TaxTMI 
TaxTMI 
2025 (9) TMI 615
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....iled its return of income on 11.10.2014 declaring total income of Rs. 4,65,34,343/-. The case was selected for scrutiny and statutory notices were issued. 2.2 The Assessing Officer completed the assessment u/s 143(3) on 27.12.2016 assessing the total income at Rs. 5,21,42,750/-, after making the following disallowances and additions aggregating to Rs. 56,08,404/-: i. Disallowance of commission paid to foreign agents for non-deduction of TDS u/s 195 (Rs. 1,42,197/-). ii. Disallowance of employees' contribution to PF for delayed payment u/s 36(1)(va) (Rs. 20,250/-). iii. Disallowance of interest on late payment of TDS (Rs. 3,693/-). iv. Disallowance of medical expenses of directors as non-business expenditure u/s 37(1) (Rs. 1,00,901/-). v. Disallowance of expenditure u/s 14A r.w.r. 8D (Rs. 11,97,333/-). vi. Addition of interest income as per Form 26AS treated as undisclosed receipts (Rs. 19,44,030/-). vii. Disallowance of provision for warranty expenses as contingent liability (Rs. 22,00,000/-). Penalty proceedings u/s 271(1)(c) were also initiated separately. 2.3 The assessee carried the matter in appeal b....
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....y case exceed the exempt income earned during the year being Rs. 1,68,932. 9. Without prejudice to the above it is prayed that the Id. AO has failed to appreciate that even while applying rule 8D, while calculating average investment, only those investments on which exempt income (being dividend) is earned during the year needs to be considered & not the total investments. 10. The learned CIT(A) has erred in law and in facts of the case in confirming addition made by Id. AO of Rs. 19,44,030/- as undisclosed receipts even though the same has already been offered for in subsequent AY 2017-18. 11. The learned CIT(A) has erred in law and in facts confirming the action of the Id. AO in making addition of the interest income basis information in Form 26AS without appreciating the facts that the said interest income from customer was not accrued to the Appellant in year under consideration as the receipt of interest from such buyer was under dispute which was later settled in AY 2017-18. 12. The learned CIT(A) has erred in law and on facts of the case in confirming the disallowance made by the Id. AO for provision of warranty expenses amounting to Rs. 2....
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....artmental Representative (DR) relied on the orders of lower authorities. 6.1.2 Issue No. 1 - Disallowance of Foreign Commission u/s. 40(a)(i) r.w.s. 195 (Rs.1,42,197/-) - Ground No. 1 and 2 During assessment proceedings, the Assessing Officer noticed that the assessee had paid commission to non-resident agents without deduction of tax at source. According to the AO, such payments represented income deemed to accrue or arise in India within the meaning of section 9(1)(i) of the Act, and therefore the assessee was obliged to deduct tax at source u/s. 195. Since no TDS was deducted, the AO invoked section 40(a)(i) and disallowed Rs. 1,42,197/-. Before the AO, the assessee contended that the commission was paid for services rendered outside India, that the foreign agents had no business connection or permanent establishment in India, and that under the Double Tax Avoidance Agreement, the commission was not taxable in India. The AO rejected the plea. 6.1.2 On appeal, the CIT(A) confirmed the disallowance, holding that the assessee had not furnished satisfactory evidence to establish that the services were rendered wholly outside India or that the recipients had no business c....
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....the non-resident agent had no permanent establishment or business connection in India and that the services were rendered outside India. These submissions are supported by the nature of transaction, namely, commission for introducing foreign buyers. The revenue has not brought any material on record to show that the services were rendered in India or that the non-resident had a business connection in India. Mere procurement of export orders through agents based abroad, by itself, does not establish accrual of income in India. In our considered view, the disallowance sustained by the CIT(A) does not stand in light of the above settled judicial position. The DTAA between India and Germany further supports the assessee's case, as business profits of a non-resident are taxable in India only if the non-resident has a permanent establishment in India. 6.1.7 In the totality of facts and in light of binding precedents, we hold that the commission payment of Rs. 1,42,197/- made to Octacom Antriebstechnik, Germany, is not chargeable to tax in India. Consequently, there was no obligation on the assessee to deduct tax u/s 195, and the disallowance made u/s 40(a)(i) is directed to be dele....
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....d 12.04.2011 (Pg. 175 of PB-2). On consideration, we note that the assessee has indeed placed on record the copy of the Board Resolution dated 12.04.2011, authorized reimbursement of actual medical expenses incurred by directors. The company, being a juristic person, cannot have personal needs of its own, and once the expenditure is incurred pursuant to a valid resolution of the Board and in discharge of contractual obligation, the same partakes the character of business expenditure. The Cord0nate Bench in Paradeep Oxygen (P) Ltd. (supra) has also held that reimbursement of medical expenses of a managing director, when duly authorized by Board resolution, is allowable u/s 37(1) as expenditure incurred wholly and exclusively for business purposes. 6.3.5 In light of these binding precedents and the factual position of authorisation by the Board Resolution, we are of the considered view that the disallowance sustained by the authorities below is not justified. We, accordingly, direct deletion of the addition of Rs. 1,00,901/-. This ground of appeal is allowed. 6.4 Issue No. 4 - Disallowance u/s 14A r.w. Rule 8D (Rs.11,97,333/- ) - Ground No. 5 to 9 6.4.1 The Assessing Officer....
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....lding that part of the assessee's interest expenditure was relatable to investments yielding exempt income. The learned CIT(A) has confirmed the disallowance. 6.4.7 It is not in dispute that the assessee earned exempt dividend income of Rs. 1,68,932/- during the year. The assessee has demonstrated from its audited accounts that its capital and reserves as on 31.03.2014 stood at Rs. 15.48 crore, far in excess of the investments of Rs. 4.23 crore. The assessee has also explained that interest-bearing borrowings comprised term loans for acquisition of fixed assets and cash credit against hypothecation of stock and book debts, which were utilised for business purposes. No nexus has been established by the Assessing Officer between the interest expenditure and the investments yielding exempt income. 6.4.8 We further note that the Assessing Officer has not recorded any dissatisfaction regarding the correctness of the suo motu disallowance of Rs. 1,60,838/- made by the assessee in its return of income. Recording of satisfaction is a mandatory precondition under section 14A(2) before invoking Rule 8D, as held by the Hon'ble Supreme Court in Godrej & Boyce Mfg. Co. Ltd. v. DCIT (394 I....
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....017-18 and the addition in Asst.Year 2014-15 would amount to double taxation of the same income. The assessee relied on ledger accounts of M/s. Wind World India Ltd. and interest income account, placed in the paper book, to substantiate its contention. However the CIT(A) confirmed the addition made by the AO. 6.5.3 Before us, the learned Authorised Representative reiterated that the assessee was supplying goods to M/s. Wind World India Ltd. and as per the terms of sales, in case of delayed payment, interest was chargeable. Since there was a dispute regarding the payment of such interest, the assessee did not recognise the same as income in AY 2014-15 even though TDS was deducted by the payer. Subsequently, in FY 2016-17 relevant to AY 2017- 18, the dispute was settled and the assessee duly accounted for the interest income of Rs. 19,44,030/- in its books and offered it to tax. Copies of ledger accounts (PB pages 215-219) were placed on record to demonstrate that the impugned sum was reflected in AY 2017-18. It was submitted that income accrues only when there is a corresponding right to receive and, therefore, taxing the same amount in AY 2014-15 would lead to double taxation. ....
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.... was credited back to income in the audited accounts, thereby ensuring that there was no excess claim. The assessee pointed out that the disallowance resulted in double taxation. Further reliance was placed on the audited balance sheet, ledger of warranty expenses and and judicial precedents, particularly the ratio laid down by the Hon'ble Supreme Court in Rotork Controls India (P) Ltd. v. CIT (314 ITR 62), wherein it was held that provisions for warranty are allowable if based on scientific estimation and past trend. 6.6.3 The learned CIT(A), however, confirmed the disallowance made by the AO. He held that the assessee had not substantiated the basis of computation of the provision with reliable estimation basis. 6.6.4 Before us, the learned AR reiterated the above contentions and further submitted that the issue stands covered in assessee's own case for A.Y. 2017-18 in ITA No. 666/Ahd/2024, where the Tribunal has accepted similar claim. It was argued that the warranty provision was created on a rational basis linked to contractual terms, and the actual expenses incurred in subsequent years substantiate the accuracy of the provision. It was also pointed out that as per the l....