The Income-tax Officer, Amritsar. V. M/s. H.B. Velvates P.Ltd, Amritsar.

ITA 261/ASR/2014

• Counselvise Citation: 26120914 RSA 2014
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K R JAIN
• Keywords: Opportunity of cross examination
• Section: 37(1); 131; 37; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.261(ASR)/2014 ASSESSMENT YEAR:2005-06 PAN :AABCH3612B INCOME TAX OFFICER, VS. M/S. H.B. VELVETS (P) LTD. WARD V(2), AMRITSAR. 13, JOSHI COLONY, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.K.R.JAIN, ADVOCATE RESPONDENT BY:SH.TARSEM LAL, DATE OF HEARING:05/03/2015 DATE OF PRONOUNCEMENT:26/03/2015 ORDER PER B.P.JAIN,AM: THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), AMRITSAR, DATED 03.02.2014 FOR THE ASSESSMENT YEAR 2005-06. THE RREVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) IS RIGHT IN DELETING THE ADDITION MADE BY TH E AO ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAID AT RS.17 ,43,477/- IGNORING THE FACT THAT THE ASSESSEE COULD NOT PRODU CE ANY EVIDENCE THAT THE PURCHASERS HAD PLACED ANY PURCHA SE ORDER THROUGH SH. NAVAL KHANNA, THE RECIPIENT OF COMMISSI ON SO PAID. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) IS RIGHT IN IGNORING THE FACT THAT THE PURCH ASERS ITA NO.261(ASR)/2014 2 SUMMONED U/S 131 OF THE ACT ALSO COULD NOT SPELL OU T THE PURCHASE ORDERS PLACED TO THE ASSESSEE THROUGH SH. NAVAL KHANNA, THE RECIPIENT OF COMMISSION SO PAID. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) IS RIGHT IN IGNORING THE FACT THAT OUT OF CO MMISSION OF RS.17,43,477/- CREDITED IN THE NAME OF SH. NAVAL KH ANNA, ONLY RS.12,802/- WERE ACTUALLY PAID DURING THE YEAR AND RS.1730,675/- HAS BEEN SHOWN AS PAYABLE IN THE BALA NCE SHEET AS ON 31.03.2005, WHICH IS NOT COMMENSURATE WITH TH E EARNINGS OF A PERSON HAVING NO OTHER SOURCE OF INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING ASSE SSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED COMMISSION OF RS.17,43,477/- TO SH. NAWAL KHANNA AND AFTER MAKING NECESSARY INVESTI GATIONS, THE AO HELD THAT THE CLAIM FOR COMMISSION WAS NOT WHOLLY AND E XCLUSIVELY FOR THE BUSINESS PURPOSES AND HENCE, NOT ALLOWABLE U/S 37(1 ) OF THE ACT. THE AO COMPLETED ASSESSMENT BY ADDING RS.17,43,477/- PAID ON ACCOUNT OF COMMISSION ALONGWITH OTHER ADDITIONS MADE BY OUT O F OTHER EXPENSES. AGAINST THE ORDER OF THE AO, THE ASSESSEE WENT IN A PPEAL BEFORE THE CIT(A), WHO VIDE ORDER DATED 4.1.2008 PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO SH. NAWAL KHANNA. THE AO IN HIS ORDER HELD AS UNDER : IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT NO SERVICES HAVE BEEN PROVIDED BY SH.NAWAL KHANNA AND SO THE COMMISSION D EBITED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS CANNOT BE ALLOWE D U/S 37 OF THE ACT SINCE IT IS NOT WHOLLY AND EXCLUSIVELY LAID OUT/SPE NT FOR THE PURPOSE OF BUSINESS. THE ADDITION MADE IS CONFIRMED AND GROUND S OF APPEAL NO. 2 TO 5 ARE DISMISSED. AGAINST THIS ORDER THE CIT(A) , JAMMU (HQRS. AMRITSAR) THE ASSESSEE FILED AN APPEAL BEFORE THE I TAT, AMRITSAR ITA NO.261(ASR)/2014 3 BENCH, AMRITSAR, WHO VIDE THEIR ORDER IN ITA NO.483 (ASR)/2008 DATED 11.12.2008 SET ASIDE THE ENTIRE ISSUE TO THE FILE O F THE AO WITH THE DIRECTION TO ISSUE SUMMONS TO THE PURCHASERS, WHO H AVE PURCHASED THROUGH SH. NAWAL KHANNA AND GIVE AN OPPORTUNITY OF CROSS EXAMINATION OF THEM BY THE ASSESSEE. IT WAS FURTHER DIRECTED THAT IF THE AO FAILS TO GET RESPONSE OF THE PURCHASERS, THE SAM E FACTS MAY BE BROUGHT TO THE NOTICE OF THE ASSESSEE AND IF THE AS SESSEE FAILS TO PRODUCE THE PURCHASERS, THE AO IS AT LIBERTY TO DEC IDE THE ISSUE IN ACCORDANCE WITH THE LAW. AS THE CASE WAS SET ASIDE BY THE ITAT, AMRITSAR BENCH, A NOTICE U/S 143(2) WAS ISSUED IN R ESPONSE TO WHICH SH. K.R.JAIN, ADOVCATE ATTENDED THE PROCEEDINGS. FO LLOWING THE DIRECTIONS OF ITAT, AMRITSAR BENCH, SUMMONS WERE IS SUED TO THE FOLLOWING 10 PARTIES WHO HAD MADE PURCHASES FROM M/ S. H.B.VELVETS (P) LTD:. I) M/S. MONA DESIGNS, GURGAON II) M/S. SEER GLOBAL LTD. NOIDA III) M/S. MALRIK SEAM, GURGAON IV) M/S. J.J. IMPEX, GURGAON V) M/S. HIMANSHU APPARELS PVT. LTD, GURGAON VI) M/S. GOLDEN STRAND PVT. LTD. NOIDA VII) M/S. CHUNNU INTERNATIONAL, GURGAON VIII) M/S. BLESSING EXPORTS, NOIDA IX) M/S. ALANKAR CREATIONS, GURGAON X) M/S. SPAN INDIA PVT. LTD. NEW DELHI. THEY WERE DIRECTED TO ATTEND MY OFFICE PERSONALLY A LONGWITH THE INFORMATION SPECIFIED BELOW THE SUMMONS AND NOT TO DEPART UNTIL THEY RECEIVE MY PERMISSION TO DO SO. I) A COPY OF ACCOUNT OF M/S. H.B.VELVETS PVT. LTD. IN YOUR BOOKS OF ACCOUNTS. II) IF THERE WAS ANY MIDDLEMAN INVOLVED. IF SO, GIVE DE TAILS THEREOF. III) WHO USED TO TAKE ORDERS FOR THE PURCHASES MADE B YO U ON BEHALF OF M/S. H.B. VALVETS PVT. LTD. IV) WHETHER THERE WERE ANY TERMS AND CONDITIONS OF TRANSACTION V) SINCE HOW LONG YOU ARE DEALING WITH M/S. H.B.VELVET S PVT. LTD AND WHAT IS THE MODUS OPERANDI OF THE BUSI NESS TRANSACTION WITH THIS CONCERN. ITA NO.261(ASR)/2014 4 OUT OF THEM ONLY ONE PERSON SHRI HARMINDER SINGH BE NIPAL OF M/S. MALRIK SEAM ATTENDED ON 24.08.2009. HIS STATEM ENT WAS RECORDED. 3. SH. HARMINDER BENIPAL STATED THAT THAT HE IS NOT MIDDLEMAN. HE DIRECTLY PURCHASED THE FABRIC FROM THE COMPANY AND THE EMPLOYEES OF H.B.VELVETS PVT. LTD. GO TO THE FACTORY FOR GIVING ORDER. IT WAS ALSO STATED THAT THE FOLLOWING FOUR PERSONS GENERALLY COME FOR TAKING ORDERS: 1. SH. PAWAN KUMAR 2. SH. RAKESH KUMAR 3. SH. CHOHAN 4. SH. NAWAL KUMAR OTHER PERSONS WERE ALSO SENT SUMMONS TO SEND THE WR ITTEN REPLY THAT EITHER THERE WAS NO INTERMEDIARY INVOLVED AND THOSE PERSON S PLACED ORDERS TO THE COMPANY THROUGH THEIR REPRESENTATIVES OR EMPLOYEES. THE AO NOT BEING SATISFIED WITH THE STATEMENT TAKEN FROM SH.HARMINDE R BENIPAL IN PERSON OR IN WRITING AND THE REST OF THE PERSONS, OBSERVED THAT COMMISSION AMOUNTING TO RS.17,43,477/- IS NOT WHOLLY AND EXCLUSIVELY DECLAR ED TO HAVE BEEN PAID FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THE CLA IM IS FOUND TO BE BOGUS AND THEREFORE, ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE LD. CIT(A) DELETED THE SAME AND THE RELEVANT FINDINGS OF THE LD. CIT(A) ARE REPRODUCED FOR THE SAKE OF CONVENIENCE , HEREINBELOW: IN VIEW OF ABOVE DIRECTION, THE INCOME TAX OFFICE 5(2), AMRITSAR HAS ISSUED NOTICES TO ALL THE 10 PARTIES WHO HAD MADE P URCHASES FROM THE ASSESSEE. ALL THESE PARTIES ATTENDED EITHER THEMSEL VES OR THROUGH ITA NO.261(ASR)/2014 5 ACCOUNTANT/PURCHASER AND THESE PARTIES WERE CROSS E XAMINED BY THE COUNSEL OF THE ASSESSEE. ALL THESE ASSESSEE PARTIES HAVE DENIED PRESENCE OF MIDDLE MAN IN THESE TRANSACTIONS. HOWEV ER, THEY RECOGNIZED MR. NAVAL KHANNA AS EMPLOYEE/REPRESENTAT IVE OF THE ASSESSEE. I HAVE GONE THROUGH ALL THESE STATEMENTS AND CROSS EXAMINATION STATEMENTS AND I FIND THAT ALL OF THE P ARTIES HAVE RECOGNIZED MR. NAVAL KHANNA, SOME HAVE STATED THAT THEY WERE THINKING HE WAS EMPLOYEE OF THE ASSESSEE COMPANY AN D SOME WERE THINKING HE IS REPRESENTING ASSESSEE COMPANY. ASS ESSEES COUNSEL HAS SUBMITTED AN EXHAUSTIVE PAPER BOOK GIVING DETAI LS OF ALL SUCH EXAMINATIONS AND CROSS EXAMINATIONS. IT APPEARS THA T AO HAS CREATED CERTAIN CONFUSION AND WAS HAVING SOME MISCONCEPTION ABOUT MANNER IN WHICH ASSESSEE WAS CARRYING OUT HIS BUSINESS. THE AO HAS ASKED IN ALL EXAMINATIONS ABOUT THE PRES ENCE OF MIDDLE MAN, WHICH EVERYBODY HAS DENIED. IN FACT, MIDDLE MA N MEANS A PERSON WHO REPRESENTS BOTH THE SIDES AND RECEIVED S ERVICE CHARGES FROM BOTH THE PARTIES. WHEREAS, IN THE PRESENT CASE , IT WAS ASSESSEE WHO WAS PAYING SERVICE CHARGES TO SH. NAVAL KHANNA. THE AO SHOULD HAVE INQUIRED ABOUT THE ROLE AND VISITS OF SH. NAVA L KHANNA FOR PROCURING ORDERS FOR THE ASSESSEE. THE AO WAS THINK ING THAT SH. NAVAL KHANNA IS AN INDEPENDENT AGENT, WHO IS RECEIVING ORDERS ON HIS LETTERHEAD/PURCHASE ORDER FORMS AND THEN PASSING TH EM TO THE ASSESSEE. WHEREAS SH. NAVAL KHANNA WAS MORE LIKE A N EMPLOYEE OF THE ASSESSEE WHO WAS AT BEST CAN BE DESCRIBED AS DE PENDENT AGENTS OF THE ASSESSEE, WHO WAS SOLELY ACTING FOR THE ASSE SSEE TO PROCURE ORDERS FOR THE ASSESSEE. THUS THERE WAS NO QUESTION OF HIS NAME BEING MENTIONED IN PURCHASE ORDER OF FINANCIAL INVOICES E TC. IT IS VERY DIFFICULT TO LOOK FOR EVIDENCE IN FINANCIAL STATEME NTS/DOCUMENTS IN THIS REGARD. THE AO SHOULD HAVE UNDERSTOOD FIRST THE BUS INESS OF THE ASSESSEE AND THE MODEL OF PROCUREMENT OF SALES FOR THE ASSESSEE. DURING APPELLATE PROCEEDINGS DETAILS OF COMMISSION PAYMENT BY THE ASSESSEE WERE CALLED FROM ASSESSMENT YEAR 2001-02 O NWARD AND IT IS FOUND THAT ASSESSEE IS PAYING COMMISSION ON SALES T O VARIOUS PERSON INCLUDING SH. NAVAL KHANNA DURING VARIOUS YEARS. SH . NAVAL KHANNA HAS BEEN PAID COMMISSION IN VARIOUS ASSESSMENT YEAR S AS UNDER:- ASSESSMENT YEAR AMOUNT 2001-02 194905.00 2002-03 200840.00 2003-04 876496.00 ITA NO.261(ASR)/2014 6 2004-05 1009846.00 2005-06 1743477.00 2006-07 1595512.00 2007-08 771225.00 IT CAN BE SEEN FROM ABOVE SH. NAVAL KHANNA HAS BEEN PAID RS.15,95,512/- IN ASSESSMENT YEAR 2006-07 AND RS.10 ,09,846/- IN ASSESSMENT YEAR 2004-05 AND NONE OF THESE YEAR THES E COMMISSION EXPENDITURE HAS BEEN DISALLOWED IN FULL OR ANY REAS SESSMENT PROCEEDINGS HAVE BEEN INITIATED. DETAILS OF COMMISS ION PAID TO VARIOUS PERSON IN ASSESSMENT YEAR 2004-05 BY THE A SSESSEE ARE AS UNDER:- RECIPIENT NET SALE COMM. ACCRUED HARBHUSHAN LAL HUF 3715787.25 107080.00 ANKUR SALES 593418.00 11810.00 NAWAL KHANNA 33926718.70 10,09,84 6.00 MADAN MOHAN BHASIN 89390.00 1788.00 PANKAJ JAIN 1396502.00 27717.00 OTHERS 6256595.49 45978411.44 1158241.00 THE LD. COUNSEL HAS FURTHER STATED THAT SH. NAVAL K HANNA HAS FILED HIS RETURN OF INCOME ON RECEIPT BASIS AND SH. NAVAL KHA NNA WAS NOT PAID ANY SALARY BY THE ASSESSEE COMPANY AND AS SUCH HIS PERFORMANCE WAS BASED ON THE PURCHASE ORDER PROCURED FOR THE COMPAN Y. SH. NAVAL KHANNA IS NOT RELATED PERSON AS PROVIDED U/S 40A (2 )(B) OF THE INCOME TAX ACT AND AS SUCH THERE IS NO QUESTION OF DIVERSI ON OF ANY INCOME BY THE ASSESSEE BY PAYING HIM HIGHER COMMISSION. IN FA CT, AO HAS ALSO NOT TAKEN THIS GROUND AND HAS DISALLOWED U/S 37(1) AS BOGUS. THE FACT DISCUSSED ABOVE AND AS AVAILABLE IN ALL THE ST ATEMENT AND CROSS EXAMINATION CLEARLY PROVES THAT ALL PARTIES WERE KN OWING SH. NAVAL KHANNA AND HAVE ALSO EXPLAINED ABOUT VARIOUS SERVIC ES CARRIED OUT BY SH. NAVAL KHANNA TO THE ASSESSEE, LIKE PROCUREMENT OF ORDERS, CHEQUES ETC. IN VIEW OF ABOVE COMMISSION PAYMENT MA DE BY THE ASSESSEE TO SH. NAVAL KHANNA IS BEING TREATED AS GE NUINE AND ALLOWABLE U/S 37(1). IN VIEW OF ABOVE, MAIN GROUND OF APPEAL REGARDING D ISALLOWANCE OF COMMISSION EXPENSES (GROUND NO 2 TO 7) IS ALLOWED A ND GENERAL GROUNDS (GR NO.1,8,9 & 10) ARE DISMISSED. ITA NO.261(ASR)/2014 7 5. THE LD. DR RELIED UPON THE ORDER OF THE AO WHERE AS THE LD. COUNSEL FOR THE ASSESSEE, MR. K.R. JAIN RELIED UPON THE SUB MISSIONS MADE BEFORE THE LD. CIT(A) AND THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT IS EVIDENT FROM THE STATEMENTS RECORDED BY THE A O AND REPRODUCED IN HIS ORDER AND THE CONFIRMATIONS SENT BY VARIOUS PARTIES THAT ALL THE PARTIES HAVE RECOGNIZED SH. NAWAL KHANNA AND SOME OF THEM STATED THAT THEY WERE THINKING THAT SH. NAWAL KHANNA WAS AN EMPLOYEE OF THE ASSESSEE-COMPANY AND SOME WERE THINKING HE IS REPRESENTING THE ASS ESSEE-COMPANY. THE MIDDLEMAN SH. NAWAL KHANNA WAS NOT ACTING LIKE INDE PENDENT AGENT HAS RIGHTLY BEEN OBSERVED BY THE LD. CIT(A) AND IT IS T HE WAY OF DOING BUSINESS BY THE ASSESSEE TO PROCURE ORDERS, CHEQUES ETC. IT IS NOT A CASE OF THE AO THAT SH. NAWAL KHANNA HAS BEEN PAID COMMISSION ONLY IN T HE IMPUGNED YEAR, AS MENTIONED BY THE LD. CIT(A) IN HIS ORDER REFERRED T O HEREINABOVE. SH. NAWAL KHANNA HAS BEEN PAID COMMISSION SINCE ASSESSMENT YE AR 2001-02 TO 2007- 08 AND THE SAME HAS BEEN ALLOWED BY THE INCOME TAX DEPARTMENT EXCEPT IN THE IMPUGNED YEAR. IT IS ALSO NOT THE CASE THAT ON LY SH. NAWAL KHANNA HAS BEEN PAID COMMISSION AND NOTHING HAS BEEN PAID AS C OMMISSION TO OTHERS, AS MENTIONED IN THE ORDER OF THE LD. CIT(A) REFERRED T O HEREINABOVE I.E. TO SH. HARMINDER BENIPAL OF M/S. MARLIK SEAM AND OTHERS W ERE PAID COMMISSION AND THE SAID COMMISSION HAS BEEN ALLOWED AS EXPENDI TURE BY THE INCOME TAX ITA NO.261(ASR)/2014 8 DEPARTMENT IS NOT UNDER DISPUTE. THE SAID SH. NAWAL KHANNA IS NOT RELEVANT PERSON AS PROVIDED U/S 40A(2)(B) OF THE ACT. FURTHE R, NO BASIS BROUGHT ON RECORD BY THE AO TO HOLD THAT THE COMMISSION SO PAI D IS BOGUS. IT IS FACT ON RECORD THAT ALL THE PARTIES KNEW SH. NAWAL KHANNA A ND ABOUT THE SERVICES CARRIED OUT BY HIM LIKE PROCUREMENT OF ORDERS AND C HEQUES ETC. IN THE FACTS AND CIRCUMSTANCES, THE SAID COMMISSION PAID TO SH. NAWAL KHANNA IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY ALLOWED THE CLA IM OF THE ASSESSEE. THUS, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA NO.261(ASR)/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: MARCH, 2015 /SKR/ PRONOUNCED ON 26.03.2015 SD/- JM COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. H.B. VELVETS (P) LTD; AMRITSAR 2. THE ITO WARD V(2), ASR. 3. THE CIT(A), ASR. 4. THE CIT, ASR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.