TMI Blog2024 (3) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... - As submitted that pursuant to remand by the coordinate bench, the issue is still under consideration before the learned CIT(A) and no order has been passed till date. Accordingly, we deem it appropriate to restore the issue of levy of penalty in respect of the aforesaid additions to the file of the learned CIT(A). Penalty levied in relation to Foreign travelling expenses and commission and brokerage paid to foreign agent - It is an admitted position that in the quantum appeal before the Tribunal, the assessee did not press its ground challenging the aforesaid addition. During the hearing, no material was brought on record to controvert the findings of the AO that the expenditure incurred on foreign tours of the family members is wholly and exclusively for the purpose of the business of the assessee. Accordingly, we find no infirmity in the findings of the learned CIT(A), vide impugned order, in upholding the penalty in relation to the aforesaid addition. Validity of the penalty order due to not striking off one of the limbs while initiating the penalty under section 271(1)(c) - From the perusal of the notice issued u/s 274 r/w section 271 we find that the AO has placed the tick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case are that the assessee is engaged in the business of manufacturing drugs and drugs intermediaries, etc. For the year under consideration, the assessee filed its return of income on 27/11/2006 declaring a loss of Rs. 2,41,764/-. The return filed by the assessee was selected for scrutiny and vide order dated 05/12/2008 passed under section 143(3) of the Act the income of the assessee was assessed at Rs. 47,38,860/- after making various additions/disallowances. In further appeal, the learned CIT(A) partly allowed the appeal filed by the assessee. In the meanwhile, the penalty proceedings vide notice dated 11/12/2008 issued under section 274 r/w section 271(1)(c) of the Act were initiated. The Assessing Officer ( AO ) vide penalty order dated 26/03/2013, passed under section 271(1)(c) of the Act, levied a penalty of Rs. 11,23,763/-. In the quantum appeal against the aforesaid order passed by the learned CIT(A), the coordinate bench of the Tribunal vide order dated 20/05/2019 granted partial relief to the assessee. Accordingly, vide impugned order, the appeal by the assessee, against the penalty order passed under section 271(1)(c) of the Act, was partly allowed. 5. In the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position. 6. It is an admitted position that so far as the airfreight is concerned, it is paid to the agents on the actual basis and that the bills and airfreight documents have been directly issued to the foreign airlines. PDP and DHL, while accepting payments for airfreight components, have acted merely as agents of the respective airlines and have not received the airfreight payments in their own right. In copies of airway bills, which have been filed before us in the paperbook, the name of these agents is shown as Issuing carrier's agent and the city as also the agent's code is given as Agent's IATA code . There is thus enough material to demonstrate that the persons having received money for the airfreight have received the same in their capacity as issuing carrier's agent i.e. agent of the airline concerned. The airfreight payment is thus made to the foreign airlines, namely SIA, Emirates, British Airway s and Lufthansa - though through the agent, i.e. PDP and DHL etc. 7. In view of the above discussions, in our considered view , the payments cannot be said to have been made to a resident company , and, accordingly, the provisions of Section 194 C , whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation of the High Court completely loses sight of the plain words of section 195(1) which in clear terms lays down that tax at source is deductible only from sums chargeable under the provisions of the Income -tax Act, i.e., chargeable under sections 4, 5 and 9 of the Income -tax Act. 9. We have also noted that it is not even the revenue's case that the amounts paid to foreign airlines, on account of airfreight payments, are taxable in India, and quite rightly so, because, as the provisions of all the respective tax treaties clearly provide , the profits from operations of ships and aircrafts in the international traffic are taxable only in the state in which the respective enterprise are fiscally domiciled and not in the source state. This rule, howsoever devoid of paradigm justification as it may appear to many of us, is one of the fundamental rules followed in almost all the tax treaties and our tax treaties with UK, UAE, Singapore and Germany are no exception to this general rule. It is only elementary that a tax deduction at source under section 195 is only a vicarious liability inasmuch as when recipient s of income, i.e. the airlines concerned, have no primary liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 of the Act. 9. Further, during the assessment proceedings, it was observed that the assessee has claimed Rs. 4,21,306/- in the profit and loss account under the head manufacturing and other expenses . From the response to the notice under section 133(6) of the Act issued to M/s JAES Construction, it was observed that one of the bills amounting to Rs. 3,71,430/- claimed in the profit and loss account was an intentional mistake committed by the assessee, as had it been capitalised, the assessee could not have been able to suppress its income. Accordingly, the AO vide order passed under section 143(3) of the Act disallowed the amount of Rs. 3,71,430/- and added the same to the total income of the assessee. 10. In further appeal, the learned CIT(A) dismissed the grounds raised by the assessee in respect of the aforesaid additions. We find that the coordinate bench of the Tribunal vide aforesaid order dated 20/05/2019, passed in assessee s quantum appeal, restored both issues to the file of the learned CIT(A) to be decided after considering the facts and law. It is evident from the record that the learned CIT(A), vide impugned order, affirmed the findings of the AO and upheld the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business of the assessee. Accordingly, we find no infirmity in the findings of the learned CIT(A), vide impugned order, in upholding the penalty in relation to the aforesaid addition. (e) Penalty levied in relation to commission and brokerage paid to foreign agent 13. During the assessment proceedings, it was observed that the expenditure of Rs. 66,015/- claimed to have been paid against commission and brokerage, the assessee had not submitted any supporting bills and vouchers. Further, the assessee has not established any connection of the aforesaid expenditure with the business of the assessee. Accordingly, the AO disallowed the aforesaid expenditure of Rs. 66,015/- and added the same to the total income of the assessee. In further appeal, the learned CIT(A) dismissed the ground raised by the assessee on this issue. It is an admitted position that the assessee did not raise any ground against the aforesaid addition in its quantum appeal before the Tribunal. During the hearing, no material was brought on record to prove that the expenditure was incurred wholly and exclusively for the purpose of the business of the assessee. Accordingly, we find no infirmity in the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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