DCIT, New Delhi V. M/s. Power Machine (India) Ltd., New Delhi

ITA 2221/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7092 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 08-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 2221/DEL/2014 A.Y. : 2009-10 DCIT, CIRLCE 14(1), ROOM NO. 221, 2 ND FLOOR, CR BUILDING, IP ESTATE, NEW DELHI VS. M/S POWER MACHINES (INDIA) LTD., LGF-69-70, VIJAYA BUILDING, 17, BARAKHAMBA ROAD, NEW DELHI 110 001 (PAN: AABCP7860M) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. FR MEENA, SR. DR ASSESSEE BY : SH. MANOJ GUPTA, CA DATE OF HEARING : 08-08-2016 DATE OF ORDER : 05-09-2016 ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 7/1/2014 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XVII, DELHI O N THE FOLLOWING GROUNDS:- 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. ITA NO. 2221/DEL/2014 2 4,85,24,202/- MADE BY THE AO U/S. 40(A)(I) OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ABOVE SAID ADDITION IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS PAID SUBSTANTIAL AMOUNT AS BANK GUARANTEE COMMISSION ON WHICH TAX WAS NOT DEDUCTED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE REVENUE IS IN APPEAL IN ITAT ON SIMILAR ISSUES INVOLVED IN EARLI ER YEARS IN ASSESSSEE OWN CASE. HENCE, THE MATTER IS SUB-JUDICE AND HAS NOT ATTAINED ITS FINALITY. 4. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND / OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAS FILE D ITS RETURN DECLARING NIL INCOME ON 29.9.2009. IN THE COMPUTATION CHART OF INCOME THE ASSESSEE COMPANY CLAIMED UNABSORBED DEPR ECIATION AND UNABSORBED BUSINESS LOSS OF RS. 9,04,54,773/- WHICH INCLUDED BUSINESS LOSS AND DEPRECIATION TO THE TUNE OF RS. 3 ,04,60,459/- AND RS. 58,20,013/- RESPECTIVELY FOR THE ASSESSMENT YEAR 2 008-09. THE ASSESSSEE COMPANY CLAIMED CARRY FORWARD OF BUSI NESS LOSS TO THE TUNE OF RS. 2,04,31,948/- AND RS. 3,04,60,459/- F OR THE ASSESSMENT YEAR 2007-08 AND 2008-09 RESPECTIVELY. AC CORDINGLY, NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 WAS IS SUED ON 28.8.2010 AND IN RESPONSE TO THE SAME ASSESSEE A.R. ATTENDED ITA NO. 2221/DEL/2014 3 THE PROCEEDINGS AND FILED THE NECESSARY DETAILS. AO H ELD THAT THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT TAX ON THE PAYM ENT OF RS. 4,85,24,202/- TO VTB BANK, BUT IT FAILED TO DO SO . THEREFORE, AS PER THE PROVISION OF SECTION 40(A)(I), THE AMOUNT OF RS. 4,85,24,202/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY COMPLETING THE ASSESSMENT AT RS. 9,01,75,6 35/- U/S. 143(3) OF THE I.T. ACT, 1961 VIDE HIS ORDER DATED 15 .2.2013. 3. AGGRIEVED WITH THE AFORESAID ORDER, ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 7.1.2014 HAS DELETED THE ADDITION IN DISPUTE BY PAR TLY ALLOWING THE APPEAL OF THE ASSESSEE. 4. NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNED ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS AND REQUESTED THAT APPEAL OF THE REVENUE MAY BE ALLOW ED. 6. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT HE HAS PASS ED A WELL REASONED ORDER AND DELETED THE ADDITION ON THE BASIS O F THE LD. CIT(A)-VII, DELHI DECISION FOR THE ASSESSMENT YEARS 2006-07 TO 2008-09. HE FURTHER STATED THAT IN THE EARLIER YEARS I. E. AYRS. ITA NO. 2221/DEL/2014 4 2006-07 TO 2008-09 AGAINST THE ORDER OF THE LD. CIT(A) , DEPARTMENT WENT IN APPEAL BEFORE THE TRIBUNAL AND TH E TRIBUNAL VIDE ORDER DATED 5.2.2016 HAS DISMISSED THE APPEALS OF THE REVENUE BY UPHOLDING THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE. IN THIS BEHALF, HE FILED THE COPY OF THE TRIBUNALS ORDER DATED 5.2.2016 FOR THE ASSESSMENT YEARS 2006-07 TO 2008-09 IN ASSESSEES OWN CASE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS. WE FIND THAT LD. CIT(A) IN HIS IMPUGNED ORDER HAS HELD AS UNDER:- 6.7 IT IS NOTED THAT THE FACTS AND CIRCUMSTANCES OF TH E CASE, DURING THIS YEAR ARE SIMILAR TO A.Y. 2006-07, 2007-08 AND 2008-09. THE LD. CIT(A)-VII, DELHI HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT AFTER GIVING A DETAILED FINDING. SINCE THERE ARE N O NEW FACTS AND THERE IS NO CHANGE IN THE CIRCUMSTANCES OF THE CASE DURING THIS YEAR, I DO NOT FIND ANY SCOPE TO DEVIATE FROM THE FINDINGS OF THE LD. CIT(A)-VII, DELHI FOR AY 2006-07, 2007-08 AND 2008-09. THEREFORE, WITH A VIEW TO MAINTAIN CONSISTENCY, THE ISSUE DECIDED IN FAVOUR OF THE APPELLANT. THE ADDITION ON ACCOUNT OF DISALLOWANCE OF RS. 4,85,24,202/- MADE U/S. 40(A)(I) IS DELETED. THIS GROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. ITA NO. 2221/DEL/2014 5 7.1 WE ALSO FIND THAT ITAT VIDE ITS ORDER DATED 5.2.2 016 IN REVENUES APPEALS BEING ITA NO. 3834/DEL/2009 (AY 2 006-07); ITA NO. 53/DEL/2011 (AY 2007-08) AND ITA NO. 1815/DEL/2 011 (AY 2008-09) HAS ADJUDICATED THE ISSUE IN DISPUTE VIDE PA RA NO. 8 TO 8.6 VIDE PAGE NO. 10 TO 13 AND DECIDED THE SIMILAR ISSUE IN AGAINST THE REVENUE BY UPHOLDING THE ORDER OF THE LD. CIT(A). THE RELEVANT PORTION OF THE ITAT ORDER IS REPRODUCED AS UNDER:- 8. GROUND NO.3 OF I.T.A.NO. 3834/DEL/2009 (A.Y. 20 06- 07) AND GROUND NO.1 OF I.T.A. NOS. 53 AND 1815/DEL/2011 (A.YRS. 2007-08 & 2008-09): UNDISPUTEDLY, ASSESSEE COMPANY CLAIMED RS.5,20,56,831/-, RS.5,52,49,559/- AND S.4,77,71,12 3/- ON ACCOUNT OF BANK GUARANTEE COMMISSION HAVING BEEN PAID TO A FOREIGN BANK ON BEHALF OF HOLDING COMPANY OF THE ASSESSEE QUA ASSESSMENT YEARS 2006-07, 2007-08 & 2008-09 RESPECTIVELY AND THE SAME HAVE BEEN DISALLOW ED BY THE ASSESSING OFFICERS U/S 40(A)(1) OF THE ACT BE CAUSE OF NON DEDUCTION OF TAX AT SOURCE (TDS) PAID IN INDIA . 8.1 THE ASSESSING OFFICER AFTER DECLARING THE BANK GUARANTEE COMMISSION PAID BY THE ASSESSEE COMPANY IN INDIA TO A FOREIGN BANK AS INTEREST U/S 2(28A) OF TH E ACT, DISALLOWED THE SAME U/S 40(A)(1) OF THE ACT BUT HIS DECISION HAS BEEN REVERSED BY LD. CIT(A) VIDE IMPUG NED ORDER, WHICH IS NOW UNDER CHALLENGE BEFORE THE TRIBU NAL. ITA NO. 2221/DEL/2014 6 8.2 UNDISPUTEDLY, VTB BANK IS A FOREIGN BANK SITUATED OUTSIDE THE TERRITORIAL JURISDICTION OF INDIA HAVING NO PE IN INDIA NOR HAVING ANY BUSINESS CONNECTIONS IN INDIA V TB BANK MAKES THE CANARA BANK TO ISSUE BANK GUARANTEE BY TENDERING ITS OWN COUNTER GUARANTEE MEANING THEREBY THE CONTRACT FOR PROVIDING BANK GUARANTEE HAS BEEN ENTERED INTO BETWEEN THE APPELLANT COMPANY AND VTB BANK RUSSIA; THAT VTB BANK HAS RENDERED ALL THE SERV ICES FROM OUTSIDE INDIA; THAT HE ASSESSEE COMPANY HAS PAID BANK GUARANTEE COMMISSION TO A NON RESIDENT BANK I.E. VTB BANK, RUSSIA HAVING NO PE IN INDIA. 8.3 NOW, THE FIRST QUESTION ARISES FOR DETERMINATION IS, AS TO WHETHER THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT THE TAX AT SOURCE (TDS) ON BANK GUARANTEE COMMISSION PAID IN INDIA TO VTB BANK, A FOREIGN BANK. SINCE, TH E ASSESSING OFFICER BY INVOKING PROVISIONS CONTAINED U/S 40(A)(1) OF THE ACT, DISALLOWED THE AMOUNT PAID BY TH E ASSESSEE COMPANY AS BANK GUARANTEE COMMISSION TO A FOREIGN BANK TREATING THE SAME AS INTEREST, WE WOULD HAVE TO DECIDE FIRST, AS TO WHETHER THE BANK GUARAN TEE COMMISSION PAID BY THE ASSESSEE COMPANY TO A FOREIGN BANK CAN BE TREATED AS INTEREST UNDER THE ACT MAKING IT OBLIGATORY FOR THE ASSESSEE COMPANY TO DEDUCT THE TAX A T SOURCE (TDS)? FOR FINDING OUT THE ANSWER TO THE AFORESAID QUESTION, WE ARE REQUIRED TO DECIDE FIRST, AS TO ITA NO. 2221/DEL/2014 7 WHETHER THE ASSESSEE COMPANY WAS LIABLE TO DEDUCT THE TAX AT SOURCE (TDS) ON BANK GUARANTEE COMMISSION PAID IN INDIA TO VTB BANK, A FOREIGN BANK. 8.4 WHEN THE ASSESSEE COMPANY HAS PLACED ON RECORD F OR PERUSAL OF THE REVENUE AUTHORITIES COGENT MATERIAL THAT IT HAS PAID BANK GUARANTEE COMMISSION TO A FOREIGN BAN K, THE ASSESSING OFFICER COULD NOT LAY HANDS ON ANY MAT ERIAL TO TREAT THE BANK GUARANTEE COMMISSION AS INTEREST OR DEEMED INTEREST ALLEGED TO BE PAID BY THE ASSESSEE COMPANY TO THE FOREIGN BANK. MOREOVER, THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY HAS NOT BORROWED ANY FUNDS FORM VTB BANK, RUSSIA ON WHICH, IT WAS REQUIRE D TO PAY THE INTEREST. SECTION 2(28A) OF THE ACT DEFINES TH E INTEREST PAID IN ANY MANNER IN RESPECT OF ANY MON EYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLA IM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WH ICH HAS NOT BEEN UTILIZED. ON THE OTHER HAND, COMMISSION IS A SPECIFIED SUM IN TERMS OF PERCENTAGE TO BE PAID TO AN AGENT OR SALESMAN FOR SERVICES RENDERED. SINCE IN TH IS CASE, VTB BANK, RUSSIA GOT BANK GUARANTEE ISSUED BY CANARA BANK BY TENDERING ITS OWN COUNTER GUARANTEE AN D CHARGED THE COMMISSION THEREON IRRESPECTIVE OF THE F ACT THAT THE BANK GUARANTEE HAS BEEN UTILIZED OR NOT, WE A RE OF THE CONSIDERED VIEW THAT BY ANY STRETCH OF IMAGINAT ION EVEN THE BANK GUARANTEE COMMISSION CANNOT BE TREATED AS INTEREST AS DECIDED BY THE ASSESSING OFFICER. ITA NO. 2221/DEL/2014 8 8.5 NOW, THE NEXT QUESTION ARISES FOR DETERMINATION I S, AS TO WHETHER ASSESSEE COMPANY WAS LIABLE TO DEDUCT THE TAX AT SOURCE ON THE BANK GUARANTEE COMMISSION PAID TO VTB BANK U/S 195 OF THE ACT. 8.6 IN ORDER TO FIND OUT THE ANSWER TO THE AFORESAID QUESTION, FIRST OF ALL, IT IS REQUIRED TO BE DECIDED, AS TO WHETHER SUM PAYABLE ON ACCOUNT OF BANK GUARANTEE COMMISSION BY THE ASSESSEE COMPANY TO VTB BANK IS CHARGEABLE TO TAX UNDER THE ACT? WHEN THE REVENUE AUTHORITIES HAVE FAILED TO LAY HANDS ON ANY COGENT MATERIAL THAT THE BANK GUARANTEE COMMISSION PAID BY THE ASSESSEE COMPANY PAID ON ACCOUNT OF BUSINESS TRANSACTION BETWEEN ASSESSEE COMPANY AND VTB BANK PARTICULARLY IN THE FACE OF THE FACT THAT VTB BANK HA S NO PE IN INDIA, THE QUESTION OF ATTRACTING PROVISION CONTAI NED U/S 195 OF THE ACT DOES NOT ARISE. IN OTHER WORDS, WHE N THE ASSESSEE COMPANY HAS DIRECTLY MADE THE PAYMENTS TO VTB BANK, RUSSIA THROUGH ITS BANKER IN INDIA, NO INCOME CAN BE SAID TO HAVE ACCRUED OR ARISEN IN IND IA TO THE VTB BANK U/S 4, 5 AND 9 OF THE ACT. SO, IN THE GIV EN CIRCUMSTANCES, ASSESSEE COMPANY WAS NOT LIABLE TO DEDUCT THE TAX AT SOURCE ON THE BANK GUARANTEE COMMISSION PAID TO A FOREIGN BANK. FINDING NO ILLEG ALITY OR PERVERSITY IN THE FINDINGS RETURNED BY THE LD. CIT( A) ON THIS ISSUE, GROUND NO.3 OF I.T.A. NO. 3834/DEL/2 009 (ASSESSMENT YEAR 2006-07) AND GROUND NO.1 OF I.T.A. NOS. 53 AND 1815/DEL/2011 (ASSESSMENT YEARS 2007-08 & 2008-09) ARE DETERMINED AGAINST THE REVENUE. ITA NO. 2221/DEL/2014 9 8. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AN D RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION, AS AFORESAI D IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006-07 TO 2008-0 9, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS PASSED A W ELL REASONED ORDER ON THE ISSUE IN DISPUTE AND HENCE, WE UPHOLD T HE SAME AND REJECT THE GROUNDS RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/09/2016. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 05/09/2016 SRBHATNAG AR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES