TMI Blog2019 (1) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... order as being erroneous and prejudicial to the interests of the Revenue without giving the assessee an opportunity of being heard; and that, therefore, what the Commissioner himself could not have done, could not be permitted to be done by the Assessing Officer while giving effect to the order under section 263 - Tribunal was right in holding that in the fresh assessment order passed in pursuance of the consolidated order under section 263 of the Act, the Assessing Officer was entitled to consider only two items which had been considered by the Commissioner and was not entitled to consider any other item afresh for making addition. The orders passed by the ld. CIT(A) for both the years are, thus, reversed, except:- (i) the ld. CIT(A)’s action in directing the Assessing Officer, for assessment year 2010-11, to verify whether M/s Pool Services has disclosed the contract job work charges of ₹ 1,66,700/- in its profit & loss account and paid the income tax thereon, on the fulfillment of such verification, the addition would stand deleted; (ii) the action of the ld. CIT(A) in confirming the addition of ₹ 45,725/- made under section 14A of the Act, for assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s 263/Tech/Model Tanners/20i3- 14/2479 Dated: 24 .10.2013 The Principal Officer, M/s Model Tanners (India) Pvt, Ltd., C/o Sultan Tanners, Jajmau, Kanpur-208010 Sub; Show cause notice u/s 263(1) of the I.T. Act 1961 in the case of M/s Model Tanners (India) Pvt. Ltd., C/o Sultan Tanners, Jajmau, Kanpur for A. Y. 2010-11 - Regarding On perusal of assessment record relating to the Assessment Year 2010-11 in your case has been examined. On examination of assessment record, it is found that assessment order dated 31.03.2013 for the Assessment Year 2010-11 passed by the Asstt. Commissioner of Income Tax, Central Circle-2, Kanpur under section 143(3) of the Income Tax Act,1961 on total income of ₹ 1,21,56,043/- is erroneous and prejudicial to the interests of revenue for the following facts and reasons: Applicability of Section 195 of the Income Tax Act, 1961 on Commission paid to foreign agents (sales commission) The assessee company has paid a sum of ₹ 91,31,915/- (Rs.38,58,862/- from Unit -1 ₹ 52,73,053/- from Unit -2) to the Overseas entities and debited in the Profit Loss Account under head sales promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation occurring after sub-section (2), the following Explanation shall be submitted and shall be deemed to have been substituted with effect from the 1st day of June, 1976, namely;- Explanation- For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,- ( iii) The non-resident has a residence or place of business or business connection in India; or ( iv) The non-resident has rendered services in India A perusal of these statutory provisions makes it clear that these classify and cover all income as accruing and arising in India which partake the character of payment on account of fee for technical services which is very preciously defined in Explanation (2) to include any payment for rendering of any managerial or consultancy services rendered by the Non-Resident agent. In the case of the assesses since he was not able to sell his goods on his own to the foreign buyers, he had to avail the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. [( 3), Subject to rules made under sub -section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed from to the [Assessing] Officer for the grant of a certificate authorizing him to receive such tax interest or other sum without deduction of tax under sub -section , and where any such certificate is granted .every person responsible for paying such interest or other sum to the person to -whom such certificate is granted shall, so long as the, certificate is in force, make payment of such interest or than sum without deduction tax thereon under sub-section (1). From the above facts , which have been brought on record that there was mandatory, liability on your part under section 195 of the Income Tax act 1961 read with section 9(1) (vii) thereof to deduct income tax at source from the sum of ₹ 91,31l,915/-which you have debited in Profit Loss Account as Sales promotion. Therefore, there was a clear cut liability to deduct tax at source and having failed in deducting the same amount was liable to be disallowed as per provisions of section 40(a)(i) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no enquiries have been made to ensure that these are included exclusively for the purpose of assessee's business. It is further seen that there .are loans advances for ₹ 27,55,38,015.93 ₹ 17,99,61,609.20 in unit 1 2 respectively, stating that all treated to be business advances , mainly to the staff and supply of goods. It has not been examined whether, the advances are wholly and exclusively for the purpose of business of the assessee. It is thus seen that the order for Assessment Year 2010-11 is erroneous as the items of income indicated above have not been included in the total income as well as enquiries which should have been made by the A.O., have not been made. The order, due to this reason, has resulted in determination of incorrect total income at a lower figure and, therefore, prejudicial to the interests of Revenue. You are, therefore, required to furnish show cause why the amounts not be modified as provided in section 263 of the IT Act 1961. You are, accordingly given an opportunity of being heard and to furnish objection, if any, by 12.11.2013 at 11.30 A.M before the undersigned, either in person of through your authorized r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b charges, the addition on which, incidentally, has been deleted by the ld. CIT(A). To reiterate, the assessee had been asked to show cause with regard to the following items:- (i) Applicability of the provisions of section 195 of the Act on commission paid to foreign agents. (ii) Enquiries required to be made in respect of assets sold, i.e. (a) Plant and machinery. (b) Vehicles (c) Unsecured loans above ₹ 1 crore having not been examined. (d) Investment in new fixed deposits ₹ 29,97,182.30 paid on account of job work. (e) Details of any other income nor on file. (f) Purchase of raw hides and leather, which remained not verified. (g) Loans and advances in Unit Nos.1 2, respectively, having remained unexamined. 9. A perusal of the order dated 30/3/2015, passed under section 263 of the Act makes it evidently clear that the Pr. CIT held that the Assessing Officer had not carried out any enquiry to verify the purchase of raw material by the assessee from the parties and also whether the parties were genuine and that the submissions made by the assessee had been accepted by the Assessing Officer without verification, disallowing only a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Department. In the operation cash was found which was not explained and was said to be for purchase of raw hides from Kolkatta. The case was centralized with the A.O. CC-1 by the CIT-1, Kanpur in order to carry out coordinated investigation with the other cases of the group namely Shri Mehtab Alam and others. The f.T. Department has a well laid out organizations and that provides for centralization of a group of cases with a single officer in Central Circle for coordinated investigation. Under this arrangement, the AO, Central Circle-11 with whom this case was centralized. However, there is total absence of any enquiries from any third party and no verification of accounts has been carried out. The assessment order has been passed without application of mind and in total disregards of the findings of the authorized officer as a result of search and seizure operation carried out. In normal course any prudent person would have made enquiry about the fact of generation of cash which was found in the possession of the partners of the firm as indicated earlier. It is also seen that the order u/s 153C of the A.O, has been passed after obtaining approval from the Joint Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, due to this reason, has resulted in determination of incorrect total income at a lower figure and, therefore, prejudicial to the interest of the Revenue (Emphasis supplied) . 11. Thus, the notice issued as well as the order passed under section 263 of the Act referred to the items of income indicated. These items, to reiterate, are the following:- 1. Commission paid to foreign agents (sales commission). 2. Assets sold (plant and machinery and vehicles). 3. Unsecured loans. 4. New investment in fixed deposits. 5. Amount paid on account of job work. 6. Any other income not disclosed. 7. Purchase of raw hides and leather. 8. Loans and advances in Unit Nos. 1 2. 12. The Assessing Officer did not make any addition with respect to the above items, but for job work charges, which addition was deleted by the ld. CIT(A). 13. The Assessing Officer made the following disallowances/additions:- i) Disallowance under section 80-IB of the Act : Rs.26,24,573/- ii) Interest on TDS : Rs.1,699/- iii) Addition under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as being erroneous and prejudicial to the interests of the Revenue without giving the assessee an opportunity of being heard; and that, therefore, what the Commissioner himself could not have done, could not be permitted to be done by the Assessing Officer while giving effect to the order under section 263 of the Act. It was held that the Tribunal was right in holding that in the fresh assessment order passed in pursuance of the consolidated order under section 263 of the Act, the Assessing Officer was entitled to consider only two items which had been considered by the Commissioner and was not entitled to consider any other item afresh for making addition. 18. In ITA No.702/LKW/2017, for assessment year 2011-12, this position is not applicable qua the addition of ₹ 45,725/- made under section 14A of the Act. This issue was the subject matter of revision, as available from the revisional order (APB:34-36) for assessment year 2011-12, at page 7 (APB:40) thereof. The assessee has raised an additional ground in this regard, contending that this addition has wrongly been confirmed, as it does not come out of the revisional order. This ground is rejected. 19. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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