M/s. Mahendra Chemicals, Ahmedabad V. The Asstt. Commissioner of Income Tax, Circel-7(2), Ahmedabad

ITA 3492/AHD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5295 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Principle of natural justice; Corroborative evidences
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.3492/AHD/2016 (ASSESSMENT YEAR : 2013-14) M/S. MAHENDRA CHEMICALS, B-1, 217 + 218/2, GIDC ESTATE, NARODA, AHMEDABAD 382 330. VS. THE ACIT, CIRCLE 7(2), NATURE VIEW BUILDING ASHRAM ROAD, AHMEDABAD . [PAN NO. AANFM 4908 L] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI MEHUL TALERA, A.R. RESPONDENT BY : SHRI LALIT P. JAIN, SR. D.R. DATE OF HEARING 03/10/2018 DATE OF PRONOUNCEMENT 12/10/2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN PREFERRED BEFORE US BY THE ASSESSEE AGAINST THE ORDER DATED 29.07.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS)-7, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 AR ISING OUT OF THE ORDER DATED 23.11.2015 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7(2), AHMEDABAD FOR THE ASSESSMENT YEAR 2013-14 WITH THE FOLLOWING GROUNDS : 1.1 THE ORDER PASSED U/S 250 ON 29.07.2016 FOR A.Y . 2013-14 BY CIT(A)-7, ABAD CONFIRMING THE DISALLOWANCE OF COMMISSION EXP. OF RS.12,66,325/- IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE EXPLANATIONS FUR NISHED AND THE EVIDENCE PRODUCED BY THE APPELLANT. - 2 - ITA NO.3492/AHD/2016 M/S. MAHENDRA CHEMICALS VS. ACIT. ASST.YEAR 2013-14 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING THE DISALLOWANCE OF COMMISSION EXP. OF RS. 12,66,32 5/-. THOUGH, THE APPELLANT HAD PRODUCED NECESSARY MATERIAL AND THE P ARTIES WERE ALSO RENDERING SERVICES AS EMPLOYEES OF THE FIRM AND SUC H COMMISSION WAS PAID IN EARLIER YEAR. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISAL LOWANCE OF COMMISSION EXP. OF RS. 12,66,325/-. IT IS THEREFORE PRAYED THAT THE DISALLOWANCE OF RS. 12,66,325/- MADE BY THE AO SHOULD BE DELETED. 2. ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND SALE OF BULK DRUGS FILED ITS RETURN ON 08.10.2013 DECLARING TOTAL INCOME OF RS.4 2,67,983/- FOR THE ASSESSMENT YEAR 2013-14. THE CASE WAS SELECTED FOR SCRUTINY ON WHIC H NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 04.09.2014, IT WAS SERVED UPON THE ASSESS EE ON 11.09.2014. ON ACCOUNT OF CHANGE OF INCUMBENT NOTICE U/S 142(1) R.W.S. 129 OF THE ACT WAS ISSUED ALONG WITH DETAILED QUESTIONNAIRE UPON THE ASSESSEE. UPON WHIC H THE ASSESSEE SUBMITTED THAT THE BOOKS OF ACCOUNTS AND OTHER DETAILS TOO. ON VERIFIC ATION OF PROFIT AND LOSS ACCOUNTS IT WAS FOUND THAT THE ASSESSEE FIRM DEBITED COMMISSION EXP ENSES AMOUNTING TO RS.22,65,634/- FOR THE A.Y. 2012-13 AS AGAINST THE COMMISSION EXPE NSES OF RS.20,73,417/- FOR THE A.Y. 2012-13. THE COMMISSION EXPENSE THEREFORE HAS INCRE ASED FROM 20.73 LAKHS TO 22.65 LAKHS WHILE VERIFYING THE GENUINENESS OF THE ASSESS EES CLAIM. THE ASSESSEE WAS ASKED TO FURNISH DETAILS WITH SUPPORTING EVIDENCE AS WELL AS CONFIRMATION FOR PAYMENT OF COMMISSION ON SALES PARTICULARLY MADE TO SHRI DIPAK J AMIN AND SHRI JIGNESH J. PATEL AT HIGHER RATE TO THE PERSONS COVERED U/S 40A(2)(B) OF THE ACT. 3. THE LD AO WAS NOT SATISFIED TO THE REPLY GIVEN B Y THE ASSESSEE AND ULTIMATELY THE CLAIM TOWARDS PAYMENT OF COMMISSION MADE TO THE SAI D TWO PARTIES FOUND NOT CORRECT, GENUINE AND NEITHER ACCEPTABLE, THEREFORE REJECTED. AMOUNT OF RS.12,66,325/- OUT OF THE - 3 - ITA NO.3492/AHD/2016 M/S. MAHENDRA CHEMICALS VS. ACIT. ASST.YEAR 2013-14 COMMISSION PAYMENT HAS BEEN DISALLOWED AND ADDED BA CK TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL, THE LD CIT(A) CONFIRMED THE ORDER PAS SED BY THE LD AO AND HENCE THE INSTANT APPEAL BEFORE US. 5. AT THE TIME OF HEARING OF THE MATTER, THE LD REP RESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT IN THE PREVIOUS YEAR THE IDENTICAL CLAIM WAS ULTIMATELY ALLOWED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESS EES OWN CASE BEING ITA NO. 2516/AHD/2016 FOR ASST. YEAR 2012-13. THEREFORE, TH E CLAIM OF THE ASSESSEE AGAINST WHICH THE APPEAL HAS BEEN PREFERRED BEFORE US IS SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE. 6. THE REPRESENTATIVE OF THE DEPARTMENT ALSO NOT RA ISED ANY OBJECTION TO THE SUBMISSION MADE BY THE LD REPRESENTATIVE OF THE ASS ESSEE. A COPY OF THE ORDER DATED 30.08.2018 HAS ALSO BEEN HANDED OVER TO US BY ASSES SEES REPRESENTATIVE. 7. WE HAVE HEARD THE RESPECTIVE PARTIES AND PERUSED THE RELEVANT DOCUMENTS AVAILABLE ON RECORDS. WE FIND FROM THE ORDERS PASSE D BY THE COORDINATE BENCH OF THIS LEARNED TRIBUNAL WHEREIN, THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW. 4. THE BRIEF FACT OF THE CASE IS THAT RETURN OF IN COME DECLARING INCOME OF RS. 17,19,830/- WAS FILED ON 19 TH SEP, 2012. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY U/S. 143(2) OF THE ACT ON 6 TH AUGUST, 2013. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF BULK DR UGS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAS DEBITED COMMISSION EXPENSES AMOUNTING TO RS. 20,73,417/- FO R THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE GROSS TURNOVER OF THE ASSESSEE HA S BEEN REDUCED TO RS. 629.82 LACS COMPARED TO GROSS TURNOVER OF 863.12 LACS TO P RECEDING YEAR. HE HAS FURTHER OBSERVED THAT COMMISSION EXPENSES HAS BEEN INCREASE D FROM RS. 16.64 LACS TO RS. - 4 - ITA NO.3492/AHD/2016 M/S. MAHENDRA CHEMICALS VS. ACIT. ASST.YEAR 2013-14 20.73 LACS IN SPITE OF DECREASE IN THE TURNOVER OF THE ASSSESSEE. THEREFORE, THE ASSESSING OFFICER HAS ASKED THE ASSESSE TO JUSTIFY THE INCREASE IN PAYMENT OF COMMISSION AS THE GROSS TURNOVER HAS BEEN REDUCED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE EXPLAINED THE NATURE O F COMMISSION PAID AND FURNISHED SUPPORTING INFORMATION. ON PERUSAL OF TH E DETAILS FILED, THE ASSESSING OFFICER NOTICED THAT COMMISSION HAS BEEN PAID TO THE FOLLOWING TWO PERSONS:- SR. NO NAME SALES IN KG. COMMISSION PAID COMMISSION PAID @ 1 DIPAK J. AMIN 29975.00 752135 RS.25 PER KG. 2 JIGNESH J. PATEL 26705.00 797900 RS.30PERKG. TOTAL 15,50,035/- THE ASSESSING OFFICER FOUND THAT THE ABOVE TWO PER SONS WERE ON THE PAYROLL OF ASSESSEE AND WERE COVERED U/S. 40(A)(2)(B) OF THE ACT. THE ASSESSE EXPLAINED THAT M/S. DIPAK J. AMIN HAS BEEN LOOKING AFTER PRODUCT ION AND ENVIRONMENT TREATMENT PLANT AND ALSO PARTICIPATED IN THE EXHIBITIONS AT VARIOUS PLACES AND BROUGHT NEW CUSTOMER FOR THE COMPANY. IT WAS EXPLAINED THAT S HRI JIGNESH PATEL HAS BEEN LOOKING AFTER THE PRODUCTION AND PACKAGING DEPARTME NT. HE HAS ALSO CARRIED OUT MARKETING WORK AND DEVELOPED NEW CUSTOMERS. THE AS SESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE. HE WAS OF THE VIEW THAT BOTH OF THEM WERE SQUARELY COVERED U/S.40A(2)(B) OF THE ACT AND THE ASSESSEE HAS FAILED TO PROVE WHY THESE PERSONS PAID COMMISSION OVER AND ABOVE TH E SALARY. CONSEQUENTLY, THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE AMOUN T OF COMMISSION RS. 15,50,035/- . 5. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. C IT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING A S UNDER:- 3.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE AO AFTER A DETAILED DISCUSSION I N THE ASSESSMENT ORDER HELD THAT THE PAYMENT OF COMMISSION TO SHRI DIPAK A MIN AND SHRI JIGNESH PATEL WAS EXCESSIVE AND NOT JUSTIFIABLE. IT WAS NOT ED BY HIM THAT BOTH THESE PERSONS WERE ALSO COVERED U/S. 40A(2)(B) OF THE I.T . ACT. THE APPELLANT ON THE OTHER HAND HAS STATED THAT THE COMMISSION WAS P AID AS PER EARLIER YEARS - 5 - ITA NO.3492/AHD/2016 M/S. MAHENDRA CHEMICALS VS. ACIT. ASST.YEAR 2013-14 AND THAT ALL DEBIT NOTES IN THIS REGARD HAD BEEN FI LED BY IT. AFTER GOING THROUGH THE SUBMISSION MADE BY THE APPELLANT AND TH E DETAILS FILED, I FIND THAT THERE IS NO WRITTEN AGREEMENT IN RESPECT OF TH E COMMISSION TO BE PAID TO THESE TWO PERSONS WHO ARE COVERED U/S. 40A(2)(B) OF THE ACT. IT IS ALSO SEEN THAT THE RATE OF COMMISSION OF RS.25/- PER KG AND RS.30/-PER KG WAS FIXED ONLY IN FINANCIAL YEAR I.E. 2010-11 I.E. JUST ONE YEAR BEFORE THE YEAR UNDER CONSIDERATION AND NOT 'LONG BACK' AS CLAIMED BY THE APPELLANT. IT IS ALSO TRUE THAT THE NET PROFIT AND THE GROSS SALES H AVE DECREASED SUBSTANTIALLY DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT HAS NOT BEEN ABLE TO GIVE INSTANCES AND DETAILS OF THE ORDERS PROCURED B Y SHRI DIPAK AMIN AND SHRI JIGNESH PATEL TO JUSTIFY THE COMMISSION OF RS. 15,50,035/- PAID TO THEM. MOREOVER, BOTH THESE PERSONS WERE EMPLOYEES ON THE PAYROLL OF THE APPELLANT FIRM AND HAVE ALSO BEEN PAID HUGE SALARY ON ACCOUNT OF THEIR REGULAR WORK. IN VIEW OF ALL THESE FACTS, I AM INCL INED TO AGREE WITH THE AO THAT THE PAYMENT OF COMMISSION WAS EXCESSIVE AND TH E REASONABLENESS OF THE SAME COULD NOT BE JUSTIFIED BY THE APPELLANT. T HE DISALLOWANCE OF COMMISSION EXPENSES OF RS.15,50,035/- MADE BY THE A SSESSING OFFICER IS CONFIRMED. GROUNDS OF APPEAL NOS. 5.1 & 5.2 ARE DIS MISSED. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, THE LD. COUNSEL HAS FURNISHED COPIES OF LEDGER ACCOUNT OF COMMISSION EX PENSES AND DETAILS OF COMMISSION PAID DURING THE YEAR UNDER CONSIDERATION . HE HAS ALSO SUBMITTED COPY OF ASSESSMENT ORDER U/S. 143(3) PASSED IN THE CASE OF ASSESSEEE ITSELF FOR THE ASSESSMENT YEAR 2011-12 STATING THAT NO SUCH DISAL LOWANCE OF COMMISSION EXPENSES WERE MADE BY THE ASSESSING OFFICER. HE HA S ALSO FURNISHED PAPER BOOK CONTAINING DETAILS OF SUBMISSION MADE BEFORE ASSESS ING OFFICER AND LD. CIT(A) DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APP ELLATE PROCEEDINGS. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSING OFFICER HAS DISALLOWED T HE ENTIRE COMMISSION EXPENSES OF RS. 15,50,035/- U/S. 40(A)(2)(B) OF THE ACT. THE A SSESSEE HAS SUBSTANTIATED THE PAYMENT OF COMMISSION WITH SUPPORTING MATERIALS, D EBIT NOTES ETC ALONG WITH THE DETAILS OF SERVICES RENDERED FOR WHICH COMMISSION W AS PAID. IT IS ALSO UNDISPUTED FACTS THAT THESE TWO PERSONS WERE ALSO PAID COMMISS ION ALONG WITH SALARY IN THE PAST YEARS. THE PROVISION OF SECTION 40(A)(2)(B) P ROVIDE FOR DISALLOWANCE OF ONLY THE EXCESSIVE OR UNREASONABLE EXPENDITURE AND NOT T HE ENTIRE EXPENDITURE. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONSIDER THAT THE ASSESSING OFFICER HAS FAILED TO DISPROVE SUPPORTING MATERIAL FURNISHED BY THE ASSESSEE IN SUPPORT OF THE AFORESAID COMMISSION PAY MENT. THE ASSESSING OFFICER HAS ALSO FAILED TO SUBSTANTIATE WITH RELEVANT MATER IAL THAT COMMISSION PAYMENT MADE BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE H AVING REGARD TO THE FAIR - 6 - ITA NO.3492/AHD/2016 M/S. MAHENDRA CHEMICALS VS. ACIT. ASST.YEAR 2013-14 MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT HAS BEEN MADE. WE CONSIDER THAT THE DECISION OF THE ASSESSI NG OFFICER TO DISALLOW THE ENTIRE COMMISSION EXPENSES U/S. 40A(2)(B) OF THE ACT WITHO UT SUBSTANTIATING AND RESTRICTING THE DISALLOWANCE TO THE UNREASONABLE AN D EXCESS PAYMENT OF EXPENSES IS NOT CORRECT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A), THEREFORE, THE APPEAL O F THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 8. WE DO NOT HESITATE TO MENTION THAT THE ISSUE REL YING TO THE ABOVE MATTER ALSO PERTAINS TO THE COMMISSION PAID TO THE SAME PARTIES AS HAS BEEN PAID IN THE CASE IN HAND. WE THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT PA SSED BY THE COORDINATE BENCH ALLOW THE APPEAL PREFERRED BY THE ASSESSEE BY DELETING TH E ADDITION MADE BY THE AUTHORITIES BELOW. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 12/10/2018 SD/- SD/- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 12/10/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-7, AHMEDABAD 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD