M/s. Maruti Dyechem Industries, Ahmedabad V. The Jt.CIT.,Range-3, Ahmedabad

ITA 278/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0865 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Principle of natural justice; Additional evidence
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.278/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) M/S.MARUTI DYECHEM INDUSTRIES C-1, B.NO6, RAJMATA RUBBER PRODUCTS GIDC, NARODA, AHMEDABAD / VS. JT.CIT RANGE-3 AHMEDABAD $ ./ ./ PAN/GIR NO. : AAEFM 6593 L ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) $&) / APPELLANT BY : SHRI S.N. DIVATIA, AR '($&*) / RESPONDENT BY : SHRI SANJAY KUMAR, SR.DR +* / DATE OF HEARING 22/07/2016 ,-./* / DATE OF PRONOUNCEMENT 09/08/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XVI, AHMEDABAD DATED 30/11/2010 FOR THE ASSESSMENT YEAR (AY) 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 2 - 2.1. ASSESSEE IS A PARTNERSHIP-FIRM STATED TO BE EN GAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF REACTIVE DYES. A SSESSEE FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 29/09/2007 DECLARING TO TAL INCOME OF RS.1,35,05,470/-. THE CASE WAS SELECTED FOR SCRU TINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER D ATED 21/12/2009 AND THE TOTAL INCOME WAS DETERMINED AT RS.1,62,24,1 90/-. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER (AO), ASSESSEE C ARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 30/11/20 10 (IN APPEAL NO. CIT(A)-XVI/JCT, RANGE-3/407/09-10) DISMISSED THE AP PEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1.1. THE ORDER PASSED U/S.250 ON 30.11.2010 FOR A Y 2007-08 BY CIT(A)-XVI, ABAD, UPHOLDING THE ADDITIONS MADE IN T HE ORDER U/S.143(3) DATED 21.12.2009 PASSED BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2. THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN UPHOLDING THE ADDITIONS/DISALLOWANCE MADE BY AO WIT HOUT CONSIDERING FULLY AND PROPERLY THE EVIDENCE PRODUCED AND SUBMIS SION MADE. THE LD.CIT(A) OUGHT TO HAVE ADMITTED THE ADDITIONAL EVI DENCE PRODUCED BY THE APPELLANT 2.1. THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN UPHOLDING THAT THE ENTIRE UNUTILIZED BALANCES OF VA RIOUS TAXES AGGREGATING TO RS.20,03,604 WAS REQUIRED TO BE INCL UDED IN THE VALUATION OF CL.STOCK U/S.145A(B) OF THE ACT. ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 3 - 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) OUGHT NOT TO HAVE UPHELD THE VALUATION OF CL.STOCK BY RS.20,03,604 BY APPLYING SEC.145A(B). 3.1. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALT ERNATIVE, THE LD.CIT(A) OUGHT TO HAVE RESTRICTED THE ADDITION TOWARDS VALUA TION OF CL.STOCK U/S.145A(B) TO THE EXTENT OF INCREASE IN THE BALANC E OF UNUTILIZED DUTY, TAX ETC. 3.2. WITHOUT PREJUDICE TO THE ABOVE, THE LD.CIT(A) OUGHT TO HAVE DIRECTED AO TO MODIFY THE VALUATION OF OP.STOCK AS ON 1.4.2006 AND 1.4.2007 TO BRING IN LINE WITH SEC.145A(B). 4.1. THE LD.CIT(A) HAS ERRED IN LAW AND OR ON FACT S IN UPHOLDING THE DISALLOWANCES OF SALES COMMISSION OF RS.7,15,111 AS NON-GENUINE AND UNSUPPORTED BY THE PROOF OF SERVICES. 4.2. THE OBSERVATIONS MADE AND THE CONCLUSION REAC HED BY CIT(A) IN UPHOLDING THE DISALLOWANCE OF COMMISSION OF RS.7,15 ,111. 4.3. THE LD.CIT(A) HAS ERRED IN NOT ADMITTING THE ADDITIONAL EVIDENCES WITH REGARD TO THE COMMISSION EXPENSES. 3. AT THE OUTSET, LD.AR SUBMITTED THAT THOUGH ASSES SEE HAS RAISED VARIOUS GROUNDS BUT THE ISSUES TO BE DECIDED ARE ON LY TWO ISSUES, NAMELY ONE WITH RESPECT TO ADDITION OF UNUTILIZED BALANCE OF VARIOUS TAXES U/S.145A OF THE ACT AND SECOND ABOUT THE DISALLOWA NCE OF SALES COMMISSION. 3.1. WE FIRST TAKE UP THE ISSUE WITH RESPECT TO ADD ITION U/S.145A OF THE ACT. ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 4 - 3.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A ND ON PERUSING OF TAX AUDIT REPORT, AO NOTICED THAT ASSESSEE HAD UNUTILIZ ED BALANCE OF VARIOUS TAXES, NAMELY EXCISE, VAT, ETC. AGGREGATING TO RS.2 0,03,604/- (THE DETAILS OF WHICH ARE LISTED AT PAGE NO.2 OF THE ASS ESSMENT ORDER). HE ALSO NOTICED THAT ASSESSEE HAD NOT CONSIDERED THE AFORES AID BALANCES OF TAX WHILE VALUING THE CLOSING STOCK. AO WAS OF THE VIE W THAT AS PER PROVISIONS OF SECTION 145A OF THE ACT, THE TAXES/DU TIES/CESS/FEES RELATED TO STOCK HAD TO BE ADDED TO THE CLOSING STOCK. THE ASSESSEE WAS ASKED TO SHOW-CAUSE AS TO WHY ADJUSTMENT WAS MADE U/S.145A O F THE ACT BE NOT MADE TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT IT FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING AND DOES NOT DEBIT THE CENVAT AND OTHER TAXES TO THE PROFIT & LOSS ACCOUNT (P&L A/C.). IT WAS FURTH ER SUBMITTED THAT IF THESE ITEMS ARE INCLUDED IN THE CLOSING STOCK, THEN CORRESPONDINGLY THE AMOUNT OF TAXES WILL HAVE TO BE INCLUDED IN THE PUR CHASES AND OPENING STOCK AND CONSUMPTION AND EVEN AFTER ITS INCLUSION, THERE WOULD BE NO CHANGE TO THE NET PROFIT. THE SUBMISSION OF THE AS SESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. HE THEREAFTER ADDED RS.20,03 ,604/- (REPRESENTING THE BALANCE OF EXCISE, VAT, ETC.) AS PART OF THE CL OSING STOCK AND ACCORDINGLY MADE THE ADDITION. AGGRIEVED BY THE OR DER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) WHO UPHELD THE ORDER OF THE AO BY OBSERVING AS UNDER:- ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 5 - 2.3.3. FROM THE ABOVE, IT IS CLEAR THAT EVEN IF TH E ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING, STILL IT HA S TO GIVE EFFECT TO THE ADJUSTMENTS AS PER SECTION 145A. AS STATED ABO VE, THE APPELLANT IS REQUIRED TO ADD THE TAXES, DUTIES, ETC . TO BOTH OPENING AND CLOSING STOCK AS WELL AS IN THE PURCHASES AND S ALES. HOWEVER, IN THE FIRST YEAR THE OPENING STOCK CANNOT BE CHANG ED FROM THE CLOSING STOCK OF THE EARLIER YEAR AS PER THE BASIC ACCOUNTING PRINCIPLE AND AS DISCUSSED BY THE HONBLE ITAT IN T HE CASE OF WEST COAST PAPER MILLS LTD. (SUPRA). THIS PRINCIPLE HAS BEEN UPHELD BY THE HONBLE ITAT, AHMEDABAD ALSO IN THE CASE OF J.K . PAPER LTD. (SUPRA). 2.3.4 IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE RE QUIREMENT OF SECTION 145A IS THAT THE ASSESSEE MUST INCLUDE TAX DUTIES, CESS, ETC. FOR VALUING THE CLOSING STOCK. THE ASSESSEE CAN FO LLOW THE EXCLUSIVE METHOD FOR THE BOOK PURPOSES BUT FOR THE PURPOSE OF TAX AUDIT REPORT AND DISALLOWANCE U/S.43B IT IS NECESSA RY THAT THE ASSESSEE MUST SHOW THE EFFECT OF SECTION 145A BY FO LLOWING THE INCLUSIVE METHOD I.E. BY INCLUDING ALL TAX, DUTIES, CESS ETC. IN THE CLOSING STOCK. THESE TAXES, DUTIES, ETC. WILL HAVE TO BE ADDED TO THE CLOSING STOCK OF THE CURRENT YEAR IN VIEW OF THE AB OVE DISCUSSION. HOWEVER, THE ASSESSEE HAS TO NECESSARILY FOLLOW THE CLOSING STOCK OF LAST YEAR AS OPENING STOCK OF THE CURRENT YEAR. SINCE THE ASSESSEE HAS NOT SHOWN THAT THESE TAXES, ETC. WERE INCLUDED IN THE CLOSING STOCK OF LAST YEAR, THE SAME CANNOT BE INCL UDED IN THE OPENING STOCK OF THE CURRENT YEAR. HENCE THE ADDIT ION MADE BY THE A.O. IS CORRECT AND THIS GROUND OF APPEAL IS DISMIS SED. 3.3. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSES SEE IS NOW IN APPEAL BEFORE US. ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 6 - 4. BEFORE US, LD.AR, REITERATED THE SUBMISSIONS MA DE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE COORDINATE BENCH OF THE TRIBUNAL (ITAT A BENCH AHMEDABAD) ON IDENTICAL F ACTS, IN THE CASE OF ACIT VS. SHRI PARAGBHAI RAMANLAL PATEL IN ITA NO.83 2/AHD/2011 FOR AY 2007-08 ORDER DATED 23/01/2015 HAD DECIDED THE I SSUE IN FAVOUR OF ASSESSEE. HE PLACED ON RECORD THE COPY OF THE AFOR ESAID ORDER AND POINTED TO THE RELEVANT FINDINGS OF THE ORDER OF TH E TRIBUNAL. HE THEREFORE, SUBMITTED THAT FOLLOWING THE AFORESAID D ECISION OF THE COORDINATE BENCH, THE ADDITION MADE BY THE AO BE D ELETED. LD.SR.DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AO & LD.C IT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO IN CLUSION OF UNUTILIZED CENVAT CREDIT AND OTHER TAXES TO THE CLOSING STOCK. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS FOLLOWING EXCLUSIVE METHOD O F ACCOUNTING WHEREBY IT DOES NOT DEBITS THE TAXES PAID TO THE PURCHASES, CONSUMPTION OF STOCK AND THE AFORESAID METHOD OF ACCOUNTING OF TAXES HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN EARLIER AND SUCCEEDING YEARS AND IS ALSO STATED TO HAVE BEEN ACCEPTED BY REVENUE. WE FIND THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. INDO NIPPON CHEM ICALS CO.LTD. REPORTED AT (2003) 261 ITR 275 (SC) HAS OBSERVED TH AT UNAVAILED MODVAT CREDIT CANNOT BE CONSTRUED AS INCOME AND THE RE IS NO LIABILITY ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 7 - TO PAY TAX ON SUCH UNAVAILED MODVAT CREDIT. WE FUR THER FIND THAT ON IDENTICAL FACTS, THE COORDINATE BENCH OF TRIBUNAL I N THE CASE OF SHRI PARAGBHAI RAMANLAL PATEL (SUPRA) HAS DECIDED THE I SSUE IN FAVOUR OF ASSESSEE OBSERVING AS UNDER:- 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD.CIT(A) AFTER RELYING ON THE DECISION CITED IN THE ORDER HAS HELD THAT ASSESSEE MUST SHOW THE EFFECT OF SECTION 145A BY FOLLOWING THE INCLUSIVE METHOD I.E. BY INCLUDING ALL TAXES, DUES, CESS ETC. IN THE CLOSING STOCK. HE HA S FURTHER HELD THAT EXCISE DUTY WHICH IS ADDED TO THE CLOSING STOCK HAS TO BE ALLOWED U/S.43B OF THE ACT ON PAYMENT BASIS. BEFORE US, RE VENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FI NDINGS OF LD.CIT(A) NOR HAS BROUGHT ANY CONTRARY BINDING DECI SION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSE D. 5.1. FURTHER, BEFORE US, REVENUE HAS NOT BROUGHT A NY CONTRARY BINDING DECISION IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS AND FOLLOWING THE DECISIONS CITED HEREINABOVE, WE ARE OF THE VIEW THA T NO ADDITION CAN BE MADE IN THE PRESENT CASE AND THUS THIS GROUND OF AS SESSEE IS ALLOWED. 6. SECOND GROUND IS WITH RESPECT TO SALES COMMISSIO N. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT A SSESSEE HAD PAID SALES COMMISSION TO FOLLOWING PARTIES:- (A) M/S.DEVKAIPI DYES & INTERMEDIATES RS.47,302/- (B) M/S.SPECTRO COLOUR LAB RS. 4,515/- (C) DEEPAK INDUSTRIES RS.48,000/- (D) SHRI DIXIT S PATEL RS.30,165/- ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 8 - (E) SHRI ARVINDGIRI J.GOSWAMI RS.27,245/- (F) M/S.RAJMATA RUBBER PRODUCTS RS.48,000/- (G) SHRI VISHAL JITENDRAKUMAR PATEL RS.1,27,400/- (H) SHRI NAVINBHAI R.PATEL RS.3,72,000/- (I) SMT.BINA N.SHAH RS.9,784/- TOTAL RS.7,15,111/- 7. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF E XPENDITURE AND ALSO FURNISH THE DETAILS OF SERVICES RENDERED BY THEM. AO NOTED THAT ASSESSEE HAD FAILED TO SUBMIT ANY EVIDENCE TO PROVE THE GENU INENESS OF PAYMENT OF SALES COMMISSION, NEED FOR PAYMENT AND PROOF OF SER VICES RENDERED BY SUCH PERSONS TO THE ASSESSEE. THE SUBMISSION OF TH E ASSESSEE THAT THE PAYMENTS HAVE BEEN MADE BY DEDUCTING TDS WAS NOT FO UND ACCEPTABLE TO PROVE THE GENUINENESS OF SERVICES RENDERED. HE THE REFORE CONSIDERED THE PAYMENT OF SALES COMMISSION TO BE UNSUBSTANTIATED A ND ACCORDINGLY DISALLOWED THE COMMISSION PAYMENT OF RS.7,15,111/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- GROUND NO.3. 3.1 THIS IS REGARDING DISALLOWANCE OF COMMISSION OF RS.7,15,111/- AS NON-GENUINE, IN THE ASSESSMENT ORDER, THE AO HAS ST ATED THAT THE ASSESSEE HAS CLAIMED PAYMENT OF COMMISSION TO 9 PAR TIES, TOTALING TO RS. 715111/-. THE COMMISSION IS STATED TO HAVE BEEN PAI D AS SALES COMMISSION. THE AO ASKED THE ASSESSEE TO JUSTIFY TH E PAYMENT OF COMMISSION BY GIVING EVIDENCE OF SERVICES RENDERED AS WELL AS CONFIRMATIONS FROM THE PARTIES WHO HAD RECEIVED THE COMMISSION. THE ASSESSEE SUBMITTED LEDGER COPY OF THE SALES COMMISS ION, A LEDGER COPY ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 9 - OF IDS AND COMMISSION. THE AO STATED THAT THE AGREE MENT ABOUT AGENCY/SALES COMMISSION SUBMITTED IN RESPECT OF SOM E OF THE PARTIES IS SIGNED BY THE ASSESSEE ONLY AND THEY ARE NOT SIGNED BY THE OTHER PARTY. IN RESPECT OF LARGE NUMBER OF PARTIES THE ASSESSEE HAS NOT EVEN SUBMITTED THE COMMISSION AGREEMENT. THE DISCREPANCI ES IN VARIOUS AGREEMENTS HAVE BEEN POINTED OUT BY THE AO IN PARA- 5.2 ON PAGE 8 AND NINE OF THE ASSESSMENT ORDER. THE AO STATED THAT TH E ASSESSEE WAS REQUESTED TO SUBMIT THE DETAILS OR EVIDENCE TO PROV E THE GENUINENESS OF PAYMENT OF COMMISSION. THE ASSESSEE HAS FAILED TO G IVE NATURE AND PROOF OF SERVICES RENDERED BY SUCH PERSONS. THE ASS ESSEE HAS GIVEN ONLY DETAILS OF PAYMENT AND TDS DEDUCTED WHICH BY ITSELF DOES NOT PROVE THE COMMISSION PAYMENT. THE AO THEREAFTER RELIED ON SEV ERAL DECISIONS OF SUPREME COURT AND OTHER HIGH COURTS TO SAY THAT PAY MENT AND DEDUCTION OF TDS AND EVEN EXISTENCE OF AN AGREEMENT BY ITSELF DO NOT JUSTIFY THE PAYMENT OF COMMISSION UNLESS THE ASSESSEE TO SERVIC ES RENDERED. THE AO THEREFORE DISALLOWED THE COMMISSION PAYMENT. 3.2 DURING THE APPELLATE PROCEEDINGS, THE APPELLANT REPEATED THE SUBMISSION MADE BEFORE THE AO AND STATED THAT THE A O HAD NOT INTIMATED THE REMARKS OR DEFICIENCIES POINTED OUT B Y THE AO IN THE ASSESSMENT ORDER REGARDING VARIOUS AGREEMENTS. THE APPELLANT STATED THAT THE CREDIT NOTES ARE ISSUED BY THE ASSESSEE AN D HENCE THEY DO NOT REQUIRE SIGNATURE OF THE OTHER PARTY. THE APPELLANT STATED THAT IT HAD GIVEN A CHART SHOWING THE DETAILS OF SALES COMMISSI ON AND THE RELEVANT EVIDENCE WERE PRODUCED, THE APPELLANT HAD REQUESTED THE PARTIES TO ATTEND BEFORE THE AO, BUT THEY DID NOT DO SO ON THE GROUND THAT THE CORRESPONDENCE AND OTHER MATERIAL WERE TRADE SECRET AND CANNOT BE SHOWN TO THE AO. SHRI NAVIN PATEL CLEARLY STATED SO . THE APPELLANT STATED, THAT THE AO SHOULD BE DIRECTED TO SUMMON TH ESE PARTIES TO VERIFY THE PAYMENTS. THE APPELLANT FURTHER STATED THAT THE CASES RELIED UPON BY THE AO ARE DISTINGUISHABLE ON FACTS. 3.3.1 1 HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. BOTH DURING THE ASSESSMENT P ROCEEDING AS WELL AS APPELLATE PROCEEDING THE APPELLANT HAD ONLY STAT ED THAT THE SALES WERE BEING AFFECTED BY THESE PARTIES. THE COMMISSIO N WAS GIVEN IN RESPECT OF THE SALES BEING AFFECTED THROUGH THESE P ARTIES. THE APPELLANT ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 10 - HAS GIVEN PROOF OF PAYMENT AND TDS, WHICH, IS NOT D ENIED BY THE AO. WHAT THE AO HAS STATED THAT THE APPELLANT HAS NOT G IVEN ANY PROOF OF SERVICES RENDERED. NO CORRESPONDENCE BETWEEN THE AS SESSEE AND THESE PARTIES, WITH RESPECT TO THE SERVICES BEING RENDERE D HAS BEEN GIVEN. NEITHER IN THE FORM OF LETTERS NOR IN THE FORM OF E -MAILS THE ASSESSEE HAS SUBMITTED ANY PROOF REGARDING SERVICES BEING RENDER ED FOR EFFECTING THE SALES. THE PRESENCE OF AGREEMENTS., PAYMENTS AND E VEN DEDUCTION OF TDS BY ITSELF DOES NOT PROVE THE SERVICES RENDERED AND HENCE DO NOT JUSTIFY THE ALLOWABILITY OF COMMISSION. THE ASSESSE E HAS FAILED TO PROVE THE GENUINENESS OF THE PAYMENT OF THE SALES COMMISS ION. THE ASSESSEE HAS NOT EVEN GIVEN CONFIRMATION FROM THE PARTIES TO WHOM THE MACHINES WERE SOLD TO THE EFFECT THAT THE PERSONS TO WHOM TH E COMMISSION HAS BEEN PAID HAD MEDIATED BETWEEN THE ASSESSES AND THE PURCHASING PARTY. THE ARGUMENT OF THE APPELLANT THAT THE MACHINES HAV E BEEN SOLD AT MUCH HIGHER RATE THAN THE MARKET RATE DOES NOT PROV E THAT THE SERVICES WERE RENDERED BY THE PERSONS TO WHOM THE COMMISSION HAS BEEN PAID. 3.3.2 THE APPELLANT HAS NOT GIVEN ANY EVIDENCE OF ANY SERVICES BEING RENDERED NEITHER DURING THE ASSESSMENT PROCEEDINGS NOT DURING THE APPELLATE PROCEEDINGS. THE HON. SUPREME COURT IN TH E CASE OF LAXMIRATTAN COTTON MILLS [73 ITR 634], HAS STATED T HAT THE BURDEN OF PROVING THAT SERVICES WERE RENDERED BY THE MANAGING AGENTS FOR EARNING THE REMUNERATION LAY UPON THE COMPANY AND IF NO REL IABLE EVIDENCE WAS FORTHCOMING THE TRIBUNAL WAS COMPETENT TO REACH THE CONCLUSION THAT II DID. THE RECITALS IN THE MANAGING AGENCY AGREEMENT WHICH AUTHORISED THE MANAGING AGENTS TO DO CERTAIN ACTS COULD NOT BE A SUBSTITUTE FOR EVIDENCE THAT THOSE ACTS WERE DONE BY THE MANAGING AGENTS. FURTHER, THE HON. SUPREME COURT IN THE CASE OF LACHMINARAYAN MAD ANALAL [86 ITR 439], HAS STATED THAT MERE EXISTENCE OF AN AGREEMEN T BETWEEN THE ASSESSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTA IN AMOUNTS AS COMMISSION, ASSUMING THERE WAS SUCH PAYMENT, DOES N OT BIND THE INCOME-TAX OFFICER TO HOLD THAT THE PAYMENT WAS NOT MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE ASSESSEE'S BUSINE SS. ALTHOUGH THERE MIGHT BE SUCH AN AGREEMENT IN EXISTENCE AND THE PAY MENTS MIGHT HAVE BEEN MADE, IT IS STILL OPEN TO THE INCOME-TAX OFFIC ER TO CONSIDER THE RELEVANT FACTS AND DETERMINE FOR HIMSELF WHETHER TH E COMMISSION SAID TO HAVE BEEN PAID, TO THE SELLING AGENTS OR ANY PART T HEREOF IS PROPERLY ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 11 - DEDUCTIBLE UNDER SECTION 37 OF THE ACT. SWADESHI CO TTON MILLS CO. LTD. V. COMMISSIONER OF INCOME-TAX [1967] 63 I.T.R. 57 ( S.C.) FOLLOWED. IN VIEW OF THE ABOVE, SINCE THE APPELLANT HAS FAILED T O PROVE THE SERVICES RENDERED BY GIVING DOCUMENTARY EVIDENCES. THE DISA LLOWANCE MADE BY THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DI SMISSED. 8. AGGRIEVED BY THE ORDER OF LD.CIT()A, ASSESSEE IS NOW IN APPEAL BEFORE US. 8.1. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MA DE BEFORE AO AND LD.CIT(A) AND FURTHER POINTED OUT TO THE CHART OF C OMMISSION PLACED AT PAGE 90-A OF THE PAPER-BOOK AND FROM THE AFORESAID CHART, HE SUBMITTED THAT THE PAYMENT OF COMMISSION OF DEVKALPI DYES & I NTERMEDIATES (RS.47,302/-) WAS ALSO MADE IN SUBSEQUENT ASSESSMEN T YEARS AND IT HAS BEEN ALLOWED IN THE SCRUTINY ASSESSMENT. HE THEREF ORE SUBMITTED THAT SINCE THE PAYMENT OF COMMISSION HAS BEEN ACCEPTED B Y THE REVENUE IN SUBSEQUENT YEARS AND THE PAYMENT HAS NOT BEEN DOUBT ED, IT NEEDS TO BE ALLOWED. WITH RESPECT TO THE PAYMENTS OF COMMISSI ON TO OTHER PARTIES, HE SUBMITTED THAT BEFORE MAKING THE PAYMENT ASSESSE E HAD DEDUCTED TDS. HE THEREFORE SUBMITTED THAT THE PAYMENT OF CO MMISSION BE ALLOWED. 8.2. LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT THE ASSESSEE H AS FAILED TO PROVE THE NATURE OF SERVICES RENDERED BY THOSE PARTIES TO THE ASSESSEE AND THAT THE ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 12 - DEDUCTION OF TDS WHILE MAKING THE PAYMENT COULD NOT BE CONSIDERED TO BE JUSTIFICATION FOR ALLOWING THE DEDUCTION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO DI SALLOWANCE OF SALES COMMISSION. THE SALES COMMISSION HAS BEEN DISALLOW ED BY AO AND LD.CIT(A) FOR THE REASON THAT ASSESSEE HAS FAILED T O PROVE THE NATURE OF SERVICES RENDERED BY THE RESPECTIVE PARTIES TO THE ASSESSEE. EVEN BEFORE US, ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD BY WHICH IT COULD BE DEMONSTRATED THE NATURE OF SERVICES RENDERED BY TH OSE PARTIES TO THE ASSESSEE. HOWEVER, AS FAR AS PAYMENT OF SALES CO MMISSION TO DEVKALPI DYES & INTERMEDIATES IS CONCERNED, WE FIND FROM THE CHART OF COMMISSION THAT HAS BEEN PLACED BY ASSESSEE IN THE PAPER-BOOK THAT ASSESSEE HAD PAID RS.47,775/- IN AY 2008-09, RS.78, 975/- IN AY 2009- 10 AND RS.1,14,338/- IN AY 2010-11. THE COMMISSIO N PAYMENTS TO THIS PARTY HAS NOT BEEN DISALLOWED WHILE FRAMING THE ASS ESSMENT U/S.143(3) OF THE ACT; MEANING THEREBY THAT THE NATURE OF SERVICE S, AS FAR AS THIS PARTY IS CONCERNED, IS NOT DOUBTED BY THE REVENUE IN SUBSEQU ENT YEARS. BEFORE US, REVENUE HAS ALSO NOT PLACED ANY MATERIAL ON REC ORD TO DEMONSTRATE THAT NO SERVICES WERE RENDERED BY IT TO THE ASSESSE E. IN VIEW OF THE AFORESAID FACTS, OUT OF THE TOTAL DISALLOWANCE OF R S.7,15,111/-, WE DIRECT THE DELETION OF RS.47,302/- BEING THE AMOUNT OF COM MISSION PAID TO ITA NO.278/AHD/ 2011 M/S. MARUTI DYECHEM INDUSTRIES VS. JT.CIT ASST.YEAR 2007-08 - 13 - DEVKALPI DYES & INTERMEDIATES AND UPHOLD THE BALANC E ADDITION(S) OF COMMISSION MADE TO OTHER PARTIES. THUS, THIS GROU ND OF ASSESSEE IS PARTLY ALLOWED. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. THIS ORDER PRONOUNCED IN OPEN COURT ON 09 /0 8 /2016 SD/- SD/- () () (RAJPAL YADAV) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 09 / 08 /2016 3..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-XVI, AHMEDABAD 5. 89:'56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=+ / GUARD FILE. / BY ORDER, (8' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 22.7.16 (DICTATION-PAD 10 -PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.7.16/1.8.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.9.8.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9.8.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER