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TMI Blog2013 (1) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and 2005-06 in the light of the decision of Hon’ble Supreme Court in the case of Berger Paints [2004 (2) TMI 4 - SUPREME COURT] - in favour of assessee. Disallowance VRS payment u/s 35DDA - not in accordance with the Rule 2BA r.w.s.10(10C) - CIT(A) deleted the addition - Held that:- Guidelines in Rule 2BA where for the purposes of determining the taxability of the VRS payment in the hands of the individual employees and had nothing to do with the allowability of deduction of the VRS payment u/s 35DDA in the hands of the employer. As per the language of See. 35DDA, the deduction is allowable in respect of any VRS scheme and no conditions regarding the scheme are laid down. Under the circumstances, the deduction claimed would be allowable and the assessee gets relief to this extent decided by ITAT in assessee’s own case for Assessment Years 2004-05 and 2005-06 - in favour of assessee. No TDS before making more payments to non-residents u/s 40A - CIT(A) deleted disallowance - Held that:- Section 195 clearly shows that the deduction of tax is liable to be made by a person responsible for paying to the non-resident any sum chargeable under the provisions of this Act. The words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 14 - SUPREME COURT) to the object stated in the relevant policy under which the subsidy/incentive is granted. As the entire documents are very much on records of the lower authorities, except that the said documents are not technically available in the records for the relevant assessment year 2004-05 in the interest of justice and equity, the ground taken in the cross objection by the assessee accepted and also admit the additional evidences as these additional evidences are necessary to do the substantial justice in the matter - appeal of assessee is allowed for statistical purposes. - ITA No.3090/Del./2007 And CO No.193/Del/2008 - - - Dated:- 7-11-2012 - D.K. Tyagi and B.C. Meena, JJ. Appellants Rep by: Shri Ajay Vohra, Adv. Shri Rohit Jain, CA Respondent Rep by: Shri D.K. Mishra, DR ORDER Per: B.C. Meena: The revenue has filed this appeal whereas assessee filed the cross objection against the order of CIT (Appeals)-IX, New Delhi dated 28.03.2007 for the assessment year 2004-05. 2. The Revenue has taken the following grounds of appeal :- 1. Whether, on the facts and in the circumstances of the case, the learned CIT (Appeals) was justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PLA balance of excise duty on vehicles Rs.59,91,461/- b) PLA balance of R D Cess on vehicles Rs. 70,881/- c) PLA balance of excise duty on spare parts Rs.16,63,325/- The AO has followed the view taken by her predecessor AO for A.Y. 2003-04. In A.Y. 2003-04, the then AO observed that the PLA balances are advance payments for goods yet to be manufactured. It was stated that these balances are reduced when the goods are manufactured. It was further observed that section 43B allowed deduction in respect of expenses that were "Otherwise allowable" and therefore, no deduction for .PLA balances was allowable since it was in respect of goods yet to be manufactured. It was also stated that even if the PLA balances related to already manufactured, then loading of the PLA balances in the closing stock as provided in section 145A would make the claim revenue neutral and hence, no deduction would be allowable. This issue has come up in appeal before my predecessor for A.Y. 2001-02 and 2002-03. He has placed reliance on the order of the Hon'ble ITAT for A.Y. 1999-00 wherein it has been held that if goods have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of the above facts and in light of the decision of the ITAT and the CIT(A) discussed above, I am of the opinion that the assessee's claim is allowable and therefore, the assessee gets relief of Rs.77/25/667/- in respect of its claim of deduction u/s 43B of the Act with regard to the PLA balances of excise duty. 4. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that in the return of income, the assessee claimed deduction of duty paid amounting to Rs.77.25.667/- being balance in the PLA, under section 43B of the Act. He submitted that the aforesaid amount was paid by the assessee under Rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. Ld. AR further submitted that at the time of removal of the goods, excise duty/R D Cess payable on the goods is debited to the PLA. Ld. AR submitted that as per the mandate of section 43B of the Act, the aforesaid amount was claimed as deduction in the return of income. However, the assessing officer disallowed the same. Ld. AR submitted that in the assessee's own case for the assessment year 1999-2000, the ITAT allowed the claim subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J 621 (Special Bench, Del), Honda Siel Power Products Ltd. vs DCIT 77 ITD 123 (Del) and a recent decision in the case of DCIT v Glaxo Smithkline Consumer Healthcare Ltd. 107 ITD 343 (SB)(Chd). The ld. CIT(A) having found that the ITAT in the assessee s own case for AY 1990-00 and 2000-01 and 2001-02 as also for the AY 2002-03 and 2004-05, accepted the contention of the assessee. The revenue is aggrieved. 15. We have heard both the parties and find that the issue is concluded in favour of the assessee: (a) by the order of the ITAT for AY 1999-00 vide discussions in para 28, (b) by the ITAT order for AY 2000-01 vide discussion in paras 4 and 5 and; (c) by the ITAT order for AY 1994-95, 1995-96 and 1996-97 at para 8. 16. The ld. CIT(A), in the impugned order, as we may see, has only followed the decision of the Tribunal in the assessee s own case on identical issue. We therefore do not find any infirmity in the order. We may point out that the decision of the ITAT Special Bench of Chandigarh in the case of DCIT vs Glaxo Smithkline Consumer Health Care Ltd. reported in 107 ITD 343(SB) is directly on the issue of balances in PLA and is allowable deduction u/s 43B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble CIT(A). The Hon'ble CIT(A) in its order has held that :- "9 ..... Following my findings for that year, I hold that the AO has rightly not allowed deduction in respect of the customs duty amounting to Rs.36,01,36,219/- paid on import of component in respect of which export had been made." In view of this, ld. AR submitted that this issue may be dismissed as infructuous. 8. We have heard both the sides on this issue. Since CIT (A) had not granted relief to the assessee on this issue the ground becomes infructuous. In view of this, this ground stands dismissed. 9. Ground No.1(e) in revenue s appeal is against deleting the disallowance of customs duty on inventory in closing stock of Rs.23,89,60,314/-. The CIT (A) has decided this issue in para 11 of his order which read as under :- 11. Custom duty included in closing stock - Rs.23,89,60,314/-. The AO disallowed the Appellant's claim u/s 43B of the Act following the order of earlier year i.e. A.Y. 2003-04. In that year the AO had observed that the assessee had already received a deduction as there was a debit on this account in the P L Account with a, corresponding increase in the value of the closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, as per the mandate under section 43B of the Act, the custom duty so actually paid by the assessee is separately claimed as deduction on payment basis in the return of income. Ld. AR submitted that in the earlier years, the assessing officer, however, disallowed the aforesaid amount holding the same to merely advance payment, liability in respect of which has not crystallized and therefore, not allowable as deduction under section 43B of the Act. Ld. AR submitted that the issue stands covered in favour of the assessee by the order of the Tribunal in the assessee's own case for A.Y 1999-00, 2000-01, 2001-02 and 2005-06 wherein the Tribunal has held that, since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. He prayed that the ground taken by the revenue may be dismissed. 11. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of the ITAT in assessee s own case for Assessment Years 1999-00, 2000-021, 2001-02 and 2005-06. The relevant paras 21 22 of the order for Assessment Year 2005-06 are reproduced below :- 21. The next dispute in the revenue s appeal relates to customs duty on invent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvinced by this argument. She stated that a detailed discussion about this issue had been done in the assessment order for A.Y.-2003-04 where the claim had been disallowed. It was stated that since the facts were similar in this year, the claim was being disallowed on similar grounds. 17. On perusal of the assessment order for A.Y. 2003-04, it is seen that the ground for not allowing the claim is that the voluntary retirement scheme was not in accordance with the Rule 2BA read with Sec. 10(10C) of the Act. As per See. 10(10C) any amount received as VRS payment would not be taxable in the hands of the employee to the extent of Rs.5 Lakhs if the scheme was in accordance with the guidelines as prescribed in Rule 2BA. The AD was of the opinion that since the scheme was not as per the guidelines as laid down in Rule 2BA, it would not be an allowable deduction u/s 35DDA. During course of the appeal proceedings, the Learned AR stated that VRS payment under any scheme was allowable to the extent of the 1/5th every year under the provisions of Section 35DDA. It was stated that the deduction u/s Sec. 35DDA was not in any way connected to Rule 2BA read with Sec.10(10C). It was argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal relates to the disallowance made by the AO u/s 35DDA of the Act amounting to Rs. 38,63,64,348/-. 36. The facts are that the assessee company had offered two voluntary retirement schemes to its employees. The scheme was offered in the previous year 2001-02 wherein the total payment made to employees was Rs.73,60,47,559/-. The second scheme was offered in the financial year 2003-04 wherein the total payment made to the employees was Rs. 119,57,74,181/-. The assessee company claimed deduction for these VRS payments u/s 35DDA of the Act. During the year under consideration, the assessee s claim of payment of Rs. 38,63,64,348/- works out as follows:- 1/5th of the VRS payment of Rs. 73,60,47,559/- made in FY 2001-02 : Rs. 14,72,09,512/- 1/5th of the VRS payment of Rs. 119,57,74,181/- made in FY 2003-04 : Rs. 23,91,54,836/- Total deduction claimed u/s 35DDA during AY 2005-06 37. The AO disallowed the aforesaid claim for the AY 2004- 05 on the basis of his own stand taken in the earlier assessment years wherein he held the same to be violative of provisions of Section 35DDA of the Act. The Ld. CIT(A), however, was of the view that the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . During the course of appeal proceedings, the learned AR reiterated that the provisions of section 40A(1) of the Act would only be attracted where there was any payment made to a non-resident or a foreign company which was chargeable under the Act to tax. It was stated that the payment was not chargeable to tax in India as they were paid for services rendered outside India or for reimbursement of out of pocket expenses incurred outside India. It was stated that while making the payment, the company had complied with the provisions of sub-section 2 of section 195 read with 'Circular Number 759 dated 18.11.1997. This circular states that the requirement for an NOC from the Income Tax Department for remitting money abroad had been done away with and remittance could be made by furnishing of an Accountant's certificate to the RBI which would in turn forward the certificate to the AO. Reference was also made to Circular Number 93 dated 23.7.1969 wherein the CBDT has stated that where a foreign agent of an Indian exporter operates in his own country and commission is directly remitted to him and is not received by him or on his behalf in India, the foreign agent would not be liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology Cen. P. Ltd. v. CIT: 327 ITR 456 (SC) wherein, after considering the earlier decision of Supreme Court in the case of Transmission Corporation of India: 239 ITR 587, it has been held that the payer is required to deduct tax at source under section 195 of the Act only if the payment made or any portion thereof is chargeable to tax in India and not otherwise. He submitted that it has been similarly held in the following cases: Estel Communications (P) Ltd.: 217 CTR 102 (Del.) Van Oord ACZ India Ltd. V. CIT : 230 CTR 265 (Del.) CIT v. ICL Shipping Ltd.: 315 ITR 195 (Mad.) Jindal Thermal Power : CIT v. Manager, State Bank of India : 226 CTR 310 (Raj) NQA Quality Systems Registrar Ltd. v. DCIT : (2005) 2 SOT 249 (Del.) ACIT v. Modicon Network (P) Ltd.: (2007) 14 SOT 204 (Del.) Prasad Production Ltd. : 129 TT J 641 (Chenn.)(SB) Mahindra Mahindra Ltd. v. Dy.CIT: 122 TTJ 577(Mum) (SB) As regards income does not accrue or arise in India, Ld. AR submitted that commission paid to export dealers was in respect of services rendered by them outside India and the same was, therefore, not liable to be taxed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -SC-INTL) (supra), independent of the above Circular, held that the commission amounts which were earned by the non-residents for services rendered outside India could not be deemed to be income which had either accrued or arisen in India in terms of section 9(1)(i) of the Act. He also invite our attention to the decision of the Mumbai Bench of the Tribunal in the case of DDIT v. Siemens Aktiengesellschaft : 2010-TIOL-102-ITAT-MUM = (2010-TII-09-ITAT-MUM-INTL) wherein it has been held that the withdrawal of circular is prospective from 2009 and not for earlier assessment years when the Circular was applicable. Reliance is further placed on the following decisions wherein it was held that payments made to foreign agents for services rendered outside India is not liable for deduction of tax at source and cannot be disallowed under section 40(a)(i): DCIT v. Divi's Laboratories Ltd.: 131 ITO 271 (Hyd.) JCIT v. George Williamson (Assam) Ltd.: 305 ITR 422 (Gau.) DCIT v. Eon Technology (P) Ltd.: Lex Doc Id: 409096(Del.) In view of the aforesaid, he submitted that the payments made did not give rise to an income chargeable to tax in India under the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agents for the sale of the vehicles and re-imbursement of advertisement expenses incurred outside India. Obviously, these expenditures incurred outside India does not make them taxable in India under the Act and the non-resident itself is not taxable in India. In the circumstances, we are of the view that the provisions of Section 195 will not be attracted in the case of these payments and the CIT (A) was right in deleting the disallowances made. In the circumstances, ground No.14 of the Revenue s appeal stands dismissed and the findings of the CIT (A) stands upheld. Respectfully following the same, we dismiss this ground of revenue s appeal. 18. Ground No.4 in revenue s appeal is against the deletion of disallowance of expenditure incurred on club membership of Rs.1,78,905/-. The CIT (A) has decided this issue in para 21 of his order which read as under:- 21. Grounds 8 to 8.5 are with regard to disallowance of club membership fee amounting to Rs.1,78,905/-. This amount represents expenditure incurred for club membership fee for executives of the company. The AO has disallowed the claim on the ground that the payments were made for personal benefit of the Directors an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees and directors. The expenditure is claimed to have been incurred for business purposes on grounds of commercial expediency. According to the assessee, there were contractual obligations incurred on accepted business practices prevailing in the business. It was claimed that there is no element of any personal benefit being granted either to the director or assessee. These amounts were incurred out of business necessity. Identical claims have been accepted by the Tribunal in the assessee s own case for AY 2001-02, by relying upon the following judgements:- Otis Elevators Co. (India) Ltd. Vs CIT 195 ITR 682 (Bom) American Express International Banking Corporation v CIT 258 ITR 601 (Bom) CIT vs Sundharam Industries Ltd. 240 ITR 335 (Mad) DCIT v Max India Ltd (2007) 112 TTJ (asr.) 726 40. After hearing both the parties and going through the records, we have no reason to interfere with the order of the ld. CIT(A) who has just followed the Tribunal order and the binding decision of the Delhi High Court in respect of the issue in question. The order of the CIT(A) on this issue is therefore confirmed by holding that the expenditure in question was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AD is confirmed by the CIT(A) and the ITAT in A.Y. 2003- 04, the assessee would be entitled to the claim of Rs.92,42,17,677/- made in this year. However, if the assessee's appeal is allowed for A.Y. 2003-04, the claim in this year would become infructuous. The AO is accordingly directed to take appropriate action in the matter after the disposal of appeal for A.Y. 2003-04. 19. Ld. DR relied on the order of Assessing Officer. Ld. AR has submitted that this issue has already been adjudicated in the assessee appeal to ITAT for AY 2003-04 and Hon'ble ITAT has remanded the matter to AO to grant appropriate relief to the assessee on this issue after considering all the relevant facts and after giving opportunity to the assessee. He submitted that the ITAT has also mentioned that a consistent approach should be adopted by the department by allowing the deduction in question to the assessee either in AY 2003-04 or in AY 2004-05. He submitted that in AY 2003-04 CIT(A) has granted relief on above disallowance, however Department has filed an appeal against the same before ITAT. He submitted that in case ITAT or any higher authority takes a different view on the aforesaid issue then appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant assessment year. In view of the subsequent decision of Hon'ble Supreme Court in the case of CIT vs. Ponni Sugars and Chemicals Ltd: 306 ITR 392 = (2008-TIOL-174-SC-IT), the applicant has, while the present appellate proceedings are pending before the Hon'ble Tribunal, raised the additional ground that the amount of subsidy raised by the applicant is in the nature of a capital receipt not exigible to tax. Since the aforesaid claim is being made for the first time before the Hon'ble Tribunal, the aforesaid documents are also being filed in support of the said claim. It is respectfully submitted that it is a settled law that nature of the subsidy received has to be decided on the basis of the objective behind the grant of such subsidy. It is, thus, a mere question of applying of 'purpose test' as has been laid down recently by their Lordships of the Supreme Court in the case of Ponni Sugar (supra) to the object stated in the relevant policy under which the subsidy/incentive is granted. The contention claim of the applicant is, therefore, required to be tested by applying the aforesaid legal position in the light of the relevant provisions of the Haryana G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. The relevant observations of the Court are reproduced hereunder: "13. The aforesaid case law clearly lays down a neat principle of law that discretion lies with the Tribunal to admit additional evidence in the interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadverten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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