INGA PHARMACEUTICALS, MUMBAI V. ACIT 20(1), MUMBAI

ITA 552/MUM/2012

• Counselvise Citation: 55219914 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 26-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Assessee Lawyers: VIMAL PUNMIYA

Judgement Text

I IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI , ,, , BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 552/MUM/2012 (ASSESSMENT YEAR: 2007-08) INGA PHARMACEUTICALS, INGA HOUSE, MAHAKALI CAVES ROAD, ANDHERI (EAST), MUMBAI - 400 093 PAN: AAAFI1286N VS ACIT -20(1), 6 TH FLOOR, PIRAMAL CHAMBER, PAREL, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIMAL PUNMIYA RESPONDENT BY : SHRI SACCHIDANAND DUBEY ! /DATE OF HEARING : 26-11-2014 '#$ !/ DATE OF PRONOUNCEMENT : 09-01-2015 ORDER , , , , PER VIVEK VARMA, J.M. : THE APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER O F CIT(A)-31, MUMBAI, DATED 22.12.2011. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A PARTN ERSHIP FIRM AND IS CONDUCTING THE BUSINESS AS A TRADER AND WHOLESALER DEALER AND EXPORTER OF PHARMA GRADE CHEMICALS. THE ASSESSEE FI RM WAS IN THE SAME BUSINESS EVEN IN THE PRECEDING YEARS. IN THE A SSESSMENT PROCEEDINGS, THE AO NOTICED THAT ALTHOUGH THERE WAS A FALL IN TURNOVER, BUT THE COMMISSION PAID BY IT ARE DIAMETRICALLY OPP OSITE, AS THE COMMISSION PAID HAS INCREASED MANY FOLDS. INGA PHARMACEUTICALS ITA 552/MUM/2012 2 3. ON THIS FACT, THE AO CALLED FOR AN EXPLANATION F ROM THE ASSESSEE, WHO SUBMITTED THAT THE ASSESSEE WAS EXPORTING THE P RODUCTS TO OVER 20 COUNTRIES AND SINCE THE BUSINESS WAS ON A DOWNWA RD SPIRAL, IT APPOINTED A TRADING FIRM IN DUBAI, M/S FIRESTOP TRA DING ESTABLISHMENT TO LOOK AFTER THE SALES AND PAID A CO MMISSION OF RS. 27,23,316/- TO IT. THE AO WAS OF THE VIEW THAT SINC E IN THE PRECEDING YEAR THERE WAS A HIGHER TURNOVER BUT LESS COMMISSIO N BUT IN THE CURRENT YEAR, THE TURNOVER WAS LOWER BUT HIGHER COM MISSION, THIS SHOWED THAT THE PAYMENT WAS NOT FOR THE PURPOSE OF BUSINESS AND HE THEREFORE, DISALLOWED RS. 24,25,570/-. 4. BEFORE THE CIT(A), THE ASSESSEE REITERATED ITS S UBMISSIONS AND PLEADED THAT THE COMMISSION PAID IS FOR THE BUSINES S PURPOSES. 5. THE CIT(A), AFTER CONSIDERING THE FACTS OF THE C ASE, HELD THAT THE COMMISSION PAID TO FIRESTOP COULD NOT BE FOR THE BU SINESS, BECAUSE, THE PARTY WAS BASED IN DUBAI AND THE EXPORTS WERE B EING MADE TO THIRD COUNTRIES AND ALSO NO EVIDENCE WAS AVAILABLE WITH THE ASSESSEE TO PROVE THAT THE PARTY HAS MADE ANY EFFORTS TO BOOST THE BUSINESS OF THE ASSESSEE. 6. THE CIT(A), THEREFORE, SUSTAINED THE DISALLOWANC E. 7. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE I S IN APPEAL. 8. BEFORE US, THE AR REITERATED THE SUBMISSIONS MAD E BEFORE THE REVENUE AUTHORITIES. THE AR SUBMITTED THAT AS IT WA S EVIDENT, THE BUSINESS WAS GOING DOWN AND TO SUSTAIN THE INTERNAT IONAL BUSINESS HAD ENGAGED FIRESTOP, WITH WHOM, THE ASSESSEE ENTER ED INTO AN AGREEMENT (PLACED IN THE APB) AND IT WAS SHOWN THAT THE SAID CONCERN INTRODUCED 54 PARTIES TO THE ASSESSEE, WITH WHOM, T HE ASSESSEE WAS ABLE TO CONDUCT THE BUSINESS. THE AR ALSO SUBMITTED THAT WHATEVER INGA PHARMACEUTICALS ITA 552/MUM/2012 3 PAYMENT WAS MADE, IT WENT THROUGH REGULAR BANKING C HANNELS AND AS PER RBI GUIDELINES. THE AR FURTHER SUBMITTED THAT A S PER THE AGREEMENT, THE COMMISSION BECAME DUE, ONCE THE SALE S CONFIRMATION WAS RECEIVED FROM THE BUYER PARTY. 9. THE AR ALSO SUBMITTED THAT THE ASSESSEE HAD ENGA GED IN COMMISSION AGENT IN THE BEGINNING OF THE ACCOUNTING YEAR AND THE COMMISSION AGENT HAD BEEN RAISING DEBIT NOTES TO CL AIM ITS REMUNERATION. 10. ON THESE FACTS, THE AR SUBMITTED THAT SINCE THE EXPENSE WAS INCURRED ONLY TO AUGMENT THE BUSINESS, FOR WHICH HE PRODUCED DETAILED EVIDENCE, THAT THE EXPENSE, AS INCURRED BY THE ASSE SSEE HAD A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. HENCE THE EXPENSE, AS CLAIMED SHOULD BE ALLOWED. 11. THE DR ON THE OTHER HAND SUBMITTED THAT THE REV ENUE AUTHORITIES HAD DISALLOWED THE PAYMENT OF COMMISSIO N ON THE GENUINE REASON THAT THE TURNOVER WAS COMING DOWN AND AS A C ORRESPONDING INFERENCE, THE COMMISSION SHOULD HAVE COME DOWN AS WELL BUT CONVERSELY, IT WAS GOING UP. BESIDES THIS, THE GP, IF COMPARED WITH THE PRECEDING YEAR, WAS MUCH LOWER. FROM THE CHART, THE COMPARATIVE GP WAS 43% IN THE PRECEDING YEAR, AS COMPARED WITH 21% DECLARED IN THE CURRENT YEAR. 12. THE DR, THEREFORE, SUBMITTED THAT NO ADVERSE IN FERENCE SHOULD BE DRAWN TOWARD THE ADDITION AS MADE BY THE REVENUE AUTHORITIES. 13. WE HAVE HEARD THE ARGUMENTS FROM EITHER SIDES A ND HAVE PERUSED THE ORDERS AS WELL AS THE SYNOPSIS SUBMITTE D BEFORE US DURING THE COURSE OF HEARING. INGA PHARMACEUTICALS ITA 552/MUM/2012 4 14. THE AR HAS GIVEN THE CHART OF COMPARATIVE GP WH EREIN HE EXPLAINED THE EXTRA ORDINARY JUMP IN THE GP IN THE PRECEDING YEAR. HE EXPLAINED THAT IN THE PRECEDING YEAR, THE ASSESSEE EXECUTED ORDERS FROM SAGO TRADING CO., WHO HAD GIVEN BULK ORDERS OF OVER RS. 7 CRORES, BECAUSE OF WHICH THE TURNOVER ALONG WITH GP MADE A QUANTUM JUMP AND CAME BACK TO THE USUAL TURNOVER WITH GP IN THE CURRENT YEAR. 15. BESIDES THIS, THE SALES WERE IN ANY CASE ON DEC LINE. TO MAINTAIN THE BUSINESS THE ASSESSEE HAD TO APPOINT COMMISSION AGENT, TO WHOM THE ASSESSEE PAID THE COMMISSION IN DUBAI THROUGH B ANKING CHANNELS AND IN ACCORDANCE WITH THE RBI GUIDELINES. THE AR A LSO DEMONSTRATED TO US, THAT THIS PARTY, M/S FIRESTOP TRADING INTROD UCED 54 NEW PARTIES/CLIENTS TO THE ASSESSEE, WITH WHOM THE ASSE SSEE WAS ABLE TO CONDUCT ITS BUSINESS. 16. WE ACCEPT THAT THE MODUS OPERANDI AND THE CONDU CT OF BUSINESS IS THE PREROGATIVE OF THE ASSESSEE AND NOT THAT OF THE REVENUE AUTHORITIES. IT IS NOT EXPECTED OF THE ASSESSEE TO RUN TO THE REVENUE AUTHORITIES AND SEEK GUIDANCE, AS TO HOW TO RUN THE BUSINESS. REVENUE AUTHORITIES CANNOT AND ARE NOT IN A POSITION TO ASC ERTAIN THE MARKET POSITION AND TRENDS AND DETERMINE THE MODUS OF THE BUSINESS. WE FIND THAT THE DECISION OF PUNE ITAT IN THE CASE OF KASAT TEXTILES PVT. LTD. VS ACIT, REPORTED IN 66 ITD 510, ALSO SUPPORT THE ARGU MENT OF THE AR, HOLDING THAT THE INFORMATION IN THE BOOKS OF ACCOUN T HAVE TO BE ACCEPTED UNLESS PROVED WRONG BY THE REVENUE AUTHORI TIES THROUGH CONCRETE EVIDENCE. 17. WHEN THE REVENUE AUTHORITIES ACCEPTED THE AUDIT ED BOOKS TO BE CORRECT AND SHOWING CORRECT RESULTS, THE AO CANNOT PROCEED TO MAKE AN ADDITION OF ASSUMED DISCREPANCY. INGA PHARMACEUTICALS ITA 552/MUM/2012 5 18. WE TAKE SUPPORT FROM THE DECISIONS OF ITAT MUMB AI IN THE CASE OF DRESSER VALVE INDIA (P) LTD. VS ACIT, REPORTED I N 30 SOT 495, WHEREIN IT WAS HELD, IT WAS NOT THE CASE OF THE REVENUE THAT THE SAID P AYMENTS WERE MADE IN VIOLATION OF ANY LAWS, SUCH AS, THE PREVENT ION OF THE CORRUPTION ACT, ETC. ITS CASE REVOLVED AROUND THE DI SCHARGING OF THE ONUS IN MATTERS OF SUBMITTING THE DETAILS OF RE NDERING OF THE SERVICES. THE SAID OBJECTION OF THE REVENUE WAS NOT BONA FIDE IN THE LIGHT OF THE DETAILS FURNISHED BY THE ASSESSEE. FROM THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSE E AND 'P', IT WAS EVIDENT THAT THE COMMISSION AGENT WAS UNDER AN OBLIGATION TO GENERATE THE DEMAND AND ALSO TO FIND OUT THE REQUIREMENTS FOR THE PRODUCTS OF THE ASSESSEE FROM THE CORPORATES SUCH AS THE NTPC AND THE UPSEB AND PROCU RE THE ORDERS. ACCORDINGLY, THE ASSESSEE GOT THE ORDERS THR OUGH THE AGENT AND COMMISSION WAS PAYABLE. IN THE PROCESS, T HE ASSESSEE FURNISHED REQUISITE BASIC INFORMATION TO T HE ASSESSING OFFICER, WHO WAS NOT SATISFIED WITH THE SAID INFORM ATION. CONSIDERING THE QUANTUM OF INFORMATION AVAILABLE WI TH THE ASSESSING OFFICER IN THE MATTER, THE ASSESSING OFFICE R SHOULD HAVE ATTEMPTED TO DISPROVE THE CONTENTS OF THE AGEN CY AGREEMENT OR THAT PAYMENTS MADE THROUGH THE BANKS W ERE BOGUS OR MONEY HAD COME BACK TO THE ASSESSEE BY WAY OF CASH, ETC., AND IN THE PROCESS THE ASSESSING OFFICER HAD N OT DONE HIS PART OF THE DUTY IN THE MATTER. THUS, THE ASSESSEE HAD DISCHARGED THE DUTY OF FURNISHING THE BASIC INFORMA TION. THEREFORE, THE ASSESSEE WAS ENTITLED TO DEDUCTION A S CLAIMED. AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS SUZLONG ENERGY LTD., REPORTED IN 33 TAXMAN.COM 151, WHEREIN IT WAS HELD, FROM THE ABOVE, IT COULD BE SEEN THAT THE ENTIRE I SSUE HINGES ON APPRECIATION OF MATERIAL ON RECORD. THE COMMISSIONE R AS WELL AS THE TRIBUNAL CONCURRENTLY HELD THAT THERE WAS SUFFI CIENT EVIDENCE ON RECORD OF THE ASSESSEE HAVING PAID COMMISSION TO THE AGENTS WHO HAD RENDERED SERVICE AS PER THE AGREEMENTS. SUC H PAYMENTS WERE MADE THROUGH CHEQUES AND WERE FOUND T O BE GENUINE. COMMISSION AGENTS IN NO WAY RELATED TO THE ASSESSEE- COMPANY AND THE PAYMENTS WERE DULY REFLECTED IN THE IR INCOME- TAX RETURNS. UNDER THE CIRCUMSTANCES, WE HAVE NO REASON TO INTER FERE. THIS QUESTION IS THEREFORE, NOT ENTERTAINED. 19. THE SUBMISSION OF THE AR THAT ONCE THE TRANSACT ION(S) ORIGINATE FROM AN AGREEMENT AND THE PAYMENTS ARE MADE THROUGH BANKING CHANNELS THE AO CANNOT PROCEED TO DISALLOW THE EXPE NSE, UNLESS HE INGA PHARMACEUTICALS ITA 552/MUM/2012 6 HAS SOME CONCRETE EVIDENCE TO SHOW THAT THE TRANSAC TION WAS BOGUS, CANNOT BE IGNORED. THIS IS AN ACCEPTED JUDICIAL PRI NCIPAL. ONCE THE REVENUE AUTHORITIES ACCEPT THE BOOKS, ALL ENTRIES A RE DEEMED TO BE CORRECT, WHICH WOULD INCLUDE THE COMMISSION PAID TO FIRESTOP TRADING ESTABLISHMENT. 20. WE DO NOT FIND ANY WORD FROM EITHER OF THE REVE NUE AUTHORITIES THAT THE EXPENSE INCURRED WAS BOGUS IN NATURE OR TH AT THERE WAS ANY MALAFIDE INTENT OF THE ASSESSEE WAS INVOLVED. KEEPI NG IN VIEW THE EVIDENCE AS PRODUCED BEFORE US AND THE CASE LAWS CI TED BY THE AR AND TAKEN NOTE OF, WE FIND OURSELVES IN AGREEMENT WITH THE ARGUMENTS OF THE AR. 21. IN THESE CIRCUMSTANCES, WE HOLD THAT THE COMMIS SION PAID WAS GENUINE AND FOR THE PURPOSES OF BUSINESS. 22. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THE IMPUGNED ISSUE AND DIRECT THE AO TO DELETE THE ADDITION AS M ADE AT RS. 24,25,570/-. 23. SINCE ALL THE GROUNDS ARE CONNECTED TO THE ISSU E, AS DECIDED BY US, HERE IN ABOVE, ALL THE GROUNDS ARE TREATED AS A LLOWED. RESULTANTLY, APPEAL, AS FILED BY THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH JANUARY, 2015. SD/- SD/- ( ) ( ) ( ) ( ) ( ) (RAJENDRA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 9TH JANUARY, 2015 INGA PHARMACEUTICALS ITA 552/MUM/2012 7 / COPY TO:- 1) / THE APPLICANT. 2) / THE RESPONDENT. 3) THE CIT (A)-31, MUMBAI. 4) & 20 , MUMBAI / THE CIT-20, MUMBAI. 5) '() , THE D.R. A BENCH, MUMBAI. 6) )*+, COPY TO GUARD FILE. -./ / BY ORDER / / TRUE COPY / / [ 0/12 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * CHAVAN, SR. PS