SUMMIT (INDIA) WATER TREATMENT & SERVICES LTD.,,AHMEDABAD vs. THE PR. CIT-4, AHMEDABAD, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member ITA No. 1338/Ahd/2018 Assessment Year 2013-14

Summit India Water The Principal CIT, Treatment & Services Ltd. Circle-4, 305, Kalash-II, Near Jain Vs Ahmedabad Temple, Behind (Respondent) Navrangpura Post Office, Navrangpura, Ahmedabad-380009, Gujarat, India PAN: AAECS6689L (Appellant)

Assessee by: Shri Dhinal Shah, A.R. Revenue by: Shri O.P. Sharma, CIT-D.R. Date of hearing : 13-05-2019 Date of pronouncement : 27-05-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- The assessee has filed the appeal challenging the order u/s. 263 dated 31-03-2018 of the act passed by the Ld. Principal CIT. The grounds of the appeal of the assessee are as under:- “Ground No 1 - Initiation of revision proceedings under section 263 of the Act a. On the facts and circumstances of the case and in law, the learned CIT has erred in holding that the order passed by the learned Assessing Officer, Ahmedabad ('learned AO') is erroneous as well as prejudicial to the interests of revenue.

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b. The learned CIT has erred in not appreciating the fact that the learned AO has passed the assessment order under section 143(3) of the Act after application of mind and after considering the submissions filed by the Appellant and accordingly, the order passed by the learned AO is not erroneous and prejudicial to the interest of revenue. c. The learned CIT has based on irrelevant considerations, erred in concluding that assessment order is erroneous and prejudicial to the interest of revenue. d. The Learned CIT erred in initiating proceedings under section 263 of the Act and hence the impugned order is bad in law and void ab-initio. Ground No 2 - Disallowance of export freight of Rs. 2,03,66,683 paid to the Inter Ocean Shipping and Logistic Services Without prejudice to ground no 1 - a. On the facts and circumstances of the case and in law, the learned CIT erred in directing the Assessing Officer to disallow export freight paid to Inter Ocean Shipping and Logistic Services of Rs. 2,03,66,683 on account of non-deduction of tax at source. b. On the facts and circumstances of the case and in law, the learned CIT has erred in not considering the submission of the Appellant that tax was not required to be withheld in view of the CBDT circular 723 dated 19 September 1995. Ground No 3 - Direction in respect of invoking penal provisions under section 271BA of the Act Without prejudice to ground no 1 a. On the facts and circumstances of the case and in law, the learned CIT has erred in directing the learned Assessing officer to initiate the penalty proceedings under Section 271BA of the Act. b. On the facts and circumstances of the case and in law, the learned CIT has erred in stating that appellant has not complied with provisions of filing Form 3CEB electronically by ignoring the fact that it was the first year of filing the form electronically and the Appellant under bona fide belief has filed by form physically quite before the due date. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case.” 2. All the grounds of appeal are interconnected to the common issue of challenging the revision proceedings u/s. 263 of the, therefore, for the sake of convenience, the same are being adjudicated together.

3 The brief fact of the case is that the assessee has a filed return of income for assessment year 2013-14 on 30-11-2013 declaring total loss of Rs. 1,35,18,193/-. The assessee company has shown book profit u/s. 115JB of the act at Rs. nil. Thereafter, the assessing officer has completed assessment u/s. 143(3) of that on 22nd March, 2016 and accepted total loss of Rs. 1,35,18,193/- declared in the return of income filed by the assessee. Subsequently, the Principal Commissioner of Income Tax on verification of the record has noticed that assessee company has paid export freight

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amounting to Rs. 2,03,66,683/- to Inter Ocean Shipping and Logistics Company without deduction of any TDS on the said payment. It is also noticed that as per record no TDS return showing detail of deduction of any tax in respect of aforesaid payment has been filed by the assessee. Therefore, the Pr. CIT was of the view that since the assessee has failed to deduct TDS on freight payment at the rates specified, the entire amount was required to be disallowed u/s. 40(a)(ia) of the act. The Pr. CIT of Income Tax also noticed that during the year the assessee had made export sale of Rs. 13,66,87,344/- to M/s. Summit Research Lap, USA which was a related entity of the assessee company. In this regard, the Pr. CIT has seen from the record that in assessment year 2010-11 a reference was made to the TPO. He has further noticed that in assessment year 2013-14 also, there was export sale made by the assessee to its related party. On verification through ITD system, the Pr. CIT found that the assessee had not filed 3CEB Report in respect of the international transaction entered into by it during the Financial Year 2012-13 relating to assessment year 2013-14 electronically. The assessee had submitted form 3CEB electronically for assessment year 2014-15 but no such form 3CEB for the year under consideration was submitted electronically as prescribed in the IT Rules. Therefore, the Pr. CIT observed that failure to keep, maintain and report international transaction as prescribed in the I.T. Rule attracts penalty of amount equally to 2% of the value of international transaction which resulted into short levy of income tax to Rs. 22,90,358/-. In the light of the facts and circumstances, the Ld. Pr. CIT observed that while passing the order u/s. 143(3) of the act, the assessing officer has not taken into consideration the above cited discrepancies and failed to make proper inquiry in respect of above issues.

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Therefore, a notice u/s. 263 of the act dated 6th March, 2018 was issued to the assessee. The relevant part of the said notice is reproduced as under:- " Assessment order u/s.143(3) of the 1.7. Act 1961 dated 23.03.2016 for A.Y.2013-14, was passed in the case of the assessee company, by 170, Wd. 4(1)(2), Ahmedabad, accepting the returned Income without any changes. 2. On scrutiny it was seen that the assesseee company had paid export freight amounting to Rs.2,03,66,683/- to Intern Ocean Shipping and Logistic Services. On verification of the ledger of the said payment it was noticed that the assessee has not deducted by TDS on the said payment. Since the assessee had failed to deduct. TDS on freight payment at the rates specified, the entire amount was required to be disallowed u/s.40(a)(ia) of the Act, Failure to do so resulted in underassessment of income of Rs.2f03,66,683/~ with consequent short levy of tax of Rs, 66,07,9707- (1T+SC+EC). 3. The scrutiny of records revealed that assessee had export of Rs. 13,66,87,344/- to M/s. Summit Research Labs USA which was a related entity of the assessee company. It was seen from the assessment records that a reference to the TPO was made in respect of A.Y.2010-11, In A.Y.2013- 14, the export-sales had been made to the same related party. On verification through ITD system,' it was found that the assessee had not filed 3CEB report in respect of the international transactions entered into by it during the financial year 2012-13 relating to A.Y.2013-14. Further, the assessee had submitted Form 3CEB electronically for A.Y. 2014-15. Since, there was no change in the sales pattern or the related party to whom sales have been made and there have been previous instances of transfer pricing references, the assessee was required to be referred to the TPO for determination of ALP. Failure to keep and maintain and report international transactions attracts penalty of amount equal to 2% of the value of international transactions, thus resulting into short levy of income tax of Rs.22,90,385/- in the assessee's case. 4. In view of the above, I am of the view that the assessment order passed by the assessing officer on 23.03.2016 is erroneous is so far as it is prejudicial to the interest of revenue. I, therefore, propose to pass an order u/s.263 holding it to be so. Before I do so, I hereby give you an opportunity to state as to why the assessment order passed by the ITO, Wd.4(l)(2), Ahmedabad for A.Y.2013-14 u/s. 143(3) dated 23.03,2016 in the case of the assessee company should not be held to be erroneous in ss much as it is prejudicial to the interest of revenue and be set aside and modified to the extent mentioned in para 2 and 3 above. 5. You are hereby an opportunity of being heard in person along with documents and evidence justifying your submission. You may, If you- so desire, submit your contentions in writing or through an authorized 'representative also. The hearing for this purpose is fixed on 15.03.2018 at 11.30 a.m." In response to notice issued u/s. 263, the assessee has submitted its written submission. The relevant part of the submission is reproduced as under:- "3.1 Export freight of Rs.2f03,66,683/- paid to Inter ocean Shipping and Logistic Services: 3.1.1. During A.Y. 2013-14, Summit has paid export freight of Rs. 203 66 683/- to Inter Ocean Shipping and Logistic Services ('inter Ocean). This freight was paid by Summit to Inter ocean so as to be able to export goods outside India. 3.1.2 On the said payments to Inter Ocean, Summit did not deduct IDS under section 194C of 195 of the Act Considering this, your goodself has proposed to disallow the entire amount of Rs.2.03 crores under section 40(a)(ia) of the Act 3.1.3 In this regard, we wish to submit that inter Ocean is an Indian agent acting on behalf of non-resident shipping company. The shipping company generally appoint an agent to act on their behalf for collecting freight, demurrage and other charges and reimburse the same to the shipping company.

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3.1.4 The provisions of section 194C or 195 of the Act are not applicable in case of a company covered under section 172 as the section starts with non-obstante clause. The relevant portion of the section is reproduced as under: "172.(1). The provisions of this section shall, not withstanding anything contained- in the other provisions of this Act, apply for the purpose of the levy of the recovery of tax in the case of any ship, "belonging to or chartered by a non- resident, which comes passengers, livestock, mail or goods shipped at a port in India". 3.1.5 Further, the CBDT circular Wo.723 doted 19 September 1995 also clarifies that where payment Is made to the shipping agents of non-resident ship owner or charter, the agent steps into the, shoes of principal i.e. shipping company, Accordingly, provisions of section 172 shall apply and section 194C or 195 shall not be applicable, Relevant extract of the circular Is reproduced below for your ready reference; "3. The provisions of section 172 are to apply, notwithstanding anything contained in other provisions of the Act, Therefore, ion such cases, the provisions of section 194C and 195 relating to tax deduction at source ore not applicable. The recovery of tax is to be regulated, for a voyage undertaken from any port in India by a ship under the provisions of section 172". 4...... 5. There would, however, be cases where payments are made to shipping agents of non- resident ship owners or charterers for carriage of passengers etc., shipped at a port in indies. Since, the agent acts on behalf of the non-resident ship owner or charterer, he steps into the shoes of the principal. Accordingly, provisions of section 172 shall apply and those of sections 194C and. 195 will not apply", "3.2. Non filing of Form 3CEBfor the A.Y, 2013-14 3.2.1 In this regard, we wish to submit that assessee has duly filed form 3C£B on 30th September, 2013 to the jurisdictional AO which Is before due of date of filing".

The ld. Pr. CIT has not accepted the submission of the assessee in view of the following reasons reproduced as under:- 5. I have considered the matter and the submissions of the Ld. A.P.. for the assessee carefully but the same are riot acceptable in view of the following reasons;-(i) The assessee has argued that the notice u/s 263 of the Act, is bad in law. The assessee has cited several judicial pronouncements to buttress its claim. The case laws cited by the assessee have been carefully perused but are not found applicable in the instant case as in the instant case, there are no assumption of facts where two views are possible based on any such assumption, but the issues here are something very apparent from records where only a single view can be formed. Moreover, there was failure on the part of the A.O, as much as not to make the enquiry and verification in respect of the above issues. Therefore, the said case laws are not applicable in the case of the assessee. Reliance in this regard is placed on the recent judgment of Daniel Merchants Pvt Ltd vs ITO delivered by the High Court of Calcutta [ GA No. 599 of 2016 ] wherein the petition of the assessee challenging the jurisdiction of the Pr.CIT to issue notice u/s 263 was challenged had been dismissed citing the following- The assessee seeks to raise certain points of law in this appeal which were subject matters before this Court in four appeals already decided and in all the four appeals it was found that the questions raised were not substantial questions of law. These decisions are Rajmaridir Estates Private Limited Vs. Principal Commissioner of Income Tax, Kolkaia-III reported in (2016) 386 ITR 162 (Kol), M/s. Pragati Finance Management Private Limited Vs. CIT-II in ITAT No. 178 of 2016 which was decided on 7th March, 201 7, Success Tours and Travels Private Limited & Anr. Vs. Income Tax Oijicer, Ward- 9(4) Kolkata & Ors. in ITAT No. 17 8 of 2015 which was decided on 23rd

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March, 2017 and M/s. AIM Fincon Pvt. Ltd. V.s. Commissioner of Income-tax, Kolkata- III in ITAT No. 137 of 2016 which is decided today itself. The instant appeal and stay application shall accordingly stand dismissed." The assessee filed a SCA before the Supreme Court on the Issue which had been dismissed by the Supreme Court vide Special Leave to Appeal (C) No(s). 23976/2017, dismissed the appeal of the assessee. (ii) It is perused that the assessee has taken the view that since he has made payment to the agent of the nonresident ship owner, as per CBDT Circular 723 dtd. 19.09.1995, he steps into the shoes of the principal and accordingly provisions of Section 172 would apply and provisions of Section 194C or 195 would not apply. Section 172 is related to levy and recovery of the tax, ship-wise, and journey wise, and requires the filing of the return within a maximum time of thirty days from the date of departure of the ship. But the assessee has not produced any document to prove that such returns have been filed by or on behalf of the agent 'Inter Ocean Shipping and Logistics Ltd by which the applicability of Section 172 and non applicability of Section 194C or Section 195 could be ascertained. The assessee has only submitted the copses of invoices which can lead to the conclusion that the payment has been made to the said party, but it does not prove that the agent has been covered under the provisions of Section 172 of IT Act. Thus, the contention of the assessee that as the agent Is covered u/s 172 of IT Act and that provisions of| Section 195/194C would not be applicable in the case of the assessee is not acceptable. The AO is therefore, directed to take further necessary action in this regard. The A.O. has not enquired about the applicability of the TDS provisions or-Circular No, 723 of CBDT, which is claimed to have been in application on the facts of assessee. (iii) The assessee has not complied with the provisions of filing Form 3CEB electronically. The assessee contention that the same had been filed physically cannot be accepted as the said form is Null and Void and without any merits. In respect of filing of Form 3CEB, the assessee was required to file .it-electronically and filing the same before the Assessing officer manually implies that the Form 3CEB is non-est in respect of the assessee and therefore, warrants invoking of penal provisions of .Section 271BA of the IT Act. Further, as per Section 92E every person who had entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed. From the language of sec. 92E it is clear that the assessee has to obtain report in respect of international transaction from an accountant and the same is to be filed before the AO before the due date for filing of the return. Under Rule 10E the report from the accountant is required to be furnished u/s 92E by every person who has entered into international transaction during the previous year shall be in form No. 3CEB and verified in the manner indicated therein. From the language of sec, 92E it is clear that the report in Form 3CEB is to be filed by the specified date i.e. due date for filing the return. The report in form 3CEB from an accountant is not a report of audit. It is a report in respect of international transaction certifying the claim of the assessee. Therefore, the assessee was required to submit the FORM 3CEB as per Rule 10E before-the specified date i.e. the due date for filing of the return (e-filing mandatory). Since the assessee has not filed a report in Form 3CEB before the due date of filing of the return electronically, it escaped itself from the ambit of getting covered by the scope of determining of ALP by the department and penalty u/s 271BA is leviable in this cases. (iv) Moreover, it is apparent that the appellant had export sales of Rs.13,66,87,844/- to M/s. Summit Research Lab (USA) i.e. related party and hence, the reference to TPO could have been made by the A.O, in view of the provisions of section 92CA read with 92C of the I.T. Act, to ascertain the arms length price. But the A.O, has failed to do in observing the above said provisions of law. 6. I, therefore, hold that the assessment order dated 23,03.2016 passed by the A.O, u/s,143 (3) of the Act in the case of the assessee is erroneous in as much as it is prejudicial in the interest of the revenue by reason of failure by the A.O. to make proper inquiry/verification regarding the

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applicability of TDS provisions on the freight payments and levy of penalty u/s. 271BA of the I.T. Act and also reference to TPO u/s. 92C, Thus, the A.O. has failed in application of law upon the facts on record and did not apply his mind also. I, therefore, set aside the assessment order u/s.143 (3) of the Act, dated 23.03.2016 in the case of the assessee for the A.Y. 2013-14 and, direct the A.O. to make a fresh assessment after making proper enquiries and verification about the issues noted above including reference to TPO, penalty proceedings u/s. 271BA of the I.T. Act and applicability of circular No, 723, Section 172, 194C or 195 of the I.T. Act etc. 7. The Assessing Officer shall pass fresh assessment order after providing opportunity of being heard to the assessee in view of the directions given in this order.” 4. During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing detailed submission filed before the Ld. Pr. CIT along with annexures and copy of 3CEB for assessment year 2013- 14. The ld. counsel has also placed reliance on a number of judicial pronouncements placed in the paper book. The ld. counsel contended that during the course of assessment proceedings, the assessing officer has asked the assessee to furnished copies of ledger account and bills of parties along with details of TDS payments including the detail in respect of export freight amounting to Rs. 2,03,66,683/-. It was further submitted that assessee has submitted copies of ledger account of export freight referred at page no. 12 to 13 of the paper book and copies of sample invoices at page 14 to 178 of the paper book during the course of assessment year. In view of this, the ld. counsel has submitted that the necessary document and information were available on record with the assessing officer and after verification of these documents, the assessing officer has allowed the claim of deduction of expenses in respect of freight amount. Further, the ld. counsel has also referred that as per circular no. 723 issued by the CBDT dated 19-09-1995, the assessee was not required to deduct TDS in respect of aforesaid impugned export payment as this circular clarifies that where payment is made to the shipping agents of on-resident ship-owner or character, the provisions of section 172 shall apply and section 194 or 195 shall not be

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applicable. It is also contended that it is demonstrated from the above referred material furnished before the assessing officer that the assessee has made payment to the Indian agents of the shipping company for which no TDS is required to be deducted. In respect of filing of 3CEB repot, the ld. counsel submitted that assessee has filed form 3CEB report manually therefore it cannot be said that assessee has not furnished a report as required u/s. 192E of the act. Considering this, penalty u/s. 271BA of the act cannot be levied. The ld. counsel has also referred CBDT Circular No. 3/2016 dated 10th March, 2016 in respect of type of cases to be referred to the TPO. The ld. counsel has contended that since form 3CEB manually filed was on record, therefore, it cannot be construed that assessing officer has not applied his mind and no reference was made to the TPO.

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22nd March, 2016 accepted the total loss as shown in return of income filed by the assessee. We have gone through the assessment order passed u/s. 143(3) of the act in which the assessing officer has concisely concluded that on the basis of information and detail obtained from the assessee from time to time during the course of assessment proceedings the total loss of Rs. 1,35,18,193/- declared by the assessee in the return of income filed has been accepted. No other issue has been particularly elaborated in the order passed u/s. 143(3) on 22nd March, 2016. Therefore, we have gone through material on record placed in the paper book which was furnished before the assessing officer during the course of assessment year. Regarding issue of non- deduction of TDS in respect of export fright amounting to Rs. 2,03,66,683/- made to Inter Ocean Shipping and Logistics Services, it is discerned from the detail that as per page no. 11 of the paper book, the assessee has called copies of ledger account of parties along with detail of TDS payment in respect of payment of export freight of Rs. 2,03,66,683/-. The assessee has furnished the ledger account of export payment along with copies of sample invoices as per the detail placed in paper book page no. 12 and 13 and page no. 14 to 178. Further, it is noticed that Indian Ocean Shipping and Logistics Services was an India agent acting on behalf of non-resident shipping company for collecting freight demurrage and other charges and reimburse the same to the shipping company. Further, the CBDT Circular No. 723 dated 19th Sep, 1995 also clarifies that where payment is made to the shipping agents of non-resident, ship owner or charter, the agent steps into the shoe of the Principal i.e. shipping company. Accordingly, provision of section 172 shall apply and section 194C or 195 shall not be applicable. On identical issue and facts, the ITAT (Chennai) in the case of T.

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Mathimaran Vs. CIT (2015) 60 taxman.com 271 dated 23rd Sep, 2014 held that as per Circular issued by the CBDT No. 723 dated 19th Sep, 1995 where the provision section 172 apply provisions of section 194C and 195 relating to tax deduction at source are not applicable. Similarly, the ITAT Ahmedabad in the case of Steelco Gujarat Ltd. vs. ACIT (2018) 92 taxman.com 27 (Ahmedabad Bench) dated 20th Jan, 2017 after giving reference to circular no. 723 held that where provision of section 172 applies and provisions of section 194C or 195 are not applicable. Similarly, the ITAT Chandigarh in the case of ITO vs. Bhogal Export (2013) 40 taxman.com 82 (Chandigarh Trib) dated 23rd August, 2013 after referring Circular No. 723 dated 19-09-1995 has held that provisions of section 194C were not applicable if goods were dispatched through non-resident shipping companies or through freight resident agents. Similarly, ITAT Mumbai in the case of Kuloday Tech Nopack Pvt. Ltd. vs. ITO (2017) 86 taxmnan.com 74 (Mumbai-Trib) dated 29th Sep, 2017 after referring the CBDT circular No. 723 dated 19-09-1995 has held that the ocean freight, demurrage charge etc. paid to Indian agents or authorized representative of non-resident shipping companies are not covered for deduction of tax at source under provisions of section 194C or 195 of the act.

6.1 In the light of the above facts and circumstances, we observe that ld. Pr. CIT has failed to consider that during the course of assessment proceedings the assessee has furnished the relevant material in respect of export freight payment and the ld. Pr. CIT has also not controverted the these undisputed facts and findings brought to his notice by the assessee during the course of proceedings u/s. 263 of the act. Considering above

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material facts of the case, we observe that the Pr. CIT has failed to justify how the order passed u/s. 143(3) of the act in respect of non-deduction of tax on payment of export freight amounting to Rs. 2,03,66,683/- was erroneous and prejudicial to the interest of revenue. Therefore, we are not inclined with the decision of Pr. CIT on the issue of non-deduction of TDS on freight payment as the Ld. Pr. CIT has failed to substantiate that order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. Therefore, the decision of Ld. Pr. CIT to revise the order u/s. 263 on the issue of export freight payment is not justified. This part of ground of appeal of the assessee is allowed.

6.2 In respect of other part of ground of appeal of the assesse pertaining to non-submission of form 3CEB, it is noticed that ld. Pr. CIT has held that the order passed u/s. 143(3) of the act by the assessing officer was erroneous and prejudicial to the interest of the revenue because the aforesaid report was not filed on electronic mode by the assessee. As a result the case of the assessee could not be referred to the transfer pricing officer to examine the international transaction carried out by the assessee with its related parties. In this regard, the ld. counsel has submitted that it has filed form 3CEB manually on 30th Sep, 2013. Therefore, it cannot be said that assessee has not furnished a report u/s. 92E of the act. In this connection, we have gone through provision of the act and income tax rule and it is noticed that it has been prescribed in the IT rule, 1962. Rule 12(2) that it is mandatory that the assessee shall furnish 3CEB report electronically w.e.f. 01-04-2013. In view of the above facts and circumstances and provisions of law, we consider that the assessee has not filed the aforesaid report electronically and as result the

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case of the assessee could not be referred to the transfer pricing officer by the assessing officer. We consider that this issue was not examined by the assessing officer as the assessee has also not brought on record that why the aforesaid report in 3CEB was not filed electronically. To this extent, we find that ld. Pr. CIT was justified in invoking the provision of section 263 of the act holding that the order passed by the assessing officer as erroneous and prejudicial to the interest of revenue to the extent of non-filing of form 3CEB report. The assesse may submit corresponding reasons for not filing the form 3CEB electronically before ld. CIT(A) at the time of appellate proceedings. In the light of the above facts and circumstances, we do not find any anomalies in the decision of the ld. CIT(A) for revision under section 263 of the act to the extent of default in filing form 3CEB report in electronic mode as prescribed in the I.T. Rule 1962.

Order pronounced in the open court on 27-05-2019

Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 27/05/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

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By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद