Karnavati Engineering Ltd., Ahmedabad V. The DCIT, Circle-2(1)(2), Ahmedabad

ITA 830/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1804 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 04-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Keywords: Capital asset; Proportionate interest; Additional evidence; Permanent establishment; Initiation of penalty proceedings; TDS
• Section: 40(a)(ia); 37(1); 195; 13

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NOS. 830-831/AHD/2018 / ASSTT. YEARS: 2013-14 & 2014-15 KARNAVATI ENGINEERING LTD., CADILA CORPORATE CAMPUS, SARKHEJ DHOLKA ROAD, BHAT, AHMEDABAD. PAN: AAACK6047Q VS. A.C.I.T., CIRCLE 2(1)(2), AHMEDABAD. (APPLICANT) (RESPONDENT) ASSESSEE BY : MS URVASHI SHODHAN, A.R REVENUE BY : SHRI S.S. SHUKLA, SR.D.R /DATE OF HEARING : 15/06/2021 /DATE OF PRONOUNCEMENT: 28/06/2021 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD, OF EVEN DATED 05/02/2018 (IN SHORT LD. CIT(A)) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3)OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') RELEVANT TO THE ASSESSMENT YEARS 2013-14 & 2014-15.. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 2 1. LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF EXPORT COMMISSION OF RS. 5,75,929/- (RS. 1,36,544/- PLUS RS. 4,39,385/-) OUT OF TOTAL EXPORT COMMISSION OF RS. 29,61,337/- BY OBSERVING THAT RS. 1,36,544/- CLAIMED AGAINST PROVISION AND RS. 4,39,3857- DEBITED UNDER HEAD EXPORT COMMISSION AS OUTSTANDING ADJUSTED AGAINST COMMISSION BY TREATING SAME AS PRIOR PERIOD EXPENSES. LD. CIT (A) OUGHT TO HAVE DELETE DISALLOWANCE AS LIABILITIES FOR PAYMENT CRYSTALIZE IN THE CURRENT YEAR AND APPELLANT COMPANY IS IN SAME RATE OF TAX FOR ALL THE YEARS. IT BE SO HELD NOW. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS. 5,75,929/- BY INVOKING PROVISION OF SECTION 40(A) (I) OF THE ACT ON WITHOUT PREJUDICE BASIS IGNORING SUBMISSION OF THE APPELLANT THAT AGENTS RENDERED SERVICES OUTSIDE INDIA AND DOES NOT HAVE ANY,-PERMANENT ESTABLISHMENT IN INDIA AND HENCE PROVISION OF SECTION 40(A)(I) IS NOT APPLICABLE TO THE APPELLANT. IT BE SO HELD NOW. 3. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS. 6,85,804/- US 36(1)(III) OF THE ACT IGNORING FACT THAT APPELLANT HAS HUGE INTEREST FREE FUNDS IN FORM OF SHARE CAPITAL AND RESERVES & SURPLUS. LD. CIT (A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 4. LD. CIT (A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT THAT AMOUNT PAID TO H L PHARMA CO., KOREA AS CAPITAL ADVANCES TO ACQUIRED INTANGIBLE ASSETS PURSUANT TO TECHNOLOGY TRANSFER ARRANGEMENT AND SAME IS FOR THE PURPOSE OF BUSINESS. 5. CHARGING OF INTEREST U/S.234A, 234B, 234C AND 234D IS UNJUSTIFIABLE. 6. INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS UNJUSTIFIED. THE APPELLANT CRAVES TO LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 3. THE FIRST INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 AND 2 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 5,75,929/- ON ACCOUNT OF EXPORT COMMISSION TREATING THE SAME AS NON-GENUINE AS WELL AS NON-DEDUCTION OF TDS U/S.195 R.W.S. 40(A)(I) OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE MANUFACTURING AND SALES OF MACHINERIES PUNCHES & DIES & SPARES. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS CLAIMED COMMISSION EXPENSES AMOUNTING TO RS. 31,33,000/- INCLUDING THE EXPORT COMMISSION OF RS.29,61,337/- ONLY. HOWEVER, THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS FAILED TO JUSTIFY THE EXPENSES OF THE EXPORT COMMISSION BASED ON DOCUMENTARY EVIDENCES SUCH AS AGREEMENT FOR COMMISSION, BASIS OF COMMISSION PAID, IDENTITY PROOF OF THE PARTIES, NATURE OF SERVICES RENDERED BY THE ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 3 FOREIGN AGENTS ETC. ACCORDINGLY THE AO IN THE ABSENCE OF SUCH DOCUMENTARY EVIDENCES HELD THAT THE IMPUGNED AMOUNT OF EXPORT COMMISSION OF RS. 29,61,337/- HAS NOT BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS AND THEREFORE SAME CANNOT BE ALLOWED AS DEDUCTION U/S. 37(1) OF THE ACT. 4.1 BESIDES THE ABOVE, THE AO ALSO FOUND THAT THE ASSESSEE FAILED TO DEDUCT THE TDS ON THE IMPUGNED AMOUNT OF EXPORT COMMISSION UNDER THE PROVISION OF SECTION 195 OF THE ACT. ACCORDINGLY THE AO ALSO DISALLOWED THE SAME UNDER THE PROVISION OF SECTION 40(A)(I) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4.2 AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A) WHO HAS PARTLY CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF EXPORT COMMISSION OF RS.29,61,337/- ON THE GROUND THAT THE APPELLANT HAS NOT BEEN ABLE TO PROVE THE IDENTITY OF THE COMMISSION AGENTS AS NO COPY OF AGREEMENT EXECUTED BETWEEN THE FOREIGN AGENTS AND THE ASSESSEE HAS BEEN FURNISHED AND NO PROOF OF RENDERING THE SERVICES ON THE BASIS OF COMMISSION HAS BEEN PAID HAS BEEN PROVIDED. THE AO WITHOUT PREJUDICE HAS ALSO DISALLOWED THE ABOVE EXPENDITURE AS THE IDS HAS NOT BEEN DEDUCTED ON THE ABOVE FOREIGN COMMISSION. 2.4 THE APPELLANT HAS SUBMITTED THAT IT HAS SUBMITTED BEFORE THE AO OIL COPIES OF INVOICES OF EXPORT COMMISSION, TAX RESIDENCY CERTIFICATE OF NON RESIDENT RECEIVED ALONG WITH COPY OF FORM 15CA & 15CB TO ESTABLISH THE GENUINENESS OF EXPENDITURE AND THAT APPELLANT IS NOT REQUIRED TO DEDUCT IDS ON THE FOREIGN COMMISSION. APPELLANT HAS FURTHER SUBMITTED THAT CIT(A) IN THE EARLIER ASSESSMENT YEAR HAS ALLOWED SUCH DISALLOWANCES MADE BY THE AO. 2.5 IT IS EVIDENT FROM THE DETAIL OF EXPORT COMMISSION SUBMITTED THAT APPELLANT HAS CLAIMED PROVISION MADE FOR EXPORT SALES COMMISSION OF RS. 1,36,544/- AND OUTSTANDING ADJUSTED AGAINST COMMISSION OF RS.4,39,3857-OUT OF TOTAL CLAIM OF EXPORT COMMISSION OF RS.29,61,3377-. AS NO DETAIL OF PARTY MENTIONED FOR THE PROVISION MADE FOR EXPORT SALE COMMISSION OF RS. 1,36,5447-, THE IDENTITY AND GENUINENESS OF THE EXPENDITURE IS NOT PROVED. AS REGARD TO EXPORT COMMISSION OF RS,4,39,3857- DEBITED UNDER THE HEAD EXPORT COMMISSION AS OUTSTANDING ADJUSTED AGAINST COMMISSION, CANNOT BE ALLOWED AS THE NAME OF PARTY AND THE WORK FOR WHICH COMMISSION PAID HAS NOT BEEN SPECIFIED. THE ABOVE EXPENDITURE EVEN IF IT IS GENUINE IS NOT RELATING TO CURRENT YEAR, THEREFORE, CANNOT BE ALLOWED. 2.6 AS REGARD TO REMAINING COMMISSION OF RS.23,85,4087-, THE APPELLANT HAS SUBMITTED THE COMPLETE DETAILS AND EVIDENCES SHOWING THE NATURE OF SERVICES RENDERED, GENUINENESS OF THE CLAIM AND THE COPIES OF THE DEBIT NOTES OF THE COMMISSION AGENTS ESTABLISHING THE IDENTITY OF THE COMMISSION AGENTS, BANK ADVICE 7 REMITTANCE OF COMMISSION TO THE AGENTS, SALES INVOICE ETC. MOREOVER, THE PROVISIONS OF SECTION 40(A)(IA) ARE ALSO NOT APPLICABLE FOR THE REASON THAT THE AO HAS NOT ESTABLISHED THAT THE SERVICES BY THE AGENTS HAVE BEEN RENDERED IN INDIA OR THE AGENTS HAVE THE BUSINESS CONNECTION OR PERMANENT ESTABLISHMENT IN INDIA. MORE PARTICULARLY, WHEN THE CERTIFICATE BY THE AGENTS ABOUT THEIR NON EXISTENCE OF THE PE IN INDIA AND AGREEMENT WITH COMMISSION AGENTS FOR PROVIDING THE SERVICES OUT5IDE INDIA HAVE ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 4 BEEN SUBMITTED BY THE APPELLANT WHICH HAVE NOT BEEN REBUTTED AT ALL. IN VIEW OF THE ABOVE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE AS NO LIABILITY TO DEDUCT THE TDS U/S. 195 HAS ARISEN IN THE HANDS OF THE APPELLANT. THE DETAILED DISCUSSION IN THIS REGARD HAS BEEN MADE IN CIT(A)S APPELLATE ORDER FOR A. Y. 2012-13 DATED 23/02/2017 IN APPELLANT'S OWN CASE. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE AO TO THE EXTENT OF RS, 5,75,929/- IS CONFIRMED AND RELIEF IS GRANTED FOR THE BALANCE DISALLOWANCE OF RS.23,85,408/ 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 203 AND SUBMITTED THAT THE AMOUNT OF THE EXPORT COMMISSION FOR RS.5,75,929/- HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW IN THE ABSENCE OF DOCUMENTARY EVIDENCES. ACCORDINGLY, THE LD. AR PLEADED BEFORE US TO RESTORE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AND ENSURE TO FILE REQUISITE DETAILS BEFORE THE AUTHORITIES BELOW. 7. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF COMMISSION PAID TO THE OVERSEAS PARTIES ON THE EXPORT SALES AMOUNTING TO RS. 29,61,337/- ONLY. BUT THE SAME WAS DISALLOWED BY THE AO ON ACCOUNT OF TWO REASONS. FIRSTLY, THE ASSESSEE FAILED TO FURNISH THE DOCUMENTARY EVIDENCES SUCH AS THE IDENTITY OF THE PARTY, THE SERVICES RENDERED BY SUCH PARTIES, DETAILS OF THE EXPORTS MADE BY IT THROUGH THE COMMISSION AGENTS. THUS THE GENUINENESS OF THE TRANSACTION WAS DOUBTED. SECONDLY, THE ASSESSEE FAILED TO DEDUCT THE TDS UNDER SECTION 195 READ WITH SECTION 40(A)(I) OF THE ACT. 8.1 HOWEVER, THE LEARNED CIT (A) WAS PLEASED TO HOLD THAT THE PROVISIONS OF TDS ARE NOT APPLICABLE WITH RESPECT TO THE COMMISSION PAID TO THE OVERSEAS PARTIES. ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 5 BESIDES THIS THE ASSESSEE FURNISHES THE NECESSARY DETAILS TO JUSTIFY THAT THE EXPORT COMMISSION WAS GENUINE IN SUPPORT OF ITS CLAIM. ACCORDINGLY THE LEARNED CIT (A) DELETED THE ADDITION MADE BY THE AO FOR A SUM OF RS. 23,85,408.00 OUT OF THE TOTAL ADDITION OF RS. 29,61,337.00 MADE BY THE AO. IN OTHER WORDS THE BALANCE AMOUNT OF RS. 5,75,929.00 WAS CONFIRMED BY THE LEARNED CIT (A) ON THE REASONING THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS OF THE PARTIES AND THE SERVICES RENDERED BY SUCH PARTIES. 8.2 NEVERTHELESS, THE LEARNED AR BEFORE US AT THE TIME OF HEARING REQUESTED TO RESTORE THE MATTER TO THE FILE OF THE AO AND ASSURED TO FILE THE REQUISITE DETAILS IN SUPPORT OF THE CLAIM OF THE ASSESSEE. HOWEVER WE FIND THAT THE MATTER BEFORE US PERTAINS TO THE ASSESSMENT YEAR 2013-14 WHICH WAS DECIDED BY THE AO DATED 29 DECEMBER 2015 AND SUBSEQUENTLY THE LEARNED CIT (A) HAS PASSED THE ORDER DATED 17 TH FEBRUARY 2016. THE ASSESSEE BEFORE THE AUTHORITIES BELOW FAILED TO FURNISH THE DETAILS OF THE PARTIES DESPITE HAVING SEVERAL OPPORTUNITIES. EVEN NOW BEFORE US THE MATTER HAS BEEN LISTED 16 TIMES PRIOR TO THE PRESENT DATE OF HEARING BUT THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD ABOUT THE DETAILS OF SUCH PARTIES AFTER FILING THE APPEAL ON 4 TH APRIL 2018. THUS IT IS TRANSPIRED THAT IT IS VERY UNLIKELY THAT THE ASSESSEE SHALL BE IN A POSITION TO FURNISH THE NECESSARY DETAILS. ACCORDINGLY, WE ARE NOT INCLINED TO GIVE FRESH OPPORTUNITY TO THE ASSESSEE BY RESTORING THE MATTER TO THE FILE OF THE AO AS PRAYED BY THE LEARNED AR FOR THE ASSESSEE. ACCORDINGLY, WITHOUT GOING INTO THE MERIT OF THE CASE, THE GROUND OF APPEAL OF THE ASSESSEE, IN THE ABSENCE OF DOCUMENTARY EVIDENCE AS DISCUSSED ABOVE, IS HEREBY DISMISSED. 9. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 AND 4 IS THAT THE LD. CIT(A) ERRED IN CAPITALIZING THE AMOUNT OF INTEREST OF RS. 6,85,804/- ATTRIBUTABLE TO THE ADVANCES GIVEN TO THE PARTIES FOR ACQUIRING THE CAPITAL ASSET. 10. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE ON THE ONE HAND HAS ADVANCED THE AMOUNT OF RS. 1,93,25,000/- TO M/S. H.L. PHARMA CO. ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 6 SOUTH KOREA FOR ACQUIRING TECHNICAL KNOW-HOW. ON THE OTHER HAND THE ASSESSEE HAS CLAIMED THE DEDUCTION OF THE INTEREST EXPENSES AMOUNTING TO RS.92,96,000/-. ACCORDINGLY THE AO WAS OF THE VIEW THAT THE AMOUNT OF INTEREST ATTRIBUTABLE TO SUCH ADVANCES GIVEN TO M/S.H.N. PHARMA CO. SHOULD BE CAPITALIZED IN PURSUANCE TO THE PROVISION OF SECTION 36(I)(III) OF THE ACT. THUS THE AO WORKED OUT THE AMOUNT OF PROPORTIONATE INTEREST OF RS. 6,85,804/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 11. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: 3.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE DISALLOWANCE OF RS.6,85,804/- U/S. 36(L)(III) ON THE INTEREST FREE ADVANCE OF RS.L .92,76,148/-TO M/S. H. L PHARMA CO., KOREA. THE APPELLANT HAS SUBMITTED THAT THE CAPITAL ADVANCE OF RS.L,92,76,148/- WAS MADE TO M7S. H. L. PHARMA CO. AGAINST THE PURCHASE OF TECHNICAL KNOW HOW FOR BUSINESS PURPOSE AND OUT OF OWN FUND, THEREFORE, PROVISION OF SECTION 36(1) (III) IS NOT APPLICABLE, 3.4. APPELLANT HAS SUBMITTED THAT IT HAS OWN FUND OF RS.3.92 CRORE INCLUDING SHARE CAPITAL OF RS. 3 CRORE AND RESERVE AND SURPLUS OF RS.0.92 CRORE AGAINST THE CAPITAL ADVANCE OF RS.L.92 CRORE. THEREFORE, IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS, NO DISALLOWANCE U/S.36(1)(III) IS CALLED FOR. 3.5 ON PERUSAL OF BALANCE SHEET, IT IS SEEN THAT APPELLANT HAD SHARE CAPITAL AND RESERVE AND SURPLUS OF RS.3.25 CRORE AS ON 31/03/2012. THE CAPITAL ADVANCES OF RS.1.92 CRORE HAS BEEN MADE DURING THE YEAR AND THE SHARE CAPITAL AND RESERVE AND SURPLUS AS ON 31/03/2013 IS RS.3.91 CRORE. AS THERE IS INCREASE IN RESERVE FUND OF RS.70 LACS ONLY, THE APPELLANTS ARGUMENT THAT CAPITAL ADVANCE OF RS.1.92 CRORE WAS MADE FROM OWN FUND IS NOT FOUND TENABLE. IN VIEW OF THE ABOVE, DISALLOWANCE MADE BY THE AO IS FOUND CORRECT AND JUSTIFIED AND SAME IS CONFIRMED. 12. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 13. THE LD. AR BEFORE US CONTENDED THAT THE OWN FUNDS OF THE ASSESSEE EXCEEDS THE AMOUNT OF IMPUGNED ADVANCES GIVEN TO THE PARTY BASED IN KOREA. BESIDES THIS THE LD. AR, FURTHER SUBMITTED THAT ASSESSEE HAS ALSO RECEIVED INTEREST FREE UNSECURED LOANS FROM THE RELATED PARTIES WITHOUT PAYING ANY INTEREST. ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 7 13.1 FOR THIS PURPOSE THE LD. AR DREW OUR ATTENTION ON THE ANNUAL ACCOUNTS OF THE ASSESSEE WHICH ARE PLACED ON PAGES 3 TO 27 OF THE PAPER BOOK. ACCORDINGLY THE LD. AR CONTENDED THAT A PRESUMPTION CAN BE DRAWN THAT THE OWN FUNDS OF THE ASSESSEE WERE UTILIZED FOR MAKING THE PAYMENT OF SUCH ADVANCES. IN OTHER WORDS NO BORROWED FUND HAS BEEN UTILIZED FOR MAKING PAYMENTS OF THE ADVANCES IN DISPUTE AS ALLEGED BY THE AUTHORITIES BELOW. THEREFORE THERE CANNOT BE ANY DISALLOWANCE OF THE INTEREST EXPENSES. 14. ON THE CONTRARY THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE IN THE CASE ON HAND CLAIMED TO HAVE MADE ADVANCES TO M/S HL PHARMA CO., KOREA FOR ACQUIRING THE TECHNICAL KNOW-HOW AND THUS SUCH ADVANCE REPRESENTS THE PAYMENT FOR THE BUSINESS EXIGENCY. ACCORDINGLY THE ASSESSEE CLAIMED THAT THERE CANNOT BE ANY DISALLOWANCE OF THE AMOUNT OF PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH ADVANCES. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE ON ONE HAND IS BEARING INTEREST EXPENSES ON THE BORROWED FUND AND ON THE OTHER HAND IT HAS PROVIDED INTEREST-FREE ADVANCES TO THE COMPANY FOR ACQUIRING THE TECHNICAL KNOW-HOW. ACCORDINGLY THE AO WAS OF THE VIEW THAT THE PROPORTIONATE AMOUNT OF INTEREST FOR RS. 6,85,804/- SHOULD BE CAPITALIZED AS THE SAME IS ATTRIBUTABLE TO CAPITAL ASSET. THE VIEW TAKEN BY THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT (A). 15.1 BEFORE WE TOUCH UPON THE ISSUE RAISED BY THE AUTHORITIES BELOW, IT IS PERTINENT TO NOTE THAT THE OWN FUND (RS. 3,91,81,000.00) OF THE ASSESSEE EXCEEDS THE AMOUNT OF ADVANCES. THIS FACT CAN VERIFIED FROM THE AUDITED FINANCIAL STATEMENT WHICH IS AVAILABLE ON PAGES 10 OF THE PAPER BOOK. BESIDES THE ABOVE, IT IS ALSO SIGNIFICANT TO NOTE THAT THE ASSESSEE HAS SHOWN RECEIPT OF INTEREST FREE LOANS AND ADVANCES ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 8 AMOUNTING TO RS. 3,10,00,000.00 WHICH CAN BE VERIFIED FROM THE FINANCIAL STATEMENTS PLACED ON 15 OF THE PAPER BOOK. THUS THE OWN FUND OF THE ASSESSEE ALONG WITH THE INTEREST FREE LOANS RECEIVED BY IT AGGREGATES TO A SUM OF RS. 7,01,81,000.00 WHICH IS IN EXCESS OF THE ADVANCE GIVEN TO THE PARTY FOR AN AMOUNT OF RS. 1,92,76,148.00 ONLY. ACCORDINGLY A PRESUMPTION CAN BE DRAWN THAT THE OWN FUND OF THE ASSESSEE HAS BEEN USED FOR ADVANCING MONEY TO THE PARTY AS DISCUSSED ABOVE FOR ACQUIRING THE TECHNICAL KNOW-HOW. IN OTHER WORDS, THE BORROWED FUND HAS NOT BEEN USED FOR ADVANCING THE SUM OF RS. 1,92,76,148.00 TO THE PARTY. 15.2 IN HOLDING SO WE DRAW SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TORRENT POWER LTD REPORTED IN 363 ITR 474 WHERE THE HEAD NOTE READS AS UNDER: IT WAS NOTED FROM RECORDS THAT THE ASSESSEE WAS HAVING SHARE HOLDING FUNDS TO THE EXTENT OF 2607.18 CRORES AND THE INVESTMENT MADE BY IT WAS TO THE EXTENT OF`RS.195.10 CRORES. IN OTHER WORDS, THE ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING THE INVESTMENTS AND IT HAD NOT USED THE BORROWED FUNDS FOR SUCH PURPOSE. THIS ASPECT OF HUGE SURPLUS FUNDS IS NOT DISPUTED BY THE REVENUE WHICH EARNED IT THE INTEREST ON BONDS AND DIVIDEND INCOME. [PARA 7] 15.3 IN VIEW OF THE ABOVE, IT CAN BE CONCLUDED THAT THE ASSESSEE HAS NOT UTILIZED THE BORROWED FUND FOR MAKING THE ADVANCE TO THE PARTY AS DISCUSSED ABOVE. THUS THE QUESTION OF CAPITALIZING THE ELEMENT OF INTEREST ATTRIBUTABLE ON THE ADVANCES GIVEN BY THE ASSESSEE FOR ACQUIRING THE TECHNICAL KNOW-HOW DOES NOT ARISE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 15.4 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 16. NOW COMING TO THE ITA NO.831/AHD/2018 FOR A.Y. 2014-15 , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF EXPORT COMMISSION OF RS.2,94,852/- OUT OF TOTAL EXPORT COMMISSION OF RS.24,78,592/- BY CONSIDERING SAME AS NON- GENUINE. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION AND DELETE THE DISALLOWANCES. IT BE SO HELD NOW. 2. LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION OF RS.2,94, 852/- BY INVOKING PROVISION OF SECTION 40(A)(I) OF THE ACT ON WITHOUT PREJUDICE BASIS IGNORING SUBMISSION OF THE APPELLANT THAT AGENTS RENDERED SERVICES OUTSIDE INDIA AND DOES NOT HAVE ANY PERMANENT ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 9 ESTABLISHMENT IN INDIA AND HENCE PROVISION OF SECTION 40(A)(I) IS NOT APPLICABLE TO THE APPELLANT. IT BE SO HELD NOW. 3. LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.23,13,120/- U/S.36(1)(III) OF THE ACT IGNORING FACT THAT APPELLANT HAS HUGE INTEREST FREE FUNDS IN FORM OF SHARE CAPITAL AND RESERVES & SURPLUS AND AMOUNT ADVANCED IN PAST YEAR AND NOT IN CURRENT FINANCIAL YEAR. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND DELETE THE DISALLOWANCE. IT BE SO HELD NOW. 4. LD.CIT(A) OUGHT TO HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT THAT AMOUNT PAID TO HL PHARMA CO, KOREA AS CAPITAL ADVANCES TO ACQUIRES INTANGIBLE ASSETS PURSUANT TO TECHNOLOGY TRANSFER ARRANGEMENT AND SAME IS FOR THE PURPOSE OF BUSINESS. 5. CHARGING OF INTEREST U/S.234A,234B,234C AND 234D IS UNJUSTIFIABLE. 6. INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT IS UNJUSTIFIED. HE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 17. THE FIRST INTERCONNECTED ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 AND 2 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 2,94,852/- ON ACCOUNT OF EXPORT COMMISSION TREATING THE SAME AS NON-GENUINE AS WELL AS NON-DEDUCTION OF TDS U/S.195 R.W.S 40(A)(I) OF THE ACT. 17.1 THE AO DURING THE ASSESSMENT PROCEEDINGS IN THE ABSENCE OF NECESSARY DOCUMENTS HELD THAT THE IMPUGNED AMOUNT OF EXPORT COMMISSION OF RS. 24,78,592/- HAS NOT BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS AND THEREFORE SAME CANNOT BE ALLOWED AS DEDUCTION U/S. 37(1) OF THE ACT. 17.2 BESIDES THE ABOVE, THE AO ALSO FOUND THAT THE ASSESSEE FAILED TO DEDUCT THE TDS ON THE IMPUGNED AMOUNT OF EXPORT COMMISSION UNDER THE PROVISION OF SECTION 195 OF THE ACT. ACCORDINGLY THE AO ALSO DISALLOWED THE SAME UNDER THE PROVISION OF SECTION 40(A)(I) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 18. ON APPEAL, THE LD. CIT(A) PARTLY CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 10 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF EXPORT COMMISSION OF RS.24,78,592/- ON THE GROUND THAT APPELLANT HAS NOT BEEN ABLE TO PROVE THE IDENTITY OF THE COMMISSION AGENTS AS NO COPY OF AGREEMENT EXECUTED BETWEEN THE FOREIGN AGENTS AND THE ASSESSES HAS BEEN FURNISHED AND NO PROOF OF RENDERING THE SERVICES ON THE BASIS OF COMMISSION HAS BEEN PAID HAS BEEN PROVIDED. THE AO WITHOUT PREJUDICE HAS ALSO DISALLOWED THE ABOVE EXPENDITURE AS THE TDS HAS NOT BEEN DEDUCTED ON THE ABOVE FOREIGN COMMISSION. 3.4. THE APPELLANT HAS SUBMITTED THAT IT HAS SUBMITTED BEFORE THE AO ALL COPIES OF INVOICES OF EXPORT COMMISSION, TAX RESIDENCY CERTIFICATE OF NON RESIDENT RECEIVED ALONG WITH COPY OF FORM 15CA & 15CB TO ESTABLISH THE GENUINENESS OF EXPENDITURE AND THAT APPELLANT IS NOT REQUIRED TO DEDUCT TDS ON THE FOREIGN COMMISSION. APPELLANT HAS FURTHER SUBMITTED THAT CIT(A) IN THE EARLIER ASSESSMENT YEAR HAS ALLOWED SUCH DISALLOWANCES MADE BY THE AO. 3.5. IT IS EVIDENT FROM THE DETAIL OF EXPORT COMMISSION SUBMITTED THAT APPELLANT HAS CLAIMED EXPORT SALES COMMISSION IN THE NAME OF SYSTEM OF RS.87,109/-, EPC, EGYPT OF RS.72,496/- & ACTICO OF RS.L,35,247/- TOTALING TO RS.2.94,852/-, OUT OF TOTAL CLAIM OF EXPORT COMMISSION OF RS.24,78,592/-. THE APPELLANT HAS NOT SUBMITTED FORM NO. 15CA & 15CB OR ANY OTHER EVIDENCE IN SUPPORT OF THE SERVICE RENDERED IN RESPECT OF ABOVE PARTIES. THEREFORE, THE IDENTITY AND GENUINENESS OF THE EXPENDITURE OF RS.2,94,852/- IS NOT PROVED. THEREFORE, SAME IS BEING CONFIRMED. 19. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US 20. THE LD.A.R, BEFORE US HAS FILED ADDITIONAL EVIDENCES WITH THE APPLICATION DATED 06/08/2020 FOR THE ADMISSION OF SUCH EVIDENCES UNDER RULE 29 OF ITAT RULES. 20.1 LD. A.R, ALSO SUBMITTED THAT THE ADDITIONAL EVIDENCES PERTAINS TO THE THIRD PARTY AND THE ASSESSEE HAS TAKEN LOTS OF TIME TO COLLECT THE SAME. THEREFORE, THE ADDITIONAL EVIDENCES WERE NOT FILED BEFORE THE AUTHORITIES BELOW. 20.2 IT WAS ALSO PLEADED THAT CONSIDERATION OF THESE ADDITIONAL EVIDENCES FOR ADJUDICATION OF THE DISPUTE IS NECESSARY. 20.3 THEREFORE, THE LD. A.R PRAYED BEFORE US FOR THE ADMISSION OF SUCH ADDITIONAL EVIDENCES AND TO RESTORE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION AS PER THE PROVISION OF LAW. ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 11 21. ON THE CONTRARY THE LD. DR, OPPOSED FOR THE ADMISSION OF SUCH ADDITIONAL EVIDENCES ON THE REASONING THAT THERE WAS NO SUFFICIENT CAUSE FURNISH BY THE LD. AR WHICH PREVENTED THE ASSESSEE TO FURNISH SUCH ADDITIONAL EVIDENCES BEFORE THE AUTHORITIES BELOW. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 22. WE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE THE AO MADE THE DISALLOWANCE OF THE EXPORT COMMISSION EXPENSES CLAIMED BY THE ASSESSEE FOR RS. 24,78,592/- BY TREATING THEM AS NON-GENUINE AS WELL AS THE ASSESSEE FAILED TO DEDUCT THE TDS WITH RESPECT TO SUCH COMMISSION EXPENSES PAID TO THE OVERSEAS PARTIES UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. HOWEVER, THE LEARNED CIT (A) WAS PLEASED TO DELETE THE ADDITION FOR AN AMOUNT OF RS. 21,83,740/- EXCEPT FOR THE SUM OF RS. 2,94,852/- ONLY. THE LEARNED AR BEFORE US HAS FILED ADDITIONAL EVIDENCES IN SUPPORT OF THE COMMISSION EXPENSES IN DISPUTE TO JUSTIFY THAT THE COMMISSION EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS UNDER THE PROVISIONS OF SECTION 195 OF THE ACT. THE 1 ST CONTROVERSY THAT ARISES BEFORE US TO ADJUDICATE THE ADMISSION OF THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE VIDE LETTER DATED 6 AUGUST 2020 WHICH IS PLACED ON RECORD. 22.1 PURSUANT TO PROVISIONS OF SUB-SECTION (5) OF SECTION 255 OF THE ACT, THE ITAT RULES, 1963 ('THE APPELLATE TRIBUNAL RULES') HAVE BEEN FORMULATED. RULE 18(4) AND RULES 29, 30 & 31 OF THE APPELLATE TRIBUNAL RULES ARE RELEVANT FOR THE DISCUSSION WHICH DEAL WITH PRODUCTION OF ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL. A. RULE 8 PREPARATION OF PAPER BOOKS, ETC. SUB-RULE (4) OF RULE 8 PROVIDES THAT T HE ADDITIONAL EVIDENCE, IF ANY, SHALL NOT FORM PART OF THE SAME PAPER BOOK. IF ANY PARTY DESIRES TO FILE ADDITIONAL EVIDENCE, THEN SAME SHALL BE FILED BY WAY OF A SEPARATE PAPER BOOK CONTAINING SUCH PARTICULARS ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 12 AS ARE REFERRED TO IN SUB-RULE (3) ACCOMPANIED BY AN APPLICATION STATING THE REASONS FOR FILING SUCH ADDITIONAL EVIDENCE. B. RULE 29 - PRODUCTION OF ADDITIONAL EVIDENCE BEFORE THE TRIBUNAL THE PARTIES TO THE APPEAL SHALL NOT BE ENTITLED TO PRODUCE ADDITIONAL EVIDENCE EITHER ORAL OR DOCUMENTARY BEFORE THE TRIBUNAL. IF THE TRIBUNAL REQUIRES ANY DOCUMENT TO BE PRODUCED OR ANY WITNESS TO BE EXAMINED OR ANY AFFIDAVIT TO BE FILED TO ENABLE IT TO PASS ORDERS OR FOR ANY OTHER SUBSTANTIAL CAUSE, OR IF THE INCOME-TAX AUTHORITIES HAVE DECIDED THE CASE WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO ADDUCE EVIDENCE EITHER ON POINTS SPECIFIED BY THEM OR NOT SPECIFIED BY THEM, THE TRIBUNAL, FOR REASONS TO BE RECORDED, MAY ALLOW SUCH DOCUMENT TO BE PRODUCED OR WITNESS TO BE EXAMINED OR AFFIDAVIT TO BE FILED OR MAY ALLOW SUCH EVIDENCE TO BE ADDUCED. C. RULE 30 - MODE OF TAKING ADDITIONAL EVIDENCE SUCH DOCUMENT MAY BE PRODUCED OR SUCH WITNESS EXAMINED OR SUCH EVIDENCE ADDUCED EITHER BEFORE THE TRIBUNAL OR BEFORE SUCH INCOME-TAX AUTHORITY AS THE TRIBUNAL MAY DIRECT. D. RULE 31 - ADDITIONAL EVIDENCE TO BE SUBMITTED TO THE TRIBUNAL IF THE DOCUMENT IS DIRECTED TO BE PRODUCED OR WITNESS EXAMINED OR EVIDENCE ADDUCED BEFORE ANY INCOME-TAX AUTHORITY, HE SHALL COMPLY WITH THE DIRECTION OF THE TRIBUNAL AND AFTER COMPLIANCE SEND THE DOCUMENT, THE RECORD OF THE DEPOSITION OF THE WITNESS OR THE RECORD OF THE EVIDENCE ADDUCED TO THE TRIBUNAL. 22.2 IN THE CASE OF CIT V. SMT. KAMAL C. MAHBOOBBANI [1995] 214 ITR 15/81 TAXMAN 311 (BOM.), THE BOMBAY HIGH COURT HELD AS UNDER:- ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 13 ' WE ARE OF THE OPINION THAT RULE 29 DOES NOT CONFER ANY RIGHT ON THE PARTIES, AS SUCH, TO PRODUCE ANY ADDITIONAL EVIDENCE EITHER ORAL OR DOCUMENTARY BEFORE THE TRIBUNAL. ON THE OTHER HAND, SUCH A RIGHT HAS SPECIFICALLY BEEN TAKEN AWAY BY PROHIBITING THE PRODUCTION OF THE ADDITIONAL EVIDENCE BY THE PARTIES. THE POWER HAS BEEN VESTED ONLY IN THE TRIBUNAL TO REQUIRE PRODUCTION OF ANY DOCUMENT OR EVIDENCE IF IT IS OF THE OPINION THAT IT IS NECESSARY TO DO SO TO ENABLE IT TO PASS ORDER OR FOR ANY OTHER SUBSTANTIAL CAUSE. ' 22.3 IN VIEW OF THE AFORESAID DISCUSSION, THE ADDITIONAL EVIDENCE CANNOT BE PLACED BY THE ASSESSEE FOR THE ADMISSION BEFORE THE TRIBUNAL AS A MATTER OF RIGHT. THE TRIBUNAL HAS THE SOLE DISCRETION WHETHER TO ADMIT OR NOT TO ADMIT ADDITIONAL EVIDENCE. HOWEVER SUCH DISCRETION CANNOT BE USED IN ARBITRARY MANNER. 22.4 NOW COMING TO THE FACTS OF THE CASE ON HAND, THE LEARNED AR IN THE APPLICATION FOR THE ADMISSION OF THE ADDITIONAL EVIDENCES HAS JUST CASUALLY MENTIONED THAT THESE ADDITIONAL EVIDENCES PERTAIN TO THE 3 RD PARTIES AND THEREFORE THE ASSESSEE HAS TAKEN TIME TO COLLECT THE SAME. THE REASON GIVEN BY THE ASSESSEE IS NOT BASED ON ANY SUPPORTING DOCUMENTS. ON PERUSAL OF THE DOCUMENTS FOR THE ADMISSION, WE NOTE THAT ALL THE DOCUMENTS PERTAIN TO THE PERIOD PRIOR TO THE DATE OF ASSESSMENT ORDER EXCEPT SOME CERTIFICATE WHICH ARE NOT VERY RELEVANT TO DECIDE THE ISSUE ON HAND. 22.5 LIKEWISE, IT IS NOT ALSO THE CASE OF THE ASSESSEE THAT THE AUTHORITIES BELOW HAVE NOT FURNISHED THE SUFFICIENT OPPORTUNITIES FOR PROVIDING SUCH ADDITIONAL EVIDENCES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM CANNOT BE ADMITTED AS THE ASSESSEE HAS NOT FURNISHED THE SUFFICIENT CAUSE WHICH PREVENTED TO PRODUCE THE AFORESAID ADDITIONAL EVIDENCES. HENCE, WE DENY TO ACCEPT THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND THUS WITHOUT GOING INTO THE MERIT OF THE CASE, WE CONFIRM THE ORDER OF THE AUTHORITIES BELOW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 23. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO.3 AND 4 IS THAT THE LD. CIT(A) ERRED IN CAPITALIZING THE AMOUNT OF INTEREST OF RS.23,13,120/- ATTRIBUTABLE TO THE ADVANCES GIVEN TO THE PARTIES FOR ACQUIRING THE CAPITAL ASSET. ITA NOS.830-831/AHD/2018 A.YS.2013-14 & 2014-15 14 24. AT THE OUTSET WE NOTE THAT SIMILAR GROUND RAISED BY THE ASSESSEE IN HIS OWN CASE BEARING ITA NO.830/AHD/2018 CORRESPONDING TO A.Y. 2013-14 WHICH HAS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE PARAGRAPH NO.15 OF THIS ORDER. FOR THE DETAILED DISCUSSION PLEASE REFER THE ABOVE MENTIONED PARAGRAPH NUMBER OF THIS ORDER. ACCORDINGLY, WE HOLD THAT FINDING GIVEN IN ABOVE PARAGRAPHS WITH REGARD TO ITA NO.830/AHD/2018 WILL MUTATIS MUTANDIS APPLY HERE IN THIS CASE ALSO. 25. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 28/06/2021 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (TRUE COPY ) AHMEDABAD; DATED 28/06/2021 MANISH