The ACIT, Circle-2(1)(2), Ahmedabad V. M/s. Maxim Tubes Company Pvt. Ltd., Ahmedabad

ITA 586/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8079 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 08-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: DHINAL SHAH AR
• Keywords: Bogus purchase; Business income; Permanent establishment; Advance ruling
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD : , , BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.586/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) ASST.CIT CIR.2(1) AHMEDABAD / VS. M/S.MAXIM TUBES COMPANY PVT.LTD. B-92, RIVERA ANTILIA, NR.PINACLE CORPORATE ROAD PRAHLADNAGAR VEJALPUR, AHMEDABAD-380 051 ' ./ ./ PAN/GIR NO. : AAECM 8083 E ( '% / APPELLANT ) .. ( &'% / RESPONDENT ) '% ' / APPELLANT BY : SHRI V.K. SINGH, SR.DR &'% ( ' / RESPONDENT BY : SHRI DHINAL SHAH, AR ) * ( + / DATE OF HEARING 08/06/2018 ,-. ( + / DATE OF PRONOUNCEMENT 18/ 06 /2018 / O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN PREFERRED BEFORE US BY THE REVENUE AGAINST THE ORDER DATED 23.12.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2013-14 ARISING OUT OF THE ORDER DATED 11.03.2016 PASSED BY THE ACIT, CIRCLE-2(1), AHMEDABAD. 2. THE MAIN ISSUE INVOVLED IN THIS MATTER AS TO WH ETHER THE LD.CIT(A) HAS COMMITTED ERROR IN LAW AND ON FACTS IN RESTRICTING THE DISALL OWANCE U/S.40(A)(I)/U/S.37 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') TO RS.33,98,868/- AS AGAINST RS.57,02,641/- ON ACCOUNT OF COMMISSION EXPENSES PAID TO FOREIGN AGEN TS. IN ADDITION TO THAT, THE REVENUE HAS - 2 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 ALSO RAISED AN ISSUE REGARDING DELETION OF ADDITION MADE ON ACCOUNT OF INFLATED SALES AND PURCHASES AMOUNTING TO RS.53,20,000/- IN THE PRESEN T FACTS AND CIRCUMSTANCES OF THE CASE. THE APPLICATION FOR GRANT OF ADJOURNMENT AS MADE BY THE ASSESSEE WAS NOT PRESSED AT THE TIME OF HEARING OF THE MATTER BY THE LD.AR. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE HAS DEBITED AN EXPENDITURE OF RS.81,57,591 /- AGAINST COMMISSION TO THE NON-RESIDENT AGENTS. DETAILS AND DOCUMENTARY EVIDENCES REGARDIN G SUCH PAYMENT WERE DULY FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDING. IT WAS NOTICED BY THE ASSESSING OFFICER (AO) THAT SUCH PAYMENT OF COMMISSION WAS MADE TO NO-RESI DENT FOREIGN AGENTS WITHOUT DEDUCTING THE TAX AT SOURCE. THE ASSESSEE WAS ASKED TO SUBMI T CERTAIN DOCUMENTS INTER-ALIA COPY OF THE AGREEMENTS WITH THE COMMISSION AGENTS, NATURE OF SE RVICES RENDERED, BASIS OF COMMISSION AND ROLE OF COMMISSION AGENTS AND TO JUSTIFY THE COMMEN SURATE SALES OF THE COMPANY IN PAYING COMMISSION TO NON-RESIDENT AGENTS. THE AO, HOWEVER , WAS NOT SATISFIED ABOUT THE GENUINENESS OF THE TRANSACTIONS OR THAT THE PROOF O F SERVICES RENDERED BY THE COMMISSION AGENTS ON THE DOCUMENTS RELIED UPON BY THE ASSESSEE INVOLVING THE AGREEMENT WITH M/S.GRITECH, MILANO. ASSESSEES FURTHER CASE WAS THAT THE LIABILITY TOWARDS TDS OF SUCH PAYMENTS WERE NOT ARISEN SINCE THE PERSON/PARTIES T O WHOM THE COMMISSION PAID HAVE RENDERED THE SERVICES OUTSIDE INDIA, NEITHER THEY H AVE ANY PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO THE ASSESSEE, THE COMMISSION TO NON-RE SIDENT DOES NOT INVOLVE INCOME CHARGEABLE TO TAX IN INDIA AND CONSEQUENTLY LIABIL ITY TO DEDUCT TDS DOES NOT ARISE. THE CONTENTION MADE BY THE ASSESSEE AS ABOVE WAS NOT AC CEPTED BY THE AO IN THE ABSENCE OF CONTRACT AGREEMENT WITH THOSE FOREIGN AGENTS AND TH E EXPLANATION REGARDING NATURE OF SERVICES RENDERED FOR WHICH COMMISSION WAS PAID. THE AO D ISALLOWED SUCH COMMISSION EXPENSES TO THE TUNE OF RS.57,02,641/- PAID TO THE NON-RESIDENT S BY THE ASSESSEE AND ADDED BACK TO THE INCOME U/S.40(A)(I) OF THE ACT. THE ASSESSEE IN AP PEAL GOT PART RELIEF. THE AO FURTHER SUBMITTED THAT THE ISSUES ARE COVERED BY THE ORDER OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE AY 2012-13. HOWEVER, THE LD.DR RELIED UPON THE ORDER PASSED BY THE AO. - 3 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 3. WE HAVE HEARD THE LD.REPRESENTATIVES APPEARING F OR THE PARTIES AND WE HAVE GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD.CIT(A) DELETED THE DISALLOWANCE OF PAYMENT OF COMMISSION MADE TO M/S.G RITECH STEEL PRODUCTS AND SERVICES, MILANO OF RS.23,03,773/- IN TOTAL RELYING UPON THE DECISION OF THIS LD.TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE AY 2012-13 IN ITA NO.32 44/AHD/2015 WHERE THE SERVICES RENDERED BY GRITECH STEEL PRODUCTS AND SERVICES, MI LANO HAS BEEN ACCEPTED IN ITS TRUE SPIRIT AND THE DISALLOWANCE MADE BY THE AUTHORITIES IN THIS REGARD U/S.37(1) OF THE ACT HAS BEEN REJECTED. THE LD.TRIBUNAL DEALT WITH THIS ISS UE WITH THE FOLLOWING OBSERVATION:- 6. WE HAVE NOTED FROM THE MATERIAL PLACED BEFORE US IN THE PAPER BOOK THAT THERE WAS AGREEMENT BETWEEN THE ASSESSEE AND GRITECH STEE L PRODUCTS & SERVICES, MILANO INASMUCH AS THE SAID COMMISSION AGENT VIDE L ETTER DATED 01.12.2011 HAS CONFIRMED THAT THE SAID CONCERN IS ACTING AS SALES AGENCY ON BEHALF OF MAXIM TUBES COMPANY PVT.LTD. AND THAT THE SALES ACTIVITY IS BAS ED ON AN AGREED COMMISSION LEVEL. WE HAVE ALSO PERUSED COPIES OF E-MAILS EXCHANGED BE TWEEN THE ASSESSEE AND THE AGENT WHICH CONSTITUTE CONTEMPORANEOUS EVIDENCE OF THE SE RVICES RENDERED BY THE AGENT. THE DETAILS OF COMMISSION INVOICE A ALSO THE SALE I NVOICE IN RESPECT OF WHICH SAID COMMISSION WAS PAID IS PLACED ON RECORD IN THE PAPE R BOOK FILED BEFORE US. THE PAYMENT OF COMMISSION HAS BEEN MADE THROUGH BANKING CHANNELS. IN THESE CIRCUMSTANCES, THE EXISTENCE OF COMMISSION AGENT OR HIS IDENTITY, AS ALSO THE FACT OF RENDITION OF SERVICE CANNOT BE DISPUTED. IN THIS V IEW OF THE MATTER, SO FAR AS DISALLOWANCE HAVING BEEN MADE UNDER SECTION 37(1) I S CONCERNED, THE SAME CANNOT BE SUSTAINED. 4. THE DISALLOWANCE MADE BY THE LD.CIT(A) U/S.40(A) (I) OF THE ACT AS MADE THEREIN WAS ALSO DELETED BY THE LD.TRIBUNAL. WHILE DOING SO, THE LD.TRIBUNAL MADE THE FOLLOWING OBSERVATION:- 7. AS REGARDS THE DISALLOWANCE UNDER SECTION 40(A)( I), WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF A CO-O RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. EXCELL CHEMICALS INDIA LIMITED (2016) 72 TA XMANN.COM 284 WHEREIN THE CO-ORDINATE BENCH HAS INTER ALIA OBSERVED AS FOLLOWS :- 5. THE BASIC CONTENTION OF THE ASSESSING OFFICER IS T HAT IN VIEW OF THE SCOPE OF DEEMING FICTION UNDER SECTION 9(1)(I), WHICH INTER ALIA HOLDS THAT ANY INCOME 'ARISING DIRECTLY OR INDIRECTLY FROM ANY BUSINESS CONNECTION IN INDIA' WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA, READ WITH THE SCOPE OF CHARGING SECTION 5(2), WHICH ENABLES TAXABILITY OF A NON-RESIDENT IN RESPECT OF 'INCOME ACCRUING OR ARISING OR DEEMED TO - 4 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 ACCRUE OR ARISE, IN INDIA,, INCOME ARISING IN THE H ANDS OF THE NON-RESIDENT COMMISSION AGENT IS TAXABLE IN INDIA. WHAT HE OVERLOOKS, HOWEV ER, IS THE IMPACT OF EXPLANATION 1 TO SECTION 9 (1)(I) WHICH STATES THAT 'FOR THE PURP OSE OF THIS CLAUSE [I.E. 9(1)(I)], IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA'. ONLY IF HE WAS TO TAKE INTO ACCOUNT THE SCO PE OF EXPLANATION 1 TO SECTION 9(1)(I), COUPLED WITH THE FACT THAT ADMITTEDLY NO P ART OF OPERATIONS OF THE NON-RESIDENT COMMISSION AGENT WERE CARRIED OUT IN INDIA, HE WOUL D HAVE REALIZED THAT EVEN THOUGH DEEMING FICTION UNDER SECTION 9(1)(I) IS TRIGGERED ON THE FACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT'S BUSINESS CONNECTION IN INDIA, IT HAS NO IMPACT ON TAXABILITY IN THE HANDS OF COMMISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPERATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE EXPLANATION 1 TO SECTION 9(1)(I) COMES INTO PLAY. THE SEEMINGLY ERUDITE ANALYSIS BY THE ASSESSING OFF ICER IS BASED ON A HALF-BAKED LEGAL THEORY, AND THE CONCLUSIONS, THEREFORE, CLEARLY FAL LACIOUS. 6. AS FOR THE AAR RULING IN THE CASE OF SKF BOILERS A ND DRIERS (P.) LTD. (SUPRA), ON WHICH SO MUCH RELIANCE HAS BEEN PLACED BY THE ASSES SING OFFICER, WE FIND THAT THIS DECISION MERELY FOLLOWS THE EARLIER RULING IN THE C ASE OF RAJIV MALHOTRA (SUPRA) WHICH, IN OUR CONSIDERED VIEW, DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXPLANATION 1 TO SECTION 9(1)(I) PROPERLY. THAT WAS A CASE IN WHICH THE NON-RESIDENT COMMISSION AGENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON-RES IDENT ENTITIES IN A FOOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS TH AT SINCE THE AGENT HAS NOT CARRIED OUT ANY BUSINESS OPERATIONS IN INDIA, THE COMMISSIO N AGENT WAS NOT CHARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBL IGATION TO DEDUCT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULING, INTER ALIA, OPINED THAT 'NO DOUBT T HE AGENT RENDERS SERVICES ABROAD AND PURSUES AND SOLICITS EXHIBITORS THERE IN THE TE RRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EXHIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA ), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA AND THAT THE COMM ISSION INCOME WOULD, THEREFORE, BE TAXABLE UNDER SECTION 5(2)(B) READ WITH SECTION 9(1 )(I) OF THE ACT'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT THE FACT THAT THE AGE NT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTICIPANTS AND TH AT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHE N NO OPERATIONS OF THE BUSINESS OF COMMISSION AGENT IS CARRIED ON IN INDIA, THE EXPLAN ATION 1 TO SECTION 9(1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUTSIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1 )(I), AND, IN EFFECT, OUTSIDE THE AMBIT OF INCO ME 'DEEMED TO ACCRUE OR ARISE IN INDIA' FOR THE PURPOSE OF SECTION 5(2)(B). THE POINT OF TI ME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE SCOPE OF EXPLANATION 1 TO SECTION 9(1 )(I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEISIN OF. THE REVENUE'S CASE BEFORE US HINGES ON T HE APPLICABILITY OF SECTION 9(1)(I) AND, IT IS, THEREFORE, IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAXED BY EXPLANATION 1 TO SECT ION 9(1)(I). WHEN WE EXAMINE - 5 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 THINGS FROM THIS PERSPECTIVE, THE INEVITABLE CONCLU SION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOME OF THE COMMISSION AGENT CAN BE BROUGHT T O TAX IN INDIA. IN THIS VIEW OF THE MATTER, VIEWS EXPRESSED BY THE HON'BLE AAR, WHICH D O NOT FETTER OUR INDEPENDENT OPINION ANYWAY IN VIEW OF ITS LIMITED BINDING FORCE UNDER S. 245S OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO BE GUIDED BY THE SAME . THE STAND OF THE REVENUE, HOWEVER, IS THAT THESE RULINGS, BEING FROM SUCH A H IGH QUASI-JUDICIAL FORUM, EVEN IF NOT BINDING, CANNOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEAST HAVE PERSUASIVE VALUE. WE HAVE NO QUARREL WITH THIS PROP OSITION. WE HAVE, WITH UTMOST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS REND ERED BY THE HON'BLE AUTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT WITHOUT SLIGHTEST HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULINGS. 7. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDERE D VIEW, LEARNED CIT (A) WAS INDEED JUSTIFIED IN HOLDING THAT GIVEN THE UNDISPUT ED AND UNCONTROVERTED FACTS OF THIS CASE, THE NON-RESIDENT COMMISSION AGENTS WERE NOT T AXABLE IN INDIA IN RESPECT OF THEIR COMMISSION EARNINGS FROM ORDERS PROCURED ABROAD. 8. IT IS ALSO NOW WELL SETTLED IN LAW THAT WHEN THE PAYMENT MADE TO A NON-RESIDENT DOES NOT HAVE AN ELEMENT OF INCOME, TAX DEDUCTION SOURCE REQUIREMENTS UNDER SECTION 195(2) DO NOT COME INTO PLAY AT ALL. HON'BLE SUPREME COURT , IN THE CASE OF G E INDIA TECHNOLOGY CENTRE (P.) LTD. V. CIT [2010] 327 ITR 456/193 TAXMAN 234/7 TAXMANN.COM 18 , HAS INTER ALIA OBSERVED AS FOLLOWS: IN OUR VIEW, SECTION 195(2) IS BASED ON THE 'PRINCI PLE OF PROPORTIONALITY'. THE SAID SUB- SECTION GETS ATTRACTED ONLY IN CASES WHERE THE PAYM ENT MADE IS A COMPOSITE PAYMENT IN WHICH A CERTAIN PROPORTION OF PAYMENT HAS AN ELEMEN T OF 'INCOME' CHARGEABLE TO TAX IN INDIA. IT IS IN THIS CONTEXT THAT THE SUPREME COURT STATED, 'IF NO SUCH APPLICATION IS FILED, INCOME-TAX ON SUCH SUM IS TO BE DEDUCTED AND IT IS THE STATUTORY OBLIGATION OF THE PERSON RESPONSIBLE FOR PAYING SUCH 'SUM' TO DEDUCT TAX THE REON BEFORE MAKING PAYMENT. HE HAS TO DISCHARGE THE OBLIGATION TO TDS'. IF ONE READS T HE OBSERVATION OF THE SUPREME COURT, THE WORDS 'SUCH SUM' CLEARLY INDICATE THAT THE OBSE RVATION REFERS TO A CASE OF COMPOSITE PAYMENT WHERE THE PAYER HAS A DOUBT REGARDING THE I NCLUSION OF AN AMOUNT IN SUCH PAYMENT WHICH IS EXIGIBLE TO TAX IN INDIA. IN OUR V IEW, THE ABOVE OBSERVATIONS OF THIS COURT IN TRANSMISSION CORPORATION CASE (SUPRA) WHIC H IS PUT IN ITALICS HAS BEEN COMPLETELY, WITH RESPECT, MISUNDERSTOOD BY THE KARN ATAKA HIGH COURT TO MEAN THAT IT IS NOT OPEN FOR THE PAYER TO CONTEND THAT IF THE AMOUN T PAID BY HIM TO THE NON-RESIDENT IS NOT AT ALL 'CHARGEABLE TO TAX IN INDIA', THEN NO TD S IS REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT. THIS INTERPRETATION OF THE HIGH COURT COMP LETELY LOSES SIGHT OF THE PLAIN WORDS OF SECTION 195(1) WHICH IN CLEAR TERMS LAYS DOWN TH AT TAX AT SOURCE IS DEDUCTIBLE ONLY FROM 'SUMS CHARGE ABLE' UNDER THE PROVISIONS OF THE I.T. ACT, I.E., CHARGEABLE UNDER SECTIONS 4, 5 AND 9 OF THE I.T. ACT. (EMPHASIS BY U NDERLINING SUPPLIED BY US) - 6 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 9. CLEARLY, THEREFORE, FOR APPLICATION OF SECTION 19 5, IT IS SINE QUA NON THAT THE PAYMENT TO NO-RESIDENT MUST HAVE AN ELEMENT OF INCOME LIABL E TO BE TAXED UNDER THE INDIAN INCOME TAX ACT, 1961. ON THE FACTS OF THIS CASE, AS WE HAVE ALREADY CONCLUDED, NO PART OF THE REMITTANCE TO THE COMMISSION AGENT WAS TAXABLE IN INDIA. THE ASSESSEE WAS, THEREFORE, NOT UNDER ANY OBLIGATION, ON THE FACTS O F THIS CASE, TO DEDUCT ANY TAX AT SOURCE FROM THE COMMISSION PAYMENTS TO THE NON-RESIDENTS. SINCE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, THE VERY FOUNDATION OF IMPUGN ED DISALLOWANCE UNDER SECTION 40(A)(I) CEASES TO HOLD GOOD IN LAW. LEARNED CIT (A ) WAS, THEREFORE, QUITE JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE. WE UPHOLD HIS A CTION, AND DISMISS THE GRIEVANCE RAISED BY THE ASSESSING OFFICER. 8. THE DECISION OF THE AUTHORITY FOR ADVANCE RULING , IN THE CASE OF IN THE CASE OF RAJIVE MALHOTRA [2006] 286 ITR 564, ON WHICH RELIANCE HAS BEEN PLACED BY THE AUTHORITIES BELOW HAS BEEN DISCUSSED AND DISTINGUISHED IN THE AFORESA ID DECISION. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. ACCORDINGLY, THE DISALLOWANCE UNDER SECTION 40(A)(I) WHICH HAS B EEN CONFIRMED BY THE LEARNED CIT(A) IS ALSO DEVOID OF LEGALLY SUSTAINABLE MERITS. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE OF RS.22,48,659/- IN RESPECT OF COMMISSION PAID TO THE NON-RESIDENT WHIC H WAS UPHELD BY THE LEARNED CIT(A) DESERVES TO BE DELETED. WE DIRECT SO. 5. WE FIND THAT THE ISSUE DECIDED BY THE LD.CIT(A) IS SQUARELY COVERED BY THE JUDGEMENT OF CO-ORDINATE BENCH OF THIS TRIBUNAL ON THE SIMILA R SET OF FACTS IN ASSESSEES OWN CASE AS DISCUSSED ABOVE. WE, THEREFORE, RESPECTFULLY FOL LOWING THE DECISION OF THE LD.TRIBUNAL AS MENTIONED ABOVE, FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD.CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO OF COMMISS ION PAID TO M/S.GRITECH STEEL PRODUCTS AND SERVICES, MILANO VU/S.40(A)(I) OF THE I.T.ACT, 1961. 6. SO FAR AS THE SECOND ISSUE IS CONCERNED ON THE I DENTICAL FACTS IN ASSESSEES OWN CASE FOR AY 2012-13, THE LD.CIT(A) HAS ALLOWED THE SAME IN FAVOUR OF ASSESSEE. WHILE DOING SO, THE LD.CIT(A) OBSERVED AS FOLLOWS:- '5.3. DECISION; I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DI SALLOWANCE OF THE INFLATED SALES AND - 7 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 CORRESPONDING BOGUS PURCHASES OF RS.53,20,0007- ON THE BASIS OF THE INFORMATION RECEIVED FROM THE DDIT (INV.), PUNE, ON THE BASIS OF THE SEA RCH PROCEEDINGS CARRIED OUT IN THE CASE OF M/S. WALCHANDNAGAR INDUSTRIES LTD. IT HAS BEEN NOTI CED THAT M/S. WIL HAS INFLATED ITS PURCHASES THROUGH OVER INVOICING OF THE PURCHASES. THE AO OBSERVED THAT M/S. MAXIM TUBE & ENGG. CO. WAS ONLY A CONSIGNEE AGENT AND THE RELA TION BETWEEN THE CONSIGNOR AND THE CONSIGNEE WAS NOT THAT OF A BUYER AND SELLER. FURTH ER, HELD THAT THE SCHEME OF ARRANGEMENT OF THE ASSESSEE COMPANY OF SALES THROUGH THE AGENT WAS NOT GENUINE. THE AO MADE THE DISALLOWANCE FOR THE REASON ALSO THAT THE APPELLANT DID NOT SUBMIT THE CORRESPONDING PURCHASES OF RAW MATERIALS FOR THE SALES EFFECTED D URING THE YEAR TO MAXIM TUBES & ENGG. CO., PUNE. THE AO ALSO OBSERVED THAT THE APPELLANT HAS NOT SUBMITTED THE BANK STATEMENT TO SUBSTANTIATE ITS CLAIM AND SUBSEQUENT CASH WITHDRAW ALS AS PER THE MODUS OPERANDI OF M/S. WIL. 5.4. ON THE OTHER SIDE, THE APPELLANT SUBMITTED THA T THE APPELLANT HAS SOLD THE GOODS TO M/S. MAXIM TUBES & ENGG. CO. LTD. WHO WAS THE CONSIGNEE AGENT OF WIL, AND THE PAYMENTS WERE ALSO RECEIVED FROM THE SAID AGENT. THE AO OBSERVED THAT THE APPELLANT HAS MADE THE SALES AMOUNTING TO RS.1,80,06,287/- TO M/S. MAXIM TUBES & ENGG. CO., DURING THE YEAR UNDER CONSIDERATION. EVEN THE SALE BILLS WERE MADE IN THE NAME OF M/S. MAXIM TUBES & ENGG. CO., PUNE, AND THE GOODS HAVE BEEN TRANSPORTED DIRECTLY FROM FACTORY PREMISES OF THE APPELLANT TO THE SITE OF THE WIL. 5.5. HAVING CONSIDERED THE FACTS AND SUBMISSION, IT IS NOTICED THAT FIRSTLY THE APPELLANT HAD MADE THE TOTAL SALES OF RS.1,80,06,287/- TO MAXIM T UBES AND ENGG. CO., PUNE. THE AFORESAID SALES HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOU NTS AND INCLUDED IN THE SALES SHOWN IN THE P & L ACCOUNT. SO, EVEN IF THERE WAS ANY OVER INVOI CING OF THE SALES, IN THAT CASE, AT LEAST THE APPELLANT HAD OFFERED MORE SALES IN ITS P & L ACCOU NT AND CORRESPONDING INCOME IN THE RETURN OF INCOME. SO THERE IS NO CASE OF ANY REDUCT ION OF THE INCOME / UNDER STATEMENT OF INCOME BY THE APPELLANT, AS PER,THE ALLEGATIONS MAD E BY THE AO. 5.6. SINCE THE APPELLANT WAS ENGAGED IN THE BUSINES S OF MANUFACTURING AND TRADING OF SS, SEAMLESS AND WELDED TUBES & PIPES AND DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT THROUGH HIS AUTHORISED REPRESENTATIVE HAS ATTENDED THE OFFICE OF THE AO AND DETAILS, REQUISITIONS WERE PLACED ON RECORD. SINCE THE APPEL LANT WAS A MANUFACTURING UNIT, THEREFORE, THE AOS ALLEGATION THAT NO CORRESPONDING PURCHASE O F THE RAW MATERIAL HAS BEEN PROVED CANNOT BE THE REASON VIEWED ADVERSELY. BEING THE MA NUFACTURING CONCERN, HOW THE APPELLANT IS EXPECTED TO CO-RELATE THE CORRESPONDING PURCHASE S OF THE RAW MATERIAL TO THE SALES OF THE FINISHED GOODS AFFECTED TO THE M/S. WIL WHEN THE RA W MATERIAL PASSES THROUGH VARIOUS PROCESSES BEFORE IT TAKES THE SHAPE OF FINISHED GOO DS. THE AO HAS NOT ALLEGED ANYWHERE THAT THE BOOKS OF ACCOUNT OF THE APPELLANT WERE NOT RELI ABLE AND NO DETAILS OF THE PRODUCTION / CONSUMPTION OF THE FINISHED GOODS AND RAW MATERIAL HAVE BEEN MAINTAINED BY THE APPELLANT. 5.7. EVEN THE AO HAS NOT PIN POINTED ANY SPECIFIC P URCHASES WHICH COULD BE SAID TO BE THE BOGUS WHICH WAS CLAIMED AS EXPENDITURE AGAINST THE OVER INVOICING OF THE SALES. MOREOVER, - 8 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 THE APPELLANT HAS RAISED THE BILLS IN THE NAME OF T HE AGENT NAMELY; M/S. MAXIM TUBES & ENGG. CO., PUNE AND NOT DIRECTLY IN THE NAME OF M/S. WIL. IN FURTHERANCE TO THE PURCHASES, HOW M/S. MAXIM TUBES & ENGG. CO., PUNE HAVE RAISED THE SALE BILLS TO M/S. WIL IS NOT A MATTER OF CONCERN TO THE APPELLANT. IN ANY CASE, WHEN THE M/S . WIL HAS SHOWN THE PURCHASES FROM MAXIM TUBES & ENGG. CO., PUNE THEN, IF ANY ACTION W AS TO BE WARRANTED, IT COULD HAVE BEEN TAKEN ONLY IN THE CASE OF THE MAXIM TUBES & ENGG. C O., PUNE, BUT NOT IN THE CASE OF APPELLANT. EVEN THE PAYMENTS TOWARDS THE SALE PROCE EDS HAVE BEEN RECEIVED BY THE APPELLANT FROM MAXIM TUBES & ENGG. CO., PUNE ONLY. THEREFORE, THERE WAS NO DIRECT SALES OR RECEIPT OF PAYMENT FROM M/S. WIL TO THE APPELLANT. THE ONLY FA CT THAT THE DISPATCH OF THE GOODS BY THE APPELLANT TO THE PLACE OF M/S. WIL WAS MADE AS PER THE INSTRUCTION OF M/S. MAXIM TUBES & ENGG. CO., PUNE, THAT MAY BE TO SAVE THE FREIGHT, T O AVOID THE DELAY IN DELIVERY AND FOR OTHER REASONS, WOULD NOT BE CAUSING ANY ADVERSE VIEW IN T HE CASE OF THE APPELLANT. THUS, THE APPELLANT HAS NO PURCHASE OR SALES WITH THE M/S. WI L IN THE YEAR UNDER CONSIDERATION. ALL THE SALES MADE TO M/S. MAXIM TUBES & ENGG. CO., PUNE AN D PAYMENTS RECEIVED THROUGH ACCOUNT PAYEE CHEQUE FROM THEM HAVE BEEN RECORDED IN THE LE DGER ACCOUNT OF THIS PARTY ONLY AND NOT IN THE ACCOUNT OF M/S. WIL. 5.8. THE APPELLANT HAS ALSO MENTIONED THAT THERE WA S NO WHATSOEVER ANY CONNECTION BETWEEN THE APPELLANT AND MAXIM TUBES & ENGG. CO., PUNE, BU T BECAUSE OF THE SIMILARITY IN THE NAME, CONFUSION HAS TAKEN PLACE IN THE MINDS OF THE CONCE RNED AOS. THE ADDITION, IF ANY, HAS TO BE TAKEN IS REQUIRED TO BE MADE IN THE CASE OF MAXIM T UBES & ENGG. CO., PUNE AND NOT IN THE CASE OF ASSESSEE. 5.9. IN VIEW OF THE AFORESAID DISCUSSION, THE ADDIT ION MADE BY THE AO IN THE CASE OF APPELLANT WAS UNWARRANTED, AND HENCE, THE SAME IS DELETED. TH E GROUND OF APPEAL IS ACCORDINGLY ALLOWED.' 6.1. THE ORDER PASSED BY THE LD.CIT(A) WAS UPHELD B Y THE ORDER DATED 22.11.2016 IN ITA NO.3244/AHD/2015 BY THE CO-ORDINATE BENCH OF THIS T RIBUNAL WITH THE FOLLOWING OBSERVATION:- 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED T HE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 15. WE FIND THAT, AS LEARNED CIT(A) HAS RIGHTLY POI NTED OUT, NO SPECIFIC INSTANCES OF BOGUS PURCHASES OR INFLATED SALES HAVE BEEN POINTED OUT B Y THE ASSESSING OFFICER. AS A MATTER OF FACT, THERE ARE NO DIRECT SALES OR RECEIPT OF PAYME NT FROM WIL FROM THE ASSESSEE INASMUCH AS THE TRANSACTIONS WERE BETWEEN MAXIM TUBES & ENGINEE RING CO. AND WIL. THE ASSESSEE HAS MADE NO PURCHASE OR SALE WITH WIL IN THE RELEVANT P REVIOUS YEAR. IN THESE CIRCUMSTANCES, THE ADDITION OF RS.53,20,000/- MADE IN THE HANDS OF THE ASSESSING OFFICER IS INDEED DEVOID OF ANY LEGAL OR FACTUAL BASIS. IT IS, IN OUR CONSIDERED V IEW, PURELY BASED ON SURMISES AND CONJECTURES AND THE LEARNED CIT(A) WAS THEREFORE PERFECTLY JUST IFIED IN DELETING THE SAME. IN VIEW OF THESE - 9 - ITA NO.5 86/AHD/2017 ACIT VS. M/S.MAXIM TUBES COMPANY PVT.LTD. ASST.YEAR 2013-14 DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CAS E, WE UPHOLD THE ACTION OF THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 16. IN THE RESULT, APPEAL FILED BY THE ASSESSING OF FICER IS DISMISSED. 7. IN VIEW OF THE DECISION PASSED BY THE CO-ORDINA TE BENCH OF THIS LD.ITAT ON THE IDENTICAL ISSUE ON SIMILAR SET OF FACTS IN FAVOUR O F ASSESSEE, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER PASSED BY THE LD.CIT(A). THUS, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL STANDS DISMI SSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18/ 06/2018 SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18/ 06/2018 0+..) , .)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &'% / THE RESPONDENT. 3. 12 3 / CONCERNED CIT 4. 3 ( ) / THE CIT(A)-2, AHMEDABAD 5. 67 8 )2 , + 2 . , 1 / DR, ITAT, AHMEDABAD 6. 8 :; < * / GUARD FILE. / BY ORDER, & 6 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 11.6.18 (DICTATION-PAD 9-P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.6.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.18.6.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 18.6.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER