TMI Blog2020 (8) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order passed by the First Appellate Authority whereby and whereunder disallowance of cancellation charges for non-deduction of TDS in respect of the immediate preceding order was deleted which according to us is just and proper so as to warrant interference. We, thus, find no merit in the ground of appeal preferred by the Revenue and thus the same is hereby deleted. TDS u/s 195 - Disallowance being export commission paid to non-resident agents - Addition u/s. 40(a)(ia) on the ground of non-deduction of TDS - HELD THAT:- When the commission has been paid to foreign parties for rendering services admittedly abroad for soliciting customers for its export business activities, the appellant is not liable for short deduction of tax at source and therefore disallowance made on this score under Section 40(a)(ia) is not permissible. Hence, keeping in mind such judicial precedent we find no infirmity in the order passed by the Ld. CIT(A) in deleting the disallowance made by the Ld. AO under Section 40(a)(ia) of the Act holding that such commission is not fees for technical services under Section 9(1)(vii) of the act and the same being in nature of business income for recipient o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the business and is incidental to the business carried too and hence allowable. We, therefore, delete the addition made by the authorities below. This ground of appeal is, thus, allowed. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [ 2020 (5) TMI 359 - ITAT MUMBAI ] - exclude the period of lockdown while computing the limitation provided under Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963 - ITA No. 27/Rjt/2016, 360/Rjt/2015, 315/Rjt/2015 - - - Dated:- 28-7-2020 - Shri Waseem Ahmed, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Appellant : Shri M. N. Maurya, CIT DR For the Respondent : Shri M. J. Ranpura, AR ORDER PER MADHUMITA ROY, JUDICIAL MEMBER: In this bunch of appeals two appeals were filed by the Revenue against the orders dated 30.10.2015 14.05.2015 passed by passed by the Ld. CIT(A)-1, Rajkot for A.Ys. 2012-13 2011-12 respectively and the assessee has come up ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the other parties annexed to the Paper Book filed before us. 4. The case of the assessee is this that it is in the business of export of cotton and other agricultural products to various countries and while procuring the export orders the appellant enters into contract proforma invoice with the proposed purchasers of the foreign country specifying therein the terms of the contract of goods, the time period of supply and the rate. Failure of the terms of contract though results in more loss the same dispute is settled with the proposed buyer by paying the cancellation charges or by getting the details as the case may be. Therefore, the contract cancellation charges are in the nature of payment for failure to oblige contractual terms and conditions resulting in settlement of contracts at a price of lower than pre-determined price and thus the appellant had to make payment as per terms of contract. The cancellation of the contract was in respect of supply of goods in which the appellant deals. It is the appellant who knows his business and he knows when to enter into a contract and when to exit. Taking into consideration this particular aspect of the matter the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch particular fact has not been considered by the Ld. AO in its proper perspective and the assessee has been made liable to deduct tax at source u/s. 194H of the Act. He has further relied upon the judgment passed by the Co-ordinate Bench in ITA No. 573/Rjt/2014 for A.Y. 2010-11 where the similar disallowance has been deleted. Reliance was also placed on the decision passed by the Hon ble Gujarat High Court in the Pr. Commissioner of Income Tax vs. MGM Exports in Tax Appeal No. 309 of 2018. 8. We have heard the parties, and perused the relevant materials available on records. Section 195 of the Act clearly provides that unless the income is liable to be taxed in India there is no obligation to withhold the taxes in India. Further, the basic condition under Section 9 of the Act with respect to income accruing and arising in India namely connection with the property in India or control and management vested in India, are not satisfied in the present case. The commission expenses paid on export sales to a non-resident admittedly for services rendered outside India is not coming under the purview of Sec. 40(a)(ia) of the Act. It is relevant to mention that the commission simpli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, on the other hand, the authorized representative has cited the judgement of Hon ble High Court of Calcutta in the case of CIT vs. S.K. Tekriwal 260 CTR 0073, wherein it has been held that Expenses are not liable to be disallowed u/s 40(a)(ia) on account of short deduction of tax at source . The relevant paragraph of the judgement is reproduced hereunder for the sake of brevity: We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, on which tax is deductible at source under chapter XIVV-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139. This section 40(a)(ia) of the Act refers only to the duty to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusions arrived at by the ld. CIT(A) as he has explained at length a binding judicial precedent for the proposition that a short deduction of tax at source, even if any, cannot be visited with the disallowance under section 40(a)(ia) of the Act. Therefore, the disallowance was unsustainable in law and the ld. CIT(A) was quite justified in deleting the impugned disallowance. We approve and uphold the erudite and well reasoned stand taken by the ld. CIT(A) and decline to interfere in the matter. Apart from that we have further considered the appeal preferred by the Revenue against the order passed by the Co-ordinate Bench in allowing the appeal. We have further considered the judgment passed by the Hon ble Jurisdictional High Court in the matter of Pr. Commissioner of Income Tax vs. MGM Exports in Tax Appeal No. 309 of 2018. The relevant portion whereof is as follows:- 6. The second issue relates to the addition made by the Assessing Officer of a sum of ₹ 5.05 lacs under section 40(a)(ia) of the Income Tax Act, 1961 on the ground that the assessee had not deducted tax at source on foreign commission payments. The Tribunal however, recorded that the non-resident ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act would not apply. The fundamental principle of deducting tax at source in C/TAXAP/309/2018 ORDER connection with payment only, where the sum is chargeable to tax under the Act, still continues to hold the field. In the present case, the Revenue has not seven seriously contended that the payment to foreign commission agent was not taxable in India. Tax Appeal is therefore dismissed. 8. In the result, Tax Appeal is dismissed. Further that we have considered the judgment passed by the Coordinate Bench in the case of ACIT vs. Rimtex Industries in ITA No. 315/Rjt/2013 as relied upon by the Ld. AR and the judgment passed by the Hon ble Apex Court in the case of Ishikawajima Harima Heavy Industries Ltd. (2008) 288 ITR 408 (SC). 10. We find that the ratio laid down by all the above judgments holding that when the commission has been paid to foreign parties for rendering services admittedly abroad for soliciting customers for its export business activities, the appellant is not liable for short deduction of tax at source and therefore disallowance made on this score under Section 40(a)(ia) is not permissible. Hence, keeping in mind such judicial precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel Ltd. 14. We have heard the respective parties, we have also perused the relevant materials available on record including the orders passed by the authorities below. It appears that the assessee made the following submission before the Ld. AO:- Normally when we confirm any export sale contract, to prevent any future loss due to change in exchange rates we book (hedge) dollars from our Banker Oriental Bank of Commerce where we have document discounting limits. Latter on we submit the documents for collection/discount against this dollar booking contracts. Firstly we only sales the dollars and never purchase dollars. After dollar booking we give sales documents for collection/discount. Before the expiry of the contract if we cannot submit the documents then the unutilized part of contract is settled by the bank. Thus the forward contracts done by us are only one sided and only for the purpose of hedging and not the purpose of doing any speculative gain or loss. Thus if we book dollar for latter period then we get more rate i.e. we get premium as per RBI Banking premium rules. Similarly if we give the documents against future period of booking then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts have direct nexus with the export of specific merchandise and export receivables. The appellant s ld. AR also brought on record the large fluctuation in foreign currency during the relevant financial year, in order to justify the appellant s action of currency hedging. This is summarized supra, in the written submission. As per this chart, there is variation of upto 10 USD between May 2011 and December, 2011. I find substantial force in the above contention of the ld. AR . It is also seen that the issue is now squarely covered by the decision of the Hon. Gujarat High Court in the case of CIT vs. Panchmahal Steel ltd. where it relied upon its own decision in the case of Friends and Friends Shipping P. Ltd., wherein it was held that though the assessee is not a dealer in foreign exchange, it entered into forward contracts with banks for the purpose of hedging the loss due to fluctuation in foreign exchange while implementing the export contracts. The transactions in foreign exchanges were incidental to the assessee s regular course of business and the loss was thus not a speculative loss under section 43(5) but was incidental to the assessee s business and allowable as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal Ld. DR relied upon the order passed by the Ld. AO. 19. On the other hand, the Ld. Counsel appearing for the assessee submitted before us that the provision of sub- Section 1 of Sec. 14 A of the Act has not been complied with by recording satisfaction as to the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act, the addition made thereof by the Ld.AO is bad in law and deletion of the same made by the Ld. CIT-(A) cannot be questioned. He therefore prays for dismissal of the appeal preferred by the Revenue. We have heard the submissions made by the respective parties. We have also perused the relevant materials available on record. 20. The case of the assessee before the 1st appellate authority is this that since without recording satisfaction as contemplated in sub-section 1 of Sec. 14 of the Act, the Ld. AO proceeded to made disallowance under Section 14 A by applying provision of Rule 8D and as such the same is not permissible in the eyes of law and thus not sustainable. It appears that the Ld. CIT-A relying upon the series of judgements deleted the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be incorrect particularly taking into consideration the fact of non-recording of satisfaction as envisaged under sub-section 1 of Sec. 14 of the Act. Hence, we do not find any merit in the issue raised by the Revenue and therefore the same is dismissed. ITA No. 360/Rjt/2015 A.Y. 2011-12(Department s Appeal):- 21. The first ground of appeal basically relates to deletion of disallowance of export commission of ₹ 21,60,87,454/- under Section 40(A)(ia) of the Act. 22. The identical issue has already been dealt with by us in ITA No. 27/Rjt/2016 for A.Y. 2012-13 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this ground of appeal preferred by the Revenue is also dismissed. 23. The next ground of appeal relates to deletion of disallowance made on account of contract cancellation charges amounting to ₹ 10,04,33,270. The identical issue has already been dealt with by us in ITA No. 27/Rjt/2016 for A.Y. 2012-13 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, this ground of appeal preferred by the Revenue is also dismissed. ITA No. 315/Rjt/2015 A.Y. 2011-12(Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Co. vs. CIT reported in 35 ITR 461. 26. On the other hand, the case of the Revenue is this that such a claim is not allowable in terms of the provision 36(1)(vii) and 36(2)(i) of the Act. According to the Revenue in order to claim a bad debt the twin conditions to be fulfilled i.e. the amount is written off as the bad debts in the books of account of the assessee and such bad debts or part thereof has been taken into consideration in income of the assessee s previous year in which the amount of bad debt or part whereof is written off or of an earlier year. Such condition, however, was not fulfilled by the assessee as of the case made out by the Revenue. Furthermore, the appellant makes advances which is a current asset and is of capital outflow and when the same is forfeited resulting in a capital loss it directly affects the balance sheet. Hence, the same cannot be set off a revenue loss against the legitimate income. 27. We have also considered the judgment passed by the Hon ble Bombay High Court in the case of Narandas Mathuradas Co. vs. CIT reported in 35 ITR 461. While dealing with the identical issue the Hon ble Court was pleased to observe as follows:- 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the assessable profits can be ascertained. 5. The two authorities on which Mr. Joshi relied are both decisions of the Privy Council, and as will be noticed, the facts in those two cases were entirely different. The first is Tata Hydro-Electric Agencies Ltd. v. Commissioners of Income-tax. That is the well known case and it is in the context of the facts there that the Privy Council said at page 209 : Their Lordships recognise and the decided cases show how difficult it is to discriminate between expenditure which is and expenditure which is not, incurred solely for the purpose of earning profits or gains. 6. Now, in the first place, the Privy Council was not considering the case of a trading loss. The Privy Council was considering a specific allowance claimed under the provisions of section 10 (2) of the Income-tax Act, and even in deciding that the Privy Council felt difficulty, and were not made in the process of earning profits. They did not arise out of any transactions in the conduct of their business. That the assessees had to make those payments no doubt affected the eliminated yield in money to them for their business but the is not the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the deposit the assessee is obtaining a business. But that is not correct. It is true that under the Income-tax law even a single venture may be business, but his is not a case of a single venture. As we have pointed out before, it is in the course of the business which the assessee had been carrying on that it entered into this particular transaction. So this is neither a case of acquiring a new business, nor acquiring a joint nature. Further, at page 138 Sir George Rankin, who delivered the judgment of the Privy Council, points out that the deposit of ₹ 50,000 may be looked upon as a temporary investment because it yielded interest while it remained with the oil company. That feature is also absent in the case before us. Nobody can suggest that the deposit was made by the assessee as a temporary investment with the railway company. It was expressly made as an earnest; as security for carrying out the particular contract. Their Lordships also say that a deposit must be considered in relation to the Particular business, and when we look upon his deposit and the relation it has to the business of the assessee, it is clear that the deposit was made not for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on 14.05.2020 in the light of which it is well within the time limit permitted under Rule 34(5) of the Appellate Tribunal Rules, 1963 in view of the following observations made therein: 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 8th January 2020, this order thereon is being pronounced today on the day of 14th May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners :- (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15days after the lifting of lockdown . Hon ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is also clarified that while calculating time for disposal of matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 2020, held that directed while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly . The extraordinary steps taken suo motu by Hon ble jurisdictional High Court and Hon ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily , in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the poin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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