2020 (12) TMI 251 - AT - Income Tax

Commission expenses paid to its holding company - Whether such payments were at arm's length or were for business expediency? - As per assessee has not furnished the necessary details about the quantification of the amount of commission - It is the 2nd round of litigation - HELD THAT - AO was directed to verify the quantum of the commission expenses. But he has not done so despite having all the details furnished by the assessee in connection with the quantum of commission expenses. These details can be verified from the submission of the assessee before the ld. CIT-A. AO has not pointed out any defect in the contentions of the assessee as well as the documents filed by it. Thus it can be transpired that the AO has accepted the quantum of the commission expenses as claimed by the assessee. Similarly, it was also directed by the ITAT to verify the nature of services obtained by the assessee from the company namely BG Energy Holding Limited which were discernable from the copies of the agreements. But the AO has not made any comment on such services which implies that he has accepted all the contentions of the assessee. Assessee in the set-aside proceedings has duly complied with the direction of the ITAT as discussed above and the AO has not pointed out any infirmity in the submission of the assessee. Thus in the present facts and circumstances, the AO has no power to make the disallowance of the commission expenses as claimed by the assessee for any other reason i.e. Non deduction of TDS which is beyond his power in the given facts and circumstances. Revenue has accepted the identical expenses incurred by the assessee in the other assessment years, more particularly in the assessment years 2007-08 to 2012-13. As such these assessment years, the disallowance was made on account of non-deduction of TDS under section 195 of the Act. Thus it can be inferred that the question of arm length and business expediency does not arise in the given facts and circumstances. Accordingly we do not find any merit in the grounds of appeal raised by the revenue. Hence the ground of appeal of the revenue is dismissed. TDS u/s 195 - payment of commission expenses - HELD THAT - We find that the learned CIT (A) has deleted the addition made by the AO after having reliance on the order of his predecessor for the assessment year 2011-12 wherein the issue was related to the TDS - we find that authorities below have not adjudicated the issue in terms of the directions issued by the ITAT which was binding upon them. Therefore, we are of the view that the issue raised by the revenue for non-deduction of TDS does not require any separate adjudication. Thus we dismiss the same as infructuous.

Summary

Issues Involved:
1. Deduction of commission expenses.
2. Non-deduction of TDS under section 195 of the Income Tax Act.

Detailed Analysis:

1. Deduction of Commission Expenses:

The primary issue revolves around the deduction of commission expenses amounting to ?4,65,12,087/- paid to the assessee's holding company. The assessee, engaged in the business of distribution and transmission of natural gas, claimed these expenses under the agreement with BG Energy Holding Co Ltd.

Facts and Proceedings:
- The assessee initially added these expenses in its computation of income but later requested their deduction during assessment proceedings.
- The Assessing Officer (AO) disallowed the claim due to the absence of requisite details and a discrepancy of ?1,11,330/- in the purchase commission.
- On appeal, the CIT (A) confirmed the AO's disallowance, noting the lack of evidence and the failure to file a revised return.
- The ITAT restored the issue to the AO for verification of the quantum and nature of services received, directing the AO to verify the evidence provided by the assessee.

Findings in Set-Aside Proceedings:
- The assessee furnished necessary details, including agreements and quantification of commission expenses.
- The AO rejected the claim, citing consistent disallowance in other assessment years and pending appeals before the ITAT.
- The CIT (A) deleted the addition, following the order of his predecessor for AY 2011-12.

ITAT's Judgment:
- The ITAT noted that the AO failed to verify the quantum of commission expenses and the nature of services as directed.
- The AO did not point out any defects in the assessee's submissions, implying acceptance of the quantum and nature of services.
- The ITAT emphasized that the AO exceeded his jurisdiction by disallowing the expenses for reasons beyond the set-aside directions.
- The ITAT highlighted that similar expenses were allowed in other assessment years, indicating no issues of arm's length or business expediency.
- Consequently, the ITAT dismissed the revenue's appeal, finding no merit in the grounds raised.

2. Non-Deduction of TDS under Section 195:

The second issue pertains to the disallowance of commission expenses due to non-deduction of TDS under section 195 of the Act.

Proceedings:
- The ITAT's directions in the set-aside proceedings did not include the issue of non-deduction of TDS.
- The assessee argued that the commission expenses were allowed in subsequent assessment years despite non-deduction of TDS.
- The AO rejected this contention, noting that the matter was pending before the ITAT and had not attained finality.
- The CIT (A) deleted the addition, relying on the order for AY 2011-12 where the issue was related to TDS.

ITAT's Judgment:
- The ITAT found that the authorities below did not adjudicate the issue per the ITAT's binding directions.
- The ITAT dismissed the issue of non-deduction of TDS as infructuous, noting it was beyond the scope of the set-aside proceedings.

Conclusion:
Both the appeals filed by the revenue were dismissed. The ITAT upheld the CIT (A)'s decision to allow the deduction of commission expenses and found no merit in the revenue's grounds regarding the non-deduction of TDS under section 195. The ITAT emphasized adherence to the directions provided in the set-aside proceedings and the consistency in the treatment of similar expenses in other assessment years.