Gujarat High Court
Pr. Commissioner Of Income Tax vs Pradip Polyfils Pvt. ... on 26 April, 2017
Author: M.R. Shah
Bench: M.R. Shah, B.N. Karia
O/TAXAP/252/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 252 of 2017
With
TAX APPEAL NO. 261 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
======================================
1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair
copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation of the
Constitution of India or any order made
thereunder ?
======================================
PR. COMMISSIONER OF INCOME TAX....Appellant(s)
Versus
PRADIP POLYFILS PVT. LTD....Opponent(s)
======================================
Appearance:
MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1
======================================
CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 26/04/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 11 HC-NIC Page 1 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT [1.0] As common question of law and facts arise in both these Tax Appeals and as such arising out of the impugned common judgment and order passed by the learned Income Tax Appellate Tribunal and with respect to the same respondent - assessee but for different Assessment Years, both these Tax Appeals are decided and disposed of by this common judgment and order.
[2.0] Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad "I" Bench (hereinafter referred to as "the learned tribunal") in ITA Nos.94/Ahd/2015 & ITA No.179/Ahd/2016 for the Assessment Years 2011-12 and 2012-13 by which the learned tribunal has dismissed the said Appeals preferred by the revenue and has confirmed the order /orders passed by the learned CIT(A) deleting the additions made by the Assessing Officer made on account of disallowance of the claim of the respondent - assessee with respect to the commission paid to the foreign agents, revenue has preferred the present Tax Appeals with the following proposed questions of law TAX APPEAL No.252/2017 (A) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in deleting the addition of Rs.1,46,62,048/- made on the account of disallowance of commission payment to foreign agents, by relying upon its own decision in the case Page 2 of 11 HC-NIC Page 2 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT of Shri Kersi Homi Tangri for A.Y. 2009-10 & 2012- 13 wherein it was held that the Department had accepted the said claim of the assessee in earlier years, ignoring the fact that the principle of res judicata does not apply in the income tax proceedings as held by the Hon'ble Supreme Court in various cases and as also mentioned by the AO in his assessment order?"
(B) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is justified in deleting the addition by ignoring that at no point of time assessee could produce evidences of services rendered by the alleged commission agent and thus not fulfilled the condition envisaged in Section 37(1), as held by the Hon'ble ITAT, Ahmedabad in the case of M/s. Desai Fruits & Vegetables Pvt. Ltd. in ITA No.1707/Ahd/2012?"
TAX APPEAL No.261/2017 (A) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in deleting the addition of Rs.61,37,440/- made on the account of disallowance of commission payment to foreign agents, by relying upon its own decision in the case of Shri Kersi Homi Tangri for A.Y. 2009-10 & 2012-
13 wherein it was held that the Department had accepted the said claim of the assessee in earlier Page 3 of 11 HC-NIC Page 3 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT years, ignoring the fact that the principle of res judicata does not apply in the income tax proceedings as held by the Hon'ble Supreme Court in various cases and as also mentioned by the AO in his assessment order?"
(B) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is justified in deleting the addition by ignoring that at no point of time assessee could produce evidences of services rendered by the alleged commission agent and thus not fulfilled the condition envisaged in Section 37(1), as held by the Hon'ble ITAT, Ahmedabad in the case of M/s. Desai Fruits & Vegetables Pvt. Ltd. in ITA No.1707/Ahd/2012?"
[3.0] The facts leading to the present Tax Appeals in nutshell are as under;
[3.1] The respondent - assessee filed the return of income of the Assessment Years 2011-12 & 2012-13. For the Assessment Year 2011-12 the respondent - assessee claimed deduction under Section 40 (a)(ia) of the Income Tax Act for an amount of Rs.61,37,440/- qua commission paid to the foreign agents. Similar claim was made by the respondent - assessee for the Assessment Year 2012-13 for an amount of Rs.1,46,62,048/-. The Assessing Officer doubted the genuineness of the claim of the respondent - assessee and the commission paid to the foreign agents. The respondent - assessee was asked to furnish the details of the service Page 4 of 11 HC-NIC Page 4 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT rendered to the foreign agents. However, the respondent - assessee furnished the confirmation letters and pointed out that the commission was paid to en foreign agents through banking channel. It was also submitted that during the previous year the respondent - assessee engaged several commission agents, who procured business of the respondent
- assessee by booking orders for the respondent - assessee. It was submitted that with respect to the very commission paid to the foreign agents, in the earlier orders the Assessing Officer accepted the claim of the respondent - assessee under Section 40(a)(ia) of the Income Tax Act. However, the Assessing Officer was not satisfied and disallowed the claim of the respondent - assessee under Section 40(a)(ia) of the Income Tax Act mainly on the ground that the respondent - assessee had not produced any evidence with respect to the services rendered by the foreign agents to whom the respondent - assessee claimed to have engaged to procure the business for the respondent - assessee by booking orders in the respondent - assessee Company and also on the ground that no registered written agreement between the respondent
- assessee Company and the foreign agents were produced on record, and therefore, the Assessing Officer was of the opinion that the respondent - assessee has failed to justify the claim with respect to the commission paid to the foreign agents. Similar, disallowance came to be made by the Assessing Officer for the Assessment Year 2012-13 also. However, on Appeals by the respondent - assessee, the learned CIT(A) deleted the disallowance made by the Assessing Officer by observing that there is no plausible reason to doubt the genuineness of the commission paid to the foreign agents. The respondent - assessee has filed documentary evidence Page 5 of 11 HC-NIC Page 5 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT and the expenditure on this front, which is inevitable and has been incurred year after year. The learned CIT(A) also observed that since the commission has been paid to the foreign agents through banking channel their identity has been proved and confirmations have been obtained from them, which are genuine business expenditure. Now so far as the submissions made on behalf of the revenue with respect to the non deduction of TDS by the respondent - assessee on the ground of commission paid to the foreign agents, the learned CIT(A) observed that none of the foreign agents had any operation carried out in India as per the provisions of Section 9(1)(i) of the Income Tax Act, and therefore, income of a non- resident is deemed to have been accrued or have arisen in India only. Consequently, the learned CIT(A) allowed the Appeals and deleted the disallowance made by the Assessing Officer. On the Appeals preferred by the revenue, learned tribunal by its impugned judgment and order has dismissed the said Appeals, which have given rise to the present Tax Appeals.
[4.0] We have heard Shri Sudhir Mehta, learned advocate appearing on behalf of the revenue at length. We have considered and gone through in detail the respective assessment orders, orders passed by the learned CIT(A) as well as the impugned common judgment and order passed by the learned tribunal. At the outset, it is required to be noted that the Assessing Officer doubted the claim made by the respondent - assessee of commission paid to the foreign agents, and therefore, made the disallowance. However, considering the fact that the respondent - assessee had produced the confirmation letters from the concerned foreign Page 6 of 11 HC-NIC Page 6 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT agents and had produced the orders /invoices on which the commission was paid to foreign agents and the commission was paid through banking channel and with respect to the very foreign agents in the earlier /previous years, the Assessing Officer accepted the claim of the respondent - assessee with respect to the commission paid to those very foreign agents, by giving cogent reasons the learned CIT(A) as well as the learned tribunal have deleted the disallowance made by the Assessing Officer. Relevant observations by the learned CIT(A) in CIT(A)/VLS/278/13-14 in paragraph 6 reads as under;
"I have carefully considered the assessment order as well as the written submissions filed by the AR of the appellant during the appellate proceedings. The issue regarding the disallowance of commission u/s 40(a)(ia) r.w.s. 195 of the Act also arose in the case of the appellant in earlier year. The AR of the appellant made elaborate submissions on this point as were made in the earlier year also. In the assessment year 2009-10 there was payment of commission of Rs.2167383/- to Dr. Paul Le Provost which was found genuine by my predecessor and disallowance made by the Assessing Officer was not upheld. But during this year commission has been made to 4 persons as per details submitted by the appellant during the appellate proceedings;
I. Dr. Paul Le Provost Rs.4776385/-
II.Filteration Products LLC Rs. 941085/-
III. Filtex Marketing INC Rs. 394470/-
IV.Ulhas Niloba Naik Rs. 25500/-
----------------
Rs.6137440/-
------------------
During the appellate proceedings the appellant submitted that he has submitted a detailed reply in regard to commission paid and services rendered vide letter dated 25/01/2014 which has not been properly taken into consideration by the Assessing Officer. Apart from Dr. Paul Le. Provost the other Page 7 of 11 HC-NIC Page 7 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT three agents to whom the commission has been paid, the appellant has given sufficient details which clearly proves that there is no reason to disbelieve them. In the case of Dr. Paul Le Provost who also received commission last year which was disallowed by the Assessing Officer u/s 40(a)9ia) r.w.s. 195 of the Act, my predecessor has dealt with this issue in his order dated 22/05/2012 in ITA No.CIT(A)/VLS/310/11-12. The decision has been given in para 4.3 of the order which is reproduced below:
"I have considered the facts of the case, material on record as well as the contentions of the appellant as well as the observation of the AO in the assessment order. There is no plausible reason to even doubt the genuineness of the commission paid to Dr.Paul Le Provost, a foreign agent as the appellant has filed sufficient documentary evidence and expenditure on this front is inevitable and has been incurred year after year. Since the commission has been paid to the above name foreign agent through banking channel, his identity is proved and confirmations has been obtained from him, I am inclined to accept that the said expense is a genuine business expenditure, Secondly I find that nothing has been brought on record by the revenue to show that commission of Rs.2167383/- paid to Dr. Paul Le Provost, had any operation carried out in India as per the provisions of Section 9(1)(i) of the Income Tax Act, 1961. On an identical issue, the jurisdictional ITAT, Ahmedabad in case of AIA Engineering Ltd. Vs. Additional CIT(ITA No. 580/AHD/2011) has held that income of a non resident is deemed to accrue or arise in India only if any part of income is reasonably attributable to operation carried out by the non resident in India and if no operation is carried out in India by the non resident, there would be no income deemed to accrue or arise in India. Under this factual and legal position, no tax is deductible from the payment made and hence, the provisions of Section 40(a)(ia) are not applicable with regard to captioned payment to non resident agent Dr. Paul Le Provost. Since the appellant has filed sufficient material including confirmations that the foreign agents is a Page 8 of 11 HC-NIC Page 8 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT non resident in India and he has neither carried out any operation in India nor he has rendered any services in India, no tax is deductible from the payment made to him and hence, the provisions of Section 195 r.w.s. 40(a)(ia) are not applicable. I, therefore, delete this addition of Rs.2167383/- made by the AO."
It is pertinent to mention here that Ulhas Niloba Naik was also paid commission in the A.Y. 2008-09 also. Keeping in view the decision of my predecessor on the issue of payment of commission without deduction of tax which related to payment to one Dr. Paul Le Provost who has received during this year about Rs.47.76 lakhs out of total 61.37 lakhs, I hereby agree with the decision taken by him on this issue. As the commission paid to the other agents is on the same line as paid to Dr. Paul Le Provost and all the details regarding services rendered and also the business of the assessee being the same so the payment of commission cannot be held as in genuine as well as provisions of Section 40(a)(ia) are not attracted so the whole amount of commission of Rs.6137440/- does not attract provisions of Section 40(a)(ia) r.w.s. 195 of the Act. As a result the grounds dealing with this issue are allowed and the disallowance made by the Assessing Officer is deleted.
Now coming to the other grounds of appeal concerning the disallowance of this commission of Rs.6137440 to foreign agents u/s 37(1) of the Act, the Assessing Officer has disallowed as he found that the appellant has failed to furnish the details of services rendered for the appellant. Despite a detailed explanation given by the appellant during assessment proceedings, the Assessing Officer concluded that the appellant has not produced any clinching evidence of services rendered. During the appellate proceedings the appellant submitted that the nature of business of appellant is that without the help of any mediator his product cannot be sold. Whatever product the appellant is producing is not the end product for use rather it is a sort of part used of the making of final machinery to be made ready for and used. So it requires lot of Page 9 of 11 HC-NIC Page 9 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT specifications which involves the services of agents who can procure orders for the appellant. If the Assessing Officer would have wanted to make any inquiry in this regard then he could have made such but he wholly relied upon the response of the appellant who in turn submitted all the relevant details which were not accepted and rejected by him just with the remark that it is not accompanied by any clinching evidence. In my view the appellant has been doing his business since long and whenever there was any requirement to engage any agent for procuring order it was done by him and for the services rendered commission has been paid to them. In this case the Assessing Officer has not found false the explanation given by the appellant during the assessment proceedings. From the details submitted during the assessment proceedings as well as during the appellate proceedings I am convinced that the appellant has given adequate explanation of the services rendered by the agents. Therefore the disallowance of commission paid u/s 37(1) of the Act is not right and is deleted. Hence the grounds of appeal of the appellant dealing with this issue are allowed."
[4.1] While confirming the order passed by the learned CIT(A), the learned tribunal has observed in paragraph nos.4 as under;
"4. Similar issue arose in ITA No.94/Ahd/2015 for A.Y. 2011-12. Facts being similar, so, following same reasoning, we are not inclined to interfere in the finding of CIT(A), wherein he has rightly allowed the commission expenses of Rs.1,46,62,048/- paid to non-resident agents as genuine business expenditure and rightly deleted the disallowance of same amount u/s. 40(a)(ia) of the Act."
[5.0] Considering the aforesaid facts and circumstances of the case, more particularly, when the respondent - assessee had produced necessary documentary evidence in the form of confirmation letters of the commission paid to the foreign Page 10 of 11 HC-NIC Page 10 of 11 Created On Wed Aug 16 06:38:57 IST 2017 O/TAXAP/252/2017 JUDGMENT agents, necessary documents /invoices on which the commission have been paid have been produced and the commission has been paid through banking channel and with respect to the very foreign agents in the previous years the claim of the respondent - assessee had been accepted consistently, learned CIT(A) as well as the learned tribunal has rightly deleted the disallowance made by the Assessing Officer. We are in complete agreement with the view taken by the learned tribunal as well as the learned CIT(A). No substantial questions of law arise in the present Tax Appeals as proposed by the revenue.
[6.0] In view of the above and for the reasons stated hereinabove, both these Appeals deserve to be dismissed and are accordingly dismissed.
(M.R. SHAH, J.) (B.N. KARIA, J.) Siji Page 11 of 11 HC-NIC Page 11 of 11 Created On Wed Aug 16 06:38:57 IST 2017