Rajendra Agarwal, Hyderabad, Hyderabad V. ACIT, Circle-10(1), Hyd, Hyderabad

ITA 663/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6388 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Gift; Deemed to accrue or arise in india
• Section: 142(1); 37(1)

Judgement Text

ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI PARTHA SARATHI CHAUDHURI, JUDICIAL MEMBER ITA NO.663/HYD/2015 (ASSESSMENT YEAR: 2011-12) SHRI RAJENDRA AGARWAL, PROP. OF M/S. THE INDIAN HARDWARE MART, SECUNDERABAD PAN: ABGPA 6386 A VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHURAM FOR REVENUE : SHRI K.E. SUNIL BABU, DR DATE OF HEARIN G : 29 .06.2016 DATE OF PRONOUNCEMENT : 01 .0 7 .2016 O R D E R PER SHRI PARTHA SARATHI CHAUDHURI, J.M. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE LEARNED CIT (A)-IV HYDERABAD DATED 23.02.2015 F OR THE RELEVANT A.Y 2011-12. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BO TH ON FACTS AND IN LAW TO THE EXTENT IT IS PREJUDICIAL TO THE ASSESSEE. 2. THE LEARNED COMMISSIONER ERRED IN CONFIRMING DISALLOWANCE OF RS.24, 04,459/- WITHOUT REFERRING T O ANY OF THE SUBMISSIONS MADE. 3. THE LEARNED COMMISSIONER FAILED TO APPRECIATE TH AT THE PRODUCT MARKETED IS NOT SELLABLE OFF THE SHELF AND REQUIRES INFORMATION ABOUT PARTIES WHO REQUIRE THEM AND THEREFORE THE MIDDLEMAN IS INVOLVED AND IT IS NOT ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 2 OF 7 POSSIBLE ALWAYS TO DEMONSTRATE THAT SUCH MIDDLEMAN GOT THE INFORMATION FROM THE ULTIMATE BUYER TO DEMONSTRATE SERVICES FOR RECEIVING COMMISSION, ARID THEREBY ERRED IN HOLDING THAT THE ASSESSEE HAS NOT DISCHARGED HIS ONUS OF PROVING THE REQUIREMENT OF PAYMENT OF COMMISSION FOR BUSINESS PURPOSE. 4. THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE T HE FACT THAT THE AO RELIED MAINLY ON THE STATEMENT OF TWO P ARTIES THOUGH SUCH PARTIES ARE NOT QUESTIONED AS TO WHAT HAPPENED TO THE COMMISSION RECEIVED AND FURTHER THA T THE AO HAS NOT DEMONSTRATED THAT SUCH AMOUNT HAS COME BACK TO THE ASSESSEE AND THEREBY ERRED IN CONFIRMING THE DISALLOWANCE OF ENTIRE COMMISSION PAYMENTS OF RS.24,04,459. 5. THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOW ANCE OF CLAIM OF AGRICULTURAL INCOME OF RS.30,OOO AND GI FTS RECEIVED OF RS.48,200 WITHOUT APPRECIATING THE FACT S. 6. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION MADE UJS.41(1) OF OUTSTANDING CREDITORS OF RS.22,790 IN SUSPENSE ACCOUNT. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, ENGAGED IN THE BUSINESS OF TRADING IN INDUSTRIAL VA LVES, PIPE FITTINGS AND PIPES UNDER THE NAME AND STYLE OF A PROPRIETARY CONCERN M/S INDIAN HARDWARE MART, FILED ITS RETURN OF INCOME ON 28.09.2011 FOR A.Y 2011-12, DECLARING A TOTAL INCOME OF RS.50,63,2 82. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND THE ASSESSMENT WAS COMPLETED BY THE AO WITH TOTAL INCOME ASSESSED AT RS.75,68,730. 3. GROUND NOS. 1 & 7 ARE GENERAL IN NATURE, HENCE N EED NO ADJUDICATION. GROUND NOS. 2,3 AND 4 RELATE TO THE D ISALLOWANCE OF ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 3 OF 7 COMMISSION PAYMENT OF RS.24,04,459. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, AO SOUGHT FOR THE DETAILS O F THE COMMISSION PAID ALONG WITH NATURE OF SERVICES RENDE RED BY EACH PARTY TO JUSTIFY SUCH PAYMENTS. ASSESSEE FILED STER EO TYPED CONFIRMATIONS FROM VARIOUS PARTIES. THERE WERE NO D ETAILS FILED REGARDING PAYMENT MADE TO OTHERS. ASSESSEE DID NOT FILE ANY DETAILS REGARDING THE SERVICES RENDERED BY THESE PARTIES. A SSESSEE FURTHER CLAIMED THAT THE PAYMENTS HAVE BEEN MADE BY CHEQUES AND TDS WAS MADE WHEREVER REQUIRED. AO ISSUED SUMMONS AND E XAMINED RECIPIENTS OF COMMISSION ON OATH AND RECORDED THEIR STATEMENTS. THE RECIPIENTS OF THE COMMISSION, EXCEPT ONE PARTY, COULD NOT GIVE ANY DETAILS OF THE SERVICES RENDERED BY THEM TO THE ASSESSEE. THEY COULD NOT IDENTIFY OR GIVE NAMES OF CUSTOMERS. AO G AVE AN OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE THE PE RSONS WHOSE STATEMENTS WERE RECORDED, WHICH WAS DECLINED. ONLY ONE RECIPIENT GAVE, M/S REX WOOD PRODUCTS AS THE PARTY/CUSTOMER W HO WAS INTRODUCED BY HIM. AO AFTER MAKING ENQUIRIES WITH T HE CUSTOMER WHO WAS INTRODUCED BY THE ABOVE PARTY, WHO DENIED H AVING ANY MIDDLEMAN CAME TO THE CONCLUSION THAT NO SERVICES W ERE RENDERED BY THE ABOVE PARTY WARRANTING HUGE PAYMENT OF COMMI SSION. AS ALL THE OTHER RECIPIENTS OF COMMISSION COULD NOT GIVE A NY DETAILS AS TO THE CUSTOMERS INTRODUCED BY THEM NOR SERVICES RENDE RED BY THEM TO THE ASSESSEE WARRANTING COMMISSION PAYMENTS, THE AO DISALLOWED THE COMMISSION PAYMENTS AS BEING NOT INC URRED FOR THE PURPOSE OF BUSINESS. 4. THE LEARNED CIT (A) OBSERVED THAT THE AO HAS CON DUCTED A THOROUGH INQUIRY AS TO THE FACTUM OF SERVICES RENDE RED AND ALLOWABILITY OF THE COMMISSION EXPENSES CLAIMED BY THE ASSESSEE. ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 4 OF 7 THE CIT (A) HELD THAT FROM THE AOS INQUIRY, THE CL AIM OF THE ASSESSEE REGARDING SERVICES RENDERED BY THE PARTIES WHO RECEIVED COMMISSION STANDS DISPROVED. ASSESSEE HAS FAILED TO DISCHARGE THE ONUS OF PROVING THAT THE EXPENDITURE CLAIMED IS WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENTS ARE MADE BY WAY OF CHEQUES AND TD S HAS BEEN MADE WHEREVER REQUIRED CANNOT BE THE GROUND FOR ALL OWING EXPENDITURE U/S 37(1) AND THEREFORE, THE AOS ACTIO N ON DISALLOWANCE WAS CONFIRMED BY THE FIRST APPELLATE A UTHORITY. 5. ON FURTHER APPEAL BEFORE US, WE HAD ASKED THE LE ARNED AR TO PRODUCE ANY LEDGER A/C REGARDING THE PAYMENTS OF EN TIRE COMMISSION WHEREVER AVAILABLE OR NOT. WE HAD ASKED THE AR REGARDING THE EXACT RATE OF COMMISSION PAID AND WHA T IS THE CORRELATION BETWEEN THE SALES AND THE COMMISSION PA ID. THE AR PRODUCED THE LEDGER A/C COPIES AND WE HAVE CAREFULL Y PERUSED THE SAME AND OTHER RELEVANT DOCUMENTS ON RECORD, THE OR DERS OF THE SUBORDINATE AUTHORITIES AND WE ARRIVE AT OUR CONSID ERED VIEW THAT IN THE LEDGER A/C THERE IS NO DEFINITE RATE OF COMM ISSION THAT IS PAID, THE COMMISSION IS NOT PAID ON WEEKLY BASIS OR MONTHLY BASIS. WE FIND THAT IT IS MOSTLY PAID TOWARDS THE END OF T HE YEAR. IT HAS BEEN ALREADY DECIDED BY THE SUBORDINATE AUTHORITIES AFTER THOROUGH INQUIRIES THAT THE ASSESSEE HAS PAID COMMISSION WHI CH HAS NO NEXUS EITHER DIRECT OR INDIRECT WITH HIS BUSINESS. AFTER VERIFYING THE LEDGER A/C, WE ARE OF THE OPINION THAT IT IS A WAY TO INCREASE EXPENSES AND TO REDUCE THE LEVEL OF PROFIT. THE ASS ESSEE HAS ALSO NOT DISCHARGED BEFORE US THE CORRELATION BETWEEN TH E BUSINESS ACTIVITIES CONDUCTED BY HIM AND THE COMMISSION PAID WHICH THEREFORE, SIGNIFIES THAT THE PAYMENT OF COMMISSION HAS NOTHING TO ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 5 OF 7 DO WITH THE BUSINESS. WE ALSO NOTICE THAT IN THE CA SE OF GOPAL KUMAR, THE COMMISSION WAS PAID ON 05.02.2011 BUT TH E ASSESSEE INCLUDED THE SALES OF MARCH, 2011 AND LATER PART OF FEBRUARY 2011 ALSO IN THE SALES COMMITTED BY HIM, WHICH INDICATES THAT THERE IS NO CORRELATION BETWEEN SALES AND COMMISSION PAID. ONE OF THE ARGUMENT RAISED WAS THAT ASSESSEE WAS PAYING COMMIS SION IN EARLIER YEARS AND THE SAME SHOULD BE ALLOWED. WE AR E NOT INFORMED WHETHER THE AO MADE ENQUIRY IN EARLIER YEARS OR NOT . IN THIS YEAR THE AO MADE ENQUIRIES AND FOUND THAT NO SERVICES WE RE RENDERED BY THE PERSONS WHO WERE PAID COMMISSION. WE ARE CON VINCED THAT THERE IS NO JUSTIFICATION FOR PAYMENT OF COMMISSION . UNDER THE CIRCUMSTANCES, WE UPHOLD THE ORDER OF THE LEARNED C IT (A) IN THIS REGARD AND THIS ISSUE OF COMMISSION PAYMENT IS DISM ISSED. 6. GROUND NO.5 RELATES TO THE CONFIRMATION OF ADDIT ION ON THE GROUND OF DISALLOWANCE OF CLAIM OF AGRICULTURAL INC OME OF RS. 30,000 AND RS.48,200 ON ACCOUNT OF UNPROVED GIFTS. REGARDING THE AGRICULTURAL INCOME, THE AO SOUGHT THE DETAILS OF L AND OWNED, CROPS GROWN AND EVIDENCES FOR SALE OF AGRICULTURAL PRODUC E. THE ASSESSEE HAS GIVEN ONLY THE DETAILS OF LAND HOLDINGS AND STA TED THAT THE INCOME IS FROM SALE OF MANGOES AND NO EVIDENCE AS T O SALE OF AGRICULTURAL PRODUCE NOR EVIDENCE TO CLAIM THAT AGR ICULTURAL OPERATIONS WERE CARRIED WERE PRODUCED BEFORE THE AO . IN THE ABSENCE OF DOCUMENTARY EVIDENCE, THE CLAIM OF AGRIC ULTURAL INCOME WAS DISBELIEVED AND THE SAME WAS ADDED TO THE INCOM E. REGARDING THE ALLEGED GIFTS, ASSESSEE HAS NOT GIVEN ANY DETAI LS, HENCE THE AO HAS MADE ADDITION OF RS.48,200. BEFORE THE LEARNED CIT (A) THE AR COULD NOT JUSTIFY HIS CLAIMS AND ACCORDINGLY THE CI T (A) CONFIRMED THESE ADDITIONS AS DONE BY THE AO. AS PER OUR CONSI DERED VIEW, ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 6 OF 7 SINCE THERE IS NOTHING ON RECORD TO SUPPORT THE CLA IM OF THE ASSESSEE AND THE SUBORDINATE AUTHORITIES AFTER COND UCTING NECESSARY INQUIRY HAVE CONFIRMED THE SAID ADDITION, WE ACCORDINGLY SEE NO REASON TO INTERFERE WITH THE ORDER OF THE LE ARNED CIT (A) AND THEREFORE UPHELD THE SAID ADDITIONS. HENCE, THIS IS SUE IS ALSO DISMISSED. 7. GROUND NO.6 RELATES TO THE ADDITION OF RS.22,790 MADE BY THE AO AS OUTSTANDING TOWARDS SUSPENSE A/C UNDER SUNDRY CREDITORS AS ON 31.03.2012 U/S 41(1) OF THE ACT. BEFORE THE A O, THE DETAILS REGARDING THE OUTSTANDING TOWARDS SUSPENSE A/C WERE CALLED FOR. THE ASSESSEE SUBMITTED THAT THE SUSPENSE A/C WILL B E CREDITED ONLY WHEN THE DIRECT AMOUNT IS DEPOSITED IN THE BANK AND TILL THE NAME OF THE CUSTOMER IS NOT TRACED IT WILL BE KEPT UNDER SUSPENSE. THE AO NOTICED THAT THIS AMOUNT OF RS.22,790 IS SHOWN A S PAYABLE SINCE MORE THAN 3 YEARS. THAT THE AO OBSERVED IT IS FOR THE ASSESSEE TO PROVE THAT THE AMOUNT PAYABLE WAS AT THE END OF THE YEAR STILL PAYABLE AND THAT THE LIABILITY TO PAY STILL CONTINU ES. AO HELD THAT WHEN THE CUSTOMER IS NOT TRACEABLE, THERE ARE NO CL AIMANTS FOR THIS AMOUNT. THEREFORE, THIS AMOUNT OF RS.22,790 IS BROU GHT TO TAX U/S 41(1) AS DEEMED INCOME OF THE ASSESSEE. THE LEARNED CIT (A) UPHELD THE ADDITION. THAT ON THIS ISSUE WE ARRIVE AT OUR C ONSIDERED VIEW AFTER PERUSING THE PROVISIONS OF SECTION 41(1) OF T HE ACT AND THE ACTUAL SPIRIT OF THE SECTION THAT THE AO HIMSELF ME NTIONED THAT THE AMOUNT IS OUTSTANDING FOR MORE THAN 3 YEARS. HE CON CLUDED THAT IN THE ABSENCE OF ANY CLAIM THE AMOUNT PARTAKES THE CH ARACTER OF INCOME OF THE ASSESSEE. INVOKING THE PROVISIONS OF SECTION 41(1), THE AO HAD ADDED THE AMOUNT. THAT FOR INVOKING OF PROVI SIONS OF SECTION 41(1) THE AO HAS TO PROVE THAT THE AMOUNT W AS ALLOWED AS ITA NO 663 OF 2015 RAJENDRA AGARWAL HYDERABAD PAGE 7 OF 7 EXPENDITURE IN ANY OF THE EARLIER A.YS. FURTHER, TH ERE SHOULD HAVE BEEN A REMISSION OF SUCH AMOUNT BY THE PARTY CONCER NED. BOTH THE CONDITIONS ARE NOT PREVALENT IN THE FACTS MENTIONED IN THE ORDER OF THE AO. FURTHER, FOR INVOKING THE DEEMING PROVISION , THE ONUS RESTS ON THE AO AND NOT ON THE ASSESSEE. THE AO HIMSELF M ENTIONED THAT THE LIABILITY WAS OUTSTANDING FOR MORE THAN 3 YEARS WHICH FACTS CONFIRMS THAT THE AMOUNT DOES NOT PARTAKE THE NATUR E OF INCOME OF THE ASSESSEE FOR THE A.Y UNDER CONSIDERATION. THERE FORE, THIS ADDITION IS DELETED. HENCE THE GROUND IS ALLOWED. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JULY, 2016. S D/ - S D/ - (B. RAMAKOTAIAH) (PARTHA SARATHI CHAUDHURI) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED 1 ST JULY, 2016. VNODAN/SPS COPY TO: 1. SHRI A.V. RAGHU RAM, P.VINOD & M. NEELIMA DEVI, ADVOCATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500001 2. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 10(1) IT TOWERS, AC GUARDS, HYDERABAD 500 004 3. CIT(A) 4 HYDERABAD 4. CIT-V HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER