AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 119
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.... three grounds of appeal, but its grievance revolves around a single issue, viz. the ld.CIT(A) has erred in law and on facts in deleting the disallowances of Rs. 5,21,79,627/- claimed by the assessee under section 80IA of the Income Tax Act, 1961. 3. Brief facts of the case are that the assessee-company at the relevant time was engaged in the business of agro processing and agro based products. It has filed its return of income on 30.9.2011 declaring total income at Rs. 80,78,56,590/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. The AO has issued a show cause notice inviting explanation of the assessee as to why revised claim for determination under section 80IA should not be disallowed. The assessee contended that in the original return it has claimed deduction under section 80IA at Rs. 2,18,33,004/-. In response to the show cause, the assessee has filed written submissions, wherein it has complied details in a tabular form exhibiting as to how it has claimed deduction under sectin80IA. Such details read as under: SN Nature of Changes Amount Amount Remark 1 ....
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....80IA. In other words, the case of the assessee is that loss of year starting from initial assessment year alone to be considered for set off against the eligible profit and loss, if any, incurred in the prior year to "initial assessment year" must be ignored. For this proposition, judgment of Hon'ble Madras High Court in the case of CIT Vs. Velayudhaswamy Spinning Mills P.Ltd., 340 ITR 477 (Mad) was relied upon. The ld.CIT(A) has accepted the claim of the assessee and held that unabsorbed depreciation or loss of the years prior to initial assessment year are not required to be set off against the eligible profits and thus the assessee is entitled for deduction under section 80IA on the enhanced amount. 6. Against this decision of the ld.CIT(A), Revenue is in appeal. The ld.DR relied upon the order of the ld.AO. On the other hand, the ld.counsel for the assessee contended that accepting the proposition that unabsorbed depreciation or loss prior to the initial assessment year not to be set off with the eligible profit in the initial assessment year or thereafter and deduction has to be granted independently. The ld.AO has accepted this proposition in the Asstt.Year 2012-13. The ld....
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....he deduction under section 80IA. It is also pertinent to note that in the assessment years 2012-13 and 2013-14, the stand of the assessee that loss of earlier years i.e. prior to selection of initial assessment year are required to be ignored for the purpose of section 80IA. At this stage, we deem it appropriate to take note of following finding from the judgment of Hon'ble Madras High Court which reads as under: ".....From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of ....
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.... to the query of the AO, the assessee filed a detailed written submissions which was identically submitted before the ld.CIT(A), and we will be going to take note of the submission in the subsequent part. The AO has gone through the submissions of the assessee and rejected the same for two reasons. In the first fold of reasoning, he observed that the assessee has not provided the identity and the evidence of services rendered by foreign commission agent for which the commission was paid. In this regard, he observed that no copy of agreement or documentary evidence in support of commission payment etc. was given by the assessee. In the second fold of reasoning, he observed that the assessee failed to deduct TDS on this amount, and therefore, it is not entitled for deduction under section 40(a)(ia) of the Act. Similar action was taken with regard to commission paid at Rs. 1,51,52,353/- in the Asstt.Year 2013-14. 12. Dissatisfied with the finding of the AO, the assessee carried the matter before the ld.CIT(A). It has filed detailed written submissions which has been reproduced by the CIT(A). For appreciating the facts and the stand of the assessee, we also deem it appropriate to ta....
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....called for by your goodself detailed chart containing name & address of broker, name & country of buyer to whom export was made, item exported, billed quantity, export value in USD and realization in INR with brokerage in USD and brokerage in INR amounting to Rs. 156,17,547/- furnished Exb-1. 5. Along with above chart, broker wise payment evidences along with bank payment details, company payment advice, Form no. 15CA and 15CB, debit note from overseas broker / commission agent, invoice for export by company with commission contract and export contract furnished as evidences for justification of commission to overseas brokers / commission agents and genuineness of the payments through banking channel and certificates for non-deduction of tax as the same is not applicable (Form no. 15CB) [Annexure 1 to 23]. In view of the above, it is submitted that the payments of commission to overseas brokers / commission agents is part of export of products and an important mediatory channel to book our export orders as well as to take care of realization of export proceeds. Thus, the commission to overseas brokers / commission agents is genuine and paid through banking channel....
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....mit that the commission payment to overseas brokers / commission agents is not falling either of the two conditions of section 5(2): (i) The payments are made to overseas brokers / commission agents in their countries through banking channel i.e. the payment is received by them in foreign country. (ii) The commission accrues / arises in foreign countries as the commission is payable only when the Indian company receives payment of export sales. Such realization of export proceeds are released by foreign importer and at this juncture the activity of overseas brokers / commission agents come to an end, as the export payment is made by foreign bank from foreign country and at the same time the commission accrue or arise in foreign country to the overseas brokers / commission agents, if the payment does not realize, there will be no commission at all payable to such non-resident commission agents. 4. As per provisions of section 9(1 )(i) of the IT Act. Income deemed to accrue or arise in India, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of i....
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....re any deduction of tax or tax withholding. However, the company has taken certificate in Form no 15CB from Chartered Accountants, which also states that no TDS is require on payment of commission to the nonresident commission agents. 6. It is further submitted that as per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such non-resident commission agents are provided in letter dated 18-02-2015. In view of the above facts of the case and legal submission examining the applicability of various provisions of the IT Act, it is submitted that the payments of commission to overseas -brokers / commission agents made overseas are not liable to TDS /tax withholding as per provisions of section 195 of the IT Act." 8.4 In this regard, in the appellate proceedings, the appellant company on the issue of commission payment on export sale to non-residents, subm....
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....arise in India in the light of above Explanations to the provisions of section 9(1 )(i) of the Act. (vi) The commission payment to overseas brokers /commission agents does not accrue or arise or deemed to accrue or arise in India as they had rendered services outside India and commission was also paid to them outside India. Thus, the assessee company was no whereunder obligation to deduct tax from such commission payments to overseas brokers A commission agents as per provisions of section 195 of the IT Act. (vii) As per Double Taxation Avoidance Agreement (DTAA) with the countries where the non-resident commission agents resides, in Article 7: Business income, states that the income from business is liable to be taxed in the country where the person is having permanent establishment. None of the non-resident commission agents are having any PE in India, complete addresses of such non-resident commission agents are provided in above details. (viii) An analysis of commission to non-residents for the FY 2008-09, FY 2009-10, FY 2010-11 and FY 2011-12 furnished (Pg. no. 395 to 397), which shows that this is not a new payment, but paid from last so many years ....
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....yment to the nonresident as well as the genuineness of expenditure incurred for the purpo.se of business. Therefore, in absence of copy of agreement with the foreign commission agent, identity of commission agent and evidences pertaining to services rendered by the foreign commission agent having nexus with the business of the assessee, the payment of foreign commission expenses is not found genuine. The appellant company has furnished following evidences in connection to commission payments to non-residents: ' ; \ 1 \ (i) Copies of Contract with commission agent and contract with exporter. (ii) Copies of invoices / debit notes j raised by commission agent. | (iii) Copies of Form no. 15CA & Form no. 15CB for payment in foreign currency. (iv) Bank payment swift copy. (v) Copy of shipping bill for commission reference, etc. These documents are sufficient to prove genuineness of the commission payments and identity of commission agents. 7.6 Under section 9(1)(i) of the Act, income accruing or arising directly or indirectly, through or from any business connection in India or source of income in India shall be deemed to accrue or arise in India. No doubt ....
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....g tax u/s 195 of the Income fax Act 1961. Having failed to make an application before the Assessing Officer as prescribed u/s 195(2) of the Act, to determine the chargeability and TDS liability, the assessee acted unilaterally by not deducting tax at source u/s 195 of the Act. The provisions of Act also give authorization to Chartered Accountants to issue Certificates in Form No. 15CB for payment in foreign currency, the appellant company complied with the same. As the foreign commission is not taxable in India, the appellant company instead of approaching to the AO, approached to the Chartered Accountant to issue Certificate, which comply the provisions. 7.9 It is clear that the assessee was under obligation to deduct tax at source as envisaged u/s 195 of the Act from the payments of commission made to nonresident agents towards the services rendered by them. *The assessee, however had failed to discharge the obligation. Therefore, the expendituretlaimed under the head Commission expenses paid.to nori residents is disallowed and added back to income u/s 40(a)(i) of Income Tax Act It was explained that neither services are rendered by nonresidents in India nor paymen....
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....s etc., (b) it failed to deduct TDS under section 195 of the Income Tax Act. As far as first fold of reasoning is concerned, a perusal of the assessee's submissions which has been accepted by the ld.CIT(A) it is evident that this finding of the AO is factually incorrect. The submissions made in tabular form and extracted by us on page no.15 of this order would indicate that the assessee has demonstrated that all these details have specifically been filed. The assessee has filed certificate of the chartered accountant obtained in form No.15CA and 15CB with regard to foreign remittance. It has filed copies of contracts with the commission agent and contract with exporter. Thus, it has given all basic details demonstrating the fact as to how these agents have facilitated in making sales outside India. 17. As far as second fold of reasoning is concerned, TDS under section 195 was required to be deducted if the income in hands of the alleged agents was taxable within India. The ld.CIT(A) has examined the issue elaborately and recorded the finding that these agents have no permanent establishment in India. They are not operating from India and alleged commission income received by the....
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....o commission agents without deducting tax at source. The assessee claimed that the export commission was not a service and if at all they are being construed as services, the same was being rendered outside India and was not taxable in India under section 5(2). Accordingly, the tax was not required to be withheld under section 195. • The Assessing Officer held that the responsibilities of agents showed that agents were required to render technical services, allow the use of information containing industrial, commercial and technical experience which was made available to the assessee, and that the consideration received for these services was nothing but fees for technical services. These payments according to the Assessing Officer were taxable under section 9(1)(vii). Therefore, the assessee was liable for tax deduction at source from these payments under section 195. • On appeal, the Commissioner(Appeals) held that the payments could not be held to be FTS and they were in the nature of commission earned from services rendered outside India which did not have tax implications in India. 6. The Tribunal made elaborate discussion on all possible angles in....
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....Revenue in this regard is that the ld.CIT(A) has erred in deleting the disallowance of Rs. 19,33,215/- and Rs. 11,74,258/- made by the AO out of deduction claimed under section 80IC of the Act. 19. With the assistance of the ld.representatives, we have gone through the record. As far as admissibility of deduction under section 80IC is concerned, that is not in dispute. Dispute relates to certain receipts, whether they qualify for grant of such deduction, the receipts which have been excluded by the AO in both the assessment years are as under: "Asstt. Year : 2012-13 Particulars Amount Nature of income Interest on NSC 13,586/- Interest received from NSC. Which are kept by 80IC unit for the purpose of sales tax registration, therefore, interest on NSC is part of profit of 80IC Unit. Interest on Electricity Deposit 5,50,140/- Interest received on electricity deposit, which is kept by 80IC unit for the purpose of power connection of factory, therefore Interest on electricity deposit is part of profit of 80IC Unit Interest on Staff Loan 45,842/- Interest received on staff loan, such loan is given to 80IC unit staff for the purpose of keepi....
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.... under consideration:- (i) Interest on NSC - Rs. 16,326/- (ii) Interest on electricity deposit - Rs. 7,06,997/- (iii) Interest on staff loan - Rs. 79,614/- (iv) Recovery from transporters - Rs. 30,576/- (v) Sundry balances of vendors written off Rs. 3,36,911/- (vi) Interest on fixed deposits - Rs. 3,834/- Total - Rs. 11,74,258/- 2.4. It is here to be mentioned that the AO has not granted the deduction on the aforesaid amounts by saying that none of the above income can be held to be generated from the manufacturing activities of the undertaking, and therefore, the nature of above incomes cannot be held as income derived from manufacturing activities. Thus, he held the same as non - eligible incomes for deduction under the provisions of section 80IC of the I. T. Act, 1961. 2.5. On the other side, the Appellant submitted that all the aforesaid incomes have been derived directly or indirectly from the business of manufacturing as stipulated under the provisions of section 801C of the I. T. Act, 1961. The appellant further claimed that as per tire various decisions and judgements the income pertaining to the interest on....
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....that the appellant had derived the interest income on NSC and interest on staff which cannot be said to be even indirect income from the business activities eligible for deduction u/s. 80IC of the I. T. Act, 1961. Making the investment in NSC and deriving the interest thereupon cannot be said to for the purpose of the business for want of necessary details and documents establishing the requirement of investment in the NSCs. There was no reason to make the investment in the NSC for the purpose of the eligible business and thus the interest derived there-from cannot form part of the eligible profits for deduction. Further, with regard to interest on staff loan also, which was one kind of income on the funds lent to the staff members. Thus, this income is neither directly or indirectly linked with the business activities of the appellant. Even the appellant has not provided any details and documents in support stating that the loans were given to the employees who were engaged in the eligible business for which income was deductible u/s. 80IC of the I. T. Act. Thus, in view of the aforesaid discussion, the AOs action for not granting the deduction on the interest on NSC and interest ....
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.... does not make any difference as to whether any such item of income is assessed under the head 'business' or under the head 'other sources'. Further every income, profit or gain to be derived from the undertaking need not necessary be directly rentable to the operation of manufacture and sale of the particular commodity or articles dealt in by the assessee. The assessee is therefore, entitled to claim deduction under s. 80HH on the amount of interest earned, by it on the fixed deposits." 2.8. Further, with regard to the recoveries from transporters, it is found that it was the recovery on account of loss of material in transit i.e. in the nature of recovery of goods. Thus, it is a direct income relating to the eligible business of the appellant for the reason that the shortage derived on account of loss of material was the trading loss /business loss and the recoveries made from the transporters against such loss is the reimbursement towards such losses. Thus, the recoveries being in the nature of business income are eligible for deduction u/s. 80IC of the I. T. Act. 2.9. Further, with regard to sundry balances written off in respect of the Kasar /....
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....sons discussed in the aforesaid appellate order as the same cannot be said to be direct/or indirect income from the business activities being derived out of manufacturing activities. Thus, the aforesaid two incomes are not eligible for deduction u/s. 80IC of the I. T. Act, 1961 and the disallowance of the deduction upon the same by the AO is confirmed. With regard to the interest on fixed deposit amounting to Rs. 3,834/-, the same is also not found derived from the manufacturing activities and hence the appellant is not entitled for the deduction u/s. 80IC of the I. T. Act, 1961. Thus, the disallowance of deduction by the AO is confirmed. 2.8. With regard to the other incomes such as interest on electricity deposit, penalties and fines recovered from transporters and sundry balances of vendors written back, the appellant is eligible for deduction u/se 80IC of the I. T. Act, following the decision of the CIT(A) in the immediately preceding year and accordingly, the disallowance made by the AO on these incomes is deleted." 21. The ld.counsel for the assessee at the very outset submitted that as far as amounts mentioned under the head interest on NSC and interest on staff ....
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....ere compensated by the transporter. It has a direct nexus. Similarly, if the assessee get certain discount from the supplier, then it would reduce the purchase price of the material, which will enhance the profit, and therefore, deduction on such higher profit will be admissible. The ld.CIT(A) has rightly appreciated this aspect and granted the deduction to the assessee. We do not find any error in the order of the ld.CIT(A), and therefore, this ground of appeal is rejected in both the years. CO No.220/Ahd/2015 in ITA No.3233/Ahd/2015 (Asstt.Year 2012-13) 23. Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs. 7,53,156/- which was disallowed by the AO with the aid of section 36(1)(va) of the Act. 24. Brief facts of the case are that on scrutiny of the accounts, it revealed to the AO that employees contribution towards PF and ESI was not deposited by the assessee within time period contemplated in those Acts. Therefore, he disallowed the claim of the assessee to the extent of Rs. 7,53,156/-. On appeal, the ld.CIT(A) has confirmed this disallowance by following the judgment of CIT Vs. Gujarat State Road Transport Corporation L....