M/s. R.B.Patel, Ahmedabad V. The Dy.CIT.,Circle-11, Ahmedabad

ITA 3009/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5340 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice
• Section: 143(3); 133(6); 131; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3009/AHD/2010 (ASSESSMENT Y EAR:2007-08) M/S. R.B. PATEL 14, SP TIMBER MARKET, ZONE-3, LATI BAZAR B/H. GITA MANDIR, AHMEDABAD V/S THE DCIT, CIRCLE-II, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AACFR 3078H APPELLANT BY : SHRI S.N. DIVETIA A.R. RESPONDENT BY : SHRI O.P. BATHEJA, SR. D.R. ( )/ ORDER DATE OF HEARING : 13-01-201 4 DATE OF PRONOUNCEMENT : 07 -02-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT-XVI, AHMEDABAD DATED 01.09.2010 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF DEALI NG OF INDIGENOUS AND IMPORTED TIMBER ON WHOLESALE BASIS. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 9.10.2007 DECLARING TOTAL INCOME OF RS 13,13,508/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS ITA NO 3009/ AHD/2010 . A.Y. 2007- 08 2 FRAMED U/S 143(3) VIDE ORDER DATED 14.12.2009 AND T HE TOTAL INCOME WAS ASSESSED AT RS 17,96,660/-. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 1.9.2010 DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1.1 THE ORDER PASSED U/S. 250 ON 1.9.2010 FOR A.Y. 07-0 8 BY CIT(A)-XVI, ABAD CONFIRMING THE DISALLOWANCE OF COMMISSION PAYMENT OF RS. 4,83,256/ - IS ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR O N FACT IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPEL LANT. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR O N FACTS IN CONFIRMING THE DISALLOWANCES OF COMMISSION PAYMENT OF RS. 4,83,256/- TO SHRI KEVAL PATEL. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF COMMISSION EXPENSES. 2.3 THE DISALLOWANCE OF COMMISSIJON PAYMENT TO SHRI KEV AL PATEL IS UPHELD BY CIT(A) ON PRESUMPTION, SURMISE AND CONJUNCTURES SUCH AS SHRI PATEL BEING A STUDENT, HE COULD NOT FIND EVEN A FEW HOURS TO MOVE IN THE MARKET. 3.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN CALLING FOR REMAND REPORT FROM A.O. AND THEREBY ALLOWING A FRESH OPPORTUNITY TO SUGGEST DISALLOWANCE ON ALTOGE THER DIFFERENT GROUNDS. THE ACTION ON THE PART OF CIT(A) TO CALL FOR REMAND REPORT FROM A.O. WAS B EYOND THE SCOPE OF HIS POWERS UNDER THE ACT SO THAT THE CONCLUSION REACHED ON THE BASIS OF SUCH REPORT WAS ILLEGAL, UNLAWFUL AND BAD IN LAW. 4. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, THE LD. A.R. SUBMITTED THAT THE ONLY EFFECTIVE GROUND IS WITH RESPECT TO D ISALLOWANCE OF COMMISSION PAYMENT OF RS 4,83,256/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD PAID COMMISSION OF RS 4,83,256/- TO SHRI KEVAL N PATEL, SON OF ONE OF THE PARTNER OF THE FIRM. ASSESSEE WAS ASKED TO J USTIFY THE PAYMENT AND PROVE THE CAPACITY OF THE RECIPIENT TO RENDER THE S ERVICES. ASSESSEE INTERALIA SUBMITTED THAT THE COMMISSION WAS MADE FO R FOLLOWING THE SALE OF GOODS TO THE 8 CUSTOMERS AND COLLECTION OF AMOUN T, THE RATE OF COMMISSION WAS 2% OF THE SALES AMOUNT, TDS WAS DEDU CTED BY THE ITA NO 3009/ AHD/2010 . A.Y. 2007- 08 3 ASSESSEE BEFORE MAKING THE PAYMENT AND SHRI KEVAL P ATEL WAS ALSO ASSESSED TO TAX. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO. HE WAS OF THE VIEW THAT THE ASSESSEE HAS FAI LED TO PROVE THAT SHRI KEVAL PATEL WAS HAVING CAPACITY TO RENDER THE SERVI CES, THE EXPENDITURE WAS ON ACCOUNT OF BUSINESS EXPEDIENCY AND HIS SERVI CES WERE INDESPENSIBLE FOR THE SALES. HE ACCORDINGLY HELD TH E EXPENSE TO BE NON GENUINE AND DISALLOWED THE COMMISSION OF RS 4,83,25 6/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- 2.4.1. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. FROM THE ABOVE IT IS CLEAR THAT THE SERVICES RENDERED BY THE RECIPIENT, MR. PATEL ARE NOT GENUINE. HE IS SON O F ONE OF THE PARTNER. HE IS A STUDENT STUDYING HIS EN GINEERING AND IS IN HIS THIRD YEAR. THIS MEANS THA T DURING THE YEAR RELEVXNT TO THE CURRENT ASSESSMENT YEAR, MR. PATEL WAS STUDYING EITHER IN H IS 12TH OR IN THE FIRST YEAR OF ENGINEERING. MR. PATEL CANNOT FIN D SO MUCH TIME TO DO THE COMMISSION BUSINESS BY CONTACTING A LARGE NUMBER OF PARTIES. IT CANNOT BE THE CLAIM OF MR. PATEL THAT HE CONTACTED ONLY THE RELEVANT EIGHT PARTIES AND NONE ELSE. IF IT IS SO T HEN HIS SERVICES ARE NO MORE REQUIRED. IF THE COMMISSION HAS TO BE GENUINE, THEN THE COMMISSION A GENT HAS TO CONTACT A LARGE NUMBER OF PARTIES WHO WOULD REQUIRE THE GOODS, AS WELL AS HE HAS TO CONTA CT A LARGE NUMBER OF PARTIES WHO HAVE THE GOODS AVAILABLE OF REQUIRED QUANTITY AND QUALITY AS WELL AS SIZES. THIS WILL TAKE HIS FULL-TIME IN MOVING IN THE MARKET. THE STUDENT OF 12TH STANDARD IN SCIENCE SUB JECT OR FIRST YEAR OF ENGINEERING, CANNOT FIND EVEN A FEW HOURS TO MOVE IN THE MARKET. FURTHER, FROM THE INQUIRIES FROM VARIOUS PARTIES TO WHOM THE SALES HAVE BEEN MADE IN RESPECT OF WHOM MR. PATEL HAS TAK EN COMMISSION, IT IS SEEN THAT ONE OF THE PARTY OMKAR WOODEN INDUSTRIES HAS STATED THAT IT HAS NOT ENTERED INTO ANY TRANSACTION WITH ANY MEDIATOR, BUT HAS DIRECTLY CONTACTED THE APPELLANT FOR PURCHA SES. SIMILARLY, ANOTHER PARTY SHREE VISHNU SAW MILLS HAS ALSO CLEARLY STATED THAT THEY WERE CORRES PONDING WITH THE APPELLANT DIRECTLY BY TELEPHONE AN D THEY HAVE NOT USED ANY MEDIATOR IN THE NAME OF MR. PATEL. THREE PARTIES NAMELY AMBIKA TRADERS, ASHOK WOOD WORKS AND ROYAL TIMBERS HAVE REPLIED ON IDENTICAL WORDED PAPER, WHICH COSTS DOUBT ON THEIR SUBMISSION. THEY HAVE STATED THAT THEY WERE C ORRESPONDING THROUGH A MEDIATOR, BUT THEY DO NOT KNOW THE NAME OF THE MEDIATOR. THE OTHER PARTIES DI D NOT RESPOND TO THE SUMMONS OF THE AO. FROM THE ABOVE, IT CAN BE STATED THAT AT LEAST THREE OF THE PARTIES HAVE CLEARLY STATED THAT THEY HAVE DONE BUS INESS DIRECTLY WITH THE APPELLANT AND NOT THROUGH THE COM MISSION AGENT, NAMELY MR. PATEL. THEREFORE, THE ENTIRE TRANSACTION OF MR. PATEL IS DOUBTFUL. 2.4.2 WITH RESPECT TO THE ASPECT OF COMMISSION, THE PROOF OF PAYMENT BY IT SELF DOES NOT SHOW THAT THE SERVICES WERE GENUINE OR FOR THE PURPOSE OF BUSINES S. AS STATED ABOVE, MR. PATEL COULD NOT HAVE DONE ANY COMMISSION BUSINESS DUE TO HIS PREOCCUPATION WI TH 12TH STANDARD SCIENCE SUBJECT OR FIRST YEAR ENGINEERING COURSE. HENCE, THE PAYMENT OF COMMISSIO N IS NOT GENUINE. THE HON. SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS LTD 63 ITR 27 HAS CLE ARLY STATED THAT EXISTENCE OF AN AGREEMENT AND PAYMENT OF COMMISSION BY ITSELF DOES NOT PROVE THAT THE SAME IS FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE. THE HON. SUPREME COURT HAS STATED THAT T HIS DEPENDS ON FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE SCALES, THE HON. SUPREME COURT HAS STA TED AS UNDER:- IT WAS TRUE THAT AS BETWEEN THE DIRECTORS AND THE COMPANY THE RESOLUTION HAD A BINDING EFFECT AND THE PAYMENT HAD TO BE LEGALLY MADE. BUT IT WAS FOR THE ITO TO DECIDE WHETHER THE AMOUNT SO PAID TO THE DIRECTORS WAS WHOLLY AND EXCLUSIVELY SP ENT FOR THE PURPOSE OF THE BUSINESS WITHIN THE MEANING OF SECTION 10(2)(XV) OF 1922 ACT. IT WAS A N ERRONEOUS PROPOSITION TO CONTENT THAT AS SOON AS AN ASSESSEE HAD ESTABLISHED TWO FACTS, VIZ, THE EXISTENCE OF AN AGREEMENT BETWEEN THE EMPLOYER AND THE EMPLOYEE AND THE FACT OF ACTUAL PAYMENT, NO DISCRETION WAS LEFT TO THE ITO EXCEPT TO HOLD ITA NO 3009/ AHD/2010 . A.Y. 2007- 08 4 THAT THE PAYMENT WAS MADE WHOLLY AND EXCLUSIVELY FO R THE PURPOSES OF THE BUSINESS. ALTHOUGH THE PAYMENT MIGHT HAVE BEEN MADE AND ALTHOUGH THERE MIG HT BE AN AGREEMENT IN EXISTENCE, IT WOULD STILL BE OPEN TO THE ITO TO TAKE INTO CONSIDERATION ALL THE RELEVANT FACTORS WHICH WILL GO TO SHOW WHETHER THE AMOUNT WAS PAID AS REQUIRED BY SECTION 10(2)(XV) OF 1922 ACT. THE QUESTION AS TO WHETHER AN AMOUNT CLAIMED AS EXPENDITURE WAS LAID O UT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF SUCH BUSINESS, PROFESSION OR VOCATIO N HAS TO BE DECIDED ON THE FACTS AND IN THE LIGHT OF THE CIRCUMSTANCES OF EACH CASE. 2.4.3 IN VIEW OF THE ABOVE, IT IS CLEAR THAT IN THE PRESENT CASE, THE COMMISSION PAYMENT IS NOT GENUIN E AS THE RECIPIENT OF COMMISSION COULD NOT HAVE PERFO RMED THE SERVICES REQUIRED FOR DOING THE COMMISSION BUSINESS. THREE OF THE PARTIES HAVE ALSO REFUSED TO HAVE MADE ANY CONTACT WITH THE COMMISSION AGENT. THE OTHER THREE PARTIES DO NOT KN OW THE COMMISSION AGENTS NAME. IN VIEW OF THIS REASON, THE DISALLOWANCE MADE BY THE A.O. IS CONFIR MED AND THE GROUND OF APPEAL IS DISMISSED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 7. BEFORE US, THE LD A.R. SUBMITTED THAT ASSESSEE HAD PAID COMMISSION AT 2% ON THE SALES EFFECTED BY MR KEVAL PATEL. HE WAS PAID COMMISSION IN THE YEAR UNDER CONSIDERATION AND ALSO IN PRECEDING AND SUBSEQUENT YEARS AT THE SAME RATE. HE POINTED TO THE TABLE OF COMMIS SION PAID TO VARIOUS PARTIES INCLUDING TO MR KEVAL PATEL AT PAGE 2 OF TH E PAPER BOOK. HE FURTHER SUBMITTED THAT IN THE STATEMENT OF SHRI KEV AL PATEL WHICH WAS RECORDED U/S 131 OF THE ACT, MR KEVAL PATEL HAS ADM ITTED TO THE RECEIPT OF COMMISSION AND ALSO ANSWERED THE QUESTIONS WITH THE NATURE OF WORK HANDLED BY HIM. HE FURTHER SUBMITTED THAT SHRI KEVA L PATEL HAS BEEN PAID COMMISSION IN EARLIER YEAR AND SUBSEQUENT YEARS AND THE SAME HAS BEEN OFFERED TO TAX. HE ALSO POINTED TO THE LETTER OF TH E ASSESSEE REGARDING THE COMMISSION PAYMENT AND PLACED AT PAGE 4 OF THE PAPE R BOOK. HE FURTHER SUBMITTED THAT CIT(A) CANNOT CALL FOR THE REMAND RE PORT AND HE HAS WRONGLY CONCLUDED THAT THE PAYMENT OF COMMISSION TO BE NO GENUINE. 8. THE LD. D.R. ON THE OTHER HAND TOOK US THROUGH THE FINDINGS OF CIT(A) AND STRONGLY SUPPORTED THE ORDER OF AO AND CIT(A). HE ALSO PLACED ITA NO 3009/ AHD/2010 . A.Y. 2007- 08 5 RELIANCE ON THE DECISION OF H'BLE GUJARAT HIGH COUR T IN THE CASE OF GUJARAT INSECTICIDES LTD VS ACIT (2012) 19 TAXMANN. COM 70 (GUJ). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS PAID COM MISSION ON SALES (FOR EFFECTING SALES TO 8 PARTIES LISTED ON PAGE 2 AND 3 OF THE ASSESSMENT ORDER) TO SHRI KEVAL PATEL, WHO IS THE SON OF ONE OF THE P ARTNERS. IT IS ALSO A FACT THAT COMMISSION WAS PAID TO HIM IN THE EARLIER YEAR AND SUBSEQUENT YEAR. DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE CIT( A), CIT(A) HAD CALLED FOR REMAND REPORT FROM AO. AO IN THE REMAND REPORT HAS STATED THAT NOTICE U/S 133(6) WAS ISSUED TO ALL THE 8 PART IES. IN THE REMAND REPORT IT WAS FURTHER SUBMITTED THAT OUT OF THE EIGHT PART IES, 2 PARTIES (ASHAPURA SAW MILLS AND D.S.PATEL) DID NOT COMPLY WITH THE NO TICES, 2 PARTIES ( OMKAR WOODEN INDUSTRIES AND SHREE VISHNU SAW MILLS) HAD STATED THAT THEY HAD NOT ENTERED INTO ANY TRANSACTIONS WITH ANY OTHER PERSON OTHER THAN THE ASSESSEE, 3 OTHER PARTIES (AMBICA TRADERS, ASHOK WOOD WORKS AND ROYAL TIMBERS) HAD REPLIED ON IDENTICAL WORDED PAPER AND HAVE STATED TO HAVE BEEN CORRESPONDING THROUGH A MEDIATO R BUT THEY DID NOT KNOW THE NAME OF THE MEDIATOR, WHICH ACCORDING TO C IT(A), CASTS DOUBT ON THEIR SUBMISSION . FROM THE DETAILS OF COMMISSIO N PAID AND PLACED ON RECORD AT PAGE 2 OF THE PAPER BOOK, IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION, COMMISSION WAS ONLY PAID TO MR KEVAL PATEL AND NO OTHER PARTY WAS PAID COMMISSION BUT IN AY 2006-07, 2008-0 9 AND 2009-10, APART FROM COMMISSION TO MR KEVAL PATEL, ASSESSEE H AD ALSO PAID COMMISSION TO OTHER PARTIES. THE DETAILS OF COMMISS ION FURTHER REVEALS THAT COMMISSION @ 2% HAS BEEN PAID TO MR. KEVAL PAT EL IN ALL THE YEARS BUT ON THE OTHER HAND, THE COMMISSION TO OTHER PART IES HAS BEEN PAID AT ITA NO 3009/ AHD/2010 . A.Y. 2007- 08 6 1%, 1.5% AND 2%. AT PAGE 4 OF THE PAPER BOOK, LETTER DATED 25.4.2006 ADDRESSED BY ASSESSEE TO KEVAL PATEL HAS BEEN PLACE D ON RECORD WHEREIN IT IS STATED THAT HE WOULD BE ENTITLED TO COMMISSIO N AT 2% OF SALES AND WILL BE PAID AT THE YEAR END ON THE BASIS OF YEARLY STATEMENT AND FURTHER IN CASE OF CREDIT SALES, ONLY AFTER THE REALIZATION OF THE SALES, COMMISSION WOULD BE PAID. BEFORE US, NOTHING HAS BEEN PLACED O N RECORD ABOUT THE SALES MADE TO VARIOUS PARTIES, WHETHER THE SALES WE RE ON CREDIT AND IN CASE THE SAME WERE ON CREDIT, WHETHER THE COMMISSION WAS PAID ONLY AFTER REALISATION OF SALES. CONSIDERING THE TOTALITY OF F ACTS AND PECULIAR FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE ENDS OF JUSTI CE SHALL BE MET IF THE DISALLOWANCE IS RESTRICTED TO RS. 2 LACS AS AGAINST RS 4,83,256/- MADE BY THE AO. WE THUS DIRECT ACCORDINGLY. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07 - 02 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD