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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. A. T. Varkey, JM Asstt. Year : 2011-12 M/s Samsung Heavy Industries Vs Joint Commissioner of Income Tax Co. Ltd., C/o Price Water House (International Taxation), Coopers Pvt. Ltd., 17th Floor, Dehradun Building 10, Tower C, DLF, Cyber City, Gurgaon, Haryana-122002 (APPELLANT) (RESPONDENT) PAN No. AAJCS7859K Assessee by : Sh. Pawan Kumar, Adv., Ms. Pooja Khanna, & Sanjam Goel, CAs Revenue by : Sh. Anuj Arora, CIT DR Date of Hearing : 07.01.2016 Date of Pronouncement : 28.03.2016 ORDER Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 28.01.2015 of the AO.
Following grounds have been raised in this appeal: “1.That on the facts and in the circumstances of the case and in law, the Joint Commissioner of Income Tax, International Taxation, Dehradun (‘the Ld. AO’) has erred in framing the assessment order by assessing the income at Rs.24,72,75,720 as against the NIL returned income based upon conjectures, surmises, preconceived notions and incorrect application of law.
Samsung Heavy Industries Co. Ltd.
2. That on the facts and circumstances of the case and in law, the Ld. AO in pursuance of the directions of the Dispute Resolution Panel (‘DRP’) has erred in disallowing “clearing and forwarding” expense amounting to Rs.2,48,38,166 under section 40(a)(ia) of the Act on the ground of non-deduction of tax. 2.1 That the Ld. AO failed to appreciate that the payments were made mostly to the non-residents in relation to import of goods on CIF basis (Cost, Insurance and Freight) on which provisions of section 194C, 194J, 195 do not apply therefore disallowance u/s 40(a)(ia) of the Act was not warranted. 2.2 Without prejudice to the above ground, the Ld. AO exceeded his jurisdiction by disallowing “clearing and forwarding” expense under section 40(a)(ia) of the Act on the payments made to non- residents amounting to Rs.2,42,97,182 (out of the total expense of Rs.2,48,38,166), whereas no disallowance could be made under the provisions of section 40(a)(ia) of the Act.
3. That on the facts and circumstances of the case and in law, the Ld. AO has erred in making an ad- hoc and arbitrary disallowance of 30% of expense charged under the head “Cost of material consumed” and “Work in progress” amounting to Rs.22,03,68,112 (being Rs.16,24,48,453 for “Cost of material consumed” and Rs.5,79,19,659 for “Work in progress”).
Samsung Heavy Industries Co. Ltd. 3.1 That the Ld. AO failed to take cognizance of the submissions dated January 28, 2015, filed during the course of proceedings after the directions of the DRP, wherein the details of “Work in progress” and details of “Purchase of traded goods” were filed by the appellant. 3.2 That the Ld. AO and the DRP failed to appreciate that no addition in respect of Work in progress could be made towards the opening balance amounting to Rs.33,64,60,776 as it was accepted by the revenue in the immediately preceding year as closing stock having effect of increasing the taxable income of the appellant for that year (i.e. for AY 2011-12). 3.3 That the Ld. AO and the DRP failed to appreciate that no addition in respect of value of opening stock of traded goods amounting to Rs.12,94,70,665 being a part of “Cost of material consumed” could be made, as it was accepted by the revenue in the immediately preceding year as closing stock having effect of increasing the taxable income of the appellant for that year (i.e. for AY 2011-12).
4. That on the facts and circumstances of the case and in law, the Ld. AO has erred in not allowing the set-off of brought forward losses as claimed by the appellant in its return of income amounting to Rs.1,71,53,59,566 (whereas the assessed loss amounted to Rs.1,10,99,78,744) while computing the assessed income of the appellant, disregarding the clear and specific directions of the DRP.
Samsung Heavy Industries Co. Ltd.
5. That on the facts and in the circumstances of the case and in law, the learned AO erred in levying interest u/s 234B of the Act.
6. That on the facts and in the circumstances of the case and in law, the learned AO erred in levying interest u/s 234C of the Act.
7. That the Ld. AO has erred in mechanically initiating proceedings under section 271(1)(c) of the Act. The Appellant craves leave to later, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing of this appeal.”
Ground No. 1 of this appeal is general in nature and Ground No. 7 is raised pre-mature so these grounds do not require adjudication on our part.
As regards to the Ground Nos. 2 to 2.2, the facts related to the issue in brief are that the assessee, a non- residents company filed its return of income on 30.09.2011 declaring Nil income which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 05.03.2011. Later on, the case was selected for scrutiny. The AO asked the assessee to produce the books of account alongwith supporting evidence/vouchers, copy of invoices etc. in respect of revenue earned during the year under Samsung Heavy Industries Co. Ltd. consideration. He also asked the assessee to furnish the details of tax deducted at source on various expenditure/payments. According to the AO the assessee had not furnished the requisite details. He, therefore, framed the assessment ex-parte u/s 143(3)/144C(13) of the Act and made the addition of Rs.2,48,38,166/- by observing as under:
Disallowance u/s 40(a)(ia) – Vide letter dated 20.03.2014 the assessee has submitted that TDS has not been deducted on clearing and forwarding payments. The assessee was once again asked vide order sheet entry dated 24.03.2014 to submit the invoices received from agents/contractors and furnish justification for non-deduction of TDS. However, the assessee did not furnish any detail neither any justification. In view of the provisions of section 40(a)(ia) any expenditure on which tax is deductible at source under chapter XVII B and such tax has not been deducted, the deduction in respect of such expenditure shall not be allowed. Accordingly, following the provisions of act expenditure relating to clearing and forwarding amounting to Rs.2,48,38,166/- is disallowed.
Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee submitted that the AO although passed the assessment order on the direction of the DRP, however, he had not followed the directions in right prospective. It was further submitted that the assessee furnished the requisite details before the AO vide
Samsung Heavy Industries Co. Ltd. submissions dated 24.04.2014 i.e. the details under the head clearing and forwarding expenses which were the payments mostly made to foreign clearing and forwarding agents in relation to import of goods on CIF basis and that the provisions of Section 194C/194J of the Act are applicable in case the payments are made to residents and not to the foreign agent. It was stated that the payments were made to non-residents who did not have permanent establishment in India, therefore, as per the directions issued by the CBDT in instruction No. 2/2014, the provisions of TDS were not applicable. A reference was made to page no. 244 of the assessee’s paper book which is a part of the copy of letter dated 18.11.2014 filed by the assessee before the DRP wherein it has been stated that the cost appearing under the head ‘clearing and forwarding’ represented payments which were purely in the nature of reimbursement of either customs duty or sea freight/transportation. The ld. Counsel for the assessee submitted that the DRP has not appreciated the said contention of the assessee in right prospective and that the contention of the assessee was not rebutted. The ld. Counsel for the assessee also referred to page no. 54 of the assessee’s compilation which is part of the letter dated 24.03.2014 written to the AO wherein it has been submitted that the payments made to the foreign agents shall not be Samsung Heavy Industries Co. Ltd. subjected to tax withholding by the assessee as those parties/agents did not have permanent establishment in India. It was submitted that the aforesaid contention of the assessee was not rebutted by the AO. Accordingly it was submitted that the AO was not justified in making the disallowance.
In his rival submissions the ld. DR strongly supported the impugned order passed by the AO and further submitted that the assessee did not comply with the directions given by the AO for furnishing the requisite details in support of its claim. Therefore, in the absence of the requisite details the disallowance was rightly made by the AO and added to the income of the assessee.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that neither the DRP nor the AO had appreciated the facts of the present case in right prospective. It also appears that the DRP has not commented on this contention of the assessee that most of the payments made to the non-residents parties in relation to clearing and forwarding, were in the nature of integrated contract for purchase of material which included
Samsung Heavy Industries Co. Ltd. transportation and installation cost and also represented payments which were purely in the nature of reimbursement of other Customs Duty of sea freight/transportation. The AO also did not comment on this submission of the assessee that the payment made to the foreign agents shall not be subject to tax as those agents did not have a permanent establishment in India. We, therefore, by considering the totality of the facts, deem it appropriate to remand this issue back to the file of the DRP/AO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
The next issue vide Ground No. 3 relates to the ad-hoc disallowance @ 30% of the expenses charged under the head ‘cost of material consumed’ and ‘work in progress’.
As regards to this issue, the assessee has filed an application under Rule 29 of the Income Tax Rules, 1962 and requested for admission of the additional evidence to resolve the aforesaid issue. The reasons for furnishing the aforesaid additional evidences have been stated that the assessee furnished the copies of the ledger of different category of items for ‘purchase of traded goods’ having party wise details and details of ‘work in progress’, opening
Samsung Heavy Industries Co. Ltd. of closing stock on 28.01.2015, during the course of assessment prcoeeding before the AO who directed the assessee to furnish another details which were duly furnished vide submissions dated 29.01.2015, however, the AO did not consider those details. A reference was made to page nos. 266, 274 and 299 of the assessee’s paper book. It has further been submitted that the AO made the disallowance on one of the alleged grounds that invoices were not filed, which were never asked during the course of assessment proceedings. The assessee sought the permission to file additional evidences in the form of bills/invoices for ‘purchase of traded goods’ being part of ‘cost of material consumed’. The ld. Counsel for the assessee reiterated the submissions made in the said application and stated that the said evidence may be admitted because no opportunity was given by the AO to counter his allegations. The reliance is placed on the following case laws: � ACIT Vs Jay Engineering Works Limited 113 ITR 389 (Del) � K. Venkataramiah Vs A. Seetharama Reddy & Ors. (1963) AIR 1526 (SC) � CIT Vs Text Hundred India (P) Ltd. 351 ITR 57 (Del) � CIT Vs Kum Satya Setia 15 Taxman 345 (MP)
Samsung Heavy Industries Co. Ltd. 10. In his rival submissions the ld. DR supported the order of the AO and further submitted that ample opportunities were given to the assessee by the DRP as well as the AO. Therefore, the additional evidences which were not furnished earlier may not be admitted at this stage.
We have considered the submissions of both the parties and perused the material available on the record. In the present case, it appears that the AO made the disallowance @ 30% of the expenses under the head “cost of revenue” amounting to Rs.142,73,84,157/-, on the ground that the assessee did not furnish requisite details in respect of various expenditure and closing “work in progress”. Accordingly, the disallowance of Rs.42,07,63,797/- was made. The claim of the assessee in respect of the aforesaid issue is that the AO never asked for such details and whatever details were asked those were furnished by the assessee. In support of the above said contention that the assessee furnished all the details/documents which were asked by the authorities below, the assessee had furnished an Affidavit dated 15.07.2015. In our opinion, the details now furnished by the assessee as an additional evidence go to the root of the matter. Therefore, those deserve to be admitted and accordingly new evidences furnished by the Samsung Heavy Industries Co. Ltd. assessee are admitted It is an admitted position that the new evidences now produced by the assessee (which are placed at page nos. 6 to 177 of the assessee’s paper book alongwith application furnished on 14.08.2015 for admission of the additional evidences under Rule 29 of the Income Tax (AT) Rules, 1963) go to the root of the matter but at the same time these were not available to the DRP/AO for their consideration. We, therefore, considering the totality of the facts, deem it appropriate to restore this issue back to the file of the DRP/AO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
Next issue vide Ground No. 4 agitated by the assessee relates to the set off of “brought forward loss” amounting to Rs.171,53,59,566/- which is claimed to be allowed by the AO to the extent of Rs.110,99,78,744/-. During the course of hearing the ld. Counsel for the assessee submitted that this issue may be restored back to the file of the AO for verification from the record and to be allowed in accordance with law. The ld. DR did not object to the aforesaid proposal of the ld. Counsel for the assessee. In view of the above said common contention of both the parties this issue is restored to the file of the AO to be adjudicated in Samsung Heavy Industries Co. Ltd. accordance with law after proper verification from the record and after providing due and reasonable opportunity of being heard to the assessee.
The next issues vide Ground Nos. 5 & 6 relates to the charging of interest u/s 234B and 234C of the Act. The contention of the ld. Counsel for the assessee was that no interest was chargeable u/s 234B, since the assessee is non- residents. The reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of DIT Vs Mitsubishi Corporation (2011) 330 ITR 578, regarding charging of interest u/s 234C of the Act, the ld. Counsel for the assessee submitted that it is consequential in nature.
In his rival submissions the ld. DR submitted that if the issue is to be restored to the file of the AO, he should verify whether the assessee asked for the deduction of TDS at a lower rate or not.
We have considered the submissions of both the parties and are of the view that the aforesaid issues relating to the charging of interest u/s 234B and 234C of the Act to be adjudicated by the AO afresh by keeping in view the aforesaid submissions of both the parties and the ratio laid
Samsung Heavy Industries Co. Ltd. down by the Hon’ble Jurisdictional High Court in the case of DIT Vs Mitsubishi Corporation (supra).
In the result, appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 28/03/2016)