M/S. LAXMI METAL UDYOG , JALANDHAR V. DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-IV JALANDHAR

ITA 317/ASR/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7071 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-01-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYANKA AHUJA
• Keywords: Related party transaction; Search and seizure; Wrong claim; Accommodation entries; Capital expenditure

Judgement Text

PAGE | 1 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX IN THE INCOME TAX APPELLATE TRIBUNAL CAMP BENCH AT JALANDHAR BEFORE SHRI N.K. SAINI, VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.317/ASR/2017 ITA NO.28/ASR/2018 (ASSESSMENT YEARS: 2013-14 & 2014-15) M/S. LAXMI METAL UDYOG, NEW GRAIN MARKET, JALANDHAR VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-IV JALANDHAR PAN AABFL7698C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SANDEEP VIJH, A.R. RESPONDENT BY: SMT. PRIYANKA AHUJA, D.R DATE OF HEARING: 09.01.2019 DATE OF PRONOUNCEMENT: 15.01.2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE RESPECTIVE ORDERS PASSED BY THE CIT(A)-2, JALANDHAR FOR A.Y. 2013-14 & A.Y. 2014-15, DATED 17.04.2017 AND 04.12.2017, RESPECTIVELY, WHICH IN TURN ARISES FROM THE ORDERS PASSED BY THE A.O UNDER SEC.143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT I.T. ACT), DATED 16.11.2015 AND 30.11.2016, RESPECTIVELY. AS COMMON ISSUES ARE INVOLVED IN THE AFOREMENTIONED APPEALS, THEREFORE, THE SAME ARE BEING TAKEN UP AND DISPOSED OFF TOGETHER BY WAY OF A CONSOLIDATE ORDER. WE SHALL FIRST ADVERT TO THE APPEAL FILED BY THE ASSESSEE FOR PAGE | 2 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX A.Y. 2013-14. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HAS ERRED IN SUSTAINING AN ESTIMATED DISALLOWANCE OF RS.20,00,000/- FROM OUT OF COMMISSION EXPENSES. THE DETAILED SUBMISSIONS MADE ON THE ISSUE WERE NOT APPRECIATED PROPERLY. 2. BRIEFLY STATED, THE ASSESSEE FIRM WHICH IS ENGAGED IN THE BUSINESS OF TRADING OF ZINC HAD FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 26.09.2013, DECLARING AN INCOME OF RS.50,65,790/-. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE I.T. ACT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE HAD DEBITED COMMISSION EXPENSES OF RS.36,87,829/- IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IT WAS NOTICED BY THE A.O, THAT THE COMMISSION EXPENSES BOOKED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SUBSTANTIALLY INCREASED AS IN COMPARISON TO THAT FOR THE IMMEDIATELY PRECEDING YEAR. ON A PERUSAL OF THE DETAILS AS REGARDS THE COMMISSION EXPENSES INCURRED BY THE ASSESSEE, IT WAS OBSERVED BY THE A.O THAT THE PAYMENT OF COMMISSION TO SOME OF THE PARTIES HAD CERTAIN PECULIAR FEATURES, AS UNDER: SR. NO. NAME & ADDRESS COMMISSION PAID (RS.) RETURNED INCOME (RS.) REMARKS 1. M/S S.P. METAL & CHEMICALS, GHAZIABAD 12,36,560/ - 16,12,420/ - FOR SALES MADE AT GHAZIABAD TO FAIRDEAL IMPEX & J.K. METALS 2. SH. RAMANJOT SINGH, LUDHIANA 2,74,115/ - 6,45,430/ - FOR SALES MADE TO UNIQUE MFG. COM. AT JALANDHAR 3. SH. CHARANJIT SINGH JALANDHAR 3,09,691/ - 13,24,620/ - FOR SALES MADE TO H.B. INDUSTRIES AT JALANDHAR. 4. SH. KUNAL KHURANA , LUDHIANA 4,64,054/ - 7,42,120/ - FOR SALES MADE TO KAYTX INDS AT MANDI GOBINDGARH 5. SH. JAYANT KHURNA, LUDHIANA 4,76,653/ - 6,87,700/ - FOR SALES MADE TO BHAWANI INDS AT MANDI GOBINDGARH. 6. SHR. SAURABH MEHTA, JALANDHAR 1,11,535/ - 2,06,540/ - FOR SALES MADE TO JUPITER METAL & I.J. TOOLS & CASTING PAGE | 3 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX AT JALANDHAR 7. SHR. ANKUSH MEHTA, JALANDHAR 1,58,156/ - 1,91,680/ - FOR SALES MADE TO BROADWAY OVERSEAS AT JALANDHAR THE A.O WAS NOT INSPIRED AS REGARDS THE VERACITY OF THE AFORESAID CLAIM OF COMMISSION EXPENSES RAISED BY THE ASSESSEE ON MULTIPLE GROUNDS VIZ. (I) THAT AS THE ASSESSEE WAS SELLING A MONOPOLY ITEM I.E. ZINC WHICH WAS PROCURED FROM A PUBLIC SECTOR ENTERPRISE VIZ. M/S HINDUSTAN ZINC LTD., THUS THERE WAS NO NEED FOR ANY PUBLICITY AND HENCE THE CONSEQUENTIAL PAYMENT OF COMMISSION TO THE AFOREMENTIONED PARTIES; (II) THAT ANY PERSON IN REQUIREMENT OF THE ITEM BEING TRADED BY THE ASSESSEE WOULD DIRECTLY THE CONTACT STOCKIST; (III) THAT THE PURCHASERS/CUSTOMERS OF THE ASSESSEE WERE RENOWNED PARTIES WHICH WOULD NOT REQUIRE ANY INTRODUCTION, THUS IT WAS BEYOND COMPREHENSION THAT THE ASSESSEE WOULD HAVE PAID COMMISSION IN RESPECT OF THE SALES MADE TO THEM; (IV) THAT NOW WHEN THREE PARTNERS OF THE ASSESSEE FIRM WERE RECEIVING A HUGE SALARY OF RS.30 LAC DURING THE YEAR, THUS THERE WOULD HAVE BEEN NO NEED FOR THE ASSESSEE TO HAVE AVAILED THE SERVICES OF PERSONS NOT ONLY FROM JALANDHAR BUT ALSO FROM LUDHIANA TO FACILITATE SALE OF SUCH RAW MATERIAL TO PARTIES BASED AT JALANDHAR; (V) THAT MOST OF THE PERSONS TO WHOM COMMISSION WAS STATED TO HAVE BEEN PAID BY THE ASSESSEE WERE NOT REGULAR COMMISSION AGENTS AND WERE FOUND TO HAVE CARRIED OUT TRANSACTIONS ONLY DURING THE YEAR UNDER CONSIDERATION; (VI) THAT THE COMMISSION RECEIVED BY THE AFOREMENTIONED PERSONS FORMED A SUBSTANTIAL PART OF THEIR RETURNED INCOME. APART THEREFROM, THE A.O IN ORDER TO FORTIFY HIS AFORESAID ADVERSE INFERENCES AS REGARDS THE GENUINENESS AND VERACITY OF THE CLAIM OF COMMISSION EXPENSES BY THE ASSESSEE FIRM OBSERVED, THAT IN THE CASE OF ONE OF THE COMMISSION AGENT VIZ. M/S S.P. METALS & CHEMICALS OF GHAZIABAD, IT STOOD REVEALED THAT THE LATTER HAD ITSELF MADE PURCHASES OF RS.5 CRORES FROM THE ASSESSEE AND YET COMMISSION OF RS.12,36,560/- WAS SHOWN TO HAVE PAID TO IT FOR SALES TO OTHER PARTIES CARRIED OUT AT GHAZIABAD. THE A.O OBSERVED THAT NOW WHEN THE ASSESSEE FIRM WAS ITSELF HAVING A BRANCH OFFICE AT GHAZIABAD AND THE PARTNERS OF THE ASSESSEE FIRM WERE PAGE | 4 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX THEMSELVES BASED AT DELHI, THUS IT WAS BEYOND COMPREHENSION THAT THEY WOULD HAVE AVAILED THE SERVICES OF THE AFOREMENTIONED CONCERN VIZ. M/S S.P. METALS CHEMICALS, GHAZIABAD FOR FACILITATING THE SALES TO THIRD PARTIES. ON THE BASIS OF THE DETAILS GATHERED BY THE A.O, IT WAS OBSERVED BY HIM THAT THE TOTAL RETURNED INCOME OF M/S S.P. METALS CHEMICALS OF RS.16,12,420/- WAS PRIMARILY COMPRISED OF THE COMMISSION INCOME OF RS.12,36,560/- THAT WAS RECEIVED BY IT FROM THE ASSESSEE FIRM. FURTHER, IT WAS GATHERED BY THE A.O THAT THE ASSESSEE HAD PAID A COMMISSION OF RS.4,09,691/- TO ONE SHRI CHARANJIT SINGH WHO WAS A PARTNER IN A RENOWNED CONCERN ENGAGED IN THE BUSINESS OF MANUFACTURING SANITARY ITEMS UNDER THE NAME AND STYLE OF M/S JEET AQUA CONTROLS AT JALANDHAR. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, IT WAS CONCLUDED BY THE A.O THAT THE COMMISSION EXPENSES BOOKED BY THE ASSESSEE WERE ACCOMMODATION ENTRIES WITH THE PURPOSE TO REDUCE THE BOOK PROFITS AND FACILITATE CAPITAL FORMATION OF THE RECIPIENTS. INSOFAR, THE PAYMENTS MADE BY THE ASSESSEE TO THE AFOREMENTIONED PARTIES THROUGH BANKING CHANNEL WAS CONCERNED, IT WAS OBSERVED BY THE A.O THAT THE SAME WOULD NOT MAKE THE TRANSACTION SACROSANCT AND IT WAS OBLIGATORY ON THE PART OF THE A.O TO GO TO THE ROOTS OF THE TRANSACTION UNDER CONSIDERATION. 4. THE ASSESSEE ON BEING CALLED UPON BY THE A.O TO EXPLAIN AS TO WHY THE COMMISSION EXPENSES MAY NOT BE DISALLOWED, THEREIN PLACED ON RECORD CONFIRMATIONS FROM SOME OF THE PURCHASERS, WHEREIN THEY HAD ADMITTED THAT THEY HAD PLACED THE ORDERS WITH THE ASSESSEE FIRM BY AVAILING THE SERVICES OF THE AFOREMENTIONED PARTIES TO WHOM THE COMMISSION WAS PAID BY THE ASSESSEE. HOWEVER, THE A.O WAS NOT PERSUADED TO SUBSCRIBE TO THE AFORESAID EXPLANATION OF THE ASSESSEE OR THE DOCUMENTS PLACED ON RECORD BY HIM TO SUBSTANTIATE THE AUTHENTICITY OF THE TRANSACTIONS UNDER CONSIDERATION. APART THEREFROM, THE CONTENTION OF THE ASSESSEE THAT SIMILAR COMMISSION EXPENSES THAT WERE CLAIMED BY THE ASSESSEE IN A.Y. 2011-12 WAS ACCEPTED BY THE A.O IN THE ASSESSMENT FRAMED UNDER SEC.143(3), ALSO DID NOT FIND FAVOUR WITH THE A.O. IT WAS OBSERVED BY THE A.O THAT IN THE AFOREMENTIONED PRECEDING YEAR THE ASSESSEE HAD ONLY PAID A COMMISSION OF RS. 5,02,160/- AGAINST THE SALES PAGE | 5 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX OF 51.03 CRORES. IT WAS OBSERVED BY THE A.O THAT THOUGH IN SOME CASES THE ASSESSEE WOULD HAVE CARRIED OUT SALES BY AVAILING THE SERVICES OF THE COMMISSION AGENTS, HOWEVER, AS MAJORITY OF THE COMMISSION EXPENSES APPEARED TO BE ONLY IN THE NATURE OF ACCOMMODATION ENTRIES, THEREFORE, THE CLAIM OF COMMISSION EXPENSES RAISED BY THE ASSESSEE COULD NOT BE ACCEPTED IN TOTO , AS SUCH. IN THE BACKDROP OF THE AFORESAID FACTS THE A.O MADE AN ADHOC DISALLOWANCE OF RS.20 LAC OUT OF THE COMMISSION EXPENSES OF RS.36,87,829/- BOOKED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 5. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING AT LENGTH ON THE CONTENTIONS ADVANCED BY THE ASSESSEE TO IMPRESS UPON HIM THE VERACITY OF ITS CLAIM OF COMMISSION EXPENSES, WAS HOWEVER NOT PERSUADED TO SUBSCRIBE TO THE SAME. THE CIT(A) BEING OF THE VIEW THAT THE COMMISSION EXPENSES BOOKED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SUBSTANTIALLY INCREASED AS IN COMPARISON TO THE PRECEDING YEAR, THUS UPHELD THE DISALLOWANCE OF RS.20 LAC MADE BY THE A.O. 6. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORISED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED, THAT THE A.O HAD MADE AN ADHOC DISALLOWANCE OF COMMISSION EXPENSES WITHOUT PLACING ON RECORD ANY IRREFUTABLE DOCUMENTARY EVIDENCE WHICH WOULD DISLODGE THE VERACITY OF THE CLAIM OF THE ASSESSEE. THE LD. A.R IN ORDER TO SUBSTANTIATE THE VERACITY OF THE COMMISSION EXPENSES TOOK US THROUGH THE RELEVANT PAGES OF THE ASSESSES PAPER BOOK (FOR SHORT APB ) VIZ. (I) REPLIES FILED WITH THE A.O IN THE COURSE OF THE ASSESSMENT PROCEEDINGS; (II) DETAILS OF THE AGENTS ALONG WITH COMMISSION PAID TO THEM; AND (III) CONFIRMATIONS OF THE AGENTS ALONG WITH THEIR RESPECTIVE COPIES OF THE RETURNS OF INCOME. IT WAS AVERRED BY THE LD. A.R THAT THE ASSESSEE HAD CONSISTENTLY BEEN PAYING COMMISSION TO THE AGENTS IN THE NORMAL COURSE OF ITS BUSINESS IN ORDER TO FACILITATE PROCURING OF SALES ORDER, WHICH HAD DULY BEEN ACCEPTED BY THE REVENUE IN THE PRECEDING YEARS. IT WAS VEHEMENTLY SUBMITTED BY THE PAGE | 6 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX LD. A.R THAT DESPITE THE FACT THAT THE ASSESSEE HAD FURNISHED BILL VISE DETAILS IN CONTEXT OF THE COMMISSION PAID TO THE AGENTS, HOWEVER, THE A.O BRUSHING ASIDE THE SAME, HAD IN A WHIMSICAL MANNER CARRIED OUT AN ADHOC DISALLOWANCE OF COMMISSION EXPENSES OF RS.20 LAC. ON A QUERY BY THE BENCH AS TO WHETHER ANY PART OF THE COMMISSION WAS PAID TO ANY RELATED PARTY, IT WAS SUBMITTED BY THE LD. A.R THAT NO PAYMENT WAS MADE TO ANY RELATED PARTY AS SPECIFIED UNDER SEC.40A(2)(B). THE LD. A.R IN ORDER TO FORTIFY THE GENUINENESS OF THE COMMISSION EXPENSES SUBMITTED, THAT DUE TO THE SERVICES RENDERED BY THE AFORESAID COMMISSION AGENTS THE TURNOVER OF THE ASSESSEE HAD SUBSTANTIALLY INCREASED. APART THEREFROM, IT WAS SUBMITTED BY THE LD. A.R THAT THE NET PROFIT RATE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS ALSO PROGRESSIVE AS IN COMPARISON TO THAT OF THE PRECEDING YEAR. FURTHER, IT WAS SUBMITTED BY THE LD. A.R THAT THERE WAS NO BASIS FOR THE A.O TO HAVE CHARACTERISED THE COMMISSION EXPENSES AS ACCOMMODATION ENTRIES. IN ORDER TO FORTIFY THE VERACITY OF THE CLAIM OF THE COMMISSION EXPENSES, IT WAS SUBMITTED BY THE LD. A.R THAT EVEN THE A.O WHILE FRAMING THE ASSESSMENT HAD OBSERVED THAT THE COMMISSION EXPENSES APPEARED TO BE EXCESSIVE. IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE LD. A.R THAT THERE WAS NO MATERIAL WITH THE A.O ON THE BASIS OF WHICH HE COULD HAVE CONCLUSIVELY PROVED THAT THE ASSESSEE HAD BOOKED BOGUS COMMISSION EXPENSES. APART THEREFROM, IT WAS SUBMITTED BY THE LD. A.R THAT ALL THE PERSONS TO WHOM COMMISSION WAS PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE BEING ASSESSED TO TAX. THE LD. A.R FURTHER SUBMITTED THAT THE COMMISSION PAYMENTS TO THE AGENTS WERE DULY SUBJECTED TO DEDUCTION OF TAX AT SOURCE. IT WAS THUS THE CONTENTION OF THE LD. A.R, THAT THE LOWER AUTHORITIES HAD MOST ARBITRARILY DISLODGED THE CLAIM OF COMMISSION EXPENSES, DESPITE THE FACT THAT THE ASSESSEE HAD SUBSTANTIATED THE SAME TO THE HILT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. PAGE | 7 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX 8. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT OUR INDULGENCE IN THE PRESENT APPEAL HAS BEEN SOUGHT BY THE ASSESSEE FOR ADJUDICATING THE SUSTAINABILITY OF THE ORDERS OF THE LOWER AUTHORITIES WHICH HAVE CHARACTERISED THE COMMISSION EXPENSES PAID BY THE ASSESSEE IN ORDER TO FACILITATE PROCURING OF SALES ORDERS, AS ACCOMMODATION ENTRIES, THEREIN RESULTING INTO A CONSEQUENTIAL ADHOC DISALLOWANCE OF RS.20 LAC IN THE HANDS OF THE ASSESSEE. ADMITTEDLY, IT IS A MATTER OF RECORD THAT THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDING HAD DULY FURNISHED THE COMPLETE DETAILS OF THE PERSONS TO WHOM COMMISSION AGGREGATING TO RS.36,87,829/- WAS PAID DURING THE YEAR UNDER CONSIDERATION. APART THEREFROM, THE ASSESSEE HAD IN THE COURSE OF THE ASSESSMENT PROCEEDINGS PLACED ON RECORD THE CONFIRMATIONS OF THE COMMISSION AGENTS, WHEREIN THEY DULY AFFIRMED TO HAVE RENDERED THEIR SERVICES AS COMMISSION AGENTS FOR PROCURING ORDERS ON BEHALF OF THE ASSESSEE FIRM. RATHER, THE ASSESSEE IN ORDER TO FORTIFY THE VERACITY OF THE AFORESAID CLAIM OF COMMISSION EXPENSES HAD EVEN SUBMITTED CONFIRMATIONS OF SOME OF THE PURCHASERS, WHEREIN THE LATTER HAS CONFIRMED TO HAVE CARRIED OUT THE PURCHASES OF GOODS THROUGH THE AFOREMENTIONED AGENTS. THE ASSESSEE IN DISCHARGE OF THE ONUS AS WAS SO CAST UPON IT TO PROVE THE AUTHENTICITY OF THE COMMISSION EXPENSES HAD FURNISHED BILL VISE DETAILS IN CONTEXT OF THE TRANSACTIONS IN RESPECT OF WHICH COMMISSION WAS PAID TO THE PARTIES. FURTHER, THE COMMISSION WAS PAID BY THE ASSESSEE THROUGH BANKING CHANNEL AFTER DUE DEDUCTION OF TAX AT SOURCE AS ENVISAGED UNDER LAW. 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US, AND ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE ADVERSE INFERENCES DRAWN BY THE LOWER AUTHORITIES AS REGARDS THE GENUINENESS OF THE CLAIM OF COMMISSION EXPENSES RAISED BY THE ASSESSEE. IN OUR CONSIDERED VIEW, THE A.O HAD PRIMARILY HARPED ON ASSUMPTIONS, PRESUMPTIONS, CONJECTURES AND SURMISES FOR THE PURPOSE OF DISLODGING A WELL FOUNDED CLAIM OF COMMISSION EXPENSES AS WAS RAISED BY THE ASSESSEE IN ITS RETURN OF INCOME. WE ARE OF THE PAGE | 8 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX CONSIDERED VIEW THAT AS TO WHETHER AN EXPENDITURE IS REQUIRED TO BE INCURRED IN THE COURSE OF BUSINESS EXCLUSIVELY REMAINS WITHIN THE REALM OF THE WISDOM OF THE ASSESSEE AND THE A.O CAN IN NO WAY IMPOSE HIS WISDOM AND THEREIN DIRECT THE ASSESSEE AS REGARDS THE MANNER IN WHICH THE BUSINESS WAS SUPPOSED TO BE RUN IN PRUDENT MANNER. THE A.O WHILE CONSIDERING THE ALLOWABILITY OF EXPENDITURE UNDER SEC.37 OF THE I.T ACT HAS TO CONFINE HIMSELF TO THE VERIFICATION OF TWO ASPECTS VIZ. (I). THAT THE EXPENDITURE HAD BEEN LAID DOWN OR EXPENDED BY THE ASSESSEE WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION; AND (II) THAT IT SHOULD NOT BE IN THE NATURE OF A CAPITAL EXPENDITURE OR PERSONAL EXPENSE OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THE OBSERVATIONS OF THE A.O THAT THERE WAS NO NEED ON THE PART OF THE ASSESSEE TO HAVE AVAILED THE SERVICES OF THE COMMISSION AGENTS ARE COMPLETELY UNCALLED FOR, AND THE SAME IN NO WAY CAN BE SUSTAINED IN THE EYES OF LAW. INSOFAR, THE AUTHENTICITY OF THE CLAIM OF COMMISSION EXPENSES RAISED BY THE ASSESSEE IS CONCERNED, WE ARE OF A STRONG CONVICTION THAT NOW WHEN THE ASSESSEE HAD SUBSTANTIATED THE SAME BY PLACING ON RECORD THE CONFIRMATIONS OF THE COMMISSION AGENTS ALONG WITH THEIR RETURNS OF INCOME, AS WELL AS THE CONFIRMATIONS OF THE PURCHASERS WHO HAD DULY ADMITTED TO HAVE PROCURED THE GOODS THROUGH THE SAID AGENTS, IT WOULD BE INCORRECT ON THE PART OF THE REVENUE TO HAVE STILL DRAWN ADVERSE INFERENCES AS REGARDS THE AUTHENTICITY ON THE PART OF THE AFORESAID COMMISSION EXPENSES, WITHOUT PLACING ON RECORD ANY MATERIAL WHICH WOULD HAVE CONCLUSIVELY PROVED TO THE CONTRARY. APART THEREFROM, WE FIND THAT THE OBSERVATIONS OF THE A.O THAT THE COMMISSION EXPENSES BOOKED BY THE ASSESSEE WERE IN THE NATURE OF ACCOMMODATION ENTRIES TO FACILITATE CAPITAL FORMATION OF THIRD PARTIES, ARE MERELY BACKED BY DOUBTS AND SUSPICIONS ON HIS PART AND NOT ON THE BASIS OF ANY IRREFUTABLE AND CLINCHING MATERIAL AVAILABLE WITH HIM WHICH WOULD CONCLUSIVELY SUPPORT HIS SAID CLAIM. WE ARE ALSO NOT IMPRESSED WITH THE ADVERSE INFERENCES DRAWN BY THE A.O BY REFERRING TO CERTAIN SPECIFIC INSTANCES/PERSONS TO WHOM COMMISSION WAS PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIEW, THE A.O HAD FAILED TO PLACE ON RECORD ANY MATERIAL WHICH WOULD REVEAL THAT THE COMMISSION PAID PAGE | 9 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX BY THE ASSESSEE TO THE AFORESAID PERSONS/PARTIES WAS FARCE AND AS SUCH WAS NOT TO BE ALLOWED AS DEDUCTION. WE WOULD NOT HESITATE TO OBSERVE THAT THE A.O INSTEAD OF PROVING ON THE BASIS OF CLINCHING EVIDENCE THAT THE ASSESSEE HAD RAISED BOGUS CLAIM OF COMMISSION EXPENSES, HAD RATHER FOCUSED MORE ON RAISING ALLEGATIONS THAT WE FIND ARE MERELY BASED ON DOUBTS AND SUSPICIONS. IN CASE THE A.O HAD SERIOUS DOUBTS AS REGARDS THE VERACITY OF THE COMMISSION PAID BY THE ASSESSEE TO THE COMMISSION AGENTS, THEN HE WAS VESTED WITH THE POWERS TO HAVE SUMMONED THE SAID AGENTS AND RECORDED THEIR STATEMENTS AND VERIFIED THE AUTHENTICITY OF THE SERVICES WHICH WERE RENDERED BY THEM TO THE ASSESSEE. HOWEVER, WE ARE AFRAID THAT NO SUCH EXERCISE HAD BEEN DONE BY THE A.O. WE FURTHER FIND THAT THE PAYMENTS TO THE COMMISSION AGENTS HAVE BEEN MADE BY THE ASSESSEE THROUGH BANKING CHANNEL AFTER DUE DEDUCTION OF TAX AT SOURCE. APART THEREFROM, THE FACT THAT THE NET PROFIT RATE OF THE ASSESSEE IS PROGRESSIVE AS IN COMPARISON TO THE PRECEDING YEARS IN ITSELF FORTIFIES THE VERACITY OF THE CLAIM OF THE COMMISSION EXPENSES RAISED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ANY DOUBTS AS REGARDS THE GENUINENESS OF THE COMMISSION EXPENSES WHICH COULD HAVE VALIDLY BE DRAWN BY IN THE BACKDROP OF RELATED PARTY TRANSACTIONS AS ENVISAGED IN SEC. 40A(2)(B), HAD ALSO BEEN PUT TO REST AS NO PART OF THE COMMISSION HAD BEEN PAID BY THE ASSESSEE TO ANY RELATED PARTY. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US AND ARE OF THE CONSIDERED VIEW THAT IN THE TOTALITY OF THE FACTS, IT CAN SAFELY BE CONCLUDED THAT THE ASSESSEE HAD SUBSTANTIATED THE VERACITY OF THE CLAIM OF COMMISSION EXPENSES TO THE HILT. IN THE ABSENCE OF ANY MATERIAL PLACED ON RECORD BY THE LOWER AUTHORITIES WHICH COULD PERSUADE US TO CONCLUDE THAT THE COMMISSION EXPENSES DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION WERE EITHER EXCESSIVE OR BOGUS, WE ARE UNABLE TO SUBSCRIBE TO THE VIEW TAKEN BY THEM. APART THEREFROM, WE ARE UNABLE TO COMPREHEND AS TO ON WHAT BASIS AN ADHOC DISALLOWANCE OF RS. 20 LAC (OUT OF COMMISSION EXPENSES OF RS.36,87,389/-) CLAIMED BY THE ASSESSEE HAD BEEN MADE BY THE A.O, AND THEREAFTER SUSTAINED BY THE CIT(A). WE THUS UNABLE TO PERSUADE OURSELVES TO SUBSCRIBE TO THE VIEW TAKEN BY THE LOWER AUTHORITIES, PAGE | 10 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX THUS VACATE THE ADHOC DISALLOWANCE OF RS. 20 LAC SUSTAINED BY THE CIT(A). THE ORDER PASSED BY THE CIT(A) IS SET ASIDE AND THE ADDITION OF RS.20 LAC MADE BY THE A.O IS DELETED. ITA NO. 28/ASR/2018 A.Y.2014-15 10. WE SHALL NOW ADVERT TO THE APPEAL FILED BY THE ASSESSEE FOR A.Y.2014- 15. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), HAS ERRED IN SUSTAINING DISALLOWANCE OF RS. 7,61,837/- AS AGAINST THE DISALLOWANCE OF RS. 16,00,000/- FROM OUT OF COMMISSION EXPENSE OF RS. 29,77,005/-. THE DETAILED SUBMISSIONS MADE ON THE ISSUE WERE NOT APPRECIATED PROPERLY. THE ENTIRE DISALLOWANCE OUT OF COMMISSION EXPENSES DESERVED TO BE DELETED. 11. BRIEFLY STATED, THE ASSESSEE HAD E-FILED ITS RETURN OF INCOME FOR A.Y. 2014-15 ON 12.09.2014, DECLARING TOTAL INCOME AT RS.83,80,280/-. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE A.O DISALLOWED COMMISSION EXPENSES OF RS.16 LAC (OUT OF TOTAL COMMISSION EXPENSE CLAIMED BY THE ASSESSEE AT RS.29,77,005/-). 12. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). HOWEVER, THE CIT(A) RELYING ON THE VIEW TAKEN BY HIM IN CONTEXT OF THE DISALLOWANCE OF THE COMMISSION EXPENSES IN THE ASSESSES CASE FOR THE IMMEDIATELY PRECEDING YEAR VIZ. 2013-14, UPHELD THE DISALLOWANCE OF COMMISSION EXPENSES OF RS.16 LAC. 13. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT CASE REMAINS THE SAME AS WERE THERE BEFORE US IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2013-14, THUS OUR ORDER PASSED WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE FOR A.Y. 2013-14 IN ITA NO. PAGE | 11 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX 317/ASR/2017 SHALL APPLY MUTATIS MUTANDIS FOR DISPOSING OFF THE PRESENT APPEAL. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 14. THE APPEALS FILED BY THE ASSESSEE FOR A.Y. 2013-14 IN ITA NO. 317/ASR/2017 AND FOR A.Y. 2014-15 IN ITA NO. 28/ASR/2018 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.01.2019 SD/- SD/- ( N.K. SAINI) (RAVISH SOOD) VICE PRESIDENT JUDICIAL MEMBER PLACE: JALANDHAR; DATE: 15. 01.2019 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , / DR, ITAT, CAMP BENCH, JALANDHAR. 6. [ / GUARD FILE. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) / ITAT, CAMP BENCH, JALANDHAR. PAGE | 12 ITA NO. 317/ASR/2017 ITA NO.28/ASR/2018 A.YS. 2013-14 & 2014-15 M/S LAXMI METAL UDYOG VS. DY. COMMISSIONER OF INCOME TAX SR.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS 15.1.19 SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON 15.1.19 SR.PS/PS 7 FILE SENT TO THE BENCH CLERK 16.1.19 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DISPATCH OF ORDER