The ITO, Ward(3), Surat V. Shri Pankaj Kantilal Gandhi, Surat

ITA 2524/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9595 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Third party statement
• Section: 143(3); 10

Judgement Text

, A, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, A BENCH BEFORE S/SHRI G.D. AGRAWAL, VICE-PRESIDENT AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.2524/AHD/2011 [ASSTT.YEAR : 2007-2008] THE ITO, WARD-6(3) SURAT. /VS. SHRI PANKAJ KANTILAL GANDHI 412, NEW OPERA HOUSE MAROLI ROAD, SURAT. PAN : ACOPG 1116 F ( / APPELLANT) ( / RESPONDENT) REVENUE BY : SHRI DINESH SINGH, SR.DR ASSESSEE BY : NONE DATE OF HEARING : 4 TH JUNE, 2015 DATE OF PRONOUNCEMENT : 11 TH JUNE, 2015 O R D E R PER KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (A)-IV, SURAT DATED 15.6.2011 FOR THE ASSTT.YEAR 2007-08. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THE APPEAL: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.2,96,300/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF SALARY EXPENSES. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.6,79,873/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF DALALI/ COMMISSION. ITA NO.2524/AHD/2011 -2- 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.40,025/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF INTEREST. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A)- IV, SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASS ESSING OFFICER. 5) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE CIT-I V, SURAT MAY BE SET-SIDE AND THAT OF THE ASSESSING OFFICER RESTORED . 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE CA SE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT WAS F RAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT). BY FRAMING THE ASSESSMENT, THE AO MADE DISALLOWANCE OUT OF SAL ARY EXPENSES AMOUNTING TO RS.2,96,300/-, DISALLOWANCE OUT OF DALALI COMMISSION OF RS.6,79,873/- AND DISALLOWANCE OF INTEREST EXPENSES OF RS.40,025/-. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHO AFTER CONSIDERING THE SUBMIS SION OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE ALLOWING THE APPEAL, TH E CIT(A) DELETED THE DISALLOWANCE MADE ON ACCOUNT OF SALARY EXPENSES AND DALALI EXPENSES. HOWEVER, HE UPHELD THE DISALLOWANCE OF INTEREST EXP ENDITURE TO THE EXTENT OF RS.40,025/-. NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. ON BEHALF OF ASSESSEE, ONE SHRI S.B. VAIDYA APPE ARED. HOWEVER, NO LETTER OF AUTHORITY WAS FILED. THEREFORE, THE SUBM ISSIONS MADE BY HIM ARE NOT CONSIDERED FOR WANT OF PROPER AUTHORITY. 5. APROPOS GROUND NO.1, THE LEARNED DR SUBMITTED TH AT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO O N ACCOUNT OF DISALLOWANCE OF SALARY EXPENSES. HE SUBMITTED THAT THE ASSESSEE HA D SHOWN SALARY EXPENDITURE OF RS.1,55,700/- IN THE IMMEDIATELY PRECEDING YEAR, AND IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED RS.4,52,000 /-. HE SUBMITTED THAT THE AO HAS NOTIFIED THAT THE VOUCHERS FURNISHED BY THE ASSESSEE WERE DEFECTIVE. THEREFORE, THE AO WAS OF THE VIEW THAT THE CLAIM OF EXPENDITURE IN RESPECT OF ITA NO.2524/AHD/2011 -3- SALARY IS NOT GENUINE. HE SUBMITTED THAT THE LD.CI T(A) HAS NOT CONSIDERED THE OBSERVATIONS OF THE AO AND PROCEEDED TO DELETE THE ADDITION. 6. WE HAVE CONSIDERED SUBMISSIONS OF THE LEARNED DR AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AV AILABLE ON RECORD. WE FIND THAT THE AO IN ARA-5.3 OF HIS ORDER HAS OBSERVED AS UNDER: 5.3 THE SUBMISSION MADE BY THE ASSESSEE IS CAREFULL Y PERUSED. IT IS UNDISPUTED FACT THAT THE BUSINESS OF THE ASSESSEE H AS INCREASED DURING THE YEAR BUT AT THE SAME TIME THERE IS NO LOGIC IN SUBM ISSION OF THE ASSESSEE THAT SINCE THE TURNOVER HAS INCREASED HE HAS TO EMP LOY MORE PEOPLE AND HAS TO INCUR MORE EXPENSES. WE CAN SEE IN THE CASE OF NUMBER OF WELL KNOWN COMPANIES THAT THOUGH THEIR TURNOVER IS INCRE ASING BY CRORES OF RUPEES EVERY YEAR, THEIR WORKING STRENGTH IS SAME O F IN MANY CASES IT IS BEING REDUCED BECAUSE NOW A DAYS MAJORITY OF THE BU SINESS IS BEING DONE OF PHONE AND INTERNET AND FOR TRANSPORTATION NUMBER OF EXPERT AGENCIES ARE AVAILABLE WHICH TAKE ALL THE RESPONSIBILITY ON THEM AND THERE IS HARDLY ANY REQUIREMENT TO SUPERVISE THEM. NOW A DAY IT IS VERY COMMON THAT PERSON SITTING IN A SMALL OFFICE AREA OF 10 X 10 SQ . FEET AND WITH HELP OF ONE OF TWO EMPLOYEES IS DOING BUSINESS OF CRORES OF RUPEES. 7. IT WAS CONTENDED BY THE ASSESSEE BEFORE THE CIT( A) THAT TURNOVER OF THE ASSESSEE HAD GONE UP TWO-AND-HALF TIMES IN COMPARIS ON TO PRECEDING YEAR. BUT TAXABLE INCOME WAS ALSO INCREASED FROM RS.97,704/- IN THE PRECEDING YEAR TO RS.6,91,040/- IN THE YEAR UNDER CONSIDERATION. THE NET PROFIT ALSO INCREASED FROM 3.79% TO 4.20% IN THE CURRENT YEAR. IT IS OBS ERVED BY THE LD.CIT(A) THAT THERE IS SUBSTANTIAL INCREASE IN TURNOVER AND PROFI T, AND FOR EARNING SUCH PROFIT THE ASSESSEE REQUIRES MANPOWER. 8. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO TH E OBSERVATION OF THE AO AND THE CIT(A). WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A), AS THE TURNOVER OF THE ASSESSEE HAS INCREASED AND PROFIT H AS ALSO BEEN INCREASED. THE OBSERVATION OF THE AO THAT NOW-A-DAYS MAJORITY OF T HE BUSINESS IS BEING DONE ON PHONE AND INTERNET AND FOR TRANSPORTATION, NUMBER O F EXPERT AGENCIES AVAILABLE, WHICH TAKE ALL RESPONSIBILITY ON THEM, AND THERE IS HARDLY ANY REQUIREMENT TO SUPERVISE THEM. THIS OBSERVATION OF THE AO IS GEN ERAL IN NATURE. THE AO HAS ITA NO.2524/AHD/2011 -4- NOT GIVEN ANY SPECIFIC FINDINGS ABOUT THE NATURE OF THE BUSINESS, AND WHETHER THE ASSESSEE HAS ACTUALLY EMPLOYED WORKERS FOR THE WORK , NEEDS TO BE VERIFIED. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE AO HIMSELF HAS NOTED THAT SMITA D. DALAL WAS PAID SALARY THROUGH BANKING CHANNEL FOR T WO MONTHS. THE AO HAS NOT VERIFIED THE VERACITY OF THE CLAIM OF THE ASSESSEE, THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE, WHICH IS HEREBY CONFIRMED, AND THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS REJECTED. 9. THE GROUND NO.2 OF THE APPEAL IS AGAINST THE DEL ETION OF ADDITION OF COMMISSION EXPENDITURE AMOUNTING TO RS.6,79,873/-. THE LEARNED DR QUOTED THE ORDER OF THE AO AND SUBMITTED THAT THE LD.CIT(A ) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. HE SUBMITTED THAT THE A O HAS GIVEN A FINDING THAT THE ASSESSEE WAS ASKED TO PRODUCE PARTIES TO WHOM T HE COMMISSION WAS PAID. HOWEVER, THE PARTIES WERE NOT PRODUCED. HE SUBMITT ED THAT THE AO DISBELIEVED THE CLAIM OF THE ASSESSEE. HE FURTHER SUBMITTED TH AT LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 10. WE HAVE CONSIDERED SUBMISSIONS OF THE LEARNED D R AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AV AILABLE ON RECORD. WE FIND THAT LD.CIT(A) IN PARA 5.1 AND 6 OF HIS ORDER HAS D ECIDED THE ISSUE AS UNDER: 5.1. DURING THE COURSE OF APPEAL PROCEEDINGS, IT W AS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT HAD FILED COMPLETE DETAILS RELATING TO COMMISSION EXPENSES - NAME, ADDRESS, PAN, CONFIRMATION, COPY OF CREDIT NOTES WHICH JUSTIFIED THE MANNER OF CALCULATION OF COMMISSION AND ALSO TAX RETURNS' OF THE RECIPIENTS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE MADE TDS FROM PAYM ENT OF COMMISSION. IT WAS EXPLAINED THAT IN ORDER TO PENETRATE THE MAR KET AND INCREASE TURNOVER AND PROFITS, COMMISSION HAD TO BE PAID TO VARIOUS PERSONS.- IT WAS EXPLAINED THAT AS PER TRADE PRACTICE, COMMISSIO N WAS PAID PERIODICALLY USUALLY TOWARDS THE END OF THE YEAR. I T WAS FURTHER SUBMITTED THAT IN CASE THE A.O. WAS NOT SATISFIED WITH THE EV IDENCES SUBMITTED, HE SHOULD HAVE MADE INDEPENDENT INQUIRIES BEFORE CONCL UDING THAT COMMISSION HAD BEEN CLAIMED ONLY TO INFLATE EXPENSE S. ITA NO.2524/AHD/2011 -5- 6. I HAVE GONE THROUGH THE FACTS OF THE CASE, ASSES SMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAD PRO VIDED FULL DETAILS IN RESPECT OF COMMISSION PAYMENTS. THE APPELLANT HAS M ADE TDS FROM COMMISSION PAYMENTS. THE APPELLANT HAS GIVEN LOGICA L REASON FOR COMMISSION BEING DEBITED TOWARDS THE END OF THE FIN ANCIAL YEAR. THE A.O. ON THE OTHER HAND HAS BROUGHT NOTHING ON RECORD TO SHOW THAT THE CLAIM OF COMMISSION WAS NOT GENUINE. IN VIEW OF THE FACT THAT TURNOVER HAS GONE UP 2 TIMES AND FULL EVIDENCES IN REGARD TO COMMIS SION EXPENSES WERE PROVIDED, THE ADDITION MADE ON ACCOUNT OF DISALLOWA NCE OF COMMISSION IS DELETED. THE APPELLANT GETS RELIEF OF RS. 6,79,873/ - 11. THERE IS NO DISPUTE WITH REGARD TO THE FACT THA T THE ASSESSEE HAS FURNISHED NAME, ADDRESS, PAN, CONFIRMATION, COPY OF CREDIT NO TES, AND THE ASSESSEE HAS ALSO PLACED ON RECORD IN THE FORM OF PAPER BOOK. T HE LIST OF PARTIES ALONG WITH PAN, ADDRESS TO WHOM THE COMMISSION WAS PAID AT PA GE NOS.108 TO 199. THE ASSESSEE HAS ALSO PLACED ON RECORD, THE CREDIT NOTE S, LEDGER ACCOUNT, ACKNOWLEDGMENT OF RETURN, AND CONTRA CONFIRMATION. THE REVENUE HAS NOT PLACED ANY MATERIAL TO REVERT ALL THESE EVIDENCES, THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A), THE SAME IS HEREBY UPHELD, AND THE GROUND NO.2 IS REJECTED. 12. THE GROUND NO.3 IS AGAINST THE DELETION OF ADDI TION OF RS.40,025/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EX PENDITURE. 13. THE LEARNED DR SUBMITTED THAT OUT OF DISALLOWAN CE OF RS.80,051/-, THE LD.CIT(A) CONFIRMED ONLY RS.40,025/-. HE SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE HE RELI ED ON THE ORDER OF THE AO. 14. WE HAVE CONSIDERED SUBMISSIONS OF THE LD.DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD.CIT(A) HA S GIVEN A FINDING ON FACTS WHICH READS AS UNDER: 8. I HAVE GONE THROUGH THE FACTS OF THE CASE, ASS ESSMENT ORDER AND SUBMISSION OF THE APPELLANT. ON THE FACTS OF THE CA SE, IT IS TO BE HELD THAT INTEREST BEARING FUNDS HAVE BEEN USED FOR NON BUSIN ESS PURPOSE - ADVANCE AND LOANS TO FRIENDS/RELATIVES WITHOUT INTEREST, DI SALLOWANCE OF INTEREST IS ITA NO.2524/AHD/2011 -6- THEREFORE UPHELD IN PRINCIPLE. IT IS HOWEVER, SEEN THAT THE APPELLANT HAD CAPITAL AND RESERVES OF RS. 1063743/-WHICH DOES NOT BEAR INTEREST. HENCE THE ALTERNATE PLEA OF THE APPELLANT HAS TO BE ACCEP TED. IN MY OPINION, DISALLOWANCE OF INTEREST SHOULD BE LIMITED TO 50% O F THE CLAIM KEEPING IN VIEW THE QUANTUM OF LOAN GIVEN INTEREST FREE AND AV AILABILITY OF CAPITAL AND RESERVES. THE DISALLOWANCE IS THEREFORE UPHELD TO THE EXTENT OF RS.40,025/-. THE APPELLANT GETS RELIEF OF RS.40,025 /-. THIS GROUND IS PARTLY ALLOWED. 15. THIS FINDING OF THE FACTS IS NOT CONTROVERTED B Y THE REVENUE BY PLACING MATERIAL ON RECORD. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE, THE SAME IS CONFIRMED, AND THE GROUND OF THE REVENUE IS DISMISSED. 16. THE GROUND NOS.4 AND 5 OF THE APPEAL BEING GENE RAL IN NATURE, NEED NO ADJUDICATION. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( G.D. AGRAWAL) VICE-PRESIDENT (KUL BHARAT) JUDICIAL MEMBER