Sh. Vimal Arora, Agra V. I.T.O.-1(3), Agra

ITA 473/AGR/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62885 (ITAT-AGRA)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Keywords: Business expenditure
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 473/AGRA/2012 ASSTT. YEAR : 2007-08 SHRI VIMAL ARORA, VS. INCOME-TAX OFFICER, M/S. THE ART GALLERY, 1(3), AGRA. 16, HANDICRAFT NAGAR, FATEHABAD ROAD, AGRA. (PAN : AAXPA 0621 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI K.K. MISHRA, JR. D.R. DATE OF HEARING : 27.12.2012 DATE OF PRONOUNCEMENT OF ORDER : 28.12.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-I, AGRA DATED 26.03.2012 FOR THE ASSESSMENT YEAR 2007- 08. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND PERUSED THE FINDINGS OF AUTHORITIES BELOW. 3. ON GROUND NO. 1 & 2, THE ASSESSEE CHALLENGED THE ADDITION OF RS.3,42,621/- ON ACCOUNT OF DISALLOWANCE OF COMMISSION @ 5%. THE AO DISALLOWED 10% ITA NO. 473/AGRA/2012 2 COMMISSION OUT OF TOTAL COMMISSION OF RS.68,52,430/ -. THE ASSESSEE IS ENGAGED IN TRADING OF HANDICRAFT ITEMS. THE ASSESSEE PAID COMM ISSION TO VARIOUS PERSONS AND MOST OF THE BILLS MAINTAINED ARE SELF MADE VOUCHERS . THEREFORE, THE AO WAS OF THE VIEW THAT THE SAME ARE NOT OPEN FOR VERIFICATION. 1 0% COMMISSION WAS DISALLOWED IN A SUM OF RS.6,85,243/-. THE ASSESSEE EXPLAINED B EFORE THE LD. CIT(A) THAT THE COMMISSION WAS PAID FOR PROCURING BUSINESS, WHICH I S VERIFIABLE FROM THE RECORD AND OTHER TRADERS OF THE SAME LINE AND IN PAST ALSO ASSESSEE PAID COMMISSION, WHICH HAS BEEN ALLOWED AS BUSINESS EXPENSES BY THE AO. TH E SALES OF THE ASSESSEE IN ASSESSMENT YEAR HAVE INCREASED, ON WHICH COMMISSION HAS BEEN PAID @18.05% ON THE SALES AND NET PROFIT IS BETTER AS COMPARED TO E ARLIER YEARS, WHICH IS SHOWN AT 1.41%. IN PRECEDING ASSESSMENT YEAR 2006-07 AND 200 5-06, COMMISSION WAS PAID AT RATE OF 18.34% AND N.P. RATE IS 1.37% AND 17.45% AND 1.06% RESPECTIVELY. IN PRECEDING ASSESSMENT YEAR 2006-07, THE ASSESSMENT W AS COMPLETED U/S. 143(3) AND THE AO ACCEPTED THE PAYMENT OF SIMILAR COMMISSION. THE COMMENTS OF THE AO WERE ALSO CALLED FOR ON THE SUBMISSIONS OF THE ASSE SSEE, IN WHICH THE AO EXPLAINED THAT THE COMMISSION WAS PAID TO THE TAXI DRIVERS AN D THEIR REGISTRATION NUMBER OF VEHICLES HAVE BEEN MENTIONED ON THE VOUCHERS BUT CO MPLETE ADDRESS IS NOT MENTIONED. EACH AND EVERY VOUCHER IS BEARING SALE I NVOICE NUMBER, WHICH TALLY WITH THE SALES REGISTER. THE LD. CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE FOUND THAT ON THE VOUCHERS, TAXI NUMBER OF THE DRIV ER TO WHOM THE COMMISSION HAS ITA NO. 473/AGRA/2012 3 BEEN PAID HAVE BEEN MENTIONED, WHICH TALLY WITH THE SALES REGISTER AND IT WAS ALSO FOUND THAT IT IS A FACT THAT IN THIS TYPE OF BUSINE SS, PAYMENT OF COMMISSION IS NECESSITY TO PROMOTE THE BUSINESS. SINCE COMPLETE A DDRESSES WERE NOT MENTIONED ON THE VOUCHERS, 5% COMMISSION WAS DISALLOWED AND A DDITION WAS REDUCED TO RS.3,42,621/-. 4. CONSIDERING THE RIVAL SUBMISSIONS OF THE PARTIES , WE ARE OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. IT IS A FACT THAT T HE SALES OF THE ASSESSEE HAVE INCREASED ON GIVING THE COMMISSION ON SALES. THE CO MMISSION PAID IN ASSESSMENT YEAR UNDER APPEAL IS COMPARATIVELY LESSER AS COMPAR ED TO THE PRECEDING ASSESSMENT YEAR 2006-07, BUT THE NET PROFIT RATE IS HIGHER. TH EREFORE, THERE IS NO QUESTION OF INFLATING EXPENSES OR SHOWING LESSER PROFIT RATE IN ASSESSMENT YEAR UNDER APPEAL. SIMILAR TYPE OF COMMISSION PAID IN PRECEDING ASSESS MENT YEAR 2006-07 HAS BEEN ACCEPTED BY THE AO IN ASSESSMENT PROCEEDINGS COMPLE TED U/S. 143(3) OF THE IT ACT. THE AUTHORITIES BELOW ACCEPTED THAT THE COMMISSION IS NECESSITY IN SUCH TYPE OF BUSINESS OF THE ASSESSEE IN ORDER TO PROMOTE THE BU SINESS AND VOUCHERS BEAR TAXI NUMBER TO WHOM THE COMMISSION HAS BEEN PAID TO THE TAXI DRIVERS. MERELY BECAUSE ADDRESS OF THE DRIVER IS NOT MENTIONED IN THE VOUCH ERS IS NOT ENOUGH TO DISALLOW THE EXPENSES. ONCE THE COMMISSION IS PAID WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS, IT HAS TO BE ALLOWED IN FULL. WE ACCORDIN GLY, SET ASIDE THE ORDERS OF THE ITA NO. 473/AGRA/2012 4 AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.3,4 2,621/-. GROUND NO. 1 & 2 OF APPEAL OF THE ASSESSEE ARE ALLOWED. 5. ON GROUND NO. 3 & 4, THE ASSESSEE CHALLENGED THE ADDITION OF RS.3,87,084/- MADE BY DISALLOWING THE AMOUNT U/S. 40A(3) OF THE I T ACT. THE AO DISALLOWED AMOUNT OF RS.4,23,483/- U/S. 40A(3) OF THE IT ACT B ECAUSE THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE FOR PURCHASE OF ITEMS BY WAY O F BEARERS CHEQUES AND AFTER MAKING VERIFICATION FROM THE BANK, IT WAS FOUND THA T THE PAYMENTS TO VARIOUS PERSONS, WHO WERE CLAIMED TO HAVE SUPPLIED THESE IT EMS WERE PAID IN CASH AFTER ENCAHSING THESE BEARERS CHEQUES. THE AO DISALLOWED 20% OUT OF TOTAL EXPENSES OF RS.21,17,422/- AND MADE THE ADDITION. IT WAS SUBMIT TED BEFORE THE LD. CIT(A) THAT THE ASSESSEE MADE PURCHASES FROM SMALL TRADERS, WHO GO TO EMPORIUM / BUSINESS PREMISES OF THE ASSESSEE, FROM WHOM THE ASSESSEE HA S PURCHASED THE GOODS AGAINST BEARERS CHEQUES BECAUSE THESE PERSONS REFUSED TO AC CEPT THE ACCOUNT PAYEE CHEQUES AS THEY HAVE NOT MAINTAINED ANY BANK ACCOUNT. THE B EARERS CHEQUES HAVE BEEN ISSUED ON THE DEMAND OF THESE SMALL PARTIES ENGAGED IN THE MANUFACTURING OF SMALL HANDICRAFT GOODS MAINLY, MANUFACTURING THE GOODS UN DER COTTAGE INDUSTRIES ON SMALL SCALE AND THEY DID NOT MAINTAIN ANY BANK ACCO UNT. THE CASE OF THE ASSESSEE IS, THEREFORE, COVERED BY CIRCUMSTANCES LAID UNDER RULE 6DD OF THE IT RULES. THE ASSESSEE FILED AFFIDAVITS OF VARIOUS PERSONS IN SUP PORT OF THE CONTENTION. IT WAS, ITA NO. 473/AGRA/2012 5 THEREFORE, CLAIMED THAT THE CASE OF THE ASSESSEE WO ULD FALL IN EXCEPTION AS MENTIONED IN RULE 6DD(F) OF THE IT RULES. THE ASSES SEE FILED AFFIDAVITS OF 11 PERSONS ON WHICH THE REMAND REPORT FROM THE AO WAS CALLED FOR AND THE AO FOUND THAT THE PERSONS, WHO HAVE FURNISHED THEIR AFFIDAVI TS WERE ALSO PRODUCED FOR STATEMENT ON OATH, WOULD REVEAL THAT THEY HAVE DONE HANDICRAFT WORK IN THEIR OWN HOUSES OR AT THE HOUSES OF THEIR CONTRACTORS. THE W ORK DONE BY THEM INVOLVE NO POWER SUPPLY AND THEY HAVE EXPLAINED THAT THEY DO N OT HAVE ANY BANK ACCOUNT AND THEY WORK ON SMALL SCALE BASIS. THE AO, THEREFORE, ADMITTED THAT THE CASE OF THE ASSESSEE IS COVERED U/R. 6DD(F) OF THE IT RULES. TH E LD. CIT(A) FOUND THAT THE ASSESSEE PRODUCED ONLY FIVE PARTIES AND ONLY AFFIDA VITS OF VARIOUS OTHER PARTIES HAVE BEEN FURNISHED WHICH REVEAL THAT THEIR CASES A RE COVERED BY RULE 6DD(F) OF THE IT RULES WHICH INVOLVE AMOUNT OF RS.1,82,000/-. THEREFORE, TO THAT EXTENT, THE ADDITION WAS DELETED AGAINST THE ASSESSEE, BUT WHEN THE ENTIRE AMOUNT WAS NOT CONFIRMED, THE REST OF THE ADDITION HAS BEEN MAINTA INED. THE LD. CIT(A), THEREFORE, DISALLOWED 20% OUT OF RS.19,35,422/- AND MAINTAINED THE ADDITION OF RS.3,87,084/-. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED IN THE MATTER. THE A O ADMITTED IN HIS REMAND REPORT THAT THE CASE OF THE ASSESSEE IS COVERED BY RULE 6D D(F) OF THE IT RULES. RULE ITA NO. 473/AGRA/2012 6 6DD(F) OF THE IT RULES PROVIDES THAT NO DISALLOWANC E U/S. 40A(3) SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AN D GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3A) OF SECTION 40A, W HERE THE PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY OTHERWISE THA N BY ACCOUNT PAYEE CHEQUES DRAWN ON BANK OR ACCOUNT PAYEE DRAFTS EXCEEDS TWENT Y THOUSAND RUPEES IN A CASE AND CIRCUMSTANCES SPECIFIED HEREUNDER NAMELY WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF PRO DUCTS MANUFACTURED OR PROCESSED WITHOUT AID OF POWER IN A COTTAGE INDUSTR Y TO THE PURCHASER OF SUCH PRODUCTS. 7. IT IS ADMITTED FACT THAT THE ASSESSEE IS ENGAGED IN TRADING OF HANDICRAFT ITEMS MADE PURCHASES FROM SMALL TRADERS AND THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE MADE PURCHASES OF SMALL HANDICRAFT ITEMS FROM SMALL TRADERS FROM COTTAGE INDUSTRIES ON SMALL SCAL E BASIS AND THEY INSISTED FOR CASH PAYMENT AS THEY DID NOT MAINTAIN ANY BANK ACCOUNT. CONTENTION OF THE ASSESSEE HAS NOT BEEN DISPUTED BY THE AO AND THE AO ADMITTED THA T THE CASE IS COVERED BY RULE 6DD(F) OF THE IT RULES. THE ASSESSEE PRODUCED AFFID AVITS OF 11 PERSONS BEFORE THE LD. CIT(A) WHO WERE SUPPLYING GOODS TO THE ASSESSEE AND SOME OF THEM WERE ALSO PRODUCED FOR EXAMINATION BEFORE THE AO. MERELY BECA USE ALL OF SUCH PERSONS DID NOT FILE AFFIDAVITS AND WERE NOT PRODUCED BEFORE TH E AO, IS NO GROUND TO SUSTAIN THE ADDITION U/S. 40A(3) OF THE IT ACT. SINCE ALL THE P URCHASES ARE MADE FROM THE PERSONS INVOLVED IN COTTAGE INDUSTRIES AND CASE OF THE ASSESSEE IS COVERED BY ITA NO. 473/AGRA/2012 7 EXCEPTION TO THE RULE, THEREFORE, THE AUTHORITIES B ELOW SHOULD NOT HAVE SUSTAINED THE PART OF THE ADDITION ON THIS ISSUE. WE ACCORDIN GLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. I N THE RESULT, GROUNDS NOS. 2 & 3 OF APPEAL OF THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY