PERFECT COTTON COMPANY, MUMBAI V. ACIT RG 12(3), MUMBAI

ITA 353/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100959 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 29-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-01-2011
• Court: TRIBUNAL
• Department Lawyers: VACHASPATI TRIPATI
• Keywords: Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 353/M/2011 (AY: 2007 - 2008 ) I.T.A. NO. 7028/M/2013 (AY: 2009 - 2010 ) M/S. PERFECT COTTON COMPANY, 62 - B, MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021. / VS. ACIT - RANGE 12(3), AAYAKAR BHAVAN, MUMBAI. ./ PAN : AAAFP3094R ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI NISHIT GANDHI, AR / RESPONDENT BY : SHRI VACHASPATI TRIPATI, DR / DATE OF HEARING : 29.07.2015 / DATE OF PRONOUNCEMENT : 31 .08.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDERS OF THE CIT (A) - 23, MUMBAI FOR THE ASSESSMENT YEARS 2007 - 08 AND 2009 - 2010 . SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. GROUNDS OF APPEAL IN ITA NO.353/M/2011 (AY 2007 - 08): 1 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) HAS ERRED IN UPHOLDING THE ORDER PASSED BY THE LD ACIT IS BAD IN LAW AND AGAINST JUSTICE AND LIABLE TO BE QUASHED. 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN UPHOLDING THE ORDER PASSED BY THE LD ACIT, WHO HAS ERRED IN DISALLOWING COMMISSION EXPENSES OF RS. 25,92,522/ - U/S 40(A)(I) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TDS ON COMMISSION PAID TO NON - RESIDENT FOR EXPORT SALE . (B) THE LD CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE APPELLANT DID NOT DEDUCT TDS ON COMMISSION PAID TO NON - RESIDENT FOR EXPORT SALE AS NEITHER ANY ACTIVITY WAS PERFORMED BY THE NON - RESIDENT IN INDIA NOR THERE WAS ANY BUSINESS CONNECTION IN INDIA AND THEREFORE, THE SAID PAYMENT IS NOT TAXABLE IN THE HANDS OF NON - RESIDENT. (C) THE LD CIT (A) HAS FURTHER FAILED TO APPRECIATE THE FACT THAT APPELLANT HAS MADE PAYMENT TO NON - RESIDENT AGENTS DIRECTL Y TO THEIR OWN COUNTRY FROM WHERE THEY RENDERED SERVICES HENCE SAME ARE NOT TAXABLE IN THE HANDS OF RECIPIENT AS PER 2 PROVISION OF SECTION 9 READ WITH SECTION 5 AS THE SAID PAYMENTS ARE NEITHER RECEIVED OR DEEMED TO BE RECEIVED IN INDIA NOR ACCRUED OR DEEME D TO BE ACCRUED IN INDIA IN THE HANDS OF RECIPIENTS WHICH IS ALSO SUPPORTED BY VARIOUS CIRCULARS OF CBDT AND APEX COURT AND HIGH COURTS PRONOUNCEMENTS. GROUNDS OF APPEAL IN ITA NO.7028/M/2013 (AY 2007 - 08): 1 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) HAS ERRED IN UPHOLDING THE ORDER PASSED BY THE LD ACIT IS BAD IN LAW AND AGAINST JUSTICE AND LIABLE TO BE QUASHED. 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN UPHOLDING THE ORDER PAS SED BY THE LD ACIT, WHO HAS ERRED IN DISALLOWING COMMISSION EXPENSES OF RS. 14,48,522/ - U/S 40(A)(I) OF THE ACT ON ACCOUNT OF NON - DEDUCTION OF TDS ON COMMISSION PAID TO NON - RESIDENT FOR EXPORT SALE . (B) THE LD CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE APPELLANT DID NOT DEDUCT TDS ON COMMISSION PAID TO NON - RESIDENT FOR EXPORT SALE AS NEITHER ANY ACTIVITY WAS PERFORMED BY THE NON - RESIDENT IN INDIA NOR THERE WAS ANY BUSINESS CONNECTION IN INDIA AND THEREFORE, THE SAID PAYMENT IS NOT TAXABLE IN THE HAN DS OF NON - RESIDENT. (C) THE LD CIT (A) HAS FURTHER FAILED TO APPRECIATE THE FACT THAT APPELLANT HAS MADE PAYMENT TO NON - RESIDENT AGENTS DIRECTLY TO THEIR OWN COUNTRY FROM WHERE THEY RENDERED SERVICES HENCE SAME ARE NOT TAXABLE IN THE HANDS OF RECIPIENT AS PER PROVISION OF SECTION 9 READ WITH SECTION 5 AS THE SAID PAYMENTS ARE NEITHER RECEIVED OR DEEMED TO BE RECEIVED IN INDIA NOR ACCRUED OR DEEMED TO BE ACCRUED IN INDIA IN THE HANDS OF RECIPIENTS WHICH IS ALSO SUPPORTED BY VARIOUS CIRCULARS OF CBDT AND APEX COURT AND HIGH COURTS PRONOUNCEMENTS. 2. THE CORE ISSUE RAISED IN BOTH THE APPEALS RELATES TO THE NECESSITY OF MAKING TDS IN THE GIVEN FACTS OF THIS CASE IN RESPECT OF COMMISSION PAYMENT MADE TO NON - RESIDENT. BRIEFLY STATED RELEVANT FACTS OF THE CASE PERTAINING TO THE AY 2007 - 2008 ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN RAW COTTON, COMMISSION AGENTS AND SERVICES RELATED THERETO. AS SESSEE FILED THE RETURN OF INCOME DEC LARING THE TOTAL INCOME OF RS. 1,79,37,933/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 2,72,85,027/ - WHICH INCLUDES A DISALLOWANCE OF RS. 79,30,217/ - U/S 40(A)(I) OF T HE ACT ON ACCOUNT OF COMMISSION PAID TO NON - RESIDENT WITHOUT DEDUCTING THE TDS. AGGRIEVED WITH THE SAID DECISION OF THE AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CON SIDERING THE SUBMI SSIONS OF THE ASSESSEE, CIT (A) CONFIRMED THE DECISION OF THE AO VIDE PARA 3.3.1 OF HIS ORDER. AGAIN AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND S. 4. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE SUMMARIZED THE FACTS AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. FURTHER, HE BROUGHT OUR ATTENTION TO THE ORDER OF THE ITAT, LUCKNOW 3 BENCH IN THE CASE OF ACIT VS. M/S. S.K. INTERNATIONAL VIDE ITA NO.757/LKW/2014 (AY 2011 - 2012), DATED 13.2.2015 WHICH IS RELEVANT FOR THE PROPOSITION THAT PRIOR TO THE ISSUE OF CBDT CIRCULAR NO. 786, DATED 7.2.2000, TDS WAS NOT REQUIRED TO BE DEDUCTED AND AS A CONSEQUENCE, N O DISALLOWANCE CAN BE MADE U/S 40(A)(I) IN RESPECT OF THOSE PAYMENTS. IT IS THE PRAYER OF THE LD COUNSEL THAT CONSIDERING THE COMMONALITY OF THE ISSUE INVOLVED IN THE SAID APPEAL IN THE CASE OF M/S. S.K. INTERNATIONAL , THE ISSUE INVOLVED IN THE PRESENT AP PEAL SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AO AND THE CIT (A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED DECISION OF THE ITAT, LUCKNOW BENCH IN THE CASE OF M/S. S.K. INTERNATIONAL AND THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE SAID DECISION OF THE COORDINATE BENCH, ITAT, LUCKNOW (SUPRA), WE FIND AN IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL AGAINST TH E REVENUE. PARA 9 OF THE SAID ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD. CONSIDERING THE SIGNIFICANCE OF THE SAID PARA, WE FIND IT RELEVANT TO EXTRACT THE SAID PARA 9 AND THE SAME READS AS UNDER: 9. AS PER THE ABOVE DISCUSSION, WE HAVE SEEN THAT EVEN AFTER CONSIDERING CIRCULAR NO.7/2009, DATED 22.10.2009 AS PER WHICH CIRCULAR NO.786 DATED 7.2.2000 WAS WITHDRAWN, IT COMES OUT THAT IN THE FACTS OF THE PRESENT CASE, NO TDS WAS REQUIRED TO BE DEDUCTED BECAUSE AS PER THIS CIRCULAR IN THE CASE OF PAYMEN T OF COMMISSION TO FOREIGN AGENTS, NOTHING WAS REQUIRED TO BE SEEN AND EXAMINED AND IT COULD BE CONCLUDED THAT NO TDS WAS REQUIRED TO BE DEDUCTED . NOW IN THE ABSENCE OF THIS CIRCULAR, SUCH DECISION HAS TO BE TAKEN AFTER EXAMINING THESE ASPECTS AS WHETHER THE PAYMENT WAS MADE IN INDIA OR OUTSIDE ETC. SINCE, IN THE PRESENT CASE, THIS IS NOT A CASE OF REVENUE THAT THE SERVICES WERE RENDERED IN INDIA OR THE PAYMENT WAS MADE IN INDIA AND THE INCOMES IN THE HANDS OF THE NON - RESIDENT AGENT CAN BE CONSIDERED AS D EEMED AS ACCRUE OR ARISE IN INDIA BY WAY OF OPERATION OF SECTION 9(1), NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) OF THE ACT. WE HAVE ALSO CONSIDERED THE E XPLANATION TO SECTIO N 9(2) AND HAVE SEEN THAT THIS E XPLANATION ALSO HAS NO RELEVANCE IN THE PRESENT CASE AND THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF THE CIT (A). 7. FROM THE ABOVE, WE FIND THE PROPOSITION LAID DOWN IN THE SAID ORDER OF THE TRIBUNAL (SUPRA) THAT PRIOR TO THE ISSUE OF CBDT CIRCULAR NO. 786, DATED 7.2.2000, TDS WAS NOT REQUIRED TO BE DEDUCTED AND AS A CONSEQUENCE, NO ADDITION CAN BE MADE U/S 40(A)(I) IN RESPECT OF THOSE PAYMENTS IS SQUARELY APPLICABLE TO THE INSTANT CASE TOO. CONSIDERING THE SAME AS WELL AS FOLLOWING PRINCIPLE OF CONSISTENCY, WE ARE OF THE OPINION THAT IN THE PRESENT CASE, NO TDS IS REQUIRED TO BE DEDUCTED ON THE 4 COMMISSION PAYMENTS MADE TO THE NON - RESIDENTS. ACCORDINGLY, THE DECISION OF THE CIT (A) ON THIS ISSUE IS REQUIRED TO BE R EVERSED. ACCORDINGLY WE ORDER AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. REGARDING THE APPEAL ITA NO.7028/M/2013 (AY 2009 - 2010), WHICH IS ALSO FILED BY THE ASSESSEE ON 2.12.2013 FOR AY 2009 - 2010 AGAINST THE ORDER OF THE CIT (A) - 23, MUMBAI DATE D 4.10.2013, SINCE THE ASSESSEE RAISED THE IDENTICAL GROUNDS TO THAT OF THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 2007 - 2008, THEREFORE, OUR DECISION GIVEN WHILE ADJUDICATING THE SAID APPEAL FOR THE AY 2007 - 2008 SQUARELY APPLIES TO THE PRE SENT APPEAL TOO. CONSIDERING THE SAME, THE GROUNDS RAISED BY THE ASSESSEE FOR THE AY 2009 - 2010 ARE ALSO ALLOWED. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED . ORDER PRONOUNC ED IN THE OPEN COURT ON 31 ST AUGUST, 2015. SD/ - SD/ - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 31 .8 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI