DCIT, Circle-10, Kolkata, Kolkata V. M/S. Reliance Chemotex Industries Ltd., Kolkata

ITA 2041/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1670 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: A K GUPTA
• Keywords: Depreciation; Business expenditure; Additional depreciation; Earning of tax free income; Permanent establishment; Corroborative evidences
• Section: 143(3); 142(1); 14A; 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI N.V. VASUDEVAN, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 2041/KOL/20 14 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-10 KOLKATA -VS- M/S RELIANCE CHEMO TEX INDUSTRIES LTD. [PAN: AABCR 3739 H] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI PINAKI MUKHER JEE, ADDL. CIT DR FOR THE RESPONDENT : SHRI A.K. GUPTA, AR DATE OF HEARING : 03.08.2017 DATE OF PRONOUNCEMENT : 16 .08.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XX, KOLKATA [ IN SHORT THE LD CITA] IN APPEAL NO. 22/CIT(A)- XX/CIRCLE-35/2013-14/KOL DATED 09.09.2014 AGAINST THE ORDERS PASSED BY THE ACIT, CIRCLE-35, KOLKATA [ IN SHORT THE LD AO] UNDER SEC TION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 15.03.2013 FOR THE ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE TOWARDS FOREIGN TRAVEL EXPENSES AMOUNTING TO RS 42,65,989/- IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF DIFFERENT TYPES OF YARN. THE SUBSTANTIAL PART OF THE PRODUCTION IS EXPORTED AND THE TURNOVER OF THE ASSE SSEE DURING THE RELEVANT PREVIOUS YEAR WAS RS 194 CRORES. THE LD AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS CALLED FOR 2 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 2 THE DETAILS OF FOREIGN TRAVELLING EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS 42,65,989/-. THE ASSESSEE SUBMITTED THE VARIOUS DETAILS IN RESPECT OF THE SAME SHOWING HT ENAMES OF THE PERSONS, COPY OF THE BILLS OF AIR TICKETS AND EXCHANGE OF MONEY TAKEN FOR THE TRIP, ETC. THE LD AO AFTER GO ING THROUGH THE DETAILS OF FOREIGN TRAVEL EXPENSES HELD THAT NO EXPORT WAS MADE TO SOM E OF THE PLACES VISITED BY THE MANAGING DIRECTOR AND OTHER EXECUTIVES OF THE COMPA NY AND AS SUCH HE HELD THAT IN ABSENCE OF ANY BUSINESS RELATION OF THE SAID FOREIG N TRAVEL EXPENSES WITH THE BUSINESS OF THE ASSESSEE COMPANY, THE ENTIRE EXPENDITURE THEREO N WAS DISALLOWED. IT WAS SUBMITTED THAT THE LD AO FAILED TO APPRECIATE THE FACT THAT T HE MEETINGS HAVE TO TAKE PLACE FOR THE PURPOSE OF PROMOTION OF EXPORT AND VARIOUS PLACES H AVE TO BE VISITED TO DO SO. IT WAS ALSO POINTED OUT THAT NONE OF THE SAID TRAVEL EXPEN SES DISALLOWED BY THE LD AO WAS IN RESPECT OF WIFE OF THE MANAGING DIRECTOR OR OF ANY TOP EXECUTIVES OF THE COMPANY. THERE WAS SUBSTANTIAL INCREASE IN THE EXPORT TURNOV ER OF THE ASSESSEE DURING THE YEAR UNDER APPEAL AND ASSESSEE IS NOT HAVING ANY ESTABLI SHMENT OR SALES OFFICE OUTSIDE INDIA AND IT IS THEREFORE NECESSARY FOR THE TOP EXECUTIVE S OF THE COMPANY TO PERIODICALLY VISIT THE FOREIGN COUNTRIES FOR THE PURPOSE OF MAINTAININ G THE RELATIONSHIP WITH THE EXISTING BUYERS AND / OR TO SEARCH FOR FOREIGN NEW BUYERS. IT WAS SUBMITTED THAT SIMILAR EXPENSES HAVE BEEN INCURRED IN THE PAST WERE ALLOWED IN THE SCRUTINY ASSESSMENTS BY THE LD AO. THE ASSESSEE SUBMITTED THE COMPLETE DETAILS OF FORE IGN TRAVEL EXPENSES AGAIN BEFORE THE LD CITA WHICH ARE REPRODUCED IN PAGES 15 TO 17 OF L D CITA ORDER. FROM THE SAID DETAILS IT WAS SPECIFICALLY SUBMITTED THAT THE DIRE CTORS OF THE COMPANY AND ITS TOP EXECUTIVES HAD TO TRAVEL TO ZURICH (SWITZERLAND) IN ORDER TO VISIT BOSTON OR BRUSSELS IN ACCORDANCE WITH AVIATION RULES. THE VISIT TO ZURIC H IS ONLY A STOP OVER PLACE AS THE AIRCRAFT WOULD REACH BOSTON OR BRUSSELS ONLY VIA ZU RICH WHERE THE PASSENGERS WOULD HAVE TO CHANGE OVER THE AIRCRAFT. THIS BASIC FACT WAS NOT APPRECIATED BY THE LD AO AND BASED ON A PRE-CONCEIVED NOTION THE LD AO MADE UNWA RRANTED OBSERVATIONS THAT THE DIRECTORS AND TOP EXECUTIVES OF THE COMPANY HAD VIS ITED ZURICH (WHERE NO EXPORTS WERE MADE) WHICH IS A HAVEN FOR OFFLOADING BLACK MONEY A CCORDING TO MEDIA REPORTS AND 3 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 3 ACCORDINGLY THE SAID FOREIGN TRIPS WERE NOT MEANT W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 2.2. THE LD CITA DELETED THE DISALLOWANCE OF FOREIG N TRAVEL EXPENSES BY MAKING THE FOLLOWING OBSERVATIONS :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE FINDING OF THE ASSESSING OFFICER AND THE SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE ON FO REIGN TRAVEL HAVE NOT SUPPORTED WITH BILLS AND VOUCHERS. THE CASE OF THE ASSESSING OFFICER IS THAT THE PROMOTERS OF THE APPELLANT COMPANY MIGHT HAVE TRAVELLED TO THE B LACK MONEY, HAVEN, NAMELY SWITZERLAND FOR NON-BUSINESS PURPOSES. THE APPELLAN T, ON THE OTHER HAND, REFUTES THE ALLEGATIONS LEVELED AGAINST BY THE ASSESSING OF FICER. THE CLAIM OF THE APPELLANT IS THAT NONE OF THE SAID TRAVEL EXPENSES DISALLOWED BY HIM WAS IN RESPECT OF WIFE OF THE MANAGING DIRECTOR OF WIFE OF ANY OTHER TOP EXECUTIVE OF THE APPELLANT AND THAT THERE WAS SUBSTANTIAL INCREASE I N THE EXPORT OF THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR AND THE APPELLANT IS NOT HAVING ANY ESTABLISHMENT OF SALES OFFICE OUTSIDE INDIA AND IT IS THEREFORE, NECESSARY FOR THE TOP EXECUTIVES OF THE COMPANY TO PERIODICALLY VISIT THE FOREIGN COUNTRIES FOR THE PURPOSE OF MAINTAINING THE RELATIONSHIP WITH THE EX ISTING BUYERS AND/OR TO SEARCH FOR FOREIGN NEW BUYERS. THE FACTS AND CIRCUMSTANCES REMAIN THE SAME IN THIS ASSESSMENT YEAR AS IN THE EARLIER ASSESSMENT YEARS. APART FROM THE CHARTS SHOWING DETAILS OF FOREIGN TRAVELS UNDERTAKEN BY TH E EMPLOYEES AND TOP EXECUTIVES OF THE APPELLANT COMPANY, I FIND THAT NO NE OF THE DISALLOWANCES HAS BEEN MADE ON THE BASIS OF ANY MATERIAL BROUGHT ON R ECORD BY THE APPELLANT. I ALSO FIND THAT THE DISALLOWANCE AS MADE BY THE ASSE SSING OFFICER IN ASSESSMENT YEAR 2008-09 HAS BEEN DELETED BY MY PREDECESSOR-IN- OFFICE AND HIS ORDER HAS BEEN CONFIRMED BY THE APPELLANT AND REPRODUCED HERE INABOVE. CONSIDERING THE FACTS OF THE CASE, AND THE PAST HISTORY OF THE C ASE, THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER ON THIS ISSUE IS HEREBY DELET ED. THE APPELLANT GET RELIEF OF RS. 42,65,989/- AND THESE GROUNDS OF APPEAL ARE ACC ORDINGLY ALLOWED. 2.3. AGGRIEVED , THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF FOREIGN TOUR EX PENSES AMOUNTING TO RS. 42,65,989/- MADE BY THE ASSESSING OFFICER WITHOUT C ONSIDERING THE MERIT OF THE SAME. 4 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 4 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE ARE IN AGREEMENT WITH THE ARGUMEN TS ADVANCED BY THE LD AR THAT THE VISIT TO ZURICH (SWITZERLAND) FOR ONWARD VISITS TO BOSTON / BRUSSELS ETC WERE DONE ONLY AS A STOP OVER LOCATION BY COMPLYING WITH THE AVIAT ION RULES. ULTIMATELY THE DIRECTORS AND TOP EXECUTIVES OF THE COMPANY HAD VISITED THE C OUNTRIES WHERE EXPORTS WERE INDEED MADE BY THEM DURING THE YEAR UNDER APPEAL. THE LD AO HAD MADE THIS DISALLOWANCE BASED ON SURMISES AND CONJECTURES BY MAKING UNWARRA NTED ALLEGATIONS AGAINST THE ASSESSEE. WE FIND THAT THE LD CITA HAD APPRECIATED THE ENTIRE DETAILS FILED TOWARDS THE FOREIGN TRAVEL EXPENSES FILED ON RECORD AND IT IS N OT THE CASE OF THE LD AO THAT THE EXPENDITURES ARE NOT SUPPORTED BY BILLS AND VOUCHER S. THE BUSINESS EXPEDIENCY OF THE SAID FOREIGN TRAVEL IS ALSO PROVED BEYOND DOUBT FRO M THE DETAILS FILED THEREON. HENCE WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE SA ID DISALLOWANCE. ACCORDINGLY THE GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 3. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF ADDITIONAL DEPRECIA TION IN THE SUM OF RS 12,45,778/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A MANUFACTURER OF YARN AND ITS FACTORY IS SITUATED NEAR UDAIPUR IN RAJASTHAN. FO R THE PURPOSE OF POLLUTION CONTROL AND PREVENTING DAMAGES TO ENVIRONMENT, THE ASSESSEE INS TALLED EFLLUENT TREATMENT PLANT (ETP) DURING THE RELEVANT PREVIOUS YEAR. THE ASSES SEE FILED THE COMPLETE DETAILS OF THE COST INCURRED FOR ERECTION OF THE SAID PLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION U/S 32 (1)(IIA) OF THE ACT FOR THE SAME IN THE RETURN OF INCOME AND THE WORKINGS FOR THE SAME WERE ALSO FURNISHED BEFORE THE LD AO. IT WAS SUBMITTED THAT ETP WAS MANDATORY FOR THE TEX TILE UNITS HAVING DYING AND PROCESSING FACILITY AND THE POLLUTION CONTROL BOARD ISSUE CONSENT TO OPERATE ONLY ON INSTALLATION AND OPERATION OF PROPER ETP . FOR IN STALLATION OF ETP , LOT OF CIVIL WORK IS 5 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 5 INVOLVED AND CIVIL WORK ALSO PLAYS MAJOR ROLE ALONG WITH MECHANICAL EQUIPMENTS, SUCH AS RCC MADE EQUALIZATION TANK, RCC MADE AERATION TA NK, CLARIFIER ETC. AS PER TECHNICAL SPECIFICATIONS, THE ASSESSEE HAD TO CONST RUCT TANKS, DRAIN SYSTEM, FOUNDATION ETC WHICH ARE PART OF ETP. THE TOTAL COST OF ASSET WAS VALUED AT RS 1,88,42,111/- AND OUT OF THAT, A SUM OF RS 48,83,295/- WAS SPENT TOWA RDS THE CONSTRUCTION OF TRAIN AND CONSTRUCTION EXPENSES FOR BUILDING MATERIALS. THE ASSESSEE HAD ALSO CAPITALISED THE PRE- OPERATIVE EXPENSES AMOUNTING TO RS 1,77,407/- AND I NTEREST OF RS 1,92,126/- TO THE VALUE OF ETP AND CLAIMED ADDITIONAL DEPRECIATION THEREON . THE LD AO TREATED THE COSTS INCURRED TOWARDS CONSTRUCTION ACTIVITIES AS SPENT T OWARDS BUILDING AND REFUSED TO TREAT THE SAME AS PART AND PARCEL OF VALUE OF PLANT AND A CCORDINGLY DENIED ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT THEREON. THE LD AO ALSO REFUSED ADDITIONAL DEPRECIATION ON THE PRE-OPERATIVE EXPENSES AND INTE REST THAT WERE CAPITALIZED TO THE COST OF THE PLANT. HOWEVER, HE GRANTED DEPRECIATION AT LESSER RATE AS APPLICABLE TO THE CATEGORY OF BUILDING. SIMILARLY THE LD AO OBSER VED THAT THE WEIGHING MACHINE IS NOT USED IN THE MANUFACTURING PROCESS AND HENCE THE SAM E IS NOT ELIGIBLE FOR ADDITIONAL DEPRECIATION. BY THIS PROCESS, THE ADDITIONAL DEPRE CIATION AMOUNTING TO RS 12,45,778/- WAS DISALLOWED IN THE ASSESSMENT. 3.2. THE LD CITA OBSERVED IN HIS ORDER THAT THE CLA IM OF THE ASSESSEE IS THAT TANKS, DRAIN SYSTEM , FOUNDATION ETC, MATERIALS USED FOR IT, WHI CH ARE PART OF ETP AND EXPENDITURE INCURRED THEREON AND CAPITALIZED FORMS PART OF THE COST THEREOF AND CONSTITUTED A UNIT AS PLANT AND THE WEIGHING MACHINE USED IN PRODUCTION OF YARN IS ALSO PLANT USED IN THE MANUFACTURING PROCESS. THE LD CITA IN THIS REGARD PLACED RELIANCE ON THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF DC IT VS VIPPY SOLVEX PRODUCTS LTD REPORTED IN (2007) 164 TAXMAN 483 (MP) , WHERE THE ASSESSEE IS A MANUFACTURER OF OIL, AND BOILER HAS BEEN INSTALLED FOR THE PURPOSE, THE ISSUE WAS WHETHER OTHER COMPONENTS SUCH AS COAL CONTAINER, COAL CONVEYOR, BUCKET ELEVA TOR , DUST COLLECTING SYSTEM CONSTITUTE INTEGRAL PART OF BOILER TO BE ENTITLED TO 100% DEPR ECIATION, IT WAS HELD THAT UTILITY OF AN 6 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 6 ITEM SHOULD NOT BE EXAMINED IN ISOLATION AND THE NA TURE SHALL DEPEND ON THE FUNCTION FOR WHICH IT IS USED AND THAT ALL THE COMPONENTS ARE IN TEGRAL PART OF THE BOILER ENTITLED TO 100% DEPRECIATION. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS VTM LTD REPORTED IN (20 10) 187 TAXMAN 319 (MAD) , WHEREIN, IT HAS BEEN HELD THAT FOR CLAIMING ADDITIO NAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT, WHAT IS REQUIRED TO BE SATISFIED IS ONLY THAT A NEW MACHINERY OR PLANT HAS BEEN ACQUIRED AND INSTALLED AFTER 31.3.2002. THE PROVISI ONS DO NOT STATE THAT THE SAID NEW MACHINERY / PLANT SHOULD HAVE ANY OPERATIONAL CONNE CTIVITY TO THE ARTICLE OR THING MANUFACTURED OR PRODUCED BY THE ASSESSEE. THUS , WHERE AN ASSESSEE ENGAGED IN THE MANUFACTURE OF TEXTILE GOODS, ACQUIRED AND INSTALLE D A WINDMILL FOR GENERATION OF POWER, ADDITIONAL DEPRECIATION CANNOT BE DENIED ON THE GRO UND THAT A WINDMILL HAS ABSOLUTELY NO CONNECTION WITH THE MANUFACTURE OF TEXTILE GOODS . THE LD CITA ALSO PLACED RELIANCE ON THE DEFINITION OF PLANT FROM ADVANCED LAW LEXI CON (3 RD EDITION 2005) BY P.RAMANATHA AIYAR WHICH STATED PLANT (PRODUCTIO N FACILITY, WORKSHOP) MEANS A RELATIVELY SELF-CONTAINED AREA, STRUCTURE OR BUILDI NG CONTAINING ONE OR MORE UNITS WITH AUXILIARY AND ASSOCIATED INFRASTRUCTURE, SUCH AS (A MONGST OTHERS) .. (III) EFFLUENT/WASTE HANDLING/ TREATMENT AREA. SOMETHIN G WHICH IS A STRUCTURE OR PART OF A STRUCTURE MAY NEVERTHELESS BE PLANT, IF IT FULFILS THE FUNCTION OF PLANT IN THE TRADERS OPERATIONS. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ANAND THEATRES REPORTED IN (2000) 5 SCC 393 (SC) . HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN TRIBENI TISSUES LTD VS CIT REPORTED IN 190 ITR 487 (CAL) WHEREIN IT WAS HELD THAT TUBE WELL AND WEIGHING MACHINE USED IN THE PRODUCTION OF PAPER ARE HELD TO BE PLANT. BASED ON THESE OBSERVATIONS, THE LD CITA AGREED TO THE CONTENTIONS OF THE ASSESSEE THAT ETP WAS NECESSARY FOR THE PURPOSE OF POLLUTION CONTROL AND CONSTRUCTION OF DRAIN ETC WAS ESSENTIAL PART OF ETP AND WAS NOT IN THE NATURE OF BUILDING. THE ASSESSEE COMPANY HAVING FULFILLED THE CONDITIONS PRECEDENT, IS ENTITLED FOR CLAIM OF NORMAL AND ADDITIONAL DEPRECIATION BY TREATING THE SAME AS PLANT. MORE OVER, THE PRE-OPERATIVE EXPENSES AND 7 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 7 INTEREST TILL THE DATE OF INSTALLATION WAS PROPERLY CAPITALIZED TO THE COST OF PLANT AND MACHINERY AND ACCORDINGLY ASSESSEE IS INDEED ENTITL ED FOR ADDITIONAL DEPRECIATION ON THE SAME. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3. THAT IS THE FACTS IN LAW OF THE CASE THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 12,45,778/- MADE BY THE ASSESSING O FFICER U/S 32(1)(IIA) READ WITH RULE-5 (NEW APPENDIX-1) 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD AO WITHOUT REBUTTING THE FINDIN GS OF THE LD CITA AND CASE LAWS RELIED UPON THEREON. IN RESPONSE, THE LD AR VEHEME NTLY RELIED ON THE ORDER OF THE LD CITA. AS THE FINDINGS OF THE LD CITA WERE NOT REBU TTED BY THE LD DR BEFORE US , WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH T HE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE AC T IN THE SUM OF RS 12,92,208/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O OBSERVED THAT THE ASSESSEE WSA IN RECEIPT OF EXEMPT INCOME TO THE TUNE OF RS 1,486/- AND ACCORDINGLY SOUGHT TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE LD AO APPLIED THE PROVISIONS OF ALL THE THREE LIMBS OF RU LE 8D(2) AND MADE DISALLOWANCE OF RS 12,92,208/- U/S 14A OF THE ACT. THE ASSESSEE SUB MITTED THAT INVESTMENT MADE WAS IN SUBSIDIARY COMPANY WHICH WAS SUPPLYING CAPTIVE POWE R FOR ITS FACTORY AND THE SAID INVESTMENT WAS WHOLLY FOR THE PURPOSE OF BUSINESS A ND NOT FOR EARNING DIVIDEND INCOME. IT WAS ALSO SUBMITTED THAT THE INVESTMENT IN SUBSID IARY COMPANY WAS STRATEGIC IN NATURE AS THE SAME WAS DONE ONLY TO HAVE CONTROLLING INTER EST IN THE SAID COMPANY WHERE RECEIPT OF DIVIDEND, IF ANY, WOULD ONLY BE INCIDENT AL. 8 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 8 4.2. THE LD CITA OBSERVED THAT THE INVESTMENT IN SU BSIDIARY COMPANIES WOULD BE OUTSIDE THE AMBIT OF DISALLOWANCE U/S 14A OF THE AC T READ WITH RULE 8D OF THE RULES BY PLACING RELIANCE ON CERTAIN TRIBUNAL DECISIONS. HE FURTHER OBSERVED THAT THE INVESTMENT IN MUTUAL FUNDS MADE ON THE LAST DAY OF THE FINANCI AL YEAR I.E 31.3.2011 WHICH WAS ALSO REDEEMED ON 7.4.2011 , HAD SUFFERED INTEREST FOR ON E DAY WHICH REQUIRES TO BE DISALLOWED UNDER THE SECOND LIMB OF RULE 8D(2). AC CORDINGLY HE DELETED THE REMAINING PORTION AND DIRECTED THE LD AO TO DISALLOW ONLY ONE DAY INTEREST ATTRIBUTABLE TO INVESTMENT OF RS 2 CRORES MADE BY THE ASSESSEE. AGG RIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 4. THAT IN THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER U/S 14A OF T HE I.T. ACT, 1961 AMOUNTING TO RS. 12,92,208/- FOR EARNING EXEMPTED INCOME BY ACCEPTING NEW THING AGAINST THE PRINCIPLE OF ACCEPTING NEW EVIDENCE AND ALSO OV ER RULED THE PROVISION LAID DOWN IN RULE 3D OF THE INCOME TAX RULES, 1962. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. FROM THE PERUSAL OF THE BALANCE SHEET, WE FIND THAT THE ASSESSEE HAD MADE INVESTMENTS IN THE FOLLOWING ENTITIES :- 31 ST MARCH, 2011 31 ST MARCH, 2010 RS. RS. RS. RS. 6. INVESTMENTS A. LONG TERM TRADE INVESTMENTS: (FULLY PAID UNQUOTED CLASS A S HARES OF M/S VS LIGNITE POWER PRIVATE LIMITED) 7,70,371 EQUITY SHARES OF RS. 10/- EACH 77,03, 710 77,03,710 14,85,629, 0.01% CUMULATIVE REDEEMABLE PREFERENCE S HARES OF RS. 10/- EACH 1,48,56,290 1,48,56,290 2,25,60,000 (A) B. SHORT TERM(CURRENT INVESTMENTS) UNITS OF MUTUAL FUND (UNQUOTED) SBI- SHF- ULTRA SHORT TERM FUND INSTITUTIONAL PLAN- DAILY DIVIDEND (REINVEST DIVIDEND) 2,00,00,000 4,25,60,000 - 2,25,60,000 (A) (A)REFER NOTES 1(VI) AND 9 IN SCHEDULE 23 9 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 9 4.3.1. WE FIND THAT THE DISALLOWANCE UNDER RULE 8D( 2) HAD BEEN MADE BY THE LD AO AS UNDER:- RULE 8D(2)(I) - RS 1,72,346 RULE 8D(2)(II) - RS 9,57,062 RULE 8D(2)(III) - RS 1,62,800 ----------------------- RS 12,92,208 AS FAR AS THE DISALLOWANCE UNDER RULE 8D(2)(I) IN T HE SUM OF RS 1,72,346/- IS CONCERNED, THE LD AR STATED THAT THE SAME REPRESENTS CUSTODIAN CHARGES PAID TO DEPOSITORY FOR ITS SHARES WHICH ARE HELD BY ITS SHAREHOLDERS IN DEMATE RIALIZED FORM. HE REFERRED TO THE RELEVANT PAGE IN THE PAPER BOOK IN THIS REGARD TO P ROVE HIS CONTENTION. WE HAVE GONE THROUGH THE SAME AND WE ARE CONVINCED OF THE FACT T HAT THE SAID EXPENDITURE REPRESENTS CUSTODIAN CHARGES PAID TO REGSITRAR AND SHARE TRANS GFER AGENTS OF THE COMPANY WHO MAINTAINED THE RECORDS OF THE SHARES ISSUED BY THE COMPANY TO ITS SHAREHOLDERS AND HENCE THE SAME HAS GOT NOTHING TO DO WITH THE INVES TMENTS MADE BY THE ASSESSEE. HENCE THE SAID EXPENDITURE OF RS 1,72,346/- DOES NOT FALL UNDER THE AMBIT OF DIRECT EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME SO AS TO FALL WI THIN THE MISCHIEF OF RULE 8D(2)(I) . HENCE THE SAME IS HEREBY DIRECTED TO BE DELETED. 4.3.2. WITH REGARD TO THE SECOND LIMB AND THIRD LIM B OF RULE 8D(2), WE FIND THAT IN ANY CASE THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCO ME. WE FIND THAT THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE WAS ONLY RS 1,486/-. WE FIND THAT THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DAGA GLOBAL CHEMI CALS (P) LTD VS ACIT REPORTED IN (2017) 82 TAXMANN.COM 254 (MUMBAI TRIB.) DATED 1.1. 2015 HAD HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT CANNOT EXCEED THE E XEMPT INCOME. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVES TMENTS (P) LTD VS CIT REPORTED IN ( 2015) 372 ITR 694 (DEL) HAD APPROVED THIS VIEW. ACCORDINGLY WE DIRECT THE LD AO TO 10 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 10 DISALLOW ONLY A SUM OF RS 1,486/- U/S 14A OF THE AC T IN THE YEAR UNDER APPEAL. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE IS PARTLY ALLOWED. 5. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF COMMISSION PAID IN THE SUM OF RS 3,73,78,133/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS 3,43,34,391/- ON ACCOUNT OF PAYMENTS MA DE TO 4 FOREIGN AGENTS WITHOUT DEDUCTING ANY TAX AS UNDER:- SL. COMMISSION ON EXPORT SALES SALES TO BE PROCURED AS PER AGREEMENT PARTYS ADDRESS PAID PROVISION 2010-11 TOTAL TDS DEDU CTED (A) COMMISSION TO FOREIGN AGENT 1. IPON TEXTILE DIS TICARET LTD. IN TURKEY ISTOC, TICARET MERKEZI, 38, ASA NO. 5.7, MAHMUTBEY BAGCILLAR, INSTANBUL- TURKEY 2304953 5027524 7332477 - 2. FOTEX BVBA IN ALL COUNTRIES OF ASIA & EUROPE PIETER PAUL RUBENSSTRAAT, 55B- 9600, RONSE-BELGIUM 3602561 4116419 7718980 - 3. SUHA KUTAL MUSTAFA GULBARAN IN TURKEY RENTKS TEKSIL SANAYL VE TICARET LTD., NEW YORK 40257 0 40257 - 4. EXCEL GLOBAL IN ALL COUNTRIES OF ASIA & EUROPE P.O. BOX- 18538, HEBEL ALL FREE ZORYC, DUBAI, UAE 15320277 3922400 19242677 - 21268048 13066343 34334391 0 5.1.1. THE LD AO OBSERVED THAT THE ASSESSEE HAD FUR THER DEBITED A SUM OF RS 25,28,271/- IN RESPECT OF COMMISSION PAID TO 7 INDIAN AGENTS FO R EXPORT SALE IN FOREIGN COUNTRIES . THE DETAILS OF THE AFORESAID INDIAN AGENTS TO WHOM COMMISSION IS PAID ARE AS UNDER:- SL. COMMISSION ON EXPORT SALES SALES TO BE PROCURED AS PER AGREEMENT PARTYS ADDRESS PAID PROVISION 2010-11 TOTAL TDS DEDUCTED (A) COMMISSION TO INDIAN AGENT 1. RADHEY SHYAM IN POLAND, 631, LAXMI PLAZA, NEW 0. 00 597805.00 597805 59781 11 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 11 MANDHANIA ALGERIA, BELGIUM LINK ROAD, ANDHERI (W), MUMBAI-400053 2. AMIT MANDHANIA IN POLAND, ALGERIA, BELGIUM 631, LAXMI PLAZA, NEW LINK ROAD, ANDHERI (W), MUMBAI-400053 200000.00 684862,00 884862 68486.00 3. SEEMA MANDHANIA IN POLAND, ALGERIA, BELGIUM 631, LAXMI PLAZA, NEW LINK ROAD, ANDHERI (W), MUMBAI - 400053 0.00 `182346.00 182346 18235.00 4. ASHOK KUMAR SHARMA THERE IS NO AGREEMENT A/83, SHALIGRAM TOWER, B/H UNIYA VIJAY SOCIETY, AHMEDABAD 87461,00 0.00 87461 8746.00 5. VIGNESH COMMISSION AGENT PVT. LTD. THERE IS NO AGREEMENT 34/1, BALLYGUNJ CIRCULAR ROAD, KOLKATA-9 360842.00 213227.00 574069 60544.00 6. SMT. NEERU SHAH THERE IS NO AGREEMENT GARDENIA COMPLEX, VASANT VALLEY, MALAD(E), MUMBAI- 500057 61783.00 0.00 61783 6179.00 7. AARDEE MERCANTILE PVT. LTD THERE IS NO AGREEMENT F-73, FIRST FLOOR, MANISH GLOBAL MALL, PLOT NO.-2, SECTOR NO.- 22, NEW DELHI. 143130 0.00 143130 14314.00 8. SERVICE TAX (NET) - 3185 0.00 - 3185 - TOTAL: 850031.00 1678240.00 2528271 .00 236285.00 5.1.2. THE LD AO AFTER EXAMINING THE RELEVANT PORTI ON OF THE AGREEMENT IN RESPECT OF FOREIGN SELLING AGENTS AND THAT OF INDIAN SELLING A GENTS, OBSERVED THAT THE FOREIGN AGENTS HAVE BEEN REMITTED THE MONEY IN THE NAME OF COMMISS ION @ 3% OF THE INVOICE VALUE WHICH WAS OVER AND ABOVE THE PAYMENTS MADE IN THE N AME OF COMMISSION @ 2% TO THE INDIAN AGENTS FOR THE SAME KIND OF SERVICE AND LIMI TED TO ONLY PROCURING THE SALE AND THAT THE DEDUCTION OF TAX ON PAYMENT / CREDIT ON SO CALL ED COMMISSION IN THE CASE OF INDIAN AGENTS WAS THE ONLY DIFFERENCE FROM THE CASE OF FOR EIGN AGENTS. THE LD AO ALSO BROUGHT OUT THE DIFFERENTIAL FACTORS IN THE AGREEMENT ENTER ED INTO FOR PAYMENT OF COMMISSION TO FOREIGN AGENTS VIS A VIS INDIAN AGENTS. HE OBSERVED THAT THE SERVICES RENDERED BY THE SAID FOREIGN AND INDIAN AGENTS WERE NOT PROVED BY THE AS SESSEE AND ACCORDINGLY HE SOUGHT TO DISALLOW THE COMMISSION PAYMENTS AS EXPENDITURE NOT INCURRED FOR THE PURPOSE OF BUSINESS AS UNDER:- (I) RS 3,43,34,391/- REPRESENTING COMMISSION PAID T O FOREIGN AGENTS (II) RS 22,39,082/- REPRESENTING COMMISSION PAID TO INDIAN AGENTS FOR EXPORT SALES (III) RS 8,04,660/- REPRESENTING COMMISSION PAID TO INDIAN AGENTS FOR DOMESTIC SALES 12 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 12 THUS A SUM OF RS 3,73,78,133/- WAS DISALLOWED BY TH E LD AO IN THE ASSESSMENT TOWARDS COMMISSION AS NOT INCURRED FOR THE PURPOSE OF BUSIN ESS. 5.2. THE ASSESSEE SUBMITTED VARIOUS DETAILS TOGETHE R WITH SUPPORTING EVIDENCES JUSTIFYING THE PAYMENT OF COMMISSION BEFORE THE LD CITA. THE LD CITA FAIRLY CALLED FOR A REMAND REPORT FROM THE LD AO IN THIS REGARD. THE LD AO IN HIS REMAND REPORT SUBMITTED ON 30.6.2014 STATED THAT ALL THE EVIDENCE S WERE SUBMITTED BEFORE HIM AND WERE CONSIDERED BY HIM AT THE TIME OF ASSESSMENT IT SELF AND ACCORDINGLY HE IS NOT IN A POSITION TO SEND ANY REMAND REPORT. ACCORDINGLY, THE LD CITA DECIDED TO ADJUDICATE THE ENTIRE ISSUE BASED ON THE WRITTEN SUBMISSIONS O F THE ASSESSEE AND THE PAPER BOOK SUBMITTED EARLIER BEFORE HIM AS WELL AS THE TRIBUNA L ORDER FOR THE ASST YEAR 2008-09 IN ASSESSEES OWN CASE. THE LD CITA EXAMINED THE FU LL DETAILS IN RESPECT OF COMMISSION PAYMENTS MADE BY THE ASSESSEE TO VARIOUS PARTIES TO GETHER WITH THE COPIES OF THE AGREEMENTS, DEBIT NOTES, NAMES AND ADDRESSES OF THE PARTIES, BILL RAISED BY THE AGENTS AND OTHER EVIDENCES ETC FROM THE PAPER BOOK. HE ALSO O BSERVED THAT THERE WAS SUBSTANTIAL INCREASE IN TURNOVER DURING THE YEAR FROM RS 155 CR ORES TO RS 182 CRORES AND THAT EXPORT TURNOVER HAD INCREASED FROM RS 123 CRORES TO RS 138 CRORES. IN RESPECT OF COMMISSION PAID TO DOMESTIC AGENTS FOR EXPORT SALES AND FOR DO MESTIC SALES, HE OBSERVED THAT THE ASSESSEE HAD DULY DEDUCTED THE TAX AT SOURCE AND PA ID TO THE GOVERNMENT. THE LD CITA OBSERVED THAT THE COMMISSION PAID TO INDIAN AGENTS ON DOMESTIC SALES AMOUNTING TO RS 53,62,472/- HAS BEEN ACCEPTED AND NO DISALLOWANCE H AS BEEN MADE THEREON BY THE LD AO. THE LD CITA OBSERVED THAT THE LD AO HAD NOT F OUND ANY INCRIMINATING DOCUMENTS, NOR DID HE BRING ON RECORD ANY MATERIAL TO SUGGEST THAT THE COMMISSION PAYMENTS ARE BOGUS OR INGENUINE. HE THEREAFTER PLACED RELIANCE O N THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2008-09 IN IT A NO. 1620/KOL/2011 DATED 19.12.2013 AND DELETED THE DISALLOWANCE MADE TOWARD S COMMISSION EXPENDITURE TO THE TUNE OF RS 3,71,78,133/-. THE LD CITA HOWEVER CONF IRMED THE DISALLOWANCE OF RS 13 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 13 2,00,000/- THEREON IN RESPECT OF COMMISSION PAID TO MR AMIT MANDHANIA WITHOUT DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY SUGGESTE D DISALLOWANCE U/S 40(A)(IA) OF THE ACT FOR THE SAME. AGGRIEVED, THE REVENUE IS IN APP EAL BEFORE US ON THE FOLLOWING GROUND:- 1. THAT IN THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION AMOUNTING TO RS. 37378133/- ADDED BY THE A SSESSING OFFICER U/S 37 OF THE I.T. ACT, 1961 WHICH HIS ARBITRARY AND IN CONTR AVENTION OF THE BASIC PRINCIPAL OF ALLOWING ANY EXPENDITURE AS BUSINESS EXPENDITURE U/S 37 OF THE ACT. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE RELEVANT PAGES OF THE PAPER BOOK SUBM ITTED BY THE ASSESSEE COMPRISING OF (I) COPY OF ITAT ORDER FOR ASST YEAR 2008-09 (ENCLO SED IN PAGES 1 TO 9 OF PB) ; (II) COPY OF NOTICE U/S 142(1) DATED 3.5.2013 (ENCLOSED IN PAGES 51 TO 57 OF PB) ; (III) COPY OF NOTICE DATED 29.11.2013 BY THE LD AO (ENCLOSED I N PAGES 58 TO 59 OF PB) ; (IV) COPY OF LETTER DATED 10.12.2013 OF ASSESSEE (ENCLOSED IN PAGES 60 TO 61 OF PB) ; (V) COPY OF LETTER DATED 16.12.2013 OF ASSESSEE (ENCLOSED IN PA GES 62 TO 66 OF PB) ; (VI) COPY OF LETTER DATED 27.12.2013 OF ASSESSEE (ENCLOSED IN PA GES 69 TO 75 OF PB); (VII) COPY OF LETTER DATED 17.1.2014 OF ASSESSEE (ENCLOSED IN PAG ES 76 TO 79 OF PB); (VIII) DETAILS OF COMMISSION AND BROKERAGE ALONG WITH AGREEMENTS WITH THE AGENTS (ENCLOSED IN PAGES 82 TO 108 OF PB) ; (IX) VARIOUS PAYMENT ADVICES TO STA TE BANK OF INDIA FOR PAYMENT OF COMMISSION ALONG WITH DEBIT NOTE AND DETAILS OF COM MISSION PAID ON EXPORT (ENCLOSED IN PAGES 109 TO 141 OF PB) AND (X) DETAILS OF COMMI SSION AND BROKERAGE ON EXPORT SALES ALONG WITH DETAILS AND THEIR DEBIT NOTES AND PROFOR MA INVOICES (ENCLOSED IN PAGES 142 TO 279 OF PB) . THE LD DR ARGUED THAT THE SERVICES RE NDERED BY THE SO CALLED COMMISSION AGENTS (BOTH INDIAN AND FOREIGN) WERE NOT PROVED CO NCLUSIVELY BY THE ASSESSEE WARRANTING PAYMENT OF COMMISSION TO THEM. MOREOVER , THE AGREEMENTS ENTERED INTO WITH VARIOUS AGENTS (DOMESTIC AND FOREIGN) CONTAINE D DIFFERENTIAL TERMS AND ASSESSEE HAD AGREED WITH FOREIGN AGENTS VERY LIBERALLY WHEREAS T HE INDIAN AGENTS AGREEMENTS WERE VERY RIGOROUS IN NATURE. THE LD AR ARGUED THAT 75 % OF PRODUCTION OF THE ASSESSEE 14 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 14 COMPANY IS EXPORTED OUTSIDE INDIA AND IT IS IMPERA TIVE ON THE PART OF THE ASSESSEE TO ENGAGE COMMISSION AGENTS OVERSEAS FOR PROCUREMENT O F BUSINESS OUTSIDE INDIA AND TO PROMOTE THE PRODUCTS OF THE ASSESSEE OUTSIDE INDIA. HE ARGUED THAT ASSESSEE DO NOT HAVE ANY OTHER ESTABLISHMENT IN ANY OTHER COUNTRY S UCH AS SALES OFFICE , LIAISON OFFICE ETC AND WAS WHOLLY DEPENDENT ON THE SERVICES RENDERED B Y THE COMMISSION AGENTS FOR PROCURING BUSINESS AND PROMOTING THE PRODUCTS THERE ON. HE ARGUED THAT BUT FOR THE COMMISSION AGENTS, THE PRODUCTS OF THE ASSESSEE COU LD NOT HAVE BEEN SOLD IN THE EXPORT MARKET AND LOCAL MARKET AND THE SERVICES RENDERED B Y THE RESPECTIVE AGENTS ARE PROVED BEYOND DOUBT. HE ARGUED THAT NO SUCH DISALLOWANCE WAS MADE BY THE LD AO IN ASST YEARS 2009-10 , 2010-11 , 2013-14 AND 2014-15 IN RE SPECT OF THE SAID COMMISSION PAYMENTS. HE FURNISHED A CHART AT THE INSTANCE OF THE BENCH REFERRING TO SERVICES RENDERED BY EACH OF THE FOREIGN AGENTS WITH SPECIFI C REFERENCE TO THE RELEVANT PAGES OF THE PAPER BOOK ALREADY ON RECORD IN THE PAPER BOOK . THE DETAILS OF OVERSEAS COMMISSION ARE AS UNDER:- IPON TEXTILE DIS TICARET LTD, TURKEY RS 73,32, 477 FOLEX BVBA , BELGIUM RS 77,18,980 SUHA KUTAL MUSTAFA GULLBARAN, TURKEY RS 40,257 EXCEL GLOBAL, DUBAI, UAE RS 1,92,42,677 -------------------- RS 3,43,34,391 ------------------- 5.3.1. WITH RESPECT TO COMMISSION PAID TO IPON TEXT ILE DIS TICARET LTD, TURKEY, WE FIND THAT IN PAGE 147 OF THE PAPER BOOK, A CERTIFIC ATE ISSUED BY THE SAID PARTY THAT THEY ARE ACTING AS SELLING AGENT OF THE ASSESSEE IN TURK EY AND THAT THEY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THEY HAVE FURTHE R CERTIFIED THAT THEY HAD NOT RENDERED ANY SERVICES TO THE ASSESSEE IN INDIA AND THAT THE ENTIRE SERVICES WERE RENDERED ONLY OUTSIDE INDIA. WE ALSO FIND FROM PAGES 103 & 104 OF THE PAPER BOOK, THE COMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE W ITH THE SAID PARTY DEFINING THE SCOPE OF SERVICES TO BE RENDERED BY THEM OUTSIDE IN DIA AND THE COMMISSION 15 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 15 COMPENSATION THEY ARE ENTITLED FROM THE ASSESSEE. W E FIND FROM PAGE 206 OF THE PAPER BOOK CONTAINING SAMPLE SALES CONTRACT RAISED BY THE ASSESSEE ON THE FOREIGN BUYER IN TURKEY, THE NAME OF THE SAID COMMISSION AGENT AND E MAIL DATED 10.12.2010 IS REFERRED TO. APART FROM THIS, WE ALSO FIND LOT OF EMAIL COR RESPONDENCES BETWEEN THE ASSESSEE AND THE SAID COMMISSION AGENT ENCLOSED IN PAGES 207 TO 241 OF THE PAPER BOOK DEFINING THE VARIOUS SIZES AND SPECIFICATIONS REQUIRED BY THE FO REIGN BUYER FOR EXPORT OF THE PRODUCTS FROM INDIA. THESE DOCUMENTS CONCLUSIVELY PROVE THA T THE SAID COMMISSION AGENT HAD INDEED RENDERED SERVICES TO THE ASSESSEE OUTSIDE IN DIA FOR WHICH COMMISSION IS PAID TO THEM . 5.3.2. WITH REGARD TO COMMISSION PAID TO FOTEX BVBA , BELGIUM , WE FIND THAT IN PAGE 145 OF THE PAPER BOOK, A CERTIFICATE ISSUED BY THE SAID PARTY THAT THEY ARE ACTING AS SELLING AGENT OF THE ASSESSEE IN BELGIUM AND THAT T HEY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THEY HAVE FURTHER CERTIFIE D THAT THEY HAD NOT RENDERED ANY SERVICES TO THE ASSESSEE IN INDIA AND THAT THE ENTI RE SERVICES WERE RENDERED ONLY OUTSIDE INDIA. WE ALSO FIND FROM PAGES 101 & 102 OF THE PA PER BOOK, THE COMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SAI D PARTY DEFINING THE SCOPE OF SERVICES TO BE RENDERED BY THEM OUTSIDE INDIA AND THE COMMIS SION COMPENSATION THEY ARE ENTITLED FROM THE ASSESSEE. WE FIND FROM PAGE 176 OF THE PAP ER BOOK CONTAINING EMAIL CORRESPONDENCE OF COMMISSION AGENT WITH THE ASSESSE E MENTIONING THE NAME OF THE FOREIGN BUYER VANDEN BERGHE DULY SPECIFYING THE S PECIFICATIONS OF QUANTITY AND QUALITY OF YARN REQUIRED TOGETHER WITH PRICING TERMS AND CO NDITIONS AND IN PAGE 177 OF THE PAPER BOOK, WE FIND THE COPY OF THE SALE INVOICE RAISED B Y THE ASSESSEE ON THE SAID FOREIGN BUYER FOR THE VERY SAME QUANTITY WITH THE REQUIRED QUALITY. SIMILAR DOCUMENTS ARE ENCLOSED FROM PAGES 178 TO 204 OF THE PAPER BOOK. T HESE DOCUMENTS CONCLUSIVELY PROVE THAT THE SAID COMMISSION AGENT HAD INDEED RENDERED SERVICES TO THE ASSESSEE OUTSIDE INDIA FOR WHICH COMMISSION IS PAID TO THEM. 16 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 16 5.3.3. WITH REGARD TO COMMISSION PAID TO EXCEL GLOB AL FZE, UAE, WE FIND THAT IN PAGE 146 OF THE PAPER BOOK, A CERTIFICATE ISSUED BY THE SAID PARTY THAT THEY ARE ACTING AS SELLING AGENT OF THE ASSESSEE IN BELGIUM AND THAT T HEY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THEY HAVE FURTHER CERTIFIE D THAT THEY HAD NOT RENDERED ANY SERVICES TO THE ASSESSEE IN INDIA AND THAT THE ENTI RE SERVICES WERE RENDERED ONLY OUTSIDE INDIA. WE ALSO FIND FROM PAGE 105 OF THE PAPER BOO K, THE COMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SAID PARTY DE FINING THE SCOPE OF SERVICES TO BE RENDERED BY THEM OUTSIDE INDIA AND THE COMMISSION C OMPENSATION THEY ARE ENTITLED FROM THE ASSESSEE. WE FIND FROM PAGE 242 OF THE PAPER BO OK CONTAINING THE DEBIT NOTE RAISED BY THE SAID COMMISSION AGENT ON THE ASSESSEE CLAIM ING THE COMMISSION AS PER THE AGREEMENT TOGETHER WITH THE LIST OF FOREIGN BUYERS SOURCED THROUGH THE SAID COMMISSION AGENT AND VALUE OF INVOICE RAISED BY THE ASSESSEE O N THEM. FROM PAGES 245 TO 275 OF THE PAPER BOOK, WE ALSO FIND SIMILAR CORRESPONDENCE S TOGETHER WITH THE BANK REMITTANCE LETTERS FOR PAYMENT OF COMMISSION TO THE SAID AGENT MONTH WISE FOR THE EXPORT SALES MADE TO FOREIGN BUYERS SOURCED THROUGH THE SAID COM MISSION AGENT. THESE DOCUMENTS CONCLUSIVELY PROVE THAT THE SAID COMMISSION AGENT H AD INDEED RENDERED SERVICES TO THE ASSESSEE OUTSIDE INDIA FOR WHICH COMMISSION IS PAID TO THEM. 5.3.4. WITH REGARD TO COMMISSION PAID TO SUHA KUTAL MUSTAFA GULLBARAN, TURKEY IN THE SUM OF RS 40,257/-, WE FIND FROM PAGE 100 OF THE PA PER BOOK, THE COMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SAI D PARTY DEFINING THE SCOPE OF SERVICES TO BE RENDERED BY THEM OUTSIDE INDIA AND THE COMMIS SION COMPENSATION THEY ARE ENTITLED FROM THE ASSESSEE. WE FIND FROM PAGE 107 OF THE PAP ER BOOK CONTAINING THE DEBIT NOTE RAISED BY THE SAID COMMISSION AGENT ON THE ASSESSEE CLAIMING THE COMMISSION AS PER THE AGREEMENT TOGETHER WITH THE BANK REMITTANCE DOCUMEN TS THEREON. THESE DOCUMENTS CONCLUSIVELY PROVE THAT THE SAID COMMISSION AGENT H AD INDEED RENDERED SERVICES TO THE ASSESSEE OUTSIDE INDIA FOR WHICH COMMISSION IS PAID TO THEM. 17 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 17 5.3.5. IN VIEW OF THE AFORESAID FACTS AND FINDINGS, WE ARE CONVINCED OF THE FACT THAT THE AFORESAID OVERSEAS COMMISSION AGENTS HAD INDEED REN DERED DUE SERVICES TO THE ASSESSEE FOR WHICH COMMISSION HAD BEEN PAID TO THEM AND THE SAME REQUIRES TO BE ALLOWED IN FULL. IT IS WELL SETTLED THAT THE SAID COMMISSION PAYMENTS WOULD NOT FALL UNDER THE AMBIT OF DISALLOWANCE U/S 40(A)(I) OF THE ACT AND HENCE W E FIND THAT THE LD CITA HAD RIGHTLY DELETED THE SAME. 5.3.6. THE ASSESSEE HAD PAID COMMISSION TO INDIAN A GENTS FOR EXPORT SALES MADE BY THE ASSESSEE TO THE TUNE OF RS 25,28,271/- AND THE LD A O HAD DISALLOWED A SUM OF RS 22,39,082/- OUT OF THE SAME. WE FIND THAT THE SAI D COMMISSION HAD BEEN PAID AFTER DUE DEDUCTION OF TAX AT SOURCE EXCEPT IN RESPECT OF PAY MENT MADE TO MR AMIT MANDHANIA AMOUNTING TO RS 2,00,000/- WHICH HAS BEEN RIGHTLY C ONFIRMED BY THE LD CITA IN HIS ORDER AND AGAINST WHICH , THE ASSESSEE IS NOT IN AP PEAL BEFORE US. WITH REGARD TO OTHER PAYMENTS TO INDIAN AGENTS FOR PROCURING EXPORT ORDE RS, WE FIND THAT THE SAME IS DULY BACKED BY THE COMMISSION AGREEMENTS WHICH ARE ENCLO SED IN PAGES 96 TO 99 OF THE PAPER BOOK CLEARLY DEFINING THE SCOPE OF SERVICES T O BE RENDERED BY THE SAID AGENTS AND THEIR COMMISSION COMPENSATION ENTITLEMENT. WE FIND THAT THE LD AO HAD DISALLOWED THE COMMISSION PAID TO THESE AGENTS ON THE GROUND THAT THEY ARE SIMILAR TO SERVICES THAT ARE TO BE RENDERED BY THE FOREIGN AGENTS AS COULD BE SE EN FROM THE AGREEMENTS ENTERED INTO WITH INDIAN AGENTS AND FOREIGN AGENTS, AND THAT PRE DOMINANT PORTION OF THE SAID COMMISSION HAS BEEN PAID TO THE SAME FAMILY MEMBERS HAVING SURNAME MANDHANIA AT 631, LAXMI PLAZA, NEW LINK ROAD, ANDHERI (W), MUMBA I . THE LD AO NOWHERE STATED THAT THESE AGENTS HAD NOT RENDERED ANY SERVICES TO THE ASSESSEE FOR PAYMENT OF COMMISSION. WE FIND THAT THE LD AR ARGUED THAT THE PARTIES HAVING SURNAME MANDHANIA ARE NOT RELATED TO THE ASSESSEE OR ITS DIRECTORS IN ANY MANNER WHATSOEVER , NOR THERE IS ANY CONTRARY FINDING TO THAT EFFECT IN THE ORDER OF THE LD AO. HENCE IT COULD BE SAFELY CONCLUDED THAT THE COMMISSION IS NOT PAID TO ANY RELATED PARTY OF THE ASSESSEE OR ITS DIRECTORS. WE HOLD THAT ONCE THE RENDERING O F SERVICES BY THESE COMMISSION AGENTS 18 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 18 ARE NOT IN DISPUTE , THERE IS NO REASON TO DISALLOW THE SAME IN THE ASSESSMENT. INCIDENTALLY , WE FIND THAT THE SAID COMMISSION PAY MENTS HAVE BEEN DULY SUBJECTED TO DEDUCTION OF TAX AT SOURCE AS PER THE INDIAN LAWS , THOUGH THAT MAY NOT BE THE CRITERION FOR ALLOWABILITY OF AN EXPENDITURE. WE FIND IN TH E INSTANT CASE, THE ASSESSEE HAD INDEED MADE PAYMENT OF COMMISSION TO INDIAN AGENTS FOR PRO CURING EXPORT ORDERS AND THE SAID AGENTS HAD INDEED RENDERED SERVICES TO THE ASSESSEE ,, WHICH IS NOT IN DISPUTE, AND HENCE THE SAME HAS BEEN RIGHTLY ALLOWED BY THE LD CITA. 5.3.7. WE FIND THAT THE ASSESSEE HAD PAID COMMISSIO N AND BROKERAGE TO INDIAN AGENTS FOR PROCURING SALES IN INDIA TO VARIOUS PARTIES THAT AR E LISTED IN PAGE 82 OF THE PAPER BOOK AFTER DUE DEDUCTION OF TAX AT SOURCE WHICH ARE ALSO BACKED BY THE COMMISSION AGREEMENTS ENTERED INTO BY THEM WHICH ARE ENCLOSED IN PAGES 85 TO 95 OF THE PAPER BOOK , STIPULATING THE SCOPE OF SERVICES TO BE REND ERED AND COMPENSATION ELIGIBLE FOR THEM. THE LD AO NOWHERE STATED THAT THESE AGENTS HA D NOT RENDERED ANY SERVICES TO THE ASSESSEE FOR PAYMENT OF COMMISSION. WE HOLD THAT ON CE THE RENDERING OF SERVICES BY THESE COMMISSION AGENTS ARE NOT IN DISPUTE , THERE IS NO REASON TO DISALLOW THE SAME IN THE ASSESSMENT. INCIDENTALLY , WE FIND THAT THE SA ID COMMISSION AND BROKERAGE PAYMENTS HAVE BEEN DULY SUBJECTED TO DEDUCTION OF T AX AT SOURCE AS PER THE INDIAN LAWS , THOUGH THAT MAY NOT BE THE CRITERION FOR ALLOWABILI TY OF AN EXPENDITURE. WE FIND IN THE INSTANT CASE, THE ASSESSEE HAD INDEED MADE PAYMENT OF COMMISSION AND BROKERAGE TO INDIAN AGENTS FOR PROCURING EXPORT ORDERS AND THE S AID AGENTS HAD INDEED RENDERED SERVICES TO THE ASSESSEE,, WHICH IS NOT IN DISPUTE, AND HENCE THE SAME HAS BEEN RIGHTLY ALLOWED BY THE LD CITA. 5.3.8. IN VIEW OF THE AFORESAID FINDINGS, WE HOLD T HAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE OF COMMISSION PAID IN THE SUM OF RS 3, 73,78,133/- AND HIS ORDER IN THIS REGARD DOES NOT CALL FOR ANY INTERFERENCE. ACCORDI NGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 19 ITA NO.2041/KOL/2014 M/S RELIANCE CHEMOTEX INDUSTRIES A.YR.2011-12 19 6. THE GROUND NO. 5 RAISED BY THE REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 16.08.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16.08.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10, KO LKATA, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700069. 2. M/S RELIANCE CHEMOTEX INDUSTRIES LTD., 14/1B, EZ RA STREET, KOLKATA-70001. 3..C.I.T.(A)-XXI, KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S