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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘D’
Before: SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R PER PRADIP KUMAR KEDIA- AM:
The captioned appeal has been filed at the instance of revenue against the order of the Commissioner of Income Tax (Appeals)-2, Ahmedabad (CIT(A)in short) dated 11/11/2016 relevant to the assessment year 2013-14. In the Revenue’s appeal, the assessee has also filed cross objection captioned above.
As per the grounds of appeal, the Revenue has challenged the action of the CIT(A) in deleting the disallowance under section 40(a)(i) of the Act on account of export commission amounting to Rs.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 2 1,62,09,377/-for non-deduction of tax deducted at source or under Section 37 of the Act.
Briefly stated, the assessee, an Indian company, is stated to be engaged in the manufacturing and trading of dyes and colours. During the year under consideration, the assessee claims to have received sale orders from parties located abroad through foreign agents. On receipt of the orders so arranged by the foreign agents, the material was shipped and commission became payable to the said agents. In the course of the scrutiny assessment, the Assessing Officer (AO) noticed that the assessee has debited expenses toward such export commission. The AO made enquiries in this regard and was of the view that the commission expenses could not be substantiated by the assessee. The AO accordingly disallowed the commission expenses amounting to Rs. 2,00,97,986/- claim under Section 37(1) of the Act. Coupled with this, the AO also noted that the assessee failed to deduct the tax on commission payment to non-resident foreign agents having regard to the provision of the Section 195 of the Act. The AO accordingly invoked provision of Section 40(a)(i) of the Act and disallowed the commission expenses on the grounds of non-deduction of TDS as well. As a result, the assessee income was increased by AO to this extent.
Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) took note of the detailed written submission made on behalf of the assessee and also the remand report called from from the AO in this regard. The CIT(A) also took into account several evidences filed by way of additional evidences after confronting the same to the AO. After taking note of various documentary evidences and position of law prevailing in this regard, the CIT(A) found lack of justification in the action of the AO and held that the Commission expenses so claimed by assessee could not be disallowed. The CIT(A) accordingly reversed the
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 3 action of the AO by way of decision making process as reproduced below;
“3.5. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of foreign commission payments amounting to Rs.2,00,97,896/- for the reason that the appellant has failed to furnish the complete details about the identity of the persons to whom foreign commission payments were made, the copy of agreement with the foreign agents and also failed to prove nature of services rendered to the appellant. The appellant even did not make the TDS on the aforesaid payments, and therefore, the AO also invoked the provisions of section 40(a)(ia) of the I.T. Act, for non-deduction of TDS u/s. 195 of the I.T. Act,1961. In absence of any proof, evidences, justification the commission payment, the entire expenditure debited by the assessee was not found justified and the same was disallowed. 3.6 It has been noticed that in the assessment proceedings, the appellant only submitted that the appellant was not under any liability of TDS because none of the services were rendered in India. It was also claimed that the payment to the commission agents were made in their account maintained outside India in foreign currency. The commission payments were well within the limits prescribed by RBI and all such remittances were made through permitted banking channels. The appellant has submitted the complete set of emails provided along with invoice copies and bank payment advisories in order to prove the genuineness of the transaction and also the bank payment details as a proof of sales recorded by the appellant. It has also submitted the list of commission expenses recorded along with calculation of outstanding at the closing exchange rate along with local commission payment. All the aforesaid details have been submitted to the AO in the assessment proceedings which were not found acceptable by the AO. 3.7. As discussed in the preceding paras, in the present appellate proceedings, the appellant submitted the additional evidences in the form of various details and evidences which are noted as under:- a) The ledger account of Commission Expenses b) Application the Bank for Remitting the Commission to the Commission Agent alongwith the Debit Note of the Agent and the Form No. 15CB c) Bank Advice of the Remittance of Commission to the Commission Agent d) The ledger account of Commission Expenses Payable which have been paid in the subsequent year
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 4 e) Application the Bank for Remitting the Commission to the Commission Agent alongwith the Debit Note of the Agent and the Form No. 15CB f) Bank Advice of the Remittance of Commission to the Commission Agent g) Commission Agreement with the various commission agents for the F.Y. 2012-13 h) No PE Declaration of the various commission agents
3.8. The AO has objected to the admission of the additional evidences the support of judgment of Hon'ble Gujarat High Court in the case of Fairdeal Filaments Pvt. Ltd. Vs. CIT (Supra). However, it has been noticed that the judgment relied upon by the AO is on different facts and pertains to the period before amendment in Section 251 w.e.f. 01/06/2003 under which CIT(A) has no powers to set aside as he had prior to 01/06/2003. Nowhere it has been alleged by the AO that the appellant was negligent, non-cooperative and recalcitrant during the assessment proceedings in submission of the additional evidences noted above.
3.9. The appellant has submitted the aforesaid additional evidences in support of the various details and evidences submitted during the course of assessment proceedings. These additional evidences submitted were going into the roots of the issue under consideration and therefore, as a principle of natural justice and equity and to impart the justice, the additional evidences submitted are admitted respectfully following the judgments of Hon'ble Courts briefly discussed below and same are considered while deciding the issue in the subsequent paras. - Anmol Colour India Pvt. Ltd. Vs. ITO 31 SOT 18 (JP) 121TTJ 269 whereby it has been held that the powers of the first appellate authority are very wide and coterminous with those of the Assessing Officer and what AO can do he can do and what AO face to do that also he can do.
- CIT Vs. Khanpur Cool Synthicate (1964) 53 ITR 225 (SC) whereby it has been held that Section 250(4) empowers the CIT(A) to make further inquiries on its own or to direct the A.O. to make further inquiry and to report him.
- CIT Vs. K. Ravindranathan Nair (2003) 131 Taxman 743 (Ker.) whereby it has been held that the CIT(A) was not justified in rejecting the admission of confirmatory letters straight way on the plea that the evidences was not filed before the A.O. This ratio squarely applies on the facts on the present case in as much as here also A.O.'s allegation was that the evidences were not filed before him which is not justified ground for rejection.
- Smt. Prabhavati Shah Vs. CIT (1998) 231 ITR 1 (Bom.)
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 5 - CIT Vs. Suretech Hospital & Research Centre Ltd. (2007) 293 ITR 53 whereby it has been held that the finding recorded by the Tribunal that documents produced by the appellant before the CIT(A) were necessary for disposal of the appeal on merits it was justified in holding that the CIT(A) ought to have exercised its power to admit additional evidences. In the instant case the certificate of the IRCTC and the certificate of the Chartered Accountant of the IRCTC in Form No.26A in respect to Rule 31ACB was necessary to be considered for disposal of the appeal on merits.
- ACIT Vs. Jogindersingh ITA No. 2942/Delhi/2011 (Hon'ble Delhi ITAT)
- Ashokkumar B. Patel in ITA No. 1804/Ahd/2009 (Hon'ble ITAT, Ahmedabad) has held that the purpose of Rule-46A is to ensure that there is no miscarriage of justice and though exception provided in Rule-46A did not exist the evidences should be admitted after affording opportunity to the A.O.
- Keshav Mills Co. Ltd. Vs. CIT (1965) 56 ITR 365 - Hon'ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Kamlaben Sureshchandra Bhati (2014) 44 Taxmann.com 459 - have held that the admission of additional evidences could not be stated to be in breach of requirement of Rule 46A, particularly when interest of revenue was safeguarded by calling for remand report and permitting AO to comment on such additional evidences.
3.10. Further, on going through the facts of the case, it is seen that the identical issue on similar facts in appellant's own case has been decided by my predecessor CIT(A)-2, Ahmedabad for A. Y. 2010-11 vide its Appellate Order No. CIT(A)-2/DCIT(OSD)-I,Cir.4/27/13-14 dated 30/03/2015 in favour of the appellant. For ready reference, the relevant extract of the decision is reproduced hereunder:- "3.3. Decision:
I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed the commission paid to foreign agents by holding that the income arising on account of commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the provisions of section 5 (2)(b) read with section 9 (1)(i) of Income Tax Act. It has further been observed by the AO that the appellant company had failed to comply with the provisions of section 195(2) of the Act. He has also held, without prejudice to the main findings that the appellant had also failed to prove that the commissions paid to the agents were genuine and justified.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 6 The appellant on the other hand, in its detailed written submission, has claimed that the Provisions of Section 5(2) (b) read with section 9(1)(i) of Income Tax Act were not applicable in its case. The income has been earned abroad and is, therefore, not taxable in India. It has also given detailed evidences to prove that the commission paid was genuine.
The issues which are to be examined and decided are: -
Whether the commission paid to foreign agents is taxable in India by virtue of the provisions of sections (2)(b) read with section 9 (1)(i) of Income Tax Act. 2. Whether the provisions of section 195(2) were applicable on the appellant and it should have deducted tax and in case of no deduction he should have obtained a no deduction certificate from the AO.
Whether the commission paid was genuine and the services have been rendered.
2.3.1 Regarding the first issue, it is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in their country or for the country for which they have been appointed as commission agents. None of the activity of soliciting the clients and procuring the orders is in India. The goods are being delivered by the appellant company in the other country. The activities of procuring the payment on behalf of the appellant company are also done abroad. The AO was, therefore, not right in holding that the source of income lies in India as the sales have been made from India. The provisions of Income Tax Act clearly provide that the tax would be deducted on the income which is taxable in India. The activity of earning the income is not the sale but soliciting the sales by commission agents. Though this activity is linked to the sales of the company, but it cannot be said that the income has been derived from sales which has been made from India. The income has been derived from the activity of soliciting the sales on behalf of the appellant company. The agents have carried out all the activity on the foreign soil and none of their activity is in India. Therefore, it cannot be said that the income has accrued or arisen in India and the source of income was in India. There is no fact brought out by the AO in the order as well as observed by me during the course of appellate proceedings to indicate that the services have been rendered in India.
The appellant has rightly relied on the judgment of honourable Supreme Court in the case of Toshoku (supra) wherein it has been held that commission earned by the non-resident for acting
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 7 as the selling agent for the Indian exporter, wherein such non- resident was rendering services from outside India does not accrue in India. In the present case before me also, the foreign selling commission agent is resident of foreign country, from where the procurement service has been provided for which the commission has been paid, and, therefore, the issue is directly and squarely covered by the Apex Court decision.
Regarding the observation of the AO that the income is deemed to accrue or arise in India by applying the provisions of section 9 (1)(i), it is seen that there is no fact on record to indicate that any of the agents had any permanent establishment in India. All the agents had their offices on the foreign soil and the correspondence which has been placed before me do not indicate that they had any PE in India. Further, the Assessing Officer has also not pointed out any such fact in its order which indicate that there was any such office which attracts the deeming provisions. Further, the observation that the source of income was in India, is also not proper as it has clearly been discussed in the preceding paragraphs that none of the services have been rendered in India and source of income cannot be said to be in India as the source of income is the services rendered and not the sales. There is no business connection in India from which the income has been earned, there is no property through or from which the income has been earned. Therefore, the provisions of Section 9(1)(i) also cannot be applied. The appellant has rightly placed reliance on the judgment of honourable Supreme Court in the case of GE India Technology Centre Private Limited 327 ITR 456. In a recent judgment of honourable ITAT Chennai bench in the case of I M Gears Private Limited, 49 taxmann.com 175, it has been held that no tax was deductible at source on commission payment to overseas agent for procuring orders, as said services not being in nature of technical services, payments in question were not taxable in India. In the present case also the services rendered by the agents of the appellant to whom the commission payment has been made, are in the nature of soliciting orders for the appellant and no other services, which can be categorized as technical services, have been offered. The reliance is also placed on the judgment of Honourable Gujarat High Court in the case of Vinayak Exports [Tax Appeal No.404 of 2011 dt. 12.06.12] and the judgment of Bangalore Bench of ITAT in the case of Exotic Fruits P. Ltd. vs. ITO (INTL)[40 Taxman.com 348].
Recently the honourable High Court of Rajasthan has also expressed similar opinion in the case of Modern Insulators Ltd [2015] 55 taxmann.com 260 (Rajasthan).
Therefore, in view of the preceding discussion, the AO was not justified to hold that the commission payable to the overseas agents was deemed to accrue or arise in India and is taxable
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 8 under the Act in view of the specific Provisions of sections 5 (2)(b) read with section 9 (1) (i) of Income Tax Act.
2.3.2 Regarding the issue of obtaining no deduction certificate under section 195, it is seen that for the applicability of the provisions of this section, the sum must be chargeable under the provisions of the Income Tax Act. Section 195 provides for deduction of tax by the person responsible for paying to a non- resident any interest or any other sum chargeable under the provisions of the Act. It is clear that the payment was not the interest. It has to be seen whether the payment is covered under the term "any other sum chargeable under the provision of this Act". It has been observed in the preceding discussion that income was not chargeable to tax as it has not been received in India nor it has accrued or arisen in India directly or indirectly. Therefore, once the income is not taxable there is no liability to deduct tax and, therefore, it was not obligatory for the appellant to deduct tax. In view of this, there was no violation of the provisions of section 195 and the appellant also was not required to pay no deduction certificate from the AO.
The issue whether the payer has to apply for a certificate under section 195, if some payment has been made, has been considered by various courts. The special bench of Chennai ITAT in the case of Prasad Productions reported in 125 ITD 263 has held in para- 35 of the order that if the assessee has not applied to the Assessing Officer under section 195(2) for deduction of tax at a lower or nil rate of tax under a bona fide belief that no part of the payment made to the non-resident is chargeable to tax, then he is not under any statutory obligation to deduct tax at source on any part thereof. While deciding the case, the honourable Bench has considered several cases which were relevant to the issue. In the present case the appellant did not deduct the tax or approached the AO for low/no deduction of tax certificate as there are several judicial pronouncements in support of the appellant which have been relied by it in the written submission. It has been submitted that the commission paid to non-resident agent was not liable to tax under the Provisions of the Act when the services were rendered outside India, services were used outside India, payments were made outside India and there was no permanent establishment or business connection in India. The submission given by the appellant clearly demonstrates its bona fide belief.
Therefore, considering the above discussion, there was no liability on the part of the appellant to deduct tax under section 195 of the Act or approach the I.T. Authorities for no deduction tax certificate.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 9 2.3.3 The last issue which is to be adjudicated is that whether the commission payment was genuine and the services were rendered. The AO has briefly dealt with the issue in Para- 5 of his order. The appellant, during the course of appellate proceedings, has submitted evidences which could not be produced during the course of assessment proceedings. The evidences were in the nature of various email correspondences which were undertaken by the appellant with various commission agents regarding the payments and also the bills in respect of which commission has been paid. It has also submitted various debit notes issued by different agents to whom the commission have been paid. Various evidences submitted by the appellant were forwarded to the AO for its comments an observation. The reports given by the AO vide its letter dated 21/10/2014 and 17/02/2015 have been reproduced in the preceding pages of this order. As discussed earlier, the evidence submitted by the appellant has been admitted as sufficient opportunity was not given during the course of assessment proceedings to produce the evidences in respect of the rendering of services. The AO has commented in its remand report on the details given by the appellant. She has not pointed out any prima facie discrepancy in the evidences. It has been reported by her that the appellant has submitted e-mails and unsigned invoices raised on the foreign parties to whom the sales have been executed but has not furnished any documents such as bank statements, commission agreements and the rate of commission fixed on the foreign sales, which can prove that the appellant had paid commission on foreign sales. The AO has further submitted that the unsigned invoices furnished by the appellant for making the sale does not have any authenticity in absence of the signature by the authorised persons or seal of the company. The objection raised by the AO has been considered. It is noted that the sales made by the appellant were fully accounted and it has only produced copies of those invoices through which the sales have been made. Since these are only copies of the invoices there was no requirement of any signature. The AO could have called for the books of account and verified the authenticity of the invoices produced by the appellant before him during the remand proceedings. It is also noted that the commission has been paid through banking channel and the invoices for commission remittances clearly mentions the sale invoice number against which the commission is being paid. Further, the e-mails received from the commission agents are supporting evidences which show that the commission has been paid on the invoices which are mentioned in the e-mails. All the evidences produced are getting corroborated with each other. In view of these evidences, I am of the considered opinion that the appellant has also furnished sufficient evidence to prove that the services have also been rendered by the agents to whom commission payment has been made.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 10 The AO has also placed reliance on the decision of Hon'ble Authority of Advance Rulings in the case of SKF Boilers and Driers (P.) Ltd. (2012)18 Taxmann 325 and Rajive Malhotra (2006) 284 ITR 564 (Delhi). The judgments are not applicable to the present facts as there are several other decisions which hold that such kind of commission is not taxable in India and accordingly no liability to deduct tax was there. Further, the decision of honourable Supreme Court of India in the case of CIT vs. Toshoku Limited 125 ITR 525, still prevails as on date and is the law of the land as regards applicability of IDS provisions to commission paid to overseas/nonresident agents by Indian Exporters.
In view of the preceding discussion, it is clear that the appellant was not liable to deduct tax on the commission paid foreign agents. Therefore, the disallowance of Rs. 28,24,281/- under section 40(a)(ia) made by the AO is directed to be deleted.
The ground of appeal is accordingly allowed."
3.11. Since the appellant has submitted the complete details about the nature of services rendered, genuineness of the claim and the copies of the invoices of the commission agents establishing the identity of the commission agents, bank advice / remittance of commission to the agents, commission agreements with the agents and also declaration from the agents about their non existence of PE in India, amply establishes the genuineness of the claim of commission to the agents. The AO has not given any adverse comments upon the merits over the issue on the additional evidences available before him in the remand proceedings. In absence of the same, the additional evidences and the details and evidences submitted during the assessment proceedings remained unrebutted. Thus, the AO's objection in this regard is found not correct. Moreover, the provisions of section 40(a)(ia) are also not applicable for the reason that the AO has not established that the services by the agents have been rendered in India or the agents have the business connection or permanent establishment in India. More particularly, when the certificate by the agents about their non existence of the PE in India and agreement with commission agents for providing the services outside India have been submitted by the appellant which have not been rebutted at all. In view of the above, the provisions of section 40(a)(ia) are not applicable as no liability to deduct the TDS u/s. 195 has arisen in the hands of the appellant. The detailed discussion in this regard has been made in CIT[A)'s appellate order for A. Y. 2010-11 in appellant's own case which has been reproduced in the preceding paras of this order and following the same, the disallowance of commission payment is found not correct. Therefore, in view of the preceding discussion the AO was not justified to hold that the commission payable to the overseas agents was deemed to accrue or arise in India and is taxable under the Act in
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 11 view of the specific provisions of sections 5 (2)(b) read with section 9 (1)(i) of Income Tax Act and hence, the same is deleted. 3.12. Reliance is placed on the judgment of honourable Supreme Court in the case of GE India Technology Centre Private Limited 327 ITR 456 and the judgment of honourable ITAT Mumbai in the case of our Ardesi B Cursetjee & Sons Ltd. 115 TTJ 916. 3.12.1. Recently the Hon'bie Madras High Court in the case of CIT, Chennai Vs. Farida Leather Company in Tax Appeal No. 484 of 2015 dated 20/01/2016 has held that the commission payment by the assessee to non - resident agents for services rendered by them outside India in procuring export orders for assessee would not partake character of fees for technical services as explained In context of section 9(1)(vii) and therefore, provisions of section 195 would not apply. • ACIT Vs.Modern Insulators Ltd. [56 DTR 362 (Jaipur Trib.)] • Ishikawajama - Harlma Heavy Industries Ltd. Vs. Director of Income Tax [207 CTR 361] • Dy. Commissioner of Income Tax Vs. Dlvi's Laboratories Ltd. [(2011) 60 DTR (Hyd) (Trib) 210] • ITO, International Taxation, Chennai Vs. Prasad Production [(2010) 125 ITD 263 Chennai) (SB) • ACIT, Circle - 16(3)(Hyderabad-Trib) vs. Priyadarshini Spinning Mills (P.) Ltd. (2012) ITA No, 1776 (2011) • ACIT (International Taxation) vs. Star Cruise India Travel Services Pvt. Ltd. [14 ITR (T) 282 (Mum.) • CLSA Limited vs. ITO (International Taxation) [56 SOT 254 (Mum.) • ACIT Vs. Moderal Insulators Ltd. [56 DTK 362 (ITAT, Jaipur)] • Ishikawajama - Harima Heavy Industries Ltd. Vs. Director of Income Tax [207 CTR 361] • DCIT Vs. Eon Technology Pvt. Ltd. [46 SOT 323 (Delhi ITAT) • Sukani Enterprises Vs. ACIT [ITA No. 1330/Mum/2011] (ITAT, Mumbai)
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 12 • ITO Vs. Pipavav Shipyard Limited [(2014) 42 Taxmann.com 159] • ACIT 17(2), Mumbai Vs. Vilas N. Tamhankar (2015) [55 Taxmann.com 413] • CIT V. Vinayak Exports 82 CCH 0032 (Guj) (2012) • CIT Vs. Fluidtherm Technology (P.) Ltd. (2015) 57 taxmann.com 87(Madras) • CIT Vs. Orient Express (2015) 56 taxmann.com 331 Madras) • Asst. CIT v. India Shoes Exports (P.) Ltd. (2015) 57 taxmann.com 303 (Chennai - Trib) • Indo Industries Ltd. v. ITO (2015) 53 taxmann.com 458 Mumbai - Trib.) • Khimji Visram & Sons v. Addl. CIT (2014) 52 taxmann.com 485 (ITAT, Mumbai) • Commissioner of Income-tax, Chennai v. Faizan Shoes (P.) Ltd. [2014] 48 Taxman.com 48 (Mad.) • Assistant Commissioner ot Income-tax, Co. Circle - 1(3) v. Comex Exports (P) Ltd. [2014] 45 taxmann.com 406 (Chennai-Trib.) • Assistant Commissioner of Income-tax, Company Circle 111(2), Chennai v, T. Abdul Wahid Tanneries (P.) Ltd. [2014] 47taxmann.com 133 (Chennai Tri.) • Ajit Impex vs. DCIT 46 taxmann.com 163 [2014] • Pankaj A. Shah vs. ITO, Ward - 1, Baroda [47 taxmann.com 205(2014)] • Zanav Home Collection Vs. JCIT, Range - 10, Bangalore [2015] 55 Taxman.com 200 (Bangalore Trib.) • ACIT Vs. Karishma Global Minerals Pvt. Ltd. [2015] 56 Taxman.com 265 (Panaji Trib.) • ACIT Vs. Shiva Texyarn Ltd. [2015] 53 Taxman.com 495 (Chennai Trib.)
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 13 3.13. It is also worth here to mention that in appellant's case, in A. Y. 2012-13, the disallowance of the foreign commission payments made by the AO have been confirmed for the reason that in the said assessment year, the appellant has not provided various details and evidences in support of the genuineness of the claim of expenditure and justifying the details of no obligation to make the TDS upon the said foreign commission payments. Therefore, in absence of such details and evidences, the claim of the appellant was not accepted in that year. However, in the year under consideration, the appellant has submitted all the details and evidences as discussed in the preceding paras, therefore, there remained no reason not to accept such contentions. Thus, the facts of the issue in the year under consideration are different from that of A. Y. 2012-13. 3.14. It is also worth here to mention that in this case an order u/s. 154 of the I.T. Act has been passed by the AO, reducing the disallowance originally made at Rs. 2,00,97,896/- to Rs. 1,62,09,377/-. Therefore, the relief is granted to the appellant to the reduce figure of the addition with the AO may verify from the assessment records. In view of the aforesaid discussion, the grounds of the appeal are allowed, subject to verification. 4. In the result, the appeal is allowed.”
The CIT(A) accordingly accepted the plea of the assessee for allowability of commission payments.
The aggrieved revenue has preferred appeal before the tribunal. The assessee has also filed cross objection to support the order of the CIT(A).
When the matter was called for hearing the learned DR for the revenue relied upon the order of the AO.
Per contra the learned AR for the assessee relied upon the order of the CIT(A) and also documentary evidences placed by way of paper book as well as judicial pronouncements viz. Pr. CIT vs. Nova Technocast Pvt. Ltd. [2018] 94 taxman.com 322 (Gujarat); Pr. CIT vs. MGM Exports Tax Appeal No. 309 of 2018 (Guj.) judgment dated 11/04/2018; ABM Steels (P.) Ltd. vs ACIT (2016) 75 taxman.com 182 (Guj.) and several other decisions of the coordinate bench of tribunal in this regard.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 14
We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material referred to and relied upon as well as case laws cited. The solitary issue in controversy is whether the commission expenses paid to non-resident agents against overseas sale is allowable expenditure or otherwise having regard to the provisions of Section 37 of the Act and also on the ground that the assessee has failed to deduct tax deducted at source under Section 195 of the Act. As noted above, the AO has disputed the bona fides of commission payments on the ground that such commission payments are not supportable and the assessee has also failed to prove the nature of services rendered. The AO accordingly disallowed the commission expenses claimed under Section 37 of the Act. The AO has also observed that the assessee has failed to deduct TDS as applicable to it. Under Section 195 of the Act and consequently the commission expenses are also not deductable in view of failure to deduct TDS in terms of Section 40(a)(i) of the Act.
As regards first plank of the revenue for lack of bona fides of commission expenses so claimed, we observe that the CIT(A) has taken note of the details of commission expenses, the certificate issued by the Chartered Accountant(CA) in prescribed format for remittance of commission, commission agreement with various commission agents, declaration from the commission agents towards absence of their permanent establishments in India, bank statement as well as complete set of e-mails of the communications exchanged by the agents together with invoice copies etc.. Before us also, the assessee has filed the ledger account of export sales against which the commission has been paid together with other evidences. This apart, the CIT(A) also observed that in own case of the assessee relevant the Assessment Year 2010-11 the identical issue has been decided in favour of the assessee in similar
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 15 facts. The CIT(A), in the circumstances found that the bona fides of the commission expenses cannot be doubled. The expenses towards commission payments was thus rightly found to be allowable business expenditure under Section 37 of the Act. In the light of the detailed evidences filed by the assessee, it is difficult to disallow the claim of the commission payments incurred in ordinary course of business. Therefore, we concur with the view taken by the CIT(A) and find no reason to interfere with the order of the CIT(A) on this score.
As noticed, the AO has also declined the deductibility of commission expenses on account of non-deduction of withholding tax under Section 195 of the Act and consequently invoked the provisions of Section 40(a)(i) of the Act to deny the deduction of expenses for such failure. We observe that CIT(A) has taken note of plethora of judicial pronouncements wherein it was noticed that commission payments to non-resident agents for services rendered by them outside India and utilized outside India for procuring export orders for the assessee is not chargeable to tax in India and consequently there was no obligation on the assessee to deduct TDS where the income arising to the non-resident by way of commission payments in itself is not chargeable to tax in India. We find that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Gujarat High Court in the case of Nova Technocast (Supra), MGM Exports (Supra) as well as ABM Steels (Supra). The commission being in the nature of income accrued from services rendered outside India, such payments has no tax implications in India in the hands of non-residents. This being so, we find no infirmity in the order of the CIT(A). The CIT(A) has rightly concluded that commission payments to non-residents towards overseas sales is not susceptible to take in India and therefore Section 195 has no obligation and consequently Section 40(a)(i) does not get triggered. We thus decline to interfere.
IT No. 112/Ahd/2017 A.Yr. 2013-14 CO. No. 32/Ahd/2017 16 11. Resultantly, the Appeal of the Revenue is dismissed.
The cross objection is merely supportive in nature and does not challenge the order of the CIT(A) per se. The cross objection, in the circumstances, is infructuous and is therefore dismissed.
In the result, both the appeals of the revenue and the cross objection of the assessee are dismissed.
This Order pronounced in Open Court on 08/02/2019
Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 08/02/2019 True Copy TANMAY आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।