The ITO, Ward-2(3), V. Shri Jayantilal H. Amlani,

ITA 403/RJT/2005

• Counselvise Citation: 40324914 RSA 2005
• Duration Of Justice: 6 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 07-04-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMARD R
• Assessee Lawyers: PRABHAT JAINC A
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.403/RJT/2005. (ASSESSMENT YEAR 2001-02). THE I.T.O., J.R. WARD-2(3), VS. JAYANTILAL H. AMLANI, PORBANDAR. MADRESSA BLDG.,M.G.ROAD, PORBANDAR. (APPELLANT) (RESPONDENT) REVENUE BY :SHRI JAY RAJ KUMAR,D.R. ASSESSEE BY :SHRI PRABHAT JAIN,C.A. O R D E R PER AL GEHLOT, AM: THIS APPEAL FILED BY THE REVEN UE AGAINST THE ORDER OF C.I.T.(A) DATED 28-01-2005 FOR THE ASSESSM ENT YEAR 2001-02. THE GROUND RAISED BY THE REVENUE IN ITS APPEAL READ S AS UNDER :- (1) THAT THE LD. C.I.T.(A) HAS ERRED IN LAW AND ON FACT IN DELETING THE DISALLOWANCE OF RS.18,93,407/- MADE U/ S.40A (2)(B) ON ACCOUNT OF EXCESSIVE AND UNREASONABLE COM MISSION PAID TO THREE BROTHER OF THE ASSESSEE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C.I.T.(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASS ESSING OFFICER. (3) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. C.I.T.(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. ITA 403/RJT/2005. A.Y.2001- 02.. 2 2. THE BRIEF FACTS OF THE CASE OF THE REVENUE ARE T HAT DURING THE ASSESSMENT PROCEEDING THE A.O. NOTICED THAT THE AS SESSEE HAS PAID THE TOTAL COMMISSION OF RS.28,01,951/-OUT OF WHICH COMMISSION OF RS.21,28,957/- WAS PAID TO THREE BROTHERS OF THE AS SESSEE TOTALING AS UNDER:- PRAFULKUMAR HIRJI AMLANI RS.7,28,957 DINESH HIRJI AMLANI RS.7,00,000 HASMUKH HIRJI AMLANI RS.7,00,000 3. THE A.O. ASKED ASSESSEE TO FURNISH THE DETAILS W HICH HAS BEEN FURNISHED BY THE ASSESSEE NAME OF THE PERSONS, AMOU NT OF COMMISSION PAID, AGE, RELATIONSHIP, EDUCATIONAL QUA LIFICATION, NATURE OF SERVICES PROVIDED AND JUSTIFICATION OF THE PAYME NT. IT WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THAT COMM ISSION PAYMENT SHOULD NOT BE COMPARED WITH SALARY PAYMENT. SALARY PAYMENT MAY DEPEND UPON THE EDUCATIONAL QUALIFICATION, NUMERICA L ATTITUDE, INTELLECTUALITY AND IQUE. WHEREAS COMMISSION PAYMEN T DEPENDS UPON THE VOLUME OF WORK HE ACHIEVES. FURTHER COMMISSION MAY ALSO DEPENDS UPON PERCENTAGE OF SALES PROFIT AND TURNOVE R. THE ASSESSEE SUBMITTED THAT LOOKING TO THE MAGNITUDE AND RISK IN VOLVED IN THIS LINE OF BUSINESS PRIOR TO DEMATIZATION BY THE SEBI IN TH E WORK RELATING TO THE TRADE RELATING TO STOCK MARKET ALWAYS ADVISABLE TO BE ENTRUSTED TO CLOSED PERSON OR A CLOSED RELATIVES. IT WAS ALSO SU BMITTED BEFORE THE A.O. THAT ALL THE ABOVE PERSONS TO WHOM COMMISSION PAID WAS FILING THE REGULAR RETURN AND PAYING TAX AT MAXIMUM MARKET RATE I.E. 30%. THEREFORE, THERE IS NO LOSS OF REVENUE TO THE DEPAR TMENT. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT ABOVE PERSO NS WERE ITA 403/RJT/2005. A.Y.2001- 02.. 3 RENDERING THEIR SERVICES OF SINCE MANY YEARS AND TH E DEPARTMENT HAS ACCEPTED THE SAME. THE ABOVE PERSONS WERE NOT NEW ONE AND NOT APPOINTED FOR THE FIRST TIME DURING THE YEAR. THE A.O. DID NOT SATISFY WITH THE REPLY OF THE ASSESSEE. HE COMPARED THE CO MMISSION PAID TO THE BROTHERS AND THIRD PARTY AND CALCULATED PROPORT IONATE PAYMENT OF COMMISSION RS.33,650/- (672994 DIVIDED BY 20) WHERE AS THE PAYMENT TO THE RELATIVES ARE MORE THAN 20 TIMES WHI CH IS NOT ONLY EXCESSIVE BUT UNREASONABLE. THE A.O. ACCORDINGLY, DISALLOWED THE EXCESS AND UNREASONABLE COMMISSION MADE U/S.40A (2) (B) OF THE ACT DETAILED AS UNDER:- SR. NAME OF THE PAYMENT RATE AT REASONA- DISALLOWED. NO. RELATIVE. MADE. PAYMENT BILITY OF MADE TO PAYMENT . OUTSIDERS. 1. PRAFULKUMAR 728957 33650 10 0950 6,28,007 HIRJI AMLANI. (THREE TIMES ON SEBI CARD HOLDER. 2. DINESH H.AMLANI. 70000 0 33650 67300 6,32,700 3. HASMUKH HIRJI 700000 33650 67300 6,32,700 AMLANI. 18,93,407 4. THE C.I.T.(A) DELETED THE SAID ADDITION. BEFORE DELETING THE ADDITION, THE C.I.T.(A) THINK IT PROPER TO REFER TH E MATTER TO THE A.O. ONCE AGAIN TO VERIFY THE CLAIM OF THE ASSESSEE ON T HREE BASIC CRITERIA LAID DOWN U/S.40A OF THE ACT. THE C.I.T.(A) FOUND THAT AFTER MAKING INQUIRY BY THE A.O. NOTHING IS FOUND WHICH CAN PROV E THAT THEE AMOUNT OF COMMISSION PAID BY THE ASSESSEE WAS EXCESSIVE. THE C.I.T.(A) ITA 403/RJT/2005. A.Y.2001- 02.. 4 NOTED THAT THE COMPARISON OF THE AMOUNT PAID TO BRO THERS WITH THE COMMISSION PAID TO OUTSIDERS IS NOT CORRECT AS THE AMOUNT PAID TO OTHERS IS A REFERENCE COMMISSION (REFERRING A CLIEN T TO THE ASSESSEE) WHEREAS THE PAYMENT MADE TO THESE THREE PERSONS IS FOR HOST OF SERVICES RENDERED OVER AND ABOVE REFERENCE OF CLIEN TS. THE C.I.T.(A) ALSO CONSIDERED THE VOLUME OF BUSINESS AND SET OFF OF THE ASSESSEE AND FOUND THAT THE SERVICES OF THREE PERSONS TO WHO M THE COMMISSION PAID WAS NECESSARY FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE. THE C.I.T.(A) HAS ALSO CONSIDERED WITH THE QUALIFIC ATION OF ASSESSEES BROTHERS, ONE OF THE BROTHERS SHRI PRAFUL H. AMLANI IS A SEBI REGISTERED DEALER. HE IS A COMMERCE GRADUATE AND HO LDS POSTGRADUATE DEGREE. OTHER TWO BROTHERS ARE BOTH GR ADUATES AND ARE HAVING COMPUTER DEGREE OF DCS. OTHER PERSONS TO WHO M THE COMMISSION PAID IS UNDERGRADUATES. THEREFORE, THE C OMPARISON OF COMMISSION/BROKERAGE PAID TO BROTHERS WITH THOSE TO OUTSIDERS WAS NOT CORRECT. THE C.I.T.(A) HAS ALSO NOTED THAT ALL THE THREE BROTHER WERE IN THE HIGHEST TAX BRACKET AND THEY HAVE DECLA RED BROKERAGE IN THEIR INCOME. MOREOVER, THE INQUIRY MADE BY THE A. O. DID NOT REVEAL ANYTHING AS SUGGESTED BY A.O. ABOUT SIPHONING OF IN COME OF THE ASSESSEE. IT IS ALSO NOTED BY THE C.I.T.(A) THAT A .O. DID NOT FIND ANY MATERIAL TO STATE THAT AMOUNT PAID BY THE ASSESSEE TO HIS BROTHERS WAS NOT FOR THE PURPOSE OF THE BUSINESS. THE VALUE OF THEIR SERVICES CANNOT BE PARTLY ALLOWED OR PARTLY DISALLOWED IN TH E HANDS OF ASSESSEE BY COMPARING IT WITH PAYMENTS IN DIFFERENT SERVICES GIVEN BY OTHER OUTSIDE PARTIES. THE C.I.T.(A) FOUND THAT THR EE BROTHER ARE HAVING PROFESSIONAL QUALIFICATION, BUSINESS ACUMEN, EXPERTISE IN THE BUSINESS. ITA 403/RJT/2005. A.Y.2001- 02.. 5 5. THE LD. D.R. SUBMITTED THAT ONUS IS ON THE ASSES SEE TO PROVE THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS WAS REASONABLE AND NOT EXCESSIVE ONE. THE LD. D.R. ALSO RELIED UPON CBDT CIRCULAR NO. 6-P (LXXVI-66) OF 1968 DATED 6 TH JULY, 1968. 6. ON THE OTHER HAND, THE LD. A. R. RELIED UPON THE ORDER OF THE C.I.T.(A) AND SUBMITTED THAT THE A.O. WAS NOT CORRE CT IN COMPARING THE AMOUNT PAID TO THE OTHER PARTIES AS COMMISSION TO THE BROTHERS OF THE ASSESSEE. THE LD. A. R. SUBMITTED THAT THE COM MISSION WAD PAID AGAINST THE SERVICES OF THREE BROTHERS TAKEN HEAVY RESPONSIBILITY OF THE BUSINESS. ALL THE THREE BROTHER ARE SUBJECT TO TAX UNDER HIGHEST TAX SLABS. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. READING OF SEC.40A(2) REVEALS THAT (A)WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT IS REQUIRED TO BE MADE TO ANY PERSON REFERRED TO IN CL .(B) OF SEC.40A(2) AND THE A.O. IS OF THE OPINION THAT SUCH EXPENDITUR E IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E OR (B) THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR (3) THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES, THEN THE A.O. SHALL NOT ALLOW AS DEDUCTION SO MUCH OF THE EXPENDITURE AT IT SO CONSI DERED BY THE A.O. TO BE EXCESSIVE OR UNREASONABLE. IT IS, THEREFORE, NECESSARY TO RECALL A FINDING AS TO WHETHER THE EXPENDITURE IS EXCESSIV E OR UNREASONABLE ITA 403/RJT/2005. A.Y.2001- 02.. 6 IN RELATION TO ANY ONE OF THE THREE REQUIREMENTS PR ESCRIBED, WHICH ARE INDEPENDENT AND ALTERNATE TO EACH OTHER. ALL THREE REQUIREMENTS NEED NOT EXIST SIMULTANEOUSLY. IN THE GIVEN CASE IF ANY ONE CONDITION SHOWN TO BE SATISFIED THE PROVISION CAN BE INVOKED AND APPLIED IF THE FACTS SO WARRANT. THE INCOME-TAX OFFICER IS EXPECT ED TO EXERCISE HIS JUDGMENT IN A REASONABLE AND FAIR MANNER. IT SHOUL D BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND SHOULD NO T BE APPLIED IN A MANNER WHICH WILL CAUSE HARDSHIP IN BONAFIDE CASES AS STATED IN CBDT CIRCULAR(SUPRA) DATED 6 TH JULY, 1968. 8. IN THE LIGHT OF ABOVE DISCUSSION, IF WE CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT A COMPARISON MADE BY THE A.O. IN BETWEEN THE COMMISSION PAID TO ASSESSEES B ROTHERS AND OUTSIDE IS NOT COMPARABLE. ALL THE THREE BROTHERS OF THE ASSESSEE WERE POSSESS BETTER EDUCATIONAL QUALIFICATION IN CO MPARISON TO OTHER PERSONS, OUTSIDERS TO WHOM THE COMMISSION WAS PAID. THE C.I.T.(A) NOTED THE FACT THAT LOOKING TO THE VOLUME AND NATU RE OF THE BUSINESS, THE ASSISTANCE OF THREE BROTHERS WERE NECESSARY FOR THE PURPOSE OF BUSINESS. ALL THE THREE BROTHERS POSSESS NECESSARY QUALIFICATION AND EXPERTISE IN THE LINE OF THE BUSINESS. ALL THE THR EE BROTHERS ARE IN THE HIGHEST TAX BRACKET AND HAVE DECLARED THEIR BROKERA GE OF INCOME. THE ABOVE THREE BROTHERS WERE RENDERING THEIR SERVI CES SINCE MANY YEARS AND THE DEPARTMENT HAS ACCEPTED THE SAME. TH E ABOVE THREE BROTHERS ARE NOT NEW ONE AND NOT APPOINTED FOR THE FIRST TIME DURING THE YEAR UNDER CONSIDERATION. APPARENTLY, WE FIND THAT THE A.O. HAS FAILED TO COMPARE THE SERVICES GIVEN BY THE ASSESSE ES BROTHERS IN THE ITA 403/RJT/2005. A.Y.2001- 02.. 7 FAIR MARKET VALUE OF THE SERVICES. IT IS ALSO FOUN D THAT THE SERVICE OF THE ASSESSEES BROTHERS WAS LEGITIMATE NEEDS TO THE BUSINESS OF THE ASSESSEE. THE ASSESSEE DERIVED BENEFIT BY SERVICES OF THE BROTHERS. WE, THEREFORE, OF THE CONSIDERED VIEW THAT NO DISAL LOWANCE IS WARRANTED U/S.40A(2) OF THE ACT. THEREFORE, WE FIN D THAT THE C.I.T.(A) HAS RIGHTLY DELETED THE ADDITION. 9. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13- 05-2011 . SD/- SD/- (N.R.S. GANESAN) ( A. L. GEHLOT ) JUDICIAL MEMBER. ACCOUNTANT MEMBER. RAJKOT, DT : 13-05-2011. NVA/- COPY TO: 1. THE I.T.O., J.R., WARD-2(3) PORBANDAR, 2. SHRI JAYANTILAL H. AMLANI, PORBANDAR. 3. THE CIT(A)- RAJKOT. 4. THE C.I.T. 5. THE D.R., I.T.A.T., RAJKOT. TRUE COPY. BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT.