A.C.I.T.-4(1), Agra V. M/s Sterling Machine Tools, Agra

ITA 82/AGR/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60135 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 18-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Assessee Lawyers: V S AGARWAL
• Keywords: Opportunity of being heard; Additional evidence; Corroborative evidences
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 82/AGRA/2011 ASSTT. YEAR : 2005-06 A.C.I.T., 4(1), AGRA. VS. M/S. STERLING MACHINE T OOLS, B-13, FOUNDRY NAGAR, NUNHAI, AGRA. (PAN : AADFS 4903 K) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. SHARMA, JR. D.R. RESPONDENT BY : SHRI V.S. AGARWAL, ADVOCATE. DATE OF HEARING : 19.04.2012 DATE OF PRONOUNCEMENT OF ORDER : 27.04.2012 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-II, AGRA DATED 16.02.2010 FOR THE ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIAL ON RECORD. 3. ON GROUND NO. 1 & 2, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.32,31,431/- ON ACCOUNT OF DISALLOWANCE OF COM MISSION PAID TO M/S. ITA NO. 82/AGRA/2011 2 KUDOS INTERNATIONAL BY ACCEPTING THE ADDITIONAL EVI DENCES IN VIOLATION OF RULE 46A OF THE IT RULES. THE AO NOTED THAT THE RETURN O F INCOME WAS FILED AT LOSS OF RS.2.20 CRORES AND THERE IS A FALL IN SALES AND G.P. RATE AS COMPARED TO THE EARLIER YEARS. THEREFORE, QUERIES WERE RAISED TO JU STIFY THE BOOK RESULT. THE ASSESSEE WAS ALSO DIRECTED TO JUSTIFY THE PAYMENT O F COMMISSION TO ONE PARTY, M/S. KUDOS INTERNATIONAL, WHICH IS THE SISTER CONCE RN OF THE ASSESSEE. THE STATEMENT OF SHRI S.C. AGARWAL, MANAGING THE AFFAIR S OF THE ASSESSEE AND THE SISTER CONCERN WAS RECORDED IN WHICH HE HAS EXPLAIN ED THAT THE ASSESSEE FIRM HAD NOT APPOINTED ANY DEALER/DISTRIBUTOR IN U.P. AN D ENTIRE SALES WERE MADE OF ITS OWN AND M/S. KUDOS INTERNATIONAL WAS PAID COMMI SSION FOR ENTIRE U.P. SALES AS IT ASSISTED THE ASSESSEE IN MARKETING AND RECOVERY OF PAYMENTS. IT WAS ALSO EXPLAINED THAT THERE IS A WRITTEN AGREEMENT BE TWEEN THE PARTIES. HOWEVER, THE SAME WAS NOT PRODUCED BEFORE THE AO. THEREFORE, THE AO FOUND THAT THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND T HE COMMISSION AGENT TO ASCERTAIN THE COMMISSION AND THE SERVICES RENDERED AND PAID AND THAT THE NATURE OF THE TWO ENTITIES ARE INDISTINGUISHABLE AN D THAT THE COMMISSION PAID IS EXCESSIVE AS COMPARED TO THE OTHER DEALERS OF THE O THER STATES. THE EXPENSES ON ADVERTISEMENT AND TRAVELING ARE, IN PARTICULAR, REL ATED TO M/S. KUDOS INTERNATIONAL AND INCREASE IN COMMISSION IS ONLY DE VICE OF CONVENIENCE UTILIZED BY THE ASSESSEE FIRM TO DIVERT ITS PROFIT TO THE SISTER CONCERN. IN THE ITA NO. 82/AGRA/2011 3 ABSENCE OF SUPPORTING EVIDENCE, THE AO DISALLOWED T HE COMMISSION PAYMENT OF RS.34,31,431/-. THE LD. CIT(A) REPRODUCED THE WR ITTEN SUBMISSIONS OF THE ASSESSEE IN THE APPELLATE ORDER , IN WHICH IT WAS B RIEFLY EXPLAINED THAT THERE WAS WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND M/S. KUDOS INTERNATIONAL. COPY OF AGREEMENT WAS FILED BEFORE THE LD. CIT(A) I N SUPPORT OF THE CONTENTION THAT THE COMMISSION WAS PAID FOR THE PUR POSE OF BUSINESS, WHICH IS REASONABLE AND THE COMMISSION AGENT IS ALSO ASSESSE D TO TAX, ON WHICH THE TDS HAS BEEN DEDUCTED. THE TERMS AND CONDITIONS OF THE AGREEMENT HAVE BEEN ACTED UPON BY THE PARTIES. THE COMMISSION AGENT MAI NTAINED PROPER BOOKS OF ACCOUNT AND ALL THE PAYMENTS ARE SUPPORTED BY THE V OUCHERS. SINCE THE COMMISSION AGENT WORKED FOR THE ASSESSEE, THEREFORE , THE COMMISSION WAS RIGHTLY PAID TO HIM AND THE COMMISSION AGENT IS ALS O ASSESSED TO TAX. IT WAS EXPLAINED THAT SHRI S.C. AGARWAL IN STATEMENT REFER RED TO THE AGREEMENT, BUT IT COULD NOT BE FILED BEFORE THE AO. CERTAIN DECISIONS WERE ALSO RELIED UPON IN SUPPORT OF THE CONTENTION THAT THE COMMISSION PAYAB LE WAS ALLOWABLE DEDUCTION. THE LD. CIT(A) ACCEPTED THE CONTENTION O F THE ASSESSEE THAT THERE WAS A WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND TH E COMMISSION AGENT, WHICH WAS REFERRED TO IN THE STATEMENT OF SHRI S.C. AGARWAL. IT WAS ALSO FOUND THAT THE COMMISSION WAS PAID REASONABLY WHICH IS NO T EXCESSIVE AND ACCORDINGLY, ADDITION WAS DELETED. ITA NO. 82/AGRA/2011 4 4. THE LD. DR SUBMITTED THAT THE AGREEMENT IN QUEST ION WAS NOT PRODUCED BEFORE THE AO FOR EXAMINATION. THEREFORE, THE LD. C IT(A) BEFORE RELYING UPON THE AGREEMENT SHOULD HAVE FOLLOWED RULE 46A OF THE IT RULES AND HE SHOULD HAVE ALLOWED OPPORTUNITY TO THE AO TO EXAMINE OR CR OSS EXAMINE THE AGREEMENT IN QUESTION. THEREFORE, THE ORDER OF THE LD. CIT(A) IS UNJUSTIFIED PARTICULARLY WHEN THE COMMISSION AGENT WAS FOUND NO T EXISTING AT THE GIVEN ADDRESS. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND ADMITTED THAT THE AGREEMENT BETWEEN THE PARTIES WAS NOT PRODUCED BEFORE THE AO AT THE ASSESSMENT STAGE THOUGH IT WAS REFERRED TO IN THE STATEMENT OF SHRI S.C. AGARWAL. HE HAS ALSO ADMITTED THAT NO APPLICATION UNDER RULE 46A WAS FIL ED BEFORE THE LD. CIT(A). 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A). RULE 46A OF THE IT RULES PROVIDES AS UNDER : PRODUCTION OF ADDITIONAL EVIDENCE BEFORE THE DEPUT Y COMMISSIONER (APPEALS) AND COMMISSIONER (APPEALS). 46A. (1) THE APPELLANT SHALL NOT BE ENTITLED TO PRODUC E BEFORE THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE M AY BE, THE COMMISSIONER (APPEALS), ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN THE EVIDENCE PRODUCED BY HI M DURING ITA NO. 82/AGRA/2011 5 THE COURSE OF PROCEEDINGS BEFORE THE ASSESSING OFFI CER, EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY : (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMI T EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED ; OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICI ENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALL ED UPON TO PRODUCE BY THE ASSESSING OFFICER ; OR (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICI ENT CAUSE FROM PRODUCING BEFORE THE ASSESSING OFFICER A NY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL ; OR (D) WHERE THE ASSESSING OFFICER HAS MADE THE ORD ER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUN ITY TO THE APPELLANT TO ADDUCE EVIDENCE RELEVANT TO ANY GR OUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE MAY B E, THE COMMISSIONER (APPEALS) RECORDS IN WRITING THE REASO NS FOR ITS ADMISSION. (3) THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE C ASE MAY BE, THE COMMISSIONER (APPEALS) SHALL NOT TAKE INTO ACCO UNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE ASS ESSING OFFICER HAS BEEN ALLOWED A REASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS -EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY W ITNESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT. (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE MAY B E, THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUCTION OF ANY DOCUMENT, OR THE EXAMINATION OF ANY WITNESS, TO ENA BLE HIM TO DISPOSE OF THE APPEAL, OR FOR ANY OTHER SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENA LTY (WHETHER ITA NO. 82/AGRA/2011 6 ON HIS OWN MOTION OR ON THE REQUEST OF THE ASSESSIN G OFFICER) UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER SECTION 271. 5.1 IN THE ABOVE RULE, CERTAIN CONDITIONS HAVE BEE N PROVIDED AND IN CASE THE ASSESSEE IS ABLE TO SATISFY THE LD. CIT (A) ON SUCH CONDITIONS, THE ADDITIONAL EVIDENCES COULD HAVE BEEN ADMITTED BY THE LD. CIT(A ) BY RECORDING THE REASONS FOR THEIR ADMISSION IN WRITING. IT IS FURTH ER DIRECTED THAT THE LD. CIT(A) SHALL NOT TAKE INTO CONSIDERATION ANY ADDITIONAL EV IDENCE PRODUCED UNLESS THE AO HAS BEEN ALLOWED A REASONABLE OPPORTUNITY TO EXA MINE THESE EVIDENCES OR DOCUMENTS OR TO CROSS EXAMINE THE WITNESSES. 5.2 IT IS ADMITTED FACT THAT THE ASSESSEE DID NOT PRODU CE COMMISSION AGREEMENT IN QUESTION BEFORE THE AO. THEREFORE, THE GENUINENESS OF THE SAME COULD NOT BE VERIFIED. IT WAS, THEREFORE, NOT CLEAR TO THE AO ABOUT THE NATURE OF SERVICES RENDERED BY M/S. KUDOS INTERNATIONAL FOR T HE ASSESSEE. THE COMMISSION AGENT WAS ALSO NOT FOUND EXISTING AT THE GIVEN ADDRESS AS PER FINDINGS OF THE AO. THE LD. CIT(A) IN VIOLATION OF RULE 46A CONSIDERED THE AGREEMENT IN QUESTION FOR THE PURPOSE OF DELETING T HE ADDITION. THE LD. COUNSEL FOR THE ASSESSEE ADMITTED THAT NO REQUEST IS MADE U /R. 46A BEFORE THE LD. CIT(A) AND THAT IT WAS FILED FOR THE FIRST TIME BEF ORE THE LD. CIT(A), ON WHICH NO REMAND REPORT WAS ALSO CALLED FOR. THE LD. CIT(A ), THEREFORE, SHOULD NOT ITA NO. 82/AGRA/2011 7 HAVE TAKEN INTO CONSIDERATION SUCH AGREEMENT IN VIO LATION OF RULE 46A OF THE IT RULES. WE, ACCORDINGLY SET ASIDE THE ORDER OF TH E LD. CIT(A) AND RESTORE THIS ISSUE TO HIS FILE WITH THE DIRECTION TO RE-DEC IDE THIS ISSUE IN THE LIGHT OF THE PROVISIONS OF RULE 46A OF THE IT RULES BY GIVING RE ASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS WELL AS THE AO. IN THE RESULT, GROUNDS NOS. 1 & 2 OF THE APPEAL OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. ON GROUND NO. 3 & 4, THE REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.2,00,000/- MADE BY THE AO BY DISALLOWING THE BONUS COMMISSION EXPENSES. ACCORDING TO THE AO, THE ASSESSEE WAS NOT ABLE TO PRODUCE ALL THE VOUCHERS AND SUPPORTING DOCUMENTS. THEREFORE, AMOUN T OF RS.2,00,000/- WAS DISALLOWED. THE ASSESSEE SUBMITTED BEFORE THE LD. C IT(A) THAT BONUS COMMISSION IS ALLOWED TO THE DISTRIBUTORS AND DEALE RS AND SUB-DEALERS ON THE BASIS OF PUSHING UP OF THE SALES AFTER THE YEAR. CO MPLETE DETAILS WERE MAINTAINED AND THE AO MADE ADHOC ADDITION. THE LD. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE FOUND THAT ADDITION IS MADE BY MAKING A GENERAL OBSERVATION WITHOUT POINTING OUT AS TO WHIC H OF THE VOUCHERS AND SUPPORTING EVIDENCES WERE NOT PRODUCED. ACCORDINGLY , THE ADDITION WAS DELETED. ITA NO. 82/AGRA/2011 8 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO HAS NO T GIVEN ANY REASON FOR MAKING DISALLOWANCE. NO SPECIFIC VOUCHERS OR DETAIL S WERE POINTED OUT WHICH WERE NOT PRODUCED BEFORE HIM AND QUANTUM THEREOF FO R THE PURPOSE OF MAKING DISALLOWANCE. IT, THEREFORE, APPEARS TO BE ADHOC AD DITION WHICH WAS RIGHTLY DELETED BY THE LD. CIT(A). IT IS ALSO STATED IN GRO UND NO. 4 THAT ADDITION HAS BEEN WRONGLY DELETED ON WRONG CONTENTION OF THE ASS ESSEE THAT CLAIM UNDER THIS HEAD HAD ALWAYS BEEN ACCEPTED BY THE DEPARTMEN T IN SCRUTINY ASSESSMENTS IGNORING THE FACT THAT THE APPEAL OF THE DEPARTMENT IS SUBJUDICE BEFORE THE HONBLE HIGH COURT U/S. 260A OF THE IT ACT FOR THE ASSESSMENT YEAR 2004-05. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, POINTED OUT TO THE ORDER OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. STERLING MACHINE TOOLS IN INCOME-TAX APPEAL NO. 141 OF 2010, COPY OF WHICH IS FILED AT PAGE 258 OF THE PAPER BOOK, IN WHICH HONBLE HIGH COURT DISMISS ED THE DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEAR 2004-05. THE LD. COU NSEL FOR THE ASSESSEE, THEREFORE, WAS JUSTIFIED IN SAYING THAT THE REVENUE HAS RAISED INCORRECT GROUND OF APPEAL. CONSIDERING THE TOTALITY OF FACTS AND CI RCUMSTANCES, WE DO NOT FIND ANY MERIT IN THESE GROUNDS OF APPEAL OF THE REVENUE . SAME ARE, ACCORDINGLY, DISMISSED. ITA NO. 82/AGRA/2011 9 8. ON GROUND NO. 5, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.2,00,000/- AND RS.3,00,000/- MADE BY THE AO BY D ISALLOWING THE CLAIM OF EXPENSES UNDER THE HEAD TRAVELING EXPENSES AND SUND RY EXPENSES. ACCORDING TO THE AO, THE ASSESSEE HAS CLAIMED TRAVELING EXPEN SES AT RS.22,26,118/- AND SUNDRY EXPENSES AT RS.34,06,875/-. ACCORDING TO THE AO, SINCE THE ASSESSEE COULD NOT PRODUCE COMPLETE SUPPORTING VOUCHERS, THE REFORE, RS.2,00,000/- WERE DISALLOWED OUT OF TRAVELING EXPENSES AND RS.3, 00,000/- WERE DISALLOWED OUT OF SUNDRY EXPENSES TO COVER UP THE LEAKAGES. TH E ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT ALL THE EXPENSES WERE IN CURRED FOR THE BUSINESS PURPOSES AND THE DETAILS OF THE SAME WERE PRODUCED AND SUPPORTED BY THE VOUCHERS. THE LD. CIT(A) FOUND THAT AO HAS MADE THE DISALLOWANCE WITHOUT ANY JUSTIFICATION AND WITHOUT POINTING OUT ANY VOUC HERS WHICH WAS NOT PRODUCED BEFORE HIM. THE ADDITION WAS ACCORDINGLY D ELETED. 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD . CIT(A) IN DELETING THE ADDITION. THE AO HAS NOT POINTED OUT AS TO WHICH EX PENDITURE WAS INADMISSIBLE AND WHICH OF THE EXPENSES WERE NOT SUP PORTED BY VOUCHERS AND DETAILS. IT, THEREFORE, APPEARS TO BE ADHOC ADDITIO N WHICH HAS RIGHTLY BEEN ITA NO. 82/AGRA/2011 10 DELETED BY THE LD. CIT(A). IN THE RESULT, GROUND NO . 5 OF THE APPEAL OF REVENUE IS DISMISSED. NO OTHER POINT IS ARGUED OR PRESSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY