M/s. Woventex (India) Pvt. Ltd., Ichalkaranji V. Joint CIT, Ichalkaranji Range, Ichalkaranji

ITA 729/PUN/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7746 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 25-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 37(1); 194C; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.729/PUN/2013 / ASSESSMENT YEAR : 2009-10 M/S. WOVENTEX (INDIA) PVT. LTD., PLOT NO.125, THE ICHALKARANJI CO-OP. ESTATE LTD., BABASO KHANJIRE NAGAR, SHAHPUR 416121 PAN : AAACW2491E . APPELLANT VS. JOINT COMMISSIONER OF INCOME-TAX, ICHALKARANJI RANGE, ICHALKARANJI . RESPONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI ACHAL SHARMA, ADDL.CIT DATE OF HEARING : 01.08.2017 / DATE OF PRONOUNCEMENT: 09.08.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A) KOLHAPUR DATED 25-02-2013 FOR THE ASSESSMENT YEAR 2009-10. 2. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS OF APPEAL AND MENTIONED THAT GROUND NOS. 6 AND 7 SH OULD BE DISMISSED AS NOT PRESSED. FURTHER, BRINGING OUR ATTENTION TO THE GR OUND NOS. 8 TO 10, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THEY SHOULD ALSO BE D ISMISSED AS GENERAL. ACCORDINGLY, WE ORDER. ITA NO.729/PUN/2013 M/S. WOVENTEX (INDIA) PVT. LTD., 2 3. FURTHER, BRINGING OUR ATTENTION TO GROUND NOS. 1 TO 3, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE RAISED IN THESE G ROUNDS RELATE TO THE ISSUE OF DISALLOWANCE OF COMMISSION EXPENSES OF RS.46,92,491 /-. 4. RELEVANT FACTS ON THIS ISSUE OF COMMISSION INCLU DE THAT THE ASSESSEE PAID TO 3 COMMISSION AGENTS. THEY ARE NON-RESIDENTS AND CO MMISSION WAS PAID IN CONNECTION WITH THE SERVICES RENDERED BY THEM INVOL VING OVERSEAS TRANSACTIONS RELATING TO EXPORTS. THE SECOND ISSUE RAISED IN GR OUND NOS. 4 AND 5 RELATE TO THE ADDITION OF RS.70,20,312/- U/S.40(A)(IA) OF THE ACT . THE CASE OF THE ASSESSEE ON THIS ISSUE IS THAT THESE PAYMENTS, BEING IN THE NAT URE OF REIMBURSEMENT OF THE EXPENSES, SHOULD BE OUTSIDE THE SCOPE OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WE SHALL TAKE UP THESE TWO ISSUES AND ADJUDICATE TH E SAME IN THE FOLLOWING PARAGRAPHS. 5. REGARDING THE ISSUE RELATING TO THE ALLOWABILITY OF THE COMMISSION PAYMENTS, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO CONTENTS OF PARA 6 AND ITS SUB-PARAGRAPHS OF THE ORDER OF THE AO AND MENTIONED THAT THE AO INVOKED THE PROVISIONS OF SECTION 37(1) OF THE ACT. AO MENTION ED THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS THE ASSESSEE FAILED TO DEMONSTRATE THAT THE SAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ON FACTS, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE PAID COMMISSION TO THE FOLLOWING 3 NON-RESIDENTS AND THE DETAILS ARE A S UNDER : SR.NO. NAME OF THE PERSON/PARTY AMOUNT 1 INTERNATIONAL MARKETERS INC., USA RS.6,68,842/ - 2 K.J. WATCHER, AUSTRIA RS.38,39,944/ - 3 NAVIN GOYAL, USA RS.1,83,705/ - ITA NO.729/PUN/2013 M/S. WOVENTEX (INDIA) PVT. LTD., 3 LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESS EE FAILED TO FILE THE DOCUMENTS RELATING TO THE SAID NON-RESIDENTS, THE DETAILS OF THE SERVICES RENDERED BY THEM TO BECOME ELIGIBLE TO RECEIVING THE COMMISSION ETC., DOUBTING THE GENUINENESS OF THE AMOUNTS PAID TO THEM, THE AO PROCEEDED TO CONCLUDE THE PROCEEDINGS AGAINST THE ASSESSEE BY STATING THE FOLLOWING: 6.4 IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR T HAT THE ASSESSEE HAS FAILED TO FURNISH THE NECESSARY EVIDENCE AND THE RELEVANT DET AILS AND HAS THUS FAILED TO ESTABLISH THE BUSINESS PURPOSE OF THE AMOUNTS TOTAL LING RS.46,92,491/- CLAIMED BY THE ASSESSEE AS OVERSEAS COMMISSION PAID/CREDITED O N SALES. THE LAW IS WELL SETTLED THAT AS PER SECTION 37(1) OF THE INCOME TAX ACT, 19 61, THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE CLAIMED HAS BEEN INCU RRED WHOLLY AND EXCLUSIVELY FOR THE FOR HIS BUSINESS WHICH THE ASSESSEE HAS FAILED TO PROVE. THE ASSESSEE HAS THEREFORE FAILED TO DISCHARGE THE ONUS PLACED UPON BY LAW. HENCE THE CLAIM OF THIS EXPENDITURE IS NOT ALLOWABLE AND THE AMOUNT OF RS.4 6,92,492/- CLAIMED BY THE ASSESSEE AS OVERSEAS COMMISSION IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 6. ON THIS ISSUE, IN THE FIRST APPELLATE PROCEEDING S, THE CIT(A), REITERATING THE STAND OF THE AO, DECIDED THIS ISSUE AGAINST THE ASS ESSEE. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONCERNED BILLS (PAGES 58 TO 136) BEING THE COPIES OF THE INVOICE. SHOWING THE PAYMENT OF OVERSEAS COMMISSION, LD. COUNSEL FOR TH E ASSESSEE DEMONSTRATED THE FACT OF PAYMENT OF COMMISSION EXPENSES WITH RELEVAN T ENTRIES ON ACCOUNT OF COMMISSION INCURRED BY THE ASSESSEE IN FOREIGN CURR ENCY. FOR EXAMPLE, BRINGING OUR ATTENTION TO PAGE 59 OF THE PAPER BOOK, LD. COU NSEL FOR THE ASSESSEE DEMONSTRATED THE PAYMENT OF 1493 US DOLLARS ON ACCO UNT OF COMMISSION. SIMILARLY, BRINGING OUR ATTENTION TO PAGE 62 OF THE PAPER BOOK BEARING LED NO.1/98 LED DATE 28-05-2008 ISSUED BY THE INDIAN CUSTOMS DE PARTMENT AT JNPT, NHAVA SHEVA, SHIPPING BILL FOR EXPORT, LD. COUNSEL FOR TH E ASSESSEE MENTIONED THE FACT OF GENUINENESS OF PAYMENT OF COMMISSION OF 1260 US DOL LARS IN THE CURRENT YEAR TO A COMMISSION AGENT. SIMILARLY, ASSESSEE FILED ALL TH E BILLS CONSIDERING THE INCURRING OF EXPENDITURE IS BEYOND DOUBT. THUS, IT IS A CASE OF THE ASSESSEE THAT THE ITA NO.729/PUN/2013 M/S. WOVENTEX (INDIA) PVT. LTD., 4 GENUINENESS OF EXPENDITURE SHOULD BE UNDISPUTED. A CCORDING TO THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE, THE AO HAS FAILED TO BRING ANY EVIDENCE TO DEMONSTRATE THAT THE ABOVE SAID PAYMENTS ARE NOT GE NUINE. FURTHER, HE MENTIONED THAT SIMILAR CLAIMS WERE MADE IN SUBSEQUENT YEARS A ND THE SAME WERE FOUND ACCEPTABLE BY THE REVENUE. THE SAME IS EVIDENT FRO M THE FACT THAT AO HAS NOT MADE ANY ADDITION ON THIS ACCOUNT IN THE LATER ASSE SSMENT YEARS. THEREFORE, THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT MAKING ADDITION HOLDING THAT EXPENDITURE IS NOT GENUINE IS NOT LEGA LLY SUSTAINABLE. 8. ON HEARING BOTH THE PARTIES, WHERE THE LD. DEPAR TMENTAL REPRESENTATIVE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT( A), WE FIND THE ABOVE REFERRED DOCUMENTS PLACED IN PAGES 58 TO 136 UNDISPUTEDLY CO NFIRM THE FACT OF PAYMENTS ON ACCOUNT OF COMMISSION TO THE NON-RESIDENTS IN CONNE CTION WITH THE EXPORT ACTIVITIES OF THE ASSESSEE. THE ASSESSEE IS AN EXPORTER OF GA RMENTS AND THE PAYMENT OF COMMISSION TO NON-RESIDENT IS NOT NEW IN THIS LINE OF BUSINESS ACTIVITY. AS SUCH, IT IS AN UNDISPUTED FACT THAT SUCH CLAIMS OF THE ASSESSEE ARE ALLOWED IN THE LATER ASSESSMENT YEARS OF THE ASSESSEE. COUPLE OF RECIPI ENTS OF THE SAID COMMISSION ARE COMMON IN THESE YEARS. AO DID NOT MAKE ANY ADDITIO NS ON THIS ACCOUNT IN THE LATER YEARS. THEREFORE, WE ARE OF THE OPINION ON THE GRO UND OF GENUINENESS, THE ADDITIONS CANNOT BE CONFIRMED AS DONE BY THE CIT(A) . THUS, CONSIDERING THE ABOVE ARGUMENTS OF THE ASSESSEES REPRESENTATIVE TOGETHER WITH ABSENCE OF ANY INCRIMINATING EVIDENCE GATHERED BY THE AO AGAINST T HE ASSESSEE, WE ARE OF THE VIEW THAT THE CLAIMS OF THE ASSESSEE SHOULD BE ALLOWED I N FULL. ACCORDINGLY, GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE ARE ALLOWED. 9. THE SECOND ISSUE RELATES TO THE CORRECTNESS OF I NVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE SEA- FREIGHT EXPENDITURE AMOUNTING TO RS.70,20,312/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, AO MADE THE ABOVE ITA NO.729/PUN/2013 M/S. WOVENTEX (INDIA) PVT. LTD., 5 ADDITION AS PER THE DISCUSSION GIVEN IN PARA 7.1 TO 7.5 OF THE ASSESSMENT ORDER. IT IS THE CASE OF THE AO THAT THE SEA-FREIGHT CHARGES WAS PAID BY THE ASSESSEE TO THE SHIPPING AGENTS OR SHIPPING LINERS WITHOUT MAKING T DS IN VIOLATION OF THE PROVISIONS OF SECTION 194C OF THE ACT. ACCORDINGLY, THE AO IN VOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THERE IS NO DISCUSSION IN HIS ORDER AS TO WHY SUCH REIMBURSEMENT OF EXPENSES CONSTITUTE AN INCOME ATTR ACTING THE PROVISIONS OF SECTION 194C OF THE ACT. HOWEVER, DURING THE FIRST APPELLATE PROCEEDINGS, IN CONNECTION WITH THIS ISSUE, ASSESSEE SUBMITTED THAT THE FREIGHT FEE WAS PAID TO THE PERSONS WHO ARE EITHER SHIPPING COMPANIES OR SHIPPI NG AGENTS. AS PER THE DISCUSSION GIVEN IN PARA 8, THE CIT(A) CONFIRMED TH E SAID ADDITION OF RS.70,20,312/-. IN THE SAID PARAGRAPH, IT IS MENTI ONED THAT THERE IS DISCUSSION ABOUT THE FAILURE OF THE ASSESSEE IN FURNISHING THE RELEVANT PAPERS AND EVIDENCES RELATING TO THE CLAIM OF SEA-FREIGHT ACCOUNT. THER EFORE, IN THE ABSENCE OF BASIC INFORMATION ON HOW THESE PAYMENTS ARE REIMBURSED, N EXUS BETWEEN THE SHIPPING COMPANIES/SHIPPING AGENTS AND THE ASSESSEE (THE EXP ORTER), THE CIT(A) PROCEEDED TO CONFIRM THE ADDITION. 10. BEFORE US AT THE OUTSET, LD. COUNSEL FOR THE AS SESSEE, THOUGH RELIED ON THE CLAIMS MADE BY HIM IN THE RETURN OF INCOME, SUBMITT ED THAT THIS ISSUE MAY BE REMANDED BACK TO THE FILE OF THE AO FOR FRESH ADJUD ICATION IN THE MATTER. 11. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 12. WE HEARD BOTH THE PARTIES ON THIS LIMITED ISSUE RELATING TO ALLOWABILITY OF CLAIM OF SEA-FREIGHT EXPENDITURE. WE HAVE ALSO EXA MINED THE APPLICABILITY OF PROVISIONS OF SECTION 194C R.W.S. 40(A)(IA) OF THE ACT. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS AN EXPORTER OF GARMENTS AND ENGAGED THE SERVICES OF THE SHIPPING COMPANIES/SHIPPING AGENTS. HOWEVER, WE HAVE NO INF ORMATION AS TO SEE WHETHER ITA NO.729/PUN/2013 M/S. WOVENTEX (INDIA) PVT. LTD., 6 THE PAYMENTS MADE BY THE ASSESSEE ARE REIMBURSED AN D IN WHICH CASE, THE PROVISIONS OF SECTION 194C HAS NO APPLICATION. CON SIDERING THE PRAYER OF THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THA T IT IS IN THE INTEREST OF JUSTICE THAT THIS ISSUE SHOULD BE REMANDED TO THE FILE OF T HE AO FOR FRESH ADJUDICATION. AO MAY ENTERTAIN ANY DOCUMENTS/EVIDENCES RELATING TO T HIS ISSUE FROM THE ASSESSEE DURING SUCH ASSESSMENT PROCEEDINGS. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NOS. 4 AND 5 BY THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 09 TH DAY OF AUGUST, 2017. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 09 TH AUGUST, 2017. SATISH / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ( ) THE CIT(A) KOLHAPUR / THE CIT , KOLHAPUR , , / DR A, ITAT, PUNE; / GUARD FILE. / BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, ITAT, PUNE BENCHES, PUNE