G.D. MINERALS, Jaipur V. ACIT, Jaipur

ITA 13/JPR/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1837 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 04-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Keywords: Rejection of books of accounts; Business income; Business expenditure; Question of law; Fair market value
• Section: 143(3); 133(6); 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 13/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 G.D. MINERALS, JAIPUR CUKE VS. ACIT, CIRCLE-1, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAKFG1716B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJ MEHRA (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 30/11/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 08/12/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A), JAIPUR DATED 08.11.2016 FOR ASSESSMENT YEAR 2013-14 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING TWO GROUNDS OF APPEAL:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ACTI ON OF LD. AO IN MAKING ADDITION OF RS. 6,58,553/- ON ACCOUNT OF DIS ALLOWANCE OF COMMISSION U/S 40A(2)(B) OF INCOME TAX ACT, 1961. T HE ACTION OF THE LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY A ND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY DELETI NG THE SAID ADDITION RS. 6,58,553/-. ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 2 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ACTI ON OF LD. AO IN MAKING ADDITION OF RS. 30,00,000/- ON ACCOUNT OF DI SALLOWANCE OF SUPERVISION CHARGES CLAIMED AS BUSINESS EXPENDITURE . THE ACTION OF LD. CIT(A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY AN D AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY DELETI NG THE SAID ADDITION RS. 30,00,000/. 2. REGARDING GROUND NO. 1, BRIEFLY STATED, THE FACT S OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MAGNETIC SORTING OF IRON ORE AT THE MINES SITUATED AT KHETRI, JHUNJHUNU, RAJASTHAN. DURING THE YEAR UNDER CONSIDERATION, IT PAID COMMISSION OF RS. 5,00,000 EACH TO KISHAN AGARWAL (HUF) AND GAURA V BANSAL (HUF) ON TOTAL SALES OF RS. 10,34,690/- MADE BY THESE TWO HUFS. THESE TWO HUFS ARE SPECIFIED PERSONS COVERED U/S 40A(2)(B) OF THE ACT. A SHOW CAUSE NOTICE WAS ISSUED BY THE AO TO THE ASSESSEE A S TO WHY EXCESS COMMISSION PAYMENT SHOULD NOT BE DISALLOWED U/S 40A (2)(B) OF THE ACT. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THERE WAS NO FIXED PERCENTAGE OF COMMISSION ON TURNOVER. IT WAS FURTHER SUBMITTED THAT ALTHOUGH TURNOVER MADE BY THEM IS OF LESS AMOUNT BUT COMMISS ION HAS BEEN PAID TO THEM ON LUMPSUM BASIS HENCE IT IS NOT MATCHING W ITH THE PERCENTAGE OF COMMISSION PAID TO OTHER PARTIES. IT WAS OBSERVE D BY THE AO THAT COMMISSION PAID TO OTHER PARTIES DURING THE YEAR, R ANGES BETWEEN 27% TO 37% AND THE AVERAGE RATE OF COMMISSION COMES TO 33% WHEREAS COMMISSION PAID TO THESE TWO HUFS WERE PAID AT A MU CH HIGHER RATE OF 97%. IT WAS ACCORDINGLY HELD BY THE AO THAT THE COM MISSION OF RS 10 LACS PAID TO THESE TWO SPECIFIED HUFS IS EXCESSIVE AND UNREASONABLE WITH REGARD TO THE FAIR MARKET VALUE OF THE SERVICE S PROVIDED BY THEM. THE AO ACCORDINGLY RESTRICTED THE COMMISSION PAYMEN T TO RS. ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 3 3,41,447/- WORKED OUT AT AVERAGE RATE OF COMMISSION OF 33% AND DISALLOWED THE BALANCE AMOUNT OF RS. 6,58,553/- U/S 40A(2)(B) OF THE ACT. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) AND CONTENDED THAT THE AO HAS ALTOGETHER IGNORED THE FACT THAT COMMISSION TO THESE TWO RELATED PARTIES WAS PA ID BEING THE MINIMUM AMOUNT AGREED BETWEEN THE APPELLANT FIRM AN D THE SAID PARTIES. IT WAS A BUSINESS OF THE APPELLANT FIRM TO COMMIT SOME MINIMUM COMMISSION IN ORDER TO MAKE THESE PARTIES A GREE TO WORK FOR THE APPELLANT FIRM. IT WAS FURTHER SUBMITTED THAT I T IS ANOTHER ISSUE THAT THE DECISION LATER ON TURNED OUT TO BE NOT AS BENEF ICIAL AS IT WAS THOUGHT INITIALLY. THE REASONABLENESS OF THE PAYMENTS UNDER SECTION 40A(2)(B) IS TO BE DECIDED TAKING INTO ACCOUNT THE PRUDENCE OF A BUSINESSMAN AND THE AO HAS NO RIGHT TO SIT IN THE ARMCHAIR OF THE A SSESSEE AND TAKE A CALL LATER ON ABOUT THE CORRECTNESS OF THE BUSINESS DECISION OF THE ASSESSEE. 4. THE LD. CIT(A) HOWEVER WAS NOT IMPRESSED WITH TH E CONTENTIONS SO RAISED BY THE ASSESSEE FIRM AND CONFIRMED THE SU BJECT DISALLOWANCE AND HIS RELEVANT FINDINGS ARE REPRODUCED AS UNDER:- I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPEL LANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. THE APPELLANT HAS NOT BROUGHT ON RECORD THE JUSTIFICATI ON OF LUMP SUM PAYMENT OF RS. 5 LAC EACH TO THESE TWO HUFS COVERED U/S 40A(2)(B) OF THE ACT AS THE COMMISSION PAYMENT WAS NOT COMMENSURATE WITH THE SERVICES RENDERED BY THESE EN TITIES. IT IS ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 4 DIFFICULT TO UNDERSTAND THAT HOW COMMISSION OF RS. 10 LAC CAN BE PAID ON TOTAL SALES OF RS. 10,34,690/- MADE THROUGH THESE ENTITIES. THE RATE OF COMMISSION PAYMENT TO THESE T WO ENTITIES IS 97% WHICH IS MUCH HIGHER THAN THE AVERAGE RATE OF C OMMISSION @ 33% PAID TO OTHER ENTITIES. THE APPELLANT HAS FAI LED TO BROUGHT ON RECORD ANY MATERIAL WHICH MAY JUSTIFY THE PAYMEN T OF SUCH HUGE COMMISSION OF 97% OF THE SALE MADE THROUGH THE SE TWO ENTITIES. THE CONTENTION OF THE APPELLANT THAT THE AO CANNOT SIT IN THE ARMCHAIR OF THE ASSESSEE HAS NO WEIGHT AND DESE RVES TO BE REJECTED LOOKING TO THE PECULIAR FACTS AND CIRCUMST ANCES OF THE CASE. IT IS THE DUTY OF THE AO TO EXAMINE THE PAYME NTS TO ENTITIES COVERED U/S 40A(2)(B) OF THE ACT AND THE AO HAS APP RECIATED THE FACTS OF THE CASE IN A CORRECT PERSPECTIVE. THE APP ELLANT HAS NOT BROUGHT ON RECORD COPY OF ANY AGREEMENT EXECUTED WI TH THESE TWO HUFS FOR WHICH COMMISSION WAS PAID. 5. DURING THE COURSE OF HEARING, THE LD. AR REITERA TED THE SUBMISSION MADE BEFORE THE CIT(A) WHICH WE HAVE ALREADY NOTED ABOVE. IT WAS FURTHER SUBMITTED THAT IT IS UNDISPUTED FACT THAT T HE AMOUNT OF COMMISSION WHICH WAS PAID TO BOTH THE PARTIES WAS T HE MINIMUM AMOUNT OF COMMISSION DECIDED, IRRESPECTIVE OF THE S ALES MADE BY THE ASSESSEE FIRM THROUGH SUCH PARTIES. IT WAS SUBMITTE D THAT THE ASSESSEE FIRM UNFORTUNATELY COULD NOT DERIVE THE BENEFIT TO THE FULLEST OUT OF SUCH COMMISSION PAID. EVEN AFTER EFFORTS MADE TO INCREAS E SALES, THE SAME COULD NOT BE INCREASED AND THE DESIRED BENEFITS COU LD NOT BE OBTAINED. HOWEVER, SINCE THE ASSESSEE FIRM HAD MUTUALLY DECID ED WITH THE PARTIES WITH REGARD TO THE COMMISSION PAYMENT, THE ASSESSEE FIRM HAD NO OTHER ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 5 OPTION BUT TO REMIT THE AMOUNT OF COMMISSION PAYMEN T AND TO HONOR THE TERMS AS AGREED AT THE INCEPTION. IT WAS SUBMIT TED THAT IT IS COMMON PLACE, WHEREIN AGREEMENTS ARE ENTERED BY ENT ITIES WITH OTHER PARTIES IN WHICH UNDERTAKING/GUARANTEE IS GIVEN TO THE SERVICE PROVIDERS WITH REGARD TO FLOW OF MINIMUM AMOUNT OF BENEFIT. T HIS IS NORMALLY DONE SO AS TO ENSURE THAT THE SERVICE PROVIDER/COMM ISSION AGENT PUTS IN HIS BEST FOOT FORWARD AND DISCHARGES ITS DUTIES IN ACCORDANCE WITH THE SETOUT NORMS OF THE RECIPIENT OF SUCH SERVICES. IT WAS SUBMITTED THAT THE AO EVEN THOUGH ALLEGED THAT THE COMMISSION PAYMENT MADE TO THE SAID PARTIES WAS EXCESSIVE HOWEVER, LD. AO FAILED TO POI NT OUT ANY COMPARABLE INSTANCE TO SUBSTANTIATE HIS CLAIM. UNDE R SUCH CIRCUMSTANCES, THE COMMISSION AMOUNT PAID TO PARTIE S COVERED UNDER SECTION 40A(2)(B) CANNOT IN ANY WAY BE TERMED AS UN REASONABLE. RELIANCE WAS PLACED ON THE DECISION OF THE ITAT, DE LHI BENCH IN THE CASE OF SPORTS STATION (INDIA)(P) LTD. [2012] 23 TA XMANN.COM 40 (DELHI) WHEREIN IT WAS HELD THAT UNLESS ANY MATERIAL IS PL ACED TO SHOW THAT INTEREST PAID TO PERSONS COVERED UNDER SECTION 40A( 2)(B) WAS EXCESSIVE OR ANY COMPARABLE INSTANCES IN RESPECT OF FAIR MARK ET VALUE OF INTEREST ARE CITED, NO DISALLOWANCE CAN BE MADE UNDER SECTIO N 40A(2)(A). IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A), WHILE REJECTING THE CLAIM OF THE ASSESSEE FIRM COMMITTED THE SAME ERROR, AS DONE BY THE LD. AO, IN THE ASSESSMENT PROCEEDINGS, OF COMPARING THE SALES UNDERTAKEN THROUGH SUCH ENTITIES VIS--VIS THE COMMISSION AMOU NT PAID. BOTH THE LOWER AUTHORITIES HAVE IGNORED THE FACT THAT THE AM OUNT OF COMMISSION WAS NOTHING BUT MINIMUM AMOUNT UNDERTAKEN TO HAVE P AID BY THE ASSESSEE FIRM TO SUCH PARTIES. ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 6 IT WAS FURTHER SUBMITTED THAT LOWER AUTHORITIES COM MITTED ERROR IN COMPARING THE TWO UN-COMPARABLES TO ARRIVE AT THE E XCESSIVE AMOUNT. THE COMMISSION PAID TO BOTH SET OF PARTIES WAS ON D IFFERENT TERMS AND THEREFORE CANNOT BE COMPARED TO DECIDE THE EXCESS A MOUNT. IT IS NOT THE CASE OF LOWER AUTHORITIES THAT SUCH TERMS OF PA YING MINIMUM COMMISSION ARE NOT IN PRACTICE AND WITHOUT ESTABLIS HING THIS, EXCESS AMOUNT WORKED OUT IS ERRONEOUS. 6. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER O F THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, THE CONTENTION OF THE LD AR THAT THE AMOUNT OF COMMISSION WHICH WAS PAID TO BOTH THE HUFS WAS T HE MINIMUM AMOUNT OF COMMISSION DECIDED, IRRESPECTIVE OF THE S ALES MADE BY THE ASSESSEE FIRM THROUGH SUCH PARTIES REMAIN UNSUBSTAN TIATED BEFORE US. THERE IS NOTHING ON RECORD EITHER IN TERMS OF WRITT EN AGREEMENT OR UNDERSTANDING BETWEEN THE ASSESSEE AND THESE TWO HU FS OR EVEN WHERE THE AGREEMENT/UNDERSTANDING IS VERBAL, THE ON US IS ON THE ASSESSEE TO BRING ON RECORD SOME EVIDENCE BY WAY OF CONFIRMATION ETC., WHICH DEFINES AND LAYS DOWN THE TERMS OF SUCH ENGAG EMENT IN TERMS OF SALES TARGET, TARGET CUSTOMERS/AREA, YEARS OF ENGAG EMENT, ETC. THE ASSESSEE HAS THUS FAILED TO DISCHARGE THE SAID ONUS CAST ON IT. SECONDLY, REGARDING THE DETERMINATION OF EXCESSIVE AMOUNT OF COMMISSION SO PAID AND THE COMPARATIVE CASES WHEREB Y THE ONUS IS CAST ON THE AO, WE FIND THAT WHERE THE ASSESSEE ITS ELF IS PAYING COMMISSION TO OTHER ENTITIES ON THE SALES SO MADE T HROUGH THEM AND ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 7 WHERE THERE IS NOTHING ON RECORD TO DISTINGUISH THE NATURE OF SERVICES SO RENDERED BY THESE ENTITIES VIS--VIS TWO HUFS, THE SAID INTERNAL COMPARABLE CASES HAVE BEEN RIGHTLY APPLIED BY THE A O. IN THESE COMPARABLE CASES, THE ASSESSEE ITSELF IS PAYING COM MISSION WHICH RANGES BETWEEN 27% TO 37% AND IN THE INSTANT CASE, THE AO HAS THUS TAKEN THE AVERAGE OF SUCH COMMISSION WHICH COMES TO 33%, COMPARED IT WITH THE ACTUAL COMMISSION SO PAID BY THE ASSESS EE AND HAS DETERMINED THE EXCESSIVE COMMISSION PAYMENT. WE THE REFORE DONOT FIND ANY INFIRMITY IN THE ACTION OF THE AO WHO HAS RIGHTLY DISALLOWED THE EXCESSIVE COMMISSION UNDER THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT AND THE ACTION OF LD CIT(A) WHO HAS SUSTAINED T HE SAME. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 8. REGARDING GROUND NO. 2, BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM HAS CLAIMED SUPERVISION CHARGES A MOUNTING TO RS. 39,50,000/- IN ITS TRADING AND PROFIT AND LOSS ACCO UNT AS PER DETAILS BELOW:- S. NO. NAME OF THE PARTY (RS.) 1 SHAKAMBARI ENTERPRISES 600,000 2 NITIN JAIN HUF 700,000 3 SUKHMAL KUMAR JAIN 500,000 4 ALKA JAIN 350,000 5 RENU NATHAWAT 480,000 6 SUSHIL KANWAR NATHAWAT 480,000 7 R.K.AGARWAL HUF 840,000 TOTAL 3,950,000 ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 8 9. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED ABOUT THE DETAILS OF THE SUPERVISION CHAR GES. HOWEVER, THE AO OBSERVED THAT THE REPLY OF THE ASSESSEE HAS BEEN VAGUE AND UNSATISFACTORY. THEREAFTER, NOTICES WERE ISSUED U/S 133(6) TO ALL THE 7 PARTIES TO WHICH THE AO OBSERVED THAT THOUGH COMPLI ANCE HAS BEEN MADE IN FIVE CASES IN AN IDENTICAL MANNER HOWEVER W ITHOUT ANY DESCRIPTION WHATSOEVER OF THE ACTUAL SUPERVISION SE RVICES PROVIDED BY THEM AND IN TWO CASES, NOTICES HAVE BEEN RETURNED ANSWERED. 10. THE AO, THEREFORE, FELT THAT THE MATTER REQUIRE FURTHER INQUIRY AND INVESTIGATION TO ESTABLISH THE GENUINENESS OF THE S UPERVISION SERVICES CLAIMED TO HAVE BEEN AVAILED BY THE ASSESSEE FIRM. THEREAFTER, SUMMONS U/S 131 WERE ISSUED TO THE 5 PARTIES NAMELY R.K. AGARWAL (HUF), NITIN JAIN(HUF), SUKHMAL KUMAR JAIN, MS SUSH IL KANWAR NATHAWAT AND MISS RENU NATHAWAT. IT WOULD BE RELEVA NT TO REFER TO THE ORDER-SHEET ENTRY DATED 13.01.2016 WHEREIN THE REAS ONS HAVE BEEN RECORDED BY THE AO FOR ISSUANCE OF THE SUMMONS U/S 131 TO THE ABOVE SAID 5 PARTIES WHICH IS REPRODUCED AS UNDER: 1. R.K. AGARWAL (HUF), NITIN JAIN(HUF) AND SUKHMAL KUMAR JAIN: FIRST OF ALL, THE ADDRESSES OF NITIN JAIN (HUF) AND SUKHM AL KUMAR JAIN ARE EXACTLY IDENTICAL AND THE LETTERS OF CONFIRMATION S ENT BY BOTH ARE EXACTLY IDENTICAL WITH EVEN THE SIGNATURES BEING DONE IN ID ENTICAL HANDWRITING, VERY APPARENTLY APPEARING FAKE. MOREOVER, SUKHMAL KUMAR JAINS DATE OF BIRTH IS APPEARING TO BE 27.10.1945 WHICH MEANS HE IS AROUND 71 YEARS OLD. IT IS HIGHLY QUESTIONABLE AS TO HOW CAN A PERSON OF THIS AGE DO ANY SUPERVISION WORK AND THAT TOO IN IRON ORE MI NES SITE IN KHETRI. ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 9 ANOTHER REASON FOR NEED OF VERIFICATION IS THAT BOT H R.K. AGARWAL HUF AND NITIN JAIN HUF ARE GETTING FEES FOR SUPERVISION AND IT IS NOT CLEAR AS TO WHY THE SUPERVISION IS BEING DONE BY THE HUF AND NOT IN INDIVIDUAL CAPACITY. IN FACT, EVEN THE HANDWRITING ON THE ENVE LOPES IN WHICH CONFIRMATION HAVE COME OF NITIN JAIN HUF, SUKHMAL K UMAR JAIN, ALKA JAIN & ONE R.N. FORGING PVT. LTD. (FOR COMMISSION) IS EXACTLY IDENTICAL & SENT BY THE SAME PERSON. THE PERSON WHO HAD COME TO SUBMIT THE CONFIRMATION OF R.K.AGARWAL HUF HAD ALSO COME FROM THE OFFICE OF THE A/R SH. ABHISHEK DALMIA, AS REVEALED WHEN ENQUIRED BY THE INSPECTOR OF THIS OFFICE. 2. RENU NATHAWAT AND SUSHIL KANWAR NATHAWAT: BOTH O F THEM WERE ISSUED LETTERS U/S 133(6) ON 12.10.2015 WHICH WERE DISPATCHED THROUGH THE INDIAN POST BUT BOTH THE LETTERS CAME BACK UNSE RVED WITH THE REMARKS, UNCLAIMED 19.10.2015. LATER, WHEN THE A/ R WAS CONFRONTED AND ASKED TO PRODUCE THE PARTIES FOR VERIFICATION V IDE ORDER SHEET ENTRY DATED 21.12.2015, HE REPLIED ON 05.01.2016 THAT THE TWO PARTIES WOULD REPLY AS HE HAS INTIMATED THEM. ON 6 TH DECEMBER, TWO IDENTICAL LETTERS WERE SUBMITTED TO THE OFFICE BY THE NAME OF THE TWO LADIES WHO CLAIMED SAME BABY PROBLEMS/HEALTH PROBLEM & HENCE PLEADED N ON-APPEARANCE. IT IS HIGHLY QUESTIONABLE AS TO HOW TWO LADIES, ONE AGED 30 YEARS AND ANOTHER AGED 51 YEARS COULD NOT APPEAR IN THE OFFIC E SITUATED JUST 9.1 KM AWAY FROM THEIR RESIDENCE BUT COULD GO FOR SUPER VISION ON THE SITE SITUATED AT KHETRI JHUNJHUNU SITUATED 155 KM AWAY F ROM THEIR RESIDENCE. THEREFORE, THE ENTIRE EVIDENCE AND PLEADINGS APPEAR HIGHLY FABRICATED AND UNACCEPTABLE. THUS, IT NEEDS TO BE VERIFIED THR OUGH PERSONAL ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 10 APPEARANCE OF THE ABOVE PARTIES. THIS NEED ALSO ARI SES FROM THE FACT THAT THE A/R HAS IN THE PREVIOUS HEARINGS ALSO BEEN UNABLE TO EXPLAIN ABOUT THE MODUS OPERANDI OF THE BUSINESS UNDERTAKEN . THERE IS HUGE COMMISSION PAID WITH RESPECT TO THE TURNOVER AND HU GE SUPERVISION FEES PAID, ALL RESULTING IN LOW NET PROFIT, ALSO THE REA SON FOR SELECTION IN CASS. 11. IN RESPONSE TO THE SUMMONS, THE AO OBSERVED THA T ALL THE SUMMONS WERE DULY SERVED ON THE RESPECTIVE PARTIES BUT NONE OF THE PARTIES APPEARED ON THE DATE MENTIONED IN THE SUMMO NS AND SIMILAR LETTERS, IN SIMILAR HANDWRITING, DISPATCHED AROUND THE SAME TIME, WITH SIMILAR REASONS FOR NON-APPEARANCE WERE SUBMITTED. IT WAS ACCORDINGLY HELD BY THE AO THAT THE ONUS LIES ON THE ASSESSEE T O PROVE THE GENUINENESS OF THE TRANSACTION, THE IDENTITY OF THE PERSONS AND THE ACTUAL PERFORMANCE OF SERVICES FOR WHICH SUCH PARTI ES HAVE BEEN PAID. HOWEVER, DESPITE SUFFICIENT OPPORTUNITY BEING PROVI DED TO THE ASSESSEE, IT FAILED TO ESTABLISH THE GENUINENESS OF THE TRANS ACTIONS AND THE JUSTIFICATION FOR THE PAYMENT TOWARDS THE SUPERVISI ON CHARGES PAID TO THESE PARTIES AND THE SUPERVISION CHARGES OF RS. 30 ,00,000/- PAID TO THESE 5 PARTIES CANNOT BE ALLOWED AS A BUSINESS EXP ENDITURE. IT WAS ACCORDINGLY DISALLOWED AND BROUGHT TO TAX IN THE HA NDS OF THE ASSESSEE. 12. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT ALLOWING T HE DEDUCTION OF RS. 9,50,000/- TO TWO ENTITIES ESTABLISHES THE FACT THA T AO WAS CONVINCED ABOUT THE SERVICES OF SUPERVISION RECEIVED BY IT AN D SUMMONS TO ALL THE PARTIES WERE DULY SERVED WHICH IS ACCEPTED BY THE A O AT PAGE 8 OF THE ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 11 ASSESSMENT ORDER. THE AO HAD ALL THE AUTHORITY UNDE R THE LAW TO ENFORCE THE ATTENDANCE OF THESE PERSONS AND THE AO HAS NOT EXERCISED THE SAID AUTHORITY FOR THE REASONS BEST KNOWN TO HI M. IT WAS FURTHER SUBMITTED THAT DISALLOWING THE SUM SIMPLY FOR THE R EASON FOR NON APPEARANCE IS NOT AT ALL JUSTIFIED WHEN NO OTHER MA TERIAL IS BROUGHT ON RECORD BY THE AO THAT THE SAID PAYMENTS OR THE PART IES WERE NON GENUINE OR THE SERVICES WERE NOT RECEIVED. IT WAS F URTHER SUBMITTED THAT SIMILAR SUPERVISION CHARGES PAID BY THE APPELLANT F IRM FOR SIMILAR SERVICES FOR AY 2012-13 WERE ACCEPTED BY THE DEPART MENT AND THE ASSESSMENT FOR THE SAID YEAR WAS COMPLETED UNDER SE CTION 143(3) OF THE ACT. THE LD. CIT(A) HOWEVER, CONFIRMED THE DISA LLOWANCE OF SUPERVISION CHARGES OF RS. 30,00,000/-. NOW, THE AS SESSEE IS IN APPEAL BEFORE US. 13. DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT THE FOLLOWING FACTS REMAIN UNDISPUTED NAMELY, COMPUTATI ON, ITR AND BANK STATEMENT OF THE PARTIES, WHATEVER APPLICABLE, EVID ENCING THE RECEIPT OF SUPERVISION CHARGES BY THEM WERE SUBMITTED TO THE L D. AO. ALL SUMMONS ISSUED BY THE LD. AO, U/S 131, WERE SERVED ON ALL T HE PARTIES. ALL THE LETTERS IN RESPONSE TO NOTICE UNDER SECTION 133(6) WERE PROVIDED TO THE LD. AO. IT WAS FURTHER SUBMITTED THAT THE D. CIT(A), REJECT ED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT NONE OF THE PARTIES AP PEARED BEFORE THE LD. AO IN RESPONSE TO SUMMONS ISSUED UNDER SECTION 131 OF THE ACT IS UNJUSTIFIED. AS THE ASSESSEE FIRM UNDER THE LAW HAS NO POWER TO ENFORCE ATTENDANCE OF ANY PERSON MERELY BECAUSE NO COMPLIAN CE WAS MADE WITH RESPECT TO SUMMONS ISSUED UNDER SECTION 131, N O ADDITIONS CAN BE ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 12 MADE IN THE HANDS OF THE ASSESSEE FIRM. IT IS THE D UTY OF THE INCOME TAX AUTHORITIES TO BRING SUMMONS ISSUED, UNDER SECT ION 131, TO A LOGICAL CONCLUSION. THE SAID RATIO HAS BEEN LAID DOWN BY TH E HONBLE SUPREME COURT IN THE CASE OF ORISSA CORPN PVT. LTD. [1986] 25 TAXMAN 80F (SC), WHEREIN IT IS HELD THAT .IN THIS CASE THE ASSESSE E HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS. IT WAS IN T HE KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE THE INCOME-TAX ASSESSEE. THEIR INDEX NUMBER WAS IN THE FILE OF THE REVENUE. THE RE VENUE, APART FROM ISSUING NOTICES UNDER SECTION 131 AT THE INSTANCE O F THE ASSESSEE, DID NOT PURSUE THE MATTER FURTHER. THE REVENUE DID NOT EXAMINE THE SOURCE OF INCOME OF THE SAID ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDIT-WORTHY OR WERE SUCH WHO COULD ADVANCE THE AL LEGED LOANS. THERE WAS NO EFFORT MADE TO PURSUE THE SO-CALLED ALLEGED CREDITORS. IN THOSE CIRCUMSTANCES, THE ASSESSEE COULD NOT DO ANY FURTHE R. IN THE PREMISES, IF THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASS ESSEE HAS DISCHARGED THE BURDEN THAT LAY ON HIM THEN IT COULD NOT BE SAI D THAT SUCH A CONCLUSION WAS UNREASONABLE OR PERVERSE OR BASED ON NO EVIDENCE. IF THE CONCLUSION IS BASED ON SOME EVIDENCE ON WHICH A CONCLUSION COULD BE ARRIVED AT, NO QUESTION OF LAW AS SUCH ARISES. IT WAS FURTHER SUBMITTED THAT THE FACT THAT THE RES IDENCE OF THE PARTIES TO WHOM SUPERVISION CHARGES WERE PAID WERE AT A DIS TANCE OR THAT LADIES AND OLD PERSONS WERE INVOLVED IN SUPERVISION CANNOT BE BASIS TO CONSIDER THE SUPERVISION CHARGES TO BE NON-GENUINE. THESE PERSONS ENTERED INTO THE CONTRACT WITH THE ASSESSEE FIRM FO R PROVIDING SUPERVISION. IT WAS NOT THE CONDITION OF THE CONTRA CT AND WHICH NEVER REMAINS SO THAT THE SERVICES WILL BE PROVIDED BY TH ESE PERSONS THEMSELVES PERSONALLY. IT WAS FOR THESE PERSONS TO ORGANIZE THEIR ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 13 BUSINESS AFFAIRS PROPERLY BY ENGAGING PROPER PEOPLE . EVEN THE DISTANCE CANNOT IN ANY WAY BE A FACTOR AS EVEN THE ASSESSEE S OFFICE WAS SITUATED IN MANSAROVER, JAIPUR WHEREAS LARGER OPERATIONS WER E CARRIED OUT IN JHUNJHUNU. IT WAS FURTHER SUBMITTED THAT SUPERVISION CHARGES W ERE EVEN PAID IN THE IMMEDIATELY PRECEDING YEAR I.E. AY 2012-13 BY THE A SSESSEE FIRM AND NO ADDITIONS WERE MADE IN THIS REGARD BY THE LD. AO . THE LD. CIT(A) IS NOT CORRECT IN CONTENDING THAT BOOKS OF ACCOUNTS OF ASSESSEE FIRM WERE REJECTED AND GP WAS ESTIMATED. IN THIS REGARD IT IS SUBMITTED THAT THE BOOKS WERE REJECTED BY THE LD. AO ON ALL TOGETHER A DIFFERENT FOOTING THAT CERTAIN EXPENSES WERE PAID IN CASH AND WERE NO T SUPPORTED BY PROPER VOUCHERS. LD. AO HAS NOWHERE, IN THE SAID OR DER, DOUBTED WITH REGARD TO THE GENUINENESS OF THE SUPERVISION CHARGE S WHICH IN THE SAID YEAR, AS IN THE CURRENT YEAR, WERE PAID THROUGH PRO PER BANKING CHANNEL. IT WAS FURTHER SUBMITTED THAT THE HONBLE SUPREME C OURT IN THE CASE OF RADHASOAMI SATSANG [1992] 193 ITR 321 (SC) HELD THA T WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES JUDICA TA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FO LLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO AL LOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.. IT WAS FURTHER SUBMITTED THAT NONE OF THE PARTIES, TO WHOM SUPERVISION CHARGES HAVE BEEN PAID, ARE RELATED PARTIES COVERED UNDER SECTION ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 14 40A(2)(B). IT WAS ALSO SUBMITTED THAT WHEN SUPERVIS ION CHARGES PAID TO TWO PARTIES HAS BEEN ALLOWED, THERE REMAINS NO REAS ON WHY SUCH CHARGES PAID TO THE REMAINING PARTIES, UNDER THE SA ME SET OF FACTS, SHOULD BE DISALLOWED. 14. ON THE OTHER HAND, LD. D/R SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE UNDER CONSIDERATION RELATES TO ALLOWANCE OF SUPERVISION CHARGES AS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE FIRM. WHERE THE SAID EXPENDITURE IS CALLE D FOR EXAMINATION BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE PRIMARY ONUS IS ON THE ASSESSEE FIRM WHEREIN IT HAS TO DEMONSTRA TE HOW THE SAME IS ALLOWABLE FOR COMPUTING ITS TAXABLE INCOME. IN OTH ER WORDS, THE ASSESSEE HAS TO DEMONSTRATE THAT THE SAID EXPENDITU RE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. FOR THE PURPOSES, THE ASSESSEE FIRM HAS TO DEMONSTRATE THRO UGH VERIFIABLE EVIDENCE THE NATURE OF SUCH SUPERVISION SERVICES, H OW SUCH SERVICES ARE RELEVANT OR NECESSITATED FOR CARRYING OUT ITS BUSIN ESS ACTIVITIES, THE TERMS AND CONDITIONS AGREED FOR CARRYING OUT SUCH S UPERVISION, THE ACTUAL AVAILMENT OF SUCH SUPERVISION SERVICES, ETC. HOWEVER, WE FIND THAT THE ASSESSEE FIRM HAS NOT BROUGHT ON RECORD AN Y EVIDENCE THROUGH WHICH IT CAN BE VERIFIED THAT SUCH SUPERVISION SERV ICES HAVE BEEN RENDERED OR AVAILED BY THE ASSESSEE FIRM. IT IS NO DOUBT TRUE THAT THE PAYMENTS HAVE BEEN MADE TO THESE ENTITIES DURING TH E YEAR AND THESE ENTITIES HAVE ALSO FILED THE CONFIRMATIONS OF RECEI PT OF SUCH CHARGES, HOWEVER, THE FACT OF PAYMENT IS ANCILLARY AND SECON DARY TO THE ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 15 RENDERING OF SERVICES OR AVAILMENT OF SUPERVISION S ERVICES AND CANNOT BE A BASIS TO HOLD THAT SINCE THE PAYMENT HAVE BEEN MA DE, THE SERVICES OUGHT TO HAVE BEEN RENDERED OR AVAILED BY THE ASSES SEE FIRM. THE PAYMENT IS THE CONSIDERATION TOWARDS THE DISCHARGE OF CONSIDERATION FOR RENDERING OF SERVICES AND UNLESS SUCH RENDERING OF SERVICES IS NOT PROVED, AS IN THE INSTANT CASE, MERE PAYMENT IS NOT SUFFICIENT ENOUGH TO HOLD THAT THE EXPENDITURE HAS BEEN INCURRED AND ALL OWABLE IN THE HANDS OF THE ASSESSEE FIRM. FURTHER, IT IS NOT A CASE THA T THE AO HAS NOT TAKEN ANY ACTION TO VERIFY THE TRANSACTION. HE HAS ISSUE D NOTICES UNDER SECTION 133(6) AND WHEN HE WAS NOT CONVINCED WITH T HE REPLIES, HE ALSO ISSUED SUMMONS UNDER SECTION 131 AS WELL WHICH REMA IN UNCOMPLIED WITH AND WHICH HAS PUT FURTHER QUESTION MARK ON THE AUTHENCITY OF THE TRANSACTION UNDER CONSIDERATION. WE HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) FOR AY 2012-13 WHEREIN THE AO NOTICED THAT VARIOUS EXPENSES SUCH AS CARRIA GE INWARDS, DIESEL AND OIL EXPENSES, LOADING CHARGES, SUPERVISION CHAR GES AND UNLOADING CHARGES WERE MADE IN CASH AND NO SUPPORTING EVIDENC E HAS BEEN MAINTAINED AND WERE NOT VERIFIABLE AND THE AO HAS T HUS REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND HAS MAD E LUMP SUM TRADING ADDITION THEREOF. HENCE, IT CANNOT BE SAID THAT THE SUPERVISION CHARGES WERE ALLOWED BY THE AO FOR THE AY 2012-13. 16. FURTHER, WE HAVE GONE THROUGH THE FINDINGS OF T HE LD CIT(A) AND IN LIGHT OF THE ABOVE DISCUSSIONS, WE DONOT SEE ANY IN FIRMITY IN THE SAME AND THE SAID FINDINGS ARE HEREBY AFFIRMED WHICH ARE REPRODUCED AS UNDER: ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 16 (IV) I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS A MATTER OF FACT THAT THE IRON SORTING WORK OF THE AP PELLANT WAS CARRIED OUT AT THE MINES AT KHETRI, JHUNJHUNU, WHIC H IS AT A DISTANCE OF 155 KMS FROM THE CITY OF JAIPUR WHERE T HESE ENTITIES RESIDE. THESE FIVE ENTITIES DO NOT APPEAR BEFORE TH E AO IN RESPONSE TO SUMMON ISSUED U/S 131 OF THE ACT. IN FA CT, BEFORE OF ISSUE OF SUMMON U/S 131 OF THE ACT, VIDE ORDER SHEE T ENTRY DATED 21.12.2015, THE AO REQUIRED THE AR OF THE APPELLANT TO PRODUCE MS. RENU NATHAWAL AND MS. SUSHIL KANWAR, BUT THEY W ERE NOT PRODUCED BEFORE THE AO. (V) DURING THE APPELLATE PROCEEDINGS, THE AR WAS RE QUIRED TO FURNISH DOCUMENTARY EVIDENCE FOR RECEIVING SUPERVIS ION SERVICES AND IT WAS SUBMITTED THAT NO FORMAL DOCUMENTATION I N THIS REGARD IS AVAILABLE WITH THE APPELLANT FIRM AS IN SMALL UN ORGANIZED BUSINESS ENTITIES, FORMAL EVIDENCES ARE NOT OBTAINE D, AS THE BUSINESS TRANSACTION REMAIN UNDER DIRECT MANAGEMENT AND CONTROL OF THE OWNERS. MOREOVER, THE NATURE OF SERV ICES RECEIVED WERE SUCH FOR WHICH, OTHERWISE ALSO, FORMAL DOCUMEN TATION IS NOT POSSIBLE. THE SERVICES WERE RENDERED BY THE INDIVID UALS THEMSELVES AND IN CASE OF HUF, BY THE RESPECTIVE KA RTAS. THUS, THE APPELLANT HAS FAILED TO BROUGHT ON RECORD ANY D OCUMENTARY EVIDENCE WHICH MAY EVEN SUGGEST THAT SUPERVISION WO RK AT THE SITES WERE CARRIED OUT BY THEM. IT CANNOT BE BELIEV ED THAT IN THE PROCESS OF SUPERVISION WORK, NO DOCUMENTARY EVIDENC E WAS CREATED ON DAY TO DAY BASIS, IF GENUINE SUPERVISION WORK HAS DONE. IT MAY BE MENTIONED THAT THE BURDEN IS ON THE APPELLANT TO ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 17 SUBSTANTIATE ITS CLAIM OF SUPERVISION EXPENSES, WHI CH IT FAILED MISERABLE NOT ONLY AT THE ASSESSMENT STAGE BUT ALSO AT THE APPELLATE STAGE. IN FACT, THE APPELLANT HAS NOT EVE N ELABORATED WHAT WAS THE EXACT NATURE OF WORK DONE, WHETHER THE LADIES AND THE OLD MAN (SHRI SUKHMAL KUMAR JAIN AGED 71 YEAR S) WERE CAPABLE OF DOING THAT WORK, ESPECIALLY IN VIEW OF T HE FACT THAT THE SITE IS SITUATED MORE THAN 155 KMS. FROM THE RESIDE NCE OF THESE ENTITIES. (VI) IT WAS THE CONTENTION OF THE APPELLANT THAT SI MILAR SUPERVISION EXPENSES WERE ALLOWED IN ITS ASSESSMENT ORDER FOR T HE AY 2012- 13. IT MAY BE MENTIONED THAT AS PER THE SAID ASSESS MENT ORDER, THE AO NOTED THAT VARIOUS EXPENSES INCLUDING SUPERV ISION CHARGES WERE NOT VERIFIABLE AND THE AO HAS REJECTED THE BOO KS OF ACCOUNTS OF THE APPELLANT U/S 145(3) OF THE ACT AND HAS MADE LUMP SUM TRADING ADDITION THEREOF. HENCE, IT CANNOT BE SAID THAT THE SUPERVISION CHARGES WERE ALLOWED BY THE AO FOR THE AY 2012- 13. THUS, THUS CONTENTION OF THE APPELLANT DESERVES TO BE REJECTED. (VII) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION AN D LOOKING TO THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE INST ANT CASE UNDER CONSIDERATION, IT IS HELD THAT THE AO WAS JUSTIFIED IN DISALLOWING SUPERVISION CHARGES OF RS. 30 LAC AND HENCE THE SAM E IS HEREBY SUSTAINED. 17. IN THE RESULT, DISALLOWANCE OF SUPERVISION CHA RGES OF RS. 30 LAC IS HEREBY SUSTAINED AND GROUND NO. 2 OF ASSESSEES APP EAL IS DISMISSED. ITA NO. 13/JP/2016 G.D.MINERALS, JAIPUR VS. ACIT, JAIPUR 18 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/12/2017. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08/12/2017. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- G.D.MINERALS, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 13/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR