JMC Projects (India) Ltd. Vs ACIT (ITAT Ahmedabad)
Conclusion: Disallowance of Tax Deducted at Source (TDS) under Section 40(a)(i) by AO was not justified as assessment under Section 153A was invalid due to the absence of incriminating evidence.
Held: Assessee had entered into a contract with Bemo Project Engineering LLC for the design, supply, and installation of roofing for the indoor cycling Velodrome at Indira Gandhi Stadium, New Delhi. The contract, according to the MoU, was indivisible, with Bemo responsible for both the materials and services. AO noted that under the India-UAE DTAA, a permanent establishment (PE) could be created if a project lasted over nine months. Since Bemo worked in India for more than one and a half years, AO concluded that Bemo had a PE in India, making it subject to Indian tax laws. As a result, assessee was required to deduct TDS on payments made to Bemo. AO invoked Section 40(a)(i) for non-deduction of tax on Rs. 12,69,79,006, disallowing the deduction. AO did not focus on Section 195, which deals with the obligation to deduct tax but highlighted the non-compliance under Section 40(a)(i). Assessee argued that the payments were mainly for the import of materials, which should not attract TDS under Section 40(a)(i). CIT(A) upheld the disallowance under Section 40(a)(i) and rejected the appeal. It was held that no incriminating material was found during the search to justify the assessment under Section 153A, therfore, the same was invalid. As a result, the appeal was allowed on legal grounds without examining the disallowance under Section 40(a)(i).
