Dy. Comm. of Income-tax, Cirlce-1, Nashik V. Avinash Bhanudas Avhad, Nashik

ITA 1351/PUN/2011

• Counselvise Citation: 135124514 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S KOTARI
• Keywords: Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1351/PN/2011 (ASSESSMENT YEAR 2008-09) DCIT, CIRCLE-1, NASHIK. .. APPELLANT VS. AVINASH BHANUDAS AVHAD, SHRI GURU NIWAS, TULSI APARTMENT, SITAGUMPHA ROAD, PANCHAWATI, NASHIK PAN NO.ABCPA 0714G .. RESPONDENT APPELLANT BY : SHRI D.S. KOTARI RESPONDENT BY : SHRI NIKHIL PATHAK DATE OF HEARING : 04-07-2013 DATE OF PRONOUNCEMENT : 05-07-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 23-08-2011 OF THE CIT(A)-I, NASHIK RELATING T O ASSESSMENT YEAR 2008-09. 2. THE ONLY ISSUE RAISED BY THE REVENUE IN THE GROU NDS OF APPEAL RELATES TO DELETION OF RS.11,00,639/- MADE BY THE A SSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENDITURE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF TRADING IN CONSTRUCTI ON MACHINERY AND EQUIPMENTS AND PROVIDING AFTER SALES SERVICES. THE ITEMS TRADED BY THE ASSESSEE THROUGH HIS PROPRIETARY CONCERN M/S. UNIVE RSAL SALES CORPORATION ARE CONCRETE MIXTURES, BATCHING PLANTS ETC. HE HAS OFFICES AT 2 NASHIK, SURAT AND AHMEDABAD AND DEALS WITH CONSTRUC TION COMPANIES SUCH AS LARSEN & TUBRO, GANNON DUNKERLY LTD. ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOT ED THAT AN AMOUNT OF RS.5,80,000/- IS DEBITED UNDER THE HEAD COMMISSION FOR THE NASHIK OFFICE AND RS.5,20,639/- DEBITED UNDER THE SAME HEA D FOR THE AHMEDABAD OFFICE TOTALLING TO RS.11,00,639/-. ON BEING QUEST IONED BY THE ASSESSING OFFICER TO JUSTIFY THE EXPENSES IT WAS SUBMITTED TH AT FOR PROCURING ORDERS FOR SALE, THE SERVICES OF SOME PERSONS WERE TAKEN B Y THE ASSESSEE FOR WHICH COMMISSION HAS BEEN PAID TO THEM RANGING FROM 1% TO 10% OF THE SALE VALUE OF THE PRODUCTS SOLD THROUGH SUCH PERSON S. IT WAS SUBMITTED THAT SUCH COMMISSION HAS BEEN DEBITED FOR SALE OF E ARTH COMPACTORS, BATCHING PLANTS, MINI TOWERS HOISTS ETC. TO VARIOUS CUSTOMERS OF THE ASSESSEE. 3.1 ON BEING FURTHER QUESTIONED BY THE ASSESSING OF FICER THE ASSESSEE SUBMITTED INTERNAL VOUCHERS FOR PAYMENT OF COMMISSI ON. IN ABSENCE OF ANY SUPPORTING BILLS AND EVIDENCES SUCH AS DETAILS OF SERVICES RENDERED ETC. THE ASSESSING OFFICER CAME TO THE CONCLUSION T HAT THE ASSESSEE COULD NOT CORROBORATE SUCH PAYMENTS BY ANY OTHER EVIDENCE . HE FURTHER NOTICED FROM THE SALE BILLS ON WHICH COMMISSION HAS BEEN PAID TO THE SAID PERSONS THAT THERE IS NO MENTION OF THE TRANSA CTION FOR WHICH COMMISSION WAS BEING PAID TO THEM. HE FURTHER NOTE D THAT ALL THE BILLS HAVE BEEN PREPARED IN THE SAME MANNER. IN VIEW OF THE ABOVE THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE A SSESSEE HAS NOT SUBSTANTIATED THE EXPENDITURE OF RS.11,00,639/- AND HAS NOT ESTABLISHED THAT SUCH EXPENSES QUALIFY FOR DEDUCTION U/S.37(1) OF THE ACT. HE ACCORDINGLY DISALLOWED THE ABOVE AMOUNT. 3 4. BEFORE THE CIT(A) THE ASSESSEE MADE ELABORATE AR GUMENTS. IT WAS SUBMITTED THAT AS AGAINST TURNOVER OF 11.95 CRORES THE EXPENDITURE CLAIMED ON COMMISSION PAYMENT IS ONLY RS.11 LAKHS W HICH IS ONLY 0.92% OF THE TOTAL EXPENDITURE. IT WAS SUBMITTED T HAT THE COMMISSION HAS BEEN PAID TO MOST OF THE SALES REPRESENTATIVES WHO HAVE EARNED INCOME OF ABOUT RS. 1 LAKH AND IT CANNOT BE EXPECT ED THAT THE SAID REPRESENTATIVES SHALL PRINT THEIR OWN BILLS. THERE FORE, INTERNAL VOUCHERS FOR THE COMMISSION PAYMENTS WERE PREPARED WHICH WER E DULY SIGNED BY THE SALES REPRESENTATIVES ACKNOWLEDGING THE RECEIPT OF THE COMMISSION AMOUNT. IT WAS SUBMITTED THAT PAYMENTS FOR COMMISS ION WERE MADE BY ACCOUNT PAYEE CHEQUES AND TAX HAS BEEN DEDUCTED AT SOURCE IN RESPECT OF THE SAID COMMISSION AND THE SAME HAS BEEN DEPOSITED IN THE GOVERNMENT TREASURY. IT WAS FURTHER SUBMITTED THAT MOST OF TH E SALES REPRESENTATIVES HAVE FILED THEIR RETURNS OF INCOME AND DECLARED SUC H COMMISSION INCOME IN THEIR INCOME TAX RETURNS. IT WAS SUBMITTED THA T THE ASSESSING OFFICER CANNOT DIRECT THE ASSESSEE TO CARRY ON BUSINESS IN A PARTICULAR MANNER AND IT IS FOR THE ASSESSEE TO CARRY ON HIS BUSINESS IN THE WAY HE WANTS TO DO. IT WAS EXPLAINED THAT THE NATURE OF BUSINESS OF THE ASSESSEE IS SUCH WHICH REQUIRES PAYMENT OF COMMISSION TO SALES REPRESENTAT IVES AS THE ASSESSEE IS AN INDIVIDUAL AND CANNOT HAVE DIRECT CONTACT WIT H THE CUSTOMERS. RELYING ON VARIOUS DECISIONS IT WAS ARGUED THAT THE COMMISSION PAID TO THE SALES REPRESENTATIVES BEING REASONABLE AND THE ASSESSEE HAS ESTABLISHED THE GENUINENESS OF SUCH EXPENDITURE, TH EREFORE, THE ADDITION SHOULD BE DELETED. 4 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 12.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE, THE ASSESSMENT ORDER AND THE RIVAL SUBMISSIONS. ON PERU SAL OF THE SAME, IT HAS BEEN NOTICED THAT THE A.O. HAS DISALLOWED TH E EXPENDITURE INCURRED STATING THE UNJUSTIFIED REASONS WHICH HAVE BEEN REASONABLY REBUTTED BY THE APPELLANT IN THE ABOVE S TATED SUBMISSION FILED. THE APPELLANT HAS CORRECTLY POINTED OUT THAT THE EXPENDITURE INCURRED IS NECESSARY FOR HIS BUSINESS OF TRADING I N CONSTRUCTION MACHINERY AND EQUIPMENT IN VIEW OF ACUTE COMPETITIO N AND THE EXPENDITURE CLAIMED IS ONLY 0.92% OF THE TOTAL SALE S AND HENCE CANNOT BE SAID TO BE EXCESSIVE. THE APPELLANT HAS S UBMITTED THAT THE PAYMENT HAS BEEN MADE TO THE SALES REPRESENTATI VES ON THE BASIS OF WORK DONE BY THEM AND AFTER CONSIDERING TH EIR PERFORMANCE. THE APPELLANT HAS ALSO CORRECTLY POINT ED OUT THAT THE INCOME OF THE SALES-REPRESENTATIVE IS AROUND RS.1,0 0,000/- PER ANNUM AND THEY CANNOT BE EXPECTED TO PRINT THEIR OW N BILLS. THE INTERNAL VOUCHERS DULY SIGNED BY THE SALES REPRESEN TATIVE ACKNOWLEDGING THE RECEIPT OF COMMISSION IS SUFFICIE NT FOR CLAIMING THE EXPENDITURE, PARTICULARLY IN VIEW OF THE FACT T HAT THE MOST OF THE PAYMENT HAS BEEN MADE BY BANK CHEQUES AND IS SUBJEC TED TO TDS. THE CONTENTIONS OF THE APPELLANT ARE SUPPORTED BY T HE DECISIONS RELIED ON BY THE APPELLANT (SUPRA). IN VIEW OF THE ABOVE FACTS, THE A.O. IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT HAS FAILED TO SUBSTANTIATE THE EXPENDITURE OF RS.11,00,639/- AND HAS NOT ESTABLISHED THAT SUCH EXPENSES QUALIFY FOR DEDUCTIO N U/S. 37(1) OF THE ACT. THE DISALLOWANCE OF COMMISSION EXPENDITURE OF RS.11,00,639/- IS, THEREFORE, DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5.1 AGGRIEVED WITH SUCH ORDER OF THE LD.CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS PAID C OMMISSION OF RS.11,00,639/- TO 13 PARTIES THE DETAILS OF WHICH A RE PLACED AT PAPER BOOK PAGE NO. 4 AND 5 AND WHICH WAS ALSO FILED BEFO RE THE ASSESSING 5 OFFICER. THE SAID LIST CONTAINS THE NAMES OF THE R ECIPIENTS, PAN NO. OF SUCH PERSONS, THE AMOUNT OF COMMISSION PAID TO THEM , THE RATE AND THE PARTICULARS AT WHICH THE COMMISSION HAS BEEN PAID, CHEQUE NUMBER AND DATE ETC. THE SUBMISSION OF THE LD. COUNSEL THAT PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND TAX HAS BEEN DEDU CTED FROM SUCH PAYMENT ALSO COULD NOT BE CONTROVERTED BY THE LD. D EPARTMENTAL REPRESENTATIVE. FROM THE COPY OF THE ORDER, WE FIN D DESPITE THE LIST OF RECIPIENTS WITH PAN NO. ETC. AVAILABLE WITH THE ASS ESSING OFFICER HE HAS NEITHER SUMMONED THOSE PERSONS NOR ASKED THE ASSESS EE TO PRODUCE ANY OF THOSE PERSONS. FURTHER, IT IS NOT THE CASE OF T HE REVENUE THAT ANY OF THE PERSON IS RELATED TO THE ASSESSEE. NOTHING IS ON RECORD TO SHOW THAT SUCH COMMISSION HAS COME BACK TO THE ASSESSEE DIREC TLY OR INDIRECTLY. 6.1 THE HONBLE PATNA HIGH COURT IN THE CASE OF JAM SHEDPUR MOTOR ACCESSORIES STORES VS. CIT, BIHAR AND ORISSA REPORT ED IN 95 ITR 664 AND AS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSE E HAS HELD THAT WHEN A CLAIM FOR ALLOWANCE UNDER SECTION 10(2)(XV) OF THE INCOME TAX ACT IS MADE, THE INCOME TAX AUTHORITIES HAVE TO DECIDE WHE THER THE EXPENDITURE WAS INCURRED VOLUNTARILY AND ON GROUNDS OF COMMERCI AL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON O F THE BUSINESS. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETE RMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSES OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REV ENUE. 6.2 IN THE INSTANT CASE AS ARGUED BEFORE THE LD.CIT (A) THE ASSESSEE IS AN INDIVIDUAL HAVING OFFICES AT NASHIK, SURAT AND A HMEDABAD. 6 THEREFORE, THE SUBMISSION OF THE LD. COUNSEL FOR TH E ASSESSEE THAT IT WAS NOT POSSIBLE ON HIS PART TO CONTACT INDIVIDUAL CUST OMERS AND HAS TO DEPEND ON SALES REPRESENTATIVES FOR PROCURING ORDER S HAVE SOME FORCE IN IT. SINCE IN THE INSTANT CASE THE COMMISSION HAS B EEN PAID BY ACCOUNT PAYEE CHEQUES TO VARIOUS PERSONS, DETAILS ALONG WIT H PAN NOS. ETC WERE FILED BEFORE THE AO, TDS HAS BEEN DEDUCTED FROM SUC H PAYMENTS AND SINCE THE AO HAS NEITHER ASKED THE ASSESSEE TO PROD UCE THOSE PERSONS NOR ISSUED SUMMONS TO THOSE PERSONS, THEREFORE, UNDER T HE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THA T THE ASSESSEE HAS DISCHARGED THE BURDEN CAST ON HIM. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD.CIT( A) WE FIND NO INFIRMITY IN HIS ORDER DELETING THE ADDITION. ACCO RDINGLY, THE SAME IS UPHELD. GROUNDS RAISED BY THE REVENUE ARE DISMISSE D. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 5 TH DAY OF JULY 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA ) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED: 5 TH JULY 2013 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-I, NASHIK 4 CIT-I, NASHIK 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE