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2016 (3) TMI 640 - ITAT DELHI

2016 (3) TMI 640 - ITAT DELHI - TMI - TDS u/s 195 - TDS on the bank guarantee commission paid to a foreign bank - Held that:- When the Revenue authorities have failed to lay hands on any cogent material that the bank guarantee commission paid by the assessee company paid on account of business transaction between assessee company and VTB bank particularly in the face of the fact that VTB bank has no PE in India, the question of attracting provision contained u/s 195 of the Act does not arise. In .....

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. D. AGRAWAL, HON BLE VICE PRESDIENT AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Appellant :Sh. Syed Nasir Ali, CIT DR For The Respondent :Sh. Yogesh K Jogia, Adv ORDER PER KULDIP SINGH, JM: The aforesaid bunch of appeals is being decided by way of consolidated order as common question for determination has been raised, to avoid repetition of discussion. 2. The appellant, DCIT Circle 4(1), New Delhi (hereinafter referred to as the Revenue ), by filing the present appeals, sought to set aside .....

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being 10% of the turnover. The Ld CIT(A) did not appreciate the fact that the book of accounts of the assessee were rejected by the AO u/s 145(3) of the IT Act after pointing out specific defect. 3. On the facts and circumstance of the case in law the Ld CIT(A) has erred in deleting the addition of ₹ 5,20,56,831/- made by the AO u/s 40(a)(1) of the IT Act when no tax was deducted at source on commission paid in India to foreign bank. B. I.T.A. No. 53/Del/2011 (A.Y. 2007-08): That on the f .....

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f return of income filed by the assessee qua Assessment Years 2006-07, 2007-08 & 2008-09, the cases were subjected to scrutiny and consequent upon the notices issued u/ss 143(2) and 142(1) of the I.T. Act, 1961, Shri S. Bahl CA and Shri Yogesh Jagia, Advocate/ ARs attended the proceedings, filed reply and documents and discussed the case.. 4. The assessee is into the business of trading of turbines and associated equipments and execution of turnkey projects. Assessing Officer after noticing .....

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noted numerous negative adjustments of construction work and pointed out that the income recognized in first year can be utilized for the expenses of consequent year. In case of NTPC Sipat project, explanation of the assessee has also not been accepted by the Revenue on the ground that the company has not recognized the project income at desired percentage. The Assessing Officer also stated in the quantitative details in the notice to the accounts, purchase of only one bigger asset, sale of two .....

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Act, taken the NP rate at 10% of ₹ 65,16,25,838/- i.e. ₹ 6,51,62,584/-. 4.1 The Assessing Officer disallowed the amount of ₹ 5,20,56,831/- claimed by the assessee on account of bank guarantee issued by a foreign bank for and on behalf of holding assessee company on the ground that since no TDS was deducted on this payment, the same is liable to be disallowed. The Assessing Officer treated the bank guarantee commission paid by the assessee company as interest on which, no advanc .....

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d the appeals vide impugned orders. Feeling aggrieved, the Revenue has come up before the Tribunal by way of present appeals. 6. We have heard both the authorized representatives, perused the material on record in the light of facts and circumstances of the case and orders of authorities below. 7. Grounds No.1 and 2 of I.T.A.No. 3834/Del/2009 (A.Y. 2006-07): Undisputedly, the assessee has been adopting mercantile system of accounting which has been accepted by the Revenue for completion of asses .....

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s Act, 1956 read with the provisions of Section 145 of the I.T. Act, 1961 and notifications issued there under. 7.1 During the year under appeal the appellant company by following consistent accounting policy accounted the revenue on percentage completion method of the following projects undertaken during the year: 7.2 Assessing Officer during the assessment proceedings pointed out the discrepancy in the project accounting enumerated in the notice dated 09.06.2008, which are as under: a) BALI ME .....

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ed without any basis. (d) KONASEEMA:The project started in the year 2000 and likely to be completed in 2006-2007. No profit has been declared in this year and entire profit was declared in the previous years. (e) SIPAT NTPC: It seems that WIP figures are merely adjusted to reflect desired percentage of profit or loss without any basis. No explanation regarding nature and manner of attribution of the general exp to project exist. (f) BRAH - NTPC: No revenue has been recognized whereas entire cost .....

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support of his argument. 7.4 However, on the other hand, Ld. A.R. contended that when in assessee s own cases, factum of maintaining books of accounts in accordance with AS-7, has been duly accepted by the revenue in Assessment Year 2001-02 to 2011-12 (except Assessment Year 2006-07), the question of adopting best judgement assessment by the Assessing Officer does not arise. The assessee company on the basis of books of accounts maintained in the ordinary course of business in accordance with t .....

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judgement assessment u/s 145(3) of the Act. 7.6 Now, the first question arises for determination is, as to whether Ld. CIT(A) has erred in quashing the best judgement assessment made by the Assessing Officer by rejecting the books of accounts of the assessee. 7.7 In the backdrop of the aforesaid facts and circumstances, argument addressed by the Ld. A.Rs. of the parties, orders passed by the tax authorities below and case law relied upon, we are of the considered view that there is no illegality .....

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bjection raised by the Assessing Officer in rejecting the books of accounts that there is no justification for incoherent recognition of revenue and the profit of the different projects has been varied from year to year without any basis, discrepancy in accounting of the closing inventory of bridge assembly and no basis for allocating contract project overhead expenses , is not sustainable because the percentage completion method used by the assessee, has been duly accepted by the Revenue, in th .....

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dopt the best judgement assessment method; iv) that the Assessing Officer rejected the books of account to adopt the best judgement assessment on the ground of discrepancy discussed at page 2 of the order, primarily on the ground that assessee company has not been following consistent method of accounting for recognition of revenue; v) that the Assessing Officer has primarily rejected the books of accounts on three grounds inter alia; 1. there is no justification for incoherent recognition of re .....

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ounts of Kobra ATPS and Konaseema project prepared as per AS-7, which has been duly accepted by the Revenue during the preceding year while completing the assessment u/s 143(3) of the Act. Furthermore, the assessee company had come up before the Assessing Officer qua the alleged discrepancy in closing inventory leading to different profits of different projects only due to typographical error of the auditors and the said typographical error has been rectified vide certificate of auditors lying a .....

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essing Officer has rejected books of accounts because of improper appreciation of percentage completion method in accordance with AS-7. Operative paras 26 & 27 of the impugned order are reproduced as under for ready reference:- 26. I have perused the assessment order and found that the Ld. Assessing Officer rejected the books of accounts and deemed the taxable income @ 10% of the gross receipts because of discrepancies noticed and Pointed out in the show cause notice dated 9m June, 2008 prim .....

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ject started in the year 2000 and was likely to be completed in 2006-2007 the entire profit was declared in the previous year only. In Brah - NTPC no revenue has been recognized in the year though the cost of ₹ 6.55 crore has been taken to PWIP. Ld. Assessing Officer also pointed out discrepancy in accounting of closing inventory of bridge assembly in the audit report. 27. The Ld. Assessing Officer further pointed out that in the detail of project work-in-progress (PWIP) furnished by asses .....

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o provide basis of allocation of direct project overhead cost while accounting the project cost and because of these discrepancies the appropriate profit of the company cannot be ascertained from the books of accounts and hence the same has been rejected by invoking the provisions of section 145(3) of Act and the income was assessed @ 10% of the gross receipts. 7.8 So, in view of what has been discussed above, when error committed by the Assessing Officer because of wrong appreciation of percent .....

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paid to a foreign bank on behalf of holding company of the assessee qua Assessment Years 2006-07, 2007-08 & 2008-09 respectively and the same have been disallowed by the Assessing Officers u/s 40(a)(1) of the Act because of non deduction of tax at source (TDS) paid in India. 8.1 The Assessing Officer after declaring the bank guarantee commission paid by the assessee company in India to a foreign bank as interest u/s 2(28A) of the Act, disallowed the same u/s 40(a)(1) of the Act but his decis .....

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hat VTB Bank has rendered all the services from outside India; that he assessee company has paid bank guarantee commission to a non resident bank i.e. VTB Bank, Russia having no PE in India. 8.3 Now, the first question arises for determination is, as to whether the assessee company was liable to deduct the tax at source (TDS) on bank guarantee commission paid in India to VTB Bank, a foreign bank. Since, the Assessing Officer by invoking provisions contained u/s 40(a)(1) of the Act, disallowed th .....

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ct the tax at source (TDS) on bank guarantee commission paid in India to VTB Bank, a foreign bank . 8.4 When the assessee company has placed on record for perusal of the revenue authorities cogent material that it has paid bank guarantee commission to a foreign bank, the Assessing Officer could not lay hands on any material to treat the bank guarantee commission as interest or deemed interest alleged to be paid by the assessee company to the foreign bank. Moreover, there is no dispute that the a .....

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d sum in terms of percentage to be paid to an agent or salesman for services rendered. Since in this case, VTB Bank, Russia got bank guarantee issued by Canara Bank by tendering its own counter guarantee and charged the commission thereon irrespective of the fact that the bank guarantee has been utilized or not, we are of the considered view that by any stretch of imagination even the bank guarantee commission cannot be treated as interest as decided by the Assessing Officer. 8.5 Now, the next q .....

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