M/s. Heatex Engineering Co.Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 2695/AHD/2012

• Counselvise Citation: 269520514 RSA 2012
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 30-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: ANIL K SHAH
• Keywords: Opportunity of being heard
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , , , , BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND .., ! '# '# '# '# SHRI T.R. MEENA, ACCOUNTANT MEMBER $%.. , &' ( & ! ) & ! ) & ! ) & ! ) ITA NO. 2695/AHD/2012 ASSESSMENT YEARS : 2009-10 M/S. HEATEX ENGINEERING CO. PVT. LTD. BLOCK NO.436, OPP. T.M.PATEL PROCESSORS, NEAR PALSANNA CHOWKADI, N.H. NO.8, PALSANA, DIST.SURAT-394315 V/S . DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, SURAT. PAN NO. A A ACH5869D (APPELLANT) .. (RESPONDENT) ITA NO. 2752/AHD/2012 ASSESSMENT YEARS : 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, SURAT. V/S . M/S. HEATEX ENGINEERING CO. PVT. LTD. BLOCK NO.436, OPP. T.M.PATEL PROCESSORS, NEAR PALSANNA CHOWKADI, N.H. NO.8, PALSANA, DIST.SURAT-394315 (APPELLANT) .. (RESPONDENT) ( * + & BY REVENUE SHRI P. L. KUREEL, SR. D.R. & * + & /BY ASSESSEE SHRI ANIL K. SHAH, A.R. , * -%' /DATE OF HEARING 17.09.2013 ./0 * -%' /DATE OF PRONOUNCEMENT 22.11.2013 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS ARE CROSS APPEALS FILED BY THE AS SESSEE AS WELL AS REVENUE. THESE APPEALS ARE EMANATED FROM THE ORDER OF THE LD. CIT(APPEALS)- I, SURAT, ORDER DATED 18.09.2012 FOR A.Y. 2009-10. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS C OMMON ORDER FOR THE SAKE ITA NOS. 2695 & 2752/AHD/2012, A.Y. 09-10 PAGE 2 OF CONVENIENCE. THE SOLE GROUND OF APPEAL IS AGAIN ST CONFIRMING THE ADDITION OF RS.24,61,507/- ON ACCOUNT OF COMMISSION EXPENSES AND RESTRICTING ADDITION AT RS.24,61,507/- OUT OF RS.40,31,442/-. 2. THE LD. A.O. OBSERVED THAT THE ASSESSEE HAD CLAI MED COMMISSION EXPENSES OF RS.54,55,725/- WHICH WAS RANGING FROM 3 % TO 5%. THE A.O. HELD THAT MOST OF BILLS OF COMMISSION WAS RAISED ON LAST DATE OF YEAR AND MOST OF THE BILL FOUND TO BE IN SAME FORMAT AND STYLE AND G IVING THE IMPRESSION THAT THEY ARE OF THE SAME SOURCE. THE ASSESSEE WAS GIVE N REASONABLE OPPORTUNITY OF BEING HEARD ON IT WHICH WAS RESPONDED BY IT WHIC H WAS NOT FOUND ACCEPTABLE TO THE A.O. ON THE FOLLOWING GROUNDS: I. SALES PARTY, COMMISSION AGENTS REMAIN SAME FOR YEAR AND IN PRECEDING YEARS. II. GOODS CAN BE SOLD WITHOUT PAYING ANY COMMISSION DIRECTLY TO THE PURCHASER. III. RATE OF COMMISSION NORMALLY REMAIN SAME. IV. NORMAL RATE OF COMMISSION IS 1 TO 3%. V. COMMISSION AGENT RAISED PERIODICAL BILL ON HIS O WN LETTER PAID OR BILL BOOK. VI. COMMISSIONS ARE PAID NOT AT THE TIME OF SALES B UT AT THE TIME OF REALIZATION FROM SALES. VII. SOME OF THE COMMISSION RECEIVERS WERE REALLY N OT COMMISSION AGENTS BUT PROVIDERS OF ADJUSTMENT ENTRY TO INFLATE EXPENS ES. VIII. COMMISSION BILL WAS ALWAYS FOUND SRL. NO.1 WH ICH IS NOT POSSIBLE. TDS DEDUCTED PAID ON 25.04.2009 AND 27.05.2009. ITA NOS. 2695 & 2752/AHD/2012, A.Y. 09-10 PAGE 3 IX. NO PAYMENTS OF COMMISSION WERE MADE DURING THE YEAR AND ALSO BILLS WERE RAISED ON 31 ST MARCH IN CASE OF VARIOUS PARTIES, IF IT WAS A GENU INE COMMISSION THEN PAYMENTS WERE MADE AT REGULAR INTER VAL. X. OUTSTANDING COMMISSION SHOWN BY THE ASSESSEE SHO WS THAT COMMISSION IS PAID ON REALIZATION OF SALE PROCEEDS THE COMMISSION FOR SALE TO COLOUR TAX CHEMICAL WAS PAID DIFFERENT PART IES IN DIFFERENT YEARS. XI. COMMISSION CLAIMED BY THE ASSESSEE IS HIGHER SI DE. ON THE BASIS OF ABOVE FINDINGS, THE A.O. DISALLOWED RS.40,31,442/- AND ADDED BACK IN THE INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL PARTLY AFTER ANALYZING THE ASSESSEES REPLY UNDER THE HEAD RE-CONCILIATION OF COMMISSION FOR A.Y. 09-10, COMMISSION EXPENSES CLAIMED AND PAID, COMMISSION EX PENSES DISALLOWED BY THE A.O. AND COMMISSION PAYABLE AND PAYMENT RECEIVA BLE. THE LD. CIT(A) FOUND THAT A.O. MADE GENERAL OBSERVATION AND GAVE T HE THEORY OF COMMISSION ALLOWABLE U/S.37(1) OF THE IT ACT. HE ALSO DOUBTED THE GENUINENESS OF THE COMMISSION ON THE BASIS OF CERTAIN GENERAL OBSERVAT ION. HE HAD NOT POINTED OUT ANY SPECIFIC EVIDENCE ON THE BASIS OF WHICH THE COMMISSION CAN BE HELD AS BOGUS. ON THE BASIS OF COMMISSION ACCOUNT THE A SSESSEE HAD MADE PAYMENT OF COMMISSION ON THE BASIS OF SALE PROCEEDS . THE ASSESSEES BUSINESS HAS CLOSED DOWN ON 31.03.2012 AND COMMISSI ON OF RS.16.10 LACS WAS STILL OUTSTANDING. IN SOME CASES THOUGH THE CO RRESPONDING SALE PROCEEDS HAD BEEN REALIZED THE COMMISSION AMOUNT STILL HAVE NOT BEEN PAID AS THE OUTSTANDING SALE PROCEEDS FROM THAT PARTY EXCEED TH E COMMISSION PAYABLE FOR ITA NOS. 2695 & 2752/AHD/2012, A.Y. 09-10 PAGE 4 EXAMPLE, IN CASE OF M/S. SARAF TEXTILE ENGINEERS CO MMISSION DEBIT WAS RS.48,805/- AND ON 31.03.2009 RS.34,822/- WAS OUTST ANDING OUT OF AMOUNT PAYABLE. THE COMMISSION HAD BEEN DEBITED FOR SALE M ADE OF RS.11,24,500/-. ON 31.03.2012 SALES PROCEEDS ONLY OF RS.1,21,959/- WERE OUTSTANDING. HOWEVER, THE COMMISSION OF RS.39,180/- WAS STILL PA YABLE INCLUDING THE COMMISSION OF OTHER YEARS. IT PROVED THAT COMMISSI ON WAS NOT PAID EVEN IN CORRESPONDING SALE PROCEEDS WERE RECEIVED. THE LD. CIT(A) EXAMINED THE METHOD OF ACCOUNTING IN CASE OF APPELLANT AND IT WA S HELD THAT COMMISSION WAS PAID ON SALES REALIZATION. THEREFORE, HE ALLOW ED THE APPEAL PARTLY ON THE BASIS OF COMMISSION PAID ON THE BASIS OF SALES REAL IZATION AT RS.24,61,507/-. 4. NOW BOTH THE PARTIES ARE BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT ASSESSEE IS A PRIVATE LTD. COMPANY A ND IS IN THE BUSINESS OF MACHINERY MANUFACTURING. THE ASSESSEE DOES NOT HAV E SEPARATE MARKETING DEPARTMENT. THEREFORE, SALES WERE MADE THROUGH AGE NTS SINCE MANY YEARS ON WHICH COMMISSION WAS PAID TO THOSE AGENTS. THE ASSESSEE HAS ESTABLISHED THE IDENTITY OF THE AGENT. THE CONFIRM ATION, INCOME TAX RETURN, TDS MADE ON COMMISSION EXPENSES, BANK STATEMENT, P& L ACCOUNT AND BALANCE SHEET OF PAYEE WERE SUBMITTED. THE CONSIST ENCY OF COMMISSION PAYMENT WAS ALSO ESTABLISHED. THE COMMISSION HAD B EEN PAID THROUGH ACCOUNT PAYEE CHEQUES AFTER DEDUCTING TDS WHICH HAS BEEN DEPOSITED IN THE GOVERNMENT EXCHEQUER. ALL THE COMMISSION AGENTS HA VE BEEN HAVING PAN, FILED INCOME TAX RETURN AND SHOWN THIS COMMISSION R ECEIPTS IN THIS THEIR RESPECTIVELY INCOME. SIMILAR COMMISSION EXPENSES W ERE INCURRED IN THE PAST AND ALLOWED BY THE A.O. LD. CIT(A) WAS NOT RIGHT I N CONFIRMING ADDITION OF ITA NOS. 2695 & 2752/AHD/2012, A.Y. 09-10 PAGE 5 RS.24,61,507/- ON THE BASIS OF PAYMENT OF COMMISSIO N. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ACCORDI NGLY, IT HAS DEBITED THE COMMISSION EXPENSES ON THE BASIS OF SALES MADE THRO UGH THE COMMISSION AGENTS WHICH HAS BEEN SHOWN BY THE RECIPIENT ON THE BASIS OF ACCRUAL IN THEIR RESPECTIVE RETURNS. SUCH CASH CONCEPT WAS NOT RAIS ED BY THE A.O. SECTION 209(3) OF THE COMPANY ACT MAKES IT MANDATORY FOR AL L COMPANY TO FOLLOW THE ACCRUAL SYSTEM OF ACCOUNTING. LD. CIT(A) HAD NOT F OLLOWED SECTION 145 AND 145A AND NOTIFICATION NO.9949 AS WELL AS SALES ACCO UNTING STANDARD (AS1) ISSUED BY THE ICAI SALES HAD BEEN BOOKED IN THE YEA R UNDER CONSIDERATION. COMMISSION EXPENSES HAVE BEEN INCURRED AS WELL AS A CCRUED IN THE YEAR UNDER CONSIDERATION BUT PAID IN SUBSEQUENT YEAR TO THE EXTENT OF RS.24,61,507/-. THE LD. A.O. HELD THAT COMMISSION EXPENSES WERE NOT GENUINE. HOWEVER, LD. CIT(A) CONFIRMED THE ADDITIO N ON THE BASIS OF SALES REALIZATION AND COMMISSION PAID. HE FURTHER RELIED IN CASE OF BHARAT EARTH MOVERS VS. CIT [2000] 245 ITR 428 (SC), WHEREIN IT WAS HELD THAT WHERE LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING Y EAR, DEDUCTION IS ALLOWABLE ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A FUTURE DATE, IS ALLOWABLE DEDUCTION. THE ASSESSEE ALSO FI LED THE DETAILS OF COMMISSION PAID TO THE COMMISSION AGENT AND ARGUED THAT NO COMMISSION IS OUTSTANDING IN 2013-14. THUS, HE PRAYED TO ALLOW A LL THE EXPENSES AND DELETE THE ADDITION CONFIRMED BY THE CIT(A). AT THE OUTSE T, LD. SR. D.R. PARTLY VEHEMENTLY RELIED UPON THE ORDER OF THE CIT(A) AND REQUESTED TO CONFIRM THE ORDER OF THE A.O. ITA NOS. 2695 & 2752/AHD/2012, A.Y. 09-10 PAGE 6 5. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL ON RECORD. THE ASSESSEE HAS FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING AND CONSISTENTLY DEBITED THE COMMISSION EXPENSES ON THE BASIS OF SALES MADE WHICH WAS PAID EITHER IN YEAR UNDER CONSIDERATION O R IN SUBSEQUENT YEAR AFTER DEDUCTING OF TDS. IN PAST, THERE WAS NO DISALLOWAN CE ON ACCOUNT OF COMMISSION EXPENSES BY THE A.O. THE ASSESSEE HAD G IVEN FULL ADDRESS WITH PAN OF PAYEES. HONBLE SUPREME COURT HAS HELD THAT IN CASE OF INCOME TAX PROCEEDING PRINCIPLE OF RES JUDICATA NOT APPLICABLE EVEN THEN THE CONSISTENCY OF DECISION ON ISSUE IS TO BE MAINTAINED. THE ASSE SSEE ALSO PAID ALL THE OUTSTANDING COMMISSION IN SUBSEQUENT YEAR. THEREFO RE, WE ALLOW THE ASSESSEES APPEAL. 6. IN THE RESULT, THE ASSESSEE APPEAL IN ITA NO. 26 95/AHD/2012 IS ALLOWED AND REVENUES APPEAL IN ITA NO. 2752/AHD/2012 IS DI SMISSED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 22.11.2013 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY S.K.SINHA &1 &1 &1 &1 * ** * 2-3 2-3 2-3 2-3 4&30- 4&30- 4&30- 4&30- / COPY OF ORDER FORWARDED TO:- 1. (/ REVENUE 2. & / ASSESSEE 3. ## - 9 / CONCERNED CIT 4. 9- / CIT (A) 5. 3= 2- , , / DR, ITAT, AHMEDABAD 6. ? @A / GUARD FILE. BY ORDER/ &1 &, / # , )