TMI Blog2014 (8) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence that the assessee has paid the commission to M/s. Bombay Industries for the effort made by it to secure the export order to Mexico as demonstrated by the assessee. On the issue of non-deduction TDS on the payment, as per the CBDT circular No.23 dated 23.7.1969 and circular No.786 dated 7.2.2000, the assessee is not required to deduct the tax at source u/s 195 with regard to payment of commission to foreign agent - the CBDT withdrawing the circular No.23 of 1969 and circular No.786 of 2000 will be operative only from 22nd October, 2009 and not prior to that date - the reasoning of the CIT(A) for making the disallowance is not sustainable – the disallowance made by the CIT(A) is liable to be set aside - Decided in favour of Assessee. Addition u/s 41(1) – Held that:- The assessee has filed statement showing list of sundry creditors return back in M/s. India Fashion Ltd. in A.Y. 2006-07 and break up of assessee’s creditor return back in that year - the document has never been asked for by the AO or the CIT(A), assessee has placed it as additional evidences to substantiate the claim of the assessee – thus, the matter is to be remitted back to the AO for fresh assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(A), during the first appellate proceeding, had disallowed the expenditure on the reason that there is no written agreement evidencing the payment of 25% commission to Bombay Industries U.S.A. and the assessee had not deducted any TDS on the said payment. Aggrieved by the impugned decision, the assessee has raised these grounds in the appeal before us. 2.2 Having heard both the sides and perused the material on record it is pertinent to mention that during the first appellate proceeding when the case has been discussed by the Ld.CIT(A) with the A.R. of the assessee, the Ld.CIT(A) noticed that the assessee has paid commission of 25% on export sales to various persons which according to the Ld.CIT(A) is excessive in nature. Accordingly, the Ld.CIT(A) asked the assessee to file the details of commission paid with the names and addresses of parties, relation with the assessee of the persons to whom commission has been paid, a copy of the agreement for the commission, rate of commission paid, nature of service rendered with evidence, copy of bills of commission paid etc. to explain whether there is a loss or profit on the sales of which commission on paid. Consequently, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has secured the order for export to Mexico without visiting the Mexico. These facts clearly evidence that the assessee has paid the commission to M/s. Bombay Industries for the effort made by it to secure the export order to Mexico as demonstrated by the Ld.AR for the assessee. 2.2.3 On the issue of non deduction TDS on the said payment, we find that as per the CBDT circular No.23 dated 23.7.1969 and circular No.786 dated 7.2.2000, the assessee is not required to deduct the tax at source under Section 195 with regard to payment of commission to foreign agent. It is also relevant to state that the CBDT, withdrawing the circular No.23 of 1969 and circular No.786 of 2000 will be operative only from 22nd October, 2009 and not prior to that date. Therefore, the reasoning of the Ld.CIT(A) for making the impugned disallowance, in our view, is not sustainable on facts and in law. In view of the aforementioned discussion, we delete the impugned disallowance made by the Ld.CIT(A). Since the disallowance made by the Ld.CIT(A) has been deleted on appreciation of merits in the claim of the assessee, the adjudication of the contention of the Ld.AR that the Ld.CIT(A) has conducted a roving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue to the file of the AO to make a fresh assessment on the said issue after providing reasonable opportunity of being heard to the assessee. We direct and order accordingly. Ground No. 3 is allowed for statistical purpose. 4. In Ground No. 4, the assessee has agitated the decision of the Ld.CIT(A) confirming the addition of ₹ 1,89,000/- made by the AO on account of free samples given to customers. 4.1 The relevant facts are that the AO observed from schedule L to the accounts under Serial No. 2 b that in respect of trading goods, the assessee had 784 pieces as the opening stock which was valued at ₹ 128 per piece, further 294 pieces were purchased during the year at ₹ 71 per piece and there was closing stock of 236 pieces which was valued by the assessee at ₹ 161 per piece. However, 842 pieces of the same item were sold at only ₹ 14 per piece and accordingly the assessee was requested to explain the discrepancy with relevant evidences. The assessee, in response, submitted that opening stock of trading goods were old stock and hence valued at cost. The fashion trend for these items changed during the year and hence the company managed to sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 14A. The assessee, in response, submitted that it did not incur any expenses to earn the dividend income and hence no disallowance was warranted. Having not satisfied with the explanation of the assessee, the AO had worked out the common expenses debited to the P/L Account by the assessee at ₹ 62,05,928/- and proceeded to make a disallowance of ₹ 1,86,178/- holding that 3% of common expenses calculated at ₹ 62,05,928/- were attributable to the expenditure for earning exempt income. On appeal, the Ld.CIT(A) upheld the disallowance made by the AO. Aggrieved by the impugned decision, the assessee has raised this ground in the appeal before us. 5.2 Having heard both the sides and perused the material on record, it s a matter of fact that the assessee has earned an exempt income of ₹ 1,96,351/- and the assessee has not offered any disallowance in respect of earning the exempt income. No doubt, the assessee would have incurred certain administrative expenses for earning the exempt income. However, we are of the considered opinion that disallowance of 3% of the common expenses seems to be on the excessive side. In this connection, it is re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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