M/s Nimbus Industries, Kolkata V. ACIT, CIR-49, KOLKATA, Kolkata

CO 34/KOL/2015

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3378 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOUMYAJIT DASGUPTA
• Keywords: Business income; Business expenditure; Commercial expediency
• Section: 143(3); 133(6); 131; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] I.T.A NO. 859/KOL/201 5 ASSESSMENT YEAR : 2010-1 1 DCIT, CIRCLE-49, KOLKATA -VS- M/S NIMBUS IN DUSTRIES [PAN: AAEFN 1081 E] (APPELLANT) (RESPONDENT) C.O. NO. 34/KOL/2015 (ARISING OUT OF I.T.A NO. 859/KOL/2015) ASSESSMENT YEAR : 2010-1 1 M/S NIMBUS INDUSTRIES -VS- DCIT, CIRCLE-49, KOLKA TA [PAN: AAEFN 1081 E] (CROSS OBJECTOR) (RESPONDENT ) FOR THE DEPARTMENT : SHRI SOUMYAJIT DA SGUPTA, ADDL. CIT FOR THE ASSESSEE : SHRI S.S. GUPTA, FCA SHRI ARVIND AGARWAL, ADVOCATE DATE OF HEARING : 15.11.2017 DATE OF PRONOUNCEMENT : 01.12.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE AND CROSS OBJECTION B Y THE ASSESSEE ARISE OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)-15, KOLKATA [IN SHORT THE LD CIT(A)] IN APPEAL NO.23/CIT(A)-15/14-15/CIR-49/K OL DATED 23.03.2015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-49, KOLKATA [ IN S HORT THE LD AO] UNDER SECTION 2 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 2 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) DATED 22.03.2013 FOR THE ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE TO BE DECIDED IN THE APPEAL OF T HE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF COMMI SSION PAID TO M/S R.N.FORGINGS PVT LTD IN THE SUM OF RS 44,55,078/- IN THE FACTS AND C IRCUMSTANCES OF THE CASE. THE INTERCONNECTED ISSUE TO BE DECIDED IN THIS REGARD I S AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF COMMISSI ON PAID TO THREE INDIVIDUALS IN THE SUM OF RS 10,81,079/- IN THE FACTS AND CIRCUMSTANCE S OF THE CASE FOR WHICH ASSESSEE HAD RAISED CROSS OBJECTION BEFORE US. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC PIPES AND FITTIN GS, SPRINKLER IRRIGATION AND DRIP IRRIGATION SYSTEM AT THE PLANT AT JAIPUR AND ALSO U NDERTAKE THE LAYING AND JOINTING WORKS OF PLASTIC PIPES AND FITTINGS MANUFACTURED BY THEM. THE FIRM CONTINUED ITS BUSINESS IN THE STATUS OF THE PARTNERSHIP FIRM UP TO 19.1.2010 AND W.E.F. 20.01.2010, IT WAS CONVERTED INTO A LIMITED COMPANY UNDER THE NAME AND STYLE OF NIMBUS PIPES LTD AND ALL ITS ASSETS AND LIABILITIES WERE TRANSFERRED IN THE COMPANIES BOOKS AND INCOME TAX RETURN OF THE SAID COMPANY WAS FILED INDEPENDENTLY FOR THE PERIOD 20.1.2010 TO 31.3.2010. THE INCOME TAX RETURN OF THE FIRM FOR T HE PERIOD 1.4.2009 TO 19.1.2010 WAS ELECTRONICALLY FILED BY THE ASSESSEE ON 28.9.2010 D ECLARING TOTAL INCOME OF RS 11,26,840/- AND REFUND WAS CLAIMED AT RS 1,34,694/- WHICH WAS ON ACCOUNT OF EXCESS TAX DEDUCTED AT SOURCE BY THE PARTY. 2.2. THE LD AO OBSERVED THAT THE ASSESSEE HAD DEBIT ED EXPENDITURE TOWARDS PAYMENT OF COMMISSION TO THE TUNE OF RS 58,87,339/- AGAINST TH E DISCLOSED TURNOVER OF RS 26.33 CRORES. THE ASSESSEE SUBMITTED COPIES OF COMMISSI ON BILLS AND SUMMARY OF COMMISSION PAYMENT PARTY WISE AS UNDER:- 3 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 3 AQUEOUS SOLUTION 3,28,372 R.N.FORGINGS PVT LTD 44,55,078 RAJENDRA KUMAR BHARATIA 3,02,196 MAHENDRA KUMAR BHARATIA 1,49,989 OMPRAKASH SHARMA 6,28,894 THE LD AO COMPARED THESE PARTIES WITH THOSE PARTIES TO WHOM COMMISSION WAS PAID IN THE ASST YEAR 2009-10 AND CAME TO A CONCLUSION THAT EXCEPT AQUEOUS SOLUTION, ALL OTHER PARTIES TO WHOM COMMISSION WAS PAID IN ASST YEAR 20 10-11 WERE NEW. HE ALSO OBSERVED THAT THE COMMISSION PAID IN THE YEAR UNDER APPEAL HAD INCREASED SUBSTANTIALLY AS COMPARED TO THAT OF ASST YEAR 2009-10. 2.2.1. COMMISSION PAID TO R.N.FORGINGS PVT LTD RS 44,55,078/- THE ASSESSEE PROVIDED A COPY OF CONTRACTUAL AGREEME NT DATED 18.3.2009 IN CONNECTION WITH PAYMENT OF COMMISSION TO R.N.FORGINGS PVT LTD IN RESPECT OF SALES MADE BY THE ASSESSEE COMPANY TO M/S NIMBUS IRRIGATION PVT LTD [ IN SHORT NIPL] . THE ASSESSEE CLAIMED THAT M/S NIPL WAS THE DISTRIBUTOR OF ASSESS EES PRODUCTS I.E HDPE PIPES AND IRRIGATION SYSTEMS AND HAD BEEN ACTING AS WHOLESALE DISTRIBUTOR OF ASSESSEES PRODUCTS FOR SEVERAL PRECEDING YEARS INCLUDING THE YEAR UNDE R CONSIDERATION. THE LD AO OBSERVED THAT THE ASSESSEE HAD ALLOWED NIMBUS IRRIGATION TO USE ITS OWN TRADE / BRAND NAME NIMBUS. THIS CLEARLY INDICATE THAT NIPL WAS AN A SSOCIATE COMPANY OF ASSESSEE FIRM. THE LD AO QUESTIONED THE NECESSITY OF MAKING PAYMEN T OF COMMISSION TO R.N.FORGINGS PVT LTD FOR EFFECTING SALES TO NIPL WHO IS ALREADY ACTING AS A TRUSTED DISTRIBUTOR FOR THE ASSESSEE. HE OBSERVED THAT NO PRUDENT BUSINESSMAN WOULD LIKE TO PAY AN AGENT FOR SELLING TO ITS OWN DISTRIBUTOR. HE MENTIONED THAT THERE IS NO WRITTEN AGREEMENT BETWEEN ASSESSEE FIRM AND NIPL. WHAT IS THE NATURE OF SERV ICES RENDERED BY R.N.FORGINGS PVT LTD FOR IMPROVING THE SALES OF THE ASSESSEE FIRM HA D NOT BEEN PROVED BY THE ASSESSEE. 4 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 4 THE LD AO OBSERVED THAT M/S R.N.FORGINGS PVT LTD DO ES NOT POSSESS THE REQUISITE EXPERTISE IN THE FIELD OF HDPE PIPES AND IRRIGATION SYSTEMS AND HENCE THEY CANNOT ACT AS A SELLING AGENT FOR SELLING THE ASSESSEES PRODU CTS. HE VERIFIED THE BUSINESS TYPE AND PRODUCT PROFILE OF R.N.FORGINGS PVT LTD FROM THE IN TERNET AND CONCLUDED THAT THE SAID COMPANY IS ENGAGED IN THE MANUFACTURE AND SUPPLY OF M.S.INGOTS, COPPER INGOTS, ALUMINIUM ALLOY INGOTS , STAINLESS STEEL INGOTS ETC . HE VERIFIED FROM THE PROFIT AND LOSS ACCOUNT OF M/S R.N.FORGINGS PVT LTD THAT IT HAD REC EIVED COMMISSION INCOME ONLY FROM M/S NIMBUS INDUSTRIES (ASSESSEE HEREIN) AMOUNTING T O RS 45,69,416/- . THE LD AO OBSERVED THAT ACCORDING TO AGREEMENT, M/S R.N.FORGI NGS PVT LTD WAS APPOINTED TO FUNCTION FROM 1.4.2009. THE RESPONSIBILITIES ENTRU STED AS PER CONTRACT, CLEARLY INVOLVES LOT OF TRAVELLING AND COMMUNICATING WITH PROSPECTIV E PURCHASERS, DEALERS, CUSTOMERS ETC. CERTAINLY THE SAID COMMISSION AGENT HAD TO INCUR LO T OF EXPENSES UNDER THE HEAD TRAVELLING AND TELEPHONE IN ADDITION TO ITS ESTABLI SHED BUSINESS OF TRADING AND SUPPLYOF IRON AND STEEL PRODUCTS. IN THIS REGARD, HE MADE THE COMPARATIVE CHART OF EXPENSES INCURRED BY R.N.FORGINGS PVT LTD AS UNDER:- AY 2010-11 AY 2009-10 TRAVELLING 2,08,040 1,93,200 TELEPHONE 1,58,352 1,99,091 CONVEYANCE 23,100 1,04,655 COMMISSION NIL 2,36,966 COURIER 6,105 4,995 THE LD AO CAME TO A CONCLUSION FROM THE AFORESAID T ABLE THAT R.N.FORGINGS PVT LTD DID NOT UNDERTAKE ANY ACTIVITIES TOWARDS IDENTIFICATION OF CUSTOMERS OF PLASTIC PIPES AND IRRIGATION INSTRUMENTS, PROCUREMENT OF ORDER, REALI ZATION OF PAYMENTS ETC AND ACCORDINGLY DISBELIEVED THE SERVICES RENDERED BY TH E SAID AGENT TO THE ASSESSEE 5 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 5 WARRANTING PAYMENT OF COMMISSION. BASED ON THESE O BSERVATIONS, HE DISALLOWED THE COMMISSION OF RS 44,55,078/- . 2.2.2. COMMISSION PAID TO MAHENDRA KUMAR BHARATIA, RAJENDRA KUMAR BHARATIA AND OMPRAKASH SHARMA THE LD AO OBSERVED THAT THE COMMISSION PAID TO AFOR ESAID PARTIES WERE IN RESPECT OF SALES MADE TO ANJANA SPRINKLER AND SAVITRI ENTERPRI SES. THE LD AO OBSERVED THAT SALES WERE MADE TO THESE PARTIES IN ASST YEAR 2009-10 FOR WHICH NO COMMISSION HAS BEEN PAID BY THE ASSESSEE AND HENCE THERE IS NO REASON F OR THE ASSESSEE TO ENGAGE THE SERVICES OF THESE THREE COMMISSION AGENTS FOR EFFECTING SALE S TO AFORESAID TWO ENTERPRISES DURING THE YEAR. HE CONCLUDED THAT THESE AGENTS DO NOT PO SSESS REQUISITE EXPERTISE TO RENDER THE AGENCY SERVICES TO THE ASSESSEE. MOROEVER , THE S ALES MADE TO THESE TWO ENTERPRISES HAD REDUCED AS COMPARED TO ASST YEAR 2009-10. THE LD AO OBSERVED THAT THERE IS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THESE TH REE COMMISSION AGENTS . ACCORDINGLY HE CONCLUDED THAT THE ASSESSEE HAD FAIL ED TO ESTABLISH THE RENDERING OF SERVICES BY THESE AGENTS FOR EFFECTING PAYMENT OF C OMMISSION AND ACCORDINGLY DISALLOWED THE COMMISSION PAYMENTS MADE TO THEM. 2.3. BEFORE THE LD CITA, IT WAS SUBMITTED THAT AT T HE OUTSET, M/S NIPL IS NOT AN ASSOCIATE CONCERN OF THE ASSESSEE FIRM. THERE IS N O RELATIONSHIP BETWEEN ASSESSEE AND M/S NIPL. THERE IS NO QUESTION OF USING OF ASSESSE ES BRAND / TRADE NAME NIMBUS BY M/S NIPL AS ADMITTEDLY M/S NIPL WAS INCORPORATED ON 13.9.1995 , WHEREAS THE ASSESSEE FIRM WAS STARTED ONLY ON 6.6.2001, WHICH I S EVIDENT FROM PAN ALLOTTED TO THESE TWO ENTITIES. THE TERM NIMBUS BEING USED BY BO TH THE ENTITIES IS ONLY A COINCIDENCE. THE LD AO CONCLUDED THAT M/S R.N. FORGINGS PVT LTD S TERMS OF AGREEMENT WITH THE ASSESSEE WERE TOO GENERAL AND THE PARTYS MAIN OUTP UT IS ONLY OF M.S.INGOTS AND IT IS NOT CLEAR HOW THIS PARTY CAN ASSIST IN THE SALE OF IRRI GATION SYSTEMS AND HDPE PIPES. THE LD AO ALSO EXAMINED THE PROFIT AND LOSS ACCOUNT OF R.N .FORGINGS PVT LTD TO CONCLUDE THAT 6 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 6 THIS COMMISSION RECIPIENT DID NOT HAVE TO INCUR AN Y ADDITIONAL EXPENSES FOR WORKING AS A COMMISSION AGENT FOR THE ASSESSEE. THE ASSESSEE CLARIFIED THAT M/S R.N.FORGINGS PVT LTD HAD RAISED ITS COMMISSION BILL ON 25.3.2010 , B UT AS THE FIRM HAD CONVERTED INTO A COMPANY W.E..F. 19.1.2010 EVENTHOUGH THE SAME BUSIN ESS WAS CONTINUED WITH THE ERSTWHILE PARTNERS AS DIRECTORS / SHAREHOLDERS , TH E BILL COMPONENT WAS BIFURCATED INTO TWO PARTS AND THE ASSESSEE FIRM HAS ACCOUNTED FOR T HE PORTION OF THE WORK DONE UPTO 19.1.2010 ONLY AND THE REMAINING PORTION HAS BEEN A CCOUNTED ONLY IN THE BOOKS OF THE LIMITED COMPANY I.E NIMBUS PIPES LTD. THE ASSESSEE EXPLAINED THAT DUE TO BUSINESS CONNECTIONS AND MARKET KNOWLEDGE OF M/S R.N.FORGING S PVT LTD, THE DISTRIBUTOR OF THE ASSESSEE M/S NIPL WAS ABLE TO BOOST THE SALES OF TH E PRODUCTS OF THE ASSESSEE FROM AROUND RS 11 CRORES IN ASST YEAR 2009-10 TO RS 21 C RORES IN ASST YEAR 2010-11 (BEING THE YEAR UNDER APPEAL). THE ASSESSEE ARGUED THAT IN HARDWARE BUSINESS, THE SAME SHOPKEEPER CAN SELL M.S.INGOTS AND IRRIGATION SYSTE MS / FITTINGS AND THE COMMISSION AGENT HAD ADEQUATE EXPERIENCE AND CONNECTIONS LOCAL LY. THE ASSESSEE FILED COPIES OF THE FINAL ACCOUNTS OF R.N.FORGINGS PVT LTD TO PROVE THA T IT HAD DULY DECLARED COMMISSION INCOME OF RS 45,69,418/- FOR THE YEAR. THE ASSESSE E ALSO REFUTED THE ASSERTION OF THE LD AO THAT IT HAD PASSED THE BILLS OF COMMISSION AMOUN TING TO RS 49,13,951/- BUT HAD DEBITED ONLY RS 44,55,078/- TO ITS PROFIT AND LOSS ACCOUNT, THE BALANCE PORTION REPRESENTING SERVICE TAX COMPONENT AND SIMILARLY TH E COMMISSION INCOME HAS BEEN SHOWN BY R.N.FORGINGS PVT LTD NET OF SERVICE TAX. IT WAS STATED THAT THE ENTIRE COMMISSION PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUE S AFTER DUE DEDUCTION OF TAX AT SOURCE AND THE TDS THEREON HAD BEEN DULY REMITTED T O THE ACCOUNT OF THE CENTRAL GOVERNMENT AND TDS RETURNS FILED ACCORDINGLY. THE LD AO IN THE REMAND REPORT AGAIN REITERATED THAT R.N.FORGINGS PVT LTD HAD REPORTED C OMMISSION INCOME ONLY TO THE TUNE OF RS 7,99,862/- IN ITS PROFIT AND LOSS ACCOUNT. T HIS FIGURE HAS BEEN CLARIFIED BY THE ASSESSEE AS BEING REPRESENTED FOR THE IMMEDIATELY P RECEDING FINANCIAL YEAR I.E FY 2008- 09 RELEVANT TO AY 2009-10. THE ASSESSEE EXPLAINED THAT EARLIER ITS SALE OF PROJECT WORK USED TO ACCOUNT FOR 48.33% OF ITS TOTAL TURNO VER BUT IN AY 2010-11 ITS PROJECT 7 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 7 WORK BUSINESS HAD DECLINED AND IN AY 2010-11 THE SA LE OF IRRIGATION SYSTEM & HDPE PIPES ACCOUNT FOR 95.15% OF ITS TOTAL TURNOVER AND THIS IS POSSIBLE ONLY DUE TO SPECIAL EMPHASIS PLACED ON INCREASING THE SALE OF IRRIGATIO N SYSTEM & HDPE PIPES WHOSE SALES INCREASED FROM RS 13.61 CRORES TO RS 25.05 CRORES W ITH THE BULK OF THE INCREASE COMING THROUGH THE WORK OF M/S R.N.FORGINGS PVT LTD. 2.4. THE LD CITA DELETED THE DISALLOWANCE IN RESPEC T OF COMMISSION PAID TO R.N.FORGINGS PVT LTD IN THE SUM OF RS 44,55,078/- B Y OBSERVING AS UNDER :- AFTER CONSIDERING THE ABOVE, IT IS NOTED THAT THE WHOLE SET OF ARGUMENTS OF THE AO ARE SEEN TO BE BASED ONLY ON AN ASSUMPTION THAT M/S. R. N. FORGINGS P. LTD. MAY NOT HAVE DONE ANY BUSINESS OF COMMISSION AGENT. THERE IS NO FIELD ENQUIRY DONE BY THE AO AND NO STATEMENT HAS BEEN RECORDED OF THE COMMISSION AG ENTS. IN AN ARMCHAIR THE AO HAS SIMPLY REFUSED TO ACCEPT THE CONTENTIONS OF THE ASS ESSEE WITHOUT ASSIGNING ANY REASON BACKED BY EVIDENCE. THE AO ACCEPTS THAT THERE IS AN AGREEMENT FOR PAYMENT OF COMMISSION AND ALL THE FORMALITIES OF THE TRANSACTI ONS ARE FOLLOWED. THE COMMISSION RECIPIENT HAS DULY RAISED ITS BILL, THE FIRM HAS AC KNOWLEDGED LIABILITY TO PAY FOR THE PERIOD OF ITS OWN EXISTENCE, THE TDS HAS BEEN DONE ANY PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES. THE AO COULD NOT REF UTE THAT THE SALES OF THE ASSESSEE IN ITS IRRIGATION SYSTEM & HDPE PIPE HAS SHOWN A MA RKED IMPROVEMENT, BOTH IN QUANTITATIVE AND QUALITATIVE TERMS. WHILE THE SALE THROUGH M/S. NIMBUS IRRIGATION P LTD. (NIPL) INCREASED FROM RS. 10.84 CRORES IN A.Y. 2009 -10 TO RS. 21.21 CRORES IN A.Y. 2010-11, THE ASSESSEES SALE THROUGH NIPL ROSE FROM 41% TO 81% OF THE TOTAL SALES IN THIS SEGMENT. THE FOLLOWING TABLE EXPLAINS IT BETTE R:- REASONS FOR APPOINTING SALES AGENT M/S. R.N. FURGIN G PVT. LTD. ACCT. YEAR SALE IN LACS SALE TO NIPL IN LACS % OF SALE TO NIPL % OF SALE TO OTHERS % INCREASE IN SALES % INCREASE IN SALES TO NIPL 2007-08 1,175.44 879.09 0.75 0.25 2008-09 2,660.84 1,083.79 0.41 0.59 126.37 23.28 2009-10 2,632.92 2,121047 0.81 0.19 (1.05) 95.75 THE AO HAD WRONGLY CLAIMED THAT M/S. R.N. FORGINGS P. LTD. HAS DECLARED ONLY RS. 7,99,862/- AS COMMISSION RECEIVED BY IT. THE AO WRO NGLY TOOK THE FIGURE FOR THE EARLIER A.Y. 2009-10 AND IN THE REMAND PROCEEDINGS THE SAME ERROR HAS BEEN MADE. THE AO HAS NOT DISPUTED THAT THE COMMISSION RECIPIENTS OF FICE IS LOCATED AT JAIPUR AND THAT IT IS ENGAGED HARDWARE BUSINESS IN RAJASTHAN. AS SUCH THE COMMISSION AGENT HAD BUSINESS CONTACTS ON THE GROUND IN THIS FIELD. M/S. NIPL HAS ALSO REPORTED BACK TO THE 8 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 8 COMMISSION AGENT IN RESPECT OF THE SALES EFFECTED B Y IT ON A MONTHLY BASIS. THE CLAIM OF THE AO THAT M/S. NIPL WAS ALREADY KNOWN TO THE ASSE SSEE IS NOT RELEVANT BECAUSE THE AO CANNOT STEP INTO THE SHOES OF THE BUSINESSMAN AN D DECIDE HOW THE BUSINESS IS TO BE CARRIED OUT. FURTHER THE AO BY REPORTING THE COMMIS SION INCOME OF THE COMMISSION AGENT FOR A.Y. 2009-10 INDIRECTLY ACCEPTS THAT THE COMMISSION AGENT HAD COMMISSION INCOME IN EARLIER YEARS ALSO EVEN WHEN ON THE INTER NET THERE IS NO MENTION THAT M/S. R.N. FORGINGS P. LTD. IS ENGAGED IN THE BUSINESS OF COMMISSION WORK. THE AO HAS DISBELIEVED THE BOOKS OF THE ASSESSEE WITHOUT ANY E VIDENCE. THIS IS NOT AS PER LAW. IN THE CASE OF CIT V. M/S. INBUILT MERCHANT P. LTD. THE HO NBLE HIGH COURT OF KOLKATA IN ITA NO. 225 OF 2013 G.A. NO. 3825 OF 2013 HAS REJECTED A SIMILAR APPROACH OF THE REVENUE AND HAS HELD WITH REFERENCE TO SECTION 32(2) OF THE INDIAN EVIDENCE ACT, 1872, THAT THE AO CANNOT OVERLOOK THE IMPORTANCE OF THE BOOKS OF A CCOUNT MAINTAINED IN THE ORDINARY COURSE OF BUSINESS. THE COURT HELD THAT THE BOOKS O F ACCOUNT MAINTAINED IN THE ORDINARY COURSE OF BUSINESS ARE RELEVANT AND THEY CANNOT BE DISCARDED IN THE ABSENCE OF APPROPRIATE REASONS. IN THE INSTANT CASE THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD THAT THE COMMISSION PAYMENTS WERE BOGUS. THE AO HAS NOT BEEN ABLE TO DISLODGE THE CLAIM OF THE ASSESSEE THAT THE SALES OF M/S. NIPL R OSE FROM RS. 11 CRORES IN A.Y. 2009- 10 TO RS. 21 CRORES IN A.Y. 2010-11 ONLY DUE TO THE INSTRUCTIONS OF M/S. R.N. FORGINGS P. LTD. AND THAT THE TURNOVER FELL IN THE NEXT A.Y. 20 11-12 WHEN THE SERVICES OF M/S. R.N. FORGINGS P. LTD. WERE DISCONTINUED. ALL THE FACTS M ENTIONED ABOVE AND THE ARGUMENT OF THE ASSESSEE INDICATE THAT THE DISALLOWANCE HAS BEE N MADE ON A SUSPICION ONLY AND EVEN HERE THE AO HAS NOT BEEN ABLE TO REFUTE THE CONTENT ION OF THE ASSESSEE. IN VIEW OF THE SAME THE DISALLOWANCE OF RS. 44,55,078/- PAID AS CO MMISSION TO M/S. R.N. FORGINGS P. LTD. IS DELETED AND THIS PART OF THE GROUNDS OF APP EAL IS ALLOWED. 2.5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, WHETHER LD. CIT(A) WAS JUSTIFIED IN UPHOLDING ASSESSEES CONTENTION OF PAYING COMMISSION OF RS. 44,55,078/- TO M/S R. N. FORGINGS PVT. LTD. FOR SUP PLYING TO ASSESSEES DISTRIBUTOR M/S NIMBUS IRRIGATION PVT. LTD. WHEN TH E SAID M/S R.N. FORGINGS PVT. LTD. WAS APPOINTED FOR THE FIRST TIME AND HAD NO PR EVIOUS EXPERIENCE IN ASSESSEES LINE OF BUSINESS AND/OR DID NOT PROVIDE ANY SPECIFIC SERVICE TO EARN SUCH COMMISSION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT BROUGHT ON RECORDS BY AO THAT M/S R.N. FORGINGS PVT. LTD. BEING MANUFACTURES & ENGAGED IN IRON & STEEL RELATE D PRODUCTS, HAVING NO APPARENT EXPERIENCE TO DEVELOP MARKET FOR IRRIGATIO N SYSTEM AND HDPE PIPES AND THAT TOO WITHOUT INCURRING EXPENSES UNDER THE H EAD TRAVELLING & TELEPHONE, CONVEYANCE COMMISSION AND ALSO WITHOUT UNDERTAKING ANY ACTIVITIES TOWARDS IDENTIFICATION OF CUSTOMER OF PLASTIC PIPES/IRRIGAT ION INSTRUMENTS AND FOR PROCUREMENT OF ORDER/REALIZATION OF PAYMENT FOR THE ASSESSEE. 9 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 9 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN PASSING AN ERRONEOUS & PERVERSE ORDER DISREGARDING THE JUDGMENT OF HON'BLE SUPREME COURT ON DEFINITION OF COLORABLE DEVICE IN MC DOWELL & CO. LTD. 2.6. WITH REGARD TO THE COMMISSION PAID TO THREE OT HER PARTIES VIZ OMPRAKASH SHARMA, MAHENDRA KUMAR BHARATIA AND RAJENDRA KUMAR BHARATIA , THE ASSESSEE EXPLAINED PARTY WISE AS UNDER:- A) IN THE CASE OF SHRI OMPRAKASH SHARMA, THE LD AO FOUND THAT THE COMMISSION RECIPIENT HAD BEEN PAID THE COMMISSION OF RS 6,28,8 94/- IN RESPECT OF SALES TO SAVITRI ENTERPRISES. THE LD AO OBSERVED THAT IN AS ST YEAR 2009-10, THE ASSESSEE HAD MADE SALES OF RS 2,61,92,343/- TO M/S SAVITRI E NTERPRISES WITHOUT PAYMENT OF ANY COMMISSION , BUT IN ASST YEAR 2010-11, THE SALE TO M/S SAVITRI ENTERPRISES HAD REDUCED TO RS 1,83,82,006/- AND ASSESSEE FURTHE R CLAIMED THAT COMMISSION OF RS 6,28,894/- WAS PAID IN RESPECT OF THESE SALES. THE ASSESSEE CLAIMED THAT THE PARTY WAS NOT KEEN ON CARRYING ON THE BUSINESS WITH THE ASSESSEE AND IT WAS ONLY THE SAID COMMISSION AGENT (I.E OMPRAKASH SHARMA) WH O ENSURED THAT SOME BUSINESS COULD BE CARRIED OUT. THE LD AO HOWEVER DISBELIEVED THIS ARGUMENT AS THERE WAS NO AGREEMENT ENTERED INTO WITH THE SAID C OMMISSION AGENT BY THE ASSESSEE. B) SIMILARLY THE ASSESSEE HAD CLAIMED PAYMENT OF CO MMISSION OF RS 1,49,989/- TO SHRI MAHENDRA KUMAR BHARATIA FOR SALES OF RS 16,64, 605/- MADE TO M/S ANJANA SPRINKLER & SUPPLIER. THE ASSESSEE ALSO CLAIMED T HAT COMMISSION HAD BEEN PAID IN RESPECT OF SALES MADE TO M/S DEEP CONSTRUCTION C OMPANY AND M/S LUCKY TRADERS ALSO IN ADDITION TO THE SALES MADE TO M/S A NJANA SPRINKLER & SUPPLIER. THE LD AO HOWEVER DISBELIEVED THIS ARGUMENT AS THER E WAS NO AGREEMENT ENTERED INTO WITH THE SAID COMMISSION AGENT BY THE ASSESSEE . 10 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 10 C) SIMILARLY THE ASSESSEE HAD CLAIMED PAYMENT OF RS 3,02,196/- TO SHRI RAJENDRA KUMAR BHARATIA IN RESPECT OF SALES MADE TO M/S JAIN ENTERPRISES AND M/S SHIVA SALES CORPORATION TOTALING RS 43.85 LACS AND RS 19. 36 LACS RESPECTIVELY. THE LD AO HOWEVER DISBELIEVED THIS ARGUMENT AS THERE WAS N O AGREEMENT ENTERED INTO WITH THE SAID COMMISSION AGENT BY THE ASSESSEE. THE ASSESSEE FURNISHED THE INCOME TAX RETURNS OF AL L THESE COMMISSION RECIPIENTS TO PROVE THAT THEY HAD DULY DISCLOSED THE COMMISSION I NCOME IN THEIR RETURNS AND PAID TAXES THEREON. THE ASSESSEE ALSO PROVED THAT THESE COMMISSION AGENTS HAD NOT BOOKED BOGUS EXPENDITURE FOR REDUCING THEIR TAX LIABILITY IN THEIR PERSONAL ACCOUNT BY SETTING OFF THIS COMMISSION INCOME WITH EXPENDITURE. 2.7. THE LD CITA UPHELD THE DISALLOWANCE OF COMMISS ION PAID TO THESE THREE PARTIES BY OBSERVING AS UNDER:- THE SUBMISSIONS OF THE ASSESSEE IN THESE THREE CAS ES ABOVE ARE DIFFICULT TO ACCEPT. IN THESE THREE CASES ABOVE THERE ARE NO AGREEMENTS AT ALL. THESE THREE PERSONS HAD NOT BEEN ENGAGED IN THE EARLIER YEARS AND THERE IS NO A PPRECIATION IN SALES IN THE CURRENT YEAR ON ACCOUNT OF PAYMENT OF THESE COMMISSIONS. IT IS NOT KNOWN AS TO WHAT SERVICES WERE PERFORMED BY THEM. THE MERE FACT THAT THE INDI VIDUALS HAVE DECLARED THE COMMISSION INCOME IN THEIR INDIVIDUAL RETURN IS IMM ATERIAL. THE ASSESSEE IS NOT ABLE TO DISLODGE THE PRIMARY OBJECTION THAT THERE IS NO CON TRACT WITH THE COMMISSION RECIPIENTS AT ALL. THE ASSESSEE HAS NOT BEEN ABLE TO FILE ANY DOCUMENT FROM THE SELLERS ALSO INDICATING THE ROLE OF THE COMMISSION RECIPIENTS AS IT HAS DONE IN THE CASE OF M/S R N FORGINGS P LTD. IN VIEW OF THE ABOVE THE DISALLOWAN CE OF COMMISSION TO THESE THREE PERSONS IS SUSTAINED. THE AO SHALL HOWEVER RESTRICT THE DISALLOWANCE TO THE ACTUAL COMMISSION DECLARED PAID AFTER CORRECTING THE FIGUR E IN RESPECT OF SHRI MAHENDRA KUMAR BHARTIA. AS A RESULT, IN RESPECT OF GROUND OF APPEAL NOS. 2 ,3,& 4 THE ASSESSEE GETS A RELIEF OF RS. 44,55,078/- AND THE BALANCE SUM OF RS. 6,28,894/-, RS. 1,49,989/- & RS. 3,02,196/- TOTALING RS. 10,81,079/- IS CONFIRMED. THE ASSESSEE GETS PARTIAL RELIEF. 2.8. AGGRIEVED, THE ASSESSEE IS IN CROSS OBJECTION BEFORE US ON THE FOLLOWING GROUNDS:- 1. BECAUSE THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS ERRED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO ON ACCOUNT OF COMMISSION PAID TO OMPRAKASH SHARMA OF RS. 6,28, 894/-, SHRI MAHENDRA 11 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 11 KUMAR BHARTIA OF RS. 1,49,989/- AND SHRI RAJENDRA K UMAR BHARTIA OF RS. 3,02,196/-, TOTALING TO RS. 10,81,079/- ON THE ALLE GED GROUND THAT THE APPELLANT DID NOT FILE ANY EVIDENCE AND THERE WAS NO SERVICES AND/OR TO PROVE THAT ANY SERVICES WERE RENDERED BY THE SAID COMMISSION AGENT S, AND HIS SUCH CONCLUSIONS ARE BASED ON HIS SURMISES AND CONJECTURES AND HENCE NOT GOOD IN LAW AND ARE GROSSLY UNJUSTIFIED, ERRONEOUS AND UNSUSTAINABLE, A ND ARE CONTRARY TO THE FACTS AND MATERIAL ON RECORD. 2. BECAUSE THAT IN THE LIGHT OF THE DOCUMENTS ON RE CORD AND SUBMISSIONS BEFORE THE LOWER AUTHORITIES, THE ENTIRE PAYMENT OF COMMIS SION TOTALING TO RS. 10,81,079/- OUGHT TO HAVE BEEN ALLOWED AS BUSINESS EXPENSES. 3. THE APPELLANT CRAVES LEAVE TO ADD FURTHER GROUND S OF APPEAL AT THE TIME OF HEARING. 2.9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE . THE PAP ER BOOK COMPRISES OF THE FOLLOWING DOCUMENTS WITH REGARD TO THIS COMMISSION ISSUE :- DESCRIPTION PAPER BOOK PAGES FILED BEFORE US AUDITED A/C & TAX AUDIT REPORT U/S 44AB OF NIMBUS I NDUSTRIES AS ON 19.01.2010. 20 - 67 COMPUTATION OF TOTAL INCOME. 68 - 69 AUDITED A/C & TAX AUDIT REPORT OF NIMBUS PIPES LTD. FOR THE PERIOD 20.01.2010 TO 31.03.2010. 70 - 90 COMPUTATION OF TOTAL INCOME OF NIMBUS PIPES LTD. FO R 31.03.2010. 91 - 93 STATEMENT OF COMMISSION PAID BY NIMBUS INDUSTRIES. 94 COPIES OF COMMISSION BILLS RECEIVED FROM AGENTS. 95 101 LEDGER COPY OF THE A/C OF COMMISSION PAYABLE AS ON 19.01.2010. 102 103 LEDGER COPY OF THE A/C OF COMMISSION AGENTS FROM 20 .01.2010 TO 31.03.2010. 104 109 PHOTO COPY OF THE BANK STATEMENT SHOWING PAYMENT TO COMMISSION AGENTS. 110 121 MEMORANDUM OF ASSOCIATION AND AUDITED A/C OF R.N. F ORGINGS (P) LTD. 122 149 PAN CARD OF NUMBUS INDUSTRIES & NIMBUS IRRIGATION ( P) LTD. 150 STATEMENT OF SALES IN FIN. YEAR 2010-11 BY NIMBUS P IPES LTD. (3 PARTIES). 151 12 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 12 COPY OF LETTER DATED 04.02.2013 ISSUED BY ITO IN TH E COURSE OF HEARING. 152 155 COPY OF REPLY DATED 07/21.02.2013 IN RESPONSE TO LE TTER DATED 04.02.2013. 156 162 COPY OF JUDGEMENT OF LACHMINARAYAN MADAN LAL VS. CI T (SC) REPORTED IN 86 ITR PAGE 439 163 167 COPY OF JUDGEMENT OF KOLKATA HIGH COURT DATED 14.03 .2014 IN THE CASE OF CIT VS. INBUILT MERCHANT (P) LTD. 168 170 2.9.1. WE FIND THAT THE LD CITA HAD GIVEN A FINDING THAT THE ASSESSEE AND NIPL ARE NOT ASSOCIATED CONCERNS WHICH IS NOT CONTROVERTED BY TH E REVENUE BEFORE US WITH ANY COGENT MATERIAL. WE FIND FROM THE MEMORANDUM OF ASSOCIAT ION OF M/S R.N.FORGINGS PVT LTD ENCLOSED IN PAGE 122 OF THE PAPER BOOK VIDE CLAUSE 3 OF THE MAIN OBJECTS OF THE SAID COMPANY INCLUDES AS UNDER:- 3. TO CARRY ON BUSINESS MANUFACTURERS, OF DESIGNERS , FABRICATORS, ASSEMBLERS, PROCESSORS, EXPORTERS, IMPORTERS, BUYERS, SELLERS, CONTRACTORS, TRADERS, DISTRIBUTORS, AGENTS, STOCKISTS, COMMISSION AGENTS AND DEALERS IN MACHINERY AND ENGINEERING PRODUCTS OF ALL TYPE, HARDWARE CUTTING TOOLS, HAND TOOLS; PRECISION MEASURING TOOLS, INSTRUMENTS AND APPARATUS , FITTIN G STEEL STRUCTURES, BOILERS AND FURNACE PROPRIETORS. 2.9.2. FROM THE PERUSAL OF THE BALANCE SHEET OF M/S R.N.FORGINGS PVT LTD ENCLOSED IN PAPER BOOK, WE FIND THAT IT HAD OFFERED COMMISSION INCOME EVEN IN ASST YEAR 2009-10 TO THE TUNE OF RS 7,99,862/-. THIS GOES TO PROVE THAT THEY ARE IN COMMISSION AGENCY BUSINESS EVEN IN THE EARLIER YEAR. 2.9.3. THE LD AO PREPARED A TABULATION OF EXPENSES INCURRED BY R.N.FORGINGS PVT LTD AND CAME TO A CONCLUSION THAT THEY WERE INCURRED ON LY FOR THEIR ROUTINE BUSINESS ACTIVITIES AND NO EXPENSES WERE INCURRED BY COMMISS ION AGENT FOR DERIVING COMMISSION INCOME. THESE OBSERVATIONS ARE TOTALLY BASELESS AN D CONCLUSIONS IN THIS REGARD ARE DRAWN BY THE LD AO ONLY ON SURMISES AND CONJECTURES . THE LD AO OF THE ASSESSEE HEREIN ADMITTEDLY HAD NOT MADE ANY ASSESSMENT ON M/S R.N.F ORGINGS PVT LTD IN THE INSTANT 13 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 13 CASE AND WHAT TYPE OF EXPENSES WERE INCURRED BY THE COMMISSION AGENT IS DEFINITELY NOT THE LOOK OUT OF THE LD AO OF THE ASSESSEE HEREIN. IT IS IN THE DOMAIN OF THE AO ASSESSING THE COMMISSION AGENT. 2.9.4. IT IS PERTINENT TO NOTE THAT THE LD AO HAD N OT MADE ANY ENQUIRY WITH THE COMMISSION AGENT M/S R.N.FORGINGS PVT LTD EITHER U/ S 133(6) OR U/S 131 OF THE ACT . NO CROSS VERIFICATION OF THE COMMISSION TRANSACTION S WERE EVEN MADE WITH THE AO OF THE COMMISSION AGENT DESPITE THE ENTIRE DETAILS WER E PLACED BEFORE HIM ON RECORD. 2.9.5. IT IS A FACT THAT THE TURNOVER OF THE ASSESS EE COMPANY HAD INCREASED FROM RS 11 CRORES TO RS 21 CRORES APPROXIMATELY DURING THE YEA R UNDER APPEAL AND HAD DRASTICALLY COME DOWN IN THE IMMEDIATELY SUCCEEDING YEAR, THE M OMENT THE SERVICES OF R.N.FORGINGS PVT LTD HAD BEEN DISCONTINUED BY THE A SSESSEE. THIS GOES TO PROVE THAT THE SERVICES OF R.N.FORGINGS PVT LTD WERE INDISPENSIBLE TO THE ASSESSEE DURING THE YEAR UNDER APPEAL. WE ALSO FIND FROM PAGES A-2 TO A-25 OF THE PAPER BOOK , THE MONTH WISE CORRESPONDENCES BETWEEN NIMBUS IRRIGATION PVT LTD ( NIPL IN SHORT) AND R.N. FORGINGS PVT LTD , WHEREIN NIPL HAD DULY INTIMATED THE MONTH WISE DETAILS OF PURCHASES MADE THROUGH THEM TOGETHER WITH THE RESPECTIVE VALUES. HENCE THE SERVICES RENDERED BY R.N. FORGINGS PVT. LTD HAD BEEN DULY ACKNOWLEDGED BY THE ULTIMATE CUSTOMER M/S NIPL ON A MONTHLY BASIS AND HENCE THE OBSERVATION OF THE LD A O THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENT STANDS NULLIFIED. IT IS TO BE NOTED THAT M/S R.N. FORGINGS PVT. LTD HAD ACTED AS BOTH PURCHASE AND SELLING AGENTS TO M/ S NIPL WHICH IS EVIDENT FROM CORRESPONDENCES BETWEEN THEM ENCLOSED IN PAGES A-2 TO A-25 OF THE PAPER BOOK. THE ASSESSEE HAD EXPLAINED THE ENTIRE TRANSACTIONS OF C OMMISSION PAYMENT TO M/S R.N. FORGINGS PVT. LTD IN THE FORM OF A DETAILED NOTE B EFORE THE LD AO VIDE LETTER DATED 7.2.2013 PARA 5. 14 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 14 2.9.6. IT IS WELL SETTLED THAT THE REVENUE CANNOT S IT IN THE ARMCHAIR OF THE BUSINESSMAN AND DIRECT HOW A BUSINESSMAN SHOULD CONDUCT HIS BUS INESS. THE BUSINESSMAN KNOWS HIS INTEREST BEST. WHETHER THE NECESSITY OF INCURR ENCE OF AN EXPENDITURE ON THE BASIS OF COMMERCIAL EXPEDIENCY OF THE BUSINESS IS TO BE VIEW ED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT FROM THE POINT OF VIEW OF THE R EVENUE. 2.9.7. THE LD AO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADANLAL VS CIT REPORTED IN (1972) 86 ITR 439 (SC) TO JUSTIFY HIS ACTION OF DISALLOWING THE COMMISSION. IN THE FACT S BEFORE THE HONBLE APEX COURT, THE ASSESSEE FIRM MAD REPAYMENT OF COMMISSION TO ANOTHE R FIRM WHICH WAS NOT AT ALL IN EXISTENCE WHEN THE COMMISSION AGREEMENT WAS ENTERED INTO. MOREOVER, IN THE PAYEE FIRM , THE MINOR CHILDREN AND SPOUSE OF THE PARTNER S OF THE PAYER FIRM (IE ASSESSEE FIRM) WERE PARTNERS . THESE FACTS WERE DULY APPRECIATED BY THE HONBLE APEX COURT AND WAS HELD THAT THE COMMISSION AGREEMENT IS ONLY A DEVICE TO SHIFT THE PROFITS FROM THE PAYER FIRM TO PAYEE FIRM AND ACCORDINGLY UPHELD THE DISAL LOWANCE OF COMMISSION PAYMENT. IN THE INSTANT CASE, THERE IS NO SUCH FINDING RECOR DED BY THE LD AO IN HIS ORDER. THE REVENUE HAD NOT BROUGHT ANY MATERIAL ON RECORD TO P ROVE THAT M/S R.N. FORGINGS PVT. LTD IS A RELATED CONCERN OF THE ASSESSEE . THE LD AO HIMSELF IN THE INSTANT CASE HAD ACKNOWLEDGED THE AGREEMENT FOR COMMISSION HAS BEEN ENTERED INTO ON 18.3.2009 AND THE SERVICES ARE EXPECTED TO BE RENDERED BY R.N. FO RGINGS PVT. LTD EFFECTIVE FROM 1.4.2009 ONWARDS. HENCE THE RELIANCE ON THE DECISI ON OF THE APEX COURT BY THE REVENUE IS TOTALLY MISPLACED AND IS NOT APPLICABLE TO THE F ACTS OF THE INSTANT CASE BEFORE US. 2.9.8. WITH REGARD TO THE USAGE OF BRAND NAME NIMB US BY NIPL AS OBSERVED BY THE LD AO, IT WOULD BE RELEVANT TO NOTE THAT M/S NIPL WAS INCORPORATED ON 13.9.95 AND WHEREAS THE ASSESSEE FIRM WAS STARTED ON 6.6.2001 A ND THE USAGE OF THE NAME NIMBUS BY BOTH THE PARTIES IS JUST A COINCIDENCE. IF AT A LL, ANY USAGE OF BRAND NAME IS ALLEGED, IT 15 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 15 IS ACTUALLY THE OTHER WAY ROUND I.E. THE ASSESSEE F IRM HAD USED THE BRAND OF NIMBUS FROM NIPL AND NOT AS STATED BY THE LD AO. 2.9.9. THE LD AR STATED THAT THE ENTIRE PAYMENTS OF COMMISSION TO R.N. FORGINGS PVT. LTD HAD SUFFERED SERVICE TAX AND WERE MADE BY ACCOU NT PAYEE CHEQUES AFTER DUE DEDUCTION OF TAX AT SOURCE AND TDS RETURNS WERE DUL Y FILED WITH THE INCOME TAX DEPARTMENT. THESE FACTS ARE NOT DISPUTED BY THE L D DR BEFORE US. 2.9.10. IN VIEW OF OUR AFORESAID FINDINGS IN THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISAL LOWANCE OF COMMISSION PAID TO R.N. FORGINGS PVT. LTD AND NO INTERFERENCE IN THE SAID O RDER IS CALLED FOR. ACCORDINGLY, THE GROUNDS 1 TO 3 RAISED BY THE REVENUE ARE DISMISSED. 3. WITH REGARD TO THE DISALLOWANCE OF COMMISSION PA ID TO THREE OTHER INDIVIDUALS NAMELY MAHENDRA KUMAR BHARATIA, RAJENDRA KUMAR BHARATIA IN THE TOTAL SUM OF RS 10,81,079/-, THE DISALLOWANCE HAS BEEN MAINLY MADE FOR WANT OF W RITTEN AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THOSE SAID COMMISSION AGENTS AND MOREOVER, ON THE COUNT THAT SINGLE BILL HAS BEEN RAISED BY THOSE COMMISSION AGENTS FOR THE SERVICES RENDERED TO THE ASSESSEE IN MARCH 2010, WHEREAS THE ASSESSEE FIRM WAS NO LON GER IN EXISTENCE FROM 20.1.2010. IN THIS REGARD, WE FIND FROM THE EVIDENCES ENCLOSED IN THE PAGES 97 TO 110 OF THE PAPER BOOK CONTAINING THE COMMISSION BILLS RAISED BY THE AGENTS, LEDGER ACCOUNT FOR THE PERIOD 1.4.2009 TO 19.1.2010 PERTAINING TO THE ASSESSEE FI RM AND FOR THE PERIOD 20.1.2010 TO 31.3.2010 PERTAINING TO NIMBUS PIPES LTD ( I.E. TH E COMPANY WHICH HAD TAKEN OVER THE ASSESSEE FIRM ON GOING CONCERN BASIS), THAT DUE BIF URCATION OF BILL AMOUNT BETWEEN 1.4.2009 19.1.2010 AND 20.1.2010 31.3.2011 HAD BEEN MADE AND EXPENSES BOOKED ACCORDINGLY IN THE RESPECTIVE BOOKS. THERE IS NO DUPLICATION OF CLAIM OF BILLS. APPARENTLY THE COMMISSION AGENTS ARE NOT AWARE OF T HE CONVERSION OF THE ASSESSEE FIRM INTO A PRIVATE LIMITED COMPANY. IN ANY CASE, WHEN THE BILLS ARE DULY BIFURCATED AND NO 16 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 16 ALLEGATION OF DUPLICATION OF BILLS AND CLAIM OF EXP ENSES THEREON HAS BEEN MADE BY THE REVENUE, THIS CANNOT BE A GROUND ON WHICH THE DISAL LOWANCE OF EXPENSES COULD BE SUSTAINED. WE FIND THAT THE ASSESSEE HAD DULY INFO RMED THE ASSESSEE IN WRITING THAT THE COMMISSION HAS BEEN PAID TO THESE PARTIES FOR SALES EFFECTED TO CERTAIN PARTIES WHICH WERE GIVEN IN ITS REPLY LETTER FILED BEFORE THE LD AO. THE SALES MADE TO THOSE PARTIES HAD NOT BEEN DISPUTED BY THE REVENUE. WE FIND THAT ALL THESE THREE COMMISSION AGENTS HAD DULY ACCOUNTED FOR THE COMMISSION RECEIVED FROM THE ASSESSEE IN THEIR RESPECTIVE INCOME TAX RETURNS AND PAID TAXES THEREON. THE BU SINESS EXPEDIENCY OF THESE COMMISSION PAYMENTS ALSO STANDS PROVED IN AS MUCH A S THE ASSESSEE COULD ACHIEVE SOME REASONABLE TURNOVER WITH THE RESPECTIVE CUSTOMERS O NLY DUE TO THE INDULGENCE OF THESE COMMISSION AGENTS AND SERVICES RENDERED BY THEM DUR ING THE YEAR UNDER APPEAL. THESE FACTS WERE SUBMITTED IN WRITING BEFORE THE LD AO. THIS GOES TO PROVE THAT THE SERVICES OF THESE COMMISSION AGENTS WERE INDISPENSIBLE TO TH E ASSESSEE DURING THE YEAR UNDER APPEAL. NO VERIFICATION HAS BEEN CARRIED OUT BY T HE LD AO WITH THE AO OF THESE COMMISSION AGENTS TO UNDERSTAND THE NATURE OF SERVI CES RENDERED BY THESE PARTIES TO THE ASSESSEE AND THE GENUINITY OF THE CLAIMS MADE BY TH E ASSESSEE. IN THESE CIRCUMSTANCES, WE HOLD THAT THE LOWER AUTHORITIES HAD ERRED IN DIS ALLOWING THE COMMISSION PAYMENTS TO THESE THREE PARTIES. ACCORDINGLY, THE GROUNDS RAISE D IN THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED. 4. THE SECOND ISSUE TO BE DECIDED IN THE APPEAL OF THE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF EXCESS INTEREST IN THE SUM OF RS 1,92,313/- PAID TO PERSONS COVERED U/S 40A(2)(B) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE FIRM HAD TAKEN UNSECURED LOANS FROM VARIOUS PARTIES AND THE LOANS STOOD AT RS 5,16,85,4 29/- AS AT 19.1.2010. THE LD AO 17 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 17 FOUND THAT BULK OF THE LOANS CARRIED AN INTEREST RA TE OF 15% P.A. BUT IN RESPECT OF THE PERSONS COVERED U/S 40A(2)(B) OF THE ACT, THE ASSES SEE HAD CLAIMED INTEREST PAYMENTS AT 18% P.A.. THE ASSESSEE SUBMITTED THAT THE LOANS FR OM RELATED PARTIES CARRY A HIGHER RATE OF INTEREST BECAUSE THESE ARE FOR LONGER PERIODS AN D ARE NOT REQUIRED TO BE PAID ON DEMAND. THE LD AO HOWEVER TREATED THE RATE OF INTE REST AS EXCESSIVE AND RESTRICTED IT TO 15% P.A. LEADING TO DISALLOWANCE OF RS 1,92,313/-. BEFORE THE LD CITA , THE ASSESSEE PLEADED THAT SIMILAR RATE OF INTEREST WAS PAID IN A SST YEAR 2009-10 TO THE VERY SAME PARTIES AND THE SAME WERE ALLOWED BY THE LD AO. IT WAS STATED THAT THE LOANS ARE OLD AND CARRY FORWARD FROM EARLIER YEARS AND RATES PAID ARE COMPARABLE TO BANK INTEREST RATES ON LOANS AT THE RESPECTIVE PERIODS. 4.2. THE LD CITA DELETED THE DISALLOWANCE BY OBSERV ING AS UNDER:- THE FACTS OF THE CASE ARE CONSIDERED. THE ACTION O F THE AO IS HELD UNREASONABLE SINCE THE RATE OF INTEREST @ 18% P.A. IS NOT EXCESSIVE BY MARKET OR COMMERCIAL STANDARDS AND THE AO HAD HIMSELF ALLOWED THE RATE OF INTEREST IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. AS THE LOANS ARE CARRIED FORWARD FROM THE EAR LIER YEARS, THE AO HAS NOT BEEN ABLE TO SHOW ANY SPECIFIC REASON TO DEVIATE FROM THE EAR LIER POSITION. THE CASE LAWS CITED BY THE ASSESSEE ALSO DECLARE THE INTEREST RATE OF 18% AS REASONABLE. THEREFORE, THE DISALLOWANCE OF RS. 1,92, 313/- IS DELETED AND THE GROUND OF APPEAL NOS. 5 & 6 ARE ALLOWED. 4.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LA W, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING EXCESS INTEREST AMOUNTING TO RS. 1,92,313/- [@18% TO PERSONS COVERED U/S 40A(2)(B)] AGAINST AOS CONTENT ION THAT PAYMENT OF INTEREST IS EXCESSIVE AND UNREASONABLE. 4.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK CONTAINING THE FOLLOWING P APERS :- 18 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 18 DESCRIPTION PAPER BOOK PAGES FILED BEFORE US STATEMENT OF UNSECURED LOAN WITH RATE OF INTEREST P AID TO LOAN PARTIES AND RELATED PARTIES 171 175 STATEMENT OF STANDARD CHARTERED BANK & BARCLAYS BAN K (INTEREST RATE CHARGED AT 18.4995% & 17& P.A.) 176 177 COMPARATIVE STATEMENT OF INTEREST PAID TO RELATED P ARTIES IN FY 07-08, 08-09 & 09-10 (INTEREST PAID @ 18% P.A.) 178 WE FIND THAT THE GENUINITY OF THE EXPENDITURE TOWAR DS INTEREST ON UNSECURED LOANS IS NOT DISPUTED BY THE LD AO. IT IS ALWAYS UNDERSTOOD TH AT THE ASSESSEE HAD BORROWED SECURED LOANS AS WELL AS UNSECURED LOANS AND INTEREST PAID ON SECURED LOANS WOULD NORMALLY BE LESSER THAN THE UNSECURED LOANS. MOREOVER, EVEN ON SECURED LOANS, THE ASSESSEE HAD PAID INTEREST AT THE RATE OF 18.4995% AND 17% P.A. TO ST ANDARD CHARTERED BANK AND BARCLAYS BANK RESPECTIVELY. IN ANY CASE, IT IS NOT IN DISP UTE THAT THESE UNSECURED LOANS ARE BROUGHT FORWARD FROM EARLIER YEARS AND TERMS AND CO NDITIONS OF INTEREST HAD BEEN UNDERSTOOD IN THOSE RELEVANT YEARS. HENCE THE SAM E CANNOT BE MADE COMPARABLE WITH THE RATES PREVAILING IN THIS YEAR. WE FIND THAT TH E ASSESSEE HAD PAID INTEREST AT THE RATE OF 18% P.A. ON UNSECURED LOANS RECEIVED FROM PERSONS C OVERED U/S 40A(2)(B) OF THE ACT WHICH IS LESS THAN INTEREST PAID EVEN ON SECURED LO ANS. AS LONG AS THE BORROWED FUNDS HAD BEEN USED FOR BUSINESS PURPOSES, MERELY BECAUSE INTEREST IS PAID TO PARTIES COVERED U/S 40A(2)(B) OF THE ACT, THE SAME CANNOT BE DISALL OWED ON THE GROUND IT BEING EXCESSIVE. IN THE INSTANT CASE, IN OUR OPINION, TH E INTEREST PAID ON UNSECURED LOANS AT THE RATE OF 18% PER ANNUM IS NOT AT ALL EXCESSIVE COMPA RED TO THE OTHER SECURED LOANS AVAILED BY THE ASSESSEE. HENCE WE DO NOT DEEM IT F IT TO INTERFERE WITH THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE IS DISMISSED. 5. THE THIRD ISSUE TO BE DECIDED IN THE APPEAL OF T HE REVENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN ALLOWING INTEREST OF RS 13,69,122/ - ON THE LOANS AVAILED BY THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 19 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 19 5.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE CLAIMED INTEREST PAYMENT OF RS 13,69,122/- TO ITS LOAN CREDITORS IN THE RETURN OF INCOME AS A DEDUCTION. THE LD AO OBSERVED THAT PARTIES ARE NOT RESPONDING TO NOTICES AND THE ASSESSEE HAS NOT PRODUCED ANY LOAN AGREEMENT OR DOCUMENTS TO PROVE THE BUSINE SS ACTIVITIES OF THE LOAN CREDITORS. THE ASSESSEE EXPLAINED THAT ALL THE LOAN CREDITORS UNDER QUESTION WERE PRIVATE LIMITED COMPANIES AND THEY ALL HAD FILED LETTERS DATED 4.3. 2013 IN THE OFFICE OF THE LD AO CONFIRMING THE LOAN TRANSACTIONS AND HAD FILED BANK STATEMENTS, SOURCES OF THE FUNDS ADVANCED, AUDITED ACCOUNTS, PAN DETAILS AND ID PROO F OF THEIR DIRECTORS. FURTHER THE ASSESSEE POINTED OUT BEFORE THE LD CITA THAT THE LD AO HAD HIMSELF ACCEPTED THE LOAN AMOUNTS AND HAS NOT DISPUTED THE SAME. AS REGARDS THE UTILIZATION OF THE LOAN AMOUNTS, THE ASSESSEE EXPLAINED THAT THE IMMEDIATE UTILIZATI ON OF THE FUNDS WAS TO PURCHASE RAW MATERIALS AND SOME FITTINGS. THE ASSESSEE FILED C OPIES OF ITS BANK ACCOUNT OF JAIPUR BRANCH EVIDENCING RECEIPT AND DISBURSAL OF THE SUMS RECEIVED AS LOANS. IT WAS ARGUED THAT ONCE THE LOANS HAVE BEEN ACCEPTED AS GENUINE A ND HAD BEEN ACCEPTED AS BEING UTILIZED FOR BUSINESS PURPOSES, THERE IS NO REASON TO DISALLOW THE INTEREST PAID THEREON IN THE ASSESSMENT. 5.2. THE LD CITA DELETED THE DISALLOWANCE OF INTERE ST AMOUNTING TO RS 13,69,122/- BY OBSERVING AS UNDER:- IN THE REMAND PROCEEDINGS THE AO FURTHER RAISED AN ISSUE THAT THE BHIWANI BRANCH OF THE ASSESSEE HAD SUNDRY DEBTOR OF RS. 64 LAKHS BUT NO BUSINESS ACTIVITY WAS BEING CARRIED OUT THERE. THE AO HINTED THAT THE ASSESSEE FAVOURED ITS DEBTORS WITH FREE FUNDS. HOWEVER, THE LOANS UNDER CONSIDERA TION WERE UTILIZED BY THE JAIPUR BRANCH OF THE ASSESSEE AND NOT BY THE BHIWAN I BRANCH. FURTHER THE AO CLAIMED THAT THE UTILIZATION OF THE LOAN FUNDS IS N OT PROVED AND THE ASSESSEE HAS ONLY GIVEN DETAILS OF UTILIZATION. THESE CONTENTION S OF THE AO ARE FRIVOLOUS. THE ASSESSEE HAS DULY DISCHARGED ITS ONUS AND INDICATED THE UTILIZATION OF THE FUNDS GIVING THE NAMES OF THE PARTIES TO WHOM THE PAYMENT S HAVE BEEN GIVEN AND THE DATES THEREOF. FURTHER THE AO HAS ACCEPTED THE LOAN AMOUNTS AS GENUINE AND HAD NOT MADE ANY ADDITION ON THAT ACCOUNT. THE AO HAS O NLY DISALLOWED THE INTEREST. THEREFORE, THE DISALLOWANCE OF RS. 13,69,122/- IS H ELD TO BE IMPROPER AND IS DELETED. THE GROUND OF APPEAL NOS. 8 & 9 ARE ALLOW ED. 20 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 20 5.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING INTEREST PAYMENT OF RS. 1 3,69,122/- WHEREIN THE EXISTENCE OF LOAN ITSELF WAS QUESTIONABLE AS NO ADE QUATE AND SUFFICIENT DOCUMENTARY EVIDENCE WERE FURNISHED BEFORE THE AO T O PROVE THE GENUINENESS OF THE LOANS AND CREDITWORTHINESS OF LOAN CREDITORS. 5.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK CONTAINING THE FOLLOWING P APERS :- DESCRIPTION PAPER BOOK PAGES FILED BEFORE US LOAN CONFIRMATION OF 4 LOAN CREDITORS FOR THE PERIO D 01.04.2009 TO 19.01.2010, 20.01.2010 TO 31.03.2010, 01.04.2010 TO 31.03.2011 & 01.04.2011 TO 31.03.2012 WITH PHOTO CO PY OF BANK STATEMENT OF JAIPUR BRANCH ON THE DATE OF RECEIVING LOAN. 211-245 PHOTO COPY OF BANK STATEMENT OF JAIPUR BRANCH SHOWI NG REPAYMENT OF LOAN AMOUNT. 246-250 STATEMENT OF UTILIZATION OF LOAN FUND ON THE DATE O F RECEIVING LOAN FROM LOAN CREDITORS. 251 WE FIND FROM PAGE 251 OF THE PAPER BOOK THE ASSESSE E HAD DULY SUBMITTED THE COMPLETE UTILIZATION STATEMENT OF THE LOANS AVAILED. FROM T HE SAME IT COULD BE EVIDENCED THAT THE LOANS HAVE BEEN UTILIZED ONLY FOR BUSINESS PURPOSES BY THE ASSESSEE. THE ENTIRE DETAILS OF LOAN CREDITORS WERE DULY PLACED ON RECORD BEFORE THE LD AO REGARDING THEIR IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION S. IN ANY CASE, WE FIND THAT NO ADDITION HAS BEEN MADE TOWARDS THE LOAN AMOUNTS IN THE ASSESSMENT. ONCE THE LOAN AMOUNTS HAVE BEEN ACCEPTED AS GENUINE AND ITS UTILI ZATION THEREON FOR BUSINESS PURPOSES IS PROVED, THE ALLOWABILITY OF INTEREST THEREON U/S 36(1)(III) OF THE ACT IS AUTOMATIC. HENCE WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE OF INTEREST IN THE SUM OF RS 13,69,122/- IN THE INSTANT CASE. ACCORDIN GLY, THE GROUND NO. 5 RAISED BY THE REVENUE IS DISMISSED. 21 ITA NO.859/KOL/2015& C.O. NO. 34/KOL/2015 M/S NIMBUS INDUSTRIES A.YR.2010-11 21 6. THE GROUND NO. 6 RAISED BY THE REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 01.12.2017 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BALAGA NESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 01.12.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ACIT, CIRCLE-49, KOLKATA, UTTARAPAN SHOPPING COM PLEX, MANIKTALLA CIVIC CENTRE, ULTADANGA, KOLKATA-700054. 2. M/S NIMBUS INDUSTRIES, 234, BANGUR AVENUE, BLOCK -B, KOLKATA-700055 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S