Ajay Verma, Delhi V. ITO, New Delhi

ITA 3950/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3774 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Assessment Year: 2012-2013
• Appeal Filed On: 06-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; TDS
• Section: 143(3); 133(6); 37(1); 201; 80IC; 80IC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 3950/DEL/2016 :ASSTT. YEAR : 201 2-13 AJAY VERMA, A-75, 1 ST FLOOR, PREET VIHAR, DELHI-110092 VS INCOME TAX OFFICER, WARD-59(3), NEW DELHI (APPELLANT (RESPONDENT) PAN NO. AADPV0772H ASSESSEE BY : NONE REVENUE BY : SH. RAJESH KUMAR, SR. DR DATE OF HEARING: 20.02.2020 DATE OF PRONOUNCEMENT: 03.03.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE LD. CIT(A)-19, NEW DELHI DATED 25 .04.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THE LEARNED AUTHORITIES BELOW HAVE ERRED IN LAW AS WELL AS IN FACTS IS DISALLOWING THE DEDUCTION OF RS.55,67,846/- CLAIMED BY THE ASSESSEE U/S 80IC OF THE INCOME TAX ACT, 1961. 2. THE LEARNED AUTHORITIES BELOW HAVE FURTHER ERRED IN LAW AS WELL AS IN FACTS IN MAKING ADDITIONS OF RS.28,67,000/- IN THE DECLARED INCOME OF ASSESSEE O N ACCOUNT OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE, WHICH WERE INCURRED IN THE NORMAL COURSE OF HIS BUSINESS ACTIVITIES. ITA NO. 3950/DEL/2016 AJAY VERMA 2 3. IN THIS CASE RETURN WAS E-FILED BY THE ASSESSEE ON 14/07/2012 DECLARING TOTAL INCOME OF RS. 12,150/- I N WHICH THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 W AS COMPLETED AT TOTAL INCOME OF RS. 84,47,000/- AFTER DISALLOWING DEDUCTION U/S 80IC AND COMMISSION PAID BY THE ASSES SEE. 4. BEFORE US THE ASSESSEE FILED APPEAL AGAINST CONF IRMATION OF THE DISALLOWANCE U/S 80IC AS WELL AS BUSINESS PROMO TION EXPENSES. 5. NONE APPEARED ON THE DESIGNATED DATE OF HEARING. HENCE, THE ADJUDICATION IS BEING COMPLETED BY EXAMINING TH E FACTS ON RECORD AND TAKING INTO CONSIDERATION THE ORDERS OF THE AUTHORITIES BELOW. 6. GROUND NO. 1 IS IN RESPECT OF DISALLOWANCE OF DE DUCTION U/S 80IC. 7. THE OBSERVATIONS OF THE ASSESSING OFFICER ARE AS UNDER: A. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF PESTICIDES WHICH IS PROHIBITED ITEM AS PER THE S CHEDULE XIII OF THE I.T. ACT B. THE FORM 10CCB AND 3CD INITIALLY MENTIONED THE N ATURE OF ACTIVITY AS TRADING AND SUBSEQUENTLY CHANGED TO MAN UFACTURING. BEFORE THE LD. CIT (A), THE ASSESSEE IN SUPPORT OF HIS CLAIM THAT HE IS MANUFACTURING BIO-PESTICIDES NOT PESTICIDES, SUBMITTED THE FOLLOWING CERTIFICATES: ITA NO. 3950/DEL/2016 AJAY VERMA 3 (I) CERTIFICATE FROM STATE INFRASTRUCTURE & INDUS TRIAL DEVELOPMENT CORPORATION OF UTTARAKHAND LTD. (SIDCUL ) VIDE DATED 17TH AUGUST, 2010. (II) APPROVAL CUM REGISTRATION LETTER FROM UTTARANC HAL STATE ORGANIC CERTIFICATION AGENCY (USOCA). (III) CERTIFICATE FROM UTTARAKHAND ENVIRONMENT PROT ECTION & POLLUTION CONTROL BOARD FOR MANUFACTURING BIO-PESTI CIDES AND BIO- FERTILIZERS. (IV) CERTIFICATE FOR SSI REGISTRATION FOR MANUFACTU RING BIO- PESTICIDES AND BIO-FERTILIZERS. (V) COPY OF LETTER FROM WHOM ASSESSEE HAS PURCHASED THE TECHNOLOGY FROM PROFESSOR AND HEAD DEPT, OF PLANT P ATHOLOGY TAMIL NADU AGRICULTURAL UNIVERSITY COIMBATORE. (VI) COPY OF LICENSE TO MANUFACTURE BIO-PESTICIDES FROM DEPARTMENT OF AGRICULTURE UTTARAKHAND UNDER PLANT P ROTECTION CENTRE VIDE LETTER DATED 12TH MAY, 2010. (VII) AUDIT REPORT FROM ASSISTANT COMMISSIONER (AUD IT) UNDER CUSTOMS & CENTRAL EXCISE COMMISSIONRATE MEERUT IN W HICH IT IS MENTIONED THAT ASSESSEE IS ENGAGED IN THE MANUFACTU RING OF BIO- PESTICIDES. 8. THE LD. CIT (A) HELD THAT THE ENTRY NO. 15 OF TH E PART B OF SCHEDULE XIII INCLUDES INSECTICIDES, FUNGICIDES, H ERBICIDES AND PESTICIDES AND SINCE THE ASSESSEE WAS MANUFACTURIN G THE ARTICLE WHICH IS MENTIONED IN THE PROHIBITED LIST, HE WAS NOT ENTITLED FOR DEDUCTION U/S 80IC. 9. THE LD. CIT (A) HAS GONE THROUGH ALL THE CERTIFI CATES PRODUCED BY THE ASSESSEE AND EXAMINED WITH RELEVANC E TO THE DEDUCTION U/S 80IC AND PRODUCT MANUFACTURED. THE OB SERVATIONS OF THE LD. CIT (A) ARE AS UNDER: I HAVE GONE THROUGH THE VARIOUS CERTIFICATE ISSUED TO HIM. THE FIRST CERTIFICATE ISSUED TO HIM BY THE STATE INFRASTRUCTURE & INDUSTRIAL DEVELOPMENT CORPORATION OF UTTARAKHAND LTD. DATED 17/08/2010. THIS CERTIFICATE SHOWS ITA NO. 3950/DEL/2016 AJAY VERMA 4 THAT THE PERMISSION HAS BEEN GRANTED FOR MANUFACTUR E OF BIO-PESTICIDES & BIO-FERTILIZERS. THE SECOND CERTIFICATE IS THE APPROVAL CUM REGISTRA TION LETTER. THIS LETTER APPROVES THE MANUFACTURE OF CAR RIER BASED BIO-FERTILIZER (TRICODERMA VIRIDI). THE THIRD LETTER IS FROM UTTARAKHAND ENVIRONMENT PR OTECTION AND POLLUTION CENTRAL BOARD, THIS LETTER DESCRIBES THE VARIOUS PRODUCTS IN THE JOINT CATEGORY OF BIO-PESTI CIDES & BIO-FERTILIZERS. THE ASSESSEE ALSO FURNISHED A LETTER FROM THE DEPA RTMENT OF PLANT PATHOLOGY, CENTRE FOR PLANT PROTECTION STU DIES, TAMIL NADU AGRICULTURAL UNIVERSITY, FURNISHING THE CERTIFICATE OF THE BIO-PESTICIDES (TRICHODERMA VIRI DE). THE NEXT LETTER IS THE LICENSE OF MANUFACTURE OF INSECTICIDES. THIS LETTER ALSO MENTIONS TRICHODERMA VIRIDE (BIO-PESTICIDES). THE AUDIT REPORT FROM THE ASSTT. COMMISSIONER (AUDI T), CUSTOMS & CENTRAL EXCISE, COMMISSIONRATE, MEERUT AL SO MENTIONS THE PRODUCTS MANUFACTURED AS BIO-PESTICIDE S. THE ASSESSEE HAS FURTHER ARGUED THAT THE APPROVAL C UM REGISTRATION LETTER SHOWS THAT TRICHODERMA VIRIDE I S BIO- FERTILIZER AND BIO- FERTILIZER IS NOT COVERED UNDER SCHEDULE- XIII. 10. THE PRODUCT MANUFACTURED BY THE ASSESSEE AS PER THE LICENSE OF MANUFACTURING ISSUED BY THE AUTHORITIES IS A FUNGICIDE NAMELY, TRICHODERMA VIRIDE. THIS PRODUCT OF FUNGI CIDES IS ALSO A PROHIBITED ITEM COVERED UNDER ITEM NO. 15 OF SCHE DULE XIII PART B OF THE I.T. ACT. THUS, THE LD. CIT (A) AFTER EXAMINATION OF THE CERTIFICATES ISSUED BY SIIDC, UEPPCB, TNAU, AC CUSTOMS & CENTRAL EXCISE, THE PRODUCT MANUFACTURED (TRICHODER MA VIRIDE) AND AFTER EXAMINING WHETHER THIS PRODUCT IS ELIGIBL E OR PROHIBITED ITEM, GAVE A CATEGORICAL FINDING THAT TH E PRODUCT MANUFACTURED BY THE ASSESSEE IS A FUNGICIDE WHICH I S A ITA NO. 3950/DEL/2016 AJAY VERMA 5 PROHIBITED ITEM FOR THE CLAIM OF DEDUCTION AND ACCO RDINGLY DENIED THE DEDUCTION U/S 80IC. 11. HAVING GONE THROUGH THE ENTIRE FACTUM AND THE M ATERIAL ON RECORD, WE FIND NO GOOD REASON TO INTERFERE WITH TH E REASONED ORDER OF THE LD. CIT (A). 12. GROUND NO.2 RELATES TO DISALLOWANCE OF BUSINESS EXPENSES. 13. THE TOTAL SALES OF THE ASSESSEE WAS RS.1,25,81, 869/- AGAINST WHICH THE ASSESSEE HAS DEBITED BUSINESS EXP ENSES OF RS.28,67,000/-. HE CLAIMED THAT THIS AMOUNTS HAS BE EN PAID TO ONLY TWO PARTIES NAMELY, SHRI SAI AGROTECH 30, SHAL IMAR FOUNTAIN COMPLEX, BHOPAL AND M/S UNITED BEEJ AND AG RO CHEMICAL, 23, GURUDWARA ROAD, SABJI MANDI, BHOPAL. 14. IN ORDER TO EXAMINE THE GENUINENESS OF THE TRAN SACTIONS, NOTICES U/S 133(6) HAVE BEEN ISSUED TO THE ABOVE PA RTIES WHICH STANDS UNCOMPLIED WITH. THE ASSESSING OFFICER HELD THAT EVEN ON MERITS OF THE CASE THE ASSESSEE HAS FAILED TO PROVI DE THE PURPOSE OF THE TRANSACTIONS, EVIDENCE OF SERVICES P ROVIDED BY TWO PARTIES. THE ASSESSING OFFICER HELD THAT THE AS SESSEE HAS FAILED EVEN TO PROVIDE COPIES OF THE BILLS RAISED B Y THIS TWO PARTIES. IN THE ABSENCE OF ANY EVIDENCE, PUT FORTH BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THESE EX PENSES. 15. THE LD. CIT (A), ON GOING THROUGH THE AGREEMENT SUBMITTED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS, O BSERVED THAT THE AGREEMENTS SHOW THAT BOTH THESE PERSONS/PARTIES ARE RESIDENT OF BHOPAL, THEY WERE ENGAGED IN GENERATION OF PURCHASE ORDER AT DISTRICT LEVEL, BOTH THE AGREEMEN TS ARE ITA NO. 3950/DEL/2016 AJAY VERMA 6 IDENTICAL IN NATURE, BEAR SIMULTANEOUS, STAMP PAPER NUMBER AND ARE, NOTARIZED IN DELHI. ONE OF THE AGREEMENTS FOR M/S SHRI SAI AGROTECH WAS SIGNED BY SH. SURESH PATHAK WHO WAS TH E PROPRIETOR, WHILE THE CONFIRMATION HAS BEEN GIVEN B Y SMT. JYOTI PATHAK. IN FACT THE PAN FURNISHED BY THE ASSESSEE A LSO IS IN THE NAME OF JYOTI PATHAK. SINCE SHE WAS NOT THE SIGNATO RY IN THE AGREEMENT NOR PROPRIETOR, THE CONFIRMATION GIVEN BY HER DOES NO T PROVE THE GENUINENESS OF THE AGREEMENT. HOWEVE R, IT IS INTERESTING TO NOTE THAT BOTH THE AGREEMENTS DO NOT MAKE ANY MENTION OF THE CONSIDERATION TO BE PAID FOR RENDERI NG THE SERVICE MENTIONED IN THE CONTRACT. NO CONTRACT CAN BE COMPLETE WITHOUT ANY CONSIDERATION. APPARENTLY, THESE TWO DO CUMENTS THEREFORE ARE A FACADE CREATED BY THE ASSESSEE TO M AKE THE DEPARTMENT BELIEVE THAT THE PAYMENT OF COMMISSION W AS GENUINE. THE EXPENDITURE IS ALLOWED AS DEDUCTION ON LY IF IT HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS, PAYMENT BY WAY OF ACCOUNT PAYEE CHEQUES AND DEDUCTION OF TDS DOES NOT PROVE THAT THE EXPENSES HAD BEEN INCURRED FOR THE PURPOSE S OF BUSINESS. 16. REGARDING THE PAYMENT BY CHEQUE AND DEDUCTION O F TDS, THE LD. CIT (A) RELIED ON THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADAN LAL VS. CO MMISSIONER OF INCOME TAX 86 ITR 439 WHEREIN IT WAS HELD AS UND ER: THE QUESTION WHETHER AN AMOUNT CLAIMED AS AN EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS HAS TO BE DECIDED ON THE FACTS AND IN THE LIGHT OF THE CIRCUMSTANCES IN EACH CASE. THE MERE EXISTENCE OF A N AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION , ASSUMING THERE WAS SUCH PAYMENT, DID NOT BIND THE INCOME-TAX OFFICER TO HOLD THAT THE PAYMENT WAS MAD E ITA NO. 3950/DEL/2016 AJAY VERMA 7 EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. ALTHOUGH THERE MIGHT BE SUCH A N AGREEMENT IN EXISTENCE AND THE PAYMENTS MIGHT HAVE BEEN MADE, IT WAS STILL OPEN TO THE INCOME-TAX OFFI CER TO CONSIDER THE RELEVANT FACTORS AND DETERMINE FOR HIMSELF WHETHER THE COMMISSION SAID TO HAVE BEEN PAID TO THE SELLING AGENTS OR ANY PART THEREOF WAS PROPERLY DEDUCTIBLE UNDER SECTION 37. 17. WE FIND THAT THE ASSESSEE HAS FAILED TO SUBSTAN TIATE THE BUSINESS EXPENDITURE AS PROVIDED U/S 37(1) OF THE A CT. HENCE, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. C IT (A). 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/03/2020. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACCOUNT ANT MEMBER DATED: 03/03/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR