Srivathsa Industries, CHENNAI V. ACIT, CHENNAI

ITA 1562/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96454 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: T N SEETHARAMAN
• Section: 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1562/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 M/S SRIVATHSA INDUSTRIES, C/O SH. T.N. SEETHARAMAN, ADVOCATE, #384, (OLD NO.196), LLOYDS ROAD, CHENNAI - 600 086. PAN : AAAFS 9220 L V. THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XII, CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI T.N. SEETHARAMAN, ADVOCATE -.+, / 0 / RESPONDENT BY : DR. B. NISCHAL, JCIT 1 / 2% / DATE OF HEARING : 16.09.2015 3') / 2% / DATE OF PRONOUNCEMENT : 20.11.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI , DATED 30/03/2015 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2 I.T.A. NO.1562/MDS/15 2. SHRI T.N. SEETHARAMAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS WITH REGARD TO DISALLOWANCE OF ` 5,99,266/- TOWARDS FREIGHT CHARGES AND ANNUAL MAINTENANCE CHARGES PAID BY THE ASSESSEE, FOR NON-D EDUCTION OF TAX. THE LD.COUNSEL SUBMITTED THAT HE WAS INSTRUCT ED NOT TO PRESS THIS GROUND BEFORE THIS TRIBUNAL. THE LD.COUNSEL H AS ALSO MADE AN ENDORSEMENT TO THIS EFFECT IN THE APPEAL FOLDER. 3. DR. B. NISCHAL, THE LD. DEPARTMENTAL REPRESENTAT IVE, SUBMITTED THAT HE HAS NO OBJECTION TO DISMISS THE G ROUND WITH REGARD TO DISALLOWANCE OF ` 5,99,266/- AS NOT PRESSED. 4. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL RAISE D BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF ` 5,99,266/- IS REJECTED AS NOT PRESSED AND THE ADDITION MADE BY THE LOWER AUTH ORITY IS CONFIRMED. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF ` 2,00,292/- TOWARDS PURCHASE OF LEATHER. 6. SHRI T.N. SEETHARAMAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE HAS PAID ` 2,00,292/- TO M/S AZEEM LEATHER EXPORTS FOR PURCHASE OF LEATHER. THE ASSES SING OFFICER 3 I.T.A. NO.1562/MDS/15 DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO CONFIRMATION LETTER WAS PRODUCED BEFORE HIM. ACCOR DING TO THE LD. COUNSEL, THE ASSESSEE HAS FURNISHED COPIES OF THE A CCOUNTS OF THE PARTY, CONFIRMATION OF ACCOUNTS SHOWING DETAILS OF MATERIALS PURCHASED AND THE PAYMENT MADE BY THE ASSESSEE FOR PURCHASES. HOWEVER, IGNORING THE DETAILS FILED BY THE ASSESSEE , THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT NO CONFIRMATION LETTER WAS FILED. THE CIT(APPEALS) RE JECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO BANK ACCOUNT OF THE ASSESSEE WAS PRODUCED BEFORE HIM TO CONFIRM THE REALIZATION OF THE AMOUNT PAID BY THE ASSESSEE. ACCORDING TO THE LD. COUNSEL , THE ASSESSEE IN FACT PURCHASED LEATHER FROM M/S AZEEM LEATHER EX PORTS AND PAID THE AMOUNT. THEREFORE, THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER IS NOT JUSTIFIED. 7. ON THE CONTRARY, DR. B. NISCHAL, THE LD. DEPARTM ENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R ISSUED NOTICE TO VARIOUS PERSONS UNDER SECTION 133(6) OF THE INCO ME-TAX ACT, 1961 (IN SHORT 'THE ACT'), INCLUDING TO M/S AZEEM L EATHER EXPORTS. THE NOTICE SENT BY THE ASSESSING OFFICER WAS RETURN ED WITH AN ENDORSEMENT UNCLAIMED. THE ASSESSEE HAS ALSO NOT FURNISHED 4 I.T.A. NO.1562/MDS/15 ANY CONFIRMATION FROM M/S AZEEM LEATHER EXPORTS. T HE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THEY COUL D NOT CONTACT THE PARTY CONCERNED, THEREFORE, THE CONFIRMATION LETTER COULD NOT BE FILED. IN THE ABSENCE OF ANY OTHER MATERIAL, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE, WHICH WAS RIGHTLY CONFIRMED BY THE CIT(APPEALS). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. ADMITTEDL Y, THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF LEATHER AND LEATHER GARMENTS. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT IT PURCHASED LEATHER TO THE TUNE OF ` 2,00,292/-. THE ASSESSEE FILED COPIES OF THE BOOKS OF ACCOUNT FOR T HE PERIOD 01.04.2009 TO 31.03.2010 AND 01.04.2010 TO 31.03.20 11. THE REVENUE AUTHORITIES HAVE NOT DISPUTED THE PURCHASES MADE BY THE ASSESSEE. FROM THE ORDERS OF THE LOWER AUTHORITIES IT APPEARS THEY ARE DISPUTING ONLY THE PAYMENT. THE ASSESSEE IS IN THE MANUFACTURE OF LEATHER AND LEATHER GARMENTS. WITHO UT PURCHASING THE LEATHER, IT CANNOT MANUFACTURE LEATHER GARMENTS . WHEN THE PURCHASE IS NOT DOUBTED, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT THERE IS NO REASON TO DOUBT THE PAYMENT. IN T HOSE 5 I.T.A. NO.1562/MDS/15 CIRCUMSTANCES, IN VIEW OF THE SMALLNESS OF THE AMOU NT OF ` 2,00,292/-, THIS TRIBUNAL IS UNABLE TO UPHOLD THE O RDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION OF ` 2,00,292/- IS DELETED. 9. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF ` 29,56,419/- BEING THE COMMISSION PAID TO FOREIGN AG ENTS. 10. SHRI T.N. SEETHARAMAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSEE ENGAGED AGENTS TO MARKE T ITS PRODUCT IN FOREIGN COUNTRIES. ACCORDING TO THE LD. COUNSEL , THE AGENTS MARKET THE PRODUCT OF THE ASSESSEE IN THE FOREIGN C OUNTRIES AND THE ASSESSEE IS PAYING COMMISSION FOR THEIR SERVICE. A CCORDING TO THE LD. COUNSEL, THE FOREIGN AGENTS HAVE NOT RENDERED A NY SERVICE IN INDIA. THEREFORE, THE PAYMENT MADE TO FOREIGN AGEN TS IS NOT TAXABLE IN INDIA, HENCE, THE ASSESSEE IS NOT LIABLE TO DEDU CT TAX UNDER ANY OF THE PROVISIONS OF INCOME-TAX ACT. THE LD.COUNSEL P LACED HIS RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT I N CIT V. FAIZAN SHOES PVT. LTD. (2014) 367 ITR 155. 11. ON THE CONTRARY, DR. B. NISCHAL, THE LD. DEPART MENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY PAID 6 I.T.A. NO.1562/MDS/15 COMMISSION TO FOREIGN AGENTS. ACCORDING TO THE LD. D.R., THE ASSESSEE IS DEPENDING UPON THE AGENTS OUTSIDE INDIA IN ORDER TO CONDUCT ITS BUSINESS. THE SERVICE OF THE AGENTS IS REQUIRED FOR MANAGING THE AFFAIRS OF THE ASSESSEE SMOOTHLY OUTSI DE INDIA. ACCORDING TO THE LD. D.R., THE FOREIGN AGENTS ARE P ROVIDING MANAGERIAL SERVICES TO MARKET THE PRODUCT IN FOREIG N COUNTRIES. THEREFORE, THE COMMISSION PAID BY THE ASSESSEE HAS TO BE CONSTRUED AS FEE FOR TECHNICAL SERVICES. HENCE, TH E ASSESSEE IS LIABLE TO DEDUCT TAX UNDER THE PROVISIONS OF INCOME -TAX ACT. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS ENGAGED IN MANUFACTURING LEATHER AND LE ATHER GARMENTS. IN ORDER TO MARKET ITS PRODUCT IN FOREIG N COUNTRIES, THE ASSESSEE ENGAGED AGENTS AND PAID COMMISSION TO THEM . THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE CO MMISSION PAYMENT MADE BY THE ASSESSEE IS IN THE NATURE OF FE E FOR TECHNICAL SERVICES OR NOT? THIS ISSUE WAS CONSIDERED BY THE MADRAS HIGH COURT IN FAIZAN SHOES PVT. LTD. (SUPRA). ON IDENTI CAL SET OF FACTS, 7 I.T.A. NO.1562/MDS/15 THE MADRAS HIGH COURT FOUND THAT THE FOREIGN AGENT IS NOT PROVIDING ANY TECHNICAL SERVICE FOR THE PURPOSE OF RUNNING OF THE BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE, THE COMMISSION P AID TO THE AGENT IS NOT A FEE FOR TECHNICAL SERVICE, HENCE, THE ASSE SSEE IS NOT LIABLE TO DEDUCT TAX UNDER SECTION 195 OF THE ACT. IN VIEW O F THIS JUDGMENT OF MADRAS HIGH COURT, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE PAYMENT MADE BY THE ASSESSEE TO THE AGENTS OUTS IDE INDIA CANNOT BE CONSTRUED AS FEE FOR TECHNICAL SERVICE. HENCE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX. BY FOLLOWING THE JUDGMENT OF MADRAS HIGH COURT IN FAIZAN SHOES PVT. LTD. (SUPRA) AND FOR REASONS STATED THEREIN, THE ORDERS OF THE LOWER AUT HORITIES ARE SET ASIDE AND THE ADDITION OF ` 29,56,419/- IS DELETED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 20 TH NOVEMBER, 2015 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 20 TH NOVEMBER, 2015. KRI. 8 I.T.A. NO.1562/MDS/15 / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-5, CHENNAI-34 4. 1 92 /CIT-9, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.