Hyd ITAT detailed order on books significance and duty/approach of AO u/s 145; Mumbai bench ITAT on marketing and sale support to promote new products in overseas markets is revenue expense (Section 37) and not technical services (9(1)(vii)) and no tds required u/s 195; Mak Data Supreme Court analysed by ITAT and Madras high court (ass fav & rev fav) concealment penalty /271(1)(C)detailed orders; director commission part of salary and tds applicable u/s 192 and not section 194H and salary no disallowance till AY 2014-2015 in 40(a)(ia); Bang ITAT TDS on hotel booking u/s 194c?
Kapil Goel
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH “A”, HYDERABAD
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 1772/Hyd/2013
Assessment year : 2009-10 Sri Sanjeev Kumar Date of pronouncement: 27.08.2014
In Vishal Infrastructure Ltd vs. ACIT (2007) 104 ITD
537, this Tribunal has held that it is sine qua non for the
department to prove satisfactorily that the account books
are unreliable or incorrect or incomplete before it can
reject the accounts.
The Hon’ble Allahabad High Court in
the case of CIT v. Ballabh Das and Sons relying on the
decisions in S. N. Namasivayam Chettiar v. CIT [1960] 38
ITR 579 (SC); Pandit Bros. v. CIT [1954] 26 ITR 159
(Punj); S. Veeriah Reddiar v. CIT [1960] 38 ITR 152 (Ker)
and International Forest Co. v. CIT [1975] 101 ITR 721
(J&K) observed that lower profit shown by the assessee by
itself cannot be ground for rejection of the books of
account.
In CIT v. Paradise Holidays [2010] 325 ITR 13
(Delhi), the High Court has held that the accounts which
are regularly maintained, duly audited, free from any
qualification by the auditors, should normally be taken as
correct unless there are adequate reasons to indicate that
they are incorrect or unreliable.
In Pyarelal Mittal v. ACIT
291 ITR 214 (Guahati), it was held that the income has to
be deduced from the books of account and other
documents furnished and there is no scope for any
conjectures and surmises. If the method of accounting is
not faulty and there is no suppression of material facts,
the authority cannot embark upon a speculative
assessment of notional profit.
In Dhakeswari Cotton Mills
Ltd. v. CIT [1954] 26 ITR 775, the Hon’ble Supreme Court
was of the view that the Income-tax Officer is not entitled to make a pure guess and make an assessment without
reference to any evidence or any material at all.
7. Further, we take note of the fact that this is the first
year of business of the assessee and also the Assessing
Officer has not supported his order by giving any
comparable cases. In these circumstances, we are of the
opinion that the CIT(A) has erred in upholding the
assessment of gross profit at 15% which has resulted in
an addition of s. 18,19,484 instead of accepting the book
results of the assessee showing the gross profit at
11.20%.
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI I.T.A. No.7772/Mum/2011 Assessment Year : 2007-08 Rich Graviss Products P Ltd., Date of Pronouncement : 28 .8.2014
The assessee had paid consultancy services fee of Rs.41,84,737/- to M/s. Rich Products Corporation (hereinafter “RPC”), USA, for exploring the export market without making any TDS on the payment. The AO held that the expenditure was for exploring new market was a legal / professional fee and it was a capital expenditure, since exploring export market would give an advantage of enduring benefit. Accordingly, the AO held that the above payment was not allowable u/s 37(1) of the Act. He further held that the expenditure was also in the nature of “Fees for technical services” on which the assessee was required to make TDS.
Since the assessee did not deduct TDS, the AO held that the expenditure was not allowable u/s. 40(a) (i) also. Both the tax authorities have taken the view that (a) the above said expenditure was capital expenditure, since it was having enduring benefit and (b) the income of the recipient non-resident was taxable in India and hence the assessee was liable to deduct tax at source, apparently u/s 195 of the Act. With regard to the nature of expenditure, the Ld A.R has submitted that the
assessee had paid the charges in connection with promoting the sale of
assessee’s new product line -“Frozen Desserts and Veggie Magic”. He has
further submitted that the said amount was neither paid in connection with
setting up of any new unit, nor it was paid for acquiring any tangible or nontangible
asset. He has also submitted that the said expenditure did not bring
any new asset into existence for the use of assessee. Accordingly he has
contended that the said expenditure cannot be categorized as capital
expenditure on any count. On the contrary, the Ld D.R has placed reliance on
the order passed by Ld CIT(A) We have already noticed that the payment was made to the M/s RPC, a USA company for providing marketing and sale support to promote new/proposed products of the assessee viz. “Frozen Desserts and Veggie Magic”.
As submitted by Ld A.R, the said payment did not bring any new asset nor it was paid to set up any new unit. Though the tax authorities have held that the said payment would bring advantage of enduring benefit, yet they have not brought any material on record to substantiate their view. However, it is in the common knowledge of everybody that the effect of sale promotion of activities is unpredictable and sometimes, it may have short life also Accordingly we hold that the said payment is a revenue
expenditure in the hands of the assessee. Before us, the Ld A.R has submitted that the said decision in the case of “Samsung Electronics Ltd” (supra), has since been reversed by Hon’ble Supreme Court in the case of GE India Technology Centre P Ltd Vs. CIT (327 ITR
456)(SC). He has further contended that the said payment had been made for
marketing and sales support and hence it will not fall in the category of “Fee for
technical services”. He has submitted that the consideration paid for rendering of any managerial, technical or consultancy services only fall in the category of “Fee for Technical services” as defined u/s 9(1)(vii) of the Act. In this regard, he has placed reliance on the decision rendered by Delhi bench of Tribunal in the
case of Adidas Sourcing Ltd. Vs. Asst. DIT (2013)(55 SOT 245). He has invited our attention to paragraph 3.7 and 3.8 of the said decision and submitted that the Tribunal has considered the expressions “managerial”, “technical” and “consultancy” services used in sec. 9(1)(vii) of the Act and has finally held that the procurement services will not fall in any of the above said three categories. We have gone through the above said decision. In the above said case, the
assessee therein, performed services to source or procure goods on behalf of another company. The question that was considered by the Tribunal was whether the procurement service would fall in the category of “managerial”, “technical” or “consultancy” services in terms of “Fee for technical services” u/s 9(1)(vii) of the Act. The Tribunal held that the procurement services would not
fall in any of the above said three categories. In the instant case also, the nonresident
company has provided support for marketing and sales promotion
activities. Hence, by following the decision rendered by the Delhi bench of
Tribunal in the above cited case, we hold that the payment made for sales promotion activities, in our view, will not fall in the category of ‘Fee for technical
services’ as defined u/s 9(1)(vii) of the Act.
8. From the foregoing discussions, it is seen that the grounds taken by the
tax authorities for disallowing the amount are not found to be correct. Accordingly, the Ld CIT(A) has held that M/s
RPC has “made available” its services in India. By making these kind of
observations, it appears that the Ld CIT(A) is making reference to Indo-US
DTAA. There should not be any dispute that under Indo-US DTAA, the
geographical areas for providing services are not relevant. What is required to be seen is that whether M/s RPC, a USA based company, could be subjected to tax in terms of Indo-US treaty or under Indian Income tax Act. Ld. CIT(A) has held that M/s RPC has ‘made available’ its consultancy services to the assessee herein. We have already held that the sales promotion or marketing services will not fall in the category of “Fee for technical services” and hence the question of examining whether the services were ‘made available’ or not does not arise. We
notice that the agreement entered between the assessee and M/s RPC specifically provide that the services shall be provided from outside India and it will not have permanent establishment in India. Further we notice that the payment was made in foreign currency to M/s RPC. Since the tax authorities have failed to show that the payment received by M/s RPC was liable to tax in India either in terms of Indian Income tax Act or in terms of Indo-US DTAA, in our view, the assessee was not liable to deduct TDS on such payments made to a foreign resident, as per the ratio of the decision rendered by Hon’ble Supreme
Court in the case of GE India Technology Centre P Ltd (supra), wherein the
Hon’ble Apex Court has held that the “sum chargeable to tax in India” would be
hit by the provisions of sec. 195 of the Act.
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A”, PUNE ITA No.2375/PN/2012
(Assessment Year : 2008-09)
Income Tax Officer,
Ward 2 (1), Pune. …. Appellant
Vs.
Smt. Madhuri Satish Misal, Date of pronouncement : 25-08-2014
22. Before parting, we may refer to the judgement of the Hon’ble Supreme
Court in the case of Mak Data Pvt. Ltd. (supra) which has been relied upon by the learned Departmental Representative in order to support the case of the Revenue before us. In the case before the Hon’ble Supreme Court, the issue was whether a voluntarily surrender of income made during the course of assessment proceedings can mitigate the levy of penalty u/s 271(1)(c) of the Act. The proposition which is emerging from the judgement of the Hon’ble Supreme Court is that a mere voluntary disclosure does not mitigate the rigours of section 271(1)(c) of the Act in the absence of any explanation
forthcoming from the assessee to rebut the presumption of concealment
arising due to Explanation to section 271(1)(c) of the Act. As per the Hon’ble Supreme Court wherever there is a difference between the reported and the assessed income, there is a presumption of concealment, and the burden is then on the assessee to show otherwise, by cogent and reliable evidence and only when the initial onus placed on the assessee is discharged, the onus shifts to the Revenue to show that the amount in question constituted the income and not otherwise. In the case before the Hon’ble Supreme Court, factually it was emerging that such onus was not discharged by the assessee by giving a cogent and reliable explanation with respect to the difference in the reported and assessed income. We say so, because of the following discussion in the order of the Hon’ble Supreme Court :-
“9. We are of the view that the surrender of income in this case
is not voluntary in the sense that the offer of surrender was made in view of
detection made by the AO in the search conducted in the sister concern of
the assessee. In that situation, it cannot be said that the surrender of
income was voluntary. AO during the course of assessment proceedings
has noticed that certain documents comprising of share application forms,
bank statements, memorandum of association of companies, affidavits,
copies of Income Tax Returns and assessment orders and blank share
transfer deeds duly signed, have been impounded in the course of survey
proceedings under Section 133A conducted on 16.12.2003, in the case of
a sister concern of the assessee. The survey was conducted more than 10
months before the assessee filed its return of income. Had it been the
intention of the assessee to make full and true disclosure of its income, it
would have filed the return declaring an income inclusive of the amount
which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to
declare its true income. It is the statutory duty of the assessee to record all
its transactions in the books of account, to explain the source of payments
made by it and to declare its true income in the return of income filed by it
from year to year. The AO, in our view, has recorded a categorical finding
that he was satisfied that the assessee had concealed true particulars of
income and is liable for penalty proceedings under Section 271 read with
Section 274 of the Income Tax Act, 1961.”
23. However, in the case before us, factually we have concluded that the CIT(A) made no mistake in concluding that the explanation rendered by the assessee is cogent and reliable as well as bona-fide. Therefore, even after applying the proposition laid down by the Hon’ble Supreme Court in the case of Mak Data Pvt. Ltd. (supra) in the present case, factually speaking, penalty u/s 271(1)(c) of the Act is not attracted. Therefore, in our considered opinion, the judgement of the Hon’ble Supreme Court in the case of Mak Data Pvt. Ltd. (supra) does not help the Revenue in the present case. Moreover as pointed out by the learned counsel for the respondent-assessee, by relying on the judgement of the Hon’ble Madras High Court in the case of CIT vs. M/s Gem Granites (Karnataka) vide Tax Case (Appeal) No.504 of 2009 dated 12.11.2013, that the proposition laid down by the Hon’ble Supreme Court in the case of Mak Data Pvt. Ltd. (supra) has to be examined in the context of facts and circumstances of each case.
In the High Court of Judicature at Madras Dated: 25.08.2014
Shri S.Sathyanarayanan
1. Whether the Appellate Tribunal is correct in law in sustaining the levy of penalty under Section 271(1)(c) of the Act overlooking the distinction between the acceptability of the explanation offered for the additions made in the computation of taxable total income which formed part of the assessment orders passed by the respondent as against the reasonableness of such explanation in the penalty proceedings and further overlooking the explanation 1 below the Section 271(1)(c) of the Act?
2. Whether the Appellate Tribunal is correct in law in sustaining the levy of penalty under Section 271(1)(c) of the Act overlooking the binding precedents cited including the decisions of Supreme Court as well as this Hon'ble Court wherein the levy of penalty under similar circumstances was held to be not automatic?"
. Learned counsel appearing for the assessee submits that the assessee had submitted his explanation with regard to the cash deposits by furnishing cash flow statements and the source for such cash deposits was from his father's business M/s.S&S Foundation P. Ltd. He further submits that the provisions in Explanation 1 to Section 271(1)(c) of the Income Tax Act will enure to the benefit of the assessee and the Tribunal has not considered the said provision. Hence, the order of the Tribunal may be set aside. He also submits that since the assessee had paid tax and had cooperated in the assessment proceedings, the penalty proceedings are liable to be dropped.
5. Per conta, learned standing counsel appearing for the Revenue submits that the assessee had not given any proper explanation showing the source of income with regard to the cash deposits. The assessee offered explanation stating that the source of income was from the business run by his father. But the cash book pertaining to his father's business did not reflect such cash deposits. Also, the Assessing Officer had imposed minimum penalty in all the above cases
7. It is not in dispute that during the search proceedings, some documents and cash in respect of the assessee was seized from the residential premises and business premises of the assessee's father. It is also not in dispute that the assessee had admitted the undisclosed income at the time of search..
. The Tribunal placed reliance on the decision of the Delhi High Court in ITA No.415/2012 dated 21.01.2013 titled as CIT v. MAK Data Ltd, which was subsequently upheld by the Supreme Court in the decision reported in (2013) 38 Taxmann.com 448 (SC) (MAK Data (P) Ltd. V. Commissioner of Income-tax-II), wherein, the Supreme Court held as follows..
9. In the above case, the Supreme Court observed that penalty proceedings were justified when there was no explanation offered by the assessee for concealment of particulars of income or furnishing inaccurate particulars of income. The Supreme Court also clearly held that the burden is then on the assessee to show otherwise, by cogent and reliable evidence.
10. In the present case, we find that the assessee had not offered any explanation either during the assessment proceedings or during the penalty proceedings regarding the unexplained cash deposits. The assessee had also not disclosed the said income in the return filed in response to the notice issued under Section 153C of the Income Tax Act. Also, the findings of the Authorities below make it clear that there was no proper explanation given by the assessee with regard to the undisclosed income and the assessee had not given any details as to how he would fall within Explanation 1 to Section 271(1)(c) of the Income Tax Act. Without any material, the assessee had merely stated that the source of income was from the business run by his father and the assessee will be no avail. It is seen from the order of the Tribunal that the assessee and his father are Directors of the entity, namely, S&S Foundations P. Ltd. Hence, the authorities were justified in rejecting such a plea; in any event, the penalty imposed is minimum that is required under Section 271(1)(c) of the Income Tax Act. We also find that in view of the detection made by the Assessing Officer during the search conducted in the business premises and residential premises of the father of the assessee, the offer of surrender of income was made. Hence, it cannot be said that the surrender of income was voluntary.
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A”, PUNE ITA No. 1538/PN/2013
(Assessment Year : 2010-11)
Nashik Metals Pvt. Ltd., Date of Pronouncement : 28-08-2014
In ground of appeal No.1 the assessee has challenged the order of
the CIT(A) in confirming the addition of Rs.18,75,000/- on account of
disallowance u/s.40(a)(ia) of the I.T. Act.
We have considered the rival arguments made by both the sides,
perused the orders of the Assessing Officer and the CIT(A) and the Paper
Book filed on behalf of the assessee. We have also considered the various
decisions cited before us. There is no dispute to the fact that the assessee
has paid Commission of Rs.18,75,000/- to the 4 directors on which no TDS
has been deducted for which the Assessing Officer disallowed the same
u/s.40(a)(ia) of the I.T. Act which has been upheld by the CIT(A). It is the
case of the Ld. Counsel for the assessee that in view of the clear cut
provisions of section 17(1)(iv) the commission paid to the Directors
partakes the character of the salary and therefore the provisions of section
194H are not applicable for such payment and therefore the authorities are
not justified in invoking the provisions of section 40(a)(ia) to disallow the
same. We find merit in the above submission of the Ld. Counsel for the assessee. We therefore find merit in the submission of the Ld. Counsel for the assessee that the assessee has made payment to its employee directors not for selling any goods or articles but for managing the affairs of the assessee company. The amount is not paid for selling any particular goods/articles and therefore the amount paid by the assessee company to its directors does not come within the ambit of provisions of section 194H. Merely because the directors have shown the said commission income in their hands as
“income from other sources”, the same, in our opinion, cannot be a ground
to exclude the commission paid to the directors from the ambit of salary. We, therefore, hold that the commission paid to the directors should be treated as salary in their hands and treated accordingly and the provisions of
section 40(a)(ia) are not applicable. We find the Kolkata Bench of the Tribunal in the case of Jahangir
Biri Factory Pvt. Ltd. (Supra) has held that commission paid to directors as
per terms of employment for the work done in their capacity as wholetime
directors is to be treated as incentive in addition to salary etc. and did not
come within the purview of commission and brokerage as defined in
section 194H or fee for professional or technical services as defined in
section 194J and therefore the same cannot be disallowed u/s.40(a)(ia) of
the I.T. Act. Similar view has been taken by the Kolkata Bench of the
Tribunal in the case of Blue Star Civil Engg. Co. Pvt. Ltd. (Supra) for A.Y.
2006-07. Respectfully following the above decisions and in view of our
reasonings given in the preceding paragraphs, we hold that the provisions
of section 40(a)(ia) are not applicable to the commission paid to the
directors and said commission will partake the character of salary in view of the provisions of section 17(1)(iv) of the I.T. Act.
IN THE INCOME TAX APPELLATE TRIBUNAL
Bangalore ‘B‘ Bench, Bangalore
ITA No.14/Bang/2013
(Assessment year:2008-09)
M/s Ratnagiri Impex Pvt Ltd
Date of Pronouncement: 5/9/2014
In the second fold of grievance, assessee has pleaded that it
had incurred expenditure for convening a meeting of dealers.
Assessing Officer was of the opinion that the assessee had taken
services of an event organizer and therefore, it should have
deducted the TDS. He disallowed the expenses
On appeal, the learned CIT (A) did not give any relief to the
assessee. The learned Counsel for the assessee submitted that
the assessee has not availed services of any event organizer. It
simply booked the hotel and also arranged other items food etc.,
from outside. On the other hand, the learned DR submitted that
TDS ought to have been deducted by the assessee.
We have duly considered the rival contentions and gone
through the record carefully. Section 194C of the I.T. Act provide
that any person responsible for paying any sum to any resident
for carrying out any work (including supply of labour) for
carrying out any work, in pursuance of a contract between the
contractor and a specified person, shall, at the time of credit of
such sum to the account of the contractor or at the time of
payment thereof in cash or by any other mode, deduct amount
equal to 1%, where the payment is being made or credit is being
given to an individual or HUF, 2% where the payment is being
made or credit is being given to a person other than an
individual or HUF, of such sum as Income Tax on income
comprise therein. Explanation attached to this section provides the definition of work. In this definition payment to a hotel for
boarding does not fall within the ambit of work. The assessee has
not hired services of any event organizer. It simply booked the
hotel for boarding. The hotel did not work on behalf of the
assessee as a contractor. Otherwise every guest whosoever stay
in a hotel ought to have deducted TDS while making booking or
staying in it. The Hon'ble Bombay High Court has considered
this issue in the case of East India Hotels vs. CBDT in CWP
No.2104 of 1994 (copy of the order placed by the learned
Counsel). 10. Respectfully following the decision of the Hon'ble Bombay
High Court, we delete the disallowance made by the Assessing
Officer.