The ACIT,Navsari Circle, Navsari V. Pradip Polyfils Pvt.Ltd., Navsari

ITA 94/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1019 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 09-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Retrospective amendment; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER. ITA. NOS.94/AHD/2015 & 179/AHD/2016 (ASSESSMENT YEARS:2011-12 & 2012-13) ASSTT. COMMISSIONER OF INCOME-TAX & DEPUTY COMMISSIONER OF INCOME -TAX , NAVSARI CIRCLE, NAVSARI APPELLANT VS. PRADIP POLYFILS PVT. LTD. NIF COMPOUNDS, CHHAPARA ROAD, NAVSARI - 396445 RESPONDENT PAN: AABCP7172J /BY APPELLANT : SHRI DHARAMVIR D. YADAV, SR. D.R. /BY RESPONDENT :SHRI TUSHAR HEMANI, A.R. /DATE OF HEARING : 27.07.2016 /DATE OF PRONOUNCEMENT : 27.07.2016 ORDER ITA NOS.94/AHD/15 & 179/AHD/16 A.YS. 11-12 & 12-13 [ACIT VS. PRADIP POLYFILS PVT. LTD.] PAGE 2 PER SHAILENDRA KUMAR YADAV, J.M: BOTH APPEALS HAVE BEEN FILED BY REVENUE AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS), VAL SAD, DATED 20.11.2014 FOR A.Y. 2011-12 & 24.11.2015 FOR A.Y. 2012-13. SINCE BOTH APPEALS PERTAIN TO SAME ASSESS EE AND SIMILAR ISSUES WERE RAISED IN BOTH APPEALS; THEREFO RE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.94/AHD/2015 FOR A.Y. 2011-12, THE REVE NUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING COMMISSION EXPENSES OF RS.61,37,440/- PAID TO NON-RESIDENT AGENTS AS GENUINE BUSINESS EXPENDITURE EVEN THOUGH THE ASSESSEE HAS NOT ESTABLISHED ITS BUSINESS CONNECTION. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING DISALLOWANCE OF RS.61,37,440/- MADE U/S.40(A)(IA) OF THE ACT AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON PAYMENT MADE TO NON- RESIDENT AGENT. 2. SIMILAR ISSUE HAS BEEN DISCUSSED AND DECIDED BY ITAT D BENCH, AHMEDABAD IN FAVOUR OF ASSESSEE IN ITA NO.3065/AHD/2010 IN CASE OF SHRI PANKAJ A SHAH VS. ITO BY OBSERVING AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT T HE ITA NOS.94/AHD/15 & 179/AHD/16 A.YS. 11-12 & 12-13 [ACIT VS. PRADIP POLYFILS PVT. LTD.] PAGE 3 ASSESSEE HAS PAID COMMISSION TO NON RESIDENT AND NO TDS WAS DEDUCTED WHILE MAKING THE PAYMENT FOR THE REASON THAT THE PARTIES TO WHOM THE COMMISSION WAS PAID DO NOT HAVE PERMANENT ESTABLISHMENT IN INDIA NOR HAVE THEY PROVIDED ANY TECHNICAL SERVICES. THE AFORESAID SUBMISSIONS OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. ASSESSEE HAD ALSO RELIED ON CIRCULAR NO. 786 DATED 07.02.2000 FOR NON DEDUCTION OF TDS. AS PER THE AFORESAID CIRCULAR, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS U/S. 195 WITH REGARD TO PAYMENT OF COMMISSION TO FOREIGN AGENTS. IN THE PRESENT CASE, ASSESSEE HAD FILED THE RETURN OF INCO ME IN ACCORDANCE WITH THE CIRCULAR PREVAILING AT THAT TIME. WE FIND THAT AN IDENTICAL ISSUE WAS BEFORE TH E CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DCIT V S. PANCHMAHAL STEEL LTD. (SUPRA), THE CO-ORDINATE BENC H OF TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE BY HOLDING AS UNDER:- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE LEARNED CIT(A) THAT TAX WAS NOT DEDUCTED BECAUSE INCOME TAX IS DEDUCTIBLE AT SOURCE ONLY FROM PAYMENTS WHICH ARE CHARGEABLE TO TAX UNDER INCOME TAX ACT. IT WAS SUBMITTED THAT THE AMOUNT WAS PAID FOR COMMISSION IN FOREIGN CURRENCY WAS NOT CHARGEABLE TO LAX IN INDIA BECAUSE THESE PAYMENTS REPRESENTED BUSINESS INCOME OF NON- RESIDENT AND THAT NONE OF THE PAYEES HAVE PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA WITHIN THE MEANING OF SECTION 9 OF THE IT ACT. IT WAS ALSO EXPLAINED THAT NON-RESIDENTS WERE NOT CHARGEABLE TO TAX IN INDIA DUE TO VARIOUS DOUBLE TAXATION AGREEMENTS. IT WAS ALSO EXPLAINED THAT PAYMENTS WERE NOT FOR ROYALTY OR TECHNICAL KNOW-HOW AND THEREFORE, TAX WAS NOT LIABLE TO BE DEDUCTED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE DID NOT DEDUCT TAX BECAUSE OF THE EXISTING CIRCULAR ISSUED BY CBDT. ITA NOS.94/AHD/15 & 179/AHD/16 A.YS. 11-12 & 12-13 [ACIT VS. PRADIP POLYFILS PVT. LTD.] PAGE 4 THEREFORE, NO DISALLOWANCE COULD BE MADE. THE LEARNED DR HOWEVER, SUBMITTED THAT EARLIER BOARD CIRCULAR RELIED UPON BY THE ASSESSEE HAS BEEN WITHDRAWN WITH IMMEDIATE EFFECT VIDE SUBSEQUENT CIRCULAR DATED 23-10-2009; THEREFORE, EARLIER CIRCULARS WOULD NO LONGER SURVIVE. HOWEVER, WE DO NOT AGREE WITH THE SUBMISSIONS OF THE LEARNED DK BECAUSE LATER CIRCULAR DATED 23-10-2009 WAS HAVING NO RETROSPECTIVE EFFECT AND ALSO COULD NOT HAVE THE EFFECT TO THE ASSESSMENT YEARS WHERE THE ASSESSEE FILED THE RETURN OF INCOME ON TIME IN ACCORDANCE WITH THE EXISTING BOARD CIRCULAR. THEREFORE, THERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE NOT TO DEDUCT TDS IN SUCH CIRCUMSTANCES BASED UPON ITS OPINION ON THE CBDT CIRCULARS........................ 9. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE V IEW THAT NO DISALLOWANCE CAN BE MADE IN PRESENT CASE. WE THEREFORE DELETE THE DISALLOWANCE. 2.1 SAME HAS BEEN FOLLOWED BY AHMEDBAD I BENCH I N ITA NOS.1078/AHD/12 & 178/AHD/2016 FOR A.Y. 2009-10 & 2 012- 13 IN CASE OF ACIT VS. SHRI KERSI HOMI TENGRI, BY O BSERVING AS UNDER: 16. ONCE, THE GENUINENESS OF THE EXPENDITURE HAS B EEN ACCEPTED IN EARLIER YEARS, THE PAYMENT OF COMMISSIO N TO THE SAME PARITIES CANNOT BE CONSIDERED AS INCURRED FOR NON- BUSINESS PURPOSES. FURTHER, THE COMMISSION HAVE BEE N PAID TO THE NON-RESIDENT WHO DO NOT HAVE ANY PERMAN ENT ESTABLISHMENT IN INDIA AND, THEREFORE, NOT LIABLE T O TAX IN INDIA. THEREFORE, THE PROVISIONS OF SECTION 195 ALS O DO NOT APPLY ON THE FACTS OF THE CASE. 17. CONSIDERING THE AFOREMENTIONED FACTS IN TOTALIT Y, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. ITA NOS.94/AHD/15 & 179/AHD/16 A.YS. 11-12 & 12-13 [ACIT VS. PRADIP POLYFILS PVT. LTD.] PAGE 5 CIT(A). BOTH THESE APPEALS BY THE REVENUE ARE ACCO RDINGLY DISMISSED. 2.2 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE O N BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWI NG SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH TH E FINDING OF CIT(A) AS COMMISSION EXPENSES OF RS.61,37,440/- PAI D TO NON- RESIDENT AGENT AS GENUINE BUSINESS EXPENDITURE. UN DER THESE FACTS AND CIRCUMSTANCES, CIT(A) WAS JUSTIFIED IN DE LETING THE DISALLOWANCE OF RS.61,37,440/- MADE U/S.40(A)(IA) O F THE ACT. SAME IS UPHELD. 3. IN ITA NO.179/AHD/2016 FOR A.Y. 2012-13, THE REV ENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING COMMISSION EXPENSES OF RS.1,46,62,048/- PAID TO NON-RESIDENT AGENTS AS GENUINE BUSINESS EXPENDITURE EVEN THOUGH THE ASSESSEE HAS NOT ESTABLISHED ITS BUSINESS CONNECTION. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING DISALLOWANCE OF RS.1,46,62,048/- MADE U/S.40(A)(IA) OF THE ACT AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON PAYMENT MADE TO NON- RESIDENT AGENT. 4. SIMILAR ISSUE AROSE IN ITA NO.94/AHD/2015 FOR A. Y.2011- 12. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASON ING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A), WHEREIN HE HAS RIGHTLY ALLOWED THE COMMISSION EXPENSES OF RS.1,46,62,048/- PAID TO NON-RESIDENT AGENTS AS GEN UINE ITA NOS.94/AHD/15 & 179/AHD/16 A.YS. 11-12 & 12-13 [ACIT VS. PRADIP POLYFILS PVT. LTD.] PAGE 6 BUSINESS EXPENDITURE AND RIGHTLY DELETED THE DISALL OWANCE OF SAME AMOUNT U/S.40(A)(IA) OF THE ACT. 5. AS A RESULT, BOTH APPEALS FILED BY REVENUE ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF JULY, 2016. SD/- SD/- (N. K. BILLAIYA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD: DATED 27/07/2016 S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE !# / ASSESSEE $ %&%'( ) / CONCERNED CIT * )+ / CIT (A) ,-./00'(1 '( 123#&# / DR, ITAT, AHMEDABAD 4/5678 / GUARD FILE. BY ORDER / #9 1 :; 2% '( 123#&#< 1.DATE OF DICTATION 27.07.16 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 27-07-2016 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER