The ITO, Ward-7(1), Ahmedabad V. Shri Sandip Kiritbhai Patel, Ahmedabad

ITA 2312/AHD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67613 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P JANGID
• Assessee Lawyers: S N DIVETIA
• Keywords: Business expenditure; Diversion of income; Fair market value; Tax effect
• Section: 143(3)

Judgement Text

, , , , A, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.2312/AHD/2011 [ASSTT.YEAR : 2008-2009] AND ITA NO.2029/AHD/2012 [ASSTT.YEAR : 2009-2010] ITO, WARD-7(1) AHMWEDABAD. /VS. SHRI SANDIP KIRITBHAI PATEL PROP: M/S.MEET MARKETING F-102, BALESHWAR SQUARES OPP: ISCON TEMPLE, S.G.HIGHWAY AHMEDABAD. PAN : ABNPP 1812 F ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) + 1 2 )/ REVENUE BY : SHRI J.P. JANGID, SR.DR 4& 1 2 )/ ASSESSEE BY : SHRI S.N. DIVETIA 5 1 &(*/ DATE OF HEARING : 9 TH JULY, 2013 678 1 &(*/ DATE OF PRONOUNCEMENT : 23-08-2013 )9 / O R D E R PER ANIL CHATURVEDI, ACCOUNTANT MEMBER: THESE ARE TWO REVENUES APPEALS DIRECTED AGAINST THE ORDERS O F THE CIT(A)-XVI, AHMEDABAD DATED 27.6.2011 AND 21.6.2012 FOR THE ASS ESSMENT YEAR 2008- 2009 AND 2009-2010 RESPECTIVELY. 2. BEFORE US AT THE OUTSET, BOTH THE PARTIES SUBMIT TED THAT THE FACTS AND ISSUES INVOLVED IN THE APPEALS OF BOTH THE YEARS ARE IDENT ICAL EXCEPT FOR THE AMOUNTS AND ITA NO.2312/AHD/2011 AND 2029/AHD/2012 -2- THE ARGUMENTS MADE BY THEM FOR AY 2008-09 WILL BE E QUALLY APPLICABLE FOR AY 2009-10 AND THEREFORE BOTH THE APPEALS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO DISPOSE OFF BOTH THE APPEALS BY THIS CON SOLIDATED ORDER BY TAKING THE FACTS AND GROUNDS FOR AY 2008-09. 3. THE FACTS AS CULLED OUT FROM THE ORDERS ARE AS UNDER: ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F TRADING IN ELECTRONIC ITEMS UNDER THE NAME AND STYLE OF MEET MARKETING. HE ELECTRONICALLY FILED HIS RETURN OF INCOME FOR AY 2008-09 ON 30.6.2008 DECLAR ING TOTAL INCOME OF RS.10,40,520/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 27.12.2010 A ND THE TOTAL INCOME WAS DETERMINED AND ASSESSED AT RS.50,40,520/-. AGGRIEVE D BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 27.6.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED B Y THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLO WING EFFECTIVE GROUND: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.40,00,000/- MADE BY THE AO ON ACCOUN T OF DISALLOWANCE U/S.40A(2)(B) OF THE ACT, OUT OF COMMISSION PAYMENT TO SHRI AMIT KM. PATEL, BROTHER OF THE ASSESSEE. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE DETAILS AO NOTICED THAT FOR THE FIRST TIME ASSESSEE HAD GIV EN SUBSTANTIAL AMOUNT OF COMMISSION OF RS.54,78,397/- TO HIS BROTHER SHRI AM IT PATEL. THE ASSESSEE WAS THEREFORE ASKED TO SUBSTANTIATE HIS CLAIM IN VIEW O F THE PROVISIONS OF S. 40A(2)(B) OF THE ACT. THE AO DID NOT FIND THE SUBMISSIONS OF THE ASSESSEE ACCEPTABLE INTER ALIA FOR THE REASON THAT THE AGREEMENT ENTERED BY THE A SSESSEE WITH HIS BROTHER WAS CONSIDERED TO BE NOT AN AUTHENTIC DOCUMENT, THE COM MISSION WORKED OUT TO MORE THAN 50% OF THE GROSS PROFIT OF RS.102,96,139/-, TH E ASSESSEES CONTENTION THAT INCREASE IN TURNOVER WAS DUE TO THE SERVICES RENDER ED BY SHRI AMIT PATEL WAS NOT BACKED BY EVIDENCE. SHE THUS CONCLUDED THAT THE SER VICES CLAIMED TO HAVE BEEN RENDERED BY SHRI AMIT PATEL WAS UNREASONABLE AND EX CESSIVE AND THEREFORE HELD THAT THE EXPENSE WAS NOT HAVING COLOUR OF BUSINESS EXPENDITURE BUT WAS INCURRED AS A MEASURE OF DIVERSION OF INCOME AND LEGITIMATE TAX LIABILITIES. SHE THEREAFTER CONSIDERED THE AMOUNT OF EXPENSES OF RS.14,79,397/- AS REASONABLE AND REMAINING ITA NO.2312/AHD/2011 AND 2029/AHD/2012 -3- AMOUNT OF RS.40 LACS AS UNJUSTIFIABLE AND EXCESSIVE AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE D ELETED THE ADDITION BY HOLDING AS UNDER: 2.14 THE LD. COUNSEL HAD ALSO BROUGHT ON RECORD TH AT THE COMMISSION PAYMENT MADE TO SHRI AMIL K. PATEL HAD DULY BEEN OF FERED BY HIM AS HIS INCOME AND THE SAME HAS BEEN TAXED IN HIS HANDS ON SUBSTANTIAL BASIS. THE ASSESSING OFFICER SHOULD HAVE CONSIDER THIS ASPECT. THE HON'BLE SUPREME COURT CASE OF GLAXO SMITHKLINE (ASIA) (2010) 47 DTR 65 (SC), AS RELIED UPON BY THE LD. COUNSEL, HAD OBSERVED AND DIRECTED VIDE PARA-3 OF THEIR DECISION THAT 'WE DIRECT THE AUTHORITIES TO EXAMINE AS TO WHETHER THERE IS ANY LOSS OF REVENUE IN ANY OF THE ASSESSMENT YEARS IN QUESTION. IF, HOWEVER, THE AUTHORITIES FIND THAT THE EXERCISE IS A REVENUE NEUTRAL EXERCISE, THEN THE MATTER MAY BE DECIDED, ACCORDINGLY. SINCE, THE APPE LLANT AS WELL AS SHRI AMIT PATEL, THE COMMISSION RECEIVER, ARE DECLARING INCOME SUBJECT TO TAX AT THE MAXIMUM RATE, THE TAX EFFECT IS REVENUE NEUT RAL AND ON THIS COUNT ALSO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE. ACTUALLY, IT IS A CASE OF DOUBLE TAXATION. ON ONE H AND, SHRI AMIT PATEL IS PAYING TAXES ON THE COMMISSION RECEIPTS AND ON WHIC H TAX WAS ALSO DEDUCTED AND PAID TO GOVT. AND ON THE OTHER HAND TH E TAX IS AGAIN CHARGED FROM THE APPELLANT ON THE SAME DISALLOWED COMMISSIO N PAYMENT. 2.15 IN VIEW OF THE DETAILED DISCUSSION IN PARA 2. 5 TO 2.14 ABOVE, I AM OF THE OPINION THAT THE COMMISSION @ 4% OF THE SALES P AID TO SHRI AMIT PATEL WAS FOR THE LEGITIMATE BUSINESS NEEDS OF THE APPELL ANT. THE RECIPIENT OF THE COMMISSION IS WELL QUALIFIED AND PROFESSIONALLY CAP ABLE PERSON. HE HAD RUN THE BUSINESS AS HIS OWN BUSINESS. HIS SUPERVISO RY CAPACITY AND MANAGERIAL SKILL WAS ADMITTED BY THE PRINCIPAL M/S GODREJ & BOYCE MFG. CO. LTD. AFTER CONSIDERING THE MATERIAL ON RECORD, THERE IS NO ANY DOUBT ABOUT THE SERVICES RENDERED BY SHRI AMIT PATEL. IT WAS ON ACCOUNT OF HIS SERVICES, THE TURNOVER OF THE APPELLANT INCREASED S UBSTANTIALLY AND HE WAS ABLE TO ADD NEW AREAS AND NEW DEALERS FOR THE BUSIN ESS. THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON RECORD TO J USTIFY HER STAND FOR DISALLOWING THE COMMISSION PAYMENT OF RS.40,00,000/ - AND THEREBY, THE DISALLOWANCE SO MADE IS DELETED. THE FIRST TO NINTH GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD.D.R POINTED TO THE OBSERVATIONS A ND FINDINGS OF THE AO AND SUBMITTED THAT THE AO AFTER DETAILED VERIFICATION H AS COME TO THE CONCLUSION THAT THE AMOUNT OF COMMISSION PAID WAS EXCESSIVE AND THE REFORE SHE HAS RIGHTLY MADE THE DISALLOWANCE. HE THUS SUPPORTED THE ORDER OF TH E AO. IN THE ALTERNATE, HE SUBMITTED THAT A REASONABLE DISALLOWANCE AS MAY BE CONSIDERED FIT BE SUSTAINED. ON THE OTHER HAND THE LD. A.R. APART FROM THE SUBMI SSIONS MADE BEFORE THE ITA NO.2312/AHD/2011 AND 2029/AHD/2012 -4- CIT(A) SUBMITTED THAT THE REASONABLENESS OF THE EXP ENDITURE HAS TO BE JUDGED HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVI CES, THE LEGITIMATE NEEDS OF THE BUSINESS. HE FURTHER SUBMITTED THAT AO HAS NOT CITE D ANY COMPARABLE INSTANCE BUT HAS CONSIDERED A LUMP SUM FIGURE OF DISALLOWANCE WI THOUT ANY BASIS OR LOGIC. HE FURTHER SUBMITTED THAT BOTH THE ASSESSEE AND SHRI A MIT PATEL ARE ASSESSED TO TAX AT THE MAXIMUM RATE OF TAX AND IN SUPPORT HE ALSO PLAC ED ON RECORD THE COPY OF COMPUTATION OF SHRI AMIT PATEL ON RECORD. HE ALSO P LACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS INDO SAUDI SERVICE (TRAVEL) P . LTD 310 ITR 300 (BOM). HE THUS SUPPORTED THE ORDER OF CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS A DISTRIBUTO R OF THE PRODUCTS OF GODREJ & BOYCE MFG. CO. LTD., ASSESSEE HAS PAID RS.54,78,397 /- AS COMMISSION TO HIS BROTHER, SHRI AMIT PATEL AND THUS THE PAYMENT IS CO VERED BY THE PROVISIONS OF S. 40A(2)(B). CIT(A) HAS NOTED THAT SHRI AMIT PATEL T O WHOM THE COMMISSION IS PAID IS A WELL QUALIFIED PERSON AND HAVING VAST KNO WLEDGE IN THE FIELD OF ELECTRONICS AND CONSUMER DURABLES. HE HAS ALSO NOTE D THAT THE PRINCIPAL COMPANY, GODREJ & BOYCE, CONSIDERED MR. AMIT PATEL TO BE THE KEY PERSON OF MEET MARKETING AND HAS NOTED THAT DURING THE YEAR SHRI S ANDIP PATEL WAS ABSENT FROM BUSINESS AND SHRI AMIT PATEL WAS THE DE FACTO OWNER OF THE ASSESSEES BUSINESS. HE HAS ALSO NOTED THAT ASSESSEES TURNOVER HAS GONE UP FROM RS.9.21 CRORE TO RS.15.02 CRORE, NEW CLIENTS WERE ADDED AND THE ASSE SSEES FIRM HAD RECEIVED STAR PERFORMER AWARDS FROM THE PRINCIPAL COMPANY AND THE REFORE HE HAS GIVEN A FINDING THAT THE CAPABILITIES AND PROFESSIONAL QUAL ITIES OF SHRI AMIT PATEL CANNOT BE DOUBTED. WE FURTHER FIND THAT CIT(A) BY HIS DETA ILED AND WELL REASONED ORDER HAS MET WITH EVERY OBJECTIONS OF THE AO. THE FINDIN GS OF THE CIT(A) COULD NOT BE CONTROVERTED BY REVENUE BY BRINGING ANY CONTRARY MA TERIAL ON RECORD. BEFORE US, THE LD.A.R. HAS SUBMITTED THAT SINCE THE ASSESSEE A ND HIS BROTHER. SHRI AMIT PATEL ARE BOTH ASSESSED TO TAX AT THE MAXIMUM RATE, NO DI SALLOWANCE U/S 40A(2)(B) CAN BE MADE IN THE CASE. FROM THE COMPUTATION OF INCOME OF SHRI AMIT PATEL FOR A.Y.2008-09 PLACED ON RECORD, IT IS SEEN THAT THOUG H SHRI AMIT PATEL HAS BEEN PAID COMMISSION OF RS.54,78,397/- IN A.Y.2008-09 BY THE ASSESSEE, HIS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS EV EN AFTER INCLUDING THE ITA NO.2312/AHD/2011 AND 2029/AHD/2012 -5- AFORESAID COMMISSION AND AFTER INCLUDING INCOME FRO M OWN BUSINESS IS STATED TO BE RS.13,54,072/- WHICH THEREFORE MEANS THAT THE CO MMISSION INCOME RECEIVED FROM ASSESSEE HAS RESULTED IN OFFSETTING THE LOSS F ROM BUSINESS FROM OWN BUSINESS AND HAD THERE BEEN NO COMMISSION INCOME FROM ASSESS EE, THERE WOULD HAVE BEEN LOSS UNDER THE HEAD OF PROFIT AND GAINS FROM BUSIN ESS AND PROFESSION AND ON ACCOUNT OF LOSSES, MR. AMIT PATEL WOULD NOT HAVE BE EN LIABLE TO PAY TAX. IN VIEW OF THE AFORESAID FACTS WE ARE OF THE VIEW THAT THE RATIO OF DECISION IN THE CASE OF INDO SAUDI SERVICE (TRAVEL) P. LTD. (SUPRA) WOULD N OT BE FULLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. HOWEVER, CONSIDERING THE FINDINGS OF CIT(A) AND THE PECULIAR FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ENDS OF JUSTICE SHALL BE MET BY RESTRICTING THE DISALLOWANCE MADE BY THE AO TO R S.5 LACS INSTEAD OF RS.40 LACS MADE BY THE AO. WE THUS DIRECT ACCORDINGLY. THUS TH IS GROUND OF REVENUE IS PARTLY ALLOWED. ITA NO 2029/AHD/2012 (AY 2009-10) 7. IN ASSTT.YEAR 2009-2010, ASSESSEE HAD PAID TOTAL COMMISSION OF RS.49,67,708/- AND AO CONSIDERED RS.12 LACS AS REAS ONABLE AND ACCORDINGLY HAD DISALLOWED RS.37,67,708/- CONSIDERING IT TO BE EXCE SSIVE. SINCE THE FACTS IN THE PRESENT YEAR ARE IDENTICAL TO THAT OF AY 2008-09 AS ADMITTED BY BOTH THE PARTIES, WE, FOR SIMILAR REASONS STATED HEREINABOVE FOR AY 2 008-09 RESTRICT THE DISALLOWANCE IN THE PRESENT CASE TO RS.4.50 LACS IN STEAD OF RS.37,67,708/- MADE BY THE AO. WE THUS DIRECT ACCORDINGLY. THUS THIS GROUN D OF REVENUE IS PARTLY ALLOWED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD/- SD/- ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT.