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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA&
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD [CONDUCTED THROUGH VIRTUAL AT AHMEDABAD] BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER& Ms. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. No. 1193/Ahd/2019 (Assessment Year: 2016-17) Electrotherm (India) Ltd. Vs. ACIT A-1, Skylark Apartment, Circle-2(1)(1), Satellite Road, Satellite, Ahmedabad Ahmedabad-380015 [PAN No. AAACE2669L] (Appellant) .. (Respondent) I.T.A. No. 1284/Ahd/2019 (Assessment Year: 2016-17) JCIT(OSD) Vs. Electrotherm (India) Ltd. Circle-2(1)(1), A-1, Skylark Apartment, Ahmedabad Satellite Road, Satellite, Ahmedabad-380015 [PAN No. AAACE2669L] (Appellant) .. (Respondent) Assessee by : Shri Prakash D. Shah, AR Revenue by : Shri Purushottam Kumar, Sr. DR Date of Hearing 10.01.2022 Date of Pronouncement 31.01.2022 O R D E R PER Ms. MADHUMITA ROY - JM:
The cross appeal filed by the Revenue and assessee are directed against the order dated 16.05.2019 passed by the Ld. CIT(A)-2, Ahmedabad arising out of the order dated 18.12.2018 passed by the DCIT, Circle-2(1)(1), Ahmedabad under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for A.Y. 2016-17.
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ITA No. 1193/Ahd/2019 (A.Y. 2016-17):- 2. The grounds of appeal filed by the assessee are as under: “1. That the learned CIT(A) has erred in law and facts by confirming additions on account of employees contribution to PF under section 36(1)(va) of Rs. 53,83,721/- and therefore the learned AO should be directed to delete the addition while computing total income. 2. That the learned CIT(A) has erred in law and facts by confirming the Disallowing of claim of Rs. 1,05,03,034/- and therefore the learned AO should be directed to allow the said claim while computing the total income. 3. That the learned AO has initiated penalty proceedings u/s 271(1)(c) of the Act and therefore the learned AO be directed to drop the penalty proceedings. 4. The appellant craves liberty to add, amend, alter and delete any grounds of appeal before the final hearing”
Ground No. 1 relates to addition on account of employees contribution to PF under Section 36(1)(va) to the tune of Rs. 53,83,721/-.
At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that admittedly the issue has been decided against the assessee by the Hon’ble Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation (GSRTC), reported in 366 ITR 170 (Gujarat). However, he has further submitted that on the identical issue the Hon’ble Jurisdictional High Court in the case of Deco Mica Ltd. vs. DCIT, Circle-1(1)(1) passed order against the assessee with a rider that in the event the Hon’ble Apex Court reverses the judgment in the case of Gujarat State Road Transport Corporation (Supra) pending before it; it would be open for the appellant therein to revive the appeal by filing appropriate application. On that basis he further prayed for a conditional order from us.
However, the Ld. DR has relied upon the order passed by Revenue.
We have heard the respective parties and perused the relevant materials available on records. We have also further considered the order passed by the
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Hon’ble Jurisdictional High Court on the identical issue in dismissing the appeal preferred by the assessee with the following observation: “3. We have heard Mr. Tushar Himani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the appellant - assess referred to above are no longer res-integra in view of the main judgment of this High Court in case of Commissioner of Income-tax Vs. Gujarat State Road Transport Corporation Limited, reported in 366 ITR 170 [Gujarat]. 4. Mr. Himani, the learned senior counsel very fairly submitted that the issues on hand as such are squarely by the above referred decision of this High Court. However, he pointed out that the appeal against the judgment of the High Court before the Supreme Court is pending. He pointed out that the leave has been granted and appeal has been admitted. 5. We dismiss this appeal at this stage. However, in the event, if the Supreme Court reverses the judgment in the G.S.R.T.C. [Supra], it would be open for the appellant herein to revive this appeal by filing an application for such purpose within three months from the date of the judgment. The appeal stands disposed of accordingly.”
From the aforesaid, we do not find any reason which could lead us to pass a conditional order depending on the situation would arise out of the disposal in the matter of GSRTC (supra) pending before the Hon’ble Apex Court. According to us such liberty of making an application is not required to be given by us for the particular reason that at the present moment the issue has already been decided by the Jurisdictional High Court against the assessee. Hence, we are not persuaded by such submission made by the Ld. Counsel appearing for the assessee. We, therefore, following the order passed in the matter of CIT vs. GSRTC passed by the Hon’ble Jurisdictional High Court dismiss this ground of appeal preferred by the assessee.
The second issue refers to addition on deferred revenue expenditure to the tune of Rs. 1,05,03,034/-.
The Ld. AO was of the opinion that the assessee has not given any justification for such claim of the expenses under Section 35D of the Act and
ITA Nos.1193/Ahd/2019 & 1284/Ahd/2019 Electrotherm (India) Ltd. vs. ACIT & JCIT(OSD) vs. Electrotherm (India) Ltd. Asst.Year –2016-17 - 4 - therefore, the same was not allowable. However, the Ld. CIT(A) following the order passed by his predecessor in assessee’s own case for A.Ys. 2014-15 and 2015-16 confirmed such addition made by the Ld. AO.
At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that the Coordinate Bench in assessee’s own case in ITA No. 2908/Ahd/2016 for A.Y. 2010-11has been pleased to direct the Ld. AO to verify before allowing the deduction of such expenses whether these expenses were treated as deferred revenue expenditure in the earlier assessment years and the same were accepted in the assessment framed under Section 143(3) of the Act. A copy of the said order passed by the Coordinate Bench has been submitted before us by the Ld. AR.
On the other hand, the Ld. DR relied upon the order passed by the authorities below.
We have heard the respective submissions made by the parties and we have also perused the relevant materials available on record. We have further considered the order passed by the Coordinate Bench in ITA No. 2908/Ahd/2016 & 10 others for A.Y. 2010-11. While deciding the issue the Coordinate Bench was pleased to observe as follows: “67. The learned AR before us submitted that the deduction claimed under section 35D of the Act in the year under consideration amounting to Rs. 3,63,06,857/- relates to the expenses incurred in the earlier years which were admitted as deferred revenue expenses in the assessment framed under section 143(3) of the Act. Accordingly, the learned AR contended that the question of allowability of such expenses cannot arise in the year under consideration without disturbing the year in which such expenses were incurred by the assessee. 68. On the other hand the learned DR vehemently supported the order of the authorities below.
ITA Nos.1193/Ahd/2019 & 1284/Ahd/2019 Electrotherm (India) Ltd. vs. ACIT & JCIT(OSD) vs. Electrotherm (India) Ltd. Asst.Year –2016-17 - 5 - 69. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we find that the genuineness of expenses incurred by the assessee in the earlier year which were treated as deferred revenue expenditure and the same were accepted by the revenue in the assessment framed under section 143(3) of the Act cannot be doubted in the year under consideration. It is because the expenses were not incurred in the year under consideration. But the deduction was claimed in the year under consideration as the same was treated as deferred revenue expenses in the earlier assessment year and that fact was also admitted by the revenue. Accordingly we are of the view that such expenses cannot be disallowed in the year under consideration without disturbing the year to which such expenses relate. Accordingly, we are not impressed with the finding of the authorities below. However, in the interest of justice and fair play, we direct the AO to verify before allowing the deduction of such expenses whether these expenses were treated as deferred revenue expenditure in the earlier assessment years and the same were accepted in the assessment framed under section 143(3) of the Act. Accordingly, with this direction we allow the claim of the assessee. Thus the ground of appeal of the assessee is allowed in terms of above.”
Since there is no difference in the facts as placed before us by the assessee with that of the fact available in the order under reference we do not find any reason to deviate from the stand taken by the Coordinate Bench and therefore, respectfully relying upon the same we allow this ground of appeal by directing the Ld. AO to verify the same in the light of the decision given by the Coordinate Bench in the A.Y. 2010-11and to allow the claim accordingly upon giving a reasonable opportunity of being heard to the assessee. This ground of appeal is, therefore, allowed for statistical purposes.
ITA No. 1284/Ahd/2019 (A.Y. 2016-17):- 14. Grounds of appeal raised by the Revenue are as under: “1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance made by the AO in respect of assessee’s claim of foreign Commission payment of Rs. 2,03,22,569/-. 2. The CIT(A) has erred in law and on facts in deleting the disallowance u/s. 14A contrary to the CBDT Circular 5/2014. 3. The appellant craves leave to amend alter any ground or add a new ground, which may be necessary.”
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Ground No. 1 relates to disallowance made by the Ld. AO in respect of the assessee’s foreign Commission payment of Rs. 2,03,22,569/-.
At the very threshold of the matter the Ld. Counsel appearing for the assessee submitted before us that the issue is squarely covered in assessee’s own case by the order passed by the Coordinate Bench in ITA No. 2908/Ahd/2016 for A.Y. 2010-11. Such submission made by the Ld. AR has not been controverted by the Ld. DR.
We have further considered the order passed by the Coordinate Bench in assessee’s own case for A.Y. 2010-11. While dealing with the issue the Coordinate Bench has been pleased to pass orders in the following manner: “29. The first issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowances of commission paid to foreign agent on account of non- deduction of TDS under section 195 of the Act. 30. The facts in brief are that in the year under consideration the assessee paid certain amounts as commission to its agents in USA and UAE. But the assessee did not deduct taxes under section 195 of the Act. The assessee was of the view that the impugned agent operates in their respective country having no business establishment in India and further the payment made to them in their own country directly was without involving any agent in India. Hence the income of the agent did not accrue or arise in India. Therefore it was not liable to deduct the tax. 30.1 However the AO disregarded the contention of the assessee by observing that the impugned income of commission accrued or arisen to the commission agents from the business connection in India. Therefore such income is chargeable to tax in India and therefore the assessee was under the obligation to deduct the taxes under section 195 of the Act. 30.2 It was also pointed out by the AO that the CBDT circular, relied by the assessee bearing number786 dated 07/02/2000 has been withdrawn by the CBDT vide circular no- 07/2009 dated 22nd October 2009. Accordingly, the AO held that no reference can be made to such circular. In view of the above the AO disallowed the claim of the assessee on account of non-deduction of taxes under section 195 of the Act. 31. Aggrieved assessee preferred an appeal to the learned CIT (A).
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31.1 The assessee before learned CIT (A) reiterated its submission that the agent to whom commission was paid has no establishment India. Similarly the commission agents have provided services outside India and payments were also made in abroad. Therefore such receipt of the foreign agent cannot be said to have accrued or arisen in India. Further it has submitted form15CA and 15CB to the department at the time of making payment in which no tax liability was calculated. Thus it has no liability to deduct tax on such payment. The assessee in this regard also placed reliance on the order of the co-ordinate bench of this ITAT in ITA No 3065/Ahd/2010 of Pankaj A. Shah vs. ITO. 32. Further the Assessee submitted that the Double Taxation Avoidance Agreement stipulate where there is DTA Agreement between India and resident country of party to whom payment made then such income will be taxed in India only in the case such party is having permanent establishment India. Accordingly the assessee submitted that there is tax treaty between India and UAE which has been notified vide notification number GSR 356(E) dated 21-04-1995. Therefore it was not liable to deduct tax on such payment of commission. 33. The learned CIT (A) after considering the facts in totality directed the AO to verify nature of services received and allow the claim accordingly by observing as under: It is the submission of the appellant before the AO that the agents do not have permanent establishment in India . It is also admitted facts as noted by AO in Para 4.2 of the assessment order that the appellant has claimed to have paid export commission to the foreign parties USA, UAE which is said to have been made for utilization of their services for procuring orders from overseas companies and services were said to have been offered to procure export sales orders However, the nature of actual services rendered seems to have not been examined by the AO. If the commission is paid to foreign agents for services rendered outside India merely for procuring sales orders and the agents do not have any PE in India, the ratio of said decision of ITAT in the case of Pankaj A. Shah will be applicable as such income of nonresident agents would not then be taxable in India. However, if there is any managerial or technical services rendered for which commission s paid, then the provisions for tax deduction will be applicable. Considering this aspect I direct the AO to verify the nature of services rendered by the three parties and allow the deduction of commission if he finds that the actual services rendered by them is towards procurement of orders outside India and had no PE in India. If however, he finds that the services are of the nature of managerial, consultancy or technical nature, then the failure to make TDS form such payment vvili attract section 195 of the Act and consequent disallowance under section 40ia)(i) will be sustained This ground is thus disposed off accordingly. 34. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
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The learned AR before us contended that the agents do not have any establishment in India and their services were rendered outside India. Therefore there cannot be any question of making any disallowance on account of non- deduction of taxes. 36. On the contrary, the learned DR before us vehemently supported the order of the authorities below. 37. We have heard the rival contention and perused the material available on record. Admittedly the assessee during the year under consideration have paid commission to its agent based in USA and UAE without deducting taxes under the provision of section 195 of the Act, therefore the same was disallowed by the AO under section 40(a)(i) r.w.s. 195 of the Act. The assessee pleaded before the learned CIT(A) that tax was not deducted because such income was not liable to be taxed in India. It was submitted that the commission paid to foreign agents for providing services outside India and they were not having permanent establishment or business connection in India. Therefore such payment is not income accruing or arising in India within the meaning of section 9 of the IT Act. It was also explained that non- residents were not chargeable to tax in India due to Double Taxation Avoidance Agreements. However, the learned CIT (A) observed that the nature of services were not explained by the assessee. Accordingly the learned CIT (A) directed the AO to verify the nature of services and allow the claim if commissions were paid for procurement of sales otherwise disallow the same if commission paid for services provided in nature of managerial or technical know-how as provided under section 9 of the Act. 38. At the outset we note the assessee before authorities below only contended that the agents have no establishment or business connection in India and payments were made outside India. As such the assessee has not substantiated the nature of services provided by the foreign agent. Accordingly we direct the assessee to provide the details of the services obtained from the commission agents to the AO. Therefore in such circumstances we do not find any infirmity in the order of the learned CIT (A). Hence the ground of appeal of the assessee is allowed subject to verification.”
In the absence of any changed facts and circumstances of the matter we set-aside the issue to the file of the Ld. AO to verify the details of services obtained from the commission agents by the assessee and to pass order accordingly upon giving an opportunity of being heard to the assessee and upon considering the evidence which the assessee may choose to file at the time of hearing of the matter. Thus, this ground of appeal is allowed for statistical purposes.
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Deletion of addition of Rs. 1,53,436/- is the subject matter before us. In fact, the Ld. AO while disallowing applied Rule 8D being interest and administrative expenditure @ 0.5% of the average investments which was deleted by the Ld. CIT(A).
We find that the Ld. CIT(A) observed the following while deleting the addition: “5.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO had in the assessment order made the disallowance u/s. 14A of I. T. Act amounting to Rs.1,53,436/-. In the assessment order, the AO has worked out the disallowance under Rule 80 being interest and administrative expenditures @ 0.5% of the average investments. 5.4. The AO has made the disallowance u/s. 14A of the I. T. Act, 1961 stating that the interest bearing borrowed funds have been utilized for the purpose of investment in the shares. Further, it was mentioned that .the appellant needs to prove by demonstrating evidence that on the day on which the investments were made, the assessee had interest free funds and there was no diversion of interest bearing funds for non business purpose. The appellant could not prove by way of submitting fund flow statement that there was no diversion of interest bearing funds and subsequently he relied upon certain decisions /judgments. 5.5. Further, it has been claimed by the appellant that in this case, the appellant had not claimed any exempt income and made suo moto disallowance of Rs.42,96,550/- it was held by the Hon'ble Court that section 14A(1) provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Since in the instant case, the appellant did not make any claim for exemption of any income from payment of tax and the appellant on his own has made disallowance of Rs.42,96,550/-, no further disallowance is called for u/s. 14A. 5.6. In view of the aforesaid discussion, it is found that the appellant has not claimed any exempt income, and therefore, the provisions of section 14A of I. T. Act, 1961 are not applicable in view of judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Corrtech (Supra). 5.7. Recently Honourable Delhi High Court in the case of IL&FS Energy Development Co. Ltd. [84 Taxmann.com 186] dated 22/08/2017 has also affirmed the above view.
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5.8. In view of the aforesaid discussion, the disallowance made by the AO invoking the provisions of section 14A of the Act is not correct and hence, same is deleted. The ground of appeal is accordingly allowed.”
Factually the assessee has not claimed for exemption of any income for the payment of tax and of his own made disallowance of Rs. 42,96,550/-. Hence, further disallowance is not justified which has rightly been taken care by the Ld. CIT(A) without any ambiguity so as to warrant interference. Hence, the ground of appeal filed by the Revenue is found to be devoid of any merit and, thus, dismissed.
In the result, the appeal preferred by the assessee is allowed and the appeal filed by the Revenue is partly allowed. This Order pronounced in Open Court on 31/01/2022
Sd/- Sd/- (ANNAPURNA GUPTA) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 31/01/2022 TRUE COPY TANMAY, Sr. PS आदेश क� ��त�ल�प अ�े�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, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad