Sh. Pawan Kumar Jain, Delhi V. ACIT, New Delhi

ITA 2973/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7379 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 16-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAMEER SHARMA
• Assessee Lawyers: ASHWANI TANEJA; DR RAKESH GUPTA
• Keywords: Question of law; Wrong claim
• Section: 143(3); 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S. SIDHU, J .M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NOS.2972,2973/DEL/2013 ASSESSMENT YEARS : 2006-07, 2006-07 SHRI PAWAN KUMAR JAIN, VS. ACIT, BM-173 (WEST) CIRCLE 19(1) SHALIMAR BAGH, NEW DELHI. DELHI PAN AAOPJ7853N (APPELLANT) (RESPONDENT) ASSESSEE BY :- DR. RAKESH GUPTA & SHRI AS HWANI TANEJA, ADVOCATE DEPARTMENT BY:- SH. SHAMEER SHARMA, SR. DR O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER APPEAL NO. 2972/DEL/2013 IS FILED BY THE ASSESSEE D IRECTED AGAINST THE ORDER OF LD.CIT(APPEALS) NEW DELHI DT. 27.2.201 3 FOR THE ASSESSMENT YEAR 2006-07 WHEREIN HE CONFIRMED THE ORDER PASSED U/S 143(3) READ WITH SECTION 260 BY THE AO ON 13.6.2011. 2. APPEAL NO. 2973/DEL/2013 IS FILED BY THE ASSESSE E DIRECTED AGAINST THE ORDER OF LD. CIT(A) XXII NEW DELHI, WHEREIN PEN ALTY LEVIED U/S 271(1)(C) BY THE AO WAS CONFIRMED. 3. THE FACTS ARE AS FOLLOWS :- THE ASESSEE IS AN INDIVIDUAL IS A PROPRIETOR OF M/S . PAWAN JAIN & SONS. HE IS IN THE BUSINESS OF MANUFACTURING, EXPOR T AND TRADING OF ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 2 OF 7 STAINLESS STEEL UTENSILS, RICE AND OTHER ITEMS. HE HAD FILED ITS WRITTEN OF INCOME ON 9.10.2006 DECLARING TOTAL INCOME OF RS. 9 9,00,454/-. THE RETURN WAS PROCESSED U/S 143(1) ON 8.3.2007. LATER THE CAS E WAS SELECTED FOR SCRUTINY AND ORDER U/S 143(3) DATED 30.12.2008 WAS PASSED BY THE AO DISALLOWING INTER ALIA THE CLAIM OF COMMISSION OF R S. 31,25,312/- THE ASSESEE CARRIED THE MATTER IN SUCCESSIVE APPEALS. THE TRIBUNAL DISMISSED THE APPEAL OF THE ASSESEE BY OBSERVING THAT THE ASS ESSEE COULD NOT DEMONSTRATE THAT THE COMMISSION WAS PAID TO M/S. LE XCON STEELS (P) LTD. FOR RENDERING OF SERVICES. IT FURTHER HELD THAT THE PUR PORTED AGREEMENT DOES NOT SPELL OUT THE NATURE OF SERVICES AND THE EFFORTS MA DE BY M/S. LEXCON STEELS (P) LTD. FOR PURCHASES OR GUARANTEES. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL. THE HONBLE HIGH COURT I N ITS JUDGMENT DATED 8.4.2011 IN ITA NO. 647/2011 PARA 4 TO PARA 8 HELD AS FOLLOWS :- 4. DECISION REMAINS THE SAME EVEN AT THE LEVEL O F ITAT WHICH HAS DISMISSED THE APPEAL OF THE ASSESSEE. FROM THE ORDE RS PASSED BY THE THREE AUTHORITIES BELOW, WE FIND THAT THEY HAVE EXA MINED THE TRANSACTION, IN QUESTION AND KEEPING IN VIEW VARIOU S CONSIDERATION, THEY COME TO THE CONCLUSION THAT NO SERVICES WERE REFERR ED BY THE SAID COMPANY FOR WHICH IT WAS PAID THE COMMISSION BY THE ASSESEE. ANOTHER FACTOR WHICH HAS ALSO WEIGHED WITH THE AUTHORITIES IS THAT THERE WAS NO NECESSITY TO PAY SUCH A COMMISSION TO THE SAID PART Y FOR STANDING GUARANTEE WHEN THE PARTY OWNED HIM MORE THAN 1.4 CR ORES IN LOAN. 5. THESE FINDINGS OF FACTS ARE ON THE BASIS OF PR OPER APPRECIATION OF THE MATERIAL ON RECORD AND; THEREFORE, IN NORMAL COURSE THERE IS NO REASON TO INTERFERE WITH THE SAME, THAT TOO IN THIS APPEAL PR EFERRED UNDER SECTION 260A OF THE INCOME TAX ACT WHICH IS ACCEPTABLE ONLY ON SUBSTANTIAL QUESTION OF LAW. 6. HOWEVER, DR. GUPTA, LEARNED COUNSEL APPEARING F OR THE ASSESSEE HAS BROUGHT TO OUR NOTICE ONE SIGNIFICANT FACT, WHI CH ACCORDING TO HIM, IS NOT TAKEN NOTE BY THE AUTHORITIES BELOW. 7. HE POINTS OUT THAT M/S. LAXCON STEELS (P) LTD. , TO WHOM COMMISSION WAS PAID, HAD FILED INCOME TAX RETURN FOR THE ASSES SMENT YEAR 2006-07 DECLARING INCOME OF RS. 1,48,50,705/- AND HAD PAID TAX THEREUPON. THIS ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 3 OF 7 INDICATES THE AFORESAID COMMISSION PAID BY THE ASSE SSEE TO THE AFORESAID COMPANY. ON THIS BASIS, IT IS ARGUED THAT IT WAS NOT THE INTENTION OF THE ASSESSEE TO DIVERT THE INCOME OR T O EVADE TAXES. IT IS ALSO ARGUED THAT THE REVENUE HAS NOT SUFFERED ANY L OSS, IN AS MUCH AS, THE TAXES ARE PAID BY M/S. LAXCON STEELS (P) LTD. W HICH RECEIVED THE AFORESAID COMMISSION. IT IS ALSO STATED BY LEARNED COUNSEL FOR THE APPELLANT THAT THE ACKNOWLEDGEMENT OF INCOME TAX RE TURN IN THE CASE OF M/S. LAXCON STEELS (P) LTD. WAS FILED BEFORE THE AS SESSING OFFICER AND THE SAME IS A PART OF RECORD BOOK AND IS GLOSSED OV ER BY THE AUTHORITIES BELOW. 8. SINCE THIS IS VITAL INFORMATION AND HAS NOT B EEN CONSIDERED BY THE AUTHORITIES BELOW, WE RESTORE THE CASE BACK TO THE ASSESSING OFFICER FOR A LIMITED PURPOSES, NAMELY, TO FIND OUT AS TO WHETH ER THE AFORESAID INFORMATION IS ON RECORD, AS CLAIMED BY THE ASSESEE PREFERRED AN APPEAL THERE AGAINST BEFORE THE CIT(A) WHO ALSO CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. 4. IN THE SECOND ROUND OF ASSESSMENT PROCEEDI NGS, THE AO ONCE AGAIN MADE DISALLOWANCE ON THE GROUND THAT THE FACTS OF M /S. LEXCON STEELS(P) LTD. BEING AN INCOME TAX PAYER AND THE FACT THAT SERVICE TAX HAS BEEN PAID BY THE ASSESSEE ON THIS COMMISSION PAYMENT THE DETAILS OF WHICH WERE ON RECORD DO NOT AFFECT THE CONCLUSION THAT THE ASSESSEE HAS MAD E FALSE CLAIM TO CONCEAL HIS INCOME. THIS ORDER OF THE ASSESSMENT WAS PASSED ON 13.6.2011. THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELL ATE AUTHORITY. THE LD. CIT(A) OBSERVED AS FOLLOWS :- 8.18 THE HONBLE HIGH COURT HAD DIRECTED THAT TH E EFFECT BE FOUND OUT, AND IT IS SEEN THAT THOUGH THE ACKNOWLEDGEMENT OF F ILING OF RETURN SHOWING INCOME OF RS. 1,48,50,705/- BY M/S. LEXCON STEELS (P) LTD. IS ON RECORD, BUT THERE IS NO EFFECT AT ALL AFTER STUD Y OF THE ENTIRE FACTS AND THE LEGAL POSITION. THE ASSESSEE COULD NOT EXPLAIN THE EFFECT, IF ANY, EVEN AFTER BEING SPECIFICALLY REQUIRED TO EXPLAIN THE SA ME AND RATHER TRIED TO CONCEAL THE ISSUE REGARDING THE EFFECT, AS DISCUSSE D ABOVE. EXAMINATION OF THE ISSUE DURING THE APPELLATE PROCEEDINGS HAS A LSO SHOWN THAT THERE WAS NO EFFECT ON THE TAXABILITY OF THE CLAIMED COMM ISSION. IN VIEW OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE NO RELIE F AT ALL CAN BE GIVEN TO THE APPELLANT AND THE DISALLOWANCE OF CLAIMED COMMI SSION PAYMENT OF RS. 31,25,312/- IS HEREBY CONFIRMED. ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 4 OF 7 9. IN THE RESULT, THE APPEAL IS DISMISSED. 5. AGGRIEVED THE ASSESEE IS BEFORE US ON THE F OLLOWING GROUNDS :- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRM ING THE ACTION OF LD. AO IN MAKING DISALLOWANCE OF RS. 31,25,312/- ON ACCOUNT OF COMMISSION PAID TO M/S. LEXCON STEELS (P) LTD. A ND THAT TOO WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT CONSIDERING THE MATERIAL AVAILABLE ON RECOR D. 2. THAT IN ANY CASE AND ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING THE IM PUGNED DISALLOWANCE AND FRAMING THE IMPUGNED ASSESSMENT OR DER WHICH IS CONTRARY TO LAW AND FACTS, VOID AB INITIO, BEYON D JURISDICTION, AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING, BY RECORDING INCORRECT FACTS AND FINDINGS AND THE SAME IS NOT SU STAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 6. LD. COUNSEL FOR THE ASSESEE DR. RAKESH GUPT A SUBMITTED THAT M/S. LEXCON STEELS (P) LTD. AND THE ASSESSEE WERE UNRELA TED PARTIES AND IT IS THE CASE OF THE ASSESSEE THAT M/S. LEXCON STEELS (P) LT D. HAS FACILITATED THE SALES DONE BY THE ASSESSEE AND BECAUSE OF THE SERVI CES RENDERED BY M/S. LEXCON STEELS (P) LTD., THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE ARE DONE IN SMOOTH MANNER. HE EMPHASIZED THAT THE AGENT I.E M/S. LEXCON STEELS (P) LTD. CHARGED 10% SERVICE TAX AND ALSO SURCHARGE THE REON ON THE BILLS RAISED BY THEM ON THE ASSESSEE AND ALSO POINTED OUT THE AG ENT PAID INCOME TAX @ 30% IN ADDITION TO SERVICE TAX ON THE COMMISSION RE CEIVED BY IT AND THIS TOTALS UPTO MORE THAN 40% OF THE AMOUNT OF COMMISSI ON EXPENDITURE AND ARGUED THAT IT CANNOT BE SAID BY ANY STRETCH OF IMA GINATION THAT THE ASSESEE HAS PAID THIS AMOUNT AS COMMISSION FOR SAVING INCOM E TAX. HE CONTENDED THAT THE ALLEGATION THAT THE ASSESSEE MADE THIS PAY MENT FOR REDUCING HIS TAX LIABILITY IS AGAINST THE FACTS OF THE CASE. HE EMPH ASIZED THAT THE HONBLE HIGH COURT TOOK NOTE OF THIS FACT AND HAD SET ASIDE THE MATTER TO THE FILE OF AO TO ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 5 OF 7 CONSIDER THIS FACT WHILE COMING TO A CONCLUSION THA T THE PAYMENT WAS BOGUS AND FOR THE PURPOSE OF REDUCTION OF TAX. HE SUBMIT TED THAT THE CIRCUMSTANTIAL EVIDENCE DEMONSTRATE THAT SERVICES H AVE BEEN RENDERED AND THE EXPENDITURE IS GENUINE EXPENDITURE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI SHAMEER SHARMA ON THE OTHER HAND SUBMITTED THAT IN THE FIRST ROUND OF ASS ESSMENT PROCEEDINGS AND IN THE CONSEQUENT APPELLATE PROCEEDINGS, THE ADDITI ON WAS SUSTAINED ON THE GROUND THAT THE ASSESSEE COULD NOT DEMONSTRATE THAT THE AGENT M/S. LEXCON STEELS (P) LTD. HAD RENDERED ANY SERVICE. HE ARGUED THAT UNDER SUCH CIRCUMSTANCES THE MERE FACT THAT SERVICE TAX HAS BE EN PAID AND INCOME TAX HAS BEEN PAID ETC. WOULD NOT LEAD TO THE CONCLUSIO N THAT THE EXPENDITURE SHOULD BE ALLOWED AS GENUINE AND FOR THE PURPOSE OF BUSINESS. 8. RIVAL CONTENTIONS HEARD. ON CAREFUL CONSIDERATI ON OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS :- THE HONBLE HIGH COURT HAS CONSIDERED THE FIND INGS OF THE AO, THE LD. CIT(A) AS WELL AS THE INCOME TAX APPELLATE TRIBUNAL THAT THE ASSESSEE FAILED TO DEMONSTRATE RENDERING OF SERVICES BY M/S. LEXCON STEELS (P) LTD. THE FINDING WAS THAT CREDIBLE MATERIAL WAS NOT FILED BY THE ASSESSEE TO DEMONSTRATE THE NATURE OF SERVICES RENDERED BY M/S. LEXCON STEELS (P) LTD. ON THE GROUND THAT THE ASSESSEE FAILED TO DISCHARGE ITS BURDEN , THE DISALLOWANCE WAS CONFIRMED BY THE ITAT. ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 6 OF 7 9. AFTER GOING THROUGH THIS CONCLUSION AND R ECORDING THAT THESE FINDINGS OF FACT ARE BASED ON PROPER APPRECIATION OF THE MAT ERIAL ON RECORD, THE HONBLE HIGH COURT REMITTED THE MATTER BACK TO THE FILE OF THE AO FOR CONSIDERING THE EFFECT OF THE FACT THAT THE ASSESSE E HAD PAID SERVICE TAX OF MORE THAN 10% FOR THE REMUNERATION PAID TO M/S. LEX CON STEELS (P) LTD. AND ALSO TO THE EFFECT OF THE FACT THAT M/S. LEXCON STE ELS (P) LTD. HAD PAID 30% INCOME TAX ON ITS INCOME. EFFECTIVELY THE PARTIES HAD PAID MORE TAXES OF ABOUT 11% OF THE AMOUNT THIS MEANS THAT THE ARGUMEN T OF THE ASSESSEE THAT THE PAYMENT OF COMMISSION TO M/S. LEXCON STEEL (P) LTD. IS NOT DONE TO REDUCE PROFITS AND TO SAVE TAX WAS CONSIDERED BY TH E HONBLE HIGH COURT AS AN INDICATOR OF THE FACT THAT THE PAYMENT IN QUESTI ON BETWEEN UNRELATED PARTIES WAS GENUINE PAYMENT. 10. HENCE WE HAVE TO CONSIDER THIS ARGUMENT OF THE ASSESSEE THAT THE ASSESEE HAS SUFFERED MORE PAYMENT OF TAXES AS A STR ONG INDICATOR OF THE GENUINENESS OF THE PAYMENT IN QUESTION. 11. THE UNDISPUTED FACT IS THAT M/S. LEXCON STEE LS (P) LTD. IS NOT A RELATED PARTY. THE ASSESSEE HAS NOT SAVED BY WAY OF TAX ON THIS TRANSACTION. IN FACT MORE THAN 40% OF THIS AMOUNT HAS BEEN PAID AS INCOM E TAX AND SERVICE TAX WHICH MEANS, DUE TO THIS TRANSACTION THE PARTY HAS SUFFERED 11% MORE TAXES. THERE IS NO POSSIBLE REASON, AS TO WHY THE ASSESSEE SHOULD MAKE A BOGUS PAYMENT, WHEN ADMITTEDLY THE PARTIES ARE PAYI NG MORE BY WAY OF TAXES. THERE IS AN AGREEMENT BETWEEN BOTH THE UNRE LATED PARTIES PURSUANT TO WHICH THIS PAYMENT IS MADE. THE ASSESSEE HAS ALS O CHARGED INTEREST @ 6% ON THE OUTSTANDING AMOUNTS DUE FROM M/S. LEXCON STE ELS (P) LTD. THOUGH ITA NOS. 2972,2973/DEL/2013 AYS 2006-07 SHRI PAWAN KUMAR JAIN VS. ACIT PAGE 7 OF 7 THE TRIBUNAL IN THE FIRST ROUND OF APPELLATE PROCEE DINGS HAS DRAWN ADVERSE INFERENCE FOR THE REASON THAT THE ASSESSEE HAS NOT FURNISHED EVIDENCES TO PROVE THAT M/S. LEXCON STEELS(P) LTD. HAS RENDERED SERVICES, THE FACT THAT THE ASSESSEE HAS NOT IN ANY WAY BENEFITED BY WAY OF SAVING ITS TAX, BY UNDERTAKING THIS TRANSACTION AND IN VIEW OF THE FAC T THAT NO ADVERSE MATERIAL WAS GATHERED BY THE REVENUE TO DISPROVE THE CLAIM O F THE ASSESSEE THAT THIS COMMISSION PAYMENT IS GENUINE AND AS THE SURROUNDIN G CIRCUMSTANCES AND FACTS LEAD TO AN INFERENCE AS TO THE GENUINENESS OF THE PAYMENT WE DRAW AN INFERENCE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ALLOW THIS CLAIM OF DEDUCTION. 12. IN THE RESULT ITA NO. 2972/DEL/2013 IS ALLOW ED. CONSEQUENTLY PENALTY LEVIED U/S 271(1)(C) ON THE AFORESAID ADDITION HAS NO LEGS TO STAND ON. 13. IN THE RESULT ITA NO. 2973/DEL/2013 IS AL SO ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014 SD/- SD/- (H.S. SIDHU) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH OCTOBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR