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TMI Blog2007 (3) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... he genuineness of the expenditure but disallowed the same merely on the basis of extraneous report of assessee's name being appeared in a report, the contents of which were not disclosed to it or explained its relevance for such disallowance. (3) That the learned Commissioner (Appeals) erred in having upheld the addition of Rs. 14,99,987, being tender money deposit written off alleging that pre-condition of write off has not been explained, in spite of the fact that as per generally accepted accounting standard there is no scope to account for tender deposit as income and the amount written off has to be viewed from the overall business perspective. (4) That the learned Commissioner (Appeals) fell in error in upholding the addition of Rs. 8,00,000 being drawing & designing expenses paid to expert M/s. Marshall & Sons for remaining in the competitive market on the alleged ground of lack of agreement and nature of services rendered in spite of the fact that bill raised by that expert has been produced and the expenditure was essential for survival in the business field. 3. Both the parties were heard regarding the issues raised by the assessee and its legal implications, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to Md. Al Samarie of Baghdad, Iraq, a non-resident towards agency commission for export of Forklift Trucks in pursuance of Agency Agreement between the appellant and ISSAM Bureau Group of Companies, is being challenged. The facts of the case, as revealed by the orders of the lower authorities and also various papers and documents placed in the paper book filed by the appellant company are as follows. The appellant company had entered into a Dealership, Sales and Service Agreement with ISSAM Bureau Group of Companies incorporated in the Republic of Iraq. The said agreement was entered into with the above mentioned agent on being approached by that concern, after due negotiations with it for the purpose of procuring orders in Iraq. As per the said agreement, the aforesaid ISSAM Group was appointed as Dealer and Service Agents of the appellant company for Forklift Trucks manufactured by the appellant company. The scope of work to be performed by the agent was stipulated in the said agreement entered into with them, which has been perused by us. The appellant company subsequently exported flame proof Forklift Trucks to the Ministry of Oil, Baghdad after taking necessary approval f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. (2) Hirji Nagji & Co. v. CIT [1976] 105 ITR 286 (Ori.) holding similar view as above. (3) Caneshdas Kaluram v. CIT [1951] 19 ITR 102 (Ori.) (4) C. Vasantilal & Co. v. CIT [1962] 45 ITR 206 (SC) (5) CIT v. Biju Patnaik [1991] 190 ITR 396 (Ori.) holding that the statement. recorded ex parte under Section 131 cannot be used against : assessee without providing an opportunity to him to place materia., for rebutting the same. (6) Sarita Devi Kajaria v. ITO (2004) 89 ITD 109 (Kol.)(TM) (7) Kiran Corpn. v. Asstt. CIT (2006) 98 ITD 119 (Ahd.)(TM) holding like since the evidence collected at the back of the assessee was utilized by the assessing officer against the assessee without confronting it with such evidence, action of the assessing officer was violative of the principles of natural justice as well as the express provisions of Section 143(2). 6.6 During the course of the appellate proceedings before the Commissioner (Appeals) a remand report was called for from the assessing officer regarding reappearance of the name of the appellant in the Voiker Report. We find that in the said Remand Report, the assessing officer stated that the disallowance had been made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts, the appellant has submitted and proved also that the entire payment was made through Standard Chartered Grincllays Bank Ltd., Amman, Jordan and not to any Iraqi bank Account. Furthermore, as is evident from the agreement and copies of correspondences placed in the Paper Book, the payment was made for procuring the sales orders and for facilitating the installation of the Forklifts at the sites after they had been delivered to Iraq. Therefore, it is clear that no payment was made for Inland Transportation Fees or After Sale Services Fees (ASSF) as alleged by the assessing officer. We are also of the opinion in this connection that even if the appellant company had paid Inland Transportation Fees or After Sale Services Fees (ASSF) to the agent, the said payments being of C the nature of legitimate business expenses, that would not have materially affected the claim of the appellant regarding allowability of the expenses concerned. Hence, this reasoning on the part of the departmental authorities on this issue also will not stand for legal scrutiny. 6.9 As regards the other allegation of the assessing officer that the payment was not authorized by the U.N. and was reportedl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tallation procedure. The agent also provided all help and technical support, in consultation with the appellant, which arose during installation and working of the Forklift Trucks exported. 6.11 On the basis of the above materials we are of the view that the commission paid is on account of services duly rendered by the commission agent and is therefore, fully allowable as a deduction in the computation of the appellant's total income. 6.12 The Commissioner (Appeals) has doubted the genuineness of the commission payment by stating that the commission is 23 per cent of the sales value and therefore is high and has also doubted the exigency of making such payment. The learned counsel for the appellant has argued in this connection that the observation of the Commissioner (Appeals) in this regard is simply based on suspicion and not on the knowledge of the exigencies of the commercial world. It has been submitted that payment of commission for various works and especially for procuring purchase orders is a very prevalent practice in the commercial world and that such commission payments are admissible deductions in the Income-tax assessments of the payer party. Reliance has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinar System Ltd. in ITAT No. 2412/Cal./1994 (Assessment year 1991-92). (15.) Akanksha International (ITAT - Mumbai), order dated in ITA No. Mum. (2004) (Assessment year 2001 -02). 16. Kiran Corpn.'s case (supra). 6.13 Lastly, the Commissioner (Appeals) has also confirmed the disallowance on the ground that no TDS was deducted by the appellant under Section 195 of the Income Tax Act, 1961 and therefore the payment of commission was even otherwise not allowable as per the provisions of Section 40(a)(i). In this regard, our attention has firstly been drawn to the provisions of Section 195, in accordance with which any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. It has been argued that tax is deductible on any payment made outside India on a sum which is char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrue in India. In this respect, it was submitted that as pointed out earlier the agency commission income did not accrue or arise to the agent in India. In this case payment was made for services rendered by him outside India. The commission agent had no business connection in India and neither did it have any permanent establishment in India. The entire services of the agent were rendered outside India and no part of the services was rendered in India. Therefore, it was finally argued that no part of the income of the non-resident agent can be said to have accrued or arisen in g India or deemed to have accrued or arisen in India. This being the position the income of the non-resident, it has been argued, could not be treated as taxable in India as per the provisions of Section 5(2) of the Act. Again since the income of the commission agent was not taxable in India, the appellant was not required to deduct TDS as per the provisions of Section 195. 6.17 The learned counsel for the appellant summed up his arguments as under: (i) Recipient of commission is a resident of Iraq. (ii) Commission was paid to it in Jordan. (iii) Services were rendered by it in Iraq. (iv) It has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made by a private party for furthering its business interests. There is nothing on record to show that the payment was made to any mafia group or to other for any illegal purpose or against public policy. The Volker Commission's Report mostly concerns politicians and others who are Public Servants in the eyes of law. It does not mention any illegality on the part of a private Indian party. Any bar imposed by UN on supply of goods to Iraq also cannot debar an Indian party to do so unless the restriction is imposed by the Government of India through a legal process. In the present case, there was no such restriction on supply of goods or materials to Iraq imposed by the Government of India. In any case, the records show that even these contingencies also did not arise in this case as neither the name of appellant company has been proved to have figured in the Volker Commission Report nor has the payment been proved to be of the nature of a kick-back nor even it has been shown that the necessary permission from UN was not taken. So far as the nature of the payment is concerned, it has clearly been established that the payment was made purely for the purpose of procuring exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the alleged difference might have arisen due to lack of reconciliation on account of various factors such as freight, taxes, etc. Sales invoices together with the books of account of the assessee are stated to have duly been produced before the assessing officer during assessment proceedings and the assessing officer also did not point out any defect or error therein. Furthermore, it has been pointed out that while the appellant follows Mercantile system of accounting, the said customer, on the other hand, follows Cash Basis of accounting. 8. On appreciation of all the aspects of the case, we are of the opinion that when the assessing officer allowed the appellant proper opportunity to explain the discrepancy between their figures and that of the other party, it was incumbent on the appellant to explain and reconcile the said discrepancy and that in the present case, the appellant has failed to provide such proper explanation and reconciliation. Therefore, we uphold the addition. Hence, the ground No. 2 raised by the assessee is dismissed. 9. Ground No. 3 relates to disallowance of Rs. 14,99,987 on account of various tender deposits totalling to Rs. 14,99,987 written off by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the disallowance. 11. Ground No. 4, being the last effective ground relates to the disallowance of Rs. 8,00,000 paid by the assessee to M/s. Marshall & Sons by treating the same as capital expense. The said expenditure is stated to have been incurred by the appellant for drawing and designs and for various softwares on drawing and design like cad computer aided design for its equipments. It has been argued that in the absence of expertise, the appellant company had to take help from experts outside its organization to procure such softwares and drawings and designs. The said expenditure is claimed to have been incurred to improve the efficiency of the machines and improvement of the profit-making apparatus. It has been argued that the said expenditure cannot be treated as a capital expenditure since no new asset had come into existence and that the said expenditure was incurred to increase the efficiency of the existing machines. It is further argued that ri times of rapidly changing technology due to fast development and old systems becoming obsolete, expenditure incurred for acquiring drawings and designs for improving the efficiency or profit-earning apparatus is revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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