POLYGENTA TECHNOLOGIES LTD., MUMBAI V. ACIT 4(3), MUMBAI

ITA 1655/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3969 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 19-03-2015
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Keywords: Depreciation; Rule of consistency; Non compliance; Assessment record
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NOS.1655 TO 1657/MUM/2015 ASSESSMENT YEARS: 2003-04 TO 2005-06 M/S POLYGENTA TECHNOLOGIES LTD. SOLITAIRE CORPORATE BANK, BUILDING NO.1, 6 TH FLOOR, UNIT ANDHERI-GHATKOPAR LINK ROAD, CHAKALA, ANDHERI (EAST), MUMBAI-400093 / VS. ACIT-4(3) MUMBAI ( /ASSESSEE) ( ! / REVENUE ) PAN. NO. AAACM7390Q / ASSESSEE BY SHRI ASHWIN KASHINATH ! / REVENUE BY SHRI M.DAYASAGAR CIT-DR # !$ % & / DATE OF HEARING : 05/05/2016 % & / DATE OF ORDER: 17/05/2016 ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THESE THREE APPEALS ARE BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 12/02/2015 FOR ASSESSMENT YEAR S 2003-04 TO 2005-06 OF THE FIRST APPELLATE AUTHORITY , MUMBAI, CHALLENGING CONFIRMATION OF PENALTY IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2. DURING HEARING OF THESE APPEALS, AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, SHRI ASHWIN KASHINATH , CONTENDED THAT THE QUANTUM ADDITION, ON THE BASIS O F WHICH PENALTY WAS IMPOSED, HAS BEEN DELETED BY THE TRIBUN AL IN THE CASE OF THE ASSESSEE ITSELF (ITA NO.7768 TO 7770/MU M/2011) VIDE ORDER DATED 13/04/2016. OUR ATTENTION WAS INVI TED TO VARIOUT PARAS OF THE AFORESAID ORDER. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. CIT-DR, SHRI M. DAYASAG AR. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 3 FROM THE AFORESAID ORDER DATED 13/04/2016 FOR READY REFERENCE AND ANALYSIS:- THERE ARE THREE APPEALS UNDER CONSIDERATION AND TH E SAME ARE FILED AGAINST THE COMMON ORDER OF THE CIT (A)-II, M UMBAI DATED 29.9.2011 FOR THE AYS 2003-04; 2004-05 AND 2005-06. SINCE, THE ISSUES RAISED IN ALL THESE APPEALS ARE IDENTICA L, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD TO GETHER AND DISPOSED OFF IN THIS CONSOLIDATED ORDER. APPEAL WIS E ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS O F THIS ORDER. 2. FIRSTLY, WE SHALL TAKE UP THE APPEAL FOR THE AY 2003-2004. GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL ITA NO.7768//2011 ARE AS UNDER:- 1. THE LD CIT (A) ERRED IN DISALLOWING COMMISSION EXPENSES OF RS. 10,13,10,879/- AS NOT RELATED TO BUSINESS. 2. THE LD CIT (A) HAS ERRED IN DISALLOWING DEPRECIA TION OF RS. 1,54,54,737/- ON ACCOUNT OF BOGUS ADDITION OF PLANT & MACHINERY DURING THE YEAR 1998-99. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF POLYESTER TEXTILE. AS SESSEE IS HAVING ONE UNIT IN MURBAD AND ANOTHER UNIT OF POLYE STER RECYCLING FACILITY AT NASIK. ASSESSEE IS ALSO ENGAG ED IN THE MANUFACTURING OF COLOUR TELEVISION AND OTHER ELECTR ONIC ITEMS. ASSESSEE FILED THE RETURNS OF INCOME FOR THE AYS 20 03-04; 2004- ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 4 05 AND 2005-06 DECLARING THE TOTAL LOSS OF RS. 7,37 ,22,259/-; LOSS OF 7,79,30,116/- AND LOS OF RS. 6,55,49,541/- RESPECTIVELY. ASSESSMENTS WERE COMPLETED U/S 143(3) OF THE ACT AN D THE ASSESSED INCOME WAS DETERMINED AT RS. 5,61,83,751/- (AY 2003- 04); NIL INCOME (AY 2004-05) AND LOSS OF RS. 62,55, 850/- (AY 2005-06) RESPECTIVELY. DURING THE ASSESSMENT PROCEE DINGS, THERE WAS AN INQUIRY BY THE AO INTO THE ARRANGEMENT OF BUSINESS BETWEEN ASSESSEE AND THE EWTL AND ALSO ON THE ISSUE OF PAYMENT OF COMMISSION TO M/S. ESSAR WORLD TRADE LTD (EWTL). SUBSEQUENTLY, THIS COMPANY WAS RENAMED AS E SSAR INFRASTRUCTURE LIMITED (EIL). THERE WAS A WRITTEN A GREEMENT BETWEEN THE PARTIES. COMMISSION PAYMENT WAS MADE IN CHEQUE. TDS WAS DEDUCTED AS PER THE TDS PROVISIONS. THE DET AILS OF TDS FOR ALL THREE YEARS ARE RS. 2,53,18,823/- FOR A Y 2003- 04; RS. 45,74,606/- FOR THE AY 2004-05 AND RS. 1,28,19, 324/- FOR THE AY 2005-06. AO ANALYSED THE SAID AGREEMENT AND FOUN D EWTL RECEIVED THE SAID COMMISSION IN ALL THE THREE YEARS AND NOT IN THE EARLIER AY 2002-2003. ASSESSEE ALSO RECEIVED CO MMISSION FROM THREE PARTIES SUCH AS SONY, SAMSUNG ETC. IN TH E ASSESSMENT PROCEEDINGS, AO EXAMINED THE FACTS AND CONCLUDED TH AT THE COMMISSION WAS PAID TO EIL EVEN WHEN THE SPECIFIED CONDITIONS WITH THE REFERENCE TO SALES TARGET WERE NOT MET B Y THE EIL AND BY THE DEBTORS. SHRI N.B. VYAS, COMPANY SECRETA RY OF ESSAR STEEL LTD AND SHRI SUBODH MASKARA, MD OF THE ASSESSEE COMPANY WERE EXAMINED ON OATH AND ANALYSED THE SERV ICES RECEIVED BY THE EWTL. AFTER EXAMINING THE RECORDS O F THE ASSESSEE, AO CAME TO THE CONCLUSION THAT THE ASSESS EE DID NOT PROVIDE THE NAMES OF THE CUSTOMERS IN RESPECT OF WH OM THE ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 5 SERVICES WERE RENDERED BY THE EIL AND THE RECIPIENT COMPANIES. ASSESSEE RELIED HEAVILIY ON THE DEBIT NOTE IN THIS REGARD. PARA 3.2 OF THE CIT (A) S ORDER IS RELEVANT IN THIS REGARD. IN CONNECTION WITH THE SALES TARGETS, AO ALSO CROSS CH ECKED THE SALES WITH THE CUSTOMERS VIZ M/S. KALYANI SHARP IND IA LTD; M/.S BARRON TELECOMMUNICATION (I) LTD AND M/S. SALORA INTERNATIONAL LTD. THESE CUSTOMERS HAVE NOT GIVEN A NY CONCLUSIVE EVIDENCE AGAINST THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER CONCLUDED THAT THE CLAIM ON ACCOU NT OF COMMISSION IS NOT TO BE ALLOWED. THUS, AO DISALLOWE D THE SAID CLAIM OF COMMISSIONPAYMENTS IN ALL THESE AYS UNDER CONSIDERATION. THE BRIEF SUMMARY OF AO S REASONING FOR MAKING DISALLOWANCE IS PROVIDED IN PARA 3.4 OF THE IMPUGNED ORDER AND THE RELEVANT LINES ARE EXTRACTED AS UNDER :- 3.4.......THEREFORE, THE AO DISALLOWED THE COMMISS ION WHILE RECORDING THE REASONS AS UNDER:- 1) THE ESSAR WORLD TRADE LTD WAS NOT IN ANY WAY CO NNECTED TO ELECTRONIC ITEMS NOW IN ANY TRADING ACTIVITY. 2) THE HUGE COMMISSION PAYMENT IS ONLY IN RESPECT O F SERVICES OF SO CALLED INTRODUCTION ONLY. 3) THE ASSESSEE HAS STATED THAT PAYMENT OF COMMISSI ON WAS RELEASED ONLY AFTER REALIZATION OF PAYMENT FROM TWO PARTIES REFERRED TO IN THE LETTER BUT SIMULTANEOUSLY HAS FA ILED TO GIVE THE POSITION OF DEBTORS BEFORE RELEASING THE FIRST PAYM ENT OF COMMISSION. ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 6 4) THERE ARE DISCREPANCIES IN RESPECT OF SALES MADE AND COMMISSION CLAIMED WHICH HAVE BEEN WORKED OUT ON TH E BASIS OF DETAILS SUBMITTED BY THE ASSESSEE AND M/S. ESSAR WORLD TRADE LTD. 5) M/S. ESSAR WORLD TRADE LTD HAD A CLAIM OF UNABSO RBED LOS OF DEPRECIATION WHICH WAS ADJUSTED AGAINST THE INCOME AND NIL TAX WAS PAID BY M/S. ESSAR WORLD TRADE LTD. 4. REGARDING THE ISSUE OF PAYMENT OF COMMISSION, DU RING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE MADE ELABO RATE SUBMISSIONS AND DEMONSTRATED THAT THE CORRECTNESS O F RENDERING OF SERVICES BY M/S. ESSAR WORLD TRADE LTD / ESSAR INFRASTRUCTURE LIMITED TO THE ASSESSEE. NARRATING T HE INFRASTRUCTURAL STRENGTHS RELATING TO THE MARKETING NETWORK OF EWTL / ESSAR INFRASTRUCTURE LIMITED, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ESSAR GROUP OF COMPANIE S HAS HUGE MARKETING NETWORK THROUGHOUT PAN INDIA AND THE EWTL REACHED OUT VARIOUS CUSTOMERS AND AVAILED SERVICES OF VARIOUS NODAL COMPANIES TO REACH THE PEOPLE, WHO WANT TO BU Y COLOUR TELEVISIONS AND OTHER ELECTRONIC PRODUCTS OR SPARES OF THE ASSESSSEE. ADDRESSING TO THE ASSESSEE-COMPANY S STRENGTH, THE ASSESSEE HAD A STRONG PRESENCE IN THE BUSINESS OF P OLYESTER TEXTILES. HE ALSO HAD A POLYESTER RECYCLING FACILIT Y AT NASIK. SUBSEQUENTLY, ASSESSEE RUN INTO FINANCIAL PROBLEMS. AT THIS STAGE, ASSESSEE WANTS TO DIVERSIFY ITS BUSINESS ACT IVITIES AND ENTERED INTO THE BUSINESS OF ASSEMBLY OF COLOUR TEL EVISIONS OF DIFFERENT SIZES. FOR MARKETING AND SELLING OF PRODU CTS, ASSESSEE ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 7 ENTERED INTO AN AGREEMENT WITH ESSAR GROUP OF COMPA NIES, WHICH HAD A STRONG MARKETING NETWORK ALONG THE LENG TH AND BREADTH OF NATION. THE AGREEMENT CONTAINS DETAILS O F RATE OF PAYMENT OF COMMISSION AND OTHER CONDITIONS. THE COM MISSION BECOMES PAYABLE TO THE EWTL ONLY IF THEY RENDER THE IR SERVICES IN MARKETING MINIMUM SALES OF 75000 UNITS. COMMISSI ON IS ONLY PAID AFTER SALE PROCEEDS ARE COMPLETELY RECOVERED T O THE CREDIT OF THE ASSESSEE. HE ALSO SUBMITTED THAT NO COMMISSI ON WAS PAID TO EWTL IN THE FIRST YEAR OF ITS OPERATION IE 2002- 2003 WHERE INTHE TURNOVER IS ONLY 46.35 CRS. BY THE SECOND YEA R, THE TURNOVER REACHED AROUND RS. 155 CRS. THEREFORE, THE COMMISSION BECAME PAYABLE TO THE ASSESSEE AS PER TH E AGREEMENT. ASSESSEE SUBMITTED THAT THE HUGE PROFITS WERE MADE AND CONDUCTED HUGE BUSINESS DURING THE YEARS UNDER CONSIDERATION. ASSESSEE ALSO SUBMITTED THAT THE STA TEMENTS GIVEN BY SHRI N.B. VYAS, COMPANY SECRETARY OF ESSAR STEEL LTD AND SHRI SUBODH MASKARA, MD OF THE ASSESSEE COMPANY WER E WRONGLY AND MISTUOUSLY INTERPRETED BY THE AO TO THE BENEFIT OF THE REVENUE AND AGAINST THE ASSESSSEE. OTHERWISE, T HE STATEMENTS GIVEN BY THESE TWO PARTIES EXPLAINS THE EXISTENCE OF THE AGREEMENT; REQUIREMENT OF COMMISSION PAYMENTS; THE FACT OF RENDERING OF SERVICES FOR MARKETING OF THE PRODUCTS ; MOBILIZATION OF THE CUSTOMERS TOWARDS PURCHASE OF T HE CCTVS, MOBILIZATION OF VARIOUS OTHER BRANDS LIKE SONY, LG, SHARP ETC. THUS, ASSESSEE DEMONSTRATED THAT THE STATEMENTS CON FIRM THE FACT OF PAYMENT OF COMMISSION AND THE REASONS THERE OF. ASSESSEE RELIED ON VARIOUS E-MAIL CORRESPONDENCES I N SUPPORT OF THE ABOVE. VARIOUS STATEMENTS WERE FURNISHED TO THE CIT (A) ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 8 WITH REGARD TO THE SAID SALES TARGETS OF 75000 UNIT S. ASSESSEE OBJECTED TO THE AO S CONCLUSION THAT THE ASSESSEE PAID COMMISSION ONLY FOR INTRODUCING THE CUSTOMERS. UNFO RTUNATELY, AO IS OF THE OPINION THAT, ONLY FOR INTRODUCING THE CUSTOMERS, THE COMMISSIONS OF SUCH MAGNITUDE SHOULD NOT HAVE B EEN PAID TO EWTL. HE ALSO ANALYZED THE MECHANISM OF MARKETIN G, LABOUR INVOLVED IN BRINGING THE CUSTOMERS TO THE SHOPS FOR BUYING THE PRODUCT OF THE ASSESSEE. CIT (A) REMANDED THESE DOC UMENTS AND OTHER OBJECTIONS TO THE FILE OF AO. DURING THE REMA ND PROCEEDINGS BEFORE THE AO, EWTL WAS TO EXPLAIN THE FACT OF SERVICES RENDERED FOR GETTING THE COMMISSION. AO CO NDUCTED THE NECESSARY INQUIRIES AS DIRECTED BY THE CIT (A) IN T HE REMAND LETTERS AND SUBMITTED THE REPORT TO THE CIT (A) THA T THE EWTL DID NOT REPLY TO THE AO S SUMMONS. HOWEVER, BOTH THE ASSESSEE AND THE COMMISSION AGENT SUBMITTED THE FINANCIALS O F THE EWTL. FROM THE SAME, AO NOTICED THAT THE ADMINISTRATIVE E XPENSES OF THE EWTL IN ALL THESE THREE AYS VARY IN THE RANGE O F RS. 32 TO RS. 36 LAKHS PER YEAR. THE AO IS OF THE OPINION THA T WITH THESE MEAGRE ADMINISTRATIVE EXPENSES, EWTL COULD NOT HAVE RENDERED SERVICES TO THE ASSESSEE. AO RECEIVED THE REPLIES FROM THE ASSESSEE ON THE REMAND REPORT FURNISHED BY THE AO. THE CONTENTS OF PARA 3.17 OF THE CIT (A) S ORDER PROVIDE FOR THE OBJECTIONS OF THE ASSESSEE. EVENTUALLY, AFTER CONSI DERING THE ABOVE DETAILED SUBMISSIONS AND STATEMENTS, REMAND R EPORT OF THE AO ETC., CIT (A) HELD THAT THE COMMISSION SHOUL D NOT HAVE BEEN ALLOWED FOR ALL THE THREE YEARS. CONTENTS OF P ARA 3.19 OF THE CIT (A) S ORDER ARE RELEVANT IN THIS REGARD AND THE SAID PARA IS EXTRACTED AS UNDER:- ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 9 3.19. I HAVE EXAMINED THE FACTS OF THE CASE AND CO NSIDERED THE SUBMISSION OF THE ASSESSEE. THE AR HAS NOT BEEN ABL E TO REBUT THE FINDING OF THE AO. THE AO HAS FOUND SEVERAL DIS CREPANCIES IN THE SUBMISSION OF THE ASSESSEE AS FOLLOWS:- I) THE MONTHLY SALES CHART TO VARIOUS CUSTOMERS AS PROVIDED BY THE COMMISSION AGENT AND AS SUBMITTED BY THE ASSESS EE DID NOT TALLY AND THE LD AR WAS UNABLE TO RECONCILE THE SAM E. II) IT HAD BEEN SUBMITTED THAT COMMISSION HAS BEEN PAID ONLY AFTER PAYMENTS FROM THE CUSTOMERS ARE FULLY REALIZE D. HOWEVER, THERE IS OUTSTANDING FROM TWO CUSTOMERS AS ON 31.3. 2002 NAMELY, M/S. KALYANI SHARP INDIA LTD RS. 9,81,797 /- & M/S. SAMSUNG INDIA ELECTRONIC LTD RS. 37,12,253/-. THE AR HAS NOT BEEN ABLE TO EXPLAIN THE SAME. MOREOVER, ASSESSEE H AS NOT GIVEN THE POSITION OF DEBTORS IN BOOKS WHEN COMMISSION WA S PAID. III) DURING THE APPEAL PROCEEDINGS ALSO, THE AR HAS NOT MADE WAY FRESH SUBMISSION ON THESE ACCOUNT. BY WAY OF REMAND , THE AO WAS ASKED TO VERIFY THE SERVICES BY COMMISSION AGEN T. BY WAY OF REMAND REPORT, THE AO HAS EXAMINED THE FACTS ON THE BASIS ON FACTS ON RECORD. THE COMMISSION AGENT DID NOT RESPO ND THE NOTICE OF THE AO DURING THE REMAND PROCEEDINGS. FRO M THE ASSESSMENT RECORD OF COMMISSION AGENT, THE AO HAS F URTHER NOTED THAT THE ONLY INCOME OF COMMISSION AGENT IS C OMMISSION FROM THE ASSESSEE. IT MEANS M/S. ESSAR WORLD TRADE LTD IS NOT IN THE BUSINESS OF MARKETING AND SELLING OF ELECTRO NIC EQUIPMENTS AS CLAIMED BY THE ASSESSEE. FURTHER, MAR KETING AND SELLING EXPENSES HAVE NOT BEEN DEBITED IN THE ACCOU NT. ONLY ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 10 EXPENSES DEBITED ARE VERY LOW AS COMPARED TO THE CO MMISSION INCOME AND OTHER CONTRACT RECEIPTS AND THEY ARE GEN ERAL EXPENSES NOT ATTRIBUTABLE TO MARKETING AND SELLING OF COLOUR TV SETS. THEREFORE, THE AR WAS UNABLE TO SUBSTANTIATE THAT THE ASSESSEE HAS RECEIVED ANY MARKETING AND SELLING SER VICES. IN FACT, NO SERVICES HAVE BEEN RECEIVED BY THE ASSESSE E AND NO SERVICES COULD HAVE BEEN RENDERED BY THE COMMISSION AGENT. 3.20. CONSIDERING ALL THE ABOVE, THE ORDER OF THE A O ON THIS ACCOUNT IS UPHELD AND THE FIRST GROUND OF APPEAL IN THREE ASSESSMENT YEARS IS DISMISSED. 5. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT (A), A SSESSEE IS IN APPEAL BEFORE US ON THE ISSUE OF DISALLOWANCE OF CO MMISSION EXPENSES FOR ALL THE THREE AYS 2003-04; 2004-05 AND 2005-06. 6. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE RAISED VARIOUS ARGUMENTS. IN SUPPORT OF TH E SAME, HE BROUGHT OUR ATTENTION TO VARIOUS DOCUMENTS FILED BE FORE US IN THE FORM OF PAPER BOOKS. THE DETAILS OF THE SAID DO CUMENTS REFERRED BY HIM INCLUDE (I) THE AGREEMENT BETWEEN T HE ASSESSEE AND THE EWTL; (II) FINANCIALS OF BOTH THE PARTIES; (III) THE DETAILS OF THE PRODUCTS SOLD BY THE ASSESSEE; (IV) DETAILS OF SCHEDULE OF PAYMENT OF COMMISSION; (VI) DEBIT NOTES RAISED BY T HE EWTL IN FAVOUR OF THE ASSESSEE; (VII) STATEMENTS OF SHRI N. B. VYAS AND SHRI SUBODH MASKARA; (VIII) REMAND REPORT FROM THE AO ETC. 7. THE CASE OF THE LD COUNSEL FOR THE ASSESSEE IS T HAT THE COMMISSION PAYMENT WAS MADE STRICTLY AS PER THE PRO VISIONS OF ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 11 VARIOUS CLAUSES OF THE AGREEMENT BETWEEN THE PARTIE S. THE PAYMENTS WERE MADE AFTER THE MINIMUM SALES TARGET O F 75000 WAS REACHED. THE ERRONEOUS FIGURES AND CALCULATIONS MADE OUT BY THE AO ARE REQUIRED TO BE AMENDED IN THIS REGARD . THE COMMISSION PAYMENTS WERE MADE BY THE ASSESSEE THROU GH BANKING CHANNELS AFTER REQUISITE TDS WAS MADE. TDS WAS DULY REMITTED TO THE GOVERNMENT ACCOUNT FOR THREE YEARS. ASSESSEE CONTINUOUS TO BE A LOSS MAKING COMPANY, EVEN IF THE COMMISSION CLAIMED IS CONSIDERED. THE SAME IS THE CASE WITH EI L. THEREFORE, THERE ARE NO TAX IMPLICATIONS SO FAR AS THE ASSESSEE IS CONCERNED. SIMILAR IS THE CASE SO FAR AS THE EWTL I S CONCERNED, WHICH IS ALSO IN LOSSES. EWTL HAS A WIDE PRESENCE A CROSS THE COUNTRY AND REACHING THE CUSTOMERS. EWTL HELPED THE ASSESSEE IN CONDUCTING THE MEETINGS, SEMINARS TO REACH OUT T HE CUSTOMERS WITH THEIR COMMERCIAL CONNECTIONS WITH ESTABLISHED COMPANIES VIZ, SONY, LG, BPL, SHARP ETC. THE FACT OF MAKING E FFECTIVE SALES AND RECORDING THE HUGE TURNOVER OF RS. 155 CRS EVID ENCES THE CONTRIBUTION OF EWTL IN THE FIELD OF MARKETING AND SELLING. THE DECISION OF THE AO IN DISALLOWING THE CLAIM OF THE ASSESSEE IS ONLY BASED ON THE SURMISES. AO HAS NOT DONE HIS JOB OF GETTING ANY EVIDENCE TO DEMONSTRATE THAT THE COMMISSION PAI D IS RECEIVED BACK BY THE ASSESSEE TO PROVE THAT IT IS A BOGUS EXPENDITURE OR INFLATED EXPENSES. THEREFORE, LD COU NSEL FOR THE ASSESSEE SUBMITTED THAT THE DECISIONS OF THE AO AND THE CIT (A) ARE MERELY BASED ON THE DEBATABLE ISSUES, WHICH ARE NOT SUSTAINABLE IN LAW. THEY HAVE NO EVIDENCE TO SAY TH AT THE COMMISSION PAID IS BOGUS AND THEREFORE, IT SHOULD B E DISALLOWED. IT IS THE ARGUMENT OF THE LD COUNSEL FO R THE ASSESSEE ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 12 THAT THE EXPENSES INCURRED BY THE ASSESSEE IN ACCOR DANCE WITH THE AGREEMENT, WHICH IS HONOURED BY BOTH THE PARTIE S, CANNOT BE DISALLOWED. HE ALSO SUBMITTED THAT THE AO CANNOT TE ACH THE ASSESSEE AS TO HOW TO CONDUCT THE BUSINESS AND HE C ANNOT QUESTION THE BUSINESS MODEL ADOPTED BY THE ASSESSEE . FOR ALL THESE PROPOSITIONS, HE RELIED ON VARIOUS DECISIONS CITED BEFORE THE CIT (A) VIDE PARA 3.9 OF THE CIT (A) S ORDER AND BEFORE US AS WELL. 8. PER CONTRA, THE CASE OF THE REVENUE IS THAT THE CLAIM OF COMMISSION IS NOT ALLOWABLE AS THE STATEMENTS SHRI N.B. VYAS AND SHRI SUBODH MASKARA DO NOT CONCLUSIVELY EVIDENC E THE FACT OF RENDERING OF SERVICES TO THE ASSESSEE BY THE EWT L. THEY ALSO POINTED OUT THE MISTAKES IN THE DEBIT NOTE RAISED B Y THE EWTL IN CONNECTION WITH THE COMMISSION PAID BY THE ASSESSEE . THE AO IS OF THE OPINION THAT SOME OF THE CONTACTS MADE BY TH E AO ARE NOT AWARE OF THIS ARRANGEMENT OF PAYMENT OF COMMISSION (PARA 3.4 OF THE CIT (A) S ORDER IS RELEVANT). OTHERWISE, NOCATEGORICAL AND CONCLUSIVE EVIDENCE PLACED ON RECORD BY THE AO ABOUT THE PAYMENT OF COMMISSION. THERE IS NO DISPUTE ON THE F ACT THAT THE SAID PAYMENT OF COMMISSION WAS MADE IN CHEQUE, RELE VANT TDS WAS MADE AS PER THE PROCEDURE, NO DEFICIENCY WAS NO TICED IN THE CRUCIAL DOCUMENTS FOR ANALYSING THE TRANSACTION S TO THE COMMISSIONS. LD DR RELIED ON THE SUMMARY OF THE AO S CONCLUSIONS GIVEN BY THE CIT (A) IN PARA 3.4 OF HIS ORDER, WHICH IS EXTRACTED ABOVE. HE ALSO RELIED ON THE ORDER OF THE ITAT, HYDERABAD IN THE CASE OF M/S. K.V. MINERALS VS. ADD L. CIT IN ITA NO.1996/HYD/2011, DATED 15.7.2013 FOR THE PROPO SITION ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 13 THAT THE PAYMENT OF COMMISSION TO AGENTS IN THE BUS INESS OF TRADING AND MINERALS IS NOT ALLOWABLE DEDUCTION. 9. DURING THE REBUTTAL TIME, LD COUNSEL FOR THE ASS ESSEE COMPARED THE FACTS SUBMITTED BY THE ASSESSEE IN THI S CASE TO THE FACTS OF THE SAID CASE OF M/S. K.V. MINERALS (SUPRA ) AND MENTIONED THAT IN THE SAID CASE, THE DECISION OF TH E TRIBUNAL WAS AGAINST THE ASSESSEE FOR FAILURE TO FURNISH THE REL EVANT CONFIRMATIONS FROM THE AGENTS. MENTIONING THE FACT THAT THE EWTL CONFIRMED THE RECEIPT OF THE COMMISSION IN THE PRESENT CASE, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT CO NSIDERING THE SAME, ASSESSEE IN ALL THE THREE YEARS UNDER CONSIDE RATION SHOULD BE ALLOWED. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE ASSESSEE S PAPER BOOK AND THE WRITTEN SUBMISSIONS MADE BY BOTH THE PARTIE S. THE STANDS OF THE ASSESSEE AND THE REVENUE ARE ALREADY NARRATED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. WE FIND THA T THE ASSESSEE MADE A CLAIM OF DEBIT TO THE P& L ACCOUNT ON ACCOUNT OF COMMISSION PAID IN ALL THE AYS UNDER CONSIDERATI ON. AS PER THE ASSESSEE THE SAME WAS PAID TO ESSAR IN RESPONSE TO THE SERVICES RENDERED BY THE ESSAR. THE AGREEMENT DETAI LS THE LIST OF SERVICES AS WELL AS THE COMMISSION PAYMENTS. THERE IS A VALID AGREEMENT IN FAVOUR OF ACCRUAL OF PAYMENT OF COMMIS SION BUT ALSO FOR DEMANDING THE SERVICES FROM ESSAR. THERE A RE DOCUMENT BY WAY OF DEBIT NOTES TO SUPPORT THE PAYAB ILITY OF THE COMMISSION TO ESSAR. THE ALLEGED COMMISSION WAS ACT UALLY PAID ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 14 INVOLVING THE BANKING CHANNELS TOO. ASSESSEE MADE T HE SAID PAYMENT OF COMMISSION AFTER DEDUCTION OF TDS COMPLY ING WITH THE RELEVANT PROVISION. THE DETAILS OF THE SAID TDS WERE GIVEN IN THE PARAGRAPHS ABOVE. ASSESSEE REMITTED THE SAID TD S TO GOVERNMENT TOO. AO HAS NOT DISPUTED ANY ONE OF THE ABOVE FACTS. FROM THE ORDERS OF ASSESSMENT. THERE ISNOTHI NG ON RECORD TO SUGGEST THAT THE ASSESSEE RECEIVED THE SAID COMM ISSION BACK IN CASH OR OTHERWISE FROM THE ESSAR. AO HAS NOT MAD E OUT THAT THE SAID AGREEMENT IS FABRICATED FOR MALA FIDE REAS ONS. 11. TAX EVASION / PLANNING: BEFORE US, LD DR ARGUED THAT THE PAYMENT OF SAID COMMISSION WAS PART OF TAX PLANNING TO ACCOMMODATE THE ESSAR. WE ASKED LD DR THE PURPOSE O F SUCH ACCOMMODATION WHEN BOTH THE PAYER AND PAYEE DECLARE D LOSSES IN THEIR RETURNS, THEN, WHAT IS THE PURPOSE BEHIND SUCH ALLEGATION OF TAX PLANNING / EVASION. WE FIND BOTH ASSESSEE AND ESSAR ARE UNDISPUTEDLY IN LOSSES AND THEY CLAIMED O F HUGE AND VALID LOSSES BROUGHT FORWARDED FROM THE PAST YEARS. ON THIS FACT, WE FIND THE ALLEGATIONS OF THE AO/ DR ARE NOT SUSTAINABLE AND THEREFORE, THEY NEED TO BE DISMISSED. 12. ALLEGATION OF NON-COMPLYING WITH THE AGREEMENT: REGARDING THE ALLEGATION OF THE DR RELATING TO MINIMUM SALES TARGETS OF 75,000 AND THE ABSENCE OF DETAILS OF THE CUSTOMERS ON THE DEBIT NOTES, WE FIND THAT THEY DO NOT CONSTITUTES A VALID AND SUSTAINABLE ARGUMENTS. ASSESSEE VALIDLY RECONCILED THE FIGURES BEFORE US. REGARDING THE ABSENCE OF THE DANCES OF T HE CUSTOMERS, WE KNOW THAT IT IS THE DUTY OF THE AO TO PROVE THAT ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 15 THE ASSESSEE GAVE RING PARTICULARS, WHICH WAS. IT W AS DONE DURING THE ASSESSMENT OR REMAND PROCEEDINGS. 13. REGARDING ALLEGATION OF NON COMPLIANCE OF ESSAR TO THE SUMMONS DURING THE REMAND PROCEEDINGS, WE FIND THAT THE AO OF THE ESSAR HAS DULY TAXED THE COMMISSION RECEIVED BY THAT ASSESSEE. DEPARTMENT CANNOT TAKE DIVERGENT VIEWS ON THIS ISSUE OF COMMISSION. REVENUE CANNOT MAKE ADDITION ON ACCO UNT OF DISALLOWANCE OF COMMISSION ON ONE SIDE IN THE NAME OF ASSESSEE AND TAX THE SAME ON THE OTHER IN CASE OF ESSAR. THE RE IS A RULE OF CONSISTENCY TO BE FOLLOWED BY AO WITH RESPECT TO ANY ISSUE. REVENUE CANNOT RESORT TO TAX BOTH DEBIT AND CREDIT OF ACCOUNTING ENTRY WITHOUT VALID REASON AND VALID SUP PORT OF LAW. 14. OTHER OBJECTIONS: REVENUE MADE VARIOUS OTHER AL LEGATIONS RELYING ON THE SWORN STATEMENTS OF SRI MASKARA THE MD OF THE COMPANY AND SHRI VYAS, COMPANY SECRETARY OF ESSAR. ON PERUSAL, WE FIND THE CONCLUSIONS DRAWN BY THE AO AR E UNFAIR AND UNSUSTAINABLE. NO MD SHALL GIVE ANY STATEMENT A GAINST HIMSELF AND HISCOMPANY. SAME IS THE CASE HERE. IN A WORST SITUATION, THE AO HAS TO PROVIDE CROSS EXAMINATION AS PER SET PROCEDURE BEFORE ANY SUCH STATEMENT IS USED AGAINST THE ASSESSEE. IT IS NOT DONE BY THE AO IN THIS CASE. AS SUCH, WE DON T FIND ANY INCRIMINATION IN THE SAID STATEMENTS. TH US, THE AO'S CONCLUSIONS IN THIS REGARD ARE NOT WELL FOUNDE D AND ARE UNSUSTAINABLE IN LAW. ACCORDINGLY, GROUND NO.1 RAIS ED BY THE ASSESSEE FOR THE AY 2003-04 IS ALLOWED. ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 16 15. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEPR ECIATION ON THE ALLEGED BOGUS PLANT & MACHINERY. DURING THE ASS ESSMENT PROCEEDINGS, AO NOTED THAT THE CLAIM OF DEPRECIATIO N WAS DISTURBED BY THE AO FOR THE AY 1999-2000. CONSEQUEN TIALLY, THERE IS A LESSER DEPRECIATION ALLOWED BY THE DEPAR TMENT IN THE SUBSEQUENT AYS. THE SAME CONTINUED DESPITE THE DECI SION OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE AY 1999- 2000 ON THE DENIAL OF DEPRECIATION ON CERTAIN PLANT & MACHINERY CLAIMED TO BE BOGUS. DURING THE PROCEEDINGS BEFORE US, LD COUN SEL FOR THE ASSESSEE DEMONSTRATED THE ABOVE BY FILING COPIES OF THE ORDERS OF THE TRIBUNAL VIDE ITA NO.4014/M/2003, DATED 17.1 .2007 (PAGES 28 TO 37 OF THE PAPER BOOK ARE RELEVANT). IN THE SAID ORDER (SUPRA), THE TRIBUNAL HELD THAT PURCHASE OF P LANT & MACHINERY WAS NOT BOGUS THEREFORE, DEPRECIATION SHO ULD BE GRANTED TO THE ASSESSEE AS CLAIMED. IN SUBSEQUENT A SSESSMENT YEARS 2000-2001 AND 2001-2002, THERE WAS A RELATED ISSUE OF INTEREST ON FUNDS UTILISED FOR PURCHASE OF ALLEGED PURCHASES OF PLANT & MACHINERY. THIS ISSUE WAS ADJUDICATED BY TH E TRIBUNAL VIDE ITA NO. 2085 AND 2088/M/2006, DATED 21.7.2008 (PAGES 165 TO 170 ARE RELEVANT IN THIS REGARD). ASSESSING OFFICER ACTUALLY ALLOWED THE DEPRECIATION CLAIMED ON THE SA ID BOGUS PLANT & MACHINERY FOR THE AY 2001-02. THIS ISSUE WA S SPECIALLY RAISED IN THE AY 2002-03 AND THE CLAIM OF THE ASSES SEE WAS ALLOWED. REVENUE S APPEAL AGAINST SUCH ORDER OF THE CIT (A) FOR THAT AY 2002-2003 WAS ALSO DISMISSED BY THE TRI BUNAL VIDE ITA NO.5233/M/2006, DATED 26.8.2008 (PAGES 171 AND 172 OF THE PAPER BOOK ARE RELEVANT IN THIS REGARD). CONSID ERING ALL THESE SUBSEQUENT DEVELOPMENTS, THE CLAIM OF THE ASS ESSEE WITH ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 17 REGARD TO DEPRECIATION ON THE ALLEGED BOGUS PLANT & MACHINERY SHOULD BE ALLOWED. 16. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F THE SAID ORDERS OF THE TRIBUNAL (SUPRA) AND THE DECISIONS OF THE CIT (A), WE ARE OF THE OPINION THAT GROUND NO.2 RAISED BY TH E ASSESSEE SHOULD BE ALLOWED. WE ORDER ACCORDINGLY. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. II. ITA NO.7769/M/2011 (AY 2004-2005) 18. THIS APPEAL FILED BY THE ASSESSEE ON 17.11.2011 IS AGAINST THE ORDER OF THE CIT (A)-11, MUMBAI DATED 29.9.2011 FOR THE AY 2004-05. IN THIS APPEAL, ASSESSEE RAISED 4 GROUNDS IN TOTO. 19. GROUND NO.1 RELATES TO THE DISALLOWANCE OF COMM ISSION EXPENSES OF RS. 9,43,69,350/-. THIS GROUND IS SIMIL AR TO THAT OF THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 2003- 2004. WE HAVE DECIDED THE SAID ISSUE IN THE ABOVE P ARAGRAPHS OF THIS ORDER AND ALLOWED THE GROUND IN FAVOUR OF T HE ASSESSEE. CONSIDERING THE COMMONALITY OF THE ISSUE, OUR DECIS ION GIVEN ON IDENTICAL ISSUE FOR THE AY 2003-04, SQUARELY APPLIE S TO THE INSTANT GROUND TOO. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 20. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEPR ECIATION OF RS. 1,15,91,052/. THIS GROUND IS IDENTICAL TO THAT OF THE GROUND NO.2 DECIDED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER WHILE DEALING WITH THE IDENTICAL ISSUE FOR THE AY 2003-20 04. ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 18 CONSIDERING THE COMMONALITY OF THE ISSUE, OUR DECIS ION GIVEN THEREIN SQUARELY APPLIES TO THE INSTANT GROUND NO.2 TOO. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IN THE PRESENT APPEAL IS ALLOWED. 21. GROUND NO.3, WHICH RELATES TO THE DISALLOWANCE OF SOFTWARE EXPENSES OF RS. 7,64,000/- AND GROUND NO.4, WHICH R ELATES TO THE DISALLOWANCE OF RS. 4,90,290/- ON ACCOUNT OF BU SINESS AND PERSONAL EXPENSES ON AD-HOC BASIS ARE NOT PRESSED B Y THE LD COUNSEL FOR THE ASSESSEE. IN THIS REGARD, AFTER HEA RING THE LD DR, WE DISMISSED THE SAID GROUND NOS. 3 AND 4 AS NO T PRESSED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. III. ITA NO.7770/M/2011 (AY 2005-06) 23. THIS APPEAL FILED BY THE ASSESSEE ON 17.11.2011 IS AGAINST THE ORDER OF THE CIT (A)-11, MUMBAI DATED 29.9.2011 FOR THE AY 2005-06. 24. IN THIS APPEAL, ASSESSEE RAISED THE TWO GROUNDS . GROUND NO.1 RELATES TO THE DISALLOWANCE OF COMMISSION EXPE NSES OF RS. 5,51,06,439/-. THIS GROUND IS SIMILAR TO THAT OF TH E GROUND RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE AY 200 3-2004. WE HAVE DECIDED THE SAID ISSUE IN THE ABOVE PARAGRAPHS OF THIS ORDER AND ALLOWED THE GROUND IN FAVOUR OF THE ASSES SEE. CONSIDERING THE COMMONALITY OF THE ISSUE, OUR DECIS ION GIVEN ON IDENTICAL ISSUE FOR THE AY 2003-04, SQUARELY APPLIE S TO THE ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 19 INSTANT GROUND TOO. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 25. GROUND NO.2 RELATES TO THE DISALLOWANCE OF DEPR ECIATION OF RS. 41,77,798/- ON ACCOUNT OF TEMPORARY CLOSURE OF PET UNITS. THIS GROUND IS IDENTICAL TO THAT OF THE GROUND NO.2 DECIDED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER WHILE DEALING WITH THE IDENTICAL ISSUE FOR THE AY 2003-2004. CONSIDERING T HE COMMONALITY OF THE ISSUE, OUR DECISION GIVEN THEREI N SQUARELY APPLIES TO THE INSTANT GROUND NO.2 TOO. ACCORDINGLY , GROUND NO.2 RAISED BY THE ASSESSEE IN THE PRESENT APPEAL IS ALL OWED. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 27. CONCLUSIVELY, APPEALS FOR THE AYS 2003-04 AND 2 005-06 ARE ALLOWED AND THE OTHER APPEAL FOR THE AY 2004-05 IS PARTLY ALLOWED. IN THE AFORESAID ORDER ON QUANTUM ADDITION, THE TRI BUNAL VIDE AFORESAID ORDER DATED 13/04/2016 DELETED THE ADDITI ON ON THE BASIS OF WHICH PENALTY WAS INITIATED/CONFIRMED. IN VIEW OF THIS FACTUAL MATRIX, WE ARE OF THE VIEW THAT PENALT Y IMPOSED U/S 271(1)(C) WILL NOT SURVIVE. OUR VIEW FIND SUPPO RT FROM THE DECISION IN K.C. BUILDERS VS ACIT (2004) 265 ITR 56 2 (SC) AND THE RATIO LAID DOWN IN CIT VS S.P. VIZ, 176 ITR 76 (PATNA). EVEN OTHERWISE, WHEN THE QUANTUM ADDITION IS DELETE D, THERE ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 20 REMAINS NO BASIS AT ALL FOR LEVYING THE PENALTY FOR CONCEALMENT OR FURNISHING INACCURATE PARTICULARS. T HE PENALTY CANNOT STAND ON ITS LEGS WHEN ADDITION ON T HE BASIS OF WHICH THE PENALTY WAS IMPOSED REMAINS NO MORE IN EXISTENCE, THUS, ALL THE APPEALS OF THE ASSESSEE AR E ALLOWED AND THE LD. ASSESSING OFFICER IS DIRECTED TO DELETE THE PENALTY. FINALLY, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWE D. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 05/05/2016. SD/- SD/- ( ASHWANI TANEJA ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER # $ MUMBAI; ( DATED : 17/05/2016 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 # 1 ( *+ ) / THE CIT, MUMBAI. 4. 0 0 # 1 / CIT(A)- , MUMBAI 5. 2!3 . , 0 *+& * 4 , # $ / DR, ITA NO.1655 TO 1657/MUM/2015 M/S POLYGENTA TECHNOLOGIES LTD. 21 ITAT, MUMBAI 6. 5 6$ / GUARD FILE. / BY ORDER, /2+ . //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # $ / ITAT, MUMBAI