M/s. Agarwal Agri Impex (P) Ltd, Hyderabad V. ITO, Ward-1(1), Hyderabad

ITA 735/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59095 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 25-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Keywords: Double taxation relief
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. & SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.735/HYD/2011 ASSESSMENT YEAR 2006-07 M/S AGARWAL AGRI IMPEX (P) LTD., HYDERABAD (PAN AABCA7239D) VS ITO WA RD 1(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI Y. RATNAKAR RESPONDENT BY : SMT. K. MYTHILI RANI, DR DATE OF HEARING : 14.11.2011 DATE OF PRONOUNCEMENT : 6.1.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT, HYDERABAD DATED 11.3.2011 AND IT PERTAINS TO THE ASSESSMENT YEAR 2006-07, U/S 263 OF THE INCOME TAX ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 28.11.2006 DECLARING TOTAL INCOME AT RS.1,42,148/-. THE RETURN WAS PROC ESSED UNDER SECTION 143(3). THE CASE WAS SELECTED FOR SCRUTINY AND NOT ICE U/S.143(2) WAS ISSUED AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143( 3). 3. THE ASSESSEE CONCERNED DEBITED PROFIT AND LOSS ACCOUNT FOR THE IMPUGNED ASSESSMENT YEAR RS.17,73,885/- TOWARDS INT EREST ON FOREIGN SUPPLIER. NO TAX WAS DEDUCTED ON THIS AMOUNT. THER E WAS NO DISALLOWANCE ON THIS ACCOUNT IN THE ORDER OF ASSESSMENT. ITA NO.735/HYD/2011 M/S AGARWAL IMPEX P LTD., HYDERABAD 2 4. CIT BY HIS ORDER UNDER SECTION 263 DATED 11.03. 2007 HELD THAT THE ASSESSING OFFICER OUGHT TO HAVE DISALLOWED THIS AM OUNT UNDER SECTION 40(A)(IA) OF THE ACT, SINCE NO TDS WAS DEDUCTED AND THEREFORE THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. BY THEIR LETTER DATED 14.02.2011, AUTHORIZED RE PRESENTATIVE OBJECTED TO THE PROCEEDINGS UNDER SECTION 263 OF THE ACT: (I) IN THEIR LETTER DATED 18.02.2011, THE ASSESSEE PLEADED THAT PAYMENT WERE MADE TO THE INDIAN BANKER. ON ACCOUNT OF WRON G DESCRIPTION GIVEN BY THE COMPANY AND USAGE OF THE HEADING AS INTERES T ON FOREIGN SUPPLIERS. . THE CONFUSION IS SUPPOSED TO HAVE ARI SE. THE AR PLEADED THAT EXPORTER GETS ITS PAYMENTS FROM THEIR BANKER A BROAD. THE FOREIGN BANKER IN TURN GETS, THE PAYMENT FROM THEIR BANKER ABROAD. THE FOREIGN BANKER IN TURN GETS THE PAYMENT FROM THE INDIAN BAN KER. IMPORTS WERE SECURED BY OPENING AN I.C. WITH ORIENTAL BANK OF CO MMERCE. IT IS CLAIMED THAT THOUGH USANCE INTEREST WAS PAID, IT IS NOT KNOWN WHO RECEIVES SUCH USANCE INTEREST. THE EXACT QUANTUM O F PAYMENT TO THE FOREIGN COMPANY IN TERMS OF USANCE INTEREST, OTHER BANKING CHARGES AND COST OF GOODS CANNOT BE ASCERTAINED BY THE ASSESSEE . AS FAR AS THE ASSESSEE IS CONCERNED, IT HAS THE L.C., FACILITY AN D IT PAYS INTEREST TO THE LOCAL BANK IN INDIA AND ACCORDINGLY THERE IS NO NEE D FOR MAKING ANY TDS. (II) THE ASSESSEE ALSO QUOTED THE DECISION OF INCOM E TAX APPELLATE TRIBUNAL IN THE CASE OF TECUMESH PRODUCT INDIA LIMI TED VS. DCIT REPORTED IN 13 SOT 489 DATED 21.07.2006 AND THE DEC ISION OF ITAT IN ITA NO.588/HYD/1996 IN THE CASE OF NSL LIMITED HYDE RABAD VS. DCIT SPECIAL RANGE-4, HYDERABAD DATED 31.01.2006 IN ITS SUPPORT. (III) SINCE ASSESSEE DID NOT FILE THE NECESSARY DO CUMENTS AS WELL AS EXPLAINS THE SPLIT UP FIGURES OF TRANSACTION I.E. C OST OF GOODS, INTEREST PAID, BANKING CHARGES, FLUCTUATION IN FOREIGN EXCHA NGE ETC., THE CASE ITA NO.735/HYD/2011 M/S AGARWAL IMPEX P LTD., HYDERABAD 3 WAS ADJOURNED. ON 14.02.2011,THE AR ATTENDED AND F ILED THE DOCUMENTS RELATING TO LOC COPY OF BANK ACCOUNT AND EXPLAINED HOW THE VARIOUS SUMS ARE ASCERTAINED AND ENTRIES PASSED IN THE BOOKS OF ACCOUNT UNDER THE ABOVE HEADS MENTIONED. (IV) THE ASSESSEE ALSO OBJECTED TO THE PROCEEDINGS U/S.263 OF THE IT ACT STATING THAT THE AO HAS ALREADY CONSIDERED THIS ISS UE OF INTEREST PAYMENT AND ALLOWED THE SAME. THE AR RELIED ON THE JUDGMENT OF SUPREME COURT IN 327 ITR 456 G.E. INDIAN TECHNOLOGY CENTRE PVT. LTD VS. CIT TO STATE THAT ONLY WHEN THERE IS AN INCOME ELEMENT IN THE REMITTANCE MADE TO FOREIGNER THE OBLIGATION TO DO T DS ARISES. THE ASSESSEE ALSO RELIED ON THE DTAA TO STATE THAT THE INTEREST PAID TOWARDS SUPPLIES IS EXEMPT FROM THE INDIAN TAX. THE CIT PASSED ORDER U/S.263 HOLDING AS FOLLOWS:- I HAVE CONSIDERED ALL THE ARGUMENTS OF THE ASSESS EE CAREFULLY. THE RECORDS SHOW THAT THE AO DID NOT MAKE ANY ENQUIRY B EFORE ALLOWING THIS EXPENDITURE PHOTO COPY OF THE DOCUMENTS FILED BEFOR E THE AO ARE ENCLOSED AS PAGE 1 TO 4 IN ALL THESE THREE DOCUMENT S THE INTEREST TO FOREIGN SUPPLIERS IS MENTIONED. EXCEPT BRINGING ON RECORD, THESE THREE DOCUMENTS, THE AO DID NOT DO ANY ENQUIRY. EVEN BEF ORE ME IT IS ONLY AFTER 2 OR 3 ADJOURNMENTS, THE ASSESSEE FILED ALL T HE NECESSARY DOCUMENTS FOR CONSIDERATION. THIS BY ITSELF SHOWS THAT THE AO HAS FAILED TO DO ANY ENQUIRY BEFORE ALLOWING THIS DEDUC TION. HENCE THERE IS NO RE-CONSIDERATION INVOLVED IN THE PRESENT PROCEED INGS. ACCORDINGLY, THE OBJECTION OF THE ASSESSEE THAT THE AO HAS EXAMI NED AND TAKEN A VIEW AND THAT THE CIT IS PRESENTED FROM TAKING ACTI ON U/S.263 IS NOT TENABLE. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS:- (I) M/S.SWARUP VEGETABLE PRODUCT INDUSTRIES LTD VS. CIT(187 ITR 412 ALL) (II) ASHOK LEYLAND LTD VS. CIT(MAD) 260 ITR 599 (20 03) ITA NO.735/HYD/2011 M/S AGARWAL IMPEX P LTD., HYDERABAD 4 (III) JAI JAI BHARAT TANNERS VS. CIT (MAD_ 264 ITR 673 (IV) JEHAN NUMA PALACE HOTEL (P) LTD VS. CIT (ITAT INDORE) 70 ITD 552 (V) D & H SECHERON ELECTRODES LTD VS. DCIT (ITAT-IN DORE) 7 ITD 2214 (VI) MALABAR INDUSTRIAL CO., LTD VS. CIT (SC) 243 I TR 83 NOW COMING TO THE FACTS IT IS SEEN THAT INTEREST IS PAID TO ORIENTAL BANK OF COMMERCE ON THE LETTER OF CREDIT FACILITY AVAI LABLE FOR LIMIT OF RS.7.50 CRORES. THE ASSESSEE MAINTAINS ITS ACCOUNTS VERY S CIENTIFICALLY, ASCERTAINING VARIOUS SUMS UNDER THE HEADS COST OF GOODS, INTERES T, FLUCTUATION IS FOREIGN EXCHANGE ETC., AND DEBITING THE SAME TO THE P & L. A/C. IT IS CANNOT BE DENIED THAT INTEREST IS PAID ULTIMATELY TO THE FOREIGN COM PANY. IT MAY BE THAT THE SAID PAYMENT IS ROUTED THROUGH THE INDIAN BANKER. TO TH E EXTENT ASSESSEE PAYS SUCH INTEREST AND THE SAME IS ASCERTAIN AND ENTERED IN THE BOOKS OF ACCOUNT, THERE ARISES LIABILITY TO TDS. NO DOUBT DECISIONS OF THE HONBLE TRIBUNAL WHICH A RE REFERRED TO BY THE ASSESSEE ARE IN FAVOUR OF IT. IT IS HELD BY THE HO NBLE ITAT THAT INTEREST PAID TO INDIAN BANKER ON LC FACILITY CANNOT BE SUBJECT TO T DS. HOWEVER, IT IS SEEN THAT THE DEPARTMENT HAS NOT ACCEPTED BOTH THESE DEC ISIONS BUT PREFERRED AN APPEAL U/S.260A BEFORE THE HONBLE HIGH COURT. THE QUESTIONS OF LAW RAISED BEFORE THE HONBLE HIGH COURT IN BOTH THESE CASES A RE OBTAINED AND PLACED ON RECORD. SINCE THE DEPARTMENT IS STILL CONTESTING T HE DECISIONS, TO PROTECT THE INTEREST OF REVENUE THERE IS NECESSITY FOR ME TO ER R ON THE SIDE OF REVENUE. WITH DUE RESPECT TO THE HONBLE ITAT, THIS ORDER IS BEIN G PASSED SINCE THE MATTER IS PENDING BEFORE THE A.P. HIGH COURT FOR FINAL DECISI ON. ACCORDINGLY, THE AO IS DIRECTED TO DISALLOW RS.17 ,73,885/- AND RECOMPUTED THE TOTAL INCOME AND TAX THEREON AND SER VE NECESSARY DEMAND NOTICE ON THE ASSESSEE. THE ASSESSMENT IS ENHANCED BY RS.17,73,855/-/ THE ASSESSEE IS FREE TO FILE STAY PETITION ON THE DEMAN D WHICH WOULD BE DULY CONSIDERED. ITA NO.735/HYD/2011 M/S AGARWAL IMPEX P LTD., HYDERABAD 5 6. AGGRIEVED BY THE ORDER OF CIT, THE ASSESSEE IS ON APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI Y. RATNAK AR, SUBMITTED BEFORE US THAT CIT, ERRONEOUSLY ASSUMED JURISDICTION WITHOUT CONSIDERING THE CONDITION PRECEDENT FOR EXERCISING THE JURISDICTION UNDER SECTION 263 OF THE ACT. THE LEARNED DR SMT. K. MYTHILI RANI, RELIED ON THE ORDER OF THE CIT. 7. WE HEARD BOTH THE PARTIES. WE FIND THAT THE HYD ERABAD BENCH IN THE CASE OF TECUMSCH PRODUCTS (I) LTD VS DCIT REPORTED IN 13 SOT 489 HAS HELD THAT PAYMENT SUCH AS THOSE MADE BY THE ASSESSEE ARE NOT SUBJECT TO DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT IN TH E HANDS OF THE ASSESSEE. SIMILARLY, THE HYDERABAD BENCH IN THE CASE OF NSL L IMITED VS DCIT IN ITA NO 588/HYD/96 DATED HAS ALSO PASSED SIMILAR DECISIO N. 8. PERUSING THE ORDER OF THE CIT, WE NOTE THE REAS ON FOR HIS REVISION U/S 263 IS AS FOLLOWS: NO DOUBT DECISIONS OF THE HONBLE TRIBUNAL WHICH A RE REFERRED TO BY THE ASSESSEE ARE IN FAVOUR OF IT. IT IS HELD BY THE HO NBLE ITAT THAT INTEREST PAID TO INDIAN BANKER ON LC FACILITY CANNOT BE SUBJ ECT TO TDS. HOWEVER, IT IS SEEN THAT THE DEPARTMENT HAS NOT ACCEPTED BOT H THESE DECISIONS BUT PREFERRED AN APPEAL U/S.260A BEFORE THE HONBLE HIG H COURT. THE QUESTIONS OF LAW RAISED BEFORE THE HONBLE HIGH COU RT IN BOTH THESE CASES ARE OBTAINED AND PLACED ON RECORD. 9. THE CIT HAS CHOSEN TO RESORT TO ACTION U/S 263 MERELY TO PROTECT THE INTEREST OF REVENUE, SINCE THE DEPARTMENT IS STILL CONTESTING THE DECISIONS, HE HAS HELD THAT IT IS NECESSARY FOR HIM TO ERR ON THE SIDE OF REVENUE. THE ORDERS OF THE COORDINATE BENCH OF THE ITAT ARE IN F AVOUR OF THE ASSESSEE. CIT WAS AWARE OF THIS AND HAS SOUGHT TO REVISE THE SAME MERELY TO KEEP THE MATTER ALIVE AND HENCE THERE IS NO ERROR IN THE DEC ISION OF THE AO IN NOT DISALLOWING U/S 40(A)(IA). MERELY BECAUSE THE ORDER OF THE ITAT HAS NOT BEEN ACCEPTED AND DEPARTMENT HAS FILED APPEAL AGAINST TH E SAME, IT CANNOT BE SAID THAT THERE IS AN ERROR CAUSING PREJUDICE TO TH E REVENUE IN THE ORDER ITA NO.735/HYD/2011 M/S AGARWAL IMPEX P LTD., HYDERABAD 6 DATED 29.12.2008 PASSED BY THE ASSESSING OFFICER UN DER SECTION 143(3) OF THE I.T ACT. 10. FURTHER, THE ORDER OF THE ASSESSMENT UNDER SEC TION 143(3) DATED 29.12.2008 HAS BEEN PASSED BY THE AO AFTER FULLY EN QUIRING INTO ALL ASPECTS INCLUDING L.C. INTEREST AND APPLICABILITY OF SECTIO N 195 OF THE ACT. HENCE, IT CANNOT BE SAID THAT THE ORDER PASSED UNDER SECTION 143(3) IS WITHOUT MAKING ANY ENQUIRY. HENCE IN OUR OPINION, THE PROC EEDINGS UNDER SECTION 263 INVOKED BY THE CIT TO IMPOSE HIS DECISION OVER THE DECISION OF THE AO IS ERRONEOUS AS HELD BY THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD V CIT 243 ITR 83 SC. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT 6. 1.2012 SD/- SD/- (CHANDRA POOJARI) ( (ASHA VIJAYA RAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 6 TH JANUARY, 2012 COPY FORWARDED TO: 1. M/S AGARWAL AGRI IMPEX (P) LTD., MAIN ROAD, AFZALGU NJ, HYDERABAD 2. THE ITO WARD 1(1), HYDERABAD 3. THE CIT-I, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/