Kunwar Tuli, New Delhi V. ITO WARD - 43(4), New Delhi

ITA 896/DEL/2020

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2746 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 24-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VED PRAKASH MISHRA
• Assessee Lawyers: JAI SETHI
• Keywords: Rejection of books of accounts; Business expenditure; Opportunity of being heard; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 37; 143(3); 37(1); 250; 72; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: SMC-1 NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.896/DEL./2020 ASSESSMENT YEAR: 2015-16 SHRI KUNWAR TULI, 41A, A-1A, CHANAKYA PLACE, UTTAM NAGAR, NEW DELHI VS. ITO, WARD-43(4), NEW DELHI PAN :AIPPT3913Q (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 04.02.2019 PASSED BY THE LEARNED CIT(A)-15, N EW DELHI [IN SHORT THE CIT(A)] FOR ASSESSMENT YEAR 2015-16, RAI SING THE FOLLOWING GROUNDS OF APPEAL: WITH REFERENCE TO THE ASSESSMENT ORDER DATED 04TH FEBRUARY, 2019 ISSUED U/S 250 OF THE INCOME TAX ACT, 1961 AND STAT EMENT OF FACTS, WE HUMBLY REQUEST YOU TO RESOLVE THE FOLLOWING:- APPELLANT BY SHRI JAI SETHI, CA RESPONDENT BY SHRI VED PRAKASH MISHRA, SR. DR DATE OF HEARING 16.02.2021 DATE OF PRONOUNCEMENT 18.02.2021 2 ITA NO. 896/DEL./2020 1. WHETHER THE CONTENTION OF LD. CIT (A) IS JUSTIFI ED IN BEING COMPLETELY IGNORANT AND REJECTING THE APPEAL DESPITE OF THE FA CT THAT: 1- THE REVENUE MODEL UPON WHICH BUSINESS IS BASED O N. 2- THE USUAL MARKET PRACTICE OF THE INDUSTRY IN WHI CH ASSESSEE IS DEALING WITH. 3- AGREED CONTRACT BETWEEN THE ASSESSEE AND HIS MAR KETING CHANNEL. 2.WHEREIN EXTRACT OF THE CIT (A) ORDER STATES THAT: - APPELLANT HAS FILED WRITTEN SUBMISSIONS, THE RELEV ANT PORTION OF WHICH IS REPRODUCED AS UNDER:- THE REVENUE MODEL OF THE ASSESSEE IS SUCH THAT IT I S USING THE DIGITAL PLATFORM OF HOMESHOP 18 (HEREINAFTER REFERRED AS 1I S18) FOR WHICH HS18 COLLECTS THE AMOUNT OF SALES CONSIDERATION FROM CUS TOMERS DIRECTLY AND REMIT THE SAME TO THE ASSESSEE AFTER DEDUCTING COMM ISSION AND OTHER AGREED CHARGES SUCH AS TAXES, REFUNDS, SHIPPING & F REIGHT CHARGES AS PER THE AGREEMENT WITH HS18. COPY OF THE AGREEMENT HAD ALREADY BEEN SUBMITTED BY US. 2. WHETHER THE LEARNED CIT (A) IS JUSTIFIED IN STAT ING THAT:- NO JUSTIFICATION OF SUCH HIGH COMMISSION PAID HAS BEEN OFFERED EXCEPT THAT TDS WAS DEDUCTED ON SUCH PAYMENTS AND BEING DISALLOWED EXPENDITURE WAS LAID OUT OR EX PENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IN LIEU OF WHICH SUFFICIENT EVIDENCE HAS BEEN PROVIDED BY THE ASSESSEE. WHILE IT WAS QUITE CLEAR FACT IN THE CASE THAT AS P ER THE AGREEMENT WITH THE SELLER OF THE ASSESSEE, THE PAYMENTS WERE COLLE CTED FROM THE THIRD PARTIES AND REMITTED THEREAFTER TO THE ASSESSEE AFT ER DEDUCTION OF COMMISSION AND OTHER AGREED CHARGES. SECTION 37(1) STATES ANY EXPENDITURE (NOT BEING EX PENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASS ESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. IN THE CASE OF J.K. WOOLLEN MANUFACTURERS VS CIT (1 969) 72 ITR 612 (SC), THE APEX COURT HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE W AS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINES S, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT O F VIEW OF THE BUSINESSMAN AND NOT OFTHE INCOME-TAX DEPARTMENT. IT IS, OF COURSE, OPEN 3 ITA NO. 896/DEL./2020 TO THE APPELLATE TRIBUNAL TO COME TO A CONCLUSION E ITHER THAT THE ALLEGED PAYMENT IS NOT REAL OR THAT IT IS NOT INCURRED BY T HE ASSESSEE IN THE CHARACTER OF A TRADER OR IT IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND TO DISA LLOW IT. THE HONOURABLE SUPREME COURT DECIDED TO ALLOW THE GENUINE BUSINESS EXPENDITURE OF THE ASSESSEE U/S 37 OF THE ACT. REFERENCE OF CASE LAW - CRYSTAL CHEMIE (P) LTD VERS US ASSISTANT COMMISSIONER OF INCOME TAX. 42 DTR (AHD) (TRIBUNAL) 197 WHERE IT WAS HELD THAT COMMISSION PAYABLE TO ANOTHER COMPANY BAS ED ON THE QUANTITY SPECIFIED PRODUCTS SOLD BY ASSESSEE, FOR V ARIOUS SERVICES RENDERED BY THAT COMPANY TO THE ASSESSEE IS REVENUE EXPENDITURE AND COMMISSION WAS HELD TO BE ALLOWABLE. THE TRIBUNAL DECIDED TO ALLOW THE GENUINE REVENUE BUSINESS EXPENDITURE U/S 37 OF THE ACT. WHETHER THE CONTENTION OF THE LEARNED AO HAS BEEN J USTIFIED WHEREIN HE HAD ERRED IN LAW AND ON FACTS WHILE MAKING AN AD-HO C ESTIMATED ADDITION OF RS. 18, 58, 100.00./- @ 30% OF TOTAL CO MMISSION EXPENSES CLAIMED. THE ADDITION IS BAD IN LAW AND IS LIABLE T O BE CANCELLED. THE ENTIRE ADDITION ADMITTEDLY HAS BEEN MADE ARBITRARIL Y AND ON PRESUMPTIONS, SUSPICION AND CONJECTURES ONLY. REFERENCE OF CASE LAW- COMMISSIONER OF INCOME TAX V ERSUS THE LAKSHMI VILAS BANK LTD. TAX CASE (APPEAL) NO.896 OF 2013 DATED - 16 APRIL 2014 (4) TMI 827 - MADRAS HIGH COURT. WHETHER THE ORDER OF LD. AO IS NOT BAD IN LAW AS IT HAS BEEN RULED TIME AND AGAIN BY THE HONORABLE COURTS AND THE TRIBUNAL THAT ANY ADDITION ON AD-HOC/ESTIMATE BASIS CANNOT BE WITHOUT INVOKING SECTION 145(3) AND REJECTING THE BOOKS OF ACCOUNTS. THE LD. AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS, BUT GOES ON TO MAKE AN ADDITION ON PURELY ESTIMATE BASIS. HE HAS THEREFORE ACTED IN THE MOST MECHANICAL MANNER W ITHOUT ANY APPLICATION OF JUDICIOUS MIND. THE ASSESSEE HAS MAINTAINED COMPLETE AND CORRECT BO OKS OF ACCOUNTS AND HIS FINANCIAL STATEMENTS HAVE DULY UNDERGONE FI NANCIAL AND TAX AUDIT, AND THEREFORE MUST BE RELIED ON UNLESS AO RE JECTS THEM ON THE BASIS -OF SOME COGENT MATERIAL INDICATING THEIR UNR ELIABILITY. RELIANCE IS PLACED ON JUDGMENTS IN CASE OF AMIT VER MA, NEW DELHI VS DEPARTMENT OF INCOME TAX (ITAT), WHERE THE TRIBUNAL RULED THAT: 'ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS/RECORDS. MOREOVER, THE BOOKS OF ACCOUNTS HAVE BEEN DULY AUDITED; 4 ITA NO. 896/DEL./2020 THE DETAILS WERE SUBMITTED BEFORE THE ASSESSING OFF ICER. THE ASSESSING OFFICER HAS NOT INVOKED SECTION 145(3) AND HE HAS N OT REJECTED THE BOOKS OF ACCOUNT. UNDER THE CIRCUMSTANCES, ADHOC DISALLOW ANCE IS WITHOUT ANY BASIS AND DO NOT STAND THE TEST OF JUDICIAL SCRUTIN Y.' SIMILAR JUDGMENT WAS PASSED IN CASE OF M/S VIJAY IN FRASTRUCTURE LIMITED VS ACIT (ITAT, LUCKNOW) AND VARIOUS OTHER C ASES. WHETHER THE CONTENTION OF THE LD. AO THAT ASSESSEE COULD NOT SUBSTANTIATE THE COMMISSION EXPENSES TO HIS SATISFA CTION, HE HAS NEITHER LISTED IN ANY OF THE NOTICES, NOR MENTIONED ORALLY TO THE AR, HIS SPECIFIC REQUIREMENTS IN THIS REGARD. THE NOTICE DA TED 05.12.2017 WHICH WAS TITLED AS THE 'FINAL SHOW CAUSE' MERELY CALLED FOR THE ASSESSEE TO 'SUBSTANTIATE THE COMMISSION EXPENSES'. THE DETAILS AND EXPLANATIONS FURNISHED BY THE ASSES SEE THROUGH HIS AR WERE AS PER BEST OF HIS UNDERSTANDING. WHILE THE ON US OF PROVING GENUINENESS OF THE EXPENSES IS ON THE ASSESSEE, HE CANNOT BE EXPECTED TO BE A MIND-READER AND FORESEE EXACTLY WHAT WOULD SATIATE THE ASSESSING AUTHORITY WITHOUT THE AO STATING HIS REQUIREMENTS EXPRESSLY. MOREOVER, THE ASSESSEE WAS REQUIRED TO E STABLISH THE GENUINENESS OF THE INCURRED EXPENDITURE, NOT RATION ALIZE ITS REASONABLENESS AS THE SAME IS NOT RELEVANT FOR ITS ALLOWANCE UNDER INCOME TAX LAW. WHETHER THE CONTENTION OF THE LD. AO AND THE LD. CI T (A) WAS JUSTIFIED IN DISALLOWING THE GENUINE BUSINESS EXPENDITURE U/S 37 OF THE ACT? 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF ELECTRICAL HOME APPLIANC ES UNDER THE PROPRIETORSHIP FIRM, NAMELY, M/S. GOLDEN SPARROW IN DUSTRIES THROUGH ONLINE TRADING FROM A PLATFORM, NAMELY, HOM E SHOP 18. THE ASSESSEE FILED RETURN OF INCOME ON 23.10.2015, DECLARING INCOME OF RS.3,16,350/-. IN THE ASSESSMENT COMPLETE D ON 27.12.2017 UNDER SECTION 143(3) OF THE INCOME-TAX A CT, 1961 (IN SHORT THE ACT), OUT OF THE COMMISSION EXPENSES OF RS.61,93,667/- PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION, 30% OF THE COMMISSION EXPENSES WHICH WERE WORKED OUT TO RS.18,58,100/-, WAS DISALLOWED BY THE ASSESSING OFF ICER IN VIEW OF 5 ITA NO. 896/DEL./2020 THE NON-PRODUCTION OF DOCUMENTARY EVIDENCES TO SUPP ORT HIGH COMMISSION PAID. THE LEARNED CIT(A) ALSO UPHELD THE DISALLOWANCES. BEING AGGRIEVED, THE ASSESEE IS BEFO RE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONFE RENCING FACILITY AND FILED DOCUMENTS ELECTRONICALLY. 4. THE LEARNED COUNSEL FOR THE ASSESEE SUBMITTED THA T THE COMMISSION WAS PAID TO THE DIGITAL PLATFORM COMPANY I.E. HOMESHOP 18, WHO SOLD GOODS OF THE ASSESSEE THROUGH THEIR DIGITAL PLATFORM. THE LEARNED COUNSEL FOR THE ASSES SEE FURTHER SUBMITTED THAT THE COMMISSION HAS BEEN PAID AS PER THE AGREEMENT ENTERED INTO WITH THE DIGITAL PLATFORM CO MPANY WHICH INCLUDED CHARGES SUCH AS TAXES, REFUNDS, SHIPPING & FREIGHT CHARGES ETC. ACCORDING TO HIM, IN VIEW OF THE SERVI CES RENDERED BY THE DIGITAL PLATFORM COMPANY, THE COMMISSION PAID W AS JUSTIFIED. HE PRAYED THAT THE ASSESSEE IS WILLING TO PRODUCE A LL DOCUMENTARY EVIDENCES, IF ONE MORE OPPORTUNITY IS PROVIDED. 5. ON THE CONTRARY, THE LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES ON THE ISSUE IN DISPUTE. WE FIND THAT THE ASSESSING OFFICE R HAS DISALLOWED THE PART OF THE COMMISSION EXPENSES PAID ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE REQU ISITE EVIDENCES, INCLUDING CONTRACT AGREEMENT BETWEEN THE PARTIES AND THE ASSESSEE SOUGHT TO JUSTIFY THE COMMISSION EXPEN SES ONLY IN VIEW OF THE TAX DEDUCTED AT SOURCE BY THE ASSESSEE. 6.1 BEFORE US, THE LEARNED COUNSEL FOR THE ASSESEE HAS SUBMITTED THAT THE COMMISSION DEDUCTED BY THE DIGITAL PLATFOR M COMPANY, 6 ITA NO. 896/DEL./2020 NAMELY, HOMESHOP 18 ALSO INCLUDED TAXES, REFUNDS, S HIPPING AND FREIGHT CHARGES ETC. AS PER THE AGREEMENT WITH THE SAID COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE HAS UNDERTAKEN BEFORE US THAT THE RELEVANT DOCUMENT SHALL BE FILED BEFORE TH E ASSESSING OFFICER AND, THEREFORE, ONE MORE OPPORTUNITY MAY BE PROVIDED TO THE ASSESSEE. 6.2 IN VIEW OF THE SUBMISSIONS OF THE ASSESSEE AND IN THE INTEREST OF SUBSTANTIAL JUSTICE, WE FEEL IT APPROPR IATE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH IN THE LIGHT OF THE DOCUMENTARY EVIDENCES INCLUDING , AGREEMENT WITH THE DIGITAL PLATFORM COMPANY TO WHOM THE COMMI SSION HAS BEEN PAID. ACCORDINGLY, THE ORDER OF THE LEARNED CI T(A) IS SET ASIDE AND THE ISSUE IN DISPUTE IS RESTORED BACK TO THE FI LE OF THE ASSESSING OFFICER FOR DECIDING AFRESH IN THE LIGHT OF THE ABOVE DIRECTION, AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2021 SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH FEBRUARY, 2021. RK/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI