DCIT 8(3), MUMBAI V. VRITTI IMPEX P.LTD, MUMBAI

ITA 661/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3298 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENASR
• Assessee Lawyers: MRS AARTI DEBNATH
• Keywords: Additional evidence
• Section: 143(3); 37

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENC H, MUMBAI !' , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI KARUNAKARA RAO , AM ./I.T.A. NO.661/M/2012 ( & ' (' / ASSESSMENT YEAR :2008-2009) DCIT - 8(3), R.NO.217, AAYAKAR BHAVAN, MUMBAI 400 020. & / VS. VRIT T I IMPEX PVT.LTD., FLAT NO.202, FLORA, 13 TH ROAD, KHAR (W), MUMBAI 400 052. ) $ ./PAN : AABCV 3176 C ( )* /APPELLANT) .. ( +,)* / RESPONDENT) )* - . / APPELLANT BY : SHRI O.P. MEENA, SR. AR +,)* - . / RESPONDENT BY : MRS. AARTI DEBNATH & - /$ /DATE OF HEARING : 6.6.2013 01( - /$ /DATE OF PRONOUNCEMENT : 3.7.2013 2 2 2 2 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 1.2.2012 IS AG AINST THE ORDER OF CIT (A)- 18, MUMBAI DATED 16.11.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN ADMITTING ADDITIONAL EVIDENCES IN APPEAL I N CONTRAVENTION OF RULE- 46A OF THE IT RULES, 1962. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,13,24,831/- OUT OF COMMISSION BY HOLDING THAT WHEN THE GENUINENESS OF THE PAYMEN T CANNOT BE IMPEACHED, THEN THE EXPENDITURE HAS TO BE ALLOWE D U/S 37 AS NECESSITY OF MAKING THE PAYMENT CANNOT E EXAMINED BY THE AO WITH OUT APPRECIATING THE FACT THAT EVEN WHERE THE PAYMENT IS NOT DOUBTED, TH E AO CAN DISALLOW THE EXPENDITURE U/S 37 IF THE ASSESSEE FAILS TO PROVE B USINESS EXPEDIENCY OF INCURRING THE SAME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1,13,24,8 31/- OUT OF COMMISSION BY HOLDING THAT THE ASSESSEE IS JUSTIFIED IN MAKING TH E PAYMENT WITHOUT TDS AS THE PROVISIONS OF SECTION 40(A)(IA) R.W.S. 9,195 AN D 200 OF THE IT ACT DO NOT APPLY TO ASSESSEES CASE AND THAT CIRCULAR NO.786 D ATED 7.2.2000 OF CBDT IS IN FAVOUR OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT VIDE CIRCULAR NO.7 2 OF 2009 DATED 22.10.2009, CBDT HAS WITHDRAWN IT EAR LIER CIRCULAR NO.23 DATED 23.7.1969, NO.163 DATED 29.5.1996 AND NO.786 DATED 7.2.2000. 3. IN THIS APPEAL REVENUE RAISED THE ISSUE RELATING TO ADMITTING OF THE ADDITIONAL EVIDENCES IN THE VIOLATION OF THE RULE-46A OF THE A CT. FURTHER, ON MERITS, THE REVENUE QUESTIONS THE RELIEF GRANTED BY THE CIT (A) WHEN THE ASSESSEE FAILED TO ESTABLISH ALLOWABILITY OF EXPENDITURE U/S 37 OF THE ACT WITHOUT GOING TO THE BUSINESS PURPOSES OF THE COMMISSION OF RS. 1,13,24,831/- PAI D BY THE ASSESSEE. FURTHER, REVENUE QUESTIONED THE CIT (A)S DECISION IN GRANTI NG THE RELIEF OF THE SAID AMOUNT WHEN THE AMOUNT CONSTITUTES FEE FOR MANAGERIAL SER VICES WHICH ATTRACTS THE TDS PROVISIONS R.W.S. 40(A)(IA) OF THE ACT. 4. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLYWOOD. ASSESSEE FIELD THE RETURN DECLARING THE TOTAL INCOME OF RS. 32,30,086/-. AS A RESULT OF SC RUTINY ASSESSMENT, TOTAL INCOME OF THE ASSESSEE WAS DETERMINED AND ENHANCED TO RS. 1,4 5,54,917/-. DURING THE PROCEEDINGS U/S 143(3) OF THE ACT, ASSESSING OFFICE R DISALLOWED THE COMMISSION PAID AMOUNTING TO RS. 1,13,24,831/-. ASSESSEE CLAIMS THA T THE SAID AMOUNT WAS PAID BY THE ASSESSEE AS COMMISSION ON SALES TO A FOREIGN PA RTY IE MR. JOHN VICTOR SMITH, AND IN THIS REGARD, HE RELIED ON THE AGREEMENT BET WEEN THE ASSESSEE COMPANY AND MR. JOHN VICTOR SMITH. ON DEMAND FROM THE ASSESSING OFFICER ABOUT THE GENUINENESS OF THE EXPENDITURE AND THE SERVICES RENDERED BY MR. JOHN VICTOR SMITH, ASSESSEE FILED WRITTEN SUBMISSIONS WHICH ARE NARRATED IN PAR A 3.2 OF THE ASSESSMENT ORDER. NOT SATISFIED WITH THE ASSESSEES EXPLANATION AND I N THE ABSENCE OF THE EVIDENCE IN SUPPORT OF THE SERVICES RENDERED BY MR. JOHN VICTOR SMITH AND ON CONSIDERING CERTAIN DISCREPANCIES NOTICED IN THE CORRESPONDENCE FILED B Y THE ASSESSEE, AO HELD AS UNDER: 3.4. FROM THE ABOVE DISCUSSION, IT IS HEREBY CONCLU DED THAT THE CLAIM OF THE ASSESSEE COMPANY WITH REGARD TO COMMISSION PAID ON SALES TO FOREIGN AGENT APPEARS TO BE NOT ONLY EXCESSIVE AND UNREASONABLE BUT ALSO SHAM & BOGUS IN AS MUCH AS THE FACT THAT THE ASSESSEE COULD NOT PRODUCE ANY COGENT EVIDENCE TO SUBSTANTIATE ITS CLAIM. MOREOVER, THE ASSESSEE ALSO COULD NOT RECONCILE THE DIFFERENCE BETWEEN THE RATE OF COMMISSION SHOWN IN THE SAID AG REEMENT AND THE INVOICES. FURTHER, THE SAID AGREEMENT ON LETTER-HEAD OF THE A SSESSEE COMPANY, IN VIEW OF THE ABOVE DISCUSSION, APPEARS TO BE DUBIOUS DOCUMENT MERELY TO EVADE TAXABILITY OF ITS INCOME IN INDIA. HENCE, THE SUM OF RS. 1,13,24 ,831/- IS HEREBY DISALLOWED AND ADDED TO INCOME OF THE ASSESSEE COMPANY. 4.1. FURTHER, WITHOUT PREJUDICE, AO HELD THAT THE S AID PAYMENT CONSTITUTES FEE FOR MANAGERIAL AND PROFESSIONAL SERVICES . IN THIS REGARD, ASSESSEE RELIED ON 3 THE CBDT CIRCULAR NO.786, DATED 7.2.2000 AND ALSO A NOTHER CIRCULAR VIDE F.NO.500/135/2007-FTD-I, DATED 22.10.2009 AND FURNI SHED SUBMISSIONS AND MENTIONED THAT THE SAID INCOME IS NOT A TAXABLE INC OME IN INDIA IN THE HANDS OF THE RECIPIENT AND ASSESSEE ALSO RELIED ON VARIOUS DECIS IONS TO SUPPORT THE SAME. AO REJECTED THE SAME AS PER THE DISCUSSION GIVEN IN PA RA 4.2 OF THE ASSESSMENT ORDER AND HELD THAT THE SAID PAYMENT OF RS. 1,13,24,831/- WAS DISALLOWED AND AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND ADDED THE SAME TO THE RETURNED INCOME. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, ASSESSEE RAISED BOTH THE ISSUES. ASSESSEE ALSO FURNISHED ADDITIONAL EVIDENCES FOR ESTABLISHING THE GENUINENESS OF THE CLAIM. AS PER THE PRINCIPLE OF N ATURAL JUSTICE, CIT (A) REMANDED THE MATTER TO THE AO. AO SUBMITTED THE REMAND REPO RT ON 24.10.2011 AND REQUESTED THE CIT (A) TO NOT TO ENTERTAIN THE SAME AS IT AMOUNTS TO ADDITIONAL EVIDENCES. IN RESPECT OF THE REMAND REPORT, A COPY OF WHICH WAS MADE AVAILABLE TO THE ASSESSEE FOR REPLY. IN RESPONSE, THE ASSESSEE FI LED WRITTEN SUBMISSIONS THE CONTENTS OF WHICH ARE EXPLAINED IN PARA 1.4 OF THE IMPUGNED ORDER. IN THE REPLY, ASSESSEE SUBMITTED THAT THERE IS NO VIOLATION TO TH E RULE-46A OF INCOME TAX RULES, 1962 AND THE PAPERS FURNISHED HELPS TO ESTABLISH TH E GENUINENESS OF THE EXPENDITURE AND THE NATURE OF THE EXPENSES AND THE SERVICES REN DERED BY MR. JOHN VICTOR SMITH, FOR WHICH THE COMMISSION WAS PAID. THESE ARE NOT T HE SELF-SERVING DOCUMENTS AT THEY GO THE ROOT OF THE MATTER. ON CONSIDERING THE SAID REMAND REPORT OF THE AO, CIT (A) ADMITTED THE ADDITIONAL EVIDENCES AND GRANT ED RELIEF TO THE ASSESSEE ON THE ASPECTS OF THE ALLOWABILITY U/S 37 OF THE ACT, AS P ER THE DISCUSSION GIVEN IN 1.5 OF THE IMPUGNED ORDER. FURTHER, ON THE ISSUE OF APPLICABI LITY OF SECTION 40(A)(IA) R.W.S. 9,195 AND 200 OF THE ACT, CIT (A) CONSIDERED THE WR ITTEN SUBMISSIONS OF THE ASSESSEE AS EXPLAINED IN PARA 1.6 OF THE IMPUGNED O RDER AND HELD THAT WHEN THE PAYEE OF THE COMMISSION (MR. JOHN VICTOR SMITH) IS NOT ASSESSABLE TO TAX IN INDIA ON THE INCOME WHICH IS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT, 1961, THE PROVISIONS OF SECTION 195 AND OTHERS ARE NOT VALIDL Y INVOKED IN THIS CASE. RELYING ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. TOSHUKU LTD (125 ITR 525) (SC) AND GE INDIA TECHNOLOGY CENTRE (P) LTD VS. CIT & ANR. (327 ITR 456) (SC) ETC. CIT (A) GRANTED RELIEF STATING THAT THE PROVI SIONS OF SECTION 40(A)(IA) R.W.S. 9, 4 195, 200 OF THE ACT WILL NOT APPLY IN THIS CASE. T HE CBDT CIRCULAR NO.786 DATED 7.2.2000 ALSO HELPS THE ASSESSEE AS PER THE CIT (A) . AGGRIEVED WITH THE SAME, REVENUE FILED THE PRESENT APPEAL BEFORE THE TRIBUNA L. 6. DURING THE PROCEEDINGS BEFORE US, LD DR MENTIONE D THAT THE CIT (A) ERRONEOUSLY ADMITTED THE ADDITIONAL EVIDENCES FURNI SHED BY THE ASSESSEE DESPITE THE OBJECTION OF THE AO. HE, HOWEVER, COULD NOT DEMONS TRATE SPECIFICALLY AS WHICH OF THE PROVISIONS ARE VIOLATED IN RESPECT OF ANY DOCUM ENTS FURNISHED BY THE ASSESSEE BEFORE THE CIT (A). AO ALSO COULD NOT SPECIFY THE DETAILS IN CONTRAVENTION. CONSIDERING THE SAME WE FIND THAT THE GROUND RELATI NG TO THE VIOLATION OF RULE-46A OF IT RULES, 1962 IS DISMISSED. 7. REGARDING ALLOWABILITY OF THE SAID COMMISSION U/S 3 7 OF THE ACT, LD DR HEAVILY RELIED ON THE ASSESSING OFFICERS CONCLU SIONS. 7.1. ON THE OTHER HAND, LD COUNSEL BROUGHT OUR ATTE NTION TO THE REPLIES GIVEN BY THE ASSESSEE BEFORE THE CIT (A) WHICH ARE NARRATED IN PAGES 2 TO 8 OF THE IMPUGNED ORDER. HE READ OUT THE CONTENTS OF PARA 1.5 OF CIT (A)S ORDER, WHICH PROVIDES THE REASONING FOR CONCLUDING THAT THE CLAIM OF THE ASSE SSEE IS ALLOWABLE U/S 37 OF THE ACT. IN VIEW OF THE RELEVANCE OF THE SAME, WE REPRO DUCE THE SAID PARA 1.5 WHICH IS AS FOLLOWS. 1.5. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD C OUNSEL, THE REMAND REPORT OF THE AO AND THE REPLY OF THE ASSESSEE TO THE REMAND REPORT OF THE AO AND IN THIS CASE, IT IS CLEAR THAT HE APPELLANT HAS MADE THE PAYMENT OF RS. 1,13,24,831/- TO THE SAID MR. JOHN VICTOR SMITH / JONATHAN SMITH AND ALL THE P AYMENTS HAVE BEEN MADE THROUGH BANKING CHANNEL WHICH DURING THE COURSE O F APPELLATE PROCEEDINGS, THE ASSESSEE PROVED BY FILING THE COPY OF THE BANK STAT EMENTS IN QUESTION WHICH WAS MADE AVAILABLE TO THE AO FOR HIS COMMENTS AND IT IS SEEN THAT THE PAYMENTS HAVE BEEN CREDITED IN THE BANK ACCOUNT OF MR. JOHN VICTOR SMITH / JONATHAN SMITH AND THEREFORE, THE FACT OF PAYMENTS HAVING BEEN MADE BY THE APPELLANT AND HAVING BEEN RECEIVED BY MR. JOHN VICTOR SMITH/ JONATHAN SMITH ST ANDS PROVE BEYOND DOUBT. FURTHER, THE FACT THAT IT IS A PERCENTAGE OF THE SA LE IS ALSO NOT DISPUTED THE AMOUNT OF RS. 1,13,24,831/- IS 12% OF THE TOTAL EXPORT SALES. THIS CLEARLY SHOWS THAT MR. JOHN VICTOR SMITH / JONATHAN SMITH HAS RECEIVED THE PAYM ENT OF RS. 1,13,24,831/- AS A FIXED PERCENTAGE OF THE SALE THERE IS A DIRECT CO RRELATION AND NEXUS BETWEEN THE EXPORT SALES MADE BY THE APPELLANT AND THE COMMISSI ON PAID BY THE APPELLANT TO MR. JOHN VICTOR SMITH / JONATHAN SMITH. THUS, THE OBJE CTIONS OF THE AO ARE UNWARRANTED ON THE GIVEN FACTS OF THE CASE SINCE, BOTH THE PA YMENT AND THE RECEIPT OF THIS AMOUNT IN CANADA STANDS CLEARLY ESTABLISHED. THUS, WHEN THE GENUINENESS OF THE PAYMENT CANNOT BE IMPEACHED THEN IT HAS TO BE ALL OWED U/S 37 BECAUSE THE NECESSITY OF MAKING OF THIS PAYMENT CANNOT BE EXAMI NED BY THE AO. ONCE, ITS GENUINENESS IS ESTABLISHED AS ABOVE. HENCE, I DIRE CT THE AO TO ALLOW THIS PAYMENT OF COMMISSION OF RS. 1,13,24,831/- U/S 37 OF THE IT AC T. 5 THE OBJECTION OF THE AO AS TO ADMISSION OF THE DETA ILS RELATING TO IDENTITY OF MR. JOHN VICTOR SMITH / JONATHAN SMITH AND THE BANK ACCOUNT DETAILS IS OVERRULED BECAUSE IT IS THE SETTLED LAW THAT AN APPELLATE AUTHORITY CAN ALW AYS ENTERTAIN EVIDENCE WHICH IS NECESSARY TO DECIDE THE ISSUE IN APPEAL ESPECIALL Y EVIDENCE WHICH HAS A DIRECT BEARING ON THE DISPUTE:- (I) CIT VS. SMT. PRABHAVATI SHAH 231 ITR 1 (BOM) (II) CIT VS. SURETECH HOSPITAL & RESEARCH CENTRE LTD [20 07] 293 ITR 53 (BOM) THUS, THE SAME HAS BEEN ADMITTED AND CONSIDERED. H ENCE, THIS GROUND OF APPEAL IS ALLOWED, AS STATED ABOVE. 8. CONSIDERING THE ABOVE, WE FIND THAT THE ASSESSEE DISCHARGED HIS ONUS VALIDLY, THEREFORE, THE CONCLUSIONS GIVEN BY THE CIT (A) DOE S NOT CALL FOR ANY INTERFERENCE. 9. SIMILARLY, ON THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT R.W.S. 9, 195 AND 200 OF THE ACT, WE FIN D THAT THE REVENUE HAS FAILED TO ESTABLISH THAT THE COMMISSION PAID BY THE ASSESSEE IS CHARGEABLE TO TAX IN THE HANDS OF MR. JOHN VICTOR SMITH IN INDIA. IN SUC H CIRCUMSTANCES, THE EXPLANATION GIVEN BY THE ASSESSEE, WHICH WAS EXTRACTED IN PARA 1.6 OF THE IMPUGNED ORDER, HELPS THE ASSESSEE. AS SUCH, IT IS A DECIDED PROPOSITION AT THE LEVEL OF THE APEX COURT THAT FOR INVOKING THE PROVISIONS OF SECTION 195 OF THE A CT, THE REVENUE HAS TO ESTABLISH THAT THE INCOME SHOULD CHARGEABLE TO TAX UNDER THE ACT IN THE HANDS OF THE RECIPIENT, FAILING OF WHICH, THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT HAVE NO APPLICATION. THEREFORE, WE FIND THAT THE ORDER OF THE CIT (A) IS REASONABLE ON THIS GROUND ALSO AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDI NGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED . 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 3.7.2013. SD/- SD/- ( I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 3& 3.7.2013 . & . ./ OKK , SR. PS 2 2 2 2 - -- - +/45 +/45 +/45 +/45 65(/ 65(/ 65(/ 65(/ / COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 6 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 5 89 +/& , , / DR, ITAT, MUMBAI 6. 9!' : / GUARD FILE. ,5/ +/ //TRUE COPY// 2& 2& 2& 2& / BY ORDER, ; ;; ; / < < < < = = = = (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI