DCIT, New Delhi V. M/s. Hindustan Tin Works Ltd., Delhi

ITA 1442/DEL/2013

• Counselvise Citation: 144220114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: SHAILESH GUPTA S
• Keywords: Principle of natural justice; Proportionate interest; Additional evidence
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1442/DEL./2013 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE 12 (1), VS. M/S. HINDUSTAN TIN WORKS LTD., NEW DELHI. 488, BARTAN MARKET, SADAR BAZAR, DELHI 110 006. (PAN : AAACH2597Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL AGGARWAL & SHAILESH GUP TA, ADVOCATES REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF CIT (APPEALS)-XV, NEW DELHI DATED 26.12.2012 FOR THE AS SESSMENT YEAR 2009-10. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE OF TIN CANS/PRINTED LAC SHEET/COMPONENT AND TRADING IN TIN PLATES. THE RETURN OF INCOME WAS FILED AT RS.11,72,17,182/- ON 30.09.2009. THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF DISAL LOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 AND DISALLOWANCE OF SALE C OMMISSION PAID TO ITA NO.1442/DEL/2013 2 M/S. PARLIAMENT INTERNATIONAL LTD., UK. THE CIT (A ) HAS DELETED BOTH THE ADDITIONS. NOW, THE REVENUE IS IN APPEAL BEFORE US BY TAKING THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISA LLOWANCE OF COMMISSION OF RS.75,25,000/- BY ADMITTING ADDITI ONAL EVIDENCE WITHOUT PROVIDING OPPORTUNITY TO THE A.O. AND BY HOLDING THAT THE AMOUNT PAID WAS REASONABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO COMPUTE THE DISALLOWANCE OF PROPORTIONATE INTEREST U/S 14A/RULE 8D BY EXCLUDING THE AMOUNT OF INTEREST REC EIVED FROM INTEREST EXPENSES. 3. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. 3. IN THE GROUND NO.1, THE ISSUE INVOLVED IS DELETI NG THE ADDITION OF RS.75,25,000/- MADE BY ASSESSING OFFICER ON ACCOUNT OF PAYMENT OF COMMISSION TO PARLIAMENT INTERNATIONAL LTD., UK. 4. THE REVENUE AGITATED THAT THIS ADDITION WAS DELE TED AFTER ADMITTING ADDITIONAL EVIDENCES WITHOUT PROVIDING ADEQUATE OPP ORTUNITY TO THE ASSESSING OFFICER AND ALSO ON ACCOUNT OF THE AMOUNT WAS HELD TO BE REASONABLE. 5. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THE ASSESSEE COMPANY HAS PAID THE AMOUNT OF RS.75,25,000/- TO M/S. PARLI AMENT INTERNATIONAL LTD. THE ASSESSEE FURNISHED AN AGREEMENT SIGNED WI TH M/S. PARLIAMENT INTERNATIONAL LTD. W.E.F. 01.03.2008 BEFORE THE ASS ESSING OFFICER AS ITA NO.1442/DEL/2013 3 EVIDENT FROM PAGES 193 TO 195 OF THE PAPER BOOK. S ALES WORTH OF RS.21.25 CRORES WERE MADE TO M/S. FOSTER CLARK PROD UCTS DURING THE YEAR THROUGH M/S. PARLIAMENT INTERNATIONAL LTD. FOR WHIC H THIS COMMISSION WAS PAID. THE CIT (A) DELETED THIS ADDITION BY HOL DING AS UNDER :- 7. ON THE SECOND GROUND OF APPEAL RELATING TO DISALLOWANCE OF SALES COMMISSION PAID TO M/S. PIL, I FIND THAT THE LD AD SOUGHT THE EXPLANATION ABOUT REASONABLENESS OF SUCH PAYMENTS, WHICH WAS DULY COMPLIED WITH BY THE APPELLANT VIDE ITS LETTER DATE D 3.5.2011. AFTER THIS, THERE IS NO EVIDENCE REPORTED IN THE ASSESSMENT ORDER ABOUT ANY ADVERSE FACTS GATHERED B Y THE LD. A.O. QUESTIONING THE RELEVANCE, BUSINESS EXPEDI ENCY OF SUCH PAYMENTS AND THAT NO ENQUIRY WHATSOEVER WAS CONDUCTED BY THE AD DESPITE HAVING VESTED WITH STAT UTORY POWERS IN THIS REGARD AND WITHOUT VERIFYING WHETHER ANY TDS WAS DEDUCTIBLE IN THE CASE OF A NON-RESIDENT AG ENT OF AN INDIAN EXPORTER WHO HAD NO PERMANENT ESTABLISHME NT IN INDIA. THUS, THE LD. A.O. MISERABLY FAILED IN CARRY ING OUT HIS LAWFUL DUTY OF MAKING EFFORTS IN PERFORMING DUE DILIGENCE IN THE MATTER. ON THE ONE HAND, THE AO D ID NOT PERFORM HIS DUTY, ON THE OTHER HAND, DESPITE HAVING NECESSARY EVIDENCE FURNISHED BY THE APPELLANT DURIN G THE COURSE OF THE PROCEEDINGS WHICH REMAINED UNREFUTED AND NOT FINDING FAULT IN THE TERMS OF THE AGREEMENT BET WEEN THE TWO PARTIES, MERELY ON THE BASIS OF FORMING A SUBJE CTIVE OPINION, HE DISALLOWED THE COMMISSION EXPENSES. I F IND THAT THE SAID M/S PIL HAD FACILITATED SALES TO THE MALTA BASED PARTY FOR WHICH NECESSARY EVIDENCE OF COMMUNICATION ARE ON RECORD. IT IS EVIDENT THAT THE TURNOVER OF THE COMPANY HAS SIGNIFICANTLY INCREASED TO 200% COMPARED TO FY 2007-08 PRIMARILY DUE TO ITS COLLABORATION WITH THE SAID M/S. PIL, WHICH HAD PRO CURED ITS LUCRATIVE EXPORT OFFER IN THE LAST TWO YEARS. T HE LD. AO HAS NOT ENLIGHTENED AS TO HOW THE SAID PAYMENT WAS LIABLE TO TDS U/S 195 KEEPING IN VIEW THE PROVISIONS OF SE CTION 9, CIRCULAR NO.23 OF CBDT (WHICH WAS APPLICABLE DUR ING THE YEAR) AND VARIOUS JUDICIAL PRONOUNCEMENTS AND T HE RULINGS OF AAR, WHICH THE LD AO IS OUGHT TO BE CONVERSANT WITH. THE OBSERVATION MADE BY THE AO THA T ITA NO.1442/DEL/2013 4 THERE APPEARS NO BUSINESS EXPEDIENCY', 'AGREEMENT A S CLAIMED TO HAVE BEEN ENTERED, DO NOT APPEAR REASONA BLE AND THAT EXPORT HAS INCREASED BUT NO CASE OF AGREEM ENT ENTERED WITH THE MEDIATOR PARTY' ARE WITHOUT EVIDEN CE, PRESUMPTUOUS AND BASELESS. I AM AGGRIEVED TO OBSERV E THAT THE LD. AO DID NOT BOTHER TO CONFRONT THE APPELLANT WITH THESE OBSERVATIONS BEFORE MAKING DISALLOWANCE ON TH IS GROUND. THEREFORE, IT IS EVIDENT THAT THE DISALLOW ANCE ON THIS GROUND WAS NOT ONLY ARBITRARY, BASELESS BUT AL SO SUFFERS FROM THE LACK OF NATURAL JUSTICE. 6. WE ALSO FIND THAT THE ASSESSING OFFICER HAD RAIS ED THE QUERY WITH REGARD TO THE REASONABLENESS OF THE PAYMENTS TO M/S . PARLIAMENT INTERNATIONAL LTD. WHICH THE ASSESSEE HAS COMPLIED WITH WHILE FILING THE SUBMISSION ON 03.05.2011. ASSESSEE HAS SUBMITTED A PAPER BOOK CONTAINING PAGES 1 TO 245. AS PER THE CERTIFICATIO N, ALL DOCUMENTS WERE SUBMITTED BEFORE ASSESSING OFFICER AS WELL AS BEFOR E CIT (A) EXCEPT THE WRITTEN SUBMISSIONS DATED 06.11.2002 PLACED IN THIS PAPER BOOK FROM PAGES 238 TO 245. THESE DETAILS INCLUDE COPY OF DE TAILS OF SALES MADE TO M/S. FOSTER CLARK PRODUCTS ALONG WITH THE DETAILS O F COMMISSION, COPY OF SALES INVOICES TO M/S. FOSTER CLARK PRODUCTS, COPY OF INVOICES COMMISSION PAID TO M/S. PARLIAMENT INTERNATIONAL LT D. , COPY OF PURCHASE ORDER TO M/S. FOSTER CLARK PRODUCTS, COPY OF AGENCY AGREEMENT, COPY OF LEDGER ACCOUNT OF M/S. FOSTER CLARK PRODUCTS, COPY OF INVOICES OF M/S. FOSTER CLARK PRODUCTS, COPY OF LEDGER ACCOUNT OF M/ S. PARLIAMENT INTERNATIONAL LTD. , COPY OF ACCOUNTS OF M/S. FOSTE R CLARK PRODUCTS FOR FINANCIAL YEAR 2008-09 AND LEDGER ACCOUNTS OF M/S. PARLIAMENT ITA NO.1442/DEL/2013 5 INTERNATIONAL LTD. THUS, WE HOLD THAT THE REVENU ES CLAIM THAT CIT (A) HAS ADMITTED ADDITIONAL EVIDENCES AND THEN GRANTED THE RELIEF TO THE ASSESSEE IS FACTUALLY INCORRECT. THE ASSESSEE ALRE ADY SUBMITTED DOCUMENTS ON WHICH THE CIT (A) BASED HIS DECISION WITH REGARD TO THE PAYMENT OF COMMISSION. THE ASSESSEE HAS ALSO GIVEN THE DETAIL S OF THE RELEVANT SALES ON WHICH THIS COMMISSION WAS PAID. CONSIDERING ALL THESE ASPECTS, WE HOLD THAT THE CIT (A) HAS RIGHTLY HELD THAT THIS EX PENDITURE WAS FOR BUSINESS EXPEDIENCY AND IT WAS REASONABLE. KEEPING ALL THESE FACTS IN VIEW, WE SUSTAIN THE ORDER OF THE CIT (A) AND DISMI SS THIS GROUND OF REVENUES APPEAL. 7. IN THE GROUND NO.2, THE ISSUE RAISED IS DELETING THE ADDITION ON ACCOUNT OF PROPORTIONATE INTEREST BY INVOKING THE P ROVISIONS OF SECTION 14A READ WITH RULE 8D. 8. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE IN THE LIGHT OF THE SUBMISSIONS MADE BY THE APPELLA NT COMPANY AND THE APPLICABLE LAW POSITION IN THIS REGARD. I FIND THAT THE APPELLANT COMPANY HAS VEHEMENTLY CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE/ADDITIONS, WHICH IN ITS SUBMISSION, HAVE BEEN MADE WITHOUT ACCORDING PROPER OPPORTUNITY TO THE APPELLANT COMPANY. I FIND THAT S O FAR AS FIRST ISSUE RELATING TO ITS COMPUTATION OF DISALLOWANCE U/S 14A IS CONCERNED, THE LD AO HAD ALLOWED THE APPELLANT AN OPPORTUNITY TO FURNISH ITS COMPUTATION OF DISALLOWANCE U/S 14A. AS INFORMED, THE APPELLANT COMPANY HAD PROPOSED DISALLOWANCE OF RS.6,63,423/- IN ITS RETURN OF INCOME. HOWEVER, THE ITA NO.1442/DEL/2013 6 ASSESSMENT ORDER IS SILENT ABOUT THIS. FURTHER, THE ORDER IS ALSO SILENT ABOUT WHETHER THE LD. AO WAS SATISFI ED WITH THE SAID COMPUTATION FURNISHED BY THE APPELLAN T OR NOT AND IF SO, ON WHAT GROUNDS. THE APPELLANT HA S DURING THE PROCEEDING BEFORE ME INFORMED THAT THE DIFFERENCE BETWEEN THE LD. A.O. AND THE APPELLANT I S ON ACCOUNT OF THE FACT THAT THE APPELLANT HAS NOT N ETTED THE INTEREST RECEIVED BY IT AGAINST THE INTEREST PA ID BY IT ON THE WORKING CAPITAL LOAN. ACCORDINGLY, IF THAT IS D ONE, NO FURTHER DISALLOWANCE IS CALLED FOR OVER AND ABOVE W HAT WAS WORKED OUT BY THE APPELLANT. I FIND THE CONTENTION OF THE APPELLANT CORRECT. MOREOVER, I ALSO OBSERVE THAT TH E LD. A.O. HAS NOT APPRECIATED THE PROCEDURE FOR INVOKING 14A. HIS OBSERVATIONS THAT DISALLOWANCE IS TO BE MADE U/ S 14A, IN ALL CASES, DOES NOT REFLECT THE LEGISLATIVE INTE NT FOR INVOKING THIS PROVISION. LD. A.O. HAS TO RECORD HI S SATISFACTION ON COGENT GROUNDS AS TO HOW THE WORKIN G OF THE APPELLANT IS NOT CORRECT, AS WAS HELD BY THE HO N'BLE HIGH COURT IN THE CASE OF M/S. MAXOPP INVESTMENT PV T. LTD. (64 DTR 122). FURTHER, IT IS ALSO A SETTLED LA W THAT UNTIL AND UNLESS IT IS A CASE OF MIXED FUNDS MADE W HERE DIRECT NEXUS CANNOT BE ATTRIBUTED TO INTEREST BEARI NG FUNDS AND WHEREVER THERE IS A DIRECT EVIDENCE THAT INTERE ST BEARING FUNDS WERE NOT DEPLOYED FOR MAKING INVESTME NT IN INVESTMENTS RESULTING IN TAX-FREE INCOME, NO DISALL OWANCE U/S 14A IS CALLED FOR. THE LD. A.O. HAS NOT BOTHERE D TO EXAMINE THESE BASIC ASPECTS AND SUMMARILY MADE DISALLOWANCE, WHICH BOTH ON FACTS AND LAW WAS ARBIT RARY. SINCE THE APPELLANT COMPANY HAD ITSELF MADE DISALLO WANCE U/S 14A AMOUNTING TO RS.6,63,443/- IN THE RETURN OF INCOME, WHICH IS THE SAME AMOUNT WHICH IS WORKED OU T UNDER RULE 8D AFTER ALLOWING NETTING OF INTEREST IN COME ON ICD AGAINST INTEREST EXPENDITURE PAID BY THE APPELL ANT COMPANY, THERE WAS NO GROUND FOR FURTHER MAKING ADD ITION UNDER SECTION 14A BY DISREGARDING THE SAME. IN VIEW OF THE THIS, THE APPELLANT COMPANY GETS THE RELIEF OF RS.11,81,754/- ON THIS GROUND. 9. IT WAS CLAIMED THAT THE ASSESSEE HIMSELF HAS DIS ALLOWED RS.6,63,423/- IN THE RETURN OF INCOME. ASSESSEE CA LCULATED THIS ITA NO.1442/DEL/2013 7 DISALLOWANCE BY NETTING THE INTEREST RECEIVED AND P AID. THE ASSESSING OFFICER DID NOT ALLOW NETTING OF THE INTEREST OF TH E INTEREST RECEIVED WITH THE INTEREST PAID ON WORKING CAPITAL. THE ASSESSEE CLAIMED THAT IF THIS NETTING IS ALLOWED THEN NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE. THE CIT (A) HAS GIVEN AN OBSERVATION THAT WHEN NETT ING OF INTEREST INCOME IS DONE AGAINST THE INTEREST EXPENDITURE THE N DISALLOWANCE U/S 14A COMES IN THE SAME RANGE AS DISALLOWED BY THE ASSESS EE ITSELF AT RS.6,63,423/-. 10. AFTER HEARING BOTH THE SIDES, WE ARE OF THE VIE W THAT RULE 8D PROVIDES FOR MAKING THE DISALLOWANCE U/S 14A AND NO W THIS ISSUE IS WELL SETTLED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT PVT. LTD. - 64 DTR 122 AND OTHER DECISIONS OF HON'BLE HIGH COURTS. CIT (A) HAS GRANTED RELIEF AF TER VERIFYING THE RELEVANT FACTS. THEREFORE, WE FIND NO FAULT IN THE SAME. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 24 TH DAY OF SEPTEMBER, 2014 TS ITA NO.1442/DEL/2013 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT