K PATEL CHEMO PHARMA PRIVATE LIMITED,ANKLESHWAR vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(2), AHMEDABAD

Both the appeals involve common question towards disallowance of commission expenses paid to one K N Mehta, Sharjah UAE. Accordingly, both the appeals are being disposed of by common order. & 2915/Ahd/17 [K Patel Chemo Pharma Pvt. Ltd.] A.Ys. 2013-14 & 2014-15 - 2 -

We shall first take the facts concerning AY 2013-14 in for adjudication purposes.

Briefly stated, the assessee, a private limited company, derives income from manufacturing of dyes, pigments and chemicals etc. and declared total income of Rs.13.50 Crores for the purposes of taxation. The AO inter alia disallowed commission expenses amounting to Rs.2,97,463/- paid to K N Mehta, Sharjah UAE by invoking Section 40(a)(ia) of the Act for non-deduction of TDS.

The CIT(A), in first appeal, however sustained the action of the AO by resorting to Section 37(1) of the Act instead of disallowance under s.40(a)(ia) of the Act.

Aggrieved by the action of the CIT(A), the assessee is in appeal before the Tribunal.

We have heard the rival submissions on the issue. On perusal of the order of the CIT(A) and material placed on record before the Tribunal, we notice that the commission payment of Rs.2.97 Lakhs has been paid to K N Mehta, non-resident foreign agent for facilitating export sales outside India. The commission so paid to the non-resident is thus with reference to services rendered outside India for obtaining export orders. The foreign agent is stated to be not carrying any business operation in India and therefore no income can be stated to accrue or arise in India. It is trite that in the absence of any chargeability of income under s.4 r.w.s. 5(2) of the Act, the provisions of Section 195 of the Act will not apply. A reference may be made to the decision of the Hon’ble Supreme Court in GE India Technology Cen. (P.) Ltd. vs. CIT (2010) 193 Taxman 234 (SC) in this regard. Thus, obligations for deduction withholding tax could not be fastened on the assessee. We also find that the assessee has produced documentary evidences in the form of sample copy of e-mail exchanged between the assessee and commission agent, transaction advices of the & 2915/Ahd/17 [K Patel Chemo Pharma Pvt. Ltd.] A.Ys. 2013-14 & 2014-15 - 3 - bank, debit note/commission invoice of the parties, Form No.15CB as submitted to the bank making remittances etc. In the background of the aforesaid evidences to support the occurrence of expenditure, we are unable to understand the action of the CIT(A) in holding that such documents do not establish the identity and genuineness of the claim. The action of the CIT(A) in upholding the disallowance appears to be without any cogent basis. We accordingly set aside the impugned action of the Revenue and direct the AO to allow the commission expenses in question.

In the result, appeal of the assessee for AY 2013-14 is allowed.

The facts situation in being similar, the AO is directed to allow the commission of Rs.39,40,158/- in question.

In the combined result, both appeals filed by the assessee are allowed.