TaxTMI 
TaxTMI 
2018 (12) TMI 182
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....eals. 3. The revenue has raised the following grounds of appeal:- ITA No. 153/Ahd/2015, revenue's appeal "1. The Ld. CIT (A) has erred in law and on facts in deleting the addition made by AO amounting to Rs. 47,22,523/- on account of unrealized sales without appreciating the findings of AO. 2. The Ld. CIT (A) has erred in law and on facts in deleting the addition made by AO amounting to Rs. 31,22,445/- on account of late delivery charges. 3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made by AO amounting to Rs. 1,89,56,798/- u/s 40(a)(ia) of the IT Act for contravening the provision of section 195 of the IT Act by assessee. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld. CIT (A) may be set aside and that of the Assessing Officer may be restored to the above extent." 4. In this case, return of income declaring income of Rs. 39,70,40,112/- was filed on 4th October, 2010. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 25....
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....ization in subsequent year therefore, the appeal of the revenue was dismissed. 7. We have heard the rival contentions and perused the material on record carefully. It is noticed that similar additions are deleted in the case of the assessee for the assessment year 2008-09 and 2009-10 by the CIT(A) and the Co-ordinate Bench of the ITAT has dismissed the revenue's appeal vide ITA No. 199 and 200/Ahd/2013 dated 16th Jan, 2017. The relevant part of the decision of the ITAT is reproduced as under:- "14. We also find that the issue travelled up to the Hon'ble High Court and the Hon'ble High Court was seized with the following substantial question of law:- "[A] Whether the Appellate Tribunal is right in law and facts of the case to delete the disallowance of claim on account of retention money of Rs. 40,32,955/-? 15. And the Hon'ble High Court held as under:- 5. Insofar as the first question is concerned, a perusal of the order passed by the Commissioner (Appeals) shows that after analyzing the terms of payments of purchase orders in respect of various parties, has given categorical finding that the retention of 10% money of total sales was due to sp....
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....r the terms and conditions of agreement entered with them by the assessee company . The assessing officer has not accepted the explanation of the assessee. He was of the view that late delivery charges have been paid because of delay in supplying goods to various parties and the same cannot be considered as business expenditure in accordance with the provisions of section 37 of the act. Consequently, the assessing officer has disallowed the late delivery charges amounting to Rs. 31,22,445/- and added to the total income of the assessee company. 9. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee stating that these expenses have been incurred in accordance with the contractual terms and conditions of the business. 10. We have heard the rival contentions and perused the material on record on this issue carefully. We have noticed that similar addition has been deleted by the ld. CIT(A) in assessment year 2009-10. Thereafter, the appeal of the revenue on this issue has been dismissed by the Co-ordinate Bench of the ITAT vide ITA No. 200/Ahd/2013 dated 19th April, 2018. The relevant part of the decision is reproduced as u....
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....wise of withholding tax u/s 195 of the act. Therefore, the assessing officer has disallowed the impugned commission expenses u/s. 40(a)(ia) of the income tax act and added to the total income of the assessee. 12. Aggrieved assessee has filed appeal before the ld. CIT (A). The ld. CIT (A) has allowed the appeal of the assessee. Relevant part of the decision of the ld. CIT (A) is reproduced as under:- "7.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed the commission paid to foreign agents by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the Provisions of section 5 (2)(b) read with section 9 (1)(i) of Income Tax Act. It has further been observed by the AO that the appellant company had failed to comply with the Provisions of section 195 (2). The appellant on the other hand, in its detailed written submission, has claimed that the Provisions of Section 5 (2)(b) read with section 9 (1)(i) of Income Tax Act were not applicable in its case. The i....
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....ring services from outside India does not accrue in India. In the present case before me also, the foreign selling commission agent is resident of foreign country, from where the procurement service has been provided for which the commission has been paid, and therefore, the issue is directly and squarely covered by the Apex Court decision. Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (l)(i) it is seen that there is no fact on record to indicate that any of the agents had any Permanent Establishment in India. All the agents had their offices on the foreign soil and the records do not indicate that they had any PE in India. Further the assessing officer has also not pointed out any such fact in its order which indicate that there was any such office which attracts the deeming provisions. Further the observation that the source of income was in India, is also not proper as it has clearly been discussed in the preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not th....
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....ot chargeable to tax as it has not been received in India nor it has accrued or arisen in India directly or indirectly. Therefore, once the income is not taxable there is no liability to deduct tax and therefore, it was not obligatory for the appellant to deduct tax in view of this there was no violation of the provisions of section 195 and the appellant also was not required to pay no deduction certificate from the AO. The issue whether the payer has to apply for a certificate under section 195 if some payment has been made, has been considered by various courts. The special bench of Chennai ITAT in the case of Prasad Productions reported in 125 ITD 263 has held in para-35 of the order that in if the assessee has not applied to the Assessing Officer under section 195(2) for deduction of tax at a lower or nil rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at source on any part of thereof. While deciding the case the honourable Bench has considered several cases which were relevant to the issue. Similar view has been taken by Hon'ble Guja....
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....pplicability of TDS provisions to commission paid to overseas/non-resident agents by Indian Exporters. In view of the preceding discussion, it is clear that the appellant was not liable to deduct tax on the commission paid foreign agents. Therefore, the disallowance of Rs. 1, 89,56,768/- for AY 2010- 11 and Rs. 1,07,23,167/- for A Y 2011-12 under section 40(a)(ia) made by the AO is directed to be deleted. The grounds of appeal for both the years are accordingly allowed." 13. During the course of appellate proceedings before us the Ld. Counsel has contended that the Ld. CIT (A) is justified in deleting the incorrect disallowance made by the assessing officer in respect of commission paid to foreign agents. The ld. counsel has also placed reliance on the decisions of Gujarat High Court, M/s. Viyayak Exports Tax Appeal No. 404 of 2011 dated 12th June, 2012, MGM Export Tax Appeal No. 309 of 2018 dated 11/04/2018 and ITAT, Ahmedabad Bench in case of M/s. Gujarat Microwax in ITA No. 2503/Ahd/2016 dated 24th May, 2018. On the other hand the Ld. DR has supported the order of the assessing officer. 14. We have heard the rival contentions and perused the material o....
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....ner of Income-tax (Appeals) erred in law and in facts in directing the Id. A.O. to disallow proportionate interest corresponding to investment made in tax exempt assets u/s section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 except investment made to the extent of Rs. 30.29 lacs in German Subsidiary." 16. During assessment the assessing officer noticed that the assessee has earned exempt income to the amount of Rs. 525837/- during the year under consideration. On verification of balance sheet the assessing officer noticed that assessee has made investment in shares and securities to the amount of Rs. 15,39,99,135/-. Therefore the assessee was asked to explain why no disallowance under section14 A of the act has been made towards expenditure incurred for earning exempt income. The assessee responded that investments have been made out of non-interest bearing funds therefore no disallowance has been made in accordance with the provision of section 14A of the act. The assessing officer has not accepted the explanation of the assessee stating it has failed to substantiate that investment in shares and securities were made out of own funds, therefo....
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.... After considering all the details and facts it is noted that the appellant has not given any details to prove that the amount has been invested out of the interest-free funds available with it. In fact the written submission given during the course of appellate proceedings clearly mention that as the appellant company had not been maintaining separate cash and bank accounts for interest-bearing and non-interest-bearing funds, it was difficult to submit specific details linking funds with investment in earlier years. Therefore, the claim of the appellant that the investment is out of the interest-free funds cannot be accepted as it is the claim of the appellant to say that the investment is out of the interest-free fund and therefore, the onus is on the appellant to prove the same. To prove its claim the appellant has to demonstrate specific nexus between the investment and the interest free funds invested which it has not done. Therefore, the contention of the appellant that the investment was out of interest free funds is not acceptable. It has also not given any specific nexus such as the entries in the bank account or the dates of investment to show that certain inte....
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....#39;ble Supreme Court in the case of Walfort Share & Stock Brokers (P.) Ltd. (supra) as well as of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co. Ltd. (supra) needs no doubt to the effect that the disallowance under section 74A read with Rule 8D is to be made not only in respect of income which does not form part of the total income but also in respect of income which shall not form part of the total income and as observed above by the Hon'ble Supreme Court and by the Hon'ble Jurisdictional High Court of Bombay that the section 14A(1) is enacted to ensure that the expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income, which means that the expenses which are not incurred not for the purpose of earning of taxable income cannot be allowed for the computation of net income. Hence, even if from the investments made, no exempt income has resulted but the said expenditure cannot be said to be incurred for earning of taxable income, the same cannot be allowed while computing the taxable income. Where there is a hotchpotch of funds and the expenditure both for investments and business purposes are incurred fr....
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....f the funds to show that the investment was out of the interest-free funds. Accordingly, the investment made by the appellant in the current year is considered to be as out of mixed funds and not out of interest free funds. The appellant was specifically asked to prove the nexus but it has expressed inability to do the same. However, as discussed, the appellant has not been able to prove any nexus of interest free funds with the investments made the AO is directed to work out the proportionate interest corresponding to the investment made in tax exempt assets by applying Rule 8D. The investment made in the subsidiary in Germany should not be considered for the purpose of working out the disallowance of interest as the dividend income from that company would be taxable in India and accordingly the same cannot be considered for working the disallowance under section 14 A. For AY 2011 - 12, the details available in the annual report for FY 2010 - 11 show that there is an increase of tax exempt investment from Rs. 15.3999 crores to 36.8823 crores. The increase is due to increase in investment from 30.295 Lacs to 3.7944 crores in the subsidiary in Germany, accordingly there is ....
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....empt investment. The AO has pointed out that the auditor in the 3 CD report, has pointed out certain disallowance for section 14A however the appellant has not made any disallowance in the statement of income for this section. The onus to prove that it has not incurred any expenditure is on the appellant as it is the claim made by it and the onus therefore, would be on the appellant. The reliance is placed on the recent decision of ITAT Panaji Bench in the case of Joe Marcelinho Mathias 143 ITD 132 and Hercules Hoist Ltd 35 taxman.com 592, Mumbai ITAT. Further, the general logic, that if is not possible that no expenditure might have been incurred for earning the dividend income, is applicable in the case of the appellant. Some administrative action such as the review of investment or monitoring of the activities of the companies in which the appellant company has made substantial investment might have been done by the director of the appellant companies and the supporting employees must have done some activity by spending some time on the issue. Therefore, the salary paid by the appellant company to those employees and the directors have not been utilised exclusively for the purpo....
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....d, but when assessee does not offer any disallowance under section 14 A by claiming that there was no expenditure incurred to earn exempt income, provision of section 14 A(2), read with Rule 8D could be invoked without there being any need to express satisfaction about the correctness of such a claim. In the present case, the appellant has not offered any disallowance under section 14 A and claimed that there was no expenditure incurred to earn exempt income, the provisions of Rule 8D can be straightaway applied by following the above judgement of honourable ITAT. Since the appellant has not made any disallowance under section 14 A in the return of income, in view of this judgement also the application of Rule 8D by the AO is upheld. The appellant has also placed reliance on various judgements which have been reproduced and mentioned at the relevant page where the submission of the appellant has been given. However, after going through the various judgements it is noted that none of the judgement is applicable to the appellant's case as the facts in those cases were different from that of the appellant. The cases are therefore, respectfully distinguished. Regarding the....