Anita Kohli, New Delhi V. ACIT, New Delhi

ITA 6255/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5244 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: P N MEHTA
• Keywords: Business income; Search and seizure; Loose papers; Services rendered outside India; Permanent establishment
• Section: 153A; 132; 139

Judgement Text

1 ITA NOS. 6254 & 6255/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 6254/DEL/2 013 (A.Y .2006-07) I.T.A .NO. 6255/DEL/2 013 (A.Y .2007-08) ANITA KOHLI 34-M, ASHOKA AVENUE, SAINIK FARMS NEW DELHI APDPK4198M (APPELLANT) VS ACIT CENTRAL CIRCLE-4 NEW DELHI (RESPONDENT) APPELLANT BY SH. P. N. MEHTA, CA RESPONDENT BY SH. RAVI JAIN, CIT(DR) ORDER PER BENCH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER DATED 23/08/2013 PASSED BY THE CIT(A)-XXIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- (ITA NO. 6254/DLE/2013) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE COMM ISSIONER OF INCOME TAX (APPEALS) IS WRONG IN CONFIRMING THE DISALLOWANCE O F RS.244,550/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40(I)(A) OF THE INCOME TAX ACT. 2. THAT THE COMMISSIONER (APPEALS) HAS ERRED IN UPHOL DING THAT THE PROVISIONS OF SECTION 40(I)(A) ARE APPLICABLE IN SO FAR AS THE PAYMENT OF COMMISSION FALLS DATE OF HEARING 15.06.2017 DATE OF PRONOUNCEMENT 11.08.2017 2 ITA NOS. 6254 & 6255/DEL/2013 IN THE CATEGORY OF FEE FOR TECHNICAL SERVICES. THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE NON-RESIDENT WAS ONLY FOR RENDERIN G NON TECHNICAL SERVICES. 3. THAT THE CIT(A) HAS ERRED IN TREATING PAYMENT OF R S. 244,550/- IS ON ACCOUNT OF TECHNICAL SERVICES RENDERED AND AS SUCH PROVISIO NS OF SECTION 40(I)(A) ARE ATTRACTED. 4. THAT WITHOUT PREJUDICE TO THE ABOVE THE ASSESSING OFFICER IS WRONG IN APPLYING PROVISIONS OF SECTION 40(I)(A) OF THE INCO ME TAX ACT AS THE PAYMENT MADE TO THE NONRESIDENT IS IN THE NATURE OF BUSINES S INCOME AND THE NON- RESIDENT HAS NO PERMANENT ESTABLISHMENT IN INDIA UN DER ARTICLE V OF THE DOUBLE TAXATION TREATY BETWEEN INDIA AND USA. 5. THAT THE ASSESSING OFFICER IS WRONG IN APPLYING TH E PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT. 6. THAT THE PROVISIONS OF SECTION 153A ARE NOT APPLIC ABLE IN SO FAR AS NO NEW MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH AND THE AMOUNT PAID TO THE NON-RESIDENT WAS ALREADY RECORDED IN THE BOOKS OF ACCOUNTS. 7. THAT THE ORDER PASSED BY THE COMMISSIONER (APPEALS ) IS AGAINST THE LAW AND FACTS OF THE CASE. 8. THAT THE ADDITIONS MADE TO THE DISCLOSED INCOME AR E AGAINST THE LAW AND FACTS OF THE CASE. (ITA NO. 6255/DEL/2013) 3 ITA NOS. 6254 & 6255/DEL/2013 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE C OMMISSIONER OF INCOME TAX (APPEALS) IS WRONG IN CONFIRMING THE DISALLOWAN CE OF RS.388,453/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40(I)(A) OF THE INCOME TAX ACT. 2. THAT THE COMMISSIONER (APPEALS) HAS ERRED IN UPH OLDING THAT THE PROVISIONS OF SECTION 40(I)(A) ARE APPLICABLE IN SO FAR AS THE PAYMENT OF COMMISSION FALLS IN THE CATEGORY OF FEE FOR TECHNIC AL SERVICES. THE RELATIONSHIP BETWEEN THE ASSESSEE AND THE NON-RESIDENT WAS ONLY FOR RENDERING NON TECHNICAL SERVICES. 3. THAT THE CIT(A) HAS ERRED IN TREATING PAYMENT OF RS. 388,453/- IS ON ACCOUNT OF TECHNICAL SERVICES RENDERED AND AS SUCH PROVISIONS OF SECTION 40(I)(A) ARE ATTRACTED. 4. THAT WITHOUT PREJUDICE TO THE ABOVE THE ASSESSIN G OFFICER IS WRONG IN APPLYING PROVISIONS OF SECTION 40(I)(A) OF THE INCO ME TAX ACT AS THE PAYMENT MADE TO THE NONRESIDENT IS IN THE NATURE OF BUSINES S INCOME AND THE NON- RESIDENT HAS NO PERMANENT ESTABLISHMENT IN INDIA UN DER ARTICLE V OF THE DOUBLE TAXATION TREATY BETWEEN INDIA AND USA. 5. THAT THE ASSESSING OFFICER IS WRONG IN APPLYING THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT. 6. THAT THE PROVISIONS OF SECTION 153A ARE NOT APPL ICABLE IN SO FAR AS NO NEW MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH AND THE AMOUNT PAID TO THE NON-RESIDENT WAS ALREADY RECORDED IN THE BOOKS OF A CCOUNTS. 7. THAT THE ORDER PASSED BY THE COMMISSIONER (APPEA LS) IS AGAINST THE LAW AND FACTS OF THE CASE. 3. THE ISSUES ARE COMMON IN A.Y. 2006-07 AND 2007-0 8, THEREFORE, THE FACTS FOR A.Y. 2006-07 ARE NARRATED HEREIN. THE ASS ESSEE FILED ORIGINAL RETURN OF INCOME UNDER SECTION 139 OF THE INCOME TAX ACT, 196 1 AND WAS ASSESSED AT AN 4 ITA NOS. 6254 & 6255/DEL/2013 INCOME OF RS.1,74,181/- ON 20.12.2007. THE ASSESSEE IS AN INDIVIDUAL WHO IS CARRYING ON THE BUSINESS OF PROVIDING BPO SERVICES UNDER THE NAME & STYLE OF A.K. CONSULTING. THE ASSESSEE ENTERED INTO A SERVIC E LEVEL AGREEMENT WITH M/S. REBECCA ANN LEHEW, 21926 WILLOW SHADE LANE, TOMBALL , TX 77375 CITY TEXAS, USA (HEREINAFTER REFERRED TO AS REBECCA). UNDER THE SAID AGREEMENT REBECCA ANN LEHEW WHO IS AN INDEPENDENT CONSULTANT AND IS I N THE BUSINESS OF HELPING LITIGATION SUPPORT PROVIDERS INCREASE THE PROFITS T HROUGH OUTSOURCING TO COMPANIES OUTSIDE THE UNITED STATES. A SEARCH AND S EIZURE OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 WAS CARRIED OUT AT THE BUSINESS PREMISES OF KIRAN KOHLI, DHEERAJ KOHLI ALONGWITH TR IBHOVANDAS BHIMJI ZAVERI GROUP ON 18.09.2009. THE SAID FIRM OF M/S. KIRAN KO HLI, DHEERAJ KOHLI IS ENGAGED IN THE BUSINESS OF CONSTRUCTION. MRS. ANITA KOHLI IS WIFE OF MR. KIRAN KOHLI. THE ASSESSEE WAS ALSO SEARCHED AND A NOTICE WAS RECEIVED FROM THE ASSESSING OFFICER, CENTRAL CIRCLE 4, NEW DELHI U/S 153 A OF THE INCOME TAX ACT AND THE ASSESSEE FILED THE RETURN OF INCOME IN RESP ONSE TO THAT NOTICE ON 08.06.2011 DECLARING INCOME AT RS. 1,74,181/-. THE ASSESSEE WAS ASSESSED AT AN INCOME OF RS. 4,18,731/-. THE EXPENDITURE OF RS. 2,44,550/- INCURRED BY THE ASSESSEE ON ACCOUNT OF PAYMENT OF COMMISSION TO THE NON-RESIDENT WAS DISALLOWED UNDER THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE SAID APPEALS. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 20.12.2007 DECLARING AN INCOME OF RS.1,74,181/-. A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT W AS CARRIED OUT AT THE BUSINESS PREMISES OF KIRAN KOHLI DHEERAJ KOHLI ALON G WITH TRIBHOYANDAS BHIMJI ZAVERI GROUP ON 18.09.2009. DURING THE SEARC H AND SEIZURE OPERATION LOOSE PAPERS AND OTHER DOCUMENTS WERE FOUND AND SEI ZED. THE ASSESSEE WAS CALLED UPON TO FILE THE RETURN WHICH WAS FILED BY T HE ASSESSEE ON 08.06.2011 5 ITA NOS. 6254 & 6255/DEL/2013 DECLARING TOTAL INCOME OF RS. 1,74,181/-. NECESSARY COMPLIANCES WERE MADE BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT DUR ING THE COURSE OF SEARCH NO INCRIMINATING MATERIAL OR PAPERS WERE FOUND AND THE REFORE, THE PROVISIONS OF SECTION 153A WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT DURING THE RELEVANT PERIOD T HE ASSESSEE HAD EARNED INCOME BY PROVIDING SERVICES TO THE OVERSEAS CLIENT THROUGH HER PROPRIETORSHIP CONCERN NAMELY A.K. CONSULTING. FOR EARNING THESE S ERVICE CHARGES THE ASSESSEE HAD CLAIMED THE PAYMENT OF COMMISSION OF R S.2,44,550/- TO A NON- RESIDENT. THE ASSESSEE WAS ASKED WHY PROVISIONS OF SECTION 40(A)(I) SHOULD NOT BE INVOKED FOR FAILURE OF THE ASSESSEE IN DEDUCTING TAX AT SOURCE IN RESPECT OF MAKING PAYMENT TO NON-RESIDENT MS. REBECCA ANN LEHE W. THE LD. AR SUBMITTED THAT THE PROVISIONS OF SECTION 195 WERE N OT APPLICABLE AS THE SAID NON-RESIDENT AGENT WAS OPERATING FROM OUTSIDE THE C OUNTRY AND NO PART OF INCOME HAD ARISEN IN INDIA. THE PAYMENT WAS REMITTE D ABROAD AND AS SUCH NO TAX WAS DEDUCTABLE UNDER SECTION 195. THE EXPENDITU RE ON EXPORT COMMISSION TO NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA ARE ALSO NOT TAXABLE IN INDIA. THE LD. AR ALSO SUBMITTED THAT THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER CIRCULAR ISSUED BY THE CBDT NO. 2 3 OF 1969 TO SUPPORT THAT NO TAX WAS DEDUCTABLE. THE ASSESSING OFFICER INFORM ED THAT VIDE THE SAID CIRCULAR NO. 9 OF 2009, CIRCULAR NO. 23 OF JULY 196 9 AND 786 OF 2000 WAS WITHDRAWN AND THEREFORE, SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE IN ACCORDANCE WITH PROVISIONS OF SECTION 195, THE PROV ISIONS OF SECTION 40(A)(I) WERE CLEARLY ATTRACTED AND ACCORDINGLY DISALLOWED T HE EXPENDITURE OF RS.2,44,550/- INCURRED BY THE ASSESSEE ON ACCOUNT O F PAYMENT OF COMMISSION TO THE NON-RESIDENT. THE DISALLOWANCE WAS MADE UNDE R THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND THUS AN ADDITION OF RS. 2,4 4,550/- WAS MADE TO THE INCOME DECLARED OF RS. 1,74,181/-, THUS THE ASSESSE E WAS ASSESSED AT RS. 4,18,731/-. THE MATTER WAS TAKEN BEFORE THE CIT(A) WHO VIDE ORDER DATED 23.08.2013 IN APPEAL NO. 91-92/11-12/776 UPHELD THE ORDER OF THE ASSESSING OFFICER ON THE BASIS OF JUDGMENT OF ANIL BHATIA ITA 1626,1632, 1998, 2006, 2019 & 2020 OF 2010 DATED 07.08.2012. THE LD. AR SU BMITS THAT IN THE CASE OF 6 ITA NOS. 6254 & 6255/DEL/2013 ANIL KUMAR BHATIA THE COURT DID NOT DEAL WITH A SIT UATION REGARDING INCRIMINATING MATERIAL, WHEREAS IN THE PRESENT CASE , NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH CONDUCTED UNDER SECTION 132 OF THE ACT. THE SAID JUDGMENT HAS BEEN DIFFERENTIATED BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA AS MENTION ABOVE IN 380 ITR 573. THERE FORE, IN VIEW OF THE ABOVE THE LD. AR SUBMITS THAT THE ASSESSMENT UNDER SECTIO N 153 A AND UPHELD BY THE CIT(A) BE SET ASIDE. THE LD. AR SUBMITS THAT SE CTION 153 A DOES NOT SAY THAT ADDITIONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FO UND, IT DOES NOT MEAN THAT THE ASSESSMENT 'CAN BE ARBITRARY OR MADE WITHOUT AN Y RELEVANCE OR NEXUS WITH THE SEIZED MATERIAL. OBVIOUSLY, AN ASSESSMENT HAS T O BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL. IN TH E ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPLETED ASSESSMENT CA N BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECTION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOS E PENDING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETED ASSESS MENT PROCEEDINGS. IN THIS RESPECT THE ASSESSEES CASE IS BASED ON JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA 380 ITR 573 AND DELHI HIGH COURT IN THE CASE OF MS. LATA JAIN 384 ITR 543. THEREFORE, THE LD. AR SU BMITS THAT THE ASSESSMENT MADE UNDER SECTION 153A IS NOT VALID AND BE SET ASI DE. 6. AS RELATES TO GROUND NO. 2, THE LD. AR SUBMITS T HAT THE ASSESSING OFFICER APPLIED THE PROVISIONS OF SECTION 40(A)(I) OF THE I NCOME TAX ACT. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT IN THE CASE OF A NON-RESIDENT IT IS A BUSINESS INCOME AND SINCE THE NON-RESIDENT HAS NO P ERMANENT ESTABLISHMENT IN INDIA UNDER ARTICLE V OF DOUBLE TAXATION TREATY BETWEEN INDIAN & USA, THIS AMOUNT IS TAXABLE IN USA AND NOT IN INDIA. IN THIS RESPECT THE ASSESSEE FILED A LETTER OF THE NON-RESIDENT AS WELL AS CERTIFICATE F ROM DEPARTMENT OF TREASURY STATING THAT THE NON-RESIDENT IS A RESIDENT OF UNIT ED STATES OF AMERICA FOR PURPOSES OF US TAXATION (REFER PAGE 7 & 8 OF THE PA PER BOOK). AS THE NON- 7 ITA NOS. 6254 & 6255/DEL/2013 RESIDENT UNDER ARTICLE V OF THE DOUBLE TAXATION TRE ATY BETWEEN INDIA & USA THE BUSINESS INCOME IS TO BE TAXED IN USA. 7. AS RELATES TO GROUND NO. 3, THE LD. AR SUBMITS T HAT THE ASSESSING OFFICER IS WRONG IN APPLYING THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT, 1961. THE ASSESSEE PLACED BEFORE THE ASSESSING OFFICER TH E CIRCULAR OF THE BOARD 93 DATED 23.07.1969, 163 DATED 29.05.1975 AND 786 DATE D 07.02.2000 IN WHICH IT IS CLEARLY MENTIONED THAT THE AMOUNT PAID TO THE NO N-RESIDENT ON ACCOUNT OF COMMISSION IS NOT TAXABLE IN INDIA AS THEY HAVE NOT RENDERED ANY SERVICES IN INDIA. THE ABOVE SAID CIRCULARS WERE WITHDRAWN VIDE CIRCULAR NO.7 DATED 2009. THE LD. AR SUBMITS THAT IN 2006, THE ASSESSEE WAS N OT AWARE THAT THESE CIRCULARS WILL BE WITHDRAWN AND THEREFORE, NO TAX W AS DEDUCTED AT SOURCE. AS THE CIRCULARS WERE WITHDRAWN IN 2009 BUT FOR THE AS SESSMENT YEAR 2006-07 THIS CIRCULAR IS NOT APPLICABLE IN VIEW OF JUDGMENT OF T HE DELHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXAT ION - II VS. PANALFA AUTOELEKTRIK LTD. (227 TAXMANN351). THE MADRAS HIGH COURT HAS SIMILAR VIEW IN THE CASE OF CIT, CHENNAI VS. ORIENT EXPRESS (230 TAXMANN 602) HAS ALSO MENTIONED THAT THE PROVISIONS OF SECTION 40 (A)(I) ARE NOT APPLICABLE PRIOR TO 2009. AGAIN THE MADRAS HIGH COURT HELD THAT SECTION 195 DOES NOT COME INTO PLAY IN THE CASE OF EXPORT COMMISSION IN 1996 IN TH E CASE OF CIT VS. FAIZAN SHOES PVT.LTD. 367 ITR 155). THE ALLAHABAD HIGH COU RT ALSO IN THE CASE OF CIT AND ANOTHER VS. MODEL EXINS 358 ITR PAGE 72 ALSO HE LD THAT THE PROVISIONS OF SECTION 195, 9(L)(VII) AND 40 (A)(I) ARE NOT APPLIC ABLE AND THEREFORE, NO TAX WAS TO BE DEDUCTED UNDER SECTION 195. THE ITAT, MUMBAI ALS O HELD IN THE CASE OF HOLCIM SERVICES SOUTH ASIA LTD. VS. DEPUTY COMMISSI ONER OF INCOME TAX, RANGE 8(2), MUMBAI THAT THE PROVISIONS OF SECTION 4 0(A)(I) ARE NOT APPLICABLE BECAUSE DURING THAT PERIOD THE RATIO OF SUPREME COU RT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. 288 ITR 4 08 WAS APPLICABLE. IT IS A TRITE LAW THAT MAXIM LEX NON COGIT AD IMPOSSIBILIA , WHICH MEANS, THE LAW DOES NOT COMPEL A PERSON TO DO THAT WHICH HE OR SHE CANN OT POSSIBLY PERFORM.'. THUS AT THE TIME OF MAKING PAYMENT THE ASSESSEE COU LD NOT VISUALIZE TO DEDUCT 8 ITA NOS. 6254 & 6255/DEL/2013 TDS WHEN THERE WAS NO PROVISION AND IN FACT THERE W AS ALREADY PREVAILING THE LAW LAID DOWN BY THE SUPREME COURT THAT IN SUCH A C ASE, NO TDS WAS TO BE DEDUCTED, THUS OBVIOUS CONCLUSION THAT ON SUCH PAYM ENT NO DISALLOWANCE CAN BE MADE. THE LD. AR SUBMITS THAT THE CIT(A) OUGHT T O HAVE HELD THAT THE ISSUANCE OF CIRCULAR NO.7 OF 2009 DATED 22.10.2009 WITHDRAWING CIRCULARS NO.23 OF 1969, 163 OF 1975 AND 786 OF 2000 WAS OPER ATIVE ONLY FROM OCTOBER 2009 AND NOT PRIOR TO THAT DATE. THERE IS NO EVIDEN CE TO THE EFFECTS THAT THE NON-RESIDENT WERE NOT ONLY THE SELLING AGENTS BUT A LSO TECHNICAL ADVISERS, THE PAYMENT DOES NOT FALL UNDER THE PROVISIONS OF SECTI ON (9)(L)(VII). 8. AS RELATES TO GROUND NO. 4 & 5, THE LD. AR SUBMI TS THAT THE ASSESSING OFFICER HELD THAT THE SERVICES RENDERED BY THE ASSE SSEE IS OF TECHNICAL NATURE AND AS SUCH THE PROVISIONS OF SECTION 9(L)(VII) OF THE ACT ARE APPLICABLE, IT WAS FOR THE ASSESSEE TO DEDUCT TAX UNDER SECTION 195 OF THE ACT. THE NON-RESIDENT HAS NOT RENDERED ANY SERVICES IN INDIA THE PROVISIONS O F SECTION 9(L)(VII) ARE NOT APPLICABLE. THE PROVISIONS OF SECTION 9(L)(VII) WAS MODIFIED BY THE FINANCE ACT 2010 THE EXPLANATION WAS ADDED THAT THE SAID SECTIO N IS APPLICABLE FROM 01.06.1976. THE LD. AR FURTHER SUBMITTED THAT THE A CT WAS AMENDED IN 2010 AND AS THE ASSESSEE WAS NOT AWARE IN 1996 THAT THER E WILL BE A CHANGE IN THE ACT, THE TAX WAS NOT DEDUCTED AT SOURCE AS THE SAID EXPLANATION WAS GIVEN IN 2010. THE LD. AR FURTHER SUBMITTED THAT THERE WAS N O PROVISION FOR THE ASSESSEE TO DEDUCT TAX AT SOURCE IN 1996, THEREFORE THE AMENDMENT WHICH CAME INTO FORCE FROM 2009 RELATING TO CIRCULAR OF C BDT WITHDRAWING THE CIRCULARS EARLIER ISSUED BY THEM AND MODIFICATIONS OF SECTION 9(1)(VII) FROM 2010 THOUGH APPLICABLE FROM 1/6/1976 AND THEREFORE, NO T AX WAS DEDUCTED AT SOURCES. 9. THE LD. DR RELIED UPON THE ORDERS OF THE ASSESSI NG OFFICER AND THE CIT(A). 9 ITA NOS. 6254 & 6255/DEL/2013 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN LIGHT OF THE JUDGMENT OF KABUL CHAWLA A ND VARIOUS OTHER DECISIONS OF THE HONBLE DELHI HIGH COURT IF THERE IS NO INCRIMI NATING MATERIAL FOUND SECTION 153A CANNOT BE INVOKED. SINCE, THE ASSESSING OFFIC ER HAS NOT FOUND ANY INCRIMINATING MATERIAL, THEREFORE, SECTION 153A DOE S NOT APPLY IN THE PRESENT CASE. WHILE DEALING WITH MERITS, IT IS OBSERVED TH AT DURING THE YEAR THE ASSESSEE UTILIZED THE SERVICES OF THE SAID COMPANY, M/S. REBECCA ANN LEHEW FOR OBTAINING BUSINESS FROM UNITED STATES AND EARNE D INCOME FROM THE SAID SERVICES. FOR PROVIDING SUCH SERVICES BY REBECCA, T HE ASSESSEE COMPANY PAID A SUM OF RS. 244551/- FOR OBTAINING BUSINESS. AS THIS PAYMENT WAS RECORDED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, THE PROVISIO NS OF SECTION 153 A ARE NOT APPLICABLE. THE ASSESSING OFFICER TREATED THIS PAYM ENT IN THE NATURE OF COMMISSION AND DISALLOWED THE AMOUNT ON THE BASIS T HAT NO TAX WAS DEDUCTED UNDER SECTION 40(I)(A) OF THE INCOME TAX ACT READ W ITH SECTION 195 OF THE INCOME TAX ACT. THE SAID PAYMENT OF RS. 2,44,551/- IS NOT IN THE NATURE OF COMMISSION BUT CHARGES WHICH HAVE LEVIED BY M/S REB ECCA ANN LEHEW FOR OUTSOURCING BUSINESS TO THE ASSESSEE. FOR THIS PURP OSES A PAYMENT OF RS.2,44,551/- WAS MADE TO THE SAID FIRM M/S. REBECC A ANN LEHEW. THE FIRM M/S REBECCA ANN LEHEW HAS NO PERMANENT ESTABLISHMEN T IN INDIA UNDER ARTICLE V OF THE DOUBLE TAXATION TREATY AND THE SAI D FIRM IS CARRYING ON THE BUSINESS IN UNITED STATES. M/S. REBECCA ANN LEHEW I S IN THE BUSINESS OF HELPING LITIGATION SUPPORT PROVIDERS INCREASE THE P ROFITS THROUGH OUTSOURCING TO COMPANIES OUTSIDE THE UNITED STATES AND, THEREFORE, THE PAYMENT TO M/S. REBECCA ANN LEHEW IS A BUSINESS INCOME IN THE HANDS OF M/S. REBECCA ANN LEHEW. AS THE PAYMENT IS MADE TO A NON-RESIDENT FOR PROVIDING BUSINESS IT IS A PAYMENT WHICH IS IN THE NATURE OF BUSINESS INCOME I N THE HANDS OF M/S. REBECCA ANN LEHEW AND AS SUCH ACCORDING TO THE ASSE SSEE, SECTION 195 IS NOT APPLICABLE, SINCE THE SAID FIRM HAS PROVIDED SERVIC ES OUTSIDE INDIA AND HAS NO PERMANENT ESTABLISHMENT IN INDIA. THE SAID FIRM M/S . REBECCA ANN LEHEW HAS NO SOURCE OF INCOME LIABLE TO TAX IN INDIA. THE PRO VISIONS OF SECTION 9(1)(VII)(C) ARE ALSO NOT APPLICABLE IN THIS CASE AS THE SERVICE S BY M/S. REBECCA ANN LEHEW 10 ITA NOS. 6254 & 6255/DEL/2013 WERE PROVIDED IN USA AND THE SAID FOREIGN PARTY HAS NO PERMANENT ESTABLISHMENT IN INDIA. THE ASSESSEE HAS PROVIDED S ERVICES TO THE COMPANIES WHICH ARE UTILIZED IN USA AND AS SUCH THE INCOME AR ISES OUT OF THE SAME IS NOT LIABLE TO TAX IN INDIA. THEREFORE, THE PROVISIONS O F SECTION 9(L)(VII)(C) ARE NOT APPLICABLE. HOWEVER, IT IS TO BE ADDED THAT THE PRO VISIONS WERE MODIFIED BY THE FINANCE ACT 2010 BUT IN SPITE OF THAT THEY ARE NOT APPLICABLE TO THE SERVICES WHICH HAVE BEEN UTILIZED OUTSIDE INDIA. THE BOARD C IRCULAR NO. 23 DATED 23.07.1969 AND AGAIN NO. 786 DATED 07.02.2000 WHICH WAS WITHDRAWN ONLY IN. 2010 AND AS SUCH THEY WERE IN FORCE DURING ASSESSME NT YEAR 2006-07. THEREFORE, AS THE PROVISIONS OF SECTION 153A, SECTI ON 40 (IA) AND SECTION 9(I)(VII)(C) ARE NOT APPLICABLE. THUS, THE PROVISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE AS LAID DOWN IN THE HON'BLE SUPREME COURT DECISION IN CASE OF ISHIK AWAJIMA HARIMA HEAVY INDUSTRIES LTD. 288 ITR 408 AT THE TIME OF MAKING P AYMENT. THE ASSESSEE HAS NOT VISUALIZE TO DEDUCT TDS WHEN THERE WAS NO PROVI SION TO THAT EFFECT. SINCE THE FACTS OF BOTH THE APPEALS ARE SIMILAR, THE APPE ALS FILED BY THE ASSESSEE ARE ALLOWED FOR BOTH THE ASSESSMENT YEARS 2006-07 AND 2 007-08. 11. IN RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH AUGUST, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 11/08/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 11 ITA NOS. 6254 & 6255/DEL/2013 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 15/06/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 15/06/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS .08.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK .0 8 .2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.