SAI DRUGS & PHARMACEUTICALS CO., MUMBAI V. ITO 22(2)(3), NAVI MUMBAI

ITA 6531/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56090 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 01-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Commercial expediency
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.6531/MUM/2009 (ASSESSMENT YEAR: 2006-07) M/S. SAI DRUGS AND PHARMACEUTICALS CO., 110, DAMJI SHAMJI TRADE CENTRE, KIROL ROAD, VIDYA VIHAR (W), MUMBAI -400 086 ....... APPELLANT VS ITO -22(2)(3), 4TH FLOOR, TOWER NO.6, VASHI RLY. STAN. COMPLEX, VASHI, NAVI MUMBAI ..... RESPONDENT PAN: AAMFS 8754 R APPELLANT BY: SHRI HARI S. RAHEJA RESPONDENT BY: SHRI V.V. SHASTRI DATE OF HEARING: DATE OF PRONOUNCEMENT: 01.08.2011 19.08.2011 O R D E R PER R.S. PADVEKAR, JM IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-33, MUMBAI DATED 30.11.2009 FOR THE A.Y. 2006-07. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROU ND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING THE A.O.S ACTION OF DISALLOWANCE OF ` 24,99,664/- OUT OF THE PAYMENT OF BROKERAGE AND COMMISSION CLAIMED BY THE APPELLAN T. THE APPELLANT SUBMITS THAT THE PAYMENT OF BROKERAGE AND COMMISSION ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 2 WAS FOR COMMERCIAL EXPEDIENCY AND PAID FOR SERVICES RENDERED AND HENCE THE DISALLOWANCE MADE OUGHT TO BE ALLOWED . 2. BRIEFLY STATED FACTS ARE AS UNDER. THE ASSESSEE IS ENGAGED IN THE WHOLESALE BUSINESS, DRUGS AND SOLVENT AND CHEMICALS . THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE INCOME OF ` 5,03,802/- FOR THE A.Y. 2006-07. THE RETURN OF INCOME FILED BY THE AS SESSEE WAS SELECTED FOR SCRUTINY. IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS CLAIMED THE SUM OF ` 25,00,214/- AS AN EXPENDITURE TOWARDS THE BROKERAG E AND COMMISSION. OUT OF THE SAID EXPENDITURE IN RES PECT OF 7 PARTIES, WHOSE NAMES ARE GIVEN IN ASSESSMENT ORDER OF PAGE N O.2, THE ASSESSEE HAS SHOWN OUTSTANDING COMMISSION PAYABLE TO THE EXT ENT OF ` 12,21,796/-. THE A.O. WAS DOUBTFUL ON BONA FIDES O F THE COMMISSION AND BROKERAGE EXPENDITURE CLAIMED BY THE ASSESSE. THE A.O., THEREFORE, RESORTED TO SECTION 133(6) OF THE ACT AN D CALLED FOR THE INFORMATION FROM THE RECIPIENT OF THE COMMISSION ON THE RANDOM BASIS, I.E. I) SHEHNAZ POONAWALA, II) SHEHNAZ MASTAQ PATEL, III) MUSTAQ M. PATEL, IV) MOHAMMED PATEL, V) ZARINA M. PATEL 3. AS NOTED BY THE A.O., ALL THOSE PARTIES RESPONDE D TO THE NOTICES AND FILED THE COPY OF THE RETURN OF INCOME FURNISHE D BY THEM SHOWING THE COMMISSION RECEIVED FROM THE ASSESSEE-FIRM. TH EN ALSO THE A.O. WAS NOT SATISFIED REGARDING THE GENUINENESS OF THE COMMISSION, AS IN HIS OPINION SO CALLED PAYMENT OF THE COMMISSION IS IN THE NATURE OF AN ARRANGEMENT OF THE ASSESSEE WITH THE ABOVE PARTIES. THE A.O. FURTHER PROCEEDED TO KNOW THE SERVICES RENDERED BY THOSE PA RTIES FOR WHICH THE PAYMENT OF COMMISSION WAS MADE. THE ASSESSEE P RODUCED THE DEBIT NOTES WHOSE DETAILS ARE GIVEN ON PAGE 3 OF TH E ASSESSMENT ORDER. AS PER THE FACTS ON RECORD, DETAILS FURNISHED BY TH E ASSESSEE WITH ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 3 REGARDS WITH THE CREDIT NOTES WERE IN RESPECT OF TH E PURCHASE OF THE IBUPROFEN, SMO POWDER & METHOXIDE FROM DIFFERENT REPUTED COMPANIES LIKE INDUSTRIAL ORGANICS LTD., NOCHOLAS P IRAMAL (I) LTD., ARISTO PHARMA, SUDARSHAN LABORATORIES LTD. ETC. TH E A.O. ALSO ISSUED THE LETTERS /NOTICES TO THE MANUFACTURERS OF THE AB OVE DRUGS ASKING THEM TO FURNISH TAX / RETURNS, IF ANY, INVOLVED AS A COMMISSION AGENT AS CLAIMED BY THE ASSESSEE. ALL THE SAID COMPANIES CONFIRMED IN WRITING THAT NO MIDDLEMAN WAS INVOLVED AS COMMISSIO N AGENT IN THE SALE/PURCHASE MADE BY THE ASSESSEE. THE A.O. SOUGH T THE EXPLANATION OF THE ASSESSEE ON THE BASIS OF THE REP LY RECEIVED FROM THE DEALERS/MANUFACTURES OF THOSE DRUGS AND CHEMICALS. THE A.O. WAS NOT READY TO ACCEPT THE EXPLANATION THAT THE MIDDLE MEN WERE ENGAGED BY THE ASSESSEE AND NOT BY THE ABOVE PARTIES AND HE NCE THEY COULD NOT HAVE THE KNOWLEDGE ABOUT THE MIDDLEMAN. IN THE OPI NION OF THE A.O., NO PRUDENT BUSINESSMAN WOULD PAY SUCH A HUGE AMOUNT OF COMMISSION AND BROKERAGE. IT APPEARS THAT THE A.O. ASKED THE ASSESSEE TO PRODUCE THE COMMISSION AGENTS/MIDDLEMAN FOR INTERROGATION, BUT NONE APPEARED. THE A.O., FINALL Y MADE DISALLOWANCE OF COMMISSION/BROKERAGE AND MADE ADDITION OF ` 24,99,664/- BY COMING TO THE CONCLUSION THAT IT WAS A DUBIOUS DEVI CE USED BY THE ASSESSEE FOR AVOIDING THE TAX. 4. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CI T (A) BUT WITHOUT SUCCESS AS THE LD. CIT (A) CONFIRMED THE ADDITION M ADE BY THE A.O. THE OPERATIVE PART OF THE REASONS CONFIRMING THE AD DITIONS ARE AS UNDER:- THE APPELLANT HAS NOT BEEN ABLE TO PROVE THE QUALIF ICATION OF THE AGENTS. THE APPELLANTS ARGUMENT THAT THE AGENTS WE RE ENGAGED BY THE APPELLANT AND NOT THE OTHER PARTY FOR THE OT HER TO KNOW THEM DOES NOT CARRY WEIGHT. IF THE AGENTS HAD INDE ED PROCURED BUSINESS THEY WOULD HAVE MET THE CONCERNED PARTIES. THE APPELLANT WAS GIVEN AN OPPORTUNITY TO PRODUCE THE P ERSONS TO ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 4 WHOM COMMISSION HAS BEEN PAID FOR EXAMINATION. THI S OPPORTUNITY WAS NOT AVAILED. THERE IS NO RECORD TO SUGGEST THAT THE CONCERNED PERSONS HAD PROCURED SALES. THE PROD UCTIONS OF A FEW DOCUMENTS DO NOT PROVE NATURE OF SERVICE DONE. APART FROM THESE DOCUMENTS THERE IS NO EVIDENCE OF MEETINGS ET C. BETWEEN THE COMMISSION AGENTS AND THE CONCERNED PARTIES. T HE CONCERNED PARTIES FROM WHOM SALES HAVE BEEN AFFECTED HAVE CLE ARLY DENIED THE INVOLVEMENT OF A COMMISSION AGENT AND THE CONCE RNED PARTIES. THE CONCERNED PARTIES FROM WHOM SALES HAVE BEEN AFF ECTED HAVE CLEARLY DENIED THE INVOLVEMENT OF A COMMISSION AGEN T BUT HAVE ADMITTED TO DIRECT SALES. THE REASON FOR MORE THAN ONE PERSON INVOLVING IN THE SALE FROM A SINGLE ENTITY FOR A SI MILAR PRODUCT REMAINS TO BE SATISFACTORILY EXPLAINED. FACTS OF T HE CASE CLEARLY POINT THAT THESE COMMISSION AGENTS ARE BOGUS INTERM EDIARIES. THE APPELLANT HAS NOT BEEN TO PROVE THAT THESE INTE RMEDIARIES ACTUALLY NEGOTIATED WITH THE CONCERNED PARTIES IN R ELATION TO SALE AND BOOKED ORDERS AND THUS RENDERED SERVICES. NO A RGUMENT HAS BEEN PRODUCED AS A PRIMA FACIE PROOF. IN FACT THE CONCERNED PARTIES HAVE DENIED THE EXISTENCE OF COMMISSION AGE NTS IN THESE TRANSACTIONS WHICH IS AN IMPORTANT POINT TO THE FAC T THAT NO AGENTS EXISTED. THE APPELLANT HAS FAILED TO PROVE THE GENUINENESS O F SUCH EXPENDITURE. THE APPELLANT HAS SIMPLY RELIED ON TH E MODE OF PAYMENT TO STATE PAYMENT WAS MADE. HOWEVER, PAYMEN T MADE EVEN IF NOT IN DOUBT TO BE ACCEPTED, AS DEDUCTION H AS TO BE ESTABLISHED AS EXPENSE WHOLLY AND SOLELY FOR BUSINE SS. THIS HAS NOT BEEN DONE. NOTHING NEW HAS BEEN PRODUCED DURIN G THE APPELLATE PROCEEDINGS TO ESTABLISH THE EXPENSE AS G ENUINE. HE APPELLANT I FIND THAT HAS FAILED TO DISCHARGE THE O NUS PLACED UPON HIM TO ESTABLISH THE EXPENSE AS GENUINE. AT NO POI NT OF TIME THE EXACT NATURE AND MODE OF SERVICE RENDERED BY THE PE RSONS TO EARN THE COMMISSION PAID HAS BEEN EXPLAINED. THE ARGUME NT PUT FORTH ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 5 BY THE ASSESSING OFFICER WHILE MAKING THE DISALLOWA NCE ALSO DO NOT STAND REBUTTED WITH PROOF. I FIND THAT THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT MECHANICAL. IT HAS ONLY BEEN DONE AS THE ASSESSING OFFICER IS NOT MECHANICAL. IT HAS ONLY BEEN DONE AS THE ASSESSING OFFICERS INVESTIGATION REVEALED T HAT THE JUSTIFICATION FOR MAKING THE EXPENSE WAS NOT THERE AND THE GENUINENESS OF THE PAYMENT WAS IN DOUBT. I FIND TH AT THE ASSESSING OFFICER WAS JUSTIFIED IN CONCLUDING THAT THE COMMISSION PAID BY THE APPELLANT WAS WITHOUT ANY COMMERCIAL CO NSIDERATION OR BUSINESS EXPEDIENCY AND THAT THERE WAS NO WORK D ONE OR SERVICE RENDERED. THE ASSESSING OFFICER HAS INVEST IGATED AND MADE CATEGORICAL FINDINGS ON THIS ISSUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. THE LD. COUNSEL ARGUES THAT THE ASSES SEE PRODUCED COPIES OF RETURNS FILED BY ALL THE PARTIES BEFORE T HE A.O. IN WHICH COMMISSION PAID BY THE ASSESSE WAS DECLARED. IT IS ARGUED THAT, INITIALLY, ALL THE PARTIES APPEARED BEFORE THE A.O. AND AT THAT TIME THE A.O. DID NOT INTERROGATE BUT SUBSEQUENTLY STARTED A SKING THE ASSESSEE TO PRODUCE ALL THE PARTIES FOR INTERROGATION. THE DEPARTMENT HAS ACCEPTED THE RETURNS FILED BY THOSE COMMISSION AGEN TS SHOWING THE ENTIRE AMOUNT OF COMMISSION RECEIVED FROM THE ASSES SEE-FIRM. HE SUBMITS THAT ALL THE EVIDENCES WERE BEFORE THE A.O. AND DISALLOWANCE AS MADE SOLELY ON THE BASIS OF SUSPICION. HE SUBMI TS THAT ISSUE MAY BE REMANDED TO THE FILE OF THE A.O. FOR FRESH ADJUD ICATION OR RECONSIDERATION AS THERE IS A SUFFICIENT EVIDENCE A VAILABLE WITH THE ASSESSEE. WE HAVE ALSO HEARD THE LD. D.R. THE LD . D.R. HAS NO OBJECTION FOR REMITTING THE ISSUE BACK TO THE FILE OF THE A.O. 5. ON THE PERUSAL OF THE ASSESSMENT ORDER WE FIND T HAT WHEN THE A.O. STARTED THE ENQUIRY AND THE ISSUE NOTICES TO T HE RECIPIENT OF THE COMMISSION ON RANDOM BASIS. THOSE PERSONS APPEARED BEFORE THE A.O. AND HAVE ALSO FILED THE PROOF DECLARING THE CO MMISSION RECEIVED ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 6 FROM THE ASSESSEE-FIRM BY WAY OF THEIR INCOME TAX R ETURNS. AT ONE END, THE A.O. SAID THAT ALL THE PARTIES RESPONDED B UT SUBSEQUENTLY AT THE OTHER END HE STATES THAT NO PARTY APPEARED FOR THE INTERROGATION. THERE IS A CONTRADICTION IN THE OBSERVATIONS OF THE A.O. IN OUR OPINION, THIS ISSUE NEEDS RECONSIDERATION. WE, THE REFORE, RESTORED THE ISSUE BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDI CATION DE NOVO AFTER CONSIDERING THE EVIDENCE FILED BY THE ASSESSEE. AC CORDINGLY, ORDER OF THE LD. CIT (A) IS SET ASIDE ON THIS ISSUE. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9TH AUGUST 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 19TH AUGUST 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)33, MUMBAI. 4) THE CIT-22, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 6531/MUM/2009 M/S. SAI DRUGS AND PHARMACEUTICALS CO. 7 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 02.08.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 02.08.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER