ITO 16(3)(4), MUMBAI V. SUCHETA BAKUL PATKAR, MUMBAI

ITA 2602/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3678 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 16-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH GAIKWADDR
• Assessee Lawyers: ARVIND SONDE; MATHRUDEV VASUDEVAN

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/2602/MUM/2013, /ASSESSMENT YEARS: 2009-10 INCOME TAX OFFICER-16 (3)(4) MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007. VS. SMT. SUCHETA B. PATKAR JAYAKAR BUILDING, AVANTIKABAI GOKHALE STREET, OPERA HOUSE MUMBAI-400 004. PAN:AOPPP 7947 G ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI KAILASH GAIKWAD-DR ASSESSEE BY: SHRI ARVIND SONDE & SHRI MATHRUDEV VASUDEVAN / DATE OF HEARING: 18.07.2016 / DATE OF PRONOUNCEMENT: 12.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DTD.28.01.2013,OF THE CIT(A)- 27,MUMBAI,THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL,IS ENGAGED IN THE BUSINESS OF DISTRIBUTION AND MARKETING OF LIQUO R PRODUCTS,FILED HER RETURN OF INCOME ON 24.09.2009,DECLARING INCOME OF RS.9.05 LA KHS.THE AO COMPLETED THE ASSESSMENT,U/S.143 (3) OF THE ACT,ON 27.12.2011 ,DETERMINING HER INCOME AT RS.73.36 LAKHS. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE DISALL OWANCE MADE U/S. 40(A)(IA) OF THE ACT,AMOUNTING RS. 55.45 LAKHS.DURING THE ASS ESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE WAS PROPRIETOR OF THE BU SINESS CONCERN NAMELY ADVAIT ENTERPRISES THAT WAS ENGAGED IN MARKETING OF CONSUMER AND LIQUOR PRODUCTS THROUGH ITS AGENTS.WHILE SCRUTINISING THE PROFIT AND LOSS ACCOUNT,HE FOUND THAT SHE HAD RECEIVED COMMISSION OF RS. 93.80 LAKHS, THAT SHE HAD PAID COMMISSION AMOUNTING TO RS. 61. 82 LAKHS TO VARIOUS PARTIES/AGENTS, THAT SHE DID NOT DEDUCT TAX ON SUCH PAYMENTS,THAT SHE HAD CLAIME D THAT THE PAYMENT OF 2602/M/13 SMT.SUCHETA BAKUL 2 COMMISSION AGENTS INCLUDED REIMBURSEMENT EXPENSES.T HE AO ISSUED NOTICES U/S. 133 (6) OF THE ACT SEEKING INFORMATION FROM TH E THREE PARTIES/AGENTS. AFTER CONSIDERING THE SUBMISSIONS OF THOSE PARTIES, HE HELD THAT THE ASSESSEE HAD PAID TO HER AGENT COMMISSION.HE MADE FURTHER ENQUIR IES AND BEFORE HIM THE ASSESSEE ADMITTED THAT OUT OF THE TOTAL PAYMENT RS. 55.45 LAKHS WAS TOWARDS REIMBURSEMENT EXPENSES INCURRED BY THE AGENTS,THAT RS.6.73 LAKHS WAS TOWARDS PAYMENT OF COMMISSION.SHE SUBMITTED A COPY OF THE A PPOINTMENT LETTER WHICH PROVED THAT SHE HAD ENTERED INTO AN AGREEMENT WITH HER PRINCIPLE AND IT WAS AGREED THAT TRAVELLING EXPENSES WOULD BE REIMBURSED .THE AO HELD THAT THE ASSESSEE WAS FUNCTIONING AS A WHOLESALER/DEALER,THA T AGENTS WERE FUNCTIONING AS LOCAL AGENTS,THAT THE LOCAL AGENTS WERE MORE IN THE NATURE OF RETAIL TRADERS WHO HAD TO INCUR EXPENSES ON TRAVEL,THAT SHE HAD NOT SU BMITTED ANY EVIDENCE TO SHOW THAT THE AMOUNTS OF COMMISSION PAID INCLUDED THE AM OUNT REIMBURSEMENT TO THE EXTENT OF RS.55, 45, 054/-,THAT SHE DID NOT FURNISH DOCUMENTS TO PROVE THAT THE EXPENSES WERE INCURRED IN CONNECTION WITH THE SALE OF LIQUOR AND SHE HAD REIMBURSED THE EXPENSES INCURRED BY THE AGENTS,THAT THE REIMBURSEMENT BEING INCIDENTAL TO THE PAYMENT OF AGENCY COMMISSION WOUL D PARTAKE THE CHARACTER OF COMMISSION PAYMENT ONLY, THAT SUBSTANCE OF THE TRAN SACTION WAS MORE IMPORTANT THAN THE FORM,THAT THE ENTIRE PAYMENT WAS TO BE TRE ATED AS COMMISSION PAYMENT,THAT THE PAYMENT OF COMMISSION WAS SUBJECT TO DEDUCTION OF TDS U/S.194H OF THE ACT,THAT SHE HAD FAILED TO DEDUCT T AX AT SOURCE,THAT THE EXPENDITURE SHOWN BY HER TOWARDS COMMISSION PAYMENT WAS LIABLE TO BE DISALLOWED U/S.40(A)(IA)OF THE ACT.ACCORDINGLY,A SU M OF RS. 61.82 LAKHS,PAID AS COMMISSION,WAS ADDED BACK TO HER INCOME. 3 .AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,SHE SUBMI TTED THAT AS PER THE CLAUSE 11 OF THE AGREEMENT WITH M/S. ABD PVT.LTD.(ABDPL),I T WAS AGREED UPON BETWEEN THE ASSESSEE AND THE COMPANY THAT ON SUBMIT TING THE MONTHLY TRAVEL 2602/M/13 SMT.SUCHETA BAKUL 3 BILLS OF THE FIELD FORMATION/AGENTS EMPLOYED BY HER TRAVEL EXPENSES WOULD BE REIMBURSED TO A MAXIMUM AMOUNT BEING RS. 43.50 PER CASE OF LIQUOR SOLD, THAT THE AGREEMENT PROVIDED THAT REIMBURSEMENT WOULD NOT ATTRACT ANY SERVICE TAX OR WOULD NOT BE LIABLE FOR TDS,THAT IT WAS THE PRIMAR Y RESPONSIBILITY OF ABDPL TO REIMBURSED THE EXPENSES TO THE SUB-AGENTS,THAT ONLY FOR THE SAKE OF CONVENIENCE THE AMOUNTS WERE ROUTED THROUGH THE ACCOUNT OF THE ASSESSEE,THAT SHE HAD ALSO ENTERED INTO SIMILAR AGREEMENT WITH HER AGENTS ACCO RDING TO WHICH ABDPL WAS RESPONSIBLE FOR REIMBURSING EXPENSES INCURRED BY TH E AGENTS, THAT THE REIMBURSEMENTS WERE MADE AGAINST THE ACTUAL BILL FO R EXPENSES SUBMITTED BY THE AGENTS,THAT THE IMPUGNED PAYMENT COULD NOT BE CONSI DERED AS COMMISSION PAID TO THE AGENTS,THAT THE PARTIES,FROM WHOM ENQUIRIES WERE MADE BY THE AO, HAD CONFIRMED IN WRITING THAT PAYMENTS RECEIVED BY THEM INCLUDED REIMBURSEMENT OF TRAVEL AND OTHER EXPENSES, THAT THE AO HAD IGNOR ED THE SUBMISSION MADE BY THEM,THAT THE EXPENSES REIMBURSED TO THE AGENTS COU LD NOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE, THAT THE PAYMENT WOUL D NOT PARTAKE THE CHARACTER OF COMMISSION,THAT THERE WAS NO LIABILITY ON PART OF T HE ASSESSEE TO DEDUCT TAX ON SUCH AMOUNT PAID.A REFERENCE WAS MADE TO THE CASE O F THE HUSBAND OF THE ASSESSEE FOR THE AY.2002-03,WHEREIN THE FAA, BASED ON THE SIMILAR FACTS,HAD HELD THAT AMOUNTS RECEIVED ON BEHALF OF SUB-AGENTS DID NOT CONSTITUTE THE TURNOVER AND AFTER EXCLUDING SUCH AMOUNTS THE NET C OMMISSION RECEIVED BY THE ASSESSEE BEING LESS THAN RS. 40 LAKHS THE ASSESSEE WAS NOT REQUIRED TO GET THEIR ACCOUNTS AUDITED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT SHE WAS APPOINTED AS PROMOTER OF THE LIQUOR BRANDS MANUFACTURED BY ABDPL AND TO BE SUPPLIED TO THE CANTEEN STORES D EPARTMENT OF THE ARMED FORCES ACROSS THE COUNTRY.HE REFERRED TO THE AGREEM ENT DATED 01/04/2008 ENTERED INTO BY HER WITH THE COMPANY.AFTER ANALYSIN G THE VARIOUS CLAUSES OF THE AGREEMENT, INCLUDING CLAUSE 11, 12 AND 13 OF THE AG REEMENT,HE HELD THAT THE ASSESSEE WAS REQUIRED TO APPOINT SUBAGENTS TO MARKE T THE LIQUOR PRODUCTS OF ITS 2602/M/13 SMT.SUCHETA BAKUL 4 PRINCIPAL, THAT ACCORDINGLY SHE ENTERED INTO AGREEM ENTS WITH VARIOUS SUBAGENTS- NUMBERING 29,LOCATED AND SPREAD ACROSS THE LENGTH A ND BREADTH OF THE COUNTRY,THAT THE AGREEMENTS ENTERED WITH THE SUBAGE NTS PROVIDED FOR SERVICES TO BE RENDERED BY THEM.THE FAA ANALYSED AGREEMENT BETW EEN THE ASSESSEE AND HER AGENTS AND HELD THAT IT WAS MUTUALLY AGREED THA T SUBAGENTS WOULD INCUR ALL NECESSARY EXPENSES FOR OBTAINING ORDERS AND THAT TH E EXPENSES WOULD BE REIMBURSED ON SUBMISSION OF MONTHLY STATEMENT OF AC COUNTS,THAT THE PRINCIPAL WAS RESPONSIBLE FOR REIMBURSING THE ACTUAL EXPENSES INCURRED BY THE SUBAGENTS THROUGH THE ASSESSEE SUBJECT TO A MAXIMUM OF RS.43. 50 PER CASE,THAT ANY EXPENDITURE IN EXCESS OF THE SPECIFIED LIMIT WAS TO BE REIMBURSED BY THE SUBAGENT,THAT IT WAS ALSO AGREED THAT REIMBURSEMENT WOULD NOT ATTRACT ANY SERVICE TAX NOR WOULD IT BE LIABLE FOR DEDUCTION AT SOURCE, THAT FOR RENDERING THE SERVICES TO HER PRINCIPLE THE ASSESSEE HAD RECEIVED A COMMISSION OF RS.38.35 LAKHS AND REIMBURSEMENT OF EXPENSES INCURRED BY THE SUBAGENTS OF RS.55.45 LAKHS FROM ABDPL FOR THE YEAR UNDER CONSIDERATION,T HAT SHE HAD,IN TURN,PAID A COMMISSION OF RS.6.27 LAKHS TO THE SUBAGENTS FOR TH E SERVICES RENDERED BY THEM THAT FURTHER SHE PASSED ON THE AMOUNT OF RS.55.45 L AKHS RECEIVED TOWARDS THE REIMBURSEMENT OF EXPENSES INCURRED,THAT THE AMOUNT OF RS.55.45 LAKHS WAS PAID BY THE PRINCIPAL TOWARDS REIMBURSEMENT OF EXPENSES INCURRED BY THE AGENTS OF THE ASSESSEE, THAT THE SAID FACT WAS CONFIRMED BY W AY OF A LETTER DATED 30/06/2009 ISSUED BY THE ASST.VP OF THE SALES DIVIS ION OF ABDPL.THE FAA FURTHER HELD THAT THE AO HAD MADE ENQUIRIES BY ISSU ING NOTICES U/S. 133 (6) OF THE ACT, THAT IN RESPONSE TO THE NOTICES THREE PART IES HAD ADMITTED OF RECEIVING REIMBURSEMENT FROM THE ASSESSEE, THAT THE AO HAD NO T TAKEN THE CONFIRMATION FILED BY THE THREE PARTIES INTO CONSIDERATION WHILE DETERMINING THE TAX LIBRARY OF THE ASSESSEE,THAT THE SERVICE AGREEMENTS ENTERED BY THE ASSESSEE WITH THE PRINCIPAL AND THE SUBAGENTS SPECIFICALLY MENTIONED THAT THE SERVICES WERE TO BE RENDERED BY THE ASSESSEE WITH THE HELP OF ITS SUBAG ENTS WAS TO BE REIMBURSED BY THE PRINCIPAL, THAT THE AGREEMENTS CLEARLY MENTIONE D THAT REIMBURSEMENT WOULD 2602/M/13 SMT.SUCHETA BAKUL 5 BE MADE ON SUBMISSION OF THE MONTHLY TRAVEL BILLS B Y THE FIELD FORCE OF THE ASSESSEE,THAT AN UPPER LIMIT TO THE REIMBURSEMENT W AS ALSO PROVIDED IN ORDER TO ENSURE THAT NO ACCESS CLAIM WAS MADE, THAT THE AGEN TS APPOINTED BY THE ASSESSEE WERE NOT IN THE NATURE OF RETAIL SHOP OWNERS, AS ST ATED BY THE AO IN HIS ORDER,THAT THE CANTEEN STORES DEPOTS OF THE ARMED F ORCES WERE LOCATED ACROSS THE INDIA, THAT THE ASSESSEE WAS REQUIRED TO PROMOT E THE SALES OF THE PRINCIPAL IN ALL THE OUTLETS,THAT THE SAID FACT STOOD CONFIRMED BY THE LIST OF AGENTS APPOINTED BY HER,THAT SHE WAS EXPECTED TO CARRY OUT LOT OF SE RVICES AS PER THE AGREEMENT ENTERED WITH THE PRINCIPAL, THAT RENDERING OF SUCH SERVICES REQUIRED A LOT OF TRAVEL AND OTHER EXPENSES, THAT THE SUBAGENTS WERE INTERNE D EXPECTED TO CARRY OUT ALL THE SERVICES THAT WERE AGREED UPON BY THE ASSESSEE WITH THE PRINCIPAL, THAT MONTHLY TRAVEL BILLS WERE FURNISHED BY THE AGENTS, THAT ASSESSEE WOULD FORWARD THE BILLS TO THE PRINCIPAL AS REQUIRED BY THE AGREE MENT, THAT THE REIMBURSEMENT WERE MADE BY THE PRINCIPAL ON BEING SATISFIED WITH SUCH BILLS, THAT IT WAS NOT THE CASE OF THE AO THAT EXPENDITURE WAS INFLATED OR DOU BTFUL, THAT THE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE FROM HER PRINCIPLE AND PASSED ONTO THE SUBAGENTS WAS A SEPARATE ITEM OF PA YMENT BY ITSELF AND IT COULD NOT BE TREATED ON PAR WITH THE COMMISSION.RELYING U PON THE CERTAIN CASE LAWS,HE HELD THAT THE REIMBURSEMENT OF EXPENSES DID NOT CON STITUTE INCOME IN THE HANDS OF THE RECIPIENT,THAT SUCH REIMBURSEMENT WAS NOT LI ABLE FOR DEDUCTION OF TAX IN THE HANDS OF THE PERSONS MAKING THE PAYMENT,THAT RE IMBURSEMENT OF EXPENSES COULD NOT BE SUBJECT MATTER OF DISALLOW -ANCE U/S.4 0(A)(IA).HE FURTHER MENTIONED THAT TOTAL PAYMENT RECEIVED BY THE ASSESSEE DURING THE YEAR FROM ITS PRINCIPAL WAS OF RS. 93.80 LAKHS, THAT OUT OF IT AND AMOUNT O F RS.55.45 LAKHS WAS TOWARDS REIMBURSEMENT OF EXPENSES INCURRED BY SUBAGENTS AND ROUTED THROUGH THE ASSESSEES BOOKS IN THE TERMS OF THE AGREEMENT, THA T IN OTHER WORDS COMMISSION RECEIVED BY THE ASSESSEE IN THE TERMS OF THE AGREEM ENT WAS OF RS.38.35 LAKHS, THAT THE SAID AMOUNT WAS BELOW THE LIMIT OF RS. 40 LAKHS LAID DOWN U/S. 44AB OF THE ACT. FINALLY,HE HELD THAT THE PAYMENT OF RS.55. 45 LAKHS, MADE TOWARDS 2602/M/13 SMT.SUCHETA BAKUL 6 REIMBURSEMENT OF EXPENSES TO THE SUBAGENTS, WAS NOT LIABLE FOR DEDUCTION OF TAX U/S.194H OF THE ACT CAPITALISE THAT, THAT THE PAYME NT OF RS.6.37 LAKHS TOWARDS PAYMENT OF COMMISSION WAS LIABLE FOR DEDUCTION, THA T ASSESSEE HAD NOT DEDUCTED TAX ON THE PAYMENT OF RS.6,37,363/-, THAT THE AO HA D RIGHTLY DISALLOWED THE SAID AMOUNT U/S. 40(A)(IA). THUS,HE DELETED THE DISALLOW ANCE OF RS. 55.45 LAKHS AND CONFIRMED THE DISALLOWANCE OF RS.6.37 LAKHS. 4. DURING THE COURSE OF HEARING BEFORE US THE DEPARTME NTAL REPRESENTATIVE(DR) STATED THAT THE PAYMENT IN QUESTION WAS NOT REIMBUR SEMENT,THAT IT WAS COMMISSIONS PAYMENT,THAT THE AO HAD RIGHTLY INVOKED THE PROVISIONS OF SECTION 194H OF THE ACT.THE AUTHORISED REPRESENTATIVE(AR) R EFERRED TO THE PAGES 2, 5, 11 13 OF THE PAPER BOOK. HE RELIED UPON THE CASES OF MODICON NETWORK(P) LTD.(14 SOT 204), WILLMAR SCHWABE INDIA (P) LTD.(95 TTJ 53), NATHPA JHAKRI JOINT VENTURE (37 SOT 160), LAZARD INDIA (P) LTD. ( 41 SOT 72), SIEMENS AKTIONGESELLSCHAFT (177 TAXMAN 81), M/S. J.B. BODA & BROTHERS PVT. LTD.(ITA/NO.4252/MUM/2009 DT.21.05.2010 AY.2006-07) ,KARMA ENERGY LTD. (19 ITR (TRIB.)552), LEHMAN BROTHERS & ADVISORS (P) LTD.(157 ITD 1003) AND OM INDIA TRADING CO.(P) LTD.(58 TAXMANN.COM325). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMEN T WITH THE PRINCIPAL ON ONE HAND AND ON THE OTHER HAND AGREEMENTS WERE SIGNED W ITH THE SUBAGENTS, THAT THE SUBAGENTS WERE TO FILE MONTHLY BILLS OF TRAVEL EXPE NSES TO THE ASSESSEE, THAT SHE HAD TO SUBMIT THE BILLS TO THE PRINCIPAL, THAT THE PRINCIPAL, ON BEING SATISFIED ABOUT THE GENUINENESS OF THE EXPENDITURE, HAD TO MA KE A PAYMENT TO THE ASSESSEE, THAT ASSESSEE WOULD BE MAKING THE PAYMENT S TO THE SUBAGENTS AS PER THE AGREEMENTS ENTERED INTO WITH THEM,THAT THE AO H AD MADE SOME INDEPENDENT ENQUIRIES, THAT THE SUBAGENTS HAD ADMITTED TO HAVE RECEIVED THE REIMBURSEMENT, THAT THE AO DID NOT CONSIDER THE SAID FACT WHILE PA SSING THE ASSESSMENT 2602/M/13 SMT.SUCHETA BAKUL 7 ORDER.THE AGREEMENTS,ENTERED IN TO BY THE ASSESSEE WITH THE PRINCIPAL AND THE AGENTS,CLEARLY INDICATES THAT THE ASSESSEE WAS TO R EIMBURSE THE ACTUAL EXPENDITURE INCURRED BY HER SUBAGENTS. IN OUR OPINI ON,THERE IS NO NEED TO QUOTE ANY AUTHORITY TO HOLD THAT NO TAX IS TO BE DEDUCTED FOR REIMBURSING AN EXPENDITURE.THE AO HAD NOT BROUGHT ON RECORD THAT T HE REIMBURSEMENT HAD INCOME ELEMENT EMBEDDED IN IT. IT WAS PURE AND SIMP LE CASE OF REIMBURSING THE EXPENDITURE INCURRED BY THE SUB-AGENTS.WE FIND THAT THE FAA HAD CLEARLY BROUGHT OUT THE DISTINCTION BETWEEN THE COMMISSION RECEIVED FROM THE PRINCIPAL AND THE REIMBURSEMENT RECEIVED BY THE ASSESSEE,IN H IS ORDER. HE HAS SPECIFICALLY HELD THAT PROVISIONS OF SECTION 194H OF THE ACT WOU LD BE APPLICABLE FOR THE COMMISSION PAYMENT.IN OUR OPINION,HIS ORDER DOES NO T SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.THEREFORE, UPHOLDING HIS ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED B Y THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST,2016. 12 , 2016 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 12.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ ! , 4. THE CONCERNED CIT / ! 5. DR E BENCH, ITAT, MUMBAI / ' , , . . . 6. GUARD FILE/ #$ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.