DCIT, New Delhi V. M/s. Nikhil Footwears Pvt. Ltd., New Delhi

ITA 6056/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5127 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 06-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K HAUTHANG
• Assessee Lawyers: S C GUPTA AR SHRI VIKASH GUPTA
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence; Rule 8D
• Section: 37(1); 201; 131

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6056/DEL/2015 (ASSESSMENT YEAR: 2010-11) DCIT, CIRCLE-18(2), NEW DELHI VS. NIK H IL FOOTWEARS PVT. LTD, G-11, MAIN ROHTAK ROAD, UDYOG NAGAR, NEW DELHI PAN: AAACN0749A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K. HAUTHANG, SR. DR ASSESSEE BY: SHRI S. C. GUPTA, AR SHRI VIKASH GUPTA, CA DATE OF HEARING 14/03 / 201 9 DATE OF PRONOUNCEMENT 2 3 / 05 / 2019 O R D E R PER PRASHANT MAHARISHI, A. M. 01. THIS IS AN APPEAL FILED BY DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE 18(2), NEW DELHI [ LD AO] AGAINST ORDER OF LD CO MMISSIONER OF INCOME TAX ( APPEALS ) 42 NEW DELHI [ LD CIT (A) ] DATED 2 6.08.2015 FOR ASSESSMENT YEAR 2010-11. HE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON FACTS AND CIRCUMSTANCES OF CASE AND IN LAW LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF COM MISSION PAYMENTS OF RS. 70,10,500/- AND RS. 1,12,64,515/- T O M/S A. S. MARKETING AND M/S ACTION UDYOG RESPECTIVELY UNDE R SECTION 37(1) OF INCOME TAX ACT, 1961 (ACT) BY RELYING UPON SELF SERVING AND UNVERIFIABLE CLAIMS BY ASSESSEE WITHOUT CONSIDE RING CREDIBLE EVIDENCE RECORDED IN ASSESSMENT ORDER. 2. WHETHER ON FACTS AND CIRCUMSTANCES OF CASE AND I N LAW LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF COM MISSION PAYMENT OF RS. 70.10.500/- TO M/S A. S. MARKETING B Y SELF SERVING AND INCORRECT AND UNVERIFIABLE ADDITIONAL E VIDENCE WITHOUT GRANTING ANY OPPORTUNITY OF BEING HEARD TO AO WITH REFERENCE TO THESE ADDITIONAL EVIDENCES IN VIOLATIO N TO RS. 46A(3) OF INCOME TAX RULES, 1962 (RULES) R.W.S. 250(4) OF ACT? 3. WHETHER ON FACTS AND CIRCUMSTANCES OF CASE AND I N LAW LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF COM MISSION PAYMENT OF RS. 1,12,64,515/- TO M/S ACTION UDYOG BY HOLDING PAGE | 2 THAT PAYMENT TO M/S ACTION UDYOG WAS NOT COMMISSION PAYMENTS BUT SHARING OF PROFIT WITHOUT EVEN CONSIDE RING TERMS AND CONDITIONS OF AGREEMENT DATED 01.04.2009 BETWEE N ASSESSEE AND M/S ACTION UDYOG EVEN AFTER RELYING ON SAME IN ORDER? 4. WHETHER IN FACTS AND CIRCUMSTANCES OF CASE AND I N LAW LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE UNDER SECTION I4A OF ACT READ WITH RULE 8D OF RULES IGNORING A FACT THAT ASSESSEE HAD EARNED TAX EXEMPT INCOME UNDER ACT DURING YEAR UNDE R CONSIDERATION? 5. WHETHER ON FACTS AND CIRCUMSTANCES OF CASE AND I N LAW. ID CIT (A) IS JUSTIFIED IN RELYING ON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF HOLCIM PVT. LTD. 133 ITR 470/4 TAXMAN 58 (DEL.) IN SPITE OF FACT THAT RATIO AS LAID DOWN IN CASE IS NO T APPLICABLE TO PECULIAR FACTS OF ASSESSEE? 6. WHETHER ON FACTS AND CIRCUMSTANCES OF CASE AND I N LAW, LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE U/S 14 A OF ACT READ WITH RULE 8D OF RULES BY LAYING DOWN A NEW LEGAL PR OPOSITION THAT TAX EXEMPT INCOME UNDER ACT WILL BECOME TAXABL E INCOME IN CASES WHERE AN ASSESSEE ERRONEOUSLY CHOOSES TO P AY ON EXEMPT INCOME. 7. THAT ORDER OF LD CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 02. BRIEF FACTS OF CASE SHOWS THAT ASSESSEE IS A PRIVAT E LIMITED COMPANY ENGAGED IN BUSINESS OF MANUFACTURING OF FOOTWEAR AND FOOTWE AR COMPONENTS. IT FILED ITS RETURN OF INCOME ON 6/10/2010 DECLARING AN INCO ME OF INR 47056850/. CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY AND IT WAS FOUND THAT ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF PAYMENT OF CO MMISSION TO VARIOUS PARTIES. IT CLAIMED IT AS AN EXPENDITURE INCURRED FOR PURPOSES OF BUSINESS. IN FACT IT PAID INR 7010500/- TO A S MARKETING, INR 1 1264515/ TO M/S ACTION UDYOG AND INR 500,000 TO SRI CHAKRAVARTY. O N QUESTIONED BY AO THAT TO WHOM SALES WERE MADE AND COMMISSION WAS PAI D TO WHICH PARTY FOR THAT, ASSESSEE SUBMITTED NAME AND ADDRESS OF PARTIE S TO WHOM SALES HAVE BEEN MADE. LEARNED ASSESSING OFFICER ENQUIRED FROM THESE PARTIES AND RECEIVED REPLY FROM 36 PARTIES. BASED ON THESE REP LIES, ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE ON 22/3/2013 ALONG WITH REPLIES RECEIVED FROM VARIOUS BUYERS OF ASSESSEE. ASSESSEE REPLIED TO SAME ON 28 /03/2013. ASSESSEE EXPLAINED METHOD OF WORKING OF AGENTS AND SUBMITTED THAT WHEN ACTUAL AND POTENTIAL CUSTOMERS ARE SPREAD ALL OVER COUNTRY, NO MANUFACTURER CAN AFFORD TO GIVE LARGE WORKFORCE EXCLUSIVELY OF ITS OWN EMPL OYEES TO IDENTIFY CUSTOMER AND THEREFORE TO PROCURE ORDERS AND TO FOLLOW UP ON EXECUTION OF ORDERS AND PAGE | 3 SETTLING THEIR GRIEVANCES ALONG WITH COLLECTION OF PAYMENT, HENCE, AGENTS ARE APPOINTED. ASSESSEE FURTHER SUBMITTED THAT ASSESSE E COMPANY HAS PAID LESS THAN 2% OF ITS TURNOVER AS A COMMISSION ON A T URNOVER OF MORE THAN RS 100 CRORES. WITH RESPECT TO VARIOUS CUSTOMERS FROM WHOM REPLIES HAVE BEEN RECEIVED ASSESSEE EXPLAINED ABOUT EXISTENCE OF AGEN T. ASSESSEE ALSO FURNISHED CONFIRMATION LETTERS FROM RECIPIENT OF CO MMISSION IN RESPECT OF 2 PARTIES AND HOWEVER SHRI NARAYAN CHAKRAVARTY WAS NO T AVAILABLE; NO CONFIRMATION OF THAT AGENT WAS SUBMITTED. ASSESSEE ALSO SUBMITTED CONFIRMATION TO PROVE GENUINENESS OF PAYMENT. THER EFORE ASSESSEE SUBMITTED THAT PAYMENT OF COMMISSION TO VARIOUS PAR TIES MADE BY ASSESSEE IS WHOLLY AND EXCLUSIVELY INCURRED BY ASSESSEE FOR PURPOSES OF BUSINESS. ASSESSEE ALSO SUBMITTED THAT IT HAS PAID COMMISSION TO VARIOUS PARTIES THROUGH PROPER CHEQUES/ ACCOUNTS AND THEY EXIST A ND ARE GENUINE. ASSESSEE ALSO SUBMITTED PURCHASE ORDERS PERTAINING TO 13 COMPANIES AND HIGHLIGHTED PORTION TO INDICATE THAT THERE IS SOME REFERENCE TO EITHER NAME OF EMPLOYEE OF AGENT, EMAIL OR CELL PHONE NUMBER TO PR OVE EXISTENCE OF AGENT AS ACKNOWLEDGED BY CUSTOMER. LEARNED AO EXAMINED CLA IM OF ASSESSEE AND REJECTED SAME FOR FOLLOWING REASONS:- A. THOSE CUSTOMERS DID NOT ACKNOWLEDGE EXISTENCE OF AG ENTS AND THEIR INVOLVEMENT IN ANY PART OF NEGOTIATION OR PURCHASE AND SALE. IN FACT IN ONE OF CUSTOMERS IT WAS FOUND THAT AS MARKETING IS ONLY PROVIDING SERVICES FROM 2011 AND THERE WAS NO AGENT INVOLVED WITH RESPECT TO ITC DURING FINANCIAL YEAR 2009 10. B. NO CONFIRMATION WERE PROVIDED BY ASSESSEE EXCEPT SO ME PURCHASE ORDER WHEREIN SOME NAMES, EMAILS AND TELEPHONE NUMB ERS ARE MENTIONED WITHOUT ADDUCING ANY PROOF AS TO WHO OR W HAT THEY ARE PERTAINED. C. MERELY MAKING PAYMENT THROUGH PROPER CHANNEL DOES N OT ALLOW ASSESSEE TO CLAIM THESE EXPENSES WITHOUT PROVING TH AT SERVICES HAVE BEEN RENDERED. 03. THEREFORE HE DISALLOWED COMMISSION EXPENDITURE OF I NR 1 8775015/. 04. DURING COURSE OF ASSESSMENT PROCEEDINGS, LEARNED AS SESSING OFFICER FURTHER NOTED THAT ASSESSEE HAS INVESTMENT OF RS 14,79,00,0 00, OUT OF WHICH EXEMPT INCOME OF INR 195658/- WAS EARNED. ASSESSE E HAS FAILED TO DECLARE PAGE | 4 ANY DISALLOWANCE ON THAT ACCOUNT. ASSESSEE WAS ALS O NOTED TO HAVE MADE A PAYMENT OF EXPENDITURE ON INTEREST OF INR 37,600,00 0 OUT OF WHICH INTEREST ON UNSECURED LOAN IS INR 19,700,000. THEREFORE LEA RNED AO ASKED ASSESSEE TO SHOW CAUSE AS TO WHY EXPENDITURE SHOULD NOT BE E STIMATED FOR DISALLOWANCE U/S 14 A READ WITH RULE 8D OF INCOME T AX RULES. LEARNED AO NOTED THAT UNDOUBTEDLY ASSESSEE HAS INCURRED EXPEND ITURE ON ITS INVESTMENT INCLUDING TIME OF EMPLOYEES, INFRASTRUCT URE AND OTHER EXPENSES ON INVESTMENT TO EARN EXEMPT INCOME. THEREFORE HE APPLIED PROVISIONS OF RULE 8D OF INCOME TAX ACT AND DISALLOWED A SUM OF I NR 739792/ UNDER RULE 8D (2) (III) BEING 0.5% OF AVERAGE VALUE OF INVESTM ENTS TOWARDS OTHER EXPENDITURE. LEARNED AO DID NOT DISALLOW ANY DIR ECT EXPENDITURE RELATED TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS WELL AS EXPENDITURE BY WAY OF INTEREST. 05. ACCORDINGLY ASSESSMENT ORDER U/S 143 (3) OF ACT WAS PASSED ON 28/3/2013 WHEREIN DISALLOWANCE OF COMMISSION EXPENDITURE OF I NR 18775015/ WAS MADE ALONG WITH ANOTHER ADDITION/DISALLOWANCE U/S 1 4 A OF INR 739792/ AND TOTAL INCOME OF ASSESSEE WAS ASSESSED AT RS. 66 571660/ AGAINST RETURNED INCOME OF INR 47056850/-. 06. ASSESSEE AGGRIEVED WITH ORDER OF LEARNED AO PREFERR ED AN APPEAL BEFORE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 42, NEW DELHI WHO PASSED AN ORDER DATED 26/8/2015 WHEREIN HE PARTLY ALLOWED PAYMENT OF COMMISSION. LEARNED CIT A ALLOWED COMMISSION PAI D TO M/S A S MARKETING AND ACTION UDYOG AND CONFIRMED DISALLOWAN CE TO EXTENT OF INR 500,000 ON ACCOUNT OF COMMISSION PAID TO SRI NARAYA N CHAKRAVARTY. FURTHER DISALLOWANCE U/S 14 A OF INCOME TAX ACT MAD E BY LEARNED ASSESSING OFFICER WAS ALSO DELETED FOR REASON THAT THAT MAJOR ITY OF INVESTMENT MADE BY APPELLANT WERE IN ITS CLOSELY HELD FAMILY GROUP COM PANIES AND ONLY ONE INVESTMENT MADE IN A PUBLIC LIMITED COMPANY. ASSES SEE HAS ONLY EARNED DIVIDEND INCOME OF INR 1579/- AND STATEMENT OF LEAR NED ASSESSING OFFICER THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF INR 1 9 5658/ WAS A FACTUAL ERROR. ASSESSEE ALSO SUBMITTED THAT IT HAS NOT EVE N TREATED AMOUNT OF INR 1579/ AS EXEMPT INCOME BUT HAS OFFERED FOR TAXATIO N AND PAID TAX THEREON. LEARNED CIT A ALSO EXAMINED COMPUTATION OF TOTAL INCOME AND PROFIT AND LOSS ACCOUNT PRODUCED BEFORE HIM WHICH CONFIRMED ST ATEMENT MADE BY PAGE | 5 ASSESSEE BEFORE HIM. LEARNED CIT A DELETED ADDIT ION AS DIVIDEND INCOME OF INR 1579 WAS ONLY EARNED BY ASSESSEE AND FURTHE R OTHER INVESTMENTS ARE MADE IN SISTER CONCERN, THEREFORE ACCORDING TO HIM NO DISALLOWANCE IS SUSTAINABLE UNDER SECTION 14 A OF INCOME TAX ACT. THEREFORE REVENUE AGGRIEVED WITH ORDER OF LEARNED CIT A HAS PREFERR ED AN APPEAL BEFORE US. 07. ADVERTING TO GROUND NUMBER 1 3 OF APPEAL WHICH IS RELATED TO DISALLOWANCE OF COMMISSION EXPENDITURE DELETED BY CIT A, LEARN ED DEPARTMENTAL REPRESENTATIVE REFERRED TO FACTS STATED BY LEARNED ASSESSING OFFICER IN ASSESSMENT ORDER. HE REITERATED REASONS RECORDED B Y LEARNED AO FOR MAKING DISALLOWANCE AND SUBMITTED THAT LEARNED CIT A HAS DELETED DISALLOWANCE WITHOUT VERIFYING FACTS IN A PROPER PERSPECTIVE. H E SUBMITTED THAT LEARNED CIT HAS CONSIDERED ONLY A PART OF REPLIES FILED BY THESE CUSTOMERS. HE FURTHER STATED THAT LEARNED CIT A HAS ALSO IGNORE D FACT THAT PURCHASES WERE DIRECTLY MADE FROM ASSESSEE AND NOT TO COMMISS ION AGENT. HE FURTHER SUBMITTED THAT WHEN CUSTOMERS HAVE DENIED EXISTENCE OF ANY COMMISSION AGENT OF ASSESSEE AND HAVE CONFIRMED MAKING DIRECT PURCHASES, DELETION OF DISALLOWANCE BY LEARNED CIT A IS WITHOUT ANY REAS ON. HE FURTHER REFERRED TO VARIOUS OBSERVATIONS MADE BY LEARNED ASSESSING O FFICER WITH RESPECT TO ENQUIRIES MADE BY ASSESSING OFFICER U/S 133 (6) OF ACT AND STATED THAT LEARNED CIT A DID NOT CONSIDER FINDING OF FACT AN D CREDIBLE EVIDENCE AS PROVIDED BY CUSTOMERS OF ASSESSEE AS RECORDED BY AS SESSING OFFICER IN ASSESSMENT ORDER BUT CHOOSE TO MISLEAD HIMSELF BY F ALSE CLAIM OF ASSESSEE WHICH WERE PROVED TO BE INCORRECT. THEREFORE IT WA S SUBMITTED THAT MATERIAL AND RELEVANT EVIDENCES WHICH WERE RECORDED IN ASSES SMENT ORDER WERE NOT CONSIDERED BY LEARNED CIT A WHILE MAKING DISALLOW ANCE, AND HE DELETED DISALLOWANCE MERELY ON BASIS OF SUBMISSION OF ASSES SEE. HE ALSO EXTENSIVELY REFERRED TO WEBSITE EXTRACT OF ACTIONS SHOES, AND A GREEMENT MADE BY ASSESSEE WITH ACTION UDYOG FOR PURPOSE OF MAKING PA YMENT OF COMMISSION EXPENDITURE. HE THEREFORE SUBMITTED THAT DISALLOWA NCE MADE BY LEARNED ASSESSING OFFICER OF COMMISSION PAYMENTS MADE BY AS SESSEE WHICH IS PARTLY UPHELD BY LEARNED CIT A SHOULD HAVE BEEN UPHELD B Y HIM IN TOTO. 08. LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUPPOR TED ORDER OF LEARNED CIT A AND STATED THAT ASSESSEE HAS INCURRED EXPEN DITURE ON COMMISSION FOR PURPOSE OF BUSINESS OF ASSESSEE AND THESE EXPEN DITURE HAVE BEEN PAGE | 6 INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF BUSI NESS AND THEREFORE SAME SHOULD BE ALLOWED. HE FURTHER REFERRED TO VARIOUS SUBMISSIONS MADE BEFORE ASSESSING OFFICER AS WELL AS BEFORE LEARNED CIT A AND SUBMITTED THAT INSTITUTIONAL ORDERS AND OTHER ORDERS DO MENTION NA ME OF COMMISSION AGENT OR THEIR EMPLOYEES, THEREFORE IT CANNOT BE STATED T HAT THERE WERE NO COMMISSION AGENT AND NO SERVICES HAVE BEEN RENDERED BY THESE PARTIES TO ASSESSEE. HE FURTHER REFERRED TO VARIOUS PERCENTAG ES OF COMMISSION EXPENDITURE PAID TO TOTAL TURNOVER OF ASSESSEE AND SUBMITTED THAT IT IS A MINUSCULE PERCENTAGE OF TOTAL TURNOVER. HE FURTHER SUBMITTED A DETAILED CHART WHEREIN ASSESSEE IS PAYING COMMISSION FROM AS SESSMENT YEAR 2008 09 TILL ASSESSMENT YEAR 2017 18 WHEREIN SIMILAR C OMMISSION AMOUNT HAS BEEN DISALLOWED BY ASSESSING OFFICER FOR SOME YEAR S, HOWEVER, SAME HAS BEEN ALLOWED BY LEARNED CIT A FOR ASSESSMENT YEAR 2010 11, 2011 12, 2012 13. SUBSEQUENTLY ALL THESE DISALLOWANCES HA VE NOT BEEN CONTESTED BY REVENUE. HE FURTHER SUBMITTED THAT MERELY FOR A SSESSMENT YEAR 2010 11 THESE APPEALS HAVE BEEN FILED AND IN ALL OTHER A YS DISALLOWANCE DELETED BY LEARNED CIT A HAS BEEN ACCEPTED BY REVENUE. H E ALSO SUBMITTED THAT COMMISSION PAID TO A S MARKETING IS ALSO ACCEPTED A S ALLOWABLE BY THE LD AO AS STATED IN THE CHART. THEREFORE FOR REASON OF CON SISTENCY AND HAVING ACCEPTED DECISION IN ONE ASSESSMENT YEAR, LEARNED A O SHOULD NOT HAVE AGITATED THIS ISSUE. 09. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTION AND P ERUSED ORDERS OF LOWER AUTHORITIES. DURING YEAR ASSESSEE HAS ACHIEVED TUR NOVER OF INR 1 001398163/ AND HAS MADE A TOTAL PAYMENT OF COMMISS ION OF INR 1 8414515/. OUT OF WHICH COMMISSION IN DISPUTE IS A COMMISSION PAID TO AS MARKETING OF INR 7 150000/- AND OF RS. 11264515 TO ACTION UDYOG. CLAIM OF ASSESSEE BEFORE AO WAS THAT IT HAS ENGAGED AGENTS FOR OBTAINING PURCHASE ORDER, THEIR EMPLOYEES WERE GIVEN REFERE NCE CARD AND LETTER PAD OF APPELLANT COMPANY TO PROCURE ORDERS. THEY ALSO REN DERED SERVICES RELATING TO SUCH PROCUREMENT OF ORDERS. CONFIRMATION LETTER S IN THIS REGARD WERE ALSO FILED. LEARNED ASSESSING OFFICER FURTHER ACKNOWLED GED THAT ON PURCHASE ORDERS FROM 13 CUSTOMERS NAMES OF EMPLOYEES OF AGE NT OR THEIR EMAIL OR TELEPHONE NUMBERS WERE MENTIONED. THEREFORE LEARNED ASSESSING OFFICER ACCEPTED IDENTITY AND EXISTENCE OF SUCH ENTITIES, BUT WAS NOT SATISFIED WITH PAGE | 7 SERVICES RENDERED BY THESE AGENTS AND THEREFORE LEA RNED AO NOTED THAT THERE IS NO EVIDENCES PLACED BY ASSESSEE BEFORE AO THAT T HESE AGENTS HAVE RENDERED ANY SERVICES TO ASSESSEE FOR WHICH COMMISS ION EXPENSES HAS BEEN PAID TO THEM. WHEN MATTER REACHED TO LEARNED COMMI SSIONER OF INCOME TAX APPEALS, AFTER CONSIDERING INQUIRIES CARRIED OUT BY LEARNED ASSESSING OFFICER AND SUBMISSION MADE BY ASSESSEE, HE EXAMINED PROPRI ETOR OF A S MARKETING ON OATH UNDER SECTION 131 OF INCOME TAX A CT AND NOTED THAT HE WAS RESPONSIBLE FOR MAKING SALES TO 36 PARTIES WHIC H HAS FURNISHED REPLIES TO ASSESSING OFFICER IN RESPONSE TO NOTICE U/S 133 (6) OF INCOME TAX ACT. FOR VERIFICATION OF ALLEGATION MADE BY LEARNED ASSESSIN G OFFICER, THAT THERE WAS NO EVIDENCE FOR RENDERING OF SERVICES BY THESE PART IES ON WHICH SUCH COMMISSION CLAIMED TO HAVE BEEN PAID, HE REFERRED TO LETTER DATED 28/3/2013 SUBMITTED BY ASSESSEE BEFORE AO AND HE F URTHER NOTED THAT IN SUPPORT OF COMMUNICATION BY ASSESSEE SEVERAL PURCHA SE ORDERS ISSUED BY VARIOUS CUSTOMERS WAS STATED AND BROUGHT TO KNOWLED GE OF LEARNED ASSESSING OFFICER IN WHICH NAME AND MOBILE NUMBER O F AGENTS OR ITS EMPLOYEES WERE CLEARLY MENTIONED. HE ALSO VERIFIED SAME PURCHASE ORDERS WHERE HE FOUND THAT NAME OF PROPRIETOR OF RECIPIENT OF COMMISSION WAS MENTIONED. HE FURTHER NOTED THAT EVIDENCES IN FORM OF EMAILS EXCHANGED BETWEEN CUSTOMERS AND CERTAIN SPECIFIC EMPLOYEES OF RECIPIENT OF COMMISSION IN WHICH VARIOUS CUSTOMERS HAVE COMMUNIC ATED FOR PLACING PURCHASE ORDERS, FOR RESOLVING SUPPLY AND PAYMENT I SSUES BY REFERRING TO EARLIER MEETING AND COMMUNICATION WITH SUCH PERSONS . HE NOTED THAT SUCH EVIDENCES WERE ALSO PRODUCED BEFORE LEARNED ASSESSI NG OFFICER HOWEVER THOSE WERE IGNORED. ASSESSEE ALSO SUBMITTED NAME OF EMPL OYEES AND SUPPORTED IT WITH COPIES OF SALARY SLIPS OF VARIOUS EMPLOYEES OF RECIPIENT OF COMMISSION. FURTHER TELEPHONE NUMBER MENTIONED IN VARIOUS PURCH ASE ORDERS WERE ALSO MATCHED WITH TELEPHONE NUMBER OF COMMISSION RECIPIE NT. IN PARA NUMBER 6.2.5 OF ORDER, LD CIT A REFERRED TO VARIOUS EVIDEN CES FURNISHED BY ASSESSEE TO SUPPORT THAT SERVICES HAVE IN FACT BEEN RENDERED BY THESE PARTIES TO ASSESSEE FOR WHICH PAYMENT OF COMMISSION HAS BEEN M ADE. HE FURTHER REFERRED TO QUERY LETTER ISSUED BY LEARNED ASSESS ING OFFICER U/S 133 (6) OF ACT DATED 12/3/2013 TO VARIOUS BUYERS AND NOTED T HAT THAT QUESTIONS AT SERIAL NUMBER 2 AND 3 FOUND BY ASSESSING OFFICER IN THOSE QUERY LETTERS ARE PAGE | 8 LEADING QUESTIONS SUCH AS (I) WHETHER BUYERS ARE AWARE OF ANY LETTER APPOINTING AGENT ON BEHALF OF ASSESSEE AND FURTHER (II) WHETHER SUCH ORDER WAS PLACED TO ENTER OR WAS ANY NEGOTIATION IN ORDER , WHETHER AN AGENT WAS INVOLVED IN ANY NEGOTIATION OF PURCHASES. HE FURT HER NOTED THAT PROPRIETOR OF RECIPIENT OF COMMISSION AND HIS EMPLOYEES WERE R EPRESENTING APPELLANT BEFORE CUSTOMERS FOR LAST SEVERAL YEARS PRIOR TO DISALLOWANCE AND AFTER DISALLOWANCE. THEREFORE HE NOTED THAT IT IS CLEAR THAT CUSTOMERS HAD UNDOUBTEDLY INTERACTED WITH COMMISSION AGENT OVER Y EARS WITHOUT NECESSARILY BEING AWARE OF THEIR ACTUAL LEGAL RELAT IONSHIP WITH APPELLANT AND BY TREATING THEM AS REPRESENTATIVE OF APPELLANT. H E FURTHER REFERRED TO VARIOUS EVIDENCES IN FORM OF EMAIL EXCHANGE WITH CU STOMER AND COMMISSION AGENT WHICH CLEARLY PROVES THAT SERVICES HAVE BEEN RENDERED BY THEM. AS A PROOF OF RENDITION OF SERVICES, HE ALSO EXAMINED PR OPRIETOR OF COMMISSION AGENT AND FOUND THAT HE HAS CONDUCTED MARKET SURVEY , WHICH INCLUDED SHOWING SAMPLES TO CLIENTS, TO PROCURE ORDERS, TO F ORWARD ORDERS TO FACTORY TO ARRANGE DISPATCH OF MATERIAL, IN COLLECTING PAYMENT FROM THEM AND FINALLY PROVIDE AFTER SALES SERVICES TO ALL CLIENTS. HE FU RTHER REFERRED THAT THERE IS AN AGREEMENT DATED 01/04/2009 BY WHICH COMMISSION RECI PIENT WAS ENTITLED FOR CHARGING OF COMMISSION, MONTHLY BILLS WERE RAIS ED ACCORDING TO THAT AGREEMENT AND SAME WERE SETTLED BY ASSESSEE AFTER D EDUCTION OF TAX AT SOURCE. SIMILAR AFFIDAVIT WAS ALSO FILED BY APPELL ANT BEFORE HIM. ON BASIS OF EVIDENCES, THAT WERE PRODUCED BY COMMISSION AGENT, AND HIS EMPLOYEES AS WELL AS BY ASSESSEE AND ON EXAMINATION OF VARIOUS D ETAILS SUCH AS EMAIL AND CORRESPONDENCE WITH BUYERS OF ASSESSEE COMPANY, LEA RNED CIT A HELD THAT COMMISSION AGENT HAS CONTACTED CUSTOMERS ON BEHALF OF APPELLANT BY USING ADVERTISEMENT MATERIAL ETC. HE FURTHER NOTED THAT SUCH SERVICES WERE BEING PROVIDED SINCE FINANCIAL YEAR 2007 08 AND LEARNED ASSESSING OFFICER HAS ACCEPTED THESE PAYMENTS. HE FURTHER NOTED THAT COM MISSION AGENT HAS ALSO DECLARED INCOME OF INR 2756850/ DURING YEAR AND TH EREFORE, HE DELETED DISALLOWANCE WITH RESPECT TO PAYMENT MADE TO A S MA RKETING. 10. WITH RESPECT TO PAYMENT OF COMMISSION MADE TO M/S A CTION UDYOG, LEARNED CIT A NOTED THAT THAT THESE PARTY IS ACTUALLY ACT ED AS A TRADER WHICH PURCHASED SHOES FROM APPELLANT AND FOR WHICH PAYMEN T MADE TO APPELLANT BY IT. SUCH ITEMS WERE SOLD BY THIS ENTITY TO CUST OMERS AT SAME PRICE FOR PAGE | 9 WHICH IT WAS PAID FIXED PROFIT AT RATE OF 8% OF TUR NOVER IN TERMS OF AGREEMENT DATED 1/4/2009. FURTHER HE VERIFIED RELEVANT SALES BILLS AND PURCHASE BILL WITH RESPECT TO SAME. HE FURTHER NOTED THAT AO HAS NOT EXAMINED THESE DETAILS IN RESPECT OF SALES MADE TO THIS PARTY. HE FURTHER NOTED THAT EVIDENCES PLACED BY ASSESSEE FOR COMMISSION PAID TO A S MARKETING HAVE BEEN CONSIDERED BY ASSESSING OFFICER FOR MAKING DIS ALLOWANCE WITH RESPECT TO PAYMENT OF COMMISSION TO THIS PARTY. THEREFORE IT IS SUBMITTED THAT IT IS NOT A PAYMENT OF COMMISSION TO COMMISSION AGENT BUT SAL E OF GOODS AT FIXED PERCENTAGE OF PROFIT. IT WAS FURTHER NOTED BY HIM THAT COMMISSION RECIPIENT HAS SHOWN SALES OF INR 356,700,000 ON WHICH PROFIT OF INR 71,200,000 HAVE BEEN SHOWN WHICH INCLUDES A TAXABLE INCOME OF INR 5 1,500,000. HE FURTHER NOTED THAT THIS PARTY IS NOT AT ALL RELATED PARTY T O ASSESSEE AND THEREFORE HE DELETED DISALLOWANCE WITH RESPECT TO ABOVE PAYMENT. 11. FURTHER BEFORE US, ASSESSEE HAS SUBMITTED A DETAILE D CHART WHICH SHOWS HISTORY OF PAYMENT OF COMMISSION FROM ASSESSMENT YE AR 2008 09 TILL 2018 19. ON BASIS OF CHART, IT WAS FOUND THAT ASSESSE E IS PAYING COMMISSION TO A S MARKETING SINCE ASSESSMENT YEAR 2008 09. FOR THAT YEAR ASSESSEE CLAIMED A COMMISSION PAYMENT OF INR 4 044960/- TO T HAT PARTY AND SAME HAS BEEN ALLOWED AS DEDUCTION BY LEARNED ASSESSING OFFICER. FURTHER FOR ASSESSMENT YEAR 2009 10, COMMISSION OF INR 5 6022 40/ WAS PAID BY ASSESSEE WHICH WAS ALSO ALLOWED BY LEARNED ASSESSIN G OFFICER WITHOUT ANY DISPUTE. FURTHER FROM ASSESSMENT YEAR 2010 11 AS SESSEE ALSO STARTED PAYING COMMISSION TO M/S ACTION UDYOG WHICH CONTINU ED UP TO ASSESSMENT YEAR 2012 13. FOR ALL THESE YEARS LEARNED ASSESS ING OFFICER DISALLOWED CLAIM OF ASSESSEE, HOWEVER LEARNED CIT A HAS DEL ETED DISALLOWANCE, LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THAT WHEN LEARNED CIT A HAS DELETED DISALLOWANCE, WHETHER THOSE H AVE BEEN CONTESTED BEFORE HIGHER FORUM OR NOT. EVEN OTHERWISE LOOKING TO DISALLOWANCE DELETED BY LEARNED CIT A ON STANDALONE BASIS FOR ASSESSME NT YEAR 2010 11, NO INFIRMITY HAVE BEEN POINTED OUT BY LEARNED DEPARTME NTAL REPRESENTATIVE. WE ALSO FOUND THAT LEARNED CIT A HAS DELETED DISALLO WANCE AFTER CONSIDERING FACTS OF CASE PLACED BEFORE HIM BY ASSESSEE AS WELL AS REASONS RECORDED BY ASSESSING OFFICER IN MAKING DISALLOWANCES. LEARNE D CIT A FURTHER MADE PAGE | 10 CERTAIN ENQUIRIES AND BASED ON WHICH HE DELETED DIS ALLOWANCE. THEREFORE WE DO NOT FIND ANY INFIRMITY IN ORDER OF LEARNED CIT A IN DELETING DISALLOWANCE OF INR 18275015/ WITH RESPECT TO COMMISSION PAID T O A S MARKETING AND ACTION UDYOG. ACCORDINGLY GROUND NUMBERS 1 3 OF APPEAL ARE DISMISSED. 12. AO HAS CHALLENGED DELETION OF DISALLOWANCE U/S 14 A OF INCOME TAX ACT VIDE GROUND NUMBER 4 7 OF APPEAL. WITH RESPECT TO DIS ALLOWANCE U/S 14 A OF INCOME TAX ACT OF INR 739792 /- IT IS STATED THA T THERE CANNOT BE ANY REASON TO NOT TO MAKE ANY DISALLOWANCE U/S 14 A OF INCOME TAX ACT EVEN IF INVESTMENT HAS BEEN MADE WITH ASSOCIATED CONCERNS. HE FURTHER STATED THAT THERE IS NO PROVISION UNDER INCOME TAX ACT WHICH SP EAKS THAT EXEMPT INCOME SHOULD HAVE BEEN EARNED BY ASSESSEE DURING Y EAR. HE FURTHER STATED THAT EVEN OTHERWISE DISALLOWANCES ARE MADE BY ASSES SING OFFICER BY INVOKING RULE 8D OF INCOME TAX RULES 1962 AND THEREFORE SAME IS REQUIRED TO BE UPHELD. 13. WITH RESPECT TO DISALLOWANCE U/S 14 A OF INCOME TAX ACT LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS ONLY EAR NED DIVIDEND INCOME OF INR 1759/- WHICH HAS ALSO NOT BEEN CONSIDERED AS E XEMPT INCOME IN COMPUTATION OF TOTAL INCOME WHICH HAS BEEN VERIFIED BY LEARNED CIT A WITH RESPECT TO COMPUTATION OF TOTAL INCOME AND ANNUAL A CCOUNTS OF ASSESSEE AND THEREFORE NO EXEMPT INCOME HAS BEEN CLAIMED BY ASSE SSEE IN COMPUTATION OF INCOME, THEREFORE NO DISALLOWANCE SHOULD HAVE BEEN MADE BY LEARNED ASSESSING OFFICER. HE FURTHER SUBMITTED THAT EVEN OTHERWISE DISALLOWANCE CANNOT EXCEED EXEMPT INCOME. 14. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTION AND P ERUSED ORDERS OF LOWER AUTHORITIES. IN PRESENT CASE EXEMPT INCOME IS 1759 / WHICH HAS ALSO NOT BEEN CLAIMED BY ASSESSEE AS AN EXEMPT INCOME. THER EFORE NOW IT IS APPARENT THAT FIGURES MENTIONED BY LEARNED ASSESSIN G OFFICER IN ASSESSMENT ORDER SHOWING THAT ASSESSEE HAS EARNED EXEMPT INCO ME OF INR 1 95658/ IS INCORRECT. THEREFORE NOW WHOLE ISSUE IS REQUIRED T O BE EXAMINED FROM ASPECT OF EXEMPT INCOME OF ONLY INR 1 759/- AND WHE THER DISALLOWANCE IS REQUIRED TO BE MADE U/S 14 A OF INCOME TAX ACT WITH RESPECT TO EARNING OF EXEMPT INCOME. IT IS NOT AT ALL RELEVANT TO FACT TH AT WHETHER ASSESSEE CLAIMED THAT INCOME AS AN EXEMPT INCOME, INADVERTENTLY OR A DVERTENTLY, PAYS TAX ON THAT. IN ALL CIRCUMSTANCES PROVISIONS OF SECTIO N 14 A APPLIES AS SOON AS PAGE | 11 ASSESSEE EARNS AN EXEMPT INCOME. IT IS AN ALTOGETH ER A DIFFERENT ASPECT THAT WHETHER ASSESSEE HAS INCURRED ANY EXPENDITURE OR NO T, WHICH IS REQUIRED TO BE TESTED SUBSEQUENTLY, BUT PROVISIONS OF SECTION 1 4 A TRIGGERS AS AND WHEN ASSESSEE EARNS EXEMPT INCOME. AS IT IS A FACT THA T DISALLOWANCE CANNOT EXCEED EXEMPT INCOME, THEREFORE WITHOUT GOING INTO MERITS OF FACT WHETHER ASSESSING OFFICER HAS RECORDED SATISFACTION OR NOT, WE DIRECT LEARNED ASSESSING OFFICER TO RESTRICT DISALLOWANCE U/S 14 A OF INCOME TAX ACT TO EXTENT OF INR 1 759/ ONLY. TO HIS PROPOSITION, L D AR ALSO AGREED. ACCORDINGLY GROUND NUMBER 4 7 OF APPEAL OF AO IS PARTLY ALLOWED. 15. GROUND NUMBER 7 OF APPEAL IS GENERAL IN NATURE, NO ARGUMENTS WERE ADVANCED BEFORE US, AND THEREFORE SAME IS DISMISSED . ACCORDINGLY APPEAL OF LEARNED ASSESSING OFFICER IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23/05/2019. -SD/- -SD/- (AMIT SHUKLA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23/05/2019 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE | 12 DATE OF DICTATION DATE ON WHICH TYPED DRAFT IS PLACED BEFORE DICTATING MEMBER DATE ON WHICH TYPED DRAFT IS PLACED BEFORE OTHER MEMBER DATE ON WHICH APPROVED DRAFT COMES TO SR. PS/ PS DATE ON WHICH FAIR ORDER IS PLACED BEFORE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH FAIR ORDER COMES BACK TO SR. PS/ PS DATE ON WHICH FINAL ORDER IS UPLOADED ON WEBSITE OF ITAT DATE ON WHICH FILE GOES TO BENCH CLERK DATE ON WHICH FILE GOES TO HEAD CLERK DATE ON WHICH FILE GOES TO ASSISTANT REGISTRAR FOR SIGNATURE ON ORDER DATE OF DISPATCH OF ORDER