NEC Industrial Projects (P) Ltd, V. ACIT CC-18,

ITA 5006/DEL/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0872 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 07-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 26-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPPA: VICE PRESIDENT AN D SHRI C.L. SETHI : JUDICIAL MEMBER ITA NO. 5006/DEL/07 ASSTT. YR: 2004-05 NEC INDUSTRIAL PROJECTS PVT. LTD. VS. ACIT, CEN. CIR. 18, MANISHA BUILDING, 4 TH FLOOR, NEW DELHI. 95-96, NEHRU PLACE, NEW DELHI. PAN/GIR NO. AAACB3253B ( APPLICANT ) ( RESPONDENT ) ASSESSEE BY : SHRI RAMESH GOYAL CA REVENUE BY : SHRI H.K. LAL DR O R D E R PER, G.E. VEERABHADRAPPA, V.P: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS) DATED 6-9-2007 RELATING TO ASSESSMENT YEAR 2004-05. 2. THE FIRST DISPUTE IN THE APPEAL RELATES TO THE D ISALLOWANCE OF COMMISSION OF RS. 2,18,295/-. THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING OF SCAFFOLDING MATERIAL. IT CLAIMED TO HAVE PAID A COMMISSION OF RS. 2,18,295/- TO M/S BRITISH SCAFFOL DING INDIA LTD. (BSIL IN SHORT), A COMPANY FALLING U/S 40A(2)(B) OF THE I NCOME-TAX ACT. THE ITA 5006/DEL/07 NEC INDUSTRIAL PROJECTS P. LTD. 2 ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT OF COMMIS SION. THE ASSESSEE EXPLAINED THAT BSIL WAS ENGAGED IN EXPORT SALE OF S CAFFOLDING MATERIAL SINCE 1984 AND THIS COMPANY WAS INSTRUMENTAL IN PROCURING ORDERS AS WELL AS IN HELPING THE COLLECTION OF PAYMENTS/ STATUTORY FORMS FROM THE CUSTOMERS ON BEHALF OF THE ASSESSEE COMPANY. ACCORDING TO THE AS SESSEE, THIS HAS CONTRIBUTED TO THE INCREASE OF THE TURNOVER AS ALSO THE PROFITABILITY OF THE COMPANY. THE ASSESSING OFFICER DID NOT ACCEPT THE J USTIFICATION FOR PAYMENT AND MADE THE DISALLOWANCE. THE CIT(A) CONFIRMED THE DISALLOWANCE AND THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OU T THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN A. Y. 2003-04 AND THE ITAT DELHI BENCH C VIDE ITS ORDER DATED 11-1-20 08 IN ITA NO. 4000/DEL/06 ACCEPTED THE SAME EXPLANATION AS TO THE JUSTIFICATION FOR PAYMENT. THE TRIBUNAL GAVE A FINDING THAT PROOF OF SERVICE BEING RENDERED IS IN THE FORM OF RECEIPT OF ORDER ITSELF AND SUPPLIES MADE PURSUANT THERETO. THE TRIBUNAL FURTHER OBSERVED THAT THE SAME ASSESSING O FFICER IS ASSESSING THE OTHER CONCERN TO WHICH THE PAYMENT IS MADE AND SUCH INCOME IS OFFERED AND TAXED. NEITHER THE CUSTOMERS WERE EXAMINED NOR THE COMMISSION AGENT WAS EXAMINED BEFORE DRAWING ANY ADVERSE INFERENCE OF NO N-RENDERING OF SERVICES. IN THE LIGHT OF THIS DISCUSSION FOR A.Y. 2003-04 ON IDENTICAL ISSUE, ITA 5006/DEL/07 NEC INDUSTRIAL PROJECTS P. LTD. 3 WE ARE OF THE OPINION THAT THE DEPARTMENT IS NOT JU STIFIED IN MAKING DISALLOWANCE OF COMMISSION PAYMENT WITHOUT ANY BASI S OR MATERIAL. THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID ORDER OF THE ITAT STANDS DELETED. 4. THE SECOND ISSUE RELATES TO THE DISALLOWANCE OF LATE DELIVERY CHARGES OF RS. 4,02,136/- CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE. THIS PAYMENT IS ALSO MADE TO THE ASSESSEES ASSOCIATE CONCERN, NAME LY, SGB ENGINEERING PVT. LTD. AND BSIL, CHENNAI ON THE GROUND THAT THE ASSESSEE HAD NOT EXPLAINED THE BASIS FOR PAYMENT OF LATE DELIVERY CH ARGES. 5. ON THE OTHER HAND, IT WAS THE SUBMISSION OF THE ASSESSEE THAT THIS WAS IN TERMS OF THE PURCHASE ORDERS AND THE ASSESSEE WAS OBLIGED TO PAY LATE DELIVERY CHARGES AND THE PAYMENT WAS ON THE BASIS O F DEBIT NOTE RAISED BY THE AFORESAID COMPANIES, WHICH WAS ACCEPTED BY THE ASSESSING OFFICER IN THE CASES OF THOSE COMPANIES. IT WAS THE SUBMISSION OF THE ASSESSEE THAT THESE PAYMENTS WERE MADE IN EARLIER YEARS ALSO AND IS BAS ED ON THE TERMS OF CONTRACTS BETWEEN THE PARTIES. THE LEARNED DR, ON THE OTHER HAND, STRONGLY OPPOSED THE CONTENTION RAISED BY THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GON E THROUGH THE RECORDS. THE ASSESSING OFFICER ALTHOUGH HAS APPLIED THE PROVISIONS OF SECTION 40A(2)(B), HAS RESORTED TO THE DISALLOWANCE OF WHOLE OF THE AMOUNT. THE ASSESSING OFFICER SHOULD HAVE DETERMINED THE RE ASONABLE PAYMENT FOR THE ITA 5006/DEL/07 NEC INDUSTRIAL PROJECTS P. LTD. 4 SERVICES, IF ANY, TAKEN AS A LEGITIMATE BUSINESS R EQUIREMENT. THE ASSESSING OFFICER IS DIRECTED TO RE-EXAMINE THE ISSUE IN THE LIGHT OF THE DETAILS PROVIDED BY THE ASSESSEE IN THE FORM OF DEBIT NOTES AND THE PURCHASE ORDERS AND DETERMINE THE REASONABLENESS OF THE PAYMENT HAVING REGARD TO THE LEGITIMATE BUSINESS REQUIREMENT AND THE FAIR MARKET VALUE OF S ERVICES FOR WHICH THE PAYMENT IS CLAIMED TO HAVE BEEN MADE. THE ASSESSEE SHALL PROVIDE ALL THE DETAILS TO THE ASSESSING OFFICER. WE ORDER ACCORDIN GLY. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 9 TH OCTOBER, 2009 SD/- SD/- ( C.L. SETHI ) ( G.E. VEERABHADRAPPA ) JUDICIAL MEMBER VICE PRESIDENT DATED: 9-10-2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 5006/DEL/07 NEC INDUSTRIAL PROJECTS P. LTD. 5