KARNAVATI ENGINEERING LTD.,,AHMEDABAD vs. THE DCIT,(OSD)-1, CIRCLE-4, AHMEDABAD

Shri Parin Shah, AR Appellant by : Respondent by : Shri Vidyut Trivedi, Sr. D.R. Date of Hearing 29.01.2020 Date of Pronouncement 31.01.2020 O R D E R

PER Ms. MADHUMITA ROY - JM:

During the course of appellate proceeding the appellant has stated that out of the commission of Rs. 41,47,623/- the commission of Rs. 19,43,172/- has been paid to the Indian resident agents on which TDS has been deducted. In support of his case the appellant also submitted the relevant copies of the invoices along with the challan of deposit of tax and the copy of Form No. 16A thereon. The appellant further submitted Form No. 15CA & 15CB in regard to the commission paid to five non- resident agents to the tune of Rs. 9,64,467/-. The bank statement and the debit note of the foreign agents were also submitted certifying that these agents do not have permanent establishment in India. Apart from that, the appellant submitted that payment to same agents have been made in the subsequent year to the tune of Rs. 12,39,984/- where the commission has been paid in the next year. The Ld. AO added to the total income the assessee which was further confirmed by the Ld. CIT(A). Hence, the appeal before us.

Karnavati Engineering Ltd. vs. DC IT Asst.Year –2011-12 - 3 - 4. At the time of the hearing of the instant appeal the Ld. AR submitted before us that the case is squarely covered in assessee’s own case by the Co-ordinate Bench for A.Y. 2010-11 in a copy whereof as also been submitted before us. The Ld. Co-ordinate Bench has been decided the issue in favour of the assessee holding that when the expenses has not claimed twice the disallowance is not permissible only on the ground that such expenses pertains to earlier year.

It is the case of the assessee that since the said commission is not taxable in the hands of the non-resident agent in India, the appellant is not liable to deduct any tax under section 195 of the Act. The appellant pays commission to foreign agents on the export orders procured by the appellant through them and such commission is directly remitted by the appellant to the overseas bank account to the respective foreign agents. It appears from the records that the details of such commission paid to the non-resident foreign agents were also been provided before the authorities below. The appellant further stated that only upon obtaining from Chartered Accountant’s certificate in Form 15CB ensuring that no tax is liable to be deducted while making the payments to non-resident

Karnavati Engineering Ltd. vs. DC IT Asst.Year –2011-12 - 4 - agents and the declaration from the non-resident agents that they do not have any permanent establishment in India commission expenses were made. The Form No. 15CA & 15CB in this regard along with such certificate is also on record before us.

Upon taking into consideration the entire aspect of the matter and upon perusal of the documents as mentioned hereinabove when we find that services were rendered outside India and also utilized outside India hence payments were made to those parties abroad. Under these facts and circumstances of the case when the income has not accrued in India the same is not liable to be taxed, the question of deducting TDS on it does not arise at all. Further that the assessee is following the mercantile system of accounting, though the expenses pertain to an earlier year the liability was determined and crystalized in the year of consideration & disallowing such expenses in not permissible in law.

We have further carefully considered the judgment passed by the Co-ordinate Bench in in assessee’s own case. While dealing with the identical issue, the Hon’ble Bench has been pleased to observe as follows:-

“9. We find that Hon’ble jurisdictional High Court, in the case of Saurashtra Cement & Chemical Industries ltd. VS CIT [(1995) 213 ITR 523(Guj.)] has, inter alia, observed that “Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis” but that is precisely what has been upheld in the impugned order. It is not the case of revenue that the expenses have been claimed twice but the short ground of disallowance is that since the expenses

Karnavati Engineering Ltd. vs. DC IT Asst.Year –2011-12 - 5 - pertain to an earlier year, these expenses cannot be allowed. That approach is impermissible in law. In view of these discussions as also bearing in mind entirety of the case, we uphold the plea of the assessee and direct the Assessing Officer to delete the impugned disallowance of Rs. 1,63,623/-.” Respectfully relying upon the same we find no justification in disallowing the amount of Rs. 12,39,984/- under section 40(a)(i).We, thus, delete the same.