DCIT, New Delhi V. M/s. Gulshan Polyols Ltd., Delhi

ITA 5691/DEL/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6541 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Additional evidence; Fair market value; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SH. J. S. REDDY, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO. 5691/DEL/2012 (ASSESSMENT YEAR 2007-08) AND I.T.A NO. 5692/DEL/2012 (ASSESSMENT YEAR 2007-08) ASSESSEE BY : SH. MOHD. SHAHID, CA REVENUE BY : SH. B. RAMAN JANNEYULU, SR. DR DATE OF HEARING : 27.01.2017 DATE OF PRONOUNCEMENT: 16.03.2017 ORDER PER BEENA A. PILLAI, JM: 1. THE PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAIN ST ORDER DATED 01.08.2012 AND 17.08.2012 FOR ASSESSMEN T YEAR 2007-08 PASSED BY LD. CIT (A) 15, NEW DELHI ON THE FOLLOWING GROUNDS OF APPEAL: DCIT CIRCLE- 12(1) NEW DELHI VS. GULSHAN POLYOLS LTD. G-81, PREET VIHAR DELHI. GIR/PAN: AABCG3954F (APPELLANT) (RESPONDENT) DCIT CIRCLE- 12(1) NEW DELHI VS. GULSHAN POLYOLS LTD. G-81, PREET VIHAR DELHI. GIR/PAN: AABCG3954F (APPELLANT) (RESPONDENT) ITA NO. 5691 & 5692/DEL/2012 PAGE 2 OF 10 ITA NO. 5691/DEL/2012 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A] HAS ERRED IN ADMITTING TH E ADDITIONAL EVIDENCE WITHOUT PROVIDING OPPORTUNITY T O A.O. TO VERIFY THE FACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN GIVING A RELIEF OF RS.78,72,763/- OUT OF DISALLOWANCE OF COMMISSION OF RS,98,56,324/-. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN APPLYING A RATE OF COMMISSION OF 2.36% DESPITE THE FACT THAT DURING THE YEAR COMMISSION PAID TO OTHER PARTIES RANGED BETWEEN 1.94%, 2%, 2.04%. 4. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. ITA NO. 5692/DEL/2012 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HIS ORDER DA TED 17.08.2012, PASSED IN CONSEQUENCE TO CIT(A)-XV ORDER NO. 256/11-12 DATED 01.08.2012 WHICH WAS NOT ACCEPTED BY THE REVENUE AND A SECOND APPEAL HAS BEEN RECOMMENDED, WHEREIN HE HAS RESTRICTED THE DISALLOWANCE FROM RS.19,83,561/- TO RS.13,60,965/- OUT OF THE TOTAL DISALLOWANCE OF COMMISSION OF RS. 98,56,324/-. 2. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: ITA NO. 5691 & 5692/DEL/2012 PAGE 3 OF 10 THE ASSESSEE FILED ITS RETURN OF INCOME ON 22.10.20 07 DECLARING A TOTAL INCOME OF RS.1,82,93,259/-. THE C ASE WAS SELECTED FOR SCRUTINY AND ORDER, DATED 22.12.2009 U NDER SECTION 143(3) WAS PASSED COMPLETING THE ASSESSMENT AT ASSESSED INCOME OF RS.1,55,73,945/-. THEREAFTER VID E ORDER DATED 28.09.2010 WAS PASSED UNDER SECTION 263 OF TH E ACT, LD. CIT, NEW DELHI SET ASIDE THE ASSESSMENT ON VARIOUS ISSUES, FOR CARRYING OUT NECESSARY VERIFICATION AND CROSS ENQUI RY TO DETERMIN TRUE NATURE AND CORRECTNESS OF THE ISSUES RAISED IN ORDER PASSED. IN VIEW OF THE DIRECTIONS OF LD. CIT, NOTICES WERE ISSUED UNDER SECTION 143(2) TO ASSESSEE, GIVING OPP ORTUNITY TO PLEAD EVIDENCE AND ARGUMENT IN SUPPORT OF ITS CLAIM . 3. ASSESSING OFFICER MADE ADDITION TO INCOME AT RS. 3,17,97,870/- AS AGAINST THE ASSESSED INCOME OF RS.1,55,73,945/-BY MAKING FOLLOWING ADDITIONS: S.NO. PARTICULARS AMOUNT (IN RS.) 1. ARITHMETICAL MISTAKE IN ADDITION UNDER THE HEAD TRAVELLING EXPENSES 1,00,000 2. DISALLOWANCE OF COMMISSION EXPENDITURE 98,56,324 3. DISALLOWANCE OF EXPENDITURE UNDER THE HEAD RENT 3,60,000 4. DISALLOWANCE OF INTEREST FOR NON-DEDUCTION OF ID S 6,22,596 5. DISALLOWANCE OF INVESTMENT 2,85,000 6. ADDITION ON ACCOUNT OF INCREASE IN SHARE CAPITAL 50,00,000 TOTAL: 1,62,23,920 ITA NO. 5691 & 5692/DEL/2012 PAGE 4 OF 10 4. ASSESSING OFFICER MADE DISALLOWANCE OF RS.98,56,32 4/- ON ACCOUNT OF COMMISSION PAID TO GULSHAN SUGARS AND CHEMICALS LTD., SISTER CONCERN OF THE ASSESSEE, ON THE GROUND THAT THE ASSESSEE DID NOT ESTABLISH REASONABILITY O F THE PAYMENT MADE TO GULSHAN SUGARS AND CHEMICALS LTD., AND ALSO HAVE NOT SPECIFIED ANY SPECIFIC SERVICES RENDE RED BY GULSHAN SUGARS AND CHEMICALS LTD., WHICH PROMPTED T HE ASSESSEE TO MAKE SUCH PAYMENT. 5. AGGRIEVED BY THE ORDER PASSED BY ASSESSING OFFICER ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO DELETED THE ADDITION MADE BY ASSESSING OFFICER. 6. AGGRIEVED BY ORDER PASSED BY LD. CIT(A,) THE REVEN UE IS IN APPEAL BEFORE US NOW. 7. LD. DR SUBMITS THAT LD. CIT(A) HAS PASSED THE ORDE R VIOLATION OF RULE 46A. HE SUBMITTED THAT THE DETAIL S ADVANCED BY ASSESSEE WAS NOT VERIFIED BY LD. AO AND THEREFOR E, ORDER PASSED BY LD. CIT(A) MUST BE SET-ASIDE TO ASSESSING OFFICER. HE PLACED RELIANCE UPON ORDER PASSED BY ASSESSING OFFI CER. 8. ON THE CONTRARY, LD. AR PLACED RELIANCE UPON THE REASONING GIVEN BY LD. CIT(A) FOR DELETING THE ADDI TION IN RESPECT OF THE COMMISSION PAID TO GULSHAN SUGARS AN D CHEMICALS LTD. LD. AR SUBMITTED THAT COMMISSION PAI D TO GULSHAN SUGARS AND CHEMICALS LTD., WAS RS.92,33,728 /- INSTEAD OF RS.98,56,324/-. HE SUBMITTED THAT ASSESS EE PAID INTEREST AMOUNTING TO RS. 6,22,596/- TO ANOTHER GRO UP COMPANY AND THE SUM TOTAL OF THESE PAYMENTS AMOUNTE D TO ITA NO. 5691 & 5692/DEL/2012 PAGE 5 OF 10 RS.98,56,324/-. LD. AR FURTHER SUBMITTED THAT ASSES SING OFFICER HAS NOT DENIED THE INTEREST PAID BY THE ASS ESSEE TO THE GROUP CONCERN; HOWEVER, HE SUBMITTED THAT ASSESSING OFFICER HAS INCLUDED THE SAID SUM BY CONSIDERING IT IN THE COMMISSION PAID BY THE ASSESSEE. 9. LD. AR SUBMITTED THAT ASSESSEE WAS FORMED IN THE Y EAR 2000-01 AS A RESULT OF DEMERGER OF GULSHAN SUGARS A ND CHEMICALS LTD. ON THE MERGER ASSESSEE COMPANY TOOK OVER THE MANUFACTURING UNIT OF BHARUCH, WITH ALL MARKETING A ND NETWORK REMAINING WITH GULSHAN SUGARS AND CHEMICALS LTD. HE SUBMITTED THAT ASSESSEE CONTINUED TO PRODUCE ORB ITAL AS BEFORE THE DEMERGER BUT SINCE IT DID NOT HAVE MARKE TING NETWORK/ARRANGEMENT, IT TOOK SUPPORT FROM GULSHAN S UGARS AND CHEMICALS LTD., WHO HAD ALL THE INDIA MARKETING NETWORK HAVING MARKETING OFFICES IN DELHI, BOMBAY, CHENNAI, AND THAT, BANGALORE, HYDERABAD ETC. 10. LD. AR SUBMITTED THAT IT WAS FOR THE MARKETING SUP PORT ADVANCED BY GULSHAN SUGARS AND CHEMICALS LTD., THAT THE COMMISSION HAS BEEN PAID ON THE SALES SINCE 2000-01 . IT HAS BEEN SUBMITTED THAT SUCH COMMISSION PAID HAS NEVER BEEN DISPUTED BY ASSESSING OFFICER IN THE PAST ASSESSMEN T YEARS. LD. AR REFERRED TO THE FINDINGS RECORDED BY LD. CIT(A) IN PARA 6.2 OF HIS ORDER, WHICH IS AS UNDER: 6.1. FROM THE PERUSAL OF THE ABOVE TABLE, IT IS SE EN THAT DURING THE YEAR UNDER CONSIDERATION THE COMMISSION OF RS.9,81,428 HAS BEEN PAID TO OTHER PARTIES ON THE TO TAL TURNOVER OF RS. 416.16 LACS, WHEREAS TO THEIR OW N SISTER CONCERN I.E. GSCL COMMISSION OF RS. 92,33,728 IS BEI NG ITA NO. 5691 & 5692/DEL/2012 PAGE 6 OF 10 PAID FOR GIVING THE SALES OF RS. 3693 . 49 LACS OUT OF THE TOTAL TURNOVER OF RS. 7313.60 LACS MADE BY THE APPE LLANT IN THE YEAR UNDER CONSIDERATION. IT IS FURTHER OBSER VED THAT AS COMPARED TO LAST YEAR, WHEN THE TOTAL TURNOVER WA S TO THE TUNE OF RS. 4944.21 LACS, THERE HAVE BEEN INCRE ASE IN SALES BY ALMOST 47% (RS. 7313.63 LACS). THIS PHENOM ENAL INCREASE IN SALE, IN MY OPINION FROM THE FACTS AND EVIDENCES FILED IS OBVIOUSLY THROUGH THE SALES AND MARKETING NETWORK OF GSCL. THERE IS NO EVIDENCE WHIC H HAS BEEN BROUGHT ON RECORD BY THE AO TO SHOW THAT TH E COMMISSION PAID BY THE APPELLANT IS BOGUS. WHEREAS O N THE OTHER HAND THE APPELLANT HAS SUBMITTED THE DETAIL S OF VARIOUS SERVICES RENDERED BY GSCL THROUGH THEIR NETWOR K AS A RESULT OF WHICH THERE IS INCREASE IN SALES AS COMPARED TO THE IMMEDIATE PROCEEDINGS YEARS WHICH TOTALLY BELIES THE AO'S ARGUMENTS THAT NO SERVICES WERE GIVEN BY GSCL. 6.2. IT IS PERTINENT TO MENTION HERE THAT FROM FINA NCIAL YEAR 2000-01 TILL 2006-07, THE SALES ARE REGULARLY BEEN MADE THROUGH GSCL AND COMMISSION IS ALSO PAID AND THE RATE O F COMMISSION PAID AS PER BELOW MENTIONED DETAILS, ARE REGULARLY BEEN ALLOWED AS AN EXPENSES BY THE DEPARTMENT. FINANCIAL YEAR TURNOVER THROUGH GSCL (RS. IN LACS) COMMISSION PAID TO GSCL RATE OF COMMISSION ORDER UNDER SECTION 143(3)/143(1) 2000-01 2118.37 43,16,272 2.04% 143(1) 2001-02 2622.51 60,94,483 2.32% 143(1) 2002-03 3245.18 75,28,579 2.32% 143(3) 2003-04 4057.10 87,11,989 2.15% 143(3) 2004-05 4087.16 86,77,358 2.12% 143(3) ITA NO. 5691 & 5692/DEL/2012 PAGE 7 OF 10 2005-06 31.11 63,540 2.04% 143(3) 2006-07 3693.49 92,33,728 2.50% THEREFORE IN THE CIRCUMSTANCES WHEN IN THE YEAR UND ER CONSIDERATION NO NEW EVIDENCES OR FACTS HAVE BEEN BROUGHT ON RECORD BY THE AO THEN AS A MATTER OF CONSISTENCY PRINCIPLE ALSO, THE AO CAN'T TAKE A NEW STAND THAT THE COMMISSION ON SALES MADE BY GSCL IS NOT AN ALLOWABLE EXPENSES. IN COMING TO THIS CONCLUSION, I RELY ON THE APEX COURT'S JUDGMENT IN THE CASE OF 'RADHASWAMI SATSANG VS. CIT (193 ITR 321) (SC) AND BURGAR PAINTS INDIA LTD. VS. CIT (266 ITR 98) (SC) . 6.3. THEREFORE IN VIEW OF THE ABOVE DISCUSSION, I A M OF THE CONSIDERED VIEW THAT THE AO IS NOT CORRECT IN HOLDING THAT COMMISSION PAID GSCL ON ACCOUNT OF SALES MADE BY THE M IS NOT AN ALLOWABLE EXPENSE. 6.4. HOWEVER WITH REGARD TO THE PERCENTAGE OF COMMI SSION PAID IT IS SEEN THAT IN THE YEAR UNDER CONSIDERATION THE COMMISSION PAID TO THE OUTSIDER IS @2.36% WHEREAS, TH E COMMISSION PAID TO GSCL IS @2.50%. THIS REASON FOR EXCESS COMMISSION OF 0.14% PAID TO GSCL AS PER THE APPELLANT'S SUBMISSIONS IS THAT, SINCE THE GSCL IS G IVING A HUGE VOLUME THEREFORE THEY GIVE MORE COMMISSION. THIS PLEA OF THE APPELLANT OF PAYING EXCESS COMMISSION IS NOT ACCEPTABLE BECAUSE WHEN THE SERVI CES ARE AVAILABLE AT A COMMISSION OF 2.36% WHICH IS THE FAIR MARKET VALUE THAN IN VIEW OF PROVISIONS OF SECTION 4 0A (2)(A), I HOLD THAT THE COMMISSION PAID BY THE APPELL ANT TO ITS SISTER CONCERN I.E. GSCL SHOULD BE RESTRICTED TO @2.36% ONLY. 6.5. FURTHER DURING THE COURSE OF APPELLATE PROCEE DINGS THE APPELLANT WAS ASKED TO FILE THE DETAILS OF NEW PA RTIES TO WHOM SALES HAVE BEEN MADE THROUGH GSCL AND ON WHICH COMMISSION @2.50% HAS BEEN PAID, IT IS SEEN FR OM THE DETAILS SO FILED THAT DURING THE YEAR SALES TO TH E TUNE ITA NO. 5691 & 5692/DEL/2012 PAGE 8 OF 10 OF RS.3335.91 LACS HAVE BEEN MADE AND NOT TO THE TUN E OF RS.3693.49 LACS, ACCORDINGLY THE COMMISSION ALLOWAB LE IS RESTRICTED TO RS. 78,72,763. (2.36% ON RS. 33,35,91 ,669) AND BALANCE COMMISSION OF RS. 19,83,561 IS ADDED TO APPELLANT'S INCOME AS BEING EXCESSIVE AND UNREASONA BLE. 11. HE SUBMITTED THAT ASSESSEE HAS NOT DISPUTED THE COMMISSION THAT HAS BEEN DISALLOWED BY LD. CIT (A) BEFORE US. HE THUS SUBMITTED THAT COMMISSION PAID CANNOT BE TR EATED AS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE VOLU ME OF SALES ORGANIZED BY GULSHAN SUGARS AND CHEMICALS LTD., AND THE QUALITIES OF PARTIES INTRODUCED. 12. WE HAVE PRODUCED THE SUBMISSIONS ADVANCED BY BOTH THE PARTIES IN THE LIGHT OF THE RECORDS PLACED BEFORE U S. 13. IT IS OBSERVED FROM THE REASONING GIVEN BY LD. CIT (A) THAT ASSESSEE HAS BEEN CONSISTENTLY MAKING SUCH COMMISSI ON TO GULSHAN SUGARS AND CHEMICALS LTD., SINCE ITS INCEPT ION IN THE YEAR 2000-01 WHICH HAS NOT BEEN DISPUTED BY THE AUT HORITIES BELOW IN THE PRECEDING ASSESSMENT YEARS. IT IS ALSO BEEN OBSERVED BY LD. CIT(A) THAT FOR THE YEAR UNDER CONS IDERATION ASSESSEE HAS EARNED MAXIMUM SALES FROM PREMIUM CUST OMERS LIKE COLGATE-PALMOLIVE INDIA LTD, HINDUSTAN LEVER L TD, DABUR INDIA LTD., AND ASIAN PAINTS LTD., YEAR WISE DETAIL S HAVE BEEN REPRODUCED AND CONSIDERED BY LD. CIT(A) IN HIS ORDE R. THERE HAS BEEN NO DISTINGUISHING FEATURE, BROUGHT ON RECO RD BY LD. AO, IN ORDER TO PROVE THAT, THE COMMISSION PAID DOE S NOT COMMENSURATE WITH SERVICES RENDERED, AND THAT IT IS EXCESSIVE OR UNREASONABLE. THE ASSESSEE HAS ALSO ESTABLISHED CONSISTENCY IN THE PAYMENT OF COMMISSION TO GULSHAN SUGARS ITA NO. 5691 & 5692/DEL/2012 PAGE 9 OF 10 AND CHEMICALS LTD., LD. CIT(A) HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASWAMI SATSANG VS. CIT, REPORTED IN 193 ITR 321 . 14. WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF LD . CIT(A), AS LD. CIT (A) HAS RESTRICTED THE COMMISSION AT 2.3 6% AND THE BALANCE HAS BEEN ADDED BACK TO ASSESSEES INCOME. 15. WE ARE, THEREFORE, INCLINED TO DISMISS THE GROUNDS RAISED BY THE REVENUE FOR ASSESSMENT YEAR 2007-08. 16. INSOFAR AS ITA NO. 5692/DEL/2012 IS CONCERNED, IT IS OBSERVED THAT LD. CIT(A) HAS MERELY RECTIFIED MISTA KES THAT WAS APPARENT ON RECORD IN RESPECT OF DISALLOWANCE THAT HAS BEEN CONFIRMED BY LD. CIT(A). WE DO NOT FIND ANY NECESSI TY TO INTERFERE WITH THE ORDER. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IN ITA 5692/DEL/2012 STANDS DISMISSED. IN THE RESULT APPEAL FILED BY THE REVENUE AS WELL A S ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH, 2017. SD/- SD/- (J. S. REDDY) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 16.03.2017 @M!T