2018 (1) TMI 660 - AT - Income Tax

Revision u/s 263 - foreign commission expenses debited in the Profit and loss account were not related to the business activity of the assessee and also as the assessee had failed to deduct tax at source under Sec. 195 on the aforesaid commission, therefore, the same even otherwise was liable to be disallowed for the said reason - Held that - Now when the assessee had in the course of proceedings before the A.O proved that the foreign commission was paid to the foreign commission agents for services rendered abroad, which thus did not cast any obligation on the assessee to withhold tax while making such payment, therefore, the observation of the Principal CIT that the assessee had neither submitted an order under Sec. 195 of the Act, nor the prescribed certificate in Form No. 15CA of the Chartered Accountant, specifying that the deduction at source on such commission paid was not required to be made, in itself is rendered as redundant. Thus, in the absence of any statutory obligation on the assessee for withholding tax on the aforesaid payment, neither of the aforesaid verifications as were sought by the Principal CIT did survive any more. We are of the considered view that the Principal CIT in the backdrop of the aforesaid facts as emerges from the record, and was also pleaded by the assessee before him, had however not shown as to how the view taken by the A.O was found to be erroneous Now when the A.O after making necessary inquiries and verifications which should have been made by him in the course of the assessment proceedings and the queries raised vide notice under Sec. 133(6), had arrived at a plausible view, which we are afraid the Principal CIT had not been able to show as to how the same was erroneous, nor as to what all inquiries and verification leading to a contrary view should have been made by him, therefore, are unable to persuade ourselves to be in agreement with the Principal CIT that the order passed by the A.O under Sec. 143(3) was erroneous in so far it was prejudicial to the interest of the revenue, therein rendering it liable to be revised under Sec. 263 of the Act. We may further observe that we are in agreement with the contention of the ld. A.R that merely because the A.O had not referred about the inquiries and verifications carried out by him in respect of the issue under consideration in the body of assessment order, the same would not vest jurisdiction with the CIT to revise the order, as long as such exercise so carried out by the A.O can be gathered from the record. - Decided in favour of assessee

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (Principal CIT) under Section 263 of the Income Tax Act, 1961.
2. Disallowance of foreign commission under Section 195 of the Income Tax Act.
3. Disallowance of local commission under Section 194H of the Income Tax Act.
4. Validity of the order passed by the Principal CIT under Section 263.

Detailed Analysis:

1. Jurisdiction of Principal CIT under Section 263:
The Principal CIT exercised jurisdiction under Section 263, revising the assessment order passed by the Assessing Officer (A.O.) under Section 143(3). The Principal CIT observed that the A.O. failed to make necessary verifications regarding the foreign commission and local commission, rendering the assessment order erroneous and prejudicial to the revenue's interest. The assessee contended that the A.O. had conducted detailed scrutiny and verification, and thus, the Principal CIT's invocation of Section 263 was unwarranted.

2. Disallowance of Foreign Commission under Section 195:
The Principal CIT noted that the assessee debited ?9,84,262 as 'Foreign commission' without deducting tax at source under Section 195. The assessee argued that the foreign commission was paid to non-resident agents for services rendered abroad, thus Section 195 was inapplicable. The Principal CIT, however, concluded that the foreign commission expenses were not related to the business activity and should be disallowed due to non-deduction of tax at source.

3. Disallowance of Local Commission under Section 194H:
The Principal CIT observed that the assessee debited ?44,446 as 'local commission' without deducting tax at source under Section 194H. Specifically, ?33,000 was paid to Shri Pratap Singh. The assessee claimed this amount as supervision charges forming part of the salary, thus not attracting Section 194H. The Principal CIT disagreed, holding that the amount was commission and should have been subjected to TDS under Section 194H, making it liable for disallowance under Section 40(a)(ia).

4. Validity of the Order Passed by Principal CIT under Section 263:
The Tribunal found that the A.O. had made necessary inquiries and verifications during the assessment proceedings. The assessee had provided detailed explanations and supporting documents regarding the foreign and local commissions. The Tribunal noted that the Principal CIT failed to demonstrate how the A.O.'s acceptance of the assessee's claims was erroneous. Additionally, the Tribunal highlighted that the Principal CIT's reliance on Explanation 2(a) to Section 263(1) was misplaced, as the insertion was prospective and not applicable to the order dated 29.01.2015.

Conclusion:
The Tribunal concluded that the A.O. had conducted appropriate inquiries and verifications regarding the foreign and local commissions. The Principal CIT's order under Section 263 was set aside, and the original assessment order passed by the A.O. was restored. The appeal of the assessee was allowed, and the Tribunal emphasized that the Principal CIT had exceeded his jurisdiction by revising the assessment order without adequate grounds.

← Previous Next →