Global Calcium Pvt. Ltd., Hosur V. DCIT, CHENNAI

ITA 2255/CHNY/2013

• Counselvise Citation: 225521714 RSA 2013
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M VISWANATHAN
• Keywords: Earning of tax free income; Permanent establishment; Non-deduction of tax
• Section: 143(3); 14A; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . . !' , # '$ % [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.2255/MDS/2013 / ASSESSMENT YEAR : 2009-10 M/S GLOBAL CALCIUM PVT. LTD 125 & 126, SIPCOT INDUSTRIAL COMPLEX HOSUR 635 126 VS. THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(2) CHENNAI [PAN AAACG 2998 N] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NO.372/MDS/2014 / ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(2) CHENNAI VS. M/S GLOBAL CALCIUM PVT. LTD 125 & 126, SIPCOT INDUSTRIAL COMPLEX HOSUR 635 126 ( &' / APPELLANT) ( ()&' /RESPONDENT) ASSESSEE BY : SHRI M. VISWANATHAN, CA DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL. CIT / DATE OF HEARING : 30-06-2014 / DATE OF PRONOUNCEMENT : 22-07-2014 I.T.A.NO.2255/13 & 372/14 :- 2 -: '* / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE CROSS APPEALS FILED BY ASSESSEE AND THE RE VENUE FOR ASSESSMENT YEAR 2009-10, ARE DIRECTED AGAINST THE COMMISSIONER OF INCOME-TAX (APPEALS)-II CHENNAIS ORDER DATED 21.10 .2013 PASSED IN APPEAL NO.546/2013-14, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE IN ITS APPEAL I.T.A.NO.2255/MDS/2013, CHALLENGES THE CIT(A)S ORDER AFFIRMING DISALLOWANC ES/ADDITIONS OF ` 11,92,282/- U/S 14A R.W.R 8D QUA EXEMPT INCOME A ND THAT OF ` 47,84,000/- TOWARDS PROVISION FOR INSURANCE SETTLEM ENT; MADE BY THE ASSESSING OFFICER. WHEREAS THE REVENUES SOLE SUBS TANTIVE GRIEVANCE IN ITS APPEAL I.T.A.NO.372/MDS/2014 IS THAT THE CIT (A) OUGHT TO HAVE UPHELD THE DISALLOWANCE U/S 40(A)(I) OF ` 50,48,590/- ON ACCOUNT OF NON-DEDUCTION OF TAX ON EXPORT COMMISSION PAYMENTS. 3. BRIEF FACTS COMMON TO BOTH APPEALS ARE THAT THE ASS ESSEE- COMPANY IS A BULK DRUG MANUFACTURER. ON 28.8.2009, IT HAD FILED RETURN ADMITTING INCOME OF ` 4,23,73,140/- WHICH WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OFFICER FRAME D REGULAR ASSESSMENT ON 28.12.2011 INTER ALIA, DISALLOWING/A DDING SUMS OF ` I.T.A.NO.2255/13 & 372/14 :- 3 -: 11,92,282/- RELATING TO EXEMPT INCOME U/S 14A R.W .R 8D, ` 47,84,000/- QUA PROVISION FOR INSURANCE SETTLEMENT AND ` 50,48,590/- U/S 40(A)(I) OF THE ACT RESPECTIVELY. IN LOWER APP ELLATE ORDER, THE CIT(A) HAS SUSTAINED THE FORMER TWO DISALLOWANCES/A DDITIONS AND DELETED THE LAST ONE. THEREFORE, BOTH PARTIES ARE IN APPEAL. PER ASSESSEE, THE CIT(A) OUGHT TO HAVE DELETED THE DISA LLOWANCES U/S 14A R.W.R 8D AND THE ONE PERTAINING TO PROVISION FOR I NSURANCE SETTLEMENT AS WELL. ON THE OTHER HAND, THE REVENUE PLEADS FOR RESTORATION OF DISALLOWANCE U/S 40(A)(I) (SUPRA). 4. FIRST WE COME TO ASSESSEES APPEAL I.T.A.NO.2255/ MDS/2013. ITS FIRST GROUND ASSAILS DISALLOWANCE OF ` 11,92,282/- U/S 14A R.W.R 8D. IN RELEVANT PREVIOUS YEAR, THE ASSE SSEE HAD DERIVED EXEMPT INCOME FROM DIVIDENDS OF ` 93,403/- WITHOUT ATTRIBUTING ANY CORRESPONDING EXPENDITURE IN ITS PROFIT & LOSS ACCO UNT. THE ASSESSING OFFICER DREW AN INFERENCE THAT IT MUST HAVE INCURRE D SOME INDIRECT EXPENSES IN SUPERVISING HUGE INVESTMENTS OF ` 3,98,74,285/-. HE REFUSED THE ASSESSEES PLEAS THAT THE EXEMPT IN COME WAS NON- RECURRING IN NATURE DUE TO SHORT TERM INVESTMENTS M ADE FROM INTERNAL ACCOUNTS. IN ASSESSMENT ORDER, THE ASSESSING OFFIC ER OBSERVED THAT IN VIEW OF SPECIAL BENCH DECISION OF DELHI ITAT IN CHE MINVEST LTD VS ITO IN I.T.A.NO.87/DEL/2008 DATED 5.8.2009, DISALLOWAN CE U/S 14A COULD I.T.A.NO.2255/13 & 372/14 :- 4 -: BE MADE EVEN IN CASE OF NO EXEMPT INCOME. REGARD ING ASSESSEES BOOKS, HE HELD THAT THERE EXISTED A COMMON BASKET O F INTEREST AND NON-INTEREST BEARING FUNDS AND THERE WAS NO EVIDENC E OF UTILIZATION OF ONLY THE LATTER FUNDS FOR INVESTMENTS IN QUESTION. PROCEEDING ON THESE REASONS, THE ASSESSING OFFICER APPLIED RULE 8D AND COMPUTED THE IMPUGNED DISALLOWANCE OF ` 11,92,282/-. 5. IN LOWER APPELLATE ORDER, THE CIT(A) HAS AFFIRMED T HE ASSESSING OFFICERS FINDINGS. 6. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE HAS EARNED EXEMPT INCOME FROM DIVIDENDS AMOUNTING TO ` 93,403/-. IT HAS NOT ATTRIBUTED ANY EXPENDITURE RELATING TO EARNING OF THIS EXEMPT INCOME IN THE PROFIT & LOSS ACCOUNT. IN ASSESSMENT ORDER, THE AS SESSING OFFICER HAS NOT RECORDED ANY DISSATISFACTION TOWARDS THE ASSES SEES CLAIM BASED ON ITS BOOKS TO THIS EFFECT. HE SEEMS TO HAVE PRO CEEDED ON A MERE INFERENCE THAT SOME INDIRECT EXPENDITURE IS EMBEDDE D TOWARDS MAINTAINING SUCH INVESTMENTS AMOUNTING TO CRORES OF RUPEES. COUPLED WITH THIS, THE ASSESSING OFFICER REFERS TO ASSESS EES COMMON POOL OF INTEREST AND INTEREST FREE FUNDS WITHOUT ANY DETAIL S THEREOF. WE FIND FROM SECTION 14A(2) THAT IN ARRIVING AT SUCH A DISSATISFACTION OVER AN I.T.A.NO.2255/13 & 372/14 :- 5 -: ASSESSEES CLAIM OF NOT HAVING INCURRED ANY EXPENDI TURE RELATABLE TO ITS EXEMPT INCOME IN BOOKS OF ACCOUNT, THE CONCERNED ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT THE SAID BOOKS AND THEN ON LY, HE CAN RESORT TO COMPUTATION OF SUCH EXPENSES UNDER RULE 8D. IN THI S CASE, THE ASSESSING OFFICER HAS ONLY DRAWN AN INFERENCE THAT SOME INDIRECT EXPENDITURE IS ALWAYS INVOLVED IN SUPERVISION OF SU CH HUGE INVESTMENTS. AND THAT TOO, WITHOUT EVEN SPECIFICALL Y STATING ANYTHING REGARDING THE ENTRIES IN THE ASSESSEES BOOKS. IN O UR VIEW, THIS APPROACH IS NOWHERE A PART OF THE RELEVANT STATUTOR Y PROVISION IN SECTION 14A(2) OF THE ACT. SO, BOTH THE LOWER AUTH ORITIES HAVE WRONGLY MADE THE DISALLOWANCE IN QUESTION OF ` 11,92,282/- U/S 14A R.W. RULE 8D. THE SAME STANDS DELETED. 7. NOW WE COME TO ASSESSEES OTHER GROUND CHALLENGING DISALLOWANCE OF ` 47,84,000/- PERTAINING TO PROVISION FOR INSURANCE SETTLEMENT. IN SCHEDULE-20 OF THE PROFIT & LOSS AC COUNT, THE ASSESSEE HAD MADE THIS PROVISION STATED TO HAVE ARISEN FROM PART REJECTION OF ITS EXPORT CONSIGNMENT. BEING A BULK DRUG MANUFACTURER , THE ASSESSEE HAD EXPORTED ITS PRODUCE WORTH ` 6.65 CRORES TO A DUTCH ENTITY NAMELY PURAC BIO CHEM. THE EXPORT CONSIGNMENT COMPRISED O F 35 FULL LOADS OF 40 CONTAINERS. OUT OF THEM, 5 CONTAINERS STOOD RE JECTED FOR QUALITY REASONS. THE ASSESSEE HAD REALIZED FULL AMOUNT TH EREOF. BECAUSE OF I.T.A.NO.2255/13 & 372/14 :- 6 -: PART REJECTION, IT HAD MADE THE AFORESAID PROVISION BY FORESEEING ITS LIABILITY TO MAKE GOOD THE REJECTED MATERIAL TO THE CONSIGNEE IN CASE THE INSURER COMPANY REFUSED THE CLAIM. THE ASSESS EE HAD ALSO PLACED ON RECORD REJECTION LETTER OF THE ORIENTAL I NSURANCE COMPANY LTD. DATED 28.9.2010 DECLINING THE CLAIM. IT SUBMI TTED THAT TO MAKE GOOD THE AFORESAID CLAIM, THIS PROVISION @ 50% OF T HE VALUE OF REJECTED GOODS WAS WELL JUSTIFIED. THE ASSESSING O FFICER TURNED DOWN THIS CLAIM BY HOLDING INTER ALIA THAT THE SAME DID NOT COME U/S 37 OF THE ACT, THE CLAIM AMOUNT HAD NOT BEEN PAID TILL PA SSING OF THE ASSESSMENT ORDER AND THE IMPUGNED LIABILITY WAS ONL Y A CONTINGENT ONE. CONSEQUENTLY, THIS SUM OF `47,84,000/- WAS DISALLOWED/ADDED IN ASSESSEES INCOME. 8. IN APPEAL, THE CIT(A) OBSERVES THAT THERE IS SOME L ITIGATION PENDING BETWEEN THE ASSESSEE AND ITS INSURER M/S O RIENTAL INSURANCE COMPANY LTD WHICH MIGHT BE DECIDED IN ITS FAVOUR GI VING RISE TO SOME RECEIPT AS WELL. HE HOLDS THAT IN SUCH A CASE, THI S PROVISION WOULD NEITHER BE A LIABILITY NOR AN EXPENDITURE. THEREAF TER, THE CIT(A) IS OF THE VIEW THAT TILL HIS ORDER, THE CONSIGNEE ENTITY (SUPRA) HAD EVEN NOT RAISED THE CLAIM WHICH WOULD BE REJECTED BY THE INS URER. HE HOLDS THIS INSURANCE LIABILITY TO BE ONLY AN UNASCERTAINED ONE NOT ALLOWABLE IN THE IMPUGNED ASSESSMENT YEAR. I.T.A.NO.2255/13 & 372/14 :- 7 -: 9. WE HAVE HEARD BOTH PARTIES AND PERUSED THE RELEVANT FINDINGS. ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE BEING A BULK DRUG MANUFACTURER HAD EXPORTED ITS PRODUCE TO A DUT CH CONSIGNEE. A PART OF THIS CONSIGNMENT HAS BEEN REJECTED FOR QUAL ITY REASONS BECAUSE THE PRODUCE WAS KEPT IN A CUSTOMS BONDED HOUSE IN STEAD OF IMMEDIATE DELIVERY RESULTING IN DETERIORATION OF IT S QUALITY. BEFORE US, THERE IS NO COGENT EVIDENCE PRODUCED TO CONCLUDE TH AT MERE REJECTION OF SUCH A PRODUCE WHOLLY OR IN PART BY WHATSOEVER REASONS GIVES RISE TO A COMPENSATION CLAIM. THE FACT ALSO REMAINS THA T TILL DATE, THE CONSIGNEE ENTITY IS YET TO RAISE ITS CLAIM. THE DA MAGES AMOUNT IS YET TO BE ASCERTAINED. IN THESE CIRCUMSTANCES, WE OBSE RVE THAT THE ASSESSEE HAS FAILED TO PROVE THE NATURE OF LIABILIT Y CLAIMED AS AN ASCERTAINED ONE. THEREFORE, WE FIND NO FAULT WITH THE CIT(A)S ORDER AFFIRMING THE IMPUGNED DISALLOWANCE OF ` 47,84,000/-. SO, THE ASSESSEES RELEVANT GROUND FAILS. ASSESSEES APPEAL I.T.A.NO.2255/MDS/2013 IS PARTL Y ALLOWED. 10. NOW WE COME TO REVENUES APPEAL I.T.A.NO.372/MDS/20 14 RAISING SOLE SUBSTANTIVE ISSUE OF DISALLOWANCE OF ` 50,48,590/- U/S 40(A)(I) OF THE ACT. THE ASSESSEE HAD PAID OVERSE AS EXPORT SALES COMMISSION OF ` 40,07,215/- ALONGWITH PROFESSIONAL CHARGES OF ` I.T.A.NO.2255/13 & 372/14 :- 8 -: 10,40,375/- PAID TO M/S INDAC LTD., LONDON WITHOUT SUBJECTING THE SAME TO TDS PROVISION. IN SCRUTINY, IT SUBMITTE D THAT THE PAYEES HAD NEITHER RENDERED ANY SERVICES IN INDIA NOR THE COMM ISSION EXPENSES WERE PAID IN INDIAN CURRENCY. PER ASSESSEE, AS BO TH THE SAID PAYMENTS WERE NOT TAXABLE AS INCOME IN THE HANDS OF OVERSEAS ENTITIES, THERE WAS NO TDS LIABILITY ON ITS PART. IN ASSESSMENT ORDER, THE ASSESSING OFFICER HELD THAT AS THE ASSESSEE HA D PAID OVERSEAS EXPENSES FOR ITS BUSINESS PURPOSES CARRIED ON IN IN DIA, THESE PAYMENTS WOULD BE DEEMED TO HAVE ARISEN IN INDIA GIVING RISE TO TDS DEDUCTION. HE REFERRED TO A CATENA OF CASE LAW AND MADE THE IM PUGNED DISALLOWANCE/ADDITION. 11. IN ASSESSEES APPEAL, THE CIT(A) HOLDS THAT THE IM PUGNED OVERSEAS COMMISSION PAYMENTS FOR PROCURING EXPORT A ND MARKETING ORDERS HAVE BEEN PAID TO NON-RESIDENT AGENTS NOT H AVING ANY BUSINESS CONNECTION OR PERMANENT ESTABLISHMENT IN INDIA AS T HEY ARE OPERATING AND RENDERING SERVICES OUTSIDE THE COUNTRY. PER CI T(A), THESE PAYMENTS ARE NOT TAXABLE IN PAYEES HANDS IN INDIA. HE ALSO REFERS TO CASE LAW GE TECHNOLOGY CEN. P. LTD VS CIT [2010] 32 7 ITR 456(SC) AS WELL AS M/S FARIDA SHOES P. LTD I.T.A.NO. 159/MDS/2 013 DATED 11.4.2013 OF CHENNAI ITAT TO HOLD THAT IN THESE FAC TS, THE IMPUGNED DISALLOWANCE COULD NOT HAVE BEEN MADE. I.T.A.NO.2255/13 & 372/14 :- 9 -: 12. WE HAVE HEARD BOTH PARTIES AND PERUSED ORDERS OF T HE LOWER AUTHORITIES. IT IS EVIDENT THAT THE EXPORT COMMIS SION PAYMENTS MADE TO OVERSEAS AGENTS READ ` 40,07,215/-. PER REVENUE, THESE PAYMENTS OUGHT TO HAVE BEEN SUBJECTED TO TDS PROVISION POSTU LATED IN THE ACT WHOSE NON-COMPLIANCE INVITES DISALLOWANCE U/S 40(A) (I). HOWEVER, NO COGENT MATERIAL HAS BEEN PLACED ON RECORD TO PRO VE RENDERING OF ANY TECHNICAL OR MANAGERIAL SERVICES U/S 9 OF THE A CT OR THAT THE PAYMENTS ARE TAXABLE AS INCOME IN INDIA. THE ASSE SSEES OVERSEAS AGENTS HAVE PROCURED EXPORT ORDERS AND RENDERED MAR KETING SERVICES OUTSIDE INDIA AND IN LIEU THEREOF PAYMENTS HAVE BEE N MADE IN FOREIGN COUNTRIES. A CO-ORDINATE BENCH (SUPRA) HAS DECIDE D THE VERY ISSUE THAT IN PAYMENTS MADE FOR EXPORT COMMISSION ETC., N O TDS LIABILITY ARISES TO AN ASSESSEE. THE HON'BLE APEX COURT (SUP RA) HAS ALSO HELD THAT TDS LIABILITY ARISES ONLY IN CASE THE COMMISSI ON PAYMENTS ARE TAXABLE IN INDIA. THUS, WE FOLLOW SAID CASE LAW AN D REJECT THE REVENUES CORRESPONDING GROUNDS. 13. BEFORE PARTING, WE FIND THAT THE REVENUES PLEADIN GS PRAY FOR RESTORATION OF DISALLOWANCE U/S 40(A)(I) OF ` 50,48,590/- COMPRISING OF ` 40,07,215/- AS EXPORT COMMISSION AND ` 10,40,375/- AS PROFESSIONAL CHARGES. THE CIT(A) HAS ALREADY AFFIR MED THE LATTER DISALLOWANCE. IN THESE CIRCUMSTANCES, THE REVENUE S AMOUNT STATED AS I.T.A.NO.2255/13 & 372/14 :- 10 -: ` 50,48,590/- IS MODIFIED TO ` 40,07,215/- WHICH HAS ALREADY BEEN ADJUDICATED IN ASSESSEES FAVOUR HEREINABOVE. THE REVENUES APPEAL I.T.A.NO.372/MDS/2014 IS DISM ISSED. 14. TO SUM UP, ASSESSEES APPEAL I.T.A.NO.2255/MDS/201 3 IS PARTLY ALLOWED WHEREAS THE REVENUES APPEAL I.T.A.N O.372/MDS/2014 IS DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 22 ND OF JULY, 2014, AT CHENNAI. SD/- SD/- ( . . . ) (DR. O.K. NARAYANAN) / VICE-PRESIDENT ( . . !' ) (S. S. GODARA) ! / JUDICIAL MEMBER '# / CHENNAI $ / DATED: 22 ND JULY, 2014 RD #% & '( )#( / COPY TO: 1 . *+ / APPELLANT 4. , / CIT 2. &-*+ / RESPONDENT 5. (./ & 0 / DR 3. , () / CIT(A) 6. /3 4 / GF