M/s Northern Motors Pvt. Ltd., Jalandhar city V. The Dy. Commissioner of Income Tax, Jalandhar

ITA 296/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0628 (ITAT-AMRITSAR)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Keywords: Business expenditure; Charitable institution
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. (CAMP AT JALANDHAR) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 296(ASR)/2016 ASSESSMENT YEAR:2009-10 PAN: AABCN5973H M/S. NORTHERN MOTORS PVT. LTD. VS. DY. COMMR. OF INCOME TAX, G.T.ROAD, JALANDHAR. RANGE-3, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.SANDEEP VIJH, CA RESPONDENT BY: SH.BHAWANI SHANKER, DR DATE OF HEARING: 30/06/2016 DATE OF PRONOUNCEMENT: 12 /07/2016 ORDER PER A.D. JAIN, JM: THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2009-10, CHALLENGING THE ACTION OF THE LD. CIT(A) IN CONFIRM ING THE ESTIMATED AH- HOC DISALLOWANCE OF RS.5,25,000/- OUT OF COMMISSION EXPENSE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY, WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN MOTOR VEHICLE S, HAD FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.0 9.2009, DECLARING AN INCOME OF RS.1,45,25,290/-. HOWEVER, THE AO COMPLET ED THE ASSESSMENT U/S 143(3) OF THE ACT AT AN ASSESSED INCOME OF RS.1 ,50,50,290/-. WHILE ITA NO.296(ASR)/2016 ASSESSMENT YEAR: 2009-10 2 COMPLETING THE ASSESSMENT, THE AO MADE AN ADDITION OF RS.5,25,000/- TO THE RETURNED INCOME OF THE ASSESSEE ON ACCOUNT OF D ISALLOWANCE OF COMMISSION EXPENSE OUT OF TOTAL COMMISSION CLAIMED BY THE ASSESSEE COMPANY AT RS.22,67,559/-. 3. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSE SSEE, OBSERVING AS UNDER: I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AS MA DE BY HIM IN THE ASSTT. ORDER. I HAVE ALSO CONSIDERED THE WRITTEN SU BMISSIONS FILED BY THE ASSESSEE VIDE LETTER DATED 22.04.2015 ON THE IS SUE UNDER REFERENCE. I HAVE FURTHER CONSIDERED VARIOUS JUDICI AL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE AS WELL AS OTHER MATERI AL BROUGHT BY THE ASSESSEE ON RECORD. ON CAREFULLY CONSIDERATION OF T HE RIVAL CONTENTIONS, IT HAS BEEN NOTICED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS PAID COMMISSION TO DIFFEREN T PERSONS AT RS.22,67,559/- OUT OF WHICH COMMISSION TO THE EXTEN T OF RS.7,26,120/- HAS BEEN PAID IN CASH. IT HAS ALSO BE EN NOTICED THAT PAYMENT OF COMMISSION TO DIRECTOR(S) OF THE COMPANY (RS.6,00,000/-) AND TO THE FINANCERS OF VEHICLES HAS BEEN PAID THRO UGH CHEQUE WHEREAS THE COMMISSION IN CASH WAS CLAIMED TO BE PA ID MOSTLY TO DRIVERS OF PURCHASERS OF VEHICLES/CARS. IT HAS FURT HER BEEN NOTICED THAT THE COMMISSION TO DRIVERS OF CUSTOMERS HAS MOS TLY BEEN PAID AT A UNIFORM RATE OF RS.2,000/- TO EACH DRIVERS. WHEN ASKED FOR THE JUSTIFICATION OF PAYMENT IN CASH TO DRIVERS, IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT SIMILAR PAYMENT OF COMMISSION HAS BEEN ALLOWED IN EARLIER YEARS AFTER DEEP ENQUIRIES. DURING THE C OURSE OF APPELLATE PROCEEDINGS SIMILAR SUBMISSIONS WERE MADE AS WERE MADE DURING ASSESSMENT PROCEEDINGS. THE LD. AR ALSO CITED VARIO US DECISIONS AND CONTENDED THAT THE AO SHOULD HAVE FOLLOWED CONSISTE NCY WHILE CONSIDERING THE CLAIM OF COMMISSION EXPENSES. ON CA REFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE NECESSITY TO PAY COMMISSION TO THE DRIVERS OF CUS TOMERS DOES NOT ARISE AS THE DRIVERS DO NOT BRING THE CUSTOMERS TO THE ASSESSEE. MOREOVER, THE PAYMENT OF COMMISSION TO DRIVERS CANN OT BE CONSIDERED AS GENUINE BUSINESS EXPENSES. UNDER SUCH CIRCUMSTANCES, THE ACTION OF THE AO IN MAKING ADDIT ION OF RS.5,25,000/- ON ACCOUNT OF DISALLOWANCE OUT OF COM MISSION PAYMENTS CANNOT BE SAID TO BE UNJUSTIFIED. ITA NO.296(ASR)/2016 ASSESSMENT YEAR: 2009-10 3 5.3. IN VIEW OF THE ABOVE STATED FACTS AND IN THE C IRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE AO IS FULLY JUSTIFIED IN MAKING ADDITION OF RS.5,25,000/- ON ACCOUNT OF DISALLOWANC E OUT OF COMMISSION PAYMENTS. THE ADDITION OF RS.5,25,000/- MADE BY THE AO IN THIS CASE IS, THEREFORE, UPHELD. 4. CHALLENGING THE IMPUGNED ORDER, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED, AS ALSO STATED IN THE WRITTEN SUBMIS SIONS FILED, THAT THE LD. CIT(A) HAS ERRED IN OBSERVING THAT THE NECESSI TY TO PAY COMMISSION TO THE DRIVERS OF CUSTOMERS DID NOT ARISE, AS THE DRIV ERS DID NOT BRING THE CUSTOMERS TO THE ASSESSEE; THAT WHILE HOLDING SO, T HE LD. CIT(A) HAS IGNORED THE FACT THAT THE DRIVERS WERE NOT IN A POS ITION TO CARRY OUT THE DECISION OF THEIR EMPLOYER; THAT A PART OF SUCH EXP ENSE STANDS ALLOWED, PROVING THE GENUINENESS THEREOF; THAT THIS HAS ALSO ILLEGALLY NOT BEEN CONSIDERED; AND THAT THE LD. CIT(A) HAS ALSO FAILED TO CONSIDER THAT IN THE PRECEDING YEAR TOO, SIMILAR EXPENSES WERE ALLOWED. 5. PER CONTRA, THE LD. DR, STRONGLY RELIED ON THE I MPUGNED ORDER. 6. IN THIS REGARD, IT IS SEEN THAT THE ASSESSEE FI LED WRITTEN SUBMISSIONS DATED 26.04.2016 (REPRODUCED IN PARA 5. 1 OF THE IMPUGNED ORDER) BEFORE THE LD. CIT(A). HOWEVER, EVIDENTLY, T HE LD. CIT(A) HAS NOT TAKEN THEM INTO CONSIDERATION. 7. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF MOTOR CARS AND IS ALSO RUNNING A MOTOR SER VICE GARAGE. THE DETAILS OF COMMISSION PAID WERE DULY FURNISHED. A SUBSTANTIAL PORTION OF SUCH PAYMENT WAS MADE TO THE DIRECTORS OF THE COMPA NY, AS PART OF THEIR ITA NO.296(ASR)/2016 ASSESSMENT YEAR: 2009-10 4 SALARY. THE REST WAS PAID IN CASH. IT IS PERTINENT TO MENTION THAT UNDISPUTEDLY, SIMILAR EXPENDITURE OF CASH PAYMENT O F COMMISSION WAS ALLOWED IN THE ASSESSMENT YEAR 1996-97. MOST OF THE COMMISSION WAS PAID TO THE DRIVERS IN CONNECTION WITH THE PURCHASE OF CARS AND TO PERSONS WHO INTRODUCED CUSTOMERS. IT HAS NOT BEEN DISPUTED THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE COMMISSION PA YMENT WAS NOT GENUINE. FURTHER, EVEN FOR THE ASSESSMENT YEAR 2004 -05, NO DISALLOWANCE WAS MADE IN SCRUTINY ASSESSMENT. THUS, CONSISTENCY ALSO CALLS FOR NO DISALLOWANCE ON THIS SCORE BEING MADE. 8. IN VIEW OF THE ABOVE, IT IS SEEN THAT THE ORDER OF THE LD. CIT(A) HAS BEEN PASSED WITHOUT TAKING INTO CONSIDERATION THE A BOVE CONTENTION OF THE ASSESSEE, WHICH REMAINS UNREBUTTED. AS SUCH, TH E ESTIMATED AD-HOC DISALLOWANCE OUT OF COMMISSION IS FOUND TO BE ENTIR ELY UNCALLED FOR. THE FOLLOWING CASE LAWS IN THIS REGARD HAVE RIGHTLY BEE N RELIED ON BY THE ASSESSEE: I) CIT VS. LEADER VALVES LTD., 295 ITR 273 (P&H) II) CIT VS. J.K.CHARITABLE TRUST, 308 ITR 161 (S C) III) ITO VS. J.M.P. ENTERPRISES, 101 ITD 324 (IT AT, AMRITSAR) 9. NO DECISION CONTRARY TO THE SAID CASE LAWS HAS BEEN PRESSED INTO SERVICE. ITA NO.296(ASR)/2016 ASSESSMENT YEAR: 2009-10 5 10. FOR THE ABOVE DISCUSSION, FINDING THE GRIEVANCE OF THE ASSESSEE TO BE JUSTIFIED, THE SAME IS ACCEPTED. THE ORDER UNDER APPEAL IS REVERSED. CONSEQUENTLY, THE ESTIMATED AD-HOC DISALLOWANCE OU T OF COMMISSION EXPENSE IS DELETED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 /07/ 2 016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 12/07/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. NORTHERN MOTORS PVT. LTD. JALANDH AR 2. THE DCIT, CIRCLE-III, JALANDHAR. 3. THE CIT(A), JALANDHAR 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.