THE ASIAN TRADERS (INDIA), MUMBAI V. ADDL CIT RG 19(3), MUMBAI

ITA 4546/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62675 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 02-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P B K MENON
• Keywords: Commercial expediency

Judgement Text

ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI I.P.BANSAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.4546/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S THE ASIAN TRADERS (INDIA) IMPERIAL PLAZA, 1 ST FLOOR, CORNER OF 27 TH & 30 TH ROAD, OFF LINKING ROAD, BANDRA(W) MUMBAI 400 050 PAN NO.AAAFA 3362 P (APPELLANT) VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-19(3) MUMBAI (RESPONDENT) ASSESSEE BY: SHRI DEEPAK TRALSHAWALA DEPARTMENT BY: SHRI P.B.K. MENON, DR DATE OF HEARING: 06/06/2012 DATE OF PRONOUNCEMENT: 29/06/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDERS OF THE CIT (A)- 30 MUMBAI DATED 9.3.2010. ASSESSEE HAS RAISED THE F OLLOWING FOUR GROUNDS: I) AS REGARDS ADHOC DISALLOWANCE OUT OF COMMISSION PAID AGAINST EXPORTS ` .46,65,963/-. II) AS REGARDS ADHOC DISALLOWANCE OUT OF BUSINESS PROMOTION EXPENSES ` .1,50,000/-. III) AS REGARDS DISALLOWNCE OUT OF CONVEYANCE EXPENSES ` .1,67,482/- IV) AS REGARDS DISALLOWNACE OUT OF TELEPHONE EXPENSES ` .1,50,690/-. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D R IN DETAIL AND PERUSED THE PAPER BOOK PLACED ON RECORD. ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 2 OF 7 3. GROUND NO.1. DISALLOWANCE OF COMMISSION PAID AGAINS T THE EXPORTS ` 46,65,963/-. 4. BRIEFLY STATED, AO IN THE ASSESSMENT ORDER NOTED TH AT ASSESSEES TURN OVER AND NET PROFIT HAS GONE DOWN D RASTICALY AND THE NET PROFIT HAS COME DOWN TO 4.35% AS COMPARED T O NET PROFIT AT 11.02% IN ASSESSMENT YEAR 2004-05. HE ASKED FOR EXP LANATION, WHICH ASSESSEE HAS GIVEN THAT THE FALL IN THE NET M ARGIN, ARE DUE TO THE DELAY IN REALIZATION OF GOODS, FLUCTUATION IN F OREIGN EXCHANGE, PAYMENT OF COMMISSION AT HIGHER RATE ETC., ASSESSEE ALSO PRODUCED A COMPARATIVE CHART OF VARIOUS EXPENSES IN THE LAST THREE ASSESSMENT YEARS, WHICH WERE REPRODUCED IN THE BODY OF THE ORDER OF THE ASSESSMENT. AFTER ANALYSING THE DETAILS FURN ISHED BY ASSESSEE, AO NOTED THAT THERE IS SUBSTANTIAL RISE O F EXPENDITURE IN COMPARISON, MORE SO, ON COMMISSION ON SALES. THEREF ORE, HE SPECIFICALLY ASKED FOR DETAILS OF COMMISSION PAYMEN T AND THE AGREEMENT WITH THE PARTIES, NAMES & ADDRESSES ETC. ASSESSEE VIDE LETTER DATED 19.12.2007 REPLIED AS UNDER: WITH RESPECT TO THE INCREASE IN COMMISSION PAID OF ` .66,65,964/- DURING THE YEAR UNDER REVIEW AS AGAINS T ` .22,98,454/- DURING THE IMMEDIATELY PRECEDING YEAR, WE RECAPITULATE THE FOLLOWING: A) ONE OF THE MAJOR CUSTOMER, IN VIEW OF THE DIFFICULT Y FACED IN REALISING DUES, RESORTED TO FINDING NEW CUSTOMERS FOR SEEKING ASSESSEES PRODUCTS. IN VIEW OF THE HIGHER RISK INVOLVED IN DEALING WITH NEW PARTIE S, THE SAID MAJOR CUSTOMER INCREASED THE RATE OF COMMISSION CHARGED BY HIM TO ASSESSEE. B) A DETAILS INVOICE-WISE STATEMENT OF THE COMMISSION PAID HAS BEEN FURNISHED WITH OUR LETTER DATED 30-11 - 2007. C) PLEASE APPRECIATE THE FACT THAT THE RATE AT WHICH COMMISSION IS TO PAID IS THE BUSINESS DECISION OF T HE PRINCIPAL AND ITS AGENT. IT IS AN ABSOLUTE COMMERCI AL DECISION TAKEN AFTER CONSIDERING ALL PLAUSIBLE BUSINESS EXIGENCIES AS WELL AS CONTINGENCIES. D) COPIES OF COMMUNICATIONS MADE BETWEEN THE FIRM AND ITS AGENTS CONFIRMING THE RATE OF COMMISSION ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 3 OF 7 ALONG WITH OTHER TERMS AND CONDITIONS OF THE AGREEMENT ARE ENCLOSED. YOU WILL OBSERVE THEREIN TH AT THE AGENTS HAVE GUARANTEED PAYMENTS FROM THEIR RESPECTIVE CUSTOMERS. E) THE RATE OF COMMISSION HAS BEEN DECIDED AT THE TIME OF SHIPMENT OF THE GOODS ITSELF AND IT REFLECTED IN THE CORRESPONDING SHIPPING BILL. NO ADDITIONAL AMOUNT I S PAID SUBSEQUENTLY. COPIES OF THE SHIPPING BILLS ARE ENCLOSED FOR YOUR REFERENCE. F) FURTHER A STATEMENT SHOWING AGENT-WISE COMMISSION PAID AGAINST RESPECTIVE INVOICES IS ALSO ENCLOSED F OR YOUR RECORDS. G) ALSO NOTE THAT THE AGENTS TO WHOM THE COMMISSION IS PAID ARE INDEPENDENT ENTITIES HAVING NO PERSONAL RELATIONS WITH THE APRTNERS OF THE FIRM. THE RATE O F COMMISSION IS FIXED ON ARMS LENGTH BASIS CONSIDERIN G SOLELY THE FUNCTIONS TO BE PERFORMED BY THE AGENTS. FROM THE ABOVE WE HOPE IT IS CLEAR THAT THE COMMISS ION HAS BEEN PAID BY ASSESSEE WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF ITS BUSINESS AND THAT THE INCREASE I S JUSTIFIABLE ON GROUNDS OF COMMERCIAL EXPEDIENCY. 5. AO AFTER CONSIDERING THE TWO AGREEMENTS FILED BEFOR E HIM WITH REFERENCE TO SUN INTERNATIONAL AND SOCIETE FAIR DEA L, DID NOT ACCEPT THE REASONS, THEREBY RESTRICTING THE COMMISSION TO ` .20 LAKHS AND DISALLOWED BALANCE OF ` .46,65,963/-. BEFORE THE CIT (A), IT WAS SUBMITTED THAT ASSESSEE HAS FILED DETAILS OF COMMIS SION PAYMENT AND NATURE OF SERVICES RENDERED BY THE PARTIES, ALO NG WITH COMMISSION, EXPEDIENCY, STATEMENT SHOWING INVOICES ALONG WITH RATE OF COMMISSION AND ALSO THE FACT THAT THE PARTI ES ARE UN-RELATED TO ASSESSEE AND THE COMMISSION WAS PAID AT ARMS LEN GTH PRICE. HOWEVER, THE CIT (A) AFTER CONSIDERING THE SUBMISSI ONS MADE BY ASSESSEE, CONFIRMED THE ADDITION BY STATING AS UNDE R: 4. I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER, SUBMISSIONS OF THE A.R AND THE FACTS OF THE CASE. T HE MAIN ISSUE INVOLVED IS WITH REGARD TO DISALLOWANCE OF COMMISSION EXPENSES OF ` .46,65,963/-, OUT OF TOTAL SUM OF ` .66,65,963/- CLAIMED BY THE APPELLANT. FOR THE YEAR UNDER CONSIDERATION, THE SAID COMMISSION HAS BEEN INCURRED BY THE APPELLANT IN CONNECTION WITH EXPORT S MADE THROUGH VARIOUS AGENTS VIZ., (I) SUN INTERNATI ONAL, ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 4 OF 7 (II) SOCIETE FAIR DEAL & (II) SATGURU. THE SAID COM MISSION HAS BEEN INCURRED BY THE APPELLANT IN CONNECTION WI TH VARIOUS SERVICES CLAIMED TO HAVE BEEN PROVIDED BY T HE AGENT TO WHOM THE ALLEGED COMMISSION HAVE BEEN PAID VIZ. SPEEDY RECOVERY FROM BUYER LOCATED OVERSEAS, INTRODUCING NEW BUYER, INTRODUCING NEW PRODUCTS IN OVERSEAS MARKET. THE SAID COMMISSION OF ` .66,65,963/- CLAIMED TO HAVE BEEN PAID TO VARIOUS AGENTS IN PURSUANCE OF AN AGREEMENT ENTERED INTO BETWEEN APPELLANT & ITS AGENTS IS IN THE FORM OF LETTER ONL Y. THE APPELLANT HAS FILED THE SAID COPY BEFORE THE A.O AN D AS WELL AS BEFORE ME, WHICH RESTRICTS THE MAXIMUM COMMISSION TO 6% OF THE INVOICE VALUE. THE TURNOVER OF THE APPELLANT HAS GONE DOWN FROM ` .54,22,56,312/- TO ` .33,06,17,021/-, SIMILARLY NET PROFIT OF THE APPELLANT HAS GONE DOWN TO ` .1,49,63,560/- FROM ` .5,96,45,095/- COMPARING THE RESULTS OF THE YEAR UN DER CONSIDERATION AGAINST THE RESULTS OF A.Y 2004-05. T HE SAID TREND INDICATES A DECLINE OF 39% IN TURNOVER A ND DECLINE OF 74% IN NET PROFIT RESPECTIVELY. THE COMM ISSION PAYMENT FOR THE YEAR UNDER CONSIDERATION HAS GONE U P BY 2 TIMES AS COMPARED TO COMMISSION PAID FOR A.Y 2004-05. THE APPELLANT HAS FAILED TO INDICATE ANY F ACTS AND/OR ANY CIRCUMSTANCES WHICH PROMPTED HIM TO PAY ABNORMAL COMMISSION IN THE YEAR UNDER CONSIDERATION . THE VARIOUS REASONS GIVEN IN SUPPORT OF EXCESSIVE COMMISSION BY THE A.R ARE VAGUE AND GENERAL IN NATU RE. THE CASE LAWS CITED BY THE APPELLANT HAVE NO DIRECT BEARING ON THE CASE OF THE APPELLANT. IN THE ABSENC E OF ANY MATERIAL EVIDENCE IN SUPPORT OF THE CLAIM FOR T HE PAYMENT OF SUCH HIGH COMMISSION, I AM NOT INCLINED TO ACCEPT THE REASONS PUT FORTH BY THE APPELLANT. FURT HER I FIND CONSIDERABLE FORCE IN THE ARGUMENT AND REASONI NG GIVEN BY AO FOR MAKING THE DISALLOWANCE OUT OF COMMISSION EXPENDITURE. THEREFORE, THE DISALLOWANCE OF ` .46,65,963/- OUT OF TOTAL COMMISSION OF ` .66,65,963/- MADE BY AO IS CONFIRMED. THE GROUNDS OF APPEAL ARE DISMISSED. 6. THE LEARNED COUNSEL REFERRED TO THE DETAILS FILED B EFORE AO AND SUBMITTED THAT SINCE INVOICES ITSELF CONTAIN TH E RATE OF COMMISSION AND WHAT ASSESSEE HAS BOOKED IN THE BOOK S OF ACCOUNT IS A COMMISSION CONVERTED IN FOREIGN EXCHANGE IN IT S BOOKS. IT WAS SUBMITTED THAT AS FAR AS THE CUSTOMERS SERVICE BY M /S SUN INTERNATIONAL IS CONCERNED, THERE ARE NUMBER OF INV OICES WHERE THE ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 5 OF 7 COMMISSION IS ONLY 1 TO 3% AND IN ONLY ONE TRANSACT ION WITH M/S RAJNEESH TRADERS, THE COMMISSION WAS PARTLY PAID AT 5% ON ONE PARTICULAR PRODUCT PAID AT 6%, WHEREAS REST OF THE COMMISSIONS WERE PAID, AS REFLECTED IN THE STATEMENT WAS LESS T HAN 5%. WITH REFERENCE TO SATGURU INTERNATIONAL, IT WAS ENGAGED FOR THE FIRST TIME THIS YEAR AND ON A SALES TURNOVER OF ` .5,86,362/-, COMMISSION WAS PAID AT 1 TO 3%. IN THE CASE OF SOCIETE FAIR DEAL, ONLY THE COMMISSION WAS PAID AT 5 TO 6% BECAUSE OF THE SPECI FIC CIRCUMSTANCES, BUT ALL THE INVOICES OF EXPORT DO CO NTAIN THE RATE OF COMMISSION PAID AND THERE IS NO NEED FOR DISALLOWIN G THE AMOUNT, AS WAS DONE BY AO. THE LEARNED COUNSEL ALSO REFERRE D TO THE ORDERS IN EARLIER YEARS, WHERE NO DISALLOWANCE WAS MADE ON COMMISSION PAID AND ASSESSEES CLAIMS WERE ALLOWED. IT WAS HIS SUBMISSION THAT THE COMMISSION PAYMENT WAS GENUINE PAYMENT AND THER E IS NO NEED TO DISALLOW ON ADHOC BASIS. 7. THE LEARNED DR REFERRED TO THE ORDERS OF AO AND THE CIT (A) TO SUBMIT THAT THERE IS NO NEED FOR PAYING ABNORMAL CO MMISSION AND THEREFORE, THE DISALLOWANCE IS CORRECTLY MADE OUT. 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE EVIDE NCES PLACED ON RECORD. WE ARE UNABLE TO AGREE WITH THE A CTION OF AO FOR THE REASON THAT HE DID NOT DISPROVE THE CONTENTION THAT THE COMMISSION WAS PAID AS PART OF THE EXPORT SALES AND INVOICE DO CONTAIN THE RATE OF COMMISSION. IT WAS ALSO NOT IN DISPUTE THAT THE RATE OF COMMISSION HAS BEEN DECIDED AT THE TIME OF SHIPMENT OF GOODS AND IS REFLECTED IN THE CORRESPONDING SHIPPIN G BILL. IT IS ALSO ON RECORD THAT THE STATEMENTS SHOWING AGENT-WISE CO MMISSION WITH RESPECTIVE INVOICES ARE ALSO PLACED BEFORE AO. THER E IS ALSO NO DISPUTE THAT THE COMMISSION AGENTS HAVE RENDERED TH E SERVICES AND COMMISSIONS ARE BEING ALLOWED IN EARLIER YEARS. IN VIEW OF THESE FACTS, WE ARE UNABLE TO UNDERSTAND WHY THE COMMISSI ON WAS DISALLOWED ON ADHOC BASIS, JUST BECAUSE ON FEW OF T HE EXPORT ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 6 OF 7 INVOICES COMMISSION WAS PAID AT 6%. IT IS NOT UNIFO RMLY PAID AT 6% AS WAS CONSIDERED BY AO AND THE CIT (A). THERE ARE MANY INVOICES IN WHICH COMMISSION WAS ONLY 1% AND 2% DEPENDING ON THE PRODUCT AND THE CUSTOMERS. AO, IN OUR VIEW, ERRED I N DISALLOWING ON ADHOC BASIS WITHOUT EXAMINING THE AMOUNT CASE BY CA SE. IN CASE IF HE HAS ANY DOUBT REGARDING EXTENT OF COMMISSION PAI D TO A PARTICULAR PARTY, HE COULD HAVE BEEN EXAMINED THE I NDIVIDUAL INVOICE. JUST BECAUSE ASSESSEE PROFITS HAVE COME DO WN DURING THE YEAR, WE ARE OF THE OPINION THAT AO HAS NO BASIS TO DISALLOW THE COMMISSION ON ADHOC BASIS. SINCE THE AGENTS TO WHOM THE COMMISSION WAS PAID ARE INDEPENDENT ENTITIES, HAVIN G NO PERSONAL RELATION WITH THE FIRM OR ITS PARTNERS, AND AS THE INVOICES INDICATE THAT THE RATE OF COMMISSION FIXED AT THE TIME OF SH IPMENT ITSELF, WE DO NOT SEE ANY REASON TO DISALLOW ANY AMOUNT OF COM MISSION PAID. SO LONG AS EXPENDITURE IS FOR THE PURPOSE OF BUSINE SS, AO HAS NO POWER TO DISALLOW AMOUNT, UNLESS IT IS PROVED THAT THE COMMISSION PAID IS NOT BONAFIDE NOR FOR THE PURPOSE OF BUSINES S. NO SUCH ALLEGATION WAS MADE BY AO IN THIS CASE. THEREFORE, WE DIRECT AO TO ALLOW THE CLAIM AS MADE BY ASSESSEE. GROUND IS ALLO WED. 9. GROUND NOS. 2, 3 & 4. THESE GROUNDS ARE ON ADHOC DISALLOWANCES OF EXPENDITURE BY AO, OUT OF THE TOTA L CLAIMS. ASSESSEE CLAIMED AN AMOUNT OF ` .10,38,850/- AS SALES PROMOTION EXPENSES, ` .8,37,414/- TOWARDS CONVEYANCE EXPENSES AND ` 15,06,906/- UNDER TELEPHONE AND TELEX EXPENSES. AO, OUT OF THE ABOVE SALES PROMOTION EXPENSES DISALLOWED AN AMOUNT OF ` .1,50,000/- AS ASSESSEE WAS UNABLE TO PRODUCE ALL T HE VOUCHERS. ONE-FIFTH OF THE CONVEYANCE EXPENSES AT ` .1,67,482/- WAS DISALLOWED, ON THE REASON THAT NO SUPPORTING EVIDEN CE WAS PRODUCED. OUT OF THE TELEPHONE EXPENSES, 10% OF THE EXPENDITURE WAS CONSIDERED, AS ASSESSEE HAS NOT MAINTAINED TELE PHONE REGISTER AND THERE COULD BE PERSONAL EXPENSES. THE CIT (A) C ONFIRMED THE SAME. ITA NO.4546 OF 2010 THE ASIAN TRADERS (INDIA) MUMBA I-A BENCH PAGE 7 OF 7 10. AFTER CONSIDERING THE RIVAL ARGUMENTS AND CONSIDERI NG THE NATURE OF THE EXPENDITURE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF AO AND THE CIT (A). IN FACT, AS SEEN FROM THE EARLIER YEARS ORDERS, THERE WAS SIMILAR DISALLOWANC ES IN ALL THOSE YEARS ALSO. KEEPING THESE FACTS IN MIND AND THE NAT URE OF EXPENSES AND THE REASONS MADE OUT BY AO, WE REJECT THE GROUN DS AS RAISED BY ASSESSEE. 11. IN THE RESULT APPEAL FILED BY ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2012. SD/- SD/- (I.P. BANSAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATED 29 TH JUNE, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI