Income Tax Appellate Tribunal - Chennai
Tamil Nadu Newsprints And Papers ... vs Department Of Income Tax on 24 November, 2011
IN THE INCOME-TAX APPELLATE TRIBUNAL
CHENNAI 'A' BENCH, CHENNAI.
Before Shri Hari Om Maratha, Judicial Member and
Shri N.S. Saini, Accountant Member
I.T.A. No. 555/Mds/2011
Assessment Year: 2007-08
The Assistant Commissioner of M/s. Tamil Nadu Newsprints and
Income Tax, Vs. Papers Limited.,
Company Circle III(1), No. 87, Anna Salai,
121, Mahatma Gandhi Road, Chennai 600 032.
Chennai 600 034. [PAN:AAACT2935J]
(Appellant) (Respondent)
Revenue by : Shri Shaji P. Jacob, SR-DR
Assessee by Shri R. Vijayaraghavan, Advocate
:
Date of Hearing : 24.11.2011
Date of pronouncement 02.12.2011
ORDER
PER Hari Om Maratha, J.M.
This appeal of the Revenue, for the assessment year 2007-08, is directed against the order of the ld. CIT(A) III, Chennai, dated 20.12.2010.
2. The assessee is a company in which public are substantially interested. It is engaged in the business of manufacturing of news prints and writing papers. It also generates electricity. The company filed its return of income for the assessment year 2007-08 on 30.10.2007 declaring total income of `.103,11,43,900/-. Initially, the return was processed under section 143(1) of the Act, but subsequently, the regular assessment was framed and order was passed under section 143(3) on 22.12.2009.
2 I.T.A. No.555No.555/ 555/Mds/11 Mds/11
3. In this appeal of the Revenue, the following grounds have been raised:
"1) The order of the CIT(A) is contrary to law and facts of the case.
2) The learned CIT(A) has erred in deleting the disallowance made u/s 40(a)(i).
2.1) Having regard to the retrospective amendment brought into the Act by the Finance Act, 2010 by way of Explanation to sec.9(1) the learned CIT(A) ought to have upheld the disallowance made by the assessing officer.
2.2) The learned CIT(A) failed to note that in the light of the above amendment, the decision of the Hon'ble Supreme Court relied upon viz. in the case of GE Indian Technology Centre is distinguishable to the facts of this case.
2.3) It is submitted that in the absence of exemption certificate from the TDS wing of the Department, the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of India Ltd. (239 ITR 589) is applicable to the present case and hence the learned CIT(A) ought to have upheld the disallowance made by the assessing officer.
3) The learned CIT(A) has erred in holding that the assessing officer should rework the deduction u/s.80-IA without setting off losses on notional basis.
3.1) Having regard to the provisions of section 80-IA(5) the learned CIT(A) ought to have upheld the action of the assessing officer.
3.2) It is submitted that the decision of the High Court in the case of Velayudhaswamy Spinning Mills Ltd. (231 CTR 368) and the decision of the ITAT in the case of Mohan Breweries and Distilleries Ltd. (114 TTJ 532) have not become final and the Department has preferred further appeal against the said orders.
4) The learned CIT(A) has erred in deleting the addition made towards suppression of sales on a sum of `.17,94,93,705/-.
3 I.T.A. No.555No.555/ 555/Mds/11 Mds/11 4.1) The learned CIT(A) ought to have seen that during the course of assessment for A.Y 2007-08, the assessee company was asked to produce Stock Register, Production Register etc. and also the name and address of the transporter utilized for moving the goods produced and the assessee could not produce the invoices in respect of the sales made on 30.3.2007 and 31.03.2007.
4.2) It is submitted that the entire sales made to different parties is on credit basis only and the assessee was neither able to produce ledger extract of the parties to whom the sales have been effected nor produce acknowledgement from the purchaser leading to the conclusion that the stock relating to these sales was in transit or in godowns of the assessee. And hence, the entire stock was treated as suppressed sales.
4.3) It is further submitted that the assessee is claiming that there is 'no stock of finished goods'. But the assessee company itself has admitted closing stock of raw materials and work-in- progress, but it is showing 'nil' stock of finished goods, which is practically impossible in a manufacturing concern. It is only in this back ground the above disallowances has been made.
5) The learned CIT(A) has erred in deleting the addition made by the assessing officer on a sum of `.4,45,67,775/- towards understatement of closing stock.
5.1) It is submitted that during the assessment proceedings, the assessee company had declared 'nil' or 'zero' closing stock in respect of finished goods only and had declared closing stock in respect of raw materials and work in progress. It is seen that the electricity / power consumed shows continuous production, which definitely indicates there was closing stock of finished goods, which was suppressed.
6) The learned CIT(A) has erred in deleting the disallowance made by the assessing officer in respect of bad debts on a sum of `.87,36,000/-.
6.1) Having regard to the binding jurisdictional High Court's decision in the case of South India Surgical Co. Ltd. (153 Taxmann 491) the learned CIT(A) ought to have upheld the action of the assessing officer as the debtors here are all 4 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 Government companies only.
6.2) It is further submitted that the decision of the Supreme Court in the case of TRF Ltd. (323 ITR 397) cannot be applied here since the said decision did not deal with dues from the Government / Government companies.
7) For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer restored.
4. We have heard the rival submissions and have circumspected the entire record. The first issue relates to disallowance under section 40(a)(i) of the Act.
5. The facts apropos this issue are that the assessee company has debited a sum of `.87,72,280/- as Commission & Discount - Exports, vide Schedule 18(E) of the Profit and Loss Account for the year ended 31.03.2007. When asked to furnish the details regarding tax deduction at source on the above payments of `.87,72,280/-, it was submitted that the assessee had paid export commission for the service rendered in connection with procurement of export orders, which were carried out outside India through overseas agent and the payment was directly remitted to them.
Because the payment does not accrue in India and the same are not chargeable to tax in India, in such circumstance, TDS is not to be deducted.
For that matter, reliance was placed on the decision of Madras Tribunal dated 06.03.2009 in the case of DCIT vs. Venkat Shoes Private Ltd. But, the Assessing Officer was of the opinion that section 40(a)(i) has been amended 5 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 by the Finance Act, 2004 w.e.f. 01.04.2005 and thereby any interest, commission, royalty, fees for technical services or other sums chargeable under this Act are payable outside India or in India to a non-resident, then such payment made, without deduction tax at source, cannot be allowed as a deduction while computing the profits and gains of business under section 30 to 38 of the Act. Because, these payments were made to non-residents in foreign countries, provisions of section 195 of the Act would apply.
Thereafter, with reference to Board Circulars and various decisions, the Assessing Officer has finally concluded that the entire amount of `.87,72,280/- is to be added back to assessee's total income. Against this finding, appeal was preferred and the ld. CIT(A), after considering the rival submissions, has concluded that no TDS is deductable for the payments in question. For reference, we extract para 4.2 of ld. CIT(A)'s order hereunder:
"4.2 I have carefully considered the facts of the case and the submissions of the appellant and the AR. I have also gone through the decisions and the Circular relied on by the AO and the AR. It is seen that the overseas non-residents agents engaged by the appellant have no PE in India and payments have been made for the services entirely rendered outside India. In view of the decisions of the Hon'ble Supreme Court, in the case of GE Indian Technology Centre v. CIT (supra), Delhi High Court in Van Oord ACZ(supra) and jurisdictional ITAT (SB) in the case of ITO v. Prasad Productions Ltd 2010-TI0L·182-ITAT-MAD-SB, I am of the view that the question of tax deduction at source and to approach the AO for order u/s 195(2) does not arise. Therefore, the addition of `.87,72,280/· in respect of disallowance u/s 40(a)(i) of the I.T. Act is deleted. This ground of appeal is allowed."6 I.T.A. No.555
No.555/ 555/Mds/11 Mds/11
6. Before, us, it was contended that the issue stands covered in favour of the assessee by the decision of the Tribunal decided in its favour in assessee's own case for the assessment year 2006-07 while deciding ITA No. 554/Mds/2011 dated 30.06.2011. The Tribunal has explained this issue and gave its finding in para 8 of its order, which is being extracted herein below:
"8. We have perused the orders of authorities below and heard the rival contentions. There is no doubt that assessee had paid the commission to overseas parties and there is also no dispute that such overseas agents had no PE in India. There is no dispute also that such overseas agents rendered services outside India for procuring export orders. Amendment harped on by the Revenue in Section 9(1) of the Act may be substitution of Explanation coming under sub-section (2) of Sec.9 by Finance Act, 2010 with retrospective effect on 01.06.1976. This is the only amendment made in Sec.9 by Finance Act, 2010. Such substituted explanation reads as under:-
"Explanation- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause(v) or clause (vi) or clause(vii) of sub-section(1) and shall be included in the total income of the non- resident, whether or not, -
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India."
Here in the case before us, there is nothing on record shown by the Revenue for coming to a conclusion that the concerned non-resident 7 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 agents had rendered any services in India or had a residence or place of business or business connection in India. Assessee having found that income of the non-residents were not chargeable to tax in India was justified in making the remittances without any deduction of tax at source. It is fully supported in this regard by the decision of Hon'ble apex Court in the case of GE Technology Centre Pvt. Ltd (supra). We therefore, do not find any infirmity in the order of the Commissioner of Income Tax(A) in deleting the disallowance. Ground No.3 of the Revenue stands dismissed.
7. Accordingly, this issue verily stands covered in favour of the assessee by the above mentioned Tribunal's order, which has followed Hon'ble Apex Court's decision in the case of GE India Technology Centre Pvt Ltd Vs. CIT (327 ITR 456) and therefore stands decided. We confirm the impugned addition and dismiss ground No.2 of Revenue's appeal.
8. The second issue of this appeal relates to computation of deduction under section 80IA. Losses and unabsorbed depreciation, which have already been set off the profits of earlier years are to be notionally brought forward and set off or not.
9. It was stated at Bar by both the parties that this issue, as on today stands covered in favour of the assessee by the decision of the Hon'ble Jurisdictional Bench in assessee's own case for the assessment year 2006- 07 (supra) and also by the decision of the Hon'ble Madras High Court rendered in the case of Velayudhaswamy Spinning Mills Ltd. vs. ACIT 231 8 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 CTR 368 (Mad), a copy of the same has been placed on record.
10. We have carefully perused the position of this issue and have found that this issue stands covered in favour of the assessee in view of the Tribunal's order in assessee's own case and relevant para 3 of the Tribunal's order is being extracted for reference:
"3. We find that this issue is already decided by the jurisdictional High Court in the case of Velayudhaswamy Spinning Mills Ltd., ( 231 CTR 368). Their Lordship held at para-13 of the order as under:-
"13. Sec.80-IA reads as follows:33
[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.] (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park 34 [or develops 35[***] a special economic zone referred to in clause (iii) of sub-section (4)] or generates power or commences transmission or distribution of power 36[or undertakes substantial renovation and modernisation of the existing transmission or distribution lines ): (4) This section applies to--
(i) any enterprise carrying on the business 47[of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :--
(a) it is owned by a company registered in India or by a consortium of such companies 48[or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;] 9 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 49 [(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;]
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:
5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
From reading of sub-s (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking for an enterprise from any business referred to in sub-s(4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 percent of the profits and gains derived from such business for ten consecutive Assessment Years. Deduction is given to eligible business and the same is defined in sub-s (4). Subs-s(2) provides option to the assessee to choose 10 consecutive Assessment Years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub-s(5) deals with quantum of deduction for an eligible business. The words "initial assessment year' are used in sub-s(5) and the same is not defined under the provisions. It is to noted that 'initial assessment year' employed in sub-s(5) is different from the words 'beginning from the year' referred to in sub-s(2) Important factors are to be noted in sub- s(5) and they are as under:-
"(1) It starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored.10 I.T.A. No.555
No.555/ 555/Mds/11 Mds/11 (2) It is for the purpose of determining the quantum of deduction;
(3) For the Assessment Year immediately succeeding the initial Assessment Year;
(4) It is a deeming provision;
(5) Fiction created that the eligible business is the only source of income; and (6) During the previous year relevant to the initial assessment year and every subsequent assessment year." From reading the above, it is clear that the eligible business were the only source of income during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business, Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplate to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
We are therefore, of the opinion that CIT(A) was justified in directing the Assessing Officer to rework the deduction claimed by the assessee u/s.80- IA of the Act without setting off losses on notional basis. Ground No.2 of the Revenue is dismissed."
11. Therefore, by relying on the above order and by respectfully following the same, we dismiss ground No. 3 of the Revenue's appeal.
12. Ground No. 4 relates to deletion of addition made towards suppression of sales. The facts apropos this issue are that the assessee 11 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 company has been following "zero" stock method for the last several years.
The Assessing Officer required the assessee to prove the justification of this practice being followed in a manufacturing company. The company produced sales invoice, delivery challans and lorry receipts in this regard. As per the Assessing Officer some sales transactions effected in the sale ledger copy furnished on 03.11.2009 do not match with invoice furnished on 10.11.2009. The sales as per ledger copy as on 30.03.2007 and 31.03.2007 are as under:
1. Factory Sales `. 4,82,44,902 (Qty: 1181.5 MT)
2. Branch Sales reported `. 12,94,18,813 (Qty: 2895 MT)
3. Export Sales `. 5,00,74,892 (Qty: 1452.12 MT)
13. Because the assessee was not able to produce all the invoice of the delivery challan and lorry receipts in respect of branch sales and export sales, the Assessing Officer has held that these are to be taken as sales reported and the same is added to the total income. On account of difference between the sales ledger and invoice raised amounting to `.17,94,93,705/- was added.
14. This addition has been deleted by the ld. CIT(A) on the premise that there is no statement or omission of the sales by the assessee. The accounts of the assessee company are subjected to CAG audit. The accounts are also subjected to Government audit under section 619(4) of the Companies Act, 1956. It has been observed that since no comments had 12 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 been made by the CAG after compilation of the audit, there cannot be any suppression of sales. But, on behalf of the Department, it was argued that the assessee company has shown a NIL stock of finished goods, which is practically impossible in a manufacturing company and there should be some stock of finished goods as on 31.03.2007 because there was an uninterrupted power consumption and continuous production. The ld. CIT(A) gave a categorical finding that there is no understatement of closing stock in assessee company's case. Hence, the question of suppression of sales does not arise.
18. Ground No. 5 relates to deletion of addition made towards understatement of closing stock.
19. Para 7.3 of the ld. CIT(A)'s order will throw some more light on the facts and his findings. Regarding the addition of `.4,45,67,775/- made by the Assessing Officer on presumptive basis towards understatement of closing stock. Since, both the issues are correlated, we have found certain for the fact that production made on 30.03.2007 and 31.03.2007, which have not been sold are accounted for as "work in progress". So, the arguments of the ld. DR that one of these two additions has to be sustained are not correct.
Both the additions are uncalled for in view of the facts that the production made on last days of the accounting year have been shown as "work in progress" and this facts has not been disputed by the Revenue. To further elaborate on the facts, we will extract para 7.3 of the ld. CIT(A)'s order, 13 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 which reads as under:
7.3 I have carefully considered the facts of the case and rival submissions. I have also perused the documents and explanations given by the appellant company. It is clear from the record that the lower production in the paper machines was on account of shut down of the machine for maintenance work and the Government declared bandh on 31.03.2007. I also agree that since the Paper Machine is a continuous process plant, the machines were to be kept under running idle condition with water circulation to keep the felt and wire under wet condition which resulted in power consumption on 31.03.2007. Accordingly, the presumptive addition of production quantity of 511.965 Mts [600 Mts estimated by AD less 88.035 Mts (actual)] on 31.03.2007 is not sustainable. The actual quantity of machine production (673.36 Mts on 30.03.2007 and 88.035 Mts on 31.03.2007) duly reconciled with Excise records (RG1) has already been accounted in the books as "work-in-process" (unfinished) and "sales" (finished). As they have been considered properly in the books of account, the same cannot be added once again. It is also seen that the accounts of the appellant are subject to audit by the Comptroller and Auditor General of India (CAG). The accounts are also subject to government audit u/s.619 (4) of the Companies Act, 1956 "NIL" comment 'was also issued by CAG after completion of audit of the account for the subject" assessment year. The appellant is being regularly subjected to inspection and verification by authorities like Excise, VAT etc. Therefore, the addition of `.4,45,67,775/- made by the AO on presumptive basis is not correct and is accordingly, deleted. This ground of appeal is allowed."
20. Accordingly, both these additions have been correctly deleted by the ld. CIT(A). Consequently, ground No. 4 and 5 of this appeal stand dismissed.
21. The last ground i.e. ground No. 6 relates to bad debt and deleted by the ld. CIT(A).
22. The Assessing Officer has disallowed the bad debt amounting to `.87,36,000/-. The details and status of the debts were produced and have 14 I.T.A. No.555 No.555/ 555/Mds/11 Mds/11 been written off as irrecoverable as per the provisions of section 36(1)(vii) of the Act in the books of accounts of the assessee. There is no dispute on this fact. After01.04.1989, w.e.f. assessment year 1989-90, there is no requirement by the assessee to prove that the debt has actually become bad. Therefore, this issue is decided in favour of the assessee. To support our view, we may mention the case of T.R.F. Ltd. vs. CIT 323 ITR 397 (SC) and it has been held that it is enough if the debt has been written off in the books of account after mentioning the same as irrecoverable debt.
Accordingly, we confirm this deletion also.
23. In the result, the appeal of the Revenue stands dismissed.
Order pronounced in the open Court on 02.12.2011.
Sd/- Sd/- (N.S. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, the 02.12.2011 Vm/- To: The assessee//A.O./CIT(A)/CIT/D.R.