RAMLORD APPARELS, MUMBAI V. ACIT (A) 25(3), MUMBAI

ITA 6636/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0937 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 16-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 03-11-2014
• Court: TRIBUNAL
• Assessee Lawyers: S C TIWARI
• Keywords: Services rendered outside India

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 6636 / MUM/20 1 4 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. RAMLORD APPARELS, 9A, AKURLI ROAD, KANDIVALI (EAST), MUMBAI 400 101 VS. ACIT WARD 25(3), MUMBAI PAN/GIR NO. AAAFR3183M APPELLANT ) .. RESPONDENT ) ITA NO. 7475/ MUM/20 14 ( ASSESSMENT YEAR : 2011 - 12 ) ACIT WARD 25(3), MUMBAI VS. M/S. RAMLORD APPARELS, 9A, AKURLI ROAD, KANDIVALI (EAST), MUMBAI 400 101 PAN/GIR NO. AAAFR3183M APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI S.C. TIWARI REVENUE BY MS. RUTUJA N PAWAR DATE OF HEARING 06 / 04 /201 7 DATE OF PRONOUNCEME NT 01 / 05 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 35, MUMBAI DATED 24/09/2014 FOR THE A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. FACTS IN BRIEF ARE THAT ASSESSEE FIRM IS CARRYING ON BUSINESS OF MANUFACT URING AND EXPORT OF GARMENTS. DURING THE COURSE OF SCRUTINY ASSESSMENT, AO MADE ADDITION ON ACCOUNT OF DIFFERENCE IN FORM 26AS AND BOOKS OF ACCOUNTS OF RS. 2,66,607/ - , COMMISSION EXPENSES OF ITA NO. 6636/MUM/2014 & 7475/MUM/2014 RAMLORD APPARELS 2 RS.74,46,145/ - U/S.40(A)(IA). AO ALSO DISALLOWED 10% OF THE CASH EXPENSES, TELEPHONE EXPENSES AND TRAVELLING EXPENSES ON ACCOUNT OF PERSONAL USE. BY THE IMPUGNED ORDER CIT(A) CONFIRMED ADDITION ON ACCOUNT OF DIFFERENCE OF RS.2,66,607. DISALLOWANCE ON ACCOUNT OF TRAVELLING AND CONVEYANCE WAS RESTRICTED TO 5%. HOWEVER, DISALLOWANCE OF COMMISSION WAS DELETED BY CIT(A). 3. AGAINST THE ABOVE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. IT WAS ARGUED BY LEARNED AR THAT DIFFERENCE OF RS.2,66,607/ - AS PER FORM NO.26AS VIS - - VIS BOOKS OF ACCOUNTS WAS DUE T O THE VAT CHARGES WHICH WAS ACCOUNTED SEPARATELY BY THE ASSESSEE. LEARNED AR ALSO SUBMITTED THAT RECONCILIATION STATEMENT WAS ALSO FILED BEFORE THE AO BUT THE SAME WAS NOT PROPERLY APPRECIATED. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ADDITIO N WAS MADE BY AO ON THE PLEA THAT THERE WAS A DIFFERENCE IN THE AMOUNT AS PER 26AS VIS - - VIS AMOUNT SHOWN AS INCOME IN THE P & L ACCOUNT IN RESPECT OF FOLLOWING PARTIES . THE DIFFERENCE IN THE AMOUNT SO FOUND WAS AS UNDER: - SR. NO. PARTY NAME AMOUNT SHOWN A S LABOUR JOB RECEIVED IN P & L ACCOUNT (IN RS.) AMOUNT CREDITED AS PER 26AS (IN RS.) DIFFERENCE (IN RS.) 1 K R APPARELS 8,53,873 9,22,855 68,982 2 KAM GARMENTS PVT. LTD., 1,69,796 1,83,426 13,630 3 APOLLO FAB 5,53,808 5,65,392 11,584 4 SUBHASH R TOSH IWALA 2,52,600 2,58,381 5,781 5 BANK OF BARODA 6,89,930 8,56,560 1,66,630 TOTAL 25,20,007 27,86,614 2,66,607 5. IN RESPECT OF M/S. KR APPARELS, WE FOUND THAT DIFFERENCE WAS ON ACCOUNT OF VAT RS.23,585/ - , IN CASE OF KAM GARMENTS PVT. LTD., ITA NO. 6636/MUM/2014 & 7475/MUM/2014 RAMLORD APPARELS 3 RS.1 3,630/ - , IN CASE OF APOLLO FAB RS.11,584/ - AND IN CASE OF SUBHASH R TOSHIWALA RS.5,781/ - WE FOUND THAT SINCE THE AMOUNT WAS SEPARATELY ACCOUNTED BY ASSESSEE IN RESPECT OF VAT CHARGES, THE DIFFERENCE AROSE. AS THE VAT CHARGES HAVE BEEN PROPERLY ACCOUNTED IN THE BO OKS OF ACCOUNTS, WE DO NOT FIND ANY MERIT FOR THE ADDITION SO MADE ON ACCOUNT OF VAT CHARGES. HOWEVER, THERE WAS NO PROPER EXPLANATION IN RESPECT OF DIFFERENCE IN THE CASE OF BANK OF BARODA AMOUNTING TO RS.1,66,630/ - . SIMILARLY THERE WAS NO CONFIRMATION WI TH REGARD TO BILL OF RS.43,500/ - NOT ENTERED BY KR APPARELS. ACCORDINGLY, WITH RESPECT TO ADDITION OF RS.1,66,630/ - AND RS.43,500/ - , WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR EXAMINING AND DECID ING AFRESH. 6. ASSESSEE IS ALSO AGGRIEVED FOR DISAL LOWANCE ON ACCOUNT OF MOTOR CAR, TELEPHONE AND TRAVELLING EXPENSES ON ACCOUNT OF PERSONAL USE. AO HAS DISALLOWED 10% WHICH WAS RESTRICTED BY CIT(A) TO THE EXTENT OF 5% WHICH APPEARS TO BE VERY REASONABLE. ACCORDINGLY, WE UPHELD THE ACTION OF CIT(A) FOR THE DISALLOWANCE OF 5% ON ACCOUNT OF PERSONAL USE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. 8 . REVENUE IN ITS APPEAL IS AGGRIEVED FOR DELETING DISALLOWANCE ON ACCOUNT OF COMMISSION U/S.40(A)(IA). 9 . FACTS IN BRIEF ARE THAT ASSESSEE - FIRM IS CARRYING ON BUSINESS OF MANUFACTURING AND EXPORT OF GARMENTS AND MERCHANT EXPORTER. AO DISALLOWED COMMISSION EXPENSES U/S.40(A)(IA) R.W.S. 195, BEING PAID OUTSIDE INDIA WITHOUT DEDUCTION OF TAX. ITA NO. 6636/MUM/2014 & 7475/MUM/2014 RAMLORD APPARELS 4 10 . BY THE IMPUGNED ORDER, CIT(A) ALLOWED ASSESSEES CLAIM AFTER OBSERVING AS UNDER: - L HAVE GONE THROUGH THE FACT S O F THE CASE AND THE REGAL POSITION IN THIS REGARD. THE MOOT QUESTION TO BE DECIDED IS WHETHER THE COMMISSION PAID TO NON - RESIDENT AGENTS FOR THE SERVICES PROVIDED IN THE FOREIGN COUNTRY IS TAXABLE IN INDIA. THE FACTS OF THE CASE ARE THAT THE NON - RESIDENT AGENTS WERE OPERATING IN THEIR O WN RESPECTIVE COUNTRIES AND THEY PROCURED ORDERS FOR TAXPAYERS FROM THE PARTIES OUTSIDE INDIA AND THE COMMISSION WAS PAID TO THEM OUTSIDE INDIA IN FOREIGN CU R RENCY. THE FOREIGN AGENTS DID NOT HAVE ANY BUSINESS CONNECTION NOR DO THEY HAVE ANY PLACE OF BUS INESS IN INDIA. WHAT CLEARLY EMERGES I S THAT THE AGENTS IN THIS CASE BEING LO CATED OUT OF INDIA AND HAVING TH EIR OPERATIONS ENTIRELY' OUT OF INDIA, WOULD NOT FALL IN T HE AMB IT OF CONCEPT OF 'BUSINESS CONNECTION'. THE DECISION OF THE HON.BL E APEX COURT' IN THE CASE OF CIT VS. TOSHOKU LTD. (125 ITR 525) IS DIRECTLY APPLICABLE IN U NDERSTANDING THE TAXABILITY OF COMMISSION AGENT WHO DOES NOT CARRY OUT ANY BUSINESS OPERATION S IN INDIA FOR THE PURPOSE OF UNDERSTANDING THE APPLICABILITY OF THE EXPLANATION TO SECTION 9(1)(I) OF THE ACT .. THE SAME PRINCIPLE HAS BEEN RECOGNIZED IN THE DECISION OF THE HON.BLE MUMBAI HIGH COURT IN THE CASE OF ARDESHI B. CURSETJEE & SONS L TD (2008) 115 TTJ 916, WHEREIN IT WAS, HELD THAT COMMISSION PAID TO NON - RESIDENT AGENTS OUTSIDE INDIA FOR TH E SERVICES RENDERED OUTSIDE INDIA WAS NOT CHARGEABLE TO T A X IN INDIA. SU CH COMMISSION PAYMENT WAS NOT TAXABLE IN. INDIA AS THE CONDITIONS SP ECIFIED IN SECTIO N 9(1)(I) OF THE ACT; WERE NOT FULFILLED. BESIDES, THE PROVISIONS OF SECTION 9(1)(III) (IV), (V)1(VI) AND (VII)' OF THE ACT WERE ALSO NOT APPLICABLE IN THE PRESENT CASE. THE EXPLANATION TO SECTION 9(2) INSERTED BY THE FINANCE ACT WITH RETROSP ECTIVE EFFECT FROM 1.1.1976 WAS ALSO, NOT APPLICABLE SINCE THE SAID EXPLANATION WAS NOT APPLICABLE TO SECTION 9(1)(I) OF THE ACT. THIS HAS BEEN HEL D BY THE HONBLE M UMBAI TRIBUNAL IN THE CASE OF GUJARAT RECLAIM AND RUBBER PRODUCTS LTD., (ITA NO.8868/MUM/2010). THEREFORE , KEEPING IN VIEW THE FACTS AND LEGAL POSITION IN THIS REGARD, THIS GROUND IS ALLOWED. 1 1 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT COMMISSION WAS PAID BY ASSESSEE IN RESPECT OF ITS EXPORT BUSINESS TO A NON - RESIDENT IN RESPECT OF SERVICES REN DE RED OUTSIDE INDIA. NO SERVICE IN RESPECT OF WHICH COMMISSION WAS PAID W ERE RENDERED IN INDIA. THE ITA NO. 6636/MUM/2014 & 7475/MUM/2014 RAMLORD APPARELS 5 ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF GE INDIA 327 ITR 456, WHEREIN IT WAS HELD THAT NO TAX IS REQ UIRED TO BE DEDUCTED AT SOURCE IN RESPECT OF PAYMENT TO NON - RESIDENT WHO SE INCOME IS NOT LIABLE TO TAX IN INDIA. AS THE COMMISSION SO PAID TO NON - RESIDENT WAS NOT LIABLE TO TAX IN INDIA, THE ASSESS EE WAS NOT UNDER OBLIGATION TO DEDUCT THE TAX ON SUCH PAYME NTS FOR THE SERVICES RENDERED OUTSIDE INDIA BY SUCH NON - RESIDENT IN RESPECT OF ITS EXPORT BUSINESS. DETAILED FINDING RECORDED BY CIT(A) AT PARA 5 OF HIS APPELLATE ORDER HAS NOT BEEN CONTROVERTED BY LD. D.R. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFE RE IN THE ORDER OF CIT(A) DELETING DISALLOWANCE OF COMMISSION. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART WHEREAS APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 01 / 05 /2017 S D/ - ( RA VISH SOOD ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 01 / 05 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT( A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//