NIVO CONTROLS P.LTD, MUMBAI V. ITO 1(2)(3), MUMBAI

ITA 1838/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7322 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHAN
• Assessee Lawyers: SHUBHASH S SHETTY
• Keywords: Business income
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA.NO. 1838 /MUM/201 7 (A.Y : 2012 - 13) M/S. NIVO CONTROLS PVT. LTD., 8, MOHATTA BHAVAN, OFF DR. E. MOSES ROAD, WORLI MUMBAI 400 020. PAN NO: AAACN 6646 C V. INCOME TAX OFFICER 1(2)(3) , ROOM NO.527, , AAYAKAR BHAVAN , M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ITA.NO. 2232 /MUM/2017 (A.Y:2012 - 13) INCOME TAX OFFICER 1(2)(3), ROOM NO.527,, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 V. M/S. NIVO CONTROLS PVT. LTD., 8, MOHATTA BHAVAN, OFF DR. E. MOSES ROAD, WORLI MUMBAI 400 020. PAN NO: AAACN 6646 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHUBHASH S. SHETTY REVENUE BY : SHRI M.C. OMI NINGSHAN DATE OF HEARING : 26.02.2018 DATE OF PRONOUNCEMENT : 11. 05 .2018 2 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD O R D E R PER C. N. PRASAD (JM) 1. THESE APPEALS ARE FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) 2, MUMBAI DATED 20.12.2016. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE , T HE FIRST ISSUE IN THE GROUND NOS. 1 TO 3 OF GROUNDS OF APPEAL OF REVENUE IS REGARDING THE DELETION OF DISALLOWANCE OF COMMISSION EXPENSES PAID TO M/S. TOSHBRO CONTROLS PVT. LTD. 3. BRIEFLY STATED THE FACTS ARE THAT, ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING IN ELECTRONIC EQUIPMENT AND CONSULTANCY FILED RETURN OF INCOME ON 29.09.2012 DECLARING INCOME OF .14,58,590/ - . THE ASSESSM ENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 26.03.2015 DETERMIN ING THE INCOME AT . 1,33,93,600/ - . WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER DISALLOWED .1,11,84,279/ - OUT OF COMMISSION EXPENSES INCURRED BY THE ASSESSEE. IN THE COURSE OF THE AS SESSMENT , ASSESSING OFFICER NOTICED THAT ASSESSEE PAID COMMISSION TO RELATED PARTY NAMELY M/S. TOSHBRO CONTROLS PVT. LTD. AND STATED TO HAVE BEEN PAID FOR THE TOTAL BUSINESS GENERATED TO THE ASSESSEE BY M/S. TOSHBRO CONTROLS PVT. LTD. BY WAY OF SALES. ASSESSING OFFICER ALSO 3 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD NOTICED THAT ASSESSEE DEDUCTED TDS @ 10% OF SUCH COMMI SSION SINCE IT IS RELATED PARTY. ASSESSING OFFICER W ITH A VIEW TO VERIFY THE NATURE OF THIS EXPENDITURE AND THE ALLOWABILITY OF THESE EXPENSES, NOTICES U/S. 133(6) WERE ISSUED TO M/S. TOSHBRO CONTROLS PVT. LTD. AND ALSO SOME OF THE PARTIES TO WHOM M/S. TOSHBRO CONTROLS PVT. LTD. STATED TO HAVE PROCURED SALES FROM THE ASSESSEE. IT IS THE OBSERVATION OF THE ASSESSING OFFICER THAT REPLIES HAVE BEEN RECEIVED FROM THE PA RTIES AND ALL OF THEM HAVE CATEGORICALLY STATED THAT THEY HAVE PROCURED MATERIALS DIRECTLY FROM THE ASSESSEE COMPANY AND THERE IS NO MEDIATOR INVOLVED IN THESE TRANSACTIONS WHICH IS EVIDENT FROM THE REPLIES RECEIVED FROM L3 COMMUNICATION PVT . LTD AND F LEET MAINTENANCE UNIT . THEREFORE, THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE SERVICES RENDERED BY M/S. TOSHBRO CONTROLS PVT. LTD. TO THE ASSESSEE A ND ON EXAMINATION OF THE FINANCE STATEMENTS OF M/S. TOSHBRO CONTROLS PVT. LTD. HE NOTICED THAT THIS COMPANY IS CONSTANTLY MAKING LOSSES AND THEREFORE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WITH AN INTENTION TO SHIFT THE PROFITS FROM ITS HANDS TO THE LOSS MAKING COMPANY HAS SHOWN THIS COMMISSION TOWARDS THE NON - GENUINE SERVICES AND THEREFORE OBSERVING THAT THERE IS NO DIRECT BENEFIT DERIVED BY THE ASSESSEE COMPANY SUPPORTED WITH DOCUMENTARY EVIDENCES AND THIS IMPUGNED EXPENDITURE IS NOT 4 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD ALLOWABLE AS DEDUCTION. ON APPEAL THE LD.CIT(A) DELETED THE DISALLOWANCE AGAINST WHICH THE R E VENUE IS IN APPEAL BEFORE US. 4. THE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDERS OF THE LD.CIT(A). FURTHER THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE NO. 31 OF THE PAPER BOOK, SUBMITTED THAT SIMILAR DISALLOWANCE OF COMMISSION TO SISTER CONCERN WAS DELETED BY THE LD.CIT(A). LD. COUNSEL FOR THE ASSESSEE FURTHER REFERRING TO THE DETAILS OF SALES COMMISSION TO M/S. TOSHBRO CONTROLS PVT. LTD. AND BREAK UP OF THE SALES SUBMITTED THAT DURING THE FINANCIAL YEAR 2011 - 12 RELEVANT TO THE ASSESSMENT YEAR 2012 - 13 THE PERCENTAGE OF TOTAL SALES MADE THROUGH THE SISTER CONCERN M/S. TOSHBRO CONTROLS PVT. LTD. , IS 58.30% AND THE PERCENTAGE OF TOTAL SALES MADE DIRECTLY BY THE ASSESSEE IS 32.47%. REFERRING TO THE SAID CHART , IT IS FURTHER SUBMITTED THAT THE PERCENTAGE OF COMMISSION OF SALES MADE TO M/S. TOSHBRO CONTROLS PVT. LTD. IN EARLIER YEARS RIGHT FROM THE F INANCIAL YEAR 2007 - 08 TO 2014 - 15 STOOD BETWEEN 11.57% TO 18.83% BASED ON PERCENTAGE OF SALES MADE THROUGH M/S. TOSHBRO CONTROLS PVT. LTD. , AND SUCH SALES COMMISSION WAS ALL ALONG ACCEPTED BY THE REVENUE. THEREFORE, IT IS SUBMITTED THAT THE COMMISSION PAID TO SISTER CONCERN IS NOT TO SHIFT ANY PROFITS AND THE SALES COMMISSION PAID BY THE ASSESSEE SHOULD BE ALLOWED AS DEDUCTION. 5 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ASSESSMENT ORDER , WE FIND TH AT THE ASSESSING OFFICER DISALLOWED SALES COMMISSION PAID TO M/S. TOSHBRO CONTROLS PVT. LTD. MAINLY ON TWO GROUNDS FIRSTLY THE PARTIES THROUGH WHOM M/S. TOSHBRO CONTROLS PVT. LTD. MADE SALES HAVE STATED THAT THEY HAVE RECEIVED MATERIAL DIRECTLY FROM THE AS SESSEE COMPANY AND M/S. TOSHBRO CONTROLS PVT. LTD. IS A LOSS MAKING COMPANY AND THEREFORE HE WAS OF THE VIEW THAT IN ORDER TO SEE THAT THERE IS NO TAX INCIDENCE, THE PROFITS WERE SHIFTED TO THE LOSS MAKING COMPANY BY THE ASSESSEE AND THEREFORE THE COMMISSION IS NOT ALLOWABLE. THE LD.CIT(A) CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE DELETED THE DISALLOWANCE OBSERVING THAT THE RECIPIENT COMPANY IS A LOSS MAKING COMPANY AND IS NOT A GROUND FOR DISALLOWANCE OF COMMISSION. HE ALSO ACCEPTED THE SUBMISSIONS OF THE ASSESSEE THAT M/S. TOSHBRO CONTROLS PVT. LTD. IS KNO WN TO CUSTOMERS BY ITS FLAG SHIP COMPANY AND MAY NOT BE AWARE OF THE SUBSIDIARY COMPANY AND THEREFORE THE CUSTOMER MIGHT HAVE STATED THAT THEY HAVE GOT MATERIALS DIRECTLY FROM THE ASSESSEE COMPANY M/S. NOVA CONTROLS PVT. LTD. WHICH IS THE FLAG SHIP COMPANY . 6. WE FURTHER FIND FROM THE DETAILS THAT SIMILAR COMMISSION HAS BEEN PAID TO M/S. TOSHBRO CONTROLS PVT. LTD. , DURING THE FINANCIAL YEARS 2007 - 08 TO 2014 - 15 AND THE PERCENTAGE OF TOTAL SALES MADE THROUGH THE 6 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD M/S. TOSHBRO CONTROLS PVT. LTD. BY THE ASSESSEE RANGES FROM 58.30% TO 78.78% AND THE COMMISSION PAID RANGES BETWEEN 11.57% AND 18.83 % DEPENDING UPON THE PERCENTAGE OF SALES TO TOTAL SALES. WE FIND THAT THAT THE REVENUE HAS ACCEPTED THE PAYMENT OF COMMISSION IN ALL THE EARLIER YEARS AND DISALLO WANCE WAS MADE ONLY DURING THIS YEAR AND BASED ON AN APPREHENSION THAT THE SISTER CONCERN IS MAKING LOSS AND THEREFORE ASSESSEE TRIED TO SHIFT THE PROFITS, T HIS FACT IS NOT PROVED BEYOND DOUBT. WHEN THE COMMISSION PAID BY THE ASSESSEE IS ACCEPTED IN ALL E ARLIER YEARS THERE IS NO REASON WHY IT SHOULD NOT BE ACCEPTED DURING THE ASSESSMENT YEAR UNDER APPEAL. IN THE CIRCUMSTANCES , WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE. HENCE THE ORDER OF THE L D.CIT (A) IS SUSTAINED ON THIS ISSUE. 7. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS REGARDING THE RESTRICTING THE DISALLOWANCE OF TRAVELLING EXPENSES TO 12.5% AS AGAINST 25% DISALLOWED BY THE ASSESSING OFFICER. SIMILARLY, THE GROUND IN THE APPEAL FILED BY THE ASSESSEE IS REGARDING THE SUSTAINING THE DISALLOWANCE BY THE LD.CIT(A) AT 12.5% OF TRAVELLING EXPENSES O N ADHOC BASIS. 8. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO PROPER OPPORTUNITY GIVEN TO THE ASSESSEE TO SUBSTANTIATE THE CLAIM WITH RELEVANT DETAILS AS THE ASSESSING OFFICER NOT 7 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD CALLED FOR ANY DETAILS IN RESPECT OF TRAVELLING EXPENSES IN THE ASSESSMENT PROCEEDINGS. THEREFORE, HE SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE ISSUE AFRESH, TO WHICH THE LD. DR HAS NO SERIOUS OBJECTION. 9. CONSIDERING THE SUBMISSIONS MADE BY BOTH THE PARTIES , W E ARE OF THE VIEW THAT THE MATTER BE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO SUBSTANTIATE THE CLAIM OF TRAVELLING EXPENSES BY THE ASSESSEE WITH EVIDENCES. HENCE THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICE R FOR FRESH ADJUDICATION. THIS GROUND IS A LLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 11 TH MAY , 2018 . SD/ - SD/ - ( RAJESH KUMAR ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 11 / 05 / 2017 GIRIDHAR , S R. PS 8 ITA.NO. 1838 & 2232 /MUM/2017 (A.Y:2012 - 13) M/S. NIVO CONTROLS PVT. LTD COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER, (ASSTT. REGISTRAR) ITAT, MUM