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Tax Publishers Interactive Avenues (P) Ltd. v. Dy. CIT [ITA No. 3130/Mum/19, dt. 1-12-2020] : 2020 TaxPub(DT) 5023 (Mum.-Trib.) Spend not claimed as expenditure but as pass through whether hit by section 40(a)(i) disallowance *Facts:* Assessee an ad agency was canvassing advertisements for Facebook Ireland from various customers for which they were in receipt of commission income. In a scrutiny assessment the assessing officer/Commissioner (Appeals) disallowed amounts paid to Facebook Ireland which was collected from various clients under section 40(a)(i) alleging that no TDS was done on these though TDS was applicable on the same. Assessee's plea was they never claimed this amount paid to Facebook as an expense rather it was an "in" and "out" of its books like a pass through income and expense. On appeal -- Held in favour of the assessee that no disallowance under section 40(a)(i) is warranted if there was no claim of expense in the first place. For the limited purpose of verification of the "in" and "out" pass through aspect of these amounts it was remanded to assessing officer. What is important to note is the ITAT refrained from opining on the taxability of the advertisement amount paid and applicability of interest and penalty provisions on TDS as well given the fact that Facebook Ireland was assessed to tax in Hyderabad. The same was left for adjudication appropriately if there was a liability to deduct TDS in the first place arising out of the checking in the remanded issue. The importance to point this is if Facebook Ireland is assessed to in Hyderabad the issue of existence of a PE also needs to be seen in which case a resident paying to a PE of a non-resident will definitely need to withhold tax is also one plausible view.

Tax Publishers

Interactive Avenues (P) Ltd. v. Dy. CIT [ITA No. 3130/Mum/19, dt. 1-12-2020] : 2020 TaxPub(DT) 5023 (Mum.-Trib.)

Spend not claimed as expenditure but as pass through whether hit by section 40(a)(i) disallowance

Facts:

Assessee an ad agency was canvassing advertisements for Facebook Ireland from various customers for which they were in receipt of commission income. In a scrutiny assessment the assessing officer/Commissioner (Appeals) disallowed amounts paid to Facebook Ireland which was collected from various clients under section 40(a)(i) alleging that no TDS was done on these though TDS was applicable on the same. Assessee's plea was they never claimed this amount paid to Facebook as an expense rather it was an "in" and "out" of its books like a pass through income and expense. On appeal --

Held in favour of the assessee that no disallowance under section 40(a)(i) is warranted if there was no claim of expense in the first place. For the limited purpose of verification of the "in" and "out" pass through aspect of these amounts it was remanded to assessing officer.

What is important to note is the ITAT refrained from opining on the taxability of the advertisement amount paid and applicability of interest and penalty provisions on TDS as well given the fact that Facebook Ireland was assessed to tax in Hyderabad. The same was left for adjudication appropriately if there was a liability to deduct TDS in the first place arising out of the checking in the remanded issue. The importance to point this is if Facebook Ireland is assessed to in Hyderabad the issue of existence of a PE also needs to be seen in which case a resident paying to a PE of a non-resident will definitely need to withhold tax is also one plausible view.