TMI Blog2014 (5) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign party to the assessee, so as to justify the disallowance under the provisions of S.37(1) itself - the payment has been made by the assessee through direct remittance to the party outside India - there is no reason to dispute the claim of the assessee that it is under no obligation to deduct tax at source in terms of S.195 of the Act - the applicability of provision of S.195(2), since the sum paid to non-resident is outside the scope of income taxable under the Income Tax Act. Relying upon GE India Technology Centre (P.) Ltd. v. CIT [2010 (9) TMI 7 - SUPREME COURT OF INDIA] - a person is liable to deduct tax u/s 195(1) only when the payment is made by him is chargeable under the provisions of the Act - The payer becomes an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) is erroneous both on facts and in law. 2. The ld. CIT(A) erred in sustaining the disallowance of made by the Assessing Officer under section 40(a)(ia) in respect of sales commission paid to foreign agent. 3. The finding of the ld. CIT(A) are entirely based on suppositions and assumptions far from the facts available on record. 4. 3. Facts of the case in brief are that the assessee company is engaged in manufacture of paper sizing chemicals. For the assessment year 2007-08, it has filed return of income, showing income of Rs.1,23,46,630, after claiming deduction under section 80IB of Rs.2,56,57,518 and showing the book profit at Rs.48,58,887 under S.115JB of the Act. During the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , on account of default on the part of the assessee in effecting TDS before making payment. He also referred to the decision of the Apex Court in the case of Transmission Corpn. of A.P. Ltd. v. CIT [1999] 239 ITR 587, and the decision of the Tribunal in ITA Nos.10 and 11/Hyd/1996, with regard to the scope of the provisions of Section 195(2) and 195(3), in the case of payments to non-residents, it was held that since the non-resident recipients have not obtained certificate of exemption from the Assessing Officer under section 195(3), the assessee should have deducted tax at source before making remittances to the non-resident recipients, as provided under section 195(1) of the Act. In the facts of the present case, observing that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently, the expenditure on account of commission claimed by the assessee cannot be said to have been incurred wholly and exclusively for the purpose of business of the assessee. Even on that count, the CIT(A) held that the expenditure in question cannot be allowed as deduction under S.37(1) of the Act. 5. Aggrieved, assessee is in second appeal before us. 6. The learned counsel for the assessee, reiterating the contentions urged before the Revenue authorities submitted that the services rendered by the said party to whom commission was paid, outside India and the payment was also made through direct remittance outside the country. As such, it cannot be said that the assessee has any obligation in terms of Section 195(3) to deduct tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year. Hence, there is no documentary evidence produced by the assessee to support its claim of any service rendered by the foreign party during the previous year. He accordingly, supported the order of the CIT(A) that the expenditure of Rs.1,77,948 cannot be allowed as a deduction even under S.37(1), in the absence of any evidence of services rendered by the party to which commission payment has been made. 8. We heard both sides and perused the material available on record. We have also gone through the decisions cited by the parties before us. As noted above, the Assessing Officer has made the disallowance in question in terms of S. 40a(ia) of the Act, on account of non-deduction of tax at source by the assessee before mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any material to the contrary brought on record by the Revenue, one cannot dispute the claim of the assessee in this behalf. Consequently, we find no justification for the CIT(A) to dispute the very rendering of services by the foreign party to the assessee, so as to justify the disallowance under the provisions of S.37(1) itself. 9. From the letter of the assessee dated 5.3.2007 enclosing thereto the Demand Draft dated 1.3.2007 for USD 3954.38, copy of which alongwith enclosure furnished before us, also clearly indicates that the payment has been made by the assessee through direct remittance to the party outside India. That being so, there is no reason to dispute the claim of the assessee that it is under no obligation to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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