2018 (11) TMI 384 - AT - Income Tax

Addition towards commission paid to foreign agent - non deduction of tds - Held that - It is the case of the assessee that as per the terms of the agreement, what the assessee actually receives from the foreign customer is 98% of the invoice value after deduction of 2% commission amount. For e.g., if the invoice raised by the assessee is for ₹ 100, it actually receives ₹ 98 from the foreign customer. Notably, while deciding identical issue in assessee s own case for assessment years 2009 10 and 2011 12, the Tribunal has deleted similar disallowance made by the Assessing Officer holding that on the reasoning that the assessee has realised only net amount and further the impugned payments are not liable for deduction of tax at source, since the same is not taxable in India in the hands of recipients. Following the same, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of commission paid to foreign agent for assessment year 2013-14.

Analysis:
The appeal was filed by the assessee challenging the addition of an amount towards commission paid to a foreign agent. The Assessing Officer disallowed the claim as the assessee failed to provide sufficient evidence regarding the nature of services rendered by the foreign agent and also failed to furnish original documents like export invoices, shipping bills, and correspondence. Additionally, the Assessing Officer held that the payment of commission was not allowable since tax was not deducted at source under section 195 of the Income Tax Act. The Commissioner (Appeals) upheld the disallowance based on a previous order related to a similar issue from a previous assessment year.

The authorized representative argued that the commission expenses were based on agreements with foreign customers and were in line with previous Tribunal decisions. The Tribunal in previous cases had deleted similar disallowances, emphasizing that the assessee received only a net amount after deduction of commission and that the payments were not taxable in India in the hands of the recipients. The Departmental Representative supported the Assessing Officer's and Commissioner's decisions.

The Tribunal considered the submissions and observed that the assessee received only 98% of the invoice value after deduction of commission. Referring to previous Tribunal decisions, the Tribunal concluded that the disallowance was not justified as the payments were not taxable in India in the hands of the recipients. Therefore, following the previous Tribunal decision, the Tribunal deleted the addition made by the Assessing Officer and upheld by the Commissioner (Appeals), allowing the grounds raised by the assessee.

In conclusion, the Tribunal allowed the assessee's appeal, deleting the addition of commission paid to the foreign agent for the assessment year in question based on the reasoning that the payments were not taxable in India in the hands of the recipients and the assessee received only a net amount after deduction of commission.