ACIT, New Delhi V. Sh. Saurabh Batra, New Delhi

ITA 420/DEL/2013

• Counselvise Citation: 42020114 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S MINHAS ACIT
• Assessee Lawyers: VINOD K VINDAL; SANJEEV K BINDAL CAS
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SH. D. MANMOHAN , VICE PRESIDENT AND SH. N. K. SAINI, AM ITA NO. 420 /DEL/201 3 : ASSTT. YEAR : 200 8 - 09 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 20(1), NEW DELHI V S SH. SAURABH BATRA A - 100, GUJRAWALA TOWN, PART - I, NEW DELHI - 110009 (APPELLANT) (RESPONDENT) PAN NO. A EYPB9845E ASSESSEE BY : SH. VINOD K. VINDAL & SANJEEV K. BINDAL, CAS REVENUE BY : SH. J. S. MINHAS, ACIT DR DATE OF HEARING : 01 .0 7 .2015 DATE OF PR ONOUNCEMENT : 02 .07 .2015 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 2 9 . 10.2012 OF LD. CIT (A) - XXII, NEW DELHI . 2 . THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER: 1. WH ETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING THE DISALLOWANCE MADE BY THE AO U/S 40A(2) OF THE IT ACT, WHEN IT IS SEEN THAT ABOUT 60% OF THE COMMISSION EXPENSE CLAIMED BY THE ASSESSEE HAVE BEEN PAID TO FAMILY MEMBERS AT RELATIVELY HIGHER RATE OF 5 - 5.19%. ITA NOS. 420 /DEL /2013 S AURABH BATRA 2 3 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 26.09.2008 DECLARING AN INCOME OF RS. 8,60,482/ - WHICH WAS REVISED BECAUSE OF INCREASING DEDUCTION CLAIMED BY R S. 10,500/ - . IT WAS AGAIN REVISED ON 02.03.2009 DECLARING INCOME OF RS. 16,99,868/ - BECAUSE OF INCREASE IN INCOME BY RS. 8,49,886/ - UNDER THE HEAD CAPITAL GAINS . THE SAID RETURN WAS PROCESSED U/S 143(1)(A) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRE D TO AS THE ACT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED COMMISSION EXPENSES OF RS. 80,85,702/ - IN THE PROFIT AND LOSS ACCOUNT OF M/S CHEVRON FINSERVE AND RS. 6 8,96,585/ - IN THE PROFIT AND LOSS ACCOUNT OF M/S AUTONET INDIA, TOTALING TO RS. 1,49,82,287/ - . THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF COMMISSION EXPENSES . THE ASSESSEE FURNISHED THE DETAIL WHICH REVEALED THAT THE ASSESSEE HAD PAID COMMISSION OF RS . 89,43,123/ - TO THREE FAMILY MEMBERS AS UNDER: 1. GAURAV BATRA PROP. G.S. FINANCIALS RS.21,33,940/ - 2. MOHINDER PAL BATRA PROP. NEW BATRA MOTORS RS.33,86,313/ - 3. MONIKA BATRA PROP. M.K. FINANCIAL RS.34,22,870/ - 4 . THE AO ASKED THE ASSESSEE TO FURN ISH JUSTIFICATION OF COMMISSION PAID TO FAMILY MEMBERS U/S 40A(2) OF THE ACT. IN COMPLIANCE THERETO THE ASSESSEE FURNISHED THE DETAIL OF COMMISSION PAYMENT SHOWING PERCENTAGE OF COMMISSION PAID TO OTHER PARTY AND ALSO TO FAMILY MEMBERS. FROM THE SAID DETAI LS, THE AO OBSERVED THAT THE ASSESS EE WAS ITA NOS. 420 /DEL /2013 S AURABH BATRA 3 PAYING COMMISSION @ 3.87% TO 5% TO OTHER PARTIES WHEREAS IN THE CASE OF FAMILY MEMBERS THE COMMISSION WAS BEING PAID FROM 5% TO 5.19%. THE ASSESSEE SUBMITTED THAT THE RELATIVES HAD DONE BUSINESS OF FINANCING OF MOT OR CARS INDEPENDENTLY THROUGH VARIOUS CAR DEALERS IN THE MARKET AND THE BUSINESS OF THOSE RELATIVES HAVE GOT THE BULK BUSINESS AND VOLUMENISE MUCH ABOVE THE DIRECT PARTIES. THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED 20% OF THE COMMISSION I.E. RS. 17,88,629/ - BY INVOKING THE PROVISION OF SECTION 40A(2) OF THE ACT. 5 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND FURNISHED THE WRITTEN SUBMISSION S WHICH HAVE BEEN INCORPORATED IN PARA 7 OF THE IMPUGNED ORDER , FOR THE COST OF REPETITION, THE SAME ARE NOT REPRODUCED HEREIN. THE CONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS THAT THE OBSERVATION OF THE AO THAT THE COMMISSION WAS PAID TO THE RELATIVES PARTIES @ 5 % TO 5.19% AND TO OTHER PARTIES @ 3.87% TO 5% WAS NOT CORRECT AND NOT BASED ON FACTS. IT WAS POINTED OUT THAT THE COMMISSION PAID TO OTHER PARTIES WAS 2.63% TO 5.30% AND TO THE RELATIVES WAS 4.78% TO 5.18%. THE DETAIL OF THE INCOME HAS BEEN REPRODUCED BY THE LD. CIT(A) AT PAGE NO. 6 OF THE IMPUG NED ORDER. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE AO HAD TAKEN ONLY ONE SAMPLE TRANSACTION S AND ON THAT BASIS HE ARRIVED AT A DECISION FOR THE ENTIRE YEAR. HE FURTHER OBSERVED THAT ITA NOS. 420 /DEL /2013 S AURABH BATRA 4 ONLY SIX PARTIES (INCLUDIN G THREE RELATED PERSONS) HAD BEEN TAKEN BY THE AO FOR THE ANALYSIS, WHICH IMPLIES THAT ONLY T HREE NON RELATED PARTIES HAD BEEN CONSIDERED OUT OF A VERY LARGE NUMBER OF NON RELATED PARTIES. THE LD. CIT(A) POINTED OUT THAT THE TOTAL NUMBER OF NON RELATED PAR TIES IN M/S CHEVRON FINSERVE WAS 22, AND IN M/S AUTONET INDIA WAS 40 TO WHOM COMMISSION PAYMENTS HAD BEEN MADE DURING THE YEAR, BUT THE AO HAD RESTRICTED HIS ANALYSIS TO THREE UNRELATED PARTIES AND THAT TOO FOR THREE SPECIFIC TRANSACTIONS. THE LD. CIT(A) C ATEGORICALLY STATED THAT THE AO HAD POINTED OUT COMMISSION PAYMENTS TO THREE PARTIES RANGING FROM 4.97% TO 5.19%, BUT ON SOME TRANSACTIONS THE PAYMENT OF COMMISSION TO UNRELATED PARTIES WAS MUCH HIGHER I.E. IN THE CASE OF SH. CHANDER MOHAN GUPTA AND SH. VI NOD KUMAR JAIN, IT WAS 5.30% EACH AND IN THE CASE OF SH. NEERAJ JAIN IT WAS 5.25% BUT THE AO HAD IGNORED ALL THOSE CASES. THE LD. CIT(A) POINTED OUT THAT THE CHART COMPARING THE RATE S OF COMMISSION PAYMENTS FURNISHED BY THE ASSESSEE REVEALED THAT THE COMMI SSION TO THE RELATED PARTIES WAS RANGING FROM 4.78% TO 5.18% AND TO THE UNRELATED PARTIES FROM 2.63% TO 5.30% WHICH SHOWS THAT THE RATES OF COMMISSION PAYMENTS FOR UNRELATED PARTIES WERE MORE THAN THAT OF THE RELATED PARTIES. THE LD. CIT(A) WAS OF THE VIEW THAT THE AO MADE THE DISALLOWANCE @ 20% OF THE COMMISSION PAYMENTS WITHOUT ANY BASIS FOR THE QUANTIFICATION AND THERE WAS NO PROPER GROUND TO TREAT THE COMMISSION PAYMENTS TO THREE RELATED PERSONS AS EXCES SIVE OR UNREASONABLE HAVING REGA RD TO THE FAIR MAR KET VALUE OR THE LEGITIMATE NEEDS OF THE BUSINESS U/S ITA NOS. 420 /DEL /2013 S AURABH BATRA 5 40A(2) OF THE ACT. ACCORDINGLY, THE ADDITION OF RS. 17,88,629/ - MADE BY THE AO WAS DELETED. 7 . BEING AGGRIEVED THE DEPARTMENT IS IN APPEAL. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND REITERA TED THE OBSERVATION MADE IN THE ASSESSMENT ORDER DATED 30.11.2010. 8 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) . IT WAS FURTHER SUBMITTED THAT THE ASSESSMENT S FOR THE PRECEDING YEAR 2007 - 08 AND THE SUCCEEDING YEAR 2009 - 10 WERE ALSO COMPLETED U/S 143(3) OF THE ACT BUT NO SUCH DISALLOWANCE OUT OF THE COMMISSION PAYMENTS WAS MADE. THE COPY OF THE SAID ASSESSMENT ORDER S WERE FURNISHED WHICH ARE PLACED ON THE RECORD. IT WAS ACCORDINGLY SUBMITTED THAT THE LD. CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE AO. 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON T HE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE AO ON THE BASIS OF WRONG SELECTION OF SAMPLE , CAME TO THE CONCLUSION THAT THE ASSESSEE WAS PAYING COMMISSION AT THE HIGHER RATE TO THE RELATED PARTIES IN COMPARISON TO THE UNRELATED PARTIES. THE AO HAD CH OOSEN THREE PARTIES OUT OF THE 62 UNRELATED PARTIES AND CAME TO THE CONCLUSION THAT THE RATE OF COMMISSION WAS RANGING FROM 3.87% TO 5% WHILE THE COMMISSION PAID TO THE RELATED PARTIES WAS ITA NOS. 420 /DEL /2013 S AURABH BATRA 6 RANGING 5% TO 5.19%. HOWEVER, THE LD. CIT(A) ON THE BASIS OF COMPLE TE DETAILS FURNISHED BY THE ASSESSEE CAME TO THE CONCLUSION THAT THE COMMISSION PAID TO THE RELATED PARTIES WAS RANGING FROM 4.78% TO 5.18% AND TO THE UNRELATED PARTIES 2.63% TO 5.30%. IN THE PRESENT CASE, THE COMMISSION PAID TO THE UNRELATED PARTIES @ 5.3 0% WAS AT A MUCH HIGHER LEVEL THAN THE HIGHEST RATE OF COMMISSION PAID TO THE RELATED PARTIES AT 5.19%. THEREFORE, THE AO WAS NOT JUSTIFIED IN PRESUMING THAT THE COMMISSION PAID TO THE RELATED PARTIES WAS AT HIGHER RATE. IN THE PRESENT CASE, IT IS ALSO NOT ICED THAT IN SIMILAR CIRCUMSTANCES, THE AO WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT ON 26.07.2011 FOR THE PRECEDING ASSESSMENT YEAR 2007 - 08 AND ON 08.08.2011 FOR THE SUCCEEDING ASSESSMENT YEAR 2009 - 10 HAD NOT MADE ANY SUCH DISALLOWANCE OUT OF THE COMMISSION PAYMENT TO THE RELATED PARTIES. FURTHERMORE , THE AO MADE THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT, HOWEVER NOTHING WAS BROUGHT ON RECORD ON THE BASIS OF THE COMPARATIVE ANALYSIS TO SUBSTANTIATE THAT THE COMMISSIO N PAID TO THE RELATED PARTIES WAS HIGHER THAN THE COMMISSION PAID TO UNRELATED PARTIES. IT IS ALSO NOT THE CASE OF THE AO THAT THE PAYMENT WAS MADE AT A HIGHER RATE THAN THE MARKET RATE , HE HAD ALSO NOT GIVEN ANY BASIS FOR MAKING THE ADHOC DISALLOWANCE @ 2 0% OF THE COMMISSION PAYMENTS TO THE RELATED PARTIES. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE ARE OF THE VIEW THAT THE LD. CIT(A) ITA NOS. 420 /DEL /2013 S AURABH BATRA 7 WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED ADDITION. WE, THEREFORE, DO NOT SEE ANY MER IT IN THIS APPEAL OF THE DEPARTMENT. 10 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 02 /07 /2015 ) SD/ - SD/ - (D. MANMOHAN ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 02 /07 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR