ACIT, Chandigarh V. M/s Sagar Eductech (P) Ltd., Chandigarh

ITA 1388/CHANDI/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8554 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Business income; Depreciation; Business expenditure
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.1388/CHD/2010 (ASSESSMENT YEAR : 2007-08) THE A.C.I.T., VS. M/S SAGAR EDUCTECH (P) LTD., CIRCLE 5(1), # 11041, SECTOR 27-B, CHANDIGARH. CHANDIGARH. PAN: AACCM4738J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : SHRI VISHAL MOHAN, AR DATE OF HEARING : 02.11.2015 DATE OF PRONOUNCEMENT : 27.01.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CHANDGARH DATED 3.8.2010 FOR ASSESSMENT YEAR 2007-08. 2. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE, HENCE NEEDS NO ADJUDICATION. 2 3. THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE ADDITION OF RS.29,23,100/-. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID COMMISSION OF RS.29,23,100/- I.E. RS.27,39,100/- TO SHRI SUNIL KUMAR AND RS. 1,84,000/- TO SHRI SOHAN LAL. IN ORDER TO VERIFY THE COMMISSION PAID TO SHRI SUNIL K UMAR, SUMMONS UNDER SECTION 131 OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT) WERE ISSUED THROUGH INSPECTOR FOR HIS PERSONAL ATTENDANCE AT THE GIVEN ADDRESS. ON THIS ADDRESS, THE INSPECTOR FOUND THAT IT WAS OWNED BY S HRI LAJPAT RAI GARG AND THE OCCUPANTS OF THE HOUSE DOES NOT KNOW SHRI SUNIL KUMAR AND THEY STATED THAT THEY HAV E NEVER LET OUT THIS HOUSE TO ANYBODY. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE SHRI SUNIL KU MAR ALONGWITH BANK PASSBOOK AND HIS PAN TO JUSTIFY HIS CLAIM. THE ASSESSEE FAILED TO DO SO AND STATED THAT IT HAS NOTHING TO COMMENT ON THE SAME EXCEPT THE AVAILABILITY OF A DDRESS OF SHRI SUNIL KUMAR. IT WAS CONTENDED BY THE ASSE SSEE THAT THE COMMISSION WAS PAID TO COMMISSION AGENT WH O FACILITATED THE SALE OF UNIT OF THE ASSESSEE COMPAN Y AND TDS WAS DULY DEDUCTED AND THE ASSESSEE FURNISHED TH E COPY OF TDS RETURN AND CLAIMED THAT THE COMMISSION HAS BEEN OUT OF SALE PROCEEDS, WHICH IS ALLOWABLE EXPENDITURE. AS REGARDS THE COMMISSION OF RS.1,84 ,000/- PAID TO SHRI SOHAN LAL, THE ASSESSEE WAS ASKED TO P RODUCE 3 SHRI SOHAN LAL TO VERIFY THIS ALONGWITH PAN NUMBER AND HIS COMPLETE ADDRESS. THE ASSESSEE COULD NOT PRODU CE HIM AND STATED THAT SHRI SOHAN LAL COULD NOT BE CON TACTED DESPITE SEVERAL EFFORTS MADE IN RESPECT OF THE SAME . SINCE THE ASSESSEE WAS UNABLE TO PRODUCE THE COMMISSION A GENT AND ALSO UNABLE TO FILE PAN NUMBER, THE IDENTITY AN D GENUINENESS OF THE COMMISSION REMAINED UNVERIFIED A ND IN THIS WAY, THE ASSESSING OFFICER MADE DISALLOWANCE O F RS.29,23,100/-. 5. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD LAND MEASURING 23 BIGHAS AND 7 BI SWAS AT VILLAGE MADHOPUR FOR CONSIDERATION OF RS.10,62,42,500/- AND ANOTHER LAND MEASURING 6 BIGH AS AND 15 BISWAS AT VILLAGE SADHE MAJRA, TEHSIL DERA B ASSI, DISTT. PATIALA FOR A SUM OF RS.3,07,12,500/- ON THE TOTAL SALE CONSIDERATION OF RS.13,69,55,000/-. THE ASSES SEE HAD PAID COMMISSION @ 2% AMOUNTING TO RS.27,39,100/ - TO SHRI SUNIL KUMAR, WHO IS A REAL ESTATE AGENT. I T WAS SUBMITTED THAT THE ASSESSEE HAD DISCHARGED ITS ONUS BY DULY DEDUCTING THE TAX AT SOURCE AS CONTEMPLATED UN DER THE PROVISIONS OF THE ACT. COPIES OF TDS RETURNS W ERE DULY PLACED ON RECORD. FURTHER, BANK STATEMENTS, W HICH SHOWED THE PAYMENT OF COMISSION TO SHRI SUNIL KUMAR TOGETHER WITH PHOTOCOPIES OF RECEIPTS ISSUED BY SHR I SUNIL KUMAR AND PHOTOCOPIES OF DEBIT VOUCHERS MAINTAINED BY THE ASSESSEE WERE ALSO PLACED ON RECORD. THE ASSES SEE 4 STATED THAT IT HAD PAID COMMISSION AMOUNT BY MEANS OF AN ACCOUNT PAYEE CHEQUE. THE ASSESSING OFFICER COULD HAVE VERIFIED FROM THE BANK ABOUT THE IDENTITY AND GENUI NENESS OF THE SAID PAYMENT. IN THIS MANNER, THE ASSESSEE HAD DISCHARGED ITS DUTY WHILE THE ASSESSING OFFICER HAD FAILED TO DISCHARGE HIS BURDEN TO VERIFY THE EVIDENCES, WH ICH WERE PUT-FORTH BEFORE HIM. 6. WITH REGARD TO PAYMENT MADE TO SHRI SOHAN LAL, IT WAS STATED THAT DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAD PURCHASED LAND AT VILLAGE KAIMBALA FOR A TOTAL CONSIDERATION OF RS.11,23,18,375/- AND ON TH E SAID DEAL THE ASSESSEE HAD PAID COMMISSION @ 1.5% TO SHR I SOHAN LAL AMOUNTING TO RS.1,84.000/-. THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS LOST SIGHT OF THE FACT THAT NO EXPENDITURE HAD BEEN CLAIMED BY THE AS SESSEE COMPANY ON THE SAID PAYMENT OF COMMISSION. THE FAC T IS THAT THE ASSESSEE COMPANY HAD MADE AN ADDITION TO T HE FIXED ASSET AND COMMISSION HAVING PAID ON THE SAME WAS DULY CAPITALIZED. IN THIS MANNER, THE ASSESSEE EXP LAINED THAT SINCE NO EXPENDITURE WAS CLAIMED, THE DISALLOW ANCE IS ABSOLUTELY ILLEGAL AND UNSUSTAINABLE IN THE EYES OF LAW. 7. THE LEARNED CIT (APPEALS) ALLOWED THE APPEAL OF THE ASSESSEE. THIS WAS HELD BY THE LEARNED CIT (AP PEALS) AFTER OBSERVING THAT THE ASSESSEE HAD ADDUCED EVIDE NCE IN SUPPORT OF HIS CONTENTION AND IT WAS THE DUTY OF TH E ASSESSING OFFICER TO PRODUCE SOME MATERIAL, WHICH C OULD REBUT THE GENUINENESS OF THE EVIDENCE FILED, BUT FR OM THE 5 ASSESSMENT ORDER NO SUCH MATERIAL HAS BEEN FOUND. THE LEARNED CIT (APPEALS) OBSERVED THAT BY ASKING THE ASSESSEE TO PRODUCE THE PERSON TO WHOM THE COMMISSI ON HAS BEEN PAID IS NOT LOGICAL AT ALL SINCE THE COMMI SSION AGENT IS NOT UNDER THE DIRECT CONTROL OF THE ASSESS EE. 8. AGGRIEVED BY THIS, THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US. THE LEARNED D.R. RELIED ON TH E ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT SINCE THE COMMISSION AGENTS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER HAS RIGHTL Y DISALLOWED THE COMMISSION. 9. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 10. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE COMMI SSION AMOUNTING TO RS.29,23,100/- HAS BEEN PAID TO SHRI S UNIL KUMAR AND SHRI SOHAN LAL. AS REGARDS THE COMMISSI ON PAID TO SHRI SUNIL KUMAR, WE ARE IN AGREEMENT WITH THE CONCLUSION ARRIVED AT BY THE LEARNED CIT (APPEALS). THE COMMISSION HAS BEEN PAID ON SALE OF CERTAIN LAND. IN SUCH TRANSFER OF PROPERTY TRANSACTION, IT IS VERY C OMMON PRACTICE TO PAY COMMISSION TO THE BROKERS. THE ASSE SSEE HAS MADE PAYMENT THROUGH BANKING CHANNELS. DUE TAX HAS BEEN DEDUCTED OUT OF THE PAYMENTS MADE. THESE TYPE 6 OF TRANSACTIONS ARE NOT DONE REGULARLY BY AN ASSESS EE AND ARE OF STAND ALONE NATURE, THEREFORE, IT IS NOT UNL IKELY THAT THE ASSESSEE IS NOT IN CONTACT WITH THE COMMISSION AGENT. WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD, JU ST ON THE BASIS OF NON-PRODUCTION OF THE COMMISSION AGENT , THE DISALLOWANCE CANNOT BE MADE. WITH REGARD TO THE COMMISSION PAID TO SHRI SOHAN LAL, FROM THE PERUSAL OF THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET TOGETHE R WITH THE ANNEXURE FILED BEFORE US IN THE FORM OF PAPER B OOK, WE SEE THAT THE ASSESSEE HAS NOT CLAIMED THIS AMOUNT O F COMMISSION IN ITS PROFIT & LOSS ACCOUNT, WHICH SHOW S THAT THE EXPENDITURE HAS NOT BEEN MADE OUT OF BUSINESS INCOME. HOWEVER THE ASSESSEE HAS PURCHASED CERTAIN LANDS DURING THE YEAR ON WHICH IT CLAIMED THE PAYME NT OF SAID COMMISSION AND THIS COMMISSION AMOUNT HAS BEEN CAPITALIZED WITH THE COST OF THE LAND IN THE FIXED ASSET SCHEDULE OF THE ASSESSEE. NOW, THE QUESTION BEFORE US IS WHETHER THE SAID AMOUNT OF COMMISSION IS TO BE TREA TED AS AN ALLOWABLE EXPENDITURE OR NOT. WE DO NOT UNDERST AND THAT ONCE THE EXPENDITURE HAS NOT BEEN CLAIMED BY T HE ASSESSEE, HOW CAN THE ASSESSING OFFICER MAKE DISALLOWANCE OF THE SAME. THE ASSESSEE HAS NOT CLA IMED COMMISSION EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT AND EVEN THE AMOUNT WHICH HAS BEEN CAPITALIZED WITH THE COST OF THE LAND, THERE IS NO TAX IMPLICATION ON THE SAM E AS EVEN THE DEPRECIATION IS NOT ALLOWABLE ON THE LAND. ON THIS COUNT ALONE, THE ASSESSING OFFICER CANNOT DISA LLOW THE 7 COMMISSION AMOUNT. THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 11. THE GROUND OF APPEAL NO.3 RAISED BY THE REVENU E IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE ADDITION OF RS.33,20,241/- ON ACCOUNT OF INTEREST BY SHOWING INCOME FROM OTHER SOURCES, WH ILE THE ASSESSEE HAD SET OFF AGAINST THE BUSINESS EXPENDITU RE OF THE COMPANY. 12. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS.33,20, 241/- WHICH HAD BEEN SET OFF AGAINST THE BUSINESS EXPENDI TURE OF THE COMPANY. ON ASKING BY THE ASSESSING OFFICER , THE ASSESSEE EXPLAINED THAT IT HAD SHOWN DIVIDEND AND INTEREST INCOME UNDER THE HEAD BUSINESS INCOME AN D IT IS DULY AUTHORIZED BY THE MEMORANDUM OF ASSOCIATION OF THE COMPANY TO INVEST THE FUNDS OF THE COMPANY IN SUCH SHARES, STOCKS, INVESTMENTS AS A PART AND PARCEL OF THE BUSINESS ACTIVITIES. THEREFORE, THE SAME HAS BEEN RIGHTLY CLAIMED UNDER THE HEAD BUSINESS INCOME. THE ASSE SSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE OBS ERVING THAT NO SUCH OBJECT EXISTED IN THE MEMORANDUM OF ASSOCIATION AND MOREOVER THE ASSESSEE ITSELF CLAIME D THAT IT HAD INVESTED SALE PROCEEDS AND CAPITAL GAINS TO MAKE FURTHER INVESTMENTS, AS SUCH THIS ACTIVITY WAS NOT CONNECTED WITH THE BUSINESS DIRECTLY OR INDIRECTLY BUT SURPLUS FUNDS INVESTED IN FDRS IN VARIOUS BANKS AND 8 INTEREST INCOME THEREON HAD BEEN WRONGLY CLAIMED AS BUSINESS INCOME BECAUSE THE INTEREST INCOME FELL UN DER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE INTEREST INCOME CAN NOT BE TREATED AS BUSINESS INCOME AND TREATING THE SAME AS INCOME FROM OTHER SOURCES, NO SET OFF OF BUSINESS EXPENDITURE AGAINST THIS INCOME WAS ALLOWED. 13. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE CONTENDED THAT THE MEMORANDUM OF ASSOCIATION DULY AUTHORIZES IT TO CARRY ON OTHER BUSINESS INCLUDING REAL ESTATE BUSINESS AND INVESTMENT BUSINESS, AS A CLAUS E IN MEMORANDUM OF ASSOCIATION, AUTHORIZES THE ASSESSEE TO INVEST THE FUNDS OF THE COMPANY IN SHARE, STOCKS, INVESTMENTS, ETC. WHATEVER INVESTMENT HAS BEEN MA DE IN THE SHAPE OF FDRS, ETC. ARE VERY MUCH WITHIN THE OBJECTIVES CLAUSE OF THE COMPANY. THE LEARNED CIT (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E HOLDING THAT THE ASSESSING OFFICER HAS WRONGLY HELD THAT THE COMPANY HAS MADE INVESTMENT ULTRA-VIRUS OF ITS OBJECTS. FURTHER RELYING ON THE ORDER OF THE TRIBU NAL IN THE CASE OF PONDS EXPORTS LTD. VS. ITO (1996) 58 I TD 417, WHEREBY IT HAS BEEN HELD THAT THE DEPOSITS IN THE B ANKS WERE MADE WITH THE MONEY RECEIVED IN THE EXPORT BUS INESS AND THE INTEREST INCOME SPRINGING OUT OF THESE DEPO SITS ARE FROM THE BUSINESS ACTIVITIES OF THE ASSESSEE. SINCE THE ASSESSING OFFICER HAD NOT BEEN ABLE TO ESTABLIS H THAT 9 THE AMOUNT INVESTED IN THE SECURITIES OR BANK ARE N OT OUT OF BUSINESS INCOME AND THE SAME CANNOT BE TREATED A S INCOME FROM OTHER SOURCES. 14. AGGRIEVED BY THIS, THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US. THE LEARNED D.R. RELIED ON TH E ORDER OF THE ASSESSING OFFICER AND THE LEARNED COUNSEL FO R THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT (AP PEALS). 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE LEARNED CIT (APPEALS ), WE DO NOT FIND ANY INFIRMITY IN HIS ORDER, WHEREBY AT PAGE 10, HE DELETED THE ADDITION HOLDING AS UNDER : 15. AFTER PERUSAL OF THE SUBMISSION OF THE APPELLA NT AND ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER, I FIND THAT AO HAS TREATED THE INTEREST INCOME AS INCOME FROM O THER SOURCES' BUT DID NOT GIVE ANY REASONING FOR DENYING THE BENEFIT OF BUSINESS INCOME. THE ONLY ARGUMENT PUT FORTH BY TH E ASSESSING OFFICER IS THAT NO SUCH OBJECT EXIST IN MEMORANDUM OF ASSOCIATION. I HAVE PERUSED THE COPY OF THE MEM ORANDUM OF ASSOCIATION, WHICH WAS ALSO PRODUCED BEFORE THE ASSESSING OFFICER, AND FOLLOWING HAS BEEN OBSERVED :- THE CLAUSE B OF THE MEMORANDUM OF ASSOCIATION READS AS UNDER :- (B) OBJECTS ANCILLARY OR INCIDENTAL TO THE ATTAINMENT OF THE MAIN OBJECTS ARE:- 1 2.. 10 3..... 4.. 5.. 6.... 7... 8.... 9. TO INVEST IN OTHER INVESTMENT IN COMPANY'S OWN SH ARE AND DEAL WITH THE MONEYS OF THE COMPANY NOT IMMEDIATELY REQUIRED UPON SUCH SECURITIES AND IN SUCH MANNER AS MAY FROM TIME TO TIME BE DETERMINES, PROVIDING THAT THE COMPANY SHAL L NOT CARRY ON THE BANKING BUSINESS AS PER PROVISIONS OF BANKING REGULATION ACT, 1949. 16. FROM THE PERUSAL OF THE ABOVE OBJECTS OF THE AP PELLANT COMPANY, IT IS QUITE .CLEAR THE ASSESSING OFFICER HA S WRONGLY HELD THAT THE COMPANY HAS MADE INVESTMENT ULTRA VIRU S OF ITS OBJECTS. MOREOVER, THE INVESTMENT HAS BEEN MADE OUT OF THE INCOME EARNED DURING THE BUSINESS ACTIVITIES OF THE APPELLANT COMPANY AND THE SAME IS LIABLE TO BE TREATED AS BUSI NESS INCOME. IN THE CASE OF PONDS EXPORTS LTD VS ITO )19 96) 58 ITD 417, THE HON'BLE TRIBUNAL HELD THAT IT COULD BE SEEN T HAT THE DEPOSITS IN THE BANKS WERE MADE WITH THE MONEY RECEI VED IN THE EXPORT BUSINESS AND IN THAT SENSE THE INTEREST INCO ME SPRANG FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. IT DID NOT ARISE OUT OF ANY INDEPENDENT ACTIVITY. THEREFORE, THE COMMISSION ER OF INCOME TAX(A) WAS JUSTIFIED IN HOLDING THAT INTERES T ON BANK DEPOSITS WAS ASSESSABLE UNDER THE HEAD 'BUSINESS INC OME'. 17. IN THE CASE UNDER APPEAL, THE ASSESSING OFFICER DID NOT ESTABLISH THAT THE AMOUNT INVESTED IN THE SECURITIE S OR BANK IS NOT OUT OF BUSINESS INCOME AND IN THE ABSENCE OF SU CH A FINDING THE INCOME CANNOT BE TREATED AS INCOME FROM OTHER S OURCES. 11 16. WE ARE IN AGREEMENT WITH THE FINDINGS GIVEN BY THE LEARNED CIT (APPEALS). WE HAVE PERUSED THE COP Y OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, WHEREBY AT CLAUSE 9, IT HAS BEEN DULY AUTHORIZED TO MAKE INVESTMENT OF THE FUNDS NOT REQUIRED IMMEDIATELY IN ANY KIND OF SECURITIES OR IN BUSINESS ETC. WITH THIS C LAUSE, IT CANNOT BE SAID THAT THE ASSESSEE HAS EARNED INTERES T ON AN ACTIVITY WHICH IS NOT AUTHORIZED BY THE MEMORAND UM OF ASSOCIATION. THEREFORE, THE INTEREST IS TO BE TREA TED AS BUSINESS INCOME. WE DO NOT FIND ANY REASON TO INT ERFERE WITH THE FINDINGS OF THE LEARNED CIT (APPEALS). TH IS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED . 17. THE GROUND NOS.4 AND 5 RAISED BY THE REVENUE ARE GENERAL IN NATURE AND, HENCE NEED NO ADJUDICATI ON. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JANUARY, 2016. SD/- SD/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 27 TH JANUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 12