TMI Blog2019 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that the issue of disallowance be readjudicated by the AO and the AO should decide the disallowance on the basis of his objective findings after giving a reasonable opportunity to the assessee of being heard. In view of the above, the appeal of the assessee allowed for statistical purposes TDS u/s 195 - Disallowance u/s 40(a)(ia) for non-deduction of TDS - HELD THAT:- From the perusal of the order of the CIT(A), it can be seen that the companies did not have any PE in India and it is not the case of the Assessing Officer that these companies have PE in India. Further, such services are not in the nature of Management, technical and consultancy, therefore, the same cannot be treated as FTS. Thus, there was no obligation on the assessee to deduct TDS thereon u/s 195. CIT(A) rightly held that no disallowance u/s 40(a)(i) can be made. CIT(A) has given a detailed finding and this issue is also decided in favour of the assessee in previous years, therefore, Ground No.3 is dismissed. - I.T.A. No. 2148/DEL/2015 - - - Dated:- 25-11-2019 - Sh. N. K. Billaiya, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ₹ 72,69,505/- u/s 14A r.w.r. 8D as assessee had made investment for earning dividend income of ₹ 3,57,17,899/-. The Assessing Officer also made disallowance of ₹ 84,22,535/- in respect of payments made to certain foreign parties by not deducting TDS on such payment. 5. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A) the CIT(A) allowed the appeal of the assessee. 6. The Ld. DR submitted that the Assessing Officer has rightly disallowed excessive commission paid to two of its Directors as per section 36(1)(ii) of the Act as companies should not avoid tax by distributing their profits to their members/shareholders as bonus or commission instead of dividend. The Ld. DR further submitted that in the instant case, it is clear that the profit which would have been paid otherwise to the Directors as dividend has been diverted in the form of commission. Thus commission paid to directors, shareholders is not allowable u/s 36(1)(ii) of the Act. As regards Ground No.2, the Ld. DR submitted that disallowance u/s 14A is justified as the assessee has total turnover of ₹ 100 crore and total investment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement with them. Keeping in view the above facts, I hold that the claim of the appellant in respect of the commission paid to the two Directors satisfies all the necessary conditions stipulated under Section 37(1) and is therefore, following the aforesaid order of ITAT, is held to be allowable. The Tribunal in assessee s own case for A.Ys. 2005-06 2006-07 being ITA Nos.3878/Del/2010 796/Del/2011 dated 25.01.2012 held as under: 17.3 We have carefully considered the submissions and perused the records. We find that assessee has paid commission to the Directors as part of the remuneration. In the agreement, it was clearly specified that commission is payable at 5% of the net profits of the company. Thus, the payment was duly approved by the Board of Directors. Further, we find that commission was paid in earlier years also and the same was accepted by the Revenue and hence, no disallowance was made. 17.4 We further find that Hon ble Jurisdictional High Court in the case CIT vs. Dalmia Promoters Developers (P) Ltd. 281 ITR 346 has held that for rejecting the view taken in earlier assessment years, there must be material change in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been excluded from the purview of Section 14A. Thirdly, the investment in PMS may yield both taxable and nontaxable incomes. Fourthly, it is also seen that the investment in equity shares made by the appellant in the earlier years amounting to ₹ 6,00,690/- remained the same and no further expenses were incurred during the year in respect thereof. Similarly, regarding the investment in Mutual Fund, it is seen that the appellant had continued with the same investments based on the decision taken in the earlier years. 6.6.3 In view of the above facts, it is evident that the Ld. AO has not examined the correctness of the claim of the appellant regarding amount of expenses disallowed by the appellant u/s 14A. Under the circumstances, keeping in view the decision of Hon'ble Delhi High Court in the case of CIT vs. Maxopp Investment 64 DTR 322 (Delhi) , in terms of the provision of Section 14A(2), the Ld. AO was not empowered to invoke the provision of Rule 8D without rejecting the correctness of the claim of appellant. I find that under the circumstances, the Hon'ble ITAT Delhi has allowed the appeal on this issue in favour of appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made payment to the following parties: Particulars Amount Gia Nam Investment Consulting Joint Stock 1,029,170 Bagaza Pius 6,668,080 El Gherani 343,907 Trading engineering group 381,378 Total 8,422,535 Out of this, the payment made to M/s Gia Nam Investment Consul ting Joint Stock, Vietnam was made in terms of contract with that company to assist that company in execution of contracts in Vietnam. The said company is a foreign company registered outside India and the technical services (designing services) provided by it were rendered outside India in connection with the 2 mining projects of appellant. As per Explanation-2 below Section 9(l)(vii), the term 'fee for technical services' does not include consideration for any constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. None of these companies can be held to have PE in India and it is not the case of the AO. Further, such services cannot be held as Management, technical and consultancy in nature hence, cannot be treated as FTS either. Keeping in view the above, there was no obligation on the appellant to deduct TDS thereon u/s 195. In view of the above, no disallowance u/s 40(a)(i) can be made in respect thereof. Accordingly, this ground is also allowed. The Tribunal in A.Y. 2005-06 2006-07 held as under: 17.6 As regards the contention of the Ld. Commissioner of Income Tax (Appeals) that amount is also to be disallowed u/s 40A(2)(a), because the payment to the assessee was unreasonable. We find that the same is not supported by any comparable instance. In what ITA NOS. 3878/Del/2010 796/DEL/2011 12 context it was unreasonable has not been brought on record, hence, this point of view is also not sustainable. From the perusal of the order of the CIT(A), it can be seen that the companies did not have any PE in India and it is not the case of the Assessing Officer that these companies have PE in India. Further, such services are not in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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