Asst. Commissioner of Income tax Cir. 1(1), Panaji V. M/s. Putzmeister India Pvt. Ltd., Panaji

ITA 79/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93531 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI
• Assessee Lawyers: SANTOSH KENKRE
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA , HONBLE ACCOUNTANT MEMBER ITA NO. 7 9/PNJ/2014 (ASST. YEAR : 20 1 0 - 1 1 ) ACIT, CIRCLE - 1(1), PANAJI GOA. VS. M/S. PUTZMEISTER INDIA PVT. LTD., 115, KAMAT TOWERS, PATTO PLAZA, PANAJI, GOA. PAN NO. AABCP 1503 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANTOSH KENKRE - CA DEPARTMENT BY : SMT. ASHA DESAI - D.R. DATE OF HEARING : 10 / 0 6 /2015 . DATE OF PRONOUNCEMENT : 10 / 0 6 /201 5 . O R D E R PER N.K. BILLAIYA WITH THIS APPEAL THE REVENUE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE L D. CIT (A), PANAJI, DATED 22 / 11 /201 3 PERTAINING TO A.Y. 20 1 0 - 11 . 2. THE GRIEVANCE OF THE REVENUE READS AS UNDER: - 1. THE ORDER OF THE LD. CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF ADVERTISEMENT AND SALE PROMOTION EXPENSES, WHEREAS THE ASSESSEE 2 ITA NO. 79 /PNJ/2014 COMPANY HAS ENTRUSTED SALES, SALES PROMOTION, MARKETING ON CONTRACT OF M/S. AQUARIUS ENGINEERS PVT. LTD. FOR COMMISSION OF 7.5% . 3. THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF SALES COMMISSION PAID TO M/S. AQUARIUS ENGINEERS PVT. LTD. U/S. 40A (2) A RELATED COMPANY WERE DIRECTORS ARE COMMON. THE AO RESTRICTED THE COMMISSION OF 5% AS HELD IN THE CASE OF NUND & SAMONTA CO. LTD. VS. CIT (SC) 78 ITR 268 . 4. THE APP ELLANT CRAVES LEAD TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 3. GROUND NO.1 IS GENERAL IN NATURE, NEEDS NO SEPARATE ADJUDICATION . GROUND NO.2 RELATES TO DISALLOWANCE OF ADVERTISEMENT AND SALE PROMOTION EXPENSES AMOUNTING TO RS. 22,42,303/ - . WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 22,42,303/ - AGAINST ADVERTISEMENT AND SALES PROMOTION S. THE ASSESSING OFFICER FOUND THAT IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR UNDER THE SAME HEAD, THE ASSESSEE HAS DEBITED ONLY AN AMOUNT OF RS. 25,894/ - . THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE ASSESSEE FILED A DETAILED REPLY STATING THAT AMOUNTS W E R E S P E N T FOR PARTICIPATION IN EXHIBITIONS OF EXCON 09 AND CONSTRO - 09 . IN SUPPORT, THE ASSESSEE FILED A N AGREEMENT MADE BETWEEN THE ASSESSEE AND M/S. AEPL. THE ASSESSING OFFICER WAS OF THE OPINION THAT WHEN THE ASSESSEE IS SPENDING AN AMOUNT OF RS. 2. 02 C RORES AS COMMISSION EXCLUSIVELY FOR SALES AND SALES 3 ITA NO. 79 /PNJ/2014 PROMOTION, THEN WHY ASSESSEE H AS SPEN T AN AMOUNT OF RS. 22,42,303/ - FOR EXHIBITIONS . THE ASSESSING OFFICER DISALLOWED RS. 22,42,303/ - AND ADDED TO THE INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) . IT WAS EXPLAINED TO THE LD. CIT(A) THAT AEPL IS A NON - EXCLUSIVE DEALER . R EFERRING TO CLAUSE - 3G OF THE AGREEMENT , I T WAS POINTED OUT T H AT THE AUTHORIZED DEALER CAN TAKE PART IN TRADE EXHIBITIONS ETC. ORGANIZED AND EXPENSES OF THE SAME SHALL BE SHARED BETWEEN AEPL AND THE ASSESSEE ON MUTUALLY AGREEABLE BASIS ON CASE TO CASE BASIS . IT WAS EXPLAINED THAT ONLY BECAUSE OF THIS CLAUSE, THE ASSESSEE HAS BORNE EXPENDITURE OF RS. 22,42,303/ - , WHICH WAS A COMMERCIAL DECISION . IT WAS STRONGLY CONTENDED THAT PARTICIPATION IN C ONSTRUCTION EQUIPMENT EXHIB ITION IS A MUST F O R ALL CONSTRUCTION EQUIPMENT MANUFACTURERS TO SHOW THEIR PRESENCE , DISPLAY OF NEW PRODUCTS, DEVELOPMENTS AND IT IS THE PLACE TO MEET A LOT SUPPLIERS/ MANUFACTURERS OF RAW MATERIAL, CUSTOMERS ETC. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THESE EXPENSES. THE ASSESSING OFFICER HAS ALSO NOT OBSERVED THAT THESE EXPENSES ARE NOT INCURRED WHOLLY AND NECESSARILY FOR THE PURPOSES OF THE BUSINE SS. THE LD. CIT(A) WAS CONVINCED THAT THE GENUINENESS OF THE EXPENSES HAVE BEEN ESTABLISHED AND THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE 4 ITA NO. 79 /PNJ/2014 ASSESSEE AND ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 22,42,303/ - . 4 . AGGRIEVED BY THIS, REVENUE IS BEFORE US. 5. LEARNED DR SUPPORTED THE ASSESSMENT ORDER. COUNSEL FOR THE A SSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LD. CIT(A). 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENSES. IT IS ALSO NOT A CASE WH ERE THE EXPENSES HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . WHEN T HE TWIN CONDITIONS HAVING BEEN FULFILLED I.E. GENUINENESS OF THE EXPENSES AND WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE BUSINESS , WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO.2 IS, ACCORDINGLY, DISMISSED. 7. GROUND NO.3 RELATES TO THE DISALLOWANCE OF SALES COMMISSION PAID TO M/S. AQUARIUS ENGINEERS PVT. LTD., PUNE . WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAS PAID RS. 2.02 CRORE AS COMMISSION TO AEPL . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS INCURRED RS. 3.08 CRORES FOR S TAFF COST & WELFARE AND MANUFACTURING, 5 ITA NO. 79 /PNJ/2014 SELLING & ADMINISTRATIVE COST . THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PAID RS. 2.02 CRORES AS COMMISSION ALONE . THE ASSESSEE WAS ASKED TO EXPLAIN THE GENUINENESS OF THE CLAIM AS THE PAYMENT HAVE BEEN MADE TO AN ASSOCIATED CONCERN IN THE LIGHT OF THE PROVISIONS OF SEC. 40 A(2) OF THE ACT. IT WAS EXPLAINED THAT THE ASSESSEE IS PURELY A MANUFACTURING COMPANY AND DO NOT HAVE ANY EMPLOYEES FOR MARKETING/ SALES & TECHNICIANS FOR AFTER SALES SERVICES NOR ASSESSEE IS HAVING ANY MARKETING/SALES OFFICE ANYWHERE IN THE COUNTRY . IT WAS FURTHER EXPLAINED THAT ONE OF THE GROUP COMPANY I.E. M/S. AQUARIUS ENGINEERS PVT. LTD. (AEPL) IS LOOKING AFTER MARKE T ING/SALES AND AFTER SALES SERVICE OF THE PRODUCTS OF THE ASSESSEE. AEPL HAS ALL INDIA NETWORK AND HAVE MARKETING/ SALES & SERVICE OFFICES SPREAD OVER THE COUNTRY. THE COMMISSION HAS BEEN PAID FOR WORK DONE BY THE AEPL TO THE ASSESSEE. THE ASSESSING OFFICER DID NOT ACCEPT THIS SUBMISSION MADE BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE OPINION THAT OUT OF THE T OTAL COMMISSION OF 7.5%, 2.5% NEEDS TO BE DISALLOWED U/S. 40A(2) OF THE ACT AND ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. ACCORDINGLY, DISALLOWANCE OF RS. 67,59,579/ - WAS MADE U/S. 40A(2) OF THE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) . THE LD. CIT(A) HAS CONSIDERED THIS ISSUE AT PARA 6 ON PAGE 10 OF HIS ORDER. BEFORE LD. CIT(A) , THE ASSESSEE ONCE AGAIN REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE ASSESSING OFFICER. IT WAS POINTED OUT TO THE 6 ITA NO. 79 /PNJ/2014 LD. CIT(A) THAT THE SALES IN GOA TAKEN BY THE ASSESSING OFFICER AT RS. 180 LAC IS INCORRECT AS THE SALES IN GOA IS ONLY RS. 5.06 LAC. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT AS PER THE INDUSTRY NORMS, COMMISSION @ 7.5% OF SA LES IS REASONABLE. THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE COMMISSION PAYMENT. THE AEPL HAS DISCLOSED THE RECEIPT OF COMMISSION AS ITS INCOME . A SSESSEE AND THE RELATED PARTY BOTH ARE UNDER THE SAME TAX BRACKET. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RESTRICTING THE SALES COMMISSION TO 5% IN PLACE OF 7.5% AND ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 67,59 ,579/ - . 8. AGGRIEVED BY THIS, REV E NUE IS BEFORE US. 9. LEARNED DR RELIED UPON THE ASSESSMENT ORDER. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE FIRST APPELLATE AUTHORITY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 10. THE UNDISPUTED FACT IS THAT THE SALES COMMISSION HAS BEEN PAID @ 7.5% ON THE SALES. IT IS PERTINENT TO UNDERSTAND THE REMARKS MADE BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER AT PAGE 3 WHICH READS M/S. PMI (ASSESSEE) IS PAYING COMMISSION TO M/S. AEP L SINCE A.Y. 7 ITA NO. 79 /PNJ/2014 2004 - 05 TILL A.Y. 2009 - 10 . COUNSEL ALSO BROUGHT TO THE NOTICE OF THE BENCH THE ASSESSMENT ORDER FOR A.Y. 2012 - 13 . WE FIND THAT EVEN IN THE SUBSEQUENT ASSESSMENT YEARS, NO DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF COMMISSION PAYMENT TO AEPL . THIS ACTION OF THE ASSESSING OFFICER CLEARLY BREACHES THE RULE OF CONSISTENCY AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321 . ON THIS VERY REASON , THE ADDITION CAN BE DELETED . LET US CONSIDER THIS ADDITION FROM OTHER ANGLE. THE ADDITION HAS BEEN MADE U/S. 40A(2) OF THE ACT. THE ASSESSING OFFICER HAS RESTRICTED THE PAYMENT OF COMMISSION FROM 7.5% TO 5% . H OWEVER, WE FIND THAT NOT EVEN A SINGLE COMPARABLE CASE HAS BEEN BROUGHT ON RECORD TO JUST IF Y THIS A CT OF THE ASSESSING OFFICER. WITHOUT BRINGING ANY COMPARABLE CASE, IN OUR CONSIDERED OPINION, NO DISALLOWANCE CAN BE MADE U/S. 40A(2) OF THE ACT. CONSIDERING THE DISALLOWANCE FROM ALL THE POSSIBLE ANGLES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) . GROUND NO.3 IS, ACCORDINGLY, DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ( ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE , 201 5 ). S D / - S D / - ( GEORGE MATHAN ) ( N.K. BILLA I YA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 1 T H JUNE , 201 5 . 8 ITA NO. 79 /PNJ/2014 VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 9 ITA NO. 79 /PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 1 0.06.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 0 .06.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 0/06/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 0/06/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 0 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 0 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 1 /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER