TMI Blog2017 (1) TMI 1155X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Grounds of appeal reveal, the only issue arises from the action of CIT(A) in disallowing the expenditure of ₹ 87,76,168/- representing commission paid to one Mr. Bharat Goyal. In this context, the relevant facts are that assessee is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of manufacture and export of readymade garments. The Assessing Officer noted that assessee had paid commission on exports to agent Mr. Bharat Goel of ₹ 87,76,168/-. It was canvassed before the Assessing Officer that the recipient was a non-resident, who had rendered services outside India with respect to the exports made and in support assessee also furnished details of the commission paid, statements showing bill wise exports made and the respective sale invoices and debit notes issued by Mr. Bharat Goyal for commission. The Assessing Officer disallowed the commission expenditure on two grounds. Firstly, as per the Assessing Officer similar disallowance was made by the assessing authorities in assessment years 2008-09 and 2009-10 and, therefore, he disallowed the expenditure by invoking section 37(1) of the Act. Secondl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary material and in view of the fact that similar payments have been accepted by the Revenue in earlier years as business expenditure, we are of the opinion that Ld. CIT(A) did not commit any error in holding that such amount was allowable as business expenditure and, therefore, could not be disallowed under section 37 of the Act. 6.1 Now coming to the alternative claim of the AO that on account of non-deduction of tax the amount was disallowable. Here the case of AO is mainly based on withdrawal of earlier circulars and this issue has been discussed in details in above part of this order. The aforementioned decision of Hon ble Delhi High Court in the case of CIT vs. Angelique International Ltd ( supra) and decision of Allahabad High Court in the case of CIT vs. Model Exims(supra) , it has been made clear that withdrawal of earlier circular by the CBDT vide circular No.7 of 2009 dated 22/10/2009 will not operate prior to that date i.e. 22/10/2009. Both the financial years under consideration are prior to 22/10/2009. Therefore, we are of the opinion that there is no error in the order passed by Ld. CIT(A) vide which it has been held that even on the basis of Circular No.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer is in India, in view of the aforesaid amendment. The Ld. Representative for the assessee had pointed out that such amendment would, in any case, govern fees for technical services and in the present case assessee has paid brokerage or commission for export orders executed on account of efforts made by the non-resident agent, which cannot be considered as fees for Technical Services. In our considered opinion, even otherwise, the said amendment is not determinative in holding the assessee responsible for deduction of tax at source qua the impugned payments. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h investments have been made and that in the earlier two assessment years no disallowance has been made out of interest expenditure. Under these circumstances, it is canvassed that having regard to the judgment of the Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities Power Ltd., 313 ITR 340(Bom), 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., 366 ITR 505(Bom) and HDFC Bank Ltd. vs. DCIT,383 ITR 529 (Bom). 6.1 The aforesaid factual aspects emerges from the Annual Financial Statement of the assessee, copy of which has been placed in the Paper Book at pages 3 to 11. Before us, the Ld. Departmental Representative has not controverted the factual matrix and, therefore, in our view, the ratio of the judgment of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd.(supra) is clearly attracted and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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