ACIT, Faridabad V. M/s M.M. Overseas (India), Faridabad

ITA 1198/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4262 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 17-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Business income

Judgement Text

ITA NO. 1198/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1198/DEL/2010 A.Y. : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-I, BLOCK-I-B, CGO COMPLEX, NH-4, FARIDABAD VS. M/S MM OVERSEAS (INDIA), 31-C/7, DLF INDL. AREA, FARIDABAD (PAN/GIR NO. : AAHFM4249G) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : NONE DEPARTMENT BY : MS. SRUJANI MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 13.1.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE RAISED IS THAT ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF ` 10,94,542/- MADE BY THE ASSESSING OFFICER ON ACCOU NT OF FALL IN GP RATIO EVEN THOUGH THE ASSESSEE HAD FAILED TO ESTABL ISH THE FALL IN GP RATIO AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE MANUFACTURING AND EXPORTING OF MACHINES LIKE A IR BLASTER OR COMPONENTS MOSTLY USED IN THE CEMENT INDUSTRY. ITA NO. 1198/DEL/2010 2 4. ON THIS ISSUE ASSESSING OFFICER NOTED THAT THER E WAS FALL IN THE GP RATE FROM 42.90% OF THE LAST YEAR TO 39.40% THIS YE AR. AFTER COMPARING THE GP RATIO OF THE LAST THREE YEARS, SHE ASKED THE APPELLANT TO EXPLAIN THE REASONS FOR FALL IN GP DURING THE YEAR UNDER R EFERENCE. THE A.R. OF THE ASSESSEE VIDE REPLY DATED 25.8.2009 SUBMITTED TH AT THE SAID FALL IN THE GP RATIO WAS DUE TO INCREASE IN THE RATES OF RA W MATERIAL AND COMPONENTS. THE ASSESSING OFFICER FOUND THAT NO E VIDENCE WHATSOEVER WAS SUBMITTED TO SHOW THAT THERE WAS AN INCREASE IN THE PRICES OF RAW MATERIAL DURING THE YEAR NOR ANY EFFOR T WAS MADE TO CO- RELATE THE ALLEGED INCREASE WITH THE FALL IN GP RA TIO. NO EVIDENCE FILED. UNDER THESE CIRCUMSTANCES, THEREFORE, AS PER THE ASS ESSING OFFICER, SHE WAS LEFT WITH NO OTHER OPTION BUT TO DISALLOW THE S AID FALL AND MAKE CORRESPONDING ADDITION TO THE TOTAL INCOME OF THE ASSESSEE, WHICH WAS WORKED OUT AT ` 10,94,542/- BY APPLYING THE GP RATI O OF 42.90% ON THE TOTAL SALES OF ` 3,12,72,633/- SHOWN BY THE ASSESSE E. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASSESSING OFFICER WAS NOT COR RECT IN INFERRING THAT NO SPECIFIC REASONS FOR THE FALL IN GP RATIO WERE G IVEN BY THE ASSESSEE. THE ASSESSEE HAD EXPLAINED THE FALL BY PLEADING THA T THERE WAS INCREASE IN THE RATES OF RAW MATERIAL AND COMPONENT S. THE ASSESSING OFFICER THEREAFTER HAD NOT ASKED FOR ANY FURTHER D ETAIL. MOREOVER, SIMPLY BECAUSE THERE IS FALL IN THE GP RATIO, IT IS N OT PERMISSIBLE TO MAKE ADDITION ON ADHOC BASIS COMPULSORY. LD. COMMISSION ER OF INCOME TAX (APPEALS) NOTED THAT ASSESSEE ELABORATELY AND C OGENTLY IN WRITTEN SUBMISSION JUSTIFIED THE RATE OF GROSS PROFIT FOR T HE YEAR. IN THIS ITA NO. 1198/DEL/2010 3 CONNECTION, LD. COMMISSIONER OF INCOME TAX (APPEALS) P LACED RELIANCE UPON FOLLOWING CASE LAWS:- I) PANDIT BROS. VS. C.I.T. 26 ITR 159 (P&H) II) C.I.T. V K.S. BHATIA 269 ITR 259 (P&H) III) S. VEERIA RADDIAR V C.I.T. 38 ITR 152 (KERALA ) 6. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ACCOUNTS HAVE BEEN FOUND TO BE DULY AUDITED, THE DETAILS WERE FURNISHED REGARDING THE ACCOUNTS MAINTAINED AND NO DEFECT WHA TSOEVER FOUND IN THE ACCOUNT BOOKS, ADDITION WAS NOT JUSTIFIED. 7. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 8. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE. NONE APPEARED ON BEHALF OF THE ASSESSEE. FURTHER, IN O UR CONSIDERED OPINION, THE MATTER CAN BE DISPOSED OF, UPON PERUSI NG THE RECORD AND HEARING THE LD. DEPARTMENTAL REPRESENTATIVE. WE FIND THAT FALL IN THE GP RATE OF THE ASSESSEE HAS BEEN ATTRIBUTED BY THE ASSESSEE TO INCREASE IN THE RATES OF RAW MATERIAL. THE ASSESSIN G OFFICER HAS NOT BROUGHT ABOUT ANY COGENT MATERIAL TO PROVE THAT THE ASSESSEE WAS SUBMITTING FALSELY. MOREOVER, IT IS ALSO A SETTLE D LAW THAT MERE FACT THAT THE PROFITS WERE LOW AS COMPARED TO EARLIER YEAR , IT IS NOT THE CIRCUMSTANCES OR MATERIAL TO JUSTIFY THE ESTIMATE OF PR OFITS, WHEN THE BOOKS OF ACCOUNTS WERE AUDITED AND REMAIN UNDISPUTE D OR REJECTED. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISS UE, HENCE, WE UPHOLD THE SAME. ITA NO. 1198/DEL/2010 4 9. THE NEXT ISSUE RAISED IS THAT ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF ` 7,13,497/- MADE BY THE ASSESSING OFFICER U/S 40( A)(I) EVEN THOUGH THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE AT TH E TIME OF MAKING PAYMENT OF COMMISSION TO THE FOREIGN COMPANIES AND A LSO DISREGARDING THAT THE CIRCULARS CANNOT OVERRIDE TH E PROVISIONS OF THE ACT. 10. ON THIS ISSUE THE ASSESSING OFFICER IN PARA 4 OF HER ORDER NOTICED THAT AN AMOUNT OF ` 7,13,497/- HAD BEEN DEBITED A S COMMISSION ON SALES. SHE ASKED THE ASSESSEE TO EXPLAIN THE REA SONS FOR NOT DEDUCTING INCOME THAT ON THE PAYMENTS MADE TO FOREIGN COMPANIES AMOUNTING TO ` 7,13,497/- AS COMMISSION ON SALES. I N ITS REPLY DATED 08.9.2009, THE ASSESSEE HAD SUBMITTED THAT NO TDS WA S DEDUCTED BECAUSE PAYMENTS WERE MADE IN FOREIGN CURRENCY DIRECT LY FROM THE BANK. THE ASSESSEE HAD EXPLAINED THAT IN RESPECT OF THE TWO FOREIGN COMPANIES I.E. AL EMAD JORDANIAN ENGG. TRADING CO. JO RDON, AND FIRST FOR SUPPLY AND SERVICES, EGYPT, THE PAYMENTS WERE MA DE IN FOREIGN CURRENCY AND THAT NO SUCH QUESTION WAS EVER RAISED BY THE INCOME TAX DEPARTMENT IN THE PRECEDING YEARS. THE ASSESSING O FFICER DID NOT ACCEPT THE REPLY OF THE ASSESSEE FIRM AND DISALLOWED THE AMOUNT OF ` 7,13,497/- UNDER THE PROVISIONS OF SECTION 40(A)(I) AND ADDED IT BACK TOT EH TOTAL INCOME OF THE ASSESSEE. 11. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ASSESSEE SUBMITTED AS UNDER:- THE LD. ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 7,13,497/- BEING COMMISSION PAID ON SALES TO ITA NO. 1198/DEL/2010 5 A. AL EMAD JORDANIAN ENGG. TRADING CO. JORDAN. 6,07,56 0.00 B. FIRST FOR SUPPLY AND SERVICES EGYPT 1,05,937.00 THE COMMISSION WAS PAID FOR PROCUREMENT OF FOREIGN B USINESS, WHICH WAS NOT DISPUTED BY THE ASSESSING OFFICER AS THE ASSESSEE IS ENGAGED IN EXPORT OF CAPITAL GOODS. THE STAND TAKEN BY THE ASSESSING OFFICER IS THAT SINCE TDS HAS NOT BEEN DEDUCTED, PROVISIONS OF SECTION 40(A)( I) ARE TRIGGERED AND ACCORDINGLY THE ENTIRE AMOUNT NEEDS T O BE DISALLOWED. INTERESTINGLY THE ASSESSING OFFICER HAS CONCEDED A S PER LAST PARAGRAPH OF PAGE 4 OF THE ORDER THAT THE RECIPIENT S OF COMMISSION ARE FOREIGN COMPANIES. WE ARE ENCLOSING T HE TAX RESIDENCY CERTIFICATE OF AL EMAD COMPANY OF JORDON TO FURTHER SUBSTANTIATE OUR CLAIM. IN CIRCULAR 786 OF 200, IT IS CLEARLY STATED THAT N O TAX IS DEDUCTIBLE UNDER SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CH ARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUT SIDE INDIA BECOMES ALLOWABLE EXPENDITURE. THE SAID CIRCULAR IS BEING REPRODUCED FOR PERUSAL BEFORE YOUR HONOUR. 12. CONSIDERING THE ABOVE LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IT WAS EVIDENT THAT THE AMOUNT OF ` 7,13, 497/- WAS COMMISSION PAID FOR PROCUREMENT OF FOREIGN BUSINESS. HE NOTED THAT IT WAS NOT DISPUTED THAT THE ASSESSEE WAS AN EXPORTER OF CAPITAL GOODS, AND THAT THE TWO RECIPIENTS OF SUCH COMMISSION ARE PA TENTLY FOREIGN COMPANIES, THE EVIDENCES OF WHICH ARE ALREADY ON THE RECORDS. THEREFORE, LD. COMMISSIONER OF INCOME TAX (APPEALS) H ELD THAT ON THE BASIS OF CBDT CIRCULAR NO. 786 DATED 7.2.2000, THE RE IS NO ITA NO. 1198/DEL/2010 6 REQUIREMENT OF DEDUCTION OF TAX U/S 195. FURTHER, L D. COMMISSIONER OF INCOME TAX (APPEALS) STATED THAT ALSO THE BOARDS C IRCULAR NO. 23 DATED 23.7.1969 RELIED UPON BY THE A.R. ABOVE, SUFF ICIENTLY DETERMINES THE STATUS OF THE NON-RESIDENT AGENT RENDERING SER VICES ABROAD. HENCE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN VIEW OF THE CLARIFICATION GIVEN IN THE CIRCULAR NO. 786 OF 2000 REGARDING TAXABILITY OF EXPORT COMMISSION PAYABLE TO NON-RESID ENT AGENTS RENDERING SERVICES ABROAD, THE DISALLOWANCE OF THE COMMISSION OF ` 7,13,497/- U/S 40(A)(I) IS ERRONEOUS AND HENCE LIAB LE TO BE CANCELLED. 13. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APP EAL BEFORE US. 14. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND PERUSED THE RECORDS. WE FIND THAT SECTION 40(A)(I) MANDATES THAT ANY INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM C HARGEABLE UNDER THIS ACT, IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NO N-RESIDENT ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SU CH TAX HAS NOT BEEN DEDUCTED. THE AMOUNTS SHALL NOT BE DEDUCTIBLE IN COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 15. WE FIND THAT THE COMMISSION IN THIS CASE WAS PAID TO FOREIGN AGENTS FOR PROCUREMENT OF FOREIGN BUSINESS FOR EXPOR T OUTSIDE INDIA. IN THESE CIRCUMSTANCES, CBDT CIRCULAR NO. 786 DATED 7.2.2000 COMES TO THE RESCUE OF THE ASSESSEE. IN VIEW OF T HE CLARIFICATION GIVEN IN THE CBDT CIRCULAR NO. 786 OF 2000, THERE IS NO R EQUIREMENT OF TAX DEDUCTION IN EXPORT COMMISSION PAYABLE TO NON-RESIDEN T AGENT FOR RENDERING SERVICES ABROAD. ACCORDINGLY, WE FIND OUR SELVES IN ITA NO. 1198/DEL/2010 7 AGREEMENT WITH THE LD. COMMISSIONER OF INCOME TAX (AP PEALS)S ORDER THAT DISALLOWANCE U/S 40(A)(I) WAS NOT JUSTIFIED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/05/2011 UP ON CONCLUSION OF HEARING. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 04/05/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES