TMI Blog2012 (11) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company. Issue decides in favour of assessee Disallowance of salary for non-deduction of TDS u/s 40(a)(ia) - Held that:- Sec. 40(a)(ia) does not include expenditure on salaries. AO erred in invoking Sec 40(a)(ia) to disallow the impugned payment. Issue decides in favour of assessee Disallowance of interest – Interest expenditure in relation of giving interest free advances – Held that:- The AO has not pointed out to any instance of giving away interest free loan for non-business purpose either to relative or to sister concerns. Therefore, there cannot be any disallowance of interest u/s 36(1)(iii). Issue decides in favour of assessee - ITA No 359/PN/11 & ITA No 467/PN/11 - - - Dated:- 26-7-2012 - SHRI G.S. PANNU AND SH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had debited an amount of rs 31,12,453/- towards employee emoluments. Out of the same, Rs 16,86,619/- was by way of reimbursements to two sister concerns, who had deputed their employees for carrying out the work of the assessee. As per the Assessing Officer, assessee had not deducted tax at source on such payments and accordingly, the same was disallowable under section 40(a)(ia) of the Act. The Commissioner of Incometax (Appeals) noticed that though the payments were made for services rendered by the employees who belonged to the sister concerns, but having regard to the nature of the job undertaken by the assessee, the persons rendering services were highly technical and professional in nature and, therefore, on such payments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees of the sister concern were taken on deputation by the assessee to execute such work. The salaries of the employees were reimbursed to the sister concern on the basis of the debit notes raised by such concerns. It was, therefore contended that section 40(a)(ia) of the Act is not attracted, inasmuch as the section 40(a)(ia) does not cover TDS on salaries. The learned Counsel further pointed out that it was a bona fide transaction and in fact in the subsequent years such employees have been taken on payrolls by the assessee itself. In so far as the issue of tax evasion in the context of section 40A(2)(b) of the Act is concerned, the learned Counsel explained that there was no tax advantage, inasmuch as the assessee had incurred expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 40A(2)(b) of the Act. In this case, the assessee has reimbursed to the sister concerns salaries of the employees deputed by the sister concerns to work for the assessee company. The Commissioner of Income-tax (Appeals) has made out a case as per CBDT Circular No 6P dated 6.7.1968, which provides that where payments made to the relatives and sister concerns involve an attempt to evade tax, it would be justified to invoke section 40A(2)(a) of the Act. As per the Commissioner of Income-tax (Appeals), in this case there is an attempt to evade taxes inasmuch as payments have been made to sister concerns which were otherwise in losses even after accounting for such income, whereas the assessee is a tax paying company and the impugned payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer erred in invoking section 40(a)(ia) of the Act to disallow the impugned payment. Therefore, considering the entirety of circumstances, we therefore set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the impugned addition. The assessee succeeds on this Ground. 9. In the result, the appeal of the assessee is allowed. 10. We shall now take up Revenue s appeal vide ITA No 467/PN/11. In this appeal, Revenue s grievance is that the Commissioner of Income-tax (Appeals) was not justified in deleting the disallowance of interest expenditure of Rs 14,65,416/-. During the assessment proceedings, assessee was required to show cause as to why interest expenditure be not disallowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h conclusion, he has relied upon the judgment of the Hon ble Bombay High Court in the case of CIT v. Reliance Utility and Powers Ltd. 313 ITR 340 (Bom). Before us, there is no material or any other cogent reasoning to detract from the aforesaid conclusion drawn by the Commissioner of Income-tax (Appeals), which is in line with the decision of the Hon ble jurisdictional High Court. Apart therefrom, the Commissioner of Income-tax (Appeals) has recorded a finding in para 3.3 of his order which is as under, to the effect that no instance has been brought out by the Assessing Officer to show that any interest free loan has been advanced for non-business purpose either to relative or to sister concerns: The AO has not pointed out to any instan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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