The ACIT, Circle-4(1)(1), Ahmedabad V. Sayaji Industries Ltd., Ahmedabad

ITA 492/AHD/2020

AI Insights

The case involves multiple appeals by the Revenue against Sayaji Industries Ltd. concerning the disallowance of commission paid to its sole selling agent, LG Doctors & Associates, for the assessment years 1993-94 to 1996-97. The primary legal contention was whether the commission expenses were genuine and allowable under the Income Tax Act, 1961. The Assessing Officer had initially disallowed these expenses based on findings from the assessment year 1992-93, which were later contested and led to a series of appeals. The CIT(A) had deleted the additions made by the Assessing Officer, a decision which was upheld by the Tribunal based on precedents and judicial decisions favoring the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134550 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-01-2023
• Assessment Year: 1995-1996
• Appeal Filed On: 05-10-2020
• Other Referred Cases: Tax Appeal No. 1277 of 2010, Tax Appeal No. 1278 of 2010
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 143(3)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’A’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER आयकरअपीलसं./ITA Nos.513 & 514/AHD/2020 िनधाᭅरणवषᭅ/Asstt. Years: 1993-94 & 1994-95 A.C.I.T, Circle-4(1)(1), Ahmedabad Vs. Sayaji Industries Ltd. Maize Products, PO: Kathwada, Ahmedabad PAN: AADCS0861R (Applicant) (Respondent) आयकरअपीलसं./ITA Nos.492 & 493/AHD/2020 िनधाᭅरणवषᭅ/Asstt. Years: 1995-96 & 1996-97 A.C.I.T, Circle-4(1)(1), Ahmedabad Vs. Sayaji Industries Ltd. Maize Products, PO: Kathwada, Ahmedabad PAN: AADCS0861R (Applicant) (Respondent) Assessee by : Shri Yogesh Shah, A.R. & Shri Darshin Haji, A.R. Revenue by : Shri Urjit Shah, Sr. D.R सुनवाईकᳱतारीख/Date of Hearing : 04/01/2023 घोषणाकᳱतारीख/Date of Pronouncement: 03/02/2023 आदेश/O R D E R The captioned appeals have been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-8, Ahmedabad on various dates arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 1993-94 to 1996-97 respectively. 2. The following grounds of appeal are raised by the Revenue: “1. The Ld. CIT(A) has erred in law and on facts in not providing reasonable opportunity to the Assessing Officer despite categorical directions of the Hon’ble ITAT to ITA Nos.513&514/AHD/2020 & 492&493/AHD/2020 A.Ys. 1993-94 to 1996-97 2 its effective vide its order ITA No. 846/Ahd/1998 for A.Y. 1993-94 dated 25.08.2006 (Para No. 6 of Page 4) 2. The Ld.CIT(A) has erred in law and in fact by simply relying on the decision in the appellant’s own case for A.Y. 1992-93 whereas the Hon’ble ITAT had pointed out in the aforesaid order that the principle of res judicata is not applicable and the AO should calculate and determine the quantum of income & the reason of the disallowance of commission whereas no such opportunity was granted by Ld. CIT(A)? 3.The Ld. CIT(A) has erred in law and on facts in not providing reasonable opportunity to the Assessing Officer despite categorical directions of the Hon’ble ITAT to this effect vide its order ITA No. 846/Ahd/1998 for A.Y. 1993-94 dated 25.08.2006 (para no. 6 of page 4)? 4. The Ld. CIT(A) has erred in law and in fact by simply relying on the decision in the appellant’s own case for A.Y. 1992-93 whereas the Hon’ble ITAT had pointed out in the aforesaid order that the principle of res judicata is not applicable and that the AO should calculate and determine the quantum of income & the reason of the disallowance of commission whereas no such opportunity was granted by Ld. CIT(A)?” 3. The only effective issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 1,31,65,441/- on account of commission pay to sole selling agent. 3.1 The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing/production of Maize and other items. The assessee in the year under consideration has made the payment of the commission of Rs. 1,31,65,441/- to M/s L G Doctors & Associates (in short “LGDA”) being a sole selling agent of the assessee. However, the Assessing Officer found that his predecessor in the immediate preceding assessment order i.e. 1992-93 has disallowed the commission paid to the sole selling agent treating the same as non-genuine. The Assessing Officer respectively following the order of his predecessor has also treated the same as non-genuine commission expenses and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to the Ld. CIT(A) who have deleted the addition made by the Assessing Officer by observing as under: “5. I have carefully considered the impugned order, direction of the ITAT Ahmedabad, factual matrix of the case and the submissions made. The case was restored by the ITAT Ahmedabad vide its order dated 25.08.2006 to the file of the CIT (A) on the specific issue of addition by the AO in the case of the appellant of the amount paid as Commission to LG Doctors & Associates P Ltd. Current jurisdiction of the case lies with CIT(A)-8 Ahmedabad. ITA Nos.513&514/AHD/2020 & 492&493/AHD/2020 A.Ys. 1993-94 to 1996-97 3 The only issue remaining adjudication by the CIT(A) is relatable to the disallowance of commission paid to the sole agent M/s L G Doctors Associates P Ltd. The assessing officer had disallowed the entire amount of the claim of such expense of Rs1,31,65,441/- based on the findings made in AY 1992-93 and specifically as that case was in Gujarat HC to keep the issue alive. With respect to the case of AY 1992-93, in the second round of appeal (cross) the issue was decided in favour of the appellant by the ITAT Ahmedabad vide order dated 16.12.2009 in ITA 797/Ahd/2007. Against this order the Department filed an appeal before the Gujarat High Court which in its order dated05.12.2011 in Tax Appeal No. 1277 of 2010,Tax Appeal No. 1278 of 2010 declined to interfere with order of the ITAT. The Hon'ble HC held: "Revenue is in appeal against the judgment of the Tribunal dated 16.12.2009 By the said common judgment, the Tribunal disposed of two cross-appeals, one by the Revenue and another filed by the assesses. Before taking note of the questions framed by the Revenue in these appeals, brief facts may be recorded. Respondent-assessee is a company registered under the Companies Act and is engaged in the business of manufacturing maze products. For the year under consideration i.e previous year to the relevant assessment year 1992-93, the assessee had claimed deduction of an amount of Rs. 1.27 crores (rounded off) towards commission paid to the sole selling agent. The Assessing Officer disallowed the entire claim holding that the said sole selling agent had not rendered any service. The commission paid, therefore, could not be claimed deduction of. The assessee carried the order of the Assessing Officer in appeal. CIT(Appeals), allowed substantial portion of the claim of the assessee and restricted the disallowance to Rs. 7.50 lacs which was the commission paid towards sale to eight different parties with respect to whom CIT (Appeals) believed that the assessee had not rendered any service. The order of the CIT (Appeal) gave rise to two cross-appeals. Revenue as well as the assessee, both appealed to the Tribunal. The Tribunal by the impugned judgment allowed the assessee's appeal and dismissed Revenue's appeal. Thereupon, the Revenue has filed these appeals before us. In Tax Appeal No, 1277/10, the Revenue has proposed following question of law: "Whether the Appellate Tribunal is right in law and on facts In deleting the addition of Rs. 7,50,482/- out of commission paid by the assessee to its sole selling agent M/s. L.G Doctors Associates Pvt. Ltd.?" In Tax Appeal No. 1278 of 2010, the Revenue has proposed following question:” "Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 1,20,07,023/- out of commission paid by the assessee to its sole selling agent M/s. L.G Doctors Associates Pvt. Ltd.?" We have heard the learned counsel appearing for the parties. From the record we notice that the Assessing Officer, gave various reasons to hold a belief that the sole selling agent, viz., a company by the name LGDA had not rendered any service to the assessee. He noted various terms and conditions of agreement between the assessee and the LGDA. He was of the opinion that such terms and conditions were not followed. Certain purchases were made by the parties directly from the assessee. For the delay in making the payments, no penalty was levied from LGDA though the agreement provided so. He also noted that LGDA was not authorized to negotiate the price with the purchasers. However, ITA Nos.513&514/AHD/2020 & 492&493/AHD/2020 A.Ys. 1993-94 to 1996-97 4 one Shri Vinodbhai Soni who was an employee of LGDA had done so. With respect to eight individual companies, he recorded the statement of representatives of such purchasers, who stated that LGDA had not contributed to the sale made by such purchasers from the assessee. According to the Assessing Officer, the cumulative effect of such factors would be that entire commission paid to LGDA was required to be disallowed. In appeal, the CIT(Appeals), however, allowed substantial portion of the claim of the assessee. Out of the total claim of Rs. 1.27 crores towards commission paid, he disallowed only Rs. 7.50 lakhs and allowed the rest. Commission of Rs. 7.50 lakhs which the CIT (Appeals) disallowed represented the sales made to eight parties with respect to whom the Assessing Officer believed that such sales were made directly. In further appeal before the Tribunal, the Tribunal reversed the decision of the Commissioner to the extent that the same was adverse to the assessee and thereby allowed the appeal of the assessee and simultaneously the Revenue's appeal was dismissed. The Tribunal took note of several factors emerging from the record. The Tribunal noted that in the previous years, this very arrangement of sales through LGDA was examined by the Assessing Office on scrutiny. The commission paid was accepted. The Tribunal also noted that it was with respect to eight parties that sales were made directly. With respect to such parties also, the Tribunal observed that the assessee might have interacted with the parties for many reasons including the supply schedule and logistic support, etc. However, merely on this basis, commission payable to such sales cannot be disallowed. From the record, what emerges is that in the earlier years, the very arrangement of commission paid to the sole selling agent came up for consideration and such arrangement was accepted. Counsel for the assessee correctly points out that in the earlier years, the Tribunal had accepted such arrangement and in fact, the High Court had confirmed the view of the Tribunal. Additionally, we a/so notice that the assessee had large number of customers. In fact, it was pointed out before the Revenue authorities as well as the Tribunal that the assessee had more than 2000 customers. The Assessing Officer had examined only eight of them and found that direct purchases were made, it was on this basis that the Tribunal upheld the arrangement even with respect to such eight parties believing that the assessee might have interacted directly with a handful of customers for very many reasons. Additionally we also find that the assessee had brought to the notice of the Revenue authorities that it does not have any sales agent other than the sole selling agent appointed by it. Such appointment was approved by the Board of Directors. LGDA also does not have any other customer and its sole task is to act as sole selling agent of the assessee. LGDA maintains sizable number of staff across the country in number of cities. It was pointed out that there are large number of buyers of assessee's products who are located in parts of India and in various sectors, such as pharmaceuticals, food, textile, paper, etc. LGDA has appointed 20 sub-agents and 61 intermediaries spread over various important places of business to cater to the supply of company's products located at small cities and towns. There were voluminous records suggesting that the LGDA is not only the sole selling agent of the assessee, but it also does not undertake any other task except to promote the sales of the assessee company. Additionally, the assessee has larger number of customers and the LGDA supports such customers maintains its agents and branches across the country. In view of such complex set up, between the assessee and the LGDA, we are of the opinion that the Tribunal committed no error in accepting the entire commission paid to ITA Nos.513&514/AHD/2020 & 492&493/AHD/2020 A.Ys. 1993-94 to 1996-97 5 LGDA. In fact, as already recorded, CIT (Appeals) had restricted the disallowance made by the Assessing Officer from Rs. 1.25 crores as claimed by the assessee to Rs. 7.50 lakhs. Even with respect to some handful of customers, sales might have been made directly, but it cannot be stated that the LGDA was not entitled to commission qua the sales made to such agents. LGDA was the sole selling agent and was responsible for the promotion of sales. In the process, services rendered could not have been bifurcated as done by the Tribunal vis-a-vis a handful of customers as against more than 2000 customers whose requirements the LGDA would be satisfying. In the result, we are of the opinion that the Tribunal's order requires no interference. We may notice that the Tribunal relied on number of decisions of this Court and other courts to examine the nature of allow/ability of the claim made by the assessee. However, even on facts, we find that the Tribunal is justified in accepting the claim of the assessee, we do not find it necessary to make a detailed reference to these judgments. In the result, both the Tax Appeals are dismissed." (emphasis supplied) 5.1 No SLP against this order before the Hon'ble Supreme court was reported by the AO to have been filed by the Department, Hence the issue of commission payment to LG Doctors & Associates by the appellant has reached finality and decided fully in favour of the appellant. 5.2 When in the main case for AY 1992-93 the addition by disallowing the commission to sole agent did not survive, in the succeeding AYs including AY 1993-94, where the addition was solely based on the findings during assessment in AY 1992-93, the raison-de- etre for sustaining the addition in AY 1995-96 also does not survive. Therefore I direct the AO to delete the addition of Rs 1,31,65,441/- made on account disallowance of commission paid by the appellant to M/s L G Doctors & Associates for AY 1993-94. The ground of appeal restored to CIT(A) by the ITAT to be decided afresh is hence decided in favour of appellant and allowed. 6. In the event, the set aside appeal is allowed.” 5. Being aggrieved by the order of the Ld. CIT(A), Revenue is in appeal before us. Both the Ld. D.R. and the AR before us vehemently supported the order of the authorities below to the extent favourable to them. 6. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the commission expenses claimed by the assessee was disallowed by the Assessing Officer after making reference to the AY 1992-93 wherein commission to sole selling agent was disallowed. As such, the dispute arose in the A.Y. 1992-93 for the commission expenses, has been settled in favour of the assessee right up to the judgment by Hon’ble Gujarat High Court as elaborated in the order of the ld. CIT-A. No SLP was ITA Nos.513&514/AHD/2020 & 492&493/AHD/2020 A.Ys. 1993-94 to 1996-97 6 preferred before the Hon’ble Supreme Court. Thus, it is implied that the order of the Hon’ble High Court has reached to its finality. Since, the dispute for the allowability of commission expenses in the year under consideration was connected to the A.Y. 1992-93 which has been settled in favour of the assessee, therefore, the judgment delivered by the Hon’ble Gujarat High Court in the case of the assessee for A.Y. 1992-93 will squarely be applicable in the case on hand. The relevant extract of the judgment of Hon’ble Gujarat High Court has already been reproduced in the finding of the Ld. CIT(A) somewhere in the preceding paragraph. Accordingly, respectfully following the judgment of Hon’ble Gujarat High Court in the case of the assessee, we do not find any reason to interfere in the order of Ld. CIT(A). Hence, the ground of appeal of Revenue is hereby dismissed. 7. In the result, the appeal filed by the Revenue is dismissed. Coming to ITA Nos. 514, 492 & 493/Ahd/2020 A.Ys. 1994-95 to 1996-97 8. The identical issue involved in the case has already been dealt with by us in ITA No. 513/Ahd/2020 for A.Y. 1993-94 and in the absence of any changed circumstances, the same shall apply mutatis mutandis. Hence, the appeals preferred by the Revenue are dismissed. 9. In the combined result, all the appeals filed by the Revenue are dismissed. Order pronounced in the Court on 03/02/2023 at Ahmedabad. Sd/- (MADHUMITA ROY) JUDICIAL MEMBER Sd/ (WASEEM AHMED) ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 03/02/2023 Tanmay/Manish, Sr. PS TRUE COPY