2012 (7) TMI 1095 - AT - Income Tax

Summary

Issues Involved:
1. Whether the domestic and import purchases are liable for tax deduction u/s 194C.
2. Whether the CIT(A) violated Rule 46A by admitting additional evidence.
3. Whether TDS is deductible u/s 194J for payments made outside India.
4. Disallowance u/s 40(a)(i) for non-deduction of tax at source.

Summary:

Issue 1: Tax Deduction u/s 194C on Domestic and Import Purchases
The primary issue was whether the domestic purchase of traded goods worth Rs. 27.39 crores and purchases through import worth Rs. 23.03 crores are liable for tax deduction u/s 194C. The CIT(A) concluded that these transactions were purely purchases and not contracts for work, thus not liable for TDS u/s 194C. The CIT(A) relied on the decision of the Bombay High Court in BDA Ltd. vs. ITO (TDS) and other relevant cases. The Tribunal endorsed this view, stating that the ITO had confused job work contracts with trading purchases and that TDS was not deductible on these transactions.

Issue 2: Violation of Rule 46A by CIT(A)
The department contended that the CIT(A) admitted additional evidence in violation of Rule 46A. However, the Tribunal found that all details were already before the ITO, as evidenced by submissions dated 06.10.2008, 14.10.2008, and 14.11.2008. Thus, the Tribunal rejected this ground, finding no justification for the department's claim.

Issue 3: TDS u/s 194J for Payments Made Outside India
The department argued that TDS should have been deducted u/s 194J for payments made outside India. The Tribunal found that section 194J applies only to payments made to residents, and section 195(1) was also not applicable as the payments did not result in taxable income in India. The Tribunal referred to the Supreme Court's decision in G.E. India Technology Centre (P) Ltd. vs CIT, which clarified that payments not resulting in taxable income in India do not require TDS. Consequently, the Tribunal rejected the department's grounds.

Issue 4: Disallowance u/s 40(a)(i)
The department disputed the relief allowed by the CIT(A) by deleting the disallowance of Rs. 56,47,12,860/- u/s 40(a)(i) for non-deduction of tax at source. The Tribunal upheld the CIT(A)'s decision, noting that TDS provisions were not applicable to the payments for trading purchases, professional fees, freight, and sales promotion expenses. The Tribunal found that the CIT(A)'s decision was based on facts and endorsed it, deleting the disallowance sought by the AO.

Conclusion:
Both appeals filed by the department in ITA No. 2824/Mum/2010 and ITA No. 5869/Mum/2010 were dismissed. The Tribunal upheld the CIT(A)'s decisions, finding no merit in the department's grounds. The order was pronounced in the open court on 25.07.2012.