DEPUTY COMMISSIONER OF INCOME TAX, FARIDABAD VS. M V AGRO ENGINEERS PRIVATE LIMITED, ITA 4149/DEL/2024
In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi “E” Bench, delivered a significant verdict dismissing an appeal filed by the Revenue. The core issue in the appeal centered on the admissibility of certain evidence by the Commissioner of Income Tax (Appeals) [CIT(A)] and the subsequent relief granted in relation to commission payments and salary expenses. This order highlights the ITAT’s stance on the importance of considering all relevant evidence in appellate proceedings and the correct application of income tax provisions related to expenses incurred outside India.
Background
The case originated from an assessment for the assessment year 2020-21, where the assessee, a Private Limited Domestic Company engaged in the business of manufacturing flour mills and rice mills, filed its return declaring a certain income. The assessee had entered into a contract with the Federal Ministry of Agriculture and Rural Development of Nigeria for the supply, installation, and setup of rice mills in Nigeria. The contract was divided into three segments: civil works, procurement of equipment and machinery, and local components like transportation and installation.
AO’s Findings
During the assessment proceedings, the Assessing Officer (AO) raised concerns regarding commission expenses and salary expenses claimed by the assessee.
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Commission Expenses: The AO observed discrepancies in the commission expenses claimed and the supporting evidence provided, leading to a disallowance.
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Salary Expenses: The AO also disallowed salary expenses incurred outside India, citing the assessee’s failure to deduct Tax Deducted at Source (TDS) on these payments.
CIT(A)’s Decision
The assessee appealed these disallowances before the CIT(A), which ruled in favor of the assessee. The CIT(A) admitted additional evidence and যুক্তি that:
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Regarding the salary expenses, since the salaries were paid to non-residents for services rendered outside India, the provisions requiring TDS deduction did not apply.
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Concerning the commission expenses, the CIT(A) examined the reconciliation statements and other evidence and found that the AO had made errors in calculating the disallowance.
ITAT’s Decision
The Revenue then appealed the CIT(A)’s order before the ITAT. The ITAT, however, dismissed the Revenue’s appeal, upholding the CIT(A)’s decision.
The ITAT’s key observations were:
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The CIT(A) had duly considered the facts and evidence presented.
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The disallowance of salary expenses was based on a misinterpretation of the law, as the salary payments were made to non-residents for services rendered outside India and hence, not taxable in India.
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The CIT(A) had properly analyzed the reconciliation of commission expenses and corrected the AO’s errors.
In essence, the ITAT affirmed that the CIT(A) acted judiciously in admitting and considering the additional evidence and rightly concluded on the issues of commission expenses and salary payments.