The DCIT, Circle-1(2),, Baroda v. M/s. Inmed Equipments Pvt.Ltd.,, Baroda

ITA 1657/AHD/2010 | 2006-2007
Pronouncement Date: 22-09-2010 | Result: Dismissed

Appeal Details

RSA Number 165720514 RSA 2010
Assessee PAN AAACI7878P
Bench Ahmedabad
Appeal Number ITA 1657/AHD/2010
Duration Of Justice 4 month(s) 4 day(s)
Appellant The DCIT, Circle-1(2),, Baroda
Respondent M/s. Inmed Equipments Pvt.Ltd.,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 22-09-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 22-09-2010
Date Of Final Hearing 17-09-2010
Next Hearing Date 17-09-2010
Assessment Year 2006-2007
Appeal Filed On 18-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D. C. AGRAWAL AM) ITA NO.1657/AHD/2010 A.Y.: 2006-07 THE D. C. I. T. CIRCLE 1 (2) AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA VS INMED EQUIPMENTS PVT. LTD. 21-C VINIT PARK SOCIETY MANGLESHWAR MAHADEV ROAD MANGALPUR BARODA PA NO. AAACI 7878P (APPELLANT) (RESPONDENT) C. O. NO.231/AHD/2010 (IN ITA NO.1657/AHD/2010 - A.Y.: 2006-07) INMED EQUIPMENTS PVT. LTD. 21-C VINIT PARK SOCIETY MANGLESHWAR MAHADEV ROAD MANGALPUR BARODA VS THE D. C. I. T. CIRCLE 1 (2) AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA PA NO. AAACI 7878P (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY SHRI K. M. MAHESH DR ASSESSEE BY SHRI M. J. SHAH AR O R D E R PER B. SAINI: THE DEPARTMENTAL APPEAL AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE LEAR NED CIT(A)-V BARODA DATED 26-03-2010 FOR ASSESSMENT YEAR 2006-07. 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD POINTED OUT BY THE PARTIES. ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 2 ITA NO.1657/AHD/2010 (DEPARTMENTAL APPEAL) 3. ON GROUND NO.1 OF THE APPEAL THE REVENUE CHALLE NGED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.4 6 335/- MADE U/S 40 (A) (IA) OF THE IT ACT AS THE ASSESSEE HAS FAILED T O DEDUCT TAX ON THE INTEREST PAYMENT ON UNSECURED LOANS. THE AO NOTED T HAT THE ASSESSEE HAS MADE INTEREST PAYMENT ON UNSECURED LOAN FOR A S UM OF RS.46 335/- ON WHICH NO TDS WAS DEDUCTED. DISALLOWANCE U/S 40 ( A) (IA) OF THE IT ACT WAS MADE. IT WAS CONTENDED BEFORE THE LEARNED CIT(A ) THAT INTEREST WAS PAID TO 5 PARTIES AND THE ASSESSEE RECEIVED FORM NO .15G/15H AND THUS IT DID NOT DEDUCT TDS. THE LEARNED CIT(A) NOTED THA T ALTHOUGH THE ABOVE FORMS WERE NOT SUBMITTED AT THE TIME OF ASSESSMENT AND WERE ALSO NOT FORWARDED TO THE CONCERN CIT BUT IN AS MUCH AS THE ASSESSEE HAD OBTAINED THE DECLARATION IT CANNOT BE SAID THAT TH E ASSESSEE HAD VIOLATED THE MANDATE GIVEN BY THE PAYEES NOT TO DEDUCT TAX. ADDITION WAS ACCORDINGLY DELETED. 4. ON CONSIDERATION OF THE SUBMISSIONS OF THE PARTI ES WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E LEARNED CIT(A). THE LEARNED DR MERELY RELIED UPON THE ORDER OF THE LEAR NED AO AND HAS NOT POINTED OUT ANY INFIRMITY IN THE ORDER OF THE LEARN ED CIT(A). WHEN THE PAYEES EXPLAINED IN PRESCRIBED FORM THAT THEY ARE N OT REQUIRED TO PAY TAX THE ASSESSEE BONA FIDE DID NOT DEDUCT TAX. THE REFORE THE LEARNED CIT(A) ON PROPER APPRECIATION OF MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. THIS GROUND OF APPEAL OF THE REVENUE IS A CCORDINGLY DISMISSED. 