TMI Blog2015 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the Commissioner of Income Tax (Appeals). Without entering into the controversy so as to whether the payment is within the ambit of interest in Sec. 2(28A), the assessee is also bound to succeed in its alternative argument that the entire payment if made during the previous year relevant to the assessment year under dispute no disallowance would be made u/s.40(a)(ia) of the Act - Decided in favour of assessee. - I.T.A.No.422/Mds/2013 - - - Dated:- 29-10-2015 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER For The Appellant : Shri. P. Radhakrishnan, IRS, JCIT For The Respondent : Shri.B.S. Purushottam, C.A ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-I, Chennai, dated 19.12.2012 for the assessment year 2007-2008. 2. The Revenue has raised the following grounds:- (1a) On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of A17,03,792/- towards adjustment on account of transfer pricing relating to Barite Lumps. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking that except in the month of June export realization of the assessee in all other months are favourable. The Assessing Officer erred in making addition to the June month sales on the ground that the average price realized by the assessee is less than that of competitors. The entire provisions of transfer pricing is to determine the arms length transactions of the assessee and not a mere arithmetical exercise for making additions in unfavourable months ignoring other transactions where the assessee has fetched higher than that of competitors. The sale price is realised depending on various factors such as demand and supply, quality, quantity and the cost to the supplier, margin of profit etc. For Eg: One of the Comparable companies GIMPEX realised only US $31.10 in the month of August, 2008, when the assessee sale price fetched US $ 41.73. However, in the relevant month June 2008, the sale price fetched by the assessee is US $35 as against US $ 42.23 fetched by GIMPEX. The inconsistency in the pricing of the comparable was not taken note of by the Assessing Officer. The reason for the comparable selling at higher price of US$ 42.23 in the month of June and then dropping it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Chennai has not applied their mind to the merits of the case, as explained by the assessee, before us. This position is clear from paragraph 5 of the proceedings of the DRP which is reproduced below : 5. We have carefully considered the facts of the case, examined the records and considered the oral and written submissions made on behalf of the assessee. The assessee has entered into international transactions with its AEs. In this connection, the facts recorded by the T.P.O. in the T.P.O s order are not disputed. What the assessee has disputed is the interpretation of such data and facts. The learned ARs has made arguments largely on the legal issues. The T.P. audit is basically a fact based exercise. The law on transfer pricing in India is not yet fully evolved and contentious issues are not yet settled. Therefore, the assessee s reliance placed on various court decisions in support of its contention that the T.P.O. has erred in recommending the adjustment has to be understood in this background. The contentious issues pertaining to the T.P. audit are not yet settled or resolved. We therefore uphold the action of the T.P.O. in making adjustment in respect of assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew in India. Therefore, as pointed out by the assessee, there cannot be a large number of cases available for comparison. 23. The most important point is that in the case of assessment of M/s. IBC Ltd., the authorities have made a comparison with sale price recorded by the assessee and that comparison was found reasonable and no addition was made in the case of M/s. IBC Ltd. This is a sure case of double standard. The TPO has made a fundamental omission in not comparing the rate declared by M/s. IBC Ltd. while proposing the additions in the hands of the assessee company. 24. Then what is the method of comparison adopted by the TPO? This is apparent in the case of Bentonite Lumps. The TPO has adjusted the price reflected in the sale of 40 MT Bentonite Lumps made to non AE. The TPO summarily rejected the sale price reflected in the case of a sale of 23500 MT made to its AE. Is it fair to say that the export price of 23500 MT would be exactly that of a sale of 40 MT? In every trade, the volume of the consignment is a very important factor. It is to be seen that almost the entire sales of the assessee are made to AE at Dubai. Therefore, the price offered to its Dubai AE will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the particulars furnished by M/s. IBC Ltd. in the assessment of that company whereas there is no material difference in the price quoted by the assessee and that company. (2) The TPO has adopted the special sale price attributable to non AEs on small quantity by ignoring the price quoted by the assessee to its AE for bulk and regular sales. The variables adopted by the TPO for making comparison are fundamentally different and, therefore, the comparison is erroneous. (3) The TPO has overlooked the basic difference between FOB and CIF value while comparing the sale price attributable to AE as well as to non AEs. While accepting the comparing sale value in the case of non AE, the TPO has ignored the factors like deployment of additional capital and risk involved. (4) The TPO has not considered quality variation in different consignments and the corresponding variations reflected in the pricing of exports. 30. Therefore, in the facts and circumstances of the case, we find that transfer pricing study made by the TPO is far away from reality. If the erroneous presumptions of the TPO are excluded, we find that the price disclosed by the assessee is comparable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing different adjustment the assessee company evaded the TDS. Accordingly, the Assessing Officer made an addition of A28,55,313/-. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 11. The Commissioner of Income Tax (Appeals) observed that it is not a question of money borrowed, and interest thereon, but a payment made for purchase and a compensatory charge for the period of credit utilized for payment of the amount due. The compensation is referred to as interest, it cannot fall under the definition of interest and hence the disallowance made is not warranted and is directed to be deleted. Against this, the Revenue is in appeal before us. 12. The ld. Departmental Representative relied on the order of the Assessing Officer. 13. The ld. Authorised Representative submitted that the assessing officer is not justified in invoking the provisions of Sec.40(a)(ia) to the additional purchase price of goods procured from Andhra Pradesh Mineral Development Corporation by treating it as a payment in the nature of interest . The Assessing Officer failed to appreciate that the additional purchase price paid by the assessee represented co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have deducted and paid tax in accordance with the provisions of Chapter XVII -B. It is settled law that if a statute is curative or merely declaratory of the previous law, retrospective operation is intended. An amending Act may be purely clarificatory to clear a meaning of a provision of the Principal Act which was already complicit. A clarificatory amendment of this nature will have retrospective effect, and therefore, if the Principal Act was existing law when the constitution came into force, the amending Act also will be part of the existing law. In this regard, we invite attention to the decision rendered by the Supreme Court in the case of Allied Motors (P) Ltd. vs. CIT [1997] 91 Taxmann 205/224 ITR 677 (SC). As per the latest decision of Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. (Allahabad), Sec.40(a)(ia) disallowance applies only to amounts payable as on 31st March and not to amounts already paid during the year. The majority decision in Merilyn Shipping 136 ITD 23(SB) was approved by the Allahabad High Court. The SLP filed by the revenue was dismissed in limine by the Apex court. The ld. Authorised Representative for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 is dismissed. Order pronounced on Thursday, the 29th day of October, 2015, at Chennai. PER N.R.S. GANESAN, JUDICIAL MEMBER: I have carefully gone through the draft order of the Ld. Accountant Member. I entirely agree with the conclusion reached by him in all the issues. However, in respect of the finding recorded by the Ld. Accountant Member for disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 (in short the Act ) on the ground that the assessee has already paid the amount, I am unable to agree with the reasoning of the Ld. Accountant Member. Admittedly, what was paid by the assessee is not interest on loan or debt. The payment is compensatory nature. Therefore, the assessee may not be liable to deduct tax under Section 194A of the Act. Hence, the claim of the assessee has to be allowed. Since the Ld. Accountant Member recorded a finding alternatively, I have to express my opinion with regard to disallowance made under Section 40(a)(ia) of the Act. 2. The question now arises for consideration is whether merely because the assessee has already paid the amount on the last date of financial year, whether no disallowance could be made under Section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no discussion about the correctness or otherwise of the decision rendered by the Special Bench of this Tribunal in Merilyn Shipping Transports (supra). However, we find that the Gujarat High Court in the case of CIT vs Sikandarkhan N Tunvar ITA Nos 905 of 2012, 709 710 of 2012, 333 of 2013, 832 of 2012, 857 of 2012, 894 of 2012, 928 of 2012, 12 of 2013, 51 of 2013, 58 of 2013 and 218 of 2013 judgment dated 02-05-2013 considered the decision of the Special Bench of this Tribunal in Merilyn Shipping Transports (supra) and specifically disagreed with the principles laid down by the Special of this Tribunal in Merilyn Shipping Transports (supra). The Calcutta High Court also in the case of Crescent Exports Syndicate Another in ITAT 20 of 2013 and GA 190 of 2013 judgment dated 03-04-2013 considered elaborately the judgment of the Special Bench of this Tribunal in Merilyn Shipping Transports (supra) and found that the decision rendered by the Special Bench of this Tribunal is not the correct law. It is well settled principles of law that when different High Courts expressed different opinions on a point of law, then, normally, the benefit of doubt under the taxation law wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection on the basis of any comparison between the draft and the section actually enacted nor was it open to speculate as to the effect of the socalled representations made by the professional bodies. The Learned Tribunal held that Section 40(a)(ia) of the Act creates a legal fiction by virtue of which even the genuine and admissible expenses claimed by an assessee under the head income from business and profession : if the assessee does not deduct TDS on such expenses are disallowed . Having held so was it open to the Tribunal to seek to justify that this fiction cannot be extended any further and, therefore, cannot be invoked by Assessing Officer to disallow the genuine and reasonable expenditure on the amounts of expenditure already paid ? Does this not amount to deliberately reading something in the law which is not there? We, as such, have no doubt in our mind that the Learned Tribunal realized the meaning and purport of Section 40(a)(ia) correctly when it held that in case of omission to deduct tax even the genuine and admissible expenses are to be disallowed. But they sought to remove the rigour of the law by holding that the disallowance shall be restricted to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sought to be disallowed? The answer is bound to be those expenses on which tax is deductible at source under Chapter XVII-B. Once this is realized nothing turns on the basis of the fact that the legislature used the word payable and not paid or credited . Unless any amount is payable, it can neither be paid nor credited. If n amount has neither been paid nor credited, there can be no occasion for claiming any deduction. The language used in the draft was unclear and susceptible to giving more than one meaning. By looking at the draft it could be said that the legislature wanted to treat the payments made or credited in favour of a contractor of subcontractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words mounts credited or paid were used only in relation to a contractor of sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under XVIIB payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor being resident for carrying out any work. (b) These amounts are such on which tax is deductible at source under XVIII-B. (c) Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub-Section (1) of Section 39. For the purpose of current discussion reference to the proviso is not necessary. 24. What this Sub-Section, therefore, requires is that there should be an amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision nowhere requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the legislature. The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31t March. 25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately brought about a certain situation which does not require any further interpretation. This is the fundamental argument of the Tribunal in the case of M/s Merilyn Shipping Transports vs. ACIT (supra) to adopt a particular view. 26. While interpreting a statutory provision the Courts have often applied Hyden s rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes. 27 to 36 .. 37. In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the amount which remains to be payable on the last day of the financial year, is not attracted. Therefore, according to the appellants, disallowance cannot be sustained. This contention was sought to be substantiated by relying on the judgment of the Allahabad High Court in Commissioner of Income Tax v. Vector Shipping Services (P) [(2013) 357 ITR 642 (All)]. Primarily, this contention should be answered with reference to the language used in the statutory provision. Section 40(a)(ia) makes it clear that the consequence of disallowance is attracted when an individual, who is liable to deduct tax on any interest payable to a resident on which tax is deductible at source, commits default. The language of the Section does not warrant an interpretation that it is attracted only if the interest remains payable on the last day of the financial year. If this contention is to be accepted, this Court will have to alter the language of Section 40(a)(ia) and such an interpretation is not permissible. This view that we have taken is supported by judgments of the Calcutta High Court in Crescent Exports Syndicate and another [ITAT 20 of 2013] and the Gujarat High Court in the case of Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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