Asstt. Commissioner Of Income Tax-III, Kanpur V. M/S Karmin International, Kanpur

ITA 554/LKW/2013

• Counselvise Citation: 55423714 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-07-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 17-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DHARMENDRA KUMAR
• Keywords: Residential status; Services rendered outside India; Retrospective amendment; Avoidance of tax

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.554/LKW/2013 ASSESSMENT YEAR:2004 - 05 A.C.I.T. - III, KANPUR. VS. M/S KARMIN INTERNATIONAL, 80/79, COOPERGANJ, KANPUR. PAN:AAAFK9250G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMIT NIGAM, D. R. RESPONDENT BY SHRI DHARMENDRA KUMAR, C.A. DATE OF HEARING 15/07/2014 DATE OF PRONOUNCEMENT 2 2 /08/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A) - II, KANPUR DATED 25/03/2013 FOR THE ASSESSMENT YEAR 2004 - 2005. 2. GROUND NO. 1 IS AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,50,000/ - ON ACCOUNT OF LOW G.P, RATE WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER. 2. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LE ARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 2 3 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) AS PER PARA 4 & 5 OF HIS ORDER WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4. THAT REGARDING EEFC A/C. WITH STATE BANK OF PATIALA , KANPUR LEARNED ACIT [3] HAS ALLEGED US THAT WE HAVE NOT WITHDRAWN 90000 EUROS FROM THIS A/C. ON 01.04.2003 AS ALLEGED ,WHEN THE RATE WAS 1 EURO - RS. 51, WITH AN INTENTION TO PARK THE FUNDS IN FOREIG N CURRENCY IN ORDER TO TAKE THE BENEFIT ON DEVALUATION OF RUPEES AGAINST EURO AS AND WHEN IT OCCURS. THE LEARNED ACIT [3] FURTHER ADDED THAT WE HAVE WITHDRAWN 90000 EUROS ON 31.12.2003 WHEN THE EXCHANGE RATE WAS 1 EURO - RS. 57 AND HAS ADDED RS.622130.00 A S GAINS ON FLUCTUATION ON FOREIGN EXCHANGE. IN THIS CONTEXT WE HAVE TO SUBMIT THAT THE LEARNED ACIT [3] HAS COMPLETELY IGNORED THE FACT THAT OUR OPENING BALANCE IN EEFC A/C. AS ON 01.04.2003 WAS ONLY EURO 1000 THEN HOW COULD WE WITHDRAW 90000 EUROS ON 01. 04.2003? 5. THAT AN AD HOC ADDITION OF RS.1000000.00 ON ACCOUNT OF FOREIGN TRAVELING IS AGAIN AGAINST THE FACTS AND A BIASED OPINION HAS BEEN FRAMED. THE DISAGREEMENT SHOWN BY THE LEARNED ACIT [3] AND OUR REPLY IN RESPECT OF THE SAME IS EXPLAINED IN THE CHART AS BELOW : S.NO. DATE TRAVEL AMOUNT INR REASON OF DISAGREEMENT BY ACIT(3) OUR EXPLANATION 1. 05.08.03 468040 10000 $ HAVE BEEN PURCHASED FROM BANK BUT NO SUPPORT AS TICKETS ETC. PRODUCED. AS PER THE REGULAR FEATURE OF EXPORT BUSINESS FOREIGN TRAVELING IS AN INTEGRAL PART OF BUSINESS AND QUITE OFTEN IT HAS TO BE TAKEN UP IN A YEAR. WE ALWAYS GET OUR TOUR ORGANIZED FROM SOME TRAVEL AGENCY AND HAVE PRODUCED THEIR BILL DURING THE ASSESSMENT PRO CEEDINGS AS AN EVIDENCE. THESE TRAVEL AGENCIES ARE SO REPUTED ONES THAT THESE TRANSACTIONS CAN EASILY BE VERIFIED FROM THEM. MOREOVER, DURING THE WHOLE PROCEEDINGS IT WAS NEVER BEEN ASKED TO PRODUCE FURTHER EVIDENCES. THIS PARTICULAR FOREIGN TRIPP HAS GENE RATED A DIRECT 3 BUSINESS OF RS.5670460.00 AND A PROPOSED BUSINESS OF APPROXIMATELY RS.70 LAC. 2 16.09.03 29381 PAYMENT EXPENSES MCDONALDS OF AT AT SHARJAH THROUGH CREDIT CARD THIS CREDIT CARD PAYMENT HAS BEEN INCURRED BY THE PARTNER ON A FOREIGN TRIP TO GERMANY FOR SPOGA 03 FARE AT KOLN IN GERMANY. SINCE THE SAID AIR TICKET WAS ON EMIRATES AIRLINES WHICH IS THE NATIONAL CARRIER OF DUBAI/SHARJAH, IT HAS TO GO VIA DUBAI /SHARJAH. THERE WAS NO STAY AT SHARJAH AT ALL. THE SAID FACT CAN BE VERIFIED FROM THE AIR TICKET ITSELF. BESIDES, THE SAID PARTNER HAD NO VISA FOR DUBAI/ SHARJAH. SAID PARTNER WAS IN SHARJAH ONLY IN TRANSIT. HOWEVER THE DISALLOWANCE OF THE TOTAL AMOUNT OF CREDIT CA RD PAYMENT OF RS.29381.00 HAS BEEN BASED ON THE FACT THAT IT HAS BEEN SPENT IN MCDONALDS WHEREAS THE FACT IS THAT OUT OF THE TOTAL DISALLOWED EXPENSES OF RS.29381.00, THE PAYMENT TO MCDONALDS, LOCATED AT SHARJAH AIRPORT , IS FOR MEAGER SUM OF RS.167.21 WHE RE THE PARTNER HAD HIS MEALS . 3 04.11.03 350901 NO TICKETS OR EVEN THE BILL OF TRAVEL AGENT WAS PRODUCED IT IS TOTALLY A FALSE ALLEGATION BECAUSE WE HAVE GOT EACH AND EVERY SUPPORTING IN RESPECT OF FOREIGN TRAVEL UNDERTAKEN BY US. FURTHER, THE BUSINESS GENERATED BECAUSE OF THIS TRIP IS AMOUNTING TO RS.4813485.00 AND A PROPOSED BUSINESS OF ANOTHER RS.50.00 LACS OR SO. 4 01.01.04 18147 TOUR TO SHARJAH HAS NOT GENERATED ANY FURTHER BUSINESS. IT WAS FURTHER ALLEGED THAT IT WAS A TOURIST RESORT WHERE ASSESSEE VISITED. IS IT NECESSARY THAT EVERY FOREIGN TOUR SHALL GENERATE FURTHER BUSINESS ? WE HAVE TO VISIT VARIOUS PROSPECTIVE BUYERS WHEREVER THEY ARE. AND EVERY MEETING DOES NOT NECESSARILY FETCH BUSINESS. THIS TRIP WAS UNDERTAKEN BY THE PARTNER SHARIQ RASUL TO SHARJAH/DUBAI FOR SALES PROMOTION. SHARJAH /OUBAI ARE BIG SADDLERY CENTERS HAVING IMMENSE BUSINESS POTENTIAL. BESIDES, SHARJAH IS NOT ONLY A TOURIST RESORT ,IT IS A ALSO A BIG SADDLERY CENTRE AND IS T HE HOLDER O F THIRD LARGEST EQUESTRIAN FARE IN THE 4 WORLD EVERY TWO YEARS HAVING THE LARGEST POPULATION OF HORSE HEADS OF /ARABIAN BREAD. 5. 12.02.04 230028 82500 PURCHASE OF FOREIGN CURRENCY BUT NO EVIDENCES PRODUCED. THIS PERTAINS TO SALES TRIP UNDERTAKEN BY PARTNER FARHAN RASOOL TO EUROPE AND ALSO TO VISIT BETA FARE AT BIRMINGHAM, U.K. THIS TRIP HAS GENERATED A DIRECT BUSINESS OF RS.3422673.00 AND A PROPOSED BUSINESS OF ABOVE RS. 50.00 LACS. 6 22.03.04 40346 PAYMENT OF CREDIT CARD THIS PERTAINS TO THE CREDIT CARD EXPENSES INCURRED EXCLUSIVELY DURING THE ABOVE STATED TRIP [POINT NO. 5 ] WHERE THE BUSINESS TO THE TUNE OF RS.3422673.00 WAS GENERATED. THE SAID EXPENSES WERE INCURRED DURING THE ABOVE SAID TRIP IN FOREIGN LANDS BETWEEN 18.02.04 TO 02. 03.04 AS IS EVIDENT FROM THE CREDIT CARD STATEMENT ITSELF. TOTAL 1435224 AT ONE POINT OF TIME WHEN THE LEARNED ACIT [3] SAYS THAT THERE IS NO PROPER EVIDENCE OF RS.1435224.00 OUT OF THE TRAVELING EXPENSES OF RS.1643117.00 THEN WHY ONLY RS.1000000.00 HAVE BEEN DISALLOWED ? THIS CLEARLY STATES THAT THE AO WAS HERSELF NOT VERY SURE ABOUT THE ADDITIONS SHE WAS GOING TO MAKE. 4. FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT THE CIT(A) HAS GIVEN A FINDING THAT THE SALE PRICES ARE FIXED FOR YEARS WHEREAS THE PRICES OF RAW MATERIAL ARE FLUCTUATING. HE HAS ALSO GIVEN A FINDING THAT IN SUCH A BUSINESS, SMALL VARIATION IN GROSS PROFIT IS NOT A BASIS TO MAKE ANY ADDITION. WE ALSO FIND THAT THE GROSS PROFIT RATE OF THE ASSESSEE WAS 42.23% IN THE PRESENT YEAR AS AGAINST 46% IN THE PRECEDING YEAR. HENCE, FALL IN GROSS PROFIT IS ABOUT 3.27% WHICH IS LESS THAN 10% GROSS PROFIT RATE DECLARED BY TH E ASSESSEE. CONSIDERING THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND OF OF REVENUE IS REJECTED. 5. GROUND NO. 2 TO 6 OF THE APPEAL ARE AS UNDER: 5 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.14,69,163/ - ON ACCOUNT OF DISALLOWANCE OF COMMISSION TO A. NON - RESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM WITHOUT APPRECIATING THE FACTS THAT THERE IS NO EXPLICIT PR OVISION UNDER THE ACT FOR MAKING A PAYMENT TO NON - RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT APPRECIATING THE BOARD'S CIR CULAR NO. 7 OF 2009. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT APPRECIATING THE SETTLED PRINCIPLE IN RESPECT OF INTERPRETATION OF PROSPECTIVE OR RETROSPECTIVE NATURE OF AMENDMENT IN THE STATUTE AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS GOLD COIN HEALTH FOOD PVT. LTD. (2008) 304 ITR 308 (SC) AND CIT VS. MOSER BAER INDIA LTD. [2009] 315 ITR 460 (SC). 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT APPRECIATING THE FACT THAT SERVICES RENDERED BY THE NON - RESIDENT AGENT TO PROCURE ORDERS FROM FOREIGN BUYERS ARE PURELY TECHNICAL OR MANAGERIAL IN NATURE. THEREFORE, THE P ROVISIONS OF SECTION 9(1)(VII) ARE CLEARLY APPLICABLE ON THE ASSESSEE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT APPRECIATING THE FACT THAT THE PAYMENT BY THE RESIDE NT ASSESSEE IN CONNECTION WITH HIS BUSINESS IN INDIA TO A PERSON OUTSIDE THE COUNTRY IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO THE NON - RESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM. 6 6. LEARNED D.R. OF THE REVENUE SUPPORTE D THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE REGARDING REQUIREMENT OF TDS OUT OF PAYMENT OF COMMISSION TO A NON - RESIDENT FOREIGN AG ENT FOR HIS SERVICES RENDERED OUTSIDE INDIA IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY A RECENT TRIBUNAL DECISION RENDERED IN THE CASE OF LOHIA STARLINGER IN ITA NO.32/LKW/2010 DATED 15.07.2014. THE RELEVANT PARAS OF THIS TRIBUNAL DECISION ARE REPRODUCED BELOW: 9.3 NOW WE EXAMINE THE SECOND ASPECT I.E. ALLOWABILITY U/S 40(A)(I) OF THE ACT. IN THIS REGARD, WE FIND THAT A CLEAR FINDING IS GIVEN BY CIT(A) IN PARA 4.3 OF HIS ORDER THAT IN VIEW OF BOARDS CIRCULAR NO. 786 DATED 07/02/2000, COMMISSION INCOME OF LEG IS NOT LIABLE TO BE TAXED IN INDIA. TO OVERCOME THESE FINDINGS OF CIT(A), THE ASSESSING OFFICER HAS RAISED THE ADDITIONAL GROUND AND AS PER THIS ADDITIONAL GROUND AND AS PER THE SUBMISSION OF LEARNED D.R. OF THE REVENUE, THIS IS T HE MAIN SUBMISSION OF REVENUE THAT IN VIEW OF RETROSPECTIVE AMENDMENT BY WAY OF INSERTION OF EXPLANATION 2 IN SECTION 195(1) AND EXPLANATION 2 IN SECTION 9(1)(VII), TDS IS REQUIRED TO BE DEDUCTED FROM THIS PAYMENT MADE BY THE ASSESSEE TO LEG. FOR THE SAKE OF READY REFERENCE, THESE EXPLANATIONS ARE REPRODUCED HEREIN BELOW: EXPLANATION 2 TO SECTION 9(1)(VII) INSERTED BY FINANCE (NO. 2) ACT, 1977 WITH EFFECT FROM 01/04/1977: - EXPLANATION 2. -- FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' M EANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTI ON, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. EXPLANATION 2 TO SECTION 195(1) INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/1962 7 EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1) AND TO MAKE DEDUCTION THERE UNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON - RESIDENT, WHETHER OR NOT THE NON - RESIDENT PERSON HAS ( I ) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA ; OR ( II ) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. 9.4 IN THIS REGARD, WE FIND THAT EXPLANATION 2 TO SECTION 9(1)(VII) HAS ALREADY BEEN TAKEN INTO CONSIDERATION BY CIT(A) AS PER PARA 4.3 OF HIS ORDER AND BY FOLLOWING THE BOARDS CIRCULAR NO. 786 DATED 07/02/2000, IT WAS HELD BY HIM THAT SERVICES RENDERED BY LEG ARE NOT MANAGERIA L SERVICES FALLING WITHIN FEES FOR TECHNICAL SERVICES (FTS). WE ALSO FIND FORCE IN THIS FINDING OF CIT(A) BECAUSE IN THE PRESENT CASE, COMMISSION HAS BEEN PAID BY THE ASSESSEE TO LEG FOR ACTING IN FOREIGN COUNTRY AS SELLING AGENT AND THEREFORE, THE SERV ICES RENDERED BY LEG ARE NOT MANAGERIAL SERVICES TO FALL IN THE SCOPE OF FEES FOR TECHNICAL SERVICES (FTS) IN OUR OPINION ALSO. THIS FINDING OF CIT(A) IS ALSO IN LINE WITH BOARDS CIRCULAR NO. 786 DATED 07/02/2000 WHEREIN IT IS STATED THAT AS PER BOARDS CIRCULAR NO. 23 DATED 23 RD JULY, 1969, IT HAS BEEN CLARIFIED THAT WHERE THE NON - RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. IN THIS BOARD CIRCULAR NO. 786, WHICH IS AFTER INSERTION OF EXPLANATION NO. 2, IT HAS BEEN R EITERATED THAT THE CLARIFICATION IN CIRCULAR NO. 23 STILL PREVAILS AND THEREFORE, NO TAX IS DEDUCTIBLE U/S 195 IN RESPECT OF PAYMENT OF EXPORT COMMISSION WHERE THE SERVICES ARE RENDERED BY NON - RESIDENT OUTSIDE INDIA. 9.5 HENCE, IN OUR CONSIDERED OPINION , WE ARE NOW LEFT WITH TO CONSIDER THE AMENDMENT IN SECTION 195(1) BY WAY OF INSERTION OF EXPLANATION 2 WITH RETROSPECTIVE EFFECT FROM 01/04/1962 AS REPRODUCED ABOVE. AS PER THIS EXPLANATION 2 TO SECTION 195(1), IN OUR CONSIDERED OPINION, IT WAS CLARIFIED THAT THE PROVISIONS OF SECTION 195(1) APPLIES AND EXTENDS TO ALL PERSONS, RESIDENT OR NON - RESIDENT ETC. IN OUR CONSIDERED OPINION, IT MEANS THAT EVEN IF A PERSON IS MAKING PAYMENT OUTSIDE INDIA TO A PERSON OUTSIDE INDIA BUT THE INCOME OF THE RECIPIENT IS TAXABLE IN INDIA THEN THE PAYER HAS TO DEDUCT TAX EVEN IF THE PAYER IS NON - RESIDENT AND HE IS NOT HAVING A RESIDENT OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. IN OUR CONSIDERED OPINION, THIS EXPLANATION HAS NO RELEVANCE IN THE PRESENT CASE BEC AUSE IN THE PRESENT CASE, THE PAYER IS RESIDENT OF INDIA AND THEREFORE, THERE IS NO NEED TO TRAVEL TO 8 EXPLANATION 2 TO DECIDE THE APPLICABILITY OF SECTION 195(1) IN THE PRESENT CASE. IN OUR CONSIDERED OPINION, THIS EXPLANATION 2 TO SECTION 195(1) BROADENS THE DEFINITION OF ANY PERSON RESPONSIBLE FOR PAYING TO NON - RESIDENT APPEARING IN SUB SECTION 1 OF SECTION 195 OF THE ACT AND AS PER EXPLANATION 2, THAT ANY PERSON IN SECTION 195 (1) WILL INCLUDE EVEN NON - RESIDENT NOT HAVING ANY PLACE OF RESIDENCE OR BUS INESS AND BUSINESS CONNECTION IN INDIA. HENCE, IN OUR CONSIDERED OPINION, THIS EXPLANATION 2 TO SECTION 195(1) HAS NO RELEVANCE AND THEREFORE, IT ALSO DOES NOT RENDER ANY HELP TO THE REVENUE. WE WOULD ALSO LIKE TO OBSERVE THAT THE STAND OF THE REVENUE IS THIS THAT AS PER THIS EXPLANATION 2 TO SECTION 195 (1), TDS IS TO BE DEDUCTED U/S 195 IN ALL CASES WHERE PAYMENT IS MADE TO A NON RESIDENT. BUT THERE IS NO FORCE IN THIS CONTENTION BECAUSE THIS REQUIREMENT HAS TO SATISFIED THAT THE AMOUNT BEING PAID TO THE PAYEE IS LIABLE TO TAX IN INDIA IN THE HANDS OF THE PAYEE. AS PER THIS EXPLANATION, THE AMENDMENT IS THIS THAT IF THE PAYEE IS LIABLE TO TAX IN INDIA IN RESPECT OF THE IMPUGNED PAYMENT THAN THE PAYER CANNOT CLAIM THAT HE IS NOT SUPPOSED TO DEDUCT TDS BECA USE THE PAYER IS NEITHER A RESIDENT OF INDIA NOR THE PAYER HAS ANY PLACE OF BUSINESS IN INDIA OR BUSINESS CONNECTION IN INDIA AS IT WAS IN THE MUCH DISCUSSED CASE OF VODAFONE. DEMAND WAS RAISED IN THAT CASE IN SPITE OF ADVERSE JUDGMENT OF SUPREME COURT ON THE BASIS OF THIS EXPLANATION. ALTHOUGH THAT DEMAND IN THE CASE OF VODAFONE HAS NOT REACHED FINALITY BUT THE SAME HAS NO RELEVANCE IN THE PRESENT CASE BECAUSE THE ASSESSEE DEDUCTOR IS RESIDENT OF INDIA AND HENCE, NO ENLARGEMENT OF SCOPE AS PER THIS EXPLAN ATION IS REQUIRED IN THE PRESENT CASE. BUT SINCE AS PER BOARD INSTRUCTION, THE IMPUGNED PAYMENT IS NOT TAXABLE IN THE HANDS OF THE PAYEE, TDS IS NOT REQUIRED TO BE DEDUCTED BY THE ASSESSEE IN THE PRESENT CASE. 9.6 NOW WE EXAMINE THE APPLICABILITY OF JUDGM ENT CITED BY LEARNED D.R. OF THE REVENUE BEING THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF WORKMEN VS ASSOCIATED RUBBER INDUSTRY LTD. AS REPORTED IN [1986] 157 ITR 77. AS PER THIS JUDGMENT, IT WAS HELD BY HON'BLE APEX COURT THAT IF THE CREA TION OF SUBSIDIARY COMPANY IS FOR AVOIDANCE OF WELFARE LEGISLATION, CORPORATE VEIL CAN BE IGNORED. THERE IS NO QUARREL ON THIS PROPOSITION BUT IN THE PRESENT CASE, IN OUR CONSIDERED OPINION, THE FACTS OF THE PRESENT CASE DO NOT SUGGEST THAT THE CREATION O F SUBSIDIARY COMPANY WAS FOR AVOIDANCE OF ANY WELFARE LEGISLATION OR FOR AVOIDANCE OF TAX. WE FIND THAT IN THE PRESENT CASE, THE SUBSIDIARY COMPANY IS ACTING AS OVER ALL AGENT FOR PROMOTING SALES OF THE ASSESSEE COMPANY IN SOUTH AMERICA AND EUROPE ETC., W HICH ARE NEW BUSINESS PLACES FOR THE ASSESSEE COMPANY. IN VIEW OF THESE FACTS, WE FIND THAT THIS JUDGMENT OF HON'BLE APEX COURT, CITED BY REVENUE, IS NOT RELEVANT IN THE PRESENT CASE. 9 9.7 NOW WE CONSIDER THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY LEA RNED A.R. OF THE ASSESSEE. 9.8 THE FIRST JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. MODEL EXIMS (SUPRA). THIS JUDGMENT IS DATED 17/12/2013 AND HENCE, THIS JUDGMENT IS A FTER BOTH THE AMENDMENTS CITED BY REVENUE IN ADDITIONAL GROUND NO. 11. IN THIS CASE ALSO, THE ISSUE IN DISPUTE BEFORE THE HON'BLE ALLAHABAD HIGH COURT WAS REGARDING PAYMENT OF COMMISSION TO FOREIGN AGENTS, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN THAT CASE ALSO U/S 40(A)(IA) OF THE ACT. IN THAT CASE, IT WAS HELD BY HON'BLE JURISDICTIONAL HIGH COURT THAT EXPLANATION ADDED TO SECTION 9(1)(VII) BY FINANCE ACT, 2010 WITH EFFECT FROM 01/06/1976 WAS NOT APPLICABLE IN VIEW OF THE FACT THAT AGENTS HAD THE IR OFFICES SITUATED IN FOREIGN COUNTRY AND THEY DID NOT PROVIDE ANY MANAGERIAL SERVICES TO ASSESSEE. HENCE, THE FIRST ASPECT REGARDING APPLICABILITY OF EXPLANATION ADDED TO SECTION 9(1)(VII) BY FINANCE ACT 2010 IS COVERED AGAINST THE REVENUE BY THIS JUDGM ENT OF HON'BLE JURISDICTIONAL HIGH COURT AND THEREFORE, WE DO NOT EXAMINE THE APPLICABILITY OF OTHER THREE JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE OUT OF WHICH TWO ARE TRIBUNAL DECISIONS AND ONE IS THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (SUPRA) WHICH IS IN CONNECTION WITH ADMISSION OF ADDITIONAL GROUND BEING LEGAL ISSUE. 9.9 WE HAVE ALREADY SEEN AND DISCUSSED THAT THE SECOND AMENDMENT CITED BY REVENUE BEING INSERTION OF EXPLANATION 2 TO SE CTION 195(1) OF THE ACT, HAS NO RELEVANCE BECAUSE IN THE PRESENT CASE, PAYER IS ALREADY RESIDENT OF INDIA AND THEREFORE, ALREADY WITHIN THE PURVIEW OF SECTION 195 (1) AND THERE IS NO NEED IN THE PRESENT CASE TO EXTEND OR BROADEN THE SCOPE OF THE TERM ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT APPEARING IN SUB SECTION 1 TO SECTION 195 OF THE ACT. BUT THE REQUIREMENT THAT THE PAYEE IS LIABLE TO TAX IN INDIA IN RESPECT OF THE IMPUGNED PAYMENT HAS TO BE THERE TO ATTRACT THE PROVISIONS OF SECTION 195 (1) BUT IN THE PRESENT CASE, THIS ASPECT IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT CITED BY THE LEARNED AR OF THE ASSESSEE. 10. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE CASE SOUGHT TO BE MADE OUT BY THE ASSESSING OFFICER AND ALSO VARIOUS ARGUMENTS OF LEARNED D.R. OF THE REVENUE AND THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS REJECTED. 10 7.1 FROM THE ABOVE PA RA S OF THE TRIBUNAL ORDER REPRODUCED ABOVE, WE FIND THAT THE TRIBUNAL HAS DULY CONSIDERED THE BINDING JUDGMENTS OF HON'BLE ALLAHABAD HIGH COURT AND THE TRIBUNAL HAS ALSO CONSIDERED THE RECENT AMENDMENT S IN SECTION 195(1) AND SECTION 9(1 ) (VII) OF THE ACT BY WAY OF INSERTION OF EXPLANATION THEREIN AND HENCE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL DECISION, WE DECLINE TO INTERFERE IN THE ORDER OF CIT ( A) ON THIS ISSUE. THESE GROUNDS OF THE REVENUE ARE REJECTED. 8. GROUND NO. 7 IS AS UNDER: 7 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION OF RS.10.00,000/ - ON ACCOUNT OF DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES TO RS.2,00,000/ - WITHOUT APPRECIATING THE FACTS THAT THE A SSESSEE WAS MAKING FOREIGN TRIPS TO DESTINATIONS WHERE ACTUALLY NO BUSINESS ACTIVITIES ARE CARRIED OUT. 9. O N THIS ISSUE ALSO, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER PARA 12 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 12. I HAVE CONSIDERED THE SUBMISSIONS AND ARGUMENTS OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AND THE CONTENTS OF THE ASSESSMENT ORDER. THE ASSESSEE'S BUSINESS INVOLVES TRAVELLING OUTSIDE INDIA. THE VISIT TO EUROPE AND USA HAS BEEN JUSTIFIED AS THAT EXP ORTS ARE BEING DONE BY THE ASSESSEE. ORDERS ARE EXECUTED AND PAYMENTS ARE RECEIVED. HOWEVER, VISIT TO UAE HAS NOT BEEN SUBSTANTIATED FOR THE PURPOSE OF BUSINESS. THERE IS NO BUSINESS CONTRACT WITH ANY PARTIES IN UAE. HOWEVER, THE PERSONAL EXPENDITURE ON TH E 11 FOREIGN TRIPS ARE BUT NATURAL. THOSE EXPENDITURE ARE NOT EXPLAINED. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE IS RESTRICTED TO RS. 1 LACS AS INCURRED FOR NON - BUSINESS PURPOSE. ACCORDINGLY, THE DISALLOWANCE IS LIMITED TO RS. 2 LACS ONLY. 10.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A) AND DETAILED DISCUSSION IN HIS ORDER IN PARA NO. 11, WE FIND THAT CIT(A) HAS EXAMINED THE ISSUE IN DETAIL AND HAS GIVEN A FINDING THAT THE ASSESSEES BUSINESS INVOLVES TRAVELLING OUTSIDE INDIA AND VISIT TO EUROP E AND USA HAS BEEN JUSTIFIED BECAUSE EXPORTS WERE MADE BY THE ASSESSEE TO THESE COUNTRIES. HE HAS ALSO GIVEN A FINDING THAT THE VISIT TO UAE HAS NOT BEEN SUBSTANTIATED FOR THE PURPOSE OF BUSINESS. HE HAS CONFIRMED THE DISALLOWANCE OF RS.2 LAC IN RESPECT TO VISIT TO UAE AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THIS FACT THAT LEARNED DR OF THE REVENUE COULD NOT CONTROVERT T HESE FINDINGS OF CIT(A) , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND IS REJECTED. 11. GROUND NO. 8 IS AS UNDER: 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION OF RS.57,656/ - ON ACCOUNT OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES TO RS.10,000/ - WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO EXPLAIN THE EXIGENCY OF THE EXPENSES UNDER THIS HEAD DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 12. O N THIS ISSUE ALSO, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT CIT(A) HAS STATED IN PARA 16 OF HIS ORDER THAT THE ASSESSING OFFICER HAS NOT POINTED 12 ANY SPECIFIC DEFECT FOR DISALLOWANCE OUT O F BUSINESS PROMOTION EXPENSES. HE HAS ALSO GIVEN A FINDING THAT THE DETAILS OF THESE BUSINESS PROMOTION EXPENSES MAINLY RELATE TO BOOKING OF STALLS IN ABROAD. IN SPITE OF THIS , THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS.10,000/ - OUT OF TOTAL DISAL LOWANCE MADE BY THE ASSESSING OFFICER OF RS.57,657/ - . THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE THAT AS PER THE DETAILS OF EXPENSES, BUSINESS PROMOTION EXPENSES MAINLY RELATE TO BOOKING OF STALLS. WHEN THE EXPENSES O N BOOKING OF STALL IS ALLOWED TO THE EXTENT OF 80%, IT CANNOT BE SAID THAT THE BALANCE 20% FOR BOOKING OF STALL IS NOT FOR BUSINESS PURPOSE. THERE MAY BE SOME EXPENSES OTHER THAN BOOKING OF STALL ALSO AND IN THAT RESPECT , THE CIT(A) HAS CONFIRMED THE DISA LLOWANCE OF RS.10,000/ - . CONSIDERING THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND IS REJECTED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 2 /08/2014. *C.L.SINGH COPY OF THE ORDER FOR WARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR