Gujarat High Court
Pr. Commissioner Of Income Tax vs Kersi Homi Tangri....Opponent(S) on 26 April, 2017
Author: M.R. Shah
Bench: M.R. Shah, B.N. Karia
O/TAXAP/264/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 264 of 2017
With
TAX APPEAL NO. 270 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
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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 ?
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PR. COMMISSIONER OF INCOME TAX....Appellant(s)
Versus
KERSI HOMI TANGRI....Opponent(s)
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Appearance:
MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1
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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 05:50:57 IST 2017 O/TAXAP/264/2017 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.1708/Ahd/2012 & ITA No.178/Ahd/2016 for the Assessment Years 2009-10 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.264/2017 (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.84,24,214/- made on the account of disallowance of commission to foreign agents, on the ground that the Department had accepted the Page 2 of 11 HC-NIC Page 2 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT said claim of the assessee in earlier years i.e. A.Y. 2006-07 & 2008-09 despite 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.270/2017 (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.69,14,768/- made on the account of disallowance of commission to foreign agents, on the ground that the Department had accepted the said claim of the assessee in earlier years i.e. A.Y. 2006-07 & 2008-09 despite 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 Page 3 of 11 HC-NIC Page 3 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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 Appeal in nutshell are as under;
[3.1] The respondent - assessee filed the return of income of the Assessment Years 2009-10 & 2012-13. For the Assessment Year 2009-10 the respondent - assessee claimed deduction under Section 40 (a)(ia) of the Income Tax Act for an amount of Rs.69,14,768/- 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.84,24,214/-. 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 rendered to the foreign agents. However, the respondent - assessee furnished the confirmation letters and pointed out that the commission was paid to seven foreign agents through banking channel. It was also submitted that during the Page 4 of 11 HC-NIC Page 4 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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 Assesssing 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 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 Page 5 of 11 HC-NIC Page 5 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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 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 Page 6 of 11 HC-NIC Page 6 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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/349/11.12 in paragraph 5.3 reads as under;
"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 the seven foreign agents as the appellant has filed sufficient documentary evidences and expenditure on this front is inevitable and has been incurred year after year. Since the commission has been paid to these foreign agents through banking channel, their identity are proved and confirmation have been obtained from them, I am inclined to accept the said expense as a genuine business expenditure. Secondly I find that nothing has been brought on record by the revenue to show that those seven foreign agents to whom commission aggregating to Rs.69,14,768/- was paid, had any operation carried out in India as per the provisions of Section 9(1)(i) of the Income Tax Act, 1961. The jurisdictional ITAT Ahmedabad, in case of AIA Engineering Ltd. V/s. Addl. 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 reasonable attributable to Page 7 of 11 HC-NIC Page 7 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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 the captioned payments to non-resident. Since the appellant has filed sufficient material including confirmation that the seven foreign agents are non-residents in India and they have neither carried out any operation in India nor they have rendered any services in India, no tax is deductible from the payment made to them and hence, the provisions of Section 195 r.w.s. 40(a)(ia) are not applicable. I, therefore, delete this addition of Rs.69,14,768/- made by the AO. The appellant's contention in Grounds No.1 and 2 are Allowed.
Ground No.3 The contention raised in Ground No.4 is such that the AO has erred in Laws and Facts, in disallowing and adding sum of Rs.45,286/- by invoking Section 14A r.w.s. Rule 8D."
[4.1] While confirming the order passed by the learned CIT(A), the learned tribunal has observed in paragraph nos.13 to 17 as under;
"13. The learned D.R. strongly supported the findings of the A.O. per contra, the ld. Counsel for the assessee reiterated what has been stated Page 8 of 11 HC-NIC Page 8 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT before the lower authorities. It is the say of the ld. Counsel that in A.Y. 2005-06 & 2007-08, commissions were paid to the same parties which have been accepted as genuine by the A.O. by order made under Section 143(3) of the Act.
14. We have carefully perused the orders of the authorities below and have also gone through the assessment orders brought to our notice, the payment of commission to the foreign agents in various years can be understood by the following chart:-
Name of the parties Commission Details F.Y. 2005-06 2006-07 2007-08 2008-09 A.Y 2006-07 2007-08 2008-09 2009-10 KHS Synchemica - - - 1,04,066 Corporation PT NARDA TITA, 1,12,962/- 75,351/- 58,018 56,676 JAKARTA Woo-shin Medics Co. 5,33,920 6,63,507 7,78,549 5,50,798 Korea Selectchemie Imp. 2,81,161 11,800 52,933 77,604 Exp. Zurich Representaciones 4,95,172 2,09,115 87,800 43,255 Gafel, Egypt Ramasey Veternity, 1,56,148 3,97,271 1,86,185 2,19,444 Egypt Roquette S.A. 61,57,929 66,01,685 3,61,620 58,62,925 Republic of Total commission of 77,37,292 79,58,729 15,25,185 69,14,768 foreign agents Assessment framed Yes Yes Yes Yes u/s 143(3)?
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HC-NIC Page 9 of 11 Created On Wed Aug 16 05:50:57 IST 2017
O/TAXAP/264/2017 JUDGMENT
Aforesaid No No No No
commission
disallowed
15. As mentioned elsewhere, the payment of commission to the same parties have been accepted in A.Y. 2006-07 & 2008-09 vide order dated 27/11/2008 & 02/12/2010 respectively made u/s. 143(3) of the Act.
16. Once, the genuineness of the expenditure has been accepted in earlier years, the payment of commission to the same parties cannot be considered as incurred for non-business purposes.
Further, the commission have been paid to the non-resident who do not have any Permanent Establishment in India and, therefore, not liable to tax in India. Therefore, the provisions of Section 195 also do not apply on the facts of the case.
17. Considering the aforementioned facts in totality, we do not find any error or infirmity in the findings of the ld. CIT(A). Both these Appeals by the Revenue are accordingly dismissed."
[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 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 Page 10 of 11 HC-NIC Page 10 of 11 Created On Wed Aug 16 05:50:57 IST 2017 O/TAXAP/264/2017 JUDGMENT 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 05:50:57 IST 2017