2015 (7) TMI 988 - AT - Income Tax

Revision u/s 263 by CIT(A) - A.O. has completed the assessment without any verification or basis for arriving at the conclusion that the expenditure claimed by the assessee is allowable under sections 37(1) or not hit by section 195 - Held that - We find merit in the contention of the learned D.R. It is observed that the assessment made by the A.O. under section 143(3) was held to be erroneous as well as prejudicial to the interest of the revenue by the Ld.CIT on the ground that the issue as to whether tax was deductible by the assessee from the payment of commission made to foreign parties, had not been enquired into by the A.O. As rightly contended by the Ld. CIT/DR, the exact nature of services rendered by the foreign agent was vital in this regard, but the A.O. failed to make any enquiry on this aspect. At the time of hearing before us, the Ld. Counsel for the assessee has failed to bring anything on record to show that any enquiry indeed was made by the A.O. on this aspect. In the absence of any such enquiry made by the A.O. on this vital aspect during the course of assessment proceedings, we find ourselves in agreement with the Ld.CIT that assessment made by the A.O. was erroneous as well as prejudicial to the interest of the Revenue calling for revision under section 263. We, therefore, uphold the impugned order passed by the Ld.CIT under section 263 and dismiss the appeal filed by the assessee. - Decided against assessee.

Summary

Issues:
1. Revision of assessment order under section 263 of the Income Tax Act, 1961.
2. Allowability of commission payments made to foreign agents without deduction of tax at source under section 40(a)(ia) of the Income Tax Act.
3. Examination of nature of services rendered by foreign agents for commission payments.
4. Application of appropriate law in assessment proceedings.

Analysis:

1. The appeal was filed against the Order of Ld.CIT-V, Hyderabad under section 263 of the Income Tax Act, 1961. The Ld.CIT revised the assessment order of the assessee due to the failure of the Assessing Officer (A.O.) to enquire into the tax deduction on commission payments made to foreign agents. The Ld.CIT directed the A.O. to re-do the assessment after proper examination of facts and application of appropriate law.

2. The assessee contended that the commission payments to non-resident agents were not chargeable to tax under the Act, citing relevant legal provisions and judicial pronouncements. The Ld.CIT found the explanation offered by the assessee unacceptable, stating that the A.O. did not verify the nature of services rendered by the foreign agents before allowing the claim for deduction. The Ld.CIT relied on the decision of the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT and set aside the A.O.'s order for re-assessment.

3. The Tribunal noted that the issue raised by the Ld.CIT was not on the merit of the commission payments to non-resident agents but on the failure of the A.O. to examine the nature of services rendered by them. The Ld.CIT found the A.O.'s assessment erroneous and prejudicial to the revenue due to the lack of enquiry into this crucial aspect. The Tribunal upheld the Ld.CIT's order under section 263, dismissing the appeal of the assessee.

4. The Tribunal agreed with the contention that the A.O.'s failure to enquire into the nature of services rendered by foreign agents for commission payments rendered the assessment erroneous and prejudicial to the revenue. The Ld.Counsel for the assessee could not provide evidence of any enquiry made by the A.O. on this aspect. Consequently, the Tribunal upheld the Ld.CIT's decision to revise the assessment order under section 263, leading to the dismissal of the appeal filed by the assessee.

This detailed analysis highlights the key legal issues and the Tribunal's decision regarding the revision of the assessment order and the allowability of commission payments made to foreign agents without deduction of tax at source under the Income Tax Act.