ITO, Malerkotla v. M/s Dashmesh Mechanical Works, Malerkotla

ITA 1463/CHANDI/2010 | 2007-2008
Pronouncement Date: 21-11-2011 | Result: Dismissed

Appeal Details

RSA Number 146321514 RSA 2010
Bench Chandigarh
Appeal Number ITA 1463/CHANDI/2010
Duration Of Justice 10 month(s) 21 day(s)
Appellant ITO, Malerkotla
Respondent M/s Dashmesh Mechanical Works, Malerkotla
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 21-11-2011
Date Of Final Hearing 15-11-2011
Next Hearing Date 15-11-2011
Assessment Year 2007-2008
Appeal Filed On 31-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS. SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI MEHAR SINGH ACCOUNTANT MEMBER ITA NO. 1463/CHD/2010 ASSESSMENT YEAR: 2007-08 ITO-IV(3) V M/S DASHMESH MECHANICAL MALERKOTLA. WORKS RAIKOT ROAD MALERKOTLA. PAN: AAAFD-8311M (APPELLANT) (RESPONDENT) DEPARTMENT BY: SMT. JAISHREE SHARMA ASSESSEE BY : NONE DATE OF HEARING : 15.11.2011 DATE OF PRONOUNCEMENT : 21.11.2011 ORDER PER MEHAR SINGH AM THE PRESENT APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER DATED 18.10.2010 PASSED BY THE LD. CIT(A) U/S 250(6) OF THE INCOME-TAX ACT 1961 (IN SHORT 'THE ACT'). 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THAT THE CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS.11 62 770/- MADE BY THE AO BY MAKING DISALLOWANCE OUT OF COMMISSION EXPENSES. 2. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.53 265/- MADE BY THE AO BY RESTORING TO PROVISION U/S 40(IA). 3) THAT THE ORDER OF THE CIT(A)-II BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2 4. THE APPELLANT CARVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. ON 25.7.2011 THE CASE WAS ADJOURNED TO 18.10.20 11 AT THE REQUEST OF THE COUNSEL. ON 18.10.2011 NONE ATT ENDED FOR THE ASSESSEE AND THE CASE WAS ADJOURNED FOR 15. 11.2011. ON 15.11.2011 NONE ATTENDED ON BEHALF OF THE ASSES SEE. CONSEQUENTLY THE CASE IS ADJUDICATED ON THE BASIS OF AVAILABLE MATERIAL ON RECORD. 4. THE LD. 'DR' PLACED RELIANCE ON THE ASSESSMENT O RDER AND ALSO CITED ONE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF ACIT V MEHRU ELECTRICAL & ENGG. (P) LTD. ITA NO. 215/JP/2009 DATED 26.02.2010 TO SUPPORT HER CONTENT IONS. 5. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE BRIEF F ACTS NECESSARY FOR THE DISPOSAL OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME AT RS.4 81 880/-. THE AO FRAMED THE ASSESSM ENT U/S 143(3) AT RS.17 14 830/- BY MAKING ADDITION ON ACCOUNT OF DISALLOWANCE OF COMMISSION AT RS.11 62 770/- AND DISALLOWANCE ON ACCOUNT OF JOB CHARGES AT RS.53 265 /-. 6. IN GROUND NO.1 THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.11 62 770/-. THE AO IN THE ASSESSME NT ORDER DATED 13.12.2009 U/S 143(3) OF THE ACT DISALLOWED COMMISSION EXPENSES TO RS.11 62 770/-. IN THE COUR SE OF ASSESSMENT PROCEEDINGS STATEMENTS OF THREE PERSONS NAMELY S/SHRI MAJOR SINGH ASHOK LOOMBA AND MANISH LOOMBA TO WHOM COMMISSION HAD BEEN PAID WERE RECORDED. THE AO 3 WAS NOT SATISFIED ABOUT THE GENUINENESS OF SUCH PAY MENT OF COMMISSION TO THESE PERSONS. HE ALSO OBSERVED THAT COMMISSION EXPENSES IN THE YEAR UNDER CONSIDERATION HAD BEEN CLAIMED AT RS.16 62 270/- ON THE SALES OF 14.4 5 CRORES WHEREAS IN THE IMMEDIATELY PRECEDING YEAR COMMISSI ON EXPENSES WERE CLAIMED AT RS.3 08 000/- ON TOTAL SAL ES OF RS.8.88 CRORES. CONSEQUENTLY ON PRO-RATA BASIS OF SALES QUA COMMISSION EXPENSES OF PRECEDING ASSESSMENT YEA R THE COMMISSION FOR THE ASSESSMENT YEAR IN QUESTION WAS WORKED OUT BY THE AO AT RS.5 LACS AND THE BALANCE COMMISSI ON CLAIMED BY THE ASSESSEE WAS DISALLOWED AT RS.11 62 770/-. LD. CIT(A) ON APPRECIATION OF THE FACTS OF THE CAS E AND SUBMISSIONS FILED BY THE ASSESSEE DELETED THE IMPUG NED ADDITION. THE FINDINGS OF THE LD. CIT(A) DELETING THE SAID ADDITIONS ARE REPRODUCED HEREUNDER : AFTER GOING THROUGH THE ORDER U/S 143(3) PASSED BY THE LD. AO AND WRITTEN ARGUMENTS FILED BY THE APPELLANT IT IS AN ACCEPTED FACT THAT THE COMMISSIO N EXPENSES HAVE BEEN INCURRED BY THE APPELLANT. NAME AND COMPLETE ADDRESS OF ALL COMMISSION AGENTS TO WHOM COMMISSION HAS BEEN PAID HAD BEEN FURNISHED DURING ASSESSMENT PROCEEDINGS. ALL THESE PERSONS WERE EXISTING ASSESSEE AND COPIES OF THEIR RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION WERE ALSO FILED. THE DETAILS OF SALES MADE THROUGH SUCH PERSO NS WERE ALSO FURNISHED. STATEMENTS OF THREE COMMISSION AGENTS NAMELY MAJOR SINGH ASHOK LOOMBA AND ASHISH LOOMBA WERE RECORDED DURING ASSESSMENT PROCEEDINGS AND ALL OF THEM CONFIRMED RECEIPT OF COMMISSION FRO M THE APPELLANT ASSESSEE. THE COMMISSION HAS BEEN PAI D THROUGH PAYEES ACCOUNT CHEQUE EXCEPT TO ONE COMMISSION AGENT MAJOR SINGH WHO HAS BEEN PAID 4 COMMISSION IN KIND AND NECESSARY EVIDENCE HAS BEEN PRODUCED DURING THE ASSESSMENT PROCEEDINGS BEFORE THE LD. AO. THE LD. AO HAS ALLOWED COMMISSION EXPENSES OF RS.5 00 000/- AS AGAINST RS.16 62 270/- CLAIMED BY THE APPELLANT AND HELD THAT COMMISSION COULD BE ALLOWED ON TOTAL SALES OF THIS YEAR RS.14 45 03 500/- ON PRORATE BASIS OF SALES OF LAST YEAR. THE LD. AO DOES NOT DOUBT THE GENUINENESS OF COMMISSION EXPENSES BUT HELD THAT COMMISSION EXPENSES COULD BE ALLOWED ON TOTAL SALES OF THIS YE AR ON PRORATE BASIS OF SALES OF LAST YEAR. THE AUTHORI ZED REPRESENTATIVE OF THE APPELLANT ASSESSEE HAS PLEADE D THAT METHODOLOGY ADOPTED FOR DISALLOWING THE COMMISSION PAYMENT IS CRUDE AND TOTALLY UNJUSTIFIED AS EXPENSES ARE INCURRED DURING THE COURSE OF REGUL AR BUSINESS AND FOR INCURRING EXPENSES NO ARITHMETICAL FORMULA CAN BE DEVISED. THE AUTHORIZED REPRESENTATI VE FURTHER PLEADS THAT COMMISSION HAS BEEN ALLOWED ON PRORATE BASIS AND THIS MEANS THAT COMMISSION PAID T O EACH PERSON IS PARTLY ALLOWABLE AND PARTLY DISALLOWABLE WITHOUT ASSIGNING ANY REASON. THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT ASSESSEE HAS RELIED UPON FOLLOWING DECISIONS IN SUPPORT OF H IS WRITTEN SUBMISSIONS. 1. SASSOON J.DAVID & COMPANY PVT.LTD. V CIT REPORTED IN 118 ITR 261 (S.C) : ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS THE ASSESSEE CAN CLAIM DEDUCTION U/S 10(2)(XV) OF THE ACT EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. 2. SMT.SATINDERJEET KAUR V ITO REPORTED IN 52 TTJ 388 (ITAT CHANDIGARH BENCH CHANDIGARH) 5 IT IS TRUE THAT COMMISSION HAS BEEN PAID AT A UNIFORM RATE AND NO WRITTEN AGREEMENTS HAVE BEEN ENTERED INTO. IT IS HOWEVER NOT NECESSARY THAT THERE MUST BE WRITTEN AGREEMENT BEFORE A PARTICULAR COMMISSION PAYMENT IS ALLOWED AS A DEDUCTION. ONE HAS TO LOOK INTO THE SURROUNDING CIRCUMSTANCES INCLUDE THE AFFIDAVITS OF THE PARTIES THEIR STATEMENTS THE DETAILS OF THE PARTIES TO WHOM THE SALES WERE EFFECTED COPIES OF THE ACCOUNT OF THE COMMISSION AGENTS AND THEIR ADMISSION THAT THEY DID RECEIVE THE COMMISSION FROM THE ASSESSEE. 3. CIT V DALMIA CEMENT (BHARAT) LTD. REPORTED IN 254 ITR 377 (DELHI HIGH COURT ) IT IS TO BE NOTED THAT IN THE PRESENT CASE THE QUESTION THAT HAS BEEN RAISED BY THE REVENUE IS NOT ONE RELATING TO THE EXPENDITURE BEING NOT FOR THE PURPOSE OF THE BUSINESS. IT IS AN QUESTION OF THE APPROPRIATE AMOUNT WHICH WOULD HAVE BEEN PAID AS COMMISSION. IN FACT THE AO HIMSELF HAS ALLOWED TO THE EXTENT OF RS.4 35 854/- HOLDING INTER ALIA THE PAYMENT OF RS.1.75 PER MT TO CEMENT DISTRIBUTORS LTD. IS VERY MUCH ON THE EXCESSIVE SIDE. THIS IN OUR VIEW WAS IMPERMISSIBLE WITHIN THE FRAME WORK OF S.37 OF THE ACT. THE JURISDICTION OF THE REVENUE IS CONFINED TO DECIDING THE REALTY OF THE EXPENDITURE NAMELY WHETHER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR ;LAID DOWN AND WHETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE REASONABLENESS OF THE EXPENDITURE COULD GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER IN FACT THE AMOUNT WAS SPENT. ONCE IT IS ESTABLISHED THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN 6 THE ARMCHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH IS A REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. 7. FURTHER THE APPELLANT ASSESSEE PLEADED THAT THE SALES DURING THE YEAR INCREASED BY RS.5.50 CRORE AN D IF FOR THAT PURPOSE IT HAD TO INCUR COMMISSION EXPENSES OF RS.13 54 LACS (16.62 (2007-2008 MINUS 3.08 (2006-2007)=13.54 LACS) CANNOT BE DESCRIBED AS UNREASONABLE ESPECIALLY WHEN THE IDENTITY OF THE PERSONS TO WHOM COMMISSION HAS BEEN PAID AND GENUINENESS OF PAYMENT STANDS ESTABLISHED. IT HAS BEEN FURTHER PLEADED THAT COMMISSION HAS BEEN PAID TO PERSONS WHO AFFECTED ACTUAL SALES OF AGRICULTURA L MACHINERY AND NOT ON THE VALUE OF TOTAL SALES. NO COMMISSION HAS BEEN PAID ON THE SALES MADE DIRECTLY BY THE ASSESSEE. THE APPELLANT ASSESSEE FURTHER PLEADS THAT COMMISSION OF RS.1662770/- HAS BEEN PAID ON TOTAL SALES OF RS.4 09 CRORE AND NO COMMISS ION HAS BEEN PAID ON BALANCE SALES WORTH RS.10.36 CRORE (14.45 CRORE MINUS 4.09 CRORE = 10.36 CRORE). AFTER GOING THROUGH THE ORDER PASSED U/S 143(3) AND WRITT EN SUBMISSIONS FILED BY THE APPELLANT ASSESSEE I AM CONVINCED THAT THE LD. AO WAS NOT JUSTIFIED IN DISALLOWING COMMISSION EITHER ON PRORATE BASIS OR OTHERWISE AS THE APPELLANT HAS PRODUCED COMPLETE EVIDENCE DISCUSSED SUPRA. ALL THE PERSONS WERE IDENTIFIABLE DETAILS OF SALES MADE THROUGH THEM WA S AVAILABLE; PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE INCASE OF ALL PERSONS EXCEPT ONE TO WHOM IT HAS BEEN PAID IN KIND AND HAD BEEN ACCOUNTED FOR BY EAC H PERSON IN HIS RETURN OF INCOME. THE INCREASE IN COMMISSION EXPENSES CANNOT BE THE BASIS OF ANY DISALLOWANCE ESPECIALLY WHEN THE GENUINENESS OF THE SAME STANDS ESTABLISHED. THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF 7 BUSINESS KEEPING IN VIEW THE RATIO OF JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF SASSOON J DAVI D COMPANY P.LTD. V CIT 118 ITR 261 AND THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF SMT.SATINDERJEET KAUR V ITO 52 TTJ 388 IT IS HELD THAT THE LD. AO W AS NOT JUSTIFIED IN MAKING DISALLOWANCE OF COMMISSION EXPENSES OF RS.1162770/-. THE ADDITION OF RS.1162770/- IS THEREFORE DELETED. 7. THE LD. CIT(A) ON APPRECIATION OF THE DECISIONS IN THE CASE OF SASSOON J.DAVID & COMPANY PVT. LTD. V CIT 118 ITR 261 (S.C) SMT.SATINDER KAUR V ITO 52 TTJ 388 (ITAT CHANDIGARH BENCH) AND CIT V DALMIA CEMENT (BHARAT) LTD. 254 ITR 377 (DELHI HIGH COURT) AND FACTS OF THE CAS E HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE CO MMISSION EITHER ON PRO-RATA BASIS OR OTHERWISE AS THE APPELL ANT HAD PRODUCED COMPLETE EVIDENCE IN THE MATTER. ALL THE PERSONS TO WHOM THE COMMISSIONS WERE PAID WERE IDENTIFIABL E AND THE DETAILS OF SALES MADE THROUGH THEM WERE ALSO AV AILABLE. FURTHER THE PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE IN ALL THE CASES EXCEPT ONE TO WHOM IT HAS B EEN PAID IN KIND AND HAD BEEN ACCOUNTED FOR BY EACH PERSON I N HIS RETURN OF INCOME. INCREASING COMMISSION EXPENSES P ERSE CANNOT BE CONSTRUED AS NON-GENUINENESS OF THE TRANS ACTION. HAVING REGARD TO THE DETAILED FINDINGS OF THE LD. C IT(A) WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO INFI RMITY IN THE ORDER OF THE CIT(A) AND HENCE THE FINDINGS ARE UPHELD. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. IN SECOND GROUND OF APPEAL THE REVENUE CONTENDE D THAT THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETI NG THE 8 ADDITION OF RS.53 265/- MADE BY THE AO. THE AO DIS ALLOWED AN AMOUNT OF RS.53 265/- U/S 40(IA) ON THE GROUND T HAT THE AMOUNT PERTAINED TO JOB CHARGES BUT NO TAX AT SOURC E HAD BEEN DEDUCTED INSPITE OF THE FACT THAT THE PAYMENT WAS MORE THAN RS.50 000/-. THE LD. CIT(A) DELETED THE IMPUG NED ADDITION BY RECORDING CATEGORICAL FINDING THAT THE PAYMENT ON ACCOUNT OF JOB CHARGES WAS LESS THAN RS.50 000/- I.E. RS.43 815/-. THE BALANCE PAYMENT OF RS.9450/- WAS MADE ON ACCOUNT OF PURCHASE OF GOODS. CONSEQUENTLY IT W AS HELD BY THE LD. CIT(A) THAT DISALLOWANCE MADE BY THE AO IS NOT COVERED U/S 40(IA) OF THE ACT. THE FINDINGS OF THE CIT(A) ARE PURELY BASED ON FACTS AND HENCE NO INTERFERENCE IS CALLED FOR. CONSEQUENTLY THEY ARE UPHELD. THIS GROUND O F APPEAL OF THE REVENUE IS DISMISSED. 9. GROUND NOS. 3 & 4 ARE GENERAL IN NATURE HENCE N EED NO ADJUDICATION. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOV. 2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 21 ST NOV. 2011. POONAM COPY TO: THE APPELLANT THE RESPONDENT THE CIT(A) THE CIT DR ASSISTANT REGISTRAR ITAT CHANDIGARH