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2015 (3) TMI 754 - AT - Income TaxDisallowance of Commission and Brokerage paid - non deduction of tds - CIT(A) deleted the addition - Held that - So far as the Commission paid to Mrs. Sita Ram Parodkar is concerned, we noted that while disallowing the commission, the AO got impressed with the fact that since the receiver of the commission is a 63 years old illiterate lady, therefore, she could not have entered into the transaction and the rate of commission paid is too high. In our opinion, the main service which is being rendered by a commission agent is to bring two parties together. The parties so brought together may negotiate the terms and conditions for the deal being carried out themselves or can negotiate the terms and conditions through the commission agent. It is not necessary that the terms and conditions of the deal have to be negotiated through the commission agent. Once two genuine parties - one in need of buying the material and other in need of selling the material - are introduced by a commission agent, the services of the commission agent stands rendered. The parties may not like that the terms and conditions should be negotiated by the commission agent. It depends on both the parties. It is not a case where M/s. Mayur Minerals has denied that it was not got introduced through Mrs. Sita Ram Parodkar to the Assessee. One Mrs. Sita Ram Parodkar, who may be illiterate, got introduced M/s. Mayur Minerals with the Assessee, in our opinion, if the Assessee is satisfied her job is over. CIT(A), in our opinion, has rightly dealt with this issue and deleted the disallowance. We, therefore, confirm the order of CIT(A) on this issue. - Decided in favour of assessee. Disallowance in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. no material has been brought on record by the Revenue which may prove that M/s. De Long Mineral & Logistics Pvt. Ltd. has permanent establishment in India. The commission earned by M/s. De Long Mineral & Logistics Pvt. Ltd. has to be regarded as business profit of M/s. De Long Mineral & Logistics Pvt. Ltd. and therefore, in our opinion, Article 7 of the DTAA entered into between India and Singapore will not be applicable. Once M/s. De Long Mineral & Logistics Pvt. Ltd. does not have permanent establishment, the business profit earned by M/s. De Long Mineral & Logistics Pvt. Ltd. by way of commission are not chargeable to tax in India and therefore, the Assessee, in our opinion, was not under obligation to deduct tax at source as per provisions of Sec. 195. We, therefore, do not find any illegality or infirmity in the order of CIT(A) deleting the disallowance made by the AO in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. - Decided in favour of assessee. Disallowance made on account of hire charges - CIT(A) reduced the disallowance to 20% of such transportation expenses - Held that - The Assessee in this case has shown the payment of the transportation charges for transporting iron ore from Jalna to Redi. The payment made by the Assessee to each of the truck in respect of transportation ranges from ₹ 10,000/- to ₹ 19,500/-. We do agree that it may be due to the quantity of iron ore transported but, in our opinion, the difference cannot be too much. The Assessee even though has given the details and self-made vouchers but could not give the calculation of how much iron ore has been transported by each truck. Under these facts and circumstances, in our opinion, CIT(A) was fair enough to reduce the disallowance to 20% of the expenses and confirm the disallowance to the extent of ₹ 8,43,986/-. In our opinion, this is not a fit case which warrants our interference. We accordingly confirm the order of CIT(A) - Decided partly in favour of assessee. Disallowance of screening and crushing charges - CIT(A) deleting the disallowance - Held that - AO cannot enter into the shoes of the businessman and decide at what rate the Assessee should pay the charges to the party from which the Assessee has got the job work done until and unless the case of the Assessee falls within the provisions of Sec. 40A(2). The AO, we noted, in this case has not invoked the provisions of Sec. 40A(2). Even in case the provisions of Sec. 40A(2) are applied, the AO has to prove that the Assessee has made payment for services charges at a rate which is more than the market rate. That is not the case of the Revenue. The AO treated 50% of the expenditure to be bogus on the presumption that no crushing was required as what the Assessee brought from M/s. Mayur Minerals is fines and does not require further crushing. CIT(A), we noted, has appreciated the facts of the case and found that disallowance has been made merely on assumption and presumption and therefore deleted the disallowance of ₹ 10 lacs. We do not find any illegality or infirmity in the order of CIT(A) in deleting the disallowance - Decided in favour of assessee. Disallowance of the labour charges - CIT(A) restricted the disallowance to 20% of the total claim of the expenses amounting to ₹ 2,10,800/-. - Held that - We noted that the CIT(A) has given a finding of fact that the labour expenses have been incurred through self-made vouchers and there are not supporting bills. Even the expenses have been paid at ₹ 18,500/- or ₹ 19,500/- per day in cash. The onus is on the Assessee to prove the genuineness of the expenses incurred. The ld. AR did not controvert the finding that the expenses are through self-made vouchers and accepted that there is no supporting evidence available. Under these facts and circumstances, in our opinion, there is no infirmity in the order of the CIT(A). - Decided partly in favour of assessee. Cash payment made for the purchase of iron ore - Held that - The Assessee has made purchases for the iron ore in cash but all the purchases are shown with self-made vouchers. Even when the AO asked for, the Assessee could not produce the cash memo but since the AO accepted the quantitative statement showing the opening stock, purchases, consumption as well as the closing stock, therefore, in our opinion, without making the purchases the Assessee cannot consume the iron ore. We, therefore, delete the disallowance. - Decided in favour of assessee. Payment of demurrage without deducting TDS - CIT(A) deleted the disallowance - Held that - The issue is duly covered by the decision of the jurisdiction High Court in the case of CIT vs. Orient Goa Co. P. Ltd. 2009 (10) TMI 575 - Bombay High Court to hold that the facts of the present case, are governed by section 40(a)(i ) of the Act 1961 as Amount paid to non-resident without deducting tax at source - Decided against assessee.
Issues Involved:
1. Deletion of additions on account of disallowance of commission and brokerage. 2. Deletion of additions on account of disallowance of commission paid to a foreign entity without TDS. 3. Deletion of part of additions on account of disallowance of hire charges paid in cash. 4. Deletion of disallowance of screening and crushing charges paid to a sister concern. 5. Deletion of part of additions on account of disallowance of labor charges. 6. Deletion of part of additions on account of unexplained cash purchases. 7. Deletion of additions on account of payment of demurrage without deducting TDS. 8. Cross objection by the assessee regarding confirmation of transportation expenses, labor charges, and purchase of iron ore. Detailed Analysis: 1. Deletion of Additions on Account of Disallowance of Commission and Brokerage: The Revenue argued that the CIT(A) erred in deleting the disallowance of commission paid to Mrs. Sita Ram Parodkar and M/s. De Long Mineral & Logistics Pvt. Ltd., Singapore. The AO disallowed the commission to Mrs. Sita Ram Parodkar due to doubts about the genuineness of the transaction, considering her age, illiteracy, and lack of evidence of services rendered. However, the CIT(A) found that paying commission is common in the mining business, Mrs. Parodkar was not related to the appellant, and she had declared the income and paid taxes. The CIT(A) concluded there was no tax evasion motive. Regarding M/s. De Long Mineral & Logistics Pvt. Ltd., the AO disallowed the commission due to non-deduction of TDS, but the CIT(A) held that the services were rendered outside India, and as per the India-Singapore treaty, the commission was not taxable in India. The Tribunal upheld the CIT(A)'s decision on both counts. 2. Deletion of Additions on Account of Disallowance of Commission Paid to a Foreign Entity Without TDS: The AO disallowed the commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. due to non-deduction of TDS, believing the services were rendered in India. However, the CIT(A) and the Tribunal found that the services were rendered outside India, and the commission was not taxable in India as per the India-Singapore treaty. The Tribunal confirmed that no TDS was required as the commission was not chargeable to tax in India. 3. Deletion of Part of Additions on Account of Disallowance of Hire Charges Paid in Cash: The AO disallowed 50% of the cash payments for transportation charges due to lack of recipient identity and varying payment amounts. The CIT(A) reduced the disallowance to 20%, considering the details and self-made vouchers provided by the assessee. The Tribunal agreed with the CIT(A), noting that the AO's 50% disallowance was arbitrary and upheld the CIT(A)'s decision to reduce the disallowance to 20%. 4. Deletion of Disallowance of Screening and Crushing Charges Paid to a Sister Concern: The AO disallowed 50% of the crushing and screening charges paid to M/s. Karishma Impex, suspecting it was an adjustment with the sister concern. The CIT(A) deleted the disallowance, finding that the charges were reasonable and necessary for meeting export commitments. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the genuineness of the expenditure by allowing 50% and could not arbitrarily disallow the remaining 50%. 5. Deletion of Part of Additions on Account of Disallowance of Labor Charges: The AO disallowed 50% of the labor charges for screening and blending, suspecting that machinery, not labor, was used. The CIT(A) reduced the disallowance to 20%, considering the self-made vouchers and lack of supporting evidence. The Tribunal upheld the CIT(A)'s decision, agreeing that the onus was on the assessee to prove the genuineness of the expenses and finding no infirmity in the CIT(A)'s order. 6. Deletion of Part of Additions on Account of Unexplained Cash Purchases: The AO disallowed cash purchases of iron ore due to lack of party identity and self-made vouchers. The CIT(A) reduced the disallowance to 20%, considering the quantitative statement of stock. The Tribunal deleted the entire disallowance, noting that the purchases were necessary for the consumption and closing stock shown by the assessee. 7. Deletion of Additions on Account of Payment of Demurrage Without Deducting TDS: The AO disallowed demurrage payments to foreign parties without TDS. The CIT(A) deleted the disallowance, but the Tribunal, following the jurisdictional High Court decision in CIT vs. Orient Goa Co. P. Ltd., restored the AO's order, holding that the provisions of section 40(a)(i) applied. 8. Cross Objection by the Assessee Regarding Confirmation of Transportation Expenses, Labor Charges, and Purchase of Iron Ore: The assessee's cross objections regarding the confirmation of transportation expenses, labor charges, and purchase of iron ore were partly allowed. The Tribunal upheld the CIT(A)'s decision to reduce the disallowances but deleted the entire disallowance for cash purchases of iron ore. Conclusion: The Tribunal partly allowed both the Revenue's appeal and the assessee's cross objection, confirming the CIT(A)'s decisions on various disallowances while restoring the AO's order on demurrage payments.
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