2018 (9) TMI 1542 - AT - Income Tax

TDS u/s 195 - violation of provisions of section 9(1)(vii) r/w section 195(1) - non-deduction of tax at source on commission paid to two foreign entities namely Ancare Trade Consultants and M/s Whynot Buying House Services & Others - Held that - Commissioner of Income Tax (A) has stated in the impugned order that the assessee has brought on record details pertaining to the commission paid rebate and discount copy of bills FIRCs issued by the banks agreement with the foreign agent as evidence in support of submissions etc. Commissioner of Income Tax (A) has deleted the addition in this respect by observing that the Assessing Officer was not justified in disallowing the commission expenses by holding the expenses as not genuine. CIT (A) has also observed that tax is not liable to be deducted with respect to payments which is paid to non-residents particularly when the services were rendered outside India used outside India and the payments were made outside India in the absence of a Permanent Establishment in India. CIT(A) went on to hold that since the impugned income in the hands of the non-resident did not accrue or arise directly or indirectly through or from any business connection in India or through the transfer of capital asset situated in India the provisions of section 9(1) were not applicable on the facts of the case. Although the relevant details in respect of the impugned addition were not filed before the Assessing Officer the CIT (A) has admitted the details submitted before him in terms of the copy of bills FIRCs issued by the bank agreement with the foreign agents etc. Although not been specifically mentioned in the impugned order that the same were being admitted as additional evidence by the CIT(A) it is apparent that these documents/details were not field by the assessee before the Assessing Officer and CIT(A) admitted these evidences during the course of first appellate proceedings before him without calling for a remand report from the Assessing Officer in this regard. Without going into the merits of the deletion of addition by the Ld. Commissioner of Income Tax (A) on the basis of factual matrix as appearing from the orders of both the lower authorities it is apparent that the Ld. Commissioner of Income Tax (A) did not resort to the provisions of Rule 46A of the Income Tax Rules 1962 while admitting these additional evidences which were placed for the first time before him and we are in agreement with the Ld. Sr. DR to this extent that the Assessing Officer should have been given an opportunity to examine the documents which were submitted at the first appellate stage. Addition u/s 50C r/w section 69A - Held that - It is a settled law that section 50C applies to cases where a property has been sold. In case of acquisition of immoveable property at a value less than the value adopted for the purpose of stamp duty the difference between stamp duty value and the transaction value can at best be taxed under provisions of section 56(2)(vii) of the Act which any way is not attracted in the case of the assessee as the assessee is a partnership firm. Section 50C creates a legal fiction whereby apparent consideration is substituted by valuation done by stamp valuation authorities and capital gains are calculated accordingly. But legal fiction cannot be extended any further so as to take within its ambit the case of a purchaser where it is alleged that the purchaser had paid a price less than the value as adopted for the stamp duty purposes. A perusal of the assessment order also shows that the Assessing Officer has not disputed the price paid by the assessee and has not made any observations that the consideration as reflected in the books of accounts was less than what was actually paid by the assessee or what was recorded in the sale deed. ITAT Ahmedabad Bench had an occasion to consider an identical issue in the case of ITO vs. Harley Street Pharmaceuticals Ltd. 2010 (3) TMI 886 - ITAT AHMEDABAD - Appeal of the department stands partly allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of ?1,81,48,266 made by the AO for alleged violation of provisions of section 9(1)(vii) r/w section 195(1) of the Income Tax Act, 1961.
2. Deletion of addition of ?1,02,48,572 made by the AO u/s 50C r/w section 69A of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?1,81,48,266:
The department appealed against the deletion of the addition made by the AO for non-deduction of tax at source on commission payments to two foreign entities, Ancare Trade Consultants and M/s Whynot Buying House Services & Others. The AO had disallowed the commission expenses due to the lack of documentary evidence and justification for non-deduction of TDS as per Section 195 of the Act. The Ld. CIT(A) deleted this addition, stating that the payments were made outside India, services were rendered outside India, and there was no Permanent Establishment in India, thus Section 9(1) was not applicable.

However, it was observed that the Ld. CIT(A) admitted additional evidence such as bills, FIRCs, and agreements without obtaining a remand report from the AO, violating Rule 46A of the Income Tax Rules, 1962. The tribunal agreed with the department that the AO should have been given an opportunity to examine these documents. Consequently, the issue was restored to the file of the Ld. CIT(A) for de novo adjudication, following Rule 46A and providing the assessee an opportunity to present its case.

2. Deletion of Addition of ?1,02,48,572:
The AO had added ?1,02,48,572 as unexplained investment under Section 69A, based on the difference between the actual transaction value of an industrial property and its stamp duty value. The Ld. CIT(A) deleted this addition, stating that Section 50C applies only to sellers for computing capital gains and not to purchasers. The tribunal upheld this view, referencing ITAT Ahmedabad's decision in ITO vs. Harley Street Pharmaceuticals Ltd., which stated that Section 50C creates a legal fiction for sellers and cannot be extended to purchasers. The tribunal found no evidence suggesting that the assessee paid more than the recorded consideration and dismissed the department's appeal on this issue.

Conclusion:
The tribunal partly allowed the department's appeal for statistical purposes. The deletion of the addition of ?1,81,48,266 was remanded back to the Ld. CIT(A) for fresh adjudication, while the deletion of the addition of ?1,02,48,572 was upheld.