Beach Minerals Company Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2110/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95784 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 10-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-08-2014
• Court: TRIBUNAL
• Department Lawyers: R RENGARAJCIT
• Assessee Lawyers: R SIVARAMNA
• Keywords: Depreciation; Earning of tax free income; Services rendered outside India; Deemed to accrue or arise in india; Proportionate interest; Benefit of exemption
• Section: 143(3); 14A; 115JB; 10B; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2110 /MDS./2014 ( ! '! / ASSESSMENT YEAR :2010-11 M/S.BEACH MINERALS COMPANY PVT LTD ., 32/2,BMC HOUSE, HAILS ROAD, EGMORE, CHENNAI 600 008. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI 600 034. PAN AADCB 3450 D ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO.2188 /MDS./2014 ( ! '! / ASSESSMENT YEAR :2010-11) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(2), CHENNAI 600 034. VS. M/S.BEACH MINERALS COMPANY PVT LTD ., 32/2,BMC HOUSE, HAILS ROAD, EGMORE, CHENNAI 600 008. PAN AADCB 3450 D ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : MR.R.SIVARAMNA, ADVOCATE #$%& ' ( / RESPONDENT BY : MR.R.RENGARAJ,CIT, D.R ) * ' +, / DATE OF HEARING : 10.06.2015 -' ' +, /DATE OF PRONOUNCEMENT : 06.08.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IN ITA NO.2110/MDS./2014 IS FILED BY THE ASSESSEE, AND THE OTHER APPEAL IN ITA NO.2188/MDS./2014 IS FI LED BY THE ITA NOS.2110,2188 /MDS/2014 2 REVENUE FOR THE ASSESSMENT YEAR 2010-11, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A)-I, CHENN AI, DATED 26.05.2014 IN ITA NO.342/13-14/A-1 PASSED UNDER SEC TION 143(3) READ WITH SECTION 250 OF THE ACT. 2.1 THE ASSESSEE HAS RAISED SIX GROUNDS IN ITS APP EAL, HOWEVER, THE CRUXES OF THE ISSUES ARE CONCISED AS FOLLOWS:- 1. THE LD. CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER WHO HAD DISALLOWED EXPENSES CLAIM ED UNDER THE HEAD MINING, PRODUCTION AND PROCESSING FOR WANT OF EVIDENCE. 2. THE LD. CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER WHO HAD DISALLOWED PROPORTIONATE INTEREST EXPENDITURE INCURRED ON BANK LOAN FOR ` 1,03,98,313/- SINCE THE ASSESSEE COMPANY HAD EXTENDED INTEREST FREE LOAN TO ITS SISTER CONCERNS M/S.BHARAT MINES PVT LTD., ` 5,60,45,897/-. 3. THE LD. CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER WHO HAD DISALLOWED EXPENDITURE OF ` 3,11,34,630/- INVOKING PROVISIONS OF SECTION 40(A)( IA) OF THE ACT ITA NOS.2110,2188 /MDS/2014 3 SINCE THE ASSESSEE COMPANY HAD MADE INVESTMENT OF ` 71,55,33,570/- FOR EARNING EXEMPT INCOME. 4. THE LD. CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER WHO HAD DISALLOWED THE CLAIM OF D EPRECIATION OF ` 10,64,87,188/- BEING DEPRECIATION WORKED OUT UNDER COMPANIES ACT SINCE THE ASSESSEE HAD NOT SUBMITTED THE DEPREC IATION SCHEDULE AS PER THE INCOME TAX ACT. 5.(A) THE LD. CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER WHO HAD ENHANCED THE BOOK PROFIT FOR COMPUTING THE TAX PAYABLE U/S.115JB OF THE ACT, BY GIVING EFFECT TO THE DISALLOWANCE OF EXPENDITURE MADE BY THE LD. ASSESSING OFFICER WHILE COMPUTING THE PROFIT UNDER THE NORMAL PROVISIONS OF THE ACT. 5.(B) THE REVENUE HAD ERRED IN NOT GIVING THE BE NEFIT OF EXEMPTION UNDER SECTION-10B OF THE ACT FOR THE INCR EASE IN PROFIT ARISING OUT OF THE DISALLOWANCE OF EXPENDITURES VIZ ., MINING AND PRODUCTION AND PROCESSING CHARGES OF ` 1,22,27,202/-, DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INTEREST F REE ADVANCE U/S.36(1)(III) OF ` 1,03,98,313/-, DISALLOWANCE OF EXPENDITURE FOR ITA NOS.2110,2188 /MDS/2014 4 EARNING EXEMPT INCOME U/S.14A OF ` 3,11,34,630/-, & DISALLOWANCE OF DEPRECIATION ` 10,64,87,188/-. 2.2 THE REVENUE HAS RAISED THREE GROUNDS IN ITS APP EAL, HOWEVER, THE CRUX OF THE ISSUES IS CONCISED AS FOLLOWS:- THE LD. CIT (A) HAD ERRED IN DELETING THE ADDITI ON MADE BY THE LD. ASSESSING OFFICER BEING PAYMENT MADE TOWARD S SALES COMMISSION FOR ` 15,72,434/- (PAYMENT MADE TO M/S.TITANIC SANDS CONSULTING ` 9,73,594 & GLOBAL COMMODITY TRADING ` 5,98,840/-) AND ` 10,22,649/- BEING PAYMENT MADE FOR INSPECTION CHARG ES, BOTH THE PAYMENTS PAID IN FOREIGN CURRENCY TO NON-R ESIDENTS OUTSIDE INDIA AND FOR SERVICES RENDERED OUTSIDE IN DIA. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING, PROCESSIN G AND EXPORTING OF PULVARISED GARNET ABRASSIVE GRIT, FILED ITS RETU RN OF INCOME ON 18.09.2010, ADMITTING NIL INCOME. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND SURVEY WAS ALSO CONDUCTED IN THE ASSESSEES PREMISES ON 23.03.2010. THEREAFTER, THE ASSESSMENT WAS ITA NOS.2110,2188 /MDS/2014 5 COMPLETED ON 28.03.2013 U/S.143 (3) OF THE ACT WHER EIN THE LD. ASSESSING OFFICER MADE CERTAIN ADDITIONS. NOW THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF THE LD. CIT ( A) WHO HAD CONFIRMED THE ADDITIONS MADE BY THE LD. ASSESSING O FFICER. 4.1. GROUND NO.1 DISALLOWANCE OF EXPENSES CLAIMED UNDER HEAD MINING, ` 1,18,14,359/- & PRODUCTION/PROCESSING ` 4,12,843/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE TOWARDS THE EXPENDITU RE INCURRED TOWARDS MINING AND PRODUCTION/PROCESSING FOR ` 1,18,14,359/- & ` 4,12,843/- RESPECTIVELY INSPITE OF SEVERAL OPPORTUN ITIES PROVIDED, THEREFORE, LD. ASSESSING OFFICER DISALLOWED THE AFO RE-STATED EXPENSES. EVEN BEFORE THE LD. CIT (A) THE ASSESSEE DID NOT COME OUT WITH ANY EVIDENCE FOR THE AFORE-STATED EXPENDIT URE, THEREFORE THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSIN G OFFICER. BEFORE US ALSO, NOTHING WAS PRODUCED BY THE LD. A.R TO SUB STANTIATE THE CLAIM OF THESE EXPENSES, THEREFORE WE HAVE NO OTHER OPTION BUT TO CONFIRM THE ADDITION. ACCORDINGLY, WE HEREBY CONFIR M THE DISALLOWANCE OF EXPENDITURES MADE BY THE LD. ASSESSING OFFICER TOWARDS MINING ITA NOS.2110,2188 /MDS/2014 6 AND PRODUCTION/PROCESSING OF ` 1,18,14,359/- & ` 4,12,843/- RESPECTIVELY. THUS, THE GROUND NO.1 OF THE ASSESSEE IS DISMISSED . 5.1. GROUND NO. 2 - DISALLOWANCE OF THE PROPORTIONA TE INTEREST DUE TO INTEREST FREE LOAN ADVANCED TO SISTER CONCERN U/S. 36(1)(III) OF THE ACT FOR ` 1,03,98,313/-. THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSESS EE HAD EXTENDED INTEREST FREE LOAN TO ITS SUBSIDY M/S.BHAR AT MARINES CO. PVT LTD., FOR ` 5,60,45,897/-. IT WAS ALSO REVEALED THAT THE ASSES SEE HAD PAID ` 6,20,12,327/- AS INTEREST TOWARDS SECURED LOANS. T HEREFORE, THE LD. ASSESSING OFFICER DISALLOWED THE PROPORTIONATE INTEREST OF ` 1,03,98,313/- BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD . ASSESSING OFFICER BY AGREEING TO HIS VIEW. AT THE OUTSET WE FIND THAT THE ADDITION MADE BY THE LD. ASSESSING OFFICER IS NOT SUSTAINABLE BEC AUSE FROM THE ORDER OF THE LD. CIT (A) IT IS CLEARLY REVEALED IN PARA 6.2.1 THAT THE ASSESSEE HAD ` 87.72 CRORES OF RESERVES & SURPLUS AND EQUITY SHARE CAPITAL OF ` 10 CRORES AGGREGATING TO ` 97.72 CRORES AS ON 31.03.2010 BEING THE ASSESSEES OWN INTEREST FREE FUNDS. IN TH IS SITUATION, IT IS ITA NOS.2110,2188 /MDS/2014 7 EVIDENT THAT ` 5,60,45,897/- ADVANCED BY THE ASSESSEE TO ITS SISTE R CONCERN AND THE INVESTMENTS MADE BY THE ASSESSEE CO MPANY FOR ` 71,55,33,570/- AGGREGATING TO ` 77,15,79,467/- HAS FLOWED FROM THE ASSESSEES OWN FUND OF ` 97.72 CRORES WHICH DOES NOT BEAR ANY COST. THEREFORE, WE HEREBY DELETE THE ADDITION MADE FOR ` 1,03,98,313/- MADE BY THE LD.A.O TOWARD THE PROPORTIONATE INTERES T ATTRIBUTABLE TO THE INTEREST FREE LOAN ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN BECAUSE THE FUNDS ADVANCED BY THE ASSESSEE DOES NOT BEAR ANY COST AS IT IS ASSESSEES OWN FUNDS. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 6.1. GROUND NO.3 DISALLOWANCE OF EXPENDITURE BY I NVOKING THE PROVISIONS OF SECTION 14A OF THE ACT FOR ` 3,11,34,630/- SINCE THE ASSESSEE HAD MADE INVESTMENTS OF ` 71,55,33,570/- FOR EARNING EXEMPT INCOME. AT THE OUTSET, WE FIND THAT THERE IS NO MERIT FOR THE REVENUE TO MAKE ADDITION OF ` 3,11,34,630/- INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT BECAUSE THE INVESTMENT MADE OF ` 71,55,33,570/-, BEARS NO COST IN THE FORM OF INTEREST OR WHATSOEVER , SINCE THE FUNDS BY ITA NOS.2110,2188 /MDS/2014 8 WHICH THE INVESTMENT IS MADE IS ASSESSEES OWN FUND S. FURTHER, THESE INVESTMENTS ARE MADE ONLY WITH SISTER COMPANI ES OF THE ASSESSEE AND NO COST CAN BE ATTRIBUTED FOR THE MANA GEMENT OF SUCH FUNDS. THEREFORE, WE HEREBY DELETE THE ADDITION OF RS. ` 3,11,34,630/- MADE BY THE LD. ASSESSING OFFICER INVOKING THE PROV ISIONS OF SECTION 14A OF THE ACT. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN IT S FAVOUR. 7.1. GROUND NO.4 DISALLOWANCE OF DEPRECIATION OF ` 10,64,87,188/- SINCE THE ASSESSEE HAD ONLY SUBMITTED THE DEPRECIAT ION SCHEDULE COMPUTED UNDER THE COMPANIES ACT AND NOT UNDER THE INCOME TAX ACT. THE LD. ASSESSING OFFICER HAD DISALLOWED THE ENTI RE CLAIM OF THE ASSESSEE TOWARDS DEPRECIATION OF ` 10,64,87,188/- BECAUSE THE ASSESSEE HAS NOT SUBMITTED BEFORE HIM THE SCHEDULE OF DEPRECIATION COMPUTED UNDER THE INCOME TAX ACT BUT HAD ONLY PROD UCED THE SCHEDULE OF DEPRECIATION COMPUTED UNDER THE COMPANI ES ACT. ON APPEAL THE LD. CIT (A) REMITTED THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER WITH A DIRECTION TO ALLOW THE SAM E IN ACCORDANCE WITH LAW. SINCE THE ACTION OF THE LD. CIT (A) IS JUSTIFIED, W E DO NOT ITA NOS.2110,2188 /MDS/2014 9 FIND IT NECESSARY TO INTERFERE WITH HIS ORDER. HOWEVER, IT IS PERTINENT TO MENTION THAT THE LD. ASSESSING OFFICER OUGHT TO HAVE GIVEN THE BENEFIT OF DEPRECIATION TO THE ASSESSEE A S PROVIDED UNDER THE INCOME TAX ACT INSTEAD OF DISALLOWING THE ENTIR E CLAIM OF DEPRECIATION BECAUSE THE DETAILS OF THE ITEMS ON WH ICH THE DEPRECIATION IS CLAIMED IS BEFORE HIM AND NORMALLY RATE OF DEPRECIATION ALLOWABLE AS PER THE INCOME TAX ACT IS HIGHER THAN THE RATE OF DEPRECIATION PRESCRIBED UNDER THE COMPANIES ACT. FURTHER TO SIMPLIFY THE PROCEEDINGS OF THE REVENUE, WE HEREBY DIRECT THE ASSESSEE ALSO TO FURNISH THE SCHEDULE OF DEPRECIATI ON COMPUTED AS PER THE INCOME TAX ACT BEFORE THE LD.ASSESSING OFFI CER. ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U /S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXPENDI TURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR ` 3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDITURE UNDER THE NORM AL PROVISIONS OF THE ACT. ITA NOS.2110,2188 /MDS/2014 10 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADDITIO NS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U/S.14 A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION- 1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. T HE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A) IS REPRODUCED HEREI N BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S.115J B SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORMAL COMP UTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE T O EXEMPT INCOME ON THE BASIS OF THE AMOUNT WORKED OUT U/S.14A R.W.RULE 8D UNDER NORMAL COMPUTATION. THE PROVISIONS OF CLAUSE (F) OF EXPLAN ATION-1 TO S.115JB MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPEND ITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN S.10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L A/C. RELI ANCE IS PLACED ON THE LATEST DECISION OF THE ITAT MUMBAI IN THE CASE OF D ABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LA TEST DECISION OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN ITA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD T HAT THE AMOUNT ITA NOS.2110,2188 /MDS/2014 11 DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUT ING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6). RESPECTFUL LY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITION MADE BY THE ASSESS ING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTIO N-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HEREIN B ELOW FOR REFERENCE:- SECTION.115JB EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISIONS CON TAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 12 A PPLY; (G) TO (J) --------------------------------------- -------------- ITA NOS.2110,2188 /MDS/2014 12 FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PR OVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECT ION-115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTIO N 115JB OF THE ACT IS ALSO A PROVISION WITH FICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFORE WHILE COMPUTING THE PROFIT FOR TH E PURPOSE OF SECTION 115JB OF THE ACT ANOTHER PROVISION WITH FIC TION CANNOT BE SUPERIMPOSED. HENCE THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARI SE. HOWEVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALREADY DELETED THE ADDITION MADE U/S.14A, INCREASING THE BOOK PROFIT W ILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSEE IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSE E. THE GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, HAS ONLY THE POWER OF ITA NOS.2110,2188 /MDS/2014 13 EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAI NTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OF FICER, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTION S AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. T HE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIM ITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE A UTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AU THENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE CO MPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTO RY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE C OMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIE S ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMP UTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISI ONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE ITA NOS.2110,2188 /MDS/2014 14 PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 8.1.2 GROUND NO.5(B) - NOT GIVING THE BENEFIT OF EXEMPTION UNDER SECTION-10B OF THE ACT FOR THE INCREASE IN PROFIT A RISING OUT OF THE DISALLOWANCE OF EXPENDITURES. IT APPEARS THAT THE LD. ASSESSING OFFICER HAD DE NIED THE BENEFIT OF SECTION-10B OF THE ACT WITH RESPECT TO THE INCRE ASE IN PROFIT ARISING OUT OF THE DISALLOWANCE MADE ACCORDING TO THE NORMA L PROVISIONS OF THE ACT. HOWEVER ON READING THE PROVISIONS OF THE A CT IT IS EVIDENT THAT SECTION-10B OF THE ACT PROVIDES THAT PROFITS AND GA INS DERIVED BY 100% EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLE OF THINGS OR COMPUTER SOFTWARE SHALL BE ALLOWED FOR A PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEAR IN WHICH T HE UNDERTAKING BEINGS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE AS THE CASE MAY BE FROM THE TOTAL INCOME O F THE ASSESSEE. THEREFORE, EVEN IF THERE ARE SOME DISALLOWANCES OF EXPENDITURE UNDER THE NORMAL PROVISIONS OF THE ACT DUE TO WHICH THE P ROFIT OF THE EXPORT ITA NOS.2110,2188 /MDS/2014 15 UNDERTAKING INCREASES, THE ASSESSEE WILL BE ENTITLE D FOR THE BENEFIT OF SECTION-10B ON THE ENTIRE PROFIT ARRIVED BY THE LD. A.O BECAUSE THERE ARE NO PROVISIONS IN THE ACT TO RESTRICT THE BENEFI T OF SECTION-10B OF THE ACT FOR SUCH INCREASE IN PROFITS. FROM THE ORDE R OF THE LD. CIT (A) WE FIND THAT HE HAS HELD THE APPELLANT TO BE ELIGIB LE FOR THE BENEFIT OF SECTION-10B OF THE ACT, THEREFORE AS DISCUSSED HERE IN ABOVE WE HEREBY HOLD THAT THE ASSESSEE WILL BE ENTITLED FOR THE BENEFIT OF SECTION 10B OF THE ACT EVEN FOR THE INCREASE IN PRO FIT ARISING OUT OF ANY DISALLOWANCES OF EXPENDITURE MADE BY THE REVENU E. HOWEVER WE ALSO MAKE IT CLEAR THAT WHILE COMPUTING THE PROFIT OF THE 100% EXPORT ORIENTATED UNDERTAKING FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10B OF THE ACT, ANY DISALLOWANCE BASED ON ANY FICTI ON OF THE PROVISIONS OF THE ACT LIKE SECTION 40(A)(IA) OF THE ACT ETC., CANNOT BE GIVEN EFFECT BECAUSE SECTION 10B IS ALSO A PROVISIO N WITH FICTION AND A PROVISION WITH FICTION CANNOT BE SUPERIMPOSED ON AN Y OTHER PROVISION WITH FICTION. HOWEVER IN THIS CASE THIS OBSERVATION WILL NOT BE RELEVANT BECAUSE WE HAVE HELD IN THE FOLLOWING PARAGRAPH WIT H RESPECT TO PAYMENTS MADE TO FOREIGN AGENTS FOR SERVICES RENDER ED OUTSIDE INDIA IN FOREIGN CURRENCY PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT ITA NOS.2110,2188 /MDS/2014 16 BE INVOKED. THEREFORE, THE PRAYER OF THE ASSESSEE ON THIS ISSUE IS ALSO ALLOWED IN ITS FAVOUR. REVENUES APPEAL 9.1 GROUND DELETION OF ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF T AX TOWARDS COMMISSION PAID TO FOREIGN AGENTS OUTSIDE INDIA IN FOREIGN CURRENCY AND FOR SERVICES RENDERED OUTSIDE INDIA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAS PAID SALES COMMISSION OF ` 9,73,594/-, AND ` 5,98,840/- TO M/S.TITANIC SAND CONSULTATIONS AND M/S.GLOBAL COMMODITY TRADING RESP ECTIVELY. SINCE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE AFORESAID AMOUNT PAID TO NON-RESIDENTS, INVOKING THE PROVISIO NS OF SECTION 40(A)(IA) OF THE ACT, THE LD. ASSESSING OFFICER AD DED THE AGGREGATE AMOUNT OF ` 15,72,434/- TO THE INCOME OF THE ASSESSEE. ON APP EAL, THE LD. CIT (A) HELD THE ISSUE IN FAVOUR OF THE ASS ESSEE BY OBSERVING AS UNDER:- 9.2. I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANC ES OF THE CASE. WITH REGARD TO THE GROUND RAISED REGARDING DISALLOW ANCE U/S.40(A)(IA) THE ITA NOS.2110,2188 /MDS/2014 17 DISPUTE IS ONLY WITH RESPECT TO PAYMENTS MADE TO OV ERSEAS PARTIES WHO HAVE RENDERED SERVICE THE APPELLANT UNDER VARIOUS H EADINGS. AS SEEN FROM THE DETAILS OF EXPENDITURE MADE BY THE PAT IN FOREIGN CURRENCY TO THE FOREIGN CONCERN IS ONLY IN THE NATURE OF COMMISSION AND OTHER PAYMENTS. IT IS NO WAY FALLING UNDER THE CATEGORIES OF INTERE ST, ROYALTY AND TECHNICAL FEE TO ATTRACT CHARGING SECTION AS PER THE AMENDED PROVISIONS OF SECTION 9 THE ASSESSING OFFICER HAS FAILED TO ESTABLISH HOW C OMMISSION PAYMENT TO NON-RESIDENT WILL ATTRACT DISALLOWANCE U/S.40(A) (IA). THEREFORE, I AM OF THE VIEW THAT THE DECISION IN THE CASE GE INDIA TEC HNOLOGY IS SQUARELY APPLICABLE (327 ITR 456)(SC) WHICH SAYS THAT THE TD S PROVISIONS U/S.195 ARE NOT APPLICABLE IF THE AMOUNT IN QUESTIO N IS NOT CHARGEABLE TO TAX IN INDIA, IS SQUARELY APPLICABLE. THEREFORE, TH E QUESTION OF MAKING TDFS DOES NOT ARISE AND DISALLOWANCE U/S.40(A)(IA) IS NOT CALLED FOR. ACCORDINGLY THE ADDITION IS DELETED. THE GROUND RAI SED BY THE APPELLANT IS ALLOWED. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT THE LD. ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BECAUSE THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE TOWARDS THE SALES COMMISSION PAID TO FOREIGN AGENTS OUTSIDE INDIA IN FOREIGN EXCHANGE AND FOR THE SERVICES RENDERED OUTSIDE INDIA. AT TH E OUTSET WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. FAZIAN SHOES PVT. LT D. REPORTED IN 367 ITR 155(MAD.) WHEREIN IT IS HELD THAT ON A READING OF ITA NOS.2110,2188 /MDS/2014 18 SECTION.9(1)9VII), COMMISSION PAID BY THE ASSESSEE TO THE NON- RESIDENT AGENTS WOULD NOT COME UNDER THE TERM FEES FOR TECHNICAL SERVICES. FOR PROCURING ORDERS FOR LEATHER BUSINES S FROM OVERSEAS BUYERS, WHOLESALERS OR RETAILERS, AS THE CASE MAY B E, THE NON-RESIDENT AGENT WAS PAID 2.5%, COMMISSION ON FREE ON BOARD BA SIS. THIS WAS A COMMISSION SIMPLICITER. WHAT WAS THE NATURE OF T ECHNICAL SERVICES THAT THE NON-RESIDENT AGENTS HAD PROVIDED ABROAD TO THE ASSESSEE WAS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFIC ER. THE OPENING OF LETTERS OF CREDIT FOR THE PURPOSE OF COMPLETING THE EXPORT OBLIGATION WAS AN INCIDENT OF EXPORT AND, THEREFORE, THE NON-R ESIDENT AGENT WAS UNDER AN OBLIGATION TO RENDER SUCH SERVICES TO THE ASSESSEE, FOR WHICH COMMISSION WAS PAID. THE NON RESIDENT AGENT D ID NOT PROVIDE TECHNICAL SERVICES FOR THE PURPOSE OF RUNNING OF TH E BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE, THE COMMISSION PAID TO THE NON- RESIDENT AGENTS WOULD NOT FALL WITHIN THE DEFINITIO N OF FEES FOR TECHNICAL SERVICES AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENT OF COMMISSION. SINCE THE FACTS ARE IDENTICAL IN THE CASE OF THE ASSESSEE TO THE CASE DECIDED BY THE HONBLE ITA NOS.2110,2188 /MDS/2014 19 JURISDICTIONAL HIGH COURT SUPRA, WE HEREBY CONFIRM THE ORDER OF THE LD. CIT (A). 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREINABOVE AND T HE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 06 TH AUGUST, 2015 AT CHENNAI. SD/- S D/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 06 TH AUGUST, 2015. K S SUNDARAM. ' #+./ 0 /'+ /COPY TO: 1. %& /APPELLANT 2. #$%& /RESPONDENT 3. ) 1+ () /CIT(A) 4. ) 1+ /CIT 5. /4 #+5 /DR 6. 6! 7* /GF