Shri Nautamlal Sons & Company, Indore v. The DCIT, 5(1), Indore

CO 49/IND/2013 | 2009-2010
Pronouncement Date: 19-07-2013 | Result: Dismissed

Appeal Details

RSA Number 4922723 RSA 2013
Assessee PAN AADFN2925J
Bench Indore
Appeal Number CO 49/IND/2013
Duration Of Justice 3 month(s) 10 day(s)
Appellant Shri Nautamlal Sons & Company, Indore
Respondent The DCIT, 5(1), Indore
Appeal Type Cross Objection
Pronouncement Date 19-07-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 19-07-2013
Assessment Year 2009-2010
Appeal Filed On 09-04-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : AADFN2925 J I.T.A.NO. 78 /IND/201 3 A.Y. : 2009-10 DY. CIT 5(1) INDORE. VS. SHRI NAUTAMLAL SONS & COMPANY VALLABH NAGAR INDORE APPELLANT RESPONDENT C.O.NO. 49/IND/2013 (ARISING OUT OF I.T.A.NO.78/IND/2013) A.Y. : 2009-10 SHRI NAUTAMLAL SONS & COMPANY VALLABH NAGAR INDORE VS. DY. CIT 5(1) INDORE. CROSS OBJECTOR RESPONDENT DEPARTMENT BY : SHRI R.A.VERMA SR. DR ASSESSEE BY : SHRI NITIN PARIKH C.A. DATE OF HEARING : 0 2 . 0 7 .201 3 DATE OF PRONOUNCEMENT : 19 . 0 7 .201 3 -: 2: - 2 O R D E R PER R. C. SHARMA A.M. THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF CIT( A) DATED 30 TH NOVEMBER 2012 FOR THE ASSESSMENT YEAR 2009-10. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN :- (I) DELETING THE DISALLOWANCE OF RS. 27 34 612/- MADE BY THE ASSESSING OFFICER REGARDING COMMISSION EXPENSES AS CLAIMED BY THE ASSESSEE. (II) RESTRICTING THE DISALLOWANCE OUT OF BATAV EXPENSES FROM RS. 1 95 170/- TO RS. 25 398/-. (III) RESTRICTING THE ADDITION MADE FOR ESTIMATING THE CLOSING STOCK FROM RS. 17 68 385/- TO RS. 2 79 801/- -: 3: - 3 (IV) RESTRICTING THE ADDITION FOR DOUBLE CLAIM OF VAT FROM RS. 14 57 800/- TO RS. 66 249/-. 3. IN THE CROSS OBJECTION THE ASSESSEE IS AGGRIEVED F OR PART CONFIRMING THE DISALLOWANCE OF EXPENSES BY THE CIT(A). 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF GOVERNMENT CONTRACTOR AND SUPPLIER. DUR ING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER FOUND T HAT THE ASSESSEE MADE SUPPLIES ON THE M. P. GOVERNMENT APPR OVED RATES TO GOVERNMENT DEPARTMENT LIKE P.W.D. AND I.D .A. ON THE SUPPLIES SO MADE THE ASSESSEE HAS CLAIMED THE COMMISSION EXPENDITURE OF 20 % PAID TO VARIOUS PERS ONS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO PROVE THE SERVICES RENDERED BY THE SO CALLED COMMISSION AGENTS. IT WAS STATED BEFORE THE ASSESSI NG OFFICER THAT THE COMMISSION WAS PAID FOR PROCUREMENT OF ORD ER AND COLLECTION OF PAYMENT FROM THE GOVERNMENT DEPARTMEN T. AFTER HAVING DETAILED DISCUSSION AT PARA 3 THE ASSESSING OFFICER -: 4: - 4 FOUND THAT M.P.LAGHU UDYOG NIGAM TO WHOM THE ASSESS EE WAS SUPPLYING MATERIAL AND WAS RAISING BILL ACCORDING T O THE SUPPLIES RAISED BY THE SUPPLIER AND PAYMENT WAS MAD E DIRECTLY TO THE SUPPLIER. THE ASSESSING OFFICER STA TED THAT THE ASSESSEE HAS NOT PRODUCED THE BILLS RAISED BY THE S AID NIGAM. THE ASSESSEE PRODUCED SHRI MANISH SANGHVI TO WHOM COMMISSION WAS PAID WHO STATED THAT HE COLLECTED THE REQUIREMENT FROM VARIOUS GOVERNMENT DEPARTMENTS THA T SUPPLIES THE ORDER OF THE ASSESSEE AND FURTHER COLL ECTED PAYMENT FROM IT. IT WAS ALSO SUBMITTED THAT SUPPLY IN THESE GOVERNMENT DEPARTMENT IS MADE ON THE BASIS OF RATE CONTRACT WITH M.P. LAGHU UDYOG NIGAM. THE ASSESSING OFFICER ASKED MR. SANGHVI TO PROVIDE EVIDENCE WHICH CAN PROVE TH AT SUPPLY WAS MADE THROUGH WHOM AND PAYMENT WAS COLLECTED BY HIM BUT HE HAS SHOWN INABILITY TO PRODUCE ANY SUCH EVID ENCE. 5. IN VIEW OF THE ABOVE THE ASSESSING OFFICER DISALLO WED THE ASSESSEES CLAIM OF COMMISSION EXPENDITURE AMOU NT TO RS. 27 34 612/-. 6. BY THE IMPUGNED ORDER THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS :- -: 5: - 5 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND ALSO SEEN VARIOUS SUBMISSIONS FILED BY APPELLANT. THE APPELLANT IS ENGAGED IN BUSINESS OF SUPPLY OF ROAD SIGN BOARDS SAFETY EQUIPMENTS ROAD MARKETING MATERIAL ETC. TO THE GOVT. DEPARTMENTS. APPELLANT I S RUNNING THIS BUSINESS IN VARIOUS PLACES OF M.P. THROUGH THE HELP OF A NUMBER OF RELATED AND UNRELATED COMMISSION AGENTS. WHILE MP LAGHU UDYOG NIGAM LTD IS DOING THE WORK OF TENDERING AND ALLOTMENT OF PROJECTS TO LOWEST BIDDERS THE WORK O F PARTICIPATION IN VARIOUS TENDERS UNDERTAKING RATE CONTRACTS COLLECTION OF ORDER AND LIASONING WITH EXECUTIVE ENGINEER PURCHASE OF RAW MATERIAL IDENTIFICATION OF SITE FOR FIXING OF SIGH BOARDS G ETTING INSPECTION OF THE WORK DONE FOUNDATION WORK TRANSPORTATION AND FIXING OF SIGN BOARDS GETTING BILLING DONE AND COLLECTION OF PAYMENTS ARE LARGE NUMBER OF WORKS UNDERTAKEN BY COMMISSION AGENTS. -: 6: - 6 CREDIT NOTES TO VARIOUS COMMISSION AGENTS ARE DIRECTLY LINKED TO VARIOUS WORK CONTRACTS AND TO TH E BILLS RAISED AGAINST GOVERNMENT AGENCIES LIKE PWD OR IDA ETC. VERIFICATION OF LEDGER ACCOUNTS ALSO SH OW CREDIT OF COMMISSION AMOUNTS ON DIFFERENT DATES AND SUCH CREDIT IN DIFFERENT ACCOUNTS IS NEITHER ON SAM E DATE NOR ON LAST DATE OF THE YEAR. THEREFORE NO ABNORMALITY IS OBSERVED IN LEDGER ACCOUNTS. PAYMENT AGAINST SUCH COMMISSION EXPENSE IS MADE THROUGH BANK CHEQUES. AFTER RECEIVING THE COMMISSION INCOME COMMISSION AGENTS HAVE REFLECTED SUCH COMMISSION RECEIPT IN THEIR RETURNS AND HAVE PAID TAXES THEREON. SO FAR AS PAYMENT OF COMMISSION TO RELATED PERSONS IS CONCERNED THERE IS NO BAR ON ENGAGING RELATED PERSONS AS COMMISSION AGENTS AND NO DISALLOWANCE IS CALLED FOR OR MADE BY ASSESSING OFFICER U/S 40A(2)(B) OF THE INCOME-TAX ACT 1961 IF SERVICES ARE RENDERED. -: 7: - 7 PAYMENT OF COMMISSION TO RELATED PARTIES IS ALLOWED IN CASE OF COMPUTER GRAPHICS LIMITED (2006) 285 ITR 84 (MAD) AND MICROTEX SEPARATORS LIMITED (2007) 293 ITR 451 (KAR) HOLDING THAT REASONABLENESS OF COMMISSION PAYMENT TO INTERESTED PARTIES HAS TO BE JUDGED FORM THE VIEW POINT OF BUSINESSMAN AND NOT THAT OF REVENUE . IN CASE OF COMPUTER GRAPHICS LIMITED IT WAS HELD THAT PAYMENT OF COMMISSION TO INTERESTED PARTIES WAS REASONABLE AND SAME HAD ADMITTEDLY RESULTED MORE BUSINESS FOR THE ASSESSEE AND THERE WAS NO PROOF OF EXCESSIVE OR UNREASONABLE PAYMENTS. IN PRESENT CASE ALSO AS THE COMMISSION PAYMENT GREW OVER THE YEARS THE TURNOVER OF APPELLANT HAS INCREASED SUBSTANTIAL LY AS IS VISIBLE FROM THE TABLE GIVEN ABOVE. WHEN WORK ORDERS AGREEMENT WITH GOVERNMENT AGENCIES LEDGER ACCOUNTS OF COMMISSION AGENTS IN BOOKS OF APPELLANT SHOWING TRANSACTION THROUGH CHEQUES DETAILS OF SERVICES RENDERED BY COMMISSION AGENTS TO APPELLANT I.T. RETURNS OF COMMISSION AGE NTS -: 8: - 8 ETC. PROVE THE FACTUM OF SERVICES BEING RENDERED AN D COMMISSION BEING PAID THE ONUS SHIFTED ON THE ASSESSING OFFICER TO DISPROVE THE SAME. THE ASSESSING OFFICER HAS NOT CONDUCTED ANY ENQUIRIES WITH RESPECTIVE GOVERNMENT DEPARTMENTS TO DISLODGE APPELLANTS CLAIM. WHEN ONE COMMISSION AGENT SHRI MANISH SANGHAVI APPEARED BEFORE ASSESSING OFFICER HE CONFIRMED TO HAVE COLLECTED REQUIREMENTS FROM VARIOUS GOVT. DEPTTS. AND SUPPLY ORDER TO THE APPELLANT AND HAVING COLLECTED THE PAYMENT. THE PAYMENT MAY HAVE BEEN COLLECTED AS PER RATE CONTRACT WITH MPLUN AND CONTRACT MAY BE WITH APPELLANT BUT SUCH LARGE NUMBER OF CONTRACTS COULD BE GAINED IN DIFFERENT LOCATION OF M.P. FROM IDA A ND PWD ONLY BECAUSE OF ACTIVE INVOLVEMENT OF COMMISSION AGENTS IN PRE-TENDER WORKS AND THEY ARE INSTRUMENTAL IN GETTING THE WORK COMPLETION REPORT PASSED BY RESPECTIVE AUTHORITY AND ONLY THAN PAYMENTS ARE RELEASED TO APPELLANT AS PER RATE CONTRACT. SUCH FACTS HAVE BEEN AFFIRMED AND DETAILS -: 9: - 9 OF SERVICES RENDERED ARE FILED BEFORE THE UNDERSIGN ED BY SHRI MANISH SANGHVI IN FORM OF AN AFFIDAVIT WHEREIN HE HAS ALSO ATTACHED A COPY OF HIS I.T. RETURN FOR ASSESSMENT YEAR 2009-10 IN WHICH HE HAS SHOWN AN INCOME OF RS. 11 94 444/- WHICH INCLUDE COMMISSION OF RS. 1 77 530/- RECEIVED FROM APPELLANT. A.OS OBJECTION TO PRESENCE OF COMMISSION AGENTS IN GOVERNMENT CONTRACTS IS ALSO NO WELL FOUNDED. THERE IS NO BAR IN EXISTENCE OF COMMISSION AGENTS IN VARIOUS PRE-TENDER AND POST TENDER ACTIVITIES IN GOVERNMENT CONTRACTS. COMMISSION AGENTS CAN CERTAINLY PERSUADE GOVERNMENT INSTITUTIONS TO PLACE ORDERS AND ARRANGE FOR ACCEPTANCE OF THE WORK EXECUTED. SUCH VIEW IS CONSISTENTLY TAKEN BY SEVERAL COURTS NAMELY BHARAT MEDICAL STORE (2009) 308 ITR 373 ( P & H ) LAXMI ENGG. INDUSTRIES (2008) 298 ITR 203 (RAJ) VOLTAMP TRANSFORMERS P.LTD. (1981) 129 ITR 105 (GUJ). NEST OR PHARMACEUTICALS P.LTD. (2010) 33 DTR ( DEL ) 293 -: 10: - 10 MOBILE COMMUNICATION (INDIA) (P) LTD. (2010) 128 TT J (DEL) 666 ISHWAR PRAKASH & BROS. (1986) 159 ITR 843 ( P & H) AND ELECTRA (JAIPUR)(P) LTD. 26 ITD (D EL) 236. THE BAR IS ON TRANSACTIONS AND DEALINGS WITH GOVERNMENT THROUGH AN AGENT AS THAT IS AGAINST THE PUBLIC POLICY. TO BE MORE PRECISE GOVERNMENT CONTRACTS COULD NOT BE CONCERNED BY COMMISSION PAYMENTS TO GOVT. OR ITS REPRESENTATIVES. THAT IS DISALLOWABLE UNDER THE EXPLANATION TO SECTION 37(1) OF INCOME-TAX ACT 1961. BUT THERE IS NO SUCH ALLEGATION NEITHER IS THERE ANY PROOF OF THE SAME I N PRESENT CASE. BESIDES THE RULE OF CONSISTENCY HAS TO BE FOLLOWED AS HELD IN THE CASE OF MANDEEP SINGH (2010) 328 ITR 169 (P&H) WHEREIN COMMISSION PAYMENT TO SUB-DEALERS WAS ALLOWED ON THE GROUND THAT ASSESSING OFFICER CANNOT DEVIATE FROM HIS EARL IER DECISIONS SINCE FACTS ARE IDENTICAL. IN APPELLANTS CASE COMMISSION EXPENSES ARE ALLOWED IN EARLIER YEARS I.E. A.Y. 05-06 TO A.Y. 08-09 AS PER THE DET AILS -: 11: - 11 GIVEN IN REMARKS COLUMN OF THE TABLE ON PAGE NO.14 OF THIS ORDER. THEREFORE EVEN FROM CONSISTENCY PRINCI PLE ALSO SUCH COMMISSION EXPENSES SHOULD HAVE BEEN ALLOWED. CONSIDERING THE DISCUSSION IN AFORESAID PARAGRAPHS THE COMMISSION EXPENSE OF APPELLANT OF RS. 27 34 612/- ARE HELD ALLOWABLE GROUND NO. 2 OF THE APPEAL THEREFORE STANDS ALLOWED. 7. SHRI R. A. VERMA LD. SENIOR DR APPEARED ON BEHALF OF REVENUE AND CONTENDED THAT SINCE THE ASSESSEE WAS S UPPLYING GOODS TO GOVERNMENT DEPARTMENT THERE WAS NO SYSTEM OF ANY ORDER BEING GIVEN THROUGH MIDDLEMAN NOR THERE WAS A NY SYSTEM OF COMMISSION BEING PAID. HE CONTENDED THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE FOR THE SER VICES RENDERED BY COMMISSION AGENTS WHO WERE CLOSELY REL ATED TO THE ASSESSEE. OUR ATTENTION WAS ALSO INVITED TO VAR IOUS OBSERVATIONS OF THE ASSESSING OFFICER TO PROVE THAT THE ASSESSEE WAS UNABLE TO PRODUCE EVEN A SINGLE EVIDENCE IN SUP PORT OF THE SERVICES RENDERED BY THE SO CALLED COMMISSION AGENT . HE -: 12: - 12 CONTENDED THAT THE LD. CIT(A) HAS WRONGLY DELETED T HE DISALLOWANCE ON THE PLEA THAT PAYMENT OF COMMISSION WAS PAID BY CHEQUE AND THAT IN EARLIER YEAR ALSO SUCH COMMIS SION WAS ALLOWED. HE ACCORDINGLY CONTENDED THAT THE ORDER OF THE CIT(A) ON THIS ISSUE SHOULD BE SET-ASIDE AND THAT O F ASSESSING OFFICER SHOULD BE RESTORED. 8. ON THE OTHER HAND THE LD. AUTHORIZED REPRESENTATIV E CONTENDED THAT COMMISSION WAS PAID FOR VARIOUS WORK S PERFORMED BY THE COMMISSION AGENT WITH REGARD TO EX ECUTION OF THE ORDER RECEIVED FROM GOVERNMENT DEPARTMENT AND CONTENDED THAT RECIPIENT OF COMMISSION INCOME HAVE DULY OFFERED THE SAME IN THEIR RETURN OF INCOME. HE FURT HER RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSEE WAS ENGAGED IN SUPPLY ING GOODS TO THE GOVERNMENT DEPARTMENTS LIKE P.W.D. AND IDA E TC. ON THE RATES APPROVED BY THE M.P. GOVERNMENT FOR PROCU REMENT OF GOODS QUOTATIONS WERE INVITED FROM THE PROSPECTIVE SUPPLIERS IN THE SEALED COVERS WHICH ARE OPENED ON A SPECIFIC DATE AND -: 13: - 13 ON A TIME IN THE PRESENCE OF RESPONSIBLE PERSON OF THE DEPARTMENT AND ALSO THE REPRESENTATIVE OF THE SUPPL IERS. LOWEST QUOTATION IS GENERALLY ACCEPTED WHICH IS FU RTHER SUBJECT TO NEGOTIATION AS REGARD TO THE PRICE AT WH ICH THE SAID GOODS ARE PURCHASED BY THE DEPARTMENT. FOR SUBSTANT IATING THE ASSESSEES CLAIM OF EXPENSES THE ASSESSING OFF ICER ASKED THE ASSESSEE TO PRODUCE EVIDENCE WITH REGARD TO THE SERVICES RENDERED BY THE SO CALLED COMMISSION AGENT. THE ASS ESSING OFFICER FOUND THAT NOT A SINGLE EVIDENCE WAS PRODUC ED FOR THE SERVICES SO RENDERED. CONTENTION OF ASSESSEE THAT O RDERS WERE PROCURED BY THE COMMISSION AGENT AND PAYMENT WAS A LSO COLLECTED FROM THE GOVERNMENT DEPARTMENT WAS ALSO F OUND TO BE NOT TRUE IN SO FAR AS ORDERS WERE DIRECTLY PLACE D TO THE ASSESSEE AFTER INVITING TENDERS AND PAYMENT WAS DIR ECTLY MADE TO THE SUPPLIER AND NOT TO THE AGENT. PRECISE OBSER VATION OF ASSESSING OFFICER WAS AS UNDER :- 3.5 THE ASSESSEE HAS ONLY PROVIDED COPY OF CREDIT NOTES PREPARED BY ITSELF AND NOT PRODUCED TH E PERSONS FOR VERIFICATION EXCEPT ONE WHO ALSO COULD NOT PROVIDE ANY EVIDENCE WITH RESPECT TO ANY WORK -: 14: - 14 DONE FOR THE ASSESSEE. SHRI MANISH WHO PRESENTED HIMSELF ALSO COULD NOT PROVIDE ANY EVIDENCE THAT HE HAS PROVIDED SOME SERVICES TO THE ASSESSEE. AS SUCH THE ASSESSEE COULD NOT DISCHARGE HIS ONUS IN RESPEC T OF COMMISSION EXPENSES. ONLY PROVIDING CREDIT NOTES AND DETAILS OF THE PERSONS TO WHOM CREDIT NOTE IS ISSUED DO NOT PROVE GENUINENESS OF THE EXPENSES. THERE IS ALSO NO INDICATION OF ANY AGENT ON THE BIL L ISSUED BY THE ASSESSEE IN RESPECT OF SUPPLY. ON THE PERUSAL OF COPIES OF BILL IT IS NOTICED THAT THERE ARE MENTION OF ORDER NUMBER AND DATE WHICH SHOWS THAT THE ASSESSEE HAS RECEIVED ORDER THROUGH M.P. LAGHU UDYOG NIGAM AND NOT DIRECTLY FROM THE GOVERNMENT DEPARTMENT AS SUCH TO CLAIM THAT THE SO CALLED AGENTS HAVE COLLECTED ORDER IS TOTALLY INCORRECT. FURTHER THERE IS NO POSSIBILITY OF MAKING PAYMENTS BY THE GOVERNMENT DEPARTMENT TO PARTIES OTHER THAN FROM WHOM SUCH PURCHASES WERE MADE. AS SUCH CLAIM OF COLLECTING PAYMENT BY THE SO CALLED AGENTS IS ALSO NOT CORRECT. FURTHER THE RATE OF COMMISSIO N -: 15: - 15 PROVIDED TO THE PERSONS IS 20% OF WORK EXECUTED AND SUPPLY MADE WHICH IS ALSO TOO HIGH TO ACCEPT. AS SUCH NEITHER THE GENUINENESS AND REASONABLENESS NOR THE SERVICES RENDERED BY THE SO CALLED COMMISSION AGENTS HAS BEEN ESTABLISHED. THUS THE BUSINESS EXIGENCY OF THE EXPENDITURE REMAINS TO BE EXPLAINED BY THE ASSESSEE. 3.6 IN VIEW OF THE ABOVE PARAS IT IS CLEAR THAT ASSESSEE HAS ADOPTED A TYPICAL MODUS OPERANDI FOR REDUCING THE PROFIT BY WAY OF BOOKING COMMISSION WHICH IS FACTUALLY INCORRECT UNVERIFIABLE AND TO S OME EXTENT AGAINST THE POLICY OF GOVT. OF M.P. WHICH IS FOLLOWED IN LETTER AND SPIRIT BY THE STATE GOVERNMENT. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT SUCH A PRACTICE IS UNWARRANTED AND UNCALLED FO R AS PERCEIVED FROM THE VARIOUS EVENTS OCCURRING AT DIFFERENT TIMES AND DIFFERENT PLACES WHERE THE GOVERNMENT HAS DISAPPROVED THE PRACTICE OF MIDDLEMEN IN THE TRANSACTION WITH THE GOVT. BODIES MADE BY ANYBODY. THIS IS ALSO THE MORE CLEAR FROM -: 16: - 16 THE FACT THAT DESPITE DEBITING EXORBITANT AMOUNT UNDER THE HEAD COMMISSION EXPENSES IT HAS FAILED TO PRODUCE EVEN A SINGLE EVIDENCE IN SUPPORT OF SERVICES RENDERED BY THE SO CALLED COMMISSION AGENTS. OTHER ASPECTS IN THIS REGARD HAVE BEEN DISCUSSED WIDELY AND ELABORATELY IN THE PRECEDING PARAS WHICH THROWS SUFFICIENT LIGHT ON THE QUESTION OF RATE OF COMMISSION THE DATE OF BOOKING THE BOOK S OF ACCOUNT AND ASSESSEES FAILURE TO PRODUCE THE S O CALLED COMMISSION AGENTS. THEREFORE IT IS CLEAR TH AT THE ASSESSEE HAS INFLATED DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT BY BOOKING FICTITIOUS EXPENSES IN THE NAME OF COMMISSION TO PERSONS OTHER THAN M.P. LAGHU UDYOG NIGAM AMOUNTING TO RS. 27 34 612/-. THE SAID EXPENDITURE IS THEREFORE DISALLOWED. PENALTY PROCEEDINGS U/S 271(1)(C) IS SIMULTANEOUSLY INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10. THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF COMMISSION BY OBSERVING THAT PAYMENT AGAINST SUCH -: 17: - 17 COMMISSION AGENT WAS MADE THROUGH BANK CHEQUES AND AFTER RECEIPT OF SUCH COMMISSION THE AGENTS HAVE REFLECT ED SUCH COMMISSION RECEIPTS IN THEIR RETURN AND HAVE PAID T AXES THEREON. THE CIT(A) ALSO OBSERVED THAT IN EARLIER Y EARS ALSO THERE WAS COMMISSION PAYMENT FOR THE SIMILAR BUSINE SS. HOWEVER WE DO NOT FIND ANY ASSESSMENT OF EARLIER Y EARS U/S 143(3) WHEREIN SIMILAR COMMISSION WAS ALLOWED. AS P ER OUR CONSIDERED VIEW MERE PAYMENT OF COMMISSION BY CHEQ UE AND OFFERING OF SOME COMMISSION INCOME BY THE AGENTS IN THEIR RETURNS OF INCOME IS NOT SUFFICIENT TO ALLOW CLAIM OF COMMISSION EXPENSES WHEN ASSESSEE IS UNABLE TO PRO VE THE SERVICES RENDERED FOR WHICH SUCH COMMISSION PAYMENT IS BEING MADE. THE LD. CIT(A) HAS NOT CONTROVERTED VAR IOUS FINDINGS RECORDED BY THE ASSESSING OFFICER WITH REG ARD TO THE SYSTEM OF ASSESSEES BUSINESS AND THE FACT THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO PROVE THE SERVICE S RENDERED BY THE SO CALLED AGENT. THE RATE OF COMMISSION SO P AID WHICH WAS 20 % OF WORK EXECUTED AND SUPPLY MADE WAS ALSO FOUND TO BE VERY EXORBITANT. ACCORDINGLY THE ASSESSING O FFICER HAS HELD THAT NEITHER THE GENUINENESS NOR THE REASONABL ENESS OF -: 18: - 18 THE SERVICES RENDERED BY SO CALLED COMMISSION AGENT S HAVE BEEN ESTABLISHED. NOWHERE CIT(A) HAS DISCUSSED ANY EVIDENCE PRODUCED BY THE ASSESSEE EITHER BEFORE THE ASSESSIN G OFFICER OR BEFORE HIM SO AS TO PROVE THE BUSINESS EXIGENCY OF THE EXPENDITURE AND GENUINENESS OF THE SERVICES SO REND ERED. ACCORDINGLY WE SET-ASIDE THE ORDER OF CIT(A) ON TH IS GROUND AND THE MATTER IS RESTORED BACK TO THE FILE OF ASSE SSING OFFICER FOR DECIDING AFRESH IN TERMS OF OUR ABOVE DISCUSSIO N. WE DIRECT ACCORDINGLY. 11. THE ASSESSING OFFICER HAS ALSO MADE THE DISALLOWANC E OF BATAV EXPENSES AT RS. 1 95 170/- BY OBSERVING TH AT SERVICE CHARGES OF MPLUN IS 2.24 % ONLY FOR THE SALES MADE TO GOVERNMENT DEPARTMENT. THE TOTAL SALE OF THE ASSESS EE IS RS. 3 41 55 800/- OUT OF WHICH SALES OF RS. 13 49 910/- WAS MADE TO CUSTOMERS OTHER THAN GOVERNMENT DEPARTMENT. BY T AKING 2.24 % OF REMAINING AMOUNT I.E. OF RS. 3 28 05 890/ - THE AMOUNT OF SERVICE CHARGES TO MPLUN IS WORKED OUT AT RS. 7 34 850/-. AS SUCH EXCESS AMOUNT OF RS. 1 95 170/ - WAS DISALLOWED BY THE ASSESSING OFFICER AND ADDED BACK TO THE INCOME OF THE ASSESSEE. -: 19: - 19 12. BY THE IMPUGNED ORDER THE LD. CIT(A) REDUCED THE DISALLOWANCE TO RS. 25 398/- BY OBSERVING AS UNDER :- THE APPELLANT EXPLAINED THAT BILLS ARE NOT RAISED BY MPLUN BUT APPELLANT RAISED BILLS TO RESPECTIVE PURCHASING DEPARTMENT. FURTHER THEY HAVE FURNISHED COPY OF AGREEMENT WITH MPLUN IN WHICH RATE OF COMMISSION IS 2 % AND RATE OF INSPECTION IS 0.5% AND WITH SERVICE TAX THE TOTAL RATE OF COMMISSION TO MPLUN IS 2.7575 %. AT THAT RATE THE COMMISSION AMOUNT COMES TO RS. 9 04 622/-. AS A RESULT EXCESS CLAIM OF BATAV COMES AT RS. 25 398/- ( RS. 9 30 020 (-) 9 04 622) AND THIS AMOUNT IS THEREFORE DISALLOWED. 13. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FROM THE RECORD WE FOUND THAT THE ASSESSI NG OFFICER HAS WORKED OUT TOTAL TURNOVER WITH GOVERNMENT DEPAR TMENT AT RS. 3 28 05 890/- AND ON THIS HE HAS APPLIED RATE O F COMMISSION @ 2.24 % PAYABLE TO MPLUN WHICH COMES A T RS. 7 34 850/- WHEREAS ASSESSEE HAS CLAIMED SUCH EXPENS E AT RS. 9 30 020/- AND HENCE EXCESS CLAIM OF RS. 1 95 170/- WAS -: 20: - 20 DISALLOWED. HOWEVER THE CIT(A) HAD PARTLY DELETED THE DISALLOWANCE BY OBSERVING THAT DURING COURSE OF APP ELLATE PROCEEDINGS THE ASSESSEE HAS FURNISHED COPY OF AGR EEMENT WITH MPLUN IN WHICH COMMISSION OF RATE WAS 2 % AND RATE OF INSPECTION IS 0.5 % AND WITH SERVICE TAX TOTAL RAT E OF COMMISSION TO MPLUN COMES TO 7.5 %. AFTER APPLYING RATE OF 2.75% THE LD. CIT(A) FOUND THAT CLAIM OF BATAV COM ES TO RS. 9 04 622/-. ACCORDINGLY THE LD. CIT(A) HAS RESTRIC TED THE DISALLOWANCE TO RS. 25 398/- ( RS. 9 30 020/- (-) 9 04 622). IN VIEW OF FINDINGS RECORDED BY THE LD.CIT(A) WITH REG ARD TO THE RATE OF COMMISSION PAYABLE TO MPLUN WE CONFIRM THE ACTION OF CIT(A) FOR ALLOWING COMMISSION OF RS. 9 04 622/- . IN THE RESULT GROUND TAKEN BOTH BY ASSESSEE AND REVENUE A RE DISMISSED. 14. THE ADDITION OF RS. 17 65 385/- WAS MADE BY THE ASSESSING OFFICER ON THE PLEA THAT THE ASSESSEE HAD SHOWN NIL CLOSING BALANCE IN PLACE OF CLOSING STOCK OF RS. 17 65 385/- WORKED OUT BY A.O. THE RELEVANT OBSERVATION OF THE ASSESSING OFFICER IN THIS REGARD WAS AS UNDER :- -: 21: - 21 THE ASSESSEE HAS TWO DIFFERENT CATEGORIES I.E. WORKS DIVISION AND SUPPLY DIVISION. IT MAINTAINS SEPARATE TRADING AND PROFIT AND LOSS ACCOUNTS. THE PURCHASES AND GOVERNMENT RECEIPTS/SALE ARE ALSO SEPARATELY ENTERED IN THE BOOKS. DATE AMOUNT 02.02.2009 11 357 05.2.2009 2 00 180 10.02.2009 2 50 790 12.2.2009 53 766 13.02.2009 2 06 187 17.02.2009 2 36 950 30.02.2009 157 25.02.2009 3 65 850 25.02.2009 3 10 756 02.03.2009 125 02.03.2009 81 470 06.03.2009 2 60 100 06.03.2009 14 85 000 -: 22: - 22 12.03.2009 5 200 13.03.2009 468 19.03.2009 3 43 325 20.03.2009 1 325 20.03.2009 87 204 27.03.2009 1 820 TOTAL 39 02 030 THE ASSESSEE HAS ISSUED UP TO BILL NO. 543 TILL JAN.2009. FROM THE MONTH OF FEB. TO MAR. THE SUPPLY/SALES HAS BEEN MADE AS UNDER :- 18.02.2009 544 5 95 029 18.02.2009 545 20 292 21.02.2009 546 7 93 125 06.03.2009 547 9 00 000 06.03.2009 548 9 00 000 23.03.2009 549 3 29 045 SALES 35 37 491 -: 23: - 23 IN THE SUPPLY DIVISION THE ASSESSEE HAS MADE TOTAL SALES OF RS. 2 24 68 088/- AND ITS PURCHASES WERE OF RS. 1 35 78 127/- ONLY. AS SUCH THE RATIO OF PURCHASE TO SALES IS 60.4 % OF SALES. IF THE SAME RATIO IS APPLIED TO THE TOTAL SALES OF RS. 35 37 491/- MADE IN THE MONTHS OF FEB.09 AND MAR.09 THE PURCHASE COST OF GOODS WORKS OUT AT RS. 21 36 645/- ONLY. AS AGAINST THE ABOVE AMOUNT THE ASSESSEE HAS SHOWN PURCHASES OF RS. 39 02 030/- AND NO CLOSING STOCK HAS BEEN DECLARED AS SUCH THE EXCESS AMOUNT OF RS. 17 65 385/- IS CONSIDERED TO BE HELD AS CLOSING STOCK AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE. 15. BY THE IMPUGNED ORDER THE LD.CIT(A) HAS RESTRICTED THE ADDITION TO RS. 2 79 801/- AFTER HAVING THE FOLLOWI NG OBSERVATIONS :- THE APPELLANT HAS SUBMITTED THAT SOME BILLS OF WORK CONTRACT ACCOUNT GOT MIXED UP IN PURCHASE OF -: 24: - 24 SUPPLY TRADING ACCOUNT. THE APPELLANT HAS GIVEN A LIST OF SUCH BILLS IN HIS SUBMISSION DATED 23.11.20 12 WHICH IS REPRODUCED BELOW :- DATE AMOUNT 5.2.2009 2 00 180 12.02.2009 53 766 13.02.2009 2 06 187 23.02.2009 157 25.02.2009 3 65 850 25.02.2009 3 10 756 02.02.2009 81 470 06.03.2009 2 60 100 12.03.2009 5 200 13.03.2009 468 20.03.2009 1 325 TOTAL 14 85 584 THE TOTAL OF THESE BILLS COMES TO RS. 14 85 584/- AS THESE BILLS ARE FOR PURCHASES OF M.S. PIPE ANGLES NUT BOLTS CHANNELS ROAD MARK PAINT AND TAPES WHICH AR E -: 25: - 25 NOT DIRECTLY SOLD BUT USED TO MAKE ROAD INSTRUCTION BOARDS AND OTHER ROAD ACCESSORIES. ON VERIFICATION OF SUCH PURCHASE BILLS CLAIM OF APPELLANT IS FOUND CORRECT AS SUCH ITEMS PURCHASES WERE NOT SOLD DIRECTLY BY APPELLANT BUT THEY WERE ITEMS USED IN VARIOUS WORKS CONTRACT AND THEREFORE SUCH AMOUNT OF PURCHASES OF RS. 14 85 584/- IS TO BE CLUBBED IN WORKS CONTRACT ACCOUNT. THAT STILL LEAVES A DIFFERENCE OF RS. 2 79 801/- (17 65 385/- (-) 14 85 584/-). EVEN ON CONSIDERING THE PURCHASE OF STEEL FROM 15.03.09 TO 31.03.09 TOTAL PURCHASE IS OF RS. 4 33 674/- WHILE DURING THIS PER IOD USE OF STEEL IN WORKS CONTRACT AND SUPPLY TRADIN G IS OF RS. 3 92 645/-. AT AVERAGE RATE OF PURCHASE T O SALES OF 54 % OF TWO DIVISIONS SUCH SALES OF RS. 3 92 645/- COMES TO RS. 2 12 028/- OF CORRESPONDING PURCHASE WHICH LEAVES CLOSING STOCK OF RS. 2 21 645/- ( RS. 4 33 674/- - RS. 2 12 028). CONSIDERING THESE FACTS ZERO CLOSING STOCK SHOWN B Y -: 26: - 26 APPELLANT IS HELD TO BE INCORRECT AND ADDITION ON ACCOUNT OF CLOSING STOCK IS CONFIRMED TO THE EXTENT OF RS. 2 79 801/- 16. BOTH ASSESSEE AND REVENUE ARE AGGRIEVED BY THE ABOV E ORDER OF CIT(A). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT ASSESSEE HAS TWO DIFFERENT CATEGOR IES I.E. WORK DIVISION AND SUB DIVISION FOR WHICH SEPARATE READING AND PROFIT AND LOSS ACCOUNT WAS MAINTAINED. DURING THE COURSE OF ASSESSMENT THE ASSESSING OFFICER FOUND S OME DISCREPANCY IN THE PURCHASE SALES. THE ASSESSING OF FICER ALSO FOUND THAT THE ASSESSEE HAS SHOWN NIL CLOSING BALAN CE IN THE STOCK IN PLACE OF CLOSING STOCK OF RS. 17 65 385/-. THE LD. CIT(A) HAS VERIFIED THE BILLS OF WORKS CONTRACT WH ICH WERE GOT MIXED UP IN THE PURCHASE OF SUPPLY TRADING ACCOUNT . TOTAL OF SUCH BILLS COMES TO RS. 14 85 584/-. AS THESE BI LLS WERE PERTAINING TO PURCHASES OF M. S. PIPE ANGLE NUT BO LTS AND THE SAME WERE NOT DIRECTLY SOLD BUT USED TO MAKE ROAD INSTRUCTION BOARD AND OTHER ROAD ACCESSORIES. THE SAME ARE LIAB LE TO BE EXCLUDED. ACCORDINGLY SUCH AMOUNT OF PURCHASES IS TO BE -: 27: - 27 CLUBBED IN THE WORK CONTRACT ACCOUNT. THE CIT(A) FURTHER FOUND THAT PURCHASE OF STEEL FROM 15.3.2009 TO 31.3 .2009 THE TOTAL PURCHASE SIS OF RS. 4 33 674/- WHILE DURING T HIS PERIOD USE OF STILL IN WORKS CONTRACT AND SUPPLY TRADING IS OF RS. 3 92 645/-. AFTER GIVING DETAILED FINDING AT PAGES 19 & 20 OF HIS APPELLATE ORDER THE LD. CIT(A) FOUND THAT CLOS ING STOCK WORKS OUT TO BE RS. 2 79 801/- ACCORDINGLY ADDITI ON OF RS. 2 79 801/- WAS SUSTAINED. THE DETAILED FINDING RECO RDED BY THE LD.CIT(A) HAS NOT BEEN CONTROVERTED. ACCORDINGL Y WE DO NOT INTERFERE IN THE SAME. 18. IN THE RESULT GROUND TAKEN BY THE REVENUE AND ASSESSEE BOTH ARE DISMISSED. 19. THE ASSESSING OFFICER HAS ALSO DISALLOWED ASSESSEE S CLAIM OF VAT ON THE PLEA OF DOUBLE CLAIM BY THE ASS ESSEE. PRECISE OBSERVATION OF ASSESSING OFFICER IN THIS RE GARD WAS AS UNDER :- ON THE PERUSAL OF TRADING ACCOUNT OF SUPPLY DIVISIO N IT IS NOTICED THAT TOTAL SUPPLY WAS MADE AT RS. 2 24 68 088/- BUT THE ASSESSEE HAS REDUCED THE VAT OF RS. 24 05 416/- AS A RESULT ONLY RS. 2 00 62 672 /- -: 28: - 28 IS SHOWN AS SALES. HOWEVER THE ASSESSEE HAS INCLUDED THE VAT EXPENSES IN THE PURCHASE ACCOUNT BY SHOWING PURCHASES OF RS. 1 35 78 127/-. AS SUCH THE ASSESSEE HAS ON THE ONE HAND NOT REDUCED THE VAT AMOUNT FROM THE PURCHASES BUT THE SAME WAS REDUCED FROM SALES SHEET DEDUCTION CLAIMED IN PURCHASE ACCOUNT IS DISALLOWED AT RS. 14 57 800/-. 20. BY THE IMPUGNED ORDER THE LD. CIT(A) RESTRICTED TH E DISALLOWANCE TO THE EXTENT OF RS. 66 249/- AFTER H AVING THE FOLLOWING OBSERVATIONS :- AFTER CONSIDERING THE AFORESAID SUBMISSION AND CAREFULLY GOING THROUGH BILL-WISE DETAILS OF PURCH ASE AND SALE OF SUPPLY DIVISION AND WORKS DIVISION AND VAT FIGURES I COME TO THE CONCLUSION THAT VAT AMOUNT ON SALES OF SUPPLY DIVISION OF RS. 24 05 416/- ALONE IS REDUCED FROM SALES WHICH IS N OT CORRECT. CORRECT METHOD IS TO SET OFF THE VAT AMOUN T COLLECTED ON SALES AGAINST VAT PAID BY APPELLANT ON PURCHASES AND PAY THE BALANCE AMOUNT OF VAT TO GOVERNMENT. THE AMOUNT OF VAT COLLECTED ON SALES IN SUPPLY DIVISION IS RS. 24 05 416/- AND IN WORK DIVISION IS RS. 10 07 730/-. TOTAL OF VAT COLLECTED ON SALES COMES TO RS. 34 13 146/-. AGAINST THIS A SET- OFF -: 29: - 29 IS ALLOWABLE FOR VAT PAYMENT ON PURCHASES WHICH COMES TO RS. 7 25 124/- IN SUPPLY DIVISION AND RS. 2 66 384/- IN WORK DIVISION TOTAL OF WHICH COMES T O RS. 8 91 508/-. HENCE NET AMOUNT OF VAT COLLECTED BY APPELLANT IS RS. 25 21 637/- ( 34 13 146 8 91 508). OUT OF THIS VAT COLLECTED BY APPELLANT A TDS ON VAT DEDUCTED BY GOVERNMENT DEPARTMENT IS RS. 18 68 629/- AS PER DETAILS FILED AND APPELLANT FURTHER PAID RS. 5 86 760/- THROUGH CHALLAN DATED 27.03.09 TOWARD VAT ACCOUNT. BALANCE AMOUNT OF VAT OF RS. 66 249/- REMAINS UNPAID. THEREFORE ADDITION TO THE EXTENT OF RS. 66 249/- OF VAT COLLE CTED BUT NOT PAID TO GOVT. ACCOUNT IS CONFIRMED. 21. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORDS PERUSED. THE ASSESSING OFFICER HAS DISALLOWED RS. 1 4 57 800/- ON ACCOUNT OF VAT EXPENSES. THE LD. CIT(A) VERIFIED THE BILL- WISE DETAILS OF PURCHASE AND SALE OF SUPPLY DIVISIO N AND WORKS OUT VAT FIGURE AFTER GIVING DETAILED FINDING AT PAG ES 25 & 26 OF HIS APPELLATE ORDER. ON VERIFICATION IT WAS FOUND THAT VAT OF RS. 66 249/- REMAINED UNPAID. ACCORDINGLY DISALLOW ANCE WAS RESTRICTED TO RS. 66 249/-. NOTHING WAS BROUGHT ON RECORD BY DEPARTMENT TO CONTROVERT THE FINDINGS RECORDED BY T HE LD.CIT(A) ACCORDINGLY NO INTERFERENCE IS REQUIRED THEREIN. -: 30: - 30 THUS GROUND RAISED BY BOTH ASSESSEE AND REVENUE AR E DISMISSED. 22. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED IN PART WHEREAS CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 19 TH JULY 2013. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19 TH JULY 2013. CPU* 3.4.18.7