The DCIT, Navsari Circle, Navsari V. Shri Kersi Homi Tangri, Navsari

ITA 178/AHD/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1084 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 21-07-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 25-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Keywords: Business expenditure; Rule of consistency; Deemed to accrue or arise in india; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH (BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NOS: 1708/AHD/12 & ITA NO. 178/AHD/2016 (ASSESSMENT YEARS: 2009-10 & 2012-2013) THE ACIT, NAVSARI CIRCLE, NAVSARI THE DCIT, NAVSARI CIRCLE, NAVSARI V/S V/S SHRI KERSI HOMI TENGRI. PROP. OF HILDOSE PINJAR STREET, JUNATHANA, NAVASARI SHRI KERSI HOMI TENGRI. PROP. OF HILDOSE PINJAR STREET, JUNATHANA, NAVASARI (APPELLANT) (RESPONDENT) PAN: AARPT2762P APPELLANT BY : SHRI ROOP CHAND, D.R. RESPONDENT BY : SHRI TUSHAR P. HEMANI, A.R. ( )/ ORDER DATE OF HEARING : 21 -07-201 6 DATE OF PRONOUNCEMENT : 25 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 1708/AHD/2012 & 178/AHD/2016 ARE APPEALS B Y THE REVENUE PREFERRED AGAINST TWO SEPARATE ORDERS OF THE LD. CI T(A)- VALSAD DATED 23.05.2012 PERTAINING TO A.Y. 2009-10 AND DATED 24. 11.2015 PERTAINING TO A.Y. 2012-13. ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 2 2. IN BOTH THESE APPEALS, THE GRIEVANCE OF THE REVENUE IS THE SAME AND, THEREFORE, BOTH THESE APPEALS WERE HEARD TOGETHER A ND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. THE GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF THE ADDITION MADE BY THE A.O. ON ACCOUNT OF COMMISSION EXPENSES OF RS . 69,14,768/- IN A.Y. 2009-10 AND RS. 84,24,214/- IN A.Y. 2012-13. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT ASSES SEE RUNS A PROPRIETARY CONCERN AND DOING BUSINESS AS MERCHANT EXPORTER OF BULK DRUGS AND FINE CHEMICALS. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON VERIFICATION OF THE DETAILS, THE A.O. FOUND THAT TH E ASSESSEE HAS PAID COMMISSION TO FOLLOWING FOREIGN AGENTS- FOR A.Y. 2009-10 SR. NO. NAME OF THE FOREIGN AGENT AMOUNT .OF COMMISSION 1 KHS SYNCHEMICA CORPO, TAIWAN 1,04,066 2 P T NARDA TITA, JAKARTA 56,676 3 WOO-SHIN MEDICS CO., KOREA 5,50,798 4 SLECTCCHEMIE IMP. EXP.E.REPRES.LTDA, ZURICH 77,604 5 REPRESENTACIONES GAFEL, 43,255 6 RAMASEY VETERNITY, EGYPT 2,19,444 7 ROQUETTE S.A., REPUBLIC OF SEYCHELLES 58,62,925 TOTAL 69,14,768 ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 3 FOR A.Y. 2012-13 S.NO. NAME OF THE FOREIGN AGENT AMOUNT OF COMMISSION 1 WOO-SHIN MEDICS CO. LTD., KOREA 8,06,381 2 PHARMAVET INTERNATIONAL LTD, ISRAEL 9,726 3 RAMASEY VETERNITY, EGYPT 31,687 4 LAUREL BUSINESS INC, PANAMA 75,68,998 5 REPRESENTACIONES GAFFET, COLOMBIA 7,422 TOTAL 84,24,214 5. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF TH E SERVICES RENDERED BY THE RECIPIENTS. ASSESSEE FILED THE NECESSARY DET AILS EXPLAINING THE GENUINENESS OF THE TRANSACTION AND FURTHER POINTED OUT WHY THE PAYMENTS WERE NOT SUBJECTED TO WITHHOLDING TAX. 6. AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE , THE A.O. WAS OF THE OPINION THAT THE ASSESSEE COMPANY FAILED TO BRING N ECESSARY MATERIAL ON RECORD AS TO HOW THE FOREIGN AGENTS CORRESPONDED WITH THE ASSESSEE COMPANY REGARDING THE REQUIREMENT OF MATER IAL AND OTHER THINGS FOR FOREIGN BUYER AND ACCORDINGLY PLACED PRO CUREMENT ORDER ON ASSESSEE COMPANY ON BEHALF OF FOREIGN COMPANY. 7. ON THE BASIS OF THE ABOVE OBSERVATIONS, THE A.O. WA S OF THE OPINION THAT THE EXPORT COMMISSION WAS FOR NON-BUSINESS PUR POSES AND ACCORDINGLY DISALLOWED THE SAME. ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 4 8. THE A.O. FURTHER STRENGTHENED HIS VIEW BY INVOKING THE PROVISIONS OF SECTION 9 OF THE ACT AND CAME TO THE CONCLUSION THA T SINCE THE ASSESSEE HAS NOT DEDUCTED AT SOURCE, THE DISALLOWAN CE IS ALSO TO BE MADE U/S.40(A)(IA) OF THE ACT. 9. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM OF THE PAYMENT OF C OMMISSION TO THE NON-RESIDENT. 10. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED AS UNDER:- DECISION :- I HAVE CONSIDERED THE FACTS OF THE CASE, MATERIA L ON RECORD AS WELL AS THE CONTENTIONS OF THE APPELLANT AS WELL AS THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. THERE IS NO PLAUSIBLE REASON TO E VEN DOUBT THE GENUINENESS OF THE COMMISSION PAID TO THE SEVEN FOREIGN AGENTS AS THE APPELLANT HAS FILED SUFFICIENT DOCUMENTARY EVIDENCES AND EXPENDITURE ON THIS FRONT IS INEVITABLE AND HAS BEEN INCURRED YEAR AFTER YEAR. SINCE THE COMMIS SION HAS BEEN PAID TO THESE FOREIGN AGENTS THROUGH BANKING CHANNEL, THEIR IDENT ITY ARE PROVED AND CONFIRMATIONS HAVE BEEN OBTAINED FROM THEM, I AM IN CLINED TO ACCEPT THE SAID EXPENSE AS A GENUINE BUSINESS EXPENDITURE. SECONDLY I FIND THAT NOTHING HAS BEEN BROUGHT- ON RECORD BY THE REVENUE TO SHOW THAT THOS E SEVEN FOREIGN AGENTS TO WHOM COMMISSION AGGREGATING TO RS.69,14,768/- WAS P AID, HAD ANY OPERATION CARRIED OUT IN INDIA AS PER THE PROVISIONS OF SECTI ON 9(1)(I) OF INCOME TAX ACT, 1961. THE JURISDICTIONAL ITAT AHMEDABAD, IN CASE OF AM ENGINEERING LTD. V/S. ADDL.CIT (ITA NO.580/AHD/2011) HAS HELD THAT INCOME OF A NON-RESIDENT IS DEEMED TO ACCRUE OR ARISE IN INDIA ONLY IF ANY PART OF INCOME IS REASONABLY ATTRIBUTABLE TO OPERATION CARRIED OUT BY THE NON-RE SIDENT IN INDIA AND IF NO OPERATION IS CARRIED OUT IN INDIA BY THE NON-RESIDE NT, THERE WOULD BE NO INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. UNDER THIS FACT UAL AND LEGAL POSITION, NO TAX IS DEDUCTIBLE FROM THE PAYMENT MADE AND HENCE, THE PRO VISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE WITH REGARD TO THE CAPTIONED P AYMENTS TO NON-RESIDENT. SINCE THE APPELLANT HAS FILED SUFFICIENT MA TERIAL INCLUDING CONFIRMATION THAT THE SEVEN FOREIGN AGENTS ARE NON-RESIDENTS IN INDIA AND THEY HAVE NEITHER CARRIED OUT ANY OPERATION IN INDIA NOR THEY HAVE RENDERED A NY SERVICES IN INDIA, NO TAX IS DEDUCTIBLE FROM THE PAYMENT MADE TO THEM AND HENCE, THE PROVISIONS OF SECTION ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 5 195 R.W.S. 40(A)(IA) ARE NOT APPLICABLE. I, THEREFO RE, DELETE THIS ADDITION OF RS. 69,14,768/- MADE BY THE AO. THE APPELLANT'S CONTENT ION IN GROUNDS NO. 1 AND 2 ARE ALLOWED. 11. AND IN A.Y. 2012-13, THE LD. CIT(A) OBSERVED A UNDE R:- 6. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS AND LAW S TATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISS IONS MADE BY THE A.R. OF THE APPELLANT DURING THE APPELLATE PROCEEDINGS. AS THIS ISSUE ALSO AROSE BEFORE MY PREDECESSOR IN APPELLANT'S OWN CASE FOR A.Y. 2009-1 0 AND 2010-11 WHICH WAS DECIDED IN APPELLANT'S FAVOUR. FOR THE A.Y.2011-12 I ALSO DECIDED THE ISSUES BY FOLLOWING THE DECISION OF MY PREDECESSOR'S DECISION GIVEN FOR A.Y.2009-10 AND 2010-11. NOW, I AM ALSO INCLINED TO FOLLOW THE DECI SION TAKEN BY MY PREDECESSOR KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY AND AF TER; CAREFULLY GOING THROUGH THE ORDERS. THE RELEVANT PORTION OF THE DECISION GIVEN IN A.Y. 2010-11 AS GIVEN UNDER PARA 5.3 OF THE ORDER IS REPRODUCED BELOW: 'I HAVE CONSIDERED THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER AS WELL AS THE CONTENTION RAISED BY THE AR OF THE APPE LLANT IN THE WRITTEN SUBMISSION. THERE IS NO PLAUSIBLE REASON TO EVEN DO UBT THE GENUINENESS OF THE COMMISSION PAID TO THE SEVEN FOREIGN AGENTS AS THE APPELLANT HAS FILED SUFFICIENT DOCUMENTARY EVIDENCES AND EXPENDITURE ON THIS FRONT IS INEVITABLE AND HAS BEEN INCURRED YEAR AFTER YEAR. S INCE THE COMMISSION HAS BEEN PAID TO THESE FOREIGN AGENTS THROUGH BANKI NG CHANNEL, THEIR IDENTITY ARE PROVED AND CONFIRMATIONS HAVE BEEN OBT AINED FROM THEM, I AM INCLINED TO ACCEPT THE SAID EXPENSE AS A GENUINE BU SINESS EXPENDITURE. SECONDLY I FIND THAT NOTHING HAS BEEN BROUGHT ON RE CORD BY THE REVENUE TO SHOW THAT THOSE SEVEN FOREIGN AGENTS TO WHOM COMMIS SION AGGREGATING TO RS.12,79,366/- WAS PAID, HAD ANY OPERATION CARRIED OUT IN INDIA { AS PER THE PROVISION OF SECTION 9(L)(I) OF INCOME TAX ACT, 1961. THE JURISDICTIONAL ITAT AHMEDABAD, IN CASE OF AIA ENGINEERING LTD V/S ADDL.CIT(ITA NO. 580/AHD/2011) HAS HELD THAT INCOME OF A NON-RESIDEN T IS DEEMED TO ACCRUE IN INDIA ONLY IF ANY PART OF INCOME IS REASONABLY A TTRIBUTABLE TO OPERATION CARRIED OUT THE NON-RESIDENT IN INDIA AND IF NO OPE RATION IS CARRIED OUT IN INDIA BY THE NON-RESIDENT, THERE WOULD BE NO INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. UNDER THIS FACTUAL AND LEGAL POSITI ON, NO TAX IS DEDUCTIBLE ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 6 FROM THE PAYMENT MADE AND HENCE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE WITH REGARD TO THE CAPTIONED PAYMENT S TO NON-RESIDENT. SINCE THE APPELLANT HAS FILED SUFFICIENT MATERIAL I NCLUDING CONFIRMATION THAT THE SEVEN FOREIGN AGENTS ARE NON- RESIDENTS IN INDIA AND THEY HAVE NEITHER CARRIED OUT ANY OPERATION IN INDIA NOR THEY HAVE RENDERED ANY SERVICES IN INDIA, NO TAX IS DEDUCTIBLE FROM THE PA YMENT MADE TO THEM AND HENCE, THE PROVISIONS OF SECTION 195 R.W.S.40(A)(IA ) ARE NOT APPLICABLE. I THEREFORE, DELETE THIS ADDITION OF RS. 12,79,366/- MADE BY THE A.O. THUS, THIS GROUND OF APPEAL IS ALLOWED. AS IS CLEAR FROM THE ABOVE THE ISSUE UNDER CONSIDER ATION IS THE SAME WHICH HAS BEEN DECIDED BY MY PREDECESSOR AND FOLLOWED BY ME I N THE APPELLANTS OWN CASE FOR A.Y. 2012-13. KEEPING IN VIEW THE ABOVE, THE AD DITION OF RS. 84,24,214/- MADE BY THE ASSESSING OFFICER IS DELETED AND THE GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 12. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 13. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT IN A.Y. 2005-06 & 2007-08, COMMISSIONS WERE PAID TO THE SAME PARTIES WHICH HAVE BEEN ACCEPTED AS GENUINE BY THE A.O. BY ORDER MADE U/S. 143(3) OF THE ACT. 14. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHOR ITIES BELOW AND HAVE ALSO GONE THROUGH THE ASSESSMENT ORDERS BR OUGHT TO OUR NOTICE, THE PAYMENT OF COMMISSION TO THE FOREIGN AG ENTS IN VARIOUS YEARS CAN BE UNDERSTOOD BY THE FOLLOWING CHART:- NAME OF THE PARTIES COMMISSION DETAILS F.Y. 2005-06 2006-07 2007-08 2008-09 A.Y. 2006-07 2007-08 2008-09 2009-10 ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 7 KHS SYNCHEMICA COPRO - - - 1,04,066 PT NARDA TITA, JAKARTA 1,12,962/- 75,351/- 58,018 56,676 WOO-SHIN MEDICS CO. KOREA 5,33,920 6,63,507 7,78,5 49 5,50,798 SELECTCHEMIE IMP. EXP, ZURICH 2,81,161 11,800 52,933 77,604 REPRESENTACIONES GAFEL,EGYPT 4,95,172 2,09,115 87,800 43,255 RAMASEY VETERNITY, EGYPT 1,56,148 3,97,271 1,86,1 85 2,19,444 ROQUETTE S.A., REPUBLIC OF 61,57,929 66,01,685 3, 61,620 58,62,925 TOTAL COMMISSION TO FOREIGN AGENTS 77,37,292 79,58,729 15,25,185 69,14,768 ASSESSMENT FRAMED U/S. 143(3) ? YES YES YES YES AFORESAID COMMISSION DISALLOWED NO NO NO NO 15. AS MENTIONED ELSEWHERE, THE PAYMENT OF COMMISSION T O THE SAME PARTIES HAVE BEEN ACCEPTED IN A.Y. 2006-07 & 2 008-09 VIDE ORDER DATED 27.11.2008 & 02.12.2010 RESPECTIVELY MA DE U/S. 143(3) OF THE ACT. 16. ONCE, THE GENUINENESS OF THE EXPENDITURE HAS BEEN A CCEPTED IN EARLIER YEARS, THE PAYMENT OF COMMISSION TO THE SAM E PARITIES CANNOT BE CONSIDERED AS INCURRED FOR NON-BUSINESS PURPOSES . FURTHER, THE COMMISSION HAVE BEEN PAID TO THE NON-RESIDENT WHO D O NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA AND, THEREFORE, NO T LIABLE TO TAX IN INDIA. THEREFORE, THE PROVISIONS OF SECTION 195 ALS O DO NOT APPLY ON THE FACTS OF THE CASE. ITA NO. 1708 /AHD/2012 & ITA NO. 178/AHD/2013 . A.YS. 2009- 10 & 2012-13 8 17. CONSIDERING THE AFOREMENTIONED FACTS IN TOTALITY, W E DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. C IT(A). BOTH THESE APPEALS BY THE REVENUE ARE ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 25- 07 - 2 016. SD/- SD/- (S. K. YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD