2022 (2) TMI 1455 - AT - Income Tax

Disallowance of commission expenditure - assessee paid a commission to a resident of UAE in respect of sales made to M/s Overseas Metal Trading Co., UAE - assessee has claimed deduction of this commission payment as business expenditure - CIT(A) deleted addition - Admissibility of additional evidences under Rule 46A of the Income-tax Rules, 1962 - HELD THAT - We observe that the Revenue has not pointed out any deficiency in these admitted evidences. Hence from these evidences, it is amply clear that the assessee has paid commission for business expediency. Regarding non-deduction of tax at source u/s 195 by the assessee, we observe that it is a well-settled law that the requirement of TDS u/s 195 arises only if the relevant sum is chargeable to tax in India. If the sum is not chargeable to tax in India, there is no requirement of TDS at all and this proposition is also supported by the decisions quoted by Ld. A/R mentioned earlier. Commission expenses - payee is resident of UAE and has no permanent establishment in India and payment was not made on behalf of assesse - Terms and conditions, which are not controverted by the Revenue, clearly demonstrate that the foreign-buyer has directly paid commission to Mr. Ashik Asaria Payee , out of the sale proceed belonging to the assessee. Therefore, the Ground No. 1.1, which is a part of Ground No. 1, does not have any substance. No infirmity in the order of Ld. CIT(A). Therefore we hold that the Ld. CIT(A) was justified in deleting the disallowance. Addition u/s 68 on account of increase in share capital - AO required the assessee to submit evidences in support of the receipt of but the assessee did not submit - CIT(A) deleted addition - HELD THAT - assessee has submitted additional evidences in the form of (i) list of the persons from whom the moneys were received, their PANs, copies of their ITRs and proofs of their sources of income, wherever available, and (ii) copy of Form-2 being Return of Allotment of shares as per Companies Act, and (iii) details of bank accounts alongwith cheques through which the moneys were received, to the Ld. CIT(A) and those evidences stand admitted in terms of Rule 46A(1)(b). We observe that the Revenue has not pointed out any deficiency in these admitted evidences. Hence from these evidences, the essential requirements of section 68, namely the identity of persons, creditworthiness of the persons and genuiness of transactions are adequately established. Therefore, the Ld. CIT(A) has rightly deleted the addition. Appeal of Revenue is dismissed.

Summary

Issues Involved:
1. Admissibility of additional evidences under Rule 46A of the Income-tax Rules, 1962.
2. Disallowance of commission expenditure of Rs. 1,71,32,125/-.
3. Addition on account of increase in share capital of Rs. 75,00,000/- under section 68.

Issue-wise Detailed Analysis:

1. Admissibility of Additional Evidences under Rule 46A:

The Revenue challenged whether the Ld. CIT(A) was justified in admitting additional evidences in violation of Rule 46A. The assessee claimed that a fire in its factory caused loss/damage of documents, leading to an inability to present evidence during the assessment proceedings. The Ld. CIT(A) forwarded the assessee's application and evidences to the Ld. AO for comments and a remand report, which was duly submitted. The Ld. CIT(A) admitted the additional evidences, citing the fire as a sufficient cause under Rule 46A(1)(b). The Ld. AO did not object to the additional evidences in the remand report, acknowledging the assessee's hardship. The Tribunal upheld the Ld. CIT(A)'s decision, finding no infirmity in admitting the additional evidences as per Rule 46A(1)(b).

2. Disallowance of Commission Expenditure:

The issue involved the disallowance of commission expenditure of Rs. 1,71,32,125/-. The assessee paid commission to a UAE resident, Mr. Aashik Asaria, for sales to M/s Overseas Metal Trading Co., UAE, and claimed it as a business expenditure. The Ld. AO disallowed the commission due to the absence of evidence and non-deduction of TDS. The Ld. CIT(A) deleted the disallowance, noting that the commission was paid to a non-resident with no permanent establishment in India, and thus not subject to TDS under section 195. The Tribunal found that the assessee provided sufficient evidence during the appellate proceedings, including an agreement with the agent and purchase contracts. The Tribunal upheld the Ld. CIT(A)'s decision, confirming that the commission payment was for business expediency and not subject to TDS as it was not chargeable to tax in India.

3. Addition on Account of Increase in Share Capital:

The issue involved the addition of Rs. 75,00,000/- under section 68 due to an increase in share capital. The Ld. AO invoked section 68 because the assessee did not submit the required evidence during the assessment proceedings. The Ld. CIT(A) deleted the addition, noting that the assessee provided evidence during the appellate proceedings, including confirmations, PAN numbers, bank passbooks, and proof of income sources. The Ld. CIT(A) found that the assessee established the identity, genuineness, and creditworthiness of the shareholders. The Tribunal upheld the Ld. CIT(A)'s decision, confirming that the essential requirements of section 68 were adequately met.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on all grounds. The additional evidences were rightly admitted under Rule 46A, the disallowance of commission expenditure was correctly deleted, and the addition on account of share capital increase was properly removed. The Tribunal found no infirmity in the Ld. CIT(A)'s actions, confirming that the decisions were justified based on the provided evidences and legal provisions.