DCIT 7(2), MUMBAI vs. SYNERGY LIFESTYLE P.LTD, MUMBAI

Per Sanjay Garg, Judicial Member:

3. In the set aside proceedings, the AO computed the disallowance under section 14A read with Rule 8D at Rs.7,34,274/-. The Ld. CIT(A), however, held that in the light of the decision of the Hon’ble Bombay High Court in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT [(2010) 328 ITR 81 (Bom)]” the rule 8D is applicable prospectively from A.Y. 2008-09. For the earlier years to A.Y. 2008-09 the disallowance is to be computed on some reasonable basis. The Ld. CIT(A), therefore, proceeded to compute the disallowance on reasonable basis. He observed that there was no direct expenditure attributable to earning of exempt income. The Ld. CIT(A) observed that the assessee was having investment in units of mutual fund. In respect of some of the investments, there was no change and whereas in some cases the whole investments were sold during the year and some new investments were made. He observed that such a decision requires administrative and managerial skills as well as manpower. He, therefore, rejected the contention of the assessee that no managerial expenditure was incurred by the assessee for making the investments in mutual funds. He, taking into account the facts and circumstances of the case, estimated the expenditure of Rs.1,32,609/- as deemed to be incurred by the assessee to manage his investments which yielded exempt income. The Ld. CIT(A), after examining the overall investments and accounts of the assessee, observed that no indirect interest expenditure was incurred by the assessee for earning of the said dividend income. He accordingly restricted the disallowance at Rs.1,32,609/-.

4. We find that the assessee had made investments in mutual funds only which yielded dividend income. In case of mutual funds, no day to day monitoring of the investments is required. The Ld. CIT(A), after considering the overall facts and circumstances of the case, has restricted the disallowance to Rs.1,32,609/-. The assessee has not preferred any appeal against the said disallowance. In our view, the Ld. CIT(A), in the light of the decision of the Hon’ble Bombay High Court in the case of “Godrej & Boyce Manufacturing Co. Ltd.” (supra), has fairly computed the reasonable disallowance under section 14A which does not require any interference at our level. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue and the same is therefore upheld.

5. The second issue raised by the Revenue is relating to the disallowance of Rs.10,57,000/- on account of foreign commission paid. The AO observed that the assessee in relation to its export business had paid commission to foreign parties. The AO in the original assessment proceedings disallowed the said expenditure observing that the assessee had not furnished the required evidences. The matter travelled to the Tribunal and the Tribunal observed that the assessee had filed the various details like names of parties to whom commission was paid, debit advices of such parties, invoices with reference to commission paid and even copies of some correspondence in this respect. The Tribunal, therefore, restored the matter to the file of the AO to reexamine the issue regarding the payment of commission.

6. The AO in set aside proceedings again observed that the assessee had failed to produce sufficient evidence regarding the nature of services rendered by the foreign parties to the assessee and as to what business they had brought to the assessee. He also observed that the assessee had not deducted the TDS on the said payments.

7. In appeal, the Ld. CIT(A) vide impugned order observed that the assessee had filed the details regarding the commission payment such as copies of invoices, shipping bills for export and other remittances, however, the AO had not fully appreciated the said details and commission payment. The Ld. CIT(A) observed that it was a fact on record that the assessee had filed the sufficient details, documents, information during the original assessment proceedings before the AO as well as the Ld. CIT(A). Even the Tribunal, on the perusal of the said details and evidences filed by the assessee, has remanded back the matter to the file of the AO. The Ld. CIT(A), after going through the details, further observed that the payment of foreign commission was made for the purpose of assessee’s business since the assessee was in the business of export. He observed that in the copies of invoices and correspondence shipping bills etc. for export issued by Custom Department, the details of commission payable in foreign exchange were duly mentioned. The Ld. CIT(A) observed that in the facts and circumstances, the assessee could not have done anything more to prove that the foreign commission was paid for the purpose of business. So far as the issue of non deduction of TDS was concerned, the Ld. CIT(A) observed that the commission was paid to foreign agents and the said foreign agents had no permanent establishment (PE) in India. The services were rendered out of India and no income accrued to the said agents was taxable in India and therefore the provisions of section 195 were not applicable. Even the services rendered by the foreign agents did not fall in the definition of fees for technical services. He, therefore, held that no disallowance of commission was warranted in this case.

8. We find that there is no infirmity in the well reasoned order of the Ld. CIT(A). Even the issue is squarely covered by the decision of the co-ordinate bench of the Tribunal in the case of “Indo Industries Ltd. vs. ITO” (2015) 53 taxman.com 458 (Mum.-Tri) wherein it has been categorically held that where the assessee made payments of commission to foreign agents for rendering services relating to export sales outside India and since the said agents did not have PE in India, no taxable income accrued or arose to them in India and therefore the assessee was not required to deduct TDS while making payments to such foreign agents. While holding so the Tribunal, in the said case, has relied upon the decision of the Hon’ble Supreme Court in the case of “GE India Technology Centre Pvt. Ltd. vs. CIT” (2010) 193 taxman 234/327 ITR 456. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue also. There is no merit in the appeal of the Revenue and the same is accordingly dismissed.

Order pronounced in the open court on 30.10.2015.