Sh. Raman Sethi, New Delhi V. ACIT, Meerut

ITA 6635/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1431 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Business income; Principle of natural justice; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F, NEW DELHI ] BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 6635/DEL/2016 ASSESSMENT YEAR: 2013-14 SH. RAMAN SETHI B-3/58, JANAK PURI, NEW DELHI, PIN: 110058 VS. ACIT CIRCLE-2, AAYAKAR BHAWAN, BHAINSALI GROUND DELHI ROAD, MERUT PAN: ACVPS2535F (APPELLANT) (RESPONDENT) ASSESSEE BY : SH ROHIT TIWARI, ADV. DEPARTMENT BY : SHRI SURENDER PAL, SR. DR DATE OF HEARING : 06-06-2019 DATE OF PRONOUNCEMENT : 06-06-2019 O R D E R PER DR.B.R.R. KUMAR, AM : THIS APPEAL ARISES OUT OF THE ORDER OF THE LD. CIT (A) ,MEERUT DATED 08-11- 2016. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER OF THE ID. CIT (A), CONFIRMING THE D ISALLOWANCE OF COMMISSION AMOUNTING TO RS.60,21,397/-MADE BY THE AO, IS LIABL E TO BE QUASHED, BEING CRYPTIC AND NONSPEAKING, VIOLATING THE PRINCIPLES O F NATURAL JUSTICE AND HAVING BEEN PASSED WITHOUT ANALYZING THE EVIDENCE REGARDIN G SERVICES RENDERED BY EACH OF THE 13 AGENTS IN TERMS OF THE RESPECTIVE AGREEME NTS ENTERED IN TO BY THE ASSESSEE WITH THEM AND RECORDING HIS SPECIFIC FINDI NGS THEREON. 1.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ID. CIT (A), ERRED IN CONFIRMING THE DISALLOWANCE OF CO MMISSION AMOUNTING TO RS.60,21,397/-, HOLDING THE SAME TO BE BOGUS AND NO N GENUINE, ESPECIALLY WHEN EACH OF THE AGENT CONFIRMED BEFORE THE AO IN RESPEC T OF SERVICES RENDERED BY 2 THEM IN TERMS OF THE RESPECTIVE AGREEMENT AND RECEI PT OF COMMISSION BY ACCOUNT PAYEE CHEQUES PAID AFTER DEDUCTING THE TDS AND PAYI NG THE SERVICE TAX AS APPLICABLE AS PER LAW. 1.3 THAT ON THE FACTS & IN LAW, THE LD. CIT (A) ERR ED IN UPHOLDING THE DISALLOWANCE OF THE AFORESAID COMMISSION EXPENSES, IGNORING THE EVIDENCE ON RECORD, INCLUDING THE STATEMENTS OF AGENTS RECORDED BY THE AO SPECIALLY WHEN THE SAID EXPENSES INCLUDE AN AMOUNT OF RS. 18.5 LAC S APPX. UNDER THE RATE CONTRACT AGREEMENT, INCURRED BY THE APPELLANT TOWAR DS EARNING OF COMMISSION OF RS. 25 LACS APPX., TAXED BY THE AO. 1.4 THAT ON THE FACTS & IN LAW, THE LD. CIT (A) ERR ED IN IGNORING THE EVIDENCE ON RECORD AND THE CASE LAW CITED BY THE APPELLANT W HILE OBSERVING, INTER ALIA, THAT THE ASSESSEE FAILED TO FILE THE COPY OF ITR ALONGWI TH COMPUTATION OF INCOME OF THE PERSONS TO WHOM THE AFORESAID COMMISSION HAS BE EN PAID BY THE APPELLANT SPECIALLY WHEN THE CIT(A) HIMSELF RECORDED IN PARA 7 AND PAGE 9 OF THE IMPUGNED ORDER, THE FACTUM OF THESE DOCUMENTS FILED BEFORE THE AO. 1.5 THAT ON THE FACTS & IN LAW, THE LD. CIT (A) GRO SSLY ERRED IN UPHOLDING THE DISALLOWANCE OF AFORESAID COMMISSION EXPENSES, IGNO RING THE FACT THAT BUT FOR THE AGENTS TO WHOM COMMISSION HAS BEEN PAID TURNOVE R OF THE APPELLANT WOULD NOT HAVE INCREASED THREE FOLD VIS A VIS PRECEDING Y EAR AND THE AFORESAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF ITS BUSINESS BY THE ASSESSEE. HERE IT MAY BE POINTED OUT THAT THE AO HI MSELF ALLOWED SIMILAR CLAIM OF COMMISSION IN THE SUCCEEDING ASSESSMENT YEAR IN A S CRUTINY ASSESSMENT. THE ISSUE REVOLVES AROUND THE DISALLOWANCE OF COMMI SSION PAID TO THIRTEEN PARTIES AS LISTED BELOW: S.NO. NAME OF COMMISSION AGENT AMOUNT OF SALE CLAIMED COMMISSION AMOUNT % COMMISSION SERVICE TAX 1 MOHIT SETHI 93,97,963/- 4,70,679/- 5% NIL 2 RAJIV BHASIN 37,42,887/- 2,70,839/- 7.23% NIL 3 RENU SETHI 45,20,6 1 77- 2,59,7217- 5.75% NIL 4 PRAMOD CHANDER SAPRA 41,04,820/- 2,62,413/- 6.39% NIL 5 JYOTI BHASIN 63,96,882/- 3,24,657/- 5.08% NIL 6 PRASHANT SETHI 1,00,00,951/- 5,06,671/- 5.06% NIL 7 SAURABH SAPRA 1,00,16,338/- 5,00,000/- 4.99% NIL 8 BHARAT BHUSHAN GOEL 1,69,81,541/- 9,24,617/- 5.44% NIL 9 PANKAJ SACHDEV 45,37,854/- 2,00,000/- 4.41% NIL 3 10 SANDEEP SAHNI 29,57,719/- 1,59,456/- 5.39% NIL 11 DARPAN SAHNI 29,66,473/- 1,62,990/- 5.49% NIL 12 RISABH DHAWAN 59,93,5 66/- 3,01,086/- 5.02% NIL 13 NAV GANESHA SALES CORPORATION NIL 16,79,791/- NOT CALCULATED AS SALES IS NOT AVAILABLE 1,26,500/- 2. THE LD. CIT(A) WHILE DEALING WITH THE ISSUE HAS HEL D THAT THE ASSESSEE HAS FAILED TO FILE THE COPY OF ITR ALONG WITH COMPU TATION OF INCOME OF ABOVE PERSONS TO PROVE THAT THEY ALL HAVE EARNED COMMISSI ON INCOME FROM OTHER PERSONS APART FROM ASSESSEE. IT WAS HELD THAT THE ASSESSEE HAS PAID COMMISSION FROM 4.41% TO 7.23 , WHILE G.P. OF ASSES SEE IS ONLY 6.58% AND NET PROFIT IS 1.93% AND THE COMMISSION ON SALES IS DISPROPORTIONATE. LD.CIT (A) ALSO HELD THAT THE COMMISSION PAID TO FEMALE ME MEBERS HAS ALSO NOT BEEN ESTABLISHED THAT THESE COMMISSION PAYMENTS ARE GENUINE AND SO AS TO CLAIM AN EXPENDITURE IT MUST BE REAL AND EXPE NDED FOR THE PURPOSE OF BUSINESS AND THE UTILIZATION OF THAT EXPENDITURE H AS TO BE DEMONSTRATED TO SHOW TO THE ASSESSING AUTHORITY THA T IT HAS BEEN UTILIZED FOR THE BUSINESS PURPOSE ALONE. 3. THE MATTER HAS BEEN ARGUED BY THE RESPECTIVE REPRES ENTATIVES.THE ASSESSEES CLAIM IS THAT THE TOTAL SALES WAS RS. 15,22,67,310/- AND OUT OF TOTAL SALES RS. 8,31,11,796/- WAS MADE THROUGH COMMISSION AGENTS AND REST OF SALE OF RS. 6,91,55,514/- WAS MADE BY PROPRIETOR OF FIRM. C ONTRARY TO THE FINDINGS OF THE LD. CIT(A),WE FIND ON RECORD THAT ALL THE THIRTEEN PARTIES EXCEPT TWO HAVE COMPLIED TO THE NOTICES ISSUED BY THE REVENUE U/S 1 33(6). THE PARTIES AT SL. NO. 1 AND 2 HAVE ALSO ATTENDED PERSONALLY AND DEPOSED B EFORE THE REVENUE 4 AUTHORITIES. IT WAS ALSO FOUND FROM THE RECORD THAT THE SERVICES HAVE BEEN RENDERED BY THE AGENTS ON THE FOLLOWING AREAS OF BU SINESS. A) TO TAKE THE TENDERS & TO KEEP A WATCH FOR THE RE QUIREMENT/ SUPPLY & OTHER ISSUES RELATED TO TENDERS. B) THE NECESSARY STEPS RELATING TO THE LISTING, PRO VIDING THE NECESSARY DETAILS/ REQUIREMENTS OF THE COMPANIES WH O ARE PRODUCING THE MEDICINES UNDER THEIR LICENSE AND EVE N MARKETING ON THEIR OWN & ON THEIR DRUG LICENSE. C) PAYMENT OF THE TENDER FEE AND OBTAINING OF THE T ENDER. D) NEGOTIATION WITH THE PHARMACEUTICAL COMPANIES WH O ARE GOING TO SUPPLY THAT MATERIAL ON OUR BEHALF SPECIAL LY IN RELATION TO THE PRICES. E) SUBMISSION OF THE TENDERS AND NECESSARY DOCUMENT S. F) OPENING OF THE TENDER I.E. MAINLY REPRESENTED BY THE COMMISSION AGENTS IN THE DIFFERENT STATES AND OFFIC ES OF THE MINISTRY OF DEFENCE ON BEHALF OF OUR ASSESSEE. G) PROCUREMENT OF THE MEDICINES AND SUPPLY OF THE S AME SPECIALLY IS DIRECTLY UNDER THE CONTROL OF THE COMM ISSION AGENTS. THE TIMELY PROCUREMENT OF THE MEDICINES IS BEING GO VERNED & STRICTLY MONITORED BY THE COMMISSION AGENTS AS IT I S THE SOLE RESPONSIBILITY OF COMMISSION AGENTS. H) TO PURSUE THE MATTER RELATING RELEASE OF BANK GU ARANTEE DULY FURNISHED FOR THE SUPPLY OF THE ORDERS ACCORDI NG TO THE TENDERS CONDITIONS. THIS IS THE MOST DIGNIFIED, DEL EGATED WORK TO BE PURSUED BY THE COMMISSION AGENTS OTHERWISE IT WILL BE A DIRECT LOSS TO THE ASSESSEE AND IT REQUIRES THE COM MUNICATION AS WELL AS PERSONAL VISITS & PURSUING TO THE AUTHORITI ES FOR THE RELEASE OF PAYMENTS.. 5 J) COORDINATING WITH DEPARTMENTS/INSTITUTIONS FOR D ISPATCHES AND ENSURING TIMELY SUPPLY AND RECEIPT OF MEDICINES AND OTHER PRODUCTS AT THE INSTITUTIONS. SPECIFIC ATTENTION IS REQUIRED FOR COLD CHAIN PRODUCTS WHERE THE ALLOWABLE TRANSIT TIM E WINDOW IS LIMITED. K) THEY ARE HANDLING THE CONCERNED FOLLOW-UP, DOCUM ENTATION, HANDLING PROBLEMS RELATED TO THE PROCUREMENT, SUPPL Y ON BEHALF OF THE ASSESSEE BY THEIR OWN ENDS& FREE HAND S UNDER THE GUIDELINES OF THE ASSESSEE AS SEEMS SUITABLE & REQU IRED. THE NECESSARY UPDATES RELATED TO THE SUPPLY, TENDER, PR OCUREMENT OF MATERIAL, REALIZATION OF PAYMENTS, BANK GUARANTE ES IS DIRECTLY CONTROLLED & MONITORED THROUGH THESE COMMI SSION AGENTS FOR THE FACILITATION OF THE SERVICES TO THE ASSESSEE. I) THE COMMISSION AGENTS ARE AUTHORIZED AND HAVING THE RESPONSIBILITY TO PURSUE THE DEPARTMENTS FOR THE RE LEASE OF THE PAYMENTS FROM THE DEPARTMENT ON THE BASIS OF THE GO ODS SUPPLIED BY THE ASSESSEE FROM TIME TO TIME. IT IS W ORTHWHILE TO MENTION OVER HERE THAT IN SPITE OF THE BEST EFFORTS BEING PUT BY THE COMMISSION AGENTS, THE PAYMENTS ARE ALWAYS DELA YED FOR WHICH EXCELLENT SERVICES ARE REQUIRED. THE SUPPLY I F NOT MADE IN TIME, ACCORDING TO THE TENDERS TERMS & CONDITIONS, THEN 'THE LD CHARGES @ .50% OF THE PRICE OF STORE WHICH THE CONT RACTOR HAS FAILED TO DELIVER WITHIN THE STIPULATED TIME, FOR E ACH WEEK OR PART THEREOF, MAXIMUM DP-TWICE THE ORIGINAL DP WITH LD CHARGES'. THE COMMISSION AGENTS HAVE PLAYED IMPORTANT VITAL R OLE IN GROWTH OF BUSINESS OF ASSESSEE AND THEIR SIGNIFICAN T ROLE CANNOT BE DENIED AFTER PURSUING THE COMPLETE DETAILS IN CO MPARISON TO PREVIOUS ASSESSMENT YEARS. 6 THE DETAILED COMPARISON WITH THE ASSESSMENT YEAR IS AS NARRATED BELOW: S. NO. PARTICULARS A.Y. 2012-13 A.Y.2013-14 I SALES(IN LACS,) 575.15 1522.67 II NET PROFIT (%) 1.45 1.93 III GROSS PROFIT (%) 6.47 6.58 IV SALARY IN COMPARISON TO THE SALES (%) 2.30 1.93 4. ON HEARING THE PARTIES AND ON PERUSAL OF MATERIA L ON RECORD, WE FIND THAT ALL THE PAYMENTS HAVE BEEN MADE BY CHEQUE BY DEDUCTING THE TDS WHILE MAKING THE PAYMENT OF THE COMMISSION AS PER THE PROVISION OF T HE INCOME TAX ACT. ALL PARTIES HAVE SHOWN THEIR INCOME IN THEIR RETURNS OF INCOME WHICH HAVE BEEN DULY FILED BEFORE THE REVENUE AUTHORITIES IN RESPONSE TO THE N OTICES ISSUED AS AGAINST THE LD. CIT(A)S OBSERVATION THAT THE ASSESSEE FAILED TO FILE THE COPY OF ITR OF THE COMMISSION PARTIES. INFACT ALL PARTIES HAVE REPLIED TO REVENUE NOTICES ALONG WITH ITRS. OUT OF THE THIRTEEN COMMISSION AGENTS, ONLY THREE PEOPLE NAMELY, MOHIT SETHI, RENU SETHI AND PRASHANT SETHI ARE RELATED PA RTIES. THE COMMISSION BY MOHIT SETHI WAS RS. 3,79,800/- AND HE HAS PERSONALL Y ATTENDED BEFORE THE REVENUE AUTHORITIES AND THE AUTHORITIES COULD NOT P ROVE THAT HE HAS NOT EXTENDED ANY SERVICES. SIMILARLY, SHRI PRASHANT SETHI HAS EA RNED INCOME OF RS. 4,50,000/- AND HAS COMPLIED TO ALL THE NOTICES ISSUED BY THE R EVENUE. NO ADVERSE INFERENCE WAS BROUGHT BY THE REVENUE IN THIS CASE. OUT THE EN TIRE THIRTEEN PERSONS THE REPLY OF RENU SETHI COULD NOT BE OBTAINED AS SHE WAS NO M ORE ALIVE. IN THE CASE OF RISHAV DHAWAN WHO HAS BEEN PAID RS. 2,70,000/- AND HAS NOT COMPLIED TO THE NOTICE NO FURTHER ACTION HAS BEEN TAKEN BY THE REVE NUE REGARDING THE NON- 7 COMPLIANCE BY THIS PERSON. IT WAS ALSO FOUND THAT T HE LATE DELIVERY CHARGES DEDUCTED BY THE HOSPITALS PERTAINING TO THE SUPPLI ES DONE THROUGH THEIR AGENTS HAS BEEN DULY DEDUCTED FROM THE COMMISSION PAID TO THE COMMISSION AGENTS. THE MODE OF PAYMENT OF COMMISSION TO VARIOUS AGENTS HAS BEEN CONTINUED AS A BUSINESS PRACTICE IN THE SUBSEQUENT YEARS BY THE CO MPANY WHICH WAS ACCEPTED BY THE REVENUE . 5. HENCE, KEEPING IN VIEW THE FACT THAT, THERE HAS BEEN MARKED INCREASE IN THE TURNOVER OF THE ASSESSEE OWING TO THE SERVICES OF T HE COMMISSION AGENTS, ALL THE PAYMENTS HAVE BEEN DULY MADE AS PER THE PROVISIONS, THE NATURE OF THE SERVICES RENDERED HAVE BEEN MENTIONED IN DETAIL, THE TDS HAS BEEN DEDUCTED AS PER THE PROVISIONS, THE COMMISSION AGENTS HAVE REPLIED AND FILED THEIR ITRS BEFORE THE REVENUE AND NO ADVERSE INFERENCE WAS BROUGHT OUT BY THE REVENUE EXCEPT THAT THE SERVICES HAVE NOT BEEN PROVED TO HAVE EXTENDED WITHOUT BRINGING ANY COGENT MATERIAL, WE HEREBY HOLD THAT THE EXPENDITURE ON AC COUNT OF THE COMMISSION NEEDS BE OBLITERATED. 6. AS A RESULT THE APPEAL OF THE ASSESSEE IS HEREBY BY ALLOWED. THE ORDER PRONOUNCED ON THE OPEN COURT 06/06/2019. SD/- SD/- (H.S. SIDHU) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06/06/2019 BIDHAN COPY FORWARDED TO: 1. APPELLANT 4 . CIT(APPEALS) 2. CIT 5 . DR: ITAT 3. RESPONDENT ASSISTANT REGISTRAR 8 DRAFT DICTATED ON 06.06.2019 DRAFT PLACED BEFORE AUTHOR DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE OF DISPATCH OF ORDER