ITO 10(1)-4, MUMBAI V. VIDYAVIKAS EDUCAIDS P. LTD, MUMBAI

ITA 3505/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75767 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: K GOPAL SHRI JITENDRA SINGH
• Keywords: Corroborative evidences

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . , !'# , $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VP AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NO.3505/MUM/2010 ( - - - - / ASSESSMENT YEAR :2006-07 THE ITO 10(1)-4, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. VIDYAVIKAS EDUCAIDS PVT. LTD., 203, 2 ND FLOOR, A WING, VINAY BHAVYA COMPLEX, 159, CST ROAD, KALIND, SANTACRUZ (E), MUMBAI-400 098 ,. $* ./ /0 ./ PAN/GIR NO. : AABCV 2747H ( .1 / APPELLANT ) .. ( 23.1 / RESPONDENT ) .1 4 $ / APPELLANT BY: SHRI R.K. SAHU 23.1 5 4 $ / RESPONDENT BY: SHRI K. GOPAL SHRI JITENDRA SINGH 5 6* / DATE OF HEARING :25.02.2014 7- 5 6* / DATE OF PRONOUNCEMENT :28.02.2014 +$8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-21, MUMBAI DT.26.2.2011 PERTAINING TO A.Y. 2006-07. 2. THE GRIEVANCE OF THE REVENUE REVOLVES AROUND TWO ISSUES. FIRST ISSUE IS DELETION OF ADDITION OF COMMISSION OF RS. 8,33,606/- AND THE ITA NO. 3505/M/2010 2 SECOND ISSUE IS DELETION OF THE ADDITION OF COMPENS ATION CHARGES OF RS. 7,95,000/-. 3. THE ASSESSEE IS ENGAGED IN FINANCIAL SERVICES BU SINESS OF OFFERING SERVICES FOR DISCOUNTING BILLS OF EXCHANGE. THE AS SESSEE FILED A RETURN OF INCOME AT RS. 11,99,832/-. DURING THE COURSE OF TH E SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID (A) COMMISSION OF RS. 8,33,606/- AND (B) COMPENSATION C HARGES OF RS. 7,95,000/- TO ITS HOLDING COMPANY M/S. PINNACLE FIN ANCIAL CONSULTANCY & INVESTMENT SERVICES PVT. LTD. THE ASSESSEE WAS ASKE D TO JUSTIFY THESE TWO EXPENSES. IN RESPECT OF THE PAYMENT OF COMMISSION, THE ASSESSEE FILED A MEMORANDUM OF UNDERSTANDING WITH ITS HOLDING COMPAN Y WHICH READS AS UNDER: BOTH PARTIES ABOVE HEREINAFTER CALLED M/S. PINNACL E FINANCIAL CONSULTANCY & INVESTMENT SERVICES PVT. LT D. RESPECTIVELY EXPRESSED THE NEED TO RECORD THE UNDER STANDING BETWEEN THEM. M/S. PINNACLE FINANCIAL CONSULTANCY & INVESTMENT SE RVICES PVT. LTD. FOR THEIR BILLS, ICD AND HR BUSINESS IN CONSIDERATION VIDYAVIKAS EDUCAIDS PVT. LTD AGREE S TO PAY COMMISSION TO M/S. PINNACLE FINANCIAL CONSULTANCY & INVESTMENT SERVICES PVT. LTD . @ 20% OF THEIR INCOME FROM BILLS, ICD AND HR BUSINESS FOR THE YEAR 1.4.2005 TO 31.3.2006. AND IN RESPECT OF THE PAYMENT OF COMPENSATION CHARG ES, THE ASSESSEE FILED MEMORANDUM OF UNDERSTANDING WITH ITS HOLDING COMPAN Y WHICH READS AS UNDER: ITA NO. 3505/M/2010 3 BOTH THE PARTIES ABOVE HEREINAFTER CALLED M/S. PI NNACLE FINANCE & VIDYA VIKAS RESPECTIVELY EXPRESSED THE NE ED TO RECORD THE UNDERSTANDING BETWEEN THEM. PINNACLE PERMITS TO VIDYA VIKAS FOR USE OF INFRASTR UCTURE AND OFFICE DURING THE PERIOD 1.4.05 TO 31.3.06. IN CONSIDERATION VIDYA VIKAS AGREES TO PAY COMPENSA TION TO PINNACLE FINANCE FOR VARIOUS OFFICES AS UNDER: MUMBAI @ RS. 31250 PER MONTH CHENNAI @ RS. 10000 PER MONTH NEW DELHI @RS. 10000 PER MONTH BANGALORE @RS. 3000/- PER MONTH COIMBATORE @ RS. 3000/- PER MONTH AHMEDABAD @ RS. 3000/- PER MONTH HYDERABAD @ RS. 3000/- PER MONTH KOLKATA @ RS. 3000/- PER MONTH 4. IN ORDER TO VERIFY THE CLAIM OF COMMISSION, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF CLIENTS PROVIDED BY ITS HOLDI NG COMPANY FOR WHICH THE COMMISSION PAYMENTS WERE MADE AND ALSO TO PROVI DE COPIES OF THE BILLS RAISED BY THE ASSESSEE COMPANY ON ITS CLIENTS PROVIDED BY THE HOLDING COMPANY. THE ASSESSEE FURNISHED A LIST OF CLIENTS CLAIMED TO BE PROVIDED BY ITS HOLDING COMPANY. THE AO OBSERVED T HAT NO DETAILS HAVE BEEN FURNISHED TO SHOW THAT THESE CLIENTS HAVE BEEN ACTUALLY PROVIDED BY ITS HOLDING COMPANY NOR THERE IS ANY EVIDENCE TO SH OW THAT THE HOLDING COMPANY HAS OFFERED ANY SERVICE IN PROCURING THESE CLIENTS. THE AO WENT ON TO RELY CERTAIN JUDICIAL DECISIONS AND FINA LLY CONCLUDED THAT THE ASSESSEE HAS DEBITED EXPENDITURE BY WAY OF COMMISSI ON WHICH IS NOT AN ALLOWABLE EXPENDITURE AND DISALLOWED THE SAME. 5. IN SO FAR AS COMPENSATION CHARGES ARE CONCERNED, THE ASSESSEE EXPLAINED THAT IT IS USING THE INFRASTRUCTURE FACIL ITIES PROVIDED BY THE HOLDING COMPANY FOR ITS BUSINESS AND IN LIEU OF THE FACILITIES PROVIDED BY ITA NO. 3505/M/2010 4 THE HOLDING COMPANY, THE COMPENSATION CHARGES WERE PAID. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS NOT PRODUC ED ANY DOCUMENTARY OR SUPPORTING EVIDENCE TO BUTTRESS ITS CLAIM AS TO THE ACTUAL FACILITIES USED AND DISALLOWED THE COMPENSATION CHARGES SO PAID. 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). BEFORE THE LD. CIT(A), THE ASSESSEE REITERATED WHAT HAS BEEN S UBMITTED BEFORE THE AO. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) WAS OF THE OPINION THAT THOUGH THE AO DID NOT ACCEPT TH E LIST OF THE CLIENTS PROVIDED BY THE HOLDING COMPANY BUT AT THE SAME TIM E DID NOT VERIFY ANYTHING FROM THOSE CLIENTS WHETHER THEY WERE ACTUA LLY INTRODUCED TO THE ASSESSEE BY ITS HOLDING COMPANY. THE LD. CIT(A) FU RTHER OBSERVED THAT THE AO WAS NOT HAVING ANY EVIDENCE TO PROVE THAT TH E CLIENTS WERE NOT PROVIDED BY THE HOLDING COMPANY. THE ONLY REASON F OR NOT ALLOWING THE EXPENSE OF COMMISSION WAS THAT THE ASSESSEE PAID TH E COMMISSION TO ITS HOLDING COMPANY. THE LD. CIT(A) WAS CONVINCED THAT THE EXPENDITURE OF COMMISSION PAYMENT WAS INCURRED BY THE ASSESSEE WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THE REFORE WAS ALLOWABLE AS AN EXPENDITURE AND ACCORDINGLY DELETED THE ADDITION . 7. IN SO FAR AS THE PAYMENT OF COMPENSATION CHARGES IS CONCERNED, THE ASSESSEE ONCE AGAIN SUBMITTED BEFORE THE LD. CIT(A) THAT IT HAD AVAILED VARIOUS FACILITIES LIKE OFFICE PREMISES AT VARIOUS PLACES, FURNITURE, AIR CONDITIONER, STAFF ETC FROM ITS HOLDING COMPANY. T HE COMPENSATION WAS PAID FOR THESE SERVICES. THE LD. CIT(A) OBSERVED TH AT THE ASSESSEE WAS NOT HAVING ANY ASSETS I.E. FIXED OR MOVEABLE ASSET S IN ITS BALANCE SHEET. THE LD. CIT(A) FURTHER OBSERVED THAT IN THE ABSENCE OF SUCH ASSETS/INFRASTRUCTURE, THE ASSESSEE COULD NOT HAVE EARNED TOTAL RECEIPTS OF 45.91 LAKHS EVEN ON THE EXPENDITURE SIDE, THERE WER E NO COMPUTER ITA NO. 3505/M/2010 5 EXPENSES, OFFICE EXPENSES, TRAVELLING EXPENSES ETC . TAKING INTO CONSIDERATION ALL THESE FACTS, THE LD. CIT(A) AGREE D WITH THE ASSESSEE THAT OFFICE/INFRASTRUCTURE AND OTHER FACILITIES OF HOLDI NG COMPANY WERE USED FOR THE PURPOSE OF ITS BUSINESS. THE LD. CIT(A) WA S CONVINCED THAT THE PAYMENT OF COMPENSATION CHARGES TO THE HOLDING COMP ANY WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ACC ORDINGLY DELETED THE ADDITION OF RS. 7,95,000/-. 8. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. TH E LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE FINDINGS OF THE AO RELIED UPON CERTAIN JUDICIAL DECISIONS. IT IS THE SAY OF THE LD. DR THAT BY INCURRING SUCH EXPENDITURE THE SOLE PURPOSE OF THE ASSESSEE WAS TO EVADE TAX BY INFLATING ITS EXPENDITURE. FOR THIS, THE LD . DR DREW SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF GAUHATI I N THE CASE OF ASSAM PESTICIDES & AGRO CHEMICALS VS CIT 227 ITR 846. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE ALSO HAVE THE BENEFIT OF THE COMPUTATION OF TOTAL INCOME OF THE HOLDING COMPANY M/S. PINNACLE FINANCIAL CONSULTANCY & INVESTMENT SERVICES PVT. LT D. FOR A.Y. 2006-07. A PERUSAL OF THE SAID COMPUTATION SHOWS THAT THE T OTAL INCOME COMPUTED BY THE HOLDING COMPANY FOR THE YEAR UNDER CONSIDERA TION IS AT RS. 84,09,900/-. THE RETURNED INCOME OF THE ASSESSEE I S AT RS. 11,99,832/-. BOTH THE ASSESSEE AND ITS HOLDING COMPANY COME WITH IN THE SAME TAX BRACKETS. WE, THEREFORE, FIND THAT THERE IS NO BEN EFIT TO THE ASSESSEE BY INFLATING ITS EXPENDITURE AND DIVERTING IT TOWARD S ITS HOLDING COMPANY AS BOTH PARTIES ARE SUBJECT TO SAME RATE OF TAX AND BO TH PARTIES ARE SHOWING POSITIVE INCOME. THE ENTIRE EXERCISE IS TAX NEUTRA L. CONSIDERING THESE ITA NO. 3505/M/2010 6 PECULIAR FACTS FOR THE YEAR UNDER CONSIDERATION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/02/2014 . +$8 5 - * $ 9 :+ ; 28.2.2014 5 < SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; :+ DATED 28.2.2014 . . ./ RJ , SR. PS +$8 +$8 +$8 +$8 5 55 5 26& 26& 26& 26& =$&-6 =$&-6 =$&-6 =$&-6 / COPY OF THE ORDER FORWARDED TO : 1. .1 / THE APPELLANT 2. 23.1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. &?< 26 , , / DR, ITAT, MUMBAI 6. < / GUARD FILE. +$8 +$8 +$8 +$8 / BY ORDER, 3&6 26 //TRUE COPY// ! !! ! / / / / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI