SHREEJI FINANCIAL SERVICES, THANE V. ITO WD 3(3), THANE

ITA 548/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1257 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-01-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 27-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAYANK PRIYADARSHI
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business income; Principle of natural justice; Additional evidence
• Section: 133(6); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAY ARAGHAVAN (JM) ITA NO.548/MUM/2009 ASSESSMENT YEAR-2005-06 SHREEJI FINANCIAL SERVICES, 5, VIJAY TOWER, DR. LAZRUS ROAD, CHARAI, THANE (W)-400 601 VS. THE ITO, WARD 3(3), VARDAN, WAGLE INDL. ESTATE, THANE (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M. SUBRAMANIAN RESPONDENT BY: SHRI MAYANK PRIYADARSHI O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 27.11.2008 PASSED BY THE LD. CIT(A)-I, MUMBAI F OR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 25.10.2005 DECLARING TOTAL INCOME AT RS. , 3,54,594/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AFTER SC RUTINY AND ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS. 53,93,500/ -. THE AO DISALLOWED EXPENDITURE UNDER THE HEAD PLOUGH BACK & BROKERAG E AMOUNTING TO RS. 50,32,946/-. 3. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED AS FOLLOWS: THE EXPENSES ARE 100% IN CONNECTION WITH BUSINESS. ALL EXPENSES UNDER THE HEAD ARE GENUINE. THE SAID EXPENDITURE I S INCURRED IN ORDER TO GET THE BUSINESS. IN OUR PREVIOUS STATEME NT SUBMITTED WITH AO, IT WAS WRONGLY MENTIONED THAT THE SAID AMOUNTS WERE PAID TO VARIOUS ENTITIES LIKE MODI MOTORS, NAVNIT MOTORS, B ALAJI ALLIANZ INSURANCE ETC. THOUGH THE PAYMENTS ARE MADE TO THE SE ENTITIES ON BEHALF OF OUR CLIENTS. WE HAVE NOT PAID COMMISSION TO ANY OF THESE DEALERS. THE SAID AMOUNTS ARE INCENTIVES GIVEN BY US TO OUR CLIENTS IN ORDER TO APPLY FOR FINANCE THROUGH US. IT INCLU DES PAYMENT OF ITA NO. 548/M/09 2 VEHICLE INSURANCE, RTO TAXES, PAYMENT OF CERTAIN AM OUNT OF VEHICLE VALUE ON BEHALF OF THE CLIENT. WE ARE ATTACHING DE TAILED STATEMENTS OF VARIOUS SUCH PAYMENTS HEREWITH. THE ASSESSEE HAS SHOWN EXPENSE AMOUNT OF RS. 50,32 ,946/- UNDER THE HEAD PLOUGH BACK COMMISSION & BROKERAGE P AID. HOWEVER, THIS FIGURE INCLUDES AMOUNTS PAID UNDER VA RIOUS HEADS. WHILE FILING THE RETURN ALL THESE HEADS OF EXPENSES WERE CLUBBED WRONGLY UNDER ONE EXPENSE HEAD PLOUGH BACK COMMISS ION & BROKERAGE. THIS AMOUNT INCLUDES INCENTIVES GIVEN TO CUSTOMERS FOR AVAILING LOAN THROUGH THE ASSESSEE. MANY FREEBIES ARE OFFERED TO GET THE CUSTOMER. IT INCLUDES INSURANCE PAYMENT, R TO PAYMENT, MAKING PAYMENT OF CERTAIN PERCENTAGE OF CAR VALUE D IRECTLY TO THE DEALER ON BEHALF OF OUR CLIENT. MANY AMOUNTS PAID ARE EXACTLY NOT IN THE NATURE OF COMMISSION PAID. THESE ARE THE MAINL Y SCHEMES DESIGNED BY THE ASSESSEE TO GET THE BUSINESS INCURR ENT TOUGH COMPETITIVE MARKET. WE HAVE INCURRED ALL THESE EXPENSES WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS OF EARNING COMMISSION A S DSA OF HDFC BANK AND SOME OF THE REPLIES RECEIVED ON THE BASIS OF WRONG AS WELL AS MISREPRESENTATION OF FACTS AND INADVERTENT MISTA KES MADE BY OUR REPRESENTATIVE SHOULD NOT DEPRIVE US FROM PROVI NG THE GENUINENESS OF PAYMENTS WHICH WERE MADE WHOLLY AND NECESSARILY FOR EARNING BUSINESS INCOME UNDER THE PECULIAR HIGH LY COMPETITIVE MARKET CONDITIONS UNDER WHICH WE ARE DOING THE BUSI NESS. 4. THE LD. CIT(A) OBSERVED AS FOLLOWS: THE APPELLANT FILED THE DETAILS OF THESE EXPENSES AND FURNISHED NAMES AND ADDRESSED OF 74 PARTIES TO WHOM PLOUGH BA CK & BROKERAGE EXPENSES WERE PAID. THE AO COLLECTED INF ORMATIONS FROM A FEW PARTIES ON RANDOM BASIS U/S. 133(6) WAS ISSUE D SUBMITTED THEIR REPLY TO THE AO. ALL THE 7 PARTIES STATED IN THEIR REPLIES THAT THEY HAD NOT RECEIVED ANY BROKERAGE OR COMMISSION F ROM THE APPELLANT DURING THE F.Y. 2004-05. THE APPELLANT W AS CONFRONTED WITH THE INFORMATION COLLECTED FROM THESE PARTIES. THE APPELLANT GAVE ANOTHER REPLY TO THE AO STATING THEREIN THAT T HE PAYMENTS WERE MADE TO THE CUSTOMERS WHO HAD OBTAINED LOAN FROM TH E HDFC BANK THROUGH THE APPELLANT. NO DOCUMENTARY EVIDENCES WE RE PRODUCED FOR SUPPORTING THE CLAIM. THE AO AFTER DETAILED DI SCUSSION HELD THAT THESE PAYMENTS WERE NOT MADE BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES AND HENCE HE DISALLOWED THE CLAIM OF THE APPELLANT. THE AO ALSO EXAMINED THE N ATURE OF THESE PAYMENTS AND HELD THAT THESE PAYMENTS WERE ALSO DIS ALLOWABLE IN VIEW OF THE PROVISIONS OF SEC. 40(A)(1A) OF THE I.T . ACT, AS THE APPELLANT HAD NOT DEDUCTED TDS FROM THESE PAYMENT S. TO VERIFY THE GENUINENESS OF THE CLAIM OF EXPENDIT URE, INFORMATION UNDER SECTION 133(6) OF THE ACT WAS CAL LED FOR FROM 17 ITA NO. 548/M/09 3 PARTIES ON RANDOM BASIS, OUT OF WHICH, INFORMATION IS RECEIVED FROM 7 PARTIES. FROM THE ABOVE, IT IS CLEAR THAT ALL THE ABOVE PAR TIES HAVE DENIED HAVING RECEIVED ANY COMMISSION/BROKERAGE FRO M THE ASSESSEE. THE RESULT OF THE INQUIRY WAS INTIMATED TO THE ASSESSEE VIDE THIS OFFICE LETTER DT. 19.12.2007. COPIES OF T HE INFORMATION/REPLIES RECEIVED FROM THESE PARTIES WER E ALSO PROVIDED TO THE ASSESSEE. ON THE ABOVE FACT AS EMERGED THR OUGH INQUIRY THAT THE ASSESSEE HAS NOT PAID ANY COMMISSION/BROKERAGE TO THESE PARTIES, VIDE THIS OFFICE LETTER DT. 19.12.2007, TH E ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE ENTIRE EXPENSES OF RS. 50,32,946/- CLAIMED UNDER THE HEAD PLOUGH BACK & BROKERAGE SH OULD NOT BE TREATED AS EXPENDITURE NOT IN CONNECTION WITH BUSIN ESS AND DISALLOWED. THE ASSESSEE HAS ALSO SUBMITTED A NOTE ON PLOUGH B ACK COMMISSION AND BROKERAGE ON 28.12.2007, WHICH READS AS UNDER: THE ASSESSEE HAS SHOWN EXPENSE AMOUNT OF RS. 50,32,946/- UNDER THE HEAD PLOUGH BACK COMMISSION & BROKERAGE. HOWEVER, THIS FIGURE INCLUDES AMOUNTS PAID UNDER VARIOUS HEADS. WHILE FILING THE RETURN, ALL THESE HEADS OF EXPENSES WERE CLUBBED WRONGLY UNDER ONE EXPENSES HEAD. THIS AMOUNT INCLUDES INCENTIVES GIVEN TO CUSTOMERS FOR AVAILING LOAN THROUGH THE ASSESSEE. MANY FREEBIES ARE OFFERED TO GET THE CUSTOMER. IT INCLUDES INSURANCE PAYMENT, RTO PAYMENT, MAKING PAYMENT OF CERTAIN PERCENTAGE OF CA R VALUE DIRECTLY TO THE DEALER ON BEHALF OF CLIENT. THE ASSESSEE VIDE LETTER DT. NIL, RECEIVED IN THIS OFFI CE ON 28.12.2007 HAS REITERATED THE EXPLANATION ALREADY GIVEN BY IT, WHICH IS DISCUSSED HEREIN ABOVE. 5. THE LD. CIT(A) HELD AS FOLLOWS: THE UNDERSIGNED HAS GONE THROUGH FACTS OF THE CASE , THE OUTCOME OF THE INQUIRY AND ASSESSEES ABOVE EXPLANATION. THE APEX COURT, I CIT VS CALCUTTA AGE NCY LTD. 19 ITR 191, HAS HELD THAT ONUS OF PROVING NECESSARY FACTS IN ORDER TO AVAIL THE DEDUCTION U/S . 37(1) IS ON THE ASSESSEE. IF THE ASSESSEE FAILS TO ESTABLISH THE FACTS NECESSARY TO SUPPORT HIS CLAIM FOR DEDUCTION U/S. 37(1), THE CLAIM OF DEDUCTION OF EXPENDITURE IS NOT ADMISSIBLE. THUS, ONUS OF PROOF OF CLAIM OF EXPENDITURE 37(1), THE CLAIM EXPENDITURE 3 7(1) IS CLEARLY ON THE ASSESSEE. IN THIS CASE, THE ASSE SSEE HAS CLAIMED DEDUCTION OF EXPENDITURE UNDER THE HEAD ITA NO. 548/M/09 4 PLOUGH BACK & BROKERAGE WHICH IS ALMOST 68.82% OF T HE GROSS COMMISSION EARNED BY IT. ONUS WAS ON THE ASSESSEE TO PROVE THAT THIS EXPENDITURE WAS GENUINE LY INCURRED BY IT. THIS ONUS IS NOT DISCHARGED BY THE ASSESSEE SATISFACTORILY. AS DISCUSSED ABOVE, ALL T HE ABOVE 7 PARTIES, INFORMATION FROM WHOM WAS CALLED F OR U/S. 133(6) OF THE ACT ON RANDOM BASIS, HAVE CLEARL Y DENIED HAVING RECEIVED ANY COMMISSION OR BROKERAGE FROM THE ASSESSEE. MOREOVER, ONE OF THE PARTIES, ( SHRI GIRISH POOJARI) WHO WAS AN EMPLOYEE OF THE ASSESSEE ON A MONTHLY SALARY OF RS. 2,500 ONLY, TO WHOM THE ASSESSEE CLAIMED TO HAVE PAID COMMISSION OF RS. 42,000/- HAS ALSO DENIED HAVING RECEIVED ANY COMMISSION/BROKERAGE FROM THE ASSESSEE. ALL THESE INSTANCES ITSELF CLEARLY PROVE THAT THE EXPENDITURE DEBITED UNDER PLOUGH BACK & BROKERAGE IS NOT IN CONNECTION WITH BUSINESS. AT THE FAG END OF THE ASSESSMENT, THE ASSESSEE HAS CHANGED HIS EXPLANATIO N AS MUCH AS NOW THE ASSESSEE CLAIMS TO HAVE PAID CERTAIN AMOUNTS TOWARDS INSURANCE, RTO TAXES ON BEHALF OF THEIR CLIENTS. HOWEVER, THIS EXPLANATION OF THE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE. THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE OR CONFIRMATION FROM ANY OF THE CUSTOMERS TO PROVE THA T THE ASSESSEE HAD PAID INSURANCE INSTALLMENT, RTO TAXES ETC. ON BEHALF OF ITS CUSTOMERS. NONE OF THE 7 PA RTIES ENQUIRED WITH, HAVE ALSO CONFIRMED THAT INSURANCE INSTALLMENT, RTO PAYMENTS ETC. WHICH WERE TO BE PAI D BY THEM, WERE ACTUALLY PAID BY THE ASSESSEE ON THEI R BEHALF. HAD THE ASSESSEE OBLIGED THE CUSTOMERS BY PAYING THEIR INSURANCE INSTALLMENTS, RTO TAXES ETC. , THEY WOULD HAVE CERTAINLY CONFIRMED THAT SUCH OBLIGATORY PAYMENTS TO BE MADE BY THEM HAVE ACTUALL Y BEEN PAID BY THE ASSESSEE ON THEIR BEHALF. EVEN THE ASSESSEE HAS ALSO NOT SUBMITTED ANY MATERIAL TO PRO VE THAT SUCH PAYMENTS WERE MADE BY IT ON BEHALF OF THE IR CUSTOMERS. THE ASSESSEE HAS ALSO NOT SUBMITTED ANY DETAILS, BIFURCATION OF SUCH EXPENSES (INSURANCE INSTALLMENT, RTO TAXES ETC.) CLAIMED TO HAVE BEEN INCURRED ON BEHALF OF EACH OF ITS CLIENTS. THEREFO RE, ASSESSEES EXPLANATION SUBMITTED AT VERY LATER STAG E OF THE ASSESSMENT THAT IT HAD INCURRED EXPENDITURE OF PAYMENT OF INSURANCE INSTALLMENTS, RTO TAXES ETC. O N BEHALF OF THE CUSTOMERS IS ALSO NOT ACCEPTABLE. ON THE CONTRARY, THE INFORMATION COLLECTED FROM SOME OF TH E PARTIES ON RANDOM BASIS PROVES THAT THE ASSESSEE HA S ITA NO. 548/M/09 5 BEEN CLAIMING EXPENDITURE SUCH IS NOT WHOLLY AND EXCLUSIVELY IN CONNECTION WITH BUSINESS AS DISCUSSE D ABOVE. ON THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, A S BROUGHT OUT HERE-IN-ABOVE, IT IS PROVED THAT THE ASSESSEES CLAIM OF EXPENDITURE UNDER THE HEAD PLOU GH BACK & BROKERAGE AT RS. 50,32,946/- IS NOT WHOLLY A ND EXCLUSIVELY IN CONNECTION WITH BUSINESS. THEREFORE , THE CLAIM OF SUCH EXPENDITURE OF RS. 50,32,946/- IS DISALLOWED U/S. 37(1) OF THE ACT AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SHRI SUBRAMANIAN EXPLAINED THE VARIOUS WAYS BY WHICH THE ASSESSEE BE ARS SOME OF THE COSTS WHICH WOULD OTHERWISE BE PAID BY THE CUSTOMER S. THE FOLLOWING ARE SOME EXAMPLES: I) THE FIRM PAYS FIRST YEARS INSURANCE PREMIUM OF THE CARS DIRECTLY TO THE INSURANCE COMPANY ON BEHALF OF THE CUSTOMERS. II) THE FIRM PAYS ONE TIME RFTO TAX DIRECTLY TO THE RTO OFFICE ON BEHALF OF THE PURCHASERS. III) SOME OF THE CUSTOMERS INSIST ON ASSESSEE BEAR ING THE COST OF ADDITIONAL ACCESSORIES WHICH ARE NOT PROVIDED BY TH E CAR MANUFACTURERS, SUCH AS CAR RADIO AND OTHER ORNAMENT AL PARTS. IV) SOME OF THE CUSTOMERS INSIST ON PASSING ON THE PART OF THE COMMISSION TO HDFC BANK AND LOWER THE EMI PAYABLE B Y THEM OR V) SOME OF THE CUSTOMERS INSIST ON RETURNING PART O F THE COMMISSION DIRECTLY TO THEM. THE ASSESSEE FIRM HAS BEEN REGULARLY CARRYING ON TH IS BUSINESS FOR THE LAST 4 YEARS AND THIS PRACTICE HAS BEEN ITA NO. 548/M/09 6 REGULARLY FOLLOWED. THE NOMENCLATURES USED IN ACCO UNT WAS COMMISSION AND BROKERAGE OR BUSINESS PROMOTION. DU RING A.Y. 2005-06 THE FIRM HAS USED THE NOMENCLATURE PL OUGH BACK AND BROKERAGE PLOUGH BACK IS THE PHRASE USED BY HDFC BANK IN THE LOAN STATEMENT FOR THE AMOUNT OF COMMISSION RETURNED BACK BY THE ASSESSEE FIRM ON AC COUNT OF THE CUSTOMERS. 7. THE TRIBUNAL ADJOURNED THE CASE ON EARLIER OCCAS ION ASKING FOR THE STATEMENT OF INCENTIVES, DISCOUNTS AND SALE PROMOTI ON EXPENSES FROM WHICH DETAILS OF THE AMOUNT PAID ON WHOSE BEHALF IT WAS PAID, THE PURPOSE OF PAYMENT ETC. COULD BE VERIFIED. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED A DETAILED CHART FOR EVERY SINGL E ITEM OF PAYMENT DISCLOSING THE AMOUNT, THE PERSON WHOM THE CHEQUE W AS ISSUED TO, PURPOSE OF PAYMENT AND ON WHOSE BEHALF IT HAD BEEN PAID. WE ADMIT THIS ADDITIONAL EVIDENCE SINCE IT IS VITAL AND ESSE NTIAL FOR RENDERING JUSTICE AND FOR DECIDING THE APPEALS. HOWEVER, IT IS NECES SARY TO GIVE THE DEPARTMENT A REASONABLE OPPORTUNITY OF REBUTTING IT ACCORDING TO THE PRINCIPLE OF NATURAL JUSTICE AND FOR THAT PURPOSE T HE MATTER IS RESTORED TO THE FILE OF THE AO. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ ITA NO. 548/M/09 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 548/M/09 8 DATE INITIALS 1 DRAFT DICTATED ON: 6.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 6.5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______