ACIT, NEW DELHI vs. M/S. D.R. EXPORTS INTERNATIONAL, DELHI

Brief facts of the case are that the assessee is engaged in the processing, trading and export of food products and processing of mustard oil cakes and trading in commodities. For the assessment year 2012-13, it has filed its return of income on 29/9/2012 declaring total income of Rs.1,15,22,200/-. During the scrutiny learned Assessing Officer noticed that the assessee did not deduct any TDS on thecommission paid to the foreign agents to the tune of Rs.56,05,298/-. Assessee explained that the foreign agents to whom the commission was paid are not located in India and the services were rendered outside India. Learned Assessing Officer, however, did not agree with the contention of the assessee and opined that the services provided by the non-resident foreign agent or being utilised in India and clearly taxable under section 9(1)(i) and 9(1)(vi) (b) of the Act and therefore the non-deduction of TDS is covered by section 195 of the Act and consequently brought to this amount of Rs.56,05,298/-to tax.

Learned Assessing Officer on a perusal of P&L Account further observed that the assessee claimed expense under the head rate difference to the tune of Rs.3,24,66,489/-. On this aspect,the case of assessee isthat they are engaged in trading and export of various kinds of agricultural produce such as CDSO, soya oil, rapeseed oil, pepper etc and undertakes a transactions based on a purchases/sale agreement through telephone or Internet and prices are finalised at that moment only followed by the documentation. Sometimes disputes arise between the contracting parties because of not execution of deal and the reason for non-execution would be due to the price variations by any of the two contracting parties, in consequence of which there would be a breach of contract for non-execution of the deal and dispute arise. Assessee explained that such disputes would be settled through mediator/contracting brokers of the architectural Association Office Bearers or by the mutually appointed acceptable persons, who become arbitrators and sometimes directly by the parties themselves.

According to the assessee, such a controversy arose in this case also and the assessee firm is bound to accept the award of the arbitrators and compensate the barrier for breach of contract and has to make the payments as it is also Arcade preceded that the person who breaches a contract has to make good the loss suffered by the buyer by paying the rate difference of agreed price and market price, and such loss cannot be said to be loss incurred on account of “agreement of contracts”.

Learned Assessing Officer made a distinction between the dispute settled and contract settled, and observing that there is no evidence/proof that there was a dispute between the parties, that either of the parties had approached a court of law/arbitrators and had settled a dispute by way of paying the damages/in accordance with such award and therefore, it has to be inferred that all the transactions of settlement entered into by the assessee were mutually settled without actual delivery of goods which falls under the ambit of speculative transactions under section 43(5) of the Act. According to the learned Assessing Officer it manifests that the burden of proof was on the assessee to show that there was a settlement of the dispute rather than settlement of contract and in the absence of any evidence there is no other alternative than to treat the sum of Rs.3,24,66,489 as a speculation loss and this loss is not available to the assessee to be set off against the business income for the year. On this premise, learned Assessing Officer disallowed the loss of Rs.3,24,66,489/-.

Aggrieved by the action of the learned Assessing Officer assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) by way of impugned order observed that the facts of this year are identical to the facts involved in the assessment year 2011-12 and while following the same he deleted the both the disallowances. Hence, felt aggrieved by such an order, the Revenue is before us in this appeal.

It is submitted on behalf of the Revenue that admittedly the assessee paid the commission to the non-resident foreign agents without deducting the TDS and therefore, the Assessing Officer is justified by making the disallowance of Rs.56,05,298/-under section 40(1)(i)of the Act read with section 195 and 9(1)(vi) (b) and section 5(2) (b) of the Act. Ld. DR further submitted that in respect of the rate settlement (contracts), as rightly observed by the learned Assessing Officer no evidence, whatsoever, is provided to show that the contracting parties had ever visited a dispute or that the dispute, if any, was referred to any court of law or to the arbitrators and all the transactions of settlement entered into by the assessee were mutually settled without actual delivery of goods which fall under the ambit of speculative transaction under section 43(5) of the Act. In the circumstances, Ld. DR submits that, in the absence of any evidence to the contrary, learned Assessing Officer is justified in treating the loss as a speculation loss which cannot be available for set off against the business income of the current year.

Per contra, it is the submission of the Ld. AR that both the issues are squarely covered by the order dated 7/1/2020 in for assessment year 2011-12 rendered by a coordinate Bench of this Tribunal; that by way of such order the Tribunal upheld the deletion of the disallowance of Rs.56,05,298/-made under section 40(1) (i)of the Act whereas for want of compliance with Rule 46-A of the Income Tax Rules, 1962 (“the Rules”) the Tribunal thought it fit to remand the matter to the file of the learned Assessing Officer for verification of the material that was not available before the Assessing Officer but was produced before the CIT (A) for the first time in appeal and to take a fresh view. He submits that since the facts are identical for both these years, a similar view may be taken for this year also. Ld. DR does not controvert the factual submissions made by the Ld. AR.

We have gone through the record in the light of the submissions made on either side. Insofar as the grounds No. 1 and 2 relating to the addition of Rs.3,24,66,489/-made by the Assessing Officer on account of disallowance of loss on rate settlement (contracts) are concerned, the grievance of the Revenue is that the Ld. CIT(A) is not justified in deleting the same by accepting the additional evidence without opportunity to the learned Assessing Officer which is in contravention of Rule 46-A of the Rules and in all fairness the Ld. CIT(A) should have given an opportunity to the learned Assessing Officer to verify and comment on the fresh evidence produced before Ld. CIT(A) for the first time in the appellate proceedings.

Ld. AR does not dispute the fact that under identical circumstances, a coordinate Bench of this Tribunal thought it fit to remand the matter to the file of the learned Assessing Officer in relation to the assessment years 2010-11 and 2011-12 in 2016 by order dated 20/3/2019 and ITA No.3757/Del/2016 by order dated 7/1/2020 respectively.

The paper book filed before us shows that the assessee produced certain documentary evidence in support of rate difference, brokerages etc and now it remains an admitted fact that such material was not available before the Assessing Officer when the assessment was made. The impugned order also does not reveal that, before placing reliance on such documentary evidence, the Ld. CIT(A) gave any opportunity to the learned Assessing Officer to verify the correctness of the documents and to comment upon them.

Following the view taken by the coordinate benches of this Tribunal for the assessment years 2010-11 and 2011-12 in assessee’s own case, under identical facts and circumstances, we find it a fit case to set aside the impugned order on this aspect and to remand the issue to the file of the learned Assessing Officer for verification of the documents produced by way of additional evidence before the Ld. CIT(A) and to take a fresh view. We accordingly set aside the issue to the file of the learned Assessing Officerfor verification of the documents produced by way of additional evidence before the Ld. CIT(A) and decide it afresh. Grounds No. 1 and 2 are accordingly allowed for statistical purpose.

In respect of ground No. 3, relating to the addition of Rs.56,05,298/-made by the Assessing Officer under section 40(1)(i) of the Act,it is not in dispute that the services of the foreign agents were rendered outside India for sales and the payment was also made outside India. Under similar circumstances for the assessment year 2011-12 a coordinate Bench of this Tribunal in observed that such payment of commission does not come under the purview of section 195 of the Act and therefore, the Ld. CIT(A) was justified in deleting the addition of Rs.56,05,298/-made under section 40 (1) (i)of the Act. Since facts are identical, we are of the considered opinion that a different view cannot be taken and while respectfully following the same we uphold the findings of the Ld. CIT(A) on this aspect. Ground No. 3 is accordingly dismissed.

In the result, appeal of the Revenue is allowed in part for statistical purpose. Order pronounced in the Open Court on 20th January, 2020.