M/s IDS Infotech Ltd., Chandigarh V. ACIT, C-5(1), Chandigarh

ITA 351/CHANDI/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3969 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Commercial expediency; TDS
• Section: 40(a)(ia); 37(1); 195

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH , !' # $ % &' , '( BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.351/CHD/2018 / ASSESSMENT YEAR : 2008-09 M/S IDS INFOTECH LTD., PLOT NO. 108, RGCTP, CHANDIGARH THE ACIT, CIRCLE 5(1), CHANDIGARH ./PAN NO:AAACI1436E / APPELLANT /RESPONDENT ./ ITA NO.400/CHD/2018 / ASSESSMENT YEAR : 2008-09 THE ACIT, CIRCLE 5(1), CHANDIGARH M/S IDS INFOTECH LTD., PLOT NO. 108, RGCTP, CHANDIGARH ./PAN NO:AAACI1436E / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRI TEJ MOHAN SINGH, ADVOCATE ' ! / REVENUE BY : SMT.CHANDRAKANTA,SR.DR # $ % /DATE OF HEARING : 05.12.2018 &'() % / DATE OF PRONOUNCEMENT : 06.02.2019 ')/ ORDER PER BENCH THE PRESENT ARE CROSS APPEALS PREFERRED BY THE ASS ESSEE AND REVENUE AGAINST THE ORDER DATED 24.01.2018 OF THE COMMISSIO NER OF INCOME TAX (APPEALS)-2, CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(A)] PASSED U/S 250(6) OF THE INCOME TAX ACT,1961(HEREINAFTER REFER RED TO AS ACT) ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 2 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENU E IN ITA NO. 400/CHD/2018. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER:- (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD, CIT(A) HAS NOT ERRED IN LAW AS WELL AS ON THE FACTS IN DELETING THE ADDITION OF RS.17,75,263/- MADE BY THE AO BY IN VOKING THE PROVISIONS OF SECTION 36(I)(III) OF THE ACT IN VIEW OF JUDGMENT OF ABHISHEK INDUSTRIES LTD. (2006) 286 ITR 1(P&H) WITH OUT APPRECIATING THE FACT THAT COMMERCIAL EXPEDIENCY AS ENVISAGED BY THE HON'BLE SUPREME COURT IN THE CASE OF M/S HERO CYCLES PVT. LTD. VS CIT 379 ITR 347 (SC) HAS N OT BEEN PROVED BY THE ASSESSEE? 3. BRIEFLY STATED THE AO HAD DISALLOWED PROPORTIONA TE INTEREST AMOUNTING TO RS. 17,75,263/- U/S 36(1)(III) OF THE ACT, PER TAINING TO INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANY AMOU NTING TO. 1,15,45,000/-, ON NOTING THAT THE ASSESSEE HAS CLAI MED FINANCIAL CHARGES OF RS. 67,42,000/- AND ALSO SHOWN SECURED LOANS OF R S. 4,38,45.000/- IN THE BALANCE SHEET AND HAD FAILED TO ESTABLISH COMMERCIA L EXPEDIENCY FOR MAKING THESE INVESTMENTS 4. THE LD. CIT(A) ALLOWED THE ASSESSEES APPEAL ON THE FINDING THAT THE FACTS OF THE PRESENT CASE WERE IDENTICAL TO THA T IN ASSESSMENT YEAR 2009- 10 AND 2010-11 IN THE CASE OF THE ASSESSEE WHICH HAD BEEN DECIDED BY ITAT VIDE THEIR ORDER IN ITA NO. 52/CHD/2016 DATED 24.5.2016 AND ITA NO. 130/CHD/2016 DATED 09.03.2017 IN FAVOUR OF THE ASSESSEE. 5. BEFORE US, THE DR FAIRLY CONCEDED THAT THE FACTS IN THE PRESENT CASE WERE IDENTICAL TO THAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2009- 10 AND2010-11, WHICH HAD BEEN DECIDED INFAVOUR OF THE ASSESSEE BUT AT THE SAME TIME RELIED UPON THE ORDER OF THE ASSESSING OFFICER. ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 3 LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND DREW OUR ATTENTION TO PARA 6.2 OF THE ORDER WHEREIN THE FIND INGS OF THE ITAT ON THE IMPUGNED ISSUE IN THE CASE OF THE ASSESSEE FOR A.Y 2009-10 WERE REPRODUCED . 6. IN VIEW OF THE ABOVE WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A).ADMITTEDLY IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE IN A.Y. 2009-10 & 2010-11, WHICH WAS DECIDED IN FAVOU R OF THE ASSESSEE BY THE ITAT VIDE THEIR ORDER IN ITA NO. 52/CHD/2016 DT.24-05-16 &ITA NO. 130/CHD/2016 DT. 09/03/2017 RESPECTIVELY.. LD. DR HAS BEEN UNABLE TO POINT OUT ANY DISTINGUISHING FACT IN THE PRESENT CASE. WE THEREFORE UPHOLD THE O RDER OF THE LD. CIT(A) DELETING THE ADDITION OF RS.17,75,263/- MADE U/S 36 (1)(III) OF THE ACT. GROUND OF APPEAL NO. 1 RAISED BY THE REVENUE IS TH EREFORE DISMISSED. 7. GROUND NO.2 RAISED BY THE REVENUE IS AS UNDER:- (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS NOT ERRED IN LAW AS WELL AS ON THE FA CTS IN DELETING THE ADDITION OF RS. 1,25,97,726 /- WHICH W AS MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) AS THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCES U/S 195 OF THE ACT ON THE PAYMENTS MADE TO NON-RESIDENTS WITHOUT APPRECIATING THE FACT THAT INCOME ACCRUED IN INDIA AS PER PROVISIONS OF S ECTION 9(L)(VII) OF THE I.T.ACT, 1961 ? 8. THE BRIEF FACTS RELATING TO THE ISSUE THAT THE A SSESSEE COMPANY WAS RECEIVING SOFTWARE RELATED SERVICES AND MAKING PAYM ENTS ON ACCOUNT OF PROFESSIONAL SERVICES AND MAKING HUGE PAYMENTS ON A CCOUNT OF PROFESSIONAL SERVICES, TECHNICAL SERVICES, MARKETIN G AND SELLING EXPENSES, CONSULTING SERVICES, SOFTWARE USAGE EXPENSES TO VAR IOUS COMPANIES IN ABROAD WHICH ARE ITS ASSOCIATED ENTERPRISES. AO NOT ED THAT THE ASSESSEE HAD MADE PAYMENTS AMOUNTING TO RS. 1,25,97,726/- TO VAR IOUS COMPANIES OUTSIDE INDIA WITHOUT DEDUCTING TDS.AS THE ASSESSEE COMPANY HAD FAILED ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 4 TO DEDUCT TDS ON THE SAID PAYMENTS, AS A RESULT, TH E ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF RS. 1,25,97,726/- U/S 40(A)(IA) ON ACCOUNT OF COMMISSION, LEGAL AND PROFESSIONAL CHARGES, MARKETI NG AND SELLING EXPENSES AND OUTSTANDING AND BUSINESS DEVELOPMENT E XPENSES. 9. THE CIT(A) FOUND THAT IDENTICAL ISSUE HAD BEEN A DJUDICATED BY THE ITAT IN THE CASE OF ASSESSEE ITSELF IN ITS FAVOUR, IN ASSESSMENT YEARS 2009- 10 AND 2010-11 VIDE ITS ORDER DATED 24.5.2016 IN IT A NO. 52/CHD/2016 AND DATED 09.03.2017 IN ITA NO. 130/CHD/2016 RESPECTIVE LY. FOLLOWING THE SAME, THE LD.CIT(A) DELETED THE ADDITION MADE OF R S. 1,25,97,726/-. 10. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER BUT AT THE SAME TIME CONCEDED THAT THE FACTS IN THE PRESENT CASE WERE IDENTICAL TO THAT IN THE PRECEDING YEARS AND THE IS SUE AWS SQUARELY COVERED BY THE ORDER OF THE ITAT IN ASSESSMENT YEAR 2009-10 AND 2010-11. 10. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND DREW OUR ATTENTION TO PARA 7.2 OF THE ORDER WHEREIN THE FINDINGS OF THE ITAT ON THE IMPUGNED ISSUE IN THE CASE OF THE ASSESSEE FOR A.Y 2009-10 WERE REPRODUCED . 11. IN VIEW OF THE ABOVE WE DO NOT SEE ANY REASON T O INTERFERE IN THE ORDER OF THE LD.CIT(A).ADMITTEDLY IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE IN A.Y. 2009-10 & 2010-11, WHICH WAS DECIDED IN FAVOU R OF THE ASSESSEE BY THE ITAT VIDE THEIR ORDER IN ITA NO. 52/CHD/2016 DT.24-05-16 &ITA NO. 130/CHD/2016 DT. 09/03/2017 RESPECTIVELY.. LD. DR HAS BEEN UNABLE TO POINT OUT ANY DISTINGUISHING FACT IN THE PRESENT CASE. WE THEREFORE UPHOLD THE O RDER OF THE LD. CIT(A) DELETING THE ADDITION OF RS.1,25,97,726/- MADE U/S 40(A)(IA) OF THE ACT. GROUND OF APPEAL NO.2 RAISED BY THE REVENUE ARE THE REFORE DISMISSED . 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 5 WE SHALL NOW TAKE UP THE ASSESSEES APPEAL IN ITA NO.351/CHD/2018 13. THE SOLE GROUND RAISED BY THE ASSESSEE READS AS UNDER:- THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.87,91,268/- MAD E ON ACCOUNT OF COMMISSION PAID TO M/S IMCS, TUNISIA BEI NG PERSONS OUTSIDE INDIA APPLYING THE PROVISIONS OF SE CTION 37(1) OF THE ACT WHICH IS ALLOWABLE AND AS SUCH THE ORDER IS ILLEGAL, ARBITRARY AND UNJUSTIFIED. 14. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE COMPANY HAS PAID AN AMOUNT OF RS. 87,91,268/- TO M/S INTERNATIO NAL MEDITERRANEAN CONSULTING SARI (IMCS), TUNISIA ON ACCOUNT OF COMMI SSION CHARGES. THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION IN RESPON SE TO THE SAID EXPENSES. THE ASSESSEE FILED HIS SUBMISSION WHICH WAS NOT ACC EPTED BY THE AO. HENCE, AO DISALLOWED THE SAID EXPENSES OF RS. 87,91 ,268/-AND ADDED IT TO THE RETURNED INCOME OF THE ASSESSEE. 15. THE LD. CIT(A) UPHELD THE ORDEROF THE ASSESSING OFFICER HOLDING THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE COMMISSIO N PAID TO IMCS TUNISIA WAS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AN D ALSO THAT THE PAYMENT OF COMMISSION ITSELF WAS DOUBTFUL. 16. BEFORE US, LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE FOR ASSESSME NT YEAR 2009-10 AND THE MATTER HAD TRAVELLED UP TO THE ITAT WHO VIDE THEIR ORDER IN ITA NO. 52/CHD/2016 DATED 24.05.2016 HAD HELD THAT THE PROV ISIONS OF SECTION40(A)(IA) OF THE ACT CANNOT BE INVOKED BUT W ITH RESPECT TO THE FACT WHETHER THE PAYMENT MADE TO IMCS ATTRACTED THE PRO VISIONS OF EXPLANATION 1TO SECTION 37(1) OF THE ACT, SINCE NO CLEAR CUT FINDINGS HAD BEEN ARRIVED AT BY ANY OF THE LOWER AUTHORITIES AS TO WHAT OFFENCE OR ACT ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 6 PROHIBITED BYLAW HAD BEEN DONE BY THE ASSESSEE, THE ITAT HAD, THEREFORE, RESTORED THIS LIMITED ISSUE TO THE FILE OF THE ASSE SSING OFFICER TO GIVE A CLEAR FINDINGS AS TOWHETHER THE PROVISIONS OF EXPL ANATION 1TO SECTION37(1) WERE APPLICABLE TO THE FACTS OF THE CASE OR NOT. OU R ATTENTION WAS DRAWN TO THE RELEVANTFINDINGS OF THE ITAT AT PARA 46 OF THE ORDER AS UNDER:- 46. THE NEXT QUESTION IS WITH RESPECT TO PAYMENTS MADE TO IMCS AMOUNTING TO RS.73,79,858/-, WHETHER ATTRACT THE PROVISION OF EXPLANATION 1 TO SECTION 37(1) OF THE ACT. IN THIS REGARD, NO CLEAR-CUT FIN DING OF FACT HAS BEEN ARRIVED AT BY ANY OF THE LOWER AUTHORITIES AS TO WHAT OFFENCE OR AN ACT PROHIBITED BY LAW HAS BEEN DONE BY THE ASSESSEE. EVEN THE ASSESSING OFFICER HAS MADE JUST A CURSORY MENTION O F SOME SEARCH FROM CBI BEING CARRIED OUT AT THE DIRECTORS RESIDENCE ONLY. EVEN DURING THE COURSE OF HEARING BEFORE US, NO CLEAR FACTS WERE STATED IN TH IS REGARD. IN VIEW OF ALL THIS, WE FIND IT PROPER TO SEND THIS LIMITED ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO GIVE A CLEAR FINDING AS TO WHETHER THE PROVISION S OF EXPLANATION 1 TO SECTION 37(1) OF THE ACT ARE APPLICABLE TO THE FACTS OF THE CASE OR NOT. THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNITY OF BEING HEARD IN THIS REGARD. WE WOULD LIKE TO CLARI FY HERE THAT THE OUTCOME OF THIS GROUND WILL NOT EFFEC T OUR FINDINGS ON OTHER GROUNDS OF APPEAL, AS THE ISS UE HERE IS THE ALLOWABILITY OF EXPENDITURE WHILE THE OTHER ISSUES ARE DISALLOWANCE OF EXPENDITURE IN VIE W OF THE PROVISION OF SECTION 40 (A)(I) OF THE ACT. GROUND NO.5 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 17. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, PL EADED THAT THE ISSUE IN THEPRESENT CASE MAY ALSO BE RESTORED BACK TO THE AS SESSING OFFICER IN ACCORDANCE WITH THE DIRECTIONS GIVEN IN ASSESSMENT YEAR 2007-08 BY THE ITAT. THE LD. DR AGREED TO THE SAME. 18. IN VIEW OF THE ABOVE, WE RESTORE THIS ISSUE BAC K TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE ITAT FOR ASSESSMENT YEAR 20 07-08 IN THE CASE OF ITA NOS. 351 & 401/CHD/2018- M/S IDF INFOTECH LIMITED, CHANDIGARH 7 THE ASSESSEE ITSELF. THIS GROUND OF APPEAL RAISED B Y THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE EFFECT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY, 2019. SD/- SD/- ( / SANJAY GARG) # $ % &' / ANNAPURNA GUPTA) / JUDICIAL MEMBER '( / ACCOUNTANT MEMBER DATED : 02.02.2019 .. '+ ,-.- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , %2 , 34516 / DR, ITAT, CHANDIGARH 6. 157$ / GUARD FILE '+ # / BY ORDER, 8' / ASSISTANT REGISTRAR