M/s. A-One Leathers, CHENNAI V. ITO, CHENNAI

ITA 3061/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8100 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUPRIYA PAL
• Keywords: Deemed to accrue or arise in india; Retrospective amendment; Additional evidence; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 195

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC) BENCH : CHENNAI . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER ./I.T.A. NO.3061/MDS/2016. / ASSESSMENT YEAR : 2007-2008. M/S. A-ONE LEATHERS TANNERS & EXPORTS, NO.10/5, NABHIKHAN ZUBAIDA STREET, PERIAMET CHENNAI 600 003. VS. THE INCOME TAX OFFICER, NCW 4(1) CHENNAI 600 006. [PAN AAAFA 4576H] ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI. R. KUMAR, ADVOCATE /RESPONDENT BY : SHRI. SUPRIYA PAL, IRS, JCIT. ! '# /DATE OF HEARING : 10-01-2017 $% '# /DATE OF PRONOUNCEMENT : 25-01-2017 / O R D E R ASSESSEE IN THIS APPEAL APART FROM ASSAILING VALIDI TY OF THE RE- ASSESSMENT PURSUANT TO REOPENING DONE FOR THE IMPUG NED ASSESSMENT YEAR, IS ALSO AGGRIEVED ON A DISALLOWANCE OF ?13,55 ,520/- BEING COMMISSION PAID BY THE ASSESSEE TO A NON-RESIDENT AGENT. ITA NO. 3061/MDS/2016. :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE IN THE BUSINESS OF LEATHER TRADING HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF ?4,74,300/-. THE ORIGINAL ASSE SSMENT WAS COMPLETED ON 03.11.2009 U/S.143(3) OF THE ACT, AFTE R VERIFYING CASH BOOK, LEDGER, SALES TAX ORDER, TDS DETAILS AND CRED ITORS CONFIRMATION FILED BY THE ASSESSEE. IN SUCH ASSESSMENT, A DISAL LOWANCE OF 10% OF THE TANNERY MAINTENANCE EXPENDITURE AND MACHINERY R EPAIRS EXPENDITURE WERE MADE BY THE LD. ASSESSING OFFICER, FOR FAILURE OF THE ASSESSEE TO PRODUCE ENTIRE VOUCHERS. THEREAFTER TH E ASSESSMENT WAS REOPENED ON 20.03.2014 BY ISSUING NOTICE U/S.148 OF THE ACT. IN THE COURSE OF SUCH REASSESSMENT, IT WAS NOTED BY THE LD . ASSESSING OFFICER THAT ASSESSEE HAD DEBITED A SUM OF ?8,24,320/- AS C OMMISSION PAYMENT TO NON-RESIDENT. AS PER LD. ASSESSING OFFIC ER SUCH COMMISSION WAS FOR THE PURPOSE OF SALES OF THE ASSE SSEE OUTSIDE INDIA THROUGH FOREIGN AGENT AND BY VIRTUE OF SEC. 9(1)(VI I) OF THE ACT, IT COULD BE CONSIDERED AS FEES FOR TECHNICAL SERVICES. HE RELIED ON EXPLANATION BELOW SEC. 9 (2) OF THE ACT INSERTED INTO THE ACT BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 01.04.1976. ACCORDIN G TO HIM, IT WAS NOT RELEVANT WHETHER NON-RESIDENT HAD RENDERED SERVICES IN INDIA. FURTHER, AS PER LD. ASSESSING OFFICER EXPLANATION 2 TO SEC. 195(1)(I) OF THE ACT INTRODUCED BY FINANCE ACT, 2012 WITH RETRO SPECTIVE EFFECT FROM ITA NO. 3061/MDS/2016. :- 3 -: 01.04.1962 CLEARLY MANDATED DEDUCTION OF TAX AT SOU RCE IRRESPECTIVE OF THE FACT WHETHER THE NON-RESIDENT CONCERN HAD A PL ACE OF BUSINESS OR BUSINESS CONNECTION OR ANY PRESENCE IN INDIA. THUS , HE HELD THAT ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE AT THE COMMISSION OF ?8,24,620/- PAID TO THE NON-RESIDENT AGENT ATTRACTI NG THE RIGOURS OF SEC. 40(A)(I) OF THE ACT. HE DISALLOWED THE CLAIM A ND COMPLETED RE- ASSESSMENT. 3. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ASSESSEE DID NOT CHALLENGE THE REOPENING BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, IT ASSAILED MERITS OF THE DISALLOWANCE. L D. COMMISSIONER OF INCOME TAX (APPEALS) OBTAINED A REMAND REPORT FROM THE LD. ASSESSING OFFICER ON THE CLAIM OF THE ASSESSEE THAT THE COMMI SSION WAS PURELY FOR EXPORT SALE SOLICITED BY THE NON-RESIDENT AGENT OUTSIDE INDIA. REMAND REPORT FURNISHED BY THE LD. ASSESSING OFFICE R IS REPRODUCED HEREUNDER:- IN THIS CASE THE ASSESSEE FILED RETURN OF INCOME FO R THE A.Y.2007-08 ON 28.10.2007 DECLARING INCOME OF 4,74,300/- , THE CASE WAS SELECTED FOR SCRUTINY AND WAS COMPLE TED U/S143(3) ON 3.11.2009. THE FIRM IN ITS RETURN OF I NCOME FILED U/S139(1) HAS DEBITED A SUM OF RS.8,24,320/- WITH T HE DESCRIPTION 'IN FOREIGN CURRENCY TO NON-RESIDENTS' ON WHICH TDS HAS NOT BEEN DEDUCTED. THE ITA NO. 3061/MDS/2016. :- 4 -: CASE WAS REOPENED U/S147 BY ISSUING U/S148 TO THE F IRM AND WAS DULY ACKNOWLEDGED ON 20.3.2014. THE CASE WAS COMPLETED ON 20.10.2014 DETERMINING THE TOTAL INCOM E AT 13,55,529/- IN THE SAID ASSESSMENT THE FOLLOWING AD DITIONS MADE:- * OVERSEAS EXPORT COMMISSION AMOUNTING TO RS.8,24,320 /- AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PREFER RED AN APPEAL BEFORE CIT (A)-5 CHENNAI. THE CIT CA) DIRECT ED TO VERIFY THE ISSUE OF 'FOREIGN COMMISSION PAYMENT' AN D SUBMIT THE REMAND REPORT. ACCORDINGLY, THE ASSESSEE WAS GI VEN OPPORTUNITY TO APPEAR BEFORE THE UNDERSIGNED WITH R EGARD TO THE ADDITIONAL EVIDENCES PRODUCED BY IT BEFORE THE CIT (A)-5 CHENNAI FOR THE A.Y.2007-08. IN RESPONSE TO THE OPPORTUNITY LETTER ISSUED, SHRI G.PARI CA, APPEARED FILED THE COPY OF ADDITIONAL EVIDENCES PRODUCED BEFORE CIT CA ) AND THE CASE WAS DISCUSSED. AFTER VERIFICATION OF THE C OPY OF ADDITIONAL EVIDENCES SUCH AS INVOICES COPIES, SHIPP ING BILLS, PURCHASE ORDERS AND LEDGER SUBMITTED BY THE ASSESSE E, THE REMAND REPORT ON THE ISSUE OF FOREIGN COMMISSION PA YMENT IS SUBMITTED HEREIN BELOW. DURING THE COURSE OF REMAND PROCEEDINGS THE ASSESSE E HAS BEEN ASKED TO PRODUCE THE COPIES OF AGREEMENTS ENTE RED INTO BY IT WITH THE FOREIGN AGENTS IN RESPECT OF TH E FOREIGN COMMISSION. IN THIS REGARD, THE ASSESSEE SUBMITTED THE CONTRACT NOTE WITH THE AGENTS AND THEIR ENGAGEMENT WAS ONLY FOR PROCURING ORDERS AND THEY ACTED AS PURE AG ENTS OF THE ASSESSEE FIRM. THE AGENTS WERE PAID COMMISSION AS A PERCENTAGE OF THE INVOICE VALUE AS A CONSIDERATION FOR PROCURING THE ORDERS. ITA NO. 3061/MDS/2016. :- 5 -: THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFO RE THE HON'BLE CIT(A) HAS BEEN VERIFIED AND IT IS FOUND TH AT THE ASSESSEE HAS PAID THE COMMISSION TO THE FOLLOWING P ERSON AS A FIXED PERCENTAGE ON THE TURNOVER BROUGHT BY FO REIGN AGENTS. SL. NO NAME OF THE AGENT % OF COMMISSION PAID AMOUNT PAID IN USD AMOUNT PAID IN INR 1 LINFOOT CO. LTD. TIWAN 5 3910.45 181000 2 LINFOOT CO. LTD. TIWAN 5 7468.00 336060 3 LINFOOT CO. LTD. TIWAN 5 6828.00 307260 DURING THE COURSE OF REMAND PROCEEDINGS, THE ASSESS EE RELIEF ON THE DECISION OF THE HON'BLE SUPREME COURT . IN THE CASE OF M/S GE INDIA TECHNOLOGY CENTRE P. LTD. VS. COMMISSIONER OF INCOME TAX. THE HON'BLE SUPREME COU RT IN THE ABOVE CASE HELD THAT TAX DEDUCTED AT SOURCE OBLIGATION U/S195(1) ARISES ONLY IF THE PAYMENT IS CHARGEABLE TO TAX IN THE HANDS OF THE NON- RESIDENT RECIPIENT. THE HON'BLE SUPREME COURT FURTH ER HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS WHEN THE NON RESIDENT AGENT PROVIDED SERVICES OUTSIDE INDIA AND AS SUCH COMMISSION PAYMENTS MADE TO THEM CANNOT BE TREATED AS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AND THER EFORE THE PROVISIONS OF SECTION 195 HAS NO APPLICATION IN SUCH CASES. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HON 'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS FAIZAN SHOE S P. LTD. (2014)367 ITR 155. THE ADDITIONAL INFORMATION FIRLED BY THE ASSESSEE HAS BEEN VERIFIED AND IT IS SEEN THE F ACTS OF ITA NO. 3061/MDS/2016. :- 6 -: THE ASSESSEE'S CASE IS SIMILAR TO M/S GE INDIA TECH NOLOGY CENTRE P. LTD. VS CIT & M/S. FAIZAN SHOES P. LTD ON THE ISSUE OF FOREIGN COMMISSION. NEVERTHELESS LD. COMMISSIONER OF INCOME TAX (APPEAL S) HELD THAT ASSESSEE COULD NOT PRODUCE AGREEMENTS WITH FOREIGN AGENT AND THE CONTRACT RECEIPTS PRODUCED BY THE ASSESSEE DID NOT GIVE THE NATURE OF SERVICES RENDERED BY THE FOREIGN AGENT. THOUGH ASS ESSEE RELIED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. FAIZAN SHOES (P) LTD 367 ITR 155, LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT IN THE SAID CASE, CONCERNED PARTY WAS ABLE TO PRODUCE COMMERCIAL BILLS PROVING THE NA TURE OF SERVICES. HE, THUS AFFIRMED THE ORDER OF THE LD. ASSESSING OF FICER. 4. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE ST RONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT LD. ASSESSING OFFICER IN THE REMAND REPORT HAD SPECIFIC ALLY STATED THAT THE FACTS IN ASSESSEES CASE WERE SIMILAR FOR THAT OF GE INDIA TECHNOLOGY CENTRE P. LTD VS. CIT 327 ITR 456 DECIDED BY HONBLE APEX COURT AND THAT OF FAIZAN SHOES (P) LTD (SUPRA ) DECIDED BY HONBLE JURISDICTIONAL HIGH COURT. FURTHER, ACCORDING TO HIM THE RE-ASSESS MENT WAS INITIATED AFTER FOUR YEARS FROM THE END OF THE IMPUGNED ASSE SSMENT YEAR AND ITA NO. 3061/MDS/2016. :- 7 -: THE CONDITIONS SPECIFIED IN FIRST PROVISO OF SEC. 1 47 OF THE ACT WAS NOT SATISFIED. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. I HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THE REMAND REPORT OF THE ASSESSEE OBTAINED BY THE L D. COMMISSIONER OF INCOME TAX (APPEALS), DURING THE COURSE OF HEARI NG BEFORE HIM IS REPRODUCED AT PARA 3 ABOVE. LD. ASSESSING OFFICER HAS OPINED THAT RECORDS PROVIDED BY ASSESSEE STOOD VERIFIED AND TH E FACTS WERE SIMILAR TO WHAT IT WERE IN THE CASE OF FAIZAN SHOES (P) LTD (SUPRA ) DECIDED BY THE JURISDICTIONAL HIGH COURT. ADMITTEDLY IN THE S AID CASE HONBLE JURISDICTIONAL HIGH COURT TOOK A VIEW WHICH WENT IN FAVOUR OF THE ASSESSEE. HENCE, WE CANNOT ACCEPT THE VIEW TAKEN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT NATURE OF COMMISSION PAID BY THE ASSESSEE WAS NOT PROVED IN THE ABSENCE OF AG REEMENTS. THAT APART, WE FIND THAT THE REOPENING WAS INITIATED AFT ER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. IN THE ORIGINAL ASS ESSMENT ASSESSEE HAD PRODUCED ALL DETAILS WHICH WERE CALLED BY THE L D. ASSESSING OFFICER. FOR A REOPENING AFTER FOUR YEARS IT IS NECESSARY TH AT THERE SHOULD BE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL ITA NO. 3061/MDS/2016. :- 8 -: MATERIAL FACTS NECESSARY FOR ASSESSMENT. THERE IS N OTHING ON RECORD TO PROVE THAT ASSESSEE HAD FAILED TO DISCLOSE FULLY AN D TRULY ALL MATERIAL FACTS RELATING TO THE ASSESSMENT IN THE ORIGINAL A SSESSMENT PROCEEDINGS. ESPECIALLY SO, SINCE ASSESSEE FILED A LL REQUIRED INFORMATION CALLED FOR BY THE LD. ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS. IN THE CIRCUMSTANCES, I AM OF THE OPINION THAT ASSESSEE HAS TO SUCCEED IN ALL THE GROUNDS RAI SED BY IT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 25TH JANUARY, 20 17, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) $ %& / ACCOUNTANT MEMBER &'! / CHENNAI ( / DATED:25TH JANUARY, 2017. KV ) '+, -,' / COPY TO: 1 . / APPELLANT 3. .' () / CIT(A) 5. ,12 '3 / DR 2. / RESPONDENT 4. .' / CIT 6. 24 5! / GF