SHREE VINAYAK TRADING CO., MUMBAI V. JCIT 15(1), MUMBAI

ITA 4525/MUM/2013

• Counselvise Citation: 452519914 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 21-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAMBIT MISHRA
• Assessee Lawyers: KESHAV BHUJALE
• Keywords: Gift; Corroborative evidences; Prejudicial to interest; Commercial expediency

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI D. MANMOHAN , VICE-PRESIDENT AND B.R.BASKARAN (AM) , . , . . , ! ./I.T.A. NO.4525/MUM/2013 ( '#$ % / ASSESSMENT YEAR : 2009-10) SHREE VINAYAK TRADING CO., 16, BODARAM BHAVAN, R A KIDWAI ROAD, WADALA, MUMBAI-400031 / VS. JT/ COMMISSIONER OF INCOME TAX.(OSD),15(1), MUMBAI. ( !&' / APPELLANT) . . ( ()&' / RESPONDENT) & ./ *+ ./PAN/GIR NO. : AAVFS9101P !&' , / APPELLANT BY : SHRI KESHAV BHUJALE ()&' - , /RESPONDENT BY : SHRI SAMBIT MISHRA . / - 01 / DATE OF HEARING : 21.7.2014 2 %$ - 01 /DATE OF PRONOUNCEMENT : 31.7.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 27- 01-2012 PASSED BY LD CIT(A)-26, MUMBAI AND IT RELAT ES TO THE ASSESSMENT YEAR 2009-10. 2. THE GROUNDS URGED BY THE ASSESSEE ARE RELATED TO THE FOLLOWING ISSUES:- (A) DISALLOWANCE OF COMMISSION EXPENSES RS.22,20 ,000/- (B) DISALLOWANCE OF SALES PROMOTION EXPENSES RS. 12,78,848/-. 3. THE FACTS RELATING TO THE ABOVE SAID ADDITIONS ARE STATED IN BRIEF. THE ASSESSEE IS DEALING IN MEDICINES AS A RETAILER AND SEMI WHOLESALER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDU CTION OF RS.24,60,000/- AS I.T.A. NO.4525/MUM/2013 2 COMMISSION EXPENSES, WHICH INCLUDED THE PAYMENT MAD E TO THE FOLLOWING RELATED PERSONS COVERED BY SEC. 40A(2)(B) OF THE ACT:- S.NO. NAME OF THE PAYEE AMOUNT OF COMMISSION PAID RELATIONSHIP WITH THE FIRM 1 H B SHAH - HUF 500000 PARTNER BINA AND USHA SHAH ARE DAUGHTERS- IN-LAW OF THE HUF 2 BHARAT H SHAH - HUF 500000 HUSBAND OF THE PARTNER NAMELY USHA B SHAH. 3 UMESH H SHAH - HUF 500000 HUSBAND OF THE PARTNER BINA SHAH IS THE KARTA 4 BHARAT H SHAH 24 0000 HUSBAND OF THE PARTNER USHA B SHAH. 5 HARSUKLAL B SHAH - HUF 24 0 000 FATHER IN LAW OF PARTNER BINA AND USHA B SHAH. 6 UMESH H SHAH - HUF 24 0000 HUSBAND OF BINA SHAH - PARTNER 222 0000 THE AO NOTICED THAT THE ASSESSEE HAS ALSO PAID SALA RY OF RS.2,40,000/- EACH TO SHRI BHARAT H SHAH, UMESH H SHAH AND HARSUKLAL B SH AH AGGREGATING TO RS.7,20,000/-. SINCE THESE PAYMENTS ARE HIT BY SEC . 40A(2)(B) OF THE ACT, THE AO OPINED THAT THE ASSESSEE IS REQUIRED TO ESTABLIS H REASONABLENESS OF THE PAYMENT. ACCORDINGLY, THE AO TOOK THE VIEW THAT TH E PAYMENT OF COMMISSION AND SALARIES REFERRED ABOVE, BOTH AGGREGATING TO RS .29,40,000/- IS NOTHING BUT APPROPRIATION OF PROFIT AND ACCORDINGLY DISALLOWED THE SAME. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) ALLOWED THE SALARY EXPEN SES OF RS.7,20,000/- AND CONFIRMED THE DISALLOWANCE OF COMMISSION EXPENSES A MOUNTING TO RS.22,20,000/-. 3.1 THE ASSESSEE HAD ALSO CLAIMED SALES PROMOTION EXPENSES. VERIFICATION OF THE SAID CLAIM SHOWED THAT THE ASSESSEE HAS MADE PA YMENTS TO M/S SHRI VINAYAK ENTERPRISES, M/S SHREEJI JEWELLERS AND M/S SERVICE FOR YOU NETWORKS INDIA P LTD. THE ASSESSEE DID NOT PROVIDE ANY DETAILS SUCH AS SU PPORTING VOUCHERS, NATURE OF I.T.A. NO.4525/MUM/2013 3 EXPENSES AND PROOF OF PAYMENTS. FURTHER IT WAS NOT CLEAR AS TO WHETHER THE PAYMENTS HAVE BEEN MADE BY WAY OF CASH OR CHEQUE. HENCE, THE AO DISALLOWED THE SALES PROMOTION EXPENSES OF RS.12,78,848/- CLAI MED BY THE ASSESSEE. THE LD CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. 4. THE LD COUNSEL APPEARING FOR THE ASSESSEE CONT ENDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING ENTIRE AMO UNT OF COMMISSION EXPENSES BY INVOKING THE PROVISIONS OF SEC. 40A(2)(B) OF THE AC T. HE SUBMITTED THAT THE SAID PROVISION ENABLES DISALLOWANCE OF A PORTION OF EXPE NDITURE CLAIM, WHICH WAS FOUND TO BE EXCESSIVE OR UNREASONABLE. HE SUBMITTE D THAT THE COMMISSION PAYMENTS HAVE BEEN MADE TO THE VERY SAME EMPLOYEES, TO WHOM SALARIES WERE PAID AND HENCE, IN EFFECT, IT TAKES THE FORM OF SAL ARY EXPENSES ONLY. INVITING OUR ATTENTION TO THE PAPER BOOK, THE LD A.R SUBMITTED T HAT COMMISSION AMOUNT HAS BEEN PAID ON THE SALES EFFECTED TO THE NEW CUSTOMER S, WHO WERE INTRODUCED BY THESE PERSONS. HE SUBMITTED THAT THE COMMISSION EX PENSES FORM MINISCULE PART OF THE TURNOVER OF THE ASSESSEE AND HENCE THERE IS NO REASON TO DISALLOW THE ENTIRE CLAIM. 5. WITH REGARD TO THE CLAIM OF SALES PROMOTION EX PENSES, THE LD A.R SUBMITTED THAT THE SAID EXPENSES ARE DULY SUPPORTED BY THE VOUCHERS. HE SUBMITTED THAT THIS EXPENDITURE WAS INCURRED MAINLY ON GIVING GIFTS TO THE DOCTORS, ON WHOM THE ASSESSEE IS DEPENDENT UPON. H E SUBMITTED THAT THE ASSESSEE HAS INCURRED THESE EXPENSES IN ORDER TO AC HIEVE HIGHER TURNOVER AND IN FACT, THE TURNOVER OF THE CURRENT YEAR HAS INCREASE D CONSIDERABLY WHEN COMPARED TO THE PRECEDING YEARS TURNOVER. HE SUBMITTED THA T THE LD CIT(A) HAS CONFIRMED THE DISALLOWANCE ON A FURTHER REASONING THAT THE AS SESSEE DID NOT GET I.T.A. NO.4525/MUM/2013 4 ACKNOWLEDGEMENT FROM THE RECIPIENTS OF GIFTS. HE S UBMITTED THAT THE FACT THAT THE ASSESSEE HAS PURCHASED THE GIFT ARTICLES IS PRO VED BY THE SUPPORTING EVIDENCES AND IT IS NOT IN THE TRADE PRACTICE TO GE T ACKNOWLEDGEMENTS. HE ALSO SUBMITTED THAT THE CLAIM OF SALES PROMOTION EXPENSE S IS COMMENSURATE WITH THE TURNOVER ACHIEVED BY THE ASSESSEE. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS CLAIMED TO HAVE PAID COMMISSION TO HUF STATUS OF THE CLOSE REL ATIVES. HE SUBMITTED THAT THE HUF STATUS, PER SE, DOES NOT HAVE PHYSICAL EXIS TENCE. HE SUBMITTED THAT THE COMMISSION IS NORMALLY PAID TO THE AGENTS FOR BRING ING SALES AND IT IS A COMPENSATION FOR THE PERSONAL SERVICES RENDERED BY THEM. HE FURTHER SUBMITTED THAT THE HUF STATUS, PER SE, COULD NOT HAVE PROVIDE D SUCH KIND OF SERVICES AND ACCORDINGLY CONTENDED THAT THIS FACT ALONE PROVES T HAT THE SAID EXPENDITURE HAS BEEN CLAIMED WITH THE MOTIVE TO REDUCE THE PROFIT. HE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT PAY SUCH COMMISSION IN THE EARLIER YEARS AND FURTHER THE COMMISSION HAS BEEN PAID ON A LUMP SUM AMOUNT OF RS .5.00 LAKHS EACH TO THREE HUFS AND AT RS.2,40,000/- EACH TO THREE RELATED EMP LOYEES. HE SUBMITTED THAT THE LUMP SUM PAYMENT PROVES THAT THEY ARE NOT LINKE D TO THE SALES TURNOVER. HE FURTHER SUBMITTED THAT THE PAYMENT OF COMMISSION TO THE RELATED EMPLOYEES IN ADDITION TO SALARY IS NOT SUBSTANTIATED IN TERMS OF SEC. 40A(2)(A) OF THE ACT, ACCORDING TO WHICH THE ASSESSEE IS REQUIRED TO PROV E THE TECHNICAL QUALIFICATION, SKILL OR EXPERIENCE OF THE RELATED PERSONS. HE SUB MITTED THAT THE ASSESSEE HEREIN HAS FAILED TO PROVE THESE VITAL FACTORS. HE FURTHE R SUBMITTED THAT THERE EXISTS TWO MORE SISTER CONCERNS, VIZ., M/S SHREE VINAYAK MEDIC AL SERVICES PVT LTD, WHEREIN THE PARTNERS OF THE ASSESSEE FIRM ARE DIRECTORS AND ANOTHER CONCERN NAMED M/S I.T.A. NO.4525/MUM/2013 5 OMKAR PHARMA, WHICH IS THE PROPRIETARY CONCERN OF S HRI BHARAT H SHAH, ONE OF THE RECIPIENTS OF SALARY/ COMMISSION. ACCORDINGLY, THE LD D.R SUBMITTED THAT THERE IS CONFLICT OF INTEREST ALSO IN PROCURING BUS INESS AND ON THAT COUNT ALSO, THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE. ACCORDING LY HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION. 7. WITH REGARD TO THE CLAIM OF SALES PROMOTION EXP ENSES, THE LD D.R SUBMITTED THE ASSESSEE HAS FAILED TO PROVE VERACITY OF THE BILLS SHOWING THE PURCHASE OF GIFT ARTICLES AND HAS ALSO FAILED TO SH OW THAT THE SAID GIFT ARTICLES WERE GIVEN TO THE DOCTORS, AS CLAIMED. INVITING OU R ATTENTION TO THE COPIES OF BILLS PLACED IN THE PAPER BOOK FILED BY THE ASSESSE E, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED ARTICLES FROM THE SAME CONCERN AND THE BILLS WERE FOUND TO BE CONTINUOUSLY NUMBERED, E VEN THOUGH THERE WAS GAP OF ABOUT A MONTH BETWEEN ONE PURCHASE AND OTHER. THE LD D.R FURTHER SUBMITTED THAT THE ASSESSEE HAS FAILED TO FURNISH VARIOUS DET AILS POINTED BY THE AO. ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS JUS TIFIED IN CONFIRMING THIS DISALLOWANCE. 8. IN THE REJOINDER, THE LD A.R SUBMITTED THAT TH E ASSESSEE HAD DEDUCTED TDS FROM THE COMMISSION PAYMENTS AND HAS ALSO REMIT TED THE TDS AMOUNT IN TIME. HE FURTHER SUBMITTED THAT THE HUF CONCERNS C AN CARRY ON COMMISSION AGENCY BUSINESS THROUGH THE MEMBERS OR EMPLOYEES AL SO. HE SUBMITTED THAT THE ASSESSEE HAS PAID SUCH KIND OF COMMISSION IN THE EA RLIER YEARS ALSO. HE FURTHER SUBMITTED THAT THE FACT OF GIVING OF GIFTS TO THE K NOWN DOCTORS IS A PREVALENT TRADE PRACTICE. HE SUBMITTED THAT THE PAYMENT MADE TOWARDS PURCHASE OF ARTICLES IS VERY MUCH EVIDENT FROM THE BOOKS OF ACC OUNT. HE FURTHER SUBMITTED I.T.A. NO.4525/MUM/2013 6 THAT THE MISTAKE IN THE BILL NUMBERING, IF ANY, CAN NOT BE CONSIDERED AS A MAJOR DEFECT IN THE INSTANT CASE, SINCE THE PURCHASE OF G IFT ARTICLES IS SUPPORTED BY PROPER VOUCHERS. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF CLAI M OF COMMISSION PAYMENTS. WE HAVE ALREADY NOTICED THAT THE ASSESSEE HAS PAID A S UM OF RS.5.00 LAKHS EACH TO THE HUF CONCERNS OF SHRI H.B. SHAH, SHRI BHARAT U S HAH AND SHRI UMESH H SHAH. AS SUBMITTED BY LD D.R, THE RENDERING OF AGENCY SER VICES INVOLVES PHYSICAL EXERTION AND HENCE SUCH KIND OF SERVICES COULD BE R ENDERED THROUGH SOME PERSONS ONLY. HENCE, THE LD A.R WAS SPECIFICALLY A SKED BY THE BENCH TO FURNISH THE DETAILS OF PERSONS WHO HAVE RENDERED SERVICES O N BEHALF OF THE HUF. IN REPLY THE LD A.R SUBMITTED THAT THE SERVICES RENDERED BY THE MEMBERS OF THE RESPECTIVE HUF. THUS, IT IS SEEN THE REPLY GIVEN B Y LD A.R IS ONLY A GENERAL STATEMENT, WHICH MEANS THAT THE ASSESSEE COULD NOT PROVIDE THE DETAILS OF PERSONS WHO HAVE ACTUALLY DID AGENCY SERVICES ON BE HALF OF THE HUF. IT IS PERTINENT TO NOTE THAT THE ABOVE SAID THREE PERSONS , VIZ., SHRI H.B. SHAH, SHRI BHARAT U SHAH AND SHRI UMESH H SHAH HAVE ALSO RECEI VED SALARY AND ALSO COMMISSION IN THEIR INDIVIDUAL CAPACITIES ALSO. FR OM THE TABLE EXTRACTED EARLIER, IT CAN BE NOTICED THAT ALL THESE THREE PERSONS ARE CLO SELY RELATED TO THE PARTNERS OF THE ASSESSEE FIRM. ALL THESE PERSONS HAVE BEEN PAI D SALARY OF RS.20,000/- PER MONTH EACH AND THE SAME HAS BEEN CONSIDERED AS REAS ONABLE BY LD CIT(A). THERE SHOULD NOT BE ANY DOUBT THAT THE RESPONSIBILI TY TO PROVE THE COMMERCIAL EXPEDIENCY IN INCURRING ANY EXPENSE AND ALSO TO PRO VE THE GENUINENESS OF THE CLAIM LIES UPON THE ASSESSEE. WHEN THE PAYMENTS AR E MADE TO THE PERSONS I.T.A. NO.4525/MUM/2013 7 SPECIFIED IN SEC. 40A(2)(B) OF THE ACT, THE ASSESSE E IS ALSO REQUIRED TO PROVE THE REASONABLENESS ALSO. 10. WE HAVE ALREADY NOTICED THAT THERE IS TWO OT HER SISTER CONCERNS ENGAGED IN SAME LINE OF BUSINESS AND ONE OF THE CONCERNS IS OWNED BY SHRI BHARAT U SHAH, REFERRED ABOVE. HENCE, WE FIND MERIT IN THE CONTENTION OF THE LD D.R THAT THERE EXISTS CONFLICT OF INTEREST WITH REGARD TO TH E CLAIM OF PROCURING BUSINESS. WHEN THERE IS CONFLICT OF INTEREST, AS PER NORMAL H UMAN TENDENCY, THE SAID PERSON WILL ACT IN A MANNER BENEFICIAL TO HIM. HEN CE, IT IS DIFFICULT TO BELIEVE THAT THE ABOVE SAID PERSON COULD HAVE PROCURED BUSINESS BY DISREGARDING THE PERSONAL INTEREST. BEFORE US, THE LD A.R SUBMITTED THAT THE COMMISSION AMOUNT HAS BEEN DETERMINED ON THE BASIS OF BUSINESS PROCUR ED FROM THE NEW CUSTOMERS AND IN SUPPORT OF THE SAME; HE ALSO INVITED OUR ATT ENTION TO THE WORKINGS PLACED IN THE PAPER BOOK. WE NOTICE THAT THE ASSESSEE HAS WORKED OUT THE COMMISSION @ 10% OF THE SALES AND HAS RESTRICTED THE SAME TO A ROUND SUM OF RS.5.00 LAKHS TO EACH PERSON. WHEN IT WAS SPECIFICALLY ASKED AS TO WHETHER THE ASSESSEE HAS PAID COMMISSION TO ANY OTHER UNRELATED PERSON AND A LSO AT THE RATE OF 10% OF THE SALES, THE LD A.R FAIRLY ADMITTED THAT THE ASSE SSEE HAS NOT PAID COMMISSION TO ANY OTHER UNRELATED PERSON. HENCE, IN OUR VIEW, TH E WORKINGS GIVEN BY THE ASSESSEE WOULD NOT SUBSTANTIATE THE CLAIM FOR DEDUC TION OF COMMISSION EXPENSES, UNLESS THE GENUINENESS AND COMMERCIAL EXP EDIENCY OF THE SAID CLAIM. WITH REGARD TO THE COMMISSION PAID TO HUF OF EMPLOY EES, IT IS NOT PROVED THAT THE AGENCY SERVICES WERE RENDERED BY THE HUF. IN R ESPECT OF COMMISSION PAID TO THE EMPLOYEES IN THEIR PERSONAL CAPACITY, IT IS NOT PROVED THAT THEY DID AGENCY SERVICES IN ADDITION TO THE SERVICES RENDERED AS EM PLOYEES. THOUGH THE LD A.R I.T.A. NO.4525/MUM/2013 8 HAS CONTENDED THAT THE COMMISSION AMOUNT PAID TO TH E THREE PERSONS IN THEIR PERSONAL CAPACITY SHOULD BE CONSIDERED AS PART OF S ALARY PAYMENTS, YET THE ASSESSEE HAS FAILED TO PROVE THE SAID CLAIM WITH AN Y MATERIAL. IN FACT, THE LD A.R FAIRLY ADMITTED THAT THE ASSESSEE DID NOT ENTER INT O ANY AGENCY AGREEMENT WITH THE RECIPIENTS OF THE COMMISSION AMOUNT. UNDER THE SE SET OF FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE THE GENU INENESS OR THE COMMERCIAL EXPEDIENCY IN MAKING COMMISSION PAYMENTS TO THE REL ATED PERSONS COVERED BY SEC. 40A(2)(B) OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 11. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F SALES PROMOTION EXPENSES. THOUGH THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED C OSTLY GIFT ARTICLES LIKE TELEVISION, REFRIGERATORS, WASHING MACHINE, AIR CON DITIONER ETC., YET IT HAS FAILED TO PROVE THAT THEY WERE UTILIZED TOWARDS SALES PROM OTION EXPENSES BY FURNISHING THE DETAILS OF RECIPIENTS OF THE COSTLY GIFT ITEMS. FURTHER, THE DISCREPANCY POINTED OUT BY LD D.R VIZ., THE BILLS HAVE SERIAL N UMBERS EVEN THOUGH THERE IS A GAP OF ABOUT A MONTH IN THE DATES OF BILLS, ALSO CR EATES DOUBT ABOUT THE CREDIBILITY OF THE BILLS. AS ALREADY STATED BY US, THE RESPONSIBILITY TO PROVE THE COMMERCIAL EXPEDIENCY AND THE GENUINENESS OF EXPENS ES LIES UPON THE ASSESSEE. IN RESPECT OF THIS CLAIM, WE ARE OF THE VIEW THAT T HE ASSESSEE HAS FAILED TO PROVE NOT ONLY THE PURCHASES OF THE GIFT ARTICLES, BUT AL SO ITS ACTUAL USAGE TOWARDS THE SALES PROMOTION ACTIVITIES. UNDER THESE CIRCUMSTAN CES, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISAL LOWANCE. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE ALSO. I.T.A. NO.4525/MUM/2013 9 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 31 ST JULY, 2014. 2 %$ . 3 4 5 6 31ST JULY, 2014 - 7/ 8 SD SD ( . / D. MANMOHAN ) ( . . , / B.R. BASKARAN ) / VICE- PRESIDENT / ACCOUNTANT MEMBER . / MUMBAI: 31ST JULY,2014. . ' . ./ SRL , SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. !&' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. . =0 ( ! ) / THE CIT(A)- CONCERNED 4. . =0 / CIT CONCERNED 5. >?7 ('0'@# , !1 !@#$ , . / / DR, ITAT, MUMBAI CONCERNED 6. 7 / / GUARD FILE. A . / BY ORDER, TRUE COPY * (ASSTT. 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