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2015 (3) TMI 754

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..... ke 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. - Decided in favour of assessee. Disallowance in respect of commission paid to M/s. De Long Mineral & Logistics Pvt. Ltd. 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 .....

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..... s of the case and found that disallowance has been made merely on assumption and presumption and therefore deleted the disallowance of ₹ 10 lacs. We do not find any illegality or infirmity in the order of CIT(A) in deleting the disallowance - Decided in favour of assessee. Disallowance of the labour charges - CIT(A) restricted the disallowance to 20% of the total claim of the expenses amounting to ₹ 2,10,800/-. - Held that:- 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 ₹ 18,500/- or ₹ 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). - Decided partly in favour of assessee. Cash payment made for the purchase of iron ore - Held that:- The Assessee has made purchases for the iron ore in cash but all the .....

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..... rushing 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 l .....

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..... De Long Minerals and Logistics Pte. Ltd. One is an Indian Resident, whereas the other is a Foreign party, not 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 ₹ 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 ex .....

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..... 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 ₹ 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 ₹ 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 ₹ 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 Indi .....

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..... 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. 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 o .....

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..... hargeable 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 busines .....

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..... ation charges amounting to ₹ 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 ₹ 10,000/- to ₹ 19,500/-. The AO took the view that the expenses were not genuine and therefore he disallowed 50% of the cash payment of ₹ 42,19,933/- i.e. ₹ 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 transp .....

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..... . 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. 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 .....

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..... nd 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 ₹ 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 ₹ 18,500/- or ₹ 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 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 charg .....

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..... es 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 ₹ 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 Advocate that the ratio of the Judg .....

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..... ther 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 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 ₹ 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 withi .....

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..... 8. 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, 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 busi .....

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