ACIT, Jaipur V. M/S KANORIA SUGAR AND GENERAL MFG. LTD., Jaipur

ITA 336/JPR/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7771 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 09-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Gift; Business expenditure; Opportunity of being heard; Reason to believe
• Section: 69C; 37(1); 147

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 336/JP/2012 ASSTT. YEAR- 2004-05 PAN NO. AAACK 7952 J THE A.C.I.T., M/S KANORIA SUGAR AND GENERAL CIRCLE-2, JAIPUR. VRS. MANUFACTURING LTD. 411, 2 ND FLOOR, SHALIMAR COMPLEX CHURCH ROAD, JAIPUR. (APPELLANT) (RESPONDENT) DEPARTMENT BY :- SHRI D.C. SHARMA. ASSESSEE BY :- SHRI P.C. PARWAL. DATE OF HEARING : 27/08/2014 DATE OF PRONOUNCEMENT : 05/09/2014 O R D E R PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 10/01/2012 OF THE LEARNED C.I.T.(A)-III, JAIPUR FOR THE A.Y. 2004-05. 2. THE SOLE GROUND OF APPEAL IS AGAINST DELETING THE ADDITION OF RS. 46,31,482/- MADE BY THE ASSESSING OFFICER U/S 69C O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT). THE ASSESSIN G OFFICER OBSERVED THAT: AN INFORMATION WAS RECEIVED FROM THE OFFICE OF ADDL. DIRECTOR OF INCOME TAX (INV), GHAZIABAD THAT DURING THE COURSE OF ENQUI RY AGAINST M/S SUPREME CERAMICS LTD., IT WAS GATHERED THAT THE SAID COMPANY HAS SHOWN COMMISSION INCOME/MISCELLANEOUS INCOME WHICH IN CLUDES RECEIPT OF COMMISSION OF RS. 40.31 LACS FROM ASSESSEE M/S K ANORIA SUGAR & ITA NO. 336/JP/2012 DCIT VS. M/S KANORIA SUGAR & GENERAL MANUFACTURING LT D.. 2 GENERAL MANUFACTURING CO. LTD. AS PER AGREEMENT THE COMMISSION @ 12% WAS PAYABLE TO M/S SUPREME CERAMICS LTD. FOR SAL E OF JAI BRAND AC PRESSURE PIPES AND FITTINGS TO THE GOVT./SEMI GOVT. /NAGAR NIGAM IN THE STATE OF MADHYA PRADESH. STATEMENT OF SHRI SHARAD L AHOTI, THE DIRECTOR OF M/S SUPREME CERAMICS LTD. WAS ALSO RECORDED OATH ON 31/5/2007 IN WHICH HE STATED THAT MAIN PERSON OF M/S KANORIA SUGA R AND GENERAL MANUFACTURING CO. LTD. IS MR. KANORIA BUT HE DID NO T REMEMBER THE COMPLETE NAME OF MR. KANORIA EVEN THOUGH THE AGREEM ENT WAS ENTERED INTO WITH MR. KANORIA. HE ALSO STATED THAT HE HAD NO EXPERIENCE IN THIS LINE OF BUSINESS. HE PROCURED THE ORDERS FOR SALE O F THE PRODUCTS OF THE ASSESSEE COMPANY ONLY ON TELEPHONE AND HIS ROLE WAS ONLY TO PROCURE ORDERS. WHEN HE WAS ASKED ABOUT THE DIMENSIONS OF TH E AC PRESSURE PIPES, WHICH HE CLAIMED TO HAVE SOLD, HE WAS NOT ABLE TO ANSWER. HE FURTHER STATED THAT HE DID NEITHER RECEIVE ANY CRED IT NOTE FROM M/S KANORIA SUGAR & GENERAL MNFG. CO. LTD. NOR THERE WAS ANY CORRESPONDENCE IN THIS REGARD. THE ORDERS PROCURED B Y HIM WERE DIRECTLY SENT BY THE BUYERS TO THE KANORIA SUGAR CO.. HE DID NOT RAISE ANY DEBIT NOTES BUT ONLY RAISED THE COMMISSION BILLS ONLY. THI S SHOWS THAT COMMISSION EXPENSES CLAIMED BY M/S KANORIA SUGAR & GENERAL MNFG.CO. LTD. (ASSESSEE) AMOUNTING TO RS. 40.31 LACS IS A BO GUS EXPENDITURE. IN VIEW OF ABOVE, THE ASSESSEE HAS CLAIMED BOGUS CLA IM OF EXPENDITURE OF RS. 40.31 LACS ON A/C OF COMMISSION AND, THEREFORE, I HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 40.31 LACS HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ASKED TO PROVE THE GENUINENESS OF THE TRANSACTION WITH M/S SUPREME CERAMICS LTD., COPY OF CREDIT NOTE ISSUED A ND COPY OF LEDGER ACCOUNT ITA NO. 336/JP/2012 DCIT VS. M/S KANORIA SUGAR & GENERAL MANUFACTURING LT D.. 3 IN THE BOOKS OF THE APPELLANT COMPANY. IT IS FURTHE R SUBMITTED THAT THESE TRANSACTIONS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES , WHICH WERE DEMONSTRATED THROUGH COPY OF BANK ACCOUNT. AFTER CO NSIDERING THE ASSESSEES REPLY, THE LEARNED ASSESSING OFFICER HELD THAT AS P ER AGREEMENT, THE ASSESSEE HAS TO MAKE SALE FOR HARYANA STATE. HOWEVER, CREDIT NOTE DATED 31/3/2004, SHOWED SOME TRANSACTIONS WITH PHED, MADHYA PRADESH. TH US, THE COMMISSION PAYMENT IS NOT SUPPORTED WITH COPY OF AGREEMENT. THER E WAS NO CONFIRMATION FROM THE RECIPIENT OF COMMISSION. THE ASSESSEE FURNI SHED COPY OF ACCOUNT SIGNED BY SHRI SHARAD LAHOTI WITHOUT DATE, WHICH IS N OT EVIDENCE IN THE EYES OF LAW. THUS, HE HELD THIS TRANSACTION NON-GENUINE. H E RELIED VARIOUS CASE LAWS AND FINALLY HE MADE ADDITION OF RS. 40,31,482/- IN THE INCOME OF THE ASSESSEE AS BOGUS EXPENDITURE U/S 69C OF THE ACT. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), WHO HAD ALLOWED THE APPEAL BY OBSERVING THAT:- I HAVE DULY CONSIDERED THE OBSERVATIONS OF THE A.O . AND THE COUNTER SUBMISSIONS MADE BY THE LEARNED AR, VIZ. THE ISSUE UNDER CONSIDERATION. THE A.O. HAS DISALLOWED THE COMMISSION PAID TO M/S SU PREME CERAMICS LTD. ON THE BASIS OF THE FACT THAT ASSESSEE COULD N OT PROVIDE THE DETAILS OF SERVICE RENDERED BY SUCH AGENTS, I.R.O., THE ORD ER OBTAINED THROUGH THEM. MOREOVER, HE ALSO RELIED UPON THE OUTCOME OF THE INQUIRY CONDUCTED BY THE INVESTIGATION WING OF GHAZIABAD, WH EREIN IT IS FOUND THAT THE M/S SUPREME CERAMICS LTD. IS ONLY A HAVALA OPERATOR AND ITA NO. 336/JP/2012 DCIT VS. M/S KANORIA SUGAR & GENERAL MANUFACTURING LT D.. 4 ISSUING THE BOGUS COMMISSION BILLS TO DIFFERENT PAR TIES AS SUCH. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT SH. SARA D LAHOTI, DIRECTOR OF M/S SUPREME CERAMICS LTD. HAS CONFIRMED THE RECEIPT OF THE COMMISSION FROM THE APPELLANT AND NOWHERE HE HAD ADMITTED THAT IT WAS AN ACCOMMODATION ENTRY. HE ALSO BROUGHT ON THE RECORD THAT THE SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE ITAT JAIPUR BE NCH, IN THE APPELLANT OWN CASE, WHILE FINALIZING THE APPELLANT OR DER FOR A.Y. 2005- 06. FROM THE COPY OF SUCH ORDER DATED 21/09/2010 (I TO NO. 290/JP/2010), IT IS FOUND THAT THE HONBLE TRIBUNAL HAS DECIDED THE ISSUE IN THE FAVOUR OF THE APPELLANT AND HELD THAT THE CO MMISSION PAID TO M/S SUPREME CERAMICS LTD. IS A BUSINESS EXPENDITURE AND THE SAME IS ALLOWABLE IN NATURE. THE RELEVANT PARA OF SUCH ORDER IS BEING REPRODUCED AS UNDER:- 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE STATEMENT MADE BY THE LEARNED COUN SEL FOR THE ASSESSEE AND ALSO THE STATEMENT OF SHRI SHARAD LAHOTI RECORDED B Y THE DEPARTMENT AND ALSO THE DECISION OF ITAT JODHPUR BENCH REFERRED ABOVE, IT IS HELD THAT THE COMMISSION PAID TO M/S SUPREME CERAMICS LTD. AMOUNT ING TO RS. 6.25 LACS IS A BUSINESS EXPENDITURE AND THE SAME IS ALLOWABLE. H ENCE, THE SOLITARY GROUND OF THE ASSESSEE IS ALLOWED. IN THE LIGHT OF THE ABOVE DELIBERATION AND THE FACT THE ISSUE UNDER CONSIDERATION HAS BEEN DECIDED IN THE FAVOUR OF THE APPELLANT, BY THE HONBLE ITAT, JAIPUR BENCH AS DISCUSSED ABOVE, THUS WHILE FOLLOWING THE PRINCIPLE OF JUDICIAL DISCIPLINE, IT IS HELD THAT T HE COMMISSION OF RS. 40,31,482/- PAID TO M/S SUPREME CERAMICS LTD. IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE IT ACT. ACCORDINGLY, TH E A.O. IS HEREBY DIRECTED TO ALLOW THE SAME. CONSEQUENTLY, THIS GROUN D OF APPEAL IS ALLOWED. ITA NO. 336/JP/2012 DCIT VS. M/S KANORIA SUGAR & GENERAL MANUFACTURING LT D.. 5 4. NOW THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASS ESSING OFFICER. THE LEARNED AR FOR THE ASSESSEE ARGUED THAT IN A.Y. 200 5-06, SIMILAR DISALLOWANCES WERE MADE BY THE ASSESSING OFFICER, WHICH WERE CONFIR MED BY THE LEARNED CIT(A). THE HONBLE ITAT OF JAIPUR BENCH IN ITA NO. 2 90/JP/2010 HAD ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. IT IS FURTHER ARGUED THAT FACTS ARE IDENTICAL IN THIS CASE AND COMMISSION MADE TO THE S AME PARTY IS ASSESSED TO TAX AND THIS INCOME HAS BEEN SHOWN IN ITS INCOME. TH E RECIPIENT HAS RENDERED THE SERVICES IN GETTING THE VARIOUS ORDER, THEREFOR E, IT SHOULD BE ALLOWED. THE HONBLE ITAT JAIPUR BENCH HAS RELIED UPON THE ORDER OF THE HONBLE ITAT JODHPUR BENCH IN ITA NO 226/JU/2009 FOR A.Y. 2005-0 6 ORDER DATED 06/4/2010 IN THE CASE OF M/S A. INFRASTRUCTURE LTD. , WHEREIN SIMILAR COMMISSION WAS ALLOWED AS BUSINESS EXPENDITURE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE COORDINATE BEN CH HAS CONSIDERED THIS ISSUE IN A.Y. 2005-06 AND HELD AS UNDER:- WE HAVE HEARD THE PARTIES WITH REFERENCE TO MATERIAL ON RECORD AND CASE LAWS REFERRED BEFORE US. THE EXPENSES INCURRED F OR HIRING TAXI FOR THE CUSTOMERS OF THE ASSESSEE COMPANY TO VISIT FACT ORY PREMISES ARE FOUND LAID FOR THE PURPOSE OF BUSINESS. THE SAME AR E NEITHER CAPITAL NOR PERSONAL EXPENSES AND THUS DEDUCTIBLE U/S 37(1) OF THE ACT. LIKEWISE DISTRIBUTION OF GIFTS ON THE OCCASION OF DIWALI ARE ALSO CUSTOMARY GIFTS ITA NO. 336/JP/2012 DCIT VS. M/S KANORIA SUGAR & GENERAL MANUFACTURING LT D.. 6 THAT ARE FOUND LAID FOR THE PURPOSE OF BUSINESS. WE , THEREFORE, SET ASIDE THE DISALLOWANCE AND ALLOW THE GROUND RAISED IN APPEA L. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINAT E BENCH ON IDENTICAL ISSUE, BEING A PRECEDENCE, WE ALSO ALLOW THE COMMISSION PAYM ENT AS BUSINESS EXPENSES. THUS, THE REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 05/09/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 05 TH SEPTEMBER, 2014 * RANJAN COPY FORWARDED TO :- 1. THE ACIT, CIRCLE-2, JAIPUR. 2. M/S KANORIA SUGAR AND GENERAL MANUFACTURING LTD. , JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 336/JP/2012) BY ORDER, AR ITAT JAIPUR.