DCIT, CHENNAI V. M/s. K.H. Shoes P. Ltd., CHENNAI

ITA 194/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73824 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M BALAGANESH
• Keywords: Business income; Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax
• Section: 14A; 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! ' , # $ BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESSMENT Y EAR %& / APPELLANT ''%& /RESPONDENT 189/MDS/2014 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(1), NEW BLOCK, 5 TH FLOOR, CHENNAI-34. M/S. FARIDA PR IME TANNERY PVT. LTD., 151/4, MOUNT POONAMALLE ROAD, RAMAPURAM, CHENNAI-600 089. PAN:AAACF8819R 190 & 191/MDS/ 2014 2005-06 & 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(1), NEW BLOCK, 5 TH FLOOR, CHENNAI-34. M/S. FARIDA SHOES P.LTD., 17, JALAL ROAD, AMBUR-635 802. PAN:AAACF0496Q 193 & 194/MDS/ 2014 2009-10 & 2010-11 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(4), CHENNAI-34. M/S.KH SHOES P. LTD., K.H.CENTRE, COLLEGE ROAD, NUNGAMBAKKAM, CHENNAI-600 034. PAN:AAACK1394E 195 TO 197/MDS/ 2014 2008-09 TO 2010-11 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(4), CHENNAI-34. M/S. K.H.ARIND P.LTD., 2, K.H. HOUSE, THIRU NARAYANA GURU ROAD, CHOOLAI, CHENNAI-600 112. PAN: AAACK1426B / APPELLANT BY : MR. SHAJI P.JACOB, ADDL. CIT /RESPONDENT BY : MR. M.BALAGANESH, C.A. / DATE OF HEARING : 12 TH MARCH, 2014 /DATE OF PRONOUNCEMENT : 28 TH MARCH, 2014 ( / O R D E R PER BENCH: ALL THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)- II, ITA NO.189 TO 191 & 193 TO 197/MDS/2014 2 CHENNAI FOR VARIOUS ASSESSMENT YEARS. AS THE ISSUE INVOLVED IS COMMON IN ALL THESE APPEALS, THEY ARE CLUBBED AN D HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON ISSUE IN ALL THESE REVENUE APPEALS IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 40(A)(I) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE OUT OF AGENCY / SALES COMMISSION PAYMENTS MA DE BY THE ASSESSEE TO ITS NON-RESIDENT AGENTS. IN ALL THE SE APPEALS, ASSESSING OFFICER WHILE COMPLETING ASSESSMENTS INVO KED PROVISIONS OF SECTION 40(A)(I) READ WITH SECTION 19 5 OF THE ACT ON THE COMMISSION PAYMENTS MADE TO NON-RESIDENTS HO LDING THAT ASSESSEE HAS NOT DEDUCTED TDS ON THE SAID PAYM ENT AND THEREFORE, COMMISSION IS NOT ALLOWABLE AS DEDUC TION UNDER SECTION 40(A)(I) OF THE ACT. ON APPEAL, COMM ISSIONER OF INCOME TAX (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAW RELIED ON BY THE ASSESSEE DELETED THE DISALLOWANCE HOLDING THAT SALES COMMISSION PAID BY THE ITA NO.189 TO 191 & 193 TO 197/MDS/2014 3 ASSESSEE TO THE NON-RESIDENTS IS NOT CHARGEABLE TO TAX IN INDIA AND CONSEQUENTLY, ASSESSEES ARE NOT UNDER ANY OBLIG ATION TO DEDUCT TDS UNDER SECTION 195 OF THE ACT ON THE COMM ISSION PAYMENTS AND THEREFORE, PROVISIONS OF SECTION 40(A) (I) HAVE NO APPLICATION. AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) REVENUE CAME UP BEFORE US. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDERS OF ASSESSING OFFICER IN DISALLOWING AGENCY/S ALES COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENCIES AS ASSESSEES DID NOT DEDUCT TDS UNDER SECT ION 195 OF THE ACT. 4. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEES SUBM ITS THAT AGENCY/SALES COMMISSION PAID BY THE ASSESSEES TO NON- RESIDENT AGENTS FOR THE SERVICES RENDERED BY THEM O UTSIDE INDIA IN PROCURING EXPORT ORDERS FOR THE ASSESSEES. AUTHORIZED REPRESENTATIVE SUBMITS THAT NON-RESIDENT AGENTS HAVE NO BUSINESS CONNECTION IN INDIA NOR THEY HAVE ANY PERMANENT ESTABLISHMENTS IN INDIA AND THEREFORE PRO VISIONS OF ITA NO.189 TO 191 & 193 TO 197/MDS/2014 4 SECTION 195 HAVE NO APPLICATION FOR THE COMMISSION PAYMENTS MADE BY ASSESSEES TO NON-RESIDENTS FOR THE SERVICES RENDERED BY THEM OUTSIDE INDIA. HE VEHEMENTLY SUPPO RTS THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE. HE PLACES RELIANCE ON T HE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P.LTD. VS. CIT (327 ITR 456 ), THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. EON TECHNOLOGY P.LTD. (11 TAXMANN.COM 53), THE DECISION OF THIS TRIBUNAL IN THE CASE OF PRAKASH IM PEX VS. ACIT IN ITA NO.8/MDS/2012 DATED 30.03.2012 AND THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. FARIDA SHOES PVT.LTD. (143 ITD 400), ON E OF THE ASSESSEES IN THE PRESENT APPEALS BEFORE US. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE CASE LAWS RELIED ON. IN ALL THESE APPEALS, ASSESSING OFFICER DISALLOWED AGENCY/SALES COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS ON THE GROUND T HAT ASSESSEE HAS NOT DEDUCTED TDS UNDER SECTION 195 OF THE ACT ITA NO.189 TO 191 & 193 TO 197/MDS/2014 5 AND THEREFORE SALES COMMISSION PAID BY THE ASSESSEE IS NOT ALLOWABLE EXPENDITURE UNDER SECTION 40(A)(I) OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) ELABORATELY CONSIDERED THIS ISSUE AND HELD THAT SALES COMMISSIO N PAID BY ASSESSEES IS NOT CHARGEABLE TO TAX IN INDIA AS TH E SERVICES WERE RENDERED OUTSIDE INDIA BY NON-RESIDENTS AND TH EREFORE, PROVISIONS OF SECTION 195 HAVE NO APPLICATION SO AS TO DISALLOW COMMISSION PAYMENTS UNDER SECTION 40(A)(I) OF THE ACT. WHILE HOLDING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED VARIOUS DECISIONS ON THE ISSUE INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF GE INDIA TECHNOLOGY CENTRE P.LTD. (SUPRA). THE COMMISS IONER OF INCOME TAX (APPEALS) IN ONE OF THE CASES BEFORE US IN K.H.ARIND PVT.LTD., FOLLOWING THE DECISION OF CO-OR DINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. FARIDA S HOES P.LTD. (SUPRA) DELETED THE DISALLOWANCE OBSERVING AS UNDE R:- BEFORE THE UNDERSIGNED, THE ASSESSEE COMPANY SUBMITTED THAT A SIMILAR ISSUE WAS RECENTLY ADJUDICATED BY THE HON'BLE INCOME TAX APPELLATE TRIBUNAL (A-BENCH) OF CHENNAI, VIDE ITS ORDER IN IT A NOS.359 & 360/MDS/2013 DATED 11 . 04 ' .2013, IN THE CASES . OF M/S. FARIDA , SHOES P LTD AND M / S. FARIDA ITA NO.189 TO 191 & 193 TO 197/MDS/2014 6 PRIME TANNERY P LTD. IN THE S A ID CASES THE PAYMENTS MADE TO THE NON-RESIDENTS, WITHOUT MAKING TDS , WERE SIMILAR TO THOSE MADE BY THE ASSESSEE COMPANY . THE ASSES S ING OFFICER DIS A LLOWED THE S A ID PAYMENTS U/S . 40(A)(I) FOR NON - DEDUCTION OF TDS U/S . 195 OF THE ACT. THE CIT(A) ALLOWED THE APPEALS OF THE SAID COMPANIES. THE REVENUE PREFERRED AN APPEALS TO THE ITAT AGAINST TH E ORDERS OF THE CIT(A). THE HON 'BLE TRIBUNAL, VIDE ITS ORDERS MEN T IONED ABOVE, HAS HELD THAT THE SERVICES PROVIDED BY THE CONCERNED NON-RESIDENTS NEITHER AMOUNTS TO MANAGERIAL/TECHNICAL SERVICES NOR THE PAYMENTS ARE ASSESSABLE TO TAX IN INDIA AND HENCE THE PROVISIONS OF SEC.195 OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE SAID COMPANIES. THE RELEVANT PORTION OF THE ORDER OF THE ITAT (IN ITA NO.159/MDS/2013 DATED 11 . 04.2013 FOR A.Y. 2008-09 IN THE CASE OF M / S. FARIDA SHOES P LTD) IS REPRODUCED AS UNDER: 10. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S AVAILABLE ON RECORD AND CASE LAW CITED. IN THIS CASE THE ASSE SSEE HAS MADE CERTAIN PAYMENTS TO OVERSEAS AGENTS AS COMMIS SION AND NO TDS DEDUCTED. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEES BUSINESS IS SITUATED IN INDIA AND THE PA YMENTS WERE ALSO MADE FROM INDIA AND ACCORDING TO SECTION 195, THE ASSESSEE IS UNDER OBLIGATION TO DEDUCT TDS. THERE FORE, BY INVOKING SECTION 40(A)(I) HE HAS DISALLOWED AN AMO UNT OF ` 5,62,13,826/-. ON APPEAL, THE COMMISSIONER OF INCOM E TAX (APPEALS) DELETED THE DISALLOWANCE ON THE GROUND TH AT THE COMMISSION WAS PAID TO NON-RESIDENT AGENT AND IT C ANNOT BE SAID TO HAVE BEEN ACCRUED IN INDIA AND SECTION 195 HAVE NO APPLICATION. THE ONLY ISSUE FOR OUR CONSIDERATION IS AS ' TO WHETHER THE ASSESSEE ! IS UNDER OBLIGATION TO DEDUCT THE TDS ,- UNDER SECTION 195 OR NOT . THE CIT(APPEALS), BY CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE ! PASSED A DETAILED ORDER BY OBSERVING THAT SECTION 195 HAVE NO APPLICATION TO ASSESSEE'S CASE. IN THE CASE OF M/S. PRAKASH IMPEX VS AC!T , (SUPRA), THE COORDINATE BENCH OF !TAT CHENNAI HAS CONSIDERED THE VERY SAME ISSUE AND OBSERVED THAT THE COMMISSION PAID TO NON - RESIDENT AGENTS FOR THE SERVICES ITA NO.189 TO 191 & 193 TO 197/MDS/2014 7 RENDERED OUTSIDE INDIA AND SUCH PAYMENTS ARE NOT CH ARQEABLE TO TAX INDIA AND THEREFORE, THE PROVISIONS OF SECTION 195 ARE NOT ! APPLICABLE VIEW OF THE DECISION OF THE HON 'BLE SUP REME COURT IN THE CASE OF G E INDIA TECHNOLOGY CENTRE P. LTD. V. CIT (SUPRA). 11. IN THE CASE OF CIT V. EON TECHNOLOGY (P) LTD . , THE HON'BLE DELHI HIGH COURT HAS ALSO HELD THAT THE COMMISSION PAYMENT TO ITS BRITISH PARENT/ HOLDING COMPANY ETUK COULD NOT SAID TO HAVE BEEN ACCRUED TO ! ETUK IN INDIA AND THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FRO M PAYMENT OF COMMISSION TO ETUK. THE HEAD NOTE OF ADDER IS REPRODUCED HEREUNDER: 'SECTION 9 OF THE INCOME-TAX ACT, 1961 - INCOME - DEEMED TO ACCRUE OR ARISE IN INDIA ASSESSMENT YEAR 2007 - 08 - ASS E SSEE- COMPANY WAS ENGAGED IN BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE - DURING . RELEVANT ASSESSMENT YEAR, IT HAD PAID COMMISSION TO ITS BRITISH PARENT/HOLDING COMPANY ET UK ON SALES AND AMOUNTS REALIZED ON EXPORT CONTRACTS PROC URED BY ETUK FOR ASSESSEE - ASSESSING OFFICER HELD THAT COMMISSION INCOME EARNED BY ETUK HAD ACCRUED IN INDIA OR WAS DEEMED TO ACCRUE IN INDIA AND, THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE THERE FROM AND AS THERE WAS FAILURE, SAID EXPENDITURE SHOULD BE DISALLOWED UNDER SECTION 40(A)(IA) - WHETHER WHEN ETUK WAS NOT RENDERING ANY SERVICE OR PERFORMING ANY ACTIVITY IN INDIA ITSELF COMMISSION INCOME COULD BE SAID TO HAVE ACCRUED, ARISEN TO OR RECEIVED BY ETUK IN INDIA MERELY BECAUSE IT WAS RECORDED IN BOOKS OF ASSESSEE IN INDIA O R WAS PAID BY ASSESSEE SITUATED IN INDIA - HELD, NO - WHETHER FOR APPLYING SECTION 9 . ASSESSING OFFICER WAS REQUIRED TO EXAMINE WHETHER S AID COMMISSION INCOME WAS ACCRUING OR ARISING DIRECTLY OR INDIRECTLY FROM ANY BUSINESS CONNECTION IN INDIA - HELD, YES - WHETHER SINCE FA C TS FOUND BY ASSESSING OFFICER DID NOT MAKE OUR A CASE OF BUSINESS CONNECTION AS STIPULATED IN SECTION 9(1)(I), COMMISSION INCOME COULD NOT BE SAID TO HAV E ACCRUED TO ETUK IN INDIA AND, THEREFORE, ASSESSEE W AS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM PAYMENT OF COM MISSION TO ETUK - HELD, YES [IN FAVOUR OF ASSESSEE] . ' 12. THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF M/ S. TRANSMISSION CORPORATION OF ANDHRA PRADESH REPORTED IN 239 ITR 587 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 13. IN THE CASE OF ARMAYESH GLOBAL V . ACIT (SUPRA), THE MUMBAI BENCH OF ITAT HAS OBSERVED THAT THE COMMISSION PAYM ENT WAS MADE TO THE OVERSEAS AGENT FOR PROCURING EXPORT ORDERS. THE AGENTS HAVE NOT BEEN PROVIDED ANY MANAGERIAL/TECHNICAL SER VICES. THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE NON-RESID ENT (AGENT) WAS ITA NO.189 TO 191 & 193 TO 197/MDS/2014 8 ONLY FOR RENDERING NON - TECHNICAL SERVICES. MOREOVER, THERE WAS NO PERMANEN T ESTABLISHMENT OF THE SAID NON-RESIDENT IN INDIA. THEREFORE, THE COMMISSION PAID TO THE NON- RESIDENT AGENT DID NOT ACCRUE OR ARISE IN INDIA AND THUS , THERE WAS NO NEED FOR DEDUCTING TDS UNDER SECTION 195 OF THE ACT . 14. IN THE PRESENT CASE, THE ASSESSEE PAID CERTAIN AMOUNTS TO OVERSEAS AGENTS FOR PROCUREMENT OF EXPORT ORDERS . THE AGENTS HAVE NOT PROVIDED ANY MANAGERIAL/ TECHNICAL SERVICES. THE PAYMENTS RECEIVED BY THE NON-RESIDENT INDIAN ARE NOT TAXABLE IN INDIA . TAKING INTO CONSIDERATION OF ENTIRE : FACTS AND CIRCUMSTANCES AND BY FOLLOWING AFORESAID DECISIONS, W E ARE OF THE OPINION THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND SECTION 195 HAVE NO APPLICATION TO ASSESSEE'S CASE. ACCORDINGLY , THE APPEAL OF THE REVENUE IS DISMISSED.' I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS AS WEL L AS THE ORDERS OF THE HON'BLE ITAT IN THE CASE OF M/S . FARIDA SHOES P LTD (ITA NO.159/MDS/2013 DATED 11.0 4 .2013 FOR A.Y. 2008-09). THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU F ACTURING AN EXPORT OF LEATHER GOODS. AS EXPLAINED BY THE ASSESSEE, IT IS AVAILING THE SERVICES OF CERTAIN NON - RESIDENT AGENTS FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE FOR WHICH IT IS PAYING COMMISSION. PERUSAL OF THE ASSESSEE'S SUBMISSIONS SHOWS THAT THE SAID NON-RESIDENT AGENTS HAVE NO BUSINESS CONNECTION IN INDIA NOR THEY HAVE ANY PERMANENT ES T ABLISHMENTS IN INDIA. THEY ARE PROCURING EXPORT ORDERS FOR THE ASSESSEE. THUS, THE SAID NON-RESIDENT AGENTS ARE OPERATING OUTSIDE THE COUNTRY AND ALL THE SERVICES ARE RENDERED ABROAD ON LY. IN OTHER WORDS, THOUGH THE SAID NON-RESIDENTS ARE RENDERING SERVICES TO THE ASSESSEE (INDIAN COMPANY) , THESE SERVICES ARE RENDERED TOTALLY OUTSIDE THE COUNTRY. IN SUCH A SITUATION THE PAYMENTS (COMMISSIONS) MADE TO SUCH AGENTS ARE NOT LIABLE TO BE TAXED IN INDIA. TDS IS REQUIRED TO BE DEDUCTED ON ALL PA Y MENTS TO NON-RESIDENTS IF THE SAID PAYMENTS ARE . LIABLE FOR TAX IN INDIA. IN THE INSTANT CASE, THE COMMISSION PAYMEN TS TO THE NON-RESIDENT AGENTS ARE NOT TAXABLE IN INDIA AS THE SERVICES ARE RENDERED ABROAD AND THE AGENTS HAV E NO PE IN INDIA. THEREFORE, THERE IS NO REQUIREMENT TO DEDUCT TDS ON THESE PAYMENTS. FOR THIS PURPOSE RELIANCE IS ALSO PLACED ON THE DECISION OF APEX COURT ITA NO.189 TO 191 & 193 TO 197/MDS/2014 9 IN THE CASE OF GE INDIA TECHNOLOGY CEN. P LTD . V . CIT [2010] (327 ITR 456) (SC) W HEREIN IT WAS HELD AS UNDER: , I SECTION 195 OF THE INCOME-TAX ACT , 1961- D EDUCTION OF TAX AT SOURCE - PAYMENT TO NON - RESIDENT - , . WHETHER THE MOMENT A REMITTANCE IS MADE TO A NON- RESIDENT, OBLIGATION TO DEDUCT TAX AT SOURCE DOES NOT ARISE; IT ARISES ONLY WHEN SUCH REMITTANCE IS A SUM CHARGEABLE UNDER ACT, I. E., CHARGEABLE UNDER SECTIONS 4, 5 AND 9 - HELD, YES. WHETHER SECTION 195(2) IS NOT A MERE PROVISION TO PROVIDE INFORMATION TO ITO(TDS) SO THAT DEPARTME N T CAN KEEP TRACK OF REMITTANCES BEING MADE TO NON - RESIDENTS OUTSIDE IND I A; RATHER IT GETS ATTRACTED TO CASES WHERE PAYMENT MADE IS A COMPOSITE PAYMENT IN WHICH CER T AIN PROPORTION OF PAYMENT HAS AN ELEMENT OF 'INCOME' CHARGEABLE TO TAX IN INDIA AND PAYER SEEKS A DETERMINATION OF APPROPRIATE PROPORTION OF SUM CHARGEABLE - HELD, YES . FURTHER, UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE HONBLE ITAT OF CHENNAI, IN ONE OF THE ASSESSEE'S RELATED CONCERNS (M/S. F A RIDA SHOES P LTD, IN ITA NO.159/MDS/ 2013 DATED 11 . 04.2013 FOR A.Y. 2008-09), HAS EXAMINED THE ISSUE OF COMMISSION PAYMENTS TO NON-RESIDENTS FOR PROCURING EXPORT ORDERS IN DE T AIL CONCLUDED THAT THE COMMISSION PAYMENTS TO THE SAID NON-RESIDENT AGENTS ARE NOT ASSESSABLE TO TAX IN I NDIA AND CONSEQUENTLY THE RESIDENT PAYEE COMPANY (M/S. FARIDA SHOES P LTD) WAS NOT U NDER THE OBLIGATION OF DEDUCTION TDS ON THE COMMISSION PAYMENTS 1 U/S.195 OF THE A CT . \ IN THE PRESENT APPEALS OF THE ASSESSEE (I . E. IN THE A . YS. 2008-09, 2009-10 AND 2010-11) ALSO THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL TO TH OSE \ INVOLVED IN THE CASE OF M/S. FARIDA SHOES P LTD FO R A. Y . 2008-09. THEREFORE, SINCE THE ' ISSUE INVOLVED IN THE PRESENT APPEALS IS THE SAME AND THE FACTS ARE EXACT L Y IDENTICAL, THE ABOVE DECISION OF THE ITAT, (M/S. FARIDA SHOES P LTD, IN ITA NO . 159/MDS/2013 DATED 11.04.0 1 3), IS EQUALLY APPLICABLE TO THE FACTS OF THE PRESENT APPEALS OF THE INSTANT ASSESSEE FOR A.YS. 2008-09, 2009-10 AND 2010-11 UNDER CONSIDERATION. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF IT AT IN ITA NO.189 TO 191 & 193 TO 197/MDS/2014 10 THE CASE OF M/S. FARIDA SHOES P.LTD. (IN ITA NO.159/MDS/2013) DATED 11.04.2013), I HOLD THAT THE ABOVE TRANSACTIONS OF COMMISSION PAYMENTS TO THE NON-RESIDENTS FOR PROCURING EXPORT ORDERS, ARE NOT ASSESSABLE TO TAX IN INDIA AND CONSEQUENTLY THE ASSESSEE COMPANY IS NOT UNDER ANY OBLIGATION TO DEDUCT THE TDS ON THE ABOVE COMMISSION PAYMENTS U/S.195 OF THE ACT. THEREFORE, THE PROVISIONS OF SEC.40(A)(I) HAVE NO APPLICATION IN THE PRESENT CAS E. ACCORDINGLY, THE ADDITIONS MADE BY THE ASSESSING OFFICER IN ALL THE THREE ASSESSMENT YEARS UNDER CONSIDERATION ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAYMENTS FOR NON-DEDUCTION OF TDS U/S.40(A)(I) R.W.S. 195 OF THE ACT ARE NOT JUSTIFIE D AND DELETED. 6. SIMILAR ISSUE HAS BEEN CONSIDERED BY THIS TRIBUN AL IN THE CASE OF ITO VS. FAIZAN SHOES (P.) LTD (58 SOT 2 45), WHEREIN CO-ORDINATE BENCH OF THIS TRIBUNAL, TO WHIC H ONE OF US IS A PARTY, AFTER CONSIDERING THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE NTRE P.LTD. (SUPRA) HELD THAT SALES COMMISSION PAID BY T HE ASSESSEES TO NON-RESIDENTS ARE NOT CHARGEABLE TO TA X IN INDIA, THEREFORE PROVISIONS OF SECTION 195 ARE NOT APPLIC ABLE. ON GOING THROUGH THE ABOVE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT IN ALL THESE CAS ES ASSESSEES PAID SALES COMMISSION TO ITS NON-RESIDENT AGENTS FOR THE SERVICES RENDERED BY THEM OUTSIDE INDIA AND THE SALES COMMISSION IS NOT CHARGEABLE TO TAX IN INDIA SO AS TO DEDUCT ITA NO.189 TO 191 & 193 TO 197/MDS/2014 11 TDS ON SUCH PAYMENTS UNDER SECTION 195 OF THE ACT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE NTRE P.LTD. (SUPRA) AND THE ABOVE CITED DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT . 7. THE NEXT COMMON ISSUE IN THE APPEALS OF K.H.ARIN D P.LTD. FOR THE ASSESSMENT YEARS 2008-09 TO 2010-11 IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTR ICTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT ` 8,01,368/-, ` 3,89,364/- AND ` 6,12,969/- AS AGAINST DISALLOWANCES MADE BY ASSESSING OFFICER AT ` 1,51,77,757/- ` 96,72,958/- AND ` 67,35,349/- RESPECTIVELY FOR THE ASSESSMENT YEARS 2008-09 TO 2010-11 HOLDING THAT C OMMON EXPENSES WHICH ARE ATTRIBUTABLE TO MANUFACTURING AN D EXPORT ACTIVITIES AS WELL AS INVESTMENTS IN PARTNERSHIP FI RM ARE HARDLY ` 22,06,724/-, ` 21,56,449/- AND ` 30,52,163/- AND HENCE DISALLOWANCE UNDER SECTION 14A, IF ANY HAS TO BE CO NSIDERED ITA NO.189 TO 191 & 193 TO 197/MDS/2014 12 OUT OF THESE EXPENSES ALONE. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS, IN VIEW OF THE PROVISI ONS OF SECTION 14A READ WITH RULE 8D, MADE DISALLOWANCES IN ALL THESE ASSESSMENT YEARS ON THE GROUND THAT ASSESSEE CLAIMED SHARE INCOME FROM THE FIRM AS EXEMPT AND ASSESSEE COMPANY MADE INVESTMENTS WITH PARTNERSHIP FIRM AND CLAIMED THE SHARE INCOME AS EXEMPTION, IGNORING THE SUBMISS IONS OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENSES IN EARNING SHARE INCOME AND INVESTMENTS WERE ALL MADE IN THE E ARLIER ASSESSMENT YEARS AND IN FACT THERE IS REDUCTION IN INVESTMENTS DURING THIS YEAR. ON APPEAL, COMMISSION ER OF INCOME TAX (APPEALS) RESTRICTED THE DISALLOWANCE TO 10% OF THE INCOME RECEIVED BY WAY OF SHARE OF PROFIT FROM THE FIRM. 8. THE DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN INV OKING PROVISIONS OF SECTION 14A READ WITH RULE 8D RELYING ON THE DECISION OF HONBLE BOMBAY COURT IN THE CASE OF GO DREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81(BOM). HE SUBMITS THAT PROVISIONS OF SECTION 14A READ WITH RULE 8D AR E ITA NO.189 TO 191 & 193 TO 197/MDS/2014 13 MANDATORY, THEREFORE ASSESSING OFFICER IS WELL JUST IFIED IN INVOKING THE PROVISIONS OF THE ACT TO DISALLOW THE EXPENSES FOR EARNING EXEMPT INCOME BY WAY OF SHARE IN PARTNERSHI P FIRM BY THE ASSESSEE. 9. AUTHORIZED REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN REST RICTING THE DISALLOWANCE TO 10% OF SHARE INCOME. PLACING RE LIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF DIRECTOR OF INCOME TAX (IT)-II VS. BNP PARIBES SA ( 32 TAXMANN.COM 276), AUTHORIZED REPRESENTATIVE SUBMI TS THAT WHEN THERE IS NO FINDING GIVEN BY THE ASSESSING OFF ICER THAT ASSESSEE HAS INCURRED EXPENSES FOR EARNING TAXABLE INCOME, PROVISIONS OF SECTION 14A CANNOT BE INVOKED. HE SU BMITS THAT THE HONBLE HIGH COURT IN THE ABOVE CITED CASE HELD THAT IN THE ABSENCE OF ANY SUCH FINDING BY THE ASSESSING OFFICE R, DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE. 10. HEARD BOTH THE PARTIES. PERUSED THE ORDERS OF L OWER AUTHORITIES. THE COMMISSIONER OF INCOME TAX (APPEAL S) HELD ITA NO.189 TO 191 & 193 TO 197/MDS/2014 14 THAT 10% OF INCOME FROM THE FIRM SHOULD BE CONSIDER ED AS DISALLOWANCE UNDER SECTION 14A OF THE ACT OBSERVING AS UNDER:- I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULL Y . AS COULD BE SEEN FROM TH E B A LANCE SHEETS OF THE ASSESSEE COMPANY FOR VARIOUS FINANCIAL Y EARS , THE TOT A L INTEREST-FREE OWN FUNDS OF THE ASSESSEE RANGED FROM 42 . 95 CRORES (IN F . Y.200 2- 03) TO RS . 50 . 20 CRORES (IN F.Y.2011-12) . OUT OF THESE AMOUNTS , THE PAID UP SHARE CA PI TA L OF T H E AS SESSEE COMPAN Y IS ONL Y RS.1.20 CRORES AND THE BALANCE IS RESER VE S AND SU R PLUS FROM T HE ACCUMULATED PROFITS OVER THE YEARS. THESE ARE THE NON-INTEREST BEARIN G O W N AND FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY. THE INVESTMENTS IN TH E PAR T N E RSHIP FIRM , IN NONE OF THE Y EARS (STARTING FROM F . Y . 2002-03 TO 2 01 2 -13) EX C EE D E D THE AMOUNTS OF ABO V E FREE FUNDS A V AILABLE WITH THE ASSESSEE C OMP A N Y . T H E DETAILS OF THE OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE , TH E AMOUN T O F PACKING CREDIT AVAILED AND THE AMOUNT OF IN V ESTMENTS IN THE PARTNERSHIP FIRM AR E GI V EN I N THE ABO V E TABLE . O N THE OTHER HAND , WHAT THE ASSESSEE BORROWED DUR I N G THE F I NAN CIA L YEA RS REL EV AN T TO A . YS. 2008-09 , 2009-10 AND 2010 - 11 , WAS THE PACKING CREDIT LOAN F RO M T H E ST A TE BANK OF INDIA AND WAS UTILIZED FOR BUSINESS PURPOSES , I . E. IN THE FORM OF STO C K - IN - TRAD E. IN FA C T , THE WORD ' PACKING CREDIT ' MEANS THE TEMPORAR Y LOAN GIVEN B Y TH E B A NKS TO MEET THE 'WORKING CAPITAL' REQUIREMENTS. NORMALLY THE PACKING CREDIT IS GIVEN TO THE ASSESSEES ENGAGED IN THE BUSINESS OF EXPORTS, AGAINST THE EXPORT ORDERS AVAILABLE ON HAND. THUS PACKING CREDIT LOANS ARE ITA NO.189 TO 191 & 193 TO 197/MDS/2014 15 SPECIFIC PURPOSE LOANS AND CANNOT BE USED FOR ANY OTHER PURPOSE. WHEN THE PACKING CREDIT IS GRANTED, THE SAID AMOUNT IS TO BE UTILIZED TOWARDS THE PURCHASE OF RAW MATERIAL IN ORDER TO MANUFACTURE AND/OR EXPORT THE GOODS. OUT OF THE SALE PROCEEDS REALIZED THE PACKING CREDIT LOAN WILL BE REPAID . THE AMOUNT OF PACKING CREDIT LOAN AVAILED AND ITS UTILIZATION IN THE FORM OF CLOSING STOCK AND CASH BALANCES , DURING F.YS. 2007-08, 2008-09 AND 2009-10 ARE: THE ABOVE DETAILS CLEARLY SHOW THAT THE PACKING CREDIT, WHICH IS A WORKING CAPITAL LOAN GIVEN FOR THE PURPOSE OF EXPORT SALES AGAINST THE EXPORT ORDERS ON HAND , WAS A LWAYS UTILIZED FOR THE PURPOSE OF PURCHASE OF RAW MATERIAL AND MANUFACTURING THE GOODS FOR EXPORT. THE STOCK-IN-TRADE (INCLUSIVE OF THE RAW MATERIAL, SEMI-FINISHED AND THE FINISHED GOOD ETC) WAS ALWAYS HIGHER THAN THE AMOUNT OF PACKING CREDIT AVAILED IN AL L THE THREE FINANCIAL YEARS UNDER CONSIDERATION , SHOWING THAT THE SAID PACKING CREDIT LOANS WERE ACTUALLY UTILIZED FOR THE PURPOSE OF PURCHASE OF RAW MATERI A L AND MANUFACTURING THE GOODS FOR EXPORT. IN OTHER WORDS, NO PART OF THE SAID PACKING CREDIT LOAN WAS DIVERTED FOR THE PURPOSE OF INVESTMENTS IN THE PARTNERSHIP FIRM. THERE IS ANOTHER SIGNIFICANT FEATURE IN THE PACKING CREDIT LOAN AVAILED BY THE ASSESSEE . THE INVESTMENTS IN THE PARTNERSHIP FIRM WARE WITHDRAWN BY THE F.Y.2011-12 I .E. THE INVESTMENTS IN THE PARTNERSHIP FIRM WERE NIL AS ON 31 . 03.2012 AND 31 . 03.2013 . PARTICULARS F . Y. ENDING ON F . Y . ENDING ON F.Y . ENDING ON 31.03 . 2008 31 . 03 . 2009 31 . 03 . 2010 PACKING CREDIT AVAILED 15 , 49 , 10 , 519 20 , 07 , 24,115 19 , 51 , 04 , 668 IT S UTILI Z ATION : L . STOCK-IN-TRADE 19 , 31 , 10 , 472 27 , 74 , 72 , 262 27 , 13,23 , 475 2 . CASH AND BANK BAL. 56 , 52,149 72,31,298 82 , 38 , 265 TOTAL 19 , 87 , 62 , 621 28 , 47 , 03 , 560 27 , 95 , 61 , 740 ITA NO.189 TO 191 & 193 TO 197/MDS/2014 16 HOWEVER , THE PACKING CREDIT LOANS AVAILED BY THE ASSESSEE CONTINUED TO BE MORE OR LESS SAME EVEN DURING THE F.YS.2011-12 AND 2012- 13 . THIS ALSO SHOWS THAT THE PACKING CREDIT WAS AVAILED FOR THE PURPOSE OF PURCHASE OF RAW MATERIAL AND MANUFACTURING THE GOODS FOR EXPORT AND IT WAS NOT USED FOR INVESTING IN THE PARTNERSHIP FIRM . HENCE THE ASSESSING OFFICER IS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE INTEREST BEARING FUNDS , ESPECIALLY THE PACKING CREDIT LOANS , WERE UTILIZED FOR THE PURPOSE OF MAKING I NVESTMENTS IN THE PARTNERSHIP FIRM AND INVOKING THE PROVISIONS OF SEC . 14A OF THE ACT . FURTHER , AS COULD BE SEEN FROM THE P&L ACCOUNTS OF THE FINANCIAL YEARS ENDING ON 31 . 03.2008 , 31 . 03 . 2009 AND 31 . 03.2010 , THE TOTAL BUSINESS RECEIPTS/INCOME (FROM EXPORT SALES, LOCAL S A LES A ND THE EXPORT S A LE RELATED INCOMES LIKE DUT Y DRAW BACK , EXCHANGE FLUCTUATION ETC) ARE RS.66.38 CRORES, RS . 55.0 1 CRORES AND RS.51 . 98 CROR E S , R E SPECT I VELY. OTHER INCOMES LIKE INTEREST INCOME , SHARE OF PROFIT FROM THE FIRM , ETC A R E RS . O.68 CRARES, RS.0 . 42 CRORES AND RS.O.88 CRORES , RESPECTIVELY , FOR THE CORRESPONDING Y EARS. AS AGAINST THESE INCOMES , THE ASSESSEE DEBITED VARIOUS EXPENSES LIKE R AW MAT E RI A L , MANUFACTURING EXPENSES, ADMINISTRATIVE EXPENSES, FINANCI A L COSTS , DEPRECIATION ETC. THE DETAILS ARE AS UNDER: M/S . K . H. ARIND PRIVATE LIMITED PARTICULARS SCH. PROFIT & LOSS ACCOUNT FOR THE YEARS ENDED ON 31 . 03.2010 31 . 03 . 2009 31 . 03.2008 INCOME SALE S : EXPORT 11 58 , 82 , 63 , 516 52 , 99 , 19 , 159 48 , 29 , 20 , 489 LOCAL 11 3 , 26 , 92 , 20 2 34 , 08 , 971 51 , 4 2, 417 OTHER S (LIKE DUTY DRAWBACK ETC) 11 4 , 28 , 45 , 032 2 , 66 , 56 ,2 6 2 3 , 17 , 99 , 865 OTH E R INCOM E 12 67 , 69 , 180 41 , 98 , 086 88 , 07 , 3 23 TOTAL INCOME (A) 67,05,69,930 56,42,81,020 52,86,70,094 EXPENDITURE D E CREA S E / (INCREASE ) IN STOCK 13 - 3 8 , 52 4 97 3 -15 ,2 20 , 39 3, 07 , 4 2, 1 3 5 MAT E RIALS CONSUMED 14 42, 9 5 , 58 ,4 07 31 , 91 , 09 , 594 2 6 , 6 1 , 4 5 , 955 S ALARI ES AND WAGE S 15 15 ,4 7 , 06 ,2 6 3 13 , 17 , 87 , 627 11 , 3 3,23, 1 7 0 MANUFACTURIN G E XP E N SES 16 3 , 81 , 04 , 102 3 , 74 , 93 , 07 4 4 , 3 4, 9 5, 3 42 A DMINISTRATI O N EX PEN S E S 17 2 , 16 ,5 2 , 890 2 , 27 , 57 , 91 4 1 , 80 , 89 , 3 2 1 ITA NO.189 TO 191 & 193 TO 197/MDS/2014 17 SE LLIN G E XPEN S E S 18 1 , 50 , 64 , 656 2 , 55 , 02 ,4 14 1 , 48 , 78 ,7 9 7 INT E RE S T AND BANK CHARG ES 19 1 , 69 , 01 , 234 1 , 67 , 00 ,2 2 2 2 , 05 , 55 , 57 3 D E PRECIATION 4 1 , 50 , 00 , 028 1 ,3 3 , 05 , 928 94 , 17 , 612 TOTAL EXPENDITURE CB) 65,24,62,606 55,14 , 36,376 51,66,47,905 PROFIT BEFORE TAX (A-B) 1 , 81 , 07 , 324 1 , 28 , 44 , 644 1 , 20 , 2 2, 1 89 31 . 03.2010 31 . 03.2009 31 . 03.2008 17. ADMINISTRATION EXPENSES PR I NTING &STATIONERIES 1443 , 219 15 , 35 , 325 13 , 93 , 16 7 PO S TAGE , COURIER & TELE G RAM 15 , 88 , 758 29 , 91 , 723 15 , 30 , 33 2 TELEPHONE & TELEX 5 , 40 , 662 4 , 93 , 577 5,7 8 , 9 72 T RAVELLIN G - LOCAL 5 , 96 , 324 5 , 41 , 8 3 1 4 , 31 ,3 9 2 TRAVEL- FOREI G N TOUR 10 , 47 , 480 8 , 07 , 9 2 2 3,47, 2 73 V E HICLE MAINTENANCE 41 , 66 ,2 64 41 , 3 0 , 528 35 , 08 , 68 3 C OMPUTER MAINTENANCE 5 , 61 , 3 85 4 , 17 , 4 23 4 , 90 , 1 43 RENT 13 , 90 , 026 8 , 97 , 000 11 ,22, 000 DIR E CTOR S REMUNERATION 2 7 , 00 , 000 18 , 65 , 000 18 , 65 , 000 AUDIT F EE S: AS AUDITOR S 1 , 90 , 000 1 , 75 , 000 1 , 75 , 000 FO R INCOM E TA X MATTERS 60 , 000 50 , 000 50 , 000 FOR OTHER S 1 1 , 350 10 , 000 3 3 , 484 PROFESSIONAL CHARGES 7 , 16 , 353 2, 98 , 8 3 9 4 , 3 1 , 68 2 MEMBERSHIP , SUBSCRIPTION S &B O OKS 82 , 820 45 , 976 5 7 , 1 5 6 LO S S ON SALE OF ASSETS 2 , 09 , 099 20 , 130 - DONATION & CHARITIES 62 , 58 , 337 37 , 27 , 180 59 , 91 , 7 9 7 GENERAL EXPENSES 90 , 813 56 , 449 83 , 240 E XCHANGE FLUCTUATION - 46 , 94 , 01 1 - TOTAL 2,16,52,890 2,27,57,914 1,80,89,321 PERUSAL OF THE ABOVE DETAILS OF THE P & L ACCOUNT CLEARLY SHOWED THAT ALL THE EXPENSES DEBITED EXCEPT THE ADMINISTRATIVE EXPENSE ARE RELATING TO THE MANUFACTURING AND EXPORT ACTIVITIES . THEREFORE, NONE OF THE EXPENSES DEBITED IN THE FORM OF (I) MATERIALS CONSUMED, (II) SALARIES AND WAGES, (III) MANUFACTURING EXPENSES, (IV) SELLING EXPENSES, (V) INTEREST AND BANK CHARGES AND (VI) DEPRECIATION, ARE ATTRIBUTABLE TO THE INVESTMENTS IN THE PARTNERSHIP FIRM AND THE INCOME (PROFIT) GENERATED THEREFROM. ONLY THE ADMINISTRATIVE EXPENSES DEBITED IN THE P&L ACCOUNT, COULD BE ITA NO.189 TO 191 & 193 TO 197/MDS/2014 18 CONSIDERED AS COMMON EXPENSES. AGAIN, AMONG THE VARIOUS ITEMS INCLUDED IN ADMINISTRATIVE EXPENSES, SEVERAL ITEMS ARE EITHER DIRECTLY RELATED TO THE MANUFACTURING AND EXPORT ACTIVITY OR NOT CONNECTED TO THE INVESTMENTS IN THE PARTNERSHIP FIRM. THEREFORE, THE ADMINISTRATIVE EXPENSES ARE TO BE SEGREGATED ON THESE LINES, BEFORE ARRIVING AT THE COMMON EXPENSES, IF ANY, AS UNDER: 31 . 03.2010 31 . 03.2009 31 . 03.2008 17. ADMINISTRATION EXPENSES (A) ATTRIBUTABLE TO EXPORT ACTIVITY: PR I NTING &STATIONERIES 14,43,2 19 15 , 35,325 13 , 93 , 167 POSTAGE , COURIER & TELEGRAM 15,88 , 758 29 , 91,723 15 , 30 , 332 TELEPHONE & TELEX 5,40,662 4 , 93 , 577 5 , 78 , 972 TRAVELLING - LOCAL 5,96,324 5 , 41 , 831 4 , 31 , 392 TRAVEL- FOREIGN TOUR 10,47 , 480 8,07,922 3 , 47 , 273 VEHICLE MAINTENANCE 41 , 66 , 264 41,30 , 528 35 , 08 , 683 COMPUTER MAINTENANCE 5,61,385 4,17,423 4 , 90,143 RENT 13 , 90 , 026 8,97 , 000 11,22 , 000 PROFESSIONAL CHARGES 7 , 16,353 2 , 98 , 839 4,31,682 MEMBERSHIP,SUBSCRIPTION &BOOK 82 , 820 45 , 976 57 , 1 56 EXCHANGE FLUCTUATION - 46 , 94 , 011 - TOTAL 1,21,33,291 1,68,54,155 98,90,800 (B) COMMON EXPENSES: DI R ECTORS REMUNERATION 27 , 00,000 18 , 65 , 000 18 , 65 , 000 AUDIT FEES: AS AUDITORS 1,90,000 1,75 , 000 1,75 , 000 FOR INCOME TAX MATTERS 60 , 000 50 , 000 50,000 FOR OTHERS 1 1,350 10,000 33 , 484 GENERAL EXPENSES 90 , 813 56,449 83 , 240 TOTAL 30,52,163 21,56,449 22,06,724 (C) NON- CONNECTED TO INVESTMENT IN FIRM: LOSS ON SALE OF ASSETS 2 , 09 , 099 20 , 130 - DONATION & CHARITIES 62 , 58,337 37,27 , 180 59 , 91 , 797 TOTAL 64,67,436 37,47,310 59,91,797 GRAND TOTAL 2,16,52,890 2,27,57,914 1,80,89,321 THUS, THE COMMON EXPENSES WHICH ARE ATTRIBUTABLE TO THE MANUFACTURING AND EXPORT ACTIVITIES AS WELL AS THE INVESTMENTS IN THE PARTNERSHIP FIRM, ARE HARDLY RS . 22,06,724/- , RS.21,56,449/- AND RS.30,52,163/-, RESPECTIVELY DURING THE FINANCIAL YEARS 2007-08, 2008- ITA NO.189 TO 191 & 193 TO 197/MDS/2014 19 09 AND 2009-10. THE REST OF THE EXPENSES, EITHER IN THE FORM OF ADMIN I STRATIVE EXPENSES, OR U N D ER OT H ER H EADS, ARE NO WAY CONNECTED TO TH E INVESTMENTS IN PARTNERSHIP FIRM EITHER DIRECTLY OR INDIRECTLY. HENCE THE DIS A LLOWANCE OF EXPENSES, IF ANY, FOR THE PURPOSE OF SEC . 14A SHOULD BE OUT OF THE SAID EXPENSES OF RS . 22,06,724/-, RS.21,56,449/- AND RS . 3 0 ,52,163/- ONLY. THE M A IN ACTIVIT Y OF TH E ASSESSEE REQUIRING MUCH OF THE ATTENT I ON WAS MANUFACTURING AND EXPORT OF THE GOODS . THE IN V ESTMENT IN THE PARTNERSHIP FIRM (M / S. M . A . KHAZIR HUSSAIN & SONS, A G ROUP C ONCE R N) IS ONLY A N OCCASION A L A FF A IR AND DOES NOT REQUIRE A NY ATTENTION OF E ITH E R TH E M A N POW E R OR THE INFRASTRUCTUR A L FACILITIES OF THE ASSESSEE COMP A NY . TH E PRO C ES S INVOLV E D IN THE S A ID INVESTMENT IN THE PARTNERSHIP FIRM (M/S. M . A . KHAZIR HU S S A IN & S ON S ) I S ONLY REGARDING DEPLOYMENT AND / OR WITHDRAWAL OF FUNDS IN THE FIRM . THIS IS TH E D E CISION MAKING PROCESS INVOLVING THE MANAGEMENT (DIRECTORS). FURTHER, THE E NTIR E A MOUNTS OF INVESTMENTS IN THE PARTNERSHIP FIRM ARE COMING FROM THE EARLIER Y EARS , AS UND E R : P . Y . E NDIN G ON A. Y . INV ES TM E NT S I N TH E PARTN E R S HIP FIRM 31 . 03.200 7 200 7 -0 8 4 7 1 , 291 ,887 .00 31.03 . 200 8 200 8 -09 424 , 251 , 024 . 00 31 . 03 .2 009 2009-10 355 , 5 7 0 , 695 . 00 31 . 03 .2 010 2 010-11 3 28, 3 78, 3 7 9 . 00 31 . 03. 2 011 2 011-1 2 34 , 2 7 3 ,7 49 . 00 UNDER THESE CIRCUMSTANCES, THE INVOL V EMENT OF MAN POWER AND TH E INFRASTRUCTUR A L FACILITIES OF THE ASSESSEE COMPANY IN M A KING THE A BOVE INVESTMENTS IN TH E P A RTNERSHIP FIRM ITA NO.189 TO 191 & 193 TO 197/MDS/2014 20 WILL BE PRACTICALLY INSIGNIFICANT . HENCE A BLANKET DIS A LLOWANCE OF E XPENSES @ 0.5 % OF THE AVERAGE INVESTMENTS, AS PER CLAUSE (III) OF RULE 8D IS NO T J USTIFIED. ON THE OTHER HAND , THE ASSESSEE COMPANY IN ITS RETURN OF INCOME FIL E D FOR A.Y . 2010-11, ON ITS OWN DISALLOWED AS SUM OF RS . 6 , 12 , 969/- , BEING 10 % OF THE INCOME R E CEI VE D BY WAY OF SHARE OF PROFIT FROM THE FIRM , U/S.14A OF THE ACT AND ADDED TO TH E T OT A L INCOME. EVEN THIS SELF DISALLOWANCE @ 10 % OF THE INCOME RECEIVED B Y WA Y OF SHAR E OF PROFIT FROM THE FIRM , U/S . 14A OF THE ACT, BY THE ASSESSEE IN A.Y.2010-11 , IS ON HI G H E R SIDE C ONSIDERING THE NATURE OF EFFORTS MADE IN THE INVESTMENTS IN THE PARTNERSHIP FIRM . HOW EVE R , SINCE THE ASSESSEE ITSELF CONSIDERED 10 % OF THE INCOM E R E CEI VE D B Y WA Y OF SHAR E OF PROFIT FROM THE FIRM , AS A REASONABLE EXPENDITURE IN EARNING TH E SAID INCOM E FOR T H E PURPOSE OF SEC.14A OF THE ACT IN THE A.Y . 2010 - 11 , I AM OF THE OPINION TH A T TH E SAME REASONING AND LOGIC SHOULD BE EXTENDED TO THE OTHER TWO ASSESSMENT YE A RS UND E R CONSIDERATION. ACCORDINGLY, TH E ASSESSING OFFIC E R IS DIRECTED TO RESTRICT TH E FIRM IN THE A.YS . 2008-09 AND 2009-10. AS A RESULT, THE EXPENSES TO BE DISALLOWED U /S . 14A OF THE ACT , THE DISALLOWANCES MADE BY THE ASSESSING OFFICER RELIEF TO BE G R A NT E D TO THE ASSESSEE, ETC , ARE AS UNDER : SHARE OF DI S ALLOWAN CE ALR E ADY DI S ALLOWAN CE DISALLOWAN CE R E LI EF T O B E MAD E A . Y. PROFIT F R OM U 1S. 14 A @ 1 0 % DI S ALLOW E D BY MAD E BY TH E B Y THE A . O . G RANT E D T O TH E FIRM A S AB O V E TH E A S S ESSEE A . O . CONFIRM E D NOW TH E ASSESSEE 2 00 8 - 0 9 8 0 , 13 , 6 8 1 8, 01 , 36 8 - 1 , 51 ,77,7 5 7 8 , 01 , 36 8 14 , 3 7 6 , 3 8 9 2 009- 10 3 8, 93 , 639 3 ,8 9,364 - 96 ,7 2 , 95 8 3 ,8 9 , 364 9 , 2 8 3 , 59 4 2 010- 11 61 , 29 , 6 8 5 6 , 1 2, 969 6 , 1 2, 969 6 7, 35 , 349 67 , 3 5 , 3 4 9 ITA NO.189 TO 191 & 193 TO 197/MDS/2014 21 THEREFORE , OUT OF THE DISALLOWANCES OF RS . 1,51,77,757 / - AND RS . 96 , 72 , 958/- M A D E BY THE ASSESSI N G OFFICER U/S.14A OF THE ACT IN A . YS.20 0 8-09 AND 2009 - 10 , DISALLOWANCES TO THE EXTENT OF RS.8,01,368/ - AND RS . 3 , 89 , 364 / - ARE CONFIRMED AND TH E B A LANC E OF DISAL L OWANCES OF RS . 14 , 376,389/- AND RS.9,283,594 / - ARE DELETED. IN TH E CA SE O F A.Y . 2 0 10-11, SINCE THE ASSESSEE ITSELF DISALLOWED RS . 6,12,969/- (BEING 10 % O F T HE SHARE INCOME FROM THE F IRM) , NO SEPARATE DISALLOWANCE U / S.14A IS WARRANTED. H E N CE THE ENTIRE DISALLOWANCE OF RS. 67,35 , 349/- MADE BY THE ASSESSING OFFICER IS D E LETED . 11. AS COULD BE SEEN FROM THE ABOVE, THIS ISSUE HA S BEEN ELABORATELY CONSIDERED BY THE COMMISSIONER OF INCOM E TAX (APPEALS) ON ANALYZING BALANCE SHEETS OF THE ASSESS EE FOR THE YEAR ENDING 31.03.2008, 31.03.2009 & 31.03.2010 AND THE INVESTMENTS MADE BY THE ASSESSEE FOR THE PAST 1 1 YEARS I.E. 31.03.2003 TO 31.03.2013 HELD THAT TOTAL INT EREST FREE OWN FUNDS OF THE ASSESSEE RANGED FROM 42.95 CRORES IN THE FINANCIAL YEAR 2002-03 TO ` 50.20 CRORES IN THE FINANCIAL YEAR 2011-12 . OUT OF THESE AMOUNTS PAID UP SHARE CAPITA L AMOUNT WAS ` 1.20 CRORES AND THE BALANCE IS RESERVES AND SURPL US FROM ACCUMULATED PROFITS FROM THE YEARS. THESE ARE ALL NON- INTEREST BEARING OWN AND FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY AND INVESTMENTS IN THE PARTNERSHIP FIRM IN NONE OF THE YEARS STARTING FROM FINANCIAL YEAR 200 2-03 TO ITA NO.189 TO 191 & 193 TO 197/MDS/2014 22 2012-13 EXCEEDED THE AMOUNTS OF ABOVE FREE FUNDS A VAILABLE WITH THE ASSESSEE COMPANY. ON GOING THROUGH THE IM PUGNED ORDER, WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS ). THE REVENUE HAS NOT FILED ANY EVIDENCE TO REBUT THE FIN DINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND TO SAY THAT THERE IS INFIRMITY IN THE ORDER PASSED BY THE COMMI SSIONER. IN SUCH CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 12. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 28 TH DAY OF MARCH, 2014 AT CHENNAI. SD/- SD/- (A.MOHAN ALANKAMONY) (CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDI CIAL MEMBER CHENNAI, DATED THE 28 TH MARCH, 2014. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R (3) CIT (6) G.F.