ACIT, Circle-6(1), Hyderabad V. M/s.Annapurna Builders, Hyderabad

ITA 1006/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66542 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 22-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K GNANAPRAKASH
• Keywords: Diversion of income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1006/HYD/2012 ASSESSMENT YEAR: 2008-09 ACIT, CIR-6(1), HYDERABAD.. .... APPELLANT VS. M/S. ANNAPURNA BUILDERS, BEGUMPET, HYDERABAD. RESPONDENT PAN:AAEFA 9477F APPELLANT BY : SHRI K. GNANA PRAKASH RESPONDENT BY : SRI K.C. DEVDAS DATE OF HEARING : 04-10-2012 DATE OF PRONOUNCEMENT: 27-11-2 012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 22-3-2012 OF CIT (A)-IV, HYDERABAD PASS ED IN APPEAL NO.365/ACIT 6(1)/CIT (A)-IV/10-11 AND IT PERTAINS T O THE ASSESSMENT YEAR 2008-09. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING EFFECTIV E GROUND BEFORE US:- THE LD. CIT (A) ERRED IN HOLDING THAT ONLY THE CENT RAL GOVERNMENT IS EMPOWERED TO DENY DEDUCTION U/S 80IA(4)(III) OF THE IT ACT AND AO CANNOT DENY THE DEDUCTION DESPITE THE FACT THAT THE ASSESSEE 2 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. DID NOT FULFIL THE CONDITIONS PRESCRIBED IN THE NOT IFICATION ISSUED BY THE CENTRAL GOVERNMENT FOR CLAIMING DEDUCTION U/S 8 0IA(4)(III). 3. BRIEFLY THE FACTS ARE THE ASSESSEE A PARTNERSHIP FI RM HAS CONSTRUCTED BLOCK NO.3 WHITE HOUSE WHICH IS BEING O PERATED AND MAINTAINED AS AN INDUSTRIAL PARK AFTER OBTAINING APPROVAL FROM THE MINISTRY OF COMMERCE, GOVT., OF INDIA AS PER INDUST RIAL PARK SCHEME, 2002. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.95,99,032 AFTER CLAIMING DEDUCTION OF AN AMOUNT OF RS.3,45,25 ,532 U/S 80IA (4)(III) OF THE ACT. THE RETURN WAS INITIALLY PRO CESSED U/S 143(1). SUBSEQUENTLY, HOWEVER CASE WAS SELECTED FOR SCRUTIN Y AND NOTICE U/S 143(2) WAS ISSUED. IN COURSE OF ASSESSMENT PRO CEEDINGS, THE AO WHILE EXAMINING THE ASSESSEES RETURN FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA(4)(III) FOR AN AMOUN T OF RS.3,45,25,532. ON GOING THROUGH THE DETAILS, THE AO NOTICED THAT THE TOTAL AREA OCCUPIED BY TENANTS CARRYING OUT T HE PROPOSED INDUSTRIAL ACTIVITIES AS MENTIONED IN THE LETTER OF APPROVAL OF GOVERNMENT IS LESS THAN 90% OF THE TOTAL APPROVED A REA. ACCORDING TO THE AO, OUT OF THE TOTAL AREA OF INDUSTRIAL PARK TO THE EXTENT OF 2,72,829 SFT, THE AREA OCCUPIED FOR THE PROPOSED IN DUSTRIAL ACTIVITIES WORKS OUT TO ONLY 41.26%. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN WHY ITS CLAIM OF DEDUCTION U/S 80IA(4)(III) SHALL NOT BE DISALLOWED. IN RESPONSE TO THE NOTICE OF THE AO, TH E ASSESSEE EXPLAINED THAT OUT OF TOTAL AREA OF INDUSTRIAL PARK OF 281273.97 SFT., AREAS FOR COMMON FACILITIES IS 1,05,190 SFT AND THE NET ALLOCABLE AREA IS 176083.97 SFT. THE AO AFTER EXAMINING THE A SSESSEES EXPLANATION CAME TO A CONCLUSION THAT THE ASSESSEE HAS 3 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. CONSTRUCTED TOTAL AREA OF 2,72,829 SFT WHICH IS LES S THAN THE APPROVED AREA OF 281273.97 SFT WHICH IS IN VIOLATIO N OF THE CONDITIONS ATTACHED TO THE GOVERNMENT APPROVAL. TH E AO FURTHER NOTICED THAT THE ASSESSEE HAD SOLD AWAY A PORTION A DMEASURING 5293 SFT OUT OF THE APPROVED ALLOCABLE AREA OF INDU STRIAL PARK WHICH VIOLATES THE CONDITION OF THE GOVERNMENT APPROVAL. THE AO FURTHER OBSERVED THAT OUT OF THE ALLOCABLE AREA OF 176083. 97 SFT., THE ASSESSEE SHOULD HAVE UTILISED 90% OF THE AREAS WHIC H COMES TO 158475.57 SFT., FOR APPROVED INDUSTRIAL ACTIVITY. HOWEVER, THE ASSESSEE HAS ONLY UTILISED 112578 SFT., AS AGAINST 1,46,740 SFT., CLAIMED BY THE ASSESSEE. ON THE AFORESAID FINDING, THE AO HELD THAT SINCE THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS MENTIONED IN THE LETTER OF APPROVAL OF GOVERNMENT, THE ASSESSEE IS N OT ENTITLED FOR DEDUCTION U/S 80IA(4)(III) OF THE ACT. HE THEREFO RE DISALLOWED THE CLAIM OF EXEMPTION. THE ASSESSEE BEING AGGRIEVED O F THE ASSESSMENT ORDER FILED AN APPEAL BEFORE THE CIT (A) . 4. IN COURSE OF HEARING BEFORE THE CIT (A), THE ASSES SEE SUBMITTED THAT THOUGH THE PROPOSED AREAS OF INDUSTR IAL PARK WAS 281274 SFT., HOWEVER AFTER COMPLETION OF THE CONSTR UCTION ON ACTUAL MEASUREMENT, THE AREAS CONSTRUCTED AS PER THE ARCHI TECT CERTIFICATE IS 271809 SFT., WHICH INCLUDED HE AREA MENTIONED FO R COMMON FACILITIES I.E, PARKING, TERRACE ETC. IT WAS CON TENDED BY THE ASSESSEE THAT IT HAD NOT CLAIMED ANY EXTRA DEDUCT ION BUT THE DEDUCTION HAS BEEN CLAIMED IN ACCORDANCE WITH THE AREA WHICH HAS BEEN APPROVED. IT WAS CONTENDED BY THE ASSESSEE TH AT THE AREA SOLD OF 5293 SFT., WAS OUT OF AREA ALLOCATED FOR C OMMERCIAL PURPOSES AND WHICH WAS LYING VACANT WHEN THE APPLICATION FOR APPROVAL WAS MADE TO THE BOARD. SINCE THE AREA MEANT FOR COMME RCIAL PURPOSE, 4 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. THERE IS NO VIOLATION TO THE CONDITIONS MENTIONED I N THE APPROVAL LETTER OF THE GOVERNMENT. THE ASSESSEE CONTENDED T HAT THE AREA WAS SOLD NOT DURING THE IMPUGNED ASSESSMENT YEAR BU T IN THE EARLIER ASSESSMENT YEAR. IT WAS SUBMITTED BEFORE THE CIT (A) THAT OUT OF TOTAL CONSTRUCTED AREA OF 272829 SFT., THE AREA MEANT FOR RESTAURANT COMMON FACILITIES LIKE PARKING AND TERRA CE ETC., IS TO THE EXTENT OF 118140 SFT., AND THE AREA SOLD TO THE EXT ENT OF 5293 SFT. THEREFORE, THE AREA UTILISED FOR APPROVED INDUSTRIA L ACTIVITY WAS 149396 SFT., WHICH COMES TO ABOUT 97% OF THE AREA FOR SPECIFIED PURPOSE AND THE ASSESSEE HAS ONLY LET OUT ABOUT 3% THEREOF FOR COMMERCIAL PURPOSE. IT WAS SUBMITTED THAT SINCE TH E ASSESSEE HAS UTILISED MORE THAN 90% OF ALLOCABLE AREA FOR SPECIF IED INDUSTRIAL ACTIVITY AND HAS COMPLIED WITH ALL THE CONDITIONS SPECIFIED IN THE INDUSTRIAL PARK, IT IS ENTITLED FOR DEDUCTION U/S 8 0IA(4)(III) OF THE ACT. THE ASSESSEE ALSO RELIED UPON THE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF MEENAKSHI INFRASTRUCTURES PVT. LIMITED VS. DCIT IN ITA 313/HYD/2010. IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE JURISDICTIONAL TRIBUNAL HAS ALREADY DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE ON IDENTICAL FACTS FOR THE A SSESSMENT YEAR 2007-08 IN ITA NO.1177/HYD/2011 DATED 30-11-2011. T HE CIT (A) AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE A ND ALSO GOING THROUGH THE ORDER OF THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 FOUND THAT THE GRO UNDS ON WHICH THE DEDUCTION U/S 80IA(4)(III) WAS DENIED TO THE AS SESSEE ARE VIRTUALLY THE SAME ON WHICH THE CLAIM OF DEDUCTION U/S 80IA (4)(III) WAS REJECTED FOR THE IMPUGNED ASSESSMENT YEAR. TH E CIT (A) THEREFORE FOLLOWING THE DECISION OF THE ITAT, HYDER ABAD BENCH IN ITA NO.1177/HYD/2011 DATED 30-11-2011 ALLOWED THE APPEA L OF THE 5 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. ASSESSEE BY HOLDING THAT THE ASSESSEE IS ENTITLED F OR DEDUCTION U/S 80IA (4)(III) OF THE ACT. 5. THE LEARNED DR THOUGH AGREED THAT THE ITAT HAS DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE EARLIER ASS ESSMENT YEAR, HE HOWEVER RELIED ON THE GROUNDS RAISED. THE LEARNED A R SUBMITTED BEFORE US THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR ASSESSME NT YEARS 2007-08 IN ITA NO.1177/HYD/2011 DATED 30-11-2011. T HE LEARNED AR SUBMITTED WHILE CONSIDERING IDENTICAL NATURE OF DISPUTE THE TRIBUNAL HAS HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA(4)(III). THE LEARNED AR THEREFORE SUPPORTED T HE ORDER OF THE CIT (A). 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2007-08. IT IS NOT IN DISPUTE THAT THE ASSESS EE HAS DEVELOPED AN INDUSTRIAL PARK AFTER OBTAINING APPROVAL OF GOVE RNMENT OF INDIA AS PER INDUSTRIAL PARK SCHEME 2002. THE ASSESSEE I S ALSO OPERATING AND MAINTAINING INDUSTRIAL PARK. THE AO HAS DISALL OWED THE CLAIM OF EXEMPTION TO THE ASSESSEE ON THE FOLLOWING GROUNDS: - I) THE TOTAL CONSTRUCTED AREA OF 2,72,829 SFT IS LESS THAN THE APPROVE AREA OF 2,81,279.93 SFT. II) THE ASSESSEE HAS SOLD 5293 SFT., IN THE GROUND FLOOR OUT OF THE ALLOCABLE AREA OF INDUSTRIAL PARK IN VIOLATION OF GOVERNMENT APPROVAL. 6 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. III) THE TOTAL AREA UTILISED BY THE ASSESSEE FOR INDUSTRIAL ACTIVITIES IS LESS THAN 90% OF THE TOTA L ALLOCABLE AREA. 7. ON THE AFORESAID GROUNDS, THE AO REJECTED THE CLAIM OF DEDUCTION U/S 80IA (4)(III). WE FIND THAT IN SIMILAR FACTUAL SITUATION AND ON IDENTICAL GROUNDS, THE AO DENIED THE CLAIM OF DEDUCTION U/S 8 0IA (4)(III) FOR ASST. YEAR 2007-08. THE MATTER WENT UP IN APPEAL BEFORE THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE SAME ASSE SSEE FOR ASSESSMENT YEAR 2007-08 (SUPRA). THE ISSUE BEFORE THE TRIBUN AL WAS SUMMARISED IN PARA-19 OF THE ORDER WHICH ARE AS FOLLOWS:- I) THAT THE CERTIFIED CONSTRUCTED AREA OF 272829 SQ.FT . WAS LESS THAN THE AREA OF 281273.97 SQ.FT., PROPOSED BY THE ASSESSEE. II) THAT THE ASSESSEE HAD SOLD OUT 5293 SQ.FT., OF THE GROUND FLOOR AFTER RECEIVING APPROVAL FOR THE TOTAL AREA OF THE PARK. III) THAT SOME OF THE TENANTS HAD SHOWN DIFFERENT USAGE OF THE PREMISES THAN THAT SHOWN BY THE ASSESSEE. IV) THAT THE ASSESSEE DID NOT USE 90% OF THE NET ALLOCA BLE AREA FOR THE SPECIFIED INDUSTRIAL PURPOSES. THE ITAT, HYDERABAD BENCH AFTER TAKING INTO CONSIDE RATION THE FACTS AND THE CIRCUMSTANCES INVOLVED HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA(4)(III) BY OBSERVIN G IN THE FOLLOWING MANNER:- 27. FURTHER, IT IS SEEN THAT THIS TRIBUNAL IN TH E CASE OF MEENAKSHI INFRASTRUCTURES PVT. LTD. VS. DCIT (SUPRA ) HAVE OPINED THAT WHEN THE CENTRAL GOVERNMENT APPROVES T HE ASSESSEES PROJECT UNDER INDUSTRIAL PARK SCHEME FRA MED BY THE CENTRAL GOVERNMENT, THE CONDITIONS UNDER SEC. 80IA(4)(III) ARE SATISFIED. IT IS CLEAR THAT WHIL E THE ASSESSEE 7 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. HAS RECEIVED SUCH APPROVAL AND NOTIFICATION, THE SA ME HAS NOT BEEN WITHDRAWN TILL DATE FOR CONTRAVENTION OF A NY OF THE CONDITIONS, EVEN THOUGH THERE IS A SPECIFIC PROVISI ON FOR WITHDRAWAL, IN CASE THE CENTRAL GOVERNMENT FINDS TH AT THE CONDITIONS PRESCRIBED THEREIN HAVE NOT BEEN ADHERED TO. HOWEVER, IT IS ALSO CLEAR THAT SUCH WITHDRAWAL HAS TO BE DONE BY THE CENTRAL GOVERNMENT ONLY AND AS LONG AS THIS IS NOT DONE, THE ASSESSEE HAVING SUCH APPROVAL AND NOTIFIC ATION CANNOT BE DENIED THE DEDUCTION. UNDER THE CIRCUMSTA NCES, I AM OF THE VIEW THAT SINCE THE ASSESSEE HAD DEVELOPE D THE INDUSTRIAL PARK DULY APPROVED AND NOTIFIED BY THE C ENTRAL GOVERNMENT AND THE SAME HAS NOT BEEN WITHDRAWN FOR ANY REASONS, THE ASSESSEE WOULD BE ENTITLED TO THE BENE FIT OF DEDUCTION U/S 80IA(4)(III). 28. FURTHER, IN THE CASE OF GANESH HOUSING CORPORAT ION LTD., VS. PADAM SINGH, UNDER SECRETARY & ORS. (2011 ) 61 DTR (GUJ.) 1, THE GUJARAT HIGH COURT HELD THAT WHAT WA S REQUIRED TO BE DONE BY THE ASSESSEE WAS TO PROVIDE FOR INFRASTRUCTURAL FACILITIES BEFORE THE LAST DATE ENV ISAGED UNDER THE SCHEME AND THEREAFTER, THERE WAS NO OBLIGATION ON ITS PART TO ENSURE THAT INDUSTRIAL UNITS ON SUCH PLOTS MUST ALSO COME INTO EXISTENCE AND COMMENCE THEIR PRODUCTION ACTIVITIES, IMPUGNED SHOW CAUSE NOTICE FOR WITHDRAW AL OF APPROVAL OF ASSESSEES INDUSTRIAL PARK IS LIABLE TO BE QUASHED AND CBDT IS DIRECTED TO NOTIFY THE SAME. 8. FROM THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE FACTS INVOLVED IN ASSESSMENT YEAR 2007-08 AND THE IMPUGNE D ASSESSMENT YEAR ARE IDENTICAL AND NO CHANGED CIRCUMSTANCES HAVE BEEN BROUGHT TO OUR NOTICE TO DEVIATE FROM THE AFORESAID DECISION OF THE ITAT IN ASSESSEES OWN CASE. THEREFORE, RESPECTFUL LY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA (4)(III) OF THE ACT . 8 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. 9. IN VIEW OF THE ABOVE, WE UPHOLD THE FINDINGS OF THE CIT (A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE COURT ON 27-11-2012. SD/- SD /- (SANJAY ARORA) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 27 TH NOVEMBER, 2012. COPY TO:- 1) ACIT, CIR-6(1), HYDERABAD. 2)M/S ANNAPURNA BUILDERS, 6-3-1192, KUNDAN BAGH, BEGUMPET, HYDERABAD. 3) THE CIT (A)-IV, HYDERABAD. 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 9 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. 10 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD 11 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.116/HYD/2011 ASSESSMENT YEAR: 2007-08 VINS BIO PRODUCTS LTD., HYDERABAD. .... APPELLANT PAN:AABCV 0226F) VS. ACIT, CIR-3(3), HYDERABAD. RESPONDENT ITA NO.237/HYD/2012 ASSESSMENT YEAR: 2007-08 DCIT, CIR-3(3), HYDERABAD. APPELLANT -VS- VINS BIO PRODUCTS LTD., HYDERABAD. .... APPELLANT PAN:AABCV 0226F) APPELLANT BY : SHRI A. SRINIVAS RESPONDENT BY : SHRI V. SRI NIVAS DATE OF HEARING : 02-08-2012 DATE OF PRONOUNCEMENT : - 10-2012 ORDER PER SAKTIJIT DEY, J.M.: 12 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. THESE CROSS APPEALS ARE BY THE ASSESSEE AND THE DEPARTMENT AND ARE DIRECTED AGAINST THE ORDER DATED 7-1-2011 OF CIT (A), GUNTUR PERTAINING TO THE ASSESSMENT YEAR 2 007-08. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS GROUND NO.2 WHICH READS AS UNDER:- //GROUND NO.2 // 2. BRIEFLY THE FACTS ARE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF BIOPRODUCTS. THE ASSESSEE C OMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 O N 30-10-2007 DECLARING A TOTAL INCOME OF RS.1,62,43,594. THE RE TURN WAS PROCESSED U/S 143(1). SUBSEQUENTLY, SCRUTINY ASSESSMENT PROCEEDI NGS WERE INITIATED BY ISSUING A NOTICE U/S 143(2). IN COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSEE PRODUCED ITS BOOKS OF ACCOUNTS AND OTHER D OCUMENTS WHICH WERE DULY EXAMINED BY THE AO. WHILE EXAMINING THE EXPEN DITURE CLAIMED IN THE PROFIT & LOSS A/C, THE AO NOTICED THAT THE ASS ESSEE HAS PAID AN AMOUNT OF RS.93,27,000 TO M/S VINAY TRADING CORPOR ATION. THE AO ASKED FOR THE DETAILS OF PAYMENT MADE TO THE SAID PARTY. IN RESPONSE TO THE QUERY MADE BY THE AO, HE ASSESSEE SUBMITTED THAT TH E PAYMENT OF RS.93,27,000 WAS PAID TO M/S VINAY TRADING CORPORAT ION TOWARDS COMMISSION FOR FACILITATING THE RATE CONTRACT WITH GOVERNMENT OF KARNATAKA. IN SUPPORT OF SUCH EXPLANATION, THE ASSE SSEE SUBMITTED THE PROCEEDINGS OF MEETINGS HELD WITH THE FIRM M/S VINA Y TRADING CORPORATION. THE AO AFTER GOING THROUGH THE PROCEE DINGS BETWEEN THE ASSESSEE COMPANY AND M/S VINAY TRADING CORPORATION CAME TO A CONCLUSION THAT AS PER THE TERMS OF THE CONTRACTOR THE COMMISSION WILL BE PAID AS PER THE REQUEST OF THE LIAISON AGENT TO THI RD PERSON WHICH EFFECTIVELY REMAINS THAT THE PERSON RENDERING SERVI CES HAS NOT BEEN PAID AND THERE IS DIVERSION OF INCOME TO A THIRD PARTY. THE AO WHILE EXAMINING THE COMPUTATION OF CALCULATION OF COMMISS ION ON THE SUPPLIES MADE TO KARNATAKA GOVERNMENT FOUND THAT THE COMMISS ION OF RS.93,27,000/- WAS PAID TOWARDS COMMISSION FOR PAYM ENT RECEIVED AMOUNTING TO RS.3,24,89,908. THUS, THE COMMISSION PAID COMES TO ABOUT 28.7% OF THE SALES WHEREAS AS PER THE POTENTIALSH OWN, THE GROSS PROFIT HAS BEEN DECLARED AT 9% ONLY. THE AO THEREFORE FOU ND THE COMMISSION TO BE EXCESSIVE. THE AO FURTHER HELD THAT THE ASSESSEE HAS NOT JUSTIFIED THE PAYMENT OF COMMISSION AT 28.7% TO M/S VINAY TRADING CORPORATION. 13 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. SINCE THERE WAS NO XXXXXXXXX FURNISHED BY THE ASSE SSEE TO SUBSTANTIATE THE SERVICES RENDERED BY THE AGENT M/S VINAY TRADI NG CORPORATION FOR PROCURING ORDERS FROM KARNATAKA GOVERNMENT. ON THE AFORESAID CONCLUSION, THE AO DISALLOWED THE COMMISSION PAYMEN T OF RS.93,27,000/- AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE BEING AGGRIEVED CHALLENGED THE ADDITION BY FILING AN APPE AL BEFORE THE CIT (A). BEFORE THE CIT (A) BY REITERATING ITS STAND TAKEN BEFORE THE AO, THE ASSESSEE CONTENDED THAT AS PER CLAUSE (IV) OF THE P ROCEEDINGS ENTERED INTO WITH M/S VINAY TRADING CORPN., THE ASSESSEE HA D PAID COMMISSION TO THE PERSONS WHOSE NAMES WERE COMMUNICATED BY M/S VI NAY TRADING CORPN. IN FACT, THE PERSON AND SIGNATORIES TO THE PROCEEDINGS, ONE OF THEM M/S DEEPAK KHURANA IS A PROPRIETOR AND SRI G. KOTHARI IS THE MANAGER OF M/S. VINAY TRADING COMPANY. THE ASSES SEE CONTENDED THAT SRI D.KUMAR WAS APPOINTED AS CLASS-I AGENT TO LOOK AFTER THE COMPANYS BUSINESS ACTIVITIES IN THE KARNATAKA STATE AND BEC AUSE OF HIS GOOD OFFICES, THE COMPANY COULD PROCURE A RATE CONTRACT FOR SUPPLY OF XXXXXXXXXX FOR USE IN THE GOVERNMENT HOSPITALS FOR THE PREVIOUS TWO YEARS ENDING ON 14-12-2006. IT WAS CONTENDED THAT DUE TO THE EFFORTS OF MR. DEEPAK KHURANA. THE ASSESSEES RATE CONTRACT WAS ACCEPTED AT A HIGHER RATE OF RS.3367.60 PER VIAL AS AGAINST NORM AL SELLING PRICE OF RS.240/-. CONSIDERING THE PROCUREMENT OF RATE CON TRACT AS A VERY LUCRATIVE PRICE, THE ASSESSEE PAID HIGHER COMMISSIO N TO THE LIAISON AGENT FOR THE SERVICES RENDERED BY HIM. IT WAS FURTHER S UBMITTED BY THE ASSESSEE THAT SRI DEEPAK KHURANA WAS ACTING AS ASSE SSEES LIAISON AGENT RIGHT FROM THE STAGE OF SUBMITTING TENDERS, GETTING IT ACCEPTED FROM DECEMBER, 2004 ONWARDS. HE WAS ALSO LOOKING DISTRI BUTION OF THE ASSESSEE- COMPANYS PRODUCTS IN VARIOUS HOSPITALS I N KARNATAKA STATE AND ALSO FOLLOWED IT UP FOR GETTING ORDERS AND COLLECTI ON OF MONEY. SHRI DEEPAK KHURANA ALSO HELPED THE ASSESSEE IN VARIOU S OTHER MATTERS/WAYS. THE CIT (A) AFTER CONSIDERING THE SU BMISSION MADE BY THE ASSESSEE AND ALSO MATERIALS PLACED BEFORE HIM, ACCE PTED THE FACT THAT THERE IS NO DISPUTE REGARDING THE PAYMENT OF COMMIS SION OF RS.93,27,000 BY THE ASSESSEE AS PER AN AGREEMENT ENTERED INTO W ITH THE AGENT. THE CIT (A) ALSO FOUND THE REJECTION OF CLAIM OF THE AS SESSEE BY THE AO AS NOT CORRECT SINE THE AO HAS NOT GIVEN ANY COGENT REASON FOR HIS DECISION AND HAS DISALLOWED THE COMMISSION ONLY ON THE GROUND TH AT THE COMMISSION PAYMENT AMOUNTS TO 28.7% OF THE RECEIPTS WHEREAS TH E ASSESSEE HAS DISCLOSED GROSS PROFIT AT ONLY 9%. THE CIT (A) HO WEVER DIRECTED THE AO TO RE-COMPUTE THE PAYMENT OF COMMISSION BY ADOPTING THE PRICE PER VIAL. 14 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. THE FINDING OF THE CIT (A) IN THIS REGARD IS EXTRAC TED HEREUNDER FOR SAKE OF CONVENIENCE:- THE SUBMISSIONS MADE BY THE APPELLANT WERE CONSI DERED AND ALSO SEEN THE CIRCUMSTANCES UNDER WHICH THE AO HAS DENIED THE ENTIRE PAYMENT OF COMMISSION. THERE IS NO DISPUTE THAT THE CLAIM OF THE APPELLANT IS RS.93,27,000/-, WHICH WAS PAID/ PAYABLE AS PER AN A GREEMENT. IT IS THE CLAIM OF THE APPELLANT THAT THE ISSUE OF TENDER BY GOVERNMENT OF KARNATAKA WAS BROUGHT TO ITS NOTICE BY THE AGENT AN D THAT ITS HIGHER RATES WERE GOT ACCEPTED AT RS.336.60 PER VIAL AS AGAINST NORMAL SELLING PRICE OF RS.240/-. BUT THEN, WHAT WERE THE CIRCUMSTANCES UN DER WHICH HIGHER RATES PER VIAL WERE ACCEPTED WERE NOT FURNISHED BY THE APPELLANT. S AT THE SAME TIME REJECTING THE ENTIRE CLAIM OF THE APP ELLANT ON THIS ISSUE BY THE AO IS ALSO NOT CORRECT, BECAUSE THE AO HAS NOT GIVEN ANY COGENT REASONS FOR HIS DECISION. THE PLEA OF THE AO THAT THE COMMISSION PAYMENTS, WHICH IS 28.7% OF RECEIPTS THROUGH THE AG ENT WAS NOT JUSTIFIABLE IN LIGHT OF THE FACT THAT THE GP IS ONL Y 9%, IS DIFFICULT TO COMPREHEND. IN THE CIRCUMSTANCES, IN VIEW OF THE M ATERIAL ON RECORD, EITHER AO IS CORRECT IN DISALLOWING THE ENTIRE COMM ISSION PAYMENTS OR THE APPELLANT IS CORRECT IN PAYING HIGHER PRICE OF RS.3 36.60 PER VIAL, WHEN THE PREVAILING RATE IN THE MARKET IS RS.240/- PER VIAL. IN THE GIVEN FACTUAL MATRIX, I AM OF THE CONSIDERED OPINION THAT ENDS OF JUSTICE ARE MET IF THE ORDERS PROCURED THROUGH THE AGENT AT RS.3,24,89,908 ARE RECOMPUTED ADOPTING THE PRICE PER VIAL AS DISCUSSED HEREIN ABO VE ON WHICH SAME YARD STICK IS ADOPTED FOR WORKING OUT THE COMMISSION INV OLVED AND THE AO IS DIRECTED ACCORDINGLY. X. THE LEARNED AR SUBMITTED BEFORE US THAT THE PAYM ENT OF COMMISSION AS PER THE TERMS OF MEMORANDUM OF UNDERS TANDING ENTERED INTO BETWEEN THE ASSESSEE COMPANY WITH M/S VINAY TR ADING COMPANY, THE LEANED AR INVITED OUR ATTENTION TO THE PROCEEDINGS OF THE MEETINGS DATED 21-1-2005 WHICH IS AT PAGE-58 OF THE PAPER BOOK. T HE LEARNED AR SUBMITTED THAT BECAUSE OF THE AWARDS THE LIAISON AG ENTS, THE ASSESSEE WAS ABLE TO PROCURE THE RATE CONTRACT FROM GOVERNME NT OF KARNAKATA FOR SUPPLY OF ANTI SNAKE VENOM FOR A PERIOD OF 24 MONTH S. THEREFORE, THE ASSESSEE HAS PAID COMMISSION AS PER THE TERMS OF TH E PROCEEDINGS HELD ON 21-1-2005. THE LEARNED AR FURTHER SUBMITTED TH AT THE CONTRACT IS A CONTINUING CONTRACT FROM THE FINANCIAL YEAR 2004-05 AND THE COMMISSION PAID FOR SIMILAR SERVICES RENDERED BY M/S. VINAY TR ADING COMPANY WAS 15 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. CLAIMED IN THE ASSESSMENT YEARS 2005-06 AND 2006-07 ALSO WHICH WERE ACCEPTED IN THE ASSESSMENT ORDER PASSED FOR THE RES PECTIVE ASSESSMENT YEARS. IN THIS REGARD, THE LEARNED AR REFERRED TO THE ANNUAL REPORT AND ASSESSMENT ORDER OF THE ASSESSMENT YEAR 2005-06 AND 2006-07 FORMING PART OF THE PAPER BOOK. THE LEARNED AR SUBMITTED T HAT WHEN THE AO HAS ACCEPTED THE PAYMENT OF COMMISSION FOR THE PRECEDIN G TWO ASSESSMENT YEAR, THERE IS NO SUCH CHANGED OR INTERVENING CIRCU MSTANCES WHICH COULD HAVE NECESSITATED DISALLOWANCE OF COMMISSION FOR TH E ASSESSMENT YEAR 2007-08. THE LEARNED AR FURTHER SUBMITTED THAT THE ENTIRE COMMISSION HAS BEEN PAID THROUGH CHEQUES WHICH COULD HAVE BEEN EASILY VERIFIED BY THE AO . IT IS FURTHER CONTENTION OF THE LEARNED AR THAT THE DIRECTION OF THE CIT (A) IS ALSO NOT SIMILAR HOW PAYMENT OF COMMISSI ON IS TO BE RECOMPUTED. X. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ACCEPTANCE OF PAYMENT COMMISSION FOR THE ASSESSMENT YEARS 2005 -06 AND 2006-07 CANNOT BE A GROUND TO ALLOW SIMILAR PAYMENT IN THE ASSESSMENT YEAR UNDER DISPUTE. THE LEARNED DR SUBMITTED THAT THE F ACTS OF EACH YEAR WOULD GOVERN ON THE BASIS OF FINDING IN THAT PART ICULAR YEAR AND IT CANNOT BE MADE APPLICABLE TO ANOTHER YEAR. THE LEARNED DR RELYING UPON A DECISION OF HONBLE AP HIGH COURT IN THE CASE OF CI T VS. TCI (256 ITR 701) CONTENDED THAT THE PAYMENT OF COMMISSION IS TO BE A LLOWED AS AN EXPENDITURE ONLY WHEN THE ASSESSEE BY PRODUCING SUF FICIENT PROOF ESTABLISHING THE FACT THAT THE PAYMENT WAS MADE FOR COMMERCIAL CONSIDERATION. X. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT ON RECORD THAT THE ASSESSEE HA S ENTERED INTO A RATE CONTRACT WITH THE GOVERNMENT OF KARNATAKA FOR SUPPL Y OF ANTI SNAKE VENOM FOR TWO YEARS ENDING DECEMBER, 2006. IT IS C LAIM OF THE ASSESSEE THAT THE PROCUREMENT OF RATE CONTRACT WAS FACILITAT ED DUE TO THE EFFORTS OF THE LIAISON AGENT APPOINTED BY M/S. VINAY TRADING C OMPANY. IT IS FURTHER CONTENTION OF THE LEARNED AR THAT ONLY DUE TO THE EFFORTS THE LIAISON AGENT, THE ASSESSEE COMPANY WAS ABLE TO PROCURE THE RATE CONTRACT AT A MUCH HIGHER RATE THAN THE PREVAILING MARKET RATE. THE AO HAS DISALLOWED THE PAYMENT OF COMMISSION ONLY ON INTERPRETING CLAU SE(IV) OF MINUTES OF THE PROCEEDINGS WHICH SIMPLY STATES THAT THE AGENTS WILL NOMINATE THE PERSON IN WHOSE NAME THE COMMISSION IS TO BE PAID. THAT CANNOT BY ITSELF 16 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. BE A GROUND FOR REJECTION OF THE ASSESSEES CLAIM. SIMILARLY, THE CONCLUSION ARRIVED AT BY THE AO THAT THE COMMISSION PAID APPEARS TO BE HIGHER AND EXCESSIVE IS ALSO NOT SUPPORTED BY VALID REASONS. THE FACT THAT THE COMMISSION PAID DURING THE IMPUGNED ASSESSMENT YEAR IS FOR A RATE CONTRACT WHICH CONTINUED FROM THE PRECEDING ASSESSM ENT YEAR AND COMMISSION PAID IN THE PRECEDING YEAR I.E., 2005-06 AND 2006-07 WAS ACCEPTED BY THE IT AUTHORITIES CANNOT BE TOTALLY IG NORED. THE LEARNED DRS CONTENTION THAT EACH ASSESSMENT YEAR IS A SEPA RATE AND FACTS OF EARLIER YEAR CANNOT BE MADE APPLICABLE TO ANOTHER Y EAR THOUGH HE IS CORRECT BUT AT THE SAME TIME, PRINCIPLES OF CONSTAN CY IS ALSO TO BE MAINTAINED. IT IS ALSO PERTINENT TO NOTE THAT THE E NTIRE COMMISSION WAS PAID THROUGH BANKING CHANNEL, THEREFORE THE GENUIN ENESS OF THE PAYMENT CAN BE VERIFIED BY EXAMINING THE BANK ACCOUNT. THE SE ASPECTS HAVE NOT BEEN PROPERLY CONSIDERED EITHER BY THE AO OR BY THE CIT (A). THE AO COULD HAVE SUMMONED THE CONCERNED PERSONS TO WHOM C OMMISSION HAS BEEN PAID TO FINDING OUT THE GENUINENESS OF THE CLA IM MADE BY THE ASSESSEE WHICH HAS NOT BEEN DONE. IN AFORESAID VIE W OF THE MATTER, WE THINK IT PROPER TO RESTORE THE MATTER BACK TO THE F ILE OF THE AO WHO SHALL CONSIDER THE ISSUE OF THE EXPENDITURE CLAIMED TOWAR DS PAYMENT COMMISSION TO THE LIAISON AGENTS AFTER CAUSING PRO PER ENQUIRY IF THE ASSESSEE IS ABLE TO PROVE THAT COMMISSION HAS ACTUA LLY BEEN PAID AND IT WAS FOR THE BUSINESS CONSIDERATION, THEN THE EXPEND ITURE CLAIM SHOULD BE ALLOWED. THE AO SHALL AFFORD A REASONABLE OPPORTUN ITY OF BEING HEARD BEFORE COMPLETION OF THE PROCEEDINGS. X. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE AS WELL AS DEPARTMENT ARE TREATED AS ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED IN THE COURT ON -10-2012. (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER 17 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. HYDERABAD, DATED THE SEPT., 2012. COPY TO:- 1) XXXXXXXXXXXXXXXXXXXXX. 2)XXXXXXXXXXXXXXXXXXXXXXX 3) THE CIT (A), HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 18 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD.. 19 ITA NO.1006 OF 2012 ANNAPURNA BUILDERS, HYD..