No VAT is payable on the sale of old cars if the main business of the dealer is not incidental to the sale of car. The Delhi High Court in the case of Penashya Biotech
Ltd. which had sold old cars, used for staff and guests of the company, decided that no VAT is leviable on the sale of such old cars as it is not the business of the company to sell and purchase of cars. If the business is not incidental, the VAT is not applicable.
The judgment may be useful for the readers because under GVAT Act VAT is leviable on the sale of old cars.
Important Judgements :
[A] In the recent decision of Hon. GVAT Tribunal in the case of M/s. Essar Steels Ltd., the following controversial issues are settled by the Tribunal.o The orders passed by the lower authorities reducing and/or confirming the reduction of Input Tax Credit of 4% on the turnover of taxable purchases of natural gas and coke used in the manufacture of goods under section11(3)(b)(iii) of the Gujarat Vat Act are quashed and set aside and it is held that the appellant is entitled to entire input tax credit relating to such purchase.
o The appellant is entitled to input tax credit of tax paid on the purchases of fire and safety
goods, electrical goods, hoses and pipes and stores and spares used as consumable in the
manufacture of goods. o The appellant is not entitled to input tax credit of tax paid on purchase of building materials used for construction of foundation and thus used
as capital goods in the manufacture of goods. o The appellant is not entitled to input tax credit in relation to purchases made from the vendors in respect of whom adverse reports were received on cross checks. The assessing officer is directed to re-look in the matter and after providing necessary details regarding cross verification to the appellant and calling for explanation, the said issue will have to be decided afresh.
o It is hereby held that the reduction of input tax credit under section 11(3)(b) of the GVAT Act should be calculated by determining the quantity of raw materials used in the manufacture of goods transferred to branch and while so quantifying the reduction of input tax credit, the purchase price should be directed to be taken excluding the tax paid on such purchases.
o The appellant is entitled to interest on the provisional refund as well as the refund
quantified in the final assessment order passed by the assessing authority.
Instruction No. 5/2013 F.No.275/03/2013-IT(B), dated 8.07.2013
1. The CBDT issues instructions with respect to processing of Income-tax returns and giving credit for TDS thereon in the case of TDS mismatch. A few of the instructions on this subject issued in previous years are Instruction No. 1/2010 (25-2-2010) for returns pertaining to A.Y, 2008-09; Instruction No. 05/2010 (21-7-2010), Instruction No. 07/2010 (16-8-2010) and Instruction No. 09/2010 (9-12-2010) for returns pertaining to AY. 2009-10; Instruction No. 02/2011 (9-2-2011) for returns pertaining to A.Y. 2010-11; and Instruction No. 1/2012 (2-2-2012) and Instruction No. 04/2012 (25-5-2012) for returns pertaining to A.Y. 2011-12. The instructions gave decisions and the manner in which the TDS claims were to be given credit while clearing the backlog of returns pending processing. In the cases that did not fall under the specific TDS amount limit or refund amount computed, the residuary clause in these instructions gave the manner of processing those returns and it stated that "TDS credit shall be given after due verification".
2. The Hon'ble Delhi High Court vide its judgment in the case 'Court On its Own Motion v. UOI and Ors. (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14-3-2013) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor.
3. In view of the order of the Hon'ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down.
IT : Where assessee disclosed all material facts truly and fully which were necessary to complete assessment, in such a case, Assessing Officer could not initiate reassessment proceedings after expiry of four years from end of relevant assessment year taking a view that assessee's claim for carry forward of unabsorbed depreciation was not allowable
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[2013] 34 taxmann.com 262 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - I
v.
Alfa ICA (India) Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 401 OF 2013†
MAY 1, 2013
Section 147, read with section 32, of the Income-tax Act, 1961 - Income escaping assessment - Non disclosure of primary facts [To disallow depreciation] - Assessment year 2006-07 - For relevant assessment year, assessment was originally framed after scrutiny - Such assessment was sought to be reopened beyond a period of four years from end of relevant assessment year on ground that assessee's claim for carry forward of unabsorbed depreciation was not allowable - Tribunal held that initiation of reassessment proceedings was invalid - Whether since there was no failure on part of assessee to disclose truly and fully all material facts, merely because claim was not previously processed during scrutiny assessment or that such claim was perhaps legally not sustainable, would not vest jurisdiction in Assessing Officer to reopen assessment - Held, yes - Whether, therefore, Tribunal rightly concluded that impugned reassessment proceedings were invalid - Held, yes [In favour of assessee]
Mrs. Mauna M. Bhatt for the Appellant.
ORDER
Akil Kureshi, J - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 12.10.2012 raising following questions for our consideration
"(A) Whether the Appellate Tribunal is right in holding that since no new material has come on record there is no reason to believe that there was escapement of income? The provisions of section 147 expressly provide for reassessment without any requirement of fresh material on record?
(B) Whether the Appellate Tribunal is right in holding that unabsorbed depreciation of AY 1997-98 can be set-off beyond eight assessment years despite the fact that the same was governed by the erstwhile provisions of section 32(2) and the new provisions are applicable only from 01/04/2002?"
2. From the questions, it can be seen that there are two clear parts of the appeal. First is with respect to validity of the reopened proceedings. Second question pertains to the Tribunal's decision on the question of carry forward of unabsorbed depreciation under section 32 of the Income Tax Act, 1961.
3. Assessment for assessment year 2006-2007 of the respondent assessee was originally framed after scrutiny. Such assessment was sought to be reopened beyond a period of four years from the end of relevant assessment year. In such proceedings, the Assessing Officer disallowed a sum of Rs. 68.36 lakhs(rounded off) . The assessee carried the matter in appeal. He contested the issue both on validity of the reopening as well as on the quantum additions. CIT(Appeals) however, rejected the appeal upon which the assessee approached the Tribunal. Tribunal allowed the assessee's appeal on both counts. Hence two separate questions at the hands of the Revenue.
4. In facts of the present case, we are inclined to examine only first question which in our opinion is sufficient. We may recall that notice for reopening was issued beyond a period of four years from the end of relevant assessment year. Original assessment was framed after scrutiny. Assessing Officer had recorded following reasons for issuing notice for reopening :
"The return of income declaring NIL income after adjusting brought forward unabsorbed depreciation of Rs.95,17,604/- including unabsorbed depreciation of Rs.68,36,912/- of AY 1997-98 filed by the assessee on 26.12.06. the assessment was finalized u/s.143(3) on 22.8.06 determining same income and unabsorbed depreciation of Rs.76,912/- of AY 1998-99 and Rs.3,85,068/- of AY 2000-01 was allowed to carry forward.
As per the sub-section 2(iii)(b) of section 32 as amended by the Finance Act (No. 2) Act, 1996 with effect from 1st April 1997, if the unabsorbed depreciation allowance cannot be wholly set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed.
Scrutiny of records revealed that as per the provisions of sub-section2(iii)(b) of section 32, unabsorbed depreciation could not be carried forward for more than eight assessment years immediately succeeding the assessment year for which allowance was first determined. As unabsorbed depreciation was of A.Y. 1997-98. Thus, in view of provisions of section 32 [2(iii) (b) ] , it was eligible for set off till AY 2 005-06. (1997-98 + eight years) . Thus due to irregular set off of unabsorbed depreciation of AY 1997-98 in AY 2006-07 resulted in underassessment in Rs . 68,36,912/-.
Further, there was irregular carry forward unabsorbed depreciation of Rs.76,912/- of AY 1998-99."
5. From such reasons, it straightaway emerges that even as per the Assessing Officer there was no failure on part of the assessee to disclose truly and fully all material facts. In that view of the matter, merely because the claim was not previously processed during the scrutiny assessment or that such claim was perhaps legally not sustainable, would not vest the jurisdiction in Assessing Officer to reopen the assessment. CIT(Appeals) erroneously upheld the validity of the reopening on the count that in the original assessment, such claim was not examined. Such issue would be relevant if the notice for reopening was issued within a period of four years from the end of relevant assessment year.
6. The Tribunal therefore, in our opinion, committed no error in declaring that the proceedings under section 147 of the Act were invalid.
7. That being the position, the Revenue's tax appeal must fail.
8. Counsel for the Revenue submitted that the Tribunal has committed a grave error in upholding the assessee's claim for carry forward of unabsorbed depreciation beyond a period of eight years. When we have confirmed the Tribunal's decision regarding invalidity of the proceedings, we make it clear we have not examined such a contention on merits.
9. Tax Appeal is dismissed.
IT/ILT : No tax is deductible at source on commission payment to overseas agent for services rendered outside India
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[2013] 34 taxmann.com 268 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'A'
Assistant Commissioner of Income-tax, Company Circle- II(1)
v.
Farida Shoes (P.) Ltd.*
N.S. SAINI, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
IT APPEAL NOS. 359 & 360 (MDS.) OF 2013
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
APRIL 11, 2013
Section 9, read with section 195, of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India [Business profits] - Assessment year 2008-09 - Whether, where assessee paid commission to overseas agent for procurement of export orders outside India, it was not chargeable to tax in India as services were rendered outside India - Held, yes [Para 14][In favour of assessee]
FACTS
| ■ | The assessee made payment to overseas agent as commission for procurement of export orders and claimed it as business expenditure. | |
| ■ | The Assessing Officer disallowed the claim on ground that assessee had not deducted tax at source on payment made to non-residents. | |
| ■ | On first appeal, the assessee contended that the commission was paid for procurement of export orders which were completely rendered outside India by overseas agent, and therefore, such payment was not liable to tax in India. | |
| ■ | The Commissioner (Appeals) thus, deleted the addition. | |
| ■ | On appeal by revenue, before the Tribunal: |
HELD
| ■ | The only issue for consideration is as to whether the assessee is under obligation to deduct the TDS under section 195 or not. The Commissioner (Appeals), by considering the entire facts and circumstances of the case passed a detailed order by observing that section 195 have no application to assessee's case. In the case of Prakash Impex v. Asstt. CIT [IT Appeal No. 8 (Mds.) of 2012, dated 30-3-2012], the coordinate Bench of Tribunal, Chennai had considered the very same issue and observed that the commission paid to non-resident agent for the services rendered outside India and such payments are not chargeable to tax in India and therefore, the provisions of section 195 are not applicable in view of the decision of the Supreme Court in the case of G.E. India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 [Para 10] | |
| ■ | In the case of Armayesh Global v. Asstt. CIT [2012] 21 taxmann.com 130/51 SOT 564, the Mumbai Bench of Tribunal has observed that the commission payment was made to the overseas agent for procuring export orders. The agents have not been provided by managerial/technical services. The relationship between the assessee and the non-resident (agent) was only for rendering non-technical services. Moreover, there was no permanent establishment of the said non-resident in India. Therefore, the commission paid to the non-resident agent did not accrue or arise in India and, thus, there was no need for deducting TDS under section 195. [Para 13] | |
| ■ | In the present case, the assessee paid certain amounts to overseas agents for procurement of export orders. The agents have not provided any managerial/technical services. The payments received by the non-resident Indian are not taxable in India. Taking into consideration of entire facts and circumstances and by following decision in Armayesh Global's case (supra), it is opined that the issue involved in this appeal is covered in favour of the assessee and section 195 have no application to assessee's case. Accordingly, the appeal of the revenue is dismissed. [Para 14] |
CASE REVIEW
GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 (SC) (para 10) and Armayesh Global v.Asstt. CIT [2012] 21 taxmann.com 130/51 SOT 564 (Mum.) (para 14) followed.
CASES REFERRED TO
Transmission Corpn. of Andhra Pradesh v. CIT [1999] 239 ITR 587/105 Taxman 742 (SC) (para 2), Dy. CIT v. Divi's Laboratories Ltd. [2011] 131 ITD 271/12 taxmann.com 103 (Hyd.) (para 5), CIT v. EON Technology (P.) Ltd. [2011] 203 Taxman 266/15 taxmann.com 391(Delhi) (para 5),GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 (SC) (para 5), CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC) (para 5), Prakash Impex v. Asstt. CIT [IT Appeal No. 8 (Mds.) of 2012, dated 30-3-2012] (para 8) and Armayesh Global v.Asstt. CIT [2012] 21 taxmann.com 130/51 SOT 564 (Mum.) (para 8).
N. Madhavan for the Appellant. S. Rifaur Rahman for the Respondent.
ORDER
V. Durga Rao, Judicial Member - These two Revenue's appeals in the case of different assessees are directed against separate orders of the Commissioner of Income Tax (Appeals) IX Chennai both dated 27.11.2012 in ITA Nos. 80/11-12/A.IX and 89/11-12/A.IX; respectively, for assessment year 2008-09, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the "Act"]. As common issues are involved in these two appeals filed by the Revenue, they were heard together and are being disposed of by this common order for the sake of convenience.
ITA No. 359/Mds/2013:
2. The only issue raised by the Revenue is that the CIT(Appeals) has erred in deleting the disallowance under section 40(a)(i) of the Act to the extent of Rs. 5.61 crores holding that the assessee is not liable to deduct at source on the overseas commission payments made to the non-resident under section 195(2) of the Act by relying upon the decision of the Hon'ble Apex Court in the case of Transmission Corpn. of Andhra Pradesh v. CIT [1999] 239 ITR 587/105 Taxman 742.
3. Facts in brief are that the assessee is engaged in the business of manufacture and export of shoes and shoe uppers. It filed e-return of income for the assessment year under consideration by declaring total income of Rs. 2,35,96,080/-. The case was initially processed under section u/s 143(1) and assessment was completed under section 143(3) of the Act on 27-12-2010 determining total income at Rs. 8,16,34,932/-.
4. During the course of assessment proceedings, the Assessing Officer has observed that the assessee had made certain payments as overseas agencies commission to the extent of Rs. 5,62,13,826/- and that the assessee has not deducted TDS on those payments under section 195. He further observed that since these payments were made to non-residents in foreign countries for the services utilized, provisions of section 195 were attracted. When the Assessing Officer has asked to explain, it was submitted by the assessee before him that the commission payment was not earned directly or indirectly, through or from any business connection in India and hence, it would not be taxable in India and no TDS is required. However, the Assessing Officer has not agreed with the submissions of the assessee and observed that the business of the assessee is situated in India and the payments were also made from India and the assessee's case is not covered for exception provided under section 9(1)(vi)(b)/9(1)((vii)(b). Therefore, he disallowed Rs. 5,62,13,826/- under section 40(a)(i) of the Act.
5. The assessee carried the matter in appeal before the CIT(Appeals). It was submitted before the CIT(Appeals) that the commission payment was made by the assessee for services rendered for procurement of export orders which were totally rendered outside India by overseas agents and the payments thereof were directly remitted to overseas agent through swift transfer/TT and the payment was not received by them or its behalf in India and hence such non-resident was not liable to tax in India on these commission payments. Since such payments cannot be said to have been deemed to accrue or arise in India, the same is not chargeable to tax in India under the provisions of the Act. Unless the income is chargeable in India, there is no obligation to deduct the TDS and submitted that the Assessing Officer has wrongly decided the issue. The assessee has relied on the following case law before the CIT(Appeals):
| 1. | Dy. CIT v. Divi's Laboratories Ltd. [2011] 131 ITD 271/12 taxmann.com 103 (Hyd.). | |
| 2. | CIT v. EON Technology (P.) Ltd. [2011] 203 Taxman 266/15 taxmann.com 391(Delhi). | |
| 3. | GE India Technology Centre (P.) Ltd. v. CIT [2010] 327 ITR 456/193 Taxman 234/7 taxmann.com 18 (SC). | |
| 4. | CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC). |
6. The CIT(Appeals), while directing the Assessing Officer to delete the addition, after considering the submissions made by the assessee and case law relied thereon, has held that the commission received by the non-resident agent cannot be said to have accrued in India and therefore, the assessee company is not under obligation to withholding of tax under section 195 of the Act by observing as under:
"4.3 I have carefully considered the facts of the case and the submissions of the appellant and the AR. I have also gone through the decisions relied on by the AO and the AR. During the course of appeal hearings it is stated by the appellant that the appellant company had made the sales commission to overseas agents for effecting the sales without deduction of tax at source. It is also stated that all the overseas agents are operating in their own countries and they have no presence whatsoever called in India or they do not have any permanent establishments / connections in India. Their activity was to procure the orders from the customers abroad and ensuring prompt realization of export proceeds. It is also seen that the said commissions are remitted directly to the overseas agent through swift transfer / IT and the payment is not received by them or on their behalf in India. In view of the above, the appellant contended that the non resident agents are not liable to tax in India on these commission payments.
4.4 The appellant contended that the observations made by the AO with regard to Sec. 195 are not acceptable for the following reasons :
| (i) | The withholding provisions for foreign payments are covered by Sec. 195 of the Act, which clearly says that any person who makes payment to a non resident has to deduct tax at specified rates, if the said payment is chargeable to income tax in India. | |
| (ii) | In order to attract Sec. 195 the services by the overseas agent should have been rendered in India and also should have been used in India. | |
| (iii) | Sec. 195 of the Act has to be read along with the charging sections of 4, 5 and 9 of the Act and the provisions of the Double Taxation Avoidance Act (DTAA). The combined reading of the aforesaid sections clearly provides that unless the income is chargeable to tax in India, there is no obligation to withhold tax. | |
| (iv) | The issue whether the tax is to be deducted or not, was already well settled by the judgements of the Apex Court in the case of GE India Technology Centre v. CIT reported in 327 ITR 456 CIT v. Toshoku Ltd. reported in 125 ITR 525. When the Act is clear and unambiguous, the withdrawal of earlier Circulars issued by the CBDT (Circular Nos. 23 dated 23.07.1969 and 786 dated "7.2.2000) on 22.10.2009 is not changed the position. Therefore, the law related to withholding of tax under section 195 of the Act has not been changed consequent to withdrawal of earlier circulars by the CBDT. |
4.5 The appellant further submitted that there is no obligation on the part of the appellant company to deduct the taxes on the sales commission payments on the overseas agents, due to the fact that such services rendered outside India; hence, the appellant company did not deduct the tax at source on the overseas sales commission. Therefore, the action of the AO in disallowing the such payments u/s 40(a)(ia) of the Act, on the ground that the appellant company did not deduct taxes on these overseas sales commission, is not warranted. And also the appellant submitted that the decision of the Hon'ble ITAT, Hyderabad in the case of Dy. CIT v. Divi's Laboratories Ltd. [2011] 131 ITD 271/12 taxmann.com 103 and decision rendered by the Hon'ble Delhi High Court in the case of CIT v. EON Technology (P.) Ltd. [2011] 203 Taxman 266/15 taxmann.com 391 are in favour of the appellant as these decisions were rendered after considering all the case laws / circulars, directly on this issue, which are cited by the AO while disallowing the expenditure u/s 40(a)(ia) of the Act.
4.6 After having gone through the submissions of the appellant I am of the considered opinion that AO was not justified in invoking the provisions u/s 40(a)(ia), on the overseas sales commission made to the non resident agents, for the following reasons:
| (a) | The AO has applied Sec 9 of the Act and held that the situs of the payer and the situs of the utilization of the services which determine the taxability of the such services in India is not relevant as long as the services are utilized in India and thereby invoked the provisions u/s 40(a)(ia) of the I.T. Act. The appellant company has entered into an agreement for marketing of its leather footwear and other products with non resident agents. The non resident agents would get commission for promoting the appellant companies' products. The terms of the agreement indicate that the non resident agents acting on commission basis, outside India and not rendered any services in India. As the services are rendered outside India the provisions of section 5 cannot be applied to the commission paid so as to make it taxable in India. It is also seen that the non resident agents do not have any permanent establishment in India. The sales commissions are remitted directly to these agents through banking channels and the payment is not received by them are on their behalf in India. Further, in order to attract section 195, the services by the non resident agents should have been rendered in India and also should have been used in India. As the AR pointed out that Section 195 of the Act has to be read along, with the charging sections 4, 5 and 9 of the Act and the provisions of the Tax Treaties and the combined reading of the aforesaid sections clearly indicate that unless the income is chargeable to tax in India, there is no obligation to withhold the tax. | |
| (b) | The AO has viewed that Board's Circular 786 dated 7.2.2000 has been withdrawn and therefore it cannot be relied upon further. Since the law related to withholding of tax u/s 195 of the Act has not been changed even after withdrawal of the above circular issued by the CBDT the AO's view is not acceptable. | |
| (c) | On similar and identical issue, Hon'ble ITAT, Hyderabad in the case of DCIT v. Divi's Laboratories (12 Taxman 103) and the Hon'ble Delhi High Court in the case of CIT v. EON Technology Pvt. Ltd. (15 Taxman 391) have held that the commission income could not be said to have accrued to the non residents in India and hence the assessee is not liable to deduct tax at source from payment of commission to non residents. |
4.7 Since the facts of the appellant case are similar to that of the cases mentioned supra, respectfully following the decisions in the above cases, I am of the opinion that the commissions received by the non resident agents cannot be said to have accrued in India and therefore the appellant company is not under obligation for withholding of tax u/s 195. Therefore the AO is not justified in making the disallowance of Rs. 5,62,13,826/- u/s 40(a)(ia) of the Act and hence the AO is directed to delete the addition of Rs. 5,62,13,826/- made to the returned income. This ground of appeal is allowed."
7. On being aggrieved, the Revenue is in appeal before the Tribunal.
8. At the time of hearing, the ld. Counsel for the assessee has submitted that the issue involved in this appeal is squarely covered by the decision of the Coordinate Bench of ITAT Chennai in the case of Prakash Impex v. Asstt. CIT [IT Appeal No. 8 (Mds.) of 2012, dated 30-3-2012]. He also relied on the decision of the Hon'ble Delhi High Court in the case of EON Technology (P.) Ltd. (supra). Further, he has relied on the decision of ITAT Mumbai in the case of Armayesh Global v. Asstt. CIT [2012] 21 taxmann.com 130/51 SOT 564 (Mum.) [in which the JM was one of the author].
9. The ld. DR has relied upon the order of the Assessing Officer.
10. We have heard both sides, perused the materials available on record and case law cited. In this case, the assessee has made certain payments to overseas agents as commission and no TDS was deducted. According to the Assessing Officer, the assessee's business is situated in India and the payments were also made from India and according to section 195, the assessee is under obligation to deduct TDS. Therefore, by invoking section 40(a)(i), he has disallowed an amount of Rs. 5,62,13,826/-. On appeal, the CIT(Appeals) deleted the disallowance on the ground that the commission was paid to non-resident agent and it cannot be said to have been accrued in India and section 195 have no application. The only issue for our consideration is as to whether the assessee is under obligation to deduct the TDS under section 195 or not. The CIT(Appeals), by considering the entire facts and circumstances of the case passed a detailed order by observing that section 195 have no application to assessee's case. In the case of Prakash Impex(supra), the Coordinate Bench of ITAT Chennai has considered the very same issue and observed that the commission paid to non-resident agent for the services rendered outside India and such payments are not chargeable to tax in India and therefore, the provisions of section 195 are not applicable in view of the decision of the Hon'ble Supreme Court in the case of G.E. India Technology Centre (P.) Ltd. (supra).
11. In the case of EON Technology (P) Ltd. (supra), the Hon'ble Delhi High Court has also held that the commission payment to its British parent/holding company ETUK could not said to have been accrued to ETUK in India and therefore, the assessee was not liable to deduct tax at source from payment of commission to ETUK. The head note of order is reproduced hereunder:
"Section 9 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India Assessment year 2007 -08 - Assessee-company was engaged in business of development and export of software - During relevant assessment year, it had paid commission to its British parent/holding company ETUK on sales and amounts realized on export contracts procured by ETUK for assessee - Assessing Officer held that commission income earned by ETUK had accrued in India or was deemed to accrue in India and, therefore, assessee was liable to deduct tax at source therefrom and as there was failure, said expenditure should be disallowed under section 40(a)(ia) - Whether when ETUK was not rendering any service or performing any activity in India itself, commission income could be said to have accrued, arisen to or received by ETUK in India merely because it was recorded in books of assessee in India or was paid by assessee situated in India - Held, no - Whether for applying section 9 Assessing Officer was required to examine whether said commission income was accruing or arising directly or indirectly from any business connection in India - Held, yes - Whether since facts found by Assessing Officer did not make out a case of business connection as stipulated in section 9(1)(i), commission income could not be said to have accrued to ETUK in India and, therefore, assessee was not liable to deduct tax at source from payment of commission to ETUK -Held, yes [In favour of assessee]."
12. The Hon'ble Delhi High Court has considered the decision of the Hon'ble Supreme Court in the case of Transmission Corpn. of Andhra Pradesh(supra) and decided the issue in favour of the assessee.
13. In the case of Armayesh Global (supra), the Mumbai Bench of ITAT has observed that the commission payment was made to the overseas agent for procuring export orders. The agents have not been provided any managerial/technical services. The relationship between the assessee and the non-resident (agent) was only for rendering non-technical services. Moreover, there was no permanent establishment of the said non-resident in India. Therefore, the commission paid to the non-resident agent did not accrue or arise in India and thus, there was no need for deducting TDS under section 195 of the Act.
14. In the present case, the assessee paid certain amounts to overseas agents for procurement of export orders. The agents have not provided any managerial/technical services. The payments received by the non-resident Indian are not taxable in India. Taking into consideration of entire facts and circumstances and by following aforesaid decisions, we are of the opinion that the issue involved in this appeal is covered in favour of the assessee and section 195 have no application to assessee's case. Accordingly, the appeal of the Revenue is dismissed.
I.T.A. No. 360/Mds/2013
15. Both ld. Representatives before us concede that the issue in this appeal is covered by our finding in I.T.A. No. 359/Mds/2013. After perusing the case file, we find that the stand adopted by both representatives to be correct except change of figure. Accordingly, in the light of our above discussions on the very same issue in I.T.A. No. 359/Mds/2013 decided hereinabove, we dismiss the appeal filed by the Revenue.
16. In the result, both appeals filed by the Revenue are dismissed.
IT : Until prima facie evidence in support of claim or contention is adduced, onus does not shift to Assessing Officer to disprove same
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[2013] 35 taxmann.com 2 (Calcutta)
HIGH COURT OF CALCUTTA
Commissioner of Income-tax, Kolkata-XVIII
v.
Smt. Arati Jana*
GIRISH CHANDRA GUPTA AND TARUN KUMAR DAS, JJ.
GA NO. 2088 OF 2012
ITAT NO. 186 OF 2012†
ITAT NO. 186 OF 2012†
MARCH 18, 2013
Section 68 of the Income-tax Act, 1961 - Cash credits [Burden of proof] - Assessment year 2006-07 - Whether until prima facie evidence in support of claim or contention is adduced, onus does not shift to Assessing Officer to disprove same - Held, yes - Assessee claimed to be a commission agent dealing in fishes - In survey, a register (GTI-1) was seized and it appeared that a sum of Rs. 42,78,717 which was receivable by assessee from buyers of fish and sum of Rs. 4,74,681 which was advanced to sellers of fish, were not reflected in books of account of assessee - When Assessing Officer sought explanation, she merely furnished list of buyers and sellers - No supporting evidence was produced to substantiate her explanation about transactions allegedly made by assessee on behalf of suppliers or purchasers of fish - Whether assessee's failure to disclose relevant evidence, even prima facie, would amount to no explanation at all - Held, yes - Whether additions of impugned amounts were justified - Held, yes [Para 7] [In favour of revenue]
FACTS
| ■ | The assessee claimed to be a commission agent dealing in fishes and also had an ice factory. | |
| ■ | In survey, a register (GTI-1) was seized and it appeared that the sum of Rs. 42,78,717 which was receivable by assessee from buyers of fish and sum of Rs. 4,74,681 which was advanced to the sellers of fish, were not reflected in the books of account of the assessee. | |
| ■ | The Income-tax Officer assessed the total income and made additions of the two amounts which was not reflected in assessee's books of account. | |
| ■ | On appeal, both the Commissioner (Appeals) and, subsequently, the Tribunal deleted the additions. | |
| ■ | On appeal: |
HELD
| ■ | The assessee sought to explain that the sum of Rs. 42,78,717 appearing to be receivable by her is really receivable by her for and on account of suppliers of fish also known as trawler owners and the sum of Rs. 4,74,681 appearing to have been advanced by the assessee was really advanced by the buyers of the fish. Both the explanations were held unsatisfactory by the Assessing Officer. [Para 5] | |
| ■ | The assessee is expected, not only to offer of explanation but also to produce materials in support thereof, and it is thereafter for the revenue to scrutinize the materials and form an opinion. [Para 6] | |
| ■ | The assessee in the present case was directed to explain as to why should the sum of Rs. 42,78,717 and the sum of Rs. 4,74,681 be not added to her income. The assessee contended herself by furnishing a list indicating names of sellers and buyers who, according to her, had made the investment. She did not however produce any supporting material in favour thereof. | |
| ■ | The assessee contended that the Assessing Officer should have called upon those persons to verify the statement of the assessee. This submission cannot be accepted. It is for the assessee even to produce all relevant materials in support of the claims and contentions put forward by it. | |
| ■ | Until prima facie evidence in support of the claim or contention is adduced, the onus does not shift to the Assessing Officer to disprove the same. The assessee, by merely furnishing list, did not discharge her burden. | |
| ■ | According to the contention of the assessee would amount to laying down a rule that it is for the revenue to find out whether the assessee has or may have an explanation to offer. | |
| ■ | When an explanation is called for from the assessee, he or she must take care to substantiate her explanation by such supporting evidence as may be in his or her power to produce. | |
| ■ | Who are the buyers, how or in what circumstances did they advance the sum of Rs 4,74,681 and who are the sellers and how and in what circumstances did the sum of Rs. 42,78,717 become payable to them was, in the special knowledge of the assessee. It was, therefore, her obligation to disclose cogent evidence in that regard. She claims to be a commission agent. The column 5 of GTI-1 provides for deduction of commission. Therefore, it should not have been difficult for the assessee to disclose the relevant evidence about the transactions allegedly made by the assessee on behalf of suppliers of fish or the trawler owners. Her failure to do so even prima facie amounts to no explanation at all. [Para 7] | |
| ■ | Therefore, it is to be held that the Tribunal erred in not realizing that the assessee had offered no explanation at all. [Para 12] |
CASE REVIEW
Hindustan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289/129 Taxman 601 (Cal.) (para 9); Maddi Sudarsanam Oil Mills Co. v. CIT [1959] 37 ITR 369 (AP) (para 10) and CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570/103 Taxman 382 (SC) (para 11) distinguished.
CASES REFERRED TO
Hindustan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289/129 Taxman 601 (Cal.) (para 9), Collector of Customs v. D. Bhoormal 1974 (2) SCC 544 (para 7), CIT v. Mohanakala [2007] 161 Taxman 169 (SC) (para 7), V.K. Talwar v. CIT [2011] 330 ITR 1/196 Taxman 136 (SC) (para 8),Sumati Dayal v. CIT [1995] 80 Taxman 89 (SC) (para 8), Maddi Sudarsanam Oil Mills Co. v. CIT [1959] 37 ITR 369 (AP) (para 10) and CIT v.Smt. P.K. Noorjahan [1999] 237 ITR 570/103 Taxman 382 (SC) (para 11).
P. Dudhuria for the Appellant. Ananda Sen for the Respondent.
ORDER
The Court - The appeal is directed against a judgment and order dated 9th September, 2011 passed by the Income Tax Appellate Tribunal dismissing an appeal preferred by the Revenue against an order of the Commissioner of Income Tax (Appeals).
2. The Revenue has come up challenging the said judgment and order of the learned Tribunal.
3. The facts and circumstances of the case briefly stated are as follows :
3.1 The respondent-assessee claims to be a commission agent dealing in fishes. She also has an ice factory. During the assessment of her income tax, for the assessment year 2006-07, a survey was conducted. Some of the books of accounts of the assessee were seized. One of them was a register, identified as GTI-1, which contained the following columns :
| Datewise name of the person | Opening Balance of receivable | Day's Collection | Balance | Sale made to the persons after dedn. of commission thereof | Balance receivable |
3.2 From the aforesaid register it had appeared that the sum of Rs. 42,78,717/- was receivable by the assessee from the buyers of fish. Similarly, a sum of Rs. 4,74,681/- was detected to have been advanced to the sellers of fish. These amounts were not reflected in the books of accounts of the assessee. The defence of the assessee was confession and avoidance on the plea that the sum of Rs. 42,78,717/- was receivable on account of the sellers of fish and the sum of Rs. 4,74,681/- had been advanced by the buyers of fish. The aforesaid sum is also the balance outstanding at the end of the financial year 2005-06.
3.3 The total income of the assessee as per the return was Rs. 1,64,995/-. The Income Tax Officer assessed the income at a sum of Rs. 59,70,687/-. The additions made by him were as follows:
| "Total income as per Return | Rs. 1,64,995/- | |
| Add: Suppressed Arat Commission disallowed, As discussed above | ||
| Unexplained cash credit u/s.68, as discussed above | Rs. 10,52,294/- | |
| Receivable in the Col. 6 of the impounded register marked as GTI-1 is treated as undisclosed income | Rs. 4,74,681/- | |
| of the assessee, as discussed above | Rs. 42,78,717/- | |
| Assessed Income | Rs. 59,70,687/- | |
| R/O | Rs. 59,70,690/-" |
3.4 Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals), who on his turn, disallowed all the additions made by the Assessing Officer without disclosing any convincing reasons.
3.5 The Revenue preferred an appeal to the Income Tax Tribunal only as regards deletion of the sum of Rs. 4,74,681/- and the sum of Rs. 42,78,717/-. The learned Tribunal dismissed the appeal agreeing with the views expressed by the Commissioner of Income Tax (Appeals). The Revenue has come up in appeal.
3.6 Notice was given to the assessee so that the appeal can be disposed of on merits. Pursuant to such notice, the assessee appeared and the matter was taken up for hearing.
4. The questions for consideration are :
| (a) | Whether the decision to delete addition of a sum of Rs. 4,74,681/- is perverse ? | |
| (b) | Whether the decision to delete addition of a sum of Rs. 42,78,717/- is perverse ? |
5. Both the questions have common factual background in the sense that the assessee sought to explain that the sum of Rs. 42,78,717/- appearing to be receivable by her is really receivable by her for and on account of suppliers of fish also known as trawler owners and the sum of Rs. 4,74,681/- appearing to have been advanced by the assessee was really advanced by the Paikers, namely, the buyers of the fish. Both the explanations were held unsatisfactory by the Assessing Officer.
6. Mr. Sen, learned advocate appearing for the assessee-respondent, submitted that the assessee had furnished a list disclosing the names of the buyers to whom the sum of Rs. 4,74,681/- was payable and a list as regards the sellers of fish on whose behalf the assessee was to recover the sum of Rs. 42,78,717/-. He added that once a list was made over to the Assessing Officer, it was not open to him to add back the amount without holding an enquiry in that regard. He added that it was open to the Assessing Officer to find out whether such persons in fact existed and whether such money was in fact payable or receivable by them. He in support of his submissions relied on a judgment of this Court in the case of Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289/129 Taxman 601. From page 293 of the aforesaid judgment, he drew our attention to the following views expressed by the Division Bench of this Court :
"Once an explanation is offered, the Assessing Officer is bound to consider the same. Such consideration is guided by sound principles of law. The opinion so formed must be reasonable and based on materials and shall not be perverse. The extent of the power of the Assessing Officer while considering the materials produced by the assessee is very wide. It is a question of examining as to whether the apparent is real. The Assessing Officer is empowered to lift the corporate veil and examine the real nature of the transaction. In the process, he may exercise its power of examining the materials. He may require the assessee to produce further materials if so required. He may seek information from other sources on the basis of the material produced. In the process of enquiry, the assessee has no right of hearing. But the assessee has a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out the perversity in the finding. It may question the validity of the process undertaken. It may point out that a particular material was not considered. It may also point out that the enquiry made was not reasonable or was half-heartedly done. The process of enquiry is such that the assessee has to offer the explanation and produce the material in support of such explanation and then it can do no further. The onus then shifts on the Revenue to scrutinise the materials and form an opinion on the basis thereof."
Even in this passage, the Division Bench opined that the assessee is expected, not only to offer of explanation but also to produce materials in support thereof, and it is thereafter for the Revenue to scrutinize the materials and form an opinion.
7. The assessee in the present case was directed to explain as to why should the sum of Rs. 42,78,717/- and the sum of Rs. 4,74,681/- be not added to her income. The assessee contented herself by furnishing a list indicating names of sellers and buyers who, according to her, had made the investment. She did not, however, produce any supporting material in favour thereof. The learned Advocate for the assessee contended that the Assessing Officer should have called upon those persons to verify the statement of the assessee. We are unable to accept this submission. It is for the assessee even according to the judgment noticed above to produce all relevant materials in support of the claims and contentions put forward by it. Until prima facie evidence in support of the claim or contention is adduced, the onus does not shift to the Assessing Officer to disprove the same. The assessee, by merely furnishing a list, did not discharge her burden. Acceding to the contention of the learned counsel would amount to laying down a rule that it is for the Revenue to find out whether the assessee has or may have an explanation to offer. When an explanation is called for from the assessee, he or she must take care to substantiate her explanation by such supporting evidence as may be in his or her power to produce. Who are the buyers; how or in what circumstances did they advance the sum of Rs. 4,74,681/- and who are the sellers ? How and in what circumstances did the sum of Rs. 42,78,717/- become payable to them was in the special knowledge of the assessee. It was, therefore, her obligation to disclose cogent evidence in that regard. She claims to be a commission agent. The column 5 of GTI-1 provides for deduction of commission. Therefore it should not have been difficult for the assessee to disclose the relevant evidence about the transactions allegedly made by the assessee on behalf of suppliers of fish or the trawler owners. Her failure to do so even prima facie amounts to no explanation at all. Reference in this regard may be made to the judgment in the case of Collector of Customs v. D. Bhoormal 1974(2) SCC 544 wherein the Apex Court opined that "The other cardinal principle having an important bearing on the incidence of burden of proof is that efficiency and weight of the evidence is to be considered according to the proof which it was in the power of one side to prove, and in the power of other to have contradicted." Can it be said that it was not in the power of the assessee to prove the aforesaid facts? In the case of CIT. v. Mohanakala [2007] 161 Taxman 169 (SC), Their Lordships in construing the expression "the assessee offers no explanation" appearing in Section 68 of the I. T. Act held that the expression means "where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee."
8. Reference may also be made to the judgment in the case of V.K. Talwar v. CIT [2011] 330 ITR 1/196 Taxman 136 (SC) wherein Their Lordships opined that "In the absence of any cogent evidence, a bald explanation furnished by the assessee about the source of the credits in question viz. realization from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory. (See Sumati Dayal v. CIT [1995] 80 Taxman 89 (SC) p.456, para 4 and P. Mohanakala case (supra).
9. Mr. Sen, learned Advocate also drew our attention to the following views expressed by the Division Bench of this Court in the aforesaid case at Page-298.
"Once the materials are there, it is incumbent on the assessing authority to enquire into the same. It cannot overlook one or the other materials nor can it undertake a half-hearted enquiry. When looking at the facts, the court has every right to scrutinize the situation and find out as to whether enquiry was made reasonably with the prudence of a reasonable man. If after such enquiry having regard to the materials, the officer had come to a conclusion then it would be a finding of fact, unless it is shown that the inference drawn on the basis of the proved fact was perverse. But if some of the materials are not considered or it is stopped there and does not undertake a reasonable enquiry, then the conclusion arrived at, cannot be said to be a legal inference on the basis whereof such conclusion could be arrived at. Then it does not remain a question of fact but becomes a question of law."
The views expressed by the Division Bench cannot be read in isolation. The view expressed has to be read in the context of the facts of the case which was under consideration by the Division Bench. In that case, the money was received by the assessee on account of share application money and the genuineness of such receipt was under challenge. It is, in that context that the aforesaid views were expressed which has no semblance with the case before us. The assessee in that case had disclosed relevant evidence to show that it had received applications for allotment of shares together with the requisite amount.
10. The second judgment cited by Mr. Sen is in the case of Maddi Sudarsanam Oil Mills Co. v. CIT [1959] 37 ITR 369 (AP.) wherein the following views were taken.
"Where the income-tax authorities reject the books of account of the assessee and compute the gross profits of his business by applying a flat rate on the total turnover, they cannot rely on the books for the purpose of adding cash credits, which were part of the scheme of balancing accounts, to the profits so ascertained"
This judgment has no manner of application. The learned Advocate did not also demonstrate before us as to how does this judgment apply to the facts and circumstances of this case before us.
11. The third judgment cited by him is in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570/103 Taxman 382 (SC) wherein Their Lordships held that under section 69 of the I.T. Act, the Income Tax Officer has a discretion, in a case where the source of investment has not been satisfactorily explained, to treat the source of investment as the income of the assessee. Their Lordships held that it was not obligatory on the part of the Income Tax Officer to hold that the source of investment must be from the income of the assessee. The facts of the case in which the aforesaid judgment was rendered was that a lady had purchased certain pieces of land at a sum of Rs. 34,628/- and a sum of Rs. 25,902/-. The explanation offered by her was that the lands were purchased from out of the savings from the income of the properties which were left by her mother's first husband. The Income Tax Officer rejected the explanation and made the necessary addition, which was upheld by the C.I.T (Appeals). The Tribunal, however, reversed the order holding that it was not mandatory on the part of the Income Tax Officer after having rejected the explanation to deal with the investment as an income of the assessee. The aforesaid judgment, in our view, has no manner of application to the facts of this case. In the aforesaid case, the properties left by the first husband of the mother of the assessee were not doubted. The income derived from that property was also not in doubt. Therefore, the possibility of there being some truth or some grain of truth could not be ruled out in that case. But in the case before us no such possibility has been proved even prima facie for reasons already discussed. The situation before us is only consistent with the hypothesis that money was not payable to any one nor was the money receivable on account of others, and therefore, the assessee did not maintain any books of accounts with regard thereto.
12. We are, as such, of the opinion that the learned Tribunal erred in not realizing that the assessee had offered no explanation at all. Both the questions formulated above are as such answered in the affirmative. The appeal is allowed in favour of the Revenue.
SBSECTION 139, READ WITH SECTION 199 OF THE INCOME-TAX ACT, 1961 - RETURN OF INCOME - CREDIT OF TDS U/S 199 TO AN ASSESSEE WHEN THE TAX DEDUCTED HAS BEEN DEPOSITED WITH REVENUE BY DEDUCTOR - DIRECTION OF HON'BLE DELHI HC IN THE CASE 'COURT ON ITS OWN MOTION VS. UNION OF INDIA &ORS. IN WP(C) 2659/2012 & WP(C) 5443/2012'
INSTRUCTION NO. 5/2013 [F.NO.275/03/2013-IT(B)], DATED 8-7-2013
1. The CBDT issues instructions with respect to processing of Income-tax returns and giving credit for TDS thereon in the case of TDS mismatch. A few of the instructions on this subject issued in previous years are Instruction No. 1/2010 (25-2-2010) for returns pertaining to A.Y, 2008-09; Instruction No. 05/2010 (21-7-2010), Instruction No. 07/2010 (16-8-2010) and Instruction No. 09/2010 (9-12-2010) for returns pertaining to AY. 2009-10; Instruction No. 02/2011 (9-2-2011) for returns pertaining to A.Y. 2010-11; and Instruction No. 1/2012 (2-2-2012) and Instruction No. 04/2012 (25-5-2012) for returns pertaining to A.Y. 2011-12. The instructions gave decisions and the manner in which the TDS claims were to be given credit while clearing the backlog of returns pending processing. In the cases that did not fall under the specific TDS amount limit or refund amount computed, the residuary clause in these instructions gave the manner of processing those returns and it stated that "TDS credit shall be given after due verification ".
2. The Hon'ble Delhi High Court vide its judgment in the case 'Court On its Own Motion v. UOI and Ors. (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14-3-2013) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor.
3. In view of the order of the Hon'ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down.
4. Thus, the manner laid down by the Hon'ble HC in the above mandamus may be one of the method of due verification as mentioned in the various instructions referred in para (1) above.
5. This may be brought to notice of all Officers working under your jurisdiction for compliance.
An eventful week of Tax News & Tax Policy Clarifications
TIOL - COB( WEB) - 351
JULY 04, 2013
JULY 04, 2013
By Shailendra Kumar, Editor
LAST few days have been quite eventful from the perspective of tax news as well as tax policy clarification. First, the tax news - how beneficial can be the intelligence-sharing can be measured from the big headline-making seizure of huge amount of cash, gold jewellery and rough diamond pieces from four mini-trucks in Mumbai. Although no terror link has been attributed to this case so far but the newly-constituted law enforcement agency, the NIA, while being on the prowl for actionable clue culled out of hawala or heavy cash transactions, stumbled upon a lead that truckloads of cash was being transported to Surat. Since the NIA has no authority to make such seizures, it quickly roped in the Income Tax (Investigation) to accompany them on this mission. They found four mini-trucks loaded with more than 100 canvas bags - many of them containing cash, rough diamonds and gold jewellery. The consignments carried by 'angadiyas' (local couriers) were heading for Surat where rough diamonds were to be polished and cash was to be paid to some of the suppliers of unaccounted consignments in the past.
Although it was initially reported to be more than Rs 200 Crore cash, sources in the CBDT told TIOL that the cash finally counted after deploying many cash machines and additional manpower has turned out to be much less . As regards the diamonds, the Mumbai I-T officials confirmed that they may release some of them after verification of papers furnished by many claimants. However, no claimant has so far knocked at the door of the I-T officials for release of cash and the gold jewellery.
This newsy development clearly underlines one fact that if our enforcement agencies develop the habit of sharing sensitive information, a significant dent can be made to the parallel economy. There are various studies - already submitted to the Ministry of Finance, clearly indicating the sub-sectors in the economy, which regularly thrive and flourish only on cash transactions. If concerted efforts are made by the various agencies, the I-T officials certainly have much more potential to end up the fiscal with unimaginable tally of cash seizures.
This reminds me of one incident where one of the law enforcement agencies had long back received some half-baked 'inputs' with regard to Cricket match-fixing. This was even before any match-fixing incident was reported in India. But, since no 'input-sharing' culture was prevalent those days, that agency apparently was not enticed enough to either take any action or share the same with any other agencies. Had the same culture been in vogue today, the NIA would not have passed on its inputs to the I-T officials and a major consignment may have gone undetected.
In fact, this incident takes us to what was deliberated upon at the recently-held CCITs/DGITs Annual Conference in Delhi. As a part of its large task, the Directorate of Intelligence and Criminal Investigation has been asked to collect relevant data from Financial Intelligence Unit (FIU) and RoC with respect to corporate cases latest by July 31. A proper data-mining is widely believed to be a good source for not only extra collection of taxes but also widening and deepening of taxbase. For this Directorate, August 31 is the deadline for population of PAN against non-PAN for aggregate cash deposit in Savings Bank A/c above Rs 25 lakh and credit cards transactions of more than Rs five lakhs. As we all know that purchase of immovable property is a 'sink' for black money, this Directorate is going to focus on intensive scrutiny of all such transactions above Rs 50 lakhs. A roadmap has also been given to this Directorate to import all data relating to financial transactions into the CIB module.
Let's now move to a mega policy clarification issued by the CBDT last weekend. Only a couple of months back the CBDT had issued two Circulars - 2 & 3 - on application of Profit Split Method for arriving at arm's length price in Transfer Pricing cases and on conditions relevant to identify development centres engaged in contract R&D services with insignificant risk. If we go behind these Circulars, one may find that the Prime Minister's Office had, in July 2012, set up the Rangachary Committee to review taxation of Development Centres and the IT Sector. While setting up this panel, the PMO's Press Release had stated that the overall goal was to have a fair tax system in line with best international practice, which will promote India's software industry and promote India as a destination for investment and for establishment of Development Centres.
In this background, the Rangachary Committee on September 14, 2012, noted that "a properapplication of PSM would necessitate the availability of adequate and reliable data with regard to profits attributable to various functions, risks, geographies etc. As a result, one has to apply PSM with extreme care and caution and the lack of data at present makes it impracticable to apply PSM. Thus application of PSM, where appropriate technically given the general facts of a case, may become inaccurate due to lack of availability or supply of complete data. In these circumstances, it may be appropriate for India to seek for a higher mark-up under TNMM, possibly also factoring in locational savings and locational advantage, with proper comparability analysis rather than depend on an unreliable application of PSM ..."
The Committee also recommended that "the CBDT must issue an updated guidance note on FAR analysis taking the recommendations of the earlier committee into account. Further, a circular clarifying the position on other administrative issues ... should be issued so that there is uniformity in application of provisions across the country, which will also reduce disputes and grievances ..."
In this background, the CBDT decided in its wisdom to issue the two Circulars on March 26, 2013. The Circular No 2 was on application of Profit Split Method as selection of most appropriate method and on conditions relating to development centres engaged in contract R&D services. So far so good. But, last Saturday, the CBDT suddenly issued a lengthy clarification rescinding the two clarificatory Circulars issued with much fanfare - after delicately weighing the recommendations of the Rangachary Committee. Although the CBDT issued the Press Release in great details but did not make the relevant Circular Nos 5 & 6 - one to rescind the Circular No 2 and the other to amend the Circular No 3 - public. Obviously, this prompted many media persons to ask many queries as to what has gone wrong? and why has the Govt decided to backtrack on what were issued with fanfare only three months back? Strangely, the CBDT had been keeping the Rangachary Report close to its 'chest', and when it was caught in the vortex of queries, it decided to make this Report public - incidentally, with some interesting file-notings! Anyway, sources told TIOL that since a good number of IT Companies had recently represented to the Government that the PSM has been misconstrued by the world at large and it was going to hurt India's image as a popular destination for contract R&D Services, it was necessary for the Government to clarify the application of PSM. Given the panic prevailing in the markets with FIIs withdrawing their funds to invest in the US Economy, the Government decided not to take any risk and let the industry have what it wants to revive the sinking fortune of the Indian IT Industry.
Although from its own side the CBDT has done its best but experts feel that greater clarity may be required on the categorisation of R&D Centres - entrepreneurial, cost-sharing and contract R&D. Since the Indian TP laws do not define the term cost-sharing arrangements, one may be forced to resort to the OECD TP Guidelines. Similarly, the industry has also expressed reservations about some more undefined terms like 'economically significant assets' and 'economically significant realised risks'.
Anyway, even as the battle of legal wits may continue between the CBDT and the industry, the North Block has mandated the Directorate of International Taxation to verify all Forms (15CA) involving remittances above Rs one crore and see if TDS has been deducted on the same. The deadline for the same is December 31, 2013. Going by 19.7% annual hike in the revenue targets for the income tax department, which has gone up from Rs 5.58 lakh crore to Rs 6.68 lakh crore, tough days lie ahead for the CBDT as well as the Government. And the taxpayers' communities may have to brace up for discharging if not higher, at least correct tax liabilities
IT : Where Assessing Officer had not found anywhere in assessment order that expenses towards maistry due was not supported by any material documents, it was only when matter was remitted from first appellate authority to Assessing Officer during pendency of appeal, assessee was not in a position to produce those vouchers as vouchers were damaged during floods, addition made on that account was not justified
■■■
[2013] 34 taxmann.com 130 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax - I, Trichy
v.
T. Arivunidhi*
MRS. R. BANUMATHI AND K. RAVICHANDRABAABU, JJ.
TAX CASE (APPEAL) NO. 78 OF 2010†
APRIL 8, 2013
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Burden of proof] - Assessment year 2002-03 - Assessee was a civil contractor engaged in cable laying work for BSNL - He had shown certain amount as 'maistries due' in balance sheet which represented wage disbursement to labourers through maistries - In absence of matching income shown in profit and loss account, Assessing Officer made addition - It was further contended that even otherwise expenses said to have been made had not been proved by any vouchers - Whether even though assessee had paid amount to maistry before receipt of payment from BSNL, he would only show receipt as income only when work was completed - Held, yes - Whether finding of Tribunal that assessee by following mercantile system of accounting had duly debited those amounts to profit and loss account being a factual finding rendered by Tribunal, same could not be interfered with - Held, yes - Whether Assessing Officer had not found anywhere in assessment order that expenses made by assessee towards 'maistry dues' was not supported by any material documents, it was only when matter was remitted from first appellate authority to Assessing Officer during pendency of appeal, assessee was not in a position to produce those vouchers, for which he had also given reason that vouchers were damaged during floods - Held, yes - Whether, therefore, addition made by Assessing Officer was to be deleted - Held, yes [Paras 7&10] [In favour of assessee]
FACTS
Facts
| ■ | The assessee was a civil contractor engaged in cable laying work for BSNL. He had shown certain amount as 'maistries due' in the balance sheet which represented wage disbursement to labourers through maistries. | |
| ■ | The Assessing Officer, however, out of that amount added some amount to the profit shown. | |
| ■ | The Commissioner (Appeals) confirmed the addition. | |
| ■ | The Tribunal allowed the appeal of the assessee. |
Revenue's submission
| ■ | The excess payment shown as expenditure was not shown as income in the profit and loss account and, therefore, in the absence of matching income shown in the profit and loss account, the addition made by the Assessing Officer could not be disturbed. | |
| ■ | Even otherwise, the expenses said to have been made, had not been proved by any vouchers. |
Assessee's submissions
| ■ | The assessee was following mercantile system of accounting and as such valued work in progress and shown it in balance sheet. It was further submitted that only when work is completed, assessee can show income in books of account, especially when assessee was following mercantile system of accounting. | |
| ■ | The Assessing officer had not found anywhere that there was no voucher produced by the assessee in support of the disputed expenses. Only when the matter was remitted by first appellate authority, that too after some years, the assessee was not in a position to produce those vouchers, as the same were damaged during 2005 due to floods. |
HELD
| ■ | Insofar as the first issue, namely, there is no matching income shown in the profit and loss account is concerned, it is seen that the assessee is following mercantile system of accounting and the said fact is evident from the assessment order itself. | |
| ■ | It is also not disputed that the assessee has already valued the work in progress and shown in the balance sheet. According to the assessee, even though he paid the amount to the maistry before receipt of the payment from BSNL, he would only show the receipt as income only when the work is completed. That is why he show it as work in progress. | |
| ■ | The Tribunal found that the assessee, by following the mercantile system of accounting, had duly debited these amounts to the profit and loss account. The said finding, being a factual finding rendered by the Tribunal, the same cannot be interfered with. [Para 7] | |
| ■ | As far as the next issue, namely, absence of materials to prove the expenses, is concerned, the Assessing Officer has not found anywhere in the assessment order that the expenses made by the assessee towards the maistry dues is not supported by any material documents. It is only when the matter was remitted back from the first appellate authority to the Assessing Officer during the pendency of the appeal, the assessee was not in a position to produce those vouchers, for which he has also given reason that the vouchers were damaged during 2005 floods. Such reason assigned by the assessee was not disproved or disputed by the Revenue. | |
| ■ | On the other hand, the first appellate authority came to the conclusion that in the absence of vouchers in respect of the expenditure claimed, there is every possibility of wrong claim by the assessee in this regard. Such finding of the first appellate authority is based on presumption and assumption. It is not the case that there are no materials. If that is the fact, then the Assessing Officer himself would have stated so in the assessment order. In the absence of any such finding by the Assessing Officer, there was no force in the submission of the revenue in this regard. [Para 10] | |
| ■ | Consequently, the order passed by the Tribunal does not warrant any interference. [Para 11] |
J. Narayanasamy for the Appellant. V.S. Jayakumar for the Respondent.
JUDGMENT
K.Ravichandrabaabu, J. - This Tax Case (Appeal) filed by the Revenue as against the order of the Income Tax Appellate Tribunal relating to the assessment year 2002-03 was admitted by this Court on the following substantial questions of law:
| "1. | Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the Assessing Officer was not justified in adding an amount of Rs.21,61,740/- out of the amount shown as "due to Maistries", even though the assessee could not produce vouchers before the Commissioner of Income Tax (Appeals) and before the Assessing Officer and by making incorrect assumptions of facts that the Assessing Officer accepted the books of accounts as correct and complete? | |
| 2. | Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding by the Assessing Officer was not justified in making the addition towards work-in-progress, when the assessee had claimed deduction for the expenditure and had not shown the corresponding receipts? |
2. The assessee is a civil contractor engaged in cable laying work for BSNL. The assessment for the relevant assessment year was completed under Section 143 of the Income Tax Act on a total income of Rs.41,10,334/-. The assessee had shown an amount of Rs.57,98,265/- as "Maistries Due" in the balance sheet. It was explained by the assessee that this amount represented wage disbursement to labourers through maistries. However, the Assessing Officer, after examining the details, added a sum of Rs.21,61,740/- out of the amount shown as maistry's dues and added the same to the profit shown. The assessee filed an appeal before the Commissioner of Income Tax (Appeals). The first Appellate Authority confirmed the addition of Rs.21,61,740/-. Further appeal preferred by the assessee before the Income Tax Appellate Tribunal came to be allowed. Aggrieved against the said order of the Tribunal, the present appeal has been filed by the Revenue raising the above substantial questions of law.
3. Mr. J. Narayanasamy, learned standing counsel appearing for the Revenue submitted that the excess payment shown as expenditure was not, in fact, shown as income in the Profit and Loss Account and therefore in the absence of matching income shown in the Profit and Loss Account, the addition made by the Assessing Officer cannot be disturbed. He also contended that even otherwise, the expenses said to have been made, have not been proved by any vouchers, when the matter was remitted back to the Assessing Officer by the first Appellate Authority.
4. Per contra, Mr. V.S. Jayakumar, learned counsel appearing for the assessee submitted that the assessee is following mercantile system of accounting and as such, valued the work-in-progress and shown in the balance sheet. Therefore, the contention of the Revenue in this aspect is not correct. He further submitted that when the books are not rejected by the Authorities, they are not entitled to make addition based on estimation.
5. In support of the submission, learned counsel relied the decision of the Apex Court Sargam Cinema v. CIT [2010] 328 ITR 513/[2011] 197 Taxman 203. He further submitted that only when the work is completed, the assessee can show the income in the books of account, especially when the assessee is following the mercantile system of accounting. It is also his further contention that the Assessing Officer has not found anywhere that there are no vouchers produced by the assessee in support of the disputed expenses. Only when the matter was remitted back by the first Appellate Authority, that too after some years, the assessee was not in a position to produce those vouchers, as the same were damaged during 2005 due to floods. Therefore, learned counsel submitted that it is not the case that there are no vouchers, but they could not be produced only due to the reasons as stated supra. He also submitted that the Tribunal, being a fact finding authority, has found that the assessee had been following mercantile system of accounting and these amounts were duly debited to the Profit and Loss Account. When such being a factual finding rendered by the Tribunal, the same need not be interfered with by this Court, as there is no substantial question of law involved in this case. It is also further submitted by him that in any event, there is no revenue loss, as the receipt from BSNL would be shown in the next assessment year as income.
6. Heard learned standing counsel appearing for the Revenue and the learned counsel appearing for the assessee.
7. In this appeal, the Revenue raised two issues. In so far as the first issue, namely, there is no matching income shown on the Profit and Loss Account is concerned, it is seen that the assessee is following mercantile system of accounting and the said fact is evident from the assessment order itself. It is also not disputed that the assessee has already valued the work-in-progress and shown in the balance sheet. According to the assessee, even though they paid the amount to the Maistry before receipt of the payment from BSNL, they would only show the receipt as income only when the work is completed. That is why they show it as work-in-progress. The Tribunal found that the assessee, by following the mercantile system of accounting, had duly debited these amounts to the Profit and Loss Account. The said finding, being a factual finding rendered by the Tribunal, the same cannot be interfered with by this Court as no other contra facts are placed before us.
8. Learned counsel appearing for the assessee relied on the decision of the Apex Court reported in Sargam Cinema (supra) to contend that without rejecting the books of account, the Assessing Authority cannot make any addition.
9. A perusal of the order of the Assessing Officer would show that he has not rejected the books of account and only made the addition on the reason that there is no matching entry of income in the said account with the corresponding expenses made by the assessee. As it is explained by the assessee that they have shown in the books of account as work-in-progress and especially under the circumstances of following the mercantile system of accounting, we find force in the submission made by the learned counsel appearing for the assessee. Accordingly, the first issue is answered in favour of the assessee and against the Revenue.
10. As far as the next issue, namely, absence of materials to prove the expenses, is concerned, as rightly contended by the learned counsel appearing for the assessee, the Assessing Officer has not found anywhere in the assessment order that the expenses made by the assessee towards the Maistry dues is not supported by any material documents. It is only when the matter was remitted back from the first Appellate Authority to the Assessing Officer during the pendency of the appeal, the assessee was not in a position to produce those vouchers, for which he has also given reason that the vouchers were damaged during 2005 floods. Such reason assigned by the assessee was not disproved or disputed by the Revenue. On the other hand, the first Appellate Authority came to the conclusion that in the absence of vouchers in respect of the expenditure claimed, there is every possibility of wrong claim by the assessee in this regard. In our considered view, such finding of the first Appellate Authority is based on presumption and assumption. It is not the case that there are no materials. If that is the fact, then the Assessing Officer himself would have stated so in the assessment order. In the absence of any such finding by the Assessing Officer, we find no force in the submission of the learned standing counsel appearing for the Revenue in this regard.
11. Consequently, we find the order passed by the Income Tax Appellate Tribunal does not warrant any interference and accordingly, the Tax Case (Appeal) stands dismissed by answering both the substantial questions of law against the Revenue and in favour of the assessee. No costs.
LATARegards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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