M/s Parth Laboratories Pvt. Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-2, RAJKOT-GUJARAT

ITA 938/RJT/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2980 (ITAT-RAJKOT)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI RAJ KUMAR
• Assessee Lawyers: DM RINDANI
• Keywords: Business income
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO.938/RJT/2010 (ASSESSMENT YEAR 2007-08) M/S PARTH LABORATORIES PVT LTD VS ACIT, CIR.2 C-1/B, 270, GIDC, PHASE II RAJKOT AJI INDUSTRIAL ESTATE, RAJKOT PAN : AADCP 3559K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DM RINDANI RESPONDENT BY : SHRI JAI RAJ KUMAR O R D E R GARASIA : THIS APPEAL BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A)-II, RAJKOT FOR THE ASSESSMENT YEAR 2007-08. 2. WITH REGARD TO GROUND NO.1 THE BRIEF FACTS ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY IS ENGAGED IN THE BUSINESS OF MANUF ACTURING AND SELLING OF BULK DRUGS, INTERMEDIATES AND CHEMICALS. DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL SALES OF RS.2,87,00,450 ON WHICH THE GROSS PROFIT DECLARED OF RS.65,27,093 AND THE GROSS PROFIT WORKE D OUT AT 22.74%. THE ASSESSEE HAS PRODUCED THREE ITEMS; NAMELY - (I) VALPORIC ACID; (II) SODIUM VALPORATE; AND (III) DIVALPROEX SODIUM AS PER THE ASSESSEE, FOR PRODUCTION OF VALPORIC ACI D, THE FOLLOWING RAW MATERIALS WERE REQUIRED: (I) SODIUM METHOXIDE 4KG; (II) CAUSTIC SODA - 0.8 KG (III) HYDROCHLORIC ACIDE 2.50 KG (IV) DIETHYL MALONATE 1.30 KG ITA NO.938/RJT/2010 2 (V) N PROPYL BROMIDE 2.80 KG (VI) TETRA BUTYL AMMONIUM BROMIDE 0.30 KG IT WAS ALSO CLAIMED THAT AFTER THE USE OF ABOVE RAW MATERIALS IN THE GIVEN RATIO, THE PRODUCTION OF VALPORIC ACID COMES TO 0.80 KG. FURTHER, AS PER THE ASSESSEE, FOR PRODUCTION SODIUM VALPORATE THE FOLLOWING RAW MATERIALS WERE REQUIRED: (I) VALPORIC ACID - 0.8 GM (II) CAUSTIC SODA - 0.22 GM AND AFTER USE OF THE THESE RAW MATERIALS IN THE GIV EN RATIO, THE PRODUCTION OF SODIUM VALPORATE COMES TO 1 KG. FURTHER, AS PER THE ASSESSEE, FOR PRODUCTION OF DVS , THE FOLLOWING RAW MATERIALS WERE USED AND 3.10 KGS OF DIVALPROEX SODIUM IS PROD UCED (A) VALPORIC ACID 1.44 KG (B) SODIUM VALPORATE 1.66 KG 2.1 THE ASSESSEE HAS CLAIMED TO HAVE MADE COMMISSIO N PAYMENT OF RS.20,69,960. THE ASSESSING OFFICER ASKED THE ASSE SSEE TO PROVIDE LATEST ADDRESS OF THE PARTIES TO WHOM COMMISSION HAVE BEEN PAID ALONGWITH THE PROOF OF PAYMENTS MADE TO THEM AND THE TYPE OF SERVICES R ENDERED OR CORRELATE IT WITH SALES, WHICH HAD YIELDED THE ASSESSEE BENEFIT. IN RESPONSE THE ASSESSEE PROVIDED THE NAMES AND ADDRESSES OF THE PARTIES TO WHOM COMMISSION PAYMENTS WERE MADE. ACCORDING TO THE ASSESSING OFFICER, AS THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF TYPE OF SERVICES RENDERED O R CORRELATED IT WITH PURCHASE / SALES, WHICH HAD YIELDED THE ASSESSEE BENEFIT, THE EXPLANATION WAS NOT SATISFACTORY AND THEREFORE, THE ASSESSING OFFICER D ISALLOWED THE COMMISSION PAYMENT OF RS.20,69,960. HE ALSO OBSERVED THAT THE ASSESSEE HAS BEEN UTILIZING THIS SAME MODUS OF CLAIMING OF SALES COMMISSION YEA R AFTER YEAR. MATTER CARRIED ITA NO.938/RJT/2010 3 TO CIT(A), WHO HAS CONFIRMED THE DISALLOWANCE. FUR THER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD FURNISHED ALL THE REQUIRED DETAILS, WHICH ARE ON RE CORD, BUT WITHOUT VERIFYING THEM, THE ASSESSING OFFICER HAS DISALLOWED THE SAME AND T HE CIT(A) CONFIRMED THE DISALLOWANCE. THE LEARNED COUNSEL SUBMITTED THAT T HE ASSESSEE HAS PAID COMMISSION TO THREE PARTIES, VIZ. M/S DEV AADHIN EN TERPRISE; M/S GLOBE PHARMA; AND M/S VIDHI BULK DRUG. THE ASSESSEE HAS SUBMITTE D THE COPY OF AGREEMENT WITH DEV AADHIN ENTERPRISE VIDE PAGES 6 & 7 OF THE PAPER BOOK, COPY OF ACCOUNT OF THIS PARTY VIDE PAPER BOOK PAGES 8 & 9 OF PAPER BOOK; COPY OF CONTRA ACCOUNT FOR FY 2006-07 VIDE PAGE 10 OF PAPER BOOK; SAMPLE I NDENT FORM FROM THIS PARTY FOR BOOKING ORDER ON BEHALF OF THE ASSESSEE FROM M/ S TORRENT PHARMACEUTICALS LTD VIDE PAGE 11 OF PAPER BOOK; CORRESPONDING LETTE R TO M/S TORRENT PHARMACEUTICALS FOR SUPPLY OF GOODS VIDE PAGE 12 OF PAPER BOOK; AND LETTER FROM THIS PARTY REGARDING DEPOSIT OF CHEQUE OF ASSESSEE COLLECTED FROM M/S TORRENT PHARMACEUTICALS LTD VIDE PAGE 13 OF PAPER BOOK. SI MILARLY COPY OF AGREEMENT WITH M/S GLOBE PHARMA WAS SUBMITTED (PAGES 14-15 OF PAPER BOOK); COPY OF ACCOUNT OF M/S GLOBE PHARMA FOR FY 2006-07 (PAPER B OOK PAGE 16); CONTRA ACCOUNT DULY CONFIRMED FROM THIS PARTY FOR FY 2006- 07 (PAGE 17 OF PAPER BOOK); COPY OF ACCOUNT OF THIS PARTY FRO FY 2007-08 (PAPER BOOK PAGE 18); SAMPLE INDENT FORM FROM THIS PARTY FOR BOOKING ORDER ON BE HALF OF THE ASSESSEE FROM M/S CIPLA LTD (PAPER BOOK PAGE 19); AND CORRESPONDING P URCHASE ORDER FROM M/S CIPLA LTD (PAPER BOOK PAGER 20). WITH REGARD TO TH E OTHER, M/S VIDHI BULK DRUG, THE LEARNED COUNSEL SUBMITTED THAT COPY OF AGREEMEN T WITH THIS PARTY WAS SUBMITTED (PAPER BOOK PAGES 21 & 22); COPY OF ACCOU NT OF THIS PARTY FOR FY 2006- 07 (PAPER BOOK PAGE 23); CONTRA ACCOUNT DULY CONFIR MED FROM THIS PARTY (PAPER BOOK PAGE 24); LETTER FROM VIDHI BULK DRUGS (GUJ) R EQUESTING ASSESSEE TO SEND THEM CREDIT NOTE FOR COMMI9SSION ON PROCUREMENT OF RAW MATERIALS ON BEHALF OF THE ASSESSEE (PAPER BOOK PAGES 25 & 26); CREDIT NOT E ISSUED TO M/S VIDHI BULK DRUG (GUJ) IN PURSUANCE TO ABOVE LETTER (PAPER BOOK PAGE 27) AND SAMPLE ITA NO.938/RJT/2010 4 PURCHASE ORDER OF PURCHASE THROUGH M/S VIDHI BULK D RUG (GUJ) (PAPER BOOK PAGE 28). THUS, THE LEARNED COUNSEL PLEADED THAT ALL THE REQUIRED DOCUMENTS WERE FILED AND IT WOULD EVIDENTLY AND PATENTLY PROVE THAT THE COMMISSION PAYMENTS WERE GENUINE EXPENDITURE INCURRED BY THE ASSESSEE ESPECI ALLY WHEN THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL AND HE PRAYED FOR RELIEF. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS PRODUCED ALL THE DOCUMENTARY EVIDENCE FOR PAYMENT OF THE COMMISSION BUT ASSESSEE HAS NOT PRODUCED THE COMMIS SION AGENTS, WHO HAS RECEIVED THE COMMISSION AND HAD NOT EXPLAINED WHAT TYPE OF SERVICES THEY RENDERED. HE, THEREFORE, PLEADED THAT THE CIT(A) H AS JUSTIFIED IN HIS ACTION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE CLAI M OF ANY EXPENDITURE U/S 37 OF THE ACT, THE BURDEN LIES UPON THE ASSESSE TO PROVE THAT IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IT IS TH E DUTY OF THE ASSESSEE TO SUPPORT THE CLAIM OF COMMISSION PAYMENT AND NATURE OF SERVI CES RENDERED BY THE COMMISSION AGENTS. WE FIND THAT THE COMMISSION PAY MENTS HAVE BEEN MADE THROUGH BAKING CHANNEL. THE EVIDENCE FILED BY THE ASSESSEE IN THE FORM OF COPY OF BANK ACCOUNTS, CHEQUE CLEARANCE STATEMENTS, CONT RA ACCOUNTS OF THE PARTIES AND THE COPIES OF CORRESPONDENCE WITH THE PARTIES A RE SUFFICIENT ENOUGH TO HOLD THAT THE PAYMENTS IN QUESTION WERE GENUINE COMMISSI ON PAYMENTS. THE COMMISSION AGENTS WERE DULY RECRUITED BY ENTERING I NTO AGREEMENTS WITH THEM AND THE TERMS AND CONDITIONS STIPULATED IN THE AGRE EMENT HAD TO BE ABIDED BY BOTH THE PARTIES. IT IS NOT THE CASE OF THE REVENU E THAT THE PAYMENTS HAVE BEEN PAID FOR OTHER THAN BUSINESS CONSIDERATION; NOR IS IT THE CASE OF THE REVENUE THAT THOSE COMMISSION AGENTS HAVE NOT EFFECTED ANY PURCH ASE / SALES FOR THE ASSESSEE. WE HAVE GONE THROUGH THE COPY OF AGREEME NT WITH M/S DEV AADHIN ENTERPRISE. WE FIND THAT BY THIS AGREEMENT THE ASS ESSEE HAS AGREED TO APPOINT AGENT FOR SELLING ITS GOODS AND ALSO TO PROCURE DIF FERENT TYPES OF CHEMICALS FROM MANUFACTURERS AND TRADERS AND RENDER RELATED MISCEL LANEOUS SERVICES FROM TIME ITA NO.938/RJT/2010 5 TO TIME. IN THE AGREEMENT THE ASSESSEE HAS APPOINT ED M/S DEV AADHIN ENTERPRISE AS ITS SELLING AND PURCHASING AGENT AND ALSO HAS GIVEN RIGHT TO RECEIVE THE PAYMENTS ON BEHALF OF THE ASSESSEE AND IN SELLI NG THE PRODUCTS OF THE ASSESSEE M/S DEV AADHIN ENTERPRISE HAS TO GET THE M AXIMUM RATE FOR THE ITEM SOLD AND ALSO HE HAS TO KEEP THE TERMS AND CONDITIO NS VERY CLEAR AND WITHOUT DISPUTE AND WILL ASSIST IF ANY DISPUTE THAT MAY ARI SE. THE AGREEMENT FURTHER STATES THAT THE AGENT WHO AGREED TO WORK WILL BE PA ID COMMISSION AS MUTUALLY AGREED FROM TIME TO TIME ON ALL THE PURCHASES AND S ELLING. IT HAS ALSO BEEN AGREED BETWEEN THE PARTIES THAT COMMISSION CHARGES MAY BE INCREASED OR DECREASED DEPENDING UPON THE MARKET CONDITIONS AND OTHER CIRCUMSTANCES. CONDITION 3 IN THE AGREEMENT RELATES TO APPOINTMENT OF ANY OTHER AGENTS AND BOTH THE PARTIES HAVE SIGNED ON THIS AGREEMENT. AL L THE PAYMENTS HAVE BEEN MADE THROUGH CHEQUES AND THE DETAILS OF BUSINESS BR OUGHT IN BY THE COMMISSIONS AGENTS ARE ALSO ON RECORD IN THE FORM O F INDENT FORM. ALL THESE EVIDENCE SHOW THAT THE ASSESSEE HAS APPOINTED SELLI NG AND PURCHASING AGENTS AND ALL THE RELEVANT DETAILS THEREOF ARE PLACED ON RECORD. THEREFORE, WE DO NOT HESITATE TO REVERSE THE FINDING OF CIT(A) AND ACCOR DINGLY WE DELETE THE ADDITION. 6. LEVY OF INTEREST BEING CONSEQUENTIAL AND MANDATO RY, GROUND 2 OF THE ASSESSEE IS REJECTED. NO APPEAL LIES AGAINST INITI ATION OF PENALTY PROCEEDINGS, THEREFORE, GROUND 3 IS ALSO REJECTED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 SD/- SD/- (A.L. GEHLOT) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 10 TH DECEMBER, 2010 PK/- ITA NO.938/RJT/2010 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT