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Facts
The assessee, engaged in export of yarn, paid commission of Rs. 3,42,79,595/- to non-residents but did not deduct TDS. The Assessing Officer disallowed this expense under Section 37 citing lack of proof of genuineness, despite the assessee's claim that the issue was identical to previous years where additions were deleted by the CIT(A). The CIT(A) subsequently allowed the assessee's appeal.
Held
The Tribunal upheld the CIT(A)'s decision, noting that similar disallowances in the assessee's own case had been deleted in prior assessment years by both the CIT(A) and the Tribunal. Citing the Apex Court decision in CIT vs. Toshoku Ltd., the Tribunal affirmed that a non-resident commission agent not operating in India is not taxable in India, and sales proceeds remitted from abroad do not constitute operations carried out by the agent in India under Section 9(1)(i).
Key Issues
Whether the disallowance of commission expenses paid to non-residents under Section 37(1) of the Income Tax Act, 1961 for non-deduction of TDS and lack of proof of genuineness was justified, particularly in light of previous decisions and the taxability of non-resident commission agents.
Sections Cited
37(1), 143(2), 142(1), 37, 9(1)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Suchitra Kamble & Shri Narendra Prasad Sinha
आदेश/ORDER
Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 20-03- 2025 passed by National Faceless Appeal Centre(NFAC), Delhi for assessment year 2017-18.
The grounds of appeal are as under:- 1." Whether, on the facts and circumstances of the case and in law, Id. CIT(A) has erred in deleting the addition made of Rs 3,42,79,594/- on account of disallowance u/s. 37(1) of the Act, without appreciating the facts of the case?" 2."The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary". 3. "It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored".
3. The assessee is engaged in the business of trading (export) of yarn. The original return of income was filed by the assessee on 14-10-2017 declaring total loss of Rs. (-) 15,11,271/-. The case was selected for scrutiny in CASS and notice u/s. 143(2) of the Act was issued on 13-08-2019. Thereafter, notice u/s. 142(1) of the Act along with detailed questionnaire was served on 12-01-2019. In response to notices issued, the assessee filed reply on various dates along with details. The Assessing Officer observed that the assessee company paid commission to non- resident amounting to Rs. 3,42,79,595/- during the year and had not deducted TDS on commission payment to non-resident. The said details were asked by issuing notice u/s. 142(1) and further a show cause notice dated 15-11-2019 as to why the commission to the non-resident should not be disallowed. In response to, the assessee filed its reply on 11-11-2019 stating that this issue is an identical issue in earlier year and addition on the same ground was deleted by the CIT(A). The Assessing Officer after taking cognizance of the copy of agreement observed that all the agreements on plane paper and not signed by authorized signatory of assessee company which indicated that these documents are filed only for completing submission formalities. In fact all the details filed by the assessee and the commission paid is not same in relation to all agents. Thus, the Assessing Officer observed that the genuineness of commission expense was not proved by the assessee. Therefore, the Assessing Officer disallowed the commission expenses u/s. 37 to the extent of RS. 3,42,39,594/-.
DCIT vs. Kewalram Textiles Pvt. Ltd., A.Y. 2017-18 4. Being aggrieved by the assessment order, the assessee filed appeal before the ld. CIT(A). The CIT(A) allowed the appeal of the assessee.
The ld. D.R. submitted that the assessee has not proved the genuineness of the commission expenses as the details filed before the Assessing Officer was not registered document or signed document in presence of both the parties. The ld. D.R. further submitted that the assessee also failed to provide documents towards export commission paid to non-resident agents, methods and email communication, Form 15CA, 15CB and also has not submitted any proof regarding bank statement reflecting the payment either in dollar or Indian rupee for showing the genuinenity of the commission paid. The ld. D.R. relied upon the assessment order and the order of the CIT(A).
The ld. A.R. submitted that the entire show cause notice was on the TDS and not related to the disallowance u/s. 37 of the Act. In fact, in all the earlier assessment years, the TDS has been allowed and the Assessing Officer has to follow the assessee’s earlier assessment years in which the jurisdictional CIT(A) has allowed the appeal of the assessee on identical issue. The ld. A.R. relied upon the order of the CIT(A) and the order of the Tribunal in assessee’s own case.
DCIT vs. Kewalram Textiles Pvt. Ltd., A.Y. 2017-18 7. We have heard both the parties and perused the material available on record. The Assessing Officer made addition under the head commission expenses paid to non-resident but the assessee company is in the line of exports and commission paid to essential and integral part of the business as mentioned by the CIT(A) in para 7 of the order. Disallowance on the same ground i.e. genuineness and non- deduction of TDS in assessee’s own case has been deleted by the CIT(A) from assessment year 2010-11 to 2014-15 and in fact the Tribunal vide order dated 06-05-2021 deleted this addition of overseas commission expenses being ITA 719/Ahd/2014 and 3412/Ahd/2016 of assessment year 2010-11 and 2011-12. The issue has been decided by Hon’ble Apex Court in case of CIT vs. Toshoku Ltd. 125 ITR 525 where it was stated that commission agent who does not carry out any business operation in India and as a selling agent outside India is not chargeable to tax in India and the receipt in India of the sale proceeds remitted by the purchasers from abroad did not amount to an operation carried out by the non-resident commission agent in India as per clause (a) of Explanation to section 9(1)(i) of the Act. Thus, the CIT(A) has rightly observed the same and allowed the appeal of the assessee. Therefore, the CIT(A) was right in deleting the addition. Hence the appeal of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.