IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2930/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. BURLINGTONS' EXPORTS D C I T - 12(2) TAJ MAHAL HOTEL, COLABA AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400039 VS. MUMBAI 400020 PAN - AAAFB 0322 J APPELLANT RESPONDENT APPELLANT BY: MS. AARTI VISSANJI RESPONDENT BY: MR. C.G.K. NAIR DATE OF HEARING: 18.08.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXII, MUMBAI DATED 05.01.2010. 2. ASSESSEE IS CONTESTING TWO ISSUES IN THE FOLLOWING GROUNDS RAISED: - 1) RE. PF AND ESIC RS.22,02,435/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS)-23 ERR ED IN UPHOLDING THE ADDITION OF RS.22,02,435 FOR DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO PF OF RS.19,57,976/- AND ESIC OF RS.2,44,459/- THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS)-2 3 3443E IN NOT CONSIDERING THE FACT THAT RS.16,29,295/- OF PF AND RS.2,44,459/- OF ESIC HAD BEEN PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS)-23 ERR ED IN UPHOLDING THE ADDITION OF RS.18,01,085/- MADE BY TH E ASSESSING OFFICER U/S.40(A)(I) FOR NON-DEDUCTION OF TDS ON CO MMISSION PAID TO NON-RESIDENTS ON THE GROUND THAT THE COMMISSION WAS NEVER PAID. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS)-2 3 ERRED IN NOT CONSIDERING THE FACT THAT THE CLAIM OF COMMISSI ON OF NON- ITA NO. 2930/MUM/2010 M/S. BURLINGTONS' EXPORTS 2 RESIDENTS WAS GENUINE AND CONTRACTUALLY PAYABLE. IT WAS ONLY DUE TO FINANCIAL DIFFICULTY OF THE APPELLANT DUE TO CLOSURE OF BUSINESS IN SUBSEQUENT YEAR, THAT THE COMMISSION WA S NOT PAID AND HAD TO BE WRITTEN BACK AND CONSIDERED AS INCOME IN SUBSEQUENT YEARS. 3. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSESSEE AND LEARNED D.R. 4. GROUND NO. 1 PERTAINS TO THE ISSUE OF ADDITION UNDE R SECTION 43B AND 36(1)(VA) OF AN AMOUNT OF ` 22,02,435/-. THE A.O. ON NOTICING THAT TAX AUDIT REPORT INDICATED THE PAYMENTS OF PF AND ESIC BEYOND THE DUE DATES DISALLOWED THE ENTIRE AMOUNT IN THE ORDER UNDER SEC TION 143(3). WHEN THE ISSUE WAS CONTESTED BEFORE THE CIT(A), WHILE GIVING RELIEF TO THE EXTENT OF AMOUNT DISALLOWED BY THE ASSESSEE VIDE GROUND NO. 4 BEING DOUBLE ADDITION, CONFIRMED THE DISALLOWANCE OF THE BALANCE AMOUNT ST ATING THAT THE AMOUNTS PAID BEYOND THE DUE DATE ARE TO BE CONSIDERED AS IN COME AS PER PROVISIONS OF SECTION 2(24)(X) R.W.S. 36(1)(VA). ASSESSEE IS A GGRIEVED ON THIS ISSUE. 5. DRAWING OUR ATTENTION TO THE DETAILS OF THE AMOUNTS PAID AS PER TAX AUDIT REPORT, IT IS THE SUBMISSION THAT ASSESSEE HA S PAID ALL THE PAYMENTS UPTO DECEMBER 2005 BEFORE THE CLOSURE OF THE ACCOUN TING YEAR AND THE PAYMENT PERTAINING TO JANUARY HAS BEEN PAID ON 25.0 4.2006. SINCE THE ENTIRE AMOUNT WAS PAID WITHIN THE DUE DATE THE AMOU NTS ARE ALLOWABLE AS FAR AS PF AMOUNTS ARE CONCERNED. THE AMOUNT INVOLVE D IS ABOUT ` 16,29,295/-. WITH REFERENCE TO PAYMENT OF EMPLOYEES CONTRIBUTION TO ESIC, IN THIS CASE ALSO ALL THE PAYMENTS UPTO DECEMBER WE RE PAID BEFORE THE CLOSURE OF THE ACCOUNTING YEAR AND JANUARY 2006 PAY MENTS WERE MADE ON 25.04.2006 AND BALANCE AMOUNTS WERE PAID ON 11.05.2 006. THUS THE ENTIRE AMOUNT OF ` 2,44,459/- HAS BEEN PAID BEFORE THE DUE DATE FOR FI LING THE RETURN OF INCOME. RELYING ON THE PRINCIPLES ESTABLI SHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSION LTD. 319 ITR 306 THE AMOUNTS WHICH HAVE BEEN PAID ARE TO BE ALLOWED UNDE R THE PROVISIONS OF THE ACT. RESPECTFULLY FOLLOWING THE ABOVE, WE ARE OF TH E OPINION THAT THE AMOUNTS PAID BEFORE FILING THE RETURN ARE ALLOWABLE AMOUNTS . HOWEVER, NEITHER THE A.O. NOR THE CIT(A) EXAMINED THE ACTUAL DATE OF PAY MENTS. THE AUDIT REPORT COPIES WERE PLACED ON RECORD. THEREFORE FOR THE LIM ITED PURPOSE OF EXAMINING THE ACTUAL DATE OF PAYMENTS BEFORE THE DUE DATE FOR FILING THE RETURN, THE ITA NO. 2930/MUM/2010 M/S. BURLINGTONS' EXPORTS 3 MATTER IS RESTORED TO THE FILE OF AO. GROUNDS ARE C ONSIDERED ALLOWED. THE A.O. IS DIRECTED TO EXAMINE THE DATE OF PAYMENTS AN D ALLOW IT ACCORDINGLY, IF PAID BEFORE DUE DATE FOR FILING RETURN OF INCOME. 6. GROUND NO. 2 PERTAINS TO THE ISSUE OF DISALLOWANCE MADE UNDER SECTION 40(A)(IA) FOR NON-DEDUCTION OF TDS ON COMMI SSION PAID TO NON- RESIDENT AND CONFIRMATION ON THE GROUND THAT COMMIS SION WAS NEVER PAID. THE FACTS LEADING TO THE ISSUE ARE THAT THE ASSESSE E CLAIMED AN AMOUNT OF ` 21,68,722/- AS COMMISSION PAID TO NON-RESIDENT. IN THE ABSENCE OF DETAILS OF TDS MADE THE A.O. INVOKED PROVISIONS OF SECTION 40(A)(I) FOR DISALLOWANCE DUE TO DEFAULT COMMITTED UNDER SECTION 195(1). THE LEARNED CIT(A) EXAMINED THE ISSUE AND CAME TO A CONCLUSION THAT WHERE THE N ON-RESIDENT AGENT OPERATES OUT SIDE THE COUNTRY NO PART OF HIS INCOME AROSE IN INDIA. FURTHER, SINCE THE PAYMENT WAS USUALLY REMITTED DIRECTLY ABR OAD, IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. ACCORDINGLY THE CIT(A) CAME TO CONCLUSION THAT THE DISALLOWANCE MAD E UNDER SECTION 40(A)(IA) IS NOT APPLICABLE TO THE FACTS OF THE CAS E. HOWEVER, ON ENQUIRY ABOUT THE REMITTANCE OF THE AMOUNT, IT WAS SUBMITTED BY T HE ASSESSEE THAT THE AMOUNT OF ` 3,67,637/- WAS REMITTED AND THE BALANCE AMOUNT OF ` 18,01,085/- HAS BEEN WRITTEN BACK ON 31.03.2009 AND HAS OFFERED AS INCOME IN A.Y. 2009-10. CONSIDERING THESE FACTS, TH E CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF ` 18,01,085/- BEING WRONGFUL CLAIM UNDER THE HEAD. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT THE COMMISSION WAS BEING PAID IN EARLIER YEARS ON THE AGREEMENTS ENTER ED INTO WITH VARIOUS PARTIES IN EXPORT BUSINESS. HOWEVER, AS ASSESSEE IN CURRED LOSS AND COULD NOT PAY THE AMOUNTS THE OUTSTANDING AMOUNTS WHICH COULD NOT BE REMITTED WERE WRITTEN BACK IN LATTER YEAR BUT THAT DOES NOT MEAN THAT THERE IS NO CRYSTALLISATION OF LIABILITY DURING THE YEAR. 7. THE LEARNED D.R. SUPPORTED THE ORDER OF THE CIT(A). 8. AFTER CONSIDERING THE ARGUMENTS OF RIVAL PARTIES AN D EXAMINING THE RECORD, WE ARE OF THE OPINION THAT THERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE CIT(A). AS FAR AS THE DISALLOWANCE MADE BY T HE A.O. IS CONCERNED, AS RIGHTLY POINTED OUT BY THE CIT(A), THE DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT AROSE AS THE COMMISSION PAID ABROAD FOR THE SER VICES RENDERED OUT SIDE ITA NO. 2930/MUM/2010 M/S. BURLINGTONS' EXPORTS 4 INDIA CANNOT BE TAXED IN INDIA AND PROVISIONS OF TD S ARE NOT APPLICABLE. ON THIS ISSUE THERE IS NO DISPUTE. HOWEVER, THE FACT I S THAT EVEN THOUGH THE AMOUNT HAS BEEN CRYSTALLISED DURING THE YEAR, THE A MOUNT TO THE EXTENT OF ` 18,01,085/- CAN NOT BE ALLOWED ON THE REASON THAT T HE AMOUNT WAS NOT ULTIMATELY REMITTED. AS SEEN FROM THE ASSESSMENT OR DER, ASSESSEE HAS INCURRED LOSSES IN PREVIOUS YEARS AND THE LOSSES TO THE EXTENT OF DISALLOWANCE WERE ALREADY SET OFF MAKING THE TOTAL INCOME AT NIL . TO THAT EXTENT, THE LOSS CAN BE REDUCED IN THE YEAR IN WHICH THE AMOUNT WAS TREATED AS INCOME U/S 41(1) AND IN CASE THE SAME AMOUNT WAS CONSIDERED AS INCOME UNDER THE PROVISIONS OF SECTION 41(1), ASSESSEE CAN SEEK NECE SSARY RELIEF IN A LATER YEAR. WE ARE OF THE OPINION THAT THERE IS NO NEED TO DIST URB THE ORDER OF THE CIT(A) BY EXAMINING THE ISSUE ONLY ON LEGAL PRINCIPLES AS THE FACT IS THAT ASSESSEE HAS ULTIMATELY WRITTEN OFF THE AMOUNT AS NOT PAYABL E. ON THIS REASON, THE ORDER OF THE CIT(A) IS CONFIRMED. GROUND IS ACCORDI NGLY REJECTED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIII, MUMBAI 4. THE CIT XII, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.