ACIT, New Delhi V. M/s. Dharam Industries, Delhi

ITA 1023/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3540 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: RAJNISH S HARMA CAS
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI R.C.SHARMA, AM ITA NO.1023/DEL/2010 ASSESSMENT YEAR : 2006-07 ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE-19(1), NEW DELHI. VS. M/S DHARAM INDUSTRIES, A-70, WAZIRPUR INDUSTRIAL AREA, DELHI 110 052. PAN NO.AAAFD2319K. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANISH GUPTA, SR.DR. RESPONDENT BY : SHRI SACHIN JAIN AND SHRI RAJNISH S HARMA, CAS. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 23.11.2009 FOR THE AY 2006-07, IN THE MATTER OF ORD ER PASSED U/S 143(3) OF THE IT ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE EXPORT OF UTENSILS. ITS CLAIM FOR EXPENDITURE ON TRAVEL TO FRANKFURT AND CHINA WAS PARTLY DISALLOWED BY THE AO. THE CIT(A) DELETED THE DISALLOWANCE BY RECORDING A CATEGORICAL FINDING TO THE EFFECT THAT DISALLOWANCE WITH RESPECT TO EXPENDITURE ON TRAVEL OF PARTNER SHRI R.D.SINGH TO FRANKFURT WAS MADE ON AD-HOC BASIS WITHOUT ANY COGE NT REASON. WITH RESPECT TO EXPENDITURE ON TRAVEL TO CHINA, THE CIT(A) OBSERVED THAT VISIT TO CHINA LASTED FOR FOUR DAYS AND OBJECT WAS TO VISIT M/S DIEA SUN HIGH FREQUENCY CO.LTD., MANUFACTURER OF STAINLESS STEEL MACHINERY WITH LATE ST TECHNOLOGY. IT WAS ALSO FOUND THAT ON EARLIER OCCASION ALSO, THE PARTNER VI SITED CHINA ON BUSINESS TRIP. AS MARKET AT CHINA HAD TREMENDOUS POTENTIAL AND STUDY OF THE MARKET ON OWN VALUATION WAS SUFFICIENT TO JUSTIFY THE EXPENDITURE INCURRED, THE CIT(A) DELETED THE ITA-1023/DEL/2010 2 DISALLOWANCE OF THE EXPENDITURE, WE DO NOT FIND ANY INFIRMITY IN VIEW OF THE CATEGORICAL FINDING AT PARA 5.1 AND 5.2 OF THE APPE LLATE ORDER. 3. IN THE RESULT, GROUND NO.1 & 2 OF THE REVENUES APPEAL STANDS DISMISSED. 4. WITH REGARD TO ASSESSEES CLAIM FOR COMMISSION O F RS.12,02,252/- PAID TO AGENTS ON ACCOUNT OF SALE, THE AO FOUND THAT THE AS SESSEE HAD CLAIMED TO HAVE PAID COMMISSION TO TWO AGENTS, NAMELY FORUM AND TOTAL CO MMITMENT HOLDING PVT.LTD. THE ASSESSEE WAS ASKED TO PRODUCE PROOF T HAT THESE AGENTS EXISTED BY FILING THEIR PAN DETAILS, ADDRESS, BANK DETAILS, MO DE OF PAYMENT AND ALSO PROOF THAT THESE PERSONS HAD ACTUALLY ACTED ON ITS BEHALF SO AS TO ESTABLISH THE BUSINESS PURPOSE OF THE TRANSACTIONS. IN THE CASE OF FORUM, THE ASSESSEE SUBMITTED A CONFIRMATION LETTER CONTAINING PAN AND ALSO THAT TH E MODE OF PAYMENT WAS THROUGH CHEQUE. HE ALSO SUBMITTED A COPY OF THE AG REEMENT ENTERED INTO AND ALSO PROOF THAT THE AGENT HAD BEEN INVOLVED IN THE PROCU REMENT AND EXECUTION OF THE ASSESSEES SALE. THE AO OBSERVED THAT IN THE CASE OF TOTAL COMMITMENT HOLDING PVT.LTD., THE ASSESSEE SUBMITTED A SELF SERVING COP Y OF THE AGREEMENT AND ALSO COPIES OF SEVERAL EMAILS WHICH HE CLAIMED WERE PURC HASE ORDERS, AS PROOF OF HIS CLAIM. THE ASSESSEE ALSO SUBMITTED PROOF THAT PAYM ENT HAD BEEN MADE TO AN ACCOUNT IN HONG KONG IN THE NAME OF THE ASSESSEE WA S ALSO UNABLE TO SUBMIT ANY PROOF THAT THE ALLEGED AGENT WHO IS SHOWN AS A RESI DENT OF BRITISH VIRGIN ISLANDS, WAS AN EXISTING PERSON THROUGH PAN OR BANK DOCUMENT S ETC., EXCEPT TO SHOW A COPY OF HIS ADDRESS WHICH CONSISTED OF A P.O. BOX I N THE BRITISH VIRGIN ISLANDS. ACCORDINGLY, THE AO DISALLOWED CLAIM OF EXPENDITURE BY OBSERVING THAT IN SHIPMENT ORDER, THERE WAS NO MENTION OF ASSESSEES NAME. 5. BY THE IMPUGNED ORDER, CIT(A) ALLOWED ASSESSEES CLAIM OF DEDUCTION AFTER RECORDING FOLLOWING FINDINGS:- ITA-1023/DEL/2010 3 REGARDING DISALLOWANCE OF COMMISSION OF RS.12,02,2 52/-, IT IS LEARNT FOUND THAT ALL THE EXPORTS OF THE APPELLANT HAVE BEEN THROUGH THIS COMMISSION AGENT. AS PER THE AGREEMENT, THE S ALE TO M/S ONIEDA INTERNATIONAL AND M/S SPARKTA WAS THROUGH TH IS COMMISSION AGENT M/S TOTAL COMMITMENT HOLDING LTD. THERE IS A N AGREEMENT BETWEEN THE APPELLANT AND THIS COMMISSION AGENT AND THERE ARE PROOF OF CORRESPONDENCES THROUGH E-MAIL INDICATING THAT T HE COMMISSION AGENT HAS RENDERED SERVICE AND WAS INVOLVED IN THE TRANSACTION OF EXPORT TO ONIEDA AND SPARKTA. THE PAYMENT OF COMMI SSION HAS BEEN MADE THROUGH BANKING CHANNELS AND BANK REFERENCE LE TTER FOR PAYMENT TO THE ABOVE PARTY IS PLACED BEFORE ME. TH E CASE OF AO IS THAT IT IS NOT KNOWN WHETHER THE PERSON RECEIVING P AYMENT EXISTS AND WHY THE PAYMENTS ROUTED THROUGH DIFFERENT DESTINATI ON. THIS IS A DOUBT WHICH WAS NOT TRANSLATED INTO A CLEAR FINDING . THE COMMISSION AGENT MAY BE HAVING OFFICES AT DIFFERENT LOCATIONS. THERE IS AN AGREEMENT FOR COMMISSION PAYMENT SUPPORTED BY REGUL AR E-MAILS FOR PROCURING ORDERS OF EXPORT AND SERVICES RENDERED WH ICH SHOULD BE ADEQUATE TO JUSTIFY THE PAYMENT. THE AO CANNOT SIT IN THE ARMCHAIR OF A BUSINESSMAN AND DECIDE WHETHER THE COMMISSION WAS TO BE PAID OR NOT. THE BUSINESS EXPEDIENCY AND PRUDENCE IS TO BE JUDGED BY THE APPELLANT. THE COMMISSION PAID THEREFORE CANNOT BE TREATED NOT FOR THE PURPOSE OF BUSINESS ON THE BASIS OF CONJECTURE AND SURMISES. THIS GROUND IS THEREFORE ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOU ND FROM THE RECORD THAT ASSESSEES CLAIM FOR COMMISSION PAYMENT WAS DECLINE D BY THE AO AS HE FOUND IT TO BE NOT GENUINE. HOWEVER, THE CIT(A) AFTER TAKIN G INTO ACCOUNT THE AGREEMENT ENTERED INTO WITH M/S ONIEDA INTERNATIONAL AND M/S SPARKTA THROUGH COMMISSION AGENT M/S TOTAL COMMITMENT HOLDING LTD., THE CIT(A) ALSO VERIFIED THE PROOF OF CORRESPONDENCE THROUGH E-MAIL INDICATING THAT COMMI SSION AGENT HAS RENDERED SERVICES AND WAS INVOLVED IN TRANSACTION OF EXPORT TO M/S ONIEDA INTERNATIONAL AND M/S SPARKTA. AS PER CIT(A), THE GENUINENESS OF THE EXPENDITURE CANNOT BE DECLINED. SINCE THE AO HAS OUTRIGHTLY DECLINED ASS ESSEES CLAIM FOR DEDUCTION OF COMMISSION EXPENSES ON THE GROUND OF GENUINENESS, H E HAS NO OCCASION TO CONSIDER THE SAME WITH RESPECT TO OTHER INGREDIENTS FOR ALLOWING CLAIM OF EXPENSES TO NON-RESIDENT ETC. AS PROVIDED U/S 40 OF THE ACT. HOWEVER, WHILE ALLOWING ASSESSEES CLAIM FOR DEDUCTION OF COMMISSION EXPENS ES, THE CIT(A) HAS NOT ITA-1023/DEL/2010 4 EXAMINED THE OTHER INGREDIENTS FOR ALLOWING THE SAM E AS BUSINESS EXPENSES KEEPING IN VIEW THE PROVISIONS RELATING TO DEDUCTIO N OF TAX AT SOURCE IN RESPECT OF PAYMENT TO NON-RESIDENT, TO THIS EXTENT, THE ORDER OF CIT(A) CANNOT BE UPHELD. IN THE INTEREST OF JUSTICE, WE RESTORE THIS GROUND TO THE FILE OF THE AO TO EXAMINE ASSESSEES CLAIM WITH RESPECT TO OTHER INGREDIENTS AS CONTAINED U/S 40 OF THE ACT. WE DIRECT ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED IN PART, IN TERMS INDICATED HEREINABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2010. SD/- SD/- (R.P.TOLANI) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28.07.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-1023/DEL/2010 5