M/s Raga Motor Pvt Ltd, Jalandhar V. Dy Commissioner of Income Tax, Jalandhar

ITA 11/ASR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5738 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-02-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 03-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA
• Assessee Lawyers: J S BHASIN
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 11/(ASR)/2017 AS SESSMENT YEAR: 2013-14 [PAN: AABCR 7790L] M/S. RAGA MOTORS P. LTD., PARAGPUR, GT ROAD, JALANDHAR. VS. DEPUTY CIT, CIRCLE-IV, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. J. S. BHASIN (ADV.) RESPONDENT BY: SH. RAJEEV GUBGOTRA (D.R.) DATE OF HEARING: 12.02.2018 DATE OF PRONOUNCEMENT: 16.02.2018 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, JALANDHAR ( 'CIT(A)', FOR SHORT) DATED 05.10.2016, PARTLY ALLOWING THE ASSESSEES APPEAL C ONTESTING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT', HERE INAFTER) DATED 12.10.2015 FOR ASSESSMENT YEAR (AY) 2013-14. 2. THE APPEAL RAISES TWO ISSUES, WHICH WE SHALL TAK E UP IN SERIATIM. THE FIRST RELATES TO DISALLOWANCE OF COMMISSION EXPENSES. VER IFYING THE ASSESSEES CLAIM FOR COMMISSION EXPENSES, CLAIMED AT RS. 15,21,434/-, IN VERIFICATION PROCEEDINGS UNDER THE ACT, IT FOUND BY THE ASSESSING OFFICER (A O) THAT THE SAME IS IN RESPECT OF ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 2 WHAT MAY BE TERMED AS REFERRAL COMMISSION, I.E., FO R REFERRING THE CUSTOMERS. THE ASSESSEE IS AN AUTHORIZED DEALER FOR MAHINDRA AND H ONDA VEHICLES, BOTH IN THE COMMERCIAL AND PERSONAL SPACE, AND WITH PAN INDIA A ND, IN FACT, INTERNATIONAL PRESENCE. THE COMMISSION WAS PAID IN SMALL AMOUNTS. ONE, MOHINI SHARMA, TO WHOM COMMISSION WAS ALLOWED AT RS. 3.40 LACS, WAS E XAMINED. SHE CONFIRMED REFERRING CUSTOMERS TO THE ASSESSEE COMPANY, AS WEL L AS HAVING RECEIVED COMMISSION, RANGING FROM RS. 1,000 TO 4,000 ON DIFF ERENT VEHICLES. THE COMMISSION WAS FOR REFERENCE ONLY, SO THAT IT WAS N OT CONDITIONAL ON THE SALE FRUCTIFYING. SHE HAD BEEN WORKING WITH KOTAK MAHIND RA UP TO THE YEAR 2010, AND HAD DEVELOPED CONTACTS, WHO - OR PERSONS THROUGH TH EM, CONTACTED HER, AND WHICH WERE IN TURN REFERRED BY HER TO THE ASSESSEE-COMPAN Y. THE COMMISSION HAD BEEN DULY RETURNED BY HER TO THE REVENUE, BEING HER ONLY SOURCE OF INCOME, EVEN AS SHE CLARIFIED TO BE NOT MAINTAINING ANY OFFICE OR BUSIN ESS ESTABLISHMENT. THE SAME DID NOT FIND FAVOUR WITH THE AO, WHO MADE A DISALLOWANC E FOR RS. 5 LACS, WHICH WAS, WHILE AGREEING WITH HIM IN PRINCIPLE, RESTRICTED BY THE LD. CIT(A) TO RS. 1.50 LACS. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND LITTLE MERIT IN THE ASSESSEES - WHO HAS I N OUR VIEW BEEN ALLOWED SUBSTANTIAL RELIEF BY THE LD. CIT(A), CLAIM. THE RE NDERING OF SERVICE, FOR WHICH COMMISSION IS ALLOWED, REMAINS COMPLETELY UNPROVED. THAT APART, IF AN EX- EMPLOYEE OF A FINANCE COMPANY COULD REFER CUSTOMERS , WHY WOULD NOT THE CURRENT EMPLOYEES OF THE SAME OR EVEN DIFFERENT COMPANIES, SEVERAL OF WHICH OPERATE IN THE MARKET, I.E., IN THE AUTO FINANCE SEGMENT, DO SO. T HE ASSESSEE IS SELLING STANDARDIZED PRODUCTS, WITH TRAINED STAFF, WELL-VERSED WITH DIFF ERENT MODELS OF THE VEHICLES BEING SOLD AS WELL AS WITH THAT IN COMPETITION, SO AS TO PROPERLY EDUCATE AND ENGAGE WITH THE CUSTOMERS AND, THUS, MARKET THE SAME. THE MARKE T BEING A FAST CHANGING ONE, WITH NEW MODELS BEING LAUNCHED ON A REGULAR BASIS, SHE MAY NOT EVEN BE AWARE OF ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 3 THE MODELS CURRENTLY IN VOGUE. NO WONDER, THE PRICE S KNOWN TO HER WERE OF THE MODELS SOLD IN 2010. BUYING A VEHICLE, A CAPITAL ASSET, WITH LONG TERM I MPLICATIONS, IS ORDINARILY A RESULT OF AN INFORMED DECISION. A CUSTOMER INTENDIN G TO PURCHASE A VEHICLE WOULD VISIT AN AUTO DEALER DIRECTLY, AND ON THE BASIS OF DISCUSSIONS, INCLUDING DEMONSTRATION, AS WELL AS OTHER RELEVANT FACTORS, V IZ. PAST EXPERIENCE, REPUTATION OF THE MANUFACTURER, ETC., TAKE A DECISION, ALSO CO-OP TING THE INFORMATION GATHERED FROM OTHER SUCH DEALERS OF THE SAME OR DIFFERENT MA NUFACTURERS, I.E., AS PER HIS NEEDS AND BUDGET. WHY, THEN, WOULD A PERSON CONTACT ANOTHER, AS MOHINI SHARMA, OR OTHERS (TO WHOM COMMISSION HAS BEEN PAID), WHO W OULD IN TURN ONLY REFER HIM AN AUTO DEALER. NO PERSONALIZED; RATHER, COGNIZABLE SERVICE IS INVOLVED, FOR A CUSTOMER TO APPROACH A THIRD PERSON FOR A REFERENCE . THERE IS NO VALUE ADDITION FOR THE CUSTOMER AND, IN FACT, EVEN FROM THE STANDPOINT OF THE DEALER SO AS TO INCUR ANY COST FOR THE SAME. IN FACT, THE MARKET BEING FIERCE LY COMPETITIVE, AS ADMITTED BY THE ASSESSEE ITSELF IN THE CONTEXT OF ANOTHER ISSUE, IT IS INCOMPREHENSIBLE THAT COMMISSION IS PAID MERELY FOR REFERENCE, I.E., EVEN IF DID NOT RESULT IN ANY SALE. THE ASSESSEES CLAIM IS COMPLETELY UNSUBSTANTIATED AND UNPROVED. THE DISALLOWANCE IS ACCORDINGLY CONFIRMED. WE DECIDE ACCORDINGLY. 4. THE SECOND ISSUE RELATES TO THE ESTIMATION OF TH E ASSESSEES INCOME FROM ITS TWO WORKSHOPS, ALSO BEING RUN BY IT, I.E., IN ADDIT ION TO ITS DEALERSHIP (TRADING) BUSINESS, AND IN RESPECT OF WHICH THE ASSESSEE IS N OT MAINTAINING ANY SEPARATE BOOKS OF ACCOUNT. THE ASSESSEES ACCOUNTS REFLECTIN G A TURNOVER OF RS. 1.72 CR. IN RESPECT OF THE WORKSHOP BUSINESS (OUT OF THE TOTAL TURNOVER AT RS. 132 CR.), IT WAS REQUIRED BY THE AO TO INFORM OF THE PROFIT OF THE S AID (SERVICE) BUSINESS AS DISCLOSED PER ITS BOOKS OF ACCOUNT. THE ASSESSEE FU RNISHED A DETAIL OF THE EXPENSES, ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 4 NOTING THE EXPENDITURE WHICH RELATED SPECIFICALLY T O THE WORKSHOP (PB PGS. 38-39). ON THE BASIS OF THE SAME, THE AO WORKED OUT THE INC OME FROM THE WORKSHOP BUSINESS AT A LOSS, I.E., AFTER INCLUDING THE PROPO RTIONATE SHARE OF RENT, ELECTRICITY, REPAIR, ETC., I.E., OVERHEAD EXPENSES. FURTHER, THE ASSESSEES METHOD OF ACCOUNTING FOR VARIOUS RECEIPTS AND EXPENDITURE OF THIS BUSINE SS WAS EXAMINED BY HIM TO FIND IT AS DEFICIENT IN SEVERAL RESPECTS. THE ACCOUNTS O F THE SAID BUSINESS WERE THEREFORE IN HIS VIEW NEITHER COMPLETE NOR CORRECT SO AS TO B E CONSIDERED AS RELIABLE FOR DETERMINATION OF THE ASSESSEES CORRECT INCOME ARIS ING FROM THE SAID BUSINESS. HE ESTIMATED THE INCOME THERE-FROM AT 8% OF THE EXPEND ITURE INCURRED AND, ACCORDINGLY, MADE ANY ADDITION FOR RS. 15 LACS. THE LD. CIT(A), IN APPEAL, FOUND THAT WHILE THE ASSESSEE WAS ABLE TO EXPLAIN SOME AS PECTS, IT COULD NOT SATISFACTORILY EXPLAIN THE BALANCE, SO THAT HE ALLOWED RELIEF TO T HE EXTENT OF RS. 10 LACS, CONFIRMING THE BALANCE RS. 5 LACS. AGGRIEVED, THE A SSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AT THE VERY OUTSET, IT WAS OBSERVED (AND QUESTIONE D) BY THE BENCH THAT THE LD. CIT(A) HAVING CONFIRMED 1/3 OF THE ADDITION MADE BY THE AO, HAD AFFECTIVELY ASSESSED THE WORKSHOP INCOME AT LESS THAN 3% (2.67% , TO BE PRECISE) OF EXPENDITURE. THIS WOULD WORK TO AN EVEN LOWER FIGUR E WHEN RECKONED ON GROSS RECEIPT (TURNOVER) BASIS, I.E., AT 2.60% (2.67/102. 67X100). HOW COULD THAT BE REGARDED AS EXCESSIVE OR HIGHER? DOES THE ASSESSEE THEREFORE MEAN TO SAY THAT THE PROFITABILITY OF ITS SERVICING BUSINESS IS LOWER T HAN 2.6%? THE LD. AR WOULD REPLY BY STATING THAT THE AOS WORKING IS WRONG, AND THAT THE ASSESSEE HAD IN FACT EARNED A PROFIT ON THE SAID BUSINESS, AS AGAINST A LOSS, A S WORKED OUT BY THE AO. HOWEVER, NEITHER BEFORE THE AO NOR EVEN BEFORE THE LD. CIT(A ) DID THE ASSESSEE FURNISH ITS WORKING OF THE SAID BUSINESS, WHICH IT CLAIMS BEFOR E US TO DISCLOSE A PROFIT AS PER ITS BOOKS OF ACCOUNT. THE ONUS, WHERE SO, WOULD THEN SH IFT TO THE REVENUE TO SHOW AS ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 5 TO WHAT INFIRMITY INFLICTS THE SAID WORKING. FURTHE R, IF THE ASSESSEE WAS NOT CLEAR ABOUT THE AOS WORKING, AS CLAIMED BEFORE US, WHAT PREVENTED IT FROM THE REQUIRING THE AO, OR EVEN THE FIRST APPELLATE AUTHORITY, TO F URNISH THE SAME? THE QUESTION, HOWEVER, AS WE DISCERN, AND AS OBSER VED BY THE BENCH DURING HEARING, IS NOT THE RATIO OF THE PROFIT, BUT IF THE RE ARE ANY DISCREPANCIES IN THE ASSESSEES ACCOUNTS, MAKING THEM UNRELIABLE, WHICH WOULD ENTITLE THE AO TO MAKE AN ESTIMATED ADDITION IN RESPECT OF THE UNDER-REPOR TING OF INCOME. TOWARD THIS, THE LD. AR WAS REQUIRED TO FURNISH AN EXPLANATION OR EX HIBIT FROM ITS RECORDS THE FOLLOWING AREAS OF ACCOUNTING FOUND DEFICIENT BY TH E REVENUE, AS GATHERED FROM THE DETAILED SUBMISSIONS BY THE ASSESSEE BEFORE, AS WEL L AS THE ORDERS BY, THE REVENUE AUTHORITIES, ALSO REPRODUCING THE SAME, AND WHICH W ERE EXTENSIVELY READ OUT DURING THE COURSE OF HEARING: [[[[ A) VERACITY OF THE CLAIM OF EXPENDITURE ON PAINT CO NSUMED. THE ASSESSEE AS PER THE AO HAD CLAIMED THE SAME AT RS. 59.09 LACS, WHILE IT HAD ADMITTEDLY RECEIVED A REBATE FOR RS. 11.41 LACS, SO THAT THE PAINT CONSUM PTION COULD NOT POSSIBLY EXCEED 47.68 LACS. IN THIS REGARD, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE OPENING AND CLOSING STOCK OF PAINT, ALONG WITH ITS VALUATION. B) THE TOTAL SALVAGE VALUE DEDUCTED BY THE INSURANC E COMPANY (NATIONAL INSURANCE CO. LTD.) WHILE SETTLING THE INSURANCE CLAIMS LODGE D DURING THE YEAR. AS, HOWEVER, THE LD. AR EXPLAINED THAT THE SHORTFALL ON ACCOUNT OF SALVAGE WAS RECOVERED BY THE ASSESSEE FROM THE CUSTOMERS ITSELF, WHICH THOUGH DI D NOT FIND MENTION IN THE ASSESSEES SUBMISSION BEFORE THE REVENUE, THE ASSES SEE WAS REQUIRED TO EXHIBIT THE SAME. C) THE JOB WORK ACCOUNTING, SO THAT THE VARIOUS SPA RES USED FOR A PARTICULAR JOB, ARE PROPERLY CHARGED THERETO AND, ACCORDINGLY, BILLED. D) SALE OF USED OIL/LUBRICANTS, WHICH ARE GENERALLY SOLD TO INDUSTRIAL UNITS/FURNACES. THE LD. AR WOULD, ON THE NEXT DATE OF HEARING, I.E ., 12.02.2018, BEGIN BY STATING THAT THE IMPRESSION THAT THE ASSESSEE HAD I NCURRED A LOSS ON WORKSHOP ACCOUNT IS NOT BASED ON FACTS. TAKING US THROUGH TH E INFORMATION FURNISHED DURING ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 6 ASSESSMENT PROCEEDINGS (PB PGS. 38,39), HE WOULD ST ATE THAT THE SAME WAS MERELY INDICATIVE, AND DID NOT REPRESENT A PROPER WORKING SO AS TO COMPUTE THE PROFIT OF THE TWO BUSINESS SEGMENTS. IN FACT, THE TURNOVER OF THE WORKSHOP BUSINESS IS RS. 712.97 LACS IN-AS-MUCH AS THE FIGURE OF RS. 172.58 LACS (THE TURNOVER STATED EARLIER) DOES NOT INCLUDE THE SALE OF SPARE PARTS, WHICH IS AT RS. 542.51 LACS. THE ASSESSEE HAS NOW PREPARED A CHART APPORTIONING THE OVERHEAD EXPENDI TURE ON THE BASIS OF TURNOVER, I.E., AFTER ALLOCATION OF DIRECT EXPENDIT URE, AND WHICH REFLECTS THE PROFIT OF THE WORKSHOP SEGMENT AT RS. 18.72 LACS, FURNISHING A NEW SET OF PAPERS (MARKED PB II, AT PAGES 18, 19). COMING TO THE SPECIFIC OBJECT IONS WHICH HAD REMAINED UNADDRESSED, AND SPECIFICALLY CALLED FOR BEING ADDR ESSED BY THE BENCH, HIS SUBMISSIONS WERE AS FOLLOWS: [ A) OPENING AND CLOSING INVENTORY OF CONSUMABLE STOR ES, WHICH INCLUDES PAINT MATERIAL, WAS FURNISHED (PB II, PGS. 2-5). FURTHER, THE REBATE AVAILED ON PAINT MATERIAL STANDS CREDITED TO THE CONSUMABLES STORES ACCOUNT, SO THAT THE CONSUMPTION OF THE PAINT MATERIAL IS AT RS. 47.68 LACS (AND NOT RS. 59.27 LACS), EVEN HAS CLARIFIED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS ITSEL F VIDE ITS LETTER DATED 12.10.2015 (VIDE PARA 16(E), AT PB PAGE 51). B) THAT THE SALVAGE VALUE DEDUCTED BY THE INSURANCE COMPANY, AND MADE GOOD BY RECOVERING THE SAME FROM THE CUSTOMER (WHOSE VEHICL E IS UNDER REPAIR), WAS SHOWN TO US WITH REFERENCE TO A SAMPLE BILL (INS 18D00012 4, DATED 15.09.2017) FOR RS. 90,545, AS WELL AS THE CORRESPONDING LEDGER ACCOUNT (OF THE CUSTOMER) (PB II, PGS. 6-8). THE ASSESSEE HAS BEEN FOLLOWING THE SAME ACCO UNTING PROCEDURE FROM YEAR TO YEAR. FURTHER, THE PASSING OF THE JOURNAL ENTRY IN RESPECT OF THE JOB WORK (PB II, PAGE 6), CREDITING THE ACCOUNT OF THE INSURANCE COM PANY (WITH SIMULTANEOUS DEBIT TO THE ACCOUNT OF THE CUSTOMER), AND NOT DIRECTLY T O THE SALE ACCOUNT, WAS WITH A VIEW TO ENABLE THE TRANSFER OF THE GST TO THE INSUR ANCE COMPANY. C) THE SALE BILL AFORE-REFERRED ITSELF SHOWS PROPER ACCOUNTING IN RESPECT OF THE SPARE PARTS IN-AS-MUCH AS IT CLEARLY REFLECTS ITS CONSTI TUENTS, BEING SALE OF SPARE PARTS (RS. 77,544); LABOUR CHARGES (RS. 3,575); AND GST (RS. 9 ,426). THE SPARE PARTS GET ALLOCATED TO A PARTICULAR JOB ON THE BASIS OF A JOB CARD (PB II, PAGE 20), AND ARE ACCORDINGLY BILLED TO THE CUSTOMER ON THE COMPLETIO N OF THE JOB. ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 7 D) SALE OF USED OIL IS COLLECTED IN DRUMS AND SOLD AT INTERVALS OF TIME, I.E., AS AND WHEN A DRUM - IN WHICH THE SAME IS COLLECTED, GETS FILLED UP, TAKING US THROUGH SALE INVOICES, VIZ. NO. 7, DATED 11.08.2012 AND NO. 2, D ATED 19.05.2012, AT PB PAGES 70, 71), REFLECTING SALE OF USED OIL DRUM FOR RS. 4 778 AND RS. 7985 RESPECTIVELY. THE SAME, UPON, QUERY, IT WAS EXPLAINED, IS CREDITE D TO THE SALE OF SPARE PARTS. WE ARE, ON BALANCE, SATISFIED WITH THE EXPLANATION S (INCLUDING THE CORROBORATIVE MATERIAL) FURNISHED BY THE ASSESSEE ( THROUGH THE LD. AR) IN RESPECT OF THE QUERIES RAISED QUA THE ACCOUNTING OF THE JOB WORK SEGMENT OF THE ASSE SSEES BUSINESS. WE ARE, HOWEVER, UNABLE TO APPRECIATE AS TO HOW THE SALE OF USED OIL IS, AS CLAIMED, CREDITED TO THE SALE OF SPARE PARTS INASMU CH AS THERE IS NO PURCHASE THEREOF (USED OIL). HOWEVER, WHERE CREDITED TO A SALE ACCOU NT, THE SAME, IRRESPECTIVE OF THE ACCOUNT HEAD, GETS CREDITED TO THE PROFIT & LOSS AC COUNT, SO THAT THE SAME IS IN ORDER. THE TOTAL SALE FOR THE RELEVANT YEAR, AS APP EARS FROM THE SALE BILLS ENCLOSED IN THE PAPER-BOOK (PB PGS. 69-72), IS FOR RS. 28,444/- . THE REVENUE HAS NOT DOUBTED THE SALE VOLUME THEREOF, MAKING AN INFORMED ESTIMAT E OF THE SALE THAT OUGHT TO HAVE MATERIALIZED. UNDER THE CIRCUMSTANCES, THEREFORE, S UBJECT TO THE SAID AMOUNT BEING CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEA R, NO INTERFERENCE WITH THE PROFIT (OF THE WORKSHOP BUSINESS) AS DISCLOSED PER THE ASS ESSEES ACCOUNTS IS CALLED FOR. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 16, 2018 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 16.02.2018. /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: RAGA MOTORS P. LTD. ITA NO.11 (ASR)/2017(AY 2013-14) RAGA MOTORS P. LTD. V. DY. CIT 8 (2) THE RESPONDENT: DY. CIT CIRCLE-IV, JALANDHA R. (3) THE CIT(A)-2, JALANDHAR. (4) THE CIT CONCERNED. (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER