Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs M/S. Concept Clothing, New Delhi on 11 September, 2018
ITA No. 2785/Del/2015
Assessment year 2011-12
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C' NEW DELHI
BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No.2785/Del/2015
Assessment Year: 2011-12
ACIT, Concept Clothing,
Circle 31(1), W-7/3, Western Avenue,
Room No. 1302, 13th Floor, Sainik Farms,
E-2, Pratykshya Kar Bhawan, vs New Delhi-110062
S.P. Mukherjee Civic Centre, (PAN: AAFFC0116J)
J.L. N. Marg, Minto Road,
New Delhi-110002
Appellant Respondent
Department by: Ms Ashima Neb , Sr. DR
Assessee by : Shri Rajeshwar Tyagi, Adv.
Date of hearing : 13.06.2018
Date of pronouncement : 11.09.2018
ORDER
PER SUDHANSHU SRIVASTAVA, J.M.
This appeal is preferred by the department against the order dated 11.6.2014 passed by the Ld. Commissioner of Income Tax (Appeals)-11, New Delhi for assessment year 2011-12 and two issues in dispute before us are the deletion of addition of Rs. 1,81,48,266/- made by the Assessing Officer for alleged violation of provisions of section 9(1)(vii) r/w section 195(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') and further deletion of 1 ITA No. 2785/Del/2015 Assessment year 2011-12 addition of Rs. 1,02,48,572/- made by the Assessing Officer u/s 50C r/w section 69A of the Act.
2.0 Brief facts of the case are that the assessee filed its return declaring income of Rs.61,72,830/- which was processed u/s 143(1) of the Act and was later on selected for scrutiny. Assessee firm was engaged in the business of manufacturing and export of readymade garments. During the course of assessment proceedings it was noted by the Assessing Officer (AO) that the assessee had debited a sum of Rs.78,74,229/- in the Profit & Loss account as commission on export consignments and Rs. 1,02,74,037/- as commission on export turnover apart from discount and rebate of Rs.76,86,139/- booked under the head "selling and distribution expenses". The AO asked the assessee to furnish copies of agreements, details and evidence of services rendered by the concerned parties to earn the commission and evidence of TDS while making commission payment. In response, the assessee filed letter dated 14.08.2013 filing general particulars of commission expenses without furnishing specific party wise details and without any supporting documentary evidences. The AO required the assessee to furnish complete details of commission expense with evidences of identification of 2 ITA No. 2785/Del/2015 Assessment year 2011-12 parties to whom commission was paid and further required the assessee to file copies of agreement entered into with them, details of services rendered and details of business provided by them along with the copies of related documents/correspondence to establish the genuineness of commission expenses and also required the assessee to justify the claim of commission expense on which no TDS was deducted.
2.1 In response, the assessee submitted details of commission expenses paid to two concerns namely Ancare Trade Consultants, 8671, NW, TH, Street Miami, USA amounting to Rs.78,74,229/- and M/s Whynot Buying House Services & Others amounting to Rs.1,02,74,037/- totaling to sum of Rs.1,81,48,266/-. It was explained by the assessee that out of the total commission paid as export turnover only Rs.9,81,561/- was paid in India on which TDS was duly deducted but no TDS was made Rs.78,74,229/- on export consignment and other commission on export turnover amounting to Rs.92,92,476/-. It was further explained that commission on export consignment amounting to Rs.78.74 lac was paid to M/s Ancare Trading and Consultants, a party situated at USA. But neither copy of any written agreement between the assessee and the commission 3 ITA No. 2785/Del/2015 Assessment year 2011-12 agent was filed to substantiate the claim of commission payment and genuineness of the transaction. When required by the AO to furnish the above detail, the assessee filed letter dated 14.02.2014 wherein it was contended that since out of the total commission of Rs. 1,02,74,037/-, TDS was deducted only in respect of amount of Rs.9,81,561/- which was paid in India, and remaining balance amount of Rs.92,92,476/- was claimed as expenses being sale proceeds realized after deducting an amount equal to 3% of the invoice value, no tax was deductible at source thereon.
2.2 The AO considered the reply of the assessee but found the same without merits as the assessee had failed to furnish any documentary evidence/s to substantiate the genuineness of commission expenses. Ultimately, it was held by the AO that neither the genuineness of the commission expense was established nor was there any justification for allowance of commission expense without TDS as per the provisions of Section 195 of the Act. It was held by the AO that commission expenses of Rs. 1,81,48,266/- in respect of export sale were not allowable.
4 ITA No. 2785/Del/2015 Assessment year 2011-12 2.2 Further, during the course of assessment proceedings, the AO asked the assessee to furnish the details of investment made in properties in response to which he filed a letter dated 30.12.2013 along with a copy of sale deed in respect of purchase of industrial premises no. 666 measuring 1000 sq.mts situated at Section -37- II (Pace City), Gurgaon, Tehsil and District Gurgaon, Haryana for a sum of Rs.3,91,00,000/-. The AO noticed that on the copy of the sale deed, the stamp value computation of the property in question for stamp duty purpose was Rs.4,93,48,950/- as against the sale consideration of Rs.3.91 crore. Considering the same, the AO asked the assessee to show cause as to why the value of the property be not taken as adopted by the sub-registrar of properties for stamp duty purpose at Rs.4,93,48,950/-. In response, the assessee contended that the value at which the immovable property was acquired was the actual transaction value of the property which was Rs.3.91 crore. The AO found the assessee's contention without merit in view of the provisions of Section 50C along with provisions of Section 69A of the I.T. Act. It was held by the AO that since the purchase consideration of the property was shown less by the assessee as compared to the value determined 5 ITA No. 2785/Del/2015 Assessment year 2011-12 by the Sub-Registrar for the purpose of stamp duty, as per provisions of Section 50C of the Act it was mandatory to adopt the sale consideration as worked out on the basis of circle rate of the property for the purpose of computation of long term capital gain. It was held by the AO that the difference of Rs. 1,02,48,572/- in the value shown by the assessee and value as per stamp duty purpose was nothing but unexplained investment of the assessee. Therefore, this difference was added back to the returned income of the assessee as undisclosed investment u/s 69 of the Act.
2.3 Apart from this, the Assessing Officer also made addition/disallowances pertaining to car running and maintenance expenses, foreign travel expenses, staff welfare expenses and telephone expenses. The assessment was completed at an income of Rs. 3,57,25,600/- as against the returned income of Rs. 61,72,830/-.
2.4 The assessee's appeal before the Ld. Commissioner of Income Tax (A) was partly allowed by the Ld. Commissioner of Income Tax (A) by deleting the addition of Rs. 1,81,48,266/- made with respect to the alleged violation of provisions of section 9 and section 195 of the Act. The Ld. Commissioner of 6 ITA No. 2785/Del/2015 Assessment year 2011-12 Income Tax (A) also deleted the addition of Rs. 1,02,48,572/- with respect to addition made u/s 50C r/w 69A of the Act. Now, the department is in appeal before us and has challenged the deletion of additions by raising the following grounds of appeal:-
"1. Whether the Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of Rs. 1.81 cr. made by the AO in view of provisions of Section 9(l)(vii) and Section 195(1) and Circular No. 7/2009 dt. 22-10-2009 of CBDT'.
"2. Whether the Ld. CIT(A), on law, has erred in deleting the addition of Rs. 1.81 cr. made by the AO in view of provisions of Section 9(l)(vii) and Section 195(1) and Circular No. 7/2009 dt. 22-10-2009 of CBDT".
3. Whether the Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of Rs. 1,02,48,572/- made by the AO in view of provisions of Section 50-C and Section 69A of the Income Tax Act, 1961".
4. Whether the Ld. CIT(A), on law, has erred in deleting the addition of Rs. 1, 02, 48, 572/- made by the AO in view of provisions of Section 50-C and Section 69A of the Income Tax Act, 1961".
5. The appellant craves leave to add, alter or amend any of the ground(s) of appeal before or during the course of hearing of the appeal".
3.0 The Ld. Sr. DR submitted that ground nos. 1 and 2 challenge the deletion made by the Ld. Commissioner of Income Tax (A) with respect to non-deduction of tax at source on commission paid to two foreign entities namely Ancare Trade 7 ITA No. 2785/Del/2015 Assessment year 2011-12 Consultants and M/s Whynot Buying House Services & Others. It was submitted that as per the assessee itself, no tax was deducted at source in respect of payment of commission of Rs. 78,74,229/- to M/s Ancare Trade Consultants on export consignments. Similarly, no tax was deducted at source on account of commission of Rs. 1,02,74,037/- paid to M/s Whynot Buying House Services & Others. The Ld. Sr. DR drew our attention to the observations of the Assessing Officer in this regard and submitted that the assessee was not able to furnish any evidence/s in respect of genuineness of commission expenses as no agreement/s or document/s had been filed containing terms and conditions of the arrangement between the assessee and the two parties. The Ld. Sr. DR also made reference to section 195(2) of the Act and submitted that the assessee had not moved any application for non-deduction of tax at source in the case of these two parties. It was also submitted by the Ld. Sr. DR that the final destination of the remittances was not known. The Ld. Sr. DR also submitted that the agreements were later admitted by the Ld. Commissioner of Income Tax (A) as additional evidence without obtaining remand report from the Assessing Officer. Reliance was also placed on 8 ITA No. 2785/Del/2015 Assessment year 2011-12 Circular No. 7 of 2009 for the proposition that commission was not deductible if remittances had been made without deduction of tax at source.
3.1 With respect to department's ground nos. 3 and 4 which challenge the deletion of addition of Rs. 1,02,48,572/- u/s 50C r/w section 69A of the Act, the Ld. Sr. DR placed reliance on the findings and observations as contained in the assessment order and vehemently argued that the Assessing Officer had rightly invoked provisions of section 69A.
4.0 In response, the Ld. AR submitted that the payment made to M/s Whynot Buying House Services & Others was in the nature of discount and not commission. It was submitted that the payment to M/s Whynot Buying House Services & Others was not a payment of commission but a deduction on account of discount. Similarly, with respect to the other party i.e. M/s Ancare Trade Consultants, it was submitted that this payment was also in the nature of discount and not commission. The Ld. AR also submitted that the legal colour of the transaction has to be seen and not the nomenclature. In this regard, reliance was placed on judgment of the Hon'ble Apex Court in the case of 9 ITA No. 2785/Del/2015 Assessment year 2011-12 Kedarrnath Jute Mfg. Co. Ltd. vs. CIT (Central), Calcutta reported in (1971) 82 ITR 363 (SC) wherein it has been held that what is important is the true nature of the transaction and not the nomenclature under which the transaction may be classified. The Ld. AR submitted that although the nature of payment was in the nature of discount, the same had incorrectly been mentioned as commission in the books of accounts. The Ld. AR also placed on record copy of the FIRC and to demonstrate that the deduction with respect to the discount had already been made abroad and only the net amount had been remitted to the assessee company and, thus, it was not a case of payment by the assessee to the two parties on account of commission but was a receipt in respect of payment from the two parties after deduction of discount by the two parties. 4.1 In respect to the other issue in challenge before us regarding deletion of addition u/s 53 r/w 69A, Ld. AR placed reliance on the findings of the Ld. Commissioner of Income Tax(A) and vehemently supported his order and argued that the deletion had been rightly made.
10 ITA No. 2785/Del/2015 Assessment year 2011-12 5.0 We have heard the rival submissions and perused the material available on record. As far as the first issue i.e. deletion of addition made u/s 195 of the Act is concerned, it is seen that the Ld. Commissioner of Income Tax (A) has stated in the impugned order that the assessee has brought on record details pertaining to the commission paid, rebate and discount, copy of bills, FIRCs issued by the banks, agreement with the foreign agent as evidence in support of submissions etc. The Ld. Commissioner of Income Tax (A) has deleted the addition in this respect by observing that the Assessing Officer was not justified in disallowing the commission expenses by holding the expenses as not genuine. The Ld. Commissioner of Income Tax (A) has also observed that tax is not liable to be deducted with respect to payments which is paid to non-residents particularly when the services were rendered outside India, used outside India and the payments were made outside India in the absence of a Permanent Establishment in India. The Ld. Commissioner of Income Tax (A) went on to hold that since the impugned income in the hands of the non-resident did not accrue or arise directly or indirectly, through or from any business connection in India or through the transfer of capital asset situated in India, the 11 ITA No. 2785/Del/2015 Assessment year 2011-12 provisions of section 9(1) were not applicable on the facts of the case. However, a perusal of the impugned order as well assessment order shows that although the relevant details in respect of the impugned addition were not filed before the Assessing Officer, the Ld. Commissioner of Income Tax (A) has admitted the details submitted before him in terms of the copy of bills, FIRCs issued by the bank, agreement with the foreign agents etc. Although it has not been specifically mentioned in the impugned order that the same were being admitted as additional evidence by the Ld. Commissioner of Income Tax (A), it is apparent that these documents/details were not field by the assessee before the Assessing Officer and the Ld. Commissioner of Income Tax (A) admitted these evidences during the course of first appellate proceedings before him without calling for a remand report from the Assessing Officer in this regard. Therefore, without going into the merits of the deletion of addition by the Ld. Commissioner of Income Tax (A), on the basis of factual matrix as appearing from the orders of both the lower authorities, it is apparent that the Ld. Commissioner of Income Tax (A) did not resort to the provisions of Rule 46A of the Income Tax Rules, 1962 while admitting these additional 12 ITA No. 2785/Del/2015 Assessment year 2011-12 evidences which were placed for the first time before him and we are in agreement with the Ld. Sr. DR to this extent that the Assessing Officer should have been given an opportunity to examine the documents which were submitted at the first appellate stage. Further, during the course of arguments before us, it has been argued by the Ld. AR that the nature of impugned payment/s was not commission but was discount and this plea has been advanced before us for the first time. The lower authorities did not have any occasion to consider this plea of the assessee. Therefore, it is our considered opinion that in the interest of justice, this issue should be restored to the file of the Ld. Commissioner of Income Tax (A) with the direction to adjudicate the issue de novo after properly following the provisions of Rule 46A of the Income Tax Rules, 1962 and also after giving a proper opportunity to the assessee to present its case on the issue. It is so directed accordingly. Accordingly, ground nos. 1 and 2 stand allowed for statistical purposes. 5.1 As far as the second issue being challenged before us i.e. deletion of addition on account of difference in valuation of property u/s 50C of the Act is concerned, it is seen that the assessee is the purchaser of industrial premises at 666, Sector 13 ITA No. 2785/Del/2015 Assessment year 2011-12 37-II-(Pace City), Gurgaon, for a consideration of Rs. 3,91,00,000/-. The stamp duty was purchased on a value of Rs. 4,93,48,950/- which was the value determined for the purpose of stamp duty on the basis of circle rates prevailing at the time of execution of the sale deed. The Assessing Officer has invoked provisions of section 50C of the Act and has proceeded to tax the difference between the sale price paid and the value for the purpose of stamp duty as undisclosed investment u/s 69A of the Act. The Memorandum explaining the provisions of section 50C in the Finance Bill, 2002 clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed accordingly. However, it is a settled law that section 50C applies to cases where a property has been sold. In case of acquisition of immoveable property at a value less than the value adopted for the purpose of stamp duty, the difference between stamp duty value and the transaction value can at best 14 ITA No. 2785/Del/2015 Assessment year 2011-12 be taxed under provisions of section 56(2)(vii) of the Act which, any way is not attracted in the case of the assessee as the assessee is a partnership firm. Section 50C creates a legal fiction whereby apparent consideration is substituted by valuation done by stamp valuation authorities and capital gains are calculated accordingly. But legal fiction cannot be extended any further so as to take within its ambit the case of a purchaser where it is alleged that the purchaser had paid a price less than the value as adopted for the stamp duty purposes. A perusal of the assessment order also shows that the Assessing Officer has not disputed the price paid by the assessee and has not made any observations that the consideration as reflected in the books of accounts was less than what was actually paid by the assessee or what was recorded in the sale deed. ITAT Ahmedabad Bench had an occasion to consider an identical issue in the case of ITO vs. Harley Street Pharmaceuticals Ltd. reported in (2010) 38 SOT 0486. The relevant observations of the ITAT Ahmedabad Bench are reproduced hereunder for a ready reference:-
"We further find from the memorandum explaining the provision of s. 50C in the Finance Bill, D02, which clearly states that where the consideration declared to be 15 ITA No. 2785/Del/2015 Assessment year 2011-12 received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the ^consideration and capital gains shall be computed, accordingly, under s. 48 of the Act. In case the value adopted or assessed for stamp duty purposes is revised in any appeal, revision or reference, the assessment made shall be amended to recompute the capital gains by taking the revised value as the full value of consideration. Accordingly, we are of the view that the provisions of s. 50C are applicable only for the computation of capital gains in real estate transaction in respect to seller only and not for the purchaser. We find from s. 50C of the Act that it creates a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated, accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. Hon'ble Andhra Pradesh High Court in the case of Addl CIT vs. P. Durgamma (1987) 64 CTR (AP) 304 : (1987) 166 ITR 776 (AP) held that it is not possible to extend the fiction beyond the field legitimately intended by the statute. The Hon'ble Court was dealing with the provisions of s. 171(1) of the IT Act in the context of which it was held that joint family shall be deemed to continue for the limited purpose of assessing cases of joint families which have been hitherto assessed as such. It is not possible to extend that fiction to other cases. Similar view was taken by the Hon'ble Kerala High Court in CIT vs. Kar Valves Ltd. (1987) 66 CTR (Ker) 7 : (1987) 168 ITR 416 (Ker), wherein it is held that legal fiction is limited to the purpose for which they are created and could not be extended beyond that legitimate frame, Hon'ble Kerala High Court was dealing with the case where assessee sought to take advantage of s. 41(2) by submitting that if liabilities are not liquidated and outstanding are not collected, then business could be deemed to continue. The Hon'ble Allahabad High Court in the case of CED vs. Krishna Kumari Devi (1987) 66 CTR (All) 80 : (1988) 173 ITR 561 (All) held that in interpreting the legal fiction the Court 16 ITA No. 2785/Del/2015 Assessment year 2011-12 should ascertain the purpose for which it was created and after doing so assume all facts which are logical to give effect to the fiction, Hon'ble Supreme Court in CIT vs. Mother India Refrigeration Industries (P) Ltd. (1985) 48 CTR (SC) 176 : (1985) 155 ITR 711 (SC) held that legal fictions are created only for some definite purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. In CIT vs. Bharani Pictures (1981) 129 ITR 244 : (Mad), it is held that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond its legitimate field. The statutory fiction introduced in one enactment cannot be incorporated in another enactment. The point that legal fiction cannot be extended to a new field was highlighted by Hon'ble Madras High Court in CIT vs. T.S. Rajam (1980) 125 ITR 207 (Mad) wherein it is held that s. 41(2) creates a legal fiction under which the balancing charge is treated as business income chargeable to tax but when this amount is distributed to shareholders then it would not become deemed dividend and it would be only a capital receipt and not distribution of accumulated profits. Thus, a legal fiction was invoked in the hands of the assessee company and was not extended in the hands of the shareholders. In the present case, s. 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment u"der s. 69. In fact, s. 69 itself is a legal fiction whereby investment into an asset is treated as ncome if it is not disclosed in the regular books of account. No further legal fiction from elsewhere in the statute can be borrowed to extend the field of s. 69. It is for the legislature to otroduce legal fiction to overcome difficulty in taxing certain receipts or expenditure which otherwise was not possible under normal provisions of the Act. It is with this purpose that when it was found difficult to prevent tax evasion by understating apparent sale consideration as compared to the valuation made by Stamp Valuation Authorities for the purposes of levying stamp duty then it was thought necessary to introduce s. 50C for substituting apparent 17 ITA No. 2785/Del/2015 Assessment year 2011-12 sale consideration by valuation done by Stamp Valuation Authorities. This fiction cannot be extended any further and, therefore, cannot be invoked by AO to tax the difference in the hands of the purchaser. Hon'ble Madras High Court in CGT vs. R. Damodaran (2001) 247 ITR 698 (Mad) held that Stamp Valuation Authorities have their own method of evaluating the property. Merely because for the purpose of stamp duty, property is valued at higher cost, it cannot be said that assessee has made more payment than what is stated in the sale deed. The Hon'ble Allahabad High Court in Dinesh Kumar Mittal vs. ITO & Ors. (1992) 193 ITR 770 (All) quashed the order of authorities below, wherein half of the difference between the amount paid and the value for purposes of stamp duty was added as income of the assessee by the AO. It is held that there is no rule of law to the effect that the value determined for the purposes of stamp duty is the actual consideration passed between the parties to the sale. In the present case, the AO has applied this provision of s.
50C for the computation of unexplained investment under s. 69B of the Act and which is not permissible under the Act. Apart from the stamp duty valuation, there is nothing on record which suggests that the Revenue has proved that the assessee has accepted over and above, what has been recorded as purchase consideration of the land in the instrument, i.e., the sale deed. We are in full agreement with the arguments of the assessee that s. 50C is not applicable in the case of purchaser and this provision being a deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains under s. 48 of the Act. We further find that there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed, has been made by the assessee and in the absence of the same, no addition of undisclosed investment can be made by invoking the provision of s. 69B of the Act. Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of the Revenue's appeal is dismissed." 18 ITA No. 2785/Del/2015 Assessment year 2011-12 5.2 The Ld. CIT (A) has also placed reliance on the order of the ITAT Ahmedabad Bench while allowing the assessee's appeal. The Ld. Sr. DR could not point out any judicial precedent contrary to what has been laid down by the Ahmedabad Bench of the ITAT. Therefore, we find no reason to interfere with the order of the Ld. CIT (A) on this issue and we dismiss ground nos. 3 and 4 raised by the revenue.
6. In the result, the appeal of the department stands partly allowed for statistical purposes.
Order pronounced in the open court on 11th September, 2018.
Sd/- Sd/-
(N.K.BILLAIYA) (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 11th SEPTEMBER, 2018
'GS'
Copy forwarded to: -
1) Appellant
2) Respondent
3) CIT(A)
4) CIT
5) DR
True Copy
By Order
ASSTT. REGISTRAR
19
ITA No. 2785/Del/2015
Assessment year 2011-12
Date of dictation
Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order 20