ACIT 10(3), MUMBAI V. ARMACELL INDIA P. LTD, PUNE

ITA 809/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0958 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: GAJENDRA GOLCHHA
• Keywords: Business expenditure; Wholly owned subsidiary; Non-deduction of tax

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI RAJENDRA , ACCOUNTANT MEMBER ITA NO.809/MUM/2013(A.Y. 2008-09) THE DY.CIT 10(3), VS. M /S. ARMACELL INDIA PVT. LTD. ROOM NO.451, 4 TH FLOOR, GATE NO.44, VILLATE -LONIKAND, AAYKAR BHAVAN, MK ROAD, PUNE-AHM EDNAGAR ROAD, MUMBAI 400020 P UNE 412 215 PAN: AAFCA 1528D (APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI AS GHAR ZAIN RESPONDENT BY : SHRI GAJE NDRA GOLCHHA DATE OF HEARING 31/03/2015 DATE OF PRONOUNCEMENT 08/04/2015 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-22, MUMBAI DATED 22/11/2012 FOR ASSES SMENT YEAR 2008-09. GROUNDS OF APPEAL READ AS UNDER: 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) WAS RIGHT IN HOLDING THAT ONLY TDS DEDUCTED U/S 40(A)(IA) MAKE ELIGIBLE FOR ALLOWANCE OF THE PROVIS ION FOR COMMISSION EXPENSES TO VARIOUS PARTIES AMOUNTING TO RS. 13,86, 382/ - WITHOUT APPRECIATING THE FACT THAT THIS EXPENDITURE IS A PR OVISION AND SATISFYING EVIDENCE IS NOT AVAILABLE WITH THE ASSESSEE. ITA NO.809/MUM/2013(A.Y. 2008-09) 2 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AS WELL AS IN LAW, THE LD. CIT(A) WAS RIGHT IN NOT HOLDING THAT P ROVISION FOR COMMISSION WOULD BE A DEDUCTIBLE EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IN THE ASSESSMENT HAD FAILED TO BRING ON R ECORD BEFORE THE AO THE NECESSARY DETAILS OF THE SERVICES RENDERED BY THE C OMMISSION AGENT AND ONLY CREATED AN UNCERTAIN LIABILITY IN THE BOOKS OF ACCO UNTS WITHOUT ANY WORKING OR BASE FOR THE SAME.' 3. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2. FROM THE DETAILS FILED DURING THE COURSE OF ASSE SSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT OUT OF TOTAL COMMISSION OF R S.1,92,78,321/- A SUM OF RS.1,07,16,170/- WAS CLAIMED AS PROVISION ON 31/ 3/2008. THE AO ASKED JUSTIFICATION FOR ALLOWABILITY OF THE SAME. IN THE REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT OUT OF AFOREMENTIONED AMOUNT OF RS.1, 07,16,170/- A SUM OF RS.93,29,788/- HAS ALREADY BEEN DISALLOWED UNDER SE CTION 40(A) (IA) OF THE INCOME TAX ACT, 1961 (THE ACT) AS ASSESSEE DID NOT DEDUCT TAX THEREON. HOWEVER, AO DISALLOWED THE ENTIRE AMOUNT ON THE GROUND THAT AS SESSEE DID NOT SUBMIT DETAILS REQUIRED FOR ALLOWABILITY OF THE AFOREMENTIONED AMO UNT AS PROVISION. THE DISALLOWANCE WAS AGITATED IN AN APPEAL FILED BEFORE LD. CIT(A). IT WAS SUBMITTED THAT AS A SUM OF RS.93,29,788/- WAS ALREADY DISAL LOWED, THE DISALLOWANCE, IF ANY, WAS TO BE RESTRICTED TO A SUM OF RS.13,86,382/- AND THE SAID AMOUNT ALSO CANNOT BE DISALLOWED AS ASSESSEE HAS PAID TDS THEREON THOUGH AFTER THE END OF THE RELEVANT FINANCIAL YEAR BUT BEFORE THE DUE DATE OF FILING TH E RETURN. LD. CIT(A) HAS ACCEPTED SUCH SUBMISSION OF THE ASSESSEE AND GRANTED IMPUGNE D RELIEF. THE DEPARTMENT IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 3. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. WE HAVE CAREFULLY GONE THROUGH THE ASS ESSMENT ORDER. IT IS NOT THE ITA NO.809/MUM/2013(A.Y. 2008-09) 3 CASE WHERE AO IS UNKNOWN TO THE FACT THAT ASSESSEE HAS ALREADY DISALLOWED A SUM OF RS.93,23,788/- OUT OF THE PROVISION CREATED BY THE ASSESSEE IN RESPECT OF COMMISSION OF A SUM OF RS.1,07,16,170/-. THE DISAL LOWANCE HAS BEEN MADE BY THE AO ON THE GROUND THAT ASSESSEE SUBMITTED INSUFFICIE NT DETAILS FOR ALLOWABILITY OF THE SAID EXPENDITURE. THEREFORE, AO DID NOT PROCEE D TO DISALLOW THE SAID AMOUNT UNDER SECTION 40(A) (IA) OF THE ACT BUT DISALLOWED THE SAME ON THE GROUND THAT ASSESSEE FAILED TO SUBMIT REQUIRED DETAILS TO JUSTI FY THE ALLOWABILITY OF THE SAME. THIS IS CLEAR FROM THE OBSERVATIONS OF THE AO IN TH E ASSESSMENT ORDER AT PAGE-3, WHERE HE HAS MENTIONED THAT SINCE THE SAID EXPENDI TURE ITSELF IS NOT GENUINE, HENCE, THE ASSESSEE WILL NOT BE ELIGIBLE FOR CLAIMI NG THE SAID AMOUNT AS DEDUCTION ON PAYMENT BASIS IN SUBSEQUENT YEARS. THEREFORE, THE CASE OF THE AO IS THAT THE AMOUNT IS DISALLOWABLE IRRESPECTIVE OF THE FACT THA T TDS IS DEDUCTIBLE ON SUCH AMOUNT. IT IS ALSO NOT THE CASE WHERE ASSESSEE HA S UNDERSTOOD THIS DISALLOWANCE MERELY ON THE BASIS OF NON-DEDUCTION OF TAX AS IT I S EVIDENT FROM THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE LD. CIT(A), COPY OF WHI CH HAS BEEN FILED AT PAGES 5 TO 23 OF THE PAPER BOOK. THEREFORE, IT WAS THE CAS E OF THE ASSESSEE THAT IT IS AN ESTABLISHED POSITION THAT COMMISSION EXPENSES ARE I NCURRED FOR THE PURPOSE OF PROCURING ORDERS. THEREFORE, THE NATURE OF SERVICE S RENDERED BY COMMISSION AGENT IS VERY CLEAR FROM NOMENCLATURE OF THE ACCOUNT HEAD USED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT SAMPLE AGREEMENT WITH THE DI STRIBUTORS WERE ALSO SUBMITTED, COPIES OF WHICH WERE SUBMITTED BEFORE LD. CIT(A). IT WAS SUBMITTED THAT IN VIEW OF AVAILABILITY OF DETAILS REGARDING (A) PAN OF REC IPIENTS; (B) NAME AND ADDRESS OF THE RECIPIENTS; (C) AMOUNT PAID OR CREDITED; (D) DA TE OF PAYMENT/CREDIT AND; (E) PARTICULARS OF TDS PAYMENTS. THUS, ON THE BASIS OF THESE DETAILS IT WAS CLAIMED BEFORE LD. CIT(A) THAT THE DISALLOWANCE WAS NOT CAL LED FOR AS PART OF THE DISALLOWANCE WAS MADE BY THE ASSESSEE ITSELF UNDER SECTION 40(A)(IA) AND PART OF THE DISALLOWANCE OF WHICH ASSESSEE HAS PAID TDS AFTER THE END OF THE RELEVANT ITA NO.809/MUM/2013(A.Y. 2008-09) 4 FINANCIAL YEAR, BUT BEFORE THE DUE DATE OF FILING T HE RETURN, THEREFORE,NO DISALLOWANCE WAS CALLED FOR. THOUGH SUBMISSIONS WE RE MADE IN DETAIL BEFORE LD. CIT(A), BUT LD. CIT(A) DID NOT RECORD HIS FINDING O N THE ISSUE THAT WHETHER OR NOT THE PAYMENTS MADE BY THE ASSESSEE WHICH WERE CLAIME D AS COMMISSION WERE ACTUALLY GENUINE PAYMENTS ALLOWABLE AS BUSINESS EXP ENDITURE. IT WOULD BE RELEVANT TO REPRODUCE THE RELEVANT PORTION OF THE OBSERVATIO N OF LD. CIT(A), VIDE WHICH THE IMPUGNED ISSUES HAVE BEEN DECIDED. 2. GROUNDS OF APPEAL NO.1: THE LEARNED ASSESSING OFFICER HAS ERRED IN BY DISA LLOWING RS.1,07,16,170/- BEING PROVISION OF THE COMMISSION EXPENSES. REASONS ASSIGNED BY HIM FOR DOING THE SAME ARE WRONG AND IN SUFFICIENT. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED BE FORE DISALLOWING THE SAME. REGARDING BEING HAD TO THE FACTS AND CIRCUMS TANCES OF THE CASE, THE SAID DISALLOWANCE OUGHT NOT TO HAVE BEEN MADE. 2.1 THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF A RMACELL INTERNATIONAL GMBH GERMANY. THE ASSESSEE COMPANY IS INVOLVED IN M ANUFACTURING OF RUBBER BASED INSULATION PRODUCTS. DURING THE YEAR U NDER CONSIDERATION, THE ASSESSEE HAD DEBITED RS.1,92,78,321/- AS COMMISSION EXPENSES TO THE PROFIT AND LOSS ACCOUNT, OUT OF WHICH, THE APPELLANT HAD NOT PAID THE TDS ON RS.93.29,788/- WHICH ASSESSEE HIMSELF DISALLOWED IN THE ACCOUNTS. THE ASSESSEE HAS PAID THE TDS FOR RS.13,86,382/-. 2.2 THE A.O. IN HIS ASSESSMENT ORDER AT PARA NO.S ALSO AGREED THAT THE ASSESSEE HIMSELF HAS DISALLOWED RS.93,29,788/- AND ADDED TO THE INCOME RETURNED. BUT, IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS DISALLOWED RS.L,07,16, 170/-. 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. AS THE APPELLANT HAD NOT PAID THE TDS ON 93,29,788/- OUT OF RS.L,07,16,1701- FOR THE REST OF THE AMOUNT I.E. RS.13,86,382/-, THE APPELLANT HAD PAID THE TDS. THE APPELLANT SHOULD HAVE ONLY ADDED IN HIS COMPUTATION RS.93,29,788/- INSTEA D OF RS.L,07,16,1701-. AS FOR THE REST OF THE AMOUNT SINCE THE APPELLANT HAD PAID THE TDS U/S.40(A)(IA) IS NOT APPLICABLE. THIS EXTRA AMOUNT ADDED THOUGH T DS IS PAID BY THE APPELLANT IS DELETED. AO'S DISALLOWANCE IS RESTRICT ED ONLY FOR RS.93,29,788/- ITA NO.809/MUM/2013(A.Y. 2008-09) 5 3.1 AS IT CAN BE SEEN FROM THE ABOVE PORTION OF LD. CIT(A)S ORDER, IT WOULD BE EVIDENT THAT NOWHERE IN THE ORDER LD.CIT(A) HAS DI SCUSSED ABOUT THE GENUINENESS OF THE COMMISSION PAYMENT WHICH COULD BE ALLOWED AS BUSINESS EXPENDITURE THOUGH THE CLAIM WAS IN THE NATURE OF PROVISION. LD. CIT(A) HAS SIMPLY DELETED THE DISALLOWANCE ON THE BASIS THAT TDS HAS BEEN DED UCTED, WHEREAS THE CASE OF THE AO DOES NOT REST UPON NON-DEDUCTION OF TAX BUT ON T HE GENUINENESS OF COMMISSION PAYMENT. IN THIS VIEW OF THE SITUATION, WE ARE OF THE OPINION THAT THE ORDER PASSED BY LD. CIT(A) CANNOT BE UPHELD AS THERE IS A LACK OF APPLICATION OF MIND AND SO HAS BEEN CONTENDED AS THE PARTICULAR GRIEVANCE OF THE REVENUE IN THE GROUNDS OF APPEAL. THEREFORE, WE ARE OF THE OPINION THAT IT W OULD SERVE THE INTEREST OF JUSTICE IF THE MATTER IS RESTORED BACK TO THE FILE OF LD. C IT(A) WITH A DIRECTION TO READJUDICATE THE ISSUE IN THE RIGHT PERSPECTIVE AFT ER CONSIDERING THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. WE DIRECT ACCORDIN GLY. 4. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL 2015 08/04/2015 SD/- SD/- ( , /RAJENDRA ) ( . . / I.P. BANSAL ) /ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; $% DATED 08/04./2015 ITA NO.809/MUM/2013(A.Y. 2008-09) 6 / COPY OF THE ORDER FORWARDED TO : 1. & '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. +, ( & ) / THE CIT(A)- 4. +, / CIT 5. -. ),%/0 , &1 &/0 , / DR, ITAT, MUMBAI 6. 2 / GUARD FILE. / BY ORDER, * -, ), //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . % . ./ VM , SR. PS