ACIT, Faridabad V. M/s Studds Accessories Ltd, Ballabgarh

ITA 1678/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3620 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANEESH BAHUGUNA
• Assessee Lawyers: MANISH MEHTA
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1678/DEL/2010 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 1, VS. M/S. STUDDS ACCESSORIES LTD. , FARIDABAD. 23/7, MATHURA ROAD, BALLABGARH. (PAN : AACCS4217Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE AND SHRI MANISH MEHTA, CA REVENUE BY : SHRI MANEESH BAHUGUNA, DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER OF CIT (APPEALS)- FARIDABAD DATED 8.2.2010 FOR THE ASSESSMENT YEAR 20 07-08. THE GROUNDS OF APPEAL READ AS UNDER : 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF RS.20,39,739/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF PROFESSIONAL CHARGES PAID TO M/S SANKALP CONSUMER PRODUCT (P) LTD. MUMBAI DISREGARDING THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE TO PROVE THE GEN UINENESS AND JUSTIFICATION OF THE EXPENDITURE CLAIMED ON ACC OUNT OF PROFESSIONAL CHARGES PAID TO M/ S SANKALP CONSUMER PRODUCT (P) LTD. MUMBAI.' ITA NO.1678/DEL/2010 2 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF RS.74,456/ - MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF LIQUIDATED DAMAGES DISREGARDING THE FACT THAT THE EXPENSES IS OF PENAL NATURE AS SUCH NOT DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 37 OF THE INCOME TAX ACT, 196 1.' 3. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. THE ASSESSEE COMPANY CARRYING ON THE BUSINESS OF MANUFACTURING AND TRADING OF HELMETS AND TWO WHEELER ACCESSORIES. TH E RETURN FOR THE YEAR UNDER CONSIDERATION WAS SUBMITTED ON 30.10.2007 DEC LARING INCOME OF RS.1,12,26,760/-. THE ASSESSMENT WAS MADE U/S 143( 3) OF THE INCOME-TAX ACT AT THE INCOME OF RS.1,47,22,670/-. 3. IN THE FIRST GROUND OF APPEAL, THE ISSUE INVOLVE D IS REGARDING DISALLOWANCE OF RS.20,39,739/- ON ACCOUNT OF PROFES SIONAL CHARGES PAID TO M/S. SANKALP CONSUMER PRODUCTS PVT. LTD., MUMBAI. AT THE OUTSET OF THE HEARING, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT HON'BLE ITAT IN ASSESSEES OWN CASE IN ITA NO.1677/DEL/2009 FOR THE ASSESSMENT YEAR 2005- 06 HAS ALLOWED THE CLAIM ON THE SAME FACTS. THE FA CTS ARE EXACTLY THE SAME. THE ASSESSEE HAS PAID COMMISSION OF RS.20,39,739/- TO M/S. SANKALP CONSUMER FOR THE SERVICES PROVIDED IN COORDINATING THE NETWORK OF THE CANTEEN STORES DEPARTMENT (CSD) AND ITS DEPOTS. ITA NO.1678/DEL/2010 3 4. AFTER HEARING BOTH THE SIDES ON THE ISSUE, WE FI ND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN THE APPEAL CITED SUPRA WHERE THE ITAT HAD HELD THIS ISSUE AS UNDER : 4. THE GROUND NO. 1 RAISED BY THE REVENUE IS DIRE CTED AGAINST THE ORDER OF THE CIT (A) IN DELETING THE ADDITION O F RS.20,86,401/- MADE BY THE AO ON ACCOUNT OF PAYMENT OF SALE COMMISSION / PROFESSIONAL CHARGES PAID ON SALES TO M/S. SANKALP CONSUMER PRODUCTS (PVT.) LTD. 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAIMED PAYMENT OF COMMISSION TO RS.20,86,401/-TO ONE M/S. SANKALP CON SUMER PRODUCTS (PVT.) LTD. IN RESPECT OF SALES MADE TO CA NTEEN STORES DEPARTMENT, A WING OF MINISTRY OF DEFENCE, GOVERNME NT OF INDIA. IN SUPPORT OF THE CLAIM, THE ASSESSEE PRODUC ED A COPY OF AGREEMENT DATED 01.10.1997. THE AO MADE AN ENQUIRY FROM CANTEEN STORES DEPARTMENT, WHEREUPON THE DEPARTMENT INFORMED THE AO THAT IT DID NOT ALLOW THE M/S. SANK ALP CONSUMERS PRODUCTS PVT. LTD. TO ACT ON BEHALF OF TH E ASSESSEE DURING THE FINANCIAL YEARS 2003-04 AND 2004-05 AND THEREAFTER. IT WAS ALSO NOTICED BY THE AO THAT THE AGREEMENT WA S EFFECTIVE FROM 01.10.1997 UP TO THE PERIOD OF FIVE YEARS EXPI RING ON 03.09.2002. AFTER CONSIDERING THE ASSESSEE'S EXPLAN ATION, THE AO HAD TAKEN A VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE GENUINENESS AND JUSTIFICATION OF THE EXPENDITURE ON ACCOUNT OF COMMISSION ON SALE PAID TO M/S. SANKALP CONSUMER PR ODUCTS (PVT.) LTD. THE AO, THEREFORE, DISALLOWED THE ASSES SEE'S CLAIM. 6. ON AN APPEAL, THE CIT(A) ALLOWED THE ASSESSEE'S CLAIM BY OBSERVING THAT SIMILAR DISALLOWANCES MADE IN THE AS SESSEE'S CASE FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05, WERE DELETED BY THE CIT(A), AND THAT ORDER OF THE CIT(A) HAS BEEN U PHELD BY THE TRIBUNAL VIDE ORDER DATED 21.11.2008 IN ITA NO 3383 & 3384/DEL/2007. THIS ISSUE BEFORE THE CIT(A) WAS IN TWO ASSESSMENT YEARS 2005-06 AND 2006-07, AND THE CIT(A ) ACCORDINGLY DELETED THE ADDITION IN BOTH THE ASSESS MENT YEARS BY FOLLOWING HIS EARLIER ORDER FOR THE ASSESSMENT YEAR S 2003-04 AND ITA NO.1678/DEL/2010 4 2004-05, WHICH HAS BEEN UPHELD BY THE TRIBUNAL. THI S GROUND RAISED IN A.Y. 2006-07 HAS BEEN DECIDED BY THE TRIB UNAL, AFTER FOLLOWING TRIBUNAL'S ORDER FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. THE TRIBUNAL'S ORDER IS DATED 23.10.20 09 IN ITA NO. 1444/DEL/2009 FOR A.Y. 2006-07. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN A.Y. 2006-07 BY OBSERVIN G AND HOLDING AS UNDER:- '2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE H AS MADE COMMISSION PAYMENT TO ONE M/S. SANKALP CONSUMER PRODUCT (P) LTD. THE PAYMENT WAS MADE FOR THE SERVI CES PROVIDED AT CANTEEN STORES DEPARTMENT, A WING OF MINISTRY OF DEFENCE, GOVT. OF INDIA. THE AO HAS DISALLOWED THE COMMISSION PAYMENT ON THE BASIS OF H IS FINDING MADE IN EARLIER YEARS. LD. CIT (A) HAS DELE TED THE DISALLOWANCE ON THE GROUND THAT SIMILAR DISALLOWANC E WAS MADE IN ASSTT. YEAR 2003-04 AND 2004-05 AND THE DISALLOWANCE WAS DELETED. THE TRIBUNAL HAS UPHELD T HE DELETION OF THE DISALLOWANCE. LEI. COUNSEL FOR THE ASSESSEE PLACED ON RECORD COPIES OF TRIBUNAL'S ORDE RS IN ASSTT. YEAR 2003-04 AND 2004-05. HE CONTENDED THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE. LD. DR WAS UNABLE TO CONTROVERT THE CONTENTION OF L D. COUNSEL FOR THE ASSESSEE. 3. ON DUE CONSIDERATION WE ARE OF THE OPINION THAT SIMILAR DISALLOWANCE WAS MADE IN ASSTT. YEAR 200001 UPTO 2004-05. THE DISALLOWANCE WAS DELETED BY LD. CIT(A) AND IT WAS UPHELD BY TRIBUNAL. THE FINDING OF THE TRIBUNAL IN ASSTT. YEAR 2003 -04 AND 2004-05. THIS ISSUE READ AS UNDER :- '10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE OBSERVE THAT THE AO MADE THE AFORESAID DISALLOWANCES OF PAYMENTS MADE TO SCPL ON THE GROUND THAT THE SCPL WAS THE MIDDLEMAN AND ITS SERVICES WERE NOT REQUIRED TO MAKE SUPPLY TO CSD. HOWEVER, WE OBSERVE THAT THE ASSESSEE HAS FILED ITA NO.1678/DEL/2010 5 THE REQUISITE STATEMENTS SUPPORTED WITH THE DOCUMENTS, AS MENTIONED IN THE ORDER OF LD. CIT(A) THAT SCPL IS A PROFESSIONAL BODY AND ITS STAFF PROVIDES SERVICES TO THE ASSESSEE TO ENHANCE SALE OF ITS PRODUCTS BY EDUCATING THE CSD STAFF AT THE CANTEEN COUNTERS, UPPER SPECIAL POINT OF THE ASSESSEE'S PRODUCTS FOR BETTER PROMOTION OF ASSESSEE'S PRODUCTS. WE ALSO OBSERVE THAT SCPL ALSO FOLLOWS UP FOR ISSUE OF REQUISITE DOCUMENTS FROM DEPOTS FOR RELEASE OF PAYMENTS INCLUDING RELEASE OF STATUTORY SALES TAX FORMS ETC. THEREFORE , WE AGAIN WITH THE LD. CIT(A) THAT THE ASSESSEE HAS AVAILED THE SERVICES OF THE SCPL FOR GENERATING AND IMPROVING BUSINESS OF ITS PRODUCT AT CSD COUNTER. WE OBSERVE THAT THE DEPARTMENT HAS ANALYZED THE ROLE OF SCPL IN EARLIER ASSESSMENT YEARS AND ACCEPTED THE PROFESSIONAL CHARGES PAID BY THE ASSESSEE TO SCPL IN THE ASSESSMENTS COMPLETED U/S 143(3) OF THE ACT, AS IS EVIDENT FROM THE ASSESSMENT ORDERS PASSED FOR THE A.Y. 2001-02 AND 2002-03, THE COPIES OF WHICH ARE PLACED AT PAGES 95-97 AND 98 TO 101 OF THE PAPER BOOK. DURING THE COURSE OF HEARING THE LD. DR HAS NOT DISPUTED THE OBSERVATION OF THE LD. CIT(A) THAT THERE IS NO MATERIAL CHANGE IN THE FACTS AS COMPARED TO THE EARLIER YEAR. IN VIEW OF THE ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITIONS OF RS.12,62,305/- AND RS.19,85,121/- MADE BY THE AO IN THE ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. THEREFORE, WE UPHOLD THE ORDER OF LD. CIT(A) BY REJECTING THE GROUND NO. 1 OF BOTH THE APPEALS. ' 4. IN VIEW OF THE TRIBUNAL'S ORDER IN ASSTT. YEAR 2003- 04 AND 2004-05 THIS GROUND OF APPEAL IS REJECTED BE CAUSE THERE IS NO DISPARITY ON FACTS. 7. RESPECTFULLY FOLLOWING THE TRIBUNAL'S YEAR FOR T HE A. Y. 2006-07, WHERE THE TRIBUNAL'S EARLIER ORDER FOR THE ASSESSMENT ITA NO.1678/DEL/2010 6 YEARS 2003-04 AND 2004-05 HAS BEEN RELIED UPON, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECT THE GROUNDS RAISED BY THE REVENUE. IT IS PER TINENT TO NOTE HERE THAT THE CIT(A) VIDE IMPUGNED COMMON ORDER HAS DELETED THE ADDITION IN BOTH THE ASSESSMENT YEARS I.E. A.Y. 2005-06 AND A.Y. 2006-07 ON IDENTICAL FACTS AND REASONS. WE, TH EREFORE, DO NOT FIND ANY REASON TO TAKE THE VIEW CONTRARY TO TH E VIEW ALREADY TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBU NAL ON THE SAME SET OF FACTS. THEREFORE, GROUND NO. 1 IS HEREB Y REJECTED. SINCE THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE ITAT IN THE ASSESSMENT YEAR 2005-06 AND THE FACTS ARE THE SAME, THEREFORE, BY FOLLOWING THE DECISION OF COORDINATE BENCH, WE ALSO DISMISS T HIS GROUND OF APPEAL. 5. THE SECOND GROUND IN THE APPEAL REGARDING DELETI ON OF ADDITION OF RS.74,456/- ON ACCOUNT OF LIQUIDATED DAMAGES. 6. LEARNED DR SUBMITTED THAT THESE LIQUIDATED DAMAG ES ARE PENAL IN NATURE AND NOT DEDUCTIBLE AS PER THE PROVISIONS OF SECTION 37 OF THE INCOME- TAX ACT. ON THE OTHER HAND, THE LEARNED AR RELIED ON THE ORDER OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE CIT (A) HAS DEALT THIS ISSUE AS UN DER :- ON QUERY, THE APPELLANT EXPLAINED THAT EXPENSES O F RS.74,456/- WERE DEDUCTION BY CDS FOR LATE DELIVERY OF GOODS, BUT NOT APPRECIATING THE REPLY OF THE ASSESSEE, THE AO DISALLOWED THE AMOUNT WHICH APPEARED TO HIM BEING O F PENAL NATURE, NOT DEDUCTIBLE UNDER THE PROVISIONS OF SECT ION 37 OF THE INCOME TAX ACT, 1961. THEREFORE, THE ADDITION OF RS . 74,456/- HAD BEEN MADE BY HER. ITA NO.1678/DEL/2010 7 17. THE LD. AR HAS PLEADED AS UNDER: 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT LATE DELIVE RY CHARGES ARE PAID TO CUSTOMER - CANTEEN STORES DEPARTMENT FOR NON ADHERENCE TO THE TIMELY DELIVERY OF GOODS WITHIN THE STIPULATED TIME LIMIT. THESE EXPEN SES ARE INCIDENTAL TO THE BUSINESS AND ARE NOT CAPITAL OR PERSONAL EXPENSES AND ARE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES AND DURING THE ORDINAR Y COURSE OF BUSINESS. ASSESSING OFFICER HAS DISALLOWED THESE EXPENSES ON THE GROUND THAT THESE EXPENSES APPEAR TO BE OF PENAL NA TURE WHICH IS NOT DEDUCTIBLE IN VIEW OF THE PROVISIONS O F SECTION 37 OF THE ACT. ASSESSING OFFICER HAS MISUNDERSTOOD THESE EXPENSES. THESE EXPENSES ARE NOT FOR BREACH OF LAW BUT FOR NO N- ADHERENCE TO THE TERMS OF AGREEMENT WITH THE CUSTOM ER RELATING TO DELIVERY OF GOODS WITHIN STIPULATED TIM E LIMIT. THE EXPENSE IS NOT A PENALTY BUT A FINE. THESE EXPENSES HAVE BEEN CLAIMED AND ALLOWED AS DEDUCTION IN EARLIER YEARS ALSO. RELIANCE IS PLACED ON THE DECISION OF JURISDICTION HIGH COURT IN:- CIT V/S INDO ASIAN SWITCHGEAR (P) LTD (1997) 137 CT R (P&H) 9 IN VIEW OF THE ABOVE THE ADDITION MADE WITHOUT APPRECIATING THE FACTS, PROVISIONS OF LAW AND THE F ACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITION MADE DESERV ES TO BE DELETED AND MAY KINDLY BE ORDERED TO BE DELETED 18. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LD. AR AND PERUSED THE ORDER OF ASSESSMENT. I FIND THAT TH E AD NOT BROUGHT OUT THE NATURE OF THE EXPENSE BY BRINGING P ROPER FACTS ITA NO.1678/DEL/2010 8 ON RECORD AND RATHER HERSELF IS UNSURE AND CONFUSED ABOUT THE NATURE OF SUCH EXPENDITURE AS SHE HAS TREATED IT AS INFRACTION OF LAW THAT AMOUNTS TO PENALTY WHICH IS NOT TO BE ALLO WED U/S 37 OF THE INCOME TAX ACT, 1961. IN VIEW OF THE EXPLANATIO N SUBMITTED BY THE LD. AR ABOVE, THE LIQUIDATED DAMAGES ARE NOT IN THE NATURE OF PENALTY OR PENAL FINE BUT THEY ARE EXPEND ITURE OF BUSINESS NATURE ALLOWABLE U/S 37(1) AND HAD BEEN AL LOWED AS SUCH IN THE PAST ALSO. THEREFORE, THE ADDITION OF R S.74,456/- IS DELETED. WE FIND THAT THE AMOUNT WAS PAID FOR THE LATE DELIV ERY OF THE GOODS AS PER THE CONTRACTUAL OBLIGATION BETWEEN THE ASSESSEE AND CSD. THIS AMOUNT WAS PAID BY THE ASSESSEE FOR NOT DELIVERING THE GOODS I N THE STIPULATED TIME LIMIT, THEREFORE, THESE EXPENSES ARE INCIDENTAL TO THE BUS INESS OF THE ASSESSEE AND SAME HAS BEEN INCURRED DURING THE ORDINARY COURSE O F BUSINESS. IN VIEW OF THESE FACTS, WE FIND NO FAULT IN THE ORDER OF THE C IT (A) AND DISMISS THIS GROUND OF REVENUE. 7. GROUND NO.3 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THE 25 TH DAY OF JUNE 2009. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 25 TH DAY OF JUNE, 2010 TS ITA NO.1678/DEL/2010 9 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT 4. CIT(A), FARIDABAD. 5. DR, ITAT. ASSTT.REGISTRAR ITAT, NEW DELHI.