Prataprai G. Rohra, Ahmedabad V. Asst.Commissioner Of Income Tax, Circle-7(2), Ahmedabad

ITA 2048/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4468 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 12-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: S K SATHWANI
• Keywords: Business income; Rule of consistency; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO. 2048/AHD/2017 ( / ASSESSMENT YEAR : 2014-15) PRATAPRAI G. ROHRA PROP: M/S.SHIVAM TEXTILES SHOP NO.1, 1 ST FLOOR, KISHAN DAYAL MARKET NR.NEW VIJAY MILL FRUIT MARKET NARODA ROAD, MEMCO AHMEDABAD-382345 / VS. THE ACIT CIRCLE-7 (2) AHMEDABAD ./ ./ PAN/GIR NO. : AGIPR 7584 F ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI S.K. SATHWANI, AR / RESPONDENT BY : MS.SONIA, KUMAR, SR.DR / DATE OF HEARING 09/05/2019 !'# / DATE OF PRONOUNCEMENT 31/05/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS)7, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-7 /98/16-17 DATED 06/07/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'TH E ACT') DATED 04/11/2016 RELEVANT TO ASSESSMENT YEAR (AY) 2014-15 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL: ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 2 - 1. THE LEARNED ACIT CIR 7(2) HAS ERRED IN LAW AND UNJ USTIFIED IN DISALLOWING INCENTIVE COMMISSION OF RS.6,86,916/- P AID TO 4 PERSONS ON THE GROUND THAT THESE PARTIES ARE COVERED U/S.40A(2 )(B); A) WITHOUT GIVING ANY FINDING AS TO HOW THE EXPENDITU RE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICES RENDERED. LD. CIT(A) ORDER IS UNJUSTIFIED AND BAD IN LAW IN CONFIRMING THIS ADDITION; B) LD. ACIT CIR 7 (2) HAS PASSED THE ASSESSMENT ORDER, WITHOUT HAVING THE JURISDICTION OF THE CASE. LD. CIT(A) IS NOT JU STIFIED IN HOLDING THAT THERE IS NO QUESTION OF ACIT NOT HAVING JURISDICTIO N OVER THE CASE, WITHOUT APPRECIATING THE FACT PLACED ON RECORD THAT DCIT (CO) AHMEDABAD HAS CONFIRMED, THAT JURISDICTION OF CASE VESTED WITH ITO WD-1(2)(5) AND NOT WITH ACIT CIR 7 (2) ON DATE OF F RAMING ASSESSMENT. THE APPELLANT CRAVES A LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE T IME OF OR BEFORE THE HEARING OF THE APPEAL. THE MAIN ISSUE RAISED BY THE ASSESSEE IS THAT THE L D. CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 6,86,916/- PAID TO C ERTAIN PARTIES TREATING THEM AS COVERED U/S 40A(2)(B) OF THE ACT. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN THE BUSINESS OF TRADING & MANUFACTURING OF LADIE S GARMENTS UNDER THE NAME AND STYLE OF M/S SHIVAM TEXTILES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION PAID C OMMISSION AMOUNTING TO RS. 6,86,916/- TO FOUR PERSONS AT RS. 1,71,729/- TO EACH PERSON. THE ASSESSEE ACCORDINGLY CLAIMED AS INCENTIVE SALES COM MISSION IN HIS BOOKS OF ACCOUNT. THE DETAILS OF THE PERSONS TO WHOM THE COMMISSION WAS PAID STANDS AS UNDER: ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 3 - SR. NO. NAME AMOUNT OF COMMISSION (IN RS.) 1. ANIL PRATAPRAI ROHRA HUF 1,71,729 2. LAXMAN PRATAPRAI ROHRA HUF 1,71,729 3. PRATAPRAI GULUMAL ROHRA HUF 1,71,729 4. VINOD PRATAPRAI ROHRA HUF 1,71,729 TOTAL 6,86,916 HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS REQUESTED THE ASSESSEE TO FURNISH CERTAIN DETAILS TO VERIFY THE C LAIM OF EXPENSES. THE AO FURTHER OBSERVED THAT SUCH PARTIES ARE COVERED U /S 40A(2)(B) OF THE ACT AS HE PAID INCENTIVE COMMISSION TO HIS HUF IN W HICH HE IS AS A KARTA. THE ASSESSEE IN SUPPORT OF THE CLAIM FILED THE COMP LETE DETAILS LIKE PAN, ADDRESS, NATURE OF SERVICES RECEIVED AND ALSO AN AC KNOWLEDGMENT OF INCOME TAX RETURN OF THE PARTIES TO WHOM THE COMMIS SION WAS PAID. THE ASSESSEE FURTHER SUBMITTED THAT ALL THE PAYMENT S WERE MADE THROUGH THE BANKING CHANNEL AS WELL AS THE SAME AMOUNT WAS REFLECTED IN THE INCOME TAX RETURN OF THE RESPECTIVE PARTIES. AS SUC H, THE INCENTIVE WAS ON TOTAL SALES RATHER THAN PERSON WISE, WHICH WORKS OU T AT 0.65% OF TOTAL SALES, AND THE SAME WAS DISTRIBUTED BETWEEN THE FOU R PARTIES EQUALLY. BUT INDIVIDUALLY, THE INCENTIVE SALES COMMISSION COMES TO ONLY 0.16% OF TOTAL SALES. THEREFORE THE INCENTIVE COMMISSION PAI D TO THESE PARTIES WAS ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 4 - NOT EXCESSIVE OR UNREASONABLE COMPARED TO THE FAIR MARKET VALUE OF THE SERVICES. THE ASSESSEE FURTHER SUBMITTED THAT SUCH HUF IS NOT COVERED WITHIN THE DEFINITION OF RELATIVE AS PRESCRIBED U/S 40A(2)(B) OF THE ACT. THE ASSESSEE ALSO CLAIMED THAT THE TURNOVER OF HIS BUSINESS INCR EASED IN COMPARISON TO THE PREVIOUS YEAR BY 16.67% AGAINST SUCH SERVICES. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN RESPECT OF THE SERVICES RECEIVED FROM T HESES HUFS. THE ASSESSEE ALSO DID NOT EXPLAIN AS HOW THE INDIVIDUAL CAN GIVE THE COMMISSION TO HIS HUF. AS SUCH THE ASSESSEE DID NOT SUBMIT THE SUFFICIENT AND RELEVANT DOCUMENT EVIDENCING THAT TH E COMMISSION PAID WAS GENUINE. THUS, THE AO IN VIEW OF THE ABOVE DISALLOWED THE C OMMISSION EXPENSES FOR A SUM OF RS. 6,86,916/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT (A). THE ASSESSEE BEFORE THE LD. CIT (A) REITERATED THE SUBM ISSIONS AS MADE BEFORE THE AO. HOWEVER, THE LD. CIT (A) OBSERVED THAT THE ASSESSEE PAID COMMISSION TO HIS OWN HUF IN WHICH HE WAS A KARTA, AND FURTHER, T HERE WAS NO EVIDENCE FILED BY HIM REGARDING THE ACTIVITIES PERF ORMED BY OTHER HUF. ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 5 - THE LD. CIT (A) FURTHEST OBSERVED THAT THE ASSESSEE DID NOT FURNISH OR COMPLY WITH THE REQUIREMENT AS DESIRED BY THE AO AN D ALSO NOT ELABORATED THE PURPOSE PROPERLY FOR PAYMENT OF THE COMMISSION TO SUCH HUF. THEREFORE THE LD. CIT (A) CONFIRMED THE ADDITI ON MADE BY THE AO. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A), TH E ASSESSEE IS IN APPEAL BEFORE US. 3. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNI NG FROM PAGES 1 TO 55 AND SUBMITTED THAT SIMILAR AMOUNT OF COMMISSION EXP ENSES WAS ALLOWED BY THE REVENUE IN THE ASSESSMENT YEAR 2012-13 AND 2 013-14. THEREFORE, THE SAME SHOULD BE ALLOWED IN THE YEAR UNDER CONSID ERATION AS PER THE RULE OF THE CONSISTENCY. 4. ON THE OTHER HAND, THE LD. DR APPREHENDED TH AT HOW THE ASSESSEE CAN MAKE THE PAYMENT OF THE COMMISSION TO THE HUF. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES B ELOW. 5. WE HAVE HEARD THE RIVAL CONTENTION AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT HE HAD BEEN INSTRUCTED NOT TO PRESS THE ISSUE REGARDING THE COMMISSION EXPENSES PAID TO THE HUF OF THE ASSESSEE . THE ISSUE IN THE INSTANT CASE IS THAT THE ASSESSEE CLAIMED INCENTIVE COMMISSION PAID TO THE FOUR PARTIES WHICH WERE HU, INCLUDING THE HUF OF WHICH HE WAS THE KARTA. THUS THE AO WAS OF THE V IEW THAT SUCH HUF ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 6 - WAS RELATED PARTY OF THE ASSESSEE AND ALSO THE COMM ISSION EXPENSES WAS NOT SUBSTANTIATED BY THE ASSESSEE BASED ON THE DOCU MENTARY EVIDENCE. THEREFORE, THE AO DISALLOWED THE COMMISSION EXPENSE S U/S 40A(2)(B) OF THE ACT. SUBSEQUENTLY, THE LD CIT (A) CONFIRMED THE ADDITION MADE BY THE AO. AT THE OUTSET, WE NOTE THAT THE ASSESSEE IN THE EAR LIER ASSESSMENT YEARS HAS ALSO PAID THE COMMISSION TO THE PARTIES ABOVE BUT I N THEIR PERSONAL CAPACITY AND NOT AS KARTA OF THE HUF. THIS FACT CAN BE VERIFIED FROM THE ASSESSMENT ORDER PERTAINING TO THE ASSESSMENT 2011- 12, WHICH IS PLACED ON PAGES 52 TO 54 OF THE PAPER BOOK. THE LEARNED DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD CONTRARY TO THE ARGUMENT ADVANCED BY THE LEARNED AR FOR THE ASSESSEE REGARDING THE DEDUCTION OF SIMILAR EXPENSES IN THE EARLIER ASSESSMENT YEAR. THEREFORE, THE RULE OF CONSISTENCY CAN BE APPLIED IN THE GIVEN FACTS AND CIRCUMSTANCES AS THE RE WAS NO CHANGE IN THE MATERIAL FACTS IN THE YEAR UNDER CONSIDERATION VIZ A VIZ IN THE EARLIER ASSESSMENT YEARS. NOW THE ISSUE ARISES, WHETHER THE ASSESSEE IS ENTIT LED TO THE DEDUCTION IN RESPECT OF THE COMMISSION PAID TO THE HUF INSTEAD O F THE INDIVIDUAL PERSONS. REGARDING THIS, WE NOTE THAT THERE IS NO D ENIAL UNDER THE PROVISIONS OF THE INCOME TAX ACT TO MAKE THE DISALL OWANCE OF SUCH EXPENSES. IN THIS CONNECTION, WE ALSO PLACE OUR REL IANCE ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF RIDHI STEELS & TUBES P VT. LTD. VS. ACIT IN ITA NO. 638/AHD/2015 VIDE ORDER DATED 1/2/2019 WHER EIN IT WAS HELD AS UNDER: ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 7 - 18. . AS FAR AS ALLEGATIONS OF COMMISSION PAID TO THE HUF ARE CONCERNED, HUF IS A SEPARATE LEGAL ENTITY. THE LD. CIT(A) DID NOT DISPUTE ABOUT THE PAYMENT OF COMMISSION TO HUF, BUT RECORDE D A FINDING AGAINST THE ASSESSEE FOR STATISTICAL PURPOSE, BECAUSE THIS PAYM ENT TO HUF IS ALSO CONFIRMED BECAUSE IT IS PART OF TOTAL COMMISSION CL AIM AT RS.53,56,535/- WHICH HAS BEEN DISALLOWED BY THE AO AND CONFIRMED B Y THE LD.CIT(A). UNDER THESE CIRCUMSTANCES, THE LD.CIT(A) DID NOT DEEM IT NECESSARY TO EXAMINE THIS ASPECT. THIS FINDING OF THE LD.CIT(A) RECORDED AT PAGE NO.30 HAS NOT BEEN CHALLENGED BY THE REVENUE IN ITS APPEAL. SERVICES ON BEHALF OF THE HUF COULD BE RENDERED BY KARTA, AND COMMISSION PAYMENT MERELY ON ACCOUNT THAT IT IS JURIDICAL TAXABLE ENTITY, CANNOT BE DISALLOWED. TA KING INTO CONSIDERATION OF OVERALL FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE HAS BROUGHT ON RECORD EVIDENCE JUSTIFYING THE PAYMENT O F COMMISSION, WHICH IS JUST 0.60% ON THE TOTAL SALES. THE AO EXCEPT SUSPE CTING INCURRENCE OF SUCH EXPENDITURE DID NOT MAKE ANY INQUIRY. THEREFORE, WE ALLOW THIS GROUND OF APPEAL, AND DELETE DISALLOWANCE OF RS.53,56,535/-. 19. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND THAT OF THE ASSESSEE IS ALLOWED. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE COMMISSION EXPENSES AS DISCUSSED ABOVE. ACCORDINGLY , WE REVERSE THE ORDER OF THE LEARNED CIT (A) AND DIRECT THE AO TO D ELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSE SSEE IS PARTLY ALLOWED. THE LEARNED AR AT THE TIME OF HEARING DID NOT AGITA TE THE TECHNICAL ISSUE RAISED BY THE ASSESSEE. THEREFORE WE DISMISSED THE SAME AS INFRUCTUOUS. ITA NO.2048/AHD/2017 PRATAPRAI G.ROHRA VS. ACIT ASST .YEAR - 2014-15 - 8 - 6. IN THE RESULT, THE APPEAL FILED BY THE ASSES SEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 31/05/2019 SD/- SD/- (MS. MADHUMITA ROY) (WASEEM A HMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 31/05/2019 &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-7, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 28.5.19 (WORD PROCESSED BY HON BLE AM IN HIS COMPUTER BY DRAGON) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 28.5.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.31.5.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.5.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER