Anand International, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण, 'ए' खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A -BENCH सव ी डी. म मोहन, उपा य एवं राजे , लेखा सद य Before S/Sh. D. Manmohan,Vice President & Rajendra,Accountant Member आयकर अपील सं/.ITA No.5026/Mum/2013, नधारण वष/Assessment Year-2010-11 ACIT-25(3) M/s. Anand International 308, C-11, Bandra Kurla complex 76A & B-Govt. Industrial Estate, Bandra (East) Vs Charkop, kandivali (W) Mumbai-400 051. Mumbai-400 067.

PAN:AAAFA 2526 K (अपीलाथ /Assessee) ( यथ / Respondent) नधा रती ओर से/Assessee by :Shri Prakash Rathi राज व क ओर से/ Revenue by :Shri Asghar Zain सुनवाई क तार ख/ Date of Hearing :27- 04 -2015 घोषणा क तार ख / Date of Pronouncement :27-04-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dt.26/04/2013 of the CIT(A)-35 Mumbai,Assessing Officer has raised following Grounds of Appeal:

1." On the facts and in circumstances of the case and in law, the Ld CIT(A) relying on the assessee's submission with respect to M/s SKF Boilers and Driers(P) Ltd erred in not considering the decision of the AAR in the case of M/s S.KF Boilers and Driers(P) Ltd which is applicable in the case of the assessee and accordingly tax should have been deducted at source."

2." On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in not taking into account explanation 2 below section 195, inserted by Finance Act,2012, with retrospective effect 01.04.1962."

3."On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in not appreciating the fact that "commission" is part of the term "any other sum" in section 195 r.w.s section 40(a)(i) of the I.T.Act ,1961."

4."On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in relying on Circular No.786 dt. 7.2.2000 which is in conflict with the newly inserted Explanation 2 below section 195 of the Act and in such cases of conflict between Circular and Act, letter prevails."

5."The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the AO be restored."

6.'The appellant craves leave to amend or alter any ground or add a new ground."

Assessee-Firm,engaged in the business of export of writing of instruments and gifts sets filed its return of income on 23.09.2010, declaring total income of Rs.2,00,85,960/-.The AO finalised the assessment u/s.143(3) of the Act,on 11.02.2013,determining the total income of the assessee at Rs.2,60,51,190/-.

2.Effective ground of appeal is about non-consideration of explanation 2 below section 195, inserted by Finance Act,2012 by the First Appellate Authority(FAA).During the assessment proceedings,the AO found that the assessee had debited an amount of Rs.55.13 lakhs under the head export commission,that the recipient of the commission was based in USA.He directed the assessee to state as to whether taxes had been deducted at source on the payment and if not why the same should not be disallowed.In response to the notice the assessee replied that paying commission for sales at USA through Darvo Product(agent)in 2

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foreign currency to non resident agent directly to USA,that payment was made outside India,that Darvo product is having permanent establishment(PE)outside India,that it was providing services outside India,that commission was paid on actual realisation of sales,that the goods were directly supplied to buyers,that the assessee and Darvo Project were independent entities.The AO referred to the provisions of section 9(1)of the Act.Relying upon the decision of the AAR delivered in the case of SKF Boilers & Driers Pvt.Ltd. held that the commission payable to the agent abroad was deemed to accrue and arise in India. With regard to PE of the commission agent, he held that explanation 2 had been inserted below section 195 w.e.f.01.04.1962 by the Finance Act,2012.He finally held that the assessee was liable to deduct tax at source on payment of commission of Rs.55.13 lakhs to the agent in USA,the the assessee had failed to deduct tax,that the said amounts had to be disallowed u/s.195 r.w.s.40(a)(i)of the Act.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA.Before him,the assessee argued that section 195 of the Act was not applicable to export commission payment,that provisons of section 40(a)(i)were inapplicable,that tax was not deductible from payment of export commission to non resident,that the AO had not followed the provisions of Indo-US DTAA,that AAR decisions were applicable to binding only on the parties which were involved in those particular cases,that the AO did not follow the decisions that were delivered after the decision of SKF Boilers & Driers Pvt.Ltd.,that the AO had ignored the provisions of explanation 1(a)and 1(b)to section 9 of the Act.The assessee relied upon the decision of UTI(249ITR612)of the Hon'ble Bombay High Court with regard to withdrawal of circular and retrospective amendment.The assessee also relied upon various cases delivered by the Hon'ble Courts and the Tribunal.After considering the submission of the assessee and the assessment order,the FAA held that disallowance made by the AO had to be deleted considering the facts of the case and applying the ratio of various judicial pron- ouncements.

4.Before us,Departmental Representative(DR)argued that the assessee was liable to deduct tax for the commission paid to foreign agent,that the FAA had not ignored the decision of SKF Boiler & Driers Pvt.Ltd.,that amendment to the provisions of section 195(2) was ignored by the FAA.Authorised Representative(AR)stated that out of the total payments made three payments were made before the amendment,that the agent had no PE in India,that payment was made for the services rendered by the agent outside India.He relied upon the cases of Wizcraft International Entertainment Ltd.(364ITR227)and Rajiv Malhotra (284ITR564).

5.We have heard the rival submissions and perused the material before us.We find that the AO had made the disallowance considering the retrospective amendment made to section 195 of the Act.He also relied upon the judgment of SKF Boiler & Driers Pvt.Ltd.(supra).It is also found that the FAA had not discussed anything about both the arguments of the AO or has not distinguished the case relied upon by the AO,while deleting the addition.We would like to reproduce the operative part of the seventeen page order of the FAA and same reads as under:

"In view of the above facts of the case and applying the ratio of various judicial pronouncements relied upon by the appellant,the disallowance of Rs. 55,13,968/- in this case is deleted.In the result,the appeal is allowed."

From the above it is clear that the FAA has passed the order without assigning any reason for deleting the disallowance.It was the AR who informed that out of the total payments made by the assessee three payments were made before the amendment was introduced and 3

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remaining payments were made after the amendment.The FAA was either not aware of the those basic facts or had not mentioned those facts in his order.An order of the adjudicating authority without reason is like a body without soul.Reasons for upholding or reversing the decision of the lower authority have to be incorporated in the appellate orders.But,in the order before us,no reason has been given by the FAA for reversing the order of the FAA. How the cases relied upon the assessee were relevant to the facts of case has not been mentioned by the FAA.A sweeping statement has been made by him about application of the case laws.In our opinion,such an order does not fall in the category of speaking and reasoned order.In this regard,the Hon'ble Gauhati High Court has in the case of Buildwell Assam (P.)Ltd.(133ITR736)has held as under:

Section 250(6) of the I.T. Act, 1961, prescribes the manner of disposal of an appeal. An order must be in writing containing the points for determination and decision. The object is obvious. It enables a party to know the precise points decided in his favour or against him. Absence of formulation of points for decision or want of clarity in decision puts a party in a quandary. A decision against a party enables him to go up in appeal. A decision by its very nature must be firm and should not be vague and unclear.......the tenor and colour of the order of the superior authority must be firm, clear, certain, definite and without any ambiguity." In our opinion,the order of the FAA,before us,is not clear or certain or definite.It is a non speaking order and does not give reasons for arriving at the conclusion.We find that the decisions relied upon by the assessee do not deal with the issue before us.In the matter of Wizcraft International Entertainment Ltd.(supra)the issue before the Hon'ble Court was about applicability of article 7 and 18 of India UK treaty.Facts of the case were that the assessee, an event management company was engaged the services of an agent to bring artistes to India,that it reimbursed the expenses for transfer and performance actually incurred and also made payment to the agent. According to the AO, the income of the artiste was to be taxed in the State where the activities were being organised. Since the artiste had performed in India the income derived from that activity was taxable in India. The assessee neither paid tax on the whole amount nor filed the return. The assessee was, therefore, treated as defaulter.In our opinion facts of both the cases are not identical.Similarly,in the matter of Rajiv Malhotra (supra)the issue before the AAR was not the retrospective amendment to section 195(2)of the Act.

Considering the above,we are of the opinion that in the interest of justice,matter should be restored to the file of the FAA for fresh adjudication who would pass a speaking order.We decide the effective ground of appeal in favour of the AO in part.

As a result, appeal filed by the AO stands partly allowed. फलतः नधा रती अ धकार वारा दा खल क गई अपील आं शक प से मंजूर क जाती है . Order pronounced in the open court on 27th,April, 2015.

आदे श क घोषणा खल ु े यायालय म दनांक 27 अ ैल,2015 को क गई ।

Sd/- Sd/- (डी. म मोहन /D. Manmohan) (राजे / RAJENDRA) उपा य / Vice President लेखा सद य / ACCOUNTANT MEMBER मब ुं ई/Mumbai, दनांक/Date:27.04.2015 JV. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त 4

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5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, खंडपीठ,आ.अ. याया.मब ुं ई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मब ुं ई /ITAT, Mumbai.