THE HINDOOSTAN SPINNING & WEAVING MILLS LTD, MUMBAI V. ITO 2(1)(4), MUMBAI

ITA 1302/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3760 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 07-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY SONI
• Keywords: Opportunity of being heard; Additional evidence
• Section: 143(3); 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , ! '# , $ , % BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I .T.A. NO.1302/MUM/2014 ( $ & '& / ASSESSMENT YEAR: 2009-10) M/S. THE HINDOOSTAN SPINNING & WEAVING MILLS LTD.(NOW KNOWN AS HINDOOSTAN MILLS LTD.) 3 RD FLOOR, SIR VITHALDAS CHAMBERS , 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI - 400001 / VS. INCOME TAX OFFICER 2(1)(4) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ./ ./ PAN/GIR NO. : AAACT4057F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI K.GOPAL & MS. NEHA PARANJPE DEPARTMENT BY: SHRI VIJAY SONI / DATE OF HEARING: 04.01.2016 /DATE OF PRONOUNCEMENT: 11.05.2016 ! / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 01.02.2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RE LEVANT TO THE ASSESSMENT YEAR 2009-10. ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 2 2. THE FACTS OF THE CASE ARE THAT THE APPELLANT COM PANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF GREY FAB RICS AND YARN AT KARAD AND MUMBAI. APART FROM THIS, THE COMPANY IS ALSO A TRADER IN GOODS FOR ITS BRAND CHOLEE AND TF. THE ASSESSEE FUR NISH ITS RETURN OF INCOME FOR THE A.Y. 2009-10 ON 30.09.2009 DISCLOSIN G TOTAL LOSS OF (-)RS.33,39,970/-. THE LAO COMPLETED THE ASSESSMEN T U/S. 143(3) OF THE OF THE INCOME TAX ACT, 1961 ( IN SHORT THE AC T)ASSESSING TOTAL INCOME AT RS.27,17,190/- UNDER THE NORMAL PROVISION OF THE ACT. . THE LAO DISALLOWED THE RETAINER SHIP FEES TO THE TUNE O F RS.13,61,907/- U/S. 37(1) OF THE ACT AND ALSO DISALLOWED OUT OF COMMISS ION PAID TO THE TUNE OF RS.45,50,354/- U/S. 37(1) OF THE ACT. THE ASSES SEE WAS NOT SATISFIED OF THE SAID DISALLOWANCE THEREFORE FILED THE APPEAL BEFORE THE LEARNED CIT(A) AND THE LEARNED CIT(A) RESTRICTED THE DISALL OWANCE IN CONNECTION WITH THE RETAINER SHIP FEES TO THE TUNE OF RS.16,248/- AND ALSO RESTRICTED THE DISALLOWANCE OF THE COMMISSION FEES TO THE TUNE OF RS.22,39,886/-. THE ASSESSEE WAS FEELING AGGRIEVED THEREFORE THE PRESENT APPEAL HAS BEEN FILED BEFORE US AND ASSESSE E HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN CONFIRMING THE DISALLOWANCE OF RETAINERSHIP FEES PA ID TO THE EXTENT OF RS.16,248/-. YOUR APPELLANTS SUBMIT THAT THE SAID DISALLOWANCE IS NOT CALLED FOR AND THE SAME BE DELE TED. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERR ED IN NOT ALLOWING THE COMMISSION PAID OF RS.91,00,708/- FULL Y AS CLAIMED BY YOU APPELLANTS BUT PARTLY SUSTAINING THE DISALLOWANCE. FURTHER IN COMPUTING THE DISALLOWANC E TO BE SUSTAINED IN RESPECT OF COMMISSION PAID, THE LD. CI T(A) ERRED IN TAKING THE SALES AMOUNT INSTEAD OF TAKING THE AM OUNT OF COMMISSION PAID OF THE PARTIES WHOSE PAN WAS NOT AV AILABLE AND THEREBY WORKED OUT THE DISALLOWANCE TO RS.22,39 ,886/- ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 3 INSTEAD OF RS.43,163/-. YOUR APPELLANTS SUBMIT THA T THE COMMISSION PAID IS ALLOWABLE FULLY AS CLAIMED BY YO UR APPELLANTS AND OUGHT TO BE ALLOWED AS CLAIMED. WITHOUT PREJUDICE TO THE ABOVE, YOUR APPELLANTS SU BMIT THAT IN ANY EVENT THE DISALLOWANCE OF COMMISSION PAID HAS T O BE RESTRICTED TO RS.43,463/- I.E. COMMISSION PAID AND NOT RS.22,39,886/- WHICH IS THE SALES AMOUNT. ISSUE NO. 1:- 3. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS A RGUED THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RETAINSHIP FEES PAID TO THE EXTENT OF RS.16,248/- WHICH IS REQ UIRED TO BE ALLOWED U/S.36(1) OF THE ACT. ON THE OTHER HAND THE LEARNE D REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTIONS. BEFOR E DISCUSSING THE MATTER OF CONTROVERSY FURTHER IT IS NECESSARY TO AD VERT THE FINDING OF THE LEARNED CIT(A) ON RECORD. 5.2.1. HAVING CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES, THE ASSESSMENT ORDER, REMAND REPORT AND THE REJOINDER, IT IS NOTICED THAT THE APPELLANT HAS FURNISHED CORRECT PAN NUMBERS OF MOST OF THE PAYEES INCLUDING BABURAO G. PAWAR (ARQPP8929G), GANESH KHATE (AUNPK2925P) AND RAJENRA S. PAWAR (AXMPP4148H). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LAR HAD EXPLAINED THAT THE APPELLANT HAS A FACTORY SITUATED AT KARAD, MAHARASHTRA. THE MILL IN KARAD IS A ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 4 COMPOSITE COTTON TEXTILE MILL HAVING BOTH SPINNING AND WEAVING ACTIVITIES. THE SERVICES RECEIVED FROM RETAINERS WERE FROM WEAVERS, KNITTERS, GETTERS, ELECTRICIANS, FIREMAN, DOCTOR, MATERIAL HANDLERS ETC. THESE RETAINERS START LOOM, ATTEND WARP AND WEFT, AND KEEP LOOM IN RUNNING CONDITION TO GET OPTIMUM PRODUCTION AND QUALITY OF FABRIC. THE APPELLANT FURNISHED DETAILS OF RETAINERSHIP FEES PAID ALONG WITH THEIR PAN, NATURE OF SERVICES RENDERED, TDS DEDUCTED THEREON ETC. THE SERVICES RENDERED BY THE RETAINERS WERE THE BASIC NECESSITY FOR RUNNING LOOMS/ PLANT / FACTORY. THE LAR EXPLAINED THAT THE RETAINERSHIP FEES HAVE BEEN PAID BY THE APPELLANT IN THE EARLIER ASSESSMENT YEARS ALSO AND HAVE BEEN PAID BY THE APPELLANT IN THE EARLIER ASSESSMENT YEARS ALSO AND HAVE BEEN CONSISTENTLY ALLOWED BY THE LAO. EVEN IN THIS YEAR, THE RETAINERSHIP FEES PAID BY THE APPELLANT TO WEAVERS, KNITTERS, GETTERS, ELECTRICIANS, FIREMAN, DOCTOR, MATERIAL HANDLERS ETC. ARE GENUINE TRANSACTIONS AND THE SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANTS BUSINESS. ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 5 5.2.2 IN VIEW OF THE ABOVE, THE RETAINERSHIP FEES A RE ALLOWABLE TO THE EXTENT THE SAME HAVE BEEN PAID TO VERIFIABLE PERSONS HAVING COMPLETE IDENTITY, PAN AND EXISTING PERSONS FOR RENDERING GENUINE AND VERIFIABLE SERVICES. IT IS NOTICED THAT THE FOLLOWING PERSONS DO NOT HAVE ANY PAN AND THEY DO NOT HAVE ANY ADDRESS AND IN THE ABSENCE OF THE COMPLETE IDENTITY, PAN ETC. THE GENUINENESS OF SERVICES RENDERED BY THE FOLLOWING PERSONS HAVE NOT BEEN PROVED BY THE APPELLANT TILL DATE. S.NO. NAME PAN & ADDRESS AMOUNT(RS.) 1 DEEPAK FLALA NIL 738 2 KUNAL KADAM NIL 2496 3 PANKAJ GURAV NIL 3807 4 SANDEEP PHALKE NIL 3168 5 SOMESH SARGADE NIL 1077 6 VISHAL SURYAVANSHI NIL 4962 TOTAL 16248 5.2.2 HAVING REGARD TO FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ABOVE, THE DISALLOWANCE OF RETAINERSHIP FEES IS RESTRICTED TO RS.16,248/- GROUND OF APPEAL NO. 1 IS PARTLY ALLOWED. ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 6 3.1 IN VIEW OF THE FINDINGS OF THE LEARNED CIT(A) M ENTIONED ABOVE THE LEARNED CIT(A) DID NOT ALLOW THE RETAINERSHIP P AYABLE TO SIX PARTIES MENTIONED ABOVE IT WAS SOWN THAT THE THEY WERE NOT HAVING PAN NOS., IDENTITY ETC. THEREFORE, THE CLAIM OF THE ASSESSEE IN CONNECTION WITH THE RETAINERSHIP FEES TO THEM AS TO THE TUNE OF RS.16,2 48/- HAS BEEN DISALLOWED. NOW IN APPEAL BEFORE US NOTHING NEW MA TERIAL HAS BEEN BROUGHT ON RECORD TO WHICH IT CAN BE ASSUME THAT TH E CLAIM OF THE ASSESSEE IN CONNECTION WITH THE ABOVE MENTIONED SIX PARTIES ARE GENUINE. MOREOVER, THE LEARNED CIT(A) DECIDED THIS MATTER OF CONTROVERSY AFTER DUE ALLOWANCE OF THE ADDITIONAL EVIDENCE AND WHAT H AVE THE MATERIAL AVAILABLE WITH HIM. THE ASSESSEE HAS ALSO PLACE DE TAILS OF RETAINERSHIP FEES ON THE FILE WHEREIN NAME OF THE ABOVE SIX PART IES ON RECORD BUT THEY WERE NOT HAVING THEIR PAN NOS. SO FAR AS THE ADDRE SS IS CONCERN THE ADDRESS OF THE SAID AUTHORITIES ARE ALSO NOT ON REC ORD. EVEN BEFORE US THERE IS NOTHING ON RECORD TO WHICH IT CAN BE ASSUM E THAT THE LEARNED CIT(A) WRONGLY DECLINED THE CLAIM OF THE ASSESSEE I N CONNECTION WITH THE RETAINERSHIP TO THE TUNE OF RS.16,248/-. IN VI EW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LEARNED C IT(A) WAS JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO INTERFERE AT THIS TIME STAGE. CONSEQUENTLY, THIS ISSUE IS DECIDED IN FAVO UR OF THE REVENUE AGAINST THE ASSESSEE. ISSUE NO. 2:- 4. NOW COMING TO THE OTHER GROUND WHICH IS IN CONNE CTION WITH THE DISALLOWANCE OF COMMISSION PAID TO THE PARTIES WHOS E PAN NUMBERS WERE NOT AVAILABLE WITH THE ASSESSEE. BEFORE GOING TO DECIDING THE ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 7 MATTER OF CONTROVERSY IT IS ADVERT THE FINDING OF T HE LEARNED CIT(A) ON RECORD:- 5.3.1 HAVING CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES, THE ASSESSMENT ORDER, REMAND REPORT AND THE REJOINDER, IT IS NOTICED THAT THE APPELLANT HAS FURNISHED CORRECT PAN NUMBERS OF MOST OF THE PAYEES INCLUDING THE FOLLOWING POINTED OUT BY THE LAO IN THE REMAND REPORT:- SR. NO. NAME PAN AMOUNT PAID REMARKS 1. RIDDHI ENTERPRISES ABKPD4406A 55,887 THIS PAN BELONGS TO SHRI HARESH JETHALAL DOSHI 2. SHREEJI ENTERPRISES AAAHV9076R 35,133 THIS PAN BELONGS TO VIRENDRA N. DOSHI(HUF) 3. DISHANK ASSOCIATE ACMPJ9830H 63,597 THIS PAN BELONGS TO SHRI RAMNIKLALBHAI JOBANPUTHRA 4. HARSH SALES CORPN AAJHA7831C 17,305 THIS PAN BELONGS TO ANUJ TULSIAN(HUF) 5. VIJAY TEXTILES AADPS5699C 30,043 THIS PAN BELONGS TO SHRI ASHIT RAJNIKANT SHAH 6. SHREEJI ENTERPRISES AAAHV9076R 13,711 THIS PAN BELONGS TO VIRENDRA N. DOSHI(HUF) TOTAL: 2,15,676 5.3.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LAR HAD EXPLAINED THAT THE APPELLANT HAS A FACTORY SITUATED AT KARA, MAHARASHTRA. THE ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 8 MILL IN KARAD IS A COMPOSITE COTTON TEXTILE MILL HAVING BOTH SPINNING AND WEAVING ACTIVITIES. AT THE OUTSET IT WAS SUBMITTED THAT THE ADHOC DISALLOWANCE OF COMMISSION PAID IS ERRONEOUS AND THE SAME SHOULD BE ALLOWED AS CLAIMED AND EXPLAINED DURING ASSESSMENT PROCEEDINGS AND REMAND PROCEEDINGS. THE LAR AVERRED THAT DURING THE YEAR, THE APPELLANT HAD PAID COMMISSION TO AROUND 40-45 PARTIES. THEREFORE, THE LAO HAS INCORRECTLY MENTIONED THAT COMMISSION WAS PAID TO AROUND 100 PARTIES. THE LAO HAS NOT APPRECIATED THE CORRECT FACTS AND FIGURES IN THE IMPUGNED ASSESSMENT ORDER. THE APPELLANT COMPANY WAS IN THE BUSINESS OF MANUFACTURE AND SALE OF GREY FABRICS AND YARN. THE MAIN PRODUCT IS GREY FABRICS WHICH CANNOT BE SOLD IN RETAIL. THE COMPANY SOLD ITS PRODUCT THOUGH VARIOUS COMMISSION BROKERS APPOINTED AT DIFFERENT REGIONS. THE RATE OF COMMISSION IS PRE-FIXED FOR MOST OF THEM SINCE MANY YEARS. HISTORICALLY, THE BUSINESS OF INDIAN TEXTILE MILLS RUNS THROUGH BROKERS. IT WAS A PRACTICE OF INDUSTRY THAT THE SALE WAS MADE THROUGH SUCH BROKERS AND AS CONSEQUENCE OF THAT THE APPELLANT DOES NOT HAVE TO KEEP ANY FACTORY ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 9 OUTLET OR SHOWROOMS. GENERALLY, COMMISSION PAID ON SELLING OF MANUFACTURED GOODS ARE TERMED AS RMG AND COMMISSION PAID ON SELLING OF TRADING GOODS ARE TERMS AS TTR. THE DETAILS OF COMMISSION PAID TO VARIOUS PARTIES ALONG WITH THEIR ADDRESS, PAN, COMMISSION RATE, TDS DEDUCTED THEREON WERE SUBMITTED AS ADDITIONAL EVIDENCES WHICH WERE EXAMINED BY THE LAO AND COMMENTED IN THE REMAND REPORT. THE APPELLANT FURNISHED DETAILS OF COMMISSION PAID ALONGWITH THEIR PAN, NATURE OF SERVICES RENDERED, TDS DEDUCTED THEREON ETC. AS THE APPELLANT COMPANY IS IN THE BUSINESS OF MANUFACTURING, IT WILL HAVE TO PAY COMMISSION FOR SELLING ITS PRODUCTS. THE LAO HAS IGNORED THE FACT THAT THIS IS AN ESTABLISHED PRACTICE OF THE INDUSTRY TO PAY COMMISSION, MORE SO, BECAUSE THE APPELLANT DID NOT HAVE SHOWROOMS AND RETAIL OUTLETS. SECONDLY, SIMILAR COMMISSION PAID IN EARLIER ASSESSMENT YEARS HAVE BEEN CONSISTENTLY ALLOWED BY THE LAO IN THE SAME CASE. THIRDLY, THE COMMISSION PAID IN THIS YEAR ARE NOT UNREASONABLE AND THEY HAVE BEEN PAID TO THE GENUINE PERSONS HAVING VERIFIABLE ADDRESSES, PAN AND HAVING GENUINELY ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 10 RENDERED THE SERVICES. THEREFORE, SUCH COMMISSION PAYMENTS ARE GENUINE TRANSACTIONS AND THE SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANTS BUSINESS. 5.3.3 IN VIEW OF THE ABOVE, THE COMMISSION PAID ARE ALLOWABLE TO THE EXTENT THE SAME HAVE BEEN PAID TO VERIFIABLE PERSONS HAVING COMPLETE IDENTITY, PAN AND EXISTING PERSONS FOR RENDERING GENUINE AND VERIFIABLE SERVICES. IT IS NOTICED THAT THE FOLLOWING PERSONS DO NOT HAVE ANY PAN AND THEY DO NOT HAVE ANY ADDRESS AND IN THE ABSENCE OF THE COMPLETE IDENTITY, PAN ETC. THE GENUINENESS OF SERVICES RENDERED BY THE FOLLOWING PERSONS HAVE NOT BEEN PROVED BY THE APPELLANT TILL DATE:- S.NO. NAME PAN & ADDRESS AMOUNT (RS.) 1 GARG AGENCIES (TTR) NIL 53,873 2 GARG AGENCIES (TTR) NIL 23,680 3 VINOD KAPADIA (RMG) NIL 10,23,004 4 SANJAY AGARWAL (RMG) NIL 97,784 5 SHAMLJI KARSAN (RMG) NIL 1,21,770 6 HARSH FIRM (TTR) NIL 9,19,775 TOTAL 22,39,886 ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 11 5.3.4 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ABOVE, THE DISALLOWANCE OF COMMISSION PAID IS RESTRICTED TO RS.22,39,886/-. GROUND OF APPEAL NO. 2 IS PARTLY ALLOWED. 4.1. ON APPRAISAL OF THE ABOVE SAID FINDING OF THE LEARNED CIT(A) IT IS APPARENT ON RECORD THAT THE LEARNED CIT(A) DID NOT CONSIDER THE ABOVE MENTIONED SIX PARTIES ON THE GROUND OF THAT THEY WE RE NOT HAVING THEIR PAN NUMBERS AND THEIR ADDRESS AND IDENTITY. THE CLA IM OF THE GENUINENESS OF THE PARTIES WAS ALSO DOUBTED. WHILE DECIDING THE SAID ISSUE THE LEARNED CIT(A) EVEN DID NOT CONSIDER THE COMMISSION PAID TO THE ABOVE SIX PARTIES BUT EVEN ALSO DECLINED THE TR ANSACTION WHICH HAS BEEN REFLECTED IN THE ACCOUNTS TO THE TUNE OF RS.22 ,39,886/- WHEREAS COMMISSION PAID TO THE TUNE OF RS.43,166/-. THEREF ORE, IN THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THIS ISSUE IS REQUIRED TO BE CONSIDER AFRESH ON THE POINT OF DISALLOWANCE ON SAL E AMOUNT AS WELL AS COMMISSION IN ACCORDANCE WITH LAW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND RESTORE THE SAME TO THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO DECIDE THE MATTER A FRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCOR DANCE WITH LAW. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.1302/MUM/2014 ASSESSMENT YEAR: 2009-10 12 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2016 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) / ACCOUNTANT MEMBER #$ /JUDICIAL MEMBER % & MUMBAI; ' DATED : 11 TH MAY, 2016 MP MP MP MP ( ) *$!'+ ,+'! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. )*+ $$,- , ,- , % & / DR, ITAT, MUMBAI 6. +./ 0 / GUARD FILE. ( / BY ORDER, ) $ //TRUE COPY// - / # (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI