DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Ashutosh Enterprises Ltd., Kolkata

ITA 2104/KOL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70455 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 23-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: J M THARD PER
• Keywords: Capital asset; Depreciation; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI SHAMIM YAHYA, A.M. & SHRI GEORGE MATHA N, J.M. ] I.T.A. NO.2104/KOL/2010 ASSESSMENT YEAR : 2005-06 DCIT, CIRCLE-4, KOLKATA .. ( APPELLANT) -VS- M/S. ASHUTOSH ENTERPRISES LTD. ,KOL. .. ( RESPONDENT ) PAN: AACCA 1969M DATE OF CONCLUDING THE HEARING : 19.12.2013 DATE OF PRONOUNCING THE ORDER : 23.12.2013 APPEARANCES : FOR THE APPELLANT : SHRI P. DA MKANUNJNA, JCIT, SR.DR : FOR THE RESPONDENT : SHRI J.M.THARD, AD VOCATE O R D E R PER SHRI SHAMIM YAHYA, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 8 TH MARCH, 2010 AND PERTAINS TO THE ASSESSMENT YEAR 200 5-06. 2. AT THE OUTSET, IT IS NOTED THAT THERE IS A DELAY OF 37 DAYS IN FILING THE SAID APPEAL. THE CONDONATION PETITION WAS DULY FILED BY THE REVE NUE. IN THIS PETITION, IT WAS SUBMITTED THAT THERE WAS BACKLOG OF PENDENCY AND AP PELLATE ORDERS WERE ALSO TO BE FILED IN A NUMBER OF CASES. THESE FACTORS LED TO TH E DELAY IN FILING THE APPEAL. IT HAS BEEN SUBMITTED THAT THE DELAY IS NOT DELIBERATE AND THAT THE REVENUE DOES NOT GAIN IN ANY MANNER BY THE DELAY COMMITTED. THE LD. COUNSEL OF THE ASSESSEE DID NOT SERIOUSLY OBJECT TO THE CONDONATION PETITION. UPON CAREFUL CO NSIDERATION, WE CONDONE THE DELAY. 3. GROUNDS OF APPEAL RAISED READ AS UNDER: ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF COMMISSION P AID TO M/S. EUROMARK VENTURES LTD. OF SWITZERLAND AMOUNTING TO RS.26,25, 000/- FOR EXPORT OF TEA TO IRAQ WHEREIN THE UNITED NATIONS APPOINTED VOLCKE R COMMITTEE HAS CLEARLY IDENTIFIED THIS PAYMENT AS A KICKBACK TO IR AQI POLITICIANS AS UNETHICAL AND UNLAWFUL IN THE GARB OF OIL FOR FOOD PROGRAMME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF NOTIONAL LOS S AMOUNTING TO RS.1,08,751/- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION AS THERE WAS NO COMPULSORINESS ON THE PART OF THE ASSESSEE TO KEEP THE AMOUNT IN EEFC ACCOUNT. 3. APROPOS THE ISSUE OF DISALLOWANCE OF COMMISSION : IN THIS CASE THE AO OBSERVED THAT FROM A LIST OF SA LES MADE BY THE ASSESSEE COMPANY FILED DURING THE COURSE OF SCRUTINY HEARING IT IS SEEN THAT THE ENTIRE SALE OF RS.6.07 CRORE WAS MADE TO STATE CO. FOR FOODSTUFF T RADING, IRAQ. THE COMMISSION PAID TO ONE SAMASU INTERNATIONAL CO. LTD. AS AGENCY COMM ISSION OF RS.26,25,000/- RELATES ENTIRELY TO THE SUCH EXPORT SALE TO IRAQ. V IDE LETTERS DATED 9/10/2007 AND 10/9/2007 THE A/R STATED THAT SUCH COMMISSION WAS P AID OUT OF BUSINESS EXIGENCY AND NO PART OF IT CAN BE TREATED AS ILLEGAL OR UNETHICA L. COMMISSION OF RS.26,25,000/- WAS PAID ON ACCOUNT OF SALE OF BLACK TEA TO IRAQ GOVT. THE IRAQ GOVT. PURCHASED THESE GOODS ON OIL FOR FOOD PROGRAMME SPONSORED BY THE U.N.O. T HE PROGRAMME WAS SPONSORED BY THE UNO ON HUMANITARIAN GROUND. A.O. OBSERVED THAT KICKBACKS WERE PAID TO CONCERNS RELATED TO IRAQI POLITICIANS. THE MATTER WAS INVEST IGATED BY VOLCKER COMMITTEE AND THE ASSESSEES NAME APPEARED IN VOLCKERS REPORT. THE A .O. FURTHER OPINED THAT AS THE GOODS WERE EXPORTED AS A HUMANITARIAN MEASURE, PAYM ENT OF COMMISSION OR IN OTHER WORDS KICKBACKS IS CONSIDERED AS UNETHICAL AND UNLA WFUL. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE OF ITS CLAI M THAT THE PAYMENT WERE NECESSITATED FOR PROCESSING TENDER AS MODE FOR THE BUSINESS EXPE DIENCY. THEREFORE, THE SAID AMOUNT WAS DISALLOWED AND ADDED BACK. ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 3 4. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED B EFORE THE LD. CIT(A). IT WAS SUBMITTED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ON THE GROUND OF BUSINESS EXPEDIENCY AND T HE NECESSARY LEGAL FORMALITIES FOR REMITTANCE OF THE COMMISSION ABROAD INCLUDING INTIM ATION TO RBI WERE COMPLIED WITH. IT WAS SUBMITTED THAT THE AO HAS NOT BROUGHT ANY MA TERIAL ON RECORD FOR PROVING THAT PAYMENT OF COMMISSION WAS ILLEGAL. IT WAS CLAIMED T HAT DISALLOWANCE OF COMMISSION WAS ONLY BECAUSE OF THE REMOUR CREATED BY VOLKERS COMMITTEE REPORT OR BY ALLEGING THAT IT WAS NOT NECESSITATED ON THE GROUNDS OF BUSI NESS EXPEDIENCY WAS NOT JUSTIFIED. IT WAS FURTHER SUBMITTED THAT A SIMILAR QUESTION HAS A RISEN IN THE CASE OF A GROUP COMPANY M/S. V.N. ENTERPRISES LTD. IN THE ASSESSMENT YEAR 2 003-04 AND IN THAT CASE ALSO THE COMMISSION PAID IN RESPECT OF EXPORT OF TEA TO IRAQ WAS DISALLOWED. IN APPEAL, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE. THE SAID ORDER OF THE LD. CIT(A) WAS UPHELD BY THE ITAT. CONSIDERING THE ABOVE, THE LD. CIT(A) DEL ETED THE ADDITION BY HOLDING AS UNDER: 4. ON CONSIDERATION OF THE FACTS ON RECORD AND SU BMISSION OF THE APPELLANT, I HOLD THAT THE COMMISSION PAID IN RESPE CT OF THE EXPORT OF TEA TO IRAQ WAS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS AND IS AN ALLOWABLE DEDUCTION. I AM ALSO I N AGREEMENT WITH THE DECISION OF MY PREDECESSOR IN THE CASE OF M/S. V. N . ENTERPRISES LTD, THE GROUP COMPANY REFERRED ABOVE WHO HAD SIMILAR BUSINE SS WHEREIN THE COMMISSION WAS HELD ALLOWABLE AFTER DETAILED CONSID ERATION. THE A.O. HAS SUPPORTED THE DISALLOWANCE BY REFERRING TO THE PROV ISIONS OF SEC.40(A)(IA) OF THE I. T. ACT. ALSO AND HAS OBSERVED THAT TAX WAS D EDUCTIBLE AT SOURCE. IT WAS SUBMITTED BY THE A/RS THAT THE PROVISIONS OF SEC.19 5 WERE NOT ATTRACTED IN RESPECT OF THE PAYMENT OF THE COMMISSION TO THE OVE RSEAS AGENT AS NO PART OF THE ACTIVITIES OF THE OVERSEAS AGENT WERE PERFORMED IN INDIA AND THE AGENT HAD NO PERMANENT ESTABLISHMENT AND BUSINESS CONNECT ION IN INDIA, THEREFORE, THERE WAS NO LIABILITY ON THE PART OF THE APPELLANT -COMPANY TO DEDUCT ANY TAX FROM THE PAYMENT MADE BY IT TO THE OVERSEAS COMMISS ION AGENT IN TERMS OF THE PROVISIONS OF SEC.195 OF THE I. T. ACT, 1961 AN D DISALLOWANCE OF THE COMMISSION ON THIS GROUND WAS ALSO NOT JUSTIFIED. R EFERENCE WAS ALSO INVITED TO THE CIRCULAR NO.786 DTD.07.02.2000 OF CBDT IN SU PPORT OF THE SUBMISSION. ON CONSIDERATION OF THE FACTS ON RECORD AND SUBMISSIONS OF THE ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 4 APPELLANT I HOLD THAT THE PROVISIONS OF SEC.195 AND /OR SEC.40(A)(IA) ARE NOT ATTRACTED IN RESPECT OF THE PAYMENT OF COMMISSION T O THE OVERSEAS AGENT, AND THE DISALLOWANCE OF THE COMMISSION PAID TO THE OVER SEAS AGENT BY RELYING ON SEC. 40(A)(IA) IS ALSO NOT SUSTAINABLE. 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 6. THE LD. COUNSEL OF THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, AS THE IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN FOLLOWING CASES WHEREIN THE ISSUES WERE DECIDED IN FAVOUR OF THE ASSESSEE. I) ORDER DATED 26.12.2008 OF ITAT, KOLKATA IN THE C ASE OF NORTHERN PROJECTS LTD. AND II) V.N.ENTERPRISES LTD. IN ITA NOS.1424/KOL/2008 A ND 1425/KOL/2008 III) ORDER OF ITAT, KOLKATA DATED 31.05.2012 IN CAS E OF RAJRANI EXPORTS LTD. IN ITA NO.1402/KOL/2011 7. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, RELIED UPON THE ORDERS OF THE AO BUT HE COULD NOT CONTRADICT THE SUBMISSIO N THAT SIMILAR ISSUE WAS EARLIER CONSIDERED BY THE TRIBUNAL AND THE DISALLOWANCES WE RE DELETED BY THE LD. CIT(A), WHICH WAS CONFIRMED BY THE ITAT. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED RECORDS. WE FIND THAT IN THE ORDER OF THE CIT(A), IT HAS BEEN ACCEPTED TH AT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AN D WAS AN ALLOWABLE DEDUCTION. SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASES CITED ABOVE. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, WE AFFIRM THE SAME. 9. APROPOS DISALLOWANCE OF NOTIONAL LOSS : ON THIS ISSUE, THE AO NOTED THAT IN THE PROFIT & L OSS A/C., THE ASSESSEE HAS CLAIMED LOSS ON FOREIGN EXCHANGE FLUCTUATION OF RS. 12,81,333/-. THE A/R FURNISHED ONE ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 5 BREAK UP OF SUCH LOSS AND IT WAS OBSERVED BY THE A. O. THAT APART FROM A LOSS OF RS.1,08,751/- WHICH WAS ON ACCOUNT OF NOTIONAL LOSS ON BALANCE OF FOREIGN EXCHANGE IN EEFC ACCOUNT, THE BALANCE IS OF A NATURE OF LOSS DU RING THE COURSE OF BUSINESS OF THE ASSESSEE. THEREFORE, RS.1,08,751/- BEING NOTIONAL L OSS WAS DISALLOWED FROM THE TOTAL LOSS OF RS.12,81,333/-. 10. UPON ASSESSEES APPEAL, THE LD. CIT(A) NOTED TH AT HE HAD DEALT WITH THIS ISSUE IN DETAILS IN HIS ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05 IN ASSESSEES OWN CASE. FOLLOWING THE SAID DECISION, H E HELD THAT LOSS ARISING DUE TO VALUATION OF THE FOREIGN EXCHANGE BALANCE IN EEFC A /C. OF THE ASSESSEE WAS AN ALLOWABLE BUSINESS LOSS IN THIS YEAR ALSO. 11. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPE AL BEFORE US. AT THE OUTSET, THE LD. D.R. SUBMITTED THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL ON THE IDENTICAL ISSUE IN THE IMMEDIATELY PRECEDING YEAR VIDE ORDER DATED 23.01.2012 IN ITA NO.2103/KOL/2010 IN A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05. 12. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED UPON THE ORDERS OF THE AO. HOWEVER, HE COULD NOT CONTRADICT THE SUB MISSION THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL I N THE IMMEDIATELY PRECEDING YEAR. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED RECORDS. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIA TELY PRECEDING YEAR. IN THE SAID DECISION, THE TRIBUNAL HAD AFFIRMED THE DELETION OF THIS DISALLOWANCE BY THE LD. CIT(A) BY REFERRING TO DECISION OF THE TRIBUNAL DATED 12.0 1.2012 FOR THE ASSESSMENT YEAR 2004- 05 IN THE CASE OF ASSESSEES SISTER CONCERN. IN THE SAID DECISION, THE TRIBUNAL, WHILE REFERRING TO THE HONBLE APEX COURTS DECISION IN T HE CASE OF SUTLEJ COTTON MILLS LTD. VS. CIT (1979) 116 ITR 1 (SC), OBSERVED THAT EXACTL Y ON THE ISSUE OF LOSS OR GAIN OF ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 6 FOREIGN CURRENCY, IT WAS HELD THAT : WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOU NT OF APPRECIATION DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY HIM, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD OR DINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY T HE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULA TING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FOREIG N CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUCH PROFIT OR L OSS WOULD BE OF CAPITAL NATURE. CONSIDERING THE ABOVE, THE TRIBUNAL HAD CONFIRMED T HE ORDER OF THE LD. CIT(A) AND DISMISSED THE REVENUES APPEAL. 15. WE FIND THAT THE FACTS OF THE CASE ARE IDENTICA L AND RATIO EMANATING FROM AFORESAID DECISION IS SQUARELY APPLICABLE. ACCORDIN GLY, RESPECTFULLY FOLLOWING THE PRECEDENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 16. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STANDS DISMISSED. THIS ORDER IS PRONOUNCED IN THE COURT ON 23 RD DECEMBER, 2013. SD/- SD/- (GEORGE MATHAN) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 23 RD DECEMBER, 2013 COPY OF THE ORDER FORWARDED TO: 1. M/S. ASHUTOSH ENTERPRISES LTD., 9, OLD POST OFFICE STREET, KOLKATA 700 001 2 DCIT, CIRCLE-4, KOLKATA 3. THE CIT(A), 4. CIT, 5. DR, TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA TALUKDAR(SR.P.S.) ITA NO.2104/K/10 M/S. ASHUTOSH ENTERPRISES LTD. 7