ACIT, CIRCLE-33(1), NEW DELHI V. LUCKY EXPORTS, NEW DELHI

ITA 7113/DEL/2017

AI Insights

The case involves two appeals by the Revenue against M/s Lucky Exports concerning disallowances made during the assessment years 2011-12 and 2012-13. The primary issues revolved around the disallowance of commission expenses paid to foreign agents, legal and professional charges, and interest on loans/advances to sister concerns. The Assessing Officer (AO) had disallowed these expenses, citing lack of evidence for services rendered and non-compliance with TDS provisions. However, the CIT(A) reversed these disallowances, leading to the Revenue's appeal to the Tribunal. The Tribunal examined the evidence and legal arguments presented, ultimately agreeing with the CIT(A) and dismissing the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772376 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2012-2013
• Other Referred Cases: M/s. Scorpios Apparels Private Ltd. vs. ACIT, DIT (IT) vs. Panalfa Autoelektrik Ltd., CIT vs. RD Aggarwal & Co., Barendra Prasad Ray vs. ITO, JK Ltd. vs. CBDT, CIT vs. Bharti Cellular Ltd., Hal Offshore Ltd. vs Department Of Income Tax, M/s Aplab Limited vs ACIT, CIT vs. Reliance Utilities & Power Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: P. ROYCHAUDHURI; DELETING; DELETING; DELETING
• Keywords: Additional evidence; Gift; TDS

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: ‘F’: NEW DELHI) BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA No: - 5502/Del/2017 (Assessment Year- 2011-12) ITA No:- 7113/Del/2017 (Assessment Year- 2012-13) Asst. Commissioner of Income Tax, Circle-33(1), New Delhi. Vs. M/s Lucky Exports, UG-28, Som Dutt Chamber-II, New Delhi-110066. PAN No: AAAFL1147P APPELLANT RESPONDENT Revenue by : Ms. Suman Malik, CIT(DR) Assessee by : Sh. P. Roy Chaudhuri, Adv. Date of Hearing : 10.07.2025 Date of Pronouncement : 27.08.2025 ORDER PER SUDHIR PAREEK, JM: Both these appeals have been preferred by the Revenue against the orders of the Ld. Commissioner of Income -tax (Appeals)-11, New Delhi, ([in short (Ld. CIT(A)] Dated 09/06/2017 and 05/09/2017 for the Assessment Years 2011-12 and 2012-13 respectively. Since identical issues are involved in both the appeals, these are disposed Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 2 of by this consolidated order for the sake of convenience and brevity. For the sake of convenient, we take ITA No. 5502/Del/2017 for the Assessment Year 2011-12 as a lead case to dispose of these two appeals 1.1 The Revenue has raised the following grounds of appeal for adjudication: ITA No.- 5502/Del/2017 “ 1. Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of the assessce by deleting disallowance of commission expenses amounting to Rs. 2,51,21,886/- paid to M/s Synergy Petro Products Pvt. Ltd when there is no role of any agent as the contract was secured by the open tender process? 2. Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of the assessee by deleting disallowance of commission expenses amounting to Rs. 2,21,14,782/- paid to Non-resident viz. M/s Blesba Trade & M/s Societe Amar Consulting when the agents were also providing the assessee allied services and their services were in nature of technical services? 3. Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of the assessee by deleting disallowance of legal & professional charges expenses amounting to Rs. 36,31,214/- when the services were emanated from India only and thus liable for deduction of tax in India only? 4. Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the appeal of the assessee by deleting disallowance of interest amounting to Rs. 33,24,072/ when the assessee failed to prove the business purpose of loans/advances given to sister concerns? 5. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing?” Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 3 2. In AY 2011-12 appellant filed return of income on 29.09.2011 declaring an income of Rs. 17,55,95,534/-, which was processed under section 143(1) on returned income. The case was selected for scrutiny and during assessment proceedings, the Learned AO came to conclusion that commission expanses in respect of foreign commission agents for the exports sales are not allowable, as he verified commission payment to M/S Blesba Trade FZE and M/S Society Amar Consulting, and so disallowed the total commission expanses claimed by the appellant. Also disallowed the Legal Profession charge paid to foreign consultants, mismatch of interest receipts as per Form 26A, gift & business expanses, car running & maintenance expanses and telephone expanses and the income of the assessee computed vide order Dated 12/03/2014 as Rs 23,36,59,800/-. Aggrieved with the same, the assessee filed an appeal before the Learned CIT(A), which was partly allowed and on being dissatisfied, the Revenue before us by way of present appeal. 3. Heard rival submissions and carefully perused the material available on record. 4. Ground 1 relates to, deletion of disallowance of commission expenses amounting to Rs. 2,51,21,886/- paid to M/S Synergy Petro Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 4 Products Pvt Ltd, when there is no any role of any agent as the contract was secured by the open tender process. 4.1 The Ld. AO has made addition on the ground that the though the assessee has claimed to have deducted tax at source on the commission expanses paid to M/S Synergy Petro Products Pvt Ltd but it does not make the claim of expanses as genuine in absence of providing of necessary services for which commission expanses were incurred. 6.2 The Learned CIT(A), after examining the records and the remand report, held the commission payment to be genuine. The relevant portion of the CIT(A)'s order is reproduced as under: “ 5.4.2 From the above facts, it is noted that the AO has made the addition on the ground that the agent (M/s Synergy Petro Products Pvt. Ltd.) does not have any presence in the Republic of Benin and the actual rendering of the services has not been proved. As stated earlier, the appellant has filed additional evidence under Rule 46A vide which the copies of the correspondence between the appellant and the commission agents has been furnished. This correspondence alongwith the other documents on record i.e. the agreement between the parties, invoices for commission, proof of export made, confirmation from the agent etc. establishes the genuineness of the commission payment and services rendered. This fact has also been verified by the AO in the remand report. It is further contended by the AR that the whole commission amount has not been paid to the agent at one go but the same has been paid in instalments in accordance with the terms & conditions of the agreement depending upon the progress made in securing the contract and release of payments to the appellant. In addition, the AR has argued that the Director of the agent company had duly confirmed the rendering of the services. As far as the presence of agent company in the Republic of Benin is concerned, it is contended that even though the agent company did Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 5 not have physical presence in Benin, yet they had sufficient influence and contacts through which they had the potential to render services in Benin for securing the contracts for the appellant. 5.4.3 The appellant had a valid agreement with M/s Synergy Petro Products Pvt. Ltd. and from the documents on record and the additional evidence produced in appeal, there is no doubt that M/s Synergy Petro Products Pvt. Ltd road rendered services to the appellant in the form of helping in securing contracts for the appellant in Benin for which commission payment was made after deduction of TDS in accordance with the terms and conditions of the agreement. There is nothing on record to prove that the payment of commission is a sham transaction or the payments have been made for purposes other than that of business. In view of these facts, the addition made by the AO is deleted and the grounds of appeal are allowed.” 6.3 Considering the above facts and the findings of the CIT(A) which are based on evidence and verification, we do not find any infirmity in the decision of the CIT(A) in deleting the disallowance. Accordingly, this ground of appeal has not called for any interference and liable to be dismissed. 7. Ground no. 2 relates to, deletion of disallowance of commission expances amounting Rs 2,21,14,782/- paid to Non-Resident M/S Blesba Trade & M/S Societe Amar Consulting when the agents were also providing the assessee allied services and their services were in nature of technical services. 7.1 The Learned AO stated that the payment made by the assessee to a non- resident squarely covered by the provisions of section 195 Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 6 of the Act, which requires for deduction of tax at source on payment to a non-resident. 7.2 The Learned CIT(A), by disagreeing with the Learned AO, observed that the assessee was not liable to deduct TDS on the commission paid to the overseas agents and deleted the addition in question, relevant observations are reproduced as under: “ 6.4.4 Further, the said commission payments also do not constitute 'fees for technical services' as contended by the AO. In this regard, reference is made to the decision in the case of M/s. Scorpios Apparels Private Ltd. vs. ACIT in ITA No.741/Del./2013, in which Hon'ble Delhi ITAT has held as under: \"18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the monies deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum ie. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words \"chargeable under the provisions of the Act\" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the \"appropriate proportion of such sum so chargeable\" where a proportion of the sum so chargeable is liable to tax. 19. In view of the aforesaid discussions, it has to be held that there is no error in the findings recorded by the Commissioner of Income Tax (Appeals) which have been upheld in the impugned order by the ITAT. Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 7 We do not find any merit in the present appeal and the same is dismissed. No costs.\" Further, in the case of DIT (IT) vs. Panalfa Autoelektrik Ltd. in ITA No. 292/2014, the Hon'ble Delhi High Court has analyzed in detail the definition of technical services. In this case, the various judgments of Supreme Court in the case of CIT vs. RD Aggarwal & Co. (1965) 56 ITR 20, Barendra Prasad Ray vs. ITO (1981) 129 ITR 295, JK Ltd. vs. CBDT (1979) 118 ITR 312, Delhi, CIT vs. Bharti Cellular Ltd. (2009) 319 ITR 139 Delhi etc. have been discussed and the Hon'ble Delhi High Court has held that the commission paid to overseas agents for export orders cannot be termed as fees for technical services. Moreover, the AO has not placed on record any material to show that the overseas agents are providing some special skills or knowledge which involves something more than simply providing the export orders to the appellant. It is also noted that no such addition has been made in the case of the appellant for the assessment year 2010-11 in which similar commission was paid by the appellant. 6.4.5 In view of the above facts and the legal position as discussed above, I am of the opinion that the appellant was not liable to deduct TDS on the commission paid to the overseas agents and therefore, the addition made by the AO is deleted.” 7.3 We find that the CIT(A)’s conclusion is based on relevant legal principles and judicial precedents. Hence, we find no reason to interfere with the findings of the CIT(A). Accordingly, this ground raised by the Revenue is dismissed. 8. Ground no. 3 relates to, deletion of disallowance of Legal & Professional charges expanses amounting to Rs 36,13,214/- when the services were emanated from India only and liable for deduction of tax in India only. Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 8 8.1 The Learned AO disallowed payment of Rs. 36,13,214/-, by stating that the expanses claimed by the assessee are duly covered within the provisions of Act being in nature of fee for technical & professional services and the assessee was under obligation to follow the provisions of TDS prescribed under the Act before the credit or remittance of expanses which the assessee failed to comply with. 8.3 During appellate proceedings, the Learned CIT(A) observed as under: “ 7.3 I have considered the submissions of the appellant, the facts of the case and the documents on the record. It is observed that the appellant has made payment of Rs. 36,13,214/- on account of legal & professional charges to various persons who were not residents of India and as per records, none of these parties are having any PE in India. As per the documents on record including the invoices and Form 15CA and 15CB, the services by these service providers have been rendered outside India and the same have been utilized by the appellant outside India with the objective of earning income from projects undertaken outside India. It is to be appreciated that the appellant is engaged in the business of executing various projects outside India for which it needs various types of professional and technical services in the countries where these projects are executed. The payments made by the appellant to these non-resident parties are clearly covered by the exception in section 9(1)(vii)(b) of the Act and accordingly, no income can be deemed to have accrued or arisen in India on account of these payments made by the resident appellant for utilizing the services outside India for the purpose of earning income from the projects carried out outside India. In view of these facts and circumstances, I am of the opinion that the appellant was not liable to deduct tax on these payments and therefore, no addition can be made u/s 40A of the Act. Thus, the addition made by the AO is deleted and the ground of appeal is allowed.” Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 9 8.4 In view of the above, we do not find any reason to interfere with the well-reasoned findings of the CIT(A). Accordingly, this ground of appeal raised by the Revenue is also liable to be dismissed. 9. Ground no. 4 relates to, deleting of disallowance of interest amounting to Rs. 33,24,072/ when the assessee failed to prove the business purpose of loans/advances given to sister concerns. 9.1 In this regard, the relevant portion of the impugned order of the Learned CIT(A) is reproduced as under: “8.3 I have considered the submissions of the appellant, the f acts of the case And the documents on the record. The AO has disallowed interest of Rs. 33,24,072/- by stating that the appellant has diverted interest bearing funds for giving interest free loans and advances to sister concerns and for making investments in properties for non-business purposes. The AR has contended that the appellant has got enough interest free funds available at its disposal out of which these advances/investments have been made. The AR has provided a complete analysis of the funds available at the disposal of the appellant. It is observed that the partners capital as on 31.03.2011 amounts to Rs. 27,09,01,762/ and interest free unsecured loans of Rs. 84 lakhs are also available. As against this, the interest free advances/investments in respect of which the AO has made the disallowance amounts to Rs. 4,50,37,232/-. In this regard, reference is made to the decision of ITAT Delhi in the case of Hal Offshore Ltd., New Delhi vs Department Of Income Tax on 1 May, 2015 in ITA No. 4327/Del/2012 in which it has been held that- 9. On this issue, we respectfully follow the decision of coordinate bench of ITAT Mumbai 'G' Bench in the case of M/s Aplab Limited vs ACIT (supra) wherein it was held as under.- \"13. The Hon'ble jurisdictional High Court in the case of CIT vs. Reliance Utilities & Power Ltd. ((2009) 313 ITR 340 (Bom)) considered almost similar facts. In that case the AO recorded a finding that a sum of Rs.213 crores was invested by the assessee out of their own funds and Rs. 1.74 crores out of borrowed funds. Accordingly, disallowance of interest was made to the tune of Rs.2.40 crores. It was argued on behalf of the assessee that no Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 10 part of interest bearing funds had gone into investment in those two companies in respect of which the AO made disallowance of interest. It was also argued that income from operations of the company was Rs. 418.04 crores and the assessee had also raised capital of Rs.7.90 crores, apart from receiving interest free deposit of Rs. 10.03 crores. It was, therefore, submitted before the first appellate authority that the balance- sheet of the assessee adequately depicted that there were enough interest free funds at its disposal for making investment. The Id. CIT(A) got convinced with the assessee's submissions and deleted the addition. Before the Tribunal, it was contended on behalf of the Revenue that the shareholders' funds were utilized for the purchase of its assets and hence the assessee was left with no reserve or own funds for making investment in the sister concern. Thus, it was argued that the borrowed funds had been utilized for the purpose of making investment in the sister concern and the disallowance of interest was rightly called for. The Tribunal, on appreciation of facts, recorded a finding that the assessee had sufficient funds of its owns for making investment without using the interest bearing funds. Accordingly, the order of CIT(A) was upheld. When the matter came up before the Hon'ble jurisdictional High Court, it was contended by the Department that the shareholders' funds stood utilized in the purchase of fixed assets and hence could not be construed as available for investment in sister concem. Repelling this contention, the Hon'ble High Court observed that: \"In our opinion, the very basis on which the Revenue had sought to contend or argue their case that the shareholders fund to the tune of over Rs.172 crores was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious. In upholding the order of the Tribunal, the Hon'ble High Court held that! \"If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available. Thereafter, the judgment of the Hon'ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vn. CIT (1997) 224 ITR 627 (SC)) and also the judgment of the Hon'ble Calcutta High Court in Woolcombers of India Ltd. Vs. CIT ((1981) 134 ITR 219 (Cal)) were considered. It was finally concluded that: \"The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment\". Consequently, the interest was held to be deductible in full. 14. From the above judgment, it is manifest that there can be no presumption that the shareholders' fund of a company is utilized for the purchase of fixed assets. If the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds at the disposal of the Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 11 assessee. The facts of the instant case abundantly show that the shareholders fund is much more than the amount advanced by the assessee without any interest to its sister concerns. Respectfully following the precedent, we hold that the Id. CIT(A) was not justified in sustaining addition under the present circumstances. We, therefore, order for the deletion of addition. Ground no.5 is allowed.\" 10. In the present case also, the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds which were at the disposal of the assessee. Hence, the present case is squarely covered in favour of the assessee by the aforesaid order of ITAT, Mumbai. Accordingly, sole ground of the revenue is dismissed.\" 8.3.1 In the present case also, it is observed that the appellant is having sufficient interest free funds in the form of capital and unsecured loans which are much more than the interest free advances made to the sister concerns and the investments in the properties made for non business purposes. In view of these facts and following of judgment of Delhi ITAT as referred above, the addition made by the AO by disallowing interest is hereby deleted and the ground of appeal is allowed.” 9.4 Accordingly, we do not find any infirmity in the order of the CIT(A) and uphold the same. The Revenue has not rebutted these findings or brought any contrary evidence on record, so this ground of appeal raised by the Revenue is liable to be dismissed. 10. On the basis of foregoing fact situation/discussions on all the grounds raised by the Revenue, we find that the learned CIT(A) has passed a well-reasoned order after considering the each fact of the case, submissions of the assessee, and applicable legal principles. The Revenue has not brought any material on record to controvert the findings of the CIT(A) or to justify interference. Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 12 10.1 Accordingly, we find no merit in the appeal filed by the Revenue. The same is hereby dismissed. 11. Now, we take up ITA No. 7113/Del/2017 for the Assessment Year 2012-13. ITA No.- 7113/Del/2017 “1. On the facts of the case, the Ld. CIT(A) and in the circumstances has erred in deleting disallowance of commission expenses amounting to Rs. 8,18,25,542/- paid to foreign agents even though it failed to prove actual delivery of services by these agents? 2. The Ld. CIT(A) has also erred in ignoring the fact that even if the services were rendered by these agents, the payments to these agents were in the nature of fee for technical services on which neither any TDS was deducted by the assessee nor any certificate for no deduction of TDS was furnished by the assessee? 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting disallowance of interest amounting to Rs. 1,75,26,970/ when the AO has clearly established that the assessee has diverted its interest-bearing funds to its sister concern for non- business purposes? 4. The appellant craves leave to add, alter or amend any grounds of appeal before or during the course of appellate proceedings before the Hon'ble ITAT.” 13. Ground Nos. 1 and 2, raised in this appeal are identical to Ground No. 2 raised in ITA No. 5502/Del/2017 for A.Y. 2011–12, which has already been discussed above in para 7 to 7.4 of this order. Therefore, the decision rendered in ITA No. 5502/Del/2017, shall Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 13 apply mutatis mutandis to the present appeal, and accordingly ground nos. 1 and 2 are dismissed. 14. Ground No. 3 is also identical to Ground No. 4 raised in ITA No. 5502/Del/2017, for A.Y. 2011–12, which has already been discussed in para no. 9 to 9.4 of this order. Therefore, the decision rendered in ITA No. 5502/Del/2017 shall apply mutatis mutandis to the present appeal, and accordingly, ground no. 3 is dismissed. 15. Consequently, both the appeals of Revenue are dismissed. Order pronounced in the open court on 27/08/2025 Sd/- Sd/- (S. RIFAUR RAHMAN) (SUDHIR PAREEK) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27/08/2025. Pooja/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Printed from counselvise.com ITA Nos.-5502 & 713/Del/2017 Lucky Exports 14 Sr. No. Particulars Date 1 Date of dictation of Tribunal Order 2 Date on which the typed draft Tribunal Order is placed before the Dictation Member 3 Date on which the typed draft Tribunal Order is placed before the other Member 4 Date on which the approved draft Tribunal Order comes to the Sr. P.S. /P.S. 5 Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6 Date on which the signed order comes back to the Sr. P.S. /P.S 7 Date on which the final Tribunal Order is uploaded by the Sr. P.S. /P.S. on official website 8 Date on which the file goes to the Bench Clerk along with Tribunal Order 9 Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10 Date on which the file goes to the Supervisor (Judicial) 11 Date on which the file goes for Xerox 12 Date on which the file goes for endorsement 13 Date on which the file goes to the superintendent for checking 14 The date on which the file goes to the Assistant Registrar for signature on the tribunal order 15 Date on which the file goes to dispatch section 16 Date of Dispatch of the Order Printed from counselvise.com "