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TMI Blog2016 (5) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... s treated as business income - Held that:- We considered the submissions and findings of the ld. Departmental Representative on the order of Commissioner of Income Tax (Appeals) which lacks clarity and the claim of job works by the ld. Authorised Representative does not specify the nature of work undertaken by the assessee company and the same was not reflected by the Assessing Officer in his order nor assessee has produced relevant materials on record to explain the nature of job works undertaken and job works charges takes the characteristic of business income. Even before us, the ld. Authorised Representative could not substantiate the working criteria of nature of job works with any supporting material in respect of particular product and further there is no discussion on the product used in job works by the Commissioner of Income Tax (Appeals). We are of the opinion that the matter has to be re-examined for limited purposes to verifying the nature of job works for captive consumption or for others. Therefore, we deem it necessary to set aside the impugned order of Commissioner of Income Tax (Appeals) and remit the file to the Assessing Officer to pass the order on above findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for both assessment years, hence these appeals are combined, heard together, and disposed of by a common order for the sake of convenience. 2. First we take up ITA No.2230/Mds/2013, of assessment year 2010-11 for adjudication. 3. The grounds of appeal raised by the assessee are under :- 2.1 The CIT(A) erred in holding that both the companies are not holding each other's share and hence the business advances received from Penguin Garments Pvt. Ltd., was treated as commercial transaction which do not attract the provision of deemed dividend. 2.2 The CIT(A) failed to note that the deeming provision under Section.2(22)(e) will extend to any payment by a company, to any concern in which such shareholder is a member or a partner and in which he has a substantial interest. 2.3 The CIT(A) also failed to note that the deeming provision under Section.2(22)(e) does not laid down any condition that borrower must hold shares in lending companies. 2.4 The CIT(A) ought to have followed the decision in the cases of CIT v. Bharti Overseas Trading Co. [2012] 207 Taxman 135 (Mag.) and CIT v. National Travel Services [2012] 249 CTR 540 (Delhi), wherein it was held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive provisions of Sec.115JB of the Act and return was processed u/s.143(1) of the Act on 15.03.2011. The case was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued. The Assessing Officer after considering the submissions of the assessee made an addition in respect of deemed dividend u/s.2(22) (e) ₹ 1,02,11,870/-. In the appellate proceedings, it was explained that assessee has availed loan from sister concern M/s. Penguin Garments P. Ltd. wereas the Director of M/s. Penguin Garments P. Ltd Shri. K.S.S.A. Mariappan holds 35.86% of shares and company also has accumulated profits of ₹ 4,66,34,760/-. The Director also holds 52.49% of shares in M/s. Penguin Apparels P. Ltd and the ledger copy was provided in respect of M/s. Penguin Garments P. Ltd and peak credit established ₹ 1,02,11,870/- and entire amount was squared off by repaying the amount. The Assessing Officer treated the transaction as deemed dividend and show cause notice was issued and the assessee has filed explanation as under:- The assessee-company filed relevant ledgers and details regarding the same. Further the assessee-company have submitted that provisions of Sec.2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer, has taken a peak credit as the loan given by the Penguin Garments Pvt. Ltd., treated the same as dividend income uls 2(22)( e). The AR in his submissions has stated that the appellant company is not a shareholder in Penguin Garments Pvt. Ltd. As the appellant company do not hold any shares in Penguin Garments Pvt. Ltd., the provisions of Section 2(22)( e) are not attracted. In his submissions the AR has mentioned, that, the reliance placed by the AO on several case laws mentioned supra, are related to the transaction between the assessee company and the shareholder. In the case of the appellant, there is no such relationship as a shareholder between the appellant company and Penguin Garments Pvt. Ltd. Thus the appellant company Penguin Apparels Pvt. Ltd does not hold any shares in Penguin Garments Pvt. Ltd. Similarly, Penguin Garments Pvt. Ltd does not hold any shares in Penguin. Apparels Pvt. Ltd., i.e the appellant company. Therefore, the contention of the AO is totally untenable. Thus the AR of the appellant requested for deletion of the addition under Section 2(22)( e) of the Income tax Act, 1961. 4.5 The provisions of Sec. 2(22)(e) of the Act creates a fiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerators P. Ltd. Thus the business advances received from Penguin Garments Pvt, Ltd., and the appellant company cannot be termed as deemed dividend U/S 2(22( e) as both the companies are not shareholders in each other and has to be treated as business transactions and hence the question of taxing them as deemed dividend and income u/s 2(22)(e) does not arise. 4.7 Therefore, respectfully following the ratios held in the case laws mentioned supra, the addition made by the AO under the head deemed dividend at 1,02,11,870 is deleted as both the companies are not holding each other's share holding and hence the business advances received from penguin garments Pvt. Ltd., is treated as commercial transaction which do not attract the provision of deemed dividend and hence deleted. The appellant succeeds on this ground of appeal . and allowed the ground of the assessee. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal. 6. Before us, the ld. Departmental Representative agitated the grounds that Commissioner of Income Tax (Appeals) erred in holding that both the companies are not holding each other s share and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has availed the services of M/s. Natural Origin Worldsise Pte. Ltd, Singapore for procuring the orders. The assessee paid the commission without deduction of tax as per Sec.195 of the Act as there was no permanent established in India. The ld. Assessing Officer relied on the CBDT circular discussed elaborately at page 4 of his order as under:- The Central Board of Direct Taxes has by its Circular 7 of 2009 dated 22.10.2009 withdrawn its earlier [i] Circular No.23 dated 23.07.2009 [ii] Circular No.163 dated 29.05.1975 and [iii] Circular No.786 of 07.02.2000. The impact of such withdrawal is that in respect of entities who engage non- resident agents for canvassing overseas contract, for export of their products and such agents who render service overseas are paid commission would become taxable. The earlier circular have clearly furnished illustrations to explain that such commission can be paid without deduction of tax. But all that had been withdrawn by the circular mentioned in supra. The recent rulings by the Authority for Advance Ruling in the case of M/s. SKF Boilers and Driers Pvt. Ltd., (AAR No.983- 984 of 2012), had adjudged this issue in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record and judicial decisions. The contention of the ld. Departmental Representative being that payment made to foreign agent are liable for TDS and there is no evidence to prove that they do not have any establishment in India even the ld. Commissioner of Income Tax (Appeals) has relied on the other aspect without considering the findings of the Assessing Officer and CBDT circular. The ld. Authorised Representative substantiated his arguments and drew our attention to the agreements with the non-resident at page 1 and confirmation letter at page 4 of the paper book that they do not have any establishment in India and exclusively deal outside India. Further substantiated the grounds with the debit note raised in respect of foreign agent and jurisdictional High Court decisions. The assessee has not substantiate with the type of works undertaken by Foreign Agent and volume of business conducted by them in proportionate to total turnover and also there is no confirmation produced in respect of commission s by foreign agent. Considering the facts, we set aside the order of Commissioner of Income Tax (Appeals) and remit the issue to the Assessing Officer for limited purpose to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove that it was sales commission towards procurement of orders from abroad. Accordingly, the entire issue is remitted back to the file of the AO for fresh consideration and the AO is directed to make necessary enquiry regarding the nature of services rendered by the non-resident agent and the payments made thereof. With these observations, the appeal is allowed for statistical purposes . Respectfully, following the decision of Co-ordinate Bench, we remit the issue to the file of Assessing Officer for verification and examination and the appeal of the Revenue is partly allowed for statistical purpose. 15. .In the result, the appeal of the Department in ITA No.2230/Mds/2013 of assessment year 2010-2011 is partly allowed. 16. Now we take up ITA No.390/Mds/2014 of assessment year 2009-2010 for adjudication. 17. The ground raised by the Revenue that Commissioner of Income Tax (Appeals) erred in considering the claim of deduction u/s.80IB of the Act on job works treated as business income and also not considering the findings of the Punjab and Haryana High Court in the case of CIT vs. Impal Forge and Allied Industries Limited were income derived from a job work charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs of CIT vs. Impel Forge Allied Industries Ltd 326 ITR 27 were it was held that once it is found that the assessee is deriving income from eligible businesses covered by Sec.80IB, apart from other conditions, the assessee is at liberty to do manufacturing activity not only for himself but for others also. Consequently profits derived from job work done for others also quality for deduction under sec. 80IB of the Act and further supported with the decision of CIT vs. Sadhu Forging Ltd 336 ITR 444 were it was held that activity of forging which involves heat treatment of material to produce automobile parts is manufacture and, therefore, labour charges and job work charges earned by the assessee for doing the job of forging for customers are gains derived from industrial undertakings and the same are entitled for deduction under Sec. 80IB of the Act. We considered the submissions and findings of the ld. Departmental Representative on the order of Commissioner of Income Tax (Appeals) which lacks clarity and the claim of job works by the ld. Authorised Representative does not specify the nature of work undertaken by the assessee company and the same was not reflected by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exchange gain on hedging is in the nature of export trade. The decision of the Apex Court in CIT Vs. Woodward Governor India (P) Ltd. (312 ITR 254 (SC) will apply and it cannot be treated as an income under 'other sources' and relief under section 80lB cannot be denied. As per AS11 the incomes or losses arising in foreign currency transaction have to be recognized as income or expenses and hence it is clearly business income and neither it can be assessed under 'other sources' nor Relief under Section 80IB denied. 8.2 Thus discount which represents gains in foreign exchange is directly attributable to the business of the assessee i.e. exports and is on revenue account. Following the decision of the Apex Court in CIT vs Woodward Governor India (P) Ltd 312 ITR 254(SC) the Assessing Officer is directed to allow the claim of the assessee for this deduction under section 80IB. and allowed the ground of the assessee. Aggrieved by the order, the Revenue has assailed an appeal before Tribunal. 25. In the appellate proceedings, the ld. Departmental Representative contention that the assessee is not eligible for deduction u/s.80IB of the Act in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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