The DCIT, Circle-2(1)(1), Ahmedabad V. M/s. GSP Crop Science Pvt. Ltd., Ahmedabad

ITA 2002/AHD/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5358 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-03-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 01-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Capital asset; Business expenditure; Proportionate interest; Retrospective amendment; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER) ( THROUGH VIRTUAL COURT ) ITA. NO: 2002/AHD/2016 (ASSESSMENT YEAR: 2012-13) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 2(1)(1), AHMEDABAD V/S M/S. GSP CROP SCIENCE PVT. LTD. 404, LALITA COMPLEX, 352/3 RASALA ROAD, NAVRANGPURA, AHMEDABAD- 380009 (APPELLANT) (RESPONDENT) PAN: AAACG 7984Q APPELLANT BY : SHRI LALIT P. JAIN, SR. D.R. RESPONDENT BY : SHRI MEHUL K. PATEL ( )/ ORDER DATE OF HEARING : 15 -09-2020 DATE OF PRONOUNCEMENT : 23-09-2020 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (HEREINAFTER CALLED CIT(A)) ORDER NO. CIT(A)- 2/520/DC. CIR.(2)(1)(1)/2015-16 ORDER DATED 25/05/2016 ARISING OUT OF ITA NO. 2002/AHD/2016 . A.Y. 2012-13 2 ASSESSMENT ORDER DATED 10/03/2015. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS. 1,07,07,684/- ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENSES TREATING IT AS CAPITAL EXPENDITURE WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE MADE BY THE AO WITH REGARD TO FOREIGN COMMISSION AMOUNTING TO RS. 59,15,144/- U/S. 40(A)(I) OF THE ACT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL ON RECORD. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE MADE BY THE AO WITH REGARD TO INTEREST U/S. 40A(2)(B) OF THE ACT AMOUNTING TO RS. 15,88,604/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL ON RECORD. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE MADE BY THE AO WITH REGARD TO CAPITALIZATION OF INTEREST AMOUNTING TO RS. 6,27,300/- U/S. 36(I)(III) OF THE ACT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL ON RECORD. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 2. THE REVENUE HAS TAKEN SEVEN GROUNDS BUT GROUND NOS. 1 TO 4 ARE RELEVANT REMAINING GROUNDS ARE FORMALS, THEREFORE, WE WOULD LIKE TO DISPOSED OF GROUND NOS. 1 TO 4. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AS WELL AS TRADING OF PESTICIDES. FROM THE PERUSAL OF THE ACCOUNTS, IT WAS OBSERVED THAT THE ASSESSEE HAS DEBITED RS. 10707684/- UNDER THE HEAD OTHER EXPENSES ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENDITURE. ASSESSEE FILED BEFORE THE LOWER AUTHORITIES COPIES OF LEDGER ACCOUNTS FOR ANALYTICAL FEES EXPENSES OF RS. 4053995/- & ANALYTICAL FES EXPS. EXPORT OF RS. 6053689/-. BUT LD. A.O. DID ITA NO. 2002/AHD/2016 . A.Y. 2012-13 3 NOT ACCEPT THE CONTENTION GIVEN BY THE ASSESSEE AND MADE ADDITION OF RS. 10707684/-. 4. THEREAFTER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE ON THE GROUND OF CONSISTENCY. SINCE SIMILAR EXPENSES WERE ALLOWED BY THE DEPARTMENT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. 5. NOW REVENUE HAS COME BEFORE US BY WAY OF SECOND STATUTORY APPEAL. AS WE CAN SEE THAT IN ITA NO. 2491/AHD/2014 FOR IMMEDIATE PRECEDING ASSESSMENT YEAR 2011-12 ITAT GRANTED RELIEF TO THE ASSESSEE AND DISMISSED THE APPEAL OF THE REVENUE WITH FOLLOWING OBSERVATIONS: 4. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT EVEN PRIOR TO THE CURRENT YEAR AS WELL AS DURING THE YEAR THE ASSESSEE HAS PURCHASED AND SOLD THE PRODUCT WHICH WERE TESTED AS PER THE ANALYTICAL REPORT. WE ALSO OBSERVE THAT ASSESSEE HAS BEEN IN THE BUSINESS OF MANUFACTURING OF PESTICIDES SINCE LAST SEVEN YEARS AND THE PRACTICE OF GETTING THE PRODUCT TESTED WITH ANALYTICAL REPORT WAS BEING FOLLOWED BY THE ASSESSEE SINCE EARLIER YEARS. THEREFORE WE FIND THAT OBSERVATION OF THE ASSESSING OFFICER WAS NOT FACTUALLY CORRECT. IN VIEW OF THE ABOVE FACTS AND FINDINGS, WE ARE NOT INCLINED TO INTERFERE IN THE DECISION OF THE LD. CIT(A), THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED. 6. SINCE THERE IS NO APPEAL PENDING BEFORE THE HONBLE HIGH COURT FOR AGAINST THE AFORESAID ORDER OF THE ITAT, THUS ORDER OF THE ITAT GOT FINALITY. THEREFORE, IN PARITY WITH THE AFORESAID ITAT ORDER, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. NOW WE COME TO GROUND NO. 2 WITH REGARD TO DELETING DISALLOWANCE OF FOREIGN COMMISSION U/S. 40(A)(I) OF RS. 59,15,144/-. ITA NO. 2002/AHD/2016 . A.Y. 2012-13 4 8. FROM THE PERUSAL OF THE RECORD, IT WAS OBSERVED THAT ASSESSEE HAS PAID EXPORT SALES COMMISSION TO VARIOUS NON-RESIDENT PARTIES AMOUNTING TO RS. 59,15,144/- ON WHICH TDS WAS NOT DEDUCTED. 9. IN REPLY, ASSESSEE STATED THAT AGENTS ARE NON-RESIDENTS THEY ARE NOT HAVING PE IN INDIA AND SERVICES WERE RENDERED ABROAD. THEREFORE, IT IS NOT LIABLE TO DEDUCT TDS. BUT LD. A.O. WAS NOT AGREED WITH THE CONTENTION OF THE ASSESSEE. 10. IN APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE HOLDING THAT APPELLANT IS NOT LIABLE TO DEDUCT TDS. 11. NOW REVENUE HAS COME BEFORE US BY WAY OF SECOND STATUTORY APPEAL. 12. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER. IN THE CASE OF GE TECHNOLOGY 327 ITR 456 WHEREIN IT IS HELD THAT PAIR IS BOUND TO DEDUCT TAX AT SOURCED ONLY IF THE TAX IS ASSESSABLE IN INDIA IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. 13. IN SUPPORT OF ITS CONTENTION, ASSESSEE ALSO CITED A JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF MGM EXPORTS IN TAX APPEAL NO. 309 OF 2018 WHEREIN FOLLOWING QUESTION WAS FRAMED BY THE HONBLE GUJARAT HIGH COURT AND APPEAL OF THE REVENUE WAS DISMISSED BY THE HONBLE HIGH COURT. 2. WHETHER THE APPELLATE TRIBUNAL HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 5,05,330/- MADE U/S. 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THAT THE COMMISSION PAID TO A NON-RESIDENT AGENT WAS SUBJECT TO TDS U/S. 195 OF THE ACT? 14. THE MATTER WAS IN FAVOUR OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS: ITA NO. 2002/AHD/2016 . A.Y. 2012-13 5 IT IS INDISPUTABLY TRUE THAT SUCH EXPLANATION INSERTED WITH RETROSPECTIVE EFFECT PROVIDES THAT OBLIGATION TO COMPLY WITH SUBSECTION [1] OF SECTION 195 WOULD EXTEND TO ANY PERSON RESIDENT OR NON-RESIDENT, WHETHER OR NOT NON-RESIDENT PERSON HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTIONS IN INDIA OR ANY OTHER PERSONS IN ANY MANNER WHATSOEVER IN INDIA. THIS EXPRESSION WHICH IS ADDED FOR REMOVAL OF DOUBT IS CLEAR FROM THE PLAIN LANGUAGE THEREOF, MAY HAVE A BEARING WHILE ASCERTAINING WHETHER CERTAIN PAYMENT MADE TO A NON-RESIDENT WAS TAXABLE UNDER THE ACT OR NOT. HOWEVER, ONCE THE CONCLUSION IS ARRIVED THAT SUCH PAYMENT DID NOT ENTAIL TAX LIABILITY OF THE PAYEE UNDER THE ACT, AS HELD BY THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LIMITED [SUPRA], SUB- SECTION [1] OF SECTION 195 OF THE ACT WOULD NOT APPLY. THE FUNDAMENTAL PRINCIPLE OF DEDUCTING TAX AT SOURCE IN C/TAXAP/309/2018 ORDER CONNECTION WITH PAYMENT ONLY, WHERE THE SUM IS CHARGEABLE TO TAX UNDER THE ACT, STILL CONTINUES TO HOLD THE FIELD. IN THE PRESENT CASE, THE REVENUE HAS NOT SEVEN SERIOUSLY CONTENDED THAT THE PAYMENT TO FOREIGN COMMISSION AGENT WAS NOT TAXABLE IN INDIA. TAX APPEAL IS THEREFORE DISMISSED.' 15. RESPECTFULLY FOLLOWING JUDGMENTS OF AFORESAID SUPERIOR COURT, WE ARE NOT INCLINED IN THE ORDER PASSED BY THE LD. CIT(A), THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 16. NO WE COME TO NEXT GROUND RELATING TO DELETING DISALLOWANCE OF INTEREST U/S. 40A(2)(B) OF RS. 15,88,7604/-. 17. REGARDING THE ISSUE OF JUSTIFICATION FOR INTEREST PAID ON UNSECURED LOAN AT THE RATE OF 18%. LD. A.O. AFTER REDUCING 3% OF INTEREST ALLOWED 15% INTEREST. 18. IN APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF ON THE GROUND THAT A.O. HAS NOT GIVEN ANY BASIS AND SUPPORT TO ADOPT THE INTEREST RATE AT 15% PER ANNUM AS THE PREVALENT INTEREST RATE. ITA NO. 2002/AHD/2016 . A.Y. 2012-13 6 19. NOW REVENUE HAS COME BEFORE US BY WAY OF SECOND STATUTORY APPEAL. IN THE MATTER OF LAXMI PULSE RICE IN IT(SS) A NO. 50/AHD/2010 WHEREIN SIMILAR ISSUE WAS DECIDED BY THE CO-ORDINATE BENCH IN FAVOUR OF THE ASSESSEE AND ALLOWED 18% OF INTEREST AND SIMILAR RATE OF INTEREST WAS ALLOWED BY THE CO-ORDINATE BENCH. 20. THUS IN PARITY WITH THE ITAT ORDER, WE DISMISSED THE APPEAL OF THE REVENUE. 21. NOW WE COME TO GROUND RELATING TO DELETING DISALLOWANCE OF CAPITALIZATION OF INTEREST OF RS. 6,27,300/-. IT WAS OBSERVED THAT A SUM OF RS. 59,72,000/- WAS SHOWN BY THE ASSESSEE AS CAPITAL ADVANCES TOWARDS ACQUISITION/PURCHASE OF CAPITAL ASSETS. IN REPLY TO THE NOTICE, ASSESSEE STATED THAT WE HAVE PAID RS. 59.72 LACS OUT OF CASH APPROVAL AND NO BORROWING WAS MADE FOR ACQUISITION/PURCHASE OF ASSETS. 22. BUT LD. A.O. DID NOT AGREE AND REASONED FOR DISALLOWANCE THAT IN THE ABSENCE OF ANY EVIDENCE PROVING NEXUS THAT THE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE WAS UTILIZED FOR CAPITAL ADVANCES, THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTABLE. SINCE, THE ASSESSEE HAS NOT GIVEN DETAILS OF DAY TO DAY UTILIZATION OF FUNDS FOR CAPITAL ADVANCES, THE AVERAGE OF OPENING CAPITAL ADVANCES AND CLOSING CAPITAL ADVANCES WAS CONSIDERED FOR THE PURPOSE OF DISALLOWANCE OF INTEREST U/S. 36(1)(III) ON SUCH CAPITAL ADVANCES. THUS, THE AVERAGE AMOUNT OF CAPITAL ADVANCES COMES TO RS. 4182000/- (RS. 2392000 + RS. 5972000). SINCE, ALLOWABLE RATE OF INTEREST ON UNSECURED LOAN WAS HELD AT 15% OUT OF TOTAL EXPENSES DEBITED IN PROFIT AND LOSS ACCOUNT, PROPORTIONATE INTEREST @ 15% ON THE AMOUNT OF RS. 4182000/- WHICH COMES TO RS. 627300/- WAS DIALLOWED AND CAPITALIZED U/S. 36(1)(III) OF THE ACT. ITA NO. 2002/AHD/2016 . A.Y. 2012-13 7 23. IN APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE ON THE GROUND THAT INTEREST BEARING FUNDS UTILIZED FOR THE CAPITAL ADVANCES IS WITHOUT ANY BASIS AND THEREFORE DISALLOWANCE OF INTEREST WAS DELETED. 24. NOW REVENUE HAS COME BEFORE US BY WAY OF SECOND STATUTORY APPEAL. 25. AS WE CAN READ FROM THE ORDER OF THE LD. CIT(A) WHEREIN AUDITED BALANCE SHEET WITH REGARD TO SHARE CAPITAL AND RESERVE AND SURPLUS WERE REPRODUCED WHEREIN ASSESSEE IS HAVING SHARE CAPITAL OF RS. 2500 LACS AND RESERVE AND SURPLUS IS HAVING OF RS. 2514 LACS AND TOTAL COMES TO 5014 LACS. MEANING THEREBY, ASSESSEE IS HAVING INTEREST FREE FUNDS FOR MUCH MORE. 26. AND IN SUPPORT OF ITS CONTENTION, ASSESSEE CITED A JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE MATTER OF RAGHUVIR SYNTHETICS 354 ITR 222 WHEREIN RELIEF WAS GRANTED TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS: DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR THE 2001-02, ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INCURRED HEAVY INTEREST EXPENSES TO THE TUNE OF RS. 59,83,543 AND, ON THE OTHER HAND, IT HAD GIVEN INTEREST-FREE LOANS TO A PARTY TO THE TUNE OF RS. 1.05 CRORES AND TO ANOTHER PARTY TO TUNE OF RS. 18.40 CRORES. ON CALLING FOR THE EXPLANATION FOR INTEREST-FREE LOANS AND DULY CONSIDERING THE SUBMISSIONS OF BOTH SIDES, THE ASSESSING OFFICER DISALLOWED THE INTEREST TO THE EXTENT OF RS. 18,66,000 OF THE INTEREST-FREE LOANS ADVANCED TO BOTH THE PARTIES ON THE GROUND THAT THE EXPENSES WERE NOT INCURRED FOR BUSINESS EXPENSES. THE COMMISSIONER (APPEALS) SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DELETED THE ADDITION HOLDING THAT THE AMOUNTS ADVANCED TO THE TWO PARTIES WERE NOT GIVEN DURING THE YEAR UNDER CONSIDERATION BUT IN THE EARLIER YEARS. THE COMMISSIONER (APPEALS) HAD ALSO TAKEN NOTE OF THE FACT THAT THERE WERE SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE ON WHICH NO INTEREST LIABILITY HAD BEEN INCURRED. IN SUCH CIRCUMSTANCES, HE FOUND THAT THE DISALLOWANCE WAS NOT JUSTIFIABLE. THE TRIBUNAL UPHELD THE ORDER OF THE COMMISSIONER (APPEALS) HOLDING THAT THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR GREATER THAN THE LOAN ADVANCED TO THE SISTER CONCERNS AND THE BORROWED MONEY WAS NOT UTILIZED FOR THE PURPOSE OF ADVANCE TO THE SISTER CONCERNS AND THE INTEREST WAS NOT ITA NO. 2002/AHD/2016 . A.Y. 2012-13 8 DISALLOWABLE MERELY ON ACCOUNT OF THE UTILIZATION OF THE FUNDS FOR NON-BUSINESS PURPOSES. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT WHEN THERE WAS NO EVIDENCE BROUGHT ON RECORD BY THE DEPARTMENT FOR THE TRIBUNAL TO HOLD OTHERWISE THAN WHAT HAD BEEN CONCLUDED BY WAY OF ANY MATERIAL, THE ASSESSEE WAS ELIGIBLE FOR ALLOWANCE OF INTEREST. 27. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF HONBLE GUJARAT HIGH COURT, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). 28. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 23 - 09- 2020 SD/- SD/- (AMARJIT SINGH) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 23/09/2020 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,AHMEDABAD