JITENDRA J, MEHTA, MUMBAI V. DCIT OSD-II, MUMBAI

ITA 5438/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55517 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 20-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Condonation of delay; Bonafide mistake
• Section: 143(3); 234B; 14A; 37

Judgement Text

1 SHRI JITENDRA J MEHTA IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, AM & SHRI VIJAY PAL RAO, JM ITA NO.5438/MUM/2010 (ASSESSMENT YEAR 2005-06) & ITA NO. 170/MUM/2010 (ASSESSMENT YEAR 2006-07 SHRI JITENDRA J MEHTA 1401 REHEJA CENTRE 14 TH FL. NARIMAN POINT MUMBAI 21 VS THE DYCOMMR OF INCOME TAX OSD(II), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAPPM2381K ASSESSEE BY SHRI V IJAY MEHTA REVENUE BY SHRI SUNIL KUMAR SINGH DT.OF HEARING 20.9.2011 DT OF PRONOUNCEMENT 14 TH OCT 2011 PER VIJAY PAL RAO, JM THESE APPLES BY THE ASSESSEE ARE DIRECTED AGAINST T HE RESPECTIVE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEAR S 2005-06 AND 20 06-07. 2 THERE IS A DELAY OF 463 DAYS IN FILING THE APPEAL FOR AY 2005-06 IN ITA NO.5438/MUM/2010. 3 THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONA TION OF DELAY AND AN AFFIDAVIT IN SUPPORT OF THE APPLICATION. THE ASSESS EE HAS ALSO FILED AN AFFIDAVIT OF MRS HARSHA PARMAR, CA 3 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON THE ISSUE OF CONDONATION O F DELAY. THE LD AR HAS ALSO 2 SHRI JITENDRA J MEHTA SUBMITTED THAT THE IMPUGNED ORDER DATED 14.1.2009 W AS SENT TO THE TAX CONSULTANT M/S BHUTA SHAH & CO, CHARTERED ACCOUNTANTS ON 23.1. 2009. IT WAS DECIDED TO FILE THE SECOND APPEAL BEFORE THE TRIBUNAL; HOWEVER, DUE TO THE ILLNESS OF MRS HARSHA PARMAR AS SHE WAS ON LEAVE FOR 20 DAYS IN THE MONTH OF MARCH, 2009, THE IMMEDIATE STEPS COULD NOT BE TAKEN FOR FILING THE APPEAL. AF TER THE RECOVERY FROM THE ILLNESS MRS HARSHA PARMAR, RESUMED TO WORK BUT SHE FORGOT TO FI LE THE APPEAL BEFORE THE TRIBUNAL AGAINST THE IMPUGNED ORDER. THE LD AR HAS FURTHER SUBMITTED THAT THIS THE FACT OF NON FILING OF THE APPEAL WAS REALIZED ONLY IN THE MONTH OF JUNE, 2010 WHEN THE ASSESSEE RECEIVED THE NOTICE OF HEARING OF PENALTY PROCEEDIN GS BEFORE THE CIT(A. THE LD AR HAS SUBMITTED THAT AFTER REALIZING THE FACT THAT TH E APPEAL AGAINST THE IMPUGNED ORDER HAS NOT BEEN FILED, THE ASSESSEE TOOK IMMEDIA TE STEPS TO FILE THE APPEAL AND THE SAME WAS FILED ON 29 TH JUNE 2010. THE LD AR HAS FILED THE COPY OF THE NO TICE OF THE CIT(A) FOR THE HEARING OF THE PENALTY APPEAL F ILED BY THE ASSESSEE ON 1.6.2010 AND IN RESPONSE, THE ASSESSEE FILED THE APPLICATION FOR ADJOURNMENT OF THE HEARING. THE LD AR, THUS SUBMITTED THAT INITIALLY THERE WAS SUFFICIENT TIME FOR FILING THE APPEAL BUT DUE TO ILLNESS OF MRS HARSHA PARMAR, THE APPEAL COULD NOT BE FILED WITHIN THE PERIOD OF LIMITED I.E. UPTO 24.3.2009. THEREAFTER, WHEN MRS HARSHA PARMAR RESUMED TO HER DUTY, SHE COMPLETELY FORGOT TO FILE THE APPEAL. SUBSEQUENTLY, DURING THE PENALTY PROCEEDINGS BEFORE THE CIT(A), WHEN SHE WAS PREPARI NG THE CASE, IT WAS REALIZED THAT THE APPEAL AGAINST THE IMPUGNED ORDER (QUANTUM APPEAL) NOT FILED. THE LD AR HAS CONTENDED THAT THE APPEAL COULD NOT BE FILED DU E TO BONAFIDE MISTAKE, WHICH HAS BEEN CONFIRMED BY MRS HARSHA PARMAR IN THE AFFI DAVIT DT 25.6.2011. 3.1 THE LD AR REFERRED THE MEDICAL CERTIFICATE OF M RS HARSHA PARMAR AND SUBMITTED THAT IN THE MONTH OF MARCH 2009 SHE WAS I LL AND THEREFORE, THE DELAY IN 3 SHRI JITENDRA J MEHTA FILING THE APPEAL IS NEITHER WILFUL NOR DELIBERATE BUT DUE TO THE REASONS BEYOND THE CONTROL OF THE ASSESSEE. THE LD AR HAS RELIED UPON THE ORDER OF THE JABALPUR BENCH TRIBUNAL IN THE CASE OF M/S UDAI PLASTIC P LTD VS I TO REPORTED IN 98 ITD 231 AND URGED THAT THE DELAY IN FILING THE APPEAL DUE TO THE MIST AKE ON THE PART OF THE COUNSEL/AR OF THE ASSESSEE IS SUFFICIENT REASON AND MAY BE CON DONED. HE HAS ALSO RELIED UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF STERLITE I NDUSTRIES (I) LTD VS ACIT REPORTED IN 6 SOT 497 AND SUBMITTED THAT SUFFICIENT CAUSE SHOUL D BE CONSTRUED LIBERALLY SO AS TO ADVANCE SUBSTANTIAL JUSTICE. THE LD AR HAS ALSO REL IED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF ANGELA J KAZI VS ITO REPOR TED IN 10 SOT 139 AS WELL AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F N BALAKRISHNBAN VS M KRISHNAMURTHY 1998 IT SCC 123. THE LD AR HAS SUBMIT TED THAT IN THE SAID CASE, THEIR LORDSHIP HAVE HELD THAT IN THE SOLE CRITERIA FOR C ONDONING THE DELAY IS ACCEPTABILITY OF EXPLANATION AND THE LENGTH OF DELAY IS IRRELEVAN T. IN THE ABSENCE OF ANYTHING SHOWING MALAFIDE OR DELIBERATE DELAY, OR DILATOR Y TACTICS, COURT SHOULD NORMALLY CONDONE THE DELAY. 3.2 HE HAS ALSO RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF COLLECTOR OF LAND ACQUISITION VS MST KATIJI AND ORS REPORTED IN 167 ITR 471 AND SUBMITTED THAT THE SUPREME COURT HAS OBSERVED WHILE DECIDING T HE ISSUE OF CONDONATION OF DELAY THAT; ORDINARILY, A LITIGANT D OES NOT STAND BY LODGING ON APPEAL LATE, REFUSING TO CONDONE DELAY CAN RESULT I N A MERITORIOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND CAUSE OF JUSTI CE BEING DEFEATED. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALAFIDES. THUS, THE LD AR HAS SUBMITTED THAT THERE IS NO MALAFIDE INTENTION ON THE PART OF THE ASSESSEE I N FILING THE APPEAL BELATEDLY. IN SUPPORT OF HIS CONTENTION, HE HAS SUBMITTED THAT BO TH THESE APPEALS FOR ASSESSMENT YEARS 2005-06 AND 2006-07 ARE HAVING COMMON ISSUE AND WHEN THE ASSESSEE HAS 4 SHRI JITENDRA J MEHTA ALREADY FILED THE APPEAL IN TIME FOR THE ASSESSMEN T YEAR 2006-07; THEN, THERE WAS NO REASON FOR THE ASSESSEE WOULD HAVE BENEFITED WHI LE NOT FILING THE APPEAL FOR THE AY 2005-06. 3.3 THE LD DR HAS VEHEMENTLY OBJECTED THE CONDONATI ON OF DELAY. HE HAS SUBMITTED THAT THE DELAY IN FILING THE APPEAL FOR A Y 2005-06 IS INORDINATE AND THE ASSESSEE HAS NOT DISCLOSED A SUFFICIENT REASON FOR CONDONATION OF DELAY. HE HAS THUS SUBMITTED THAT THE EXTRA ORDINARY DELAY IN FILING T HE APPEAL CANNOT BE CONDONED AND THE SAME MAY BE REJECTED. 4 AFTER CONSIDERING THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE FILED THE APPEAL FOR AY 2006-07 WITHIN THE TIME WHEN THE MAJOR ISSUE IN BOTH THE APPEALS ARE COMMON THEN IT CANNOT BE SAID THAT THE ASSESSEE HAD AN ULTERIOR MOTIVE IN FILING THE A PPEAL BELATEDLY. IT IS SETTLED LAW THAT WHILE DECIDING THE CONDONATION OF DELAY, THE COURT SHOULD TAKE A LENIENT VIEW. A MISTAKE ON THE PART OF THE COUNSEL MAY IN CERTAIN C IRCUMSTANCES BE TAKEN INTO ACCOUNT IN CONDONING DELAY; THOUGH THERE IS NO GENE RAL PROPOSITION THAT MISTAKE OF THE COUNSEL BY ITSELF IS ALWAYS A SUFFICIENT GROUND . IT IS ALWAYS A QUESTION WHETHER IT WAS BONAFIDE OR WAS MERELY A DEVICE TO COVER AN ULT ERIOR PURPOSE OR AN ATTEMPT TO SAVE LIMITATION IN AN UNDERHAND WAY. IT IS PERTINE NT TO MENTION THAT IN AN ADVERSIAL LITIGATION, CLIENTS REPOSE FAITH IN THEIR ADVOCATES /REPRESENTATIVES. ONCE THE LITIGANT PERFORMS HIS PART AND PAID THE FEE AND GIVEN REQUIS ITE INSTRUCTIONS TO HIS COUNSEL/REPRESENTATIVE, A LITIGANT MAY BE FULLY JUS TIFIED IN BEING CONFIDENT THAT HIS REPRESENTATIVE WOULD DISCHARGE HIS PROFESSIONAL OBL IGATIONS. THEREFORE, IN THE CASE WHERE IT IS BROUGHT ON RECORD THAT THE PARTY HAS D ONE EVERYTHING IN ITS POWER WHICH IS NECESSARY FOR THE LEGAL PROCEEDINGS, COURTS SHOU LD BE LIBERAL IN CONSTRUING SUFFICIENT CAUSE AND SHOULD LEAN IN FAVOUR OF SUCH PARTY. NO DOUBT, A LITIGANT DOES 5 SHRI JITENDRA J MEHTA NOT STAND TO BENEFIT BY FILING APPEAL AT A BELATED STAGE. HOWEVER, WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATION ARE OPPOSED TO EACH OTHER CAUSE OF SUBSTANTIAL JUSTICE HAS TO BE PREFERRED. JUSTICE O RIENTED APPROACH SHOULD BE TAKEN WHILE DECIDING THE CONDONATION OF DELAY. 5 IN THE CASE IN HAND, AFTER CONSIDERING BOTH THE A FFIDAVITS FILED BY THE ASSESSEE AS WELL AS THE REPRESENTATIVE OF THE ASSESSEE, WHO WAS HANDLING THE CASE OF THE ASSESSEE, WE ARE SATISFIED THAT THE ASSESSEE HAS DO NE WHAT WAS NECESSARY FOR FILLING THE APPEAL WITHIN THE TIME; BUT THERE WAS INADVERTE NT MISTAKE ON THE PART OF THE COUNSEL/REPRESENTATIVE OF THE ASSESSEE FOR NOT TAKI NG STEPS IN TIME FOR FILING THE APPEAL. 5.1 MOST OF THE ISSUES ARE COMMON IN BOTH THESE APP EALS AND IN ANY CASE, WE HAVE TO DECIDE THE ISSUE ON MERITS, WHICH ARE COMMO N THEN, KEEPING IN VIEW OF THE FACTS AND THE CIRCUMSTANCES OF THE CASE, WE ARE SA TISFIED THAT THE ASSESSEE HAS EXPLAINED SUFFICIENT CAUSE, WHICH HAS PREVENTED THE ASSESSEE TO FILE THE APPEAL IN TIME. 6 IN VIEW OF THE ABOVE DISCUSSION AND IN THE INTERE ST OF JUSTICE, WE CONDONE THE DELAY OF 463 DAYS IN FILING THE APPEAL FOR THE AY 2 005-06 AND ADMIT THE APPEAL FOR HEARING FOR ADJUDICATION ON MERIT. ITA NO.5438/MUM/2010 (ASSESSMENT YEAR 2005-06) 7 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: I) THE LD CIT(A) HAS ERRED IN LAW AND IN CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT AND CONFIR MING THE INCOME AT RS. 1,83,98,007/- II) THE LD CIT(A) HAS ERRED IN LAW AND IN FACTS I N CONFIRMING THE DISALLOWANCE OF BROKERAGE AMOUNTING TO RS. 33,48,760/- PAID TO V ARIOUS PARTIES FOR ARRANGING THIRD PARTY EXPORTS AND SALE OF DEPB LICE NSE. 6 SHRI JITENDRA J MEHTA II) THE LD CIT(A) HAS ERRED IN LAW AND FACTS IN CON FIRMING THE DISALLOWANCE OF THE FOLLOWING EXPENSES OUT OF; A) MOTOR CAR EXPENSES R. 45,700/- B) DEPRECIATION ON MOTOR CAR RS. 65,481/- C) TELEPHONE EXPENSES RS. 30,540/- D) PROPORTIONATE EXPENSES U/S 1Q4A OF THE ACT RS. 39,901/- E) FOREIGN TRAVELLING EXPENSE RS. 46,965/- IV) THE LD ASSESSING OFFICER ERRED IN LAW AND FACTS IN CHARGING INTEREST U/S 234B OF THE ACT. 8 GROUND NO.1 IS GENERAL IN NATURE AND HENCE NO SPE CIFIC FINDING IS REQUIRED 9 GROUND NO.2 IS REGARDING DISALLOWANCE OF COMMISS ION/BROKERAGE PAID TO VARIOUS PARTIES FOR EXPORTS AND SALE OF DEPB LICENS E. 10 THIS GROUND IS COMMON FOR BOTH THE APPEALS; THER EFORE, WE ADJUDICATE THIS GROUND BY THIS COMMON FINDING. 11 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCH ASE AND SALE OF DEPB/DFRC LICENSES AND BROKERAGE THEREON. THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE HAS SHOWN PAYMENT ON ACCOUNT OF BROKERAGE ON SALE OF DE PB/DFRC LICENSES AND ON ACCOUNT OF PURCHASE OF DEPB/DFRC LICENCES AND BROKE RAGE IN RESPECT OF THIRD PARTY EXPORT. THE SUBSTANTIAL PART OF THE BROKERAGE SHO WN TO BE PAID WAS MAINLY TO THREE PARTIES M/S PANJAK POLYMERS LTD (PPL), KANAK RASIK CONSUMER PRODUCTS PVT. AND PACIFIC EXPORTS. THE ASSESSING OFFICER ISSUED SUMM ONS TO THE PARTIES WHO WERE ALLEGEDLY INTRODUCED BY THESE BROKERS TO THE ASSESS EE. ALL THE PARTIES, EXCEPT THREE CONFIRMED HAVING TRANSACTION OF SALE AND PURCHASE O F DEPB/DFRC LICENSES WITH THE ASSESSEE. HOWEVER, THEY HAVE STATED THAT THERE WAS NO BROKERAGE INVOLVED IN THE TRANSACTIONS AND THEY HAD DIRECTLY DEALT WITH THE A SSESSEE. THUS, THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 33,48,760/- ON ACCO UNT OF BROKERAGE PAID TO PPL FOR THE ASSESSMENT YEAR 2005-06 AND RS.32,12,410/- FOR ASSESSMENT YEAR 2006-07. 7 SHRI JITENDRA J MEHTA 11.1 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. 12 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSEE PURCHASES THE DEPB/DFRC LICENSES FROM THE LICENSE H OLDERS AND RESELL TO THE PARTIES WHO ARE INTERESTED TO UTILIZE THOSE LICENSES. UN DER THESE LICENSES, IMPORT OF PARTICULAR OR SPECIFIC ITEM CAN BE MADE UPTO A SPEC IFIC AMOUNT WITHIN A PRESCRIBED TIME. IF THE TIME EXPIRES, THEN SUCH DEPB/DFRC LIC ENSES ARE OF NO USE AND GOES WASTE WHICH MAY RESULT INTO DIRECT LOSS TO THE HOLD ER OF SUCH LICENSE. THE LD AR HAS SUBMITTED THAT DUE TO A PECULIAR FEATURE OF THE BUS INESS WHERE THERE IS NO PURCHASE OR SALE OF COMMODITY BUT THERE IS A PURCHASE AND SA LE OF LICENSE UNDER WHICH A PARTICULAR ITEM CAN BE IMPORTED WITHIN A SPECIFIED TIME, IT BECOMES NECESSARY FOR THE ASSESSEE TO SELL THE LICENSES WITHIN ITS VALIDI TY PERIOD; OTHERWISE, THE ASSESSEE HAS TO SUFFER A HUGE LOSS ON THIS ACCOUNT. IN ORDER TO AVOID THE LOSSES, THE ENTIRE BUSINESS OF BUYING AND SELLING OF LICENSES ARE DONE THROUGH BROKERS. WITHOUT THE HELP OF THE BROKER, THIS TYPE OF BUSINESS CANNOT BE DONE PROFIT ABLY. ONCE THE BROKER IS ENGAGED TO SELL OR PURCHASE A PARTICULAR LICENSE THE BROKER AGE IS PAYABLE TO HIM WHETHER THE PURCHASE AND SALE OF LICENSES IS THROUGH IT OR NOT. THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS APPOINTED M/S PANJAK POLYMERS LTD (PPL ) FOR PURCHASE AND SELL OF A SPECIFIC DEPB LICENSE ON THE UNDERSTANDING THAT BRO KERAGE WILL BE PAID TO THEM IF SUCH LICENSES ARE PURCHASED OR SOLD BY THE ASSESSEE . M/S PPL HAS INTRODUCED VARIOUS PARTIES WITH WHOM SUCH DEPB LICENSES WERE AVAILABLE FOR PURCHASE/SALE. BASED ON THEIR INFORMATION AND DETAILS, THE ASSESSEE HAS PUR CHASED/SOLD DEPB/DFRC LICENSES TO VARIOUS PARTIES, THE DETAILS OF WHICH WERE FILED BEFORE THE ASSESSING OFFICER. 12.1 THE AR OF THE ASSESSEE HAS POINTED OUT THAT TH E BROKERAGE WAS PAID BY THE ASSESSEE ONLY AND NOT BY THE OTHER PARTIES BECAUSE THE BROKERS WERE APPOINTED BY 8 SHRI JITENDRA J MEHTA THE ASSESSEE AND NOT BY THE OTHER PARTIES. THE ASS ESSEE HAS NOT PAID ANY COMMISSION TO ANY OTHER PARTIES FOR PURCHASE AND SA LE OF LICENSE, EXCEPT TO THE BROKERS WITH RESPECT TO THE TRANSACTIONS, WHICH WER E CARRIED WITH THE PARTIES INTRODUCED BY THE BROKER. SOME OF THE PARTIES HAD DIRECTLY APPROACHED TO THE ASSESSEE AND ACCORDINGLY LICENSES WERE PURCHASED/ SOLD TO THEM WITHOUT DIRECT INVOLVEMENT OF PPL; BUT SOME PARTIES WERE INTRODUCE D BY THE BROKER; THEREFORE, THE BROKERAGE WAS PAYABLE BECAUSE OF THE BUSINESS WERE GENERATED THROUGH BROKER. 12.2 THE LD AR OF THE ASSESSEE HAS FURTHER SUBMITT ED THAT THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE PARTIES HAVE CONFIRMED THE TRANSACTION WITH THE ASSESSEE BUT HAVE DENIED THE INVOLVEMENT OF ANY BROKER. THE BR OKER WAS APPOINTED BY THE ASSESSEE AND THE BROKERAGE HAS BEEN PAID BY THE ASS ESSEE ONLY; THUS THE NAME OF THE BROKER DOES NOT APPEAR IN THE BOOKS OF THE PART IES. HE HAS FURTHER SUBMITTED THAT WHEN THE OTHER PARTY HAS NOT PAID ANY BROKERAG E TO PPL THEN, IN THE ABSENCE OF SUCH PAYMENT IN THEIR BOOKS OF ACCOUNT, THE PART IES MAY NOT BE IN A POSITION TO CONFIRM THE INVOLVEMENT OF THE BROKER AFTER THE EXP IRY OF THREE YEARS AND THE POSSIBILITY OF EMPLOYEES, WHO WERE AWARE OF SUCH TR ANSACTION MAY HAVE LEFT THE ORGANISATION OR TRANSFERRED TO OTHER DEPARTMENT. 12.3 THE LD AR OF THE ASSESSEE HAS REITERATED THAT THERE IS A PREVAILING PRACTICE IN THE BUSINESS OF PURCHASE AND SALE OF DEPB/DFRC LICE NSES THAT THE SAME HAS TO BE DONE THROUGH BROKER. ONCE THE BROKER IS ENGAGED, EV EN IF THE SALE IS MADE DIRECTLY OR THROUGH OTHER BROKERS, THE BROKERAGE IS PAYABLE TO HIM. THE LD AR OF THE ASSESSEE HAS CITED THE EXAMPLE OF SOLE SELLING AGENT AND SUB MITTED THAT THE COMPANY HAS TO PAY COMMISSION TO THE SOLE SELLING AGENCY EVEN ON T HE SALE WHICH IS NOT AFFECTED THROUGH THEM BUT WHICH ARE DIRECTLY MADE BY THE COM PANY. THIS NORMAL PRACTICE 9 SHRI JITENDRA J MEHTA PREVAILS IN THE TRADE AND BUSINESS. THE REASON IS THAT THE BROKERS DIRECTLY OR INDIRECTLY PROMOTE THE SALE OF PRODUCTS. SIMILARLY, IN THE CA SE OF THE ASSESSEE, ONCE THE BROKER IS ENGAGED TO PURCHASE OR SALE OF LICENSES, THE BRO KER THROW THE INFORMATION ABOUT SUCH LICENSES IN THE OPEN MARKET. 12.4 THE LD AR HAS FURTHER SUBMITTED THAT M/S PPL I S A PUBLIC LIMITED COMPANY AND AS PER THE BOOKS OF ACCOUNT, THE SAID COMPANY HAS E ARNED COMMISSION AND BROKERAGE INCOME OF RS. 1,06,42,538/- DURING THE YE AR UNDER CONSIDERATION OUT OF WHICH THE ASSESSEE HAS PAID ONLY RS. 34.22 LACS. TH IS SHOWS THAT THE BALANCE AMOUNT OF RS. 72.20 LACS HAS BEEN EARNED BY WAY OF COMMISS ION FROM OTHER PARTIES AND THUS, IT IS CLEAR THAT THE SAID COMPANY IS IN THE BUSINES S OF COMMISSION AND BROKERAGE IN ADDITION TO THE MANUFACTURING BUSINESS. 12.5 HE HAS FURTHER SUBMITTED THAT IN THE IMMEDIATE PRECEDING YEAR, THE SAID COMPANY HAS EARNED BROKERAGE COMMISSION OF RS. 1.68 CRORES. THEREFORE, THE ASSESSEE IS IN THE BUSINESS OF BROKERAGE ON PURCHAS E AND SALE OF DEPB/DFRC LICENSES WITH PPL. HENCE, THE PAYMENT OF BROKERAGE ON PURC HASE AND SALE OF DEPB/DFRC LICENSES TO M/S PPL IS GENUINE BUSINESS TRANSACTION S. THE ASSESSEE HAS PAID BROKERAGE NET OF TDS TO M/S PPL. IN SUPPORT OF HIS CONTENTION, THE LD AR REFERRED THE BALANCE SHEET OF M/S PPL. HE HAS FURTHER POINTED OU T THAT THE ASSESSING OFFICER HIMSELF HAS PARTLY ALLOWED THE BROKERAGE PAYMENT AN D IN VIEW OF THE ACCEPTED FACT OF PAYMENT OF BROKERAGE BY THE ASSESSEE, THE DEDUCT ION IS FULLY ALLOWABLE U/S 37 OF THE I T ACT. 12.6 ON THE OTHER HAND, THE LD DR HAS HEAVILY RELIE D UPON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHEN THE OTHER PARTI ES HAVE CLEARLY DENIED THE INVOLVEMENT OF BROKER AND PAYMENT OF BROKERAGE, THE N, THERE IS NO QUESTION OF SERVICES HAVING BEEN RENDERED BY THE BROKER AND PAY MENT OF BROKERAGE BY THE 10 SHRI JITENDRA J MEHTA ASSESSEE. THE ASSESSEE HAS NOT DISPUTED THAT THE O THER PARTIES HAVE DIRECTLY APPROACHED THE ASSESSEE AND WITHOUT ANY ASSISTANCE OF THE BROKER. THUS, THE ASSESSEE HAS FAILED TO PROVE THAT THE BROKER HAS A CTUALLY RENDERED ANY SERVICES IN THE TRANSACTIONS OF PURCHASE AND SALE OF DEPB/DFRC LICENSES. 13 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWED THE PA RT OF THE BROKERAGE PAID BY THE ASSESSEE. IN RESPONSE TO THE SUMMONS ISSUED TO THE PARTIES TO THE SALE AND PURCHASE TRANSACTIONS OF DEPB/DFRC LICENSES; IT WAS DENIED T HAT ANY BROKER WAS INVOLVED IN THE TRANSACTION. THE ASSESSING OFFICER HAS RECOR DED IN THE ASSESSMENT ORDER THAT ALL THESE PARTIES, EXCEPT THREE HAVE CONFIRMED HAVING T RANSACTIONS WITH THE ASSESSEE; BUT THEY HAVE DENIED THE INVOLVEMENT OF ANY BROKER AND PAYMENT OF BROKERAGE. IT IS TO BE NOTED THAT THE PAYMENT OF BROKERAGE HAS NO T BEEN DISPUTED BY THE ASSESSING OFFICER. IT IS ALSO NOT DISPUTED THAT TH E BROKERAGE HAS BEEN PAID AFTER DEDUCTION OF TDS. IT IS NOT THE CASE OF THE REVENU E THAT THE RECIPIENTS OF THE BROKERAGE HAVE EITHER DENIED OR DISPUTED THE AMOUNT RECEIVED ON ACCOUNT OF BROKERAGE FROM THE ASSESSEE. THE SOLE BASIS OF DIS ALLOWANCE BY THE ASSESSING OFFICER IS THE RESPONSE TO THE SUMMONS ISSUED TO THE OTHER PARTIES. 13.1 IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS NOT CLAIMED THAT THE BROKERAGE, IN THESE TRANSACTIONS, WAS PAID BY BOTH THE PARTIES. W HEN THE ASSESSEE IS ENGAGED/APPOINTED THE BROKER FOR INTRODUCTION OF TH E PARTY AND THEREAFTER IF THE BUSINESS HAS BEEN TRANSACTED BETWEEN THE ASSESSEE A ND THE OTHER PARTIES, THEN, THE PAYMENT OF BROKERAGE CANNOT BE DISPUTED SOLELY ON T HE GROUND THAT THE OTHER PARTY HAS NOT APPOINTED ANY BROKER AND THEREFORE, HAS NO T PAID ANY BROKERAGE. THE PAYMENT OF BROKERAGE BY THE ASSESSEE IS AN INDEPEND ENT TRANSACTION BETWEEN THE ASSESSEE AND THE BROKER AND NOTHING TO DO WITH THE PAYMENT OF THE BROKERAGE BY 11 SHRI JITENDRA J MEHTA THE OTHER PARTIES. WHEN THE PAYMENT WAS NOT DISPUTE D BY THE RECIPIENT OF THE BROKERAGE AGAINST THE TRANSACTION OF THE PURCHASE A ND SALE OF DEPB/DFRC LICENSES THEN THE DISALLOWANCE OF THE CLAIM OF THE ASSESSE E BY THE ASSESSING OFFICER IS NOT JUSTIFIED. THE OTHER PARTIES HAVE ACCEPTED THE TRAN SACTIONS OF SALE AND PURCHASE OF DEPB/DFRC LICENSES WITH THE ASSESSEE THEN, THE CLAI M OF PAYMENT OF BROKERAGE HAS TO BE DECIDED ON THE BASIS OF THE BUSINESS TRANSACT ION OF THE ASSESSEE AND NOT ON THE BASIS THE FACT THAT THE OTHER PARTIES HAVE NOT APPOINTED ANY BROKER AND PAID ANY BROKERAGE. THE ASSESSING OFFICER HAS DOUBTED TH E SERVICES RENDERED BY THE BROKER AND INFERRED THAT THE BROKERAGE WAS PAID WIT HOUT ANY ACTUAL SERVICES RENDERED BY THE ASSESSEE SOLELY ON THE FACT THAT TH E OTHER PARTIES TO THE TRANSACTIONS OF SALE AND PURCHASE DID NOT PAY ANY BROKERAGE. WH EN THE ASSESSEE IS IN THE BUSINESS OF SALE AND PURCHASE OF DEPB/DFRC LICENSES AND THERE IS A TIME LIMIT OF VALIDITY OF THE SAID LICENSE THEN THE RISK INVOLVED IN THE TRANSACTION OF PURCHASE AND SALE DUE TO EFFLUX OF TIME IS OF THE ASSESSEE AND T O MITIGATE THE SAID RISK, THE ASSESSEE HAS AVAILED THE SERVICES OF THE BROKER FOR INTRODUC TION OF THE PARTIES, WHO ARE INTERESTED IN PURCHASE OR SELLING OF DEPB/DFRC LICE NSES. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE PAYMENT OF BROKERAGE IS NOT P REVAILING IN SUCH KIND OF BUSINESS AND THE BROKER TO WHOM PAYMENT WAS MADE WAS NOT IN THE BUSINESS OF BROKERAGE. THEREFORE, ONCE THE PAYMENT OF THE SAID AMOUNT, AFT ER DEDUCTION OF TDS TO THE BROKER HAS NOT BEEN DISPUTED THEN, THE REASON FOR D ISALLOWANCE THAT THE OTHER PARTIES HAVE NOT PAID ANY BROKERAGE, IN OUR OPINION IS HIGHLY IMPROPER AND UNJUSTIFIED. THE ASSESSING OFFICER, INSTEAD OF VER IFYING THE FACTS FROM THE BROKER ITSELF, CONDUCTED ENQUIRY FROM THE OTHER PARTIES, WHO HAVE ACCEPTED THE TRANSACTIONS WITH THE ASSESSEE OF SALE AND PURCHASE OF DEPB/DFRC LICENSES BUT DENIED ANY PAYMENT OF BROKERAGE. ONCE THE TRANSACTIONS OF SAL E AND PURCHASES ARE FOUND GENUINE AND ACTUAL PAYMENT OF THE AMOUNT, AFTER TDS IS NOT DISPUTED, THEN, IN THE 12 SHRI JITENDRA J MEHTA FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT APPR OVE THE VIEW OF THE LOWER AUTHORITIES IN REFUSING/DISALLOWING THE CLAIM OF TH E ASSESSEE. 13.2 THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY DIRECT EVIDENCE OR FACT SHOWING THAT THE CLAIM OF THE ASSESSEE IS NOT GENUINE AND N O SERVICE WAS RENDERED BY THE BROKER; INSTEAD, THE ASSESSING OFFICER INFERRED AND PRESUMED THAT THE TRANSACTION OF PAYMENT OF BROKERAGE IS NOT GENUINE SINCE THE OTHER PARTIES TO THE SALE AND PURCHASE OF DEPE/DFRC LICENSES HAS NOT PAID ANY BRO KERAGE. WHEN THE TRANSACTION OF SALE AND PURCHASE AND PAYMENT OF THE AMOUNT ON A CCOUNT OF BROKERAGE, AFTER DEDUCTION OF TDS HAS NOT BEEN DISPUTED, THEN IN THE ABSENCE OF ANY DIRECT EVIDENCE OR MATERIAL TO INDICATE THE NON GENUINEIT Y OF THE TRANSACTIONS, THE CLAIM OF THE ASSESSEE CANNOT BE DISALLOWED. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE ON THIS ACCOUNT. 14 GROUND NO,3 IS REGARDING DISALLOWANCE OF VARIOU S EXPENSES: 14.1 MOTOR CAR EXPENSES, DEPRECATION ON MOTOR CAR: THE AO DISALLOWED 10% OF THE TOTAL MOTOR CAR EXPENSES AND DEPRECIATION ON MO TOR CAR ON THE GROUND OF PERSONAL USE BY THE ASSESSEE AND HIS FAMILY MEMBERS . 14.2 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALL OWANCE BY OBSERVING THAT THE ASSESSEE HAS NOT BROUGHT OUT ANYTHING ON RECORD TO INDICATE THAT HE HAD A MECHANISM IN PLACE TO IDENTIFY THE USE OF THE MOTOR CAR FOR NON-BUSINESS PURPOSES. 15 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE THE ASSESSEE IS AN INDIVI DUAL AND NOTHING HAS BEEN BROUGHT ON RECORD THAT THE ASSESSEE IS USING A SEPA RATE CAR FOR ITS PERSONAL USE, THE PERSONAL USE OF THE VEHICLE CANNOT BE RULED OUT. A CCORDINGLY, 10% OF DISALLOWANCE 13 SHRI JITENDRA J MEHTA ON MOTOR CAR AND DEPRECIATION ON MOTOR CAR, IN OUR OPINION IS PROPER AND JUSTIFIED. ACCORDINGLY, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. 15 TELEPHONE EXPENSES: THE ASSESSING OFFICER DISALLOWED 5% OF THE TOTAL TELEPHONE EXPENSES ON THE GROUND OF PERSONAL USE BY THE ASSESSEE AND HIS FAMILY MEMBERS. 15.1 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALL OWANCE ON SIMILAR GROUND AS OF MOTOR CAR EXPENSES AND MOTOR CAR DEPRECATION 16 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE THE ASSESSEE IS AN INDIVI DUAL THE PERSONAL USE OF TELEPHONE CANNOT BE RULED OUT. ACCORDINGLY, 5% OF DISALLOWAN CE ON TELEPHONE EXPENSES, IN OUR OPINION IS PROPER AND JUSTIFIED. ACCORDINGLY, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSU E. 17 PROPORTIONATE EXPENSES U/S 14A: THE ASSESSEE RECEIVED INTEREST OF RS.49,11,002/- ON GOVT OF INDIA BOND AND DIVIDEND OF RS. 31,59,500/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLO WED PROPORTIONATE EXPENSE IN THE RATIO OF EXEMPT INCOME AND TOTAL REVENUE OF ASSESSE ES BUSINESS. ON APPEAL, THE CIT(A) CONCURRED THE VIEW OF THE ASSESSING OFFICER. 17.1 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMI TTED THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE AS NO EXPENDITURE DI RECTLY OR INDIRECTLY HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME. HE HAS FURTHER SUBMITTED THAT THE DIVIDEND INCOME IS RECEIVED THROUGH ELECTRONIC CLEA RING SYSTEM (ECS) AND INTEREST ON RBI BOND IS ACTUALLY NOT RECEIVED BY THE ASSESSE E BUT ACCRUED IN THE BOOKS OF ACCOUNT AGAINST WHICH NO EXPENSES ARE INCURRED. UN DER THE PROVISIONS OF SEC. 14 SHRI JITENDRA J MEHTA 14A(1) PROPORTIONATE OF THE EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME CAN BE MADE ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM IN RESP ECT OF SUCH EXPENDITURE. THE LD AR VEHEMENTLY STRESS THAT WHEN THERE IS NO EXPENDITUR E INCURRED TO EARN THE EXEMPT INCOME THEN, THE QUESTION OF DETERMINING SUCH EXPE NDITURE U/S 14A DOES NOT ARISE. HE HAS POINTED OUT THAT FOR THE ASSESSMENT YEAR 200 6-07, THE ASSESSING OFFICER APPLIED RULE 8D AND THE DISALLOWANCE WAS MADE AT .0 .5% OF THE AVERAGE VALUE OF INVESTMENT. 17.2 ON THE OTHER HAND, THE LD DR HAS RELIED UPON T HE ORDERS OF THE LOWER AUTHORITIES. 18 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE IS COMMON IN BOTH T HESE APPEALS OF THE ASSESSEE. FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSING OFFIC ER DISALLOWED A SUM OF RS. 39,901/- U/S 14A IN THE RATIO OF EXEMPT INCOME AND THE TOTAL REVENUE OF ASSESSEES BUSINESS WHEREAS THE FOR ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER APPLIED RULE 8D AND DISALLOWANCE WAS MADE AT RS.46, 965/- TO THE AVERAGE INVESTMENT. 18.1 SINCE THE ISSUE IS NOW SETTLED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG P LTD VS DCIT REPORTED IN 328 ITR 81; THEREFORE, WE RESTORE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION CITED SUP RA AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 19 FOREIGN TRAVELLING EXPENSES: THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INCURRED BUSINESS PROMOTION EXPENSES OF RS. 4,6 9,658/- WHICH INCLUDES THE 15 SHRI JITENDRA J MEHTA EXPENSES ON HOTEL BILLS, RESTAURANTS ETC. THE ASSES SING OFFICER DISALLOWED 10% OF THE EXPENDITURE ON THE GROUND THAT PERSONAL NATURE INCU RRED BY THE ASSESSEE AND HIS FAMILY MEMBERS CANNOT BE RULED OUT. ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 20 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE THE ASSESSEE IS AN INDIVI DUAL AND NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ENTIRE EXPENDITU RE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE; THEREFORE, ELE MENT OF PERSONAL EXPENDITURE CANNOT BE RULED OUT. ACCORDINGLY, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. 21 THE REMAINING GROUND RELATES TO CHARGING OF INTE REST U/S 234B. 22 SINCE CHARGING OF INTEREST IS MANDATORY AND CO NSEQUENTIAL IN NATURE AND HENCE NO ADJUDICATION IS REQUIRED ON THIS ISSUE. ITA NO. 170/MUM/2010 (AY 2006-07) 23 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUND IN THIS APPEAL: I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 7,52,279 /- CALCULATED U/S 14A OF THE IT ACT CALCULATED BY APPLYING PROVISION OF RULE 8D OF THE I T RULES 1962. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A) HAS ERRED IN UPHOLDING AND CONFIRMING THE DISALLOWANCE OF BROKERAGE PAID TO RS. 32,12,410/- TO M/S PANJAK POLYMERS LTD FOR SERVI CES RENDERED FOR ARRANGING THIRD PARTY EXPORTS AND SALE OF DEPB LICENSE. 24 BOTH THESE GROUNDS ARE COMMON IN APPEAL ITA NO.5 438/MUM/2010. SINCE WE HAVE ALREADY GIVEN OUR FINDING ON THESE ISSUES WHIL E DECIDING THE APPEAL FOR 16 SHRI JITENDRA J MEHTA ASSESSMENT YEAR 2005-06; THEREFORE, GROUND NO.1 I S ALLOWED FOR STATISTICAL PURPOSE WHEREAS GROUND NO.2 IS ALLOWED. 25 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 14 TH , DAY OF OCT 2011. SD/ SD/- ( J SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 14 TH ,OCT 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI