Income Tax Appellate Tribunal - Ahmedabad
Gujarat Liqui Pharmacaps Pvt. Ltd.,, ... vs Assessee on 10 September, 2015
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B " BENCH, AHMEDABAD
ी जी.डी.अ वाल,उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य के सम ।
BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.573/Ahd/2012
( नधा रण वष / Assessment Year : 2008-09)
Gujarat Liqui Pharmacaps बनाम/ The DCIT
Pvt.Ltd. Vs. Circle-1(1)
No.662-666, GIDC Baroda
Waghodia
Baroda - 391 760
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACG 7270 K
(अपीलाथ( /Appellant) .. ()*यथ( / Respondent)
अपीलाथ( ओर से / Appellant by : Shri S.N. Soparkar, AR
)*यथ( क, ओर से/Respondent by : Shri Narendra Singh, Sr.DR
ु वाई क, तार/ख /
सन Date of Hearing 18/08/2015
घोषणा क, तार/ख /Date of Pronounce ment 10/09/2015
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-I, Baroda ['CIT(A)' in short] dated 20/12/2011 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:-
1. The learned CIT(Appeals) has erred in confirming the learned Assessing Officer's action of disallowing the sum of Rs.32,19,508 by ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -2- upholding that in view of non deduction of tax from salary paid to foreign sales personnel, the deduction of the amount under reference cannot be allowed as the salary paid to them has been earned in India.
2. The learned CIT(Appeals) has erred in confirming the learned Assessing Officer's action of disallowing the sum of Rs.6,84,250 the details of which have been mentioned on page 3 of the assessment order.
3. The learned CIT(Appeal) has erred in disallowing the sum of Rs.1,991 by holding the same to be prior period expenses as pertaining to February and March, 2007 representing telephone bills paid to Tata Indicon.
The appellant reserves the right to add/amend/alter the ground of appeal adduced above.
2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 06/12/2010. While framing the assessment, the AO made addition on account of non-deduction of tax on salary paid to foreign sales employees of Rs.32,19,508/-, addition on account of disallowance u/s.40(a)(ia) of Rs.3,54,264/-, addition on account of disallowance of bad debts of Rs.6,84,250/-, addition on account of disallowance of capital expense of Rs.17,858/- and addition on account of disallowance of prior period expense of Rs.1,991/-. Against the said assessment order, assessee preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee partly allowed the appeal; thereby the ld.CIT(A) directed the AO to allow the credit of TDS of Rs.1,05,989/- subject to verification and confirmed the disallowance of Rs.32,19,508/-.
ITA No.573/Ahd/2012Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -3- Further, the ld.CIT(A) confirmed the disallowance of Rs.3,54,264/- as made by the AO by invoking the provisions of section 40(a)(ia) of the Act. The ld.CIT(A) also confirmed the disallowance of Rs.6,84,520/- as made on account of disallowance of bad debts. The ld.CIT(A) further confirmed the addition of Rs.1,991/- made on account of prior period expense. Aggrieved by the order of the ld.CIT(A), the assessee is now in appeal before us.
3. First ground is against confirmation of disallowance of Rs.32,19,508/-. The ld.counsel for the assessee submitted that both the authorities below have erred in making the disallowance and adding the same to the income of the assessee. The ld.counsel for the assessee submitted that the assessee made payment to its employees posted out of India who were during the year under consideration non-resident Indian. The income earned and received was out of India, therefore such salary income was not subjected to tax in India. Under these facts, the assessee was justified for not deducting the tax at source. He submitted that the tax can be deducted when the income is taxable in India. The ld.counsel for the assessee, in support of the contention, has placed reliance on the judgement of Hon'ble Karnataka High Court rendered in the case of Director of Income-tax (International Taxation) vs. Prahlad Vijendra Rao reported at (2011) 239 CTR 107 (Karna.). The ld.counsel for the assessee further placed reliance on the judgement of Hon'ble High Court ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -4- of Delhi rendered in the case of Mother Dairy Fruit, Vegetable (P.)Ltd. vs. CIT reported at (2011 240 CTR 40 (Delhi).
3.1. On the contrary, Sr.DR supported the orders of the authorities below. He submitted that the Coordinate Bench in the case of Cap.A.L. Fernandes vs. ITO (2002) 81 ITD 203(Mum) has decided the issue in favour of the Revenue.
4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO made disallowance on account of non-deduction of Tax. The AO was of the view that the assessee was required to deduct tax on the salary paid to staff (foreign) of Rs.32,19,508/-. The ld.CIT(A) confirmed the addition by following the decision of the Coordinate Bench in the case of Cap.A.L. Fernandes vs. ITO(supra). We find that the ld.CIT(A) has recorded at page-6 of his order that two of its employees, namely Shri Mahendra Kothari Shri Sahashank Karande and details of their stay in India are stated to be 57 days and 47 days respectively. However, in the case of Shri Atul Sharma, his details of stay in India was not available. Threfor, so far disallowance of expenditure in respect of salary to Atul Sharma is concerned, same needs no interference by this Tribunal. Accordingly, disallowance of expenditure of Rs.3,42,187/- is hereby confirmed. In the present case, the ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -5- undisputed facts are that the salary was paid to the employees who were appointed under the contract of employment at outside India for carrying out the business operations of the assessee-company. The contention of the assessee is that the salary was paid outside India for the services rendered outside India and the persons who were non-resident Indians during the year under appeal. Therefore, it is contended that the income accrued and received outside India was not subjected to tax in India. The assessee was justified not to deduct the tax on such payment. The ld.CIT(A) has followed the decision of Coordinate Bench rendered in the case of Cap.A.L. Fernandes vs. ITO (2002) 81 ITD 203(Mum) and was also of the opinion that the salary in question were credited two employees' accounts maintained in India. The same were deemed to be received in India and also as per section 5 of the Act irrespective of the status of the concerned employees, the same were taxable in India. The only question which requires for consideration is that whether the salary paid to foreign employees was taxable in India. Consequently, the tax was required to be deducted by the assessee. The residential status of any person is determined in accordance with the provisions of section 6 of the Act. The authorities below have not made disallowance on the basis of the status of the assessee. The disallowance has been made on the basis that the income received by the persons was deemed to have been received and accrued in India. Therefore, same was taxable in India. The ld.counsel for the assessee argued at length to buttress the ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -6- contention that salary paid to employees posted out of India, and rendering services out of India would not be taxable. The Hon'ble Karnataka High Court in the case of Director of Income Tax (Int.Taxn.) vs. Prahlad Vijendra Rao (supra) noted the fact that the employee being Chief Engineer working in a ship, stayed out of India during the relevant period for 227 days and that salary was earned by him was on account of the work discharged by him on board during the said period, which outside the shores of India. The Hon'ble High Court after examining the law and judicial pronouncement held that it would emerge that assessee was working outside India for a period of 225 days and the income in question earned by assessee has not accrued in India and is not deemed to have accrued in India. As such, the contention of the Revenue cannot be accepted.
4.1. From the above, it is evident that the Hon'ble High Court has ruled where the employee discharges his duties outside India and his stay is beyond the prescribed limit to term him resident, the income earned earned upon such discharge of duties outside India would not be within the ambit of term has accrued in India and is deemed to have accrued in India. Therefore, would not be taxable in India. Admittedly, if any income which is not taxable in India, would not be liable for tax. In the case in hand, admittedly two of the employees of th appellant worked outside India and were NRI. Therefore, in the light of judgment of ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -7- Hon'ble Karntaka High Court in the case of DIT (Int.Taxn.) Vs. Prahlad Vijendra Rao (supra), the amount of salary paid to such employees would not be taxable in India. The Revenue has not brought to our notice any contrary binding precedent. Therefore, the disallowance of expenditure towards payment of salaries to remaining two employees, is hereby deleted. This ground of assessee's appeal is partly allowed.
5. Apropos to ground no.2, the ld.counsel for the assessee submitted that figures mentioned in the ground pertains to page 4 but not of page 3. The same was due to typographical error. He submitted that in place of page 3, page 4 and 5 may be read. The ld.DR has no objection to this submission of the ld.counsel for the assessee. Therefore, the figure of disallowance of Rs.6,84,520/-, mentioned in the page 4 and 5 of the assessment order is taken as subject matter of this ground.
6. The ld. Counsel for the assessee reiterated the submission made before ld.CIT(A). He submitted that the transactions were affected in the normal course of business, therefore, write off the same needs to be allowed. He submitted that in view of judgment of the Hon'ble Apex Court rendered I the case of T.R.F. Ltd., now the assessee is not required to demonstrate that debt actually became bad. He submitted that it is sufficient that the assessee has written off the amount from it accounts.
ITA No.573/Ahd/2012Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -8-
7. On the contrary, the ld. SR.DR supported the order of the authorities below. The ld.DR submitted that the ld.CIT(A) has given finding that the claim is not of bad debt of business loss and is respect of payment to QCS. No material was placed on record to show that the payment was towards the business of the assessee.
8. We have heard the rival submissions perused the material available on record and gone through the orders of the authorities below. The ld.CIT(A) had confirmed the disallowance by observing as under:
"5.2 I have considered the submissions. Except for payment to QCS, all other payments are claimed to be made on behalf of other parties, which due to non payment by the said parties, were written off. In view of this, the claim is not of bad debts u/s 36(l)(vii) but is of "business loss'. Appellant has not been able to file any evidence in support of the said amounts being genuine business debts. In view of this, claim totaling to Rs.5,58,683/- i.e. after excluding QCS cannot be allowed. In respect of claim towards QCS, there is no proof of transaction having been made towards appellant's business, as admittedly, no invoice is there. In this situation, claim of Rs.1,52,837/- as loss also could not be allowed. To sum up, disallowance of Rs.6,84,520/- is confirmed."
However, the submissions before the CIT(A) were as under:
"The learned AO has dealt with the issue vide para 6 of the assessment order. The break up ofRs.6,84,250 is as under.
Date Name of the party Amount Remarks ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09 -9- 15-09-07 Velji Dosabhai & 6,250 Amount was Sons P Ltd. recoverable towards clearing and forwarding charges paid in financial year 2004-05. The party did not pay the amount and hence the same is written off.
31-12-2007 Polychem 10,060 Amount was
Corporation recoverable towards
payment for purchase
of consumable stores
made in financial year
2004-05. The party
did not pay the
amount and hence the
same is written off.
31-03-08 QCS 1,52,837 This represents
payment for
inspection charges to
QCS made in
financial year 2006-
07. The party did not
issue any invoice and
hence the same is
written off.
31-03-08 Munabhai B Malik 25,000 Amount was
recoverable towards
payment for purchase
of cement. The party
did not pay the
amount and hence the
same is written off.
ITA No.573/Ahd/2012
Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09
- 10 -
31-03-08 CJ Gelatin 4,90,373 Amount was
Products recoverable towards
payment for purchase
of raw material made
in financial year
2006-07. The party
did not pay the
amount and hence the
same is written off.
With reference to above, we have to submit to your Honour that these write offs are nothing but the legitimate business expenditure as the payments made earlier on behalf of parties or payment made to parties but no invoice was issued to us required us to write off the amounts under reference. All the items under reference represented payments of revenue nature.
We rely on the decision of Calcutta High Court in the case of Commissioner of Income Tax v.Rohtas Industries Ltd. [(1979) 120ITR 110(Cal.)]The copy of the decision is enclosed as Annexure 6. The court held as under.
"Whether, on facts, amounts paid as advance were in nature of trade debts to be realised by assesses from its supplier debtors and, therefore, amount -written off was allowable as bad debt - Held, yes "
In view of this, we have to request your Honour to kindly direct the learned AO to delete the disallowance."
9. There is no dispute with regard to the finding that the payment were made in the regular course of business. There is no finding of the authorities below that the payment were not related to the business of the assessee. Under these facts, except in the case of QCS, where the assessee itself has admitted that no invoice was issued, the authorities below were not justified in disallowing the claim of the assessee. Therefore, we hereby direct the AO to delete the disallowance except in the case of QCS. The disallowance to the extent of Rs.1,52,837/- is ITA No.573/Ahd/2012 Gujarat Liqui Pharmacaps Pvt.Ltd. vs. DCIT Asst.Year - 2008-09
- 11 -
confirmed and rest of the amount is deleted. This ground of the assessee's appeal is partly allowed as discussed hereinabove.
10. In the result appeal of the assessee is partly allowed.
Order pronounced in the Court on Thursday, the 10th day of September, 2015 at Ahmedabad.
Sd/- Sd/-
(जी.डी.अ वाल) (कुल भारत)
उपा य (अहम. े ) या यक सद य
( G.D. AGARWAL ) ( KUL BHARAT )
VICE PRESIDENT (AZ) JUDICIAL MEMBER
Ahmedabad; Dated 10/ 09 /2015
ट/.सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ( / The Appellant
2. )*यथ( / The Respondent.
3. संबं8धत आयकर आयु:त / Concerned CIT
4. आयकर आयु:त(अपील) / The CIT(A)-I, Baroda
5. ;वभागीय ) त न8ध, आयकर अपील/य अ8धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड= फाईल / Guard file.
आदे शानुसार/ BY ORDER, स*या;पत ) त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad