TMI Blog2019 (11) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... n-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise. In the instant case, following the above decision we delete the disallowance made by the AO and allow the 2nd ground of appeal. TDS u/s 194C - labour charges payment - HELD THAT:- We find that the expenses disallowed by the AO are not debited to the P L account. In fact these expenses are capitalized. As held in case of S.K. Terkriwal [ 2012 (12) TMI 873 - CALCUTTA HIGH COURT] , if there was any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various tax deduction at source provisions, the assessee could be declared to be in default u/s 201 but no disallowance could be made invoking the provisions of section 40(a)(ia) of the Act. In view of the above position of law, we delete the disallowance. Disallowance of loss on sale of returned goods - HELD THAT:- The fact remains that during the AY 2010-11, the assessee had sold goods to the Karnataka Police in February 2010 for ₹ 192,95,306/-. However, the said consignment was rejected by the client vide letter dated 01.03.2010. As the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring total income of Rs.Nil after setting off brought forward business loss of ₹ 4,91,03,204/-. Further, the assessee disclosed book profit of ₹ 4,29,84,450/- u/s 115JB of the Act. During the course of assessment proceedings, the AO observed that the following expenses claimed by the assessee were found to have attracted the provisions of section 40(a)(ia) of the Act : - Payment of facility fees of ₹ 64,34,560/- - Commission to foreign agents of ₹ 9,17,999/- - Labour charges of ₹ 2,67,803/- In respect of facility fees, the AO noted that the assessee has debited ₹ 79,41,600/- in the P L account in connection with M/s Avadh Reality Services Pvt. Ltd. (ARSPL). These expenses debited are pursuant to a Memorandum of Understanding (MoU) dated 01.04.2009 with ARSPL, which is mentioned as a division of M/s Shree Ram Urban Infrastructure Ltd. (SRUIL). In response to query raised by the AO to explain the reasons for making the TDS u/s 194C instead of section 194I and why the provisions of section 40(a)(ia) should not be applied, the assessee filed a reply stating that the provisions of section 40(a)(ia) do not apply to a case of short d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling under the head rent and the provisions of section 194I were applicable. On the ground that the assessee had deducted tax at 1% u/s 194C(2) as against the actual deduction to be made at 10% u/s 194C(2) as against the actual deduction to be made at 10% u/s 194I, the payments were disallowed proportionately invoking the provisions of section 40(a)(ia). The Tribunal held that where tax was deducted by the assessee, though under a bonafide wrong impression under wrong provisions, the provisions of section 40(a)(ia) could not be invoked and that if there was any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various tax deduction at source provisions, the assessee could be declared to be an assessee in default u/s 201 but no disallowance could be made invoking the provisions of section 40(a)(ia) of the Act. On appeal, the Hon ble High Court held that no substantial question of law arose from the said order of the Tribunal. In view of the above position of law, we delete the disallowance of ₹ 64,34,560/- made by the AO u/s 40(a)(ia) and allow the 1st ground of appeal. 6. The 2nd ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the payments were made to non-residents and the income had no connection with services rendered in India. In this regard reliance is placed by him on the decision in GE India Technology Centre (P.) Ltd. v. CIT 327 ITR 456 SC, ACIT v. NGC Network (I) Pvt. Ltd. 1382/M/2014 and Channel Guide India Pvt. Ltd. v. ACIT 153 TTJ (Mum) 432. On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 9. We have heard the rival contentions and perused the relevant materials on record. In the case of GE India Technology Centre (P.) Ltd. (supra), it is held that a person paying interest or any other sum to a non-resident is liable to deduct tax u/s 195 only if such sum is chargeable to tax in India and not otherwise. In the instant case, following the above decision we delete the disallowance of ₹ 9,17,999/- made by the AO and allow the 2nd ground of appeal. 10. 3rd ground of appeal The CIT(A) erred in confirming the disallowance made by the AO of the labour charges to the extent of ₹ 2,67,803/- on account of non- deduction of TDS by invoking the provisions of Section 40(a)(ia) of the Act. Without prejudice, CIT(A) erred in confirming the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, the assessee could be declared to be in default u/s 201 but no disallowance could be made invoking the provisions of section 40(a)(ia) of the Act. In view of the above position of law, we delete the disallowance of ₹ 2,67,803/- made by the AO and allow the 3rd ground of appeal. 14. The 4th ground of appeal a. The CIT(A) erred in confirming the disallowance of loss on sale of returned goods of Rs,12,94,653/- made by the AO without understanding the facts of case. In this regard, it is submitted that the appellant company has debited to the Profit Loss Account, the amount of profit element involved in the materials supplied during the year under consideration to the Director General Inspector General of Police, Karnataka which was returned by the said party and hence no such profits can be held to be taxable for the year under consideration. Therefore, it is prayed that such addition should be deleted. b. The CIT(A) erred in confirming the calculation of the Book Profit as per Section 115JB of the Act as calculated by the AO, and erred in making addition of loss on sale of returned goods to the extent of ₹ 12,94,653/- by considering the same as unas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,82,593/-) - Shri Ajay Dhariwal to Dubai, Jeddah and Kuwait (cost ₹ 2,26,726/-) The AO observed that the assessee had paid commission to foreign agents and none of them were in Switzerland, but were based in UAE, Kuwait, Saudi Arabia and Lebanon. In response to query raised by the AO, the assessee submitted that Smt. Rajkumari Kasliwal is the wife of Shri Shambhukumar S. Kasliwal, who is a Director of the assesseecompany. During the course of assessment proceedings, the assessee submitted that Shambhukumar S. Kasliwal has travelled to visit Klopman International for purchase of Spinning Machinery and that the deal was finalized in FY 2010-11 relevant to the AY 2011-12. However, the assessee failed to file any evidence that it was due to Shri Shambhukumar S. Kasliwal s visit to Switzerland along with his wife to finalize a deal for purchase of Spinning Machinery from M/s Klopman International. As the assessee failed to explain the business exigency in undertaking a foreign visits, the AO made a disallowance of ₹ 7,03,559/-. In appeal, the Ld. CIT(A) confirmed the above disallowance made by the AO. 20. Before us, the Ld. counsel for the assessee subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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