M/s. kemotex Corporation, Ahmedabad V. The Dy.CIT.,Circle-11, Ahmedabad

ITA 2690/AHD/2011

• Counselvise Citation: 269020514 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 01-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: BHARAT S SHAH
• Keywords: Corroborative evidences; Capital expenditure
• Section: 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER M/S KEMOTEX CORPORATION E-4, SUMERU CENTRE, NR. PARIMAL CROSSING, PALDI, AHMEDABAD-380007 PAN: AAAFK9600J (APPELLANT) VS DCIT CIRCLE-11 AHMEDABAD (RESPONDENT) ASSESSEE BY: SHRI BHARAT S. SHAH, A. R. REVENUE BY: SHRI DINESH SINGH, SR. D.R. DATE OF HEARING : 26-03-2015 DATE OF PRONOUNCEMENT : 21-04- 2015 / ORDER PER : RAJPAL YADAV, JUDICIAL MEMBER:- THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 8 TH SEPTEMBER, 2011 PASSED FOR ASSESSMENT YEAR 2008-09. ITA NO. 2690/AHD/2011 ASSESSMENT YEAR 2008-09 I.T.A NO. 2690/AHD/2011 A.Y. 2008-09 PAGE NO M/S. KEMOTEX CORPORATION VS. DCIT 2 2. THE SOLITARY GRIEVANCE OF ASSESSEE RELATES TO DI SALLOWANCE OF EXPENSES AMOUNTING TO RS. 4,38,132/-, WHICH WAS CLA IMED BY THE ASSESSEE ON ACCOUNT OF COMMISSION PAYMENT TO VARIOU S DEALERS FOR ACHIEVING THE SALE TARGETS. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 29-09-2008 DECLARING AN INCOME OF RS.10,8 7,880/-. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AN D A NOTICE U/S. 143(2) OF THE INCOME TAX ACT WAS ISSUED AND SERVED UPON TH E ASSESSEE. ON SCRUTINY OF THE ACCOUNT IT REVEALED TO THE AO THAT ASSESSEE HAD PAID A COMMISSION OF RS. 4,38,192/- TO SEVEN PARTIES. LD AO HAS DIRECTED THE ASSESSEE TO SUBMIT THE NAME, ADDRESS OF THE PERSONS TO WHOM COMMISSION HAS BEEN PAID, THEIR CAPACITY TO RENDER SUCH SERVICES, PROOF OF RENDERING SERVICES AND COPY OF THEIR ACCOUNTS. WIT H FULL DESCRIPTION OF EACH ENTRY IS TO BE PRODUCED WITH SUPPORTING EVIDENCES. THE ASSESSEE HAD FILED THE CONFIRMATION DISCLOSING THEIR PAN NO. THE AMOUN T OF TDS DEDUCTED BY ASSESSEE AND COMPLETE RESIDENTIAL ADDRESS OF THE PA YEE. SOMEHOW, LD. AO WAS NOT SATISFIED WITH THE CONTENTIONS OF THE AS SESSEE AND DISALLOWED THE CLAIM OF ASSESSEE. 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. WITH THE ASSISTANCE OF REPRESENTATIVE, WE HAVE G ONE THROUGH THE RECORD CAREFULLY. IN ORDER TO CLAIM ANY EXPENDITUR E U/S. 37 OF THE INCOME TAX ACT, 1961 THE ASSESSEE SHOULD FULFILL THE CONDI TIONS NAMELY (A) THERE MUST BE EXPENDITURE; (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTION 32 TO 36, (C) THE EXPENDITURE MUST NOT BE IN NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE, (D) THE EXPENDITURE MUST HAVE BEEN INCURRED WHOLLY AND EX CLUSIVELY FOR THE I.T.A NO. 2690/AHD/2011 A.Y. 2008-09 PAGE NO M/S. KEMOTEX CORPORATION VS. DCIT 3 PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESSION, WHOLLY, REFERS TO THE QUANTUM OF EXPENDITURE WHILE, THE WORD EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. ON PAGE 21 OF THE PAPER BOOK, ASSESSEE HAS FILED DETAILS IN TABULAR FORM EXHIBITI NG THE COMMISSION PAID BY IT IN A.Y. 2007-08, 2008-09, AND 2009-10. THE A SSESSMENT IN A.Y. 2007-08 WAS PASSED U/S. 143(3), COMMISSION PAID TO THESE VERY PARTIES WAS ALLOWED BY THE AO. IN THE PRESENT ASSESSMENT Y EAR, SOMEHOW AO DID NOT ALLOW BUT IN SUBSEQUENT ASSESSMENT YEAR I.E. 20 09-10 COMMISSION HAS NOT BEEN DISTURBED BY THE REVENUE AUTHORITIES. THE RETURN HAS BEEN ACCEPTED U/S. 143(1) OF THE INCOME TAX ACT. APART FROM THIS ONE ASPECT, WE FIND THAT ASSESSEE HAS FILED ALL BASIC DETAILS. IT HAS DISCLOSED REASON FOR MAKING THE PAYMENT OF COMMISSION. ACCORDING TO THE ASSESSEE, THERE IS CUT THROAT COMPETITION IN THE MARKET AND THE SALES COULD NOT HAVE BEEN ACHIEVED, IF THE COMMISSION WAS NOT OFFERED. IT HA S DISCLOSED THE DETAILS OF PAYEES, THEIR PAN NO., CONFIRMATION ETC. THE AO HA S SUMMARIZED THE ZEST OF ASSESSEES SUBMISSION ON PAGE 5 OF THE ASSESSMEN T ORDER WHICH READS AS UNDER:- 1. THE ASSESSEE HAS TO PAY COMMISSION FOR SUSTAINI NG IN THE CUT THROAT COMPETITION WHICH IS ABSOLUTELY IN THE INTER EST OF THE BUSINESS. 2. THE SALES COULD NOT HAVE HAPPENED IF THE COMMISS ION IS NOT OFFERED. 3. THE PAYMENT OF COMMISSION IS NORMAL FEATURE IN T HIS LINE OF TRADING DUE TO INTENSE COMPETITION BETWEEN VARIOUS PLAYERS IN THIS SEGMENT. 4. IT IS A PRUDENT DECISION OF THE ASSESSEE PURELY ON COMMERCIAL ASPECTS. 5. THE ASSSESSEE HAS AFFECTED 60% OF THE SALES THRO UGH COMMISSION AGENTS. 6. THE ASSESSEE HAS EARNED OVERALL MORE PROFIT VIS- -VIS EARLIER YEAR IF NET PROFIT AND REMUNERATION TO PARTNERS OF EARLIER YEAR IS CONSIDERED. I.T.A NO. 2690/AHD/2011 A.Y. 2008-09 PAGE NO M/S. KEMOTEX CORPORATION VS. DCIT 4 6. THE AO IS OF THE OPINION THAT ASSESSEE IS IN THE BUSINESS FROM 35 YEARS. IT COULD HAVE WITHSTAND THE CUT THROAT COMP ETITION BY VIRTUE OF ITS LONG STANDING IN THE MARKET. HE ALSO MADE REFERENC E TO THE TURN-OVER OF THE ASSESSEE FROM THE LAST 10 YEARS AND OBSERVED TH AT THERE IS NO NECESSITY TO PAY SUCH COMMISSION AND, THEREFORE, TH E GENUINENESS OF THE TRANSACTION IS DOUBTFUL. IN OUR OPINION, THESE OBS ERVATIONS ARE NOT BASED ON ANY COMPARATIVE STUDY OF THE MARKET AT THE END O F THE AO. THE MARKET CONDITIONS CANNOT BE EVALUATED BY SIMPLY ANALYZING THE RESULT OF THE ASSSESSE FROM THE LAST 5-10 YEARS. THE CONDITIONS COULD BE ANALYZED BY WAY OF COMPARATIVE STUDY OF SIMILAR ENTITY IN THIS LINE OF BUSINESS. THE AO HAS NO BUSINESS TO SAY, WHETHER THERE IS ANY JUSTIF ICATION TO INCUR EXPENDITURE OR NOT. IT IS THE PREROGATIVE OF THE ASSESSEE. HIS DUTY TO FIND OUT, WHETHER ASSESSEE HAD ACTUALLY INCURRED SUCH EX PENDITURE OR NOT, IT HAD GAINED ANYTHING OR NOT BY INCURRENCE OF SUCH EX PENDITURE. IN OTHER WORDS, IF THE EXPENDITURE IS INCURRED IN CONNECTION WITH THE BUSINESS AND NO PROFIT HAS RESULTED THEN ALSO IT CANNOT BE DISAL LOWED. THE APPROACH OF THE AO IS HIGHLY TECHNICAL I.E. TO EXCEPT THE ASSES SEE TO PRODUCE THE PAYEES BEFORE HIM. IN ORDER TO PROVE ITS CLAIM, TH E ASSESSEE HAS SUBMITTED BASIC DETAILS, IT IS FOR THE AO TO CALL T HE PAYEES BY SERVICE OF A NOTICE. QUASHI-JUDICIAL AUTHORITY ARE NOT BEING RE SPECTED ON ACCOUNT OF THEIR POWERS TO LEGALIZE INJUSTICE ON TECHNICAL GRO UNDS BUT BECAUSE THEY ARE CAPABLE OF REMOVING INJUSTICE. THE LD. FIRST A PPELLATE AUTHORITY HAS SIMPLY CONCURRED WITH THE FINDING OF THE AO WITHOUT MAKING ANY REFERENCE TO THE EXPLANATION SUBMITTED BY THE ASSESSEE BEFORE THE AO. ON DUE CONSIDERATION OF THE MATERIAL AVAILABLE ON RECORD, WE ARE SATISFIED THAT ASSESSEE HAS DULY DEMONSTRATED ON THE RECORD THAT C OMMISSION WAS PAID IN THE ORDINARY COURSE OF BUSINESS AND IT IS FOR TH E PURPOSE OF BUSINESS, WE ALLOW THIS APPEAL AND DELETE THE DISALLOWANCE. I.T.A NO. 2690/AHD/2011 A.Y. 2008-09 PAGE NO M/S. KEMOTEX CORPORATION VS. DCIT 5 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 21-04-2015 SD/- SD/- (G.D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 21/04/2015 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,