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TMI Blog2021 (7) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the non-residents ship owners/charters had filed returns u/s 172 of the Act. (3) The ld. CIT(A) has erred in law and on facts in holding that the provisions of section 40(a)(ia) are not attracted in case where tax has been deducted improperly/inadequately. (4) The ld. CIT(A) has erred in law and on facts in deleting the disallowance made on interest and insurance expenses claimed on vehicle. (5) The ld. CIT(A) has erred in law and on facts in partly deleting the disallowances made of depreciation and incidental expenses claimed on vehicle. (6) The ld. CIT(A) has erred in law and on facts in deleting the addition made of Rs. 34,04,016/- on account of under invoicing of sales made to sister concern." 2. Ground No.1:- The deletion of addition of Rs. 1,01,59,839/- made under Section 2(22)(e) of the Act has been challenged before us by the Revenue. 3. We have heard the rival submission made by the respective parties, we have also perused the relevant materials available on records. 4. The facts culled out from the orders passed by the authorities below is this that the assessee company took a loan of Rs. 1,15,10,516/- from "Bajaj Foods Ltd." during the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile dealing with the issue in favour of the assessee the Ld. CIT(A) observed as follows:- "...it is undisputed that appellant was in receipt of loan of Rs. 11510516/- from M/s. Bajaj Food Ltd. and three of the directors of appellant Having equal share holding aggregating to 29.30% of share holding in appellant company while 29.94% in M/s. Bajaj Food Ltd.. The A.O. after observing the accumulated profit of Rs. 10159839/- as on 13/03/2009 in M/s. Bajaj Food ltd. invoked the provision of section 2(22)(e) of the Act relying on ratio of Hon'ble ITAT order in the case of Skyline Corn Pvt. Ltd. The appellant in appeal submitted that M/s. M/s. Bajaj Food Ltd. is not closely held company, as per the share holding pattern of both appellant as well as M/s. M/s. Bajaj Food Ltd., the basic condition of beneficial share holder and substantial interest does not satisfy, none of the share holder of M/s. Bajaj Food Ltd. is having more than 10% share holding except Surya International and as per the ratio of various case laws as relied on provisions of section 2(22)(e) of the Act are not attracted. The tax audit report in the case of appellant company in Form no. 3CD in reference to cl.24(a) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deleting the addition made on account of deemed dividend u/s.2(22)(e) of the Act on inter-corporate deposits?" 2.0 The brief facts are that the assessee filed return of income for the Assessment Year 2000- 01 declaring a loss of Rs. 4,22,792/-. The return was processed under Section 143(1)(a) of the Income Tax Act, 1961 (for short 'the Act') and income of the assessee was declared under Section 115JA of the Act. Thereafter the case was reopened under Section 147 of the Act which was served on the assessee of the case of the department was that the Amigo Brushes Pvt. Ltd. had a total surplus of Rs. 70 lacs as on 31st March 1999 and it has advanced a loan to the assessee to the tune of Rs. 25 lacs. Whereas the assessee contended that he received deposit from Amigo Brushes Pvt. Ltd. and Daisy Packers Pvt. Ltd. was not a shareholder in Amigo Brushes Pvt. Ltd. The Assessing Officer by his order dated 30th September 2004 rejected the claim of the assessee and treated the deposits as loan and consequently deemed to be a deemed dividend under Section 2(22)(e) of the Act and accordingly computed the tax. The assessee filed appeal which was dismissed by CIT(A) on 11th May 2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka) wherein on this issue, ratio of Hon'ble Delhi high court in the case of National Travels Services (supra) was considered but held in favor of assessee. It is therefore, the question of legal binding of ratio of Hon'ble Jurisdictional high court comes into picture. Other Hon'ble high court also held in favors of assessee on the issue that provisions of section 2(22)(e) of the Act is applicable to loan & advance transaction between a company and registered shareholder and not beneficial share holder. Though, as discussed above, the basic objective as per Board circular No. 495 dt. 22/09/2008 as considered and interpreted by Hon'ble Delhi high court in the case of National Travel Services (supra) were not considered in these caw laws, but the ratio of Hon'ble Jurisdictional high court is binding on lower appellate authority, it is therefore following ratio of Hon'ble Gujarat high court in the case of Daisy Packeres Ltd. (supra), it is held that the addition so made of Rs. 10159839/- by the A.O. is not justified under the provisions of section 2(22)(e) of the Act. The A.O. is directed to delete the addition so made. The appellant gets relief accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted by the Ld. CIT(A) with the following observation:- "From the verification of such bills it has been gathered that bills are raised to appellant with composite amount reflecting freight expenses in foreign currency i.e. US dollar converted into rupees of that date with other charges like terminal handling, documentation etc. in Indian rupees. The appellant's contention that payment in foreign currency by these parties to the non resident shipping company is on account of they are being agent and permitted by RBI guide line found to be justified in view of board circular no. 723 dt. 19/09/1995 and ratio of various case laws relied on by appellant. The appellant deducted TDS out of the terminal handling charges, documentation charges etc. being paid to these parties treating them as contractual payment while payment for non resident shipping company in foreign currency by these parties is treated as reimbursement of actual expenses. Hon'ble ITAT Ahmedabad in the case of Dy. CIT Bharuch Vs. Hasmukh J. Patel (2011) 10 taxmann.com 229(Ahd) (also relied by appellant) in the similar facts held that all such parties acted as agent shipping companies and such payment in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34,14,124/- to eight parties in respect of freight and forwarding expenses (already discussed para 4A above) and rejected appellant's explanation that due TDS was deducted as per the provision s as evidenced by photo copies of invoices raised by these parties (submitted by appellant and verified by A.O.) on the amounts attributable to servicing and handling charges and not reimbursement. The A.O. also rejected appellant's contention about non application of TDS for the freight expenses to non resident shipping agencies agent. The appellant in appeal reiterated its contention with copies of such invoices and emphasizing the fact that circular no. 723 dt. 19/09/1995 is applicable for such non resident shipping agencies and its agent since taxable u/s. 172 of the Act and no provision of section 195/194C of the Act is applicable. The appellant further relied on Hon'ble Gujarat High Court order dt. 25/06/2013 in the case of CIT-III Vs. Gujarat Narmada Valley Fertilizers company Ltd.(tax appeal no. 315 of 2013) and Hon'ble ITAT Ahmedabad order in the case of M/s. Om Satya Exim Pvt. Ltd. Vs. ITO ward-1(4), Surat (ITA no. 1335/Ahd/2010 order dt. 13/05/2011). From the verification of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and delete the addition so made of Rs. 3414124/-. The appellant gets relief accordingly. This ground is allowed. " Heard the parties, perused the relevant materials available on record. 10. It is the case of the assessee that while exporting its goods, it books the container of various foreign shipping companies through their offices in India/clearing and forwarding agents (C&F) who deal with the office of such shipping companies. In fact upon receipt of bills for freight and other related charges of shipping companies the assessee pays to clearing and forwarding agents, who in turn, make such payment to the concerned shipping companies. As it appears from the records that such bills comprise of freight in foreign currency, terminal handling charges, consolidation and documentation charges, detention charges etc. It is further the case of the assessee that the assessee has duly deducted tax at source on terminal handling charges, documentation charges etc paid to these agents. However, the payment made to the non-resident shipping company in foreign currency by such agents is reimbursement of actual expenses and thus no tax is required to be deducted at source on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and hence, dismissed. 12. Ground Nos. 4&5:- These grounds are interlinked in respect of the claim of Rs. 64,568/- being depreciation on car, Rs. 26,569/- of insurance on car and interest of Rs. 44,409/- for the loan taken for purchase of the car, petrol expenses of Rs. 28,715/- and repairing expenses of Rs. 29,457/- related to the car. 13. We have heard the respective parties, and we have also perused the relevant materials available on record. The Ld. AO observed that the car was purchased in the name of the Director Shri Sanjay Bajaj. While rejecting the claim of the assessee the Ld. AO observed that only for registration the director's name was used as per the resolution passed by the appellant company whereas all the expenses including repayment of loan for that car has been incurred from the source of appellant company. Moreso, the car is reflected as an asset of the company reflecting dominion control. The case of the assessee is this that the car is used for the purpose of appellant business as all the incidental expenses incurred by the appellant company. The appellant further relied upon the judgment passed by the Hon'ble Tribunal in the case of Vimco Synthetic Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of director is partly used by appellant company for business purpose to the extent of 75% while balance 25% is used for either personal purpose of director or not wholly and exclusively for the purpose of appellant's company business. It is therefore the depreciation claim and other incidental expenses related to use of this vehicle is allowable to the extent of 75%. In respect of disallowances of interest and insurance, since it has been held that motor car was purchased from loan fund and partly used (75%) for appellant business, but such interest and insurance are for the purpose of business and essential to run the car irrespective of fact that whether it is used partly or wholly, therefore such claim are allowable in its entirety. It has been gathered that appellant claimed depreciation of Rs. 64568/-, petrol expenses of Rs. 28715/- and repair expenses at Rs. 29457/- i.e. in aggregate 122740/-. It is therefore disallowance out of it @ 25% i.e. 30658/- are upheld. The A.O. is directed to delete the balance of Rs. 92082(122740-30658). The A.O. is also directed to delete interest disallowance of Rs. 44409 and insurance expenses of Rs. 23569/-. The appellant gets part reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying upon the order passed by the Ld. Tribunal in the absence of any changed circumstances, we do not find any reason to interfere with the order passed by the Ld. CIT(A). Thus, the ground preferred by the Revenue is found to be devoid of any merit and rejected. 16. Ground No.6:- Deletion of addition of Rs. 34,04,016/- made on account of under-invoicing of sales to sister concern has been impugned before us by Revenue. 17. The crux of the matter is this that during the previous year the appellant made export sales of Rs. 34,72,784/- to M/s. Bajaj Herbal FZE LLP (BHFZE) which is appellant's associated concerned. The appellant also exported similar product to third parties. The Ld. AO compared the sale prices made to the sister concern i.e. M/s. BHFZE and other such concern and tabulated the average price of sales with difference and worked out percentage of under-invoicing and its average. The Ld. AO determined that the average difference of percentage of under-invoicing is 50% made to the sister concern rejecting the explanation of the assessee that sale price to the sister concern is as per prevailing market price of that relevant time including other factors like terms of payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the shoes of any business man and can direct/dictate about how to conduct such business. All the export transaction are genuine and in comparison to such export to other parties of Rs. 18.88 crore the export to M/s. M/s. BHFZE is only Rs. 0.35 crore. It is important to note here that during survey proceedings u/s. 133A of the Act on 22/02/2010 no evidences reflecting such modus operandi were found. I am inclined with the ratio of various case laws relied on appellant that unless and until such export are sham transaction no addition for under invoicing can be made. It is therefore the addition so made by A.O. are not legally sustainable. The A.Q. is directed to delete the addition so made of Rs. 3404016/-. The appellant gets relief accordingly. This ground is treated as allowed." 18. At the time of hearing of the instant appeal the Ld. Counsel also referred the order passed by the Co-ordinate Bench in assessee's own case for A.Y. 2010-11; ultimately the similar issue has been settled in favour of the assessee in the appeal preferred by the Revenue with the following observation:- "32. Apart from that Assessee's exports to its sister concern for AY 2010-11 are of Rs. 2,42,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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