ABM Steels Pvt.Ltd.,, Ahmedabad v. The ACIT.,Circle-1,, Ahmedabad

ITA 1855/AHD/2011 | 2008-2009
Pronouncement Date: 24-04-2015 | Result: Allowed

Appeal Details

RSA Number 185520514 RSA 2011
Assessee PAN AABCA6004C
Bench Ahmedabad
Appeal Number ITA 1855/AHD/2011
Duration Of Justice 3 year(s) 9 month(s) 2 day(s)
Appellant ABM Steels Pvt.Ltd.,, Ahmedabad
Respondent The ACIT.,Circle-1,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 24-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 24-04-2015
Date Of Final Hearing 15-04-2015
Next Hearing Date 15-04-2015
Assessment Year 2008-2009
Appeal Filed On 22-07-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI G. D. AGARWAL VICE PRESIDENT AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO . 1 855 /AHD/20 11 A. Y . 2008 - 0 9 ABM STEELS PVT. LTD. 64/A GIDC PHASE - I VATVA INDUSTRIAL ESTATE A HMEDABAD. PAN: AABCA 6004C VS ACIT AHMEDABAD . (APPELLANT) (RESPONDENT) REVENUE BY : SHRI DINESH SINGH SR.D.R. ASSESSEE(S) BY : SHRI S.N. SOPARKAR A.R. / DATE OF HEARING : 15 / 0 4 /201 5 / DATE OF PRONOUNCEMENT: 24 / 04 /201 5 / O R D E R PER: S. S. GODARA JUDICIAL MEMBER THIS A SSESSEE S A PPEAL FOR A.Y.200 8 - 0 9 ARISE S FROM ORDER OF THE CIT (A) - V I AHMEDABAD DATED 2 7 .0 6 .20 11 IN CASE NO. CIT(A) - VI/ACIT.CIR.1/170/10 - 11 CONFIRMING ASSESSING OFFICER S ACTION HOLDING EXPENDITURE ON BUILDING REPAIRS OF RS.18 01 899 AS CAPITAL EXPENDITURE AND DISALLOWING COMMISSION EXPEN SES OF RS.10 99 445/ - U/S.40(A)(I) PAID TO FOREIG N AGENT S FOR NON DEDUCTION OF TDS IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT IN SHORT THE ACT . ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 2 - 2. THE ASSESSEE - COMPANY MANUFACTURES COMPONENTS AND PARTS FOR PROCESS CONTROL INSTALLMENTS AND OTHER PRODUCTS. IT FILED ITS RETURN ON 16.09.2008 DECLAR ING TOTAL INCOME OF RS.2 31 43 010/ - . T HE SAME WERE SUMMARILY PROCESSED. THEREAFTER THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 30.11.2010 INTER ALIA HOLDING ASSESSEE S CLAIM ON BUILDING REPAIR OF RS.17 11 804/ - AS CAPITAL EXPENSES AND DISAL LOWED COMMISSION PAID TO FOREIGN EXPORT AGENTS U/S.40(A)(I) AMOUNTING TO RS.10 96 445/ - FOR NON DEDUCTION OF TDS. 3. THE CIT(A) HAS AFFIRMED THE ASSESSING OFFICER S ACTION. THIS LEAVES THE ASSESSEE AGGRIEVED. 4. WE COME TO ASSESSEE S FIRST SUBSTANTIVE GR OUND RELATING TO DISALLOWANCE OF BUILDING REPAIR EXPENSES. THE ASSESSING OFFICER CONSIDERED SECTION 30A EXPLANATION TO OB SERVE THAT ONLY EXPENDITURE ON CURRENT REPAIRS NOT F ORMING CAPITAL EXPENDITURE IS ALLOWABLE . HE STATE D THAT THE ASSESSEE S REPAIR WAS NOT A CURRENT ONE BUT AMOUNT ED TO CREATION OF NEW ASSET S HAVING ENDURING BENEFIT S . T HE ASSESSEE HAD RENOVATED FACTORY BUILDING BY RE - PLASTERING RE - FLOORING REPLACEMENT OF DOORS ELECTRICITY FITTINGS AND RE - PLUMB ER ING. IT FILED REPLY QUOT ING A CATENA OF CASE LAW. IT ALSO PLEADED TO HAVE SPEN T THE SUM IN QUESTION ONLY ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 3 - TO PRESERVE AND MAINTAIN ALREADY EXISTING ASSET S AND NOT TO HAVE CREATE S A NEW ONE . THE ASSESSING OFFICER TOOK INTO ACCOUNT VOLUME OF THE CONSTRUCTION MATERIAL INVOLVING 600 BAGS OF CEMENT 1 2 000/ - BRICKS 1300 BOXES OF CERAMIC GLAZED TILES AND LABOUR EXPENSES OF RS.5 LAC TO HOLD THAT THE REPAIR IN Q UESTION WAS NOT CURRENT REPAIR U/S. 3B EXPLANATION. HE DISALLOWED TOTAL REPAIR EXPENDITURE AMOUNTING TO RS.18 01 819/ - AND HELD IT TO BE CAPITAL IN NATURE. THE ASSESSING OFFICER ALSO APPEARS TO HAVE GRANTED 5% DEPRECIATION I.E. HALF OF 10% BECAUSE OF THE RELEVANT TIME PERIOD BEING LESS THAN 180 DAYS TO THE TUNE OF RS.90 995/ - . T HIS RESULTED IN THE IMPUGNED DISALLOWANCE OF RS.17 11 804/ - . SAME POS ITION CONTINUE S IN THE LOWER APPELLATE ORDER. 5. WE HAVE HEARD BOTH SIDES AND PERUSED THE CASE FILE. THERE IS NO FACTUAL DISPUTE ABOUT THE VERY FACTUM OF THE IMPUGNED SUM OF RS.18 01 899/ - BEING SPENT ON THE BUILDING IN QUESTION. THE ISSUE BETWEEN THE PAR TIES IS ABOUT ITS NATURE; I.E. WHETHER CAPITAL OR REVENUE AS PER THE REVENUE AND ASSESSEE RESPECTIVELY. T HE ASSESSEE S STAND FROM THE VERY BEGINNING CLAIMS IT TO BE NOT RESULT ING ANY S TRUCTURAL CHANGE IN THE FACTORY BUILDING NO N CARRYING OUT OF ANY CIVI L WORK ENTIRE RENOVATION MEANT TO REPLACE THE OLD NORMAL WEAR/TEAR OF THE BUILDING NON APPOINTMENT OF ANY CIVIL ENGINEER NO STEEL ITEM BEING USED AND NO NEW BUILDING OR ASSET OF DIFFERENT SIZE AND SHAPE TO HA VE ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 4 - COME UP. T HE LOWER AUTHORITIES ARE FAIR EN OUGH IN NOT SPECIFICALLY REJECTIN G THE SE PLEAS . T HE ASSESSEE HAS ONLY RE - PLASTERED RE - FURNISHED AND RE - PLUMBERED ITS FACTORY BUILDING. THIS IS NOT THE REVENUE S CASE THAT THE SAME HAS CAUSED ANY INCREASE IN CAPACITY OF THE BUILDING OR OTHERWISE. THE ASSES SING OFFICER HAS BEEN H EAVILY SWAYED BY THE QUANTITY OF THE MATERIAL USED (SUPRA ) . WE OBSERVE THAT THIS FACTOR IS NOT RELEVANT IN DECIDING SUCH AN ISSUE OF CAPITAL AND R EVENUE EXPENDITURE ONCE IT HAS NOT RESULTED IN CREATION OF A NEW ASSET GIV I N G ENDURING ADVANTAGE. WE QUOTE HON BLE BOMBAY HIGH COURT DECISION IN CIT VS. DBS CORPORATE SERVICES (P) LTD. (2014) 43 T AXMANN.COM IN SUPPORT . THE REVENUE DOES NOT POINT OUT ANY CASE LAW TO THE CONTRARY. THUS WE ACCEPT THE ASSESSEE S RELEVANT GROUND AND DELETE THE IMPUGNED DISALLOWANCE OF RS.18 01 899/ - BY TREATING THESE BUILDING REPAIR EXPENSES AS R EVENUE EXPENDITURE LIABLE TO BE TREATED AS CURRENT REPAIR U/S.30 OF THE ACT . 6. THIS LEAVES US WITH THE LATTER GROUND OF DISALLOWANCE OF COMMISSION EXPENDITURE OF RS.10 99 445/ - U/S.40(A)(I) PAID TO FOREIGN AGENT S IN LIEU OF PROCURING EXPORT ORDERS. THE ASSESSEE HAD PAID THIS SUM TO M/S. KP SOLUTION LLC DEBITED WITHOUT DEDUCTING AN Y TDS. THE ASSESSING OFFICER TREATED THIS EXPENDITURE A S BE ING PAID FOR AVAILING TECHNICAL SERVICES ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 5 - COVERED U/S. 9( 1 )(VII) LIABLE FOR TDS DEDUCTION. THE ASSESSEE FILED COPY OF THE RELEVANT AGREEMENT . IT PLEADED THAT THE PAYMENTS IN QUESTION WERE IN THE NATURE OF EXPORT COMMISSION NOT TAXABLE IN INDIA IN THE RECIPIENT S HANDS WITHOUT THERE BEING AN Y BUSINESS CONNECTION U /S.9(1) SO AS TO ATTRACT SECTION 195 . THE ASSESSING OFFICER WENT THROUGH THE AGREEMENT S CLAUSE S TO CONCLUDE THAT THE RECIPIENTS HAD NOT ONLY ACTED AS COMMISSION AGENT S BUT ALSO PROVIDED TECHNICAL SERVICES. THIS RESULTED IN THE IMPUG NED SECTION 40(A)(IA) DISALLOWANCE OF RS.10 99 445/ - . THE ASSESSEE HA S F A ILED IN LOWER APPELLATE ORDER AS WELL . 8. HEARD BOTH SIDES . R ECORDS PERUSED. THE B OARD HAD ISSUED CIRCULAR NO.786 DATED 7.2.2000 EXEMPTING SIMILAR COMMISSION PAYMENTS FROM TDS DED UCTION. T HE SAME WAS WITHDRAWN VIDE CIRCULAR 7/09 DATED 22.10.2009. T HE RELEVANT A SSESSMENT Y EAR IS 2008 - 09 HAVING ACCOUNTING PERIOD FROM 1.4.2008 TO 31.3.2009. THERE IS NO DISPUTE BETWEEN PARTIES ABOUT THE FORMER CIRCULAR AND ITS WITHDRAWAL BY A SUBSEQUEN T ONE. IT IS NOT THE REVENUE S CONTENTION THAT THIS WITHDRAWAL IS WITH RETROSPECTIVE EFFECT COVERING THE EARLIER SPAN OF TIME. THE ASSESSEE ALSO MAKES SUBMISSIONS ON THESE VERY LINES. THEREFORE WE HOLD THAT THE B OARD S CIRCULAR DATED 22.10.2009 WITHDRAWIN G THE EARLIER ONE EXEMPT ING FOREIGN AGENCIES COMMISSION FROM TDS DEDUCTION HAS TO BE TREATED AS HAVING PROSPECTIVE EFFECT ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 6 - ONLY . WE RELY ON CASE LAW OF M/S. AJIT IMPEX VS. DCIT (ITA NO.2890/AHD/2010 ORDER DATED 29.04.2014 IN S UPPORT . 8.1 AT THIS STAGE THE REVENUE ARGUES THAT THE ASSESSEE HAD AVAILED TECHNICAL SERVICE S FROM ITS OVERSE A S AGENTS TO ATTRACT SECTION 9 ( 1 ) ( VII ) OF THE ACT. THE ASSESSEE PLACES ON RECORD AGREEMENT DATED 8 TH DECEMBER 2005 (SUPRA) HIGHLIGHTING ITS PAYEES OBLIGATIONS AS UNDER: 3.1 T HE AGENT UNDERTAKES TO ENSURE THE QUALIFICATION OF THE PRODUCTS SHALL USE ITS BEST EFFORTS TO PROMOTE THE PRODUCTS AND IN GENERAL SHALL ACT PROMPTLY AND DILIGENTLY IN CARRYINGOUT ITS OBLIGATIONS AS AGENT. 3.2 THE AGENT S ACTIVITIES SHALL AT ITS OWN COST INCLUDE BUT SHALL NOT BE LIMITED TO. REGULARLY VISITING EXISTING AND POTENTIAL CUSTOMERS. USING ITS BEST ENDEAVOURS AND APPLYING NORMAL COMMERCIAL TECHNIQUES IN PROMOTING THE PRODUCTS. ARRANGE TO THE SATISFACTION OF ABM ADEQUATE AND EFFECTIVE PUBLICITY FOR THE PRODUCTS. PARTI CIPATING IN ALL APPROPRIATE TRADE FAIRS AND /OR EXHIBITIONS. KEEP ABM DULY INFORMED ON ALL EXISTING AND FUTURE REQUIREMENTS OF LOCAL LAW CONCERNING THE BUSINESS OF ABM OR WHICH MAY CONCERN THE EXECUTION OF THIS AGREEMENT AND IN PARTICU LAR ALL PROBLEMS IN CONNECTION WITH IMPORT AND SALE OF THE PRODUCTS. TO HAVE SOUND QUALIFIED AND TECHNICAL PERSONNEL EMPLOYED WITH THEM FOR TECHNICAL COMMERCIAL AND MARKETING AREAS. WE HAVE CONFRONTED THE REVENUE ABOUT THE AFORESAID CLAUSES IN THE AGR EEMENT. IT FAILS TO POINT OUT INVOLVEMENT OF ANY TECHNICAL COMPONENT THEREIN. THE ASSESSEE S OVERSE A S AGENT S ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 7 - H AVE PROCUR ED EXPORT ORDERS AND PROVIDED LOGISTIC SUPPORT THROUGH ADEQUATE PUBLICITY ETC . THERE IS NOT EVEN AN IOTA OF EVIDENCE TO PROVE ANY TECHNI CAL SERVICE ACTUALLY RENDERED TO THE ASSESSEE. THUS THE REVENUE S CONTENTION RELATING TO SECTION 9(1)(VII) APLICABILITY STANDS NEGAT ED . W E HOLD THAT THE ASSESSEE HAS NOT AVAILED ANY TECHNICAL SERVICES FROM ITS OVERSEAS AGENTS SO AS TO DEDUCT TDS ON THE IM PUGNED EXPORT COMMISSION PAYMENTS . T HE HON BLE SUPREME COURT IN G . E . INDIA TECH NOLOGY CENTRE P. LTD. 329 ITR 110 (DELHI) HAS HELD THAT SECTION 195 APPLIES ONLY WHEN OVERSEAS PAYMENTS ARE TAXABLE IN THE RECIPIENT S HANDS UNDER THE ACT . THEREFORE WE DELETE THE IMPUGNED DISALLOWANCE. 9. THE ASSESSEE S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS DAY THE 24 APRIL 201 5 AT AHMEDABAD. SD/ - SD/ - ( G. D. AGARWAL ) ( S.S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 24 / 0 4 / 20 1 5 PRABHAT KR. KESARWANI SR. P . S . S / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III AHMEDABAD 5. / DR ITAT AHMEDABAD 6. / GUARD FILE . ITA NO. 1 855 /AHD /20 11 ABM STEELS PVT. LTD. FOR A.Y. 20 0 8 - 0 9 - 8 - / BY ORDER / ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD