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2015 (3) TMI 754 - ITAT PANAJI

2015 (3) TMI 754 - ITAT PANAJI - TMI - Disallowance of Commission and Brokerage paid - non deduction of tds - CIT(A) deleted the addition - Held that:- 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 .....

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l - 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 i .....

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g 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 n .....

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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 ₹ 10,000/- to ₹ 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 th .....

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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. Th .....

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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 t .....

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s. 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. - Decided in favour of assessee.

Payment of demurrage without deducting TDS - CIT(A) deleted the disallowance - Held that:- The issue is duly .....

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Balakrishna, Ld. DR 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. .....

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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 ₹ 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 .....

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ts 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 : .....

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excessive. 3. The learned CIT(A) erred in confirming ₹ 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 .....

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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 t .....

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ther 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 fo .....

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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 .....

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rned 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 sa .....

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iii) Mrs. Sita R. Parodkar is not related to the appellant. iv) Mrs. Sita Parodkar has filed Return of Income and has declared the receipt and declared total income amounting to ₹ 33,20,060/- and paid taxes amounting to ₹ 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, su .....

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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 say .....

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in favour of the appellant on this issue. The A.O. is directed to delete the addition amounting to ₹ 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 wa .....

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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 @ ₹ 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 R .....

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erty 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 ent .....

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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 b .....

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e 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 .....

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vt. 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 .....

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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 .....

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y 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 & Logisti .....

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t 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 ₹ 58,86,433/- on transportation charg .....

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ore from Jalna to Redi . Jalna is in Maharashtra while Redi is in Goa. The 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 ₹ 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 regi .....

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IT(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 .....

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e 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 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 ₹ 10,000/- to ₹ 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 .....

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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 ₹ 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 ₹ 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 ₹ 10,5 .....

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essee 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 agreeme .....

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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 .....

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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 of the businessman and decide at what rate the Assessee should pay the charges to the party from which the Ass .....

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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 ₹ 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 .....

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ther ₹ 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 .....

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t 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 circumsta .....

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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 ₹ 25,84,501/-. When the matter went before the CIT(A), CIT(A) reduced the disallowance to 20%. 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 purc .....

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le 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 ₹ 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 s .....

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t 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 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 .....

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dgment 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 t .....

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t; 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, resp .....

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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 .....

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f 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 .....

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n 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 t .....

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tes 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 Su .....

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ct, 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 .....

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