Kemit Chemicals Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-2(1)(2), Ahmedabad

ITA 2593/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0954 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 23-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T C MEENA
• Assessee Lawyers: S N DIVETIA
• Keywords: Transfer pricing; International transaction; Corroborative evidences; Set aside
• Section: 195; 2

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 2593/AHD/2017 / ASSESSMENT YEAR: 2014-15 KEMIT CHEMICALS P.LTD. 78/12, GIDC, VATVA, PHASE-I VATVA AHMEDABAD 382 445. PAN : AAACK 5879 N VS ITO, WARD-2(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. DIVETIA, AR REVENUE BY : SHRI T.C.MEENA, SR.DR / DATE OF HEARING : 25/03/2019 /DATE OF PRONOUNCEMENT : 26/03/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE LD.CIT (A)-2, AHMEDABAD DATED 16.10.2017 PASSED FOR THE ASSTT.YEAR 2014-15. 2. THE ASSESSEE HAS TAKEN THREE GROUNDS OF APPEAL A LONGWITH SUB- GROUNDS. HOWEVER, ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.26,33,008/- WHICH WAS ADDED BY THE AO BY MAKING DISALLOWANCE OU T OF FOREIGN AGENT COMMISSION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 25.11.2014 DECLARING TOTAL INCOME AT RS.9 ,02,910/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER ITA NO.2593/AHD/2017 - 2 - SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSES SEE. THE ASSESSEE COMPANY AT THE RELEVANT TIME WAS ENGAGED IN MANUFAC TURING VARIOUS CHEMICALS. IT HAS MADE EXPORTS OF THESE CHEMICALS AND PAID COMMISSION TO FOREIGN AGENTS. THE LD.AO HAS DISALLOWED THE CO MMISSION CLAIMED BY THE ASSESSEE AT RS.26,33,008/-. ON APPEAL, THELD.C IT(A) HAS FOLLOWED ORDER OF HER PREDECESSOR IN THE ASSTT.YEAR 2012-13. VERBATIM SAME FINDING HAS BEEN RECORDED IN THIS YEAR. FOR REFERE NCE, WE TAKE NOTE OF PARA 3.7 WHICH READS AS UNDER: 3.7. HAVING CONSIDERED THE FACTS AND SUBMISSION, I T IS NOTICED THAT THE AO HAS POINTED OUT VARIOUS DISCREPANCIES IN RESPECT OF THE CLAIM OF COMMISSION PAYMENTS TO FOREIGN AGENTS WHICH HAVE NO T BEEN MET OUT BY THE APPELLANT THROUGH SUBMISSION OF DETAILS AND EVI DENCES IN SUPPORT. THE APPELLANT HAS NOT GIVEN ANY REASONS FOR NOT MAKING ANY UNDERTAKING IN FORM NO. 15CA &. OBTAINING THE CERTIFICATE IN FROM NO. 15CB FROM THE ACCOUNTANT IN VIEW OF THE RBI GUIDELINES AND PROVIS ION OF SECTION 195 R.W. RULE 37BB OF THE I. T. RULES. WITHOUT FURNISHI NG OF SUCH CERTIFICATES, THE FOREIGN REMITTANCES ARE NOT PERMISSIBLE. FURTHE R, THE APPELLANT HAS NOT PROVIDED COPIES OF ANY AGREEMENTS MADE WITH THE AGE NTS SPECIFYING THE TERMS AND CONDITIONS OF THEIR SCOPE OF WORK AND RAT E OF COMMISSION AND PAYMENT OF SUCH COMMISSION TO THEM. IT IS NEEDLESS TO MENTION THAT IN INTERNATIONAL TRANSACTIONS SUCH KIND OF WRITTEN DOC UMENTS BECOMES MANDATORY TO AVOID ANY KIND OF LITIGATIONS. IN THE INSTANT CASE, HAVING -: AGREEMENT BECOMES MORE IMPORTANT IN VIEW OF THE FAC T THAT THE RATES OF COMMISSION PAYMENT TO EACH OF AGENTS WERE DIFFERENT . FURTHER, THE APPELLANT'S CONTENTION THAT THE PAYMENTS TO THEM HA VE BEEN MADE THROUGH BANKING CHANNELS CANNOT BE SAID TO CONCLUSI VE EVIDENCE IN VIEW OF THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE O F CIT VS. P. MOHANAKALA (2007) 291 ITR 278 (SC). THUS, THE IDENTIT Y OF THE AGENTS HAVE NOT BEEN ESTABLISHED AND THE APPELLANT HAS ALS O NOT BEEN ABLE TO PROVE THAT ANY SERVICES HAVE ACTUALLY BEEN RENDERED BY TH ESE AGENTS. 3.8. FOREIGN COMMISSION WAS PAID TO THESE TWO PARTI ES IN THE A. Y. 2012- 13 & CIT(A)-2, AHMEDABAD HAS CONFIRMED THE DISALLOW ANCES. IN VIEW OF THE AFORESAID DISCUSSION THE DISALLOWANCE OF THE CO MMISSION PAYMENTS MADE BY THE AO FOR THE REASONS DISCUSSED IN THE ASS ESSMENT ORDERS IS FOUND CORRECT AND JUSTIFIED AND THUS, THE SAME IS C ONFIRMED. THE RELATED GROUNDS OF APPEAL ARE DISMISSED. ITA NO.2593/AHD/2017 - 3 - 4. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT IN THE ASSTT.YEAR 2012-13, THE TRIBUNAL HAS SET ASIDE THIS ISSUE TO THE FILE FOR AO FOR RE-ADJUDICATION. HE PRAYED THAT IN VIEW OF ORDER OF ITAT IN THE ASSTT.YEAR 2012-13, THIS ISSUE ALSO BE SET ASIDE TO THE FILE OF FOR RE- ADJUDICATION. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT(A). 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. WE FIND THAT THE LD.CIT(A) HAS NOT RECORDE D ANY FINDING IN THIS YEAR, RATHER FOLLOWED FINDING OF THE LD.CIT(A) IN T HE ASSTT.YEAR 2012-12. THAT FINDING DID NOT MEET APPROVAL OF THE ITAT. TH EREFORE, ORDER OF THE LD.CIT(A) IS NOT SUSTAINABLE. DISCUSSION MADE BY T HE TRIBUNAL ON THIS ISSUE READS AS UNDER: 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW UNDISPU TED MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE IS A MANUFACTURER OF CHEMICALS, AND IT HAS EXPORTED ITS PRODUCTS TO VARIOUS COUNTRIES. IT IS IN THIS CONNECTION THAT THE ASSESSEE IS SAID TO HAVE PAID SALES COMMISSION, TO NON- RESIDENT AGENTS, AGGREGATING TO R.36,79,799/-. DURING THE CO URSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT NEITHER THE ASSESSEE HAS FURNISHED INFORMATION, AS REQUIRED UND ER RULE 37BB, IN RESPECT OF THESE FOREIGN REMITTANCES, NOR THE ASSES SEE HAS FURNISHED SATISFACTORY DETAILS ABOUT THE NATURE OF SERVICES, COMPLETE DETAILS OF AGENT AND EVIDENCES TO PROVE BONAFIDES OF CLAIM. IT WAS A LSO NOTED THAT THERE IS NO CONSISTENT OR REASONABLE BASIS, SUCH AS RELATION SHIP TO EXPORTS, IN RESPECT OF THESE PAYMENTS, AND THAT THERE WAS NO EV IDENCE, SUCH AS AGREEMENT OR EXCHANGE OF LETTERS, TO SUBSTANTIATE T HE AGENCY ARRANGEMENTS. THE FACT OF BANK PAYMENT, ACCORDING T O THE ASSESSING OFFICER, COULD NOT BE TREATED AS PROOF OF BONAFIDES . IT WAS, INTER ALIA, IN THIS BACKDROP THAT THE COMMISSION OF RS.36,79,799/- WAS DISALLOWED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. WHILE CONFIRMING THE DISALLOWANCE, LEARNED CIT(A) OBSERVED AS FOLLOWS :- ITA NO.2593/AHD/2017 - 4 - 3.7 HAVING CONSIDERED THE FACTS AND SUBMISSION, IT IS NOTICED THAT THE AO HAS POINTED OUT VARIOUS DISCREPANCIES IN RES PECT OF THE CLAIM OF COMMISSION PAYMENTS TO FOREIGN AGENTS WHIC H HAVE NOT BEEN MET OUT BY THE APPELLANT THROUGH SUBMISSION OF DETAILS AND EVIDENCES IN SUPPORT. THE APPELLANT HAS NOT GIVEN A NY REASONS FOR NOT MAKING ANY UNDERTAKING IN FORM NO.15CA & OBTAIN ING THE CERTIFICATE IN FORM NO.15CB FROM THE ACCOUNTANT IN VIEW OF THE RBI GUIDELINES AND PROVISION OF SECTION 195 R.W. RU LE 37BB OF THE I.T. RULES. WITHOUT FURNISHING OF SUCH CERTIFICATES, THE FOREIG N REMITTANCES ARE NOT PERMISSIBLE. FURTHER, THE APPELLANT HAS NOT PRO VIDED COPIES OF ANY AGREEMENTS MADE WITH THE AGENTS SPECIFYING THE TERMS AND CONDITIONS OF THEIR SCOPE OF WORK AND RATE OF COMMI SSION AND PAYMENT OF SUCH COMMISSION TO THEM. IT IS NEEDLESS TO MENTION THAT IN INTERNATIONAL TRANSACTIONS SUCH KIND OF WRITTEN DOCUMENTS BECOMES MANDATORY TO AVOID ANY KIND OF LITIGATIONS. IN THE INSTANT CASE, HAVING AGREEMENT BECOMES MORE IMPORTANT IN VI EW OF THE FACT THAT THE RATES OF COMMISSION PAYMENT TO EACH OF AGE NTS WERE DIFFERENT. EVEN THE DECLARATIONS MADE BY THE AGENTS NAMELY; M/S TE HUI TRADING CO. & M/S. PERFECT PVT. LTD. BOTH WERE FOUND ON PLAIN PAPERS WITH THE SAME LANGUAGE THAT ALSO CREAT ED A SUSPICION OVER THE GENUINENESS OF THE CLAIM AND TO REMOVE SUC H SUSPICION THE APPELLANT HAS NOT PROVIDED ANY FURTHER DETAILS/EVID ENCES. FURTHERMORE, IN THE CASE OF M/S TE HUI TRADING CO., EVEN THE EMAIL ADDRESS WAS PROVIDED WITH REGARD TO A DIFFERE NT COMPANY SITUATED AT USA AND AS PER APPELLANTS CONNECTION, IT WAS THE ASSOCIATE CONCERN OF M/S. TE HUI TRADING CO., THEN ALSO THE NECESSARY EVIDENCES IN SUPPORT WOULD HAVE BEEN SUBM ITTED. BUT THE ASSESSEE HAS FAILED TO REBUT THE CONTENTION OF THE AO BY FILING ANY SUPPORTING EVIDENCES. FURTHER, THE APPELLANTS CONT ENTION THAT THE PAYMENTS TO THEM HAVE BEEN MADE THROUGH BANKING CHA NNELS CANNOT BE SAID TO CONCLUSIVE EVIDENCE IN VIEW OF TH E JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. P MOHANAK ALA (2007) 291 ITR 278 (SC). THUS, THE IDENTITY OF THE AGENTS H AVE NOT BEEN ESTABLISHED AND THE APPELLANT HAS ALSO NOT BEEN ABL E TO PROVE THAT ANY SERVICES HAVE ACTUALLY BEEN RENDERED BY THESE A GENTS. 3.8 IN VIEW OF THE AFORESAID DISCUSSION THE DISALLOWANCE O F THE COMMISSION PAYMENTS MADE BY THE AO FOR THE REASONS DISCUSSED I N THE ASSESSMENT ORDERS IS FOUND CORRECT AND JUSTIFIED AN D THUS, THE SAME IS CONFIRMED. THE RELATED GROUNDS OF APPEAL ARE DIS MISSED. ITA NO.2593/AHD/2017 - 5 - 4. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 6. WE FIND THAT THERE IS NO CONTEMPORANEOUS EVIDENC E ABOUT RENDITION OF SERVICES BY THE NON RESIDENT AGENTS NO AGREEMENTS , NO LETTERS, NOT EVEN EXCHANGE OF EMAILS OR ANY OTHER CONTEMPORANEOUS EVI DENCE WHATSOEVER, WHICH COULD DEMONSTRATE THAT THESE AGENTS HAD RENDE RED ANY SERVICES TO THE ASSESSEE. WE HAVE ALSO NOTED THAT EVEN THE RATE OF COMMISSION IS NOT CONSISTENT OR UNIFORM. ALL THESE FACTORS HARDLY HEL P THE ASSESSEE TO CLAIM BONAFIDES OF COMMISSION EXPENSE. THE ONUS OF DISCHA RGING GENUINENESS OF COMMISSION, WHICH IS ON THE ASSESSEE, HAS NOT BEEN DISCHARGED. WHEN WE PUT OUR THIS UNDERSTANDING TO THE LEARNED COUNSEL, HE SUBMITTED THAT THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUNITY TO DI SCHARGE THIS ONUS AS CENTRAL POINT DISCUSSIONS BEFORE THE AUTHORITIES BE LOW WAS TECHNICALITIES REGARDING NON-COMPLIANCE WITH RULE 37BB AND NUANCES OF TAXATION OF INCOME IN THE HANDS OF NON-RESIDENT AGENT. HIS STAN D THAT THE ASSESSEE WAS NEVER EVEN CALLED UPON TO PRODUCE CONTEMPORANEO US EVIDENCE FOR RENDITION OF SERVICES, THIS PLEA IS CORRECT TO A FA IR EXTENT. THE QUESTION OF EXAMINING TAXATION IN THE HANDS OF NONRESIDENT, AND RESULTANT TAX WITHHOLDING OBLIGATIONS, OR THE COMPLIANCE WITH RUL E 37BB, WHATEVER BE ITS RELEVANCE, IS A MUCH LATER STAGE. WHEN THE ASS ESSEE IS NOT SPECIFICALLY ASKED TO GIVE EVIDENCE FOR RENDITION OF SERVICES, T HAT FACT CANNOT BE PUT AGAINST THE ASSESSEE. HAVING SAID THAT, IT IS ALSO NECESSARY TO BEAR IN MIND THAT RENDITION OF SERVICE, AND EVIDENCE TO ESTABLIS H THAT FACT, IS A FUNDAMENTAL ASPECT. WE, THEREFORE, DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRE SH ADJUDICATION AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO THE AS SESSEE, IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE ORD ER SO. 7. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 1ST DAY OF NOVEMBER, 2018. 6. A PERUSAL OF THE ABOVE WOULD INDICATE THAT THE F INDING RECORDED BY THE LD.CIT(A) IN THE ASSTT.YEAR 2012-13 AND IN THIS YEAR ARE VERBATIM SAME. THEREFORE, THE FOLLOWING THE ORDER OF THE IT AT IN THE ASSTT.YEAR ITA NO.2593/AHD/2017 - 6 - 2012-13, WE ALLOW THIS APPEAL AND SET ASIDE THIS IS SUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. NEEDLESS TO MENTION, THE AO SHALL PROVIDE REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCORDANCE WITH LAW, AND ASSESSEE SHALL BE AT LIBERTY TO PRODUCE ANY EVIDENCE IN SUPPORT OF HI S CASE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 26 TH MARCH, 2019. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER