DCIT, Circle - 7(1), Hyderabad V. M/s. Pentagon Rugged Systems, Hyderabad

ITA 346/HYD/2012

• Counselvise Citation: 34622514 RSA 2012
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-03-2012
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Additional evidence
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 346/HYD/2012 ASSESSMENT YEAR: 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1), HYDERABAD VS M/S. PENTAGON RUGGED SYSTEMS, HYDERABAD [PAN: AAGFP1025Q] (APPELLANT) (RESPONDENT) FOR REVENUE : S HRI B. KURMI NAIDU , DR FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR DATE OF HEARING : 05 - 11 - 201 5 DATE OF PRONOUNCEM ENT : 20 - 1 1 - 2015 O R D E R PER SMT. P. MADHAVI DEVI, JM : THIS IS REVENUES APPEAL FOR THE AY. 2008-09. IN THIS APPEAL, REVENUE IS AGGRIEVED BY THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS)-VI, HYDERABAD IN GIVING RELIEF TO THE ASSESSEE BY DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICE R (AO) OF A SUM OF RS. 54,60,000/- ON SALES COMMISSION AND OF RS. 2 ,00,000/- AS INTEREST ON INTEREST FREE ADVANCES. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE-F IRM FILED ITS RETURN OF INCOME FOR THE AY. 2008-09 ON 05-09-2008 RETURNING AN INCOME OF RS. 54,19,350/-. DURING THE ASSESSMENT P ROCEEDINGS I.T.A. NO. 346/HYD/2012 M/S. PENTAGON RUGGED SYSTEMS :- 2 -: U/S. 143 OF THE INCOME TAX ACT [ACT], THE AO CALLED FOR VARIOUS DETAILS. THE ASSESSEE FILED SOME DETAILS BEFORE TH E AO BUT THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS NOT FILED THE RELEVANT DETAILS IN SUPPORT OF ITS CONTENTIONS OF CLAIMS OF SALES COMMISSION. HE THEREFORE, DISALLOWED THE SALES COMMISSION PAID BY THE ASSESSEE AND FURTHER FROM THE PERUSAL OF THE PROFIT AND LOSS A/C, HE OBSERVED THAT THE ASSESSEE DEPOSITED A SUM OF RS. 3 ,70,574/- ON ACCOUNT OF FINANCE CHARGES AND CREDITED A SUM OF RS . 1,11,639/- ON ACCOUNT OF INTEREST ON DEPOSITS. HE OBSERVED TH AT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES TO SEVEN PARTIES A ND THEREFORE, HELD THAT THE INTEREST EXPENDITURE IN RESPECT OF TH ESE ADVANCES IS TO BE DISALLOWED. HE ACCORDINGLY, DISALLOWED THE SUM OF RS. 2 LAKHS FROM THE INTEREST EXPENDITURE ON ESTIMATE BASIS AND BROUGHT IT TO TAX. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFOR E THE CIT(A), WHO ALLOWED THE SAME AND THE REVENUE IS IN APPEAL BEFOR E US. AT THE TIME OF HEARING, THE LD. DR SUBMITTED THAT THE ASSE SSEE HAD FILED ADDITIONAL EVIDENCE BEFORE THE CIT(A) ON WHICH THE CIT(A) HAD CALLED FOR A REMAND REPORT FROM THE AO AND IN RESPO NSE TO THE SAME, THE AO HAD STATED THAT ALL THE EVIDENCE FILED BY THE ASSESSEE BEFORE THE CIT(A) WAS ALREADY FILED BEFORE THE AO A ND THEREFORE, IT WAS NOT ADDITIONAL EVIDENCE. THE CIT(A) THEREFORE TREATED THE SAME AS EVIDENCE FILED BEFORE THE AO AND ACCORDINGLY, CO NSIDERED THE SAME. HOWEVER, ACCORDING TO THE LD. DR, THE AO HAD VERIFIED THE DETAILS FILED BY THE ASSESSEE AND WAS NOT SATISFIED WITH THE SAME AND HENCE THE DISALLOWANCE OF THE SALES COMMISSION WAS MADE BUT THE CIT(A) ON THE BASIS OF THE VERY SAME EVIDENCE H AS GIVEN RELIEF TO THE ASSESSEE WITHOUT ANY BASIS. AS REGARDS THE DIS ALLOWANCE OF THE INTEREST ON ESTIMATE BASIS, THE LD. DR RELIED UPON THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND HAS DRAWN OUR ATTENTION TO I.T.A. NO. 346/HYD/2012 M/S. PENTAGON RUGGED SYSTEMS :- 3 -: THE EVIDENCE FILED BY THE ASSESSEE BEFORE THE AO AS WELL AS THE CIT(A) WHICH WAS SUFFICIENT TO CONVINCE ABOUT THE G ENUINENESS AND THE SUSTAINABILITY OF THE CLAIM OF THE ASSESSEE. 3. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT WITH REGARD TO THE SALES COMMI SSION, THE ASSESSEE HAS STATED THAT IT WAS NOT REALLY COMMISSI ON PAID TO THE SALES PERSONS AS IT WAS NOT FOR SOLICITING SALES BU T WAS FOR RENDERING VARIOUS OTHER ASSOCIATED SERVICES LIKE KE EPING THE ASSESSEE INFORMED OF REQUIREMENTS OF ITS CUSTOMERS, FOR TECHNICAL DISCUSSIONS WITH CLIENTS, IMPLEMENTATION OF PROJECT S AND TO PROVIDE TECHNICAL ADVICE TO THE CLIENTS. THE ASSESSEE HAS FILED THE DETAILS OF THE PERSONS TO WHOM THE COMMISSION HAS BEEN PAID, T HE CONTRACTS WHICH HAVE BEEN PROCURED THROUGH SUCH PERSON AND TH E NATURE OF THE SERVICE RENDERED BY SUCH PERSONS. THE DETAILS ARE AT PAGE NOS. 1 TO 58 OF THE PAPER BOOK FILED BY THE ASSESSEE AND ON PERUSAL OF THE SAME, WE ARE SATISFIED THAT THE AMOUNTS PAID TO THOSE PERSONS ARE SUPPORTED BY THE DOCUMENTS JUSTIFYING THE PAYME NT OF THE COMMISSION. WE FIND THAT THE AO, IN THE ASSESSMENT ORDER, HAS STATED THAT THE ASSESSEE HAS NOT FILED ANY DOCUMENT S IN SUPPORT OF ITS CLAIM WHICH IS FACTUALLY INCORRECT. THE AO HIM SELF HAS ADMITTED IN THE REMAND REPORT THAT THE DOCUMENTS FILED BEFOR E THE CIT(A) ARE PART OF THE ASSESSMENT ORDER BUT HAS NOT MADE AN AD VERSE COMMENT ABOUT THE SAME. THEREFORE, THE DISALLOWANC E HAS RIGHTLY BEEN DELETED BY THE CIT(A). 4. AS REGARDS THE DISALLOWANCE OF INTEREST IS CONCE RNED, WE FIND THAT THE ASSESSEE HAS NO DOUBT ADVANCED INTEREST FR EE ADVANCES TO SOME OF THE PERSONS. HOWEVER, AS RIGHTLY HELD BY T HE CIT(A), THERE IS NO EVIDENCE TO SUGGEST THAT THE PARTIES TO WHOM INTEREST FREE I.T.A. NO. 346/HYD/2012 M/S. PENTAGON RUGGED SYSTEMS :- 4 -: ADVANCES HAVE BEEN GIVEN ARE IN ANY WAY CONNECTED T O THE ASSESSEE. FURTHER, THE ASSESSEE HAS ALSO STATED TH AT THE INTEREST DEBITED TO THE P&L A/C WAS IN FACT THE FINANCE CHAR GES PAID TO THE BANKS AND NOT THE INTEREST PER SE. HE SUBMITTED THAT ASSESSEE WAS HAVING NO INTEREST BEARING FUNDS AND HAD SUFFICIENT FUNDS OF ITS OWN TO EXPLAIN THE ADVANCES GIVEN TO THE SIX PARTIE S WHO WERE IN NO WAY CONNECTED TO THE ASSESSEE. WE FIND THAT AO HAS NOT FOUND ANY NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INTERE ST FREE ADVANCES, EVEN IF THEY ARE PRESUMED TO BE ADVANCED TO RELATED PARTIES. THE LD. DR HAS NOT BEEN ABLE TO REBUT THI S FINDING OF CIT(A) WITH ANY EVIDENCE TO THE CONTRARY. IN VIEW OF THE SAME, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CI T(A) ON THIS ISSUE. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER, 2015 SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 20 TH NOVEMBER, 2015 TNMM I.T.A. NO. 346/HYD/2012 M/S. PENTAGON RUGGED SYSTEMS :- 5 -: COPY TO : 1. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7( 1), II FLOOR, B BLOCK, INCOME TAX TOWERS, AC GUARDS, HYDERABAD. 2. M/S. PENTAGON RUGGED SYSTEMS, 10-2-10, G-5, MATU RU APARTMENTS, A.C. GURDS, LAKDIKAPOOL, HYDERABAD. 3 . CI T (APPEALS) - V I , HYDERABAD. 4. CIT - V I , HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.