J M Industries, Ahmednagar V. Assistant Commissioner of Income-tax,

ITA 1064/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9213 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-10-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 29-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SRI D.KARUNAKARA RAO, AM AND SRI VIKAS AWASTHY, JM . / ITA NOS.1061 TO 1064/PUN/2015 / ASSESSMENT YEARS : 2007-08 AND 2008-09 J.M. INDUSTRIES, I-195, MIDC, AHMEDNAGAR, DIST. AHMEDNAGAR PAN : AACFJ4581F . /APPELLANT VS. ACIT, AHMEDNAGAR RANGE, AHMEDNAGAR . / RESPONDENT ASSESSEE BY : SRI S.N. PURANIK RESPONDENT BY : SRI MUKESH JHA, JCIT / DATE OF HEARING : 28.02.2018 / DATE OF PRONOUNCEMENT: 28.02.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 4 APPEALS FILED BY THE ASSESSEE UNDER CONSIDER ATION INVOLVING TWO ASSESSMENT YEARS, I.E., 2007-08 AND 2008-09. ITA NOS. 1061 AND 1062/PUN/2015 RELATE TO THE DISALLOWANCE OF CO MMISSION PAYMENT MADE IN THE ASSESSMENT ORDERS PASSED U/S.143(3 ) OF THE ACT; WHEREAS THE APPEALS ITA NOS. 1063 AND 1064/PUN/2015 RELATE TO THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT ON THE SAID DISALLOWANCE OF CLAIM OF COMMISSION PAYMENT. 2. IT IS AN ADMITTED POSITION THAT THE PENALTIES BECOMES UNSUSTAINABLE IN LAW IF THE QUANTUM ADDITION ISSUE RELATING TO THE 2 COMMISSION PAYMENTS IS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE, WE SHALL TAKE UP THE QUANTUM APPEALS FIRST. ITA NOS. 1061 AND 1062/PUN/2015 (A.YRS. 2007-08 AND 2008-09 3. THE ONLY GROUND COMMONLY RAISED BY THE ASSESSEE IN A.YRS. 2007- 08 AND 2008-09 READ AS UNDER : HON. COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ADDITIONS OF SALES COMMISSION PAID TO RELATED PARTIES AT RS.9,18,000/- WHICH MAY PLEASE BE ALLOWED. 4. BRIEFLY STATED RELEVANT FACTS CULLED OUT FROM THE APPEAL ITA NO.1061/PUN/2015 ARE INCLUDE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF ALUMINUM RELATED ACTIVITIES. DURING THE ASS ESSMENT YEAR UNDER CONSIDERATION, AO NOTICED THAT THE ASSESSEE PAID A N AMOUNT OF RS.10,37,499/- AS COMMISSION AND DISCOUNT TO SRI PRITESH P . LODHA, A PERSON SPECIFIED U/S.40A(2)(B) OF THE ACT. ASSESSEE WAS TO JUSTIFY THE FACT OF PAYMENT OF COMMISSION TO SRI PRITESH P. LODHA AND THE SERVICES RENDERED BY SRI PRITESH LODHA. ASSESSEE PRODUCED A SA LE BILL WHICH CONVEYS THAT SRI PRITESH P. LODHA SOLD GOODS WORTH RS.4 ,58,99,997/- FOR THE ASSESSEE AND RAISED THE INVOICE FOR A SUM OF RS.9,18,00 0/-. IT WORKS OUT TO 2% OF THE TOTAL SALE. ASSESSEE WAS THEREFORE AS KED TO PRODUCE THE ACCOUNT EXTRACT SHOWING THE COMMISSION. ON PERUSAL, AO N OTED CERTAIN DISCREPANCIES IN THE SAID EXTRACT. CONSIDERING THE SAME THAT ASSESSEE DID NOT FILE EVIDENCES IN SUPPORT OF THE SERVICES RENDERED BY HIM TO THE ASSESSEE, THE AO INVOKED THE PROVISIONS OF SECTION 40A(2)(B ) OF THE ACT AND HELD THE PAYMENT AS FICTITIOUS/BOGUS EXPENDITURE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, TH E AO ALSO (1) DISALLOWED AN AMOUNT OF RS. 5,20,000/- BEING SALARY PAID TO S MT. 3 MANISHA LODHA AND SMT. SAMATA LODHA AS INFLATED EXPENDITU RE, (2) DISALLOWED AN AMOUNT OF RS.7,75,026/- TOWARDS BURNING LOSS R ESTRICTING THE BURNING LOSS TO 1% AS AGAINST 3.5% CLAIMED BY THE ASS ESSEE. EVENTUALLY, AO ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.1,07,20,416/-. 5. DURING THE FIRST APPELLATE PROCEEDINGS, CIT(A) CONFIRMED TH E DISALLOWANCE OF RS.9,18,000/- MADE BY THE AO. WHILE DOING SO, HE HELD THAT ASSESSEE FAILED TO DISCHARGE HIS ONUS WITH COGENT EV IDENCES THAT PAYEE HAS RENDERED ANY SERVICES TO THE ASSESSEE. THE REFORE, THE COMMISSION SO PAID BY THE ASSESSEE TO PRITESH P. LODHA IS HELD TO BE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S. CONTENTS OF PARA NOS. 2.4.1 TO 2.4.5 OF THE ORDER OF CIT(A) ARE RELEVANT . CIT(A) GRANTED RELIEF IN RESPECT OF OTHER ADDITIONS. 6. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSESSEE FILED T HE ABOVE APPEALS BEFORE THE TRIBUNAL WITH THE GROUND REFERRED ABOVE. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF OR DER OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1085/PN/20 09 ORDER DATED 27-04-2012 AND SUBMITTED THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE A.Y. 2006-07 HAS DELETED SIMILAR CLAIM OF PAYMENT OF COMMISSION DISALLOWED BY THE AO. IN THAT YEAR TOO, SRI PR ITESH P. LODHA IS THE RECIPIENT OF COMMISSION AND HE IS ASSESSED TO TAX. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO LOSS CAUSED T O THE DEPARTMENT AS THE COMMISSION IS SUBJECTED TO TAX IN THE HANDS OF SRI PR ITESH P. LODHA TOO. THEREFORE, HE SUBMITTED THAT SINCE THE TRIBUNAL HA S GRANTED RELIEF ON THE SIMILAR FACTS IN THE IMMEDIATE PRECEDING YEAR, THE SAID ORDER O F THE TRIBUNAL BECOMES A BINDING PRECEDENT AND IN FAVOUR OF THE ASSESSEE. 4 8. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF T HE AO/CIT(A) DUTIFULLY. 9. WE HEARD BOTH THE SIDES AND PERUSED THE WRITTEN SUB MISSIONS FILED BY THE LD. COUNSEL FOR THE ASSESSEE. WE PERUSED THE ORDER OF THE TRIBUNAL ON THIS ISSUE AND FIND IT RELEVANT TO EXTRACT THE FINDING GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07. THE SAME IS EXTRACTED AS UNDER: 11. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THA T IT IS NOT THE CASE OF THE DEPARTMENT THAT ASSESSEE HAS PAID MORE COMMISSIO N TO THE ABOVE COMMISSION AGENTS FOR SIMILAR WORK AS PREVAILING IN THE MARKET. THE REVENUE HAS DOUBTED THE PAYMENT OF COMMISSION ONLY BECAUSE THE ABOVE STATED TWO AGENTS FALL IN THE CATEGORY OF PERSONS S PECIFIED IN 40A(2)(B) OF THE ACT. IT IS NOW AN ADMITTED FACT THAT DUE TO COM PETITIVENESS IN THE MARKET, THE MANUFACTURER HAS TO ENGAGE COMMISSION A GENTS TO MARKET THEIR PRODUCTS AND FOR RECOVERY OF THE PAYMENTS IN TIME. THIS MATERIAL SUBMISSION OF THE ASSESSEE THAT THEY HAVE NOT EMPLO YED ANY PERSONS IN THEIR STAFF FOR MARKETING THEIR PRODUCTS BUT THEY H AVE ENGAGED THE ABOVE STATED TWO PERSONS FOR THIS JOB AND DUE TO THEIR EF FORT, TURNOVER HAS ALSO BEEN INCREASED FROM RS. 7 CRORES SHOWING DURING THE LAST YEAR TO RS. 10 CRORES DURING THE YEAR. CONSIDERING ALL THESE MATER IAL FACTS IN TOTALITY, WE ARE OF THE VIEW THAT THERE WAS NO REASON WITH THE A .O TO M/S. J.M. INDUSTRIES, A.Y. 2006-07 PAGE OF 8 DOUBT THE CLAIME D PAYMENT OF COMMISSION TO THE ABOVE STATED TWO COMMISSION AGENT S. WE THUS WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW DIREC T THE A.O TO DELETE THE ADDITION OF RS. 9,24,634/- (MADE BY INVOKING THE PR OVISION OF SEC. 40A(2)(B) OF THE ACT). WE ALSO OBSERVED THAT IN VIE W OF THE TURNOVER OF THE ASSESSEE, THE PAYMENT OF COMMISSION CLAIMED DOES NOT APPEAR TO BE ON HIGHER SIDE OR EXCESSIVE. THE GROUND NO. 2 IS ACCOR DINGLY ALLOWED. 10. CONSIDERING THE ABOVE STATED POSITION ON THE ISSUE, WE ARE OF THE OPINION THAT THE COMMISSION PAID TO SRI PRITESH P. LODHA IS AN ALLOWABLE DEDUCTION. THE PAYMENT TO ONE PERSON IN THE YEAR UNDE R CONSIDERATION DOES NOT DISENTITLE THE ASSESSEE FROM MAKING THE CLAIM SO LONG AS BUSINESS OF THE ASSESSEE IS BENEFITED BY HIS SERVICES. THE ARGUMENTS MADE BY THE LD. DR ARE NOT ALLOWED. THEREFORE, WE ARE OF THE OPINION THAT THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSE SSEE BY THE ORDER OF TRIBUNAL IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. A CCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 5 11. THE GROUNDS AND THE FACTS FOR THE A.Y. 2008-09 ARE PARA-MATERIA TO THAT OF THE A.Y. 2007-08. THE ARGUMENTS AND COUNTER AR GUMENTS ARE HAVING EQUAL FORCE. ON HEARING THE PARTIES, WE FIND THE SA ID DECISION OF TRIBUNAL COVERS THE ISSUE IN THIS ASSESSMENT YEAR TOO. CONSEQUENTLY, THE GROUND RAISED FOR THE ASSESSMENT YE AR IS ALLOWED. 12. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED. 13. NOW WE SHALL TAKE UP THE APPEALS PERTAINING TO PENA LTY U/S.271(1)(C) OF THE ACT. ITA NOS. 1063 AND 1064/PUN/2015 (A.YRS. 2007-08 AND 2008-09) 14. ASSESSEE FILED THE PRESENT APPEALS UNDER CONSIDERATION IN CONNECTION WITH THE PENALTY LEVIED BY THE AO U/S.271(1)(C) OF THE I.T. ACT VIDE HIS ORDER DATED 28-03-2013. AO LEVIED THE PENALTY OF RS.4,84,008/- FOR THE A.Y. 2007-08 AND RS.10,74,171/- FOR THE A.Y. 2008-0 9. THESE PENALTIES WERE LEVIED ON THE ISSUE OF COMMISSION AND SALARY PAYMENTS MADE BY THE ASSESSEE. 15. AFTER GOING THROUGH THE FACTS OF THE CASE, WE FIND THE ENTIRE PENALTY LEVIED BY THE AO NEED TO BE DELETED, IN PRINCIPLE. SINCE TH E QUANTUM ADDITION IN RESPECT OF COMMISSION PAYMENT HAS BEEN DELETED BY US RELYING ON THE DECISION OF THE TRIBUNAL (SUPRA) AND THE Q UANTUM ADDITION IN RESPECT OF SALARY PAID TO MS. MANISHA LODHA AND MS. SAM ATA LODHA WAS DELETED BY THE CIT(A) VIDE ORDER DATED 27-02-2015, T HE PENALTY LEVIED BY THE AO IN BOTH THE ASSESSMENT YEARS DOES NOT SURV IVE. ACCORDINGLY, THE APPEALS RAISED BY THE ASSESSEE IN THESE TWO APPEALS BECOMES INFRUCTUOUS AND THEREFORE, THE SAME ARE DISMISSED AS SUCH. 6 16. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE DISMISSED. 17. TO SUM UP, ITA NOS. 1061 AND 1062/PUN/2015 FILED BY THE ASSESSEE ARE ALLOWED AND ITA NOS. 1063 AND 1064/PUN/2015 FILED BY T HE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 28 TH FEBRUARY, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-2, PUNE 4. CIT-2 PUNE 5. , , B BENCH PUNE; 6. / GUARD FILE.