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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-6, Ahmedabad dated 23.02.2017 pertaining to A.Y. 2010-11 and following grounds have been taken:
2 . A.Y. 2010-11 1.1 The order passed u/s.250 on 23.02.2017 for A.Y.2010-11 by CIT(A)-6, Abad, upholding the disallowance of commission expenses of Rs 1.30 Cr. U/s.37(l) is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. The Ld. CIT(A) has completely ignored the written submissions filed and evidence produced from time to time (including on 25.01.2017) with regard to impugned disallowance and making erroneous observations contrary to the evidence on record. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in confirming the disallowance of foreign commission expenses of Rs. 1.30 cr. U/s. 37(1). 2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) ought not to have confirmed the disallowance of foreign commission expenses of Rs.1.30 Cr. u/s.37(l) . 3.1 The Id. CIT(A) has erred in law and on facts in upholding the aforesaid disallowance without giving any notice to the effect that the disallowance was being confirmed u/s.37(l) instead of section 40(a)(ia) made by AO.
2 Facts of the case are that the appellant is a partnership firm and derives income by way of manufacture & sale of three Dobule Roller Ginning Machines. It had filed its E-return of income for A.Y. 2010-11 on 26.05.2011.
3 During the course of assessment proceedings, ld. A.O. notice that appellant had made export of machineries and allied goods to M/s. Ugaply Industries Ltd. of Uganda and had paid commission of Rs. 1.30 crore to M/s. K R K Investment Ltd. at Kampala, Uganda. The A.O. further noticed that appellant had not made 3 . A.Y. 2010-11 TDS on the said payment so that it was not permissible u/s. 40(a)(i) and made addition of Rs. 1.30 crores.
4 Thereafter, assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the action of the Assessing Officer.
5 We have gone through the relevant record and impugned order. That appellant paid a commission of Rs. 1.30 crores to M/s. K R K Investment Ltd. at Uganda but had not made TDS on the said payment. Lower authorities were of the opinion that appellant ought to have deducted tax at source for which it failed to do so and same is contravention of the Act.
6 As we can see, that payee had no permanent establishment or any business connection in India and no income has been earned in India. In Circular No. 786 dated 7.2.2000 CBDT has made it clear that if the foreign agents operates outside the country, no party of such income arises in India so that withholding tax u/s. 194 on export commission is not required to be made.
7 The Hon’ble Delhi High Court has held in the matter of CIT vs. Eon Technology (P) Ltd. 343 ITR 366 it is held that the sales commission paid to the holding company on the sales and amounts realized on export contract was not disallowable u/s. 40(a)(i) since the non-resident agent operated outside the country and no part of his income arises in India. In this case in hand, that assessee/ appellant has filed Certificate of Incorporation paid effect that M/s. KRK Investments Ltd. is the registered and incorporated in Uganda and payment has been made in foreign currency. And appellant has also filed a copy of agreement between KRK Investments and the appellant company same is part of paper book 4 . A.Y. 2010-11 at page no.
Since a payment of commission to whom is made is not having any P.E. in India, hence in view of the CBDT Circular and judgment of Delhi High Court, appellant is not liable to deduct tax. Therefore, appeal of the Assessee is allowed.
8 In the result, appeal of the Assessee is allowed.
Order pronounced in Open Court on 08- 07- 2019