ITO, New Delhi V. M/s. Hi-tech Medisyst Pvt. Ltd., New Delhi

ITA 3790/DEL/2010

• Counselvise Citation: 379020114 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENU JHA VERI
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Business income; Diversion of income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE-PRESIDENT AN D SHRI RAJPAL YADAV :HONBLE JUDICIAL MEMBER ITA NO. 3790/DEL/2010 ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, VS. M/S. HI-TECH MEDISYST PVT .LTD., WARD 12(4), Q-21A, MODEL TOWN, NEW DELHI. NEW DELHI 1100 09 (PAN: AAACH8227M) (APPELLANT) (RESPONDENT) APPELLANT BY: SMT. RENU JHA VERI, SR.DR RESPONDENT BY: SHRI ASHWANI TAN EJA, ADV. DATE OF HEARING : 21.02.2012 DATE OF PRONOUNCEMENT : 29.02.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 09.03.2010 PASSED FOR ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF THE ITAT'S RULES, THEY ARE DESCRIPTIVE AND ARGUM ENTATIVE IN NATURE. IN BRIEF, ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE , WHEREBY IT IS IMPUGNING DELETION OF AN ADDITION OF RS.48,74,017. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN TRADING AND MARKETING OF MEDICAL /SURGICAL DISPOSABLE PRODUCTS. IT HAS FILED ITS RETURN OF INCOME ON 3.11 .2006 DECLARING AN INCOME 2 OF RS.4,60,629. ON SCRUTINY OF THE ACCOUNTS, IT REV EALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAS RECEIVED A COMMISSION OF RS.52,08,580 FROM ITS ASSOCIATED COMPANY M/S. STERIMED SURGICAL INDIA PVT . LTD. LEARNED ASSESSING OFFICER FORMED AN OPINION THAT SHRI SARAB DEEP SINGH IS THE COMMON DIRECTOR IN BOTH THE COMPANY. IT IS JUST A P ROFIT SHIFTING ENTRY FROM M/S. STERIMED SURGICAL INDIA PVT. LTD. TO THE ASSES SEE. THEREFORE, HE CONFRONTED THE ASSESSEE AS TO WHY THE EXPENSES CLAI MED BY IT FOR EARNING ALLEGED COMMISSION INCOME BE NOT DISALLOWED. IN RES PONSE TO THE QUERY OF ASSESSING OFFICER, THE ASSESSEE MADE FOLLOWING SUBM ISSIONS BEFORE THE ASSESSING OFFICER: 1. HI-TECH MEDISYST PVT. LTD. CO. IS WHICH IS HAVI NG AN AGREEMENT WITH M/S. STERIMED SURGICAL INDIA PVT. LT D. TO MARKET THE PRODUCTS BEING MANUFACTURED BY M/S. STER IMED SURGICAL INDIA PVT. LTD. I.E. MEDICAL PRODUCTS, IND USTRIAL TAPES & FIRST AID KITS. 2. THE ABOVE SAID ARRANGEMENT IS OPERATIVE SINCE IST A PRIL 1999. 3. HI-TECH MEDISYST PVT. LTD. IS TO GET COMMISSION @6% ON MEDICAL PRODUCTS & INDUSTRIAL TAPE AND COMMISSION O F RS.0.75 TO 2.75 PER PIECE ON FIRST AID KIT, ON THE TOTAL SALES AFTER NETTING OF SALES RETURNS EXECUTED BY M/S. STE RIMED SURGICAL INDIA PVT. LTD., THE ORDERS FOR WHICH ARE BEING PROCURED BY HI-TECH MEDISYST PVT. LTD. 3 4. IN ADDITION TO THE PROCUREMENT OF ORDERS, HI-TECH M EDISYST PVT. LTD. IS TO RENDERED OTHER SERVICES ALSO. THE DETAIL OF WHICH HAS ALREADY BEEN PROVIDED TO YOUR GOOD SELF AND IS ON R ECORD. 5. CALCULATION OF TOTAL COMMISSION ALONG WITH THE WORK ING PAPERS HAS ALSO BEEN FILED TO YOUR GOOD SELF AND IS ON REC ORD. 6. NO MARKETING EXPENSES EXCEPT COMMISSION ON SALES HA S BEEN INCURRED AND BOOKED BY M/S. STERIMED SURGICAL INDIA PVT. LTD. I.E. IT CLEARLY SUBSTANTIATE THAT THE MARKETING OF THE PRODUCTS WERE OUTSOURCED TO HI-TECH MEDISYST PVT. LTD. 7. ONE OUT OF FOUR DIRECTORS, MR. SARABDEEP SINGH, IS THE COMMON DIRECTOR & HAVE ONLY 17% STAKE IN M/S. STERIMED SUR GICAL INDIA PVT. LTD. WHICH IS NEITHER CONTROLLING (MORE THAN 5 1%) NOR SUBSTANTIAL (MORE THAN 20%) SHAREHOLDING I.E. HE IS NOT ABLE TO AFFECT OR INFLUENCE THE POLICIES OF THE THAT COMPAN Y IN ITS MUTUAL DEALING. BOTH THE COMPANIES HAVE INDEPENDENT INFRAS TRUCTURE IN TERMS OF OFFICE, STAFF AND OTHER RESOURCES I.E. BOT H THE COMPANIES ARE TWO SEPARATE, INDEPENDENT & DISTINCT LEGAL ENTI TIES. 3. LEARNED ASSESSING OFFICER HAS REJECTED THE SUBMI SSIONS OF ASSESSEE AND MADE AN ADDITION OF RS.48,74,017. THE BRIEF FIN DING RECORDED BY THE ASSESSING OFFICER READS AS UNDER: THE SUBMISSION AND CONTENTIONS OF THE ASSESSEE THA T ASSESSEE IS FOLLOWING CONSISTENCY IN DECLARING INCOME IN VIEW O F THE AGREEMENT OF YEAR 1999 IS FOUND INCORRECT AS NO ASSESSMENT U/S. 143(3) HAS BEEN COMPLETED IN THE EARLIER YEARS. SINCE 1999 WHEREBY THIS ISSUE OF 4 DIVERSION OF PROFIT HAS BEEN EXAMINED IN DETAIL. FU RTHER, IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE COMPANY RECEIVED COMM ISSION ITS OWN ASSOCIATED COMPANY WHEREIN ONE OF THE DIRECTOR IS H AVE BEEN SUBSTANTIAL SHARE HOLDING. IN VIEW OF THESE CIRCUMS TANCES, IT IS CLEAR THAT THIS IS THE FIT CASE OF DIVERSION OF INCOME AN D THEREFORE THE EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS.48 ,74,017 ARE DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE . 4. DISSATISFIED WITH THE ADDITION, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS). LEARNED FIRST APPE LLATE AUTHORITY HAS NOTICED IN BRIEF THE SUBMISSIONS MADE BY THE ASSESS EE WHICH READ AS UNDER: * THAT IT WAS NOT A CASE OF DIVERSION OF INCOME BE CAUSE THE APPELLANT IS RECIPIENT COMPANY WHICH HAS RECEIVED C OMMISSION OF RS.52,08,589. A DIVERSION OF INCOME PRESUPPOSES INCURRING OF EXPENSES INSTEAD THE APPELLANT COMPANY HAS RECEI VED THE COMMISSION. THAT THE COMMISSION WAS RECEIVED FROM A COMPANY M/S . STERIMED SURGICAL INDIA PVT. LTD. (SSIPL) BUT THE SAID COMPA NY IS NEITHER CONTROLLING (MORE THAN 51%) NOR SUBSTANTIAL (MORE T HAN 20% OF VOTING RIGHT) SHARE HOLDING. THE ONLY COMMON DIRECT OR MR. SARABDEEP SINGH HELD 17% STAKE IN THE COMPANY PAID THE COMMISSION. IN THE APPELLANT COMPANY, THE SAID COMM ON DIRECTOR HELD 25% SHARE. SECTION 2(32) OF THE I.T. ACT STATES THAT IF A PERS ON WHO IS BENEFICIARY OWNER OF SHARE, NOT BEING SHARES ENTITL ED TO A FIXED RATE 5 OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PART ICIPATE IN PROFITS, CARRYING NOT LESS THAN 20% OF VOTING POWER MAY BE T URNED AS A PERSON HAVING SUBSTANTIAL INTEREST IN THE COMPANY. AS HE HELD 17% OF STAKE IN SSIPL, HE WILL NOT COME WITHIN THE MISC HIEF OF THE PROVISION. M/S. SSIPL HAS DEDUCTED TDS AT THE SPECIFIED RATE B EFORE MAKING PAYMENT TO THE APPELLANT COMPANY AND THE APPELLANT HAS ALSO CLAIMED SUCH TDS OF RS.3,18,038 IN ITS RETURN OF IN COME FOR THE RELEVANT PERIOD M/S. SSIPL HAS FILED QUARTERLY TDS RETURN IN 26Q IN THE RELEVANT PERIOD AGAINST TAN- DELS12194A. THE APPELLANT CHARGED SERVICE TAX AT THE SPECIFIED RATE TO SSIPL WHILE DRAWING THE BILL ON THE CLIENT. IN THE ORDER U/S. 115WE(3) FOR THE SAME ASSESSMENT YEAR 06-07 THE SAME LEARNED A.O. HAS ACCEPTED THE FBT RETURN OF TH E APPELLANT VIDE HIS ORDER DATED NIL. THE A.O HAS ACCEPTED THE WRITTEN VALUE OF FB AT RS.2,32,362. WHEN HE HAS ACCEPTED THE SAME TH ERE, THERE IS LITTLE GROUND FOR DISALLOWING THE SAME THING IN HIS 143(3) ORDER DATED 28.1.08. 5. LEARNED CIT(APPEALS) ON AN ANALYSIS OF THE SUBMI SSIONS MADE BY THE ASSESSEE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 6. LEARNED DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND POINTED OUT ASSESSEE FAILED TO DEMONSTRATE NATURE O F SERVICE RENDERED BY IT TO M/S. STERIMED SURGICAL INDIA PVT. LTD., THEREFORE, ASSESSING OFFICER HAS 6 RIGHTLY HARBORED A BELIEF THAT IT HAS JUST RECEIVED A COMMISSION INCOME FOR THE SAKE OF INCOME. IT HAS NOT INCURRED ANY EXPENSE S AND ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPENSES. ON THE OTHER H AND, LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS PAGE 5 OF T HE PAPER BOOK WHEREIN ASSESSEE HAS PLACED ON RECORD THE DETAILS IN TABULA R FORM EXHIBITING THE TURNOVER OF M/S. STERIMED SURGICAL INDIA PVT. LTD. AS WELL AS COMMISSION PAID TO THE ASSESSEE STARTING FROM ASSESSMENT YEAR 2000-01 UP TO 2009-10. HE POINTED OUT THAT IN EVERY YEAR A SUBSTANTIAL AMO UNT OF COMMISSION WAS PAID. IT WAS NEVER DOUBTED BY THE ASSESSING OFFICER . HE FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2008-09, A COMMISSION OF RS .40,28,886 WAS PAID TO THE ASSESSEE. ASSESSING OFFICER HAS PASSED A SCRUTI NY ASSESSMENT UNDER SEC. 143(3) IN THE CASE OF ASSESSEE AND HE DID NOT DISAL LOW ANY EXPENSES ON THE SERVICES PERFORMED BY THE ASSESSEE. HE FURTHER POIN TED OUT THAT THERE IS AN AGREEMENT BETWEEN ASSESSEE AND M/S. STERIMED SURGIC AL INDIA PVT. LTD. M/S. STERIMED SURGICAL INDIA PVT. LTD. HAS NO SALES/MARK ETING STAFF. THE ASSESSEE IS PERFORMING THAT ACTIVITY. HE DREW OUR ATTENTION TOWARDS THE ALLEGED MEMORANDUM OF ASSOCIATION AVAILABLE AT PAGES 13 AND 14 OF THE PAPER BOOK. HE FURTHER POINTED OUT THAT IN THE CASE OF M/S. STE RIMED SURGICAL INDIA PVT. LTD., NO DISALLOWANCE WAS MADE ON ACCOUNT OF ALLEGE D COMMISSION PAYMENT. IN OTHER WORDS, ACCORDING TO THE STATEMENT MADE BY THE LEARNED COUNSEL FOR 7 THE ASSESSEE AT THE BAR, THE COMMISSION PAYMENT HAS BEEN ALLOWED AS A DEDUCTION IN THE HANDS OF THE M/S. STERIMED SURGICA L INDIA PVT. LTD. HE ALSO POINTED OUT THAT EXPENSES ON ACCOUNT OF MARKETING A ND TRADING WERE NOT CLAIMED BY M/S. STERIMED SURGICAL INDIA PVT. LTD. T HAT CONCERN HAS ONLY CLAIMED THE COMMISSION PAYMENT. HE RELIED UPON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LEARNED ASSESSING OFFICER A S WELL AS LEARNED CIT(APPEALS). 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS CONTENDED BEFORE THE ASSESSING OFFICER THAT IT IS GETTING COMMISSION AS PER THE MEMORANDUM OF UNDERSTANDING. THE COMMISSION HAS BEEN QUANTIFIED @ 6% OF SALES ON MED ICAL PRODUCTS AND INDUSTRIAL TAPE. AS FAR AS THE FIRST AID KIT IS CO NCERNED, THE COMMISSION IS IN BETWEEN 75 PAISE TO RS.2.75 PER PIECE. IN THE FINDI NG EXTRACTED SUPRA, IT IS NOT DISCERNIBLE ON WHAT BASIS, LEARNED ASSESSING OF FICER HAS FORMED AN OPINION THAT IT IS A DIVERSION OF PROFIT BY M/S. ST ERIMED SURGICAL INDIA PVT. LTD. HE ONLY OBSERVED THAT NO ASSESSMENT UNDER SEC . 143(3) HAS BEEN MADE IN THE CASE OF M/S. STERIMED SURGICAL INDIA PVT. LT D. OR IN THE CASE OF THE ASSESSEE BUT THAT DOES NOT EMPOWER HIM TO ARRIVE AT A CONCLUSION THAT IT IS A DIVERSION OF PROFIT BY M/S. STERIMED SURGICAL INDIA PVT. LTD. WITHOUT 8 REFERRING TO ANY EVIDENCE OR WITHOUT POINTING OUT D EFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. LEARNED ASSESSING OFFICER OBSERVED THAT IN VIEW OF THE CIRCUMSTANCE, BUT HE HAS NOT NARRATED WHAT WERE THOSE CIRCUMSTANCES. THEREFORE, TAKING INTO CONSIDERATION, THE ORDER OF THE LEARNED CIT(APPEALS) AND THE STATEMENT MADE BY THE LEARNED COUNSEL FOR T HE ASSESSEE THAT NO DISALLOWANCE WAS MADE IN THE HANDS OF M/S. STERIMED SURGICAL INDIA PVT. LTD. OUT OF THE ALLEGED COMMISSION PAYMENT. WE DO N OT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(APPEALS). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 29.02.2012 SD/- SD/- ( G.D. AGRAWAL ) ( R AJPAL YADAV ) VICE-PRESIDENT JUDICI AL MEMBER DATED: 29/02/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR