Ropar Distt. Cooperative Milk Producers Union Ltd., Mohali V. ACIT, Mohali

ITA 625/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6937 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Keywords: Business expenditure; Opportunity of being heard; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS. 625 & 626/CHD/2017 ASSESSMENT YEARS: 2012-13 & 2013-14 ROPAR DISTT. COOPERATIVE MILK VS. THE ACIT, CIRCL E 6(1), PRODUCERS UNION LTD., MOHALI MILK PLANT, MOHALI PAN NO. AAAAT5977G (APPELLANT) (RESPONDENT) APPELLANT BY : SH. M.R. SHARMA RESPONDENT BY : SMT. CHANDRAKANTA DATE OF HEARING : 18.08.2017 DATE OF PRONOUNCEMENT : 28.08.2017 ORDER PER DR. B.R.R. KUMAR, AM: THE ABOVE CAPTIONED APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE COMMISS IONER OF INCOME TAX (APPEALS), [HEREINAFTER REFERRED TO AS CIT(A)], CHANDIGARH-2 DATED 18.1.2017 AND 12.1.2017 RESPECTIVELY RELATING TO THE ADDITIONS MADE U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHO RT 'THE ACT') BY ASSESSING OFFICER AND CONFIRMED BY CIT(A). 2 2. SINCE THE GROUNDS RAISED AND ISSUE INVOLVED IN BOTH THE APPEALS ARE IDENTICAL, THE APPEALS WERE HEARD TOGET HER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 3. ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROU NDS OF APPEAL : THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2 CHANDIGARH D ISALLOWING COMMISSION PAID BY THE APPELLANT AMOUNTING TO RS. 5 0,08,372/- TO OTHER COOPERATIVE SOCIETIES AFTER DEDUCTING TAX AT SOURCE THROUGH BANKING CHANNELS CLAIMED AS BUSINESS EXPENDITURE IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 4. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF SCHEDULE 25 (FINANCIAL E XPENSES) OF THE P&L ACCOUNT OF THE ASSESSEE, ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT RS, 50,08,372/- UNDE R THE HEAD OF 'COMMISSION PAID TO OTHER UNIONS''. DURING THE ASSESSMENT PROCEEDINGS THE COUNSEL OF THE ASSESSEE WAS ASKED TO PROVIDE TH E DETAILS OF THE SAME AND WAS ALSO ASKED TO JUSTIFY T HE SAME EXPENSES FOR WHICH THE COUNSEL REPLIED AS UNDER: 'THAT REGARDING THE PAYMENT OF COMMISSION/ROYALTY T O PATIALA DISTRICT COOP MILK PRODUCERS UNION LTD. MIL K PLANT PATIALA AT RS.72,17,803/- DURING THE YEAR UND ER CONSIDERATION. IT IS SUBMITTED THAT AN AFFIDAVIT OF THE SAID MILK UNION IS BEING ENCLOSED FOR YOUR PERUSAL AND RECORD. IT MAY ALSO BE SUBMITTED HERE THAT THE ABOV E NOTED ASSESSEE DURING THE FINANCIAL YEAR UNDER CONSIDERATION HAS PAID RS. 10,21,666/-TO THE HOSHIA RPUR DISTRICT COOPERATIVE MILK PRODUCERS UNION LTD., HOSHIARPUR. A COPY OF THE AFFIDAVIT OF THE SAID ASSESSEE IS BEING ENCLOSED FOR YOUR PERUSAL AND RECORD. IT IS SUBMITTED THAT THE REGISTRAR COOPERAT IVE SOCIETIES, PUNJAB VIDE ITS LETTER DATED 04.11.1993 HAD ALLOCATED AREA OF OPERATION OF THE ASSESSEE AS WELL AS OTHER MILK UNIONS AND ACCORDINGLY EVERY MILK UNION WAS REQUIRED TO COLLECT MILK FROM THE AREA ALLOTTED TO IT FURTHER. A COPY OF THE LETTER IS BEING ENCLOSED FOR YOUR PERUSAL AND RECORD. FURTHER VIDE LETTER NO. 11 241 DATED 03.03.2009 THE PATIALA DISTRICT COOP MILK UNI ONS LTD. AS PER THE NORMS FIXED RAISED A DEMAND @ RS. 3 /- PER ITR. ON ACCOUNT OF ROYALTY/COMMISSION CHARGES O N THE MILK PURCHASED FROM ITS AREA BY THE ABOVE NOTED ASSESSEE. A COPY OF THIS LETTER IS BEING ENCLOSED F OR YOUR PERUSAL AND RECORD. THUS IT IS UNDER THIS CONSIDERATION THAT THE ASSESSEE HAS PAID COMMISSION/ROYALTY TO BOTH THESE MILK UNIONS. IT MA Y 3 ALSO BE SUBMITTED HERE THAT THE ASSESSEE HAS ALSO APPOINTED THE PUNJAB STATE COOP MILK PRODUCERS FEDERATION LTD., CHANDIGARH AS ITS CONSIGNEE AGENT FOR THE SALE OF VARIOUS PRODUCTS IN OTHER STATES I.E. O THER THAN PUNJAB AND COMMISSION/ROYALTY IS ALSO BEING - PAID BY THE ASSESSEE TO THE PUNJAB STATE COOP MILK PRODUCERS FED. LTD., CHANDIGARH. THE EXPENDITURE TH US BEING INCIDENTAL TO THE BUSINESS OF THE ASSESSEE IS ALLOWABLE EXPENDITURE WITHIN THE PROVISIONS OF SECT ION 37 OF THE INCOME TAX ACT IT MAY BE SUBMITTED HERE THAT THE ASSESSEE WHILE MAKING THE PAYMENT OF COMMISSION/ROYALTY HAS DULY DEDUCTED THE TAX AT SOURCE UNDER THE PROVISION OF SECTION 194H OF THE INCOME TAX ACT. I AM ENCLOSING HEREWITH COPY OF TH E FORM 16-A ISSUED BY THE ABOVE NOTED ASSESSEE. THE PAYMENTS OF THE COMMISSION HAVE BEEN MADE THROUGH THE BANKING CHANNELS ONLY. THIS FACT IS EVIDENT FRO M THE PERUSAL OF THE COPY OF THE ACCOUNT OF THE ABOVE NOTED ASSESSEE. A COPY OF THE AGREEMENT OF CONSIGNEE/CONSIGNER AGREEMENT IS ALSO BEING ENCLOSED FOR YOUR PERUSAL AND RECORD. A CONFIRMATIO N FROM THE MILKFED IS ALSO BEING ENCLOSED FOR YOUR PERUSAL AND RECORD'. 5. THE ASSESSEE HAS FURTHER CONTENDED THAT TAX AT S OURCE HAS ALSO BEEN DULY DEDUCTED WHILE MAKING/CREDITING THE SAID PAYMENTS. THE ASSESSING OFFICER FOUND THE EXPLANATION OF THE ASSE SSEE IS UNTENABLE AND NON ACCEPTABLE DUE TO THE FOLLOWING REASONS: 'SECTION 37(1) STATES THAT ANY EXPENDITURE NOT BEIN G EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 T O 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR P ERSONAL EXPENSES OF THE ASSESSEE, LAID OUT OR EXPENDED WHOL LY AND EXCLUSIVE FOR THE PURPOSES OF THE BUSINESS OR PROFE SSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD BUSINESS OR PROFESSION. ACCORDING TO THIS SECT ION, THE ONUS IS ON THE ASSESSEE TO PROVE THAT SAID EXPENDIT URE HAS BEEN INCURRED EXCLUSIVELY AND WHOLLY FOR HIS BUSINE SS PURPOSES. THEREFORE, THE ASSESSEE WAS ASKED TO DISC HARGE THIS OBLIGATION. HOWEVER, THE ASSESSEE HAS FAILED T O FURNISH ANY SUCH DETAILS WHICH COULD SUBSTANTIATE ITS CLAIM . IT HAS EVEN FAILED TO DIVULGE THE NATURE OF SERVICES ETC. RENDERED BY THE CONCERNS TO WHOM COMMISSION WAS PAID EXCEPT THE FACT THAT PAYMENT OF COMMISSION TO OTHER MILK UNION S WAS MADE AS DURING THE YEAR UNDER CONSIDERATION IT HAD PROCURED MILK FROM THE MILK SHED AREA FALLING IN TH E JURISDICTION OF PATIALA AND HOSHIARPUR MILK UNION'. 6. THE ASSESSING OFFICER FURTHER HELD THAT FOR THE A.Y. 2009-10 THE SAME ISSUE WAS DISCUSSED REVEALS THAT AS PER LETTER NO. PSF/ACCTTS/A1/2522 DATED 30.01.2006 (WHICH WAS ADDR ESSED TO GENERAL MANAGER MILK UNION, ROPAR ISSUED BY ADDITIO NAL MD OF MILKFED}. REGARDING RATES OF CHARGES TO BE LEVIED F OR USE OF VERKA TRADE MARK, IT WAS DECIDED THAT TRADE MARK CHARGES @ 0.5% ON THE 4 TURNOVER WILL BE CHARGED INSTEAD OF HIGH RATE OF CO MMISSION W.E.F. F.Y. 2004-05 AND THE DECISION WAS APPROVED BY BOD O F MILKFED. AS PER THIS ORDER, THE ASSESSEE WAS NOT SUPPOSED TO MA KE COMMISSION PAYMENT TO MILK FED. (THE PUNJAB STATE CO-OPERATIVE MILK FEDERATION CHANDIGARH) EXCEPT THE PAYMENT OF TRADE MARK EXPENS ES. BUT IN SPITE OF THAT, IT HAS MADE HUGE COMMISSION PAYMENT TO MILKFED. IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS ALS O MADE PAYMENT OF RS. L,59,15,481/-ON ACCOUNT OF 'TRADE MARK EXPENSES TO MILKFED DURING THE YEAR UNDER CONSIDERATION IN COMPLIANCE T O THE ABOVE ORDER OF THE ADDL. M.D. MILK FED. 7. HOLDING THUS THE ASSESSING OFFICER DISALLOWED TH E EXPENSES OF RS. 50,08,372/- UNDER THE HEAD 'COMMISSION EXPENSES'. THE LD. CIT(A) HAS CONFIRMED THE ADDITION BY FOLLOW ING THE EARLIER ORDER OF THE CIT(A) FOR THE AY 2010-11 IN A PPEAL NO. 184/13-14 VIDE ORDER DATED 15.10.2014 AS UNDER- 6.3 I HAVE CONSIDERED FACTS OF THE ISSUE. THE APPE LLANT HAS NOT EXPLAINED AS TO HOW THE FINDINGS OF THE ASSESSI NG OFFICER REGARDING SERVICES RENDERED IN RESPECT OF THE COMMI SSION PAID ARE NOT CORRECT. THE PLEA TAKEN BY THE APPELLA NT IS THAT TDS HAS BEEN DEDUCTED ON THESE PAYMENTS, DOES NOT H OLD WATER SINCE DEDUCTION OF TAX AT SOURCE ON ANY AMOUN T DOES NOT NECESSARILY ENTITLE THE APPELLANT TO CLAIM THAT AMOUNT AS EXPENDITURE. 6.3.2 COMMISSION IS AN ALLOWANCE, RECOMPENSE OR REWARD MADE TO AGENTS, BROKERS AND OTHERS FOR AFFEC TING SALES AND CARRYING OUT BUSINESS TRANSACTIONS. THE C OMMISSION IS A FEE PAID TO A THIRD PARTY IN EXCHANGE FOR ASSI STANCE IN COMPLETING A FINANCIAL TRANSACTION. THE APPELLANT H AD CLAIMED THAT THE EXPENSES INCURRED ARE ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. AS PER THE PROVISIONS OF SECTION 37(1), EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPE NDITURE OR PERSONAL EXPENSES OF THE APPELLANT, LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION IS TO BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'BUSINESS OR PROFESSION'. AS PER THIS SECTION, THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR ITS BUSINESS PURPOSES. IN THE INSTANT CASE, THE APPELLA NT FAILED TO DISCHARGE ITS OBLIGATION TO SUBSTANTIATE ITS CLAIM THAT COMMISSION EXPENSES INCURRED WERE BONAFIDE AND WHOL LY AND 5 EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE APPELL ANT. NOTHING WAS BROUGHT ON RECORD BEFORE THE ASSESSING OFFICER OR EVEN BEFORE THE UNDERSIGNED REGARDING THE SERVIC ES RENDERED TO THE APPELLANT BY THE MILK UNIONS, IN LI EU OF / WHICH THE COMMISSION WAS PAID. THE ASSESSING OFFICE R HAS RIGHTLY DISALLOWED THE ENTIRE COMMISSION EXPENDITUR E AND HER ACTION IN THIS REGARD IS UPHELD. GROUND OF APPEAL NO. 4 IS DISMISSED. 7.3.1 I AM IN TOTAL AGREEMENT WITH THE DECISION O F MY PREDECESSOR CIT (APPEAL) ON THIS POINT AND IT IS HE LD THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE ENTIRE COMMISSION EXPENDITURE AND HIS FINDINGS ARE UPHELD. 8. BEFORE US THE LD. AR RELIED ON THE ORDER OF THE ITAT FOR THE AY 2010-11 WHEREAS THE LD. AR RELIED ON THE ORDER OF T HE ASSESSING OFFICER. ON THE SIMILAR ISSUE THE COORDINATE BENCH OF ITAT, CHANDIGARH IN ITA NO. 1127/CHD/2014 DT. 23/05/2016 HELD THAT THE ASSESSING OFFICER HAS ALSO POINTED OUT TH AT AS PER THE ORDER OF ADDITIONAL M.D., MILK FED., THE ASSESSEE WAS NOT SUPPOSED TO MAKE COMMISSION PAYMEN T TO MP, CHANDIGARH, EXCEPT THE PAYMENT OF TRADEMARK EXPENSES, BUT STILL HUGE COMMISSION WAS PAID TO THE SAID PARTY. THE ASSESSING OFFICER HAS CATEGORICALLY OBS ERVED THAT THE MILK FED. HAS NOT PROVIDED ANY INFORMATION TO HIM. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT INSPITE OF REPEATED REMINDERS AND REQUESTS, THE INFORMATION SOUGHT FROM MILK FED. WAS NOT FURNISHED . THE ONLY PLEA TAKEN BY THE LEARNED COUNSEL FOR THE ASSE SSEE IS THAT TDS HAS BEEN DEDUCTED AND THE ABOVE PARTIES HAVE SHOWN THE COMMISSION INCOME. ALTERNATIVELY, T HE LOWER AUTHORITIES SUBMITTED THAT THE AUTHORITIES BE LOW HAVE NOT GIVEN SUFFICIENT OPPORTUNITY TO THE ASSESS EE TO EXPLAIN THE EXACT NATURE OF ITS CLAIM. ACCORDING T O HIM, THE ASSESSEE HAD SUFFICIENT EVIDENCE TO PROVE THAT THE EXPENDITURE CLAIMED BY IT HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS PURPOSES. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE THINK IT APPROPRIATE TO SET ASIDE THE FINDINGS OF T HE LEARNED CIT (APPEALS) ON THIS ISSUE AND REMAND THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFT ER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS ALSO MADE CLEAR THAT THE ASSESSEE IS FREE TO PRODUCE RELEVANT EVIDENCE IN SU PPORT OF ITS CLAIM. WE MAY ALSO ADD HERE THAT THE PLEA T AKEN BY THE ASSESSEE THAT TDS HAS BEEN DEDUCTED ON THE DISPUTED PAYMENTS, IS OF NO CONSEQUENCE, SINCE DEDUCTION OF TAX AT SOURCE OF ANY AMOUNT DOES NOT NECESSARILY ENABLE THE ASSESSEE TO CLAIM THAT AMOUN T AS EXPENDITURE. AS WE HAVE ALREADY OBSERVED HEREINABO VE THAT UNDER SECTION 37(1) OF THE ACT ONUS IS ON THE ASSESSEE, CLAIMING SUCH DEDUCTION TO ESTABLISH THAT SUCH PAYMENTS WERE MADE FOR SERVICES RENDERED. THE MERE DEDUCTION OF TDS IS NOT SUFFICIENT TO PROVE THAT TH E AMOUNT IN QUESTION WAS INCURRED WHOLLY AND EXCLUSIV ELY 6 FOR THE BUSINESS PURPOSES. WE DIRECT THE ASSESSING OFFICER TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW. 9. SINCE THE ASSESSING OFFICER AND THE LD. CIT(A) H ELD THAT THE ASSESSEE FAILED TO DISCHARGE ITS OBLIGATION TO SUBSTANTIATE ITS CLAIM, WE RESPECTFULLY FOLLOWING THE ORDER OF THE T RIBUNAL (SUPRA) REMAND THE MATTER TO THE ASSESSING OFFICER WITH A D IRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AND IN THE LIGHT OF THE TRIBUNAL ORDER DT. 15/10/2014(SUPRA) AFTER A FFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. IT IS ALSO MADE CLEAR THAT THE ASSESSEE IS FREE TO PRO DUCE RELEVANT EVIDENCE IN SUPPORT OF ITS CLAIM. 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2017. SD/- SD/- (SANJAY GARG) (DR.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28.08.2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR