DCIT, CIR-10(2), KOLKATA, KOLKATA vs. M/S VINEETAZ EXPORTS PVT. LTD., HOWRAH

order : September 7th , 2018 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the revenue directed against the order of the Commissioner of Income Tax (Appeals) - 4 Kolkata, (hereinafter the ‘Ld. CIT(A)’), dt. 22/02/2016, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), relating to Assessment Year 2011-12.

4. Heard Shri S. Dasgupta, Addl. CIT, D/R, on behalf of the revenue and Shri Subash Agarwal, ld. Counsel on behalf of the assessee. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:-

5. The first issue is the deletion of disallowance being commission paid to foreign agents of Rs.2,24,46,915/-. 5.1. The ld. First Appellate Authority gave a factual finding that the assessee had achieved total export turnover of Rs.102.28 Crores, during the year and that commission was paid to foreign agents, only on an export turnover of Rs.22.92 Crores. He held that 3 Assessment Year: 2011-12 M/s. Vineetaz Exports Pvt. Ltd commission was paid only in those cases where it was required to be paid and that the assessee has produced all details, co-relating the commission paid with shipping bills, export invoices, BRC, bank payments advices etc. The ld. CIT(A) pointed out that the commission in question was mentioned in the corresponding export invoices and relevant customs documents. He also held that most of the foreign agents were regular agents of the assessee, who were associated with the assessee company for a number of years and that commission was paid to these agents on export turnover made through them for all the earlier Assessment Years as well as for the exports made through them for the subsequent Assessment Years and that these claims for expenditure and that these claims for expenditure were allowed by the revenue. Thus, on the ground of consistency, this claim of the assessee has to be allowed. We find force in these findings of the ld. CIT(A) 5.1.1. The ld. CIT(A) further held that, the evidence filed demonstrates that the disallowance cannot be made just because there was no written agreement between the assessee and its foreign agents. He also found fault with the comparison of the rate of commission paid to a domestic agent with the rate of commission paid by the assessee to a foreign agent. He held that the chart furnished by the assessee in support of the rate of commission paid justifies the payment. He relied on the decision of the Hon’ble Supreme Court in the case of CIT v Toshoku (1980) 125 ITR 525 (SC), for the proposition that no TDS is required to be made in this case as the foreign agents have rendered services outside India and as they do not have any permanent establishment anywhere. 5.2. We find no infirmity in these factual findings of the ld. CIT(A). The ld. D/R, could not controvert these factual findings of the ld. CIT(A). Hence, we uphold the order of the ld. CIT(A) and dismiss Ground No. 1 of the revenue.

6. Ground No.2, is on the issue of disallowance of salary paid to employees and executives @ 25%, by invoking Section 40A(2) of the Act. 6.1. The ld. CIT(A) found that the assessee furnished a complete list of details such as qualification, experience, association of the relatives, who are the employees of the assessee, nature of work handled by them etc. with comparative charts. He held that the Assessing Officer has made an ad-hoc disallowance of 25%, without giving any reason, as to why it is excessive or unreasonable.

4 Assessment Year: 2011-12 M/s. Vineetaz Exports Pvt. Ltd 6.2. In our view, the disallowance u/s 40A(2), cannot be made on ad-hoc basis. The Assessing Officer is bound to demonstrate that the payments made is excessive and unreasonable, as compared to the fair market value of such services. No such finding is given by the Assessing Officer. Thus, we uphold the finding of the ld. CIT(A) and dismiss this ground of the revenue.

8.1. The ld. CIT(A) at para 7.3. of his order, held that the assessee is engaged in business of exports and the Directors have to visit foreign countries in connection with these business meetings on many occasions. He further held that the assessee company has furnished all the required details in support of the claim of foreign travel expenses. From these details, the ld. CIT(A) found that only in one case, the wife of the employee, Mr. Bijay Mawandia, accompanied the employee on a foreign tour. He directed that the disallowance be restricted to the extent of expenditure incurred for the foreign tour of the wife of Mr. Bijay Mawandia. He also recorded on facts that the Assessing Officer has not brought on record any material to establish that, the expenses were personal in nature. The ld. D/R, could not controvert these factual findings of the ld. CIT(A). We find no infirmity in the factual findings.

8.2. Hence we uphold the order of the ld. First Appellate Authority and dismiss this ground of the revenue.

9.2. We find no infirmity in this order of the ld. CIT(A). The addition u/s 69C, cannot be made when admittedly the expenditure in question has been recorded in the books of accounts. No tax need be deducted at source u/s 195 of the Act for purchase of goods. Thus, the disallowance u/s 40(a)(ia) of the Act, is also uncalled for. In the result, Ground No. 5 of the revenue is dismissed.

10.1. The assessee claimed expenses towards sampling to the tune of Rs.40,00,684/-. This was less that ½% of the turnover of the assessee. The ld. CIT(A) gave a finding that such expenditure was essential for the export business of the assessee and that the assessee has provided all necessary evidence in support of its claim. He pointed out that the assessee had a dedicated sampling department. As the Assessing Officer could not bring on record any evidence against the assessee, the ld. CIT(A) deleted the disallowance.

6 Assessment Year: 2011-12 M/s. Vineetaz Exports Pvt. Ltd 10.2. This factual finding of the ld. CIT(A), could not be controverted by the ld. D/R. Thus, we uphold the same and dismiss Ground No. 6 of the revenue.

11.1. The ld. CIT(A) deleted this disallowance by observing that, the assessee has sufficient interest free funds for making investment and that no interest bearing funds were utilized for investments. This factual analysis could not be controverted by the ld. D/R. This decision of the ld. CIT(A) is in line with the propositions of law laid down by the Hon’ble Bombay Court in the case of HDFC Bank Ltd. vs. DCIT [2016] 383 ITR 529 (Bombay). 11.2. Hence, we find no infirmity in this order of the ld. CIT(A), we uphold the same and dismiss this ground of the revenue.