Irbaz Shoe Company, CHENNAI V. ITO, CHENNAI

ITA 1435/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8009 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: T VASUDEVAN
• Keywords: Unexplained cash credit; Bad and doubtful debts
• Section: 143(3); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1435/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. IRBAZ SHOE COMPANY, 2(487) KILPAUK GARDEN ROAD, KILPAUK, CHENNAI. VS THE INCOME TAX OFFICER, BUSINESS WARD-XIII(3), CHENNAI. PAN:AAAFI5586M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. T.VASUDEVAN, ADVOCATE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 9 TH DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 12 TH FEBRUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 12, CHENNAI DATED 18.03.2015 IN ITA NO.95/CIT(A)-12 /2013- 14 PASSED UNDER SECTION 143(3) READ WITH SECTION 25 0 OF THE ACT. 2. THOUGH THE ASSESSEE HAS RAISED SEVERAL ELABORAT E GROUNDS IN ITS APPEAL, THE EFFECTIVE GROUNDS ARE AS UNDER:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF ` 80,39,357/- 2 ITA NO.1435 /MDS/2015 MADE BY THE LEARNED ASSESSING OFFICER AS EXPORT PROCEEDS WERE NOT INCLUDED IN THE SALES OF THE ASSESSEE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE ESTIMATED ADDITION OF ` 1,90,080/- MADE BY THE LEARNED ASSESSING OFFICER TOWARDS 5% OF VEHICLE MAINTENANCE EXPENSES CLAIMED BY THE ASSESSEE. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS ERRED IN SUSTAINING THE ADDITION OF ` 5,92,357/- AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A FIRM, ENG AGED IN THE BUSINESS OF MANUFACTURING OF SHOE UPPERS/SHOES AND EXPORTING THE SAME TO EUROPEAN COUNTRIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 06.10.201 0 DECLARING TOTAL INCOME OF ` 9,59,630/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDER SECTION 143(2) / 142 (1) WERE ISSUED TO THE ASSESSEE AND IN RESPONSE THE ASSESSEE FURNISHED THE DETAILS. ON ANALYZING THE MATERIALS O N RECORD, THE LEARNED ASSESSING OFFICER MADE VARIOUS 3 ITA NO.1435 /MDS/2015 ADDITIONS/DISALLOWANCES WHICH WERE CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AGGRIEVED BY WHICH THE ASSESSEE IS NOW ON APPEAL BEFORE US. GROUND NO.1 :- ADDITION OF ` 80,39,357/- ON ACCOUNT OF EXPORT TURNOVER NOT INCLUDED IN SALES:- 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER CALLED FOR DETAILS IN REG ARD TO COMMISSION PAID TO FOREIGN AGENTS FOR RS.80,39,357/ - THAT WAS NOT REFLECTED IN THE ASSESSEES BOOKS OF ACCOUN TS. THE LEARNED AUTHORIZED REPRESENTATIVE EXPLAINED BEFORE THE LEARNED ASSESSING OFFICER THAT THE COMMISSION PAID TO FOREIGN AGENTS OF RS.80,39,357/- WAS DEDUCTED FROM THE GROS S EXPORT TURNOVER AS PER THE INSTRUCTIONS OF THE BUYERS AND THE SAME WAS ALSO REFLECTED IN THE LETTER OF CREDIT. THE LEA RNED ASSESSING OFFICER FURTHER QUERIED AS TO WHY TAX WAS NOT DEDUCTED AT SOURCE AGAINST THE ABOVE FOREIGN AGENCY COMMISSION PAID. IT WAS EXPLAINED BY THE LEARNED AU THORIZED REPRESENTATIVE THAT THE FOREIGN AGENCY COMMISSION O F RS. 80,39,357/- WAS DIRECTLY PAID BY THE ASSESSEES CLI ENTS TO FOREIGN AGENTS OUTSIDE INDIA AND IN THE BOOKS OF AC COUNTS OF 4 ITA NO.1435 /MDS/2015 THE ASSESSEE THIS AMOUNT WAS CREDITED TO THE FOREI GN AGENTS COMMISSION ACCOUNT INSTEAD OF EXPORT SALES ACCOUN T. IT WAS THEREFORE SUBMITTED THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS ON SUCH PAYMENTS. HOWEVER, THE LEARNED ASSESSI NG OFFICER WAS OF THE VIEW THAT TDS HAS TO BE DEDUCTED AGAINST THE FOREIGN AGENTS COMMISSION PAYMENT FOR RS.80,39 ,357/- BY THE ASSESSEES CLIENTS ON BEHALF OF THE ASSESSEE AND THEREFORE INVOKING THE PROVISIONS OF SECTION 195 AN D 40(A)(IA) OF THE ACT, HE DISALLOWED THE EXPENDITURE OF RS.80, 39,357/-. IN THE ALTERNATIVE, THE LEARNED ASSESSING OFFICER F URTHER OPINED THAT SINCE THE ASSESSEE HAS NOT INCLUDED RS.80,39,357/- IN ITS EXPORT SALES ACCOUNT, THE A BOVE MENTIONED ADDITION IS SUSTAINABLE. 5. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS UNDER:- 6. GROUND NOS. 2.1 TO 2.5:- DISALLOWANCE MADE AS E XPORT PROCEEDINGS NOT INCLUDED IN SALES: RS.80,39,357/- : THE ASSESSING OFFICER HAS OBSERVE THAT THE APPELLANT HA S WILLFULLY DEFAULTED IN MAKING TDS AS PER THE PROVI SIONS OF SECTION 195 TOWARDS COMMISSION PAYMENTS TO FOREIGN AGENTS OF RS.80,39,357/- MADE THROUGH LETTER OF CRE DIT AND NOT INCLUDED IN THE GROSS EXPORT RECEIPT IS TO BE A DDED TO 5 ITA NO.1435 /MDS/2015 THE EXPORT PROCEEDS DURING THE YEAR. BY GIVING DETA ILED REASONS AT PAGE 3 AND 4 OF THE ASSESSMENT ORDER, TH E ASSESSING OFFICER DISALLOWED THE CLAIM OF APPELLANT FOR NONPAYMENT OF TDS. 6.1 DURING THE COURSE OF APPEAL PROCEEDINGS THE AR REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND SAID THAT THESE PAYMENTS ARE NOT LIABLE FOR TDS. EXCEPT STATING AS ABOVE NO EVIDENCES LIKE CONT RACT NOTES OR AGREEMENT BY VIRTUE OF WHICH SUCH PAYMENT S WERE MADE ETC. WAS FURNISHED TO SUBSTANTIATE THE CL AIMS MADE. HENCE IN THE ABSENCE OF THE SAME, THE ORDER O F THE ASSESSING OFFICER IS SUSTAINED AND THE GROUNDS DISMISSED. 6. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIV E EXPLAINED THAT AS PER THE INSTRUCTIONS OF THE ASSES SEES CLIENT THE FOREIGN AGENTS COMMISSION PAYABLE TO FOREIGN A GENTS OUTSIDE INDIA WAS EXCLUDED FROM THE EXPORT SALES AN D THE SAME WAS CREDITED TO THE (***)FOREIGN AGENTS COMMISSION ACCOUNT INSTEAD OF BEING CREDITED TO THE EXPORT SALES ACCOUNT WHILE PASSING ENTRIES IN THE BOOKS OF ACCO UNT FOR GIVING EFFECT TO EXPORT SALE. SINCE THE ASSESSEES CLIENTS ON BEHALF OF THE ASSESSEE WERE PAYING COMMISSION DIREC TLY TO THE FOREIGN AGENTS OUTSIDE INDIA, FOR SERVICES REND ERED OUTSIDE INDIA, TOWARDS THE EXPORT SALES EFFECTED BY THE 6 ITA NO.1435 /MDS/2015 ASSESSEE, IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE CORRESPONDING CONTRA ENTRIES WERE PASSED BY DEBITING THE (***)FOREIGN AGENTS COMMISSION ACCOUNT AND CREDITING THE ASSESSEES CLIENTS ACCOUNT. IT WAS THEREFORE SUBMITTED THAT TDS IS NOT DEDUCTIBLE BECAUSE THE ASSESSEE HAS NOT MADE ANY PAYMENT DIRECTLY TO FOREIGN AGENTS AS FORE IGN AGENTS COMMISSION. IT WAS FURTHER SUBMITTED THAT FOREIGN AGENTS COMMISSION ACCOUNT DID NOT REFLECT IN THE P ROFIT AND LOSS ACCOUNT TO REDUCE THE PROFIT OF THE ASSESSEE B ECAUSE THIS ACCOUNT WAS NULLIFIED DUE TO THE CORRESPONDING DEBIT AND CREDIT AS EXPLAINED HEREIN ABOVE. IT WAS HENCE PLEA DED THAT ORDER OF THE REVENUE IS ERRONEOUS AND ADDITION MADE FOR RS.80,39,357/- MAY BE DELETED . 7. LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE . 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. FROM THE ABOVE I T IS EVIDENT THAT THE LEARNED ASSESSING OFFICER HAS ADDED RS.80, 39,357 TO THE INCOME OF THE ASSESSEE BECAUSE THE ASSESSEE HAS NOT INCLUDED THE SAME IN ITS EXPORT SALES. THE LEARNED 7 ITA NO.1435 /MDS/2015 COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESSEE HAD NOT FURNISHED ANY MATERIALS TO SUPPORT ITS CLAI M. HOWEVER, WE FIND FROM THE EXPLANATION OF THE ASSESS EE HEREIN-ABOVE THAT THE LEARNED ASSESSING OFFICER HAS MISUNDERSTOOD THE ENTIRE TRANSACTION RECORDED IN TH E BOOKS OF ACCOUNTS OF THE ASSESSEE, BECAUSE THE FOREIGN EXCHA NGE COMMISSION PAYMENT OF RS.80,39,357/- MADE DIRECTLY BY THE CLIENTS OF THE ASSESSEE TO THE FOREIGN AGENTS ON BE HALF OF THE ASSESSEE WAS ROUTED THROUGH FOREIGN EXCHANGE COMMI SSION ACCOUNT AND NOT THROUGH EXPORT SALES ACCOUNT. THE LEARNED ASSESSING OFFICER FAILED TO NOTE THAT THIS EXPENSE RELATING TO FOREIGN EXCHANGE COMMISSION OF RS.80,39 ,357/- WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT OF T HE ASSESSEE AND AT THE SAME TIME NOT CREDITED TO THE E XPORT SALES ACCOUNT AND HENCE THERE WAS NO NEGATIVE EFFEC T TO THE PROFIT EARNED BY THE ASSESSEE. FURTHER, SINCE THE COMMISSION PAID TO FOREIGN AGENTS OUTSIDE INDIA FOR SERVICES R ENDERED OUTSIDE INDIA BEING NOT TAXABLE IN INDIA, TDS NEED NOT BE DEDUCTED ON SUCH PAYMENTS AS HELD BY THE HONBLE MA DRAS HIGH COURT IN THE CASE OF FAIZAN SHOES PVT. LTD. RE PORTED IN 8 ITA NO.1435 /MDS/2015 367 ITR 155 (MAD) WHICH IS ALSO ACCEPTED BY THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) WHILE DECIDING THE ISSUE FOR SIMILAT PAYMENTS MADE FOR RS. 54,82,834/- IN THE CASE OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YE AR. IN THESE CIRCUMSTANCES, THE ADDITION MADE BY THE LEARN ED ASSESSING OFFICER FOR RS.80,39,357/- IS NOT WARRANT ED AND DESERVES TO BE DELETED. ACCORDINGLY, WE HEREBY DIRE CT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION OF RS. RS.80,39,357/-. GROUND NO.2:- ADDITION OF ` 1,90,080/- BEING DISALLOWANCE OF VEHICLE MAINTENANCE EXPENSES ON ESTIMATE BASIS:- 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED ITS PROFIT AND LOSS ACCOUNT ON ACCOUNT OF VEHICLE MAINTENANCE OF RS. 38,01,617/- . SINCE CERTAIN VEHI CLES ON WHICH SUCH EXPENDITURE INCURRED WERE NOT OWNED BY T HE ASSESSEE, THE LEARNED ASSESSING OFFICER OPINED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS ON THE HIGH ER SIDE AND THEREFORE DISALLOWED 5% OF THE SAME. ON APPEAL , THE 9 ITA NO.1435 /MDS/2015 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE ORDER OF THE LEARNED ASSESSING OFFICER ACCEPTIN G HIS VIEW. 10. WE DO NOT FIND ANY MERIT IN THIS ADDITION MADE BY THE REVENUE ON THE BASIS OF SURMISES AND CONJECTURES. A NY EXPENDITURE INCURRED TOWARDS THE BUSINESS OF THE AS SESSEE IS ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF THE ACT , UNLESS IT IS PROVED THAT THOSE EXPENSES WERE NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE. THEREFORE, WE HEREBY DELE TE THE ADDITION OF RS.1,90,080/-MADE BY THE LEARNED ASSESS ING OFFICER ON THE BASICS OF PRESUMPTION THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE IS EXCESSIVE, WHICH WAS FU RTHER SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.3:- ADDITION OF ` 5,92,357/- BEING UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT: 11. IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT IN THE LIST OF SUNDRY CREDITORS FURNISHED BY THE ASSES SEE AN AMOUNT OF RS.5,92,357/- WAS PAYABLE TO M/S. MOUNT A RARAT INTERNATIONAL. HOWEVER, AS PER THE CONFIRMATION STA TEMENT 10 ITA NO.1435 /MDS/2015 RECEIVED FROM M/S. MOUNT ARARAT INTERNATIONAL, NO S UCH AMOUNT WAS RECEIVABLE. IT WAS EXPLAINED BY THE ASSE SSEE THAT M/S. MOUNT ARARAT INTERNATIONAL HAD FILED A SU IT AGAINST THE ASSESSEE FOR RECOVERY OF THE AMOUNT AND SUBSEQU ENTLY THEY HAD WRITTEN OFF THE AMOUNT AS BAD DEBTS IN THE IR BOOKS OF ACCOUNTS AND HENCE THE SAME WAS NOT REFLECTED IN TH E BOOKS OF M/S. MOUNT ARARAT INTERNATIONAL. TO SUBSTANTIATE THE STAND OF THE ASSESSEE THE LEARNED AUTHORIZED REPRESENTATI VE ALSO PRODUCED COPIES OF E-MAIL. HOWEVER, THE LEARNED ASS ESSING OFFICER IN THE ABSENCE OF CONFIRMATION FROM THE CRE DITORS FOR THE AMOUNT DUE, MADE ADDITION OF RS 5,92,357/- IN T HE HANDS OF THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) ACCEPTING THE VIEW OF THE LEARNED ASSESSI NG OFFICER SUSTAINED THE ADDITION. 12. ON EXAMINING THE FACTS OF THE CASE, WE ONCE AGA IN DO NOT FIND ANY MERIT IN THE ADDITION MADE BY THE REVE NUE. SINCE THE CREDITOR OF THE ASSESSEE VIZ., M/S.MOUNT ARARAT INTERNATIONAL WAS PURSUING RECOVERY OF THE AMOUNT F ROM THE ASSESSEE, THE ASSESSEE HAS NOT WRITTEN OFF THE SAME IN ITS BOOKS OF ACCOUNT BY TREATING IT AS ITS INCOME. THER EFORE THE 11 ITA NO.1435 /MDS/2015 ADDITION MADE BY THE LEARNED ASSESSING OFFICER WHIC H IS FURTHER SUSTAINED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) DOES NOT HAVE ANY MERIT. THEREFORE, W E HEREBY DELETE THE ADDITION OF RS.5,92,357/- MADE BY THE R EVENUE UNDER SECTION 68 OF THE ACT. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH FEBRUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 12 TH FEBRUARY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF