Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Sathyadeep Engineering Co. Ltd., ... on 6 March, 2018
1 ITA No. 5923/Del/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'G' NEW DELHI
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
AND
SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No. 5923/DEL/2014 ( A.Y 2010-11)
DCIT Vs Sathyadeep Engineering Co. Ltd.
Circle-7(1) Flat No. 13, Site No. 37 & 38, LSC,
New Delhi Kalkaji
New Delhi
AAFCS577J
(APPELLANT) (RESPONDENT)
Appellant by Sh. S. Kaushlendra Tiwari,
Sr. DR
Respondent by Sh. Y. P. Kapur, Adv
Date of Hearing 05.03.2018
Date of Pronouncement 06.03.2018
ORDER
PER SUCHITRA KAMBLE This appeal has been filed by the Revenue against the order dated 08/08/2014 passed by CIT(A)-X, New Delhi for Assessment Year 2010-11.
2. The grounds of appeal are as under:-
1. The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs.53,46,151/- made by the A.O u/s40(a) (ia) of Income Tax Act, 1961.
2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.73,81,506/- made by the A.O on account of rejection of trading results.
3. The assessee company was engaged in the business of manufacturing and export of Wire Welded or Mesh Plants besides sales in the country. Return 2 ITA No. 5923/Del/2014 of income was filed on 29/4/2011 declaring in income of Rs.93,78,160/-. The assessment u/s 143(3) was completed at an income of Rs.2,21,05,817/-after making the following disallowances (i) commission expenses disallowed u/s 40(a) (i) Rs.53,46,151/- (ii) Rejection of trading results u/s145(2) of the Act.
Rs.73, 81,506/-
4. Aggrieved by the assessment order the assessee filed appeal before the CIT (A). The CIT (A) allowed the appeal of the assessee.
5. The Ld. DR submitted that the CIT (A) erred in deleting the addition of Rs.53,46,151/- made by the Assessing Officer u/s 40(a) (ia). The Ld. DR submitted that in the absence of proper stock register, the log book, job cards or even the details of consumption of principal items in a machinery produced, the consumption of raw material was not verifiable at the stage of assessment proceedings. The Ld. DR further submitted that by simply producing the books of account and purchase bills, the assessee cannot discharge its onus that all is well with its accounting and that all the material as per the purchase bill was utilized by it or that it substantiate its trading results. The Ld. DR further submits that the assessee has not given proper details and therefore, the Assessing Officer has rightly made an addition of Rs.73, 81,506/- on account of rejection of trading results. The Ld. DR relied upon the order of the Assessing Officer.
6. The Ld. AR submitted that the CIT (A) has given a detailed finding in Para 5.1 and 6.1. As relates to Ground No. 1 the Ld. AR submitted that foreign agents do not have any permanent establishment in India and hence no part of commission payable for procuring export order is payable in India and therefore, not taxable in India. The Ld. AR submitted that the payment was made directly outside India, it was not made in India, neither the commission paid to foreign agents accrue or arise in India. Thus, the CIT(A) has rightly deleted the addition of expenses made by the Assessing Officer u/s 40(a)(i) of 3 ITA No. 5923/Del/2014 the Act. The Ld. AR relied upon various case laws wherein it is held that the commission income of a non-resident for rendering services outside India does not fall within the scope of assessee's total income, and the same is not chargeable to tax in assessee's hand. Thus, there is no obligation of the assessee-payer to deduct tax at source on such commission payment to the non-resident. As relates to Ground No. 2, the Ld. AR submitted that since Assessing Officer has not pointed out any defect whatsoever in the books of accounts produced before him and examine by him. On the one hand, the book over which trading accounts were accepted in toto by Assessing Officer and addition in the GP was made merely on the basis of maintenance of stock register, log books and job cards.
7. We have heard both the parties and perused the material available on record. As relates to Ground No. 1 of the appeal, the Assessing Officer ignored the fact that there is no permanent establishment of the agents in India. The perusal of activities undertaken by the foreign agents shows that these are relating to facilitating the sales of the assessee company and the services are not falling under the category of the technical services. It's a clear case of commission paid to the foreign agents for improving the sales. The reliance of the Hon'ble Delhi High Court decision in case of DIT Vs. Panalfa Autoelektrik Ltd. (2014) 49 taxmann.com 412 is relevant in the present case wherein it is held that commission paid by the assessee to its foreign agent for arranging export sales and recovery of payment could not be regarded as fee for technical services. The second limb of the submissions of the assessee that there is no obligation of the assessee-payer to deduct tax at source on such commission payment to the non-resident is supported by the ITAT decision in case of Welspring Universal vs. JCIT (2015) 56 taxmann.com 174. The CIT(A) has taken into account all the factors and has given detailed reasoning. There is no need to interfere with the same. Thus, ground No. 1 of the Revenues' appeal is dismissed.
4 ITA No. 5923/Del/20148. As regards Ground No. 2, it is pertinent to note that the Assessing Officer while rejecting the books of accounts has not given as to what defect was there in the books of accounts. The CIT (A) has given a detailed finding in paragraph 6.1 which is as follows:-
"6.1 The facts of the case and written submissions of the appellant are carefully considered. The grounds of appeal taken by the appellant are being adjudicated in the following paragraphs:
Grounds No.6,7 & 8 are against the addition of Rs.73,81,506/- made by the A.O. in the trading results declared by the appellant after invoking the provisions of section 145(3) of the Act. It was observed by ' the A.O. that the consumption of raw material during the year under reference was at Rs.8,11,16,226/- on a total sales of Rs.12,11,85,709/- which was 66.9% as against the consumption of raw material of Rs.2,44,08,426/- on a total turnover of Rs.4,22,19,367/- in the immediately preceding year which is 57.8%. It was observed by the A.O. that the appellant was not maintaining stock register, log book, job card or even the details of consumption of principal items in a machine produced and, therefore, in the consumption of raw material, according to the A.O. was not verifiable.
Mere production of books of accounts and purchase bills were not found sufficient by the A.O. in respect of discharging its onus, so far as the utilization of material as per the purchase bills was concerned, therefore, by invoking the provisions of section 145(3) of the Act and rejecting the trading results, the A.O. made an addition of Rs.73,81,576/- being 9.1% of the consumption of Rs.8,11,16,226/- during the year. The figure of 9.1% was taken by the A.O. being the excess consumption (66.9% against 57.8%) shown by the appellant during the year as compared to the immediately preceding year. The appellant has made the lengthy submissions which are summarized as under:
(i) The sales / turnover of the appellant had increased by 2.87 times (export turnover increased by 3.7 times).
(ii) There was a marginal increase of 0.8% in GP rate as compared to previous year's GP which had resulted into substantial increase in the volume of gross profit by a sum of Rs.181.20 lakhs during the year as compared to immediately preceding year.
(iii) The appellant did not manufacture tailor-made items during the year especially when in the export sales, goods are being manufactured as per design and specification provided by the buyers of the exported 5 ITA No. 5923/Del/2014 orders. Thus, the consumption of raw material varies from order to order due to design of the machines required by the buyers. As such, the consumption of raw material is not comparable when orders are of different design and specification especially in respect of export sales.
(iv) The sales declared by the appellant had been accepted by the Sales Tax Authorities on the basis of same sets of books of accounts which were produced before the A.O.
(v) Admittedly the appellant was not maintaining stock register, log book, job cards because of its limitation in manufacturing the items but other books of accounts, purchase and sale vouchers and vouchers for other expenses were maintained by it in its usual course of business and the same were subjected to audit. The Central Government had not laid down any guidance in respect of the books of accounts, type of stock records, past records are to be maintained by the companies like the appellant where different types of machineries are manufactured.
(vi) The A.O. has not pointed out any defect whatsoever in the books of accounts produced before him and examined by him but merely on the basis of non maintenance of stock register, log book and job cards, the provisions of section 145(3) of the Act are invoked. Thus, on the one hand the book version of trading accounts were accepted in toto by the A.O., addition in the GP has been made merely on the basis of no maintenance of stock register, log book and job cards.
(vii) The A.O. has not pointed out that on the basis of books of accounts maintained by the appellant, the correct profit cannot be deduced although such books of accounts are consistently maintained and the trading results were regularly being accepted by the authorities in the past.
The appellant has relied upon the decisions of various Courts including the Jurisdictional High Court of Delhi in the case of CIT v. Poonam Rani (2010) 326 ITRT 223 (Del).
On considering the facts of the case it is observed that admittedly there was an increase in the consumption of raw material from 57.8% to 66.9%. However, since the appellant was not manufacturing tailor-made machines and its design and specification were based upon the requirement of the buyers (majority them being the foreign buyers), the inference drawn by the A.O. that the consumption of raw material should have been constant is not supported with a sound logic. The A.O. has lost sight of the fact that the turnover of the appellant company has increased multifold and by this logic also consumption of raw material should definitely increase. It is disheartening to notice that the A.O. has not gone 6 ITA No. 5923/Del/2014 through the fact that the resultant GP rate had increased as compared to immediately preceding year despite increase in the consumption of raw material. It is noticed that while GP ratio in AY 2009- 10 was 21.73% it had increased to 22.52% (increased by 0.79%) during the year under consideration. Had there been any decrease or loss resultant to the increase of consumption, it would have been an indication before the A.O. that the appellant's case required deeper scrutiny for searching the causes of such decline. However, since the appellant was consistently maintaining the books of accounts, purchase vouchers, expenditure vouchers etc. and its results were being accepted, there was little doubt about the results reflected in the regular books of accounts unless the A.O. was in a position to find out any defects in such books of accounts, the appellant has amply clarified that it was not practically possible for him to maintain the item wise consumption records and stock register and at the same time the appellant's argument has forced that maintaining such records was not statutory obligation on the part of the appellant has no such rules have been prescribed for such manufacturing / trading activity. There are plethora decisions of Hon'ble Courts that merely non- maintenance of stock records itself cannot be a ground for rejection of accounts unless and until some positive material is detected by the A.O. against the correctness of their accounts. In the instant case, the A.O. failed to bring out any positive material on record from the books of accounts against their correctness and, therefore, the rejection of trading results merely on account of non-maintenance of stock register is not justified in view of the decision of Jurisdictional High Court as relied upon by the appellant. The addition of Rs.73,81,506/- made by the A.O. is not justified and the same is directed to be deleted. Grounds No.6,7 & 8 of appeal are allowed."
The CIT(A) has given a detailed finding and there is no need to interfere with the same. Hence, the appeal of the Revenue is dismissed.
9. In result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 06th MARCH, 2018.
Sd/- Sd/-
(PRASHANT MAHARISHI) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 06/03/2018
Copy forwarded to:
7 ITA No. 5923/Del/2014
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date
1. Draft dictated on 06/03/2018 PS
2. Draft placed before author 06/03/2018 PS
3. Draft proposed & placed before .2017 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the PS/PS
Sr.PS/PS 06.03.2018
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 06.03.2018 PS
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.