PARADEEP PHOSPHATES LIMITED,BHUBANESWAR vs. ACIT, BHUBANESWAR

आयकर अपीलीय अधधकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अपील सं./ITA No.315/CTK/2015 (धनधाारण वषा / Assessment Year :2008-2009) Paradeep Phosphates Limited Vs. ACIT, Corporate Circle- Bayan Bhawan, Pt. Jawaharlal 1(2), Bhubaneswar Nehru Marg, Bhubaneswar-01 स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. AND आयकर अपील सं./ITA No.331/CTK/2015 (धनधाारण वषा / Assessment Year :2008-2009) ACIT, Corporate Circle- Vs. Paradeep Phosphates Limited 1(2), Bhubaneswar Bayan Bhawan, Pt. Jawaharlal Nehru Marg, Bhubaneswar-01 स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) निर्ााररती की ओर से /Assessee by : Shri B.K.Mahapatra, AR राजस्व की ओर से /Revenue by : Shri A.K.Mohapatra, CITDR सुनवाई की तारीख / Date of Hearing : 07/11/2017 घोषणा की तारीख/Date of Pronouncement 09/11/2017 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: These are the cross appeals filed by the assessee and revenue against the order of CIT(A)-1, Bhubaneswar, passed u/s.147/143(3) of the Income Tax Act, 1961, dated 30.04.2015, for the assessment year 2008- 2009. 2. Since the issues involved in both appeals are common, therefore both the appeals are heard and disposed off by this consolidated order. For the sake of convenience we shall take facts mentioned in assessee’s appeal in ITA No.315/CTK/2015 for the assessment year 2008-2009 and the grounds mentioned therein.

2 ITA No.315&331/CTK/2015 1. That the order dated 30.04.2015 passed by the learned Commissioner of Income Tax (Appeals) - I, Bhubaneswar ("CIT (Appeals)") in not fully allowing all issues raised in the appeal of the assessee is erroneous and bad in law. 2. That all the following issues were booked during the year under appeal, ought to be regarded as expenses pertaining to the subject year and dealt-with in accordance with the provisions of the Income Tax Act, 1961. 3. (a) Disallowance of Expenses relating to Prior Period Expenses: Rs. 6,05,000/-: i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs 6,05,000/- under 'Prior Period Expenses' is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous and bad in law. ii) That the aforesaid amount of Rs 6,05,000/- incurred by the assessee is towards 'Administration and Freight Charges', booked under Prior Period Expenses, spent wholly and exclusively for the purpose of its business. Therefore the upholding of disallowance of the said amount of Rs 6,05,000/- is contrary to facts, arbitrary, erroneous and bad in law. (b) Non Consideration of Bad Debt written off amounting to Rs 8,27,874/- i) That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the non-consideration of the allowance relating to bad debt written off for Rs 827,874/- is contrary to facts, arbitrary, unjustified, erroneous, bad in law and legally untenable. ii) That the aforesaid amount of Rs 8,27,874/- was actually written off in the Books of the assessee during the period under appeal is wholly and exclusively for the purpose of its business. Therefore the upholding of non-consideration of the bad debt written off amounting to Rs 827,874/-is contrary to facts, arbitrary, erroneous and bad in law. 4. That the appellant craves leave to add to, supplement, modify the grounds here-in-above at the hearing of the appeal. 3. Brief facts of the case are that the assessee is engaged in the business of fertilisers. The assessment in this case was completed earlier u/s.143(3) of the Act dated 28.12.2011 with Nil income. Subsequently, the AO has reason to believe that there is income escaping the assessment, therefore, initiated reassessment proceedings for non-deduction of TDS on payments made to non-resident by the assessee for import of goods and also notice u/s.148 of the Act, dated 29.3.2014 and u/s.142(1) of the

3 ITA No.315&331/CTK/2015 Act dated 23.05.2014 were issued to the assessee. In compliance, Office Manager (F&A) appeared on behalf of the assessee and case was discussed and filed detailed submissions. The AO’s contention that the assessee on import purchases has supposed to deduct TDS whereas the assessee submitted in the assessment proceedings that it is not liable to make deduction on payments and relied on the decision of coordinate bench of the Tribunal in assessee’s own case and CBDT Circular where the entire disputed purchases are fully allowable and the provisions u/s.40(a)(i) of the Act shall not apply and relied on the CBDT Circular and CA certificate. Subsequently a reference u/s.144A of the Act was made to Ld. ADCIT, Range-1, by the assessee and the assessee relied on the judicial decisions of ITAT, Hon’ble High Court and Hon’ble Supreme Court dealt at page 3 to 4 of the order. The AO considered the submissions made by the assessee but ultimately the AO has made observations as under :- “Though various appellate authorities have given their findings in favour of no requirement of TDS on the import purchases on the basis of non taxability of the recipients of payments in respect of import purchases, in the light of the facts that the Department has not accepted these decisions and the matter is subjudiced before High Court, the petition of the assessee needs to be examined in the light of the absence of the aforesaid formalities on the basis of which the disallowance u/s.40(a)(ia) of the I.T.Act for failure to make TDS u/s.195 of the I.T.Act are called for.” Accordingly, the AO made addition of payments made to non-resident u/s.40(a)(i) and assessed total income of Rs.1731,87,40,048/- and passed the order u/s.147/143(3) of the Act dated 30.03.2015.

4 ITA No.315&331/CTK/2015 4. Aggrieved by the order of AO, the assessee has filed an appeal before CIT(A). In the appellate proceedings the ld AR of the assessee argued the grounds and reiterated the submissions made before the lower authorities in respect of TDS provisions, whereas ld. CIT(A) has dealt on the provisions and submissions at para 3.2 at page 17 of the order exhaustively and relied on the decision of the assessee’s own case for the assessment year 2009-2010 referred at page 21 of the order as under :- 3.2 I have carefully gone through the observations of the AO for concluding that the appellant was liable to deduct tax at source u/s.195(1), detailed submissions of the appellant, relevant decisions and various facts on record. The dispute has arisen when the appellant imported goods in the nature of raw materials/trading goods/components & spares from non-resident concerns for a total cost of Rs.1832,22,45,000/- (appellant states that the actual amount is Rs.1573,74,16,000/-). The issue was decided by me in the appellant's own case under similar facts and circumstances for AY 2009-10 vide order dt.28.10.2013 in ITA No.0058/13-14 as under: "3.2 ... As per provisions of sec.195(1) of the Act, any person responsible for paying (Payer) to a Non- Resident or Foreign Company (Payee) any interest or 'any other sum chargeable under the provision of the Act, is required to deduct tax at source. The provision applies to all the Payers, including individual and HUF. The only specific exclusion provided is in respect of payment of dividend which is exempt by virtue of payment of Dividend Distribution Tax. The scope of the provision is wide and therefore, the implications thereof have far-reaching effect in large numbers of cases as the number of such payments has increased manifold with the development of the economy and growth of cross border transactions in the last decade. As per provisions of sec.195(2) of the Act, if the Payer considers that the whole of such a sum would not be chargeable to tax in the hands of the Payee, he may make an application to the Assessing Officer (AD) to determine the appropriate portion of such taxable income by passing a general or special order and upon such determination, the Payer is obliged to deduct tax only on the portion so determined. As per provisions of sec.195(3)/(5) read with Rule 298 of the Act the specified recipient of such a sum can also make an application to the AO in the prescribed form for grant of a certificate authorising him to receive such sum without TDS and upon. grant of such a certificate, the Payer is required to make payment without TDS.

5 ITA No.315&331/CTK/2015 These provisions are largely used by foreign banks operating in India for receiving payments from their customers without TDS. Section 195(6) was introduced by the Finance Act, 2008 (with effect from 1-4-2008) providing that the Payer shall furnish the information relating to payments of such sums in the prescribed form and manner. For this Rule 37BB was introduced and the procedure for making remittances is provided for which the certificate of Chartered Accountant in the prescribed Form 15CB is required to be obtained by the Payer before making remittance to the Payee (New Procedure for Remittance). Earlier, there was a requirement for obtaining certificate of Chartered Accountant for making remittance to the Non-Resident, but the same was operating under the Circulars issued by CBDT. The Apex Court in the case of Transmission Corporation of A.P. Ltd. (239 ITR 597) has held that the expression 'taxable income' used in S. 195(1) applies to any sum payable to the Non-Resident even if such a sum is a trading receipt in the hands of the payee, if, the whole or part thereof is chargeable to tax under the Act. These provisions are only limited to the sums which are of 'Pure Income' nature. Based on this judgment, it was felt by the Payers of such income that the TDS is required to be made u/s.195(1) only if, the income is chargeable to tax (partly or wholly) under the Act and in cases where, the income itself is not chargeable to tax (Non-taxable income) question of making any TDS should not arise. However, because of the interpretation that it is not for the assessee to decide whether the income is chargeable in the hands of the Payee or not, the litigation on the obligation to make TDS continues, even after the decision of the Apex Court in Transmission Corporation of A.P. Ltd and particularly in view of interpretation of this judgement by the Hon'ble Karnataka High Court in the case of CIT (International Taxation) v. Samsung Electronics Co. Ltd, [2009] 185 Taxman 313 (Kar.)/ [2010] 320 ITR 209 in the case of M/s. Samsung Electronics Co. Ltd. and other cases in the context of obligation to make TDS in respect of payments made to Non-Resident Payees for supply of shrink wrapped standardised software. The Hon'ble Karnataka High Court held as under: 66. If one is allowed the liberty of giving a rough and crude comparison to -I' the manner in which the provisions of section 195 of the Act operates on a resident payer who makes payment to a non-resident recipient and if the payment bears the character of a semblance of an income receipt in the hands of the non-resident recipient, then the obligation on the part of the resident payer who makes such a payment to the non-resident recipient is like a guided missile which gets itself attached to the target, the moment the resident assessee makes payment to the non-resident recipient and there is no way of the resident payer avoiding the guided missile zeroing on the resident payer whether by way of contending that the amount does not necessarily result in the receipt of an amount taxable as income in the hands of the non-resident recipient under

6 ITA No.315&331/CTK/2015 the Act or even by contending at the non-resident recipient could have possibly avoided any liability for payment of tax under the Act by the overall operation of different provisions of the Act or even by the combined operation of the provisions of a double taxation avoidance agreement and the Act as is sought to be contended by the respondents in the present appeals. 67. The only limited way of either avoiding or warding off the guided missile is by the resident payer invoking the provisions of section 195(2) of the Act and even here to the very limited extent of correcting an incorrect identification, an incorrect, computation or to call in aid the actual determination of the tax liability of the non- resident which in fact had been determined as part of the process of assessing the income of the non-resident and by using that as the basis for claiming a proportionate reduction in the rate at which the deduction is required to be made on the payment to the non- resident. Except for this method, there is no other way of the resident payer avoiding the obligations cast on it by the provisions of section 195(1) of the Act and as a consequence of such default when is served with a demand notice in terms of section 201 of the Act." 3.2.1 The AO is of the opinion that the decision of the AP High Court in the case of Transmission Corporation of AP Ltd. v. CIT, which was approved by the Supreme Court in 239 ITR 587 (SC) is applicable and accordingly the assessee was liable to deduct tax u/s.195(1). In this case the AO considered that the person making payments to a non-resident cannot take a unilateral decision that the payments made by him are not sums chargeable to income tax, and therefore he cannot make such payments without deducting tax at source unless he gets the concurrence of the Assessing Officer as provided in section 195(2) or an exemption certificate under section 195(3). However, as per the High Court's decision the obligation of the assessee is limited to deduct tax u/s.195 on the appropriate portion of the income chargeable under the Act in respect of sums paid under the contract. Accordingly, tax was deductible in respect of income imbedded in the contract amount. In the instant case, the appellant has purchased raw materials from non-resident business entities and no income can be said to have accrued in India in respect of cost of raw materials. The income, if any, earned by the non-resident seller of the raw materials is earned in foreign soil and not taxable under the Indian Income Tax Law. Further, application u/s.195(2) was required to be made in case the appellant was having any doubt about the proportion of income embedded in the remittance and in case the income itself was not assessable in India, there was no requirement to make any application u/s.195(2). In any case, not making an application u/s.195(2) before remittance could at best be considered as a violation and would not attract the provisions of section 40(a)(i). It was held by the Hon'ble ITAT, Hyderabad, in the case of SOL Pharmaceuticals Ltd. v. ITO [2002] 83 ITD 72 (Hyd.) that Section 195(2) is attracted only in a case where at least a portion of the

7 ITA No.315&331/CTK/2015 payment to non resident is chargeable as income. If no portion is chargeable, then section 195(2) is not attracted. It was held by the Hon'ble ITAT, Madras, in the case of Indopel Garments (P.) Ltd. v. DCIT, 86 ITD 102 (Mad), that no tax was deductible from the commission paid to the non-residents. Where there is no chargeable income, it is not necessary for assessee to get concurrence of AO u/s. 195(2). In the case of Graphite Vicarb Ind. Ltd. v. ITO [1986] 18 ITD 58 (Cal.), it was held that section 195(2) envisages application for determining appropriate proportion of the sum which would be chargeable to tax; but does not envisage a case where the assessee claims that no profits of the sum to be remitted is liable to tax at all. 3.2.2 Under similar circumstances for the AY 2006-07, the AO has given a finding that no tax is deductible u/s.195(1) in respect of payment made by the assessee for import of goods. The AO's observations and conclusions in the assessment order u/s.143(3)/263 dt.28.12.2011 is as under: " Non deduction of TDS: Assessee PPL has made payment of Rs.14,479.93 lakhs to non-resident for import of goods. Assessee was asked whether TDS provision is applicable to them or not. A. R. of the assessee stated that: Since no income is chargeable in India under the provision of the IT Act in respect of the said imports, the question of TDS u/s.195 of the I.T.Act does not arise and therefore the assessee has rightly not deducted any TDS u/s.195 of the I.T.Act on such foreign payments. Thus the aforesaid payments for supply of raw material remain outside the purview of Sec 195 of the Act and therefore there is no scope for any disallowance u/s.40(a)(i) of the Act. This is a well established principle. It is pertinent to mention that the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. Vs CIT reported in (2010) 193 Taxman 234(SC); (2010) 327 ITR 456 (SC) has interpreted the provisions of Section 195 of the Act and has held that payment on supply of goods does not attract TDS u/s.195 of the IT Act and section 195 is applicable to the service components and not to the supply components." Argument of the assessee is accepted because of the following reason. 1. According to the provisions of Sec. 195(1) and 195(2), the TDS is required to be made on "any other sum chargeable under the provisions this Act". Chargeability is relevant in this case. As per decision of Hon'ble Supreme , Court in the case of CWT Vellis Bridge Gymkhan (1998) 229 ITR 1 (SC), if la person has not been brought in the ambit of Section by clear words, he nt4uPANCSWAP cannot taxed at all. In this case, the above payments are made

8 ITA No.315&331/CTK/2015 towards purchase of goods on principal to principal basis. Assessee has not entered into any contract with foreign parties rather assessee has procured the goods at its own cost like payment of customs duty, freight, handling charges etc. i.e. on CIF basis. 3. In case of CIT vs. R.D. Agrawal & Co. (1965) 56 ITR 20(SC), Hon'ble Apex Court has stated that 'In the case of assessee company the purchases are made by placing the purchase order and delivery are made on CAF basis, payment is remitted to foreign sellers in advance, hence, question the taxing the foreign exporters do not arise in India. Thus, in the case of the assessee, when the sum paid to foreign companies are not chargeable to tax in India, applicability of section 195(1) & 195(2) is not sustainable. 4. Trading activities are duly covered under Article 7 of DTAAs of which all related provisions are also in operation and according to DTAAs, the payment made by assessee are not taxable in India. Being specific provisions, DTAAs will prevail other sections of the Act. 5. In Circular No.17 (XXXVII-1) of 1953, No.26 (26)-IT/53. dated 17.07.1953, CBDT has clarified that if transaction is on, principal to principal basis no tax liability will be arise in the foreign companies. 6. In case of Vijay Ship Breaking Co. Vs. CIT (Ahmedabad) 314 ITR 309 (SC), Horrible Apex Court has stated that provision of Sec.195 is not applicable in case where income is not chargeable to tax in India (Also see Veneburg Group B. V. 289 ITR 466 AAR New Delhi). 7. In a recent judgme71t, in case of Van Oord ACZ (India) Vs. CIT (Delhi) dtd.24.03.2010, Hon'ble High Court has stated that the obligation to deduct tax at source u/s.195(1) arises only when the payment to chargeable to tax in India. 8. In case of Transmission Corporation of AP Ltd. Vs. CIT (1999) 239 ITR 587 (SC) (cited by RAP), Hon'ble Supreme Court has given its findings as below:- "in this view of the matter, the answer given by the High Court that (i) the assessee who made payments to the three non-residents was under obligation to deduct tax at source u/s.195 of the I.T.Act in respect of the sums paid to them under the contracts entered into and (ii) the obligation of the respondent assessee to deduct tax u/s.195 is limited only to the appropriate proportion of income chargeable under the Act, are correct". By the above findings of Hon'ble Supreme Court, it is clear that provisions of section Sec.195 are applicable where assessee enters into a contract with non-resident. In this very case, no contract was made by the assessee, Trading transaction was covered under the Sale of Goods Act not under Contract Act."

9 ITA No.315&331/CTK/2015 3.2.3 Under similar circumstances, the Hon'ble ITAT, Cuttack Bench in case of the appellant for AY 2007-08 has quashed the order of CIT, Bhubaneswar u/s.263 on the ground that the CIT did not consider the direction of Hon'ble Apex Court in GE India Technology case which has been reproduced earlier in the submission of the appellant. Accordingly, in view of the detailed submission of the appellant, the decision of the Hon'ble Supreme Court in the case of GE India Technology which have been referred by the ITAT in appellant's own case for the AY 2007-08 and by the AO for AY 2006-07, it is clear that no tax is deductible u/s.195(1) in respect of remittance made by the appellant for purchase of raw materials amounting to Rs.4491,86,39,189/-. 3.2.4 The case of the appellant is squarely covered by the judgment of the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) which has been quoted by the appellant in its submissions. The Hon'ble Supreme Court in GE India Technology Cen. (P) Ltd. has also considered the judgment in the case of Transmission Corporation of AP Ltd. (supra), support of which was taken by the AO in holding that assessee was required to deduct tax u/s.195(1). The Hon'ble Supreme Court has observed that every remittance would not result in deduction of tax but only in respect of the amount taxable under the provisions of the Income Tax Act. The application u/s.195(2) is required only when the remitter has no doubt that tax is deductible but not sure of the amount of tax to be deducted. In case no tax is deductible on the remittance, no application u/s.195(2) or no certificate u/s.197 is necessary. The Hon'ble Supreme Court in GE India Technology Cen. (P) Ltd. v. CIT (supa), observed as under: "10. ... In Transmission Corpn. of A.P. Ltd. 's case (supra) it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented "income chargeable to tax in India", then it was necessary for him to make an application under section 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source. In our view, section 195(2) is based on the "principle of proportionality". The said sub-section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to

10 ITA No.315&331/CTK/2015 discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corpn. of A.P. Ltd. 's case (supra) ,which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all "chargeable to tax in India", then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lays down that tax at source is deductible only from "sums chargeable" under the provisions of the Income-tax Act, i.e., chargeable under sections 4, 5 and 9 of the Income-tax Act." In the instant case, the amounts have been paid towards purchase of raw material on principal to principal basis and the appellant has procured the goods from the non-resident seller at its own cost after making payments of custom duty, freight, handling charges etc. on CIF basis. The raw material is sold by the non-resident seller in foreign soil, hence, no income accrues to the non-resident seller in the Indian territory. The AO has not brought any facts on record nor it is apparent that income in respect of transactions Irises in favour of the nonresident sellers in the Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. 3.2.5 In view of the judgment of the Apex Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (supa), it is the clear that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195. Accordingly, the addition u/s,40(a)(i) made by the AO is hereby deleted, Ground No.2 is thus allowed." Since the addition made u/s.40(a)(i) for the AY 2009-10 was deleted and the facts and circumstances of the case remain similar in the impugned AY 2008-09, the addition made by the AO for Rs.1832,22,45,000/- u/s.40(a)(i) is hereby deleted. The assessee has raised four additional grounds. In the appellate proceedings, the assessee raised additional ground no.1 in respect of prior period expenses of administrative charges and freight charges and ld.CIT(A) has dismissed and observed at page 23 para 4 as under :-

11 ITA No.315&331/CTK/2015 4. Addl. Ground No.1 relates to addition of Rs.6,05,600/- under the head 'prior period expenses' in respect of administration charges for Rs.4 lacs and freight charges for Rs.2,05,600/-. The same was disallowed in the original order u/s.143(3) dt.28.12.2011 against which appeal was filed and was dismissed on the technical ground that the order u/s.143(3) has merged in the impugned order. Since the expenses relate to earlier year and crystallized in the earlier year(s), the same was disallowed by the AO. It has been submitted that certain expenses cannot be anticipated in the year to which it relates even in a mercantile system of accounting and bound to be incurred in the subsequent years. However, the appellant's submission lacks merit. Since the hybrid system of accounting is not permissible and relying on the decision of the Kerala High Court in the case of CIT v. Travancore Titanium Products Ltd., 183 ITR 73, the AO is correct in disallowing the claim of prior period expenses since the assessee is maintaining its accounts on mercantile basis. In respect of second additional ground of non-deduction of TDS u/s.40(a)(ia) of the Act, the CIT(A) dismissed the same observing as under :- 5.2 I have considered the matter. In the statement of total income computation, the appellant has claimed deduction of Rs.2,35,73,174/- as "amount admissible out of amount distallowed in earlier years u/s.40(a)(ia) as tax paid during the year" which has been allowed by the AO. Now the appellant submits that a further amount of Rs.2,87,86,771/- has been paid which has not been claimed in the return of income inadvertently and was claimed during the assessment proceedings which has been inadvertently ignored by the AO. The AO is accordingly directed to verify and allow the claim of the appellant in accordance with law. With respect to additional ground No.3, the CIT(A) observed as under:- 6. Addl. Ground No.3 relates to non-deduction of bad debts written off for Rs.8,27,874/-. This issue was not raised in the grounds of appeal against the order u/s.143(3) dt.28.12.2011. This issue relates to the order u/s.143(3) and not relates to the impugned re-assessment order u/s. 147/143(3). There is no evidence that the claim was made either in the return of income or before the AO during the assessment proceedings. In view of the same, this addl. Ground of appeal is dismissed. Finally, the CIT(A) partly allowed the appeal of the assessee. 5. Aggrieved by the order of CIT(A), the assessee has filed an appeal before the Tribunal.

12 ITA No.315&331/CTK/2015 6. Before us, ld. AR argued on two substantial grounds of prior period expenses and bad debts. The contention of ld. AR that these disallowance are in respect of original assessment u/s.143(3) of the Act and since 147 proceedings were initiated, the original assessment proceedings are merged. Therefore, raised claim as additional ground and substantiated his arguments with paper book in support of the claims. 7. Contra, ld. DR vehemently opposed to the grounds and submitted that these grounds do not arise out of the order which is challenged before the Tribunal and prayed for dismissal of the same. 8. We have heard the rival contentions and perused the material on record. Ld. AR’s sole contention that the additional ground raised before the CIT(A) in respect of prior period expenses of Rs.6,05,600/- was dismissed without considering the facts that they were crystallized during the year. We find that the CIT(A) has made observation on this additional ground that the assessee cannot have a hybrid system of accounting as the assessee is maintaining books of accounts on the mercantile system. Ld. DR submitted that these additional grounds raised by the assessee do not arise out of the order passed u/s.143(3)/147 of the Act, whereas ld. AR vehemently supported his submissions and explained that the claims are merged in the reassessment proceedings. We found there is no merits in the submissions of the ld. AR. On perusal of the assessment order, we found there are no additions by the AO on the additional grounds /claim raised before us, whereas these additional grounds of appeal do not arise out of the assessment order passed u/s.143(3)/147 of the Act, dated

13 ITA No.315&331/CTK/2015 30.03.2015 and the appeal filed by the assessee is not maintainable. Accordingly, we dismiss the grounds of appeal of the assessee. 9. Now, we take up appeal of the revenue in ITA No.331/CTK/2015, wherein the sole substantive ground raised by the revenue is as under :- 01 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in taw as well as on facts in deleting the addition of Rs.1832,22,45,000/- made by the AO on account of non- deduction of tax u/s.40(a)(i) of the Act. 02 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in ignoring the fact that Section 195 is applicable in the above case and hence provisions of section 40(a)(1) are also applicable to the impugned expenditure. 03 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in taw as well as on facts in-relying-upon-the case laws in deleting the above addition which are clearly distinguishable. 10. Before us, ld. DR submitted that the CIT(A) was not justified in deleting the addition as the import purchase transactions are covered by the provisions of Section 40(a)(i) of the Act and the order of the coordinate bench of Tribunal passed in assessee’s own case was not accepted and challenged before the higher forums. Further, the assessee’s transactions are covered by the applicability of TDS provisions and prayed for allowing the appeal. Contra, ld. AR relied on the order of CIT(A) and supported his arguments with the decision of the Tribunal in assessee’s own case. 11. We have heard rival submissions and perused the material on record. The sole substantive ground raised by the revenue that the CIT(A) has erred in deleting the addition in respect of non-deduction of TDS on import of purchase material where the provisions of Section 195 and

14 ITA No.315&331/CTK/2015 40(a)(i) of the Act are applicable to the assessee. The contention of ld. DR are based on the findings of AO and supported his order, we found as per the submissions of the ld. AR this disputed issue is covered by the decision of the Tribunal in assessee’s own case for the assessment year 2007-08 in ITA No.328/CTK/2013, dated 13.6.2013 at para 6 page 6 which reads as under :-

“6. We have heard the rival submissions and perused the material available on record. On consideration of the facts and circumstances of the case, we are inclined to find meaning in the learned CIT assuming jurisdiction under the provisions of Section 263 by finding the order of the Assessing Officer erroneous and prejudicial to the interest of revenue insofar as the learned Counsel for the assessee has tried to highlight the direction of the learned CIT to the Assessing Officer for verifying the various issues as considered by him on the issue of show-cause notice which the learned Counsel for the assessee as of now before us has agreed for re-verification in the light of the Assessing Officer having verified the same but holding a view which view was not illegal. However, we are of the considered view that the direction of the learned AR to make addition of Rs.1344 Crores without re-examination suffers from infirmity to the extent that the very amounts sought to be added have been unilaterally on the basis of same material available to the learned CIT as per the view held by the Assessing Officer being the same could not be thrust upon by the learned CIT to be directed to be added without giving an opportunity to the Assessing Officer for re-examination as per the other issues also considered by the learned CIT. The learned Counsel for the assessee therefore has in his earnest put forth the facts which were not disturbed or disputed by the learned CIT for the purpose of assuming jurisdiction under the provisions of Section 263.The Assessing Officer had categorically allowed the claim of 99% of the raw materials purchased being imported raw materials utilized in the turnover of the assessee was therefore in accordance with the scheme of the business of the assessee and not because the assessee was to determine the nature of payments first for considering deduction of tax at source. The case laws relied upon by the learned Counsel for the assessee was also before the learned CIT at the time of proceedings after the issue of show cause notice when it was clearly on the identical facts considered that the provisions of Section 195(1) do not arise unless and until the need for such consideration has to be from Commissioner of Income-tax (Appeals)(TDS) whether was brought on record by the learned CIT. The learned CIT therefore could not unilaterally direct the AO to disallow the same when the procedure to adopt

15 ITA No.315&331/CTK/2015 assuming. jurisdiction under the provisions of Section 63 remained unfulfilled by the learned CIT in accordance with the cited case laws namely, GE India Technology Cen.(P) Ltd v. CIT (supra). The assessee had discharged the onus on being confronted by the Assessing Officer and therefore, neither there was an error nor it was prejudicial to the interest of Revenue by way of literal meaning as can be perused in the order of the Hon’ble Apex Court in the case laws cited. We do find merit in the contention of the learned Counsel for the assessee that the learned CIT has not considered the direction of the Hon'ble Apex Court which says - " If the contention of the department, that the moment there is remittance, the obligation to deduct TAS arises, is to be accepted, then the words 'chargeable under the provisions of the Act' in section 195(1) will be obliterated The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TDS only if the tax is assessable in India. If tar is not so assessable, there is no question of TAS being deducted." Therefore, we are of the considered view that the learned CIT directing the Assessing Officer to disallow the claim of raw material consumption amounting to Rs.1344 Crones to be added in the hands of the assessee was beyond the jurisdiction assumed u/s.263 and is directed to be quashed to that extent. However, as the learned Counsel for the assessee has agreed to be reexamined on the other issues raised by the learned CIT on direction to tile Assessing Officer for de novo assessment the same is upheld.” 6. We found ld. the CIT(A) dealt exhaustively on the disputed issue at para 3.2 page 17 and relied on the order for the assessment year 2009- 2010. Further as per the observation of the AO, the coordinate bench of the decision of Tribunal was not accepted by the revenue and the matter is subjudiced before the Hon’ble High Court and therefore applied the TDS provisions and made disallowance u/s.40(a)(i) of the Act. We are of the considered opinion that the decision of the Tribunal is binding on all the authorities in the State of Odisha and mere pendency of appeal before the Hon’ble High Court cannot be a reason to take a different view and we follow the judicial precedence. Accordingly, we found ld. CIT(A) has dealt on the disputed issue exhaustively on the provisions facts and judicial decisions vis-à-vis explanations of the assessee and granted relief.

16 ITA No.315&331/CTK/2015 Accordingly, we are not inclined to interfere with the order of CIT(A) on this ground and confirm the same and dismiss the grounds of appeal of revenue. 7. In the result, both appeals of the assessee and revenue are dismissed. Order pronounced in the open court on this 09/11/2017. Sd/- Sd/- (N. S. SAINI) (PAVAN KUMAR GADALE) लेखा सदस्य / ACCOUNTANT MEMBER न्याधयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 09/11/2017 प्र.कु.धि/PKM, Senior Private Secretary आदेश की प्रधतधलधप अग्रेधषत/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant- प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अपील) / The CIT(A), 3. आयकर आयुक्त / CIT 4. निभागीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, कटक / DR, ITAT, Cuttack 5. गाडा फाईल / Guard file. 6. सत्याधपत प्रधत //True Copy// आदेशानुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीलीय अधधकरण, कटक / ITAT, Cuttack