SMT. PUSHPA GUPTA, Jaipur V. ADDL. CIT, Jaipur

ITA 693/JPR/2011

• Counselvise Citation: 69323114 RSA 2011
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 18-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Assessee Lawyers: BL GUPTA
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income
• Section: 194C; 145

Judgement Text

1 ITA 693(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 693/JP/2011 ASSTT. YEAR : 2008-09. SMT. PUSHPA GUPTA, VS. THE ADDL. CIT, S-7, SHYAM NAGAR, AJMER ROAD, RANGE-2, JAIPUR. JAIPUR. ITA 768/JP/2011 ASSTT. YEAR : 2008-09. THE DCIT, CIRCLE-2, VS. SMT. PUSHPA GUPTA, JAIPUR. JAIPUR. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI B.L. GUPTA DEPARTMENT BY : SHRI VINOD JOHARI DATE OF HEARING : 22.11.2011 DATE OF PRONOUNCEMENT : 09.01.2012 ORDER DATE OF ORDER : 09.01.2012. PER R.K. GUPTA, J.M. THESE ARE TWO APPEALS BY ASSESSEE AND DEPARTMENT A GAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2008-09. 2. IN ASSESSEES APPEAL, THE ASSESSEE IS OBJECTING IN CONFIRMING INVOCATION OF PROVISIONS OF SECTION 145(3) AND THEREAFTER CONFIRM ING TRADING ADDITION OF RS. 42,55,030/- BY APPLYING GP RATE OF 10% AND THE DEPARTMENT IS OB JECTING IN DIRECTING TO APPLY GP RATE OF 10% AGAINST 12% APPLIED BY THE AO AND DELETING A DDITION OF RS. 27,55,512/- MADE BY 2 AO UNDER SECTION 40A(2)(B) OF THE ACT AND REDUCING ADDITION OF RS. 17,60,063/- TO RS. 90,000/- MADE BY AO UNDER SECTION 40(A)(IA) OF THE IT ACT. 3. FIRST ISSUE IN BOTH THE APPEALS ARE COMMON, THER EFORE, THE SAME IS DISPOSED OFF TOGETHER. 4. `THE FACTS OF THE CASE ARE THAT RETURN DECLARING INCOME OF RS. 1,28,94,290/- WAS FILED ON 30.9.2008. THE ASSESSMENT WAS COMPLETED O N A TOTAL INCOME OF RS.2,88,74,790/-. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT ASSESSEE ;HAS SHOWN GP OF RS. 3,17,94,415/- ON TOTAL SALES OF RS. 36,04,94,486/-. THE RATE COMES TO 8.81% AS COMPARED TO 10.13% SHOWN IN EARLIER YEAR. THE AO OBSERVED T HAT ASSESSEE HAS NOT MAINTAINED QUANTITATIVE DETAILS OF GOODS AND ALSO NOT ABLE TP SUBMIT INVENTORY OF OPENING AND CLOSING STOCK. THE AO FURTHER OBSERVED THAT ASSESSEE WAS N OT ABLE TO PRODUCE THE WAGES REGISTER. VOUCHERS WERE VERIFIED FOR PAYMENT OF JOB WORK CHAR GES AND OUT OF THIS, RS. 11,85,602/- WERE FOUND TO HAVE BEEN PAID ON SELF MADE VOUCHERS. TOTAL EXPENSES ON ACCOUNT OF JOB WORK CHARGES WAS CLAIMED AT RS. 1,20,41,420/-. BY OBSERVING THESE FACTS, THE AO FOUND THAT PROVISIONS OF SECTION 145(3) ARE APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE ASSESSEE WAS REQUIRED TO GIVE REASONS FOR INCREASE IN RAW MATERIAL PRICE FOR LAST THREE YEARS AND INCREASE IN SALE PRICE PER UNIT. THE AO O BSERVED THAT WHILE THE SALE PRICES PER UNIT TRANSFER HAD GONE UP BY 25%, THE ASSESSEE WAS UNABLE TO GIVE EXACT DETAILS OF PROPORTIONAL INCREASE IN RISE IN PRICES OF RAW MATE RIAL COMPONENTS. THEREFORE, AO APPLIED GP RATE OF 12% WHICH RESULTED IN TRADING AD DITION OF RS. 1,14,64,923/-. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH ARE REPRODUCED IN THE ORDER OF LD. CIT (A) AT PAGES 3 TO 6 OF HIS ORDER ARE AS UNDER :- 3 THAT ASSESSEE IS MAINTAINING COMPLETE BOOKS OF A CCOUNTS I.E. CASH BOOK, BILL BOOK, LEDGER, SALES AND PURCHASES VOUCHERS AND BILLS ETC. DULY AUDITED UNDER SECTION 44AB. A.O. IS WRONG AND UNJUS TIFIABLE IN INVOKING PROVISIONS OF SECTION 145(3) BY REJECTING BOOKS OF ACCOUNTS WITHOUT POINTING OUT ANY SERIOUS DEFECTS AND TO MAKE THE ES TIMATION OF HIGHER G.P. RATE. THE REJECTION OF BOOKS OF ACCOUNTS IS HIGHLY ARBITRARY AND CONTRARY TO LAW FURTHER ALSO THAT ASSESSEE WAS DULY REGISTERED UNDER CENTRAL EXCISE ACT AND WAS MAINTAINING PROPER QUANTITATIVE DETAILS IN THE PRESCRIBED MANNER, AND HAD ADOPTED CONSISTENT AND REGULAR METHOD OF A CCOUNTING THEREFORE LD. ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTIN G THE BOOKS OF ACCOUNT AND IN APPLYING THE ENHANCED GROSS PROFIT RATE. THE REJECTION OF BOOKS OF ACCOUNTS IS HIGHLY ARBITRARY AND CONTRARY TO LAW AS EXPLAINED BELOW :- THE A.O. HAS APPLIED THE PROVISIONS OF SECTION 145( 3) MAINLY DUE TO DECLINE IN G.P. RATE. THE ASSESSEE HAS ACHIEVED A TURNOVER OF RS. 36,04,94,486/- AND GROSS PROFIT OF RS. 3,17,94,416/ - THUS THE ASSESSEE HAS ABLE TO ACHIEVE THE TARGET OF TURNOVER BY INCREASE OF 78% AND INCREASE IN GROSS PROFIT 55% THUS THE NORMAL DECLINE IN GP WAS DUE TO INCREASE IN TURNOVER AND AS PER PRINCIPLE OF THE ECONOMY MORE T HE SALE LESS THE PROFIT IS APPLICABLE. THOUGH THE A.O. HAS MAINLY APPLIED 1 45(3). IT IS SUBMITTED DUE TO THE NATURE OF INDUSTRY MANUFACTURING AND PRO DUCT OF THE ASSESSEE NEITHER IT WAS POSSIBLE NOR FEASIBLE TO MAINTAIN TH E STOCK REGISTER. IT IS PERTINENT TO NOTE THAT A SINGLE PRODUCT AS ASSESSEE CONTAINS COMPONENTS AND RAW MATERIAL OF DIFFERENT NATURE I.E. NUT BOLT, WIE LDING RODS, WIRE CRGO LAMINATION, ALUMINUM TANK, PAINT, WASHER, BUSHES RO DS ETC. ON BEING QUESTIONING BY AUDITOR IN THIS REGARD IT WAS EXPLAI NED TO THE AUDITOR THAT NATURE OF BUSINESS IS SUCH THAT STOCK REGISTER CANN OT BE MAINTAINED KINDLY REFER COLUMN 28 OF THE 3CD. HERE I WOULD ALSO LIKE TO DRAW YOUR ATTENTION THAT PRICES OF BASIC RAW MATERIAL HAS INCREASES IN CRGO LAMINATION ABOUT 131% 4 WHICH IS BEING USED APPROX 38% AND ALUMINUM PRICES INCREASES 25 TO 30% WHICH IS BEING USED 25% HENCE USES OF THESE TWO RAW MATERIAL IS 63% IN WHICH PRICES INCREASE BUT LD. A.O. HAS NOT C ONSIDER THIS PRICE INCREASE FACTOR AND IGNORE THIS FACTOR OF PRICE INC REASE IN RAW MATERIAL. THE DURING THE YEAR UNDER CONSIDERATION SALES OF TH E TRANSFORMERS WERE MADE FOR THE FOLLOWING TENDER AWARDED TO THE U NIT. TENDER NO. KVA RATE PER TRANSFORMER AMOUNT TENDER NO. TN 318 AWARDED IN THE F.Y. 2005-06. 63 54967/- 4,19,58,535.00 TENDER NO. TN 225 AWARDED IN THE F.Y. 2005-06 25 28000/- 2,24,19,526.00 TENDER NO. TN 371 AWARDED IN THE F.Y. 2007-08 25 34158/- 29,54,86,782.00 FURTHER I WOULD LIKE TO STATE THAT DURING THE YEAR UNDER CONSIDERATION NO ANY TENDER WAS AWARDED TO ASSESSEE BUT SUPPLIES ARE CONTINUE AGAINST TENDER NO. TN 371. THE UNIT WAS ESTABLISHED IN THE YEAR 1983 AND SINCE THAN ASSESSEE IS SUPPLYING TRANSFOMERS TO RSEB. LOW GROSS PROFIT RATE THAT GROSS PROFIT RATE FOR LAST THREE YEARS OF ASSE SSEE IS AS BELOW :- F.Y. 2005-06 2006-07 2007-08 RATE OF G.P. 13.88% 10.13% 8.81% 5 INCREASE IN SALES PRICES VIS A VIS COST OF FINISHED PRODUCT ARE AS UNDER :- PARTICULARS F.Y. 2005-06 F.Y. 2007-08 INCREASE IN % SALES (PER UNIT) 28000.00 34158.00 21.99% COST OF PRODUCT (PER UNIT) 24115.00 31150.00 29.17 THAT ASSESSEE COULD INCREASE THE SALE PRICE BY 21.9 9% ONLY AS AGAINST THE INCREASE COST OF 29.17% RESULTING IN RE DUCTION IN GROSS PROFIT. THE BASIC RAW MATERIAL PRICES INCREASED BY 79.66% I N AVERAGE IN CRGO AND 25.22% IN ALUMINUM HENCE DECLARED G.P. 8.81% OF ASSESSEE IS JUSTIFIABLE. THAT ASSESSEE HAS DECLARED G.P. RATE FOR THE YEAR U NDER CONSIDERATION IS 8.81% AS COMPARE TO IMMEDIATE PREV IOUS YEAR WHICH WAS DECLARED 10.31% THE SAME WAS DUE TO INCREASE IN BAS IC RAW MATERIAL PRICES IN THE YEAR AFTER AWARDING TO ASSESSEE FIRM. IN THI S CONNECTION I WOULD LIKE TO DRAW YOUR KIND ATTENTION ABOUT COMPOSITION OF PR ODUCT MIX. THE TALLY OF PRODUCT MIX IS ASUNDER :- S.NO. PARTICULARS OF RAW MATERIAL % USE 1. ALUMINUM 25 2. OIL 10 3. M.S. TANK 9 4. CRGO LAMINATION 38 5. COPPER 0.5 6. OTHERS (INCLUDES, NUT BOLT, CHANNELS, INSULATIONS BUSHES ETC.) 17.5 TOTAL 100 THE FALL IN GROSS PROFIT RATE COULD BE FOR VARIOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL. DECREASE IN M ARKET PRICES OF FINISHED 6 PRODUCT, INCREASE IN COST OF PROCESSING BY ASSESSEE ETC. THERE IS NO FINDING THAT THE ACTUAL COST OF THE RAW MATERIAL PURCHASED BY ASSESSEE WAS LESS THAN WHAT WAS DECLARED IN THE ACCOUNT BOOKS. THERE IS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER BOOKS. NO PARTICULAR EXPENDITURE SH OWN IN THE ACCOUNTS BOOKS HAS BEEN DISALLOWED BY THE ASSESING OFFICER. THERE IS NO FINDING THAT THE ASSESSEE HAD MADE ANY SUCH SALE OF THE FIN ISHED PRODUCT WHICH WAS NOT REFLECTED IN THE ACCOUNTS BOOKS. THERE IS N O FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCT WAS SOL D BY THE ASSESSEE AT PRICE HIGHER THAN WHAT WAS DECLARED IN THE ACCOUNTS BOOKS . IN THESE CIRCUMSTANCES, THE LD. A.O. WERE NOT JUSTIFIED IN E STIMATING HIGHER GROSS PROFIT RATE THAN DECLARED BY ASESSEE, MERELY BECAUS E IT WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PRECEDING YEARS. KEEPING IN VIEW OF ABOVE MARGINAL FALL IN G.P. RATE OF 1.32% AS COMPARE TO IMMEDIATE PREVIOUS YEAR IS JUSTIFIABLE. 5. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE IN PART. AFT ER CONSIDERING THE ISSUE IN DETAIL, THE LD. CIT (A) FOUND THAT THOUGH PROVISIONS OF SECTION 145 (3) ARE APPLICABLE, HOWEVER, THE GP RATE APPLIED BY AO WAS ON HIGHER SIDE. ACCORDINGLY , THE AO WAS DIRECTED TO APPLY RATE OF 10% ON THE SALES SHOWN BY ASSESSEE AGAINST GP RA TE OF 12% APPLIED BY AO. 6. NOW BOTH ARE IN APPEALS HERE BEFORE THE TRIBUNAL . 7. THE LD. COUNSEL OF THE ASSESSEE FILED WRITTEN SU BMISSIONS. 8. ON THE OTHER HAND, THE LD. D/R STRONGLY PLACED R ELIANCE ON THE ORDER OF THE AO. ATTENTION OF THE BENCH WAS DRAWN ON PAGE 6 OF THE O RDER OF THE AO. 7 9. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE FIND THAT THERE IS NO SUBSTANCE IN THE APPEAL OF THE DEP ARTMENT. HOWEVER, ASSESSEE DESERVES TO SUCCEED IN PART. WE NOTED THAT THE LD. CIT (A) HAS GIVEN A FINDING THAT STOCK REGISTER WAS NOT MAINTAINED AND, THEREFORE, VALUATION OF CLOSING STOCK REMAINED UNVERIFIABLE. SINCE THIS IS AN IMPORTANT FACTOR FOR DEDUCING THE VALUAT ION OF CLOSING STOCK, THEREFORE, IN OUR VIEW, THE INVOCATION OF PROVISIONS OF SECTION 145(3 ) WAS CORRECT. NOW THE QUESTION ARISES IS DECLINE IN GP RATE. IT IS SEEN THAT TURNOVER OF THE ASSESSEE HAS BEEN INCREASED SUBSTANTIALLY. IN IMMEDIATELY PRECEDING YEAR, THE TURNOVER OF THE ASSESSEE WAS RS. 20.21 CRORES WHEREAS IN THIS YEAR TURNOVER IS RS. 36.04 C RORES. THE LINE OF BUSINESS OF THE ASSESSEE IS PRODUCTION OF TRANSFORMERS. IT IS FURT HER SEEN THAT MAJOR COMPONENT OF PRODUCTION OF TRANSFORMERS WERE ALUMINUM WHICH IS 2 5% AND CRGO LIMINATION WHICH IS 38% OF THE TOTAL RAW MATERIAL, AND THIS WAS THE MAJ OR FACTOR FOR INCREASE IN RAW MATERIAL COST. THE PRICE INCREASE IN CRGO WAS 79.66% AND IN ALUMINUM THERE WAS INCREASE OF 25.22% WHEREAS THE INCREASE IN SALE PRICE IS ONLY 2 2%. IF ALL THESE FACTS ARE TAKEN INTO CONSIDERATION, THEN IT IS SEEN THAT THERE WAS A REA SONABLE CAUSE FOR FALL IN GP RATE. IT IS FURTHER SEEN THAT COMPLETE PURCHASE VOUCHERS AND SA LE VOUCHERS ARE MAINTAINED. THE SALES MADE BY ASSESSEE ARE MAINLY MADE TO ELECTRICITY BOA RD. THIS IS NOT THE CASE OF THE DEPARTMENT THAT ASSESSEE HAS NOT MAINTAINED PURCHAS E /SALE VOUCHERS. ALL OTHER EXPENSES ARE ALSO VOUCHED. THE JOB CHARGES PAID BY ASSESSEE ARE ALSO VOUCHED. A SMALL PORTION OF JOB CHARGES IS PAID THROUGH SELF MADE VOUCHERS. IT IS NOT THE CASE THAT THEY WERE NOT GENUINE OR NOT CORRECTLY MADE. KEEPING ALL THESE F ACTS IN MIND, WE ARE OF THE CONSIDERED VIEW THAT AO WAS NOT JUSTIFIED IN APPLYING 12% GP R ATE AGAINST 8.81% SHOWN BY ASSESSEE. THERE IS A SUBSTANTIAL INCREASE IN SALES AND IT IS BOUND TO BE DECLINED SOME GP 8 RATIO ON THIS ACCOUNT ALSO. KEEPING IN MIND ALL TH ESE FACTS, WE ARE OF THE VIEW THAT IF A LUMP SUM GP ADDITION AT RS. 5,00,000/- IS MADE AGAI NST 8.81% SHOWN BY ASSESSEE, THAT WILL MEET THE ENDS OF JUSTICE TO BOTH THE PARTIES. WE ORDER ACCORDINGLY. 10. THERE IS NO OTHER GROUND IN THE APPEAL OF THE A SSESSEE. 11. NOW WE WILL TAKE UP THE REMAINING GROUNDS OF AP PEAL OF THE DEPARTMENT. 12. THE DEPARTMENT IS OBJECTING IN DELETING THE ADD ITION OF RS. 27,55,512/- MADE UNDER SECTION 40A(2)(B). 13. THE AO DISALLOWED PAYMENT OF COMMISSION TO PERS ONS MENTIONED IN SECTION 40A(2)(B), NAMELY, S/SHRI VIKRAM GUPTA, HARI OM GUP TA AND VIKAS GUPTA. THE AO HELD THAT ASSESSEE WAS UNABLE TO PROVE THAT THE SERVICES PROVIDED BY THESE PERSONS HAD RESULTED IN REDUCTION OF PRICE OF THE ITEM. THE AO FURTHER OBSERVED THAT SINCE THE ASSESSEE HAD FAILED TO DISCHARGE THIS ONUS CAST ON HIM, THE PAYM ENTS MADE TO THEM AS COMMISSION WERE TO BE DISALLOWED. SIMILARLY REGARDING PAYMENT OF C OMMISSION TO S/SHRI MUKESH RAWAT, RAJESH RAWAT AND NAVRATAN KUMAR RAJORIA, THE AO HEL D THAT ASSESSEE HAD NOT PROVIDED ANY AGREEMENT ENTERED INTO WITH THESE PARTIES AND H E WAS NOT ABLE TO SUBSTANTIATE FOR WHAT ACTUAL PURPOSE THE MONEY HAD BEEN PAID TO THEM. AC CORDINGLY, THE ENTIRE COMMISSION PAYMENT WAS DISALLOWED BY AO. 14. THE DETAILED SUBMISSIONS HAVE BEEN MADE BEFORE LD. CIT (A) WHICH ARE TABULATED IN THE ORDER OF LD. CIT (A) AT PAGES 11 TO 13, ARE AS UNDER :- COMMISSION PAID TO SPECIFIC PERSONS U/S 40A2 (B) `REGARDING COMMISSION PAID TO COMMISSION AGENT IS R EASONABLE OR JUSTIFIABLE IS DEPENDS ON THE PREVAILING TREND AND MARKET CONDITIONS OF THE AVAILABILITY OF THE GOODS SO REQUIRED TO THE UNIT A ND ALSO DEPEND ON QUALITY 9 ASPECTS OF THE GOODS SO PURCHASES THROUGH COMMISSIO N AGENT. THE QUALITY OF THE TRANSFORMER DEPENDS UPON ITS ENERGY SAVING I .E. THE LOSSES WHICH CAN BE REDUCED WHEN THE PUREST FORM AND HIGH QUALITY OF METAL I.E. ALUMINUM AND OIL FROM WHICH IT IS MANUFACTURED. IF THE METAL IS PURE AND OF HIGH QUALITY GRADE THE RESISTANCES OF THAT METAL ARE LOW HENCE THE LOSSES OF TRANSFORMER WOULD BE LOW RESULTING INTO VERY HIGH A ND EFFICIENT LOW LOSSES IN TRANSFORMER. IT IS THEREFORE REQUIRED THAT THE W INDING COIL/METAL MUST BE PROCURED BY A VERY HIGH EXPERIENCED, SEASONED PERSO N WHO POSSES FULL KNOWLEDGE ABOUT TRANSFORMER AND AT THE SAME TIME A LSO HAVING UNDERSTAND ABOUT COMMERCIAL ASPECTS I.E. MARKET/PRICING OF THE METAL AND OIL. IN SUCH A CONDITIONS BEING WOMEN ENTREPRENEUR REQUIREMENT O F MIDDLEMAN IS MUST FOR PROCURING THE GOODS TO COMPLETE THE TENDER SO A WARDED TO THE UNIT IN TIME TO AVOID PENALTY AS WELL AS QUALITY OF THE TRA NSFORMER SO MANUFACTURED BY THE UNIT MUST BE OF HIGH STANDARD SO REJECTION O F FINISHED GOODS BE REMAIN MINIMUM OTHERWISE UNIT WILL INCURRED HEAVY L OSSES IN SUCH A CONDITION AND BEING WOMEN ENTREPRENEUR I APPOINT TH E FOLLOWING PERSONS FOR PROCURING THE METAL AND OIL AND PAID THE COMMIS SION AS PER TERMS AND CONDITIONS OF THE AGREEMENT MADE BETWEEN ME AND AGE NT AND COMMISSION SO PAID WAS PAID FOR PROCURING GOODS OF HIGH QUALIT Y AS WELL AS AT LOW PRICES THAN PREVAILING IN THE MARKET. FURTHER I WOULD LIKE TO MENTION HERE THAT FOLLOWING PERSON TO WHOM COMMISSION HAS PAID SALES HAS INCREASE IN VOLU ME AS WELL AS IN MONETARY TERMS DUE TO ACTIVE SUPPORT FROM THESE PER SONS DUE THIS QUALITY OF PRODUCTION MAINTAINED OTHERWISE ELECTRICITY BOAR D DECLARE OUR UNIT AS BLACK LISTED IF LOWER QUALITY OF TRANSFORMER SUPPLIED TO BOARD. VIKAS GUPTA THAT COMMISSION PAID TO VIKAS GUPTA IS AS PER MAR KET TERMS AS HE IS PURCHASING CRGO LAMINATION ON BEHALF OF THE UNIT THE CRGO 10 LAMINATION IN OPEN MARKET IS AVAILABLE AT RS. 130.0 0 TO 141.00 PER KG. BUT DUE TO VERY BEST EFFORTS THE SAME WAS PROCURE THROU GH HIGH SEA PURCHASES @ OF RS.75.00 TO 85.00 PER KG. FOR THAT PURPOSE ASS ESSEE HAS PAID COMMISSION @ OF RS. 1.25 PER KG. WHICH IS JUSTIFIAB LE FOR THE SERVICES PROVIDED BY MR. VIKAS GUPTA BECAUSE HER EFFORTS RES ULTED INTO REDUCTION OF THE PRICES OF THE CRGO LAMINATION HENCE COMMISSION PAID IS VERY REASONABLE AND JUSTIFIABLE SAME ARE INCURRED FOR TH E REDUCTION OF PRICES OF RAW MATERIAL AND FOR BUSINESS PURPOSE ONLY. SHREE HARI OM GUPTA THAT COMMISSION WAS PAID TO SHREE HARI OM GUPTA FOR PROCURING GOOD QUALITY OF TRANSFORMER OIL AT LOW PRICES THAN AVAILABLE IN MARKET THE FAIR RATE PREVAILING IN MARKET FOR TRANSFORMER OIL IS 34.25 TO 35.00 PER LITER BUT TRANSFORMER OIL PURCHASES BY MR. HARIOM G UPTA WAS @ 33.00 PER LITRE THE SAME WAS AVAILABLE DUE TO BEST EFFORTS OF SH. HARIOM GUPTA COPIES OF PURCHASES BILLS AND ARE THAN RATE QUOTATION IS E NCLOSED HEREWITH FOR YOUR READY REFERENCE HENCE COMMISSION PAID TO MR. HARIOM GUPTA IS REASONABLE AND AS PER PREVAILING MARKET RATE. THE L D. A.O. HAS STATED IN HIS ORDER. THAT TRANSFORMER OIL IS EASILY AVAILABLE FROM HPCL AND IOC BUT IT IS TO INFORM YOU THAT THESE I.E. IOC, BPCL AND H PCL ARE NOT SELLING TRANSFORMER OIL HENCE ALL THE TRANSFORMER MANUFACTU RERS ARE OBTAINING THIS TRANSFORMER OIL FROM OTHER REFINERIES NOT FROM HPCL AND IOC HENCE COMMISSION PAID IS JUSTIFIED AND REASONABLE AND INC URRED FOR THE REDUCTION OF PRICES OF RAW MATERIAL AND FOR BUSINESS PURPOSE ONLY. VIKRAM GUPTA THAT COMMISSION WAS PAID TO VIKRAM GUPTAFOR PROCURI NG GOOD QUALITY OF ALUMINUM WIRE ROD AT LOW PRICES THAN AVA ILABLE IN MARKET THE FAIR RATE PREVAILING IN MARKET FOR ALUMINUM WIRE RO D IS 138 TO 140 PER KG. BUT ALUMINUM WIRE ROD PURCHASED THROUGH MR. VIKRAM GUPTA WAS PURCHASED @ 128.00 PER KG. A COPY OF QUOTATION AND PURCHASES BILL IS 11 ENCLOSED FOR YOUR READY REFERENCE ALSO IN MARKET SO MANY KINDS OF ROD ARE AVAILABLE YET QUALITY AND NEED OF THE ASSESSEE IS T HE FOREMOST OBJECT AND EXPERIENCE PERSON CAN ONLY HANDLE SUCH PURCHASES AN D SUCH ALUMINUM ROD WAS PROCURE DUE TO BEST EFFORTS OF SH. VIKRAM GUPTA HENCE COMMISSION PAID TO MR. VIKRAM GUPTA IS REASONABLE AS PER PREVA ILING MARKET RATE AND JUSTIFIABLE. NAVRATAN KUMAR RAJORIA THAT COMMISSION WAS PAID TO SHREE NAVRATAN KUMAR RA JORIA FOR PROCURING GOOD QUALITY OF ALUMINUM WIRE AT LOW PRIC ES THAN AVAILABLE IN MARKET THE FAIR RATE PREVAILING IN MARKET FOR ALUMI NUM IS RS. 138 TO 140 PER KG. BUT ALUMINUM WIRE ROD PURCHASED THROUGH MR. NAVRATAN KUMAR RARORIA WAS PURCHASED @ 128.00 PER KG. A COPY OF QU OTATION AND PURCHASES BILL IS ENCLOSED FOR YOUR READY REFERENCE ALSO HENCE COMMISSION PAID TO MR. NAVRATAN KUMAR RAJORIA IS REASONABLE AS PER PREVAILING MARKET RATE AND JUSTIFIABLE. MUKESH RAWAT THAT COMMISSION WAS PAID TO MUKESH RAWAT TOWARDS LI AISON WITH AJMER VIDHYUT VITRAN NIMGAM LTD., MR. MUKESH RAWAT IS WELL QUALIFIED AND HE IS B.COM. AND POSESS GOOD LIAISON EXPERIENCE IN THIS LINE OF ACTIVITY AND HANDLING THE CASES WITH GOVT. AND HE H ELP THE ASSESSEE IN OBTAINING TENDER WITH AVVNL AND SETTLING THE DISPUT ES ARISES WITH AVVNL AND ALSO HELP IN GETTING PAYMENTS EARLY TOWAR DS SUPPLY OF TRANSFORMER WITH AVVNL AS BY GETTING PAYMENTS EARLY ASSESEE SAVE INTEREST ON THE CASH CREDIT FACILITY OBTAINED FROM SBI HENCE COMMISSION OF RS. 4,14,200/- PAID IS REASONABLE AND AS PER PRE VAILING MARKET RATE. RAJESH RAWAT THAT COMMISSION WAS PAID TO RAJESH RAWAT TOWARDS LI AISON WITH JODHPUR VIDHYUT VITRAN NIGAM LTD., MR. RAJESH RAWAT IS WELL QUALIFIED 12 AND HE IS B.COM. AND POSSESS GOOD LIAISON EXPERIENC E IN THIS LINE OF ACTIVITY AND HANDLING THE CASES WITH GOVT. AND HE H ELP THE ASSESSEE IN OBTAINING TENDER WITH JVVNL AND SETTLING THE DISPUT ES ARISES WITH JVVNL AND ALSO HELP IN GETTING PAYMENTS EARLY TOWARDS SUP PLY OF TRANSFORMER WITH JVVNL, AS BY GETTING PAYMENTS EARLY ASSESSEE S AVE INTEREST ON THE CASH CREDIT FACILITY OBTAINED FROM SBI HENCE COMMIS SION OF RS. 4,49,300/- PAID IS REASONABLE AND AS PER PREVAILING MARKET RATE. 15. AFTER CONSIDERING SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) FOUND THAT ALL THE COMMISSION AGENTS WERE FILIN G THEIR RETURN OF INCOME. THE COMMISSION WAS PAID AS PER AGREEMENT. COPIES OF RET URNS FILED BY ALL OF THEM DECLARING COMMISSION RECEIVED AS INCOME HAD BEEN FILED BEFORE THE AO AS WELL AS BEFORE LD. CIT (A). IT WAS ALSO SEEN THAT SIMILAR PAYMENTS WERE M ADE IN EARLIER YEARS AND THERE WAS NO DISALLOWANCE. ACCORDINGLY HE ALLOWED THIS GROUND OF THE ASSESSEE. 16. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY RESPECTIVE PARTIES, WE FIND THAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. IT IS SEEN THAT LD. CIT (A) HAS VERIFIED THE ACCOUNTS AND CONFIRMATION OF COMMISSION AGENTS INDIVIDUALLY. TH E EXPLANATION OF ALL THE COMMISSION AGENTS INDIVIDUALLY HAS BEEN TABULATED IN THE ORDER OF LD. CIT (A) AT PAGES 12 AND 13. IT HAS BEEN EXPLAINED WHAT SERVICES WERE RENDERED BY C OMMISSION AGENTS AND HOW THEY HELPED THE ASSESSEE IN GETTING THE WORK DONE. THERE FORE, WITHOUT GOING INTO DETAIL FURTHER, WE HOLD THAT THE FINDINGS OF LD. CIT (A) ARE FINDIN G OF FACT, WHICH REMAINED UNCONTROVERTED AS DEPARTMENT HAS PLACED RELIANCE ON THE ORDER OF AO ONLY. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE. 13 17. REMAINING ISSUE IN THE APPEAL OF THE DEPARTMENT IS AGAINST REDUCING THE DISALLOWANCE MADE UNDER SECTION 40A(IA) FROM RS. 17 ,60,063/- TO RS. 90,000/-. 18. THE AO OBSERVED THAT ASSESSEE HAD MADE PAYMENT OF RS. 17,60,063/- TO CLEARING & FORWARDING AGENTS VIZ. SEA SPEED LOGISTICS PVT. L TD., ROYAL OVERSEAS EXPORTS AND INTIME FREIGHT & FORWARDERS PVT. LTD. THE AO RELYI NG ON CIRCULAR NO. 715, DISALLOWED THE ENTIRE AMOUNT PAID TO THEM ON ACCOUNT OF NON DE DUCTION OF TDS UNDER SECTION 40(A)(IA). IT WAS SUBMITTED BEFORE LD. CIT (A) THA T OUT OF THESE SEVEN PARTIES PARTY NO. 1 TO 4 ARE NO T DEALING IN TRANSPORTATION OF GOODS BUT THESE PARTIE S ARE PROVIDING SERVICES TO ASSESSEE TOWARDS CLEARING OF GOODS FROM CUSTOM AUTHORITIES AND ASSESSEE REIMBURSE THEM THE EXPENSES SO INCURRED BY THEM ON BEHALF OF ASSESSEE HENCE TDS ON THE SAME NOT DEDUCTED BY ASSESSEE COPIES OF THESE BILLS PRODUCED BEFORE A.O. BUT SAME WAS NOT CONSIDER BY LD. A.O. T HE PAYMENT SO MADE TO CLEARING AND FORWARDING AGENT THE LD. A. O. HAS WRONGLY DISALLOWED THE WHOLE AMOUNT PAID FOR CLEARI NG THE GOODS FROM CUSTOM AND PORT AUTHORITIES. 19. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) GAVE THE FOLLOWING FINDING :- I HAVE CAREFULLY PERUSED THE ORDER OF THE AO AND THE SUBMISSIONS OF THE AR. OUT OF TOTAL PAYMENTS MADE OF RS. 13,22,440/- T O CLEARING FORWARDING AGENTS RS. 12,32,440/- ARE REIMBURSEMENT OF EXPENSE S. THEREFORE, TDS WAS REQUIRED TO BE DEDUCTED ON RS. 90,000/- ONLY BE ING AGENCY CHARGES. THUS, THE DISALLOWANCE U/S 40(A)(IA) FOR NON DEDUCT ION OF TDS ON PAYMENT 14 OF AGENCY CHARGES OF RS. 90,000/- IS UPHELD OUT OF THE TOTAL DISALLOWANCE OF RS. 13,24,440/- MADE BY THE AO FOR PAYMENTS MADE TO CLEARING AND FORWARDING AGENTS. AS PER AOS OBSERVATION AT PAGE 15 OF HIS ORDER, HAS APPLIED THE OF PROVISIONS OF SECTION 40(A)(IA) IN R ESPECT OF HE FOLLOWING PAYMENTS TO LOCAL TRANSPORT PARTIES MADE DURING THE YEAR : A) AGARWAL TRANSPORT ORGANIZATION RS. 1,42,307/- B) JAIPUR GOLDEN RS. 1,72,541/- C) BALAJI TEMPO RS. 1,22,775/- TOTAL RS. 4,37,623/- THE AR HAS SUBMITTED THAT THESE PAYMENTS WERE MADE FOR TRANSPORTING OF GOODS AND WERE BY WAY OF REIMBURSEM ENT AND WERE NOT UNDER ANY CONTRACTUAL LIABILITY. I FIND MERIT IN TH E SUBMISSION OF THE AR. THE AFOREMENTIONED PAYMENTS WERE MADE TO TRANSPORT COMPANIES FOR TRANSPORT OF ITS GOODS. THIS WAS NORMAL REIMBURSEME NT OF EXPENSES AND NO CONTRACTUAL LIABILITY WAS MADE. THUS, IT IS NOT JUS TIFIED TO DISALLOW RS. 4,37,623/- U/S 40(A)(IA). THE DISALLOWANCE IS, THER EFORE, DIRECTED TO BE DELETED. THUS, OUT OF A TOTAL DISALLOWANCE OF RS. 17,60,063/ - U/S 40(A)(IA) MADE BY THE AO, THE DISALLOWANCE IS RESTRICTED TO R S. 90,000/-. 20. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A) AS LD. CIT (A) HAS ASCERTAINED THE FACTUAL ASPECTS THAT THE PAYMENTS WERE ON ACCOUNT OF REIMBU RSEMENT OF EXPENSES, THEREFORE, PROVISIONS OF SECTION 194C WERE NOT APPLICABLE AND ACCORDINGLY THERE WAS NO LIABILITY TO DEDUCT TAX UNDER SECTION 40(A)(IA) OF THE ACT, TO W HICH THE ADDITIONS WERE MADE BY AO WERE REDUCED. THE LD. CIT (A) HAS REDUCED THE ADDI TION TO RS. 90,000/- ON WHICH THE TDS WAS LIABLE TO BE DEDUCTED. ACCORDINGLY, TO THI S EXTENT WE HOLD THAT LD. CIT (A) WAS 15 JUSTIFIED AND ABOUT REMAINING DISALLOWANCE DELETED BY LD. CIT (A), WE CONFIRM HIS ORDER AS FINDING OF LD. CIT (A) REMAINED UNCONTROVERTED. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. 22. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 .01.2012. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- SMT. PUSHPA GUPTA, JAIPUR. THE ADDL.CIT, RANGE-2/THE DCIT CIRCLE-2, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 693(2)/JP/2011) ` BY ORDER, AR ITAT JAIPUR.