Dr. Sabharwal's Medicals Pvt. Ld., Kanpur V. ACIT, Kanpur

ITA 349/LKW/2011

• Counselvise Citation: 34923714 RSA 2011
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2011
• Assessment Year: misc
• Appeal Filed On: 15-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: GOVIND KRISHNA
• Keywords: Business income; Commercial expediency
• Section: 80HHC; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI B. R. JAIN , ACCOUNTANT MEMBER ITA NO. 349/LKW/2011 ASSESSMENT YEAR: 2001 - 02 DR. SABHARWALS MEDICALS PVT. LTD 117/H - 2/160, PAND U NAGAR KANPUR V. ACIT RANGE VI KANPUR PAN: AAACD6615M (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. GOVIND KRISHNA, C.A. RESPONDENT BY: SHRI. JAGDISH, CIT(DR) DATE OF HEARING: 15.12.2011 DATE OF PRONOUNCEMENT: 27.12.2011 O R D E R PER S UNIL KUMAR YADAV : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A) PERTAINING TO ASSESSMENT YEAR 2001 - 02 MAINLY ON THREE ISSUES. FIRST ISSUE RELATES TO THE DISALLOWANCE OF COMMISSION PAID TO M/S SARADA STEEL INDUSTRIES LIMITED AND SECOND A ND THIRD ISSUES RELATE TO THE TREATMENT GIVEN TO THE INTEREST INCOME EARNED ON FDRS AND DIFFERENCE IN FOREIGN EXCHANGE AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. 2 . BRIEFLY THE FACTS BORNE OUT FROM RECORD WITH RESPECT TO THE DISALLOWANCE OF COMMISSION PAID ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS PAID A : - 2 - : SUM OF ` 9,98,874 TO ONE M/S SARADA STEEL INDUSTRIES LIMITED WHICH WERE DEALING IN IRON AND STEEL. T HE ASSESSEE EXPLAINED THAT THE AFORESAID CONCERN WAS ENTRUSTED WITH THE TASK OF ORGANIZING SALES IN RESPECT OF THE PRODUCTS MANUFACTURED BY THE ASSESSEE - COMPANY AND FOR THIS PURPOSE AN AGREEMENT WAS ENTERED INTO WHEREIN VARIOUS TERMS AND CONDITIONS GOVERNI NG THE ORGANIZATION OF SALES INCLUDING THE QUANTIFICATION OF COMMISSION WAS SPECIFIED. THE ASSESSING OFFICER ISSUED SUMMONS TO THE AFORESAID CONCERN. IN RESPONSE THERETO, SHRI. MADAN HADA, ONE OF THE DIRECTORS OF THE COMPANY APPEARED WHOSE STATEMENT ON O ATH WAS RECORDED BY THE ASSESSING OFFICER. IN HIS DEPOSITION, SHRI. MADAN HADA DEPOSED THAT ONE SHRI. A.V. SINGH , WHOSE WHEREABOUTS WERE NOT KNOWN TO SHRI. MADAN HADA , WORKED FOR THE AFORESAID CONCERN AND THE TERRITORY ASSIGNED WAS ALL LENGTH AND BREADTH OF THE NATION AS IS EVIDENT FROM THE TERRITORY ASSIGNED TO THE COMPANY. BUT NO RECORD WHATSOEVER WAS PRODUCED WHICH COULD DEMONSTRATE THAT ANY KIND OF SERVICE WAS RENDERED BY THE AFORESAID CONCERN. FROM THE RECORD OF THE ASSESSEE - COMPANY , ANY KIND OF EXP ENDITURE INCURRED ON THIS ACTIVITY COULD NOT BE DEPICTED. THE ASSESSING OFFICER ACCORDINGLY HELD THAT COMMISSION CLAIMED TO HAVE BEEN PAID HAD NOT BEEN PROVED AND THE PAYMENT MADE THROUGH CHEQUE AS CLAIMED COULD ONLY BE CONSTRUED TO HAVE BEEN MADE ON ACCO UNT OF EXTRA COMMERCIAL CONSIDERATION RATHER THAN THERE WAS ANY BUSINESS EXPEDIENCY FOR THE SAME. ACCORDINGLY, THE COMMISSION CLAIMED WAS DISALLOWED BY THE ASSESSING OFFICER. 3 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WITH THE SUBMISSION THAT THE DIRECTOR OF M/S SARADA STEEL INDUSTRIES LIMITED HAS ADMITTED ON OATH ABOUT THE RECEIPT OF COMMISSION THROUGH CHEQUE. THEREFORE, GENUINEN ESS OF PAYMENT IS ESTABLISHED. IT WAS FURTHER CONTENDED THAT ON ACCOUNT OF EFFORTS MADE BY THE AGENT I.E. THE ABOV E SALE ORGANIZER, THE SALES HAD BEEN INCREASED TREMENDOUSLY, REALIZATION OF DUES HAD BEEN : - 3 - : IMPROVED BEYOND DOUBTS AND ACCORDINGLY INTEREST BURDEN HAD BEEN REDUCED WHICH HAS FINALLY RESULTED TO INCREASE IN PROFIT AND PAYMENT OF HIGHER TAXES TO THE REVENUE. FOR NON - MAINTENANCE OF RECORD OF THIRD PARTY, THE CLAIM OF COMMISSION RAISED BY THE ASSESSEE CANNOT BE DISALLOWED . THE LD. CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES CONTENTION BUT WAS NOT CONVINCED AND HE ACCORDINGLY REJECTED THE CLAIM OF TH E ASSESSEE. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: - THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OBSERVED THAT M/S SARADA STEELS LTD. DEA LS WITH IRON AND STEEL WHEREAS THE APPELLANT DEALS WITH SURGICAL DRESSINGS AND BANDAGES . THUS BOT H THE CONCERNS ARE DEALING IN ENTIRELY DIVERSIFIED FIELDS AND IT IS NOT UNDERSTOOD HOW M/S SARADA STEELS LTD. DEALING IN IRON AND STEEL COULD HELP THE APPELLAN T IN PROMOTING SALES OF SURGICAL DRESSINGS AND BANDAGES. FURTHER IT IS IMPORTANT TO NOTE THAT THE AMOUNT HAS BEEN DEBITED ON 30 - 10 - 2001 AT THE TIME OF FILING OF RETURN AND NO T.D.S. HAS BEEN DEDUCTED ON COMMISSION PAID. THE WORK OF SALES PROMOTION WAS DONE THROUGH ONE SH. A.V. SINGH WHO EARLIER HAD EXPERIENCE IN THE MARKETING OF MEDICAL AND SURGICAL PRODUCTS. HOWEVER, NEITHER THE APPELLANT NOR THE AFORESAID CONCERN COULD FURNISH DETAILS/EVIDENCE IN RESPECT OF TECHNICAL EXPERTISE OF THE AFORESAID PERSON. FUR THERMORE, SH. A.V. SINGH WAS NOT PRODUCED FOR EXAMINATION NOR HIS ADDRESS WAS FURNISHED BY THE APPELLANT OR BY THE AFORESAID CONCERN. FROM THE DETAILS OF REIMBURSEMENT OF TRAVELLING AND HALTING EXPENSES IT IS REVEALED THAT SH. A.V. SINGH'S STAY TO THE GIVE N DESTINATIONS IS ONLY FOR FEW DAYS AND HAS VISITED A PARTICULAR PLACE ONLY ONCE A MONTH. : - 4 - : BUT SURP RISINGLY BY THE END OF THE YEAR HE HELPED TO PROMOTE SALES UP TO THE EXTENT OF RS. 1,13,94,429 / - WHICH IS HARDLY BELIEVABLE THAT A PERSON WHO HAD SUCH A SHORT STINT OF STAY AT A GIVEN PLACE COULD YIELD MAMMOTH RESULTS AND THAT TOO SINGLE HANDEDLY. THE APPELLANT HAS ALSO NOT PRODUCED COPY OF BOARD'S RESOLUTION, IF ANY, PASSED BY THE APPELLANT COMPANY TO TAKE A DECISION THAT THE SERVICES OF M/S SARADA STEELS LTD. WERE REQUIRED FOR PROMOTION OF SALES. PRODUCTION OF SH. MADAH HADA IS NOT SUFFICIENT TO PROVE THE GENUINENESS OF COMMISSION PAID AT RS.9,98,874/ - . THE AGREEMENT DATED 01 - 04 - 2000 IS FABRICATED DOCUMENT AS NO BILLS WERE RAISED DURING THE FINANCIAL YEAR. THE A.O. HAS DISCUSSED THE IMPUGNED ISSUE COGENTLY IN HIS ASSESSMENT ORDER WHICH IS NOT REPEATED HERE FOR THE SAKE OF BREVITY. IN VIEW OF THE ABOVE FACTS, IT IS HELD THAT THE A.O. WAS PERFECTLY JUSTIFIED IN DISALLOWING COMMISSION PAID AT RS.9,98,874/ - AND THERE BY MAKING ADDITION. THE SAME IS HEREBY CONFIRMED. GROUND NO.1 IS DISMISSED. 4 . NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND REITERATED ITS CONTENTIONS. HE HAS ALSO EMPHATICALLY ARGUED THAT THE PAYMENTS WERE MADE THROUGH CHEQUES AND THE R ECEIPTS WERE ALSO ACKNOWLEDGED BY THE RECIPIENT. THEREFORE, THE CLAIM OF PAYMENT OF COMMISSION SHOULD NOT BE DOUBTED. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE WAS ASKED BY THE BENCH TO P LACE ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THAT M/S SARADA STEEL INDUSTRIES LIMITED HAS RENDERED ANY SERVICES FOR THE ASSESSEE. IN RESPONSE THERETO THE ASSESSEE COULD NOT PLACE EVEN A SINGLE DOCUMENT. HE, HOWEVER, ORALLY ARGUED THAT THE SERVICES WERE RENDERED BY SHRI. A. V. SINGH, A N EMPLOYEE OF M/S SARADA STEEL INDUSTRIES LIMITED, B UT HE COULD NOT FURNISH THE WHEREABOUTS OF SHRI. A. V. SINGH. HE FURTHER CONTENDED THAT THE : - 5 - : EXPENDITURE INCURRED BY SHRI. A. V. SINGH WAS REIMBURSED BY THE ASSESSEE - COMPANY. THEREFORE, THE SERVICES REND ERED BY SHRI. A. V. SINGH CANNOT BE DOUBTED. IN THIS REGARD , A SPECIFIC QUERY WAS RAISED FROM THE BENCH WHETHER THERE WAS ANY TERM IN THIS REGARD IN THE COMMISSION AGREEMENT, THE REPLY WAS IN NEGATIVE. THE LD. COUNSEL FOR THE ASSESSEE HOWEVER REITERATED HIS ARGUMENT THAT PAYM ENTS WERE MADE THROUGH CHEQUE, T HEREFORE, IT SHOULD NOT BE DISALLOWED. 5 . THE LD. D.R., ON THE OTHER HAND, HAS CONTENDED THAT THE CLAIM OF COMMISSION WAS RAISED BY THE ASSESSEE, THEREFORE, ONUS IS UPON HIM TO PLACE RELEVANT EVIDENCE TO P ROVE THE GENUINENESS OF PAYMENT OF COMMISSION. MERE PAYMENT THROUGH CHEQUE DOES NOT SUFFICE TO PROVE THAT IT WAS PAID FOR COMMERCIAL EXPEDIENCY. HE HAS INVITED OUR ATTENTION T O THE TURNOVER OF THE ASSESSEE, ON WHICH COMMISSION WAS WORKED OUT , AND CONTEND ED THAT W HEN THE TURNOVER WAS IN CRORES, THERE SHOULD HAVE BEEN SOME EVIDENCE TO SUGGEST THAT ANY TRANSACTION WAS DONE OR ANY ORDER WAS ARRANGED BY SHRI. A. V. SINGH OR M/S SARADA STEEL INDUSTRIES LIMITED. BUT NOTHING IS AVAILABLE ON RECORD IN SUPPORT OF THE CONTENTION OF THE ASSESSEE. 6 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM THE CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES AND DOCUMENTS PLACED ON RECORD, WE FIND THAT EXCEPT ORAL SUBMISSIONS NOTHING HAS BEEN PLACE D ON RECORD TO SUBSTANTIATE THAT ANY SERVICES WERE RENDERED BY M/S SARADA STEEL INDUSTRIES LIMITED OR THROUGH SHRI. A. V. SINGH. DESPITE SPECIFIC QUERIES FROM THE BENCH, THE LD. COUNSEL FOR THE ASSESSEE COULD NOT PLACE EVEN A SINGLE DOCUMENT TO PROVE THAT ANY SERVICES WERE RENDERED BY SHRI. A. V. SINGH OR M/S SARADA STEEL INDUSTRIES LIMITED. ADMITTEDLY THE TURNOVER , ON WHICH COMMISSION WAS WORKED OUT , WAS IN CRORES BUT NOTHING HAS BEEN PLACED ON RECORD TO ESTABLISH THAT ANY TRANSACTION O R ORDER WAS ARRANG ED EITHER BY SHRI. A. V. SINGH OR M/S SARADA STEEL INDUSTRIES LIMITED. IN THE ABSENCE OF DOCUMENTARY EVIDENCE, IT IS : - 6 - : VERY DIFFICULT FOR US TO ACCEPT THE CONTENTION OF THE ASS ESSEE THAT COMMISSION WAS PAID FOR THE SERVICES RENDERED BY M/S SARADA STEEL INDU STRIES LIMITED ON BEHALF OF THE ASSESSEE IN ARRANGING SALES. WE, HOWEVER, CAREFULLY EXAMINED THE ORDER OF THE LD. CIT(A) AND WE FIND THAT HE HAS RIGHTLY ADJUDICATED THE ISSUE IN THE LIGHT OF GIVEN FACT S AND CIRCUMSTANCES. SINCE WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM HIS ORDER. 7 . NEXT GROUND S RELATE TO THE NATURE OF INCOME RECEIVED BY WAY OF INTEREST ON FDRS AND DIFFERENCE IN FOREIGN EXCHANGE F LUCTUATION. 8 . WITH REGARD TO THE INTEREST IN FDRS, THE ASSESSING OFFICER HAS TREATED THIS INCOME AS INCOME FROM OTHER SOURCES AND NOTHING IS PLACED ON RECORD TO SUBSTANTIATE THAT FDRS WERE PURCHASED ON ACCOUNT OF BUSINESS EXIGENCY I.E. EITHER TO PUT AS EARNEST MONEY OR TO OBTAIN ORDERS. THE ASSESSEE HAS MADE ORAL SUBMISSIONS IN THIS REGAR D WHICH WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND HE TREATED INTEREST INCOME FROM FDRS AS INCOME FROM OTHER SOURCES AND DID NOT ALLOW DEDUCTION THEREON UNDER SECTION 80 HHC OF THE ACT. 9 . IN APPEAL ALSO, THE ASSESSEE COULD NOT PLACE ANY EVIDENCE TO PROVE T HAT THE FDRS WERE PURCHASED ON ACCOUNT OF BUSINESS EXIGENCY AND THE LD. CIT(A) CONFIRMED DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 10 . DURING THE COURSE OF HEARING OF THE APPEAL BEFORE US ALSO, SPECIFIC QUERY WAS RAISED FROM THE LD. COUNSEL FOR THE ASSESSEE TO PLACE SOME DOCUMENTARY EVIDENCE IN SUPPORT OF HIS CONTENTION THAT FDRS WERE PURCHASED ON ACCOUNT BUSINESS EXIGENCY , BUT HE MADE ORAL SUBMISSIONS IN THIS REGARD AND NOTHING WAS PLACED TO SUBSTANTIATE HIS CLAIM. IN THE ABSENCE OF DOCUMENTAR Y EVIDENCE, THE CLAIM OF THE ASSESSEE THAT FDRS : - 7 - : WERE PURCHASED TO PLACE AS EARNEST MONEY OR TO OBTAIN ORDERS CANNOT BE ACCEPTED. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT(A). 11 . SO FAR AS THE INCOME ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS CONCERN ED, IT WAS STATED THAT FOREIGN EXCHANGE WAS RECEIVED ON ACCOUNT OF SALE PROCEEDS OF THE EXPORT OF GOODS. ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION, SALES PROCEEDS WERE I NCREASED. THEREFORE, INCREASE I N THE SALE PROCEEDS IS CERTAINLY A PART OF BUSINESS R ECEIPT. IT CANNOT BE TERMED TO BE INCOME FROM OTHER SOURCES. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO TREAT TH E INCOME ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AS BUSINESS INCOME AND ALLOW DEDUCTION UNDER SECTION 80HHC OF THE ACT ON THE SAME. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISPOSED OF. 12 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.2011. SD/ - SD/ - [B. R. JAIN ] [ S UNIL KU MAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27.12.2011 JJ: 1912 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR