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TMI Blog2019 (3) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... income at Rs. 9,02,26,830/-. The case was selected for scrutiny and after hearing the assessee assessment order u/s 143 (3) was passed determining the total income at Rs. 6,69,00,970/-, after making addition of Rs. 66,74,134/-, on account of treating service tax under section 43B of the Act, AIR ITS, TDS difference and disallowance made u/s 40(a)(ia) of the Act. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) partly allowed the appeal of the assessee. However, confirmed the additions made by the AO. The Ld. CIT(A) further held that section 43B is a separate provision, it has nothing to do with the additions u/s 145A and as such does not come into play so for as the additions u/s 145A is concerned. 3. The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):- 1. "Both the lower authorities erred in holding that service tax was required to be treated as a trading receipt in the case of the appellant under section 145-A Rs. 35,11,883/-. 2. The learned Commissioner of Income Tax (Appeals) erred in holding that section 43B does not come into play as regards additions under section 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment is not routed through the profit and loss account but is debited/credited directly to the 'Service Tax Account'. The Ld. counsel further pointed out that this issue is covered in favour of the assessee by the order of the ITAT rendered in the assessee's own case ITA No. 2021/Mum/2011 for the A.Y. 2007-08 and ITA No 6286/Mum/2011 for the AY 2008-09. The Ld. counsel further submitted that Hon'ble Bombay High Court has confirmed the findings of the Tribunal in department's appeal ITA No. 247 and 255 of 2014. 5. The Ld. Departmental Representative (DR) admitted that this issue is covered in favour of the assessee by the order of the ITAT and the order of the Hon'ble Bombay High Court, however, supported the orders passed by the authorities below. 6. We have perused the material on record. We notice that the coordinate Bench has decided the identical issue in favour of the assessee in the assesse's own case for the A.Y. and 2008-09 (supra). The relevant portion of the order passed by the coordinate Bench reads as under:- "7. Before us, the AR pointed out that the issue has been dealt with by the Hon'ble Delhi High Court in the case of CIT vs. Nobel & Hewitt (I) Pvt. Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncile the same and offer explanation. AO made disallowance and added the said amount to the income of the assessee holding that the assessee has failed to offer any satisfactory explanation. In the first appeal, the Ld. CIT (A) restored the issue to the file of AO with the direction to verify the facts and pass a speaking order after giving opportunity of being heard to the appellant. 9. The Ld. counsel submitted before us that the reason for difference was due to certain service bills raised by the assessee in the assessment year 2008-09 and paid during the year relevant to the assessment year under consideration. Since, the difference was already booked and offered as income in the A.Y. 2008-09, the same cannot be taxed again during the year under consideration. The assessee has also furnished the books for the A.Y. 2008-09 showing bills outstanding as on 31.03.2008 and ledger of ACC Ltd. pertaining to the A.Y. 2009-10 showing that the bills were paid in the A.Y. 2008-09. In respect of the remaining three parties break-up was not given by the AO to offer proper explanation. The Ld. counsel further pointed out that this issue is covered in favour of the assessee in the case of C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No. 786 of 2000. Since, the NKF has not done any activity in India, the assessee was not required to deduct tax at source. The Ld. counsel further invited our attention to relevant portion of the circular aforesaid, which contemplates as under:- "The deduction of tax at source under section 195 would arises if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No. 23 dated 23.07.1969 is drawn, where the taxability of 'Foreign Agents of Indian Exporters" was considered along with certain other specific situations. It had been clarified then that where the non-resident agent operates outside the country, no part of his income arises in India. Further, since the payment is usually remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Such payments are therefore held to be not taxable in India. The relevant sections, namely section 5(2) and section 9 of the Income Tax Act, 1961 not having undergone any change in this regard, the clarification in Circular No. 23 shall prevails. No tax is therefore deductible under section 195 and consequently the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard the rival submissions of the parties and also perused the material on record including the cases relied upon by the assessee. We notice that the AO has made disallowed u/s 40(a)(ia) holding that Circular No. 786 is not applicable to the case of assessee as the nature of payment was not export commission and the charges payable is for services rendered in India and not outside India. The Ld. CIT (A) has confirmed the disallowance on the basis of explanation to section 9 inserted by Finance Act, 2010 with retrospective effect from 01.06.1976. We notice that the Hon'ble jurisdictional High Court in the case of CIT vs. Gujarat Reclaim and Rubber Products (supra) has dismissed the appeal of the revenue in which the revenue had raised the similar ground. In the said case, the respondent/assessee had made payment of commission to non-resident agent in respect of sales made outside India during two assessment years. The AO made disallowance u/s 40(a)(i) of the Act for not deducting tax at source on the ground that the circulars No. 23 of 1969 and 786 of 2000 issued by the CBDT which had clarified that commission paid to non-resident agent does not give rise to income had been with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service have been rendered in India nor such services have been utilized aggregating to Rs. 33,93,493/- (on the balance amount TDS has been deducted), on the ground that, such payment relate to services rendered outside India. The revenue's case is that, in view of the Explanation brought in the statute with retrospective effect form 1st June, 1976 and such an Explanation is clarificatory in nature which now provides that the income of a non-resident shall be deemed to accrue in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included to the total income of the non-resident, whether or not the not the non-resident has resident (sic) or place of business or business connection in India or a non-resident has rendered services in India. Though, such an amendment has been brought in the statute with retrospective effect but a the time of making the payment there was no such provision under the Act and in fact, the law of the land as laid down by the Hon'ble Supreme Court was that, if the services has not been rendered in India and such services are not utilized in India then there is no liability for deducting TDS. The amendment has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the applicability of the Circular No 786 of 2000 is concerned the same was applicable in case of the assessee as it was withdrawn on 22.10.2009. As per the order of the Hon'ble Bombay High court rendered in the case of UTI vs. Unny and others 249 ITR 612, subsequent withdrawal of an earlier Circular cannot have retrospective operation. So far as the retrospective effect of the Explanation to section 9 is concerned, The coordinate Bench has held that disallowance on the basis of Explanation to section 9 of the Act inserted by Finance Bill 2010 with retrospective effect from 01.06.1976 was bad in law as the assessee could not have visualized to deduct the tax in the absence of any such provision at the time of making payment. Hence, in the light of the judgments of the Hon'ble High Courts and the coordinate Bench of the Tribunal discussed above, we set aside the findings of the Ld. CIT(A) and allow this ground of appeal of the assessee and further direct the AO to delete the addition. 20. Ground No 11 not pressed hence dismissed as not pressed. ITA No. 3256/Mum/2013 (Assessment Year: 2009-2010) The revenue has raised the following effective grounds of appeal against the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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