NISHA ENTERPRISES, Jaipur V. ACIT, Jaipur

ITA 168/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0537 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 23-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAI SINGH
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 168/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2010-11 NISHA ENTERPRISES F-535/536, ROAD NO. 1D, VKIA JAIPUR CUKE VS. ACIT CIRCLE-4, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABFN3368F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : NONE (WRITTEN SUBMISSIONS) JKTLO DH VKSJ LS @ REVENUE BY : SHRI JAI SINGH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 11/09/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 19/09/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT (A)-5, JAIPUR DATED 11.11.2016 FOR ASSESSME NT YEAR 2010-11 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND S OF APPEAL:- (1) THAT CIT(APPEALS) RAJASTHAN- V JAIPUR HAS ERRE D BY CONFIRMING ADDITION OF RS. 10,29,144/- AGAINST COMM ISSION PAYMENTS ON SALE RS. 3,39,253/- TO SMT. GINNIDEVI P ALARIA AND RS. 6,89,891/- TO SHRI SANJAY PALARIA HUF OUT OF TO TAL COMMISSION PAID RS. 20,58,288/- WHICH IS NOT JUSTIFIED AND WIT HOUT GOING INTO FACTS WHILE COMMISSION PAID WAS FOR MARKETING AND I NCREASE OF ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 2 SALES AND SALES HAS INCREASED FROM RS. 328.89 LAC F OR ASSESSMENT YEAR 2009-10 TO RS. 501.36 LACS DURING ASSESSMENT Y EAR 2010-11 DUE TO COMMISSION PAID FOR MARKETING EFFORTS, HENCE , ALLOWABLE EXPENSES. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE S CHEDULE DATE OF HEARING IN SPITE OF FACT THAT THE DATE OF HEARING W AS NOTED AND IT WAS ACCORDINGLY DECIDED TO HEAR THE MATTER EX-PARTE QUA THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE WRITTEN SUBMISSIONS A ND OTHER MATERIAL ON RECORD AND HEARING THE LD. DR. 3. THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAS CLAIMED COMMISSION EXPENSES AMOUNTING TO RS. 6,89,8 91/- PAID TO SHRI SANJAY PALARIA HUF AND RS. 3,39,253/- PAID TO SMT. GINNIDEVI PALARIA. THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT OF TH E COMMISSION EXPENSES. HOWEVER, THE ASSESSEE FAILED TO PROVIDE A NY JUSTIFICATION WHATSOEVER WITH REGARD TO THE PAYMENTS AND NO DETAI LS OR EVIDENCE OF ANY SORT COULD BE PRODUCED BEFORE THE AO REGARDING NATURE OF SERVICES RENDERED BY TWO PERSONS. ACCORDINGLY, THE AO HELD T HAT THE SAID COMMISSION PAYMENT ARE BOGUS EXPENDITURE CLAIMED BY THE ASSESSEE SO AS TO REDUCE THE PROFITS OF THE FIRM AND ESCAPE THE INCIDENCE OF TAXATION AND COMMISSION EXPENSES AMOUNTING TO RS. 10,29,144/ - WAS DISALLOWED AND ADDED TO THE DECLARED INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE SAID ADDITION. ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 3 5. BEING AGGRIEVED, THE ASSESSEE IN APPEAL BEFORE US. IN ITS WRITTEN SUBMISSIONS, THE ASSESSEE HAS SUBMITTED THAT ASSESS EE IS A PARTNERSHIP FIRM AND BUSINESS OF ASSESSEE IS MANUFACTURING AND TRADING OF CORRUGATED BOXES MADE OF PAPER SHEETS. IT HAS E-FIL ED ITS INCOME TAX RETURN FOR ASSESSMENT YEAR 2010-11 ON 03.10.2010 FO R TOTAL INCOME OF RS.23,93,590/-. THE LEARNED ACIT CIRCLE-4 HAS ERRED BY DISALLOWING COMMISSION EXPENSES RS.3,39,253/- ON SALES PAID TO SMT. GINNIDEVI PALARIA AND COMMISSION EXPENSES RS.6,89,891/- ON SA LES PAID TO SANJAY PALARIA HUF OUT OF TOTAL COMMISSION EXPENSES RS.20,58,288/- PAID ON SALES BY STATING THAT ASSESSEE HAS FAILED T O JUSTIFY AND NO DETAILS OR EVIDENCE OF ANY SORT COULD BE PRODUCED R EGARDING NATURE OF SERVICES RENDERED THEREOF BY THESE TWO, ON WHICH AB OVE SUM WAS CLAIMED TO HAVE BEEN PAID AS COMMISSION AND CONSEQU ENTLY COMMISSION TO SANJAY PALARIA HUF AND SMT. GINNI DEV I PALARIA PAYMENTS ARE HELD TO BE BOGUS EXPENDITURES WHILE IN FACT DETAILED REPLY AND DETAIL AND DOCUMENTS ASKED BY LEARNED ASS ESSING OFFICER WERE SUBMITTED AND BILLS, VOUCHERS AND CHART FOR SA LES ON WHICH COMMISSION PAID WERE PRODUCED BEFORE HER AND INCOME TAX RETURNS OF SMT. GINNI DEVI PALARIA AND SANJAY. PALARIA HUF WER E ALSO SUBMITTED IN WHICH COMMISSION INCOME PAID BY ASSESSEE WERE INCLU DED AND TDS ALSO DEDUCTED BY ASSESSEE FIRM. SALES OF FIRM FOR A SSESSMENT YEAR 2008-09 WAS RS.318.88 CRORE AND DURING ASSESSMENT Y EAR 2009-10 WAS RS.328.89 CRORE WHILE FIRM HAS PAID RS.24,00,00 0/- SALARY TO MARKETING MANAGERS BUT SALES NOT INCREASED, THEREFO RE, FIRM HAS CHANGED POLICY AND DROPPED SALARY TO MARKETING MANA GERS AND DECIDED TO PAY COMMISSION ON SALES LINKED WITH SALE S AND DUE TO SUCH CHANGE IN POLICY SALES OF FIRM HAS INCREASED SIGNIF ICANTLY TO RS.501.36 CRORES IN THE ASSESSEEMENT YEAR 2010-11. IN VIEW OF ABOVE FACTS ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 4 COMMISSION PAYMENTS TO SMT. GINNI DEVI PALARIA AND SHRI SANJAY PALARIA HUF ALLOWABLE AND IT IS REQUESTED TO YOUR H ONOUR THAT ADDITION MADE OF RS. 10,29,144/- AGAINST DISALLOWANCE OUT OF COMMISSION EXPENSES BY LEARNED ACIT-CIRCLE-4 BE DELETED. 6. THE LD. DR IS HEARD WHO HAS RELIED ON THE FINDIN G OF THE LOWER AUTHORITIES WHICH WE HAVE ALREADY CONSIDERED ABOVE. 7. WE HAVE HEARD THE LD DR, THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. WE HAVE GONE THROUGH THE FINDINGS OF THE LD CIT(A) AND DONOT SEE ANY INFIRMITY IN THE SAID FINDINGS. THE SAID FINDINGS ARE CONTAINED AT PARA 4.3 TO 4.7 WHICH ARE REPRODUCED AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, THE ASSESS MENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE BRIEF FAC TS OF THE CASE ARE THAT THE ASSESSEE FIRM DERIVES INCOME FROM MANUFACT URING AND TRADING OF CORRUGATED BOXES. IT CLAIMED PAYMENT OF COMMISSION TO FOUR PERSONS SPECIFIED U/S 40A(2)(B) VIZ. SANJAY PA LARIA HUF, SH. SANJAY PALARIA, SMT. GINNIDEVI PALARIA AND SMT. DEE PIKA PALARIA. THE COMMISSION OF RS. 6,89.891/- PAID TO SANJAY PALARIA HUF AND THAT OF RS. 3,39,253 PAID TO SMT. GINNIDEVI PALARIA HAS BEE N DISALLOWED BY THE AO SINCE NO JUSTIFICATION THEREOF WAS GIVEN BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS. IN THE APPELLATE PRO CEEDINGS THE ASSESSEE HAS CLAIMED THAT IT HAD SUBMITTED DETAILS AND DOCUMENTS INCLUDING BILLS, VOUCHERS ETC. AS WELL AS ITRS OF T HE SAID PERSONS SHOWING THAT DUE TDS WAS DEDUCTED ON COMMISSION PAY MENTS MADE TO THEM AND DUE TAXES PAYABLE BY THEM WERE PAID. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAD SAVED PAYMENT OF SA LARY OF RS. ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 5 24,00,000 WHICH WAS BEING MADE TO SH. SANJAY PALARI A IN EARLIER YEARS AND LESSER AMOUNT OF COMMISSION WAS NOW BEING PAID, WHICH HAS RESULTED IN INCREASE IN SALES BY 52.44% THIS YE AR. IT IS FURTHER STATED THAT SUCH COMMISSION PAID TO SANJAY PALARIA HUF WAS ALLOWED IN THE ORDER U/S 143(3) FOR A.Y.2012-13. IT IS ALSO CONTENDED THAT SMT. GINNIDEVI WAS EARNING COMMISSION INCOME FROM A NOTHER PARTY VIZ. GIRIRAJ INDUSTRIES, WHICH SHOWS THAT SHE IS EN GAGED IN PROVIDING GENUINE SERVICES AS COMMISSION AGENT. 4.4 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT. DURING APPELLATE PROCEEDINGS, THE APPELLANT WAS ASK ED TO PRODUCE EVIDENCE OF SERVICE RENDERED BY THE TWO COMMISSION AGENTS AND DETAILS OF INFRASTRUCTURE AND CAPITAL DEPLOYED BY T HEM FOR RENDERING SUCH SERVICES. THE APPELLANT WAS ALSO ASKED TO PROD UCE EVIDENCE OF SERVICES RENDERED BY THESE PERSONS TO THIRD PARTIES . IN RESPONSE, THE APPELLANT COULD NOT FURNISH ANY DETAILS OF INFRASTR UCTURE AND CAPITAL DEPLOYED BY THE SAID TWO COMMISSION PAYEES FOR THE PURPOSE OF EARNING COMMISSION INCOME. NO EVIDENCE OF ANY SERVI CE RENDERED BY THEM WAS FURNISHED. ONLY IN THE CASE OF SMT. GINNID EVI, IT WAS STATED THAT SHE HAS RENDERED SUCH SERVICE TO ONE M/ S GIRIRAJ INDUSTRIES ALSO. HOWEVER, IT IS SEEN THAT THE SAID CONCERN IS ALSO A FAMILY CONCERN OPERATING FROM THE SAME ADDRESS AS T HAT OF THE ASSESSEE. THUS THE SAID TWO PAYEES HAVE NOT PROVIDE D ANY SUCH SERVICES TO ANY THIRD PARTY, WHICH INDICATES THAT T HEY ARE NOT GENUINE SERVICE PROVIDERS. IT IS FURTHER OBSERVED THAT SMT. GINNIDEVI WAS ALMOST 92 YEARS OF AGE DURING THE YEA RS UNDER CONSIDERATION, WHICH RENDERS HER CAPACITY TO PROVIDE ACTIVE SERVICES DOUBTFUL. MOREOVER, IT IS OBVIOUS T HAT THE ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 6 ASSESSEE HAS TAKEN ADVANTAGE OF TAX ARBITRAGE SINCE IT FALLS IN THE HIGHEST TAX BRACKET AND SMT. GINNIDEVI DOES NOT. CONSIDERING THE ASSESSEE'S FAILURE TO PRODUCE ANY E VIDENCE REGARDING ACTUAL SERVICES BEING RENDERED BY HER, CO UPLED WITH HER ADVANCED AGE AND THE FACT THAT THE ASSESSE E HAS TAKEN ADVANTAGE OF TAX ARBITRAGE AS STATED ABOVE, T HE DISALLOWANCE OF COMMISSION OF RS. 3,39,253/- PAID T O HER, IS HEREBY UPHELD. 4.5 FURTHER, ON EXAMINING THE RETURN FILED BY SANJA Y PALARIA HUF, I FIND THAT THE HUF, HAS SHOWN ONLY THE COMMIS SION INCOME OF RS. 6,89,891/- RECEIVED FROM THE ASSESSEE AND IN TEREST INCOME OF RS. 788/- AND HAS DEDUCTED SALARY PAYMENT OF RS. 24,000/-, TELEPHONE CHARGES OF RS. 2,420/- AND BANK CHARGE OF RS. 316, SHOWING TOTAL INCOME OF RS. 2,420/- AND BANK CHARGE OF RS. 316, SHOWING TOTAL INCOME OF RS. 6,63,943/- ENTAILING A PAYMENT OF TAX OF RS. 1,06,277/-. THE HUF DOES NOT HAVE ANY OTHER PERSON DEPLOYED FOR EARNING SUCH COMMISSION INCOME AS NO EVIDENCE REGARDING SALARY PAYMENT MADE AND PURPOSE THEREOF WAS SUBMITTED. MORE IMPORTANTLY, THE HUF DO ES NOT POSSESS ANY PROPERTIES OR RESOURCES OR PLANT AN D MACHINERY WHICH IS DEPLOYED FOR THE PURPOSES OF EAR NING SUCH COMMISSION INCOME. IT IS HELD BY THE APEX COURT IN THE CASE OF PALANIAPPA CHETTIAR (1968) 66ITR 221 (SC) T HAT:- APPLYING THE DOCTRINE OF HINDU LAW, THE REMUNERATI ON OF THE MANAGING DIRECTOR WAS NOT EARNED BY ANY DETRIMENT T O THE JOINT FAMILY ASSETS. THUS, THE REMUNERATION OF THE MANAGI NG DIRECTOR ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 7 COULD NOT BE TREATED AS AN ACCRETION TO THE INCOME OF THE JOINT FAMILY AND TAXED IN ITS HANDS. FOR THESE REASONS, THE AMOUNTS RECEIVED BY THE ASSE SSEE AS MANAGING DIRECTORS REMUNERATION, COMMISSION AND SI TTING FEES, WERE NOT ASSESSABLE AS INCOME OF THE HINDU UNDIVIDE D FAMILY OF WHICH P WAS THE KARTA. 4.6 FURTHER, IN THE CASE OF PREM NATH V CIT (1970) 78 ITR 319 (SC), IT HAS HELD THAT WHERE KARTA OF ASSESSEE HUF RECEIVED REMUNERATION FOR RENDERING SERVICES TO PARTNERSHIP FIRM AND WHERE THERE WAS NO REAL AND SUFFICIENT CONNECTION BETWEEN INVESTMENT OF HUFS ASSETS AND REMUNERATION RECEIVED BY THE KARTA OF HUF, THE REMUNERATION SO RECEIVED WAS HIS INDIVIDUAL INCOME. SIMILARLY, IT WAS HELD IN THE CASE OF CIT V D.C. SHAH (1969) 73 I TR 692 (SC) THAT WHERE REMUNERATION EARNED BY KARTA OF HUF WAS NOT EARNED ON ACCOUNT OF ANY DETRIMENT TO JOINT FAMILY ASSETS, IT WAS ASSESSABLE AS INCOME OF THE INDIVIDUAL. IN THE CASE OF THE APPELLANT ALSO THERE IS NO DETRIMENT TO THE ASSETS OF HUF IN EARNING SUCH COMMISSION INCOME. IN FACT THE HUF HAS NOT DEPLOYED ANY ASSET TOWARDS EARNING COMMISSION INCOME. IT HAS FURTHER B EEN NOTED THAT THE RESULTANT TAX PAID BY HUF IS NOMINAL AND O N THE OTHER HAND SUBSTANTIAL TAX HAS BEEN SAVED BY THE APPELLAN T, WHO FALLS IN THE HIGHEST TAX BRACKET. THE TAX SAVED ON THIS TRAN SACTION WITH HUF IS AROUND RS. 2,00,000. THE FURTHER PLEA THAT T HE PAYMENT OF COMMISSION HAD BEEN ACCEPTED IN A LATER ASSESSMENT ALSO DOES NOT CARRY WEIGHT, FIRSTLY, AS THE PRINCIPLE OF RES JUDI CATA DOES NOT APPLY TO PROCEEDINGS UNDER INCOME-TAX ACT, AND SECONDLY T HE CITED ASSESSMENT ORDER OF A.Y.2012-13 DOES NOT CARRY ANY DISCUSSION ON ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 8 THE ISSUE OF COMMISSION PAID TO HUF, HENCE THERE IS NO FINDING OR OPINION FORMED ON THE ISSUE. FURTHER, THE COMMISSIO N PAID TO THE SAID HUF IS AT THE RATE OF 5% OF SALES MADE TO NEC DURING THE YEAR AND SIMILAR PAYMENT OF COMMISSION HAS BEEN MADE TO THE KARTA IN HIS INDIVIDUAL CAPACITY ALSO, WHICH HAS BEEN ALLOWE D. CONSIDERING THE ENTIRE GAMUT OF FACTS AND THE DECISIONS CITED, IT IS HELD THAT THE PAYMENT OF COMMISSION OF SANJAY PALARIA HUF IS NOT ALLOWABLE AS THE EXERTION, IF ANY, FOR EARNING ANY COMMISSION HA S BEEN MADE BY SH. SANJAY PALARIA ONLY, FOR WHICH HE HAS BEEN PAID COMMISSION IN HIS INDIVIDUAL CAPACITY AND ALSO NO RESOURCES OF HU F HAVE BEEN DEPLOYED FOR EARNING THE SAID COMMISSION. ACCORDING LY THE ADDITION OF RS. 6,89,891/- ON ACCOUNT OF DISALLOWANCE OF COM MISSION PAYMENT IS HEREBY UPHELD. 4.7 AS A RESULT, THE ENTIRE DISALLOWANCE OF COMMISS ION OF RS. 10,29,144/- IS UPHELD. THIS GROUND OF APPEAL IS DIS MISSED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/09/2018 SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 19/09/2018 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- NISHA ENTERPRISES, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-4, JAIPUR 3. VK;DJ VK;QDR@ CIT ITA NO. 168/JP/2017 NISHA ENTERPRISES, JAIPUR VS. ACIT, JAIPUR 9 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 168/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR