ACIT CIR 25(3), MUMBAI V. RUKMANI M IYER, MUMBAI

ITA 3233/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92686 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' D ' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA , ACCOUNTANT MEMBER ITA NO. 3233/MUM/2012 (ASSESSMENT YEAR: 2008 - 09 ) A C I T - 25(3) VS. SMT. RUKMANI M. IYER 308, C - 11, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI 400051 1002, DOLL APARTMENT, BHATT LANE KANDIVALI (W), MUMBAI 400067 PAN - AAAP1791F APPELLANT RESPONDENT APPELLANT BY: SHRI LOVE KUMAR RESPONDENT BY: SHRI HARESH P. SHAH DATE OF HEARING: 01.06. 2015 DATE OF PRONOUNCEMENT: 01.06.2015 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 03.02.2013 PASSED BY CIT(A) - 35, MUMBAI AND IT PERTAINS TO A.Y. 2008 - 09. 2. FOLLOWING GROUNDS WERE URGED BY THE REVENUE BEFORE THE TRIBUNAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. OF RS.44,71,786/ - ON ACCOUNT OF NON - PAYMENT OF COMMISSION BY THE ASSESSEE. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE IS ENGAGED IN THE BUSINESS AS MERCHANT EXPORTER IN THE NAME AND STYLE OF M/S. P.P. INTERNATIONAL. IN RESPECT OF PREVIOUS YEAR RELEVANT TO A.Y. 2008 - 09 ASSESSEE DECLARED TOTAL INCOME OF ` 40,36,713/ - WHEREAS ASSESSMENT WAS COMPLETED BY THE AO ON A TOTAL INCOME OF ` 1.21 CRORES. WE ARE CONCERNED WITH ADDITION OF ` 44,71,786/ - REFERABLE TO THE CLAIM OF COMM ISSION PAYABLE BY THE ASSESSEE ON SALES. ITA NO. 3233/MUM/2012 SMT. RUKMANI M. IYER 2 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE DEBITED AN AMOUNT OF ` 44,71,786/ - TOWARDS COMMISSION ON SALES , WHICH IS PAYABLE AS ON 31.03.2008. THOUGH THE COMMISSION WAS SHOWN AS PAYABLE I N THIS YEAR, IT WAS DEDUCTED BY THE PARTIES FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2010 - 11. STATEMENT SHOWING P ARTY - WISE LIST OF INVOICES RAISED DURING THAT YEARS WERE LOWER AND THE DIFFERENCE IN RUPEE EQUIVALENT SHOWN IN THE LIST AS DISCOUNT IS CLAIMED BY THE ASSESSEE TO INCLUDE THE COMMISSION PAYABLE. ASSESSEES A.R. WAS CALLED UPON TO EXPLAIN AS TO HOW IT CAN BE CALLED COMMISSION AND WHY IT SHOULD NOT BE TREATED AS DEBTOR (RECEIVABLE) UNDER MERCANTILE SYSTEM OF ACCOUNTING. IN RESPONSE THERETO THE ASSESSE E SUBMITTED THAT THE RATE OF COMMISSION PROVIDED FROM CUSTOMER TO CUSTOMER AND FROM PRODUCT TO PRODUCT WAS DETERMINED AND A DETAILED STATEMENT OF SALES AND COMMISSION PAYABLE (PARTY - WISE) WAS FURNISHED BEFORE THE AO. SINCE THE COMMISSION PAYABLE IS CERTAIN / QUANTIFIED, IT WAS CONSIDERED AS ASCERTAINED LIABILITY THOUGH CO MMISSION IS PAYABLE AFTER REALI S ATION OF ENTIRE SALE PROCEEDS. 5. AO REJECTED THE CONTENTION OF THE ASSESSEE. HE OBSERVED THAT THE LINKAGE OF DISCOUNT DEDUCTED BY THE BUYERS IN LATER YEARS WITH COMMISSION PAYABLE IN A.Y. 2008 - 09 IS AGAINST MATCHING PRINCIPLE OF ACCOUNTING AND IT IS NOT UNDERSTANDABLE AS TO WHY THERE IS AN AGREEMENT BETWEEN THE ASSESSEE AND CUSTOMER REGARDING PAYMENT OF COMMISSION, WHEN COMMISSION IS PAYABLE TO A THIRD PARTY. AO, THEREFORE, DISALLOWED THE CLAIM OF COMMISSION ON SALES. 6. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THAT COMMISSION IS IN FACT A TRADE DISCOUNT, WHICH WAS TO BE DEDUCTED FROM SALES, BUT HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT AS COMMISSION AND THE PLEA WAS SUPPORTED BY DOCUMENTS. IT WAS ALSO CON TENDED THAT ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY EXISTING AT THE YEAR END HAS BEEN PROPERLY BOOKED AS EXPENDITURE. RELIANCE WAS ALSO PLACED UPON SEVERAL DECISIONS TO CONTEND THAT ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF EXPENSES ON DISCOUNT WHICH IS WRONGLY TERMED AS COMMISSION. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LEARNED CIT(A) THAT IDENTICAL ISSUE ITA NO. 3233/MUM/2012 SMT. RUKMANI M. IYER 3 HAD COME UP BEFORE HIM IN RESPECT OF ASSESSEE FOR A.Y. 2007 - 08 WHEREIN SIMILAR DISALLOWANCE WAS SET ASIDE BY THE CIT(A). 7. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE , LEARNED CIT(A) ALLOWED THE CLAIM OF DEDUCTION OF ` 44,71,786/ - ON THE GROUND THAT IT SHOULD BE TREATED AS EXPENDITURE/TRADE DISCOUNT ON SALES. 8. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF ITAT D BENCH, MUMBAI IN ASSESSEES OWN CASE FOR A.Y. 2007 - 08 (ITA NO. 6952/MUM/2010 DATED 09.04.2014) TO CONTEND THAT IDENTICAL ISSUE WAS DECIDED BY THE T RIBUNAL IN FAVOUR OF THE ASSESSEE ; THUS THE ORDER PASSED BY THE LEARNED CIT(A) IS IN CONSONANCE WITH THE VIEW TAKEN BY THE ITAT (SUPRA). THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE FINDINGS OF THE ITAT IN PARA 3 OF THE AFORECITED ORDER, WHICH READS AS UNDER: - 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE FACTS OF THE CASE REVEAL THAT IN FACT THE COMMISSION CLAIMED BY THE ASSESSEE AT THE RATE OF 12% OF SALES PAYABLE TO THE THREE PARTIES IN QUESTION WAS IN FACT A DISCOUNT ON THE SALES. THE AO DISALLOWED THE SAME HOLDING THAT THE LIABILITY DID NOT ACCRUE DURING THE YEAR IN QUESTION AS ALMOST 50% OF THE COMMISSION AMOUNT WAS DEDUCTED BY THE PARTIES IN THE SUBSEQUENT YEAR. IN OUR VIEW, THE FIND ING ARRIVED AT BY THE AO WAS NOT CORRECT. IT IS NOT DISPUTED THAT THE ALLEGED COMMISSION AT THE RATE OF 12% OF THE SALES WAS IN FACT A DISCOUNT ON SALES. IT IS OBVIOUS THAT THE PURCHASER WOULD PAY THE SALE PRICE AFTER DEDUCTING THE DISCOUNT GIVEN ON THE SA LE OF THE PRODUCT. SO FAR THE QUESTION OF ACCRUAL OF THE LIABILITY DURING THE YEAR UNDER CONSIDERATION IS CONCERNED, IT MAY BE NOTED THAT THE SALES IN QUESTION WERE BOOKED BY THE ASSESSEE DURING THE YEAR. AS AND WHEN THE SALES WERE BOOKED BY THE ASSESSEE, AT THE SAME TIME THE DISCOUNT PAYABLE AGAINST THOSE SALES WAS ALSO TO BE BOOKED ALONG WITH THE SALES. SO THE MOMENT THE SALES ALONG WITH DISCOUNTS ARE BOOKED, THE LIABILITY TO PAY OR THE RIGHT OF THE PURCHASER TO DEDUCT THE DISCOUNT ACCRUES. IN VIEW OF THI S, WE DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE LD. CIT(A) IN DELETING THE IMPUGNED ADDITIONS. THIS GROUND OF THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 9. THE LEARNED D.R. FAIRLY ADMITTED THAT THE ISSUE STANDS COVERED BY THE AFORECITED DECISIO N. 10. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ORDER OF LEARNED CIT(A), BEING IN CONSONANCE WITH THE VIEW TAKEN BY THE ITA NO. 3233/MUM/2012 SMT. RUKMANI M. IYER 4 ITAT (SUPRA), DOES NOT CALL FOR ANY INTERFERENCE. WE, THEREFORE, DISMISS THE APPEAL FILED BY REVENUE. ORDER PRONOU NCED IN THE OPEN COURT ON 1 ST JUNE, 2015. SD/ - SD/ - ( SANJAY ARORA ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 1 ST JUNE, 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 35 , MUMBAI 4. THE CIT 25 , MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.