DCIT, BHUBANESWAR vs. M/S. B & A MULTIWALL PACKAGING LTD., BHUBANESWAR

Per Shri Pavan Kumar Gadale, JM: These are the cross appeals filed by the assessee and revenue against the order dated 3.11.2014, passed by the CIT(A)-1, Bhubaneswar for the assessment year 2008-2009. 2. For the sake of convenience, we shall take into consideration the facts narrated in ITA No.45/CTK/2015 in assessee’s appeal, for deciding

the appeals.

from various foreign companies and filed the return of income on 01.10.2008 with total income at Nil and MAT was computed on book profit

u/s.115JB at Rs.44,64,297/- and the assessment was completed

u/s.143(3) dated 30.11.2010, subsequently, the CIT, Bhubaneswar found

that the order passed by the AO u/s.143(3) of the Act is erroneous and prejudicial to the interest of revenue and passed the revision order after

considering the facts and submission on the disputed issue and gave

directions to the AO to do the fresh assessment vide order dated

u/s.142(1) and ld. AR of the assessee appeared and produced the documents and written submission along with explanations to questionnaires. The AO dealt on the directions of CIT in respect of disallowance u/s.40(a)(i) of the Act. The AO found that the assessee has imported raw materials amounting to Rs.8,30,57,659/- and has not deducted tax u/s.195(1) of the Act and discussed at page 4 of the order

and also dealt on the judicial decisions and submission of the assessee

and finally concluded that the assessee is liable to deduction u/s.195(1)

and observed as under :-

“From the above judgments of the both courts that either assessee has to make an application u/s.195(2) of the I.T.Act, 1961 or deduct tax at source while making any payment u/s.195 to a non-resident. It is seen from the assessment record that there is nothing to establish that the assessee has made application u/s.195(2) to the Assessing Officer for non-deduction or deduction at lower rate. Also there is nothing on record to establish that certificate was issued in favour of non-resident recipient by AO to receive the sum without deduction of tax u/s.195(1). It is also found that undertaking and CA’s certificate as envisaged in CBDT’s circular no.10/2002 are not available with the assessee. Hence, it is concluded that assessee has not deducted tax while making payments to non-resident. Moreover, CA has not mentioned anything regarding deduction of tax source from value of imported raw materials in S.No.27(a)[Schedule-xi] form no.-3CD. Therefore, value of imported raw materials worth of Rs.8,30,57,659/- is required to be disallowed for non-deduction of TDS while computing profits & gains of business for the AY 2008-09 and added to the total in income.”

On the second disputed issue of addition of closing stock on stores and spares of Rs.17,39,258/-, the AO found that the assessee has disclosed

the stocks of spares and they are was not credited to the profit and loss

account and also not part of the financial statements, therefore, the AO

was of the opinion that there is understatement of income and made

addition of Rs.17,39,258/-.

issue of addition u/s.40(a)(i) of the Act has deleted the addition and on the second disputed issue the CIT(A) sustained the addition in respect of closing stock and partly allowed the appeal.

passed u/s.143(3) r.w.s263 of the Act on 18.2.2014. The assessee has already included the value of stocks in the financial statements and submitted the relevant documents. Further, ld.AR referred to various papers in the paper book and prayed for allowing the appeal. Contra, ld.

DR relied on the orders of CIT(A) on this ground.

amounting to Rs.17,38,258/- was already considered in the books of accounts and the ld. AR drew our attention to the paper book and referred

to at page 120 & 121 of the paper book where the fact of purchase of engineering stores stock and consumable & engineering spares have been dealt in trial balance. Similarly, ld. AR also referred to the annual

report of the assessee at page 88 where the value of stores and spares

disclosed as opening balance as on 31.3.2007. The fact that being the assessee has given net calculations in his stock statements and filed

voluminous information on the system of inclusion of closing stock in the goods consumed. Ld. AR further substantiate his arguments with supporting evidence of stocks and spares. We find strength in the arguments of assessee as the assessee has applied accounting system

adopted from the earlier years and the revenue has been accepting the the AO. Accordingly, we in the interest of justice remit the disputed issue

to the file of AO for examination and verification of inclusion of closing

stock with supporting evidence and the assessee be provided adequate

opportunity of being heard before passing the order on merits.

No.59/CTK/2015, wherein the revenue has raised the following grounds :-

“1. 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 deleting the addition of Rs.8,30,57,659/- made u/s.40(a)(ia) of the Act. “2. On the facts and in the circumstances of the case, the ld. CIT(A) is not justified in not accepting the examination of findings made by the AO on the issues.

resident along with material, which is inclusive, therefore, provisions of Section 40(a)(i) shall apply and the raw material cost also includes profit

element.

raw material from the abroad and filed paper book with invoice copies

raised by the suppliers and the transaction is on principal to principal

basis and since the assessee has explained that the raw material sold by the non-resident from outside the country, therefore, no income accrues to the non-resident from Indian territory and prayed for allowing the appeal.

where the profit element is also included and also the provisions of Section 195(1) shall apply and the CBDT Circular. The assessee has not deducted TDS as it was out of the purview of TDS provisions, we find the ld. CIT(A) has discussed at length on the provisions at page 3 to 11 of the order and considered the findings of AO and submissions of the assessee

and judicial decisions and the facts and dealt independently on the judicial

decisions and finally concluded relying on the decision of Hon’ble

Supreme Court in the case of G.E.India Technology Cen. (P) Ltd., 327

ITR 456 (SC) and observed at page 12 of the order as under :-

“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. The raw matr5ial 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 arises in favour of the non-resident sellers in the Indian territory or that the income of such non-residents in respect of transactions is assessable under the Indian Income Tax Law. 3.2.3 In view of the judgment of the Apex Court in the case of G.E. India Technology Cen.(P) Ltd. V. CIT(supra), 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 of Rs.8,30,57,659/- made by the AO u/s.40(a)(i) is hereby deleted. Ground Nos. 3 to 5 are thus allowed.

Further, ld. AR drew our attention to the invoice raised by one seller and also the amount involved in respect of invoices. In one instance the never any payment was made to non-residents for any business connection in India except for supply of raw material from abroad and also drew our attention to the bank statements, invoices as referred in the paper book. We found that the CIT(A) has not called for any remand report on the submissions made by the assessee from the AO. The ld. AR has filed voluminous documents in support of transaction based on the principal to principal basis and non-resident is only a supplier and no business connection or place of business available in India. Therefore, we, in the interest of justice, are of the view that the AO has to verify the documents filed in respect of transactions before us. Accordingly, the disputed issue is remitted to the file of Assessing Officer for verification and examination for limited purpose and the assessee shall also be provided adequate opportunity of hearing before passing the order on merits. Accordingly, appeal of the revenue is allowed for statistical purposes 14 . Thus, appeal of the assessee i.e ITA No.45/CTK/2015 and appeal of the revenue in ITA No.59/CTK/2015 are allowed for statistical purposes. Order pronounced in the open court on this 04/08/2017. (N. S. SAINI) (PAVAN KUMAR GADALE) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य / JUDICIAL MEMBER कटक Cuttack; "दनांक Dated 04/08/2017 ".कु."म/PKM, Senior Private Secretary आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : अपीलाथ" / The Appellant-