ACIT, New Delhi V. M/s. Prema Marketing Pvt. Ltd., New Delhi

ITA 4475/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52567 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: C S AGGARWAL
• Keywords: Commercial expediency
• Section: 131

Judgement Text

ITA NO. 4475/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4475/DEL/2010 A.Y. : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 14(1), ROOM NO. 415, 4 TH FLOOR, CR BUILDING, NEW DELHI VS. M/S PREMA MARKETING PVT. LTD. A-13A, GREEN PARK MAIN, NEW DELHI (PAN/GIR NO. : AAACP0679H) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. C.S. AGGARWAL, ADV. DEPARTMENT BY : SMT. PRATIMA KAUSHIK, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 02.6.2 010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUES RAISED READ AS UNDER:- I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N DELETING THE ADDITION OF ` 33,06,000/- MADE ON ACCOU NT OF DISALLOWANCE OF CONSULTANCY CHARGES MADE TO M/S MINDA SAI LTD. II) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N APPRECIATING PROPERLY THAT M/S MINDA SAI LTD. TO WHO M THE ITA NO. 4475/DEL/2010 2 ALLEGED CONSULTANCY CHARGES WERE CLAIMED TO HAVE B EEN PAID DID NOT HAVE TECHNICAL KNOW HOW OR EXPERTISE TO PROVIDE SUCH SERVICES. 3. IN THIS CASE ASSESSING OFFICER OBSERVED THAT A SSESSEE HAS SHOWN INCOME FROM COMMISSION/ INTEREST/ OTHER INCOME AT ` 5 5,13,612/-. AS AGAINST THIS INCOME ASSESSEE HAS SHOWN EXPENSES OF ` 33,06,000/- PAID TO M/S MINDA SAI LTD. ON ACCOUNT OF OUTSOURCIN G AND CONSULTANCY CHARGES. TO VERIFY THIS, SUMMON UNDER SECTION 131 WAS ISSUED TO MINDA SAI LTD. FOR PROVIDING COPY OF ACCOUNT AND DE TAILS OF JOB DONE FOR M/S PRAMA MARKETING (P) LTD. ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS PROVIDED A PHOTOCOPY OF AGRE EMENT AND A COPY OF ACCOUNT OF THE ASSESSEE BUT HAS FILED NO E VIDENCE IN RESPECT OF JOB DONE FOR THE ASSESSEE. IN ITS LETTER DATED 26.12 .2008 IT WAS STATED THAT JOB DONE WAS PROVIDING THE LIST OF VENDORS FOR DIFFERENT WORKS, DESIGN AND DRAWING TO THE ASSESSEE. HOWEVER, ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS FAILED TO FILE ANY E VIDENCE IN RESPECT OF THE JOB DONE. ASSESSING OFFICER FOUND THE REPLY O F THE ASSESSEE NOT CONVINCING. HE NOTED THAT THE AGREEMENT WITH LMZ EN GERY INDIA LTD. WAS RELATED TO NHPC I.E. POWER SECTOR. ASSESSING OF FICER STATED THAT M/S MINDA SAI LTD. WHICH HAS BEEN SHOWN AS OUTSOURCIN G COMPANY HAS NEVER BEEN IN THE FIELD OF POWER SECTOR. ASSESSIN G OFFICER OPINED THAT ACTUALLY THIS COMPANY IS A MANUFACTURING COMPAN Y INVOLVED IN WIRING HARNESS, WIRE SETS ETC. WHICH ARE NOT EVEN R EMOTELY RELATED TO POWER SECTOR. THIS MEANS MINDA SAI LTD. DID NOT HAV E THE KNOWLEDGE, KNOW HOW AND WHERE WITH ALL FOR PROVIDING CONSULTAN CY TO NHPC IN THE POWER SECTOR. THEREFORE, HE OBSERVED THAT THE A BOVE AGREEMENT SHOWN BETWEEN THE ASSESSEE AND MINDA SAI LTD. IS O NLY AN ATTEMPT TO REDUCE TAXABLE INCOME FOR EVASION OF TAXES. ASSES SING OFFICER ITA NO. 4475/DEL/2010 3 PROCEEDED TO HOLD THAT CONSULTANCY EXPENSES ON ACCO UNT OF OUTSOURCING EXPENSES WAS NOT GENUINE, HENCE, HE ADD ED ` 33,06,000/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE AND HELD AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE SUBMISSION OF THE APPELLANT HAS ALSO BEEN GONE T HROUGH VERY CAREFULLY. THE BASIC OBSERVATION OF THE AO. T O TREAT THIS AMOUNT AS DISALLOWABLE IS BASED ON THE FACT THAT M/S MINDA SAI LTD. HAS NOT FILED FIRSTLY ANY EVIDENCE IN RESP ECT OF JOB DONE BY IT, SECONDLY THIS COMPANY HAS NEVER BEEN IN THE FIELD OF POWER SECTOR AND THEREFORE, IT DID NOT HAVE THE KNOWLEDGE, KNOW-HOW AND WHEREWITHAL TO PROVIDE CONSULTANCY TO NHPC AND THIRDLY THAT THE AMOUNT RECEI VED FROM THE APPELLANT HAS NOT BEEN SHOWN IN THE PROFIT A ND LOSS ACCOUNT OF MIS MINDA SAI LTD. 2.3.1. THE FIRST OBSERVATION OF THE AO. IS NOT FACT UALLY CORRECT AS HE HIMSELF HAS MENTIONED IN THE ORDER TH AT VIDE LETTER DATED 26.12.2008 RECEIVED BY POST ON 30.12.2 008 BY HIM, M/S MINDA SAI LTD. HAS CONFIRMED OF PROVIDING T HE LIST OF VENDORS FOR DIFFERENT WORKS FOR PROVIDING DESIGN AN D DRAWING. IF THE AGREEMENT BETWEEN THE APPELLANT AND M/S MINDA SAI LTD. IS PERUSED CAREFULLY, IT WILL BE SEEN THAT IT WAS BASICALLY THE JOB FOR WHICH THIS AGREEMENT WAS SIGNE D. THERE CAN NOT BE ANY OTHER EVIDENCE FOR SUCH SERVIC ES HAVING BEEN PROVIDED BY M/S MINDA SAI LTD. IF AO WAS HAVING ANY SPECIFIC EVIDENCE IN HIS MIND HE SHOULD H AVE SPECIFICALLY ASKED FOR THE SAME. AS HE HAS NOT ASKE D FOR ANY ITA NO. 4475/DEL/2010 4 SPECIFIC EVIDENCE, FURNISHING OF THE DETAILS OF SER VICES PROVIDED AND COPY OF ACCOUNT CONFIRMING THE RECEIPT OF THE AMOUNT BY M/S MINDA SAI LTD. WILL AMOUNT TO DISCHARGE OF PRIMARY ONUS CAST UPON THE APPELLANT. 2.3.2. AS REGARDS THE SECOND OBSERVATION OF THE AO. THAT M/S MINDA SAI LTD. IS NOT HAVING SUFFICIENT KNOWLEDGE, K NOW HOW AND WHEREWITHAL FOR PROVIDING CONSULTANCY TO NHPC A S IT HAS NEVER DONE ANY WORK IN THE FIELD OF POWER SECTOR AND THEREFORE, THE AGREEMENT IS ONLY AN ATTEMPT TO REDUC E TAXABLE INCOME FOR EVASION OF TAX, AGAIN I AM NOT I N AGREEMENT WITH THE OBSERVATION OF THE AO AS EVEN THE APPELLANT IS ALSO NOT HAVING ANY EXPERTISE IN THIS FIELD, YET IT HAS BAGGED A CONTRACT FROM L.M.Z.ENERGY INDIA (P) LT D. NOT ONLY THIS IT HAS OFFERED THE CONSULTANCY CHARGES RE CEIVED FROM THEM ALSO FOR RS. 53,54,906/- DURING THE YEAR W HICH HAS BEEN SHOWN IN THE P&L ACCOUNT OF THE APPELLANT A ND THE A.O. HAS NO HESITATION IN ACCEPTING THAT INCOME. IF EXPERTISE, EXPERIENCE, TECHNICAL KNOWLEDGE OR WHEREWITHAL WITH SOME PARTY TO RENDER A PARTICULAR SERVICE IS THE ONLY CR ITERIA TO TREAT THE EXPENDITURE GENUINE AS OBSERVED BY THE AO THEN BY THAT YARD STICK EVEN IN THE CASE OF THE APPELLAN T THE INCOME IS NOT GENUINE AND IN THE HANDS OF THE PARTY , WHO HAS MADE PAYMENT TO THE APPELLANT AMOUNTING TO RS. 55,54,906/-, DISALLOWANCE SHOULD HAVE BEEN CONSIDER ED. BUT THE THINGS IN REALITY ARE NOT SO. THERE IS NO EVIDE NCE IN THE POSSESSION OF THE AD. TO COME TO THE CONCLUSION THAT MIS MINDA SAI LTD. HAS NOT RENDERED ANY SERVICES, AND TH ERE IS NO ACTUAL PAYMENT TO M/S MINDA SAI LTD. OR THE PAYME NT ITA NO. 4475/DEL/2010 5 MADE TO M/S MINDA SAI LTD. REPRESENTS ONLY ACCOMMODATI ON ENTRY AND THE AMOUNT HAS ACTUALLY BEEN FLOWN BACK T O THE APPELLANT AND THEREFORE THE EXPENDITURE SO CLAIMED I S NOT GENUINE. 2.3.3. AS REGARDS OBSERVATION OF AO THAT M/S MINDA S AI LTD. HAS NOT OFFERED THIS AMOUNT IN ITS PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT AGAIN IT IS NOT FACTUALLY CORRECT. THE AMOUNT HAS BEEN INCLUDED IN THE PROFIT AND LOSS ACCOUNT OF M/S MINDA SAI LTD. IN SCHEDULE 14, UNDER THE HEAD 'SERVICE IN COME RECEIVED'. IN ANY CASE EVEN FOR A MOMENT IT IS FOUND THAT THE AMOUNT IS NOT OFFERED BY M/S MINDA SAI LTD STILL NO ADVERSE VIEW CAN BE TAKEN AGAINST THE APPELLANT ONC E MIS MINDA SAI LTD. HAS CONFIRMED HAVING RECEIVED THE AMOUN T. IT IS NOT THE RESPONSIBILITY OF THE APPELLANT TO ENSUR E THAT THE AMOUNT SHOULD BE OFFERED BY M/S MINDA SAI LTD. 2.3.4. THUS BASED ON THE ABOVE DISCUSSION IT IS HEL D THAT THE ACTION OF AO IS NOT CORRECT IN MAKING THE DISALLOWA NCE AS THERE IS A VALID AGREEMENT BETWEEN THE APPELLANT AN D M/S MINDA SAI LTD., THIS PARTY CONFIRMED HAVING RENDERED SERVICES AS PER THIS AGREEMENT AND HAVING RECEIVED T HE PAYMENTS AND THE SAME HAS BEEN OFFERED ALSO IN THE P& L ACCOUNT OF MIS MINDA SAI LTD. THERE IS NO EVIDENCE TH AT THE PAYMENT SO MADE BY THE APPELLANT TO MIS MINDA SAI LTD. HAS COME BACK TO THE ASSESSEE IN ANY FORM. THE APPREHEN SION OF AO. THAT THIS AGREEMENT BETWEEN THE APPELLANT AN D MIS MINDA SAI LTD. IS ONLY AN ATTEMPT TO REDUCE TAXABLE I NCOME AT THIS STAGE AT BEST MAY BE OF THE NATURE OF SUSPIC ION BUT ITA NO. 4475/DEL/2010 6 NO CONTRADICTORY MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AD. TO CONVERT THIS SUSPICION INTO BELIEF AND T O ESTABLISH THAT THE PAYMENT SO MADE IS NOT GENUINE. THUS IT IS HELD THAT ONLY BASED ON PRESUMPTION AND SURMISES, THE AO. HAS DISALLOWED THIS EXPENDITURE AND THEREFORE THE DISAL LOWANCE SO MADE IS DIRECTED TO BE DELETED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT THERE IS A VALID AGREEMENT BETWEEN ASSESSEE AND M/S. MINDA SAI LTD. ASSESSEE HAS RECEIVED THE SERVICES AS PER THE AGREEMENT. THIS ASPECT WAS DULY CONFIRMED BY SUBMISSION OF COGENT MATERIAL BEFORE THE ASSESSING OFFICER. THE SERVICES RELATED TO PROVIDING THE LI ST OF THE VENDORS FOR DIFFERENT WORKS FOR PROVIDING DESIGN AND DRAWINGS. THUS, IT CANNOT BE SAID THAT EVIDENCE FOR THE SERVICES WAS NOT PROVIDE D. ASSESSING OFFICERS OBSERVATION THAT MINDA SAI LTD. HAS NO EXPERIENCE IN POWER SECTOR IS ALSO NOT RELEVANT. LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS RIGHTLY OBSERVED THAT EVEN ASSESSEE HAD NO EXP ERIENCE IN POWER SECTOR BUT IT HAS BAGGED LARGE CONTRACT OF SERVICES IN THIS AREA. THERE IS ALSO NO EVIDENCE THAT THE PAYMENT SO MADE BY TH E ASSESSEE TO MINDA SAI LTD. HAS COME BACK TO THE ASSESSEE IN ANY FORM. THUS, WE FIND THAT THERE IS NO BASIS FOR DISALLOWING THE E XPENSES IN THE HANDS OF THE ASSESSEE. 7.1 IN THIS REGARD, WE PLACE RELIANCE HONBLE APEX COURT DECISION IN THE CASE OF HONBLE APEX COURT IN THE CASE OF CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD. IN 65 ITR 381, WHEREIN IT WAS HELD THAT ITA NO. 4475/DEL/2010 7 'IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY F OR BUSINESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VI EW OF THE BUSINESSMAN AND NOT OF REVENUE'. 7.2 IN THE BACKGROUND OF THE AFORESAID DISCUSSION A ND PRECEDENT, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), HENCE, WE UPHO LD THE SAME. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/8/2011. SD/- SD/- [C.L. SETHI] [C.L. SETHI] [C.L. SETHI] [C.L. SETHI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 19/8/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES