Mragnayani Properties Pvt. Ltd, Latur V. Income-tax Officer ,

ITA 2538/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9128 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 04-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Opportunity of being heard; Principle of natural justice; Maximum Marginal Rate
• Section: 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.2538/PUN/2016 / ASSESSMENT YEAR : 2009-10 MRAGNAYANI PROPERTIES PVT. LTD., DIRECTOR SHRI LAXMINIWAS V. AGRAWAL, CENTRAL HANUMAN, LATUR. PAN : AAECM8551E . /APPELLANT VS. INCOME-TAX OFFICER, WARD-1, LATUR . / RESPONDENT / APPELLANT BY : NONE / RESPONDENT BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 12.03.2018 / DATE OF PRONOUNCEMENT: 21.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-2, AURANGABAD DATED 29-08-2016 FOR THE ASSESSMENT YEAR 2009-1 0. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : ON FACTS AND IN LAW, 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE OR COMMISSION OF RS.15, 11 ,800/- PAID TO SHRI LAXRNINIWAS V. AGARWAL ON THE GROUND THAT THE ASSESSEE BAD FAILED TO SUBSTANTIATE ANY EVIDENCE OF SERVICES RENDERED BY THE SAID PERSON. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT S HRI LAXMINIWAS V, AGARWAL WAS A DIRECTOR IN THE ASSESSEE COMPANY AND WAS RENDERING VARIOUS SERVICES TO THE ASSESSEE COMPANY AND ACCORDINGLY, T HERE WAS NO REASON TO DISALLOW ANY COMMISSION PAID TO HIM. 3. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HE VARIOUS DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE TO PROVE THE FA CT THAT SERVICES WERE RENDERED BY SHRI LAXMINIWAS V. AGARWAL ARID THEREFORE, THERE WAS NO REASON TO CONFIRM THE DISALLOWANCE OF COMMISSION PAID TO HIM. 2 4. THE LEARNED CITCA) ERRED IN CONFIRMING THE DISA LLOWANCE OF COMMISSION OR RS.L,92,992/- AND RS.4,57 ,510/- PAID TO RAMESH CHANDAK (HUF) AND RAVINDRA AGARWAL (HUF) RESPECTIVELY ON THE GROUND T HAT THE ASSESSEE HAD FAILED TO PROVE THAT ANY SERVICES WERE RENDERED BY THE SAID TWO PARTIES. 5. THE LEARNED C1T(A) FAILED TO APPRECIATE THAT THE SERVICES WERE RENDERED BY THE ABOVE TWO PARTIES TO THE ASSESSEE COMPANY AND A CCORDINGLY, THERE WAS NO REASON TO DISALLOW THE COMMISSION PAID TO THEM. THE ABOVE GROUNDS GIVE RISE TO THE ISSUES THAT RELATE T O THE CORRECTNESS OF DISALLOWANCE OF COMMISSION PAID TO SHRI LAXMIN IWAS V. AGRAWAL, THE (DIRECTOR) OF THE COMPANY AND ALSO TO SHRI R AMESH CHANDAK (HUF) AND SHRI RAVINDRA AGRAWAL (HUF), THE COMMISSION AGENT S. AO DISALLOWED THE SAID COMMISSION IN THE FRESH ASSESSMENT MAD E U/S.143(3) R.W.S. 263 OF THE ACT FOR FAILURE OF THE ASSESSEE IN SUBSTAN TIATING WITH EVIDENCES REGARDING THE ALLOWABILITY OF THE PAYMENT OF COMMIS SION. IN THE FIRST APPELLATE PROCEEDINGS, LD. CIT(A) CONFIRMED THE SAME. 3. BACKGROUND FACTS OF THIS CASE INCLUDE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT IN LAND AND SALE OF T HE SAME AT LATUR. ASSESSEE FILED THE RETURN OF INCOME ORIGINALLY DECLAR ING TOTAL INCOME OF RS.8,64,440/-. LD. CIT INVOKED THE PROVISIONS OF SECTION 2 63 OF THE ACT IN THIS CASE ON THE ISSUE OF ALLOWABILITY OF THE CLAIM OF COMMIS SION PAYMENTS. LD.CIT PASSED THE REVISION ORDER DATED 27-03-2014 S ETTING ASIDE THE ORDER OF THE AO. 4. GIVING EFFECT TO THE SAME, AO PASSED THE FRESH ASSESSM ENT ORDER U/S.143(3) R.W.S 263 OF THE ACT. FROM THE FRESH ASSESSMEN T ORDER, IT IS EVIDENT THAT THE COMPANY PAID COMMISSION OF RS.15,11,800/- TO SHRI LAXMINIWAS V. AGRAWAL, WHO IS THE DIRECTOR OF THE COMPANY AND CLAIMED IT AS AN ALLOWABLE EXPENDITURE. THE SAID AMOUNT WAS OFFERED T O TAX BY SHRI LAXMINIWAS V. AGRAWAL IN HIS RETURN OF INCOME. ON FINDING TH AT SHRI LAXMINIWAS V. AGRAWAL IS NEITHER AN EMPLOYEE NOR THERE I S EVIDENCE THAT SERVICES RENDERED BY HIM FOR RECEIVING THE SAID COMMISSION, AO GRANTED AN 3 OPPORTUNITY TO THE ASSESSEE FOR SUBSTANTIATING THE CLAIM. ASSESSEE FILED A WRITTEN SUBMISSION INFORMING THE AO THAT SHRI LAXMINIWAS V. AGRAWAL IS DULY AUTHORIZED TO RECEIVE THE COMMISSION BY VIRTUE OF T HE RESOLUTION PASSED BY THE BOARD OF DIRECTORS RIGHT FROM THE START O F THE BUSINESS. IN SUPPORT OF THIS CLAIM AND ALLOWABILITY OF THE SAID EXPENDITURE, ASSESSEE RELIED ON VARIOUS DECISIONS. HOWEVER, THERE IS NO INFORMATIO N ABOUT THE FACTS ON RENDERING OF SERVICES TO THE COMPANY. TO THAT EXTENT, THERE IS FAILURE TO DISCHARGE THE ONUS ON PART OF THE ASSESSEE BEFORE THE AO/C IT(A). SAME IS THE CASE WITH REGARD TO THE COMMISSION PAYMENTS MADE TO SHRI RAMESH CHANDAK (HUF) AND SHRI RAVINDRA AGRAWAL (HUF) , THE COMMISSION AGENTS. ON CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE, AO PROCEEDED TO DISALLOW THE COMMISSION AS PER THE DISC USSION GIVEN IN PARA 6 AND 7 OF THE ASSESSMENT ORDER. FOR THE SAKE O F COMPLETENESS OF THIS ORDER, WE PROCEED TO EXTRACT THE SAID PARAS AS FOLLOWS : 6. THE SUBMISSIONS OF THE ASSESSEE HAS DULY BEEN CONSIDERED. THE FACT OF THE CASE RELIED UPON ARE DISTINGUISHABLE FROM THE F ACTS OF INSTANT CASE, AS IN THE CASE REFEREED ABOVE, THE PAYMENT OF COMMISSION WAS MADE TO MANAGING DIRECTOR, WHO WAS AN EMPLOYEE AND COMMISSION WAS PA ID TO HIM TOWARDS SERVICES RENDERED BY HIM IN RESPECT OF THE ACHIEVEM ENT OF ANNUAL TARGET OF SALES OF RS.10 CRS AND THE SERVICES RENDERED BY HIM ON A TERM OF EMPLOYMENT. HOWEVER, IN THE INSTANT CASE, THE ASSES SEE IS NOT AN EMPLOYEE OF THE COMPANY AND THERE WAS NO TARGET PROVIDED TO HIM AND ALTHOUGH COMMISSION WAS PAID AS PER BOARD'S RESOLUTION, THE DETAILS OF SERVICES RENDERED BY THE DIRECTOR OF THE COMPANY FOR WHICH H E WAS OBLIGED COMMISSION HAS NEITHER BEEN PROVIDED TO THE AO DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS NOR BEFORE THE UNDERSIGNED. NO CREDIBLE EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO JUSTIFY THE CLAIM OF COMMISSION PAID EXCEPT BOARD'S RESOLUTION. HENCE, T HE COMMISSION PAID TO LAXMINIWAS VISHUDAS AGRAWAL IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE AT RS.15,11,800/- . . . . . . . . 7. AS REGARDS COMMISSION PAID TO RAMESH CHANDAK, H UF AND RAVINDRA AGRAWAL, HUF, THE ASSESSEE HAS SUBMITTED COPY OF RE SOLUTION AND EXTRACT FROM AGT AND IT HAS BEEN STATED THAT AS APPLIED TO COMPANY AND ACCEPTED BY THE BOARD OF DIRECTORS AND BY SHARE HOLDERS, COM MISSION HAS BEEN PAID TO HUF'S OF THE DIRECTORS. IT HAS ALSO BEEN STATED THA T HUFS ARE REGULARLY DOING THIS BUSINESS OF COMMISSION AGENCY SINCE MANY YEARS. THE SUBMISSION OF THE ASSESSEE HAVE DULY BEEN CONSIDERE D. HOWEVER, THE SAME ARE NOT ACCEPTABLE FOR THE REASON THAT THE COMMISSI ON TO HUFS IS PAID FOR FIRST TIME BY THE ASSESSEE COMPANY AND THE NATURE O F SERVICES RENDERED BY THESE HUFS IS ALSO NOT SPECIFIED. IN THE LIGHT OF ABOVE FACTS, THE COMMISSION PAID TO RAMESH CHANDAK HUF AND RAVIN DRA AGRAWAL HUF IS DISALLOWED AT RS.1,92,992/- AND 4,57,510/- RESPECTI VELY. . . . . . . . . 4 5. ASSESSEE COULD NOT IMPROVE HIS CASE BEFORE THE FIRST APPELLATE AUTHORITY. EVENTUALLY, THE CIT(A) CONFIRMED THE DISALLOWANC ES AND PROCEEDED TO DISMISS THE APPEAL OF THE ASSESSEE. 6. IT IS THE CASE OF THE ASSESSEE BEFORE THE CIT(A) THAT THE COMMISSION PAID TO SHRI LAXMINIWAS V. AGRAWAL IS AN ALLOWABLE EXPENDIT URE IN VIEW OF THE BOARD RESOLUTION OF THE COMPANY. ACCORDING TO THE ASSESSEE, THE RELATIONSHIP BETWEEN THE ASSESSEE AND MR. LAXMINIWAS V. AGRAWAL IS NOT THAT OF THE EMPLOYEE OR EMPLOYER RELATIONSHIP. THEREFORE, THE COMMISSION RECEIVED BY SHRI LAXMINIWAS V. AGRAWAL SHOULD BE AN ALLOW ABLE CLAIM. ASSESSEE SUBMITTED THAT THE COMMISSION IS DULY OFFERED TO TAX IN THE RETURN OF INCOME FILED BY SHRI LAXMINIWAS V. AGRAWAL UNDER THE H EAD INCOME FROM OTHER SOURCES. THE TDS RETURN OF THE ASSESSEE W AS ALSO RELIED IN SUPPORT OF THE GENUINENESS OF PAYMENT OF COMMISSION TO S HRI LAXMINIWAS V. AGRAWAL. ASSESSEE SUBMITTED THAT THE PAYMENT MADE TO SHRI LAXMINIWAS V. AGRAWAL IS A GENUINE TRANSACTION AND THER E IS NO INTENTION TO EVADE THE TAX. HOWEVER, CIT(A) DID NOT APPRECIATE THE SAME. IN PARA NO.13 OF HIS ORDER, CIT(A) REASONED THAT WHEN THERE IS NO EMPLOYEE- EMPLOYER RELATIONSHIP BETWEEN THE COMPANY AND SHRI LAXMIN IWAS V. AGRAWAL, THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE WITH EVIDENCES THE NATURE AND EXTENT OF SERVICES RENDERED BY SHRI LAXMINIW AS V. AGRAWAL TO THE COMPANY. THE FAILURE TO DEMONSTRATE THE SAME ATTRAC TS THE DISALLOWANCE AND ACCORDINGLY, THE CIT(A) CONFIRMED THE DISALLO WANCE MADE BY THE AO. FURTHER, REGARDING THE ALLOWABILITY OF THE COMMISSION PAYMEN TS MADE TO SHRI RAMESH CHANDAK (HUF) AND SHRI RAVINDRA AGRAWAL (H UF), IT IS THE CASE OF THE CIT(A) THAT THE SAME IS NOT AN ALLOWABLE DEDUC TION U/S.37 OF THE 5 ACT AS THE ASSESSEE FAILED TO FILE THE PROOF IN SUPPORT OF R ENDERING OF THE SERVICES BY THE HUF. CONTENTS OF PARA 16 OF HIS ORDER ARE RELEVANT. 7. BEFORE US, THERE IS NONE TO REPRESENT THE CASE OF TH E ASSESSEE. DESPITE SERVICE OF NOTICE ON THE ASSESSEE ON 26-02-2018 INFORMING THE DATE OF HEARING ON12-03-2018, NEITHER THERE IS ANY LETTER FOR ADJOURNMENT OF THE CASE NOR THE ASSESSEE PRESENTED HIMSELF BEFORE US. C ONSIDERING THE FACTS OF THE CASE AND WITH THE ASSISTANCE OF LD. DR FOR THE REV ENUE, WE PROCEED TO ADJUDICATE THE APPEAL IN THE FOLLOWING MANNER. 8. DURING THE HEARING BEFORE US, LD. DR FOR THE REVENUE S UBMITTED THAT THIS IS A CASE WHERE THE DISALLOWANCE OF CLAIMS OF COMMISSION MADE TO THE DIRECTOR/COMMISSION AGENTS WAS MADE FOR WANT OF EVIDENCES IN SUPPORT OF THE CLAIM OF RENDERING OF SERVICES BY SHRI LAXMINIWAS V. AGR AWAL AND TWO OTHERS. THE ONUS IS ON THE ASSESSEE TO PROVE RENDERIN G OF SERVICES BY THE DIRECTOR AS WELL AS THE COMMISSION AGENTS. ON CONSIDERING THE SAME, WE FIND THE APPEAL CAN BE ADJUDICATED WITH THE HELP OF LD. DR FOR THE REVENUE AND ALSO BASED ON THE PAPERS AVAILABLE ON RECORDS. 9. FURTHER, LD. DR FOR THE REVENUE SUBMITTED THAT THE O NUS IS ON THE ASSESSEE TO SUBMIT THE REQUISITE EVIDENCES WHEN A CLAIM O F DEDUCTION IS MADE U/S.37 OF THE ACT. IT IS THE CLAIM OF THE ASSESSEE T HAT THE COMMISSION PAYMENTS WERE OFFERED TO TAX BY THE PAYEES IN THEIR RES PECTIVE RETURNS OF INCOME AND PAID THE TAXES AT HIGHER RATES. HOWEVER, THE RE IS A REQUIREMENT OF ASSESSEE TO FILE THE EVIDENCES TO SHOW DISCLOSING OF THE COMMISSION RECEIPTS IN THEIR RESPECTIVE RETURNS OF INCOME AND THE AP PLICABLE RATES. REFERRING TO THE SAID FAILURE OF THE ASSESSEE QUA THE TAX RATES APPLICABLE TO THE ASSESSEE AND THE PAYEES, LD. DR FOR THE REVENUE SU BMITTED THAT THE MATTERS NEED TO REVISIT THE FILE OF THE AO FOR WANT OF D ATA ON THE APPLICABLE 6 MAXIMUM MARGINAL RATES AND ALSO THE APPLICABILITY OF THE BIND ING JUDGMENT IN THE CASE OF INDO-SAUDI SERVICES (TRAVEL) PVT. LTD. 310 ITR 306 (BOM.) 10. AFTER HEARING THE LD. DR FOR THE REVENUE AND AFTER GOING THROUGH THE ORDERS OF THE REVENUE AVAILABLE ON RECORD, WE ARE OF THE OPINION THAT THE ASSESSEE PAID COMMISSION TO SHRI LAXMINIWAS V. AGRAWAL, DIRE CTOR OF THE COMPANY AND THE SAME HAS THE SUPPORT OF THE BOARDS RESOLUTION. IN OUR VIEW THIS PART OF THE CLAIM IS ALLOWABLE SUBJECT TO THE DOCU MENTATION RELATING TO THE FILING OF COMPUTATION OF INCOME OF SHRI LAXMINIW AS V. AGRAWAL AND THE APPLICABLE HIGHER TAX RATES. THIS LINE OF AD JUDICATION HAS THE SUPPORT OF BINDING JUDGMENTS OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. INDO-SAUDI SERVICES (TRAVEL) PVT. LTD. 310 ITR 306 (BOM.). OF COURSE, AO SHALL NOTE THAT THIS JUDGMENT IS DELIVERED IN THE CONTEXT OF THE INVOKING OF THE PROVISIONS OF SECTION 40A(2) OF THE ACT. IN THE SAID CASE, IT IS HELD THAT THE INCENTIVE COMMISSION NEED TO BE ALLOWED IN THE HANDS OF THE PAYER, WHEN THE PAYEE PAYS TAX AT HIGHER TAX RATE . ACCORDINGLY, THIS PART OF THE GROUND IS ALLOWED AS ABOVE. 11. REGARDING THE COMMISSION PAYMENTS MADE TO THE COMM ISSION AGENTS, I.E. SHRI RAMESH CHANDAK (HUF) AND SHRI RAVINDRA AGRAWAL (HUF ), WE FIND THESE PAYMENTS ARE MADE TO THESE PARTIES FOR THE FIRST TIME AND THE DEDUCTION IS CLAIMED U/S.37 OF THE ACT. THEREFORE, THERE IS NEED FOR DISCHARGE OF ONUS BY THE ASSESSEE WITH REFERENCE TO THE NATURE OF SERVICES RENDERED BY THEM TO THE COMPANY. THEREFORE, FOR WANT OF DISCHARGE OF ONUS BY THE ASSESSEE, WE FIND THIS PORTION OF THE ISSUE NE EDS TO BE REMANDED TO THE FILE OF THE AO. ASSESSEE SHALL BE GRANT ED REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANC E WITH THE SET PRINCIPLES OF NATURAL JUSTICE. 7 IN THE REMAND PROCEEDINGS BEFORE THE AO, THE ASSESSEE SHALL DISCHARGE THE ONUS WITH REFERENCE TO FURNISHING OF THE DET AILS OF THE SERVICES RENDERED BY THE PAYEES AND OTHERS AS MENTIONED ABOVE . FURTHER, WE DIRECT THE AO TO ENTERTAIN THE EVIDENCES IF ANY IN THE INTEREST OF ADMINISTRATION OF JUSTICE. WITH THESE DIRECTIONS, WE REMAND THE AFORESAID ISS UES TO THE FILE OF AO FOR FRESH ADJUDICATION. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 21 ST DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 21 ST MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-2, AURANGABAD 4. / THE CIT-2, AURANGABAD 5. , , / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE