1 IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 474/JODH/2013 (A.Y. 2010-11) THE ASSTT. C.I.T., VS M/S. MITHILA DRUGS PVT. LTD . CIRCLE-1 F-70, ROAD NO. 2 MIA, UDAIPUR. UDAIPUR. PAN NO. AACCM6767B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH DEOPURA, AR DEPARTMENT BY : SHRI N.A. JOSHI, DR. DATE OF HEARING : 04/03/2014. DATE OF PRONOUNCEMENT : 13/03/2014. O R D E R PER HARI OM MARATHA, J.M. : THIS APPEAL OF THE REVENUE, FOR A.Y. 2010-11, IS D IRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR, DATED 10.07.2013. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN: 1. DELETING THE TRADING ADDITION OF RS. 52,39,244/- MADE ON ACCOUNT OF INVOKING THE PROVISION OF SECTION 14 5(3) OF THE ACT IGNORING THE SPECIFIC DISCREPANCIES POINTED OUT BY THE A.O. NAMELY DAY TO DAY STOCK REGISTER WAS NOT F OUND MAINTAINED THERE BEING FALL IN YIELD AND MOREOVER T HE OPENING STOCK OF CURRENT YEAR WAS NOT SAME AS CLOSI NG OPENING STOCK OF THE PREVIOUS YEAR. 2. DELETING THE DISALLOWANCE OF RS. 4,19,591/- MADE U/S 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TDS ON PA YMENT OF COMMISSION U/S 195 OF THE ACT.. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A COMPANY WHO DERIVES INCOME FROM THE MANUFACTURING A ND TRADING IN BULK DRUGS AND INTERMEDIARIES. FOR A.Y. 2010-11, TH E COMPANY FILED ITS RETURN OF INCOME (ROI) ON 30.09.2010 DECLARING TOTA L INCOME OF RS. 1,68,31,754/-. ON GOING THROUGH THE AUDIT REPORT IT WAS NOTICED THAT TOTAL SALES OF RS. 39,23,52,910/-, A GROSS PROFIT O F RS. 4,18,43,105/- GIVING G.P. RATE OF 10.66%, AS AGAINST 10.07% SHOWN ON TOTAL SALES OF RS. 16,44,54,233/- IN THE IMMEDIATELY PRECEDING YEAR, H AS BEEN SHOWN. IT WAS EXPLAINED BY THE ASSESSEE THAT DUE TO HUGE INCR EASE IN THE TURNOVER, THERE IS SMALL FALL IN THE G.P. RATE APAR T FROM INCREASE IN THE 3 COST OF PRODUCTION AND THE COMPETITION IN THE MARKE T. WHEN ASKED TO EXPLAIN THE LOWER YIELD WITH CORRESPONDING INCREASE IN THE PERCENTAGE OF SHORTAGE, IT WAS EXPLAINED THAT THE COMPANY USED TO IMPORT CERTAIN RAW MATERIAL FROM CHINA AND BELGIUM BUT DURING THIS YEAR SOME RAW MATERIAL WAS ALSO IMPORTED FROM IRON, WHICH WAS FOU ND TO BE OF INFERIOR QUALITY AND THIS HAS RESULTED INTO LOWER Y IELD OF PRODUCT. BUT, THE A.O. DID NOT ACCEPT THE ABOVE EXPLANATION OF TH E ASSESSEE, AND THEREFORE, HAS INVOKED THE PROVISIONS OF SECTION 14 5(3) AFTER REJECTING THE BOOK RESULTS DECLARED BY THE ASSESSEE-COMPANY. HE HAS APPLIED G.P. RATE OF 12% TO THE TOTAL TURNOVER WHICH HAS RE SULTED INTO AN ADDITION OF RS. 59,39,244/- (RS. 4,70,82,349/- MINU S RS. 4,18,43,105/- ). FURTHER, DURING THE COURSE OF ASSESSMENT PROCEED INGS IT WAS NOTICED THAT THE COMPANY HAS NOT MADE TDS FROM THE PAYMENTS GIVEN TO FOREIGN PARTIES TOWARDS EXPORT COMMISSION TOTALING TO RS. 4,19,591/-, THE DETAILS OF WHICH ARE AS UNDER :- SL. NO. NAME OF THE PARTY AMOUNT OF COMMISSION DATE OF CREDIT/PAYMENT 1. M/S GUDIA [P] LTD. PAKISTAN 14,503 26. 0 5.2009 2. MOHD ABD EL. HADY M. M. HASHEM, EGYPT 98,567 09. 0 7.2009 3. M/S GUDIA [P] LTD. PAKISTAN 13,084/ - 25. 0 9.2009 4. M/S GUDIA [P] LTD. PAKISTAN 18,415 25. 0 9.2009 4 5. M/S GUDIA [P] LTD. PAKISTAN 26,776 18.12.2009 6. M/S SINTOFARM SPA ITALY 88,996 0 1. 0 2.2010 7. M/S SINTOFARM SPA ITALY 56,496 31. 0 3.2010 8. M/S SINTOFARM SPA ITALY 13,758 31.3.2010 9. M/S SINTOFARM SPA ITALY 88,996 31.3.2010 TOTAL 4,19,591 IT WAS EXPLAINED THAT THE FOREIGN PARTIES BEING NON RESIDENT (NR), TDS IS NOT REQUIRED TO BE DEDUCTED U/S 194H OF THE I.T. AC T, 1961, THE ACT FOR SHORT. BUT ACCORDING TO A.O. AS PER SECTION 195 OF THE ACT THE ASSESSEE IS DUTY BOUND TO DEDUCT TDS ON COMMISSION PAYMENTS MADE TO NON RESIDENTS AND FAILURE TO DO SO WOULD ATTRACT PROVIS IONS OF SECTION 40(A)(IA) OF THE ACT. AFTER RELYING ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TRANSMISSION CORPORATION OF A. P. LTD. VS. CIT 239 ITR 587 AND THAT OF HONBLE KERALA HIGH COURT SAMSU NG ELECTRONIC AN OTHERS, INTER ALIA, HAS ADDED THE ENTIRE AMOUNT OF RS. 4,19,591/- AFTER DISALLOWING IT U/S 40(A)(IA). 3. AGGRIEVED, THE ASSESSEE-COMPANY WENT BEFORE LD. CIT(A) WHO HAS DELETED BOTH THE ABOVE ADDITIONS FROM THE HANDS OF THE ASSESSEE COMPANY. NOW, THE REVENUE IS AGGRIEVED. 5 4. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY PERUSED THE ENTIRE RECORD. BOTH THE PARTIES HAVE REITERATED THE IR EARLIER STAND. WE HAVE FOUND THAT THE ASSESSEE-COMPANY HAS REPLIED AN D EXPLAINED THE EXCESS SHORTAGE ETC, WHICH HAVE NOT BEEN REJECTED B Y THE A.O. THE ONLY REASON FOR REJECTION OF THE BOOKS OF ACCOUNT I S SLIGHT FALL IN THE G.P. RATE. IT IS TRITE THAT FALL IN THE G.P. RATE, SIMPLICITER, CANNOT BE MADE A REASON FOR THE REJECTION OF THE BOOKS OF ACC OUNTS, THAT TOO, THE AUDITED BOOKS OF ACCOUNTS OF A COMPANY OBTAINED AS PER THE LAW AND WITHOUT THERE BEING ANY ADVANCE REMARKS OF THE AUDI TOR. THE A.O. HAS ACCEPTED THE SALES DECLARED BY THE ASSESSEE. THERE HAS BEEN SUBSTANTIAL INCREASE IN THE SALES OF THIS YEAR AS C OMPARED TO THE EARLIER YEAR. THE AO HAS NOT POINTED ANY MATERIAL OR SPECIF IC DEFECT IN THE BOOKS. THEREFORE, IN OUR CONSIDERED OPINION THE BOO KS HAVE BEEN WRONGLY REJECTED. FURTHER, THERE IS NO OCCASION AND REASON TO MAKE THE IMPUGNED ADDITION WHICH HAS BEEN CAREFULLY DELETED BY LD. CIT(A). THEREFORE, WE CANNOT ALLOW GROUND NO. (1) OF REVENU ES APPEAL. 5. REGARDING DELETION OF DISALLOWANCE UNDER SECTION 40(A)(IA), WE HAVE NOTICED THAT THE ADDITIONS ON WHICH A.O. HAS R ELIED ARE NOT APPLICABLE TO THE FACTS OF THE GIVEN CASE. EVEN THE CBDT CIRCULAR IS NOT APPLICABLE TO THE COMMISSION PAYMENTS TO THE FOREIG N COMPANIES / 6 AGENTS. THE DECISION OF SAMSUNG (SUPRA), TRANSPORT CORPORATION (SUPRA) HAVE BEEN DISTINGUISHED BY THE HONBLE APEX COURT W HILE DECIDING THE CASE OF GE INDIA TECHNOLOGY CENTER (P) LTD. 327 ITR 456 DATED 09.09.2010. THIS ISSUE REGARDING TO PAYMENT OF COMM ISSIONS TO FOREIGN AGENTS ETC ALSO STANDS COVERED BY THE DECISION OF J AIPUR BENCH IN THE CASE OF VIDYUT VITRAN NIGAM LTD. VS. DCIT (2009) 12 3 TTJ 888 (JAI.) ACCORDINGLY, WE CANNOT ALLOW GROUND NO. (2) OF THIS APPEAL AS WELL. 6. IN THE RESULT, THIS APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH, 2014. SD/- SD/- [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER VL/ DATED : 13 TH MARCH, 2014. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. DR, ITAT, JODHPUR 6. GUARD FILE BY ORDER AR, ITAT, JODHPUR