THE DY CIT 15(1), MUMBAI v. M/S. JTB EXPRESS SERVICES PVT. LTD, MUMBAI

ITA 1842/MUM/2008 | 2004-2005
Pronouncement Date: 09-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 184219914 RSA 2008
Assessee PAN AAACJ3174J
Bench Mumbai
Appeal Number ITA 1842/MUM/2008
Duration Of Justice 3 year(s) 8 month(s) 25 day(s)
Appellant THE DY CIT 15(1), MUMBAI
Respondent M/S. JTB EXPRESS SERVICES PVT. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-12-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 09-12-2011
Date Of Final Hearing 08-11-2011
Next Hearing Date 08-11-2011
Assessment Year 2004-2005
Appeal Filed On 14-03-2008
Judgment Text
1 JTB EXPRESS SERVICES P LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI J JJ J BENCH BENCH BENCH BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R K PANDA R K PANDA R K PANDA R K PANDA AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM ITA NO. ITA NO. ITA NO. ITA NO. 1842/MUM/2008 1842/MUM/2008 1842/MUM/2008 1842/MUM/2008 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR2004 2004 2004 2004- -- -05 0505 05 ) )) ) THE DY COMMR OF INCOME TAX 15(1) MUMBAI VS JTB EXPRESS SERVICES P LTD 6 TH FLOOR NKM INTERNATIONAL HOUSE V M CHAINAI HOUSE 178 BACKBAY RECLAMATION MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACJ3174J AAACJ3174J AAACJ3174J AAACJ3174J ASSESSEE BY SH SASHI TULSIYAN REVENUE BY SH D S SUNDER SINGH DT.OF HEARING 8 TH NOV 2011 DT OF PRONOUNCEMENT 9 TH DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO JM JMJM JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 8TH JAN 2008 OF THE CIT(A) RELATING TO ASSESSMENT YEAR 2004 -05. 2 THE REVENUE HAS RAISED THE ONLY GROUND IN THIS AP PEAL AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD CIT(A) ERRED IN DELETING ADDITION OF RS. 59 78 6 84/- ON ACCOUNT OF COMMISSION PAID TO SISTER CONCERN M/S JUPITER AIR I NDIA PVT LTD IGNORING THE FACTS THAT THE ASSESSEE HAD NOT PRODUCED ANY PROOF OF ANY ACTUAL SERVICES RENDERED BY ITS SISTER CONCERN M/S JUPITER AIR INDI A P LTD. 3 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS O F WHOLE SALE COURIER SERVICES. THE ASSESSEE COLLECTS FREIGHT CHARGES FR OM CLIENTS AND REMITS IT TO THE AIR LINES WHO ARE THE ULTIMATE CARRIERS OF THE FREI GHT. THE ASSESSEE GETS COMMISSION @ 5% ON SUCH FREIGHT. THE ASSESSEE HAS INCOME FROM RETAIL FREIGHT SALES BREAK BULK INCOME AND PROCESSING CHARGES ALS O. THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE COLLECTED FREIGHT CHARGES O F RS. 30 71 CRORES DURING THE 2 JTB EXPRESS SERVICES P LTD YEAR. ON THE SAID FREIGHT CHARGES THE COMMISSION @ 5% COMES TO RS. 68 56 369/- BUT THE ASSESSEE HAS DECLARED THE COMMISSION AT RS. 8 77 684/-. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DIFFERENCE OF THE TWO WHICH COMES TO RS. 59 78 685/- SHOULD NOT BE TREATED AS SUPPRESSED COMMISSION AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3.1 THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFF ICER THAT PART OF THE COMMISSION IS REMITTED BACK TO ITS CLIENTS AND PART ICULARLY TO THE SISTER CONCERN OF THE ASSESSEE. THE ASSESSING OFFICER WAS NOT SATISF IED WITH THE EXPLANATION OF THE NET COMMISSION RECEIVED BY THE ASSESSEE AND ACCORDI NGLY MADE THE ADDITION OF THE DIFFERENCE OF THE TWO AMOUNT OF RS. 59 78 685/- . 3.2 ON APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF 1/3 RD OF THE TOTAL RECEIPT AS COMMISSION PAID TO SISTER CONCERNED AND ACCORDINGLY CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 13 60 900/-. 4 BEFORE US THE LD DR HAS SUBMITTED THAT THE ASSES SEE HAS DIVERTED 80% OF THE COMMISSION INCOME TO ITS SISTER CONCERN. THE CI T(A) WHILE DECIDING THE ISSUE TOOK THE TOTAL RECEIPT INCLUDING THE BREAK BULK INC OME AND THEN ESTIMATED 1/3 RD OF THE TOTAL RECEIPT AS REASONABLE AMOUNT OF COMMISSIO N PAYABLE TO THE SISTER CONCERN. HE HAS FURTHER CONTENDED THAT EVEN OTHER WISE 43% OF THE TOTAL RECEIPT WAS PASSED ON TO THE SISTER CONCERN WHICH IS ON THE HIGHER SIDE AND NOT PREVAILING IN THE BUSINESS PRACTICE. HE HAS SUPPO RTED THE ORDER OF THE ASSESSING OFFICER. 4.1 ON THE OTHER HAND THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT THE ASSESSEE IS NEW IN THE BUSINESS AND GOT MAJOR CHUNK OF BUSINESS FROM ITS SISTER CONCERN M/S JUPITER AIR INDIA PVT LTD . HE HAS FURT HER SUBMITTED THAT THE ENTIRE AIR FREIGHT BUSINESS WAS BOOKED BY SUB AGENT NAMELY M/S JUPITER AIR INDIA PVT LTD WHICH COMES TO ABOUT 98% OF THE ENTIRE BOOKING BUSI NESS. THE ASSESSEE 3 JTB EXPRESS SERVICES P LTD RECEIVED 5% COMMISSION OVER AND ABOVE THE BREAK BUL K INCOME RECEIVED FROM THE AIR LINES. HE HAS FURTHER SUBMITTED THAT THE AS SESSEE COMPANY RECEIVED COMMISSION INCOME OF RS. 68 56 368/- ALONG WITH BRE AK BULK INCOME OF RS. 69 97 494/- ON TOTAL FREIGHT BUSINESS OF RS. 13.71 CRORES APPROXIMATELY. THE TOTAL RECEIPT OF THE ASSESSEE IS AT RS. 1 38 53 862 /- OUT OF WHICH THE ASSESSEE PASSED ON THE COMMISSION OF RS. 59 78 684/- TO THE SUB AGENT NAMELY M/S JUPITER AIR INDIA P LTD. WHICH CONSTITUTES ABOUT 4% OF THE COMMISSION RECEIVED BY THE ASSESSEE. THE LD AR HAS SUBMITTED THAT SINC E THE ASSESSEE HAS RECEIVED 98% BUSINESS OF FREIGHT BOOKED THROUGH ITS SUB AGEN T AND THEREFORE WHEN INCOME OF THE SUB AGENT NAMELY M/S JUPITER AIR IND IA P LTD IS OTHERWISE AT 4.5% AS THE COMMISSION ON THE ENTIRE BUSINESS THEN 4% C OMMISSION PASSED BY THE ASSESSEE IS NOT EXCESSIVE. HE HAS RELIED UPON THE ORDER OF THE CIT(A). THE LD AR OF THE ASSESSEE HAS ALSO RELIED UPON THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS INDO SAUDI SERVICE S (TRAVEL)(P) LTD REPORTED IN 310 ITR 306 AND THE DECISION OF THE TRIBUNAL IN T HE CASE OF BATLIVALA & KARANI VS ACIT REPORTED IN 2 SOT 379. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS AN IATA AGENT AND RECEI VED 5% COMMISSION ON AIR FREIGHT CHARGES COLLECTED. APART FROM THE COMMISSI ON THE ASSESSEE ALSO RECEIVED BREAK BULK INCOME FROM THE AIR LINES AS IA TA AGENCY. M/S JUPITER AIR INDIA PVT LTD WAS APPOINTED BY THE ASSESSEE AS A SU B AGENT FOR BOOKING OF THE AIR FREIGHT. THE ASSESSEE PASSED ON 4% OUT OF 5% COMMI SSION ON THE AIR FREIGHT COLLECTION TO ITS SISTER CONCERN/SUB AGENT. 5.1 THE MOOT QUESTION ARISES IS REASONABLENESS OF THE COMMISSION PASSED ON BY THE ASSESSEE TO ITS SISTER CONCERN. THE ASSESSI NG OFFICER DISALLOWED THE ENTIRE COMMISSION PAID TO THE SISTER CONCERN BY OBSERVING THAT THE ASSESSEE HAS SHOWN 4 JTB EXPRESS SERVICES P LTD ONLY NET COMMISSION WITHOUT SHOWING THE FULL AMOUNT IN THE P&L ACCOUNT AND THEN PASSING ON THE COMMISSION TO THE SISTER CONCER N; BECAUSE 80% OF THE COMMISSION EARNED BY THE ASSESSEE WAS GIVEN TO THE SISTER CONCERN THE ASSESSING OFFICER FOUND IT UNREASONABLE. THE CIT( A) AFTER OBTAINING TWO REMAND REPORTS HELD THAT THE ASSESSEE IS PASSING ON 43% OF ITS TOTAL RECEIPTS TO ITS SISTER CONCERN AS COMMISSION FOR DOING MAJOR CHUNK OF BUSINESS THROUGH IT WHICH IN HIS VIEW IS ON HIGHER SIDE AND ACCORDINGLY HE HELD THAT 33% OF THE TOTAL RECEIPT AS REASONABLE COMMISSION GIVEN TO THE SISTE R CONCERN. THE RELEVANT PART OF THE IMPUGNED ORDER OF THE CIT(A) IN PARA 3.7 IS AS UNDER: 3.7 TO JUDGE THE REASONABILITY OF THE COMMISSION P AID I FIND THAT THE 43% OF PASSING ON THE RECEIPT TO A SISTER CONCE RN APPEARS TO BE SLIGHTLY ON HIGHER SIDE IF WE TAKE INTO ACCOUNT OF ALL FACTS AND CIRCUMSTANCES OF THE CASE IN TANDEM. THE APPELLANT HAS GOT MAJOR ADVANTAGE ON ACCOUNT OF BEING IATA AGENT WHICH IS DEALING DIRECTLY WITH THE INTERNATIONAL AIR LINES. IT IS HAVING THE PRINCIPLE RESPONSIBILITY WITH THE AIR LINES TO GET THE BUSINE SS DONE FOR THEM BEING A PRINCIPAL AGENT. THE SUB-AGENTS AS SUCH ARE NOT IN A POSITION TO DEAL WITH INTERNATIONAL AIR LINES DIRECTLY WITHO UT HAVING IATA AGENCY. THEREFORE THERE IS GAIN SAYING THAT IT HAS TO RETAIN THE MAJOR CHUNK OF RECEIPT WITH THEM AS A GAIN IN COMPA RISON OF THE SUB-AGENT WHO ARE BOOKING THE AIR FREIGHT FOR THE C USTOMERS. IF WE LOOK INTO ALL THESE FACTS IN TANDEM I FIND THAT A RATIO OF SHARING OF RECEIPT OF 2 INTO 1 BETWEEN THE APPELLANT COMPANY A ND JUPITER AIR INDIA PVT.LTD. WILL MEET THE JUSTICE OF SHARING THE PROFIT REASONABLY. THEREFORE 1/3RD OF TOTAL RECEIPT RS.1 38 53 862/- I.E. RS.46 179I- IS TO BE CONSIDERED AS REASONABLE AMOUNT OF COMMISSION PAYABLE TO JUPITER AIR INDIA PVT.LTD. SINCE THE APPELLANT HAS PASSED ON COMMISSION AT RS.59 78 654/- TO JUPITER AIR INDIA P VT.LTD. THE AMOUNT AT RS.13 60 900/- APPROXIMATELY (59 78 654 - 46 17 789/-) IS CONSIDERED AS UNREASONABLE AND EXCESSIVE WHICH ALON E IS TO BE ADDED TO THE TOTAL INCOME OF THE APPELLANT. THE APP EAL IS ALLOWED PARTLY ON THIS POINT SUSTAINING THE DISALLOWANCE O NLY TO THE EXTENT OF RS.13.60 900. 5.2 AS EVIDENT FROM THE ORDER OF THE CIT(A) THAT HE TOOK THE RATIO OF SHARING THE RECEIPTS AT 2:1 BETWEEN THE ASSESSEE AND THE SI STER CONCERN. THE TERM REASONABLENESS IS A RELATIVE TERM HAVING REGARD TO THE FAIR MARKET VALUE (FMV) OF 5 JTB EXPRESS SERVICES P LTD THE GOODS SERVICES OR FACILITY FOR WHICH THE PAYME NT IS MADE AS STIPULATED IN SEC. 40A(2). 5.3 IN ORDER TO DETERMINE THE REASONABLENESS OF THE EXPENDITURE IT IS TO BE COMPARED WITH THE FMV OF SUCH SERVICES OR FACILITY AS PREVAILING IN THE PECULIAR BUSINESS OR TRADE. THUS THE TRANSACTION BETWEEN T HE TWO ASSOCIATE PERSONS HAS TO BE TESTED BY COMPARING WITH THE UNCONTROLLED TRA NSACTIONS BETWEEN NON ASSOCIATED PERSONS. BOTH ASSESSING OFFICER AND CIT( A) FOUND THAT THE EXPENDITURE ON ACCOUNT OF PASSING OF THE COMMISSION BY THE ASSE SSEE IS EXCESSIVE AND UNREASONABLE; THOUGH THE CRITERIA OF JUDGING THE SA ME WAS DIFFERENT. THE CIT(A) WIDEN THE BASIS FOR EXAMINING THE REASONABLE AMOUNT AND TOOK THE ENTIRE RECEIPT I.E. COMMISSION RECEIPT AND OTHER RECEIPTS FOR ASCE RTAINING THE REASONABLENESS OF COMMISSION PAID BY THE ASSESSEE TO ITS SISTER CONCE RN. 5.3 WE MAY POINT OUT THAT THE ARRANGEMENT AND UNDER STANDING BETWEEN THE ASSESSEE AND THE SISTER CONCERN WAS TO SHARE THE CO MMISSION INCOME AND NOT ANY OTHER PAYMENTS OR RECEIPTS OF THE ASSESSEE. THE REFORE EXPANDING THE HORIZON TO THE ENTIRE RECEIPT INSTEAD OF SHARING OF COMMISSION FOR JUDGING THE REASONABLENESS OF PAYMENT IS NOT BORN OUT OF THE AGREEMENT AND UNDERSTANDING BETWEEN THE ASSESSEE AND THE SISTER CONCERN/SUB AGE NT. WHEN THE ASSESSEE AGREED TO PART WITH ITS COMMISSION INCOME ONLY THEN TAKING INTO CONSIDERATION THE OTHER RECEIPTS IS NOT WARRANTED IN THE FACTS AN D CIRCUMSTANCES OF THE CASE. THE ASSESSEE IS AN AGENT OF IATA AND THE SISTER CON CERN IS SUB AGENT OF THE ASSESSEE; THEREFORE ANY EXPENDITURE FOR THE SERVIC ES OF SUB AGENT HAS TO BE AT ALP. THE ASSESSEE HAS TO JUSTIFY THE EXCEPTIONAL HIGH PRICE AT 80% OF ITS COMMISSION PASSED ON TO ITS SISTER CONCERN WITHOUT COMPARING INSTANCES OF UNCONTROLLED TRANSACTIONS BETWEEN THE UNRELATED PAR TIES. NO SUCH INSTANCES OR COMPARABLES WERE CLAIMED OR PRODUCED BY THE ASSESSE E. THE CIT(A) TOOK THE 6 JTB EXPRESS SERVICES P LTD REASONABLE RATE AT 33% OF THE TOTAL RECEIPTS WHICH IS ALSO WITHOUT GIVING ANY COMPARABLE IN THE BUSINESS LIKE ASSESSEE. 5.4 THE HONBLE HIGH COURT IN THE CASE OF INDO SAUD I SERVICES (TRAVEL)(P) LTD HAS OBSERVED THAT THE ASSESSEE WAS PAYING HANDLING CHARGES TO ITS SISTER CONCERN AT THE SAME RATE AT WHICH THE ASSESSEE PAID TO OTHER AGENTS. FURTHER THE CLAIM OF THE ASSESSEE WAS ALLOWED IN THE EARLI ER AS WELL AS IN THE SUBSEQUENT YEARS. THE OBSERVATION OF THE HONBLE HIGH COURT IN THE CASE OF INDO SAUDI SERVICES (TRAVEL)(P) LTD (SUPRA) IN PARA 4 IS RE PRODUCED AS UNDER: 4. WE HAVE HEARD THE LD ADVOCATES APPEARING FOR BO TH SIDES. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE TRIBUNAL DT 21 ST OCT 1999 WHICH IS IMPUGNED BY THE REVENUE IN THE PRESEN T APPEALS. E FIND THAT THE FOLLOWING FACTS WERE ESTABLISHED BEFO RE THE TRIBUNAL AND THE SAME HAVE BEEN ACCEPTED BY THE REVENUE EVEN BEFORE US. (I) THAT THE ASSESSEE APART FROM PAYING HANDLING CH ARGES @ 9 1/2 PER CENT TO ITS SISTER CONCERN HAVE PAID HANDL ING CHARGES AT THE SAME RATE TO OTHER AGENTS VIZ. M/S A.K. TRA VELS M/S OM TRAVELS AND M/S JET AGE TRAVELS. (II) FOR ASST. YRS.1986-87 AND 1987-88 THE ASSESSEE HAD PAID THE HANDLING CHARGES @ 10 PER CENT TO THE SISTER CO NCERN OF THE ASSESSEE AND SUCH CHARGES PAID WERE CONSIDERED TO BE REASONABLE BY THE APPELLANT. (III) FOR ASST.YRS.1989-90 AND 1990-91 THE ASSESSEE HAD REDUCED THE PAYMENT OF HANDLING CHARGES TO 9 1/2 PE R CENT TO ITS SISTER CONCERN. THE AO HAS CONSIDERED THE PAYME NT OF COMMISSION TO THE SISTER CONCERN IN THE ASST. YR. 1 989-90 AND ALLOWED THE CLAIM AFTER DUE SCRUTINY. FOR ASST. YR. 1990-91 ALSO THE CLAIM OF THE ASSESSEE @ 9 1/2 PER CENT HAS BEEN ALLOWED THOUGH THE SAME HAS NOT BEEN DEALT WITH BY THE AO SPECIFICALLY IN THE ORDER. (IV) FOR ASST.YRS.1993-94 AND 1994-95 THE ASSESSMEN T HAS BEEN MADE BY THE AO UNDER S. 143 (3) AND HANDLING C HARGES PAID TO THE SISTER CONCERN @ 9.5 PER CENT HAVE BEEN CONSIDERED TO BE REASONABLE AND ALLOWED. (IV) THE SISTER CONCERN OF THE ASSESSEE M/S MIDDLE EAST INTERNATIONAL IS ALSO ASSESSED TO TAX AND INCOME AS SESSED FOR THE ASST. YR. 1991-92 IS RS. 9 38 510 AND FOR ASST. YR.1992-93 7 JTB EXPRESS SERVICES P LTD IS RS. 14 65 880 AND THE SAID ASSESSMENT ORDERS HAV E BEEN PLACED ON RECORD. (V) UNDER THE CBDT CIRCULAR NO. 6-P DT. 6TH JULY 1968 IT IS STATED THAT NO DISALLOWANCE IS TO BE MADE UNDER S. 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND S ISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 5.5 IT IS CLEAR THAT THE HONBLE HIGH COURT HAS ALS O TAKEN INTO CONSIDERATION THE FACTS OF COMPARATIVE RATES WHILE DECIDING THE ISSUE . WHEREAS THE ESTIMATION OF THE CIT(A) IS NOT BASED ON ANY SUCH COMPARABLE OR ANY MATERIAL OR ADMITTED PREVAILING MARKET VALUE OF THE SERVICES IN QUESTION . EVEN BEFORE US NO MATERIAL HAS BEEN PRODUCED EITHER BY THE ASSESSEE OR BY THE REVENUE IN SUPPORT OF THEIR RESPECTIVE CLAIM. THEREFORE WE ARE OF THE VIEW THA T THE MATTER IS REQUIRED TO BE EXAMINED PROPERLY IN THE LIGHT OF THE COMPARABLE IN STANCES OR PREVAILING FAIR MARKET VALUE OF THE SERVICES. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER TO RE-EXAMINE AND ADJUDICA TE THE SAME AFTER TAKING INTO CONSIDERATION THE FMV AS STIPULATED IN SEC. 40A(2) OF THE I T ACT. 6 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 9 TH DAY OF DEC 2011. SD SD/- ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 9 TH DEC 2011 RAJ* RAJ* RAJ* RAJ* 8 JTB EXPRESS SERVICES P LTD COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI