ACIT 6(1), MUMBAI V. INDIA FASHIONS LTD, MUMBAI

ITA 7060/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78681 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 08-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: A V SONDE
• Keywords: Business income; Business expenditure; Rule of consistency; Services rendered outside India; Permanent establishment; Non-deduction of tax; Commercial expediency
• Section: 143(3); 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.7060/MUM/12 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2008-09 ./ I.T.A. NO.7061/MUM/12 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 THE DCIT, CIR.6(1), ROOM NO.506, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ' ' ' ' / VS. M/S. INDIA FASHIONS LTD., A 2/369, SHAH & NAHAR INDL.ESTATE, LOWER PAREL (W), MUMBAI 400 013. $ ./ % ./ PAN/GIR NO. : AABCI 4292A ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $& ) / APPELLANT BY: SHRI O.P.SINGH '($& * ) / RESPONDENT BY : SHRI A.V.SONDE ' * +, / DATE OF HEARING : 08/04/2014 -.# * +, / DATE OF PRONOUNCEMENT : 08/04/2014 / / O R D E R PER I.P.BANSAL,J.M: BOTH THESE APPEALS ARE FILED BY THE REVENUE AND TH EY ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A) DATED 27/ 08/2012 FOR ASSESSMENT YEARS 2008-09 AND 2009-10. THE ISSUE INVOLVED IN B OTH THE APPEALS IS COMMON. THE ORDER PASSED BY LD. CIT(A) ON THE ISSUE IS ALSO IDENTICAL EXCEPT DIFFERENCE IN FIGURES. THESE APPEALS WERE ARGUED TOGETHER BY B OTH THE PARTIES. THEREFORE, FOR THE SAKE OF CONVENIENCE BOTH THESE APPEALS ARE ADJU DICATED BY THIS COMMON ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 2 ORDER. GROUND OF APPEAL RAISED IN BOTH THESE APPE ALS ARE IDENTICAL EXCEPT DIFFERENCE IN FIGURE. GROUNDS OF APPEAL FOR A.Y. 2 008-08 READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,72.25,650/- ON ACCOUN T OF NON-DEDUCTION OF TDS ON COMMISSION PAYMENT TO NON-RESIDENT. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE PAYMENT OF COMMISSION IS GENUINE I N THE ABSENCE OF ANY EVIDENCES SUCH AS REASONS FOR PAYMENT, BASIS OF PAYMENT DETAI LS OF ORDERS PROCURED BY THE AGENT, COPIES OF BILLS ETC. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE U/S.40(A)(IA) WITHOUT GI VING AN OPPORTUNITY AS PER RULE 46A TO THE AO BEFORE ACCEPTING ANY EVIDENCE RELATIN G TO GENUINENESS OF THE COMMISSION PAID. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE U/S.40(A)(I) IN THE ABSE NCE OF EVIDENCE TO PROVE THAT THE COMMISSION IS PAID FOR SERVICES RENDERED OUTSIDE IN DIA. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE DECISION OF HON BLE SPECIAL BENCH DECISION IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ADD!. CIT (16 ITR (TRIB .) 1(VISHAKHAPCITNAM) IS APPLICABLE IN THE ASSESSEES CASE AS THE DISALLOWAN CE IS MADE U/S.40(A)(IA), BUT ERRONEOUSLY MENTIONED IN THE ASSESSMENT ORDER U/S.4 0(A) (IA). 6. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . IN ASSESSMENT 2009-10, THE FIGURE IS A SUM OF RS.2, 33,23,198/-. 2. WE WILL DISCUSS THE FACTS REGARDING ASSESSMENT YEAR 2008-09. THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITY OF MAN UFACTURING AND EXPORT OF TEXTILE GARMENTS. THE DISCUSSION IN THE ASSESSMEN T ORDER ON THE IMPUGNED ISSUE IS IN PARA-9. DURING THE COURSE OF SCRUTINY PROCEE DINGS THE ASSESSEE WAS REQUIRED TO SUBMIT DETAILS OF COMMISSION AND BROKER AGE PAID BY IT TO VARIOUS PARTIES, WHICH WERE CLAIMED IN THE PROFIT AND LOSS ACCOUNT OF A SUM OF RS.2,07,08,714/-. THE ASSESSEE WAS ALSO REQUIRED TO EXPLAIN THE DEDUCTION MADE ON SUCH PAYMENTS. THE ASSESSEE VIDE LETTER DA TED 5/12/2011 FURNISHED THE DETAILS OF THE PARTIES TO WHOM THE COMMISSION A ND BROKERAGE WAS PAID AND TDS DEDUCTED THEREON. FROM THE DETAILS THE AO FOUN D THAT ASSESSEE DID NOT DEDUCT TAX ON THE PAYMENT OF RS.1,72,25,650/- MADE TO SHRI BHARAT GOEL. THE REASONS FOR NON-DEDUCTION OF TAX WERE STATED TO BE AS FOLLOWS: ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 3 (I) NON-RESIDENT AGENT HAS GIVEN SERVICES OUTSIDE INDIA, HENCE NO TDS DEDUCTED. COPY OF CIRCULAR ATTACHED. (II) ASSESSEE ALSO STATED COPY OF LEDGER ATTACHED THE AO OBSERVED THAT THE ASSESSEE DID NOT FILE LEDG ER ACCOUNT OR CIRCULAR WHICH WAS STATED TO BE ENCLOSED. ON THESE FACTS AO HAS C OME TO THE CONCLUSION THAT ASSESSEE WAS NOT ABLE TO ESTABLISH THE GENUINENESS OF THE EXPENDITURE; ITS BUSINESS EXPEDIENCY ETC. THE ASSESSEE ALSO COULD NOT ESTABLISH ITS CLAIM THAT TDS IS NOT APPLICABLE SINCE SERVICES WERE RENDERED OUTSIDE INDIA. ACCORDING TO AO THE ASSESSEE HAD FAILED TO DISCHARGE ITS OBLIGAT ION REGARDING DEDUCTIBILITY OF THE AFOREMENTIONED AMOUNT OF RS.1,72,25,650/- UNDER SECTION 37 OF THE INCOME TAX ACT 1961 (THE ACT). ALTERNATIVELY, IT IS OBSER VED BY THE A.O THAT SINCE THE TAX HAS NOT BEEN DEDUCTED, THE PAYMENT WAS DISALLOWABL E UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE CIRCULARS NO. 2 3 DATED 23/7/1969, CIRCULAR NO.163 DATED 29/5/1975 AND CIRCULAR NO.786 DATED 7/2/2000 RELIED UPON BY THE ASSESSEE HAVE BEEN WITHDRAWN BY CIRCULAR NO .7 DATED 22/10/2009. THEREFORE, THE A.O HELD THAT THE EARLIER CIRCULARS ISSUED BY CBDT CANNOT BE RELIED UPON BY THE ASSESSEE TO CONTEND THAT TDS WAS NOT DEDUCTIBLE. ACCORDINGLY, DISALLOWANCE WAS MADE. 2.1 AN APPEAL WAS FILED BEFORE LD. CIT(A) PLEADING THEREIN THAT DISALLOWANCE HAS WRONGLY BEEN MADE. THE ASSESSEE FILED WRITTEN SUBMISSION BEFORE LD. CIT(A) DATED 13/8/2012. IT WAS SUBMITTED THAT SHRI BHARAT GOEL IS A NON-RESIDENT AGENT WHO HAS GIVEN SERVICES OUTSIDE INDIA, THEREFO RE, NO TDS WAS REQUIRED TO BE DEDUCTED AND SUCH VERSION OF THE ASSESSEE WAS SUPP ORTED BY AFOREMENTIONED CIRCULARS WHICH WERE IN EXISTENCE FOR THE YEARS U NDER CONSIDERATION. THE ASSESSEE COMPANY WAS INCORPORATED IN FINANCIAL YEAR 2005-06. THE MAJOR PART OF INCOME DERIVED BY THE ASSESSEE IS FROM OVERSEAS EX PORT SALES. THE ASSESSEE DOES NOT MAINTAIN ANY OFFICE OR PERMANENT ESTABLISHMENT IN FOREIGN COUNTRY. THE EXPORT SALES OF THE ASSESSEE FOR THE YEAR UNDER CON SIDERATION IS A SUM OF RS.56,68,40,104/- OUT OF TOTAL SALES OF RS.57,90,6 4,163/-, WHICH IS 90% OF THE TOTAL TURNOVER. THE BROKERS AND COMMISSION AGENT PROCURE THE ORDER FROM BUYERS, PLACE THE ORDER TO THE ASSESSEE AND ACT AS INTERMEDIARIES RIGHT FROM THE ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 4 PROCUREMENT OF THE ORDER TILL DELIVERY OF THE GOOD S AS WELL AS RECEIPT OF THE PAYMENTS FROM THE RESPECTIVE BUYERS. IN LIEU OF SU CH SERVICES ASSESSEE IS MAKING PAYMENT WHICH IS IN THE NATURE OF BROKERAGE OR COMM ISSION. THOSE AGENTS DO NOT HAVE ANY OFFICE OR PERMANENT ESTABLISHMENT IN INDI A. THEY PROCURE ORDERS FROM FOREIGN COUNTRIES, RENDER THEIR SERVICES IN FOREIGN COUNTRIES AND RECEIVE COMMISSION DIRECTLY IN FOREIGN COUNTRIES THROUGH FO REIGN REMITTANCES. IT WAS FURTHER SUBMITTED THAT SHRI BHARAT GOEL IS ACTING A S AGENT OF THE ASSESSEE FOR EXPORT SALES IN FOREIGN COUNTRIES. SAID SHRI BHARA T GOEL HAD PROCURED THE ORDERS FROM MEXICO AND ACTED AS AN AGENT FOR THE ASSESSEE RIGHT FROM PROCUREMENT OF THE ORDERS TILL THE RECEIPT OF THE PAYMENT BY THE A SSESSEE. IN CONSIDERATION THEREOF THE ASSESSEE IS PAYING COMMISSION @12.50% O N SHIRTS & T.SHIRTS AND 5% ON SWEATERS. THE AO DID NOT FIND INCONSISTENCY OR IRREGULARITY IN THE PAYMENTS MADE TO SHRI BHARAT GOEL AND DID NOT BRING ANY CONT RARY EVIDENCE ON RECORD TO PROVE THAT EXPENSES ARE NOT GENUINE. THE ADDITION MADE BY THE AO IS SOLELY ON ACCOUNT OF ASSUMPTIONS AND SURMISES WITHOUT ANYTHIN G CONTRARY ON RECORD. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAD MADE SIMILA R PAYMENTS OF RS.62,12,817/- AND RS.1,36,01,564/- TO SHRI BHARAT GOEL FOR ASSESSMENT YEARS 2006-07 AND 2007-08 RESPECTIVELY. NO DISALLOWANCE HAS BEEN MADE IN THE EARLIER YEARS BY THE DEPARTMENT AND THE SAID COMMISSION HAS BEEN ALLOWED AS BUSINESS EXPENDITURE. EVEN FOR ASSESSMENT YEAR 2006-07 THE ASSESSMENT ORDER IS PASSED UNDER SECTION 143(3) WHERE NO SUCH DISALLOWANCE IS MADE. IT IS ONLY FOR THE YEAR UNDER CONSIDERATION SUCH DISALLOWANCE IS MADE WITHO UT ANY BASIS OR MATERIAL. IT IS ONLY DUE TO EFFORTS OF SHRI BHARAT GOEL THE ASSE SSEE COULD ACHIEVE EXPORT TURNOVER OF RS.56.68 CRORES. THUS, IT WAS PLEADED THAT THE PAYMENT MADE BY THE ASSESSEE TO SHRI BHARAT GOEL IS ON ACCOUNT OF COMME RCIAL EXPEDIENCY AND RELATED TO THE BUSINESS OF THE ASSESSEE AND THE SAME COULD NOT BE DISALLOWED UNDER SECTION 37 OF THE ACT. 2.2 FOR NON-DEDUCTION OF TDS IT WAS SUBMITTED THAT ACCORDING TO CIRCULAR NO.23 DATED 23/7/1969 THE SCOPE OF SECTION 9 OF THE ACT HAS BEEN CLARIFIED. IT HAS BEEN AFFIRMED THAT FOREIGN AGENT OF INDIAN EXPO RTER OPERATING IN HIS OWN COUNTRY WILL NOT GIVE RISE TO ANY INCOME TO THE AG ENT AS HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM, THEREFORE, NO RE CEIPT BY HIM OR ON HIS BEHALF IN ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 5 INDIA. SUCH AGENT IS NOT LIABLE TO INCOME TAX IN INDIA. IT WAS SUBMITTED THAT AFOREMENTIONED CIRCULAR OF CBDT IS BINDING ON THE INCOME TAX AUTHORITIES. THEREAFTER, CBDT HAS ALSO ISSUED CIRCULAR NO.786 D ATED 7/2/2000 AGAIN CLARIFYING THE CHARGEABILITY OF TAX IN INDIA OF TH E COMMISSION OR FOREIGN AGENT RENDERING SERVICES ABROAD AND IT WAS CLARIFIED THA T DEDUCTION OF TAX UNDER SECTION 195 WOULD ARISES IF THE PAYMENT OF THE COMM ISSION TO THE NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA. WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME WOULD ARISE IN INDIA , THEREFORE, NO TDS IS REQUIRED TO BE DEDUCTED ON THE PAYMENT OF COMMISSION TO NON- RESIDENT. RELIANCE WAS PLACED ON VARIOUS DECISIONS INTER-ALIA INCLUDING T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LTD., 125 ITR 525, WHEREIN SIMILAR PROPOSITION WAS LAID DOWN AND IT WAS HELD THAT COMM ISSION AMOUNT WHICH WAS EARNED BY THE NON-RESIDENT FOR SERVICES RENDERED OU TSIDE INDIA COULD NOT BE DEEMED TO BE INCOME WHICH HAD EITHER ACCRUED OR AR ISEN IN INDIA. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CLIFFORD CHANCE VS. DCIT, 318 ITR 237 (BOM) TO PLEAD THAT NO SUCH TDS WAS REQUIRED TO BE DEDUCTED ON THE PAYMENTS MADE BY THE ASSESSEE TO SHRI BHARAT GOEL. SO FAR AS IT RELATES TO CONTENTION OF AO THAT SINCE AF OREMENTIONED CIRCULARS WERE WITHDRAWN BY A SUBSEQUENT CIRCULAR NO.7 /2009 DATED 22/10/2009, IT WAS SUBMITTED THAT THE WITHDRAWAL OF CIRCULAR COULD NOT BE CONSIDERED TO BE RETROSPECTIVE. THUS, IT WAS PLEADED THAT DISALLOWA NCE WAS NOT CALLED FOR EITHER ON THE GROUND THAT IT WAS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT OR ON THE GROUND THAT SINCE TDS WAS NOT DEDUCTED THE SAME WAS DISALLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 2.3 ON THESE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A ) HAS RETURNED A FINDING THAT AO HAS ACCEPTED SUCH CLAIM OF THE ASSESSEE IN RESPECT OF FINANCIAL YEAR 2006-07 AND 2007-08, WHERE SIMILAR PAYMENTS ARE MAD E BY THE ASSESSEE TO SHRI BHARAT GOEL. THE 98% TURNOVER OF THE ASSESSEE IS FROM EXPORT SALES AND ASSESSEE DOES NOT HAVE ANY OFFICE OR PERMANENT ESTA BLISHMENT IN FOREIGN COUNTRIES. IN AN ORDER PASSED UNDER SECTION 143(3) IN RESPECT OF ASSESSMENT YEAR 2006-07 THE AO HAS ACCEPTED SUCH CLAIM OF THE ASSE SSEE. LD. CIT(A) OBSERVED THAT ALTHOUGH THE PRINCIPLES OF RESJUDICATA ARE N OT APPLICABLE IN INCOME TAX ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 6 PROCEEDINGS BUT PRINCIPLE OF CONSISTENCY IS WELL FO UNDED AND ACCEPTED IN THE TAX CASES BY THE COURTS. THE AO DID NOT BRING ANY MA TERIAL ON RECORD TO SUGGEST THAT THE PAYMENT OF COMMISSION MADE BY THE ASSESSEE TO SHRI BHARAT GOEL WAS NOT GENUINE. THE AO ALSO DID NOT STATE THAT WHAT A RE THE CHANGES IN THE CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION A S COMPARED TO EARLIER YEARS WHICH WARRANTED DISALLOWANCE IN THE CURRENT YEAR. LD. CIT(A) HAS ALSO OBSERVED THAT IT IS NOT THE CASE OF AO THAT THE PAYMENT MADE TO SHRI BHARAT GOEL ARE EXCESSIVE OR UNREASONABLE. IT IS ALSO NOT THE CASE OF AO THAT SHRI BHARAT GOEL IS RELATED PARTY OF THE ASSESSEE. IF IT IS SO AND CO MMISSION IS PAID BY THE ASSESSEE ON EXPORTS SALES WHICH ARE ACTUALLY MADE, THEN THE DISALLOWANCE CANNOT BE MADE BY REFERRING TO THE PROVISIONS OF SECTION 37 OF THE ACT. ON THE ISSUE REGARDING NON-DEDUCTION OF TAX LD. CIT(A) HAS MAINLY RELIED U PON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LTD.(S UPRA) AND HAS COME TO THE CONCLUSION THAT SINCE COMMISSION PAID BY THE ASSESS EE TO SHRI BHARAT GOEL WAS PAID OUTSIDE INDIA THE SAME WAS NOT CHARGEABLE TO T AX IN INDIA IN THE HANDS OF RECIPIENTS, THEREFORE, NO TDS WAS REQUIRED TO BE MA DE. 2.4 ON THE ISSUE REGARDING WITHDRAWAL OF CIRCULARS, LD. CIT(A) OBSERVED THAT EARLIER CIRCULARS WERE VERY MUCH IN OPERATION, THER EFORE, REFERENCE TO SUBSEQUENT CIRCULAR NO.7/2009 DATED 22/10/2009 COULD NOT BE MA DE AS THE SAID WITHDRAWAL WAS NOT RETROSPECTIVE. IT IS IN THIS MANNER LD. CI T(A) HAS DELETED THE DISALLOWANCE. REVENUE IS AGGRIEVED, HENCE, HAS RAI SED AFOREMENTIONED GROUNDS OF APPEAL. 3. IT MAY BE MENTIONED HERE THAT IN GROUND NO.3, R EVENUE HAS TAKEN A GROUND REGARDING VIOLATION OF PROVISIONS OF RULE 46A. DURING THE COURSE OF HEARING, LD. DR WAS REQUIRED TO EXPLAIN THAT HOW TH ERE WAS VIOLATION OF RULE 46A. HOWEVER, LD. DR SUBMITTED THAT HE IS RELYING ON GRO UNDS OF APPEAL. 4. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY L D. DR THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE AS ASSESSEE C OULD NOT PROVE THE BUSINESS EXPEDIENCY OF MAKING THE PAYMENT OF COMMISSION TO SHRI BHARAT GOEL. LD. DR SUBMITTED THAT DISALLOWANCE WAS ALSO RIGHTLY MADE B Y AO ON THE GROUND THAT ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 7 ASSESSEE HAD FAILED TO MAKE DEDUCTION OF TAX FROM THE PAYMENTS MADE BY THE ASSESSEE TO SHRI BHARAT GOEL. THEREFORE, HE PLEADE D THAT ACCORDING TO PROVISIONS OF SECTION 195 R.W.S. 40(A)(IA) THE DISALLOWANCE W AS RIGHTLY MADE BY THE AO. LD. DR ALSO REFERRED TO PARA-4 OF CIRCULAR NO.7/2009 DA TED 22/10/2009 WHICH READ AS UNDER: 4. EVEN WHEN THE CIRCULAR WAS IN FORCE, THE INCOM E-TAX DEPARTMENT HAS ARGUED IN APPEALS, REFERENCES AND PETITIONS THAT (I) THE CIRCULAR DOES NOT ACTUALLY APPLY TO A PARTICULA R CASE, OR (II) THAT THE CIRCULAR CANNOT BE INTERPRETED TO ALLOW RE LIEF TO THE TAXPAYER WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9 OF THE INCOME-TAX ACT OR WITH THE INTENTION BEHIND THE ISSUE OF THE CIRCULAR . IT IS CLARIFIED THAT THE WITHDRAWAL OF THE CIRCULAR WILL IN NO WAY PREJUDICE THE AFORESAID ARGUMENTS WHICH THE INCOME-TAX DEPARTMENT HAS TAKEN, OR MAY TAKE, IN ANY APPEAL, REFERENCE OR PETITION. 4.1 REFERRING TO THE AFOREMENTIONED PORTION OF THE CIRCULAR IT WAS SUBMITTED BY HIM THAT AFTER WITHDRAWAL OF THE EARLIER CIRCULAR I .E. CIRCULAR NO.23 DATED 23/7/1969, THE ASSESSEE COULD NOT PLEAD THAT ON THE BASIS OF CIRCULAR NO.23 OF 23/7/1969 TAX WAS NOT REQUIRED TO BE DEDUCTED. THU S, IT WAS PLEADED BY LD. DR THAT LD.CIT(A) HAS COMMITTED AN ERROR IN GRANTING R ELIEF TO THE ASSESSEE AND HIS ORDER SHOULD BE SET ASIDE AND THAT OF AO BE RESTORE D. 5. ON THE OTHER HAND, IT WAS VEHEMENTLY PLEADED BY LD. AR THAT DISALLOWANCE WAS WRONGLY MADE BY THE AO AND IT HAS RIGHTLY BEEN DELETED BY LD. CIT(A). HE SUBMITTED THAT IN VIEW OF BUSINESS REQUIREMENT OF THE ASSESSEE THE PAYMENT OF COMMISSION WAS MADE ON COMMERCIAL EXPEDIENCY. SIMI LAR PAYMENTS WERE MADE IN THE EARLIER YEARS ALSO. NO DISALLOWANCE WAS MAD E. NEITHER THE ASSESSEE HAS ANY PERMANENT ESTABLISHMENT IN FOREIGN COUNTRIES NO R THE AGENT HAS ITS PERMANENT ESTABLISHMENT IN INDIA AND THESE FINDINGS HAVE BEEN RECORDED BY LD. CIT(A). THE PAYMENT IS MADE BY THE ASSESSEE TO THE AGENT OUTSIDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA, THEREFORE, NO TAX WAS DEDUCTIBLE AS PER THE AFOREMENTIONED CIRCULAR AS WELL AS THE AFOREMENTIO NED DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOSHOKU(SUPRA). HE F URTHER SUBMITTED THAT IT IS ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 8 NOW WELL ESTABLISHED THAT THE WITHDRAWAL OF THE EAR LIER CIRCULARS NO. 23 DATED 23/7/1969, CIRCULAR NO.163 DATED 29/5/1975 AND CIRC ULAR NO.786 DATED 7/2/2000 BY CIRCULAR NO.7/2009 DATED 22/10/2009 W ILL NOT BE APPLICABLE IN RESPECT OF PERIOD EARLIER TO WITHDRAWAL OF AFOREME NTIONED CIRCULARS. FOR THIS PURPOSE, LD. AR HAS SUBMITTED BEFORE US THE DECISI ON OF HONBLE DELHI HIGH COURT DATED 23/9/2013 IN ITA NO.280/2013 AND 454/20 13 IN THE CASE OF CIT VS. ANGELIQUE INTERNATIONAL LTD. AND THE RELEVANT OBSE RVATIONS OF THEIR LORDSHIPS ARE AS UNDER: 8. REFERRING TO THIS DECISION, IN CATHOLIC SYRIAN BANK LIMITED VERSUS COMMISSIONER OF INCOME TAX, (2012) 3 SCC 784, IT HAS BEEN OBSERV ED THAT THE CENTRAL BOARD OF DIRECT TAXES HAS STATUTORY RIGHT TO ISSUE CIRCULARS UNDER SECTION 119 OF THE ACT TO EXPLAIN OR TONE DOWN THE RIGOURS OF LAW AND TO ENSU RE FAIR ENFORCEMENT OF THE PROVISIONS. CIRCULARS ISSUED HAVE FORCE OF LAW AND ARE BINDING OF THE INCOME TAX AUTHORITIES THOUGH THEY CANNOT BE ENFORCED ADVERSEL Y AGAINST THE ASSESSEE. NORMALLY THESE CIRCULARS CANNOT BE IGNORED. THUS A CIRCULAR MAY NOT OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT BUT CAN SEEK TO MITIGATE THE RIGOUR OF A PARTICULAR PROVISION FOR THE BENEFIT OF AN ASSESSEE IN SPECIFIED CIRCUMSTANCES. 9. FIRST CIRCULAR IN QUESTION HAD BEEN IN FORCE FOR A LONG TIME, FROM 1969. THE BOARD MAY HAVE WITHDRAWN THIS CIRCULAR AND OTHER CIRCULAR S VIDE CIRCULAR NO. 7 DATED 22ND OCTOBER, 2009 BUT THE SAID WITHDRAWAL CANNOT BE RETROSPECTIVE. CIRCULAR NO. 7 OF 2009 CANNOT BE CLASSIFIED AS EXPLAINING OR CLARI FYING THE EARLIER CIRCULARS ISSUED IN 1969 AND 2000. THIS ASSERTION IN THE ASSESSMENT ORD ER IS FAR-FETCHED AND DOES NOT MERIT ACCEPTANCE. CIRCULAR NO. 7 DOES NOT CLARIFY T HE EARLIER CIRCULARS BUT WITHDRAWS THEM. THIS IS OBVIOUS AND APPARENT. CIRCULARS IN FO RCE IN THE RELEVANT ASSESSMENT YEAR HAVE TO BE TAKEN INTO CONSIDERATION AND SHOULD NOT BE IGNORED. 10. SO LONG AS THE CIRCULARS WERE IN FORCE, IT AIDE D IN UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE PROVISIONS OF THE ACT. READ IN THIS MANNER, WE DO NOT THINK THE RESPONDENT-ASSESSEE WAS IN DEFAULT AND HAD FAILED TO DEDUCT AT SOURCE, THOUGH IT WAS MANDATED AND REQUIRED. THE RE SPONDENT WAS ENTITLED TO RELY UPON THE CIRCULARS. IN LIGHT OF THE JUDGMENTS OF TH E SUPREME COURT IN CIT VERSUS ELI LILLY COMPANY (INDIA) PRIVATE LIMITED, (2009) 312 I TR 225 (SC) AND G.E INDIA TECHNOLOGIES CENTRE PRIVATE LIMITED VERSUS CIT, (20 10) 327 ITR 456 (SC), ONCE THE INCOME WAS NOT EXIGIBLE OR CHARGEABLE TO TAX, TDS W AS NOT REQUIRED TO BE DEDUCTED. MONEY PAID TO THE THIRD PARTIES, WHO DID NOT HAVE A NY OFFICE OR PERMANENT ESTABLISHMENT IN INDIA, WAS EXEMPT AND NOT CHARGEAB LE TO TAX. THUS ON THE SAID PAYMENTS OR INCOME, TDS WAS NOT REQUIRED TO BE DEDU CTED. WE ALSO NOTE THAT THE PAYMENTS IN QUESTION WERE MADE PRIOR TO CIRCULAR NO . 7/2009. ON THIS ASPECT, THERE IS NO DISPUTE. WE, THEREFORE, DO NOT FIND ANY REASO N TO INTERFERE WITH THE ORDER PASSED BY THE TRIBUNAL DELETING THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT. THE APPEAL, BEING D EVOID OF MERIT, IS DISMISSED. COPY OF THE DECISION WAS PLACED ON OUR RECORD AND W AS ALSO GIVEN TO LD. D.R. ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 9 5.1 FOR SIMILAR CONTENTION LD. AR HAS ALSO RELIED U PON THE DECISION OF CHENNAI ITAT DATED 11/6/2013 IN THE CASE OF ACIT VS. M/S. L EATHER INDIA, ITA NO.115/MDS/2013, WHEREIN IT HAS BEEN HELD THAT MER E REMITTANCE TO NON- RESIDENT WILL NOT MAKE IT OBLIGATORY ON THE PART OF PERSON MAKING PAYMENT OF DEDUCTION OF TAX AT SOURCE, UNLESS REMITTANCE CONT AINS WHOLLY OR PARTLY TAXABLE IN INDIA. RELIANCE WAS ALSO PLACED ON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MODEL EXIMS, 100 DTR (ALL) 260, W HEREIN SIMILAR PROPOSITION HAS BEEN LAID DOWN AS IS LAID DOWN BY HONBLE DELHI H IGH COURT IN THE AFOREMENTIONED CASE OF CIT VS. ANGELIQUE INTERNATI ONAL LTD(SUPRA). THUS, IT WAS PLEADED BY LD. AR THAT RELIEF HAS RIGHTLY BEEN GRAN TED BY LD. CIT(A) AND HIS ORDER SHOULD BE UPHELD. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE BUSINESS OF THE ASSESSEE IS MAINL Y OF EXPORT OF TEXTILE GARMENTS. THE ASSESSEE HAS MADE PAYMENT TO SHRI BHARAT GOEL W HO IS A NON-RESIDENT AND WHO DOES NOT OWN ANY PERMANENT ESTABLISHMENT OR ADM INISTRATIVE OFFICE IN INDIA. SIMILARLY, ASSESSEE IS ALSO NOT MAINTAINING ANY PER MANENT ESTABLISHMENT IN FOREIGN COUNTRIES. IT IS IN THESE CIRCUMSTANCES TH E ASSESSEE IS MAKING PAYMENT OF COMMISSION TO NON-RESIDENT AT SPECIFIED RATE. THE RECIPIENT OF THE COMMISSION IS ALSO NOT A RELATED PARTY TO THE ASSESSEE. ALL THES E FINDINGS OF FACTS HAVE BEEN RECORDED BY LD. CIT(A) AND ARE NOT DISPUTED BY THE REVENUE AS THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THESE FINDINGS O F LD. CIT(A) ARE EITHER INCORRECT OR FALSE. IT IS ALSO THE FINDINGS RECORDED BY LD. CIT(A) THAT SIMILAR PAYMENTS WERE MADE BY THE ASSESSEE IN EARLIER YEARS TO SHRI BHAR AT GOEL AND HAVE BEEN ACCEPTED AS ALLOWABLE EXPENDITURE BY THE REVENUE. THIS FACT IS CLEAR FROM THE ASSESSMENT ORDER FOR A.Y 2006-07 WHICH IS PASSED UNDER THE PROVISIONS OF SECTION 143(3) OF THE ACT AND COPY IS PLACED ON THE PAPER BOOK. IT IS ALSO A MATTER OF FACT THAT WHILE MAKING THE DISALLOWANCE T HE AO DID NOT BRING ANY MATERIAL ON RECORD TO SUGGEST THAT THE PAYMENT MADE BY THE ASSESSEE TO SHRI BHARAT GOEL WAS FOR ANY PURPOSE OTHER THAN BUSINESS OF THE ASSESSEE. IN VIEW OF ALL THESE FACTS, IT IS DIFFICULT TO UPHOLD THE FIN DINGS OF THE A.O THAT THE PAYMENTS WERE NOT MADE BY THE ASSESSEE FOR BUSINESS EXPEDIEN CY. IN ABSENCE OF ANY ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 10 CONTRARY MATERIAL AND IN VIEW OF THE FACT THAT SIMI LAR PAYMENTS HAVE BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS AS BUSINES S EXPENDITURE, WE ARE OF THE OPINION THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN HOLDING THAT SUCH AMOUNT WAS ALLOWABLE AS BUSINESS EXPENDITURE AND, THEREFO RE, COULD NOT BE DISALLOWED UNDER SECTION 37 OF THE ACT. 6.1 NOW COMING TO THE ALTERNATIVE CLAIM OF THE AO T HAT ON ACCOUNT OF NON- DEDUCTION OF TAX THE AMOUNT WAS DISALLOWABLE. HE RE THE CASE OF AO IS MAINLY BASED ON WITHDRAWAL OF EARLIER CIRCULARS AND THIS ISSUE HAS BEEN DISCUSSED IN DETAILS IN ABOVE PART OF THIS ORDER. THE AFOREMENT IONED DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANGELIQUE INTERNA TIONAL LTD ( SUPRA) AND DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MODEL EXIMS(SUPRA) , IT HAS BEEN MADE CLEAR THAT WITHDRAWAL OF EARLIER CIRC ULAR BY THE CBDT VIDE CIRCULAR NO.7 OF 2009 DATED 22/10/2009 WILL NOT OP ERATE PRIOR TO THAT DATE I.E. 22/10/2009. BOTH THE FINANCIAL YEARS UNDER CONSIDE RATION ARE PRIOR TO 22/10/2009. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO ERROR IN THE ORDER PASSED BY LD. CIT(A) VIDE WHICH IT HAS BEEN HELD TH AT EVEN ON THE BASIS OF CIRCULAR NO.7 DATED 22/10/2009 DISALLOWANCE COULD N OT BE MADE. 6.2 IN VIEW OF ABOVE DISCUSSION, WE DECLINE TO INT ERFERE IN THE RELIEF GRANTED BY LD. CIT(A AND WE UPHOLD HIS FINDINGS ON THIS ISSUE. . THE VIEW TAKEN BY US ON THE FACTS FOR A.Y. 2008-09 WILL BE EQUALLY APPLICA BLE TO THE DEPARTMENTAL APPEAL FOR ASSESSMENT YEAR 2009-10. THEREFORE, BOTH THE A PPEALS FILED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/04/2014 . / * -.# 0 1'2 08/04/2014 . * 3 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1' DATED 08/04/2014 . ' . .VM , SR. PS ./ I.T.A. NO.7060&7061/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 & 09-10 : 11 / / / / * ** * '+4 '+4 '+4 '+4 54#+ 54#+ 54#+ 54#+ / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 '+' , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /' /' /' /' / BY ORDER, (4+ '+ //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI