DCIT, New Delhi V. M/s. Bhiwadi Metal Rollwell (P) Ltd., New Delhi

ITA 4277/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52799 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: SM MATHUR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 4277(DEL)/2010 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF M/S BHIWA DI METAL ROLLWELL (P) INCOME-TAX, CIRCLE 2(1), VS. LTD., S -569, 2 ND FLOOR, NEW DELHI . GK, PART-II, NEW DELHI-48. PAN-AAACB4973A (APPELLANT) (RESPON DENT) APPELLANT BY : MRS ANUSHA KHURANA, SR. DR RESPONDENT BY: SHR I S.M. MATHUR, C.A. DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT: 07.10.2011. ORDER PER K.G. BANSAL : AM THE ONLY GROUND TAKEN BY THE REVENUE IN THIS APPEA L IS THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW IN DIRECT ING THE AO TO TREAT COMMISSION INCOME OF RS. 38.50 LAKH AS BUSINESS IN COME AND NOT INCOME LIABLE TO BE TAXED UNDER THE RESIDUARY HEAD. WHI LE DOING SO, HE IGNORED THE FACT THAT THE ASSESSEE DID NOT PROVIDE ANY EVIDE NCE FOR PROCUREMENT OF ORDERS SUPPLIED TO NATIONAL HYDRO POWER CORPORATIO N (NHPC FOR SHORT) AND TRANSPORTATION OF GOODS TO IT ON BEHALF OF U NITED WAREHOUSING PVT. LTD. (UWPL FOR SHORT), FOR WHICH THE ASSESSEE IS ACTING AS AGENT. ITA NO. 4277(DEL)/2010 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE-COMPANY FILED NIL RETURN ON 19.02.2008. THE RETURN WAS PROCESSED U/S 143(1). THEREAFTER, THE RETURN WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) ON 15.09.2008. THE ONLY DISPUTE BEFORE US IS WHETHER THE COMMISSION INCOME OF RS. 38,50,000/- OFFERED BY THE ASSESSEE FOR TAXATION IS BUSINESS INCOME OR INCOME LIABLE TO BE TAXED AS INCOME FROM OTH ER SOURCES. THE FINDING OF THE AO IS THAT THE AGREEMENT BETWEEN THE ASS ESSEE AND UWPL DOES NOT CONSTITUTE BINDING AGREEMENT. THE ASSESSEE HAS FAILED TO BRING ANY EVIDENCE ON RECORD THAT ANY SERVICE WAS RENDERED TO THAT COMPANY FOR PURCHASE OR WAREHOUSING OF THE GOODS SUPPLIED B Y STEEL AUTHORITY OF INDIA LTD. (SAIL FOR SHORT) TO NHPC. THEREFORE, IT HAS BEEN CONCLUDED THAT THE TRANSACTION BETWEEN THE ASSESSEE AND THE UPWL IS A SHAM TRANSACTION UNDERTAKEN WITH A VIEW TO OBTAIN THE B ENEFIT OF SET OFF OF BROUGHT FORWARD BUSINESS LOSSES FROM EARLIER YE ARS. ACCORDINGLY, SUCH SET OFF HAS NOT BEEN ALLOWED ALTHOUGH THE BUSINESS LOSS OF THIS YEAR AMOUNTING TO RS. 10,15,707/- HAS BEEN SET OFF AG AINST COMMISSION INCOME OF RS. 38.50 LAKH. THUS, THE TOTAL INCOME HAS BEEN COMPUTED AT RS. 28,34,293/-. 3. VARIOUS ARGUMENTS WERE MADE BEFORE THE LD. CI T(APPEALS), BEING THE FIRST APPELLATE AUTHORITY. IT IS MENTIONED THAT THE PAYER HAS DEDUCTED ITA NO. 4277(DEL)/2010 3 TAX AT SOURCE FROM THE COMMISSION PAYMENTS MADE TO THE ASSESSEE. BOTH THE PARTIES HAVE PROPERLY ACCOUNTED FOR THE PAYMENTS AND THE RECEIPTS. THE AGREEMENT IN REGARD TO PAYMENT OF COMMISSION DATED 30.04.2006 HAD BEEN BROUGHT ON RECORD BEFORE THE AO, WHICH SHOW S THAT THE ASSESSEE HAD BEEN ACTING AS AN AGENT OF UWPL. ACCORDING TO THE MEMORANDUM OF THE ASSESSEE-COMPANY, IT IS ENTITLED TO ACT AS COMMISSION AGENT, MARKETING ADVISOR AND MARKETING CONSULTANT. THE COMMISSION HAD BEEN EARNED IN PURSUANCE OF THIS MAIN OBJECT. ON THE SE FACTS, IT HAS BEEN CONCLUDED THAT THE INCOME CANNOT BE TAKEN AS NON- BUSINESS INCOME. ACCORDINGLY, THE FINDING OF THE AO ON THIS ISSUE HA S BEEN REVERSED. 4. BEFORE US, THE LD. SENIOR DR HAS DRAWN OUR A TTENTION TO PAGE NO. 2 OF THE ASSESSMENT ORDER WHERE IT IS RECORDED THAT :- (I) THE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE REGARDING PROCUREMENT OF ORDERS FOR MATERIAL SUPPLIED BY SA IL TO NHPC; (II) IT HAS FAILED TO PROVIDE EVIDENCE REGARDING TRA NSPORTATION OR WAREHOUSING OF THE GOODS ON BEHALF OF UWPL; (III) IT HAS FAILED TO PROVIDE DETAILS OF PERSONS WHO HANDLED BUSINESS ON BEHALF OF ASSESSEE-COMPANY AND IN FACT SALARY , WAGES, TRAVELING AND CONVEYANCE EXPENSES HAVE REDUCED V IS--VIS LAST YEAR; ITA NO. 4277(DEL)/2010 4 (IV) THE AGREEMENT IS WRITTEN ON THE LETTER HEAD OF THE UWPL AND PAGE NOS. 1 AND 2 OF THE AGREEMENT ARE UNSIGNED, W HICH MAKE IT LEGALLY NON-ENFORCEABLE; (V) THE AGREEMENT INTER-ALIA PROVIDES THAT THE ASSES SEE SHALL MAKE BEST EFFORTS TO PROMOTE THE BUSINESS AND DEVELO P MORE DEMAND FOR THE PRINCIPAL, BUT NO EXPENDITURE HAD BEEN I NCURRED ON ADVERTISEMENT AND PUBLICITY; (VI) THE AGREEMENT ALSO PROVIDES THAT THE AGENT WIL L MEET ITS OWN EXPENSES IN RESPECT OF SALARIES, COMMISSION, TRA VELING, CONVEYANCE AND COMMUNICATION BUT THESE EXPENSES HAVE REDUCED VIS--VIS LAST YEAR; (VII) DEBIT NOTE HAS BEEN RAISED ON 31.03.2007 AND NOT PERIODICALLY AS SERVICES ARE RENDERED; AND (VIII) THE ASSESSEE HAD NOT PROVIDED DETAILS OF AMOUNT RECEIVED FROM THE UWPL. 4.1 SHE HAS ALSO DRAWN OUR ATTENTION TO PAGE NOS. 55 AND 56 OF THE PAPER BOOK, BEING AGREEMENT DATED 30.04.2006 BETWEEN U WPL AND THE ASSESSEE, WHICH HAS NOT BEEN INITIALED BY BOTH T HE PARTIES ON THESE PAGES. THE TERMS AND CONDITIONS OF THE AGREEMENT ARE A S UNDER:- (1) THE PRINCIPAL HEREBY APPOINTS BHIWADI METAL ROLLWE LL PRIVATE LIMITED AS THE NON-EXCLUSIVE AGENT FOR MARKETING, LIAISONING AND NEGOTIATING FOR PROCURING ORDERS OF HANDLING A ND TRANSPORTATION OF STEEL MATERIALS FROM WAREHOUSE T O WAREHOUSE AND WITHIN WAREHOUSES THROUGHOUT THE TERRITORY OF INDIA AND THE COMMISSION AGENT HEREBY ACCEPTS THE SAID APPO INTMENT ON THE TERMS AND CONDITIONS MENTIONED IN THIS AGRE EMENT. (2) THIS AGREEMENT DOES NOT CONFER ANY EXCLUSIVE RI GHT UPON THE AGENT AND THE PRINCIPAL IS AT LIBERTY TO APPOINT ONE OR MORE ITA NO. 4277(DEL)/2010 5 COMMISSION AGENTS ON SUCH TERMS AND CONDITIONS AS IT MAY DECIDE. (3) THE PRINCIPAL SHALL PAY COMMISSION TO THE AGENTS AT THE RATE OF 0.86% ON THE AMOUNT OF VALUE OF MATERIALS HANDLED BY THE PRINCIPAL FOR THE ORDERS PROCURED BY THE AGENT SU BJECT TO DEDUCTION OF TAX AT SOURCE AS APPLICABLE. THE RATE OF COMMISSION MAY VARY SPECIAL CASES AS MUTUALLY DEC IDED. (4) COMMISSION WILL BE DUE ON COMPLETION OF HANDLING & TRANSPORTATION WORKS SATISFACTORILY. THE COMMISSI ON AGENT SHALL RAISE INVOICE FOR THEIR COMMISSION BASED ON WHICH PRINCIPAL WILL MAKE PAYMENT THEREOF. (5) THE SERVICES WILL BE RENDERED DIRECTLY BY THE P RINCIPAL TO THE CUSTOMERS AS PER THE ORDERS OR REQUIREMENT RECEIV ED BY THE PRINCIPAL. THE GOODS WILL BE HANDLED/TRANSPORTED B Y THE PRINCIPAL FROM WAREHOUSE TO WAREHOUSE OR WITHIN W AREHOUSES AS DIRECTED BY THE CUSTOMERS OR AGENT. (6) THE AGENT SHALL MAKE BEST ENDEAVORS TO PROMOTE B USINESS AND DEVELOP MORE DEMAND OF THE PRINCIPALS BUSINESS AND SHALL PROPERLY ADVERTISE IT THROUGH DIFFERENT MEDIA OF PUBLICITY AND ADVERTISEMENT UNDER PRIOR APPROVAL FROM THE PRINC IPAL. (7) THE AGENT SHALL ACT FAITHFULLY AND DILIGENTLY W ITH THE PRINCIPAL AND DISCLOSED ALL COMPLAINT RECEIVED BY HIM FROM THE CUSTOMER TO THE PRINCIPAL. THE AGENT SHALL ENSURE THAT CL AIMS FOR DAMAGES OR SHORT SUPPLIES ARE RETROCEDE TO THE MIN IMUM. (8) THE COMMISSION AGENT SHALL NOT MAKE ANY REPRESENTAT ION ABOUT THE SERVICES RENDERED BY THE PRINCIPAL AND TERMS OF SUPPLY INCLUDING SERVICE CHARGES TO THE PROSPECTIVE CUST OMER SAVE AND EXCEPT AS EXPRESSLY COMMISSION IN WRITING TO IT BY THE PRINCIPAL AND ACCEPTED BY THE LATTER. (9) THE AGENT SHALL MEET POTENTIAL CUSTOMER, NEGOTIATE WITH THEM, FOLLOW UP WITH THEM FROM TIME TO TIME, GET ORDE R AND COORDINATE FOR SUPPLY WITH THE PRINCIPAL. ITA NO. 4277(DEL)/2010 6 (10) THE COMMISSION AGENT SHALL ALSO TO HAVE FOLLOWED UP WITH CUSTOMERS FOR THE PAYMENT REMITTANCE TOWARDS S ERVICE CHARGES TO THE PRINCIPAL AS INSTRUCTED BY THE PRINCIPAL. (11) THE AGENT ITSELF WILL BE RESPONSIBLE TO MEET OBLIG ATIONS AS REGARDS THE EXPENSES OF ITS STAFF SALARY, COM MISSION, TRAVELING AND CONVEYANCE AND COMMUNICATION COST ETC. INCURR ED BY IN OTHER TO PROMOTE THE BUSINESS OF THE PRINCIPAL. (12) THE AGENT SHALL NOT ASSIGN THE RIGHTS AND BENEFIT UNDER THIS AGREEMENT TO ANY OTHER PERSON WITHOUT THE P RIOR CONSENT OF THE PRINCIPAL IN WRITING. (13) ANY PART WILL BE ENTITLED TO CANCEL THIS AGREEMEN T BY GIVING PRIOR OF AT LEAST ONE MONTH TO THE OTHER PARTY IN ANY OF THE FOLLOWING EVENTS: (A) IF THE OTHER PARTY COMMITS BREACH OF ANY T ERMS OF THIS AGREEMENT. (B) IF THE PARTY BEING THE COMPANY GOES INTO VOL UNTARY LIQUIDATION, OR BECOMES UNSOLVED OR IS ORDERED TO BE WOUND UP BY A COURT OF LAW. (C) IF THE PRINCIPAL HAS FOUND THE COMMISSION AGEN T INDULGING IN ACTIVITIES HARMFUL OF THE INSERT OF THE PRINCIPA L. 4.2 IN THESE CIRCUMSTANCES, RELIANCE HAS BEEN PLA CED ON THE ORDER OF THE AO TO ARGUE THAT THE TRANSACTION IS COLLUSIVE IN NA TURE AND NO SERVICE HAD BEEN RENDERED. THEREFORE, THE RECEIPT IS LIABLE TO BE TAXED UNDER THE RESIDUARY HEAD. ITA NO. 4277(DEL)/2010 7 5. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF MANUFACTUR ING AND TRADING IN STEEL AND STEEL PRODUCTS. IT HAS ALSO BEEN CARRYING ON THE BUSINESS OF PROCURING ORDERS ON BEHALF OF NHPC FROM SAIL AND OTHER STE EL MANUFACTURING COMPANIES. THE ASSESSEE HAS NO RELATIONSHIP W HATSOEVER WITH UWPL. IT HAS ALSO NOT ENTERED INTO ANY TRANSACTION OF PURCHASE OR SALE WITH THIS PARTY. THE AGREEMENT WITH THAT COMPANY IS IN RESP ECT OF HANDLING, TRANSPORTATION OF MATERIAL FROM ONE WAREHOUSE TO ANOTHER DEPENDING UPON THE REQUIREMENT OF UWPL. IN THIS CONNECTION, O UR ATTENTION HAS BEEN DRAWN TO THE AGREEMENT PLACED IN THE PAPER BOOK O N PAGE NOS. 55 AND 56. FURTHER, OUR ATTENTION HAS BEEN DRAWN TO PAGE NO. 22, WHICH IS THE MEMORANDUM OF THE ASSESSEE-COMPANY. MAIN OBJECT N O. 3 PERMITS THE ASSESSEE TO ACT AS COMMISSION AGENT, MARKETING ADVISOR, MARKETING CONSULTANT ETC. OUR ATTENTION HAS ALSO BEEN DRA WN TO PAGE NOS. 73 TO 78 OF THE PAPER BOOK. PAGE NO. 73 IS A CONFIRMATION LET TER DATED 04.06.2010 STATING INTER-ALIA THAT COMMISSION CHARGES OF RS. 43,21,240/- HAVE BEEN PAID TO THE ASSESSEE-COMPANY FOR RENDERING VARIO US SERVICES, BEING PROCURING ORDERS FOR HANDLING STEEL MATERIAL FR OM WAREHOUSE TO WAREHOUSE OR EVEN WAREHOUSES LOCATED IN INDIA. PA GE NO. 74 IS THE COMPUTATION OF COMMISSION AMOUNTING TO RS. 43,21 ,240/-, CALCULATED @ ITA NO. 4277(DEL)/2010 8 0.86% OF THE MATERIAL SUPPLIED BY SAIL TO NHPC AND HANDLED THROUGH THE ASSESSEE. FROM THIS AMOUNT TAX AND EDUCATION CE SS AMOUNTING TO RS. 4,62,000/- AND RS. 9,240/- HAVE BEEN DEDUCTED TO ARRIVE AT THE NET PAYMENT OF RS. 38,50,000/-. PAGE NOS. 75 AND 76 S HOW THE DETAILS OF THE MATERIAL HANDLED BY THE ASSESSEE-COMPANY. PAGE NO . 77 IS THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF UWPL IN WHICH THE A MOUNT OF RS. 43,21,240/- HAD BEEN CREDITED AND THE AMOUNT OF RS. 2,15,985/- HAS BEEN DEBITED IN RESPECT OF THE DEDUCTIONS MADE. THUS, T HE AMOUNT OF RS. 41,05,255/- HAS BEEN CARRIED FORWARD. AS PER PAG E NO. 78, THIS AMOUNT HAD BEEN PAID BY WAY OF FOUR CHEQUES ON 02.06.2007. THE CASE OF THE LD. COUNSEL IS THAT A VALID AGREEMENT SUBSISTED BETWEEN THE TWO COMPANIES, SERVICES WERE RENDERED TO UWPL FOR HANDLING GOO DS FOR WHICH COMMISSION HAS BEEN RECEIVED. THE AO HAS NOT BR OUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE TRANSACTION WAS BOGUS OR COLLUSIVE IN NATURE. THE MAIN OBJECT PERMITS THE ASSESSEE TO ACT AS CO MMISSION AGENT. THE UWPL HAS PASSED ON THE WORK IT WAS NOT ABLE TO HANDLE TO THE ASSESSEE AND THERE IS NOTHING ON RECORD TO SHOW THAT THERE I S ANY MALA-FIDE INTENT IN SHOWING THE RECEIPT AS BUSINESS INCOME. ITA NO. 4277(DEL)/2010 9 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT THE ASSESSEE IS PERMITTED TO ACT AS COMMISSION AGENT, MARKETING ADVISOR ETC. THE PRINCIPAL HAS WORKED OUT THE AMOUNT INVOLVED IN GOODS HANDLED BY THE ASSESSEE ON ITS BEHALF, WHICH PERTAINS TO GOODS SUPPLIED BY SAIL TO NHPC. A PART OF THE INCOME HAS BEEN PARTED WITH TO THE ASSESSEE @ 0.86% OF THE AFORE SAID AMOUNT. BOTH THE PARTIES HAVE ACCOUNTED FOR THE AMOUNT AS RECEIPT S AND PAYMENTS. TAX PAYABLE HAS BEEN DEDUCTED FOR WHICH ASSESSEE HAS CLAIMED CREDIT. THE WORK OF HANDLING THE GOODS IS A PART OF THE BUS INESS OF THE ASSESSEE. THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD THAT THE GOODS WERE NOT HANDLED OR THE TRANSACTION IS SHAM. IN THESE C IRCUMSTANCES, IT WILL BE APPROPRIATE TO HOLD THAT THE INCOME EARNED BY T HE ASSESSEE CONSTITUTED BUSINESS INCOME, AS HELD BY THE LD. CIT(APPEALS). THEREFORE, WE CONCUR WITH HIM IN THIS FINDING. 7. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 4277(DEL)/2010 10 COPY OF THE ORDER FORWARDED TO:- M/S BHIWADI METAL ROLLWELL PRIVATE LTD., NEW DELHI. DCIT, CIRCLE 2(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.