TMI Blog2024 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction. We thus find force in the plea of the assessee that in the instant case where the overseas agents were paid commission for securing order etc., and such services were utilised for the purpose of making or earning income from a source outside India, the assessee is under no obligation to apply with provisions of Section 195 of the Act for the reasons that commission to such overseas agents are not taxable under the Act. The AO has not alleged or established any thing to the contrary. The AO was thus not justified to disallow such commission expenses under the Act. We thus direct the AO to reverse and cancel the additions on this score. Disallowance u/s 14A - assessee as contends that in view of suo motu disallowance which far exceeds the exempt income, no further disallowance is permissible u/s 14A r.w. Rule 8D - HELD THAT:- In the light of the submissions made on behalf of the assessee, no further disallowance under Section 14A is called for in the light of the judgment rendered in the case of Joint Investments P. Ltd. [ 2015 (3) TMI 155 - DELHI HIGH COURT] and Pr.CIT vs. Caraf Builders and Constructions P. Ltd. ( [ 2018 (12) TMI 410 - DELHI HIGH COURT] . It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orresponding exclusion of the sales in such trading activity for arriving at a fair and balanced view. The action of the AO patently offends the rudimentary principle of accounting. We accordingly direct the AO to reverse the additions made and restore the position taken by the assessee. TP Adjustment on account of commission on standby letter of credit - HELD THAT:- In the light of the undisputed fact emerging from record that no cost has been borne by the assessee company and in the absence of any rebuttal to the assertion that actual bank commission charges incurred has been fully recovered from the AEs, we hardly see any justification in the Transfer Pricing Adjustment on this score. We thus are not inclined to address the alternative plea of excessive estimation. - Shri Saktijit Dey, Vice President And Shri Pradip Kumar Kedia, Accountant Member For the Appellant : Shri Amit Goel, Adv., Shri Nippun Mittal, CA And Mr. Pranav Yadav, Adv. For the Respondent : Shri Rajesh Kumar, CIT-DR ORDER PER PRADIP KUMAR KEDIA-A.M. : The captioned appeal has been filed at the instance of the assessee against the final assessment order dated 29.07.2022 passed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on these expenses. The AO also alleged that the contract agreements have not been provided to gauge the nature of expenses. The assessee on its part responded to the queries raised and pointed out that commission expenses have been incurred for procurement of export orders, i.e, for earning income outside India for which the services have been rendered by the overseas commission agents outside India and no services have been rendered in India. Party-wise break up of payments to agents situated outside India were provided and it was pointed that similar payments have been made to these very parties in the earlier years too for obtaining such services of commission agents. Such expenses incurred have been found to be in order in the previous assessments carried out after scrutiny under section 143(3) of the Act. Besides, the matter has been also examined under Transfer Pricing Regulations and no adverse inference has been drawn. The party-wise response of the assessee in tabular form have also been reproduced in paragraph 7.4 of the draft assessment order. It was pointed out that the copy of agreements were duly submitted at the time of transfer pricing assessment and sample copies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of failure to deduct TDS on such payments. The DRP thus accordingly issued directions to the AO to incorporate a factual and legal position on the issue of doctrine of consistency and also directed the AO to revisit the copies of agreement to ascertain the factum of quality check purportedly carried out by the foreign agents. 5.2 The Assessing Officer ultimately passed final assessment order and reiterated that the assessee had admitted and stated on record that parties to whom payments have been made have provided services of quality checks for product exported at the time of virtual conferences accorded to the assessee on 21.08.2021. Consequently, the AO applied the ratio on decision of the Co-ordinate Bench in Hical Infra. Pvt. Ltd. [TS-252-ITAT2019(Bang.)] to hold that export commission paid by the Indian tax payer would constitute fee for technical services under Section 9(1)(vii) of the Indian Income Tax Act. Consequently failure to deduct TDS under Section 195 of the Act will lead to disallowance of such expenses by operation of law. The AO accordingly disallowed an amount of Rs. 11,64,88,755/- towards commission expenses claimed as business expenses. 6. In the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse facts on record to impugn such genuine business payments despite specific directions of the DRP. 6.1 The Ld. Counsel also pointed out that such commission paid to foreign entities for procurement of export orders are not susceptible to Indian taxation and consequently in the absence of any income chargeable to tax in India, no obligation to deduct withholding tax arises in India. The provisions of s. 40(a)(i) are not triggered in the absence of any liability to tax in India as attributable to commission income in the hands of foreign entities as held in plethora of judicial pronouncements. 