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TMI Blog2019 (10) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the deduction under section 80IA. Thus, he has himself has not disputed above fulfillment of necessary conditions for claiming the deduction under section 80IA. It is also pertinent to note that in the assessment years 2012-13 and 2013-14, the stand of the assessee that loss of earlier years i.e. prior to selection of initial assessment year are required to be ignored for the purpose of section 80IA. CIT(A) correctly has accepted the claim of the assessee and held that unabsorbed depreciation or loss of the years prior to initial assessment year are not required to be set off against the eligible profits and thus the assessee is entitled for deduction under section 80IA on the enhanced amount. Addition u/s 40(a)(i) of the Act on account of non-deduction of TDS on the foreign commission payment - HELD THAT:- We are of the view that the ld.CIT(A) has examined issue with all possible angle in order to find out whether commission paid by the assessee is genuine or alleged commission has element of income taxable in India. After satisfying himself on both the counts, the ld.CIT(A) has allowed deduction of the above expenditure to the assessee in both these assessment years. On d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of M/s.Checkmate Facility And Electronics Solutions P.Ltd. Vs.DCIT, [ 2018 (10) TMI 994 - GUJARAT HIGH COURT] on this similar issue. Therefore, we do not find any merit in this ground of CO. It is dismissed. - ITA No.3233/Ahd/2015 With Cross Objection: 220/Ahd/2015 [Asstt. Year: 2012-13] And ITA NO.2490/Ahd/2014, 2037/AHD/2016 [Asstt. Year : 2011-12 & 2013-14] - - - Dated:- 23-8-2019 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER Revenue by: Shri Tushar P. Hemani, AR Assessee by: Shri S.K. Dev, Sr. DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Revenue is in appeal before the Tribunal against orders of the ld.CIT(A) 24.6.2014, 20.8.2015 and 20.8.2015 passed for the assessment years 2011-12, 2012-13 and 2013-14 respectively. On receipt of notice in the Revenue s appeal for the Asstt.Year 2012-13, the assessee has filed cross objection bearing CO No.220/Ahd/2015. Since common issues are involved, therefore, we heard these appeals together and deem it appropriate to dispose of them by this consolidated order. First we take up appeal for the Asstt.Year 2011-12. ITA No.2490/Ahd/2014 2. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA at ₹ 2,18,33,004/- originally claimed by it. This exercise led to disallowance of ₹ 5,21,79,627/- [₹ 7,40,12,631/- minus ₹ 2,18,33,004/-]. 5. Dissatisfied with the action of the AO, assessee carried the matter in appeal before the ld.CIT(A). It was contended by the assessee that though according to the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC), the AO may not be competent to entertain fresh claim unless revised return is being filed by the assessee, but this restriction is not applicable on the first appellate authority. The issue raised by the assessee is legal one and it can be entertained by the first appellate authority. He made reference to large number of decisions viz. CIT Vs. Jindal Saw Pipes Ltd., 328 ITR 338 (Del), Commissioner of Income Tax Vs. Pruthvi Brokers and Shareholders P.Ltd., 349 ITR 336. The ld.CIT(A) has entertained the claim of the assessee and proceed to decide it on merit. On merit, it was contended by the assessee that basically, the issue involved is about selection of initial assessment year for claiming deduction under section 80IA. According to sub-section (5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has appraised its Assessing Officers that the assessee will be at liberty to choose initial assessment year, and thereafter deduction under section 80IA is to be granted for ten consecutive years after the selection of that assessment years out of 15 years block. He also has placed a copy of order of the Tribunal passed in ITA No.2174/Ahd/2013 in the case of DCIT Vs. Suzlon Towers Structures Ltd. wherein identical issue was considered by the Tribunal. 7. We have duly considered rival submissions and gone through the record carefully. Board has recognized rights of the assessee for selecting the initial assessment year for claiming deduction under section 80IA. The Board has appraised its authorities and contemplated that sub-section (2) of section 80IA provide that the assessee who is eligible to claim deduction under section 80IA has option to choose the initial /first year from which it may desire the claim of deduction for ten consecutive years out of slab of 15 years as prescribed under that sub-section. It has also been propounded by the Board that once such initial assessment year has been opted by the assessee, he shall be entitled to claim deduction under section 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any error in the order of the ld.CIT(A), and the appeal of the Revenue in the Asstt.Year 2011-12 is dismissed. ITA No.3233/Ahd/2015 (Asstt.Year 2012-13) and ITA No.2037/Ahd/2016(Asstt.Year 2013-14) 9. Ground no.2 in both these assessment years is common. Grievance of the Revenue in this ground is that the ld.CIT(A) has erred in deleting the disallowance of ₹ 1,53,17,547/- and ₹ 1,51,52,353/- which was disallowed by the AO with aid of section 40(a)(i) of the Act on account of non-deduction of TDS on the foreign commission payment in the Asstt.Year 012-13 and 2013-14 respectively. 10. The facts on all vital points are common. Even the finding of the ld.CIT(A) is verbatim same except variation in quantum in both the years. Therefore, for the facility of reference we take up the facts from the Asstt.Year 2012-13. 11. The assessee has filed its return of income on29.11.2012 declaring total income at ₹ 36,73,42,030/- which was revised to ₹ 30,62,30,930/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee at the relevant time was engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to commission payment on export to overseas buyers, we furnish following details and explanations for justification of overseas commission and its payments: 1. The assessee company is in export of Yarn cotton waste, Liquid glucose starch i.e. maize processed items and De-oiled Cake. The export summary of these items during the year 2011 -12 and payment of commission is as under: Manufacturing items Export Sale Commission Agro Processing: DOC 3576946239 748632 Maize Processing: Liquid Glucose Starch 306863052 720535 Yarn Mfg.: Yarn Cotton Waste 1720000547 14148380 Total 5603809838 15617547 2. Yarn cotton waste are exported through brokers, as most of the deal is through brokers who basically work from Taiwan, Hong Kong, Korea, Malaysia, Vietnam, Bangladesh, Philippines, Italy, Portugal, China and USA, as the product is used worldwide and dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is reproduced hereunder: In connection to the commission on export sales paid to overseas brokers / commission agents, we have furnished detailed reply vide letter dated 18- 02-2015 with evidences related to foreign commission amounting to ₹ 156,17,547/-. Now, for justification of payment of commission to overseas brokers / commission agents and applicability of tax thereon, we furnish further submission as under for your kind perusal: 1. The assessee company is exporter of yarn, maize derivatives and DOC. In global market most of the export is done by company through its own sources and customers in overseas, but many times export inquiries come through overseas brokers / commission agents, who are situated in foreign countries and they have some local import demand. They negotiate with us on behalf of such importers and finalize the deal, for this they charge commission either on percentage of export invoice or commission on per metric ton of export quantity. 2. These overseas brokers / commission agents are providing export orders to us by searching / inquiring export - import from their countries. These overseas brokers / commission agents also provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a person who, acting on behalf of the non-resident and has habitually exercise in India, habitually maintains stock of goods / merchandize in India, habitually secures orders in India under common control of non-resident. Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status and acting in the ordinary course of his business. It means: The overseas brokers / commission agents is not having any business connection and carrying any business activity. Whereas, the nonresident is merely a commission agent or broker acting from foreign country and has independent status and not working under common control of Indian company at all. In analogy, we submit that the commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(l)(i) of the Act. In the matter of commission payment to overseas brokers / commission agents, it is submitted that commission does not accrue or arise or deemed to accrue or arise in India to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontaining name address of broker / agents, name country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR. (iii) The appellant company has furnished along with above chart, broker wise payment evidences along with bank payment details, company payment advice, Form no. 15CA and 15CB, debit note from overseas broker / commission agent, invoice for export by company with commission contract and export contract furnished as evidences for justification of commission to overseas brokers / commission agents and genuineness of the payments through banking channel and certificates for non-deduction of tax as the same is not applicable. (iv) The appellant company has submitted that the payments of commission to overseas brokers / commission agents is part of export of products and an important mediatory channel to book our export orders as well as to take care of realization of export proceeds. Thus, the commission to overseas brokers / commission agents is genuine and paid through banking channel on export orders procured and final realization of export proceeds. The same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or export realization, commission payment Swift message by bank and emails. (x) The Appellant company has applied for NIL Tax Withholding Certificates, for Payment of commission to Non-Residents towards export sales under the provisions of section 195(2) of the Act, as discussed by AO on Page no. 24 in Para no. 7.8 of the Assessment Order for the financial year 2014-15 on 24-03-2015, against this NIL withholding certificate is issued by ITO, International Taxation-I, Ahmedabad vide Certificate dated 31-03-2015, copy furnished (Pg. no. 398 to 401). Furthermore, similar certificate was applied for the year 2015-16, vide Application dated 09-04- 2015, the ITO, International Taxation-I, Ahmedabad vide Certificate dated 10-04-2015 authorized the appellant company to pay or credit commission to various non-residents towards export sales, without deduction of tax at source, copy furnished (Pg. no. 402 to 405). The Certificate from International Taxation Division certifying to pay commission to various nonresidents towards export sales, without deduction of tax at source, itself shows that there is no need to deduct tax on such payments. 8.5 The AO has made various observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices from their countries and the payment is also received to them in their country. Thus, the commission is neither received / deemed to be received in India on behalf of such person nor accrues or arises / deemed to accrue or arise in India. Similarly, commission payment to overseas brokers / commission agents cannot be said as income deemed to accrue or arise in India in the light of above Explanations to the provisions of section 9(1)(i) of the Act. 7.7 The assessee company instead of complying the aforesaid provisions of law as specified in section 195 relied heavily on the erstwhile circular of the CBDT No. 786 dated 7/2/2000. As regards the applicability of. the said Circular it is mentioned that the said circular has since been withdrawn by CBDT's circular No. 7 of 2009 dated 22nd October, 2009, there is no existence of the Circular of CBDT which has been relied upon while deciding the issue of withholding of tax at source u/s 195 of the Act. The appellant company has not discussed single line about Circular no. 786 dated 07-02-2000 or Circular no. 7 of 2009. Whereas, the appellant company has merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS was deducted from such commission payment to nonresidents for export sales. 8.6 In this regard, the appellant company on the issue of payment of commission to non-residents, relies on following decisions of Jurisdictional High Court, Tribunals, other High Courts and Tribunals, where it is held that loans and advances to subsidiaries on account of commercial expediency and incidental to the assessee's main business activity, loss on account of irrecoverable loan given to subsidiary companies in the normal course of business is allowable as revenue loss: (i) GE India Technology Center (P). Ltd vs. CIT Ors. (2010) 327 ITR 456 (SC) A person paying interest or any other sum to a non-resident is liable to deduct tax under s. 195 only if such sum is chargeable to tax in India and not otherwise. 13. The ld.CIT(A) has gone through the submissions of the assessee, and held that it has submitted all necessary details exhibiting the fact that payment was made through banking channel. All foreign commission agents are identifiable. Copies of the invoices and the contract with commission agents, copies of form no.15CA and 15CB for payment in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement of income, then TDS was not required to be deducted. This aspect has been examined in host of decisions. Before us, the ld.counsel for the assessee put reliance upon the order of the ITAT in the case of DCIT Vs. Panchmahal Steel Ltd., ITA No.634/Ahd/2017. In this order, Tribunal has relied upon order of the Tribunal passed in the case of DCIT Vs. Welspun Corporation Ltd., 77 taxmann.com 165 (Ahd). Discussion made in the decision of Welspun Corporation Ltd. (supra) has been taken note of, which reads as under: The assessee-company was a global manufacturer of steel pipes, plates and coils, offering the highest quality of pipes. The manufacturing activities performed by the company were highly technical in nature. The manufacturing of specialised pipe was a highly technical activity involving a highly-technical complex exercise of technology and skilled labour and the finest grade of raw materials. To procure orders, the company required specialist agents who could understand the technical nitty-gritty of the assessee's business and could demonstrate the assessee's business profile and the quality of the products of the assessee to the potential clients to convi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning findings of the learned CIT(A) that the commission payments made to the non-resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon'ble Supreme Court in the case of GE India Technology Centre (P.) Ltd. v. CIT [20101 327 ITR 456/193 Taxman 234/7 tax.mann.com 18, payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non-resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... staff and! therefore, interest on staff loan is part of profit of 80IC Unit Recovered from Transporters 32,2857- Recoveries from transporter arc on account of loss of material in transit i.e. in the nature of recovery of goods. Therefore, the same is part of profit of 80IC Unit. Sundry Balance of Vendors written back 12,91,3627- Sundry balance w/off are mainly on account of Kasar 7 discount in suppliers 7 purchase party payments or payments received from customers. Therefore, the same is part profit of 80IC Unit. Total 19,33,215/- Asstt.Year 2012-13 Particulars Amount Explanations Interest on Fixed Deposit 3834/- Interest on NSC 16326/- Unit has furnished NSC to Sales Tax Authorities is Deposit and Interest has accrued on those NSC. Interest on Electricity Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sits - ₹ 3,834/- Total - ₹ 11,74,258/- 2.4. It is here to be mentioned that the AO has not granted the deduction on the aforesaid amounts by saying that none of the above income can be held to be generated from the manufacturing activities of the undertaking, and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes for deduction under the provisions of section 80IC of the I. T. Act, 1961. 2.5. On the other side, the Appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 801C of the I. T. Act, 1961. The appellant further claimed that as per tire various decisions and judgements the income pertaining to the interest on electricity deposit, recovery from transporters and sundry balances of suppliers return back was held to be the income derived indirectly from the business / manufacturing activities of the appellant, and therefore, the same is eligible for the deduction u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d derived the interest income on NSC and interest on staff which cannot be said to be even indirect income from the business activities eligible for deduction u/s. 80IC of the I. T. Act, 1961. Making the investment in NSC and deriving the interest thereupon cannot be said to for the purpose of the business for want of necessary details and documents establishing the requirement of investment in the NSCs. There was no reason to make the investment in the NSC for the purpose of the eligible business and thus the interest derived there-from cannot form part of the eligible profits for deduction. Further, with regard to interest on staff loan also, which was one kind of income on the funds lent to the staff members. Thus, this income is neither directly or indirectly linked with the business activities of the appellant. Even the appellant has not provided any details and documents in support stating that the loans were given to the employees who were engaged in the eligible business for which income was deductible u/s. 80IC of the I. T. Act. Thus, in view of the aforesaid discussion, the AOs action for not granting the deduction on the interest on NSC and interest on staff loan is conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether any such item of income is assessed under the head 'business' or under the head 'other sources'. Further every income, profit or gain to be derived from the undertaking need not necessary be directly rentable to the operation of manufacture and sale of the particular commodity or articles dealt in by the assessee. The assessee is therefore, entitled to claim deduction under s. 80HH on the amount of interest earned, by it on the fixed deposits. 2.8. Further, with regard to the recoveries from transporters, it is found that it was the recovery on account of loss of material in transit i.e. in the nature of recovery of goods. Thus, it is a direct income relating to the eligible business of the appellant for the reason that the shortage derived on account of loss of material was the trading loss /business loss and the recoveries made from the transporters against such loss is the reimbursement towards such losses. Thus, the recoveries being in the nature of business income are eligible for deduction u/s. 80IC of the I. T. Act. 2.9. Further, with regard to sundry balances written off in respect of the Kasar / Discount received from supplier / supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the same cannot be said to be direct/or indirect income from the business activities being derived out of manufacturing activities. Thus, the aforesaid two incomes are not eligible for deduction u/s. 80IC of the I. T. Act, 1961 and the disallowance of the deduction upon the same by the AO is confirmed. With regard to the interest on fixed deposit amounting to ₹ 3,834/-, the same is also not found derived from the manufacturing activities and hence the appellant is not entitled for the deduction u/s. 80IC of the I. T. Act, 1961. Thus, the disallowance of deduction by the AO is confirmed. 2.8. With regard to the other incomes such as interest on electricity deposit, penalties and fines recovered from transporters and sundry balances of vendors written back, the appellant is eligible for deduction u/se 80IC of the I. T. Act, following the decision of the CIT(A) in the immediately preceding year and accordingly, the disallowance made by the AO on these incomes is deleted. 21. The ld.counsel for the assessee at the very outset submitted that as far as amounts mentioned under the head interest on NSC and interest on staff loan is concerned they are not in dispute. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect nexus. Similarly, if the assessee get certain discount from the supplier, then it would reduce the purchase price of the material, which will enhance the profit, and therefore, deduction on such higher profit will be admissible. The ld.CIT(A) has rightly appreciated this aspect and granted the deduction to the assessee. We do not find any error in the order of the ld.CIT(A), and therefore, this ground of appeal is rejected in both the years. CO No.220/Ahd/2015 in ITA No.3233/Ahd/2015 (Asstt.Year 2012-13) 23. Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of ₹ 7,53,156/- which was disallowed by the AO with the aid of section 36(1)(va) of the Act. 24. Brief facts of the case are that on scrutiny of the accounts, it revealed to the AO that employees contribution towards PF and ESI was not deposited by the assessee within time period contemplated in those Acts. Therefore, he disallowed the claim of the assessee to the extent of ₹ 7,53,156/-. On appeal, the ld.CIT(A) has confirmed this disallowance by following the judgment of CIT Vs. Gujarat State Road Transport Corporation Ltd., 366 ITR 170 (Guj. The ld.cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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