The DCIT, Circle-2, Surat V. Shri Badribhai Ahmedbhai Lacewala, Surat

ITA 240/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80384 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-09-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 31-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: BRIJU SHAH
• Keywords: Corroborative evidences; Revenue expenditure
• Section: 143(3); 133(6); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 240 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2004 - 05) THE DCIT, CIRCLE - 2, SURAT V/S SHRI BADRIBHAI AHMEDBHAI LACEWALA, PROP. OF M/S ZULFIKAR LACE, 3/822, CHIBA HOUSE, MUCHHALA POLE, NA VAPURA, SURAT (APPELLANT) (RESPONDENT) PAN: ABAPL1741J APPELLANT BY : SHRI M.K. SINGH, SR. D.R. RESPONDENT BY : SHRI BRIJU SHAH ( )/ ORDER DATE OF HEARING : 16 - 09 - 2014 DATE OF PRON OUNCEMENT : 19 - 09 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVE NUE AGAINST THE ORDER OF CIT(A) - II, SURAT DATED 08.11.2010 FOR A.Y. 2004 - 05. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE I S AN INDIVIDUAL STATED TO BE ENGAGED IN THE EXPORT AND LOCAL SALES OF TEXTILE GOODS NAMELY LACES. ASSESSEE FILED HIS RETURN OF INCOME FOR A.Y. 04 - 05 ON 1.11.2004 DECLARING TOTAL INCOME OF RS. 11,93,379 / - . THE CASE WAS ITA NO 240/AHD/2011 . A.Y. 2004 - 05 2 SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER 28.12.2006 . WHILE FRAMING THE ASSESSMENT, THE COMMISSION PAID OF RS. 25,43,441/ - TO THE FOREIGN PARTIES WAS DISALLOWED AND TREATED AS INCOME OF THE ASSESSEE U/S 93 OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, A SSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 28.02.2008 CONFIRMED THE ADDITION MADE BY A.O AND THEREFORE AGAINST THE ORDER OF CIT(A), ASSESSEE PREFERRED APPEAL BEFORE HON BLE ITAT. HON BLE ITAT VIDE ORDER IN ITA NO. 1816/AHD/2008 DATED 12.09.2008 SET ASIDE THE ORDER OF CIT(A) AND RESTORED THE ISSUE BACK TO THE FILE OF A.O WITH A DIRECTION TO RE - ADJUDI C ATE THE ISSUE AFRESH. PURSUANT TO THE DIRECTION OF HON BLE ITAT, A.O PASSED AN ORDER U/S 143(3) R.W.S. 260 OF THE I.T. ACT VIDE ORDER DA TED 28.12.2009 AND DISALLOWED THE COMMISSION OF RS. 25,43,441/ - . AGG RIEVED BY THE ORDER OF A.O, ASS ESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 08.11.2010 DELETED THE ADDITION MADE BY A.O . AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), REVE NUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 25,43,441/ - MADE BY THE A.O. U/S 93 IN SPITE OF THE FAILURE OF THE ASSESSE E TO SUBSTANTIATE ITS CLAIM WITH SUPPORTING EVIDENCE. 4. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS A.O NOTICED THAT ASSESSEE HAD PAID COMMISSION OF RS. 25,43,441/ - TO FOREIGN PARTIES AND THE AVERAGE RATE OF COMMISSION WAS 10% OF THE BILL AMOUNT. A.O NOTICED THAT SINCE THE ASSESSEE COULD NOT FURNISH PROPER SUPPORTING EVIDENCE OR JUSTIFY THE CLAIM OF COMMISSION EXPENSES , THE CLAIM OF ASSESSEE WAS NOT ALLOWABLE AND HE THEREFORE DISALLOWED THE EXPENSES . IN THE SET ASIDE PROCEEDINGS , A.O ASKED THE ASSE SSEE TO FURNISH THE DETAILS - EVIDENCES ON WHICH HE RELIED UPON IN RESPECT OF FOREIGN AGENT COMMISSION PAYMENTS ALONG WITH COMPLETE BOOKS ITA NO 240/AHD/2011 . A.Y. 2004 - 05 3 OF ACCOUNTS AND BILLS AND VOUCHERS . ASSESSEE INTERALIA SUBMITTED THAT IT WAS A USUAL BUSINESS PRACTICE TO GIVE COMMISSI ON/DISCOUNT UP TO 12.5% TO THE BUYERS ON THE SALE PRICE AND FURTHER SUBMITTED THAT ASSESSEE HAS NEVER DEBITED THE COMMISSION/DISCOUNT IN THE BOOKS OF ACCOUNTS BUT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE BUYERS WAS AFTER THE ADJUSTMENT OF COMMISSION . ASSESSEE ALSO SUBMITTED COPIES OF EXPORT SALES INVOICES AND FURTHER SUBMITTED THAT THE PAYMENT OF COMMISSION WA S AS PER THE RULES FRAMED BY RBI, CUSTOMS AND FEMA. THE SUBMISSION OF THE ASSESSEE WAS N OT FOUND ACCEPTABLE TO THE A.O F OR THE REASON THAT AS SESSEE DID NOT SUBMIT THE DETAILS IN RESPECT OF SALES COMMISSION/DISCOUNT BUT ONLY FURNISH ED THE COPIES OF INVOICES. A.O ALSO NOTICED THAT IN RESPONSE TO THE NOTICE U/S 133(6) ISSUED TO CANARA BANK , THE BANKER OF THE ASSESSEE , THE BANK HAD INFORMED THAT AS SESSEE HAD NOT REMITTED ANY AMOUNT OF COMMISSION FROM INDIA BUT THE SAME WAS DEDUCTED FROM THE BILL AMOUNT AND IT HAD REALIZED THE NET SALES VALUE. A.O WAS FURTHER OF THE VIEW THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE SERVICES RENDERED AND THE BEN EFIT DERIVED BY THE ASSESSEE BY MAKING SUCH PAYMENTS. HE WAS FURTHER OF THE VIEW THAT THE MERE PAYMENT OF COMMISSION DOES NOT MAKE IT DEDUCTIBLE REVENUE EXPENDITURE UNLESS THE BUSINESS NEXUS IS CLEARLY AND UNAMBIGUOUSLY ESTABLISHED BY THE ASSESSEE . A.O WAS THEREFORE OF THE VIEW THAT SINCE THE ASSES S EE HAS FAILED TO EXPLAIN THE ABNORMAL RATE OF 10% OF COMMISSION , THE EXPENDITURE CANNOT BE ALLOWED U/S 37 OF THE ACT. WITHOUT PREJUDICE TO PROVISIONS OF SECTION 37 A.O WAS OF THE VIE W THAT ASSESSEE S CASE WAS CO VERED UNDER THE SPECIAL PROVISIONS OF SECTION 93 OF THE ACT. HE THEREFORE TREATED THE CLAIM OF COMMISSION PAYMENT AS INCOME OF THE ASSES S EE U/S 93 OF THE ACT AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CI T(A). DELETED THE ADDITION BY HOLDING AS UNDER: - ITA NO 240/AHD/2011 . A.Y. 2004 - 05 4 5. DECISION: 5.1, I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FIND THAT THE ISSUED INVOLVED IN THE CASE HAD RECENTLY COME UP BEFORE THE 'A' BENCH OF THE ITAT, AHMEDABAD IN THE CASE OF SHRI SANJ AY D JAIN VS AC1T, CIR.2, SURAT IN ITA N. 37/AHD/2009 IN THE A.Y.2005 - 06. THE ABOVE ASSESSEE HAD TAKEN FOLLOWING GROUNDS OF APPEAL BEFORE THE ITAT. '1. THE ID.CIT(A) HAD ERRED ON THE FACTS OF THE CASE IN CONFIRMING THE STAND TAKEN BY THE AO THAT THE DEDUCT ION ALLOWED TO THE BUYER ON ACCOUNT OF BUYER'S AGENT COMMISSION DIRECTLY IN THE INVOICES TANTAMOUNT TO COMMISSION PAID AND NOT A DEDUCTION OUT OF THE SALES PRICE. 2.THE ADDITION OF RS/ 2.10,68,633/ - TREATED AS ALLEGED UNVERIFIED COMMISSION PAYMENT MAY BE DELETED.' IN THE ABOVE CASE, THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DOUBTED THE VERACITY OF THE DETAILS, AS THE SAME WERE NOT SUPPORTED BY THE REQUIRED DETAILS AND ACCORDING TO THE ASSESSING OFFICER 'COMMISSION DEDUCTE D 1 FROM THE INVOICES VALUE' SHOULD HAVE BEEN DEDUCTED SEPARATELY, AS AN EXPENSE IN THE P & L A/C. AND TURNOVER SHOULD BE INCREASED TO THAT EXTENT AND THAT SINCE NO SERVICE WAS RENDERED BY ANYONE AND THE ASSESS EE COULD NOT PROD UCE DETAILS IN REGARD TO SUCH COMMISSION, DEDUCTION AND PAYMENT THEREOF, THE AMOUNT OF COMMISSION OF RS. 2,10,68,633/ - IN THE CASE OF ABOVE ASSESSEE WAS DISALLOWED BY HIM. THE ABOVE ASSESSMENT ORDER WAS ALSO CONFIRMED BY THE CIT(A). THE ARGUMENT TAKEN BY THE ABOVE ASSESSEE BEFORE THE T RIBUNAL WAS THAT COMMISSION PAID BY HIM WAS IN THE NATURE OF DISCOUNT EXTENDED TO FOREIGN BUYER AND HE HAD RECEIVED ONLY NET PROCEEDS ARID, THEREFORE, THERE COULD NOT BE ANY CONCEPT OF INCOME AGAINST THE AMOUNT WHICH WAS NEVER RECEIVED B Y HIM OR ACCRUED TO HIM. THE IT AT HAS DECIDED THE ABOVE ISSUE BY RELYING UPON ITS DECISION IN THE CASE OF TH E SAID ASSESSEE IN A.Y,2004 - 05, WHEREIN IT WAS HELD T HAT THE ASSESSEE HAD RECEIVED TH E NET AMOUNT ONLY AS EXPORT RECEIPTS BY WAY OF CONVERTIBLE FOREIGN EXCHANGE AND TH E SAME HAS BEEN CERTIFIED BY TH E BANKERS OF THE APPELLANT AND L AW REGULATED BY THE RBI FOR THE PURPOSE OF EXPORT OF GOODS OUTSIDE INDIA AND THERE IS NO DISPUTE T HAT THE ASSESSEE HAS GIVEN COM MISSION/DISCOUNT IN THE EXPORT INVOICES IN FAVOUR OF THE FOREIGN BUYER AND IN SUCH CIRCUMSTANCES, - THE SIMPLE FACT THAT EMERGES OUT OF THE MAZE OF ARGUMENTS IS THAT AS FAR AT THE ASSESSEE IS CONCERNED, HIS EXPORT SALES TURN OVER IS THE NET AMOUNT OF THE EXPORT INVOICE AND IT IS NOT PROPER TO TREAT THE G ROSS INVOICE AMOUNT AS THE EXPORT SALES TURNOVER OF THE ASSESSEE, THE TRIBUNAL FURTHER HELD THAT RIGHT CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPORT SALES WAS TO RECEIVE ONLY TH E NET INVOICE AMOUNT AND NOTHING MORE AND, THEREFORE, THERE IS NOTHING LEFT OVER BY WAY OF BALANC E TO BE TREATED AS INCOME ACCRUING OR ARISING TO THE ASSESSEE OUTSIDE INDIA BY VIRTUE OF THE IMPUGNED EXPORTS AND THE ENTIRE INCOME ATTRIBUTABLE TO THE EXPORT SALES WERE ALREADY RECEIVED BY THE ASSESSEE IN INDIA IN THE FORM OF CONVERTIBLE FOREIGN 'EXCHANGE AND WHEN THE ASSESSEE HAD RECEIVED ONLY THE NET PROCEEDS AS PER THE INVOICE, THERE IS NOTHING LEFT OVER TO BE TREATED AS INCOME RECEIVED OR TO BE RECEIVED OR ACCRUED OR DEEMED TO BE ACCRUED OR ARISING IN INDIA OR OUTSIDE INDIA AND THERE IS N O QUESTION OF ANY INCOME ARISING IN THE HANDS OF THE ASSESSEE, ATTRIBUTABLE TO THE QUANTUM OF COMMISSION RECORDED IN THE INVOICE. 5 AGGRIEVED BY THE ORDER OF LD CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6 BEFORE US, LD D.R. TOOK US THROUGH THE OBSERVATIONS AND FINDINGS OF A.O AND SUBMITTED THAT THE GE NUINENESS OF THE EXPENSES AND IT BEING FOR THE PURPOSE OF BUSINESS HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT DESPITE DIRECTIONS OF HON BLE ITAT , THE ASSESSEE DID NOT SUBMIT THE NECESSARY EVIDENCE I N SUPPORT OF ITS CLAIM. LD D.R. ALSO ITA NO 240/AHD/2011 . A.Y. 2004 - 05 5 SUBMITTED THAT LD CIT(A) HAS SIMPLY FOLLOWED THE DECISION IN THE CASE OF SANJAY D. JAI N IN ITA NO. 37/AHD/2009 AND HAS NOT EXAMINE D AS TO HOW THE FACTS OF TH E CASE OF SANJAY JAIN WERE IDENTICAL TO THAT OF ASSESSEE. HE TH US SUBMITTED THAT IN THE ABSENCE OF FURNISHING OF NECESSARY DETAILS A.O WAS FULLY JUSTIFIED AND MAKING THE ADDITION. LD A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER PLACED RELIANCE ON THE DECISION IN THE CASE OF SANJAY JAIN VS. DCIT ITA NO. 1533/A HD / 20 08 ORDER DATED 8.12.2009. HE THUS SUPPORTED THE ORDER OF CIT(A). 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ALLOW ABILITY OF COMMISSION P AID TO FOREIGN PARTIES. WE FIND TH AT DURING THE ORIGINAL ASSESSMENT PROCEED INGS MADE U/S 143(3) , ASSESSEE HAD CARRIED THE MATTER BEFORE TRIBUNAL . T HE CO - ORDINATE BENCH OF TRIBUNAL IN ITA NO. 1816/AHD/2008 ORDER DATED 12.09.2008 HAD SET ASIDE THE ORDER OF C IT(A) AND THE MATTER WAS REMITTED TO A.O TO RE - ADJUDICATE THE ISSUE AFTER VERIFYING THE INVOICES AND AFTER VERIFYING AS TO WHETHER THE ASSESSEE HAD ACTUALLY PAID THE COMMISSION OR HAD GIVEN THE DISCOUNT TO THE BUYER. ASSESSEE WAS ALSO DIRECTED TO SUBMIT TH E NECESSARY EVIDENCE AND RELEVANT INFORMATION TO THE A.O. PURSUANT TO THE ORDER OF CO - ORDINATE BENCH OF TRIBUNAL A.O WHILE FRAMING THE ASSESSMENT U/S 143(3) R.W.S. 260 OF THE ACT HAS NOTED THAT ASSESSEE DID NOT FURNISH THE RELEVANT DETAILS BUT ONLY REITERA TED THE SUBMISSIONS MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. WE FURTHER FIND THAT CIT(A) WHILE DECIDING THE ISSUE HAS SIMPLY RELIED ON THE DECISION IN THE C ASE OF SANJAY D. JAIN (SUPRA) AND HAS NOT BROUGHT OUT AS TO HOW THE FACTS IN THE CASE OF SANJAY JAIN ARE SIMILAR TO THAT OF ITA NO 240/AHD/2011 . A.Y. 2004 - 05 6 ASSESSEE. WE FURTHER FIND THAT ASSESSEE HAS SUBMITTED THAT BY MAKING THE COMMISSION PAYMENT , ASSESSEE HAS NOT VIOLATED RULES AND REGULATIONS FRAMED BY RBI, CUSTOMS OR FEMA AND THE BANKERS OF THE ASSESSEE HAS ALSO CONFIRMED THE R ECEIPT OF NET PAYMENT . THUS IT IS SEEN THAT DESPITE GIVING OPPORTUNITY TO THE ASSESSEE TO FURNISH THE NECESSARY DETAILS, NO SATISFACTORY DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE A.O. CONSIDERING THE TOTALITY OF THE FACTS AND MORE SO THAT THE APPEAL BE FORE US IS IN SECOND ROUND . WE ARE OF THE VIEW THAT ENDS OF JUSTICE SHALL BE MET IF THE ADDITION IS ESTIMATED AND RESTRICTED TO RS. 10 LACS. WE THUS DIRECT ACCORDINGLY. THUS THIS GROUND OF REVENUE IS PARTLY ALLOWED. 8 IN THE RESULT, THE APPEAL O F THE REVE NUE IS PARTLY ALLOWED ORDER PRONOUNCED IN OPEN COURT ON 19 - 0 9 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTR AR ITAT,AHMEDABAD