ACIT, New Delhi V. M/s. D.R. Exports International, Delhi

ITA 6505/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8603 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 20-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Business income; Additional evidence; Speculation loss; Onus to prove; TDS; Set aside
• Section: 5(2); 43(5); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO. 6505/DEL/2015 ASSESSMENT YEAR: 2012-13 ACIT, CIRCLE 40(1), VS. M/S. D.R. EXPORTS INTE RNATIONAL, NEW DELHI. 4107, 1 ST FLOOR, NAYA BAZAR, DELHI. PAN: AAAFD 3992N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI JAGDISH SINGH, SR. DR RESPONDENT BY: DR. RAKESH GUPTA, ADVOCATE & SHRI SOMIL AGARWAL, ADVOCATE DATE OF HEARING: 13/01/2020 DATE OF PRONOUNCEMENT: 20/01/2020 ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 23/09/2016 IN APPEAL NO . 75/15-16 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-16, NEW DELHI (LD. CIT(A)), FOR ASSESSMENT YEAR 2012-13, IN THE CASE OF M/S D.R. EXPORTS INTERNATIONAL (THE ASSESSEE), REVENUE PRE FERRED THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE PROCESSING, TRADING AND EXPORT OF FOOD PRODUCTS AND PROCESSING OF MUSTARD OIL CAKES AND TRADING IN COMMODITIES. FOR T HE ASSESSMENT YEAR 2012-13, IT HAS FILED ITS RETURN OF INCOME ON 29/9/ 2012 DECLARING TOTAL 2 INCOME OF RS.1,15,22,200/-. DURING THE SCRUTINY LEA RNED ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT DEDUCT ANY TDS ON THECOMMISSION PAID TO THE FOREIGN AGENTS TO THE TUNE OF RS.56,05,298/- . ASSESSEE EXPLAINED THAT THE FOREIGN AGENTS TO WHOM THE COMMISSION WAS PAID ARE NOT LOCATED IN INDIA AND THE SERVICES WERE RENDERED OUT SIDE INDIA. LEARNED ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND OPINED THAT THE SERVICES PROVIDED BY T HE NON-RESIDENT FOREIGN AGENT OR BEING UTILISED IN INDIA AND CLEARL Y TAXABLE UNDER SECTION 9(1)(I) AND 9(1)(VI) (B) OF THE ACT AND THEREFORE T HE NON-DEDUCTION OF TDS IS COVERED BY SECTION 195 OF THE ACT AND CONSEQUENT LY BROUGHT TO THIS AMOUNT OF RS.56,05,298/-TO TAX. 3. LEARNED ASSESSING OFFICER ON A PERUSAL OF P&L AC COUNT FURTHER OBSERVED THAT THE ASSESSEE CLAIMED EXPENSE UNDER TH E HEAD RATE DIFFERENCE TO THE TUNE OF RS.3,24,66,489/-. ON THIS ASPECT,THE CASE OF ASSESSEE ISTHAT THEY ARE ENGAGED IN TRADING AND EXP ORT OF VARIOUS KINDS OF AGRICULTURAL PRODUCE SUCH AS CDSO, SOYA OIL, RAPESE ED OIL, PEPPER ETC AND UNDERTAKES A TRANSACTIONS BASED ON A PURCHASES/SALE AGREEMENT THROUGH TELEPHONE OR INTERNET AND PRICES ARE FINALISED AT T HAT MOMENT ONLY FOLLOWED BY THE DOCUMENTATION. SOMETIMES DISPUTES A RISE BETWEEN THE CONTRACTING PARTIES BECAUSE OF NOT EXECUTION OF DEA L AND THE REASON FOR NON-EXECUTION WOULD BE DUE TO THE PRICE VARIATIONS BY ANY OF THE TWO CONTRACTING PARTIES, IN CONSEQUENCE OF WHICH THERE WOULD BE A BREACH OF CONTRACT FOR NON-EXECUTION OF THE DEAL AND DISPUTE ARISE. ASSESSEE EXPLAINED THAT SUCH DISPUTES WOULD BE SETTLED THROU GH MEDIATOR/CONTRACTING BROKERS OF THE ARCHITECTURAL A SSOCIATION OFFICE 3 BEARERS OR BY THE MUTUALLY APPOINTED ACCEPTABLE PER SONS, WHO BECOME ARBITRATORS AND SOMETIMES DIRECTLY BY THE PARTIES T HEMSELVES. 4. ACCORDING TO THE ASSESSEE, SUCH A CONTROVERSY AR OSE IN THIS CASE ALSO AND THE ASSESSEE FIRM IS BOUND TO ACCEPT THE A WARD OF THE ARBITRATORS AND COMPENSATE THE BARRIER FOR BREACH OF CONTRACT A ND HAS TO MAKE THE PAYMENTS AS IT IS ALSO ARCADE PRECEDED THAT THE PER SON WHO BREACHES A CONTRACT HAS TO MAKE GOOD THE LOSS SUFFERED BY THE BUYER BY PAYING THE RATE DIFFERENCE OF AGREED PRICE AND MARKET PRICE, A ND SUCH LOSS CANNOT BE SAID TO BE LOSS INCURRED ON ACCOUNT OF AGREEMENT O F CONTRACTS. 5. LEARNED ASSESSING OFFICER MADE A DISTINCTION BET WEEN THE DISPUTE SETTLED AND CONTRACT SETTLED, AND OBSERVING THAT TH ERE IS NO EVIDENCE/PROOF THAT THERE WAS A DISPUTE BETWEEN THE PARTIES, THAT EITHER OF THE PARTIES HAD APPROACHED A COURT OF LAW/ARBITR ATORS AND HAD SETTLED A DISPUTE BY WAY OF PAYING THE DAMAGES/IN ACCORDANC E WITH SUCH AWARD AND THEREFORE, IT HAS TO BE INFERRED THAT ALL THE T RANSACTIONS OF SETTLEMENT ENTERED INTO BY THE ASSESSEE WERE MUTUALLY SETTLED WITHOUT ACTUAL DELIVERY OF GOODS WHICH FALLS UNDER THE AMBIT OF SP ECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT. ACCORDING TO THE LE ARNED ASSESSING OFFICER IT MANIFESTS THAT THE BURDEN OF PROOF WAS ON THE AS SESSEE TO SHOW THAT THERE WAS A SETTLEMENT OF THE DISPUTE RATHER THAN S ETTLEMENT OF CONTRACT AND IN THE ABSENCE OF ANY EVIDENCE THERE IS NO OTHE R ALTERNATIVE THAN TO TREAT THE SUM OF RS.3,24,66,489 AS A SPECULATION LO SS AND THIS LOSS IS NOT AVAILABLE TO THE ASSESSEE TO BE SET OFF AGAINST THE BUSINESS INCOME FOR THE YEAR. ON THIS PREMISE, LEARNED ASSESSING OFFICER DI SALLOWED THE LOSS OF RS.3,24,66,489/-. 4 6. AGGRIEVED BY THE ACTION OF THE LEARNED ASSESSING OFFICER ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). LD. CIT( A) BY WAY OF IMPUGNED ORDER OBSERVED THAT THE FACTS OF THIS YEAR ARE IDEN TICAL TO THE FACTS INVOLVED IN THE ASSESSMENT YEAR 2011-12 AND WHILE F OLLOWING THE SAME HE DELETED THE BOTH THE DISALLOWANCES. HENCE, FELT AGG RIEVED BY SUCH AN ORDER, THE REVENUE IS BEFORE US IN THIS APPEAL. 7. IT IS SUBMITTED ON BEHALF OF THE REVENUE THAT AD MITTEDLY THE ASSESSEE PAID THE COMMISSION TO THE NON-RESIDENT FO REIGN AGENTS WITHOUT DEDUCTING THE TDS AND THEREFORE, THE ASSESSING OFFI CER IS JUSTIFIED BY MAKING THE DISALLOWANCE OF RS.56,05,298/-UNDER SECT ION 40(1)(I)OF THE ACT READ WITH SECTION 195 AND 9(1)(VI) (B) AND SECTION 5(2) (B) OF THE ACT. LD. DR FURTHER SUBMITTED THAT IN RESPECT OF THE RATE SE TTLEMENT (CONTRACTS), AS RIGHTLY OBSERVED BY THE LEARNED ASSESSING OFFICER N O EVIDENCE, WHATSOEVER, IS PROVIDED TO SHOW THAT THE CONTRACTIN G PARTIES HAD EVER VISITED A DISPUTE OR THAT THE DISPUTE, IF ANY, WAS REFERRED TO ANY COURT OF LAW OR TO THE ARBITRATORS AND ALL THE TRANSACTIONS OF SETTLEMENT ENTERED INTO BY THE ASSESSEE WERE MUTUALLY SETTLED WITHOUT ACTUAL DELIVERY OF GOODS WHICH FALL UNDER THE AMBIT OF SPECULATIVE TRA NSACTION UNDER SECTION 43(5) OF THE ACT. IN THE CIRCUMSTANCES, LD. DR SUBM ITS THAT, IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY, LEARNED ASSESSING OFFICER IS JUSTIFIED IN TREATING THE LOSS AS A SPECULATION LOSS WHICH CANNO T BE AVAILABLE FOR SET OFF AGAINST THE BUSINESS INCOME OF THE CURRENT YEAR . 8. PER CONTRA, IT IS THE SUBMISSION OF THE LD. AR T HAT BOTH THE ISSUES ARE SQUARELY COVERED BY THE ORDER DATED 7/1/2020 IN ITA NO. 3757/DEL/2016 FOR ASSESSMENT YEAR 2011-12 RENDERED BY A COORDINATE BENCH OF THIS TRIBUNAL; THAT BY WAY OF SUCH ORDER T HE TRIBUNAL UPHELD THE 5 DELETION OF THE DISALLOWANCE OF RS.56,05,298/-MADE UNDER SECTION 40(1) (I)OF THE ACT WHEREAS FOR WANT OF COMPLIANCE WITH R ULE 46-A OF THE INCOME TAX RULES, 1962 (THE RULES) THE TRIBUNAL T HOUGHT IT FIT TO REMAND THE MATTER TO THE FILE OF THE LEARNED ASSESS ING OFFICER FOR VERIFICATION OF THE MATERIAL THAT WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER BUT WAS PRODUCED BEFORE THE CIT (A) FOR THE FIRST TIME IN APPEAL AND TO TAKE A FRESH VIEW. HE SUBMITS THAT SINCE THE FACTS ARE IDENTICAL FOR BOTH THESE YEARS, A SIMILAR VIEW MAY BE TAKEN FOR T HIS YEAR ALSO. LD. DR DOES NOT CONTROVERT THE FACTUAL SUBMISSIONS MADE BY THE LD. AR. 9. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. INSOFAR AS THE GROUNDS NO. 1 A ND 2 RELATING TO THE ADDITION OF RS.3,24,66,489/-MADE BY THE ASSESSING O FFICER ON ACCOUNT OF DISALLOWANCE OF LOSS ON RATE SETTLEMENT (CONTRACTS) ARE CONCERNED, THE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE SAME BY ACCEPTING THE ADDITIONAL EVIDENCE WITHO UT OPPORTUNITY TO THE LEARNED ASSESSING OFFICER WHICH IS IN CONTRAVEN TION OF RULE 46-A OF THE RULES AND IN ALL FAIRNESS THE LD. CIT(A) SHOULD HAVE GIVEN AN OPPORTUNITY TO THE LEARNED ASSESSING OFFICER TO VER IFY AND COMMENT ON THE FRESH EVIDENCE PRODUCED BEFORE LD. CIT(A) FOR T HE FIRST TIME IN THE APPELLATE PROCEEDINGS. 10. LD. AR DOES NOT DISPUTE THE FACT THAT UNDER IDE NTICAL CIRCUMSTANCES, A COORDINATE BENCH OF THIS TRIBUNAL THOUGHT IT FIT TO REMAND THE MATTER TO THE FILE OF THE LEARNED ASSESS ING OFFICER IN RELATION TO THE ASSESSMENT YEARS 2010-11 AND 2011-12 IN ITA NOS. 2876/DEL/ 2016 BY ORDER DATED 20/3/2019 AND ITA NO.3757/DEL/2016 B Y ORDER DATED 7/1/2020 RESPECTIVELY. 6 11. THE PAPER BOOK FILED BEFORE US SHOWS THAT THE A SSESSEE PRODUCED CERTAIN DOCUMENTARY EVIDENCE IN SUPPORT OF RATE DIF FERENCE, BROKERAGES ETC AND NOW IT REMAINS AN ADMITTED FACT THAT SUCH M ATERIAL WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER WHEN THE ASS ESSMENT WAS MADE. THE IMPUGNED ORDER ALSO DOES NOT REVEAL THAT, BEFOR E PLACING RELIANCE ON SUCH DOCUMENTARY EVIDENCE, THE LD. CIT(A) GAVE ANY OPPORTUNITY TO THE LEARNED ASSESSING OFFICER TO VERIFY THE CORRECTNESS OF THE DOCUMENTS AND TO COMMENT UPON THEM. 12. FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENC HES OF THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2010-11 AND 2011- 12 IN ASSESSEES OWN CASE, UNDER IDENTICAL FACTS AND CIRCUMSTANCES, WE F IND IT A FIT CASE TO SET ASIDE THE IMPUGNED ORDER ON THIS ASPECT AND TO REMA ND THE ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR VERIFICAT ION OF THE DOCUMENTS PRODUCED BY WAY OF ADDITIONAL EVIDENCE BEFORE THE L D. CIT(A) AND TO TAKE A FRESH VIEW. WE ACCORDINGLY SET ASIDE THE ISSUE TO THE FILE OF THE LEARNED ASSESSING OFFICERFOR VERIFICATION OF THE DOCUMENTS PRODUCED BY WAY OF ADDITIONAL EVIDENCE BEFORE THE LD. CIT(A) AND DECID E IT AFRESH. GROUNDS NO. 1 AND 2 ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 13. IN RESPECT OF GROUND NO. 3, RELATING TO THE ADD ITION OF RS.56,05,298/-MADE BY THE ASSESSING OFFICER UNDER S ECTION 40(1)(I) OF THE ACT,IT IS NOT IN DISPUTE THAT THE SERVICES OF THE F OREIGN AGENTS WERE RENDERED OUTSIDE INDIA FOR SALES AND THE PAYMENT WA S ALSO MADE OUTSIDE INDIA. UNDER SIMILAR CIRCUMSTANCES FOR THE ASSESSME NT YEAR 2011-12 A COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 3757/D EL/2016 OBSERVED THAT SUCH PAYMENT OF COMMISSION DOES NOT COME UNDER THE PURVIEW OF SECTION 195 OF THE ACT AND THEREFORE, THE LD. CIT(A ) WAS JUSTIFIED IN 7 DELETING THE ADDITION OF RS.56,05,298/-MADE UNDER S ECTION 40 (1) (I)OF THE ACT. SINCE FACTS ARE IDENTICAL, WE ARE OF THE CONSI DERED OPINION THAT A DIFFERENT VIEW CANNOT BE TAKEN AND WHILE RESPECTFUL LY FOLLOWING THE SAME WE UPHOLD THE FINDINGS OF THE LD. CIT(A) ON THIS AS PECT. GROUND NO. 3 IS ACCORDINGLY DISMISSED. 14. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY, 2020. SD/- SD/- (PRASHANT MAHARISHI) (K.NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20/01/2020 . AKS