M/s. Shakun Polymers Ltd., Baroda V. The Dy.CIT.,Circle-4, Baroda

ITA 1818/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94870 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: K C PATEL
• Keywords: Gift

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NO.1818/AHD/2012 [ASSTT/YEAR 2009-2010] M/S.SHAKUN POLYMERS LTD. 501, IVORY TERRACE R.C. DUTT ROAD, ALKAPURI VADODRA 390 005. PAN : AACCS 5500 Q VS DCIT, CIR.4 VADODARA. ./ ITA NO.2000/AHD/2012 [ASSTT/YEAR 2009-2010] DCIT, CIR.4 VADODARA. VS M/S.SHAKUN POLYMERS LTD. 501, IVORY TERRACE R.C. DUTT ROAD, ALKAPURI VADODRA 390 005. PAN : AACCS 5500 Q / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI K.C. PATEL, CA REVENUE BY : SHRI JAGDISH, CIT-DR ! / DATE OF HEARING : 26/11/2015 '#$ ! / DATE OF PRONOUNCEMENT: 09/12/2015 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPEALS A GAINST THE ORDER OF THE LD.CIT(A)-III, BARODA DATED 28.6.2012 PASSED FOR THE ASSTT.YEAR 2009-10. ITA NO.1818/AHD/2012 (2 APPEALS) 2 2. GROUND NO.1 IN THE ASSESSEES APPEAL AND SOLITAR Y GRIEVANCE RAISED BY THE REVENUE ARE INTER-LINKED WITH EACH OT HER. THE ASSESSEE HAS DEBITED SALES PROMOTION EXPENSES DURING THE YEA R OF RS.2,00,35,749/-. THE LD.AO HAS DISALLOWED SALES C OMMISSION PAYMENT OF RS.31,40,552/-. ON APPEAL, THE LD.CIT(A) HAS DEL ETED THE DISALLOWANCE OF RS.23,10,212/-. THE CIT(A) HAS CON FIRMED THE DISALLOWANCE OUT OF THIS EXPENDITURE AT RS.8,30,340 /-. THE REVENUE IN ITS APPEAL IS IMPUGNING THE DELETIO N OF DISALLOWANCE AT RS.23,10,212/- WHEREAS THE ASSESSEE IN ITS APPEAL IS IMPUGNING THE CONFIRMATION OF DISALLOWANCE OF RS.8, 30,340/-. IN THIS WAY, THESE GROUNDS ARE LINKED WITH EACH OTHER, THER EFORE, WE TAKE THEM TOGETHER. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPECIALTY PLAST ICS COMPOUNDS AND WIRE AND CABLES. IT HAS FILED ITS RETURN OF INCOME ON 23.92009 DECLARING TOTAL INCOME AT RS.2,97,76,540/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY O F THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS PAID SALE COMMISSION WITHIN INDIA AND TWO PARTIES OUTSIDE INDIA. IT HAS DEBITE D A SUM OF RS.2,00,35,749/- AS COMPARED TO RS.98,45,898 IN THE EARLIER YEAR. ACCORDING TO THE AO, ON AN ANALYSIS OF THE RECORD, IT REVEALED THAT THERE IS A RISE TO THE EXTENT OF 115% IN THE COMMISSION P AYMENT. ONE OF THE FOREIGN PARTIES IS ATON IN WHICH COMMISSION HAS BEE N INCREASED BY RS.31,40,552/-. THE AO HAS OBSERVED THAT THE COMMI SSION WAS BEING PAID AT THE RATE OF $ 30 PER MTS. THIS YEAR, THE COMMISSION HAS BEEN PAID FROM $ 30 TO 105/- PER MT, AND THERE IS NO JUS TIFICATION AT THE END ITA NO.1818/AHD/2012 (2 APPEALS) 3 OF THE ASSESSEE. THE ASSESSEE HAS CONTENDED THAT A TON IS ITS SOLE SELLING AGENT OF THE PRODUCTS MANUFACTURED BY THE A SSESSEE IN THE EGYPTIAN TERRITORY. FURTHER, ATON IS ALSO ITS SUB- AGENT FOR SELLING DYM PRODUCTS IN THE TERRITORY OF EGYPT AND THE ASSESSEE IS PRINCIPAL AGENT OF DYM, KOREA FOR SELLING THEIR PRODUCTS IN INDIA. TH E ASSESSEE HAD REVISED AN AGREEMENT WITH ATON WHEREIN THE PAYMENT OF COMMI SSION HAS BEEN ENHANCED TO $ 105/- PER MT. THE LD.AO REJECTED THI S CONTENTION OF THE ASSESSEE ON THE GROUND THAT A PERUSAL OF THE AGENCY AGREEMENT AND FORWARDING LETTER FROM ATON DATED 17.7.2006, NOWHER E DISCERNIBLE THAT THE COMMISSION WILL BE PAID AT THE RATE OF 105/- PE R MT THE AMENDMENT CLAUSE OF PERCENTAGE COMMISSION IS AS PER ADDENDA NO.5 DATED 16.9.2010 WHICH RELATES TO THE ASSTT.YEAR 201 1-12. IN THIS WAY, THE LD.AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE AND MADE ADDITION OF RS.31,40,552/-. 4. ON APPEAL, THE LD.CIT(A) HAS PARTLY DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE APPELLANT'S SUBMISSI ON AND THE A.O.'S OBSERVATION THE AO HAS DISALLOWED THE ENTIRE INCREASE IN COMMISSION PAID TO ATON BY CONSIDERING THE INCREASE IN THE RATE OF COMMISSION PAYMENT. BUT THE APPELLANT HAS BEEN ABLE TO SHOW THAT THE INCREASE WAS NOT ENTIRELY ON ACCOUNT OF INCREASE IN THE COMMISSION RATE, BUT A SUBSTANTIAL PART OF THE COMMISSION HAS BEEN PAID AS PER THE EARLIER RATE OF RS.30 PER METR IC TON ONLY. THE INCREASE IN COMMISSION PAYMENT ON ACCOUNT OF IN CREASE IN THE RATE IS ONLY RS, 8,30,340. THE APPELLANT HAS NOT BEEN ABLE TO PRODUCE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE INCREASE IN THE RATE OF COMMISSION PAYMENT DURING THE CURRENT A SSESSMENT YEAR. WHATEVER DOCUMENTS HAVE BEEN PRODUCED, SHOW T HAT THE INCREASE IN RATE WAS TO TAKE PLACE FROM ASSESSMENT YEAR 2011-12. UNDER SUCH CIRCUMSTANCES, THE DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE RESTRICTED TO RS. 8,30,340 FOR WHICH NO SATISFACTORY EXPLANATION IS AVAILABLE. THE BALANCE ADDITION IS DIRECTED TO BE DELETED. THUS, THIS GROUND IS PARTLY ALLOWED. ITA NO.1818/AHD/2012 (2 APPEALS) 4 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE COUL D NOT PRODUCE ANY DOCUMENTARY EVIDENCE IN SUPPORT OF THE AGENCY AGREE MENT EXHIBITING THE FACT THAT THE RATE OF COMMISSION PAYMENT HAD RE VISED, HOWEVER, HE CONTENDED THAT THE ASSESSEE HAS OFFERED AN INCOME O F RS.2.97 CRORES. IT HAS TURNOVER OF MORE THAN RS.106 CRORES. IT COU LD NOT HAVE DEBITED ANY EXPENDITURE BY INCREASING THE RATE OF COMMISSIO N UNLESS THERE WAS A SETTLEMENT BETWEEN THE AGENT AND THE ASSESSEE. T HE UNDERSTANDING TO CARRY OUT THE BUSINESS MIGHT HAVE BEEN GIVEN EFF ECT IN WRITING IN SUBSEQUENT PERIOD, BUT THE UNDERSTANDING IN PRINCIP AL HAS BEEN EFFECTED WHILE MAKING PAYMENT. THIS INDICATED THAT IMPLIEDL Y, THE PARTIES WERE AGREED UNDER AN UNDERSTANDING THAT HIGHER RATE OF C OMMISSION WILL BE RECEIVED. FOR BUTTRESSING THIS CONTENTION, HE PLAC ED ON RECORD COPY OF THE LEDGER ACCOUNT AND THE DETAILS INDICATING THE P AYMENT OF COMMISSION AT THE RATE OF 105 US$. THESE PAYMENTS WERE MADE ON 15.10.2008, 6.11.2008 AND 19.1.2009. THESE PAYMENT S WERE MADE THROUGH BANKING CHANNEL. HE PLACED ON RECORD COPY OF THE LEDGER SHOWING THE PAYMENTS. ON THE OTHER HAND, THE LD.D R RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES BELOW. 6. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. THE ACCOUNTS ARE MAINTAINED PROP ERLY BY THE ASSESSEE. THE INCOME HAS BEEN DEDUCED FROM THE ACC OUNTS AND NO DEFECTS WERE POINTED OUT BY THE LD.AO. THE OBJECTI ON OF THE AO WHILE DISALLOWING THE COMMISSION PAYMENT IS THAT, THIS YE AR, IT WAS PAID BY THE ASSESSEE AT A HIGHER RATE. ATON IS AN OLD PART Y THROUGH WHICH ASSESSEE IS DOING BUSINESS IN EGYPT. ITS IDENTITY WAS NOT IN DOUBT. ITS RENDERING OF SERVICES ARE NOT IN DOUBT. PAYMENTS T O THIS CONCERN ARE ALSO NOT IN DOUBT. THIS CONCERN IS NOT COVERED U/S .40A(2)(B) OF THE I.T.ACT, WHERE IT CAN BE ALLEGED THAT UNDUE BENEFIT WAS EXTENDED TO THIS CONCERN ON ACCOUNT OF ITS RELATION WITH MANAGEMENT/ DIRECTORS OF THE ITA NO.1818/AHD/2012 (2 APPEALS) 5 ASSESSEE. THE ASSESSEE HAD OFFERED AN INCOME OF RS .2.97 CRORES FOR TAXATION. WITH THIS BACKGROUND, IF WE LOOK, THEN, MERELY ON ACCOUNT OF HIGHER RATE OF COMMISSION PAYMENT, THAT SO, IN THE UNDERSTANDING OF AO, CAN IT BE DISALLOWED ? TO OUR MIND, HOW TO CARR Y OUT THE BUSINESS, AT WHICH COST SERVICE SHOULD BE AVAILED IS IN THE D OMAIN OF THE BUSINESSMAN. NO AUTHORITY SHOULD TAKE CHARGE OF TH IS DECISION MAKING PROCESS. THE AO COULD NOT ALLEGE ANY ILLEGALITY IN THE TRANSACTIONS OR VIOLATION OF ANY PROVISION WHILE DISALLOWING SOME E XPENDITURE. HE CANNOT DICTATE HOW MUCH EXPENDITURE ARE SUFFICIENT FOR DOING BUSINESS. HAD HE POINTED OUT THAT EXPENSES WERE NOT PAID FOR THE PURPOSE OF BUSINESS THEN IT COULD BE DIFFERENT CIRCUMSTANCES. THE PARTIES MIGHT HAVE AGREED FOR HIGHER RATE OF COMMISSION PAYMENT W HICH GIVEN EFFECT DE FACTO IMMEDIATELY, BUT DE JURE EFFECT WAS GIVEN LATER ON IN THE AGREEMENT. IN THIS SITUATION NO DISALLOWANCE OUGHT TO BE MADE. WE ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE A ND REJECT THE GROUND BY THE REVENUE. 7. NO OTHER GROUND HAS BEEN RAISED BY THE REVENUE. 8. IN THE ASSESSEES APPEAL, ONE MORE GROUND OF APP EAL, WHEREBY IT HAS CHALLENGED THE ADDITION OF RS.1,66,039/-. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S INCURRED EXPENDITURE TOWARDS SALES PROMOTION. IT HAS GIVEN GIFTS ETC. THE LD.AO HAS MADE ADDITION OF RS.7,01,714/- WHICH CONTAINED TWO ITEMS, VIZ. (A) A SUM OF RS.35,675 INCURRED ON IFTAR PARTY AND RS.1,66,039/- WAS INCURRED ON PURCHASE OF GOLD COINS. THE LD.CIT(A) HAS OBSERVED THAT AS FAR AS EXPENDITURE OF RS.35,675/- IS CONCERNED, IT WAS INCURRED IN THE HONOUR OF FOREIGN CLIENT, AS IS DISCERNIBLE FROM TH E EMAIL CORRESPONDENCE. THUS, IT WAS CONSIDERED IN THE NAT URE OF SALES ITA NO.1818/AHD/2012 (2 APPEALS) 6 PROMOTION EXPENDITURE. THE LD.CIT(A) HAS ALLOWED T HIS EXPENDITURE TO THE ASSESSEE. HOWEVER, OTHER AMOUNTS HAVE NOT BEE N DISALLOWED TO THE ASSESSEE ON THE GROUND THAT NO DETAILS OF THE P ERSON TO WHOM SUCH GOLD COINS WERE DISTRIBUTED HAVE BEEN FURNISHED BY THE ASSESSEE. THE ASSESSEE HAS ONLY GIVEN NAMES OF MAJOR CLIENTS. CO NSIDERING THE FINDING OF THE LD.CIT(A), WE DO NOT FIND ANY ERROR IN IT, BECAUSE, IT IS FOR THE ASSESSEE TO DEMONSTRATE AS TO HOW A PARTICULAR EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. APART FROM T HESE SMALL AMOUNTS, THERE WERE LARGE NUMBERS OF EXPENDITURE INCURRED BY THE ASSESSEE ON SALE PROMOTION ETC. WHICH HAS BEEN ALLOWED BY THE A O. THE ASSESSEE HAS DEBITED A SUM OF RS.21,76,585/- UNDER THE HEAD SALES PROMOTION/GIFT EXPENSES. OUT OF THIS TOTAL AMOUNT , ONLY A SUM OF RS.1,66,039/- INCURRED ON PURCHASE OF GOLD COINS HA S BEEN DISALLOWED. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT (A). THIS GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 9 TH DECEMBER, 2015 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 09/12/2015