The ITO, Ward-2(2), RAJKOT-GUJARAT V. M/s Choice Impex, RAJKOT-GUJARAT

ITA 906/RJT/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62791 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-04-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 03-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: SANJAY R SHAH
• Keywords: Fair market value

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K . SRIVASTAVA, AM ITA NO. 906/RJT/2010 / ASSESSMENT YEAR 2003-04 I.T.O. V. M/S. CHOICE IMPEX WD.2(2) RAJKOT. 116, CREATIVE CHAMBERS KANAK ROAD, RAJKOT. PAN:AACFC0737C C.O. NO. 55/RJT/2010 / ASSESSMENT YEAR 2003-04 M/S. CHOICE IMPEX V. I.T.O. 116, CREATIVE CHAMBERS WD.2(2) RAJKOT KANAK ROAD, RAJKOT PAN:AACFC0737C DATE OF HEARING : 17-04-2012. DATE OF PRONOUNCEMENT : 27-04-2012. REVENUE BY: S HRI M. K. SINGH, D.R ASSESSEE BY: SHRI SANJAY R. SHAH . / / / / ORDER . .. . . . . . , ,, , / D K SRIVASTAVA: BOTH THE PARTIES, NAMELY, THE REVENUE AND THE ASSESSEE, ARE AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) ON 09-02-2010 BY WHICH HE HAS RESTRICTED THE DISALLOWANCE OF COMMISS ION PAID TO THE SISTER CONCERN TO RS.9,90,823/- OUT OF TOTAL DISALLOWANCE OF RS.19,81 ,647/- MADE BY THE A.O. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORTING OF SANITARY-WARE AND CERAMIC TILES. THE ASSESSEE FILED ITS RETURN OF INCOME DECL ARING TOTAL INCOME AT RS.11,33,290/-. ASSESSMENT U/S.143(3) WAS COMPLETED DISALLOWING COMMISSION AMOUNTING TO RS.19,81,647/- PAID BY THE ASSESSEE TO THE SISTER CONCERN, NAMELY M/S. ARTSONS CERAMICS PVT. LTD., AGAINST WHICH APPE AL WAS FILED FIRSTLY BEFORE THE CIT(A) AND THEREAFTER BEFORE THIS TRIBUNAL. BY ITS ORDER DATED 14-08-2008 PASSED BY THIS TRIBUNAL IN ITA 270/RJT/2007, THE AFORESAID OR DER PASSED BY THE AO AND THE CIT(A) WAS SET ASIDE AND THE MATTER WAS RESTORED TO THE FILE OF THE AO FOR PASSING A FRESH ORDER AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS IN PURSUANCE OF THE AFORESAID ORDER PASSED BY THIS TRI BUNAL THAT THE AO HAS NOW COMPLETED THE ASSESSMENT U/S.143(3)/254 OF THE INCO ME-TAX ACT ON 30-11-2009. HE HAS AGAIN DISALLOWED COMMISSION AMOUNTING TO RS. 19,81,647/- CLAIMED BY THE ASSESSEE TO HAVE BEEN PAID TO ITS SISTER CONCERN, N AMELY, M/S. ARTSONS CERAMIC PVT. LTD. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED 5 0% OF THE AMOUNT OF COMMISSION DISALLOWED BY THE AO WITH THE FOLLOWING OBSERVATION S:- ITA 906/2010 & C.O.55-2010 2 4.2 I HAVE CAREFULLY CONSIDERED THE FINDING GIVEN BY THE ASSESSING OFFICER AND THE SUBMISSION OF THE AR OF THE APPELLANT. IT IS FOUND THAT THERE IS SHORTFALL IN GROSS PROFIT AT 2.55% COMPARED TO EARL IER YEAR AND NET PROFIT AT 2.26%, HOWEVER, IT IS SEEN THAT THE COMMISSION PAYM ENT HAS NOT EFFECTED IN PROFIT RATIO. THE ASSESSING OFFICER DISALLOWED WHOL E COMMISSION PAYMENT MADE TO SISTER CONCERN, M/S. ARTSONS CERAMICS PVT. LTD. THE WHOLE COMMISSION CANNOT BE DISALLOWED BECAUSE THERE EXIST S AN AGREEMENT BETWEEN THE APPELLANT AND SISTER CONCERN. DETAILS F ILED ALSO PROVES RENDERING OF SERVICES BY SISTER CONCERN AND SHRI MAYURBHAI TR IVEDI IS FOUND TO BE HAVING EXPERTISE IN THE BUSINESS OF SANITARY WARE E XPORT. DUE TO SERVICE PROVIDED BY THESE PARTIES, TURNOVER ALSO INCREASED BY 28%. DETAILS OF FOREIGN VISITS ALSO FILED TO PROVE NEXUS BETWEEN EXPENDITUR E INCURRED AND EXPORT TURNOVER. HENCE COMMISSION IS HELD TO BE BUSINESS E XPENDITURE ALLOWABLE U/S.37 OF THE ACT. HOWEVER, THE COMMISSION PAYMENT TO SISTER CONCERN ATTRACTS DISALLOWANCE TO BE MADE U/S.40A(2)(B) OF T HE ACT. IT IS NOTICED THAT THE APPELLANT HAS MADE COMMISSION PAYMENT @ 5% TO O THER PARTIES AND HAS MADE 10% COMMISSION PAYMENT TO SISTER CONCERN, M/S. ARTSONS CERAMICS PVT. LTD. THEREFORE, THE ASSESSING OFFICER IS DIRE CTED TO MAKE DISALLOWANCE U/S.40A(2)(B) OF THE ACT @5% BEING COMMISSION PAYME NT MADE TO SISTER CONCERN. SECTION 40A(2)(B) PROVIDES THAT IF SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS/SERVICES/FACILITIES FOR WHICH PAYMENT IS MADE THEN SUCH EXCESSIVE OR UNREASONABLE EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION. THEREFORE, IT WILL BE IN THE FITNESS OF THINGS, IF THE DISALLOWAN CE U/S.40A(2)(B) OF THE ACT IS MADE @5% OF COMMISSION PAYMENT MADE TO SISTER CONCE RN, M/S. ARTSONS CERAMICS PVTT. LTD. BEING EXCESSIVE AND UNREASONABL E EXPENDITURE. THUS, COMMISSION PAYMENT @5% IS HELD REASONABLE AND BALAN CE 5% WHICH COMES TO RS.990824/- IS CONFIRMED AND REST BALANCE OF RS. 990823/- IS ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 3. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) DELE TING 50% OF THE DISALLOWANCE, THE DEPARTMENT IS NOW IN APPEAL BEFOR E THIS TRIBUNAL. THE ASSESSEE IS AFTER AGGRIEVED BY THE ORDER OF THE CIT(A) CONF IRMING DISALLOWANCE TO THE EXTENT OF REMAINING 50% 4. IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPRE SENTATIVE MERELY RELIED UPON THE ASSESSMENT ORDER. 5. IN SUPPORT OF CROSS OBJECTIONS, THE LD. AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE INVITED OUR ATTENTION TO THE SUBMISSIONS M ADE BY HIM BEFORE THE LD. CIT(A) WHICH HAS BEEN REPRODUCED AT PAGE-4 OF THE APPELLA TE ORDER PASSED BY THE CIT(A). ACCORDING TO THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, COMMISSION @ 10% OF FOB VALUE WAS PAID TO THE SISTER CONCERN AS AGAINST THE 5% OF CIF VALUE PAID TO THE OTHER PARTIES. HE SUBMITTED THAT HIGHER RATE OF COMMISSION WAS PAID TO ITA 906/2010 & C.O.55-2010 3 THE SISTER CONCERN BECAUSE IT WAS TO BE COMPUTED WI TH REFERENCE TO FOB VALUE AND NOT WITH REFERENCE TO CIF VALUE AS IN THE CASES OF OTHER PARTIES. HE CONTENDED THAT THE AFORESAID FACTOR ACCOUNTED FOR THE PAYMENT OF C OMMISSION AT HIGHER RATE TO THE SISTER CONCERN AND THEREFORE THE DISALLOWANCE OF CO MMISSION MAY BE SUITABLY REDUCED. 6. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED TH EIR SUBMISSIONS. THE LD. CIT(A) HAS CAREFULLY CONSIDERED ALL THE FACTS AND C IRCUMSTANCES OF THE CASE WHILE COMING TO THE CONCLUSION THAT PAYMENT OF COMMISSION @5% TO THE SISTER CONCERN WAS REASONABLE AFTER HAVING REGARD TO THE FACT THAT SIMILAR RATE OF COMMISSION WAS PAID TO THE OTHERS. HOWEVER, IT SEEMS TO HAVE ESCAP ED THE ATTENTION OF THE LD. CIT(A) THAT OTHER PARTIES WERE PAID COMMISSION ON C IF VALUE WHEREAS THE SISTER CONCERN WAS PAID COMMISSION ON FOB VALUE. TAKING I NTO ACCOUNT THE AFORESAID FACTOR, WE MODIFY THE ORDER OF CIT(A) AND DIRECT TH E AO TO ALLOW COMMISSION @7% TO THE SISTER CONCERN AS AGAINST 10% CLAIMED BY THE ASSESSEE. 7. IN VIEW OF THE AFORESAID, THE APPEAL FILED BY TH E DEPARTMENT IS DISMISSED WHILE THE MEMORANDUM OF CROSS-OBJECTIONS FILED BY T HE ASSESSEE IS PARTLY ALLOWED. 8. BEFORE PARTING WITH THE MATTER, WE THINK IT APPR OPRIATE TO CLARIFY THAT COMMISSION @7% HAS BEEN DIRECTED TO BE ALLOWED TO T HE SISTER CONCERN AS AGAINST 5% PAID BY THE ASSESSEE TO OTHERS ON THE FACTS OF T HE CASE AS FOUND IN THE YEAR UNDER APPEAL. IT SHALL THEREFORE NOT OPERATE AS PR ECEDENT IN OTHER YEARS OR IN THE CASES OF OTHER ASSESSEES. ) + 27/04/2012 . ) THIS ORDER PRONOUNCED IN THE OPEN COURT ON 27-04-2012. SD/- SD/- ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED : 27/04/2012 ) )) ) 12 12 12 12 32 32 32 32 / COPY OF ORDER FORWARDED TO:- 1. 6 / APPELLANT-THE INCOME-TAX OFFICER, WARD-2)2), RAJ KOT. 2. 186 / RESPONDENT-M/S. CHOICE IMPEX, RAJKOT. 3. ; / CONCERNED CIT-II, RAJKOT. 4. ;- / CIT (A)-III, RAJKOT. 5. 2 1, , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , ASTT. REGISTRAR, ITAT, RAJKOT , ,