5. ON GROUND NO.2 OF THE APPEAL THE REVENUE CHALLE NGED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.8 60 650/- MADE ON ACCOUNT OF DISALLOWANCE OF PAYMENT OF COMMISSION TO SHRI BANKE BIHARI STEEL PVT. LTD. AT A HIGHER RATE OF SALE OF THE MAC HINERY. ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 3 6 . IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD DEBITED RS.19 73 061/- OUT OF WHICH RS.19 40 250/- HAS BEE N PAID TO SHRI BANKE BIHARI STEEL PVT. LTD. RAMBAG MUZAFFARNAGAR UTTAR PRADESH. IT WAS FURTHER NOTICED THAT COMMISSION PAID TO SHRI BA NKE BIHARI STEEL PVT. LTD. WAS 59% ON THE SALE OF MACHINERY OF SELLING PR ICE OF RS.1 20 000/- WHEREAS TO THE OTHER LOCAL PURCHASERS COMMISSION WA S PAID @ 7 -26% OF THE SALE PRICE ON THE SAME TYPE OF MACHINE. IT WAS SUBMITTED BEFORE T4HE AO THAT THE MACHINES WERE SOLD TO UTTAR PRADESH AND MOSTLY TO GOVERNMENT DEPARTMENTS AND THAT SHRI BANKE BIHARI S TEEL PVT. LTD. GENERATED BUSINESS AND WAS ALSO INSTRUMENTAL IN GET TING MATERIAL CONTRACT AND THAT THE COMMISSION WAS PAID FOR COMME RCIAL EXPEDIENCY AND FOR BUSINESS PURPOSE. THE AO THEREFORE MENTIO NED THAT EXCESS COMMISSION WAS PAID TO MANIPULATE THE REAL INCOME AND THUS ALLOWED COMMISSION @30% OF THE SALE PRICE AND THE EXCESS OF RS.8 60 650/- WAS DISALLOWED. 7. IT WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE HAD APPOINTED SHRI BANKE BIHARI STEEL PVT. LTD. IN UTTA R PRADESH AS COMMISSION AGENT FOR EXPANDING THE BUSINESS AND THA T THE AGENT WAS ABLE TO ORDER FOR 25 ELECTRO METERS HM 400 FOR GOVE RNMENT HOSPITAL AND THAT IN A NUMBER OF ACTIVITIES SUCH AS LIAISONING SUPPLY MAINTENANCE WERE PERFORMED BY THE AGENT. IT WAS ALSO ARGUED THA T SAME PRODUCT WAS SOLD AT RS.50 000/- TO OTHER DIRECT CUSTOMERS TO WH OM DISCOUNTS IN THE RANGE OF 16 26% WAS PAID WHEREAS IN THE CASE OF T HE COMMISSION AGENT THE SALE PRICE WAS RS.1 20 000/- ON WHICH COMMISSIO N OF RS.70 426/-. I.E. @ 59% WAS PAID. IT WAS THEREFORE PRAYED THAT THE EXPENDITURE WAS INCURRED AS A PRUDENT BUSINESS MAN AND THAT NECESSA RY TDS WAS DEDUCTED ON SUCH COMMISSION PAYMENT. THE ADDITION I S THEREFORE UNJUSTIFIED. ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 4 8. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE MATERIAL ON RECORD DELETED THE ENTIRE ADDIT ION. HIS FINDING IN PARA 8.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UN DER: 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. I ALSO CALLED FOR THE ASSESSMENT ORDER AND EXAMINED T HEM IT IS SEEN FROM ASSESSMENT RECORD THAT DURING ASSESSMENT PROCEEDINGS THE APPELLANT HAD SUBMITTED THE DETAILS INDICATING THAT THE MACHINES SOLD THROUGH THE COMMISSION AGENT TO THE GOVERNMENT DEPARTMENT WERE PRICED AT RS.1 20 000/- EACH WHEREAS THE SAME MACHINES TO OTHER CUSTOMERS WERE S OLD IN THE RANGE OF RS.27 000/- - RS.50 000/-. IT IS THUS EVIDENT THAT THE HIGHER COMMISSION WAS GUIDED BY COMMERCIAL CONSIDERATION AND COMMISSION AGENT BEING ADMITTEDLY NOT A RELATED PARTY THE PAYMENT OF HIGHER COMMISSION IS F OR BUSINESS PURPOSES AND THUS IS AN ALLOWABLE EXPENDIT URE. GROUND NO.4 IS ALLOWED. 9. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT HIGHER EXORBITANT COMMISSION WAS PAID TO THE COMMIS SION AGENT. THEREFORE THE AO WAS JUSTIFIED IN MAKING THE DISAL LOWANCE OF EXCESS COMMISSION. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW. 10. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALCHAND AND COMPANY PVT. LTD. 65 ITR 381 HELD THAT COMMERCIAL EXPEDIENCY HAS TO BE CONSIDERED FROM THE POINT OF VIEW OF BUSINESS MAN AND NOT OF REVENUE. EVEN IF SOMEBODY IS GETTING BENEFIT OUT O F THAT EXPENSE IS ALLOWABLE DEDUCTION. THE SAME POINT IS REITERATED IN THE CASE OF SASSOON J. DAVID AND CO. PVT. LTD. 118 ITR 261 (SC) . IN VIEW OF THE ABOVE PRINCIPLE OF LAW PRONOUNCED BY THE HONBLE SUPREME COURT AND ON CONSIDERATION OF THE FACTS OF THE CASE WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITIO N. THE AO DID NOT DISPUTE THAT THE COMMISSION AGENT RENDERED SERVICES FOR THE ASSESSEE BECAUSE SUBSTANTIAL COMMISSION PAYMENT IS ALLOWED A S DEDUCTION AND ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 5 ONLY PART OF THE SAME WAS DISALLOWED CONSIDERING EX CESS COMMISSION. THE ASSESSEE EXPLAINED THAT WHEN MACHINERY SOLD AT RS.1 20 000/- ON WHICH COMMISSION IS PAID @ 59% I.E. RS.70 426/- THROUGH T HE COMMISSION AGENT THE NET PRICE RECEIVED BY THE ASSESSEE IS AP PROXIMATELY RS.50 000/- BUT WHEN THE SIMILAR PRODUCT IS SOLD TO OTHER CUSTOMERS DIRECTLY AT RS.50 000/- DISCOUNT IN THE RANGES 16 26% IS PAID. THUS EVEN AFTER EXCESSIVE COMMISSION PAID TO THE COMMISS ION AGENT THE ASSESSEE HAS RECEIVED BETTER NET SALE PRICE AS COMP ARED TO THE SALES MADE TO OTHER CUSTOMERS. IT WAS THEREFORE A DECIS ION IN FAVOUR OF THE BUSINESS OF THE ASSESSEE AND FOR COMMERCIAL EXPEDIE NCY TO SELL THE PRODUCT AT A HIGHER PRICE AND TO PAY HIGHER COMMISS ION. ULTIMATELY THE ASSESSEE HAS SHOWN BETTER PROFIT ON THE SALES MADE THROUGH THE COMMISSION AGENT AS COMPARED WITH THE SALES MADE TO THE CUSTOMERS DIRECTLY. THE AO HAS NOT DISPUTED THE GENUINENESS O F THE COMMISSION PAYMENT TO THE AGENT. THE LEARNED CIT(A) ON CONSIDE RATION OF THE EVIDENCE AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. WE THEREFORE DO NOT FIND ANY MERIT IN THE GROUND OF A PPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 11. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMI SSED. C. O. NO.231/AHD/2010 (BY ASSESSEE) (IN ITA NO.1657/AHD/2010) 12. THE CROSS OBJECTION IS FILED BY THE ASSESSEE ON THE FOLLOWING GROUNDS: 1. THE C. I. T. (A) ERRED IN HOLDING THAT THE ASSE SSEE IS LIABLE TO TDS U/S. SECTION 194C IN RESPECT OF PAYME NT OF RS.84 370/- PAID FOR PURCHASE AND FOR WORK CONTRACT . 2. THE CIT(A) ERRED IN HOLDING THAT 40(A) (IA) APPL IES IN SPITE OF M/S. LAJJA COMMUNICATION HAVING PAID TAX O N SAID PAYMENT OF RS.84 370/-. ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 6 3. THE CIT (A) ERRED IN HOLDING THAT DISALLOWANCE O F RS.84 370/- IS TO BE MADE U/S. 40 (A) (IA) IN SPITE OF THE FACTS THAT THE M/S. LAJJA COMMUNICATION HAS ACTUALL Y BEEN PAID OFF THE SAID AMOUNT. 13. THE AO DISALLOWED THE ABOVE AMOUNT ON ACCOUNT O F PURCHASE OF PRINTING AND STATIONARY ITEMS. THE AO FOR VERIFICAT ION NOTED THAT THE ASSESSEE HAD MADE THE ABOVE PAYMENT TO LAJJA COMMUN ICATION FOR PRINTING CHARGES OF AIRSEP BROCHURES. HOWEVER NO TDS WAS DEDUCTED ON THE SAID PAYMENT. THEREFORE DISALLOWANCE WAS MA DE U/S 40 (A) (IA) OF THE IT ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT (A) THAT PURCHASE OF PRINTING MATERIAL CONSIST OF BROCHURES IS COVERED B Y CONTRACT FOR SALE AND PURCHASE AND IS NOT COVERED UNDER THE WORK AS DEFIN ED U/S 194C OF THE IT ACT. THE ASSESSEE RELIED UPON THE DECISION IN T HE CASE OF BDA LTD. VS ITO 281 ITR 99. THE LEARNED CIT(A) HOWEVER CONFIRM ED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. THE ASSESSEE IN THE CROSS OBJECTION CHALLENGED THE ABOVE ADDITION BECAUSE IN THE CASE OF THE ASSESSEE WHAT WAS SUPPLIED WAS PRINTING MATERIAL. 14. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES AND RELIED UPON THE SAM E DECISION OF THE HONBLE BOMBAY HIGH COURT AND ALSO RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS HI NDUSTAN LEVER LTD 306 ITR 25 AND IN THE CASE OF CIT VS GIRNAR FOOD & BEVERAGES (P) LTD. 306 ITR 23. ON THE OTHER HAND THE LEARNED DR RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BDA LTD. VS ITO 281 ITR 99 HELD (II) THAT WHEN THE PRINTING WORK WAS BEING CARRIED OUT IN THE PREMISES OF M THOUGH AS P ER THE SPECIFICATIONS OF THE ASSESSEE THE SUPPLY WAS LIMI TED TO THE QUANTITY SPECIFIED IN THE PURCHASE ORDER. THERE WAS NOTHING ON ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 7 RECORD TO SHOW THAT ALL OTHER ANCILLARY COSTS LIKE THE LABELS INK PAPERS SCREEN-PRINTING SCREENS ETC. WERE BEING S UPPLIED BY THE ASSESSEE TO M. IN THE FACTS OF THIS CASE THE SUPPL Y OF PRINTED LABELS BY M O THE ASSESSEE WAS A CONTRACT OF SALE: AND IT COULD NOT BE TERMED AS WORKS CONTRACT. HENCE THE PROVISIONS OF SECTION 194C WERE NOT APPLICABLE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS HINDUSTANI LEVER LTD. 306 ITR 25 AND IN THE CASE OF CIT VS GIRNAR FOOD & BEVERAGES (P) LTD. 306 ITR 22 HELD AS UNDER: CONCLUSION: WHERE THE CONTRACT IS FOR SUPPLY OF MATERIALS VIZ. SALE OF MATERIALS IT CANNOT BE TERMED TO BE A CONTRACT FOR WORK AND LABOUR AND IS NOT AMENABLE TO THE PROVISIO NS OF S. 194C. ACCORDING TO THE SUBMISSION OF THE ASSESSEE WHO HAS PURCHASED PRINTING MATERIALS CONSISTING OF BROCHURES WHICH IS COVERED BY CONTRACT FOR SALE AND THEREFORE PURCHASE IS NOT COVERED UNDER THE DE FINITION OF WORKS AS ASSIGNED IN EXPLANATION (3) TO SECTION 194C OF THE IT ACT. THE ABOVE DECISIONS THEREFORE WOULD SQUARELY APPLY TO THE C ASE OF THE ASSESSEE. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ADDITION. 16. IN THE RESULT THE CROSS OBJECTION OF THE ASSES SEE IS ALLOWED. 17. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMI SSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 22-09-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 22-09-2010 LAKSHMIKANT/- ITA NO.1657/AHD/2010 C. O. 231/AHD/2010 INMED EQUIPMENTS PVT. LTD. 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD