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Income Tax Appellate Tribunal, ‘ A’ (SMC
Before: SHRI ABRAHAM P. GEORGE
आदेश / O R D E R
Assessee in this appeal apart from assailing validity of the re- assessment pursuant to reopening done for the impugned assessment year, is also aggrieved on a disallowance of �13,55,520/- being commission paid by the assessee to a Non-Resident Agent.
ITA No. 3061/Mds/2016. :- 2 -:
Facts apropos are that assessee in the business of leather trading had filed return of income for the impugned assessment year disclosing income of �4,74,300/-. The original assessment was completed on 03.11.2009 u/s.143(3) of the Act, after verifying cash book, ledger, sales tax order, TDS details and creditors confirmation filed by the assessee. In such assessment, a disallowance of 10% of the tannery maintenance expenditure and machinery repairs expenditure were made by the ld. Assessing Officer, for failure of the assessee to produce entire vouchers. Thereafter the assessment was reopened on 20.03.2014 by issuing notice u/s.148 of the Act. In the course of such reassessment, it was noted by the ld. Assessing Officer that assessee had debited a sum of �8,24,320/- as commission payment to Non-Resident. As per ld. Assessing Officer such commission was for the purpose of sales of the assessee outside India through foreign agent and by virtue of Sec. 9(1)(vii) of the Act, it could be considered as fees for technical services. He relied on Explanation below Sec. 9 (2) of the Act inserted into the Act by Finance Act, 2010 with retrospective effect from 01.04.1976. According to him, it was not relevant whether Non-resident had rendered services in India.
Further, as per ld. Assessing Officer Explanation 2 to Sec. 195(1)(i) of the Act introduced by Finance Act, 2012 with retrospective effect from ITA No. 3061/Mds/2016. :- 3 -:
01.04.1962 clearly mandated deduction of tax at source irrespective of the fact whether the Non-Resident concern had a place of business or business connection or any presence in India. Thus, he held that assessee had failed to deduct tax at source at the commission of �8,24,620/- paid to the Non-Resident Agent attracting the rigours of Sec. 40(a)(i) of the Act. He disallowed the claim and completed re- assessment.
Aggrieved, the assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Assessee did not challenge the reopening before ld. Commissioner of Income Tax (Appeals).
However, it assailed merits of the disallowance. Ld. Commissioner of Income Tax (Appeals) obtained a remand report from the ld. Assessing Officer on the claim of the assessee that the commission was purely for export sale solicited by the Non-Resident Agent outside India.
Remand report furnished by the ld. Assessing Officer is reproduced hereunder:-
In this case the assessee filed return of income for the A.Y.2007-08 on 28.10.2007 declaring income of ₹4,74,300/- , the case was selected for scrutiny and was completed u/s143(3) on 3.11.2009. The firm in its return of income filed u/s139(1) has debited a sum of Rs.8,24,320/- with the description "In foreign currency to non-residents" on which TDS has not been deducted. The ITA No. 3061/Mds/2016. :- 4 -: case was reopened u/s147 by issuing u/s148 to the firm and was duly acknowledged on 20.3.2014. The case was completed on 20.10.2014 determining the total income at ₹13,55,529/- In the said assessment the following additions made:-
* Overseas export commission amounting to Rs.8,24,320/-
Aggrieved with the above order, the assessee preferred an appeal before CIT (A)-5 Chennai. The CIT CA) directed to verify the issue of "foreign commission payment" and submit the remand report. Accordingly, the assessee was given opportunity to appear before the undersigned with regard to the additional evidences produced by it before the CIT (A)-5 Chennai for the A.Y.2007-08.· In response to the opportunity letter issued, Shri G.Pari CA, appeared filed the copy of additional evidences produced before CIT CA) and the case was discussed. After verification of the copy of additional evidences such as invoices copies, shipping bills, purchase orders and ledger submitted by the assessee, the remand report on the issue of foreign commission payment is submitted herein below.
During the course of remand proceedings the assessee has been asked to produce the copies of agreements entered into by it with the foreign agents in respect of the foreign commission. In this regard, the assessee submitted the contract note with the agents and their engagement was only for procuring orders and they acted as pure agents of the assessee firm. The agents were paid commission as a percentage of the invoice value as a consideration for procuring the orders.
ITA No. 3061/Mds/2016. :- 5 -:
The additional evidences filed by the assessee before the Hon'ble CIT(A) has been verified and it is found that the assessee has paid the commission to the following person as a fixed percentage on the turnover brought by foreign agents.
Sl. No Name of the % of Amount Amount Agent Commission paid in paid in paid USD INR 1 LINFOOT CO. 5 3910.45 181000 LTD. Tiwan 2 LINFOOT CO. 5 7468.00 336060 LTD. Tiwan 3 LINFOOT CO. 5 6828.00 307260 LTD. Tiwan
During the course of remand proceedings, the assessee relief on the decision of the Hon'ble Supreme Court. in the case of M/s GE India Technology Centre P. Ltd. vs. Commissioner of Income Tax. The Hon'ble Supreme Court in the above case held that Tax deducted at source obligation u/s195(1) arises only if the payment is chargeable to tax in the hands of the non- resident recipient. The Hon'ble Supreme Court further held that the assessee is not liable to deduct TDS when the non resident agent provided services outside India and as such commission payments made to them cannot be treated as income deemed to accrue or arise in India and therefore the provisions of section 195 has no application in such cases.
The assessee also relied on the decision of the Hon'ble Madras High Court in the case of CIT Vs Faizan Shoes P. Ltd. (2014)367 ITR 155. The additional information firled by the assessee has been verified and it is seen the facts of ITA No. 3061/Mds/2016. :- 6 -: the assessee's case is similar to M/s GE India Technology Centre P. Ltd. vs CIT & M/s. Faizan Shoes P. Ltd on the issue of foreign commission’’.
Nevertheless ld. Commissioner of Income Tax (Appeals) held that assessee could not produce agreements with foreign agent and the contract receipts produced by the assessee did not give the nature of services rendered by the foreign agent. Though assessee relied on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Faizan Shoes (P) Ltd 367 ITR 155, ld. Commissioner of Income Tax (Appeals) was of the opinion that in the said case, concerned party was able to produce commercial bills proving the nature of services.
He, thus affirmed the order of the ld. Assessing Officer.
Now before me, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that ld. Assessing Officer in the remand report had specifically stated that the facts in assessee‘s case were similar for that of GE India Technology Centre P. Ltd vs. CIT 327 ITR 456 decided by Hon’ble Apex Court and that of Faizan Shoes (P) Ltd (supra) decided by Hon’ble Jurisdictional High Court. Further, according to him the re-assessment was initiated after four years from the end of the impugned assessment year and ITA No. 3061/Mds/2016. :- 7 -:
the conditions specified in first proviso of Sec. 147 of the Act was not satisfied.
Per contra, ld. Departmental Representative strongly supported the orders of the authorities below.
I have perused the orders and heard the rival contentions.
The remand report of the assessee obtained by the ld. Commissioner of Income Tax (Appeals), during the course of hearing before him is reproduced at para 3 above. Ld. Assessing Officer has opined that records provided by assessee stood verified and the facts were similar to what it were in the case of Faizan Shoes (P) Ltd (supra) decided by the Jurisdictional High Court. Admittedly in the said case Hon’ble Jurisdictional High Court took a view which went in favour of the assessee. Hence, we cannot accept the view taken by the ld. Commissioner of Income Tax (Appeals) that nature of commission paid by the assessee was not proved in the absence of agreements. That apart, we find that the reopening was initiated after four years from the end of the assessment year. In the original assessment assessee had produced all details which were called by the ld. Assessing Officer.
For a reopening after four years it is necessary that there should be failure on the part of the assessee to disclose fully and truly all
ITA No. 3061/Mds/2016. :- 8 -: material facts necessary for assessment. There is nothing on record to prove that assessee had failed to disclose fully and truly all material facts relating to the assessment in the original assessment proceedings. Especially so, since assessee filed all required information called for by the ld. Assessing Officer during the original assessment proceedings. In the circumstances, I am of the opinion that assessee has to succeed in all the grounds raised by it.
In the result, the appeal filed by the assessee stands allowed.
Order pronounced on Wednesday, the 25th January, 2017, at Chennai.