2013 (9) TMI 742

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....elay of 13 days in filing the appeal is condoned. With the consent of parties the matter was heard. This appeal has been preferred by the income tax department under Section 260A of the Income Tax Act, 1961 against the order dated 28.4.2011 passed by the Income Tax Appellate Tribunal (ITAT) in I.T.A. No.754/LKW/2010 for the assessment year 2007-08. The department has preferred following questions of law for consideration in this appeal:- "1. Whether the Hon'ble Income Tax Appellate Tribunal is justified in law and on facts in putting reliance on the CBDT's circular no.786 dated 07.02.2000 whereas no cognizance has been taken of the Board's circular No.30/2009 dated 25.03.2009. The circular clarifies the ambiguous interpretation of provi....

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....on 195 and Section 9 of the Act and called upon to show cause as to why the aforesaid sum be not disallowed under Section 40 (a) (ia) of the Act. The assessee objected to the proposed disallowance and submitted that the expenses had been incurred in view of the business expediencies to further the business interest of the assessee overseas by the recipients having expertise in such matters, who were non-residents within the meaning of the relevant provisions of the Act, as such, there was no statutory liability on the part of the assessee to deduct at source under Section 195 of the Act. The submissions of the assessee have been highlighted by the AO at page 25 of the assessment order dated 15.12.2009 which read as under: "(a) Payment of c....

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....the consequent provision contained under section 40a (ia) of the Act are squarely applicable to the facts of the case and accordingly,, a sum of Rs.57,49,489/- is disallowed." In appeal the CIT (A) held that AO has not brought anything on record, which could demonstrate that there agents had been appointed as selling agents, designers & technical advisers. In absence of any such evidence, this observation of the AO is mere conjecture and therefore, no cognizance of the same can be taken. The Circular No.7 of 2009 dated 22.10.2009 withdrawing Circular No.23 of 1969, 163 of 1975 and 786 of 2000 will be operative only from 22.10.2009 and not prior to that date. The withdrawal of earlier circulars w.e.f. 22.10.2009 has no bearing to the instan....

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....dering the provisions of Explanation 4 to Section 271 (1) (c) (iii) the Supreme Court held that the amendment is only clarificatory and would apply even to earlier assessment years. In the present case we are concerned with the circulars, which did not oblige the assessee to deduct TDS. The assessment in question for the assessment year 2007-08 would be governed by Circular, which was operative at the relevant time. The assessee was not entitled to deduct TDS. The department could not have taken different stand in subsequent years or assessment year 2007-08, when the circulars were operative and were not withdrawn. Circular No.7 of 2009 dated 22.10.2009 withdrawing earlier circulars became operative only from 22.10.2009. We also do not ag....