B.Madanlal, Salem V. ITO, Salem

ITA 140/CHNY/2015

• Counselvise Citation: 14021714 RSA 2015
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 08-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 19-01-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Additional evidence; Commercial expediency
• Section: 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . ! '# , $ %& BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NOS. 139 & 140/MDS/2015 / ASSESSMENT YEARS : 2004-05 & 2008-09 MR. B. MADANLAL, PROP: BATHIJA INTERNATIONAL C/O T.R.SUNDARAM & CO.,CAS NO.14/9, 2 ND CROSS ROAD, NORTH MARAVANERI EXTENSION, SALEM 636 007. PAN ADEPM5797P APPELLANT) V. THE INCOME-TAX OFFICER, WARD-I(1), SALEM 7. RESPONDENT) / APPELLANT BY : SHRI G. BASKAR, ADVOCATE / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 08.10.2015 '# ! / DATE OF PRONOUNCEMENT: 16.10.2015 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAIN ST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS) DATED 30.9.2014 FOR ASSESSMENT YEARS 2004-05 AND 20 08-09. - - ITA 139 & 140/1 5 2 2. WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.139/MDS/2015. THE FIRST GROUND IS GENERAL IN NA TURE AND DOES NOT REQUIRE ANY ADJUDICATION. 3. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN REJECT ING THE CONTENTIONS OF THE ASSESSEE ON THE ISSUE RELATING TO REOPENING OF THE ASSESSMENT. 4. AT THE TIME OF HEARING, THE LD. AR SUBMITTED THA T THE ASSESSEE IS NOT INTERESTED TO PRESS THIS GROUND. A CCORDINGLY, THIS GROUND IS DISMISSED AS NOT PRESSED. 5. THE NEXT GROUNDS RAISED BY THE ASSESSEE ARE AS F OLLOWS: 3. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF INTEREST PAID TO CANARA BANK ON THE OVERDRAFT FACILITY, WHICH DISALLOWANCE, BY THE ASSE SSING OFFICER WAS AGAINST THE INTEREST FREE ADVANCE MADE TO A RELATIVE AND CLOSE FRIEND DURING THE YEARS 1999 A ND 2000 RESPECTIVELY. THE CIT(APPEALS) OUGHT TO HAVE SEEN THE SAID INTEREST FREE ADVANCES WAS ONLY A OPENING DEBIT BALANCE DURING THE YEAR IN ASSESSMENT . 4. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS), ON THE FACTS OF APPELLANTS CASE, ERR ED IN LAW IN CONFIRMING THE DISALLOWANCE OF INTEREST ON T HE GROUNDS THAT THERE WAS NO COMMERCIAL EXPEDIENCY. THE CIT(APPEALS) OUGHT TO HAVE SEEN THAT THE REASONING OF THE ASSESSING OFFICER IN DISALLOWING T HE INTEREST PAID TO THE BANK ON THE OVERDRAFT FACILITY AVAILED IS NOT SUSTAINABLE AND THE SAID REASON WAS - - ITA 139 & 140/1 5 3 ONLY AN ASSUMPTION OF THE ASSESSING OFFICER. BESID ES THE CIT(APPEALS) ERRED IN NOT APPRECIATING THE CONTENTION THAT THE ASSESSING OFFICER HAS FAILED TO ESTABLISH ANY NEXUS TO THE SAID OVERDRAFT FACILITY AVAILED FROM THE BANK AND THE INTEREST FREE AMOUNT ADVANCED. THE CIT(APPEALS) ALSO FAILED TO TAKE NOT E THAT THE ASSESSING OFFICER HAS NEITHER QUESTIONED N OR DOUBTED THE SAID INTEREST FREE ADVANCES. 6. THE ASSESSING OFFICER DISALLOWED A SUM OF ` 2,74,165/- ON THE REASON THAT THE ASSESSEE ADVANCED INTEREST B EARING BORROWED FUNDS TO HIS MOTHER-IN-LAW, SMT. MEENA GWA LANI AND SRI NIRMAL MOMAYA. THE ASSESSING OFFICER DISALLOWE D THE INTEREST PAID ON OVERDRAFT TO THE EXTENT OF ` 2,74,165/-. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMIS SIONER OF INCOME-TAX(APPEALS), WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, BEFORE US, THE ASSESSEE HAS FILED ADDIT IONAL EVIDENCES ACCOMPANIED BY THE PETITION STATING THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS AND ADVANCED THE SAME TO OTHERS WITHOUT CHARGING ANY INTEREST AND THE ADDITIONAL EV IDENCES ARE AS FOLLOWS : 1. STATEMENT COPY, FORM 3CB, FORM 3 CD AND RETURN FILED ACKNOWLEDGMENT. - - ITA 139 & 140/1 5 4 2. INCOMETAX ASSESSMENT ORDER U/S.143(1) DATED 10.01.2005 3. NOTICE U/S.154 DATED 5.12.2007 4. REPLY TO NOTICE U/S.154 DATED 19.12.2007 5. INCOME-TAX OFFICE LETTER DATED 11.03.2008 6. REPLY TO NOTICE U/S 154 DATED 24.09.2009 7. NOTICE U/S.143(2) DATED 24.09.2009 & 10.12.2009 8. PARTICULARS FILED BEFORE THE ASSESSING OFFICER R EGARDING COMMISSION PAYMENT AND DEBIT BALANCES. 9. COPY OF INTEREST INCOME TAX ISSUES RELATING TO T AX DEDUCTION IN RESPECT OF PAYMENT MADE TO OR BY FOREI GN FIRMS AND COPY OF CIRCULAR 786. 10. INCOME TAX ASSESSMENT ORDER U/S.143(3) DATED 29.12.2009 11. COPY OF FORM 35, STATEMENT OF FACTS AND GROUNDS OF APPEAL. THE LD. AR SUBMITTED THAT THE ABOVE DOCUMENTS WERE FILED BEFORE THE ASSESSING OFFICER, WHO HAD NOT GONE THROUGH IT. HENCE, THE LD. AR PLEADED THAT THE SAME DOCUMENTS ARE FILED BE FORE THE TRIBUNAL FOR PROPER ADJUDICATION OF THE ABOVE GROUN DS. ADMITTEDLY, THESE ADDITIONAL EVIDENCES WERE PRODUCE D BEFORE THE LOWER AUTHORITIES, WHICH WERE NOT EXAMINED BY THEM. THEREFORE, - - ITA 139 & 140/1 5 5 IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 9. THE NEXT ISSUE RAISED BY THE ASSESSEE IS WITH RE GARD TO COMMISSION PAID TO NON-RESIDENT. 10. THE ASSESSEE HAS MADE THE PAYMENT OF ` 4,09,858/- TOWARDS COMMISSION TO NON-RESIDENT. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE REASON THAT NO TDS WAS M ADE IN TERMS OF SEC.195 OF THE ACT. DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS ASKED TO EXPLAIN THE DETAILS OF PA YMENTS MADE TO NON-RESIDENTS. IT WAS STATED THAT THE ASSESSEE WAS PAID THE SAID AMOUNT FOR ARRANGING FOREIGN BUSINESS. HOWEVE R, THE ASSESSEE HAS NOT PRODUCED ANY REQUISITE EVIDENCE RE GARDING THE PAYMENTS. BEING SO, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC.40(A) OF THE ACT. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TA X(APPEALS), WHO CONFIRMED THE ORDER OF THE COMMISSIONER OF INCO ME- TAX(APPEALS). AGAINST THIS, THE ASSESSEE IS IN APP EAL BEFORE US. 11. THE LD. AR SUBMITTED THAT THE REQUIREMENT TO DE DUCT TAX U/S.195 WOULD ARISE ONLY WHEN SUCH COMMISSION PAID IS CHARGEABLE TO TAX IN INDIA UNDER THE ACT. THE LD. AR FURTHER - - ITA 139 & 140/1 5 6 SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX(APPEA LS) FAILED TO NOTE THAT SEC.195(2) HAS TO BE READ WITH THE REQ UIREMENT THAT OBTAINING OF SUCH CERTIFICATE IS ONLY WHEN THE PAYM ENT IS LIABLE TO CHARGE UNDER THE ACT IN INDIA AND THE SAID SUB-SEC. HAS TO BE READ WITH SEC.195 OF THE ACT. ACCORDING TO THE LD . AR, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FAILED TO N OTE THAT THE REASONING OF THE ASSESSING OFFICER IN REJECTING THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AND ADDING THE SAME U/S.40(A) OF THE ACT IS NOT SUSTAINABLE IN LAW AND ON THE FAC TS AND CIRCUMSTANCES OF THE ASSESSEES CASE. FURTHER, HE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE SEEN THAT SEC.195(5) R.W. CIRCULAR 10/2002 DATED 09 .10.2002, BASED ON WHICH THE ASSESSING OFFICER DISALLOWED THE COMMISSION PAYMENT HAS NO APPLICABILITY IN THIS CAS E. ACCORDING TO THE LD. AR, THE COMMISSIONER OF INCOME-TAX(APPEA LS) HAS ERRED TO NOTE THAT THE BOARDS CIRCULAR NO.786 DATE D 7.2.200 IS APPLICABLE AT THE RELEVANT POINT OF TIME AND BINDS ON THE DEPARTMENT AND ACCORDINGLY THE REASONING OF THE ASS ESSING OFFICER IN DISALLOWING THE PAYMENT MADE TO THE NON- RESIDENT IS NOT SUSTAINABLE. - - ITA 139 & 140/1 5 7 12. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF THE LOWER AUTHORITIES. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, CERTAIN PROVISIONS OF TH E ACT NEEDS TO BE LOOKED INTO SECTION 40(A)(I) WHICH READS AS UNDE R:- 40 NOT WITHSTANDING ............. (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 19 38) ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE A. OUTSIDE INDIA B. IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER VIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200: 14. THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE D ISALLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGEABLE UNDER THIS ACT AND IS PAYABLE OUTSIDE INDIA OR IN I NDIA TO A NON- RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPAN Y ON WHICH TAX IS DEDUCTIBLE AT SOURCE. THEREFORE, THE FIRST C ONDITION REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE U NDER THE ACT, - - ITA 139 & 140/1 5 8 THEREAFTER THE QUESTION OF DEDUCTION OF TAX WILL AR ISE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE D EDUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE CONDITION PRE CEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE U NDER THE PROVISIONS OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS NOT PRODUCED THE AGREEMENT ENTERED INT O BY THE ASSESSEE WITH FOREIGN AGENTS TO SHOW THAT THEY WERE APPOINTED TO ACT AS COMMISSION AGENTS OUTSIDE INDIA IN THEIR RESPECTIVE COUNTRIES. THE AO HAS DISALLOWED COMMISSION PAYMENT U/S 40(A)(I) OF THE ACT, SINCE, THERE WAS NO AGREEMENT TO SUGGEST THE PAYMENT OF SALES COMMISSION. 15. AS SEEN FROM THE ORDER S OF THE LOWER AUTHORITI ES, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDENT AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDENTS, WHO HAVE NO PER MANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECT ION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUE D OR AROSE IN INDIA THEN, IT IS EXEMPTED, IF THE ASSESSEE IS A BLE TO PROVE THAT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS A T ABROAD. IN - - ITA 139 & 140/1 5 9 THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDENT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN INDIA BY PRO DUCING RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN T HE PARTIES. WITHOUT EXAMINING THESE DETAILS, WE ARE N OT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE NO N-RESIDENT AGENT. THEREFORE, IT IS APPROPRIATE TO REMIT THE E NTIRE ISSUE BACK TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSE E TO PROVE THAT IT WAS SALES COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTE D BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND THE AO IS DIR ECTED TO MAKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT AND THE PAYMENTS MADE THEREO F. WITH THESE OBSERVATIONS, THE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. 16. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.140/MDS/2015. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE OF PAYMENT OF ` 1,37,090/- MADE TO NON-RESIDENT TOWARDS COMMISSION. - - ITA 139 & 140/1 5 10 17. WE HAVE DECIDED THIS ISSUE FOR THE ASSESSMENT YEAR 2004-05 VIDE PARA 15 OF THIS ORDER. ACCORDINGLY, W E REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRES H CONSIDERATION WITH THE SAME DIRECTIONS. 18. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 139/MDS/15 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO.140/MDS/15 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 16 TH OF OCT., 2015 AT CHENNAI. SD/- SD/- ( . $ % ) ( & ' ( ) ) *+,-./01023 45067.082290.:3 ; $< /JUDICIAL MEMBER ! $<=>>2-6?06?@ABCA. &; /CHENNAI, D$ /DATED, THE 16 TH OCT., 2015. MPO* $E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I3 /CIT(A) 4. I /CIT 5. GJ% K /DR 6. %LM /GF.