Income Tax Appellate Tribunal - Panji
Karishma Globle Minerel Pvt. Ltd., ... vs Department Of Income Tax on 16 March, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PANAJI BENCH, PANAJI
BEFORE SHRI P. K. BANSAL, HON'BLE ACCOUNTANT MEMBER
AND SHRI D.T. GARASIA, HON'BLE JUDICIAL MEMBER
ITA NO. 66/PNJ/2014 : (A.Y - 2010-11)
Asst. Commissioner of Income Tax, Vs. M/s. Karishma Global Mineral Pvt.
Circle-1(1), Panaji, Goa. Ltd., Kamat Towers, 206, 2nd floor,
(Appellant) Patto Plaza, Panaji, Goa.
PAN : AADCK4237B (Respondent)
C.O NO. 22/PNJ/2014 : (A.Y - 2010-11)
(In ITA NO. 66/PNJ/2014)
M/s. Karishma Global Mineral Pvt. Vs. Asst. Commissioner of Income Tax,
Ltd., Kamat Towers, 206, 2nd floor, Circle-1(1), Panaji, Goa.
Patto Plaza, Panaji, Goa. (Respondent)
PAN : AADCK4237B
(Cross Objector)
Assessee by : Jitendra Jain, Adv.
Revenue by : B. Balakrishna, Ld. DR
Date of Hearing : 09/02/2015
Date of Order : 16/03/2015
ORDER
PER P.K. BANSAL :
1. The above appeal as well as Cross objection have been filed against the order of CIT(A) dt. 26.11.2013. The Revenue has taken the following effective grounds of appeal :
"2. The Ld. CIT(A) has erred in deleting the additions on account of disallowance of Commission and Brokerage paid to Mrs. Sita Ram Parodkar, which assessee could not prove with evidence that she has rendered the services and genuineness of transaction as held in the case of CIT Vs. Premier Breweries Ltd.,(ker) 279 ITR 51.2 ITA NO. 66/PNJ/2014 &
CO NO. 22/PNJ/2014 (A.Y - 2010-11)
3. The Ld. CIT(A) has erred in deleting the additions on account of disallowance of Commission paid to M/s. De Long Minerals & Logistics Pvt. Ltd. of Singapore without an agreement and without TDS as held in the case of De Beers U.K. Ltd., DCIT(ITAT), Mum 134 ITD 697 (DTAA with U.K.).
4. The Ld CIT(A) has erred in deleting part of the additions on account of disallowance of Hire Charges paid in cash which the assessee could not prove with evidence the recipients of these hire charges as held in the case of CIT Vs. Calcutta Agency Ltd.,(SC) 74 ITR 634.
5. The Ld CIT(A) has erred in deleting Rs. 10 lakhs on account of disallowance of screening and crushing charges paid to sister concern when the iron ore fines purchased from sister concern which do not requires the crushing charges.
6. The Ld. CIT(A) has erred in deleting part of the additions on account of disallowance of labour charges when assessee has not provided any evidence for such payment being made towards the labour charges as held in the case of CIT Vs. Chandravilas Hotel (Guj) 164 ITR
102.
7. The Ld CIT(A) has erred in deleting part of the additions on account of unexplained cash purchases ore when assessee neither proved the identity of the parties from whom cash purchases were made nor the genuineness of the transactions as held in the case of CIT Vs. Calcutta Agency Ltd., (SC) 19 ITR 191 & Lakshimaratan Cotton Mills Co. Ltd., CIT (SC) 74 ITR 634.
8. On the facts and circumstances, the Ld. CIT(A) grossly erred in deleting additions on account of Payment of demurrage without deducting TDS were in fact these payments are not demurrage but payments made to purchasers of iron ore and not to the owner of ships as applicable u/s 172 and there payments are taxable u/s 195(1) as held by the Panaji Bench of Bombay High Court in the case of CIT Vs. Orient Goa Co. (P) Ltd."
In its Cross objection, the Assessee has taken the following effective grounds of appeal :
"1. The learned CIT(A) erred in confirming Rs. 8,43,986/- being payments made for transportation of ore on Surmises and suspicion although it is accepted that the Appellant has incurred these expenses and same are not found to be excessive.
2. The learned CIT(A) erred in disallowing Rs. 2,10,800/- being labour charges incurred and paid for crushing the mineral ore on surmises and suspicion although it is 3 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) accepted that the Appellant has incurred these expenses and same are not found to be excessive.
3. The learned CIT(A) erred in confirming Rs. 5,16,900/- being payment made for purchase of iron ore on surmises and suspicion although the sales and closing stock had been accepted."
2. Ground nos. 2 & 3 of the Revenue's appeal relate to the deletion of the disallowance made by the AO on account of Commission and Brokerage paid to Mrs. Sita Ram Parodkar and M/s. De Long Mineral & Logistics Pvt. Ltd., Singapore. The brief facts of the case are that the AO noted that during the year the Assessee had paid Commission of Rs. 89,95,806/-. The AO was satisfied so far as commission paid to Radhakrishnan amounting to Rs.22,36,120/- was concerned and therefore allowed the same but was not satisfied in respect of commission paid to Mrs. Sita Ram Parodkar amounting to Rs. 45 lacs and to M/s. De Long Mineral & Logistics Pvt. Ltd., which is a Singapore based party amounting to Rs.22,19,528/-. The Assessee has deducted TDS in respect of commission paid to Mrs. Sita Ram Parodkar but no TDS has been deducted in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. According to the Assessee, this company has rendered services outside India and even otherwise also, as per the treaty between India and Singapore, the commission paid is not chargeable in India as the Commission agent, M/s. De Long Mineral & Logistics Pvt. Ltd. did not have any permanent establishment in India. The AO was not satisfied and he disallowed both the commission paid to Mrs. Sita Ram Parodkar amounting to Rs. 45 lacs as well as the commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. amounting to Rs.22,19,528/-. When the matter went before the CIT(A), CIT(A) deleted both the disallowances by holding as under :
"4.4 Thus, it can be seen that the A.O. has made disallowance of commission in case of two parties, i.e. Mrs.Sita Parodkar and M/s De Long Minerals and Logistics Pte. Ltd. One is an Indian Resident, whereas the other is a Foreign party, not 4 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) assessed in India. As far as commission payment to Smt. Sita Ram Parodkar is concerned, the A.O., for the reasons mentioned in the assessment order, has cast aspersions on the genuineness of the transaction. The main reasons being that she is old, illiterate and has done only one transaction during entire year. The rate of commission paid is Rs. 1500 PMT which is too high according to the A.O. The A.O. also found that the date for agreement and date of billing for commission are also the same, i.e. 01.08.2009, which also created the doubt in the mind of the A.O. It is also not clear as to what services were rendered by Mrs. Sita Ram Parodkar. In view of these circumstances, the A.O. reached the conclusion that the transaction is not genuine and a colourable device to evade payment of taxes, by inflating expenses and reducing taxable income. The A.O. also placed reliance on the decisions in the case of CIT v/s Mc Dowell & Co. Ltd. (Kar) 291 ITR 107, CIT v/s Premier Breweries Ltd (Ker) 279 ITR 51, wherein it was held that the burden is on the assessee to prove that the expenditure was for business purposes. Similar view was expressed in the case of Schmider Electric India Ltd. Vs CIT (Del) 304 ITR 360.
On the other hand, during the course of appellate proceedings, the appellant stated that Mrs. Sita R. Parodkar resides in the mining area of Sanquelim and since the appellant needed the ore of a particular quality, she was the ore, who through her resources, identified the supplier, i.e. M/s Mayur Minerals. M/s Mayur Minerals also operates in Sanquelim. The appellant also stated that, though, Mrs. Sita Parodkar was working for the appellant for quite some time, its only after the sale- purchase deal was finalised, that the agreement was executed. Regarding services, the appellant stated that she not only identified M/s Mayur Minerals, but also organsied meeting of the two parties and ultimately the deal was finalised amicably. The learned AR pointed out that the observation of the A.O. that Mrs. Sita R. Parodkar provided services to the appellant in only one year, is factually incorrect, as she has provided services in subsequent years as well. The learned ARs stressed on the point that paying commission on purchases is a normal occurence in mining business and there is nothing unusual about this. The observation of the A.O. that the stamp paper was not purchased by Mrs. Sita R. Parodkar cannot be viewed adversely, as the same was purchased by her son who actively helped his mother in discharging her contractual obligation with the appellant. It was submitted that Mrs. Sita R. Parodkar worked as an agent of the appellant and received commission for her efforts.
In my opinion, for the following facts, the issue has to be allowed in favour of the appellant:
i) Mrs. Sita R. Parodkar resides in the same area of Sanquelim as M/s Mayur Minerals.
ii) Paying commission for purchases is a common practice in mining business.
iii) Mrs. Sita R. Parodkar is not related to the appellant.5 ITA NO. 66/PNJ/2014 &
CO NO. 22/PNJ/2014 (A.Y - 2010-11)
iv) Mrs. Sita Parodkar has filed Return of Income and has declared the receipt and declared total income amounting to Rs.33,20,060/- and paid taxes amounting to Rs.9,28,795/-
The A.O. drew a conclusion that this transaction of paying commission is an arrangement or a colourable device. The case laws relied upon by the A.O., especially CIT v/s McDowell, also direct that colourable devices be not allowed. But, in my opinion, such arrangements are done with a purpose, i.e. purpose of tax evasion. On the contrary, in the instant case, almost 80% of the gross commission receipt has been declared at total income and entire taxes of over Rs.9 lakhs has been paid. In view, of this fact alone, it can be concluded that there was no motive of tax evasion through this transaction and there has been no loss of revenue to the Income Tax Department.
In view of the above discussion, the A.O. is directed to delete the addition amounting to Rs.45,00,000/- with respect to the commission payment made to Mrs. Sita R. Parodkar.
4.5. Now, regarding payment made to M/s De Long Minerals and Logistics, Singapore, amounting to Rs.22,19,528/-, the A.O. made disallowance because TDS was not deducted. The A.O. held that since the services we,-rendered in India, therefore TDS provisions were applicable. The A.O. has also quoted from the DTAA between India and Singapore. The DTAA is silent about commission payment, but says that in such cases, the domestic laws of contracting Nation shall prevail. On the other hand, the appellant contended that M/s De Long Minerals and Logistics did not provide any services in India as they have absolutely no presence in India. No part of their income is assessed in India and therefore, the appellant is not liable to deduct TDS on commission payment made to M/s De Long. I am in agreement with the contention of the appellant, as decisions of the jurisdictional ITAT, Panaji is also in favour of the appellant on this issue. The A.O. is directed to delete the addition amounting to Rs.22,19,528/- made on this account. This Ground of Appeal of the appellant is allowed accordingly."
3. The ld. DR before us relied on the order of the AO and reiterated the points on the basis of which the commission paid to Mrs. Sita Ram Parodkar was disallowed. It was submitted that the AO had asked the Assessee to produce Mrs. Sita Ram Parodkar but he could not produce her as she cannot walk, is an illiterate and having sight problem. Her date of birth according to PAN is 1.1.1946. She was almost 63 years old when the transaction happened.
6 ITA NO. 66/PNJ/2014 &CO NO. 22/PNJ/2014 (A.Y - 2010-11) She is a housewife. She has not carried out any other transaction. Even the commission is normally paid when the party sells the product but it is a case where commission has been paid when the Assessee purchased iron ore from Mayur Minerals. Except for the agreement between the Assessee and Mrs. Sita Ram Parodkar, no evidence was furnished by the Assessee. The Assessee is not new in the business. He knows each and every place where iron ore is available. The Assessee has purchased from Mayur Minerals around 45714 MT of iron ore but commission has been paid in respect of 30000 MT @ Rs. 150. The onus is on the Assessee to prove the genuineness of the commission.
4. The Ld. AR on the other hand reiterated the submissions made before CIT(A) and vehemently contended that in the year 2009-10 when the transaction took place, Mrs. Sita Ram Parodkar was fit enough to walk. The Assessee as well as the seller of the iron ore met each other. Business of the broker is just to bring both the purchaser and seller together. Merely because a person is illiterate and puts her thumb impression does not mean that she does not have any contact to bring two business people together. The AO is not justified in stating that the commission is paid by the seller and not by the buyer. In real estate deals also whenever a buyer wants to buy a property he has to get property through broker and has to pay commission to the broker. Mrs. Sita Ram Parodkar is an income tax assessee. She entered into an agreement with the Assessee on a stamp paper which was brought by her own son and the agreement was read out by her daughter in law who accompanied her at the time of execution of the agreement. Due to the commercial expediency the Assessee has to find the seller as the Assessee has to buy the iron ore. After getting introduced the Assessee entered into transaction with M/s. Mayur Minerals and has not paid any commission subsequently to Mrs. Sita Ram Parodkar. The commission agent has not to be registered. The Assessee had duly paid and deducted TDS. Even Mrs. Sita Ram Parodkar has duly filed her return.
7 ITA NO. 66/PNJ/2014 &CO NO. 22/PNJ/2014 (A.Y - 2010-11) Reliance was placed on the decisions of the Hon'ble Bombay High Court in the case of Commissioner of Income-Tax V. Goodlass Nerolac Paints Ltd., 188 ITR 1 and Commissioner of Income-Tax V. Sigma Paints Ltd., 188 ITR 6.
5. We heard the rival submissions and carefully considered the same along with the order of the tax authorities below. So far as the Commission paid to Mrs. Sita Ram Parodkar is concerned, we noted that while disallowing the commission, the AO got impressed with the fact that since the receiver of the commission is a 63 years old illiterate lady, therefore, she could not have entered into the transaction and the rate of commission paid is too high. In our opinion, the main service which is being rendered by a commission agent is to bring two parties together. The parties so brought together may negotiate the terms and conditions for the deal being carried out themselves or can negotiate the terms and conditions through the commission agent. It is not necessary that the terms and conditions of the deal have to be negotiated through the commission agent. Once two genuine parties - one in need of buying the material and other in need of selling the material - are introduced by a commission agent, the services of the commission agent stands rendered. The parties may not like that the terms and conditions should be negotiated by the commission agent. It depends on both the parties. It is not a case where M/s. Mayur Minerals has denied that it was not got introduced through Mrs. Sita Ram Parodkar to the Assessee. One Mrs. Sita Ram Parodkar, who may be illiterate, got introduced M/s. Mayur Minerals with the Assessee, in our opinion, if the Assessee is satisfied her job is over. CIT(A), in our opinion, has rightly dealt with this issue and deleted the disallowance. We, therefore, confirm the order of CIT(A) on this issue.
6. Ground no. 3 relates to deletion of the disallowance in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. The AO 8 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) disallowed the commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. amounting to Rs. 22,19,528/- because the Assessee has not deducted TDS. The AO was of the opinion that M/s. De Long Mineral & Logistics Pvt. Ltd. has rendered services in India and therefore TDS provisions were applicable. When the matter went before CIT(A), CIT(A) deleted the disallowance.
7. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that no disallowance has been made by the AO in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. on the basis of genuineness of the expenditure incurred by the Assessee. The disallowance has been made by the AO in view of the fact that the Assessee has not deducted TDS as per the provisions of Sec.
195. We noted that the CIT(A) held that sales commission paid by the Assessee is not chargeable to tax in India as services were rendered outside India by a non-resident and therefore provisions of Sec. 195 have no application so as to disallow the commission payment u/s 40(a)(i) of the Income Tax Act. Before us, the ld. AR vehemently contended that since commission paid by the Assessee to a non-resident was not taxable in India, therefore, no TDS has been deducted. The commission agent does not have any permanent establishment in India and for this the ld. AR drew our attention towards the tax treaty between India and Singapore. It is a well settled law in view of the decision of the Hon'ble Supreme Court in the case of GE India Technology Pvt. Ltd. vs. CIT, 327 ITR 456 that u/s 195 of the Income Tax Act no obligation to deduct tax at source arise when such remittance is a sum not chargeable to Income Tax Act. We have gone through the treaty entered into between India and Singapore. We noted that as per Article 7 the profits of an enterprise of the contracting states shall be taxable only in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business through permanent establishment, the profits 9 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) of the enterprise may be taxed in the other state but only so much of them as is directly or indirectly attributable to that permanent establishment. M/s. De Long Mineral & Logistics Pvt. Ltd. does not have permanent establishment in India. Even no material has been brought on record by the Revenue which may prove that M/s. De Long Mineral & Logistics Pvt. Ltd. has permanent establishment in India. The commission earned by M/s. De Long Mineral & Logistics Pvt. Ltd. has to be regarded as business profit of M/s. De Long Mineral & Logistics Pvt. Ltd. and therefore, in our opinion, Article 7 of the DTAA entered into between India and Singapore will not be applicable. Once M/s. De Long Mineral & Logistics Pvt. Ltd. does not have permanent establishment, the business profit earned by M/s. De Long Mineral & Logistics Pvt. Ltd. by way of commission are not chargeable to tax in India and therefore, the Assessee, in our opinion, was not under obligation to deduct tax at source as per provisions of Sec. 195. We, therefore, do not find any illegality or infirmity in the order of CIT(A) deleting the disallowance made by the AO in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. Thus, ground no. 3 stands dismissed.
8. Ground no. 4 of the appeal as well as ground no. 1 of the C.O relate to the deletion of disallowance made on account of hire charges. The brief facts relating to these grounds are that the AO noted that the Assessee has incurred a sum of Rs. 58,86,433/- on transportation charges out of which Rs.42,19,933/- were incurred in cash. The Assessee submitted the details. The expenses so incurred ranges from Rs. 10,000/- to Rs. 19,500/-. The expenses have been incurred through voucher. Except for the truck numbers, identities of the persons were not mentioned. When questioned, the Assessee explained that they have paid to the truck owners on trip basis. The AO noted from the ledger of the Assessee that the narration contains "being paid towards transportation of ore from Jalna to Redi". Jalna is in Maharashtra while Redi is in Goa. The 10 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) AO noted that the Assessee purchased ore from only two parties from Maharashtra - M/s. Welspun Maxsteel Ltd., Dist. Raigad (740.53 MT) and M/s. Ispat Industries Ltd., Dist. Raigad (12869.8 MT) but the Assessee has shown payment towards transportation charges amounting to Rs. 42,19,933/- as cash payment for transportation of ore from Jalna to Redi. It was also noted by the AO that most of the trucks are having Goa registration. Only few trucks have Maharashtra registration. The distance between Jalna and Redi is around 652 Kms. Therefore, the AO was of the opinion that uniform payment should have been made to each truck while the payment made by the Assessee varies from Rs. 10,000/- to Rs. 19,500/-. The AO took the view that the expenses were not genuine and therefore he disallowed 50% of the cash payment of Rs. 42,19,933/- i.e. Rs. 21,09,966/-. The Assessee went in appeal before the CIT(A). CIT(A) deleted the disallowance.
9. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the AO disallowed 50% of the cash expenses incurred by the Assessee on the transportation. It is not a case in which the AO disallowed the expenditure by invoking provisions of Sec. 40(a)(i). The Assessee has submitted the details as well as voucher for the incurrence of the expenditure with the truck numbers. The name of the parties or bill of transporter may not be there. This is a fact that the truckers deliver the goods when they receive the payment. The AO instead of pointing out any specific expenditure which has not been genuinely incurred disallowed 50% of the expenses just on estimate basis. In our opinion, treating 50% of the expenses to be genuine and 50% of the expenses to be non- genuine is not proper basis. CIT(A) reduced the disallowance to 20% of such transportation expenses. We do agree that the onus is on the Assessee once the Assessee claims that he has incurred the expense to prove the genuineness of the expense so incurred. The Assessee in this case has shown the payment of 11 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) the transportation charges for transporting iron ore from Jalna to Redi. The payment made by the Assessee to each of the truck in respect of transportation ranges from Rs. 10,000/- to Rs. 19,500/-. We do agree that it may be due to the quantity of iron ore transported but, in our opinion, the difference cannot be too much. The Assessee even though has given the details and self-made vouchers but could not give the calculation of how much iron ore has been transported by each truck. Under these facts and circumstances, in our opinion, CIT(A) was fair enough to reduce the disallowance to 20% of the expenses and confirm the disallowance to the extent of Rs. 8,43,986/-. In our opinion, this is not a fit case which warrants our interference. We accordingly confirm the order of CIT(A) and dismiss ground no. 4 taken by the Revenue as well as ground no. 1 taken by the Assessee in its Cross objection.
10. Ground no. 5 in Revenue's appeal relates to deletion of disallowance of Rs. 10 lacs incurred on screening and crushing charges. The brief facts relating to this ground are that the AO noted that the Assessee has paid a sum of Rs. 20 lacs to M/s. Karishma Impex, a sister concern of the Assessee towards crushing and screening expenses. Similarly, the Assessee has debited an amount of Rs.10,54,000/- as labour charges for screening and blending. The journal entries were passed on 31.2.2010 in the books of the Assessee. M/s. Karishma Impex has not rendered crushing and screening services to any other third party. The Assessee in reply submitted that they used the plant and machinery of M/s. Karishma Impex to carry out crushing and screening of ROM of M/s. Mayur Minerals and the bill was raised by M/s. Karishma Impex on 31.3.2010 and therefore the entry was passed on that date. The Assessee has purchased ROM from M/s. Mayur Minerals totaling 45000 MT. The AO further noted that the Assessee has purchased ROM from other parties also but Assessee has blended and screened only 20000 MT of iron ore purchased from M/s. Mayur Minerals. The Assessee is an exporter. A single shipment contains 50000 MT of iron ore.
12 ITA NO. 66/PNJ/2014 &CO NO. 22/PNJ/2014 (A.Y - 2010-11) Therefore, all the iron ore exported should be of uniform quality. Why the Assessee would have crushed and screened only 20000 MT ? The AO also noted that as per the agreement executed on 1.8.2009 between the Assessee and M/s. Mayur Minerals, the Assessee purchased from M/s. Mayur Minerals fines and crushing is not required for fines. At the most, it can go for screening only. The bill also does not mention service tax payable by the Assessee. The AO was of the view that this is merely an adjustment with the sister concern even though he allowed 50% of the crushing and screening charges and disallowed 50% of the same. The Assessee went in appeal before the CIT(A). Before the CIT(A) the Assessee submitted that although the agreement with M/s. Mayur Minerals was for fines, same was not in accordance with the requirement of the export order e.g. if the size is 20 mm and the export order is for 10 mm, then, although 20 mm is termed as fines, still it would require crushing and screening to arrive at 10 mm and for this the Assessee has to obtain the services of M/s. Karishma Impex to meet the export commitment. M/s. Mayur Minerals has delivered only 55% fines and ROM. This proves that what was received from M/s. Mayur Minerals was ROM also and therefore it was crushed. It was stated that M/s. Karishma Impex has charged at the same rate to M/s. Karishma Exports towards crushing and screening charges and the sum paid by the Appellant is reasonable. If the payment would not have been genuine, the AO would not have allowed 50% of the expenditure. CIT(A), therefore, deleted the disallowance.
11. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that in this case the AO has not invoked the provisions of Sec. 40A(2). It is a case where the AO himself has accepted the genuineness of the expenditure incurred by the Assessee and that is why the AO has allowed 50% of the expenditure incurred by the Assessee on crushing. In our opinion, the AO cannot enter into the shoes 13 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) of the businessman and decide at what rate the Assessee should pay the charges to the party from which the Assessee has got the job work done until and unless the case of the Assessee falls within the provisions of Sec. 40A(2). The AO, we noted, in this case has not invoked the provisions of Sec. 40A(2). Even in case the provisions of Sec. 40A(2) are applied, the AO has to prove that the Assessee has made payment for services charges at a rate which is more than the market rate. That is not the case of the Revenue. The AO treated 50% of the expenditure to be bogus on the presumption that no crushing was required as what the Assessee brought from M/s. Mayur Minerals is fines and does not require further crushing. CIT(A), we noted, has appreciated the facts of the case and found that disallowance has been made merely on assumption and presumption and therefore deleted the disallowance of Rs. 10 lacs. We do not find any illegality or infirmity in the order of CIT(A) in deleting the disallowance. We, therefore, dismiss the ground no. 5 of Revenue's appeal.
12. Ground no. 6 in Revenue's appeal and ground no. 2 in the C.O relate to the deletion of the addition on account of disallowance of the labour charges. The brief facts relating to this ground are that the AO noted that the Assessee has debited to M/s. Karishma Minerals, a sister concern, sum of Rs. 10,54,000/- as labour charges for screening and blending. It was noted that this expenditure was incurred through cash. The Assessee was asked to submit the ledger account of crushing and screening. The labour expenses were paid either Rs.18,500/- or Rs. 19,500/- which were started by the Assessee on 3.12.2009 and were paid till 25.3.2010. The AO was of the opinion that crushing and screening are activities which are done using machinery and no labour is required. Therefore, he disallowed 50% of the labour cost. When the matter went before the CIT(A), before the CIT(A) the Assessee contended that the AO accepted 50% of the payment itself proves that the Assessee has availed the services of the labourers and if 50% of the expenses are genuine, the balance 14 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) cannot be non-genuine. It is not a case of applicability of the provisions of Sec. 40A(2) or 40A(3). The exports are made post monsoon and therefore the labour charges are to be paid from 3rd December to 31st March. CIT(A) restricted the disallowance to 20% of the total claim of the expenses amounting to Rs.2,10,800/-.
13. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the CIT(A) has given a finding of fact that the labour expenses have been incurred through self- made vouchers and there are not supporting bills. Even the expenses have been paid at Rs. 18,500/- or Rs. 19,500/- per day in cash. The onus is on the Assessee to prove the genuineness of the expenses incurred. The ld. AR did not controvert the finding that the expenses are through self-made vouchers and accepted that there is no supporting evidence available. Under these facts and circumstances, in our opinion, there is no infirmity in the order of the CIT(A). CIT(A) has given a finding of fact. We accordingly confirm the order of CIT(A). Thus, ground no. 6 in Revenue's appeal as well as ground no. 2 in the C.O both stand dismissed.
14. Ground no. 7 in Revenue's appeal and ground no. 3 in the C.O relate to cash payment made for the purchase of iron ore. The AO noted that the Assessee has shown cash purchased of iron ore amounting to Rs.25,84,501/- on the basis of the details furnished by the AO. The name of the parties from whom the cash purchases were made was not supplied by the Assessee. All the purchasers were through self-made vouchers. In the absence of the identity being proved, the AO disallowed sum of Rs.25,84,501/-. When the matter went before the CIT(A), CIT(A) reduced the disallowance to 20%.
15 ITA NO. 66/PNJ/2014 &CO NO. 22/PNJ/2014 (A.Y - 2010-11)
15. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the Assessee has made purchases for the iron ore in cash but all the purchases are shown with self-made vouchers. Even when the AO asked for, the Assessee could not produce the cash memo but since the AO accepted the quantitative statement showing the opening stock, purchases, consumption as well as the closing stock, therefore, in our opinion, without making the purchases the Assessee cannot consume the iron ore. We, therefore, delete the disallowance. In the result, ground no. 7 of Revenue's appeal stands dismissed while ground no. 3 in the Assessee's C.O stands allowed.
16. Ground no. 8 in Revenue's appeal relates to deletion of the addition on account of payment of demurrage without deducting TDS. The brief facts relating to this ground are that the AO noted that the Assessee has paid demurrage amounting to Rs. 79,68,853/- to various parties relating to Hongkong, Dubai, British origin island countries with whom India does not have DTAA without deducting tax at source. The AO, therefore, disallowed the said expenditure by applying provisions of Sec. 40(a)(i) as, in his opinion, the Assessee was bound to deduct TDS. When the matter went before the CIT(A), CIT(A) deleted the disallowance.
17. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. In our opinion, the issue is duly covered by the decision of the jurisdiction High Court in the case of CIT vs. Orient Goa Co. P. Ltd., 325 ITR 554 (Bom) wherein the Hon'ble Bombay High Court has held as under :
"7. We have given anxious consideration to the submission of the learned Senior Counsel. On reading of the entire judgment of the learned Single Bench, it is not possible for us to countenance the submission of the learned Senior 16 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) Advocate that the ratio of the Judgment is applicable to the facts of the case on hand. In our view, this Judgment does not help the present respondent, i.e., the assessee.
Another Judgment relied on by the learned Senior Advocate Mr. Usgaonkar for the respondent-assessee is in the matter of CBDT v. Chowgule & Co. Ltd. [1991] 192 ITR 40 (Kar.). There the learned Division Bench observed that "The question for consideration is whether demurrage payable to a non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the Income-tax Act". We have seen the facts obtaining in that case. In our view, the facts are distinguishable. The ratio of this Judgment also does not help the present assessee, i.e., the respondent in this appeal. We have noticed the various dates in the cited judgment. We have also considered the definition of word "demurrage" to which our attention was invited by learned Senior Advocate Shri Usgaonkar. Learned Senior Advocate also invited our attention to dictionary meaning of the word "demurrage" (Black's Law Dictionary).
8. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as "Liability in special cases". We have no concern with sections, starting from section 159, till section 171 from this Chapter XV. Section 172 comes under sub- title "H.-Profits of non-residents from occasional shipping business". Title of section 172 is "Shipping business of non-residents." For bringing a case under Chapter XV- H of the Act 1961, one has to establish a case of profits of non- residents from occasional shipping business. "Non-resident" is defined under section 2(30), as a person who is not a "resident" and for the purpose of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6. The respondent-assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is fairly an admitted position. The assessee cannot be said to be non-resident. We have also taken notice of section 6, i.e., "Residence in India". In short, respondent-assessee cannot be said to be non-resident. The present appeal pertains to the respondent- assessee. In our view, in the facts of the present case, the respondent-assessee cannot lay fingers on section 172, since we are not dealing with profits of non- residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent-assessee has earned some profit from occasional shipping and is a non-resident. In our view, section 172 does not have application in relation to the respondent-assessee and in the facts and circumstances of the present case. The company from Japan viz., Mitsui & Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company, i.e., Mitsui & Co. Ltd., Japan. On our query to the learned Senior Advocate Shri Usgaonkar as to material on record for occasional shipping, part of para 3 from 17 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) the Judgment of the learned Commissioner of Income-tax has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. " 3. We have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of Rs. 1,08,53,980 being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The Assessing Officer opined that since the assessee did not deduct tax at source, as such the case of the assessee falls within the mischief of section 40(a)( i) of the Income-tax Act, 1961". Provisions of section 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of sections 194C and 195 relating to tax deduction at source, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of section 172. In this view, these observations of the learned Vice President of Income-tax Appellate Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of section 172 or section 195. Crucial point is as to how section 172 applies to the facts of the present case wherein the respondent-assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the ITAT has recorded a perverse observation/finding in para 3 regarding application of sections 44B and 172 of the 1961 Act.
9. We may notice that the Judgment of the learned Appellate Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned appellate Tribunal seems to have referred to the Circular of CBDT No. 723, dated 19-9-1995.
10. We have considered the submission of the learned Counsel appearing for the parties pertaining to the Circular No. 723, dated 19-9-1995 by CBDT (Annexure "C"). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems to have been issued by the CBDT, clarifying the scope of sections 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the Circular and submits that section 172 operates in the area of computation of profits from shipping business of non-residents and there is no overlapping in the areas of operation of these sections. Learned Senior Advocate Shri Usgaonkar, appearing on behalf of the respondent-assessee, also drew our attention to the Judgment of the Hon'ble Supreme Court in the matter of Commissioner of Sales Tax v. Indra Industries [2001] 248 ITR 338. It is a three Bench Judgment of the Hon'ble Supreme Court. It has been held by the Hon'ble Supreme Court that the circulars issued by Commissioner of Sales Tax not binding on assessee or Court, 18 ITA NO. 66/PNJ/2014 & CO NO. 22/PNJ/2014 (A.Y - 2010-11) however, binding on the Department. In the case on hand, in our view, learned Commissioner of Income-tax (Appeals) and the learned appellate Tribunal have wrongly interpreted the Circular dated 19-9-1995 issued by the CBDT. This circular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the respondent-assessee. The learned Assessing Officer, in fact, has passed a legal, proper and reasoned order, holding that the provisions laid down under section 40(a)( i) of the 1961 Act apply to the case on hand.
11. We may notice here the Judgment of the Hon'ble Supreme Court in the matter of Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307. This judgment seems to be the basic judgment which is being referred to by the learned Single Bench of the Karnataka High Court. In that case, Gosalia Shipping (P.) Ltd., a company incorporated under the provisions of the Indian Companies Act, 1956 indulged at the relevant time in business of clearing and forwarding and as steamship agents. Gosalia Shipping (P.) Ltd., had acted as the shipping agent of "Aluminium Company of Canada Limited" which was a non- resident company. That non-resident company had chartered a ship "M.V. Sparto" belonging to a non-resident company called Sparto Compania Naviera of Panama. The said ship called at the port of Betul, Goa on 1-3-1970. On 20-3- 1970, the ship had left for Canada. The ship was allowed to leave port of Betul on the basis of guarantee bond, executed by the respondent in favour of the President of India. On 15-4-1970, the First Income-tax Officer, Margao, Goa issued a Demand Notice to the respondent Gosalia Shipping (P.) Ltd. for payment of Rs. 51,000 and odd amount, by way of Income-tax. We have noticed all these facts only to say that in the case on hand, there are no pleadings or material brought on record to show that the case is governed by occasional shipping within the meaning of section 172 of the Act, 1961 and said section applies.
12. Having considered the submissions of the learned Counsel appearing for the parties, in our view, the facts of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of which we have taken in the matter, the appeal deserves to be allowed by quashing and setting aside the Order passed by the learned Commissioner of Income-Tax (Appeals) dated 28-8-2002 and the Order passed by the Income-tax Appellate Tribunal, Panaji dated 2-12-2004. The same are, accordingly, quashed and set aside and the Order passed by the Assessing Officer stands upheld. Appeal is, accordingly, allowed and disposed of with no order as to costs."
Respectfully following the aforesaid decision of the Hon'ble Jurisdiction High court we set aside the order of the CIT(A) and restore the order of the AO.
19 ITA NO. 66/PNJ/2014 &CO NO. 22/PNJ/2014 (A.Y - 2010-11)
18. In the result, both the appeal filed by the Revenue as well as the Cross objection filed by the Assessee are partly allowed.
19. Order pronounced in the open court on 16/03/2015.
Sd/- Sd/-
(D.T.Garasia) (P.K. Bansal)
Judicial Member Accountant Member
Place : PANAJI / GOA
Dated : 16/03/2015
*SSL*
Copy to :
(1) Appellant
(2) Respondent
(3) CIT, Panaji
(4) CIT(A), Panaji
(5) D.R
(6) Guard file
True copy,
By order