TMI Blog2023 (3) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio laid down by this Court in [ 2014 (4) TMI 235 - GUJARAT HIGH COURT ] where the assessee had claimed the deduction u/s 40(a)(ia) towards the reimbursement of charges paid to C F agent and also the reimbursement of the expenses towards consignment agents, which were disallowed by the Assessing Officer solely on the ground that the assessee had not deducted TDS on the said amount. We found that the relation between the assessee and the agent was that of a principal and agent. The ITAT in that matter had held that there was an obligation to deduct the tax at source from the payment of transfer charges and other charges were concerned, which had been complied with by the agent. This Court had not interefered with when the CIT (Appeals) had quashed and set aside the order passed by the AO of deleting the dis-allowance claimed by the assessee under Section 40(a)(ia) and confirmed by the ITAT. Applying the same to the instant case also, it does not arise any substantial question of law and hence, question (A) is not entertained. Addition on account of the interest and of insurance expenses so also the depreciation, petrol and repair expenses - HELD THAT:- This relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export since was by a huge sum almost 5.54 times of exports to the sister concern, it was held that the same is not possible as the under invoicing the Gross Profit rate and Net Profit rate by this method would work out to be 64.79% and 46.38%. Considering strongly acceptable reasonings of both the CIT(A) and the ITAT, it could be noticed that when the assessee s books of account had been duly audited and at no stage, the Tax Auditor had questioned its books of accounts or the method used by the assessee with the AO having not referred this to the Transfer Pricing Officer and instead having adopted a method which is alien to the statute, both authorities have rightly held this to be the method and act non-acceptable. - R/TAX APPEAL NO. 278 of 2020 - - - Dated:- 3-1-2023 - HONOURABLE MS. JUSTICE SONIA GOKANI AND HONOURABLE MR. JUSTICE SANDEEP N. BHATT Appearance: For the Appellant(s) No. 1 : Mr. Varun K. Patel (3802) With Mr Dev D Patel For the Opponent(s) No. 1 : Ld. Sr. Adv. Mr. Tushar Hemani Assisted By Ms Vaibhavi K Parikh (3238) ORAL JUDGMENT (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1. The Income Tax Appellate Tribunal, Ahmedaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has incurred huge advertisement expenses in foreign markets? [J] Whether the Appellate Tribunal has erred in stating that net profit of 46.38% is not possible when the Hon'ble Karnataka HC has held in CIT vs. Vesesh Infotechnics Ltd. 210 Taxman 522 that even a profitability of 94.8% is possible? 2. This Court [Coram:Hon ble The Chief Justice Mr.Vikram Nath (as His Lordship then was) Justice J.B.Pardiwala (as His Lordship then was)] decided the Tax Appeals No.278 and 279 of 2020 by a common oral order as the questions proposed by the revenue in both the appeals were the same and the assessee also was the same. They were taken up for hearing analogously and the Court held thus after reproducing the substantial questions of law raised: *** 5. Having heard Ms.Mauna Bhatt, the learned senior standing counsel appearing for the Revenue and having gone through the materials on record, we are of the view that none of the questions as proposed by the Revenue could be termed as the substantial questions of law. All the questions proposed are on factual aspects of the matter. 6. In such circumstances, referred to above, both the appeals fail and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the revenue are not recorded, the impugned order passed by the High Court dismissing the appeal is unsustainable. 3.2 Under the circumstances, the impugned order is hereby quashed and set aside. The matter is remanded to the High Court to decide and dispose of the appeal afresh in accordance with law and on its own merits. If the High Court is of the opinion that the proposed questions of law are not substantial questions of law and they are on factual aspects, it will be open for the High Court to consider the same in accordance with law, however, the High Court to pass a speaking and reasoned order after recording the submissions made on behalf of the respective parties. 4. The present appeal is allowed to the aforesaid extent. No costs. 3. The matter was taken up for hearing. This Court has heard the learned senior standing counsel, Mr. Varun Patel appearing with learned advocate, Mr. Dev D.Patel for the appellant and learned senior advocate, Mr.Tushar Hemani assisted by the learned advocate, Ms.Vaibhavi Parikh. 4. Brief facts would be needed to be touched upon. 4.1 The return of income for the assessment year 2010-11 was filed by the assessee on 08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid the freight expenses, which can be either of an agent on behalf of the nonresident or they can be principal shipping lines and there cannot be any other relationship between the assessee and those parties and hence, the provision of Section 194C(6) of the IT Act will not be applicable in case of the assessee. Whether those parties were shipping agents of a non-resident or principal shipping line also it had verified the details and found no indications that the recipient parties were agents of non-resident shipping companies and they had acted as principal shipping lines. And hence, any payment to this company is required deduction of TDS under Section 194C of the IT Act by holding that the Circular No.723 issued on 19.09.1995 would not be applicable. 5. This first question raised in this appeal has been raised before the CIT Appeals by the Revenue. From the verification of the bills, the CIT Appeals found that the bills were raised to appellants with composite amount reflecting the freight expenses in foreign currency i.e. US Dollars converted into the Rupees of that date with other charges like terminal handling, documentation in Indian rupees. The CIT (Appeals) was convi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenged by the Revenue before the Income Tax Appellate Tribunal ( the ITAT hereinafter). The ITAT held that the assessee while exporting its goods, booked the container of various foreign shipping companies through their offices in India/clearing and forwarding agents (C F) who dealt with the office of such shipping companies. The receipt of bills for freight and other related charges of shipping companies, the assessee paid to clearing and forwarding agents, who made the payment to the concerned shipping companies. Thus, the bills comprised of freight in foreign currency, terminal handling charges, documentation charges, etc. On terminal handling charges and documentation charges, the assessee had already deducted the tax at source paid to those agents, however, the payment made to non-resident shipping company in foreign currency by such agent being the reimbursement of actual payment, no tax was required to be deducted at source as it appears from the record as was rightly held by the CIT. It has also taken note of the CBDT Circular No.723 as agents acting on behalf of the non-resident ship-owners and therefore, they step into the shoes of the principal. 5.6 Alternatively, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carries passengers, livestock, mail or goods shipped at a port in India. An analysis of the provisions of section 172 would show that these provisions have to be applied to every journey a ship, belonging to or chartered by a non-resident, undertakes from any port in India. Section 172 is a self-contained code for the levy and recovery of the tax, ship- wise, and journey-wise, and requires the filing of the return within a maximum time of thirty days from the date of departure of the ship. 3. The provisions of section 172 are to apply, notwithstanding anything contained in 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 a voyage undertaken from any port in India by a ship under the provisions of section 172. 4. Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a) to () of sub-section (1) to any resident (termed as contractor). It is clear from the section that the area of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, which had been complied with by the agent. This Court had not interefered with when the CIT (Appeals) had quashed and set aside the order passed by the Assessing Officer of deleting the dis-allowance claimed by the assessee under Section 40(a)(ia) and confirmed by the ITAT. Applying the same to the instant case also, it does not arise any substantial question of law and hence, question (A) is not entertained. 7. So far as question (B) and (C) are concerned, it relate to the deletion of addition on account of the interest and of insurance expenses so also the depreciation, petrol and repair expenses. Both these questions in a consolidate manner have been dealt with by the ITAT. This relates to the deletion of the disallowance made in respect of the interest and insurance expenses claimed on vehicle and part dis-allowance in respect of depreciation and incidental expenses claimed on vehicle. The car since has been reflected as an asset in the balance sheet of the company and the car loan also appeared as a liability in the company s balance sheet, which would have its dominion over the car although the resolution for registration of the said car was in the name of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly questionable. It has also struck a good balance after looking at the entire set of facts and even otherwise the tax effect if is looked at then also, this does not require any interference nor any admission as the substantial question of law. 8. Question D , E and F are concerned there had been a dis-allowance of expense of the web designing and development to the tune of Rs.6,72,442/- for the market survey and production of commercial films for broadcasting on T.V. channel Rs.8,71,278/- and for the advertisement of the film there had been a dis-allowance of expense of Rs.30,20,703/-. 9. We have extensively heard the learned advocates on both the sides, where emphasis on the part of the assessee had been that these are the revenue expenses and they had no enduring benefits. The CIT (Appeals) found that these expenses were in the nature of the revenue expenses being recurring in nature and the details had been verified also. It is also given appealing rational that web-designing and development expenses are for the purpose of day to day running of the business and even if, it is to be termed as enduring benefit, the benefit cannot be said to accrue to the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the drain in which the same were being discharged used to overflow. (2) The citizens and agriculturists affected by the aforesaid phenomenon were loudly and strongly protesting in this behalf. (3) The assessee-company could reasonably apprehend a spate of suits instituted by the citizens in order to prevent the alleged nuisance which endangered their health and safety. (4) The municipality could not have remedied the situation with its own resources as they then existed soon enough to prevent litigation that could be reasonably apprehended. (5) If the assessee-company was injuncted from operating its mills even for a short duration it would have suffered financial dormant for several obvious reasons. The overhead expenses would have to be incurred as usual without being able to carry on its manufacturing activities. It also ran the risk of losing the market, customers and goodwill. Someone else would have stepped into its shoes in the matter and won the allegiance of the customers of the assessee-company. In these facts and circumstances, the problem is posed whether the contribution made to the municipality for repairing the drainage pipeline is busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to satisfy his philanthropic urges. Explanation - Factors (1) and (2) are laudable but the altruistic or philanthropic urges can be satisfied at one's own cost or sacrifice. Not at the cost of public exchequer or other taxpayers and those living below the poverty line. 3. mainly in order to win applause or earn garlands or public appreciation. 4. for illegal, immoral or corrupt purposes or by any such means or for any such reasons. 5. mainly in order to oblige a relative or an official. 6. mainly in order to earn the goodwill of a political party or a politician. 7. mainly in order to show off or impress others with his affluence or for ostentatious purposes. 8. Apparently for a factor listed as a positive factor in the left side column but in reality for one of the obnoxious purposes listed hereinabove. 9. On a nebulous plea or pretext by way of an alibi in the name of winning profits in remote future or promoting business prospects by really for one or the other of the above mentioned purposes. 10. it must not be a bogus, fictitious or sham transaction. 11. it must not be unreasonable and out of proportion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in detail by the assessee. The assessee was also requested to produce the entire export ledger for the period under consideration. It was also found that there were instances when these goods have been sold almost on the same dates, but there was a huge discount on each of the products which had been sold to the Bajaj Herbal FZE LLP, the sales data had been analyzed product wise regarding the price at which it had been sold to its sister concerned vis-a-vis the sale of the same product for other and after tabulating the same, the Assessing Officer concluded that there was a clarity from this record that the assessee had under invoiced its sales to sister concern by huge margin. The average sale rate charged to its sister concern was 15.29% of the rate at which the sale had been booked to others. The product wise under invoicing ranged from 3.16% to 366.32% on each products. Thus, on an average price charged to its sister concern, but lower by 84.71%. Therefore, it was once again given an opportunity to explain this and thereafter it choose to work out the under invoicing to the tune of Rs.13,44,47,290/-. 13. When challenged by the assessee before the CIT(Appeals), it held in f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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