Gujarat Gas Tradiang Co.Ltd.,, ... vs Assessee

ी जी.डी.अ वाल,उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य के सम । BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And SHRI KUL BHARAT, JUDICIAL MEMBER

1. आयकर अपील सं./I.T.A.No.2176/Ahd/2008-A.Y.2004-05 2. आयकर अपील सं./I.T.A.No. 768/Ahd/2010-A.Y.2005-06

1. Gujarat Gas Trading बनाम/ 1.The ITO, Co. Ltd. Vs. Ward-4(1) 2, Shantisadan Society Ahmedabad Nr.Parimal Garden Ellisbridge, Ahmedabad PAN : AAACK 7745 B

2. -do- 2.The Jt.CIT, Range-4,Ahmedabad (अपीलाथ& /Appellant) .. ('(यथ& / Respondents) अपीलाथ& ओर से / Appellant by : Shri S.N.Soparkar, AR '(यथ& क* ओर से/Respondent by : Shri Narendra Singh,Sr.DR

ु वाई क* तार-ख / सन Date of Hearing 28/07/2015 घोषणा क* तार-ख /Date of Pronounce ment 31/07/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These two appeals by the assessee are directed against the separate orders of the Ld.Commissioner of Income Tax(Appeals)-VIII, Ahmedabad ['CIT(A)' in short] dated 31/03/2008 & 09/12/2009 ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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pertaining to Assessment Years (AYs) 2004-05 & 2005-06 respectively. Since common issues are involved, both these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.

2. First, we take up the Assessee's appeal in ITA No.2176/Ahd/2008 for AY 2004-05 as a lead case. The Assessee has raised the following concised grounds of appeal:-

Pursuant to the directions from the Hon'ble Bench, appellant craves leave to submit the following concise grounds of appeal before the Hon'ble ITAT.

1. General

2. (a) Ld. CIT (A) erred in law and on facts in confirming action of AO in not granting deduction of Rs. 1, 45, 04,757/- commission on performance guarantee claimed during the assessment proceedings as per the agreement. Ld. CIT (A) ought to have allowed the deduction claimed,

(b) Ld. CIT (A) further erred in law and on fact in confirming action of AO in not granting deduction of Rs.3,20,07,330/- commission paid on purchases claimed during the assessment proceedings. Ld. CIT (A) ought to have deleted such disallowance as the expenses incurred wholly and exclusively for the purpose of business is an allowable expense.

3. & 4 Explanatory in support of Ground # 2(a) & 2(b)

5. Ld. CIT (A) erred in confirming action of AO disallowing the claim of business expenditure made in absence of filing Revised Return of ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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Income. Ld. CIT (A) ought to have accepted the claim made during the assessment proceedings of genuine & legitimate expenses.

6. Ld. CIT (A) erred in law and on fact in confirming action of AO in making addition of Rs. 1, 11, 330/- towards the purchase commission for the typographical error ignoring the submissions & details on record.

3. Ground No.1 is general in nature. Ground Nos.2 to 6 are inter- connected and, therefore, the same are decided together.

4. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 19/12/2006; thereby the Assessing Officer (AO in short) made addition of Rs.1,11,330/- on account of disallowance of commission on performance guarantee. Against the said assessment order, the assessee preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee, dismissed the appeal.

5. The ld.counsel for the assessee submitted that the assessee was required to make payment of commission as per the agreement. In support of the contention, ld.counsel for the assessee drew our attention towards paper-book at page Nos.53 to 57 & 58 to 65. The ld.counsel for the assessee submitted that the authorities below ought to have allowed the expenditure. The ld.counsel for the assessee submitted that ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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the expenditure was essential for the purpose of business. He further submitted that the orders of the authorities below are cryptic in nature.

5.1. On the contrary, ld.Sr.DR supported the orders of the authorities below.

6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO decided the issue by observing as under.

"4. In the statement of total income filed along with the return the assessee has added back following amount to the net profit as per P&L A/c.

Commission on performance guarantee Rs.1,45,04,757/-

Purchase Commission Rs.3,18,96,000/-

In this connection the assessee has appended a note to the statement as under:-

"During the year under review the assessee company has made provision for commission for performance guarantee given to supplier on behalf of the company of Rs.1,45,04,757/- and has also provided for commission on purchase aggregating to Rs.3,18,96,000/-. The same has been disallowed and will be claimed at the time of actual payment with necessary documents, as per law."

However, against this stand taken by the assessee, vide Point No.16 to reply dated 11/08/06 the assessee has submitted that the same is as per agreement and hence it is allowable as business expenses and therefore the same be allowed accordingly. To substantiate this, the assessee at page A-47 has given the details of purchase expenses breakup according to which the commission on corporate given to supplier is ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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shown as per statement. However, the amount of commission on purchase is stated at Rs.3,20,07,330/- against the purchase commission added back in the statement at Rs.3,18,96,000/-. From time and again during the course of assessment proceedings the assessee was requested to explain the difference of Rs.1,11,330/-. In response to this specific request, the assessee vide at Point No.1 submission dated 7/11/06 has corrected the mistake and agreed that the correct amount is Rs.3,20,07,330/-.

The difference amount of Rs.1,11,330/- is therefore added to the total income of the assessee."

6.1. On appeal to the ld.CIT(A), the ld.CIT(A) dismissed the appeal by observing as under:-

"6. On consideration of the above facts of the case and the submissions of the ld.A.R. as the appellant has not filed revised return claiming the above expenses and has filed a simple letter before the A.O. and further the full facts have not been placed before the A.O. and details and evidences have not been filed before the A.O. and further I find from whatever details have been filed before me the necessity of incurring the expenses is not established and also it is not established that services have been rendered by the payees, the claims made by the appellant are dismissed. Further the addition of Rs.1,11,330/- made by the A.O. is found to be proper and so the same is upheld."

6.2. The contention of the ld.counsel for the assessee is that all the details were available before the ld.CIT(A) and ld.CIT(A) ought to have allowed the claim. He submitted that the claim otherwise available to the assessee can be made before the appellate authority. In support of this, he placed reliance on the judgement of Hon'ble Apex Court rendered in the case of Goetze (India) Ltd. v CIT (284 ITR 323)[SC]. The undisputed fact emerges that the assessee, in the assessment year under ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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consideration, himself had added the amount of commission on performance guarantee and purchase commission into the Net Profit and appended a note which was reproduced by the AO in his order. However, during the course of assessment proceedings, vide letter dated 11/08/2006, the assessee claimed the expenditure stating that the expense was allowable. We find that the ld.CIT(A) has rejected the ground on the basis that the assessee has not filed the revised return claiming the above expenditure and has filed a simple letter before the AO and further the full facts have not been placed before the AO and also details and evidences have not been filed before the A.O. The ld.CIT(A) also observed that the details filed before him the necessity of incurring the expenses is not established and also it is not established that services have been rendered by the payees. We find that the contention of the assessee is that the expenditure was required to be incurred under a contract, therefore being a contractual liability, the assessee was required to make the payment of commission as per the terms of the agreement. The liability of the expenditure is not disputed and the expenditure has been disallowed on the basis that the details were not available before the authorities below. Under these facts of the case and taking a note of the fact that the assessee has produced copies of various agreements relating to the payment of commission were required to be paid by the assessee, we are of the considered view that the AO should verify the evidences placed before him about the quantum of commission paid and also the ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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nature of services received by the assessee. Thus, grounds raised in this appeal are restored to the file of AO for verification and the appeal of the assessee for AY 2004-05 is treated as allowed but for statistical purposes.

7. Now, we take up the Assessee's appeal in ITA No.768/Ahd/2010 for AY 2005-06. The Assessee has raised the following grounds of appeal:-

Your appellant being aggrieved with the order passed by the CIT (Appeals) VIII, Ahmedabad presents this appeal against the same on the following amongst other grounds.

1. The order passed by learned CIT (Appeals) is bad in law and on fact and hence it is requested that the same be suitably modified.

2. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer of the appellant's claim for deduction of Rs.l,28,55,000/- and of Rs.1,45,80,000/- being expenses payable towards purchase commission and commission on performance guarantee respectively to British Energy Holdings Limited.

3. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the aforesaid disallowance made by the AO by not taking cognizance of the revised return of income filed electronically on 25/7/2007.The learned CIT (A) wrongly confirmed the disallowance made by the Assessing Office for the appellant's claim without appreciating the fact that the appellant had claimed the aforesaid expenditure even at the time of assessment u/s.143(3) and during the assessment the appellant produced all the relevant documents, copies of agreements called for substantiating the appellant's claim that this expenditure is a genuine business expenditure.

4. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer without appreciating the fact that the expenditure in question has been incurred wholly and exclusively for the purpose of the business of the appellant and the liability on account of such ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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5. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer by arbitrarily holding that there are no evidences produced by the appellant for the services rendered by BG Energy Holdings Limited during the year under appeal. The appellant submits hereby that it had produced all the evidences and records for the services rendered by the BG Energy Holdings Limited during the assessment proceedings as well as appellate proceedings however the submissions have been ignored while confirming the disallowance.

6. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer by arbitrarily holding that if there are no changes in the terms and conditions of the agreement affecting the payment then the said expenditure need not be accounted or claimed as tax deductible subsequently. The appellant would like to bring to your notice that any business expenditure should be allowed as a deductible expenditure if it has been incurred directly or indirectly for the business of the appellant even though there are no changes in the terms and conditions of the agreement. The fact that the appellant exercised prudence in not claiming these amounts as deductible expenditure till they were paid should not be used against the appellant.

7. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer by arbitrarily holding that the payments in question are in the nature of commission attracting deduction of tax at source as per the provisions of Chapter XVTI-B I.T. Act without appreciating the fact that the payments in question are in the nature of income from business in the hands of the recipients and as per Article 7 of the DTAA (Double Tax Avoidance Agreement) between India and the United Kingdom the aforesaid income is not taxable in India because BG Energy Holdings Limited did not have any permanent establishment in India during the year under appeal. Hence, there was no liability to deduct tax at source from such payments. The learned CIT (A) failed to appreciate the fact that as per legal opinion placed on record, the payment being in the nature of income from business in the hands of the non resident, there was no liability to deduct tax at source and therefore the provisions of Section 40 (a) (ia) are not applicable to the facts of the appellant case.

ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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8. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the disallowance made by the learned Assessing Officer without clearly stating or bringing on record the additional specific evidences required from the appellant to substantiate that services were rendered by BG Energy Holdings Limited to the appellant in this specific business transaction. The appellant would like to bring to your notice that it had submitted all the necessary evidence during assessment proceedings as well as the appellate proceedings for substantiating the services rendered by BG Energy Holdings Limited to the appellant. However all the evidence have been negated arbitrarily

9. It is therefore prayed that the disallowance made by the learned Assessing Officer and confirmed by the CIT (A) of the appellant's claim for deduction of expenditure on purchase commission and commission on performance guarantee payable to British Gas Energy Holdings Ltd may please be deleted.

10. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the addition of Rs. 26,00,000/- made by the learned Assessing Officer on account of interest received from M/s. United Phosperous without appreciating the fact that the appellant had disclosed the receipt of such interest as income in F.Y. 2003-04 and 2004-05 on accrual basis and documentary evidence in the form of ledger accounts were furnished which corroborated disclosure of such income.

11. The learned CIT (Appeals) has grossly erred in law and on facts in confirming the addition of Rs. 26,00,000/- made by the learned Assessing Officer without appreciating the fact that even as per sub-rule (3) & (4) of Rule 37BA of Income Tax Rules to be read with Section 199 of the Income Tax Act the credit for tax amounting to Rs.5,43,660 is allowable to the appellant.

12. It is therefore prayed that the impugned addition of Rs. 26,00,000/- made by the AO and confirmed by the CIT (A) may please be deleted. Your appellant prays for leave to add, alter and/or amend all or any of grounds before the final hearing of appeal filed.

7.1. In this appeal, the facts are identical to the facts of assessee's appeal in ITA No.2176/Ahd/2008 for AY 2004-05(supra). The respective representatives of the parties adopted their arguments as were ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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addressed in ITA No.2176/Ahd/2008(supra), wherein we have allowed the appeal of the assessee for statistical purposes. Accordingly, the appeal of the assessee for this AY 2005-06 also, for the same reasoning, we restore all the grounds raised by the assessee to the file of AO for verification. As a result, this appeal of the assessee is also allowed for statistical purposes.

8. In the combined result, both the appeals of the Assessee for AYs 2004-05 & 2005-06 are allowed for statistical purposes.

Order pronounced in the Court on Friday, the 31st day of July, 2015 at Ahmedabad.

Sd/- Sd/- (जी.डी.अ वाल) (कुल भारत) उपा य (अहम. े ) या यक सद य ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER

Ahmedabad; Dated 31/ 07 /2015 ट-.सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA Nos.2176/Ahd/2008 & 768 /Ahd/2010 Gujarat Gas Trading Co.Ltd. vs. ITO & JCIT Asst.Year(s) - 2004-05 & 2005-06 respectively

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आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to : 1. अपीलाथ& / The Appellant 2. '(यथ& / The Respondent. 3. संबं7धत आयकर आयु9त / Concerned CIT

4. आयकर आयु9त(अपील) / The CIT(A)-VIII, Ahmedabad

5. :वभागीय ' त न7ध, आयकर अपील-य अ7धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड< फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स(या:पत ' त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 28.7.15 (dictation-pad 8+ pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..29.7.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......31.7.15

7. Date on which the file goes to the Bench Clerk.....................31.7.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................