2017 (10) TMI 1154 - AT - Income Tax

Disallowance made u/s. 40(a)(ia) - commission paid on sales to a non-resident individual, situated outside India - fee for consultancy services liable to be taxed in the hands of foreign agent in terms of Section 5 read with Explanation -2 to section 9(1)(vii) - Held that - In the facts of the case, the agreement between the assessee and the agent and any documentary evidence supporting the services rendered are critical for deciding, whether the services rendered are in the nature of purely commission services or in the nature of consultancy services. The lower authorities have not examined the services rendered by the foreign agent in the light of required documentary evidences. In view we are of the opinion that the issue of holding the services rendered by the agent as fee for consultancy services, need reexamination by the Assessing Officer. Accordingly, we restore the matter to the file of the Assessing Officer for re-examination of the issue in dispute. The ground No.1 of the appeal is accordingly allowed for statistical purposes. Disallowance of credit card expenses - Held that - In view of the facts of the case, we feel it appropriate to restore the matter to the file of the Assessing Officer for consideration afresh. The assessee shall be afforded sufficient opportunity of being heard. The Ground No. 2 of the appeal is also allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 40(a)(i) of the Act for commission paid to a non-resident individual.
2. Disallowance of credit card expenses.
3. Ad-hoc disallowances made by the Assessing Officer.

Issue 1: Disallowance under section 40(a)(i) of the Act for commission paid to a non-resident individual:

The Assessing Officer disallowed a payment of &8377; 31,61,046 made to a non-resident individual for services rendered outside India, considering it as a fee for consultancy services. The CIT(A) upheld the disallowance, stating that the payment was taxable under Section 9(1)(vii) as fees for technical services. The Tribunal noted that the nature of services rendered by the agent was crucial in determining if it was commission or consultancy services. As the lower authorities did not assess this aspect adequately, the matter was remanded to the Assessing Officer for further examination. The Tribunal emphasized the importance of documentary evidence to support the nature of services provided.

Issue 2: Disallowance of credit card expenses:

The Assessing Officer disallowed &8377; 32,663 as credit card expenses due to discrepancies in the statements provided by the assessee. The CIT(A) upheld the disallowance as the assessee failed to reconcile the differences pointed out by the Assessing Officer. Both parties agreed to remand the issue to the Assessing Officer for proper reconciliation. The Tribunal concurred and allowed the appeal for statistical purposes, emphasizing the need for a thorough examination by the Assessing Officer.

Issue 3: Ad-hoc disallowances made by the Assessing Officer:

The Assessing Officer made ad-hoc disallowances at 10% of certain expenses without specific instances of personal expenditure or evidence. This issue was not pressed before the Tribunal and was dismissed as infructuous.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, remanding the issues of disallowances for further examination by the Assessing Officer. The Tribunal stressed the importance of documentary evidence and proper reconciliation in determining the tax implications of payments and expenses.