Abrol Engg. Co. Pvt. Ltd, Kapurthala V. The Dy.Commissioner of Income Tax, Jalandhar

ITA 625/ASR/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8826 (ITAT-AMRITSAR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y K SUD
• Keywords: Fair market value
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALANDH AR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO. 625 (ASR.)/2016 ASSESSMENT YEARS: 2010-11 PAN: -AABCA290L ABROL ENGG. CO. PVT. LTD. INDL. AREA, KAPURTHALA. VS. DCIT CIRCLE-IV JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. Y.K. SUD (C.A.) RESPONDENT BY: SMT. BALWINDER KAUR (DR) DATE OF HEARING: 25.01.2017 DATE OF PRONOUNCEMENT: 21.02.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A), JALANDHAR, DATED 23.11.2016 FOR ASST. YEAR 2010-11. 2. THE ONLY GRIEVANCE RAISED BY ASSESSEE IN THIS AP PEAL IS THE ACTION OF LD. CIT(A),BY WHICH HE HAS CONFIRMED THE DISALLOWAN CE MADE BY ASSESSING OFFICER U/S 40A(2)(B) OF THE ACT. 3. THE BRIEF PARTICULAR AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DUR ING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT AS SESSEE HAD MADE PAYMENT OF COMMISSION ON SALES TO OTHERS AMOUNTING TO RS.10,41,143. IT WAS OBSERVED BY ASSESSING OFFICER THAT OUT OF THE A BOVE A COMMISSION ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 2 AMOUNTING TO RS. 9,51,513/- WAS PAID TO SHRI. VIPIN ABROL. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE IMME DIATELY PREVIOUS YEAR, THE ASSESSEE HAD MADE COMMISSION TO OTHERS ONLY TO THE EXTENT OF RS.54,401/- THEREFORE, THE ASSESSEE WAS REQUIRED TO EXPLAIN REASONABLENESS AND NATURE OF WORK DONE BY COMMISSIO N AGENTS FOR OBTAINING ORDERS FOR THE ASSESSEE. THE ASSESSEE WAS ALSO REQUIRED TO FILE OTHER DETAILS SUCH AS NATURE OF SERVICES RENDERED, AMOUNT PAID, TDS DEDUCTION, CONFIRMATION OF RECEIPT OF COMMISSION ET C,. THE ASSESSEE FILED REPLY TO THE QUERY RAISED BY THE ASSESSING OFFICER. HOWEVER ASSESSING OFFICER OBSERVED THAT NATURE OF WORK DONE BY COMMIS SION AGENT WAS NOT PROVIDED AND TOTAL ORDERS AFFECTED THROUGH COMMISSI ON AGENTS WAS ALSO NOT PROVIDED. FURTHER HE OBSERVED THAT NO DOCUMENTA RY EVIDENCE FOR PAYMENT OF TDS AND CONFIRMATION FROM PAYEE SHRI. VP IN ABROL WAS SUBMITTED. THE ASSESSING OFFICER FURTHER OBSERVED T HAT SHRI. VIPIN ABROL WAS SON OF MANAGING DIRECTOR OF ASSESSEE COMPANY AN D THAT ASSESSEE WAS NOT ABLE TO ESTABLISH THAT COMMISSION PAID WAS REASONABLE AND THEREFORE HE CONSIDERED THE SAME TO BE EXCESSIVE AN D UNREASONABLE AND THEREFORE HE HELD 1/3 RD OF THE TOTAL COMMISSION PAID TO SHRI VIPIN ABROL AS DISALLOWANCE U/S 40A (2) (B) OF THE ACT. 4. AGGRIEVED WITH THE ORDER THE ASSESSEE FILED APPE AL BEFORE LD. CIT(A) AND SUBMITTED VARIOUS SUBMISSION AND ALSO FILED CHA LLAN FOR PAYMENT OF TDS AND FURTHER FILED A CERTIFICATE OF COMMISSION R ECEIVED BY SHRI VIPIN ABROL. IT WAS SUBMITTED BEFORE LD. CIT(A) THAT TURN OVER OF THE COMPANY ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 3 HAD INCREASED FROM RS. 5.42 CRORES TO RS. 8.98 CROR ES AND COMMISSION HAS BEEN PAID TO SHRI VIPIN ABROL ON INCREASED TUR NOVER OF RS. 3.56 CRORES AT THE RATE OF 3% AND COMMISSION AT THE RATE OF 5% HAS BEEN PAID TO SHRI R.S. KRISHNAN AND AT THE RATE OF 3% TO ANOT HER PERSON AND THEREFORE, IT WAS SUBMITTED THAT THE AMOUNT OF COMM ISSION WAS NOT EXCESSIVE HOWEVER, LD. CIT(A) DID NOT AGREE WITH TH E CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY ASS ESSING OFFICER. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET THE LD. AR SUBMITTED THAT THE CIT (A) HAD WRONGLY CONFIRMED THE DISALLOWANCE AT RS. 951513/- WHICH WA S A MISTAKE APPARENT FROM RECORD AND ON AN APPLICATION FOR RECT IFICATION FILED BY ASSESSEE, THE LD. CIT(A) HAS RECTIFIED THE FIGURE O F 951513/- AT RS. 317171/- AND IN THIS RESPECT FILED A COPY OF ORDER PASSED U/S 154 OF THE ACT. REGARDING MERITS OF THE APPEAL THE LD. AR SUBM ITTED THAT ALL THE QUERIES RAISED BY ASSESSING OFFICER WERE REPLIED. H E FURTHER SUBMITTED THAT THE QUERY OF ASSESSING OFFICER THAT THE DOCUME NTARY EVIDENCE IN REGARD OF PAYMENT OF TDS WAS NOT FILED BEFORE HIM I S WRONG AS A COPY OF CHALLAN ALONG WITH FORM 16A WAS FILED BY REPLY DATE D 06.01.2014 AND THE SAME WAS ALSO FILED BEFORE LD. CIT(A). THE LD. AR S UBMITTED THAT THE AUTHORITIES BELOW WITHOUT MAKING ANY MARKET ENQUIRI ES AND ESTABLISHING THE MARKET RATE MADE THE DISALLOWANCE U/S 40A(2)(B) . IT WAS SUBMITTED THAT IN FACT THE COMMISSION PAID TO THE OUTSIDERS N AMELY R. SHIVARAMA KRISHNAN AND K. ANANTHA NARAYAN WAS PAID AT THE RAT E OF 5% AND 3% ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 4 RESPECTIVELY ON THE ORDERS THEY PROCURED AND HENCE IT WAS ARGUED THAT COMMISSION PAID TO VIPIN ABROL AT THE RATE OF 3% CA NNOT BE CONSIDERED AS EXCESSIVE. RELIANCE IN THIS RESPECT WAS PLACED ON T HE FOLLOWING CASE LAWS: (A) 121 TT (NAG)(TM) 761-JUGDAMBA ROLLERS FLOUR MILLS LD . VS. ACIT (B) 122 TTJ (LUCKNOW) 839 SATYA NARAYAN KESHO RAM (P) LTD. VS. DCIT (C) 137 ITD 48(CHD)-VINOD KUMAR VS. JT CIT (D) 143 ITD 25/35(RAJKOT)-ACIT VS. SHIRISH MAGANLAL RAVANI (E) 353 ITR 101 (DEL)-CIT VS. SUPERIOR CRAFTS (F) 133 TTJ(AGRA) (TM) 1 ITO VS. MAYUR AGARWAL (G) 145 TTJ(MUMBAI) 161-BHARTI AIRTEL LTD. VS. ACIT 7. THE LD. DR, ON THE OTHER HAND, PLACED HER RELIAN CE ON THE ORDER OF AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. IT IS AN UNDISPUTED FACT THAT TURNOVER OF THE ASSESSEE COMPANY DURING THE PERIOD UNDER CONSIDERAT ION INCREASED FROM RS. 5.42 CRORES TO RS. 8.98 CRORES. IT IS ALSO AN U NDISPUTED FACT THAT ASSESSEE HAD PAID COMMISSION TO SHRI VIPIN ABROL ON SALES OF 3.56 CRORES AT THE RATE OF 3% WHEREAS THE COMMISSION WAS PAID T O AT THE RATE OF 5% TO SHRI R.S. KRISHNAN AND AT THE RATE OF 3% TO K. A NANTHA NARAYAN. 9. THESE FACTS HAS BEEN NOTED BY LD. CIT(A) I N PARA 5.6 OF HIS ORDER. THE LD. CIT(A) HAS DISMISSED THE APPEAL OF ASSESSEE HOLDING THAT THE CONTRIBUTION OF SHRI. VIPIN ABROL FOR OBTAINING SUC H ORDERS OR SERVICES RENDERED WAS NOT FILED. THE LD. CIT(A) HAS ALSO HEL D THAT IN THE PURCHASE ORDERS FILED BY ASSESSEE NAME OF SHRI VISHESH ABROL HAS BEEN MENTIONED INSTEAD OF VIPIN ABROL. HOWEVER THESE FINDINGS OF T HE AUTHORITIES BELOW CAN NOT BE SAID TO BE INDICATIVE OF THE FACT THAT S HRI. VIPIN ABROL DID NOT ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 5 CONTRIBUTE ANY THING TOWARDS GROWTH OF THE COMPANY. THE GROWTH OF THE COMPANY CAN NOT BE DENIED AS IS APPARENT FROM INCRE ASE IN TURNOVER OF THE COMPANY. IN THE ENTIRE ORDER PASSED BY LD. CIT( A) AND ASSESSING OFFICER, NONE OF THE OFFICERS HAS ARRIVED AT THE RE ASONABLENESS OF COMMISSION BY COMPARING MARKET RATES PAID BY OTHER ASSESSEES IN THE SAME LINE OF BUSINESS ACTIVITIES. WHERE AS THE FACT REMAINS THAT THE ASSESSEE HAS PAID SIMILAR AMOUNT OF COMMISSION AT T HE RATE OF 3% TO ANOTHER PERSON AND AT THE RATE OF 5% TO ANOTHER PER SON WHICH THE AUTHORITIES BELOW HAS MENTIONED IN THEIR RESPECTIVE ORDER. THEREFORE, KEEPING IN VIEW THESE FACTS THE PAYMENT OF COMMISSI ON CALCULATED AT THE RATE OF 3% CANNOT BE SAID TO BE EXCESSIVE AND THERE FORE, THE DISALLOWANCE SUSTAINED BY LD. CIT(A) IS NOT JUSTIFIED. 10. THE HON'BLE TRIBUNAL IN THE CASE OF JAGDAMBA R OLLERS FLOUR MILLS LTD. VS. ACIT REPORTED AT 121 TTJ (NAG) 761 HAS H ELD THAT DISALLOWANCE U/S 40A(2) CAN BE MADE ONLY IF THE PAY MENT IS MADE TO A PERSON SPECIFIED AND THE SAME IS FOUND TO BE EXCESS IVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF GOODS, SERVICE S OR FACILITIES FOR WHICH THE PAYMENT IS MADE. THE TRIBUNAL HELD THAT NO ENQU IRY WAS MADE BY WHERE THE PAYMENT OF REMUNERATION BY THE ASSESSEE C OMPANY TO THE DIRECTOR IN THE RELEVANT YEAR WAS EXCESSIVE OR UNRE ASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SERVICES AND THE TRIBU NAL HELD THAT IN THE ABSENCE OF ENQUIRY, NO DISALLOWANCE COULD BE MADE. ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 6 11. SIMILARLY THE HON'BLE TRIBUNAL IN THE CASE OF S ATYA NARAIN KESHO RAM (P) LLTD. VS. DCIT 122 TTJ (LUCKNOW) 839 HAS HE LD THAT ONUS TO SHOW THAT PAYMENT OF INTEREST OR INCURRING OF EXPEN DITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES LIES ON THE ASSESSING OFFICER AND NOT ON T HE ASSESSEE. THE TRIBUNAL HELD THAT ASSESSING OFFICER HAVING NO INFO RMATION AS TO WHAT SHOULD BE THE FAIR MARKET RATE OF INTEREST; HE COUL D NOT HAVE TREATED INTEREST PAID BY ASSESSEE TO RELATIVES OF DIRECTORS AT THE RATE OF 24% AS EXCESSIVE OR UNREASONABLE. SIMILAR FINDINGS HAS BE EN MADE BY VARIOUS BENCHES OF TRIBUNAL IN THE CASE LAWS RELIED ON BY L D. AR. 12. IN THE PRESENT CASE NO ENQUIRY HAS BEEN MADE FOR MARKET RATE FOR VERIFYING THE EXCESSIVE COMMISSION PAID. THE FACTS ON RECORD REVEALS THAT ASSESSEE HAD MADE SIMILAR PAYMENT TO OTHER PARTIES AT THE RATE OF 3% AND EVEN AT THE RATE OF 5% WHICH HAS BEEN IGNORED. IN VIEW OF THE ABOVE FACTS AND JUDICIAL PRECEDENTS RELIED ON BY LD. AR, WE ALLOW THE APPEAL FILED BY THE ASSESSEE. 13. IN NUTSHELL, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.02. 2017. SD/ SD/ (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21.02.2017. /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), ITA NOS. 625(ASR)/2016 ASSESSMENT YEAR 2010-2011 7 (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER