ACIT, CIR.-7(1)(1), MUMBAI V. GURUASHISH EXIM PVT. LTD., MUMBAI

ITA 2945/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6894 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: HARESH PURUSHOTTAMDAS SHAH
• Section: 133(6); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2945/M/2016 ASSESSMENT YEAR: 2011-12 ITA NO.6380/M/2016 ASSESSMENT YEAR: 2012-13 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-7(1)-1, ROOM NO.573, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. GURU ASHISH EXIM PVT. LTD., 111, 1 ST FLOOR, MANDVI NAVJIVAN BLDG., 121/127, KAZI SAYED STREET, MASJID BUNDER (W), MUMBAI 400 003 PAN: AABCG3409P (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI HARESH PURUSHOTTAMDAS SHAH, A.R . REVENUE BY : SHRI V. VIDHYADHAR, D.R. DATE OF HEARING : 09.04.2018 DATE OF PRONOUNCEMENT: 12.06.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 25.02.2016 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2011-12. ITA NO.2945/M/2016 (FOR A.Y. 2011-12) 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 2 ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF D ISALLOWANCE OF COMMISSION EXPENSES OF RS. 2,18, 72, 797/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS CLEARLY FAILED TO PROVE THAT THE PAYME NT OF COMMISSION IS REQUIRED IN ITS NATURE OF TRADE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF D ISALLOWANCE OF COMMISSION EXPENSES OF RS. 2,18,72,797/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS CLEARLY FAILED TO ESTABLISHED THE COMMISSION EXPENS ES AS GENUINE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE TO THE FILE OF THE A.O. OR CONFIRM THE OR DER OF THE AO. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE ISSUE RAISED IN GROUND NO.1 & 2 IS AS REGARDS THE DELETION OF ADDITION OF RS.2,18,72,797/- BY LD. CIT(A ) AS MADE BY THE AO BY DISALLOWING THE COMMISSION PAID BY THE ASSESSEE WHEN THE ASSESSEE FAILED TO ESTABLISH THE GENUINENE SS OF THE SAME. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF TRADING IN EXPORT LICENSES. DURING THE YEAR THE ASSESSEE PAID A TOTAL COMMISSION OF RS.3,12,46,853/ - TO VARIOUS PARTIES THE DETAILS WHEREOF WERE SUBMITTED BEFORE THE AO COMPRISING NAME OF THE PARTIES, PAN NUMBER, AMOUN T OF COMMISSION AND TDS DEDUCTED. THE AO ISSUED NOTICE U NDER SECTION 133(6) OF THE ACT FROM WHOM THE ASSESSEE PU RCHASED THE LICENSES AND ALSO TO WHOM THE ASSESSEE SOLD THE LICENSES BESIDES ISSUING NOTICES TO THE RECIPIENT OF COMMISS IONS IN RESPONSE TO THE SAID VARIOUS PARTIES SUBMITTED THEI R RESPONSE AS UNDER: NAME OF THE AGENT REPLY REMARKS AMIT GUPTA HUF DID NOT SUBMIT THE SPECIFIC DETAILS CALLED ALKA BHAVESH ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 3 DOSHI FOR. EVEREST HOLDING PVT DYNASTY FINANCE PVT. LTD. NO DETAILS HOWEVER LEDGER A/C SHOWS TRANSACTION WITH SHARP MENTHOL INDIA LTD WHO DENIED INVOLVEMENT OF ANY AGENT. ADITYA AGARWAL THIS PARTY STATED THAT IT RECEIVED COMMISSION FOR T HE TRANSACTION WITH S HARP MENTHOL INDIA LTD. HOWEVER, M/S SHARP MENTHOL INDIA LTD STATED THEY HAVE DEALT DIRECTLY WITH THE ASSESSEE. ANIL KUMAR LOHIA HUF IT STATED THAT THE COMMISSION WAS RECEIVED FOR TRANSACTION THROUGH M/S BD ASSOCIATES & PANAMA POLY PRODUCTS PVT. LTD. M/S. BD ASSOCIATES CONFIRMS THE INVOLVEMENT OF THIS PARTICULAR AGENT. HOWEVER, OTHER PARTY DID NOT SUBMIT ANY DETAILS. BHANJI K KARIA NOTICE RECEIVED UNSERVED. DEO SHARAN GIRI HUF NOTICE RECEIVED UNSERVED AMRITLAL B. KARIA HUF DID NOT REPLY AKASH JAIN HE STATED THAT THE COMMISSION WAS RECEIVED IN RESPECT OF TRANSACTION RELATING TO RELIANCE I NDS. LTD. HOWEVER, RELIANCE INDS DENIED ANY SUCH TRANSACTION. 5. FURTHER, IN RESPONSE TO NOTICE U/S 133(6) M/S AR TI INTERNATIONAL STATED THAT THEY WERE DIRECTLY ENGAGED WITH THE ASS ESSEE AT THE TIME OF BUYING AND SELLING OF LICENSES. THE ASSESSEE HAD TOTAL TRA NSACTION OF RS. 2,65,40,090/- WITH THIS PARTY. 6. FURTHER, IN RESPONSE TO NOTICE U/S 133(6) M/S AMAR SINGH & SONS STATED THAT THEY WERE INTRODUCED BY THEIR AGENT MR. RAVI SHARMA . HOWEVER, NO COMMISSION HAS BEEN PAID TO RAVI SHARMA AS PER THE DETAILS SUBMITTED BY THE ASSESSEE. 7. FURTHER, IN RESPONSE TO NOTICE U/S 133(6) M/S SH ARP GLOBAL LTD STATED THAT THEY WERE DIRECTLY ENGAGED WITH THE ASSESSEE AT THE TIME OF BUYING AND SELLING OF LICENSES. THE ASSESSEE HAD TOTAL TRANSACTION OF RS. 35.72 CRO RES WITH THIS PARTY. 8. FURTHER, IN RESPONSE TO NOTICE U/S 133(6) M/S AA RON HEALTHCARE & EXPORT PVT LTD STATED THAT THEY WERE DIRECTLY ENGAGED WITH THE ASSESSEE AT THE TIME OF BUYING AND SELLING OF LICENSES. THE ASSESSEE HAD TOTAL TRA NSACTION OF RS. 4.45 CRORES WITH THIS PARTY. ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 4 5. IN VIEW OF THE ABOVE REPLIES FROM THE VARIOUS PA RTIES THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND ASK ED TO JUSTIFY THE PAYMENT OF COMMISSION WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 05.02.2014 BY SUBMITTING THAT THE CUSTOMERS TO WHOM THE LICENSES WERE SOLD OR FROM WH OM THE LICENSES WERE PURCHASED WERE NOT HAVING ANY DIRECT AGENTS. ACCORDING TO THE ASSESSEE THESE AGENTS PROVIDE THE ASSESSEE THE INFORMATION AS TO AVAILABILITY OF LICENSES AND PRICES TO BE QUOTED ETC. THE ASSESSEE FURTHER SUBMITTED THAT THE INFORMATION SUPPLIED BY THESE AGENTS ARE KEPT ON RE CORD AND WITHOUT KEEPING SUCH TYPE OF INFORMATION AND HAVING AGENTS IN THE MARKET IT IS NOT POSSIBLE TO SURVIVE IN THI S LINE OF BUSINESS. BESIDES THE ASSESSEE SUBMITTED THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES, TDS WERE DEDUCTE D AND NONE OF THE AGENTS WERE RELATED PARTIES. THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND CAME TO THE CONC LUSION THAT 70% OF THE TOTAL COMMISSION PAID WAS NOT GENUI NE AND NOT LIABLE UNDER SECTION 37 OF THE ACT FOR THE VARI OUS REASONS AS HAS BEEN ENUMERATED IN PARA 10 OF THE ASSESSMENT ORDER. 6. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING THAT ASSESSEE H AS FILED ALL THE DETAILS BEFORE THE AO AND THE SIMILAR COMMISSIO N HAS BEEN ALLOWED IN EARLIER FOUR ASSESSMENT YEARS AND DELETE D THE ORDER OF DISALLOWANCE. 7. THE LD. D.R. VEHEMENTLY ARGUED BEFORE US THAT THE ORDER OF LD. CIT(A) IS TOTALLY WRONG AND AGAINST THE FACT S ON RECORD. THE LD. D.R. REFERRED TO THE RESPONSES RECEIVED FROM THE ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 5 PARTIES BOTH BUYER AS WELL AS SELLERS OF DEPB EXPOR T LICENSES. IN THE MAJORITY OF THE CASES THE PARTIES DENIED THE INVOLVEMENT OF ANY DEALER/COMMISSION AGENT WHO FACI LITATED THE PURCHASE OR SALE OF DEPB EXPORT LICENSES AND IN SOME CASES THE PARTIES CONFIRMED THAT NO COMMISSION PAYM ENT WAS MADE. UNDER THESE CIRCUMSTANCES THE WHOLE TRANSACTI ONS OF PAYMENT OF COMMISSION WERE SERVED WITH THE DOUBTS A ND AS TO GENUINENESS OF THE SAID TRANSACTIONS. THE LD. D.R. S TATED THAT CONSIDERING THE RESPONSE OF VARIOUS PARTIES TO THE NOTICES UNDER SECTION 133(6) THE AO HAS RIGHTLY DISALLOWED THE 70% OF THE COMMISSION. THE LD. D.R. FURTHER STATED THAT MER E ALLOWANCE OF THE SAME NATURE OF EXPENSES IN THE EAR LIER FOUR YEARS WHICH WAS ONE OF THE GROUNDS STATED BY THE LD . CIT(A) FOR ALLOWING THE CLAIM OF THE ASSESSEE IS NOT CORRE CT. FINALLY, THE LD. D.R. SUBMITTED THAT THE ORDER OF LD. CIT(A) BE REVERSED AND THAT OF THE AO BE AFFIRMED. 8. THE LD. A.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF DEPB EXPORT LICENSES AND THE NATURE OF BUSINESS IS SUCH THAT THE SERVICES OF THE AGENTS ARE REQUIRED TO BE HIRED AND WITHOUT WHICH IT IS NOT POSSIBLE FOR THE ASSESSEE TO CARRY ON ITS BUSINESS. THE LD. A.R. SUBMITTED BY TAKING US TO THE PAPER BOOK PAGE NO.22 WHICH COMPRISED THE DETAILS OF COMM ISSION PAID AND TDS DEDUCTION THEREUPON AND ALSO TOOK US T O THE DETAILS OF CREDIT NOTES REGISTERED FROM 01.04.10 TO 31.03.11. THE LD. A.R. ALSO TOOK US THROUGH THE DETAILS OF VARI OUS CUSTOMERS TO WHOM THE LICENSES WERE SOLD AND THE CORRESPONDING COMMISSION PAID AFTER DEDUCTION OF TD S. THE ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 6 LD. A.R. CONTENDED THAT SINCE THE BUYERS AND SELLERS A RE NOT AWARE OF THE MIDDLEMEN INVOLVEMENT WHOSE JOB IS TO TELL THE ASSESSEE ABOUT THE AVAILABILITY OF THESE LICENSES A ND THE POTENTIAL BUYER OF THESE LICENSES SO DENIAL OF THES E PARTIES OF ANY MIDDLEMEN INVOLVEMENT IS QUITE NATURAL AND SHOU LD NOT BE TAKEN TO DENY THE LEGITIMATE CLAIM OF THE ASSESSEE BY WAY OF COMMISSION. FINALLY, THE LD. A.R. PRAYED BEFORE THE B ENCH THAT THE APPEAL OF THE DEPARTMENT SHOULD BE DISMISS ED BY UPHOLDING THE ORDER OF LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE FACTS ON RE CORD SHOW THAT THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AN D SALE OF DEPB EXPORT LICENSES. DURING THE YEAR ASSESSEE HAS PAID COMMISSION OF RS.3,12,46,853/- TO VARIOUS AGENTS WHO AR E INVOLVED IN THE PURCHASE AND SALE OF DEPB EXPORT LI CENSES. ACCORDING TO THE ASSESSEE, THE AO ISSUED NOTICES UND ER SECTION 133(6) TO VARIOUS PARTIES TO VERIFY THE GENUINENESS OF THE COMMISSION PAID BY THE ASSESSEE. HOWEVER, IN MOST OF THE CASES THE PARTIES DENIED THAT ANY AGENT WAS INVOLVE D IN THE DEAL AND THEREFORE AO FINALLY DISALLOWED 70% OF THE TOTAL COMMISSION CLAIMED DURING THE YEAR. THE LD. CIT(A), ON THE OTHER HAND, DELETED THE ENTIRE ADDITION BY PASSING A VERY DETAILED ORDER BY REASONING THAT DISALLOWANCE ON AD HOC BASIS IS WRONG IN VIEW OF THE NATURE OF BUSINESS OF THE A SSESSEE AND ALLOWANCE OF SUCH EXPENSES IN THE PRECEDING FOUR FI NANCIAL YEARS ETC. FACTS ON RECORD LEAVE NO ROOM FOR DOUBT THAT THE ASSESSEE, INDEED, HAS PAID COMMISSION AS THE AO HIMS ELF HAS ALLOWED 30% OUT OF THE TOTAL COMMISSION PAID. DISP UTE IS ONLY ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 7 WITH REGARD TO THE QUANTUM OF THE PAYMENT. AS COULD BE SEEN FROM THE FACTS ON RECORD SOME OF THE PURCHASERS AND SELLERS TO WHOM NOTICES WERE ISSUED UNDER SECTION 133(6) OF TH E ACT HAVE CLEARLY DENIED THE INVOLVEMENT OF COMMISSION A GENTS FOR ARRANGING THE SALE AND PURCHASE OF SUCH LICENSES. THEREFORE, IT CAN NOT BE ABSOLUTELY RULED OUT THAT THE ASSESSE E TO SOME EXTENT HAS INFLATED THE PAYMENT. UNDER THESE CIRCU MSTANCES, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN B Y THE LD. CIT(A) THAT ENTIRE DISALLOWANCE AS MADE BY THE AO TO THE TUNE OF 70% OF THE TOTAL COMMISSION IS INCORRECT. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT A REASONABLE DISALLOWANCE HAS TO BE MADE SO THAT ANY LEAKAGE OF REVENUE IS BROUGHT TO TAX. ACCORDINGLY, WE DEEM IT REASONABLE AND FIT TO RESTRICT THE DISALLOWANCE ON ACCOUNT OF COMMISSION TO 15% OF THE TOTAL COMMISSIONS. THE OR DER OF LD CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DISAL LOW 15% IN PLACE OF 70% . THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO.6380/M/2016 (FOR A.Y. 2012-13) 10. THE ISSUE RAISED IS IDENTICAL TO THE ONE AS DEC IDED BY US IN ITA NO.2945/M/2016. THEREFORE, OUR FINDING IN TH E SAID APPEAL WOULD, MUTATIS MUTANDIS, APPLY TO THIS APPEAL AS WELL. ACCORDINGLY, THE APPEAL OF THE REVENUE IS PARTLY AL LOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.06.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12.06.2018. * KISHORE, SR. P.S. ITA NOS.2945 & 6380/M/2016 M/S. GURUASHISH EXIM PVT. LTD. 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.