Assistant Commissioner of Income-Tax -1, Durg V. M/s Sarthak Metals Marketting Private Limited, Durg

ITA 63/BIL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85353 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHEETAL VERMA
• Assessee Lawyers: N C BEGANI; NIKHLESH BEGANICA
• Keywords: Business income; Tax effect
• Section: 37(1)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL,BENCH -RAIPUR . .. . . .. . , ,, , ! ! ! !, ,, , . .. . . .. . BEFORE S/SH.H.L.KARWA,PRESIDENT AN D RAJENDRA,ACCOUNTANT MEMBER ./ ITA NO.63/BLPR/2011- # # # # / // / ASSESSMENT YEAR -2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX-1, BHILAI. V/S. M/S. SARTHAK METALS MARKETING PVT. LTD., BBC COLONY, KHURSIPAR, GE ROAD, BHILAI. PAN:AADCS2008J ( ) / // / ASSESSEE ) ( *+) / RESPONDENT ) ASSESSEE BY : SH.N.C. BEGANI & NIKHLESH BEGANI,CA REVENUE BY : SMT. SHEETAL VERMA, D.R. - /DATE OF HEARING : 17-12-2014 - /DATE OF PRONOUNCEMENT : 19 -12-2014 # # # # , 1961 1961 1961 1961- - - - 254 254254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM < << < = = = =, ,, , ! ! ! ! : CHALLENGING THE ORDER DATED 23.12.2010 OF THE CIT(A ), BILASPUR-THE ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE AND ADDITION OF RS.20,00,000/- MADE BY THE AO OUT OF COMMISSION PAYMENT CLAIMED BY THE ASSESSEE. 2. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH IN LA W AND ON FACTS. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF INDUSTRIAL GASES AS WELL AS CORED WIRES,FILED ITS RETURN OF INCOME ON 14.12.200 7 DECLARING TOTAL INCOME OF RS.93,08,430/-.THE AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,O N 18.12.2009,DETERMINING THE TOTAL INCOME AT RS.1,13,08,430/-. EFFECTIVE GROUND OF APPEAL PERTAINS TO ADDITIONS MA DE BY THE AO AND DELETED BY THE FIRST APPEAL AUTHORITY (FAA),AMOUNTING TO RS.20 LAKHS.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD CLAIMED COMMISSION EXPENSES OF RS.89.9 1 LAKHS DURING THE YEAR UNDER APPEAL.THE AO RECEIVED AN INFORMATION FROM THE AO OF M/S.BRIGH T STREET MARKETING PVT.LTD.,NEW DELHI (BSMPL)THAT THE ASSESSEE HAD PAID COMMISSION TO THE DELHI PARTY ON ACCOUNT OF SALES MADE,THAT THE NET AMOUNT AFTER TDS WAS 18.24 LAKHS.AFTER CONS IDERING THE INFORMATION RECEIVED FROM HIS COUNTERPART THE AO HELD THAT BSMPL DID NOT PERFORM ANY ACTIVITY FOR THE ASSESSEE.THE AO ISSUED LETTERS TO AGENTS TO WHOM THE ASSESSEE HAD PAID CO MMISSION.HE ALSO RECORDED THE STATEMENT ON OF THE AGENT NAMELY B R STEEL.THE AO HELD THAT GENUINE NESS OF EXPENSES ON ACCOUNT OF COMMISSION PAYMENT WAS NOT FREE FROM DOUBT.FINALLY,HE MADE A D ISALLOWANCE OF RS.20 LAKHS TO SAFEGUARD THE INTEREST OF REVENUE. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FAA.BEFORE HIM IT WAS ARGUED THAT THE IMPUGNED CLAIM OF PAYMENT OF COMMIS SION WAS GENUINE AND THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS ES,THAT THE AO HAD NOT BROUGHT ANY CONTRARY EVIDENCE ON RECORD,THAT THE FAA DECIDING THE APPEAL OF BSMPL HAS HELD THAT THE ASSESSEE HAD PAID COMMISSION TO IT,THAT THE COMMISSION INCOME WA S TO BE ASSESSED AS BUSINESS INCOME IN THE HANDS OF BSMPL.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT THE AO HAD HEAVILY RELIED UPON THE FINDIN GS GIVEN IN THE ASSESSMENT ORDER OF BSMPL, THAT THE ASSESSEE HAD SUBMITTED CONFIRMATION FROM T HE SAID PARTY,COPIES OF BILLS OF COMMISSION, COPY OF ORDERS FROM SAIL,COPY OF BANK ACCOUNT,COPY OF FINANCIAL STATEMENTS TO PROVE THE 2 ITA NO.63/BLPR/2011-ACIT VS. SARTHAK METALS GENUINENESS OF THE IMPUGNED CLAIM OF PAYMENT OF COM MISSION,THAT THE ASSESSEE HAD MADE PAYMENT OF RS.20.47 LAKHS AS COMMISSION TOWARDS SAL E OF WIRE TO SAIL,BOKARO PLANT AND FOR LIASONING WORK WITH SUCH PSUS AND FOR HELPING TO CO MPLETE TENDER FORMALITIES,PROCUREMENT OF TENDERS/ORDERS FOR SUPPLY OF MATERIAL,ENSURING TIME LY PAYMENT,FOR ENSURING DELIVERY OF MATERIAL ETC.,THAT DOCUMENTARY EVIDENCES WERE AVAILABLE TO PROVE RENDERING THE SERVICES BY THE AGENT,THAT NO EVIDENCE WAS BROUGHT ON RECORD BY THE AO TO DISP ROVE THE GENUINENESS IN THE IMPUGNED CLAIM OF PAYMENT OF COMMISSION,THAT THE AO HAD SIMPLY BAC KED UPON THE OPINION OF THE AO OF NEW DELHI AND THERE WAS NO INDEPENDENT APPLICATION OF M IND AND SATISFACTION RECORDED BY THE AO,THAT HE DID NOT SUMMONED AND EXAMINED THE DIRECTOR OF DE LHI COMPANY,THAT HE DID NOT MAKE INQUIRIES WITH SAIL OR BOKARO PLANT,THAT THE DIRECTOR OF BSMP L HAD CONFIRMED THE RENDERING OF SERVICES AND RECEIVING OF PAYMENT,THAT PAYMENT WAS MADE BY A CCOUNT PAYEE CHEQUE AND RECEIPT OF THE PAYMENT IN THE HANDS OF THE RECIPIENT WAS SUBJECTED TO TDS.RELYING UPON THE DECISIONS OF N S CHOODAMANI,HE HELD THAT THE AO HAD MADE THE DISALLO WANCE WITHOUT ARRIVING AT OWN SATISFACTION. HE FURTHER HELD THAT SIMILAR CLAIM OF PAYMENT OF CO MMISSION TO THE SAID PARTY MADE IN EARLIER YEARS WAS NOT DISPUTED B THE AO,THAT CONSIDERING TH E CATEGORICAL FINDING GIVEN BY THE FAA OF BSMPL THERE REMAINED NO JUSTIFICATION IN SUSTAINING THE ADHOC ESTIMATED DISALLOWANCE,THAT THERE WAS NO CORROBORATIVE EVIDENCE ON RECORD TO SUPPORT THE STAND TAKEN BY THE AO.FINALLY,HE DELETED THE DISALLOWANCE MADE BY THE AO. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR) RELIED U PON THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR) STATED THAT THE ASSESSEE HAD PAI D RS.52 LAKHS TO BSMPL IN THE IMMEDIATE PRECEDING YEAR,THAT WHILE PASSING ASSESSMENT ORDER U/S.143(3)OF THE ACT FOR THAT YEAR THE AO HAD ALLOWED THE COMMISSION PAYMENT,THAT THE MATTER OF B SMPL HAD TRAVELLED UP TO TRIBUNAL,THAT IT DISMISSED THE APPEAL FILED BY THE DEPARTMENT(ITA/57 49/DEL/2010-AY.2007-08,DATED 25.04.2014)AGAINST THE ORDER OF THE FAA,WHO HAD HEL D THAT PAYMENT RECEIVED BY BSMPL WAS TO BE TAXED UNDER HEAD BUSINESS INCOME,THAT THE AO HAD NOT GIVEN ANY REASON FOR MAKING DISALLOW - ANCE.HE RELIED UPON THE DECISIONS OF HINDUSTAN DEVE LOPMENT CORP.LTD.(101 TAXMAN146),NESTOR PHARMACEUTICALS(P) LTD.(33DTR293),ELECTRIC CONSTRUC TION EQUIPMENT CO. LTD.(75CTR65)TUSKER DYE CHEM(173 TAXMAN 104). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAS MADE THE DISALLOWANCE JUST TO SAFEGUARD THE IN TEREST OF REVENUE.TO BE CONCERNED ABOUT THE INTEREST OF REVENUE CAN BE A GOOD VIRTUE FOR AN AO, BUT HE IS NOT A MERE TAX GATHERER.HE IS ALSO A REPRESENTATIVE OF SOVEREIGN AND IN THAT CAPACITY I T IS HIS DUTY TO COLLECT ONLY DUE TAXES FROM THE CITIZENS OF THE COUNTRY.PRINCIPLES GOVERNING THE T HEORY OF DUE OF TAXES STIPULATE THAT THE AO SHOULD NOT ADD OR DISALLOW ANY ITEM TO THE INCOME W ITHOUT ASSIGNING REASONS.APPLICATION OF MIND IS THE FIRST INGREDIENT OF DETERMINING DUE TAXES.TA X LIABILITY CANNOT BE FASTENED TO AN ASSESSEE ON THE WHIM AND FANCIES OF AN AO.HE HAS TO GIVE REASON S AS TO WHY A PARTICULAR DISALLOWANCE/ ADDITION IS MADE,OTHERWISE IT WILL LEAD TO AN ORDER PASSED ON SUSPICION AND SURMISES.THERE IS NO ROOM FOR ARBITRARINESS,CONJECTURES,SUSPICION,GUESSW ORK AND CAPRICIOUSNESS IN DETERMINING DUE TAXES.THE ORDER OF THE AO BEFORE US IS ONE OF THE S UCH ORDERS,WHICH IS NOT BASED ON ANY SOUND OR REASONABLE LEGAL FOOTING.HE HAD RECORDED THE STATEM ENTS OF ONE OF THE AGENTS,THE COMMISSION AGENTS HAD ADMITTED RECEIPT OF COMMISSION AND RENDE RING OF SERVICES BY THE AGENTS WAS NOT DISPROVED BY THE AO.IN THE EARLIER YEARS AND SUBSEQ UENT YEARS PAYMENT OF COMMISSIONS TO AGENTS WAS ALLOWED AND AT LEAST IN THE IMMEDIATE SUCCEEDIN G YEAR ORDER WAS PASSED U/S.143(3)OF THE ACT. EVEN THEN THE AO DECIDED TO MAKE THE DISALLOWANCE B ECAUSE IN THE CASE OF BSMPL,THE DELHI AO WAS OF THE OPINION THAT COMMISSION RECEIPT SHOULD B E ASSESSED UNDER A PARTICULAR HEAD.WE ARE UNABLE TO UNDERSTAND AS TO HOW THE DECISION OF HEA D OF INCOME TO BE ASSESSED IN THE HANDS OF THE RECIPIENT COULD LEAD TO DISALLOWANCE IN THE HANDS O F THE ASSESSEE MAKING PAYMENT FOR SERVICES AVAILED. BY STATING THAT INCOME IN THE CASE OF BSMP L HAD BEEN TAXED AS INCOME FROM OTHER SOURCES,THE AO HAD ADMITTED THAT THE ASSESSEE HAD M ADE PAYMENT TO THE COMMISSION AGENT.ONCE PAYMENT WAS NOT DOUBTED HE COULD HAVE MADE THE DISA LLOWANCE BY PROVING THAT NO SERVICES WERE RENDERED BY THE AGENT OR THAT THE EXPENDITURE WAS N OT INCURRED WHOLLY AND EXCLUSIVELY FOR THE 3 ITA NO.63/BLPR/2011-ACIT VS. SARTHAK METALS BUSINESS OR THAT THE PAYMENT WAS HIT BY THE PROVISI ONS OF EXPLANATION TO SECTION 37(1) OF THE ACT.HE HAS NOT OPTED ANY OF THE ABOVE THREE OPTIONS AND ADOPTED A UNIQUE METHOD-MAKING AD HOC DISALLOWANCE WITHOUT GIVING ANY REASON.BUT,SUCH APP ROACH CANNOT BE APPROVED.INTEREST OF REVENUE CANNOT BE SERVED IN THIS MANNER.THE BEHAVIOR OF SEN IOR OFFICERS IN THE CASE BEFORE US,IS ALSO BEYOND OUR COMPREHENSION.THE FAA,A VERY SENIOR OFF ICER PERFORMING JUDICIAL DUTIES,HAD PASSED A SPEAKING AND REASONED ORDER NARRATING ALL THE REL EVANT FACTS AND DISCUSSING THE LEGAL POSITION.NO REASONABLE PERSON CAN FIND AN IOTA OF PERVERSITY IN HIS ORDER. THEREFORE,TO CHALLENGE SUCH AN ORDER IS NOTHING BUT MISUSE OF JUDICIAL PROCESS.APPEALS B EFORE THE TRIBUNAL SHOULD NOT FILED MERELY BECAUSE THE TAX EFFECT IS MORE THAN THE PRESCRIBED MONETARY LIMITS.CIT.S ARE SUPPOSED TO TAKE A JUDICIAL AND IMPARTIAL VIEW WHILE AUTHORISING THE F ILING OF APPEALS.BUT,IN THE CASE UNDER CONSIDERA -TION,WE FIND THAT THE SUPERVISORY OFFICERS HAVE FA ILED TO ACT IN A JUDICIOUS MANNER AND HAVE RECOMMENDED /AUTHORISED THE FILING OF APPEAL IN A R OUTINE MATTER.CBDT HAS ISSUED INSTRUCTIONS TO FIELD OFFICERS NOT TO FILE FRIVOLOUS APPEAL.BUT,IT APPEARS THAT IN THE PRESENT CASE INSTRUCTIONS OF TH E BOARD WERE NOT ADHERED TO. HOWEVER,AFTER GOING THROUGH THE ORDER OF THE FAA,WE ARE OF THE OPINION THAT HIS ORDER IS NOT SUFFERING FROM ANY LEGAL OR FACTUAL INFIRMITY.SO,CO NFIRMING THE SAME,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISALLOWED. > #> @ A - . ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH ,DECEMBER,2014. - E 19 F ,2014 - . SD/- SD/- (H.L.KARWA/ . .. . . .. . ) ( ! ! ! ! / RAJENDRA) PRESIDENT/ = = = = /ACCOUNTANT MEMBER /RAIPUR. F DATE: 19.12.2014 . - -- - *#HI *#HI *#HI *#HI JI JI JI JI / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ) 2. RESPONDENT / *+) 3. THE CONCERNED CIT(A)/ K L , 4. THE CONCERNED CIT / K L 5. DR ITAT,RAIPUR BENCH/ I *## , . . . , 6. GUARD FILE/ . +I *# //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.