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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the cross appeals filed by assessee and revenue against the order of CIT(A)-35, Mumbai dated 24/09/2014 for the A.Y.2011-12 in the matter of order passed u/s.143(3) of the IT Act.
Facts in brief are that assessee firm is carrying on business of manufacturing and export of garments. During the course of scrutiny assessment, AO made addition on account of difference in form 26AS and books of accounts of Rs. 2,66,607/-, commission expenses of 7475/Mum/2014 Ramlord Apparels Rs.74,46,145/- u/s.40(a)(ia). AO also disallowed 10% of the cash expenses, telephone expenses and travelling expenses on account of personal use. By the impugned order CIT(A) confirmed addition on account of difference of Rs.2,66,607. Disallowance on account of travelling and conveyance was restricted to 5%. However, disallowance of commission was deleted by CIT(A).
Against the above order of CIT(A) both assessee and revenue are in appeal before us. It was argued by learned AR that difference of Rs.2,66,607/- as per Form No.26AS vis-à-vis books of accounts was due to the VAT charges which was accounted separately by the assessee. Learned AR also submitted that reconciliation statement was also filed before the AO but the same was not properly appreciated.
We have considered rival contentions and found that addition was made by AO on the plea that there was a difference in the amount as per 26AS vis-à-vis amount shown as income in the P & L account in respect of following parties. The difference in the amount so found was as under:- Sr. Party Name Amount shown Amount Difference No. as Labour Job credited (In Rs.) received in as per P & L Account 26AS (In Rs.) (In Rs.) 1 K R Apparels 8,53,873 9,22,855 68,982 2 KAM Garments Pvt. Ltd., 1,69,796 1,83,426 13,630 3 Apollo Fab 5,53,808 5,65,392 11,584 4 Subhash R Toshiwala 2,52,600 2,58,381 5,781 5 Bank of Baroda 6,89,930 8,56,560 1,66,630 Total 25,20,007 27,86,614 2,66,607 5. In respect of M/s.KR Apparels, we found that difference was on account of VAT Rs.23,585/-, in case of KAM Garments pvt. Ltd., 7475/Mum/2014 Ramlord Apparels Rs.13,630/-, in case of Apollo Fab Rs.11,584/- and in case of Subhash R Toshiwala Rs.5,781/- We found that since the amount was separately accounted by assessee in respect of VAT charges, the difference arose. As the VAT charges have been properly accounted in the books of accounts, we do not find any merit for the addition so made on account of VAT charges. However, there was no proper explanation in respect of difference in the case of Bank of Baroda amounting to Rs.1,66,630/-. Similarly there was no confirmation with regard to bill of Rs.43,500/- not entered by KR Apparels. Accordingly, with respect to addition of Rs.1,66,630/- and Rs.43,500/-, we restore the matter back to the file of the AO for examining and deciding afresh.
Assessee is also aggrieved for disallowance on account of Motor car, telephone and travelling expenses on account of personal use. AO has disallowed 10% which was restricted by CIT(A) to the extent of 5% which appears to be very reasonable. Accordingly, we upheld the action of CIT(A) for the disallowance of 5% on account of personal use.
In the result, appeal of the assessee is allowed in part.
Revenue in its appeal is aggrieved for deleting disallowance on account of commission u/s.40(a)(ia).
Facts in brief are that assessee-firm is carrying on business of manufacturing and export of garments and merchant exporter. AO disallowed commission expenses u/s.40(a)(ia) r.w.s. 195, being paid outside India without deduction of tax.
7475/Mum/2014 Ramlord Apparels 10. By the impugned order, CIT(A) allowed assessee’s claim after observing as under:- “l have gone through the facts of the case and the regal position in this regard. The moot question to be decided is whether the commission paid to non-resident agents for the services provided in the foreign country is taxable in India. The facts of the case are that the non-resident agents were operating in their own respective countries and they procured orders for taxpayers from the parties outside India and the commission was paid to them outside India in foreign currency. The foreign agents did not have any business connection nor do they have any place of business in India. What clearly emerges is that the agents in this case being located out of India and having their operations entirely' out of India, would not fall in the ambit of concept of "business connection". The decision of the Hon.ble Apex Court' in the case of CIT Vs. Toshoku Ltd. (125 ITR 525) is directly applicable in understanding the taxability of commission agent who does not carry out any business operations in India for the purpose of understanding the applicability of the Explanation to Section 9(1)(i) of the Act .. The same principle has been recognized in the decision of the Hon.ble Mumbai High Court in the case of Ardeshi B. Cursetjee & Sons Ltd (2008) 115 TTJ 916, wherein it was, held that commission paid to non-resident agents outside India for the services rendered outside India was not chargeable to tax in India. Such commission payment was not taxable in. India as the conditions specified in Section 9(1)(i) of the Act; were not fulfilled. Besides, the provisions of Section 9(1)(iii) (iv), (v)1(vi) and (vii)' of the Act were also not applicable in the present case. The Explanation to Section 9(2) inserted by the Finance Act with retrospective effect from 1.1.1976 was also, not applicable since the said Explanation was not applicable to Section 9(1)(i) of the Act. This has been held by the Hon’ble Mumbai Tribunal in the case of Gujarat Reclaim and Rubber Products Ltd., (ITA No.8868/Mum/2010). Therefore, keeping in view the facts and legal position in this regard, this ground is allowed.
11. We have considered rival contentions and found that commission was paid by assessee in respect of its export business to a non- resident in respect of services rendered outside India. No service in respect of which commission was paid were rendered in India. The 7475/Mum/2014 Ramlord Apparels issue under consideration is squarely covered by the decision of Hon’ble Supreme Court in case of GE India 327 ITR 456, wherein it was held that no tax is required to be deducted at source in respect of payment to non-resident whose income is not liable to tax in India. As the commission so paid to non-resident was not liable to tax in India, the assessee was not under obligation to deduct the tax on such payments for the services rendered outside India by such non-resident in respect of its export business. Detailed finding recorded by CIT(A) at para 5 of his appellate order has not been controverted by Ld. D.R. Accordingly, we do not find any reason to interfere in the order of CIT(A) deleting disallowance of commission.
In the result, appeal of the Assessee is allowed in part whereas appeal of the Revenue is dismissed.