DCIT, CHENNAI V. M/s. Karmen International Pvt Ltd., CHENNAI

ITA 225/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77290 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: A S SRIRAMAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ I.T.A. NO.225/MDS/2013 ( / ASSESSMENT YEAR : 2007 -2008) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(4), CHENNAI-34. ( # /APPELLANT) VS M/S. KARMEN INTERNATIONAL P. LTD, NO.12, PONNIAMMA NAGAR ROAD, AYANAMBAKKAM, CHENNAI 600 095. [PAN :AABCK 8998A] ( $% # /RESPONDENT) / APPELLANT BY : SHRI. SHAJI P. JACOB, I.R.S. ADDL.CIT / RESPONDENT BY : SHRI. A.S. SRIRAMAN, ADVOCATE /DATE OF HEARING : 17.04.2014. !' /DATE OF PRONOUNCEMENT : 30.05 .2014. & / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THE APPEAL HAS BEEN FILED BY THE REVENUE ASSAILING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, COIMBA TORE, DATED 01.11.2012 RELEVANT TO THE ASSESSMENT YEAR 2007-08. THE APPEAL IS I.T.A.NO225/MDS/2013 . :- 2 -: DIRECTED AGAINST DELETION OF DISALLOWANCE U/S.40(A) (I) FOR NON DEDUCTION OF TAX AT SOURCE ON THE COMMISSION PAYMENTS MADE T O THE NON- RESIDENT U/S.195(2) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) AND DELETING THE DISALLOWANCE U/ S.14A OF THE ACT. 2. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FO R ASSESSMENT YEAR 2007-08 ON 31.10.2007 DECLARING ITS TOTAL INCO ME AS F3,21,67,140/-. THE CASE OF THE ASSESSEE WAS SELEC TED FOR SCRUTINY AND NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE O N 24.07.2008. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSES SING OFFICER MADE DISALLOWANCE U/S. 40(A)(I) FOR NOT DEDUCTING TAX AT SOURCE ON COMMISSION PAID TO M/S. MET-TECH INTERNATIONAL PRIV ATE LTD F40,62,000/- AND DISALLOWANCE U/S. 14A FOR NOT ALLO CATING ANY EXPENDITURE ON EARNING DIVIDEND INCOME OF F1,22,27 5/-. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATE D 16.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS). 3. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IM PUGNED ORDER DELETED THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER AND ALLOWED THE APPEAL OF THE ASSESSEE. NOW, THE REVEN UE HAS COME IN I.T.A.NO225/MDS/2013 . :- 3 -: APPEAL ASSAILING THE FINDINGS OF THE COMMISSIONER O F INCOME TAX (APPEALS). 4. SHRI SHAJI P. JACOB, REPRESENTING THE DEP ARTMENT REITERATED THE GROUNDS RAISED IN THE APPEAL AND PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER AND RESTORE THE FINDINGS OF THE ASSE SSING OFFICER. ON THE OTHER HAND, SHRI. A.S. SRIRAMAN, ADVOCATE APPEA RING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISMISSAL OF TH E APPEAL OF REVENUE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE R EPRESENTATIVE OF BOTH SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHO RITIES BELOW. THE ASSESSEE HAS PAID COMMISSION TO FOREIGN AGENT M/S.M ET-TECH INTERNATIONAL PTE, SINGAPORE FOR PROCURING EXPORT O RDERS FOR THE ASSESSEE FROM COMPANIES LOCATED IN JAPAN, INDONESIA AND UK. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN CATE GORIC FINDING THAT THE FOREIGN AGENT HAD NOT EXTENDED ANY TECHNIC AL SERVICES BUT HAD ONLY PROCURED EXPORT ORDERS. THE COMMISSION WAS PAI D BY THE ASSESSEE ON VARIOUS DATES THROUGH BANKING CHANNELS FOR THE S ERVICES RENDERED OUTSIDE INDIA. THE COMMISSION HAS BEEN REMITTED IN FOREIGN CURRENCY I.T.A.NO225/MDS/2013 . :- 4 -: OUTSIDE INDIA. THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE REMAIN UNREBUTTED. THE HON BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY VS. CIT REPORTED AS 327 ITR 456 HAS HELD THAT, IF THE INCOME CHARGEABLE TO TA X IS NOT ASSESSABLE IN INDIA, THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE. IN VIEW OF THE WELL SETTLED LAW AND THE FACTS OF THE CASE, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ( APPEALS) ON THE ISSUE. 6. THE SECOND GROUND RAISED IN THE APPEAL BY THE RE VENUE IS AGAINST DELETING DISALLOWANCE U/S.14A F97,402/-. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF F1,22,275/-. THE ASSESS ING OFFICER APPLIED THE PROVISION OF RULE 8D. THE COMMISSIONER OF INCOM E TAX (APPEALS) DELETED THE ENTIRE DISALLOWANCE. THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD VS. DCIT REP ORTED AS 328 ITR 81 (BOM) HAS HELD THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 ONWARDS. THUS, THE PROVISION OF RULE 8D CANNOT BE APPLIED IN THE A SSESSMENT YEAR UNDER APPEAL I.E. 2007-08. HOWEVER, REASONABLE DIS ALLOWANCE HAS TO BE MADE FOR EARNING TAX FREE INCOME. THE ASSESSEE HAS MADE ADDITIONAL INVESTMENT OF F1.33 CRORES DURING THE RE LEVANT FINANCIAL I.T.A.NO225/MDS/2013 . :- 5 -: YEAR. EVEN IF THE INVESTMENT IS MADE FROM OWN FUND S, THE ASSESSEE MUST HAVE BEEN SPENDING SOME AMOUNT IN MANAGING ITS INVESTMENT PORTFOLIO WHICH IS TO THE TUNE OF F2.62 CRORES. IN OUR CONSIDERED VIEW, 5% OF THE DIVIDEND INCOME EARNED IS JUST AND REASON ABLE FOR MAKING DISALLOWANCE U/S. 14A. 7. IN VIEW OF OUR ABOVE FINDINGS, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 30TH OF MAY, 201 4, AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( ) (VIKAS AWASTHY) ! / JUDICIAL MEMBER #$ /DATED:30.05.2014. K.V $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF. I.T.A.NO225/MDS/2013 . :- 6 -: