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TMI Blog2013 (10) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... has correctly deleted the addition – Decided against Revenue. Deletion u/s 40A (2)(b) - There are no instances on similar market conditions for similar quality of the yarn, higher price has been paid to the sister concern than the outsiders - So, no adhoc disallowance in this account is sustainable - it cannot be held that assessee has paid higher price to its sister concern than what was the cost to the assessee for producing the similar quality of the finished fabric. The comparative chart of yarn purchased from M/s PSL International at an average rate of Rs. 125/- per kg is supported by copies of invoices - It is noticed that the purchases from M/s PSL International is at the prevailing market rate - the rate at which purchase of yearn is made from M/s PSL International P. Ltd is comparable to the rate at which purchases are made from third/other parties - The adhoc disallowance at the rate of 1% cannot be approved - The A.O. has not given a finding that the payment made by the assessee is excessive or unreasonable having regard to the fair market value of the goods - This opinion has to be framed before invoking section 40A(2)(a) of the Act – Relying upon Upper India Publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s commission agents" without appreciating the copies of contracts / sale invoices properly; 3. Treating the overseas parties (to whom the assessee sold goods) as "overseas commission agents" when the assessee failed to explain as to how the buyers of goods could also be the commission agents; 4. Allowing the overseas commission to the local agents as well as overseas buyers on the same sale invoice when it is a simple transaction of sale / purchase; 5. In holding that there was no liabilities for TDS u/s 195 of the I.T. Act, 1961 as the services were rendered outside India. Amount was not taxable as it did not accrue or arise in India whereas there were no so called overseas agent and no services were rendered. The so called overseas agents were nothing but these were overseas buyers of assessee's goods; 6. In deleting the addition made by the AO on account of commission paid to the so called overseas commission agent relying upon the decision of Sanjay Jain Vs. DCIT, Special Bench of the Hon'ble ITAT, Ahmedabad in ITA No. 1533/Ahm/2008 dated 16.12.2009 and Narendra D. Modh Vs. ACIT, Circle - 2 in ITA No. 453/Ahd/2009 and ACIT Vs. Rachna Exports in ITA No. 3791/Ahm/2007. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted local commission paid but has disallowed overseas commission of Rs. 76,81,286/- u/s 37(1) of the Act with the following reasons: i) No services have been rendered by the overseas agents in as much as no details/documents of further sales by these agents have been furnished by the assessee. ii) From the perusal of sample contract notes furnished by the assessee with overseas agents it is evident that the same is a contract for purchase and sale of goods and commission has been merely deducted from the sales invoice at a flat rate without rendering of any services by these overseas agents. iii) In all such contract notes, name of the Indian agents who introduced the assessee to these overseas parties have been written for which commission has already been paid by the assessee to the Indian agents. Thus, for the same invoice, commission has been paid to local agents as well as overseas agents. The A.O. has not accepted the declaration of the overseas parties that they do not have any permanent establishment [PE] in India. 2.4 As against the above, the ld. CIT(A) has allowed this claim of the assessee with the aid of the following reasons:- "(i) It is apparent tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and amount is not taxable as it does not accrued or arise in India. Thus, it is held that there was no liability for deduction of tax at source u/s 195 of the I.T. Act on the overseas payments made to the NR commission agents. Accordingly, no disallowance u/s 40(a)(ia) for non deduction of tax at source can be made in the appellant's case." 3. After considering the rival submissions we are in agreement with the finding of the ld. CIT(A). The assessee has been exporting its goods to the non-residents introduced to it by local agents on commission basis. The modus of drawing invoices and recording the transaction in the books has been stated above. In fact, this amount represents a discount given to the purchases and not a business commission. Once the export invoice is raised and the goods are delivered, the sale transaction is complete. These transactions are found to be on principal to principal basis. There is no element of 'agency' to attract the provisions of section 194H. The overseas parties do not sell the goods as agents of the assessee-company. The assessee is not crediting the personal accounts of the overseas parties. It is a settled principle of law that existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International P. Ltd by considering it as excessive and unreasonable to that extent. 4.1 As against the above, the ld. CIT(A) has held as under: "I have considered the contentions of the appellant as well as assessment order. It is seen that as regarding the yarn purchase of Rs. 63,45,267/-, it was explained by the assessee that from the outside parties assessee has purchased yarn @ Rs. 121.15 to Rs. 163.84 per kg while average rate of purchases from sister concern is Rs. 125 per kg. The AO himself has accepted that purchase rate from outside parties it was found to be on the higher side in various cases. There are no instances cited that on similar market conditions for similar quality of the yarn, higher price has been paid to the sister concern than the outsiders. So, no adhoc disallowance in this account is sustainable. Further, as regarding the finished fabric purchase, assessee had furnished its own cost working for the cost of the fabric showing shrinkage @ 6.57% based on the challans. The AO has rejected the figure of shrinkage without any basis or comparative case. In above circumstances, it cannot be held that assessee has paid higher price to its sister concern th ..... 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