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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI RAJPAL YADAV & SHRI PRADIPKUMAR KEDIA
-आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD – BENCH ‘A’
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.3233/Ahd/2015 WITH Cross Objection: 220/Ahd/2015 [Asstt.Year: 2012-13]
AND
ITA NO.2490/Ahd/2014 & 2037/AHD/2016 [Asstt.Year : 2011-12 & 2013-14]
DCIT, Cir.2(1)(1) Vs. M/s.Gujarat Ambuja Exports Ltd. Ahmedabad. “Ambuja Tower” Opp: Memnagar Fire Station Nr.Vijay Char Rasta Navrangpura Ahmedabad 380 013. PAN : AAACG 3980 A
(Applicant) (Respondent)
Revenue by : Shri Tushar P. Hemani, AR Assessee by : Shri S.K. Dev, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 31/07/2019 घोषणा क� तार�ख /Date of Pronouncement: 23/08/2019 आदेश/O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against orders of the ld.CIT(A) 24.6.2014, 20.8.2015 and 20.8.2015 passed for the assessment years 2011-12, 2012-13 and 2013-14 respectively. On receipt of notice in the Revenue’s appeal for the Asstt.Year
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 2 2012-13, the assessee has filed cross objection bearing CO No.220/Ahd/2015. Since common issues are involved, therefore, we heard these appeals together and deem it appropriate to dispose of them by this consolidated order. First we take up appeal for the Asstt.Year 2011-12.
ITA No.2490/Ahd/2014
Revenue has taken three grounds of appeal, but its grievance revolves around a single issue, viz. the ld.CIT(A) has erred in law and on facts in deleting the disallowances of Rs.5,21,79,627/- claimed by the assessee under section 80IA of the Income Tax Act, 1961.
Brief facts of the case are that the assessee-company at the relevant time was engaged in the business of agro processing and agro based products. It has filed its return of income on 30.9.2011 declaring total income at Rs.80,78,56,590/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. The AO has issued a show cause notice inviting explanation of the assessee as to why revised claim for determination under section 80IA should not be disallowed. The assessee contended that in the original return it has claimed deduction under section 80IA at Rs.2,18,33,004/-. In response to the show cause, the assessee has filed written submissions, wherein it has complied details in a tabular form exhibiting as to how it has claimed deduction under sectin80IA. Such details read as under:
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 3 SN Nature of Amount Amount Remark Changes 1 Taxable 80,78,56,590 Original return Income of income Deduction u/s.80IA As per Original 2,18,33,004 Explanations return for revising As per Revised 7,40,12,631 the claim are 2 (-)5,21,79,627 given Return hereunder the table Net Increased 5,21,79,627 in deduction
In response to the above show cause notice, the assessee has contended that originally it has claimed deduction under section 80IA at Rs.2,18,33,004/-. However, during the course of assessment proceedings it revised the claim by enhancing it to Rs.7,40,12,631/-. The ld.AO did not accept this claim on the ground that time limit to revise its return has already expired and it could not make fresh claim in the assessment proceedings. Accordingly, he allowed the deduction under section 80IA at Rs.2,18,33,004/- originally claimed by it. This exercise led to disallowance of Rs.5,21,79,627/- [Rs.7,40,12,631/- minus Rs.2,18,33,004/-].
Dissatisfied with the action of the AO, assessee carried the matter in appeal before the ld.CIT(A). It was contended by the assessee that though according to the decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), the AO may not be competent to entertain fresh claim unless revised return is being filed by the assessee, but this restriction is not applicable on the first appellate authority. The issue raised by the assessee is legal one and it can
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 4 be entertained by the first appellate authority. He made reference to large number of decisions viz. CIT Vs. Jindal Saw Pipes Ltd., 328 ITR 338 (Del), Commissioner of Income Tax Vs. Pruthvi Brokers and Shareholders P.Ltd., 349 ITR 336. The ld.CIT(A) has entertained the claim of the assessee and proceed to decide it on merit. On merit, it was contended by the assessee that basically, the issue involved is about selection of initial assessment year for claiming deduction under section 80IA. According to sub-section (5) of section 80IA, the assessee has been given an option to select initial assessment year from which it can claim deduction for ten consecutive years within 15 years. The assessment year 2011-12 has been selected by the assessee as initial year and contended that unabsorbed loss cannot be adjusted notionally against the profit of year under consideration while computing deduction under section 80IA. In other words, the case of the assessee is that loss of year starting from initial assessment year alone to be considered for set off against the eligible profit and loss, if any, incurred in the prior year to “initial assessment year” must be ignored. For this proposition, judgment of Hon’ble Madras High Court in the case of CIT Vs. Velayudhaswamy Spinning Mills P.Ltd., 340 ITR 477 (Mad) was relied upon. The ld.CIT(A) has accepted the claim of the assessee and held that unabsorbed depreciation or loss of the years prior to initial assessment year are not required to be set off against the eligible profits and thus the assessee is entitled for deduction under section 80IA on the enhanced amount.
Against this decision of the ld.CIT(A), Revenue is in appeal. The ld.DR relied upon the order of the ld.AO. On the other hand,
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 5 the ld.counsel for the assessee contended that accepting the proposition that unabsorbed depreciation or loss prior to the initial assessment year not to be set off with the eligible profit in the initial assessment year or thereafter and deduction has to be granted independently. The ld.AO has accepted this proposition in the Asstt.Year 2012-13. The ld.counsel for the assessee contended that the assessment order for Asstt.Year 2012-13 is annexed with the appeal of the Revenue bearing no.3233/Ahd/2015. Similarly, following of order of the ld.CIT(A) in the present assessment year i.e. Asstt.Year 2011-12, the ld.CIT(A) has allowed deduction in the Asstt.Year 2013-14, and Revenue though challenged the order of the ld.CIT(A) in the Asstt.Year 2013-14 in ITA No.2037/Ahd/2016, but has not taken this ground of appeal. Thus, the Department has also accepted that deduction is admissible to the assessee ignoring the loss of prior years than the initial assessment years. He further made reference to the Board Circular no.1 of 2016 dated 15.2.2016. Copy of this circular has been annexed as Annexure-B with the brief synopsis filed by the assessee. The Board has appraised its Assessing Officers that the assessee will be at liberty to choose initial assessment year, and thereafter deduction under section 80IA is to be granted for ten consecutive years after the selection of that assessment years out of 15 years block. He also has placed a copy of order of the Tribunal passed in ITA No.2174/Ahd/2013 in the case of DCIT Vs. Suzlon Towers & Structures Ltd. wherein identical issue was considered by the Tribunal.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 6 7. We have duly considered rival submissions and gone through the record carefully. Board has recognized rights of the assessee for selecting the initial assessment year for claiming deduction under section 80IA. The Board has appraised its authorities and contemplated that sub-section (2) of section 80IA provide that the assessee who is eligible to claim deduction under section 80IA has option to choose the initial /first year from which it may desire the claim of deduction for ten consecutive years out of slab of 15 years as prescribed under that sub-section. It has also been propounded by the Board that once such initial assessment year has been opted by the assessee, he shall be entitled to claim deduction under section 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to fulfillment of conditions prescribed in the section.
As far as conditions of section are concerned, the AO has himself allowed the deduction under section 80IA of Rs.2,18,33,004/-. Thus, he has himself has not disputed above fulfillment of necessary conditions for claiming the deduction under section 80IA. It is also pertinent to note that in the assessment years 2012-13 and 2013-14, the stand of the assessee that loss of earlier years i.e. prior to selection of initial assessment year are required to be ignored for the purpose of section 80IA. At this stage, we deem it appropriate to take note of following finding from the judgment of Hon’ble Madras High Court which reads as under: “…..From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 7 alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub-section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.”
SLP against this judgment has been rejected by the Hon’ble Supreme Court bearing No.334752012, and copy of Hon’ble Supreme Court decision has been placed as Annexure-C. It is reported in 244 taxmann.com 58. Considering the above facts, we are of the view that the ld.CIT(A) has rightly adjudicated this issue by keeping in mind the decision of Hon’ble Madras High Court and the position of law. We do not find any error in the order of the ld.CIT(A), and the appeal of the Revenue in the Asstt.Year 2011-12 is dismissed.
ITA No.3233/Ahd/2015 (Asstt.Year 2012-13) and ITA No.2037/Ahd/2016(Asstt.Year 2013-14)
Ground no.2 in both these assessment years is common. Grievance of the Revenue in this ground is that the ld.CIT(A) has erred in deleting the disallowance of Rs.1,53,17,547/- and Rs.1,51,52,353/- which was disallowed by the AO with aid of section 40(a)(i) of the Act on account of non-deduction of TDS on the foreign commission payment in the Asstt.Year 012-13 and 2013-14 respectively.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 8 10. The facts on all vital points are common. Even the finding of the ld.CIT(A) is verbatim same except variation in quantum in both the years. Therefore, for the facility of reference we take up the facts from the Asstt.Year 2012-13.
The assessee has filed its return of income on29.11.2012 declaring total income at Rs.36,73,42,030/- which was revised to Rs.30,62,30,930/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee at the relevant time was engaged in the business of manufacturing and trading of agro processing, maize processing, cotton spinning as well as generating powers through windmills. On verification of TDS details, and CA certificate for foreign remittances it revealed to the AO that the assessee has debited foreign commission expenditure of Rs.1,56,17,547/-. He directed the assessee to explain as to why this commission be not disallowed. In response to the query of the AO, the assessee filed a detailed written submissions which was identically submitted before the ld.CIT(A), and we will be going to take note of the submission in the subsequent part. The AO has gone through the submissions of the assessee and rejected the same for two reasons. In the first fold of reasoning, he observed that the assessee has not provided the identity and the evidence of services rendered by foreign commission agent for which the commission was paid. In this regard, he observed that no copy of agreement or documentary evidence in support of commission payment etc. was given by the assessee. In the second fold of reasoning, he observed that the assessee failed to deduct TDS on this amount, and therefore, it is not entitled for
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 9 deduction under section 40(a)(ia) of the Act. Similar action was taken with regard to commission paid at Rs.1,51,52,353/- in the Asstt.Year 2013-14.
Dissatisfied with the finding of the AO, the assessee carried the matter before the ld.CIT(A). It has filed detailed written submissions which has been reproduced by the CIT(A). For appreciating the facts and the stand of the assessee, we also deem it appropriate to take note of the submissions, which read as under: “6.2. Appellant's submission:- The relevant extracts from the submission of the appellant are reproduced here under:- "8.2 The appellant in Assessment Proceedings, on the issue of foreign Commission u/s. 40(a)(i) of Rs. 153,17,547/-, furnished explanations to the AO vide letter dated 18-02-2015, copy of reply filed in paper book (Pg. no. 173 to 385), the same is reproduced hereunder: "Your goodself called for to furnish details of commission paid on export sales along with evidences regarding fixation of commission, debit notes from overseas brokers, related export sale and its realization along with payment by bankers and copies of Form no. 15CA & 15CB in this regard. With regard to commission payment on export to overseas buyers, we furnish following details and explanations for justification of overseas commission and its payments: 1. The assessee company is in export of Yarn & cotton waste, Liquid glucose & starch i.e. maize processed items and De-oiled Cake. The export summary of these items during the year 2011 -12 and payment of commission is as under:
Manufacturing items Export Sale Commission
Agro Processing: DOC 3576946239 748632
Maize Processing: 306863052 720535 Liquid Glucose & Starch
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 10 1720000547 14148380 Yarn Mfg.: Yarn & Cotton Waste
Total 5603809838 15617547
Yarn & cotton waste are exported through brokers, as most of the deal is through brokers who basically work from Taiwan, Hong Kong, Korea, Malaysia, Vietnam, Bangladesh, Philippines, Italy, Portugal, China and USA, as the product is used worldwide and demand comes from various countries through overseas brokers / commission agents working overseas. Whereas, very few demands comes through overseas brokers / commission agents for liquid glucose and starch and DOC. 3. It is further submitted that these overseas brokers / commission agents are providing export orders to us by searching / inquiring export import from their countries. These overseas brokers / commission agents also provides services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. 4. As called for by your goodself detailed chart containing name & address of broker, name & country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR amounting to Rs. 156,17,547/- furnished Exb-1. 5. Along with above chart, broker wise payment evidences along with bank payment details, company payment advice, Form no. 15CA and 15CB, debit note from overseas broker / commission agent, invoice for export by company with commission contract and export contract furnished as evidences for justification of commission to overseas brokers / commission agents and genuineness of the payments through banking channel and certificates for non-deduction of tax as the same is not applicable (Form no. 15CB) [Annexure 1 to 23].
In view of the above, it is submitted that the payments of commission to overseas brokers / commission agents is part of export of products and an important mediatory channel to book our export orders as well as to take care of realization of export proceeds. Thus, the commission to overseas brokers / commission agents is genuine and paid through banking channel on export orders procured and final realization of export proceeds. The same is expense for the purpose of business incurred by company in prudent way to increase export and increase customer base in foreign countries."
8.3 Furthermore, the appellant company in Assessment Proceedings, on justification of payment of foreign commission to overseas brokers /
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 11 commission agents and applicability of taxes thereon, furnished letter to AO dated 20-02-2015, copy of reply filed in paper book (Pg. no. 386 to 388), the same is reproduced hereunder: "In connection to the commission on export sales paid to overseas brokers / commission agents, we have furnished detailed reply vide letter dated 18- 02-2015 with evidences related to foreign commission amounting to Rs. 156,17,547/-. Now, for justification of payment of commission to overseas brokers / commission agents and applicability of tax thereon, we furnish further submission as under for your kind perusal: 1. The assessee company is exporter of yarn, maize derivatives and DOC. In global market most of the export is done by company through its own sources and customers in overseas, but many times export inquiries come through overseas brokers / commission agents, who are situated in foreign countries and they have some local import demand. They negotiate with us on behalf of such importers and finalize the deal, for this they charge commission either on percentage of export invoice or commission on per metric ton of export quantity. 2. These overseas brokers / commission agents are providing export orders to us by searching / inquiring export - import from their countries. These overseas brokers / commission agents also provides services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. However, they are not our agents in those countries. They work on behalf of many parties and on so many products / commodities independently. 3. As per provisions of section 5(2) of the IT Act, the total income of a person who is a non-resident is taxable in India, if it is received or is deemed to be received in India on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India. In analogy, we submit that the commission payment to overseas brokers / commission agents is not falling either of the two conditions of section 5(2): (i) The payments are made to overseas brokers / commission agents in their countries through banking channel i.e. the payment is received by them in foreign country. (ii) The commission accrues / arises in foreign countries as the commission is payable only when the Indian company receives payment of export sales. Such realization of export proceeds are released by foreign importer and at this juncture the activity of overseas brokers / commission agents come to an end, as the export payment is made by foreign bank from foreign country and at the same time the commission accrue or arise in foreign country to the overseas brokers / commission agents, if the payment does not realize, there will be no commission at all payable to such non-resident commission agents.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 12
As per provisions of section 9(1 )(i) of the IT Act. Income deemed to accrue or arise in India, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situated in India. Explanation - 1: Business of which all the operations are not carried out in India. It means: The overseas brokers / commission agents is not doing any business in India, they are merely providing export orders and facilitate to Indian company. The business means any activity of manufacturing of products similar to the assessee company. Explanation - 2: Business connection shall include any business activity carried out through a person who, acting on behalf of the non-resident and has habitually exercise in India, habitually maintains stock of goods / merchandize in India, habitually secures orders in India under common control of non-resident. Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status and acting in the ordinary course of his business. It means: The overseas brokers / commission agents is not having any business connection and carrying any business activity. Whereas, the non- resident is merely a commission agent or broker acting from foreign country and has independent status and not working under common control of Indian company at all. In analogy, we submit that the commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(l)(i) of the Act. In the matter of commission payment to overseas brokers / commission agents, it is submitted that commission does not accrue or arise or deemed to accrue or arise in India to such non-resident commission agents as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no where under obligation to deduct tax from such commission payments to overseas brokers / commission agents as per provisions of section 195 of the IT Act.
In view of the above, it is submitted that the commission agent did not carry on any activity in India In the absence of any activity being carried in India by a non-resident commission agent, the commission does not accrue or arise in India.
Therefore, such payments are not taxable in India. Accordingly, such payments do not require any deduction of tax or tax withholding. However, the company has taken certificate in Form no 15CB from Chartered
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 13 Accountants, which also states that no TDS is require on payment of commission to the nonresident commission agents.
It is further submitted that as per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such non-resident commission agents are provided in letter dated 18-02-2015. In view of the above facts of the case and legal submission examining the applicability of various provisions of the IT Act, it is submitted that the payments of commission to overseas -brokers / commission agents made overseas are not liable to TDS /tax withholding as per provisions of section 195 of the IT Act." 8.4 In this regard, in the appellate proceedings, the appellant company on the issue of commission payment on export sale to non-residents, submits following facts and explanations for your kind perusal:
(i) The overseas brokers / commission agents are procuring export orders by searching / inquiring export - import from their countries. These overseas brokers / commission agents provide services for negotiating the rates, freight, conditions for payments, opening LCs of importers in foreign countries and informing us, take care of deliveries of goods to the importers and follow up for final payments, etc. (ii) The appellant company has furnished a detailed chart containing name & address of broker / agents, name & country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR. (iii) The appellant company has furnished along with above chart, broker wise payment evidences along with bank payment details, company payment advice, Form no. 15CA and 15CB, debit note from overseas broker / commission agent, invoice for export by company with commission contract and export contract furnished as evidences for justification of commission to overseas brokers / commission agents and genuineness of the payments through banking channel and certificates for non-deduction of tax as the same is not applicable. (iv) The appellant company has submitted that the payments of commission to overseas brokers / commission agents is part of export of products and an important mediatory channel to book our export orders as well as to take care of realization of export proceeds. Thus, the commission to overseas brokers / commission agents is genuine and paid through banking channel on export orders procured and final realization of export proceeds. The
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 14 same is expense for the purpose of business incurred by company in prudent way to increase export and increase customer base in foreign countries.
(v) As per provisions of section 5(2) of the IT Act, commission income to non-residents is not taxable in India, as they arc providing services from their countries and the payment is also received to them in their country. Thus, the commission is neither received / deemed to be received in India on behalf of such person nor accrues or arises / deemed to accrue or arise in India. Similarly, commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(1 )(i) of the Act. (vi) The commission payment to overseas brokers /commission agents does not accrue or arise or deemed to accrue or arise in India as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no whereunder obligation to deduct tax from such commission payments to overseas brokers A commission agents as per provisions of section 195 of the IT Act. (vii) As per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such non-resident commission agents are provided in above details. (viii) An analysis of commission to non-residents for the FY 2008-09, FY 2009-10, FY 2010-11 and FY 2011-12 furnished (Pg. no. 395 to 397), which shows that this is not a new payment, but paid from last so many years and allowed by IT Department in all past years. (ix) It is also submitted that in assessment proceedings, evidences with regard to identity and genuineness of non-residents commission agents: We have submitted most of evidences with regard to identity, services rendered by the foreign commission agent, payment evidences for foreign commission expense and evidences for genuineness of transactions on sample basis. Such evidences are in the nature of Agency Agreement, Tax Residency Certificate, Debit note, Export invoices, Shipping Bill, Bank certificate for export realization, commission payment Swift message by bank and emails. (x) The Appellant company has applied for NIL Tax Withholding Certificates, for Payment of commission to Non-Residents towards export sales under the provisions of section 195(2) of the Act, as discussed by AO on Page no. 24 in Para no. 7.8 of the Assessment Order for the financial year 2014-15 on 24-03-2015, against this NIL withholding certificate is issued by ITO, International Taxation-I, Ahmedabad vide Certificate dated 31-03-2015, copy furnished (Pg. no. 398 to 401). Furthermore, similar certificate was applied for the year 2015-16, vide Application dated 09-04-
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 15 2015, the ITO, International Taxation-I, Ahmedabad vide Certificate dated 10-04-2015 authorized the appellant company to pay or credit commission to various non-residents towards export sales, without deduction of tax at source, copy furnished (Pg. no. 402 to 405). The Certificate from International Taxation Division certifying to pay commission to various nonresidents towards export sales, without deduction of tax at source, itself shows that there is no need to deduct tax on such payments. 8.5 The AO has made various observations in assessment order on commission payment to non-resident rebuttal to such observations of the AO are furnished:
Para No. AO’s Observations Rebuttal by Appellant Company 7.3 The above reply of the The appellant company has assessee has been carefully furnished following considered but the same is evidences in connection to not found acceptable. The commission payments to non-residents: assessee has not' provided ' ; \ 1 \ the identity and "the (i) Copies of Contract with evidences of services commission agent and rendered by the foreign contract with exporter. commission agent for which (ii) Copies of invoices / debit commission was paid by the notes j raised by commission assessee. No copy of agent. | agreement or documentary (iii) Copies of Form no. evidences in support of 15CA & Form no. 15CB for commission payment etc. payment in foreign currency. was given by the assessee (iv) Bank payment swift which could justify the copy. reasonableness of the (v) Copy of shipping bill for commission payment to the commission reference, etc. nonresident as well as the These documents are genuineness of expenditure sufficient to prove incurred for the purpo.se of genuineness of the business. Therefore, in commission payments and absence of copy of identity of commission agreement with the foreign agents. commission agent, identity of commission agent and evidences pertaining to services rendered by the foreign commission agent having nexus with the business of the assessee, the payment of foreign commission expenses is not found genuine.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 16 7.6 Under section 9(1 )(i) of the As per provisions of section Act, income accruing or 5(2) of the IT Act, arising directly or commission income to non- indirectly, through or from residents is not taxable in any business connection in India, as they are providing India or source of income in services from their countries India shall be deemed to and the payment is also accrue or arise in India. No received to them in their doubt the agents must have country. Thus, the rendered services abroad commission is neither and have solicited orders received / deemed to be there from, but the right to received in India on behalf receive the commission of such person nor accrues arises in India when the or arises / deemed to accrue order is executed by the or arise in India. Similarly, assessee in India and commission payment to therefore the income overseas brokers / accrued i sourced in India. commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(1 )(i) of the Act.
The assessee company The appellant company has 7.7 instead of complying the not discussed single line aforesaid provisions of law about Circular no. 786 as specified in section 195 dated 07-02-2000 or Circular no. 7 of 2009. relied heavily on the erstwhile circular of the CBDT No. 786 dated Whereas, the appellant 7/2/2000. As .regards the company has merely stated applicability of. the said that the commission Circular it is mentioned that payment to overseas brokers the said circular has since / commission agents does been withdrawn by CBDT's not accrue or arise or circular No. 7 of 2009 dated deemed to accrue or arise in 22nd October, 2009, there is India as they had rendered no existence of the Circular services outside India and of CBDT which has been commission was also paid to them outside India. relied upon while deciding the issue of withholding of tax at source u/s 195 of the Further, as per Double Act. Taxation Avoidance Agreement (DTAA) with the countries where the non- resident commission agents
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 17 resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such nonresident commission agents are provided in above details. 7.8 Thus, the assessee Company The provisions of Act also has also failed to comply give authorization to with the provisions of Chartered Accountants to section 195(2) of the Income issue Certificates in Form Tax Act 1961 while deciding No. 15CB for payment in the issue of applicability or foreign currency, the otherwise of withholding tax appellant company complied u/s 195 of the Income fax with the same. Act 1961. Having failed to make an application before As the foreign commission is the Assessing Officer as not taxable in India, the prescribed u/s 195(2) of the appellant company instead Act, to determine the of approaching to the AO, chargeability and TDS approached to the liability, the assessee acted Chartered Accountant to unilaterally by not deducting issue Certificate, which tax at source u/s 195 of the comply the provisions. Act.
It is clear that the assessee It was explained that neither 7.9 was under obligation to services are rendered by deduct tax at source as nonresidents in India nor envisaged u/s 195 of the Act payments are made to non- from the payments of residents in India. Also the commission made to non- non-resident agents are not resident agents towards the having any Permanent services rendered by Establishment in India, them.*The assessee, therefore, the commission is however had failed to not taxable under any discharge the obligation. provision of Income Tax Act, Therefore, the hence, no TDS was deducted expendituretlaimed under from such commission the head Commission payment to nonresidents for export sales. expenses paid.to nori residents is disallowed and added back to income u/s
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 18 40(a)(i) of Income Tax Act
8.6 In this regard, the appellant company on the issue of payment of commission to non-residents, relies on following decisions of Jurisdictional High Court, Tribunals, other High Courts and Tribunals, where it is held that loans and advances to subsidiaries on account of commercial expediency and incidental to the assessee's main business activity, loss on account of irrecoverable loan given to subsidiary companies in the normal course of business is allowable as revenue loss: (i) GE India Technology Center (P). Ltd vs. CIT & Ors. (2010) 327 ITR 456 (SC) "A person paying interest or any other sum to a non-resident is liable to deduct tax under s. 195 only if such sum is chargeable to tax in India and not otherwise." 13. The ld.CIT(A) has gone through the submissions of the assessee, and held that it has submitted all necessary details exhibiting the fact that payment was made through banking channel. All foreign commission agents are identifiable. Copies of the invoices and the contract with commission agents, copies of form no.15CA and 15CB for payment in foreign currency, copies of shipping bills were produced. The ld.CIT(A) has further observed that TDS under section 195 was required to be deducted if element of income involved in those foreign commission. In other words, if the alleged foreign agents were liable to tax with India only then element of income would be involved, on such payments and tax would be required to be deducted. For harbouring this plea, the ld.CIT(A) made reference to the decision of Hon’ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd., 327 ITR 456. In this way, the ld.CIT(A) has deleted the disallowance in both the years.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 19 16. With the assistance of the ld.representatives, we have gone through the record carefully. A perusal of the assessment order would indicate that the ld.AO has disallowed the claim of commission expenses on two counts viz. (a) the assessee failed o submit basic details i.e. identity of the agents, copies of invoices and the contract agreement with the commission agents etc., (b) it failed to deduct TDS under section 195 of the Income Tax Act. As far as first fold of reasoning is concerned, a perusal of the assessee’s submissions which has been accepted by the ld.CIT(A) it is evident that this finding of the AO is factually incorrect. The submissions made in tabular form and extracted by us on page no.15 of this order would indicate that the assessee has demonstrated that all these details have specifically been filed. The assessee has filed certificate of the chartered accountant obtained in form No.15CA and 15CB with regard to foreign remittance. It has filed copies of contracts with the commission agent and contract with exporter. Thus, it has given all basic details demonstrating the fact as to how these agents have facilitated in making sales outside India.
As far as second fold of reasoning is concerned, TDS under section 195 was required to be deducted if the income in hands of the alleged agents was taxable within India. The ld.CIT(A) has examined the issue elaborately and recorded the finding that these agents have no permanent establishment in India. They are not operating from India and alleged commission income received by them is not taxable in India. Thus, according to the CIT(A) on the strength of Hon’ble Supreme Court decision in the case of GE India Technology Centre P.Ltd. (supra) if the remittances do not contain element of income, then TDS was not required to be deducted. This aspect has been examined
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 20 in host of decisions. Before us, the ld.counsel for the assessee put reliance upon the order of the ITAT in the case of DCIT Vs. Panchmahal Steel Ltd., ITA No.634/Ahd/2017. In this order, Tribunal has relied upon order of the Tribunal passed in the case of DCIT Vs. Welspun Corporation Ltd., 77 taxmann.com 165 (Ahd). Discussion made in the decision of Welspun Corporation Ltd. (supra) has been taken note of, which reads as under:
• The assessee-company was a global manufacturer of steel pipes, plates and coils, offering the highest quality of pipes. The manufacturing activities performed by the company were highly technical in nature. The manufacturing of specialised pipe was a highly technical activity involving a highly-technical complex exercise of technology and skilled labour and the finest grade of raw materials. To procure orders, the company required specialist agents who could understand the technical nitty-gritty of the assessee's business and could demonstrate the assessee's business profile and the quality of the products of the assessee to the potential clients to convince them to enter into a contract with the assessee for supply of the pipes etc. and other allied works. • In order to perform the aforesaid highly technical activity, the assessee entered into a contract with foreign agents. In terms of the agreement, the agent was to develop, expand and promote the sales and marketing for assessee's products, make market plans and establish a marketing network of representatives to help and promote assessee's products, to provide information such as market development, activities of competitors, intentions and plans of clients and financial information on clients, to provide advanced information about the tenders, gathering technical specifications of project and work incidental thereto, and to identify sub-contractors and logistic service provider, such as shippers and cargo handling agencies, to ensure the smooth execution of contracts. • During relevant year, the assessee made payment of export commission to commission agents without deducting tax at source. The assessee claimed that the export commission was not a service and if at all they are being construed as services, the same was being rendered outside India and was not taxable in India under section 5(2). Accordingly, the tax was not required to be withheld under section 195.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 21 • The Assessing Officer held that the responsibilities of agents showed that agents were required to render technical services, allow the use of information containing industrial, commercial and technical experience which was made available to the assessee, and that the consideration received for these services was nothing but fees for technical services. These payments according to the Assessing Officer were taxable under section 9(1)(vii). Therefore, the assessee was liable for tax deduction at source from these payments under section 195. • On appeal, the Commissioner(Appeals) held that the payments could not be held to be FTS and they were in the nature of commission earned from services rendered outside India which did not have tax implications in India.
The Tribunal made elaborate discussion on all possible angles in this judgment, and thereafter concluded as under:
“41. We are in considered agreement with the views so expressed by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold well reasoning findings of the learned CIT(A) that the commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT [20101 327 ITR 456/193 Taxman 234/7 tax.mann.com 18, payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non-resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the taxability of the commission agent's income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions.”
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 22 17. Therefore, considering the facts and circumstances of the present case, in the light of the above discussion, we are of the view that the ld.CIT(A) has examined issue with all possible angle in order to find out whether commission paid by the assessee is genuine or alleged commission has element of income taxable in India. After satisfying himself on both the counts, the ld.CIT(A) has allowed deduction of the above expenditure to the assessee in both these assessment years. On due consideration of the detailed finding, we do not find any merit in the grounds of appeal raised by the Revenue. Accordingly, ground no.2 is rejected in both the assessment years.
Ground No.1 in Revenue’s appeal for the Asstt.Year 2012-13 and 2013-14 is common. Grievance of the Revenue in this regard is that the ld.CIT(A) has erred in deleting the disallowance of Rs.19,33,215/- and Rs.11,74,258/- made by the AO out of deduction claimed under section 80IC of the Act.
With the assistance of the ld.representatives, we have gone through the record. As far as admissibility of deduction under section 80IC is concerned, that is not in dispute. Dispute relates to certain receipts, whether they qualify for grant of such deduction, the receipts which have been excluded by the AO in both the assessment years are as under: “Asstt.Year : 2012-13 Particulars Amount Nature of income
Interest on NSC 13,586/- Interest received from NSC. Which are kept by 80IC unit for the purpose of sales tax registration, therefore, interest on NSC is part of profit of 80IC Unit.
5,50,140/- Interest on Interest received on electricity deposit, which is kept Electricity Deposit by 80IC unit for the purpose of power connection of factory, therefore Interest on electricity deposit is part of profit of 80IC Unit
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 23 45,842/- Interest on Staff Interest received on staff loan, such loan is given to Loan 80IC unit staff for the purpose of keeping good HR relation with staff and! therefore, interest on staff loan is part of profit of 80IC Unit
Recovered from 32,2857- Recoveries from transporter arc on account of loss of Transporters material in transit i.e. in the nature of recovery of goods. Therefore, the same is part of profit of 80IC Unit.
Sundry Balance of 12,91,3627- Sundry balance w/off are mainly on account of Vendors written Kasar 7 discount in suppliers 7 purchase party back payments or payments received from customers. Therefore, the same is part profit of 80IC Unit.
19,33,215/- Total
Asstt.Year 2012-13
Particulars Amount Explanations Interest on Fixed Deposit 3834/-
16326/- Interest on NSC Unit has furnished NSC to Sales Tax Authorities is Deposit and Interest has accrued on those NSC. 706997/- Interest on Electricity Deposit Unit has given electricity deposit for supply of wwer and interest has accrued on such deposit. Interest on Staff Loan 79614/- A.S per Company's Policy staff are given various cans on which interest is recovered. Total : 806771/-
30576/- Penalties and Fines Recovered from Charges are recovered from mainly raw Transporters material transporters on account of some disciplinary issues, shortages, contamination, etc. 336911/- Sundry Balances of Vendors written Detailed list furnished giving nature of back supplies and age. Total : 367487/-
TOTAL: 1174258/-
Before adverting to the specific nature of amounts, we deem it appropriate to observe that the ld.CIT(A) has considered this aspect elaborately in the Asstt.Year 2012-13 and this order has been followed
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 24 in the Asstt.Year 2013-14. In the Asstt.Year 2013-14, the ld.CIT(A) has extracted the finding of the ld.CIT(A) in the Asstt.Year 2012-13. Therefore, for the facility of reference, we take note of the finding recorded by the CIT(A) in the Asstt.Year 2013-14 which contained the discussion made by the ld.CIT(A) in the Asstt.Year 2012-13 also. It reads as under:
“2.3. Decision:
I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed the claim of deduction u/s. 80IC of I. T. Act, 1961 in respect of the following income derived by the appellant in the year under consideration:-
(i) Interest on NSC - Rs. 16,326/- (ii) Interest on electricity deposit - Rs.7,06,997/- (iii) Interest on staff loan - Rs. 79,614/- (iv) Recovery from transporters - Rs. 30,576/- (v) Sundry balances of vendors written off Rs. 3,36,911/- (vi) Interest on fixed deposits - Rs. 3,834/- Total - Rs.11,74,258/- 2.4. It is here to be mentioned that the AO has not granted the deduction on the aforesaid amounts by saying that none of the above income can be held to be generated from the manufacturing activities of the undertaking, and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes for deduction under the provisions of section 80IC of the I. T. Act, 1961.
2.5. On the other side, the Appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 801C of the I. T. Act, 1961. The appellant further claimed that as per tire various decisions and judgements the income pertaining to the interest on electricity deposit, recovery from transporters and sundry balances of suppliers return back was held to be the income derived indirectly from the business / manufacturing activities of the appellant, and therefore, the same is eligible for the deduction u/s. 80IC of the I. T. Act, 1961.
2.6. It is seen from the facts of the case, that identical issue has been decided by this office in appellant's own case for A. Y. 2012-13 vide Appellate Order in Appeal No.ClT(A)-2/506/DC. Cir. 2(1)(1)/2014-15 dated 20/08/2015. The relevant findings given in the order are reproduced hereunder:-
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 25 2.3. Decision:
"I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed the claim of deduction u/s. 80IC of 1. T. Act, 1961 in respect of the following income derived by the appellant in the year under consideration:-
(i) Interest on NSC - Rs. 13,586/- (ii) Interest on electricity deposit - Rs.5,50,140/- (iii) Interest on staff loan - Rs. 45,842/~ (iv) Recovery from transporters - Rs. 32,285/- (v) Sundry balances of vendors written off - Rs. 12,91,362/- Total - Rs.19,33,215/-
2.4. It is here to be mentioned that the AO has not granted the deduction on the aforesaid amounts by saying that none of the above income can be held to be generated from the manufacturing activities of the undertaking, and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes -for deduction under the provisions of section 80IC of the I. T. Act, 1961.
2.5. On the other side, the appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 80IC of the I. T. Act, 1961. The appellant further claimed that as per the various decisions and judgements the income pertaining to the interest on electricity deposit, recovery from transporters and sundry balances of suppliers return back was held to be the income derived indirectly from the business / manufacturing activities of the appellant, and therefore, the same is eligible for the deduction u/s. 80IC of the I.T. Act, 1961.
2.6. Considering the facts and submission, it is found that the appellant had derived the interest income on NSC and interest on staff which cannot be said to be even indirect income from the business activities eligible for deduction u/s. 80IC of the I. T. Act, 1961. Making the investment in NSC and deriving the interest thereupon cannot be said to for the purpose of the business for want of necessary details and documents establishing the requirement of investment in the NSCs. There was no reason to make the investment in the NSC for the purpose of the eligible business and thus the interest derived there-from cannot form part of the eligible profits for deduction. Further, with regard to interest on staff loan also, which was one kind of income on the funds lent to the staff members. Thus, this income is neither directly or indirectly linked with the business activities of the appellant. Even the appellant has not provided any details and documents in support stating that the loans were given to the employees who were engaged in the eligible
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 26 business for which income was deductible u/s. 80IC of the I. T. Act. Thus, in view of the aforesaid discussion, the AOs action for not granting the deduction on the interest on NSC and interest on staff loan is confirmed and no deduction u/s. 80IC is granted upon the same.
2.7. Further, with regard to the claim of deduction on interest on electricity deposits, it was found that it was mandatory on the part of the appellant to make the deposits as per the rules of the Electricity Board and without making such deposit, the electric connection was not available and in absence of the same, the production was also impossible. Thus, this interest derived from such electricity deposit was indirectly connected with the eligible business profits, and therefore, the deduction u/s. 80IC is required to be granted relying upon the decisions / judgments of various Hon'ble Courts as under:-
CIT vs. Seshasavee Papers & Board Ltd. (19941 207 ITR 0080 (Mad-HC):
Conclusion: Interest earned by assessee a priority industry from deposits made with Electricity Board in order to ensure power supply, is attributable to priority industry, hence eligible for deduction under s. 80-1".
> CIT vs. Seshasavee Papers & Board Ltd. (2000) 243 ITR 0421 (Mad-HC):
Conclusion: Assessee was entitled to deduction under s. 80-1, in respect of the interest received on the deposits made by the assessee with the Electricity Board for the supply of electricity.".
> Pondicherrv Distilleries ltd vs. Income Tax Officer (1984) 8 ITD 0039 (Chen-Trib):
Held:
(i) The facts of the case support the contention of the assessee that it had to build up finance to meet the projects and expansion scheme likely to take place in future and it is towards this purpose that the profits are kept back without distribution and the amount available in respect of the same and also the reserves were invested temporarily in fixed deposits. Nonetheless the amounts held by it in fixed deposits constituted part of its capital employed in its undertaking of manufacture of liquor and, therefore, it follows that any income or profits generated by such funds employed in the undertaking of the assessee partake the character of profits and gains derived from such undertaking. (Para 3 & 4)
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 27 (ii) Thus even if the interest income derived by the assessee cannot be strictly referable to the business activity of manufacture of liquor and has not direct nexus thereto, it can still be regarded as profit or gain derived from the undertaking as a whole. It does not make any difference as to whether any such item of income is assessed under the head 'business' or under the head 'other sources'. Further every income, profit or gain to be derived from the undertaking need not necessary be directly rentable to the operation of manufacture and sale of the particular commodity or articles dealt in by the assessee. The assessee is therefore, entitled to claim deduction under s. 80HH on the amount of interest earned, by it on the fixed deposits."
2.8. Further, with regard to the recoveries from transporters, it is found that it was the recovery on account of loss of material in transit i.e. in the nature of recovery of goods. Thus, it is a direct income relating to the eligible business of the appellant for the reason that the shortage derived on account of loss of material was the trading loss /business loss and the recoveries made from the transporters against such loss is the reimbursement towards such losses. Thus, the recoveries being in the nature of business income are eligible for deduction u/s. 80IC of the I. T. Act.
2.9. Further, with regard to sundry balances written off in respect of the Kasar / Discount received from supplier / supplier parties is also having a direct connection with the purchases made by the appellant and to this extent the purchases would be reduced and accordingly the eligible profits would consequently be increased. Thus, it has the direct nexus with the eligible profits. In this regard, reliance is placed on the decision of Hon'ble Bangalore ITAT in the case of Wipro Information Technology Ltd. Vs. DCIT [2004] [88 TTJ 0778] which reads as under:-
> Wlpro Information Technology Ltd vs. Dv. CIT (2004) 88 TTJ 0778 f Bang-Trip):
"34.4. We find from the facts of the case that total details in respect of miscellaneous income were furnished before the AO as well as the CIT(A). The CIT(A) himself has noted this in his order, as reproduced earlier. There is no material with us to suggest that the assessee has no objection in treating these items as not forming part of profit derived from the industrial undertaking. On the contrary, the assessee has raised a specific ground and furnished before the CIT(A) as per its letter, dt. 6th Jan., 1998. We have, therefore, no hesitation in holding that the miscellaneous income which is in the » nature of trading receipt like discount received from suppliers for early payment and the amount written back in respect of sundry credit balances would form part of the profit derived from the industrial undertaking eligible for deduction under ss. 80HH and 80-1 of the Act. The AO is directed to include the sum of Rs. 11,41,949
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 28 being the miscellaneous income while computing the profit derived from industrial undertaking for the purpose of deduction under ss. 80HH and 80-1 of the Act."
2.10. In view of the aforesaid discussion, considering the submission and decision of authorities the appellant is eligible to get the deduction on the income derived from interest on electricity deposit, recoveries from transporters and sundry balances of vendors written back as the same are having nexus with the eligible business, and therefore, deduction u/s. 80IC is granted thereupon.
2.11. In result, the ground of appellant is partly allowed."
2.7. On going through the above, it has been noticed that the deduction of the income on account of interest on NSC and interest on staff loan amounting to Rs.16,326/- and Rs.79,614/- respectively is not allowed for the reasons discussed in the aforesaid appellate order as the same cannot be said to be direct/or indirect income from the business activities being derived out of manufacturing activities. Thus, the aforesaid two incomes are not eligible for deduction u/s. 80IC of the I. T. Act, 1961 and the disallowance of the deduction upon the same by the AO is confirmed. With regard to the interest on fixed deposit amounting to Rs.3,834/-, the same is also not found derived from the manufacturing activities and hence the appellant is not entitled for the deduction u/s. 80IC of the I. T. Act, 1961. Thus, the disallowance of deduction by the AO is confirmed.
2.8. With regard to the other incomes such as interest on electricity deposit, penalties and fines recovered from transporters and sundry balances of vendors written back, the appellant is eligible for deduction u/se 80IC of the I. T. Act, following the decision of the CIT(A) in the immediately preceding year and accordingly, the disallowance made by the AO on these incomes is deleted.”
The ld.counsel for the assessee at the very outset submitted that as far as amounts mentioned under the head interest on NSC and interest on staff loan is concerned they are not in dispute. The deduction claimed under section 80IC with regard to both these items have not been granted by the ld.CIT(A), and the assessee is not challenging the finding of the ld.CIT(A). The Revenue is challenging the grant of deduction with regard to income earned on interest on electricity deposits, recovery from transporters and sundry balance of vendors written off. He submitted that issue in dispute is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT Vs.
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 29 Meghalaya Steel Ltd., 383 ITR 217 (SC). He further relied upon the judgment of Hon’ble Madras High Court in the case of CIT Vs. Seshasayee Papers & Board Ltd., 243 ITR 0421 (Mad) which has been considered by the ld.CIT(A) in the finding extracted (supra). On the strength of these decisions, he submitted that the ld.CIT(A) has rightly granted deduction to the assessee. On the other hand, the stand of the Revenue is that the income under these heads was not earned by the assessee directly from the manufacturing process, and therefore, they deserves to be excluded.
We have duly considered rival submissions and gone through the record carefully. There is no dispute with regard to the proposition that deduction under section 80IC is admissible where the gross total income of an assessee includes any profit and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2) of section 80IC of the Act; sub-section (2) further contemplates that this section applies to an undertaking or enterprise which has begun or begins to manufacture or produce any article or things. There is no dispute that the assessee has begun to manufacture any article or thing. The question whether the alleged income sub-divided by the AO has nexus with the manufacturing activity or not. As far as interest income on fixed deposits made with electricity department is concerned, it has direct nexus with the manufacturing activity. Unless an electricity connection is there, no manufacturing activity would commence and for taking electricity connection, it is mandatory to give deposits. Similarly, the assessee had made recoveries from transporters on account of loss of material on transit. Therefore, it has a direct nexus with the manufacturing process. The goods manufactured or raw-materials purchased by it were lost in transit, which were compensated by the transporter. It has a direct nexus. Similarly, if the assessee get certain discount from the supplier, then it would reduce the purchase price of the material, which will enhance the profit, and therefore, deduction on
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 30 such higher profit will be admissible. The ld.CIT(A) has rightly appreciated this aspect and granted the deduction to the assessee. We do not find any error in the order of the ld.CIT(A), and therefore, this ground of appeal is rejected in both the years.
CO No.220/Ahd/2015 in ITA No.3233/Ahd/2015 (Asstt.Year 2012-13)
Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs.7,53,156/- which was disallowed by the AO with the aid of section 36(1)(va) of the Act.
Brief facts of the case are that on scrutiny of the accounts, it revealed to the AO that employees contribution towards PF and ESI was not deposited by the assessee within time period contemplated in those Acts. Therefore, he disallowed the claim of the assessee to the extent of Rs.7,53,156/-. On appeal, the ld.CIT(A) has confirmed this disallowance by following the judgment of CIT Vs. Gujarat State Road Transport Corporation Ltd., 366 ITR 170 (Guj. The ld.counsel for the assessee in principle did not dispute with regard to the proposition laid down by the Hon’ble Gujarat High Court in the case of Gujarat State Road Transport Corporation Ltd. (supra). He relied upon the order of the ITAT to contend that in the case of Suzlon Engergy Ltd. Vs. DCIT, ITA Nos.764 & 765/Ahd/2018 the due date for payment of PF and ESI is to be reckoned from the payment of salary and not from the month of salary.
On due consideration of the above facts, we do not find any merit in this contention of the ld.counsel for the assessee in view of the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat State Road Transport Corporation Ltd., (supra). In other words, if the assessee did not pay salary to its employees, then
ITA No.2490/Ahd/2014 and 3 Others DCIT Vs. Gujarat Ambuja Exports Ltd. 31 would it get an enhanced period of limitation for depositing the PF dues in the PF account ? If that be accepted, then there will be no relevancy of “due date” provided under the respective Acts. For this proposition we find support from the subsequent decision of Hon’ble jurisdictional High Court in the case of M/s.Checkmate Facility And Electronics Solutions P.Ltd. Vs.DCIT, dated 15.10.2018 in R/Tax Appeal No.1256 of 2018 on this similar issue. Therefore, we do not find any merit in this ground of CO. It is dismissed.
In the result, appeals of the Revenue and CO of the assessee; all are dismissed.
Order pronounced in the Court on 23rd August, 2019.
Sd/- Sd/- (PRADIPKUMAR KEDIA) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER