M/s. Kothari Industries, Solapur V. Asst Comm of Income-tax, Solapur

ITA 986/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9845 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: S N DOSHI
• Keywords: Opportunity of being heard

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.986/PN/2011 (ASSESSMENT YEAR 2006-07) KOTHARI INDUSTRIES, 185 TO 189, CHANDRAMOULI MOHOL, SOLAPUR - 413 213 PAN NO. AAIFK 7671B .. APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1, SOLAPUR . .. RESPONDENT ASSESSEE BY : SRI S.N. DOSHI DEPARTMENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 08-11-2012 DATE OF PRONOUNCEMENT : 09-11-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 29-10- 2010 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 2006-07. DISALLOWANCE OF COMMISSION OF RS.17,43,735/- BY THE AO WHICH HAS BEEN UPHELD BY THE CIT(A) IS THE ONLY ISSUE IN THE APPEAL FILED BY THE ASSESS EE. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF PVC HOSE PIPES, SUCTION PIPES, DRIP ITEMS, PIPE AND FITTINGS OF ALL TYPES, WIND ELECTRIC GENERATION , TRADING IN SPRINKLERS AND DRIP ITEMS. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED U/ S.44AB OF THE INCOME TAX ACT, 1961. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS DEBITED RS.1 9,33,394/- AS COMMISSION ON SALES UNDER THE HEAD INDIRECT EXPENSES. SINCE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR SUCH COMMISSION DEBITED WAS AT RS.2 ,12,001/-, THEREFORE, THE AO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF COMMISS ION ON SALES, I.E. NAME OF THE PERSONS, MODE OF PAYMENT, RATE OF COMMISSION, ACCOU NT EXTRACT AND TO EXPLAIN AS TO 2 HOW THE SALES DEPEND UPON THE COMMISSION PAYMENT. THE ASSESSEE IN ITS REPLY FILED THE LEDGER EXTRACT OF COMMISSION ON SALES ACC OUNT AND INDIVIDUAL ACCOUNTS OF THE PERSONS TO WHOM COMMISSION HAS BEEN PAID. 2.1 FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO NOTED THAT THE COMMISSION HAS BEEN GIVEN TO DIFFERENT PARTIES FROM VARIOUS PLACES, THE RATE OF COMMISSION IS NOT CONSTANT AND IN CERTAIN INSTANCES THE RATE OF COMMISSION IS UNUSUALLY HIGHLY. THE AO FURTHER NOTED FROM THE D ETAILS OF PAYMENT FILED BY THE ASSESSEE THAT EXCEPT COMMISSION GIVEN TO KOTHARI AG RO SALES, B.B NIKAM AND PERFECT MACHINERY THE COMMISSION IN THE REMAINING 1 4 CASES HAS BEEN CREDITED ON 31-03-2006 IN THE FORM OF CREDIT NOTES AND NO ACTUA L PAYMENTS ARE DONE. ON BEING FURTHER QUESTIONED BY THE AO, THE ASSESSEE PRODUCED THE LEDGER ACCOUNT EXTRACT OF COMMISSION ON SALE AND LEDGER OF INDIVIDUAL PARTIES . HOWEVER, THE ASSESSEE DID NOT PRODUCE ANY SALE BILL TO PROVE THAT THE SALES ARE A CTUALLY CARRIED OUT THROUGH THESE COMMISSION AGENTS OR ANY OTHER CORRESPONDENCE WITH THE ASSESSEE OR WITH THE CUSTOMER TO PROVE THAT THE PARTIES WERE INVOLVED IN ANY OF THE TRANSACTIONS. THE EXPLANATION OF THE ASSESSEE THAT IT HAS PROVIDED CO MPLETE ADDRESS OF THE PARTIES, THEIR PAN NUMBERS, DETAILS OF TDS FROM SUCH PAYMENT S AND THAT THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES TO THE CONC ERNED PARTIES DID NOT SATISFY THE AO. THE EXPLANATION OF THE ASSESSEE THAT THE U NUSUAL HIGH COMMISSION IS DUE TO INCREASE IN SALES THROUGH THESE PARTIES ALSO DID NOT SATISFY THE AO. SINCE THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO THE SATI SFACTION OF THE AO REGARDING THE NATURE OF SERVICES RENDERED BY THE COMMISSION AGENT S HE DISALLOWED COMMISSION TO THE EXTENT OF RS.17,43,735/- OUT OF THE COMMISSION OF RS.19,33,396/- CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE. 3. IN APPEAL THE LEARNED CIT(A) UPHELD THE ACTION O F THE AO ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO DISCHARGE THE ONUS CAS T ON IT TO PROVE AND ESTABLISH 3 WITH COGENT EVIDENCE THAT PAYEES OTHER THAN KOTHARI AGRO SALES, B.B. NIKAM AND PERFECT MACHINERY HAVE RENDERED ANY SERVICES TO THE ASSESSEE WHICH NECESSITATED THE PAYMENT OF COMMISSION TO THE SAID PERSONS . FU RTHER, HE NOTED THAT DUE TO INCREASE IN GP FROM 11.03% TO 16.15% THE ASSESSEE D EBITED SUCH COMMISSION PAYMENT AS AN AFTERTHOUGHT ON 31-03-2006 AND CLAIME D THE SAME AS EXPENDITURE TO REDUCE THE TAXABLE INCOME FOR THE YEAR UNDER CONSID ERATION. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFOR E US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY OP POSED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS GIVEN F ULL DETAILS OF SUCH COMMISSION PAYMENT, SUCH AS NAME AND ADDRESS OF THE PARTIES, T HEIR PAN NUMBER, TDS FROM PAYMENT OF SUCH COMMISSION ETC. ALL THESE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES. THE ASSESSEE HAS MAINTAINED BOOKS O F ACCOUNTS WHICH ARE DULY AUDITED AND THE AUDITORS HAVE NOT POINTED OUT ANY M ISTAKE. HE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE VIDE LETTER DATED 24-12- 2008 ADDRESSED TO THE AO (A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE NOS.82 TO 85) HAD REQUESTED HIM TO SUMMON THE PARTIES TO VERI FY THE RECEIPT OF COMMISSION BY THEM FOR OBTAINING ORDERS AND COLLECTING PAYMENT S ON BEHALF OF THE ASSESSEE. HE SUBMITTED THAT SINCE THE ASSESSEE HAS DISCHARGED THE ONUS CAST ON HIM, THEREFORE, NO PART OF THE COMMISSION SHOULD BE DISA LLOWED. IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT THE MATTER MAY BE RES TORED TO THE FILE OF THE AO WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASS ESSEE TO ESTABLISH THAT THE PARTIES TO WHOM COMMISSION HAS BEEN PAID HAVE ACTUALLY REND ERED SERVICES. 5. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). SHE SUBMITTED THAT ADEQUATE OPPORTUNITY WAS GIVEN T O THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE AO THAT TH E PARTIES TO WHOM COMMISSION HAVE BEEN PAID HAVE REALLY RENDERED SOME SERVICES T O THE ASSESSEE SO AS TO JUSTIFY 4 THE PAYMENT OF SUCH HUGE COMMISSION. SHE SUBMITTED THAT MERE PAYMENT OF COMMISSION BY ACCOUNT PAYEE CHEQUE AND DEDUCTION OF TDS FROM THE SAME IS NOT SUFFICIENT FOR ALLOWING AN EXPENDITURE FOR INCOME T AX PURPOSES. IT IS THE ONUS OF THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE S ATISFACTION OF THE AO THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS. SHE SUBMITTED THAT THE ASSESSEE SHOULD N OT BE GIVEN A SECOND INNINGS. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT (A) SHOULD BE UPHELD. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FURNISHED THE DETAILS OF THE PERSONS TO WHOM SUCH COMMISSION HAS BEEN PAID, THEIR PAN NUMBERS ETC. T HERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD DEDUCTED TDS FROM SUCH C OMMISSION AND THE PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES. HOWEVER, WE FIND THE AO DISALLOWED THE COMMISSION ON THE GROUND THAT THE ASSESSEE COUL D NOT PROVE WITH COGENT EVIDENCE TO HIS SATISFACTION REGARDING THE GENUINEN ESS OF SUCH PAYMENTS SINCE THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO HIS SATI SFACTION THAT THOSE PERSONS HAVE INFACT RENDERED SOME SERVICES TO THE ASSESSEE SO AS TO JUSTIFY SUCH HUGE COMMISSION. IT IS THE SETTLED PROPOSITION OF LAW T HAT FOR CLAIMING ANY EXPENDITURE AS ALLOWABLE DEDUCTION THE ONUS IS ALWAYS ON THE AS SESSEE TO SATISFY THE AO WITH EVIDENCE THAT SUCH PAYMENT HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MERE FURNISHING OF THE DETAIL S OF THE PERSONS WITH THEIR PAN NUMBERS AND STATING THAT PAYMENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND TDS HAS BEEN DEDUCTED WILL NOT BE SUFFICIENT TO ALL OW THE EXPENDITURE AS DEDUCTIBLE UNTIL AND UNLESS THE ASSESSEE PROVES TO THE SATISFACTION OF THE AO THAT SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF 5 BUSINESS. IN THE INSTANT CASE THE ASSESSEE HAS NOT PROVED THE SAME. HOWEVER, WE FIND THAT THE ASSESSEE VIDE LETTER DATED 24-12-2008 ADDRESSED TO THE AO HAS REQUESTED HIM TO ISSUE SUMMONS TO THE PERSONS TO VE RIFY THE RECEIPT OF SUCH COMMISSION FOR OBTAINING ORDERS AND COLLECTING PAYM ENTS ON THEIR BEHALF. THE RELEVANT PORTION OF THE LETTER READS AS UNDER : SIR, WE ARE PROVIDING DETAILED NAMES, ADDRESSES, PAN NO. FOR YOUR INFORMATION, IF NECESSARY YOUR HONOUR IS REQUESTED TO ISSUE SUMMONS & CALL THEM TO VERIFY THE RECEIPT OF COMMISSION BY THEM FOR OBTAINING ORDERS & COLLECTIN G PAYMENTS ON OUR BEHALF. HOWEVER, WE FIND NEITHER THE AO HAS ISSUED ANY SUMM ON TO THE PARTIES NOR ASKED THE ASSESSEE TO PRODUCE THEM BEFORE HIM. IT IS ALSO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT GIVEN AN OPPORTUNITY HE WILL PROVE TO THE SATISFACTION OF THE AO THAT THE PERSONS TO WHOM SUCH COMMISSION HAS BEEN PAID HAVE INFACT RENDERED SOME SERVICES TO THE ASSESSEE. CONSIDERIN G THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PRO PER TO RESTORE THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO GIVE ONE MORE OPPOR TUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO HIS SATISFACTION THAT THOSE PERSONS INFACT HAVE RENDERED SOME SERVICES FOR WHICH THE COMMISSION HAS BEEN PAID. THE AO SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT AC CORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 9 TH DAY OF NOVEMBER 2012 SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 9 TH NOVEMBER 2012 SATISH 6 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. THE D.R, A PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE