ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3, AMRITSAR V. M/S SWADHARMA CORPORATE INTERNATIONAL PRIVATE LIMITED, AMRITSAR

ITA 15/ASR/2018

AI Insights

The case involves two appeals by the Assistant Commissioner of Income Tax, Circle-3, Amritsar against M/s Swadharma Corporate International Private Limited for the assessment years 2013-14 and 2014-15. The primary issue in both appeals was the deletion of an addition of Rs. 3,51,33,000 made by the Assessing Officer (AO) concerning the assessee's dealings with IHO products. The AO had made the addition based on the premise that the assessee had sold IHO kits outside the books, which the assessee contested by providing detailed explanations and evidence of complementary distributions. The Ld. CIT(A) deleted the addition, citing lack of tangible evidence from the AO and reliance on conjectures. The Tribunal upheld the CIT(A)'s decision, emphasizing that assessments based on guesswork or suspicion are invalid.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114549 (ITAT-AMRITSAR)
• Duration Of Justice: 5 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 10-01-2018
• Other Referred Cases: Uma Charan Saw & Ors Vs. CIT, Dhakeshwari Cotton Mills Ltd vs CIT, Dhirajlal Girdharilal vs CIT, Lalchand Bhagat Ambica Ram vs CIT, Smt. PURNIMA BERI vs DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA BHAURAOJI NINAWE
• Keywords: Corroborative evidences; Non passing of speaking order; Set aside
• Section: 44AB; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 15/Asr/2018 Assessment Year: 2013-14 Asst. CIT Circle-3, Amritsar Vs. M/s Swadharma Corporate International Private Limited, 911-B HIG, Housing Board Colony, Sector-3, Ranjit Avenue, C- Block, Amritsar PAN: AAPCS7045D APPELLANT RESPONDENT I.T.A. No. 797/Asr/2017 Assessment Year: 2014-15 Asst. CIT Circle-3, Amritsar Vs. M/s Swadharma Corporate International Private Limited, 911-B HIG, Housing Board Colony, Sector-3, Ranjit Avenue, C- Block, Amritsar PAN: AAPCS7045D APPELLANT RESPONDENT Assessee by: Shri Ashwani Kalia, CA Revenue by: Shri Hitendra Bhauraoji Ninawe, CIT DR Date of Hearing: 14/06/2023 Date of Pronouncement: 12/07/2023 ORDER Per Dr. M. L. Meena, AM: Both the appeals have been filed by the department against the separate orders of the Ld. CIT(A)-1, Amritsar dated 24/10/2017 and 20/09/2017 respectively. 2 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 2. The department has raised the following grounds in ITA No. 15/Asr/2018 which read as under: 1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was right in deleting the addition of Rs. 3,51,33,000/- merely by holding that the AO has not brought any tangible evidence on record and that addition has been made on estimate and conjectures. 2. Whether on the facts and circumstances of the case an in law, the Ld. CIT(A) was right in deleting the addition of Rs. 3,51,33,000/- with reference to the decision of apex court in the case of Uma Charan Saw & Ors Vs. CIT 37 ITR 271 which is not applicable to the facts of the present case. 3. Whether the Ld. CIT(A) was right in deleting the additions by passing a cryptic and non speaking order. 4. The appellant craves leave to add, amend any ground(s) of Appeal. 3. Assessee has raised the following grounds in ITA No. 15/Asr/2018 which read as under: 1. Weather on the facts and circumstances of the case and in Law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,79,07,375/- made by the Assessing Officer merely by holding that the AO has not brought any tangible evidence on record but following the order of his predecessor as per assessment order passed in A.Y 2013-14; whereas the assessee itself failed to prove before the AO that all the IHO Kits were distributed complimentary. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,79,07,375/- made by the Assessing Officer without appreciating the fact that the primary onus was on the assessee to prove and substantiate that an expenditure debited to P&L Account is allowable as deduction. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,79,07,375/- with reference to the decision of apex court in the case of Uma Charan & Saw & Ors. Vs. CIT ITR 271 which is not applicable to the facts of the present case. 3 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 4. The appellant craves leave to add, amend any grounds of Appeal. 4. In both the appeals, the revenue has challenged the sole and common issue on identical facts, except variation in the amount, that the Ld. CIT(A) was not justified in deleting the addition made by the Assessing Officer merely by holding that the AO has not brought any tangible evidence on record in respect of the Assessment Year 2013-14 and 2014- 15. Therefore, both these appeals were heard together and adjudicated by this common order for the sake of brevity. 5. Brief facts of the case as per record are taken from ITA No. 15/Asr/2018. The Appellant Assessee is a private limited company, incorporated on 25/04/2011 with its head office at Amritsar while a branch office is maintained at Karnal. The appellant company is engaged in the business of e-commerce industry to deal in all kinds of consumer goods/services/products and information technology based products & services. During the year under consideration, the company's gross revenue was claimed to be generated from Sales of consumer goods, Educational, Health, Tour Holiday packages and brand promotion activities. The sales were generated through direct marketing related platforms and through referral marketing wherein a customer in addition gets the products services of the company, as an option. 4 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 6. The AO being not satisfied with the reply of the assessee that it has purchased the IHO products during the year for its customers and also undertook brand promotion activities for IHO under agreement and that income and expenditure from the business association were shown separately in the Profit & Loss a/c. In conclusion, the AO rejected the submissions of all relevant details, agreements, confirmations and other related documents and without judiciously appreciating the facts, drew adverse inferences by wrongly invoking the provisions of section 145(3) of the Act, culminating into additions of Rs. 3,51,33,000/- in respect of IHO dealings. 7. The assesse being aggrieved with the Assessment Order, went in appeal before the Ld. CIT(A) who has granted relief to the assessee by observing as under: “As far as addition of Rs. 3,51,33,000/- is concerned; the AO has not brought any tangible evidence on record. Nowhere the AO has come out about who was the person to whom sale of kits has been made, what was the mode of receiving the payment, and at what point of time the aforesaid sale was made. It is a settled law that suspicion/doubt howsoever strong cannot take the place of legal proof as has been held by the Hon’ble Supreme Court in the case of Uma Charan Saw 85 Ors vs. CIT 37 ITR 271. Further, the books of accounts have been rejected primarily on the basis that the sales do not reconcile with the service tax. The very basic application of section 145(3) is bad in law. The AO has held that 5 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 12,000/- IHO kits have been sold in cash out of the books. There has been no documentary evidence whatsoever to support his belief. Nothing has been brought on record to disapprove the apparent. Thus the addition of Rs. 3,51,33,000/- on estimate and conjectures 85 surmises is bad in law and deleted.” 8. The Ld. DR for the department submitted that in the law, the Ld. CIT(A) was not right in deleting the addition of Rs. 3,51,33,000/- merely by holding that the AO has not brought any tangible evidence on record and that addition has been made on estimate and conjectures and that the Ld. CIT(A) while deleting the addition of Rs. 3,51,33,000/- made a reference to the decision of apex court in the case of Uma Charan Saw & Ors Vs. CIT 37 ITR 271 which is not applicable to the facts of the present case. He contended that impugned order passed by the Ld. CIT(A) in deleting the additions by passing a cryptic and non-speaking order may be set aside. 9. Per contra, the defendant Ld. Council vehemently supported the impugned order by reiterating the submission made before the Ld. CIT(A). He submitted that the appellant company has maintained proper books of accounts for the AY 2013-14, and the same were duly audited u/s 44AB of the Act. He submitted that the notices calling for extensive information from time to time during the course of scrutiny proceedings were duly complied before the A.O., who did not point out any infirmity in the audit report or in 6 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 the books of account produced before the A.O. 10. During the year, the assessee had associated with a Delhi based company INDIAN HEALTH ORGANISATION PVT LTD, in commercial world known as IHO which is a part of Aetna Inc. United States, a leading health insurance organization founded in 1853 and serving more than 35 Million customers across the world with Headquartered at Hartford, Connecticut, United States Aetna Inc. posted revenues of US$52 Billion for the FY 2014. It was explained that Aetna provides healthcare product & related services and IHO was formed with the mission of making high quality healthcare services more affordable in India. As a first step, IHO has launched Healthcare Plans - a first of its kind concept in India, with many more health related services to be launched in the future. The assessee purchased the IHO products during the year for its customers and also undertook brand promotion activities for IHO under agreement. Income and expenditure from the business association were shown separately in the Profit & Loss a/c. However, despite appellant’s submissions of all relevant details, agreements, confirmations and other related documents and continuous explanations, the Ld. A.O erred in not appreciating the facts properly and judiciously and instead drew adverse inferences by wrongly invoking the provisions of section 145(3) of the Act 7 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 leading to a very high pitched disputed addition of Rs 3,51,33,000/- in respect of IHO dealings. He pleaded that impugned order may be upheld. 11. We have heard the rival contentions, perused the material on record, impugned order, written submission and case law cited before us. It is seen that the AO made an addition of Rs 3,51,33,000/- without appreciating and understanding the business relationship of the assessee with another concern IHO LTD in a logical manner by drawing an arbitrary conclusion ignoring the detailed explanations filed by the appellant with supporting evidences which stands referred in the Assessment Order, such as Agreement with IHO LTD, Confirmatory copy of a/c from IHO LTD, Sample Customer Forms wherein customers were made aware that they will receive complementary IHO kits with the GVD/ Bundled Package being purchased, Product promotion information pop up from official website of assessee announcing free IHO kits with Consumer goods/GVD/ Bundled Packages, List of customers to whom IHO Kits delivered, Sample IHO Cards etc. 12. It is seen that the AO had alleged that the assessee had contradicted its own claim of complementary distribution of IHO kits to all customers, and when it has itself submitted that out of 14675 IHO kits, 10000 kits 8 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 have been sold and balance have been distributed for sale promotion and publicity; that the assessee did not produce any direct evidence to corroborate its claim of giving IHO kits complementary to all customers and that there was no mention in invoice/package details of IHO kits being given complementary with other group package like Travel/Hotel Accommodation/and or Education packages etc. and thus, AO held that 10,000 IHO kits were sold out of the books valued at Rs.3,51,33,000/- and made addition to the returned income without establishing or substantiating the same with corroborative supporting documentary to disprove the claim of the appellant assessee. 13. The AR argued that it was explained to the AO that it was not essential to mention in the invoice about the complementary supply of wellness kit as no VAT was leviable on the wellness kits being for medical purposes. Therefore, it was not a statutory obligation to mention the same on the invoice. It was being explained that each and every customer was aware that they will get the IHO kits with these bundled packages since every customer has been required to fill a Customer Order Form to be given to the company wherein the complementary supply of Wellness IHO kit is specifically mentioned along with the package of bundle items like 9 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 hotel accommodation and or education packages etc. The AR contended that the potential associates/customers were in the knowledge through website advertisement that they will receive complementary IHO wellness kits on supply of order. The copies of the Customer Order Form were duly filed before AO wherein it was specifically mention as regards to supply of complementary IHO wellness kits. Once it is in the knowledge of customer that he is to get the wellness kit complementary along with package, the company has to supply the same along with the combo products sold. 14. It is seen that the assessee has filed reply dated 19.12.2016 (APB, Pg.26) wherein vide para 10, it was mentioned that if the AO desired the company could supply complete list of all recipients of IHO Wellness Kit from whom confirmation or verification could be sought independently either in all cases or on random basis. It is argued that the complementary supply of IHO kits along with the sale of combo products as per the terms of Customer Order Forms were broadly mentioned as sale by the assessee which was freely supplied being part of combo offer. The balance 4675 kits were the free distribution of wellness skits for sale promotion projects undertaken for the sale of products of company in different seminars, conferences and meetings which has also been displayed on official 10 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 website of the company in the form of banner POP up etc. Copies of the same was also supplied during assessment proceedings as accepted by the AO vide Para 5 page 38 of the assessment order. 15. From the above it is evident that since, there was no VAT liability chargeable on the IHO wellness kit, hence, there was no statutory requirements to mention the supply of free wellness kits on Invoice/bills. However, on the free supply of other consumer items like cufflinks, shirts and other items although complementary items which are liable to VAT and hence, even if these are given free, these were required to be mentioned on invoices in compliance to provisions as per VAT Act. 16. Admittedly, the assessee has earned a sum of Rs.3,45,37,500/- as "Brand Promotion Fees" from IHO which has been shown as income in the Profit & Loss A/c and as per agreement with IHO the assessee was required to purchase the Brand Promotion items like wellness kits and wellness plan of IHO to be used for the purposes of Brand Promotion after buying the same from IHO. It is noted that the AO has very conveniently assessed the Brand Promotion Fee received from IHO as income of the assessee but disallowed the Brand Promotion expenses incurred by the 11 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 assessee in purchase of wellness kits and free distribution of the same to its customers. 17. In our view, the AO has misinterpreted that 10,000 kits were sold and balance were distributed for sale promotion and publicity (Assessment Order para (v), Page 38). The appellant has demonstrated before the AO that the 10,000 kits which the AO has taken as sold were not the sale against money but supplied complementary items alongwith various combo packages sold by the company as tour/holiday packages, educational packages etc and were part of the package sold as the free supply of wellness kits which were being duly mentioned in the Customer Order Form that contained the clause of free supply of IHO wellness kit along with the package sold which have been duly signed by the customers. Thus the AO has made the addition absolutely on wrong assumption of facts that the 10,000 wellness kits were sold outside the books. The AO has not pointed out even an iota of evidence to prove that the wellness kits were sold in cash by the assessee with any supporting corroborative material evidence on record to disprove the claim of the appellant. 18. From the assessment order, it evident that the AO has not pointed out any unaccounted transaction of the sale of well kits was being made 12 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 outside the books and mode of receipt of payments for the same as to whom, how and on what point of time such sale was made. Meaning thereby that the addition has been made purely on suspicion and doubt without an iota of evidence being brought on record in rebuttal to the claim of the appellant assesse. We do not find even a single piece of evidence, mentioned by AO in respect of such allegation of sales of wellness kits outside the books. 19. The AO’s allegation of self–contradiction is based on wrong interpretation of the assessee's submissions. The Ld AR explained that the arrangement with IHO was that the assessee shall supply complete detail of customers to whom the kits were to be supplied on weekly basis and IHO shall print the particulars of the customers on card and shall send the same to assessee who would supply the wellness kits to the customers with printed card, so the same is used by the customers and not by anybody else. In this regard, the confirmative letter from IHO was also supplied (Assessment Order, page 32). 20. We noticed that the A.O failed to appreciate the novel and innovative business model of the assessee of selling and promoting its various bundled packages through the online platform/e-commerce and that the 13 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 conventional methods of sales and marketing stand substituted now with innovative and novel ways with the advent of artificial intelligence, e- commerce, with high technology supported online portal which are being used even by karyana/departmental stores/shops. In the present case, the assessee company launched COMBO Products/ GVD (Great value deals) products whereby a single product of the company is a combination of a number of items which have been bundled together to make a marketable product which has been promoted by the company through its associates and distributors. To promote a sale, these products are advertised as GVD (Great value deals) and are made attractive by offering along with the main product combo, some items free such as IHO wellness plans, free accommodation vouchers etc. 21. The Apex court in the case of Dhakeshwari Cotton Mills Ltd vs CIT (1954) 26 ITR 775, 782 (SC) has held that an assessment based purely on guess work is bad in law. Similarly, an assessment based on mere conjectures is bad, invalid and unsustainable in law as held by the Apex court in the cases of Dhirajlal Girdharilal vs CIT (1954) 26 ITR 736 (SC) and Lalchand Bhagat Ambica Ram vs CIT (1959) 37 ITR 288 (SC). 14 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 22. The coordinate AMRITSAR BENCH in the case of Smt. PURNIMA BERI vs DCIT, [2002] 82 ITD 137 ASR (TM) held that unless there is cogent evidence with department, no addition can be made on surmises, conjectures and suspicion, ignoring in process, evidences on record in favour of assessee or lack of evidence to support revenue's case. 23. In our view, the Ld. CIT (Appeals) has rightly relied on the decision of the apex court in the case of “Uma Charan Saw & Ors vs. CIT”, 37 ITR 271 (SC) with regards to the proposition that conclusions drawn on suspicion, conjectures and surmises cannot take the place of proof. 24. In the backdrop of the aforesaid discussion, the impugned order cannot be by any stretch of imagination be equated with a non -speaking order. In fact, there is no straight jacket formula on this issue through the ld. CIT(A) had deliberated logically on the submissions of the assessee compared with the assessment order wherein the submissions of the assessee during the course of assessment proceedings do occupy maximum space has also duly been considered by the Ld. CIT(Appeals) before holding the A.O in error while framing an assessment order based on surmises, conjectures and suspicion. A speaking order in the present facts and circumstances of the assessee does not ipso facto mean that it has to be a lengthy order also. If the order, even if brief, spells out the reasons as to why it has been passed, then it is a speaking order and it is not necessary that only a lengthy order can be a speaking order. In the 15 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 present case, the department raising this ground is without any basis but based on a mechanical action to dispute an otherwise validly passed order by the Ld. CIT (Appeals). Accordingly, we hold that there is no arbitrariness in the impugned order of the Ld. CIT (Appeals). 25. Under the facts and circumstances, we are of the considered opinion that the Ld. CIT(A) has rightly deleted the additions made by the AO merely on estimates and conjectures and that the additions made were being not supported with any tangible evidence/material on record, hence, the additions are liable to be deleted. In view of that matter the impugned order passed by the Ld. CIT (Appeals) is an affirmation to the facts on record. In the backdrop of the aforesaid discussion, we find no infirmity or perversity in the order of the CIT(A) to the facts on record and hence, the order passed by the Ld. CIT(Appeals), does not call for any interference. Accordingly, the decision of the Ld. CIT(A) is sustained. 26. The facts and issues in I.T.A. No. 797/Asr/2017 is respect of the Assessment Year: 2014-15 are exactly similar to the facts and issue involved in that of I.T.A. No. 15/Asr/2018 in respect of the Assessment Year: 2013-14 and therefore, our observation and finding given in ITA No. I.T.A. No. 15/Asr/2018 shall be applicable to I.T.A. No. 797/Asr/2017 in mutatis mutandis. 16 I.T.A. No. 15/Asr/2018 I.T.A. No. 797/Asr/2017 Assessment Year: 2013-14 &2014-15 27. In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 12.07.2023 Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member A.G/DOC* Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order