M/s Ascent Circuits Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 659/BANG/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80653 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 13-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M K BIJU
• Keywords: Residential status; Permanent establishment; Bad and doubtful debts
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 659 / BANG/20 1 1 (ASSESSMENT YEAR: 20 05 - 06 ) M/S.ASCENT CIRCUITS PVT. LTD. B - 13, ITI , A NCILLARY ESTATE, MAHADEVAPURA, BANGALORE - 48. PA NO. : AABCR2074D APPELLANT VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 11(1), BANGALORE. RESPONDENT APPELLANT BY: SHRI M.K.BIJU, JCIT (DR) RESPONDENT BY: SHRI S.PARTHASARATHI, ADVOCATE. DATE OF HEARING : 07 - 08 - 2014 . DATE OF PRONOUNCEMENT: 22 - 08 - 2014 . O R D E R PER SMT. P.MADHAVI DEVI, JM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(A) I, BANGALORE, DATED 15 - 03 - 2011 FOR THE ASSESSMENT YE AR 2005 - 06. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS 13 GROUNDS OF APPEAL, WE FIND THAT THERE ARE ONLY THREE ISSUES INVOLVED IN THE APPEAL AGAINST THE ORDER OF THE CIT(A). GROUNDS NO.1, 12 AND 13 ARE GENERAL IN NATURE AND HENCE, NEEDS NO ADJUDICATION . SO FAR AS GROUND NOS.2 TO 4 ARE CONCERNED, BRIEF FACTS OF THE CASE ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 2 OF 8 ARE THAT THE ASSESSEE - COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PRINTED CIRCUITS BOARDS AND EXPORT THER E OF , HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 0 6 ON 25 - 10 - 2005 DECLARING AN INCOME OF RS.1,43,26,747/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'], THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,19,46, 454/ - AS FREIGHT OUTWARD EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD ADMINISTRATIVE EXPENSES . THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHETHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE ON THESE PAYMENTS. THE ASSESSEE REPLIE D THAT THE PROVISIONS OF TDS ARE NOT APPLICABLE TO THE NATURE OF THE TRANSACTION DUE TO WHICH NO TDS WAS MADE. THE ASSESSEE ALSO FILED A LETTER DATED 7 - 7 - 2007 CLAIMING THAT BY VIRTUE OF BOARD S CIRCULAR NO.723 DATED 19 - 9 - 1995, TAX WAS NOT DEDUCTI BLE AT SOURCE. THE ASSESSEE ALSO PLACED RELIANCE UPON THE DECISION OF THE HON BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. CONTINENTAL CARRIERS (P) LTD., REPORTED IN (2007) (18) (1) ITCL 322 WHEREIN THE HON BLE HIGH COURT CONFIRMED THE VIEW OF THE CIT(A ) AND THE TRIBUNAL THAT PAYMENTS MADE TO RESIDENT AGENTS OR SUB - AGENTS OF THE FOREIGN SHIPPING COMPANIES DO NOT ATTRACT TDS U/S 194C OF THE ACT. THE AO HOWEVER, WAS NOT SATISFIED WITH THE ASSESSEE S EXPLANATION AND HELD THAT THE PAYMENT MADE BY THE ASSESS EE TO THE AGENT OF THE FOREIGN SHIPPING COMPANY IS A PAYMENT TO A RESIDENT OF INDIA ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 3 OF 8 AND THEREFORE THE NON - RESIDENT COMPANY IS HAVING A PERMANENT ESTABLISHMENT IN INDIA AND HENCE THE AGENT IS PROVIDING SERVICES IN INDIA TO THE ASSESSEE - COMPANY IN FORWARDING GOODS AND SERVICES. HE HELD THAT THE AGENT HAS RENDERED SERVICES IN INDIA TO THE ASSESSEE ON THE BASIS OF THE CONTRACT ENTERED INTO BETWEEN THEM AND THEREFORE AT THE TIME OF PAYMENT, THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE. AS REGARDS THE DECISION OF THE HON BLE HIGH COURT OF DELHI , HE HELD THAT THE SAID CASE RELATES TO THE PROVISIONS OF SEC.172 AND NOT THE PROVISIONS OF SEC.194C AND THEREFORE IS DISTINGUISHABLE ON FACTS. HE ACCORDINGLY DISALLOWED THE ENTIRE SUM OF RS.1,19,46,454/ - U/S 40(A)(IA) O F THE ACT AND BROUGHT IT TO TAX. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN APPEAL BEFORE US. 4. SHRI S.PARTHASARATHY, LEARNED COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW, HAS DRAWN OUR PARTICULAR ATTENTION TO THE ASSESSEE S SUBMISSION BEFORE THE CIT(A) WHEREIN IT WAS CLARIFIED THAT PAYMENTS ARE MADE TO THE NON - RESIDENT THROUGH THEIR LOCAL AGENT ONLY FOR REMITTAN CE OF FUNDS AND THE LOCAL AGENT ACTED AS A CONDUIT BUT THE ULTIMATE DESTINATION OF THE PAYMENT WAS ONLY THE FOREIGN SHIPPING COMPANY AND IN THESE CIRCUMSTANCES THE ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 4 OF 8 ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOURCE. FURTHER, THE LEARNED COUNSEL FOR THE AS SESSEE HAS ALSO DRAWN OUR ATTENTION TO THE BOARD S CIRCULAR NO.723 DATED 19 - 9 - 1995 WHEREIN AT PARA 5 THEREOF IT WAS OBSERVED THAT WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON - RESIDENT SHIP OWNERS OR CHARTERERS FOR CARRIAGE OF PASSENGERS ETC., SHIPPED AT A PORT IN INDIA, SINCE THE AGENT ACTS ON BEHALF OF THE NON - RESIDENT SHIP - OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL AND ACCORDINGLY THE PROVISIONS OF SEC.172 SHALL APPLY AND THOSE OF SEC.194C AND 195 WILL NOT APPLY. HE HAS ALSO DRAWN OUR ATTENTION TO THE COPIES OF THE INVOICES WHICH ARE PLACED AT PAGES 31 TO 43 OF THE PAPER BOOK TO DEMONSTRATE THAT THE PAYMENT IS MADE TO THE NON - RESIDENT AND THAT THE LOCAL AGENT OF THE NON - RESIDENT IS ONLY A CONDUIT AND NO SERVICES HAVE BEEN RENDERED B Y SUCH PERSON TO THE ASSESSEE. 5. SHRI M.K.BIJU, LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ANY PAYMENT MADE TO A RESIDENT FOR THE SERVICES RENDERED BY HIM IS LIABLE TO TDS P ROVISIONS U/S 194C OF THE ACT AND SINCE THE LOCAL AGENT OF NON - RESIDENT COMPANY HAS RENDERED SERVICES TO THE ASSESSEE AS HELD BY THE AO, THE PAYMENT WOULD ATTRACT THE TDS PROVISIONS OF SEC.194C OF THE ACT. ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 5 OF 8 6. HAVING CONSIDERED THE RIVAL CONTENTIONS AND TH E MATERIAL ON RECORD, WE FIND THAT THE CONTENTIONS OF THE ASSESSEE HAVE BEEN THAT THE LOCAL AGENT OF THE FOREIGN SHIPPING COMPANY IS ONLY A CONDUIT BUT THE DESTINATION OF THE PAYMENT IS THE FOREIGN SHIPPING COMPANY AND THEREFORE, IT IS NOT LIABLE TO TDS PR OVISIONS. THOUGH THE AO HAS OBSERVED THAT THE LOCAL AGENT HAS RENDERED SERVICES TO THE ASSESSEE, HIS ORDER IS SILENT AS TO THE NATURE OF SERVICES RENDERED BY THE LOCAL AGENT OF THE FOREIGN SHIPPING COMPANY. THE BOARD S CIRCULAR NO.723 DATED 19 - 9 - 1995,IN F ORCE DURING THE RELEVANT ASSESSMENT YEAR, CLEARLY PROVIDES THAT PAYMENTS MADE TO THE SHIPPING AGENT OF NON - RESIDENT SHIP - OWNERS OR CHARTERERS FOR CARRIAGE OF PASSENGERS, ETC., FROM THE PORT IN INDIA IS NOT LIABLE FOR TDS U/S 194C AND 195 OF THE ACT. THE BOARD S CIRCULARS ARE BINDING ON THE REVENUE AUTHORITIES. BEFORE DISALLOWANCE U/S 40(A)(IA) OF THE ACT, THE AO OUGHT TO HAVE EXAMINED AND BROUGHT ON RECORD THE NATURE OF SERVICES RENDERED BY THE LOCAL AGENTS OF THE NON - RESIDENT COMPANY WHICH HE HAS FAILED TO DO SO. NEITHER HAS THE CIT(A) DONE THIS EXERCISE. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE AO TO RE - CONSIDER THE SAME IN ACCORDANCE WITH LAW AND IF IT IS FOUND THAT THE RECIPIENT OF PAYMENT IS ONLY A LOCAL AGENT OF THE NON - RESIDENT COMPANY AND HAS NOT RENDERED ANY INDEPENDENT SERVICES BUT HAS RECEIVED THE PAYMENT ON BEHALF OF THE NON - RESIDENT COMPANY FOR THE SERVICES RENDERED BY THE NON - RESIDENT COMPANY, THEN NO ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 6 OF 8 DISALLOWANCE IS REQUIRED TO BE MADE. WITH THE SE OBSERVATIONS, THE ISSUE IS REMITTED BACK TO THE AO FOR CONSIDERATION IN THE LIGHT OF OUR OBSERVATIONS ABOVE. THESE GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NOS.5 TO 7 RELATE TO THE CLAIM OF BAD DEBT BY THE ASSESSEE WHICH HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE SAME HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE TIME OF HEARING, HAD CONCEDED THAT THESE BAD DEBTS HAVE NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR BUT THE SAME HAVE BEEN WRITTEN OFF IN THE SUBSEQUENT ASSESSMENT YEAR AND THEREFORE A DIRECTION MAY BE GIVEN FOR ALLOWING THE SAME IN THE SUBSEQUENT ASSESSMENT YEAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON T HE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING CONSIDERED THE MATERIAL ON RECORD, WE FIND THAT THERE IS A FINDING OF THE AO WHICH IS NOT DISPUTED BY THE ASSESSEE THAT THE BAD DEBTS HAVE NOT BEEN WRITTEN OFF IN ITS BOOKS OF ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR. IN VIEW OF THE SAME, THE SAID CLAIM IS NOT ALLOWABLE AND THE AO HAS RIGHTLY DISALLOWED THE SAME AND BROUGHT TO TAX. AS REGARDS THE ASSESSEE S PRAYER TO GIVE A DIRECTION THAT THE SAME MAY BE CONSIDERED IN THE NEXT ASSESS MENT YEAR, WE ARE NOT INCLINED TO ACCEPT THIS CONTENTION, ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 7 OF 8 AS A DIRECTION CAN BE GIVEN ONLY FOR THE ISSUES ARISING IN THE ASSESSMENT OF INCOME FOR THE RELEVANT ASSESSMENT YEAR AND NOT TO ANY EARLIER OR SUBSEQUENT ASSESSMENT YEAR. IT IS FOR THE ASSESSEE TO MAKE A CLAIM AND THE AO TO CONSIDER SUCH A CLAIM, IF MADE, DURING THE ASSESSMENT PROCEEDINGS OF THE RELEVANT ASSESSMENT YEAR. IN VIEW OF THE SAME, THESE GROUNDS OF APPEAL ARE DISMISSED. 9. AS REGARDS GROUND NOS.8 TO 11 ARE CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO, IN THE ASSESSMENT PROCEEDINGS, HAS OBSERVED THAT THERE IS DISCREPANCY IN THE VALUATION OF CLOSING STOCK BOTH WITH REGARD TO THE QUANTUM AND THE VALUE AS ON 31 - 3 - 2005, BUT THAT THE ASSESSEE HAS ALL THE RELEVANT MATERI AL TO RECONCILE THE SAID DISCREPANCY AND SUBMITTED THAT THERE IS NO DISCREPANCY AT ALL . HE HAS ALSO DRAWN OUR ATTENTION TO THE CHART REPRODUCED AT PAGE 7 OF THE ASSESSMENT ORDER WHEREIN VALUE OF THE STOCK AS ON 31 - 3 - 2004 AND 1 - 4 - 2004 IS MENTIONED . HE SUBM ITTED THAT IN THE CHART IT S HOULD HAVE BEEN MENTIONED AS THE STOCK AS ON 31 - 3 - 2005 AND THERE IS A CLEAR MISTAKE AND ALSO REFLECTS THE NON - APPLICATION OF MIND BY THE AO AS REGARDS THE VALUATION OF CLOSING STOCK. WE FIND THAT THE CIT(A) HAS ALSO NOT VERIFIE D THE CONTENTION OF THE ASSESSEE AND HAS MERELY CONFIRMED THE ADDITIONS MADE ON ACCOUNT OF DIFFERENCE IN THE VALUATION OF CLOSING STOCK. WE FIND THAT NONE OF THE AUTHORITIES HAVE , IN FACT , EXAMINED THE CONTENTIONS OF THE ITA NO . 659 /BANG/20 11 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 8 OF 8 ASSESSEE AND HAVE NOT VERIFIED THE EXPL ANATION OF THE ASSESSEE WITH REGARD TO THE ALLEGED DISCREPANCIES IN THE VALUATION OF THE CLOSING STOCK. IN VIEW OF THE SAME, WE ARE INCLINED TO SET ASIDE THE ORDER OF THE CIT(A) AS WELL AS THE ORDER OF THE AO ON TH IS ISSUE AND REMIT THE ISSUE TO THE FILE OF THE AO FOR RE - CONSIDERATION IN ACCORDANCE WITH LAW. THE AO SHALL ALLOW THE ASSESSEE TO EXPLAIN THE DISCREPANCIES, IF ANY, IN THE VALUATION OF CLOSING STOCK BY GIVING A FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE. THESE GROUNDS ARE THUS ALLOWED FOR STA TISTICAL PURPOSES. 10. IN THE RESULT, THE ASSESSEE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRON OUNCED IN THE OPEN COURT ON 22 ND OF AUGUST, 201 4. S D / - SD/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL M EMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX AP PELLATE TRIBUNAL BANGALORE