M/S. CHARIOT INTERNATIONAL (P) LTD V. DY.COMMISSIONER OF INCOME TAX

ITA/230/2014

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M/s. Chariot International (P) Ltd., an export-oriented unit engaged in the business of converting rough granite blocks into polished products, filed an appeal against the order of the Income Tax Appellate Tribunal. The dispute arose from the disallowance of a deduction for a commission payment of Rs.39,94,627 made to foreign parties, which was not subjected to TDS as required under Section 195 of the Income Tax Act, 1961. The Assessing Officer and the Commissioner of Income Tax (Appeals) had both disallowed the deduction, leading to the appeal before the Tribunal, which also upheld the disallowance. The High Court, upon reviewing the case, found that the assessee did not provide sufficient evidence to prove that the services for which the payment was made were rendered outside India, and thus dismissed the appeal.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 754711 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 19-11-2020
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: VENKATESH KUMAR
• Keywords: Appeal; Assessment Year 2009-10; Commission; Commissioner of Income Tax (Appeals); Export oriented unit; Income Tax; Non-Resident; TDS; Tribunal
• Section: 195; 143(1); 37(1); 10B; 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.230 OF 2014 BETWEEN: M/S. CHARIOT INTERNATIONAL (P) LTD., NO.97, CHUDAGONDANAHALLI VILLAGE MALUR HOSUR MAIN ROAD MALUR TALUK, KOLAR DISTRICT KARNATAKA-563130. OLD ADDRESS: 107, AGRAHARA TOWN WHITE FIELD ROAD WHITE FIELD, BANGALORE. ... APPELLANT (BY SRI. VENKATESH KUMAR, ADV.) AND: DY. COMMISSIONER OF INCOME TAX CIRCLE 11(2), 14/3 RASTROTHANA BHAVAN 5TH FLOOR, NRUPATUNGA ROAD BANGALORE-560001. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) 2 THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 20-12-2013 PASSED IN ITA NO.1445/BANG/2012, FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT. II. ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH, 'B', ITA NO.1445/BANG/2012 DATED 20-12-2013 RELATING TO THE ASSESSMENT YEAR 2009-10. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment Year 2009-10. The appeal was admitted by a Bench of this Court vide order dated 01.12.2014 on the following substantial questions of law: i. Whether the Income Tax Appellate Tribunal was correct in law in disposing of the appeal filed by the assessee without 3 independently examining the facts and merely relying upon the order passed by Commissioner of Income-tax (Appeals). ii. Whether the tribunal was justified in law upholding the order of CIT(A). 2. Facts leading to filing of this appeal briefly stated are that the assessee is engaged in the business of conversion of rough granite blocks / slabs into polished granite slabs, tiles, monuments, etc. The assessee is 100% export oriented unit having its factory and registered office at Bangalore and exporting its products to United States of America and United Kingdom, etc. The assessee filed its return of income for the Assessment Year 2009-10 on 27.09.2009 and declared the income as NIL after claiming deduction of Rs.1,36,42,554/- under Section 10B of the Act. The return was processed under Section 143(1) of the Act and was subsequently taken up for scrutiny. During the course of the assessment, the assessee was called upon the explain as to why the gross sales commission paid to 4 the foreign parties / non-residents to the extent of Rs.39,94,627/- without deduction of TDS should not be disallowed and brought to tax. The Assessing Officer, by an order dated 16.12.2011, inter alia held that the assessee was afforded an opportunity to explain as to why gross commission paid without deduction of TDS should not be disallowed and be applied to tax. It was further noticed by the Assessing Officer that the assessee in response submitted that the tax need not be deducted at source against the payments made to foreign parties / non-residents on the commission agents and relied on the decision of Jaipur Bench of the Tribunal. The Assessing Officer, inter alia held that as per Section 195 of the Act, the tax is required to be deducted at source on the payments made to non- residents. However, in the instant case, the payments had been made to non-residents without deduction of tax at source. Therefore, the assessee had violated the provisions of Section 195 of the Act. 5 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who, by an order dated 30.08.2012 inter alia, held that the assessee has failed to furnish either any evidence or proof with regard to the fact that the payments were made to the foreign parties for the services rendered outside India either in the course of assessment proceedings or before the Commissioner of Income Tax (Appeals). It was further held that the terms and conditions of payment are only explained without establishing the fact that the payments have been made by the assessee for services rendered outside India and therefore, the deduction cannot be permitted. In the result, disallowance made by the Assessing Officer to tune of Rs.39,94,627/- was sustained and the appeal preferred by the assessee was partly allowed. The assessee thereupon approached the Income Tax Appellate Tribunal by filing an appeal. The Tribunal, by 6 an order dated 20.12.2013 inter alia held that the assessee despite opportunity being afforded, failed to place on record any material to controvert the finding recorded by the Commissioner of Income Tax (Appeals) that the assessee has failed to establish that no material evidence are brought on record to show that the payments to the tune of Rs.39,94,627/- were made to the foreign parties for the services rendered by them outside India. The appeal preferred by the assessee was therefore, dismissed. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee, while inviting our attention to the communication dated 07.12.2011 addressed to the Deputy Commissioner of Income Tax, submitted that certain documents were filed before the Assessing Officer in support of the fact that the payments were made to the foreign firms and invoices were also placed on record. However, neither 7 Commissioner of Income Tax (Appeals) nor the Tribunal has taken note of the aforesaid documents. Therefore, the matter deserves to be remitted to the Tribunal for consideration afresh in accordance with law. 5. On the other hand, learned counsel for the revenue, while inviting the attention of this Court to paragraph 3.4 of the order passed by the Tribunal, submitted that despite opportunity being afforded even by the Tribunal, the assessee did not file any documents to show that the payments were made for the purpose of business so as to entitle the assessee to claim under Section 37(1) of the Act and therefore, no useful purpose would be served by remitting the matter. 6. We have considered the submissions made on both sides and have perused the record. The relevant extract of the order passed by the Commissioner of Income Tax (Appeals) reads as under: 8 \"… However, the basic fact that the payments were paid to the foreign parties for services rendered outside India was not established with any evidence or proof on record either at the time of assessment or during the course of appeal proceedings….\" The relevant extract of paragraph 3.4 of the order passed by the Tribunal reads as under: \"… Before us also, the learned authorized representative, except for pleading for restoring this issue to the file of the Assessing Officer for de novo consideration, has not brought on record any material to controvert the finding of the learned CIT (Appeals) that the assessee has failed to establish with any material evidence brought on record, that the payments amounting to Rs.39,94,627 made to these two foreign parties were for services rendered by them to the assessee outside India. In this view of the matter, we concur with and uphold the conclusion of the learned CIT (appeals) that since it is not established that the aforesaid payments were made for the services rendered by the two foreign parties to 9 the assessee outside India, these payments cannot be allowed as a deduction…\" 7. Thus, both the aforesaid Courts have concurrently held that the assessee has failed to place any material evidence on record to show that the payment of Rs.39,94,627/- made by the assessee to the foreign firms was for the services rendered by them to the assessee outside India. It is pertinent to mention here that the revenue has not disputed the payments made by the assessee to the foreign firms. However, it is the case of the revenue that the assessee has failed to prove that the aforesaid expenditure was incurred by the assessee in connection with its business so as to entitle it to claim deduction under Section 37(1) of the Act. 8. In view of preceding analysis, the substantial questions of law framed by this Court do not arise for 10 consideration in this appeal. Therefore, it is not necessary for us to answer the same. In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE RV "