SKEMA INTERNATIONAL P LTD., Jaipur V. ACIT, Jaipur

ITA 234/JPR/2011

• Counselvise Citation: 23423114 RSA 2011
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Keywords: Additional evidence; Corroborative evidences
• Section: 234B

Judgement Text

1 ITA 234-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR. ( BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 234/JP/2011 ASSTT. YEAR : 2006-07. SKEMA INTERNATIONAL PVT. LTD., VS. THE ACIT, CIRC LE-7, G-22, EPIP, SITAPURA INDUSTRIAL AREA, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHISH SHARMA RESPONDENT BY : SHRI VINOD JOHARI DATE OF HEARING : 03.11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER DATED : 18/11/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE IS OBJECTING IN UPHOLDING DISALLOWA NCE OF COMMISSION EXPENDITURE OF RS. 32,40,673/- PAID TO M/S. LA MAISON COLONIALE UNDER WRITTEN TERMS AND CONDITIONS OF PURCHASE. THE ASSESSEE IS ALSO OBJECTING IN UPH OLDING LEVY OF INTEREST UNDER SECTION 234B. 3. LEVY OF INTEREST UNDER SECTION 234B IS CONSEQUEN TIAL IN NATURE, THEREFORE, THE AO WILL ALLOW CONSEQUENTIAL RELIEF, IF ANY. 2 4. REGARDING FIRST ISSUE, THE BRIEF FACTS OF THE CA SE ARE THAT THE ASSESSEE COMPANY DERIVED INCOME FROM THE BUSINESS OF MANUFACTURING A ND EXPORT OF WOODEN FURNITURE. THE RETURN OF INCOME WAS FILED ON 30.11.2006 DECLARING A TOTAL LOSS OF RS. 10,23,630/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSME NT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED COMMISSION PAYMENTS OF RS. 32,40,673/- IN THE P & L ACCOUNT. THEREFORE, THE AO REQUIRED THE ASSESSEE TO PROVIDE COMPLETE DETAILS, PURPOSE, NATURE OF COMMISSION PAYMENTS, NATURE OF SERVICES PROVIDED BY THE PARTIES TO THE ASSESSEE AND ALSO TO PROVIDE THE COPY OF AGREEMENT MADE WITH THE PERS ONS, TO WHOM COMMISSION HAD BEEN PAID. IN RESPONSE, THE ASSESSEE FILED A REPLY. HOWE VER, THE SAME WAS NOT FOUND SATISFACTORY AND THE AO MADE THE IMPUGNED ADDITION, AS PER THE FOLLOWING DISCUSSION : THE ASSESSEE IN HIS REPLY VIDE ORDER SHEET ENTRY DATED 28.11.2008, HAS PROVIDED COPY OF LEDGER SHOWING COMMISSION PAYM ENTS. ACCORDING TO THE ASSESSEE, THE ASSESSEE COMPANY HAS PAID COMMISSION TO A PARTY, M/S. LA MAISON COLONIALE, WH ICH IS BASED IN PARIS, FRANCE. THE ASSESSEE HAS STATED THAT HE HAS DONE AN AGREEMENT WITH THE ABOVE MENTIONED COMPANY WHEREAS IN THE COPY PROVIDED DURING ASSESSMENT PROCEEDINGS, ONLY RATE O F COMMISSION IS MENTIONED. MOREOVER, THE AGREEMENT DOES NOT MENT ION ANY TERMS & CONDITIONS TO BE FOLLOWED AS PER THE AGREEM ENT. NO BILLS/VOUCHERS OF COMMISSION PAYMENTS HAVE BEEN PRO VIDED BY THE ASSESSEE AND NO DETAILS ABOUT THE NATURE & PURPOSE OF COMMISSION PAYMENTS AND THE SERVICES PROVIDED BY THE COMMISSIO N AGENTS HAS BEEN GIVEN. IT IS PERTINENT TO MENTION HERE THAT IN THE PREVIOUS YEAR NO COMMISSION PAYMENT WAS THERE HOWEVER, BUSINESS W AS CARRIED IN THE PRECEDING YEAR ALSO AND THE AGREEMENT WAS DO NE W.E.F. NOVEMBER 1, 2004. THUS, THE ASSESSEE HAS FAILED TO PROVE THE GENUINEN ESS OF THE COMMISSION PAYMENTS AND THE PURPOSE OF COMMISSION P AYMENT IS DOUBTFUL. THEREFORE, LOOKING TO THE ABOVE FACTS, T HE AMOUNT OF RS. 32,40,673/- IS ADDED BACK IN THE TOTAL INCOME OF TH E ASSESSEE. 5. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT THE ASS ESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S. LA MAISON COLONIALE, PARIS, FRA NCE, WHEREBY THE PRODUCTS OF THE 3 ASSESSEE WERE ALLOWED TO BE DISPLAYED IN THE SHOWRO OM OF THAT COMPANY AND THE ASSESSEE WAS TO PAY A COMMISSION TO THAT COMPANY, IN RESPECT OF ANY SALES EFFECTED THROUGH THAT COMPANY. IT WAS CLAIMED THAT, THEREFORE, THE COMMI SSION WAS PAID IN VIEW OF THE BUSINESS EXPEDIENCY AND HENCE, THE SAME WAS ALLOWAB LE. DURING THE APPELLATE PROCEEDINGS, LD. A/R ALSO CLAIMED THAT DURING THE A SSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THE REQUIRED DETAILS BEFORE THE AO AN D, THEREFORE, AO WAS NOT JUSTIFIED IN MENTIONING IN THE ASSESSMENT ORDER THAT NO DETAILS ABOUT THE NATURE AND PURPOSE OF THE COMMISSION PAYMENTS AND THE SERVICES PROVIDED BY TH E COMMISSION AGENT HAD BEEN GIVEN. FURTHER, LD. A/R FILED AN APPLICATION UNDER RULE 45A OF THE I.T. RULES AND REQUESTED FOR THE ADMISSION OF SOME RELEVANT DOCUMENTS, AS AD DITIONAL EVIDENCES. THE COMMENTS THEREON WERE CALLED FOR FROM THE AO, AND AFTER GIVI NG AN OPPORTUNITY OF OFFERING COUNTER COMMENTS THEREON TO THE LD. A/R, AND AFTER CONSIDER ATION THEREOF, THE ADDITIONAL EVIDENCES, IN THE FORM OF INTRODUCTION OF M/S. LA M AISON COLONIALE, PARIS, FRANCE, ITS BROCHURE, ITS BILLS/LETTERS, GENERAL TERMS OF PURCH ASE AND CERTIFICATE OF BANK IN RESPECT OF PAYMENT OF COMMISSION TO M/S. LA MAISON COLONIALE, PARIS, FRANCE, WERE ADMITTED UNDER RULE 46A OF THE I.T. RULES, AS IT WAS NOTICED THAT THE ASSESSEE DID NOT GET SUFFICIENT OPPORTUNITY TO PRODUCE THOSE EVIDENCES, BECAUSE THE SAME WERE NOT CALLED FOR SPECIFICALLY TO BE PRODUCED BY THE AO. 5.1. HOWEVER, DURING THE APPELLATE PROCEEDINGS, LD. A/R WAS SPECIFICALLY REQUIRED TO PRODUCE THE AGREEMENT BETWEEN THE ASSESSEE AND M/S. LA MAISON COLONIALE,PARIS, FRANCE, ON THE BASIS OF WHICH THE CLAIMED COMMISSION PAYMEN TS OF RS. 32,40,673/- WERE MADE BY THE ASSESSEE TO THAT COMPANY. BUT DESPITE ADEQUATE OPPORTUNITIES GIVEN TO THE LD. A/R IN 4 THAT REGARD, LD. AR ADMITTED, AS PER ORDER SHEET EN TRY DATED 6.1.2011, THAT THEY WERE UNABLE TO PRODUCE THE SAID AGREEMENT OR EVEN A CERT IFIED TRUE COPY OF THAT AGREEMENT. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) REJECTED THE GROUND OF THE ASSESSEE BY GIVING F OLLOWING FINDING RECORDED IN PARA 2.3 ARE AS UNDER :- 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. A.R. HOWEVER, IT IS OBSERVED THA T THE MAIN ARGUMENT OF THE LD. A.R, IN SUPPORT OF THIS GROUND OF APPEAL, HAS BEEN THAT THE COMMISSION PAYMENT OF RS. 32,40,673/- BY THE APPELLANT TO M/S. LA MAISON COLONIALE, PARIS, FRANC E WAS MADE PURSUANT TO AN AGREEMENT BETWEEN THE APPELLANT AND M/S. LA MAISON COLONIALE, PARIS, FRANCE. BUT, IN THIS REG ARD, AS MENTIONED IN PARA 2.2.2 ABOVE, DESPITE ADEQUATE OPPORTUNITY G IVEN TO THE LD. A/R TO PRODUCE THE SAID AGREEMENT, LD. A/R, ADMITTE DLY, COULD NOT PRODUCE THAT AGREEMENT OR EVEN A CERTIFIED TRUE COP Y OF THAT AGREEMENT. THEREFORE, WHEN THE APPELLANT / LD. A/R OF THE APPELLANT ARE NOT ABLE TO PRODUCE THE RELEVANT AGREEMENT, WHI CH IS THE VERY BASIS OF THE CLAIMED COMMISSION PAYMENT OF RS. 32,4 0,673/-, SUCH COMMISSION PAYMENT CANNOT BE HELD TO BE GENUINE AND ALLOWED AS AN ADMISSIBLE EXPENSE. ACCORDINGLY, I FIND THAT TH E LD. AO WAS FULLY JUSTIFIED IN MAKING THE IMPUGNED ADDITION, BY MAKING THE DISALLOWANCE OF THE CLAIMED COMMISSION PAYMENT OF R S. 32,40,673/- AND HENCE, THAT ACTION OF THE LD. AO IS CONFIRMED. CONSEQUENTLY, THIS GROUND OF APPEAL IS REJECTED. 7. NOW ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUN AL. 8. DETAILED ARGUMENTS WERE ADVANCED BY LD. A/R. CON TENTION RAISED BEFORE THE LOWER AUTHORITIES WERE REITERATED. ASSESSEE ALSO FILED A N APPLICATION FOR ADMITTING A CONFIRMATORY LETTER FROM M/S. LA MAISON COLONIALE, PARIS. A COPY OF AGREEMENT IS ALSO 5 ENCLOSED ALONG WITH THE APPLICATION OF ADDITIONAL E VIDENCE. HOWEVER, THIS COPY OF AGREEMENT WAS FILED BEFORE THE AO AS WELL AS BEFORE LD. CIT (A). THEREFORE, THIS CANNOT BE TREATED AS ADDITIONAL EVIDENCE. REGARDING THE C ONFIRMATORY LETTER, IT IS A SUPPORTING EVIDENCE, THEREFORE, TO MEET THE ENDS OF JUSTICE IT IS ADMITTED. 8.1. WE HAVE GONE THROUGH THE ORDER OF AO AS WELL A S ORDER OF LD. CIT (A) AND WE FIND THAT ASSESSEE HAS SUPPLIED GOODS AS PER AGREEM ENT BASIS THROUGH M/S. LA MAISON COLONIALE, COPY OF AGREEMENT IS PLACED ON RECORD. T HE AO AND LD. CIT (A) SAYS THAT THIS IS NOT A VALID AGREEMENT. WE DO NOT KNOW HOW BOTH T HE LOWER AUTHORITIES TREATED THE AGREEMENT AS NOT VALID. ALL THE CONDITIONS FOR SUPP LY OF MATERIAL ARE MENTIONED IN THIS AGREEMENT. THERE ARE CONDITION OF QUALITY CONTROL, CONDITION OF GUARANTEE, CONDITION OF TERMS OF DELIVERY, CONDITION OF COMMISSION & REPRES ENTATION RATE CONTRACT, RECEPTION OF DELIVERY, PENALTIES AND COMPLIANCE WITH REGULATIONS . TERMS OF PAYMENT IS ALSO MENTIONED IN THIS AGREEMENT. THEREFORE, WE SEE NO REASON TO D ISBELIEVE THIS AGREEMENT. IT IS FURTHER SEEN THAT ASSESSEE HAS MADE PAYMENT THROUGH PROPER BANKING CHANNEL AND CERTIFICATE HAS BEEN RECEIVED NOW WHICH CONFIRMED THAT ASSESSEE HAD PAID COMMISSION @ 15% FOR THE PERIOD 2005-06 WHICH FALLS IN THE PREVIOUS YEAR REL ATING TO ASSESSMENT YEAR UNDER CONSIDERATION. COPY OF ACCOUNT OF M/S. LA MAISON C OLONIALE IS PLACED AT PAGES 36 TO 39. BILL OF COMMISSION RAISED BY M/S. LA MAISON COLONIA LE IS PLACED AT PAGES 56-90. LETTER OF COMMISSION PERCENTAGE IS PLACED AT PAGE 69-70. BANK CERTIFICATE OF COMMISSION PAYMENT IS PLACED AT PAGES 71-72. EVEN REMAND REPOR T WAS SOUGHT FROM THE AO, COPY OF WHICH IS PLACED AT PAGES 74-75, BY WHICH THE COPY O F AGREEMENT FILED BEFORE THE LD. CIT (A) AND COPY OF LETTER OF COMMISSION AND BANK CERTI FICATE WAS SENT TO THE AO FOR VERIFICATION. NO ADVERSE MATERIAL WAS FOUND BY THE AO. HOWEVER, IT WAS STATED THAT 6 ASSESSEE COULD NOT PROVE THE REASON FOR PAYMENT OF COMMISSION AND, THEREFORE, ACTION OF THE AO SHOULD BE CONFIRMED. IN OUR VIEW, THE REJEC TION OF CLAIM IS NOT JUSTIFIED. IT WAS PROVIDED THAT ASSESSEE HAS MADE SALES OF MORE THAN RS. 2 CRORES THROUGH THIS PARTY AND COMMISSION HAS BEEN PAID ON THE AGREED AMOUNT AFTER DEDUCTING TDS AS PER PROVISIONS OF LAW. THE SALE CONSIDERATION HAS BEEN RECEIVED BY T HE ASSESSEE THROUGH PROPER BANKING CHANNEL. COMMISSION PAYMENT HAS BEEN CLEARED THROU GH PROPER BANKING CHANNEL. CONFIRMATORY LETTER AND COPY OF AGREEMENT ALONG WIT H LETTER OF COMMISSION PERCENTAGE ARE PLACED ON RECORD. IN OUR VIEW, THE AO DISALLOW ED THE CLAIM ON TECHNICAL REASON THAT CONFIRMATION LETTER IS RECEIVED THROUGH FAX WHICH I S NOT SIGNED. HOWEVER, WE SEE THAT CONFIRMATORY LETTER RECEIVED NOW IS DULY SIGNED BY ONE RAYMOND CARDONA. IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES, WE FEEL THAT PAYMENT OF COMMISSION WAS GENUINE AND THE SAME IS ALLOWABLE UNDER SECTION 37(1). ACCORDINGLY , WE DIRECT THE AO TO DELETE THE ADDITION BY ALLOWING THE CLAIM OF DEDUCTION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 10. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 18 .11.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/ COPY FORWARDED TO :- SKEMA INTERNATIONAL PVT. LTD., JAIPUR. THE ACIT, CIRCLE-7, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 234/JP/2011) BY ORDER, AR ITAT JAIPUR. 7