SUBE SINGH CHOUDHARY, Jaipur V. ITO, Alwar

ITA 40/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54183 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 18-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: MAGENDRA GARGIEYA
• Keywords: Depreciation; Double taxation relief; Permanent establishment

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 40/ JP/2011 ASSESSMENT YEAR 2005-06 PAN: AATPC 8633 L SHRI SUBE SINGH VS. THE ITO C/O VIKAS GRANITE EXPORT WARD BEHROR RIICO INDL. AREA, SHAHPURA ALWAR (APPELLANT ) (RESPONDENT) ASSESSEE BY: SHRI MAGENDRA GARGIEYA DEPARTMENT BY : SHRI D.K. MEENA DATE OF HEARING: 14-09-2011 DATE OF PRONOUNCEMENT: 23-09-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORD ER OF THE LD. CIT(A), ALWAR DATED 26-11-2010 FOR THE ASSESSMENT YEAR 200 5-06. 2.1 THE ASSESSEE HAS RAISED 09 GROUNDS OF APPEAL. T HE GROUNDS OF APPEAL NO 3 TO 7 HAVE NOT BEEN PRESSED BY THE LD. AR ON TH E GROUND THAT THE ADDITIONS/ DISALLOWANCES ARE PETTY. HENCE, THE GROU NDS OF APPEAL NOS 3 TO 7 ARE DISMISSED. 2 3.1 THE FIRST GROUND OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN CONFIRMING THE TRADING ADDITION OF RS. 75,000/-. 3.2 THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF GRANITE TILES AND TRADING THEREOF. DURING THE YEAR, THE ASSESSEE HAS SHOWN THE G.P.RATE OF 14% AS COMPARED TO 15.96% OF THE LAST YEAR. THE ASS ESSEE WAS ASKED TO FURNISH THE MONTHWISE CONSUMPTION OF ELECTRICITY AN D MONTHWISE PRODUCTION. THE ASSESSEE HAS NOT MAINTAINED THE STOCK REGISTER AND THE ASSESSEE IS NOT HAVING THE DETAILS OF DAY TO DAY PRODUCTION AND CON SUMPTION OF RAW MATERIAL. THE ASSESSEE HAS ALSO NOT KEPT THE INVENTORY OF THE CLOSING STOCK AND THE CLOSING STOCK HAS BEEN TAKEN ON ESTIMATE BASIS. TH EREFORE, THE AO INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND REJ ECTED THE BOOKS OF ACCOUNT. THE AO MADE THE TRADING ADDITION TO THE EX TENT OF RS. 50,000/- IN RESPECT OF THE CONCERN M/S.VIKAS GRANITE OF WHICH T HE ASSESSEE IS A PROPRIETOR. 3.3 THE ASSESSEE IS ALSO THE PROPRIETOR OF VIKAS GR ANITES EXPORTS. IN THIS CONCERNS, THE ASSESSEE HAS SHOWN THE G.P.RATE OF 25 .3% AS COMPARED TO 25.4% OF THE IMMEDIATELY PRECEDING YEAR. THE DEFECT S IN THE BOOKS OF ACCOUNT ARE SIMILAR TO THE DEFECTS NOTICED BY THE A O IN THE BOOKS OF ACCOUNT OF M/S. VIKAS GRANITES. THE AO MADE THE TRADING ADD ITION OF RS. 25,000/- AFTER REJECTING THE BOOKS OF ACCOUNT. 3 3.4 THE LD. CIT(A) CONFIRMED THE ADDITION AFTER OBS ERVING AS UNDER:- I HAVE CONSIDERED THE ARGUMENT OF AR OF THE APPE LLANT. THE APPELLANT DOES NOT MAINTAIN STOCK REGISTER AND OTHER INVENTORY DETAILS OF RAW MATERIAL AND FINISHED GOODS. IN THE YEAR UNDER CONSIDERATION THE APPELLANT SALES OF RS.22,59,222/- AND DECLARED GP RATE WAS 14%. IN THE COMPARISON TO IMMEDIATELY PREC EDING YEAR 2004- 05 THE APPELLANT COMPANY SALES WAS RS.41,60,120/- A ND GP DECLARED @ 15.96%. IN THE A.Y 2003-04 THE COMPANY SALES WAS RS.19,88,850/- AND GP RATE SHOWN 21.45%. COMPARABLE CASE HAS ALSO DISCUSSED IN THE ASSESSMENT ORDER I.E. VIKAS GRANITE EXPORT WHER EAS THE GP HAS BEEN DECLARED @ 25.3% IN THE A.Y 2005-06. THE AR RE LIED VARIOUS CASE LAWS WHICH ARE NOT SQUARELY APPLICABLE IN THIS CASE. IN THE LIGHT OF ABOVE THE CONTENTION OF AR THAT THE GP DECLINE DUE TO DECREASE IN SALE PRICE OF GOODS IN INTERNATIONAL MARKET AND INCREASE IN COST OF RAW MATERIAL HAVE NO WEIGHT. IN THIS SITUATION THESE GR OUND OF APPEAL IS DISMISSED. THE APPELLANT GETS NO RELIEF ON THIS ACC OUNT. 3.5 WE HAVE HEARD BOTH THE PARTIES. THE TRADING ACC OUNT CONSISTS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK. THE AO IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE IS NOT HAVING THE DETAI LS OF INVENTORY OF THE STOCK AT THE END OF THE YEAR. THUS THE TRADING RESULTS ARE NOT SUBJECT TO VERIFICATION. HENCE, THE LOWER AUTHORITIES WERE JUS TIFIED IN HOLDING THAT THE PROVISIONS OF SECTION 145(3) ARE APPLICABLE. IN THE CASE OF M/S. VIKAS GRANITES, THERE IS DECLINE IN G.P.RATE TO 14% AS A GAINST 15.96% OF THE 4 IMMEDIATELY PRECEDING YEAR. IN THE ASSESSMENT YEAR 2003-04, THE ASSESSEE HAS SHOWN THE G.P.RATE OF 21.45%. THE TURNOVER IN T HIS YEAR IS RS. 22.60 LACS AS COMPARED TO RS. 41.60 LACS OF THE IMMEDIATE LY PRECEDING YEAR. THE ONUS WAS ON THE ASSESSEE TO HAVE GIVEN THE REASONS FOR FALL IN G.P.RATE PARTICULARLY WHEN THE TURNOVER HAS BEEN REDUCED. L OOKING TO THE GROSS PROFIT DISCLOSED IN THE IMMEDIATELY PRECEDING YEAR AND CON SIDERING THE TURNOVER OF RS. 22.60 LACS, WE FEEL THAT IT WILL BE FAIR AND RE ASONABLE TO ESTIMATE THE TRADING ADDITION OF RS. 40,000/- IN THE CASE OF THE ASSESSEE I.E. VIKAS GRANITES. HOWEVER, IN RESPECT OF THE CONCERN NAMELY M/S. VIKAS GRANITES EXPORTS, THE REDUCTION IN G.P.RATE IS ONLY TO THE E XTENT OF 0.1%. SUCH FALL IN G.P.RATE IS NOT SUBSTANTIAL. HENCE, THERE WAS NO CA SE OF MAKING ANY TRADING ADDITION OF RS. 25,000/- IN THE CASE OF M/S. VIKAS GRANITES EXPORTS. THUS THE TRADING ADDITION IS REDUCED TO RS. 40,000/-.. 4.1 THE SECOND GROUND OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 2,15,236/- IN RESPEC T OF COMMISSION TO NRI . 4.2 THE AO HAS MADE THE ADDITION OF RS. 2,15,326/- AFTER OBSERVING AS UNDER:- IN THE CONCERN M/S VIKAS GRANITE EXPORTS THE ASSE SSEE HAS CLAIMED COMMISSION AMOUNTING TO RS. 2,15,213/- BUT HE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH COMMISSION PAYME NT. THE 5 ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY TDS ON C OMMISSION NOT MADE. THE ASSESSEE STATED THAT THE PAYMENT OF C OMMISSION HAS MADE TO NRI AGENT. THE ASSESSEE WAS ASKED TO FU RNISH THE FOLLOWING DETAILS IN RESPECT OF THE COMMISSION CLAI MED TO HAVE BEEN PAID TO NRI AGENT:- 1) FULL NAME ADDRESS OF THE NRI AGENT, 2) WHETHER THE AGENT IS DOING IS BUSINESS HIMSELF IN A BROAD OR HE HAS EMPLOYED ANY OTHER PERSONS ON BEHALF OF HIM FOR HIS SUCH BUSINESS. 3) WHETHER THE AGENT IS ASSESSED TO INCOME TAX OR NOT. 4) WHETHER THE COMMISSION PAID IN INDIA OR ABROAD, 5) WHETHER ANY AGREEMENT HAS BEEN ENTERED INTO OR NOT, THE COPY OF SUCH AGREEMENT WAS ALSO REQUIRED. 6) THE COPY OF BILL RAISED BY THE AGENT. THE ASSESSEE VIDE HIS LETTER SIMPLY INTIMATED THE N AME AND ADDRESS OF THE PERSON NAMELY SALWA MOHD. ABDUL RAHM AN, PO 32497, JEDAH 21428 KINGDOM OF SAUDI ARABIA. NO CONF IRMATION FROM THE NRI AGENT HAS BEEN FILED. NO COPY OF AGREE MENT EXECUTED HAS BEEN FILED. THE ASSESSEE HAS ALSO NOT EXPLAINED WHETHER THE NRI AGENT IS DOING HIS BUSINESS HIMSELF IN ABROAD OR HE HAS EMPLOYED OTHER PERSONS ON BEHALF OF HIS FOR RECEIVING SUCH COMMISSION AND ACTING ON BEHALF OF HIM IN ABROAD. I T HAS NOT BEEN ESTABLISHED BY THE ASSESSEE BY EVIDENCE WHATSO EVER THAT THE AGENT IS A NRI AGENT AND HIS INCOME IS NOT TAXABLE IN INDIA. THE 6 ASSESSEE HAS NOT PRODUCE ANY EVIDENCE THAT HOW MUCH AMOUNT HAS BEEN PAID ON ACCOUNT OF COMMISSION AGAINST A PA RTICULAR BILL. IN THESE CIRCUMSTANCES THE ASSESSEE HAS COMMITTED D EFAULT FOR NOT DEDUCTING TAX AT SOURCE ON SUCH COMMISSION PAYMENT. THEREFORE, THE AMOUNT OF COMMISSION CLAIMED BY THE ASSESSEE I S REQUIRED TO BE ADDED IN THE TOTAL INCOME OF THE ASSESSEE U/S 40 (A). THEREFORE, AN ADDITION OF RS. 2,15,326/- IS HERBY MADE AND ADD ED IN THE TOTAL INCOME OF THE ASSESSEE 4.3 THE LD. CIT(A) HAS CONFIRMED THE ADDITION AFTER OBSERVING AS UNDER:- I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBM ISSIONS MADE BY THE APPELLANT, IT IS SEEN THAT THE AO HAS M ADE ADDITION U/S 40(IA) ON THE GROUND THAT NO TDS HAS BEEN DEDUCTED ON THE COMMISSION PAYABLE TO NRI AGENT. THE CIRCULAR NO. 7 86 DATED 07/02/2000 (PB 17) CLEARLY MENTIONS THAT NO TAX IS DEDUCTIBLE U/S 195 AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSI ON AND OTHER RELATED CHARGES PAYABLE TO NON-RESIDENT FOR SERVICE S RENDERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE. HOWEVER THE AP PELLANT HAS NOT BEEN ABLE TO PROVE THE STATUS OF THE RECEIPT OF COM MISSION AS A NON- RESIDENT AS REQUIRED BY THE SEC. 40(IA). PHOTOCOPY OF STATEMENT ISSUED BY INDUSIND BANK LTD. REGARDING COMMISSION PAYABLE TO SALWA MOHD. JEDAH FURNISHED BEFORE ME BUT NO COPY OF AGREEMENT AS WELL AS NO CONFIRMATION FROM THE NRI AGENT HAS BEEN FILED DURI NG THE APPELLATE PROCEEDING. LIKEWISE OTHER PHOTOCOPY DOES NOT CLARI FY FOR WHAT WORK UNDERTAKEN BY THE RECIPIENT AND WHETHER THE SAME RE LATES TO THE 7 ASSESSMENT YEAR UNDER CONSIDERATION. IN THESE CIRCU MSTANCES WHERE THE STATUS OF THE RECIPIENT IS NOT CLEARLY PROVED A LONGWITH THAT OF THE PRINCIPAL AND WHEN IT IS NOT CLARIFIED THAT THE PAY MENTS RELATE TO THE YEAR UNDER CONSIDERATION IT CAN BE CONCLUDED THAT T HE ADDITION MADE IS NOT UNREASONABLE. HENCE THIS GROUND OF APPEAL FAILS AND ADDITION IS CONFIRMED. 4.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE FU RNISHED COMPLETE ADDRESS OF THE PAYEEAND THE PAYMENT HAS BEEN MADE T HROUGH BANK. THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE AS THE TAX AT SO URCE HAS NOT BEEN DEDUCTED. THE GENUINENESS OF THE PAYMENT IS NOT IN DISPUTE. FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSEE MADE A CLAIM OF COMMISSION TO THE EXTENT OF RS. 19,15,741/- AND THE SAME WAS ALLOWED. SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF ACIT VS M ODERN INSULATORS LTD., 46 TW 4. IT WILL BE USEFUL TO REPRODUCE THE HEAD NO TE AS UNDER:- CONSIDERING THE FACTS OF THIS CASE AS WELL AS SUBMISSIONS MADE BY PARTIES, TRIBUNAL HAVE HELD THA T THE ASSESSEE WAS JUSTIFIED IN NOT DEDUCTING THE TAX AT SOURCE FROM PAYMENTS MADE TOWARDS SALES COMMISSION IN VIEW OF CIRCULAR DATED 7-02-2000 AND THAT CIRCULAR DATED 22- 10-09 CANNOT BE APPLIED RETROSPECTIVELY. TRIBUNAL H AVE FURTHER HELD THAT SALES COMMISSION PAID TO NON-RESI DENT PARTIES IS THEIR BUSINESS PROFIT NOT CHARGEABLE TO TAX IN INDIA SINCE THESE NON-RESIDENT PARTIES HAVE NO PERM ANENT 8 ESTABLISHMENT IN INDIA AND CANNOT BE TREATED AS FEE FOR TECHNICAL SERVICES CONSIDERING THE DUTIES THEY HAVE RENDERED. WHETHER ASSESSEE IS UNDER AN OBLIGATION T O DEDUCT TAX AT SOURCE U/S 195 OF IT ACT FROM PAYMENT S MADE TOWARDS SALES COMMISSION TO NON-RESIDENT PARTI ES WHO HAVE NO PERMANENT ESTABLISHMENT IN INDIA AND WH O HAVE NOT CARRIED OUT ANY SERVICES IN INDIA? HELD N O, IN VIEW OF CBDT CIRCULAR NO. 786 DATED 7-2-2000. FURTHER HELD THAT CIRCULAR NO. 7/2009 DATED 22-10- 2009 WITHDRAWING THE EARLIER CIRCULAR NO. 786 DATED 7-2- 2000 CANNOT BE APPLIED RETROSPECTIVELY BEING OPPRES SIVE IN NATURE. ALSO HELD THAT SALES COMMISSION PAID TO NON- RESIDENT PARTIES IS THEIR BUSINESS PROFIT NOT CHARG EABLE TO TAX IN INDIA AND CANNOT BE TREATED AS FEE FOR TECHN ICAL SERVICES. WHETHER ASSESSEE IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT FROM PAYMENTS MADE TOWARDS COMMISSION TO NON-RESIDENT PARTIES HAVING N O PERMANENT ESTABLISHMENT IN INDIA AND WHO HAVE NOT CARRIED OUT ANY SERVICE IN INDIA ? HELD NO, IN VIEW OF CBDT CIRCULAR NO. 786 DATED 7-2-2000. WHETHER CIRCULARS WHICH ARE OPPRESSIVE TO ASSESSEE CAN BE APPLIED RETROSPECTIVELY? HELD NO. WHETHER PROVISIONS WHICH ARE BENEFICIAL IN DTAA WILL BE APPLICABLE? HELD YES. 9 4.5 FOLLOWING OUR ORDER IN THE CASE OF MODERN INSUL ATORS LTD. (SUPRA), WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFI RMING THE ADDITION OF RS. 2,15,326/- AS THE PAYMENT IS IN RESPECT OF SERVICE S RENDERED OUTSIDE INDIA AND THAT PARTY IS NOT HAVING P.E. IN INDIA. 5.1 THE 8 TH GROUND OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 50,000 /- IN RESPECT OF DISALLOWANCE OF SALARY AND WAGES AS AGAINST DISALLO WANCE OF RS. 75,000/- MADE BY THE AO. 5.2 THE AO HAS MADE THE ADDITION AFTER OBSERVING AS UNDER:- THE ASSESSEE HAS CLAIMED RS. 3,37,830/- IN THE C ONCERN M/S VIKAS GRANITES ON ACCOUNT OF SALARY AND WAGES A ND RS. 1,52,000/- IN VIKAS GRANITES EXPORTS. THE COMPLETE DETAILS OF THESE EXPENSES HAVE NOT BEEN MAINTAINED BY THE ASSE SSEE. NO SALARY/WAGES REGISTER HAS BEEN PRODUCED FOR VERIFIC ATION. NO DETAIL OF EMPLOYEES HAS BEEN FURNISHED. FURTHER, TH E ASSESSEE IS RUNNING TWO CONCERNS NAMELY VIKAS GRANITES AND VIKA S GRANITES EXPORT AT THE SAME PLACE OF BUSINESS. THER EFORE, THE SERVICE OF ONE EMPLOYEE IS ALSO TAKEN IN ONE CONCER N TO ANOTHER CONCERN. CONSIDERING THE FACT OF NON AVAILABILITY O F DETAILS OF THESE EXPENSES AND NATURE OF BUSINESS THE SALARY AN D WAGES CLAIMED BY THE ASSESSEE IS ON HIGHER SIDE. THEREFOR E, RS. 75,000/- IS HEREBY DISALLOWED AND ADDED IN THE TOTA L INCOME OF THE ASSESSEE. 10 5.3 THE LD. CIT(A) HAS REDUCED THE ADDITION TO RS. 50,000/- AFTER OBSERVING AS UNDER:- 11. EIGHT GROUND OF APPEAL IS WITH RESPECT OF DISALLOW OUT OF SALARY AND WAGES OF RS. 75,000/-. T HE BRIEF FACTS OF THE CASE ARE THAT THE AO HAS DISALLO WED RS. 75,000/- ON POINTED OUT VARIOUS DEFECTS LIKE NO SALARY/WAGES REGISTER HAS BEEN PRODUCED FOR VERIFIC ATION. NO DETAILS OF EMPLOYEES HAVE BEEN FURNISHED. FURTHE R, THE ASSESSEE IS RUNNING TWO CONCERNS NAMELY VIKAS GRANITES AND VIKAS GRANITES EXPORT AT THE SAME PLAC E OF BUSINESS. THEREFORE, THE SERVICE OF ONE EMPLOYEE IS ALSO TAKEN IN ONE CONCERN TO ANOTHER CONCERN. THE NON- AVAILABILITY OF DETAILS OF THESE EXPENSES AND NATUR E OF BUSINESS THE SALARY AND WAGES CLAIMED ON HIGHER SID E. IT WOULD BE FAIR AND REASONABLE TO RESTRICT RS. 50,000 /-. THE APPELLANT GETS PART RELIEF ON THIS COUNT. 5.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S NOT BEEN ABLE TO PRODUCE NECESSARY EVIDENCE FOR VERIFICATION OF THE EXPENSES. THE TOTAL EXPENDITURE UNDER THE HEAD SALARY AND WAGES IN BOTH THE CONCERNS ARE TO THE EXTENT OF RS. 4,89,830/-. IN THE CONCERN OF M/S. VI KAS GRANITES, THE EXPENSES ARE IN ROUND FIGURE OF RS. 1.50 LACS. THE EXPENSES ARE NOT VERIFIABLE. LOOKING TO THE QUANTUM OF THE EXPENSES DEBITED, WE FEEL THA T IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS. 25, 000/-. 11 6.1 THE LAST GROUND OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN REDUCING THE ADDITION TO RS. 7,000/- AS AGAINST RS. 9,630/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION, INTERES T AND INSURANCE EXPENSES. 6.2 WE HAVE HEARD BOTH THE PARTIES. SO FAR AS INTER EST AND INSURANCE EXPENSES ARE CONCERNED, NO DISALLOWANCE CAN BE MADE . HOWEVER, AS PER PROVISIONS OF SECTION 38(2) OF THE ACT, DEPRECIATIO N CAN BE DISALLOWED IN CASE THE ASSET IS NOT WHOLLY AND EXCLUSIVELY USED F OR THE PURPOSE OF BUSINESS. WE THEREFORE, FEEL THAT IT WILL BE FAIR AND REASONA BLE TO RESTRICT THE DISALLOWANCE TO RS. 5,000/-. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23-09 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 23 /09/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI SUBE SINGH CHOUDHARY, SHAHPURA 2. THE ITO . WARD - BEHROR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.40/JP /11) A.R, ITAT, JAIPUR 12 13