DCIT 7(2), MUMBAI V. SYNERGY LIFESTYLE P.LTD, MUMBAI

ITA 5440/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2654 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 08-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Business income; Earning of tax free income; Permanent establishment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 5440/M/2013 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME - 7(2), ROOM NO.624, M.K. ROAD, MUMBAI - 400020 VS. M/S. SYNERGY LIFESTYLE PVT. LTD., 130, DINSHAW PETIT LANE, KALACHOWKY, MUMBAI 400 033 PAN: AAFCS 1753A (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA JAIN, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 07.10.2015 DATE OF PRONOUNCEMENT : 30.10.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 29.05.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 29.05.2013. THIS IS SECOND ROUND OF APPEAL. 2. THE REVENUE HAS TAKEN AS MANY AS 6 GROUNDS OF AP PEAL THROUGH WHICH ONLY TWO EFFECTIVE ISSUES HAVE BEEN RAISED. FIRST ISSUE IS IN RELATION TO THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE DISALLO WANCE UNDER SECTION 14A FROM RS.7,34,274/- TO RS.1,32,609/-. IN THE FIRST ROUND OF APPEAL, DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSING OFFIC ER (HEREINAFTER REFERRED TO ITA NO. 5440/M/2013 M/S. SYNERGY LIFESTYLE PVT. LTD. 2 AS THE AO) NOTED THAT THE ASSESSEE HAD RECEIVED DIV IDEND INCOME OF RS.23,72,210/- WHICH WAS CLAIMED AS EXEMPT BY THE A SSESSEE. HE, HOWEVER, TREATED THE SAME AS BUSINESS INCOME. THE MATTER TR AVELLED TO THE TRIBUNAL AND THE TRIBUNAL DIRECTED THE AO TO TREAT THE DIVIDEND INCOME AS EXEMPT UNDER SECTION 10(34)/(35) OF THE ACT. 3. IN THE SET ASIDE PROCEEDINGS, THE AO COMPUTED TH E DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.7,34,274/-. TH E LD. CIT(A), HOWEVER, HELD THAT IN THE LIGHT OF THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)] THE RULE 8D IS APPLICABLE PROSPECTIVELY FROM A.Y. 2008-09. FOR THE EARLIER YEARS TO A.Y. 2008-09 THE DISALLOWANCE IS TO BE COMPUTED ON SOME REASONABLE BASIS. THE LD. CIT(A), THEREFORE, PROCE EDED TO COMPUTE THE DISALLOWANCE ON REASONABLE BASIS. HE OBSERVED THAT THERE WAS NO DIRECT EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOM E. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS HAVING INVESTMENT IN UNITS OF MUTUAL FUND. IN RESPECT OF SOME OF THE INVESTMENTS, THERE WAS NO CH ANGE AND WHEREAS IN SOME CASES THE WHOLE INVESTMENTS WERE SOLD DURING THE YE AR AND SOME NEW INVESTMENTS WERE MADE. HE OBSERVED THAT SUCH A DEC ISION REQUIRES ADMINISTRATIVE AND MANAGERIAL SKILLS AS WELL AS MAN POWER. HE, THEREFORE, REJECTED THE CONTENTION OF THE ASSESSEE THAT NO MAN AGERIAL EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR MAKING THE INVESTMENTS IN MUTUAL FUNDS. HE, TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE, ESTIMATED THE EXPENDITURE OF RS.1,32,609/- AS DEEMED TO BE INCURR ED BY THE ASSESSEE TO MANAGE HIS INVESTMENTS WHICH YIELDED EXEMPT INCOME. THE LD. CIT(A), AFTER EXAMINING THE OVERALL INVESTMENTS AND ACCOUNTS OF T HE ASSESSEE, OBSERVED THAT NO INDIRECT INTEREST EXPENDITURE WAS INCURRED BY TH E ASSESSEE FOR EARNING OF THE ITA NO. 5440/M/2013 M/S. SYNERGY LIFESTYLE PVT. LTD. 3 SAID DIVIDEND INCOME. HE ACCORDINGLY RESTRICTED TH E DISALLOWANCE AT RS.1,32,609/-. 4. WE FIND THAT THE ASSESSEE HAD MADE INVESTMENTS I N MUTUAL FUNDS ONLY WHICH YIELDED DIVIDEND INCOME. IN CASE OF MUTUAL F UNDS, NO DAY TO DAY MONITORING OF THE INVESTMENTS IS REQUIRED. THE LD. CIT(A), AFTER CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, HA S RESTRICTED THE DISALLOWANCE TO RS.1,32,609/-. THE ASSESSEE HAS NOT PREFERRED A NY APPEAL AGAINST THE SAID DISALLOWANCE. IN OUR VIEW, THE LD. CIT(A), IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), HAS FAIRLY COMPUTED THE REASONAB LE DISALLOWANCE UNDER SECTION 14A WHICH DOES NOT REQUIRE ANY INTERFERENCE AT OUR LEVEL. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE LD. CIT(A) ON THIS ISSUE AND THE SAME IS THEREFORE UPHELD. 5. THE SECOND ISSUE RAISED BY THE REVENUE IS RELATI NG TO THE DISALLOWANCE OF RS.10,57,000/- ON ACCOUNT OF FOREIGN COMMISSION PAI D. THE AO OBSERVED THAT THE ASSESSEE IN RELATION TO ITS EXPORT BUSINESS HAD PAID COMMISSION TO FOREIGN PARTIES. THE AO IN THE ORIGINAL ASSESSMENT PROCEED INGS DISALLOWED THE SAID EXPENDITURE OBSERVING THAT THE ASSESSEE HAD NOT FUR NISHED THE REQUIRED EVIDENCES. THE MATTER TRAVELLED TO THE TRIBUNAL AN D THE TRIBUNAL OBSERVED THAT THE ASSESSEE HAD FILED THE VARIOUS DETAILS LIKE NAM ES OF PARTIES TO WHOM COMMISSION WAS PAID, DEBIT ADVICES OF SUCH PARTIES, INVOICES WITH REFERENCE TO COMMISSION PAID AND EVEN COPIES OF SOME CORRESPONDE NCE IN THIS RESPECT. THE TRIBUNAL, THEREFORE, RESTORED THE MATTER TO THE FIL E OF THE AO TO REEXAMINE THE ISSUE REGARDING THE PAYMENT OF COMMISSION. 6. THE AO IN SET ASIDE PROCEEDINGS AGAIN OBSERVED T HAT THE ASSESSEE HAD FAILED TO PRODUCE SUFFICIENT EVIDENCE REGARDING THE NATURE OF SERVICES RENDERED BY THE FOREIGN PARTIES TO THE ASSESSEE AND AS TO WH AT BUSINESS THEY HAD BROUGHT ITA NO. 5440/M/2013 M/S. SYNERGY LIFESTYLE PVT. LTD. 4 TO THE ASSESSEE. HE ALSO OBSERVED THAT THE ASSESSE E HAD NOT DEDUCTED THE TDS ON THE SAID PAYMENTS. 7. IN APPEAL, THE LD. CIT(A) VIDE IMPUGNED ORDER OB SERVED THAT THE ASSESSEE HAD FILED THE DETAILS REGARDING THE COMMIS SION PAYMENT SUCH AS COPIES OF INVOICES, SHIPPING BILLS FOR EXPORT AND OTHER RE MITTANCES, HOWEVER, THE AO HAD NOT FULLY APPRECIATED THE SAID DETAILS AND COMM ISSION PAYMENT. THE LD. CIT(A) OBSERVED THAT IT WAS A FACT ON RECORD THAT T HE ASSESSEE HAD FILED THE SUFFICIENT DETAILS, DOCUMENTS, INFORMATION DURING T HE ORIGINAL ASSESSMENT PROCEEDINGS BEFORE THE AO AS WELL AS THE LD. CIT(A) . EVEN THE TRIBUNAL, ON THE PERUSAL OF THE SAID DETAILS AND EVIDENCES FILED BY THE ASSESSEE, HAS REMANDED BACK THE MATTER TO THE FILE OF THE AO. TH E LD. CIT(A), AFTER GOING THROUGH THE DETAILS, FURTHER OBSERVED THAT THE PAYM ENT OF FOREIGN COMMISSION WAS MADE FOR THE PURPOSE OF ASSESSEES BUSINESS SIN CE THE ASSESSEE WAS IN THE BUSINESS OF EXPORT. HE OBSERVED THAT IN THE COPIES OF INVOICES AND CORRESPONDENCE SHIPPING BILLS ETC. FOR EXPORT ISSUE D BY CUSTOM DEPARTMENT, THE DETAILS OF COMMISSION PAYABLE IN FOREIGN EXCHAN GE WERE DULY MENTIONED. THE LD. CIT(A) OBSERVED THAT IN THE FACTS AND CIRCU MSTANCES, THE ASSESSEE COULD NOT HAVE DONE ANYTHING MORE TO PROVE THAT THE FOREIGN COMMISSION WAS PAID FOR THE PURPOSE OF BUSINESS. SO FAR AS THE ISSUE OF NON DEDUCTION OF TDS WAS CON CERNED, THE LD. CIT(A) OBSERVED THAT THE COMMISSION WAS PAID TO FOR EIGN AGENTS AND THE SAID FOREIGN AGENTS HAD NO PERMANENT ESTABLISHMENT (PE) IN INDIA. THE SERVICES WERE RENDERED OUT OF INDIA AND NO INCOME ACCRUED TO THE SAID AGENTS WAS TAXABLE IN INDIA AND THEREFORE THE PROVISIONS OF SE CTION 195 WERE NOT APPLICABLE. EVEN THE SERVICES RENDERED BY THE FORE IGN AGENTS DID NOT FALL IN THE DEFINITION OF FEES FOR TECHNICAL SERVICES. HE, THE REFORE, HELD THAT NO DISALLOWANCE OF COMMISSION WAS WARRANTED IN THIS CA SE. ITA NO. 5440/M/2013 M/S. SYNERGY LIFESTYLE PVT. LTD. 5 8. WE FIND THAT THERE IS NO INFIRMITY IN THE WELL R EASONED ORDER OF THE LD. CIT(A). EVEN THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF INDO INDUSTRI ES LTD. VS. ITO (2015) 53 TAXMAN.COM 458 (MUM.-TRI) WHEREIN IT HAS BEEN CATEG ORICALLY HELD THAT WHERE THE ASSESSEE MADE PAYMENTS OF COMMISSION TO FOREIGN AGENTS FOR RENDERING SERVICES RELATING TO EXPORT SALES OUTSIDE INDIA AND SINCE THE SAID AGENTS DID NOT HAVE PE IN INDIA, NO TAXABLE INCOME ACCRUED OR AROS E TO THEM IN INDIA AND THEREFORE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT T DS WHILE MAKING PAYMENTS TO SUCH FOREIGN AGENTS. WHILE HOLDING SO THE TRIBU NAL, IN THE SAID CASE, HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT (2010) 1 93 TAXMAN 234/327 ITR 456. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO. THERE IS NO MERIT IN THE APPEAL O F THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.10.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.10.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.