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Section 28, 30, 37, 40, 194H of Income Tax Act, 1961— Disallowance of expenses—With respect to disallowance u/s 40(a)(ia) of the act, it is a transaction on principal to principal basis and, therefore, the payment made by the dealer is not liable for any deduction of tax by the assessee company. Therefore, in the facts of the case, the provisions of section 40(a)(ia) of the Act cannot be applied as the dealer cannot be said to be a commission agent of the assessee company.

Shanti Prime Publication Pvt. Ltd.

Section 28, 30, 37, 40, 194H of Income Tax Act, 1961— Disallowance of expenses— In the instant case, appeal is filed by assessee against the order passed by ITAT and proposed following question for consideration—

Whether ITAT has erred in upholding the deletion of addition on account of disallowance of expenses on consumption and replacement of stores and spares treating the same as revenue expenditure instead of capital expenditure?
Whether ITAT has erred in deleting addition on account of loss on sale of fertilizer bonds treating it as business loss and instead of capital loss?
Whether ITAT has erred in deleting the disallowance u/s.40(a)(ia) in respect of commission payment to dealers, the AO made the disallowance by invoking the section 194(H) of the act.

Held that— This Court while answering the first question as regards the disallowance of the expenses on consumption and replacement of stores and spares treating the same as revenue expenditure instead of capital expenditure.

With respect to the deletion of loss on sale of fertilizer bond, the fertilizer bonds which were given by the Central Government in lieu of the subsidy when the same was sold at a lower price and the assessee suffered loss, the same was required to be allowed as business loss incurred and it cannot be treated as capital.

With respect to disallowance u/s 40(a)(ia) of the act, it is a transaction on principal to principal basis and, therefore, the payment made by the dealer is not liable for any deduction of tax by the assessee company. Therefore, in the facts of the case, the provisions of section 40(a)(ia) of the Act cannot be applied as the dealer cannot be said to be a commission agent of the assessee company.” [THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-3 VERSUS M/S GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LTD.][2019] 15 ITCD Online (53) [GUJARAT HIGH COURT]

Section 28, 30, 37, 40, 194H of Income Tax Act, 1961— Disallowance of expenses—With respect to disallowance u/s 40(a)(ia) of the act, it is a transaction on principal to principal basis and, therefore, the payment made by the dealer is not liable for any deduction of tax by the assessee company. Therefore, in the facts of the case, the provisions of section 40(a)(ia) of the Act cannot be applied as the dealer cannot be said to be a commission agent of the assessee company.

Shanti Prime Publication Pvt. Ltd.

Whether ITAT has erred in upholding the deletion of addition on account of disallowance of expenses on consumption and replacement of stores and spares treating the same as revenue expenditure instead of capital expenditure?
Whether ITAT has erred in deleting addition on account of loss on sale of fertilizer bonds treating it as business loss and instead of capital loss?
Whether ITAT has erred in deleting the disallowance u/s.40(a)(ia) in respect of commission payment to dealers, the AO made the disallowance by invoking the section 194(H) of the act.