6.2 The ld. counsel thus submitted that the action of the AO is devoid of any legal or factual foundation and consequently sought reversal of the additions so made. 7. The ld. DR for the Revenue, on the other hand, relied upon the observations made in the final assessment order passed in pursuance of DRP directions and also submitted in furtherance that similar additions have been made in the A.Y. 2018-19 also having regard to the factual matrix determined by the AO and there is no res judicata in tax proceedings and one small change in fact can lead to entirely different results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entered into with overseas agents which places such obligations of quality check on the commission agents. It is well settled that onus lies on the person who alleges as observed in K.P. Verghese vs. ITO (1981) 131 ITR 597 (SC). The Revenue cannot put an impossible burden on the assessee to prove a negative point. The AO has merely relied upon certain assertions purportedly made by the representative of the assessee towards quality check. No evidence has been placed to establish the factum of any such assertions. Be that as it may, such allegations cannot be imputed in the absence of any documentary evidence. The whole basis for making such whopping disallowance is shallow and a damp squib. The assessee has repeatedly asserted that services have been rendered outside India by the overseas agents for procurement of orders without any technical or managerial assistance. 10. Under the circumstances, in the absence of any adverse material, the factual matrix did not provide any scope for taxing such payments. The reasonableness and genuineness of expenses are admittedly not in dispute. It is also not in dispute that commission expense has been incurred wholly and exclusively for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us not justified to disallow such commission expenses under the Act. We thus direct the AO to reverse and cancel the additions on this score. 10. Hence, Ground No.2 of the appeal of the assessee is allowed. 11. Ground No.3 concerns a disallowance of Rs. 61,64,363/- under Section 14A of the Act. 11.1 In the matter, the ld. counsel for the assessee submits at the outset that the assessee has earned exempt income of Rs. 1,01,073/- only during AY 2017-18 in question as evident from the statement of total income and the audited financial statements placed in the paper book. As against such exempt income, the assessee has made suo motu disallowance of Rs. 2,52,249/- on the basis of 1% of average value of investment from which tax free dividend income was received. The assessee thus contends that in view of suo motu disallowance which far exceeds the exempt income, no further disallowance is permissible under Section 14A r.w. Rule 8D of the Income Tax Rules, 1963. 11.2 In the light of the submissions made on behalf of the assessee, no further disallowance under Section 14A is called for in the light of the judgment rendered in the case of Joint Investments P. Ltd. Vs. CIT, (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hotel Ltd. (supra) has been admitted in the Revenue Appeal by the Hon ble Supreme Court as reported in (2019) 104 taxmann.com 27 (SC). The additions based on admission of SLP by Hon ble Supreme Court is not tenable. While holding in favour of the Assessee, we also notice the assertions made on behalf of the assessee that similar claim has been allowed in the earlier years by the AO. No reason to take different stance in captioned assessment year has been brought to our notice. Thus, contrary view is not warranted. 12.5 We thus find force in the plea of the assessee for reversal of such disallowance. We direct the AO accordingly. 12.6 Ground no.4 is allowed. 13. Ground No.5 of the concise grounds(supra) concerns disallowance of Rs. 15,17,87,755/- towards bogus purchases. 13.1 As per the draft assessment order, the AO proposed disallowance on account of bogus purchases of denim fabric from SunGold Trade Pvt. Ltd.(STPL) amounting to Rs. 15,17,87,755/- which was, in turn, sold to two parties namely Shivoham Trading Pvt. Ltd. - Rs. 5,05,85,780/-; and Shakumbri Tradelink Pvt. Ltd. - Rs. 10,22,38,920/-. The AO held the purchases made from STPL as bogus purchases and proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding purchases of the same goods sold. The ld. counsel also contends that even in terms of directions passed by the DRP, the AO was not justified in making addition as the DRP has held that there cannot be sale without purchase. When the sale figure is taken into account by the AO for computing the income of the assessee, purchase figure is required to be necessarily considered. 13.6 We find that the additions made by the AO is not only erroneous but is also contrary to directions of DRP and settled legal position as held in Tejua Rohit Kumar Kapadia (supra); CIT vs. JMD Computers and Communications P. Ltd. (Del); Pr.CIT vs. Bansal Strips P. Ltd. (Del) and plethora of other judgments. 13.7 In the light of observations made by the DRP and plea raised on behalf of the assessee, we find prima facie merit in the plea of the assessee. While the AO has cast doubt on propriety of purchases of fabric made from Sungold Trade P. Ltd. on the basis of assessment order passed in the hands of such supplier, the AO has accepted the corresponding sale transactions. The exclusion of purchases from the trading results is not permissible without corresponding exclusion of the sales in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the AO/TPO/DRP was not justified in making further additions/adjustments. The ld. counsel reiterated that SBLC has been issued by the company s bankers without any margin or any specific security. In the alternative and without prejudice, the ld. counsel referred the judgment of the Co-ordinate Bench in Havells India vs. ACIT (2023) 101 ITR (Trib) 81 (ITAT Delhi) and submitted that the adjustment in respect of corporate guarantee provided to AEs be determined @0.5% instead of 2.15% determined by the Revenue in the instant case. To support the adjustment at 0.5%, the assessee also referred to the decision delivered by the Hon ble Bombay High Court in the case of Everest Kento Cylinders Ltd. 14.4 In the light of the undisputed fact emerging from record that no cost has been borne by the assessee company and in the absence of any rebuttal to the assertion that actual bank commission charges incurred has been fully recovered from the AEs, we hardly see any justification in the Transfer Pricing Adjustment on this score. We thus are not inclined to address the alternative plea of excessive estimation. 14.5 Ground No.6 is allowed. 15. In the result, the appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
