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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SH. N. K. SAINI & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been filed by revenue against order dated 17.10.2013 passed by Ld. CIT(A)-IX for assessment year 2008-09 on the following grounds of appeal:
1. On the facts and circumstances of the case and in law, the order of the Ld. CIT(A) is wrong and against the provisions of law which is liable to be set aside.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 12,05,59,000/- made on account USA expenses.
3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,00,000/- made on account various expenses.
4. On the facts and circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs. 6,90,055/- made on account of late payment of employees contribution of ESIC of Rs. 87,305/- and PF of Rs. 6,02,750/-. 5. On the facts and circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs. 1,01,50,000/- made on account of disallowance u/s 43B of the IT Act. 6. The appellant craves to add, alter, amend, modify, add or forego any ground of appeal
at any time before or during the hearing of this appeal.
2. Brief facts of the case are as under: Assessee is engaged in cultivation and export of Mushroom etc. It filed its return of income declaring nil income on 30.09.2008. The return was processed under section 143(1) and case was selected for scrutiny. Ld. AO completed assessment under section 143(3) of the Act by making the following additions: 1 Disallowance of USA expenses: Rs. 12,05,59,000/-
2. Disallowance of Employee's Contribution to ESIC & PF: Rs. 6,90,055/-
3. Disallowance u/s43B: Rs. 1,04,50,000/-
4. Disallowance of Expenses out of Administrative & Selling Expenses in India: Rs. 2,00,000/-
3. Aggrieved by the assessment order, assessee preferred an appeal before Ld. CIT (A). Ld. CIT (A) deleted the additions made by assessing officer.
Aggrieved by the order passed by Ld. CIT (A) the revenue is in appeal before us now.
It is submitted that ground Nos. 1 and 6 are general in nature therefore does not require any adjudication.
At the outset, Ld. AR submitted that ground No. 2 is covered by decision of Hon’ble Delhi High Court in assessee’s own case for assessment year 2005-06. He referred to the order dated 16.10.2014 passed by Hon’ble Delhi High Court which is placed at page 1 to 8 of the paper book. He further submitted that for assessment year 2006-07 and 2007-08, Ld. CIT(A) allowed these issues in favour of assessee, following decision of Hon’ble High Court for assessment year 2005-06, against which the revenue has not preferred any appeal before this Tribunal. He submitted that so far as these assessment years are concerned, issues raised by revenue in ground No. 2 and 4 has attained finality.
Ld. DR has not produced any documentary evidence contrary to above submissions made by Ld. AR.
We have perused the submissions advanced by both the parties in the light of the records placed before us and the decisions relied upon by Ld. AR.
On perusal of order passed by Hon’ble High Court in assessee’s own case for assessment year 2005-06, it is observed that Hon’ble High Court has upheld the factual findings of this Tribunal was not controverted by the revenue. On perusal of impugned order passed before us, the Ld. CIT (A) has observed as under:
12.5. On careful perusal of the above, I find that the reservation of the AO in respect of the expenses incurred by M/s Global Reliance Inc. is on feeble grounds. It is a matter on record that all bills/vouchers in respect of US expenses were provided to the AO by this office by forwarding the 1st rejoinder to the appellant on the first remand report.
12.6. Thus, it is evident that the appellant had furnished all bills/vouchers in respect of US expenses, and the AO was not able to pinpoint any adverse finding in respect of the same. Regarding the second objection of the appellant that no TDS was deducted by the appellant, the appellant had submitted that M/s Global Reliance Inc. is a proprietary concern of Mr. Sanjeev Kakkar, who is a non- resident based in USA and the services rendered by M/s Global Reliance, which was clearly in the nature of consignment sale for the appellant in USA, were certainly not rendered in India. In view thereof, the appellant had argued that no TDS was to be deducted on such payment to M/s Global Reliance. The appellant also argued that since Mr. Sanjeev Kakkar was merely affecting the sales for the appellant, therefore, the services were not in the nature of "Technical Services' as explained in Explanation 2 to Section 9(vi) of the Act. I find that the payment to M/s
Global Reliance was mainly in the nature of reimbursement of expenses incurred by the latter and also includes commission payment. Keeping in view the fact that the proprietor of the concern, Mr. Sanjeev Kakkar was a Nonresident and had rendered sales related services in USA. TDS was not to be deducted on the commission income. Further the balance payment was factually held as reimbursement of expense, on which TOS could not have been deducted. Therefore, the objection of the AO is not on sound legal grounds. The 3rd objection of the AO that the agreement between the two parties was self serving in nature is vague and not supported by any evidence. Further, it is a matter of common sense that without incurring any selling and administrative expenses, sales of this magnitude could not have taken place in the USA. Once the factum of sales made to US is proved, the commensurate expenses are also to be allowed under Section 37(1), based on the verification of the relevant bills/vouchers. As I have already held that M/s Global Reliance Inc. was a consignment agent of the appellant and the AO has not found any fault in respect of the bills/vouchers submitted by it in respect of the expenses incurred by M/s Global Reliance Inc. in USA, the addition made on this ground is deleted.
From the above discussions, it is observed that he has examined the additional evidence placed on record and referred to remand report by Assessing Officer. There is a categorical finding by Ld. CIT(A) in his order at para 12.3 regarding clause 3 of the original MoUs dated 19.09.2002 wherein assessee is to make payments to GRI towards commission, in respect of sales affected through and in addition allows reimbursement in respect of the cost and other expenses relating to import and sale of products, customs duties, ocean fright, inland fright, warehousing and any brokerage etc original agreements dated 19.09.2002. He thus, came to the conclusion that these being administrative expenses were clearly the responsibility of assessee, which were to be reimbursed to the consignment agent. He further observed that the disallowance of entire expenses by Assessing Officer by holding that M/s Global Reliance was a buyer of the product of assessee and not consignment agent, was not supported by any documentary evidences.
There was a similar factual observation by Ld. CIT (A) which was upheld by this Tribunal, which has been confirmed by Hon’ble High Court for assessment year 2005-06. The payments in dispute are made under same agreement which is supported by relevant bills/vouchers, as observed by Ld. CIT(A) in the paragraphs reproduced hereinabove. We, therefore, respectfully following the decision of Hon’ble High Court do not find any infirmity in findings of Ld. CIT (A) and the same is upheld.
Ground No. 3
This ground has been raised by revenue against that the addition that has been deleted amounting to Rs. 2,00,000/-, out of selling and administrative expenses. It has been submitted by Ld. AR that Assessing Officer made disallowance on ad hoc basis, out of selling and administrative expenses, for non-verification of expenses/bills. Ld. AR placed his reliance upon the rational followed by this Tribunal in assessee’s own case for assessment year 2005-06 vide order dated 14.03.2014.
On the contrary Ld. AR places reliance upon the order passed by Assessing Officer.
We have perused the submissions advanced by both the parties in the light of records placed before us. It is observed that assessee has incurred Rs. 3,07,96,000/- towards administrative and selling expenses on its business operations in India. Assessee had furnished certain details at the time of assessment proceedings being bills/vouchers. Assessing Officer made an ad hoc disallowance of Rs. 2,00,000/- for want of verification of expenses Ld. CIT (A) has observed as under:
14.1 The facts of the case and appellant's submissions are carefully considered. The AO's observation that certain bills/vouchers were not produced before him was found to be a fallacy since it could not be ascertained which were these "certain bills/vouchers", which the AO found missing. The appellant has produced all the books of accounts and bills/vouchers before the AO. Therefore, such disallowance made by the AO is purely a guess work and hence not legally sustainable. The disallowance of Rs.2 lac is directed to be deleted.
It is observed that Assessing Officer without there being any basis has made an ad hoc disallowance which is not supported by any documentary evidences. Assessing Officer has without verifying the details submitted by assessee made the addition. As there is no adverse observation made by Assessing Officer, merely because it could not be ascertained which were these bills/vouchers which Assessing Officer found to have been missing, disallowance cannot be upheld. We, therefore, do not wish to interfere with the findings of Ld. CIT(A).
Accordingly this ground raised by the revenue stands dismissed.
Ground No. 4
This ground is in respect of the addition that has been deleted amounting to Rs. 6,90,055/- made on account of late payment of employees contribution of ESIC amounting to Rs. 87,305/- and PF amounting to Rs. 6,02,750/-.
At the outset, Ld. AR submitted that this issue stands squarely covered by the decision of Hon’ble Delhi High Court in the case of CIT vs. AIMIL Ltd (2007) 229 CTR 418. Wherein it has been held that if the actual payment of ESIC and PF, has been made before the due date of filing of the return under section 139 (1) of the Act the expenses are allowable. On the contrary, Ld. DR relied upon the order of Assessing Officer.
On perusal of assessment order deserves are that Assessing Officer has not disputed any failure on the part of the assessee in making the payment. Here is a case where payment of employees contribution and provident fund are made late and payment has been made before the return is filed. We are, therefore, respectfully following the decision of Hon’ble Delhi High Court in the case of CIT vs. AIMIL Ltd., uphold the decision of Ld. CIT(A). In the result this ground raised by the revenue stands dismissed Ground No. 5
This ground has been raised by the revenue against the addition being deleted amounting to Rs. 1,01,50,000/-under section 43B the Act.
Ld. DR placed reliance upon the order passed by Assessing Officer and Ld. AR has placed his reliance upon the decision of Ld. CIT(A).
We have perused the order passed by Ld. CIT(A). It is observed from therein that assessee had obtained various types of loans from industrial development bank of India (IDBI) and SASF between 1994 to 1998, for setting up its manufacturing unit. It was submitted before Ld. CIT(A) that the initial production from the said unit commenced in August 1996, and further expansion took place till the year 1998. Further, it has been submitted that due to a sudden weakening of US economic, assessee suffered huge setback, due to which it suffered fund crunch, resulting in loan repayment defaults. Subsequently during the year under consideration are part of the interest and principal was waived off. This written back some was declared as income by the assessee in its books for the year under consideration. Subsequently IDBI was really compensated by restoration of principal and interest waived off by it earlier through a one-time settlement made in financial year 2005-06, vide letter dated 08.08.2013 placed at page 126 of paper book, has certified that the value of shares amounting to Rs. 7 lakhs allotted by the company was adjusted against the outstanding principal amount of SASF under negotiated settlement of dues. Ld. CIT(A) observed as under:
24.2. In respect of the first plea, the appellant has submitted the entire history of the company going for IDBI loan and after continuous default going for one time settlement of dues with SASF. In view of the various courts' decisions, relied upon by the appellant, it is upheld that nomenclature of a transaction is immaterial. What is material is the actual treatment of the transaction. In respect of the transaction of Rs. 1,01,50,000/- the controversy has been settled by the SASF vide its letter dt. 08.08.2013 wherein it has been certified that the value of 7 lac shares allotted by the company was adjusted against the outstanding principal amount of SASF under Negotiated Settlement of Dues. It is entirely different matter that the SASF has taken the face value of shares (@ 710/- per share) while the appellant has recorded the transaction in its books of account taking the value of each share at Rs. 14.50 which includes premium of Rs. 4.50 shares as certified by the SEBI. The fact remains that the adjustment was not of the interest amount on IDBI/SASF loan but of the principal amount of loan which was adjusted against the issuance of 7 lac equity shares of the appellant company of SASF. As such the provisions of section 43B of the Act are not attracted and question of disallowance does not arise.
In view of the above we uphold the order passed by Ld. CIT (A). Accordingly this ground raised by the revenue stands dismissed
In the result appeal filed by the revenue stands dismissed.
Order pronounced in the open court on 8th February, 2017.