Power Build Limited, Anand V. The ACIT., Anand Circle, Anand

ITA 1582/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1284 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-10-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 18-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIPAK SUTARIA
• Keywords: Wrong claim
• Section: 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD , BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO. 1582/AHD/2012 ASSESSMENT YEAR : 2002-03 POWER BUILD LTD. P.B. NO.28, ANAND-SOJITRA ROAD, V.U. NAGAR 388 121 TA. & DIST. ANAND V/S . THE ASST. COMMISSIONER OF INCOME TAX, ANAND CIRCLE, ANAND PAN NO. AABCP2464K (APPELLANT) .. (RESPONDENT) /BY ASSESSEE SHRI SUNIL TALATI, A.R. / BY REVENUE SHRI DIPAK SUTARIA, SR. D.R. /DATE OF HEARING 23.10.2015 /DATE OF PRONOUNCEMENT 02.11.2015 O R D E R PER : MANISH BORAD, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-IV, BARODA, DATED 07.05.2012. ORDER U/S.271(1)(C) OF T HE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE A.Y. 2002-03 WAS FRAMED BY ACIT, ANAND ON 09.02.2011. THE ASSESSEE HAS RAISED FOLLO WING GROUNDS :- 1. THE ORDER PASSED BY THE HONBLE CIT(A), BARODA IS BAD IN LAW, CONTRARY TO LEGAL PRONOUNCEMENTS AND SAME BE QUASHED. ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 2 2. THE HONBLE CIT(A), BARODA HAS ERRED IN NOT ACCE PTING TECHNICAL GROUND RAISED BY YOUR APPELLANT AS TO STIPULATING WHETHER PENALTY IM POSED FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. YOUR APPELLANT SUBMITS THAT MERE ADDITION TO INCOME CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THERE WAS CONCEALMENT OF PARTICULAR S OF INCOME BY THE ASSESSEE OR FURNISHING OF INACCURATE PARTICULARS THEREOF. HENC E, THE PENALTY LEVIED BY AO IS UNJUSTIFIED. IT BE HELD SO NOW AND THE AO BE DIREC TED TO DELETE THE PENALTY. 3. THE HONBLE CIT(A), BARODA HAS ERRED IN CONFIRMI NG THE LEVY OF PENALTY OF RS.1,07,100/- @ 100% TAX ON RS.3,00,000/- BEING DIS ALLOWANCE OF COMMISSION PAYMENT TO M/S. ARIHANT METAL CORPORATION. YOUR AP PELLANT HAS NEITHER CONCEALED THE INCOME NOR FILED INACCURATE PARTICULARS OF INCO ME AND HENCE LEVY OF PENALTY IS INCORRECT, UNJUST AND UNWARRANTED AND SAME BE DELET ED NOW. IT BE HELD SO NOW. 2. BRIEFLY STATED FACTS ARE THAT THE ORIGINAL ASSES SMENT WAS FINALIZED U/S.143(3) OF THE ACT ON 28.03.2005 ASSESSING TOTAL INCOME OF THE ASSESSEE AT RS.61,59,610/-. THE FIRST APPEAL AGAINST THIS ASSE SSMENT ORDER WAS DECIDED BY CIT(A)-II, BARODA ON 12.01.2005. AGGRIEVED WITH TH E ORDER OF LD. CIT(A), ASSESSEE PREFERRED APPEAL BEFORE THE HONBLE ITAT, AHMEDABAD, WHO VIDE APPELLATE ORDER IN ITA NO.1762/AHD/2007 DATED 05/03 /2002 DECIDED THE APPEAL BY SETTING ASIDE THE ORDER OF CIT(A) AND RESTORED T HE ISSUE OF DISALLOWANCE OF COMMISSION PAYMENT OF RS.3LACS TO M/S. ARIHANT META L CORPORATION TO THE FILE OF ASSESSING OFFICER. 3. DURING THE ASSESSMENT PROCEEDINGS U/S.143(3) R.W .S. 254 OF THE I.T. ACT, ASSESSING OFFICER EXAMINED THE AGREEMENT BETWEEN TH E ASSESSEE COMPANY AND AGENT M/S. ARIHANT METAL CORPORATION. BUT, OBSERVE D THAT AGREEMENT WAS EFFECTIVE FROM 24.11.2001 WHEREAS THE STAMP PAPER U SED FOR MAKING THE AGREEMENT WAS PURCHASED ON 08.07.2002 AND THERE WAS NO CLAUSE REGARDING ANY ORAL AGREEMENT BETWEEN BOTH THE PARTIES AND AS SUCH , DISALLOWED THE CLAIM OF COMMISSION PAYMENT OF RS.3 LACS TO M/S. ARIHANT MET AL CORPORATION AND INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT AND ACCORDINGLY IMPOSED THE PENALTY OF RS.1,07,100/- U/S.271(1)(C) OF THE A CT BY PASSING THE ORDER ON 09.02.2011. ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 3 4. AGGRIEVED ASSESSEE WENT IN APPEAL BEFORE THE CIT (A) FOR DELETION OF PENALTY IMPOSED AT RS.1,07,100/- U/S.271(1)(C) OF T HE ACT, BUT COULD NOT SUCCEED AS LD. CIT(A) CONFIRMED THE PENALTY IMPOSED U/S.271 (1)(C) OF THE ACT BY OBSERVING AS UNDER: 10. THE ABOVE ENTIRE FACTS SHOW THAT THE BASIC DOC UMENT I.E. AGREEMENT ITSELF WAS NOT GENUINE IN THE CASE OF APPELLANT ON THE BASIS O F WHICH IT HAS CLAIMED THAT THE SERVICES HAVE BEEN RENDERED BY M/S. ARIHANT METAL C ORPORATION. ON THE BASIS OF ABOVE FACTS, IT CAN BE SAFELY PRESUMED THAT THE AGR EEMENT WAS NOT EXISTING DURING THE YEAR UNDER CONSIDERATION AND IT WAS FABRICATED SUBS EQUENTLY I.E. ON 08.07.2002 WITH ATTEMPT TO GIVE EFFECT TO SUCH AGREEMENT FROM 24-11 -2001. IN VIEW OF THIS IT CANNOT BE SAID THAT ANY SERVICES WERE ACTUALLY RENDERED BY M/ S. ARIHANT METAL CORPORATION TO THE APPELLANT DURING THE YEAR UNDER CONSIDERATION A S THE DOCUMENTARY EVIDENCE AS PRODUCED BY THE APPELLANT IN RESPECT OF ITS CLAIM O F BEING SERVICES RENDERED ITSELF IS FALSE. THESE FACTS CLEARLY ESTABLISH THAT THE APPE LLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF ITS ABOVE CLAIM OF COMMISSION EXPENSES OF RS.3,00,000/- AND FOR WHICH IT IS LIABLE FOR PENALT Y U/S 271(1)(C) OF THE IT ACT. I, THEREFORE, CONFIRM THE PENALTY OF RS.1,07,100/- AS LEVIED BY THE AO U/S 271(1)(C) OF THE IT ACT. 5. AGGRIEVED ASSESSEE IS NOW IN APPEAL BEFORE THE T RIBUNAL. LD. A.R. SUBMITTED THAT ASSESSEE IS A PRIVATE LIMITED COMPAN Y AND TOTAL TURNOVER FOR THE F.Y. 2001-02 IS RS.13.06 CRORE AND INCOME DECLARED IN RETURN OF INCOME WAS RS.33,72,667/- AND DURING F.Y. 2001-02 TOTAL COMMIS SION EXPENSES CLAIMED IN AUDITED P & L ACCOUNT IS RS.64,77,790/- WHICH INCL UDES THE ALLEGED COMMISSION PAYMENT OF RS.3LACS TO M/S. ARIHANT META L CORPORATION. 5.1 LD. A.R. FURTHER SUBMITTED THAT THE COMMISSION WAS PAID TO M/S. ARIHANT METAL CORPORATION FOR BOOKING THE ORDER FOR THE COM PANY FROM M/S. PROMAC ENGINEERING INDUSTRIES LTD., BANGALORE AS WELL AS F OR APPROVAL OF DRAWINGS, EXTENSION OF DELIVERY SCHEDULES, WAIVER OF LIQUIDAT ED DAMAGES, IF ANY, INSPECTION OF THE MACHINES SUPPLIED BY ASSESSEE ALO NG WITH PROVIDING RELEVANT INFORMATION DURING PRE/POST INQUIRY AT ORDERING LEV EL CONNECTED WITH THE TENDER. THE SAID PARTY, NAMELY, M/S. ARIHANT METAL CORPORAT ION WAS ALSO RESPONSIBLE FOR PROMPT REALIZATION OF PAYMENT, COLLECTION OF ST ATUTORY FORMS, BANK GUARANTEES ETC. THE ASSESSING OFFICER HAS NOT DISP UTED ABOUT THE TYPE OF SERVICES PROVIDED BY M/S. ARIHANT METAL CORPORATION TO THE ASSESSEE. THE COMMISSION PAYMENT OF RS.3LACS HAS BEEN PAID AFTER DEDUCTING INCOME TAX AT ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 4 SOURCE AT RS.15,450/- AND THE DIFFERENCE AMOUNT AT RS.2,84,250/- (GROSS RS.3,00,000/- LESS TDS RS.15,450/-) WAS PAID BY ACC OUNT PAYEE CHEQUE TO THE ACCOUNT OF M/S. ARIHANT METAL CORPORATION TOWARDS S ALES COMMISSION FOR F.Y.2001-02. LD. A.R. FURTHER REFERRED TO THE PAPE R BOOK SUBMITTED ON 21 ST OCTOBER, 2015 IN WHICH COPY OF AGREEMENT BETWEEN AS SESSEE COMPANY AND M/S. ARIHANT METAL CORPORATION IS FILED. ALL THE RELEVA NT DETAILS IN RELATION TO SERVICES TO BE PROVIDED BY M/S. ARIHANT METAL CORPO RATION, AGENCY COMMISSION TO BE PAID, TIME OF PAYMENT VIS--VIS THE SERVICES TO BE PROVIDED IN THIS AGREEMENT WHICH WAS EFFECTIVE FROM 24 TH NOVEMBER, 2001. THE ONLY REASON FOR THE DISALLOWANCE OF COMMISSION BY THE ASSESSING OFF ICER AND FURTHER CONFIRMING OF ADDITION BY CIT(A) IS BASED ON THE FA CT THAT THE STAMP PAPER ON WHICH THIS AGREEMENT HAS BEEN ENTERED INTO W.E.F. 2 4.11.2001 WAS PURCHASED FROM THE STAMP VENDOR ON 8 TH JULY, 2012 AND THERE WAS ABSENCE OF CLAUSE TO COVER UP ORAL CONTRACT BETWEEN THE ASSESSEE COMPANY AND M/S. ARIHANT METAL CORPORATION. FOR THIS TECHNICAL MISTAKE, DISALLOWA NCE OF COMMISSION OF RS.3LACS HAS BEEN DONE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 5.2 LD. A.R. FURTHER SUBMITTED THAT OUT OF TOTAL CO MMISSION EXPENSES OF RS.64,77,790/-, THE ONLY DISALLOWANCE OF COMMISSIO N EXPENSES IS OF RS.3LACS AND THE REMAINING COMMISSION EXPENSES OF RS.61,77,7 90/- HAS BEEN DULY ACCEPTED AND ALLOWED BY THE ASSESSING OFFICER. AS SUCH, HE REQUESTED THAT LOOKING TO THE OVER ALL BUSINESS OF THE ASSESSEE CO MPANY, QUANTUM OF SALES TURNOVER, TOTAL INCOME DECLARED, THERE SEEMS NO REA SON TO CONCEAL INCOME OF A MEAGER AMOUNT OF RS.3LACS BY CLAIMING EXCESS EXPEND ITURE. ON OTHER HAND, LD. D.R. FIRMLY SUPPORTED THE ORDERS OF LOWER AUTHORITI ES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IS IN RELATION TO IMPOSITION OF PENALTY U/ S.271(1)(C) OF THE IT ACT, FOR FURNISHING OF INACCURATE PARTICULARS IN THE SHAPE O F WRONG CLAIM OF COMMISSION ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 5 EXPENSES WITH INTENTION TO REDUCE TAX INCIDENCE. F ROM THE AVAILABLE RECORDS, WE FIND THAT ASSESSEE IS A PRIVATE LIMITED COMPANY WHI CH HAS DECLARED INCOME AT RS.33,72,667/- IN ITS RETURN OF INCOME AND HAVING A N ANNUAL TURNOVER OF RS.13,06,52,075/-, SHARE HOLDERS FUND COMPRISING OF SHARE CAPITAL AND RESERVE SURPLUS OF RS.7,71,51,839/- AND HAS CLAIMED COMMISS ION EXPENDITURE OF RS.64,77,779/-. THE ABOVE FIGURES JUSTIFIED THAT A SSESSEE COMPANY IS HAVING A GOOD LEVEL OF BUSINESS COUPLED WITH LIQUIDITY. OUT OF TOTAL COMMISSION EXPENSES CLAIMED BY ASSESSEE IN ITS P & L ACCOUNT O F RS.64,77,790/-, ASSESSING OFFICER HAS ONLY DISALLOWED COMMISSION OF RS.3LACS. 6.1 IN ORDER TO JUSTIFY THE COMMISSION EXPENDITURE THE BASIC INGREDIENTS ARE THAT THERE SHOULD BE A RELATIONSHIP OF PRINCIPAL AN D AGENT WHICH IN THIS CASE IS ESTABLISHED BY AGREEMENT BETWEEN THE TWO PARTIES. TYPE OF AGENCY SERVICES TO BE DEFINED WHICH IN THIS CASE, IS VERY WELL CLEAR F ROM THE AGREEMENT THAT THE AGENT M/S. ARIHANT METAL CORPORATION SHALL PROVIDE ITS SERVICES IN RELATION TO ORDER BOOKING OF ONE OF THE CLIENT OF THE ASSESSEE COMPANY M/S. PROMAC ENGINEERING INDUSTRIES LTD., BANGALORE AND THE AGEN T WAS ALSO RESPONSIBLE FOR DRAWINGS APPROVAL, DELIVERY EXTENSION, L/D WAIVER, INSPECTION/INSPECTION WAIVER. THE AGENT WAS ALSO TO KEEP THE COMPANY INF ORMED OF ALL RELEVANT INFORMATION DURING BOTH PRE AND POST INQUIRY/ORDER STAGES IRRESPECTIVE OF THE RELEVANCY OF THE ISSUES CONNECTED WITH TENDER. THE AGENT HAS TO ENSURE PROMPT REALIZATION OF PAYMENTS AND COLLECTION OF STATUTORY FORMS, BANK GUARANTEES IN TIME. THE DURATION OF THE AGREEMENT IS PUT IN WRIT ING IN THE AGREEMENT TO BE VALID FOR A PERIOD OF 1 YEAR OR TILL THE COMPLETION OF AND EXECUTION OF THE ORDER AND RECEIPT OF OLD DUES, WHICHEVER, IS EARLIER AND THE CONSIDERATION TO BE PAID TO THE AGENT. 6.2 THIS MAKES CLEAR THAT THE RELATIONSHIP AND SERV ICES TO BE PROVIDED BY THE COMMISSION AGENT ALONG WITH THE QUANTUM OF COMMISSI ON TO BE PAID WAS WELL ESTABLISHED ON RECORD AND NOT CONFRONTED BY THE ASS ESSING OFFICER. THE ALLEGED ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 6 COMMISSION WAS DULY PAID BY THE ASSESSEE COMPANY AF TER DEDUCTING THE APPLICABLE INCOME TAX AT SOURCE WHICH IN THIS CASE WAS RS.15,450/- AND THE BALANCE AMOUNT AFTER REDUCING TDS WAS PAID TO M/S. ARIHANT METAL CORPORATION AT RS.2,84,250/- BY CHEQUE ON 29 TH JULY, 2002. THE ONLY LACUNA IN THIS COMPLETE TRANSACTION ON COMMISSION PAYMENT IS THAT THE AGREE MENT HAS BEEN ENTERED ON STAMP PAPER DATED 8 TH JULY, 2012 AND THE AGREEMENT HAS BEEN MADE EFFECTI VE FROM 24 TH NOVEMBER, 2001 AND THE ALLEGATION BY THE ASSESSING OFFICER IS THAT ASSESSEE HAS CLAIMED EXPENSES COMMISSION OF RS.3LAC S BY PLANNING THE COMMISSION EXPENDITURE AFTER THE CLOSE OF FINANCIAL YEAR. 6.3 THIS ISSUE OF DISALLOWANCE OF RS.3LACS OF COMMI SSION PAYMENT CAME BEFORE THE CO-ORDINATE BENCH DURING COURSE OF APPEA L AGAINST THE ORDER OF CIT(A) RELATING TO QUANTUM PROCEEDINGS WHEREIN CO-O RDINATE BENCH DID NOT STRIKE OF THE CLAIM OF COMMISSION PAID BY ASSESSEE AND RATHER RESTORED THIS ISSUE TO THE FILE OF ASSESSING OFFICER BY OBSERVING AS UN DER: 7. WE HAVE HEARD THE PARTIES AND AFTER CONSIDERING THE MATERIAL ON RECORD, WE RESTORE THE MATTER TO THE FILE OF AO TO GIVE AN OPP ORTUNITY TO THE ASSESSEE TO FURNISH EVIDENCE OF RENDERING SERVICES BY M/S ARIHANT METAL CORPORATION. WE NOTICE THAT AO INITIALLY DISALLOWED THE CLAIM ON THE GROUND THAT A GREEMENT FOR COMMISSION WAS ENTERED POST-SALES. WHEREAS THE LD. CIT(A) CONFIRM ED THE DISALLOWANCE ON THE GROUND THAT FACT OF RENDERING SERVICES IS NOT CORRECT. SI NCE ASPECT OF RENDERING SERVICES HAS COME SUBSEQUENTLY IT REQUIRES VERIFICATION AND OPPO RTUNITY TO THE ASSESSEE AND ACCORDINGLY RE-EXAMINATION. AS A RESULT, THIS GROU ND OF ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 6.4 IN OUR VIEW, LOOKING TO THE TOTAL FACTS OF THE CASE, IT IS VERY HARD TO BELIEVE THAT THE COMPANY OF THIS STATURE CAN HAVE A MENSREA OF CONCEALING THE PARTICULARS OF INCOME FOR A MEAGER SUM OF RS.3LACS EVEN WHEN AL L THE CONDITIONS REQUIRED FOR A GENUINE TRANSACTION OF COMMISSION PAYMENTS HA VE BEEN BROUGHT ON RECORD BY THE ASSESSEE COMPANY EXCEPT THE AGENCY CONTRACT AGREEMENT STAMP PAPER, WHICH WAS PURCHASED ON 8 TH JULY, 2012 AND THE CLAUSE MENTIONING THE EXISTENCE OF ORAL AGREEMENT BETWEEN THE PRINCIPAL AND AGENT W AS MISSING, WHICH COULD HAVE REGULARIZED THE SERVICE CONTRACT W.E.F. 24.11. 2001. FOR THIS SINGLE MISTAKE, IT WILL NOT BE JUSTIFIED TO TREAT THE ASSESSEE IN D EFAULT AND TO IMPOSE PENALTY ITA NO. 1582/AHD/12 A.Y. 02-03 (POWER BUILD LTD. V S. ACIT) PAGE 7 AGAINST HIM U/S.271(1)(C) OF THE ACT. FURTHER, SEC TION 271(1)(C) OF THE ACT REFERS TO THE SITUATION WHETHER THE ASSESSEE HAS CO NCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, WHICH IN THE CASE OF ASSESSEE DOESNT SEEM TO APPLY BECAUSE ASSESSEE HAS GIVEN COMPLETE PARTICULARS OF HIS INCOME AND EXPENDITURE AND HAS PAID THE COMM ISSION BY BANKING CHANNEL AND DEDUCTED TAX AT SOURCE AND OUT OF THE TOTAL COM MISSION EXPENDITURE OF RS.64,77,790/-, ASSESSING OFFICER HAS ALREADY ALLO WED THE CLAIM OF COMMISSION OF RS.61,77,790/- AND NOTHING CONTRARY TO THE TYPE OF SERVICES AND PAYMENT TO THE AGENT HAS BEEN BROUGHT BEFORE US AND THEREFORE, IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO SUSTAIN THE PENALTY IMPOS ED U/S.271(1)(C) OF THE ACT AT RS.1,07,100/- ON THE ASSESSEE AND THEREFORE, WE DEL ETE THE SAME AND ALLOW THE GROUND OF ASSESSEE. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 2 ND NOVEMBER, 2015 SD/- SD/- ( RAJPAL YADAV) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ! '# $ / CONCERNED CIT 4. $ - / CIT (A) 5. %&' (('# , '# , ! / DR, ITAT, AHMEDABAD 6. '+, / GUARD FILE. BY ORDER/ , / '# , !