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Income Tax Appellate Tribunal, KOLKATA BENCH ‘C’, KOLKATA
Before: Shri M. Balaganesh, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ORDER Per Shri S.S.Viswanethra Ravi, J.M. This appeal is filed by the Revenue against the order dated 06.11.2012 passed by the CIT(Appeals)-XX, Kolkata in Appeal No. 118/CIT(A)-XX/cir-1/2011-12/Kol for the assessment year 2004-05 framed under section 143(3) of the I.T.Act.
Being aggrieved by the above order the Revenue raised a sole ground that the Ld.CIT-A is erred in deleting the addition of Rs.1,17,47,291/- made on account of agency dealership commission which was disallowed by the AO for the reasons detailed therein, as such , for not deducting TDS while paying the said commission and attracted the Section 40(a)(ia) of the Act for violation of the same. Therefore, the only issue falls for our consideration, whether the Ld.CIT-A justified in deletion of the addition made by the AO under Section 40(a)(ia) of the Act
Brief facts of the case are that the assessee is a company engaged in the business of manufacturing and selling of diesel Hydraulic, Electric cranes, Forklift trucks and Generators. During the period under consideration the Assessee exported flame proof Forklift trucks and its spare parts to Ministry of Oil, Baghdad and the sale proceeds of which were received by the assessee through its banks i.e. Bank of India and State Bank of Bikaner & Jaipur. The assessee paid the commission charges through its regular banking channel which were credited to the party having account in Standard Chartered Grindlays Bank, Jordan-Amman- Shmeissani Branch in Amman.
During the assessment proceedings, the assessee claimed the business expenditure to an extent of Rs.1,17,47,291/- out of the total Rs.3,61,75,033/- being goods value exported to Ministry of Oil, Baghdad, apart from non compliance of Section 40(a)(i) Act, as discussed above, the AO also, was of the view that the name of the assessee being figured in the Volker commission report and with reference to the payment towards commission were not authorised by the UN, but, however, admitted to the fact that the assessee produced all the relevant material evidencing the agreement referring the nature and quantification of services rendered for which the commission has been paid. Despite the same the AO disallowed the expenditure added to an extent of Rs.1,17,47,291/- to the income of the assessee.
Against which, on an appeal before the CIT(A), the ld. Counsel for the assessee contended that an expenditure is allowable under the Act if it is incurred in relation to the business and that the said report relied on by the AO neither annexed to assessment order nor disclosed to the assessee which is against to the settled principles established by the law. Further, the income of a Non-resident is not taxable in India and that a foreign agent of Indian exporter operates in his own country and no part of his income tax in India and such an agent is not liable to income tax in India on the commission in pursuance of the Circular No:786 dt:07-02-2000 issued by the CBDT clarifying that no tax is deductible u/s. 195 of Act. Thereby, the Ld. CIT(A) deleted the addition made by the AO as observing as under: “I have perused the assessment order and considered the submission of the appellant. In view of the fact that on the same ground in the earlier A.Y. i.e.2004-04 the HON’BLE ITAT, Kolkata ‘B’ Bench has deleted the entire disallowance made by the AO and upheld by the CIT(A), after discussing all the points based on which disallowance was made. Therefore, following the decision of ITAT in the appellant’s own case, the appeal on this ground is allowed.”
Aggrieved by which, the Revenue filed this appeal before this Tribunal. The Ld. DR submitted that the name of the assesee is figured in the Volker committee report constituted to examine transactions with reference to the FOOD for OIL programme with IRAQ relating to the kick backs said to have been exchanged between the parties and such transactions were not approved by the UN and relied on the AO’s order and prayed to allow the appeal. In reply the AR contended that the assessee submitted all the agreements concerning the transactions in selling the flame proof Forklift trucks and its spare parts to Ministry of Oil, Baghdad. All the transactions were caused effect through valid banking channels i.e Bank of India and State Bank of Bikaner & Jaipur to Standard Chartered Grindlays Bank, Jordan-Amman- Shmeissani Branch in Amman. The AR further, pointed out Circular No:786 dt:07-02-2000 issued by the CBDT issued in this connection and relied on the order passed by the ‘B’ Bench of Kolkata Benches, Kolkata in the assessee’s own case for A.Y 2003-04
Heard the representatives of both sides, perused the relevant material on recorded as well as the orders of both lower authorities and considered the submissions and circular and case laws relied on, In the present case, the asseessee produced all the evidences relating to the transactions it had with the party who procured the above said goods for food for Oil programme and all the payments were routed through valid channels by way of Banks where it is shown that the expenditure by way of commission incurred in relation to business, having relevant material on record and accepting the same as genuine transactions, but, however, basing on a report which is not part of the assessment, disallowing the claim is unjustified. With reference to the Circular No:786 dt:07-02-2000 issued by the CBDT it is very clear that no tax is deductible u/s 195 of Act on export commission and related charges payable to a non-resident for services rendered outside India is an allowable expenditure. A coordinate Bench of ITAT at Kolkata ‘B’ Bench, Kolkata in the assessee’s own case for A.Y 2003-04 by an order dt:30-03-2007 in ITA 281/Kol/2007 decided the same identical issue in favovour of the assessee. The relevant portion of such order is at para 6.21 is reproduced as under:
“As discussed earlier the stand taken by the learned CIT(A) that in the absence of deduction of tax at source from the payment it is hit by the provisions of section 40(a)(ia) of the Act , also is not tenable. There is nothing on record to show that any part of the activities of the Iraqi Agent has performed in India. The payment was also received by them in Jordan. Absence of any Permanent Establishment or Business connection of agent in India, also takes the case out of the purview of the deeming provisions regarding accrual of income in India as envisaged in section 5(2) of the ACT. Hence, by taking into consideration all the aspects of the case, it is found that in this case, neither was the commission payment received by the non-resident agent in India nor any income accrue or arise nor deemed to accrue or arise to it in India. Hence, there was no liability on the part of the appellant company to deduct tax any tax from the amount of commission payment made by it to the Iraqi Agent in terms of provisions of section 195 of the Act. It has also got to be held that looking to the complexities of International transactions, the rate of commission payment in this case can not be considered to be too high, excessive or unreasonable. In any case, there is nothing on record to show that the full amount as claimed by the appellant company was not actually paid or that some part of it was routed back to the appellant company or its Directors in an indirect or underhand way. Therefore there is no case for disallowing the commission payment in this case from any angle whatsoever. Taking into consideration all these aspects, we hold the Commission payment under consideration is fully allowable. We, therefore, reverse the orders of the lower authorities and delete the entire disallowance in this regard.”
7.1 Therefore, In the light of observations of above, we deem it proper to hold that the payment of commission to a agent outside India is a business expenditure is allowable and we confirm the order passed by the Ld. CIT(A).
In the result the appeal filed by the Revenue is dismissed
Order Pronounced in the Open Court on 10th December, 2015.