M/s. Mahendra Chemicals, Ahmedabad V. The Asstt. Commissioner of Income Tax, Circel-7(2), Ahmedabad

ITA 2516/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1318 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 05-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KR VERMA
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice; Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHRI AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER M/S. MAHENDRA CHEMICALS, B - 1, 217+218/2, GIDC ESTATE, NARODA, AHMEDABAD - 382330 PAN: AABFM4908L (APPELLANT) VS THE ACIT, CIRCLE - 7(2) , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI SUMIT KR. VERMA , SR. D . R. ASSESSEE BY: SHRI S.N. DIVETIA, A.R. DATE OF HEARING : 27 - 07 - 2 018 DATE OF PRONOUNCEMENT : 30 - 08 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSES SEE S APPEAL FOR A. Y. 2012 - 13 , ARI SES FROM ORDER OF THE CIT(A) - 7, AHMEDABAD DATED 29 - 07 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1.1 THE ORDER PAS SED U/S. 250 ON 29.07.2016 FOR A.Y. 2012 - 13 BY CIT(A) - 7, ABAD CONFIRMING THE DISALLOWANCE OF COMMISSION EXP. OF RS. 15,50,035/ - IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW A ND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE EXPLANATIONS FURNISHED AND THE EVIDENCE PRODUCED BY THE APPELLANT. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN IN CONFIRMING THE DISALLOWANCE OF COMMISSION EXP OF RS.15,50,0 35/ - . THOUGH, THE APPELLANT HAD PRODUCED NECESSARY MATERIAL AND THE PARTIES WERE ALSO RENDERING SERVICES AS EMPLOYEES OF THE FIRM AND SUCH COMMISSION WAS PAID IN EARLIER YEAR. I T A NO . 2516 / A HD/20 16 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 2516 /AHD/20 16 A.Y. 2012 - 13 PAGE NO M/S. MAHENDRA CHEMICALS VS. ACIT 2 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE I D. CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION EXP OF RS.15,50,035/ - . IT IS THEREFORE PRAYED THAT THE DISALLOWANCE OF RS. 22,07,874/ - MADE BY THE AO SHOULD BE DELETED. 3 . ALL THE GROUNDS OF APPEAL ARE CONNECTED TO THE SOLITAR Y ISSUE OF DISALLOWANCE OF COMMISSION EXPENSES OF RS. 15,50, 0 35/ - BY THE ASSESSING OFFICER. 4 . THE BRIEF FACT OF THE CASE IS THAT RETURN OF INCOME DECLARING INCOME OF RS. 17 , 19 , 830/ - WAS FILED ON 19 TH SEP, 2012. SUBSEQUENTLY, THE CASE W A S SELECTED UNDE R SCRUTINY U/S. 143(2) OF T HE ACT ON 6 TH AUGUST , 2013. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DEBITED COMMISSION EXPENSES A MOUNTING TO RS. 20 , 7 3, 417/ - FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE GRO SS TURNOVER OF THE ASSESSEE HAS BEEN REDUCED TO RS. 629.82 LACS COMPARED TO GROSS TURNOVER OF 863.12 LACS TO PRECE DING YEAR . HE HAS FURTHER OBSERVED THAT COMMISSION EXPENSES HAS BEEN INCREASED FROM RS. 16.64 LACS TO RS. 20.73 LACS IN SPITE OF DECREASE IN THE TURNOVER OF THE ASSSESSEE. THEREFORE, T HE ASSESSING OFFICER HAS ASKED THE ASSESSE TO JUSTIFY TH E INCREASE I N PAYMENT OF COMMISSION AS THE GROSS TURNOVER HAS BEEN REDUCED DURING T HE YEAR UNDER CONSIDERATION. THE ASS ESSEE EXPLAINED THE NATURE OF COMMISSION PAID AND FURNISHED SUPPORTING INFORMATION . ON PERUSAL OF THE DETAILS FILED , T H E ASSESSING OFFICER NOTI CED THAT COMMISSION HAS BEEN PAID TO THE FOLLOWING TWO PERSONS : - SR. NO NAME SALES IN KG. COMMISSION PAID COMMISSION PAID @ 1 DIPAK J. AMIN 29975.00 752135 RS.25 PER KG. 2 JIGNESH J. PATEL 26705.00 797900 RS.30PERKG. I.T.A NO. 2516 /AHD/20 16 A.Y. 2012 - 13 PAGE NO M/S. MAHENDRA CHEMICALS VS. ACIT 3 TOTAL 15,50 ,035/ - THE ASSESSING OFFICER FOUND T HAT THE ABOVE TWO PERSONS WERE ON THE PAYROLL OF ASSES SE E AND WERE COVERED U/S. 40 ( A )( 2 ) (B) OF THE ACT . THE ASSESSE EXPLAINED THAT M/S. D IPAK J. AMIN HAS BEEN LOOKING AFTER PRODUCTION AND ENVIRONME NT TREATMENT PL ANT AND ALSO PARTICIPATED IN THE EXHIBITIONS AT VARIOUS PLACES AND BROUGHT NEW CUSTOMER FOR THE COMPANY . IT WAS EXPLAINED THAT SHRI JIGNESH PATEL HAS BEEN LOOKING AFTER THE PRODUCTION AND PACKAGING DEPARTMENT . HE HAS ALSO CARRIED OUT MARK ET ING WORK AND DEVELOPED NEW CUSTOMER S . THE ASSESSING OFFICER H AS NOT ACCEPTED T H E EXPLANATION OF THE ASSESSEE . HE WAS OF THE VIEW THAT BOTH OF THEM WERE SQUARELY COVERED U/S. 40A(2)(B) OF THE ACT AND T HE ASSESSEE HAS FAILED TO PROVE WHY T HESE PERSONS PAID COMMISSI ON OVER AND ABOVE THE SALARY. CONSEQUENTLY , THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE AMOUNT OF COMMISSION RS. 15 , 50 ,0 35/ - . 5 . A GGR IEVED ASSESSEE FI L E D APPEAL BEFORE T H E LD. CIT(A). T HE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY OB SERVING AS UNDER: - 3.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE AO AFTER A DETAILED DISCUSSION IN THE ASSESSMENT ORDER HELD THAT THE PAYMENT OF COMMISSION TO SHRI DIPAK AMIN AND SHRI JIGNESH PATEL WAS EXCESSIVE AND NOT JUSTIFIABLE. IT WAS NOTED BY HIM THAT BOTH THESE PERSONS WERE ALSO COVERED U/S. 40A(2)(B) OF THE I.T. ACT. THE APPELLANT ON THE OTHER HAND HAS STATED THAT THE COMMISSION WAS PAID AS PER EARLIER YEARS AND THAT ALL DEBIT NOTES IN THIS REGARD HAD BEE N FILED BY IT. AFTER GOING THROUGH THE SUBMISSION MADE BY THE APPELLANT AND THE DETAILS FILED, I FIND THAT THERE IS NO WRITTEN AGREEMENT IN RESPECT OF THE COMMISSION TO BE PAID TO THESE TWO PERSONS WHO ARE COVERED U/S. 40A(2)(B) OF THE ACT. IT IS ALSO SEEN THAT THE RATE OF COMMISSION OF RS.25/ - PER KG AND RS.30/ - PER KG WAS FIXED ONLY IN FINANCIAL YEAR I.E. 2010 - 11 I.E. JUST ONE YEAR BEFORE THE YEAR UNDER CONSIDERATION AND NOT 'LONG BACK' AS CLAIMED BY THE APPELLANT. IT IS ALSO TRUE THAT THE NET PROFIT AND T HE GROSS SALES HAVE DECREASED SUBSTANTIALLY DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT HAS NOT BEEN ABLE TO GIVE INSTANCES AND DETAILS OF THE ORDERS PROCURED BY SHRI DIPAK AMIN AND SHRI JIGNESH PATEL TO JUSTIFY THE COMMISSION OF RS.15,50,035/ - PAID TO THEM. MOREOVER, BOTH THESE PERSONS WERE EMPLOYEES ON THE PAY ROLL OF THE APPELLANT FIRM AND HAVE ALSO BEEN PAID HUGE SALARY ON ACCOUNT OF THEIR REGULAR WORK. IN VIEW OF ALL THESE FACTS, I AM INCLINED TO AGREE WITH THE AO THAT THE PAYMENT OF COMMISSION WAS EXCESSIVE AND THE REASONABLENESS OF THE SAME COULD NOT BE JUSTIFIED BY THE APPELLANT. THE DISALLOWANCE OF COMMISSION EXPENSES OF RS.15,50,035/ - MADE BY THE ASSESSING OFFICER IS CONFIRMED. GROUNDS OF APPEAL NOS. 5.1 & 5.2 ARE DISMISSED. I.T.A NO. 2516 /AHD/20 16 A.Y. 2012 - 13 PAGE NO M/S. MAHENDRA CHEMICALS VS. ACIT 4 6 . DURING T HE C OURSE OF APPELLATE PROCEEDINGS BEFORE US , THE LD. COUNSEL HAS FURNISHED COP IES OF LEDGER ACCOUNT OF COMMISSION EXPENSES AND DETAILS OF COMMISSION PAID DURING THE YEAR UNDER CONSIDERATION . HE HAS ALSO SUBMITTED COPY OF ASSESSMENT ORDER U/S. 143(3) PASSE D IN THE CASE OF ASSESSEEE ITSELF FOR THE ASSESSMENT YEAR 2011 - 12 STATING THAT NO SUCH DISALLOWANCE OF COMMISSION EXPENSES WERE MADE BY THE ASSESSING OFFICER. HE HAS ALSO FURNISHED PAPER BOOK CONTAINING DETAILS OF SUBMISSION MADE BEFORE ASSESSING OFFICER AND LD. CIT(A) DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 7 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. IT IS NO TICED THAT T HE ASSESSING OFFICER HAS DISALLOWED T HE ENTIRE COMMISSION EXPENSES OF RS. 15, 50 ,0 35/ - U/S. 40 ( A )( 2 ) (B) OF THE ACT. THE ASSESSEE HAS SUBSTANTIATED THE PAYMENT OF COMMISSION WITH SUPPORTING MATERIALS, DEBIT NOTES ETC ALONG WITH THE DETAILS OF S ERVICES RENDERED FOR WHICH COMMISSION WAS PAID. IT IS ALSO UNDISPUTED FACTS THAT THESE TWO PERSONS WERE ALSO PAID COMMISSION ALONG WITH SALARY IN THE PAST YEARS. T HE PROVISION OF SECTION 40 ( A )( 2 ) (B) PROVIDE FOR DISALLOWANCE OF ONLY THE EXCESSIVE OR UNREA SONABLE EXPENDITURE AND NOT THE ENTIRE EXPENDITURE . IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONSIDER THAT THE ASSESSING OFFICER HAS FAILED TO DISPROVE SUPPORTING MATERIAL FURNISHED BY T H E ASSESSEE IN SUPPORT OF THE AFORESAID COMMISSION PAYME NT. THE ASSESSING OFFICER HAS ALSO FAILED TO SUBSTANTIATE WITH RELEVANT MATERIAL THAT COMMISSION PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT HA S BEEN MADE. WE CONSIDER THAT T H E DECISION OF T HE ASSESSING OFFICER TO DISALLOW THE ENTIRE COMMISSION EXPENSES U/S. 40A(2)(B) OF THE ACT WITHOUT SUBSTANTIATING AND RESTRICTING THE DISALLOWANCE TO THE UNREASONABLE AND EXCESS PAYMENT OF EXPENSES IS NOT CORR ECT. I.T.A NO. 2516 /AHD/20 16 A.Y. 2012 - 13 PAGE NO M/S. MAHENDRA CHEMICALS VS. ACIT 5 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A), THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN TH E OPEN C OURT ON 30 - 08 - 201 8 SD/ - SD/ - ( MADH UMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30 /08 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,