Asst.. Comm. of Income-tax, Circle-4, Pune V. M/s. Sanjay Automobile Engineering, Pune

ITA 1370/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9772 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Maximum Marginal Rate; Retrospective amendment
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1370/PN/2011 (ASSESSMENT YEAR: 2006-07) ASSTT. CIT CIR. 4, PUNE .. APPELLANT VS. M/S. SANJAY AUTOMOBILE ENGINEERING 26 WELLESLY ROAD, CAMP PUNE-411 001 PAN AAKFS 9093 K RESPONDENT APPELLANT BY : SHRI S.K. SINGH RESPONDENT BY : SHRI SUNIL GANOO DATE OF HEARING: 07-11-2012 DATE OF PRONOUNCEMENT: 20-11-2012 ORDER PER G.S. PANNU, A.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AURANGABAD DAT ED 26-8-2011 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 30-12-2 008 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSM ENT YEAR 2006-07. 2. IN THIS APPEAL OF THE REVENUE, MULTIPLE GROUNDS OF APPEAL HAVE BEEN RAISED THOUGH THE DISPUTE REVOLVES AROUND TWO ISSUES. THE FIRST DISPUTE RELATES TO AN ADDITION OF RS. 5,6 4,352/- MADE BY THE ASSESSING OFFICER OUT OF COMMISSION EXPENDITURE. T HE SECOND ISSUE RELATES TO DISALLOWANCE BY INVOKING SEC. 40(A)(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE DID NOT DEDUCT THE REQUISI TE TAX AT SOURCE. 3. IN SO FAR AS THE FIRST ISSUE IS CONCERNED, FACTS ARE THAT THE ASSESSEE IS A FIRM WHICH IS ENGAGED IN THE BUSINESS OF DEALING IN MOTOR-CARS, REPAIRS AND SERVICING THEREOF. IT WAS NOTICED THAT THE ASSESSEE IS PAYING COMMISSION TO BROKERS ON CARS SO LD. THE 2 ITA NO. 1370/PN/2011 SANJAY AUTOMOBILES ENGG. A.Y. 2006-07 ASSESSEE HAD PAID A COMMISSION OF RS. 12,71,740/- T O ONE OF ITS SISTER CONCERN M/S. SANJAY FINANCIAL AND MARKETING SOLUTIONS PVT. LTD. (FOR SHORT SEMPL) WHICH WAS HIGHER THAN THE RA TE AT WHICH THE COMMISSION WAS PAID TO THE OTHER BROKERS. ASSESSIN G OFFICER INVOKED THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT AND CONSIDERED THE AMOUNT PAID TO THE SISTER CONCERN OVER AND ABOV E THE RATE OF OTHER BROKERS AS THE AMOUNT DISALLOWABLE U/S 40A(2) (B) OF THE ACT. ACCORDINGLY, DISALLOWANCE WAS MADE AT RS. 5,64,352/ -. THE CIT(A) HAS SINCE DELETED THE ADDITION BY MAKING FOLLOWING DISCUSSIONS: I HAVE CAREFULLY CONSIDERED FACTS OF THE CASE AND THE SUBMISSION OF THE APPELLANT. THE APPELLANT HAS CLA RIFIED THE REASON FOR PAYING HIGHER COMMISSION TO SEMPL COMPARED TO THE OTHER BROKERS. IT IS UNDISPUTED FA CT THAT SEMPL HAS SOLD MUCH MORE CARS THAN VARIOUS OTHER BROKERS WHICH RESULTED INTO SUBSTANTIAL INCOME TO T HE APPELLANT FIRM JUSTIFYING THE PAYMENT OF COMMISSION AT HIGHER RATE. IT IS ALSO UNDISPUTED FACT THAT THE SI STER CONCERN, SEMPL IS LIABLE TO TAX @ 30% I.E. MAXIMUM MARGINAL RATE ON COMMISSION INCOME RECEIVED FROM TH E APPELLANT FIRM. IT HAS BEEN HELD BY HONBLE BOMBAY HIGH COURT IN THE CONCLUDING PARA OF THE DECISION IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL)P. LD. (BOM) (2009) 310 ITR 306 AS UNDER: UNDER THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO 6-P DATED JULY 6, 1968, IT IS STATED THAT NO DISALLOWANCE IS TO BE MADE UNDER SECTION 40A(2) IN RESPECT OF PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE CIT(A) WAS WRONG IN DISALLOWING HALF PER CENT COMMISSION PAID TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASSESSMENT YEARS 1991-92 AND 1992-93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT HOW THE ASSESSEE EVADED PAYMENT OF TAX BY THE ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALSO PAYING TAX AT HIGHER RATE AND COPIES OF THE ASSESSMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. THE SIMILAR RATIO HAS BEEN LAID DOWN BY HONBLE PUN JAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. SIYA RAM GARG (HUF) 237 CTR 321 (P & H). IN VIEW OF THE ABO VE FACTS AND DISCUSSION AND RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE ABOVE MENTIONED DECISIONS, THE 3 ITA NO. 1370/PN/2011 SANJAY AUTOMOBILES ENGG. A.Y. 2006-07 ADDITION OF RS. 5,64,352/- ON ACCOUNT OF ALLEGED EXCESSIVE PAYMENT OF COMMISSION TO SISTER CONCERN I S HEREBY DELETED. THE AO IS DIRECTED ACCORDINGLY GROU ND NO. 5 STANDS ALLOWED. 4. AGAINST THE AFORESAID, LEARNED DR APPEARING FOR THE REVENUE CONTENDED THAT UNDISPUTEDLY THE COMMISSION HAS BEEN PAID TO A SISTER CONCERN AT A RATE HIGHER THAN THAT PAID TO T HE OTHER BROKERS AND THEREFORE, THE ASSESSING OFFICER CORRECTLY INVO KED SEC. 40A(2)(B) OF THE ACT. ON THE OTHER HAND, THE LEARNED REPRESE NTATIVE FOR THE RESPONDENT-ASSESSEE RELIED UPON THE ORDER OF THE CI T(A) AND POINTED OUT THAT IN THIS CASE THE RATE OF TAX APPLICABLE TO THE ASSESSEE AS WELL AS SISTER CONCERN M/S SEMPL WAS SIMILAR AND TH EREFORE, THERE CANNOT BE A SITUATION OF TAX EVASION. IN THE ABSEN CE OF ANY ELEMENT OF TAX EVASION, THE PROVISION OF SEC. 40A(2)(B) OF THE ACT ARE NOT ATTRACTED AS PER THE RATIO OF JUDGMENT OF HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT V. INDO SAUDI SERVICES (TRAVEL) P. LTD. (2009) 310 ITR 306 (BOM), WHICH HAS BEEN RELIED UPON BY THE CI T(A) TO DELETE THE ADDITION. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE ASSESSEE HAS INCURRED EXPENDITURE ON COMMISSION PAY MENT TO PARTIES THROUGH WHOM CAR SALES HAS BEEN MADE. THER E IS NO DISPUTE TO THE FACTUAL POSITION THAT ASSESSEE HAS PAID COMM ISSION TO ITS SISTER CONCERN AT A RATE HIGHER THAN THAT IS PAID T O OTHER PARTIES. THE ASSESSEE HAS POINTED OUT THAT THE SISTER CONCERN WA S PAID A TOTAL COMMISSION OF RS. 12,71,740/- OUT OF TOTAL COMMISSI ON EXPENDITURE OF RS. 14,94,747/- AND THAT AS AGAINST 87 CARS SOLD THROUGH OTHER PARTIES, THE SISTER CONCERN WAS RESPONSIBLE FOR EFF ECTING SALES OF AS MANY AS 276 CARS. IT WAS THUS POINTED OUT THAT SUB STANTIAL SALES HAVE BEEN MADE THROUGH THE SISTER CONCERN. SECONDL Y, AT THE TIME OF HEARING, THE LEARNED COUNSEL HAS ALSO POINTED OU T THAT THE SISTER CONCERN WAS ENGAGED IN FINANCING BUSINESS ALSO WHI CH WAS 4 ITA NO. 1370/PN/2011 SANJAY AUTOMOBILES ENGG. A.Y. 2006-07 RESPONSIBLE FOR INCREASED SALE OF CARS AND THAT SUC H AN ACTIVITY WAS NOT BEING CARRIED OUT BY THE OTHER PARTIES TO WHOM THE COMMISSION HAS BEEN PAID. IN OUR CONSIDERED OPINION, BASED ON THE ABOVE FACTORS, IT CAN BE INFERRED THAT PAYMENT OF COMMISS ION TO THE SISTER CONCERN AT A HIGHER RATE IS JUSTIFIED HAVING REGARD TO THE BUSINESS EXPEDIENCY. IN SUCH A SITUATION, INVOKING OF SECTI ON 40A(2) OF THE ACT, IN OUR VIEW, IS NOT MERITED. FOR THE AFORESAI D REASONS, WE THEREFORE, AFFIRM THE ULTIMATE CONCLUSION DRAWN BY THE CIT(A) FOR HAVING DELETED THE IMPUGNED ADDITION. THUS THE REV ENUE FAILS ON THIS GROUND. 6. THE SECOND GROUND IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. THE ASS ESSING OFFICER HAS MADE THE DISALLOWANCE INVOKING PROVISIONS OF SE C. 40(A)(IA) OF THE ACT. ON APPEAL, THE CIT(A) DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 11. GROUND NO. 7 IS THAT THE ADDITIONAL COMMISSION ER OF INCOME-TAX HAS ERRED IN NOT CONSIDERING CORRECTE D COMPUTATION OF INCOME, CORRECTING MISTAKES AND EFFE CT OF RETROSPECTIVE AMENDMENT BY FINANCE ACT, 2008, SAME MAY PLEASE BE CONSIDERED. 11.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE APPELLANT HAS NOTICED THAT SECTION 40(A)(IA) HAS BE EN AMENDED BY FINANCE ACT 2010 AND HAS PROVIDED THAT I N THE CASES WHERE TAX DEDUCTED AT SOURCE HAS BEEN PAI D BEFORE THE DUE DATE OF FILING RETURN OF INCOME U/S 139(1) NO DISALLOWANCE SHALL BE MADE U/S 40(A)(IA) OF THE ACT. THE APPELLANT HAS CLAIMED THAT THE AMENDMENT IS CLARIFICATORY AND HENCE RETROSPECTIVE AND HENCE APPLICABLE TO THE YEAR UNDER APPEAL. IN SUPPORT OF THIS PROPOSITION THE APPELLANT HAS RELIED ON THE FOLLOWI NG DECISIONS: (1) BANSAL PARIVAHAN (I) (P) LTD. VS. ITO (2011) 53 DTR 40 (BOM)(TRIB) (2) GOLDEN STABLES LIFE STYLES CENTRE PVT.LTD. VS. CIT ITA NO. 5145/MUM/2009 REPORTED IN BCAJ NOVEMBER 2010 PAGE 27. THE APPELLANT HAS THEREFORE FILED REVISED COMPUTATI ON OF INCOME WITHOUT DISALLOWING THE EXPENDITURE IN RESPE CT OF WHICH TDS HAS BEEN CLAIMED TO HAVE BEEN PAID BEFORE THE DUE DATE OF RETURN. THE ABOVE CONTENTION OF TH E 5 ITA NO. 1370/PN/2011 SANJAY AUTOMOBILES ENGG. A.Y. 2006-07 APPELLANT IS FOUND TO BE CORRECT AND SUPPORTED BY T HE DECISIONS RELIED ON BY THE APPELLANT AND HENCE ACCE PTED THE AO IS DIRECTED TO REDUCE THE DISALLOWANCE MADE BY THE APPELLANT IN THE RETURN OF INCOME FILED FOR DEL AY IN PAYMENT OF TDS IN THE CASES WHERE THE TDS HAS BEEN PAID BEFORE THE DUE DATE OF FILING THE RETURN OF IN COME PRESCRIBED U/S 139(1) OF THE ACT. GROUND NO. 7 STA NDS ALLOWED AS ABOVE. 7. IT IS SEEN THAT ON AN IDENTICAL ISSUE RAISED BY THE REVENUE, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF A SSTT. CIT CIR. 9, PUNE VS. H.A. DEVELOPERS AND VICE VERSA IN ITA NO. 373 AND 611/PN/2009 FOR A.Y. 2005-06 DATED 27-4-2012, THE T RIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSE RVING AS UNDER: IN VIEW OF ABOVE, FOLLOWING THE JUDGMENT OF HONBL E CALCUTTA HIGH COURT IN THE CASE OF VIRGIN CREATIONS IN ITA NO. 302 OF 2011 GA 3200 OF 2011 DATED 23-11-201 1, WE HOLD THAT AMENDMENT TO THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT BY THE FINANCE ACT, 2010 IS RETROSPECTIVE FROM 1-4-2005. CONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE DURING PREVIOUS Y EAR RELEVANT TO AND FROM A.Y. 2005-06 CAN BE MADE TO TH E GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING RET URN OF INCOME U/S 139(1) OF THE ACT. IF THE PAYMENTS ARE M ADE AS AFORESAID, THEN NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT CAN BE MADE. ADMITTEDLY, IN THE PRESENT CASE TH E ASSESSEE HAD DEPOSITED THE TAX DEDUCTED AT SOURCE O N OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S 139(1) OF THE ACT AND THEREFORE, WE HOLD THAT THE C IT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. ACCORDINGLY, WE UPHOLD THE OR DER OF THE CIT(A) ON THIS ISSUE. 8. FOLLOWING THE AFORESAID PRECEDENT, THE CIT(A) WA S JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. RESULTANTLY, THIS GROUND OF APPEAL RAISED BY THE REVENUE IS ALSO DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER 2012. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 20 TH NOVEMBER 2012 ANKAM 6 ITA NO. 1370/PN/2011 SANJAY AUTOMOBILES ENGG. A.Y. 2006-07 COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE CIT (A) V PUNE 4. THE CIT- V PUNE 5. THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T. A.T., PUNE. BY ORDER //TRUE COPY// SR. P.S. I.T.A.T., PUNE