M/s. Prochem Laboratorios Pvt. Ltd., Indore V. The ACIT., Indore

ITA 86/IND/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47770 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: M C MEHTA
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI R.C. SHARMA , AM ITA NO. 86/IND/2010 A.Y. 2004-05 M/S PROCHEM LABORATORIES PVT. LTD. INDORE PAN AADCP-0939R APPELLANT VS ASSTT. COMMR. OF INCOME TAX 3(1), INDORE RESPONDENT APPELLANT BY S/SHRI M.C.MEHTA AND HITESH CHIMNANI RESPONDENT BY SHRI P.K. MITRA O R D E R PER SHRI R.C. SHARMA, ACCOUNTANT MEMBERU THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) DATED 5/1/2010 FOR THE ASSESSMENT YEAR 2004-05 IN THE MAT TER OF ORDER PASSED BY ASSESSING OFFICER U/S 143(3) OF THE ACT. 2. THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE OF EXPENDITURE ON COMMISSION AMOUNTING TO RS. 14,89,617/- PAID TO M/S LAMP CAP (INDIA) PRIVATE 2 LIMITED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF LABORATORIES TESTING AND MANUFACTURING OF PHARMACEUTICAL DRUGS. DURING THE YEAR, UNDER CONSIDERATION, IT INCURRED EXPENDITURE ON PAYMENT OF COMMISSION OF RS. 14,89,617/- TO M/S LAMP CAP (INDIA) PRIVATE LIMITED FOR FACILITATING CONTRACT MANUFACTURING ORDER FROM M/S INTAS PHARMACEUTICALS LIMITED, AHMEDABAD. THE CONTRACT AMOUNT WAS RS. 2,42,21,413/-. ON THIS AMOUNT THE COMMISSION @ 6.15% WAS WORKED OUT AT RS. 14,89,617/-. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF COMMISSION EXPENDITURE BY STATING THAT THE SAID PAYMENT WAS NOT SUPPORTED BY A LEGALLY BINDING CONTRACT. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE COMMISSION RECEIVING COMPANY IS CARRYING ON BUSINESS OF MANUFACTURING ALUMINIUM CAPS AND ITS MEMORANDUM OF ASSOCIATION DOES NOT PROVIDE FOR BUSINESS OF DRUG TRADING OR COMMISSION. HOWEVER, IT WAS FOUND THAT THE COMMISSION RECEIVING COMPANY WAS ALSO PAID 3 COMMISSION BY THE ASSESSEES SISTER CONCERN, M/S PROMED LABORATORIES PRIVATE LIMITED FOR FACILITATIN G ITS CONTRACT MANUFACTURING ORDER FROM M/S RANBAXY LABORATORIES. THE ASSESSING OFFICER STATED THAT TH E STATEMENT OF THE DIRECTOR OF M/S RANBAXY LABORATORI ES WAS RECORDED WHEREIN HE STATED THAT HE DID NOT KNOW ANYTHING ABOUT M/S LAMP CAP (INDIA) PRIVATE LIMITED . THEREFORE, THE ASSESSING OFFICER TREATED THE PAYMEN T OF COMMISSION AS BOGUS AND DISALLOWED THE SAME. BY TH E IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) CONFIRMED THE DISALLOWANCE AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D THE DETAILED PAPER BOOK PLACED ON RECORD. WE FIND THAT M/S LAMP CAP (INDIA) PRIVATE LIMITED IS A COMPANY AND REGULARLY ASSESSED TO TAX . THE ASSESSEE COMP ANY HAD PAID COMMISSION TO IT FOR FACILITATING CONTRACT MANUFACTURING ORDER FROM M/S INTAS PHARMACEUICALS LIMITED. NECESSARY SERVICES WERE RENDERED BY IT TO 4 ASSESSEE COMPANY. DURING THE YEAR YEAR, UNDER CONSIDERATION, IT HAD EARNED TOTAL COMMISSION INCOM E OF RS. 46,66,330/-. THERE IS NO DISPUTE TO THE FAC T THAT M/S LAMP CAP (INDIA) PRIVATE LIMITED IS NOT AN ASSOCIATE CONCERN OF THE ASSESSEE AS PER THE LIST O F DIRECTORS OF THESE COMPANIES PLACED IN THE PAPER BO OK. WE HAVE ALSO FOUND THAT SIMILAR COMMISSION PAID BY THE ASSOCIATE CONCERN M/S PROMED LABORATORIES PRIVATE LIMITED TO THE SAID M/S LAMP CAP (INDIA) PRIVATE LIMITED AMOUNTING TO RS. 14,97,886/- PAID F OR CONTRACT MANUFACTURING WITH RANBAXY LABORATORIES WAS ALSO DISALLOWED BY THE ASSESSING OFFICER. HOWEV ER, ON FURTHER APPEAL, THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAS ALLOWED THE SAME FOR THE ASSESSMENT YEAR 2004-05 VIDE HIS ORDER DATED 15.1.2008. WE FIND THAT THE COMMISSION HAS BEEN PAI D BY THE ASSESSEE CONCERN FOR RENDERING NECESSARY SERVICES WHICH RESULTED INTO INCREASE IN TURNOVER O F THE ASSESSEE COMPANY FROM RS. 1.15 CRORE TO RS. 5.28 CRORES. THUS, BECAUSE OF THE SERVICES RENDERED BY M/S 5 LAMP CAP (INDIA) PRIVATE LIMITED, THE TURNOVER OF T HE ASSESSEE COMPANY HAS INCREASED BY RS. 4.12 CRORES WHICH INCLUDED SALES TO M/S INTA PHARMACEUTICALS LIMITED OF RS. 2.52 CRORES WHICH HAS BEEN ACHIEVED ONLY BY THE EFFORTS OF M/S LAMP CAP (INDIA) PRIVATE LIMITED. THUS, WE FIND THAT BECAUSE OF THE SERVICE S RENDERED BY M/S LAMP CAP (INDIA) PRIVATE LIMITED, T HE ASSESSEE HAS SUBSTANTIALLY INCREASED ITS TURNOVER T O 5 TIMES AS COMPARED TO THE PRESENT TURNOVER. THE PAYMENT OF COMMISSION TO M/S LAMP CAP (INDIA) PRIVATE LIMITED WAS ON THE BASIS OF APPOINTMENT LET TER ISSUED TO THE COMPANY ON 10.4.2003 WHICH ALSO FINDS PLACED IN THE PAPER BOOK. AS SOON AS THE SERVICES WERE RENDERED, M/S LAMP CAP (INDIA) PRIVATE LIMITED HAS RAISED A DEBIT NOTE FOR COMMISSION DUE TO IT @ 6.15 % ON THE AMOUNT OF RS. 2.42 CRORES. THERE WAS OPENIN G CREDIT BALANCE OF RS.3,67,030/- IN THE BOOKS OF THE ASSESSEE AND AFTER ADDING THE COMMISSION DUE FOR TH IS YEAR AMOUNTING TO RS.14,89,617/-, THE ASSESSEE HAD PAID THE COMMISSION BY CHEQUE AMOUNTING TO 6 RS.15,25,000/- THEREBY LEAVING CREDIT BALANCE OF R. 3,31,647/-. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO PLACED ON RECORD THE ORDER OF DELHI BENCH IN T HE CASE OF ANUPAM SYNTHETICS PRIVATE LIMITED; 104 TTJ 119 WHEREIN THE BUSINESS OF THE ASSESSEE GOT A BIG BOOST ON ACCOUNT OF CONTRACT PROCURED BY THE AGENT. THE ASSESSEE SUPPLIED THE ORDER AND RECEIVED TIMELY PAYMENT FROM THE BUYERS. ALL THIS WAS POSSIBLE THROUGH THE EFFECTIVE SERVICES RENDERED BY THE AGEN T. IT WAS FOUND BY THE TRIBUNAL THAT THE ASSESSEE COULD N OT ACHIEVE SUCH BUSINESS RESULTS WITHOUT THE SERVICES OF AGENT. THUS, THE PAYMENT OF BUSINESS DEVELOPMENT EXPENSES WAS FULLY JUSTIFIED AND THE SAME WAS HELD TO BE ALLOWABLE BUSINESS EXPENDITURE. HONBLE RAJASTH AN HIGH COURT IN THE CASE OF LAXMI ENGG. INDUTRIES; 29 8 ITR 203 HELD THAT FOR ALLOWING PAYMENT OF COMMISSIO N, THERE IS NO NEED OF ANY WRITTEN AGREEMENT. IT WAS FOUND THAT SINCE THE ASSESSEE AND RECIPIENT COMPANY WERE NOT SISTER CONCERNS AND THE RECIPIENT WAS ASSESSED REGARDING THE AMOUNT OF COMMISSION 7 RECEIVED, IT WAS HELD THAT THERE WAS NO JUSTIFICATI ON FOR DISALLOWING THE CLAIM OF COMMISSION. FOLLOWING DECISIONS WERE ALSO RELIED UPON BY THE LEARNED COUN SEL FOR THE ASSESSEE WITH REFERENCE TO THE ALLOWABILITY OF COMMISSION EXPENDITURE :- A. CIT V. HINDUSTAN DEV.CORPN.LTD.; 101 TAXMAN 146 (CA L) B. GANESHSOAP WORKS V. CIT; 161 ITR 876 (MP) C. CIT V. WALCHAND & CO. 65 ITR 381/384 (SC) D. CIT V. DALMIA CEMENT PVT. LTD.; 254 ITR 377 (DEL) E. DCIT V. SUPER TANERY (INDIA) LTD.; 274 ITR 338 (ALL ) 4. APPLYING THE PROPOSITION AND LAW LAID DOWN IN THESE CASES TO THE FACTS OF THE INSTANT CASE, WE FIND THA T THE ASSESSEE COMPANY HAS PAID COMMISSION FOR THE SERVICES RENDERED BY M/S LAMP CAP (INDIA) PRIVATE LIMITED WITH RESPECT TO THE PROCUREMENT OF ORDERS O F RS. 2,42,21,413/- FROM M/S INTAS PHARMACEUTICALS LIMITED AND FOR TIMELY RECEIVING THE PAYMENT THEREO F. MERELY BECAUSE THERE WAS NO WRITTEN AGREEMENT, THE SAME CANNOT BE MADE SOLE REASON FOR DISALLOWING THE PAYMENT OF COMMISSION WITH RESPECT TO THE SERVICES RENDERED BY M/S LAMP CAP (INDIA) PRIVATE LIMITED. IT 8 IS A MATTER OF RECORD THAT THE TURNOVER OF THE ASSE SSEE HAS INCREASED FROM RS. 1.15 CRORE TO RS. 5.28 CRORE S WHICH INCLUDES SALES TO M/S OINTAS PHARMACEUTICALS LIMITED AMOUNTING TO RS.2.42 CRORES WHICH HAS BEEN ACHIEVED BY THE EFFORTS OF M/S LAMP CAP (INDIA) PRI VATE LIMITED. THUS, ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE DO NOT FIND ANY JUSTIFICATION FOR DISALLOW ING THE CLAIM OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROMOTION OF THE ASSESSEES BUSINESS IN THE FORM OF COMMISSION. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL, 2011 (JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER INDORE APRIL 28 TH ,2011 COPY TO APPELLANT, RESPONDENT, CIT, CIT(A), DR D/- 9