Kwality Overseas (P) Ltd., Ludhiana V. ACIT, C-7, Ludhiana

ITA 700/CHANDI/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8973 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Wrong claim
• Section: 271(1)(c); 68

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH , . .., , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NOS. 700 & 701/CHD/2018 ! ' / ASSESSMENT YEAR : 2010-11 M/S KWALITY OVERSEAS (P) LTD., 863, INDL. AREA-A, LUDHIANA THE ACIT, CIRCLE-7, LUDHIANA # ./PAN NO: AABCK6381J #$/ APPELLANT &'#$ /RESPONDENT () * + /ASSESSEE BY : SH. ASHWANI KUMAR, CA * + / REVENUE BY : SH. GULSHAN RAJ, CIT DR , * ) - /DATE OF HEARING : 13.09.2018 ./0'! * ) - /DATE OF PRONOUNCEMENT : 11.12.2018 / ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE CAPTIONED APPEALS HAVE BEEN PREFERRED BY THE AS SESSEE AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME T AX (A)-3, LUDHIANA DATED 29.3.2018 AND 30.3.2018 [HEREINAFTER REFERRED TO AS CIT(A)] RESPECTIVELY. 2. FIRST, WE SHALL TAKE UP THE APPEAL IN ITA NO. 700/CHD/2018 . IN THIS APPEAL, THE ASSESSEE HAS TAKEN FOLLOWING GROUN DS OF APPEAL:- 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE' DISALLOWANCE OF COMMISSION ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 2 PAID TO VARIOUS PARTIES AT RS. 3,01,48,514/-. 2. THAT SHE FURTHER GRAVELY ERRED IN UPHOLDING AN ADDITION OF RS. 18,92,080/-MADE BY THE LD. ASSESSIN G OFFICER BY RESORT TO PROVISIONS OF SEC. 68 OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF UNSECURED LOANS RAISED DURING THE YEAR. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD AN ADDITION OF RS. 4,82,90,607/- MADE BY THE LD. ASSESSING OFFICE R ON ACCOUNT OF ALLEGED BOGUS CLAIM OF EXPENDITURE. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED TO OBSERVE THAT THE ACCOUNT BOOKS WERE NOT PRODUCED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE A SPECIFIC RECORD ING BY THE LD. ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER. 3. GROUND NO.1 : VIDE GROUND NO.1, THE ASSESSEE HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF EXPENDITURE AMOUNT ING TO RS. 3,01,48,514/- ON ACCOUNT OF COMMISSION PAID. THE BR IEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF MANUFACTURING, TRADING, IMPORT AND EXPORT OF ALL KI ND AND TEXTILE AND TEXTILE RELATED ARTICLES. DURING THE ASSESSMENT PRO CEEDINGS FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOT ED THAT ASSESSEE HAD DEBITED RS. 3,01,48,514/- AS PAYMENT OF COMMISS ION TO VARIOUS PARTIES IN THE PROFIT AND LOSS ACCOUNT. ON BEING AS KED TO EXPLAIN IN THIS RESPECT, THE ASSESSEE FURNISHED THE NAMES OF P ARTIES, BANK ACCOUNTS / DETAILS, CONFIRMATIONS ETC. IT WAS FURTH ER EXPLAINED THAT, IN FACT, THE AMOUNT OF COMMISSION WAS NOT SEPARATELY P AID TO THESE PARTIES, RATHER, THESE PARTIES HAVE DEDUCTED THE CO MMISSION AMOUNT ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 3 FROM THE SALE BILLS ISSUED BY THESE PARTIES. THE AS SESSEE CLAIMED THAT THE PARTIES TO WHOM COMMISSION WAS PAID WERE ALSO T HE SAME PARTIES WHICH GENERATED BILLS FOR EXPORT DONE BY THE ASSESS EE. NO SEPARATE REMITTANCE HAS BEEN GIVEN TO THESE FOREIGN PARTIES ON ACCOUNT OF COMMISSION PAID. THE LD. ASSESSING OFFICER, HOWEVE R, NOTED THAT THE COMMISSION WAS SHOWN TO HAVE BEEN PAID TO FOUR PART IES BUT THE ASSESSEE COULD PRODUCE THE WRITTEN AGREEMENT IN REL ATION TO TWO PARTIES ONLY. FURTHER, THE ASSESSEE HAD NOT GIVEN A NY PROOF OF ANY SERVICES HAVING BEEN RENDERED BY THE COMMISSION AGE NT. EVEN THE COMMISSION WAS PAID TO THE BUYERS THEMSELVES. THAT THE CONCEPT OF COMMISSION PAYMENT ENVISAGES PAYMENT TO THIRD PARTY FOR SOME SPECIFIC SERVICE RENDERED BY THAT PARTY. HOWEVER, I N THIS CASE NO THIRD PARTY WAS INVOLVED BUT THE SERVICES ALLEGEDLY RENDE RED HAS BEEN BY BUYERS THEMSELVES. FURTHER, ACTUAL REMITTANCE IN T HE ALLEGED COMMISSION PAYMENT HAD NOT BEEN THROUGH ANY BANKING CHANNEL BUT THE SAME WAS REDUCED FROM THE INVOICE VALUE. HE, TH EREFORE, DISALLOWED THE AFORESAID COMMISSION PAYMENT AND ADD ED THE SAME INTO THE INCOME OF THE ASSESSEE. 4. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION SO MADE BY THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GON E THROUGH THE RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS INVITE D OUR ATTENTION TO THE VARIOUS INVOICES RAISED IN RESPECT OF THE EXPOR TED ITEMS AND HAS SUBMITTED THAT THE ASSESSEE HAD MADE A TOTAL EXPOR T SALES AT RS. ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 4 32,27,15,957/- DURING THE YEAR UNDER CONSIDERATION. TO FACILITATE SUCH EXPORT SALES, THE SAME WERE DONE THROUGH FOREIGN BU YER AGENTS. THE FOREIGN BUYERS AGENTS PURCHASED GOODS ON BEHALF OF FOREIGN BUYERS AT BEST PRICE AND AT NEGOTIATED TERM OF DELIVERY AND P AYMENT ETC. FOR WHICH THEY CHARGED 10% COMMISSION. THE LD. COUNSEL INVITING OUR ATTENTION TO THE SAMPLE INVOICE HAS FURTHER SUBMITT ED THAT, IN FACT, INVOICE IS NOT RAISED BY THE ASSESSEE IN THE NAME O F ACTUAL BUYER BUT IN THE NAME OF AGENT ONLY, WHEREIN, A COMMISSION @ 10% OF FOB IS ITSELF DEDUCTED / DISCOUNTED AT THE INSTRUCTION OF THE BUYER AS LISTED IN INVOICE, WHO ACTUALLY IS AGENT OF THE ACTUAL BUYER. THE GOODS ARE DELIVERED TO THE ACTUAL BUYER / THIRD PARTY. HE HAS INVITED OUR ATTENTION TO THE COPY OF THE INVOICE, ONE OF WHICH IS PLACED AT PAGE 39 OF THE PAPER BOOK, WHEREIN, HE HAS SHOWN THAT THE N AME OF THE BUYER IS MENTIONED AS HATTA FORT TRADING LLC AT DUBAI U AE, WHEREAS, THE NAME OF THE CONSIGNEE HAS BEEN MENTIONED AS DALY D AY S.L. AT MADRID, SPAIN AND IN THE INVOICE ITSELF IT HAS BE EN MENTIONED AS AGENCY COMMISSION @ 10% OF THE FOB. THERE ARE MA NY IDENTICAL BILLS WHICH HAVE BEEN PLACED ON THE FILE. FURTHER, HE HAS ALSO PLACED RELIANCE ON THE FOREIGN REMITTANCE CERTIFICATE FROM THE BANK, WHEREIN, THE AMOUNT PAID / DEDUCTED AS COMMISSION HAS BEEN D ULY MENTIONED. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT IN ORDE R TO SECURE THE PAYMENT REALIZATION FROM EXPORT SALES ON TIMELY BAS IS, THE EXPORT INVOICES ARE ISSUED IN THE NAME OF FOREIGN COMMISSI ON AGENTS SINCE IT IS VERY DIFFICULT TO LOCATE FOREIGN BUYERS. IN THE BILLS, THE FOREIGN COMMISSION AGENTS ARE DESIGNATED AS BUYERS. THOSE F OREIGN BUYERS AGENTS WOULD COLLECT THE PAYMENTS FROM CONSIGNEE AN D ARRANGE TO ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 5 REMIT THE PAYMENTS TO THE EXPORTERS ASSESSEES BAN K AFTER DEDUCTING THE AGENCY COMMISSION. SOME SAMPLES COPIES, BANK C ERTIFICATES OF EXPORT REALIZATION WERE ALSO SUBMITTED TO THE LOWER AUTHORITIES. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS, IN OUR VIEW, NO DISALLOWANCE OF COMMISSION AMOUNT IS WARRANTED IN T HIS CASE. THOUGH THE ASSESSEE HAS BOOKED THE SAID AMOUNT AS COMMISSI ON AMOUNT, HOWEVER, THE ASSESSEE COULD CONVENIENTLY HAVE BOOKE D THIS AMOUNT AS DISCOUNT ON SALES. AS PER THE CASE OF THE REVENUE, THE COMMISSION HAS BEEN SHOWN TO BE PAID TO THE BUYERS THEMSELVES, WHICH HAS BEEN DISCOUNTED / BOOKED IN THE INVOICES ITSELF. UNDER THE CIRCUMSTANCES, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS RECEIVED ANY AMOUNT MORE THAN THE BILLED AMOUNT OR REMITTED SEPA RATE AMOUNT AS COMMISSION PAYMENT. THE ASSESSEE HAS TRIED TO DEMO NSTRATE THE ACTUAL METHOD OF TRANSACTION DONE BY HIM. HOWEVER, THE FACT ON THE FILE IS THAT THE ASSESSEE HAS NOT PAID ANY SEPARATE AMOUNT TO ANY PARTY AS COMMISSION. THE ASSESSEE HAS REALIZED THE PAYMEN T OF EXPORT SALES WHICH HAVE BEEN REMITTED TO THE ASSESSEE BY THE SAI D COMMISSION AGENTS / BUYERS AFTER DEDUCTION OF THE COMMISSION. 7. SINCE THE ASSESSEE HAS NOT CLAIMED ANY PAYMENT O N ACCOUNT OF SEPARATE COMMISSION APART FROM THE ACTUAL BILL AMO UNT RECEIVED BY THE ASSESSEE, HENCE, WE DO NOT FIND ANY JUSTIFICATI ON ON THE PART OF THE LOWER AUTHORITIES FOR THE IMPUGNED DISALLOWANCE OF COMMISSION AND THEREBY MAKING THE IMPUGNED ADDITIONS. THIS GRO UND OF THE ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 6 APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED IN FA VOUR OF THE ASSESSEE. 8. GROUND NO.2 : VIDE GROUND NO. 2, THE ASSESSEE HAS AGITATED THE CONFIRMATION OF ADDITION OF RS. 18,92,080/- MADE BY THE ASSESSING OFFICER U/S 68 OF THE ACT ON ACCOUNT OF UNEXPLAINED LOANS RAISED DURING THE YEAR. 9. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE RAISED UNSECURED LOANS AMOUNTING TO RS. 18,92,080/- FROM D IFFERENT PARTIES. ON BEING ASKED TO EXPLAIN IN THIS RESPECT, THE ASSE SSEE FURNISHED NAME OF THE PARTIES, THE AMOUNT OF UNSECURED LOANS RAISED DURING THE YEAR FROM THE RESPECTIVE PARTIES AND CONFIRMATIONS. HOWEVER, THE COPIES OF THEIR ITRS AND BANK STATEMENTS WERE NOT P RODUCED. THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE TR ANSACTIONS AND MADE THE IMPUGNED ADDITIONS. 10. IN THE FIRST APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE PRODUCED FURTHER DETAILS LIKE BANK STATEMENTS AND INCOME TAX RETURNS. IT WAS ALSO STATED THAT THE LOANS WERE NOT RAISED FROM TH IRD PARTY BUT FROM THE DIRECTOR OF THE ASSESSEE COMPANY NAMELY SH. RA KESH GOYAL AND MS. GEETA GOYAL. THE LD. CIT(A) CALLED FOR A REMAND REPORT IN THIS RESPECT FROM THE ASSESSING OFFICER. HOWEVER, IN THE REMAND REPORT THE ASSESSING OFFICER REPORTED THAT ASSESSEE HAD NOT PR ODUCED THE RELEVANT DOCUMENTS DURING THE ORIGINAL ASSESSMENT P ROCEEDINGS. THE ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 7 LD. CIT(A) ACTING ON THE REMAND REPORT OF THE ASSES SING OFFICER CONFIRMED THE IMPUGNED ADDITIONS. 11. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HA S RELIED ON THE COPY OF THE CONFIRMATION OF UNSECURED LOANS FROM TH E DIRECTORS, BALANCE SHEET AND AUDIT REPORT, COPIES OF INCOME TA X RETURNS AND COPY OF STATEMENT OF BANK ACCOUNT. IN OUR VIEW, THE ABOV E RELEVANT DOCUMENTS SHOULD HAVE BEEN CONSIDERED BY THE LD. CI T(A). THE FACT ON THE FILE IS THAT THE UNSECURED LOANS HAVE BEEN R AISED FROM THE DIRECTORS OF THE COMPANIES AND FOR THE BUSINESS OF THE ASSESSEE. THE CREDITWORTHINESS OF THE DIRECTORS HAS BEEN PROVED F ROM THE BANK STATEMENTS AND CONFIRMATION OF THE ACCOUNTS. SINCE THE LOANS HAVE COME FROM THE DIRECTORS OF THE ASSESSEE COMPANY, HE NCE, THERE WAS NO DOUBT ABOUT THE IDENTITY OF THE CREDITWORTHINESS AN D GENUINENESS OF THE CREDITORS. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNE D DISALLOWANCE AND THE SAME IS ACCORDINGLY ORDERED TO BE DELETED. 12 . GROUND NO.3 : VIDE GROUND NO.3, THE ASSESSEE HAS AGITATED TH E CONFORMATION OF ADDITION OF RS. 4,82,90,607/- ON AL LEGED BOGUS CLAIM OF EXPENDITURE ON ESTIMATION BASIS. THE ASSESSING O FFICER DISALLOWED 10% OF THE TOTAL EXPENSES ON ACCOUNT OF NON-PRODUCT ION OF BOOKS OF ACCOUNT. HOWEVER, THE CASE OF THE ASSESSEE HAS BEEN THAT ACCOUNT BOOKS WERE DULY PRODUCED. THE LD. COUNSEL HAS ALSO INVITED OUR ATTENTION TO PAGE 5 OF THE ASSESSMENT ORDER, WHEREI N, IN THE COLUMN 3 AT SR. NO.19, IT HAS BEEN SPECIFICALLY MENTIONED BY THE ASSESSING ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 8 OFFICER THAT THE COUNSEL FOR THE ASSESSEE ALSO PROD UCED ALL THE BOOKS OF ACCOUNT WITH SUPPORTING PURCHASE / SALE BILLS AN D OTHER DOCUMENTS AND ALSO PRODUCED ALL THE SALE BILLS OF SISTER CONC ERN WITH WHOM THE ASSESSEE ENTERED INTO TRANSACTIONS DURING ASSESSMEN T YEAR 2010-11 WITH THEIR LEDGER ACCOUNT. THE LD. COUNSEL HAS FURT HER INVITED OUR ATTENTION TO PAGE 13 OF THE IMPUGNED ORDER OF THE C IT(A), WHEREIN, THE ASSESSEE EVEN BEFORE THE LD. CIT(A) HAS PLEAD ED THAT ASSESSEE WAS STILL WILLING TO PRODUCE ITS BOOKS OF ACCOUNT T O AVOID ANY UNNECESSARY ENCUMBRANCE. EVEN THE LD. COUNSEL HAS S UBMITTED THAT EVEN THE AUDITED STATEMENT OF ACCOUNT WAS FILED ALO NG WITH THE RETURN. THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT D ID NOT REJECT THE BOOKS OF ACCOUNT. 13. THE LD. DR COULD NOT REBUT THE ABOVE CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNED DISALLOWANCE AND THE SAME IS ACCORDINGLY O RDERED TO BE DELETED. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS HERE BY ALLOWED. ITA NO. 701/CHD/2007 14. IN THIS APPEA THE ASSESSEE HAS AGITATED THE CO NFIRMATION OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF T HE QUANTUM ADDITIONS MADE AS DISCUSSED ABOVE IN ITA NO. 700/C HD/2018 . SINCE IN OUR DETAILED ORDER AS DISCUSSED ABOVE, WE HAVE D ELETED THE IMPUGNED ADDITIONS, HENCE, THE VERY BASIS FOR WHICH THE PENALTY WAS ITA NOS. 700 & 701/CHD/2018- M/S KWALITY OVERSEAS (P) LTD., LUDHIANA . 9 LEVIED HAS CEASED TO EXIST. THEREFORE, THE IMPUGNED PENALTY HAS NO LEGS TO SUSTAIN, AND THE SAME IS ACCORDINGLY ORDER ED TO BE DELETED. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2018 SD/- SD/- ( . . , / B.R.R. KUMAR) !'/ ACCOUNTANT MEMBER ( !#$ % / SANJAY GARG ) & !' / JUDICIAL MEMBER '(# /DATE: 11.12. 2018 . . 1 * & )23 43') / COPY OF THE ORDER FORWARDED TO : 1. #$ / THE APPELLANT 2. &'#$ / THE RESPONDENT 3. 5) / CIT 4. 5) ( )/ THE CIT(A) 5. 36 & ) 7 , - 7 ! , 89: / DR, ITAT, CHANDIGARH 6. ; , / GUARD FILE 1 / BY ORDER, < / ASSISTANT REGISTRAR