Karnavati Engineering Ltd., Ahmedabad V. The DCIT,(OSD)-1, Circle-4, Ahmedabad

ITA 1710/AHD/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7374 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 30-07-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIDYUT TRIVEDI
• Keywords: Permanent establishment; TDS
• Section: 271(1)(c); 143(3); 40(a)(ia); 195; 201; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA , ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I .T.A. NO. 1710 /AHD/201 8 (ASSESSMENT YEAR : 201 1 - 1 2 ) KARNAVATI ENGINEERING LTD. 708, SARKHEJ DHOLKA ROAD, BHAT, AHMEDABAD - 382210 VS. DCIT(OSD) - 1, CIRCLE - 4, AHMEDABAD [ PAN NO. AAA CK6 047 Q ] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI PARIN SHAH , AR RESPONDENT BY : SHRI VIDYUT TRIVEDI , SR. D.R. DATE OF HEARING 2 9 . 0 1 .2020 DATE OF PRONOUNCEMENT 31 . 01 . 20 20 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28 . 0 5 .201 8 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 2 , AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT ) ARISING OUT OF THE ORDER DATED 2 6 . 0 2 .201 4 PASSED BY THE DC IT (OSD) , CIRCLE - 4, AHMEDABAD FOR ASSESSMENT YEAR 201 1 - 1 2 . 2. CONFIRMATION OF ADDI TION MADE UNDER SECTION 40(A)(I ) OF RS. 12,39,984/ - IN RESPECT OF THE COMMISSION PAID TO THE FOREIGN AGENT ON THE GROUND THAT THE APPELLANT HAS NOT DEDUCTED TDS ON SUCH PAYMENT UNDER ITA NO. 1710 /AHD/201 8 KARNAVATI ENGINEERING LTD. V S. DC I T ASST.YEAR 20 1 1 - 1 2 - 2 - SECTION 195 OF THE ACT AND THE ACTUAL PAYMENT MADE IN THE SUBSEQUENT YEAR HAS BEEN MAINLY CHALLENGED BEFORE US. 3 . THE LD. AO DISALLOWED RS. 41,47,623/ - UNDER SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT THE APPELLANT HAS NOT DEDUCTED TDS ON COMMISSION EXPENSES (EXPORT) UNDER SECTION 195 OF THE ACT. FURTHER THAT THE APPELLANT HAS FAILED TO FURNISH COMPLETE DETAILS ON THE AGREEMENT ENTERED WITH OVERSEAS AGENTS AND THE SERVICE RENDERED BY SUCH AGENTS. DURING THE COURSE OF APPELLATE PROCEEDING THE APPELLANT HAS STATED THAT OUT OF THE COMMISSION OF RS. 41,47,623/ - THE COMMISSION OF RS. 19,43,172/ - HAS BEEN PAID TO THE INDIAN RESIDENT AGENTS ON WHICH TDS HAS BEEN DEDUCTED. IN SUPPORT OF HIS CASE THE APPELLANT ALSO SUBMITTED THE RELEVANT COPIES OF THE INVOICES ALONG WITH THE CHALLAN OF DEPOSIT OF TAX AND THE COPY OF FORM NO. 16A THEREON. THE APPELLANT FURTHER SUBMITTED FORM NO. 15CA & 15CB IN REGARD TO THE COMMISSION PAID TO FIVE NON - RESIDENT AGENTS TO THE TUNE OF RS. 9,64,467/ - . THE BANK STATEMENT AND THE DEBIT NOTE OF THE FOREIGN AGENTS WERE ALSO SUBMITTED CERTIFYING THAT THESE AGENTS DO NOT HAVE PERMANENT ESTABLISHM ENT IN INDIA. APART FROM THAT , THE APPELLANT SUBMITTED THAT PAYMENT TO SAME AGENTS HAVE BEEN MADE IN THE SUBSEQUENT YEAR TO THE TUNE OF RS. 12,39,984/ - WHERE THE COMMISSION HA S BEE N PAID IN THE NEXT YEAR. THE LD. AO ADDED TO THE TOTAL INCOME THE ASSESSEE WHICH WAS FURTHER CONFIRMED BY THE LD. CIT(A). HENCE, THE A PPEAL BEFORE US. ITA NO. 1710 /AHD/201 8 KARNAVATI ENGINEERING LTD. V S. DC I T ASST.YEAR 20 1 1 - 1 2 - 3 - 4. AT THE TIME OF THE HEARING OF THE INSTANT APPEAL THE LD. AR SUBMITTED BEFORE US THAT THE CASE IS SQUARELY COVERED IN ASSESSEE S OWN CASE BY THE CO - ORDINATE BENCH FOR A.Y. 2010 - 11 IN ITA NO. 1400/AHD/2017 A COPY WHEREOF AS ALSO BEEN SUBM ITTED BEFORE US. THE LD. CO - ORDINATE BENCH HAS BEEN DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT WHEN THE EXPENSES HAS NOT CLAIMED TWICE THE DISALLOWANCE IS NOT PERMISSIBLE ONLY ON THE GROUND THAT SUCH EXPENSES PERTAINS TO EARLIER YEAR. 5. HO WEVER, THE LD. DR FAILED TO CONTROVERT SUCH CONTENTION MADE BY THE LD. AR. 6. HEARD THE PARTIES, PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS THE CASE OF THE ASSESSEE THAT SINCE THE SAID COMMISSION IS NOT TAXABLE IN THE HANDS OF THE NON - RESI DENT AGENT IN INDIA, THE APPELLANT IS NOT LIABLE TO DEDUCT ANY TAX UNDER SECTION 195 OF THE ACT. THE APPELLANT PAYS COMMISSION TO FOREIGN AGENTS ON THE EXPORT ORDERS PROCURED BY THE APPELLANT THROUGH THEM AND SUCH COMMISSION IS DIRECTLY REMITTED BY THE AP PELLANT TO THE OVERSEAS BANK ACCOUNT TO THE RESPECTIVE FOREIGN AGENTS. IT APPEARS FROM THE RECORDS THAT THE DETAILS OF S UCH COMMISSION PAID TO THE NON - RESIDENT FOREIGN AGENTS WERE ALSO BEEN PROVIDED BEFORE THE AUTHORITIES BELOW. THE APP ELLANT FURTHER STATED THAT ONLY UPON OBTAINING FROM CHARTERED ACCOUNTANT S CE RTIFICATE IN FORM 15CB ENSURING THAT NO TAX IS LIABLE TO BE DEDUCTED WHILE MAKING THE PAYMENTS TO NON - RESIDENT ITA NO. 1710 /AHD/201 8 KARNAVATI ENGINEERING LTD. V S. DC I T ASST.YEAR 20 1 1 - 1 2 - 4 - AGENTS AND THE DECLARATION FROM THE NON - RESIDENT AGENT S THAT THEY DO N OT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA COMMISSION EXPENSES WERE MADE. THE FORM NO. 15CA & 15CB IN THIS REGARD ALONG WITH SUCH CERTIFICATE IS ALSO ON RECORD BEFORE US. UPON TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER AND UPON PERUSAL OF THE DOCUMENTS AS MENTIONED HEREINABOVE WHEN WE FIND THAT SERVICES WERE RENDERED OUTSIDE INDIA AND ALSO UTILIZED OUTSIDE INDIA HENCE PAYMENTS WERE MADE TO THOSE PARTIES ABROAD . U NDER THESE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE INCOME HAS NOT ACCRUE D IN INDIA THE SAME IS NOT L IABLE TO BE TAXED , THE QUESTION OF DED UCTING TDS ON IT DOES NOT ARISE AT ALL. FURTHER THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THOUGH THE EXPENSES PERTAIN TO AN EARLIER YEAR THE LIABILITY WAS DETERMINED AND CRYSTALIZED IN THE YEAR OF CONSIDERATION & DISALLOWING SUCH EXPENSES IN NOT PERMISSIBLE IN LAW. WE HAVE FURTHER CAREFULLY CONSIDERED THE JUDGMENT PASSED BY THE CO - ORDINATE BENCH IN ITA NO. 1400/AHD/2017 IN ASSESSEE S OWN CASE . WHILE DEALING WITH THE IDENTICAL ISSUE , THE HON BLE BENCH HAS BEEN PLEASED TO OBSERVE AS FOLLOWS: - 9. WE FIND THAT HON BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS CIT [(1995) 213 ITR 523(GUJ.)] HAS, INTER ALIA, OBSERVED THAT MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS O F MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS BUT THAT IS PRECISELY WHAT HAS BEEN UPHELD IN THE IMPUGNED ORDER. IT IS NOT THE CASE OF REVENUE THAT THE EXPENSES HAVE BEEN CLAIMED TWICE BUT THE SHORT GROUND OF DISALLOWANCE IS THAT SINCE THE EXPENSES ITA NO. 1710 /AHD/201 8 KARNAVATI ENGINEERING LTD. V S. DC I T ASST.YEAR 20 1 1 - 1 2 - 5 - PERTA IN TO AN EARLIER YEAR, THESE EXPENSES CANNOT BE ALLOWED. THAT APPROACH IS IMPERMISSIBLE IN LAW. IN VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE I MPUGNED DISALLOWANCE OF RS. 1,63,623/ - . RESPECTFULLY RELYING UPON THE SAME WE FIND NO JUSTIFICATION IN DISALLOWING THE AMOUNT OF RS. 12 ,39 ,984 / - UNDER SECTION 40(A)(I ) . WE, THUS, DELETE THE SAME. 7. THE OTHER GROUND CHALLENGING THE INITIATION OF PENALTY PROCEEDING UNDER SECTION 271(1)(C) IS PREMATURE AT THIS STAGE . T HE SAME IS , THUS, FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMISSED. 8 . IN THE RESULT, ASSESSEE S APPEAL IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 31 / 0 1 /20 20 SD/ - SD/ - ( PRADIP KUMAR KEDIA ) (MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER (TRUE COPY) AHMEDABAD; DATED 31 / 0 1 /20 20 MANISH , PS TRUE COPY