Sh. Pawan Kumar Jain, New Delhi v. ACIT, New Delhi

ITA 204/DEL/2010 | 2006-2007
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 20420114 RSA 2010
Assessee PAN AAOPJ7853N
Bench Delhi
Appeal Number ITA 204/DEL/2010
Duration Of Justice 1 year(s) 17 day(s)
Appellant Sh. Pawan Kumar Jain, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 31-01-2011
Date Of Final Hearing 20-12-2010
Next Hearing Date 20-12-2010
Assessment Year 2006-2007
Appeal Filed On 14-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NO. 204/DEL/10 ASSTT. YR: 2006-07 SH. PAWAN KUMAR JAIN VS. ACIT CIR. 19(1) BM-173 (WEST) SHALIMAR BAGH NEW DELHI. NEW DELHI. PAN/ GIR NO. AAOPJ7853N ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI VED JAIN & SMT. RANO JAIN C AS RESPONDENT BY : SH. H.K. LAL SR. DR O R D E R PER R.P. TOLANI J.M : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF THE CIT(A) DATED 9-12-2009 RELATING TO A.Y. 2006-07. SOLE EFFE CTIVE GROUND RAISED IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E DISALLOWANCE OF RS. 31 25 312/- MADE BY ASSESSING O FFICER ON ACCOUNT OF COMMISSION PAID ON PURCHASES. 2. BRIEF FACTS ARE: ASSESSEE CLAIMED PAYMENT OF COM MISSION OF RS. 31 25 312/- TO ANOTHER CONCERN M/S LEXCON STEELS (P ) LTD. AN AHMEDABAD BASED PARTY FOR THE SERVICES RENDERED AS STANDING GUARANTOR FOR PURCHASES OF STEELS FROM SOME ENTITIES. AO ASKED ABOUT THE NATUR E OF PAYMENT SERVICES RENDERED AND THE REASONS FOR USING THE FACILITIES OF THIS ALLEGED COMMISSION ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 2 AGENT IN THIS YEAR ONLY THOUGH THE ASSESSEE HAS BE EN PURCHASING THE STEEL FOR SEVERAL EARLIER YEARS WITHOUT PAYING COMMISSION. 2.1. ASSESSEE THOUGH ACCEPTED THAT THE COMMISSION W AS PAID ON PURCHASE OF STEEL AS ONE TIME PAYMENT AND NO SUCH PAYMENT HA D EVER BEEN MADE BEFORE OR AFTER THIS TRANSACTION HOWEVER CLAIMED THAT THE COMMISSION WAS PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AS THE SAID M/S LEXCON STEELS (P) LTD. STOOD AS GUARANTOR FOR PURCH ASES OF STEEL. AN AGREEMENT WAS FILED PURPORTING TO BE AUTHORIZING CO MMISSION IN THIS BEHALF AND CONFIRMATION FROM M/S LEXCON STEELS (P) LTD. WE RE FILED. AO DISALLOWED THE COMMISSION BY FOLLOWING OBSERVATIONS : (A) THE APPELLANT CLAIMS THAT HE PAID COMMISSION T O M/S LEXCON STEELS (P) LTD. AS HE STOOD GUARANTEE FOR H IS PURCHASES FROM SOME FIRMS/ COS. THIS CLAIM APPEARS TO BE INCO RRECT AS THE APPELLANT HAS FAILED TO PRODUCE ANY PROOF OR CONFIR MATION FROM THESE PARTIES THAT HE WAS AN AGENT GUARANTOR OR HA D ANY ASSOCIATION WITH THE APPELLANTS PURCHASES. SOME OF THE PARTIES THAT APPELLANT CLAIMED TO HAVE MADE PURCHASES FROM ARE MAJOR PARTIES LIKE JINDAL STEEL WHO WOULD NOT EXTEND CRE DIT TO UNKNOWN PARTIES EVEN WITH GUARANTEE OF AN AGENT. IF THERE WAS SUCH A NEED THE ASSESSEE COULD HAVE ASKED LEXCON STEELS (P) LTD. TO PURCHASE THE SAME AND THEN REPAID THE PRICE TO HIM OR DEDUCTED THE SAME FROM THE MONEY OWED TO HIM. (B) THE ASSESSEE MERELY PRODUCED A SELF SERVING AGR EEMENT ENTERED INTO WITH LEXCON STEELS (P) LTD. AND A COP Y OF TDS CERTIFICATE ISSUED TO M/S LEXCON STEELS (P) LTD. AS PROOF OF THE SAME. THE CERTIFICATE MERELY PROVES THAT MONEY WAS PAID TO M/S LEXCON STEELS (P) LTD. AND THAT TAX HAD BEEN DEDUCT ED ON THE SAME. IT DOES NOT PROVE THAT THE PAYMENT WAS MADE F OR THE PURPOSE OF PURCHASING STEEL OR FOR ANY OTHER BUSINE SS PURPOSE. ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 3 (C) AN EXAMINATION OF THE CONFIRMATION SUBMITTED BY THE APPELLANT ON BEHALF OF M/S LEXCON STEELS (P) LTD. C LEARLY SHOWS THAT M/S LEXCON STEELS (P) LTD. WAS A PARTLY INDEBT ED TO THE ASSESSEE TO AN AMOUNT OF RS. 1.4 CRORE ON WHICH HE HAD TO PAY A LOW INTEREST OF ONLY 6% PER ANNUM. THIS SHOWS THAT M/S LEXCON STEELS (P) LTD. DID NOT HAVE THE WHEREWITHAL TO STAND GUARANTEE FOR THE APPELLANT AS HE HIMSELF WAS HEAV ILY IN DEBITED TO THE APPELLANT. NO PROOF WAS PRODUCED TO SHOW THA T HE HAD PERFORMED SERVICES ON BEHALF OF THE APPELLANT. 2.2. AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL WH ERE IT WAS PLEADED THAT: (A) THE EXPENDITURE INCURRED FOR SUCH COMMISSION HAD DI RECT NEXUS WITH THE BUSINESS OF THE ASSESSEE; (B) THE COMMISSION WAS PAID IN FURTHERANCE OF ASSESSEE S BUSINESS AS IN STEEL TRADE PROCUREMENT OF SMOOTH SUPPLY OF RAW-MA TERIAL OF REQUISITE FINE QUALITY WAS VERY CRUCIAL. BUT FOR ASSURED SUP PLY OF THE REQUISITE QUALITY ASSESSEE WOULD NOT HAVE FULFILLED THE SELL ING OBLIGATIONS IN FOREIGN AND INDIAN MARKET. (C) COPIES OF AUDITED BOOKS OF M/S LEXCON STEELS (P) LT D. WERE FILED REFLING RECEIPTS OF SUCH PAYMENT. RELIANCE WAS PLAC ED ON THE DECISION IN THE CASE OF DRESSER VALVE INDIA (P) LTD. V. ACIT 30 SOT 495 (MUM.) WHEREIN THE PAYMENT MADE TO AN AGENT WAS H ELD TO BE FULLY ALLOWABLE INSPITE OF THE AO HAVING DISALLOWED THE A MOUNT. RELIANCE WAS PLACED ON THE HEAD NOTE OF THE REPORT AS REPRO DUCED BELOW: SECTION 37(1) OF THE I.T. ACT 1961 BUSINESS EXPENDITURE ALLOWABILITY OF ASSESSMENT YEAR 2003-04 ASSESSEE WAS ENGAGED IN BUSINESS OF MANUFACTURING AND TRADING OF CONTROL VALVES AND ACTUATORS IT HAD ENTERED INTO AN AGREEMENT WITH AGENT P FOR OBTAINING ORDERS FROM NTPC AND UPSEB IT CLAIMED DEDUCTION OF CERTAIN COMMISSION PAID TO COMMISSION AGENT P FOR ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 4 OBTAINING SAID ORDERS ASSESSING OFFICER DENIED DEDUCTION ON PLEA THAT ASSESSEE FAILED TO DISCHARGE ONUS IN THIS REGARD COMMISSIONER (A) UPHELD ACTION OF AO IT WAS FOUND FROM RECORDS THAT ASSESSEE HAD FURNISHED ALL BASIC INFORMATION REGARDING SAID COMMISSION PAYMENT THROUGH BANK DETAILS OF SERVICES RENDERED BY COMMISSION AGENT AND MOREOVER SAID PAYMENT WERE NOT MADE IN VIOLATION OF ANY LAWS SUCH AS PREVENTION OF CORRUPTION ACT WHETHER IN VIEW OF ABOVE FACTS IT COULD BE SAID THAT AO HAD NOT DONE THIS PART OF DUTY IN MATTER IN AS MUCH AS HE HAD NOT ATTEMPTED TO DISPROVE CONTENTS OF AGENCY AGREEMENT OR THAT PAYMENT MADE THROUGH BANK WERE BOGUS AND ASSESSEE WAS ENTITLED TO DEDUCTION AS CLAIMED. (D) LIKEWISE IN THE ASSESSEES CASE THE PAYMENTS WERE THROUGH BANKING CHANNELS IDENTITY OF THE AGENT WAS ESTABLISHED TH E ASSESSEE RECEIVED GOODS ON CREDIT ONLY BECAUSE OF THE SERVICES RENDER ED BY M/S LEXCON STEELS (P) LTD. AND THE EXPENDITURE HAS BEEN MADE TO MEET THESE BUSINESS EXIGENCIES THE COMMISSION WAS ALLOWABLE. RELIANCE WAS PLACED THE RATIO OF DECISION IN THE CASE OF S.A. B UILDERS 288 ITR 1 (SC). (E) IT WAS NOT IN THE DOMAIN OF AO TO JUDGE THE BUSINES S EXPEDIENCIES AS HE CANNOT SIT INTO THE ARMCHAIR OF THE ASSESSEES BUSINESS. 2.3. CIT(A) CALLED FOR A REMAND REPORT FROM THE AO WHICH IS REPRODUCED ON PAGE 6 ONWARDS OF HIS ORDER ALONG WITH ASSESSEE S REJOINDER. CIT(A) EXAMINED THE ALLEGED AGREEMENT ALONG WITH ASSESSEE S EXPLANATION AND UPHELD THE ORDER OF AO DISALLOWING THE CLAIM OF COM MISSION BY OBSERVING AS UNDER: ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 5 (I) THE AGREEMENT IS GENERAL IN NATURE AND APPARENTLY APPEARS TO BE MADE OUT TO BENEFIT THE AGENT RATHER THAN BUSINESS REQUIREMENT. THE COMMISSION AGENT IS ITSELF A MANUFACTURE OF RAW MATERIAL USED BY THE PRINCIPAL BUT NOT ACTING AS A SUPPLIER BUT PROCURING MATERIAL FROM OTHER SUPPLIER. (II) THE COMMISSION RATE @ 6.30% ON THE VALUE OF PU RCHASE IS EXORBITANT AND UNHEARD OF. (III) IN NORMAL PRACTICE COMMISSION IS PAID FOR ENH ANCING SALE HOWEVER HERE IT IS PAID ON PURCHASES AS IF IT IS A LICENSED ITEM NOT EASILY AVAILABLE. (IV) AS PER CLAUSE EXPENSES RELATED TO PROCUREMENT OF GOODS ARE TO BE BORNE BY THE COMMISSION AGENT HOWEVER N OTHING AHS BEEN PLACED ON RECORD TO SUGGEST THAT THERE WAS ANY EXPENDITURE INCURRED BY THE AGENT IN PROCUREMENT. (V) THIS IS NOT A TRIPARTITE AGREEMENT BETWEEN SELL ER PURCHASER AND THE COMMISSION AGENT AND THERE IS NO PROOF OR CONFIRMATION FROM ANY PARTY INDICATING THE ROLE OF THE AGENT OR FOR THAT MATTER EVEN A MERE ENDORSEMENT OF ITS NAME ON THE BILLS OF PURCHASES. (VI) ACCOUNT OF THE COMMISSION AGENT REVEALED THAT THE APPELLANT HAS GIVEN A BIG AMOUNT OF LOAN OF RS. 1 4 8 18 643/- TO THE AGENT AT AN INTEREST RATE OF 6% PER ANNUM. THE INTEREST RATE IS MUCH BELOW THE NORMAL BANKING RATES WHICH SHOWS INTENTION OF THE APPELLANT TO GIVEN THE AGENT UNDUE BENEFIT. (VII) IN THE PAST ALSO THE APPELLANT HAD TRANSACTIO N WITH THE AID PARTIES OR SUPPLIERS BUT WHY THE COMMISSION AHS BEE N PAID THIS YEAR ONLY WAS NOT EXPLAINED SATISFACTORILY. (VIII) AS PER THE TERMS OF AGREEMENT THE COMMISSION AGENT STOOD AS GUARANTOR FOR PAYMENT ON BEHALF OF THE PRI NCIPAL FOR SUPPLY OF RAW MATERIAL. IN FACT THE COMMISSION AGEN T IS ENSURING ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 6 PAYMENT FOR THE SUPPLIER BUT GETTING COMMISSION FOR THIS SERVICE FROM THE PURCHASER. (IX) THE LOW INTEREST RATE LOAN TO THE COMMISSION A GENT SPEAKS CONTRARY TO THE ALTER CAPACITY FOR STANDING AS GUAR ANTOR BEFORE THE SUPPLIER. WITH THE KIND OF MONEY ADVANCED AS LO AN THE APPELLANT WOULD HAVE ARRANGED BANK GUARANTEE. (X) THE AGREEMENT DOES NOT SPEAK ABOUT WHO ARE THE PARTIES FROM WHOM THE SUPPLY OF RAW MATERIAL IS TO BE ARRAN GED. 8.3. CONCERNING THE ARGUMENTS THAT THE AO CANNOT SI T IN THE ARMCHAIR OF A BUSINESSMAN TO DECIDE EXIGENCY OF THE EXPENDITURE I AM OF THE CONSIDERED VIEW THAT YES H E SHOULD NOT NEVERTHELESS THE AO HAS ALL THE RIGHT TO JUDGE AS T O WHETHER ANY SERVICE HAS ACTUALLY BEEN RENDERED BY THE AGENT. 8.4. FROM ABOVE OBSERVATIONS IT APPEARS THAT THIS C OMMISSION AGREEMENT AHS BEEN ENTERED TO APPLY INCOME RATHER T HAN FOR THE PURPOSE OF EARNING INCOME. THE COMMISSION PAYMENT D OES NOT APPEAR TO BE FOR ANY SERVICE RENDERED OR FOR COMME RCIAL EXPEDIENCY AND THEREFORE CANNOT BE ALLOWED. I AGREE WITH THE FINDINGS OF AO AND CONFIRM THE ADDITIONS. AGGRIEVED ASSESSEE IS BEFORE US. 3. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE FACTS AND CONTENDS THAT SECTION 37 POSTULATES THAT AN EXPENDITURE IN ORDER TO BE ALLOWED AS BUSINESS EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF RUNNING OF THE BUSINESS OF THE ASSESSEE. PURCHASES AND SMOOTH SUPPLIES ARE ESSENTIAL PARTS OF ASSESSEES BUSINESS AND ANY EXPE NDITURE MADE IN THIS BEHALF IS ELIGIBLE AS BUSINESS EXPENDITURE U/S 37. RELIANCE IS PLACED ON THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE C ASE OF S.A. BUILDERS LTD. VS. CIT & ANR. 288 ITR 1; AND THAT OF ITAT IN THE C ASE OF DRESSER VALUE INDIA (P) LTD. VS. ACIT 30 SOT 495 (MUM.). ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 7 4. LEARNED DR ON THE OTHER HAND VEHEMENTLY SUPPOR TED THE ORDER OF LOWER AUTHORITIES AND CONTENDS THAT: (I) EXCEPT GIVING A GENERAL STATEMENT THAT THE SAID M/S LEXCON STEELS (P) LTD. STOOD GUARANTOR FOR THE ASSESSEE FOR PURCH ASES NO EVIDENCE WHAT-SO-EVER IN THIS BEHALF HAS BEEN PRODUCED TO SU BSTANTIATE THAT THIS CONCERN IN FACT IN ANY OF THE PURCHASES HELPED THE ASSESSEE AND RENDERED SERVICES AS CLAIMED. (II) ONCE THE ASSESSEE GIVES AN EXPLANATION IT IS ITS B URDEN TO ESTABLISH THE CORRECTNESS AND TRUTHFULNESS OF SUCH EXPLANATI ON. IT CANNOT CONVENIENTLY GO TO THEORETICAL MEANING OF SEC. 37 A ND CLAIM THAT THE SERVICES ARE FOR BUSINESS EXPEDIENCY. THE FACTS ABOUT SERVICES ARE WITHIN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE WHO HAS TO DEMONSTRATE THEM. NO SIMILAR COMMISSION PAYMENTS IN EARLIER OR SUBSEQUENT YEARS ARE INCURRED BY THE ASSESSEE AND IT HAS NOT BEEN DEMONSTRATED WHICH PROBLEMS IN PURCHASES PERSUADED THE ASSESSEE TO SHIFT TO SUCH EXPENSIVE COMMISSION AGENT ONLY FO R THIS PARTICULAR YEAR. CIT(A) HAS REPRODUCED THE REMAND REPORT WHICH UNVEILS ENOUGH HOLES IN THE ASSESSEES EXPLANATION TO COME TO A CONCLUSION THAT THERE WAS NO EVIDENCE TO SUPPORT THE RENDERING OF BUSINESS SERVICES. (III) CIT(A) HAS THREADBARE CONSIDERED THE AGREEMENT WHIC H IS MENTIONED ON PAGE 10 OF HIS ORDER. SINCE THE ASSESS EE HAS FAILED TO DEMONSTRATE BY SUFFICIENT AND COGENT EVIDENCE THA T THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS THE COMMISSION HAS BEEN RIGHTLY DISALLOWE D. RELIANCE IS PLACED ON THE RATIO OF DECISIONS IN THE FOLLOWING C ASES: ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 8 - SCHNEIDER ELECTRIC INDIA LTD. VS. CIT (2008) 304 IT R 360 (DEL); - LACHMINARAYAN MADAN LAL 86 ITR 439 (SC); AND - SWADESHI COTTON MILLS 63 ITR 57 (SC). 4. WE HAVE HEARD RIVAL CONTENTIONS AND HAVE GONE TH ROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE ASSESSEES INFIRM ITIES IN DEMONSTRATING RENDERING OF ANY SERVICES BY ANY CREDIBLE MATERIAL ARE NARRATED IN THE FOREGOING PARAS. THE PURPORTED AGREEMENT DOES NOT S PELL OUT THE NATURE OF SERVICES AND THE EFFORTS MADE BY M/S LEXCON STEELS (P) LTD. FOR PURCHASES OR GUARANTEES. IN OUR VIEW THE ASSESSEE HAS MERELY GI VEN A GENERAL STATEMENT AND FILED A COPY OF AGREEMENT WHICH IN OUR VIEW CANNOT BE CONSIDERED AS DEFINING THE BUSINESS NATURE OF SERVICES AS THEY ARE TO BE BACKED UP BY COPIES OF RELEVANT PURCHASES ORDERS EXECUTION OF T RANSACTIONS; AND THE EXECUTION OF A GUARANTEE OR RENDERING OF ANY SUCH S ERVICE IN OBJECTIVE AND DISCERNABLE MANNER. IN VIEW THEREOF ASSESSEE HAVIN G FAILED TO DISCHARGE ITS BURDEN WE SEE NO INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES DISALLOWING THE EXPENDITURE. WE UPHOLD THE SAME. 5. IN THE RESULT ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31-01-2011. SD/- SD/- ( K.D. RANJAN ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31-01-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 204/DEL/10 PAWAN KUMAR JAIN VS. ACIT 9