S.D.S. Electronics Private Limited, Chandigarh V. DCIT, Chandigarh

ITA 169/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90147 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Business expenditure; Opportunity of being heard
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO.169/CHD/2014 (ASSESSMENT YEAR : 2009-10) ITA NO.170/CHD/2014 (ASSESSMENT YEAR : 2010-11) ITA NO.168/CHD/2014 (ASSESSMENT YEAR : 2008-09) & ITA NO.167/CHD/2014 (ASSESSMENT YEAR : 2007-08) S.D.S. ELECTRONICS PRIVATE. LTD., VS. THE ADDL.C.I.T., 194. INDUSTRIAL AREA, PHASE 2, RANGE 1, CHANDIGARH. CHANDIGARH. PAN: AABCS9990D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 19.05.2015 DATE OF PRONOUNCEMENT : 21.05.2015 O R D E R PER BHAVNESH SAINI, J.M. : THIS ORDER SHALL DISPOSE OFF ALL THE ABOVE APPEALS FILED BY THE ASSESSEE ON IDENTICAL ISSUES. 2 2. THE APPEAL IN ITA NO.169/CHD/2014 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), CHANDIGARH DATED 13.11.2013 FO R ASSESSMENT YEAR 2009-10. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON R ECORD. 4. ON FIRST ISSUE, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF COMMISSION OF RS.8,33,675/- BY TAKI NG AVERAGE RATE OF COMMISSION OF 9%. THE IDENTICAL I SSUE IS RAISED IN ALL THE REMAINING APPEALS. THE LEARNED REPRESENTATIVE OF BOTH THE PARTIES SUBMITTED THAT T HE ISSUE IS SAME IN ALL THE APPEALS AND HAVE MAINLY ARGUED I N ASSESSMENT YEAR 2009-10 AND STATED THAT SIMILAR ORD ER COULD BE FOLLOWED IN OTHER APPEALS. 5. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE HAD PAID COMMISSI ON OF RS.75,41,249/- TO VARIOUS PERSONS AND THE RATE OF COMMISSION VARIED BETWEEN 4% TO 18%. THE ASSESSI NG OFFICER ASKED FOR THE DETAILS OF SERVICES RENDERED AND THE ASSESSEE HAD SUBMITTED THAT THE PERSONS TO WHOM COMMISSION WAS PAID WERE INSTRUMENTAL IN ENHANCING THE SALES OF THE COMPANY AND COMMISSION HAD BEEN GIVEN ON THE BASIS OF SALES MADE BY DIFFERENT PERSONS. THE ASS ESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE AND ADOPTED AVERAGE RATE OF COMMISSION OF 9% AS 3 ALLOWABLE, RESULTING INTO DISALLOWANCE OF COMMISSIO N OF RS.8,33,675/-. 6. THE ASSESSEE CHALLENGED THE ABOVE ADDITION BEFO RE THE LEARNED CIT (APPEALS) AND SUBMITTED THAT THERE WERE NO BASIS TO ADOPT THE RATE OF COMMISSION AT 9%. THE LEARNED CIT (APPEALS), HOWEVER, DISMISSED THIS GROUND OF AP PEAL OF THE ASSESSEE HOLDING THAT NO PROPER JUSTIFICATION H AS BEEN GIVEN FOR PAYING COMMISSION AT DIFFERENT RATES TO V ARIOUS COMMISSION AGENTS. 7. THE LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 8. ON THE OTHER HAND, THE LEARNED D.R FOR THE REVENUE RELIED UPON THE ORDERS OF THE AUTHORITIES B ELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE HON 'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEM ENT (B.) LTD., 254 ITR 377 HELD AS UNDER : UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961, THE JURISDICTION OF THE REVENUE IS CONFINED TO DECI DING THE REALITY OF THE BUSINESS EXPENDITURE, VIZ., WHET HER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR LAID OUT AND WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT MUST N OT, HOWEVER, SUFFER FROM THE VICE OF COLLUSIVENESS OR COLOURABLE DEVICE. THE REASONABLENESS OF THE EXPENDITURE COULD BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER, IN FACT, THE AMOUNT WAS SPENT. 4 ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS, THE REVENU E CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCH AIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFITS. 10. THE HON'BLE ALLAHABAD IN THE CASE OF DCIT VS. SUPER TANNERY (INDIA) LTD., 274 ITR 338 HELD AS UNDER : IF AN ASSESSEE, IN ORDER TO AVOID DELAYS AND HARASSMENT TO GET MONEY WHICH IS LAWFULLY DUE TO HI M AT AN EARLY DATE IN ORDER TO ENABLE HIM TO USE THE SAM E IN HIS BUSINESS, UTILIZES THE SERVICES OF A THIRD PERS ON OR A MIDDLE MAN, IT CANNOT BE SAID THAT THE EXPENDITURE HAS NOT BEEN LAID OUT FOR THE PURPOSE OF BUSINESS. MOREOVER, THE NATURE OF EXPENDITURE HAS TO BE SEEN FROM THE VIEW POINT OF THE ASSESSEE. THERE IS NO PROVI SION TO DISALLOW A PART OF SUCH EXPENDITURE ON THE GROUND O F EXCESSIVENESS WHEN THE EXPENDITURE HAS BEEN FOUND T O BE GENUINE. FOR THE ASSESSMENT YEAR 1986-87, IN ORDER TO GET DUTY DRAW-BACK OF RS.25 LAKHS RELEASED FROM THE CENTRAL GOVERNMENT, THE ASSESSEE HAD INCURRED EXPENSES OF RS.2,37,000 WHICH WAS PAID TO THE COMMISSION AGENT. THE ASSESSING OFFICER HAD DISALLOWED A SUM OF RS.1,23,130 OUT OF THE AMOUNT O N THE GROUND THAT IT WAS EXCESSIVE PAYMENT. THE COMMISSIONER (APPEALS) HOWEVER, DELETED THE DISALLOWANCE. THE TRIBUNAL UPHELD THE ORDER OF THE COMMISSIONER (APPEALS). ON APPEAL TO THE HIGH COUR T : 5 HELD, DISMISSING THE APPEAL, THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE DEDUCTION. 11. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT THE DISALLOWA NCE OUT OF THE COMMISSION BY ADOPTING AVERAGE RATE OF 9% WAS W HOLLY UNJUSTIFIED. THE ASSESSING OFFICER ASKED THE ASSE SSEE TO FILE DETAILS OF COMMISSION PAID TO VARIOUS PARTIES AND NATURE OF SERVICES RENDERED BY THEM AND THE RATE OF COMMIS SION, ETC. THE ASSESSEE FURNISHED THE DETAILS OF COMMIS SION ON SALES, WHICH ARE ALSO NOTED IN THE ASSESSMENT ORDER . THE ASSESSING OFFICER CONSIDERING THE DETAILS FOUND THA T THERE WAS VARIATION IN THE RATES OF COMMISSION PAID TO VA RIOUS PARTIES ON THE SALES EFFECTED THROUGH THEM. THE A SSESSING OFFICER, THEREFORE, ADOPTED AVERAGE RATE OF 9% COMM ISSION AS ALLOWABLE. IT IS, THEREFORE, CLEAR THAT THE ASSES SING OFFICER DID NOT DISPUTE THAT THE COMMISSION AGENTS HAVE REN DERED SERVICES FOR THE BUSINESS OF ASSESSEE FOR EFFECTING SALES, ETC. THE ASSESSING OFFICER HAS ALSO NOT DISPUTED THAT TH E ASSESSEE PAID COMMISSION TO VARIOUS PARTIES FOR EFF ECTING SALES. THE ASSESSING OFFICER HAS ALSO NOT DISPUTE D THAT IN FACT, GENUINE COMMISSION PAYMENTS HAVE MADE BY THE ASSESSEE TO VARIOUS PERSONS FOR EFFECTING SALES FOR THE ASSESSEE COMPANY. THEREFORE, IT IS CLEARLY PROVED ON RECORD THAT THE ASSESSEE INCURRED COMMISSION EXPENDITURE W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER MERELY FOUND RATE OF COMMISSION DIFFERING F ROM 4% TO 18%. THUS THERE WERE NO BASIS FOR THE ASSESSING OFFICER TO ADOPT AVERAGE RATE OF 9% COMMISSION AS ALLOWABLE . IN 6 THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD AGAIN ST THE ASSESSEE, THE ASSESSING OFFICER WAS NOT JUSTIFIED I N TAKING AVERAGE RATE OF COMMISSION FOR THE PURPOSE OF MAKIN G ADDITION AGAINST THE ASSESSEE. BOTH THE DECISIONS IN THE CASES OF DALMIA CEMENT (B.) LTD. (SUPRA) AND SUPER TANNERY (INDIA) LTD. (SUPRA) CLEARLY APPLY IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING DISA LLOWANCE OUT OF THE COMMISSION AMOUNT. WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDER AND DELETE THE ENTIRE ADDITION O F RS.8,33,675/-. THIS GROUND OF APPEAL OF THE ASSES SEE IS ACCORDINGLY ALLOWED. 12. ON SECOND ISSUE, THE ASSESSEE CHALLENGED THE DISALLOWANCE OF DEPRECIATION OF RS.41,477/-. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION IN RESPECT OF M ACHINERY, WHICH WAS NOT PUT TO USE. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE DEPRECIATION WAS CLA IMED ON THE EXISTING UNIT AND WAS ALLOWABLE BUT THE ASSESSI NG OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE. THE ASSESSEE CLAIMED BEFORE THE LEARNE D CIT (APPEALS) THAT THE DEPRECIATION IS ALLOWABLE EVEN I F THE MACHINERY WAS NOT ACTUALLY USED AND WAS KEPT READY FOR USE AND RELIED UPON THE DECISION OF THE HON'BLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF M/S NAHAR EXPORT S LTD., 288 ITR 494. THE LEARNED CIT (APPEALS), HOWEVER, DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 7 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION A T THE LEVEL OF THE ASSESSING OFFICER. THE HON'BLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. NAHAR EX PORTS LTD., 296 ITR 419 HELD THAT WHERE THE MACHINERY IS KEPT READY FOR USE BUT COULD NOT BE PUT TO USE FOR NON-R ECEIPT OF ORDERS, THE ASSESSEE WOULD BE ENTITLED TO DEPRECIAT ION . THE LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT THE MACHINERY IN QUESTION WAS PART OF THE BLOCK OF ASSE TS AND WAS READY FOR USE. IN THE YEAR UNDER CONSIDERATION, NO ORDERS WERE RECEIVED, THEREFORE, PART OF THE MACHINERY COU LD NOT BE USED. HE HAS FURTHER SUBMITTED THAT IN THE NEXT Y EAR THE SAME MACHINERY HAVE NOT BEEN DISCARDED OR SOLD. THE SUBMISSIONS OF THE LEARNED COUNSEL FOR ASSESSEE HAV E NOT BEEN VERIFIED BY THE AUTHORITIES BELOW IN THE LIGHT OF THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF NAHAR EXPORTS LTD. (SUPRA). THEREFORE, T HE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE ASSESS ING OFFICER. WE ACCORDINGLY SET ASIDE THE ORDERS OF T HE AUTHORITIES BELOW AND RESTORE THIS ISSUE BACK TO TH E FILE OF THE ASSESSING OFFICER WITH DIRECTION TO REDECIDE TH IS ISSUE IN ACCORDANCE WITH LAW BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY AS INDICATED ABOVE. 16. THE REMAINING APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), CHANDIGARH DATED 26.11.2013 FO R ASSESSMENT YEAR 2010-11, CHALLENGING THE DISALLOWAN CE OF COMMISSION OF RS.12,26,856/-BY TAKING AVERAGE RA TE OF COMMISSION OF 9%, THE ORDER DATED 13.11.2013 FOR ASSESSMENT YEAR 2008-09, CHALLENGING THE DISALLOWAN CE OF COMMISSION OF RS.3,19,648/- BY TAKING AVERAGE RA TE OF COMMISSION OF 8% AND THE ORDER DATED 1.11.2013 FOR ASSESSMENT YEAR 2007-08, CHALLENGING THE DISALLOWAN CE OF COMMISSION OF RS.2,89,194/- BY TAKING AVERAGE RA TE OF COMMISSION OF 8%. THE ISSUES INVOLVED IN ALL THE THREE REMAINING APPEALS OF THE ASSESSEE ARE SIMILAR AS HA VE BEEN CONSIDERED IN ASSESSMENT YEAR 2009-10 IN ITA NO.169/CHD/2014. BY FOLLOWING THE REASONS FOR DECISION FOR ASSESSMENT YEAR 2009-10 ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN ALL TH E THREE REMAINING APPEALS OF THE ASSESSEE AND DELETE THE EN TIRE ADDITIONS. 17. IN THE RESULT, ALL THE REMAINING APPEALS OF TH E ASSESSEE ARE ALLOWED. 9 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.169/CHD/2014 IS PARTLY ALLOWED. HOWEVER, THE REMAINING APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MAY, 2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST MAY, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH