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2017 (1) TMI 1155 - ITAT MUMBAIDisallowing the expenditure representing commission paid - disallowance u/s 40(a)(i) - liability to be taxed in India - fees paid to a non-resident - retrospectivity - Held that:- Notably, the payments in question fall during the previous year i.e. 01/01/2009 to 31/03/2010 corresponding to the assessment year before us, whereas the amendment in question came into effect on 08/05/2010 when the Finance Act, 2010 was given assent by the President of India. Though such a retrospective amendment may result in an incidence of tax liability in the hands of recipient of income but it would not result in creating an obligation on the payer of such income to deduct tax at source on the date of payment as it would be impracticable; obviously on the date of payment of income, the said amendment was not on the statute and, therefore, a subsequent amendment cannot create an obligation, which is impossible of performance. Thus, in such a scenario, even if it is held that the income paid to non-resident agent was taxable in India and thus, liable for deduction of tax in India, yet assessee cannot be faulted for non-deduction as on the relevant date there was no such obligation in law. Therefore, under the circumstances, the provisions of section 40(a)(i) could not have been invoked to disallow the impugned payment. - Decided in favour of assessee. Disallowance under section 14A - Held that:- Having regard to the judgment of the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd.(2009 (1) TMI 4 - BOMBAY HIGH COURT ), it is to be presumed that the investments are out of interest free funds and that such proposition is applicable even in the context of section 14A of the Act, as held by the Hon'ble Bombay High Court in the cases of CIT vs. HDFC Bank Ltd.(2014 (8) TMI 119 - BOMBAY HIGH COURT ) and HDFC Bank Ltd. vs. DCIT, (2016 (3) TMI 755 - BOMBAY HIGH COURT ). No disallowance out of interest expenditure is merited in terms of section 14A of the Act. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the disallowance Disallowance of overhead expenses applying the formula contained in Rule 8D(2)(iii) - Held that:- Following the ratio of the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd (2015 (3) TMI 155 - DELHI HIGH COURT ) which prescribes that the disallowance can only be to the extent of the tax exempt income, we direct the Assessing Officer to restrict the disallowance of expenditure to the extent of the exempt income and delete the balance.
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