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TMI Blog2014 (4) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-07 which is passed under the provisions of section 143(3) of the Act and copy is placed on the paper book. It is also a matter of fact that while making the disallowance the AO did not bring any material on record to suggest that the payment made by the assessee to Shri Bharat Goel was for any purpose other than business of the assessee. Thus it is difficult to uphold the findings of the A.O that the payments were not made by the assessee for business expediency. In absence of any contrary material and in view of the fact that similar payments have been accepted by the Revenue in earlier years as business expenditure, we are of the opinion that Ld. CIT(A) did not commit any error in holding that such amount was allowable as business expenditure and, therefore, could not be disallowed under section 37 of the Act. Coming to the alternative claim of the AO that on account of nondeduction of tax the amount was disallowable. Here the case of AO is mainly based on withdrawal of earlier circulars and this issue has been discussed in details in above part of this order. The aforementioned decision of Hon’ble Delhi High Court in the case of CIT vs. Angelique International Ltd (2013 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered outside India. 5. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that the decision of Hon ble Special Bench decision in the case of Merilyn Shipping and Transports vs. Add!. CIT (16 ITR (Trib.) 1 (Vishakhapatnam) is applicable in the assessee s case as the disallowance is made u/s.40(a)(ia), but erroneously mentioned in the assessment order u/s.40(a) (ia). 6. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. In Assessment 2009-10, the figure is a sum of ₹ 2,33,23,198/-. 2. We will discuss the facts regarding assessment year 2008-09. The assessee is engaged in the business activity of manufacturing and export of textile garments. The discussion in the assessment order on the impugned issue is in para-9. During the course of scrutiny proceedings the assessee was required to submit details of commission and brokerage paid by it to various parties, which were claimed in the profit and loss account of a sum of ₹ 2,07,08,714/-. The assessee was also required to explain the deduction made on such payments. The assessee vide letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of total sales of ₹ 57,90,64,163/-, which is 90% of the total turnover. The brokers and commission agent procure the order from buyers, place the order to the assessee and act as intermediaries right from the procurement of the order till delivery of the goods as well as receipt of the payments from the respective buyers. In lieu of such services assessee is making payment which is in the nature of brokerage or commission. Those agents do not have any office or permanent establishment in India. They procure orders from foreign countries, render their services in foreign countries and receive commission directly in foreign countries through foreign remittances. It was further submitted that Shri Bharat Goel is acting as agent of the assessee for export sales in foreign countries. Said Shri Bharat Goel had procured the orders from Mexico and acted as an agent for the assessee right from procurement of the orders till the receipt of the payment by the assessee. In consideration thereof the assessee is paying commission @12.50% on Shirts T.Shirts and 5% on Sweaters. The AO did not find inconsistency or irregularity in the payments made to Shri Bharat Goel and did not bring a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-resident for services rendered outside India could not be deemed to be income which had either accrued or arisen in India. Reliance was also placed on the decision of Hon ble Bombay High Court in the case of Clifford Chance Vs. DCIT, 318 ITR 237 (Bom) to plead that no such TDS was required to be deducted on the payments made by the assessee to Shri Bharat Goel. So far as it relates to contention of AO that since aforementioned circulars were withdrawn by a subsequent Circular No.7/2009 dated 22/10/2009, it was submitted that the withdrawal of circular could not be considered to be retrospective. Thus, it was pleaded that disallowance was not called for either on the ground that it was not allowable under section 37(1) of the Act or on the ground that since TDS was not deducted the same was disallowable under the provisions of section 40(a)(ia) of the Act. 2.3 On these submissions of the assessee, Ld. CIT(A) has returned a finding that AO has accepted such claim of the assessee in respect of financial year 2006-07 and 2007-08, where similar payments are made by the assessee to Shri Bharat Goel. The 98% turnover of the assessee is from export sales and assessee does not have any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to Shri Bharat Goel. Ld. DR submitted that disallowance was also rightly made by AO on the ground that assessee had failed to make deduction of tax from the payments made by the assessee to Shri Bharat Goel. Therefore, he pleaded that according to provisions of section 195 r.w.s. 40(a)(ia) the disallowance was rightly made by the AO. Ld. DR also referred to para-4 of Circular No.7/2009 dated 22/10/2009 which read as under: 4. Even when the Circular was in force, the Income-tax Department has argued in appeals, references and petitions that (i) the Circular does not actually apply to a particular case, or (ii) that the Circular cannot be interpreted to allow relief to the taxpayer which is not in accordance with the provisions of section 9 of the Income-tax Act or with the intention behind the issue of the Circular. It is clarified that the withdrawal of the Circular will in no way prejudice the aforesaid arguments which the Income-tax Department has taken, or may take, in any appeal, reference or petition. 4.1 Referring to the aforementioned portion of the circular it was submitted by him that after withdrawal of the earlier circular i.e. circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances. 9. First circular in question had been in force for a long time, from 1969. The Board may have withdrawn this circular and other circulars vide Circular No. 7 dated 22nd October, 2009 but the said withdrawal cannot be retrospective. Circular No. 7 of 2009 cannot be classified as explaining or clarifying the earlier circulars issued in 1969 and 2000. This assertion in the assessment order is far-fetched and does not merit acceptance. Circular No. 7 does not clarify the earlier circulars but withdraws them. This is obvious and apparent. Circulars in force in the relevant assessment year have to be taken into consideration and should not be ignored. 10. So long as the circulars were in force, it aided in uniform and proper administration and application of the provisions of the Act. Read in this manner, we do not think the respondent-assessee was in default and had failed to deduct at source, though it was mandated and required. The respondent was entitled to rely upon the circulars. In light of the judgments of the Supreme Court in CIT versus Eli Lilly Company (India) Private Limited, (2009) 312 ITR 225 (SC) and G.E India Technologies Centre Private Limited versu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat similar payments were made by the assessee in earlier years to Shri Bharat Goel and have been accepted as allowable expenditure by the Revenue. This fact is clear from the assessment order for A.Y 2006-07 which is passed under the provisions of section 143(3) of the Act and copy is placed on the paper book. It is also a matter of fact that while making the disallowance the AO did not bring any material on record to suggest that the payment made by the assessee to Shri Bharat Goel was for any purpose other than business of the assessee. In view of all these facts, it is difficult to uphold the findings of the A.O that the payments were not made by the assessee for business expediency. In absence of any contrary material and in view of the fact that similar payments have been accepted by the Revenue in earlier years as business expenditure, we are of the opinion that Ld. CIT(A) did not commit any error in holding that such amount was allowable as business expenditure and, therefore, could not be disallowed under section 37 of the Act. 6.1 Now coming to the alternative claim of the AO that on account of nondeduction of tax the amount was disallowable. Here the case of AO is mai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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