M/s Aquarell India Pvt Ltd, Bengaluru V. Deputy Commissioner of Income tax, Circle-1(1)(1), Bengaluru

ITA 28/BANG/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0886 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-12-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 03-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARASIMHA RAJU JDIT
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Rule of consistency; Additional evidence; Permanent establishment; TDS; Set aside
• Section: 142(1); 40(a)(ia); 37(1); 195; 201; 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BENGALURU BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER I.T.A NO.28/BANG/2018 (ASSESSMENT YEAR: 2014-15) M/S. AQUARELLE INDIA PVT. LTD., NO.570, NEW NO.22, 32 ND CROSS, 11 TH MAIN, JAYANAGAR, 4 TH BLOCK , BENGALURU 560 011. [PAN: AAGCA 1203Q] VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU. ( /APPELLANT ) ( /RESPONDENT ) / APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A / RESPONDENT BY : SHRI M. NARASIMHA RAJU, JDIT / DATE OF HEARING : 02.12.2019 /DATE OF PRONOUNCEMENT : 20.12.2019 O R D E R PER D.S. SUNDER SINGH, A.M : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, BENGALURU ( HEREAFTER REFERRED AS CIT(A)) IN ITA NO.194/CIT(A)1/16-17, DATED 27.09. 2017 FOR THE ASSESSMENT YEAR (AY) 2014-15. 2. GROUNDS NO.1.1 AND 1.20 ARE GENERAL IN NATURE WHIC H DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO.1.2 TO 1.9 ARE RELATED TO THE ADDITIO N OF RS.91,18,238/- U/S. 80JJAA OF THE INCOME TAX ACT, 1961 ('THE ACT'). T HE BRIEF FACTS ARE THAT THE ITA NO.28/BANG/2018 :- 2 -: ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G GARMENTS. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE HAS CLAIMED T HE DEDUCTION OF RS. 1,23,12,539/- U/S. 80JJAA OF THE ACT. THE DEDUCTION U/S 80JJAA OF THE ACT IS ALLOWABLE IN RESPECT OF ADDITIONAL EMPLOYEE COST OF NEW EMPLOYEES @30% OF COST INCURRED IN THE REGULAR COURSE OF BUSINESS. T HE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT THE DEDUCTION U/S. 80JJAA OF THE A CT IS ALLOWABLE FROM THE PROFITS AND GAINS DERIVED BY THE ASSESSEE TO THE EXTENT OF 30% OF THE ADDITIONAL EMPLOYEE COST INCURRED IN THE COURSE OF BUSINESS DU RING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF THE ADDITIONAL WAGES PAID TO THE NEW EMPLOYEES WHO ARE EMPLOYED ON REGULAR BASIS AND COMPLETED 300 DAYS OF EMPLOYMENT IN THE PRECEDING YEAR RELEVANT TO THE A. Y UNDER CONSIDERATION. THE AO ASKED THE DETAILS AND FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO FOUND THAT THE ASSESSEE HAD ENGAGED 381 EMPLOYEES D URING THE YEAR AND OUT OF WHICH 186 EMPLOYEES HAVE COMPLETED THE EMPLOYMENT O F 300 DAYS. THE ASSESSEE CONTENDED BEFORE THE AO THAT AS PER THE PR OVISIONS OF THE ACT, THERE WAS NO REFERENCE OF NEW EMPLOYEES EMPLOYED IN THE P RECEDING YEARS ARE NOT ELIGIBLE FOR DEDUCTION U/S. 80JJAA OF THE ACT IN TH E SUBSEQUENT ASSESSMENT YEAR. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THAT I NTERPRETATION OF THE SECTION SHOULD BE MADE IN A MANNER IN WHICH IT PROMOTES THE OBJECTIVE SOUGHT TO BE ACHIEVED AND NOT TO FRUSTRATE IT. THE LD AR FURTHER SUBMITTED BEFORE THE AO THAT BENEFICIAL PROVISION MUST BE INTERPRETED LIBERALLY. THE ASSESSEE SUBMITTED THAT DEDUCTION SHOULD NOT BE RESTRICTED TO THE EMPLOYEES JOINED BEFORE 5 TH JUNE BUT SHOULD BE EXTENDED IN RESPECT OF THE EMPLOYEES COMP LETED 300 DAYS ON OR ITA NO.28/BANG/2018 :- 3 -: BEFORE FILING THE RETURN. NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE AO REJECTED THE EXPLANATION OBSERVING THAT THE DEFINITION OF NEW WORKMEN IN SECTION PROVIDES ONLY FOR THE NEW WORKME N EMPLOYED FOR PERIOD OF NOT LESS THAN 300 IN THE IMPUGNED ASSESSMENT YEARS AND THUS, THE AO ALLOWED THE DEDUCTION U/S. 80JJAA OF THE ACT FOR 24 WORKMEN WHO COMPLETED 300 DAYS OF EMPLOYMENT DURING THE IMPUGNED ASSESSMENT YEAR AMOU NTING TO RS. 31,94,301/- AND THE BALANCE AMOUNT OF RS. 91,18,23 8/-. WAS DISALLOWED ADDED BACK TO THE INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80JJAA OF THE ACT ONLY IN RESPECT OF EMPLOYEES COST IN RESPECT OF THE EMPLOYEES WHO COM PLETED THE EMPLOYMENT NOT LESS THAN 300 DAYS DURING THE PREVIOUS YEAR UNDER CONSIDERATION, SUCH WORKMEN SHOULD NOT BE CASUAL WORKMEN OR WORKMEN EMPLOYED T HROUGH CONTRACT LABOUR. THE LD. CIT(A) FURTHER VIEWED THAT IF SOME WORKMEN EMPLOYED FOR A PERIOD OF LESS THAN 300 DAYS IN THE PREVIOUS YEAR THE DEDUCTI ON IS NOT ALLOWABLE IN RESPECT OF PAYMENTS OF WAGES TO SUCH WORKMEN IN THE CURRENT YEAR, EVEN, IF SUCH WORKMEN HAS EMPLOYED IN THE PRECEDING YEAR FOR MORE THAN 300 DAYS BUT IN THE PRESENT YEAR SUCH WORKMEN HAS NOT COMPLETED FOR 300 DAYS. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT THE PART OF THE LD. CIT(A) ORDER AT PARA 22 TO 25, WHICH READS AS UNDER: 22. IN THE PRESENT CASE, THE AO HELD THAT SEC.80JJ AA WAS RESTRICTED TO ADDITIONAL WAGES PAID TO EMPLOYEES WH O HAVE WORKED FOR MORE THAN 300 DAYS DURING THE RELEVANT PERIOD I RRESPECTIVE OF WHETHER THEY WERE EMPLOYED ON A PERMANENT BASIS OR OTHERWISE. ITA NO.28/BANG/2018 :- 4 -: ACCORDINGLY, THE AO ASCERTAINED THE ADDITIONAL WAGE S PAID TO THOSE WORKERS WHO HAD WORKED FOR LESS THAN 300 DAYS OF RS .25,64,771/- AND 30% OF WHICH WORKED OUT TO RS.7,69,431/- WAS DI SALLOWED BY THE AO. THE CLAIM OF THE ASSESSEE IS THIS THAT IF T HE WORKER IS EMPLOYED ON PERMANENT BASIS THEN ONLY BECAUSE IN TH E PRESENT YEAR, WORKING DAYS ARE LESS THAN 300 DAYS BECAUSE H E WAS EMPLOYED AFTER 66 DAYS FROM THE START OF THE PREVIO US YEAR THEN NO DEDUCTION WILL BE AVAILABLE UNDER THIS SECTION IN R ESPECT OF SUCH WORKERS APPOINTED OR EMPLOYED AFTER THAT DATE AND T HEREFORE, THIS APPROACH OF THE AO IS NOT CORRECT. 23. IN OUR CONSIDERED OPINION, AS PER PROVISIONS OF SECTION 80JJAA AS REPRODUCED ABOVE, THE DEDUCTION IS ALLOWABLE FOR THREE YEARS INCLUDING THE YEAR IN WHICH THE EMPLOYMENT IS PROVI DED. HENCE, IN EACH OF SUCH THREE YEARS IT HAS TO BE SEEN THAT THE WORKMEN WAS EMPLOYED FOR AT LEAST 300 DAYS DURING THAT PREVIOUS YEAR AND THAT SUCH WORK MEN WAS NOT A CASUAL WORKMEN OR WORKMEN E MPLOYED THROUGH CONTRACT LABOUR. THEREFORE, IF SOME WORK ME N WERE EMPLOYED FOR A PERIOD LESS THAN 300 DAYS IN THE PRE VIOUS YEAR THEN NO DEDUCTION IS ALLOWABLE IN RESPECT OF PAYMENT OF WAGE TO SUCH WORK MEN IN THE PRESENT YEAR, EVEN IF SUCH WORK MEN WAS EMPLOYED IN THE PRECEDING YEAR FOR MORE THAN 300 D AYS BUT IN THE PRESENT YEAR, SUCH WORK MEN WAS NOT EMPLOYED FOR 30 0 DAYS OR MORE. IN THIS VIEW OF THE MATTER, WE FIND NO INFIRM ITY IN THE ORDER OF THE ID.CIT(A) ON THIS ISSUE. 4. NOW WE EXAMINE THE APPLICABILITY OF THE JUDGMENT OF THE HON'BLE APEX COURT CITED BY THE ID. AR OF THE ASSESSEE. IN OUR CONSIDERED OPINION, THE ISSUE IN DISPUTE IN THAT CASE WAS ENTI RELY DIFFERENT AND THEREFORE, THIS JUDGMENT IS NOT APPLICABLE IN THE P RESENT CASE. 25. IN OUR CONSIDERED OPINION, THE BOARD CIRCULAR N O.772 ALSO DOES NOT RENDER ANY HELP TO THE ASSESSEE. HENCE, THIS GR OUND IS REJECTED.' (EMPHASIS SUPPLIED) FURTHER, THE HON'BLE ITAT IN THE CASE OF TEXAS INST RUMENTS (I) (P.) LTD. [2014] 45 TAXMANN.COM 353 (BANGALORE - TRIB.), SEPTEMBER 7, 2012 HAVE HELD IN THE CONTEXT OF CLAIM UNDER SEC TION 80JJAA -OF THE INCOME-TAX ACT, 1961-RELEVANT EXTRACT IS AS UND ER: 'A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH O F THIS TRIBUNAL IN THE CASE OF 'LG ELECTRONICS INDIO PVT. LTD. (SUP RA) IN PARAS 12 & 13 AS UNDER: '12. AS REGARDS THE MERITS OF THE CASE, REGARDING C LAIM U/S 80JJAA THE SECTION READS AS UNDER:-' (I) WHERE THE. GROSS TOTAL INCOME OF AN ASSESSEE BE ING AN INDIAN COMPANY INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OR PRODUCTIO N OF ARTICLES OF THINGS THERE. SHALL SUBJECT TO THE CONDITIONS SPECI FIED IN SUB-SECTION (2) BE ALLOWED AS DEDUCTION OF AN AMOUNT EQUAL TO 3 0% OF ADDITIONAL WAGES PAID TO THE NEW REGULAR WORKMEN EM PLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESSMENT YEARS INCLUDING ITA NO.28/BANG/2018 :- 5 -: THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH SUCH EMPLOYMENT IS PROVIDED; 13. THE EXPLANATION TO SECTION DEFINES REGULAR WORK MEN WHICH DOES NOT INCLUDE:- A) CASUAL WORKER; B) ANY OTHER WORKMEN EMPLOYED FOR A PERIOD OF LESS THAN 300 DAYS DURING THEPREVIOUS YEAR. (C) A WORKMEN EMPLOYED THROUGH CONTRACT LABOUR. THE DEFINITION OF NEW WORKMEN IN SECTION ALONG WITH EXPLANATION CLEARLY PROVIDES THAT DEDUCTION WILL BE AVAILABLE O NLY IF THE NEW WORKMEN IS EMPLOYED FOR A PERIOD OF 300 CLAYS IN TH E PREVIOUS YEAR AND THERE IS NO REFERENCE TO THE NEW EMPLOYEES EMPL OYED IN THE PRECEDING YEAR FOR ELIGIBILITY U/S 80J.LAA. FORM NO .10DA WHICH IS REQUIRED FOR MAKING CLAIM U/S 80JJAA ALSO DOES NOT HAVE. ANY COLUMN IN RESPECT OF EMPLOYEE EMPLOYED DURING THE P RECEDING YEAR. THE ARGUMENT TAKEN BY ID. AR THAT EMPLOYEES E MPLOYED IN THE PRECEDING YEAR WHO HAD NOT COMPLETED 300 DAYS I N THAT YEAR SHOULD BE TAKEN IN THE CURRENT YEAR WHEN HE COMPLET ES 300 CLAYS IS OF NO FORCE. IN VIEW OF THE ABOVE, WE DO NOT SEE AN Y REASON TO INTERFERE IN THE ORDER OF LCL CITCA)' WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BOSCH LTD. (.WPM) HAS ALSO TAKEN SIMILAR VIEW. 9. THEREFORE IN VIEW OF THE DECISIONS OF THIS TRIBU NAL ON THIS POINT AND TO MAINTAIN THE RULE OF CONSISTENCY, WE HOLD TH AT THE ASSESSEE HAS NOT FULFILLED THE CONDITION OF EMPLOYING THE NE W REGULAR WORKMEN IN EXCESS OF 100 WORKMEN AND FURTHER AN INC REASE OF 10% OF THE EXISTING NUMBER OR WORKMEN EMPLOYED BY THE A SSESSEE AS ON LAST DATE OF PRECEDING YEAR. THE ASSESSING OFFIC ER HAS FILED THE REMAND REPORT AND THE ASSESSEE HAS ALSO ACCEPTED TH IS FACT THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02, THE NUMBER OF WORKMEN WHO WERE EMPLOYED FROM 300 DA YS OR MORE DAYS ARE ONLY 16 AND SIMILARLY DURING THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03, THE NUMBER OF WORKMEN WHO WERE EMPLOYED FOR 300 DAYS OR MORE ME ONLY 8. T HEREFORE THE ASSESSEE DOES NOT SATISFY THE CONDITION AS PRESCRIB ED UNDER THE PROVISIONS OF SECTION 80JJAA OF THE ACT BECAUSE THE WORKMEN EMPLOYED BY THE ASSESSEE CANNOT BE INCLUDED IN THE DEFINITION OF REGULAR WORKMEN AS PER EXPLANATION TO HIS SECTION. FROM THE ABOVE JUDICIAL PRONOUNCEMENTS IT IS CLEAR THAT AS PER PROVISIONS OF SECTION 80JJAA OF THE ACT, THE DEDUCT ION IS ALLOWABLE FOR THREE YEARS INCLUDING THE YEAR IN WHICH THE EMP LOYMENT IS PROVIDED. HENCE, IN EACH OF SUCH THREE YEARS IT HAS TO BE SEEN THAT THE WORKMEN WAS EMPLOYED FOR AT LEAST 300 DAYS DURI NG THAT PREVIOUS YEAR AND THAT SUCH WORK MEN WAS NOT A CASU AL WORKMEN OR WORKMEN EMPLOYED THROUGH CONTRACT LABOUR. THEREF ORE, IF SOME WORK MEN WERE EMPLOYED FOR A PERIOD LESS THAN 300 DAYS IN THE PREVIOUS YEAR THEN NO DEDUCTION IS ALLOWABLE IN RES PECT OF PAYMENT OF WAGE TO SUCH WORK MEN IN THE PRESENT YEAR EVEN I F SUCH WORK MEN WAS EMPLOYED IN THE PRECEDING YEAR FOR MORE THA N 300 DAYS BUT IN THE PRESENT YEAR, SUCH WORK MEN WAS NOT EMPL OYED FOR 300 ITA NO.28/BANG/2018 :- 6 -: DAYS OR MORE. IN VIEW OF THE ABOVE, I AM OF THE VIE W THAT THE AO IS JUSTIFIED IN RESTRICTING THE CLAIM OF THE APPELLANT UNDER THE SPECIAL PROVISIONS OF SECTION 80JJAA OF THE ACT, AND ACCORD INGLY, THE GROUNDS OF APPEAL 2-10 ARE REJECTED. 4. AGAINST THE ORDER OF THE LD. CIT(A) , THE ASSES SEE FILED APPEAL BEFORE THIS TRIBUNAL AND THE LD.AR ARGUED THAT THE ASSESSEE HAS SATISFIED ALL THE CONDITIONS SPECIFIED U/S. 80JJAA OF THE ACT BEING ENTITLED FOR THE DEDUCTION. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO STATING THA T THE DEDUCTION U/S. 80JJAA OF THE ACT WOULD BE AVAILABLE, IF NEW WORKMEN IS EMPLO YED FOR 300 DAYS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. AGA INST THE IDENTIFICATION OF 186 WORKMEN OUT OF 381 WORKMEN, THE AO ALLOWED THE DE DUCTION ONLY IN RESPECT OF 24 WORKMEN WHICH IS GROSSLY UNJUSTIFIED. REFERRING TO PAGE NUMBER 174 OF THE PAPER BOOK, THE LD. AR SUBMITTED THAT THE TOTAL ELI GIBLE EMPLOYEES ADDED UP TO 884, CONSISTING OF269 DURING 2011-12, 234 IN 2012 - 13 AND 381 IN 2013-14 AND ARGUED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION FOR THREE YEARS AS PROVIDED U/S. 80JJAA OF THE ACT ON THE WAGES PAID TO 884 EMP LOYEES. THE ASSESSEE FURNISHED DETAILS OF NEW EMPLOYEES EMPLOYED DURING THE FINANCIAL YEAR 2011-12 TO 2013-14 MENTIONED IN PAGE NUMBER 174 OF PAPER BO OK. REFERRING PAGE NUMBER 182, THE ASSESSEE SUBMITTED THAT THE ASSESSE E IS ENTITLED FOR DEDUCTION UNDER SECTION 80JJAA OF THE ACT TO THE EXTENT OF RS 1,23,12,539/- BEING 30% OF ADDITIONAL COST ON NEW THE WORKMEN EMPLOYED IN THE FACTORY FOR MORE THAN 300 DAYS. THEREFORE ARGUED THAT SECTION 80JJAA OF THE A CT PROVIDES FOR DEDUCTION, IF, THE WORKMEN IS EMPLOYED FOR MORE THAN 300 DAYS IN A YEAR, EVEN IF IT IS NOT THE YEAR IN WHICH IT WAS ADMITTED. THE LD. AR RELIED O N THE ORDER OF THIS TRIBUNAL IN ITA NO.28/BANG/2018 :- 7 -: THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 201 3-14 IN I.T.A. NO.2737/BANG/2017 DATED 03.04.2019. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE LOWER AUTHORITIES AND REQUESTED TO CONFIRM THE ORDER OF THE LD. CIT(A ). 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE ASSESSEE SUBMITTED THAT TH E ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80JJAA OF THE ACT, IF THE WORKMEN HAS EMPLOYED FOR MORE THAN 300 DAYS IRRESPECTIVE OF THE YEAR IN WHIC H THEY WERE RECRUITED FOR THREE CONSECUTIVE YEARS, WHEREAS THE AO DISALLOWED DEDUCTION UNDER SECTION 80JJAA OF THE ACT RELATING TO THE WORKMEN WHO HAVE NOT COMPLETED 300 DAYS IN THE YEAR UNDER CONSIDERATION. THE IDENTICAL ISSUE H AS BEEN CONSIDERED BY THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2013-14, AND HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER S ECTION 80JJAA OF THE ACT.,ON ADDITIONAL WAGES PAID TO THE NEW REGULAR WORKMEN EM PLOYED IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2012-13 PROVIDED TH EY CONTINUE TO BE QUALIFIED UNDER THE REGULATION OF REGULAR WORKMEN. WE EXTRACT THE RELEVANT PART OF THE TRIBUNAL ORDER IN THE ASSESSEES OWN CASE FOR THE S AKE OF CLARITY, WHICH READS AS UNDER: 8. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE DEDUCTION U/S 80JJAA IS ALLOWED FOR THREE YEARS. AC CORDINGLY, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SHALL BE ELI GIBLE FOR DEDUCTION IN RESPECT OF WAGES PAID TO NEW REGULAR WORKMEN EMPLOY ED IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2011-12, AS THE PR ESENT ASSESSMENT YEAR IS THE THIRD YEAR. SIMILARLY, THE ASSESSEE SHA LL BE ELIGIBLE FOR DEDUCTION IN RESPECT OF WAGES PAID TO NEW REGULAR W ORKMEN EMPLOYED IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2012 -13, AS THE PRESENT ASSESSMENT YEAR IS THE SECOND YEAR. HENCE THE ASSES SEE SHOULD BE ELIGIBLE FOR DEDUCTION U/S 80JJAA OF THE ACT IN RES PECT OF ELIGIBLE REGULAR ITA NO.28/BANG/2018 :- 8 -: WORKMEN EMPLOYED IN FINANCIAL YEARS RELEVANT TO AY 2011-12, 2012-13 AND 2013-14, PROVIDED THEY CONTINUE TO QUALIFY UNDE R THE DEFINITION OF REGULAR WORKMAN DURING THIS YEAR ALSO. 6.1 THEREFORE, WE CONSIDER IT IS DEEM IT FIT TO R EMIT THE MATTER BACK TO THE FILE OF AO TO EXAMINE THE ISSUE IN THE LIGHT OF THE DECISIO N OF THIS TRIBUNAL AND DIRECT THE AO TO ALLOW THE DEDUCTION AS PER THE DIRECTION GIVE N IN THE ORDER SUPRA. THE ASSESSEE HAS TO FURNISH THE DETAILS OF NEW WORKMEN EMPLOYED AND THE ADDITIONAL WAGES INCURRED BEFORE THE AO. ACCORDINGL Y, THE ORDER OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH ON MERITS AND THE ASSESSEE IS FREE TO MAKE ALL THE CLAIMS BEFORE THE AO. ACCORDINGLY, THE APPEAL OF THE ASSE SSEE ON THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 7. GROUND NOS.1.10 TO 1.18 ARE RELATED TO THE DISAL LOWANCE OF COMMISSION AMOUNTING TO RS. 4,76,55,888/- WHICH WAS DISALLOWED BY THE AO U/S. 40(A)(IA) OF THE ACT AS WELL AS COLOURABLE DEVICE TO INFLATE THE EXPENSES. THE BRIEF FACTS ARE THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR, THE ASSESSEE HAS DEBITED THE COMMISSION OF RS. 4,76,55,888/- COMMISS ION TO ITS HOLDING COMPANY AQUARELLE INTERNATIONAL LTD., ON ACCOUNT OF MARKETI NG COMMISSION. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTI ON SHOULD NOT BE DISALLOWED U/S. 40(A)(IA) OF THE ACT, SINCE, THE ASSESSEE FAIL ED TO DEDUCT THE TAX AT SOURCE. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE PAYME NT MADE BY THE COMPANY IS NOT CHARGEABLE TO TAX IN INDIA THEREFORE; THE QU ESTION OF DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT DOES NOT ARISE. THE ASSE SSEE FURTHER EXPLAINED THAT IT HAS NO BUSINESS CONNECTION AS DEFINED U/S. 9(1)(VII ) OF THE ACT AND THE MARKETING ITA NO.28/BANG/2018 :- 9 -: COMMISSION IS NOT IN THE NATURE OF FEE FOR TECHNICA L SERVICES AND INDO MARITIUS TREATY DOES NOT CONTAIN ANY PROVISION REGARDING THE TAXABILITY OF FEE FOR TECHNICAL SERVICES AND THE TAXABILITY OF IMPUGNED COMMISSION IS GOVERNED BY THE PROVISIONS RELATED TO THE BUSINESS INCOME AND IN T HE ABSENCE PERMANENT ESTABLISHMENT IN INDIA THE PAYMENT OF COMMISSION IS NOT LIABLE TO TAXED IN INDIA. THUS, ARGUED THAT TDS PROVISIONS ARE NOT APPLICABLE IN ASSESSEES CASE. ON RECEIPT OF REPLY OBJECTING THE DISALLOWANCE U/S 40( A)(I), THE AO ISSUED NOTICE UNDER SECTION 142(1) CALLING FOR THE DETAILS OF INV OICES FOR MARKETING COMMISSION PAID AND THE DETAILS OF MARKETING SERVICES RENDERE D BY THE HOLDING COMPANY. THE ASSESSEE COMPANY ALSO FURNISHED THE AGREEMENT E VIDENCING THAT THE HOLDING COMPANY WAS APPOINTED AS MARKETING REPRESEN TATIVE FOR PROMOTION OF READYMADE GARMENTS MANUFACTURED BY THE ASSESSEE COM PANY FOR SALE IN OVERSEAS MARKET. FROM THE DETAILS SUBMITTED BY THE ASSESSEE THE AO OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS TO ESTABLISH THAT THE M/S. AQUARELLE INTERNATIONAL LTD (AIL) HAS RENDERED THE MARKETING SERVICES, THUS HELD THAT THE PAYMENT MADE TO M/S. AQUARELLE INTERNATION AL LTD. IS A COLOURABLE DEVICE TO INFLATE THE EXPENSES OF THE ASSESSEE COMPANY TO REDUCE ITS TAX LIABILITY THEREFORE THE GENUINENESS OF THE COMMISSION TO M/S. AQUARELLE INTERNATIONAL LTD. WAS HELD TO BE NOT PROVED HENCE, DISALLOWED THE EXP ENDITURE UNDER SECTION 37 (1) OF THE ACT. 7.1. WITHOUT PREJUDICE TO THE FINDING OF THE AO THA T THE PAYMENT WAS NOT GENUINE THE AO ALSO DISALLOWED THE EXPENDITURE ALTERNATELY UNDER SECTION 40(A)(IA) OF THE ACT, HOLDING THAT THE COMMISSION PAID WAS IN THE NA TURE OF FEE FOR TECHNICAL ITA NO.28/BANG/2018 :- 10 -: SERVICES AND THE ASSESSEE REQUIRED TO DEDUCT THE TA X AT SOURCE U/S 195 OF THE ACT. SINCE THE ASSESSEE FAILED TO DEDUCT THE TAX AT SOURCES THE AO MADE THE ADDITION U/S 40(A)(I) OF THE ACT. 8. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE FILED AD DITIONAL EVIDENCE WHICH WAS REJECTED BY LD. CIT(A). HOWEVER, THE LD.CIT(A) VIE WED THAT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE WAS RELEVANT AND HE LD THAT THE ADDITIONAL EVIDENCES DID NOT ESTABLISH THE ROLE OF THE M/S. AQ UARELLE INTERNATIONAL LTD., IN RENDERING THE MARKETING SERVICES WARRANTING THE PAY MENT OF COMMISSION. AT MOST THE DOCUMENTS INDICATE THAT THE M/S. AQUARELLE INTERNATIONAL LTD. IS AN ASSOCIATED CONCERN. FOR JUSTIFYING THE PAYMENT OF C OMMISSION THE MARKETING SUPPORT SERVICES HAS TO BE MUCH MORE ORGANIZED AND RESULT ORIENTED AND THE SUSTAINABLE BASIS. ON THE BASIS OF EVIDENCES PRODUC ED BY THE ASSESSEE THE LD. CIT(A) ACCEPTED THE VIEW OF THE AO AND CONFIRMED TH E ORDER OF THE AO. 8.1. WITH REGARD TO THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, THE LD. CIT(A) CONFIRMED THE ORDER OF THE AO. AGAINST WHIC H THE ASSESSEE FILED THIS APPEAL BEFORE THIS TRIBUNAL. 9. DURING THE APPEAL HEARING, THE LD. AR SUBMITT ED THAT THE LD. CIT(A) HAS REJECTED THE ADDITIONAL EVIDENCES FILED BY THE ASSE SSEE. HAVING REJECTED THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE, THE LD. CIT(A) OUGHT NOT TO HAVE ACTED UPON THE ADDITIONAL EVIDENCES PLACED BY THE ASSESSE E TO REACH THE CONCLUSION THAT PAYMENT MADE TO THE HOLDING COMPANY WAS NOT GE NUINE. FURTHER, THE LD. ITA NO.28/BANG/2018 :- 11 -: CIT(A) DID NOT GIVE ANY OPPORTUNITY TO THE ASSESSEE BEFORE REJECTING THE ADDITIONAL EVIDENCES AND EVEN NOT REFERRED THE MAT TER TO THE AO FOR REMAND. THEREFORE, ARGUED THAT THE LD. CIT(A) ERRED IN REJE CTING THE APPLICATION FILED BY THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE. THEREFORE, THE ORDER OF LD. CIT(A) IS BAD IN LAW AND THE LD. CIT(A) OUGHT TO HA VE EXAMINED THE ENTIRE ADDITIONAL EVIDENCE BEFORE REJECTING. THE LD. AR FU RTHER SUBMITTED THAT THE AO WAS GIVEN A NOTICE FOR MAKING THE ADDITION UNDER SE CTION 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOURCE AND ON EXPLANATION SUBMITTED BY THE ASSESSEE OBJECTING FOR THE DISALLOWANCE, THE AO CALLED FOR T HE DETAILS OF THE COMMISSION PAYMENT BY NOTICES UNDER SECTION 142(1) OF THE ACT AND GIVEN A FINDING WITH REGARD TO GENUINENESS OF THE PAYMENTS OF COMMISSION AND THE SERVICES RENDERED BY THE M/S. AQUARELLE INTERNATIONAL LTD., MAURITIUS, WHICH IS APPARENTLY CONTRADICTING TO THE ISSUES RAISED FOR AND CONCLUSI ONS DRAWN BY THE AO. 8.2 THE LD. AR FURTHER BROUGHT TO OUR NOTICE THAT, AO IN HIS ORDER THOUGH MADE THE DISALLOWANCE UNDER SECTION 37(1) OF THE ACT GIV EN A FINDING THAT THE PAYMENT WAS GIVEN TO THE NON-RESIDENT BY THE ASSESSEE TO PR OMOTE THE ASSESSEES PRODUCT IN THE OVERSEAS MARKET AS PER THE AGREEMENT AND THE AGENT RENDERED SERVICES ABROAD AND HAVE SOLICITED ORDERS BUT THE R IGHT TO RECEIVE THE COMMISSION AROSE IN INDIA WHEN THE ORDERS WERE EXEC UTED BY THE ASSESSEE IN INDIA. FROM THE ORDER OF THE AO, THE LD. AR ARGUED THAT THOUGH THE AO DISALLOWED THE COMMISSION DISBELIEVING THE GENUINEN ESS OF THE SERVICES RENDERED BY THE FOREIGN ENTITY, IN THE SUBSEQUENT P ARAGRAPHS, THE AO HIMSELF HAD ACKNOWLEDGED THE GENUINENESS OF THE PAYMENT OF COMMISSION AND ALSO THE ITA NO.28/BANG/2018 :- 12 -: SERVICES RENDERED BY THE FOREIGN AGENT IN MARKETIN G THE PRODUCTS OF THE ASSESSEE COMPANY. THUS, ARGUED THAT THE REASONS FOR MAKING DISALLOWANCE UNDER SECTION 37(1) OF THE ACT AND THE FINDING GIVE N BY THE AO FOR DISALLOWANCE U/S 40(A)(I) ARE APPARENTLY CONTRADICTORY. REFERRIN G PAGE NO.208 OF THE PAPER BOOK, THE LD. AR SUBMITTED THAT M/S. LEVI STRAUSS S A (PTY) LTD. CO. HAS ADDRESSED A LETTER TO THE M/S. AQUARELLE INTERNATIO NAL LTD., ACKNOWLEDGING SERVICES RENDERED BY THE INDIAN COMPANY ON INTRODUC TION BY THE M/S. AQUARELLE INTERNATIONAL LTD. IN PAGE NOS.210 TO 214, THE LD. AR SUBMITTED THE MAILS AND INVOICES ETC. SUPPORT THE SERVICES RENDERED BY THE COMPANY TO THE ASSESSEE AND FURNISHED THE COPY OF APPLICATION MADE BEFORE T HE LD. CIT(A) REQUESTING FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962. AS PER THE APPLICATION MADE BEFORE THE LD. CIT(A), THE AO PASSED THE ORDER WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESS EE, THEREFORE REQUESTED THE LD.CIT(A) TO ADMIT THE ADDITIONAL EVIDENCE. ACCORDI NGLY, ARGUED THAT THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE ADDITIONAL EVID ENCE AND DETAILS OF FILED BY THE ASSESSEE AND ALLOWED THE APPEAL OF THE ASSESSEE . 8.3 ON THE OTHER HAND, THE LD. DR ARGUED THAT THE A O HAS GIVEN SUFFICIENT OPPORTUNITIES AND THE LD. CIT(A) HAS CONSIDERED THE ISSUES IN DETAIL, HENCE, REQUESTED TO UPHOLD THE ORDER OF THE LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON THE RECORD. FROM THE ORDER OF AO WE FIND THAT THE AO HAS MADE THE ADDITION OF RS. 4,76,55,888/- UNDER SECTION 37(1) OF THE ACT AN D ALSO INVOKED THE PROVISIONS ITA NO.28/BANG/2018 :- 13 -: OF SECTION 40(A)(IA) OF THE ACT. WITH REGARD TO TH E DISALLOWANCE MADE UNDER SECTION 37(1) OF THE ACT, THE AO ISSUED THE NOTICE UNDER SECTION 142(1) OF THE ACT DIRECTING THE ASSESSEE TO ESTABLISH THE MARKETING S ERVICES RENDERED BY THE ASSESSEE AND MADE THE ADDITION HOLDING THAT THE ASS ESSEE DID NOT ESTABLISH THE MARKETING SERVICES RENDERED BY THE HOLDING COMPANY M/S. AQUARELLE INTERNATIONAL LTD. HOWEVER IN SUBSEQUENT PARAGRAPH S THOUGH WITHOUT PREJUDICE, THE AO MADE THE ADDITION UNDER SECTION 40(A)(IA) OF THE ACT. WHILE MAKING THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT THE AO MADE THE OBSERVATION THAT PAYMENT WAS GENUINE AND THE AGENTS HAVE RENDERED TH E SERVICES. THEREFORE, AS RIGHTLY ARGUED BY THE LD. AR THERE WAS A CONTRADICT ORY FINDING IN RESPECT OF THE SERVICES RENDERED BY THE FOREIGN AGENT TO THE ASSES SEE. THE LD. CIT(A) REJECTED THE APPLICATION OF THE ASSESSEE FOR ADMISSION OF AD DITIONAL EVIDENCE, HOWEVER, THE LD. CIT(A) REACHED CONCLUSIONS ON THE BASIS OF ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE, WITHOUT EVEN CALLING FOR THE REMAN D REPORT. HAVING REJECTED THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE TH E LD. CIT(A) OUGHT NOT TO HAVE PLACED RELIANCE ON THE SAME ADDITIONAL EVIDENCE FOR CONCLUDING THAT THE M/S. AQUARELLE INTERNATIONAL LTD., HAS NOT RENDERED THE MARKETING SERVICES TO THE ASSESSEE. THE LD. CIT(A) ALSO OUGHT TO HAVE CALLED FOR THE REMAND REPORT AND MADE VERIFICATION OF THE FACTS SUBMITTED IN THE ADD ITIONAL EVIDENCE BEFORE TAKING THE ADDITIONAL EVIDENCE AS BASIS FOR COMING TO CONC LUSIONS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ENTIRE ISSUE NEEDS TO BE RE-EXAMINED BY THE AO TO ESTABLISH WHETHER THE M/S. AQUARELLE INTERNATIONAL LTD. HAS RENDERED THE SERVICES FOR RECEIPT OF COMMISSION OR NOT AND WHETH ER THE PAYMENT IS IN THE ITA NO.28/BANG/2018 :- 14 -: NATURE OF TECHNICAL SERVICES OR NOT. HENCE WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE ENTIRE ISSUE AND DECIDE THE I SSUE AFRESH ON MERITS. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE AO FOR D ENOVO CONSIDERATION. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2019. SD/- SD/- (N.V. VASUDEVAN) (D.S. SUNDER SINGH) VICE PRESIDENT ACCOUNTANT MEMBER BENGALURU, DATED: 20.12.2019 EDN COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL BANGALORE.