AMBIKA SHIPPING AGENCY, MUMBAI V. ITO 23(2)(1), MUMBAI

ITA 257/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1773 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G C LALKA
• Keywords: Revised return
• Section: 143(3); 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND !'# , ! . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 257/MUM/2012 $ $ $ $ / ASSESSMENT YEAR 2008-09 M/S. AMBIKA SHIPPING AGENCY, C/O. T.M. GOSHER & CO., C.AS., 12, SHIVAJI FORT CO-OP. HSG. SOCIETY LTD., N.S. MANKIKAR MARG, SION (EAST), MUMBAI-400 022. PAN: AAGFA 4498 J VS. THE INCOME TAX OFFICER 23(2)(1), MUMBAI. ( %& / APPELLANT ) ( '(%& / RESPONDENT ) %& ) ! / APPELLANT BY : SHRI G.C. LALKA '(%& + ) ! /RESPONDENT BY : SHRI MANOJ KUMAR + ,- / DATE OF HEARING : 14-02-2013 .$ + ,- / DATE OF PRONOUNCEMENT : 22-02-2013 /!0 / O R D E R PER RAJENDRA, A.M. FOLLOWING GROUNDS OF APPEAL HAVE BEEN FILED BY THE APPELLANT AGAINST THE ORDER DT. 18-10-2011 OF THE CIT(A)-33, MUMBAI : GROUNDS OF APPEAL 1.THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AN ADDITION OF RS. 4,87,500/- BY DISALLOWING COMMISSION PAID TO RELATED PARTIES AS D EFINED U/S. 40A2(B) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE SAME IS PAID A T A HIGHER RATE IN COMPARISON TO THE RATE PAID TO OTHER PARTIES, WITHOUT CONSIDERING THE NATURE OF THE WORK PROVIDED BY THEM. THE SAME VIEW WAS UPHELD BY THE CIT(A). THE SAID ADDITION IS UNJUST AND REQUIRES TO BE DELETED. ITA NO. 257/MUM/2012 M/S. AMBIKA SHIPPING AGENCY 2 2.THE APPELLANT CRAVES TO ADD, ALTER AND/OR DELETE ANY OF THE AFORESAID GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE DATE OF FINAL HE ARING. ADDITIONAL GROUNDS OF APPEAL 1.WHILE MAKING THE DISALLOWANCE OF RS. 4,87,500/- U /S. 40A2(B) OF THE INCOME TAX ACT, 1961, THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOWING THE PROPORTIONATE AMOUNT OUT OF RS. 5,00,000/- WHICH WAS PAID TO THE COUSIN BROTHERS OF THE PARTNER, WITHOUT CONSIDERING THE FACT THAT THE DEFINITION OF RELATIVE U/S. 2(41) DOES NOT INCLUDE COUSIN BROTHERS. HENCE, THE DISALLOWANCE IS UNCALL ED FOR. 2.THE APPELLANT CRAVES TO ADD, ALTER AND/OR DELETE ANY OF THE AFORESAID GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE DATE OF FINAL HE ARING. 2. ASSESSEE FIRM, A CUSTOM HOUSE AGENT, FILED THE ORIGINAL RETURN OF INCOME ON 02-09-2008 DECLARING TOTAL INCOME OF RS. 7,91,234/- . LATER ON A REVISED RETURN OF INCOME WAS FILED ON 03-09-2011 DECLARING TOTAL INCO ME OF RS. 7,74,220/-. ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER(A O) ON 30-12-2010 U/S. 143(3) OF THE INCOME TAX ACT, 1961 (ACT) DETERMINING THE T OTAL INCOME AT RS. 12,61,720/-. 3. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD DEBITED COMMISSION OF RS. 26,70,000/- OUT OF WHICH COMMISSI ON PAID TO PERSONS FALLING UNDER PROVISIONS OF SEC. 40A(2)(B) WAS OF RS. 13,00,000/- . AO DIRECTED THE ASSESSEE TO FILE EXPLANATION ABOUT THE PAYMENTS COVERED BY THE PROVI SIONS OF SEC. 40A(2)(B). AFTER CONSIDERING THE SAME, HE HELD THAT SUBMISSIONS MADE BY THE ASSESSEE WERE NOT ACCEPTABLE, THAT ASSESSEE WAS ALSO NOT ABLE TO PROD UCE ANY EVIDENCE IN THE FORM OF CORRESPONDENCE WITH THE PROSPECTIVE CUSTOMERS, THAT THERE WAS NO EVIDENCE WITH REGARD TO PAYMENT OF COMMISSION AND INCREASE IN BUS INESS PROFIT, THAT THE RATE OF COMMISSION PAID TO PERSONS FALLING U/S. SEC. 40A(2) (B) WAS RANGING BETWEEN 30% TO 40% WHEREAS THE COMMISSION PAID TO OUTSIDERS WAS RA NGING BETWEEN 18% TO 40%. HE FURTHER HELD THAT THE COMMISSION PAID TO FIVE PERSO NS COVERED BY THE PROVISIONS OF SEC. 40A(2)(B) WORKED OUT TO 32%. FINALLY, HE MADE A DIS-ALLOWANCE OF RS. 4.87 LAKHS ON ACCOUNT OF COMMISSION PAID AS HE WAS OF TH E OPINION THAT SAME WAS UN- REASONABLE. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE FACTS AND SUBMISSIONS MADE BY THE APPELLANT, FAA HELD THAT THE RANGE OF COMMISSION WAS FROM 9% TO 40% , THAT THE C OMMISSION PAID TO RELATED PARTIES BEING BETWEEN 30% TO 40% WAS WITHIN THE RAN GE, THAT COMMISSION PAID WAS EXCESSIVE, THAT M/S. ARVIND M. JOSHI & CO., A FIRM, TO WHOM COMMISSION HAD BEEN PAID DID NOT FALL WITHIN THE MISCHIEF OF SEC. 40A(2 )(B) OF THE ACT, THAT FOUR INDIVIDUALS FELL WITHIN THE NET OF SEC. 40A(2)(B). AFTER GOING THROUGH THE COPIES OF THE BILLS FURNISHED BY THE APPELLANT IN APPELLATE PROCEEDINGS , FAA FOUND THAT THEY WERE RAISED TO VARIOUS PARTIES WHO HAD BEEN CLAIMED BY THE ASSE SSEE AS HAVING BEEN INTRODUCED BY THE RELATED PARTIES. FAA FOUND THAT NAME OF THESE RELATED PARTIES NOWHERE APPEARED ON THE BILLS AS INTRODUCERS, THAT NO SUCH REFERENCE OF ANY OF THE FOUR PERSONS WAS MENTIONED ON THE BILLS, THAT APPELLANT HAD CLAIMED THAT COMMISSION IS PAID FOR THE SERVICES GIVEN BY THESE PARTIES, THAT THE APPELLANT HAD NOT GIVEN NAME OF ANY PROSPECTIVE CLIENTS, THAT ASSESSEE WAS NOT ABLE TO FURNISH ANY OTHER PAPER OR DOCUMENT INCLUDING ANY AGREEMENT TO SHOW THAT THESE RELATED PARTIES WERE CAPABLE OF GIVING SUCH WORK TO THEM, THAT THE TERMS OF SERVICES AND R ATE OF PAYMENT OF COMMISSION WERE ITA NO. 257/MUM/2012 M/S. AMBIKA SHIPPING AGENCY 3 NOT PRODUCED, THAT THE APPELLANT COULD NOT PRODUCE ANY EVIDENCE IN THE FORM OF CORRESPONDENCE WITH THE PROSPECTIVE CUSTOMERS TO PR OVE THAT BUSINESS HAD EFFECTED THROUGH THE PARTIES TO WHOM COMMISSION PAYMENT HAD BEEN MADE. FAA HELD THAT THE VERY NATURE OF SERVICE HAD NOT BEEN PROVED BY THE A PPELLANT SATISFACTORILY DURING THE ASSESSMENT AS WELL AS IN THE APPELLATE PROCEEDINGS. THEREFORE, FAA FINALLY HELD THAT THE DISALLOWANCE SHOULD NOT BE MADE SEC. 40A(2)(B). BUT LOOKING INTO THE FACT THAT GENUINENESS OF THE EXPENSES, FAA HELD THAT DISALLOW ANCES MADE @ 20% I.E., RS. 4,87,500/-. HOLDING THE SAID DIS-ALLOWANCE SHO ULD BE RESTRICTED. HE CONFIRMED THE ORDER OF THE AO. 5. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT FIRM WAS ENGAGED IN THE BUSINESS OF CUSTOM HOUSE CLEANING, THAT FIRM CARRIED OUT WORK FOR OTHERS, WHO HAD CLIENTS BUT DID NOT OWN LICENSES, THAT SUCH PAR TIES WERE PAID COMMISSION FOR INTRODUCING CUSTOMERS TO THE ASSESSEE-FIRM, THAT FI RM WAS NOT COVERED BY THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT, THAT COMMI SSION PAYMENT WAS REASONABLE. HE RELIED UPON THE DECISIONS OF DIFFERENT BENCHES O F ITAT IN THE CASES OF MAHABIR JUTE MILLS LTD., [17 TTJ (ALL) 49] ITAT ALLAHABAD B ENCH (ITA NO. 1585/ALL/1981 AY. 1972-73); S.L. PODDAR [9 TTJ (PAT) 370] ITAT PA TNA BENCH (ITA NO. 281 OF 1979 AY. 1976-77); RAM & CO (INTERIORS) P. LTD., [1 SOT 145 (MUMBAI)] ITAT MUMBAI BENCH ( ITA NO. 2531/MUM/1997); SANCHITA MAR INE PRODUCTS P. LTD., [15 SOT (MUMBAI)] ITAT, MUMBAI BENCH (ITA NOS. 8400/MUM /2000 & 9626/MUM/2004) AND SHIV AGRO LTD., [123 TTJ (JP) 41 6] ITAT JAIPUR BENCH (ITA NOS. 994 & 1055/JP/2007 AYS. 1999-2000 & 2003-04). DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT COMMISSION PAID TO RELATED PERS ONS WAS ON HIGHER SIDE AND UN- REASONABLE, THAT EVIDENCE ABOUT RENDERING OF SERVIC ES WAS NOT PRODUCED BY THE ASSESSEE DURING ASSESSMENT/APPELLATE PROCEEDINGS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT DIS-ALLOWANCE WITH REGARD TO COMMISSION PAYMENT WAS MADE BY THE AO BY INVOKING PROVISIONS OF SEC. 40A(2), WHER EAS FAA HAS DIS-ALLOWED THE SAME U/S. 37 OF THE ACT. IN OUR OPINION, FAA HAS R IGHTLY HELD THAT FIRM I.E., M/S. ARVIND M. JOSHI & CO., WAS NOT COVERED BY THE PROVI SIONS OF SEC. 40A(2) OF THE ACT. OUT OF THE TOTAL COMMISSION OF RS. 13 LAKHS, DISALL OWED BY THE AO U/S. 40A(2), RS. 4.5 LAKHS WERE PAID TO THE FIRM AND BALANCE OF RS. 8.5 LAKHS WERE PAID TO THE RELATED PERSONS. AO HAS HELD THAT PAYMENTS MADE TO SHRI PIY USH JOSHI, AJAY JOSHI, SUNIL JOSHI, HIREN JOSHI WAS VIOLATION OF PROVISIONS OF S EC. 40A(2). AO HAS NOWHERE DISCUSSED AS WHETHER THE SAID PERSONS WERE RELATIVE S OF THE PARTNERS OF THE FIRM AS PER THE PROVISIONS OF HINDU LAW, ESPECIALLY HINDU SUCCE SSION ACT (HSA). AR AND DR, WHEN SPECIFICALLY INQUIRED ABOUT THE APPLICABILITY OF PROVISIONS OF HSA BY THE BENCH, SUBMITTED THAT THEY WOULD MAKE SUBMISSION IN THIS R EGARD. BUT, TILL WRITING OF THE ORDER, SUCH SUBMISSIONS HAVE NOT BEEN MADE. 7. HOWEVER, THE ORDER BEFORE US TO BE ADJUDICATE UPON IS OF FAA AND SHE HAS HELD THAT DIS-ALLOWANCE HAD TO BE CONFIRMED U/S. 37(1) O F THE ACT. WE FIND THAT ASSESSEE HAD NOT PRODUCED ANY EVIDENCE BEFORE THE AO/FAA ABO UT RENDERING OF SERVICE BY SHRI PIYUSH JOSHI, AJAY JOSHI, SUNIL JOSHI AND HIREN JOS HI. IF NO SERVICES WERE RENDERED BY THESE PERSON, THEN ALLOWING 80% OF THE EXPENDITURE CANNOT BE HELD JUSTIFIED. AS FAR AS LAWS RELIED UPON BY THE AR IS CONCERNED, IN OUR OPI NION, THEY ARE NOT RELEVANT FOR DECIDING THE ISSUE. ISSUE TO BE DELIBERATED UPON B Y US THE ORDER OF THE FAA AND NOT OF THE AO. SO, CASES DEALING WITH PROVISIONS OF SEC. 40A(2) ARE NOT RELEVANT. WE ARE OF ITA NO. 257/MUM/2012 M/S. AMBIKA SHIPPING AGENCY 4 THE OPINION THAT MATTER NEEDS VERIFICATION. THEREF ORE, IN THE INTEREST OF JUSTICE, MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR FRESH AD JUDICATION FOR THE LIMITED PURPOSE OF DECIDING THE ISSUE OF COMMISSION PAYMENT. AO IS DIR ECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUNDS OF APPEAL FILED BY THE ASSESSEE-FIRM ARE ALLOWED IN PART. AS A RESULT, APPEAL FILED BY THE APPELLANT STANDS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 2 ND FEBRUARY, 2013 /!0 + .$ - ! ' 1 2/ 22 3 , 2013 + 4 5 SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !- /6 / ACCOUNTANT MEMBER MUMBAI, 2/ DATE: 22 - 02-2013 TNMM /!0 /!0 /!0 /!0 + ++ + ',7 ',7 ',7 ',7 8!7$, 8!7$, 8!7$, 8!7$, / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI 6. G UARD FILE (7, ', //TRUE COPY// /!0 /!0 /!0 /!0 / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI