The DCIT, Circle-4, Baroda V. Unicure Remedies Pvt.Ltd., Baroda

ITA 4182/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0039 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-11-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: S N SOPARKAR
• Keywords: TDS
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D.AGRAWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 12/08/2010 DRAFTED ON:13/08/ 2010 ITA NO.4182/AHD/2007 ASSESSMENT YEAR : 2004-05 DY.CIT CIR-4 BARODA VS. M/S.UNICURE REMEDIES P.LTD. F/25 GIDC ESTATE GORWA, BARODA PAN/GIR NO. : AAACU 2473 J (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K.M. MAHESH, SR. D.R. RESPONDENT BY: SHRI S.N.SOPARKAR O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-III , BARODA DATED 22/08/2007 PASSED FOR ASSESSMENT YEAR 2004-05 AND T HE GROUNDS ARE AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN DELETING ADDITION OF RS.52,56,976/- ON ACCOUNT OF EXCESS COMMISSION INCLUDING EXPORT COMMISSION AND OTHER EX PENSES CLAIMED BY THE ASSESSEE, NOTWITHSTANDING THE FACT THAT THE ASSESSEE HAD NOT FURNISHED ANY DETAILS AS CALLED FOR DURING THE ASSE SSMENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADD ITION MERELY ON THE BASIS OF THE DOCUMENTS FILED BEFORE THE CIT(A) FOR THE FIRST TIME DURING THE APPELLATE PROCEEDINGS WITHOUT CONSIDERING THE R EPORT OF THE AO UNDER RULE 46A OF THE ACT. ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 2 - 2. FIRST, WE SHALL DEAL WITH GROUND NO.2 OF THE REV ENUE THROUGH WHICH IT WAS AGITATED THAT THE FIRST APPELLATE AUTH ORITY HAS PASSED THE IMPUGNED ORDER BY INFRINGING CONDITIONS PRESCRIBED UNDER RULE 46A OF I.T.RULES, 1962. IN THIS REGARD, WE HAVE HEARD BO TH THE SIDES AND, THEREAFTER, WE CAN HOLD, EVEN AT THE OUTSET, THAT T HERE WAS NO SUCH INFRINGEMENT AS ALLEGED IN THE GROUND. WHILE EXAMI NING THE CONTENTS OF THE IMPUGNED APPELLATE ORDER, WE HAVE FOUND THAT VI DE PARAGRAPH NO.3.2 THE LEARNED CIT(APPEALS) HAS CATEGORICALLY MENTIONE D THAT SOME OF THE EVIDENCES WERE NOT AVAILABLE BEFORE THE ASSESSING O FFICER, THEREFORE, IT WAS DECIDED TO CALL FOR A REMAND REPORT FROM THE AS SESSING OFFICER. IN THAT PARAGRAPH, IT HAS ALSO BEEN ACKNOWLEDGED THAT THE ASSESSING OFFICER HAS STATED THAT THE EVIDENCES WITH REGARD TO THE CO NFIRMATION OF THE ACCOUNTS, BALANCE-SHEET, ETC. HAVE BEEN FILED. THE ASSESSING OFFICER HAS COMMENTED THAT THE COMMISSION PAID TO SHRI K.A. GAD GIL AND M/S.L.T. PHARMA PVT.LTD. WAS EXORBITANT AND ALSO MENTIONED THAT THE PERCENTAGE WAS INCONSISTENT. WITH THIS BACKGROUND, WE HAVE RE AD RULE 46A WHICH SAYS THAT AN APPELLANT IS NOT ENTITLED TO PRODUCE B EFORE THE LEARNED CIT(APPEALS) ANY EVIDENCE UNLESS THE ASSESSING OFFI CER HAS BEEN ALLOWED A REASONABLE OPPORTUNITY TO EXAMINE SUCH EV IDENCE. THEREFORE, THE RULE PRESCRIBES THAT THE FIRST APPELLATE AUTHOR ITY IS NOT DEBARRED IN ACCEPTING THE NEW EVIDENCE, HOWEVER, THE ONLY EMBAR GO IS THAT HE SHALL NOT TAKE INTO ACCOUNT A FRESH EVIDENCE UNLESS SUCH AN EVIDENCE IS DULY CONFRONTED TO THE CONCERNED ASSESSING OFFICER. IN THE PRESENT CASE, ONCE THE ACCEPTED FACTUAL POSITION IS THAT THE LEARNED C IT(APPEALS) HAS CALLED FOR A REMAND REPORT IN RESPECT OF THE IMPUGNED EVID ENCES, THEREFORE, THE OBJECTION RAISED IN GROUND NO.2 HAVE NO SUBSTANCE, THEREFORE, DESERVES TO BE DISMISSED. ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 3 - 3. APROPOS GROUND NO.1, THE SHORT ISSUE AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DA TED 07/12/2006 IS IN RESPECT OF COMMISSION PAID BY THE ASSESSEE WHICH AC CORDING TO THE ASSESSING OFFICER WAS EXCESSIVE. THE FIGURES OF T HE COMMISSION AS NOTED BY THE ASSESSING OFFICER WERE AS FOLLOWS:- 2.1. FROM THE PROFIT AND LOSS ACCOUNT AND OTHER DE TAILS SUBMITTED BY THE ASSESSEE (REFER POINT NO.11 OF ASSESSEES S UBMISSION DATED 13.11.2006), IT IS NOTICED THAT THE ASSESSEE HAS CL AIMED SALES COMMISSION EXPENSES INCLUDING EXPORT COMMISSION EXP ENSES OF RS.66,96,220, WHICH INCLUDES SALES COMMISSION EXPEN SES OF RS.5,45,384, SALES INCENTIVE EXPENSES OF RS.2,48,26 4, SALES PROMOTION EXPENSES OF RS.63,573, PRODUCTION INCENTI VE EXPENSES OF RS.1,53,473 AND EXPORT COMMISSION EXPENSES OF RS.48 ,14,083. THIS ALSO INCLUDED OTHER EXPORT EXPENSES OF RS.1,25 ,633 AND EXPORT FREIGHT EXPENSES OF RS.3,69,692. VIDE NOTICE U/S. 142(1) DATED 14.11.2006, THE ASSESSEE WAS REQUESTED TO FURNISH T HE DETAILED JUSTIFICATION FOR PAYMENT OF SUCH COMMISSION AND OT HER EXPENSES AS TO WHY THEY WERE ALLOWABLE EXPENSES. 3.1. THE ASSESSING OFFICER HAS CONCLUDED THAT ON A TURNOVER OF ABOUT RS.6 CRORES THE ASSESSEE HAD EXPENDED APPROXIMATELY RS.66 LACS TOWARDS COMMISSION, ETC. IN HIS OPINION, IT WAS EXCESSIVE BECAUSE IT WAS MORE THAN 10% OF THE TOTAL TURNOVER. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD INCURRED ABOUT RS.50 LACS ON EXPORT RELATED SALES ON TOTAL EXPORT OF APPROXIMATE RS.1.5 CRORES. WITH THE RESULT, A DISALLOWANCE OF RS.52,56,976/- WAS MADE AS PER THE FOLLOWING CALCULATION: 2.4. THEREFORE, I DISALLOW 80% OF THE SAME (8 0% RS.66,96,220) RESTRICTING THE CLAIM OF COMMISSION E XPENSES INCLUDING OTHER EXPENSES TO ONLY APPROXIMATELY 2% O F TURNOVER ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 4 - RATHER THAN 10% AS CLAIMED BY THE ASSESSEE. THE D ISALLOWANCE COMES TO RS.52,56,976. PENALTY PROCEEDINGS U/S.27 1(1)(C) OF THE INCOME-TAX ACT, 1961 ARE SEPARATELY INITIATED. 4. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY WHO HAS EXAMINED THE FACTS OF THE CASE AND, THEREAFTER, HEL D IN FAVOUR OF THE ASSESSEE AS UNDER:- 3.2.3. THE ASSESSING OFFICER SEEMS TO HAVE ARRIVED AT A CONCLUSION REGARDING THE EXCESSIVE NATURE OF COMMIS SION BASED ON THE FACT THAT THERE WAS A LARGE DIFFERENCE BETWEEN THE PRICE AGREED UPON BETWEEN SHRI K.A.GADGIL / M/S.L.T. PHARMA P.LT D. AND THE ASSESSEE AND THE PRICE AT WHICH THE PRODUCT WAS INV OICED TO THE FOREIGN PARTIES. OSTENSIBLY, IT APPEARS THAT THE DIFFERENCE HAS BEEN SIPHONED OFF FROM THE HANDS OF THE APPELLANT T O THE HANDS OF THE COMMISSION AGENTS. HOWEVER, THE FACT OF THE MA TTER IS, AS SEEN FROM THE LARGE NUMBER OF BILLS FILED IN SUPPORT, TH AT THE SAME DRUG WAS BEING SOLD BY THE APPELLANT IN THE DOMESTIC MAR KET AT RS.6.25 PER PACK OF 4 TABLETS. THE SALES MADE TO SHRI K.A. GADGIL / M/S.L.T.PHARMA P.LTD. WERE ALSO AT THE SAME RATE. THE DIFFERENCE BETWEEN THIS RATE AND RATE AT WHICH IT WAS INVOICED ABROAD HAS BEEN PAID TO SHRI K.A.GADGIL / M/S.L.T.PHARMA. TA X HAS BEEN DEDUCTED ON SUCH PAYMENTS. THE RECEIPT OF SUCH CO MMISSION HAS BEEN DISCLOSED BY THEM IN THEIR HANDS AND OFFERED F OR TAXATION. THIS IS BORNE OUT BY THE COPIES OF ACKNOWLEDGEMENT OF RETURN OF INCOME, COPY OF COMPUTATION OF INCOME, BALANCE SHEE T AND PROFIT & LOSS ACCOUNT. THE CREDIT FOR TDS HAS ALSO BEEN CLA IMED BY THE COMMISSION AGENTS. NETHER OF THE TWO AGENTS HAVE F ILED LOSS RETURN, BUT HAVE RETURNED POSITIVE INCOME. THUS, T HE COMMISSION EXPENDITURE IN THE HANDS OF THE APPELLANT HAS BEEN OFFERED FOR TAXATION IN THE HANDS OF THE COMMISSION AGENTS. IF THERE WAS ANY SUSPICION REGARDING THE INFLATION OF EXPENSES, ETC. BY THE TWO COMMISSION AGENTS IN ORDER TO REDUCE THE TAXABLE IN COME, THIS WOULD BE A MATTER OF INVESTIGATION BY THE OFFICERS ASSESSING THOSE TWO ENTITIES. SO FAR AS THE APPELLANT IS CONCERNED , SUFFICIENT EVIDENCE HAS BEEN ADDUCED TO SHOW THAT THE EXPENDIT URE ON COMMISSION WAS INCURRED FOR BUSINESS PURPOSES AND T HAT THE APPELLANT ACHIEVED GREATER VOLUME OF SALES AS A RES ULT OF PAYMENT ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 5 - OF SUCH COMMISSION. HAD THE COMMISSION NOT BEEN PA ID THE ENHANCED SALES WOULD NOT HAVE BEEN ACHIEVED. A LA RGE QUANTUM OF COMMISSION PER SE COULD NOT LEAD TO A CONCLUSION THAT IT WAS UNJUSTIFIED. 3.2.4 REGARDING COMMISSION AMOUNTED TO RS.7,42,573/ - IN RESPECT OF DOMESTIC SALES, THE A.O HAS REPORTED THAT ALTHOU GH CONFIRMATION LETTERS HAVE BEEN FILED, NO DETAILS REGARDING BASIS OF COMMISSION, THE SERVICE RENDERED AND ORDERS PROCURED BY THESE P ARTIES HAVE BEEN FILED. HOWEVER, I FIND THAT THE ASSESSEE HAS FILED CONFIRMATION LETTERS AS WELL AS THE CREDIT NOTES (W HICH CLEARLY SHOW THE BASIS OF COMMISSION PAYMENT @ 3 5%) AND COPIE S OF INVOICES SHOWING SALES MADE ON ORDERS PROCURED BY THE COMMIS SION AGENTS. THESE EVIDENCES HAVE BEEN FILED IN THE PAPER-BOOK W HICH WAS FORWARDED TO THE A.O FOR VERIFICATION. LOOKING TO THE TOTALITY OF THE CIRCUMSTANCES, I AM OF THE OPINION THAT THE ASS ESSEE HAS DISCHARGED HIS ONUS OF SUPPORTING AND JUSTIFYING IT S CLAIM OF PAYMENT OF COMMISSION, BOTH IN RESPECT OF EXPORT SA LES AS WELL AS LOCAL SALES. IN VIEW OF THE SUM OF FACTS AND CIRC UMSTANCES OF THE CASE, IT IS HELD THAT THE A.O WAS NOT JUSTIFIED IN DISALLOWING COMMISSION PAYMENT AGGREGATING TO RS.52,56,976/-, W HICH IS DIRECTED TO BE DELETED. 5. ON HEARING THE SUBMISSION OF BOTH THE SIDES, WE HAVE NOTICED THAT SOME OF THE BASIC FACTS PERTAINING TO THE GRANT OF COMMISSION AS NARRATED BEFORE THE AUTHORITIES ARE WORTH REPRODUCTION, EXTR ACTED FROM THE ORDER OF THE LEARNED CIT(APPEALS) AS FOLLOWS:- 3.2. IN APPEAL, THE LD. A.R SUBMITTED THAT THE ASS ESSEE IS MANUFACTURING CONTROLLED DRUGS. IT WAS SUBMITTED THAT THE COMMISSION WAS PAID ON ACCOUNT OF BUSINESS EXIGENCI ES AND AS PER PREVAILING MARKET PRACTICE IN THE PHARMACEUTICAL IN DUSTRY. THE EXPORTS WERE MADE TO SIX FOREIGN PARTIES BASED IN L ATIN AMERICA AND CARIBBEAN COUNTRIES. NONE OF THE PARTIES WAS I N ANY WAY RELATED TO THE ASSESSEE COMPANY OR TO ITS DIRECTORS . THE MAJOR PART OF THE COMMISSION WAS PAID TO TWO INDIAN PARTI ES. BOTH ARE ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 6 - ASSESSED TO TAX AND WHILE MAKING THE PAYMENT OF COM MISSION, THE ASSESSEE COMPANY HAS DEDUCTED TAX AT THE PREVAILING RATE FROM EACH AND EVERY PAYMENT AND DEPOSITED THE SAME IN GO VERNMENT ACCOUNT. JUSTIFYING THE PAYMENT OF COMMISSION, IT WAS SUBMITTED THAT THE ASSESSEE COMPANY MANUFACTURES A DRUG WHICH WAS SOLD UNDER THE NAMES OF TADALAFIL AND SILDENAFIL. TH IS IS A SUBSTITUTE FOR THE DRUG VIAGRA. THIS DRUG IS IN VERY HIGH D EMAND AND FETCHES DISPROPORTIONATELY HIGH PRICE, PARTICULARLY IN WESTERN COUNTRIES. DURING THE PREVIOUS YEAR UNDER CONSIDER ATION, THE ASSESSEE COMPANY WAS APPROACHED BY A COMMISSION AGE NT SHRI K.A. GADGIL, WHO ENQUIRED THE RATE AT WHICH THE COM PANY WAS PREPARED TO SUPPLY THIS DRUG. THE COMPANY OFFERED TO SUPPLY THE DRUG AT RS.6.25 FOR A PACK OF 4 TABLETS, WHICH WAS THE SAME RATE AT WHICH IT WAS SELLING THIS DRUG TO OTHER PARTIES. S HRI K.A. GADGIL ACCEPTED THE OFFER AND IN TURN OBTAINED EXPORT ORDE RS FROM VARIOUS FOREIGN PARTIES FOR SUPPLY OF THE DRUG @ RS.52.33 P ER PACK OF 4 TABLETS. UNDER THE TERMS OF THE AGREEMENT DATED 1 -4-2003 ENTERED INTO BETWEEN THE APPELLANT AND SHRI GADGIL, THE ASS ESSEE WAS REQUIRED TO DIRECTLY RAISE INVOICES IN THE NAMES OF THE FOREIGN PARTIES AND TO RECEIVE THE PAYMENT IN FOREIGN EXCHA NGE FOR THE FULL AMOUNT OF RS.52.33. THE DIFFERENCE BETWEEN RS.52.3 3 & 6.26, RS.46.07 WAS TO BE PAID TO SHRI GADGIL, SINCE HE HA D OBTAINED THE ORDERS. THIS WAS DONE BY THE ASSESSEE AND COMMISSI ON WAS PAID TO SHRI GADGIL AS WELL AS TO THE COMPANY IN WHICH H E WAS MANAGING DIRECTOR, VIZ. M/S.L.T.PHARMA P.LTD. SINC E THE COMMISSION WAS PAID FOR BUSINESS REASONS THERE WAS NO JUSTIFICATION FOR MAKING THE DISALLOWANCE. 6. IN THE LIGHT OF THE ABOVE EXPLANATION, WE HAVE P ERUSED THE CONTENTS OF THE COMPILATION. THERE WAS AN AGREEMENT BETWEE N THE ASSESSEE AND THESE TWO PARTIES. THE TERMS OF THE AGREEMENT HAVE REVEALED THAT THE DIFFERENCE BETWEEN THE PRICE AGREED BETWEEN THE COM PANY AND THE AGENT AND PRICE AT WHICH THE PRODUCT IS FINALLY INVOICED TO END CUSTOMER, IF ANY, SHALL BE TREATED AS PRICE DIFFERENTIAL AND SHALL BE PAID BACK TO AGENT ONCE THE FULL PAYMENT FOR SUCH EXPORT IS REALIZED. ALL SUCH PAYMENT OF PRICE DIFFERENTIAL SHALL BE SUBJECT TO THE PROVISIONS OF THE INCOME TAX ACT, 1961 ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 7 - AND NECESSARY TAX SHALL BE DEDUCTED AT SOURCE AS AP PLICABLE. HOWEVER, THERE IS ALSO ONE MORE CLAUSE IN RESPECT O F INCENTIVES THAT ALL THE EXPORT BENEFITS LIKE TAX INCENTIVES AND REPLEN ISHMENT LICENCE ETC. ON SUCH DIRECT EXPORT SHALL BELONG TO THE COMPANY AND AGENT SHALL NOT CLAIM ANY BENEFITS THEREUNDER EITHER FROM THE COMPANY OR FROM THE GOVERNMENT AUTHORITY. 7. THERE ARE OTHER EVIDENCES, SUCH AS, FINAL SETTLE MENT ACCOUNT OF THE SAID AGENTS AND THE CREDIT NOTES ISSUES IN THEIR FA VOUR, SALES BILLS, ETC. THEREFORE, THE ENTIRETY OF THE CIRCUMSTANCES CLEARL Y DEMONSTRATE THAT IT WAS NOT MERELY A PAYMENT OF COMMISSION IN STRICT SE NSE, BUT THE SAID TWO PARTIES HAVE MADE THE SALES IN FOREIGN COUNTRIES AN D THE PRICE DIFFERENCE WAS PAID BACK TO THEM AND IN TURN THE ASSESSEE HAS ALSO GOT THE BENEFIT OF EXPORT INCENTIVES AS EXPLAINED THROUGH SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. TOTALITY OF THE CIRCUMSTANCES H AVE THUS ESTABLISHED THAT IT WAS A PRUDENT COMMERCIAL DECISION, THEREFOR E, MEANT FOR THE PURPOSES OF THE BUSINESS, HENCE, ALLOWABLE AS PER L AW. IN THE ABSENCE OF ANY CONTRARY MATERIAL, WE FIND NO FALLACY IN THE VE RDICT OF THE FIRST APPELLATE AUTHORITY WHICH IS HEREBY CONFIRMED. RE VENUES GROUND IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 20/ 08 /2010. SD/- SD/- ( G.D.AGRAWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 20/ 08 /2010 T.C. NAIR, SR. PS ITA NO. 4182/AHD/2007 DY.CIT VS. M/S.UNICURE REMEDIES P.LTD. ASST.YEAR - 2004-05 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD