ACIT, New Delhi V. Shri Pavel Garg, New Delhi

ITA 5381/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3586 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AGAINST PASSED
• Keywords: Salary income; Notional interest; Revised return
• Section: 143(3); 139(5); 37; 28

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.:- 5381/DEL /2011 ASSESSMENT YEAR: 2008-09 ACIT CIRCLE-38(1), ROOM NO. 212 C.R. BUILDING NEW DELHI. VS. PAVEL GARG 2027/7, CHHUNNA MANDI, PAHAR GANJ, NEW DELHI- 110 055 PAN AALPG2923R (APPELLANT) (RESPONDENT) O R D E R PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL HAS BEEN PREFERRED BY THE DE PARTMENT AGAINST ORDER PASSED BY THE LD. CIT (A)- XXVIII, NEW DELHI FOR AS SESSMENT YEAR 2008- 09. THE DATE OF IMPUGNED ORDER IS 20.9.2011. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF PH ARMACEUTICALS GOODS DEPARTMENT BY: SHRI ATIQ AHMOD, SR. DR ASSESSEE BY : S HRI RAKESH GUPTA, ADVOCATE ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 2 AND DEALING IN SHARES. THE BUSINESS IS CARRIED OUT IN THE NAME OF HIS SOLE PROPRIETARY CONCERN M/S. COMBITIC GLOBAL. THE ASSES SEE GETS THE PHARMACEUTICAL GOODS MANUFACTURED ON JOB WORK AND TH EREAFTER SELLS THE SAME. IN EARLIER ASSESSMENT YEARS THE ASSESSEE WAS ONLY MAKING EXPORT SALES AND WAS PAYING COMMISSION ON SUCH EXPORT SALE S WHICH WAS DULY ALLOWED BY THE AO IN ASSESSMENTS FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED THE ACT). HOWEVER, IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE ALSO MADE DOMESTIC SALE S OF RS. 20,95,92,795/- TO M/S. RHINE & RAAVI HOLDINGS LTD. AND PAID SALES COMMISSION AMOUNTING TO RS. 1,59,97,994/- TO M/S JB EXPORTS LTD AND MR. SATISH KUMAR GOEL. THIS COMMISSION WAS DISALLOW ED BY THE AO. 2.1 FURTHER, THE AO ALSO MADE DISALLOWANCE OF R S. 5,000/- ON ACCOUNT OF VEHICLE AND CONVEYANCE EXPENSES, DISALLOWANCE OF TELEPHONE EXPENSES AMOUNTING TO RS. 50,000/- AND DISALLOWANCE ON ACCOU NT OF TDS AMOUNTING TO RS. 9,791/-. 2.2 IT IS ALSO SEEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED REVISED COMPUTATION OF INCO ME WHEREBY THE ASSESSEE REDUCED HIS ACCRUED INTEREST INCOME ON INS URANCE CLAIM AS WELL AS INCOME ON ACCOUNT OF INSURANCE CLAIM. HOWEVER, T HE AO DID NOT ALLOW THE CLAIM RAISED BY THE ASSESSEE. ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 3 2.3 AGGRIEVED, THE ASSESSEE PREFERRED AN APP EAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION OF RS. 1,59,97,994/- ON A CCOUNT OF SALES COMMISSION AND ALSO DELETED THE DISALLOWANCE ON ACC OUNT OF TRAVELLING AND CONVEYANCE EXPENSES, TELEPHONE EXPENSES AND BU SINESS PROMOTION AND FESTIVAL EXPENSES. 2.4 THE LD. CIT (A) ALSO DIRECTED THE AO TO RED UCE THE INCOME OF THE ASSESSEE BY RS. 7,16,60,712/- ON ACCOUNT OF INSURAN CE CLAIM AND NOTIONAL INTEREST THEREON WHICH THE ASSESSEE HAD SO UGHT TO BE REDUCED FROM THE TOTAL INCOME BY FILING A REVISED COMPUTATI ON. 2.5 AGGRIEVED, THE DEPARTMENT HAS NOW APPROACHED THE ITAT AND HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF SALES COMMISSION EXPENSES AMOUNTING TO R S. 1,59,97,994/-, ALLOWING THE DEDUCTION OF RS. 1,73,77,580/- IN RESP ECT OF INTEREST ON INSURANCE CLAIM, ALLOWING DEDUCTION OF RS. 5,42,83, 132/- IN RESPECT OF INSURANCE CLAIM AND DELETING THE DISALLOWANCES MADE ON ACCOUNT OF VEHICLE RUNNING , TELEPHONE EXPENSES AND BUSINESS P ROMOTION AND FESTIVAL EXPENSES. 3. THE LD. SR. DR SUBMITTED THAT AS FAR AS T HE ISSUE OF DISALLOWANCE OF COMMISSION OF RS. 1,59,97,994/- WAS CONCERNED, T HE AO HAD ASKED THE ASSESSEE TO JUSTIFY THE ABNORMAL INCREASE IN SAL ES COMMISSION AS ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 4 COMPARED TO THE EARLIER YEARS AND THE ASSESSEE WAS ALSO REQUIRED TO FURNISH INFORMATION AND PROOF REGARDING RENDITION O F SERVICES BY THE COMMISSION AGENTS. THE LD. SR. DR ALSO SUBMITTED T HAT THE ASSESSEE WAS ASKED TO PRODUCE THE COMMISSION AGENTS BY THE A O BUT THE SAME WERE NOT PRODUCED BEFORE THE AO ON THE SCHEDULED DA TES. LD. SR. DR ALSO READ OUT EXTENSIVELY FROM THE ASSESSMENT ORDER AND PLACED RELIANCE ON THE OBSERVATIONS AND FINDINGS OF THE AO IN RESPE CT OF THE SALES COMMISSION AND SUBMITTED THAT THE ADDITION WAS RIGH TLY MADE IN THIS REGARD. 3.1 ON THE SECOND ISSUE REGARDING THE ACTION OF THE LD. CIT (A) IN ALLOWING DEDUCTION OF RS. 1,73,77,580/- IN RESPECT OF INTEREST ON INSURANCE CLAIM AND ALLOWING DEDUCTION OF RS. 5,42, 83,132/- IN RESPECT OF INSURANCE CLAIM IT WAS SUBMITTED THAT THE SAME WERE CLAIMED BY THE ASSESSEE BY SIMPLY FILING REVISED COMPUTATION OF IN COME AND NO REVISED RETURN OF INCOME WAS FILED. IT WAS SUBMITTED THAT S UCH A CLAIM COULD ONLY BE MADE THROUGH FILING OF REVISED RETURN OF INCOME. IT WAS SUBMITTED THAT SECTION 139(5) OF THE ACT PROVIDES THE PROCEDURE FO R CURING BONA FIDE MISTAKES. IT WAS ALSO SUBMITTED THAT THE AO HAD NO POWER TO ENTERTAIN THE CLAIM MADE BEFORE HIM BY WAY OF REVISED COMPUTA TION AND FURTHER THE ASSESSEE WAS NOT ELIGIBLE FOR THESE DEDUCTIONS AS THE ASSESSEE HAD ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 5 HIMSELF CREDITED THESE AMOUNTS TO THE PROFIT AND LO SS ACCOUNT AND THE ACCOUNTS HAD BEEN DULY AUDITED. 3.2 ON THE ISSUE OF DISALLOWANCE OF EXPENSES O N ACCOUNT OF VEHICLE AND CONVEYANCE, TELEPHONE EXPENSES, BUSINESS PROMOT ION AND FESTIVAL EXPENSES, IT WAS SUBMITTED THAT THE ELEMENT OF PERS ONAL USE IN THESE EXPENSES COULD NOT BE RULED OUT AS THE NECESSARY EV IDENCES WERE EITHER NOT IN POSSESSION OF THE ASSESSEE OR THEY WERE NOT PRODUCED BEFORE THE AO. IT WAS SUBMITTED THAT THESE ADDITIONS WERE WRON GLY DELETED BY THE LD. CIT (A) AND THEY NEEDED TO BE RESTORED. 4. IN RESPONSE, THE LD. AR PLACED RELIANCE ON THE ORDER OF THE LD. CIT (A) AND VEHEMENTLY ARGUED THAT THE LD. CIT (A) HAD ALLOWED THESE ISSUES AFTER DETAILED EXAMINATION OF THE FACTS AS W ELL AS AFTER DULY CONSIDERING THE SETTLED JUDICIAL PRECEDENTS AND, THE REFORE, THE SAME NEEDED TO BE UPHELD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HA VE PERUSED THE MATERIAL ON RECORD. AS FAR AS THE FIRST GROUND RAIS ED BY THE DEPARTMENT REGARDING SALES COMMISSION PAID TO M/S. J.B. EXPORT S LTD. AND SHRI SATISH KUMAR GOEL IS CONCERNED, IT IS SEEN THAT DURING THE YEAR THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 5,38,13,332/ ON A CCOUNT OF COMMISSION PAID TO VARIOUS PARTIES. THE ASSESSEE HA S MADE SALES OF RS. ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 6 20,95,92,795/ TO M/S RHINE & RAAVI HOLDINGS LIMITE D AND HAS PAID COMMISSION TO ONE MR. SATISH KUMAR GOEL OF RS. 53,8 6,004/ AND M/S JB EXPORT LTD OF RS. 1,06,11,990/-. COMMISSION PAYM ENTS TO THESE PARTIES HAVE BEEN PAID DURING THE YEAR AND NOTHING IS OUTSTANDING AS ON THE CLOSING OF THE ASSESSMENT YEAR AS AT 31 ST OF MARCH 2008. FURTHERMORE, THE ASSESSEE HAS ALSO MADE A SALE OF R S. 3,13,24,67,902/- TO M/S PAKTIYA GOLD LLC AND HAS ALSO PAID COMMISSI ON TO M/S PATKTIYA GOLD LLC OF RS. 3,78,15,338/. NOTABLY IN CASE OF S ALES TO M/S PAKTIYA GOLD LLC, THE COMMISSION WAS ALSO PAID TO THE SAME PARTY. 5.1 THE COMMISSION PAID TO MR. SATISH KUMAR GO EL, M/S JB EXPORT LTD AND M/S PAKTIYA GOLD LLC AMOUNTING ALL TO RS. 5,38, 13,332/ WAS EXAMINED BY THE ASSESSING OFFICER WITH RESPECT TO I TS ALLOWABILITY. BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED COPIE S OF THE AGREEMENT, COPY OF THE INVOICE AND CONFIRMATION OF THE PARTIES AND THE TDS CERTIFICATES FOR TAX DEDUCTION AT SOURCE MADE THERE ON. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE COMMISSIO N AGENTS AS HE DOUBTED THE RENDITION OF THE SERVICES BY THESE COMM ISSION AGENTS TO THE ASSESSEE. THE ASSESSEE COULD NOT PRODUCE THE COMMIS SION AGENT BUT REQUESTED THE AO TO ISSUE SUMMONS TO THE PARTIES. A T THE REQUEST OF THE ASSESSEE, THE ASSESSING OFFICER ALSO ISSUED THE SUM MONS TO THE PARTIES. ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 7 HOWEVER, NEITHER DID THE ASSESSEE PRODUCE THEM NOR DID THOSE PARTIES PRESENTED THEMSELVES IN RESPONSE TO THE SUMMONS. TH E ASSESSING OFFICER NOTED THAT THAT ASSESSEE HAS FAILED TO SUBM IT ANY EVIDENCE WITH RESPECT TO THE RENDITION OF THE SERVICES BY THESE P ARTIES TO THE ASSESSEE. THE REASONS FOR THE DISALLOWANCE MENTIONED BY THE A SSESSING OFFICER ARE THAT THE NATURE OF BUSINESS CARRIED ON BY THE ASSES SEE IS PHARMACEUTICAL BUSINESS WHEREAS THE SOURCE OF INCOME OF MR. SATISH KUMAR AGGARWAL WAS SALARY INCOME AND HE HAD SUFFERED HUGE LOSS IN SHARE TRADING BUSINESS. THEREFORE, ACCORDING TO THE ASSESSING OFF ICER, MR. SATISH KUMAR AGGARWAL DID NOT HAVE ANY EXPERIENCE OF DEALING IN THE PHARMACEUTICAL BUSINESS AND FURTHER HE HAD NOT INCURRED ANY EXPEND ITURE FOR EARNING THE COMMISSION INCOME TO THE MAGNITUDE OF RS. 53,86,004 /. WITH RESPECT TO THE PROFIT AND LOSS ACCOUNT SUBMITTED BY THE ASSESS EE OF MR. SATISH KUMAR GOEL, IT WAS NOTED THAT NO SUCH INCOME WAS RE CORDED IN HIS BOOKS OF ACCOUNTS AND TO REACH THIS FINDING, THE ASSESSIN G OFFICER MENTIONED THAT THE TOTAL INCOME DECLARED BY MR. SATISH KUMAR GOEL WAS ONLY RS. 6,89,687/- WHICH WAS MEAGRE COMPARED TO THE COMMISS ION ALLEGEDLY PAID BY THE ASSESSEE. 5.2 FURTHER, WITH RESPECT TO THE COMMISSION PA ID TO M/S JB EXPORTS LTD, THE ASSESSING OFFICER HAS NOTED THAT COMPANY W AS ENGAGED IN THE ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 8 BUSINESS OF YARN AND TEXTILE, BUT DID NOT HAVE ANY BUSINESS WITH RESPECT TO THE PHARMACEUTICALS. SIMILARLY, ON THE COMMISSIO N INCOME EARNED BY THE M/S JB EXPORTS LTD, THE ASSESSING OFFICER ALSO NOTED THAT THE GROSS TOTAL INCOME OF THE ASSESSEE WAS NIL AND A REFUND O F RS. 34,53,150/ HAD BEEN CLAIMED BY THE ASSESSEE. IT HAS BEEN FURTH ER NOTED BY THE AO THAT THE GROSS TOTAL INCOME OFFERED BY THE COMPANY WAS NIL, WHEREAS THE COMMISSION INCOME EARNED BY THE COMPANY WAS RS. 1,0 6,11,990/. 5.3 FURTHER WITH RESPECT TO THE SALES MADE TO T HE DUBAI PARTY OF RS. 31.32 CRORES. THE ASSESSING OFFICER NOTED THAT THE COMMISSION WAS PAID TO THE SAME PARTY AND THAT THIS ISSUE OF PAYMENT TO THE FOREIGN COMMISSION HAS ALREADY BEEN REFERRED BY THE ASSESSI NG OFFICER TO THE FOREIGN TAX DIVISION OF THE CBDT ON 15/12/2010. 5.4 THE LD. CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARA NO. 6 OF THE IMPUGNED ORDER. THE MAIN REASON FOR AL LOWANCE OF THE CLAIM IS THAT THE ASSESSEE SUBMITTED THE COPY OF THE COMM ISSION AGREEMENT CONTAINING NAME AND COMPLETE ADDRESS OF THE PARTIES OUTLINING THE SERVICES TO BE RENDERED BY THE AGENTS, COPY OF THE INVOICES WHICH GAVE THE BRIEF DESCRIPTION OF THE SERVICES RENDERED IN T HE FORM OF THE NAME OF THE BUYER AND AMOUNT OF SALE FACILITATED BY THE AGE NT. IT IS FURTHER SUPPORTED BY THE COPY OF THE CONFIRMATION AND DETAI LS OF TAX DEDUCTED AT ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 9 SOURCE BY THE ASSESSEE. IT WAS FURTHER HELD BY THE LD. CIT (A) THAT THE ABOVE COMMISSION WAS ALSO PAID BY ACCOUNT PAYEE CHE QUE IN FAVOUR OF THE COMMISSION AGENTS. THE LD. CIT (APPEALS) FURTHE R HELD THAT THE COMMISSION AGREEMENT AS WELL AS THE CORRESPONDENCE REVEALS THAT BOTH THE AGENTS WERE DEL CREDERE AGENTS WHO WERE ACTIVELY INVOLVED IN SETTLING THE TERMS AND CONDITIONS OF THE PURCHASE O RDERS BETWEEN THE ASSESSEE AND THE BUYER. THEREAFTER, THE LD. CIT (A) HAS HELD THAT THESE COMMISSION AGENTS HAVE RENDERED SEVERAL SERVICES AS STATED AT PAGE NOS. 26 AND 27 OF THE ORDER. IT WAS FURTHER NOTED B Y THE LD. CIT (A) THAT THE ASSESSEE HAS PAID COMMISSION AT THE RATE OF 7 T O 8% TO THE DEL CREDERE COMMISSION AGENTS DURING THE YEAR UNDER CONSIDERATI ON. IT HAS BEEN FURTHER NOTED THAT THE RATE OF COMMISSION DISA LLOWED BY THE ASSESSING OFFICER ON PAYMENT OF COMMISSION IN DOMES TIC SALES IS AT THE RATE OF 7.6% WHICH IS MUCH LESS THAN THE RATE OF CO MMISSION ALLOWED BY THE ASSESSING OFFICER AT THE RATE OF 12% ON EXPORT SALES. IT HAS BEEN FURTHER HELD THAT THE ASSESSEE HAD ENTERED INTO THE DOMESTIC SALES AREA FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION. THE LD. CIT (A) HAS FURTHER HELD THAT SIGNIFICANT CONTRIBUTIONS HAVE BE EN MADE BY THE AGENTS TO INCREASE THE TURNOVER BY APPROXIMATELY FOUR TIME S FROM RS. 13.63 CRORES TO RS. 52.41 CRORE DURING THE YEAR. THEREAFT ER, BY RELYING ON SOME JUDICIAL PRECEDENTS AND BY ULTIMATELY HOLDING THAT T HE COMMISSION ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 10 EXPENDITURE OF RS. 1,59,97,994/ PAID BY THE ASSESS EE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THE LD. CIT (A) DELETED THE DISALLOWANCE. 5.5 ON PERUSAL OF BOTH THE ORDERS OF THE LOWE R AUTHORITIES, WE NOTE THAT THE ASSESSING OFFICER HAS GIVEN A DETAILED REA SONING FOR MAKING THE ABOVE DISALLOWANCE. THE MAIN PLANK OF THE DISALLOWA NCE IS THAT PROOF OF THE RENDITION OF THE SERVICES HAS NOT BEEN GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AND THAT THE COMMISSION AGENT S HAVE NOT AT ALL BEEN PRODUCED. SURPRISINGLY, THE COMMISSION HAS BEE N PAID FOR THE PURPOSE OF SELLING OF THE PHARMACEUTICAL PRODUCTS, BUT HAS BEEN PAID TO PERSONS NOT HAVING ANY EXPERIENCE IN SELLING OF PHA RMACEUTICAL PRODUCTS. MOREOVER, THE ASSESSEE HAS ALSO NOT DEMONSTRATED TH AT HOW THE COMMISSION AGENTS HAVE SOLD THE PHARMACEUTICAL PROD UCTS BY HELPING THE ASSESSEE TO INCREASE ITS TURNOVER. IT IS ALSO TO BE NOTED THAT THE LD. CIT (A) HAS HELD THAT THE ASSESSEE HAD OBTAINED THE SER VICES OF THE COMMISSION AGENT ON DEL CREDERE BASIS. HOWEVER, WE FAIL TO UNDERSTAND AS TO HOW THE PAYMENT OF DEL CREDERE AGENCY COMMISSION IS JUSTIFIED IN ABSENCE OF PROOF OF RENDITION OF SERVICES. 5.6 THE LD. CIT (A) HAS ALSO NOTED THAT THE AO HAD ALLOWED COMMISSION ON EXPORT SALES IN THE EARLIER ASSESSMEN T YEARS. HOWEVER, ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 11 THE FACT THAT PAYMENT OF COMMISSION ON EXPORT SALES WAS ALLOWED IN THE PRECEDING ASSESSMENT YEARS CANNOT BE USED AS A JUSTI FICATION FOR ALLOWING THE COMMISSION PAID BY THE ASSESSEE FOR DOMESTIC SA LES BY DRAWING A PARALLEL OF PAYMENT FOR EXPORT COMMISSION. IN FACT, THE ASSESSING OFFICER HAS ALREADY REFERRED THE MATTER TO THE FOREIGN TAX DIVISION OF THE CENTRAL BOARD OF DIRECT TAXES. THE ASSESSEE HAS GIVEN NO PR OOF OF RENDITION OF SERVICES BY THESE TWO AGENTS BEFORE THE AO. FURTHER , THE LD. CIT (A) HAS ONLY EXTRACTED DETAILS FROM THE COPY OF THE AGREEME NT FURNISHED BY THE ASSESSEE AND HAS ACCEPTED IT AS A PROOF OF RENDITIO N OF SERVICES. WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT (APPEALS ) HAS MISDIRECTED HERSELF BECAUSE THE COPY OF AGREEMENT SHOWS THE REN DITION OF THE SERVICES TO BE PROVIDED WHEREAS THE ACTUAL RENDIT ION OF SERVICES IS TO BE NECESSARILY SUBSTANTIATED BY CREDIBLE EVIDENCE. TH E ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE WITH RESPECT TO THE ACTUAL RENDITION OF THE SERVICES BY THESE COMMISSION AGENTS. MERELY BECAUSE THE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES DOES NOT MA KE THE EXPENDITURE ALLOWABLE IN THE HANDS OF ASSESSEE UNDE R SECTION 37 (1) OF THE INCOME TAX ACT OR UNDER SECTION 28 OF THE INCOM E TAX ACT, AS THE ACT DOES NOT PROVIDE THAT IF THE PAYMENT IS MADE TH ROUGH CHEQUE, IT PROVES THE ALLOWABILITY OF SUCH EXPENDITURE. FURTHE RMORE, WE DO NOT FIND ANY NEW MATERIAL BROUGHT BEFORE THE LD. CIT (A) BY THE ASSESSEE FOR ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 12 PROOF OF RENDITION OF THE SERVICES, BUT THE LD. CIT (A) HAS BEEN MERELY GUIDED BY THE WORDINGS IN THE AGREEMENT. FURTHERMOR E, THERE IS NO ELABORATION IN THE ORDER OF THE LD. CIT (APPEALS) A S TO HOW PHARMACEUTICAL PRODUCTS WERE SOLD BY THESE COMMISSI ON AGENTS WHEN THEY DID NOT HAVE ANY PRIOR EXPERIENCE OF SELLING T HESE PRODUCTS. 5.7 THEREFORE, WE DO NOT CONCUR WITH THE VIEW OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF COMMIS SION PAYMENT. FURTHERMORE, THE ASSESSEE HAS NOT PRODUCED THE REQU ISITE DETAILS BEFORE THE ASSESSING OFFICER AND FURTHER, THE LD. CIT (APP EALS) HAS ALSO NOT TAKEN A REMAND REPORT FROM THE ASSESSING OFFICER WI TH RESPECT TO THE OBSERVATIONS MADE BY THE ASSESSING OFFICER WHILE MA KING THE DISALLOWANCE. THEREFORE, IN VIEW OF ABOVE FACTS, AN D IN INTEREST OF JUSTICE, WE SET ASIDE THE WHOLE ISSUE BACK TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO THE ASSESSEE TO PRODUCE THE COMMISSI ON AGENTS BEFORE THE ASSESSING OFFICER FOR VERIFICATION ABOUT THE RENDIT ION OF THE SERVICES AND, FOR PRODUCTION OF ANY OTHER INFORMATION AND DETAILS TO PROVE THE ALLOWABILITY OF COMMISSION EXPENSES. THE ASSESSING OFFICER IS ALSO FREE TO MAKE NECESSARY ENQUIRIES AS HE DEEMS FIT TO DECIDE THE ISSUE. NEEDLESS TO SAY, PROPER OPPORTUNITY OF HEARING WILL BE GRANT ED TO THE ASSESSEE ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 13 BEFORE DECIDING THE ISSUE. ACCORDINGLY, GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSES. 5.8 REGARDING GROUND NOS. 2 AND 3 IN WHICH THE DEPARTMENT HAS CHALLENGED THE DELETION OF ADDITION ON ACCOUNT OF I NTEREST ON INSURANCE CLAIM AND DELETION OF INCOME FROM INSURANCE CLAIM, IT IS SEEN THAT THE ASSESSEE HAD FILED INSURANCE CLAIM OF RS. 5,42,83,1 32/- ON ACCOUNT OF LOSS OF STOCK DURING THE COURSE OF EXPORT OUT OF I NDIA. THIS AMOUNT OF CLAIM WAS CREDITED BY THE ASSESSEE TO HIS PROFIT AN D LOSS ACCOUNT. SUBSEQUENTLY, THE CLAIM WAS REJECTED IN ITS ENTIRET Y BY THE INSURANCE COMPANY AND THE REJECTION LETTER WAS RECEIVED BY THE ASSESSEE IN APRIL, 2007. BESIDES THE AMOUNT OF INSURANCE CLAIM, THE AS SESSEE HAD ALSO CREDITED NOTIONAL INTEREST INCOME OF RS. 1,73,77,58 0/- ON SUCH INSURANCE CLAIM TO HIS PROFIT AND LOSS ACCOUNT. AS THE CLAIM HAD BEEN REJECTED AND THE INTEREST WAS NOTIONAL, THE ASSESSEE FILED REVIS ED COMPUTATION OF INCOME CLAIMING NON-ACCRUAL OF THE INSURANCE CLAIM AND INTEREST THEREON. HOWEVER, THE AO REJECTED THE CLAIM BECAUSE REVISED R ETURN OF INCOME WAS NOT FILED WITHIN THE STIPULATED TIME, AS LAID D OWN IN THE ACT, AND THE AO WAS OF THE OPINION THAT SUCH DEDUCTION WAS NOT P ERMISSIBLE BECAUSE THE ASSESSEE HIMSELF HAD CREDITED THE AMOUNT TO HIS PROFIT AND LOSS ACCOUNT. WHILE SUBMITTING REVISED COMPUTATION THE A SSESSEE ALSO ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 14 SUBMITTED COPIES OF LETTERS FROM THE INSURANCE COMP ANY INTIMATING REJECTION OF THE CLAIM AND ALSO DEMONSTRATED THAT TH EY HAD REVERSED THE AMOUNT OF RS. 5,42,83,132/- FROM THE SUNDRY DEBTORS ACCOUNTS. THE ASSESSEE ALSO DEMONSTRATED BEFORE THE AO THAT HE HA D APPROACHED THE CONSUMER COURT AGAINST THE NON RECEIPT OF THE INSUR ANCE CLAIM. THE ASSESSEE ALSO SUBMITTED THAT ACCOUNTING STANDARD 29 (AS 29) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA CLE ARLY LAID DOWN THAT NO CONTINGENT GAIN COULD BE RECOGNISED AS INCOME UNTIL THERE WAS A CERTAINTY OF REALISATION OF INCOME AND SINCE THE C LAIM WAS REJECTED BY THE INSURANCE COMPANY, THERE WAS NIL CERTAINTY OF REALISATION OF THIS INCOME. SIMILARLY, FOR NOTIONAL INTEREST ON THE INS URANCE CLAIM THE ASSESSEE SUBMITTED BEFORE THE AO THAT SINCE THE PRI NCIPAL WAS NOT RECEIVABLE THERE WAS NO QUESTION OF INTEREST ACCRUI NG ON THE SAME. HOWEVER, THE AO BY PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF GOETZ INDIA LTD., REPORTE D IN 284 ITR 323 (SC) HELD THAT IT WAS BEYOND THE PURVIEW OF HIS POWERS T O ALLOW SUCH A CLAIM AS NO REVISED RETURN HAD BEEN FILED. 5.9 THE LD. CIT (A), WHILE ALLOWING THE CLAI M AND DIRECTING THE AO TO DELETE THE ADDITIONS TOTALLING TO RS. 7,16,60,71 2/-,REFERRED TO THE AFORESAID IN JUDGMENT OF THE HONBLE APEX COURT IN T HE CASE OF GOETZE ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 15 (INDIA) LTD. (SUPRA) AND NOTED THAT THE AFORESAID JU DGMENT OF THE HONBLE APEX COURT WAS LIMITING THE POWER OF THE AO AND DID NOT IMPINGE ON THE POWER OF THE ITAT U/S 254 OF THE ACT . THE LD. CIT (A) ALSO REFERRED TO THE PROVISIONS OF SECTION 251(1)(C ) OF THE ACT AND NOTED THAT AS PER THE SCHEME OF THE ACT, CIT(A) ALSO HAS A SIMILAR POWER. THEREAFTER, AFTER RELYING ON SOME OTHER JUDICIAL PRE CEDENTS, THE LD. CIT (A) WENT ON TO HOLD THAT ALTHOUGH THE AO DID NOT H AVE THE POWER TO ADMIT FRESH CLAIM OF THE ASSESSEE IN ABSENCE OF A REVISED RETURN, CIT (A) DID HAVE THE POWER TO ADMIT THE CLAIM. THE LD. CIT (A) ALSO NOTED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING AND, THEREFORE, IT WAS MANDATORY FOR HIM TO APPROPRIATELY CREDIT THE SAID AMOUNTS IN ITS PROFIT AND LOSS ACCO UNTS INITIALLY BUT SINCE NOTHING WAS ACTUALLY RECEIVABLE BY THE ASSESSEE, A MERE ACCOUNTING ENTRY DID NOT CREATE ANY RIGHT IN THE HANDS OF THE ASSESSEE TO RECEIVE THE INCOME AS THE SAME HAD NEITHER ACCRUED NOR EARNED D URING THE YEAR UNDER CONSIDERATION. 5.10 ON THIS ISSUE, WE AGREE WITH THE INTERPRET ATION OF THE LD. CIT (A) THAT THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA) DOES NOT LIMIT THE POW ER OF THE APPELLATE AUTHORITY BUT ONLY OF THE ASSESSING AUTHORITY. FURT HER, THE HONBLE APEX ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 16 COURT IN THE CASE OF JUTE CORPORATION OF INDIA VS. CIT REPORTED IN 187 ITR 688 HAS HELD THAT WITH REFERENCE TO SECTION 251 (1)(A) OF THE ACT, THE DECLARATION OF LAW WAS CLEAR THAT THE POWER OF THE AAC WAS CO-TERMINUS WITH ACT OF THE ITO AND, IF THAT IS SO, THEN THERE IS NO REASON AS TO WHY THE APPELLATE AUTHORITY DID NOT HAVE THE POWER TO M ODIFY THE ASSESSMENT ORDER ON AN ADDITIONAL GROUND EVEN IF IT WAS NOT RA ISED BEFORE THE ITO. THE HONBLE APEX COURT IN ANOTHER JUDGMENT IN THE CA SE OF ANCHOR PRESSINGS (P) LTD. VS. CIT 161 ITR 159 HELD THAT WH ERE THE ASSESSEE HAD OMITTED TO CLAIM DEDUCTION AND IF PRECISE AND CLEAR MATERIAL IS AVAILABLE ON RECORD TO THE FACT THAT THE ASSESSEE IS ENTITLED TO SUCH RELIEF, THEN THE INCOME TAX AUTHORITY IS REQUIRED TO GRANT SUCH RELI EF. 5.11 COMING BACK TO THE ISSUE BEFORE US, THE FAC TS ARE UNDISPUTED. IT IS SETTLED LAW THAT INCOME IS SAID TO BE ACCRUED WHEN A PERSON ACQUIRES THE RIGHT TO OBTAIN THAT INCOME AND A MERE CLAIM TO INC OME WITHOUT ENFORCEABLE RIGHT CANNOT BE REGARDED AS ACCRUAL OF INCOME FOR THE PURPOSE OF THE ACT. THUS, A MERE FILING OF CLAIM WI TH INSURANCE COMPANY WILL NOT BE SUFFICIENT TO MAKE SUCH INCOME TO BE TA XABLE ON ACCRUAL BASIS, ESPECIALLY, WHEN SUBSEQUENT EVENTS SHOW THAT SUCH C LAIM HAS NOT CRYSTALLISED . HERE, IN THE INSTANT CASE THERE IS N O DISPUTE TO THE FACT THAT IN SPITE OF FILING ITS CLAIM WITH THE INSURANCE COM PANY, INSURANCE ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 17 COMPANY DID NOT ACCEPT THE CLAIM AND NOTHING WAS PA ID TO THE ASSESSEE IN FORM OF COMPENSATION. RECORDS ALSO REVEALED THAT THE MATTER WAS IN ALREADY IN LITIGATION AT THE TIME OF FIRST APPELLAT E PROCEEDINGS. IN THE CASE OF GODHRA ELECTRICITY CO. LTD. VS. CIT 225 ITR 746 (SC), THE HONBLE APEX COURT HELD THAT IF THE INCOME DOES NOT RESULT AT ALL, IT CANNOT BE TAXED EVEN THOUGH IN BOOK KEEPING AN ENTRY HAS BEEN MADE ABOUT THE HYPOTHETICAL INCOME WHICH DOES NOT MATERIALISE. THU S, WE ARE OF THE CONSIDERED OPINION THAT MERE FILING OF INSURANCE CL AIM DID NOT GIVE ANY RIGHT TO THE ASSESSEE TO RECEIVE INCOME AS THE CLAI M WAS NOT ACCEPTED BY THE INSURANCE COMPANY. HAD THERE BEEN ANY ACCEPTANC E BY THE INSURANCE COMPANY, THEN THE INCOME WOULD HAVE DEFIN ITELY ACCRUED ON THE BASIS OF THE ACCOUNTING ENTRY. BUT IN THE INSTA NT CASE IT IS NOT SO. EVEN DURING THE COURSE OF PROCEEDINGS BEFORE US, TH E DEPARTMENT COULD NOT PRODUCE ANY COGENT EVIDENCE TO THE CONTRARY IN THIS REGARD. ACCORDINGLY, WE FIND NO REASON TO INTERFERE WITH TH E ADJUDICATION OF THE LD. CIT (A) ON THIS ISSUE AND DISMISS GROUND NOS. 2 AND 3 OF THE DEPARTMENT APPEAL. 5.12 AS FAR AS GROUND NO. 4 REGARDING THE DEL ETION OF VARIOUS DISALLOWANCES IS CONCERNED, IT IS SEEN THAT ALTHOUG H ADDITIONS HAVE BEEN MADE ON AN AD HOC BASIS BY HOLDING THAT PERSONAL ELEMENT IN ALL THES E ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 18 EXPENSES COULD NOT BE RULED OUT. THE LD. CIT (A) AL SO NOTED THAT RELEVANT DETAILS WERE FURNISHED BEFORE THE AO BUT T HE AO HAD FAILED TO POINT OUT SPECIFIC INSTANCES OF PERSONAL ELEMENT IN SUCH EXPENSES. WHILE DELETING THE DISALLOWANCES, LD. CIT(A) HAS PLACED R ELIANCE ON NUMEROUS ORDERS OF THE ITAT DELHI BENCH WHERE THE JURISDICTI ONAL TRIBUNAL FOR THE ASSESSEE HAS HELD THAT WHERE THE EXPENDITURE WAS DI SALLOWED WITHOUT POINTING OUT ANY EXPENDITURE IN THE NATURE OF PERSO NAL EXPENSES, THERE WAS NO JUSTIFICATION IN MAKING AD HOC DISALLOWANCES. THIS ADJUDICATION OF THE LD. CIT (A) COULD NOT BE NEGATED BY THE DEPARTM ENT BY LEADING ANY EVIDENCE TO THE CONTRARY EVEN DURING THE COURSE OF PROCEEDINGS BEFORE US. THEREFORE, ON THIS ISSUE ALSO WE FIND NO REASON TO INTERFERE WITH THE ADJUDICATION OF THE LD. CIT (A) AND WE, ACCORDINGLY, DISMISS GROUND NO. 4 OF THE DEPARTMENTAL APPEAL. 6. IN THE FINAL RESULT THE APPEAL OF THE DEPAR TMENT STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR OB SERVATIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 1/11/2017. SD/- SD/- (PRASHANT MAHARISHI) (SUDHANSHU S RIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1/11/2017 ITA NO. 5381/DEL/2011 ACIT VS. PAVEL GARG 19 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI