The ITO, Ward-8(4), Ahmedabad V. Volflo Pvt.Ltd., Ahmedabad

ITA 1894/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6863 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: P M PATEL
• Section: 133(6); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA,AM ITA NO.1894/AHD/2009 (ASSESSMENT YEAR:-2006-07) INCOME-TAX OFFICER, WARD- 8(4), AHMEDABAD V/S VOLFLO PRIVATE LIMITED, 166/167, GIDC INDUSTRIAL ESTATE, NARODA, AHMEDABAD PAN: AAACV 6615 P [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA, DR ASSESSEE BY:- SHRI P M PATEL, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE FILED ON 5.6.2009 AGAIN ST AN ORDER DATED 18-03-2009 OF THE LD. CIT(APPEALS)-X IV, AHMEDABAD, FOR THE ASSESSMENT YEAR (AY) 2006-07, RAISES THE F OLLOWING GROUNDS:- 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE DISALLOWANCE OF COMMISSION PAID TO M/S HETAL ENTERP RISES OF RS.4,88,448/-. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D IRECTING TO DELETE THE SALES COMMISSION PAID TO THE SALES AGENTS AMOUNTING TO RS.1,10,293/-. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4 IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A)-XIV, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE AO BE RESTORED. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FA CTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INC OME OF RS.4,45,410/-FILED ON 28-12-2006 BY THE ASSESSEE, E NGAGED IN THE BUSINESS OF MANUFACTURING ELECTRIC CONTROL VALVES, WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF T HE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] ON 10.1 0.2007.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER[AO IN ITA NO.1 894/AHD/2009 2 SHORT] NOTICED THAT THE ASSESSEE-COMPANY PAID COM MISSION OF RS.20,94,077/- TO CERTAIN PARTIES ON THE SALES MADE TO PUBLIC SECTOR UNDERTAKINGS LIKE NPC, NALCO AND ONGC. SINCE THESE PUBLIC SECTOR UNDERTAKINGS WERE GOVERNED BY CERTAIN REGULA TIONS LAID DOWN BY THE GOVERNMENT AND DID NOT ALLOW MEDIATORS IN TH EIR DEALINGS, IN ORDER TO VERIFY THE CLAIM OF THE ASSESSEE AND NATUR E OF SERVICES RENDERED, THE AO ISSUED NOTICE U/S 133(6) OF THE ACT TO THE PERSONS TO WHOM SUCH COMMISSION WAS CLAIMED TO HAVE BEEN PA ID AS ALSO TO THE AFORESAID PSUS. INTER ALIA, LETTERS WERE ISSUED ON 07-11-2008 TO THE FOLLOWING RECIPIENTS OF COMMISSION :- [1] HETAL ENTERPRISES [2] ANITA MOHANTY [3] APURVA DARJI [4] A J CONTROL [5] M/S JAIN ENTERPRISE 2.1 ON PERUSAL OF DETAILS, THE AO NOTICED THAT TH E ASSESSEE PAID COMMISSION TO HETAL ENTERPRISES TO THE EXTENT OF RS .4,88,448/- @ 25% ON SALES MADE TO RAJASTHAN ATOMIC POWER STATION , KOTA, A UNIT OF NPC. HOWEVER, THE LETTER ISSUED TO M/S HETAL ENT ERPRISES ON THE GIVEN ADDRESS WAS RETURNED UN-SERVED. TO A QUERY BY THE AO, THE ASSESEE FILED A COPY OF REPLY FROM M/S HETAL ENTERP RISE ALONG WITH DEBIT NOTES OF COMMISSION ISSUED BY THE SAID PARTY, COPIES OF PURCHASE ORDERS FROM NPC AND COPIES OF BILLS ISSUED BY THE ASSESSEE TO NPC AND FURTHER SUBMITTED THAT M/S HET AL ENTERPRISE HAD PLAYED A VITAL ROLE IN SUPPLY OF MATERIAL BY ASSESS EE COMPANY TO THE CORPORATION AND HAD, IN FACT, REPRESENTED THE COMPANY . HOWEVE R, RAJASTHAN POWER CORPORATION IN THEIR REPLY DATED 20/11/2008 STATED THAT NO COMMISSION AGENT/BROKER OR MEDIATOR WAS INVOLVED FROM THEIR SI DE OR FROM THE SIDE OF THE ASSESSEE TO GET THE ORDERS FROM THEIR O RGANIZATION. THE RELEVANT PORTION OF THE REPLY EXTRACTED IN THE ASSE SSMENT ORDER READS AS UNDER: ' SUB: INFORMATION U/S 133(B) IN CASE OF M/S VALFLO W P. LTD. AHMEDABAD REF: YOUR LETTER NO.ITO.WD.8(4)/133(6)/VALFLO/08-09 DTD. 7.11.2008 ITA NO.1 894/AHD/2009 3 WITH REFERENCE TO YOUR ABOVE MENTIONED LETTER, INFO RMATION AS DESIRED ARE FURNISHED BELOW: 1. PURCHASE ORDER NO. 69385, 69506, 69802 AND 70357 WERE PLACED TO M/S VALFLOW P. LTD. DURING THE F. Y. 2005-06. C OPIES OF THE SAME ARE ENCLOSED HEREWITH. 2. NO COMMISSION AGENT/BROKER OR MEDIATOR WAS INVOL VED FROM OUR SIDE OR FROM M/S VALFLOW LTD. TO GET THE ORDERS FRO M OUR ORGANIZATION AS PER PROCEDURE IN VAGUE. 3. NPCIL, BEING PSU UNDER DEPARTMENT OF ATOMIC ENER GY, ALL MATERIAL PROCUREMENT ORDERS ARE DEALT BY CONTRACT & MATERIAL MANAGEMENT GROUP BASED ON USERS REQUIREMENT AND TENDERING PROC ESS FOLLOWED BY GOVERNMENT DEPARTMENTS..... SD/- (M.B. CHAUHAN) SR. MANAGER (F & A).... ' 2.2 IN THE LIGHT OF AFORESAID REPLY , THE AO CONC LUDED THAT THE ASSESSEE FURNISHED A GENERAL REPLY AND DID NOT PROD UCE ANY EVIDENCE, REVEALING THAT HETAL ENTERPRISE HAD PLAYED ANY ROL E IN PROCURING THE ORDERS FORM NPC, WHICH IS A PUBLIC SECTOR UNDERTAKING (PSU). TH E ASSESSEE ALSO DID NOT PRODUCE ANY AGREEMENT OR LETTER OF APPOINTMENT OF H ETAL ENTERPRISE AS THEIR AGENTS NOR THERE NAME IS MENTIONED IN THE CORRESP ONDENCE, BILLS AND ANY OTHER DOCUMENT WITH THE SAID PSU. SINCE THE PSU COMMUNIC ATED THAT NO COMMISSION AGENT/BROKER OR MEDIATOR WAS INVOLVED FROM EITHER S IDE ,RELYING UPON THE DECISION IN LAXMINARAYNA MADANLAL 86 ITR439 (SC) , THE AO DI SALLOWED AN AMOUNT OF RS.4,88,448/- CLAIMED TO HAVE BEEN PAID TO M/S HETA L ENTERPRISE . 3. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISALL OWANCE IN THE FOLLOWING TERMS:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS AS ADVANCED BY THE A.R. FROM THE DETAILS FURNISHED, IT IS SEEN THAT M/S. HETAL ENTERPRISE HAS PLAYED A PIVOTAL ROLE IN OBTAINING T HE PURCHASE ORDERS FROM KPC BY VISITING THE CORPORATION VERY FREQUENTLY AND THE SAID PARTY HAD FURNISHED THE AUTHORITY LETTER. IT CANNOT BE SAID T HAT NO SERVICE HAS BEEN RENDERED BY THE SAID PARTY FOR THE APPELLANT SIMPLY BECAUSE HIS NAME DID NOT APPEAR IN ANY DOCUMENT, I.E. PURCHASE ORDER ETC . CONSIDERING THE NUMBER OF DIRECTORS & THE STAFF THE APPELLANT IS HA VING AND THE HUGE TURNOVER ACHIEVED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, I AM IN ITA NO.1 894/AHD/2009 4 AGREEMENT WITH THE CONTENTION OF THE A.R. THAT WITH ONE OR TWO PERSONS, IT WAS QUITE IMPOSSIBLE TO MANAGE THE DAY TO DAY AFFAI RS OF THE COMPANY AND TO PROCURE SUCH LARGE SCALE PURCHASE ORDER FROM GOV T. CORPORATIONS WITHOUT ANY HELP OF ANOTHER PERSON, WHO HAS EXPERTI SE IN THE FIELD. IT IS ALSO SEEN THAT ALL FORMALITIES WERE DONE IN OBTAINING TH E PURCHASE ORDER AS PER THE ADVICE OF AN EXPERT AGENT, WHO HAS BEEN PAID TH E COMMISSION BY CHEQUE ONLY AND WHO HAS FILED ITS RETURN OF INCOME ETC. IT IS ALSO A FACT THAT WHILE PAYING THE COMMISSION TO THIS PARTY, THE APPE LLANT HAS DEDUCTED THE TDS ON SALES COMMISSION AND IN VIEW OF THESE FACTOR S, I FIND THAT M/S. HETAL ENTERPRISE, TO WHOM THE SALES COMMISSION HAS BEEN PAID, HAS RENDERED SERVICES FOR THE APPELLANT COMPANY IN PROC URING PURCHASE ORDERS FROM NPC. I, THEREFORE, HOLD THAT THE DISALLOWANCE MADE BY THE A.O. IN RESPECT OF SALES COMMISSION OF RS.4,88,448/- PAID T O HETAL ENTERPRISE IS NOT JUSTIFIED AND THE SAME IS HEREBY DELETED. 4. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWANC E OF COMMISSION OF RS.1,10,293/- PAID TO ANITA MOHANTY, APURVA DARJI, JAI ENTERPRISE AND A J CONTROLS. THE AO NOTICED THA T THE ASSESSEE PAID COMMISSION OF RS.10,898/- TO ANITA MOHANTY ON SALES TO NATIONAL ALUMINIUM CORPORATION, RS.7,000/- TO APURV A DARJI ON SALES TO ONGC, HAZIRA, SURAT, RS.70,000/- TO A.J. CONTROL ON SALES TO NCPL., TARAPUR AND RS.22,395/- TO JAI ENTERPRISE ON SALE TO STEEL AUTHORITY OF INDIA, BHILAI. SINCE THE NOTICES ISSUE D U/S 133(6) OF THE ACT TO THESE PERSONS, WERE RETURNED UN-SERVED, T HE ASSESSEE WAS ASKED TO FURNISH EVIDENCE OF SERVICES RENDERED B Y THESE PERSONS. IN RESPONSE, THE AR FURNISHED COPIES OF REPLIES AND DEBIT NOTES, COPIES OF PURCHASE ORDERS FROM PSUS, COPIES OF BILL S ISSUED BY THE ASSESSEE TO THESE PSUS. AFTER EXAMINING THESE DOCUM ENTS, THE AO OBSERVED THAT THERE WAS NO EVIDENCE TO SHOW THAT TH ESE PERSONS PLAYED ANY ROLE IN PROCURING ORDERS FROM THE PSUS, AS THEIR NAMES DID NOT APPEAR IN ANY CORRESPONDENCE WHILE THE ONGC INFORMED THAT NO SALES WERE MADE. SINCE THE OTHER PSUS, DID NOT REPLY AND IN VIEW OF THE FACT THAT NO MEDIATOR WAS ALLOWED BY TH E PSUS AND THE PURCHASES WERE PROCURED STRICTLY BY TENDERING PROCE SS, THE AO CONCLUDED THAT THE PAYMENT OF COMMISSION TO THESE A GENTS WAS NOT GENUINE AND ACCORDINGLY, THE AMOUNT OF RS.1,10,293/ - WAS DISALLOWED. ITA NO.1 894/AHD/2009 5 5. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISALL OWANCE IN THE FOLLOWING TERMS:- 3.2 THE A.R. DURING THE COURSE OF APPELLATE PROCEE DINGS SUBMITTED THAT IT HAS PRODUCED ALL NECESSARY EVIDENCES SUCH AS DEB IT NOTE ISSUED BY THE SELLING AGENT AND OTHER NECESSARY DETAILS FOR PAYIN G THE SELLING COMMISSION. IT WAS FURTHER SUBMITTED THAT ONLY ONE CORPORATION TO WHOM THE NOTICES WERE ISSUED BY THE A.O. HAS REPLIED AND HENCE THE OBSERVATION OF A.O. THAT NO SERVICES WERE RENDERED BY THE AGENT S IN PROCURING THE PURCHASE ORDERS FROM THE CORPORATIONS WAS NOT CORRE CT, AS THE SAME WAS BASED ONLY ON PRESUMPTION. IT CANNOT BE PRESUMED TH AT INTERNAL SYSTEM OR CODE OF CONDUCT OF ALL THE GOVT. CORPORATIONS ALL O VER INDIA HAVE THE SAME SYSTEM AND IT DEPENDS UPON THE NATURE OF THE BUSINE SS AND SIZE OF THE BUSINESS. IT WAS SUBMITTED THAT THE PRESUMPTION MAD E ON THE BASIS OF LETTER OF ONE PSU THAT NO MEDIATOR OR COMMISSION AG ENT WAS ALLOWED AND HENCE ALL OTHER CORPORATIONS HAVE THE SAME SYSTEM C ANNOT BE HELD AS CORRECT. FURTHER, THE APPELLANT HAS RECEIVED TWO TD S CERTIFICATES FROM THE ONGC FOR THE SERVICES GIVEN TO ONGC , SO IN FACT ON GC HAZIRA HAS NOT PROPERLY VERIFIED THE SAP RECORDS OR PURCHASE REGIS TER, OTHERWISE THEY WOULD HAVE FOUND OUT THAT THEY HAVE RECEIVED THE GO ODS. HERE ALSO, THE A.O. PLACED RELIANCE ON THE DECISION IN THE CASE OF LAKSMI NARAYAN MADANLAL, SUPRA. THE A.R. ALSO CONTENDED THAT THE S ELLING COMMISSION IS ALLOWABLE AS DEDUCTION U/S. 37(1) OF THE ACT IN SUP PORT OF WHICH HE RELIED ON THE DECISION IN THE CASE OF SASSOON J. DAVID & C O. PVT. LTD. VS. CIT, 118 ITR 261 (BOM) AND SUBMITTED THAT IT IS FOR THE APPELLANT TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE C OURSE OF HIS OR HER BUSINESS AND SUCH EXPENDITURE MAY BE INCURRED, VOLU NTARILY OR WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE B USINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION, EVEN THO UGH THERE IS NO COMPELLING NECESSITY. 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A.R. FROM THE DETAILS FURNISHED, IT IS SEEN THAT ALL THE FOUR PARTIES HAVE PLAYED A PIVOTAL ROLE IN OBTAINING THE PURCHASE ORDERS FROM VARIOUS CORPORATIONS BY VISITING THE CORPORATIONS F REQUENTLY. IT CANNOT BE SAID THAT NO SERVICE HAS BEEN RENDERED BY THE SAID PARTY FOR THE APPELLANT SIMPLY BECAUSE THEIR NAMES DID NOT APPEAR IN ANY DO CUMENT, I.E. PURCHASE ORDER ETC. THE ISSUE IS SIMILAR TO THE ISSUE AS PER GROUND NO. 1 WHEREIN I HAVE HELD THAT THE COMMISSION PAID TO HETAL ENTERPR ISE WAS GENUINE. THE FACTS AND CIRCUMSTANCES ARE VERY SIMILAR IN RESPECT OF COMMISSION PAYMENTS TO THESE FOUR AGENTS AND IN VIEW OF THE O BSERVATION MADE THEREIN. I HOLD THAT THE DISALLOWANCE MADE BY THE A .O. IN RESPECT OF SALES COMMISSION OF RS.1,10,293/- PAID TO THE SALES AGENT S IS NOT JUSTIFIED AND THE SAME IS HEREBY DELETED. ITA NO.1 894/AHD/2009 6 6. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASS ESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) IN THE LIGHT OF DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF MATHER & PLATT (INDIA) LTD. VS. CIT [1987] 168 ITR 493 (CAL). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. INDISPUT ABLY, COMMISSION PAID TO M/S HETAL ENTERPRISE IN THE PERIOD RELEVA NT TO THE AYS 2003- 04 & 2004-05 FOR RENDERING SIMILAR KIND OF SERVICE S FOR SUPPLY OF EQUIPMENTS TO M/S RAJASTHAN ATOMIC POWER STATION, K OTA, HAS BEEN ALLOWED. SIMILAR AMOUNT OF COMMISSION HAS BEEN PAID TO THE SAID PARTY IN THE SUBSEQUENT ASSESSMENT YEAR 2007-08 ALS O. AS REGARDS COMMISSION PAID TO M/S JAI ENTERPRISE, M/S A.J. CON TROL, SIMILAR PAYMENT OF COMMISSION HAS BEEN ALLOWED IN THE AY 20 05-06 IN THE SCRUTINY ASSESSMENT. FOR THE YEARS UNDER CONSIDERA TION, THE LD. CIT(A) AFTER ANALYZING THE FACTS OF THE CASE ,CONCL UDED THAT ALL THE AFORESAID FOUR PARTIES AND M/S HETAL ENTERPRISE HAV E PLAYED A PIVOTAL ROLE IN OBTAINING THE PURCHASE ORDERS FROM VARIOUS CORPORAT IONS BY VISITING THE CORPORATIONS FREQUENTLY AND THAT IT COULD NOT BE SA ID THAT NO SERVICES HAVE BEEN RENDERED BY THESE PARTIES TO THE ASSSESSEE SIMPLY BECAUSE THEIR NAMES DID NOT APPEAR IN ANY DOCUMENT, I.E. PURCHASE ORDERS ETC. WE ARE OF THE OPINION THAT MERELY BECAUSE CERTAIN PSUS OR THESE AGENTS DID NO T RESPOND TO THE NOTICE ISSUED BY THE AO U/S 133(6) OF THE ACT, PAYMENT OF COMMISSION CAN NOT BE HELD TO BE NON-GENUINE. HONB LE CALCUTTA HIGH COURT IN MATHER & PLATT (INDIA) LTD.(SUPRA) HE LD THAT MERELY BECAUSE A PERSON IS NOT FOUND AT AN ADDRESS AFTER F OUR YEARS, IT CANNOT BE HELD THAT HE IS NON- EXISTENT. CONSIDERING THE FACT THAT SIMILAR PAYMENT OF COMMISSION TO THE AFORESAID PARTIES HAS BEEN ALLOWED BY THE A O HIMSELF IN THE PREVIOUS YEARS AND THE ASSESSEE HAD BEEN CARRYING ON BUSINE SS NORMALLY THROUGH THE COMMISSION AGENTS, PAYMENT OF COMMISSION TO THESE AGENTS CANNOT BE DISALLOWED ,PARTICULARLY WHEN THE ASSESSEE HAS SATI SFACTORILY DISCHARGED THE ONUS ITA NO.1 894/AHD/2009 7 OF PROVING THEIR IDENTITIES AND IN FACT, COMMISSION HAS BEEN PAID TO THE SAID PARTIES FOR SERVICES RENDERED. IN VIEW OF THE FORE GOING, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF FACTS RECORDED BY THE LD. CIT(A), SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, W E ARE NOT INCLINED TO INTERFERE. CONSEQUENTLY, GROUND NOS. 1 & 2 IN TH E APPEAL ARE DISMISSED. 8. GROUND NOS. 3 & 4 BEING MERE PRAYER AND GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THER EFORE ,DISMISSED. 9. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 1 -4-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 1-4-2011 COPY OF THE ORDER FORWARDED TO: 1. VOLFLO PRIVATE LIMITED, 166/167, GIDC INDUSTRIAL ESTATE, NARODA, AHMEDABAD 2. THE ITO, WARD-8(4), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD