M/s. Om bakeries (P) Ltd., Kanpur V. Income Tax Officer-6(2), Kanpur

ITA 53/LKW/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87789 (ITAT-LUCKNOW)
• Duration Of Justice: 8 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-02-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 15-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PUNEET KUMAR
• Keywords: Principle of natural justice

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.53/LKW/2007 ASSESSMENT YEAR:2001 - 02 INCOME TAX OFFICER - 6(2), KANPUR. VS M/S OM BAKERIES PVT. LTD., 301 CITY CENTRE, THE MALL, KANPUR. PAN/GIR NO.AAACO3340C (RESPONDENT) (APPELLANT) SHRI S. K. GARG, ADVOCATE SHRI P. K. KAPOOR, C.A. APPELLANT BY SHRI PUNEET KUMAR, D.R. RESPONDENT BY 13/02/2015 DATE OF HEARING 17 /03/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - II, KANPUR DATED 07/11/2006 FOR THE ASSESSMENT YEAR 2001 - 2002. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF COMMISSION PAID TO VARIOUS PERSONS, AS PER PARTICULARS GIVEN BELOW: (I) M/S PREMIER ISPAT PVT. LTD. 12,47,248/ - (II) KUNDAN CASTINGS PVT. LTD. 5,50,000/ - (III) RAINBOW MERCANTILE PVT. LTD. 1,10,000/ - KOLKATA (IV) SHREE MAHABALI ELECTRONICS, KANPUR 18,000/ - TOTAL 19,25,248/ - DEDUCT: PAYMENT ALLOWED ON ACCOUNT OF 1,00,000/ - 2 SERVICES RENDERED BY N. K. BALI OF M/S PREMIER ISPAT PVT. LTD. NET DISALLOWANCE 18,25,248/ - 2. BECAUSE THE APPELLANT HAD LED SUFFICIENT EVIDENCES IN SUPPORT OF ITS CONTENTION THAT THE PAYMENTS HAD BEEN MADE TO THE PERSONS MENTIONED ABOVE, IN LIEU OF RENDITION OF SERVICES BY THEM AND IN PURSUANCE OF VALID AND ENFORCEABLE AGREEMENTS IN WRITING [IN THE CASES OF PERSONS MENTIONED AT SERIAL NO.(I) & (II)] AND ACCORDINGLY THE CLAIM SHOULD HAVE BEEN ALLOWED IN FULL, INSTEAD OF BEING RESTRICTED TO A SUM OF RS. 1 LAKH ONLY. 3. BECA USE THE ID. CIT(A), ON A DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PARTICULARLY THAT; ( I ) SHRI N.K. BALI HAD ACTED ON BEHALF OF THE PAYEE; ( II ) HE HAD BEEN REPRESENTING THE APPELLANT AT VARIOUS STAGES OF THE JOB WORK HANDLED BY THE APPELLANT FOR MODERN FOOD INDUSTRIES INDIA LTD. (MIFL), AS WAS FULLY BORNE OUT FROM THE ENTRIES APPEARING IN THE VISITORS' BOOK; ( III ) INFORMATION (SO CALLED) GIVEN BY THE EXECUTIVES OF MIFL THROUGH LETTERS AND THEIR STATEMENTS (A S RECORDED BY THE ASSESSING OFFICER) WERE WHOLLY IRRELEVANT IN VIEW OF THE UNCONTROVERTED FACT THAT SHRI N.K. BALI HAD BEEN HANDLING THE ACTIVITIES AS HAD BEEN ASSIGNED TO M/S. PREMIER ISPAT (P) LTD., IN RELATION TO THE JOB WORK AS HAD BEEN CARRIED OUT BY THE APPELLANT ON BEHALF OF MIFL; AND ( IV ) OTHER RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE; SHOULD, HAVE ALLOWED THE ENTIRE COMMISSION AMOUNTING TO RS.12,47,268 AS HAD BEEN PAID TO M/S. PREMIER ISPAT PVT. LTD. 4. BECAUSE EVEN THE STATEMENT GIVEN BY THE DIRECTOR OF THE PAYEE M/S. PREMIER ISPAT PVT. LTD., CANNOT BE HELD TO BE HAVING ANY ADVERSE BEARING ON THE APPELLANT'S CLAIM, IN VIEW OF THE UNDISPUTED FACT THAT THEY HAD RENDERED THE REQUISITE SERVICES THROUGH SHRI N.K. BALI. 3 5. BECAUSE SIMILARLY, PAYMEN T OF COMMISSION AMOUNTING TO RS.5,50,000 AS MADE TO M/S. KUNDAN CASTINGS PVT. LTD., HAS BEEN DISALLOWED ON IRRELEVANT MATERIAL AND CONSIDERATION AND THE SAME DESERVES TO BE RESTORED. 6. BECAUSE AS FAR AS THE APPELLANT IS CONCERNED, IT HAD FULLY DISCHARGED ITS ONUS OF PROVING THAT THE PAYMENTS TO EACH ONE OF THEM HAD BEEN MADE ON BUSINESS CONSIDERATIONS AND DURING THE COURSE OF CARRYING ON OF BUSINESS BY THE APPELLANT AND THE SAME WAS LIABLE TO BE ALLOWED IN FULL. 7. BECAUSE BOTH THE PAYEES NAMELY; ( I ) M/S. P REMIER ISPAT PVT. LTD.; AND ( II ) M/S. KUNDAN CASTINGS PVT. LTD., HAD BEEN CARRYING ON LIAISONING ACTIVITIES AS PART OF THEIR USUAL BUSINESS ACTIVITIES, FOR WHICH THEY HAD ACCOUNTED FOR HUGE RECEIPTS IN THEIR RESPECTIVE RETURNS AND ON THAT CONSIDERATION ALONE, THE PAYMENTS MADE BY THE APPELLANT TO THE SAID 'PERSONS' SHOULD HAVE BEEN HELD TO HAVE BEEN MADE DURING THE COURSE OF THEIR (PAYEES') CARRYING ON OF THE BUSINESS IN REGULAR COURSE AND NO PART OF THE SAME SHOULD HAVE BEEN DISALLOWED. 8.1 BECAUSE THE AUTHO RITIES BELOW HAVE ERRED IN DISALLOWING PAYMENT OF COMMISSION OF; ( I ) RS. 1 ,10,000: M ADE TO M/S. RAINBOW MERCANTILE (P) LTD., KOLKATA; ( II ) RS.18,000 : TO M/S. SHREE MAHABALI ELECTRONICS, KANPUR; ON THE GROUND THAT NO AGREEMENT HAS BEEN ENTERED INTO WITH THEM . 8.2 BECAUSE NON - EXISTENCE OF WRITTEN AGREEMENT CANNOT BE MADE THE BASIS OF DISALLOWANCE AND IN VIEW OF THE FACT THAT VALUABLE SERVICES HAD BEEN RENDERED BY THEM, THE CLAIM FOR ADMISSIBILITY OF PAYMENTS UNDER THE HEAD 'COMMISSION' SHOULD HAVE BEEN CONSIDERED F ROM THE POINT OF VIEW OF A BUSINESS MAN AND THE SAME SHOULD HAVE BEEN ALLOWED. 4 9. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ON PAGE NO. 15 OF THE PAPER BOOK IS THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S PREMIER ISPAT LTD., AS PER WHICH, THE SAID COMPANY M/S PREMIER ISPAT LTD. WERE APPOINTED AS AGENT OF THE ASSESSEE COMPANY FOR VARIOUS ACTIVITIES AS SPECIFIED IN THE SAME AGREEMENT. HE ALSO POINTED OUT THAT AS PER THE SCOPE OF THE WORK OF THE SAID AGENT, THE SAID AGENT WAS SUPPOSE D TO DO LIAISONING WORK, FOLLOW UP WORK AND TO LOOK AFTER DISPATCH, PAYMENT REALIZATION AND RATE DIFFERENCE NEGOTIATION ETC. FOR SUPPLY T O M/S MODERN FOOD IN DUSTRIES (INDIA) LTD. HE ALSO FURNISHED COPY OF AGREEMENT DATED 19 TH APRIL 1999 BETWEEN M/S MODERN FOOD INDUSTRIES (INDIA) LTD. WITH THE ASSESSEE COMPANY IN RESPECT OF SUPPLY OF NUTRO BISCUITS OF THE ASSESSEE COMPANY TO THAT COMPANY. HE ALSO SUBMITTED TH AT THE COPY OF THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S KUNDA N CASTINGS (P) LTD. IS AVAILABLE ON PAGES 29 TO 30 OF THE PAPER BOOK. REGARDING THE REMAINING TWO PARTIES I.E. RAINBOW MERCHANTILE LTD. AND MAHAVIR ELECTRONICS, TO WHOM SMALL AMOUNT OF COMMISSION WAS PAID, IT WAS SUBMITTED THAT FORMAL AGREEMENT WITH THEM IS NOT AVAILABLE BUT COPY OF BILL RAISED BY RAINBOW MERCHANTILE LTD. IS AVAILABLE ON PAGE NO. 42 AND COPY OF BILL RAISED BY MAHAVIR ELECTRONICS IS AVAILABLE ON PAGE NO. 43 OF THE PAPER BOOK. RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) ALUMINIUM CORPORATION OF INDIA LTD. VS. CIT [1972] 86 ITR 11 (SC) ( II ) JASWANT SUGAR MILLS LTD. VS. CIT [1970] 78 ITR 154 (DEL) ( III ) CIT VS. SUZLON ENERGY LTD. [2013] 354 ITR 630 (GUJ) ( IV ) V.I.P. INDU STRIES LTD. VS. INSPECTING ASSISTANT COMMISSIONER [1991] 36 ITD (BOM) 70 ( V ) COSSUL CO. (P) LTD. VS. CIT [2000] 245 ITR 312 (ALL) ( VI ) JAMSHEDPUR MOTOR ACCESSORIES STORES VS. CIT [1974] 95 ITR 664 (PAT) ( VII ) CIT VS. GOBALD MOTOR SERVICE (P) LTD. [1975] 100 ITR 240 (MAD) 5 ( VIII ) I.T.A.T. LUCKNOW BENCH ORDER IN I.T.A. NO.241/ALL/1992 DATED 20/04/2001 ( IX ) QUALITY STEEL TUBES (P) LTD. VS. ACIT, I.T.A. NO.308/ALL/96 FOR ASSESSMENT YEAR 92 - 93 ( X ) JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. Q.S.T. LTD. IN INCOME TAX APPEAL NO. 222 OF 2007. 4. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE MAIN BASIS OF THE DECISION OF CIT(A) IS THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENT S AND SECOND BASIS OF HIS DECISION IS THAT EXPENDITURE ON COMMISSION PAYMENT IS FOR INFLUENCING THE DECISION MAKING PROCESS IN THE CONTRACT AWARDED BY PSU OF THE GOVERNMENT OF INDIA I.E. M/S MODERN FOOD INDUSTRIES (INDIA) LTD. NOW WE EXAMI NE THE CONTENTS OF THE AGREEMENT OF THE ASSESSEE COMPANY WITH M/S MODERN FOOD INDUSTRIES (INDIA) LTD. AS PER THIS AGREEMENT, IN CASE OF ANY STATUTORY REVISION IN THE TARIFF OR RATE OF ELECTRICITY AND FUEL DURING THE PENDENCY OF THE CONVERSION CONTRACT, TH E CONVERSION RATE OF NUTRO BISCUITS SHALL GET REVISED ACCORDINGLY FROM THE DATE OF SUCH REVISIONS. HENCE, WE FIND THAT AS PER THIS AGREEMENT, THERE WAS SCOPE OF REVISION IN THE RATE AND AS PER THE AGREEMENT OF THE ASSESSEE COMPANY WITH M/S PREMIER ISPAT L TD., ONE OF THE SCOPE OF WORK OF THE AGENT WAS RATE DIFFERENCE NEGOTIATION. ONE MORE SCOPE OF WORK OF M/S PREMIER ISPAT LTD. WAS REGARDING PAYMENT REALIZATION. AS PER THE AGREEMENT OF THE ASSESSEE COMPANY WITH M/S MODERN FOOD INDUSTRIES (INDIA) LTD., WE FIND THAT THERE IS NO FIXED DATE OR CREDIT PERIOD FOR MAKING PAYMENT BY M/S MODERN FOOD INDUSTRIES (INDIA) LTD. TO THE ASSESSEE COMPANY AFTER THE DISPATCH. UNDER THESE FACTS, THIS IS VERY VITAL WORK TO FOLLOW UP FOR GETTING PAYMENT FROM M/S MODERN FOOD IN DUSTRIES (INDIA) LTD. HENCE, IT CANNOT BE SAID THAT NO SERVICES WERE RENDERED BY THESE COMMISSION AGENTS TO THE ASSESSEE COMPANY. NEGOTIATION OF RATE DIFFERENCE AND FOLLOW UP OF PAYMENT REALIZATION ARE TWO VERY VITAL WORK FOR WHICH 6 PAYMENT OF COMMISSION TO A COMMISSION AGENT IS JUSTIFIED UNLESS IT IS PROVED THAT NO SUCH WORK WAS ACTUALLY DONE BY THE COMMISSION AGENT. THE ALLEGATION OF THE AUTHORITIES BELOW THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENT IS ON THE BASIS THAT CONTRACT WAS ALREADY AW ARDED BY M/S MODERN FOOD INDUSTRIES (INDIA) LTD. IN THE YEAR 1999 AND DELIVERY WAS TO BE MADE BY THE ASSESSEE COMPANY AT ITS OWN PREMISES BUT THESE TWO ASPECTS REGARDING NEGOTIATION FOR RATE DIFFERENCE AND FOLLOW UP OF PAYMENT REALIZATION HAS NOT BEEN CONS IDERED BY AUTHORITIES BELOW B EFORE HOLDING THAT NO SERVICES WERE RENDERED. HENCE, ON THIS ASPECT, WE ARE OF THE CONSIDERED OPINION THAT THE ORDERS OF THE AUTHORITIES BELOW ARE NOT SUSTAINABLE. 6. REGARDING THE SECOND BASIS ON WHICH IT IS HELD BY CIT(A) THAT THE PAYMENT IS NOT ALLOWABLE IS THAT THE PAYMENT OF COMMISSION IS TO EFFECT THE DECISION MAKING PROCESS IN A CONTRACT AWARDED BY PSU OF GOVERNMENT OF INDIA. HE HAS HELD THAT THE EXPENDITURE OF THIS NATURE CANNOT BE ALLOWED AS IT I S OPPOSE D TO THE PU BLIC INTEREST. IN THIS REGARD, WE FIND THAT WHEN THE AGREEMENT WAS ALREADY AWARDED BY M/S MODERN FOOD INDUSTRIES (INDIA) LTD. TO THE ASSESSEE COMPANY IN THE YEAR 1999 AND THE AGREEMENT WITH THE COMMISSION AGENT IS DATED 01/04/2000 WITH M/S PREMIER ISPAT L TD. AND ON SAME DATE WITH KUNDAN CASTINGS PVT. LTD. , IT CANNOT BE SAID THAT THESE AGREEMENTS WITH THE COMMISSION AGENTS WERE FOR EFFECTING THE DECISION MAKING PROCESS OF AWARDING CONTRACT BY A PSU OF GOVERNMENT OF INDIA. THEREFORE, THIS BASIS ADOPTED BY CIT(A) IS NOT VALID AND JUSTIFIED. 7. WE WOULD ALSO LIKE TO OBSERVE THAT IN A CASE OF SUPPLY TO GOVERNMENT UNDERTAKING ALSO, IN SPITE OF DIRECT ORDER/CONTRACT AWARDED BY PSU, VARIOUS FORMALITIES ARE TO BE COMPLETED BY THE SUPPLIER AND THE SAME CAN BE DONE IN TWO WAYS. ONE WAY IS TO HAVE COMPETENT PERSON ON THE ROLL OF THE SUPPLIER COMPANY TO DO SUCH FORMALITY AND SECOND WAY IS TO OBTAIN THE SERVICES OF COMMISSION AGENT WHO HAVE SUCH EXPERIENCE AND EXPERTISE. THE EXPENDITURE INCURRED BY THE SUPPLIER ON SUC H WORK IN ANY ONE OF THE TWO MANNERS, AS 7 DISCUSSED ABOVE ARE ALLOWABLE AND THE SAME CANNOT BE DISALLOWED UNLESS IT IS ESTABLISHED THAT SUCH EXPENDITURE IS FOR EFFECTING THE DECISION MAKING PROCESS OF A PSU OF GOVERNMENT OF INDIA. IN THE PRESENT CASE, WE H AVE SEEN THAT THE CONTRACT WAS AWARDED BY THE PSU OF THE GOVERNMENT OF INDIA IN THE YEAR 1999 AND THE AGREEMENT WITH THE COMMISSION AGENTS HAS BEEN ENTERED INTO ON 01/04/2000 FOR RENDERING THE SERVICES OF NEGOTIATING RATE DIFFERENCE AND FOLLOW UP PAYMENT R EALIZATION AND THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT IN THE PRESENT CASE, BOTH THE BASIS ADOPTED BY THE ASSESSING OFFICER AND CIT (A) TO DISALLOW THE COMMISSION PAYMENT IS NOT VALID. WE, THEREFORE, DELETE THE DISALLOWANCE OF COMMISSION IN THE P RESENT CASE TO ALL THE FOUR COMMISSION AGENTS I.E. M/S PREMIER ISPAT LTD., KUNDAN CASTINGS PVT. LTD., RAINBOW MERCANTILE PVT. LTD. AND M/S SHREE MAHABALI ELECTRONICS. REGARDING VARIOUS JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE, WE ARE OF THE CONSID ERED OPINION THAT WHEN WE HAVE FOUND ON FACTS THAT THE BASIS ADOPTED BY AUTHORITIES BELOW FOR MAKING DISALLOWANCE OF COMMISSION PAYMENT IS NOT FACTUALLY CORRECT, THESE JUDGMENTS ARE NOT REQUIRED TO BE LOOKED INTO FOR DECIDING THE ISSUE IN THE PRESENT CASE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 /03/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR