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TMI Blog2015 (4) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... cation money and ₹ 2.83 crores comprises of Bajaj Insurance, Aviva Insurance, ICICI Prudential, ING Vysya Life Insurance and investment in firm in which Assessee is not a partner which, in our opinion, does not fall within the ambit of Sec. 14A. Therefore, balance investment remains only ₹ 1.30 crores out of which disallowance @ 0.5% can be only of ₹ 65,000/- as per Rule 8D(2)(iii). CIT(A), therefore, reduced the disallowance to ₹ 65,000/-. In our opinion, there is no error in the order of CIT(A) reducing the disallowance to ₹ 65,000/- which may warrant our interference - Decided against revenue. Disallowance u/s 40(a)(i) - non deduction of TDS on destination sampling charges to the parties of Hongkong and Singapore - CIT(A) deleted the addition - Held that:- Source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as there was no provision under Sec. 9(1), the income received by the non-resident as per the existing law at the time when the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee it is seen that almost all the creditors are more than 4 years old and till date the Assessee has not paid the above liabilities as held by A0 - Held that:- This is not a fit case which warrants our interference. The onus is on the AO to prove that the liability stands ceased or remitted. No legal enforcement cannot mean cessation of liability. We accordingly confirm the order of CIT(A). Thus, this ground stands dismissed. - Decided against revenue. Inguine sales - addition on the ground that the sales to sister concern at rate lower than the rate adopted for valuation of the closing stock is not genuine and therefore he added the difference between the two rates - CIT(A) deleted the addition - Held that:- The addition has been made on account of undervaluation of the closing stock. It is not denied that the Revenue has accepted the sale. The Assessee has explained to the AO that the ore sold to the sister concern did not have screening and transport cost loaded on it while the closing stock was inclusive of the transport cost as well as screening cost as the iron ore which was in stock was screened ore. In our opinion, the AO has not appreciated the facts and once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made through banking channels, TDS has been deducted and there is no allegation of any back flow of money. Assessee has filed confirmation during the course of the assessment proceedings. Same was duly verified by the AO. The invoice raised by the agent gives details of the services rendered. Mr. Rane has also rendered services as commission agent to various parties and is acting in the same capacity since long. Under these facts and circumstances, we find that CIT(A) has correctly deleted the disallowance. - Decided against revenue. - ITA NO. 145/PNJ/2014, ITA NO. 146/PNJ/2014 - - - Dated:- 16-3-2015 - Shri P. K. Bansal And Shri D.T. Garasia JJ. For the Appellant : Jitendra Jain, Adv. For the Respondent : B. Balakrishna ORDER Per P.K. Bansal : 1. Both the above appeals have been filed by the Revenue against the common order of CIT(A) dt. 15.01.2014. Since the Assessees are husband and wife, therefore, due to applicability of provisions of Sec. 5A of the Income Tax Act common issues are involved as the income has to be divided among the husband and wife. The common grounds of appeal taken by the Revenue reads as under : 1. The CIT(A) erred in restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uj), 164 ITR 102, CIT vs. Modi Stone Ltd., (Del). 203 Taxman 123 and CIT Vs. S.G. Exports (P H), 336 ITR 2 on the above issue. 5. The CIT(A) erred in deleting the additions made u/s 41(1) of ₹ 3,07,61,558/- where the assessee not filed any confirmations of trade creditors and not proved the existence of the liabilities and most of the liabilities are more than 4 years old and the CIT(A) failed to appreciate the decision of the ITAT, Bangalore Bench decision reported in 128 ITD 74 in the case of Sureshkumar T. Jain Vs. ITO which held that the onus is on the assessee to prove the genuineness of the existence of liability of trade creditors which confirmed the additions made by the AO u/s 41(1) and facts of the assessee's case are identical to the above case. 6. Whether the CIT(A) is right in deleting the addition of ₹ 1,18,26,320/- on account of Undervaluation of closing stock by the assessee by way of merely passing journal entries on 31.03.2010 in the name of sister concerns at a much lower rate viz., ₹ 839 per M.T. as against the closing stock rate of ₹ 1,141 per M.T. under the facts and circumstances of the case where the assessee not proved that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money and therefore computed the disallowance at ₹ 24,71,566/- by applying Rule 8D as under : Accordingly, the disallowance u/s 14A is worked out under Rule 8D as under:- 1. Amount of expenditure directly relating to income which does not form part of total income = Nil 2. In a case where the assessee has incurred expenditure by way of , Interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-[AxB]/C= A. Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year- ₹ 2,06,70,112 B The average of value of investment, income from which does not or shall not form part of the total income appearing in the balance sheet of the assessee on the first day and the last day of the previous year Rs.6,30,43,814 + ₹ 5,93,02,505/- = Rs.12,23,46,319 Average of the above = Rs.6,11,73,159 C The average of total assets as appearing in the balance sheet of the assessee, on the first day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment in firm in which he is not a partner. Even in respect of indirect expenses also the disallowance comes to 65% on the remaining amount of ₹ 1.30 crores @ 0.5%. CIT(A) ultimately sustained the disallowance to the extent of ₹ 65,000/-. 3. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the Assessee has investment of ₹ 5,93,02,505/- in mutual funds, shares/share application money and earned dividend amounting to ₹ 45,371/-. The Assessee has not made any disallowance in the computation. The AO since was not satisfied with the working of the Assessee, therefore, applied Rule 8D for estimating the disallowance. The Assessee claims that out of interest expenditure of ₹ 2.60 crores, ₹ 1.63 crores has been paid for availing of packing credit and this loan is availed only for export, ₹ 43 lacs are paid to VAT authorities, interest on overdrawn account, processing of loan for hotel and packing credit limits. As per CIT(A), Assessee has furnished the ledger account of interest paid to substantiate his claim. These facts have not been denied by the ld. DR even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Sec. 5(2)(b) r.w.s. 9(1)(i) as the right to receive the commission has arisen in India when the order is executed by the Indian company in India. CBDT withdrew Circular no. 786 dt. 7.2.2000 by subsequent circular no. 7 of 2009 dt. 22.10.2009. The AO also observed that Article 12 of the DTAA with all the above countries state that fees for technical/consultancy services arising in a contracting state and paid to a resident of other contracting state may be taxed in that other state. It further states that, however, such royalties and technical/consultancy fees may also be taxed in the contracting state in which they arise and according to the laws of that state. As per the Indian law, these fees are deemed to accrue or arise in India. Referring to Article 8 of the DTAA it was observed by the AO that the profit derived by an enterprise of a contracting state from operation by that enterprise of ships or aircraft in international territory shall be taxable only in that state. Thus, there is difference between Article 12 and Article 8 and in view of the specific provision of Article 12 the royalties and technical/consultancy fees may also be taxed in the contracting state in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been rendered. Nature of service rendered and source country of the payment is immaterial in this context. Second aspect of the issue is that no part of recipient s income is assessable in India. Therefore, in view of these undisputed facts, in my opinion, TDS was not deductible in this case and the disallowance made by the A.O amounting to ₹ 28,87,983/- is hereby deleted. This Ground of appeal of the appellant is allowed. 5. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. The issue before us is whether any disallowance can be made u/s 40(a)(i). The AO during the course of the assessment proceedings noted that the Assessee has made payment amounting to ₹ 28,87,983/- to Hongkong and Singapore parties, ₹ 17,43,033/- to Zhao Long (Asia) Ltd. for monitoring, supervision of discharged cargo, draft survey, joint sampling of discharged cargo, photographs, sample preparation and sealing of samples, analysis of the grades etc. Copies of the bills were placed at pg. 134-140 of the paper book. From all the bills it is apparent that these services were rendered in the People s Republic of China. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended explanation to Sec. 9(1) as it exists today it is specifically stated that the income of non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of Sec. 9(1) and shall be included in the total income whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. Similar view has been taken by the co-ordinate Mumbai bench of this Tribunal in the case of Ashapura Minichem Ltd. vs. ADIT, 40 SOT 220 (Mum.) in which it was observed as under : 9. The legal proposition canvassed by the learned counsel, however, does no longer hold good in view of retrospective amendment with effect from 1-6-1976 in section 9 brought out by the Finance Act, 2010. Under the amended Explanation to section 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of section 9(1), and shall be included in his total income, whether or not (a) the non-resident has a residence or place of business or business connection in India; or (b) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at territorial nexus to a tax jurisdiction being sine qua non to taxability in that jurisdiction is a normal international practice in all tax systems. This school of thought is now specifically supported by the retrospective amendment to section 9. 6. It is an undisputed fact that the Finance Act, 2010 received the assent of the President on 8.5.2010 and all the payments have been made by the Assessee to the non-resident party prior to receiving of assent of the President making the retrospective amendment by adding explanation to Sec. 9(1). At the time when the Assessee made the payment there was no provision u/s 9(1) making the technical fees deemed to accrue or arise in India whether or not (a) the non-resident has residence or place of business or business connection in India or (b) the non-resident has rendered services in India. It is not disputed by the ld. DR that the non-resident did not have residence or place of business or business connection in India. The non-resident has also not rendered services in India. The source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source relying on the subsequent amendments made in the Act with retrospective effect. In the said case, Explanation to sec.9(2) was inserted by the Finance Act, 2007 with retrospective effect from 1.6.1976 and it was held by the Tribunal that it was impossible for the assessee to deduct tax in the financial year 2003-04 when as per the relevant legal position prevalent in the financial year 2003-04, the obligation to deduct tax was not on the assessee. The Tribunal based its decision on a legal Maxim lex non cogit ad impossiblia meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform and relied on the decision of Hon'ble Supreme Court in the case of Krishna Swamy S. PD and Another v. Union of India and others 281 ITR 305 wherein the said legal Maxim was accepted by the Hon'ble apex court. 26. In view of the above discussion, we are of the view that the amount in question paid by the assessee to SSA was not taxable in India in the hands of SSA either u/s.9(1)(vi) or 9(1)(vii) as per the legal position prevalent at the relevant time and the assessee therefore was not liable to deduct tax at source from the said amount p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) deleted the addition by observing as under : 7.4 I have gone through the assessment order and written submission of the appellant. This is an undisputed fact that the appellant has made payment to the buyers, who are foreign residents in the form of Demmurage. In this case, demmurage has not been paid to transport vessel but to the foreign buyers to compensate them for the delay in loading the ore cargo. In reality, this reduction is nothing, 'but a reduction in the sale price received by the appellant. No part of income of the foreign buyers are assessable in India. In my opinion, on these set of facts, it is not important, whether these countries, have a DTAA with India or not. It is enough that these parties are foreign buyers and no part of their income is assessable in India. The payment relates to normal sale-purchase transaction and therefore, it cannot be said that the payment relates to an income, that arose or accrued in India. Facts of M/s Orient Goa are completely different and AOs reliance on this decision is clearly misplaced. In view of the above facts, the disallowance amounting to ₹ 68,67,067/- on account of non-deduction of TDS on demmurage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 is carefully considered by us. Chapter XV titles as Liability in special cases . We have no concern with sections, starting from section 159, till section 171 from this Chapter XV. Section 172 comes under sub-title H.-Profits of non-residents from occasional shipping business . Title of section 172 is Shipping business of non-residents. For bringing a case under Chapter XV- H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. Non-resident is defined under section 2(30), as a person who is not a resident and for the purpose of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6. The respondent-assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. We have also taken notice of section 6, i.e., Residence in India . In short, respondent-assessee cannot be said to be non-resident. The present appeal pertains to the respondent-assessee. In our view, in the facts of the present case, the respondent-assessee cannot lay fingers on section 172, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned appellate Tribunal seems to have referred to the Circular of CBDT No. 723, dated 19-9-1995. 10. We have considered the submission of the learned Counsel appearing for the parties pertaining to the Circular No. 723, dated 19-9-1995 by CBDT (Annexure C ). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems to have been issued by the CBDT, clarifying the scope of sections 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the Circular and submits that section 172 operates in the area of computation of profits from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. Learned Senior Advocate Shri Usgaonkar, appearing on behalf of the respondent-assessee, also drew our attention to the Judgment of the Hon'ble Supreme Court in the matter of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income-Tax (Appeals) dated 28-8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs. Respectfully following the aforesaid decision of the Hon'ble Jurisdiction High court we set aside the order of the CIT(A) and restore the order of the AO. Thus, this ground stands allowed. 9. Ground no. 4 relates to disallowance on account of cash purchases. The AO disallowed unproved cash purchases of ₹ 60,28,080/- on the ground that the Assessee has not proved the identity of the sellers. The Assessee went in appeal before the CIT(A). CIT(A) reduced the addition to ₹ 6,02,808/- being 10% of the cash purchases by observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion prematurely, at the same time, the conduct of the appellant can also not be called to be above board. While making cash purchases and preparing cash vouchers, it could have obtained the addresses of these parties which could have helped in obtaining the confirmations of these parties. By not maintaining records of such parties, in fact, the appellant stopped the A.O. or rather created obstackle in carrying out further investigation. In view of these facts and taking overall view of all the facts, 10% of cash purchases needs to be disallowed which works out to ₹ 6,02,808/-. Addition to the extent of ₹ 6,02,808/- is confirmed and balance is deleted. This ground of appeal of the appellant is partly allowed. 10. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We do not find any provisions under the Income Tax Act under which there is a bar on making the purchases in cash in case the amount is less than ₹ 20,000/-. In the case of the Assessee the total purchases are to the extent of ₹ 29.97 crores. Cash purchases are only around ₹ 60,28,080/- which is around 2% of the total purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There are a member of judicial pronouncements, wherein it has been held that addition U/S 41(1) cannot made in a routine manner. The A.O. has not doubted genuineness of these creditors. In some cases amounts are as big as ₹ 68 lakhs, 43.93 lakhs and 48.88 lakhs. No one will leave such big amounts. Various courts have held that even one sided write-off is also not enough to make addition U/S 41(1). The A.O. has also not bothered to verify and investigate each creditor individually. In view of these facts, addition U/S 41(1) in a summary manner cannot be sustained. Entire addition amounting to ₹ 3,07,61,558/- is hereby deleted and this ground of appeal of the appellant is allowed. 12. Before us, the ld. DR relied on the order of the AO while the ld. AR submission that Sec. 41(1) is applicable only if there is remission or cessation of the liability and there is no material on record or finding that the liability ceased to exist. Acknowledgement of the Assessee in the balance sheet itself demonstrates that these liabilities subsist. The AO himself in his order accepted that the liability pertains to the item which has been allowed as expenditure in the earlier year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year, it must be deemed to have been obtained or received during the year. Merely that the Assessee has not made the payment for the last 3 years, it cannot be said that the liability has ceased to exist. We noted on the facts of the case that the addition has been made by the AO in respect of unpaid liabilities which were in existence as on 31.3.2011, not the liability which were in existence as on 31.3.2009 and had not been paid by the Assessee during the 3 years. The unpaid liability, in our opinion, cannot be added by the AO u/s 41(1) merely because they remained unpaid for a sufficiently long time. Unless there is evidence to show that the creditors have remitted the debt or otherwise by operation of law the liability to pay him has ceased, there can be no benefit arising to the Assessee u/s 41(1). It is not the case where the Revenue has issued notice to the Creditors and the creditors have confirmed that there exists no liability or they have waived the liability. The onus, in our opinion, lies on the revenue to prove that there is a cessation of liability. The liability is subsisting but no legal enforcement cannot amount to be cessation of liability. This view h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n guess work, presumption and surmises that the appellant has sold ore to the sister concern at lower than the market price. In the submission, the appellant has explained that the ore sold to sister concern did not have the screening and transportation cost loaded on it, which is a substantial part of cost. The sale has also been offered by the sister concern and the same has been assessed by the Department. While passing the order, the A.O. placed reliance on many judicial pronouncements, wherein it has been held that, Dealings involving funds transfer to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there are abnormalities attaching to such transactions. Having relied on these decisions, the A.O. adopted a casual approach instead of showing any care or caution and without making any further investigation or even asking the assessee any explanation made the addition in a summary manner on a non-existing stock. This addition cannot be sustained. The A.O is directed to delete the addition amounting to ₹ 1,18,26,320/- made on account of alleged undervaluation of closing stock. This ground of appeal of the appellant is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ore sold to the sister concern did not have screening and transport cost loaded on it while the closing stock was inclusive of the transport cost as well as screening cost as the iron ore which was in stock was screened ore. In our opinion, the AO has not appreciated the facts and once the sale of the goods has been accepted, how there can be addition on the basis of undervaluation of closing stock. We, therefore, hold that this is not a fit case which warrants our interference. We accordingly confirm the order of CIT(A) on this ground. 17. Ground no. 7 relates to deletion of the addition of ₹ 2,19,49,850/- on account of disallowance of stacking and handling expenses and blending and screening charges paid to sister concern. The AO noted that the Assessee has paid stacking and handling charges of ₹ 1,44,99,850/- to M/s. Karishma Goa Mineral Trading Pvt. Ltd. and blending and screening charges of ₹ 74,50,000/- to M/s. Karishma Impex. The AO was not satisfied with the explanation of the Assessee and was of the opinion that these expenses have not been genuinely incurred. Therefore, he disallowed the same. When the matter went before the CIT(A), CIT(A) de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Trading Pvt. Ltd. to the Assessee. The Assessee has duly deducted TDS, the charges paid by the Assessee have duly been shown as income in the hands of M/s. Karishma Goa Mineral Trading Pvt. Ltd. The Assessee has made similar payments to D.B. Mineral @ ₹ 80/ton but in the case of M/s. Karishma Goa Mineral Trading Pvt. Ltd. it is @ ₹ 95/ton. The Assessee has duly explained that the difference was due to loading and unloading on account of manual and mechanical operation. So far as non- charging of service tax is concerned, we noted that service tax has also not been charged by D.B. Mineral as there is no liability to service tax in respect of this type of services rendered with respect to export cargo in view of Circular no. B.11/1/2002-TRU dt. 1.8.2002. It is a fact that when ore is extracted from the mines in raw form it is known as Run of Mines. This block form needs to be crushed to arrive at the desired size, and as contended by the ld. AR, as per the market practice 10% positive tolerance limit is provided. If the size exceeds the tolerance limit, same is to be crushed to bring it within the desired size and tolerance limit. Raw ore contains various impurities w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cash payments and A.Os. conclusion which is based on presumption and surmises cannot be sustained. The A.O. is directed to delete the addition amounting to ₹ 30,93,640/- accordingly. This ground of appeal of the appellant is allowed. 20. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well as the relevant provisions of the Income Tax Act. We noted that the Assessee has incurred expenditure on transportation to the extent of ₹ 8.33 crores out of which only a sum of ₹ 13,93,640/- has been incurred in cash. It is not a case where the AO has invoked the provisions of Sec. 40A(3) i.e. in no case the expenditure incurred in cash does not exceed ₹ 20,000/-. CIT(A), we noted, has given a clear-cut finding of fact that on every voucher truck number is mentioned and the signature of the driver/cleaner has been obtained and the expenditure is clearly verifiable. Even we noted that the cash expenditure is only to the extent of 3.6% of the total expenses. CIT(A), in our opinion, has given a finding of fact. No cogent material or evidence was brought to our knowledge which may compel us to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier A.Ys 2007-08 and 2008-09 and the commission paid was not disallowed even though assessments were completed u/s 143(3). Similarly, in the case of Arham Mines and Minerals we noted that commission has been paid to Arham Mines and Minerals for procuring export orders. These very parties have rendered services to the sister concerns, M/s. Karishma Impex and M/s. Karishma Goa Mineral Trading Pvt. Ltd. in A.Y 2009-10 and the payment of commission has duly been allowed as deduction in the case of the said sister concerns while framing assessment u/s 143(3). In the case of Durga Sawkar we noted that the Assessee has paid commission in the A.Ys 2008-09 and 2009-10 and the commission so paid was allowed as deduction while framing assessment u/s 143(3). Mr. B.L. Rane has rendered services in connection with procurement of iron ore from suppliers. Payment has been made through banking channels, TDS has been deducted and there is no allegation of any back flow of money. Assessee has filed confirmation during the course of the assessment proceedings. Same was duly verified by the AO. The invoice raised by the agent gives details of the services rendered. Mr. Rane has also rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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