BABU LAL JAJOO HUF, MUMBAI V. ITO 24(3)(4), MUMBAI

ITA 5221/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3241 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 25-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) BABU LAL JAJOO HUF, B,3/5, RAMANUJ MAHESH NAGAR, GOREGAON (WEST) MUMBAI 400062 PAN: AAAHB0363D ... APPELLANT VS. THE INCOME TAX OFFICER 24(3)(4), MUMBAI. .... RESPONDENT APPELLANT BY : SHRI PRAKASH JOTWANI RESPONDENT BY : SMT. BHARTI SINGH DATE OF HEARING : 18/05/2016 DATE OF PRONOUNCEMENT : 27/05/2016 ORDER PER MAHAVIR SINGH, J.M: THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORD ER OF CIT(A)-34, MUMBAI IN APPEAL NO. CIT(A)-34/IT237/2009-10 DATED 12/03/2013. ASSESSMENT WAS FRAMED BY ITO, WARD 24(3)(4), MUMBA I UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) FOR THE ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 25/11/ 2009. 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS AGAINST ORDER OF LD.CIT(A) CONFIRMING THE DISALLOWANCE OF COMMISSION PAID TO 2 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) M/S.KWALITY CHEMICALS, PROPRIETOR SHRI KALPESH JAJO O HUF. BRIEFLY STATED FACTS ARE THAT THE ASSSSEE IS CARRYING ON TH E BUSINESS OF DISTRIBUTION OF CHEMICALS MANUFACTURED BY M/S.AUCHT EL PRODUCTS LTD. IN THE STATE OF RAJASTHAN IN THE LAST TWO DECADES. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICE D FROM THE AUDITED ACCOUNTS I.E. AUDITED REPORT FILED ALONGWITH THE RE TURN OF INCOME THAT THE ASSESSEE HAS MADE PAYMENT TO M/S. KWALITY CHEMI CALS, WHOSE PROPRIETOR SHRI KALPESH JAJOO HUF IS THE EMPLOYEE O F THE ASSESSEE BEING PAID SALARY TO THE TUNE OF RS.1,04,000/-. ACCORDIN G TO ASSESSING OFFICER, THESE PAYMENTS FALL UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER ALSO REQUIRED THE ASSESSEE TO FURNISH THE D ETAILS OF NATURE OF SERVICES RENDERED, QUANTUM OF BUSINESS YIELD FOR WH ICH COMMISSION IS PAID ALONGWITH EVIDENCES. THE ASSESSEE FIELD REPLY VIDE LETTER DATED 11/08/2009 GIVING REASONS FOR PAYMENT OF COMMISSION TO M/S. KWALITY CHEMICALS. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ISSUED NOTICES UNDER SECTION. 133(6) OF THE ACT TO THE PRINCIPAL OF THE ASSESSEE, I.E. M/S. AUCHTEL PRODUC TS LTD. AND ALSO TO THE PARTIES TO WHOM ASSESSEE HAVE SUPPLIED MATERIAL THR OUGH THE AGENT. THE DETAILS NOTED BY ASSESSING OFFICER IN HIS ORDER AT PAGE 3 READ AS UNDER:- S.NO. NAME OF THE PARTY NOTICE UNDER SECTION. 133(6) ISSUE ON DATE OF COMPLIANCE RECEIVED REMARKS 1. A U CHTEL PRODUCTS LTD. 27 - 07 - 2009 27 - 08 - 2009 WE HAVE NOT MADE ANY PURCHASE/ SALES TO, THROUGH BROKER/AGENT, WITH THE AFORESAID PARTY DURING THE F.Y 2006-07 2. BANSWARE SYNTEX LTD. 27 - 07 - 2008 12 - 08 - 2009 FOR OU R REQUIREMENT WE USED TO FINAL THE COMMERCIAL DEAL WITH MR. B.L.JAJOO AND MR. 3 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) KALPESH JAJOO. THEY USED TO VIST OUR MILL AND TAKE CARE OF OUR REQUIREMENT. 3. BMD PVT. LTD. 14 - 10 - 2009 05 - 11 - 2009 PURCHASES MADE THROUGH M/S. AUCHTEL PRODUCTS LTD., THANE (MANUFACTURER AND M/S. COSMO CHEMICAL (AGENT). 4. BSL LTD. 14 - 10 - 2009 10 - 11 - 2009 SUPPLIERS IN VIEW OF THE ABOVE FINDING GIVEN IN REMARK PORTIO N OF THE ABOVE CHART, THE ASSESSING OFFICER HELD THAT SHRI KALPESH JAJOO, PROPRIETOR OF M/S. KWALITY CHEMICALS BEING EMPLOYEE OF THE ASSESSEE PA ID SALARY AND ALSO COMMISSION FOR ACTING AS AN AGENT. ACCORDING TO AS SESSING OFFICER THESE EXPENSES OF COMMISSION CLAIMED FOR M/S. KWALITY CHE MICALS, BEING PARTY COVERED UNDER SECTION. 40A(2)(B) OF THE ACT, THERE IS NO NEED FOR PAYING SUCH COMMISSION AND HENCE, HE DISALLOWED THE SAME AND ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE AMOUNTI NG TO RS.5,20,570/-. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 3. THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSI NG OFFICER FOR THE REASON THAT NO EVIDENCE WAS PRODUCED BEFORE THE AS SESSING OFFICER OR BEFORE HIM REGARDING SERVICES RENDERED BY SHRI KAL PAESH JAJOO HUF, PROPRIETOR OF M/S. KWALITY CHEMICALS. HE ALSO NOT ED THAT , THE AO HAD CLEARLY BROUGHT OUT THAT 3 COMPANIES TO WHICH M /S. KWALITY CHEMICALS ACTED AS COMMISSION AGENT HAVE CATEGORICA LLY STATED THAT EITHER THEY HAVE NOT MADE ANY PURCHASE OR SALES THR OUGH BROKER/AGENT AND IT WAS CLAIMED THAT THEY HAD DEAL WITH MR. B.L. JAJOO AND MR. KALPESH JAJOO WHO VISITED THE MILL AND TAKE CARE OF REQUIREMENTS. NONE OF THEM HAVE CONFIRMED THAT EITHER PROPRIETOR OF M/ S. KWALITY CHEMICALS OR ITS EMPLOYEES WERE RENDERING SERVICES SUCH AS EN SURING TIMELY DELIVERIES, HELPING IN PAYMENTS, SORTING OUT DISPUT ES ETC. THE ABOVE 4 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) CLEARLY REVEALS THAT SHRI KALPESH JAJOO AS AN EMPLO YEE OF THE APPELLANT ONLY DOES THE ENTIRE ACTIVITY AND NO SERVICES WHATS OEVER WAS RENDERED BY M/S. KWALITY CHEMICALS. EVEN BEFORE ME NO EVID ENCES WERE FURNISHED TO SHOW THAT HOW M/S. KWALITY CHEMICALS E NGAGES ITSELF IN THE ABOVE MENTIONED ACTIVITY. HENCE THE APPELLANT HAS FAILED TO PROVE THE NATURE OF SERVICES RENDERED BY M/S. KWALITY CHEMICA LS. AGGRIEVED, NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRI BUNAL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE BEFORE US FILED A PAPER BOOK CONSISTING OF PAGES 1 TO 76, WHEREIN ASSESSEE HAS FILED EVIDENCES IN RESPECT OF NATURE OF SERVICES RENDERED IN RESP ECT TO SUPPLY OF CHEMICALS TO BANSWARE SYNTEX LTD, BMD PRIVATE LTD. & BSL LIMITED. THE ASSESSEE HAS ALSO FILED THE DETAILS OF SUPPLY MADE TO M/S. KWALITY CHEMICALS IN TERM OF PRODUCT AND QUANTITY AND COMMI SSION PAID ON THE SAME. THE RELEVANT DETAILS ARE GIVEN AT PAGES 5 TO 13 OF THE ASSESSEES PAPER BOOK. THE ASSESSEE HAS ALSO FILED COPIES OF DEBIT NOTES AND CONFIRMATIONS OF PURCHASES MADE AT PAGES 14 TO 30 O F THE ASSESSEES PAPER BOOK. IT WAS EXPLAINED BY THE LD. COUNSEL F OR THE ASSESSEE THAT THIS COMMISSION IS PAID TO M/S. KWALITY CHEMICALS FOR SERVICES RENDERED BY THEM FOR THE REASON OF BANSWARE AND BHIWADI RAJA STHAN. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TDS IS DED UCTED ON THIS COMMISSION AND THE SAME IS PAID TO THE GOVERNMENT. LD. COUNSEL FOR THE ASSESSEE ALSO STATED THAT IN EARLIER ASSESSMENT YEARS AS WELL AS SUCCEEDING ASSESSMENT YEARS THE SAME COMMISSION WAS PAID AND ALLOWED BY REVENUE EXCEPT IN THIS ASSESSMENT YEAR. LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT THE AO HAS NOT UNDER STOOD THE ISSUE FOR 5 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) THE REASON THAT WHILE DEALING WITH REPLIES IN RESPO NSE TO NOTICE UNDER SECTION 133(6) OF THE ACT THE AO IN REMARKS COLUMN HAS MENTIONED THAT NO SALES OR PURCHASES WERE MADE FROM AUCHTEL PRODUC TS LTD. BUT ACCORDING TO LD. COUNSEL THIS PARTY IS ACTUALLY THE PRINCIPAL OF THE ASSESSEE AND THERE CANNOT BE ANY SALES MADE TO THIS PART, RATHER THE ASSESSEE IS PURCHASING FROM THIS PARTY. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE AGREE WITH THE SUBMISSIONS OF LD. COUNSEL THAT M/S. KWALITY CHEMICALS IS ACTING AS AN AGENT OF THE ASSE SSEE AND RENDERED SERVICES FOR SALE OF ASSESSEES PRODUCTS I.E. DIFFE RENT TYPE OF CHEMICALS. EVEN THE REVENUE COULD NOT POINT OUT EITHER AT THE LOWER STAGE OR BEFORE US THAT HOW THE PAYMENT OF COMMISSION TO M/S . KWALITY CHEMICALS BY ASSESSEE IS UNREASONABLE OR NOT ACCORD ING TO MARKET PRACTICE. IN VIEW OF THESE FACTS, WE ALLOW THE CLA IM OF THE ASSESSEE AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 5. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF INTERE ST PAID TO THE PERSONS COVERED UNDER SECTION 40A(2)(B) OF THE ACT IN RESPE CT TO LOANS GIVEN TO (1) SHRI P.A.NARAYAN, (EMPLOYEE) AND (2) SHRI KRISH NAMACHARI IYENGAR (EX-EMPLOYEE). 6. BRIEFLY STATED FACTS ARE THAT THE ASSESSING OFFI CER NOTICED FROM THE BALANCE SHEET OF THE ASSESSEE THAT IT HAS GIVEN LO ANS AND ADVANCES TO THE TUNE OF RS.1,14,12,945/- TO VARIOUS PERSONS. A CCORDING TO HIM THE ASSESSEE IS NOT CHARGING ANY INTEREST ON LOANS AND ADVANCES GIVEN TO SHRI P.A.NARAYAN AND SHRI KRISHNAMACHARI IYENGAR DE SPITE THE FACT THAT IT IS PAYING INTEREST TO THE TUNE OF RS.3,33,620/- ON LOANS RECEIVED FROM FAMILY MEMBERS TO THE TUNE OF RS.20,80,461/-. THE ASSESSING OFFICER 6 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST CLAIMED SHOULD NOT BE DISALLOWED IN VIEW OF INTEREST FREE LOANS AND AD VANCES GIVEN TO THESE TWO PARTIES. THE ASSESSEE REPLIED VIDE LETTER DATE D 11/08/2009 STATING REASONS BUT ACCORDING TO ASSESSING OFFICER THESE BE ING RELATED PARTIES FALLING UNDER SECTION 40A(2)(B) OF THE ACT AND ASS ESSEE IS NOT CHARGING ANY INTEREST ON THE LOANS GIVEN TO SHRI P.A.NARAYAN AND SHRI KRISHNAMACHARI IYENGAR, DESPITE THE FACT THAT HE HA S TAKEN LOAN FROM FAMILY MEMBERS, TO WHOM INTEREST IS PAID. AGGRIEVE D AGAINST FINDING OF ASSESSING OFFICER ASSESSEE PREFERRED AN APPEAL BEFO RE CIT(A). 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY ST ATING THAT EVEN IN FINANCIAL YEAR 2000-01 INTEREST @18% HAS BEEN DEBI TED TO THE ACCOUNT OF SHRI KRISHNAMACHARI IYENGAR AND ACCORDING TO HIM TRANSACTIONS APPEARS TO BE EITHER OF BUSINESS OR LOAN TRANSACTIO N, WHICH WAS LATER CONVERTED INTO INTEREST FREE ADVANCE BY THE ASSESSE E. HE ALSO OBSERVED THAT THE CONTENTION OF THE ASSESSEE THAT SHRI KRISH NAMACHARI IYENGAR SIPHONED ALL THE MONEY FRAUDULENTLY IS FAR FROM TRU TH. ACCORDING TO CIT(A) IN RESPECT TO SHRI P.A.NARAYAN NO SPECIFIC S UBMISSION WERE MARE AND NO BREAK-UP DETAILS WAS FURNISHED AS TO INDICAT E LOANS AND ADVANCES TO THESE PERSONS. ACCORDINGLY, HE CONFIRM ED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, ASSESSEE PREFERRED S ECOND APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US LD. COUNSEL F OR THE ASSESSEE ARGUED THAT THE LOANS AND ADVANCES GIVEN TO EMPLOYE ES IS FOR SMOOTH FUNCTIONING OF ASSESSEES BUSINESS FOR THE REASON T HAT ITS EMPLOYEES ARE 7 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) KEPT IN HEALTHY, SECURED AND SATISFIED MIND SET. I T ENSURES LOYALTY AND STABILITY OF ITS EMPLOYEES. IN RESPECT TO LOAN GI VEN TO SHRI P.A. NARAYAN, WHO WAS IN-CHARGE OF ACCOUNTS AND LOAN WAS GIVEN TO HIM FOR HIS HOUSING NEEDS AND ACCORDINGLY NO INTEREST WAS CHARG ED ON THE SAME. IN RESPECT TO LOAN ADVANCES TO SHRI KRISHNAMACHARI IYE NGAR, LD. COUNSEL FOR THE ASSESSEE EXPLAINED THAT HE WAS BRANCH MANAGER F OR MORE THAN 15 YEARS AND HE MISUSED HIS POSITION BY WITHDRAWING FI RMS MONEY FOR HIS PERSONAL USED. IT WAS EXPLAINED THAT NO LOAN WAS G IVEN TO HIM BUT THIS MONEY OF RS.10.00 LACS FRAUDULENTLY WITHDRAWN FROM ASSESSEES BANK ACCOUNT WAS TREATED AS LOAN USING BUSINESS PRUDENC E AND COMMON SENSE TO RECOVER THE SAME SHRI KRISHNAMACHARI IYENG AR LATER SHIFTED FROM MUMBAI TO SOUTH INDIA AFTER SELLING HIS RESIDE NTIAL PROPERTY AND LEFT THE EMPLOYMENT. ACCORDING TO LD. COUNSEL, AS PER LAST SETTLEMENT, HE AGREED TO PAY THE PRINCIPAL AMOUNT WITHOUT INTER EST AND FINALLY HE PAID THE PRINCIPAL AMOUNT FRAUDULENTLY WITHDRAWN BY HIM. WE ARE OF THE VIEW THAT THIS FRAUDULENT WITHDRAWAL OF MONEY C ANNOT BE TREATED AS LOANS OR ADVANCE AND FINALLY ASSESSEE RECOVERED THE SAME WITHOUT INTEREST. WE ALSO FIND THAT THE LOAN GIVEN TO SHRI P.A. NARAYAN IS ALSO FOR THE GENUINE BUSINESS REASONS. IN VIEW OF THESE FAC TS AND CIRCUMSTANCES WE DELETE THE DISALLOWANCE MADE BY AO AND CONFIRMED BY CIT(A). THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/05/ 2016 . SD/- SD/- (ASHWANI TANEJA) (MAHAVIR SINGH) ACCOUNTNAT MEMBER JUDICIAL M EMBER MUMBAI, DATED 27/05/2016 VM , SR. PS 8 ITA NO. 5221/MUM/2013 (ASSESSMENT YEAR : 2007-08) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI