Gala Plastic, Anand V. The Income tax Officer.Ward-1, Anand

ITA 2791/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57048 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAWANSHI
• Assessee Lawyers: B T THAKKAR
• Keywords: Corroborative evidences; Onus to prove; Capital expenditure
• Section: 37(1)

Judgement Text

ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH, AHME DABAD (BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI A. L. GEHLOT) I.T.A. NO. 27 91/AHD/2011 (ASSESSMENT YEAR: 2008-2009) GALA PLASTIC NR. NATIONAL HIGHWAYNO.8, SAMARKHA CHOKDI, ANAND. (APPELLANT) VS. INCOME TAX OFFICER, WARD 1, S.P.CHAMBER, MAYFAIR ROAD, ANAND. (RESPONDENT)P PAN: AAAFG 3695 H ON BEHALF OF THE ASSESSEE: MR. B.T. THAKKAR. ON BEHALF OF THE REVENUE: MR.G.S. SOURYAWANSHI, SR. D.R. ( )/ ORDER DATE OF HEARING : 11-1-2012 DATE OF PRONOUNCEMENT : 31-01-2012 PER: SHRI A.L. GEHLOT, A.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT (A)-IV, BARODA IN APPEAL NO.CAB/IV-A-241/2010-11 DATED 24-8 -2011 2. THE SOLE GROUND OF APPEAL RAISED BY THE ASSESSEE READS AS UNDER:- THE LD. CIT(A) HAS UNLAWFULLY UPHELD THE DISALLOW ANCE OF RS.12,36,003/- TREATING THE SALE AS COMMISSION EXP. THE EXPENSE BEING LEGITIMATE BUSINESS EXPENSE INCURRED ON EMPLOYEES AND TRADE COMMISSION TO DEALERS MAY PLEASE BE ALLOWED NOW AS BUSINESS DEDUC TION. ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A MANUFACTURER OF HOUSEHOLD BRUSHES. DURING THE ASSESSMENT PROCEEDING S THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SALES PROMOTION EXPENSES. THE AO WAS OF THE VIEW THAT SALES PROMOTION EXPENSES WERE PAID TO THE INDIVIDUAL BY W AY OF COMMISSION WITHOUT DEDUCTING THE TAX AT SOURCE. AFTER CONSIDERING THE ASSESSEES SUBMISSION THE AO HELD THAT THE ASSESSEE PAID THE AMOUNT WITHOUT DEDU CTING TDS U/S.194H. THE AO THEREFORE, DISALLOWED RS.12,36,603/- U/S./ 40(A) (I A) OF THE ACT. THE CIT (A) CONFIRMED THE ORDER OF THE AO REJECTING THE ASSESSE ES CONTENTION THAT THE PAYMENT WAS MADE TO EMPLOYEES OF THE ASSESSEE. THE CIT (A) NOTED THAT NORMALLY SALARIES ARE PAID TO THE EMPLOYEES HAVING JOB ON REGULAR BAS IS WHICH HAS NOT BEEN SEEN IN THE CASE OF THE ASSESSEE. THE CIT (A) WHILE REFERRI NG TO THE REMAND REPORT OF THE AO NOTED THAT ONE OF THE PERSON SHRI ANIL PATEL WAS PAID SALARY ONLY FOR JANUARY AND FEBRUARY ONWARDS. ANOTHER PERSON WAS PAID SALAR Y ONLY FOR JANUARY, 2008. IN THE CASE OF MR. BHAVIK KATWALA SALARY WAS PAID FOR OCTOBER, NOVEMBER, DECEMBER AND FOR FEBRUARY, 2008. ACCORDING TO THE AO THERE A RE MANY OTHER PERSONS WHO ARE CLAIMED TO BE EMPLOYEES BUT THEY HAVE NOT BEEN PAID SO CALLED SALARY ON REGULAR BASIS. THE CIT (A) HAS ALSO NOTED THAT THE ASSESSEE HAS FAILED TO PRODUCE APPOINTMENT LETTERS, PAYMENT TO PF & ESI ETC. THE C IT (A) ALSO NOTED THAT THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE IN VIE W OF THE FACT THAT THE ASSESSEE WHO IS CLAIMING THE DEDUCTION OF EXPENDITURE AND TH EREFORE THE RESPONSIBILITY TO PRODUCE RELEVANT VOUCHERS ETC., IN SUPPORT OF CLAIM IS ON THE ASSESSEE. AGAIN ONCE THE ASSESSEE IS CLAIMING THAT ASSESSEE THROUGH DEBT OR AND THEN IT IS VERY DIFFICULT TO GET RELEVANT VOUCHERS, RECORDS FROM THE DISTRIBUTOR S AND TO PRODUCE THEM BEFORE THE AO. THE CIT (A) ALSO NOTED THAT CLAIM OF THE ASSESS EE IS PRIMA-FACIE NOT CORRECT THEREFORE, FILING OF CONFIRMATION FROM THE DISTRIBU TORS AND AFFIDAVITS FROM THE PERSONS WHETHER CLAIMING TO BE EMPLOYEES DO NOT HAV E ANY CREDENTIAL. ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 3 4. THE LD. AR SUBMITTED THAT ASSESSEE SALES GOODS T HROUGH DEALER/DISTRIBUTOR TO INCREASE SALE THE DEALERS ARE GIVEN TRADE DISCOUNT. THEY ARE GIVEN SPECIAL DISCOUNT TO BOOST UP SALES ON SOME INSTANCES, THE DEALERS AR E REIMBURSED EXPENSES INCURRED BY THEM, FOR PROMOTING SALES LIKE SALARY AND FIELD STAFF AND THE FIELD STAFF KEEP ON TRAVELING, SALARY TO SUCH PERSONS ARE PAID BY DEALE RS AND THE EXPENSES ARE REIMBURSED BY ISSUE OF CREDIT NOTE. THE LD. AR SUBM ITTED THAT THE ENTIRE CREDIT OF RS.12,36,603/- WAS THUS GIVEN TO VARIOUS DEALERS WH O ARE DEBTORS OF THE ASSESSEE. THE COMPLETE DETAILS OF SUCH AMOUNT OF CREDIT NOTES ALONG WITH LEDGER ACCOUNTS OF VARIOUS DEBTORS WERE PRODUCED BEFORE THE AO. THE L D. AR SUBMITTED THAT ALL THE TRANSACTIONS WERE ON PRINCIPAL TO PRINCIPAL BASIS A ND NOT BETWEEN PRINCIPAL AND AGENT. THE ASSESSEE FURNISHED THE DETAILED COPY OF CREDIT NOTE GIVEN FOR RS.12,36,603/- TOGETHER WITH LEDGER COPY OF VARIOUS PAPERS. THE LD. AR DREW OUR ATTENTION TO THE DETAILS OF EXPENDITURE WHICH IS AS UNDER:- SR.NO. EXPENSES. AMOUNT RS. 01 FREIGHT OUTWARDS 4,285/- 02 SALES EXPENSES BY DEALERS/DISTRIBUTORS 7,.37,632/- 03 SCHEME DISCOUNT 3,46,781/- 04 TRADE DISCOUNT 1,47,305/- TOTAL 12,36,006/- THE LD. AR HAS ALSO REFERRED TO PAGES 11, 12 AND 13 OF THE PAPER BOOK WHERE DETAILS OF SUCH EXPENDITURE IN THE FORM OF TABLES H AVE BEEN GIVEN. ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 4 5. THE LD. D.R. RELIED ON THE ORDER OF THE CIT (A) AND SUBMITTED THAT EVEN IF IT WAS A SALARY PAYMENT NO TDS WAS MADE. THEREFORE, TH E AO HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 6. WE HEARD THE LEARNED REPRESENTATIVES AND PERUSED THE RECORDS. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED SALES PRO MOTION EXPENSES. THE AO WAS OF THE VIEW THAT THIS WAS A COMMISSION PAYMENT. THE A SSESSEE IN SUPPORT OF ITS CLAIM HAS SUBMITTED VARIOUS DETAILS EXPLAINING THE CIRCUM STANCES THAT HOW EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. ON PERUSA L OF DETAILS FILED BY THE ASSESSEE WE FIND THAT IT IS NOT SO SIMPLE TO SAY THAT THE AM OUNT PAID BY THE ASSESSEE WAS A COMMISSION. NAME CULTURE DOES NOT DECIDE THE CHARAC TER OF THE TRANSACTION. NATURE AND DETAILS OF EXPENDITURES ARE TO SEE FOR DETERMIN ATION OF REAL NATURE OF TRANSACTION. THE ASSESSEE FURNISHED THE DETAILS OF THE EXPENDITURE FROM WHICH IT HAS BEEN NOTICED THAT THESE ARE REIMBURSED FROM SALES P ROMOTION BY DEALERS AND DISTRIBUTORS TOWARDS SCHEME DISCOUNT AND TRADE DISC OUNT, THE DETAILS FILED BY THE ASSESSEE ARE AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS FURNISHED SUFFICIENT MATERIAL IN SUPPORT OF THE CLAIM THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS QUA AS SALES PROMOTION EXPENSES . UNDER THE CIRCUMSTANCES THE ASSESSEE HAS DISCHARGED ITS ONUS IN THIS REGARD. TH E CASE OF THE AO IS THAT IT IS A COMMISSION PAYMENT. WHEN AOS CASE IS THAT IT IS A COMMISSION PAYMENT THEN ONUS TO PROVE THAT THIS WAS A COMMISSION PAYMENT IS ON THE AO. WE NOTICE THAT MERELY SAYING WITHOUT SUPPORTING EVIDENCE OR MATERI AL THAT THIS WAS A COMMISSION PAYMENT IS WHOLLY A CASE OF ASSUMPTION AND PRESUMPT ION. IN ORDER TO CLAIM DEDUCTION OF EXPENDITURE U/S. 37(1) OF THE ACT THE FOLLOWING CONDITIONS SHOULD BE SATISFIED:- (1) THE EXPENDITURE IN QUESTION SHOULD NOT BE OF TH E NATURE PRESCRIBED UNDER THE SPECIFIC PROVISION OF SECTION 30 TO 36. ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 5 (2) THE EXPENDITURE SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE. (3) IT SHOULD NOT BE A PERSONAL EXPENDITURE AND (4) THE EXPENDITURE SHOULD HAVE BEEN LAID DOWN OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE BURDE N PROVING THAT A PARTICULAR EXPENDITURE HAS BEEN LAID DOWN OR EXPEND ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ON THE A SSESSEE. 7. IF THIS ISSUE IS TO BE CONSIDERED FROM THE POINT OF VIEW OF BUSINESSMAN THEN IT IS SETTLED LAW THAT WHICH EXPENDITURE IS TO BE INCU RRED IS TO BE DECIDED BY THE BUSINESSMAN AND NOT BY THE AO. FROM THE VARIOUS DET AILS FILED BY THE ASSESSEE WE FIND THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR THE PURPOSE OF BUSINESS AS SALES PROMOTION EXPENSES WHICH CANNOT BE CONVERTED INTO COMMISSION WITHOUT MATERIAL EVIDENCE ON RECORD. THE ASSESSEE HAS SATI SFACTORILY DEMONSTRATED THAT THE PAYMENT FOR SALES PROMOTION EXPENSES AND NOT COMMIS SION PAYMENT. FOR PAYMENT OF SALES PROMOTION EXPENSES SECTION 194 H IS NOT AP PLICABLE, AND THEREFORE, THE EXPENDITURE CANNOT BE DISALLOWED U/S. 40(A)(IA) OF THE ACT. WE THEREFORE, SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 31 -01 - 2012. SD/- SD/- (G. C. GUPTA) (A. L.GEHLOT) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. ITA NO. 2791/AHD/2011 ASSESMENT YEAR 208-09 6 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)- IV, BARODA. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 12 - 01 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING / / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31 - 01 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 31 - 01 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31 -01 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..