M/s. JAJOO SURGICALS P. LTD., Indore V. The ACIT Cir. 2(1), Indore

ITA 394/IND/2014

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6648 (ITAT-INDORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2014
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA NO.394/IND/2014 ASSESSMENT YEAR: 2009-10 M/S JAJOO SURGICALS P. LTD., 401, RAKDHAKRISHNA COMPLEX,10/1, MANORAMAGANJ, INDORE / VS. ACIT 2(1) INDORE ( APPELLANT ) ( RE VENUE) PAN: AAACJ7196B APPELLANT BY SHRI KAILASH AGRAWAL & PRAKASH GUPTA , CAS REVENUE BY SHRI V.J. BORICH A SR. DR DATE OF HEARING: 29.04.2019 DATE OF PRONOUNCEMENT: 07.05.2019 / O R D E R PER MANISH BORAD, A.M: THIS APPEAL AT THE INSTANCE OF ASSESSEE PERTAINING TO A.Y. 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-I, INDORE, (IN S HORT CIT(A)), DATED 26.02.2014 WHICH IS ARISING OUT OF T HE ORDER JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 2 U/S 143(3) OF THE INCOME TAX ACT 1961(HEREINAFTER CAL LED AS THE ACT) FRAMED ON 22.12.2011 BY ACIT,2(1) INDORE. 2. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED CO. ENGAGED IN MANUFACTURING & TRADING OF ABSORBENT COTTON & GAUGE AND TRADING IN MEDICINES. INCOME OF RS.1698170/- DECLARED IN THE E-RETURN OF INCOME FILED ON 30.09.20 09 FOR A.Y. 2009-10. CASE SELECTED FOR SCRUTINY THROUGH COM PUTER ASSISTED SCRUTINY SELECTION (CASS). NOTICES U/S 143 (2) & 142(1) OF THE ACT WERE DULY SERVED UPON THE ASSESSEE . FINANCIAL STATEMENT AND BOOKS OF ACCOUNTS WERE EXAMINED. LEARNED ASSESSING OFFICER (IN SHORT LD. AO) CALLED FO R INFORMATION RELATING TO CLAIM OF EXPENSES INCLUDING COMMISSION EXPENSES OF RS.48,19,026/-. DETAILS WERE FILED BY THE ASSESSEE. LD. AO COMPLETED THE ASSESSMENT AFTER MAKING VARIOUS ADDITIONS INCLUDING DISALLOWANCE OF INTER EST EXPENSES OF RS.74,098/- AND DISALLOWANCE OF COMMISSION EXPENSES OF RS.36,73,850/- THEREBY ASSESSING THE INC OME AT RS.58,06,003/-. 3. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE TH E LD. CIT(A) AND PARTLY SUCCEEDED. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 3 5. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE REQUES TED FOR NOT PRESSING GROUND NO.1 RELATING TO DISALLOWANCE OF RS.2,89,786/- FOR PRIOR PERIOD EXPENSES. 6. LD. COUNSEL FOR THE ASSESSEE WITH REGARD TO DISALLO WANCE OF INTEREST OF RS.74,098/- SUBMITTED THAT THE ASSESSE E HAD SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS WHICH WAS USED TO PROVIDE INTE REST FREE LOANS AND ADVANCES. FURTHER WITH REGARD TO THE DISALLOWANCE OF COMMISSION EXPENSES PARTLY SUSTAINED BY THE LD. CIT(A). LD. COUNSEL FOR THE ASSESSEE WHILE R EFERRING TO THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND VAR IOUS DETAILS FILED IN THE PAPER BOOK SUBMITTED THAT THE SALE S OF THE ASSESSEE HAS ALMOST DOUBLED DURING THE YEAR. ALL SUPPORTING EVIDENCES TO EXPLAIN GENUINENESS OF COMMI SSION EXPENSES HAS BEEN FILED. THE ALLEGED COMMISSION EXPEN SES HAVE BEEN SHOWN AS INCOME BY THE COMMISSION AGENTS AND TAX HAVE DULY BEEN PAID. HE ALSO REFERRED TO THE RESPE CTIVE FINDING OF THE ASSESSING OFFICER AND LD. CIT(A) WHERE IN THEY HAVE PARTLY ACCEPTED THE COMMISSION EXPENDITURE WHICH ITSELF PROVE THAT GENUINENESS IS NOT DOUBTED. 7.PER CONTRA LD. DR VEHEMENTLY ARGUED SUPPORTING THE ORDER OF BOTH THE LOWER AUTHORITIES. JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 4 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US AND GONE THROUGH THE DETAILS FILED IN THE PAPER BOOK SUBMITTED BY THE ASSESSEE. 9. GROUND NO.1: DISALLOWANCE MADE AT RS.2,89,786/- BY TREATING TH E SAME AS RELATED TO EARLIER YEARS, WHEREAS THE SAME ARE ALLOWABLE DURING THE YEAR IN QUESTION AND HENCE, IT IS PRAYED THAT THE AMOUNT MAY KINDLY BE DIRECTED TO BE ALLOWED AS CLAIMED. 10. AS LD. COUNSEL FOR THE ASSESSEE HAS REQUESTED FOR NOT PRESSING THIS GROUND, THEREFORE, GROUND NO.1 IS DIS MISSED AS NOT PRESSED. 11. GROUND NO.2. II. DISALLOWANCE MADE AT RS.74,098/- ON ACCOUNT OF NOTIONAL INTEREST DISALLOWED ON ADVANCES GRANTED AT RS.5,48,877/- WHEREAS NOTHING IS LIABLE TO BE DISAL LOWED AND HENCE IT IS PRAYED THAT THE DISALLOWANCE SO MAD E MAY KINDLY BE DIRECTED TO BE ALLOWED. 12. AS REGARDS THE DISALLOWANCE OF INTEREST AT RS.74,09 8/- NOTIONAL INTEREST WAS COMPUTED BY THE LD. AO ON THE INTEREST FREE LOANS AND ADVANCES OF RS.5,48,877/- GIV EN TO 5 RELATED PARTIES. THERE WERE ALSO LOANS TAKEN BY THE ASSESSEE ON WHICH INTEREST @13.5% WAS PAID. FROM PERU SAL OF THE AUDITED BALANCE SHEET WE FIND THAT AT YEAR END SHAR E CAPITAL ISAT RS. 36,60,000/- AND ACCUMULATED RESERVE AND SURPLUS STOOD AT RS.60,61,737/- WHICH IN TOTAL MAKES JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 5 INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AT RS.94,21,737/-. 13. LD. ASSESSING OFFICER OBJECTED FOR THE INTEREST FREE LOANS OF RS.5,48,877/-. THERE IS NO SPECIFIC FINDING OF T HE LD. ASSESSING OFFICER WHICH COULD PROVE THAT INTEREST BEAR ING FUNDS WERE DIRECTLY USED TO PAY TO THE RELATED PARTI ES AS INTEREST FREE LOANS AND ADVANCE. 14. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCE S OF THE CASE AND ON OBSERVING THAT SUFFICIENT INTEREST FRE E FUNDS OF RS.94,21,737/- WERE AVAILABLE WITH THE ASSESSEE WHIC H WERE SUFFICIENT ENOUGH TO COVER UP THE INTEREST FRE E ADVANCES OF RS.5,48,877/- GIVEN TO THE RELATED PARTIES, IN OUR VIEW BOTH THE LOWER AUTHORITIES ERRED IN CONFIRM ING THE DISALLOWANCES OF INTEREST OF RS.74,098/- AND THE SAME DESERVES TO BE DELETED. WE ACCORDINGLY ORDER SO AND AL LOW THE ASSESSEES GROUND NO.2 15. NOW WE TAKE GROUND NO.3 WHICH READS AS UNDER: III. DISALLOWANCE MADE AT RS.14,45,707/- OUT OF TOT AL DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER AT RS.36,73,850/- BEING THE AMOUNT OF COMMISSION PAID, WHEREAS THE SAID COMMISSION IS PAID FOR THE PURPOSE OF BUSI NESS OF THE PETITIONER AND ALLOWABLE AND HENCE, IT IS PRAYED TH AT THE DISALLOWANCE SO MAINTAINED AT RS.14,45,707/- MAY KI NDLY BE DIRECTED TO BE ALLOWED. JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 6 16. PERUSAL OF RECORDS SHOW THAT COMMISSION EXPENSES OF RS. 48,19,026/- WAS PAID TO 16 PARTIES DURING THE YEAR . TURNOVER OF THE ASSESSEE INCREASED TO RS.6,73,60,694 /- IN COMPARISON TO THE TURNOVER OF IMMEDIATELY PRECEDING FINANCIAL YEAR AT RS.3,02,59,687/-, WHICH MEANS THAT THE TURNOVER HAS ALMOST DOUBLED WHEREAS THE COMMISSION EXPENDITURE WHICH WAS AT RS.56,736/- IN THE PRECEDING FINANCIAL YEAR INCREASED TO RS.4819026/- WHICH ALMOST INCREASED BY 85 TIMES. LD. AO CATEGORIZED COMMISSION EXPENDITURE INTO THREE CATEGORIES: PARTICULARS AMOUNT I. NO DETAILS MADE AVAILABLE BY THE ASSESSEE ABOUT THE NATURE AND SERVICES RENDERED RS.17 ,13,766/- II. IDENTITY AND CONFIRMATION FILED BUT DETAILS OF SERVICES NOT PROVIDED RS.7,13, 888/- III. 50% OF COMMISSION EXPENSES OF RS.24,92,372/- DISALLOWED BEING EXCESSIVE R S.12,46,186/- TOTAL :RS.36,73,840/- 17. WHEN THE ISSUE CAME UP BEFORE THE LD. CIT(A), HE SUSTAINED THE ADDITION AT RS.14,45,707/- BY MAKING AD HOC DISALLOWANCE OF 30% OF THE TOTAL COMMISSION EXPENSES O F RS.48,19,026/- OBSERVING AS FOLLOWS: JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 7 GROUND NO.4 OF APPEAL IS AGAINST DISALLOWANCE OF CL AIM OF COMMISSION EXPENSES OF RS.36,73,850/-. THE AO HA S DISALLOWED SUCH COMMISSION FOR VARIOUS REASONS. THE FACTS OF THE CASE ARE THAT THE TURNOVER OF APPELLAN T HAS INCREASE FROM RS.3.02 CRORE LAST YEAR TO RS.6.73 CR ORE THIS YEAR AND APPELLANT HAS CLAIMED COMMISSION EXPENSES OF RS.48,19,026/- IN THIS YEAR, WHICHW AS NEGLIGIBLE LAST YEAR. THE AO HAS ADMITTED IN HIS OR DER REPRODUCED IN PARA 8.8 OF THIS ORDER THAT BUSINESS OF ASSESSEE OF SALE OF MEDICAL PRODUCTS IS SUCH THAT F OR PROCUREMENT OF ORDERS AND FOR SUPPLY OF MATERIAL AG ENTS ARE REQUIRED. THIS IS ALSO SUPPORTED BY DECISIONS I N CASES OF BHARAT MEDICAL STOR (P&H) 185 TAXMANN 54, LAXMIENGG. IND. (RAJASTHAN HIGH COURT) 298 ITR 203, AND MICROTAX SEPARATORS LTD. (KAR.) 209 CTR 62. 8.1. NOW WE DISCUSS SPECIFIC CASES OF COMMISSION AGENTS AND THOSE THREE CATEGORIES IN WHICH AO HAS DIVIDED ALL 16 COMMISSION AGENTS. VARIOUS SHORTCOMI NGS WHICH NEED MENTIONED ARE THAT WHEN AO WROTE ENQUIRY LETTERS TO MANY OF THESE COMMISSION GENTS, NO REPLY WAS RECEIVED FROM FAIRDEAL ENTERPRISE AND JAVED KHAN. DETAILS OF EDUCATIONAL QUALIFICATION AND COMPETENCE TO CONDUCT SUCH BUSINESS WAS NOT GIVEN. NONE OF THE AGENTS WAS PRODUCED BEFORE AO, DESPITE BEING SPECIFICALLY ASKED. THE REASON FOR GIVING COMMISSIO N TO A FINANCE COMPANY NAMELY M/S ASCENT LEASING AND FINANCE CO. LTD. WAS NOT EXPLAINED. APPELLANT COULD NOT EVEN PROVIDE ADDRESS OF ONE OF THE COMMISSION AGENT S NAMELY SHRISHRIRISH KOTHARI. AN AMOUNT OF COMMISSIO N EXPENSE OF RS.1,01,000/- WAS DEBITED WITHOUT EVEN MENTIONING ANY NAME OF COMMISSION AGENT. APPELLANT COMPLETELY FAILED TO EXPLAIN HUGE DIFFERENCE IN RAT E OF COMMISSION PAID FROM 2% IN CASE OF SYNERGY INTERNATIONAL TO AS HIGH AS 15% IN CASE OF SEEMAJAT AV, JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 8 ASCENT LEASING & FINANCE CO. LTD. AND JAMMA DEVI SANGHVI AND ALSO FAILED TO EXPLAIN AS TO WHAT SPECI AL AND EXTRA SERVICES WERE RENDERED BY THOSE COMMISSIO N AGENTS, TO WHOM HIGHER RATE OF COMMISSION IS PAID. THEREFORE DISALLOWANCE OF A PART OF COMMISSION EXPENSES IS FULLY JUSTIFIED. 8.2 HOWEVER, IN MEDICAL APPLIANCES BUSINESS SERVICE S OF AGENTS PRIOR TO ALLOTMENT OF TENDER FOR SUBMITTING DOCUMENTS AND SUBSEQUENTLY FOR SUPPLY OF ORDER AND GETTING PAYMENT FROM CLIENTS INCLUDING GOVERNMENT, IS NOT ESTABLISHED NORM AS HELD IN CASE OF BHARAT MEDI CAL STORE (SUPRA). THIS IS ALSO A FACT THAT TURNOVER OF APPELLANT HAS JUST DOUBTED FROM LAST YEAR. APPELLAN T HAS ALSO TRIED HIS LEVEL BEST TO FURNISH REQUISITE INFORMATION TO THE EXTENT POSSIBLE ABOUT SUCH COMMISSION AGENTS IN FORM OF THEIR CONFIRMATION LET TER, NATURE OF THEIR WORK, COPY OF THEIR RETURN OF INCOM E SHOWING SUCH COMMISSION INCOME ETC. 8.3 CONSIDERING THE SUBMISSIONS OF APPELLANT AS WEL L AS VARIOUS UNEXPLAINED ISSUES RELATED TO COMMISSION AGENTS AS DISCUSSED IN PARA 8.1, AS DISALLOWANCE OF 30% OF THE COMMISSION EXPENSES CLAIMED I.E. RS.14,45,707/- (30% OF RS.48,19,026/-) WILL SERVE T HE END OF JUSTICE. AS A RESULT OUT OF COMMISSION DISALLOWANCE MADE BY AO OF RS.36,73,850/-, AS DISALLOWANCE OF RS.14,45,707/- IS CONFIRMED AND APPELLANT GETS A RELIEF OF RS. 22,28,142/-. AS A RE SULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 18. ON PERUSAL OF THE ABOVE FINDING OF LD. CIT(A) AS W ELL AS IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND DOCUMENTARY EVIDENCES PLACES ON RECORD, WE OBSERVE TH AT JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 9 AS REGARDS THE DISALLOWANCE OF COMMISSION @ 50% OF RS.24,92,372/- MADE BY THE LD. AO THERE IS NO SPECIF IC FINDING BY LD. AO ABOUT QUESTIONING THE GENUINENESS OF THE EXPENDITURE AND AS LD. AO HAS HIMSELF ALLOWED 50% OF THE COMMISSION EXPENSES. IDENTITY PROOF AND DETAILS INCLU DING CONFIRMATION AND INCOME TAX RETURN SUBMITTED. LD. AO ALSO ACCEPTED THAT FOR PROCUREMENT OF ORDERS SERVICES OF AGENTS IS REQUIRED BUT ON THE OTHER HAND, HE QUESTIONED THE QUANTUM OF THE COMMISSION PAID BEING EXCESSIVE. 19. IN OUR CONSIDERED VIEW THE FINDING OF THE LD. A O IS NOT SPECIFIC AND SEEMS TO BE HALF HEARTED BEFORE MAKING DISALLOWANCE. WHEN THE ASSESSEE HAS PLACED NECESSARY DETAILS AND GENUINENESS OF THE COMMISSION EXPENDITURE AT RS. 24,92,372/- HAS NOT BEEN DOUBTED THEN IN SUCH CIRCUMSTANCES NO DISALLOWANCE WAS CALLED FOR. WE, THEREFORE, SET ASIDE THE FINDING OF LD. CIT(A) AND DE LETE THE DISALLOWANCE OF COMMISSION OF RS. 12,48,186/- MADE BY THE AO. 20. AS REGARDS THE COMMISSION EXPENSE OF RS. 7,13,88 8/- DISALLOWED BY THE LD. AO WE FIND THAT THE ASSESSEE FIL ED IDENTITY PROOF AND CONFIRMATION OF ACCOUNT FOR THE THR EE PARTIES, INCOME TAX RETURNS HAVE ALSO BEEN FILED AND TH E JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 10 COMMISSION INCOME HAS BEEN DULY OFFERED TO TAX. NO SPECIFIC INQUIRY HAS BEEN MADE BY THE AO TO THE CONCER NED PARTIES TO VERIFY THE GENUINENESS OF CLAIM. IN THESE GIVEN FACTS NO DISALLOWANCE OF COMMISSION WAS CALLED FOR. WE ACCORDINGLY SET ASIDE THE FINDING OF LD. CIT(A) AND DE LETE THE DISALLOWANCE OF COMMISSION EXPENSES MADE BY THE A O AT RS.7,13,888/-. 21. NOW COMING TO THE THIRD CATEGORY OF DISALLOWANCE O F RS.17,13,766/- WHICH IS CLAIMED TO HAVE BEEN PAID TO FOLLOWING SIX PARTIES: I. SEEMAJATAV RS.2,96,728/- II. FAIRDEAL ENTERPRISES RS.6,38,188/- III. NINE FORE RS. 3,77,850/- IV. SHRISH KOTHARI RS.1,00,000/- V. JAVED KHAN RS.2,00,000/- VI. MISC. COMMISSION RS.1,01,000/- RS. 17,13,766/- IN RESPECT OF THE ABOVE PARTIES IN THE CASE OF SEEMA JAT AV, FAIRDEAL ENTERPRISES, NINE FORE THE LD. AO ISSUED NOT ICE U/S 133(6) OF THE ACT BUT SATISFACTORY REPLY WAS NOT RECEIVED. IN SOME CASES NOTICE U/S 133(6) COULD NOT BE SERVED. IN THE CASE OF MISC. COMMISSION EXPENSES OF RS.1,01,000/- , NO DETAILS WERE FILED. RATES OF COMMI SSION ALSO VARIED FROM 2% TO 15 % BUT NO PROPER EXPLANATION W AS GIVEN. JAJOO SURGICALS P. LTD. ITANO.394/IND/2014 11 22. IN THESE GIVEN FACTS AND CIRCUMSTANCES WHERE THE ASSESSEE IS UNABLE TO SATISFY THE LOWER AUTHORITIES ABOU T COMMISSION EXPENDITURE CLAIMED, WE FIND NO REASON TO INTERFERE IN THE WELL REASONED FINDING OF THE LD. CI T(A) DISALLOWING THE COMMISSION EXPENDITURE OF RS. 5, 14, 133/- COMPUTED @ OF 30% OF THE COMMISSION EXPENDITURE OF RS.17,13,776/-. 23. WE, THEREFORE, IN VIEW OF OUR ABOVE FINDING SUST AIN THE DISALLOWANCE OF COMMISSION EXPENSES OF RS.5,14,133/- AS AGAINST COMMISSION DISALLOWANCE OF RS.14,45,707/- SUSTAINED BY THE LD. CIT(A). ACCORDINGLY GROUND NO.3 OF THE ASESSESSES APPEAL IS PARTLY ALLOWED. 24 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 07 .05.2 019. SD/- (KUL BHARAT) SD/- (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER INDORE; DATED :07/05/2019 CTX? P.S/. . . COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUAR D FILE. BY ORDER ASSISTANT REGISTRAR