M/s. Ajit Impex, Ahmedabad V. The Dy.CIT.,Circle-11, Ahmedabad

ITA 2890/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5971 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 21-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2010
• Court: TRIBUNAL
• Department Lawyers: K C MATTHEWS
• Assessee Lawyers: URVASHI SHODHAN A R
• Keywords: Principle of natural justice; Permanent establishment; Corroborative evidences
• Section: 143(3)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , , , !' !' !' !', , , , #$ #$ #$ #$ # % # % # % # % BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NO. 2890/AHD/2010 AY 2007-08 M/S AJIT IMPEX 21, NEW CLOTH MARKET, AHMEDABAD. PAN: AAFFA9651C DCIT, CIR-11, AHMEDABAD. APPELLANT RESPONDENT REVENUE BY : SH. K.C. MATTHEWS, SR. DR ASSESSEE(S) BY : URVASHI SHODHAN, AR & ' $/ // / DATE OF HEARING : 23/04/2014 )*+ ' $ / DATE OF PRONOUNCEMENT: 29/04/2014 #,/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING F ROM THE ORDER OF THE CIT(A)-XVI, AHMEDABAD DATED 23.10.2010 . 2. GROUND NO. 1 OF THE APPEAL IS REPRODUCED BELOW: LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS 8,13,456/ COMMISSION PAID OF FOREIGN AGENT AND RS 11,559/- OF LATE PAYME NT OF INTEREST TO THE SAME AGENT MADE BY AO INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE LD . CIT(A) FAILED TO APPRECIATE THE RELIANCE PLACED BY THE APPELLANT N BOARD CIRCULAR NO 786 THAT EXEMPTED THE APPELLANT FROM DEDUCTION OF TAX AT SOURCE FROM PAYMENTS MADE TO FOREIGN AGENT. BOTH THE LOWER AUTHORITIES FURTHER ERRED IN NOT APPRECIATING THE F ACT THAT THE APPELLANT HAD DULY DEDUCTED AND DEPOSITED THE ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 2 - TAX INTO THE GOVERNMENT TREASURY BEFORE DUE DATE OF FILING OF RETURN. THIS ACTION OF LD. CIT(A) BEING WITHOUT ANY MERITS OR JUSTIFICATION AND AGAINST PRINCIPLES OF NATURAL JUSTICE DESERVES TO BE DELETED. 3. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPO NDING ASSESSMENT ORDER PASSED U/S 143(3) DATED 18.12.2009 WERE THAT THE ASSESSEE IS A REGISTERED FIRM AND IN THE BUSINE SS OF EXPORTING CLOTHES. IT WAS NOTED THAT THE ASSESSEE HAD CLAIME D COMMISSION OF RS 8,13,456/- ON EXPORT SALES. A QUERY WAS RAISED THAT COMMISSION WAS PAID TO M/S PETS NEWS AGENCIES (FOREIGN AGENT) WITHOUT DEDUCTION OF TAX. THE EXPLANATION OF THE ASSESSEE WAS AS UNDER: M/S. PETS NEWS AGENCIES, OUR FOREIGN AGENT, DURING THE YEAR UNDER ASSESSMENT WAS PAID RS 8,13,456/- BY WAY OF COMMISSION, IN LIEU OF HIS SECURING ORDERS IN VA RIOUS COUNTRIES ALL OVER THE WORLD. WE HAVE ALREADY IN O UR EARLIER SUBMISSIONS PRODUCED SUPPORTING EVIDENCE OF SUCH PAYMENTS. DURING THE YEAR UNDER CONSIDERATION OUT OF HISS COMMISSION WE HAVE NOT DEDUCTED TAX, SI NCE CIRCULAR NO. 786 DATED 07.02.2000, PHOTO COPY OF SA ME IS ENCLOSED HEREWITH FOR YOUR REFERENCE, CLARIFIES ALLOWABILITY OF SUCH EXPENDITURE EVEN IF TDS IS NOT MADE AS PROVIDED UNDER S. 195 OF THE ACT. OUR THIS AGENT HAS BEEN PAID SUCH COMMISSION SINCE F.Y. 2004-05 AND TILL F.Y. 2008-09 EVERY YEAR. SIN CE A.Y. 2001-02 TO A.Y. 2007-08, ALL THE CASES HAVE BE EN SELECTED FOR SCRUTINY AND THIS COMMISSION PAYMENT I S EXAMINED AND FOUND CORRECT. 3.1 THE ASSESSING OFFICER HAS NOTED THAT THE CIRCU LAR AS INTIMATED WAS WITHDRAWN IN THE MONTH OF NOVEMBER 2 009. HE HAS HELD THAT THE PROVISIONS OF SECTION 195 WERE APPLIC ABLE ON THE PAYMENT OF COMMISSION AND SINCE NO TAX WAS DEDUCTED , THEREFORE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SEC TION 40(A)(IA) OF THE I.T. ACT. AGAINST, THE SAID DISALLOWANCE OF RS 8,13,456/- THE ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 3 - ASSESSEE HAS GONE IN APPEAL. IT IS ALSO WORTH TO M ENTION THAT THE ASSESSEE HAD ALSO CLAIMED PAYMENT OF INTEREST OF RS 11,559/- TO M/S PETS NEWS AGENCIES FOR DELAYED PAYMENT. ON THE SAME REASONING, THE ASSESSING OFFICER HAD ALSO DISALLOWE D THE INTEREST PAYMENT BY INVOKING THE PROVISIONS OF SECTION 40(A) (IA). 4. BEFORE THE LD. CIT(A), IT WAS REITERATED THAT I N THE LIGHT OF CIRCULAR NO. 786 DATED 07.02.2000, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX BECAUSE THE DEDUCTEES WE RE THE FOREIGN AGENT AND THE PAYMENT OF COMMISSION WAS FOR THE PUR POSE OF SECURING ORDERS IN VARIOUS COUNTRIES. FURTHER, A D ECISION OF HONBLE DELHI HIGH COURT HAS ALSO BEEN CITED, PRONOUNCED IN THE CASE OF VAN OORD ACZ INDIA PRIVATE LTD., 323 ITR 130 (DELHI). HOWEVER, LD. CIT(A) WAS NOT CONVINCED AND HELD THAT THE ASSESSEE WAS REQUIRED TO FILE AN APPLICATION BEFORE THE ASSESSING OFFICER U/S 195(2) OF I.T. ACT IF THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TA X AT SOURCE. IN THE ABSENCE OF SUCH AN APPLICATION, THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE. 5. WITH THIS BRIEF FACTUAL BACKGROUND, WE HAVE HEA RD BOTH THE PARTIES. AS FAR AS THE CASE OF THE ASSESSING O FFICER IS CONCERNED, WE HAVE NOTED THAT IN THE FINDINGS, TH E ASSESSING OFFICER HAS NOT DISALLOWED THE CLAIM ON THE GROUND OF GENUINENESS, BUT IT WAS DISALLOWED ON THE GROUND THAT THE SAID C BDT CIRCULAR WAS WITHDRAWN IN NOVEMBER 2009. ACCORDING TO ASSESSIN G OFFICER, SINCE THE CBDT CIRCULAR WAS WITHDRAWN BEFORE THE CO MPLETION OF THE ASSESSMENT, THEREFORE, THE BENEFIT GRANTED IN THE S AID CIRCULAR COULD NOT BE ALLOWED. THE LD. AR HAS FURTHER DRAWN OUR A TTENTION ON OBSERVATION OF THE ASSESSING OFFICER THAT AT THE TI ME OF ASSESSMENT, REST OF THE QUERIES WERE COMPLIED WITH BUT THE DISA LLOWANCE WAS MADE MERELY ASSIGNING THE REASON THAT THE SAID CBDT CIRCULAR WAS ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 4 - WITHDRAWN. NOW BEFORE US, CBDT CIRCULAR NO. 786 [F NO. 500/108/98-FTD] DATED 07.02.2000 [WITHDRAWN BY CIRC ULAR NO. 7/2009 [F. NO. 500/135/2007-FTD-I] DATED 22.10.2009 IS PLACED ON RECORD. THIS CIRCULAR WAS IN RESPECT OF SECTION 9 OF I.T. ACT TO CLARIFY REGARDING THE TAXABILITY OF EXPORT COMMISSI ON PAYABLE TO A NON-RESIDENT AGENT FOR RENDERING SERVICES ABROAD. THIS CIRCULAR SAYS: THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON - RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN T HIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23 DATED 23 RD JULY, 1969 IS DRAWN WHERE THE TAXABILITY OF FOREIG N AGENTS OF INDIAN EXPORTERS WAS CONSIDERED ALONGWIT H CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLA RIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES I N INDIA. FURTHER, SINCE THE PAYMENT IS USUALLY REMIT TED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECE IVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMEN TS WERE THEREFORE HELD TO BE NOT TAXABLE IN INDIA. TH E RELEVANT SECTIONS, NAMELY SECTION 5 (2) AND SECTION 9 OF THE INCOME TAX ACT, 1961 NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICATION IN CIRCULA R NO. 23 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UND ER SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE IND IA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRISED O F THIS POSITION, THE COMPTROLLER AND AUDITOR GENERAL HAVE AGREED TO DROP THE OBJECTION REFERRED TO ABOVE. FURTHER, RELIANCE HAS ALSO BEEN PLACED ON THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA PRIVATE LTD (SUPRA). FURTHER, RELIANCE HAS ALSO BEEN PLACED ON A DECISION OF HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. 327 ITR 456 (SC). IN TH ESE CASES, IT WAS HELD THAT A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON- RESIDENT IS LIABLE TO DEDUCT TAX U/S 195 ONLY IF SU CH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. APPL ICATION TO DEDUCT ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 5 - TAX AT SOURCE U/S 196 IS ATTRACTED ONLY WHEN THE PA YMENT IS CHARGEABLE TO TAX IN INDIA. IN A SITUATION WHEN TH E IT AUTHORITIES HAVE ACCEPTED THAT THE NON-RESIDENT RECIPIENT IS NO T LIABLE TO PAY ANY TAX IN INDIA, THE ASSESSEE PAYER HELD AS NOT LI ABLE TO DEDUCT TAX AT SOURCE U/S 195 OF I.T. ACT TO THE SAID NON-RESID ENT COMPANY. OUR ATTENTION HAS ALSO BEEN DRAWN ON A DECISION OF ITAT, LUCKNOW BENCH PRONOUNCED IN THE CASE OF DCIT VS. SANJIV GUP TA (2012) 19 TAXMANN.COM 341 (LUCK.) WHEREIN IT WAS HELD AS UNDE R: HELD THAT AS PER THE CBDT CIRCULAR NO. 23, DATED 23.07.1969 AND CIRCULAR NO. 786 DATED 7.2.2000, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOUR CE UNDER SECTION 95 WITH REGARD TO PAYMENT OF COMMISSI ON TO FOREIGN AGENT. IT WAS WORTH MENTIONING THAT THE PREVIOUS YEAR INVOLVED WAS 2006-07 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. AT THE RELEVA NT TIMT, IN VIEW OF THE CBDT CIRCULAR NO. 23, DATED 23.07.1969 AND CIRCULAR NO. 786, DATED 7.2.2000, TH E ASSESSEE WAS NOT OBLIGED TO DEDUCT THE TAX UNDER SECTION 195 AND CIRCULAR NO. 786 OF 2000 WILL BE OPERATIVE ONLY FROM 22-10-2009 AND NOT PRIOR TO THA T DATE. HENCE, DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS TO E CANCELLED. FURTHER, OUR ATTENTION HAS ALSO BEEN DRAWN ON A DEC ISION OF HONBLE ALLAHABAD HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. MODEL EXIMS, KANPUR 38 TAXMANN.COM 319 (ALD.), WHEREIN IT WAS HELD ON THE SAME LINES AS NARRATED HEREINABOVE THAT THE CIR CULAR WAS OPERATIVE UPON THE REVENUE DEPARTMENT AND THE ASSES SING OFFICER DID NOT HAVE THE RIGHT TO IGNORE THE CIRCULAR. THE OBSERVATION OF THE COURT IS WORTH REPRODUCTION AS FOLLOWS: SO LONG AS THE CIRCULARS WERE IN FORCE, IT AIDED IN UNIFORM AND PROPER ADMINISTRATION AND APPLICATION O F THE PROVISIONS OF THE ACT. READ IN THIS MANNER, TH E RESPONDENT-ASSESSEE WAS NOT IN DEFAULT AND HAD NOT FAIELD TO DEDUCT AT SOURCE THOUGH IT WAS MANDATED A ND REQUIRED. THE RESPONDENT WAS ENTITLED TO RELY UPON THE ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 6 - CIRCULARS. IN LIGHT OF THE JUDGMENTS OF THE SUPREM E COURT IN CIT VS. ELI LILLY CO. (INDIA) (P.) LTD., [ 2009] 312 ITR 225/178 TAXMAN 505, 234/7 TAXMANN.COM 18(SC), ONCE THE INCOME WAS NOT EXIGIBLE OR CHARGEA BLE TO TAX, TDS WAS NOT REQUIRED TO BE DEDUCTED. MONEY PAID TO THE THIRD PARTIES, WHO DID NOT HAVE ANY OFF ICE OR PERMANENT ESTABLISHMENT IN INDIA, WAS EXEMPT AND NO T CHARGEABLE TO TAX. THUS, ON THE SAID PAYMENTS OR INCOME, TDS WAS NOT REQUIRED TO BE DEDUCTED. IT IS ALSO NOT THAT THE PAYMENTS WERE MADE PRIOR TO CIRCU LAR O. 7/2009. ON THIS ASPECT, THERE IS NO DISPUTE. THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL DELETING THE ADDITION MADE B Y THE ASSESSING OFFICER UNDER SECTION 40(A)(I). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS IN A SIT UATION WHEN THE ASSESSEES STATUS OF NON-RESIDENT WAS NOT IN DISPUT E AND THAT THE ASSESSEE HAD GIVEN THE COPY OF THE AGREEMENT, DETAI LS OF THE SERVICES RENDERED, CORRESPONDENCE FOR SERVICES AVAI LED ALONGWITH SUPPORTING EVIDENCE, AND MOREOVER AT THAT RELEVANT TIME WHEN THE TDS WAS REQUIRED TO BE DEDUCTED, THE SAID CBDT CIRC ULAR WAS IN OPERATION, WE HEREBY HOLD THAT THE INVOCATION OF TH E PROVISIONS OF SECTION 40(A)(IA) READ WITH SECTION 195(2) WAS INCO RRECT. THE FINDINGS OF THE AUTHORITIES BELOW ARE HEREBY REVERS ED AND THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 6. GROUND NO. 2 OF THE APPEAL IS REPRODUCED BELOW: LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NO T ADJUDICATING THE GROUND CHALLENGING DISALLOWANCE OF VARIOUS EXPENDITURE OF RS 8,82,344/- BY ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT. THE LD. CIT(A) H AS FAILED TO TAKE INTO CONSIDERATION THE FACT THAT THE RE WAS DISALLOWANCE OF PAYMENT TO FOREIGN AGENT AS WELL OF VARIOUS EXPENSES BY ASSESSING OFFICER FOR NON- DEDUCTION OF TAX AT SOURCE. ITA NO. 2 890/AHD/2010 M/S AJIT IMPEX VS. DCIT, CIR-11, AHD AY 2007-08 - 7 - 7. THE ASSESSING OFFICER HAD MADE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF RS 58,200/- PAYMENT FOR FREIGHT AND SHIPMENT CHARGES, RS 38,000/- PAYME NT FOR PROFESSIONAL FEES AND RS 7,86,144/- PAYMENT FOR STI TCHING CHARGES, PACKAGING CHARGES ETC. IN RESPECT OF PAYMENT OF ST ITCHING CHARGES, THE ASSESSEES VEHEMENT CONTENTION WAS THAT THE TDS WAS DEDUCTED AND DEPOSITED WITH THE COMPANY AS PER THE ACCOUNT OF EACH PARTY WAS FURNISHED. IN RESPECT OF FREIGHT AN D SHIPMENT CHARGES, THE ASSESSEE HAD CONFESSED THAT THESE CHAR GES WERE THROUGH OVERSIGHT TDS REMAINED TO BE DEDUCTED, AND THEREFORE, OFFERED THE AMOUNT OF DISALLOWANCE. HOWEVER, WE HA VE NOTED AS ALSO INFORMED BY BOTH THE PARTIES, THIS GROUND OF T HE ASSESSEES APPEAL WAS NOT ADJUDICATED UPON BY THE LD. CIT(A). SINCE THE LD. CIT(A) HAD INADVERTENTLY COULD NOT DECIDE THIS GROU ND, THEREFORE WE DO NOT HAVE THE BENEFIT TO PERUSE THE SAME, HENCE I N THE INTEREST OF NATURAL JUSTICE, WE HEREBY RESTORE THIS GROUND BACK TO THE STAGE OF LD. CIT(A) TO BE DECIDED DE NOVO ON MERITS, NEEDLES S TO SAY, AFTER PROVIDING ADEQUATE OPPORTUNITY OF HEARING TO BOTH T HE PARTIES. SINCE, THIS GROUND IS REMANDED BACK, HENCE MAY BE T REATED AS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON TUESDAY, THE 29 TH OF APRIL, 2014 AT AHMEDABAD. SD/- SD/- ( ANIL CHATURVEDI ) ACCOUNTANT MEMBER (MUKUL KR. SHRAWAT) JUDICIAL MEMBER AHMEDABAD; DATED /04/2014 GHANSHYAM MAURYA, SR. P.S.