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2010 (9) TMI 749 - AT - Income TaxDisallowance u/s.40(a) - The assessee had made the provision of Rs.38,41,257/- in respect of the compensation to be paid to foreign company namely M/S. Swissgen NV of London (UK) and claimed the same as an expenditure in the profit and loss account - nature of compensation - Held that:- both the parties have not understood the issue in a proper prospective. So far as character of the compensation is concerned, in our opinion, it is a business profit and is covered under Article 7 of DTAA of UK and India as it is arising out of the trading contract. TDS on interest paid on compensation - Held that:- interest partake the character of the compensation. - there was no justification for disallowing amount of the compensation claimed by the assessee on the reason for non-deduction of the tax. Disallowance of telephone and mobile expenses - nothing is there on record to show that the telephone was used for non-business purposes. - If the assessee has claimed any expenditure and A.O. desires to make the disallowance then the proper way is to identify the element, which does not relate to the business of the assessee. - the ad-hoc disallowance is not justified.
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