ACIT, NEW DELHI vs. M/S. GRAZIANO TRANSMISSION INDIA PVT. LTD.,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘E’, NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

ITA No. 2575/Del/2016 Assessment Year: 2010-11

ACIT, CIRCLE 10(2), Vs. M/S GRAZIANO TRASMISSION NEW DELHI INDIA PVT. LTD., INDUSTRAIL SHED NO. D-8 (BASEMENT), DSIDC PACKAGING COMPLEX, KIRTI NAGAR, NEW DELHI – 110 015 (PAN: AAACG4258M) (Appellant) (Respondent)

Department by Ms. Rinku Singh, Sr. DR Assessee by None

ORDER PER H.S. SIDHU, JM

This appeal is filed by the Revenue against the Order dated

4.2.2016 passed by the Ld. CIT(A)-16, New Delhi relating to assessment

year 2010-11 on the following grounds:-

i. Whether on the facts and circumstances of the case

and in law, the Ld. CIT(A) is correct in reducing the

disallowance of Rs. 11,87,056/- made on account of

provision of LTA (Leave Travel Allowance) ignoring

the fact that the assessee is following the mercantile

system of accounting and provisions is not an

allowable expenditure.

ii. Whether on the facts and circumstances of the case

and in law, the Ld. CIT(A) is correct in deleting the

disallowance of Rs. 88,91,816/- made on account of

non-deduction of TDS on the payment made to M/s

Graziano Transmission North America, USA holding

the same as commission ignoring the fact that the

payment is actually in the nature of fee for technical

services and the assessee only named the same as

commission to enjoy the tax benefit.

iii. The appellant craves leave for reserving the right to

amend, modify, add or forego any ground(s) of

appeal at any time before or during the hearing of

appeal.

return of income on 30.9.2010 declaring total income of Rs.

19,97,49,488/-. The case of the assessee was selected for scrutiny and

notice under section 143(2) of the Income Tax Act, 1961 (in short “Act”)

was issued on 09.4.2012. Again notice u/s. 143(2) of the Act alongwith

questionnaire under section 142(1) of the Act was issued on 2.9.2013. In

response to the same, the assessee’s A.R. appeared and filed the

requisite details. Thereafter, the AO observed that assessee has debited

Rs. 11,87,056/- towards provision for LTA expenses in the P&L account 2

and therefore, the assessee company was asked to file the details of

these expenses. In compliance of the same, assessee company filed it’s

reply on 28.2.2014. After considering the reply of the assessee, AO

observed that assessee company is claiming these expenses as a

provisions and actual expenses in this regard has not been incurred as

evident from the submission of the assessee itself. He further observed

that as hypothetic expenses are not allowable as per section 37 of the

I.T. Act and also in the instant case of the assessee no expenses for LTA

has been actually incurred. Therefore, Rs. 11,87,056/- was disallowed

u/s. 37 of the Act and added back to the income of the assessee

company. Further, AO observed that the assessee company had paid an

amount of Rs. 88,91,816/- to M/s Graziano Trasmissioni North America

USA and the assessee was asked to explain as to why the payment made

to M/s Graziano Trasmissioni North America USA be not treated as royalty

/ fees for technical services in light of the services offered by the said

company. The assessee company was further asked to explain as to why

no TDS was deducted on the payment made to the said company. In

compliance thereto the assessee company did not file any reply.

Therefore, as per the provisions of the Act and in accordance with judicial

pronouncement on the issue in dispute, the AO observed that assessee

was liable to deduct TDS on export commission of Rs. 89,91,816 paid to

non-resident / outsiders. Since assessee did not deduct the TDS as per

provision of the section 195 of the Act, therefore, total deduction of

expenditure of Rs. 88,91,816/- on export commission, as claimed by

assessee, was disallowed and added back to the taxable income of the

assessee for the AY 2010-11. Accordingly, the AO assessed the income

of the assessee at Rs. 22,10,20,170/- u/s.143(3) of the Act dated

28.2.2014. Against the assessment order, assessee appealed before the

Ld. CIT(A), who vide his impugned order dated 04.2.2016 has allowed

the appeal of the assessee. Aggrieved with the impugned order, Revenue

is in appeal before the Tribunal.

Registered AD post, in spite of the same, assessee, nor its

authorized representative appeared to prosecute the matter in

dispute, nor filed any application for adjournment. Keeping in view

the facts and circumstances of the present case and the issue

involved in the present Appeal, we are of the view that no useful

purpose would be served to issue notice again and again to the

assessee, therefore, we are deciding the present appeal exparte

qua assessee, after hearing the Ld. DR and perusing the records.

Officer.

impugned order. As regard ground no. 1 relating to addition of

Rs. 11,87,056/- is concerned, we find that Ld. CIT(A) has elaborately

discussed the issue at page no. 43-44 of the impugned order. For the

sake of clarity, we are reproducing herewith the relevant findings of the

Ld. CIT(A) as under:-

“I have perused the assessment order as well as

the submission of the Ld. AR. It is seen that

assessee has debited Rs. 11,87,056/- towards

LTA. The AO has treated as hypothetical

expenses. However, the main contention of the

Ld. AR that the LTA is paid to the employees

every year and it is also contended that this is a

certain liability and for his the Ld. AR has relied on

case of Bharat Earth Moves 245 ITR 428 SC and

Vinitec Corporation 278 ITR 337 Delhi High Court.

Apart from this the Ld. AR has also brought to my

notice that the same expenditure was allowed by

the AO in his order u/s. 143(3) for AY 2009-10

and AY 2011-12. So in other words, it is preceding

year as well as the succeeding year the claim of

the appellant has been accepted. The Ld. AR has

contended that the principle of consistency

demands that the claim of the appellant should be

accepted in this year also. Considering the

judicial pronouncement as discussed above as well

as the principle of consistency the claim of the

assessee is accepted and addition on account of

LTA of Rs. 11,87,056/- is deleted.”

5.1 After perusing the aforesaid findings of the Ld. CIT(A), we are of the

considered view that there is no infirmity in the aforesaid finding of the

Ld. CIT(A), hence, we uphold the same and accordingly reject the ground

no. 1 raised by the Revenue.

5.2 As regards ground no. 2 relating to disallowance of Rs. 88,91,816/-

is concerned, after perusing the duties and obligations as mentioned at

page no. 44 to 46 of the impugned order, we find that the agent is not

providing any technical services to the assessee. The agent is acting only

commission agent and procuring the orders for the assessee and to

inform the assessee for any infringement of rights. Even if the same is

considered as business income of the commission agent same is not

taxable in India as the foreign entity does not have any PE or BC in India.

The commission is being entertained in the foreign company in the foreign

country. No part of its income accrue or arise in India. Nor it is making

available any technical knowledge, experience, skill, knowhow etc. to the

assessee. Hence, Ld. CIT(A) has rightly held that the case of the

assessee is identical to the decision of the Hon’ble Delhi High Court in the

case of DIT vs. Guy Carpenter and Company Ltd. (ITA No. 202/2012)-

Hon’ble Delhi High Court and the ITAT, Hyderabad and deleted the

addition of Rs. 88,91,816/-. In view of above, we are of the considered

view that Ld. CIT(A) has passed a well reasoned order which does not

need any interference on our part, hence, we uphold the action of the Ld.

CIT(A) on the issue in dispute and reject the ground no. 2 raised by the

Revenue.

Order pronounced on 09-01-2019. Sd/- Sd/-

[PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date:09/01/2019

SRBhatnagar