The ACIT, Circle-6, Surat V. M/s. Panchsheel Intermediates, Surat

ITA 4095/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9695 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 08-11-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.4095/AHD/2007 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6, ROOM NO.623, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S M/S PANCHSHEEL INTERMEDIATES, 36, GIDC, PANDESARA, SURAT [PAN: AADFP 1002 C] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 10- 08-2007 OF THE LD. CIT(APPEALS)-IV, SURAT, RAISES T HE FOLLOWING GROUNDS:- 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CES OF COMMISSION PAID TO VARIOUS PERSONS OF RS.7,34,054/- MADE BY TH E AO. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A), SURAT OUGHT TO HAVE UPHELD THE ORDE R OF THE AO. 3 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LE ARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 2. AT THE OUTSET, NONE APPEARED ON BEHALF OF THE ASSESSEE, DESPITE SERVICE OF NOTICE WHEN THE APPEAL WAS CALLE D FOR HEARING. CONSIDERING THE ISSUE INVOLVED, THE BENCH DECIDED T O DISPOSE OF THE APPEAL AFTER HEARING THE LD. DR. 3. ADVERTING FIRST TO THE GROUND NO.1 IN THE APPE AL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING INCOME OF RS.23,63,100/- FILED ON 31-10-2004 BY THE ASSESSEE, MANUFACTURING INDUSTRIAL DYES, CHEMICALS AND INTERMEDIATES, AFTER BEING PROCESSED U/S 143(1)(A) OF THE INCOME-TAX ACT, 1961 [HEREINAF TER REFERRED TO AS ITA NO.4095/AHD/2007 2 THE ACT], WAS SELECTED FOR SCRUTINY WITH THE ISSU E OF NOTICE U/S 143(2) OF THE ACT ON 09-08-2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOT ICED THAT THE ASSESSEE CLAIMED DEDUCTION OF COMMISSION OF RS.7,34 ,054/-IN THE YEAR UNDER CONSIDERATION AS AGAINST COMMISSION OF O NLY RS.3,91,865/- IN THE PRECEDING ASSESSMENT YEAR. IN RESPONSE TO A SHOW CAUSE NOTICE DATED 13-11-2006, THE ASSESSEE VI DE LETTER DATED 27-11-2006 SUBMITTED CONFIRMATION OF SHRI MEHUL D N AIK, RELATIVE OF THE ASSESSEE, COPY OF LEDGER ALONG WITH THE BANK ST ATEMENT AS ALSO COPY OF TDS CERTIFICATE IN RESPECT OF COMMISSION F OR AN AMOUNT OF RS.91,133/- PAID TO HIM. FOR THE REMAINING PARTIES, THE ASSESSEE ASSURED TO SUBMIT THE RELEVANT CONFIRMATIONS, THE P ARTIES BEING LOCATED OUTSIDE SURAT. SINCE THE ASSESSEE DID NOT S UBMIT ANY EVIDENCE OF SERVICES RENDERED BY THE RECIPIENTS OF COMMISSION, DESPITE REQUEST MADE BY THE AO WHILE THERE WAS ABNO RMAL INCREASE OF 87% IN THE SALES COMMISSION VIS-A-VIS INCREASE I N SALES OF MERELY 10.25% AND THE ASSESSEE DID NOT SUBMIT THE CONFIRMA TIONS OF THE REMAINING PARTIES, RELYING UPON THE DECISIONS IN TH E CASE OF CIT VS. CALCUTTA AGENCY LTD. (1951) 19 ITR 191 (SC), CIT VS . IMPERIAL CHEMICAL INDUSTRIES (INDIA) (P) LTD. (1969) 74 ITR 17, CIT VS. C PAREKH & CO. (INDIA) LTD. (1956) 29 ITR 661 AND CIT VS. CHANDRAVILAS HOTEL (1987) 164 ITR 102 (GUJ), THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF COMMISSION. 4 ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM I N THE FOLLOWING TERMS:- I HAVE CONSIDERED THE DETAILS AND FIND THAT THE AO HAS PASSED THE ORDER WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APP ELLANT. IN THE CASE OF ONE OF THE PARTIES TO WHOM COMMISSION WAS PAID AT T HE RATE OF 2% OF THE SALES, COMPLETE DETAILS WERE FURNISHED BY THE APPEL LANT DURING THE ASSESSMENT PROCEEDINGS. EVEN THEN THE AO DISALLOWED THE 100% OF SUCH PAYMENT. SECTION 37(1) TALKS ABOUT THE EXPENDITURE INCURRED 'WHOLLY & EXCLUSIVELY' FOR THE PURPOSE OF BUSINESS. HOWEVER, IT DOES NOT MEAN 'NECESSARILY' AND IT IS FOR THE BUSINESSMAN TO DECI DE WHETHER ANY EXPENDITURE SHOULD BE INCURRED OR NOT DURING THE CO URSE OF ITS BUSINESS. AS HELD BY HON'BLE GUJARAT HIGH COURT, IN THE CASE OF C.J. PATEL & CO., VS. CIT ITA NO.4095/AHD/2007 3 158 ITR 486, THE EXPENDITURE HAS TO BE FOR THE PURP OSE OF BUSINESS AND NOT NECESSARILY FOR THE PURPOSE OF EARNING PROFITS. THE QUANTUM OF AN EXPENDITURE INCURRED CANNOT BE COMPARED TO THE SALE S MADE, SINCE EVERY EXPENDITURE WOULD NOT RESULT IN INCREASED SALES BUT COULD HAVE OTHER BENEFITS ALSO. IN THE INSTANT CASE, THERE IS NO DEN YING THE FACTS THAT THE APPELLANT HAS INCURRED EXPENDITURE IN THE SHAPE OF COMMISSION, THE EVIDENCE OF WHICH HAS BEEN FURNISHED AND THEREFORE, THERE IS NO JUSTIFICATION IN DISALLOWING 100% OF SUCH COMMISSIO N PAYMENT ON THE ONLY GROUND THAT SALES HAVE NOT INCREASED PROPORTIONATEL Y. THIS KIND OF ADDITION MADE WITHOUT TAKING INTO ACCOUNT THE SUBMISSIONS AN D EVIDENCES FURNISHED BY THE APPELLANT IS NOT JUSTIFIED AND HAS APPARENTL Y BEEN MADE ONLY WITH A VIEW TO MAKE HIGH PITCHED ASSESSMENTS AND IS HEREBY DIRECTED TO BE DELETED. IN THE RESULT, THE APPEAL IS ALLOWED. 5 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO, WHILE POINTING OUT THAT THE ASS ESSEE DID NOT SUBMIT CONFIRMATIONS OF MOST OF THE PARTIES TO WHOM THE COMMISSION HAD BEEN PAID NOR EVEN AN IOTA OF EVIDENCE IN RESP ECT OF SERVICES RENDERED BY THE RECIPIENTS OF COMMISSION. 6. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT THE ASSESSEE DID NOT FILE CONFI RMATION OF THE PARTIES TO WHOM THE COMMISSION HAD BEEN PAID EXCEPT IN THE CASE OF SHRI MEHUL D NAIK NOR SUBMITTED ANY EVIDENCE OF SER VICES RENDERED BY ANY OF THE RECIPIENT OF COMMISSION. EVEN THEN, T HE CIT(A) CONCLUDED THAT THE EXPENDITURE HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, IS ALLOWAB LE. IN ORDER THAT PAYMENTS MADE AS COMMISSION TO PERSONS APPOINTED AS SELLING AGENTS ARE ALLOWABLE AS DEDUCTION, THE ASSESSEE HAS TO ESTABLISH THAT I) THE AMOUNTS SOUGHT TO BE DEDUCTED HAVE B EEN EXPENDED BY THE ASSESSEE IN FACT AND II) THE PAYMENTS HAVE BEEN MADE FOR SERVICES RENDERED TO THE ASSESSEE.IF THERE IS NOTHI NG TO SHOW THAT THE AGENTS HAD RENDERED ANY SERVICES AT ALL TO THE ASSESSEE, PAYMENTS CAN NOT BE DEDUCTED U/S 37 OF THE ACT.[MAD URA KNITTING CO. VS. CIT,30ITR 764(MAD.),VISHNU AGENCIES P LTD. VS, CIT,117 ITR 754(CAL.),117 ITR 823(CAL.),CHEMAUX P LTD. VS. CIT,109 ITR ITA NO.4095/AHD/2007 4 705(BOM.).MERE EXISTENCE OF AN AGREEMENT WITHOUT AN YTHING MORE IS NOT ENOUGH FOR ALLOWANCE OF DEDUCTION OF COMMISSION [LACHMINARAYAN MADAN LAL VS. CIT,86 ITR 439(SC).] I N THE INSTANT CASE, THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF COMMISSION SINCE THE ASSESSEE DID NOT FURNISH ANY EVIDENCE OF SERVIC ES RENDERED BY THE AGENTS, TO WHOM COMMISSION HAD BEEN PAID. THE L D. CIT(A) WITHOUT RECORDING ANY FINDINGS AS TO WHETHER OR NOT THE SELLING AGENTS HAD INDEED RENDERED SERVICES TO THE ASSESSEE AND THE AMOUNT HAS BEEN EXPENDED IN FACT, ALLOWED THE CLAI M FOR DEDUCTION . WE ARE OF THE OPINION THIS APPROACH OF THE LD. CIT( A) IS NOT IN ACCORDANCE WITH LAW. IN THE ABSENCE OF ANY FINDING ON THE NATURE OF SERVICES RENDERED BY THE RECIPIENTS OF COMMISSION O R THE AMOUNT HAD BEEN EXPENDED IN FACT, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUES RAISED IN THIS GROUND AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS, AFTER ALLOWING SUFFICIENT O PPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, TH E LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY THE NATURE OF SERVICES RENDERED BY EACH OF THE RECIPIENT OF COMMISSION . WITH THESE OBSERVATIO NS, GROUND NO.1 IN THE APPEAL IS DISPOSED OF. 8 GROUND NOS.2 AND 3 IN THE APPEAL BEING MERE PRAYE R AND GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJU DICATION AND ARE, THEREFORE DISMISSED. 9 IN THE RESULT, APPEAL IS ALLOWED, BUT FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 11 -10-2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 11-10-2010 ITA NO.4095/AHD/2007 5 COPY OF THE ORDER FORWARDED TO: 1. M/S PANCHSHEEL INTERMEDIATES, 36, GIDC, PANDESAR A, SURAT 2. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6, ROOM NO.623, AAYAKAR BHAVAN, MAJURA GATE, SURAT 3. CIT CONCERNED 4. CIT(A)-IV, SURAT 5. DR, BENCH-C, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD