ACIT, BHILWARA V. M/s. Fashion Suitings Pvt. Ltd., BHILWARA

ITA 89/JODH/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9657 (ITAT-JODHPUR)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Keywords: Business expenditure; Corroborative evidences
• Section: 143(3); 142(1); 37(1); 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, JODHPUR BEFORE SHRI B.P JAIN ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER ITA NO. 89/JODH/2016 ASSESSMENT YEAR: 2012 - 13 THE ACIT VS. M/S. FASHION SUITINGS PVT. LTD. CIRCLE SPL - 6, RCM WORLD, RIICO, BHILWARA SWAROOPGANJ, VIA - HAMIRGARH BHILWARA PAN NO. AAACF3294L (APPELLANT) (RESPONDENT) A SSESSEE BY : SH. RAJENDRA JAIN R EVENUE BY : SMT. ALKA R JAIN DATE OF HEARING : 10/01/2017 DATE OF PRONOUNCEMENT : 11/01/2017 ORDER PER PARTHA SARATHI CHAUDHURY , JM THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), AJMER, DT. 01/12/2015, ON THE FOLLOWING GROUNDS OF APPEAL: 1.) DELETING THE TRADING ADDITION OF R S. 6,00,000/ - WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE DETAILED REASONING GIVEN BY THE AO IN ASSESSMENT ORDER; 2.) DELETING THE ADDITION MADE BY THE AO OF RS. 8,62,52,900/ - , WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE COMMISSION PAYMENT AND SERVICE RENDERED IN RESPECT OF THESE DISTRIBUTORS, WHO DID NOT MAKE ANY SALE S, BUT GOT COMMISSION ONLY BECAUSE THEY WERE ABOVE, IN THE CHAIN OF DISTRIBUTORS, THAT DISTRIBUTOR, WHO ACTUALLY EFFECTED THE SALES FOR THE ASSESSEE; 2 3.) DELETING THE ADDITION MADE BY THE AO OF RS. 8,62,52,900/ - WITHOUT APPRECIATING THE FACT THAT AS PER THE PROVISIONS OF SECTION 37(1) OF THE IT ACT, 1961, THE ENTIRE EXPENDITURE WAS NOT WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES; 4.) DELETING THE ADDITION MADE BY THE AO OF RS. 8,62,52,900/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO EXPLAIN AS TO HOW THE COMMISSION PAYMENTS WERE WORKED OUT; 5.) DELETING THE ADDITION MADE BY THE AO OF RS. 8,62,52,900/ - WITHOUT APPRECIATING THE FACT THAT THE ORDER FOR THE A.Y. 2012 - 13 WAS PASSED IN THE SPRIT OF SECTION 143(3) OF THE I.T. ACT AND DID NOT REQUIR E ANY CONSISTENCY WITH THE ORDER PASSED UNDER SECTION 143(3) FOR THE EARLIER YEARS AS THE ASSESSMENT PROCEEDINGS FOR EACH ASSESSMENT YEAR ARE SEPARATE PROCEEDINGS; 6.) THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELETE OR MODIFY THE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE BRIEF FACTS APPEARING IN THIS CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING AND TRADING OF FABRIC, READYMADE, HOSIERY, FMCG & MULTILEVEL MARKETING / NETWORKING. THE ASSESSEE HAD E - FILED ITS RETURN ON 23/02/2013 FOR A.Y. 2012 - 13 DECLARING TOTAL INCOME AT RS. 18,31,62,930. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 18/10/2013 ON DECLARED INCOME. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. NOTICE U/S. 143(2) OF I.T. ACT, 1961 WAS ISS UED ON 08/08/2013 AND SERVED UPON THE ASSESSEE COMPANY ON 12/08/2013 AND FIXING THE CASE FOR HEARING ON 22/08/2013. IN COMPLIANCE OF ABOVE NOTICES, THE ASSESSEE HAS FILED COPIES OF ACCOUNTS AND AUDIT REPORTS U/S 44 AB IN FORM NO. 3CA AND 3CD DT. 31/01/201 3 DURING THE COURSE OF ASSESSMENT PROCEEDING. NOTICE U/S 142(1) & QUERY LETTER DATED 25/07/2014 WAS ISSUED FIXING THE CASE FOR HEARING ON 04/08/2014. 3 3. THAT WITH RE GARD TO THE FIRST GROUND OF APPEAL RELATES TO DELETION OF TRADING ADDITION OF RS. 6,00,00 0/ - . 4. THAT AO IN HIS ORDER HAS OBSERVED THAT DURING THE COURSE OF VERIFICATION OF VOUCHERS, SOME OF THE VOUCHERS WERE FOUND SUPPORTED WITH SELF MADE SLIPS BY THE EMPLOYEES OF THE ASSESSEE INSTEAD OF BILLS ISSUED BY THIRD PERSONS AND ALSO IN VIEW OF NATURE OF BUSINESS OF THE ASSESSEE WHEREIN THE ASSESSEE DEALS IN HUNDREDS OF ITEMS AND ALSO SHOWING DIFFERENT RATIO OF STORAGE AND WASTAGE IN DIFFERENT ITEMS, LEAKAGES IN PROFIT CANNOT BE RULED OUT. CONSIDERING ALL THE FACTS THE AO MADE A LUMP - SUM DISALLOW ANCE OF RS. 6,00,000/ - TO COVER UP ALL THE POSSIBLE LEAKAGES. THAT REGARDING THIS ISSUE THE LD. CIT(A) IN HIS ORDER HAS OBSERVED AND HELD THAT THE AO HAS MADE ADDITION ON ACCOUNT OF SOME VOUCHERS BEING SUPPORTED BY SELF MADE SLIPS OF THE EMPLOYEES OF THE C OMPANY AND LEAKAGES OF PROFIT DUE TO ASSESSEE DEALING IN NUMBER OF ITEMS. THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE COMPANY IS ENGAGED IN VARIOUS KINDS OF BUSINESS I.E. TEXTILE, POWER, FMCG, DIRECT MARKETING ETC. AND EVERY INDUSTRY HAS ITS OWN PECULIAR ITIES LEADING TO VARIATION IN THE GP. THE ASSESSEE HAS POINTED OUT THAT DUE TO REASONS BEYOND THE APPELLANTS CONTROL, ASSESSEES TURNOVER HAS ALSO DECREASED BY APPROX. 859.74 CRORE LEADING TO SLIGHT DECREASE IN THE GP. FURTHER THE ASSESSEE PRODUCT MIX FOR THE SALES FOR TWO YEAR CANNOT BE SAME WHICH LEADS TO SLIGHT VARIATION IN THE GP. THE BOOKS OF THE ASSESSEE HAVE BEEN AUDITED AN ASSESSEE HAS MAINTAINED ALL THE BILLS AND VOUCHERS FOR CLAIM OF EXPENSES. IT HAS BEEN POINTED OUT BY THE ASSESSEE THAT THE ASSE SSEES CLAIM OF 4 EXPENSES ARE BASED ON THE BILLS, VOUCHERS AND SUPPORTING EVIDENCE AND NO UNVOUCHED EXPENSES HAS BEEN POINTED OUT. THE ASSESSEE IS A COMPANY AND EVIDENTLY SOME OF THE VOUCHERS FOR WHICH IT IS NOT POSSIBLE TO OBTAIN PROPER THIRD PARTY BILLS B Y THE EMPLOYEES, THEY WERE SUPPORTED BY THE NOTINGS PROVIDED BY THE EMPLOYEES. THE EXPENSES HAVE BEEN CLAIMED TO BE GENUINE. FURTHER THE ASSESSEE HAS POINTED OUT THAT THE SHORTAGES AND WASTAGES IN THE ITEMS DEALT BY THE ASSESSEE HAVE BEEN DULY ACCOUNTED AN D ASSESSEE HAS MAINTAINED AUTOMIZED ACCOUNTING PROCESS. THE BOOKS OF THE ASSESSEE HAVE BEEN AUDITED UNDER COMPANIES ACT AS WELL AS THE INCOME TAX ACT. THE AO HAS NOT POINTED OUT WHICH EXPENDITURE CLAIMED BY THE APPELLANT WAS BOGUS OR INFLATED. THE BOOKS OF THE ASSESSEE HAVE NOT BEEN REJECTED U/S 145(3) OF THE I.T.ACT. THAT THEREFORE THE LD. CIT(A) DELETED THE ADHOC ADDITION MADE BY THE AO OF RS. 6,00,000/ - . 5. WE HAVE PERUSED THE CASE RECORDS, FACTS AND CIRCUMSTANCES IN THIS CASE AND HAVE HEARD THE RIVAL C ONTENTION. 6. THAT IT IS ON RECORD THE AO HAS MADE THIS ADDITION ON ACCOUNT OF SOME VOUCHERS BEING SUPPORTED BY SELF MADE SLIPS OF THE EMPLOYEES OF THE COMPANY AND THE AO HAD LEAD LEAKAGES OF PROFIT DUE TO THE ASSESSEE DEALING IN NUMBERS OF ITEMS. THAT IT IS A METHOD OF COMMON PRACTICE WHEN THE ASSESSEE COMPANY DEALING IN VARIOUS ITEMS AND AS IT IS ALSO ON RECORD THAT THE ASSESSEE CLAIM OF EXPENSES ARE BASES ON BILLS, VOUCHERS AND SUPPORTING EVIDENCE IT IS QUITE POSSIBLE THAT SOME OF THE VOUCHERS ARE NOT O BTAINED FROM THE PROPER THIRD PARTY 5 AND IN SUCH CASE THE EMPLOYEE OF THE COMPANY MAKE THE CORRESPONDING SUPPORTING NOTING REGARDING THE SAME. THAT ALWAYS DOES NOT MEAN THAT THOSE EXPENSES ARE FALSE AND UNTRUE THAT THE ASSESSEE HAVE MAINTAINED AUTOMIZED ACC OUNTING PROCESS AND ANY SHORTAGES AND WASTAGES IN ITEMS DELETED BY THE ASSESSEE IS DULY ACCOUNTED FOR. THAT THE BOOKS OF THE ASSESSEE ARE AUDITED UNDER THE COMPANIES ACT AS WELL AS INCOME TAX ACT AND AS THE RECORDS SPELLS OUT OF AO HAS NOT REJECTED THE BOO KS OF ACCOUNT OF THE ASSESSEE. THAT FURTHER ON PERUSAL OF THE ORDER OF THE AO IT IS CLEAR THAT HE HAS NOT POINTED OUT WHICH PARTICULAR EXPENDITURE CLAIMED BY THE ASSESSEE SEEMS TO BE BOGUS OR INFLATED THAT IN ABSENCE OF AO'S ORDER BEING A REASONED ONE AND WITHOUT BEING A SPEAKING ORDER JUSTICE DO NOT PERMIT FOR ANY ADHOC DISALLOWANCE SPECIALLY IN THE CASE OF THE ASSESSEE WHERE ALL THE BOOKS OF ACCOUNT ARE MAINTAINED AND AUDITED. 7. WE ARRIVE AT OUR CONSIDERED VIEW THE DECISION OF LD. CIT(A) ON THIS GROUND I S CORRECT AND WE FIND NO INFIRMITY IN HIS ORDER DELETING RS. 6,00,000/ - ADHOC ADDITION WHICH IS HEREBY SUSTAINED. 8. THIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. 9. THAT GROUND NUMBERS 2, 3, 4 & 5 RELATES TO THE COMMON ISSUE OF DELETION OF THE ADDITI ON MADE BY THE AO OF RS. 8,62,52,900/ - ON ACCOUNT OF COMMISSION PAYMENT. 10. THE AO IN HIS ORDER HAS HELD THAT THE COMMISSION OF RS. 8,62,52,900/ - WHICH INCLUDES RS. 5,80,38,000/ - AS LEADERSHIP COMMISSION AND RS. 2,82,14,900/ - AS 6 ROYALTY COMMISSION STANDS PAID TO THE AGENTS IN THE CHAIN WHO HAVE NOT RENDERED ANY SERVICES AND THEREFORE, THE SAME CANNOT BE CONSIDERED TO HAVE BEEN PAID WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. ACCORDINGLY, THE AO DISALLOWED THE COMMISSION PAYMENT OF RS. 8,62,52,900/ - AND A DDED TO THE TOTAL INCOME OF THE ASSESSEE STATING THAT IT CANNOT BE ALLOWED AS BUSINESS EXPENDITURE UNDER SECTION 37 OF THE ACT SINCE IT CANNOT BE CONSIDERED TO HAVE BEEN PAID WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 11. THE LD. CIT(A) ON THIS ISSUE OBS ERVED AND HELD IN HIS ORDER ON RECORD THAT THE NATURE OF COMMISSION EXPENSES, BUSINESS PLAN AND DISTRIBUTION PATTERN OF THE COMMISSION EXPENSES FOR THE MULTILEVEL MARKETING IS SIMILAR TO THE A.Y. 2009 - 10 AND THE SAID COMMISSION EXPENSES HAVE BEEN ALLOWED I N A.Y. 2009 - 10 BY THE HONBLE ITAT JODHPUR BENCH VIDE ORDER DATED 11/02/2013 (ITA NO. 357/JODHPUR/2012) AFTER DISCUSSING THE ISSUE IN DETAIL. BASED ON THE SIMILAR REASONING AND RESPECTFULLY FOLLOWING THE SAID DECISION IN THE A.Y. 2010 - 11 AND A.Y. 2011 - 12, THE COMMISSION EXPENSES WERE HELD TO BE ALLOWABLE AN ADDITIONS MADE BY THE AO WERE DELETED BY THE LD. CIT(A), AJMER VIDE HIS ORDER DATED 11/03/2014 (APPEAL NO. 701/2012 - 2013) AND 19/03/2014 (APPEAL NO. 433/2013 - 2014) RESPECTIVELY. THE LD. CIT(A) FURTHER PO INTED OUT THAT FACTS OF THE A.Y. 2012 - 13 (THE ASSESSMENT YEAR IN CONSIDERATION) ARE SIMILAR TO THE FACTS OF THE A.Y. 2010 - 11 AND 2011 - 12, THEREFORE, FOLLOWING THE DECISION OF THE PREDECESSOR FOR A.Y. 2010 - 11 AND A.Y. 2011 - 12 AND THE ORDER OF THE ITAT JODHP UR AS REFERRED ABOVE . 7 THE LD. CIT(A) FOR THIS RELEVANT A.Y. DELETED THE DISALLOWANCE OF RS. 8,62,52,900/ - AND ALLOWED THE APPEAL. 12. WE HAVE PERUSED THE CASE RECORDS, FACTS AND CIRCUMSTANCES OF THE CASE AND THE RIVAL CONTENTION. 13. THAT AT THE TIME OF H EARING LD. AR FILED A PAPER BOOK CONTAINING COPY OF DECISIONS OF COORDINATE BENCH OF ITAT JODHPUR IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10, 2010 - 11 AND 2011 - 12 WHICH ARE ON RECORD AND IN ALL THESE CASES THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THAT, ALSO WE OBSERVE AS APPEARING IN THE ORDER OF THE FIRST APPELLATE AUTHORITY THAT THE COMMISSION EXPENSES ARE SIMILAR TO A.Y. 2009 - 10 AND THOSE EXPENSES WERE ALLOWED IN THE SAID A.Y. 2009 - 10 BY THE COORDINATE BENCH OF ITAT JODHPUR VIDE ORDER DT. 11/02/ 2013 ( ITA NO. 357/JODHPUR/2012) AFTER DISCUSSING THE ISSUE IN DETAIL. THE SAID DECISION WAS FOLLOWED FOR A.Y. 2010 - 11 & 2011 - 12 EVEN BY CIT(A), AJMER WHEREBY THE ADDITION OF COMMISSION EXPENSES MADE BY THE AO WERE DELETED AND THE ISSUE WAS ALLOWED IN FAVO UR OF THE ASSESSEE. 14. WE ARRIVE AT OUR CONSIDERED VIEW THAT THE FACTS AND CIRCUMSTANCES ARE SAME FOR ALL THE ASSESSMENT YEARS AND WHEN THE COORDINATE BENCH OF ITAT, JODHPUR HAS ALREADY DECIDED THE ISSUE OF COMMISSION EXPENSES IN FAVOUR OF THE ASSESSEE AND AS PER THE VARIOUS DEC ISIONS OF THE ITAT IN ASSESSEES OWN CASE FILED IN PAPER BOOK ON RECORD AND ALSO WITH THE FIRST APPELLATE AUTHORITY FOR A.Y. 2010 - 11 AND 2011 - 12 FOLLOWING THE DECISION OF THE ITAT HAS DELETED THE ADDITION MADE BY THE AO, THEREFORE, WE FIND THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. 8 CIT(A) AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF ITAT JODHPUR, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE DELETION OF RS. 8,62,52,900/ - IS THEREFORE SUSTAINED. THE GROUND NUMBERS 2, 3, 4 & 5 IS TH EREFORE DECIDED IN FAVOUR OF THE ASSESSEE AND THESE GROUNDS OF APPEAL BY THE REVENUE ARE DISMISSED. 15. GROUND NO. 6 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 16. IN THE RESULT, APPEAL PREFERRED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/ - SD/ - (B.P. JAIN) ( PARTHA SARATHI CHAUDHURY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11/01/2017 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR