Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 6230 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 5 month(s) 30 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-06-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
16-06-2011
Assessment Year
2004-2005
Appeal Filed On
31-12-2007
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.4594/AHD/2007 [ASSTT. YEAR : 2004-2005] ACIT, CIR.6 SURAT. VS. M/S.NANAVATI MOTORS NR. RAJHANS CINEMA PIPLOD, MAIN ROAD SURAT. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SAMIR TEKRIWAL ASSESSEE BY : SHRI J.P. SHAH O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THIS IS REVENUES APPAL AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME -TAX (APPEALS)-IV, AHMEDABAD DATED 1.10.2007 FOR A.Y.2004-2005 ARISING OUT OF THE ORDER OF THE AO UNDER SECTION 143(3) OF THE INCOME TAX AC T, 1961. 2. IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE F OLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF COMMISSION EXPENSES OF RS.2,49,970/ - MADE BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF DISALLOWANCES OF UNVERIFIABLE SALES EXPENSES TO RS.50,000/- INSTE AD OF THE ADDITION MADE BY THE AO AMOUNTING TO RS.6,67,826/- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DISALLOWANCE OF INCENTIV E EXPENSES UNRELATED TO BUSINESS OF RS.2,53,515/- MADE BY THE AO. ITA NO.4594/AHD/2007 -2- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN DISALLOWANCE OF INTER DE ALER FREE SERVICE EXPENSES OF RS.6,48,497/- MADE BY THE AO. 3. AS REGARDS GROUND NO.1, THE ASSESSEE CLAIMED SAL ES COMMISSION OF RS.2,49,970/-. THE SAME WAS REJECTED BY THE AO ON THE GROUND THAT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS TO ESTABLISH THE BUSINESS CONNECTION OF THE EXPENDITURE AND THE NATURE OF SERVICES RENDE RED BY THE COMMISSION AGENTS. AGAINST THIS ORDER, THE ASSESSEE FILED APP EAL BEFORE THE CIT(A) WHO CONSIDERING ALL THE FACTS, DELETED THE ADDITION BY FOLLOWING OBSERVATIONS: I HAVE CONSIDERED THE SUBMISSIONS AND FIND THAT TH E AO APPEARS TO BE LIVING IN A WORLD OF HIS OWN AND HAS EITHER N O KNOWLEDGE OF THE REALITIES OR HIS ADAMANT ON MAKING DISALLOWANCE S WHICH HE HIMSELF COULD NOT JUSTIFY. IT IS A PRACTICAL ASPEC T THAT COMMISSION PAYMENT IS MADE TO PERSONS, WHO BRING CUSTOMERS TO THE SHOW ROOM AND PERSUADE THEM TO PURCHASE A PARTICULAR BRA ND OF VEHICLE AND THESE SERVICES ARE RENDERED MOSTLY BY PROFESSIO NALS. IT IS ALSO SEEN THAT THE COMMISSION PAYMENT IS THROUGH ACCOUNT PAYEE CHEQUES AND TDS HAS BEEN MADE WHEREVER APPLICABLE. CONFIRMATION OF THE RECIPIENTS IS ALSO AVAILABLE AN D THE AO HAS ALSO ACCEPTED THE GENUINENESS OF SUCH PAYMENTS BUT IS ONLY DISPUTING THE NECESSITY OF PAYING COMMISSION. IT I S NOT FOR THE AO TO DECIDE AS TO WHAT EXPENDITURE SHOULD BE INCURRED BY THE APPELLANT SO LONG AS IT IS RELATABLE TO BUSINESS AN D IS NOT EXCESSIVE OR HAS NOT BEEN PAID TO NEAR RELATIVES. THIS ACTI ON OF THE AO BEING WITHOUT ANY JUSTIFICATION IS NOT IN ORDER AND THE A DDITION IS DIRECTED TO BE DELETED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE AO HAS NOT DISPUTED TH E PAYMENT MADE BY THE ASSESSEE TO THE COMMISSION AGENT, BUT HE DOUBTED TH E MOTIVE BEHIND MAKING OF SUCH PAYMENT. FROM THE ORDER OF THE CIT( A) WE FIND THAT THE ASSESSEE HAS MADE THE PAYMENT THROUGH ACCOUNT PAYEE CHEQUES AND THAT ITA NO.4594/AHD/2007 -3- TDS THEREFROM WAS ALSO DEDUCTED. BESIDES, CONFIRMA TIONS FROM THE PARTIES HAVE ALSO BEEN PRODUCED. THEREFORE, THE AS SESSEE HAS PRODUCED THAT NECESSARY PROOFS TO ESTABLISH ITS CLAIM, WHICH THE AO SIMPLY DOUBTED WITHOUT ANY JUSTIFIABLE REASONS. IT WAS ALSO POINT ED BY THE LEARNED COUNSEL THAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE PAID COMMISSION OF RS.3,30,776/- WHICH WAS ACCEPTED BY T HE REVENUE IN THE ORDER PASSED UNDER SECTION 143(3). SIMILARLY, IN T HE SUBSEQUENT YEAR I.E. A.Y.2005-2006, THE ASSESSEE PAID COMMISSION OF RS.2 ,93,638/- WHICH WAS ALSO ACCEPTED BY THE AO IN THE ORDER PASSED UND ER SECTION 143(3). CONSIDERING THE TOTALITY OF THE ABOVE FACTS AND CIR CUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON TH IS ISSUE, WHICH IS UPHELD AND THIS GROUND OF THE REVENUE IS REJECTED. 5. GROUND NO.2 IS REGARDING RESTRICTION OF ADDITION OF DISALLOWANCE OF UNVERIFIABLE SALES EXPENSES TO RS.50,000/- INSTEAD OF THE ADDITION MADE BY THE AO AMOUNTING TO RS.6,67,826/-. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND NO INFIRMITY IN THE ORDER OF TH E CIT(A) IN RESTRICTING THE DISALLOWANCE. THE ASSESSEE INCURRED THE EXPENSE S FOR FREE ACCESSORIES GIVEN ALONG WITH MOTOR CARS, VARIOUS EXPENSES DURIN G THE FREE CHECK UP CAMPS, ETC. IN ORDER TO PROMOTE THE SALES IN THE CO MPETITIVE ENVIRONMENT. THE AO REJECTED THE CLAIM OF THE ASSESSEE ON THE GR OUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE SALES PROMOTION EX PENDITURE AS CLAIMED HAVE BEEN REALLY INCURRED TOWARDS BUSINESS PURPOSE. HOWEVER, THE CIT(A) HAS FOUND THAT THE ABOVE EXPENDITURE WAS INC URRED TO ATTRACT CUSTOMERS AND TO PROMOTE THE SALES. THE ASSESSEE H AS FILED PROOF OF NEWSPAPER CUTTING AND MEDIA ADVERTISEMENT BY DEALER S OFFERING FREE ITA NO.4594/AHD/2007 -4- SUPPLY OF THE ACCESSORIES ETC. AND DELIVERY MEMO SI GNED BY THE CUSTOMERS. IT WAS POINTED OUT BY THE LEARNED COUNSE L THAT IN THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAS INCURR ED SALE PROMOTION EXPENSES OF RS.33,22,888/- WHILE IN THE SUBSEQUENT YEAR I.E. A.Y.2005- 2006, THE ASSESSEE INCURRED SALE PROMOTION EXPENSES OF RS.23,14,220/-. THAT THE AO IN BOTH THE YEARS IN THE ORDER PASSED U NDER SECTION 143(3) ACCEPTED THE SALE PROMOTION EXPENSES. WHILE IN THE YEAR UNDER CONSIDERATION, THE SALE PROMOTION EXPENDITURE WAS I NCURRED AT RS.26,71,305/-. THE AO DISALLOWED 25% OF THE SAME ON ESTIMATED AND PRESUMPTIVE BASIS. CONSIDERING TOTALITY OF THE FAC TS AND CIRCUMSTANCES AND THE MATERIAL AVAILABLE ON RECORD, WE DO NOT FIN D ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSU E, ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 7. GROUND NO.3 IS REGARDING DELETION OF DISALLOWANC E OF INCENTIVE EXPENSES AMOUNTING TO RS.2,53,515/- MADE BY THE AO. THE ASSESSEE CLAIMED EXPENSES TOWARDS INCENTIVE GIVEN TO THE EMP LOYEES AS BUSINESS DEDUCTION, WHICH THE AO DISALLOWED ON THE GROUND TH AT THE ASSESSEE FAILED TO ESTABLISH BUSINESS NEXUS FOR INCURRING TH ESE EXPENSES. HOWEVER, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO ON THE GROUND THAT THE OFFER OF INCENTIVE SCHEME IS NECESSARY IN ANY S ALES ORGANIZATION IN ORDER TO ACHIEVE THE SALES IN THIS COMPETITIVE ENVI RONMENT. THE AO HAS NOT DISPUTED THE PAYMENT, BUT THE NECESSITY OF GIVI NG SUCH INCENTIVES TO THE EMPLOYEES HAS BEEN DISPUTED. MOREOVER, WE FIND THAT IN THE IMMEDIATELY PRECEDING YEAR AS WELL SUBSEQUENT YEAR ALSO INCENTIVE WERE GIVEN TO THE EMPLOYEES WHICH WERE MORE THAN THE INC ENTIVE GIVEN IN THE YEAR UNDER CONSIDERATION AND THE SAME WAS ACCEPTED BY THE AO IN THE YEAR PASSED UNDER SECTION 143(3). CONSIDERING TOTA LITY OF THE FACTS AND ITA NO.4594/AHD/2007 -5- CIRCUMSTANCES AND ARGUMENTS OF BOTH THE SIDES, WE A RE OF THE OPINION THAT THE ORDER OF THE CIT(A) IS FULLY JUSTIFIED, WE THER EFORE, REJECT GROUND NO.3 OF THE REVENUES APPEAL. 8. THE LAST GROUND IS REGARDING DISALLOWANCE OF INT ER DEALER FREE SERVICE EXPENSES OF RS.6,48,497/- MADE BY THE AO. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE WAS NO AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY DEALER FOR SERVICE OF THE VEHICLES SOLD BY THE ASSESSEE. THE CIT(A) DELETED THE ADDIT ION WITH THE FOLLOWING FINDINGS: I HAVE CONSIDERED THE SUBMISSIONS AND ONCE AGAIN I AM CONSTRAINED TO REMARK THAT THE DISALLOWANCE HAS BEE N MADE WITHOUT EVEN GOING THROUGH THE SUBMISSIONS OF THE A PPELLANT AND SIMPLY FOR THE SAKE OF MAKING AN ADDITION TO THE IN COME. ANY PERSON WHO HAS EVER PURCHASED THE VEHICLE KNOWS THA T A VEHICLE DEALER NORMALLY GIVES COUPON FOR THREE FREE SERVICE S AND ONE IS AT LIBERTY TO GET FREE SERVICES DONE AT ANY OF THE AUT HORIZED DEALERS WORKSHOP AND NOT ONLY THE SELLING DEALER. OBVIOUSL Y, THE THIRD PARTY, WHO IS GIVING FREE SERVICE ON THE BASIS OF S UCH COUPONS WOULD NOT BEAR THE COST OF THE SERVICE BUT WOULD SE EK REIMBURSEMENT FROM THE SELLING DEALER ONLY. THIS A DDITION MADE WITHOUT APPLICATION OF MIND IS DIRECTED TO BE DELET ED. 9. AT THE TIME OF HEARING BEFORE US, THE REVENUE WA S UNABLE TO CONTROVERT TO THE ABOVE FINDINGS RECORDED BY THE LE ARNED CIT(A). ON THE OTHER HAND, IT WAS POINTED OUT BY THE LEARNED COUNS EL THAT ANY PERSON WHO PURCHASED THE VEHICLE FROM THE ASSESSEE FIRM IS ISS UED THREE COUPONS FOR FREE SERVICE OF THE VEHICLES. THE CUSTOMER IS ENTI TLED TO GET THE FREE SERVICE FROM ANY OF THE AUTHORISED SERVICE DEALER O F M/S.HONDA MOTORS. THAT WHEN ANY OTHER SERVICE DEALER WOULD PROVIDE FR EE SERVICE OF THE VEHICLE NATURALLY HE WILL RECOVER THE SERVICE CHARG ES FROM THE DEALER WHO SOLD THE VEHICLE. THE ASSESSEE HAS DULY PRODUCED T HE DEBIT NOTE ISSUED BY ITA NO.4594/AHD/2007 -6- THE SERVICE PROVIDER FOR THE FREE SERVICE OF THE VE HICLE TO THE CUSTOMERS. THAT THE PAYMENT TO THE SERVICE PROVIDER WERE MADE BY THE ACCOUNT PAYEE CHEQUE. HE ALSO POINTED OUT THAT IN THE IMMEDIATEL Y PRECEDING AS WELL AS SUBSEQUENT YEAR, THE REVENUE HAS ACCEPTED THE CLAIM OF EXPENDITURE OF FREE SERVICE IN THE ORDER PASSED UNDER SECTION 143( 3). CONSIDERING THE TOTALITY OF THE ABOVE FACTS AND THE ARGUMENTS OF BO TH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) ON TH IS POINT. WE THEREFORE UPHOLD THE SAME AND REJECT GROUND NO.4 OF THE REVEN UES APPEAL. 10. IN THE RESULT, REVENUES APPEAL IS REJECTED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH JUNE, 2011 SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 30-06-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD
