KHEMCHAND SONS,MUMBAI vs. ADDL. C.I.T.-14(2), MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

2 Khemchand Songs order passed by the Assessing Officer (in short ‘AO’) u/s 143(3)(ii) of the Act, on the following grounds:

" The Ld. CIT(A) erred in upholding the action of the Additional Commissioner of Income tax (hereinafter referred to as the "Assessing Officer") in disallowing brokerage and discount paid to non-resident amounting to Rs.14,48.995/- under the provisions of the section 40(a)(ia) for non deduction of tax on such expenses. 2) Learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing officer in disallowing the proportionate interest on certain advances given during the previous year relevant to assessment year. 3) The appellant submits that Assessing Officer be directed:- (i) to delete disallowances made in respect of brokerage amounting to Rs. 14,48,995/- under section 40(a)(ia) (ii) to delete addition of proportionate interest amounting to in respect of certain advances given and to modify the assessment as per provisions of law. 4) Each of the above grounds of appeal are independent and without prejudice to each other. 5) The appellant craves liberty to add, to alter and/or amend the grounds of appeal as and when given."

3 Khemchand Songs

3.1. During the course of assessment proceedings, the AO found that the assessee has paid brokerage to M/s. Marami Metal Plating, and no TDS has been deducted u/s 195 of the Act, on this payment. As per the assessee, TDS was not required to be deducted, as income of the said payee was not chargeable to tax in India, in view of the circular no.786 dated 7/12/2000. As per the AO, said circular did not give blanket waiver and assessee was required to file petition to AO u/s 195 for getting certificate for non-deduction of tax, and thus he did not agree with the submissions of the assessee and made the disallowance.

3.2. Being aggrieved, the assessee carried the matter before the Ld. CIT(A). But the Ld. CIT(A) confirmed the action of the AO.

4 Khemchand Songs 3.3. Being aggrieved, the assessee has brought this matter before the Tribunal.

3.4. It has been argued by Ld. Counsel of the assessee that the AO has overlooked the judgment of Hon’ble Supreme Court in the case of GE India Technology Centre (P) Ltd. vs. CIT 327 ITR 456 (SC). It is further argued that this issue is now very well settled, as it has been held by various courts that no tax is required to be deducted u/s 195 on the payments made to the various agents for the services rendered outside India. He has also filed petition under rule 29 for admission of additional evidences with respect to documents pertaining to the nature of services rendered by the payee and showing confirmation and genuineness of the transactions under consideration.

3.5. On the other hand, Ld. DR has submitted that when the AO had passed order, he confirmed only to the aspect of non- deduction tax as source. Since, it was found by him that the expenses was not allowable on the preliminary grounds, therefore, he did not and could not examine the aspect of verification of genuineness of the expenses claimed, and therefore under these circumstances, the AO should be given opportunity to examine all these aspects.

3.6. We have gone through all the submissions made before us by both the parties. We agree with the submissions of the Ld. Counsel on his primary argument that various courts have 5 Khemchand Songs decided the issue in favour of the assessee, holding that tax is not required to be deducted at source on the amount of payments made to the non-resident agent for the services rendered outside India. But, it is noted by us that peculiarity of facts of this case are that no evidences with regard to confirmation or genuineness were filed at all by the assessee before the AO or before Ld. CIT(A). The assessee has filed these evidences for first time before us, consisting of all invoices raised by the assessee to its customers for which commission was paid by the assessee to its agent, confirmation of the agent confirming the transaction, statement giving details of amount of commission charged per invoice and copy of extract of bank account showing realization of payment made by the customers along with copies of bank certificates for export realization. The basic facts with regard to place of rendering of services, nature of services rendered and whether any managerial or technical services were provided by the agent to the assessee etc. were not examined by the AO during the course of assessment proceedings. Therefore, keeping in view interest of justice, we send this issue back to the file of the AO. The assessee shall place entire requisite material and evidences before the AO. The AO shall give adequate opportunity of hearing to the assessee and shall pass an order after considering the material place by the assessee before him and also keeping in view the correct position of law, after taking into consideration all the judgments that the assessee may like to place before him. Thus, with these directions this 6 Khemchand Songs issue is sent back to the file of the AO. Ground no.1 is allowed for statistical purposes.

7 Khemchand Songs AR that interest disallowance should be on actual amount and actual rate of interest appears to be reasonable. Hence, the AO is directed to take actual amount of interest free advance for actual period and actual rate of interest paid by the assessee for loans received from banks. The AO can verify the claim made by the assessee in respect of rate of interest suggested by the assessee. Accordingly, the disallowance in principle is confirmed, subject to quantification of disallowance in view of actual amount and actual rate of interest instead of ad hoc amount and ad hoc rate of interest. In terms of direction give as above, the ground of appeal is rejected in principle.”

4.1. Before us, Ld. Counsel stated that the assessee was satisfied with the directions give for Ld. CIT(A), but unfortunately these have not been complied with by the AO till date.

4.2. In view of the above said facts, we direct the AO to comply with the direction given by the Ld. CIT(A). Thus, ground raised by the assessee is allowed for statistical purposes.