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TMI Blog2024 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... al order) and, therefore, the said order along with the demand created and notice issued u/s. 156 are liable to be quashed. 2. On the facts and circumstances of the case and in law, the Id. assessing officer erred in making addition/variation of Rs. 11,64,88,755/- on account of commission, brokerage and discount expenses. 3. On the facts and circumstances of the case and in law, the Id. assessing officer/ Hon'ble DRP erred in making disallowance of Rs. 61,64,363/- u/s. 14A of the Act. r.w.r 8D of the Income Tax Rules. 4. On the facts and circumstances of the case and in law, the Id. assessing officer/Hon'ble DRP erred in making addition of Rs. 2,03,96,540/- on account of disallowance of ESOP expense. 5. On the facts and circumstances of the case an in law, the ld. assessing officer has erred in making addition of Rs. 15,17,87,755/- on account of disallowance of purchases. 6. On the facts and circumstances of the case and in law, the ld. assessing officer/ Id. TPO/ Hon'ble DRP have erred in making adjustment of Rs. 23,06,351/- on account of commission on standby letter of credit." 3. Grounds No.1 of the concise ground (supra) is dismissed as not pressed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'quality checks' which requires technical expertise such payments thus fall within the ambit of 'fee for technical services' and such services are being utilized for the purpose of business carried out in India or for earning any income from source in India and consequently such services are subjected to withholding tax provisions under Section 195 of the Act. The assessee have failed to deduct TDS on remittances made on account of such commission / brokerage and thus such expenses are liable to be disallowed. 5. In the pursuance of the objections filed by the assessee to the draft order, the DRP took note of the submissions made on behalf of the assessee viz; (i) the identical position of the assessee on such commission expenses have been duly accepted in the A.Y. 2014-15, 2015-16 and 2016-17 under Section 143(3) of the Act (ii) the foreign agents continue to be the same and the factual matrix of the assessee continues to be identical (iii) copy of agreements with foreign agents have been produced before the AO and there is no reference to any clause by which it reveals that any quality check of any technical nature is to be done by the foreign agents (iv) the clauses of agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse conclusion drawn by the AO is solely based on so called assertions made on behalf of the assessee in VC meeting that the commission agents are under obligation to indulge in quality checks which tantamount to fee being paid for rendering technical services to such agents under s. 9((1)(vii) of the Act and thus liable for tax deduction at source under s. 195 of the Act and such failure would trigger s. 40(a)(i) of the Act to disallow the commission expenses to such foreign agents. Addressing the point, the ld. counsel submitted that while the assessee has demonstrated total absence of any such clause in the agreement towards quality check, the Revenue has failed to produce any evidence in support of such allegation. No recording of VC meeting has been provided despite request. Besides, the payments are being made for obtaining identical services year after year from the same parties under the same set up where such business expense on account of export commission has been duly accepted in tune with law. No factual deviation has been shown except for a self serving assertions made by the AO that some kind of confession was made on behalf of the assessee towards quality check ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for procurement of export orders to various such overseas agents such as Ultima Italia SRL, Italy; World Fashion Trade Ltd, Hong Kong; Trade World Ltd, Hong Kong and several other parties having establishment abroad. The assessing officer has denied deduction of commission expenses for non deduction of TDS on such payments placing reliance on Hical Infra (supra). 9.1 In defense, it is the case of the assessee that commission payments are attributable to procurement of export orders for earning an income outside India and in lieu of services rendered outside India. The overseas agents are not authorized to conclude any contract on behalf of the Indian company and the pricing of the product is also determined by the Indian Company. The overseas agents carried out their assigned activity wholly outside India as a support for procurement of export orders. It is further case of the assessee that the AO in the final assessment order has disallowed such commission expenses aggregating to Rs. 11,64,88,755/- solely on the ground that assessee has failed to deduct TDS under section 195 of the Act on commission payments and consequently invoked provisions of Section 40(a)(i) of the Act. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, in the absence of any services of technical nature, commission payments to selling agents outside India is outside the ambit of provisions of Section 9(1)(vii) r.w. Section 5 of the Act. 9.2 Plethora of judgments govern the field on the issue. Useful reference can be made to the decision rendered by the Co-ordinate Bench in CIT vs. EON Technology P. Ltd., (2011) 15 taxmann.com 391 (Del) and in the case of Prithvi Information Solutions Ltd. Vs. ITO (2014) 47 taxmann.com 214 (HYD.); Well Spring Universal vs. JCIT (2015) 56 taxmann.com 174. 9.3 Under the provisions of s. 195 of the Act, taxes are required to be deducted at source on the payments made to non resident, only if the income payable to the non resident is chargeable to tax in India. The income is chargeable to tax in India in the hands of the non resident where income received or deemed to have been received in India or the income has accrued or arisen or deemed to have accrued or arisen in India. The assessee has appointed several non-resident entities to act as agent for services such as soliciting customers, securing orders, assisting in deliver of goods outside India etc. The commission in the instant case has thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,03,96,540/- on account of disallowance of ESOP expenses. 12.1 As per the draft assessment order, the AO observed that the assessee has claimed Rs. 2,03,96,540/- under Section 37(1) of the Act under the head 'employees ESOP compensation expenses'. It was submitted by the assessee that during the year under consideration, the company granted 1,64,650 options comprising equal number of equity shares in one or more tranches to eligible employees of the company. The options are granted with specific exercise period from the date of vesting of shares and the options are exercisable at a pre-determined price of Rs. 50 each resulting in issue of share on discount to the market price of the company shares on the date of grant. 12.2 As pointed out, it was asserted before the lower authorities that the expenses are incurred with a view to retain the talent / staff for the benefit of the company and consequently such expenses are allowable as business expenditure in the light of the judgments rendered in Biocon Ltd. vs. DCIT (2013) 35 taxmann.com 335 (SB); CIT vs. Lemon Tree Hotels Ltd. (supra) 12.3 Before the DRP, the assessee reiterated that the expenses are neither notional nor cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order, the DRP referred to the judgment rendered by the Hon'ble Gujarat High Court in the case of Pr.CIT vs. Tejua Rohit Kumar Kapadia (2018) 94 taxmman.com 324 (Guj.); and CIT vs. Bholanath Polyfab P. Ltd., (2013) 355 ITR 290 (Guj.) to observe that since the impugned purchases have been sold and the sales have been accepted, there is no rationale for disallowing the purchases. The DRP also referred to judgment in the case of Balaji Textiles Industries P. Ltd. (1994) 49 ITD 177 (Mum.) providing similar view. The DRP accordingly expressed a view that there cannot be any sale without purchases in any business transaction as the accounting is complete only by taking into account both the sides of the transactions. The sale and purchase transactions are thus requires to be simultaneously considered. The AO was accordingly directed to make verifications in the light of such observations. 13.4 The AO in the final assessment order however continued to treat the purchases of fabric from STPL as bogus and refused the claim made under Section 37 of the Act without bringing any fresh facts on record. 13.5 Before the Tribunal, the ld. counsel broadly reiterated the submissions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not charged any amount to its Associate Enterprises (AEs) for risk borne by it. The TPO held that assessee was required to be compensated @2.5% by its AEs on account of exposure of SBLC issued by the banks. The AO determined the Arms' Length Price of such charges at Rs. 23,06,351/- and accordingly recommended adjustment of such amount under Section 92CA(3) of the Act. 14.2 Before the DRP, the assessee submitted that it has recovered full charges from the AEs and the AO / TPO was thus not justified in making further adjustment. In the alternative, the adjustment made by the AO/TPO is on a very high side. It was submitted that SBLC has been issued by the company bankers without any margin or any specific security. No cost has been borne by the assessee company. The actual bank commission charged by the bank has been duly recovered from the AEs. Therefore, there is no outgo. In any case, the guarantee charges charged by the bank are on market rate and the assessee has also recovered the same at the rate at which the bank has charged. The DRP however did not find any infirmity in the action of the AO/TPO. As per the rectification order passed under Rule 13 of DRP, 2009, the DRP has si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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