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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 ..... HELD THAT:- Assessee has given explanation in respect of the party ACC Ltd., however could not explain the difference in respect of the remaining three parties. As alleged by the assessee since the AO did not provide the break-up in respect of the three companies despite request made by the assessee, the assessee could not explain the same before the authorities below. We further notice that the AO has made addition on the basis of the AIR data without conducting any further enquiry. The facts of the decision relied upon by the assessee is different from the facts of the present case - agree with the CIT (A) that the AO has made the addition without giving adequate opportunity to the assessee. Hence, we endorse the findings of the CIT (A) and direct the AO to verify the fact and pass a speaking order after affording opportunity of being heard to the assessee. Disallowance of referral fees for non-deduction of tax - addition u/s 40(a)(ia) - disallowance on the basis of Explanation to section 9 of the Act inserted by Finance Bill 2010 with retrospective effect - HELD THAT:- The amount was paid towards referral fees to NKF for business referred by them therefore in the light of the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ₹ 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 145A. 3. The learned Commissioner of Income Tax (Appeals) erred in making an enhancement without issuing any notice to the appellant, as is statutorily required under section 251(2) of the Income Tax Act. 4. Having regard to the facts and circumstances of the case and the provisions of law, the appellant submits that the Assessing Officer be directed to delete the addition made to the total income on account of service tax. 5. The learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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., reported in 305 ITR 324 and ACIT vs Real Image Media Technologies Pvt. Ltd. reported in 306 ITR 106 (AT-Chennai). In this case, the coordinate Bencvh held, "that service provider was merely acting as an agent of the Government and was not entitled to claim deduction on account of service tax. Since, service tax was not payable by the assessee, rigour of section 43B of the Act could not be applied to the case of assessee ….." In eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 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.C. Chokshi & Company vs. ACIT ITA No. 6533/Mum/2012 dated 31.08.2015. 10. On the other hand, the Ld. DR submitted that since the assessee has shown less income, the AO has rightly made addition of the difference. Moreover, the Ld. CIT (A) has sent back the issue to AO, no further action is called for in the matter. 11. We have heard the rival submissions and perused the material on record in the light of the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard 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 expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. On being apprised of this position, the Comptroller & Auditor General have agreed to drop the objection referred to above." 14. The Ld. counsel further submitted that in the case of Gujarat Reclaim and Rubber Products Ltd. 383 ITR 236 (Bom), the jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 withdrawn by Circular No. 7 dated 2009. The CIT (A) upheld the action of the AO in respect of the assessment year 2007-08, however, deleted the disallowance in respect of the appeal pertaining to A.Y. 2008-09 holding that the commission agent did not have any business connection in India. The assessee and the revenue preferred the appeal against the findings of the Ld. CIT (A) before the Tribunal. The Tribunal held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des 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 been brought specifically to negate the decision of Hon'ble Supreme Court. An assessee who has to make the payment cannot visualize or apprehend that in future a retrospective amendment would be brought whereby it would require withholding of tax. Even if the purported amendment has been brought with the intention to clarify the provision but there was no such judicial interpretation that payments made to non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, 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 impugned order passed by the Ld. CIT (A):- 1. "The order of the CIT (A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance made under section 43B for the unpaid liability of service tax ignoring the fact the AO had correctly made the disallowance. 3. On the facts and in the circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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