a)The assessee, a non-banking financial company, made payment to non-resident for providing engineering site services but did not deduct tax at the time of payment. The Assessing Officer disallowed the entire payment made by the assessee.
b)The assessee submitted that no disallowance could be made as it had not claimed said payment as expenditure but capitalized it and only depreciation was claimed thereon.
c)On appeal, the CIT(A) upheld order of the Assessing Officer. The aggrieved assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
1)The payment made to non-resident for technical services was admittedly taxable in India, therefore, the assessee was bound to deduct tax at source. The assessee could claim the same as expenditure. However, such claim of expenditure could be allowed only in case the assessee deducted the tax at the time of payment.
2)In the instant case, the deduction was not claimed as expenditure while computing the income chargeable to tax. The CIT(A) observed that irrespective of the fact whether the assessee had claimed deduction or not disallowance had to be made since tax was not deducted.
3)Both the authorities had not examined whether the amount paid to the non- resident was deducted while computing the income chargeable to tax or not. The language of section 40 clearly provides that the amount paid to non-resident (on which tax is not deducted) shall not be deducted while computing the income chargeable to tax.
4)Therefore, if the assessee had not deducted the amount (i.e., claimed it as expenditure) while computing the chargeable income, there was no necessity for further disallowance. - Muthoot Finance Ltd. v. ACIT  49 taxmann.com 580 (Cochin - Trib.)