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Income Tax Appellate Tribunal, ‘’D’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’D’’ BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1000/AHD/2015 �नधा�रण वष�/Asstt. Year: 2010-2011 Asence Pharma Pvt. Ltd., Income Tax Officer, Sarabhai Campus, Ward-1(1), Vs. Dr. Vikram Sarabhai Marg, Baroda. Wadi, Baroda-390 023. PAN: AAFCA3471M
(Applicant) (Respondent) : Assessee by Shri Vartik R. Chokshi, C.A : Revenue by Smt Vibha Bhalla, CIT, D.R सुनवाई क� तार�ख/Date of Hearing : 21/01/2019 घोषणा क� तार�ख /Date of Pronouncement: 18/02/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Principal Commissioner of Income Tax, Vadodara, [Ld.CIT in short], dated 27/03/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 30/04/2012 relevant to Assessment Year (AY) 2010-11.
The assessee has raised the following grounds of appeal.
In law and in the facts and circumstances of the case, the notice issued u/s 263 is void and without jurisdiction.
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In law and in the facts and circumstances of the case the CIT- I has erred in holding that the assessment order passed by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue u/s 263 of the Act.
In law and in the facts and circumstances of the appellant's case, the learned CIT Vadodara - 1, has erred in passing order u/s. 263 and thereby setting aside the order of the AO u/s. 143(3) and directing the AC) to pass an order afresh merely on the ground that the assessment completed by the AO was without having regard to the correct position of Law in respect of commission paid to Non-residents. In doing so the CIT-I has erred in holding that the commission payable by the appellant to the Non -Residents was subject to withholding tax u/s 195 of the Act. 4. In law and in the facts and circumstances of the appellant's case, the Ld. CIT has erred in setting aside the assessment order u/s. 143(3) by initiating and completing the proceedings u/s. 263 solely on the basis of audit objections.
The Ld. CIT has grossly erred in law and on facts in setting aside the order of the AO passed u/s. 143(3) and directing him to pass the order afresh merely because the view taken by the AO was different from that of the Ld. CIT. Further the Ld. CIT has erred in not considering several authorities which have consistently held that commission payable to Non - residents was not taxable in India in absence of any Permanent Establishment/ Business connection in India and accordingly the question of withholding tax u/s 195 does not arise. 6. Without prejudice to the above the Ld. CIT has erred in ignoring the vital fact that the Assessing Officer has not made any additions u/s 40(a)(i) of the Act by disallowing commission on export sales paid to non-residents during the subsequent assessment years i.e. A. Y. 2011-12 & 2012-13 thereby.
The Ld. CIT has erred in law and on facts in holding that the Assessing Officer has not made any verification in respect of issues pertaining to expenses debited in respect of product registration fees, provision for prior period expenses and incorrect computation of 8. The appellant craves leave 10 add. alter, amend and/or withdraw any ground or grounds of appeal either before or at the time of hearing of the appeal.
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The solitary issue raised by the assessee is that Ld. CIT erred in holding the order of the AO u/s 143(3) of the Act as erroneous in so far prejudicial to the interest of the Revenue u/s 263 of the Act.
At the thresh hold, it was noticed that the order of the AO was proposed to be held as erroneous in so far prejudicial to the interest of the Revenue on account of the reasons detailed as under:
Out of the total commission of Rs.46,72,681/- a sum of Rs.42,17,628/- was paid to the commission agents based in foreign countries. The amount of commission was paid to these agents without deducting the TDS u/s 195 r.w.s 40(a)(i) of the Act. The fact of commission paid to foreign parties without deducting the TDS was not verified by the AO in the light of Circular No.7 dated 22/10/2009 issued by the CBDT.
There were production registration fees of Rs.72,02,617/- which is capital in nature. Thus the same was not allowable as deduction. Therefore the same being a capital expenditure needs to be disallowed.
The assessee has claimed prior period expenses of Rs. 2,07,900/- in its Financial Statements but the same was allowed as a deduction by the AO without proper verification/examination.
The AO while computing the tax under the provision of 115JB of the Act levied a short tax amounting to Rs. 13,066/- only.
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The Ld.AR, at the outset, submitted that he had been instructed not to press grounds of appeal relating to the issues mentioned at serial no. 2 to 4 as discussed above. Therefore, we dismissed the same as not pressed.
Thus the issue remains to be adjudicated whether the order of the AO is erroneous in so far prejudicial to the interest of the Revenue on account of non- deduction of TDS u/s 195 r.w.s 40(a)(i) of the Act. Accordingly the Ld.CIT proposed to hold the order of the AO as erroneous in so far prejudicial to the interest of Revenue by issuing a notice u/s 263 of the Act dated 02/12/2014.
The assessee in compliance to it submitted that the commission agents were appointed only to procure the export orders from outside India. The assessee accordingly claimed that these commission agents had provided services outside India and therefore the same is not chargeable to tax in India. Accordingly, there can be no question of deducting TDS in respect of the income not chargeable to tax in India.
7.1 Similarly the Circular nos.786 dated 07/02/2000 and 23 dated 23/07/1969, the CBDT has withdrawn vide its Circular no.7 dated 22/10/2009, but there is no change in sections 5, 9 and 195 of the Act. Thus, there is no change in the legal provision as provided in the Circular no.786 and 23 issued by the CBDT.
7.2 The assessee further submitted that the same amount of commission was also claimed in subsequent assessment years which was allowed by the AO after due verification.
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7.3 All the necessary details regarding the payment of commission expenses to the foreign parties were available with the AO during the assessment proceedings. Therefore the AO did not make any disallowance of the expenses. As such the AO has taken one of the possible views while framing the assessment us 143(3) of the Act. Thus the order of the AO cannot be held as erroneous in so far prejudicial to the interest of Revenue.
However, the Ld.CIT dis-regarded the contention of the assessee by observing that no reliance can be placed on the Circular no. 23 and 786 because the CBDT withdrew these circulars vide Circular no.7 dated 22/10/2009.
8.1 There was no verification/examination carried out by the AO during the assessment proceedings. Therefore, the order passed by the AO is erroneous in so far prejudicial to the interest of Revenue.
Being aggrieved by the order of Ld.CIT assessee is in appeal before us.
The Ld.AR, before us, filed a paper book running from pages 1 to 203 and submitted that in the subsequent assessment years the amount of commission was allowed by the AO in the assessment framed u/s 143(3) of the Act.
10.1 The Ld.AR, in support of his claim, drew our attention on pages 44 to 47 and 156 to 162 where the copies of the assessment orders were placed pertaining to the AYs 2011-12 and 2012-13 respectively.
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10.2 The commission paid to the foreign parties were not chargeable to tax in India. Therefore there was no question of deducting the TDS u/s 195 of the Act. The AO framed these assessment orders after due application of mind.
On the other hand the Ld. DR, submitted that it is not clear whether the commission was paid to the same parties in the subsequent years.
11.1 There was no inquiry conducted by the AO, and it is settled law that the non-verification of certain facts will render the order of the AO as erroneous.
11.2 The Ld. DR, vehemently supported the order of ld. CIT.
We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the order passed by the Ld.CIT under section 263 of the Act, holding that the order of the AO as erroneous insofar prejudicial to the interest of the Revenue on account of non- verification of the commission expenses paid to the foreign parties without the deduction of TDS under section 195 of the Act.
12.1 The Ld AR submitted that the assessee claimed the similar expenses in the assessment year 2011-12 and 2012-13, but the AO made no disallowance in the assessment framed under section 143(3) of the Act. However, we note that the assessment order for AYs 2011-12 and 2012-13 were passed by the AO before the completion of the proceedings under section 263 of the Act. The relevant dates on which the orders were passed are stated below: Section assessment year Date 143(3) 2010-11 30-04-2012 143(3) 2011-12 12-03-2014
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143(3) 2012-13 03-03-2015 263 2010-11 27-03-2015
Thus from the above, it is clear that the order passed by the Ld. CIT under section 263 of the Act was not available to the AO while framing the assessment under section 143(3) of the Act pertaining to the assessment year 2011-12 and 2012-13. Accordingly, we are not convinced with the submission of the ld. AR that the Revenue has accepted the same commission expenses in the subsequent assessment years.
12.2 Similarly there is no force in the argument of the Ld. Counsel for the assessee that the notice under section 263 of the Act was issued before the completion of the assessment under section 143(3) of the Act pertaining to the assessment 2011-12 and 2012-13. It is because the AO was not aware of the proceedings under section 263 of the Act while framing the assessment under section 143(3) of the Act. Therefore, we are not convinced with the argument of the learned counsel for the assessee.
12.3 Regarding the contention of the Ld. Counsel for the assessee that there was not initiated any proceedings under section 263/ 147 of the Act in respect of the assessments framed under section 143(3) of the Act pertaining to the assessment year 2011-12 and 2012-13, we find force in his argument. It is because the Revenue has admitted the claim of the assessee for the commission expenses to the foreign parties without deducting the TDS under section 195 of the Act in the assessment years 2011-12 and 2012-13 which has reached to the finality. Accordingly, we are of the view that the Ld. CIT under section 263 of the Act was under the obligation to initiate the proceedings under section 263 of the Act, for the assessment years as
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discussed above. Thus in our considered view after considering the facts & circumstances of the case, the order of the AO cannot be held as erroneous insofar prejudicial to the interest of Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Delhi High Court in the case of CIT Vs. Escorts Ltd reported in 338 ITR 435 wherein it was held as under:
“It was sought to be argued by the department that the principle of res judicata would not apply to the income-tax proceedings and that by its very nature every assessment year provided a fresh cause of action to the department. Broadly this proposition is correct, though with a caveat. The Courts in the recent past have increasingly veered to the view that where a fundamental aspect of a transaction is found as having permeated through different assessment years and, this fundamental aspect has stood uncontested, then the revenue cannot be allowed to change its view taken in the earlier assessment years, unless it is able to demonstrate a change in the circumstances in the subsequent assessment year. The department, in the instant case, had not been able to show any such changed circumstances which could have persuaded one to sustain the approach of the Commissioner”
12.4 The principles laid down by the Hon’ble Delhi High Court in the case as discussed above are directly applicable to the facts of the instant case. Therefore, respectfully following the same, we are of the view that there is no error insofar prejudicial to the interest of Revenue in the order of the AO in the given facts and circumstances. The Ld. DR has also not brought anything on record suggesting that there were proceedings initiated under section 263/ 147 of the Act in respect of the assessment years 2011-12 and 2012-13.
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12.5 Thus we hold that the order passed by the Ld. CIT under section 263 of the Act is not sustainable, and accordingly, we quash the same. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 18/02/2019 at Ahmedabad.
-Sd- -Sd- ( RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 18/02/2019 manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad