TMI Blog2007 (3) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices performed by the Agent in Iraq and was of the nature of commission payment. The payment was also received by them in Jordan. Absence of any Permanent Establishment or Business connection of the 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 did any income accrue or arise nor is deemed to accrue or arise to it in India. Hence, there was no liability on the part of the appellant company to deduct any tax from the amount of Commission payment made by it to the Iraqi Agent in terms of the 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 cannot 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) erred in having upheld the disallowance of whole of the dealership/agency commission of Rs. 190.99 lakhs paid to Md. Al Samarie of Baghdad, Iraq as inadmissible under Section 40(a)(i) on the alleged ground that there was absence of three basic parameters justifying payment of this amount for business. (2) That the learned Commissioner (Appeals) failed to appreciate that the assessing officer did not dispute the genuineness of the expenditure but disallowed the same merely on the basis of extraneous report of assessee's name being appeared in a report, the contents of which were not disclosed to it or explained its relevance for such disallowance. (3) That the learned Commissioner (Appeals) erred in having upheld the addition of Rs. 14,99,987, being tender money deposit written off alleging that pre-condition of write off has not been explained, in spite of the fact that as per generally accepted accounting standard there is no scope to account for tender deposit as income and the amount written off has to be viewed from the overall business perspective. (4) That the learned Commissioner (Appeals) fell in error in upholding the addition of Rs. 8,00,000 being dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income of Rs. 1,12,52,120. In the assessment made under Section 143(3), various additions were made. In the first appeal, most of the additions were confirmed, whereas partial relief was allowed on some ground. In the present appeal, the appellant assessee challenges the sustenance of the additions as done by the Commissioner (Appeals). 6.1 In Ground No. 1 in this appeal, the disallowance of Rs. 190.99 lakhs paid by the assessee to Md. Al Samarie of Baghdad, Iraq, a non-resident towards agency commission for export of Forklift Trucks in pursuance of Agency Agreement between the appellant and ISSAM Bureau Group of Companies, is being challenged. The facts of the case, as revealed by the orders of the lower authorities and also various papers and documents placed in the paper book filed by the appellant company are as follows. The appellant company had entered into a Dealership, Sales and Service Agreement with ISSAM Bureau Group of Companies incorporated in the Republic of Iraq. The said agreement was entered into with the above mentioned agent on being approached by that concern, after due negotiations with it for the purpose of procuring orders in Iraq. As per the said agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to denial of natural justice, to the appellant. It was further submitted that denial of natural justice in an assessment proceeding, renders the entire proceeding invalid. Reliance was placed on the following judgments in support of the above proposition : (1) Kishinchand Chellaram v. CIT (1980) 125 ITR 7131 (SC) holding that material collected behind the back of the assessee cannot be used without allowing him an opportunity to rebut the same. (2) Hirji Nagji Co. v. CIT [1976] 105 ITR 286 (Ori.) holding similar view as above. (3) Caneshdas Kaluram v. CIT [1951] 19 ITR 102 (Ori.) (4) C. Vasantilal Co. v. CIT [1962] 45 ITR 206 (SC) (5) CIT v. Biju Patnaik [1991] 190 ITR 396 (Ori.) holding that the statement. recorded ex parte under Section 131 cannot be used against : assessee without providing an opportunity to him to place materia., for rebutting the same. (6) Sarita Devi Kajaria v. ITO (2004) 89 ITD 109 (Kol.)(TM) (7) Kiran Corpn. v. Asstt. CIT (2006) 98 ITD 119 (Ahd.)(TM) holding like since the evidence collected at the back of the assessee was utilized by the assessing officer against the assessee without confronting it with such evidence, action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case to the Volcker Commission Report. It is also apparent that neither assessing officer nor the Commissioner (Appeals) had access to the said Volker Commission Report. Hence, this particular allegation about the appellant's name being mentioned in the Volker Commission Report cannot stand. 6.8 As regards the assessing officer's allegation that the appellant had paid Inland Transportation Fees or After Sale Services Fees (ASSF) to Iraqi bank accounts, the appellant has submitted and proved also that the entire payment was made through Standard Chartered Grincllays Bank Ltd., Amman, Jordan and not to any Iraqi bank Account. Furthermore, as is evident from the agreement and copies of correspondences placed in the Paper Book, the payment was made for procuring the sales orders and for facilitating the installation of the Forklifts at the sites after they had been delivered to Iraq. Therefore, it is clear that no payment was made for Inland Transportation Fees or After Sale Services Fees (ASSF) as alleged by the assessing officer. We are also of the opinion in this connection that even if the appellant company had paid Inland Transportation Fees or After Sale Services Fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endeavours made by the said commission agent. Furthermore, the commission agent also provided services by facilitating the receipt of consignment at Iraq, delivery, installation and commissioning of the same at the place of installation. It is also found from the papers filed in the paper book that once the installation had been completed by the agent, they sent to the appellant, Installation Reports duly filled up providing various details regarding the installation procedure. The agent also provided all help and technical support, in consultation with the appellant, which arose during installation and working of the Forklift Trucks exported. 6.11 On the basis of the above materials we are of the view that the commission paid is on account of services duly rendered by the commission agent and is therefore, fully allowable as a deduction in the computation of the appellant's total income. 6.12 The Commissioner (Appeals) has doubted the genuineness of the commission payment by stating that the commission is 23 per cent of the sales value and therefore is high and has also doubted the exigency of making such payment. The learned counsel for the appellant has argued in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11). Dy. CIT v. Super Tannery (India) Ltd. (2005) 274 ITR 338 (All.) hold in-that amount paid to commission agent to get money due from Government is deductible. (12). Khemka Instruments Ltd. (ITAT, Cal), order in ITA No. 1078/Cal. 1999(A.Y. 1996-97),2086/Cal./1991 (Assessment year 1997-98), 1075 Cal./1994, 2023/Cal./1991 (Assessment year 1987-83). 13. Impex Meral Ferro Alloys (P.) Ltd., order dated 13-7-2000 in ITA No. 1234/Cal./1999 (Assessment year 1996-97) (14) Vinar System Ltd. in ITAT No. 2412/Cal./1994 (Assessment year 1991-92). (15.) Akanksha International (ITAT - Mumbai), order dated in ITA No. Mum. (2004) (Assessment year 2001 -02). 16. Kiran Corpn.'s case (supra). 6.13 Lastly, the Commissioner (Appeals) has also confirmed the disallowance on the ground that no TDS was deducted by the appellant under Section 195 of the Income Tax Act, 1961 and therefore the payment of commission was even otherwise not allowable as per the provisions of Section 40(a)(i). In this regard, our attention has firstly been drawn to the provisions of Section 195, in accordance with which any person responsible for paying to a non-resident, not being a company, or to a fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a capital asset in India: Explanation 1.For the purposes of this clause (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; 6.16 It was argued that accordingly only that part of the income from operations as can be attributable to India shall be deemed to accrue in India. In this respect, it was submitted that as pointed out earlier the agency commission income did not accrue or arise to the agent in India. In this case payment was made for services rendered by him outside India. The commission agent had no business connection in India and neither did it have any permanent establishment in India. The entire services of the agent were rendered outside India and no part of the services was rendered in India. Therefore, it was finally argued that no part of the income of the non-resident agent can be said to have accrued or arisen in g India or deemed to have accrued or arisen in India. This being the position the income of the non-resident, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion Report. There are also no evidences to show that the payment made by the appellant was of the nature of a kick-back. Nor would it have made any difference in the matter of allowability of the expenses concerned in the I.T. assessment of the payer had those facts also been correct. There may be legal bar in payment of kick-back in the matter of purchase of goods or articles by the Government of India or even any company under the control of the Government. No such restriction applies in the case of payment made by a private party for furthering its business interests. There is nothing on record to show that the payment was made to any mafia group or to other for any illegal purpose or against public policy. The Volker Commission's Report mostly concerns politicians and others who are Public Servants in the eyes of law. It does not mention any illegality on the part of a private Indian party. Any bar imposed by UN on supply of goods to Iraq also cannot debar an Indian party to do so unless the restriction is imposed by the Government of India through a legal process. In the present case, there was no such restriction on supply of goods or materials to Iraq imposed by the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable. We therefore, reverse the orders of the lower authorities and delete the entire disallowance in this regard. 7. The ground No. 2 relates to the addition of Rs. 2,73,497 to the income of the appellant on account of difference found by the assessing officer in the sale transactions with M/s. Dewan Chand Ramsaran by seeking information from Dewan Chand Ramsaran in terms of the provisions of Section 133(6). In this regard, it has been submitted that the said party is a regular customer of the assessee and the alleged difference might have arisen due to lack of reconciliation on account of various factors such as freight, taxes, etc. Sales invoices together with the books of account of the assessee are stated to have duly been produced before the assessing officer during assessment proceedings and the assessing officer also did not point out any defect or error therein. Furthermore, it has been pointed out that while the appellant follows Mercantile system of accounting, the said customer, on the other hand, follows Cash Basis of accounting. 8. On appreciation of all the aspects of the case, we are of the opinion that when the assessing officer allowed the appellant proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king into consideration the facts of the case and also the legal position involved, we are of the view that the said amount is allowable as a deduction under Section 37(1) of the Act by way of expenses/loss incidental to business on account of the fact that the said amounts had been paid as deposits to procure sales order and therefore had beer; incurred in the course of carrying on the business of the appellant. In that view, therefore, we are inclined to allow the claim of the appellant in this regard and thus, delete the disallowance. 11. Ground No. 4, being the last effective ground relates to the disallowance of Rs. 8,00,000 paid by the assessee to M/s. Marshall Sons by treating the same as capital expense. The said expenditure is stated to have been incurred by the appellant for drawing and designs and for various softwares on drawing and design like cad computer aided design for its equipments. It has been argued that in the absence of expertise, the appellant company had to take help from experts outside its organization to procure such softwares and drawings and designs. The said expenditure is claimed to have been incurred to improve the efficiency of the machines an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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