THE DCIT, CIRCLE - 2(1), Vijayawada V. Sri Vatti Srinivasa Reddy, Vijayawada

ITA 41/VIZ/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6807 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 04-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V APPALA RAJU
• Section: 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 41 /VIZAG/ 201 4 ( / ASSESSMENT YEAR: 20 1 0 - 1 1 ) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(1) CENTRAL REVENUE BUILDING M.G.ROAD, VIJAYAWADA - 520 002 SRI VATTI SRINIVASA REDDY, PLOT NO.25, D.NO.54 - 19 - 22/4C, LIC COLONY, JAYAPRAKASH NAGAR VIJAYAWADA 520 005 [PAN : ACJPV5769N] ( / APPELLANT) / RESPONDENT) / APPELLANT BY : SHRI V APPALA RAJU, DR / RESPONDENT BY : SHRI G.V.N.HARI, AR / DATE OF H EARING : 0 2 .0 8 .2017 / DATE OF P RONOUNCEMENT : 09 . 0 8 . 2017 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : TH IS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE C OMMISSIONER OF INCOME TAX ( APPEALS ) [CIT(A)], VIJAYAWADA DATED 2 7 . 11 .201 3 VIDE ITA NO.351/CIT(A)/VJA/13 - 14 . 2 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE ADDITION OF RS.63,20,145 / - RELATING TO SCHEME DISCOUNT WHICH WAS DELETED BY THE CIT(A). DURING THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE HAS RECEIVED THE COMMISSION AND THE SCHEME DISCOUNT TO THE TUNE OF RS.17,76,104/ - AND RS.65,14,184/ - RE S PECTIVELY AND THE SAME WAS OFFERED TO TAX BY CREDITING IT TO THE PROFIT & LOSS ACCOUNT. OUT OF THE ABOVE AMOUNT OF RS.82,90,288/ - , THE ASSESSEE HAS PASSED ON THE SCHEME DISCOUNT TO THE EXTENT OF RS.63,20,145/ - TO THE PURCHASERS. DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER CALLED FOR THE CONFIRMATIONS AND THE ASSESSEE HAS FURNISHED THE CONFIRMATIONS FROM THE BUYERS AS WELL AS PURCHASERS AND ALSO THE ACTUAL RECIPIENTS WHO ARE NONE OTHER THAN THE EMPLOYEES OF THE SHOP / BAR OWNERS. THE ASSESSIN G OFFICER DOUBTED THE GENUINENESS OF THE DISCOUNT PASSED ON TO THE EMPLOYEES INSTEAD OF TO SHOP OWNERS AND ADDED IT BACK TO THE INCOME. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(APPEALS). THE LD.CIT(APPEALS) ALLOWED THE APPEAL OF THE ASSESSEE . FOR THE SAK E OF CONVENIENCE AND CLARITY WE EXTRACT THE RELEVANT PARAGRAPH OF THE LD.CIT(A) ORDER AS UNDER : 3 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY 5. I HAVE SEEN THE SUBMISS I ONS MADE BY THE APPELLANT, GONE THROUGH THE ASSESSMENT ORDER BESIDE S PERUSING ALL OTHER, MATERIAL AVAILABLE ON RECORD, INCL UDING THE CASE LAWS RELIED UPON. 5 .1. IT IS SEEN FROM THE PROFIT & LO S S ACCOUNT THAT THE APPELLANT HAS CREDITED COMMI SS I ON RECEIVED AND SCHEME DISCOUNTS AND DEBITED SCHEME DISCOUNTS PAID . ON GO ING THROUGH THE MATERIAL ON RECORD, I T I S FOUND THAT THE APPELLANT IS RUNNING A PROPRIETORSHIP CONCERN IN THE NAME AND STY L E OF MARUTHI DISTRIBUTORS' . THE VERY WORD DISTRIBUTOR HAS BEEN MISUNDERSTOOD BY THE ASSESSING OFFICER . AS PER THE PREVAILING PRACTICE, T HE LIQUOR COMPANIES HAVE TO SELL THEIR BRANDS OF LIQUOR THROUGH THE ANDHRA 'PRADESH BEVERAGES CORP ORATION LTD (APBCL) ONLY AND NO OTHER INTERMEDIARY IS INVOLVED IN SUCH PRACTICE . HERE IN THIS CASE THE APPELLANTS PROPRIETOR CONCERN IS NAMED AND STYLED AS M ARUTHI DISTRIBUTORS' BUT ON FACTS THE APPELLANT IS NOT AN DISTRIBUTORSHIP OF LIQUOR. HE IS ONLY PROMOTING THE BRANDS OF THE RESPECTIVE LIQUOR COMPANIES FOR THIS, HE IS GETTING COMMISSION AND SCHEME DISCOUNTS FROM THE SAID COMPANIES IN THE PROCESS OF SUCH P ROMOTION, THE APPELLANT IS PASSING ON THE COMMISSION/SCHEME DIS COUNTS RECEIVED TO THE RESPECTIVE PURCHASERS AS PER THE AGREEMENT ENTERED BY THE APPELLANT WITH THE LIQUOR COMPANIES. THE POINT HER E IS THAT THE ASSESSING OFFICER HAS FOUND THAT THE SAID DISCOUNTS WERE NOT BEING PASSED ON TO THE PURCHASERS AND ARE BEING GONE TO THE TH I RD PARTY AS PER THE CONFIRMATIONS PRODUCED BY THE APPELLANT BEFORE HIM . DURING THE APPEAL PROCEED I NGS ALSO, THE APPELLA NT HAS PRODUCED T HE SAID CONFIRMATIONS BEFORE ME . ON A CAREFUL ANALYSIS AT THE CONFIRMATIONS, IT IS SEEN THAT THE PURCHASERS, IN OTHER WORDS, LIQUORS SHOPS AND BAR & RESTAURANTS LICENSE HO LDERS ARE AUTHO RIZING THEIR EMPLOYEES MOSTLY TO ACT AS AGENT ON BEHA LF OF T H E TO DEAL WITH THE EXCISE DEPARTMENT AND APBCL THIS AUTHORIZATION TO THE EMP L OYEES/AGENTS BY THE LICENSE HOLDERS OF THE LIQUOR SHOPS AND BARS & RESTAURANTS IS PERMITTED BY THE PRO H I B ITI ON & EXCISE SUPERINTENDENT ON AN APPLICATION MADE BEFORE THE EX CISE DEPARTMENT. THE EXCISE DEPARTMENT ISSUES NOWKARNAMA TO SUCH PERSONS WHO ARE TECHNICALLY CALLED AS NOWKARNAMA HOLDERS. THESE NOWKARNAMA HOLDERS CAN TRANSACT BUSINESS WITH APBCL ON BEHALF OF THE LICENSEES. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE DISCOUNTS WERE NOT BEING PAID TO THE PURCHASERS BUT TO THEIR EMPLOYEES IS APPRECIATED IN THIS REGARD. HOWEVER, THE ASSESSING OFFICER HAS NOT GONE INTO THE TECHNICALITY OF THIS ASPECT THAT THE PURCHASERS ARE AUTHORIZING THEIR EMPLOYEES, TECHNICALLY KNO WN AS NOWKARNAMA HOLDERS, WHO ARE TRANSACTING THE BUSINESS ON BEHALF OF LICENSEES OF LIQUOR SHOPS AND BAR & RESTAURANTS AND RECEIVING THE COMMISSION/SCHEME DISCOUNTS FROM THE APPELLANT. FURTHER, IT IS SEEN THAT THE PAYMENT OF THE SCHEME DISCOUNTS / COMMIS SION TO THE RESPECTIVE PURCHASERS WERE MOSTLY ROUTED THROUGH THE BANKING CHANN EL. IN VIEW OF THE FOREGOING, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE DISCOUNTS WERE NOT BEING PASSED ON TO THE BUYER FROM THE SELLER, IS 4 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY NOT JUSTIFIABLE, IN SO MUCH AS MOST OF THE PAYMENTS WERE BEING MADE THROUGH BANKING CHANNEL AND THE PRACTICE OF AUTHORIZING NOWKARNAMA HOLDERS BY THE BUYERS TO ACT ON BEHALF THEM. HENCE, THE CLAIM OF SCHEME DISCOUNTS PAID OF RS. 6 3,20 , 145/ - BY THE APPELLANT IS A QUALIFIED EXPENDITURE AS PER SECTION 37(1) OF THE ACT . AC C ORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. AGGRIEVED BY THE ORDER OF THE LD.CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 3 . APPEARING FOR THE REVENUE, THE LD.DR ARGUED THAT THE DISCOUNTS REQUIRED TO BE DIRECTLY PAYABLE TO THE BARS / SHOP OWNERS BUT NOT TO ANY THIRD PARTY. IN THIS CASE, THE ASSESSEE HAS RECEIVED THE SCHEME DISCOUNTS AND PASSED ON DISCOUNT TO THE NOWKARNAMA HOL DERS WHO ARE THE EMPLOYEES OF THE BARS AND SHOPS. THEREFORE, THE PAYMENT IS NOT GENUINE AND FURTHER ARGUED THAT NOWKARNAMA HOLDERS ARE THE EMPLOYEES OF BAR OWNERS AND THE SAME IS NOT RECORDED IN THE HANDS OF RETAILERS AND BAR OWNERS. THEREFORE, THE LD.DR ARGUED THAT THE ORDER OF THE LD.CIT(APPEALS) SHOULD BE SET ASIDE AND THE ASSESSING OFFICERS ORDER TO BE RESTORED. 4 . ON THE OTHER HAND , THE LD.AR ARGUED THAT THE ASSESSEE IS PROMOTING THE BRANDS OF VARIOUS LIQUOR RELATING TO M/S SENTINI BIO - PRODUCTS LTD. FOR WHICH THE ASSESSEE IS GETTING COMMISSION AND THE 5 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY SCHEME DISCOUNT . IN THE PROCESS OF SUCH PROMOTION, THE ASSESSEE HAS TO TAKE UP THE PROMOTIONAL ACTIVITY WITH VARIOUS BARS AND WINE SHOPS FOR PLACING THE ORDERS OF THE SAID BRAND S OF LIQUOR FROM ANDHRA PRADESH BEVERAGES CORPORATION LTD.(APBCL). FOR PROMOTING THE SALES, THE ASSESSEE HAS RECEIVED THE SCHEME DISCOUNT WHICH WAS PASSED ON TO THE BARS OR THE PERSONS AUTHORIZED BY THE BARS WHO ARE AUTHORIZED PERSONS BY EXCISE DEPARTMENT KNOWN AS NOWKARNAMA HOLDERS. AS PER THE DIRECTIONS OF THE BAR OWNERS, THE PAYMENTS WE RE MADE EITHER TO THE B ARS OR TO THE NOWKARNAMA HOLDERS WHO DEAL WITH THE SHOP AS WELL AS THE EXCISE DEPARTMENT AND ACT AS AN AGENT ON BEHALF OF THE EXCI SE DEPARTMENT AND APBCL . THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE PAYMENT AND MADE THE ADDITION HOLDING THAT THE PAYMENT SHOULD BE MADE TO SHOPS/BAR OWNERS. BY MAKING THE PAYMENT TO THE EMPLOYEES OF THE SHOPS AND BARS, THE ASSESSEE IS ALLOWING THE SHOPS/BAR OWNERS NOT TO ADMIT THE SAME IN THEIR HANDS THEREBY BECOMING THE PARTY FOR EVASION OF TAX . THE LD.AR ARGUED THAT IT IS NOT IN THE DISCRETION OF THE ASSESSEE TO MAKE THE PAYMENT TO SHOPS/BAR OWNERS OR THE EMPLOYEES. THE ASSESSEE HAS TO MAKE THE PAYMENT AS PER THE DIRECTION OF THE SHOP OWNERS/BAR OWNERS. SINCE IT WAS INFORMED 6 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY THAT THE NOWKARNAMA HOLDERS WERE INS TRUMENTAL IN PROMOTING THE SALES , THE PAYMENT WAS MADE TO NOWKARNAMA HOLDERS. THE LD. AR ARGUED THAT THE PAYMENT IS GENUINE AND CONFIRMED BY THE RECIPIENTS. HENCE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS ENGAGED IN THE PROMOTION OF LIQUORS OF VARIOUS BRANDS MANUFACTURED OR MARKETED BY M/S SENTINI BIO - PRODUCTS LTD. AND THE ASSESSEE IS RECEIVING COMMISSION AND THE DISCOUNT FOR PROMOTING THE SALES FROM M/S SENTINI BIO - PRO DUCTS LTD. , FOR PROMOTING THE NEW LIQUOR . T HE ASSESSEE HAS TAKEN UP THE PROMOTIONAL ACTIVI TY WITH THE B ARS AND WINE SHOP OWNERS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED THE TOTAL INCOME OF RS.82,90,28 8/ - AND OUT OF WHICH THE SCHEME DISCOUNT WAS OF RS.63,20,145/ - PASSED ON TO VARIOUS PARTIES AND ADMITTED THE NET PROFIT O F RS.14.26 LAKHS WHICH WORKS OUT TO 17.20% ON TOTAL REVENUE. THE PAYMENT WAS MADE TO THE EMPLOYEES OF THE SHOPS OR B AR OWNERS ON THE DIRECTIONS OF THE OWNERS OF WINE SHOP S AND B AR S . THE PAYMENT WAS MADE THROUGH CHEQUE AND CONFIRMATIONS WERE PLACED BEFORE THE ASSESSING OFFICER. THEREFORE, THERE IS NO DOUBT 7 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY REGARDING THE GENUINENESS OF THE PAYMENTS. THE ONLY OBJECTION OF THE ASSESSING OFFICER WAS THAT THE PAYMENTS SHOULD HAVE BEEN ACCOUNTED BY THE B AR OWNERS INSTEAD OF THE EMPLOYEES AND THE SAME SHOULD HAVE BEEN TAXED IN THE HANDS OF THE B ARS. T HE PAYMENT WAS MADE TO THE VARIOUS EMPLOYEES OF THE B ARS AND THE SHOPS WHO HAVE PROMOTED THE SALES , ON THE DIRECTION OF THE OWNER OF THE B AR/SHOP. T HE PAYME NT IS GENUINE AND THE EXPENDITURE INVOLVED APPEARS TO BE REASONABLE HENCE NO DISALLOWANCE IS CALLED FOR . W E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE REVENUE HAS NOT PLACE D ANY EVIDENCE TO SHOW THAT TH ERE WAS NO ROLE OF NOWKARNAMA HOLDERS IN PROMOTING THE SALES. WHEN NOWKARNAMA HOLDERS ARE INSTRUMENTAL IN PROMOTING THE SALES WE DO NOT FIND ANY REASON NOT TO MAKE THE PAYMENT TO THE PERSONNEL RESPONSIBLE FOR PROMOTING THE SALES. THE APPEAL OF THE REVENUE IS DISMISSED . 6 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . 8 ITA NO. 41 /VIZ/201 4 SRI VATTI SRINIVASA REDDY T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 TH AUG 20 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 09 . 0 8 .2017 L. RAMA, SPS / COPY OF THE ORDER FORWARDED TO : - 1. / THE APPELLANT THE DCIT, CIRCLE - 2(1), CENTRAL REVENUES BUILDING, M.G.ROAD, VIJAYAWADA - 520 002 2 . / THE RESPONDENT SHRI VATTI SRINIVASA REDDY, PLOT NO.25, D.NO.54 - 19 - 22/4C, LIC COLONY, JAYAPRAKASH NAGAR, VIJAYAWADA - 520 005 3 . THE COMMISSIONER OF INCOME TAX, VIJAYAWADA 4 . , , / DR, ITAT, VISAKHAPATNAM 5 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM