KHEMCHAND SONS, MUMBAI V. ADDL. C.I.T.-14(2), MUMBAI

ITA 1611/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4433 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 07-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2011
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Keywords: Proportionate interest; Additional evidence

Judgement Text

, , I, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1611/MUM/2011 ASSESSMENT YEAR: 2009-10 KHEMCHAND SONS, 407, GAZDAR HOUSE, 629A, KALBADEVI RD. MUMBAI -400002 / VS. ADDL. CIT - 14(2) EARNEST HOUSE, NARIMAN POINT, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AA AFK037 5J / ASSESSEE BY SHRI NITESH JOSHI (AR) / REVENUE BY SHRI B. YADAGIRI (DR) ! ' / DATE OF HEARING : 7/12/2015 ! ' / DATE OF ORDER: 06/1/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S)-25, MUMBAI {(IN SHORT CIT(A)}, DATED 24.12.2010 FOR T HE ASSESSMENT YEAR 2007-08, PASSED AGAINST THE ASSESSM ENT KHEMCHAND SONGS 2 ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO ) U/S 143(3)(II) OF THE ACT, ON THE FOLLOWING GROUNDS: ' THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF T HE ADDITIONAL COMMISSIONER OF INCOME TAX (HEREINAFTER REFERRED TO AS THE 'ASSESSING OFFICER') IN DISALLOW ING BROKERAGE AND DISCOUNT PAID TO NON-RESIDENT AMOUNTI NG TO RS.14,48.995/- UNDER THE PROVISIONS OF THE SECTI ON 40(A)(IA) FOR NON DEDUCTION OF TAX ON SUCH EXPENSES . 2) LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN DISALLOWING THE PROPORTIONATE INTEREST ON CERTAI N ADVANCES GIVEN DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR. 3) THE APPELLANT SUBMITS THAT ASSESSING OFFICER BE DIRECTED:- (I) TO DELETE DISALLOWANCES MADE IN RESPECT OF BROKERAGE AMOUNTING TO RS. 14,48,995/- UNDER SECTION 40(A)(IA) (II) TO DELETE ADDITION OF PROPORTIONATE INTEREST AMOUNTING TO IN RESPECT OF CERTAIN ADVANCES GIVEN AND TO MODIFY THE ASSESSMENT AS PER PROVISIONS OF LAW. 4) EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPEND ENT AND WITHOUT PREJUDICE TO EACH OTHER. 5) THE APPELLANT CRAVES LIBERTY TO ADD, TO ALTER AN D/OR AMEND THE GROUNDS OF APPEAL AS AND WHEN GIVEN.' KHEMCHAND SONGS 3 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI NITESH JOSHI, AUTHORISED REPRESENTATIVE (AR) O N BEHALF OF THE ASSESSEE AND BY SHRI B. YADAGIRI, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION O F THE AO IN MAKING THE DISALLOWANCE U/S.40(A)(IA) FOR NON-DEDUC TION OF TAX ON THE PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF B ROKERAGE AND DISCOUNT TO ITS NON-RESIDENT AGENT. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O FOUND THAT THE ASSESSEE HAS PAID BROKERAGE TO M/S. MARAMI METAL PLATING, AND NO TDS HAS BEEN DEDUCTED U/S 195 OF THE ACT, ON THIS PAYMENT. AS PER THE ASSESSEE, TDS WAS NOT REQUIRED TO BE DEDUCTED, AS INCOME OF THE SAID PAYE E WAS NOT CHARGEABLE TO TAX IN INDIA, IN VIEW OF THE CIRCULAR NO.786 DATED 7/12/2000. AS PER THE AO, SAID CIRCULAR DID NOT GIV E BLANKET WAIVER AND ASSESSEE WAS REQUIRED TO FILE PETITION T O AO U/S 195 FOR GETTING CERTIFICATE FOR NON-DEDUCTION OF TA X, AND THUS HE DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESS EE AND MADE THE DISALLOWANCE. 3.2. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER B EFORE THE LD. CIT(A). BUT THE LD. CIT(A) CONFIRMED THE AC TION OF THE AO. KHEMCHAND SONGS 4 3.3. BEING AGGRIEVED, THE ASSESSEE HAS BROUGHT THIS MAT TER BEFORE THE TRIBUNAL. 3.4. IT HAS BEEN ARGUED BY LD. COUNSEL OF THE ASSESSEE THAT THE AO HAS OVERLOOKED THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT 327 ITR 456 (SC). IT IS FURTHER ARGUED THAT THIS ISSUE IS NOW VERY WELL SETTLED, AS IT HAS BEEN HELD BY VARIOUS COURTS THAT NO TAX IS REQUIRED TO BE DEDUCTED U/S 195 ON THE PAYMENTS MADE TO THE VARIOUS AGENTS FOR THE SERVICES RENDERED OUTSID E INDIA. HE HAS ALSO FILED PETITION UNDER RULE 29 FOR ADMISSION OF ADDITIONAL EVIDENCES WITH RESPECT TO DOCUMENTS PERT AINING TO THE NATURE OF SERVICES RENDERED BY THE PAYEE AND SH OWING CONFIRMATION AND GENUINENESS OF THE TRANSACTIONS UN DER CONSIDERATION. 3.5. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT WHEN THE AO HAD PASSED ORDER, HE CONFIRMED ONLY TO THE ASPEC T OF NON- DEDUCTION TAX AS SOURCE. SINCE, IT WAS FOUND BY HIM THAT THE EXPENSES WAS NOT ALLOWABLE ON THE PRELIMINARY GROUN DS, THEREFORE, HE DID NOT AND COULD NOT EXAMINE THE ASP ECT OF VERIFICATION OF GENUINENESS OF THE EXPENSES CLAIMED , AND THEREFORE UNDER THESE CIRCUMSTANCES, THE AO SHOULD BE GIVEN OPPORTUNITY TO EXAMINE ALL THESE ASPECTS. 3.6 . WE HAVE GONE THROUGH ALL THE SUBMISSIONS MADE BEF ORE US BY BOTH THE PARTIES. WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL ON HIS PRIMARY ARGUMENT THAT VARIOUS COURTS HAVE KHEMCHAND SONGS 5 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDIN G THAT TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE ON THE AMOUNT OF PAYMENTS MADE TO THE NON-RESIDENT AGENT FOR THE SER VICES RENDERED OUTSIDE INDIA. BUT, IT IS NOTED BY US THAT PECULIARITY OF FACTS OF THIS CASE ARE THAT NO EVIDENCES WITH RE GARD TO CONFIRMATION OR GENUINENESS WERE FILED AT ALL BY TH E ASSESSEE BEFORE THE AO OR BEFORE LD. CIT(A). THE ASSESSEE HA S FILED THESE EVIDENCES FOR FIRST TIME BEFORE US, CONSISTING OF A LL INVOICES RAISED BY THE ASSESSEE TO ITS CUSTOMERS FOR WHICH C OMMISSION WAS PAID BY THE ASSESSEE TO ITS AGENT, CONFIRMATION OF THE AGENT CONFIRMING THE TRANSACTION, STATEMENT GIVING DETAILS OF AMOUNT OF COMMISSION CHARGED PER INVOICE AND COPY O F EXTRACT OF BANK ACCOUNT SHOWING REALIZATION OF PAYMENT MADE BY THE CUSTOMERS ALONG WITH COPIES OF BANK CERTIFICATES FO R EXPORT REALIZATION. THE BASIC FACTS WITH REGARD TO PLACE O F RENDERING OF SERVICES, NATURE OF SERVICES RENDERED AND WHETHER A NY MANAGERIAL OR TECHNICAL SERVICES WERE PROVIDED BY T HE AGENT TO THE ASSESSEE ETC. WERE NOT EXAMINED BY THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, KEEPIN G IN VIEW INTEREST OF JUSTICE, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO. THE ASSESSEE SHALL PLACE ENTIRE REQUISITE MATERIAL AND EVIDENCES BEFORE THE AO. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE AND SHALL PA SS AN ORDER AFTER CONSIDERING THE MATERIAL PLACE BY THE ASSESSE E BEFORE HIM AND ALSO KEEPING IN VIEW THE CORRECT POSITION OF LA W, AFTER TAKING INTO CONSIDERATION ALL THE JUDGMENTS THAT TH E ASSESSEE MAY LIKE TO PLACE BEFORE HIM. THUS, WITH THESE DIRE CTIONS THIS KHEMCHAND SONGS 6 ISSUE IS SENT BACK TO THE FILE OF THE AO. GROUND NO .1 IS ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO. 2: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING THE PROPORTIONATE INTEREST ON THE AMOUN T OF ADVANCE GIVEN DURING THE YEAR. IT IS NOTED THAT THE LD. CIT(A) HAS ALREADY ISSUED A DIRECTION TO THE AO ON THIS IS SUE, MAKING FOLLOWING OBSERVATIONS: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O FOUND THAT THE ASSESSEE HAD MADE INTEREST FREE LOAN S AND ADVANCES TO M/S. SUMER BUILDERS FOR RS.89,81,290/- ON WHICH NO INTEREST IS RECEIVED AND THE ADVANCES ARE IN CAPITAL NATURE. THE AO OBSERVED THAT THE ASSESSEE I S PAYING IN INTEREST OF RS.48,86,433/- ON LOAN OF RS.4,92,31,443/-. HE ALSO FOUND THAT THE INTEREST F REE ADVANCE IS FOR FLAT/IMMOVABLE PROPERTY AND SIMILAR DISALLOWANCE WAS MADE FOR A.Y. 2006-07. HAVING REGA RD TO THE FACTS OF THE CASE, THE AO DISALLOWED PROPORT IONATE INTEREST TO THE EXTENT OF RS.8,90,943/-. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR DID NOT OBJECT TH E INTEREST DISALLOWANCE IN PRINCIPLE BUT SUBMITTED TH AT INTEREST DISALLOWANCE SHOULD FOR ACTUAL AMOUNT AND ACTUAL RATE OF INTEREST PAID BY THE ASSESSEE TO THE BANK. ACCORDING TO THE ASSESSEE AVERAGE RATE OF INTEREST PAID TO BANK WORKS OUT OF 2.8% DUE TO EXPORT INCENTIVE LOAN S (I.E. SUBSIDIZED PECKING CREDIT, SHIPPING CREDIT LOANS ET C.) AS AGAINST 9.92% TAKEN BY THE AO. THE CONTENTION OF TH E LD. KHEMCHAND SONGS 7 AR THAT INTEREST DISALLOWANCE SHOULD BE ON ACTUAL A MOUNT AND ACTUAL RATE OF INTEREST APPEARS TO BE REASONABL E. HENCE, THE AO IS DIRECTED TO TAKE ACTUAL AMOUNT OF INTEREST FREE ADVANCE FOR ACTUAL PERIOD AND ACTUAL RATE OF I NTEREST PAID BY THE ASSESSEE FOR LOANS RECEIVED FROM BANKS. THE AO CAN VERIFY THE CLAIM MADE BY THE ASSESSEE IN RES PECT OF RATE OF INTEREST SUGGESTED BY THE ASSESSEE. ACCORDI NGLY, THE DISALLOWANCE IN PRINCIPLE IS CONFIRMED, SUBJECT TO QUANTIFICATION OF DISALLOWANCE IN VIEW OF ACTUAL AM OUNT AND ACTUAL RATE OF INTEREST INSTEAD OF AD HOC AMOUN T AND AD HOC RATE OF INTEREST. IN TERMS OF DIRECTION GIVE AS ABOVE, THE GROUND OF APPEAL IS REJECTED IN PRINCIPLE. 4.1. BEFORE US, LD. COUNSEL STATED THAT THE ASSESSEE WA S SATISFIED WITH THE DIRECTIONS GIVE FOR LD. CIT(A), BUT UNFORTUNATELY THESE HAVE NOT BEEN COMPLIED WITH BY THE AO TILL DATE. 4.2. IN VIEW OF THE ABOVE SAID FACTS, WE DIRECT THE AO TO COMPLY WITH THE DIRECTION GIVEN BY THE LD. CIT(A). THUS, G ROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2016. SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER MUMBAI; $ DATED : 06/1/2016 CTX? P.S/. .. KHEMCHAND SONGS 8 %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. & '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. + + , ( & ) / THE CIT, MUMBAI. 4. + + , / CIT(A)- , MUMBAI 5. /0 ) 1 , + &' 12 , / DR, ITAT, MUMBAI 6. 3 4 / GUARD FILE. / BY ORDER, * /& ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI