ACIT, CHENNAI V. Carat Lane Trading Pvt. Ltd., CHENNAI

ITA 213/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5583 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 23-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S ENTHAMARAI KANNAN
• Keywords: Bogus purchase; Double taxation relief; Permanent establishment
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 213/MDS/2017 / ASSESSMENT YEAR : 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(2), CHENNAI 600 034. VS. M/S. CARAT LANE TRADING PVT. LTD., NO. 32, RUTLAND GATE 2 ND STREET, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI 600 034. [PAN: AADCC 1791Q] ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. ARV SREENIVASAN, JCIT )*%& / RESPONDENT BY : SHRI. S. SE NTHAMARAIKANNAN , ADVOCATE & /DATE OF HEARING : 13.10.2017 & /DATE OF PRONOUNCEMENT : 28.12.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI IN ITA NO. 153/C IT(A)-1/2015-16 DATED 24.10.2016 FOR ASSESSMENT YEAR 2012-13. :-2-: ITA NO. 213/MDS/2017 2. M/S. CARAT LANE TRADING PVT. LTD., THE ASSESSEE, IS ENGAGED IN TRADING IN JEWELLERY, PRECIOUS AND SEMI-PRECIOUS STONES AND OT HER ORNAMENTAL ITEMS MADE OF PRECIOUS METALS. IN THE ASSESSMENT MADE FO R ASSESSMENT YEAR 2012- 13, THE AO DISALLOWED RS. 56,51,905/- FOR NON-DEDUC TION OF TAX U/S. 195/40(A) /40A(IA), ADDED RS. 3,17,126/- TOWARD BOGUS PURCHAS E AND DISALLOWED RS. 7,10,666/- & RS. 73,244/-, PF & ESI PAYMENTS, RESP ECTIVELY, REMITTED BEYOND THE DUE DATE. AGGRIEVED, THEASSESSEE FILED AN APPE AL BEFORE THE CIT (A) AND THE CIT(A) ALLOWED THE APPEAL . AGAINST THE ORDER O F THE CIT(A) , THE REVENUE FILED THIS APPEAL. 3. THE DR ASSAILED THE ORDER OF THE CIT(A)ON THE BA SIS OF THE ASSESSMENT ORDER AND THE GROUNDS OF APPEAL. PER CONTRA, THE A R SUPPORTED THE ORDER OF THE CIT(A) AND MADE FURTHER SUBMISSIONS. THEY ARE DEALT, ISSUE WISE, AS UNDER. 4. NON-DEDUCTION OF TDS: THE ASSESSEE COMPANY HAS NOT DEDUCTED TDS ON THE PA YMENTS MADE TO FOREIGN PARTIESFOR THE SERVICES RENDERED IN VARIOUS FOREIGN DESTINATIONS AND HENCE, THE ASSESSING OFFICER DISALLOWED RS. 56,51,9 05/-. IN THIS REGARD THE CIT(A) HELD AS UNDER: 8. I HAVE CAREFULLY PERUSED THE FACTS IN ISSUE, T HE REASONS BASED ON WHICH THE AO HAS PREFERRED THE DISALLOWANCE / ADDIT ION, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIAL ON RECORD. T HE DISPUTE RELATES TO THE :-3-: ITA NO. 213/MDS/2017 EXIGIBILITY OF TAX IN RELATION TO THE PAYMENT MADE BY THE APPELLANT TO THE FOREIGN ENTITY FOR THE SERVICES RENDERED IN VARIOUS FOREIGN DESTINATIONS. IT IS IN THIS CONTEXT THAT THE EXIGIBILITY OF TAX TO THE PAYMENT HAVE TO BE EXAMINED AS TO WHETHER THE TAX LIABILITY IS TRIGGERED IN TERMS OF SEC.9(1)(I) R.W.S.5 OF THE INCOME TAX ACT. 9. IT IS SETTLED LAW WHEN SERVICES ARE RENDERED BY A NON RESIDENT WHO HAS NO BUSINESS CONNECTION OR PRESENCE BY WAY OF PERMANENT ESTABLISHMENT IN INDIA, THE INCOME WOULD BE TRIGGERED IN THE COUNTRY OF RES IDENCE WHERE THE 'SERVICES WERE RENDERED. THE RATIO IN THE CONTEXT OF COMMISSI ON AGENT LAID DOWN BY THE JURISDICTIONAL COURT IN THE CASE OF CIT V. FAIZAN S HOES P LTD 367 ITR 155 APPLIES MUTATIS MUTANDIS. 10. THE NON-RESIDENTS TO WHOM PAYMENTS WERE MADE WE RE FOR 'SERVICES WHICH CANNOT BE CLASSIFIED AS CONSTITUTING EITHER MANAGER IAL OR SERVICES WHICH ARE TECHNICAL IN NATURE WITHIN THE MEANING OF S.9(1)(VI I) OF THE ACT. THE BOARD'S CIRCULAR NO.715 ALSO CLARIFIED THAT PAYMENT TO CLEA RING AND FORWARDING AGENTS FOR CARRIAGE OF GOODS IS SUBJECT TO DEDUCTION OF TA X AT SOURCE U/S 194C WHILE S.194J STIPULATES DEDUCTION OF TAX AT SOURCE IN RES PECT OF PROFESSIONAL AND TECHNICAL SERVICES. IN S.194J THE EXPRESSION 'TEE FOR TECHNICAL SERVICES' HAS BEEN GIVEN THE SAME MEANING AS LAID DOWN IN EXPLANA TION 2 TO S.9(1 )(VII). 11. IN LEAAP INTERNATIONAL P LTD THE ITAT CHENNAI I N ITA NO.356/MDS/2009 FOR AY. 2005-06 IN ITS ORDER DATED 27.5.2011 HAVE HELD SIMILARLY THAT THE PAYMENTS TO FOREIGN COMPANY FOR SERVICES RENDERED OUTSIDE IN DIA AND FOREIGN COMPANY HAVING NO BRANCHES OR PERMANENT ESTABLISHMENT IN IN DIA, THE PAYMENTS MAD~ TO IT WERE , NOT LIABLE FOR DEDUCTION AT SOURCE U/S 195. IN THE CASE OF INDIA CARRIERS P LTD THE ITAT DELHI BENCH ALSO HELD SIMIL ARLY IN RESPECT OF THE PAYMENTS MADE TO AN AGENT OUTSIDE INDIA FOR FREIGHT FORWARDING FUNCTIONS ON THE SAME LOGIC. 12. ON THE FACTS OF THE CASE, THESE ENTITIES WHO HA VE RENDERED SERVICES ADMITTEDLY HAVE NO PRESENCE IN INDIA BY WAY OF PERM ANENT ESTABLISHMENT AND NO BUSINESS CONNECTION IN AS MUCH AS THAT THE SERVI CES WERE RENDERED OUTSIDE INDIA. IT WOULD SUFFICE TO HOLD THAT THE BASIC INGR EDIENT TO TRIGGER THE OPERATION OF SEC.9(1 )(I) ARE CONSPICUOUS IN THEIR ABSENCE I N SUCH SERVICES. IT WOULD THEREFORE MAKE NO DIFFERENCE WHETHER OR NOT ANY OF THE ENTITIES ARE RESIDENT IN THE JURISDICTION WHICH HAS DTAA WITH INDIA OR NOT. PAYMENT(S) MADE TO THEM WOULD NOT BE EXIGIBLE TO TAX UNLESS AND UNTIL A CAS E HAS BEEN MADE OUT THAT :-4-: ITA NO. 213/MDS/2017 THEY ARE IN THE NATURE OF THE SERVICES WITHIN THE M EANING OF SEC. 9(1 )(VI) OR 9(1 )(VII) BEING 11 ROYALTY 11 OR 'TECHNICAL SERVI CES'. AS SUCH THE SAME WOULD BE TAXABLE AS BUSINESS PROFITS IN THE COUNTRY OF RE SIDENCE. IT IS HELD THEREFORE THAT SINCE THE PAYMENTS ARE NOT CHARGEABLE TO TAX I N INDIA U/S 9(1)(VII) R.W.S. 195, THE PROVISIONS OF S.40(A)(I) WILL NOT BE APPLI CABLE. THE AO IS DIRECTED TO DELETE THE ADDITION MADE TOWARDS PAYMENTS MADE TO N ON RESIDENTS. 4.1 THE REVENUES RELEVANT GROUNDS OF APPEAL ARE AS UND ER: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE 2. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S.40(A)(I)/40(A)(IA) RWS 195 OF THE LT. ACT TO THE TUNE OF RS.56,51,905/-. 2.1 THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THERE WAS VIOLATION OF THE PROVISIONS OF SECTION 195 OF THE IT ACT, IN AS MUCH AS THE FOREIGN PAYMENTS WERE MADE WITHOUT DEDUCTION OF TAX AT SOURCE, AND S UCH PAYMENTS ARE LIABLE TO DISALLOWED U/S. 40(A)(I)/40(A)(IA) OF THE IT ACT. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE SERVICES OFFERED BY THE FOREIGN ENTITIES AMOUNTS TO SERVICES IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONSULTANCY. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE NA TURE OF SERVICES RENDERED BY THE FOREIGN ENTITIES INVOLVED MANAGING OF WEB PORTAL, UPLOADING AND DISPLAY OF CONTENT ONLINE WHICH IN TURN INVOLVE S TECHNICAL SKILL AND EXPERTISE, FALLING IN THE REALM OF TECHNICAL CONSULTANCY SERVI CES, WITHIN THE MEANING AND SCOPE OF SEC.9(1)(VII) OF THE IT. ACT. 2.4 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE SERVICES RENDERED BY THE FOREIGN SERVICE PROVIDERS IN THE IN STANT CASE WERE MORE IN THE NATURE OF TECHNICAL/MANAGERIAL NATURE AND THEREFORE , THE FACTS OF THIS CASE IS CLEARLY DISTINGUISHABLE FROM THE FACTS ARISING IN C ASE OF CIT VS. FAIZAAN SHOES P LTD 367 ITR 155 WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT COMMISSION PAID TO NON-RESIDENT INDIAN WILL NOT FAL L WITHIN THE MEANING OF 'FEES FOR TECHNICAL SERVICES'. :-5-: ITA NO. 213/MDS/2017 4.2 THE DR ASSAILED THE ORDER OF THE CIT(A) ON THE BASI S OF THE GROUNDS OF APPEAL AND THE ASSESSMENT ORDER. PER CONTRA, THE A R SUBMITTED THAT AS PER THE DECISION OF THE SUPREME COURT IN THE CASE OF KO TAK SECURITIES, A PAYMENT CAN BE TREATED AS FTS ONLY IF THE PAYEE RENDERS A S PECIAL, EXCLUSIVE OR CUSTOMIZED SERVICE ; HOWEVER , THE ASSESSEE HAS NOT RECEIVED ANY SUCH SERVICE FROM ANY OF THE PAYEES . FURTHER, AS PER THE DTAAS BETWEEN INDIA AND USA,UK AND CANADA THERE ARE MAKE AVAILABLE CLAUSES ' ; HOWEVER THE PAYEES HAVE NOT MADE AVAILABLE ANY TECHNICAL KNOWLEDGE, KN OW-HOW ETC TO THE ASSESSEE AND THEREFORE THE ALTERNATE SUBMISSION IS THATTHE PAYMENTS TO ENTITIES IN USA, UK AND CANADA SHOULD BE ALLOWED . THE DTAAS BETWEEN INDIA AND ISRAEL, IRELAND AND RUMANIA DO NOT HAVE MAKE A VAILABLE CLAUSES'. HOWEVER, ON THE FACE OF IT, THE PAYMENTS OF RS 2,65 ,097 TO FACE BOOK HEADQUARTERED IN IRELAND FOR ONLINE ADVERTISEMENT A ND RS 43,060 TO PADIACT.COM HEADQUARTERED IN RUMANIA FOR BULK PROMO TION MAILS CANNOT BE TREATED AS FTS AND THEREFORE THESE TWO AMOUNTS SHO ULD ALSO BE ALLOWED. THE AR PRIMARILY CONTESTED THE PAYMENTS ON THREE BROAD CATEGORIES . A) NON EXCLUSIVITY AND THEREFORE,THE FOLLOWING PAYMEN TS ARE NOT FTS SL.NO NAME OF THE FOREIGN COUNTRY COUNTRY AMOUNT PAID BY THE ASSESSEE NATURE OF SERVICE PROVIDED 1. FACEBOOK IRELAND 2,65,097 ONLINE ADVERTISEMENT 2. LINKEDIN USA 1,46,277 ONLINE ADVERTISEMENT 3. PADIACT.COM RUMANIA 43,060 BULK PROMOTION MAILS :-6-: ITA NO. 213/MDS/2017 4. LIVE PERSON USA 7,58,456 REAL TIME CHAT TOOL IN THE WEBSITE OF THE ASSESSEE 5. ALLEN MAXWELL USA 88,975 MAINTENANCE OF DATABASE OF THE CUSTOMERS OF THE ASSESSEE 6. THAWATE USA 46,096 WEBPAGE SECURITY CERTIFICATIONS 7. MAGENTO USA 7,36,921 OPEN SOURCE SOFTWARE DEVELOPMENT TOOLS 8. BRILLIANCE UK 94,779 BULK PROMOTION MAILS 9. CUREBIT.COM USA 36,852 CUSTOMER CARE TOOL 10. OPTIMIZITY CANADA 3,950 TOOL ENABLING MOBILE VERSION OF ASSESSEES WEBSITE 11. NETFLOW USA 32,873 WEBSITE PERFORMANCE ANALYSIS 12. PAYPAL UK 75,983 PAYMENT GATEWAY (B) THOUGH IT WAS A CUSTOM MADE SOFTWARE, SINCE T HE FOLLOWING ENTITIES ARE OF USA ORIGIN WITH WHICH INDIA HAS A D TAA WITH MAKE AVAILABLE CLAUSE AND SINCE THESE ENTITIES HAVE NOT MADE AVAI LABLE THE KNOW HOW, THE FOLLOWING PAYMENTS ARE NOT FTS SL.NO NAME OF THE FOREIGN COUNTRY COUNTRY AMOUNT PAID BY THE ASSESSEE NATURE OF SERVICE PROVIDED 1. CONSTANT CONTACT USA 1,29,344 PUBLICITY MATERIAL- CONTENT WRITERS :-7-: ITA NO. 213/MDS/2017 2. CRAZY EGG.COM USA 1,35,484 ANALYSIS OF CUSTOMER BEHAVIOUR ON WEBSITE 3. MVI MARKETING LTD USA 18,43,021 US MARKET RESEARCH (C) IN RESPECT OF THE PAYMENTSMADE TO HANDUP LTD THE AR SUBMITTED THAT ISRAEL ENTERED INTO FOLLOWING PROTOCOLON 29.0 1.1996, WHICH , INTERALIA, CONTAINED THE FOLLOWING: 2. THE COMPETENT AUTHORITIES OF THE CONTRACTING S TATES SHALL INITIATE THE PROPER PROCEDURE TO REVIEW THE PROVISIONS OF ARTICL ES 12 AND 13 (ROYALTIES AND FEES FOR TECHNICAL SERVICES, RESPECTIVELY) AFTER A PERIOD OF FIVE YEARS FROM THE DATE OF ENTRY INTO FORCE OF THIS CONVENTION. HOWEVE R, IF UNDER ANY CONVENTION OR AGREEMENT BETWEEN INDIA AND ANY THIRD STATE WHICH E NTERS INTO FORCE AFTER 1-1- 1995, INDIA LIMITS ITS TAXATION AT SOURCE OR ROYALT IES OR FEES FOR TECHNICAL SERVICES OR INTEREST OR DIVIDENDS TO A RATE LOWER O R A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CONVENT ION, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION OR AGREEMENT ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION WITH EFFECT FROM THE DATE ON WHICH THE PRESENT CONVENTION COMES INTO FORCE OR THE RELEVANT INDIAN CONVENTION ORAGREEMENT, WHICHEVER ENTERS INTO FORCE LATER.' '3. IN RESPECT OF PARAGRAPH 2 OF ARTICLE 25, IT IS UNDERSTOOD THAT IF INDIA ENTERS INTO AN AGREEMENT OR CONVENTION FOR THE AVOIDANCE O F DOUBLE TAXATION WITH A THIRD STATE AFTER 1-1-1995, WHEREBY THE DIFFERENCE IN THE RATES OF TAX BETWEEN ENTERPRISES OF A PERMANENT ESTABLISHMENT OF A COMPA NY OF A COUNTRY OTHER THAN INDIA AND THAT OF INDIA IS REMOVED OR REDUCED, THEN , A CORRESPONDING REDUCTION SHALL BE EFFECTED IN RESPECT OF RATES OF TAXES ON P ROFITS ACCORDING TO THE ENTERPRISES OF A COMPANY WHICH IS A RESIDENT OF ISR AEL.' THE ABOVE TWO PARAGRAPHS WERE OMITTED BY NOTIFICATI ON NO. SO 441(E) [NO.10/2017 (F .NO.500/14/2004-FTD-II)]' DATED 14-2 -2017, W.E.F. 14-2-2017. HOWEVER, THE TWO PARAGRAPHS ARE RELEVANT TO US AS O UR CASE PERTAINS TO A.Y. 2012-13 WHICH IS PRIOR TO 14.02.2017. :-8-: ITA NO. 213/MDS/2017 THE FOLLOWING DTAAS HAD MAKE AVAILABLE CLAUSE INSER TED AFTER 1.1.1995: 1. INDIA-NETHERLANDS - MAKE AVAILABLE CLAUSE INSERT ED IN 1999 - AMENDING NOTIFICATION NO.SO 693{E), DATED 30-8-1999 W.EJ. 1. 4.1997 2. INDIA-PORTUGAL- DTAA ENTERED ON 30TH APRIL 2000. 0.1 - 3. INDIA-MALTA - DTAA ENTERED ON 22ND NOVEMBER 1995 . THEREFORE, THE AR SUBMITTED THAT THE ASSESSEE CAN USE THE SHELTER OF THE MAKE AVAILABLE CLAUSE IN THESE DTAAS (NETHERLAND, P ORTUGAL AND MALTA) AND CONCLUDE THAT FTS PAID BY THE ASSESSEE TO HANDUP LT D, ISRAEL, EVEN THOUGH CHARGED TO TAX AS FTS AS PER DTAA BETWEEN INDIA AND ISRAEL, THE SAME WON'T BE CHARGED TO TAXATION AS PER MOST FAVOURED NATION CLAUSE MENTIONED AS ABOVE. 5. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH RELEVANT MATERIAL. FROM THE ARS SUBMISSIONS AND ON THE FACTS, IT IS CLEAR THAT THESE ENTITIES WHO HAVE RENDERED THE IMPUGNED SERVICES ADMITTEDLY HAVE NO PRESENCE IN INDIA BY WAY OF PERMANENT ESTABLISHMENT AND NO BUSINESS CONN ECTION IN AS MUCH AS THAT THE SERVICES WERE RENDERED OUTSIDE INDIA. IT W OULD SUFFICE TO HOLD THAT THE BASIC INGREDIENTS TO TRIGGER THE OPERATION OF SEC.9 (1)(I) ARE CONSPICUOUS IN THEIR ABSENCE IN THE ABOVE SERVICES AS EXPLAINED BY THE ASSESSEE, SUPRA. THE PAYMENT(S) MADE TO THEM WOULD NOT BE EXIGIBLE TO TA X UNLESS AND UNTIL A CASE HAS BEEN MADE OUT THAT THEY ARE IN THE NATURE OF TH E SERVICES WITHIN THE MEANING OF SEC. 9(1 )(VI) OR 9(1)(VII) BEING ROYAL TY OR 'TECHNICAL SERVICES'. THE REVENUE COULD NOT ASSAIL THE ASSESSEES ABOVE C ONTENTIONS . SINCE THE :-9-: ITA NO. 213/MDS/2017 ABOVEPAYMENTS ARE NOT CHARGEABLE TO TAX IN INDIA U/ S 9(1)(VII) R.W.S. 195, THE PROVISIONS OF S.40(A)(I) WILL NOT BE APPLICABLE. TH E CORRESPONDING GROUNDS OF THE REVENUE ARE DISMISSED. 6. ON THE ADDITION ON ACCOUNT OF BOGUS PURCHASE: THE AO RECEIVED INFORMATION FROM THE CIT-I, CHENNAI VIDE C.NO.1278/CIT- 1/2014-15 DATED 14.8.2014 THAT THE ASSESSEE COMPANY HAS MADE SOME BOGUS PURCHASE ENTRIES FOR AY 2011-12 TO THE EXTENT OF RS . 3,17,126/-. WHEN THE AR WAS ASKED TO CLARIFY THEIR TRANSACTIONS WITH MAAN D IAMONDS, IT WAS CLARIFIED THAT THEY HAD PURCHASED WITH MAAN DIAMONDS DURING E ARLIER YEARS, BUT NO TRANSACTION WAS CARRIED OUT DURING THE YEAR. THIS C ONTENTION WAS NOT ACCEPTED BY HIM AS THE ENTIRE BOGUS TRANSACTIONS WERE ADMITT ED BY BANWARILAL JAIN (THE PERSON WHO FURNISHED THE ENTRIES) IN HISSTATEMENT R ECORDED U/S.132(4) DURING THE FY 2011-12. 6.1 THE CIT(A) THE HELD AS UNDER: 20. I HAVE CAREFULLY PERUSED THE FACTS IN ISSUE, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. THE SOLE BASI S OF THE DISALLOWANCE MADE BY THE AO RESTED ON THE STATEMENT RECORDED U/S.132( 4) OF THE IT ACT SOME TIME DURING THE FY 2011-12 RELEVANT TO AY 2012-13 MADE B Y ONE MR. BANWARILAL JAIN. EVIDENTLY SHRI.BANWARILAL JAIN WAS PROVIDING ACCOMM ODATION ENTRY TO SEVERAL TRADERS AND BUSINESSMEN. SUCH INFORMATION WAS RECEI VED BY THE AO FROM THE CIT-I CHARGE VIDE INTIMATION DATED 14.1.2014, THE A MOUNT INVOLVED BEING RS. 3,17,126/-. BY WAY OF CLARIFICATION SOUGHT FROM THE APPELLANT BY THE AO, THE SAME WERE CONFIRMED AS TRANSACTIONS VALIDLY HELD WI TH MAAN DIAMONDS DURING EARLIER YEARS, BUT NO TRANSACTION WERE CARRIED OUT DURING THE YEAR. THE :-10-: ITA NO. 213/MDS/2017 GRIEVANCE OF THE APPELLANT IS THAT THAT THE STATEME NTS AND MATERIALS RELIED UPON BY THE AO WERE NOT MADE AVAILABLE NOR THE OPPORTUNI TY TO CROSS EXAMINE SHRI. BANWARILAL JAIN WERE NOT MADE AVAILABLE TO THE APPE LLANT. NOTWITHSTANDING THE SAME, THE APPELLANT ITSELF DENIED HAVING ANY TRANSA CTION OF PURCHASE OR OTHERWISE WITH M/S. MAAN DIAMONDS DURING THE YEAR U NDER CONSIDERATION IN WHICH THE DISALLOWANCE HAS BEEN MADE BY THE AO. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE PURCHASES ACCO UNTED FOR BY THE APPELLANT DURING THE IMPUGNED YEAR INCLUDED PURCHASE FROM M/S . MAAN DIAMONDS. THE AO OUGHT TO HAVE ASCERTAINED AS TO THE YEAR (AY) TH E TRANSACTION OF RS.3,17,126/- PERTAINS TO ESPECIALLY IN VIEW OF THE ASSERTION THAT NO PURCHASE FROM M/S. MAAN DIAMOND WAS MADE AND ACCOUNTED FOR B Y THE APPELLANT DURING THE PERIOD UNDER CONSIDERATION. THIS IS RELEVANT JU XTAPOSED WITH THE ASSERTION THAT NO PURCHASES OR TRANSACTIONS WERE MADE WITH M/ S. MAAN DIAMONDS BY THE APPELLANT DURING THE YEAR UNDER APPEAL. THE BALD ST ATEMENT OF ONE SHRI.BANWARILAL JAIN CANNOT FORM THE BASIS OF THE S UBSTANTIVE DISALLOWANCE FROM THE TOTAL PURCHASES ACCOUNTED FOR IN THE ABSENCE OF MATERIAL TO SHOW THAT ANY PURCHASE WAS ATTRIBUTED TO M/S. MAAN DIAMONDS AT TH E FIRST PLACE. THE DISALLOWANCE MADE BY THE AO CANNOT BE UPHELD AND HE NCE THE PLEA OF THE APPELLANT SUCCEEDS. THIS GROUND OF APPEAL IS ALLOWE D. 6.2 THE REVENUES RELEVANT GROUNDS OF APPEAL ARE AS UNDER: 3. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE MADE IN RESPECT OF BOGUS PURCHASES OF RS.3,17,126/-. 3.1 THE LEARNED C!T(A) FAILED TO APPRECIATE THAT T HE ADDITION WAS MADE BASED ON THE FINDINGS OF THE INVESTIGATION WING THA T THE PURCHASES WERE BOGUS IN NATURE. 3.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE DID NOT FURNISH ANY MATERIAL EVIDENCE TO PROVE THAT THE TRA NSACTION TOOK PLACE IN THE EARLIER A.Y.2011-12. 6.3 THE DR ASSAILED THE ORDER OF THE CIT(A) BASED O N THE ASSESSMENT ORDER AND ON THE ABOVE GROUNDS OF APPEAL. PER CONTRA, TH E AR SUBMITTED DURING THE :-11-: ITA NO. 213/MDS/2017 ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS INFORMED T HE AO BY ITS LETTER DATED 23.03.2015 THAT THE PURCHASE OF RS 3,17,126 WAS IN RESPECT OF A.Y. 2011-12 AND IN THE IMPUGNED ASSESSMENT YEAR VIZ A.Y. 2012-1 3, THERE WERE 'NO TRANSACTIONS' . BY ITS LETTER DATED 24.03.2015, TH EASSESSEE HAS ENCLOSED A COPY OF THE PURCHASE BILL DATED 21.10.2010 WHICH PE RTAINS TO A.Y.2011-12. THE AR CLARIFIED THAT THEASSESSEEHAS PURCHASED WITH MAA N INDUSTRIES DURING EARLIER YEARS AND NO TRANSACTION WAS CARRIED DURING THE YE AR. STILL , THE MADE THIS ADDITION. BEFORE THE CIT(A}, THE ASSESSEE HAS FILED DETAILS LIKE RECEIPT NOTES, PAYMENT VOUCHERS, RETAIL INVOICE AND BANK STATEMENT IN WHICH THE PAYMENT OF RS 3,17,126 WAS CLEARED. STILL THE REVENUE HAS R AISED A GROUND THAT 'THE ASSESSEE DID NOT FURNISH ANY MATERIAL EVIDENCE TO P ROVE THAT THE TRANSACTION TOOK PLACE IN THE EARLIER A.Y.2011-12. 7. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH RELEVANT MATERIAL. ON THE ABOVE FACTS, WE DO NOT FIND ANY REASON TO INTER FERE THE ORDER OF THE CIT(A) AND HENCE THE CORRESPONDING GROUNDS OF THE REVENUE ARE DISMISSED. 8. ON THE DISALLOWANCE OF PF & ESI: THE AO DISALLOWED RS. 7,10,666/- EMPLOYEES CONTRIB UTION & ESI RS. 73,244/- WHICH WAS REMITTED TO GOVERNMENT BEFORE TH E DUE DATE AND FILED RETURN U/S. 139(1). THE CIT(A) HELD AS UNDER: 22. I HAVE CAREFULLY PERUSED THE FACTS IN ISSUE, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON RECORD. AS REGARDS TH E DISALLOWANCE OF DELAYED :-12-: ITA NO. 213/MDS/2017 PAYMENT ON EMPLOYEES CONTRIBUTION TO PF IS CONCERNE D, IT WILL SERVE USEFUL PURPOSE TO REFER TO CIRCULAR NO.22/2015 DATED 17.12 .2015 IN F.NO. 279/MISC./140/ 2015-ITJ. IT HAS BEEN CLARIFIED THER EIN, THAT THE APEX COURT DECISION IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD 185 TAXMAN 416 HAS BEEN ACCEPTED WITH REGARD TO THE EMPLOYER'S CONTRIBUTION TO THE PF FUND OR SUPERANNUATION FUND OR GRATUITY FUND IF DEPOSITED O N OR BEFORE THE DUE DATE. NO DISALLOWANCE COULD BE MADE U/S 438 OF THE ACT. I T HAS ALSO BEEN CONTRIBUTION TO WELFARE FUNDS GOVERNED BY S.36(1 )( VA). HOWEVER, IN VIEW OF THE JURISDICTIONAL HIGH COURT'S DECISION DATED 24.7 .2015 IN THE CASE OF CIT VS. INDUSTRIAL SECURITY AND INTELLIGENCE INDIA (P) LTD IN TC (A) NO.585 & 586 OF 2015 AND MP NO.1 OF 2015, IT HAS BEEN HELD THEREIN PLACING RELIANCE ON THE DELHI HIGH COURT'S DECISION IN THE CASE OF AIMIL LT D 321 ITR 508, THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TOWAR DS PF AND ESI AFTER THE DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT, BUT BEFORE THE DUE DATE OF FILING OF THE RETURN UNDER THE INCOME TAX ACT, NO DISALLOW ANCE COULD BE MADE IN VIEW OF THE PROVISIONS U/S.43B AS AMENDED BY FINANCE ACT 2003. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE HIGH C OURT, THE PLEA OF THE APPELLANT IS ALLOWED. THIS GROUND OF APPEAL IS ALLO WED. 8.1 THE REVENUES RELEVANT GROUNDS OF APPEAL ARE AS UNDER: 4. THE LEARNED C!T(A) HAS ERRED IN DELETING THE ADD ITION MADE IN RESPECT OF EMPLOYEES CONTRIBUTION TOWARDS PF & ESI OF RS.7,83,910/- WHICH WAS REMITTED BEYOND THE PRESCRIBED DUE DATES 4.1 THE LEARNED CIT(A) ERRED IN DELETING THE ADDIT ION MADE IN RESPECT OF DELAYED REMITTANCE OF ITS EMPLOYEES CONTRIBUTION OF PROVIDENT FUND DESPITE THE FACT THAT CIRCULAR NO.22/2015 DATED 17.12.2015 CLEA RLY APPLIES TO CLAIM OF DEDUCTION RELATING EMPLOYERS' CONTRIBUTION AND NOT FOR EMPLOYEES CONTRIBUTION TO WELFARE FUNDS. 4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT A NY RECEIVED SUM RECEIVED ON ACCOUNT OF EMPLOYEES' CONTRIBUTION TO PROVIDENT FUND & ESI NOT REMITTED WITHIN THE DUE DATE IS TO BE TREATED AS THE INCOME OF THE ASSESSEE AND TAXED IN HIS HANDS AS PER PROVISIONS OF SEC.2(24)(X) OF THE LT. ACT, 1961. :-13-: ITA NO. 213/MDS/2017 8.2 THE DR ASSAILED THE ORDER OF THE CIT(A) BASED O N THE ASSESSMENT ORDER AND ON THE ABOVE GROUNDS OF APPEAL. PER CONTRA, TH E AR SUBMITTED THAT THE RETURN WAS FILED ON 28.09.2012 AND THE REMITTANCES WERE MADE BEFORE THE DUE DATE ON FILING RETURN. ALTHOUGH, THE CIT(A) DELET ED THE DISALLOWANCEBASED ON THE JURISDICTIONAL HIGH COURT DECISIONS STILL THE D EPARTMENT HAS FILED THIS APPEAL. 9. WE HEARD THE RIVAL CONTENTIONS. SINCE, THE CIT( A) HAS APPLIED THE RATIO OF THE JURISDICTIONAL HIGH COURT, HIS ORDER IN THIS REGARD DOES NOT REQUIRE INTERFERENCE. THE CORRESPONDING GROUNDS OF REVENUE S APPEAL ARE DISMISSED. 10. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON THURSDAY, THE 28 TH DAY OF DECEMBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 28 TH DECEMBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF