MAIDEEN PITCHAI RAWTHER PEER MOHAMMED,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the Order dated 11.05.2016 of Commissioner of Income Tax (Appeals)-5, Chennai, in for the AY 2012-13.

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2.0 All the grounds of the appeal are related to the disallowance of Foreign Agency Commission u/s.40(a)(i) of Income Tax Act. The assesse filed return of income declaring the total income of Rs.99,05,230/- on 28.09.2012. The assessment was completed u/s.143(3) by an Order dated 30.01.2013 on total income of Rs.1,14,01,669/-. In the assessment, the AO made the addition of Rs.13,96,439/- for non-deduction of tax at source u/s.195 of Income Tax Act. The assesse is engaged in the business of processing and export of leather and during the FY 2012-13 the assessee paid commission of Rs.13,96,439/- to foreign agents for running various services. According to the assessee, the payment of commission was made to render the services of sales and marketing and realization of the sale proceeds outside India and the payment was also made outside India. According to the assessee the payment made to foreign agents outside India for the services rendered outside India is not taxable in India and there is no liability to deduct the tax at source as per the Income Tax Act. However, the AO rejected the Explanation of the assessee and held that as per Explanation u/s.4 of section 9(1)(i) and Explanation-2 to section 195(1) of income tax act such payments are taxable in India. The AO treated the payment made as ‘fee for technical services’ and held to be taxable and attracts TDS provision and accordingly made addition u/s.40(a)(i) of Income Tax Act.

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3.0 Aggrieved by the order of the AO, the assesse went on appeal before the Ld.CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO. Aggrieved by the order of the Ld.CIT(A), the assesse filed appeal before this Tribunal.

4.0 Appearing for the assessee, Ld.AR argued that the Ld.CIT(A) exceeded the jurisdiction by raking up/reviewing the question of fact relating to the genuineness of expenditure which was accepted by the AO.

The appeal before the Ld.CIT(A) was only a question of law regarding taxability u/s.40(a)(i), whereas, the Ld.CIT(A) has called for the details and decided the issue on the genuineness of the expenditure also which is beyond the jurisdiction of the Ld.CIT(A). The Ld.AR further argued that the issue of foreign agents commission is squarely covered by the Hon’ble Jurisdictional High Court, judgment in the case of CIT v. Orient Express 56.taxmann.com 331. According to the Ld.AR, the CIT should have confined its jurisdiction to decide the issue whether the disallowance can be made u/s.40(a)(i) or not? Alternatively, the assessee requested to remit the matter back to the file of AO for fresh consideration in the light of the order in the case of Maideen Leathers AY 2010-11 pronounced on 06.05.2016. On the other hand, the Ld.DR relied on the orders of the lower authorities.

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5.0 We heard the rival submissions and perused the material placed on record.

All the grounds of the appeal are related to two issues. First issue is whether the AO is right in making addition u/s.40(a)(i) for non-deduction of taxes at source and the second issue is whether the Ld.CIT(A) is right in verifying the genuineness of the expenditure and deciding the issue on merits.

With regard to the first issue related to the addition u/s.40(a)(i), the AO found that the assessee has made the payment of commission to foreign agents for rendering the services amounting to Rs.13,96,439/-.

The Agents have rendered the sales marketing services and recovery of the sales dues outside India. The payment was also made outside India.

The payment made towards the commission outside India cannot held as the interest /royalty and fee for technical services and the payment made to the foreign agents towards commission is not taxable in India and the case is squarely covered by the Hon’ble High Court judgment in the case of orient Express 56.taxmann.com 331 relied upon by the assessee. The Hon’ble jurisdictional High Court held that the commission paid to foreign agents is not technical services and no TDS is deductible. Though, the issue is covered by Hon’ble High Court technically, the Ld.CIT(A) confirmed the addition on finding that the agreements are defective.

Therefore, the case relied upon by the assessee is not applicable in the assessee’s case.

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6.0 The Ld.CIT(A) while deciding the appeal called for the various details and the same was filed by the assessee. The Ld.CIT(A) was of the view that deduction of TDS from the payments made to Foreign Agents was dependent on the nature of services rendered by the Foreign Agents which has to be verified from the agreements entered into by the assessee with the Foreign Agents and accordingly, called for the agreements and noticed certain defects in the agreements such as the terms and conditions, validity period of agreement, rate of commission, etc. and requested for clarification from the assessee. The assessee did not respond to the clarification sought by the Ld.CIT(A). Therefore, the Ld.CIT(A) held that the assessee did not prove the genuineness of agreements and the nature of services rendered by the Foreign Agents and accordingly upheld the disallowances. For ready reference, we extract the relevant paragraph No.7.4 of the Ld.CIT(A)’s Order hereunder:

7.4 The Assessment year involved in appeal is A.Y 2012-13 relevant to FY 2011-12. One agreement was dated 14/11/2010 and another agreement was dated 30/4/2008. The two agreements did not contain the details of period of validity of the agreement -i.e from which date to which date or for how many years or months. The two agreements did not contain any terms and conditions whatsoever. The two agreements did not contain any clause about at what rate or how much commission has to be paid. The two agreements did contain the stamp of the Appellant but did not contain the stamp of the foreign agent. Because of the above mentioned defects, apparently the two agreements cannot be relied upon. The case was reposted for hearing on 27/4/2016 vide this office notice dated 13/4/2016 to seek further clarification regarding the two agreements. However, the A.R of the appellant filed a letter on 25/4/2016 in the receipt section of this office as under: “we request that appeal may be disposed of by considering the earlier representations and the written submissions including the documents submitted vide our letter dated 11/2/2016”

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Neither the appellant nor his A.R appeared on 27/4/2016. The appellant did not file any further evidence to prove the genuineness of the two agreements. The appellant did not file any further documents to explain the terms and conditions of the agreement and the nature of services rendered by the foreign agents and the rate of commission to be paid for those services. 7.5 In the absence of evidence in support of the grounds of appeal and against the disallowance made by the Assessing Officer, all the grounds of appeal of the appellant are dismissed and the disallowance of Rs.13,96,439/- made by the Assessing Officer towards commission paid to foreign agents without deducting TDS is upheld.

6.1 It is a settled issue that the powers of the Ld.CIT(A) are co-terminus with that of the AO. As per Sec.250(4) of Income Tax Act, before disposing the appeal, the Ld.CIT(A) is empowered to make further enquiry as thinks fit. For ready reference we produced provisions of Sec.254 of Income Tax Act:

Orders of Appellate Tribunal. 47 254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit46. (1A) 48[***] (2) The Appellate Tribunal may, at any time within 48a[six months from the end of the month in which the order was passed], with a view to rectifying any mistake apparent from the record49, amend any order passed by it under sub-section (1), and 49shall make such amendment49 if the mistake is brought to its notice by the assessee or the 50[Assessing] Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard: 51[Provided further that any application filed by the assessee in this sub-section on or after the 1st day of October, 1998, shall be accompanied by a fee of fifty rupees.] 52[(2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub-section (1) 53[or sub-section (2)] 54[***] of section 253: 55[Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order: Provided further that where such appeal is not so disposed of within the said period of stay as specified in the order of stay, the Appellate Tribunal may, on an application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal

ITA No.2321/Mds/2016 :- 7 -: is not attributable to the assessee, extend the period of stay, or pass an order of stay for a further period or periods as it thinks fit; so, however, that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty-five days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed: 56[Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee.]] (2B) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal.] (3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the 57[58[***] 59[Principal Commissioner or] Commissioner]. (4) 60[Save as provided in section 25661[or section 260A]], orders passed by the Appellate Tribunal on appeal shall be final.

6.2 Therefore, we do not find any error in the enquiries conducted by the Ld.CIT(A) and the Ld.CIT(A) acted within the jurisdiction. However, both the Ld.CIT(A) and AO have not conducted any enquiries regarding genuineness of agreements due to non-submission of details by the assessee which is evident from the Ld.CIT(A)’s Order. During the appeal, the Ld.AR submitted that on the similar facts, the Co-ordinate Bench in the case of leather in remitted the matter back to the file of the AO and the Ld.AR requested to remit the matter back to the file of AO for verification of the defects noticed by the Ld.CIT(A) in the agreements. The Ld.DR did not object for the same. Therefore, we remit the matter back to the file of the AO to verify the genuineness agreements/expenditure in the light of the discussion made in this Order and decide the issue afresh on merits.

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7.0 In the result, the appeal of the assesse is allowed for statistical purposes.

Order pronounced in the Open Court on 9th March, 2017, at Chennai.