TOZAI SAFETY P. LTD ( FORMELY TOZAI EXPORTS P. LTD), MUMBAI v. DCIT 3(3), MUMBAI

ITA 1256/MUM/2012 | 2006-2007
Pronouncement Date: 11-04-2014 | Result: Allowed

Appeal Details

RSA Number 125619914 RSA 2012
Assessee PAN AAACT2159G
Bench Mumbai
Appeal Number ITA 1256/MUM/2012
Duration Of Justice 2 year(s) 1 month(s) 18 day(s)
Appellant TOZAI SAFETY P. LTD ( FORMELY TOZAI EXPORTS P. LTD), MUMBAI
Respondent DCIT 3(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 11-04-2014
Date Of Final Hearing 04-03-2014
Next Hearing Date 04-03-2014
Assessment Year 2006-2007
Appeal Filed On 23-02-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE SHRI SANJAY ARORA ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEM BER . / ITA NO. 1256 /MUM./201 2 ( / ASSESSMENT YEAR : 200 6 07 ) TOZAI SAFETY PVT. LTD. 144A MITTAL TOWERS NARIMAN POINT MUMBAI 400 021 .. / APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CI RCLE 3(3) MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER A AACT2159G / ASSESSEE BY : MR. JITENDRA NAHAR / REVENUE BY : MR. ASHOK SURI / DATE OF HEARI NG 04 .0 3 .201 4 / DATE OF ORDE R 11.04.2014 / ORDER / PER AMIT SHUKLA J.M. THE AFORESAID APPEAL HA S BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 1 ST NOVEMBER 201 1 PASS ED BY THE LEARNED COMMISSIONER (APPEALS) V II MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 06 07 VIDE WHICH THE TOZAI SAFETY PVT. LTD. 2 SOLE GROUND RAISED BY THE ASSESSEE IS THAT T HE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE COMMISSION OF ` 3 88 623 ON SALES. 2 . FACTS IN BRIEF : THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HAND GL OVES AND SAFETY INDUSTR I AL PRODUCTS. IT IS MAINLY EXPORTING GOODS OUTSIDE INDIA AND GETTING ITS PRODUCTS IN DOMESTIC MARKETS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF COMMISSION OF ` 3 88 623 ON SOME OF THE LOCAL SALES. THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE SUBMITTED THAT IT HAD AGREED TO PAY COMMISSION TO M/S. ACCENT INDUSTRIES LTD. (ASL) ON SALES MADE TO TWO PARTIES WHICH WERE INTRODUCED BY THEM. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COU LD NOT PROVIDE EVIDENCE IN RESPECT OF THE COMMISSION PAID TO ACL. AFTER REFERRING TO THE VARIOUS DECISIONS OF THE HIGH COURT WHICH HAVE BEEN LISTED FROM PAGE 4 TO 6 OF THE ASSESSMENT ORDER HE HELD THAT THE PAYMENT OF COMMISSION CANNOT BE ALLOWED. HE FURT HER OBSERVED THAT M/S. ACCENT INDUSTRIES LTD. (FOR SHORT ACL ) IS ONE OF THE RELATED PARTIES AND THE COMMISSION HAS BEEN PAID ON SOME SELECTED SALES ONLY. THUS WITHOUT ANY EVIDENCE SUCH PAYMENTS ARE ONLY BOOK ENTRIES. ACCORDINGLY HE ADDED THE SUM OF ` 3 88 623 TO THE INCOME OF THE ASSESSEE. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS) IT WAS SUBMITTED THAT THE ASSESSEE IS MAINLY EXPORTING GOODS OUTSIDE INDIA AND ONLY PART OF ITS SALE IS MADE TO DOMESTIC MARKET . SINCE THE COMPANY DID NOT HAD ENOUGH MANPOWE R AND INFRASTRUCTURE TO MARKET ITS PRODUCT IN DOMESTIC MARKET THEREFORE IT ENTERED INTO AN UNDERSTANDING WITH A MARKETING COMPANY M/S. ACCENT INDUSTRIES LTD. TO MARKET ITS PRODUCT IN TOZAI SAFETY PVT. LTD. 3 DOMESTIC MARKET. THIS COMPANY IS MAINLY ENGAGED IN IMPORTS DISTRIBUTI ON AND MANUFACTURING OF WIDE RANGE OF INDUSTRIAL PRODUCTS IN INDIA. AS PER THE UNDERSTANDING THE ASSESSEE COMPANY WILL SELL ITS PRODUCTS TO ACL AT A PRE DETERMINED PRICE FOR SELLING THE GOODS IN INDIA AND WHEREVER THE BUYER INSISTS UPON FOR MANUFACTURER S BILLS THEN THE COMPANY WILL RAISE THE BILL ON THE BUYERS AT A PRICE CONFIRMED BY THE ACL WITH THE BUYERS. THE ASSESSEE COMPANY PAYS THE DIFFERENCE BETWEEN THE PRE DETERMINED PRICE WITH THE ACL AND THE DIFFERENCE IN SUCH PRICE CHARGED TO THE BUYERS REFERR ED BY THE ACL HAS BEEN TREATED AS COMMISSION. IN THIS YEAR SUCH A DIFFERENCE OF PRICE WAS ON ACCOUNT OF BILLING DONE BY THE ASSESSEE COMPANY TO TWO PARTIES VIZ. BAJAJ AUTO LTD. AND ACB INTERNATIONAL LTD. WHO WERE INTRODUCED BY ACL. THE WORKING OF COMMISS ION TO ACL AND THE RATE AT WHICH THE PRODUCTS WERE SOLD TO ACL WAS FURNISHED BEFORE THE LEARNED COMMISSIONER (APPEALS). IT WAS FURTHER SUBMITTED THAT THE ASSESSEES TURNOVER FOR THE RELEVANT ASSESSMENT YEAR WAS ` 10 20 62 373 AND THE COMMISSION PAID TO ACL ON SALES IS ONLY 0.33% WHICH IS NOT MUCH LOOKING TO THE ENTIRE TURNOVER. THE LEARNED COMMISSIONER (APPEALS) HOWEVER DID NOT ACCEPT THE ASSESSEES CONTENTION AND HELD THAT NO JUSTIFICATION HAS BEEN GIVEN BY THE ASSESSEE FOR MAKING SUCH A CLAIM AS THERE IS NO KIND OF AGREEMENT O R PROOF TO SUGGEST THAT WHAT KIND OF SERVICES WERE RENDERED BY THE ACL. HE ALSO OBSERVED THAT THE COMMISSION HAS BEEN PAID IN THREE DIFFERENT RATIOS AND THE BASIS OF SUCH DIFFERENCE HAS ALSO NOT BEEN EXPLAINED. THE WORKING GIVEN BY THE ASSESSEE IS ONLY A SELF SERVING DOCUMENT WHICH DOES NOT HAVE MUCH SANCTITY. THUS IN VIEW OF THE FAILURE ON THE PART OF THE ASSESSEE TO SUBSTANTIATE THE EXIGENCY OR NECESSITY OF INCURRING SUCH EXPENDITURE FOR THE PURPOSE OF BUSINESS HE CONFIRMED THE DISALLOWANCE. TOZAI SAFETY PVT. LTD. 4 4 . BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT THE ASSESSEE IS 100% EXPORT ORIENTED UNIT (EOU ) AT MIDC AREA NEAR KOLHAPUR. HAVING 100% EOU IT IS ALLOWED TO SELL ITS PRODUCTS IN DOMESTIC MARKET UP TO THE CERTAIN PERCENTAGE OF ITS TURNOVER. THE ASSESSEE COMPANY FOR THE PURPOSE OF SELLING ITS PRODUCTS IN DOMESTIC MARKET HAS ENTERED INTO AN UNDERSTANDING THAT THE ACL WHICH IS HAVING WIDE RANGE OF BUSINESS OF IMPORT AND DISTRIBUTION IN INDIA TO SELL ITS PRODUCT IN INDIA. THE ASSESSEE COMPANY HAD A COMMERCIAL UNDERSTANDING THAT THE ACL WILL SELL ITS PRODUCT AT A PRE DETERMINED PRICE AND WHEREVER THE BUYER INSISTS UPON THE MANUFACTURERS BILL FOR EXCISE PURPOSE THEN THE ASSESSEE COMPANY USED TO RAISE THE BILL DIRECTLY ON THE B UYER AT THE PRICE CONFIRMED BY THE ACL. THE ASSESSEE COMPANY USED TO PAY THE DIFFERENCE BETWEEN THE PRE DETERMINED PRICE WITH ACL AND THE PRICE CHARGED TO BUYERS WHICH HAS BEEN TREATED AS COMMISSION. THIS WAS THE REASON THAT ONLY ON SELECTIVE SALE COMMIS SION HAS BEEN CHARGED. INSOFAR AS THE REASONING OF THE LEARNED COMMISSIONER (APPEALS) THAT THERE IS NO AGREEMENT THE LEARNED COUNSEL SUBMITTED THAT THE NATURE OF TRANSACTIONS WHICH WAS UNDERTAKEN WA S IN THE ORDINARY COURSE OF BUSINESS AND LOOKING TO THE D IFFICULTY OF THE ASSESSEE THAT IT DID NOT HAD ANY PROPER INFRASTRUCTURE TO SELL ITS PRODUCTS IN INDIA IT HAS ENGAGED SERVICES OF ACL AS BUSINESS NECESSITY AND EXPEDIENCY. HE ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN S.A. BUILDERS LTD. V/S CIT [2007] 288 ITR 001 ( SC ). HE FURTHER POINTED OUT THAT SIMILAR COMMISSION WAS PAID IN THE ASSESSMENT YEAR 2005 06 ALSO WHEREIN THE ASSESSING OFFICER DURING THE SCRUTINY PROCEEDINGS UNDER SECTION 143(3) HAS ACCEPTED THE PAYMENT OF SUCH COMMISSION TO THE SAID PARTY. SIMILARLY IN THE ASSESSMENT YEAR 2007 08 SUCH COMMISSION PAYMENT HAS ALSO BEEN ACCEPTED UNDER THE SCRUTINY PROCEEDINGS UNDER SECTION 143(3). HE ALSO TOZAI SAFETY PVT. LTD. 5 FURNISHED A COMPARATIVE CHART OF THE SALES AND COMMISSION PAID IN THE THREE ASSESSMENT YEARS WHICH ARE AS UNDER: ( FIGURES IN RUPEES ) PARTICULARS F.Y. 2006 07 (A.Y. 2007 08) F.Y. 2005 06 (A.Y. 2006 07) F.Y. 2004 05 (A.Y. 2005 06) TOTAL SALES DOMESTIC TRADING 1 62 89 716 79 13 830 38 33 620 DOMESTIC MANUFACTURING 82 62 247 77 07 178 53 97 996 EXPORT (INCLUDE DEEMED EXPORTS) 2 37 69 730 8 64 41 365 7 39 02 186 TOTAL 4 83 21 693 10 20 62 374 8 31 33 802 DOMESTIC SALES DIRECT ACCENT INDUSTRIES 51 45 053 44 20 960 6 63 173 THROUGH ACCENT IND USTRIES (BAJAJ AUTO & ASB INTL.) 8 94 093 16 09 004 7 14 000 OTHERS (INCLUDE BOTH DIRECT AND THROUGH MEDIATOR) 18 512 817 95 91 044 78 54 443 TOTAL DOMESTIC SALE 2 45 51 963 1 56 21 008 92 31 616 COMMISSION PAID TO ACCENT INDUSTRIES 2 25 279 3 38 248 1 63 295 COMMISSION PAID TO OTHERS 24 310 50 375 80 130 TOTAL 2 49 589 3 88 623 2 43 425 TOZAI SAFETY PVT. LTD. 6 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY RELYING UPON THE ORDERS OF THE LEARNED COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER S UBMITTED THAT THE ONUS IS UPON THE ASSESSEE TO SHOW NOT ONLY THE GENUINENESS OF THE EXPENDITURE BUT ALSO THAT IT W AS INCURRED SOLELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE LIKE AGREEMENT AND WHAT WAS THE PERCENTAGE OF COMMISSION PAID TO ACL ESPECIALLY WHEN IT IS A RELATED PARTY. IN THE ABSENCE OF ANY CREDIBLE EVIDENCE THE FINAL CONCLUSION WHICH CAN BE DRAWN IS THAT SUCH AN EXPENDITURE IS NOT ALLOWABLE. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS PERUSED THE R ELEVANT FINDING OF THE LEARNED COMMISSIONER (APPEALS) AND ALSO THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY IS 100% EOU ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SAFETY GLOVES AND ALLIED INDUSTRIAL SAFETY PRODUCTS. MOST OF ITS SALES ARE THROUGH EXPORTS ONLY WHICH ARE TO THE TUNE OF ` 8 64 41 365 O UT OF THE TOTAL SALES OF ` 10 20 62 374. THE ASSESSEES EXPLANATION ABOUT THE CLAIM OF COMMISSION PAYMENT TO ACL HAS BEEN THAT IT HAD AN UNDERSTANDING WITH ACL THAT FOR THE PURPOSE OF DOME STIC SALES IT WILL SELL ITS PRODUCT TO ACL DIRECTLY AT A PRE DETERMINED PRICE. ON SUCH SALES THERE IS NO PAYMENT OF COMMISSION. IT IS ONLY WHEN THE BUYERS INSIST UPON MANUFACTURERS BILL THEN THE ASSESSEE RAISES THE BILL ON THE BUYERS DIRECTLY AT A PRIC E NEGOTIATED BY THE ACL. THE DIFFERENCE BETWEEN THE BILL AMOUNT AND THE PRE DETERMINED PRICE WITH THE ACL HAS BEEN TREATED AS COMMISSION. THIS INCIDENCE OF PAYMENT OF COMMISSION IS ONLY WITH REGARD TO SALE S MADE TO BAJAJ AUTO INDUSTRIES LTD. AND ASB INTERN ATIONAL LTD. ONLY. FROM THE CHART SUBMITTED IT IS SEEN THAT THE TOZAI SAFETY PVT. LTD. 7 ASSESSEE HAS MADE DIRECT SALE TO ACL AT ` 44 20 960 AND SALE TO BAJAJ AUTO INDUSTRIES LTD. AND ASB INTERNATIONAL AT ` 16 09 004 WHICH HAS BEEN INTRODUCED THROUGH ACL. IT IS IN THIS TRANSACTI ON THE DIFFERENCE AMOUNT HAS BEEN TREATED AS COMMISSION PAID TO ACL. BEFORE THE LEARNED COMMISSIONER (APPEALS) THE ASSESSEE HAS GIVEN THE WORKING OF COMMISSION IN THE CASE OF ASB INTERNATIONAL AND BAJAJ AUTO INDUSTRIES LTD. INSOFAR AS THE ASB INTERNATIONA L IS CONCERNED THERE HAS BEEN TWO TRANSACTION ON WHICH THE TOTAL COMMISSION PAID IS ` 7 176 @ 2.99% OF THE SALE AMOUNT WHEREAS IN THE CASE OF BAJAJ AUTO INDUSTRIES LTD. THE COMMISSION PAYMENT IS AROUND 1.36%. THE SAID WORKING OF COMMISSION HAS NOT BEEN REFUTED BY THE LEARNED COMMISSIONER (APPEALS). THE ONLY GROUND FOR CONFIRMING THE DISALLOWANCE IS THAT THE ASSESSEE COULD NOT PRODUCE ANY AGREEMENT AND THE NATURE OF SERVICE PROVIDED. IN THE PRESENT CASE ONCE THE MAJOR SALES MADE TO ACL WHICH IS TO THE TU NE OF ` 44 22 960 HAS NOT BEEN DISPUTED EITHER BY THE ASSESSING OFFICER OR BY THE LEARNED COMMISSIONER (APPEALS) THEN IT CANNOT BE SAID THAT THE SALE NEGOTIATED WITH BAJAJ AUTO INDUSTRIES LTD. AND ASB INTERNATIONAL THROUGH ACL IS NOT A GENUINE TRANSACTIO N. IF OTHER TRANSACTIONS HAVE BEEN ACCEPTED WITHOUT THERE BEING ANY AGREEMENT THEN THE TRANSACTIONS RELATING TO PAYMENT OF COMMISSION CANNOT BE HELD TO BE NON GENUINE BECAUSE OF THERE BEING NO AGREEMENT. HERE THERE IS NO QUESTION OF RENDERING OF SERVICES BUT INTRODUCING THE BUYERS WHO HAVE INSISTED FOR DIRECT BILL FROM THE ASSESSEE WHEREIN THE DIFFERENCE AMOUNT OF PRE DETERMINED PRICE AS AGREED WITH THE ACL AND THE AMOUNT RECEIVED BY WAY OF SALE FROM THESE PARTIES HAVE BEEN TREATED AS COMMISSION WHICH IS NOTHING BUT PRICE DIFFERENCE . THE STATEMENT OF WORKING OF COMMISSION AS WAS FILED BEFORE THE LEARNED COMMISSIONER (APPEALS) CLEARLY SHOWS THE PRE DETERMINE D RATE OF SALE OF ACL AND THE R ATE OF SALE MADE TO THE TWO PARTIES. FROM THE RECORDS IT IS SEEN T HAT TOZAI SAFETY PVT. LTD. 8 THE ASSESSEE HAS ALSO MADE DIRECT SALES TO OTHER PARTIES ON WHICH NO COMMISSIONS HAVE BEEN PAID AND ONLY IN FEW INSTANCES COMMISSION HAS BEEN PAID TO OTHERS. THUS THE PAYMENT OF COMMISSION IS NOT GERMANE IN ASSESSEES BUSINESS. 7 . IT IS FURTHER SEEN F ROM THE RECORDS THAT IN THE EARLIER YEARS ALSO THE ASSESSEE HA D PAID SIMILAR COMMISSION TO ACL WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT UNDER THE SCRUTINY PROCEEDINGS UNDER SECTION 143(3). THE NATURE OF TRANSACTION ON THE DOMESTIC SALES BY THE ASSESSEE T HROUGH ACL IS ON ACCOUNT OF ORDINARY COURSE OF BUSINESS AND IT WAS A BUSINESS EXPEDIENCY THAT THE ASSESSEE HAD DECIDED TO MAKE THE SALES IN THE DOMESTIC MARKET THROUGH ACL. IN THE CASE S WHERE SALE HAS BEEN MADE TO ACL THEN IT HAS BEEN MADE ON PRE DETERMIN ED PRICE AND WHATEVER FURTHER SALES HAS BEEN MADE BY THE ACL IS NOT THE CONCERN OF THE ASSESSEE. HOWEVER ONLY WHEN THE BILL HAS BEEN RAISED DIRECTLY TO THE BUYERS ON THEIR INSISTENCE THEN THE ASSESSEE HAD PAID THE DIFFERENCE AMOUNT TO THE ACL AS COMMISSI ON. SUCH A TRANSACTION IS IS NOTHING BUT ONLY A COMMERCIAL EXPEDIENCY AND BUSINESS EXIGENCY. IT IS PREROGATIVE OF THE BUSINESSMAN TO CONDUCT THE BUSINESS IN THE MANNER IT SUITS ITS BUSINESS EXPEDIENCY AND NECESSITY. IN THE PRESENT CASE THE BUSINESS EXPEDI ENCY CANNOT BE DOUBTED LOOKING TO THE OVER ALL TRANSACTION UNDERTAKEN BY THE ASSESSEE THROUGH ACL. MOREOVER THE GENUINENESS OF THE PAYMENT IS ALSO CORROBORATED BY THE FACT THAT THE ASSESSEE HAS DEDUCTED TDS ON SUCH A COMMISSION AND HAS ALSO DEPOSITED IN T HE GOVERNMENT TREASURY. THIS LEADS TO SOME CREDENCE ABOUT THE GENUINENESS OF THE COMMISSION OF PAYMENT AND ITS CLAIM FOR DEDUCTION UNDER SECTION 37(1). UNDER THESE FACTS AND CIRCUMSTANCES WE ARE OF THE OPINION THAT THE PAYMENT OF COMMISSION TO ACL IS GENU INE BUSINESS EXPENDITURE WHICH HAS BEEN PAID ON ACCOUNT OF TOZAI SAFETY PVT. LTD. 9 BUSINESS AND COMMERCIAL EXPEDIENCY AND THEREFORE SUCH A CLAIM IS DULY ALLOWABLE UNDER SECTION 37(1). CONSEQUENTLY WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 8 . 8 . IN THE RESULT ASSESSEES APPEAL IS ALLOWED. 11 TH APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 11 TH APRIL 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI DATED : 11 TH APRIL 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT MUMBAI CITY CONCERNED ; ( 5 ) / THE DR ITAT MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI