Rohanna Agri Ltd, Pune V. Deputy Commissioner of Income tax, Pune

ITA 1173/PUN/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2955 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: ANITA RAMDASI; PRANAV V KHANVALKAR
• Keywords: Business expenditure; Principle of natural justice; Additional evidence; TDS; Set aside
• Section: 13; 131; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY , JM . / I TA NO. 1173 /PUN/20 17 / ASSESSMENT YEAR : 2013 - 14 ROHANNA AGRI LTD. 1A, SHRIKRISHNA KRISHNAKEVAL TOWNSHIP, KONDHWA KHURD, PUNE - 411 048. PAN : AAACR8133J ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 5, PUNE. / RESPONDENT A SSESSEE BY : MS. ANITA RAMDASI & SHRI PRANAV V KHANVALKAR REVENUE BY : SHRI S.P. WALIMBE / DATE OF HEARING : 12 .0 3 .2020 / DATE OF PRONOUNCEMENT : 12 .03 .2020 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEALS) - 4, PUNE DATED 03.01.2017 FOR THE ASSESSMENT YEAR 2013 - 14 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD: 2 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON. CIT(A) - 4, PUNE ERRED IN CONFIRMING THE TOTAL INCOME ASSESSED BY THE LD. AO AT RS.86,13,540/ - AS AGAINST THE TOTAL INCOME DECLARED BY THE ASS ESSEE IN ITS INCOME TAX RETURN AT RS.39,38,920/ - . 2. THE HON. CIT(A) - 4, PUNE ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO REGARDING THE COMMISSION EXPENSES PAID BY THE ASSESSEE TO ITS GROUP COMPANIES TO THE EXTENT OF RS.46,74,617/ - U/S.37 OF TH E INCOME TAX ACT, 1961. 3. THE ASSESSEE REQUESTS FOR ADMISSION OF ADDITIONAL EVIDENCES IF ANY REQUIRED FOR JUSTIFYING ITS CASE. 4. THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF H EARING. 2. IN THIS CASE, FACTS ARE THAT HUGE COMMISSION EXPENSES WERE PAID BY THE ASSESSEE TO CERTAIN COMPANIES I.E. (I) IMT TECHNOLOGIES LIMITED (II) RANADEY MICRO FERTILIZERS PRIVATE LIMITED AND (III) RANADEY TECH PRIVATE LIMITED. IT IS THE CONTENTION OF THE ASSESSEE THAT THIS COMMISSION IS REQUIRED TO BE PAID TO THESE ENTITIES SINCE THEY ARE THE PERSONS WHO ARE EDUCATING THE VILLAGE RS/FARMERS REGARDING HAVING USE OF THE PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY AND BECAUSE OF WHICH, THERE IS A BOO ST TO THE SALES OF THE ASSESSEE COMPANY AND THER EFORE, THE COMMISSION PAYMENT I S JUSTIFIED. 3. ON THE OTHER HAND, THE CONTENTION OF THE REVENUE IS THAT THIS COMMISSION IS NOTHING BUT BOGUS COMMISSION JUST TO INFLATE THE EXPENSES OF THE ASSESSEE COMPANY A ND REDUCE THE PROFIT IN ORDER TO AVOID PAYING TAXES. THEREFORE, THIS IS A COLORABLE DEVICE TO DEFRAUD THE GOVERNMENT FROM THE REVENUE WHICH IT IS ENTITLED TO RECEIVE FROM THE ASSESSEE. 4. T HE FACTS AS DEMONSTRATED IN THE ORDER OF THE ASSESSING OFFICER, T HE RELEVANT PARAS ARE AS FOLLOWS: 15.13 AS PER THE RETURN, DR. S.S. RANADEY AND DR. V.S PUROHIT ARE COMMON DIRECTORS IN ROHANNA AGRI LTD. , IMT TECHNOLOGIES, RANADEY, 3 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 MICRO FERTILIZERS PVT. LTD. AND RANADEY TECH PVT. LTD. FURTHER, DR. S.S. RANADEY HAS SIGN ED THE ITRS FOR ALL THE ABOVE MENTIONED COMPANIES IN ALL THE RECENT YEARS. THERE IS NO TRUTH IN THE COMMENT OF THE AR THAT DR. S.S. RANADEY IS NOT THE PRINCIPAL OFFICER. 15.14. THIS WAY THE ASSESSEE IS PUTTING WRONG FACTS BEFORE THIS OFFICE THE DISALLOWANCE OF THE COMMISSION E XP E N SES . WHEN THIS OFFICE HAD ISSUED SUMMONS I N THE NAME OF THE COMPANIES, W HO APPEA R ED FOR THE SUMMONS ALSO NEED TO BE SEEN. IN IMT TECHNOLOGIES PVT LTD, A N D RANADEY TECH PVT LTD, DR VASANTI PUROHIT ATTENDED. IN R ANADEY MICRONUTRIENTS PVT LTD, MRS S H NAIR APPEARED . MRS NAIR STA T ED IN H ER STATEMENT RECORDED U/S 131 STATED THAT SHE RECEIVES S ALARY FROM R O H ANNA AGR I LTD . IN RTPL, DR V S PUROHIT APPEARED. DR V. S PUROHIT S TATED IN HER STATEMENT RECORDED U/S . 131 STATED THAT SHE RECEIVES SALARY FROM RTPL IN HER STATEMENT BUT IN REALITY SHE RECEIVED THE SALARY FRO M ROHANNA AGRI LTD. DURING F.Y. 2012 - 13 WHICH IS EVIDENT FROM THE FORM 3CD OF THE ASSESSEE COMPANY. 15.15 THE CORPORATE ADDRESS AND ADDRESS ON THE ITR OF RANADEY MIRCRO FERTILIZERS PVT. LTD. (RMFPL) IS SAME AS THAT OF THE ASSESSEE. SIGNATORY ON THE ITR RMFPL IS DR. S.S. RANADEY, SIGNATORY ON THE BALANCE SHEET OF RMFPL IS ALSO DR. S.S RANADEY. ITS TDS OF RS.83,291/ - WAS MADE BY THE ASSESSEE COMPANY AND REFUND WAS OF RS.83,291/ - . 15.16 AS PER THE ASSESSEE THE ENTIRE MAHARASHTRA AND GUJARAT REGION HAS BEEN ALLOTTED FOR THE MARKETING ACTIVITIES. IT IS SEEN THAT FROM THE SUBMISSION OF THE ASSESSEE COMPANY THA T NONE OF THE STAFF OF THE IMT TECHNOLOGIES PVT LTD SITS IN ANY OF THE MAHARASHTRA OFFICE NOR IT HAS ANY OF THE INFRASTRUCTURAL FACILITY IN MAHARASHTRA EXCEPT R & D LABORATORY. THE PURPOSE OF LABORATORY IS R & D AND' NOT MARKETING. THE COMMISSION IS GIVEN NOT FOR R & D BUT FOR MARKETING OR LIASONING SERVICES, R & D AND MARKETING ARE COMPLETELY DI FFERENT ACTIVITIES AND SERVICES . THE PERSONNEL FOR BOTH THESE SERVICES CAN'T BE INTERCHANGEABLE. THE ASSESSEE. KEPT ON JUSTIFYING THAT IT HAS OFFICES IN BANGALORE A ND PUNJAB AND LABORATORY AT PUNE, WHICH HAS NO RELEVANCE TO THE SPECIFIED AND SPECIALIST JOB OF MARKETING IN THE MAHARASHTRA REGION AS THE ASSESSEE HAS GIVEN COMMISSION TO IMT TECHNOLOGIES FOR THE MAHARASHTRA REGION. 15.17 THE RENT AGREEMENT OF RTPL CLEA RLY SHOW THAT THE PREMISES ARE INDUSTRIAL SHADES AND ARE USED FOR PROCESSING OF AROMA OILS. ONE AGREEMENT MENTIONS THAT RTPL NEEDS THAT SPACE FOR THE SITE OFFICE AT VILLAGE MARGASANI, TALUKA VELHE, PUNE. HAVING ONE CORPORATE OFFICE AT PUNE, DOESN'T MAKE ANY SENSE THAT THE SITE OFFICE IN THE SAME DISTRICT WILL INCREASE THE MARKETING OUTREACH. THE BANK STATEMENT FOR RTPL DOESN'T SHOW ANY OF THE DEBITS TO MR VELANKAR FROM WHOM A LAND AND A SHE D WERE TAKEN ON HIRE. FURTHER THE BALANCE SHEET DOESN'T SHOW THE RE NTAL EXPENSES OF THOSE TWO LANDS AND ONE SITE OFFICE. 4.1 FURTHER, THE ASSESSING OFFICER ALSO OBSERVED AS FOLLOWS: T HE QUESTION HERE ARISES WHETHER THERE IS EFFECTIVE TAXATION IS THERE OR N OT . IF THE EXPENSES ARE SHIFTED TO RELATED COMPANIES AND THEY ARE PAYING TAX AT THE SAME RATE AND THERE IS NO LOSS TO THE EXCHEQUER, THE POSITIVE VIEW IS ADOPTED. BUT THE PRESENT CASE DOESN'T FALL IN THAT CATEGORY. THE EXPENSES ARE SHIFTED TO THE RELATED CON CERN WHICH HAVE EITHER LOSS OR VERY 4 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 LESS TOTAL INCOME AND THE TAX PAYABLE IS EITHER NIL OR LESS. THIS WAY THE TAX IS NOT PAID, INSTEAD OF THAT THE REFUND HAS BEEN TAKEN AWAY OUT OF THE TDS MADE BY THE ASSESSEE COMPANY . 18. THUS, IT IS EVIDENT THAT THE ISS UES AND FACTS ON WHICH THE HONBLE SUPREME COURT PRONOUNCED ITS JUDGMENT ARE NOT APPLICABLE TO THE PRESENT CASE. THE DEPARTMENT DO NOT HAVE ANY SAY AS TO HOW THE COMPANY SHOULD MAKE THE EXPENDITURE. BUT WHEN THE GENUINENESS AND FOR THE PURPOSE OF THE BUSIN ESS IS CHECKED, THE ASSESSEE COMPANY SHOULD BE TABLE TO PRODUCE THE EVIDENCES TO PROVE THE SAME. FURTHER, THE ASSESSEE COULD NOT PRODUCE THE EVIDENCES BASED ON WHICH IT COULD BE ACCEPTED THAT THE COMMISSION WORK WAS ACTUALLY CARRIED OUT BY THE THREE RELATE D COMPANIES. 19. IN CONCLUSION, THE SHIFTING OF THE COMMISSION EXPENSES TO GROUP COMPANIES WHICH ARE NOT HAVING INFRASTRUCTURE, SKILLED MANPOWER, VEHICLES OFFICE IN THE AREAS IN WHICH THEY ARE ALLOTTED MARKETING WORK, AND SPECIFICALLY HAVING COMMON WORKIN G PERSONNEL AND CONTROLLING DIRECTORS, IT IS A COLOURABLE DEVICE TO INFLATE THE EXPENSES OF THE ASSESSEE COMPANY. BASED ON THE ABOVE DISCUSSION, IT IS CONCLUDED THAT THE EXPENSES ON ACCOUNT OF COMMISSION WORK HAVE NOT BEEN MADE BY THE ASSESSEE FOR THE PUR POSE OF THE BUSINESS AND NOT ALLOWABLE U/S.37 OF THE ACT. THEREFORE, AMOUNT OF RS.46,74,617/ - IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. THEREAFTER, ON THE ISSUE, THE LD. CIT(APPEALS) HELD AS FOLLOWS: 6.3 DECISION: I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT AS ABOVE CAREFULLY. I FIND THAT AO HAS DISALLOWED THE EXPENSES OF RS.46,74,617/ - AS COMMISSION PAID TO ASSOCIATE COMPANIES AND ADMISSIBLE AS EXPENDITURE U/S.37 BY INTERPRETING THE EXPEN DITURE TO BE UNJUSTIFIABLE AND NOT ALLOWABLE U/S.37 AND RIGHTLY SO. SECTION 37 STATES THAT IT MUST NOT BE EXPENDITURE WITH A VIEW TO AVOID TAX LIABILITY WITHOUT ANY GENUINE PURPOSE OR REASON IN GOOD FAITH. THE AO HAS RIGHTLY OBSERVED THAT THE PRIMARY ACTIV ITIES OF GROUP COMPANIES ARE DIFFERENT THAN THAT OF THE MARKETING ACTIVITIES FOR WHICH COMMISSION IS PAID BY APPELLANT TO GROUP COMPANIES. FURTHER, THE LAND/PREMISES USED BY THE GROUP COMPANIES HAVE NO NEXUS WITH THE MARKETING ACTIVITIES. THE CONTROLLING P ERSONS OF ALL THESE COMPANIES ARE SAME AND THE EVIDENCES OF EXPENSES WHICH THE APPELLANT HAS SHOWN WITH RESPECT TO THREE RELATED COMPANIES ARE INCORRECT AS THE APPELLANT COMPANY COULD NOT PRODUCE THE EVIDENCES BASED ON WHICH IT COULD BE ACCEPTED THAT THE C OMMISSION WORK WAS ACTUALLY CARRIED OUT BY THE THREE RELATED COMPANIES. I FIND THAT THE EXPENSES ARE SHIFTED TO THE RELATED CONCERNS WHICH HAVE EITHER LOSS OR VERY LESS TOTAL INCOME AND THE TAX PAYABLE IS EITHER NIL OR LESS. THIS WAY TAX IS NOT PAID INSTE AD REFUND HAS BEEN TAKEN AWAY OUT OF THE TDS MADE BY THE APPELLANT. RELIANCE HAS BEEN PLACED IN THE CASE LAW SASSON J. DAVID AND CO. PVT. LTD. VS. CIT(SC) WHEREIN IT HAS BEEN STATED THAT THE FACT THAT SOMEBODY OTHER THAN THE ASSE SSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE W AY OF DEDUC TION, IF IT SATISFIES OTHERWISE THE TEST LAID DOWN BY LAW . HOWEVER, THE CASE LAW IS RELATED TO THE BUSINESS EXPENDITURE RELATED TO RETRENCHMENT COMPENSATION AND THEREFORE, THE ISSUES AND FACTS ON WHICH T HE HONBLE SUPREME COURT PRONOUNCED IT JUDGMENT ARE NOT APPLICABLE TO THE PRESENT CASE. THE APPELLANT HAS ALSO SUBMITTED THAT THE CONTRACT WITH THE AFORESAID GROUP COMPANIES FOR PAYMENT OF SUCH COMMISSION FOR TECHNICAL MARKETING 5 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 SERVICES RENDERED HAS BEEN IN FORCE FOR FINANCIAL YEARS 2010 - 11 AND 2011 - 12 ( ASSESSMENT YEARS 2011 - 12 AND 2012 - 13) AS WELL AND DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE SAID YEARS, THE EXPENDITURE HAS BEEN ALLOWED BY THE RESPECTIVE LEARNED ASSESSING OFFICERS. SINCE E ACH ASSESSMENT YEAR IS SEPARATE IN ITSELF, FACTS NEEDS TO BE VERIFIED. HENCE, IN THE ABSENCE OF ANY PLAUSIBLE REASONS, I AM NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE AO. GROUND NO.2 RAISED BY THE APPELLANT IS ACCORDINGLY DISMISSED. 6. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO ANALYZED THE FACTS AND CIRCUMSTANCES IN THIS CASE. WE HAVE ALSO CONSIDERED THE JUDICIAL PRONOUNCEMENTS RELIED ON BY THE ASSESSEE. AS PER THE FACTS ON RECORD , THE ASSESSING OFFICER OBSER VED THAT THESE PAYMENT S OF COMMISSION IS NOT JUSTIFIABLE AND IT IS NOTHING BUT INFLATION OF EXPENSES BY THE ASSESSEE COMPANY IN ORDER TO REDUCE ITS TAX LIABILITY. THE ASSESSING OFFICER HAS BROUGHT OUT A CASE OF TAX EVASION BY THE ASSESSEE COMPANY AND WHEN WE PERUSE THE ORDER OF THE LD. CIT(APPEALS), HE HAS NOT PASSED A SPEAKING ORDER. HE HAS SUMMARILY DISPOSED OF THE APPEAL OF THE ASSESSEE WITH A CRYPTIC ORDER WHICH IS DEVOID OF ANY REASONS ON FACTS. THE LD. CIT(APPEALS) ALSO DID NOT DEAL WITH EACH AND EVER Y FACTUAL ASPECT AS BROUGHT OUT BY THE ASSESSING OFFICER IN HIS ORDER. THAT EVEN AFTER HAVING POWER CO - TERMINUS WITH THAT OF THE ASSESSING OFFICER, THE LD. CIT(APPEALS) HAS NOT CONDUCTED ANY VERIFICATION OR ENQUIRY AS TO THE MODUS OF OPERATION OF THE ASSE SSEE COMPANY AND WHETHER THE FINDING BROUGHT ON RECORD BY THE ASSESSING OFFICER IS CORRECT OR NOT, NOTHING HAS BEEN SPECIFICALLY DEALT WITH IN HIS ORDER. 6.1 THAT FURTHER, THE LD. CIT(APPEALS) HAS ALSO MENTIONED IN HIS ORDER THAT SINCE EACH ASSESSMENT Y EAR IS SEPARATE IN ITSELF, FACTS NEEDS TO BE VERIFIED . THAT THEREFORE WITHOUT ANY VERIFICATION ON FACTS, THE LD. CIT(APPEALS) HAS GIVEN HIS DECISION. IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) AND REMAND THE MATTER BACK TO HIS FILE FOR PASSING A SPEAKING 6 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 ORDER AND AT THE SAME TIME, WE DIRECT THE ASSESSEE TO PRODUCE ALL RELEVANT DETAILS/ EVIDENCES BEFORE THE LD. CIT(APPEALS) SO THAT THE LD. CIT(APPEALS) CAN ADJUDICATE THE CASE ON MERITS AND GIVE A CATEGORICAL FINDING AS PER LAW AFTER COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED ON 12 TH DAY OF MARCH , 20 20 . SD/ - SD/ - D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 12 TH MARCH , 2020. SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 4, PUNE. 4. THE PR. CIT - 3, PUNE. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE . 7 ITA NO. 1173 /PUN/20 17 A.Y. 2013 - 14 DATE 1 DRAFT DICTATED ON 12 .03.2020 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12 .03.2020 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER