M/s. Sri Amman Arul Spinners Ltd., Karur V. ACIT, Trichy

ITA 1691/CHNY/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51885 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 26-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Source of fund; Assessment record

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI.U.B.S. BEDI, J.M. & SHRI. ABRAHAM P. GE ORGE, A.M. I.T.A. NO. 1691/MDS/2009 ASSESSMENT YEAR: 2004-05 SRE AMMAN ARUL SPINNERS LTD., 9-D-3, RAMAKRISHNAPURAM, KARUR. [PAN: AABCS0157Q] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I, TRICHY. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. QUADIR HOSEYN RESPONDENT BY : SHRI SHAJI P. JACOB, SR. DR DATE OF HEARING : 11 .08.2011 DATE OF PRONOUNCEMENT : 09. 0 9 .2011 ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A), TIRUCHIRAPPALLI DATED 21.08.2009 RELEVANT T O THE ASSESSMENT YEAR 2004-05. 2. THIS APPEAL WAS EARLIER DECIDED BY THE BENCH ON 03.03.2011, WHICH ORDER CAME TO BE RECALLED AT THE INSTANCE OF THE ASSESSEE VIDE ORDER DATED 10.06.2011 IN MP. NO. 63/MDS/2011. 3. FACTS INDICATE THAT THE ASSESSMENT WAS COMPLETE D WITH AN ADDITION OF ` .44,57,783/- BY DISALLOWING THE FOLLOWING ITEMS :- I) AGENCY COMMISSION ` . 43,84,869 II) TRAVELLING EXPENSES ` . 28,200 III) MISCELLANEOUS EXPENSES ` . 44,714 WHILE DISALLOWING COMMISSION OF ` . 43,84,869/- IN HIS ASSESSMENT ORDER THE ASSESSING OFFICER HAS STATED AS UNDER :- I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 2 I) THE CREDIT BALANCE IN THE CURRENT ACCOUNT OF THE FIRM IS RS. 2,26,92,687/- AND BESIDES THE AGENCY DEPOSIT OF RS. 50,00,000/- PAID BY THE M/S SRI AMMAN ARUL SPINNERS IS LYING WITH THE FIRM. II) M/S. SURYA & CO., IS PROVIDING MARKETING AGENC Y FACILITIES ONLY TO ONE ASSESSEE I.E., M/S SRI AMMAN ARUL SPINNERS III) IF THE FIRM IS SO POWERFUL MARKETING AGENCY T HEIR MUST HAVE BEEN SOME OTHER ASSESSEES GETTING THE SERVICES FROM THIS FIRM. IV) THERE IS NO NEED FOR THIS FIRM TO GET THE LOAN S IN CRORES KEEP THEM IDLE IN THE BANK ACCOUNT. THE ENTIRE LOANS ARE BOGUS AND ARE ONLY BOOK ENTRIES. V) THE ASSESSEE UNABLE TO PROVIDE ANY CLINCHING EVI DENCE AND CONVINCING REASONS OF THE GENUINENESS OF THE ACTIVI TIES OF THE FIRM AND OF ITS ABILITY IN PROVIDING SERVICES TO THE COMPANY TO THE EXTENT OF COMMISSION RECEIVED BY IT. VI) THERE ARE NO REGULAR BOOKS OF ACCOUNTS MAINTAI NED AND ACCOUNTS NOT AUDITED THROUGH THE RECEIPTS ARE MORE THAN 40 LAKHS. THERE WERE NO BILLS. VII) THE MANAGEMENT OF THE COMPANY AND FIRM ARE UND ER SINGLE MANAGEMENT. VIII) NO TDS HAS BEEN MADE ON THE AGENCY COMMISSIO N PAID BY THE COMPANY TO M/S. SURYA & CO. THE AGENCY COMMISSION PAID BY THE COMPANY TO THIS F IRM IS ONLY A TACTIC ADOPTED BY THE ASSESSEE TO SIPHON OFF THE PROFITS O F THE COMPANY AND SHOW LOSSES YEAR AFTER YEAR. THIS CLEARLY PROVES THAT THE FIRM M/S. SURYA & CO. IS A CONCERN WHICH IS ONLY CREATED TO SIPHON OFF THE PRO FITS ON THE COMPANY. HENCE THE ASSESSING OFFICER DISALLOWED THE AGENCY COMMISS ION PAID OF RS. 43,84,869/-. 4. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND F ILED WRITTEN SUBMISSIONS, WHICH READS AS UNDER: I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 3 'IN RESPONSE TO THE NOTICE U/S.143(2) APPELLANT APP EARED BEFORE THE ASSESSING OFFICER, PRODUCED THE BOOKS, R ECORD., AND VOUCHERS AND FILED INFORMATION AND DETAILS CALLED F OR AT THE TIME OF HEARING. THE ASSESSING OFFICER NOTICED THAT THE FIR M SURYA & CO RECEIVED INTEREST AND COMMISSION FROM THE APPELLANT COMPANY, IT RAISED LOANS FROM FINANCIERS IN A SUM OF ` .2,79,00,000/-, THE MAJOR EXPENSE OF THE FIRM WAS INTEREST PAID ON BORROWINGS AND THAT ON THE CONTRARY THERE WAS DEBIT BALANCE IN THE CURRENT ACC OUNT IN A SUM OF ` .2,26,92,687/-. ON THIS INCORRECT PREMISE, THE ASSE SSING OFFICER CONCLUDED THAT THE FIRM WAS A COLOURABLE DEVICE TO SIPHON OFF THE PROFITS OF THE APPELLANT COMPANY. IN THIS VIEW OF T HE MATTER THE ASSESSING OFFICER DISALLOWED THE ENTIRE AGENCY COMM ISSION CLAIMED IN THE HANDS OF THE COMPANY IN A SUM OF ` .43,84,869/-. THE ASSESSING OFFICER ALSO DISALLOWED TRAVELLING AN D MISCELLANEOUS EXPENSES IN A SUM OF ` .28,200/- AND ` .44,714/- RESPECTIVELY ON THE GROUND THAT THE EXPENSES WERE SUPPORTED BY DEBIT VO UCHERS WITH NO CORRESPONDING RECEIPT VOUCHERS. 5. THE LD. CIT(A), WHILE CONSIDERING AND NOT ACCEP TING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO CONFIRM THE IMPUGNED ADDI TION AS PER PARA 4 AND 5 OF HIS ORDER AS UNDER: 4. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER H AS STATED THAT THE APPELLANT IS UNABLE TO PROVIDE ANY CLINCHING EVIDEN CE AND CONVINCING REASONS OF GENUINENESS OF THE ACTIVITIES OF THE FIRMS AND OF ITS ABILITY IN PROVIDING SERVICES TO THE COMPANY TO THE EXTENT OF COMMISSION RECEIVED BY IT. MOREOVER, THE ASSESSING OFFICER HAS STATED THAT THERE ARE NO REGULAR BOOKS OF ACCOUNTS MAINTAI NED AND ACCOUNTS NOT AUDITED THOUGH THE RECEIPTS ARE MORE THAN 40 LA KHS. THERE WERE NO BILLS. THE MANAGEMENT OF THE COMPANY ARE UNDER T HE SINGLE MANAGEMENT. 5. FROM THE ABOVE FINDINGS OF THE ASSESSING OFFICE R IT IS CLEAR THAT THE COMMISSION PAID TO M/S. SURYA & CO FOR PROVIDING MARKETING AGENCY FACILITY IS NOT FOR IMPROVEMENT OF THE MARKE TING BUT IT IS ONLY CREATED TO SIPHON OF PROFITS OF THE COMPANY. AS STA TED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AS THE CO MMISSION PAYMENT IS NOT FOR GENUINE BUSINESS PURPOSE AND IT IS JUST A PLOY TO SIPHON OF THE PROFIT, DISALLOWANCE MADE BY THE ASSE SSING OFFICER ON AGENCY COMMISSION AMOUNTING TO ` .43,84,869/- NEEDS NO INTERFERENCE AND HENCE, CONFIRMED. I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 4 6. STILL AGGRIEVED, THE ASSESSEE FILED PRESENT APP EAL, CHALLENGING CONFIRMATION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON AG ENCY COMMISSION AMOUNTING TO ` .43,84,869/- AND THE LD. COUNSEL FOR THE ASSESSEE, WHILE RELYING UPON THE GROUNDS RAISED IN THE APPEAL HAS FURTHER SUBMITTED THAT SINCE THE AMOUNT OF AGENCY COMMISSION COULD BE VERIFIED BY THE ASSESSING OFFIC ER BY CALLING FOR THE DETAILS OR MAKING VERIFICATION FROM THE ASSESSMENT RECORD OF M /S. SURYA & CO. IN ORDER TO ASCERTAIN WHETHER SUCH AGENCY COMMISSION HAS BEEN A CCOUNTED FOR BY THE SAID COMPANY AND OFFERED FOR TAXATION IN THIS YEAR OR IN SUBSEQUENT YEAR, SO THE MATTER SHOULD BE SET ASIDE ON THE FILE OF THE ASSESSING OF FICER FOR RECONSIDERATION OF THE ISSUE AFRESH. WHEN SPECIFICALLY ASKED, WHETHER ANY DETAIL OR INFORMATION WAS FILED AS ASKED BY THE ASSESSING OFFICER EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A) OR EVEN FOR THAT MATTER BEFORE THIS BENC H, THE ASSESSEES COUNSEL INSISTED FOR SETTING ASIDE THE ORDERS OF AUTHORITIE S BELOW AND RESTORING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECID ING IT AFRESH. 7. THE LD. DR, WHILE RELYING UPON THE BASIS AND RE ASONING AS GIVEN BY THE AUTHORITIES BELOW HAS STRONGLY PLEADED THAT DISPITE HAVING PROVIDED SUFFICIENT OPPORTUNITY TO THE ASSESSEE DURING ASSESSMENT PROCE EDINGS, THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE ANY EVIDENCE AND CONVINCING RE ASONS OF THE GENUINENESS OF THE ACTIVITY OF THE FIRM AND OF ITS ABILITY IN PROV IDING SERVICES TO THE COMPANY TO THE EXTENT OF COMMISSION RECEIVED BY IT WHEN THERE WAS NO NEED FOR THIS FIRM TO GET LOANS IN CRORES AND KEEP THEM IDLE IN THE BANK ACCO UNT. SO, THE ENTIRE LOANS ARE BOGUS OR ONLY BOOK ENTRIES. THERE WERE NO REGULAR B OOKS OF ACCOUNTS MAINTAINED AND ACCOUNTS ARE NOT AUDITED THOUGH THE RECEIPTS AR E MORE THAN ` .40.00 LAKHS. I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 5 THERE WAS ALSO NO BILL. THE MANAGEMENT OF THE COMPA NY AND THE FIRM ARE SINGLE MANAGEMENT. NO TDS HAS BEEN MADE ON THE AGENCY COMM ISSION STATED TO HAVE BEEN PAID BY THE COMPANY TO M/S. SURYA & CO. SO, TH E AGENCY COMMISSION PAID BY THE COMPANY TO THIS FIRM IS ONLY A TACTIC ADOPTED B Y THE ASSESSEE TO SIPHON OFF THE PROFITS OF THE COMPANY AND SHOW LOSSES FROM YEAR AF TER YEAR. SO, ALL THESE PROVES THAT THE FIRM AND M/S. SURYA & CO. IS A CONCERN, WH ICH IS ONLY CREATED TO SIPHON THE PROFIT ON THE COMPANY AND WHILE RELYING UPON HONBL E MADRAS HIGH COURTS DECISION IN THE CASE OF NEPC INDIA LTD. 303 ITR 271 AND THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF ONAM AGARBATHI CO. V. DCIT 310 ITR 56, IT WAS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 8. AFTER HAVING HEARD BOTH THE SIDES AND CONSIDERI NG THE MATERIAL ON RECORD AS WELL AS PRECEDENT RELIED UPON, WE FIND THAT THE ASS ESSEE HAS BORROWED LOAN AMOUNTING TO ` .47.00 LAKHS FROM THE MANAGING DIRECTOR SHRI DHANDA PANI AND PAID AN AGENCY COMMISSION OF ` .43,84,869/- TO A PARTNERSHIP CONCERN BY NAME AND STYLE OF M/S. SURYA AND CO. CONSEQUENTLY, THE STATE MENT OF THE MANAGING DIRECTOR OF THE COMPANY SHRI DHANDAPANI HAS BEEN RECORDED, W HERE HE DECLARED THAT THE ABOVE LOAN WAS ADVANCED FROM AMOUNT OF LOAN TAKEN F ROM FINANCE COMPANIES AND EXPORTERS. TO ASCERTAIN THE VERACITY OF THE ABOVE T WO CLAIMS, VARIOUS DETAILS WERE CALLED FOR FROM THE ASSESSEE. THE ASSESSEE DID NOT SUBMIT THE DETAILS IN TIME, SO THE DRAFT PROPOSAL WAS SENT TO THE ASSESSEE CALLING UPON THE ASSESSEE TO ESTABLISH ITS CLAIM WITH REGARD TO AGENCY COMMISSION. THE ASS ESSEE IN HIS OBJECTION TO THE DRAFT PROPOSAL HAS STATED THAT PARTNER OF THE FIRM M/S. SURYA & CO. NAMELY S. DHANDAPANI, P.M. KARUPPANNAN AND P. SELVAN HAD 20 Y EARS OF EXPERIENCE IN THIS I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 6 LINE OF BUSINESS. THEIR EXPERIENCE AND GOODWILL HAD MADE THE COMPANY TO CREATE A REASONABLY GOOD MARKET, BESIDES THEY STATED THAT TH E COMPANY PERFORMED VERY WELL. THE ASSESSING OFFICER FURTHER NOTED THAT THE SOURCES OF INCOME FOR THIS FIRM ARE INTEREST AND COMMISSION RECEIVED FROM THE ASSES SEE. THERE IS NO OTHER SOURCE FOR THIS FIRM AND IF EXPENSES SIDE OF THE FIRM IS S EEN, THE FIRM, WHILE PAYING INTEREST MOSTLY TO THE DIRECTORS OF THE COMPANY, PARTNERS OF THE FIRM AND FAMILY MEMBERS OF THE DIRECTOR AND PARTNER OF THE COMPANY AND FIRM RE SPECTIVELY. THE BALANCE SHEET OF THE ASSESSEE FIRM HAS STATED LOANS FROM THE FINA NCIERS TO THE TUNE OF ` .2.97 CRORES. THE ASSESSING OFFICER FURTHER NOTED THAT TH E GENUINENESS OF THE CREDIT ARE EXTREMELY DOUBTFUL AND GIVEN DETAILED REASONS FOR T HE SAME. 9. AFTER CONSIDERING ALL THESE FACTS AND CIRCUMSTAN CES AND SPECIFIC OBSERVATIONS OF THE ASSESSING OFFICER, WHICH HAVE N OT BEEN REFUTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A) NOR ANY DETAIL OR FURTHER CLARIFICATIONS HAVE BEEN FILED BEFORE THIS BENCH AND THE LD. COUNSEL FOR THE ASSESSEE HAS JUST STATED THAT IF THE MATTER GOES BA CK TO THE ASSESSING OFFICER, HE SHOULD BE DIRECTED TO ASCERTAIN THE FACTS AS TO WHE THER THE COMMISSION AMOUNT RECEIVED FROM THE ASSESSEE HAS BEEN OFFERED FOR ASS ESSMENT IN EARLIER YEAR OR SUBSEQUENT YEAR. THEREFORE, GIVING CAREFUL THOUGHT OVER THE MATERIAL ON RECORD AND SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND B EFORE THIS BENCH IN THE LIGHT OF PRECEDENTS, WE ARE OF THE VIEW THAT THE ASSESSEE HA S MISERABLY FAILED TO ESTABLISH ABOUT THE GENUINITY OF THE COMMISSION AMOUNT OR EST ABLISHING THAT THE SAME IS FOR ACHIEVING ANY BENEFIT. THEREFORE, WHILE CONCURRING WITH THE FINDING OF THE AUTHORITIES I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 16 66 691 9191 91/MDS/0 /MDS/0 /MDS/0 /MDS/09 99 9 7 BELOW, WE UPHOLD THE ACTION OF THE LOWER AUTHORITIE S AND DISMISS THE APPEAL OF THE ASSESSEE BEING DEVOID OF ANY MERITS. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE GETS DISMISSED. ORDER PRONOUNCED ON 09.09.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI, DATED, THE 09.09.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.