The Chennai Bench of Income Tax Appellate Tribunal (ITAT) while confirming the disallowance of payment of agency commission held that the assessee failed to justify the service render to Associated Enterprise
The assessee Intimate Fashions is a joint venture between M/s.MAS Capital Pvt. Ltd., Sri Lanka, M/s.Triumph International Overseas Ltd., Liechtenstein and M/s.Mast Industries Inc. USA
The assessee had entered into international transactions, which were duly reported in the transfer pricing documentation.
During the course of scrutiny assessment proceedings,the TPO/AO made certain/disallowances to payment of agency commission which was upheld by the DRP/CIT(A).
Aggrieved by the order, the assessee filed an appeal before the tribunal.
When the matter was considered before the bench, Sriram Seshadri, counsel for the assessee submitted that Commissiomer of Income Tax (Appeals)[CIT(A)] for the AY 2004-05 had relied upon the order of the Tribunal for AYs 2001-02 to 2003-04, and deleted the disallowance of agency commission and Revenue not challenged the said order of the CIT(A) and the issue had reached finality.
Further, the counsel submitted that the issue of payment of agency commission was referred to the TPO from AYs 2003-04 to 2007-08,wherein, no adjustment was proposed by the TPO.
Moreover, the assessee had filed the details of rendering of services by AEs and also filed various correspondence including e-mails between the assessee and AEs to prove that both parties are specialized in marketing of goods manufactured by the assessee and also provided various services.
Dr.S.Palanikumar, Counsel for the revenue submitted that, for Assessment Year (AYs) 2001-02 to 2004-05, agency commission has been disallowed under Section 37(1) of the Income Tax Act, and hence, those years could not be considered.
The assessee to justify, and rendering of services by AEs could not produce any evidence also the assessee could not explain why it has paid agency commission to an entity in Hong Kong when entire services have been rendered in connection with sales made in the USA.
The tribunal observed that in the initial years and up to AY 2004-05, the AO has disallowed agency commission under Section 37(1) of the Income Tax Act, on the ground that said expenditure was not incurred wholly and exclusively for the purpose of business of the assessee. Assessment year 2005-06 to 2007-08, there was no adjustment made.
It was also observed that assessee explained general clauses in agreement between the assessee and AEs and argued that these services, including design for product manufactured by the assessee in line with change in industrial requirements and scheduling of production & sales, advisory in connection with procurement of materials, etc., had been provided, but could not file any evidence to prove the AEs have rendered services to the assessee.
Therefore, the two member bench of Mahavir Singh, (Vice President) And Manjunatha.G, (Accountant Member) considering above observation held that assessee could not file any evidence to prove that AEs have rendered services to justify payment of agency commission.
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