Srinath Agencies, Secunderabad, Hyderabad V. DCIT, Circle-10(1), Hyderabad, Hyderabad

ITA 1/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2372 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 02-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SIDDHARTH TOSHNIWALA
• Keywords: Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 01/HYD/2017 ASSESSMENT YEAR: 2012-13 SRINATH AGENCIES, SECUNDERABAD [PAN: AAQFS3447M] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SIDDHARTH TOSHNIWALA, AR FOR REVENUE : SHRI PRABHAT KUMAR GUPTA, DR DATE OF HEARING : 04-12-2017 DATE OF PRONOUNCEMENT : 08-12-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-6, HYDERABAD, DATED 27-10-2016, FOR THE AY. 2012-13. ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF COMMISSION EXPENDITURE OF RS.23,42,263/- (COMPRISIN G SUM OF RS.11,12,132/- & RS.3,29,461/- PAID TO SURYAJYOTHI SPINNING MILLS LIMITED ON PET & PSF PRODUCTS OF RELIANCE INDUSTRIE S & RS.9,00670/- PAID TO HANUMANDAS KARWA HUF ON PSF PRODUCTS OF REL IANCE INDUSTRIES) DESPITE APPELLANT HAVING ESTABLISHED NOT JUST THE G ENUINENESS BUT ALSO THE COMMERCIAL EXPEDIENCY OF THE EXPENDITURE INCURRED. 2. THAT OUT OF DISALLOWED COMMISSION EXPENDITURE OF RS.23,42,263/- A SUM OF RS.11,12,132/- PERTAINS TO COMMISSION PAID T O SURYAJYOTHI SPINNING MILLS LIMITED ON PET PRODUCTS OF RELIANCE INDUSTRIES AND THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE DISAL LOWANCE ON BASIS OF REPLY OF FEW CUSTOMERS WHO HAD JUST STATED THAT THE Y HAVE NOT ENGAGED AN AGENT AND NO PURCHASES WERE MADE FROM ANY MIDDLEMEN . 3. THAT THE LEARNED CIT(APPEALS) ERRED IN CONFIRMIN G THE DISALLOWANCE OF COMMISSION OF RS.3,29,461/- ON PSF PRODUCTS OF RELI ANCE INDUSTRIES I.T.A. NO. 01/HYD/2017 :- 2 - : LIMITED PAID TO SURYAJYOTHI SPINNING MILLS LIMITED ONLY ON THE GROUND THAT IT WAS PAID FOR PURCHASES MADE BY THE AGENT IGNORIN G THE FACT THAT MERELY BECAUSE THE SALES FOR OWN CONSUMPTION OF AGENT WILL NOT PRECLUDE THE AGENT'S ENTITLEMENT OF COMMISSION ON SUCH SALES AND FURTHER THE RECEIPT OF COMMISSION HAS NOT BEEN DENIED BY THE AGENT. 4. THAT THE LEARNED CIT(APPEALS) ERRED IN CONFIRMIN G THE DISALLOWANCE OF COMMISSION OF RS.9,00,670/- PAID TO HANUMANDAS KARW A HUF ON PSF PRODUCTS OF RELIANCE INDUSTRIES DESPITE THE FACT SE RVICES WERE RENDERED BY THE AGENT AND THIS FACT WAS NOT DENIED BY THE CUSTO MERS. GROUND NOS. 5 & 6 ARE GENERAL IN NATURE. 2. THE FACTS INDICATE THAT ASSESSEE HAD ACTED AS AN AGEN T (DEL CREDERE AGENT AS CLAIMED) OF M/S. RELIANCE INDUSTRIES LTD., AND RECEIVED COMMISSION OF RS. 33,92,742/-. AGAINST THI S, ASSESSEE CLAIMED COMMISSION AS UNDER: S. NO NAME PRODUCT FOR WHICH COMMISSION PAID @ PER TON AMOUNT (RS) A.Y. 1 HANUMANDAS KARWA HUF PSF 235 9,00,670 2 SURYA JYOTHI SPINNG MILLS LTD PSF 250 9,58,160 3 SURYA JYOTHI SPINNG MILLS LTD PET 300 18,21,885 ON EXAMINATION BY AO IN THE SCRUTINY PROCEEDINGS, ASS ESSEE JUSTIFIED THE COMMISSION AS M/S. SURYA JYOTHI SPINNIN G MILLS LTD., HAS ACTED AS SUB-AGENT AND GOT COMMISSION ON THE BASIS OF TONNAGE AND MR. HANUMAN DAS KARWA, HUF ACTED AS SUB-A GENT IN SALES TO M/S. SURYA JYOTHI SPINNING MILLS LTD. AO RECORDED STATEMENT FROM MR. HANUMAN DAS KARWA AND FOUND THAT NO SERVICES ARE RENDERED. AS FAR AS M/S. SURYA JYOTHI SPINNING MILLS LTD., IS CONCERNED, AO PARTLY ALLOWED THE COMMISSION I .E., ON THOSE PARTIES WHO CONFIRMED THE ROLE OF SUB-AGENT AND DENIED THE EXPENDITURE TO AN EXTENT OF RS. 23,42,263/-. I.T.A. NO. 01/HYD/2017 :- 3 - : 3. LD.CIT(A) EXAMINED THE ISSUE AND CONFIRMED THE ORD ER OF AO AFTER ELABORATELY DISCUSSING THE ISSUES, UNDER THE HE ADS COMMERCIAL EXPEDIENCY, GENUINENESS AND FINALLY CONC LUDED AS UNDER: 06.6. IN VIEW OF THE FOREGOING DISCUSSION, IT IS HELD THAT THERE IS A PREPONDERANCE OF PROBABILITY TO CONCLUDE THAT THE PAYMENTS DID NOT CONSTITUTE REMUNERATION FOR SERVICES RENDERED BY TH ESE PERSONS AND, HENCE, ARE NOT ALLOWABLE AS DEDUCTION WHILE COMPUTI NG THE PROFIT OF BUSINESS. THE ASSESSING OFFICER IN ALL FAIRNESS RE STRICTED THE DISALLOWANCE TO THE COMMISSION EXPENDITURE THAT WAS NOT CONFIRME D BY THE END CUSTOMERS. IN VIEW OF THE AFORESAID, THE ADDITION OF RS. 23,42,263/- IS CONFIRMED. 4. IT WAS SUBMITTED BY LD. COUNSEL THAT ASSESSEE ACTED A S AN AGENT AND M/S. SURYA JYOTHI SPINNING MILLS LTD., AND MR. HANUMAN DAS KARWA, HUF AS SUB-AGENTS AND COMMISSION PAYMENT WAS GENUINE. REFERRING TO THE ORDER OF AO, WHE REIN THE ENQUIRIES CONDUCTED WERE LISTED, IT WAS SUBMITTED THAT AS SESSEE GOT COMMISSION ON DIRECT SALES TO M/S. SARAVARAYA SUGARS LTD. LIKE-WISE, IT PAID COMMISSION TO M/S. SURYA JYOTHI SP INNING MILLS LTD. IT WAS THE CONTENTION THAT AO HAD ALLOWED THE COMMISS ION PARTLY AND IT PROVED THE ROLE OF SUB-AGENT. IT WAS ALS O CONTENDED THAT THE DISCOUNT GIVEN TO M/S. SURYA JYOTHI SPINNING MILLS LTD., IS ON ITS OWN PURCHASES AND ARE DULY ACCOUNTED, SO THE S AME CANNOT BE DENIED. REGARDING ROLE OF MR. HANUMAN DAS KARWA , HUF, IT WAS SUBMITTED THAT SHRI KARVA ACTED AS SUB-AGENT TO THE SALES OF M/S. SURYA JYOTHI SPINNING MILLS LTD. REGARDING THE OBSERVATION THAT EXPENDITURE CLAIMED IS MORE THAN THE COMMISSION REC EIVED, IT WAS SUBMITTED THAT ASSESSEE HAD OTHER PAYMENTS TO COMPENS ATE THE ACTIVITY LIKE INTEREST ETC., IN ITS BUSINESS. 5. LD.DR, HOWEVER, DEFENDED THE ORDER OF AO AND CIT( A). I.T.A. NO. 01/HYD/2017 :- 4 - : 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS. FOR ANY C LAIM OF EXPENDITURE, IT IS NECESSARY TO PROVE THAT THE EXPENDITUR E IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. LOOKIN G IN THAT CONTEXT, THE RECEIPT OF COMMISSION FROM RELIANCE INDUSTR IES ON DIRECT SALES MADE BY THAT COMPANY TO M/S. SRI SARVARA YA SUGARS LTD, DO INDICATE THAT ASSESSEE HAS ACTED AS AGENT OF THAT COMP ANY. ROLE OF M/S. SURYA JYOTHI SPINNING MILLS LTD., A PUBLIC LIMITED COMPANY AS SUB-AGENT ALSO CANNOT BE DENIED AS THE SOME PARTIES CONFIRMED AND AO HIMSELF HAS ALLOWED EXPENDITURE OF COMMISSION PAYMENTS TO M/S. SURYA JYOTHI SPINNING MILLS LTD ON THO SE SALES. SINCE THE AO ACCEPTED THE EXISTENCE OF SUB-AGENT OF M/S . SURYA JYOTHI SPINNING MILLS LTD., THE PAYMENT TO THEM ON DIRE CT SALES CANNOT BE DENIED, AS ASSESSEE IS ALSO RECEIVING COMM ISSION ON DIRECT SALES. MOREOVER, IF THE SALES ARE TO THE SUB-AG ENT ITSELF, THE DISCOUNT/COMMISSION ON THOSE SALES ALSO CANNOT BE DENI ED. SO LONG AS THE EXISTENCE OF SUB-AGENT IS PROVED, THE COMMI SSION ON DIRECT SALES AS WELL AS INDIRECT SALES HAS TO BE ALLOW ED. IT IS NOTICED THAT THE COMMISSION WAS RECEIVED AS A PERCENTAGE OF SAL ES, WHEREAS THE COMMISSION TO SUB-AGENT WAS PAID ON TONNAGE BASIS . THE RATE AT WHICH IT WAS PAID WAS NOT IN DISPUTE. AO HAS NOT M ADE OUT A CASE OF EXCESS PAYMENT AS COMMISSION. SINCE THE EXIS TENCE OF SUB- AGENT IS PROVED AND AO HIMSELF ALLOWED THE COMMISSIO N PARTLY, I AM OF THE OPINION THAT THE COMMISSION PAID TO M/S. SURY A JYOTHI SPINNING MILLS LTD., BOTH ON THIRD PARTY SALES AS WELL AS ON OWN PURCHASES HAS TO BE ALLOWED. 7. COMING TO THE PAYMENTS CLAIMED AGAINST MR. HANUMAN DAS KARWA, HUF, THE SAME IS NOT PROVED. FIRST OF ALL, THE AGREEMENT WITH MR. HANUMAN DAS KARWA WAS NOT PLACED ON RECORD . THE AO I.T.A. NO. 01/HYD/2017 :- 5 - : EXAMINED AND RECORDED A STATEMENT AND ROLE OF MR. HAN UMAN DAS KARWA IS NOT FORTHCOMING IN SALES MADE TO SUB-AGENT. IT IS AL SO NOT UNDERSTANDABLE WHY MR. HANUMAN DAS KARWA HAS TO ACT AS AN AGENT FOR SALES TO SUB-AGENT M/S. SURYA JYOTHI SPINNI NG MILLS LTD. AS SEEN FROM THE LEDGER ACCOUNT COPY ALSO, THE COMMISS ION WAS DEBITED ON THE LAST DAY OF THE YEAR AND THERE ARE NO PA YMENTS DURING THE YEAR. THIS INDICATE THAT CLAIM OF COMMISSIO N TO MR. HANUMAN DAS KARWA ON SALES TO M/S. SURYA JYOTHI SPINNING MILLS LTD., IS NOT GENUINE. ASSESSEE FAILED TO JUSTIFY THE CL AIM BEFORE AUTHORITIES. I AM OF THE OPINION THAT THE AO/CIT(A) IS CORRECT IN DISALLOWING THE AMOUNT. TO THAT EXTENT, THE CLAIM OF PAY MENT OF COMMISSION ON SALES MADE TO SUB-AGENT ITSELF STATED TO HAVE BEEN DONE THROUGH MR. HANUMAN DAS KARWA, HUF IS NOT GENUINE ON THE FACTS OF THE CASE. THE GROUNDS TO THAT EXTENT ARE REJEC TED. 8. AO IS DIRECTED TO ALLOW THE COMMISSION PAID TO M/ S. SURYA JYOTHI SPINNING MILLS LTD. GROUNDS ARE ALLOWED PARTLY . 9. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DECEMBER, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 8 TH DECEMBER, 2017 TNMM I.T.A. NO. 01/HYD/2017 :- 6 - : COPY TO : 1. SRINATH AGENCIES, C/O. SIDDHARTH TOSHNIVAL, ADVO CATE, O/O. SHRI K.L. RATHI, ADVOCATE, 3-5-144/5, EDEN GAR DEN, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10 (1), HYDERABAD. 3. CIT (APPEALS)-6, HYDERABAD. 4. PR.CIT-6, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.