Appeal details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 64927 (ITAT-COCHIN)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 year(s) 7 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-11-2012
Appeal Filed By
Department
Bench Allotted
DB
Next Hearing Date
03-09-2012
Assessment Year
1999-2000
Appeal Filed On
20-03-2003
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 88/COCH/2003 ASSESSMENT YEAR: 1999-2000 I.T.O., WARD-2(3), RANGE-2, KOCHI. VS. M/S. KUTTUKARAN ENGINE BUILDERS, MAMANGALAM, COCHIN-682025. [PAN: AADFK 1511B] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) REVENUE BY SMT. A.S. BINDHU, SR. DR ASSESSEE BY SHRI A.S. NARAYANAMOORTHY, CA DATE OF HEARING 04/09/2012 DATE OF PRONOUNCEMENT 16/11/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 12-12-2002 PASSED BY THE LD. CIT(A)-I, KOCHI AND IT RELATES TO THE AS SESSMENT YEAR 1999-2000. 2. THIS APPEAL WAS ORIGINALLY DISPOSED OF BY THE CO -ORDINATE BENCH ON 5 TH MAY, 2006 BY DISMISSING THE APPEAL OF THE REVENUE ON THE GROU ND OF LOW TAX EFFECT. THE REVENUE FILED A MISCELLANEOUS PETITION BEFORE THE TRIBUNAL AND IT WAS ALSO DISMISSED. SUBSEQUENTLY, THE REVENUE PREFERRED AN APPEAL BEFOR E THE HONBLE HIGH COURT OF KERALA AGAINST THE ORDER OF THE TRIBUNAL. THE HIGH COURT HELD THAT THE TAX EFFECT HAS TO BE WORKED OUT WITH REFERENCE TO THE TAX ON THE DISPUTE D ITEMS, WHICH ARE THE SUBJECT MATTER OF APPEAL. SINCE THE TAX EFFECT ON THE DISP UTED ITEMS CONTESTED IN THIS CASE WAS MORE THAN RS. 2.00 LAKHS, THE HIGH COURT HELD THAT THE APPEAL IS MAINTAINABLE. ACCORDINGLY, THE HIGH COURT RESTORED THE APPEAL BAC K TO THE TRIBUNAL FOR DECIDING THE CASE ON MERITS. I.T.A. NO.88/COCH/2003 2 3. THE ONLY ISSUE CONTESTED BY THE REVENUE IN THIS APPEAL IS WHETHER THE LD CIT(A) IS JUSTIFIED IN DELETING THE ESTIMATED DISALLOWANCE OF RS.10.00 LAKHS MADE BY THE ASSESSING OFFICER FROM OUT OF THE COMMISSION EXPENS ES AS THE SAID EXPENDITURE IS NOT FULLY VERIFIABLE. 4. THE FACTS RELATING TO THE SAME ARE STATED IN BRI EF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF AUTOMOBILE ENGINE RE-BUILDING WORK AND IT HAS GOT WORKSHOPS AT VARIOUS PLACES. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 57,01,69 2/- UNDER THE HEAD DISCOUNT AND COMMISSION. WHEN ENQUIRED ABOUT THIS EXPENDITURE, IT WAS STATED THAT THE REPAIR WORKS UNDERTAKEN BY THE ASSESSEE ARE CANVASSED BY M ECHANICS AND HENCE THE ASSESSEE IS OBLIGED TO PAY DISCOUNT AND COMMISSION TO SUCH M ECHANICS IN ORDER TO PROMOTES ITS BUSINESS. IT WAS FURTHER STATED THAT THERE IS NO F IXED RATE FOR MAKING SUCH PAYMENTS AND IT IS FIXED AND PAID ACCORDING TO THE BARGAININ G CAPACITY OF THE MECHANICS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PAID COMMISSION TO 240 MECHANICS. IN ORDER TO VERIFY THE PAYMENTS, THE ASSESSING OFFICER ISSUED LETTERS TO SIX PERSONS CHOSEN ON RANDOM BASIS. OUT OF THAT, TWO LETTERS WERE RET URNED BY POSTAL AUTHORITIES WITH THE ENDORSEMENT NOT KNOWN. THREE PERSONS DID NOT RES POND AND ONLY ONE PERSON NAMED SHRI RAJKUMAR OF COIMBATORE RESPONDED AND ACCEPTED THE RECEIPT OF COMMISSION. BUT HE ADMITTED THAT HE WAS NOT AWARE OF THE AMOUNT REC EIVED BY HIM. ACCORDINGLY, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE C OMMISSION EXPENDITURE IS NOT FULLY VERIFIABLE. ACCORDINGLY, HE REJECTED THE BOOK RESU LTS AND MADE A LUMP SUM DISALLOWANCE OF RS. 10.00 LAKHS FROM THE COMMISSION EXPENSES CLAIMED BY THE ASSESSEE. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALSO NOTICED THAT THE COMMISSION EXPENDITURE CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WORKED OUT TO 11.64% OF THE TURNOVER, WHICH WAS FAR BELOW THE PER CENTAGE OF 17.08%, 18.03%, 16.04%. 15.50% AND 14.17% IN RESPECT OF THE ASSESSM ENT YEARS 1998-99, 1997-98, 1996-97 1995-96 AND 1994-95 RESPECTIVELY. IT WAS A LSO BROUGHT TO THE NOTICE OF LD. CIT(A) THAT NO DISALLOWANCE WAS MADE IN PRECEDING YEARS DESPITE THE FACT OF HIGHER I.T.A. NO.88/COCH/2003 3 CLAIM. IN VIEW OF THE ABOVE FACTS, THE LD. CIT(A) CAME TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS MADE THE LUMP SUM ADDITION ON THE BASIS OF INCOMPLETE ENQUIRIES AND ACCORDINGLY DELETED THE ADDITION. AGGRIEVED, B Y THE ORDER OF THE LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US. 6. IN THE GROUNDS OF APPEAL, THE REVENUE HAS TAKEN A GROUND THAT THE RETURNS OF INCOME FILED BY THE ASSESSEE IN THE PRECEDING YEARS WERE PROCESSED U/S. 143(1)(A) OF THE ACT AND ACCORDINGLY IT IS CONTENDED BY THE REVE NUE THAT LD. CIT(A) SHOULD NOT HAVE PLACE RELIANCE ON THE PERCENTAGE OF COMMISSION EXPE NSES CLAIMED IN THAT YEAR. THE LD A.R SUBMITTED THAT THE ASSESSMENT IN THE HANDS OF T HE ASSESSEE IN THE EARLIER YEARS WAS COMPLETED U/S. 143(3) OF THE ACT AND HENCE, THE GRO UND TAKEN BY THE DEPARTMENT IS AGAINST THE FACTS. IN SUPPORT OF THAT, THE LD A.R FILED COPIES OF THE ORDERS PASSED IN THE HANDS OF THE ASSESSEE U/S 143(3) OF THE ACT IN THE EARLIER YEARS, WHICH WERE REFERRED TO BY LD CIT(A). SINCE THE GROUND RAISED BY THE DEPAR TMENT IS AGAINST THE FACTS, WE DISMISS THE SAID GROUND. 7. WITH REGARD TO THE MERITS OF DISALLOWANCE OF PAR T OF COMMISSION EXPENSES, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER SENT LE TTERS TO SIX PERSONS ON TEST CHECK BASIS, OUT OF WHICH ONLY ONE HAS RESPONDED. TWO LE TTERS HAVE BEEN RETURNED BACK BY THE POSTAL AUTHORITIES AND THREE PERSONS DID NOT RE SPOND. FURTHER, THE VOUCHERS PREPARED BY THE ASSESSEE IN SUPPORT OF THE IMPUGNED PAYMENTS ARE SELF MADE VOUCHERS WHICH ARE NOT SUSCEPTIBLE FOR VERIFICATION. UNDER T HESE CIRCUMSTANCES ONLY, THE AO CONSIDERED A LUMP SUM DISALLOWANCE OF RS. 10.00 LAK HS, AS THE SAID EXPENDITURE IS NOT SUSCEPTIBLE FOR VERIFICATION. 8. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN MAKING SUCH KIND OF COMMISSION PAYMENTS EVERY YEAR, AS IT IS THE BUSINESS PROMOTION EXPENSES FOR THE ASSESSEE. THE MECHANICS ARE KEY SOURCE FOR THE BUSINESS AND HENCE THE ASSESSEE HAS TO NECESSARILY INCUR THE SAID EXPENSE, WITHOUT WHICH THE ASSESSEE COULD NOT ACHIEVED THE TURNOVER REPORTED BY IT. HE FURTH ER SUBMITTED THAT THE PERCENTAGE OF THE COMMISSION EXPENDITURE TO THE TURNOVER WAS MUCH HIGHER IN THE PRECEDING YEARS I.T.A. NO.88/COCH/2003 4 THAN THAT OF THE INSTANT YEAR AND THE SAME HAS BEEN RIGHTLY APPRECIATED BY LD CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS SENT LETTERS ONLY TO SIX PERSONS OUT OF 240 PERSONS TO WHOM COMMISSION WAS PAID. THE AS SESSEE COULD NOT BE FOUND FAULT WITH IF THE PERSONS DO NOT RESPOND. THE AO, WITHOU T CONDUCTING FURTHER ENQUIRIES, HAS SIMPLY FORMED ADVERSE OPINION AGAINST THE ASSESSEE ON THE BASIS OF REPLY GIVEN BY ONE PERSON, THOUGH HE HAS CONFIRMED THE RECEIPT OF COMM ISSION FROM THE ASSESSEE. HE FURTHER SUBMITTED THAT ALL THE EXPENDITURES ARE SUP PORTED BY PROPER VOUCHERS AND THERE IS NO ROOM TO MAKE ANY ADDITION FROM OUT OF COMMISS ION EXPENSES. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE REC ORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS PAID COMMISSION TO 240 PERSONS, WHO AR E MOSTLY MECHANICS WHO BRING THE WORK TO THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN PAYING SUCH KIND OF COMMISSION IN THE EARLIER YEARS ALSO A ND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. UNDER THESE CIRCUMSTANCES, THE LD. CIT(A) HAS EXAMINED THE ISSUE ON THE BASIS OF FACTS BORNE OUT OF RECORD AND HAS COME TO THE CONCLUSION THAT ADDITION CANNOT BE SUSTAINED. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE LD. CIT(A):- 4. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEAR NED REPRESENTATIVE. ON A CONSIDERATION OF THESE, I AM OF THE VIEW THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD SUFFICIENT MATERIALS TO DISCREDI T THE ACCOUNTS MAINTAINED BY THE APPELLANT. IT IS TRUE THAT THREE PERSONS TO W HOM LETTERS WERE SENT BY THE ASSESSING OFFICER, DID NOT RESPOND, BUT WITHOUT CA RRYING OUT FURTHER ENQUIRIES, IT WAS NOT PROPER ON THE PART OF THE ASSESSING OFFICE R TO HAVE COME TO AN ADVERSE INFERENCE REGARDING THE GENUINENESS OF THE COMMISS ION PAYMENT TO THESE PERSONS. SIMILAR IS THE POSITION WITH REGARD TO T HE RETURNING OF LETTERS IN RESPECT OF TWO PERSONS BY THE POSTAL AUTHORITIES. IT IS Q UITE POSSIBLE THAT THESE PERSONS COULD HAVE SHIFTED FROM THE ADDRESSES GIVEN TO THE APPELLANT OR INCORRECT ADDRESSES COULD HAVE BEEN GIVEN TO THE APPELLANT. THE ADVERSE INFERENCE TAKEN ON THE BASIS OF THE RETURN OF LETTERS BY THE POSTA L AUTHORITIES SHOULD HAVE BEEN PRECEDED BY FURTHER ENQUIRIES. WITH REGARD TO THE PAYMENT OF COMMISSION TO SHRI RAJKUMAR, COIMBATORE, THE ASSESSING OFFICERS FINDING RESTS ON A STILL WEAKER FOUNDATION. THIS PARTY HAD CONFIRMED THE RECEIPT O F COMMISSION, THOUGH HE WAS NOT IN A POSITION TO FURNISH THE DETAILS OF AMOUNT AND DATE OF RECEIPT. THEREFORE, BEFORE TAKING AN ADVERSE INFERENCE WITH REGARD TO THE PAYMENT TO HIM, THE ASSESSING OFFICER SHOULD HAVE CARRIED OUT FURTHER ENQUIRIES. IT ALSO APPEARS THAT THE RESULTS OF THE ENQUIRIES WERE PUT TO THE APPEL LANT ONLY ON 26.3.2002, ON WHICH DATE THE ASSESSMENT STANDS COMPLETED. THUS, IT IS CLEAR THAT THE APPELLANT I.T.A. NO.88/COCH/2003 5 S DID NOT HAVE AN EFFECTIVE OPPORTUNITY OF REBUTTIN G THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER BY ADDUCING FURTHER EVIDENCE. I N THE LIGHT OF THE DISCUSSION ABOVE, THE REJECTION OF THE ACCOUNTS OF THE APPELL ANT, MERELY BASED ON THE CONCLUSIONS ARRIVED AT ON THE BASIS OF INCOMPLETE ENQUIRIES, CANNOT BE UPHELD. THERE IS ALSO MERIT IN THE SUBMISSION OF THE LEARN ED REPRESENTATIVE THAT PRIMA FACIE THERE IS NO REASON TO DISBELIEVE ANY PART OF THE COMMISSION PAYMENT. THE AMOUNT OF COMMISSION PAID AS A PERCENTAGE OF THE T URNOVER, IS THE LOWEST IN THIS YEAR AT 11.64% AS AGAINST SUBSTANTIALLY HIGHER PER CENTAGES FOR THE EARLIER YEARS AS REFERRED TO EARLIER. ON A CONSIDERATION OF THE ABOVE ASPECTS, I AM OF THE CONSIDERED VIEW THAT THE REJECTION OF BOOKS OF ACC OUNTS AND THE LUMP-SUM DISALLOWANCE OF THE SUM OF RS. 10 LACS OUT OF THE COMMISSION AND DISCOUNT, ARE NOT CALLED FOR. HENCE, THE DISALLOWANCE IS DELETE D. FROM THE ARGUMENTS ADVANCED BY THE ASSESSEE COUPLED WITH THE POSITION PREVAILING IN THE ASSESSMENT MADE FOR PRECEDING YEARS, IT IS NOTI CED THAT THE ASSESSEE IS CONSISTENTLY INCURRING THE COMMISSION EXPENSES AND THE SAME WAS ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENTS MADE U/S 143(3) OF THE ACT. IN THE INSTANT YEAR, THOUGH THE ASSESSING OFFICER SENT ENQUIRY LETTERS TO SIX PERSONS, ONLY O NE PERSON RESPONDED, WHO HAS ALSO CONFIRMED THE RECEIPT OF COMMISSION FROM THE ASSESS EE. THE AO DID NOT CAUSE FURTHER ENQUIRIES ON THE PERSONS WHO DID NOT RESPOND AND HA S FORMED ADVERSE VIEW. UNDER THESE FACTUAL CIRCUMSTANCES, WE ARE OF THE VIEW THA T THE LD CIT(A) HAS TAKEN A CONSCIOUS DECISION BY CONSIDERING ALL FACTS AND HEN CE WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 16-11-2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 16 TH NOVEMBER, 2012 GJ I.T.A. NO.88/COCH/2003 6 COPY TO: 1. M/S. KUTTUKARAN ENGINE BUILDERS, MAMANGALAM, COCH IN-682025. 2. THE INCOME TAX OFFICER, WARD-2(3), RANGE-2, KOCH I. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, KOCH I. 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN
Mehul