DCIT, NASHIK vs. KUNJ EXIM PRIVATE LIMITED, MALEGAON

Brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of Manufacture and Export of Textile material. The Return of Income for the A.Y. 2014-15 was filed on 30.09.2014 disclosing total income of Rs.31,97,690/-. Against the said return of income, the assessment was completed by the Assessing Officer (AO) vide order dated 28.12.2016 passed u/s.143(3) of the Act at a total

Being aggrieved, an appeal was filed before the ld. CIT(A)/NFAC contending that there was no liability on the part of the assessee to deduct tax at source as the commission was paid to non-resident and services were rendered outside India. It is further contended that the AO ought not to have returned finding of fact that commission expenditure is not a genuine one. The ld. CIT(A)/NFAC placing reliance on the decision of Hon’ble Delhi High Court in the case of CIT Vs. Eon Technology (P) Ltd. (2012) 343 ITR 366 (Delhi) allowed the claim, however, failed to deal with the aspect of genuineness of the expenditure, which formed the basis for addition. Further, the ld. CIT(A)/NFAC had proceeded to hold that since the AO had not disallowed the expenditure u/s.37(1), assumed that no disallowance can be made on account of non-genuineness of the expenditure.

Being aggrieved by the finding of CIT(A)/NFAC, the Revenue is in appeal before us in the present appeal.

The ld. Departmental Representative (DR) submits that the ld.CIT(A)/NFAC had failed to give a finding as to how the commission expenditure is genuine in nature. He further submits that the CIT(A)/NFAC without meeting the reasoning of the AO had allowed the commission expenditure.

On the other hand, the ld. Authorized Representative (AR) submits that the CIT(A)/NFAC had dealt on the aspect of the genuineness of the

We heard the rival submissions and perused the relevant material on record. The issue in the present appeal relates to the allowability of the Commission expenditure for the services rendered outside India. On mere perusal of the assessment order, it would reveal that the AO made disallowance of Commission expenditure of Rs.2,76,87,392/- on the ground that the expenditure is not genuine for the reasons stated in the assessment order. On appeal before the CIT(A)/NFAC, no doubt the CIT(A)/NFAC returned finding that since the AO had not disallowed the expenditure u/s.37(1), impliedly accepted the genuineness of the expenditure. However, the CIT(A)/NFAC dealt in great detail about the liability of the assessee to deduct tax at source u/s.195 of the Act and following the decision of Hon’ble Supreme Court in the case of CIT Vs. Tokshuku Ltd. 125 ITR 525 (SC) and CBDT Circular No.23, dated 23.07.1969 proceeded to hold that there was no liability on the assessee to deduct tax at source and accordingly allowed the claim of the assessee. This finding is under challenge before us by the Revenue.

As regards the finding on the liability of the assessee to deduct tax at source u/s.195, on perusal of the order of the authorities, there is no material on record showing that the services were rendered by the agents outside India. In case, the material on record indicates that services are rendered outside India by the agents, it is settled position of law that no TDS is required to be made. However, a regards the genuineness of the expenditure, the CIT(A)/NFAC ought not to have presumed that since the AO had not made disallowance u/s.37(1) but u/s.40(a)(ia) the AO was not doubting the genuineness of the expenditure in the light of

In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.