ACIT, Nashik V. M/s. Modak Cable India, Nashik

ITA 1051/PUN/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9965 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINITA MENON
• Keywords: Unexplained cash credit; Business expenditure; Additional evidence; Cost of acquisition
• Section: 40A(3); 68; 37

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1051/PN/2010 (ASSESSMENT YEAR 2006-07) ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, NASHIK. .. APPELLANT VS. M/S. MODAK CABLES INDIA, W-3/C MIDC AMBAD, NASHIK, PAN NO. AAEFM 7381G .. RESPONDENT ASSESSEE BY : SRI NIKHIL PATHAK DEPARTMENT BY : SMT VINITA MENON DATE OF HEARING : 21-09-2012 DATE OF PRONOUNCEMENT : 28-09-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 12-05- 2010 OF THE CIT(A)-I, NASHIK RELATING TO ASSESSMENT YEARS 2006-07. 2. THE FIRST GROUND RELATES TO ADMISSION OF ADDITIO NAL EVIDENCES BY THE LEARNED CIT(A) WITHOUT RECORDING THE FINDINGS AS REQUIRED U NDER CLAUSE (2) OF RULE46A OF THE INCOME TAX ACT RULES, 1962. 3. AFTER HEARING BOTH THE SIDES WE FIND ON THE BASI S OF THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE, THE LEARNED CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. AFTER CONSIDERING THE REMAND REPORT FROM THE AO AND CONFRONTING THE SAME TO THE ASSESSEE THE LEARNED CIT(A) PASSED THE ORDER. ALTH OUGH THE LEARNED CIT(A) HAS NOT RECORDED A FINDING AS REQUIRED CLAUSE (2) OF RU LE46A OF THE INCOME TAX ACT RULES, 1962 WE FIND DURING REMAND PROCEEDINGS THE A O HAS NOT RAISED ANY OBJECTIONS AND NOTHING HAS BEEN MENTIONED IN THE RE MAND REPORT THAT THE ASSESSEE HAS FILED ANY ADDITIONAL EVIDENCE WHICH SHOULD NOT BE ENTERTAINED BY THE LEARNED 2 CIT(A). THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NO ADDITIONAL EVIDENCE HAS BEEN FILED BEFORE THE CIT(A) COULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY M ERIT IN THE GROUND RAISED BY THE REVENUE. ACCORDINGLY THE SAME IS DISMISSED. 4. GROUND OF APPEAL NO.2 BY THE REVENUE READS AS UN DER : 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.12,00,000/ - MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO M/S. MODAK HOSES PVT. LTD., RS.1 0,000/- PAID TO NITIN JOSHI AND RS.12,987/- PAID TO SHRI ARUN KAKADE, IGNORING THE PROVISIONS OF CLAUSE(2) OF RULE 46A OF THE INCOME TAX RULES 1962 ? 5. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF LPG SURAKSHA HO SES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED FROM THE PROFIT AND LOSS ACCOUNT THAT AS AGAINST COMMISSION OF RS.8,05,279/- PAID IN THE PRE CEDING ASSESSMENT YEAR THE ASSESSEE HAS PAID AN AMOUNT OF RS.77,10,767/- AS CO MMISSION DURING THE IMPUGNED ASSESSMENT YEAR. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE AO NOTED THAT COMMISSION HAS BEEN PAID TO THE FOLLOWING PARTIES, THE DETAILS OF WHICH ARE AS UNDER : 1. INDIAN OIL CORPORATION LTD. : RS.63,57,985/- 2. MODAK HOSES PVT. LTD. : RS.12,00,000/- 3. MRS. PADMANABHAN : RS. 2,40,895/- 4. MR. NITIN JOSHI : RS. 10,000/- 5. MR. ARUN KAKADE : RS. 12,987/- 6. THE AO ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF SERVICES RENDERED BY EACH OF THE PARTY FOR THE ASSESSEE TO JUSTIFY THE H UGE AMOUNT OF SALES COMMISSION PAID TO THEM. FROM THE DETAILS FURNISHED BY THE AS SESSEE REGARDING COMMISSION PAID TO INDIAN OIL CORPORATION LTD. AT RS.63,57,985 /- WHICH WAS RS.15/- PER UNIT OF THE PRODUCT OF THE ASSESSEE AND IN VIEW OF THE TDS COMPLIANCE THE AO FOUND THE COMMISSION PAID TO IOC AS JUSTIFIED. HOWEVER, IN T HE CASE OF COMMISSION PAID TO MRS. PADMANABHAN HE NOTED FROM THE BILLS PRODUCED B Y THE ASSESSEE AND TDS 3 CERTIFICATES THAT AMOUNT TO BE PAID AS PER BILLS AN D CREDITED AS PER TDS CERTIFICATE DID NOT MATCH AND THE ASSESSEE HAD CREDITED THE AMO UNT TO THE ACCOUNT OF MRS. PADMANABHAN BEFORE SHE COULD PRODUCE THE BILLS. FU RTHER THE ADDRESS OF MRS. PADMANABHAN APPEARING IN THE TDS CERTIFICATE ISSUED TO HER IS OF MUMBAI WHEREAS IT WAS CLAIMED THAT SHE IS RENDERING SERVICE OF LIA SIONING AND MARKETING IN SOUTH INDIA. THE AO THEREFORE DOUBTED THE WHOLE EXERCISE AND HELD THAT THE COMMISSION PAID TO MRS.PADMANABHAN IS BOGUS AND DOES NOT INSPI RE CONFIDENCE AND A COLOUR OF TRUTH WAS TRIED TO BE GIVEN BY COMPLYING THE TDS PR OVISIONS. 7. IN RESPECT OF COMMISSION PAID TO MODAK HOSES PVT . LTD. HE NOTED THAT IT IS A SISTER CONCERN OF THE ASSESSEE WHEREIN BOTH PARTNER S OF THE ASSESSEE FIRM ARE DIRECTORS. FURTHER HE NOTED FROM THE LEDGER ACCOUN T OF COMMISSION ON SALES THAT AN AMOUNT OF RS.12 LAKHS HAS BEEN DEBITED IN THE NAME OF MODAK HOSES PVT. LTD. ON 31-03-2006 AND TAX HAS BEEN DEDUCTED ON THE SAME DA Y. ON BEING ASKED BY THE AO TO PROVIDE THE DETAILS OF SERVICES RENDERED BY T HIS COMPANY FOR THE ASSESSEE, NO DETAILS EXCEPT EXPLAINING THE SAME BY A WRITTEN SUB MISSIONS WAS FILED WHEREIN IT WAS CLAIMED THAT COMMISSION PAID TO MODAK HOSES PVT . LTD. IS FOR THE REST OF INDIA AND TO MRS. PADMANABHAN ONLY FOR SOUTH INDIA. ACCO RDING TO THE AO WHEN COMMISSION HAS BEEN PAID TO INDIAN OIL CORPORATION LTD. THEN THERE WAS NO NECESSITY OF PAYMENT OF ANY COMMISSION TO MRS. PADM ANABHAN OR MODAK HOSES PVT. LTD. FOR RENDERING ANY SERVICES. HE ACCORDING LY HELD THAT THE PLEA OF THE ASSESSEE OF PAYING SALES COMMISSION TO MODAK HOSES PVT. LTD. AND MRS. PADMANABHAN ARE NOTHING BUT A FALSE AND FARCICAL AR GUMENT WHICH CANNOT BE ACCEPTED. THE WHOLE STORY OF PAYING THE COMMISSION TO MODAK HOSES PVT. LTD IS A CONCOCTED STORY AND THE EXPENSES CLAIMED ARE BOGUS AND A COLOUR OF TRUTH WAS TRIED TO BE GIVEN BY COMPLYING THE TDS PROVISIONS. SIMIL ARLY IN ABSENCE OF ANY DOCUMENTARY EVIDENCE TO SUPPORT FOR RENDERING OF AN Y SERVICES BY THEM EXCEPT THE TDS CERTIFICATE ISSUED ON 31-03-2006 WHEN PAYMENT W AS CREDITED THE AO HELD THAT 4 THE COMMISSION PAID TO NITIN JOSHI AND ARUN KAKADE IS NOT GENUINE. RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE SUMATI DAYAL VS. CIT REPORTED IN 214 ITR 801 WHEREIN IT HAS BEEN HELD TH AT A CONCLUSION ARRIVED AT AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLY ING THE TEST OF HUMAN PROBABILITIES WAS CORRECT FOR INCOME TAX PROCEEDING S THE AO DISALLOWED THE COMMISSION AMOUNT OF RS.14,63,882/- PAID TO THE ABO VE FOUR PARTIES. 8. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE PAY MENT TERMED AS COMMISSION TO INDIAN OIL CORPORATION LTD. IS COMPULSORY ON SAL ES AS PER AGREEMENT WITH IT AND THE SAME IS TO BE PAID BY EVERY MANUFACTURER SELLIN G THE HOSE PIPES IN VARIOUS REGIONS. THE CORPORATION DOES NOT RENDER ANY MARKE TING SERVICES SUCH AS PROCURING ORDERS FOR MANUFACTURERS ETC. IT ONLY MA KES IT COMPULSORY TO THE DEALERS/DISTRIBUTORS. THE PAYMENT OF COMMISSION @ 3% TO MODAK HOSES PVT. LTD. IS VERY REASONABLE. IT WAS SUBMITTED THAT TAX HAS BEEN PAID BY MODAK HOSES PVT. LTD. BY SHOWING COMMISSION INCOME AT MAXIMUM RATE A PPLICABLE AND THEY HAVE NOT SAVED ANY TAX BY PAYING COMMISSION. FURTHER, B Y PAYING COMMISSION TO MODAK HOSES PVT. LTD. THE ASSESSEE HAS ALSO INCURRE D EXPENDITURE ON ACCOUNT OF SERVICE TAX @10%, I.E. RS.1,20,000/-. THEREFORE BY PAYING COMMISSION TO THE MODAK GROUP THE ASSESSEE HAS PAID MORE TAXES TO CEN TRAL GOVERNMENT AMOUNTING TO RS. 1,20,000/-. IT WAS SUBMITTED THAT THE TOTAL COMMISSION PAID TO MODAK HOSES PVT. LTD. IS RS.10,88,900/- AND NOT RS.12 LAKHS WHI CH INCLUDES RS.1,11,100/- TOWARDS SERVICE TAX @ 10 TO 20%. IT WAS SUBMITTED THAT THE TURNOVER OF THE ASSESSEE DURING FINANCIAL YEAR 2005-06 WAS RS.63 LA KHS WHEREAS DURING THE IMPUGNED ASSESSMENT YEAR THE TURNOVER HAS GONE UPTO RS.4.25 CRORES. THE PROFIT OF THE FIRM HAS GONE UP FROM RS.37.45 LAKHS IN THE PRECEDING YEAR TO RS.201.24 LAKHS IN THE IMPUGNED ASSESSMENT YEAR. 5 9. AS REGARDS THE ALLEGATION OF THE AO THAT NO PROO F IN RESPECT OF SERVICES RENDERED BY MODAK HOSES PVT. LTD. WAS FILED FOR JUS TIFYING THE PAYMENT OF COMMISSION AND DETAILS REGARDING THE EXPENDITURE IS NOT PROPERLY NARRATED IN THE VOUCHERS, IT WAS SUBMITTED THAT THE DIRECTORS OF MO DAK HOSES PVT. LTD. HAVE TRAVELLED FOR MARKETING THROUGHOUT THE COUNTRY AND DUE TO THEIR EFFORTS THE TURNOVER HAS GONE UP FROM RS.63 LAKHS IN THE PRECEDING YEAR TO RS.4.25 CRORES DURING THE IMPUGNED ASSESSMENT YEAR AND THE GROSS PROFIT HAS A LSO INCREASED FROM RS.37.45 LAKHS TO RS.201.24 LAKHS. 10. SO FAR AS THE COMMISSION PAID TO MRS. PADMANABH AN AMOUNTING TO RS.2,40,895/- IT WAS ARGUED THAT MRS. PADMANABHAN I S THE WIFE OF A SENIOR OFFICER OF INDIAN OIL CORPORATION LTD. HAVING INFLUENCE OVE R THE DEALERS OF SOUTH INDIA. THEREFORE, THE PAYMENT OF COMMISSION TO MRS. PADMAN ABHAN IS CERTAINLY FOR PROMOTING SALES AND FOR BUSINESS PURPOSES. IT WAS ARGUED THAT MERELY BECAUSE SHE IS STAYING AT BOMBAY CANNOT BE A GROUND THAT SHE CA NNOT DO LIASIONING WORK IN SOUTH INDIA FOR THE ASSESSEE COMPANY. IT WAS FURTH ER ARGUED THAT THE ADVANCE PAYMENT TO MRS. PADMANABHAN DOES NOT MAKE THE SAID PAYMENT AS NON GENUINE. 11. SO FAR AS THE DISALLOWANCE OF RS.10,000/- AND R S.12,987/- PAID TO NITIN JOSHI AND ARUN KAKADE RESPECTIVELY IT WAS SUBMITTED THAT THE COMMISSION PAID TO THEM IS @ 5% FOR PROCURING ORDERS AND THE PAYMENTS WERE PAI D TO THEM BY ACCOUNT PAYEE CHEQUES AND DUE TAX HAS BEEN DEDUCTED. FURTHER, NO SPECIFIC COMMENT HAS BEEN MADE BY THE AO ON ACCOUNT OF PAYMENT OF COMMISSION TO THESE PERSONS. IT WAS ACCORDINGLY ARGUED THAT THE COMMISSION SO PAID SHOU LD BE ALLOWED AS GENUINE BUSINESS EXPENDITURE. 11.1 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSE E THE LEARNED CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. AFTER CONFRONTING THE SAME TO THE ASSESSEE HE 6 DELETED THE DISALLOWANCE OF COMMISSION PAID TO M/S. MODAK HOSES PVT. LTD. BY HOLDING AS UNDER : 4.1.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE REMAND REPORT OF THE AO AND SUBMISSIONS OF THE APPELLANT. I AM INCL INED TO AGREE WITH THE CONTENTIONS OF THE APPELLANT FOR FOLLOWING REASONS : (I) WHILE DISALLOWING THE COMMISSION PAID TO MODAK HOSES PVT.LTD. THE AO HAS ASSUMED THAT AS SUBSTANTIAL COMMISSION OF RS.63 ,57,985/- HAS BEEN PAID TO INDIAN OIL CORPORATION FOR RENDERING MARKETING SERV ICES AND HENCE THERE WAS NO NEED FOR FURTHER COMMISSION PAYMENT TO MODAK HOSES PVT.LTD. THE APPELLANT HAS POINTED OUT THAT AS PER THE CLAUSE NO.9 OF THE AGRE EMENT WITH INDIAN OIL CORPORATION LTD. PAYMENT OF FIXED COMMISSION IS REQ UIRED TO BE MADE ON QUANTITY OF HOSE PIPES SOLD BY EVERY MANUFACTURER, INCLUDING THE APPELLANT, TO THE DEALERS OF IOCL. THE CORPORATION DOES NOT RENDER ANY MARKE TING SERVICES. IN VIEW OF THE FACT THAT SEVERAL MANUFACTURERS ARE MANUFACTURING H OSE PIPES AND ARE SELLING THE SAME TO VARIOUS DEALERS, IT HAS BECOME NECESSARY TO PAY COMMISSION TO THE OTHER PERSONS/ENTITIES FOR MARKETING SERVICES RENDERED BY THEM TO THE APPELLANT. (II) IT IS ALSO UNDISPUTED FACT THAT AS A RESULT OF MARKETING SERVICES RENDERED BY MODAK HOSES PVT.LTD., THE SALES OF THE APPELLANT FI RM INCREASED TO RS.4.24 CRORES DURING THE YEAR UNDER APPEAL AS AGAINST RS.63 LAKHS IN THE IMMEDIATE PRECEDING YEAR. DUE TO INCREASE IN SALE THE GROSS PROFIT HAS ALSO BEEN INCREASED IN THE YEAR UNDER APPEAL TO RS.201.24 LAKHS FROM RS.37.45 LAKHS IN THE PRECEDING YEAR. IT IS ALSO NOTICED THAT THE SALES COMMISSION IS ABOUT 3% WHICH IS NOT EXCESSIVE. (III) IT IS ALSO EVIDENT FROM THE FACTS MENTIONED B Y THE APPELLANT THAT THE MODAK GROUP OF COMPANIES, I.E. MODAK CABLES HAS SAVED TAX OF RS.3,60,000/-, I.E. @30% OF RS.12,00,000/-, WHEREAS MODAK HOSES PVT. LTD. HA S PAID TAX @30% ON COMMISSION INCOME AND HAS ALSO PAID SEVICE TAX @10% TO THE GOVERNMENT TREASURY. CONSIDERING THE TOTALITY OF THE FACTS AND THE CONTE NTIONS RAISED BY THE APPELLANT REPRODUCED IN EARLIER PARA, I AM OF THE CONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN DISALLOWING THE COMMISSION OF RS.12,00,000/- PAID T O MODAK HOSES PVT. LTD. THE AO IS DIRECTED TO DELETE THE SAID ALLOWANCE. . . . . . . . . . . . . . . . . . . . . . 11.2 SIMILARLY, HE DELETED THE DISALLOWANCE OF COMM ISSION PAID TO MRS. PADMANABHAN BY HOLDING AS UNDER : 4.2.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND REMAND REPORT OF THE AO AND SUBMISSIONS OF THE APPELLANT. IN THIS REGARD, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE AO THAT MRS. PADMANABHAN HAS NOT RENDERED ANY SERVICES TO THE APPELLANT TO BE ELIGIBLE FOR THE COMMISSION. THE A O HAS CORRECTLY POINTED OUT THAT MRS. PADMANABHAN IS WIFE OF A SENIOR IOCL OFFICER IS NOT ENOUGH TO ESTABLISH THE CLAIM. THEREFORE, THE PAYMENT OF COMMISSION IN MY OPINION IS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 37 OF THE ACT. THE DISALLOWA NCE MADE BY THE AO OF RS.2,40,895/- IS THEREFORE CONFIRMED. . . . . . . . . . . . . . . . . . . . . 11.3 THE LEARNED CIT(A) DELETED THE DISALLOWANCE OF COMMISSION PAID TO NITIN JOSHI AND ARUN KAKADE BY HOLDING AS UNDER : 7 4.3.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND REMAND REPORT OF THE AO AND SUBMISSIONS OF THE APPELLANT. ON PERUSAL OF TH E SAME, IT IS NOTICED THAT THE SAID PAYMENT OF COMMISSION IS REASONABLE AND THE CONTENT IONS RAISED BY THE APPELLANT ARE LOGICAL AND ACCEPTABLE. THE DISALLOWANCE OF RS.10, 000/- AND RS.12,987/- IS THEREFORE DELETED. THE AO IS DIRECTLY ACCORDINGLY. GROUND NOS. 1 & 2 STANDS PARTLY ALLOWED. 11.4 AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENU E IS IN APPEAL BEFORE US. 12. THE LEARNED DR SUPPORTED THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND WHILE SUPPORTING THE ORD ER OF THE CIT(A) SUBMITTED THAT THE ASSESSEE IS STATIONED AT NASHIK AND THE WORK OR DERS ARE ARRANGED BY THE SISTER CONCERN AS WELL AS OTHER PERSONS. THE ASSESSEE HAS PAID SERVICE TAX ON ACCOUNT OF COMMISSION PAID TO THE SISTER CONCERN. THE COMMISS ION PAID IN SUBSEQUENT YEARS HAVE BEEN ACCEPTED BY THE AO AND NO ADDITION HAS BE EN MADE. BECAUSE OF THE COMMISSION PAID FOR PROCURING ORDERS, THE TURNOVER AS WELL AS THE PROFIT OF THE ASSESSEE FIRM HAS GONE UP SUBSTANTIALLY. THEREFORE , IT CANNOT BE SAID THAT NO SERVICE HAS BEEN DONE BY THE PARTIES CONCERNED. FU RTHER, PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE AND TDS PROVISIONS HAV E BEEN DULY COMPLIED WITH. NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT AMOUNT PAID BY THE ASSESSEE FIRM HAS COME BACK TO THE ASSESSEE INDIRECTLY OR DI RECTLY. RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) PVT. LTD. REPORTED IN 310 ITR 300 IT WAS A RGUED THAT THE ORDER OF THE LEARNED CIT(A) SHOULD BE UPHELD AND THE GROUNDS RAI SED BY THE REVENUE SHOULD BE DISMISSED. 13. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE DECISION REL IED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT COMMISSION OF RS.12 LAKHS (INCLUDING SERVICE TAX) HAVE BEEN PAID TO MODAK HOS ES PVT. LTD. WHICH IS A SISTER CONCERN. SIMILARLY COMMISSION OF RS.2,40,895/- HAS BEEN PAID TO MRS. 8 PADMANABHAN, WIFE OF A SENIOR IOCL OFFICER. THE AS SESSEE HAS ALSO PAID COMMISSION OF RS.10,000/- TO NITIN JOSHI AND RS.12, 987/- TO ARUN KAKADE. WE FIND THE AO DISALLOWED THE COMMISSION PAID TO THE A BOVE PARTIES ON THE GROUND THAT THERE WAS NO PROOF OF ANY SERVICES RENDERED BY THESE PERSONS FOR WHICH THE PAYMENT OF COMMISSION IS NOT GENUINE AND BOGUS. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT BECAUSE OF TH E COMMISSION PAID TO THESE PARTIES FOR PROCURING ORDERS THE TURNOVER OF THE AS SESSEE COMPANY HAS GONE UP FROM RS.63 LAKHS DURING A.Y. 2005-06 TO RS.4.25 CRORES D URING ASSESSMENT YEAR 2006- 07. SIMILARLY THE PROFIT HAS ALSO GONE UP FROM RS. 37.45 LAKHS DURING F.Y. 2005-06 TO RS.201.24 LAKHS DURING IMPUGNED ASSESSMENT YEAR. FURTHER, DUE TAX HAS BEEN DEDUCTED AND PAID TO THE CREDIT OF THE CENTRAL GOVT ., SERVICE TAX HAS ALSO BEEN PAID ON ACCOUNT OF COMMISSION PAID TO MODAK HOSES PVT. L TD. AND NOTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE COMMISSION SO PAID HAS COME BACK TO THE ASSESSEE IN ANY FORM. WE FIND MERIT IN THE ABOVE S UBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE FURTHER SUBMISSION O F THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN SUBSEQUENT YEARS SUCH COMMISSION H AS BEEN ALLOWED AND NO DISALLOWANCE HAS BEEN MADE COULD NOT BE CONTROVERTE D BY THE LEARNED DR. FURTHER, THE SISTER CONCERN HAS ALSO PAID THE TAX AT THE MAX IMUM MARGINAL RATE. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED ORDER PAS SED BY THE LEARNED CIT(A) WHILE ALLOWING THE COMMISSION PAID WE DO NOT FIND ANY INF IRMITY IN THE SAME. ACCORDINGLY, THE SAME IS UPHELD. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 14. GROUND APPEAL NO.3 BY THE REVENUE READS AS UNDE R : 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS .3,00,000/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED CASH CREDIT IN THE NAME OF SMT. T.S. KULKARNI IGNORING THE PROVISIONS OF CLAUSE(2) OF RULE 46A OF THE INCOME TAX RULES 1962 ? 9 15. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO OB SERVED FROM THE BALANCE SHEET OF THE ASSESSEE THAT ASSESSEE FIRM HAS RECEIVED RS. 3LAKHS OF LOAN FROM MRS. T.S. KULKARNI ON 06-05-2005. IN THE AUDIT REPORT NEITHE R THE ADDRESS NOR THE PAN NO. OF THE LOAN CREDITOR HAS BEEN MENTIONED. THEREFORE , THE AO ASKED THE ASSESSEE TO PROVIDE THE DETAILS IN RESPECT OF THE SAME. THE AS SESSEE FURNISHED THE BANK STATEMENT OF THE LOAN CREDITOR AND THE CONFIRMATION LETTER BUT NEITHER THE ADDRESS NOR THE PAN NO. OF THE LOAN CREDITOR WAS GIVEN. FR OM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE AO NOTED THAT ASSESSEE HAS REC EIVED RS.3 LAKHS ON 06-05-2005 WHICH HAS BEEN CREDITED IN THE SAMARTH SAHAKARI BAN K LTD. NASHIK VIDE CHEQUE NO.777073 OF HDFC MAIN BRANCH WHEREAS THE BANK PASS BOOK OF T.S. KULKARNI SHOWS WITHDRAWAL BY HER ON 04-05-2005 FOR RS.3,00,6 62/- BY CHEQUE NO.0148107. FROM THE COPY OF THE BANK PASS BOOK OF THE LOAN CRE DITOR, THE AO WAS UNABLE TO ASCERTAIN AS TO WHICH IS THE BANK TO WHICH THE PASS BOOK BELONGS. HE THEREFORE DISBELIEVED THE LOAN TRANSACTION AND APPLYING THE P ROVISIONS OF SECTION 68 MADE ADDITION OF RS.3 LAKHS. 16. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THA T THE COPY OF THE BANK PASS BOOK OF SMT. T.S. KULKARNI CONTAINS HER RESIDENTIAL ADDRESS AS WELL AS TELEPHONE NUMBER. THEREFORE, THE IDENTITY OF THE LOAN CREDIT OR IS ESTABLISHED. IT WAS SUBMITTED THAT DURING NOVEMBER 2004 TO MARCH 2005 T HERE WAS CREDIT BALANCE OF MORE THAN RS.5LAKHS IN THE SAVINGS BANK PRIOR TO IS SUE OF CHEQUE FOR RS.3 LAKHS. IT WAS SUBMITTED THAT HER CONFIRMATION LETTER, COPY OF BANK STATEMENT OF THE ASSESSEE SHOWING RECEIPT OF THE LOAN AND PARTLY REPAYMENT OF THE SAME DURING THE YEAR WAS PRODUCED BEFORE THE AO. IT WAS SUBMITTED THAT OUT OF RS.3 LAKHS AN AMOUNT OF RS.1,50,000/- HAS BEEN REPAID DURING THE YEAR WHICH THE AO HAS IGNORED. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION MADE BY THE AO SHOULD BE DELETED. 10 17. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LEARNED CIT(A) CALLED FOR A REMAND REPORT FROM THE AO AND AFTER CONSIDERI NG THE SAME DELETED THE ADDITION OF RS.3 LAKHS. WHILE DOING SO, HE NOTED T HAT THE BANK PASS BOOK OF THE LOAN CREDITOR CONTAINS HIS NAME AND ADDRESS AS WELL AS THE TELEPHONE NUMBER. THEREFORE, THE IDENTITY OF THE LOAN CREDITOR AND TH E GENUINENESS OF THE TRANSACTION STAND ESTABLISHED. SINCE THERE WAS MORE THAN RS.5L AKHS IN THE PASS BOOK OF THE LOAN CREDITOR DURING THE PERIOD FROM NOVEMBER 2004 TO MARCH 2005 THE CREDIT WORTHINESS OF THE LOAN CREDITOR SHOULD NOT BE DOUBT ED. HE ACCORDINGLY DELETED THE ADDITION OF RS.3 LAKHS. 17.1 AGGRIEVED WITH SUCH ORDER OF THE LEARNED CIT(A ) THE REVENUE IS IN APPEAL BEFORE US. 18. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A ) HAS ACCEPTED ADDITIONAL EVIDENCE DURING THE COURSE OF APPEAL PROCEEDINGS TO ESTABLISH THE IDENTITY AND CREDIT WORTHINESS OF THE CREDITOR AND GENUINENESS O F THE TRANSACTION. THESE DETAILS WERE NOT AVAILABLE WITH THE AO TO VERIFY THE CORREC TNESS OF THE CLAIM OF THE ASSESSEE. THEREFORE, THE AO HAD NO OCCASION TO EXA MINE THE CREDITOR. SINCE THERE IS VIOLATION OF RULE 46A, THEREFORE, THE ORDER OF T HE CIT(A) SHOULD BE SET-ASIDE AND THE ORDER OF THE AO SHOULD BE RESTORED. THE LEARNE D COUNSEL FOR THE ASSESSEE ON THE OTHER HAND STRONGLY RELIED ON THE ORDER OF THE CIT( A). 19. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS NOT GIVEN THE COPY OF TH E PASS BOOK PROPERLY FOR WHICH THE AO WAS NOT ABLE TO ASCERTAIN AS TO WHICH IS THE BANK TO WHICH THE PASS BOOK BELONGS. ONLY DURING THE APPEAL PROCEEDINGS THE AS SESSEE HAS SUBMITTED HER POSTAL ADDRESS, TELEPHONE NUMBER, DETAILS OF BANK ACCOUNT NO.83999 OF SAMARTH SAHAKARI BANK LTD. PUNE. HOWEVER, IT IS ALSO A FAC T THAT THE LEARNED CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE AO. WHEN THE C OPY OF THE BANK PASS BOOK 11 FILED BEFORE US IN THE PAPER BOOK IS NOT LEGIBLE AN D IT IS NOT ASCERTAINABLE AS TO WHICH BANK TO WHICH BANK THE PASS BOOK BELONGS TO, THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE AVAILABILITY OF FUNDS IN THE PASS BOOK PRIOR TO ISSUE OF DEMAND DRAFT OR CHEQUE TO THE ASSESSEE FIRM AS LOAN AND ACCORDINGLY DECIDE THE ISSUE OF AL LOWABILITY OF THE LOAN. WE HOLD AND DIRECT ACCORDINGLY. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 20. GROUND OF APPEAL NO.4 BY THE ASSESSEE READS AS UNDER : 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS .44,536/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S.40A(3) OF THE I.T. ACT, 1961. 21. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE HAS INCURRED CERTAIN EXPENSES FOR WHICH PAYMENTS HAVE BEEN MADE IN CASH EXCEEDING RS.20,000/-. ALTHOUGH SOME OF THESE PAYMENTS ARE BROKEN INTO PAR TS ON THE SAME DAY THE AO NOTED THAT THE ASSESSEE DID NOT PRODUCE ANY DETAILS IN THE FORM OF SEPARATE BILLS. IN THIS REGARD HE OBSERVED THAT SOME OF THESE PAYMENTS ARE PAID ON SAME DAY IN EQUAL MANNER. THEREFORE, APPLYING THE PROVISIONS OF SECT ION 40A(3) THE AO DISALLOWED AN AMOUNT OF RS.44,536/-. 22. BEFORE THE CIT(A) IT WAS SUBMITTED THAT EACH PA YMENT DOES NOT EXCEED RS.20,000/- ON THE SAME DAY TO MEHTA TRADING COMPAN Y AND PUNIT RESINS LTD. TOWARDS OUTSTANDING PAYMENT FOR PURCHASE OF RAW MAT ERIAL. IT WAS ARGUED THAT THE ASSESSEE HAD MADE PAYMENT BILL FOR RS.20,000/- AT D IFFERENT TIMES ON THE SAME DAY. IT WAS FURTHER ARGUED THAT SECTION 40A(3) WAS AMEND ED BY THE FINANCE ACT, 2008 WITH EFFECT FROM A.Y. 2008-09 FOR PROVIDING THAT TH E PAYMENTS MADE ON ANY PARTICULAR DAY EXCEEDING RS.20,000/- SHALL BE COVER ED BY THE DISALLOWANCE PROVIDED US.40A(3). THEREFORE, THE SAME IS NOT APP LICABLE FOR ASST. YEAR 2006-07. 12 23. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LEARNED CIT(A) CALLED FOR A REMAND REPORT WHEREIN THE AO HAS ACCEPTED THA T THE PAYMENTS HAVE BEEN BROKEN UP INTO DIFFERENT PAYMENT ON THE SAME DAY AN D SOME OF THEM IN EQUAL MANNER. THE AO ALSO ACCEPTED THAT IN VIEW OF THE S UBSEQUENT AMENDMENT EFFECTIVE FROM 2008-09 THE DISALLOWANCE MADE BY THE AO IN A.Y. 2006-07 IS NOT IN ORDER. BASED ON THE ABOVE REMAND REPORT OF THE AO AND RELYING ON THE DECISION IN THE CASE OF ALOO SUPPLY COMPANY REPORTED IN 121 ITR 680 THE LEARNED CIT(A) DELETED THE ADDITION. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 24. AFTER HEARING BOTH THE SIDES WE FIND NO INFIRMI TY IN THE ORDER OF THE CIT(A). ADMITTEDLY THE ASSESSEE HAS BROKEN UP THE PAYMENTS AND ALTHOUGH MORE THAN ONE PAYMENT HAS BEEN MADE ON THE SAME DAY NONE OF THE P AYMENTS EXCEEDS RS.20,000/- AT A TIME. IN VIEW OF THE AMENDMENT B Y THE FINANCE ACT, 2008 TOTAL PAYMENTS MADE ON ANY PARTICULAR DAY EXCEEDING RS.20 ,000/- SHALL BE DISALLOWED UNDER THE PROVISIONS OF SECTION 40A(3) WHICH IS APP LICABLE FROM A.Y. 2009-10. THEREFORE, WHEN NONE OF THE PAYMENTS EXCEEDS RS.20, 000/- THE PROVISIONS OF SECTION 40A(3) SHALL NOT BE APPLICABLE. IN THIS VI EW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER THE CIT(A) DELETING THE ADDITION. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS D ISMISSED. 25. GROUND OF APPEAL NO. 5 BY THE REVENUE READS AS UNDER : 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A)-I, NASHIK WAS JUSTIFIED IN RESTRICTING THE DISALLOWANC E OF RS.81,181/- TO RS.43,325/- U/S.40A(2)(B) OF THE I.T. ACT, 1961 ? 26. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE HAS PURCHASED ZINC STERATE FROM SISTER CONCERN M/S. TIRUPATI ENTERPRISES @ RS. 95/- PER KG AS AGAINST RS.58/- PER KG FROM M/S. B.P. CHEMICALS, MUMBAI. THE AO TH EREFORE DISALLOWED THE 13 DIFFERENCE IN PURCHASE PRICE OF RS.37/- PER KG IN R ESPECT OF 2275 KGS AMOUNTING TO RS.84,181/- 27. BEFORE THE CIT(A) IT WAS SUBMITTED AS UNDER : IT IS PERTINENT TO NOTE HERE THAT M/S. B.P. CHEMIC ALS IS LOCATED AT MUMBAI. YOUR APPELLANT HAS TO INCUR FURTHER EXPENDITURE ON PURCH ASE PRICE STATED BY THE AO AT RS.58/- PER KG SUCH AS EXCISE DUTY, VAR, OCTROI AND TRANSPO RTATION. THE COST OF THE MATERIAL THEREFORE COMES TO RS.85/- TO RS.90/- PER KG. FURT HER AS THE MATERIAL IS TO BE PURCHASED FROM MUMBAI IT TAKES TIME TO REACH NASHIK AND HENCE CANNOT BE PURCHASED IN CASE OF URGENT NEED OF MATERIAL. FURTHER THE PAYMENT IS TO BE MADE IMMEDIATELY TO M/S. B.P. CHEMICALS, WHEREAS TIRUPATI ENTERPRISES ALLOWS CRED IT OF 2 TO 3 MONTHS. IN VIEW OF THE ABOVE FACTS NO EXCESSIVE EXPENDITURE WAS INCURRED O N PURCHASE FROM M/S. TIRUPATI ENTERPRISES LIABLE FOR DISALLOWANCE U/S.40A(2)(B) O F THE I.T. ACT. 28. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LEARNED CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER : 7.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND REMAND REPORT OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. ON PERUSAL O F THE SAME IT IS NOTICED THAT THE SUBMISSION OF THE APPELLANT IS REASONABLE, HOWEVER, THE APPELLANT HAS NOT FILED EXACT WORKING AND EVIDENCE TO PROVE THAT THE TOTAL COST O F PURCHASE OF THE MATERIAL FROM M/S. B.P. CHEMICALS IS AT PAR WITH THE PURCHASE COST FRO M M/S. TIRUPATI ENTERPRISES, I.E. THE SISTER CONCERN. CONSIDERING THE FACT THAT M/S. B.P . CHEMICALS IS LOCATED IN MUMBAI AND IS LIABLE FOR EXCISE, VALUE ADDED TAX, OCTROI AND T RANSPORTATION EXPENSES, THE ADDITIONAL COST FOR PURCHASE OF MATERIAL IS ESTIMATED AT 25% O F RS.58/-, I.E. RS.14.50. FURTHER AS THE CREDIT IS ALLOWED OF 2/3 MONTHS BY M/S. TIRUPATI EN TERPRISES AND THE MATERIAL IS SUPPLIED IMMEDIATELY, THE ADDITIONAL COST ESTIMATED AS ABOVE IN RESPECT OF GOODS PURCHASED FROM M/S. B.P. CHEMICALS IS CONSIDERED AT RS.18/- PER KG . THE RESULTANT DISALLOWANCE AT RS.19/- IN RESPECT OF 2275 KGS IS THEREFORE RS.43,2 25/-. THE DISALLOWANCE U/S.40A(2)(B) AMOUNTING TO RS.84,181/- IS THEREFORE RESTRICTED TO RS.43,225/-. GROUND NOS. 7 & 8 STAND PARTLY-ALLOWED. 28.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 29. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE CIT(A). WE FIND THE LEARNED CIT(A) HAS ALREADY GIV EN SUFFICIENT DETAILS FROM WHICH IT CAN BE SEEN THAT M/S. B.P. CHEMICALS CANNO T BE AT PAR WITH M/S. TIRUPATI ENTERPRISES, I.E. SISTER CONCERN OF THE ASSESSEE. SINCE M/S. B.P. CHEMICALS IS LOCATED IN MUMBAI AND IS LIABLE FOR EXCISE, VAT AND TRANSPORTATION EXPENSES ETC. THEREFORE, THERE WILL BE SOME EXPENDITURE FOR GETTI NG THE THINGS TO THE PREMISES OF THE ASSESSEE. THE SISTER CONCERN ALLOWS THE CREDIT FACILITY TO THE ASSESSEE WHICH MAY NOT BE ALLOWED BY M/S. B.P. CHEMICALS. THEREFO RE, BOTH CANNOT BE CONSIDERED 14 TO BE AT PAR FOR CALCULATION OF DISALLOWANCE U/S.40 A(2)(B). THE CALCULATION GIVEN BY THE LEARNED CIT(A) WHILE PARTIALLY GIVING RELIEF COULD NOT BE CONTROVERTED BY THE LEARNED DR. IN VIEW OF THE DETAILED ORDER PASSED B Y THE CIT(A) ON THIS ISSUE, WE FIND NO INFIRMITY IN THE SAME. ACCORDINGLY, THE SA ME IS UPHELD. 29.1 THE VARIOUS OTHER GROUNDS RAISED BY THE REVENU E BEING GENERAL IN NATURE ARE DISMISSED. 30. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 28 TH SEPTEMBER 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, NASHIK 4. THE D.R, B PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE