The DCIT, Circle-2(1)(1), Ahmedabad V. Gujarat Apollo Inds. Ltd., Ahmedabad

ITA 3046/AHD/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7395 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-05-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Capital asset; Business expenditure; Earning of tax free income; Services rendered outside India; Deemed to accrue or arise in india; Permanent establishment; Rule 8D; Set aside
• Section: 14A; 40(a)(ia); 195; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) [THROUGH VIRTUAL COURT] ITA. NO: 3046/AHD/2016 (ASSESSMENT YEARS: 2013-14) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 2(1)(1), AHMEDABAD GUJARAT APOLLO INDUSTRIES LTD. APOLLO HOUSE, MITHKHALI CIRCLE, NAURANGPUR, AHMEDABAD- 380009 PAN NO. AAACG 7248P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DINESH SINGH, SR. D.R. RESPONDENT BY : SHRI MEHUL K PATEL, A.R. ( )/ ORDER DATE OF HEARING : 27-11-2020 DATE OF PRONOUNCEMENT : 19-01-2021 PER MAHAVIR PRASAD, J.M. 1. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (HEREINAFTER CALLED CIT(A)) ORDER NO. CIT(A)-2/348/DC. CIR. ITA NO. 3046/AHD/2016 . A.Y. 2013-14 2 2(1)(1)/2015-16 ORDER DATED 16/09/2016 ARISING OUT OF ASSESSMENT ORDER DATED 29/01/2016. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE U/S.14A R.W. RULE 8D OF THE ACT TO RS.2,58,225/- AS AGAINST RS.75,63,804/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE LATE DELIVERY CHARGES OF RS.1,65,067/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF FOREIGN COMMISSION AMOUNTING TO RS.1,76,08,320/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. FACTS OF THE CASE ARE THAT ASSESSE IN IN THE BUSINESS OF ROAD CONSTRUCTION AND MAINTENANCE MACHINERY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF BALANCE SHEET, IT IS NOTICED THAT THE ASSESSEE COMPANY HAS RECEIVED DIVIDEND OF RS. 2,58,225/- FROM MUTUAL FUNDS. THE ASSESSEE IS NOT ABLE TO JUSTIFY THAT THE INVESTMENT MADE IN SHARES IS FROM HIS OWN FUND OR FROM THE FUNDS ON WHICH NO INTEREST PAYMENT IS MADE BY THE ASSESSEE. THEREFORE, PROVISION OF SECTION 14A IS APPLICABLE IN THE CASE OF ASSESSEE. SINCE, THE ASSESSEE HAS NOT OFFERED DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. VIDE QUESTION NO. 18 OF THE QUESTIONNAIRE DATED 12/08/2012 THE ASSESSE WAS ASKED TO FURNISH WORKING AS PER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF INCOME TAX RULES, 1962. IN RESPONSE TO THE SAME, THE ASSESSE FILED ITS REPLY. 3. WE WOULD LIKE TO MENTIONED AND INFORM THAT INSTEAD OF CONSIDERING THE 4. GROSS INTEREST, THE NET INTEREST COST SHOULD BE CONSIDERED AND THIS WILL SUBSTANTIALLY REDUCE THE AMOUNT TO BE DISALLOWED. THIS FACT HAS BEEN CONSIDERED ITA NO. 3046/AHD/2016 . A.Y. 2013-14 3 BY THE VARIOUS HIGHER AUTHORITIES AT APPELLATE LEVEL ALSO. ACCORDINGLY THERE IS ONLY RS 10112344/( AS PER NOLE NO 24 THERE IS INTEREST INCOME OF RS44478891 WHEREAS THE INTEREST COST AS PER THE P AND L TILE IS RS5459I235) I E DUE TO THIS INTEREST DISALLOWANCE WILL BE LESS THAN 25% OF THE AMOUNT WHAT WE HAVE GIVEN THE WORKING EARLIER. FURTHER DISALLOWANCE FOR THE INTEREST FREE ADVANCE TO 100% FOREIGN SUBSIDIARY WILL ALSO BE SIMILAR TO THIS ONE I. E. LESS THAN 25% OF WHAT THE WORKING HAS BEEN GIVEN. IT IS ALSO PERTINENT TO NOTE THAT THERE WAS NO BANK LIMITS AVAILABLE AT THE END OF THE YEAR. THE CONTENTION OF THE ASSESSE IS NOT FOUND ACCEPTABLE. SINCE THE ASSESSEES ACCOUNTS DOES NOT GIVE THE CORRECTNESS OF CLAIM OF EXPENDITURE MADE BY THE ASSESSE IN RESPECT OF EXPENSES RELATED TO EARNING EXEMPT INCOME. I AM SATISFIED THAT IN THIS CASE PROVISIONS OF SECTION 14A OF THE ACT AND THE RULE 8D OF THE INCOME TAX RULES ARE APPLICABLE. 5. IN VIEW OF THE ABOVE FACTS, THE DISALLOWANCE IS WORKED OUT AS PER SECTION 14A R.W.S. RULE 8D AS UNDER: I EXPENDITURE INCURRED AS CLAIMED BY ASSESSE (A) AMOUNT OF EXPENDITURE BY WAY OF INTEREST DEBITED IN THE P & L A/C. 43673080 OPENING VALUE CLOSING VALUE (B) AVERAGE INVESTMENT ON WHICH TAX FREE INCOME IS RECEIVED OR RECEIVABLE 325063000 31306300 31906300 (C)AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN THE 2581194801 2622728525 2601961663 ITA NO. 3046/AHD/2016 . A.Y. 2013-14 4 BALANCE SHEET II (A) X (B) / (C) 5968489 III 0.5% OF THE AVERAGE VALUE OF INVESTMENT ON WHICH TAX FREE INCOME IS RECEIVED OR RECEIVABLE 1595315 TOTAL = I + II + III 7563804 THUS, AS WORKED OUT ABOVE, THE DISALLOWANCE OF EXPENDITURE INCURRED COMES TO RS. 75,63,804/-. ACCORDINGLY, AN AMOUNT OF RS. 75,63,804/- IS DISALLOWANCE AND ADDED TO THE TOTAL INCOME OF THE ASSESSE COMPANY. 6. THE LD. ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSE AND DISALLOWED EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME TO THE TUNE OF RS. 75,63,804/- AND SAME WAS DISALLOWED BY THE ASSESSING OFFICER. 7. NOW QUESTION IS BEFORE US IS WHETHER DISALLOWANCE OF RS. 2,58,225/- SHOULD BE CONFIRMED OR NOT. IT CAN BE SEEN FROM THE FACTS OF THE CASE THAT LD. A,.O. HAS MADE DISALLOWANCE OF RS. 75,63,804/- U/S. 14A R.W.R. 8D. 8. ON THE OTHER HAND, LD. CIT(A) HAS MENTIONED IN HIS ORDER THAT ISSUE IS COVERED BY THE DECISION GIVEN BY HIS OFFICE IN APPELLANT OWN CASE FOR A.Y. 2012-13 VIDE APPELLATE ORDER NO. CIT(A)-2/400/DCIT, CIR. 2(1)(1)/2014-15 DATED 25/01/2016 WHEREIN HE HAS RESTRICTED THE CONFIRMED EXEMPT INCOME OF THE ASSESSE. ITA NO. 3046/AHD/2016 . A.Y. 2013-14 5 9. IN OUR CONSIDERED OPINION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). HENCE, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND SAME DOES NOT REQUIRE ANY KIND OF INTERFERENCE AT OUR END. 10. IN THE RESULT, THIS GROUND OF REVENUE IS DISMISSED. 11. NOW WE COME TO NEXT GROUND RELATING TO LATE DELIVERY CHARGES. 12. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS INCURRED EXPENSES AMOUNTING TO RS.1,65,067/- AS LATE DELIVERY CHARGES IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'ADMINISTRATIVE AND SELLING EXPENSES'. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO SHOW CAUSE VIDE ORDER SHEET ENTRY DATED 07.12.2015, AS TO WHY THE ADDITIONS/ DISALLOWANCE MADE IN A.Y. 2012-13 SHOULD NOT BE MADE IN A.Y. 2013-14 ALSO. 13. IN REPLY TO THE LD. A.O. QUARRIES ASSESSE SUBMITTED AS FOLLOWS: '2) LATE DELIVERY CHARGES; - AS SUBMITTED IN EARLIER YEAR ALSO AND AGAIN WOULD LIKE TO INFORM THAT WHENEVER IN ANY SUPPLY OF THE GOODS TO ANY OF THE CUSTOMER, IF THERE IS SOME DELAY IN THE DELIVERY WHICH IS MAINLY CAUSED DUE TO VARIOUS BUSINESS REASONS, CUSTOMER DEDUCTED THE AMOUNT OF THE LATE DELIVERY CHARGES AND NET PAYMENT IS GIVEN. WE ACCOUNT FOR THIS TYPE OF AMOUNT UNDER THE HEAD LATE DELIVERY CHARGES, WE ENCLOSE HEREWITH THE STAT OF A/C AS PER THE BOOKS WHERE THE AMOUNT OF RS165067 HAS BEEN DEDUCTED BY THE DIRECTOR GENERAL, BOARDER ROADS ( A CENTRAL GOVT DEPT) AS PER THE TERMS OF THE PURCHASE ORDER. IN OUR VIEW, THIS IS INCIDENTAL TO OUR MAIN BUSINESS AND ALLOWABLE AS BUSINESS EXPENSES AND DISALLOWANCE IS REQD TO BE MADE. HEAR WILL ALSO SUBMIT THAT IN ALL THE EARLIER YEARS, SIMILAR ADDITION HAS BEEN DELETED BY THE APPELLATE AUTHORITY.' 14. BUT LD. A.O. DID NOT AGREE WITH THE CONTENTION OF THE ASSESSE AND MADE ADDITION OF RS. 1,65,067/- . 15. THEREAFTER ASSESSE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSE. ITA NO. 3046/AHD/2016 . A.Y. 2013-14 6 16. NOW REVENUE HAS COME BEFORE US BY WAY OF SECOND STATUTORY APPEAL. 17. SO FAR DELETION OF ADDITION OF LATE DELIVERY CHARGES ARE CONCERNED, SIMILAR ADDITION WAS DELETED IN ASSESSEES OWN CASE IN A.Y. 2010-11 & 2011-12 BY THE LD. CIT(A) AND CO-ORDINATE BENCH HAS DISMISSED THE REVENUES APPEAL IN ITA NO. 154/AHD/2015 WITH FOLLOWING OBSERVATION: '15. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT APPORTION OF THE SALE CONSIDERATION WAS RETAINED BY THE PAYEES ON ACCOUNT OF /ATE DELIVERY OF THE MACHINERIES AND AS PER THE TERMS OF CONTRACT, THE ASSESSEE HAD TO COMPENSATE THE CUSTOMERS IF IT FAILS TO DELIVER THE GOODS ON TIME. THERE IS NO DISPUTE THAT SUCH EXPENDITURES WERE INCURRED DURING THE ORDINARY COURSE OF THE BUSINESS OF THE ASSESSEE AND THEREFORE ARE DIRECTLY RELATED TO THE BUSINESS ACTIVITY OF THE ASSESSEE. IT IS ALSO TRUE THAT THESE EXPENDITURES ARE NOT PENALTY LEVIED FOR ANY INFRACTION OF ANY LEGISLATED LAW OF THE LAND BUT HAS BEEN INCURRED OUT OF A CONTRACTUAL OBLIGATION. IN OUR CONSIDERED OPINION, SUCH EXPENDITURES ARE DEFINITELY OF REVENUE IN NATURE AND ARE ALLOWABLE U/S. 37 OF THE ACT. THEREFORE NO INTERFERENCE IS CALLED FOR. GROUND NO. 2 IS DISMISSED.' 18. IN VIEW OF THE ABOVE SAID AND PARITY WITH THE ITAT DECISION, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). 19. NOW WE COME TO DELETION OF DISALLOWANCE OF FOREIGN COMMISSION U/S 40(A)(IA) OF RS. 1,76,08,320/-. 20. AS WE CAN SEE, THE COMMISSION PAID TO NON-RESIDENT WHOSE INCOME IS NOT TAXABLE IN INDIA AND ALL SERVICES RENDERED OUTSIDE INDIA AND IT HAS NOT PERMANENT ESTABLISHMENT OR OFFICE OF AGENT IN INDIA AND IN SIMILAR FACTS AND CIRCUMSTANCES, ADDITION WAS DELETED IN A.Y. 2010-11 AND A.Y. 2011-12 BY THE ITA NO. 3046/AHD/2016 . A.Y. 2013-14 7 LD. CIT(A) AND ITAT HAS DISMISSED REVENUES APPEAL IN ITA NO. 154/AHD/2015 ORDER DATED 19/09/2018 WITH FOLLOWING OBSERVATIONS: 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSE COMPANY HAS BEEN REGULARLY EXPORTING ITS PRODUCTS WITH THE HELP OF OVERSEAS DEALERS. IT IS UNDISPUTED FACT THAT THE COMMISSION WERE PAID TO SUCH NON-RESIDENT AGENTS IN RESPECT OF ALL THE SERVICES RENDERED BY THEM RELATED TO THE EXPORT MADE BY THE ASSESSE OUTSIDE INDIA. THERE WAS NO PERMANENT ESTABLISHMENT/OFFICE OF THESE AGENTS OR ANY INFRASTRUCTURE SITUATED IN INDIA. THESE AGENTS HAVE CARRIED OUT ALL THEIR ACTIVITIES OUTSIDE INDIA AND COMMISSION WAS PAID FOR THE ACTIVITIES CARRIED OUT SIDE INDIA. SECTION 195 IS APPLICABLE ONLY IF THE PAYMENTS MADE TO NON-RESIDENTS ARE CHARGEABLE TO TAX. IF THE PAYMENT IS NOT CHARGEABLE TO TAX UNDER THE ACT, THE PAYER WOULD NOT BE LIABLE TO DEDUCT TAX AT SOURCE UNDER THE ACT. SECTION 4 OF THE ACT PROVIDES THAT INCOME TAX SHALL BE CHARGED FOR A PARTICULAR YEAR IN ACCORDANCE WITH THE PROVISION OF THE ACT. SECTION 5 OF THE ACT DEALS WITH THE SCOPE OF THE TOTAL INCOME OF THE NON-RESIDENTS AND TAKES WITHIN THE SCOPE TWO TYPES OF INCOME , THE INCOME WHICH IS RECEIVED OR DEEMED TO BE RECEIVED IN INDIA AND SECOND ONE THE INCOME ACCRUES OR ARISES OR DEEMED TO ACCRUES OR ARISE IN INDIA. IN THE CASE OF THE ASSESSEE WE ARE DEALING WITH THE SECOND PART OF THE SCOPE OF INCOME PERTAINING TO INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. SECTION 9 OF THE ACT PROVIDES FOR THE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. IT IS NOTICED THAT NO INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA BY APPLYING THE PROVISIONS OF SECTION 9 (L)(I) AS THE ASSESSING OFFICER HAS FAILED TO ESTABLISH ACCRUING OR ARISING OF ANY INCOME FROM BUSINESS CONNECTION IN INDIA OR THROUGH OR FROM ANY PROPERTY OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATED IN INDIA. WE OBSERVE THAT THERE WAS NO MATERIAL WHICH CAN DEMONSTRATE THAT ANY OF THE AGENTS HAD ANY PERMANENT ESTABLISHMENT IN INDIA AS ALL THE AGENTS HAD THEIR ESTABLISHMENTS SITUATED IN THE OVERSEAS PLACES. IN THE LIGHTS OF THE ABOVE FACTS AND DETAILED FINDINGS OF THE LD.CIT(A) IT IS CLEAR THAT THE PROVISIONS OF SECTION 9 (1)(I) CANNOT BE APPLIED, THEREFORE WE CONSIDER THAT THE LD.CIT(A) HAS RIGHTLY DELETED THE IMPUGNED DISALLOWANCE OF COMMISSION PAYMENT MADE TO THE FOREIGN AGENTS. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 21. SINCE ALREADY REVENUE APPEAL WAS DISMISSED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, THUS, IN PARITY WITH THE ABOVE SAID ORDER, WE ARE NOT ITA NO. 3046/AHD/2016 . A.Y. 2013-14 8 INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 22. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19- 01- 2021 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 19/01/2021 RAJESH COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD