ACIT, Kanpur v. M/s. Lohia Starlinger Ltd., Kanpur

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI ITA NO.136/LUC/2010 ASSESSMENT YEAR:2004-05 ACIT-4 KANPUR V. M/S LOHIA STARLINGER LTD. D-3/A PANKI INDUSTRIAL ESTATE KANPUR PAN:AAACL2470J (APPELLANT) (RESPONDENT) APPELLANT BY: SRI PRAVIN KUMAR D.R. RESPONDENT BY: SRI ASHWANI KUMAR F.C.A. O OO O R RR R D DD D E EE E R RR R PER PER PER PER H. L. KARWA H. L. KARWA H. L. KARWA H. L. KARWA: :: : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)- I KANPUR DATED 30.11.2009 RELATING TO ASSESSMENT Y EAR 2004-05. 2. GROUNDS NO.1 AND 2 OF THE APPEAL ARE DIRECTED AGAIN ST THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF $35 LAKHS BEING PAYMENT OF COMMISSION MADE TO M/S MUDIT IMPEX NEW DELHI. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPANY ALONG WITH VARIOUS UNITS IS ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALE OF MACHINERY EQUIPMENT AND SPARE PARTS FOR MANUFACTURE OF HDPE/P P TAPE WOVEN SACKS AND MACHINERY FOR PROCESSING OF MANMADE YARN IN INDIA A ND ABROAD. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE PAID A SUM OF $35 LAKHS AS COMMISSION TO M/S MUDIT IMPEX 201 SURYA KIRAN BUILDING 19 KASTOORBA GANDHI MARG NEW DELHI. THE PAYMENT WAS MADE LUMPS UM. THE ASSESSING OFFICER OBSERVED THAT SHRI MATTA AUTHORIZED REPRESENTATIVE OF M/S MUDIT IMPEX ATTENDED AND HIS STATEMENT ON OATH WAS ALSO RECORDED U/S. 131 OF THE INCOME-TAX ACT 1961 (IN SHORT ACT). ACCORDING TO THE ASSESSING OFFICER THE FACTS RELAT ING TO RENDERING OF SERVICE BY M/S MUDIT IMPEX FOR EARNING OF COMMISSION ARE SIMILAR TO THAT IN EARLIER YEAR. HE THEREFORE DISALLOWED THE COMMISSION PAID TO M/S MUDI IMPEX A MOUNTING TO $35 LAKHS. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CI T(A) THE ASSESSEE TOOK FOLLOWING LINE OF ARGUMENTS:- :-2-: (A) M/S. MUDIT IMPEX HAS BEEN FACILITATING ORDERS FOR S ALE OF MACHINERY FOR THE APPELLANT COMPANY FROM THE FINANCIAL YEAR 2002-2003 RELEVANT TO ASSESSMENT YEAR 2003-2004. IN ASSESSMENT YEAR 2003-2004. THE S AID FIRM PROCURED ORDERS OF THE SALE VALUE OF RS.570.40 LACS AND RECE IVED COMMISSION AMOUNTING TO RS.57 04 000/-. THE LD. AO IN THAT YEAR MADE D ISALLOWANCE OUT OF THE COMMISSION PAID TO M/S. MUDIT IMPEX BUT IN THE FIRS T APPEAL. THE LD. CIT(A) AFTER CONSIDERING AND APPRECIATING FULL FACTS AND T HE SERVICES RENDERED BY THE COMMISSION AGENT ALLOWED THE ENTIRE COMMISSION PAID BY THE APPELLANT COMPANY WHICH INTER ALIA INCLUDED THE COMMISSION PA ID M/S. MUDIT IMPEX ALSO. (B) THE ORDER OF THE LD CIT(A) KANPUR FOR ASSESSMENT Y EAR 2003-2004 WAS UPHELD BY THE HON'BLE LUCKNOW BENCH 'A' ITAT LUCKNO W IN APPEAL NO. 32/LUC/09 VIDE ORDER DATED 31.03.2009 A COPY OF W HICH IS ATTACHED MARKED AS ANNEXURE-2. (C) FURTHER IT IS ALSO WORTH NOTING THAT IN ASSESSMENT YEAR 2006-07 COMMISSION AMOUNTING TO RS.38 15 750/- ON VALUE OF SALE ORDERS AMOUNTING TO RS.3 05 26 000/- PAID TO M/S MUDIT IMPEX WAS ALLOWE D BY THE LD. ASSESSING OFFICER HERSELF. (D) IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSM ENT YEAR 2003-2004 IN RESPONSE TO SUMMONS ISSUED BY THE LD. ASSESSING OFFICER THE STATEMENT OF AUTHORIZED REPRESENTATIVE OF M/S. MUDIT IMPEX WAS A LSO RECORDED WHO CONFIRM NOT ONLY THE RECEIPT OF COMMISSION BUT ALSO ELABORA TED THE SERVICES RENDERED IN CONNECTION WITH THE MOBILIZATION OF SALE ORDERS. (E) YOUR HUMBLE APPELLANT IS ALSO SUBMITTING A COPY OF THE PROFIT & LOSS ACCOUNT OF SHRI DINESH JAIN PROPRIETOR OF M/S. MUD IT IMPEX FOR THE FINANCIAL YEAR 2003-2004 (FROM 01.04.2003 TO 31.03.2004) TO S HOW THAT THE AFORESAID SHRI DINESH JAIN HAS BEEN SHOWING INCOME OF MORE TH AN RS.94 00 000/- AND HAS EARNED TOTAL COMMISSION OF RS.90.87 LACS. THE C OMMISSION PAID BY THE APPELLANT WAS ONLY RS.35.00 LACS THEREFORE RS.55.8 7 LACS COMMISSION WAS RECEIVED BY HIM FROM OTHER ACTIVITIES/SOURCES. 5. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ST ATING THAT THE FACTS ARE THE SAME AND SIMILAR AS IN EARLIER YEAR. HE FURTHER HE LD THAT IN EARLIER YEAR THE TRIBUNAL HAS ALLOWED SIMILAR CLAIM OF THE ASSESSEE. IN THAT VIE W OF THE MATTER THE LD. CIT(A) DELETED THE ADDITION. :-3-: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT IN THE YE AR 2002-03 ALSO SIMILAR ISSUE WAS INVOLVED AND THIS BENCH OF THE TRIBUNAL VIDE ORDER DATED 17.10.2008 IN ITA NO. 827/LUC/2006 IN ASSESSEES OWN CASE HAS HELD AS UND ER:- 33. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE SOLD THE MACHINES THROUGH COMMISSION AGENTS. THE ASSESSING OFFICER DISALLOWED THE COMMISSION PAID TO FOUR PARTIES FOR THE REASON THAT THREE OF THEM WERE NOT PRODUCED BEFORE HIM AND THAT ALL THE FOUR PARTIES RETURNED LOSS EVEN AFTER RECEIVING THE COMMISSION. HOWEVER HE IGNORED THIS VITAL FACT THAT THE MACHINES SOLD THROUGH COMMISSION AGEN TS WERE ON THE HIGHER PRICE. THE LEARNED CIT(A) CATEGORICALLY STATED IN THE IMPU GNED ORDER THAT EVEN IF THE COMMISSION PAID BY THE ASSESSEE WAS TO BE REDUCED F ROM THE SALE PRICE THE PRICE WAS MORE AS COMPARED TO THE MACHINES SOLD WIT HOUT COMMISSION SO THE ASSESSEE WAS EARNING MORE PROFIT BY SELLING THE MAC HINES THROUGH COMMISSION AGENTS. IN THE INSTANT CASE THE IDENTITY OF THE R ECIPIENTS OF THE COMMISSION IS NOT IN DISPUTE. THE ASSESSING OFFICER HAD ALSO ENQUIRE D FROM THE COMMISSION AGENTS WHO HAVE CONFIRMED THE RECEIPT OF THE COMMISSION AN D IT HAS ALSO BEEN OBSERVED BY THE ASSESSING OFFICER THAT EVEN AFTER SHOWING TH E RECEIPT FROM COMMISSION THE SAID PARTIES I.E. THE COMMISSION AGENTS HAD RETURNE D LOSS. IN OUR OPINION IT IS NOT MATERIAL FOR DECIDING THE GENUINENESS OF THE PAYMEN T OF COMMISSION WHETHER THE AGENTS WHO RECEIVED THE COMMISSION HAVE INCURRED LO SS OR PROFIT. THE ONLY THING TO BE SEEN IS THAT THEY HAD RENDERED THE SERVICES T O THE ASSESSEE AND BY AVAILING THEIR SERVICES THE ASSESSEE WAS BENEFITED SINCE THE PRICE OF THE MACHINES SOLD THROUGH COMMISSION AGENTS WAS HIGHER THEN THOSE SOL D WITHOUT COMMISSION AGENTS AND EVEN IF THE VALUE OF THE COMMISSION WAS TO BE REDUCED FROM THE SALE PRICE OF THE MACHINES SOLD THROUGH COMMISSION AGENT S THE PROFIT/ SALE PRICE WAS HIGHER THAN THE MACHINES SOLD DIRECTLY TO THE CUSTO MERS I.E. WITHOUT THE COMMISSION AGENTS SO THERE WAS NO REVENUE LOSS BY PAYING THE COMMISSION TO THE COMMISSION AGENTS. CONSIDERING THE TOTALITY OF THE FACTS WE ARE OF THE VIEW THAT THE DETAILED ORDER PASSED BY LEARNED CIT(A) ON THIS ISSUE DID NOT REQUIRE ANY INTERFERENCE ON OUR PART. IN THAT VIEW OF THE MATT ER WE DO NOT SEE ANY MERIT IN THIS GROUND OF DEPARTMENTAL APPEAL. :-4-: 7. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION AR E SIMILAR TO THE FACTS INVOLVED FOR EARLIER YEAR THEREFORE RESPECTFULLY FOLLOWING THE AFORESAID ORDER DATED 17.10.2008 PASSED IN ASSESSEES OWN CASE IN ITA NO. 827/LUC/20 06 FOR ASSESSMENT YEAR 2002-03 WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH TH E FINDINGS OF THE LD. CIT(A). WE MAY ALSO ADD HERE THAT SIMILAR CLAIM OF THE ASSESSEE HA S BEEN ALLOWED BY THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 32/LUC/2 009 RELATING TO ASSESSMENT YEAR 2003-04 VIDE ORDER DATED 31.3.2009. IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERIT IN THESE GROUNDS OF APPEAL. ACCORDINGLY WE DISMISS GR OUNDS NO.1 AND 2. 8. GROUNDS NO.3 AND 4 OF THE APPEAL READ AS UNDER:- 3.THAT THE CIT(A)-I KANPUR HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSEE TO PUT HIS CLAIM BEFORE THE ASSESSING OFFI CER REGARDING APPLICABILITY OF PROVISION TO SECTION 80 HHC(III) OF THE INCOME TAX ACT 1961 AS THE POWER TO SET ASIDE OR REMAND ANY MATTER BACK TO THE ASSESSING OF FICER NO MORE VESTS WITH THE CIT(A) IN TERM OF SECTION 251 OF THE INCOME TAX ACT 1961. 4. THE CIT(A)-I KANPUR HAS ERRED IN LAW AND ON FACTS BY DIRECTING THE ASSESSING OFFICER TO INCLUDE INTEREST ON CREDIT SALES SERVIC E AND REPAIRING AND SUPERVISION CHARGES IN THE PROFIT OF BUSINESS AND RECOMPUTED THE DEDUCTION U/S. 80HHC OF THE INCOME-TAX ACT 1961. 9. THE ASSESSING OFFICER OBSERVED THAT A SUM OF $13 60 583 HAS BEEN DECLARED AS INTEREST RECEIVED IN THE PROFITS AND LOSS ACCOUNT. THE DETAILS OF THE SAME ARE AS UNDER:- (I) ON SUNDRY ADVANCES DEPOSITS $8 71 426 CUSTOMERS BALANCE ETC. (II) ON INVESTMENTS (FDR) $1 40 340 (III) ON INTER CORPORATE & OTHER DEPOSITS $3 48 817 $13 60 583 10. THE ASSESSEE HAS ALSO FILED DETAILS OF SUPERVISION CHARGES FOR ERECTION AND COMMISSIONING OF MACHINES INCLUDING SERVICES CHARGE S AT $8 72 675. FURTHER THE ASSESSEE CLAIMED SERVICES CHARGES FOR REPAIRING AND SERVICING OF CUSTOMERS MACHINES SUPPLIED BY THE ASSESSEE AT $2 44 878. WHILE FRAMI NG THE ASSESSMENT THE ASSESSING OFFICER HAS EXCLUDED INTEREST FROM CUSTOMERS SERVI CE AND REPAIRING CHARGES AND SUPERVISION CHARGES. :-5-: 11. ON APPEAL THE LD. CIT(A) HELD AS UNDER:- I HAVE LOOKED INTO THE FACTS AND SUBMISSIONS OF TH E CASE AND FOR THE REASONS DISCUSSED ABOVE THE ASSESSING OFFICER IS DIRECTED TO INCLUDE INTEREST FROM CUSTOMERS AND CREDIT SALES SERVICE AND REPAIRING A ND SUPERVISION CHARGES INCLUDE OTHER IN THE PROFITS OF THE BUSINESS AND RE-COMPU TE THE DEDUCTION U/S. 80HHC. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. SRI PRAVEEN K UMAR THE LD. D.R. SUBMITTED THAT WHILE DECIDING THE ABOVE ISSUE THE LD. CIT(A) HAS NOT CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF K.K. DOSHI AND CO [2008] 297 ITR 38 (SC) WHEREIN IT HAS BEEN HELD THAT THE AMENDMENT MADE BY THE FINANCE (NO.2) ACT 1991 IN SECTION 80HHC OF THE INCOME-TAX ACT 1961 WITH EFF ECT FROM APRIL 1 1992 TO THE EFFECT THAT FOR THE PURPOSE OF THE SPECIAL DEDUCTION THERE UNDER BUSINESS PROFITS WILL NOT INCLUDE RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST SERVICE CHARGES ETC. IS ONLY PROSPECTIVE AND NOT RETROSPECTIVE IN NATURE. SRI P RAVEEN KUMAR THE LD. D.R. ALSO BROUGHT TO OUR NOTICE THE DECISION OF THE HON'BLE M ADRAS HIGH COURT IN THE CASE OF CIT V. ASHOK LEYLAND LTD. [2008] 297 ITR 107 (MAD.). SRI PRAVEEN KUMAR THE LD. D.R. SUBMITTED THAT THE ISSUE UNDER CONSIDERATION MAY BE REMANDED TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME AFRESH KEEPING IN VIEW TH E ABOVE TWO DECISIONS. IN OUR VIEW THERE IS A MERIT IN THE ABOVE SUBMISSIONS OF SRI PR AVEEN KUMAR THE LD. D.R. AND THEREFORE WE THINK IT PROPER TO SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE LD. CIT(A ) WITH A DIRECTION TO CONSIDER THE ABOVE TWO DECISIONS AND DECIDE THE ISSUE AFRESH IN ACCORD ANCE WITH LAW AFTER AFFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ACCORDINGLY GROUNDS NO.3 AND 4 OF THE APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE S. 13. FOR STATISTICAL PURPOSE THE APPEAL IS ALLOWED PART LY AS INDICATED ABOVE. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.2.201 1. SD/- SD/- [ N. K. SAINI] [H. L. KARWA] ACCOUNTANT MEMBER VICE PRESIDENT DATED:28.2.2011 JJ:2802 :-6-: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR