D.C.I.T Cir - 1,kolkata., Kolkata V. M/s T I L Limited., Kolkata

ITA 338/KOL/2013

• Counselvise Citation: 33823514 RSA 2013
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UDAY KR SARDAR
• Assessee Lawyers: SAURAV KE DIA
• Keywords: Business expenditure; Services rendered outside India; Permanent establishment; Non compliance
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI M. BALAGANESH, A.M. & SHRI S.S.VISWANE THRA RAVI, J.M.) ITA NO. 338/KOL/2013 : ASSTT. YEAR : 2004-200 5 DCIT, CIRCLE-1 KOLKATA VS M/S. TIL LIMITED (PAN: AABCT 0704G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI UDAY KR. SARDAR, JCIT RESPONDENT BY : SHRI SAURAV KE DIA, CA DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 10 -12-2015 ORDER PER SHRI S.S.VISWANETHRA RAVI, J.M . THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 06.11.2012 PASSED BY THE CIT(APPEALS)-XX, KOLKATA I N APPEAL NO. 118/CIT(A)-XX/CIR-1/2011-12/KOL FOR THE ASSESSMENT YEAR 2004-05 FRAMED UNDER SECTION 143(3) OF THE I.T.ACT. 2. BEING AGGRIEVED BY THE ABOVE ORDER THE REVENUE R AISED A SOLE GROUND THAT THE LD.CIT-A IS ERRED IN DELETING THE ADDITION OF R S.1,17,47,291/- MADE ON ACCOUNT OF AGENCY DEALERSHIP COMMISSION WHICH WAS D ISALLOWED BY THE AO FOR THE REASONS DETAILED THEREIN, AS SUCH , FOR NOT DED UCTING TDS WHILE PAYING THE SAID COMMISSION AND ATTRACTED THE SECTION 40(A)(IA) OF THE ACT FOR VIOLATION OF THE SAME. THEREFORE, THE ONLY ISSUE FALLS FOR OUR C ONSIDERATION, WHETHER THE LD.CIT-A JUSTIFIED IN DELETION OF THE ADDITION MADE BY THE AO UNDER SECTION 40(A)(IA) OF THE ACT 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF DIESEL HYD RAULIC, ELECTRIC CRANES, FORKLIFT TRUCKS AND GENERATORS. DURING THE PERIOD U NDER CONSIDERATION THE ASSESSEE EXPORTED FLAME PROOF FORKLIFT TRUCKS AND I TS SPARE PARTS TO MINISTRY OF OIL, BAGHDAD AND THE SALE PROCEEDS OF WHICH WERE RE CEIVED BY THE ASSESSEE THROUGH ITS BANKS I.E. BANK OF INDIA AND STATE BANK OF BIKANER & JAIPUR. THE ASSESSEE PAID THE COMMISSION CHARGES THROUGH ITS RE GULAR BANKING CHANNEL WHICH WERE CREDITED TO THE PARTY HAVING ACCOUNT IN STANDARD CHARTERED GRINDLAYS BANK, JORDAN-AMMAN- SHMEISSANI BRANCH IN AMMAN. 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THE BUSINESS EXPENDITURE TO AN EXTENT OF RS.1,17,47,291/- OUT O F THE TOTAL RS.3,61,75,033/- BEING GOODS VALUE EXPORTED TO MINISTRY OF OIL, BAG HDAD, APART FROM NON COMPLIANCE OF SECTION 40(A)(I) ACT, AS DISCUSSED AB OVE, THE AO ALSO, WAS OF THE VIEW THAT THE NAME OF THE ASSESSEE BEING FIGURED IN THE VOLKER COMMISSION REPORT AND WITH REFERENCE TO THE PAYMENT TOWARDS CO MMISSION WERE NOT AUTHORISED BY THE UN, BUT, HOWEVER, ADMITTED TO THE FACT THAT THE ASSESSEE PRODUCED ALL THE RELEVANT MATERIAL EVIDENCING THE A GREEMENT REFERRING THE NATURE AND QUANTIFICATION OF SERVICES RENDERED FOR WHICH T HE COMMISSION HAS BEEN PAID. DESPITE THE SAME THE AO DISALLOWED THE EXPENDITURE ADDED TO AN EXTENT OF RS.1,17,47,291/- TO THE INCOME OF THE ASSESSEE. 5. AGAINST WHICH, ON AN APPEAL BEFORE THE CIT(A), T HE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT AN EXPENDITURE IS ALLOWABLE UNDER THE ACT IF IT IS INCURRED IN RELATION TO THE BUSINESS AND THAT THE S AID REPORT RELIED ON BY THE AO NEITHER ANNEXED TO ASSESSMENT ORDER NOR DISCLOSED T O THE ASSESSEE WHICH IS AGAINST TO THE SETTLED PRINCIPLES ESTABLISHED BY TH E LAW. FURTHER, THE INCOME OF A NON-RESIDENT IS NOT TAXABLE IN INDIA AND THAT A FOR EIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCO ME TAX IN INDIA AND SUCH AN AGENT IS NOT LIABLE TO INCOME TAX IN INDIA ON THE C OMMISSION IN PURSUANCE OF THE CIRCULAR NO:786 DT:07-02-2000 ISSUED BY THE CBDT CL ARIFYING THAT NO TAX IS DEDUCTIBLE U/S. 195 OF ACT. THEREBY, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO AS OBSERVING AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED THE SUBMISSION OF THE APPELLANT. IN VIEW OF THE FACT TH AT ON THE SAME GROUND IN THE EARLIER A.Y. I.E.2004-04 THE HONBLE ITAT, KOLK ATA B BENCH HAS DELETED THE ENTIRE DISALLOWANCE MADE BY THE AO AND UPHELD BY THE CIT(A), AFTER DISCUSSING ALL THE POINTS BASED ON WH ICH DISALLOWANCE WAS MADE. THEREFORE, FOLLOWING THE DECISION OF ITAT IN THE APPELLANTS OWN CASE, THE APPEAL ON THIS GROUND IS ALLOWED. 6. AGGRIEVED BY WHICH, THE REVENUE FILED THIS APPEA L BEFORE THIS TRIBUNAL. THE LD. DR SUBMITTED THAT THE NAME OF THE ASSESEE I S FIGURED IN THE VOLKER COMMITTEE REPORT CONSTITUTED TO EXAMINE TRANSACTION S WITH REFERENCE TO THE FOOD FOR OIL PROGRAMME WITH IRAQ RELATING TO THE KI CK BACKS SAID TO HAVE BEEN EXCHANGED BETWEEN THE PARTIES AND SUCH TRANSAC TIONS WERE NOT APPROVED BY THE UN AND RELIED ON THE AOS ORDER AND PRAYED TO A LLOW THE APPEAL. IN REPLY THE AR CONTENDED THAT THE ASSESSEE SUBMITTED ALL TH E AGREEMENTS CONCERNING THE TRANSACTIONS IN SELLING THE FLAME PROOF FORKLIFT TR UCKS AND ITS SPARE PARTS TO MINISTRY OF OIL, BAGHDAD. ALL THE TRANSACTIONS WERE CAUSED EFFECT THROUGH VALID BANKING CHANNELS I.E BANK OF INDIA AND STATE BANK O F BIKANER & JAIPUR TO STANDARD CHARTERED GRINDLAYS BANK, JORDAN-AMMAN- SH MEISSANI BRANCH IN AMMAN. THE AR FURTHER, POINTED OUT CIRCULAR NO:786 DT:07-02-2000 ISSUED BY THE CBDT ISSUED IN THIS CONNECTION AND RELIED ON TH E ORDER PASSED BY THE B BENCH OF KOLKATA BENCHES, KOLKATA IN THE ASSESSEES OWN CASE FOR A.Y 2003-04 7. HEARD THE REPRESENTATIVES OF BOTH SIDES, PERUSED THE RELEVANT MATERIAL ON RECORDED AS WELL AS THE ORDERS OF BOTH LOWER AUTHOR ITIES AND CONSIDERED THE SUBMISSIONS AND CIRCULAR AND CASE LAWS RELIED ON, I N THE PRESENT CASE, THE ASSEESSEE PRODUCED ALL THE EVIDENCES RELATING TO TH E TRANSACTIONS IT HAD WITH THE PARTY WHO PROCURED THE ABOVE SAID GOODS FOR FOOD FO R OIL PROGRAMME AND ALL THE PAYMENTS WERE ROUTED THROUGH VALID CHANNELS BY WAY OF BANKS WHERE IT IS SHOWN THAT THE EXPENDITURE BY WAY OF COMMISSION INC URRED IN RELATION TO BUSINESS, HAVING RELEVANT MATERIAL ON RECORD AND AC CEPTING THE SAME AS GENUINE TRANSACTIONS, BUT, HOWEVER, BASING ON A REPORT WHIC H IS NOT PART OF THE ASSESSMENT, DISALLOWING THE CLAIM IS UNJUSTIFIED. W ITH REFERENCE TO THE CIRCULAR NO:786 DT:07-02-2000 ISSUED BY THE CBDT IT IS VERY CLEAR THAT NO TAX IS DEDUCTIBLE U/S 195 OF ACT ON EXPORT COMMISSION AND RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA IS AN ALLOWABLE EXPENDITURE. A COORDINATE BENCH OF ITAT AT KOLKATA B BENCH, KOLK ATA IN THE ASSESSEES OWN CASE FOR A.Y 2003-04 BY AN ORDER DT:30-03-2007 IN I TA 281/KOL/2007 DECIDED THE SAME IDENTICAL ISSUE IN FAVOVOUR OF THE ASSESSE E. THE RELEVANT PORTION OF SUCH ORDER IS AT PARA 6.21 IS REPRODUCED AS UNDER: AS DISCUSSED EARLIER THE STAND TAKEN BY THE LEARNE D CIT(A) THAT IN THE ABSENCE OF DEDUCTION OF TAX AT SOURCE FROM THE PAYMENT IT IS HIT BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT , ALSO IS NOT TENABLE. THERE IS NOTHING ON RECORD TO SHOW THAT ANY PART OF THE ACTI VITIES OF THE IRAQI AGENT HAS PERFORMED IN INDIA. THE PAYMENT WAS ALSO RECEIV ED BY THEM IN JORDAN. ABSENCE OF ANY PERMANENT ESTABLISHMENT OR B USINESS CONNECTION OF AGENT IN INDIA, ALSO TAKES THE CASE OUT OF THE P URVIEW OF THE DEEMING PROVISIONS REGARDING ACCRUAL OF INCOME IN INDIA AS ENVISAGED IN SECTION 5(2) OF THE ACT. HENCE, BY TAKING INTO CONSIDERATIO N ALL THE ASPECTS OF THE CASE, IT IS FOUND THAT IN THIS CASE, NEITHER WAS TH E COMMISSION PAYMENT RECEIVED BY THE NON-RESIDENT AGENT IN INDIA NOR ANY INCOME ACCRUE OR ARISE NOR DEEMED TO ACCRUE OR ARISE TO IT IN INDIA. HENCE, THERE WAS NO LIABILITY ON THE PART OF THE APPELLANT COMPANY TO D EDUCT TAX ANY TAX FROM THE AMOUNT OF COMMISSION PAYMENT MADE BY IT TO THE IRAQI AGENT IN TERMS OF PROVISIONS OF SECTION 195 OF THE ACT. IT HAS ALS O GOT TO BE HELD THAT LOOKING TO THE COMPLEXITIES OF INTERNATIONAL TRANSA CTIONS, THE RATE OF COMMISSION PAYMENT IN THIS CASE CAN NOT BE CONSIDER ED TO BE TOO HIGH, EXCESSIVE OR UNREASONABLE. IN ANY CASE, THERE IS NO THING ON RECORD TO SHOW THAT THE FULL AMOUNT AS CLAIMED BY THE APPELLA NT COMPANY WAS NOT ACTUALLY PAID OR THAT SOME PART OF IT WAS ROUTED BA CK TO THE APPELLANT COMPANY OR ITS DIRECTORS IN AN INDIRECT OR UNDERHAN D WAY. THEREFORE THERE IS NO CASE FOR DISALLOWING THE COMMISSION PAY MENT IN THIS CASE FROM ANY ANGLE WHATSOEVER. TAKING INTO CONSIDERATION ALL THESE ASPECTS, WE HOLD THE COMMISSION PAYMENT UNDER CONSIDERATION IS FULLY ALLOWABLE. WE, THEREFORE, REVERSE THE ORDERS OF THE LOWER AUTHORIT IES AND DELETE THE ENTIRE DISALLOWANCE IN THIS REGARD. 7.1 THEREFORE, IN THE LIGHT OF OBSERVATIONS OF ABOV E, WE DEEM IT PROPER TO HOLD THAT THE PAYMENT OF COMMISSION TO A AGENT OUTS IDE INDIA IS A BUSINESS EXPENDITURE IS ALLOWABLE AND WE CONFIRM THE ORDER P ASSED BY THE LD. CIT(A). 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DECEMBER, 2015. SD/- SD/- ( M. BALAGANESH) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/12/2015 TALUKDAR/SR.PS COPY OF ORDER FORWARDED TO: 1 GOPAL MAHAPATRA, 53B TOWNSHEND ROAD, KOLKATA 700 025 2 ACIT, CIRCLE-31 , KOLKATA 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA