ACIT, Pune v. Mater&Platt Pumps Ltd, Pune

ITA 1276/PUN/2012 | 2007-2008
Pronouncement Date: 31-10-2013 | Result: Dismissed

Appeal Details

RSA Number 127624514 RSA 2012
Assessee PAN AABCD3568L
Bench Pune
Appeal Number ITA 1276/PUN/2012
Duration Of Justice 1 year(s) 4 month(s) 19 day(s)
Appellant ACIT, Pune
Respondent Mater&Platt Pumps Ltd, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 31-10-2013
Assessment Year 2007-2008
Appeal Filed On 11-06-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO. 1276/PN/2012 (ASSESSMENT YEAR 2007-08) ADDL. CIT RANGE-9 PUNE .. APPELLANT VS. MATHER & PLATT PUMPS LTD. CHINCHWAD WORKS MUMBAI PUNE ROAD PUNE 411019 .. RESPONDENT PAN NO.AABCD 3568L ASSESSEE BY : SHRI SH. NANIWADEKAR REVENUE BY : SMT. SHAILJA RAI DATE OF HEARING : 16-09-2013 DATE OF PRONOUNCEMENT : 31-10-2013 ORDER PER R.S. PADVEKAR JM : IN THIS APPEAL REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD.CIT(A)-V PUNE DATED 13-03-2012 FOR A.Y. 200 7-08. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MA DE U/S.40(A)(IA) OF THE I.T. ACT ON ACCOUNT OF PAYMENT MADE TO A NON-RESIDENT WITHOUT DEDUCTING TAX AT SOURCE AND AL SO WITHOUT ASCERTAINING THE NON-RESIDENTS BUSINESS CONNECTIONS IN INDIA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD.CIT(A) ERRED IN DIRECTING THE AO TO DELETE A N AMOUNT OF RS.29 49 488/- FROM THE ADDITION MADE ON ACCOUNT OF WRITE DOWN OF INVENTORY IGNORING THE FACT THAT THE ASSES SEE HAS NOT PROVED THE BASIS OF ADOPTING THE VALUE OF INVENTORY . 2. SO FAR AS GROUND NO.1 IS CONCERNED THE AO HAS O BSERVED THAT THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.5 30 040/- ON ACCOUNT OF SERVICE CHARGES PAID. THE SERVICE CHARGES HAVE BEEN PAID TO M/S. 2 KHEDDAR AL SAADI IRAQ FOR LIASONING WORK WITH IRAQ I GOVERNMENT FOR TECHNICAL AND COMMERCIAL INSPECTION ETC. THE AO MA DE THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT ON THE REASON THAT THE ASSESSEE HAS NOT DEDUCTE D TAX AT SOURCE ON THE SAID AMOUNT AS PER THE PROVISIONS OF SECTION 195(2) OF THE ACT. THE LD.CIT(A) ALLOWED THE SAID EXPENDITURE AS DEDUC TION TO THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES. WE FIND THAT IDENTIC AL ISSUE HAS COME FOR THE CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 (VIDE ITA NO.368/PN/2009) AND THE TRIBUNAL HAS CONFIRMED THE ORDER OF LD.CIT(A) DELETING SAID ADDI TION ON THIS ISSUE AND HELD AS UNDER : 15 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOT H THE SIDES AND PERUSED THE ORDERS OF THE AO AND CIT(A). WE HAV E ALSO CONSIDERED THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND TH E ASSESSEE HAD ENTERED INTO A CONTRACT FOR SUPPLY OF 100 PUMPS TO MI NISTRY OF INTERIOR GENERAL CORPORATION FOR WATER AND SEWAGE. THE ASSESSEE COMPANY APPOINTED M/S. KHEDDAR AL SAADI AS A LIASONING AGENCY FOR COORDINATION WITH IRAQI DEPARTMENT FOR COMMERCIAL INSPECTION AND OTHE R ACTIVITIES. THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE FOR ERECT ION BUT IT WAS ONLY A CONTRACT MERELY FOR SUPPLY. FOR DOING THE LIASONING WORK M/S. KHEDDAR AL SAADI WAS PAID EURO 3 LAKHS. THE LD. COUNSEL ARGUED T HAT THE CBDT IN ITS CIRCULAR NO.23 DATED 23-07-1969 HAS CLARIFIED THAT I F THE EXPORT COMMISSION AGENT RENDERS SERVICES OUTSIDE INDIA THE COMMISSION IS NOT TAXABLE IN INDIA AND HENCE THERE WAS NO REQUIREMENT FOR DEDUCTING THE TDS. HE FURTHER ARGUES THAT THE SAID CIRCULAR WAS WITHDRAWN BY CIRCULA R NO.07/2009 DATED 22-10-2009 BUT THE WITHDRAWAL OF THE CIRCULAR WILL BE PROSPECTIVE AS HELD IN THE CASE OF DY.CIT VS. SANJIV GUPTA REPORTED IN 135 T TJ (LUCKNOW) 641. 15.1 PER CONTRA THE LD. DR RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF A.P. L TD. VS. CIT REPORTED IN 239 ITR 587. THE AO HAS ALSO PLACED HIS HEAVY REL IANCE ON THE ABOVE DECISION. IN THE CASE OF TRANSMISSION CORPORATION OF A .P. LTD. (SUPRA) THE ANDHRA PRADESH STATE ELECTRICITY BOARD HAS MADE CERTA IN PAYMENTS TO NON- RESIDENTS AGAINST THE PURCHASE OF MACHINERY AND EQUIPM ENTS AND ALSO AGAINST THE WORK EXECUTED BY THE NON-RESIDENTS IN INDI A FOR ERECTING AND COMMISSIONING THE MACHINERY AND EQUIPMENTS. IN THE SA ID CASE AFTER CONSIDERING THE NATURE OF THE SERVICES RENDERED BY THE NON-RESIDENT THE HONBLE SUPREME COURT HELD THAT THE PURPOSE OF SUB-SEC TION (1) OF SECTION 195 IS TO SEE THAT THE SUM WHICH IS CHARGEABLE U/S.4 OF THE ACT FOR LEVY AND COLLECTION OF INCOME TAX THE PAYER SHOULD DEDUCT IN COME TAX THEREON AT THE 3 RATES IN FORCE IF THE AMOUNT IS TO BE PAID TO A NON RESIDENT. IN THE SAID CASE THERE WAS A COMPOSITE PAYMENT AND PART OF WHICH WAS TA XABLE AND PART OF WHICH WAS NOT TAXABLE. CONSIDERING THE NATURE OF THE TRANSACTION BETWEEN THE APSEB & NON-RESIDENTS COMPANY THE APEX COURT HEL D THAT THE ASSESSEE WHO MADE THE PAYMENTS TO THE 3 NON-RESIDENTS WAS UNDER OBLIGATION TO DEDUCT TAX AT SOURCE U/S.195 OF THE ACT IN RESPECT OF THE SUMS PAID TO THEM UNDER THE CONTRACT ENTERED INTO AND THE OBLIGATION OF THE RESIDENT IS TO DEDUCT TAX U/S.195 IS LIMITED ONLY TO APPROPRIATE POR TION OF THE INCOME CHARGEABLE UNDER THE ACT. 15.2 IN THE PRESENT CASE IN OUR OPINION NO INCOME IS TAXABLE AT ALL IN THE HANDS OF M/S. KHEDDAR AL SAADI IN INDIA. MOREOVER M/S. KHEDDAR AL SAADI WAS ONLY A LIASONING AGENT TO FACILITATE CLEARANCE OF ALL DOCUMENTS FOR EARLY RELEASE OF PAYMENTS AND TO MAKE EFFORTS FOR GETTING TH E PAYMENT AT THE EARLIEST FROM THE IRAQI GOVERNMENT AND PAYMENT WAS ME RELY A COMMISSION FOR RENDERING THE ABOVE SERVICES WHICH WERE OUTSIDE IN DIA. THE AMOUNT PAID TO M/S. KHEDDAR AL SAADI IS NOT COVERED U/S.9(1) (V) (VI) OR (VII) I.E. ROYALTY OR FOR TECHNICAL SERVICES. THERE IS NO TREATY BETWEEN INDIA AND IRAQ U/S.90 OF THE INCOME TAX ACT AND HENCE WE HAVE TO EX AMINE THE TAXABILITY OF THE PAYMENT MADE TO M/S. KHEDDAR AL SAADI UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT. NOWHERE IT IS THE CASE OF THE A O THAT M/S. KHEDDAR AL SAADI IS A RESIDENT OF INDIA OR OTHERWISE ALSO THE SERVI CES ARE RENDERED IN INDIA. SO FAR AS AMENDMENT TO EXPLANATION BELOW SEC TION 9 BY THE FINANCE ACT 2010 IS CONCERNED THE SAID EXPLANATION IS APPLICA BLE IN RESPECT OF INCOME COVERED UNDER CLAUSE (V) (VI) OR (VII) OF SEC TION 9(1) OF THE I.T. ACT. AS WE HAVE HELD THAT THE PAYMENT MADE TO M/S. KHEDDAR AL SAADI IS NOT COVERED UNDER CLAUSE (V) (VI) OR (VII) OF SECTION 9( 1) THE AMENDED EXPLANATION WILL HAVE NO BEARING ON THE TAXABILITY OR NON-TAXABILITY OF THE INCOME IN RESPECT OF THE SAID NON-RESIDENT LIASONING AG ENT. 15.6 WE FIND THAT IN THE CIRCULAR NO.786 DATED 07-0 2-2000 THE CBDT HAD CLARIFIED AS UNDER : THAT THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 1 95 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO.23 DATED 23-07-1969 IS DRAWN WHERE THE TAXABILITY OF FOREIG N AGENTS OF INDIAN EXPORTERS WAS CONSIDERED ALONGWITH CERTAIN OTH ER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE TH E NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY NO PART OF HIS INC OME ARISES IN INDIA. FURTHER SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BE HALF OF THE AGENT IN INDIA. SUCH PAYMENTS ARE THEREFORE HELD TO BE NOT T AXABLE IN INDIA. THE RELEVANT SECTIONS NAMELY SECTION 5(2) AND SECTION 9 OF THE INCOME-TAX ACT 1961 NOT HAVING UNDERGONE ANY CHANG E IN THIS REGARD THE CLARIFICATION IN CIRCULAR NO.23 SHALL PR EVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUE NTLY THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUT SIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRISED OF THIS POSITION THE COMPTROLLER AND AUDITOR GENERAL HAVE A GREED TO DROP THE OBJECTION REFERRED TO ABOVE. 15.7 THE SAID CIRCULAR HAS BEEN WITHDRAWN SUBSEQUENTLY BY THE CBDT VIDE CIRCULAR NO.07/2009 DATED 22-10-2009 BUT IT WI LL NOT HAVE RETROSPECTIVE EFFECT AS HELD IN THE CASE OF SANJIV GU PTA (SUPRA). WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) ON THIS ISSUE. WE 4 ACCORDINGLY CONFIRM THE SAME AND GROUND NO.3 TAKEN BY THE REVENUE IS DISMISSED. 3.1 AS THE FACTS ARE IDENTICAL IN THIS YEAR ALSO W E THEREFORE FOLLOWING THE REASONING IN A.Y. 2005-06 CONFIRM THE ORDER OF THE LD.CIT(A). ACCORDINGLY GROUND NO.1 TAKEN BY THE R EVENUE IS DISMISSED. 4. GROUND NO.2 IS IN RESPECT OF DIRECTIONS OF THE L D.CIT(A) TO THE AO ON THE ALTERNATE PLEA THAT AS THE ADDITION ON AC COUNT OF OBSOLETE STOCK IS A PART OF THE OPENING STOCK OF THE PREVIOU S YEAR RELEVANT TO THE A.Y. 2007-08 AND THEREFORE THE DISALLOWANCE SHO ULD BE RESTRICTED TO DIFFERENTIAL AMOUNT IN THE PRECEDING ASSESSMENT YEAR. THE ASSESSEE WROTE OFF OBSOLETE AND SLOW MOVING INVENTO RY TO THE EXTENT OF RS.68 31 255/- AND RS. 13 79 920/- IN THE A.YRS. 2005-06 AND 2006-07 RESPECTIVELY. BUT THE SAID CLAIM WAS REJEC TED BY THE AO AND CONFIRMED BY THE LD.CIT(A) IN BOTH THE ASSESSMENT Y EARS. THE ASSESSEE CARRIED THE ISSUE BEFORE THE TRIBUNAL AND THE TRIBUNAL RESTORED THE ISSUE TO THE FILE OF THE AO IN BOTH TH E ASSESSMENT YEARS. 5. WE HAVE HEARD THE PARTIES. IN THE A.Y. 2007-08 THE GRIEVANCE OF THE REVENUE IS AGAINST THE DIRECTIONS OF THE LD. CIT(A) TO THE AO THAT IF THERE IS AN INCREASE IN THE CLOSING STOCK I N THE PRECEDING YEAR THEN THE SAME SHOULD BE TAKEN AS OPENING STOCK IN T HE SUBSEQUENT YEAR. AS THE QUANTUM ADDITION IS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER IN THE PRECEDING YEAR WHICH WILL HAVE THE B EARING ON THE DIRECTIONS GIVEN IN THE CURRENT YEAR THE AO SHOULD FOLLOW THE SAID DIRECTIONS IN THIS YEAR ALSO IN CASE THE CLAIM OF OBSOLETE AND SLOW MOVING ITEMS IN THE STOCK IS DISALLOWED. IN OUR OP INION THE DIRECTIONS OF THE LD.CIT(A) ARE AS PER PROVISIONS OF LAW. WE FIND NO REASON TO 5 INTERFERE WITH THE DIRECTIONS OF LD.CIT(A) ON THIS ISSUE. WE ACCORDINGLY DISMISS THE GROUND NO.2 TAKEN BY THE RE VENUE. 6. IN THE RESULT THE REVENUES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON 31-10-2013. SD/- SD/- (G.S.PANNU) (R.S. PADVE KAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED : 31 ST OCTOBER 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-V PUNE 4. THE CIT-V PUNE 5. D.R. A BENCH PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE