Asst. CIT, Circle-1, Nashik V. M/s. Advance Pesticide, Nashik

ITA 1384/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8496 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Assessee Lawyers: V L JAIN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1384/PN/2013 (A.Y: 2010-11) ACIT, CIRCLE 1, NASHIK APPELLANT VS. M/S. ADVANCE PESTICIDE VITHOBA NAGARI INDUSTRIAL ESTATE GATE NO.152, BRAHMANWADE, TAL. SINNAR, DIST. NASHIK-422205. PAN: AAKFA8531G RESPONDENT APPELLANT BY : SHRI B.C. MA LAKAR RESPONDENT BY : SHRI V.L. JAIN DATE OF HEARING: 05.08.2014 DATE OF ORDER : 20.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, NASHIK, D ATED 29.04.2013 FOR A.Y. 2010-11 ON THE FOLLOWING GROUND S. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)-I NASHIK WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF PETROL AND DIESEL EXPENSES, INTEREST ON VEHICLE LOAN, TELEPHONE EXPENSES AND CONVEYANCE EXPENSES OF RS.1,88,314/-. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)-I, NASHIK WAS JUSTIFIED IN DELE TING THE ADDITION ON ACCOUNT OF ADHOC DISALLOWANCE OF 50% OU T OF COMMISSION EXPENSES OF RS.22,95,100/-. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE ASSESS ING OFFICER MAY BE RESTORED. 4. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDE NCE TO SUBSTANTIATE HIS CASE. 2 ITA NO.1384 OF 13 M/S. ADVANCE PESTICIDE 5. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY , AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN T HE OCCASION DEMANDS. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF MANUFACTURING OF PESTICIDES, INSECTICIDES, MICRO NUTRIENT & BIO FERTILIZERS. THE ASSESSEE FIRM FILED RETURN OF INC OME ON 28.09.2010 DECLARING TOTAL INCOME AT RS.42,63,500/- . THE ASSESSING OFFICER HAS ASSESSED THE INCOME OF THE AS SESSEE AT RS.67,75,758/- BY MAKING ADDITION OF RS.28,844/- U/ S.40(A)(IA), RS.1,88,314/- TOWARDS ADHOC 10% DISALLOWANCE OUT OF CONVEYANCE, VEHICLE & TELEPHONE EXPENSES AND RS.22, 95,100/- OUT OF COMMISSION EXPENSES @ 50% ON ADHOC BASIS. 3. THE FIRST ISSUE BEFORE US IS WITH REGARD TO ADDI TION OF RS.1,88,314/- ON ACCOUNT OF ADHOC DISALLOWANCE @ 10 % OUT OF PETROL AND DIESEL EXPENSES, INTEREST ON VEHICLE LOA N, TELEPHONE EXPENSES AND CONVEYANCE EXPENSES BY STATING PERSONA L ELEMENT IN THE ABOVE EXPENSES COULD NOT BE RULED OUT. THE ASSESSEE IS A FIRM AND THE LEDGER EXTRACT OF THE EXPENDITURE SHOW S THAT MOST OF THE EXPENDITURE WAS INCURRED BY THE EMPLOYEES. HOW EVER, IT COULD NOT BE SAID THAT THERE WAS NO EXPENDITURE INC URRED BY THE PARTNERS. THE ISSUE WAS NOT THAT OF GENUINENESS OF THE PAYMENT, BUT THE LIMITED ISSUE IS WHETHER THE ENTIRE EXPENDI TURE UNDER THIS HEAD WAS INCURRED FOR WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF ASSESSEE'S BUSINESS AND WHETHER IT WAS REASONABLE W ITH REGARD TO THE ASSESSEE'S BUSINESS TURNOVER. THE BURDEN IS ON THE ASSESSEE TO ESTABLISH THAT THE EXPENSES WERE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. NO LOG BO OK IN RESPECT OF RUNNING OF THE CARS OR CALL BOOK FOR THE TELEPHONE EXPENSES WAS MAINTAINED BY THE ASSESSEE. THEREFORE, THE AUTHORI TIES BELOW HAVE OBSERVED THAT THE PERSONAL ELEMENT IN THESE EX PENSES COULD NOT BE RULED OUT. SO, THE WHOLE EXPENSES WERE NOT FOUND WHOLLY 3 ITA NO.1384 OF 13 M/S. ADVANCE PESTICIDE AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSIN ESS. THEREFORE, A REASONABLE AMOUNT HAS TO BE ESTIMATED FOR DISALLOWANCE CONSIDERING IT TO BE NOT WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.L,88,314/- WHICH WAS 10% OF THE TOTAL EXPENDITURE DEBITED UNDER THIS HEAD. THE CIT(A) FO UND THAT THIS ESTIMATION IS ON HIGHER SIDE AND HE HAS RESTRICTED THE DISALLOWANCE TO RS.50,000/- BY GRANTING PART RELIEF TO THE ASSESSEE. ACCORDING TO US, THIS REASONED FINDING O F CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE WHEREBY THE CIT(A) HA S RESTRICTED THE DISALLOWANCE TO RS.50,000/- OUT OF RS.1,88,314/ -. WE UPHOLD THE SAME. 4. THE SECOND ISSUE BEFORE US IS IN RESPECT OF ADDI TION OF RS.22,95,100/- ON ACCOUNT OF ADHOC DISALLOWANCE OF 50% OUT OF COMMISSION EXPENSES. THE ASSESSING OFFICER HAS MAD E THIS ADDITION FOR THE FOLLOWING REASONS: I) THE COMMISSION WAS PAID IN LUMP SUM. II) NO QUALIFICATION OF THE PERSONS RENDERING COMMISSIO N HAS BEEN STATED AND CO- RELATED. III) THE COMMISSION PAID TO 4 PERSONS OF 2 FAMILIES IS ON HIGHER SIDE AND THE SAME IS RS.3.82 LACS PER MONTH I.E. ABOUT RS.95,000/- PER PERSONS PER MONTH. IV) IN THE PRECEDING YEAR COMMISSION PAID WAS RS.19,000/- WHERE AS IN THE CURRENT YEAR IT IS RS.45,90,200/- WHICH IS ON MUCH HIGHER SIDE AND IS EXCESSIVE. V) THE NATURE OF SERVICES RENDERED ARE NOT SATISFYING THE NEED TO PAY THE COMMISSION OF RS.45,90,200/-. 4.1 THE MATTER WAS CARRIED BEFORE FIRST APPELLATE A UTHORITY, WHEREIN THE VARIOUS CONTENTIONS WERE RAISED ON BEHA LF OF THE ASSESSEE. IN APPEAL, HAVING CONSIDERED THE SUBMISS IONS OF THE ASSESSEE, THE CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE SAME HAS BEEN OPPOSED BEFOR E US ON BEHALF OF THE REVENUE, INTER ALIA, SUBMITTED THAT T HE CIT(A), WAS NOT JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT O F ADHOC 4 ITA NO.1384 OF 13 M/S. ADVANCE PESTICIDE DISALLOWANCE OF 50% OUT OF COMMISSION EXPENSES OF RS.22,95,100/-. ACCORDINGLY, THE DEPARTMENTAL REPR ESENTATIVE HAS REQUESTED TO SET ASIDE THE ORDER OF CIT(A) AND THAT OF ASSESSING OFFICER BE RESTORED ON THE ISSUE. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A) ON THE ISSUE. 4.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS DISA LLOWED 50% COMMISSION EXPENSES PAID TO THE FOUR PERSONS AS EXC ESSIVE, CONSIDERING THAT IN THE PRECEDING YEAR THE SAID EXP ENDITURE WAS ONLY RS.19,000/-, WHEREAS, DURING THE YEAR UNDER AP PEAL THE COMMISSION PAID WAS RS.45,90,200/-. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SERVICES RENDERED WERE NOT SUFFICIENT TO JUSTIFY THE COMMISSION PAYMENT OF RS.45,90,200/-. THE ASSESSING OFFICER HAS FURTHER STATED THAT THE ASSES SEE HAS ALSO NOT SUBMITTED THE QUALIFICATION OF THE PAYEES AND A LUMP SUM PAYMENT HAS BEEN MADE TO THE PAYEES. THE LEARNED A UTHORIZED REPRESENTATIVE ON BEHALF OF THE ASSESSEE HAS STATED THAT ALL THE PERSONS ARE GRADUATES AND ARE BASICALLY FROM AGRICU LTURISTS FAMILIES AND HAVE SUBSTANTIAL EXPERIENCE IN THE FIE LD OF AGRICULTURE. HE FURTHER POINTED OUT THAT THEY HAVE RENDERED FOLLOWING SPECIFIC SERVICES: I) THE EMPLOYEES OF THE APPELLANT FIRM HAVE BEEN TRAIN ED DURING THE WHOLE YEAR IN RESPECT OF THE DEMONSTRATI ONS TO BE GIVEN TO THE FARMERS ON THE FIELD IN RESPECT OF USE OF PESTICIDES, INSECTICIDES, MICRONUTRIENT & BIO FERTI LIZERS. II) THE EMPLOYEES OF THE APPELLANT FIRM HAVE BEEN TRAIN ED DURING THE WHOLE YEAR BY POINTING OUT TO THEM THE S PECIAL FEATURES AND ADVANTAGES OF THE PRODUCTS OF THE CONC ERN AND HOW TO COMMUNICATE THE SAME TO THE FARMERS. III) THE PAYEES OF THE COMMISSION HAVE VISITED VARIOUS DEALERS ALLOVER MAHARASHTRA AND ALSO IN SURROUNDING STATES OF MAHARASHTRA FOR GIVING DEMONSTRATIONS TO THE DEA LERS AND ALSO THE FARMERS OF THE SAID AREA. 5 ITA NO.1384 OF 13 M/S. ADVANCE PESTICIDE IV) THE PAYEES HAVE USED THEIR CONTACTS AND NET WORK OF THEIR CONTACTS TO INCREASE THE TURNOVER OF THE APPE LLANT. 4.3. WE FIND THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD SUBMITTED A DETAILED NOTE ON THE PA YMENT OF THE COMMISSION AND THE VARIOUS SERVICES RENDERED BY THE SE PERSONS. NO SPECIFIC DEFECT HAS BEEN FOUND BY THE ASSESSING OFFICER IN THE EXPLANATION GIVEN BY THE ASSESSEE IN THIS REGARD. IN ADDITION TO THE ABOVE SPECIFIC SERVICES, THE PAYEES OF COMMISSI ON HAVE ALSO RENDERED VARIOUS OTHER GENERAL SERVICES FOR INCREAS ING THE SALE OF THE ASSESSEE FIRM AND DUE TO THEIR SERVICES THE SAL E OF THE ASSESSEE FIRM HAS INCREASED BY MORE THAN RS.10 CROR ES AND ACCORDINGLY THE GROSS PROFIT HAS ALSO BEEN INCREASE D BY ABOUT RS.2 CRORES. IN VIEW OF THE ABOVE FACTS, THE COMMI SSION PAID TO THE EXTENT OF RS. 45,90,200/- WAS REASONABLE AND NO T EXCESSIVE. MOREOVER, THE PAYMENT HAS BEEN MADE BY ACCOUNT PAYE E CHEQUES IN SUBSEQUENT YEAR AND THE TDS ON THE SAID COMMISSI ON EXPENDITURE HAS BEEN DEDUCTED AND PAID BY THE ASSES SEE FIRM. THE COMMISSION HAS BEEN DECLARED IN THE RETURNS OF INCOME FILED BY THE PAYEES OF THE COMMISSION. IT IS NOT THE CAS E OF THE ASSESSING OFFICER THAT THE COMMISSION OF BOGUS OR N ON-GENUINE AS HE HAS ACCEPTED THE SAID COMMISSION TO THE EXTEN T IS 50% AND HAS DISALLOWED THE SAME TO THE EXTENT OF 50% CONSID ERING THE SAME TO BE EXCESSIVE. IT IS FOR THE ASSESSEE, WHO KNOWS THE BUSINESS AND NEEDS OF ITS BUSINESS AND THE REVENUE SHOULD NOT SIT IN THE CHAIR OF BUSINESS DECISION OF THE ASSESS EE. WE FIND THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS, THE RE VENUE COULD NOT JUSTIFIABLY CLAIM TO PUT, ITSELF IN THE ARM-CHA IR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EX PENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOM E TAX 6 ITA NO.1384 OF 13 M/S. ADVANCE PESTICIDE AUTHORITIES MUST NOT PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE A UTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POI NT BUT THAT OF A PRUDENT BUSINESSMAN. THE HONBLE SUPREME COURT H AS TAKEN A SIMILAR VIEW IN THE CASE OF S.A. BUILDERS LTD. VS . CIT (2007) 288 ITR 1 (SC). IN VIEW OF ABOVE DISCUSSION, WE HOLD T HAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDIT ION OF RS.22,95,100/- ON ACCOUNT OF ADHOC DISALLOWANCE OF 50% OUT OF COMMISSION EXPENSES AND THE SAME WAS RIGHTLY DELETE D BY THE CIT(A). THIS REASONED FINDING OF CIT(A) NEEDS NO I NTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 20 TH DAY OF AUGUST, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH AUGUST, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-I, NASHIK 4) THE CIT-I, NASHIK 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE