M/s Innovative Intex (P) Ltd., Gurgaon v. ITO, New Delhi

ITA 1427/DEL/2011 | 1997-1998
Pronouncement Date: 16-09-2011 | Result: Allowed

Appeal Details

RSA Number 142720114 RSA 2011
Bench Delhi
Appeal Number ITA 1427/DEL/2011
Duration Of Justice 5 month(s) 26 day(s)
Appellant M/s Innovative Intex (P) Ltd., Gurgaon
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 16-09-2011
Date Of Final Hearing 12-09-2011
Next Hearing Date 12-09-2011
Assessment Year 1997-1998
Appeal Filed On 21-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO.1427/DEL/2011 ASSESSMENT YEAR : 1997-98 INNOVATIVE INTEX (P) LTD. 606-607 SUN CITY BUSINESS TOWER SECTOR 54 GURGAON. PAN : AAAC10067J VS. ITO WARD 11 (4) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI THAKUR REPUDAMAN FCA REVENUE BY : SHRI SALIL MISHRA SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 14 TH JANUARY 2011 FOR ASSESSMENT YEAR 1997-98. THE GROUNDS OF APPEAL READ AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE ACTION OF THE CIT (A)-VIII NEW DELHI IS ERRONEOUS ARBITRARY FALLACIOUS AND ILLEGAL ON THE FOLLOWING GROUNDS AND THEREFORE MERITS TO BE QUASHED:- 1) THAT CIT(A) ERRED IN CONFIRMING THE ORDER BEING P ASSED BY ASSESSING OFFICER U/S 143(3)/254 OF THE ACT IN TOTAL DI SREGARD OF: I) SEC.131 VIS-A-VIS SEC.136 AND 293 OF THE INCOME-TA X ACT; II) SEC.138 VIS-A-VIS SEC. 280 AND 293 OF THE INCOME -TAX ACT; III) DOCUMENTARY EVIDENCES 2) THAT THE CIT(A) FAILED TO APPRECIATE THE FACTS PROPERL Y AND ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION E XPENSES OF ITA NO.1427/DEL/2011 2 RS.5 OO OOO/- BY A.O. WHO TOTALLY IGNORED THE SPECIFI C PROVISIONS OF SEC.56(1) VIS-A-VIS SEC.57(III) OF THE ACT BEING COVERED BY 'CHAPTER IV-F' AND ERRONEOUSLY APPLIED THE PROVISIONS OF 'CHAPTER IV-D' OF THE ACT AND HENCE SUC H CONFIRMATION IS OPPOSED TO BASIC PRINCIPLES OF NATURAL JUSTICE AND FAIR PLAY. 3) THAT THE CIT(A) ERRED IN CONFIRMING THE ORDER OF A. O. WHO TOTALLY FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE BEI NG A PRIVATE LTD. COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND MAINTAINING COMPLETE BOOKS WHICH WERE DULY AUDITED AND THERE WAS NO DEFECTS IN THE BOOKS OR SPECIF IC INSTANCE IN REGARD TO SUPPRESSION OF PURCHASES AND SA LES AND FURTHER THERE IS NO OCCASION TO INVOKE SEC.145 OF THE A CT IS A PRIMA FACIE EVIDENCE OF GENUINENESS OF THE TRANSACTION WITH REGARD TO COMMISSION. 4) THAT THE CIT(A) FAILED TO APPRECIATE THAT THE ITO IS NO T ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THER E MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESS MENT OR ADDITION OR DISALLOWANCE. 5) THAT CIT (A) ERRED IN NOT DISMISSING THE GROUND OF CHARGING INTEREST U/S 234A & 234B & 234C AND WITHDRAWING REFUND OF INTEREST ALLOWED U/S.244A OF THE ACT; 6) THAT CIT (A) ERRED IN NOT DISMISSING THE GROUND OF INITIATING PENALTY PROCEEDINGS U/S 271 (1 )(C) OF THE ACT; 7) THAT THE RECOVERY OF RS.3 OO OOO/- BY THE INCOME-TAX DEPARTMENT IS TOTALLY ILLEGAL IN VIEW OF ARTICLE 265 OF THE CONSTITUTION OF INDIA. 8) THAT THE APPELLANT CRAVE LEAVE TO TAKE ADDITIONAL GROU ND OR GROUNDS OF APPEAL OR TO ALTER OR VARY ANY OR ALL THE G ROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. THE IMPUGNED ASSESSMENT ORDER IS DATED 31 ST DECEMBER 2007 PASSED U/S 143(3)/254 OF INCOME-TAX ACT 1961 (THE ACT ). THE ISSUE REGARDING DISALLOWANCE OF ` 5 LAC WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF ASSESSING OFFICER FOR EXAMINATION OF THE FA CT REGARDING RENDERING OF SERVICES BY M/S VITAL CASTING LTD. TO THE ASSESSEE FOR COMMISSION PAYMENT TO THE SAID PARTY. DURING THE COUR SE OF ITA NO.1427/DEL/2011 3 ASSESSMENT PROCEEDINGS THE ASSESSEE VIDE ITS LETTER DATED 6 TH AUGUST 2007 HAD SUBMITTED AS UNDER:- I) THE COMPANY HAD A WRITTEN AGREEMENT FOR PAYING O F COMMISSION TO M/S VITAL CASTINGS LTD. II) THE PAYMENT WAS MADE THROUGH CHEQUES. III) THERE WAS AN ASCERTAINED AND DETERMINED LIABILIT Y AS ON 31.03.1997. IV) THERE WAS PROOF OF SERVICES RENDERED BY M/S VITAL CASTINGS LTD. FOR OBTAINING EXPORT ORDERS. V) THE EXPENDITURE ON COMMISSION HAS BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF ASSESSEE COMPANY. VI) THERE WAS MOU TO THIS EFFECT. VII) THERE WAS CORRESPONDENCE REGARDING DISPUTE OF RAT E OF COMMISSION. VIII) IT WAS ON ACCOUNT OF SUCH ASSURANCE AND LATER PAY MENT THE ASSESSEE COMPANY HAD PROCURED THE ORDER AND EARNED COMMISSION. IX) THE RECIPIENT COMPANY HAD ADMITTED THE COMMISSION AND DULY REFLECTED IN THE INCOME-TAX RETURN FOR THE A.Y. 1997-98. 3. HOWEVER THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT THE NATURE OF SERVICES RENDERED BY M/S VITAL CASTINGS LT D. IN RESPONSE TO LETTER ISSUED BY THE ASSESSING OFFICER TO M/S VITAL CAST INGS LTD. A LETTER WAS SENT BY THE SAID PARTY TO THE ASSESSING OFFICER BY SPEED POST WHICH IS DATED 28 TH DECEMBER 2007 AND VIDE SAID LETTER IT WAS STATED THAT THE TRANSACTION BEING SO OLD THE RELEVANT DOCUM ENTS PERTAINING TO RENDERING SERVICES AS WELL AS BANK STATEMENT WAS NOT READ ILY AVAILABLE. THE ASSESSING OFFICER ALSO NOTED THE FACT THAT THE AMOUN T PAID BY THE ASSESSEE TO THE SAID PARTY AS COMMISSION WAS ASSESSED IN THE HAN DS OF THE SAID PARTY AS AN INCOME FROM UNDISCLOSED SOURCES AND IT WAS NOT ITA NO.1427/DEL/2011 4 ASSESSED AS A BUSINESS INCOME VIDE ASSESSMENT ORDER DATED 24 TH MARCH 2000 PASSED U/S 143 (3) OF THE ACT. IT IS IN TH IS MANNER THE DISALLOWANCE MADE WAS REPEATED. LEARNED CIT (A) HAS U PHELD THE DISALLOWANCE ON THE BASIS THAT THE ASSESSEE DID NOT SUBMIT ANY DOCUMENT REGARDING RENDERING OF SERVICES BY THE AFORE MENTIONED PARTY TO THE ASSESSEE AND THE SCOPE OF INQUIRY WAS LIMITED ONLY TO THE POINT OF RENDERING OF SERVICES. THE ASSESSEE IS AGGRIEVED HENC E IN APPEAL. 4. THE LEARNED AR OF THE ASSESSEE HAS FILED BEFORE US AN APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE WHICH IS DATED 12 TH SEPTEMBER 2011 VIDE WHICH THE ASSESSEE HAS SOUGHT PERMISSION OF THE T RIBUNAL TO SUBMIT CERTAIN ADDITIONAL DOCUMENTS WHICH ARE AS UNDER :- S.NO. PARTICULARS PAGE NO. 1. PROFILE OF RAKESH BAJAJ B. TECH TEXTILE ENGINEE R ALONG WITH DIRECTORSHIP IN OTHER COMPANY 57-58 2. LETTER DATED 28.05.1996 FROM VITAL CASTINGS LTD. OBJEC TING TO THE UNILATERAL ACT OF TRANSFERRING LCS WITHOUT ITS CONSULTATION VIS A VIS MOU. 59-59A 3. LETTER DATED 05.06.1996 FROM INNOVATIVE INTEX (P) LTD. EXPLAINING THE REASON IN RESPONSE OF REPLY OF A LETTER DATED 28.05.1996. 60-60A 4. LETTER DATED 10.06.1996 FROM VITAL CASTINGS LTD. STRONGLY OBJECTED TO SUCH LCS TRANSFER DUE TO HEAVY FINANCIAL LOSSES. 61-61A 5. LETTER DATED 29.06.1996 FROM INNOVATIVE INTEX (P) LTD. REGRETTING TO THE TRANSFER OF LCS TO WINSOME YARN LTD. UNILATERALLY. 62-62A 6 LETTER DATED 15.07.1996 FROM VITAL CASTINGS LTD. REGARDING THE PAYMENT OF COMMISSION OF 2.5% OF THE VALUE OF EXPORT. 63-63A 7. LETTER DATED 05.08.1996 FROM INNOVATIVE INTEX (P) LTD. EXPLAINING THAT THE COMMISSION PAYMENT CANNOT EXCEED 2%. 64-64A 8. LETTER DATED 16.09.1996 FROM VITAL CASTINGS LTD. SEEKING EXACT VALUE OF EXPORT TO RAISE DEBIT NOTES FOR COMMISSION. 9. LETTER DATED 01.03.1997 FROM VITAL CASTINGS LTD. AGREEING TO COMMISSION OF RS.5.00 LACS IN FULL AND F INAL SETTLEMENT. 66-66A 10. LETTER DATED 01.08.1997 FROM VITAL CASTINGS LTD. AS REMINDER FOR DELAY IN MAKING THE COMMISSION PAYMENT. 67-67A ITA NO.1427/DEL/2011 5 11 LETTER DATED 27.08.1997 FROM INNOVATIVE INTEX (P) LTD. EXPLAINING THE REASON FOR DELAYING IN MAKING THE PAYMENT. 68-68A 12. LETTER DATED 05.01.1998 FROM VITAL CASTINGS LTD. AS REMINDER FOR DELAY IN MAKING THE COMMISSION PAYMENT. 69-69A 13. LETTER DATED 19.03.1998 FROM INNOVATIVE INTEX (P) LTD . ENCLOSING THE 50% COMMISSION PAYMENT OF RS.2.5 LAC VI DE CH NO.310323 DRAWN ON VIJAYA BANK DELHI. 70-70A 14. WINSOME YARNS LIMITED IS A 100 EOU UNIT PROOF CONFIRMING THE SAME. 71 5. COPY OF THE AFOREMENTIONED ADDITIONAL PAPERS SUBMI TTED BY THE ASSESSEE WAS ALSO GIVEN TO THE LEARNED DR. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IT HA S BEEN THE CASE OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THERE WAS A CORRESPONDENCE REGARDING DISPUTE OF RATE OF COMMISSION. THUS THE FACT OF EXISTENCE OF CORRESPONDENCE REGARDING DISPUTE ON RATE OF COMMISSION WAS MENTIONED TO THE ASSESSING OFFICER BUT THE DOCUMENTS RELATING THERETO WERE NOT PRODUCED BY THE ASSESSEE. NOW FROM THE PERUSAL OF THE ADDITIONAL PAPER BOOK FILED BY THE ASSESSEE THE ASSESSEE IS RELYING UPON CERTAIN LETTERS ISSUED BY M/S VITAL CASTINGS LTD. TO THE ASSESSEE WHEREIN THE SAID PARTY HAD RAISED D ISPUTE REGARDING RATE OF COMMISSION WHICH THE ASSESSEE HAS PAID T O THE SAID PARTY @ 2% AND THE SAID PARTY IS CLAIMING THE COMMISSIO N @2.5%. THEREFORE THOSE LETTERS OF THE SAID PARTY SHOULD BE AD MITTED AS ADDITIONAL EVIDENCE AND THE FACT OF THERE BEING COR RESPONDENCE WITH REGARD TO DISPUTE REGARDING RATE OF COMMISSION WAS THER E ALREADY ON FILE. THEREFORE WE ADMIT THE SAME. 7. AS PER DETAILS FILED WITH RESPECT TO THE COMMISSION E ARNED BY THE ASSESSEE IN THE SHAPE OF LETTER ISSUED BY WINSOME YARNS LIMI TED A COPY OF WHICH IS FILED AT PAGES 33-34 OF THE PAPER BO OK THE COMMISSION OF ` 7 65 348.8% HAS BEEN PAID TO THE ASSESSEE WHICH IS @ 3% IN RESPECT OF LCS OBTAINED OF ` 2 55 11 627/-. ITA NO.1427/DEL/2011 6 8. AS PER COPY OF LETTER ISSUED BY M/S VITAL CASTINGS LTD . (PAGE 31 OF THE PAPER BOOK) ISSUED TO THE ASSESSEE THE DETAILS OF THO SE TRANSACTIONS HAVE BEEN GIVEN UPON WHICH THE ASSESSEE HAS R ECEIVED THE COMMISSION AND IT IS MENTIONED THAT THEIR COMMISSION IS DUE @ 2/3 WHICH IS ACCOUNTED AT ` 5 09 092/- AND ROUNDED OF TO ` 5 LAC. 9. THE RECEIPT OF COMMISSION AND THE CREDIT THEREOF I N THE ACCOUNT OF M/S VITAL CASTINGS LTD. IS NOT IN DISPUTE. IF THE CO NTENTS OF THE LETTERS FILED AS ADDITIONAL EVIDENCE ARE SEEN THEY RELATES TO THE PERIOD MAY TO MARCH 1998 AND CONSISTENTLY THE SAID PARTY NAMELY V ITAL CASTINGS LTD. HAS BEEN CLAIMING FROM THE ASSESSEE THAT THE COMMISSI ON ON THE SAID TRANSACTION SHOULD BE PAID TO THEM @ 2.5% INSTEAD OF 2% PAID. THE REASON FOR CLAIMING SUCH EXPENDITURE HAS BEEN FIRST LY STATED IN LETTER OF VITAL CASTINGS LTD. DATED 28 TH MAY 1996 THE CONTENTS OF WHICH ARE AS SUNDER:- SUB : TRANSFER OF EXPORT LCS PLEASE REFER TO YOUR LETTER DATED MAY 24 1996 IN THIS REGARD AND SUBSEQUENT TELEPHONIC CONVERSATION OF THE UNDERSIGN ED WITH MR. BIPIN BAJAJ WE STRONGLY OBJECT TO THE UNILATERAL A CTION OF YOUR COMPANY IN HAVING TRANSFERRED THE LCS TO M/S WIN SOME YARNS LIMITED WITHOUT OUR CONCURRENCE. PLEASE REFER TO PARA 2 OF MOU SIGNED BETWEEN OUR COMP ANIES INNOVATIVE INTEX PRIVATE LIMITED WAS SUPPOSE TO EXECUTE TH E EXPORT ORDER DIRECTLY AS FAR AS POSSIBLE AND TRANSFER OF EXPORT ORDER TO ANY OTHER THIRD PARTY IN CASE OF ITS INABILITY TO EXECUTE THE EXPORT ORDER WAS TO BE ONLY IN CONSULTATION WITH OUR COMPANY. YOUR CONDUCT IN HAVING TRANSFERRED THE LCS UNILATERALL Y HAS BETRAYED THE TRUST OUR COMPANY HAS REPOSED IN YOUR COMP ANY. YOUR UNILATERAL ACTION OF HAVING TRANSFERRED THE LCS W ITHOUT OUR CONSULTATIONS HAS PUT OUR COMPANY INTO FINANCIAL LOSS SINCE AS PER OUR MUTUAL UNDERSTANDING IN ANY CASE OUR COMPAN Y (VCL) WAS TO GET A COMMISSION OF AT LEAST 2.5% OF THE VALUE OF THE LCS. SINCE YOU HAVE DONE THE TRANSFER UNILATERALLY YOU WILL HAVE TO PAY US 2.5% OF THE VALUE OF THE LCS. ITA NO.1427/DEL/2011 7 9.1 THE REPLY OF THE SAID LETTER WAS SENT BY THE ASSESSEE TO VITAL CASTINGS LTD VIDE LETTER DATED 5 TH JUNE 1996 WHICH ARE AS UNDER:- SUB: TRANSFER OF EXPORT LCS PLEASE REFER TO YOUR LETTER DATED 28 MAY 1996 AND OUR SUBSEQUENT TELEPHONIC CONVERSATION. IN THIS REGARDS W E MAY SUBMIT THAT THE COMPANY HAS TRANSFERRED THE LCS TO M/S WINSOME YARN LIMITED IN GOOD FAITH. DUE TO REASON BEY OND OUR CONTROL WE WERE NOT IN A POSITION TO EXECUTE THE EXPORT O RDER OF OUR OWN AND THE PERIOD OF THE LCS WAS RUNNING OUT. T HEREFORE WE FOUND IT APPROPRIATE TO FIND A THIRD PARTY WHO COULD EXECUTE THE ORDERS. UNFORTUNATELY THE DAY WE HAD NEGATIONS YO U WERE OUT OF TOWN AND IN GOOD FAITH WE TRANSFERRED THE LCS. T HERE WAS NO MALA FIDE INTENTION ON OUR PART OF HAVING TRANSFERRE D THE LCS. THEREFORE WE REQUEST TO TAKE THE DECISION TAKEN BY US I N HAVING TRANSFERRED THE LCS IN GOOD SPIRIT. 9.2 THEREAFTER THERE ARE SO MANY LETTERS EXCHANGED B ETWEEN THE ASSESSEE AND THE SAID PARTY. 9.3 THESE LETTERS PROVE BEYOND DOUBT THAT M/S VITAL CA STINGS LTD. HAD RENDERED THE SERVICES TO THE ASSESSEE FOR WHICH THE COMMI SSION WAS PAID BY THE ASSESSEE TO THAT PARTY. THE SAID COMMISSION W AS AS PER THE TERMS OF THE MEMORANDUM OF UNDERSTANDING ENTERED INTO BY THE ASSESSEE WITH M/S VITAL CASTINGS LTD. IN THIS VIEW OF THE F ACTUAL SITUATION WE ARE OF THE OPINION THAT THE ADDITION D ESERVES TO BE DELETED AND THE SAME IS DELETED. THE OTHER ISSUES WERE NOT ARGUED BY THE LEARNED AR THEREFORE THEY DO NOT REQUIRE ANY ADJUDICATION. 10. SO FAR AS IT RELATES TO THE GROUND SOUGHT TO BE TA KEN AS ADDITIONAL GROUND FOR LEVY OF INTEREST U/S 220 (2) THOUGH THE SA ID ISSUE HAS BECOME INFRUCTUOUS IN VIEW OF OUR ORDER DELETING THE IMPUGNED ADDITION BUT THE LEVY OF INTEREST U/S 220(2) IS MANDA TORY AND AUTOMATIC. THE ASSESSING OFFICER IS DIRECTED TO RECOMPU TE INTEREST U/S 220(2) AS PER THE PROVISIONS OF LAW IF THE SAME IS LEVI ABLE EVEN ON THE TAX REMAINING PAYABLE AFTER DELETION OF THE IMPUGNE D ADDITION. SIMILAR ITA NO.1427/DEL/2011 8 WILL BE THE DIRECTIONS FOR INTEREST LEVIED UNDER OTHE R SECTIONS THE LEVIABILITY OF WHICH IS ALSO CHALLENGED BY THE ASSESSEE IN THE IMPUGNED APPEAL. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 16.09.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES ITA NO.1427/DEL/2011 9 DATE OF DICTATION 12.09.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 13.09.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH