The ITO, Ward-10(2), Ahmedabad V. M/s. Adroit Techna, Ahmedabad

ITA 432/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94299 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: S N DIVETIA
• Keywords: Services rendered outside India; Permanent establishment
• Section: 143(3); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, MANISH BORAD, AM. ITA NO.432/AHD/2012 ASST. YEAR 2008-09 INCOME-TAX OFFICER, WARD 10(2), AHMEDABAD. VS M/S ADROIT TECHNO,, A/413, SAFAL PEGASUS, ANANDNAGAR ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) PA NO.AALFA 5803G APPELLANT BY SHRI D. C. MISHRA, SR. DR RESPONDENT BY SHRI S. N. DIVETIA, AR DATE OF HEARING: 19/8/2015 DATE OF PRONOUNCEMENT: 28/08/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 5.12.2011 WHICH HAS BEEN PASSED AGAINS T THE ORDER DATED 22/12/2010 OF INCOME-TAX OFFICER (OSD), RANGE -10, AHMEDABAD UNDER SECTION 143(3) OF THE I.T. ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE IN THE APPEAL OF REVENUE IS AGAIN ST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF RS.11,42,000/-M ADE ON ACCOUNT OF COMMISSION PAYMENT TO NON-RESIDENT FOR WHICH THE REVENUE HAS RAISED FOLLOWING GROUNDS :- ITA NO.432/AHD/2012 ASST. YEAR 2008-09 2 (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.11,42,000/- MADE ON ACCOUNT OF COMMISSION PAYMENT TO NON-RESIDENT WITHOUT VERIFYIN G THE SERVICES RENDERED BY THE NON-RESIDENT AND ALSO WITH OUT CONSIDERING THE REMAND REPORT FURNISHED BY THE A.O. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. (3) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFIC ER BE RESTORED TO THE ABOVE EXTENT. 3. BRIEF FACTS OF THE CASE ARE THAT NOTICE UNDER SE CTION 143(2) DATED 27/08/2009 WAS ISSUED TO THE ASSESSEE AND DUR ING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE COMM ISSION OF RS.11,42,000/- WAS PAYABLE TO NON-RESIDENT AND WAS SHOWN IN THE LIABILITY SIDE BY THE ASSESSEE IN THE BALANCE SHEET ENDING ON 31.02.2008. DUE TO FINANCIAL LIQUIDITY THE SAID PAY MENT WAS NOT MADE UP-TILL 15/12/2010 WHICH WAS NOT ACCEPTED BY THE AO . THE AO FURTHER OBSERVED THAT AS THE ASSESSEE HAS NOT MADE THE ACTU AL PAYMENT WITHIN THE PRESCRIBED PERIOD OF 12 MONTHS FRAMED UN DER SECTION 139(1) OF THE ACT, HENCE IT IS NOT JUSTIFIED AND NO T ALLOWABLE U/S 195 OF THE I.T. ACT AND SHOULD BE ADDED IN THE TOTAL INCOM E OF THE ASSESSEE FIRM. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) WHO DELETED THE DISALLOWANCE MADE BY THE A.O. UNDER SEC TION 195 OF THE ACT BY GIVING FOLLOWING OBSERVATIONS :- 2.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND THE FACTS OF THE CASE. I HAVE ALSO CONSIDERED T HE REMAND REPORT OF THE ASSESSING OFFICER AS WELL AS THE COUNTER COMMEN TS OF THE LD. ITA NO.432/AHD/2012 ASST. YEAR 2008-09 3 COUNSEL. THE ASSESSING OFFICER HAD DISALLOWED THE C OMMISSION EXPENSES U/S 195 OF THE ACT AS THE ACTUAL PAYMENTS WERE NOT MADE WITHIN THE PRESCRIBED PERIOD OF 12 MONTHS FRAMED UN DER SECTION 139(1) OF THE ACT. THE ASSESSING OFFICER WAS ASKED VIDE THIS OFFICE LETTER DATED 15.09.2011 TO EXPLAIN PARA-4 OF THE AS SESSMENT ORDER AS TO FROM WHERE THE PRESCRIBED PERIOD OF 12 MONTHS U/ S 139(1) WAS TAKEN. THE ASSESSING OFFICER HAD IGNORED THE REPORT ON THIS SPECIFIC ISSUE. NO SUCH PROVISIONS FOR PAYMENTS OF COMMISSIO N WITHIN A PERIOD OF 12 MONTHS WERE NOTICED EITHER U/S 139(1) OR U/S 195 OF THE ACT. THUS, THERE IS NO SUBSTANCE IN THE FINDING GIVEN BY THE ASSESSING OFFICER IN PRA -4 OF THE ASSESSMENT ORDER AND THE S AME IS REJECTED. 2.3 THERE IS NO DISPUTE ABOUT THE EARNING OF COMMIS SION BY A NON- RESIDENT, A DUBAI BASED CONCERN NAMED 7SECURE TECHN OLOGIES LLC, AND SUBSEQUENT PAYMENT THEREOF IN DOLLARS THROUGH B ANK OF INDIA. THE CONCERN 7SECURE TECHNOLOGIES LLC IS NOT HAVING ITS PERMANENT ESTABLISHMENT OR BUSINESS OPERATIONS IN INDIA AND T HEREFORE, THE COMMISSION INCOME OF RS.11,42,000/- CREDITED/PAID T O 7 SECURE TECHNOLOGIES LLC WAS NOT TAXABLE IN INDIA AND NO SU CH ASSESSMENT WAS MADE OR CONTEMPLATED TO BE MADE BY THE ASSESSIN G OFFICER IN CASE OF THE NON-RESIDENT COMMISSION AGENT. THE ISSU E REGARDING DEDUCTION OF TAX AT SOURCE FROM THE PAYMENTS TO NON -RESIDENT IS WELL SETTLED. THE SCOPE AND AMBIT OT SEC. 195 OF THE ACT HAS BEEN EXPLAINED BY THE SUPREME COURT IN GE INDIA TECHNOLO GIES CENTRE (P) LTD. VS. CIT 327 ITR 456 (SC). IN THE SAID CASE THE EXPRESSION ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE AC TIN SECTION 195 OF THE ACT WAS ELUCIDATED AND EXPLAINED. IT WAS HEL D THAT IF PAYMENT IS MADE IN RESPECT OF THE AMOUNT WHICH IS NOT CHARGEAB LE TO TAX UNDER THE PROVISIONS OF THE ACT, TAX AT SOURCE (TDS) IS N OT LIABLE TO BE DEDUCTED. THERE IS NO FINDING OF THE ASSESSING OFFI CER THAT THE COMMISSION PAYMENT OF RS.11,42,000/- WAS TAXABLE IN INDIA IN THE HANDS OF 7 SECURE TECHNOLOGIES LLC, DUBAI. THE LD. COUNSEL HAS ALSO RELIED UPON THE RECENT DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EON TECHNOLOGY P. LTD. DELIVERE D 09.11.2011 IN ITA NO.1167/2011. IN THAT CSE, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASES OF CIT VS. TOSHUKU LTD. 125 ITR 525 (SC), CIT VS. ELI LILLY AND COMPANY (INDIA) PVT. LTD. (2009) 15 S CC 1 AND GE INDIA TECHNOLOGIES CENTRE (P) LTD. VS. CIT 327 ITR 458 (S C) WERE CONSIDERED ALONG WITH THE CBDT CIRCULAR NO.23 DATED 23.07.1969 ITA NO.432/AHD/2012 ASST. YEAR 2008-09 4 AND CIRCULAR NO.786 DATED 07.02.2000 AND THE APPEAL OF THE REVENUE WAS DISMISSED. THE FACTS OF THE AFORESAID C ASE ARE EXACTLY SIMILAR TO THAT OF THE APPELLANT FIRM. IN VIEW OF T HE ABOVE DISCUSSION, IT IS HELD THAT THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE (TDS) FOR THE COMMISSION CREDITED TO THE ACCOUNT OF 7 SEC URE TECHNOLOGIES LLC, DUBAI. THE DISALLOWANCE SO MADE U/S 195 OF THE ACT IS THUS DELETED. 4. AGGRIEVED, REVENUE HAS FILED THE APPEAL BEFORE THE TRIBUNAL. DURING THE COURSE OF ARGUMENT LD. DR HAS SUPPORTED THE OBSERVATIONS OF THE AO AND SAID THAT ASSESSEE HAS NOT COMPLIED W ITH THE PROVISIONS OF SECTION 195 OF THE ACT. THEREFORE, TH E COMMISSION PAYABLE SHOULD BE ADDED TO THE INCOME OF THE ASSESS EE. 5. ON THE OTHER HAND, THE LD. COUNSEL ON BEHALF OF THE ASSESSEE MADE FOLLOWING SUBMISSIONS :- 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE AO NOTICED THAT THE APPELLANT HAD CLAIMED COMMISSION EXPENSES OF RS.11,42,000 WHICH WAS PAYABLE TO A NON-RESIDENT PARTY, VIZ., 7 SECURE TECHNOLOGIES LLC OF DUBAI. THEREFORE, NOTICE WAS IS SUED ON 16.12.2010 BY AO STATING THAT THOUGH THE SAID PARTY HAD NOT EARNED INCOME IN INDIA AND IT WAS NOT CHARGEABLE UNDER THE ACT, BUT SINCE IT WAS CREDITED TO COMMISSION A/C IN THE BOOKS, ITS GE NUINENESS WAS REQUIRED TO BE PROVED AND AUDIT CERTIFICATE U/S 195 (6) SHOULD BE PRODUCED. THE APPELLANT BY LETTER DATED 16.12.2010 STATED THAT THE COMMISSION OF US $28560 WAS PAYABLE TO THE SAID PAR TY FOR THE EXPORT ORDERS RECEIVED THROUGH IT DURING FY 2007-08 AND THE COPY OF AGREEMENT, DECLARATION WERE FURNISHED TO AO. IT WAS ALSO CONTENDED BY THE APPELLANT THAT IN VIEW OF CBDTS CIRCULAR NO .23 DATED 23.7.1969 NO TDS WAS REQUIRED TO BE MADE U/S 195. T HE APPELLANT ALSO RELIED UPON CIRCULAR NO.786 DATED 7.2.2000. TH EREAFTER THE APPELLANT BY REPLY DATED 20.12.2010 FURNISHED TO AO FOREIGN OUTWARD REMITTANCE ADVICE, DT. 15.12.2020 OF BANK OF INDIA, COPY OF FORM NO.15CA AND FORM NO.15CB TO PROVE THE COMMISSION EX PENSES. ITA NO.432/AHD/2012 ASST. YEAR 2008-09 5 THE APPELLANT ALSO LETTER DATED 21.12.2020 HAS FURN ISHED THE CONFIRMATION LETTER DATED 1.12.2010 RECEIVED FROM T HE SAID PARTY AND IT WAS ALSO EXPLAINED WITH EVIDENCE THAT DUE TO THE FI NANCIAL CRISIS THE PAYMENT COULD NOT BE MADE IN TIME. HOWEVER, THE AO HAS REJECTED THE AFORESAID EXPLANATION AND EVIDENCES WITHOUT ANY SPEAKING ORDER AND SIMPLY STATING THAT SINCE THE PAYMENT WAS NOT M ADE WITHIN THE PRESCRIBED PERIOD U/S 139 IT WAS NOT ADMISSIBLE. 2.2 THE APPELLANT BEGS TO SUBMIT THAT THE IMPUGNED DISALLOWANCE WAS NOT JUSTIFIED BOTH ON FACTS AND IN LAW AS UNDER : 1) FIRSTLY, THE FOREIGN PARTY HAD NOT RENDERED SERV ICES IN INDIA TO THE APPELLANT NOR MAINTAINED ANY PLACE OF PERMANENT RESIDENCE IN INDIA. IT HAD RENDERED SERVICES BY WAY OF NEGOTI ATING AND PROCURING ORDER FOR VEHICLES AT ABROAD FOR WHICH IT WAS PAID COMMN.@ US $ 80/- PER VEHICLE. EVEN THE PAYMENT WAS REMITTED THRU BANK OF INDIA AS PER ITS OR ADVICE DT .15.12.2010 AND COPY OF FORM NO.15CA AND 15CB SUBMITTED AS PER SEC.195. THE RELEVANT DOCUMENTS ARE ENCLOSED IN THE PAPER BOOK. THUS THE AFORESAID EVIDENCE CLEARLY SHOW THAT THE IMPUGNED COMMN. WAS PAID TO THE FOREIGN AGENT FOR T HE SERVICES RENDERED OUTSIDE INDIA. 2) SECONDLY, THOUGH THE AO HAS NOT REFERRED TO SEC. 195 RWS 40(A)(I) FOR MAKING DISALLOWANCE, EVEN THE SAME ARE NOT ATTRACTED. THE SECTION 195 VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABLE TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. NOW SEC.9 IS THE BASIS TO DETERMINE WHE THER THE INCOME COULD BE DEEMED TO HAVE ACCRUED IN INDIA. BU T THE SECTION DOES NOT PROVIDE SCOPE FOR TAXING SUCH PAYM ENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT ACCRUING OR ARISING IN INDIA BY VIRTUE OF CONNECTIO N WIT PROPERTY OR CONTROL OR MANAGEMENT VESTED IN INDIA WHICH ARE NOT SATISFIED IN THE PRESENT CASE. THE OVERSEAS AGENT O F INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NOT OF HIS INCOME ARISES IN INDIA AND USUALLY COMMN. IS REMITTED OUTS IDE INDIA THRU BANKING CHANNEL. THIS VIEW IS FORTIFIED BY THE DECI SION BY THE DECISION OF APEX OURT IN THE CASE OF TOSHIOKU LTD. (125 ITR 525). RECENTLY, IN CASE OF VIJAY SHIP BREAKING CORP N. (314 ITR ITA NO.432/AHD/2012 ASST. YEAR 2008-09 6 309) (SC) HELD THAT THE RESIDENT IS NOT REQUIRED TO DEDUCT TDS U/S 195(1) IF THE INCOME OF NON-RESIDENT RECIPIENT IS NOT TAXABLE IN INDIA. THE CASE LAW ON THIS SUBJECT WAS CONSIDER ED BY DELHI BENCH OF ITAT IN DCIT VS. DIVIS LABORATORIES LTD. (131 ITD 271). IN VIEW OF THE AFORESAID BINDING PRECEDENTS T HE IMPUGNED DISALLOWANCE IS NOT JUSTIFIED. 3) THIRDLY, THE AO HAS RELIED UPON THE PROVISIONS R ELATING TO SEC.139, BUT THE SAID PROVISION RELATES TO FILING O F RETURN OF INCOME AND NOT ALLOWABILITY OF PAYMENT MADE TO NON- RESIDENT AGENT. IN VIEW OF ABOVE, THE IMPUGNED DISALLOWANCE SHOULD BE DELETED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS WRITTEN SU BMISSIONS FILED ON RECORD BY THE ASSESSEE. AO HAS DISALLOWED THE COMMI SSION EXPENSES OF RS.11,42,000/- ON THE BASIS OF HIS FIND ING THAT ASSESSEE HAS NOT PAID THE ACTUAL PAYMENT WITHIN THE PRESCRIB ED PERIOD OF 12 MONTHS FRAMED U/S 139(1) OF THE ACT THE WHOLE EXPEN SES CLAIMED BY THE ASSESSEE IS NOT JUSTIFIED AND HENCE NOT ALLOWAB LE U/S 195 OF THE ACT. SECTION 139(1) READS AS UNDER :- (1) EVERY PERSON (A) BEING A COMPANY (OR A FIRM) OR (B) BEING A PERSON OTHER THAN A COMP ANY (OR A FIRM) IF HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TA X, SHALL ON OR BEFORE THE DUE DATE, FURNISH A RETURN O F HIS INCOME OR THE INCOME OF SUCH OTHER PERSON DURING THE PREVIOUS YEAR, IN THE PRESCRIBED (FORM AND VERIFIED ITA NO.432/AHD/2012 ASST. YEAR 2008-09 7 IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTH ER PARTICULARS AS MAY BE PRESCRIBED; PROVIDED THAT A PERSON REFERRED TO IN CLAUSE (B) WH O IS NOT REQUIRED TO FURNISH A RETURN UNDER THIS SUB-SECTION AND RESIDING IN SUCH AREA AS MAY BE SPECIFIED BY THE BOARD IN THIS BEHALF BY NOTIFICATION IN THE OFF ICIAL GAZETTE, AND WHO (DURING THE PREVIOUS YEAR INCURS AN EXPENDITURE OF FIFTY THOUSA ND RUPEES OR MORE TOWARDS CONSUMPTION OF ELECTRICITY OR) AT ANY TIME DURING T HE PREVIOUS YEAR FULFILLS ANY ONE OF THE FOLLOWING CONDITIONS, NAMELY- (I) IS IN OCCUPATION OF AN IMMOVABLE PROPERTY EXCEE DING A SPECIFIED FLOOR AREA, WHETHER BY WAY OF OWNERSHIP TENANCY OR OTHERW ISE, AS MAY BE SPECIFIED BY THE BOARD IN THIS BEHALF; OR (II) IS THE OWNER OR THE LESSEE OF A MOTOR VEHICLE OTHER THAN A TWO WHEELED MOTOR VEHICLE, WHETHER HAVING ANY DETACHABLE SIDE C AR HAVING EXTRA WHEEL ATTACHED TO SUCH TWO WHEELED MOTOR VEHICLE OR NOT; OR (III) .. (IV) HAS INCURRED EXPENDITURE FOR HIMSELF OR ANY OT HER PERSON ON TRAVEL TO ANY FOREIGN COUNTRY; OR (V) IS THE HOLDER OF A CREDIT CARD, NOT BEING AN AD D-ON CARD, ISSUED BY ANY BANK OR INSTITUTION, OR (VI) IS A MEMBER OF A CLUB WHERE ENTRANCE FEE CHARG ED IS TWENTY FIVE THOUSAND RUPEES OR MORE; SHALL FURNISH A RETURN, OF HIS INCOME (DURING ANY P REVIOUS YEAR ENDING BEFORE THE 1 ST DAY OF APRIL, 2005) ON OR BEFORE THE DUE DATE IN T HE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED; .. FROM GOING THROUGH SECTION 139(1), THERE IS NO SUCH PROVISION MENTIONED IN WHICH SOME TIME PRESCRIBED PERIOD OF 1 2 MONTHS IS REQUIRED FOR MAKING THE PAYMENT OF COMMISSION TO NO N-RESIDENT. THEREFORE, THE REFERENCE GIVEN BY THE AO OF SECTION 139(1) OF THE ACT IS NOT CORRECT. FURTHER THE AO HAS DISALLOWED THE C OMMISSION PAYMENT REFERRED TO SECTION 195 OF THE ACT BUT HE H AS NOT DEALT WITH THE APPLICABILITY OF SECTION 195 WITH REFERENCE TO THE FACTS OF THE CASE ITA NO.432/AHD/2012 ASST. YEAR 2008-09 8 NOR HAS BROUGHT ON RECORD ANY DETAILS FOR SUCH APPL ICATION OF SECTION 195 AND AS THE VERY BASIS OF DISALLOWANCE MADE BY A O WITH REFERENCE TO PROVISIONS OF SECTION 195 SUB-SECTION (1) ARE NOT CORRECT AND NOR AS DISCUSSED ABOVE, WE DO NOT FIND ANY ERRO R IN THE FINDINGS RECORDED BY THE CIT(A). WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/8/2015 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 28/8/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD ITA NO.432/AHD/2012 ASST. YEAR 2008-09 9 1. DATE OF DICTATION: 24/8/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 25/8/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 28/8/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: