Unique Biotech Ltd., Hyd, Hyderabad vs Assessee

This appeal filed by the assessee is directed against the Order of Ld. CIT-V, Hyderabad dated 23.03.2015, passed under section 263 of the Income Tax Act, 1961.

2. The assessee in the present case is a company which is engaged in the business of manufacture and sale of probiotics. The return of income for the year under consideration was filed by it on 05.10.2010 declaring total income of Rs.4,38,57,189. In the assessment originally completed under section 143(3) on 04.09.2012, the total income of the assessee was determined by the A.O. at 2 ITA.No.492/Hyd/2015 M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

Rs.4,94,13,937. The record of the said assessment came to be subsequently examined by the Ld. CIT and on such examination, he was of the opinion that the order passed by the A.O. under section 143(3) suffered from the following error which was prejudicial to the interests of the Revenue.

"Information available on record indicates that sales commission of Rs.5,81,111/- was paid to various foreign parties without deduction of tax at source in the case of some parties, as required under the provisions of Section 195 of the I.T. Act. Hence, it is liable to be disallowed u/s.40(a)(ia) of the I.T. Act. As per the recent decision in the case of SKI Boilers & Driers (P) Ltd., (18 Taxmann.com 325 (AAR New Delhi) (2012), the Authority for Advance Ruling in AAR No.983 & 984 of 2010 has held that income arising on account of commission payable to agents outside India even on sales made outside, is deemed to accrue and arise in India and taxable in view of the provisions of section 5(2)(b) r.w.s.9(1)(i) and consequently provisions of section 195 apply."

2.1. The Ld. CIT therefore issued a notice under section 263 requiring the assessee to show cause as to why the assessment made by the A.O. under section 143(3) should not be revised on account of the above error. In reply, the following explanation was offered by the assessee.

"At the outset, we respectfully submit that the original assessment proceedings for the A.Y. 2010-11 were completed with proper application of mind keeping in view the provisions of law and judicial pronouncements available at that point of time. We therefore submit that the decision of AAR in the case 3 ITA.No.492/Hyd/2015 M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

of SKI Boilers and Driers P. Ltd., (18 Taxman 325 AAR New Delhi) on which you placed reliance for resorting to revision proceedings cannot be applied across the board to all cases as it pertains to certain set of facts relevant to that case only and it is not the law laid down by the Apex Court in the matter for payments made to the non-resident agents by the assessee without deduction of tax thereon."

2.2. The above explanation offered by the assessee was not found acceptable by the Ld. CIT for the following reasons given in paragraph 6 of his impugned order.

"6. I have gone through the facts of the case, assessment record and submissions of the A.R. on the issue involved. It is seen that during the course of assessment, the A.O. had called for the details of sales commission charges paid and had asked the assessee to prove why TDS provisions were not attracted vide notice dated 19.06.2012. Although the A.O. collected information regarding commission payments, the A.O. failed to enquire into the nature of services rendered for such a claim of expenditure. The record does not suggest that the A.O. had looked into the aspect of the nature of expenses claimed to come to a conclusion on its allowability under the relevant provisions of the Act. The A.O. has completed the assessment without any verification or basis for arriving at the conclusion that the expenditure claimed by the assessee is allowable under sections 37(1) or hit by section 195 of the Act. The completion of the assessment in such a manner would render the order to be erroneous. While the contentions of the authorised representative may be persuasive, it is relevant to note that such arguments would have to be considered only after a proper application of mind on the part of the A.O. on whether the allowability or otherwise of a particular expenditure claimed is first decided. In the instant case, the claim of the assessee has been allowed without examining the nature of 4 ITA.No.492/Hyd/2015 M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

services rendered, whether the agents are resident agents or foreign agents, whether the foreign agents have any place of business in India, etc., In the absence of such enquiries, the action of the A.O. in completing the assessment after allowing the sales commission expenses is to be concluded as not only erroneous but prejudicial to the interest of the Revenue."

2.3. For the reasons given above and relying inter alia, on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., vs. CIT 243 ITR 83 (SC), he set aside the order dated 04.09.2012 passed by the A.O. under section 143(3) with a direction to the A.O. to re-do the same as per Law after proper examination of the facts and application of appropriate Law. Aggrieved by the order of the Ld. CIT passed under section 263, the assessee has preferred this appeal before the Tribunal.

3. We have heard the arguments of both the sides and also perused the relevant material on record. The Ld. Counsel for the assessee at the outset has submitted that the issue raised in the present case by the Ld. CIT in his impugned order passed under section 263 is squarely covered on merit by the decision of the Coordinate Bench of this Tribunal in the case of Euroflex Transmissions (India) P. Ltd., vs. ACIT, Circle-2(2), Hyderabad ITA.No.1773/Hyd/2014 dated 01.04.2015 wherein a similar issue was decided by the Tribunal in favour of the assessee holding that the provisions of section 195 would not be applicable to the commission payments made by the assessee to non-resident Indians 5 ITA.No.492/Hyd/2015 M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

as such income is not chargeable to tax under the provisions of the Act. The learned D.R. on the other hand, has contended that the error as pointed out by the Ld. CIT vide his impugned order is that the A.O. failed to enquire into the nature of services rendered before allowing the claim of the assessee for deduction on account of payment of commission to the non-resident agents. He has contended that this vital aspect was not enquired into by the A.O. as found by the Ld. CIT from the assessment record and therefore, the order of the A.O. was revised by him. He has contended that the issue of allowability of the payment of commission made to non- resident agents thus has not been raised by the Ld. CIT on merit in his impugned order and the decision of the Coordinate Bench of this Tribunal rendered in the case of Euroflex Transmissions (India) P. Ltd., Hyderabad vs. ACIT (supra), deciding the issue on merit has no application in the present case.

4. After considering the rival submissions and perusing the relevant material on record, we are unable to accept the contention of the learned D.R. As demonstrated by the Ld. Counsel for the assessee, a specific enquiry was made by the A.O. during the course of assessment proceedings vide letter dated 19.06.2012 requiring the assessee to explain as to why TDS was not attracted in respect of sales commission paid to foreign parties. In reply to the said enquiry, a letter dated 8th August, 2012 was filed by the assessee offering its 6 ITA.No.492/Hyd/2015 M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

explanation and a copy of the relevant distribution agreement was also filed by the assessee evidencing the nature of services rendered by the commission agents. Keeping in view this position clearly borne out from the relevant documents, we find it difficult to accept the contention of the learned D.R. that the A.O. had not conducted the requisite enquiries or verification before allowing the claim of the assessee for deduction on account of payment of commission made to foreign agents. In our opinion, there was no such error in the order of the A.O. as allegedly pointed out by the Ld. CIT in his impugned order calling for revision under section 263. We, therefore, set aside the order passed by the Ld. CIT under section 263 and restore that of the A.O. passed under section 143(3).

5. In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 22.07.2015.

Sd/- Sd/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACOUNTANT MEMBER

Hyderabad, Dated 22nd July, 2015

VBP/- 7 ITA.No.492/Hyd/2015 M/s. Unique

Biotech Ltd., Shameerpet, R.R. District.

Copy to :

1. M/s. Unique Biotech Ltd., Shameerpet, R.R. District.

C/o. Mr. K. Vasantkumar & A.V. Raghuram, Advocates, 510, Babukhan Estate, Basheerbagh, Hyderabad - 500 001.

2. The DCIT, Circle 3(3), Hyderabad.

3. CIT-V, Hyderabad.

7. Addl. CIT, Range-17, Hyderabad

8. D.R. ITAT 'A' Bench, Hyderabad.

9. Guard File