Lakshmigraha Enterprises, Coimbatore V. ACIT, Coimbatore

ITA 847/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5198 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: K RAGHU

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 847/MDS/2010 ASSESSMENT YEAR : 2006-07 M/S LAKSHMIGRAHA ENTERPRISES, NO.29, RACE COURSE, OPP. MASONIC HOSPITAL, COIMBATORE 641 018. PAN : AAAFL4883C (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE. (RESPONDENT) APPELLANT BY : SHRI K. RAGHU RESPONDENT BY : SHRI P.B. S EKARAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, COIMBATORE IN APPEAL NO.181/08-09 DATED 29.03.2010, FOR THE ASSESSMENT Y EAR 2006-07. I.T.A. NO.847/MDS/10 2 2. SHRI K. RAGHU, FCA, REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI P.B. SEKARAN, CIT-DR, REPRESENTED ON BEHAL F OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED A.R. THAT THE AS SESSEE IS A DISTRIBUTOR FOR POLYESTER FILAMENT YARN, LIARA YARN , POLYESTER FIBER AND POLYESTER STABLE FIBER 3S, ETC. OF RELIANCE INDUSTR IES LTD. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD PAID AN AMOUNT OF ` 9,43,900/- TO M/S HALIDON MARKETING (P) LTD. TOWARD S MARKET AND SURVEY EXPENSES. THE ASSESSEE HAD ENTERED INTO AGR EEMENT WITH M/S HALIDON MARKETING (P) LTD. ON 1.7.2005, FOR A P ERIOD OF ONE YEAR AND A TOTAL CONSULTATION FEE PER SURVEY WAS ` 10,00,000/-. THE ASSESSEE HAD CONDUCTED THREE SURVEYS THROUGH M/S HA LIDON MARKETING (P) LTD. THE A.O. HAD CALLED FOR THE DET AILS AND SAME WERE PRODUCED BY THE ASSESSEE ALONG WITH A COPY OF THE S URVEY REPORT. HOWEVER, HE DISALLOWED THE PAYMENT ON THE GROUND TH AT REPLY WAS TOO GENERAL AND WITHOUT SPECIFICS AND DOES NOT SHOW THAT THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT WAS SUBMITTED THAT IN FIRST APPEAL , THE LD. CIT(APPEALS) I.T.A. NO.847/MDS/10 3 HAD CONFIRMED THE DISALLOWANCE ON THE GROUND THAT E VEN THOUGH THE NET PROFIT OF THE ASSESSEE DID INCREASE, THE GROSS TURNOVER DIPPED. ANOTHER REASON FOR THE CONFIRMATION WAS THAT THE AS SESSEE HAS INCREASED AN AMOUNT OF ` 4,03,093.50 TOWARDS SALES PROMOTION SEPARATELY. IT WAS A SUBMISSION THAT THE LD. CIT(A PPEALS) HAD MISTAKENLY ASSUMED THAT THE PAYMENT TO M/S HALIDON MARKETING (P) LTD. WAS TO PROMOTE SALES WHEREAS M/S HALIDON MARKE TING (P) LTD. HAD BEEN ENGAGED TO CONDUCT SURVEY AS ALSO ASSIST T HE ASSESSEE- COMPANY IN INCREASING THE CUSTOMER BASE. IT WAS A SUBMISSION THAT AS A CONSEQUENCE OF THE SURVEY CONDUCTED BY M/S HAL IDON MARKETING (P) LTD., NEARLY 63 NEW CUSTOMERS WERE ADDED AND EV EN THOUGH THE TURNOVER DIPPED, THE PROFITS HAD GONE UP. IT WAS A SUBMISSION THAT M/S HALIDON MARKETING (P) LTD. WAS IN NO WAY CONNEC TED WITH THE ASSESSEE AND WAS COMPLETELY A SEPARATE ENTITY WHO W AS IN THE BUSINESS OF CONDUCTING SURVEY AND PROVIDING SERVICE S AND THIS HAS ALSO NOT BEEN DISPUTED BY THE REVENUE. IT WAS A SU BMISSION THAT THE DISALLOWANCE CONFIRMED BY THE LD. CIT(APPEALS) WAS LIABLE TO BE DELETED. I.T.A. NO.847/MDS/10 4 4. IN REPLY, THE LEARNED D.R. SUBMITTED THAT THE TU RNOVER OF THE ASSESSEE HAD GONE DOWN. IT WAS A FURTHER SUBMISSIO N THAT WHY SO MUCH OF MONEY HAD BEEN GIVEN TO M/S HALIDON MARKETI NG (P) LTD. HAS NOT BEEN SHOWN BY THE ASSESSEE. WHAT IS THE EXACT BENEFIT THAT THE ASSESSEE DERIVED BY SPENDING NEARLY ` 30,00,000/- WAS NOT SEEN ESPECIALLY WHEN THE NET PROFIT HAD GONE UP ONLY JUS T ABOUT ` 6,00,000/-. HE VEHEMENTLY SUPPORTED THE ORDERS OF THE A.O. AND THE CIT(APPEALS). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT TH E OUTSET, ONE MUST KEEP IN MIND THAT A BUSINESSMAN KNOWS WHAT IS GOOD FOR HIS BUSINESS. HIS DECISION AS A BUSINESSMAN CANNOT BE JUDGED BY SITTING IN AN ARM CHAIR. A BUSINESSMAN KNOWS PRACTICAL DIF FICULTIES INVOLVED IN HIS BUSINESS. THE FACT THAT 63 NEW CUSTOMERS WE RE ADDED DURING THE YEAR, WHEREAS, 55 OLD CUSTOMERS WERE DROPPED DU RING THE RELEVANT ASSESSMENT YEAR, REMAINS UNDISPUTED. AFT ER THIS, THOUGH THE TURNOVER DROPPED, THE PROFITS WENT UP. IT IS A LSO TO BE NOTED THAT AS PER THE P&L ACCOUNT, THE PROFITS HAVE GONE UP BY ` 6,00,000/- DURING THE RELEVANT ASSESSMENT YEAR. IT IS ALSO NO T DISPUTED BY THE I.T.A. NO.847/MDS/10 5 REVENUE THAT M/S HALIDON MARKETING (P) LTD. WAS IN THE BUSINESS AS STATED OR THAT IT WAS PAID FOR THE PURPOSES OTHER T HAN THE BUSINESS REQUIREMENTS OF THE ASSESSEE. THE EXPLANATION AS P ROVIDED BY THE ASSESSEE CANNOT BE BLINDLY BRUSHED ASIDE WITHOUT TH ERE BEING ANY EVIDENCE TO THE CONTRARY. THE ASSESSEE HAS PRODUCE D THE AGREEMENT ENTERED WITH M/S HALIDON MARKETING (P) LTD. THE AS SESSEE HAS PRODUCED THE SURVEY REPORTS WHICH WAS SEEN BY THE L D. CIT(APPEALS) ALONG WITH A LIST OF 9 NEW CUSTOMERS. THE FACT THA T 63 NEW CUSTOMER WERE INTRODUCED WHILE 55 CUSTOMERS WERE DROPPED ALS O REMAINS UNDISPUTED. WHAT WAS THE EXPLANATION OF THE ASSESS EE WHICH WAS TOO GENERAL AND WITHOUT SPECIFICS, DOES NOT COME OU T OF THE ORDER OF THE A.O. A PERUSAL OF THE ORDER OF THE LD. CIT(APP EALS) ALSO SHOWS THAT ANOTHER NEW NINE CUSTOMERS WERE ADDED. IT SHO WS THAT THE CIT(APPEALS) HAS MISTAKEN THE ENGAGEMENT OF M/S HAL IDON MARKETING (P) LTD. TO PROMOTE SALES, WHEREAS, IT HA S BEEN CLEARLY MENTIONED BY THE ASSESSEE THAT M/S HALIDON MARKETIN G (P) LTD. WAS ENGAGED FOR CONDUCTING THE SURVEY AND ASSIST THE AS SESSEE IN GETTING BETTER BUSINESS. IN THE CIRCUMSTANCES, WE ARE OF T HE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE PAYMENT TO M/S HALIDON I.T.A. NO.847/MDS/10 6 MARKETING (P) LTD. IS FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE AND IS LIABLE TO BE ALLOWED AND WE DO SO. THUS THE APP EAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 6 TH MAY, 2011. SD/- SD/- (DR. O.K. NARAYANAN) ( GEORGE MATHAN) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 6 TH MAY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I, COIMBATORE (4) CIT-II, COIMBATORE (5) D.R. (6) GUARD FILE