ACIT, CHENNAI V. Nihon Technology Private Limited, CHENNAI

ITA 3386/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4316 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 23-05-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 19-12-2016
• Court: TRIBUNAL
• Department Lawyers: S MOHAMED MUSPAFA
• Assessee Lawyers: MRS G VARDINI KARTHIK
• Keywords: Deemed to accrue or arise in india
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , ! ' ! # . $ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.3386/MDS./2016 / ASSESSMENT YEAR : 2012-13 ACIT, CORPORATE CIRCLE 4(2), CHENNAI -34. VS. M/S.NIHON TECHNOLOGY PVT LTD., NO.7, 2 ND CRESCENT PARK, 4 TH MAIN ROAD, GANDHI NAGAR, ADYAR, CHENNAI-20. [PAN AACCN 4675 K ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.S.MOHAMED MUSPAFA, JCIT D.R /RESPONDENT BY : MRS.G.VARDINI KARTHIK, ADVOCATE / DATE OF HEARING : 23 - 05 - 2017 / DATE OF PRONOUNCEMENT : 02 - 06 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-8,CHENNAI DATED 07.10.2016 PERTAINING TO ASSESSMENT YEAR 2012-13 . ITA NO.3386/MDS./16 :- 2 -: 2. THE FIRST GROUND IN ITS APPEAL IS WITH REGARD T O DELETION OF DISALLOWANCE OF ` 3,77,290/- U/S.36(1)(VA) R.W.S.2(24)(X) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SERVICE SECTOR SOFTWARE DEVELOPMEN T AGENCIES. IN THIS CASE, THERE WAS BELATED REMITTANCE OF EMPLOYEES CO NTRIBUTION TO PROVIDENT FUND AND ESI UNDER THE RESPECTIVE ACT, WH ICH WAS TREATED AS DEEMED INCOME OF ASSESSEE AS PER PROVISIONS OF THE SECTION 2(24)(X) OF THE ACT READ WITH SEC.36(1)(VA) OF THE ACT BY TH E AO. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) DELETED THE ADDITION MADE BY THE AO FOLLO WING THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT LTD. AGAINST THIS, THE REV ENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL SECU RITY & INTELLIGENCE INDIA PVT. LTD. IN MDS. 585 AND 586 OF 2015 & M.P. NO.1 OF 2015 DATED 24.07.2015 WHEREIN HELD THAT:- 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELI ED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRU SIONS LIMITED REPORTED IN 391 ITR 306, WHEREBY, THE SUPREME COURT HELD THAT OMISSION OF SECTION PROVISO TO SEC.43B AND AMENDMEN T TO THE ITA NO.3386/MDS./16 :- 3 -: FIRST PROVISO BY FINANCE ACT, 2003 ARE CURATIVE IN NATUE AND ARE EFFECTIVE RETROSPECTIEL I.E. W.E.F 01.04.1988 I.E T HE DATE OF INSERTION OF FIRST PROVISO. THE DELHI HIGH COURT I N THE CASE OF CIT VS. AIMIL LTD., REPORTED IN 321 ITR 508 HELD THAT I F THE ASSESSEE HAD DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PROVI DENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELE VANT ACT, BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE I NCOME TAX ACT, NO DISALLOWANCE COULD BE MADE IN VIEW OF PROVISIONS 43B AS AMENDED BY FINANCE ACT, 2003. 6. IN THE PRESENT CASE, THE ASSESSEE HAD REMITTED THE EMPLOYEES CONTRIBUTION BEYOND THE DUE DATE FOR PAYMENT, BUT W ITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME. HENCE, FOLLOW ING THE AFORESAID DECISIONS, WE FIND NO REASON TO DIFFER WI TH THE FINDINGS OF THE TRIBUNAL. IN VIEW OF THE ABOVE ORDER OF THE JURISDICTIONAL HI GH COURT, WE ARE INCLINED TO HOLD THAT EMPLOYEES CONTRIBUTION DEPOS ITED BEYOND THE DUE DATE SPECIFIED UNDER THE RELEVANT PROVIDENT FUND AC T, BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, SPECIFIED I N SEC.43B OF THE ACT, CANNOT BE TREATED AS DEEMED INCOME OF ASSESSEE WITH IN THE AMBIT OF S SEC.36(1)(VA) R.W.S.2(24)(X) OF THE ACT. ACCORDING LY, DELETION OF ADDITION MADE BY THE LD.CIT(A) IS JUSTIFIED. HENCE , THIS GROUND OF REVENUE STANDS DISMISSED. 5. THE NEXT GROUND IN ITS APPEAL IS WITH REGARD TO DELETION OF DISALLOWANCE OF ` 2,93,27,765/- BEING THE PAYMENT MADE TOWARDS ITA NO.3386/MDS./16 :- 4 -: PROFESSIONAL CHARGES TO NON-RESIDENT U/S.40(A)(I) F OR NON DEDUCTION OF TDS U/S.195. 5.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSEES PROJECTS INVOLVE ON-SITE DEVELOPMENT OF SOFTWARE FOR IT JAPANESE CU STOMERS THE APPELLANT ASSIGNS ITS ENGINEERS ON THEIR PROJECTS APART FROM HIRING VENDORS IN JAPAN IN VIEW OF THE LIMITED JAPANESE LANGUAGE SKILLS OF THE IR ENGINEERS. SUCH OUTSOURCED VENDORS IN JAPAN WORK ON THE ASSESSEES PROJECTS IN JAPAN AND GET PAID IN JAPAN. THE ASSESSEE ALSO ENGAGES CONSUL TANTS FOR LEGAL TAX/ ACCOUNTING SUPPORT, ADMINISTRATION, VISA WORK ETC - BASED IN JAPAN AND THESE CONSULTANTS WERE HIRED LOCALLY AND PAID IN JAPAN. T HE ASSESSEE ENTERED INTO AGREEMENTS WITH THESE CONSULTANTS WHO PROVIDE THE R EQUISITE SERVICES AND GET PAID FOR THE SAME. FURHTER, AS SEEN FROM THE IN FORMATION FURNISHED BY THE ASSESSEE, CONSUMPTION TAX IS COLLECTED ON THE I NVOICES RAISED ON THE JAPANESE CUSTOMERS AND REMITTED AFTER AVAILING INPU T TAX CREDIT THE ASSESSEES BRANCH OFFICE AT JAPAN COLLECTS THE FUND S FROM ALL THEIR CUSTOMERS LOCALLY AND REMITS THE PROCEEDS TO THEIR HEAD OFFIC E IN INDIA. FUNDS ARE REMITTED FROM INDIA TO THE JAPAN BRANCH FOR THE BRA NCH REQUIREMENTS THAT IN TURN PAYS THESE VENDORS OR CONSULTANTS BASED IN JAP AN. THE LD.CIT(A) OBSERVED THAT SERVICES RENDERED BY THESE NON-RESIDE NTS CAN AT BEST BE SERVICES RENDERED ABROAD FOR COMPLETION OF THE EXPO RT COMMITMENT OF THE ASSESSEE. THE PROFESSIONAL CHARGES HAVE BEEN INCUR RED IN RESPECT OF SERVICES UTILIZED IN THE BUSINESS CARRIED ON BY THE ASSESSEE OUTSIDE INDIA. ITA NO.3386/MDS./16 :- 5 -: THEREFORE, THESE PAYMENTS DO NOT FALL WITHIN THE DE FINITION OF EITHER ROYALTY OR TECHNICAL SERVICES TO ATTRACT THE PROVISIONS OF SECTION 9 AND ARE THEREBY NOT LIABLE FOR DEDUCTION OF TAX U/S. 195 OF THE INC OME TAX ACT,1961. THE DISALLOWANCE OF ` 2,93,27,765/- MADE U/S 40(A)(I) IS DELETED. AGAI NST THIS, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BEFORE THE AO, THE ASSESSEE HAS NOT PRODUCE D THE ANY AGREEMENT IN SUPPORT OF THEIR CLAIM AND THE REQUISI TE DATA WAS NOT MADE AVAILABLE MADE TO THE LD. ASSESSING OFFICER. H OWEVER, BEFORE THE LD.CIT(A) THE ASSESSEE FURNISHED THE DETAILS OF AGR EEMENT ENTERED WITH THE CONSULTANTS, WHO PROVIDED THE REQUIRED SE RVICES AND GET PAYMENT FOR THE SAME. ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESSEE, THE LD.CIT(A) HAD GIVEN A FINDING THAT AS SEEN FROM THE INFORMATION FURNISHED BY THE ASSESSEE, CONSUMPTION TAX IS COLLECTED ON THE INVOICES RAISED ON THE JAPANESE CUSTOMERS AND R EMITTED AFTER AVAILING INPUT TAX CREDIT. THE ASSESSEES BRANCH OF FICE AT JAPAN COLLECTS THE FUNDS FROM ALL THEIR CUSTOMERS LOCALLY AND REMI TS THE PROCEEDS TO THEIR HEAD OFFICE IN INDIA. FUNDS ARE REMITTED FROM INDIA TO THE JAPAN BRANCH FOR THE BRANCH REQUIREMENTS THAT IN TURN PAY S THESE VENDORS OR CONSULTANTS BASED IN JAPAN. ON THE BASIS OF IT, LD .CIT(A) DELETED THE ADDITION MADE U/S.40(A)(I) OF THE ACT. ITA NO.3386/MDS./16 :- 6 -: 6.1 IN OUR OPINION, WHAT ARE THE INFORMATION FURNI SHED BEFORE THE LD.CIT(A) SHOULD BE MADE AVAILABLE TO THE AO FOR HI S COMMENTS BY CALLING A REMAND REPORT, WHICH IS NOT DONE IN THIS CASE BY THE LD.CIT(A). ACCORDINGLY, WE REMIT THE ENTIRE ISSUE IN DISPUTE TO THE FILE OF AO FOR FRESH CONSIDERATION. THIS GROUND OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 02 ND JUNE, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 02 ND JUNE, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF