DCIT, Bangalore V. Shri. Sandesh Nagaraj, Bangalore

ITA 104/BANG/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51404 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARCHANA CHOWDHRY CITIIDR
• Assessee Lawyers: V SRINIVASAN
• Keywords: Bonafide belief; Additional evidence
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.104/BANG/2011 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BANGALORE. VS. SHRI SANDESH NAGARAJ, 64/1, K H ROAD, BANGALORE. PAN : AJFPS 9116D APPELLANT RESPONDENT APPELLANT BY : SMT. ARCHANA CHOWDHRY, CIT-II(DR) RESPONDENT BY : SHRI V. SRINIVASAN, C.A. DATE OF HEARING : 20.12.2011 DATE OF PRONOUNCEMENT : 20.12.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE DEPARTMENT IS AGAINST THE ORD ER DATED 25.11.2010 OF THE CIT(APPEALS)-I, BANGALORE. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: 1. THE ORDER OF THE LEARNED CIT (APPEALS), IN SO FA R AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.104/BANG/11 PAGE 2 OF 8 2. THE LEARNED CIT (A) HAS ERRED IN DELETING THE A DDITION AMOUNTING TO RS.1,39,50,088/- MADE ON ACCOUNT OF DI SALLOWANCE OF CLAIM OF COMMISSION PAID, WITHOUT TAKING INTO C ONSIDERATION ALL THE RELEVANT PROVISIONS OF THE I T ACT, 1961. 3. THE LEARNED CIT(A), AS AN AUTHORITY, WHOSE POWER S ARE CO- TERMINUS WITH THAT OF THE ASSESSING OFFICER, HAS E RRED IN DELETING THE ADDITION RELYING ONLY ON THE REMAND REPORT SUB MITTED BY THE ASSESSING OFFICER, WITHOUT EXAMINING THE DETAILS/E VIDENCE FILED BY THE ASSESSEE IN COURSE OF THE APPEAL PROCEEDINGS , AS PER WHICH PAYMENTS OF COMMISSION WERE MADE TO CERTA IN PARTIES EXCEEDING THE PRESCRIBED LIMIT DURING THE RELEVANT PREVIOUS YEAR ON WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE S U/S 194H OF THE I T ACT, 1961, BUT WAS NOT DEDUCTED AT SOURCE AND, THEREFORE, SUCH PAYMENTS OF COMMISSION WERE NOT ALLOWABLE AS DEDUCTION U/S 40(A)(IA) OF THE I T ACT, 1961. 4. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATIN G THAT AS STATED IN THE RELEVANT ASSESSMENT ORDER, THE ASSESS EE HAD SUBMITTED BEFORE THE ASSESSING OFFICER IN COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE I T ACT, 1961, WERE NOT APPLICABLE IN RESPECT O F THE COMMISSION PAYMENTS, WHEREAS THE DETAILS/EVIDENCE F ILED BEFORE THE CIT(A) IN COURSE OF APPEAL PROCEEDINGS CLEARLY INDICATE THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(I A) WHICH WAS NOT COMMENTED ON BY THE ASSESSING OFFICER IN THE REMAN D REPORT SUBMITTED TO THE CIT(APPEALS). 5. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE UR GED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT (A) BE REVERSED IN SO FAR AS THE ABOVE MENTIONED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION AMOU NTING TO RS.1,39,50,088 MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF COMMISS ION. 4. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE IS A TRADER OF SILK SAREES, READYMADE GARMENTS AND HANDI CRAFTS. HE FILED THE RETURN OF INCOME ON 31.10.07 DECLARING TOTAL INCOME OF RS.30,52,320 WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. LATER ON THE CASE WAS SELECTED FOR ITA NO.104/BANG/11 PAGE 3 OF 8 SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE AO NOTICED THAT THE ASSESSEE HAD PAID COMMISSION OF RS.1,52,28 ,784 AND THE SALE EFFECTED BY THE ASSESSEE WAS RS.6,83,31,749, AS SUC H COMMISSION PAYMENT WAS MORE THAN 22% OF THE SALES. THE AO ASK ED THE ASSESSEE TO PROVIDE DETAILS OF COMMISSION PAID, THE ASSESSEE SU BMITTED THAT THE COMMISSION WAS PAID TO TAXI DRIVERS OR BUS DRIVERS WHO BROUGHT CUSTOMERS TO HIS SHOP AND THE NATURE OF COMMISSION WAS SECRET COMMISSION FOR WHICH ABSOLUTE SECRECY HAS TO BE MAINTAINED AS THE CUSTOM ERS MAY NOT MAKE PURCHASES IF THEY CAME TO KNOW THAT COMMISSION WAS TAKEN BY THE PERSONS BRINGING THEM TO THE SHOP. WHEN THE AO ASKED THE A SSESSEE WHY THE PAYMENTS MADE TO SIMILAR NAMES OVER THE MONTH OR OV ER THE YEAR SHOULD NOT BE CLUBBED AND THE SUM TOTAL OF INDIVIDUAL PAYM ENTS MADE AGAINST EACH NAME WOULD EXCEED THE TDS LIMIT SPECIFIED, THE ASSE SSEE SUBMITTED THAT THOSE NAMES WERE OF DIFFERENT INDIVIDUALS AND COULD NOT BE CONSIDERED TO BE OF ONE PERSON. THE AO DISBELIEVED THAT SUCH HUG E PERCENTAGE OF COMMISSION COULD HAVE BEEN PAID TO TAXI DRIVERS OR BUS DRIVERS WHO BROUGHT TOURISTS, FOREIGN AND OUTSTATION, IN GROUPS TO THE SHOPS OF THE ASSESSEE. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF TH E ASSESSEE AND CONSIDERED THAT 2% OF COMMISSION OF THE SALES WAS E NOUGH IN SUCH SITUATION, HE THEREFORE DISALLOWED A SUM OF RS.1,39 ,50,088. 5. THE ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT( APPEALS) AND FILED WRITTEN SUBMISSIONS, WHICH HAD BEEN REPRODUCED BY T HE LD. CIT(A) IN PARA 3 OF THE IMPUGNED ORDER AND READS AS UNDER:- SRI V. SRINIVASAN, C.A, A.R. APPEARED AND ARGUED T HE CASE. HE WAS HEARD. HE ALSO FILED A WRITTEN SUBMISSION. ALO NG WITH THE WRITTEN SUBMISSION HE PRODUCED SEVERAL ADDITIONAL E VIDENCES VIZ., ITA NO.104/BANG/11 PAGE 4 OF 8 (1) CERTIFICATE FROM M/S. SREE SHAKTHI TRAVELS STATING THAT THE DRIVERS GET COMMISSION ON THE GOODS SOLD TO THE TRA VELERS/TOURISTS TO THE EXTENT OF 22 % TO 25% AS ANNEXURE- 1. (2) CERTIFICATE OF M/S. SGL TOURS AND TRAVELS STATING T HAT THE DRIVERS AND GUIDES COMMISSION TO THE EXTENT OF 25% AS ANNEXURE 2. (3) COPY OF THE LETTER DATED 30-12-2006 OF THE GOVT. OW NED M/S. KARNATAKA STATE TOURISM. DEVELOPMENT CORPORATI ON (KSTDC) STATING THAT ROYALTY OF RS.2,00,000/- (WHI CH IS NOTHING BUT COMMISSION PAID) FOR STOPPING OF ITS TOURIST SIGHTSEEING VEHICLES AS ANNEXURE 3. (4) COPY OF THE LETTER DATED 28-12-2007 OF M/S.KST DC REGARDING THE ROYALTY PAID FOR STOPPING OF KSTDC LO CAL SIGHTSEEING BUSES AS ANNEXURE - 4. (5) COPY OF THE LETTER DATED 26-05-2009 OF M/S. KS TDC REGARDING THE ROYALTY PAID FOR STOPPING OF KSTDC LO CAL SIGHTSEEING BUSES AS ANNEXURE - 5. (6) COPY OF THE LETTER DATED 09-03-2010 OF M/S. KS TDC REGARDING THE ROYALTY PAID FOR STOPPING OF KSTDC LO CAL SIGHTSEEING BUSES AS ANNEXURE-6. (7) COPY OF THE LETTER ADDRESSED TO MAPPLE -THE GOLDEN CHARIOT FOR PAYMENT OF ROYALTY / COMMISSION FOR SHOPPING AT THE APPELLANT'S BUSINESS PREMISES AS ANNEXURE -7.' 6. THE ASSESSEE ALSO FILED AFFIDAVITS FROM SOME OF THE DRIVERS AND GUIDES AND PLEADED THAT IDENTITY OF DRIVERS AND GUI DES WAS ESTABLISHED, IT WAS ALSO STATED THE ABOVE DOCUMENTS COULD NOT BE PR ODUCED AT THE TIME OF ASSESSMENT PROCEEDINGS BECAUSE THE ASSESSEE WAS UND ER BONAFIDE BELIEF THAT THE COMMISSION PAID SUPPORTED BY PROPER VOUCHE RS WOULD BE SUFFICIENT IN VIEW OF THE TRADE PRACTICE FOR ALLOWING THE CLAI M. THE SUBMISSIONS MADE BY THE ASSESSEE AS MENTIONED IN PARA 4 OF THE IMPUG NED ORDER READ AS UNDER:- ITA NO.104/BANG/11 PAGE 5 OF 8 2.1. THE ABOVE ADDITIONAL EVIDENCES PRODUCED BY T HE APPELLANT COULD NOT BE FILED DURING THE ASSESSMENT PROCEEDIN GS DUE TO SHORTAGE OF TIME AND ALSO DUE TO THE FACT THAT THE APPELLANT BONAFIDELY BELIEVED THAT TH E COMMISSION PAID, WHICH WAS SUPPORTED BY PROPER VOUCHERS WOULD BE SUFFICIENT AND NO DISALLOWANCE WOULD BE MADE BY TH E LEARNED AD IN VIEW OF THE ABOVE, IT IS PRAYED THE ADDITIONAL E VIDENCE MAY KINDLY BE ACCEPTED UNDER RULE 46A OF THE I. T. RULE S TO BRING OUT THE TRADE PRACTICE PREVALENT IN THIS LINE OF TRADE. 3. IN LIGHT OF THE TRADE PRACTICE EXPLAINED ABOVE, IT IS SUBMITTED THAT THE APPELLANT HAD CLAIMED A SUM OF RS.L,52,28,784/- AS COMMISSION PAID TO DRIVERS AND GUIDES. THE APPELLANT HAD PRODUCED THE VOUCHERS TA KEN FROM THE DRIVERS AND GUIDES TO WHOM THE COMMISSION WAS PAID . THE AO NOTED THAT THE VOUCHES PRODUCED BY THE APPELLANT W ERE SELF - MADE VOUCHERS AND THAT NO TDS WAS MADE ON THE PAYME NTS TO THE DRIVERS. IT IS SUBMITTED THAT THE APPELLANT HAS PA ID COMMISSION TO THE DRIVERS AND GUIDES, WHICH DO NOT ATTRACT THE PR OVISIONS OF TDS AND THAT THE PAYMENT MADE TO THE DRIVERS ARE SUPPORTED BY DOCUMENTARY EVIDENCES AS ARE IN VOGUE IN THIS LI NE OF TRADE. IN AS MUCH AS THE LEARNED AO HAS DOUBTED THE PAYMENT O F COMMISSION AT THE RATES CLAIMED, THE LEARNED AO AL LOWED ONLY 2% OF THE TURNOVER AS DEDUCTION ON ESTIMATE BASIS. IT IS SUBMITTED THAT, THE APPELLANT HAS SINCE SECURED AFFIDAVITS FR OM SOME OF THE DRIVERS AND GUIDES, EXPLAINING THE TRADE PRACTICE A S WELL AS CONFIRMING THE RECEIPT OF COMMISSION FROM THE APPEL LANT. PLEASE FIND HEREWITH ENCLOSED THE SAMPLES OF AFFIDAVITS EX ECUTED BY THE DRIVERS AND THEIR LICENCES AS ANNEXURE-8(1) TO 8(22 ) AND THE AFFIDAVITS EXECUTED BY THE GUIDES AS ANNEXURE-9(1) TO 9(8) AND THE SAME ARE ADDITIONAL EVIDENCES, WHICH COULD NOT BE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS DUE TO SHORTAGE OF TIME AND IT IS PRAYED THAT THE SAME MAY KINDLY BE A LLOWED, IN TERMS OF RULE 46A OF THE I. T. RULES. 3.1. IN LIGHT OF THE AFORESAID ADDITIONAL EVIDENCE PRODUCED, IT IS SUBMITTED THAT THE APPELLANT HAS ESTABLISHED THE GE NUINENESS OF THE PAYMENT MADE TO THE DRIVERS. IT IS SUBMITTED TH AT THE IDENTITY OF THE DRIVERS IS ESTABLISHED BY THE COPY OF THE LI CENSES ENCLOSED ALONGWITH THE AFFIDAVITS AND IN LIGHT OF THE AFORES AID MATERIAL PRODUCED BY THE APPELLANT, IT IS REQUESTED THAT THE DISALLOWANCES MADE BY THE AO MAY PLEASE BE DELETED. 4. THE LAST GROUND CANVASSED BY THE APPELLANT VIDE GROUND NO.3 RELATES TO THE LEVY OF INTEREST U/S. 234B AND 234C OF THE ACT. THE INTEREST LEVY MAY BE DISPOSED OFF IN ACCORDANCE WITH LAW.' ITA NO.104/BANG/11 PAGE 6 OF 8 7. THE LD. CIT(A) SENT THE ADDITIONAL EVIDENCE PROD UCED BY THE ASSESSEE FOR A REPORT TO THE AO WHO IN HIS REMAND R EPORT STATED AS UNDER: 1. ASSESSING OFFICER IN THIS CASE FOR THE A Y 2007-08 MADE THE ADDITION TO THE TOTAL INCOME TO THE EXTENT OF R S.1,39,50,088/- ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE ON COMMIS SION TO THE SAID EXTENT AS THE ASSESSEE FAILED TO SUBSTANTIATE THE IDENTITY OF THE PERSONS WHO RECEIVED THE COMMISSION, GENUINENESS OF TRANSACTIONS, LINKAGE OF TRANSACTIONS WITH SALE, RE ASONABLENESS (HIGH PERCENTAGE OF COMMISSION AT 20% TO 24%). 2. DURING THE COURSE OF REMAND PROCEEDINGS, THE DE TAILS FURNISHED BY THE ASSESSEE HAVE BEEN CAREFULLY PERUS ED. ANNEXURE- 3 TO 7 APPENDED TO THE WRITTEN SUBMISSIONS SUBSTANTIATE THAT THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF ROYALTY TO ONE OF THE GOVT. OWNED ORGANIZATIONS NAMELY KARNATAKA STATE TO URISM DEVELOPMENT CORPORATION FOR STOPPING THE BANGALORE SIGHT SEEING COACHES AT THE BUSINESS PREMISES OF THE ASSESSEE. T HE OTHER DOCUMENTS SUBMITTED IN CONNECTION WITH THE PAYMENT TOWARDS TRAVEL AGENTS FOR BRINGING THE CUSTOMERS (TOURISTS) TO THE BUSINESS PREMISES OF THE ASSESSEE. THE DETAI LS OF IDENTITY OF THE DRIVERS AND THE COMMISSION PAID HAVE BEEN VERIF IED AND FOUND TO BE IN ORDER. 3. IN ORDER TO FURTHER ASCERTAIN AS TO WHETHER THE ASSESSEE HAS BEEN MAKING PAYMENTS TO THE DRIVERS OR NOT, ON THE SPOT INQUIRIES HAVE BEEN MADE (SURPRISE CHECK) ON 28-10-2010 TO OB TAIN CLINCHING EVIDENCES, IF ANY, AGAINST THE A SSESSEE. DURING THE COURSE OF INQUIRIES CONDUCTED IT WA S FOUND THAT THE ASSESSEE HAS BEEN INCURRING EXPENDITURE BY WAY OF COMMISSION TO THE DRIVERS AND THE COMMISSION AGENTS FOR BRINGING THE CUSTOMERS TO THE BUSINESS PREMISES OF THE ASSESSEE. IN THIS REGARD STATEMENTS RECORDED FROM ONE OF THE EMPLOYEES OF TH E ASSESSEE NAMELY SHRI . A JAY SACHDEV AND SHRI. NAGARAJ SANDESH HAVE BEEN PLACED ON THE FILE . ALSO THE DOCUMENTS FURNISHED BY THE ASSESSEE DURING THE COURSE OF INQUIRIES VIZ SIGHTER VOUCHERS , RELEVANT SALE, TAXI PRINT ETC . ARE PLACED ON THE FILE. 4 . IN VIEW OF THE ABOVE FINDINGS, THE CLAIM OF THE ASSESSEE THAT HE HAS BEEN MAKING PAYMENTS TO THE DRIVERS AND COMMISSION AGENTS TO THE EXTENT UP TO 30% FOR BRINGING CUSTOME RS TO HIS BUSINESS PREMISES MAY BE ACCEPTED . ITA NO.104/BANG/11 PAGE 7 OF 8 8. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE REMAN D REPORT OF THE AO ON THE ADDITIONAL EVIDENCES, DELETED THE IMPUGNED A DDITION. NOW THE DEPARTMENT IS IN APPEAL. 9. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE A O AND REITERATED THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER DATED 24.12.2009. 10. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT FURNISH ALL THE EVIDENC ES IN SUPPORT OF HIS CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BUT TH OSE WERE FURNISHED TO THE LD. CIT(A) AS ADDITIONAL EVIDENCES AND THE LD. CIT(A) CONFRONTED ALL THOSE EVIDENCES TO THE AO, WHO ACCEPTED IN HIS REMA ND REPORT THAT THE COMMISSION PAID BY THE ASSESSEE WAS REASONABLE. TH EREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL ON RECORD. IN THE INSTANT CAS E, THE AO IN HIS REMAND REPORT HAS ACCEPTED THAT THE ASSESSEE INCURRED EXPE NDITURE BY WAY OF ROYALTY TO THE GOVERNMENT ORGANIZATION VIZ., KSTDC FOR STOPPING THE BANGALORE SIGHT SEEING COACHES AT THE BUSINESS PREM ISES OF THE ASSESSEE AND THAT THE OTHER DOCUMENTS SUBMITTED IN CONNECTIO N WITH THE PAYMENT TOWARDS TRAVEL AGENTS FOR BRINGING THE CUSTOMERS TO THE BUSINESS PREMISES OF THE ASSESSEE WERE IN ORDER. THE AO ALSO MENTION ED IN THE REMAND REPORT THAT A SURPRISE CHECK FOR MAKING SPOT ENQUIR IES WAS MADE ON 28.10.10 TO OBTAIN CLINCHING EVIDENCE AGAINST THE A SSESSEE AND DURING THE COURSE OF ENQUIRIES CONDUCTED, IT WAS FOUND THAT TH E ASSESSEE HAD BEEN INCURRING EXPENDITURE BY WAY OF COMMISSION TO DRIVE RS AND THE COMMISSION ITA NO.104/BANG/11 PAGE 8 OF 8 AGENTS FOR BRINGING THE CUSTOMERS TO THE BUSINESS P REMISES OF THE ASSESSEE. THE AO ACCEPTED THE CLAIM OF THE ASSESSE E IN HIS REMAND REPORT. IN THE PRESENT CASE, WHEN THE AO DURING TH E COURSE OF REMAND PROCEEDINGS MADE SPOT ENQUIRIES AND WAS FULLY SATIS FIED WITH THE CLAIM OF THE ASSESSEE, IN OUR OPINION, THE LD. CIT(A) WAS FU LLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. WE THEREFORE DO NOT SEE A NY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THE APPEAL OF THE DEPARTMEN T. 12. IN THE RESULT, THE APPEAL BY THE DEPARTMENT IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF DECEMBER, 2011. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH DECEMBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.