The DCIT, Circle- 5(3), Ahmedabad V. Shri Pravin Shripal Jain , Ahmedabad

ITA 162/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8384 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 13-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Commercial expediency; Capital expenditure
• Section: 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.162/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) DY.CIT CIRCLE-5(3) AHMEDABAD-6 / VS. SHRI PRAVIN SHRIPAL JAIN 580, NEW CLOTH MARKET OUT SIDE RAIPUR GATE AHMEDABAD-6 # ./ ./ PAN/GIR NO. : AAUPJ 0387 R ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI MUDIT NAGPAL, SR.DR '#& )( / RESPONDENT BY : SHRI A.L. THAKKAR, AR *+ ), / DATE OF HEARING 26/09/2017 -./0 ), / DATE OF PRONOUNCEMENT 10/ 10 /2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE REVENUE WHEREBY THE RELIEF GRANTED BY THE COMMISSIONER OF I NCOME TAX(APPEALS)-XVI, AHMEDABAD [CIT(A) IN SHORT] ON D ISALLOWANCE OF COMMISSION AMOUNTING TO RS.55,04,422/- PAID TO M/S .DISHMAN PHARMACEUTICALS AND CHEMICAL LTD. (DPCL) VIDE ITS O RDER DATED ITA NO.162/AHD/ 2015 DCIT VS. SHRI PRAVIN SHRIPAL JAIN ASST.YEAR 2011-12 - 2 - 10/11/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011- 12 HAS BEEN CHALLENGED. 2. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES O F THE REVENUE AND ASSESSEE, WE FIND THAT IDENTICAL ISSUE OF PAYMENT O F COMMISSION TO DPCL IN THE AYS 2008-09, 2009-10 & 2010-11 DISALLOWED BY THE ASSESSING OFFICER (AO) ON SIMILAR FACTS HAS BEEN REVERSED BY THE APPELLATE AUTHORITIES. THE CIT(A) HAS FOLLOWED THE DECISION OF HIS PREDECESSOR PASSED FOR AY 2008-09 AND GRANTED RELIEF TO THE ASS ESSEE. 3. IN THE COURSE OF HEARING, IT WAS POINTED OUT THA T SIMILAR DISALLOWANCES CARRIED OUT BY THE AO IN PRECEDING AY 2010-11 WAS ALSO REVERSED BY THE CIT(A). THE REVENUE CARRIED THE MA TTER BEFORE THE COORDINATE BENCH OF THE TRIBUNAL. THE TRIBUNAL AFT ER VISITING THE FACTS AND CIRCUMSTANCES OF THE CASE IN ITA NO.452/AHD/201 2 ORDER DATED 28/09/2016 SUSTAINED THE AFORESAID RELIEF GRANTED B Y THE CIT(A). THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE COORDIN ATE BENCH OF THE TRIBUNAL IS REPRODUCED HEREUNDER FOR READY REFERENC E. 8. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO OBSERVE THAT IN ORDE R TO CLAIM EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT, THE ASSESSEE I S REQUIRED TO FULFILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) T HE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN DITURE OF THE ASSESSEE, AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE ITA NO.162/AHD/ 2015 DCIT VS. SHRI PRAVIN SHRIPAL JAIN ASST.YEAR 2011-12 - 3 - PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESSION WHOLLY EMPLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND P URPOSE OF THE EXPENDITURE. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMER PVT. LTD. VS. CI T, 129 ITR 105 (GUJ). THIS DECISION WAS REFERRED BY THE ASSESSEE IN HIS WRITTE N SUBMISSIONS FILED BEFORE THE LD.CIT(A) AND FOLLOWING OBSERVATIONS WERE BROUG HT TO THE NOTICE OF THE LD.CIT(A). SO FAR AS THE QUESTIONS OF COMMERCIAL EXPEDIENCY A ND BUSINESS NEED OF AN ORGANIZATION ARE CONCERNED, IT IS NOT THE VIEW P OINT OF A REVENUE OFFICER WHICH SHOULD COUNT, BUT IT SHOULD BE THE VI EW OF AN ORDINARY BUSINESSMAN DEALING WITH A SITUATION LIKE THE ONE F ACED BY THE ASSESSEE. IN A SIMILAR CIRCUMSTANCE, THE HONBLE DELHI HIGH C OURT HAD AN OCCASION TO EXAMINE ASPECT OF COMMERCIAL EXPEDIENCY CONSIDERED BY A BUSINESSMAN WHILE INCURRING ANY EXPENDITURE. THE H ONBLE DELHI HIGH COURT HAS MADE THE FOLLOWING OBSERVATIONS ON THIS ASPECT IN THE DECISION OF THE CIT VS. DALMIA CEMENT LTD., 254 ITR 377. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRI CAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW THE BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE. THE TERM 'COMMERCIAL EXPEDIENC Y' IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERVES TO PROMOTE COM MERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE T EST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINES S THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE (SEE CIT V. WALCHAN D AND CO. (P.) LTD. ; J. K. WOOLLEN MANUFACTURERS V. CIT; ALUMINIU M CORPORATION OF INDIA LTD. V. CIT AND CIT V. PANIPAT WOOLLEN AND GE NERAL MILLS CO. LTD. . BUT IT MUST NOT SUFFER FROM THE VICE OF COLL USIVENESS OR COLOURABLE DEVICES. 9. IN THE LIGHT THE ABOVE, LET US EXAMINE THE FACTS OF THE PRESENT CASE. THE FIRST REASON ASSIGNED BY THE AO WHILE DRAWING INFER ENCE THAT THE ASSESSEE OUGHT TO HAVE NOT INCURRED THIS EXPENDITURE IS THAT THE ASSESSEE HAS BEEN ITA NO.162/AHD/ 2015 DCIT VS. SHRI PRAVIN SHRIPAL JAIN ASST.YEAR 2011-12 - 4 - SELLING GOODS DIRECTLY TO THE CUSTOMERS, AND FROM T HE ASSTT.YEAR 2008-09, IT HAS STARTED GIVING COMMISSION TO DPCL AT THE RATE 15% TO 20%. IN RESPONSE TO THIS OBJECTION, THE STAND OF THE ASSESSEE WAS THAT IT HAS INCURRED EXPENDITURE OF RS.39,74,129/- EVEN IN THE ASSTT.YEAR 2007-08. THE EXPENDITURE WAS UNDER THE FOLLOWING HEADS: I. BROKERAGE RS.15,01,624 II. SALES INCENTIVES RS.1,21,941 III. PROMOTIONAL EXPENSES RS.3,85,000 IV. COMMISSION EXPENSES RS.12,95,752 V. BUSINESS DEVELOPMENT EXPENSES RS.7,69,807 THE LD.AO, THEREAFTER POINTED OUT THAT OUT OF FIVE PARTIES TO WHOM SALES WERE MADE BY DPCL, THE ASSESSEE HAS DEALING WITH THREE IN THE PAST. THEREFORE, IT WAS NOT NECESSARY FOR THE ASSESSEE TO INCUR THIS EXPENDITURE. HE MADE REFERENCE TO THE CASE OF MODERN TERRY TOWELS L TD., RIBA TEXTILES LTD. AND CHENAB TEXTILES LTD. THE STAND OF THE ASSESSEE WAS THAT DPCL HAS TAKEN RESPONSIBILITY OF RECOVERY OF SALE PROCEEDS F ROM ALL THE CONCERNS TO WHOM SALES WERE MADE. NOW THIS IS THE STAGE WHERE THE ASSESSEE HAS TO DECIDE HOW TO CONDUCT HIS BUSINESS. IF IT WAS NOT CONVENI ENT TO THE ASSESSEE TO DO BUSINESS DIRECTLY WITH CERTAIN PARTIES, WHO MIGHT H AVE CREATED SOME PROBLEMS IN REMITTING SALES OR LIFTING THE GOODS, THEN HOW T HE AO COULD INTERFERE IN PERSUADING THE ASSESSEE TO CONDUCT BUSINESS IN A PA RTICULAR MANNER. THE AO HAS ALSO POINTED OUT THAT DPCL HAS NOT DISCLOSED HOW IT WILL CARRY OUT RESPONSIBILITY OF RECOVERING SALE PROCEEDS AS PLEAD ED BY THE ASSESSEE. NOW THE STAND OF THE ASSESSEE WAS THAT WHATEVER ASKED BY TH E LD.AO, IT HAS BEEN REPLIED. THE LD. AO HAS ASKED NAMES AND ADDRESS OF THE PERSO NS TO WHOM SALES HAVE BEEN MADE THROUGH DPCL. COPY OF THE RETURN ALONG WITH COPY OF AUDITED ACCOUNTS WERE CALLED FOR. BOTH THESE INFORMATION W ERE SUPPLIED BY THE DPCL. THE AO THEREAFTER DREW INFERENCE THAT INVO ICES SUBMITTED BY THE DPCL MIGHT HAVE NOT DISCLOSED THE NATURE OF SERVI CES. GP SHOWN BY THE ASSESSEE IN THE ASSTT.YEAR 2010-11 AND 2008-09 ARE BETTER THAN THE MOST OF THE YEARS. GP CHART HAS BEEN PLACED IN THE SUBMISSIONS FILED BEFORE THE LD.CIT(A) AND IT HAS BEEN REPRODUCED AT PAGE NO.16. IN THE A SSTT.YEAR 2004-05, THE GP WAS 16.15% WHEREAS IN THE ASSTT.YAR 2008-09, THE GP SHOWN BY THE ASSESSEE IS OF 25.55%. THERE IS AN INCREASE IN SALES TURNOVER ALSO. THUS, THE ASSESSEE WAS ABLE TO CARRY OUT ITS BUSINESS MORE SCIENTIFICALLY. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT PAYMENT OF COMMISSION WAS NOT CONSTANT AT THE RATE ITA NO.162/AHD/ 2015 DCIT VS. SHRI PRAVIN SHRIPAL JAIN ASST.YEAR 2011-12 - 5 - OF 20%, RATHER IT GOES ON DECREASING. IN THE ASSTT .YEAR 2010-11, IT WAS GIVEN AT THE RATE OF 15%. IN THE ASSTT.YEAR 2011-12, IT W AS GIVEN AT THE RATE OF 10%. THUS, COMMISSION WAS CALCULATED ACCORDING TO THE SA LES AND SERVICES RENDERED BY DPCL. 10. NO DOUBT THE STATEMENT GIVEN BY THE ASSESSEE BE FORE THE AO SUFFERED MANY INHERENT DEFICIENCIES I.E. THE ASSESSEE FAILED TO DISCLOSE NAMES OF DIRECTORS OF DPCL, AND THERE ARE OTHER INFIRMITIE S ALSO, BUT IN OUR OPINION, THE INTELLECTUAL COMPATIBILITY OF THE ASSESSEE WHIL E CONDUCTING HIS INCOME-TAX PROCEEDINGS MIGHT NOT BE MATCHING WITH TRAINED REVE NUE OFFICER, WHO HAS EXAMINED HIM. HIS COMPATIBILITY IS TO BE SEEN AS T O HOW HE HAS CARRIED OUT HIS BUSINESS ACTIVITIES. THE INFIRMITY EMERGED OUT WHIL E RECORDING STATEMENT EXTEMPORE, WOULD NOT BE OF SUCH NATURE WHICH COULD FALSIFY THE RECORD I.E. DETAILS OF PAYMENTS, DETAILS OF SALES ETC. MUCH IM PORTANCE CANNOT BE GIVEN TO THIS STATEMENT WHILE DRAWING THE INFERENCE OF THE E XPENDITURE, WHETHER INCURRED BY THE ASSESSEE OR NOT. THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE AND AFTER ANALYZIN G COMPLETE DETAILS, WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDING OF T HE LD.CIT(A). 11. AS FAR AS ASSTT.YEAR 2010-11 IS CONCERNED, THER E IS NO DISPARITY ON FACTS. THE LD.CIT(A) HAS SIMPLY RELIED UPON HIS FINDING RE CORDED IN THE ASSTT.YEAR 2009-10 AS WELL AS IN THE ASSTT.YEAR 2008-09. THER EFORE, WE DO NOT FIND ANY MERIT IN THE APPEAL FOR THE ASSTT.YEAR 2010-11 ALSO . 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 4. NO MATERIAL DIFFERENCE ON FACTS OF THE CASE AS N OTED FOR AY 2010- 11 WAS POINTED OUT IN THE COURSE OF HEARING. WE AL SO OBSERVE FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT ACCEPTED THE D ECISION OF THE CIT(A) AS TRIBUNAL DECISION WAS NOT AVAILABLE TO THE AO. SINCE THE ISSUE ON IDENTICAL FACTS IN ASSESSEES OWN CASE HAS BEEN DEC IDED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE, WE DO NOT INTEND DWELL UPON THE SAME ITA NO.162/AHD/ 2015 DCIT VS. SHRI PRAVIN SHRIPAL JAIN ASST.YEAR 2011-12 - 6 - ONCE AGAIN. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 10/ 10 /2017 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 10/ 10 /2017 4..*,.*../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 567, 8, / CONCERNED CIT 4. 8, ( ) / THE CIT(A)- 5. 9:;,*67 , 67 0 , 5 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 03.10.17 (DICTATION-PAD 4 -PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 03.10.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.10.10.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10.10.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER