2016 (10) TMI 1042 - AT - Income Tax

Disallowance of commission expenses paid to two five foreign agents - evidences demonstrating rendering of services not submitted - Held that - In the present case, we find that the assessee has quantified the expenditure, hence, to some extent fulfill expression wholly , but it fail to demonstrate how the expenditure was incurred for the purpose of business. This limb could be fulfilled, if the assessee had produced evidence of services rendered by the alleged commission agent. The ld.AO has recorded a specific finding that except producing certain invoices, the assessee failed to produce any other evidence. The payment through banking channel or raising of invoices are not the only requirement. The assessee should have produced some correspondence with the agents or how the agents have helped the assessee to procure the orders. There is no such material in the paper book. - Decided in favour of revenue Addition of commission expenses - Held that - On due consideration of facts and circumstances, we are of the view that the ld.AO has not doubted rendering of services by these concerns. He simply observed that the assessee failed to submit details. That observation was found to be incorrect by the ld.CIT(A). The reason assigned by the ld.CIT(A) is that books of accounts of the assessee are audited. Details of agents were very much available, and the assessee has provided PANs. of these four agents. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition of ?35,71,622/- on account of commission expenses paid to foreign agents.
2. Deletion of addition of ?13,38,915/- for lack of details on commission expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?35,71,622/- on Account of Commission Expenses Paid to Foreign Agents:

The Revenue's grievance was that the CIT(A) erred in deleting the addition of ?35,71,622/- made by the AO. The assessee, engaged in the business of running a cold chain project, claimed this amount as commission expenses paid to five foreign agents. The AO disallowed this claim due to lack of evidence showing services rendered by the agents and failure to deduct TDS on the payments. The AO cited precedents, including Lachminarayan Modan Lal v. CIT and Scheneider Electric India Ltd. V. CIT, emphasizing that the onus was on the assessee to prove the services rendered and the necessity of the commission for business purposes.

The CIT(A) deleted the addition, accepting the assessee's contention that the foreign agents had no business establishment in India, and the payments were not taxable in India. The CIT(A) referred to the jurisdictional ITAT Ahmedabad's decision in AIA Engineering Ltd. V/s. Addl.CIT, which held that income of a non-resident is deemed to accrue in India only if any part of the income is attributable to operations carried out in India.

Upon review, the Tribunal found that the assessee failed to produce sufficient evidence of services rendered by the agents, such as correspondence or procurement orders. The Tribunal noted that the agreement with one of the agents lacked essential details and appeared unconvincing. Consequently, the Tribunal concluded that the CIT(A) erred in deleting the disallowance and upheld the AO’s addition of ?35,71,622/-.

2. Deletion of Addition of ?13,38,915/- for Lack of Details on Commission Expenses:

The AO added ?13,38,915/- to the assessee's income due to the failure to furnish details for this amount out of the total commission expenses of ?70,42,232/-. The CIT(A) deleted this addition, noting that the assessee provided complete details, including PANs and TDS deductions, for the four agents in question.

The Tribunal reviewed the record and found that the AO did not doubt the services rendered by the agents but only noted the lack of details, which the CIT(A) found to be incorrect. The Tribunal upheld the CIT(A)'s finding that the books of accounts were audited, and the necessary details were available and provided. Therefore, the Tribunal saw no reason to interfere with the CIT(A)'s decision and rejected the Revenue's ground.

Conclusion:

The Tribunal allowed the Revenue's appeal partly. The addition of ?35,71,622/- was confirmed due to insufficient evidence of services rendered by foreign agents, while the deletion of ?13,38,915/- was upheld as the necessary details were found to be provided by the assessee. General grounds raised by the Revenue were rejected. The order was pronounced on 18th October 2016 at Ahmedabad.