The DCITNavsari Circle, Navsari V. Honest Textwisters Enggs.Pvt.Ltd., Navsari

ITA 3152/AHD/2010

• Counselvise Citation: 315220514 RSA 2010
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M K PATEL
• Keywords: Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T. R. MEENA, ACCOUNTANT ME MBER DY. COMMISSIONER OF INCOME-TAX, NAVSARI CIRCLE, NAVSARI, (APPELLANT) VS HONEST TEXTWISTERS ENGGS. PVT. LTD. 2, HONEST COMPOUND, MAHADEV NAGAR, BILIMORA, DIST: NAVSARI. PAN: AABCH0348C (RESPONDENT) REVENUE BY: SRI O.P. BATHEJA, SR.D.R. ASSESSEE BY: SRI M.K. PATEL, A.R. DATE OF HEARING : 11-10-2013 DATE OF PRONOUNCEMENT : 25-10-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A), VALSAD DATED 11-08-2010. 2. THE REVENUE HAS TAKEN FOLLOWING TWO EFFECTIVE GR OUNDS:- ITA NO. 3152/AHD/2010 ASSESSMENT YEAR 2007-08 I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION O F RS. 6,90,929/- MADE ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPEN SES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION O F RS. 25,000/- MADE ON ACCOUNT OF VARIOUS UNVERIFIABLE EXPENSES. 3. FIRST GROUND RELATES TO ADDITION OF RS. 6,90,629 /- ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENSES. THE AO WHILE MAKING THIS ADDITION HAS OBSERVED AS UNDER:- (7) ON GOING THROUGH THE TRADING PROFIT AND LOSS A CCOUNT, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED RS. 6,90,629/- AS COM MISSION ON PURCHASES, PAID TO THE FOLLOWING PARTIES: SL. NO. NAME OF THE PARTY AMOUNT 1 SWASTIK CORPORATION 75,771/- 2 SUPAN TEXTILE & ENGINEERING CO. 3,40,000/- 3 MANSI ENGG. CO. 2,74,858/- TOTAL 6,90,629/- (7.1) THE ASSESSEE WAS ASKED TO SUBMIT NAME AND ADD RESS OF THE PARTIES TO WHOM COMMISSION PAID WITH REFERENCE TO P URCHASES MADE NECESSITY TO TAKE THEIR SERVICES AND NATURE OF SERV ICES RENDER BY THEM. ALSO ASK TO FURNISH COPY OF ACCOUNTS CONTRA ACCOUNT S ALONG WITH JUSTIFICATION FOR PAYMENT OF COMMISSION VIDE ORDER SHEET ENTRY DATED 10.11.2009. (7.2) THE ASSESSEE VIDE ITS RETURN REPLY DATED 17 -12-2009 STATED AS UNDER:- THERE WAS A VERY SHORT PERIOD OF TIME BETWEEN DATE OF ORDER RECEIVED & THE DATE OF EXECUTION OF ORDER OF DUE DA TE OF SUPPLY. ORDER NO. DATE OF ORDER DUE DATE OF DELIVERY I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 3 14293 01-05-2006 30.05.2006 14919 20.06.2006 15.07.2006 14516 02.08.2006 10.08.2006 FROM THE ABOVE WE CAN SEE THAT THERE IS A VERY SH ORT PERIOD OF TIME FOR FULFILLMENT OF ORDER WITH US. ALSO WE HAD RECEIVED EXPORT ORDER FOR THE FIRST TIME. IN THE PAST WE WE RE WORKING ON A VERY LOW PROFILE. TO FULFILL SUCH A BIG ORDER WA S A CHALLENGE TO US. WE WERE NOT HAVING PERSONNEL WITH US. WE H AD TO RELY ON OUTSIDE AGENCIES. WE HAVE PAID COMMISSION TO SW ASTIKA CORPORATION, MUMBAI ON PURCHASE OF GOODS THROUGH TH EM FROM SUPPLIER OF MUMBAI. ON RECEIPT OF ORDER, THEY SURV EY THE MARKET RATE OF TIMES IN THE MUMBAI MARKET. ON BEHA LF OF US AND ARRANGE FOR SUPPLY FROM BEST POSSIBLE SUPPLIERS . THEY ALSO BARGAIN FOR PAYMENT TERMS & LOOK FOR TIMELY DELIVER Y OF GOODS ORDERED. WE HAVE PAID AMOUNT OF RS. 75771 TO THEM. WE HAVE DEDUCTED TDS OF RS. 4251 FROM PAYMENT TO THEM. CO PY OF DEBIT NOTE IS ENCLOSED. WE HAVE PAID 3% COMMISSIO N PURCHASE AND 2% ON LABOUR CHARGES. ALL DETAILS ARE GIVEN IN THE DEBIT NOTE. COPY OF ACCOUNT IS ENCLOSED. WE HAVE PAID C OMMISSION TO SUPAN TEXTILE & ENGINEERING CO. MUMBAI FOR PURC HASES OF SHEETS AND TIRES FROM MUMBAI. IN THE CURRENT YEAR WE HAD RECEIVED EXPORT ORDER FOR THE FIRST TIME. THIS WAS NEW BUSINESS FOR US. IT WAS AS NEW LINE HENCE WE HAD TO RELY ON SUCH AGENCY FOR TIMELY SUPPLY, REASONABLE PRICE ETC. IN VIEW O F VERY SHORT PERIOD OF TIME BETWEEN DATE OF ORDER RECEIVED 7 DUE DATE OF SUPPLY WE WERE NOT IN A POSITION TO DO PERSONALLY A LL THESE. WE HAVE PAID AMOUNT OF RS. 340000/- 3.5% COMMISSION ON PURCHASES THROUGH THEM. ALL DETAILS ARE GIVEN IN T HE DEBIT NOTE. COPY OF DEBIT NOTE AND CONFIRMATION IS ENCLOSED. WE HAVE PAID COMMISSION TO MANSI ENGINEERING CO. F OR THE PURCHASES FROM AHEMDABAD AND NORTH GUJARAT. IN VIEW OF LIMITED TIME, WE HAD TO REPLY ON THEM FOR SMOOTH SU PPLY OF MATERIAL AT REASONABLE PRICES. WE HAVE PAID AMOUNT OF RS. 2748858/- TO THEM. WE HAVE DEDUCTED TDS OF RS. 152 35/- FROM PAYMENT TO THEM. WE HAD PAID 3.5% COMMISSION ON PU RCHASES THROUGH THEM. COPY OF DEBIT NOTE, CONTRA ACCOUNT & I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 4 CONFIRMATION ARE ENCLOSED. ALL DETAILS ARE GIVEN IN THE DEBIT NOTE. ONCE AGAIN, WE WERE WORKING ON A VERY LOW PROFILE. WE HAD RECEIVED EXPORT ORDER FOR THE FIRST TIME. IT WAS A NEW LINE FOR US. WE WERE NOT HAVING SUFFICIENT STAFF WITH DUE A BILITY. IN VIEW OF LIMITED PERIOD OF TIME BETWEEN DATE OF ORDER AND DUE DATE OF SUPPLY. WE WERE NOT ABLE TO DO ALL THESE PROCURING PERSONALITY; WE HAD TO RELY ON OUTSIDE AGENCIES. FOR ALL THE SE RVICES FROM THEM, WE HAD TO PAY COMMISSION. (7.3) THE WRITTEN EXPLANATION OF THE ASSESSEE HAS B EEN CONSIDERED VERY CAREFULLY. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE PURCHASE BILLS OF PARTIES FROM WHOM THE ASSESSEE PU RCHASED RAW MATERIAL THOUGH THE ALLEGED AGENTS AS STATED IN PAR A NO. 7 OF THIS ORDER AND DEBIT NOTES ISSUED BY THE SAID AGENTS, IT REVEALED THAT THE BILLS WERE ISSUED BY THE SELLER PARTIES IN THE NAME OF THE ASSESSEE WITHOUT MENTIONING THE NAME OF THE AGENTS THROUGH W HOM THE PURCHASE ORDERS WERE STATED TO BE PLACED. IT IS AL SO OBSERVED THAT NO PURCHASE AGREEMENTS HAVE BEEN MADE WITH THE SO CALL ED COMMISSION AGENTS. THE DEBIT NOTES ISSUED BY THE AGENTS ARE N OTHING BUT MERE PAPER TRANSACTION TO ACCOMMODATE THE ASSESSEE TO CL AIM COMMISSION EXPENSES. CONSIDERING THE FACTS STATED ABOVE, COMM ISSION EXPENSES CLAIMED AGGREGATING TO RS. 6,90,629/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 4. BEFORE LD. CIT(A), SUBMISSION OF THE ASSESSEE W AS AS UNDER:- 7.1 THE A . R . OF THE APPELLANT SUBMITTED THAT THE REASONS GIVEN BY THE LEARNED AO ARE TOTALLY IRRELEVANT, WRONG AND WITHOU T ANY BASE. IT IS NOT COMPULSORY TO MENTION HIS NAME OF AGENT IN PURC HASE BILLS. GENERALLY, IT IS TRADE PRACTICE NOT TO MENTION THE NAME OF THE AGENT IN THE BILL. THERE MAY BE SEVERAL REASONS FROM THE POI NT OF VIEW, THE BUYER OR SELLER LIKE TRACE SECRECY ETC. IT IS ALSO NEITHER NECESSARY NOR FROM COMPULSORY TO HAVE PURCHASE AGREEMENT WITH AGE NT. GENERALLY, BUYERS AND COMMISSION AGENTS HAVE MUTUALLY UNDERSTA NDING. IN OUR CASE, THIS TYPE OF SITUATION ARISED FOR THE FIRST TIME. I N GENERALLY, WE NEVER TAKE HELP OF A AGENT, AS WE OURSELVES IS COMP ETENT, BECAUSE, OUR TRADING WAS LOCAL AND OUR TURNOVER WAS ABOUT RS. 80 LACS. BUT DURING THE YEAR, WE HAVE GOT SOME GOOD EXPORT ORDER AND OU R TURNOVER JUMPED BY MORE THAN 8 TIMES I.E. RS. 6.93 CRORES, T HIS WAS NEW TYPE I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 5 OF BUSINESS AND WAS FOR THE FIRST TIME. THE TIME GA P BETWEEN RECEIPT OF ORDER AND COMPLETION OF ORDER WAS TOO SHORT. WE WER E NOT HAVING PERSONNEL MANPOWER TO COPE UP WITH THE SITUATION I. E. TO COMPLETE THE ORDER IN TIME. TO COMPLETE THE ORDER, WE HAD NO OPT ION BUT TO RELY ON AGENTS. THIS BEING A FIRST EXPORT ORDER, IT WAS A B IG CHALLENGE FOR US TO COMPLETE EXPORT ORDER WITHIN TIME AND WITH GOOD QUA LITY. THE PRODUCT OF THE ORDER WAS FOR THE FIRST TIME AND NEW FOR US. WE WERE NOT AWARE ABOUT AVAILABILITY AND RESOURCES OF SUCH RAW MATERI ALS, PRICE OF MATERIAL, QUALITY OF MATERIAL ETC. WE HAVE TAKEN HE LP OF AGENTS FOR RAW MATERIAL MARKET SERVICE. THE AGENTS WERE PROVED VER Y HELPFUL AND THUS WE WERE ABLE TO BUY NECESSARY GOODS AT GOOD RATE WI TH GOOD TERMS AND CONDITIONS, GOOD QUALITY, GOOD DELIVERY IN TIME ETC. WE HAD NEVER PURCHASED GOODS FROM SUPPLIER OF MUMBAI, SO, IT WAS NECESSARY FOR US TO GO THROUGH THE AGENT, OTHERWISE IT MAY BE DIFFIC ULT FOR US. ALL THE DETAILS OF COMMISSION EXPENSES WERE GIVEN TO THE A. O. AND DEDUCTION OF TDS WAS ALSO MADE. 5. AFTER TAKING INTO CONSIDERATION THESE SUBMISSION S OF THE ASSESSEE LD. CIT(A) DELETED THIS ADDITION. 6. NOW AGGRIEVED REVENUE IS IN APPEAR BEFORE US. 7. AT THE TIME OF HEARING LD. DR RELIED ON THE ORDE R OF AO WHILE LEARNED COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE COMMISSION EXPENSES WERE PAID BY THE ASSESSEE TO TH E AGENTS FOR PURPOSE OF RAW MATERIAL FROM NEW SUPPLIERS FOR BIG EXPORT ORDE R OBTAINED BY THE ASSESSEE DURING THE YEAR UNDER APPEAL. IN ORDER TO COMPLETE THE EXPORT ORDER IN TIME AND TO MAINTAIN THE QUALITY, ASSESSEE HAS M ADE THESE PURCHASES THROUGH THE SERVICES OF AGENTS. WE FURTHER FIND TH AT PAYMENT TO THE AGENTS HAS BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE AND TDS HAS BEEN DEDUCTED FROM THE PAYMENTS MADE TO THE AGENTS. KEEPING IN V IEW ALL THESE FACTS AND I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 6 CIRCUMSTANCES OF THE CASE IN VIEW, WE ARE OF THE CO NSIDERED OPINION THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE COMMISSION EXP ENSES AMOUNTING TO RS. 6,90,629/- AND LD. CIT(A) HAS RIGHTLY DELETED THIS DISALLOWANCE. THEREFORE THE ORDER PASSED BY HIM IS HEREBY UPHELD. THIS GR OUND OF THE REVENUE IS DISMISSED. 9. GROUND NO. 2 RELATES TO ADDITION OF RS. 25,000/- MADE ON ACCOUNT OF ADDITIONS UNVERIFIABLE EXPENSES. 10. AO WHILE MAKING THIS ADDITION HAS OBSERVED AS U NDER:- 5. ON FURTHER VERIFICATION OF THE PROFIT AND LOSS ACCOUNT AND DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED RS. 1,22,262/- U NDER THE HEAD OFFICE EXPENSES RS. 33,133/- PRINTING & STATIONERY EXPENSES AND RS. 8,913/- MISC. EXPENSES, RS. 63,948/-, AGGREGATING T O RS. 2,28,256/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED TO PRODUCE BILLS/VOUCHERS TO SUBSTANTIATE ITS CLAIM OF ABOVE EXPENSES. ON GOING THROUGH THE SAME, IT REVEALED THAT THE VOU CHERS FOR SOME SMALL AMOUNTS WERE NOT VERIFIABLE IN TERMS OF DATE, NAME OF THE PAYEE, SIGNATURE OF RECIPIENT ETC. AND SOME OF THE VOUCHER S FOR SMALL AMOUNTS WERE NOT MADE AVAILABLE BY THE ASSESSEE FOR VERIFIC ATION. IN ABSENCE OF SUPPORTING EVIDENCE, THE ABOVE SAID EXPENDITURE IS NOT FULLY VERIFIABLE AND NO PROPER CHECK COULD BE EXERCISED O VER THE EXPENDITURE IS NOT FULLY VERIFIABLE AND NO PROPER C HECK COULD BE EXERCISED OVER THE EXPENDITURE. IT IS HELD THAT TH E EXPENSES INCURRED BY THE ASSESSEE ARE NOT PROPERLY VOUCHED. CONSIDER ING THIS, LUMP SUM RS. 25,000/-OUT OF ABOVE AGGREGATE EXPENSES OF RS. 2,28,256/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE FOR WANT OF COMPLETE CHECK OVER THE SAID EXPENDITURE. 11. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E RECORD, WE FIND THAT AO HAS MADE DISALLOWANCE OF RS. 25,000/- ON ADHOC B ASIS OUT OF AGGREGATE EXPENSES OF RS. 2,28,256/- ONLY ON THE GROUND THAT VOUCHERS OF SOME SMALL AMOUNTS WERE NOT VERIFIABLE. SINCE THE DISALLOWANC E HAS BEEN MADE WITHOUT I.T.A NO.3152/AHD/2010 A.Y. 2007-08 PAGE NO DCIT VS. HONEST TEXTWISTERS ENGGS. PVT. LTD 7 BRINGING ANY MATERIAL ON RECORD IN SUPPORT OF SUCH DISALLOWANCE, WE ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE WITH TH E ORDER OF LD. CIT(A) DELETING THE ADDITION IS REQUIRED AT OUR END AND T HE SAME IS HEREBY UPHELD. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 25 /10/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,