and also Form No. 15CB issued by the Chartered Accountants on the nature of remittance and rate of TDS as per section 195(6) of the Act relating to various parties - HELD THAT:- As new documents were filed before the Tribunal for the first time, the AO has no occasion to examine copies of these documents while finalizing the assessment, therefore in the interest of justice, we restore this issue to the file of the Assessing Officer for reconsideration of the commission payment. The assessee is directed to furnish all evidences to support its case before the Assessing Officer, and thereafter, the AO shall pass an order after providing reasonable opportunity to the assessee. Thus, this ground of appeal is allowed for statistical purpose. Disallowance under section 14A read with Rule 8D - whether disallowance under Rule 8D(2)(iii) in respect of administrative expenses to the extent of 0.5% of average investment was correct or not? - HELD THAT:- It is not discernible from the order of the Ld. CIT(A) how he arrived at the figure of ₹ 42,00,867/- being the average investment. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, we are of the considered view that the computation of the disallowances under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is to be restored in the file of the AO for re-computation for identifying average investments which actually yielded dividend income to the assessee and on that basis recompute disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) of the IT Rule. Disallowance under section 14A is to be added to the income computed as per Section 115JB for MAT purpose - This issue is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investment P. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] wherein Special Bench held that computation under MAT provisions was to be made without resorting to the computation as contemplated under section 14A read with Rule 8D. Respectfully following the same, we delete disallowance for the purpose of calculation of book profits u/s. 115JB. Addition on account of mismatch of TDS as per Form 26AS - HELD THAT:- This fact that the assessee has given advances to TESCO Projects P. Ltd., and the party was not paying either interest or repaying the principal amount, and the assessee has filed a civil suit against the party for recovery of the principal amount and interest. Even some cheques issued by the said borrower have been returned by the bank unpaid. These facts are not disputed by the authorities below. In this connection, the assessee has also filed a paper book which contained copies of legal notice issued to the said TESCO Projects Ltd., and copy of cheques returned by the bank. We are of the view that the contentions of the assessee cannot be simply brushed aside for the very reasons that the evidence produced before us clearly demonstrated that the borrower has not honoured its commitment either to pay the interest or principal amount, as the cheque issued by the party was returned by the banker as unpaid. The assessee has filed civil suit against the party for recovery of the same. As per the assessee, though the borrower has deducted TDS but corresponding interest payment was not received by the assessee. This requires further verification. Therefore, in the fitness of things, we restore this issue back to the file of the AO for re-examination of the issue. Issues Involved:1. Disallowance of commission paid to non-residents due to non-deduction of tax at source under Section 40(a)(ia) of the Income Tax Act.2. Disallowance of interest on loan given to a 100% foreign subsidiary.3. Disallowance under Section 14A read with Rule 8D while computing income under normal provisions of the Act.4. Disallowance under Section 14A read with Rule 8D while computing income under Section 115JB of the Act.5. Addition on account of mismatch of TDS as per Form 26AS.Issue-wise Detailed Analysis:1. Disallowance of Commission Paid to Non-Residents:The assessee paid a commission of Rs. 18,84,793 on export sales without deducting TDS, arguing that the agents were foreign entities with no business establishment in India. The AO disallowed the commission under Section 40(a)(ia) for non-compliance with Section 195(2), which requires seeking an opinion on TDS rates. The CIT(A) upheld the disallowance, noting the assessee failed to provide documentary evidence for each commission payment. The Tribunal restored the issue to the AO for reconsideration, allowing the assessee to submit new evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.2. Disallowance of Interest on Loan to Foreign Subsidiary:The assessee did not press this ground for adjudication; hence, it was dismissed for want of prosecution.3. Disallowance under Section 14A read with Rule 8D (Normal Provisions):The AO disallowed Rs. 1,34,23,645 under Section 14A read with Rule 8D, despite the assessee's claim of sufficient interest-free funds and strategic investments. The CIT(A) accepted the claim partially, deleting the interest disallowance but retaining administrative expenses at 0.5% of average investment. The Tribunal remanded the issue to the AO for re-computation, emphasizing the need to identify average investments yielding dividend income.4. Disallowance under Section 14A read with Rule 8D (Section 115JB):The CIT(A) restricted the disallowance to Rs. 3,98,520, which the assessee had self-disallowed. The Tribunal deleted this disallowance for MAT purposes, following the Special Bench decision in ACIT vs. Vireet Investment P. Ltd., which held that Section 14A disallowance should not be added to book profits under Section 115JB.5. Addition on Account of Mismatch of TDS:The AO added Rs. 3,18,140 due to a mismatch in TDS claims, which the assessee attributed to non-receipt of interest from TESCO Project P. Ltd. The CIT(A) upheld the addition. The Tribunal restored the issue to the AO for re-examination, directing verification of the assessee's claim and corresponding ledger accounts. If no interest payment was made, no addition should be made.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, remanding key issues to the AO for further verification and re-computation, ensuring the assessee is given a reasonable opportunity to present supporting evidence. The order was pronounced on 25th March 2022 at Ahmedabad.