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2017 (12) TMI 1390 - AT - Income TaxDisallowance of commission expenses - Held that - We are of the view that it cannot said that the assessee has failed to prove the genuineness of the commission expenditure. On the contrary, Assessing Officer has placed on the general statement given by Mr. Sandeep Sitani. We also noticed that Mr. Sandeep Sitani did not implicate the assessee specifically in his statement. Further, the cross examination asked for by the assessee could not be provided by the AO. We noticed that the learned CIT(A) has addressed all the points raised by the Assessing Officer while disallowing this expenditure. No other material was placed before us by the Revenue to contradict the findings given by the learned CIT(A). Disallowance of legal expenses u/s. 40(a)(ia) - requirement to deduct tax at source u/s. 195 - Held that - We noticed that the learned CIT(A) has followed the decision rendered by Hon ble Supreme Court in the case of GE (India) Technology Centre 2010 (9) TMI 7 - SUPREME COURT OF INDIA
Issues Involved:
1. Disallowance of commission expenses: ?48.94 lakhs 2. Disallowance of legal expenses u/s. 40(a)(ia) of the Act: ?45.97 lakhs Issue-wise Detailed Analysis: 1. Disallowance of Commission Expenses: ?48.94 Lakhs The Revenue challenged the decision of the learned CIT(A) regarding the disallowance of commission expenses paid to M/s Inorbit Advertising. The Assessing Officer (AO) disallowed the commission expenses on the grounds that M/s Inorbit Advertising, associated with Mr. Sandeep Sitani, was involved in providing accommodation entries and not conducting real business. The AO based this conclusion on a statement by Mr. Sitani during a search under section 132 of the Act, where he admitted to providing only accommodation entries. The assessee contended before the learned CIT(A) that it had provided all necessary details to prove the genuineness of the commission payment, including service tax collection, TDS deduction, and business procurement details. The assessee also argued that there was no specific allegation against it in Mr. Sitani's statement and requested the opportunity to cross-examine Mr. Sitani, which the AO failed to provide. The learned CIT(A) directed the AO to allow cross-examination, but Mr. Sitani did not appear on the scheduled date. Consequently, the learned CIT(A) deleted the disallowance, citing several reasons, including the absence of direct incriminating evidence against the assessee, payment through account payee cheques, and the reasonableness of the commission payment in line with market practices. The Tribunal upheld the learned CIT(A)'s decision, noting that the assessee had furnished all relevant details and the AO did not find any fault with the documents provided. The Tribunal also highlighted that the AO's reliance on Mr. Sitani's general statement was insufficient to disprove the genuineness of the commission expenditure. Therefore, the disallowance of ?48.94 lakhs was deleted. 2. Disallowance of Legal Expenses u/s. 40(a)(ia) of the Act: ?45.97 Lakhs The second issue pertained to the disallowance of legal fees paid to M/s Cordato Partners, an Australian legal firm, amounting to ?45.97 lakhs. The AO disallowed the expenditure under section 40(a)(ia) of the Act, asserting that the assessee should have deducted tax at source under section 195. The assessee argued before the learned CIT(A) that the legal fees were not taxable in India under Article 14 of the Double Taxation Avoidance Agreement (DTAA) between India and Australia, as the services were rendered in Australia and the firm did not have a permanent establishment in India. The learned CIT(A) accepted this argument and deleted the disallowance, referencing the Supreme Court's decision in GE (India) Technology Centre (327 ITR 456), which held that tax deduction at source is not required if the income is not chargeable to tax in India. The Tribunal agreed with the learned CIT(A)'s decision, noting that the legal services were rendered outside India and the firm did not have a tax liability in India. The Tribunal also cited similar decisions by other benches, reinforcing that the disallowance under section 40(a)(ia) was not applicable. Consequently, the disallowance of ?45.97 lakhs was deleted. Conclusion: The Tribunal upheld the learned CIT(A)'s decisions on both issues, finding no reason to interfere with the deletions of disallowances for commission expenses and legal fees. The appeal filed by the Revenue was dismissed.
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