Chak Rader Farm Equipment Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 1192/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2688 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 09-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Diversion of income
• Section: 143(3); 234B; 131

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1192/HYD/2016 ASSESSMENT YEAR: 2012-13 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. PAN- AABCC5121G VS. THE DCIT, CIRCLE-1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMARAO REVENUE BY : SMT. SUMAN MALIK DATE OF HEARING : 23-01-2018 DATE OF PRONOUNCEMENT : 25-01-2018 ORDER PER P. MADHAVI DEVI, J.M.: THIS IS ASSESSEE APPEAL FOR THE A.Y 2012-13, FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-1, HYDERABAD DATED 27-06-2016. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 74,200/-. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O IN DISALLOWING RS. 1,15,00,000/- BEING COMMISSION PAID TO SMT. P. VANI ON THE GROUND THAT HE IS ONLY A MATRICULATE AND HAS NO QUALIFICATION. 4. THE LD. CIT(A) ERRED IN NOT CONSIDERING THE EXPLANATION SUBMITTED ABOUT HER EXPERIENCE IN THE BUSINESS 2 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. ACTIVITY AND FURTHER ERRED IN NOT CONSIDERING THE EXPERTISE SMT. P. VANI HAS IN MANAGING THE AFFAIRS OF THE BUSINESS. 5. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,69,272/- BEING COMMISSION PAID TO MRS. ANJALI GARG. THE LD. CIT(A) FAILED TO APPRECIATE THE EXPLANATIONS SUBMITTED AND THE EVIDENCES PRODUCED. 6. THE LD. CIT(A) ERRED IN CONFIRMING LEVY OF INTEREST U/S 234B AND U/S 234C OF THE ACT. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF POULTRY EQUIPMENTS, E-FILED ITS RETURN OF INCOME ON 29-09-2012 ADMITTING TOTAL INCOME OF RS. 3,78,51,980/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT, THE A.O CALLED FOR VARIOUS DETAILS AND THE ASSESSEE FURNISHED THE SAME. 3. ON THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, THE A.O FOUND THAT THE ASSESSEE HAS CLAIMED BUSINESS PROMOTION EXPENDITURE OF RS. 2,83,180/- AND SUBMITTED THE LEDGER ACCOUNTS IN SUPPORT OF THE SAME, BUT THAT THE LEDGER ACCOUNT SHOWS THAT THE EXPENDITURE INCURRED IS ONLY OF RS . 2,08,980/-. THEREFORE, THE BALANCE OF RS. 74,200/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE A.O ALSO OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,55,33,320/- AS COMMISSION EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF THE SAME. FROM THE INFORMATION FILED BY THE ASSESSEE, THE A.O OBSERVED THAT AN AMOUNT OF RS. 3 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. 1,45,26,272/- WAS PAID TO ONE SMT. P. VANI (93.50%), AN AMOUNT OF RS. 2,69,078/- IS PAID TO ONE MS. ANJALI GARG AS COMMISSION AND THE BALANCE WAS PAID AS COMMISSION TO VARIOUS OTHER PERSONS AT AN AVERAGE OF 2.3% OF THE SALES. OBSERVING THAT THE COMMISSION TO SMT. P. VANI WAS PAID AT A HIGHER RATE AS COMPARED TO OTHERS, IN ORDER TO EXAMINE THE GENUINENESS OF THE PAYMENT OF COMMISSION TO HER, SUMMONS WERE ISSUED TO HER U/S 131 OF THE ACT AND HER STATEMENT WAS RECORDED. FROM THE REPLIES GIVEN BY HER, THE A.O OBSERVED THAT SMT P. VANI WAS ONLY AN SSLC PASS AND HAPPENS TO BE A DIRECTOR OF THE COMPANY AND ALSO WIFE OF THE MANAGING DIRECTOR OF THE COMPANY. HE ALSO OBSERVED THAT SHE ACTUALLY VISITS HER PROPRIETARY CONCERNS OFFICE I.E M/S CHOWDHARY ENTERPRISES, WHICH IS ALSO SITUATED IN THE SAME PREMISES WHERE THE ASSESSEE COMPANY IS HAVING ITS REGISTERED OFFICE AND THAT SHE NEVER GOES OUT TO ASSESSEES OFFICE. HE, THEREFORE, HELD THAT PAYMENTS MADE AS COMMISSION TO SMT P. VANI IS ONLY DIVERSION OF FUNDS AND IS NOT FOR CONDUCTING OF BUSINESS OF THE ASSESSEE. HE ALSO OBSERVED THAT THE ASSESSEE IS MAKING PAYMENT OF COMMISSION ONLY AT VARIED RATES SUCH AS @ 2% TO 3.29% TO VARIOUS PERSONS, WHEREAS SMT. P. VANI IS PAID COMMISSION NEARLY @ 6%. OBSERVING THAT THE TOTAL SALES THROUGH M/S CHOWDHARY ENTERPRISES IS RS. 6,28,03,277/-, THE A.O ADOPTED THE AVERAGE RATE COMMISSION PAID TO OTHER PERSONS I.E @ 2.3% AND CONSIDERED RS. 31,40,163/- AS THE MAXIMUM COMMISSION PAID TO SMT. P. VANI AND THE BALANCE OF RS. 1,15,00,000/- WAS DISALLOWED AND TREATED AS ASSESSEES INCOME. 4 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. 5. SIMILARLY, THE A.O VERIFIED THE LEDGER ACCOUNTS SUBMITTED BY THE ASSESSEE WITH REGARD TO THE COMMISSION PAID TO MS ANJALI GARG AND OBSERVING THAT THERE IS NO DESCRIPTION FOR NATURE OF SERVICE RENDERED OR SALES EFFECTED BY MS ANJALI GARG, HE DISALLOWED THE SUM OF RS. 2,69,272/- AND BROUGHT IT TO TAX. 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 7. AS REGARDS THE FIRST ISSUE OF BUSINESS PROMOTION EXPENSES, IT IS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT AN AMOUNT OF RS. 74,200/- WAS BOOKED UNDER THE HEAD ADVERTISEMENT AND AT THE TIME OF THE FINALIZATION OF THE ACCOUNTS, THE SAID AMOUNT WAS GROUPED UNDER BUSINESS PROMOTION EXPENSES WHEREAS THE AMOUNT OF RS. 74,200/- WAS RECORDED AT A SEPARATE PAGE NO. 5 OF THE LEDGER BUT NOT SEPARATELY CLAIMED IN THE PROFIT AND LOSS ACCOUNT. HE SUBMITTED THAT THE A.O HAS SEEN ONLY THE LEDGER WHEN THE BUSINESS PROMOTION EXPENDITURE IS RECORDED WITHOUT VERIFYING THE GROUPING FOR THE PURPOSE OF PREPARATION OF FINAL ACCOUNTS. HE THEREFORE REQUESTED FOR REMITTANCE OF THIS ISSUE TO THE FILE OF THE A.O FOR VERIFICATION. 8. THE LD. DR WAS ALSO HEARD. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE A.O FOR VERIFICATION AND ALLOWING THE SAME IN CASE THE ASSESSEES CONTENTION IS FOUND TO BE CORRECT. THE 5 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. GROUND OF APPEAL NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 10. AS REGARDS GROUND NO. 5, AGAINST THE DISALLOWANCE OF COMMISSION PAID TO MS. ANJALI GARG IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MS. ANJALI GARG IS PROPRIETRESS OF GARG TRADERS THROUGH WHICH THE ASSESSEE HAD MADE SALES TO VARIOUS FARMERS IN PUNJAB AND HARYANA. HE DREW OUR ATTENTION TO THE DETAILS OF THE SALES MADE THROUGH GARG TRADERS WHICH ARE AT PAGES 56 AND 57 OF THE PAPER BOOK AND SUBMITTED THAT ALL THE PAYMENTS HAVE BEEN MADE THOUGH BANK. HE SUBMITTED THAT THOUGH IT IS MENTIONED AS COMMISSION, IT IS IN FACT DISCOUNT GIVEN BY THE ASSESSEE. TO OUR QUERY AS TO THE VARYING RATE OF THE COMMISSION ON THE ITEMS SOLD BY THE ASSESSEE, IT IS STATED THAT ON THE BULK SALE OF SMALL ITEMS, COMMISSION IS PAID AT A PERCENTAGE OF SALES WHEREAS WITH REGARD TO INDIVIDUAL ITEMS, FIXED SUM IS PAID AS COMMISSION. 11. THE LD. DR, HOWEVER, SUBMITTED THAT THE ASSESSEE HAS NOT FILED THE DETAILS OF THE SALES FOR MAKING THE PAYMENT OF COMMISSION BEFORE ANY OF THE AUTHORITIES BELOW. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE PAYMENTS TO MS ANJALI GARG ARE THROUGH THE BANK AND THE ASSESSE HAS ALSO MENTIONED VARIOUS MATERIAL SOLD TO GARG TRADERS. MS. ANJALI GARG IS ALSO IN NO WAY CONNECTED OR RELATED TO THE ASSESSEE. THEREFORE, WE REMIT THIS MATTER ALSO TO THE FILE OF THE A.O FOR VERIFICATION AND CONSIDERATION IN ACCORDANCE WITH LAW. 6 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. THUS THE GROUND OF APPEAL NO. 5 IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 13. AS REGARDS GROUNDS NO. 3 AND 4 AGAINST THE DISALLOWANCE OF COMMISSION PAID TO SMT. P. VANI TO THE EXTENT OF RS.1,15,00,000/- IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT SMT. P. VANI IS THE PROPRIETRESS OF M/S CHOWDHARY ENTERPRISES AND IS A WELL KNOWN FIGURE IN THE POULTRY EQUIPMENT BUSINESS. HE HAS FILED THE TURNOVER OF M/S CHOWDHARY ENTERPRISES FOR THE A.YS 2003-04 TO 2011-12 TO DEMONSTRATE THAT THE SMT. P. VANI IS DOING GOOD BUSINESS AND SHE IS DERIVING HUGE PROFITS FROM SUCH BUSINESS. HE JUSTIFIED THE PAYMENT OF COMMISSION BECAUSE OF THE HUGE TURNOVER GENERATED BY THE ASSESSEE FROM SALES MADE THROUGH HER. HE SUBMITTED THAT SHE HAS BECOME THE DIRECTOR OF THE COMPANY ONLY IN 2006, AND THE BOARD RESOLUTION SUPPORTS PAYMENT OF COMMISSION TO HER @ 6% OF SALES THROUGH HER. HE HAS ALSO REFERRED TO THE BOARD RESOLUTION PLACED AT PAGE NO. 23 OF THE PAPER BOOK. HE SUBMITTED THAT THERE HAS BEEN NO DISALLOWANCE OF THE COMMISSION PAID TO HER IN THE EARLIER OR SUBSEQUENT ASSESSMENT YEARS AND THEREFORE THE DISALLOWANCE DURING THE RELEVANT ASSESSMENT YEAR IS NOT JUSTIFIED. HE ALSO FILED THE COPY OF THE RETURN OF INCOME OF SMT. P. VANI FOR THE A.Y 2013-14 TO DEMONSTRATE THAT SHE HAS REFLECTED THE COMMISSION INCOME IN HER RETURN OF INCOME. THEREFORE, ACCORDING TO HER THERE IS NO DIVERSION OF INCOME OR ESCAPEMENT OF TAX ON THE INCOME. 7 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. 14. THE LD. DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SMT P. VANI IS WIFE OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY AND THAT SHE IS ONLY AN SSLC PASSED AND THEREFORE SHE IS NOT WELL EDUCATED TO BE DOING THE BUSINESS OF THE ASSESSEE COMPANY AND TO EARN SUCH HUGE MARGINS AS COMMISSION. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE INCOME OF M/S CHOWDHARY ENTERPRISES, OF WHICH SMT. P. VANI IS THE PROPRIETOR IS ACCEPTED BY THE DEPARTMENT AND SMT. P. VANI HAS ALSO OFFERED THE COMMISSION INCOME IN HER RETURN OF INCOME FOR THE A.Y 2012-13. IT IS ALSO NOT IN DISPUTE THAT SHE IS BEING PAID COMMISSION FROM THE A.Y 2003-04 ONWARDS AND NO DISALLOWANCE HAS BEEN MADE EITHER IN THE EARLIER OR SUBSEQUENT YEARS. THE A.O IS ONLY RESTRICTING THE COMMISSION PAID TO 2.3% AS AGAINST 6% PAID BY THE ASSESSEE COMPANY. WE FIND THAT SMT P. VANI IS DOING GOOD BUSINESS AND THE PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY ARE BEING TRADED THROUGH HER AND SHE BEING THE PERSON THROUGH WHOM THE ASSESSEE IS SELLING MOST OF ITS GOODS, IS ENTITLED TO THE COMMISSION AT A HIGHER RATE. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO RESTRICT THE COMMISSION PAID TO HER, THAN WHAT IS RECEIVED BY HER. IN VIEW OF THE SAME, GROUNDS NO 3 AND 4 ARE ALLOWED. 8 ITA NO. 1192/HYD/2016 CHAK RADER FARM EQUIPMENT PVT. LTD., HYDERABAD. 16. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2018. SD/- SD/- (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 25 TH JANUARY, 2018 KRK 1 CHAK RADER FARM EQUIPMENT PVT. LTD., C/O SRI S. RAMA RAO, ADV, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6- 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD-29. 2 DY. CIT, CIRCLE -1(2), HYDERABAD. 3 CIT(A)-1, HYDERABAD. 4 PR.CIT, RANGE-1, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE