DEEPAK P. GALA, MUMBAI V. ITO 25(3)(2), MUMBAI

ITA 6203/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9246 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 23-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Unexplained expenditure; Permanent establishment; Advance ruling; Initiation of penalty proceedings; Accommodation entries
• Section: 69C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./ I.T .A. NO . 5920 / MUM/20 1 3 ( / ASSESSMENT YEAR : 20 10 - 2011 ) INCOME TAX OFFICER - 25(3)(2), C - 11, ROOM NO.306, PRATYAKSHAKAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI - 400051. / VS. SHRI DEEPAK POPATLAL GALA, 13, LAXMI VILLA BUNGLOW, THAKUR COMPLEX, OPP.POLICE STN. KANDIVALI (E), MUMBAI - 400 067 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .6203 /MUM/20 13 ( / ASSESSMENT YEAR : 20 10 - 2011 ) SHRI DEEPAK POPATLAL GALA, 13, LAXMI VILLA BUNGLOW, THAKUR COMPLEX, OPP.POLICE STN. KANDIVALI (E), MUMBAI - 400067 / VS. INCOME TAX OFFICER - 25(3)(2), C - 11, ROOM NO.306, PRATYAKSHAKAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACPG5768P / REVENUE BY SHRI LOVE KUMAR / ASSESSEE BY SHRI BHUPENDRA SHAH / DATE OF HEARING : 11 .3. 2015 / DATE OF PRONOU NCEMENT : 27. . 3. 2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE SE CROSS - APPEAL S ARE DIRECTED AGAINST THE ORDER DATED 22.07.2013 PASSED BY THE LD. CIT(A) - 35 , MUMBAI AND THE Y RELATE TO ASSESSMENT YEAR 20 10 - 11 . ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 2 2. THE ASSESSEE IS AGG RIEVED BY THE DECISION OF LD. CIT(A) : A) I N CONFIRMING THE DISALLOWANCE OF EXPORT COMMISSION; B) IN D ELETING THE INTEREST U/S 234B, 234C AND 234D AND SETTING ASIDE THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) . 3. THE REVENUE IS ALSO IN APPEAL IN RESPECT OF FOLLOWING ISSUES : A) ALLOWING INTEREST EXPENDITURE CLAIMED AGAINST THE HOUSE PROPERTY INCOME; B) DELETING THE ADDITION MADE U/S 69C OF THE ACT RELATING TO PURCHASES . 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORDS. THE ASSESSEE IS A WHOLESALER IN HARDWARE ITEMS. HE FILED HIS RETURN OF INCOME FO R THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS.14.06 LAKHS. HOWEVER, THE AO COMPUTED THE TOTAL INCOME AT RS. 7 0 .50 LAKHS. IN THE APPELLATE PROCEE DINGS, THE ASSESSEE GOT PARTIAL RELIEF AND HENCE BO TH THE PA RTIES ARE IN APPEAL BEFORE US IN RESPECT OF THE ISSUES CITED ABOVE . 5. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF EXPORT COMMISSION O F RS.14.39 LAK HS CLAIMED BY THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE HAS NOT DEDUCED TAX AT SOURCE ON THE COMMISSION EXPENSES CLAIMED BY HIM . IT WAS NOTICED THAT THE COMMISSION PAYMENT WAS MADE TO ONE SHRI PINKESH GALA. THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF COMMISSION PAID ALONG WITH THE DETAILS OF SERVICES RENDERED BY THE AGENT AND ALSO THE REASONS FOR NOT DEDUCTING THE TAX AT SOURCE. THE ASSESSEE SUBMITTED THAT THE SHRI PINKESH GAL A IS A NON - RESIDENT AND HE IS OPERATING FROM OUTSIDE INDIA. FURTHER, IT WAS SUBMITTED THAT THE AGENT DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. ACCORDINGLY , IT WAS SUBMITTED THAT THE ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 3 COMMISSION INCOME DID NOT ACCRUE TO SHRI PINKESH GALA IN INDIA AND HENCE IT IS NOT TAXABLE IN HIS HANDS IN INDIA . ACCORDINGLY, IT WAS SUBMITTED THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE FROM THE PAYMENT MADE TO SHRI PINKESH GALA. HOWEVER, THE AO TOOK THE VIEW THAT THE COMMISSION AGENT HAS EARNED INCOME FROM BUSINESS CONNECTION IN INDIA AND FURTHER T HE AO ALSO INVOKED EXPLANATION - II GIVEN BELOW TO SECTION 195 OF TH E ACT. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE FROM THE COMMISSION PAYMENT AND SINCE THERE WAS FAILURE TO DO SO, HE DISALLOWED COMMISSION EXPENDITUR E OF RS.14.39 LAKHS BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. T HE AO ALSO PLACED RELIANCE ON THE DECISION RENDERED BY AUTHORITY FOR ADVANCE RULING IN THE CASE OF M/S SKF BOILERS AND DRIERS PVT.LTD. THE LD.CIT(A) ALSO CONFIRMED THE SAM E. 6 . BEFORE US, THE LD. AR PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S INDO INDUSTRIES LIMITED V/S ITO IN ITA NO.183/MUM/2014 (AY - 2010 - 11) DATED 14.11.2014, WHEREIN THE TRIBUNAL HAS HELD THAT COMMISSION PAID TO TH E AGENTS LOCATED OUTSIDE INDIA DOES NOT REQUIRE DEDUCT ION OF TAX AT SOURCE. WE NOTICE THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY THE HONBLE DELHI HIGH COUR T IN THE CASE OF EON TECHNOLOGY PVT LTD (343 ITR 366 ) (DEL) AND ALSO THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PRIVATE LIMITED REPORTED IN 327 ITR 456 (SC). ON THE OTHER HAND, THE LD D.R PLACED STRONG RELIANCE ON THE ORDER OF THE LD CIT(A) AND ALSO SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS RELATING TO ALLEGED COMMISSION PAYMENT. 7 . THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PRIVATE LTD (SUPRA) HAS MADE IT CLEAR THAT THE TDS IS REQUIRED TO BE DEDUCTED FROM THE PAYME NTS MADE TO A NON - RESIDENT, ONLY IF ANY PART OF ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 4 THE PAYMENT IS CHARGEABLE TO TAX IN INDIA. HENCE, THERE SHOULD NOT BE ANY CONFUSION OVER THE PRINCIPLES THAT WERE DISCUSSED BY HONBLE SUPREME COURT ON THIS ISSUE. THE SAID PRINCIPLES HAVE TO BE APPLIED TO THE FACTS PREVAILING IN A PARTICULAR CASE. HOWEVER, WE NOTICE THAT THE A SSESSEE HAS FAILED TO FURNISH THE DETAILS RELATING TO COMMISSION PAYMENT S AND THE SERVICES RENDERED BY THE AGENT TO THE ASSESSEE . IN THE ABSENCE OF SUCH DETAILS , ONE CANNOT ASCERTAIN ABOUT THE NATURE OF PAYMENT , WHETHER SHRI PINKESH GALA HAS RENDERED SERVICES FROM OUTSIDE INDIA , WHETHER THE COMMISSION PAYMENT IS CHARGEABLE AS INCOME IN HIS HANDS IN INDIA . WITHOUT ASCERTAINING ABOUT THE NATURE OF PAYMENT, IT WOULD BE DIFFICULT TO APP LY THE CIRCULARS OF CBDT AND ALSO THE DECISION S OF HONBLE SUPREME C OUR T OR HIGH COURT S OR TRIBUNAL. ACCORDINGLY , WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE EN D OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THI S ISSUE AND RESTORE THE SAME TO THE FILE OF T HE AO WITH A DIRECTION TO EXAM INE THE SAME AFRESH BY CONSIDERING ABOUT THE APPLICABILITY OF THE DECISION S REFERRED SUPRA TO THE FACTS PREVAILING IN THE INSTANT CASE . THE ASSESSEE IS ALSO DIRECTED TO FURNISH AL L THE DETAILS RELATING TO EXPENDITURE THAT MAY BE CALLED BY THE AO. 8 . THE ISSUE RELATING TO CHARGING OF INTEREST UNDER THE PROVISION OF THE ACT IS CONSEQUENTIAL IN NATURE AND THE ISSUE RELATING TO INITIATION OF PENALTY PROCEEDINGS IS PREMATURE AND HENC E THEY DO NOT REQUIRE ANY ADJUDICATION AT THIS JUNCTURE. 9 . IN T HE APPEAL BY THE REVENUE , T HE FIRST ISSUE RELATES TO THE ALLOWANCE OF INTEREST OF RS.1,50,000/ - CLAIMED BY THE ASSESSEE AGAINST THE HOUSE PROPERTY INCOME. THE ASSESSMENT ORDER SHOWS THAT T HE ASSESSEE HAS AG R E E D FOR TH E DISALLOWANCE OF THE IN TEREST SO CLAIMED , S INCE IT WAS POINTED TO HIM BY THE AO THAT THE HOUSING LOAN WAS NOT TAKEN IN RESPECT OF HOUSE AGAINST WHICH THE INTEREST EXPENDITURE WAS CLAIMED. HOWEVER, THE ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 5 LD. CIT(A) HAS ALLOWED T HE CLAIM WITHOUT LOOKI NG INTO THE ABOVE FACTS. ONCE AGREED, THE ASSESSEE CANNOT BE CONSIDERED TO BE AGGRIEVED BY THE SAID ADDITION. ACCORDINGLY , WE SET ASIDE THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE AND RESTORE THE ADDITION MADE BY AO. 10. THE NEXT ISSU E REL ATES TO DISALLOWANCE MADE OUT OF PURCHA SES AND ASSESSED U/S 69C OF THE ACT. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE TOTAL PURCHASE EXPENDITURE CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS RS.7,36,27,555 / - . THE AO NOTICED T HAT THE SALES TAX DEPARTMENT OF GOVERNMENT OF MAHARASHTRA HAS LISTED OUT NAMES OF CERTAIN DEALERS , WHO WERE ALLEGED TO HAVE BEEN PROVIDING ACCOMMODATION ENTRIES WITHOUT DOING ACTUAL BUSINESS. THE AO NOTICED THAT THE ASSESSEE MADE PURCHASE S TO THE TUNE OF R S.38.69 LAKHS FROM TWO PARTIES NAMED M/S UMIYA SALES AGENCY PVT LTD AND M/S MERCURY ENTERPRISES , WHOSE NAMES FOUND PLACE IN THE LIST PROVIDED BY THE SALES TAX DEPARTMENT . T HE AO PLACED FULL RELIANCE ON THE ENQUIRIES CONDUCTED BY SALES TAX DEPARTMENT IN RES PECT OF THE PARTIES, REFERRED ABOVE. ACCORDINGLY, THE AO TOOK THE VIEW THAT T HE PURCHASES TO THE TUNE OF RS.38.69 LAKHS HAVE TO BE TREATED AS UNEXPLAINED EXPENDITURE. ACCORDINGLY, HE ASSESSED THE SAME U/S 69C OF THE ACT. 11. THE LD. CIT(A) DELETED THE ADDITION AND HENCE THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. DR STRONGLY PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 6 13. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE ADDITIONS MADE IN THE CASE OF SOME OTHER ASSESSES ON IDEN TICAL REASONS HAVE BEEN DELETED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL IN THE FOLLOWING CASES : A) RAMESH KUMAR AND CO V/S ACIT IN ITA NO.2959/MUM/2014 (AY - 2010 - 11) DATED 28.11.2014; B) DCIT V/S SHRI RAJEEV G KALATHIL IN ITA NO.6727/MUM/201 2 (AY - 2009 - 10) DATED 20.8.2014; AND C) SHRI GANPATRAJ A SANGHAVI V/S ACIT IN ITA NO. 2826/MUM/2013 (AY - 2009 - 10) DATED 5.11.2014 IN ALL THE ABOVE SAID CASES, THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAS HELD THAT THE AO WAS NOT JUSTIFIED IN MAKI NG THE ADDITION ON THE BASIS OF STATEMENT S GIVEN BY THE THIRD PARTIES BEFORE THE SALES TAX DEPARTMENT , WITHOUT CONDUCTING ANY OTHER INVESTIGATION. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION ON THE BASIS OF STATEMENTS GI VEN BY THE PARTIES BEFORE THE SALES TAX DEPARTMENT. WE NOTICE THAT THE LD.CIT(A) HAS TAKEN NOTE OF THE FACT THAT NO SALES COULD BE EFFECTED WITHOUT PURCHASES. HE HAS FURTHER PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CA SE OF CIT VS. M.K. BROTHERS (163 ITR 249). HE HAS FURTHER RELIED UPON THE DECISION RENDERED BY THE TRIBUNAL IN THE CAE OF ITO VS. PREMANAND (2008)(25 SOT 11)(JODH), WHEREIN IT HAS BEEN HELD THAT WHERE THE AO HAS MADE ADDITION MERELY ON THE BASIS OF OBSERV ATIONS MADE BY THE SALES TAX DEPT AND HAS NOT CONDUCTED ANY INDEPENDENT ENQUIRIES FOR MAKING THE ADDITION ESPECIALLY IN A CASE WHERE THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS OF ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 7 SHOWING BOOKS OF ACCOUNT, PAYMENT BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUC ING VOUCHERS FOR SALE OF GOODS, SUCH AN ADDITION COULD NOT BE SUSTAINED. THE LD CIT(A) HAS ALSO APPRECIATED THE CONTENTIONS OF THE ASSESSEE THAT HE WAS NOT PROVIDED WITH AN OPPORTUNITY TO CROSS EXAMINE THE SELLERS, WHICH IS REQUIRED TO BE GIVEN AS PER THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF PONKUNNAM TRADERS (83 ITR 508 & 102 ITR 366). ACCORDINGLY, THE LD CIT(A) HAS DELETED THE IMPUGNED ADDITION. ON A CAREFUL PERUSAL OF THE DECISION RENDERED BY LD CIT(A) WOULD SHOW THAT THE FIRST APPE LLATE AUTHORITY HAS ANALYSED THE ISSUE IN ALL ANGLES AND APPLIED THE RATIO LAID DOWN BY THE HIGH COURTS AND TRIBUNALS IN DECIDING THIS ISSUE. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. 14. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THE APPEA L OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. P RONOUNCED ACCORDINGLY IN THE OPEN COURT ON 27TH MAR , 2015 . 27TH MARCH , 2015 SD SD ( / SANJAY GARG ) ( . . / B.R. BASKARAN) / JUDICIAL M EMBER / ACCOUNTANT MEMBER MUMBAI: 25TH MARCH , 201 5 . . . ./ SRL , SR. PS ITA. NO . 5920 /M UM/ 20 1 3 AND 6203/MUM/2013 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI