Dwarka Gems Limited, Jaipur V. CIT (OSD), Jaipur

ITA 355/JPR/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6114 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SEEMA MEENA JCIT DR DHK
• Keywords: Bogus purchase; Rejection of books of accounts; Business expenditure; Salary income; Services rendered outside India; Non-deduction of tax; Competent authority; Commercial expediency
• Section: 69C; 143(3); 37(1); 131; 263

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,O JH HKKXPUN] YS[KK LNL; LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM VK;DJ VIHY LA-@ ITA NO. 355/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR: 2011-12 M/S. DWARKA GEMS LIMITED 61-B, SARDAR PATEL MARG C-SCHEME, JAIPUR CUKE VS. THE CIT (OSD) RANGE-7 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACD 8548 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 589/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR: 2011-12 THE DCIT CIRCLE - 7 JAIPUR CUKE VS. M/S. DWARKA GEMS LIMITED 61-B, SARDAR PATEL MARG C-SCHEME, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACD 8548 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI MANISH AGARWAL, CA JKTLO DH VKSJ LS@ REVENUE BY:SMT. SEEMA MEENA, JCIT - DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18/04/2018 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 21/05/2018 VKNS'K@ ORDER PER BHAGCHAND, AM BOTH THESE APPEALS ARE THE CROSS APPEALS FILED AG AINST THE ORDER OF THE LD. CIT(A)-3, JAIPUR DATED 20-03-2015 FOR THE A SSESSMENT YEAR 2011- 12 RAISING THEREIN FOLLOWING GROUNDS OF APPEAL. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 2 ITA NO. 355/JP/2012 A.Y. 2011-12 (ASSESSEE) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE HAS GROSSLY ERRED IN HOLDING THE PURCHASES MADE FRO M VARIOUS PARTIES OF RS. 23,22,515/- AS UNVERIFIABLE & BOGUS AND HAVE FURTHER ERRED IN UPHOLDING THE ADDITION TO THE EXTENT OF RS. 3,48,377/-BY GROSSLY IGNORING THE EVIDENCES ADDUCED AND SUBMISSIONS MADE THUS THE ADDITION SUSTAINED DE SERVES TO BE DELETED IN TOTO MORE PARTICULARLY WHEN THE TR ADING RESULTS DECLARED BY THE ASSESSEE HAVE BEEN ACCEPTED . 1.1 THE LD. CIT(A) HAS FURTHER ERRED IN IGNORING TH E FACT THAT THE AO HAS MADE THE IMPUGNED ASSESSMENT/ ADDIT IONS WITHOUT MAKING PROPER ENQUIRIES AND INVESTIGATION T O THE OVERWHELMING EVIDENCES/ MATERIAL BROUGHT ON RECORD BY THE ASSESSEE, THUS THE ADDITION SUSTAINED DESERVES TO B E DELETED. 1.2 THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE TH E FACT THAT PAYMENTS TO THE SUPPLIERS WERE MADE THROUGH PR OPER BANKING CHANNELS AND NO MATERIAL HAS BEEN BROUGHT O N RECORD TO SUPPORT THE ALLEGATION THAT PAYMENT MADE FOR PURCHASES HAVE BEEN FLOWN BACK TO THE ASSESSEE IN C ASH, THUS THE ADDITION SUSTAINED IS MERELY ON ASSUMPTION AND PRESUMPTION WHICH DESERVES TO BE DELETED. 1.3 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORI NG THE FACT THAT THE ASSESSEE HAS DECLARED TRADING RESULTS AS COMPARED TO PRECEDING ASSESSMENT YEARS AND THE TRAD ING RESULTS HAVE BEEN ACCEPTED BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ACTI ON OF AO OF DISALLOWING INTEREST AT RS. 14,35,210/- LEGITIMA TELY CLAIMED U/S 36(1)(III) ON ACCOUNT OF INTEREST FREE ADVANCE TO SISTER CONCERN BY FULLY IGNORING THE LEGAL POSITION AND THE FACT THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUN DS, THUS THE ENTIRE AMOUNT OF INTEREST UPHELD BY LD. CIT(A) DESE RVES TO BE DELETED. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 3 2.1 THAT THE LD. CIT(A) HAS FURTHER ERRED IN IGNORI NG THE FACT THAT THERE IS NO DIRECT NEXUS BETWEEN THE BORR OWED FUND AND INTEREST FREE ADVANCES GIVEN, THUS DISALLOWANCE S SUSTAINED ON ASSUMPTION AND PRESUMPTION DESERVES TO BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE DISA LLOWANCE OF AN AMOUNT OF RS. 9,60,000/- CLAIMED ON ACCOUNT O F ANNUAL MAINTENANCE CHARGES PAID REPAIRS AND MAINTENANCE OF ITS COMPUTER SYSTEM INCLUDING SOFTWARES THEREIN HAVING GROSS VALUE OF MORE THAN 29 LACS, ARBITRARILY WITHOUT PRO PERLY APPRECIATING THE SERVICES RENDERED AND GENUINENESS OF CLAIM, THUS THE DISALLOWANCE SO SUSTAINED DESERVES TO BE D ELETED. IT IS ALSO NOTED DURING THE COURSE OF HEARING THAT THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND VIDE APPLICATION DATED 08-07- 2016 PRAYING THEREIN THAT WHILE SUBMITTING APPEAL IN FORM NO. 36, THE AS SESSEE INADVERTENTLY COULD NOT TAKE A GROUND APPEAL WHICH IS PURELY A LE GAL GROUND. THIS ADDITIONAL GROUND OF APPEAL MAY KINDLY BE ADMITTED AS GROUND OF APPEAL NO. 4 WHICH IS REPRODUCED AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) ERRED IN HOLDING THE ASSESSMENT ORDER P ASSED BY THE CIT (OSD), RANGE-7, JAIPUR AS LEGAL AND VALID GROSSLY IGNORING THE FACT THAT COMMISSIONER OF INCOME TAX IS NOT COVERED BY DEFINITION OF ASSESSING OFFICER AS P ER SECTION 2(7A) OF THE INCOME TAX, 1961 AND THUS ORDER SO PAS SED IS WITHOUT JURISDICTION AND DESERVES TO BE HELD NULL A ND AVOID AB INITIO ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 4 ITA NO. 589/JP/2015 A.Y. 2011-12 (REVENUE) (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS DELETED OF RS. 17,47,138/- OUT O F TOTAL BOGUS PURCHASES ADDITION OF RS. 23,22,515/- WITHOUT APPRECIATING THE FACTS THAT THE FACTUM/QUANTUM OF S TATED PURCHASES WAS NOT ESTABLISHED AND THAT THE ENQUIRIE S HAD REVEALED THE ALLEGED SELLER TO BE MORE ENTRY PROVID ERS AND /OR NON-EXISTENT. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE ON ACCO UNT OF PAYMENT OF GRATUITY FUND AND LIC AMOUNTING TO RS. 3,31,693/- AS THE PAYMENT HAS NOT BEEN MADE TO AN A PPROVED GRATUITY FUND. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS DELETED OF RS. 3,76,998/- ON ACC OUNT OF PAYMENT OF EMPLOYEES CONTRIBUTION TO PF & ESI IGNO RING THE FACT THAT EMPLOYEES CONTRIBUTION TO PF & ESI W AS MADE BEYOND THE DUE DATE AS PER PROVISIONS OF SEC 36(1)( VA) R.W.S. 2(24(X) OF THE I.T. ACT, BY THE EMPLOYER. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS. 1,02,228/- U/S 40(A)(IA) OF THE I.T. ACT ON ACCOUNT OF CREDIT CARD TRANSACTION OF RS. 1,02,228/- ON ACCOUNT OF CR EDIT CARD COMMISSION AND THE ASSESSEE FAILED TO DEDUCT TDS U/ S 194H OF I.T. ACT. (V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS. 6,92,313/- U/S 40(A)(IA) ON ACCOUNT OF COMMISSION PAYMENT TO F OREIGN NATIONAL WITHOUT DEDUCTING TAX AT SOURCE AND WITHOU T APPRECIATING THE FACT THE AGENT BEING FOREIGN NATIO NAL HAVING BUSINESS ESTABLISHMENT OF ANY NATURE IN INDIA AND I NCOME ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 5 WAS ACCRUED AND RECEIVED BY IT FOR SERVICES RENDERE D OUTSIDE INDIA. 2.1 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE ASSE SSEE IN ITA NO.355/JP/2015 FOR THE ASSESSMENT YEAR 2011-12 FOR ADJUDICATION HEREUNDER. 3.1 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE HAS NOT PRESSED THE GROUND NO. 1 TO 1.3. HENCE, THE SAME AR E DISMISSED BEING NOT PRESSED. 4.1 APROPOS GROUND NO. 2 AND 2.1 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UND ER:- 11.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE AO AS ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED THAT THE APPELLANT HAS ADVANCED TOTAL AMOUNT OF RS. 12129242/- TO M/S. DWARKA INFOTECH PVT. LTD AND ADM ITTEDLY NO INTEREST HAD BEEN CHARGED ON SUCH AMOUNT. IT IS ALSO FACT THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS. 262 54912/-. THE APPELLANT CASE IS THAT SUCH AMOUNT OF RS. 12129 242/- WAS ADVANCED TO M/S. DWARKA INFORTECH PVT. LTD FOR OBTAINING SOFTWARE FOR INVENTORY AND THAT SUCH ADVA NCES WERE MADE FOR THE BUSINESS PURPOSES. ON THE OTHER H AND AOS CASE IS THAT M/S. DWARKA INFOTECH PVT. LTD WAS NOT HAVING ANY INFRASTRUCTURE OR FACILITIES FOR DEVELOPMENT OF SUCH SOFTWARE AND THAT SUCH ADVANCES WERE MADE TO THE SI STER CONCERN WITHOUT ANY BUSINESS EXPEDIENCY. ON THE OTH ER HAND ALTERNATIVELY THE APPELLANT ALSO CLAIMED THAT THE C OMPANY WAS HAVING ITS OWN CAPITAL OF RS. 60554920/- AND RE SERVES AMOUNTING TO RS. 144925143/- AND THAT SUCH ADVANCES WERE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 6 MADE TO THE SISTER CONCERNS FROM SUCH AVAILABILITY OF OWN CAPITAL RESERVES ETC. ON CAREFUL CONSIDERATION OF R ELEVANT FACT IT IS NOTED THAT PRIMA FACIE THE ADVANCES WERE MADE TO M/S. DWARKA INFOTECH PVT. LTD WITHOUT ANY BUSINESS CONSI DERATION INASMUCH AS SISTER CONCERN WAS NOT HAVING ANY INFRA STRUCTURE TO DEVELOP THE REQUIRED SOFTWARE. AS REGARDS THE OT HER CONTENTION THAT SUCH ADVANCES WERE MADE FROM OWN CA PITAL AND THE RESERVES ETC., IT MAY BE MENTIONED THAT THE ONUS WAS ON THE ASSESSEE TO PROVE THE SAME AND THE ASSESSEE HAS FAILED TO PROVE THAT SUCH ADVANCES WERE MADE FROM THE AVAI LABLE CAPITAL AND RESERVES ETC. IT MAY ALSO BE MENTIONED THAT THE VERY FACT THAT INTEREST PAYMENT OF RS. 26254912/- H AS BEEN INCURRED TO INDICATE THAT THE OWN AVAILABLE CAPITAL / RESERVES AND SURPLUS WERE UTILIZED SOMEWHERE ELSE FOR BUSINE SS PURPOSES AND THAT THIS MONEY WAS NOT AVAILABLE WHEN THE ADVANCES WERE MADE TO THE SISTER CONCERN. AS REGARD S VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT IT MAY BE ME NTIONED THAT IN THESE CASE LAWS THE HON'BLE COURTS HAVE HEL D THAT WHEN THERE WAS SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE BY WAY OF SHARE CAPITAL OR RESERVE THEN NO DISALLOW ANCE CAN BE MADE. HOWEVER, IN THE APPELLANT CASE THE ASSESSE E HAS FAILED TO PROVE THAT SUCH OWN FUNDS WERE AVAILABLE WHEN INTEREST FREE ADVANCES WERE MADE TO THE SISTER CONC ERN. IN THIS BACKGROUND BY MAKING SUCH INTEREST FREE ADVANC ES TO THE SISTER CONCERN, THE ASSESSEE DIVERTED ITS BORROWED FUND FOR OTHER THAN BUSINESS USE AND THE AO WAS JUSTIFIED TO MAKE PROPORTIONATE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 1435210/-, CLAIMED IN P& L ACCOUNT. THE GROUND OF A PPEAL IS DISMISSED. 4.2 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE PRAYED THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION O F THE AO AS TO DISALLOWANCE OF INTEREST AMOUNTING TO RS. 14,35,210 /- CLAIMED U/S ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 7 36(1)(III) OF THE ACT FOR WHICH THE LD.AR OF THE AS SESSEE SUBMITTED THE WRITTEN SUBMISSION AS UNDER:- IN THIS REGARD, IT IS SUBMITTED THAT DURING THE Y EAR UNDER CONSIDERATION THE ASSESSEE HAS GIVEN FRESH AD VANCE OF RS. 20,00,000/- TO M/S. DWARKA INFOTECH LIMITED FOR PURCHASE OF SOFTWARE AND TOTAL OUTSTANDING AT THE E ND OF THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APP EAL WAS RS. 1,21,29,242/- WHICH INCLUDES THE ADVANCE MADE D URING THE YEAR UNDER APPEAL. THE SAID ADVANCE WAS GIVEN F OR THE DEVELOPMENT OF THE CUSTOMIZED SOFTWARE OF STOCK INV ENTORY MANAGEMENT AS PER REQUIREMENT OF ASSESSEE. THE AO DISALLOWED THE ADVANCES SO MADE ON THE GROUND THAT ASSESSEE HAS INCURRED INTEREST EXPENDITURE DURING THE YEAR A ND FURTHER ASSESSEE HAS NOT ESTABLISHED NEXUS BETWEEN OWN FUND S AND FUNDS ADVANCED TO SISTER CONCERN WHICH STOOD CONFIR MED BY THE LD. CIT(A). IT IS WORTH MENTIONING THAT M/S. DW ARKA INFOTECH LIMITED IS SISTER CONCERN OF ASSESSEE AND ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE AS PER CUST OMERS REQUIREMENT. ONE PART OF THE SOFTWARE IS COMPLETE A ND OTHERS ARE STILL IN DEVELOPMENT PHASE, FOR WHICH THE SAID ADVANCE WAS MADE. THE AO FAILED TO ESTABLISH THE NEXUS BETW EEN THE INTEREST BEARING FUNDS UTILIZED FOR MAKING ADVANCE AND ALSO IGNORED THE FACT THAT THE ASSESSEE COMPANY HAD SUFF ICIENT INTEREST FREE FUNDS IN THE SHAPE OF ITS OWN CAPITA L OF RS. 6,05,54,920/- AND RESERVES AMOUNTING TO RS. 14,49,2 5,143/- TOTALING TO RS. 15,10,43,268/- (APB-19) WHICH WERE UTILIZED FOR MAKING ADVANCE TO THE SISTER CONCERN. THE LD. C IT(A) CONFIRMED THE DISALLOWANCE BY ALLEGING THAT M/S. DW ARKA INFOTECH LIMITED WAS NOT HAVING ANY INFRASTRUCTURE OR FACILITIES FOR DEVELOPMENT SUCH SOFTWARE AND THUS A DVANCES WERE MADE IN ABSENCE OF BUSINESS EXPEDIENCY. IT IS PERTINENT TO NOTE HERE THAT FOR DEVELOPMENT OF SOFTWARE, NO B IG INFRASTRUCTURE IS REQUIRED, THIS CAN BE DONE WITH M ERELY ONE COMPUTE AND A QUALIFIED PERSON HAVING QUALIFICATION AND EXPERIENCE IN SOFTWARE DEVELOPMENT AND KNOWLEDGE OF CUSTOMERS REQUIREMENT. IT IS THEREFORE, SUBMITTED THAT THE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 8 ASSESSEE COMPANY HAS INTEREST FREE FUNDS IN THE SHA PE OF CAPITAL AND RESERVES AND SURPLUS THROUGHOUT THE YEA R AND THE INTEREST BEARINGS FUNDS WERE NOT UTILIZED AGAINST T HE INTEREST FREE ADVANCES AND SINCE THE ADVANCES WERE MADE FOR THE PURPOSE OF BUSINESS UNDER BUSINESS EXPEDIENCY, THUS THE DISALLOWANCE MADE DESERVES TO BE DELETED. THE LD.AR OF THE ASSESSEE RELIED ON FOLLOWING CASE LAWS:- (I) MUNJAL SALES CORPORATION VS CIT & OTHERS 298 IT R 298 (SC) (II) CIT VS RADICO KHAITAN LTD. 142 TAXMAN 681 (ALL ) (III) COMET HANDICRAFTS VS ACIT, 114 TTJ 124 (ITAT DELHI BENCH) (IV) CIT VS RELIANCE UTILITIES & POWER LTD 313 ITR 340 (BOM.) (V) CIT VS MOTOR SALES LTD, 304 ITR 123 (ALL.) (VI) CALDERN PHARMACEUTICALS LTD VS CIT 265 ITR 244 (CAL.) (VII) . CIT VS HOTEL SAVERA, 239 ITR 795 (MAD.) 4.3 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD ADVANCED RS. 1021452 1/- TO M/S. DWARKA INFOTECH PVT. LIMITED AS ON IST APRIL 2010 TO ITS SISTER CONCERN FOR DEVELOPMENT OF SOFTWARE FOR INVENTORY ACCOUNTING. T HE AO FURTHER ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 9 OBSERVED THAT AS ON 31-03-2011 THE TOTAL AMOUNT OU TSTANDING WAS FOR RS. 12129242/-. ON BEING CONFRONTED ON THIS ISSUE, THE ASSESSEE SUBMITTED THAT M/S. DWARKA INFOTECH PVT. LIMITED WAS A SISTER CONCERN WHICH IS ENGAGED IN THE BUSINESS OF DEVELOPMENT SOFTWARE AND THAT SUCH ADVANCE WAS GIVEN FOR OBTAINING SOFTWARE FOR INVENTORY. IT IS ALSO SUBMITTED THAT THE ASSESSEE IS ALREADY USING SOFTWARE DEVELOPED BY THIS CONCERN FOR WHICH ANNUAL MAINTENANCE OF RS. 9,60,000/- IS ALSO BEING PAID AND ON WHICH TDS HAS BEEN DEDUCTED. ON PERUSAL OF DETAILED FILED BY THE ASSESSEE, THE AO OBSERVED THAT THE COMPANY M/S. DW ARKA INFOTECH PVT. LIMITED HAS BEEN RENAMED DAS MNV TECHNOLOGIES PVT. LTD AND THAT THE SISTER CONCERN HAS NOT CARRIED OUT ANY BUSINESS TO JUSTIFY RECEIPT OF ADVANCE TO SUCH AN EXTENT. THE AO NOTED THAT SISTER CONCERN WAS NOT HAVING ASSETS AND INFRASTRUCTURE TO DEVELOP THE SO CALLED SOFTWARE, INASMUCH AS IT WAS HAVING COMPUTER WORTH RS. 45,000 /- IN ITS FIXED ASSETS AND SHOWN SALE OF SOFTWARE FOR RS. 2.00 LACS AND JO B WORK CHARGES OF RS. 9.60 LACS. THE AO NOTED THAT THE JOB WORK CHARGES F OR MAINTENANCE OF COMPUTER ETC. ARE ITSELF CHARGED FROM THE ASSESSEE' S COMPANY. THE AO FURTHER NOTED THAT THE ASSESSEE HAS CLAIMED INTERES T EXPENSES OF RS. 2,62,54,912/- AND THAT BY MAKING SUCH ADVANCES TO S ISTER CONCERN, THE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 10 INTEREST BEARING FUNDS WERE DIVERTED TO NON-BUSINES S PURPOSES. THE AO THUS DISALLOWED COMMENSURATE INTEREST AMOUNTING TO RS. 14,35,210/- ARISING ON THE ADVANCES GIVEN TO M/S. DWARKA INFOTE CH PVT. LIMITED @ 13.5% AND ADDED THE TOTAL INCOME OF THE ASSESSEE. I N FIRST APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO. THE BENC H DURING THE COURSE OF HEARING OBSERVED FROM THE AVAILABLE RECORDS THA T THE ADVANCES WERE MADE TO M/S. DWARKA INFOTECH PVT. LIMITED WITHOUT A NY BUSINESS CONSIDERATION AND THE SISTER CONCERN WAS NOT HAVING ANY INFRASTRUCTURE TO DEVELOP THE REQUIRED SOFTWARE. IT IS FURTHER NOTED THAT THE ASSESSEE HAD FAILED TO PROVE THAT SUCH OWN FUNDS WERE AVAILABLE WHEN INTEREST FREE ADVANCES WERE MADE TO THE SISTER CONCERN. IT APPEAR S THAT THE ASSESSEE HAD DIVERTED ITS BORROWED FUNDS FOR OTHER THAN BUSI NESS USE AND THE LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE INTER EST AMOUNTING TO RS. 14,35,210/- . IN THIS VIEW OF THE MATTER, WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A). THUS GROUND NO. 2 OF THE ASSESSEE IS DI SMISSED. 5.1 APROPOS GROUND NO. 3 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 12.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE AO AS ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED THAT THE ASSESSEE HAS CLAIMED ANNUAL MAINTENANCE CH ARGES OF RS. 960000/- IN THE P&L ACCOUNT AND SUCH PAYMENT WA S ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 11 MADE TO THE SISTER CONCERN NAMELY M/S. DWARKA INFOT ECH PVT. LTD. THE AOS CASE IS THAT THE SISTER CONCERN M/S. DWARKA INFOTECH PVT. LTD WAS NOT HAVING ANY INFRASTRUCTURE EITHER TO DEVELOP ANY SOFTWARE OR TO PROVIDE SUCH MAINTENANC E SERVICES. ON THE OTHER HAND THE APPELLANT CASE IS T HAT M/S. DWARKA INFORTECH PVT. LTD HAS PROVIDED ANNUAL MAINT ENANCE FOR ATTENDING THE COMPUTERS AND SOFTWARES HAVING GR OSS VALUE OF MORE THAN 29 LACS OF THE ASSESSEE AND THAT SUCH CLAIM WAS GENUINE. ON CAREFUL CONSIDERATION OF RELEVANT PRIMA FACIE, IT IS FOUND THAT SUCH PAYMENT IS MADE WITHOUT ANY BUSI NESS CONSIDERATION JUST TO ACCOMMODATE THE SISTER CONCER N INASMUCH AS M/S. DWARKA INFOTECH PVT. LTD WAS NOT H AVING ANY SUCH PARAPHERNALIA TO PROVIDE ANNUAL MAINTENANC E FOR CONTRACT OF THE COMPUTERS. MOREOVER PAYMENT OF RS. 960000 FOR THE MAINTENANCE OF CONTRACT FOR THE COMPUTERS HAVING GROSS VALUE OF RS. (APPROX.) 29 LACS WAS BY ANY NO RMS EXCESSIVE AND ON HIGHER SIDE. ACCORDINGLY, THE ADDI TION MADE BY THE AO IS CONFIRMED. THE GROUND OF APPEAL I S DISMISSED. 5.2 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE PRAYED THAT THE LOWER AUTHORITIES ERRED IN CONFIRMING THE DISAL LOWANCE OF RS. 9.60 LACS CLAIMED ON ACCOUNT OF ANNUAL MAINTENANCE CHARGES OF THE COMPUTER SYSTEM FOR WHICH THE LD.AR OF THE ASSESSEE FILED TH E FOLLOWING WRITTEN SUBMISSION. IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSEE COMPANY IS HAVING COMPUTERS AND SOFTWARES HAVING GROSS VALUE OF MORE THAN 29 LACS (APB 23) INSTALLED AT VARIOUS PLACES IN FACTORY AS WELL AS I N THE OFFICE AND SHOWROOMS SITUATED AT DIFFERENT PLACES WHICH REQUIRED REGULAR UPKEEP AND MAINTENANCE AND SINCE M/S DWARKA INFOTECH PVT. LTD. IS PROVIDIN G THE SERVICES OF DEVELOPMENT OF COMPUTER SOFTWARE AND MAINTENANCE OF COMPUTERS, IT WAS GRANTED CONTRACT FOR REPAIR AND MAINTENANCE OF THE COMPUTER SYSTEMS OWNED AND MAINTAINED BY THE ASSESSEE COMPANY. LD. AO BY A LLEGING THAT SINCE NO EVIDENCE IN RESPECT OF RECEIPT/ PURCHASE OF SOFTWAR E WAS FILED DISALLOWED THE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 12 EXPENSES. AGAIN LD. CIT(A) OBSERVED THAT THE SISTER CONCERN HAD NO INFRASTRUCTURE EITHER TO DEVELOP OR TO PROVIDE MAIN TENANCE SERVICES, WHICH IS NOT CORRECT. AS STATED ABOVE, IT IS REITERATED THAT NO INFRASTRUCTURE OTHER THAN COMPUTER AND QUALIFIED PERSONNEL IS REQUIRED FOR TH ESE SERVICES. CONTENTION OF LD. AO WAS NOT SUPPORTED BY ANY EVIDENCE ON RECORD AND CLAIM WAS REJECTED WITHOUT IN ANY MANNER ESTABLISHING THAT THE SERVICE S RENDERED BY M/S DWARKA INFOTECH PVT. LTD. WITH REGARD THE REPAIR AND MAINT ENANCE OF THE COMPUTER SYSTEMS ARE NOT CARRIED OUT BY IT. IT IS FURTHER SU BMITTED THAT MERELY FOR THE REASON THAT THE CHARGES WERE PAID TO THE FIRM WHICH IS OF THE SIMILAR GROUP, IT HAS BEEN ALLEGED THAT NO SERVICES WERE PROVIDED, TH OUGH THE EXPENSES OF SIMILAR NATURE WERE CLAIMED IN PRECEDING YEARS ALSO WHERE THEY WERE ALLOWED WITHOUT RAISING ANY DOUBT WITH REGARD TO THE SERVIC ES RENDERED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE BALANCE SHEET OF THE SISTER CONCERN WERE FILED BY THE LD. AO WHO HAS FAILED TO APPRECIATE TH E FACT THAT THE M/S DWARKA INFOTECH PVT. LTD. HAS CLAIMED EXPENDITURE OF MORE THAN 6.20 LACS ON SALARY PAID TO THE STAFF FOR THE MAINTENANCE WORK WHICH WA S WRONGLY CONSIDERED AT RS. 10,000/- PER MONTH BY LD. AO WHO INSTEAD OF VER IFYING THE DETAILS OF THE CURRENT YEAR HAS DOUBTED THE DETAILS OF THE SISTER CONCERNS IN PRECEDING ASSESSMENT YEARS I.E. FOR A.Y. 2010-11. MOREOVER, ASSESSING OFFICER CANNOT STEP INTO THE SH OES OF THE BUSINESS PERSON TO EXAMINE THE REASONABILITY AND THE COMMERC IAL EXPEDIENCY INVOLVED WHICH HAS TO BE EXAMINED FROM THE POINT OF VIEW OF THE BUSINESS PERSON AND NOT THE ASSESSING OFFICER. THEREFORE, IN VIEW OF THE FACTS AND CIRCUMSTANCES O F THE CASE AND THE SUBMISSIONS MADE ABOVE, IT IS HUMBLY PRAYED THAT TH E DISALLOWANCE OF RS. 9,60,000/- MADE BY LD. AO MAY KINDLY BE DELETED. RELIANCE IS PLACED ON THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT 124 ITR 1 WHEREIN THE HONBLE SUPREME COURT OF INDIA HAS HEL D AS UNDER: WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS AN OUTG OING ON ACCOUNT OF REVENUE DEPENDS ON WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VIEW RATHER THAN UPON THE JURISTIC CLASSIFICATION OF THE LEGAL RIGHTS, IF ANY , SECURED, EMPLOYED OR EXHAUSTED IN THE PROCESS. THE QUESTION MUST BE VIEW ED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. FURTHER HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT, 158 TAXMAN 74 HAS HELD THAT: SECTION 37(1) OF THE INCOME TAX ACT, 1961 BUSINE SS EXPENDITURE ALLOWABILITY OF ASSESSMENT YEARS 1990-91 AND 1991 -92 WHETHER EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, YET IT ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 13 IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS IN CURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY HELD, YES. 5.3 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE LOWER AUTHORITIES. 5.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO DURING THE COURSE OF AS SESSMENT PROCEEDING OBSERVED THAT SOFTWARE MAINTENANCE CHARGES WAS PA ID TO THE SISTER CONCERN M/S. DWARKA INFOTECH PVT. LTD. THE AO FURTH ER NOTED THAT SUCH CLAIM WAS FALSE INASMUCH AS NO EVIDENCE OF RECEIPTS / PURCHASES OF SOFTWARE WERE FILED. THE AO FURTHER NOTED THAT SUCH SOFTWARE WAS PART OF THE ASSETS IN THE BOOKS OF ACCOUNTS. THE AO THUS DI SALLOWED THE CLAIM OF THE ASSESSEE AMOUNTING TO RS. 9.60 LACS AND ADDED T HE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN FIRST APPEAL, THE LD. CI T(A) HAS CONFIRMED THE ACTION OF THE AO WITH THE OBSERVATION THAT SUCH PAYMENT IS MADE WITHOUT ANY BUSINESS CONSIDERATION JUST TO ACCOMMODATE THE SISTER CONCERN INASMUCH AS M/S. DWARKA INFORTECH PVT. LTD WAS NOT HAVING ANY SUCH PARAPHERNALIA TO PROVIDE ANNUAL MAINTENANCE OF THE COMPUTERS . DURING THE COURSE OF HEARING, THE BENCH OBSERVED THAT THE LD.AR OF THE ASSESSEE COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE IN QUESTION. IN THIS VIEW OF THE MATTER, WE FIND NO IN FIRMITY IN THE ORDER OF ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 14 THE LD. CIT(A) ON THE ISSUE IN QUESTION. THUS GROUN D NO. 3 OF THE ASSESSEE IS DISMISSED. 6.1 APROPOS GROUND NO. 4 OF THE ASSESSEE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT. IT MAY BE MENTIONED THAT ON THIS CA SE FOR A.Y. 2011- 12 FOR COMPLETION OF ASSESSMENT U/S 143(3) OF I.T. ACT, THE ADDL.CIT, RANGE-7, JAIPUR WAS HAVING CONCURRENT JUR ISDICTION IN TERMS OF SECTION 120 OF I.T. ACT. AS PER THE DEFINI TION OF ASSESSING OFFICER, AS PER SECTION 7A, ADDL. CIT OR JT. CIT IS ALSO INCLUDED IN SUCH DEFINITION. IT MAY FURTHER BE MENTIONED THAT T HE ADDL. LD. CIT, RANGE-7, JAIPUR WHO WAS HAVING CONCURRENT JURI SDICTION AND WAS ASSESSING OFFICER IN THIS CASE WAS PROMOTED AS COMMISSIONER OF INCOME TAX BY CBDT, NEW DELHI AND ON SUCH PROMOT ION, THE ADDL. CIT WAS DESIGNATED DAS CIT (OSD), JAIPUR. HOW EVER, HE WAS ALLOWED TO PERFORM THE SAME FUNCTIONS OF ADDL. CIT INCLUDING THE FUNCTION OF AO. IN THIS MANNER, EVEN AFTER PROM OTION AS CIT AND DESIGNATED AS CIT(OSD), JAIPUR, THE OFFICER FO R ALL PRACTICAL PURPOSES REMAINED AS ADDL. CIT AND PERFORMED THE FU NCTIONS OF THE AO AS PER THE DIRECTIONS OF THE CBDT, NEW DELHI. TH EREFORE, AS THE CIT (OSD) WAS ALLOWED TO PERFORM THE FUNCTIONS OF ADDL. CIT /AO, THEREFORE, THE ORDER PASSED BY HIM WAS IN ORDE R AND THERE WAS NO ILLEGALITY IN THE SAME. THE GROUND OF APPEAL IS DISMISSED. 6.2 DURING THE COURSE OF HEARING, THE LD.AR OF THE ASSESSEE PRAYED THAT THE ORDER PASSED BY THE CIT (OSD) IS WITHOUT JURISD ICTION AND NOT TENABLE FOR WHICH THE LD.AR OF THE ASSESSEE FILED THE FOLLO WING WRITTEN SUBMISSION. IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSMEN T IN THE CASE HAS BEEN COMPLETED BY THE COMMISSIONER OF INCOME TAX (OSD) R ANGE 7, JAIPUR VIDE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 15 ORDERS DATED 18.03.2014. ON PERUSAL OF PARA 2 OF AS SESSMENT ORDER, IT HAS BEEN OBSERVED AS UNDER: 2. SUBSEQUENTLY, THE COMMISSIONER OF INCOME TAX 3, JAIPUR VIDE HIS ORDER U/S 127 NO. CIT-III / ACIT(HQRS.) / JPR / JURISDICTION U/S 127(1) / 2013-14 / 1551 DATED 28.08.2013 OF THE INCOME TAX A CT, 1961 TRANSFERRED THE CASE FROM THE DCIT / ACIT, CIRCLE 7, JAIPUR TO TH E UNDERSIGNED . SECTION 127(1) PROVIDES POWER TO THE DIRECTOR GENER AL OR THE CHIEF COMMISSIONER OR THE COMMISSIONER TO TRANSFER ANY CA SE FROM ONE OR MORE ASSESSING OFFICER SUB-ORDINATE TO HIM TO ANY OTHER ASSESSING OFFICER ALSO SUB- ORDINATE TO HIM. IN THE PRESENT CASE, AS PER THE OB SERVATIONS OF THE LD. AO, REPRODUCED ABOVE, THE ORDER U/S 127(1) WAS PASSED B Y THE COMMISSIONER III, JAIPUR WHEREBY THE JURISDICTION IN THE CASE OF THE ASSESSEE HAS BEEN TRANSFERRED FROM ACIT / DCIT, CIRCLE 7, JAIPUR TO THE COMMISS IONER (OSD) HOWEVER, THE COMMISSIONER (OSD) IS AN OFFICER IN THE SAME RA NK AS THE COMMISSIONER III, JAIPUR THUS HE IS NOT A SUB-ORDINATE AS PRESCR IBED U/S 127(1) OF THE INCOME TAX ACT, 1961. IT IS ALSO A MATTER OF FACT THAT THE ASSESSEE HAS P ARTICIPATED IN THE PROCEEDINGS IN TERMS OF THE NOTICE ISSUED BY THE AD DITIONAL COMMISSIONER OF INCOME TAX, RANGE 7, JAIPUR DATED 01.01.2014 (APB-124) AND ALL THE REPLIES WERE FILED TO THE ADL. CIT, RANGE-7, JAIPUR AND NO NOTICE WHATSOEVER WAS RECEIVED FROM THE COMMISSIONER OF INCOME TAX (OSD), JAIPUR ASSUMING THE JURISDICTION THEREON. THE ASSESSMENT U/S 143(3) COULD BE COMPLETED/ PASSE D BY AN ASSESSING OFFICER, A REFERENCE OF WHICH HAS ALSO BEEN MADE IN SECTION 127(1). THE TERM ASSESSING OFFICER IS DEFINED IN SECTION 2(7A) OF THE INCOME TAX ACT, 1961 WHICH READS AS UNDER: 2.(7A) 'ASSESSING OFFICER' MEANS THE ASSISTANT COMMISSIONER [OR DEPUTY COMMISSIONER] [OR ASSISTAN T DIRECTOR] [OR DEPUTY DIRECTOR] OR THE INCOME-TAX OFFICER WHO IS V ESTED WITH THE RELEVANT JURISDICTION BY VIRTUE OF DIRECTIONS OR OR DERS ISSUED UNDER SUB- SECTION (1) OR SUB-SECTION (2) OF SECTION 120 OR AN Y OTHER PROVISION OF THIS ACT, AND THE [ADDITIONAL COMMISSIONER OR] [ADD ITIONAL DIRECTOR OR] [JOINT COMMISSIONER OR JOINT DIRECTOR] WHO IS D IRECTED UNDER CLAUSE (B) OF SUB-SECTION (4) OF THAT SECTION TO EXERCISE OR PERFORM ALL OR ANY OF THE POWERS AND FUNCTIONS CONFERRED ON, OR ASSIGNED TO, AN ASSESSING OFFICER UNDER THIS ACT ; FROM THE PERUSAL OF THE DEFINITION IT IS VERY MUCH CLEAR THAT IN NO CASE, THE COMMISSIONER OF INCOME TAX COULD BE THE ASSESSI NG OFFICER, THEREFORE, THE PRESENT ASSESSMENT ORDER PASSED BY THE COMMISSI ONER OF INCOME TAX IS WITHOUT JURISDICTION. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 16 FURTHER, AN ORDER PASSED BY ASSESSING OFFICER IS AP PEALABLE BEFORE CIT (APPEALS), I.E. AUTHORITY WHO IS HIGHER IN HIERARCH Y THAN ASSESSING OFFICER AND THUS EMPOWERED WITH AUTHORITY TO ADJUDICATE THE ORD ERS PASSED BY LOWER AUTHORITY. HOWEVER, BOTH CIT (ADMN.) AND CIT (APPEA LS) ARE OF SAME RANK AND IF CIT(ADMN.) ACTS AS ASSESSING OFFICER AND PAS SES ASSESSMENT ORDER, HOW COULD APPEAL BE DECIDED BY CIT(A) WHO IS ALSO HAVIN G EQUIVALENT AUTHORITY. THIS CONTENTION IS FURTHER STRENGTHENED FROM THE PR OVISION IN LAW ITSELF WHICH PROVIDE THAT APPEAL AGAINST THE ORDERS PASSED BY CI T (ADMN.) U/S 263 CAN BE FILED BEFORE INCOME TAX APPELLATE TRIBUNAL AND NOT BEFORE CIT(A). IN THE CIRCUMSTANCES IT IS HUMBLY SUBMITTED THAT OR DER PASSED BY CIT(OSD) IS WITHOUT JURISDICTION AND NOT TENABLE IN THE EYES OF LAW AND THEREFORE, THE IMPUGNED ORDER DESERVES TO BE HOLD B AD IN LAW. 6.3 DURING THE COURSE OF HEARING, THE LD. DR SUPPOR TED THE ORDER OF THE LD. CIT(A) AND ALSO FILED THE ORDER DATED 20 TH FEB. 2014 ISSUED BY CBDT. 6.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE REVENUE H AS FILED THE PROMOTION ORDER DATED 20 TH FEB. 2014 ISSUED BY THE CBDT VIDE ORDER NO. 34 OF 2014 WHEREIN PARA 3 READS AS UNDER:- 3. ON PROMOTION TO THE GRADE OF CIT, THE OFFICE RS ARE POSTED AS CIT (OSD) ON IN SITU BASIS AT THEIR PRESENT PLACE OF POSTING TILL THEIR FORMAL POSTING IN THE G RADE OF CIT AND THEY WILL CONTINUE TO DISCHARGE THE FUNCTION OF THE PRESENT POSTS. HOWEVER, THEY SHALL BE CONSIDERED AT AGT- 2014 AND WILL BE TRANSFERRED ACCORDINGLY TO THE GUI DELINES. THUS THE CBDT ISSUED THE PROMOTION ORDER TO THE GRA DE OF CIT ON SITU BASIS AND IT HAS BEEN CLEARLY MENTIONED IN THIS ORD ER THAT PROMOTION AT THEIR PLACE OF POSTING TILL THEIR FORMAL POSTING IN THE GRADE OF CIT, THEY ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 17 WILL CONTINUE TO DISCHARGE THE FUNCTION OF THE PRES ENT POSTING. IN VIEW OF THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE, T HE GROUND NO. 4 RAISED BY THE ASSESSEE HAS NO MERIT WHICH IS DISMISSED. 7.1 APROPOS GROUND NO. 1 OF THE REVENUE, THE FACT S AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO, SUBMISSIONS OF THE APPELLANT AS ALSO OTHER RELE VANT FACTS. IT MAY BE NOTED THAT THIS IS A CASE WHERE PURCHASE S TO THE EXTENT OF RS. 23,22,515/- FROM THE PARTIES (DETAILS GIVEN AT PAGE 6 OF THIS ORDER) WERE NOT GENUINE INASMUCH AS THESE PARTIES WERE NOT PRODUCED BEFORE THE AO FOR NECESSA RY VERIFICATION AND EVEN WHEN THE AO ISSUED SUMMONS U/ S 131 OF THE I.T. ACT THESE PARTIES EITHER DID NOT ATTEND THE PROCEEDINGS OR THE SUMMONS ISSUED TO THESE PARTIES RETURNED BACK UNSERVED. DURING THE PROCEEDINGS BEFORE THE AO THOUGH THE ASSESSEE FURNISHED COMPLETE PURCHASE BIL LS SHOWING COMPLETE ADDRESS, OF SUCH PARTIES SALES TAX REGISTRATION NUMBER, PAN, AS ALSO COPY OF THE BANK ACCOUNT OF THE ASSESSEE INDICATING THAT PAYMENT FOR SUCH PU RCHASES WERE MADE THROUGH BANKING CHANNEL. THE ASSESSEE HAS ALSO FURNISHED COPY OF CONFIRMATIONS FROM THESE PARTIES AND ALSO CLAIMED THAT THE GOODS SO PURCHASED HAS UNDER GONE VARIOUS PROCESS OF MANUFACTURING AND THAT ULTIMATELY THE GO ODS SO PURCHASED, CONVERTED INTO FINISHED PRODUCT WERE SOL D EITHER THROUGH LOCAL MARKET OR BY WAY OF EXPORT OUTSIDE IN DIA. THE ASSESSEE ACCORDINGLY CLAIMED THAT SUCH PURCHASES FR OM THESE PARTIES SHOULD NOT BE TREATED AS BOGUS. HOWEVER, TH E AO NOT CONVINCED WITH THE SUBMISSION OF THE APPELLANT TREA TED SUCH PURCHASES TO BE NON-GENUINE NATURE AND ACCORDINGLY MADE ADDITION TO THE TOTAL INCOME. THE AO HAS ALSO RELIE D ON VARIOUS CASE LAWS IN SUPPORT OF HIS ACTION. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS BROADLY CON TENDED THE SAME FACTS THAT WHEN COPY OF PURCHASE BILLS, SA LES TAX ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 18 REGISTRATION, CONFIRMATION FROM ALL THE PARTIES, CO PY OF GOODS INWARD MEMO ETC. HAS BEEN FILED AS ALSO WHEN ALL TH ESE PARTIES ARE ASSESSED TO TAX AND TRANSACTION OF PURC HASES AND PAYMENT MADE WERE REFLECTED IN THE BACK STATEMENT O F THE ASSESSEE AS WELL AS THE RESPECTIVE PARTY THEN SIMPL Y ON THE REASON THAT THESE PARTIES DID NOT ATTEND THE PROCEE DINGS IN COMPLIANCE OF SECTION 131 OF I.T. ACT, THE PURCHASE CANNOT BE TREATED TO BE OF BOGUS NATURE. THE APPELLANT ALS O DRAWN THE ATTENTION TO THE DECISION OF HON'BLE JURISDICTI ONAL ITAT IN THE CASE OF ASSESSEE ITSELF IN EARLIER ASSESSMEN T YEARS FROM ASSESSMENT YEAR 2001-02 TO 2006-07 WHERE IN THE ISS UE OF ALLEGED BOGUS PURCHASES WERE DECIDED IN FAVOUR OF T HE ASSESSEE AS ALSO THAT THOUGH THE HON'BLE JURISDICTI ONAL ITAT CONFIRMED APPLICATION OF PROVISIONS OF SEC. 145(3) OF I.T. ACT, IN CERTAIN CASES WHERE GP WAS BETTER DELETED T HE ADDITION AND IN SOME CASES FOR POSSIBLE LEAKAGE OF REVENUE ONLY LUMP-SUM ADDITIONS WERE CONFIRMED. REFERENCE W AS ALSO MADE TO A.Y. 2008-09 WHERE THE AO HAS MADE AD DITION OF RS. 12715683/- ON THE SAME ISSUE BUT THE LD. CIT (A) FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL IT AT ONLY SUSTAINED ADDITION OF RS. 3 LACS. SIMILARLY IN A.Y. 2010-11 AS AGAINST THE ADDITION OF RS. 47972462/- MADE BY T HE AO THE LD. CIT(A) CONFIRMED LUMP-SUM ADDITION OF RS. 1 0 LACS ONLY. ATTENTION WAS ALSO DRAWN TOWARDS THE LATEST D ECISION OF HON'BLE JURISDICTIONAL ITAT IN THE CASE OF SHRI ANU J KUMAR VARSHNEY AND OTHERS VS ITO, WHEREIN NUMBER OF APPEA LS INVOLVING ISSUE OF BOGUS PURCHASES WERE DECIDED BY THE HON'BLE JURISDICTIONAL ITAT BY WAY OF COMMON UNVERI FIABLE ORDER DATED 22-10-2014 AND IN THESE APPEALS ADDITIO N TO THE EXTENT OF ONLY 15% OF THE TOTAL UNVERIFIABLE PURCHA SES WAS CONFIRMED. IT MAY ALSO BE MENTIONED THAT WHILE DECI DING THE APPEALS BY THE HON'BLE JURISDICTIONAL ITAT IN RESPE CT OF EARLIER ASSESSMENT YEARS OF THE ASSESSEE THE HON'BL E JURISDICTIONAL ITAT ALSO CONSIDERED THE VARIOUS DEC ISIONS RELIED UPON THE AO WHILE MAKING THE ADDITION AND TH E HON'BLE JURISDICTIONAL ITAT NEITHER APPROVED APPLIC ATION OF SEC. 69C OR 100% ADDITION ON ACCOUNT OF SUCH UNVERI FIABLE PURCHASES. THE APPELLANT HAS ALSO CONTENDED IN THE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 19 ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HA S SHOWN BETTER GP RATE OF 22.32% AS AGAINST GP RATE OF 20.4 0% IN IMMEDIATE PRECEDING ASSESSMENT YEAR AND THAT WHEN B ETTER GP WAS SHOWN NO FURTHER ADDITION WAS WARRANTED. ON CAREFUL CONSIDERATION OF ALL RELEVANT FACTS, IT IS NOTED TH AT IN THE SIMILAR CIRCUMSTANCES WHEN THE PURCHASES WERE NOT VERIFIABLE, IN A.Y. 2001-02 THE AO HAS MADE ADDITIO N OF RS. 36867308/- U/S 69C OF I.T. ACT. IN FIRST APPEAL THE LD. CIT(A) DID NOT APPROVE THE ADDITION U/S 69C AND AFTER INVO KING PROVISIONS OF SEC. 145(3) OF I.T. ACT APPLIED GP RA TE OF 30% AS AGAINST GP RATE OF 24.22% SHOWN BY THE ASSESSEE. ACCORDINGLY ADDITION TO THE EXTENT OF RS. 82.83 LAC S WAS CONFIRMED AND REMAINING ADDITION WAS DELETED. AGAIN ST THE ORDER OF CIT(A) BOTH THE DEPARTMENT AS WELL AS THE APPELLANT WENT FOR FURTHER APPEAL BEFORE THE HON'BLE JURISDIC TIONAL ITAT WHICH WAS DECIDED IN ITA NO. 664/JP/2006 VIDE ORDER DATED 27-04-2007 AND THE ADDITION OF RS. 82.83 LACS WAS DELETED. SIMILARLY IN RESPECT OF ASSESSMENT YEAR 20 03-04 WHERE THE ADDITION OF RS. 94354447/- HAS BEEN MADE BY THE AO ON ACCOUNT OF UNVERIFIABLE PURCHASES AND THE LD. CIT(A) HAS CONFIRMED ADDITION OF RS. 568.41 LACS, THE HON' BLE JURISDICTIONAL ITAT DELETED SUCH ADDITION VIDE ORDE R DATED 27-04-2007 IN ITA NO.102/JP/2006. IN AY 2002-03 THE AO MADE ADDITION OF RS. 40840051/- ON THE SAME BASIS A ND THE FIRST APPELLATE AUTHORITY HELD THAT SEC 69C WAS NOT APPLICABLE BUT INVOKING THE PROVISIONS OF SEC 145(3), APPLIED GP RATE OF 30% AS AGAINST GP RATE OF 21.03% AND ADDITION TO TH E EXTENT OF RS. 211.42% WAS CONFIRMED. HOWEVER, HON'BLE JURISDICTIONAL ITAT DELETED SUCH ADDITION IN ITA NO . 947/JP/2005 DATED 25-01-2007. SIMILARLY IN AY 2005- 06, THE AO MADE ADDITION OF RS. 97067885/- AND THE FIRS T APPELLATE AUTHORITY INVOKING THE PROVISIONS OF SEC 145(3) ONLY CONFIRMED ADDITION TO RS. 2361460/-. HOWEVER, THE HON'BLE JURISDICTIONAL ITAT IN ITA NO.607/JP/2009 D ATED4- 01-2011 SUSTAINED TRADING ADDITION OF RS. 6 LACS. S IMILARLY IN A.Y. 2006-07 AS AGAINST THE ADDITION OF RS. S212381 59/-, THE HON'BLE JURISDICTIONAL ITAT IN ITA NO.1372/JP/2010 DATED 10-03-2011 CONFIRMED TRADING ADDITION OF RS. 3 LACS . ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 20 FOLLOWING THE CONSISTENT DECISION OF HON'BLE JURISD ICTIONAL ITAT, IN A.Y. 2009-10 AS AGAINST THE ADDITION OF R S. 47972464/- MADE BY THE AO THE FIRST APPELLATE AUTHO RITY WHILE DECIDING THE APPEAL IN ITA NO. 1012/JP/2011-1 2 SUSTAINED THE ADDITION OF RS. 10 LACS ONLY. THE ABO VE FACTS WILL INDICATE THAT IN APPELLANT OWN CASE IN EARLIER YEARS UNDER THE SIMILAR FACTS AND CIRCUMSTANCES WHEN THE PURCHA SES WERE NOT VERIFIABLE, ONLY APPROVED THE INVOKING OF PROVI SION OF SEC 145(3) AND ACCORDINGLY ADDITION AS PER THE PAST HISTORY WERE CONFIRMED AND NOT THE ADDITION ON ACCOUNT OF 1 00% PURCHASES. IT IS ALSO NOTED THAT THE HON'BLE JURISD ICTIONAL ITAT HAS EVEN NOT APPROVED THE APPLICATION OF PROVI SION OF SEC 69C OF I.T. ACT. THE HON'BLE JURISDICTIONAL ITA T IN ITS LATEST COMMON DECISION IN THE CASE OF ANUJ KUMAR VA RSHNEY VS ITO, ITA NO. 187/JP/2012 AND OTHER 14 PARTIES HA VE HELD THAT IN SUCH CASES IT WILL BE REASONABLE TO DISALLO W 15% OF UNVERIFIABLE PURCHASES. THE DECISION OF THE HON'BLE JURISDICTIONAL ITAT ON THE SAME FACT AS ALSO IN THE APPELLANT OWN CASE IS OF BINDING NATURE. RELIANCE IS PLACED O N THE FOLLOWING CASE LAWS:- (I) AGARWALWARE HOUSE AND LEADING PVT LTD. VS CIT 257 ITR 235 (M.P.) (II) BANK OF BARODA VS HC SRIVASTAVA & ANOTHERS 256 ITR 385 (BOMBAY) (III) VOEST ALPINE IND. GBBH VS ITO 246 ITR 745 (CALCUTTA) (IV) AVON APPARELS VS ITO, 22 TAXWORLD 399 (ITAT JAIPUR) (V) EAGLE FLASK INDUSTRIES VS DCIT, 72 ITD 458 (ITA T PUNE) KEEPING IN VIEW THE ABOVE MENTIONED FACTS AND PARTICULARLY DECISION OF HON'BLE ITAT, THE UNVERIFI ABLE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 21 PURCHASES MAY BE A CASE OF REJECTION OF BOOKS OF AC COUNTS U/S 145(3) OF I.T. ACT. AS PER THE SETTLED LAW AFTE R REJECTION OF BOOKS OF ACCOUNTS THE PROFIT IS TO ESTIMATE EITH ER BASED ON PAST HISTORY OF THE APPELLANT CASE OR ON THE BASIS OF ANY COMPARABLE CASE. IN THE PARTICULAR CASE THE GP SHOW N DURING THE ASSESSMENT YEAR UNDER CONSIDERATION IS BETTER I N COMPARISON TO THE GP SHOWN IN EARLIER ASSESSMENT YE ARS. HOWEVER AS MENTIONED ABOVE THE HON'BLE JURISDICTION AL ITAT IN THE CASE OF ANUJ KUMAR VARSHNEY AND OTHERS (SUPRA) HAS ALLOWED DISALLOWANCE OF 15% OF UNVERIFI ABLE PURCHASES. THE TOTAL UNVERIFIABLE PURCHASES OF THE ASSESSEE ARE FOR RS. 2322515/-. RESPECTFULLY FOLLOWING THE D ECISION OF THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF ANUJ KUMAR VARSHNEY AND OTHERS (SUPRA), ADDITION ON ACCOUNT OF UNVERIFIABLE PURCHASES IS RESTRICTED TO RS. 3,48,37 7/- BEING 15% OF 2322515/-. ACCORDINGLY, ADDITION TO THE EXTE NT OF RS. 348377/- IS CONFIRMED. THE APPELLANT GETS RELIEF OF RS. 1974138/-. THE APPEAL IS PARTLY ALLOWED. 7.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPOR TED THE ORDER OF THE AO. 7.3 ON THE OTHER HAND, THE LD. AR PRAYED TO SET ASI DE THE ORDER TO THE FILE OF THE AO FOR AFRESH ADJUDICATION. 7.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOT IMPERATIVE TO REPEAT THE FACTS OF THE CASE OF THE ASSESSEE AS THE LD. CIT(A) HAS EXPLICITLY DEALT WITH THE ISSUE TAKING INTO CONSIDERATION THE JUDGMENT OF ITAT JAIPUR BENC H IN THE CASE OF ANUJ KUMAR VARSHNEY AND OTHERS (SUPRA) BY MAKING DISALLO WANCE OF 15% OF ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 22 UNVERIFIABLE PURCHASES. IN THIS VIEW OF THE MATTER AND JUDGMENT OF ITAT JAIPUR BENCH IN THE CASE OF ANUJ KUMAR VARSHNEY AND OTHERS (SUPRA), WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A). THUS GR OUND NO. 1 OF THE REVENUE IS DISMISSED. 8.1 APROPOS GROUND NO. 2 OF THE REVENUE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 6.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO SUBMISSION OF THE APPELLANT. IT MAY BE N OTED THAT THE AO HAS DISALLOWED PAYMENT OF RS. 331693/- ON AC COUNT OF GRATUITY FUND MAINLY ON THE REASON THAT THE GRAT UITY FUND WAS NOT APPROVED BY COMPETENT AUTHORITY. ON THE OTH ER HAND THE APPELLANT CASE IS THAT SUCH EXPENDITURE WAS INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT THE SIMILAR EXPENSES DISALLOWED BY THE AO IN EARLIE R YEARS I.E. 2002-03 TO 2006-07 WERE DELETED BY THE HON'BLE ITAT. SIMILAR SUCH ADDITION MADE BY THE AO IN A.Y. 2008-0 9 AND 2009-10 WERE ALSO DELETED BY THE LD. CIT(A). KEEPIN G INTO CONSIDERATION ALL THESE FACTS PARTICULARLY THE FACT THAT THE SAME ADDITION MADE BY THE AO IN EARLIER YEARS HAVE BEEN DELETED BY JURISDICTIONAL ITAT AS ALSO BY LD. CIT(A ), THE ADDITION MADE BY THE AO CANNOT BE CONFIRMED AND THE SAME IS DELETED. THE GROUND OF APPEAL IS ALLOWED. 8.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPOR TED THE ORDER OF THE AO. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 23 8.3 ON THE OTHER HAND, THE LD.AR SUPPORTED THE ORDE R OF THE LD. CIT(A) AND PRAYED THAT DISALLOWANCE OF RS. 3,31,693/- HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A). 8.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE TH AT THE AO DISALLOWED PAYMENT OF RS. 3,31,693/- ON ACCOUNT OF GRATUITY FU ND MAINLY ON THE REASON THAT THE FUND WAS NOT APPROVED BY THE COMMIS SIONER OF INCOME TAX IN TERM OF THE I.T. RULES AND IN ACCORDANCE WIT H THE I.T. ACT. IT IS NOTED THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SIMILAR EXPENSES DISALL OWED BY THE AO IN EARLIER YEARS I.E. A.Y. 2002-03 TO 2006-07 WERE DEL ETED BY THE ITAT. IT IS ALSO NOTED THAT SUCH DISALLOWANCES MADE IN A.Y. 200 8-09 AND 2009-10 WERE ALSO DELETED BY THE LD. CIT(A). SINCE THE FACT S AND CIRCUMSTANCES OF THE CASE ARE SIMILAR AND THE JURISDICTIONAL ITAT, J AIPUR BENCH HAS EARLIER DELETED THE ADDITION ON SIMILAR ISSUE , THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITIO N FOR THE ASSESSMENT YEAR 2011-12. THUS GROUND NO. 2 OF THE REVENUE IS D ISMISSED. 9.1 APROPOS GROUND NO. 3 OF THE REVENUE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 24 7.3 I HAVE CAREFULLY CONSIDERED THE FINDING OF TH E AO AS ALSO SUBMISSION OF THE APPELLANT. IT MAY BE N OTED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS JVVNL, 263 CTR 62 AND CIT VS SBBJ, 363 ITR 70 HAS HELD THAT IF SUCH AMOUNT OF EMPLOYEES CONTRIBUTION TO THE PF AND ESI IS PAID BEFORE THE DUE DATE OF FILING OF RE TURN THEN NO SUCH DISALLOWANCE CAN BE MADE. IN THE APPELLANT CAS E THERE IS NO DISPUTE ON THE FACT THAT SUCH LIABILITIES WERE P AID BEFORE DUE DATE OF FILING OF RETURN. THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, THE DISALLOWANCE OF RS. 376998/- MADE BY THE AO IS DELE TED. THE GROUND OF APPEAL IS ALLOWED. 9.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPOR TED THE ORDER OF THE LD. CIT(A). 9.3 ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE SU PPORTED THE ORDER OF THE LD. CIT(A). 9.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE TH AT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING NOTED THAT THE ASSE SSEE HAD VIOLATED THE PROVISIONS OF SECTION 36(1)(VA) READ WITH SECTION 2 (24)(X) OF THE I.T. ACT. THUS THE ASSESSEE MADE THE DELAY IN MAKING PAYMENTS OF EMPLOYEES CONTRIBUTION TOWARDS PF AND ESI AMOUNTING TO RS. 37 6998/- (RS. 217523+159475) WHICH HAS BEEN DISALLOWED BY THE AO AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN FIRST APPEAL, THE LD. CIT(A) ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 25 HAS DELETED THE ADDITIONS MADE BY THE AO ON ACCOUNT OF PF AND ESI TAKING INTO CONSIDERATION THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS JVVNL, 263 CTR 62 (RA J) AND CIT VS SBBJ, 363 ITR 70 (RAJ). IT IS NOTED THAT SUCH LIABI LITIES WERE PAID BY THE ASSESSEE BEFORE DUE DATE OF FILING OF RETURN THEN N O SUCH DISALLOWANCE CAN BE MADE. IN THIS VIEW OF THE MATTER, WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A). THUS GROUND NO. 3 OF THE REVENUE IS DISMISS ED. 10.1 APROPOS GROUND NO. 4 OF THE REVENUE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 8.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO THE SUBMISSION OF THE APPELLANT. IN THIS CONNE CTION, IT MAY BE NOTED THAT THE HON'BLE JURISDICTIONAL ITAT HAS CONS ISTENTLY HELD THAT PROVISIONS OF SEC 194H ARE NOT ATTRACTED ON TH E SERVICE CHARGES PAID ON THE CREDIT CARD TRANSACTION. REFERENCE IS M ADE TO THE DECISION OF HON'BLE ITAT JAIPUR A BENCH IN THE CA SE OF BHANDARI JEWELLERS VS ACIT RANGE-2, JAIPUR, ITA NO.745/JP/20 11, THE RELEVANT FINDING IS CONTAINED IN PARA 7 & 8 WHICH I S REPRODUCED AS UNDER:- 7. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE ORDERS OF AUTHORI TIES BELOW AND SUBMISSIONS OF BOTH THE PARTIES, WE FIND THAT ASSES SEE DESERVES TO SUCCEED ON THIS ISSUE. ON IDENTICAL FACTS, IN CASE OF M/S. GEM PARADISE IN ITA NO. 746/JP/2011 SIMILAR ISSUE WAS INVOLVED. IN THIS CASE ALSO THE ADDITION WAS MADE UNDER SECTION 40(A)(IA) ON AC COUNT OF NON DEDUCTING TDS ON THE FEES CHARGED BY BANK ON CREDIT CARD TRANSACTIONS. WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY ORDER OF EVEN DATE. FINDING OF THE TRIBUNAL RECORD ED IN CASE OF GEMS PARADISE IN PARA 27 ARE AS UNDER :- 27. AFTER CONSIDERING THE ORDERS OF THE AO AND L D. CIT (A), WE FIND THAT ASSESSEE DESERVES TO SUCCEED IN THIS R EGARD. SECTION 194H ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 26 IS APPLICABLE WHERE ANY COMMISSION HAS BEEN PAID BY THE PRINCIPAL TO THE COMMISSION AGENT. THIS IS NOT A CASE OF COMMISS ION AGENT AS ASSESSEE SOLD ITS GOODS THROUGH CREDIT CARD AND ON PRESENTATION OF BILL ISSUED AGAINST CREDIT CARD, THE BANK MAKES PAYMENT TO THE ASSESSEE AFTER DEDUCTING AGREED FEES AS PER TERMS AND CONDIT IONS IN CASE OF CREDIT CARD. THIS IS NOT A COMMISSION PAYMENT BUT A FEES DEDUCTED BY THE BANK. IF THERE IS AN AGREEMENT, THAT IS AGREEM ENT BETWEEN THE CREDIT CARDHOLDER AND THE BANK. BANK IS A PRINCIPA L AND TO SPREAD OVER ITS BUSINESS, A SCHEME IS FLOATED BY BANK I.E. ISSUANCE OF CREDIT CARDS. BANK ISSUES CREDIT CARD TO THE VARIOUS CUST OMERS WHO PURCHASE THE VARIOUS CREDIT CARDS ON THE AGREED TERMS AND CO NDITIONS. ONE OF THE MAJOR CONDITION IS THAT IF CREDIT CARD HOLDER DOES NOT MAKE PAYMENT WITHIN THE PRESCRIBED TIME LIMIT THEN THEY CHARGE 2 % PENAL AMOUNT OF BILL WHICH IS RAISED BY THE SHOP KEEPER AGAINST SAL E OF ITS ITEMS THROUGH CREDIT CARD. BANK CANNOT REFUSE THE PAYMENT TO THE SHOP KEEPER WHO SALE THEIR GOODS THROUGH CREDIT CARD. ONLY IN THOS E CASES WHERE GOODS ARE FOUND DAMAGED AND CREDIT CARD HOLDER INFORM THE BANK THAT THE MATERIAL PURCHASED BY THEM IS DAMAGED OR DEFECTIVE AND REQUEST THE BANK NOT TO MAKE THE PAYMENT, IN SUCH CASES ONLY BA NK CAN WITHHOLD THE PAYMENT, OTHERWISE THE BANK HAS TO MAKE THE PAY MENT TO THE SHOP KEEPER. THEREFORE, IN OUR CONSIDERED VIEW, THERE I S NO SUCH RELATION BETWEEN THE BANK AND THE SHOP KEEPER WHICH ESTABLIS HES THE RELATIONSHIP OF A PRINCIPAL AND COMMISSION AGENT. TECHNICALLY IT MAY BE WRITTEN THAT BANK WILL CHARGE CERTAIN PERCENTAGE OF COMMISSION BUT THIS IS NOT A COMMISSION BECAUSE ASSESSEE SELLS ITS GOODS AGAINST CREDIT CARDS, AND ON PRESENTATION OF BILLS, THE BANK HAS T O MAKE THE PAYMENT. IT IS NOT THE CASE THAT BANK HAS ADVISED THE ASSESS EE TO SELL THEIR GOODS TO ITS CUSTOMERS THEN HE WILL PAY THE COMMISSION. I T IS REVERSED IN A SITUATION AS BANK ISSUED CREDIT CARDS TO THE CREDIT CARD HOLDERS ON CERTAIN FEES OR WHATEVER THE CASE MAY BE AND THE CA RD HOLDER PURCHASES MATERIAL FROM THE MARKET THROUGH HIS CRED IT CARD WITHOUT MAKING ANY PAYMENT AND THAT SHOP KEEPER PRESENTS TH E BILL TO THE BANK AGAINST WHOSE CREDIT CARD THE GOODS WERE SOLD AND O N PRESENTATION OF BILL AS STATED ABOVE THE BANK MAKES THE PAYMENT. T HEREFORE, IN OUR CONSIDERED VIEW, PROVISIONS OF SECTION 194H ARE NOT ATTRACTED IN THIS TYPE OF TRANSACTION. THEREFORE, WE HOLD THAT ADDITI ON MADE AND CONFIRMED BY LD. CIT (A) WAS NOT JUSTIFIED. ACCORDI NGLY, THE ADDITION MADE AND CONFIRMED BY LD. CIT (A) IS DELETED. 8. SINCE FACTS ARE IDENTICAL, THEREFORE, ON THE BAS IS OF REASONING GIVEN IN CASE OF M/S. GEMS PARADISE, WE A LLOW THE ISSUE IN FAVOUR OF THE ASSESSEE IN THIS CASE ALSO. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 27 THE FACTS OF THE APPELLANT CASE ARE IDENTICAL TO TH E FACTS OF THE CASES DECIDED BY THE HON'BLE ITAT. THE FINDINGS OF THE JURISDICTIONAL ITAT IS ALSO OF BINDING NATURE. THER EFORE, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE JURI SDICTIONAL ITAT ON THIS ISSUE, THE DISALLOWANCE MADE BY THE AO AMOU NTING TO RS. 102228/- IS DELETED. GROUND OF APPEAL IS ALLOWED. 10.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPO RTED THE ORDER OF THE AO. 10.3 ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE S UPPORTED THE ORDER OF THE LD. CIT(A) AND ALSO FILED THE FOLLOWING WRITTEN SUBMISSION. IN THIS REGARD, IT IS SUBMITTED THAT DURING THE Y EAR UNDER CONSIDERATION ASSESSEE HAS PAID SERVICE CHARGES ON THE SWAPPING O F CREDIT CARD MACHINE INSTALLED AT ITS BUSINESS PLACE TOWARDS THE PAYMENT OF THE GOODS SOLD TO THE CUSTOMERS. AS AND WHEN THE CREDIT CARD OF THE BUYER IS SWAPPED ON CREDIT CARD MACHINE FOR RECEIVING THE PAYMENT OF THE GOODS SOLD TO IT, THE BANKER WHO PROVIDED THE CREDIT CARD MACHINE AT THE PLACE OF TH E VENDER, HAS CHARGED A SUM TOWARDS THE SERVICES RENDERED WHICH AMOUNT IS PAYAB LE BY THE PERSON WHO OWNED THE CREDIT CARD AND SUCH CHARGES WHICH IN OUR COUNTRY IS 2% ON THE TOTAL SALE VALUE AND IS LIKELY TO BE ADDED TO THE AMOUNT OF SALE VALUE PAYABLE TO THE VENDER. NORMALLY IN ORDER TO PROMOTE THE SALE AND TO RETAIN THE CUSTOMER, THE VENDER SELLING THE GOODS DOES NOT COMPEL THE CUSTOM ER TO PAY SUCH CHARGES OF 2% OVER AND ABOVE THE GOODS SOLD TO IT AND HAS TREA TED THE SAME AS DISCOUNT TO THE CUSTOMER. MEANING THEREBY THE NET SALES IS REDU CED BY THE ELEMENT OF 2% OF THE SALE PRICE. HOWEVER, WHILE MAKING THE ENTRY IN THE BOOKS OF ACCOUNT AS THE SALE BILL WAS OF THE FULL VALUE IT WAS CREDITED TO THE SALE ACCOUNT AND THE CHARGES RETAINED BY THE BANK PROVIDING THE CREDIT C ARD MACHINE IS DEBITED TO BANK CHARGES ACCOUNT. AS THE AMOUNT OF CHARGES PAID ON SUCH FACILITY OF S WAPPING OF CREDIT CARD MACHINE IS THE LIABILITY OF THE CUSTOMER, WHO OWN THE CREDIT CARD AND USE THE SAME FOR MAKING PAYMENT OF THE GOODS PURCHASED, THE LIABILITY OF PAYMENT OF SUCH CHARGES IS OF THE BUYER AND NOT OF THE VEND ER I.E. THE ASSESSEE IN THIS CASE WHO SIMPLY HAS PROVIDED THE FACILITY TO THE BU YERS TO MAKE A PAYMENT VIA PLASTIC MONEY INSTEAD OF CARRYING A RISK OF HARD CA SH WITH HIM AND ROAMING IN THE MARKET. IT IS FURTHER SUBMITTED THAT DISALLOWAN CE OF SUCH AN ADDITION WOULD ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 28 DISCOURAGE THE ASSESSEE TO PROVIDE A HUMANLY FACILI TY TO THE PUBLIC AT LARGE COMING TO HIS SHOP BY NOT ENTERTAINING THE CREDIT C ARDS WHICH ARE WIDELY ACCEPTED ACROSS THE GLOBE. IN THE CIRCUMSTANCES IT IS SUBMITTED THAT THE PROVI SION OF SECTION 194H ARE NOT APPLICABLE ON THE PAYMENT OF THE CHARGES TO THE BANKS FOR SWAPPING OF CREDIT CARD AND THEREFORE A DISALLOWANCE OF RS. 96, 287/- U/S 40(A)(IA) DESERVES TO BE DELETED. THE HONBLE ITAT, JAIPUR BENCH, JAIPUR IN THE CASE OF M/S GEM PARADISE IN ITA NO. 746/JP/2011 HAS HELD THAT THE PROVISIONS OF SECTION 194- H ARE NOT ATTRACTED ON THE SERVICE CHARGES PAID ON THE CREDIT CARD TRANSACTIONS AND ACCORDINGLY NO DISALLOWANCE COULD BE MADE U/S 4 0(A)(IA) ON SUCH PAYMENTS. SIMILAR VIEW HAS BEEN EXPRESSED IN THE CA SE OF BHANDARI JEWELLERS IN ITA NO. 745/JP/2011, (APB 152-157) . FURTHER THE HONBLE JODHPUR BENCH OF ITAT IN THE CASE OF MARUDHAR HOTELS (P) LTD. VS. JT. CIT (JD.) REPORTED IN 92 DTR 33 HAS ALSO EXPRESSED THE SAME VIEW. 10.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE TH AT AS PER AO THE ASSESSEE DEBITED BANK CHARGES ON ACCOUNT OF CREDIT AND COMMI SSION OF RS. 1,02,228/- AND THE ASSESSEE FAILED TO DEDUCT TDS U/ S 194H OF I.T. ACT, 1961. THE AO ALSO NOTED THAT IN THE EARLIER ASSESSM ENT YEARS ON ACCOUNT OF NON-DEDUCTION OF TDS OF SUCH PAYMENT ADDITION WA S MADE WHICH WAS CONFIRMED BY THE LD. CIT(A). ACCORDINGLY, THE AO DI SALLOWED THE AMOUNT OF RS. 1,02,228/- U/S 40(A)(IA) OF THE ACT. IN FIRS T APPEAL, THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO IN VIEW OF THE DECISION ITAT JAIPUR BENCH IN THE CASE OF SHRI BHANDARI JEWELLERS VS ACIT, RANGE-2, JAIPUR (ITA NO.745/JP/2011). THE LD. CIT(A) HAS FUR THER NOTED ON THE ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 29 ISSUE IN QUESTION ASSESSEE'S CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY ITAT JAIPUR BENCH AND FINDINGS OF THE JU RISDICTIONAL ITAT IS ALSO BINDING NATURE. TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE AND DECISION OF ITAT JAIPUR BENCH (SUPR A), WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A). THUS GROUND NO. 4 O F THE REVENUE IS DISMISSED. 11.1 APROPOS GROUND NO. 5 OF THE REVENUE, THE FACTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- 9.3 I HAVE CAREFULLY CONSIDERED THE FINDINGS OF T HE AO AS ALSO THE SUBMISSION OF THE APPELLANT. IT MAY BE NOTED THAT THE ASSESSEE HAS MADE COMMISSION PAYMENT OF RS . 692313/- TO M/S. DELBE TRADIGN SAGL, CHLASSO, SWITZERLAND AND THERE IS NO DISPUTE ON THE FACT THA T THIS PARTY TO WHOM COMMISSION PAYMENT HAS BEEN MADE AS NO BUSI NESS ESTABLISHMENT IN INDIA AS ALSO THAT THIS PARTY HAS RENDERED SERVICES NOT IN INDIA BUT OUTSIDE INDIA INASMUCH AS SALES WERE MADE OUTSIDE INDIA. HOWEVER, THE AOS CASE WAS THAT THE PARTY TO WHOM PAYMENT HAS BEEN MADE HAD BUSINES S CONNECTION WITH THE ASSESSEE'S COMPANY AS THE SALES WERE MADE FOR THE COMPANY BASED IN INDIA THEREFORE, ON S UCH COMMISSION PAYMENT TDS WAS TO BE DEDUCTED. IN THIS CONNECTION, IT MAY BE MENTIONED THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS TOSHOKU LTD. 125 ITR 525 HAS HELD THAT WHEN A NON RESIDENT ASSESSEE DID NOT CARRY ON ANY BUSINESS OPERATION IN THE TAXABLE TERRITORIES, THEY ACTED AS SELLING AGENT OUTSIDE INDIA THEN THE COMMISSION AMO UNT WHICH WERE EARNED BY THE NON-RESIDENT OF THE ASSESS EE FOR SERVICES RENDERED OUTSIDE INDIA CANNOT BE DEEMED TO BE INCOME WHICH HAVE EITHER ALLOWED OR ARISING IN INDI A. CONSIDERING THE DECISION OF HON'BLE SUPREME COURT, IT MAY ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 30 BE NOTED THAT IN APPELLANT CASE SUCH COMMISSION PAY MENT HAS BEEN MADE TO A PERSON WHO IS FOREIGN NATIONAL NOT L IABLE TO INCOME TAX IN INDIA. THAT PERSON HAS RENDERED SERVI CES OUTSIDE INDIA AND PAYMENT WAS ALSO RECEIVED BY HIM OUTSIDE INDIA. IN THIS BACKGROUND THE ASSESSEE COMPANY WAS NOT REQUIRED TO MAKE ANY DEDUCTION AT SOURCE ON SUCH PA YMENT. IT MAY ALSO BE MENTIONED THAT THE DEDUCTION OF TAX SUCH ON SOURCE IS ONE MODE OF RECOVERY OF DUE TAX. HOWEVER, WHEN THE PERSON TO WHOM PAYMENT MADE IS NOT LIABLE FOR A NY TAX IN INDIA THEN LOGICALLY NO DEDUCTION OF TAX MAY BE REQ UIRED. ACCORDINGLY, THE DISALLOWANCE MAY BY THE AO AMOUNTI NG TO RS. 692313/- IS DELETED. THE GROUND OF APPEAL IS AL LOWED. 11.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPO RTED THE ORDER OF THE AO. 11.3 ON THE OTHER HAND, THE LD.AR SUPPORTED THE ORD ER OF THE LD. CIT(A) AND FILED THE FOLLOWING WRITTEN SUBMISSION. FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CO NSIDERATION, ASSESSEE MADE EXPORT SALES OF RS. 86,28,172/- TO M/ S AUREMA AG, MARIA SCHURESTRASSE 16, 2540, GRANCHEN, SWITZERLAND WHICH WAS SOLICITED THROUGH AN AGENT THROUGH AGENT NAMELY M/S DELBE TRADING S.A.G.L., VIA VOLTA 2A 6830, CHLASSO, SWITZERLAND AND COMMISSION OF RS. 6,92,313/- (15116 USD) WAS PAID TO IT AS PER THE INVOICE RAISED BY IT, (APB 49) . THE LD. AO BY HOLDING THAT SINCE THE INCOME IS ACC RUED IN INDIA AND THEREFORE THE SAME IS FALLEN IN THE CATEG ORY OF SUM PAYABLE U/S 195(1) AND SINCE THE ASSESSEE HAS FAILED TO DED UCT ANY TAX ON SUCH PAYMENT, HE INVOKED THE PROVISIONS OF SECTION 40(A) (IA) AND DISALLOWED THE ENTIRE PAYMENT OF RS. 6,92,113/-. LD. CIT(A) DE LETED THE DISALLOWANCE RELYING UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS TOSHUKU LTD ., 125 ITR 525 , WHEREIN IT IS HELD THAT WHEN A NON RESIDENT ASSESSEE DID NOT CARRY ON ANY BUSINESS OPERATION IN THE TAXABLE TERRITORIES, THEY ACTED AS SELLING AGENTS OUTSIDE INDIA THEN THE COMMISSION AMOUNT WHICH WERE EARNED BY THE NON ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 31 RESIDENT FOR THE SERVICES RENDERED OUTSIDE INDIA C ANNOT BE DEEMED TO BE INCOME WHICH HAVE EITHER ALLOWED OR ARISING IN I NDIA. ON MERITS, WITH REGARD TO THE NON-DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENT, IT IS SUBMITTED THAT AGENT WAS A FORE IGN NATIONAL HAVING NO BUSINESS ESTABLISHMENT / PRESENCE OF ANY NATURE IN INDIA AND THE INCOME WAS ACCRUED AND RECEIVED OUTSIDE INDIA TOWAR DS THE SERVICES RENDERED OUTSIDE INDIA THUS IN TERMS OF THE PROVISI ON OF SECTION 195(1) EXPLANATION 2, THE ASSESSEE COMPANY HAS NO REQUIREM ENT OF MAKING ANY DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENT. THE RES PECTIVE PROVISION AS CONTAINED IN SECTION 195 OF THE INCOME TAX ACT, 1961 ARE REPRODUCED HEREIN BELOW FOR READY REFERENCE. 195. (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESI DENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTER EST [(NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 19 4LC)] [ OR SECTION 194LD ] OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS O F THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARI ES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATES IN FORCE : [ PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANI NG OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTI ON WITHIN THE MEANING OF THAT CLAUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE :] [ PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115 -O.] [EXPLANATION 1].FOR THE PURPOSES OF THIS SECTION, WHERE ANY INTEREST OR OTHER SUM AS AFORESAID IS CREDITED TO A NY ACCOUNT, WHETHER CALLED 'INTEREST PAYABLE ACCOUNT' OR 'SUSPENSE ACCO UNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON L IABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY.] [EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SE CTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALW AYS EXTENDED TO ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 32 ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR N OT THE NON-RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINES S CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA.] IT IS FURTHER SUBMITTED THAT THE PROVISIONS OF SECT ION 195 ARE APPLICABLE IN THE CASE OF NON-RESIDENT AND ARE NOT APPLICABLE IN THE CASE OF FOREIGN NATIONAL HAVING NO BUSINESS ESTABLISHMEN T / PRESENCE IN INDIA AND THE PAYMENTS WERE MADE IN FOREIGN CURRENC Y OUTSIDE INDIA THEREFORE, COMMISSION WAS NOT DEEMED TO HAVE BEEN A RISEN IN INDIA AS PER SECTION 5(2)(A). THE COMMISSION INCOME OF THE A GENT DO NOT DIRECTLY OR INDIRECTLY ACCRUE OR ARISE IN INDIA AND IS NOT CHARGEABLE UNDER THE PROVISIONS OF INDIAN INCOME TAX ACT IN TH E ABSENCE OF A BUSINESS CONNECTION IN INDIA. IT IS AN ADMITTED FAC T THAT THE PAYMENT HAS ARISEN OUT OF AN AGREEMENT EXECUTED IN INDIA. THE CASE LAW RELIED UPON BY THE LD. AO IN THE CASE OF SKF BOILERS AND DRIERS PVT LTD. REPORTED IN 343 ITR 385 IS NOT APPLICABLE TO THE PRESENT CASE. IN THIS CASE PERHAPS AAR ERRED IN HOLDING THAT THE PLACE OF ACCRUAL OF AN INCOME IS TO BE DETERMINED W .R.T THE TIME OF ITS ACCRUAL. WHILE IT IS TRUE THAT THE POINT OF TIME WH EN COMMISSION ARISES IS THE TIME WHEN THE EXPORT OF GOODS TAKES PLACE. H OWEVER, THE AAR, IN SKF BOILERS & DRIERS CASE, ERRED IN TAKING THE V IEW THAT EVEN THE SITUS OF ACCRUAL OF THE INCOME WAS THE PLACE FR OM WHERE THE GOODS WERE EXPORTED. UNDER TAX LAWS IN INDIA, IT HA S BEEN GENERALLY ACCEPTED THAT THE PLACE WHERE THE WORK IS ACTUALLY DONE IS NORMALLY THE SITUS OF ACCRUAL OF THE INCOME. FOR INSTANCE, IN TH E CASE OF SALARY INCOME, THE PLACE OF RENDERING OF SERVICES IS REGAR DED AS THE PLACE OF ACCRUAL OF INCOME. THE COMMISSION AGENT DID NOT CAR RY ON ANY ACTIVITY IN INDIA, AND JUST THE FACT THAT THE MOMENT OF ACCR UAL OF INCOME WAS LINKED TO THE MOMENT OF EXPORT OF GOODS FROM INDIA, DID NOT MEAN THAT THE COMMISSION INCOME ALSO ACCRUED IN INDIA. THE IN COME FROM THE EXPORT OF GOODS WAS NOT THE SAME AS THE INCOME BY W AY OF COMMISSION. THE LINKAGE BETWEEN THE QUANTUM OR TIME OF ACCRUAL BETWEEN TWO EVENTS DOES NOT NECESSARILY IMPLY A LIN KAGE BETWEEN THE PLACE OF ACCRUAL OF THE TWO EVENTS. FOR INSTANCE, T HE VALUE OF A DERIVATIVE IS DERIVED FROM ITS UNDERLYING FACT, BUT THE PLACE OF ITS ACCRUAL WOULD BE THE PLACE WHERE THE CONTRACT IS EN TERED INTO, AND NOT THE PLACE WHERE THE DELIVERY OF THE UNDERLYING GOOD S TAKES PLACE. THE AAR SEEMS TO HAVE MISTAKEN THE LINKAGE BETWEEN THE TWO EVENTS VIS-A- VIS THE MOMENT OF ACCRUAL, TO ALSO IMPLY A LINKAGE IN THE PLACE OF ACCRUAL. FURTHER THE AAR IN THE SKF BOILERS & DRIERS CASE SE EMS TO HAVE OVERLOOKED CLAUSE (A) OF EXPLANATION 1 TO SECT ION 9(1)(I). THIS ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 33 CLAUSE PROVIDES THAT IN THE CASE OF A BUSINESS OF W HICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS THAT IS DEEMED UNDER THIS CLAUSE TO HAVE ACCRUED OR ARIS EN IN INDIA IS ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTAB LE TO THE OPERATIONS CARRIED OUT IN INDIA. THIS CLAUSE SUPPORTS THE VIEW THAT THE INCOME TAX ACT TREATS THE PLACE WHERE THE ACTIVITY IS CARRIED OUT AS A PLACE OF ACCRUAL OF INCOME. THIS EFFECTIVELY MEANS THAT IF A BUSINESS IS ONLY PARTLY CARRIED OUT IN INDIA, ONLY THAT PART OF THE INCOME ATTRIBUTABLE TO THE BUSINESS ACTIVITY CARRIED OUT IN INDIA WOULD BE TAXABLE IN INDIA. THIS POSITION IS FURTHER REITERATED BY EXPLANATION 3 TO SECTION 9(1)(I) OF THE ACT. THAT BEING THE CASE, IF NO PART OF THE BUS INESS ACTIVITY IS CARRIED OUT IN INDIA, AS IN THE CASE OF A FOREIGN C OMMISSION AGENT, THEN NO PART OF THE INCOME CAN BE TAXED IN INDIA. THE H ONBLE SUPREME COURT , IN THE CASE OF CIT V TOSHOKU LTD 125 ITR 525 , CONSIDERED A SITUATION WHERE AN INDIAN EXPORTER H AD APPOINTED A NON-RESIDENT SALES AGENT FOR EXPORTS. T HE COMMISSION WAS CREDITED IN THE BOOKS OF THE INDIAN EXPORTER, AND W AS SUBSEQUENTLY PAID. WHILE HOLDING THAT SUCH CREDIT DID NOT CONSTI TUTE RECEIPT OF THE COMMISSION IN INDIA, THE SUPREME COURT ALSO CONSIDE RED WHETHER THE COMMISSION ACCRUED OR AROSE IN INDIA. THE SUPREME C OURT OBSERVED AS UNDER: THE SECOND ASPECT OF THE SAME QUESTION IS WHETHER THE COMMISSION AMOUNTS CREDITED IN THE BOOKS OF THE STA TUTORY AGENT CAN BE TREATED AS INCOMES ACCRUED, ARISEN, OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA TO THE NON RESIDENT ASSESSEES DURING THE RELEVANT YEAR. THIS TAKES US TO SECTION 9 OF THE ACT. IT IS URGED THAT THE COMMISSION AMOUNTS SHOULD BE TREA TED AS INCOMES DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA A S THEY, ACCORDING TO THE DEPARTMENT, HAD EITHER ACCRUED OR ARISEN THROUGH AND FROM THE BUSINESS CONNECTION IN INDIA T HAT EXISTED BETWEEN THE NON-RESIDENT ASSESSEES AND THE STATUTOR Y AGENT. THIS CONTENTION OVERLOOKS THE EFFECT OF CL. (A) OF THE EXPLANATION TO CL. (I) OF S/S (1) OF SECTION 9 OF THE ACT, WHIC H PROVIDES THAT IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DE EMED UNDER THAT CLAUSE TO ACCRUE OR IN INDIA SHALL BE ONLY SUC H PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATI ONS CARRIED OUT IN INDIA. IF ALL SUCH OPERATIONS ARE CARRIED OU T IN INDIA, THE ENTIRE INCOME ACCRUING THEREFROM SHALL BE DEEMED TO HAVE ACCRUED IN INDIA. IF HOWEVER, ALL THE OPERATIONS AR E NOT CARRIED OUT IN THE TAXABLE TERRITORIES, THE PROFITS AND GAI NS OF BUSINESS DEEMED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNECTION IN INDIA, SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONABLY ATTRIBUTABLE TO THAT PART OF THE OPERATI ONS CARRIED ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 34 OUT IN THE TAXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS ARE CARRIED OUT IN THE TAXABLE TERRITORIES, IT FOLLOWS THAT THE INCOME ACCRUING OR ARISING ABROAD THROUGH OR FROM ANY BUSI NESS CONNECTION IN INDIA CANNOT BE DEEMED TO ACCRUE OR A RISE IN INDIA. IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORIES. THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE S ALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO BE REMITTED BY THE PU RCHASERS FROM ABROAD, DOES NOT AMOUNT TO AN OPERATION CARRIED OUT BY THE ASSESSEES IN INDIA AS CONTEMPLATED BY CL. (A) OF THE EXPLANATION TO SECTION 9(1)(I) OF THE ACT. THE COMMISSION AMOUNTS WHICH WERE EARNED B Y THE NON- RESIDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE IN DIA CANNOT, THEREFORE, BE DEEMED TO BE INCOMES WHICH HAVE EITHER ACCRUED O R ARISEN IN INDIA.' FROM THE ABOVE DECISION OF THE SUPREME COURT, IT IS CLEAR THAT IN THE ABSENCE OF ANY ACTIVITY BEING CARRIED OUT IN INDIA BY A NON- RESIDENT COMMISSION AGENT, THE COMMISSION DOES NOT ACCRUE OR ARISE IN INDIA, AND IS NOT TAXABLE IN INDIA. SINCE THE COMMISSION PAID BY THE ASSESSEE DOES NOT APPROVE OR ARISE IN INDIA AS THE SERVICES WERE RENDERED OUTSID E INDIA, THEREFORE, PROVISIONS OF THE SECTION 195 OF THE INCOME TAX ACT , 1961 DOES NOT APPLY AND CONSEQUENTIALLY THE DISALLOWANCE U/S 40(A )(IA) CANNOT BE MADE AND THUS THE DISALLOWANCE MADE DESERVES TO BE DELETED. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF ARMAYESH GLOBAL VS. ACIT 51 SOT 564 AND OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EON TECHNOLOGIES PVT. LTD. REPORTED IN 203 TAXMANN 266 . RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE HYDERABAD BENCH OF ITAT IN THE CASE OF DCIT VS. DIVIS LABORATORIES LTD. REPORTED IN 131 ITD 27 1 AND ACIT VS. AVON ORGANICS LTD. REPORTED IN 55 SOT 260. IN VIEW OF THE DISCUSSION HERE, IT IS APPROPRIATE T O HOLD THAT THE SAID CIRCULAR NO. 7 OF 2009 IS WITHOUT THE AUTHORIT Y OF THE LAW AND SHALL HAVE NO APPLICATION IN DETERMINING THE TAXABILITY O F INCOME BY WAY OF COMMISSION IN THE HANDS OF A FOREIGN COMMISSION AGE NT RENDERING SERVICES OUTSIDE INDIA. THE LD. CIT(A) AFTER APPREC IATING THESE FACTS HAS DELETED THE DISALLOWANCES, WHICH ORDER DESERVES TO BE UPHOLD ON THIS COUNT. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 35 11.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE TH AT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING NOTED THAT THE ASSE SSEE HAD MADE A COMMISSION PAYMENT OF RS. 6,92,313/- (US $ 15116) T O M/S. DELBE TRADING, S.A.G.L. CHLASSO, SWITZERLAND AGAINST SALE S FOR WHICH NO TDS WAS DEDUCTED. THE AO REQUIRED THE ASSESSEE TO EXPLA IN AS TO WHY THE TDS WAS NOT DEDUCTED. THE ASSESSEE SUBMITTED THE RE PLY ON 28-02-2014 STATING THEREIN THAT AGENT AS A FOREIGN NATIONAL HA VING NO BUSINESS ESTABLISHMENT/ PRESENCE OF ANY NATURE IN INDIA AND THE INCOME WAS ACCRUED AND RECEIVED BY THE ASSESSEE FOR THE SERVIC ES RENDERED OUTSIDE INDIA. THUS THE ASSESSEE COMPANY HAS NO REQUIREMENT OF MAKING ANY TDS AS PER PROVISION OF SECTION 195(1) EXPLANATION 2. T HE AO CONSIDERED THE REPLY OF THE ASSESSEE COMPANY BUT IT WAS NOT ACCEPT ABLE TO THE AO. THE AO NOTED THAT THE ASSESSEE COMPANY WHO HAD MADE PAY MENT TO THE ABOVE PARTY IS ESTABLISHED IN INDIA AND PAID COMMISSION T O THE ABOVE PARTY TO INCREASE ITS EXPORT SALES. THUS THE FOREIGN COMPANY HAD BUSINESS CONNECTION WITH THE ASSESSEE COMPANY AND ACTED AS I TS AGENT. THEREFORE, THE IN VIEW OF PROVISION OF SECTION 195(1) EXPLANAT ION 2, THE ASSESSEE COMPANY IS LIABLE TO DEDUCT TDS ON THIS PAYMENT. TH E AO ALSO OBSERVED ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 36 THAT THE ISSUE HAS BEEN CLARIFIED VIDE CIRCULAR NO. 7/2009 DATED 22-10- 2009 WHEREIN ALL EARLIER CIRCULARS IN THIS REGARD H AD BEEN WITHDRAWN. THE AO HAS TAKEN THE REFERENCE IN THE CASE OF SKF BOILE RS AND DRIERS PVT LTD. IN RE [2012] 206 TAXMAN 19/18 TAXMANN.COM (AAR-NEW DELHI). HENCE, THE AO HELD THAT THESE COMMISSION PAYMENTS WERE LIA BLE TO TDS U/S 194H AS THE ASSESSEE HAS FAILED TO DEDUCT TDS, THE EXPENDITURE CLAIMED OF RS. 6,92,313/- IS DISALLOWED U/S 40(A)(IA) OF TH E ACT. IN FIRST APPEAL, THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO. IT IS NOTED THAT LD. CIT(A) HAS EXPLICITLY DEALT WITH THE ISSUE AND DELE TED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- IN THIS CONNECTION, IT MAY BE MENTIONED THE HON' BLE SUPREME COURT IN THE CASE OF CIT VS TOSHOKU LTD. 12 5 ITR 525 HAS HELD THAT WHEN A NON RESIDENT ASSESSEE DID NOT CARR Y ON ANY BUSINESS OPERATION IN THE TAXABLE TERRITORIES, THEY ACTED AS SELLING AGENT OUTSIDE INDIA THEN THE COMMISSION AMOUNT WHICH WERE EARNED BY THE NON- RESIDENT OF THE ASSESSEE FOR SERVICES RENDERED OUTS IDE INDIA CANNOT BE DEEMED TO BE INCOME WHICH HAVE EITHER ALLOWED OR AR ISING IN INDIA. CONSIDERING THE DECISION OF HON'BLE SUPREME COURT, IT MAY BE NOTED THAT IN APPELLANT CASE SUCH COMMISSION PAYMENT HAS BEEN MADE TO A PERSON WHO IS FOREIGN NATIONAL NOT LIABLE TO INCOME TAX IN INDIA. THAT PERSON HAS RENDERED SERVICES OUTSIDE INDIA AND PAYM ENT WAS ALSO RECEIVED BY HIM OUTSIDE INDIA. IN THIS BACKGROUND T HE ASSESSEE COMPANY WAS NOT REQUIRED TO MAKE ANY DEDUCTION AT S OURCE ON SUCH PAYMENT. IT MAY ALSO BE MENTIONED THAT THE DEDUCTIO N OF TAX SUCH ON SOURCE IS ONE MODE OF RECOVERY OF DUE TAX. HOWEVER, WHEN THE PERSON TO WHOM PAYMENT MADE IS NOT LIABLE FOR ANY TAX IN I NDIA THEN LOGICALLY NO DEDUCTION OF TAX MAY BE REQUIRED. ACCORDINGLY, T HE DISALLOWANCE MAY BY THE AO AMOUNTING TO RS. 692313/- IS DELETED. THE GROUND OF APPEAL IS ALLOWEED. ITA NO.355/JP/2015 M/S. DWARKA GEMS LTD. VS THE . CIT (OSD), RANGE-7 ,JAIPUR 37 IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS TOSHOKU LTD (SUPRA) AND THE FINDINGS OF THE LD. CIT (A) ON THE ISSUE IN QUESTION THAT WHEN THE PERSON TO WHOM PAYMENT MADE IS NOT LIABLE FOR ANY TAX IN INDIA THEN LOGICALLY NO DEDUCTION OF TAX MAY BE REQUIRED., WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE L D. CIT(A) THUS GROUND NO. 5 OF THE REVENUE IS DISMISSED. 12.0 IN THE RESULT, THE APPEALS OF THE ASSESSEE A ND THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 -05-20 18. SD/- SD/- FOT; IKY JKO HKKXPUN (VIJAY PAL RAO) ( BHAGCHAND) U;KF;D LNL; / JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21 /05/ 2018 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. DWARKA GEMS LTD. JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE CIT (OSD), RANGE-, JAIPUR / THE DCIT, CIRCLE 7, JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.355/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR