The Assistant Commissioner of Income tax, Jalandhar V. M/s. Patel Pharmacy, Jalandhar

ITA 216/ASR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73259 (ITAT-AMRITSAR)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Business income; Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.4(ASR)/2013 ASSESSMENT YEAR:2009-10 PAN :AACFP8301P ASSTT. COMMR. OF INCOME TAX VS. M/S. PATEL PHARMACY , CIRCLE-III, JALANDHAR. CIVIL LINES, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.216(ASR)/2013 ASSESSMENT YEAR:2006-07 PAN :AACFP8301P ASSTT. COMMR. OF INCOME TAX VS. M/S. PATEL PHARMACY , CIRCLE-III, JALANDHAR. CIVIL LINES, JALANDHAR. (APPELLANT) (RESPONDENT) C.O. NO.02(ASR)/2013 (ARISING OUT OF I.T.A. NO.216(ASR)/2013 ASSESSMENT YEAR:2006-07 PAN :AACFP8301P M/S. PATEL PHARMACY, VS. ASSTT. COMMR. OF INCOME T AX CIVIL LINES, JALANDHAR. CIRCLE-III, JALANDHAR. (APPELLANT) (RESPONDENT) 2 DEPARTMENT BY: SH.TARSEM LAL, DR ASSESSEE BY: SH.Y.K.SUD, CA DATE OF HEARING: 04/02/2014 DATE OF PRONOUNCEMENT:24/02/2014 ORDER PER BENCH ; THESE TWO APPEALS OF THE REVENUE ARISE FROM TWO DI FFERENT ORDERS OF CIT(A), JALANDHAR, DATED 04.10.2012 AND 08.02.2013 FOR THE ASSESSMENT YEARS 2009-10 & 2006-07.THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS FOR THE ASSESSMENT YEAR 2006-07. 2. IN ITA NO.04(ASR)/2013 A.Y.2009-10, THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN : 1. DELETING ADDITION OF RS.24,01,506/- MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC. 40A(2)(B) OF THE AC T BY TREATING THE COMMISSION PAID TO M/S. PATEL HOSPITAL (P) LTD . AS UNREASONABLE. LD. CIT(A) IS ALSO FAILED TO APPRECIA TE THE FACTS THAT THE ASSESSEE FAILED TO GIVE ANY REASON TO JUST IFY THE PAYMENT OF COMMISSION MADE TO THE SISTER CONCERN. 2. IT IS PRAYED THAT THE ORDER OF THE CIT(A) BE SET AS IDE AND THAT THE AO RESTORED. 3. THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND O R ALTER THE GROUND OF APPEAL BEFORE THE APPEAL IS HEARD AND DIS POSED OF. 3. IN ITA NO.216(ASR)/2013 A.Y.2006-07, THE REVEN UE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN : 1. DELETING ADDITION OF RS.18,39,232/- MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT BY TREA TING THE COMMISSION PAID TO M/S. PATEL HOSPITAL (P) LTD. AS UNREASONABLE. LD. CIT(A) IS ALSO FAILED TO APPRECIATE THE FACTS THAT THE ASSESSEE FAILED TO GIVE ANY REASON TO JUSTIFY THE PAYMENT OF COMMISSION MADE TO THE SISTER CONCERN. 2. DELETING THE ADDITION MADE U/S 40A(2) BY RELYING UP ON ITS OWN DECISION IN ITA NO.439(ASR)/2010 AND ITA NO.29(ASR) /2011 IN ASSESSEES OWN CASE FOR THE AYS. 2007-08 AND 2008-0 9 WHEREAS THE DEPARTMENT HAS ALREADY FILED APPEAL AGAINST THE SE ORDERS BEFORE THE HONBLE PUNJAB & HARYANA COURT, THE DECISION OF WHICH ARE STILL PENDING FOR ADJUDICATION. 3. DELETING THE ADDITION OF RS.8,80,282/- WHICH THE AO HAD MADE AFTER REJECTING THE CHANGE IN THE METHOD OF VALUATI ON OF CLOSING STOCK, THE CIT(A) FAILED TO APPRECIATE THE FACTS OF THE CASE THAT THE ASSESSEE HAS NOT FURNISHED ANY REASON FOR CHANGING THE METHOD OF VALUATION OF CLOSING STOCK WHICH HAS RESULTED IN RE DUCTION OF INCOME AS WELL AS TAX LIABILITY. 4. IT IS PRAYED THAT THE ORDER OF THE CIT(A) BE SET AS IDE AND THAT THE AO RESTORED. 5. THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND O R ALTER THE GROUND OF APPEAL BEFORE THE APPEAL IS HEARD AND DIS POSED OF. 4. IN C.O. NO.2(ASR)/2013 AY 2006-07, THE ASSESSE E HAS RAISED SOLE GROUND WHICH READS AS UNDER: 1. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAI NING THE ACTION OF THE AO IN RE-OPENING THE ASSESSMENT U/S 147/148 OF THE INCOME TAX ACT, 1961. 5. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, MR. Y.K. SUD, CA PRAYED TO WITHDRAW C.O. NO.2(ASR)/2013 FOR THE A.Y ., 2006-07 AND THE SAME IS ACCORDINGLY DISMISSED AS WITHDRAWN. 4 6. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO. 04(ASR)/2013 FOR THE A.Y. 2009-10. THE BRIEF FACTS AS ARISING FROM T HE ORDER OF THE AO ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESS EE HAS DEBITED RS.24,01,509/- UNDER THE HEAD OF COMMISSION. AS PER REPLY OF THE ASSESSEE THAT THIS COMMISSION WAS PAID TO M/S. PATE L HOSPITAL P.LTD. IN THIS REGARD THE ASSESSEE HAS STATED THAT COMMISS ION HAS BEEN PAID TO M/S. PATEL HOSPITAL (P) LTD., JALANDHAR AT 10% O N THE GROSS SALES AND TDS AS APPLICABLE HAS BEEN DEDUCTED AND DEPOSIT ED IN THE CENTRAL GOV. A/C WITH THE STIPULATED TIME. THE COPY OF COMMISSION A/C HAS DULY BEEN PLACED ON RECORD WITH THE REPLY TO QU ERY NO.3. IT IS NOT DENIED THAT THE COMPANY M/S. PATEL HOSPITAL (P) LTD ., JALANDHAR COMES WITHIN THE AMBIT OF PROVISION OF SECTION 40A( 2)(B). THE ASSESSEE HAS NOT GIVEN ANY OTHER REASON TO JUSTIFY PAYMENT O F COMMISSION AT 10% OF TOTAL SALES NOR IT HAS PROVED THAT THE ENTIR E SALE WAS TO THE PATIENT OF THAT HOSPITAL ONLY. KEEPING THE PAST HI STORY OF THE CASE, SUCH COMMISSION PAID TO M/S. PATEL HOSPITAL (P) LTD ., JALANDHAR OF RS.24,01,509/- IS HELD TO BE UNREASONABLE AND UNCAL LED FOR. ACCORDINGLY, I DISALLOW THE SAME. FOR DETAILED REAS ONS ATTENTION IS INVITED OF MY ORDER EVEN DATE FOR THE A.Y.2006-07. 7. THE LD. CIT(A) DELETED THE DISALLOWANCE BY OBSER VING IN PARA 9 AS UNDER: 9.GROUND NO.3 RELATES TO DISALLOWANCE U/S 40A(2)(B ) OF THE ACT ON PAYMENT OF COMMISSION TO M/S. PATEL HOSPITAL. THIS ISSUE IS IDENTICAL TO THAT OF A.Y.2007-08 AND 2008-09 AND STANDS DECID ED BY THE HONBLE ITAT, AMRITSAR IN ITA NOS. 439(ASR)/2010 F OR A.Y.07-08 AND IN ITA NO.29(ASR)/2011 FOR ASSTT. YEAR 2008-09. FOR THE SAKE OF CLARITY THE RELEVANT PART OF THE DECISION OF THE HO NBLE ITAT AMRITSAR IS REPRODUCED AS UNDER: AS REGARDS PAYMENT OF COMMISSION ON SALES TO M/S. PATEL HOSPITAL PVT. LTD. WE FIND THAT THE ASSESSEE HAS AG REED TO PAY THE IMPUGNED COMMISSION TO M/S. PATEL HOSPITAL PVT. LTD; OUT OF COMMERCIAL EXPEDIENCY IN AS MUCH AS THE SALES O F THE 5 ASSESSEE WERE FULLY DEPENDENT ON THE MEDICINES PRE SCRIBED BY THE DOCTORS AT M/S. PATEL HOSPITAL PVT. LTD. THE AO ALSO HAS NOT DISALLOWED THE IMPUGNED COMMISSION FOR WANT OF COMMERCIAL EXPEDIENCY. IN FACT, THE AO HAS INVOKED THE PROVISIONS OF SECTION 40A(2) FOR MAKING THE IMPUGNE D DISALLOWANCE. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE PARTNE RS OF THE ASSESSEE-FIRM AND DIRECTORS OF M/S. PATEL HOSPITAL PVT. LTD. WERE RELATED TO EACH OTHER AND, THEREFORE, FELL WIT HIN THE AMBIT OF SECTION 40A(2)(B) OF THE ACT. HE, HOWEVER, SUBMI TS THAT THE AO HAS NOT GIVEN ANY FINDING AS TO HOW THE COMMISS ION PAID BY THE ASSEESSEE TO PATEL HOSPITAL OUT OF COMMERCIA L EXPEDIENCY WAS EXCESSIVE OR UNREASONABLE AND, THERE FORE, THE IMPUGNED DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) U/S 40A(2) DESERVES TO BE DELETED. ON PERUSA L OF THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 40A(2) FOR MAKING THE IMP UGNED DISALLOWANCE. HE HAS, HOWEVER, NOT BROUGHT ANY MATE RIAL ON RECORD TO SHOW AS TO HOW PAYMENT OF IMPUGNED COMMIS SION IS EXCESSIVE OR UNREASONABLE. IN THIS VIEW OF THE MATE R, THE IMPUGNED DISALLOWANCE IS DELETED. 10. IN VIEW OF THE FACT THAT THE ISSUE IS IDENTICAL AND I HAVE THE BENEFIT OF HAVING THE DECISION OF THE HONBLE ITAT AS ABOVE, RESPECTFULLY FOLLOWING THE SAME, THE DISALLOWANCE O F RS.24,01,509/- MADE U/S 40A(2)(B) OF INCOME TAX ACT IS HEREBY DEL ETED. 8. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND ARGUED THAT THE ASSESSEE WAS NOT JUSTIFIED FOR THE COMMIS SION PAID TO M/S. PATEL HOSPITAL P. LTD. AND THEREFORE, LOOKING TO THE PAST HISTORY OF THE ASSESSEES CASE, COMMISSION WAS HELD TO BE UNREASONABLE AND HA D RIGHTLY BEEN DISALLOWED BY THE AO AND ACCORDINGLY PRAYED TO REVE RSE THE ORDER OF THE LD. CIT(A). 6 9. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE, MR. Y.K.SUD, RELIED UPON THE ORDER OF THE LD. CIT(A) AND ARGUED THAT E ACH AND EVERY DETAIL WAS SUBMITTED BEFORE THE AUTHORITIES BELOW. SECONDLY, AS REGARDS THE PAST HISTORY OF THE CASE, ON IDENTICAL SITUATION FOR THE ASSESSM ENT YEARS 2007-08 & 2008- 09 IN ITA NO.439(ASR)/2010 AND ITA NO.29/ASR/2011 V IDE ORDER DATED 16.12.2011, ITAT AMRITSAR BENCH, IN ASSESSEES OWN CASE HAS ALLOWED THE COMMISSION PAID TO THE ASSESSEE VIDE PARA 9 & 9.1 O F THE ORDER AND ACCORDINGLY SH. Y.K. SUD, CA PRAYED TO UPHOLD THE O RDER OF THE LD. CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT EACH AND EVERY DETAIL HAS BEEN SUBMIT TED BEFORE THE AUTHORITIES BELOW AND NOTHING HAS BEEN BROUGHT ON RECORD AS TO HOW THE PAYMENT OF IMPUGNED COMMISSION IS EXCESSIVE FOR INVOKING THE P ROVISIONS OF SECTION 40A(2)(B) OF THE ACT. ON IDENTICAL FACTS, ITAT AMRI TSAR BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2007-08 & 2008-09 (SUPRA) HAS DELETED SUCH DISALLOWANCE CONFIRMED BY THE LD. CIT(A) FOLLO WING OUR OWN ORDER. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED TH E DISALLOWANCE MADE BY THE AO. THUS, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 7 11. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO .216(ASR)/2013 FOR THE A.Y. 2006-07. IN GROUNDS NO.1 & 2, THE AO MADE A DISALLOWANCE OF RS.18,39,232/- BY INVOKING THE PROVISIONS OF SECTIO N 40A(2)(B) OF THE ACT, WHICH WAS DELETED BY THE LD. CIT(A) BY FOLLOWING T HE DECISION OF ITAT AMRITSAR BENCH IN ASSESSEES OWN CASE IN ITA NO.439 (ASR)/2010 AND ITA NO.29(ASR)/2010 DATED 16.12.2011. 12. SINCE THE FACTS IN THE PRESENT CASE ARE IDENTIC AL IN ASSESSEES OWN CASE IN ITA NO.4(ASR)/2013 DECIDED HEREINABOVE AND IN IT A NO. 439(ASR)/2010 & ITA NO.29(ASR)/2010 (SUPRA), THEREFORE, FOLLOWING THE SAME, WE FIND NO INFIRMITY IN THE ORDER OF THE AND THE SAME IS UPHEL D. THUS, GROUNDS NO. 1 & 2 OF THE REVENUE ARE DISMISSED. 13. AS REGARDS GROUND NO.3, THE BRIEF FACTS OF THE CASE ARE THAT THE AO MADE AN ADDITION OF RS.8,80,282/- ON ACCOUNT OF VAL UATION OF CLOSING STOCK, WHICH WAS DELETED BY THE LD. CIT(A) VIDE PAGE 10 & 11 OF HIS ORDER AFTER ACCEPTING THE EXPLANATION GIVEN BY THE ASSESSEE. 13.1. THE LD. DR RELIED UPON THE ORDER OF THE A.O. AND ARGUED THAT NO REASON FOR REVISING RETURN OF INCOME HAS BEEN GIVE N BY THE ASSESSEE AND THEREFORE, THE ORDER PASSED BY THE AO IS A CORRECT ORDER AND ACCORDINGLY PRAYED TO REVERSE THE ORDER OF THE LD. CIT(A). 8 13.2. ON THE OTHER HAND, THE LD. COUNSEL FOR THE AS SESSEE, MR. Y.K. SUD, CA ARGUED AND INVITED OUR ATTENTION TO PB 1 & 2, WHICH IS REVISED STATEMENT ON TOTAL INCOME. THE COPY OF THE SAME IS REPRODUCED HE REINBELOW FOR THE SAKE OF CONVENIENCE THE A.C.I.T. CIRCLE-III, JALANDHAR. INCRE: 2006-07 ASSESSMENT OF M/S. PATEL PHARMACY CI VIL LINES, JALANDHAR, FILING OF REVISED RETURN. SIR, PLEASE FIND ENCLOSED HEREWITH A REVISED RETURN IN THE ABOVE CASE. THE ORIGINAL RETURN HAS BEEN FILED ON 23.09.2 006 VIDE RECEIPT NO.36100122 (COPY ENCLOSED). IN THE ORIGINA L RETURN THE CLOSING STOCK AS SHOWN IN THE PROFIT & LOSS ACCOUNT HAS BEEN VALUED ON THE BASIS OF SALE RATES DUE TO ERROR/MIST AKE IN THE COMPUTER SYSTEM (PROGRAMME INSTALLED). THIS DISCREP ANCY HAS COME TO OUR NOTICE NOW AND HENCE WE ARE FILING REVI SED PROFIT & LOSS ACCOUNT IN WHICH THE VALUATION OF CLOSING STOC K HAS BEEN MODIFIED AT COST PRICE COPIES OF CLOSING STOCK VA LUATION AS PER COST PRICE AND SALE PRICE ARE ENCLOSED FOR YOUR KIN D PERUSAL. SINCE THE ASSESSEE HAS BEEN FOLLOWING THE STANDARD METHOD OF VALUATION OF CLOSING STOCK WHICH IS COST OR MARKET PRICE WHICH EVER IS LOWER. THE COST PRICE HAS BEEN APPLIED IN T HE REVISED VALUATION OF STOCKS AS PER THE PAST HISTORY OF THE CASE AND RETURN IS BEING REVISED ACCORDINGLY. 13.3.THE LD. COUNSEL FOR THE ASSESSEE, ALSO INVITED OUR ATTENTION TO VARIOUS PAGES OF THE PAPER BOOK OF PROFIT & LOSS ACCOUNT A ND BALANCE SHEET AND STATED THAT THE VALUATION OF CLOSING STOCK IN THE EARLIER YEARS HAD BEEN MADE ON ACCEPTED PRINCIPLES OF ACCOUNTING I.E. COST OR MARKET PRICE, WHICHEVER IS LOWER. BUT INADVERTENTLY DUE TO MISTAKE IN THE COM PUTER PROGRAMMING 9 SYSTEM THE VALUATION HAD BEEN DONE AT MARKET PRICE WHICH WAS REVISED IN THE REVISED RETURN BY CORRECTING THE SAME AT COST OR MARKET PRICE WHICHEVER IS LOWER BEING THE ACCEPTED PRINCIPLES OF ACCOUNT ING, WHICH WAS BEING FOLLOWED CONSISTENTLY AND WHICH CANNOT BE DISPUTED. THEREFORE, ACCORDING TO LAW AND ACCEPTED ACCOUNTING PRINCIPLE, THE RETURN H AS BEEN REVISED, WHICH HAS BEEN ACCEPTED BY THE LD. CIT(A). ACCORDINGLY, T HE LD. COUNSEL FOR THE ASSESSEE PRAYED TO CONFIRMED THE ORDER OF THE LD. C IT(A). 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, MR. Y.K.SUD,,CA THAT A CONSISTENT PRACTIC E IS BEING FOLLOWED IN THE EARLIER YEARS I.E. COST OR MARKET PRICE, WHICHEVER IS LOWER, CLEARLY HAS BEEN FOLLOWED DURING THE IMPUGNED YEAR BY FILING THE R EVISED RETURN, WHICH IS LEGALLY VALID AND THEREFORE, WE FIND NO ERROR IN TH E ORDER OF THE LD. CIT(A) IN ACCEPTING THE CONSISTENT METHOD OF ACCOUNTING FOLL OWED BY THE ASSESSEE AND WHICH IS ACCOUNTING PRINCIPLE. THEREFORE, WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. ACCORDINGLY, GROUND NO.3 OF THE REVENUE IS DISMISSED. 15. GROUNDS NO. 5 & 6 ARE GENERAL NATURE AND THEREF ORE, DO NOT REQUIRE ANY ADJUDICATION. 10 16. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE IN ITA NOS. 4(ASR)/2013 AND ITA NO.216(ASR)/2013 AND C.O. 2(ASR)/2013 OF TH E ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24TH FEBRUARY, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24TH FEBRUARY, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. PATEL PHARMACY, JALANDHAR. 2. THE ACIT, CIR.III. JALANDHAR 3. THE CIT(A), JLR 4. THE CIT, JLR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR