Dy. CIT (TDS-I), Pune V. Samruddha Jeevan Foods India Ltd., Pune

ITA 1093/PUN/2013

• Counselvise Citation: 109324514 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: A JAY R SINGHSHRI RAMESH N RAO
• Keywords: Opportunity of being heard; Principle of natural justice; Non-deduction of tax
• Section: 133A; 201(1); 6; 12; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO S. 1092 & 1093 / P N/ 20 1 3 ASSESSMENT YEAR S : 200 8 - 09 & 2009 - 10 DEPUTY COMMISSI ONER OF INCOME TAX (TDS - I), PUNE VS. SAMRUDDHA JEEVAN FOODS INDIA LIMITED, LANDMARK, 3 RD FLOOR, OPP. FERGUSSON COLLEGE ROAD, SHIVAJINAGAR, PUNE (APPELLANT) (RESPONDENT) PAN NO. PNES12713B APPELLANT BY: SHRI S.P. WALIMBE RESPONDENT BY: SHRI A JAY R. SINGH/SHRI RAMESH N. RAO ORDER PER R.S . PADVEKAR , JM : - BOTH THESE APPEALS ARE FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDERS OF THE LD. CIT(A) - V, PUNE DATED 14 - 03 - 2013 FOR THE A.YS. 2008 - 09 AND 2009 - 10. IN BOTH THESE CASES, THE FACTS AS WELL AS ISSUES ARE IDENTICAL HENCE, BOTH THE APPEALS ARE DISPOSED OF F BY THIS CO MMON ORDER. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS WHICH ARE VERBATIM IN BOTH APPEAL S I.E. A.YS. 2008 - 09 AND 2009 - 10 AS UNDER: 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT 'ADVANCE AGAINST COMMISSION ACCOUNT' IS NOT AN EXCLUSIVE COMMISSION ACCOUNT WITHOUT APPRECIATING THE FACT THAT SPECIFIC SEPARATE 'ADVANCES ACCOUNTS' WERE MAINTAINED IN THE ASSESSEE'S BOOKS OF ACCOUNT, NAMELY - I) ADVANCE TO SUPPLIERS II) ADVANCE FOR EXPENSES III) 2 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE ADVANCE FOR CAPITAL PURCHASE IV) ADVANCE FOR BUSINESS ESTABLISHMENT MATERIAL ETC. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT ADVANCES AMOUNTING TO CRORES ARE ADMITTEDLY GIVEN IN CASH IN SPITE OF THE FACT THAT BOTH THE ASSESSEE AS WELL AS THE COMMISSION AGENTS HAVE BANK ACCOUNTS AND THAT AS PER THE DAY TO DAY ACCOUNTS OF SUCH AGENTS, IT IS SEEN THAT NO B ILLS ARE FURNISHED FOR CASH TAKEN EARLIER. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE COMPANY IS STATED TO BE ENGAGED IN THE BUSINESS OF TRADING IN LIVESTOCK, ANIMAL HUSBANDRY, AGRICULTURE AND OTHER ALLIED AC TIVITIES. AS NOTED BY THE ASSESSING OFFICER FOR PROMOTING SALES, THE ASSESSEE IS ADOPTING MULTI - LEVEL MARKETING MODEL ON WHICH HUGE ACCOUNT OF COMMISSION IS SHOWN TO HAVE BEEN PAID. IN THE CASE OF THE ASSESSEE THE SURVEY ACTION WAS CARRIED OUT U/S. 133A OF THE INCOME TAX ACT ON 26 - 02 - 2009 BY TDS - WING OF THE INCOME TAX DEPARTMENT FOR VERIF YING THE COMPLIANCE OF THE TDS PROVISIONS. DURING THE COURSE OF THE SURVEY ACTION IT WAS NOTICED THAT THE ASSESSEE HAD SHOWN HUGE PAYMENTS TO THE COMMISSION AGENTS UNDER THE HEAD ADVANCE AGAINST COMMISSION ON WHICH TDS WAS NOT DEDUCTED. THE ASSESSEE WAS CONFRONTED WHY THE TDS WAS NOT DEDUCTED ON WHICH THE ASSESSEE REPLIED THAT THE SAID ADVANCE WAS WRONGLY SHOWN IN THE BOOKS OF ACCOUNT AS ADVANCE AGAINST COMMISSION WH ICH IS A MISNOMER AS ADVANCE WAS MADE TO COMMISSION AGENTS FOR PURCHASE OF LIVESTOCK AND THEREFORE THERE WAS NO LIABILITY TO DEDUCT TDS. THE DCIT( TDS) - 2, PUNE (IN SHORT THE AO') WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE COMPANY . THE ASSESSI NG OFFICER ASKED THE ASSESSEE AS TO WHY THE ASSESSEE SHOULD NOT BE TREATED AS A ASSESSEE IN DEFAULT AS PER PROVISIONS OF SEC. 201(1) OF THE INCOME TAX ACT , 1961 ON ACCOUNT OF ITS FAILURE TO DEDUCT TAX AT SOURCE ON ADVANCE COMMISSION. THE REPLY FILED BY TH E ASSESSEE IS REPRODUCED BY 3 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE THE ASSESSING OFFICER IN THE ORDER PASSED U/S. 201(1) AND 201(1A) OF THE INCOME TAX ACT, 1961 DATED 21 - 03 - 2011. WE ARE REPRODUCING THE SAID REPLY FOR THE SAKE OF BREVITY: 1. ADVANCES AGAINST COMMISSION: ACCORDING TO THE ABOVE REFERRED LETTER RECEIVED FROM YOUR OFFICE YOU HAVE REQUIRED EXPLANATIONS REGARDING ADVANCES PAID AGAINST COMMISSION. FIRST OF ALL WE WOULD LIKE TO CLARIFY THAT THE ADVANCES PAID BY US ARE NOT ADVANCES AGAINST COMMISSION BUT THE SAME ARE ADVANCES PAID TO TH E COMMISSION AGENTS OF THE COMPANY. THE FOREMOST PURPOSE OF PAYING THESE ADVANCES TO THE COMMISSION AGENTS OF THE COMPANY IS TO INCREASE THE SALES. THE AMOUNTS PAID TO SUCH COMMISSION AGENTS WERE EXPECTED TO BE SPENT BY THEM TOWARDS SALES, PROMOTION ACTIV ITIES ON BEHALF OF THE COMPANY VARIOUS IS OCCASIONS. THESE AMOUNTS WERE NOT PAID AS ADVANCE COMMISSION. THE COMPANY OPERATES ITS BUSINESS THROUGH MORE THAN 150 BRANCHES ALL OVER INDIA (LIST OF THE BRANCH ALREADY PROVIDED TO YOU). IT IS PRACTICALLY NOT POSS IBLE FOR THE COMPANY TO CONDUCT VARIOUS MARKETING SCHEMES AND SALES PROMOTIONS OFFERS AT VARIOUS LOCATIONS. AS SUCH TO INCREASE THE SALES, THE COMPANY HAD GIVEN THE ADVANCES TO ITS COMMISSION AGENTS. COMMISSION AGENTS, IN TURN, VISITED VARIOUS LOCATIONS AN D ASSISTED THE COMPANY TO INCREASE ITS SALES. THE DETAILS OF THE AMOUNT SPENT BY SUCH AGENTS (SUCH AS EXPENSES DETAILS, BILLS, VOUCHERS ETC.) ARE PROVIDED TO THE COMPANY TO SET OFF THE AMOUNTS OUTSTANDING AS ADVANCE IN THE BOOKS OF ACCOUNTS OF THE COMPANY. AS EXPLAINED TO IN EARNER HEARINGS, THE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF LIVESTOCK (SUCH AS COATS, COWS, AND BUFFALOS ETC.) AS WELL AS SUCH OTHER ALLIED ACTIVITIES. SUCH LIVE STOCKS ARE PURCHASED FROM THE OPEN MARKET AND USUALLY THESE MARK ETS ARE HIGHLY UNORGANIZED. THUS THE COMPANY SOMETIMES PAID VARIOUS AMOUNTS TO ITS AGENTS SO AS TO ENABLE THEM BUYING THE LIVESTOCK ON BEHALF OF THE COMPANY, FROM THE MARKETS. SUCH AMOUNTS PAID TO THE AGENTS ARE TREATED IN THE BOOKS OF ACCOUNTS OF THE COMP ANY AS ADVANCES GIVEN TO THE AGENTS AND THE SAME ARE WRITTEN OFF AS AND 4 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE WHEN THE AGENTS PROVIDED NECESSARY DETAILS OF PURCHASE OF LIVESTOCK TO THE COMPANY. WE BELIEVE THAT THE ADVANCES WHICH ARE GIVEN/PAID FOR INCURRING VARIOUS EXPENSES, ON BEHALF OF THE C OMPANY DO NOT ATTRACT THE PROVISIONS OF DEDUCTION OF TAX AT SOURCE AS THE SAME WERE NOT PAID AS COMMISSION IN ADVANCE. WITH THIS BRIEF INTRODUCTION OF THE FACTUAL POSITION, WE WOULD NOW PROVIDE THE REASONS AS DESIRED BY YOU AS TO WHY THE COMPANY SHOULD NOT BE TREATED AS AN ASSESSEE IN DEFAULT FOR NOT DEDUCTION THE TAX AT SOURCE ON ADVANCES. A. THE MAIN INTENTION BEHIND PAYING THE ADVANCES WAS NEVER TO PAY COMMISSION IN ADVANCE BUT THE SAME WAS TO FACILITATE THE AGENTS TO INCUR VARIOUS BUSINESS PROMOTION AND OTHER EXPENSES ON BEHALF OF THE COMPANY. THE COMPANY HAD OPTED THIS ROUTE FOR PROMOTING ITS SAFES INSTEAD OF EMPLOYING SALES STAFF AND PAYING THEM SALARY AS WELL AS INCURRING VARIOUS AMOUNTS ON ITS OWN TOWARDS BUSINESS PROMOTION. GENERA LLY A SALES PROMOTION PLAN IS DECIDED AMONG THE COMPANY AND ITS AGENTS REGION OR STATE WISE. RESPONSIBILITIES AND ACCOUNTABILITIES TO EXECUTE THE PLANS OF EACH AGENT ARE FINALIZED. ON THE BASIS OF SUCH PLANS ADVANCES ARE PAID TO THE AGENTS FOR INCURRING EXPENSES ON BEHALF OF THE COMPANY. HOWEVER SINCE THE ADVANCES WERE GIVEN TO ITS AGENTS FOR VARIOUS EXPENSES, THE GROUP HEAD WAS NAMED FOR THE PURPOSE OF IDENTIFICATION AS 'ADVANCE AGAINST COMMISSION'. B. THE AMOUNTS PAID TO THE AGENTS ON VARIOUS OCCASIONS ARE RECOVERED FROM THEM BY WAY OF OBTAINING NECESSARY DOCUMENTARY EVIDENCES OF VARIOUS EXPENSES INCURRED BY THEM ON BEHALF OF THE COMPANY. THESE EXPENSES WERE THEN RECORDED IN THE BOOKS OF THE COMPANY UNDER THE APPROPRIATE HEADS OF ACCOUNTS. C. AS MENTION ED EARLIER, THE COMPANY H AS ENGAGED IN TRADING IN FIVE STOCK AS WELL AS AND OTHER RELATED PRODUCTS. FOR THIS PURPOSE THE COMPANY HAS TO PURCHASE LIVE STOCK FROM THE OPEN MARKET (GOATS, COWS AND BUFFALOS ETC.). AS YOU MAY BE AWARE, THESE MARKETS ARE LOCATE D AT RURAL PLACES AND ARE THE UNORGANIZED MARKETS. IT IS NOT FEASIBLE FOR THE COMPANY TO SEND ITS TEAM (PURCHASE DEPARTMENT) TO SUCH INTERIOR VILLAGES FOR PURCHASE OF LIVESTOCK. AS SUCH IN SOME OF THE INSTANCES, ADVANCES ARE ALSO PAID TO THE AGENTS FOR PUR CHASE OF 5 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE LIVESTOCK. THESE ADVANCES WERE SET OFF AS AND WHEN NECESSARY DOCUMENTARY PROOFS ARE PROVIDED TO THE COMPANY TO THAT EFFECT. D. IN SOME OF THE INSTANCES, IT WAS NOTICED THAT A PARTICULAR COMMISSION AGENT HAVE NOT SPENT THE ADVANCES ON THE PRE - DECID ED PURPOSE AND FOR THE BENEFIT OF THE COMPANY. IN SUCH CASES, 'THESE AMOUNTS WERE ADJUSTED AGAINST THEIR COMMISSION PAYOUTS. HOWEVER WHILE ADJUSTING THESE AMOUNTS, THE COMPANY HAD ALREADY DEDUCTED TAX ON THE GROSS AMOUNTS OF COMMISSION DUE TO SUCH AGENTS AND PAID NET AMOUNTS .AFTER DEDUCTING TAX AS WELL AS SUCH ADVANCES WHICH, ACCORDING TO THE COMPANY WERE NOT SPENT OR WERE NOT SUPPORTED BY NECESSARY DOCUMENTARY EVIDENCES. E. HOWEVER THE INTENTION OF THE COMPANY WAS NOT ADJUST THE ADVANCES AGAINST THE COM MISSIONS PAYABLE TO ITS AGENTS. DUE TO CERTAIN FUTURE EVENTS, THE COMPANY HAD NO OTHER OPTION BUT TO ADJUST SUCH AMOUNTS AGAINST THE COMMISSION PAYABLE TO SUCH AGENTS. THE COMPANY WHILE ADJUSTING SUCH ADVANCES AGAINST THE COMMISSION HAVE DEDUCTED TAX AT SO URCE ON THE WHOLE AMOUNTS. WE HAVE ALREADY PROVIDED TO YOU THE LIST OF SUCH AGENTS AND THE AMOUNTS ADJUSTED BY THE COMPANY TOWARDS COMMISSION OUT OF SUCH, ADVANCES ALONG WITH APPROXIMATE DELAYS IN EACH CASE BETWEEN THE AMOUNTS PAID AS ADVANCES AND THE DATE WHEN THEY WERE FINALLY ADJUSTED AGAINST COMMISSION PAYABLE. F. THE COMPANY HAD ALREADY RECOVERED FROM THE COMMISSION AGENTS MAJORITY OF THE AMOUNTS PROVIDED BY WAY OF THE ADVANCES FOR INCURRING EXPENSES OVER THE PERIOD OF TIME. IN CASE THE AMOUNTS OF ADV ANCES WERE ADJUSTED AGAINST THE COMMISSION PAYABLE, THE COMPANY HAD ALREADY DEDUCTED TAX AT SOURCE WHILE ADJUSTING SUCH AMOUNTS. IN SUPPORT OF THE ABOVE: I. WE ARE SUBMITTING A CD CONTAINING SOFT COPIES OF LEDGER EXTRACTS FOR F.Y. 2007 - 2008, 2008 - 09 AND 2 009 - 2010 AS THE CASE MAY BE FOR FOLLOWING AGENTS. ( TOTAL AMOUNTS PAID EXCEEDING RS.10.00 LACS DURING THE FINANCIAL YEAR). - M/S SAI ENTERPRISES - SHRI SANTOSH DESHMUKH 6 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE - SMT. ANURADHA DESHPANDE - SHRI BAPUSAHEB HONMORE - SHRI MAHESH SHELAR - SHRI VISHWAS P AGAR - SHRI MAHESH M UNGASE - SHRI SWARAJ PANIGRAHY - SHRI MAHADEV SALUNKE - SHRI SANDEEP PATIL II. COPIES OF THE BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS OF FOLLOWINGS COMMISSION AGENTS DULY AUDITED AND COLLECTIVELY MARKED AS ANNEXURE - - SHRI MAHESH SHE LAR - SHRI VISHWAS PAGAR 3. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE REJECTED THE ASSESSEES EXPLANATION BY GIVING THE FOLLOWING REASONS: I HAVE CAREFULLY CONSIDERED THE VERSIONS OF THE ASSESSEE ABOVE. IN ITS CONTENTIONS ABOVE, THE ASSESSEE MAINLY CONTENDS THAT THE ADVANCES GIVEN TO ITS AGENTS, FOR VARIOUS EXPENSES WAS NAMED FOR THE PURPOSE OF IDENTIFICATION AS ADVANCE AGAINST COMMISSION. HAD THIS CONTENTION BEEN TRUE THERE WOULD NOT HAVE BEEN ANY SEPARATE A CCOUNT UNDER THE HEAD ADVANCES. HOWEVER, IF THE LOANS AND ADVANCE ACCOUNT FOR FINANCIAL YEARS 2005 - 06 ONWARDS IS SEEN THERE ARE SEVERAL ADVANCES ACCOUNTS NAMELY I) ADVANCE TO SUPPLIERS (II) ADVANCE FOR EXPENSES (III) ADVANCE FOR CAPITAL PURCHASE (IV) ADVAN CE FOR BUSINESS ESTABLISHMENT MATERIAL ETC. COPY OF LOANS AND ADVANCES ACCOUNTS FOR FINANCIAL YEARS 2005 - 06 ONWARDS IS ENCLOSED TO THIS ORDER FOR READY REFERENCE. THEREFORE, THERE IS NO MERIT IN ASSESSEE'S CONTENTIONS ; ABOVE. THE REALITY IS THAT THE ASSESS EE GAVE ADVANCE COMMISSION WITHOUT DEDUCTION OF TAX AT SOURCE. PROBABLY DURING FINANCIAL YEAR 2009 - 10, THE ASSEESSEE'S CONSULTANTS WOULD HAVE POINTED OUT THE DEFAULT AND MIGHT HAVE APPRAISED OF THE CONSEQUENCES OF SUCH DEFAULT. HENCE THE ASSESSEE MIGHT HAV E 7 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE REDUCED THE OUTSTANDING FROM THIS ACCOUNT DURING FINANCIAL YEAR 2009 - 10 ONWARDS, SO THAT IT CAN DEFEND ITSELF. WHEN THE TDS VIOLATION ON ACCOUNT OF NON - DEDUCTION OF TDS ON ADVANCE COMMISSION FOR ALL THESE YEARS WAS POINTED OUT, AND THE AR WAS ASKED TO SH OW CAUSE AS TO WHY THE ASSESSEE SHOULD NOT BE TREATED AS AN ASSESSEE IN DEFAULT, THE ASSESSEE IS GIVING ABOVE JUSTIFICATION WHICH DO NOT APPEAR TO BE TRUE, IF THE LOANS AND ADVANCES ACCOUNTS FOR ALL THE YEARS ENCLOSED TO THIS ORDER ARE SEEN PROPERLY. IN CONTINUATION OF ITS DEFENSE ABOVE, THE ASSESSEE HAS GIVEN DETAILS OF ADVANCE GIVEN TO COMMISSION AGENTS FOR THE PERIOD 1 - 4 - 2007 ONWARDS. FROM THESE ACCOUNTS FOR FINANCIAL YEARS 2007 - 08 AND 2008 - 09, IT IS SEEN THAT THE PAYMENTS ARE CLEARLY ADVANCE AGAINST C OMMISSION AS REPORTED IN THE ACCOUNTS. HOWEVER, SUCH ACCOUNT FOR THE FINANCIAL YEARS 2009 - 10 SHOWS ADVANCES IN CRORES TO SOME COMMISSION AGENTS FOR PURCHASES/EXPENSES. ALL THESE ADVANCES ARE ADMITTEDLY IN CASH. WHEN THE ASSESSEE AND HIS COMMISSION AGENTS H AVE BANK ACCOUNTS, WHY ADVANCES IN CRORES SHOULD BE GIVEN IN CASH IS NOT KNOWN, IS A BIG QUESTION WHICH HAS NOT BEEN SATISFACTORILY REPLIED. IF ONE SEES CLAY TO DAY ACCOUNT OF THESE COMMISSION AGENTS TO WHOM ADVANCES IN CRORES HAS BEEN GIVEN, IT IS SEEN TH AT CASH IS GIVEN THOUGH THE COMMISSION AGENT HAS NOT FURNISHED BILLS FOR CASH IN LAKHS TAKEN BY HIM EARLIER. THIS IS BEYOND HUMAN PROBABILITY AND COMMON SENSE. THEREFORE, THE CLAIM THAT BALANCE OUTSTANDING IN ADVANCE AGAINST COMMISSION IN THE BALANCE SHEET IS NOT IN REALITY AND ADVANCE AGAINST COMMISSION CANNOT BE ACCEPTED MORE SO AS THE TRANSACTIONS ARE IN CASH WHICH IS SUSCEPTIBLE TO ACCOMMODATION/MANIPULATION. IN THIS CASE, TDS ASSESSMENT IS BEING DONE FOR FINANCIAL YEARS 2006 - 07 TO 2008 - 09, THEREFORE, T HE REQUEST OF AR TO CONSIDER TRANSACTIONS IN THE ADVANCE COMMISSION ACCOUNT FOR FINANCIAL YEAR'S SUBSEQUENT TO 2008 - 09 CANNOT BE ACCEPTED. THE SAME CAN BE CONSIDERED IF THE GENUINENESS OF TRANSACTIONS ARE PROVED. AS THE SAME HAS NEITHER BEEN VERIFIE D NOR PROVED, THE AR'S REQUEST IS PREMATURE AS FAR AS THIS ASSESSMENT IS CONCERNED. FROM THE BALANCE SHEET OF THE ASSESSEE , IT IS SEEN THAT THE ASSESSEE HAS GIVEN ADVANCE AGAINST COMMISSION WITHOUT DEDUCTION OF TAX AT SOURCE. BESIDES THE ADVANCE, THE ASSES SEE HAS ALSO CLAIMED EXPENDITURE UNDER THE HEAD COMMISSION. THE DETAILS OF 8 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE ADVANCE AGAINST COMMISSION AND THE EXPENDITURE UNDER THE HEAD COMMISSION' FOR VARIOUS YEARS ARE AS UNDER: S. NO. FINANCIAL YEAR OUTSTANDING ADVANCE AGAINST COMMISSION AS PER BAL ANCE SHEET EXPENDITURE CLAIMED UNDER THE HEAD COMMISSION AS PER PROFIT AND LOSS A/C. 1 2005 - 06 8,79,625 18,52,735 2 2006 - 07 28,96,194 108,23,534 3 2007 - 08 87,23,506 1,43,20,134 4 2008 - 09 2,74,94,441 5,07,07,372 FROM THE ABOVE, IT APPEARS THAT BESIDES THE EXPENDITURE CLAIMED UNDER THE COMMISSION, SUBSTANTIAL COMMISSION IS GIVEN IN ADVANCE. FROM THE DETAILS OF ADVANCES GIVEN FOR FINANCIAL YEARS 2007 - 08 ONWARDS REFERRED TO ABOVE, IT IS CLEAR THAT THE ADVANCE FOR FINANCIAL YEARS 2007 - 08 AND 2008 - 09 IS PUR ELY AN ADVANCE AGAINST COMMISSION ON WHICH THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE BUT THE SAME HAS NOT BEEN DONE. IN RESPONSE TO A QUERY IN THIS REGARD, IT IS THE PLEA OF THE AUTHORIZED REPRESENTATIVE THAT THERE IS NO TDS VIOLATION ON THE PART OF THE ASSESSEE AS TDS HAS BEEN DONE AT THE TIME OF ADJUSTMENT OF COMMISSION FROM THE ADVANCE ACCOUNT. FROM THE COPY OF ADVANCE ACCOUNT FOR THE PERIOD 1 - 4 - 2007 ONWARDS FURNISHED BY THE ASSESSEE, IT IS SEEN THAT ADJUSTMENT OF COMMISSION HAS BEEN DONE FROM THI S ACCOUNT. THE ASSESSEE HAS DEDUCTED TAX AT SOURCE AT THIS POINT OF TIME. HOWEVER, AT THE TIME OF ADJUSTMENT, THE ASSESSEE HAS REDUCED THE BALANCE IN THIS ACCOUNT. IN NORMAL COURSE, THE FIGURE OF THE ADVANCE SHOULD HAVE COME DOWN DRASTICALLY. HOWEVER, THA T IS NOT THE CASE AS SOME MORE ADVANCE WITHOUT TDS HAS BEEN GIVEN. THEREFORE, THERE IS NO MERIT IN ASSESSEE'S CONTENTION THAT THERE IS NO TDS VIOLATION. THE FACT IS THAT THAT THE ASSESSEE HAS GIVEN COMMISSION IN ADVANCE TO VARIOUS COMMISSION AGENTS WITHOUT DEDUCTION OF TAX AT SOURCE. AS PER THE PROVISIONS OF IT ACT 1961, THERE SHOULD BE DEDUCTION TAX AT SOURCE AT THE TIME OF CREDIT OR PAYMENT WHICHEVER IS EARLIER. IN THIS CASE, AS PAYMENT IS EARLIER, AND THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE FRO M THE ADVANCE COMMISSION, THERE IS A TDS VIOLATION. 9 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE 4. AT THE SAME TIME THE ASSESSING OFFICER REDUCED THE OPENING BALANCE S OF THE ADVANCE COMMISSION SHOWN IN THE BALANCE SHEET AND AS PER THE WORKING MADE FOR THE A.YS. 2008 - 09 AND 2009 - 10 , THE ASSESSING OFFICER HELD THAT TO THE EXTENT OF RS.58,27,312/ - AND RS.1,87,70,935/ - FOR THE A.YS. 2008 - 09 AND 2009 - 10 RESPECTIVELY , T HE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE. THE ASSESSING OFFICER, ACCORDINGLY, WORKED OUT THE TDS AT SOURCE OR RS.6 , 60,234/ - AND R S.21,26,747/ - FOR THE A.YS. 2008 - 09 AND 2009 - 10 RESPECTIVELY AND ALSO CHARGE THE INTEREST U/S. 201(1A) AND ACCORDINGLY RAISED THE DEMAND. IT IS PERTINENT TO NOTE HERE THAT THE COMMON ORDER WAS PASSED BY THE ASSESSING OFFICER U/S. 201(1) AND 201(1A) OF THE INCOME TAX ACT FOR THE F.YS. 2005 - 06, 2006 - 07, 2007 - 08 AND 2008 - 09 BUT IT APPEARS THAT THE A.YS. 2005 - 06 AND 2006 - 07 THE ASSESSEE DID NOT FILE THE APPEAL. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED ITS STAND THAT THE ADVANCE SHOWN AS COMMISSION WAS TO WARDS THE SALES PROMOTION, TRAVELLING EXPENSES AND OTHER THINGS AND IT WAS NOT TOWARDS COMMISSION. THE ASSESSEE FILED THE DETAIL REPLY WHICH IS ENTIRELY REPRODUCED BY THE LD. CIT(A) WHICH IS OCCUPYING THE MAJOR PART OF THE IMPUGNED ORDERS. THE LD. CIT(A) ALLOWED THE PLEA OF THE ASSESSEE THAT THERE WAS NO JUSTIFICATION TO HOLD THAT THE ASSESSEE WAS DEEMED TO BE IN DEFAULT U/S. 201(1) OF THE INCOME TAX ACT. THE LD. CIT(A) ALSO DELETED THE INTEREST CHARGED BY THE ASSESSING OFFICER U/S. 201(1A) OF THE ACT. THE SHORT REASONS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE, IT IS SEEN THAT THE MATTER OF PASSING ORDER U/S. 201(1)/201(1A) OF INCOME - TAX ACT HAS BEEN TAKEN UP BY THE DCIT(TDS) - 2, PUNE AT THE FAG END OF TIME BARRING PERIOD. WHILE SURVEY ACTION U/S. 133A FOR VERIFICATION OF TDS PROVISIONS WAS CARRIED OUT ON 26.02.20091 I FIRST NOTICE FOR COMPLETION OF ORDER U/S. 201(1)/201(1A) WAS ISSUED ON 11.03.2011 ASKING TH E APPELLANT TO EXPLAIN IT'S POSITION BY 16.03.2011 AND ORDER HAS BEEN PASSED ON 21.03.2011 WHICH WAS RECTIFIED TO BE 30.03.2011 VIDE ORDER U/S. 10 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE 154 OF INCOME - TAX ACT PASSED ON 09.05.2011. DUE TO DELAY IN TAKING UP THE MATTER VERY LATE, THE ENQUIRIES COULD NOT BE COMPLETED IN PROPER MANNER LEADING TO CONCLUSION ON THE BASIS OF HALF - BAKED ENQUIRIES. 9. FURTHER, THE DCIT(TDS) - 2, PUNE APPEARS TO HAVE BEEN CARRIED AWAY BY THE NOMENCLATURE OF THE A/C. KNOWN AS 'ADVANCE AGAINST COMMISSION WITHOUT ACT UALLY VERIFYING THE NATURE OF ACCOUNT AS CLAIMED BY THE APPELLANT. THE APPELLANT IN ITS SUBMISSION BEFORE DCIT(TDS) - 2, PUNE SUBMITTED THAT THOUGH THE A/C WAS NAMED AS ADVANCE AGAINST COMMISSION' BUT IN REALITY IT WAS WAS ADVANCE PAID TO COMM ISSION AGENTS FOR INCURRING EXPENSES ON BEHALF OF THE COMPANY LIKE PURCHASE OF LIVESTOCK, TRAVELLING AND OTHER INCIDENTAL EXPENSES. THE APPELLANT COMPANY FAIRLY ADMITTED BEFORE DCIT(TDS) - 2, PUNE THAT AT TIMES, COMMISSION WAS ADJUSTED AGAINST THE SAID ADV ANCE BUT IT WAS; ALSO SUBMITTED THAT AT THE TIME OF ADJUSTMENT, TDS ON GROSS AMOUNT OF COMMISSION WAS DEDUCTED. THE APPELLANT ALSO SUBMITTED THE LIST OF SUCH AGENTS AND THE AMOUNTS ADJUSTED BY THE COMPANY TOWARDS COMMISSION OUT OF SUCH ADVANCES ALONGWITH A PPROXIMATE DELAYS IN EACH CASE BETWEEN THE AMOUNT PAID AS ADVANCES AND THE DATE WHEN THEY, WERE FINALLY ADJUSTED AGAINST COMMISSION PAYABLE. AFTER GOING THROUGH THE ACCOUNTS J OF VARIOUS PARTIES IT IS SEEN THAT APART FROM; COMMISSION, THERE ARE CREDITS ON ACCOUNT OF TRAVELLING EXPENSES, MARKETING EXPENSES ETC. THIS BEING SO, ON THE BASIS OF TRANSACTIONS REFLECTED IN THE A/C., IT CANNOT BE SAID THAT IT IS AN EXCLUSIVE COMMISSION ACCOUNT THOUGH IT IS MAINTAINED AS 'ADVANCE AGAINST COM MISSION' ACCOUNT. HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG CO. LTD. VS. CIT (1991) 82 ITR 363(SC) HAS HELD THAT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT RELEVANT IN DECIDING THE TAXABILITY OF ANY ITEM. IT IS TRUE THAT HUGE ADVA NCES HAVE BEEN MADE BY THE APPELLANT COMPANY TO THE COMMISSION AGENTS IN THIS ACCOUNT WHICH DEFIES LOGIC BUT THAT IN ITSELF CANNOT LEAD TO ANY CONCLUSION. IN THIS CASE, IT IS CLEAR THAT ADVANCES HAVE BEEN MADE MUCH IN ADVANCE WHILE ADJUSTMENT OF COMMISSION HAS FOLLOWED. THIS BEING SO, THERE CANNOT BE ANY CASE OF DEFAULT U/S. 201(1) OF INCOME - TAX ACT AS TDS HAS BEEN CLAIMED TO HAVE BEEN DEDUCTED AT THE TIME OF ADJUSTMENT OF COMMISSION. THIS BEING SO, THE ONLY DEFAULT CAN BE ON ACCOUNT OF INTEREST U/S. 201( 1A) AS PAYMENT PRECEDES ACCRUAL OF COMMISSION. THIS BEING SO DEMAND 11 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE U/S. 201(1) OF INCOME - TAX ACT CANNOT BE UPHELD AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. THUS, THE APPELLANT GETS RELIEF OF RS.6,60,234/ - . THUS, GROUND NO. 1 TO 8 ARE AL LOWED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LD. DR VEHEMENTLY ARGUED THAT IT IS NOT CORRECT THAT THE ASSESSEE WAS ISSUED THE NOTICE AT THE FAG END OF THE YEAR AS ON 1 5 - 11 - 2010 THE LETTER WAS ISSUED TO THE ASSESSEE SEEKING THE EXPLANATION . HE ARGUES THAT THE ASSESSEE IS ALREADY BIFURCATED THE ADVANCES INTO DIFFERENT ACCOUNTS LIKE: (I). ADVANCE TO SUPPLIERS. (II). ADVANCE FOR EXPENSES. (III). ADVANCE FOR CAPITAL PURCHAS E. (IV). ADVANCE FOR BUSINESS ESTABLISHMENT MATERIAL ETC. A ND HENCE, THERE IS NO MERIT IN THE STAND OF THE ASSESSEE THAT ADVANCES ARE WRONGLY SHOWN UNDER THE HEAD ADVANCE FOR COMMISSION. HE SUBMITS THAT THE ASSESSEE HAS ADOPTED A PARTICULAR MODUS OPERANDI FOR AVOIDING TO DEDUCT THE TDS ON COMMISSION PAID TO ITS AGENTS BY USING THE DIFFERENT METHOD OF ACCOUNTING SHOWING THE SAME AS ADVANCES. HE SUBMITS THAT IN THE F.Y. 2009 - 10 , C RORES OF RUPEES ARE GIVEN AS ADVANCE S TO SOME COMMISSION AGENTS FOR PU RCHASES/EXPENSES AND A LL THESE ADVANCES ARE IN CASH. HE ARGUES THAT IN THE VERIFICATION IT WAS SEEN THAT CASH IS GIVEN THOUGH THE COMMISSION AGENT S HAVE NOT FURNISHED BILLS FOR CASH IN LAKHS TAKEN BY THEM EARLIER. HE SUBMITS THAT AS PER THE EXPLANATION F ILED BY THE ASSESSEE BEFORE THE LD. CIT(A) ALL THE COMMISSION WHICH IS SHOWN AS ADVANCE IS ADJUSTED SUBSEQUENTLY. HE ARGUES THAT IF THE LD. CIT(A) WAS OF THE OPINION THAT NO SUFFICIENT OPPORTUNITY WAS GIVEN TO THE ASSESSEE AS OBSERVED IN PARA NO. 8 OF THE IMPUGNED ORDER THEN 12 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE MATTER WOULD HAVE BEEN SET ASIDE TO THE ASSESSING OFFICER FOR BRINGING ALL THE FACTS ON RECORD. HE ARGUES THAT THE MODUS OPERANDI OF THE ASSESSEE IS SUSPICIOUS . HE PLEADED FOR RESTORING THE ORDER OF THE ASSESSING OFFICER. WE HAVE AL SO HEARD THE LD. COUNSEL, WHO REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 6. IN THIS CASE WE FIND THAT AS PER THE FACTS ON RECORD THE ASSESSEE HAS BR ANCHES THROUGHOUT INDIA AND IT IS CLAIMED THAT THE ASSESSEE IS TRADING IN LIVESTOCK, ANIMAL HUS BANDRY AND AGRICULTURE ETC. T HERE ARE DIFFERENT ADVANCE ACCOUNTS LIKE ADVANCE TO SUPPLIERS, ADVANCE FOR EXPENSES, ADVANCE FOR CAPITAL PURCHASE AND ADVANCE FOR BUSINESS ESTABLISHMENT MATERIAL ETC. WE DO NOT UNDERSTAND THEN WHY THERE IS A MISTAKE ON THE PA RT OF THE ASSESSEE AS CLAIMED THAT THE ADVANCE AGAINST COMMISSION IS A WRONG HEAD AS IN FACT THE SAID AMOUNT IS NOT A COMMISSION AT ALL. WE ALSO FIND THAT THE ASSESSEE FILED THE WRITTEN SUBMISSIONS BEFORE THE LD. CIT(A) HAVING THE DIFFERENT CONTENTIONS AN D IN A VERY SHORT REASONS WITHOUT COMMENTING ON THE FACTUAL MATRIX THE LD. CIT(A) BRUSHED ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 201(1) AND 201(1A) OF THE ACT. THE CORE CONTRARY WITH REMAIN TO BE PROPERLY RESOLVED. IN OUR OPINION WITHOUT BR INGING ALL THE RELEVANT AND MATERIAL FACTS ON RECORD, THE LD. CIT(A) HAS ALLOWED THE APPEALS FILED BY THE ASSESSEE. WE, THEREFORE, CONSIDER IT FIT TO RESTORE BOTH THE APPEALS TO THE FILE OF THE CIT(A) TO DECIDE THE SAME A S PER OUR FOLLOWING DIRECTIONS ( I) TO BRING ALL THE FACTS IN RESPECT OF BUSINESS MODEL OF THE ASSESSEE AND (II) WHO ARE PERSONS OR ENTITIES TO WHOM THE ADVANCES UNDER THE HEAD HUGE ADVANCE AGAINST THE COMMISSION ARE SHOWN AND WHAT ARE THE BUSINESS RELATIONS WITH THE ASSESSEE. THE LD. CI T(A) SHOULD CALL FOR THE REMAND REPORT OF THE ASSESSING OFFICER AFTER EXAMINING SOME OF THE PARTIES TO WHOM THE PAYMENTS HAVE GONE WHICH ARE DEBITED TO THE ADVANCE AGAINST COMMISSION. LASTLY, CIT(A) SHOULD BRING ENTIRE FACTS ON 13 ITA NO S. 1092 & 1093/PN/2013, SAM RUDDHA JEEVAN FOODS INDIA LIMITED, PUNE RECORD AND THEN TO DECIDE W HETHER THE ADVANCE COMMISSION SHOWN BY THE COMPANY LIABLE FOR THE TDS PROVISIONS U/S. 194H OF THE INCOME TAX ACT. WE, ACCORDINGLY, SET ASIDE THE ORDER OF THE LD. CIT(A) IN BOTH THE ASSESSMENT YEARS AND GROUND S TAKEN BY THE REVENUE ARE ALLOWED FOR THE STAT ISTICAL PURPOSES. NEEDLESS TO SAY THE LD. CIT(A) SHOULD GIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE PRINCIPLES OF NATURAL JUSTICE. 7. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR THE STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COUR T ON 14 - 0 8 - 201 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 14 TH AUGUST, 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - V, PUNE 4 THE CIT (TDS), PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE