M/s. Soorajmal Baijnath (P) Ltd., Kolkata V. Addl. CIT, Range - 3, Kolkata, Kolkata

ITA 274/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1054 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V N PUROHIT; H V BHARDWAJ ACA

Judgement Text

1 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 274/KOL./2016 ASSESSMENT YEAR: 2011-2012 M/S. SOORAJMAL BAIJNATH (P) LIMITED,............... .........................APPELLANT 31, SHAKESPEARE SARANI, KOLKATA-700 017 [PAN: AADCS 7271 D] -VS.- ADDITIONAL COMMISSIONER OF INCOME TAX,............. ...........RESPONDENT RANGE-3, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI V.N. PUROHIT, FCA AND SHRI H.V. BHARDWAJ, ACA, FOR THE ASSESSEE SHRI SHALLONG YADEN, ADDL. CIT, D.R., FOR THE DEPAR TMENT DATE OF CONCLUDING THE HEARING : NOVEMBER 09, 2017 DATE OF PRONOUNCING THE ORDER : NOVEMBER 22, 2017 O R D E R PER SHRI P.M. JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 27.01.2016. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DISALLOWANCE OF RS.6,63,939/- MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF COMMISSION EXPENSES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL AND RENDE RING CONSIGNMENT AGENCY AND STRAIGHTENING SERVICES. THE RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 22.09.2011 D ECLARING TOTAL INCOME OF RS.2,69,70,588/-. IN THE PROFIT & LOSS ACCOUNT F ILED ALONG WITH THE SAID RETURN, A SUM OF RS.95,19,939/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF 2 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 COMMISSION EXPENSES. IN ORDER TO CROSS VERIFY THE S AID EXPENSES, LETTERS WERE SENT BY THE ASSESSING OFFICER TO THE CONCERNED PARTIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS. OUT OF THE SAID L ETTERS, TWO LETTERS SENT TO VINAY AGARWAL (HUF) AND SHRI NAVINCHANDRA N SHAH CAME BACK UN- SERVED WITH THE REMARK NOT KNOWN. WHEN THIS POSIT ION WAS CONFRONTED BY THE ASSESSING OFFICER TO THE ASSESSEE, THE ASSES SEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION. THE ASSESSING OFFICER, TH EREFORE, TREATED THE CLAIM OF THE ASSESSEE OF HAVING PAID COMMISSION OF RS.3,19,010/- AND RS.3,44,929/- TO VINAY AGARWAL (HUF) AND SHRI NAVIN CHANDRA N SHAH RESPECTIVELY AS BOGUS AND MADE A DISALLOWANCE OF RS .6,63,939/- OUT OF COMMISSION EXPENSES CLAIMED BY THE ASSESSEE. 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER O UT OF COMMISSION EXPENSES WAS CHALLENGED BY THE ASSESSEE IN THE APPE AL FILED BEFORE THE LD. CIT(APPEALS). DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE THE LD. CIT(APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THAT ALL PAYMENTS TO VINAY AGARWAL (HUF) AND SHRI NAVINCHANDRA N SHAH WERE MAD E BY ACCOUNT PAYEE CHEQUES AFTER DEDUCTION OF TAX AT SOURCE AND THE COMMISSION SO PAID WAS DULY DECLARED BY THE SAID TWO RECIPIENTS I N THEIR RETURNS OF INCOME. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFOR E THE LD. CIT(APPEALS) THAT THE EXPENDITURE ON ACCOUNT OF COMMISSION WAS C LAIMED EVEN IN THE EARLIER YEARS AND THERE WAS NO DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF SUCH EXPENSES. THE LD. CIT(APPEALS) DID NOT FIND THE SUBMISSIONS OF THE ASSESSEE TO BE ACCEPTED. ACCORDI NG TO HIM, EVERY ASSESSMENT YEAR WAS SEPARATE AND THE ONUS IN THIS R EGARD WAS ON THE ASSESSEE TO ESTABLISH ON EVIDENCE THAT THE EXPENDIT URE INCURRED ON PAYMENT OF COMMISSION TO THE CONCERNED TWO PARTIES WAS FOR THE PURPOSE OF ITS BUSINESS. HE HELD THAT THIS ONUS WAS NOT DIS CHARGED BY THE ASSESSEE AS THE RELEVANT DOCUMENTARY EVIDENCE TO ESTABLISH T HE SERVICES RENDERED BY THE SAID TWO AGENTS WAS NOT BROUGHT ON RECORD BY THE ASSESSEE. HE HELD THAT THE PAYMENT OF COMMISSION BY CHEQUES AFTE R DEDUCTION OF TAX AT SOURCE AND DECLARATION OF COMMISSION AS INCOME BY T HE RECIPIENTS ALONE WAS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE CLAIM OF THE 3 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 ASSESSEE FOR THE COMMISSION EXPENDITURE. HE ACCORDI NGLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE LD. COUNSEL FOR THE ASSESSEE HAS MAINLY REITERATED BEFORE US THE SU BMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE. HOWEVER, AS RIGHTLY CONTENDED BY THE LD. D.R., THERE WAS NO DOCUMENTARY EVIDENCE THAT HAS BE EN PRODUCED BY THE ASSESSEE TO ESTABLISH THE SERVICES RENDERED BY THE TWO CONCERNED PARTIES. THERE IS NOTHING PRODUCED ON RECORD BY THE ASSESSEE TO SHOW THE EXACT SALES GENERATED BY THE SAID TWO AGENTS TO JUSTIFY T HE COMMISSION PAID TO THEM AS WELL AS THE BASIS ON WHICH SUCH COMMISSION WAS PAID. AS RIGHTLY HELD BY THE LD. CIT(APPEALS), EVERY ASSESSMENT YEAR IS DIFFERENT AND THE EXPENDITURE INCURRED BY THE ASSESSEE ON COMMISSION CANNOT BE ALLOWED SIMPLY BECAUSE SIMILAR EXPENDITURE WAS ALLOWED IN T HE EARLIER YEARS ESPECIALLY WHEN THE LETTERS SENT BY THE ASSESSING O FFICER TO THE CONCERNED TWO PARTIES HAD COME BACK UN-SERVED WITH THE REMARK NOT KNOWN, WHICH CREATED DOUBT ABOUT THE GENUINENESS OF THE COMMISSI ON CLAIMED TO BE PAID BY THE ASSESSEE TO THE SAID PARTIES. THE ASSES SEE HAS FAILED TO OFFER ANY SATISFACTORY EXPLANATION IN THIS REGARD EITHER BEFORE THE AUTHORITIES BELOW OR EVEN BEFORE US. KEEPING IN VIEW ALL THESE FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER OUT OF COMMISSION EXPENDITURE AND UPHOLDING THE SAME, WE D ISMISS GROUND NO. 1 OF THE ASSESSEES APPEAL. 6. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS.3,37,842/- MADE BY THE ASSESSING OFFICER OUT OF SUPERVISION CHARGES, WHICH IS SUSTAINED BY THE LD. CIT(APPEALS) TO THE E XTENT OF RS.1,68,921/- (50%). 4 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 7. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD CLAIMED A DEDUCTION ON ACCOUNT OF SUPERVISION CHARGES OF RS.3 ,37,842/- PAID TO M/S. SOORAJMULL BAIJNATH, A RELATED PARTY. THE ASSESSEE, HOWEVER, FAILED TO EXPLAIN THE NATURE OF SERVICES RENDERED BY THE SAID RELATED PARTY. THE ASSESSING OFFICER ALSO NOTED THAT ALL THE DIRECTORS OF THE ASSESSEE- COMPANY WERE PAID REMUNERATION FOR LOOKING AFTER TH E AFFAIRS OF THE COMPANY. HE HELD THAT THE PAYMENT OF SUPERVISION CH ARGES SEPARATELY TO A RELATED PARTY THUS WAS NOT JUSTIFIED IN THE FACTS O F THE CASE AND DISALLOWED THE ENTIRE EXPENDITURE OF RS.3,37,842/- CLAIMED BY THE ASSESSEE ON SUPERVISION CHARGES. ON APPEAL, THE LD. CIT(APPEALS ) RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE TO 50% ON THE GROUND THAT THE SUPERVISION CHARGES PAID BY THE ASS ESSEE TO THE RELATED PARTY AT THE RATE OF RS.10/- PER TON WERE EXCESSIVE AND UNREASONABLE AND IT WOULD BE FAIR AND REASONABLE TO ALLOW THE SUPERV ISION CHARGES AT THE RATE OF RS.5/- PER TON. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, SIMILAR EXPENDITU RE INCURRED BY THE ASSESSEE ON SUPERVISION CHARGES WAS ALLOWED BY THE ASSESSING OFFICER IN THE EARLIER YEARS AND ALTHOUGH THERE WAS AN INCREAS E OF MORE THAN 20% IN THE TURNOVER OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, THE EXP ENDITURE CLAIMED ON SUPERVISION WAS LOWER THAN THAT CLAIMED IN THE IMME DIATELY PRECEDING YEAR. IN REPLY TO QUERY RAISED BY THE BENCH, HE CLA RIFIED THAT SUPERVISION CHARGES AT THE SAME RATE OF RS.10/- PER TON WERE PA ID BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR AND THE SAME WERE AL LOWED BY THE ASSESSING OFFICER. KEEPING IN VIEW ALL THESE RELEVA NT FACTS AND FIGURES, WE ARE OF THE VIEW THAT THERE IS NO BASIS TO SAY THAT THE SUPERVISION CHARGES PAID BY THE ASSESSEE AT THE RATE OF RS.10/- PER TON DURING THE YEAR UNDER CONSIDERATION ARE EXCESSIVE OR UNREASONABLE AND THE LD. CIT(APPEALS), IN OUR OPINION, WAS NOT JUSTIFIED IN ALLOWING THE CLAI M OF THE ASSESSEE FOR SUPERVISION CHARGES ONLY TO THE EXTENT OF RS.5/- PE R TON MERELY BECAUSE 5 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 THE SAME WERE PAID TO THE RELATED PARTY WITHOUT BRI NGING ON RECORD ANY MATERIAL TO SHOW THAT THE RATE OF RS.10/- PER TON S HOWN BY THE ASSESSEE WAS EXCESSIVE AND UNREASONABLE. WE, THEREFORE, DELE TE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(APPEALS) ON THIS ISSUE AND ALLOW GROUND NO. 2 OF THE ASSESSEES APPEAL. 9. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS.8,36,810/- MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ENTERTAINMENT EXPENSES. 10. DURING THE YEAR UNDER CONSIDERATION, EXPENDITUR E OF RS.8,36,810/- WAS CLAIMED TO BE INCURRED BY THE ASSESSEE ON ENTER TAINMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON BY THE ASSESSING OFFICER TO PROVE THE BUSINESS EXPEDIENCY OF THE SAID EXPENSES. THE ASSESSEE, HOWEVER, FAILED TO PROVE THE SAID CLA IM TO THE SATISFACTION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER, THERE FORE, DISALLOWED THE ENTIRE ENTERTAINMENT EXPENDITURE OF RS.8,36,810/- C LAIMED BY THE ASSESSEE. 11. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ENTERTAINMENT EXPENSES WAS CHALLENGED BY THE ASSESS EE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS). DURING THE COURS E OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT SUBSTANTIAL EXPENDITURE WAS REQUIRED TO BE INCURRED BY IT ON HO TEL, BUSINESS MEALS, ETC. IN ORDER TO HOST BUSINESS MEETINGS WITH LARGE CUSTOMERS. IT WAS ALSO SUBMITTED THAT SIMILAR EXPENDITURE INCURRED BY THE ASSESSEE IN THE EARLIER YEARS ON ENTERTAINMENT WAS ALLOWED BY THE ASSESSING OFFICER AND THE INCREASE IN SUCH EXPENDITURE AS CLAIMED BY THE ASSE SSEE IN THE YEAR UNDER CONSIDERATION AS COMPARED TO THE IMMEDIATELY PRECED ING YEAR WAS LESS THAN THE INCREASE IN THE TURNOVER. THESE SUBMISSION S OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE BY THE LD. CIT(APPEALS). ACCOR DING TO HIM, THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO ESTABLISH TH E BUSINESS EXPEDIENCY OF THE EXPENDITURE INCURRED ON ENTERTAINMENT. HE ALSO NOTED THAT NO 6 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 DOCUMENTARY EVIDENCE WAS FILED BY THE ASSESSEE EITH ER BEFORE THE ASSESSING OFFICER OR EVEN BEFORE HIM TO SUPPORT AND SUBSTANTIATE ITS CLAIM FOR ENTERTAINMENT EXPENDITURE. HE ACCORDINGLY CONFI RMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. EVEN IF IT I S AGREED THAT THE ASSESSEE HAS FAILED TO PRODUCE THE RELEVANT DOCUMEN TARY EVIDENCE IN THE FORM OF BILLS, VOUCHERS, ETC. TO SUPPORT AND SUBSTA NTIATE ITS CLAIM FOR ENTERTAINMENT EXPENDITURE, THE FACT REMAINS TO BE S AME IS THAT SIMILAR EXPENDITURE ON ENTERTAINMENT WAS REGULARLY INCURRED BY THE ASSESSEE IN THE EARLIER YEARS AND THE SAME WAS ALLOWED BY THE A SSESSING OFFICER EVEN IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3). I N THESE FACTS AND CIRCUMSTANCES, EVEN IF IT IS ACCEPTED THAT THE ENTE RTAINMENT EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT VERIFIABLE FOR THE WANT OF SUPPORTING BILLS AND VOUCHERS, WE ARE OF THE VIEW THAT THE SAM E CANNOT BE ENTIRELY DISALLOWED. KEEPING IN VIEW THE NATURE OF THE ASSES SEES BUSINESS AS WELL AS THE FACT THAT SIMILAR EXPENDITURE INCURRED BY TH E ASSESSEE ON ENTERTAINMENT IN THE EARLIER YEARS WAS FULLY ALLOWE D BY THE ASSESSING OFFICER, WE ARE OF THE VIEW THAT IT WOULD BE FAIR A ND REASONABLE TO MAKE A DISALLOWANCE OF 25% OUT OF ENTERTAINMENT EXPENDITUR E FOR THE UNVERIFIABLE ELEMENT INVOLVED THEREIN. WE ACCORDING LY RESTRICT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ENTERTAINMENT EXPENDITUR E TO 25% AND ALLOW PARTLY GROUND NO. 3 OF THE ASSESSEES APPEAL. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF NOVEMBER, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 22 ND DAY OF NOVEMBER, 2017 7 ITA NO. 274/KOL/2016 ASSESSMENT YEAR: 2011-2012 COPIES TO : (1) M/S. SOORAJMAL BAIJNATH (P) LIMITED, 31, SHAKESPEARE SARANI, KOLKATA-700 017 2) ADDITIONAL COMMISSIONER OF INCOME TAX,. RANGE-3, KOLKATA AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) CIT(APPEALS)-I, KOLKATA (4) CIT- , KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/DDO, INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.