The Dy. Commissioner of Income Tax, Kheda Circle, Kheda V. ADF Foods Ltd., Kheda

ITA 1746/AHD/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9357 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-11-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 06-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Tax effect; TDS
• Section: 40(a)(ia); 268A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.1746/AHD/2018 / ASSTT.YEAR : 2013-2014 DCIT, KHEDA CIRCLE NADIAD DIST: KHEDA 387 002. VS. ADF FOODS LTD 83/6,GIDC INDUSTRIAL ESTATE KAMLA ROAD NADIAD, DIST. KHEDA 387 001. PAN : AACCA 2270 K ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : NONE REVENUE BY : SHRI VINOD TANWANI, SR.DR / DATE OF HEARING : 11/09/2019 / DATE OF PRONOUNCEMENT: 01/10/2019 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)- 2, VADODARA DATED 18.5.2018 PASSED FOR THE ASSESSME NT YEAR 2013-14. 2. REVENUE HAS TAKEN THREE GROUNDS OF APPEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.CIT(A) H AS ERRED IN NOT UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE INC OME TAX ACT, 1961 IN RESPECT OF SALES LINKED VARIABLE COMMISSION WITHOUT APPRECIATING THAT THESE PAYMENTS ARE TAXABLE IN INDIA, AS FEES FOR TECHNICA L SERVICES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACTURER AND EXPORTE R OF PROCESSED AND ITA NO.1746/AHD/2018 2 PRESERVED FOOD PRODUCTS, SPICES ETC. IT HAS FILED ITS RETURN OF INCOME ON 29.11.2013 DECLARING TOTAL INCOME AT RS.8,49,87,460 /- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO FOUND THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TDS ON CERTAIN PAYMENT FOR WHICH IT HAS C LAIMED EXPENDITURE IN THE BOOKS. ACCORDING TO HIM, THE ASSESSEE FAILED T O DEDUCT TDS, AND THEREFORE, A DISALLOWANCE UNDER SECTION 40(A)(IA) O F THE ACT TO BE MADE. HE NOTED THE FOLLOWING EXPENSES. ADVERTISEMENT RS. 3,17,527/- (OUT OF TOTA L ADVERTISEMENT EXPENSES OF RS. 1,26,42,409/-THE ASSESSEE HAS MADE ADVERTISEMENT EXPENSES TO INDUS AGE RS.217516, LEBANESE FRUIT COMPANY RS.45792/- AND PROACTIVE PUBLICATIONS LTD. RS.542197/- ON WHICH TDS HAS NOT BEEN DEDUCTED) LEGAL & PROFESSIONAL FEES RS. 1,65,75,785/- SALES COMMISSION RS. 1,10,31,710/- 4. THE LD.AO ACCORDINGLY DISALLOWED A SUM OF RS.2,7 9,25,022/-. DISSATISFIED WITH THE DISALLOWANCE THE ASSESSEE CAR RIED THE DISPUTE IN APPEAL BEFORE THE LD.CIT(A) WHO HAS PARTLY DELETED THE DIS ALLOWANCE BY HOLDING AS UNDER: 4.1.1. UNDISPUTEDLY, THE FACTS ARE IDENTICAL IN TH IS YEAR ALSO AND ACCORDINGLY FOLLOWING THE ABOVE MENTIONED ORDER WHI CH OTHERWISE IS ALSO NECESSARY TO FOLLOW IN ORDER TO MAINTAIN CONSISTENC Y, I HOLD THAT EXCEPT FOR VARIABLE COMMISSION LINKED TO THE SALES MADE, THE F IXED SALES COMMISSION, LEGAL AND PROFESSIONAL FEES AND BUSINESS PROMOTION EXPENSES BEING IN THE NATURE OF MANAGERIAL AND CONSULTANCY CHARGES, ARE C HARGEABLE TO TAX IN INDIA. HENCE THE APPELLANT WAS REQUIRED TO DEDUCT T AX THEREON U/S. 195(1). SIMILARLY, THE ADVERTISEMENT EXPENSES ARE ALSO RELA TING TO THE BUSINESS PROMOTION OF THE APPELLANT AND HENCE THE SAME ARE A LSO COVERED UNDER MANAGERIAL AND CONSULTANCY CHARGES. SINCE THE AP PELLANT HAS FAILED TO DEDUCT TAX U/S. 195(1), THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER U/S.40(A)(I) OF THE ACT IS CONFIRMED. THE ASSESSIN G OFFICER IS DIRECTED TO ALLOW CONSEQUENTIAL RELIEF ONLY TO THE EXTENT OF S ALES LINKED VARIABLE ITA NO.1746/AHD/2018 3 COMMISSION PAID BY THE APPELLANT AFTER NECESSARY VE RIFICATION. THUS, APPELLANT SUCCEEDS PARTLY IN THIS REGARD. 5. A PERUSAL OF THE BREAK-UP REPRODUCED BY THE AO A ND NOTED ABOVE, IT WOULD REVEAL THAT THE LD.CIT(A) HAS DELETED THE DIS ALLOWANCE OF SALES COMMISSION AT RS.1,10,31,710/-. ON LEGAL AND PROFE SSIONAL FEES, BUSINESS PROMOTION EXPENSES, THE LD.CIT(A) HAS HELD THAT THE SE ARE CHARGEABLE TO TAX IN INDIA AND TDS WAS REQUIRED TO BE DEDUCTED. HENC E, THIS ISSUE HAS BEEN DECIDED PARTLY AGAINST THE ASSESSEE. BE THAT AS IT MAY, WE PERUSED THE RECORD AND IMPUGNED ORDER OF THE LD.REVENUE AUTHORI TIES. WE NOTICED THAT TAX EFFECT IN DISPUTED ADDITION, AFTER THE PART REL IEF GIVEN BY THE LD.CIT(A), WOULD BE LESS THAN RS.50 LAKHS, IF THAT BE SO, THEN APPEAL OF THE REVENUE IS HIT BY RECENT CBDT INSTRUCTION NO.17 OF 2019 DATED 8.8.2019, AND IT IS NOT MAINTAINABLE AND LIABLE TO BE DISMISSED AT THE THRE SHOLD. THIS INSTRUCTION IS APPLICABLE TO THE PENDING CASES ALSO. THEREFORE, TH E PRESENT APPEAL OF THE REVENUE IS LIABLE TO BE DISMISSED AT THE THRESHOLD. THE ID.DR, HOWEVER, DID NOT DISPUTE APPLICABILITY OF THE ABOVE CBDT CIRCULA R AND LEFT TO THE TRIBUNAL TO PASS APPROPRIATE ORDER IN THE MATTER. 6. AFTER HEARING THE LD.DR, WE ARE OF THE VIEW THA T THE PRESENT APPEAL OF THE REVENUE FALLS WITHIN THE PURVIEW OF THE CBDT IN STRUCTION CITED (SUPRA). IT IS NOT DISPUTED BY THE REVENUE THAT TAX EFFECT ON THE DISPUTED ADDITION IS MORE THAN RS.50 LAKHS, AND THEREFORE, K EEPING IN VIEW THE ABOVE CBDT CIRCULAR AND PROVISIONS OF SECTION 268A OF THE INCOME TAX ACT, WE ARE OF THE VIEW THAT THE PRESENT APPEAL OF THE REVE NUE DESERVES TO BE DISMISSED. IT IS DISMISSED. HOWEVER, IT IS OBSERVED THAT IN CASE ON RE-VERIFICA TION AT THE END OF THE AO IT CAN BE DEMONSTRATED THAT THE TAX; EFFECT IS MORE, OR REVENUE'S ITA NO.1746/AHD/2018 4 CASE FALLS WITHIN THE AMBIT OF EXCEPTIONS PROVIDED IN THE CIRCULAR, THEN THE DEPARTMENT WILL BE AT LIBERTY TO APPROACH THE TRIBU NAL FOR RECALL OF THIS ORDER. SUCH APPLICATION SHOULD BE FILED WITHIN THE TIME PERIOD PRESCRIBED IN THE ACT. IN VIEW OF THE ABOVE, THE APPEAL OF THE RE VENUE IS DISMISSED DUE TO LOW TAX EFFECT. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D DUE TO LOW TAX EFFECT. ORDER PRONOUNCED IN THE COURT ON 1 ST OCTOBER, 2019 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) JUDICIAL MEMBER