ACIT, CHENNAI V. M/s. India Apparels, CHENNAI

ITA 2073/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7664 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H KABILA JT
• Keywords: Recovery proceedings; Business income; Onus to prove
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2073/MDS/2016 /ASSESSMENT YEAR : 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE -7(1), 121, M.G. ROAD, CHENNAI - 34 VS . M/S. INDIA APPARELS, 1 ST FLOOR, 1232 AC BLOCK, 2 ND AVENUE, ANNA NAGAR, CHENNAI 600 040. [PAN: AAAFI 6656E] ( /APPELLANT) ( /RESPONDENT) #$ % & /APPELLANT BY : SMT. H. KABILA, JT.CIT '(#$ % & /RESPONDENT BY : NONE % ) /DATE OF HEARING : 30.11.2016 *+ % ) /DATE OF PRONOUNCEMENT : 20.02.2017 /O R D E R PER SANJAY ARORA, AM: THE INSTANT APPEAL BY THE REVENUE IS DIRECTED AGAI NST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-7, CHENNAI ( IT(A) FOR SHORT) DATED 2 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) 29.04.2016, ALLOWING THE ASSESSEES APPEAL CONTESTI NG ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 25/2/2015 FOR ASSESSMENT YEAR (AY) 2012-13. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE- RESPONDENT WHEN THE APPEAL WAS CALLED OUT FOR HEARING, DESPITE SERVICE OF NOTICE OF HEARING. AS THERE HAD SIMILARLY BEEN NO ATTENDANCE ON THE EARLIER OCC ASION (27/9/2016) AS WELL, THE BENCH HAD DIRECTED FOR SERVICE THROUGH THE LD. DEPA RTMENTAL REPRESENTATIVE (DR) FOR THE INSTANT DATE OF HEARING. THE SERVICE H AS ACCORDINGLY BEEN MADE, WITH THE LD. DR CONFIRMING THE SAME VIDE LETTER DAT ED 03/22/2016, ALSO PLACING THE ACKNOWLEDGEMENT TOWARD THE SAME ON RECORD. THE HEARING IN THE MATTER WAS ACCORDINGLY PROCEEDED WITH, SO AS TO DECIDE THIS AP PEAL AFTER HEARING THE PARTY BEFORE US AND CONSIDERING THE MATERIAL ON RECORD. 3. THE FIRST AND THE PRINCIPAL ISSUE INVOLVED IN TH E INSTANT CASE IS THE DISALLOWANCE OF A CLAIM FOR COMMISSION IN THE SUM O F . 44,02,118/-, ALLOWED BY THE ASSESSEE, AN EXPORTER OF READY-MADE GARMENTS , TO A PERSON RESIDENT IN INDIA, EFFECTED U/S. 40(A)(IA) OF THE ACT. IN THE V IEW OF THE ASSESSING OFFICER (AO), THE PAYEE, CHRISTIAN FABRE TEXTILES PVT. LTD. , A CHENNAI BASED COMPANY, IS NOT MERELY AN AGENT, AS CLAIMED, BUT ACTIVELY IN VOLVED IN THE PRODUCTION AND QUALITY CONTROL ACTIVITIES OF THE ASSESSEE, SO THAT THE SERVICES RENDERED BY IT ARE IN THE NATURE OF MANAGERIAL AND CONSULTING SERVICES, E XIGIBLE TO DEDUCTION OF TAX AT SOURCE U/S. 194J OF THE ACT. THE ASSESSEE FAILING T O DEDUCT ANY TAX AT SOURCE, SEC. 40(A)(IA) GETS ATTRACTED. THIS IS THE REVENUES CAS E. THE ASSESSEES CASE IS THAT THE PAYEE IS AN AGENT OF THE FOREIGN BUYER, WHO ONL Y HAS ALLOWED COMMISSION THERETO. THE DEBIT OF THE COMMISSION EXPENDITURE (AS FOREIGN BUYERS COMMISSION) IN ITS ACCOUNTS IS FOR THE REASON THAT THE SALE BILL RAISED ON THE FOREIGN BUYER INCLUDES, APART FROM THE SALE VALUE O F THE GOODS BEING EXPORTED, THE AGENTS COMMISSION. THIS IS DONE TO COMPLY WITH THE CUSTOM FORMALITIES OF THE IMPORTING COUNTRY, WITH IT IN FACT BEING CONSTR AINED TO ACCEPT THE SAME AS 3 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) OTHERWISE THE ASSESSEE WOULD LOOSE THE EXPORT ORDER S, I.E., UNLESS THE CONDITIONS WITH REGARD TO EXPORT DOCUMENTATION IMPOSED BY THE FOREIGN BUYER ARE NOT FULFILLED. THE COMMISSION COMPONENT (OF THE INVOI CE) IS NOT REMITTED TO THE ASSESSEE, BUT PAID BY THE FOREIGN BUYER DIRECTLY TO THE AGENT IN INDIA, DEBITING THOUGH THE ASSESSEE TOWARD THE SAME IN ITS ACCOUNTS . THE FOREGOING IS EVIDENCED BY THE PURCHASE ORDERS, LCS, INVOICES AND ALSO THE AGENTS AGREEMENT. THE AGENT HAS IN FACT OFFERED INCOME TO TAX IN INDIA, S O THAT FOLLOWING THE DECISION IN HINDUSTAN COCA COLA BEVERAGES (P.) LTD. V. CIT [2007] 293 ITR 226 (SC), THE ASSESSEE STANDS DISCHARGED OF ITS OBLIGATION T O DEDUCT TAX AT SOURCE, I.E., EVEN IF CONSIDERED AS SO OBLIGED. SIMILAR ARRANGEME NT STANDS IN FACT ALSO EXAMINED BY THE HON'BLE JURISDICTIONAL HIGH COURT I N CIT V. E. RAMACHANDRAN [2013] 359 ITR 671 (MAD), WITH THE HON'BLE COURT HO LDING THAT IN VIEW OF THE PECULIAR ARRANGEMENT, THE RESIDENT EXPORTER IS NOT LIABLE TO DEDUCT TAX AT SOURCE. THE ASSESSEE HAS BEEN ALLOWED RELIEF BY THE LD. CIT (A) ON THIS BASIS. AGGRIEVED, THE REVENUE IS IN APPEAL. 4. BEFORE US, IT WAS SUBMITTED BY THE LD. DR, THAT THE QUESTION THAT STANDS TO BE ASKED UPFRONT, AND THEREFORE NEEDS TO BE ANSWERE D FIRST, IS THE BASIS OF THE CLAIM FOR COMMISSION, TERMED BUYERS COMMISSION, BY THE ASSESSEE IN THE COMPUTATION OF ITS INCOME. THE AGENT ADMITTEDLY NOT PROVIDING OR RENDERING ANY SERVICES TO THE ASSESSEE, IT IS NOT LIABLE FOR ANY PAYMENT THERETO, PRECLUDING DEDUCTION QUA THE SAME. THE QUESTION OF DEDUCTION OF ANY TAX AT SOURCE THEREON ALSO DOES NOT ARISE. IT IS FOR THIS REASON THAT THE HON'BLE COURT IN E. RAMACHANDRAN (SUPRA) FOUND NO REASON TO DISTURB THE FINDINGS OF FACT ARRIVED AT THE TRIBUNAL. THE ASSESSEE, HOWEVER, CLAIMS THAT TH E ENTIRE AMOUNT BILLED REPRESENTS ITS SALE, SO THAT, BY IMPLICATION, THE AMOUNT PAID TO THE AGENT (BY THE FOREIGN BUYER) IS ONLY FOR AND ON THE ASSESSEES BE HALF, WHO THEREFORE OUGHT TO HAVE ENSURED DEDUCTION OF TAX AT SOURCE ON THE PAYM ENT/S MADE TO IT IN RESPECT OF SERVICES ADMITTEDLY RENDERED IN INDIA. SEC. 40(A )(IA), ACCORDINGLY, STANDS, 4 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) RIGHTLY INVOKED. IF, ON THE OTHER HAND, AS STATED, THE SERVICES ARE RENDERED BY THE AGENT TO THE FOREIGN BUYER, THE QUESTION OF CLAIM O F DEDUCTION ON ACCOUNT OF THE COMMISSION BY THE ASSESSEE DOES NOT ARISE IN THE FI RST PLACE. THE ASSESSEES CLAIM IS DICHOTOMOUS AND, IN ANY CASE, EITHER WAY I T HAS NO CASE. 5. WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED T HE MATERIAL ON RECORD. 5.1 WE MUST, AT THE OUTSET, NOTE THE INHERENT CONTR ADICTION IN THE ASSESSEES CASE IT CLAIMING EXPENDITURE (ON ACCOUNT OF THE C OMMISSION, TERMED FOREIGN BUYERS COMMISSION) IN RESPECT OF SERVICES ADMITTE DLY NOT RENDERED TO OR AVAILED OF BY IT BUT TO/BY THE FOREIGN BUYER. THERE IS THUS NO QUESTION OF THE SAME BEING ALLOWED AS A DEDUCTIBLE EXPENSE OF THE A SSESSEES BUSINESS. THE FURTHER QUESTION OF DEDUCTION OF TAX AT SOURCE AND, CORRESPONDINGLY, DISALLOWANCE U/S. 40(A)(IA), DOES NOT ARISE, I.E., BECOMES IRRELEVANT. THE REVENUES CASE IS ALSO NOT WITHOUT BLEMISH. WHY WOU LD THE ASSESSEE PAY AN AGENT, APPOINTED TO PROVIDE TECHNICAL AND CONSULTIN G SERVICES TO IT, LIAISONING WITH THE BUYER (SO AS TO ENSURE QUALITY OF GOODS AS WELL AS THEIR TIMELY PRODUCTION), A REMUNERATION BASED ON A PERCENTAGE O F THE VALUE OF GOODS EXPORTED AND, FURTHER, EFFECT ITS PAYMENT THROUGH T HE BUYER? EQUALLY, WHY WOULD THE AGENT ACCEPT AN APPOINTMENT ON SUCH INCONGRUENT TERMS. THE LINKING THUS OF THE RECEIPT OF REMUNERATION BY THE AGENT TO THE DUE DATE/S OF PAYMENT TO THE ASSESSEE-EXPORTER, WHICH IS A FACT, IS IN ANY CASE NOT UNDERSTOOD. 5.2 THE QUESTION AS TO THE NATURE OF THE SERVICES R ENDERED BY THE AGENT IS THUS SECONDARY IN-AS-MUCH AS THE SAME WOULD ONLY DETERMI NE THE AMOUNT OF TAX DEDUCTIBLE AT SOURCE. THE ASSESSEE HAVING ADMITTEDL Y NOT DEDUCTED ANY TAX AT SOURCE, S. 40(A)(IA) WOULD IN ANY CASE GET ATTRACTE D, WHETHER IT IS SO FOR A DEFAULT U/S. 194H OR U/S. 194J, I.E., WHERE THE ASSESSEE IS INDEED OBLIGED TO DEDUCT TAX AT SOURCE. THE QUESTION RELEVANT THEREFORE WOULD BE IF THERE IS A PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND CHRISTIAN FABRE. THE ASSES SEE HAS NOT ADDUCED ANY AGREEMENT BETWEEN THE LATTER AND THE FOREIGN BUYER, WHICH WOULD CONCLUSIVELY 5 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) ESTABLISH AN AGENCY RELATIONSHIP, IF ANY, BETWEEN T HE TWO. THE PROVISION OF THE PATTERNS AND DRESS DESIGNS TO THE ASSESSEE, AS EVID ENCED BY THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE AGENT, AS WELL AS THE LATTERS METICULOUS FOLLOWING THE PRODUCTION OF THE GARMENTS AT VARIOUS STAGES, I NCLUDING INSTRUCTING THE ASSESSEE ON THEIR DETAILING, SUGGESTS IT TO REPRESE NT THE BUYER/S, AND WHO IS CLAIMED TO HAVE PAID THE AGENT A PERCENTAGE OF THE VALUE OF THE GOODS IMPORTED (REFER PARA 3.2 OF THE ASSESSMENT ORDER). WITHOUT D OUBT, IT IS THE FOREIGN BUYER WHO WOULD WISH TO EXERCISE AND RETAIN CONTROL OVER THE AGENT AND, THEREFORE, THERE IS NOTHING AMISS IN THE FOREIGN BUYER PAYING IT; RATHER, AGREES WITH THE ASSESSEES CLAIM OF IT BEING ONLY THE BUYER WHO IS RESPONSIBLE FOR PAYING THE AGENT. WE ARE THEREFORE NOT INCLINED TO CONSIDER IT AS A RUSE OR A DEVICE - AS INFERRED BY THE AO, ADOPTED BY THE ASSESSEE TO AVOI D TAX DEDUCTION AT SOURCE OR, ALTERNATIVELY, ESCHEW DISALLOWANCE U/S. 40(A)(IA) A S IT HAS ADMITTEDLY NOT DEDUCTED ANY TAX AT SOURCE. AT THE SAME TIME, WHY, WE WONDER, SHOULD IN THAT CA SE THE ASSESSEE RAISE A CHARGE (IN RESPECT OF THE SERVICES RENDERED BY TH E AGENT TO ITS FOREIGN PRINCIPAL) ON THE FOREIGN BUYER, INSTRUCTING IT TO PAY THE AGENT, RATHER THAN THE AGENT ITSELF. WHY, THE COMMISSION RATE ITSELF WOULD , ORDINARILY SPEAKING, BE CONFIDENTIAL INFORMATION. SURELY, THE ASSESSEE HAS NO LOCUS STANDI IN THE MATTER, AND IT SO INSTRUCTING HAS THEREFORE BEEN INFERRED ( BY THE AO) AS PAYMENT BY THE BUYER ONLY FOR AN ON BEHALF OF THE ASSESSEE, WHO IS SERVICED BY THE AGENT IN TERMS OF PROCUREMENT OF ORDERS AND FOLLOW-UP OF PAY MENTS (FROM THE FOREIGN BUYERS)(PARA 3.4 OF THE ASSESSMENT ORDER). PROCUREM ENTS OF ORDERS, THERE DEFINITELY IS, BUT WHETHER IT IS DIRECTLY BY THE AS SESSEE OR THROUGH THE AGENT, IS NOT KNOWN. AGAIN, IT MAY BE THAT THE SAME IS THROUG H THE AGENT ACTING FOR AND ON BEHALF OF THE FOREIGN BUYER/S. FURTHER, THE CUSTOM FORMALITIES OF THE IMPORTING COUNTRY/S, THAT ARE STATED TO HAVE IMPELLED SUCH AN UNUSUAL ARRANGEMENT, HAVE NEITHER BEEN SPELLED OUT OR EXPLAINED, MUCH LESS PR ODUCED, TO SUBSTANTIATE THE CLAIM. WHY SHOULD THE SAME, I.E., THE DOCUMENTATION REQUIREMENTS, DRAW ANY 6 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) DISTINCTION OR DIFFERENCE BETWEEN AS TO WHO RAISES THE CHARGE FOR THE SERVICES RENDERED, WHICH WOULD ORDINARILY ONLY BE BY THE SER VICE PROVIDER. AN ABSENCE THEREOF, AS WELL AS THE INSTRUCTION AFORE-REFERRED, WOULD THEREFORE ONLY LEAD TO THE INFERENCE OF THE PERSON (ASSESSEE) SERVICED PAY ING FOR THE SAME. ALSO, WHETHER THE AGENT IS REPRESENTING A SINGLE BUYER, O R A NUMBER OF THEM, IS ALSO NOT KNOWN, AND WHICH COULD BE INDICATIVE INASMUCH A S IT IS EXTREMELY UNLIKELY THAT THE AGENT IS CHOSEN BY SEVERAL BUYERS - APPARE NTLY LOCATED AT DIFFERENT PARTS OF THE WORLD, AT THE SAME TIME, OR THAT THE CUSTOM FORMALITIES OF ALL THE IMPORTING COUNTRIES ARE THE SAME. AGAIN, THE BREAKUP OF THE E XPORT BILL AMOUNT AS BETWEEN THE VALUE OF THE GOODS EXPORTED AND THE SO CALLED COMMISSION (ON THEIR SALE/PURCHASE) WOULD BE OF LITTLE CONSEQUENCE AS IT IS THE TOTAL AMOUNT THAT STANDS CHARGED/BILLED THAT HAS TO BE REGARDED AS THE SALE CONSIDERATION OR THE REVENUE ARISING ON THE TRANSACTION AND, FURTHER, IS SUBJECT TO THE CUSTOMS AND FOREIGN EXCHANGE CONTROL REGULATIONS. THE ASSESSEE HAS THUS , I.E., SO CONSIDERED, CORRECTLY RECORDED THE ENTIRE SUM INVOICED AS ITS SALE, DEBITING THE FOREIGN BUYER IN ITS ACCOUNTS . TRUE, ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT CON CLUSIVE OF THE MATTERS THEY PURPORT TO REPRESENT, YET, THE BOOKS O F ACCOUNT, AS REGULARLY MAINTAINED, HAVE EVIDENTIARY VALUE, AND THE ONUS TO DISPROVE THE SAME, I.E., AS NOT REPRESENTING THE ACTUAL STATE OF AFFAIRS, IS ON THE PERSON WHO SO ALLEGES, I.E., THAT THE SALE VALUE TO THAT EXTENT, DOES NOT REPR ESENT REAL INCOME AND IS ONLY A BOOK ENTRY. THE ASSESSEE IN THE INSTANT CASE, RATHE R, CLAIMS ITS ACCOUNTS TO BE DRAWN IN CONSONANCE WITH THE ACCOUNTING STANDARDS. 5.3 BE THAT AS IT MAY, IN OUR VIEW, THE WHOLE CASE IS MUCH ADO ABOUT NOTHING. THE REASON IS NOT FAR TO SEEK. THE PROVISION OF SER VICES BY THE AGENT IS NOT IN DISPUTE, AND THE QUESTION IS FOR WHOM THE SAME HAVE BEEN. IF, FOR THE FOREIGN BUYER, AS CONTENDED, THE ASSESSEE HAS NO BASIS TO E ITHER CLAIM THE COMMISSION EXPENDITURE AS DEDUCTION OR INCREASE THE SALE VALUE BY THAT AMOUNT THERE BEING NO BASIS FOR THE SAME. THE AMOUNT BILLED MUST NEVER THELESS AND WHICH LEADS TO 7 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) THE IMBROGLIO, BE TAKEN TO REPRESENT THE ASSESSEES REVENUE. THE SAME, IN THE ABSENCE OF ANY LIABILITY THEREFOR, CANNOT BE CONSID ERED AS APPLIED FOR MAKING PAYMENT TO THE AGENT FOR AND ON BEHALF OF THE ASSES SEE, NOR WRITTEN OFF AS BAD DEBT, HAVING BEEN IN FACT DISCHARGED BY THE BUYER-D EBTOR BY PAYMENT TO A THIRD PARTY. REGARDING IT AS A WAIVER (BY THE ASSESSEE) I N FAVOUR OF THE RESIDENT AGENT WOULD AGAIN BE OF NO CONSEQUENCE AS A WAIVER AFTER ACCRUAL (VESTING OF THE RIGHT TO RECEIVE), AS IMPLIED BY THE ASSESSEES INSTRUCTI ON (TO THE BUYER), WOULD ONLY BE AN APPROPRIATION OR APPLICATION OF INCOME (REFER CIT V. SHIV PRAKASH JANAK RAJ & CO. (P.) LTD. [1996] 222 ITR 583(SC)). NONE OF THE PARTIES, HOWEV ER, STAND TO GAIN FROM SUCH AN ARRANGEMENT, WHERE, ASSU MING SO, THE AGENT HAS OFFERED THE SAME AS ITS INCOME. THE ASSESSEE COULD HAVE, TO THE SAME NET EFFECT, REPORTED SALES LOWER BY THAT AMOUNT. THE FOREIGN BU YERS OUTGO ALSO REMAINS THE SAME; THE AMOUNT SHORT PAID TO THE ASSESSEE GETTING DIVERTED TO THE AGENT AS ITS COMMISSION. IF, ON THE OTHER HAND, THE SERVICES REN DERED BY THE AGENT ARE TO THE ASSESSEE, AS THE REVENUE ARGUES, WITH THE BUYER PAY ING THE AGENT ONLY FOR AND ON ITS BEHALF, THE ASSESSEE HAS RIGHTLY CLAIMED EXPEN DITURE IN RESPECT OF COMMISSION, I.E., BUT FOR S. 40(A)(IA). NOW, EVEN A SSUMING THE ASSESSEE TO HAVE SET UP AN ARTIFICE (BY REQUIRING THE PAYMENT OF COM MISSION THROUGH THE BUYER) TO AVOID DEDUCTION OF TAX AT SOURCE, WHICH WE CONSIDER AS EXTREMELY UNLIKELY, THE AGENT IS CLAIMED TO HAVE OFFERED THE ENTIRE COMMIS SION RECEIVED/RECEIVABLE AS INCOME, PAYING TAX THEREON. NO TAX ACCORDINGLY CAN BE DEDUCTED INASMUCH AS THE SAME IS TO BE BORNE BY THE AGENT, AND REPRESENT S ONLY A MODE OF RECOVERY OF TAX, SINCE PAID. THE DECISION IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES (P.) LTD. (SUPRA) HAS DIRECT APPLICATION, EVEN AS THE HON'BL E COURTS HAVE, AS IN THE CASE OF CIT V. ANSAL LAND MARK TOWNSHIP (P.) LTD . [2015] 377 ITR 635 (DEL), HELD THE AMENDMENTS TO S. 40(A)(IA) AS RETROSPECTI VE, SO THAT WHERE IT IS SHOWN THAT THE PAYEE HAS PAID THE TAX ON THE IMPUGNED INC OME, THE ASSESSEE-PAYER IS NOT TO BE REGARDED AS AN ASSESSEE IN DEFAULT EVEN I N CASE OF NON DEDUCTION OF TAX 8 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) AT SOURCE, SAVING S. 40 (A)(IA). THE CRUX OF THE MA TTER THUS IS THE DISCLOSURE OF THE CORRESPONDING SUM/S AS ITS INCOME BY THE AGENT IN I NDIA FOR TAX PURPOSES. 5.4 WE, ACCORDINGLY, VACATING THE FINDINGS BY THE R EVENUE AUTHORITIES IN THE MATTER, RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO ENABLE THE ASSESSEE AN OPPORTUNITY TO ESTABLISH ITS CASE QUA NON-APPLICATION OF S. 40(A)(IA) ON THAT SCORE, I.E., PAYMENT OF TAX ON THE IMPUGNED INCOME BY THE PAYEE-AGENT. FURTHER, IF AND TO THE EXTENT THE INCOME IS NOT OFFERED TO T AX, THE AO SHALL DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW, ISSUING DEFIN ITE FINDINGS OF FACT, HAVING REGARD TO OUR OBSERVATIONS IN THIS ORDER. THE ONUS TO PROVE ITS CLAIMS THOUGH WOULD BE ON THE ASSESSEE. TRUE, THE HON'BLE COURT I N E. RAMACHANDRAN (SUPRA) HAS UNDER SIMILAR CIRCUMSTANCES HELD THAT THE ARRAN GEMENT DOES NOT ATTRACT AN OBLIGATION ON THE PART OF THE EXPORTER TO DEDUCT TA X AT SOURCE. THE LIMITED QUESTION BEFORE THE HONBLE COURT IN THAT CASE WAS WITH REGARD TO DEDUCTION OF TAX AT SOURCE, AND WHICH IT FOUND AS NOT DEDUCTIBLE IN VIEW OF THE FACT THAT THE AGENT WAS NOT PROVIDING ANY SERVICE TO THE RESIDENT EXPORTER. IN THE PRESENT CASE, HOWEVER, THE ISSUE, AS SOUGHT TO BE BROUGHT F ORTH AND EXPLAINED HERE-IN- BEFORE, IS AS TO WHETHER THE AGENT REPRESENTS THE A SSESSEE OR THE BUYER, A QUESTION OF FACT - TO BE DETERMINED BASED ON AN APPRECIATION OF THE MATERIAL ON RECORD, AND WHO THEREFORE IN LAW, THE ASSESSEE OR THE FOREI GN BUYER, IS LIABLE TO PAY FOR THE SERVICES RENDERED. FURTHER, THOUGH THE LD. CIT( A) STATES (AT PARA 4.4 OF HIS ORDER) THAT THE PAYMENT OF TAX ON ITS COMMISSION IN COME BY THE AGENT IN INDIA IS NOT IN DISPUTE, WE OBSERVE NO FINDING BY; RATHER , NOT EVEN AN ASSERTION BEFORE, THE ASSESSING AUTHORITY, NOR IS THE SAID STATEMENT BY THE LD. CIT(A) BASED ON ANY MATERIAL BEFORE HIM, SO THAT IT IS NO MORE THAN AN UNSUBSTANTIATED CLAIM BEFORE HIM, OR A PRESUMPTION DRAWN BY HIM, AND WHICH THERE FORE CANNOT BE REGARDED AS A FACT. BUT FOR VERIFICATION THEREOF, IT WOULD BE S EEN THAT OUR ORDER, IN EFFECT, APPROVES THAT BY HIM. BEFORE PARTING, WE CANNOT HEL P NOTING THAT IF ONLY THE REVENUE HAD TAKEN THIS PRECAUTION, I.E., STEPS FOR VERIFICATION, REQUIRING THE 9 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) ASSESSEE TO SUBSTANTIATE THE DISCLOSURE OF THE IMPU GNED SUM AS PART OF ITS RETURNED INCOME BY THE AGENT-PAYEE, ADMITTING AND P AYING TAX THEREON, ISSUING A FINDING/S ONE WAY OF OR THE OTHER, THE MATTER WOULD HAVE IN SETTLED SINCE LONG, BESIDES SAVING ITS TRAVEL TO A HIGHER FORUM. WE DEC IDE ACCORDINGLY, AND THE REVENUES GDS. 2 R/W 2.2 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT AND THE ONLY OTHER ISSUE IN APPEAL IS T HE DISALLOWANCE, SINCE DELETED, OF INTEREST ON A LOAN OBTAINED ON A KEYMAN INSURANCE POLICY. IN THE AOS VIEW INASMUCH AS DEDUCTION HAD BEEN CLAIMED (B Y THE ASSESSEE) AND ALLOWED IN RESPECT OF PREMIUMS ON THE SAID POLICY, ON ONE OF THE PARTNERS OF THE ASSESSEE-FIRM, ALLOWING INTEREST ON IT WOULD AMOUNT TO CLAIMING INTEREST ON AN OUTGO, I.E., SINCE ALLOWED AS EXPENDITURE, AND WAS THEREFORE NOT ADMISSIBLE. THE LD. CIT(A) ALLOWED RELIEF IN APPEAL AS THERE WAS NO THING IN THE STATUTE PRECLUDING A RELIEF. AGGRIEVED, THE REVENUE IS IN APPEAL. 7. WE HAVE HEARD THE PARTY BEFORE US AND PERUSED TH E MATERIAL ON RECORD. THE DEDUCTION OF INTEREST ON BORROWING/S IN COMPUTI NG BUSINESS INCOME IS GOVERNED BY SECTION 36(1)(III) OF THE ACT. THE BORR OWING, AS CONTENDED, IS MADE AND UTILIZED FOR BUSINESS PURPOSES. THIS CONTENTION HAS NOT BEEN DENIED OR REBUTTED IN ANY MANNER. HOW THEN WE WONDER COULD TH E DEDUCTION FOR INTEREST EXPENSE BE DENIED? SURELY THE PREMIUMS PAID ARE ON REVENUE ACCOUNT INSOFAR AS ASSESSEE IS CONCERNED. HOWEVER, THEY CONTRIBUTE TO THE BUILDING OF A CORPUS OF THE POLICY FUND, AND ON WHICH SUM THEREFORE THE BOR ROWING (LOAN) HAS BEEN AVAILED. WE ACCORDINGLY FIND NO REASON FOR INTERFER ENCE. WE DECIDE ACCORDINGLY, AND THE REVENUE FAILS. 10 ITA NO. 2073/MDS/2016 ASST. CIT V. INDIA APPARELS (AY 2012-13) 8. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FEBRUARY 20, 2017 AT CHENNAI . SD/- SD/- ( . ) ( ) (G. PAVAN KUMAR) (SANJAY ARORA) ! /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, , /DATED, FEBRUARY 20, 2017. EDN - % '!)./ 0/+) /COPY TO: 1. #$ /APPELLANT 2. '(#$ /RESPONDENT 3. 1) ( )/CIT(A) 4. 1) /CIT 5. /23 '!)! /DR 6. 345 6 /GF