2015 (12) TMI 1171 - AT - Income Tax

Disallowance towards purchase of leather - Held that - Admittedly, the assessee engaged in the business of manufacturing and export of leather and leather garments. The assessee claimed before the Assessing Officer that it purchased leather to the tune of ₹ 2,00,292/-. The assessee filed copies of the books of account for the period 01.04.2009 to 31.03.2010 and 01.04.2010 to 31.03.2011. The Revenue authorities have not disputed the purchases made by the assessee. From the orders of the lower authorities it appears they are disputing only the payment. The assessee is in the manufacture of leather and leather garments. Without purchasing the leather, it cannot manufacture leather garments. When the purchase is not doubted, this Tribunal is of the considered opinion that there is no reason to doubt the payment. In those circumstances, in view of the smallness of the amount of ₹ 2,00,292/-, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the addition is deleted. - Decided in favour of assessee TDS u/s 195 - Disallowance of commission paid to foreign agents - non deduction of TDS - Held that - Admittedly, the assessee is engaged in manufacturing leather and leather garments. In order to market its product in foreign countries, the assessee engaged agents and paid commission to them. The question arises for consideration is whether the commission payment made by the assessee is in the nature of fee for technical services or not? This issue was considered by the Madras High Court in Faizan Shoes Pvt. Ltd. (2014 (8) TMI 170 - MADRAS HIGH COURT ) wherein found that the foreign agent is not providing any technical service for the purpose of running of the business of the assessee in India. Therefore, the commission paid to the agent is not a fee for technical service, hence, the assessee is not liable to deduct tax under Section 195 of the Act. The payment made by the assessee to the agents outside India cannot be construed as fee for technical service. Hence, the assessee is not liable to deduct tax.- Decided in favour of assessee

Summary

Issues:
1. Disallowance of freight and maintenance charges for non-deduction of tax.
2. Disallowance of purchase of leather due to lack of confirmation letter.
3. Disallowance of commission paid to foreign agents as fee for technical services.

Issue 1: Disallowance of freight and maintenance charges
The appellant's counsel did not press the ground regarding disallowance of &8377; 5,99,266 for non-deduction of tax on freight and maintenance charges. The Departmental Representative had no objection to dismissing this ground. Consequently, the disallowance was rejected as not pressed, and the lower authority's addition was confirmed.

Issue 2: Disallowance of purchase of leather
The appellant contended that the disallowance of &8377; 2,00,292 for the purchase of leather was unjustified. The Assessing Officer rejected the claim due to the absence of a confirmation letter from the supplier. However, the appellant provided account copies, purchase details, and payment evidence. The Tribunal noted that the purchases were not disputed, and being in the leather business, purchasing leather was essential. As the payment was supported by evidence, the Tribunal set aside the lower authorities' decision, deleting the disallowance.

Issue 3: Disallowance of commission to foreign agents
The appellant paid &8377; 29,56,419 as commission to foreign agents for marketing its products abroad. The Departmental Representative argued that this payment constituted a fee for technical services and was taxable. However, the Tribunal, citing a judgment, determined that the commission was not for technical services. Following the precedent, the Tribunal concluded that the payment was not taxable, overturning the lower authorities' decision. Consequently, the addition of &8377; 29,56,419 was deleted, and the appeal was partly allowed.

This judgment addressed various issues related to disallowances in the assessment of the appellant for the year 2010-11. The Tribunal examined each issue in detail, considering evidence and legal interpretations to reach its decisions.