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Gujarat Liqui Pharmacaps Pvt. Ltd. Versus The DCIT, Circle-1 (1) , Baroda

Non deduction of tax from salary paid to foreign sales personnel - Held that:- Where the employee discharges his duties outside India and his stay is beyond the prescribed limit to term him resident, the income earned earned upon such discharge of duties outside India would not be within the ambit of term has accrued in India and is deemed to have accrued in India. Therefore, would not be taxable in India. Admittedly, if any income which is not taxable in India, would not be liable for tax. In t .....

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two employees, is hereby deleted - Decided in favour of assessee.

Disallowance of bad debts written off - Held that:- There is no dispute with regard to the finding that the payment were made in the regular course of business. There is no finding of the authorities below that the payment were not related to the business of the assessee. Under these facts, except in the case of QCS, where the assessee itself has admitted that no invoice was issued, the authorities below were not justif .....

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HRI KUL BHARAT, JUDICIAL MEMBER : This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-I, Baroda [ CIT(A) in short] dated 20/12/2011 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:- 1. The learned CIT(Appeals) has erred in confirming the learned Assessing Officer s action of disallowing the sum of ₹ 32,19,508 by upholding that in view of non deduction of tax from salary paid to foreign s .....

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h, 2007 representing telephone bills paid to Tata Indicon. The appellant reserves the right to add/amend/alter the ground of appeal adduced above. 2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was framed vide order dated 06/12/2010. While framing the assessment, the AO made addition on account of non-deduction of tax on salary paid to foreign sales empl .....

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thereby the ld.CIT(A) directed the AO to allow the credit of TDS of ₹ 1,05,989/-subject to verification and confirmed the disallowance of ₹ 32,19,508/-. Further, the ld.CIT(A) confirmed the disallowance of ₹ 3,54,264/- as made by the AO by invoking the provisions of section 40(a)(ia) of the Act. The ld.CIT(A) also confirmed the disallowance of ₹ 6,84,520/- as made on account of disallowance of bad debts. The ld.CIT(A) further confirmed the addition of ₹ 1,991/- mad .....

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der consideration non-resident Indian. The income earned and received was out of India, therefore such salary income was not subjected to tax in India. Under these facts, the assessee was justified for not deducting the tax at source. He submitted that the tax can be deducted when the income is taxable in India. The ld.counsel for the assessee, in support of the contention, has placed reliance on the judgement of Hon ble Karnataka High Court rendered in the case of Director of Income-tax (Intern .....

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favour of the Revenue. 4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO made disallowance on account of non-deduction of Tax. The AO was of the view that the assessee was required to deduct tax on the salary paid to staff (foreign) of ₹ 32,19,508/-. The ld.CIT(A) confirmed the addition by following the decision of the Coordinate Bench in the case of Cap.A.L. Fernandes vs. ITO(supra). .....

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₹ 3,42,187/- is hereby confirmed. In the present case, the undisputed facts are that the salary was paid to the employees who were appointed under the contract of employment at outside India for carrying out the business operations of the assessee-company. The contention of the assessee is that the salary was paid outside India for the services rendered outside India and the persons who were non-resident Indians during the year under appeal. Therefore, it is contended that the income accr .....

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erned employees, the same were taxable in India. The only question which requires for consideration is that whether the salary paid to foreign employees was taxable in India. Consequently, the tax was required to be deducted by the assessee. The residential status of any person is determined in accordance with the provisions of section 6 of the Act. The authorities below have not made disallowance on the basis of the status of the assessee. The disallowance has been made on the basis that the in .....

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ed out of India during the relevant period for 227 days and that salary was earned by him was on account of the work discharged by him on board during the said period, which outside the shores of India. The Hon ble High Court after examining the law and judicial pronouncement held that it would emerge that assessee was working outside India for a period of 225 days and the income in question earned by assessee has not accrued in India and is not deemed to have accrued in India. As such, the cont .....

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a, would not be liable for tax. In the case in hand, admittedly two of the employees of th appellant worked outside India and were NRI. Therefore, in the light of judgment of Hon ble Karntaka High Court in the case of DIT (Int.Taxn.) Vs. Prahlad Vijendra Rao (supra), the amount of salary paid to such employees would not be taxable in India. The Revenue has not brought to our notice any contrary binding precedent. Therefore, the disallowance of expenditure towards payment of salaries to remaining .....

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4 and 5 of the assessment order is taken as subject matter of this ground. 6. The ld. Counsel for the assessee reiterated the submission made before ld.CIT(A). He submitted that the transactions were affected in the normal course of business, therefore, write off the same needs to be allowed. He submitted that in view of judgment of the Hon ble Apex Court rendered I the case of T.R.F. Ltd., now the assessee is not required to demonstrate that debt actually became bad. He submitted that it is su .....

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s of the authorities below. The ld.CIT(A) had confirmed the disallowance by observing as under: 5.2 I have considered the submissions. Except for payment to QCS, all other payments are claimed to be made on behalf of other parties, which due to non payment by the said parties, were written off. In view of this, the claim is not of bad debts u/s 36(l)(vii) but is of business loss . Appellant has not been able to file any evidence in support of the said amounts being genuine business debts. In vie .....

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ssessment order. The break up ofRs.6,84,250 is as under. Date Name of the party Amount Remarks 15-09-07 Velji Dosabhai & Sons P Ltd. 6,250 Amount was recoverable towards clearing and forwarding charges paid in financial year 2004-05. The party did not pay the amount and hence the same is written off. 31-12-2007 Polychem Corporation 10,060 Amount was recoverable towards payment for purchase of consumable stores made in financial year 2004-05. The party did not pay the amount and hence the sam .....

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