Smt. Hemlata Sachin Lohiya, Jalgaon V. Deputy Commissioner of Income-tax,

ITA 1490/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0480 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 07-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PL L VS DCIT CIRCLE JALGAON
• Assessee Lawyers: SUNIL GANOO SHRI YOGESH KAMAT
• Keywords: Commercial expediency
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1490/PN/2016 / ASSESSMENT YEAR : 2010-11 SMT. HEMLATA SACHIN LOHIYA, BALAJI MARKETING, W-58, MIDC, JALGAON 425 003 PAN : ABYPL 7721L . / APPELLANT V/S DCIT, CIRCLE-1, JALGAON . / RESPONDENT / APPELLANT BY : SHRI SUNIL GANOO / RESPONDENT BY : SHRI YOGESH KAMAT / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER DATED 15-03-2016 OF THE CIT(A)-II, NASHIK RELATING TO ASS ESSMENT YEAR 2010-11 2. THERE IS DELAY OF 51 DAYS IN FILING OF THIS APPEAL BY THE ASSESSEE FOR WHICH THE ASSESSEE HAS FILED A CONDONATION PETITION ALONG WITH AN AFFIDAVIT EXPLAINING THE REASONS FOR DELAY. AFTER HEARING BOTH THE SIDES, THE DELAY IN FILING OF THIS APPEAL BY THE ASSESSEE IS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATION. 3. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE REA DS AS UNDER : / DATE OF HEARING :10.11.2016 / DATE OF PRONOUNCEMENT:11.11.2016 2 ITA NO.1490/PN/2016 1. ON THE FACTS AND IN THE PREVAILING CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED CONFIRMING THE ADDIT ION OF COMMISSION OF RS.5,41,538/- OUT OF COMMISSION DISALLOWED OF RS.10,8 3,075/- BY AO. THEREFORE, ADDITION CONFIRMED BY THE CIT(A) MAY PLE ASE BE DELETED. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN PVC PIPES AN D FITTINGS. SHE FILED HER RETURN OF INCOME ON 29-01-2011 SHOW ING TAXABLE INCOME OF RS.10,50,110/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSE E HAS MADE PAYMENT ON ACCOUNT OF COMMISSION TO DIFFERENT PARTIES RANG ING FROM 2% TO 4%. THE COMMISSION HAS BEEN PAID TO SOME OF THE R ELATIVES OF THE HUF AND TO SOME LADIES WHICH ACCORDING TO THE ASSES SING OFFICER WAS UNRELIABLE AND UNREASONABLE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND OBSERVING THAT T HE ASSESSEE WAS NOT ABLE TO LINK UP THE TURNOVER FOR EACH PERSON TO WHOM THE COMMISSION HAS BEEN PAID THE ASSESSING OFFICER DISALLOWED COMMISSION OF RS.10,83,075/- OUT OF THE TOTAL COMMISSION PAID AT RS. 25,22,650/-, THE DETAILS OF WHICH ARE AS UNDER : SR. NO. NAME OF PARTY RATE OF COMMISSION TURNOVER OF SALES COMMISSION PAID COMMISSION DISALLOWED OVER 2% 1 ANKITA VIJAY CHANDAK 4% 4912252 196500 98950 2 SUNITA VIJAY CHANDAK 2% 9825206 196500 0 3 RAMESH TAPARIA 4% 5225801 209000 104500 4 RAM GOPAL TAPARIA 2% 7975877 160000 0 5 SANDIP UDGIRKAR HUF SAKSHI ENTERPRISES 4% 5266049 210650 105325 6 ANIL S. LADDHA 4% 20004742 800000 400000 7 SRINIVAS B. LADDHA 4% 7539624 300000 150000 8 SHEETAL A. LADDHA 4% 5000503 200000 100000 9 KALPANA K. KABRA 4% 6356698 250000 125000 1083075 5. BEFORE CIT(A) IT WAS SUBMITTED THAT THE COMMISSION PAID T O THE DIFFERENT PERSONS ARE EXCLUSIVELY FOR THE PURPOSE OF B USINESS ON WHICH TDS HAS BEEN DEDUCTED. THE BOOKS OF ACCOUNT ARE AUDITED 3 ITA NO.1490/PN/2016 U/S.44AB AND NO DEFECTS WERE POINTED OUT BY THE ASSESS ING OFFICER NOR THE BOOKS ARE REJECTED. REFERRING TO THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT VS. CALCUTTA DISCOUNT C OMPANY LTD. REPORTED IN 91 ITR 8 AND THE DECISION IN THE CASE OF CIT VS. A. RAMAN AND COMPANY REPORTED IN 67 ITR 11 IT WAS SUBMITT ED THAT A TRADER CANNOT BE COMPELLED TO MAXIMIZE THE PROFITS. IT WA S ARGUED THAT THE ASSESSING OFFICER HAS DISALLOWED THE COMMISSION ON SUSPICION, SURMISES, DOUBT, ASSUMPTION AND PRESUMPTION BASIS ONLY. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UMACHARAN SHAH AND BROS. VS. CIT REPORTED IN 37 ITR 271 IT WAS SUBMITTED THAT SUSPICIOUS HOWEVER STRONG MAY BE CANNOT TAKE PLACE OF A LEGAL PROOF. REFERRING TO THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF J.K. WOOLLEN MANUFACTURING VS. CIT REPORTED IN 72 ITR 612 IT WAS ARGUED THAT THE ASSESSEE IS THE BEST J UDGE TO TAKE CARE OF ITS OWN INTEREST AND THE ASSESSING OFFICER, BEING A REVENUE COLLECTOR, IS NOT ENTITLED TO INTERFERE IN THE DECISION MAKING PROCESS. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THE AS SESSING OFFICER IS NOT JUSTIFIED IN RESTRICTING THE COMMISSION @2% AND THEREBY DISALLOWING AN AMOUNT OF RS.10,83,075/-. 6. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE T HE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.5,41,537/- BY OBS ERVING AS UNDER: 9.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOT ICED THAT THE APPELLANT HAD PAID SALES COMMISSION TO LADIES AND R ELATIVES. IT HAS ALSO BEEN NOTICED THAT THE APPELLANT HAD NOT SUBMIT TED AS TO WHAT SERVICES WERE RENDERED BY THE PERSONS TO WHOM SALES COMMISSION WAS PAID. IT IS ALSO NOTICED THAT TO SOME PARTIES T HE APPELLANT HAD PAID SALES COMMISSION @ 2% OF SALES, WHEREAS, TO OTHER PARTIES THE APPELLANT HAD PAID COMMISSION ON SALES @ 4%. THE APPELLANT HAD ALSO NOT FILED COMPARATIVE CASES TO SHOW THE REASON ABLENESS OF THE COMMISSION PAID ON SALES. THE APPELLANT HAD CLAIMED THAT THE COMMISSION CAN BE PAID AT DIFFERENT RATES TO DIFFER ENT PERSONS. IT IS CERTAINLY POSSIBLE BUT THE SAID COMMISSION MAY NOT BE GENERALLY @ 4 ITA NO.1490/PN/2016 DOUBLE THE RATE AT WHICH THE COMMISSION IS PAID TO SOME PERSONS. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND TO MEET THE ENDS OF JUSTICE THE COMMISSION DISALLOWED BY THE A.O. BY ES TIMATING THE SAME @ 2% IN RESPECT OF 7 PARTIES IS PARTLY DELETED BY HOL DING THAT THE COMMISSION @ 3% IS TO BE TREATED AS REASONABLE IN RESPECT OF THE SAID 7 PARTIES. THE ADDITION OF RS. 10,83,075/- IS THEREFORE RESTRICTED TO RS. 5,41,537/- AND DELETED TO THE EXTENT OF RS. 5,41,538/-. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED AN AFFIDAVIT OF THE ASSESSEE AND SUBMITTED THAT NO COMMISSION HAS BE EN PAID TO ANY OF THE RELATIVES AND THE OBSERVATION OF THE ASSESSING OFFICER AT PAGE 3 PARA 5 IS WRONG AND ERRONEOUS SINCE THE ASSESS EE HAS NEVER EVER GAVE ANY SUCH SUBMISSION OR ADMITTED BEFORE THE AS SESSING OFFICER THAT SUCH COMMISSION HAS BEEN PAID TO THE RELATIV ES. HE SUBMITTED THAT THE COMMISSION HAS BEEN PAID BY CHEQUE, TD S HAS BEEN DEDUCTED AND ALL THE PERSONS ARE INCOME-TAX ASSE SSEES. IF THE ASSESSING OFFICER WAS HAVING ANY DOUBT HE COULD HAVE ASKE D THE ASSESSEE TO PRODUCE THE PARTIES AND THEIR STATEMENTS COULD HAVE BEEN RECORDED. HOWEVER, NOTHING OF THAT SORT HAS BEEN DONE. NO ENQUIRY WHATSOEVER WAS CONDUCTED TO FIND OUT AS TO WHA T TYPE OF SERVICES HAVE BEEN DONE BY THEM. THE ASSESSING OFFICER, MERELY ON THE BASIS OF PRESUMPTION AND SURMISES, HAD DISALLOWED THE P ART OF THE COMMISSION ON THE GROUND THAT ASSESSEE HAS PAID TH E COMMISSION TO SUPPRESS ITS PROFIT. MERELY BECAUSE THE CO MMISSION HAS BEEN PAID AT THE END OF THE YEAR ALSO CANNOT BE A GROUND TO DISBELIEVE THE SERVICES RENDERED BY THE PERSONS IN ABSEN CE OF ANY INVESTIGATION BY THE ASSESSING OFFICER. REFERRING TO THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALCHAND AN D COMPANY PVT. LTD. REPORTED IN 65 ITR 381 HE SUBMITTED THAT THE 5 ITA NO.1490/PN/2016 HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NO T OF THE REVENUE. HE ACCORDINGLY SUBMITTED THAT WHEN THE ASSE SSING OFFICER HAS ACCEPTED THE COMMISSION AT 2% AS REASONABLE WHICH H AS BEEN ENHANCED TO 3% BY THE CIT(A), THIS MEANS THAT THEY ARE ACCEPTING THE SERVICES RENDERED BY THE VARIOUS PERSONS. FURTHER , NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT IN COMPARATIVE CA SES SIMILAR COMMISSION HAS BEEN PAID AT LESSER RATE. HE SUBMITTED T HAT IT IS FOR THE REVENUE TO SHOW THAT THE COMMISSION PAID BY THE AS SESSEE IS MORE AND IT IS NOT FOR THE ASSESSEE TO SHOW THAT COMMIS SION PAID TO OTHERS IN SIMILAR BUSINESS BY OTHER PARTIES IS AT PAR WITH THE COMMISSION PAID BY THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE OF COMMISSION SUSTAINED BY THE CIT(A) IS UNCALLED FOR AND THEREFORE THE SAME SHOULD BE DELETED. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED T HAT THE LD.CIT(A) HAS GIVEN JUSTIFIABLE REASONS FOR SUSTAINING PART OF THE COMMISSION. THEREFORE, THE SAME SHOULD BE UPHELD AND THE GROUND S RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOU S DECISIONS CITED BEFORE ME. I FIND THE ASSESSEE HAS PAID COMMISSION OF RS.25,22,650/- TO 9 PERSONS OUT OF WHICH 2 PERSONS HAVE BEEN PAID COMMISSION @2% AND THE OTHER PERSONS HAVE BEEN PAID CO MMISSION 6 ITA NO.1490/PN/2016 @4%. THE ASSESSING OFFICER DISALLOWED COMMISSION OF RS.10,83,075/- BEING THE COMMISSION PAID ABOVE 2% TO THE RELATIVES OF HUF AND SOME LADIES ON THE GROUND THAT SUCH COMMISSI ON PAID TO THEM IS UNREALISTIC AND UNREASONABLE. IT IS ALSO HIS ALLEG ATION THAT THE ASSESSEE HAS DEBITED SUCH HUGE COMMISSION EXP ENSES TO REDUCE THE TAXABLE INCOME AND THE COMMISSION PAID APPEA RS TO BE DOUBTFUL. IT IS ALSO HIS ALLEGATION THAT ASSESSEE HAS NOT P ROVED THE PAYMENT OF COMMISSION BY LINKING THE SAME TO THE SALES. I FIND IN APPEAL THE LD.CIT(A) ALLOWED COMMISSION @3% TO THE DIFFERENT PERSONS AS REASONABLE. REVENUE IS NOT IN APPEAL AGAINST THE ORDER OF CIT(A). WHILE DOING SO, HE OBSERVED THAT SALES COMMISSIO N HAS BEEN PAID TO LADIES AND RELATIVES AND THE ASSESSEE HAS N OT FILED A COMPARATIVE CASE TO SHOW THE REASONABLENESS OF THE COM MISSION PAID ON SALES. 11. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSE E THAT THE ENTIRE COMMISSION HAS BEEN PAID TO DIFFERENT PERSONS W HO ARE NOT RELATIVES AND SUCH COMMISSION HAS BEEN PAID BY ACCOU NT PAYEE CHEQUE, TDS HAS BEEN DEDUCTED AND ALL OF THEM ARE INCOME -TAX ASSESSEES. IT IS ALSO HIS SUBMISSION THAT WITHOUT CONDUCT ING ANY ENQUIRY OR INVESTIGATION THE ASSESSING OFFICER COULD NOT HAV E DISALLOWED A PART OF THE COMMISSION. 12. I FIND SOME FORCE IN THE ABOVE SUBMISSION OF THE LD. CO UNSEL FOR THE ASSESSEE. FROM THE VARIOUS DETAILED FURNISHED BY THE ASSESSEE, I FIND COMMISSION HAS BEEN PAID @2% TO 2 PARTIES AND @4% TO 7 PARTIES. WHILE THE ASSESSING OFFICER HAS ACCEPTED THE COMMISSION @2%, HOWEVER, HE DISALLOWED A PART OF THE COMMIS SION PAID AT @4% TO THE OTHER PARTIES. THIS OTHERWISE INDICATE S THAT HE 7 ITA NO.1490/PN/2016 IS ACCEPTING THAT SOME SERVICES HAVE BEEN RENDERED BY THE RECIPIENTS. WHEN THE CIT(A) HAS ALLOWED COMMISSION @3% THE REVENUE IS NOT IN APPEAL BEFORE THE TRIBUNAL WHICH OTHERW ISE INDICATES THAT THEY ARE ALSO ACCEPTING THAT SERVICES HAV E BEEN RENDERED BY THE RECIPIENTS. UNDER THESE CIRCUMSTANCES, IT IS TO BE SEEN AS TO WHETHER THE COMMISSION PAID BY THE ASSESSE E AT 4% OF THE TURNOVER IS JUSTIFIABLE OR NOT? 13. ADMITTEDLY, THE ASSESSEE HAS PAID THE COMMISSION BY A CCOUNT PAYEE CHEQUE, TDS HAS BEEN DEDUCTED AND ALL THE PERSON S ARE INCOME-TAX ASSESSEES. THE ASSESSING OFFICER HAS NOT SUMM ONED ANY OF THE PERSONS NOR ASKED THE ASSESSEE TO PRODUCE THE M. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALCHAND AN D COMPANY PVT. LTD. (SUPRA) HAS HELD THAT IN APPLYING THE TE ST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITU RE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUS INESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FR OM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. AS MENTIONED IN THE PRECEDING PARAGRAPHS, THE REVENUE AUTH ORITIES BY ACCEPTING COMMISSION AT 3% AS REASONABLE ARE NOT DOUBTIN G REGARDING THE SERVICES RENDERED BY THE PARTIES TO WHO M SALES COMMISSION HAS BEEN PAID. THEREFORE, WHEN THE ASSESSEE H AS PAID COMMISSION @4% TO CERTAIN PARTIES, I AM OF THE CONSIDERED OPINION THAT NO DISALLOWANCE SHOULD BE MADE OUT OF SUCH COMMISSIO N PAID ON THE GROUND OF REASONABLENESS. IT IS FOR THE ASSESSEE TO CONDUCT ITS BUSINESS IN THE WAY IT WANTS TO DO. THE REVENUE CANN OT FORCE THE ASSESSEE TO CONDUCT ITS BUSINESS IN A PARTICULAR MANNER NOR IT CAN COMPEL THE ASSESSEE TO MAXIMIZE ITS PROFIT. SINCE THE REVE NUE IN THE INSTANT CASE HAS NOT BROUGHT ANY EVIDENCE TO SHOW THA T THE 8 ITA NO.1490/PN/2016 COMMISSION PAID BY THE ASSESSEE IS UNREASONABLE AND SINCE THEY ARE NOT DOUBTING THE SERVICES RENDERED BY THOSE PARTIE S, THEREFORE, DISALLOWANCE OF ANY PART OF THE EXPENDITURE IN THE FACTS OF THE PRESENT CASE IS UNCALLED FOR. THEREFORE, I SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIO N. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-11-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED :11 TH NOVEMBER, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // $ % / TRUE COPY // // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 2 , NASHIK 4. THE PR.CIT-2, NASHIK 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.