CHANDRESH ENTERPRISE CORPORATION, MUMBAI V. ITO, RANGE-16(2)(4), MUMBAI

ITA 4578/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9429 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR JAISWALDR
• Assessee Lawyers: JAYESH GANDHI
• Keywords: Rule of consistency; Avoidance of tax
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 4578/M/2011 ASSESSMENT YEAR:2006-2007 M/S. CHANDRESH ENTERPRISES CORPORATION, LAXMI MAHAL, B. PETIT ROAD, MUMBAI 400 026. PAN: AAAFC2242A VS. INCOME TAX OFFICER, 16(2)(4), MATRU MANDIR, INCOME TAX OFFICE, TARDEO, MUMBAI 400 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAYESH GANDHI RESPONDENT BY : SHRI VIJAY KUMAR JAISWAL,DR DATE OF HEARING: 12.11.2012 DATE OF ORDER: 21.11.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT (A)-27, MUMBAI DATED 24.1.2011 FOR THE ASSESSMENT YEAR 2006 -2007. 2. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARD ING DISALLOWANCE OF COMMISSION OF RS. 2,86,883/-. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT OUT OF THREE PARTNERS, SHRI CHANDRESH PR AVINCHANDRA KADAKIA WAS RETIRED W.E.F. 1 ST APRIL OF PREVIOUS YEAR. THE AO FURTHER NOTED THAT THE NEWLY CONSTITUTED FIRM HAD PAID A COMMISSION OF RS. 3,00,411/- TO SHRI CHA NDRESH PRAVINCHANDRA KADAKIA AS KARTA OF HUF. AO ASKED THE ASSESSEE TO JUSTIFY TH E PAYMENT OF COMMISSION. THE ASSESSEE SUBMITTED THAT SHRI CHANDRESH PRAVINCHANDR A KADAKIA, IN THE CAPACITY OF KARTA OF CHANDRESH PRAVINCHANDRA KADAKIA HUF HAD RENDERED SERVICES TO THE ASSESSEE FOR 2 PROCURING ORDERS, ARRANGING MEETING WITH SUPPLIERS, ASSISTING IN OBTAINING PAYMENTS FROM THE PARTIES ETC. THE COMMISSION HAD BEEN PAID @ % OF THE TURNOVER. IT WAS ALSO SUBMITTED THAT AFTER RETIREMENT OF THE OLD PAR TNERS, THERE WAS ONLY ONE ACTIVE PARTNER AND THEREFORE, THE ASSESSEE HAD TO TAKE ASS ISTANCE OF SHRI CHANDRESH PRAVINCHANDRA KADAKIA. AO HOWEVER, DID NOT ACCEPT THE EXPLANATION GIVEN AND IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD NOT GIVEN DET AILS OF SALES AFFECTED THROUGH SHRI CHANDRESH PRAVINCHANDRA KADAKIA NOR ANY AGREEMENT F OR PAYMENT OF COMMISSION. FURTHER, THE ASSESSEE WAS ALREADY AVAILING SERVICES OF MRS. NEEPA CHANDRESH KADAKIA TO WHOM SALARY OF RS. 42,000/- HAD BEEN PAID. AO FURT HER OBSERVED THAT THERE WAS NO IMPROVEMENT IN THE TURNOVER OF THE ASSESSEE WHICH H AD DECLINED DURING THE YEAR. IN THE EARLIER YEAR, WHEN THE TURNOVER WAS MORE, COMMI SSION HAD BEEN PAID ONLY RS. 8,110/- WHEREAS IN THE CURRENT YEAR, WHEN THE TURNO VER DECLINED, COMMISSION HAD SUBSTANTIALLY INCREASED. AO, THEREFORE, HELD THAT COMMISSION WAS NOTHING BUT ONLY AN ADJUSTMENT ENTRY AND ACCORDINGLY DISALLOWED THE SAM E. 3. THE ASSESSEE DISPUTED THE DECISION OF THE AO AND SUBMITTED BEFORE THE CIT (A) THAT BECAUSE OF RETIREMENT OF PARTNER, THE ASSESSEE HAD TO TAKE THE SERVICES OF SHRI CHANDRESH PRAVINCHANDRA KADAKIA. IT WAS ALSO POINT ED OUT THAT THERE WAS OVERALL REDUCTION IN THE PAYMENT OF REMUNERATION TO THE PAR TNERS AS COMPARED TO THE EARLIER YEAR. CIT (A) HOWEVER, OBSERVED THAT THOUGH THE REM UNERATION PAID WAS ONLY RS. 1,80,000/-, CONSIDERING THE PAYMENT OF COMMISSION, TOTAL EXPENDITURE WAS RS. 4,86,883/- WHICH WAS HIGHER THAN THE REMUNERATION O F RS. 2,88,000/- PAID IN THE 3 PREVIOUS YEAR THOUGH THE TURNOVER HAD DECLINED. TH ERE WERE THUS NO EFFECT OF SERVICES RENDERED BY THE KARTA OF THE HUF AND THE PROFIT HA D ALSO DECLINED. CIT (A) THEREFORE AGREED WITH THE AO THAT THERE WAS NO REAL SERVICES RENDERED BY THE KARTA OF THE HUF AND ACCORDINGLY CONFIRMED THE ADDITION AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, LD AR FOR THE ASSESSEE SUBMITTED THAT THE SERVICES OF SHRI CHANDRESH PRAVINCHANDRA KADAKIA HAD BEEN UTILIZED BY THE ASSE SSEE BECAUSE OF RETIREMENT OF PARTNERS. THERE WAS ONLY ONE ACTIVE PARTNER WHEREAS EARLIER THERE WERE THREE ACTIVE PARTNERS. THE REMUNERATION THIS YEAR WAS REDUCED T O RS. 1,80,000/- COMPARED TO RS. 2,88,000/- IN THE EARLIER YEAR. IT WAS ALSO SUBMIT TED THAT HAD THE ASSESSEE NOT UTILIZED THE SERVICES OF SHRI CHANDRESH PRAVINCHANDRA KADAKI A, THE BUSINESS WOULD HAVE FURTHER DETERIORATED. IT WAS ALSO SUBMITTED THAT THERE WAS NO TAX AVOIDANCE AS TOTAL INCOME OF SHRI CHANDRESH PRAVINCHANDRA KADAKIA, HUF WAS RS. 3 ,70,000/- AS PER THE DETAILS IN THE PAPER BOOK WHEREAS THE TOTAL INCOME OF THE ASSESSEE WAS RS. 3,04,978/-. THUS, BOTH WERE IN THE SAME TAX BRACKET. THE LD AR FURTHER PO INTED OUT THAT COMMISSION PAID TO SHRI CHANDRESH PRAVINCHANDRA KADAKIA HAD BEEN ALLOW ED BY THE DEPARTMENT IN THE SUBSEQUENT YEARS THOUGH UNDER SUMMARY SCHEME. THE LD DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND PL ACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF COMMISSION TO SHRI CHANDRESH PRAVINCHANDRA 4 KADAKIA, THE RETIRED PARTNER AS KARTA OF HUF. THE A UTHORITIES BELOW HAD DISALLOWED THE COMMISSION ON THE GROUND THAT IT WAS ONLY AN ADJUST MENT ENTRY AS TURNOVER AND PROFIT BOTH HAD DECLINED DURING THE YEAR. THE CASE OF THE ASSESSEE IS THAT THE TWO PARTNERS OF THE FIRM HAD RETIRED AND THEREFORE, DURING THE YEAR THERE WAS ONLY ONE ACTIVE PARTNER COMPARED TO THREE PARTNERS IN THE EARLIER PERIOD. THE ASSESSEE THEREFORE NEEDED ASSISTANCE OF SHRI CHANDRESH PRAVINCHANDRA KADAKIA FOR THE PURPOSE OF BUSINESS AND HAD HIS SERVICES NOT BEEN AVAILED BUSINESS WOULD HA VE FURTHER DETERIORATED. WE HAVE CAREFULLY CONSIDERED THE VARIOUS ASPECTS OF THE MAT TER. IT IS NOT NECESSARY THAT SERVICES RENDERED SHOULD ALWAYS RESULT IN INCREASE OF TURNOV ER OR PROFITS WHICH DEPENDS UPON THE BUSINESS CONDITIONS. MOREOVER, WE ALSO NOTE THAT T HE INCOME DECLARED BY THE PAYEE OF THE COMMISSION IS IN THE SAME BRACKET AS IN CASE OF THE ASSESSEE AND THEREFORE, THERE IS NO AVOIDANCE OF TAX. FURTHER, COMMISSION TO THE SA ME PARTY HAS BEEN CLAIMED BY THE ASSESSEE IN THE SUBSEQUENT YEARS WHICH HAS BEEN ALL OWED BY THE DEPARTMENT. THOUGH THE CLAIM HAS BEEN ALLOWED UNDER THE SUMMARY SCHEME , THE FACT REMAINS THAT THE CLAIM OF COMMISSION STANDS ALLOWED AND THE DEPARTME NT HAS NOT MADE ANY EFFORTS TO DISALLOW THE COMMISSION EVEN AFTER THE PASSING ORDE R IN ASSESSMENT YEAR 2005-2006. THEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY, THE DISALLOWANCE IS NOT JUSTIFIED. MOREOVER, THERE BEING NO TAX DISADVANTAGE TO THE RE VENUE, WE DO NOT FIND ANY JUSTIFICATION FOR DISALLOWANCE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DELETED THE ADDITION MADE. 5 6. THE SECOND DISPUTE IS REGARDING ADDITION OF RS. 68,869/- ON ACCOUNT OF UNDISCLOSED PURCHASES. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS COLLECTED THE INFORMATION U/S 133(6) FR OM VARIOUS TRADE CREDITORS AND FOUND THAT PURCHASES IN RESPECT OF TWO CREDITORS AS SHOWN IN THEIR BOOKS WERE MORE COMPARED TO PURCHASES SHOWN BY THE ASSESSEE, THE TOTAL DIFFE RENCE BEING RS.68,869/-. AS PER THE AO, DESPITE SEVERAL OPPORTUNITIES GIVEN, THE ASSESS EE COULD NOT RECONCILE THE DIFFERENCE. HE THEREFORE, ADDED THE SAME AS UNDISCLOSED INCOME TO THE TOTAL INCOME. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE TH E CIT (A) THAT BY SHOWING THESE PURCHASES, THE ASSESSEE HAD DECLARED MORE INCOME AN D THEREFORE, THERE WAS NO CASE FOR ADDITION. CIT (A) OBSERVED THAT THE ADDITION HA S BEEN MADE ON ACCOUNT OF UNDISCLOSED PURCHASES NOT SHOWN IN THE BOOKS AND AC CORDINGLY HE CONFIRMED THE ADDITION AGGRIEVED BY WHICH THE ASSESSEE IS IN APPE AL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. AS PER THE MATERIAL COLLECTED BY THE AO , PURCHASES SHOWN BY THE ASSESSEE WERE LESS THAN SALES MADE BY TWO PARTIES BY RS. 68, 869/-. THE ASSESSEE DESPITE SEVERAL OPPORTUNITIES COULD NOT RECONCILE THE DIFFE RENCE. NO RECONCILIATION HAS BEEN FILED EVEN BEFORE US. IT IS THUS, CLEAR THAT THE ASSESSE E HAD MADE UNACCOUNTED PURCHASES TO THE TUNE OF RS. 68,869/- SOURCE OF WHICH IS NOT EXP LAINED. THEREFORE, WE SEE NO INFIRMITY IN THE ORDER OF CIT (A) CONFIRMING THE DI SALLOWANCE MADE BY THE AO AND ACCORDINGLY THE ORDER OF THE CIT (A) IS UPHELD. 6 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER, 2012. SD/- SD/- (VIVEK VARMA) (RAJENDR A SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 21 /11/ 2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI