Kiri Industries Ltd. Vs DCIT (ITAT Ahmedabad)
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi for Assessment Year 2021–22.
The assessee raised multiple grounds challenging disallowances made by the Assessing Officer and confirmed by the CIT(A), including export commission payments, interest expenditure, and employees’ contribution to PF/ESI.
During assessment proceedings under sections 143(3) and 144B of the Income-tax Act, the Assessing Officer made three primary disallowances. First, commission expenses paid to non-resident agents for procuring export orders were disallowed under section 40(a)(i) on the ground that tax was not deducted at source under section 195. The Assessing Officer held that the right to receive commission arose in India and was therefore taxable in India under section 9(1)(i).
Second, interest expenditure was disallowed under section 36(1)(iii) on the basis that borrowed funds were used for capital work-in-progress (CWIP), requiring capitalization of proportionate interest until the assets were put to use. The Assessing Officer noted that the assessee had mixed funds and failed to establish a direct nexus between borrowings and business use.
Third, an addition was made under section 36(1)(va) read with section 2(24)(x) due to delayed deposit of employees’ contributions to PF and ESI beyond statutory due dates. Although the assessee had already disallowed a portion, the remaining amount was treated as income.
