M/s. Andhra Expanded Polystyrene Private Ltd, Hyderabad V. ITO, Ward-1(1), Hyderabad

ITA 1243/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59180 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Assessee Lawyers: SAI SRINIVASA RAJU D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1243/HYD/2011 ASSESSMENT YEAR 2006-07 M/S ANDHRA EXPANDED POLYSTYRENE P LTD., HYDERABAD (PAN AACCA4251C) VS ITO, WARD NO.1(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI SAI SRINIVASA RAJU D RESPONDENT BY : SHRI T. DIWAKAR PRASAD DATE OF HEARING : 19.1.2012 DATE OF PRONOUNCEMENT : 31.1.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) II, HYDERABAD DATED 18 .4.2011 AND PERTAINS TO THE ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE THAT THE ASSESSEE COMP ANY ENGAGED IN THE MANUFACTURE OF EPS MOULDS AND SHEETS. IT FILED RETURN OF INCOME ON 24.11.2006 FOR THE ASSESSMENT YEAR 2006-0 7 DECLARING TOTAL INCOME AT RS.3,30,960/-. THE ASSES SEE CLAIMED TO HAVE PAID AN AMOUNT OF RS.2,33,350/- TOWARDS SAL ES COMMISSION TO M/S BAGYANAGAR SILK MILLS (P) LTD., F OR PROCURING ORDERS FROM M/S NCL INDUSTRIES LTD., APPLICON INDUS TRIES LTD., AND MR. VENKATA SATYANARAYANA, NELLORE. ITA NO.1243/H/2011 M/S ANDHRA EXPANDED POLYSTYRENE P LTD., HYDERABAD 2 2. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSEE PRODUCED MR. SANTOSH RUNGTA SAID TO BE DIR ECTOR OF M/S BHAGYANAGAR SILK MILLS (P) LTD. 3. THE STATEMENT WAS RECORDED FROM HIM ON 27.8.200 8 WHEREIN IT WAS STATED BY THE SAID SANTOSH RUNGTA TH AT HE PROCURED SALES ORDERS FROM THESE COMPANIES. TO CRO SS VERIFY THIS FACT, LETTER HAS BEEN ADDRESSED TO M/S NCL INDUSTRI ES LTD. TO STATE WHETHER NCL INDUSTRIES LTD. HAS PLACED AN ORD ER DIRECTLY WITH THE ASSESSEE COMPANY OR WHETHER THE ORDER HAS BEEN PLACED THROUGH A MIDDLE MAN AND IF SO TO STATE THE NAME OF THE MIDDLE MAN. IN REPLY TO THIS, NCL INDUSTRIES LTD. HAS FIL ED A LETTER DATED 23.9.2008, WHEREIN IT WAS STATED THAT WE HAVE PLACE D ORDERS DIRECTLY ON THE PARTY AND NO MIDDLE MAN ARE INVOLVE D. 4. IN THE LIGHT OF THESE FACTS, A SHOW CAUSE LETTE R WAS ISSUED TO THE COMPANY PROPOSING TO DISALLOW THE COMMISSION PAID TO M/S BHAGYANAGAR SILK MILLS (P) LTD. INFORMING THAT IT IS INFERRED FROM THE LETTER OF NCL INDUSTRIES THAT THE ASSESSEE COMPANY HAS PROCURED THE SALES ORDERS DIRECTLY VIS A VIS THE NC L INDUSTRIES LTD. HAS PLACED THE ORDERS DIRECTLY ON THE ASSESSEE COMPANY AND NO MIDDLE MAN IS INVOLVED. IN RESPONSE TO THIS, TH E ASSESSEE SUBMITTED THAT EVEN THOUGH THE ORDERS ARE RAISED BY THE NCL INDUSTRIES DIRECTLY ON US, BUT IT IS PURELY DUE TO THE EFFORTS OF MR. SANTOSH RUNGTA, MD OF M/S BHAGYANAGAR SILK MILLS P LTD. AS WE HAVE COMMITTED TO PAY THE COMMISSION FOR THE EFF ORTS TAKEN FOR PROCURING THE ORDERS, WE PAID ACCORDINGLY. THE COMMISSION HAS BEEN PAID BY ACCOUNT PAYEE CHEQUE AND ACKNOWLED GED BY THE RECEIVER. AS M/S NCL INDUSTRIES LTD IS NOT AWA RE ABOUT OUR COMMITMENT AND ALSO PAYMENT OF THE COMMISSION TO M/ S BHAGYANAGAR SILK MILLS P LTD., AND HENCE THEY ARE N OT AWARE OF MIDDLE MAN BEING INVOLVED. THE CONTENTION OF THE A SSESSEE WAS ITA NO.1243/H/2011 M/S ANDHRA EXPANDED POLYSTYRENE P LTD., HYDERABAD 3 NOT ACCEPTED BY THE ASSESSING OFFICER AND AO DISALL OWED THE COMMISSION PAID OF RS.2,33,350/-. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THE ASSESSING OFFICER HAD MADE ENQUIRIES IN RESPECT OF SALES MADE TO M/S NCL INDUSTRIES LIMITED OF WHICH RS.1,54,426/- WAS PAID WHEREAS NO ENQUIRIES WERE MA DE AS TO SALES MADE TO OTHER TWO PARTIES WHICH AMOUNTS TO RS .78,924/-. 6. THE CIT(A) FURTHER HELD THAT THE ASSESSEE HAD N OT ASKED FOR AN OPPORTUNITY TO CONFRONT M/S NCL INDUSTRIES D ESPITE THE ASSESSING OFFICER GIVING SHOW CAUSE NOTICE PROPOSIN G TO DISALLOW THE SALES COMMISSION ON THE GROUNDS THAT M/S NCL IN DUSTRIES LIMITED HAD DENIED ANY MIDDLE MAN IN THE ORDERS PLA CED B6 THEM WITH THE ASSESSEE. 7. CIT(A) FURTHER HELD AS FOLLOWS: THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT WAS MADE BY CHEQUE IN NO WAY PROVES THAT MR. SANTOS H RUNGTA HAS OFFERED ANY SERVICES, OR THE EXPENDITURE IN THE NATURE OF COMMISSION IS GENUINE, OR THIS EXPENDITUR E HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. IF MR. SANTOSH RUNGTA HAS PROCURED THE O RDERS FROM M/S NCL INDUSTRIES LIMITED, THE SAID FACT MUST BE KNOWN TO M/S NCL INDUSTRIES LTD. AND THEY WOULD HAV E DEFINITELY ACKNOWLEDGED THE PLACEMENT OF ORDER THRO UGH A MIDDLE MAN. THE ARGUMENT OF THE ASSESSEE THAT THE OTHER PARTY MAY NOT BE AWARE OF THE FACT OF THE SERVICES PROVIDED, SOUNDS FARFETCHED BECAUSE COMMISSION WILL BE PAID O NLY FOR THE DEAL BROKERED BETWEEN TWO PARTIES AND IF ONE PA RTY DENIES KNOWLEDGE OF THAT DEAL OR THE PEOPLE BROKERI NG THE ITA NO.1243/H/2011 M/S ANDHRA EXPANDED POLYSTYRENE P LTD., HYDERABAD 4 DEAL, IT CANNOT BE SAID THAT SOME SERVICES WERE PRO VIDED BETWEEN THE TWO PARTIES. IF MR. RUNGTA KNOWS THE M D AND PURCHASE OFFICER OF M/S NCL INDUSTRIES LIMITED AND GOT THE ORDERS THROUGH HIS EFFORT, HE COULD HAVE ASKED FOR AN OPPORTUNITY TO CONFRONT THEM, BUT HE DID NOT DO SO. SINCE THE ASSESSEE COMPANY COULD NOT GIVE ANY VALID REASO N FOR MAKING THE PAYMENT TO M/S BHAGYANAGAR SILK MILLS (P ) LTD., AND HAS CHOSEN NOT TO CONFRONT M/S NCL INDUSTRIES L TD. AS TO THE SERVICES PROVIDED BY THEM IN PROCURING ORDER S, IT CANNOT BE HELD AS GENUINE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDING LY, THE DISALLOWANCE OF RS.1,54,426/- CLAIMED TO HAVE BEEN PAID ON ACCOUNT OF SALES MADE TO M/S NCL INDUSTRIES LTD. , IS HEREBY CONFIRMED. 8. WITH RESPECT TO SALES MADE TO THE OTHER TWO PAR TIES AMOUNTING TO RS.78,924/- THE CIT(A) HELD AS FOLLOWS : SINCE THE PAYMENT OF RS.75,898/- AND RS.3,027/- ON ACCOUNT OF SALES TO M/S APLICON INDIA LTD. AND MR. VENKATA SATYANARAYANA, NELLORE HAVE NOT BEEN VERIFIED BY TH E ASSESSING OFFICER VIS A VIS THE PARTIES CONCERNED, THE DISALLOWANCE MADE ON ACCOUNT OF THIS CANNOT BE SUST AINED AND THE ASSESSEE GETS RELIEF TO THAT EXTENT. 9. WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IALS AVAILABLE ON RECORD. WE ARE OF THE OPINION THAT IF MR. SANTOSH RUNGTA HAS PROCURED THE ORDERS FROM M/S NCL INDUSTR IES LIMITED, THAT FACT SHOULD HAVE BEEN KNOWN TO M/S NC L INDUSTRIES LIMITED AND THE COMMISSION PAYMENT BY TH E ASSESSEE WOULD HAVE BEEN ACCEPTED AS THE DEAL WOULD HAVE GON E THROUGH ONLY BECAUSE OF THE SERVICES RENDERED BY SHRI SANTO SH RUNGTA. ITA NO.1243/H/2011 M/S ANDHRA EXPANDED POLYSTYRENE P LTD., HYDERABAD 5 ON THE CONTRARY THE ASSESSEE COMPANY DID NOT CHOSE TO CONFRONT M/S NCL INDUSTRIES REGARDING THE INVOLVEMENT OF THE MIDDLE MEN WHICH ONLY SHOWS THAT THE EXPENDITURE IS NOT GE NUINENESS AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CAS E AND THE FACT THAT IF MR. RUNGTA KNEW THE MD OF M/S NCL INDU STRIES AND THE ORDERS WERE PROCURED THROUGH HIS EFFORTS, THE P ROBABILITY OF HIS ASKING FOR A CONFRONTATION WITH THE MD IS VERY HIGH AND IN THE ABSENCE OF THE SAME, THE CLAIM OF THE ASSESSEE SEEMS TO BE FALSE. THEREFORE, WE CONFIRM THE ORDER OF THE CIT( A) AND DISMISS THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON: 31.1.20 12 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 31 ST JANUARY, 2012 COPY FORWARDED TO: 1. M/S ANDHRA EXPANDED POLYSTERENE PRIVATE LTD., 36A(D - 71), II FLOOR, IDA, BALANAGAR, HYDERABAD 2. THE ITO WARD 1(1), HYDERABAD 3. THE CIT(A)-II, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/