Deputy Commissioner Of Income Tax, Circle- 4(1)(1), Bangalore V. M/s. Keltech Energies Limited, Bangalore

ITA 124/BANG/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0991 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OSD
• Keywords: Additional evidence; Tax effect; TDS
• Section: 271(1)(c); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C”, BANGALORE Before Shri Chandra Poojari, AM & Shri George George K, JM ITA No.124/Bang/2020 : Asst.Year 2011-2012 The Assistant Commissioner of Income-tax, Circle 4(3)(1) Bangalore. v. M/s.Keltech Energies Limited Embassy Icon, VII Floor No.3 Infantry Road, Bengaluru – 560 001. PAN : AAACK4702A. (Appellant) (Respondent) Appellant by : Smt.Susan Dolores George, CIT (OSD)-DR Respondent by : Sri. Mihir Naniwadekar, Advocate Date of Hearing : 26.05.2022 Date of Pronouncement : 27.05.2022 O R D E R Per George George K, JM : This appeal at the instance of the Revenue is directed against CIT(A)’s order dated 14.09.2019. The relevant assessment year is 2011-2012. 2. Two issues are raised in this appeal – (i) disallowance of service charges / commission payment amounting to Rs.1,03,03,601, and (ii) addition of Rs.1,36,65,795 by disallowing credit balance of various parties in the books of account of the assessee. We shall adjudicate the above issues as under: ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 2 Disallowance of service charges / commission payment amounting to Rs.1,03,03,601 3. The Assessing Officer had disallowed payment of commission by observing as under:- “5.3 The reply of the assessee is given a careful thought but the same is not acceptable for the reasons discussed below: (a) It is observed that assessee is making the sales to public sector Organizations. The contract is awarded by the Public sector Organizations through tender. As the entire receipts of assessee's business are from Public sector Organizations, there is no justification of making any commission payment to, anybody for procurement of orders etc. (b) It was noted that assessee is making payment to its commission agents for the services such as handling of explosives, safe transportation of explosives, liaison with other agencies, etc.' for which handing charges, transportation charges and magazine rent have been separately paid to these parties only. On the perusal of the agreement, it was noted that a commission@3.5%of the basic cost is being given to the commission agents. All the services provided by these agents can be grouped in transporting charges, handling charges & magazine rent. Payment of commission is over & above the handling charges, transportation charges and magazine rent Therefore, payment of commission is not for the purposes specified by the assessee during the course of proceeding as payment for those specific services have already been made under the subheads of transporting charges, handling charges & magazine rent. Prima facie there does not appear to be any justification for making, such commission payment when the specified services are being accounted for under the subheads of handling charges, magazine rent and transportation charges. It is also noteworthy that no commission can be considered" as payable as the sales are being made to the public Sector Undertakings. (c) The issue of commission payment has been examined in detail during the assessment proceedings for A.Y.2010-11 by Additional Commissioner of Income-tax, range 3(2), Mumbai and the said commission payments were disallowed in its entirety during that assessment year i.e. 2010-11. The facts are exactly same during the current assessment year. Therefore, such commission payment cannot be considered as allowable for the purpose of business and an amount of ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 3 Rs.1,03,03,601/- claimed as commission expenses is therefore disallowed. The penalty proceedings u/s 271(1)(c) are being initiated separately.” 4. Aggrieved, the assessee filed an appeal before the first appellate authority. The CIT(A) following his predecessors order for assessment years 2010-2011 and 2013-2014, directed the A.O. to delete the disallowance. The relevant finding of the CIT(A), reads as follows:- “3.2.3 These grounds relate to disallowance of payment of Rs.1,03,03,601. The Assessing Officer has discussed this issue at para 5 of the order. This issue had also come up before my Ld.Predecessor in the appellant’s appeal for A.Y. 2010-11 wherein Ld.Predecessor vide order No.CIT(A)-8/IT- 157/14-15 dated 23.12.2016 for A.Y.2010-21 decided this issue in favour of the appellant. Further, I have also decided the same issue in A.Y. 2013-14 in assessee’s favour vide appeal No.CIT(A)-8/IT-123/16-17 dated 16.02.2018. The relevant extract of the order of A.Y. 2010-11 is reproduced here for ready reference: "7.2.3 During the course of appellate proceedings, the appellant had explained that it is in the business of manufacture and sale of industrial explosives. They sell it to various PSUs which are located at different places across the country. To execute the orders placed by the PSUs, the appellant company engages services of agents for specific areas to assist and handle sales. The services rendered by these agents include monthly forecasts, preparing indents, maintaining explosives magazine as per provisions of Explosives Act, handling various formalities, raising invoices, filing of sales Tax / service tax returns, maintaining records and other related activities. It was contended that all these specific services rendered by the agents are compensated by "service charges" which is termed as “commission” at a certain percentage of sales handled by the agents. It was also pointed out that the appellant company has been following the same system in earlier years and payments to agents were allowed in the preceding assessment year. It was further stated that in the course of assessment proceedings copies of agreements, ledger extracts, bank statements showing payments made, details of TDS etc., were furnished to the Assessing Officer. Confirmations of services rendered and amounts were also provided. ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 4 7.2.4 It is also noted that neither at assessment stage nor during remand proceedings has the Assessing Officer doubted the amounts paid or the transaction itself. His objection appears to be based on a belief that making sales to PSUs cannot involve payment of any "commission" for executing the sales. Further, he has conjectured that since the appellant was separately making payments under heads transportation, handling, magazine rent etc., there could be no justification for making additional payments to agents relating to these activities. 7.2.5 I find that the Assessing Officer has not understood the nature of business of the appellant company. It has nowhere been contended by the appellant that the amounts paid to the agents are for procurement of orders because such procurement by PSUs is done through public tenders for which no commission needs to be paid However, PSUs using explosives are mostly in mining sector which are spread across remote areas of the country. The appellant has appointed agents to properly execute sales orders in these different locations all over the country. It can be appreciated that executing of these orders require considerable efforts to be made by the agents in terms of statutory compliances, storage, last mile transportation, inventorising etc., obviously, no one would render these services without charging any fees. The appellant has been compensating its agents by offering 3.5% of the sales effected through them. As indicated above, the amounts or facts of payments have not been disputed by the Assessing Officer. It is also not disputed that confirmations, TDS certificates etc., were furnished to the Assessing Officer during the course of assessment proceedings. This has been clearly stated by the appellant in its letter that was forwarded to the Assessing Officer for remand report and the Assessing Officer has not given any adverse comment or observation or finding to refute this aversion. 7.2.6 Under the circumstances, in my opinion, the Assessing Officer has tried to step into the shoes of the appellant company in deciding what should or should not be paid to carry out the business of the company. It is trite law that the Assessing Officer cannot step into the shoes of a businessman to decide what is allowable and what is not allowable or what is reasonable or unreasonable expenditure to carry out ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 5 the business. Apart from basing his conclusion on conjectures and surmises, the Assessing Officer has not brought out any investigative finding that doubts the payment made to the agents. He has only expressed an opinion that there is no justification for such payments. Therefore, in my view, the explanation offered by the appellant is acceptable. Also, the details made available to the Assessing Officer, have also not been contested by the Assessing Officer in the remand report and, therefore, there cannot be any doubt on their authenticity. In the facts and circumstances, there is no merit in holding the impugned payments as not related to business purpose. Accordingly, disallowance of Rs.1,03,09,115/- is deleted. These grounds of appeal are allowed.” 3.2.4 Since the facts and circumstances are the same for the assessment year, except for the amount involved, following the decision of Ld.Predecessor for assessment year 2010-11 above, the A.O. is directed to delete the disallowance of Rs.1,03,03,601/- claimed by the appellant as commission expenses. These grounds of appeal is allowed.” 5. Aggrieved by the order of the CIT(A), the Revenue has raised this before the Tribunal. The learned Departmental Representative relied on the grounds raised. 6. The learned AR has filed a paper book comprising of 120 pages enclosing therein the order of the Tribunal in assessee’s own case for assessment year 2010-2011 and 2013-2014 (dismissed due to low tax effect), the submissions made before the lower authorities, the audited financial statements and returns of income for the relevant assessment year. The learned AR relied on the findings of the CIT(A). 7. We have heard rival submissions and perused the material on record. The CIT(A) had deleted the disallowance following his predecessors order in assessee’s own case for assessment years 2010-2011 and 2013-2014. The order of ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 6 the CIT(A) for assessment years 2010-2011 and 2013-2014 was challenged before the Tribunal by the Revenue. However, the same was dismissed on account of low tax effect. 8. As regards the issue on merits, we find that the assessee is in the business of manufacture and sale of industrial explosives. The assessee sells goods to various public sector undertakings, which are located at different parts of the country. To execute the order, the assessee-company engaged various services of agents to assist and handle sales. The services rendered by these agents are explained in the order of the CIT(A) for assessment years 2010-2011 and 2013-2014 (extracted in the impugned order of CIT(A)). The services rendered by the agents are remunerated by “service charges”, which is termed as “commission”. The assessee has produced copies of the agreement, the ledger extracts, the bank statement showing payments made, details of the TDS etc. The A.O. has not doubted the amounts paid nor the transaction done. The only reasoning of the A.O. for making disallowance of these payments is that the orders are received from PSUs based on public tenders for which no commission need to be paid. We find that the A.O. has not understood the nature of business of the assessee. The PSUs using explosives are mostly in mining sector, which are spread across the remote areas in the country. The assessee had admittedly appointed these agents to whom the payments were made to properly execute the sales orders and there is considerable efforts made by the agents in terms of statutory compliance, storage, inventorising etc. The assessee has admittedly paid ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 7 these agents at 3.5% of the sales handled by them. As stated earlier, the amounts or fact of payments has not been disputed by the A.O. The CIT(A) has rendered a categorical factual finding, which has not been dispelled by the Revenue by placing any contra evidence. In the light of the a foresaid reasons, we reject grounds 2 and 3 raised by the Revenue. Addition of Rs.1,36,65,795 9. The A.O. made an addition of Rs.1,36,65,795 by observing as under:- “6.4 The reply of the assessee is given a careful thought but the same is not acceptable as assessee merely produced the ledger copies of above parties in its books which are nothing but self created and no third party confirmation is produced during the course of assessment proceedings. In the absence of any conformation from above parties, it is difficult to conclude that transactions involved in their name and expenses claimed in their name are genuine and are for he purpose of business. No separate disallowance is being made for commission payment as the same has already been included in disallowance in para 5 above. However for other expenses / creditors, the disallowance is being made accordingly. 6.5 In view of the above discussion, the sundry creditors amounting to Rs.1,36,65,795/- are disallowed and added back to the total income of the assessee. The penalty proceedings u/s 271(1)(c) are being initiated separately.” 10. Aggrieved, the assessee raised this issue before the first appellate authority. Before the first appellate authority, the assessee had filed certain additional evidences and the same was forwarded to the A.O. for his report. The remand report was submitted by the A.O. vide letter dated 10.11.2016. Pursuant to the remand report, the assessee filed a rejoinder. ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 8 The CIT(A) after examining each of the additions made for the sundry creditors outstanding, held that payments were made by the assessee through account payee cheques on future dates. Therefore, it was concluded by the CIT(A) that the addition is not warranted. 11. The Revenue being aggrieved, has raised this issue before the Tribunal. The learned DR relied on the grounds raised. The learned AR reiterated the submissions made before the Income Tax Authorities and relied on the findings of the CIT(A). 12. We have heard rival submissions and perused the material on record. The A.O. has made an addition of Rs.1,36,65,795 by disallowing the credit balance of various parties in the books of the assessee under the head “creditors not verifiable”. The A.O. issued notices u/s 133(6) of the I.T.Act to the sundry creditors to verify the genuineness of the same. However, some of them remained unserved. Therefore, the A.O. disallowed the sundry credits to the extent of Rs.1,36,65,795. The details of the parties, nature of transaction and the amounts of transaction are described in pages 17 and 18 of the impugned order of the CIT(A). Each of the above parties transactions, it was found by the CIT(A) that the assessee has made the payment through bank accounts and had submitted copies of confirmation of transactions, the ledger extracts from all the parties evidencing payments made. The A.O. in the remand report has not raised any specific objections with regard to the submissions made by the assessee. It is in this context and after examining the ITA No.124/Bang/2020. M/s.Keltech Energies Limited. 9 evidences placed on record the CIT(A) has come to a factual finding that the amounts outstanding are genuine and explained. The above factual findings of the CIT(A) has not been controverted by the Revenue, hence, we confirm the order of the CIT(A) as correct and in accordance with law. It is ordered accordingly. 13. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on this 27 th day of May, 2022. Sd/- (Chandra Poojari) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 27 th May, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-8, Mumbai. 4. The Pr.CIT- , Mumbai. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore