AB Mauri India Private Limited, Bangalore V. DCIT Corporate Circle 1(1), CHENNAI

ITA 2091/CHNY/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0349 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-09-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 27-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment; TDS; Liquidation
• Section: 195

Judgement Text

आयकर अपीलीय अिधकरण ’ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHENNAI माननीय ,ी महावीर िसंह, उपा23 एवं माननीय ,ी मनोज कु मार अ7वाल ,लेखा सद: के सम3। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ITA No. 2091/Chny/2017 (िनधाCरणवषC / Assessment Year: 2009-10) M/s. AB Mauri India Private Limited Plot No. 218 & 219, Bommasandra-Jigani Link Road, Rajapura Hobli, Anekal Taluk, Bangalore – 560 105. बनाम/ V s . DCIT Corporate Circle -1(1), Chennai. थायीलेखासं. /जीआइआरसं. /P AN / G I R N o . AAE C A- 9 9 2 3 - H (अ पीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Appellant by : Shri S.P. Chidambaram (Advocate) – Ld. AR थ कीओरसे/Respondent by : Shri AR V Sreenivasan (Addl. CIT) –Ld. DR सुनवाईकीतारीख/ D a t e of He a r i n g : 06-09-2022 घोषणाकीतारीख / Date of Pronouncement : 19-10-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2009-10 arises out of the order of learned Commissioner of Income Tax (Appeals)-5, Chennai [CIT(A)] dated 20.06.2017 in the matter of an ITA No.2091/Chny/2017 - 2 - assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 28.03.2013.The assessee has raised following grounds of appeal: 1. The order of the Commissioner of Income Tax (Appeals) [CIT(A)"] is contrary to law, facts and circumstances of the case. 2. Disallowance of export commission under section 40(a)(i) of the Act 2.1 The CIT(A) erred in confirming the order of the Assessing Officer (AO) in disallowing the export commission amounting to Rs.31,49,277 paid/payable to non-resident agents outside India under section 40(a)(i) of the Act. 2.2 The CIT(A) ought to have appreciated that the payment of commission to the non- resident agents is not taxable in India as it neither accrues nor deemed to accrue or arise in India as the services were rendered outside India. 2.3 The CIT(A) ought to have appreciated that no tax was deductible on payment of export commission to non-resident agents vide CBDT Circular No.786 dt 07/02/2000 which was in force for the subject A Y. 2.4 The CIT(A) erred in concluding that the Appellant did not produce any details without appreciating that the details furnished by the Appellant. 2.5 The CIT(A) ought to have appreciated that the Appellant has not entered into any running commission agreement with the non-resident agents and as such the commission was determined based on a fixed percentage for each purchase order. 2.6 The CIT(A) failed to appreciate that the said CBDT Circular No.786 dt. 07/02/2000 was withdrawn only from 22.10.2009 and it was in force for the subject previous year ended 31.03.2009. 2.7 The CIT(A) failed to appreciate that in the absence of a running commission agreement with the Appellant, it cannot be presumed that the non-resident agents have a business connection in India so as to attract the provisions of 195 of the Act. 3. Disallowance of Marked to Market losses 3.1 The CIT(A) erred in confirming the disallowance of foreign exchange loss on account of Marked to Market (MTM) amounting to Rs.24,36,000 made by the AO. 3.2 The CIT(A) ought to have appreciated that loss incurred on foreign exchange fluctuation on forward contracts is revenue in nature as forward contracts are taken on receivables/payables which are on revenue account. 3.3 The CIT(A) failed to appreciate that MTM losses incurred on forward contracts taken on receivables/ payables is not a speculative transaction. 3.4 The CIT(A) ought to have appreciated that loss on account of MTM represents a existing contract as on the reporting date and it accrues on the Balance Sheet date. 3.5 The CIT(A) failed to appreciate that the Appellant had been consistently following the aforesaid treatment for income tax purposes and as such foreign exchange losses on revenue transaction should be allowed as deduction. 4. Miscellaneous 4.1 The CIT(A) erred in not considering the Appellant's plea regarding non-grant of MAT credit amounting to Rs.1,20,36,714 pertaining to AY 2009-10. 4.2 The CIT(A) ought to have directed the AO to verify the claim and allow the MAT credit available to the Appellant. 4.3 The CIT(A) ought to have issued suitable directions to the AO for non-grant of TDS credit amounting to Rs.8,80,307 for A Y 2009-10. 5. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto. ITA No.2091/Chny/2017 - 3 - As is evident, the issues that arises for our consideration are- (i) Disallowance of export commission u/s 40(a)(i); (ii) Disallowance of foreign exchange losses; (iii) Non-grant of MAT credit; (iv) non-grant of TDS credit. 2. The Ld. AR advanced arguments assailing the additions confirmed in the impugned order which has been controverted by Ld. Sr. DR. Having heard rival submissions, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing and selling of bakery products and trading of consumer and yeast products. 3. Disallowance u/s 40(a)(i) 3.1 The assessee paid export commission for Rs.31.49 Lacs as detailed in para-3 of the assessment order. However, no tax was deducted at source on the ground that the commission was paid for obtaining export orders from clients situated outside India and for rendering the related services. The assessee submitted that the payments were not chargeable to tax in India and therefore, no TDS is required u/s 195. However, Ld. AO rejected the plea of the assessee and made disallowance u/s 40(a)(i) 3.2 During appellate proceeding, the assessee reiterated that the commission income as paid to non-resident did not accrue in India since the services were rendered outside India. The CBDT Circular No.786 dated 07.02.2000 would apply which state that no part of such income would arise in India. The said circular was withdrawn only on 22.10.2009 vide Circular No. 07/2009 and therefore, earlier Circular No.786 would apply for this year. The assessee also submitted that the payment was made for the purpose of earning income from a source outside India and ITA No.2091/Chny/2017 - 4 - such payment would not be chargeable to tax in India. The Explanation- 2 to Section 195 as inserted by Finance Act, 2012 w.r.e.f. 01.04.1962 could not change tax withholding liability with retrospective effect. Another submission was that such payments do not constitute Fees for Technical Services and therefore, no TDS would be required on such payments. 3.3 However, the arguments were rejected since the assessee did not produce any agreement with foreign agents. Further the purchase orders did not give any details about the services rendered by foreign agent. The assessee failed to establish that the foreign agent had rendered the service abroad and there was no business connection in India. Accordingly, the disallowance was upheld. Aggrieved, the assessee is in further appeal before us. 3.4 After careful consideration of factual matrix, we find that the claim has been denied by Ld. CIT(A) for want of satisfactory documentary evidences. It is true that if the services were rendered outside India by service providers who do not have any permanent establishment (PE) in India then this income would not accrue or arise in India in terms of CBDT Circular No. 786 dated 07.02.2000 and therefore, there would be no obligation to deduct tax at source. We are also of the opinion that onus was on assessee to establish that the commission was paid to foreign parties for services rendered abroad and these parties did not have any PE in India. Such onus was not satisfactorily discharged and therefore, the claim was denied. The assessee could not bring on record even contractual terms, the nature of services or the basis on which the payments have been made before lower authorities. Once the basic facts are established by the assessee only then the issue could be ITA No.2091/Chny/2017 - 5 - adjudicated. Therefore, we restore the matter back to the file of Ld. AO for adjudication of this issue with a direction to the assessee to substantiate its claim. All the issues are kept open. The grounds thus raised stand allowed for statistical purposes. 4. Disallowance of Foreign Exchange Losses 4.1 The assessee claimed foreign exchange fluctuation loss of Rs.24.36 Lacs on unsettled forex derivatives as on 31.03.2009. The assessee submitted that forex derivative was directly related to the forward contracts on foreign currency which remained outstanding on 31.03.2009. The losses were booked on the principal of ‘Market to Market’ basis. However, Ld. AO held the losses to be notional loss on outstanding forward contracts. Therefore, the same was disallowed. 4.2 Before Ld. CIT(A), the assessee submitted that it has taken forward cover to mitigate the risk of foreign exchange fluctuations. Such losses would be revenue since that underlying items that are hedged are receivables and payables of the assessee. However, rejecting the same, Ld. CIT(A) confirmed the disallowance. Aggrieved, the assessee is in further appeal before us. 4.3 We find that the assessee is dealing in export market and therefore, it would be exposed to foreign exchange fluctuation risk. To mitigate the risk, the assessee would have entered into forex derivative transactions which are valued at year-end on ‘Market to Market’ basis. The differential arising therefrom has separately been claimed in the computation of income. When the contracts would mature, the actual loss or gain would be known. This methodology could be accepted only if the assessee follows consistent method of accounting to value these transactions. If the valuation results into gain in any of the year, the ITA No.2091/Chny/2017 - 6 - same should have been offered to tax. Further, this expenditure is not debited in Profit & Loss Account and the actual loss or gain would be known on maturity of contracts. Therefore, upon maturity, such losses as claimed separately in the computation of income has to be first adjusted and only remaining losses should be debited. In other words, no double deduction could be allowed to the assessee i.e., firstly as a separate item at year-end in the computation of income and then again at the time of liquidation of contracts. All these facts are not emanating from the orders of lower authorities. Therefore, we restore the matter back to the file of Ld. AO for fresh adjudication in terms of our above observation. The assessee is directed to file the requisite details. The grounds thus raised stand allowed for statistical purposes. 5. Regarding MAT and TDS Credit, it would suffice on our part to direct Ld. AO to grant the credit in accordance with law. 6. The appeal stand allowed for statistical purposes. Order pronounced on 19 th October, 2022. Sd/- (MAHAVIR SINGH) उपा23 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखासद: /ACCOUNTANT MEMBER चे+ई/ Chennai; िदनांक/ Dated : 19-10-2022 JPV JPVJPV JPV आदेशकीWितिलिपअ7ेिषत/ Copy of the Order forwarded to : 1. अपीलाथ /Appellant2. यथ /Respondent 3. आयकरआयु (अपील)/CIT(A) 4. आयकरआयु /CIT 5. िवभागीय ितिनिध/DR6. गाड फाईल/GF