Dy. CIT, Circle-9, Pune V. Rajendra Khivraj Mutha, Pune

ITA 830/PUN/2013

• Counselvise Citation: 83024514 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Business income; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.830/PN/2013 (ASSESSMENT YEAR: 2009-10) THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE . APPELLANT VS. RAJENDRA KHIVRAJ MUTHA A-2, 19/20, SHANTIBAN SOCIETY, CHINCHWAD, PUNE 411033 PAN: ABAPM0270H . RESPONDENT APPELLANT BY : SHRI B.C. MALAKAR RESPONDENT BY : SHRI MAHAVIR JAIN DATE OF HEARING : 18-12-2014 DATE OF PRONOUNCEMENT : 30-12-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CI T(A)-V, PUNE DATED 14.01.2013 RELATING TO ASSESSMENT YEAR 2009- 10 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF COMMISSION PAID OF RS.40,80,000/- WHEN THE A .O. AFTER MAKING THOROUGH VERIFICATION OF THE FUND FLOW STATEMENT OF THE FOUR PERSONS HAD ESTABLISHED THAT THE PAYMEN T OF COMMISSION TO FOUR PERSONS, WHO WERE EARLIER JUST EM PLOYEES DRAWING MEAGER SALARY, HAVE BEEN PLOUGHED BACK IN THE FORM OF SECURITY DEPOSITS AND THE TRANSACTION INVOLVED ARE ARRANGED TRANSACTIONS. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL ITA NO.830/PN/2013 RAJENDRA KHIVRAJ MUTHA 2 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINS T THE DELETION OF DISALLOWANCE MADE ON ACCOUNT OF COMMISSION AMOUN TING TO RS.40,80,000/-. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT, THE ASS ESSEE WAS ENGAGED IN RUNNING CHAIN OF MEDICAL STORES ATTACHED TO TH E HOSPITALS UNDER DIFFERENT NAMES. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE HAD CLAIMED EXPENDITURE ON COMMISSION PAYMENT T OTALING RS.40,80,000/-. THE SAID COMMISSION WAS PAID TO 4 EMPLOYEE S OF THE ASSESSEE AS AGAINST THE COMMISSION PAID TO 2 EMPLOYEES IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER WAS OF T HE VIEW THAT AS THE ASSESSEE WAS IN THE BUSINESS OF RUNNING CH AIN OF MEDICAL STORES ATTACHED TO RENOWNED HOSPITALS, HE WAS REQUIRED TO KEEP SECURITY OF BIG AMOUNTS WITH THE HOSPITAL MANAGEMENTS. AS THE ASSESSEE WAS RUNNING SHORT OF FUNDS, IT THOUGHT OF BOOSTIN G HIS CAPITAL RESOURCES BY CLAIMING THE EXPENSES IN THE FORM OF PAYMENT OF COMMISSION IN HEFTY AMOUNT TO THE SELECTED EMPLOYEES AND THEN PLOWING BACK THE MONEY IN THE FORM OF SECURITY DEPOSIT FRO M THE SAID EMPLOYEES, WHO WERE ENTRUSTED WITH THE MANAGEMENT OF IND IVIDUAL SHOPS RUNNING UNDER THEM. THE ASSESSING OFFICER FURTHER N OTED THAT INSTEAD OF PAYING SALARY TO THE EMPLOYEES, THE ASSESSEE S TARTED PAYING COMMISSION TO THE EMPLOYEES. THE ASSESSEE WAS THUS, AS KED TO EXPLAIN THE PURPOSE OF PAYMENT OF COMMISSION TO THE EMPL OYEES, WHO WERE EARLIER PAID SALARY. THE ASSESSEE EXPLAINED THAT TH E COMMISSION OF RS.40,80,000/- WAS PAID AGAINST 4 MEDICAL SHOPS SALES A ND THE TOTAL SALES TURNOVER OF THE SHOPS WAS RS.10.58 CRORES AG AINST WHICH, COMMISSION WAS PAID @ 3.85%. IN THE PRECEDING YEAR, THE A SSESSEE CLAIMED TO HAVE PAID COMMISSION ON SALES OF 2 SHOPS I.E. ON SALES TURNOVER OF RS.2.21 CRORES, COMMISSION OF RS.14,15,590/- WAS PAID ITA NO.830/PN/2013 RAJENDRA KHIVRAJ MUTHA 3 AND THE PERCENTAGE OF COMMISSION WORKED OUT TO 6.51%. THE ASSESSING OFFICER REJECTING THE PLEA OF THE ASSESSEE OBSE RVED THAT SINCE THE PAYMENT OF COMMISSION WAS NOT OUT OF GENUINE BUSINESS N EEDS BUT AS A MATTER OF TAX / FUNDS PLANNING, THE SAME WAS TO BE DISALLOWED. ACCORDINGLY, DISALLOWANCE OF RS.40,80,000/- WAS MADE BY THE ASSESSING OFFICER. 5. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THA T WHERE THE ASSESSEE WAS RUNNING SEVERAL MEDICAL STORES AT DIFFERE NT LOCATIONS, AS A MATTER OF BUSINESS EXIGENCIES, THE SAID 4 PERSONS W ERE MADE IN- CHARGE OF THE RESPECTIVE STORES, FOR WHICH THE COMMISSION WAS PAID TO THEM @ 3.85% OF THE TOTAL SALES OF THE RESPECTIVE STORES IN RELATION TO THE SECURITY DEPOSIT RECEIVED FROM THE SAID PERSONS. THE CIT(A) NOTED THAT SINCE THE PERSONS WERE HANDLING CASH AS WELL AS STO CKS OF THE MEDICAL STORES, IT WAS IMPERATIVE TO OBTAIN SECURITY DEPOSIT S FROM THE SAID PERSONS. IN VIEW THEREOF, THE CLAIM OF THE ASSESSEE W AS ALLOWED IN ENTIRETY. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). SHRI B.C. MALAKAR APPEARED ON BEHALF OF THE REVENUE AND SHRI MAHAV IR JAIN APPEARED ON BEHALF OF THE ASSESSEE AND PUT FORWARD THEIR CONTENTIO NS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS RUNNING SEVERAL MEDICAL STORES IN THE PREMISES OF THE RENOWNED HOSPITALS BOTH IN PUNE AND MUMBAI. THE ASSESSEE WAS RUNNING THE CHAIN OF MEDICAL ST ORES AS AN INDIVIDUAL PROPRIETOR. IT IS CLEAR FROM THE NATURE OF BUSINESS CARRIED O N BY THE ASSESSEE AND AS EXPLAINED BY THE ASSESSEE, ALL TH E STORES OUGHT TO RUN 24/7 WITHOUT ANY HOLIDAYS. IN SUCH SCENARIO, IT WA S DECIDED BY THE ASSESSEE IN ORDER TO MANAGE HIS AFFAIRS IN A MORE APP ROPRIATE ITA NO.830/PN/2013 RAJENDRA KHIVRAJ MUTHA 4 MANNER, TO APPOINT THE SAID 4 PERSONS AS IN-CHARGE OF T HE SHOPS, WHO TOOK CARE OF THE DAY-TO-DAY RUNNING OF THE MEDICAL STORE S AND ALSO COLLECTED THE DAILY SALE PROCEEDS BY RUNNING THE STORES 24/7. IN VIEW OF THE SAID UNDERSTANDING BETWEEN THE ASSESSEE AND THE SAID 4 PERSONS, THE ASSESSEE PAID COMMISSION TOTALING RS.40,80,000 /- DURING THE YEAR. 8. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT AS AN IN DIVIDUAL, HE WAS RUNNING CHAIN OF MEDICAL STORES AT DIFFERENT LOCATIONS IN AND AROUND PUNE AND MUMBAI, WHICH IN TURN, WERE LINKED TO DIFFERE NT HOSPITALS AND THEREFORE, THEY REQUIRE 24/7 SERVICES THROU GHOUT THE YEAR WITHOUT ANY HOLIDAYS. THE ASSESSEE BEING AN INDIVIDU AL, WAS NOT ABLE TO LOOK AFTER THE DAY-TO-DAY DUTY AT ALL THE LOCATIO NS SIMULTANEOUSLY, HENCE, IN ORDER TO MANAGE THE AFFAIRS, THE ASSESSEE APPOINTED PERSONS WHO WERE RESPONSIBLE AND FAITHFUL TO RUN THE SHOPS. THE ASSESSEE CLAIMS TO HAVE ENTERED INTO AN AGREEMENT WITH EACH OF THE SAID 4 EMPLOYEES CRYSTALLIZING THE RESPONSIBILITIES AND ACCOUNTABILITY FOR THEM FOR MANAGING THE MEDICAL STORES AT DIFFERENT LOCATIONS AND THE COPIES OF THE SAID AGREEMENTS WERE FURN ISHED BEFORE THE CIT(A). THE ASSESSEE CLAIMED THAT THE SAME WERE ALSO FURNISHED BEFORE THE ASSESSING OFFICER. IT WAS FURTHER POINTED OUT B Y THE ASSESSEE THAT FOR RUNNING A MEDICAL STORE, THE PERSON SH OULD BE QUALIFIED WITH RELEVANT PHARMACY COURSE AND ALL THE PERSONS TO WHOM THE COMMISSION WAS GIVEN, WERE DULY QUALIFIED AND HAD AGREE D TO UNDERTAKE AND ABIDE BY THE TERMS OF THE AGREEMENT. TH E ASSESSEE FURTHER EXPLAINED THAT THE SAID COMMISSION WAS REGULARLY P AID ON MONTHLY BASIS THROUGH ACCOUNT PAYEE CHEQUES AND TAX WAS DEDUCTED AT SOURCE UNDER SECTION 194H OF THE ACT. THE ASSESSEE HAD FILED THE COPIES OF THE BANK STATEMENT OF EACH OF THE SAID PERSONS BEFORE THE ITA NO.830/PN/2013 RAJENDRA KHIVRAJ MUTHA 5 ASSESSING OFFICER. IT WAS ALSO EXPLAINED BY THE ASSESSEE T HAT SECURITY DEPOSITS WERE RECEIVED FROM THE PERSONS RUNNING THE MED ICAL STORES AS THEY WERE ENTRUSTED WITH THE STORES WITHOUT ANY INVEST MENTS. IN ORDER TO PREVENT MIS-APPROPRIATION BY THE EMPLOYEES AT DIFFERENT LOCATIONS, THE SECURITY DEPOSITS WERE RECEIVED FROM THE SAID EMPLOYE ES. FURTHER, THE ASSESSEE CLAIMS THAT SIMILAR KIND OF SECURITY DEPOSIT T O THE EXTENT OF RS.3.5 CRORES WAS PAID TO THE RESPECTIVE HOSPITALS BY THE ASSESSE E ON SAME PRINCIPLES. IN ANY CASE, THE SECURITY DEPOSIT COLLECTE D FROM THE EMPLOYEES WAS MUCH HIGHER THAN THE COMMISSION PAID. THE BREAK-UP OF THE SALES, COMMISSION PAID AND SECURITY DEPOSITS RECEIVED FROM THE SAID PERSONS WAS AS UNDER:- NAME OF EMPLOYEES / MANAGER SALES FOR AY 09-10 COMMISSIO N THEREON SECURITY DEPOSIT AMOL KHABIYA 3,58,85,565 9,60,000 21,00,000 NARENDRA CHOUDHARY 2,34,50,852 12,00,000 15,00,000 NARESH CHHAJED 3,63,63,307 9,60,000 3,25,000 VIKASH JAGTAP 1,01,91,466 9,60,000 18,00,000 9. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTA NCES, WHERE THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH THE S AID 4 PERSONS FOR BETTER MANAGEMENT OF THE BUSINESS AFFAIRS IN RUNNING TH E MEDICAL STORES AT DIFFERENT LOCATIONS ON DAY-TO-DAY BASIS, FOR WHICH HE PAID COMMISSION ON THE SALES OF THE RESPECTIVE MEDICAL STORES, WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER. THE ASSESSEE HAD RECEIVED THE SECURITY DEPOSIT FROM THE SAID PERSONS IN ORDER TO S ECURE THE STOCKS AVAILABLE IN THE MEDICAL STORES AND THE CASH HANDLE D BY EACH ONE OF THEM, DOES NOT JUSTIFY THE ORDER OF THE ASSESSING OFFICER IN OBSERVING THAT THE ASSESSEE HAD ENGAGED IN THE SAID E XERCISE IN ORDER TO PLOUGH BACK THE MONEY IN HIS BUSINESS AS SECURITY DEP OSITS. THE EXPENDITURE HAVING BEEN INCURRED FOR THE SMOOTH CARRYIN G ON THE BUSINESS OF THE ASSESSEE, THE PAYMENT OF COMMISSION BEING RELATABLE ITA NO.830/PN/2013 RAJENDRA KHIVRAJ MUTHA 6 TO THE SAID BUSINESS BEING CARRIED ON BY THE ASSESSEE IS DULY ALLOWABLE AS BUSINESS EXPENDITURE. IN VIEW THEREOF, WE UPHOLD THE O RDER OF CIT(A) AND DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF DECEMBER, 2014. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH DECEMBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE