ACIT, Kanpur V. M/S Akhilesh garg,HUF, Kanpur

ITA 147/LKW/2011

• Counselvise Citation: 14723714 RSA 2011
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 30-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Corroborative evidences; TDS; Set aside
• Section: 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NOS.147 & 148(LKW.)/2011 A.YS. : 2006-07 & 2007-08 THE ACIT-I, VS. M/S. AKHILESH GARG, HUF, KANPUR. PROP. M/S. G.G. CORPORATION, 15/79, CIVIL LINES, KANPUR. PAN AAFHA3010D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.K.BAJAJ, SR.D.R. RESPONDENT BY : SHRI RAKESH GARG, ADVOCATE O R D E R PER N.K.SAINI, ACCOUNTANT MEMBER THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDERS EACH DATED 29.11.2010 OF THE LD.CIT(A)-II, KANPUR. COMMON ISSUES ARE INVOLVED IN THESE APPEALS, WHICH WERE HEARD TOGETHER, SO THESE ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. FIRST WE WILL DEAL WITH THE APPEAL IN I.T.A.NO.147(LKW)/2011. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,25,004/-ON ACCOUNT OF INCOME SHOWN IN THE HANDS OF M/S MAHESH NARAIN GARG, HUF TAKING VIEW THAT THE SAID HUF (MAHESH NARAIN GARG) CONTINUED TO EXIST EVEN AFTER THE DEATH OF KARTA, HIS WIFE AND MARRIAGE OF HIS DAUGHTER. 2 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.7,02,386/- ON ACCOUNT OF COMMISSION PAID TO MAHESH JI SONS PVT. LTD. FOR NON BUSINESS PURPOSES. LD. CIT(A)-II, KANPUR HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE DURING THE ASSESSMENT PROCEEDINGS TO JUSTIFY THE PAYMENT OF COMMISSION TO THE COMPANY AND ALSO COULD NOT GIVE ANY DETAILS OF THE WORKS DONE AGAINST THE PAYMENT OF SUCH COMMISSION. 3. THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS FAILED TO ESTABLISH THAT THE CONCLUSION OF THE ASSESSING OFFICER WAS INCORRECT. AS SUCH HIS ORDER IS BAD IN LAW. THEREFORE, THE ORDER OF THE LD. CIT(A)-II, KANPUR DATED 29.11.2010 NEEDS TO BE QUASHED AND THE ORDER UNDER SECTION 143(3) OF INCOME TAX ACT, 1961, DATED 05.12.2008 PASSED BY THE ASSESSING OFFICER TO BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL MENTIONED ABOVE AND/OR TO ADD ANY FRESH GROUNDS AS AND WHEN IT IS REQUIRED TO DO SO. 3. VIDE GROUND NO.1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS.1,25,004 MADE BY THE AO. 4. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30.10.2006 DECLARING AN INCOME OF RS.13,66,350, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME-TAX ACT, 1961 ON 26.4.2007. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD TAKEN OVER THE BUSINESS OF THE PROPRIETORSHIP WITH EFFECT FROM 24.9.2004 AS PER WILL OF LATE SHRI MAHESH NARAIN GARG, WHO EXPIRED ON 23.9.2004. LATE SHRI MAHESH NARAIN GARG WAS DOING THE BUSINESS IN HIS INDIVIDUAL CAPACITY. HOWEVER, AS PER HIS WILL, THE BUSINESS WAS TAKEN OVER BY AKHILESH GARG 3 IN THE STATUS OF AKHILESH GARG, HUF CONSISTING OF SHRI AKHILESH GARG, AS KARTA, HIS WIFE, SMT. NUPUR GARG AND THEIR MINOR CHILDREN MASTER KARTIKEY AND KM. SHREEKRITI. ACCORDINGLY, THE INCOME WAS DECLARED IN THE HANDS OF THE ASSESSEE-HUF WITH EFFECT FROM 24.9.2004. THE AO FURTHER OBSERVED THAT DURING THE LIFETIME OF SHRI MAHESH NARAIN GARG, MAHESH NARAIN GARG, HUF WAS IN EXISTENCE. THE WIFE OF SHRI MAHESH NARAIN GARG PREDECEASED SHRI MAHESH NARAIN GARG, WHO ALSO EXPIRED ON 23.9.2004 AND THAT SHRI MAHESH NARAIN GARG HAD ONLY ONE SON SHRI AKHILESH GARG AND ALSO ONE MARRIED DAUGHTER, SMT. ANJANA. THE AO FURTHER OBSERVED THAT AFTER THE DEATH OF SHRI MAHESH NARAIN GARG, THE HUF LEFT CONSISTED OF SHRI AKHILESH GARG , HIS WIFE SMT.NUPUR GARG AND THEIR MINOR CHILDREN. THUS, MAHESH NARAIN GARG, HUF, IN FACT, BECAME AKHILESH GARG, HUF AFTER THE DEATH OF SHRI MAHESH NARAIN GARG. ACCORDING TO THE AO, THE INCOME OF MAHESH NARAIN GARG, HUF SHOULD HAVE BEEN CLUBBED WITH AKHILESH GARG, HUF. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INCOME SHOULD NOT BE CLUBBED. IN RESPONSE TO THAT, THE ASSESSEE STATED THAT EVEN AFTER THE DEATH OF SHRI MAHESH NARAIN GARG, THE HUF, NAMELY, MAHESH NARAIN GARG, HUF REMAINED A SEPARATE IDENTITY AS APART FROM THE MEMBERS OF AKHILESH, HUF, THE MARRIED DAUGHTER OF SHRI MAHESH NARAIN GARG WAS ALSO ONE OF ITS MEMBER. THE AO DID NOT ACCEPT THE EXPLANATION GIVEN BY THE ASSESSEE BY STATING THAT AFTER THE MARRIAGE OF DAUGHTER OF SHRI MAHESH NARAIN GARG, SHE NO LONGER REMAINED A MEMBER OF THE HUF OF HIS FATHER AND BECAME THE MEMBER OF THE FAMILY WHERE SHE WAS MARRIED. THE AO, THEREFORE, ADDED THE INCOME OF MAHESH NARAIN GARG, HUF DECLARED IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 AT RS.1,25,004 IN THE TOTAL INCOME OF THE ASSESSEE. 4 5. THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A), WHO HELD THAT MAHESH NARAIN GARG, HUF AND AKHILESH GARG, HUF WERE DISTINCT AND SEPARATE ENTITIES AND MAHESH NARAIN GARG, HUF CONTINUED TO EXIST EVEN AFTER THE DEATH OF SHRI MAHESH NARAIN GARG ON 23.9.2004, THEREFORE, THE INCOME OF MAHESH NARAIN GARG, HUF COULD NOT BE CLUBBED WITH THE INCOME OF AKHILESH GARG, HUF. ACCORDINGLY, THE ADDITION WAS DELETED. 6. THE DEPARTMENT SUBSEQUENTLY CARRIED THE MATTER TO THE INCOME-TAX APPELLATE TRIBUNAL WHEREIN THE ISSUE WAS SET ASIDE TO THE LD.CIT(A) TO PASS A SPEAKING ORDER AND ASSIGN HIS OWN REASON FOR THE DECISION KEEPING IN VIEW THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF MANEK LAL D.SHAH VS. P.K.GUPTA (2004) 267 ITR 341(BOM.). THE RELEVANT FINDINGS GIVEN BY THE I.T.A.T. AS REPRODUCED IN THE IMPUGNED ORDER OF THE LD.CIT(A), WERE AS UNDER : ' ... IN OUR CONSIDERED VIEW, THE ABOVE DECISION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE INSTANT CASE ALSO, THE LD. CIT(A) HAS NOT GIVEN REASONS AS TO WHY HE DISAGREES WITH THE REASONS AND FINDINGS OF THE A.O. IN THE ABOVE CASE, THE HON'BLE BOMBAY HIGH COURT HELD THAT UNLESS ADEQUATE REASONS ARE GIVEN, MERELY BECAUSE IT IS AN APPELLATE AUTHORITY, IT CANNOT BRUSH ASIDE THE REASONING OR FINDINGS RECORDED BY THE PRIMARY AUTHORITY. THUS CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND ALSO KEEPING IN VIEW THE RATIO OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF MANEKLAL D. SHAH (SUPRA), WE ARE LEFT WITH NO OTHER ALTERNATIVE BUT TO SET ASIDE THE IMPUGNED ORDER AND REMAND THE MATTER TO THE FILE OF THE LD. C.I.T. (A)-II, KANPUR WITH A DIRECTION TO DECIDE THE APPEAL AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE LD. C.I.T.(A) SHOULD PASS A SPEAKING ORDER AND ASSIGN HIS OWN REASONS FOR THE DECISION. THE APPEAL SHOULD BE DECIDED PREFERABLY WITHIN FOUR MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER. ' 5 7. ON THE DIRECTION OF THE I.T.A.T., THE LD.CIT(A) PROCEEDED TO DECIDE THE ISSUE. IT WAS SUBMITTED BEFORE THE LD.CIT(A) THAT MAHESH NARAIN GARG, HUF IS DISTINCT FROM AKHILESH GARG, HUF, AS BOTH HAD SEPARATE ASSETS AND PROPERTIES. IT WAS POINTED OUT THAT THE AO WHILE DEALING WITH THE SUBJECT MATTER OF SEPARATE HUFS WAS MERELY GUIDED BY THE FACTUM OF DEATH OF SHRI MAHESH NARAIN GARG, WHO WAS THEN KARTA OF THE HUF UPTO 23.9.2004. IT WAS FURTHER STATED THAT BEFORE CHANGE OF STATUS OR BEFORE CLUBBING THE INCOME OF MAHESH NARAIN GARG, HUF WITH THE INCOME OF AKHILESH GARG, HUF, THE AO HAD FAILED TO ISSUE A PROPER LEGAL NOTICE OF HIS INTENTION, THEREFORE, ON THIS POINT ALONE THE ACTION OF THE AO WAS VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND THE PROVISIONS OF THE I.T.ACT,1961. IT WAS CONTENTED THAT MERELY ON THE DEATH OF SHRI MAHESH NARAIN GARG, THE AFORESAID TWO HUFS WOULD NOT SUO MOTU MERGE BECAUSE THE RIGHTS AND OBLIGATIONS OF THE MEMBERS OF RESPECTIVE HUFS ARE DIFFERENT AND CONTINUING EVEN AFTER THE DEATH OF SHRI MAHESH NARAIN GARG. IT WAS FURTHER STATED THAT ON THE DEATH OF A KARTA, NAMELY, SHRI MAHESH NARAIN GARG, FOR DETERMINING THE SHARES OF THE MEMBERS OF THE HUF, THERE WOULD BE A DEEMED PARTITION JUST BEFORE THE DEATH OF KARTA AND THEN THE HUF PROPERTY WOULD BE DEEMED TO HAVE BEEN DIVIDED EQUALLY BETWEEN SHRI MAHESH NARAIN GARG AND SHRI AKHILESH GARG (SINCE WIFE OF SHRI MAHESH NARAIN GARG HAS PRE-DECEASED SHRI MAHESH NARAIN GARG) AND THAT THE SHARE OF SHRI MAHESH NARAIN GARG (FROM THE IMPUGNED HUF PROPERTY) WOULD BE DEVOLVING ON HIS HEIRS AS PER THE HINDU SUCCESSION ACT AND ONE SUCH HEIR WOULD BE THE DAUGHTER OF SHRI MAHESH NARAIN GARG (SMT. ANJANA GARG AGRAWAL) APART FROM THE SON, NAMELY, SHRI AKHILESH GARG. IT WAS ACCORDINGLY SUBMITTED THAT THE ESTATE OF SHRI MAHESH NARAIN, HUF DID NOT ENTIRELY BELONG TO AKHILESH GARG, HUF AS HIS SISTER HAD ALSO RIGHTS OVER PART OF THE ESTATE, HOWEVER, SINCE NO ACTUAL 6 PARTITION OF THAT HUF HAD TAKEN PLACE, SUCH DIVISION OF ASSETS WAS ONLY FOR THE PURPOSES OF DETERMINING AS TO WHO GETS WHAT SHARE. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF GURUPRASAD KHANDAPPA MAGDUM VS. HIRABAI KHANDAPPA MAGDUM, 129 ITR 440(S.C.). THE ATTENTION OF THE LD.CIT(A) WAS ALSO DRAWN TOWARDS SECTION 171(1) OF THE INCOME-TAX ACT, 1961 AND IT WAS STATED THAT THE I.T. ACT ITSELF REQUIRES THAT UNLESS THERE IS AN ACTUAL/PHYSICAL PARTITION THE IMPUGNED HUF WOULD CONTINUE TO BE ASSESSED AS AN HUF. 8. THE LD.CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION BY OBSERVING AS UNDER : IN LIGHT OF AFORESAID CONTENTION OF THE APPELLATE EXPLAINING THE PROVISIONS OF HINDU LAW ESPECIALLY AS TO HOW THE HUF PROPERTY DEVOLVES AND ALSO THE PROVISIONS OF SECTION 171(1) OF THE I.T.ACT, I AM OF THE CONSIDERED VIEW THAT TILL THERE IS NO PARTITION', THE HUF OF LATE SHRI MAHESH NARAIN GARG WOULD CONTINUE TO EXIST. REFERENCE IN THIS REGARD IS MADE TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S VENUGOPAL IRANI [239 ITR 514] WHEREIN IT WAS HELD BY THE HON'BLE APEX COURT THAT WHATEVER MAY BE THE POSITION UNDER HINDU LAW, SECTION 171 OF THE I.T.ACT HAS TO APPLY FOR INCOME TAX PURPOSES. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THERE HAS BEEN NO PARTITION. FURTHER, IN STATE OF MAHARASHTRA V/S NARAYAN RAO SHYAM RAO DESHMUKH [163 ITR 31], THE HON'BLE SUPREME COURT POINTED OUT THAT UNLESS THERE IS ACTUAL PARTITION IN PURSUANCE OF DEEMED PARTITION, THE STATUS OF THE FAMILY CONTINUES AS JOINT FAMILY. MOREOVER, AFTER PASSING OF HINDU SUCCESSION (AMENDMENT) ACT, 2005, THE DAUGHTER HAS BEEN GIVEN EQUAL RIGHT IN THE HUF AS THAT OF THE SON. THE AMENDMENT ALSO MAKES IT CLEAR THAT PRE-AMENDMENT POSITION SHALL PREVAIL ONLY FOR PARTITIONS ALREADY TAKEN PLACE BEFORE 20 TH DECEMBER, 2004. IN THE INSTANT CASE, AS THE FACTS ARE, THERE HAS BEEN NO PARTITION TILL TODAY, SO THE DAUGHTER OF THE DECEASED WOULD HAVE SAME RIGHTS AS THAT OF THE SON ON THE PROPERTY OF THE HUF OF HER FATHER. ON THIS COUNT ALSO, MAHESH NARAIN GERG (HUF), WOULD CONTINUE TO EXIST AS DISTINCT AND SEPARATE ENTITY THAN THAT OF AKHILESH GARG (HUF). THE ADDITIONS 7 OF RS.1,25,004/- AND RS.2,86,157/- FOR A.Y.2006-07 AND 2007-08 RESPECTIVELY, REPRESENTING INCOME OF MAHESH NARAIN GARG HUF INCLUDED IN THE INCOME OF THE APPELLANT I.E. AKHILESH GARG HUF IS, THEREFORE, DELETED. 9. NOW, THE DEPARTMENT IS IN APPEAL. 10. THE LD.D.R. STRONGLY SUPPORTED THE ORDER OF THE AO, WHILE THE LD. COUNSEL FOR THE ASSESSEE, IN HIS RIVAL SUBMISSIONS REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE AO CONSIDERED THE INCOME OF MAHESH NARAIN GARG, HUF AS AN INCOME OF AKHILESH GARG, HUF SINCE AKHILESH GARG WAS THE ONLY SURVIVING SON OF SHRI MAHESH NARAIN GARG, BUT HAS NOT CONSIDERED THIS FACT THAT SHRI MAHESH NARAIN GARG WAS ALSO HAVING ONE DAUGHTER, NAMELY, SMT.ANJANA GARG AGRAWAL, WHO WAS ALSO A COPARCENER OF MAHESH NARAIN GARG, HUF. AS PER THE HINDU SUCCESSION (AMENDMENT) ACT, 1925, DAUGHTER HAD BEEN GIVEN EQUAL RIGHT IN THE HUF AS THAT OF THE SON. THE SAID AMENDMENT ALSO MADE IT CLEAR THAT PRE-AMENDMENT POSITION SHALL PREVAIL ONLY FOR PARTITIONS ALREADY TAKEN PLACE BEFORE 20 TH DECEMBER, 2004. BUT, IN THE INSTANT CASE, THERE WAS NO PARTITION, SO THE DAUGHTER OF THE DECEASED WOULD HAVE SAME RIGHT AS THAT OF THE SON IN THE PROPERTY OF THE HUF OF HER FATHER. AS SUCH, MAHESH NARAIN GARG, HUF WAS IN EXISTENCE EVEN AFTER THE DEATH OF SHRI MAHESH NARAIN GARG AND IT WAS A SEPARATE AND DISTINCT ENTITY FROM AKHILESH GARG, HUF. THEREFORE, THE INCOME OF MAHESH NARAIN GARG, HUF COULD NOT HAVE BEEN INCLUDED IN THE HANDS OF AKHILESH GARG, HUF. IN 8 THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. 12. THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE DELETION OF ADDITION OF RS.7,02,386 MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO MAHESH JI SONS PVT. LTD. 13. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS, NOTICED THAT SHRI AKHILESH GARG IS KARTA OF THE ASSESSEE, AKHILESH GARG, HUF. HOWEVER, ON ACCOUNT OF THE WORK DONE AND THE SALES MADE BY HIM HE WAS PAID SALARY OF RS.1,01,000 AND ALSO COMMISSION OF RS.3,18,686 BEING COMPUTED AT THE RATE OF 1% OF THE TOTAL SALES. ACCORDING TO HIM, THE SALARY AND COMMISSION PAID TO SHRI AKHILESH GARG IN HIS INDIVIDUAL CAPACITY WAS ALLOWABLE AS IT WAS PAID ON ACCOUNT OF HIS BEING ACTIVELY INVOLVED IN THE WORK OF THE ASSESSEE AND ALSO FOR THE SALES MADE BY THE ASSESSEE THROUGH SHRI AKHILESH GARG. THE AO POINTED OUT THAT THE ASSESSEE ALSO CLAIMED COMMISSION OF RS.7,02,386 AT THE RATE OF 2% OF ITS TOTAL SALES TO MAHESH JI SONS TEXTILES LTD., WHICH IS A COMPANY HAVING SHRI AKHILESH GARG AND SMT.NUPUR GARG AS DIRECTOR. THE AO ASKED THE ASSESSEE TO EXPLAIN THE JUSTIFICATION FOR PAYING COMMISSION AT THE RATE OF 2% ON ITS SALES WHEN COMMISSION AT THE RATE OF 1% ON SALES HAD ALREADY BEEN ALLOWED TO SHRI AKHILESH GARG WHEN THE SALES WERE MADE THROUGH SHRI AKHILESH GARG, HOW THE SAME SALES COULD AGAIN BE MADE THROUGH THE COMPANY OF WHICH HE WAS THE MANAGING DIRECTOR. THE ASSESSEE VIDE LETTER DATED 21.11.2008 EXPLAINED TO THE AO AS UNDER : THE FIRM HAS PAID COMMISSION AT THE RATE OF 1 % OF TOTAL SALES TO SHRI AKHILESH GARG. HE HAS BEEN PARTICIPATING IN TENDERS, PROCURING 9 MATERIAL, EFFECTING SUPPLIES TO DEFENCE DEPARTMENTS SITUATED OUT OF KANPUR AND REALIZING THE PAYMENTS. IN ADDITION, COMMISSION WAS ALSO PAID TO MAHESH G. & SONS TEXTILES PVT. LTD. AT THE RATE OF 2% OF TOTAL SALES. THE FIRM TRANSFERS FINISHED GOODS TO THE COMPANY WHO DOES STAKING AND BUILDING OF GOOD, PACKS MATERIAL IN HESSIAN CLOTH/CORRUGATED BOXES, PUTS MARKING AND DISPATCHES GOODS FOR DEFENCE DEPARTMENTS SITUATED IN KANPUR. THE COMPANY WAS PAID 2% COMMISSION OF SALE BY M/S G.G. CORPORATION FOR PERFORMING ABOVE WORK. THE CASE OF MAHESH G. & SONS TEXTILES PRIVATE LIMITED FOR A.Y. 2006-07 WAS ALSO PICKED UP FOR SCRUTINY U/S 143(3) OF I.T. ACT, 1961 BY ITO-6(1), KANPUR AND NO ADVERSE VIEW WAS TAKEN BY HIM IN THIS MATTER. SUCH COMMISSION PAYMENT HAS BEEN ALLOWED IN EARLIER YEARS ALSO. A COPY OF ORDER DATED 27.08.2008 IS BEING ENCLOSED HEREWITH FOR YOUR KIND PERUSAL AS ANNEXURE-B. IN A.Y. 2001-02, THE COMMISSION WAS DISALLOWED BY THEN ASSESSING OFFICER BUT HON'BLE CIT(APPEALS) HAS DELETED THE ADDITION VIDE ORDER DATED 12.10.2006. A COPY OF ORDER IS ENCLOSED HEREWITH AS ANNEXURE-C.' 13.1 THE AO DID NOT FIND MERIT IN THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE THE ADDITION OF RS.7,02,386 OBSERVING AS UNDER : 4.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND EXPLANATION SUBMITTED BY THE ASSESSEE. THE COMMISSION WAS SHOWN TO HAVE BEEN PAID TO THE COMPANY FOR MAKING SALES. HOWEVER, WHEN IT HAS BEEN POINTED OUT THAT COMMISSION ON ENTIRE SALES HAS ALREADY BEEN PAID TO SHRI AKHILESH GARG, THEN HOW AGAIN COMMISSION ON SALE COULD BE ALLOWED TO THE COMPANY. THE ASSESSEE VIDE HIS EXPLANATION REPRODUCED ABOVE HAS CHANGED ITS EARLIER STAND. IT HAS BEEN STATED THAT THE ASSESSEE TRANSFERS ITS FINISHED GOODS TO THE COMPANY WHO DOES STAKING & BUNDLING OF GOODS, PACKING AND PUTS MARKING AND DISPATCHES GOODS TO DEFENCE DEPARTMENT SITUATED IN KANPUR. IT HAS BEEN STATED THAT THE COMMISSION WAS IN FACT PAID FOR THE ABOVE WORK DONE BY THE COMPANY. THE ALTERNATIVE EXPLANATION GIVEN BY THE COMPANY IS NOT SUPPORTED WITH THE EVIDENCE OF ACTUAL WORK DONE. MOREOVER, THE ASSESSEE HAS TAKEN THE FACTORY PREMISES OF THE COMPANY SITUATED AT 61, INDUSTRIAL AREA, KANPUR ON RENT AND THEREFORE, THE COMPANY HAD NOT EVEN A FACTORY FOR DOING THE WORK. THE ASSESSEE HAS ALSO NOT PRODUCED ANY VOUCHER IN SUPPORT OF DISPATCH OF GOODS TO SAID 10 COMPANY NOR ANY SUPPORTING EVIDENCE THAT THE JOB WORK WAS IN FACT DONE BY THE COMPANY. THE ASSESSEES EXPLANATION THAT THE INCOME OF COMMISSION PAID HAS BEEN ACCEPTED BY THE ITO-6(1), KANPUR IN THE HANDS OF THE COMPANY AND THEREFORE, NO ADVERSE INFERENCE SHOULD BE DRAWN IS ALSO NOT ACCEPTABLE. WHEN ASSESSEE CLAIMED THAT CERTAIN EXPENDITURE HAS BEEN INCURRED BY IT, THE ONUS LAY UPON THE ASSESSEE TO PROVE THAT IT WAS PAID FOR THE PURPOSE OF ITS BUSINESS. SINCE THE CLAIM OF COMMISSION PAID TO THE COMPANY IS CLAIMED BY THE ASSESSEE, IT HAS TO PROVE WITH DOCUMENTARY EVIDENCE THAT THE PAYMENT WAS MADE TO THE SISTER CONCERN FOR THE WORK DONE BY IT. IN THIS CASE THE ASSESSEE HAS NOT ONLY CHANGED ITS EARLIER EXPLANATION TO THE NATURE OF WORK DONE BY THE COMPANY BUT WAS ALSO UNABLE TO PROVE THAT THE WORK WAS ACTUALLY DONE BY THE ASSESSEE. IN VIEW OF THIS, IT IS HELD THAT THE PAYMENT OF COMMISSION OF RS.7,02,386/- WAS MADE NOT FOR THE PURPOSE OF BUSINESS AND THEREFORE, IT IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE . 14. THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A) AND SUBMITTED- (A) THE APPELLANT HAS PAID COMMISSION @ 2 % OF THE SALE AMOUNT TO M/S. MAHESH G SONS TEXTILES (P.) LTD. AMOUNTING TO RS.7,02,386 AND RS.9,08,612 IN ASSESSMENT YEAR 2006-2007 AND 2007-2008 RESPECTIVELY IN ADDITION TO PAYMENT OF COMMISSION @ 1% TO SHRI AKHILESH GARG AMOUNTING TO RS.3,18,686 AND RS.4,04,762/- FOR ASSESSMENT YEARS 2006-2007 AND 20072008 RESPECTIVELY. B) IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO. REQUIRED THE ASSESSEE TO PROVE THE SERVICES RENDERED AND EVIDENCE OF ACTUAL WORK DONE TO JUSTIFY THE PAYMENT OF COMMISSION @ 2% TO M/S. MAHESH G SONS TEXTILES (P) LTD. C) THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS HAD EXPLAINED THAT: I) THE PAYMENT OF COMMISSION IS SUBJECTED TO T.D.S. II) SIMILAR COMMISSION IN EARLIER YEARS HAS ALWAYS BEEN ALLOWED. III) THE COMMISSION INCLUDES REIMBURSEMENT OF THE FOLLOWING 11 EXPENSES INCURRED BY M/S MAHESH JI SONS TEXTILES (P) LTD.: A) PAYMENT OF LABOUR AND WAGES B) CONSUMPTION OF PACKING MATERIAL C) RE-PACKING IN CORRUGATED BOXES IV) DISPATCH OF GOODS. IV) THE COMPANY M/S. MAHESH JI SONS TEXTILES (P) LTD. OWNS 50% OF ITS EXISTING FACTORY SITUATED AT 61, INDUSTRIAL AREA, KANPUR (REMAINING 50% HAS BEEN LET OUT TO M/S. G.G. CORPORATION). 15. THE LD.CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION BY OBSERVING IN PARAS 6.3 AND 6.3.1 OF THE IMPUGNED ORDER AS UNDER : 6.3 I HAVE CAREFULLY GONE THROUGH THE FACTS ON RECORD, OBSERVATIONS OF THE AO AND THE SUBMISSIONS MADE BY THE APPELLANT BEFORE THE AO. AS WELL AS BEFORE ME. I HAVE ALSO GONE THROUGH THE P&L ACCOUNT AND THE ASSESSMENT ORDER PASSED IN THE CASE OF MAHESH JI SONS TEXTILES (P) LTD. THE IMPUGNED P&L ACCOUNT GIVES DETAILS OF EXPENSES INCURRED E.G. PACKING EXPENSES, SALARY, WAGES, ELECTRICITY, CONSIGNEE EXPENSES ETC. THIS COMPANY AS PER ITS P&L ACCOUNT HAS NO OTHER ACTIVE INCOME EXCEPT COMMISSION INCOME RECEIVED FROM THE APPELLANT ASSESSEE. THE AO OF M/S. MAHESH JI SONS TEXTILES (P) LTD, WHILE COMPLETING THE ASSESSMENT UNDER SCRUTINY HAS MADE ROUTINE DISALLOWANCES, THEREFORE, IT CAN NOT BE SAID THAT THE COMPANY TO WHOM COMMISSION HAD PAID HAD NOT RENDERED ANY SERVICES AND THAT IT WAS ONLY ON PAPER. 6.3.1 KEEPING IN VIEW THE PAST RECORD OF PAYMENT OF SIMILAR COMMISSION HAVING BEING ACCEPTED BY THE AO. AND ALSO THE FACTS AND CIRCUMSTANCES OF THE CASE WHICH HAVE BEEN DISCUSSED ABOVE, I AM OF THE OPINION THAT M/S. MAHESH JI SONS TEXTILES (P) LTD. HAD RENDERED SERVICES FOR WHICH THE COMMISSION WAS RIGHTLY PAID. THEREFORE, THERE IS NO JUSTIFICATION FOR DISALLOWING THE ENTIRE COMMISSION PAID BY THE APPELLANT TO M/S. MAHESH JI SONS TEXTILES (P) LTD. THE TOTAL COMMISSION PAID BY APPELLANT IS 2+1 =3% OF THE SALES WHICH IS NORMAL IN THIS KIND OF BUSINESS OF GOVT. SUPPLIES. IN VIEW OF THE ABOVE, 12 THE ADDITION MADE BY THE AO. ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAID TO M/S. MAHESH JI SONS (P) LTD. IS DELETED FOR BOTH THE YEARS UNDER REFERENCE. HOWEVER, THE AO IS DIRECTED TO VERIFY IF THE CLAIMED AMOUNTS HAVE BEEN CORRECTLY OFFERED TO TAX IN THE HANDS OF THE RECIPIENT SINCE ON CASUAL GLANCE, I FIND THAT THE APPELLANT HAS SHOWN TO HAVE PAID RS.7,02,386/- IN AY.2006-07 TO M/S. MAHESH JI SONS TEXTILES (P) LTD WHEREAS THE RECIPIENT HAS SHOWN ONLY RS.6,37,372/-. 16. NOW, THE DEPARTMENT IS IN APPEAL . 17. THE LD.D.R. REITERATED THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT ORDER DATED 5.12.2008 AND STRONGLY SUPPORTED THE ORDER PASSED BY THE AO. HE FURTHER SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE AO AFTER GIVING THE COGENT REASONS. HE PRAYED TO RESTORE THE DISALLOWANCE MADE BY THE AO. 18. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE WAS PAYING THE COMMISSION TO M/S.MAHESH JI SONS TEXTILES (P.) LTD., WHO WAS RENDERING THE SERVICES TO THE ASSESSEE AND SALES WERE EFFECTED THROUGH THAT COMPANY. IT WAS EXPLAINED THAT THE ASSESSEE TRANSFERRED FINISHED GOODS TO M/S. MAHESH JI SONS TEXTILES (P.) LTD., WHO DID STAKING AND PACKED THE GOODS IN HESSIAN CLOTH/CORRUGATED BOXES, PUT MARKING AND DISPATCHED GOODS TO THE DEFENCE DEPARTMENTS SITUATED IN KANPUR, SO THE SAID COMPANY WAS DIRECTLY RELATED WITH THE SALES OF THE ASSESSEE AND FOR THAT PURPOSE, A COMMISSION AT THE RATE OF 2% WAS PAID AND THEREFORE, THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION. IT WAS FURTHER SUBMITTED THAT THE COMMISSION PAID BY THE ASSESSEE HAS BEEN ACCEPTED AND 13 TAXED IN THE HANDS OF MAHESH JI SONS TEXTILES (P.) LTD., WHILE MAKING THE ASSESSMENT UNDER SECTION 143(3) OF THE I.T.ACT. THEREFORE, THE DISALLOWANCE WAS WRONGLY MADE BY THE AO AND THE LD.CIT(A) WAS FULLY JUSTIFIED IN DELETING THE SAME. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE WAS EFFECTING ITS SALES THROUGH MAHESH JI &SONS TEXTILES PVT.LTD. THE ASSESSEE WAS TRANSFERRING UNPACKED GOODS TO THE SAID COMPANY, WHO, AFTER RECEIVING THE FINISHED GOODS FROM THE ASSESSEE DID STAKING AND PACKED MATERIAL IN HASSIEN CLOTH/CORRUGATED BOXES, PUT MARKING AND DISPATCHED GOODS TO THE BUYERS. THE AFORESAID FACTS WERE NARRATED BY THE ASSESSEE BEFORE THE AO VIDE LETTER DATED 21.11.2008. THE ONLY REASON WAS GIVEN BY THE AO THAT THE COMMISSION WAS ALSO PAID TO SHRI AKHILESH GARG, SO THERE WAS NO OCCASION TO PAY COMMISSION TO ANOTHER CONCERN, NAMELY, MAHESH JI & SONS TEXTILES PVT. LTD. , IN OUR OPINION, THAT CANNOT BE A REASON TO DISALLOW THE CLAIM, PARTICULARLY WHEN THE FACTUM OF RENDERING THE SERVICES FOR THE SALES OF THE ASSESSEE BY M/S. MAHESH JI & SONS TEXTILES PVT. LTD. HAS NOT BEEN DOUBTED. IN THE INSTANT CASE, IT APPEARS THAT THE COMMISSION WAS PAID BY THE ASSESSEE AFTER DEDUCTING TDS AND THE SAID COMMISSION WAS SHOWN BY THE RECIPIENT IN ITS INCOME ON WHICH TAX WAS PAID. THE ASSESSMENT WAS FRAMED IN THE HANDS OF THE RECIPIENT UNDER SECTION 143(3) OF THE I.T.ACT. IN THE SAID ASSESSMENT, THE INCOME FROM COMMISSION HAS BEEN ACCEPTED, SO, THERE WAS NO REASON FOR DISALLOWING THE PAYMENT OF THE SAME COMMISSION IN THE HANDS OF THE ASSESSEE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 14 20. IN I.T.A.NO.148(LKW.)/2011,THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,86,157/-ON ACCOUNT OF INCOME SHOWN IN THE HANDS OF M/S MAHESH NARAIN GARG, HUF TAKING VIEW THAT THE SAID HUF (MAHESH NARAIN GARG) CONTINUED TO EXIST EVEN AFTER THE DEATH OF KARTA, HIS WIFE AND MARRIAGE OF HIS DAUGHTER. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,08,612/- ON ACCOUNT OF COMMISSION PAID TO MAHESH JI SONS PVT. LTD. FOR NON BUSINESS PURPOSES. LD. CIT(A)-II, KANPUR HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE DURING THE ASSESSMENT PROCEEDINGS TO JUSTIFY THE PAYMENT OF COMMISSION TO THE COMPANY AND ALSO COULD NOT GIVE ANY DETAILS OF THE WORKS DONE AGAINST THE PAYMENT OF SUCH COMMISSION. 3. THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS FAILED TO ESTABLISH THAT THE CONCLUSION OF THE ASSESSING OFFICER WAS INCORRECT. AS SUCH HIS ORDER IS BAD IN LAW. THEREFORE, THE ORDER OF THE LD. CIT (A)-II, KANPUR DATED 29.11.2010 NEEDS TO BE QUASHED AND THE ORDER UNDER SECTION 143(3) OF INCOME TAX ACT, 1961, DATED 27.11.2009 PASSED BY THE ASSESSING OFFICER TO BE RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL MENTIONED ABOVE AND/OR TO ADD ANY FRESH GROUNDS AS AND WHEN IT IS REQUIRED TO DO SO. 21. FROM A MERE PERUSAL OF THE ABOVE GROUNDS, IT WOULD BE CLEAR THAT THE GROUNDS FOR THIS YEAR ARE IDENTICAL TO THE GROUNDS RAISED IN THE PRECEDING ASSESSMENT YEAR 2006-07 IN I.T.A.NO.147(LKW.)/2011, THE ONLY DIFFERENCE IS OF THE AMOUNTS INVOLVED. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN THE PRECEDING YEAR, SO, OUR FINDINGS 15 GIVEN IN I.T.A.NO.147(LKW.)/2011 FOR THE ASSESSMENT YEAR 2006-07 IN THE FORMER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL I.E. I.T.A.NO.148(LKW.)/201 FOR THE ASSESSMENT YEAR 2007-08. 22. IN THE RESULT, BOTH THE APPEALS FILED BY THE DEPARTMENT ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.6.2011. SD. SD. (H.L.KARWA) (N.K.SAINI) VICE PRESIDENT ACCOUNTANT MEMBER JUNE 30TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.