Dynamic Distributors, Kolkata V. ITO, Ward 34(3), Kolkata., Kolkata

ITA 264/KOL/2014

• Counselvise Citation: 26423514 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2014
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

ITA NO . 2 64/KOL/14 - SMC - MVS M/S. DYNAMIC DISTRIBUTORS 1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH: KOLKATA BEFORE HON BLE SRI MAHAVIR SINGH, JM I.T.A NO . 2 64 /KOL/2014 A.Y 2009 - 10 M/S. DYNAMIC DISTRIBUTORS V S. I.T.O WARD - 34(3), KOLKATA PAN: A ACFD 6891 ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT/ASSESSEE: SHRI GAURAV SANCH E TI (STAFF OF LD.AR) F OR THE RESPONDENT/DEPARTMENT : S MT. RANU BISWAS, JCIT / LD. SR. DR DATE OF HEARING: 2 3 - 07 - 2015 DATE OF PRONOUNCEMENT : 23 - 07 - 201 5 ORDER TH IS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF LD. C IT(A), KOLKATA IN APPEAL NO. 327/CIT(A) - XX/WARD 34(3)/11 - 12/KOL DATED 12 - 11 - 2013. ASSESSMENT WAS FRAMED BY I.T.O WARD - 34(3) , KOLKATA FOR THE A SSESSMENT YEAR 2009 - 10 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 2 3 - 12 - 2011 . 2. T HE ISSUE RAISED IN THIS APPEAL BY THE ASSESSEE IS THAT THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO TOWARDS CONSULTANCY CHARGES PAID RS.3,00,000/ - . FOR THIS, ASSESSEE HAS RAISED FOLLOWING SOLE GROUND OF APPEAL: FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY AO W.R.T. CONSULTANCY CHARGES PAID RS.3,00,000/ - WHEN THE SAME WAS PAID OUT OF BUSINESS EXPEDIENCY AND THE JUSTIFICATION OF THE SAME WAS DULY EXPLAINED TO THE AO. 3 . BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBUTORSHIP OF CONSUMER DURABLES SUCH AS AIR CONDITIONER, W ASHING MACHINE, TELEVISION ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS DECLARED ITS TURNOVER AT RS.34.85 CRORES . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ITA NO . 2 64/KOL/14 - SMC - MVS M/S. DYNAMIC DISTRIBUTORS 2 ASSESSEE HAS CLAIMED AN AMOUNT OF RS.3,00,000/ - AS BUSINES S CONSULTANCY EXPENDITURE, WHICH WAS PAID TO SHRI GULAB CHAND SURANA. ON BEING QUESTIONED BY THE AO THE ASSESSEE HAS SUBMITTED AS UNDER: - SHRI GULAB CHAND SURANA IS AN EXPERT IN CONSUMER DURABLES BUSINESS. HE CARRIES THE BUSINESS OF AIR CONDITION AND I TS SPARE PARTS SINCE LONG DURING THE YEAR, THE ASSESSEE FIRM TOOK HIS EXPERT ADVICE IN CONNECTION WITH SELECTING THE PRODUCTS AND DEALING/NEGOTIATING WITH THE DEBTORS. MR. SURNA ALSO HELPED THE ASSESSEE FIRM IN SELECTING THE VARIOUS AREAS TO SELL THE PROD UCTS AS WELL AS IN SELECTING/FINALISING THE CREDIT THE CREDIT PERIOD TO BE GRANTED TO THE DEBTORS. THE CONSULTANCY FEES PAID TO HIM IS FOR THE BUSINESS EXPEDIENCY OF THE FIRM. BY GETTING HIS SERVICE AS CONSULTANT, THE ASSESSEE FIRM HAS BENEFITED IN TER MS OF BETTER MANAGEMENT OF DEBTORS AND VERY LOW PERCENTAGE OF BAD DEBTS. IN SUPPORT OF THE CLAIM, THE ASSESSEE HAS FAILED TO SUBMIT BEFORE HIM SUBSTANTIAL EVIDENCE FOR JUSTIFICATION OF SAID PAYMENT. THEREFORE, THE AO DISALLOWED/ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO UPHELD THE DECISION OF THE AO BY OBSERVING THAT THE Y ARE DOING THE SAME BUSINESS FOR MORE THAN FIVE YEARS. NEITHER BEFORE THE AO NOR BEFORE HIM NO SUPPORTING DO CUMENTS/DETAILS WERE PRODUCED BY THE ASSESSEE TO SUBSTANTIATE THE CLAIM THAT SRI SURANA HAD ACTUALLY PROVIDED ANY CONSULTANCY TO SUPPORT THE BUSINESS OF THE ASSESSEE. AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL BEFORE ITAT . 5 . I HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THE DETAILS IN SUPPORT OF THE CONSULTANCY SERVICES PAYMENT OF RS. 3 LAKHS BEING BUSINESS EXPEDIENCY. SHRI GULAB CHAND SURANA IS AN EXPERT IN CON SUMER DURABLES BUSINESS. HE CARRIES THE BUSINESS OF AIR CONDITION AND ITS SPARE PARTS SINCE LONG . DURING THE YEAR, THE ASSESSEE FIRM TOOK HIS EXPERT ADVICE IN CONNECTION WITH SELECTING THE PRODUCTS AND DEALING/NEGOTIATING WITH THE ITA NO . 2 64/KOL/14 - SMC - MVS M/S. DYNAMIC DISTRIBUTORS 3 DEBTORS. MR. SURNA ALSO HELPED THE ASSESSEE FIRM IN SELECTING THE VARIOUS AREAS TO SELL THE PRODUCTS AS WELL AS IN SELECTING/ FINALIZING THE CREDIT PERIOD TO BE GRANTED TO THE DEBTORS. SRI SUR A NA WAS DEALING IN THE SAME LINE OF BUSINESS, THEREFORE, TO GET EXPERT ADVICE IN CONNECT ION WITH SELECTING THE PRODUCTS/SELECTING VARIOUS AREAS TO SALE THE PRODUCTS AND DEALING/NEGOTIATING WITH THE DEBTORS ETC. CONSULTANCY CHARGES WAS PAID. TH E CONSULTANCY FEES PAID TO HIM WAS FOR THE BUSINESS EXPEDIENCY OF THE FIRM. BY GETTING HIS SERVICE AS CONSULTANT, THE ASSESSEE FIRM HAS BENEFITTED IN TERMS OF BETTER MANAGEMENT OF DEBTORS AND VERY LOW PERCENTAGE OF BAD DEBTS. BOTH THE AO AND THE CIT(A) HAVE FAILED TO APPRECIATE THE SE FACTS OF THE CASE. IN SUCH CIRCUMSTANCES, I HAVE NO HESITATION TO DE LETE THIS ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A). THIS APPEAL OF THE ASSESSEE IS ALLOWED. 6 IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 23 - 07 - 2015 SD/ - DATED : 23 - 07 - 2015 [ MAHAVIR SINGH, JUDICIAL MEMBER ] *PP /SR.P.S. COPY OF THE ORDER FORWARDED TO: 1. A PPELLANT - M/S. DYNAMIC DISTRIBUTORS C/O EASTERN MARKETING 38, ARMENIAN STREET,KOLKATA - 700 001. 2 RESPONDENT : ITO , WARD 34(3), AAYAKAR BHAWAN PURBA, 110 SANTI PALLY, KOL - 107. 3 . THE CIT, 4 . THE CIT(A), KOLKATA 5 . DR, KOLKATA BENCHES, KOLKATA TRUE COPY, / BY ORDER A SSTT. REGISTRAR