Cotton Code Garments, Coimbatore V. ITO, Coimbatore

ITA 848/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95960 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 19-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2015
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: T VASUDEVAN
• Keywords: Double taxation relief; Principle of natural justice
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . !' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ ITA NO. 848/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S. COTTON CODE GARMENTS, NO.238, T.V.SWAMY ROAD, R.S.PURAM, COIMBATORE 641002. PAN AAEFC4114D APPELLANT) V. THE INCOME-TAX OFFICER, WARD-II(3), COIMBATORE. RESPONDENT) / APPELLANT BY : SHRI T. VASUDEVAN, ADVOCATE / RESPONDENT BY : SHRI PATHLAVATH PEERYA, CIT ! / DATE OF HEARING : 19.08.2015 '# ! / DATE OF PRONOUNCEMENT: 28.08.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDER SEC. 263 OF THE IT ACT, 1961 DATED 27.3.2015. - - ITA 848/15 2 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO SETTING ASIDE THE ORDER PASSED U/S.263 OF THE ACT DATED 27.3.2015 WITH DIRECTION TO RE-DO THE ASSESSMENT ON THE REASONS THAT THE ASSESSING OFFICER FAILED TO EXAMINE THE RE LEVANT DOCUMENTS/AGREEMENT ALONG WITH THE CORRESPONDENCE A ND OTHER EVIDENCES TO DETERMINE WHETHER THE INCOME IS CHARGE ABLE UNDER THE PROVISIONS OF SEC.9(1)(VII) OF THE ACT READ WIT H RELEVANT PROVISIONS OF THE DTAA AND THE ASSESSING OFFICER HA S NOT VERIFIED THE PURCHASE ORDERS ALONG WITH CORRESPONDE NCES WITH M/S. TARUN ANVIL CORPORATION, USA. 3. THE LD. AR SUBMITTED THAT THE COMMISSIONER OF IN COME- TAX ERRED IN HIS FINDING THAT THE ASSESSMENT ORDER DATED 27-03- 2013 PASSED UNDER SECTION 143 (3) BY THE INCOME-TAX OFFICER, WARD 2 (3), COIMBATORE WAS ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE. THE LD. AR FURTHER SUBMITTED THAT COMMISSIONER OF INCOME-TAX ERRED IN OVERLOOKING THE FACT THAT THE ASSESSMENT ORDER DATED 27-03-2013 HAD BEEN PASS ED BY THE ASSESSING OFFICER AFTER CALLING FOR ALL THE RELEVAN T RECORDS / DOCUMENTS FROM THE ASSESSEE AND AFTER THOROUGHLY VE RIFYING THOSE RECORDS / DOCUMENTS. - - ITA 848/15 3 3.1. THE LD. AR FURTHER SUBMITTED THAT THE COMMISS IONER OF INCOME-TAX ERRED IN HIS FINDING THAT THE ASSESSEE H AD AVAILED OF TECHNICAL SERVICES FROM M/S. TARUN OF ANVIL CORP. U SA AND UTILIZED THE SAME IN INDIA FOR THE MANUFACTURING OF SPECIFIED GARMENTS, WITHOUT EVEN MENTIONING IN HIS ORDER AS T O WHAT THE SERVICES WERE AND THE SERVICES RENDERED BY M/S. TAR UN OF ANVIL CORP. USA FALLS WITHIN THE SCOPE OF EXPLANATION TO SECTION 9 (1) (VII) OF THE INCOME-TAX ACT, 1961 AND THAT FOR THE PURPOSE OF TAXABILITY IN INDIA THERE IS NO NEED THAT THE NON-R ESIDENT SHOULD HAVE PE OR BUSINESS CONNECTION IN INDIA AND SHOULD HAVE RENDERED SERVICES IN INDIA. THEREFORE, HE SUBMITT ED THAT THE COMMISSIONER OF INCOME-TAX ERRED IN HIS FINDING THA T THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON TH E PAYMENTS MADE TO M/S. TARUN OF ANVIL CORP. USA UNDER SECTION 195 READ WITH SECTION 9. 3.2. THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME- TAX ERRED IN HIS FINDING THAT THE EXPENDITURE BY WA Y OF PAYMENT OF COMMISSION TO M/S. TARUN OF ANVIL CORP. USA HAD BEE N ALLOWED WITHOUT VERIFICATION OF ITS DEDUCTIBILITY W HILE PASSING THE ASSESSMENT ORDER AND THE COMMISSIONER OF INCOME-TAX FAILED TO - - ITA 848/15 4 NOTE THAT THE ASSESSING OFFICER HAD ISSUED A QUESTI ONNAIRE THROUGH HER LETTER DATED 25-10-2012 IN WHICH SHE HA D SPECIFICALLY CALLED FOR EXPLANATION FROM THE ASSESSEE AS TO WHY TAX WAS NOT DEDUCTED AT SOURCE ON OVERSEAS COMMISSION PAYMENT O F ` 54,93,841. THE LD. AR FURTHER SUBMITTED THAT THE C OMMISSIONER OF INCOME-TAX ALSO FAILED TO NOTE THAT IN THE SAID LETTER DATED 25- 10-2012 THE ASSESSEE HAD BEEN CALLED UPON TO PRODUC E THE AGREEMENTS, TERMS AND CONDITIONS AGREED UPON WITH T HE OVERSEAS CLIENT(S) AND ALSO AS TO HOW THE ASSESSEE HAD ARRIVED AT THE INCOME FROM EXCHANGE RATE FLUCTUATION. ACC ORDING TO THE ASSESSEES COUNSEL, THE COMMISSIONER OF INCOME-TAX FURTHER FAILED TO NOTE THAT IN THE SAID LETTER DATED 25-10- 2012, THE ASSESSING OFFICER HAD SPECIFICALLY CALLED UPON THE ASSESSEE TO STATE WHETHER TAX WAS DEDUCTED AT SOURCE ON DYEING CHARGES PAID AND IF TAX HAD NOT BEEN DEDUCTED AT SOURCE WHY THE EXPENSES SHALL NOT BE DISALLOWED U/S., 40 (A) (IA) AND ALSO FAILED TO NOTE THESE ISSUES WERE EXPLAINED AND THE DOCUMEN TS WERE FURNISHED TO THE ASSESSING OFFICER BY THE ASSESSEE' S AUTHORIZED REPRESENTATIVE DURING HEARING OF THE ASSESSMENT. 3.3. THE LD. AR FURTHER SUBMITTED THAT THE COMMISS IONER OF - - ITA 848/15 5 INCOME-TAX FAILED TO NOTE THAT THE ASSESSING OFFICE R HAD ISSUED ANOTHER LETTER DATED 31-01-2013 IN WHICH SHE HAD CA LLED FOR ORIGINAL PURCHASE VOUCHERS FOR YARN, TEXTILE MATERI AL, READYMADE GARMENTS, EXPORT INVOICES ETC., AND THE DETAILS OF OUT-SOURCED WORKS, AND THE ASSESSEE HAD FURNISHED THESE DETAILS AND ALSO FAILED TO NOTE THE FACT THAT THE TRANSACTIONS OF TH E ASSESSEE WITH M/S. TARUN OF ANVIL CORPORATION AND OTHER PARTIES W ERE SPECIFICALLY VERIFIED BY THE INCOME-TAX OFFICER, TO S WARD 1 (1), COIMBATORE, WHO HAD CONDUCTED AN INSPECTION OF THE ASSESSEE'S OFFICE ON 06-12-2012 I.E, BEFORE THE DATE ON WHICH THE IMPUGNED ASSESSMENT ORDER DATED 27-03-2013 WAS PASSED BY THE ASSESSING OFFICER. ACCORDING TO THE ASSESSEES COU NSEL, THE COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT DURI NG THE INSPECTION, THE ASSESSEES RECORDS FOR THE FINANCIA L YEARS 2007- 08 TO 2012-13 WERE SUBJECTED TO SCRUTINY BY THE INC OME-TAX OFFICER (TOS) AND ON COMPLETION OF THE SCRUTINY, HE HAD PASSED AN ORDER DATED 6-3-2013 SPECIFICALLY STATING THAT T HE PAYMENTS MADE TO M/S. ANVIL CORPORATION USA HAD BEEN VERIFIE D AND TOS PROVISIONS WERE NOT APPLICABLE ON THESE PAYMENTS. 3.4. FURTHER, THE LD. AR SUBMITTED THAT THE COMM ISSIONER OF - - ITA 848/15 6 INCOME-TAX FAILED TO NOTE THAT IN THE IMPUGNED ASSE SSMENT ORDER DATED 27-03-2013, THE ASSESSING OFFICER HAD IN PARA 3 SPECIFICALLY REFERRED TO THE ORDER DATED 6-3-2013 P ASSED BY THE INCOME-TAX OFFICER (TOS) ABOUT THE NON-APPLICABILIT Y OF TDS PROVISIONS IN RESPECT OF THE PAYMENTS MADE TO M/S. ANVIL CORPORATION USA AND THEN ONLY PASSED THE IMPUGNED ASSESSMENT ORDER. ACCORDINGLY, HE SUBMITTED THAT THE CIT HAS THUS ABSOLUTELY ERRED IN HIS FINDING THAT THE PAYME NTS MADE TO M/S. TARUN OF ANVIL CORPORATION AND THE LABOUR CHAR GES PAID LOCALLY WERE ALLOWED BY THE ASSESSING OFFICER WITHO UT CALLING FOR AND VERIFYING THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE AGREEMENT AND CORRESPONDENCES FOR THE WORK DONE ETC ., AND THAT THEREFORE THE ASSESSMENT ORDER IS ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF REVENUE. FURTHER, THE LD. AR POINTED OUT THAT CIT HAS NOT DISCUSSED THE VARIOUS JUDICIAL DECISION S BROUGHT TO HIS NOTICE AND RELIED ON BY THE ASSESSEE THROUGH WR ITTEN SUBMISSIONS IN REPLY TO THE SHOW CAUSE NOTICE, BEFO RE CONCLUDING THAT THE ORDER PASSED BY THE ASSESSING O FFICER WAS ERRONEOUS, AND PREJUDICIAL TO THE INTERESTS OF REVE NUE. THEREFORE, HE SUBMITTED THAT THE COMMISSIONER OF IN COME-TAX - - ITA 848/15 7 OUGHT TO HAVE DISCUSSED THE JUDICIAL DECISIONS RELI ED ON BY THE ASSESSEE AND GIVEN A FINDING AS TO WHY THOSE JUDICI AL DECISIONS WERE NOT RELEVANT TO THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE 'S CASE BEFORE CONCLUDING THAT THE ORDER P ASSED BY THE ASSESSING OFFICER WAS ERRONEOUS, AND PREJUDICIAL TO THE INTERESTS OF REVENUE. 3.5. FURTHER, THE LD. AR RELIED ON THE ORDER OF THE TRIBUNAL, CHENNAI BENCH IN THE CASE OF SHRI S. RAJAGOPAL V. I TO IN ITA NO.1647/MDS/2014 DATED 27 TH MARCH, 2015, WHEREIN THE TRIBUNAL OBSERVED THAT THE ORDER PASSED BY THE ASSESSING OFF ICER BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SEC.263 IN THE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR O F REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INC ORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PR INCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS S TATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQU IRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLE D FOR IN THE CIRCUMSTANCES OF THE CASE. - - ITA 848/15 8 THUS, HE SUBMITTED THAT THERE WAS NO ERROR IN THE O RDER OF THE AO, AS THE AO CARRIED OUT DETAILED ENQUIRY BEFO RE COMING TO THE CONCLUSION THAT THE PROVISIONS OF TDS ARE NOT APPLICABLE TO THE PAYMENT MADE TO M/S. TARUN ANVIL CORPORATION, USA TOWARDS COMMISSION. HE HAS ALSO D REW OUR ATTENTION TO THE ORDER PASSED BY THE ITO, TDS, WARD -I(1), COIMBATORE DATED 6.3.2013, WHEREIN IT WAS OBSERVED IN SIMILAR CIRCUMSTANCES THAT FOREIGN COMMISSION PAID TO M/S. TARUN ANVIL CORPORATION, USA WAS VERIFIED AND IT IS SEEN THAT T DS PROVISIONS WERE NOT APPLICABLE IN THESE PAYMENTS. THE LD. AR PRAYED THAT THE ORDER OF THE CIT MAY BE SET ASIDE AND THAT OF T HE ASSESSING OFFICER RESTORED. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE CIT. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE CONTENTION OF THE ASSESSEES COUNSE L IS THAT THE PAYMENT WAS MADE TO M/S. TARUN ANVIL CORPORATION, U SA TOWARDS SALES COMMISSION AND IT BEING SALES COMMISS ION, THERE IS NO REQUIREMENT OF TDS ON THAT PAYMENT AND TO THA T EFFECT, THE ASSESSEE HAS PLACED A LETTER OF ANVIL CORPORATION, WITHOUT HAVING - - ITA 848/15 9 NO DATE, WHERE IT IS CONFIRMED THAT THEY PROCURED O RDERS FROM BILLABONG GROUP OF COMPANIES AS AN AGENT ON BEHALF OF THE ASSESSEE. ON THE OTHER HAND, THE CONTENTION OF TH E LD. DR IS THAT THERE IS NO NEED THAT NON-RESIDENT SHOULD HAVE PE OR BUSINESS CONNECTION IN INDIA AND RENDERED SERVICES IN INDIA AND IT IS ENOUGH THAT THE SERVICES ARE UTILIZED IN INDI A TO ASSESS THE FEES FOR TECHNICAL SERVICES U/S.9(1)(VII) OF THE AC T. ACCORDING TO THE DR, THE ASSESSEE IS LIABLE TO PAY TDS. ACCORD ING TO HIM, THE ASSESSING OFFICER HAS NOT EXAMINED THE CASE PRO PERLY AND HIS CONCLUSION IS BASED ON THE IRRELEVANT CONSIDERA TION, THEREFORE, THE CIT INVOKED THE PROVISIONS OF SEC.9(1)(VII) OF THE ACT. 6. IN THE PRESENT CASE, THE ASSESSING OFFICER PASSE D AN ORDER U/S.143(3) OF THE ACT ON 27.3.2013 AND ON THE BASIS OF THE ORDER OF THE ITO, WARD-I(1), COIMBATORE DATED 6.3.2 013, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE A SSESSEE IS NOT LIABLE FOR DEDUCTION OF TDS IN RESPECT OF PAYME NT OF COMMISSION TO M/S. TARUN ANVIL CORPORATION, USA AND HE HAS NOT CARRIED OUT ANY INDEPENDENT ENQUIRY. THE ORDER OF THE ITO, COIMBATORE HAS NO BASIS ON WHICH HE CAME TO THE CON CLUSION THAT THE PAYMENT MADE TO M/S. TARUN ANVIL CORPORATI ON, IS NOT - - ITA 848/15 10 LIABLE FOR TDS. BEING SO, THE CIT ASSUMED JURISDI CTION U/S.263 OF THE ACT, TO SEE WHETHER THE PAYMENT MADE TO M/S. TARUN ANVIL CORPORATION, USA IS LIABLE FOR TDS OR NOT. THE ASS ESSEE HAS NOT PLACED ANY INFORMATION REGARDING THE NATURE OF SERV ICES RENDERED BY THE NON-RESIDENT AGENT AND HE HAS NOT ALSO PRODU CED PURCHASE ORDERS ALONG WITH CORRESPONDENCE WITH THE NON- RESIDENT AGENT AND HENCE, IT IS INCUMBENT UPON THE ASSESSING OFFICER TO EXAMINE ALL THE FACTORS RELATING TO SERV ICES RENDERED AND THE PAYMENT OF REMUNERATION TO THE NON-RESIDENT AGENT. IF THERE IS NO DEDUCTION OF TDS IN RESPECT OF PAYMENT MADE, WHICH IS CHARGEABLE UNDER THE ACT, THEN, THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. SEC.195(1) PRESC RIBES THAT TAX HAS TO BE DEDUCTED WHILE MAKING PAYMENT TO NON- RESIDENT, WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT . THEREFORE, THE CONDITION PRECEDENT FOR DEDUCTION OF TAX IS THA T THE INCOME MUST BE CHARGEABLE UNDER THE PROVISIONS OF THE ACT. IN THE PRESENT CASE, THE ASSESSEE HAS NOT PRODUCED RELEVAN T AGREEMENT ENTERED INTO WITH THAT FOREIGN AGENT TO S HOW THAT THEY WERE APPOINTED TO ACT AS COMMISSION AGENTS OUTSIDE INDIA IN THEIR RESPECTIVE COUNTRIES. - - ITA 848/15 11 7. IT IS SEEN FROM THE ORDERS OF THE LOWER AUTHORIT IES THAT THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDENT AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDENTS, WHO HAVE NO PER MANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECT ION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUE D OR AROSE IN INDIA THEN, IT IS EXEMPTED, IF THE ASSESSEE IS A BLE TO PROVE THAT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS A T ABROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDENT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN INDIA BY PRO DUCING RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN T HE PARTIES. WITHOUT EXAMINING THESE DETAILS, WE ARE N OT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE NO N-RESIDENT AGENT. THEREFORE, IT IS APPROPRIATE TO REMIT THE E NTIRE ISSUE BACK TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSE E TO PROVE THAT IT WAS SALES COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTE D BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND THE AO IS DIR ECTED TO MAKE - - ITA 848/15 12 NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT AND THE PAYMENTS MADE THEREO F. WITH THESE OBSERVATIONS, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 28 TH OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( . $ % ) ( & ' ( ) ) *+,-./01023 45067.082290.:3 ; $< /JUDICIAL MEMBER ! $<=>>2-6?06?@ABCA. &; /CHENNAI, D$ /DATED, THE 28 TH AUGUST, 2015. MPO* $E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I3 /CIT(A) 4. I /CIT 5. GJ% K /DR 6. %LM /GF.