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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 01/01/2014,of the CIT (A)-12,Mumbai, the Assessee has filed the present appeal.Assessee-company,engaged in the business of Guar gum,Gum products and derivatives,filed its return of income on 05/10/2010, declaring income of Rs. 5.46 crores.The Assessing Officer(AO)completed the assessment, u/s. 143 (3) of the Act,on 23/11/2012, determi -ning its income at Rs. 5.67 crores.
2.The assessee has filed additional ground of appeal
,vide its application dated, 04/04/2014, stating that issue raised by it is of legal nature.During the course of hearing before us,the Authorised Representative (AR) reiterated the submissions that are part of the application five for admission of additional ground.The Departmental Representative (DR) left the issue to the discretion of the bench.We find that the assessee has raised ground about disallowance to be made u/s. 14A read with rule 8D of the Income Tax Rules, 1962 (Rules), that the issue raised is legal in nature.Therefore,we admit the additional ground pertaining to disallowance u/s. 14. A of the Act.
3.First ground of appeal is about tax to be deducted at source with regard to the payment made to agents,amounting two Rs. 3.66 lakhs u/s. 40(a)(i) r.w.s. 195 of the Act. During the assessment proceedings, the AO found that the assessee had claimed an expenditure of Rs. 3,66,723/- under the head payment of commission to non-resident agents for export sales, that it had not detected
2349/M/14(10-11) Lucid Colloids tax at source as required by the provisions of section 195 of the Act. He directed the assessee to explain as to why the claim made by it should not be disallowed u/s. 40(a)(i) r.w.s. 195 (1) of the Act. After considering the submission of the assessee, the AO held that the foreign agent was not engaged in one-time agency, that it was involved in the broad gamut of services including identification, soliciting, procurement of orders constant feedback and ensuring timely payment, that the payments made by the assessee were covered under the managerial services and were not commission simplicitor. He further held that the payments were in the nature of fee for technical services, that the assessee was liable to deduct tax at source on payment of commission in accordance with the provisions of section 195 of the Act. Accordingly,he made the disallowance of Rs. 3.66 lakhs and added the same to the total, the assessee.
4.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him, it was argued that it had paid commission to agents situated outside India for export sales, that it did not have any office/branch outside India, that the export sales were made through the contacts of the agents, that the payment was made outside India for the purpose of earning income from sources that were located outside India. It relied upon the circular No.s. 23,dated 23/07/1969 and 786, dated 07/02/2000, issued by the CBDT and stated the liability to deduct tax at source would arise only if the payment of commission to the non- resident agent would be chargeable to tax in India. The assessee relied upon certain case laws.
After considering the submission of the assessee and the assessment order, the F AA held that there was no written agreement between the assessee and the agents, that payments were made on account of commission on export, that the genuineness of payment as well as payments being made on account of export executed by the appellant were not in doubt, that circulars, relied upon by the assessee, were applicable, that the CBD the head withdrawn both the circulars in the year 2009,that the circulars in question were not applicable to the payments made by the assessee, that payments made to non-resident isn’t were spread over during the year, that certain payments were prior to withdrawal of the circulars, that certain payments were made after the withdrawal of the circulars, that the assessee was not liable to deduct tax at source while making the payment in view of the circulars existing at the time of making payments, that after the withdrawal of the circulars, the assessee was not entitled to presume that such payments did not require deduction of tax at source, that the withdrawal of the circulars implied that the provisions
2349/M/14(10-11) Lucid Colloids of tax deducted at source would be applicable to the payments made thereafter. He directed the AO to examine the books of accounts and relevant documentary evidences to ascertain the payments made prior to the issuance of circular and to restrict the disallowance of commission paid after the date of issuance of the circular dated 22/10/2009. This also directed the assessee to furnish the relevant documentary evidences and details before the AO for verification purposes.
5.Before us, the AR argued that even after the withdrawal of the circulars by the CBDT,income accrued to the agents was not taxable in India, that the payment was made outside India, that the services were rendered outside India and the person receiving the payment was not in India. He referred to the case of the Tribunal (ITA/523/Mumbai/2013, dated 25/05/2016) delivered in assessee’s own case for the earlier AY.The DR relied upon the orders of the AO and the F AA.
6.We have heard the rival submissions and perused the material before us. We find that assessee had made payment of Rs. 3.6 lakhs to the agents,that the AO had made a disallowance of said amount u/s. 40(a)(i) of the Act,that the FAA reduced the disallowance. There is no doubt that the persons receiving the commission incomes were located outside India and they had no permanent establishment in India. It is also a fact that services were not rendered in India. In the circumstances, we are of the opinion that considering the peculiar facts and circumstances of the case it has to be held that provisions of section 40(a)(i) could not be applicable to the payments made by the assessee to the foreign agetns.We would like to reproduce the relevant portion of the order of the Tribunal for the earlier AY.(supra) and it reads as under: “5. The issue under consideration is also squarely covered by the decision of coordinate bench in the case of Indo industries Ltd. 53 taxman.com. 458, wherein it was held that the commission paid to one agent having no PE in India, are not liable to tax in India is no taxable income accrues or arises to such agents in India, therefore, the assessee was not required to deduct at source, while making payment to such commission agent. In view of the above, we do not find any merit in the disallowance so made by the AO. Accordingly, the appeal of the assessee is is allowed.” Considering the above,we are of the opinion that the FAA was not justified in sustaining the partial disallowance. So, reversing his order, we decide the first ground of appeal in favour of the assessee.
7. Second ground of appeal (Additional GOA) deals with disallowance made u/s. 14 A of the Act.As stated earlier, the assessee had not these the issue before the FAA. Before us, it was 2349/M/14(10-11) Lucid Colloids argued that the AO had made disallowance of Rs. 17.18 lakhs, that the AO was not justified in making disallowance under the head interest expenditure, that the assessee had sufficient own interest-free funds to make investments, that it had made strategic investment, that the AO had not arrived at the conclusion that disallowance made by the assessee was not as per the provisions of the law.The DR stated that order of the AO did not require any interference.
8.As stated earlier,we have admitted the additional ground, raised by the assessee with regard to 14A disallowance. In our opinion, in the interest of Justice, the matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity hearing to the assessee. Second ground is decided in favour of the assessee, in part.