GAURISHNKAR D. JAKHALIA, MUMBAI v. ACIT RG 14(2), MUMBAI

ITA 2314/MUM/2010 | 2006-2007
Pronouncement Date: 11-03-2011 | Result: Allowed

Appeal Details

RSA Number 231419914 RSA 2010
Assessee PAN AABPJ7722R
Bench Mumbai
Appeal Number ITA 2314/MUM/2010
Duration Of Justice 11 month(s) 19 day(s)
Appellant GAURISHNKAR D. JAKHALIA, MUMBAI
Respondent ACIT RG 14(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 11-03-2011
Date Of Final Hearing 21-02-2011
Next Hearing Date 21-02-2011
Assessment Year 2006-2007
Appeal Filed On 23-03-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO (JM) ITA NO.2314/M/2010 ASSESSMENT YEAR 2006-07 SHRI GAURISHANKAR D.JAKHALIA THE ACIT CIRCLE 14( 2) MUMBAI C/O. SHANKARLAL JAIN & ASSOCIATES 12 ENGINEER BUILDING 265 PRINCESS STREET MUMBAI 400 002. PAN : AABPJ 7722 R APPELLANT RESPONDENT ASSESSEE BY : MR. S. L. JAIN REVENUE BY : MRS. MALATHI SHRIDHARAN O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 15.1.10 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ASSE SSEE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF R S.8 55 039/- BEING THE EXPENDITURE ON ACCOUNT OF BROKERAGE AND COMMISSION. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE AO DURING THE ASSESSMENT P ROCEEDINGS NOTED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.8 55 039/- ON ACCOUNT OF PAYMENT OF COMMISSION VARYING 1% TO 3% TO THE FOUR PARTIES AS PER DETAILS GIVEN BELOW : 2 SR NO NAME OF THE PERSON COMMISSION PAID OTHER EXPENSES REIMBURSED (LESS) DISCOUNT RECEIVED BY THE ASSESSEE TOTAL 1 MAHESH RUPANI 2 03 739 1300 205 039 2 VIKAS JHAKALIA 2 90 000 - - 290 000 3 KAVITA R ROHRA 2 89 024 976 290 000 4 ROHIT R ROHRA 72 893 - 2 893 70 000 TOTAL 8 55 656 2 276 2 893 8 55 039 2.1 AO AFTER EXAMINATION OF DETAILS NOTED THAT THE ASSESSEE HAD ONLY EXPORT SALES AND COMMISSION HAD BEEN PAID TO THE RESIDENT INDIVIDUALS BEING THE AGENTS OF THE FOREIGN PARTY. IT WAS ALSO NOTED BY H IM THAT THE COMMISSION OF RS.2 90 000/- HAD BEEN PAID TO SHRI VIKAS JHAKALIA THE SON OF THE ASSESSEE FOR PROCURING ORDERS. THE COMMISSION HAD BEEN PAID IN S OME CASE TO MORE THAN ONE PARTY FOR THE SAME SALE. THERE WERE NO WRITTEN AGREEMENTS. ONE OF THE COMMISSION AGENT WAS THE WIFE OF AN EMPLOYEE TO WH OM COMMISSION HAD BEEN PAID AT RS.2 90 000/-. THE PAYMENT HAD ALSO NOT BEE N ACTUALLY MADE AND IN CASE OF MRS. KAVITA R ROHRA THE WIFE OF AN EMPLOYEE AND MR. VIKAS JHAKALIA THE COMMISSION WAS STILL OUTSTANDING IN THE BALANCE SHE ET. THE AO FURTHER NOTED THAT NO TAX HAD BEEN DEDUCTED IN RESPECT OF THE COM MISSION PAYMENTS. CONSIDERING ALL THESE FACTORS THE AO DISALLOWED THE CLAIM OF COMMISSION. 2.2 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D SUBMITTED BEFORE CIT(A) THAT THE ASSESSEE WAS IN THE BUSINESS OF EXP ORT OF TEXTILES MAINLY TO UAE AND OTHER NEIGHBORING COUNTRIES. THE EXPORT TURNOVE R DURING THE YEAR HAD RISEN TO 401.85 LACS AGAINST EXPORT OF ONLY 14.68 LACS IN THE PRECEDING YEAR. DURING THE YEAR THE ASSESSEE HAD PAID COMMISSION OF RS.10 89 698/- TO PROCURE ORDERS WHICH HAD RESULTED INTO INCREASE IN TURNOVER MANY F OLD. THE ASSESSEE HAD ALLOWED 3% COMMISSION TO THE FOREIGN PARTIES AND CO MMISSION HAD BEEN PAID TO THE INDIAN BROKERS FOR PROCURING ORDERS. THE COMMIS SION HAD BEEN PAID FOR 3 PROVIDING SERVICES OF INTRODUCING CUSTOMERS. IN ONE CASE TWO BROKERS HAD ACTED JOINTLY AND THEREFORE COMMISSION HAD BEEN PAI D TO THE TWO BROKERS FOR THE SAME EXPORT. AS REGARDS SHRI VIKAS JHAKALIA TH E SON OF THE ASSESSEE IT WAS SUBMITTED THAT HE WAS ACTIVELY CONNECTED WITH THE E XPORT BUSINESS AND HE HAD ALSO VISITED SAUDI ARABIA AS HE KNEW SAUDI LANGUAGE FOR THE PURPOSE OF BUSINESS. IT WAS POINTED OUT THAT THE INCOME RETURN ED BY VIKAS JHAKALIA WAS RS.10 75 860/-. THEREFORE THE TAX RATE WAS THE SAME . IN RELATION TO NON DEDUCTION OF TAX FROM THE COMMISSION PAID IT WAS S UBMITTED THAT THE TAX WAS NOT DEDUCTIBLE AS THE TURNOVER OF THE ASSESSEE IN T HE EARLIER YEAR WAS NOT COVERED FOR AUDIT UNDER SECTION 44AB. AS REGARDS TH E COMMISSION OUTSTANDING IN THE BOOKS OF THE ASSESSEE IT WAS SUBMITTED THAT THE SAME WAS PAID IN THE SUBSEQUENT YEAR AND A COPY OF THE BANK STATEMENT SH OWING THE PAYMENT WAS ALSO ENCLOSED. CIT(A) WAS HOWEVER NOT SATISFIED BY THE EXPLANATION GIVEN BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT ASSESSEE ALREADY PAID COMMISSION @ 3% OF THE INVOICE AMOUNT TO THE FOREIGN PARTIES AND IN ADDITION COMMISSION HAD BEEN PAID TO THE FOUR RESIDENT INDIVIDUALS ALSO ONE OF THEM WAS THE SON OF THE ASSESSEE. THERE WERE NO DETAILS OF ORDERS PROCURED BY THE COMMISSION AGENTS. THERE WERE ALSO NO TAX DEDUCTED AT SOURCE. THE CLAI M OF THE ASSESSEE THAT COMMISSION HAD BEEN PAID FOR INTRODUCING FOREIGN PA RTIES WAS NOT SUPPORTED BY ANY EVIDENCE. THERE WERE ALSO NO AGREEMENTS FOR PAY MENT OF COMMISSION. CIT(A) THEREFORE CONCLUDED THAT THE ASSESSEE HAD FA ILED TO DISCHARGE ITS ONUS OF PROVING THE GENUINENESS OF COMMISSION AND THE BUSIN ESS NECESSITY. HE AGREED WITH THE AOS FINDING THAT COMMISSION @ 3% BEING AL READY PAID TO THE FOREIGN PARTIES THERE WAS NO NEED OF ANY FURTHER PAYMENT O F COMMISSION TO THE INDIAN BROKERS. CIT(A) ACCORDINGLY UPHELD THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4 2.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE CONCLUSION OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAD PAID COMMISSION @ 3% TO THE FOREIGN PARTIES WAS NOT CORRECT. THE ASSESSEE HAD I N FACT ALLOWED DISCOUNT OF 3% TO THE FOREIGN BUYERS. THERE CANNOT BE ANY COMMI SSION PAYMENT BY THE FOREIGN BUYER. THE FACT THAT THE 3% COMMISSION HAD BEEN DEDUCTED FROM THE INVOICE VALUE HAD ALSO BEEN NOTED BY THE AO. THEREF ORE ONE OF THE MAIN REASONS FOR DISALLOWING COMMISSION WAS NOT BASED ON FACTS. THE COMMISSION HAD BEEN PAID @ 1% TO 3% TO THE INDIAN PARTIES FOR INTRODUCING FOR EIGN BUYERS. THE ASSESSEE HAD GIVEN COMPLETE DETAILS OF THE COMM ISSION PAYMENT GIVING THE NAME OF BROKERS DATE AND PAYMENT OF COMMISSION TH E INVOICE NUMBER AND THE SALE AMOUNT AND THE NAME OF THE FOREIGN PARTY IN RE LATION TO WHICH THE COMMISSION HAD BEEN PAID WHICH WAS AVAILABLE AT PAG E 5 OF THE PAPER BOOK. THESE DETAILS HAD BEEN GIVEN TO THE AO. THE ASSESSE E HAD THUS GIVEN FULL DETAILS OF THE COMMISSION PAYMENT IN RESPECT OF EAC H INVOICE AND THE PAYMENTS HAD BEEN MADE BY CHEQUE. PAYMENT HAD BEEN MADE FOR INTRODUCING THE FOREIGN PARTIES. THE NAME OF THE FOREIGN PARTIES IN RELATIO N TO WHICH THE PAYMENT HAD BEEN MADE HAD ALSO BEEN GIVEN. AS REGARDS SHRI VIK AS JHAKALIA HE HAD ALSO WORKED FOR THE FIRM AND VISITED SAUDI ARABIA IN CON NECTION WITH THE ASSESSEES BUSINESS. THE FOREIGN TRAVEL EXPENSES HAD ALREADY B EEN ALLOWED BY THE DEPARTMENT WHICH SHOWS THAT EVEN THE DEPARTMENT HAD ACCEPTED THAT TRAVEL HAD BEEN UNDERTAKEN FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. SHRI JHAKALIA BELONGED TO THE HIGH INCOME GROUP AND THEREFORE THE RE WAS NO TAX ADVANTAGE TO THE FAMILY BECAUSE OF PAYMENT OF COMMISSION. IT WAS ALSO SUBMITTED THAT NO TAX WAS REQUIRED TO BE DEDUCTED AS THE TURNOVER IN THE IMMEDIATE PRECEDING YEAR WAS BELOW THE LIMIT PRESCRIBED UNDER SECTION 4 4AB. 5 2.4 THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPO RTED THE ORDERS OF AUTHORITIES BELOW. IT WAS SUBMITTED THAT THE ASSESS EE HAD NOT PRODUCED EVIDENCE REGARDING RENDERING OF SERVICES THE BURDE N FOR WHICH WAS ON THE ASSESSEE TO PROVE THAT SERVICES HAD ACTUALLY BEEN R ENDERED WHICH WAS NOT DISCHARGED. ONLY PAYMENT BY CHEQUE IS NOT ENOUGH. R ELIANCE HAD PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF LAXMI NARAYAN MOHAN LAL (86 ITR 439) AND ON THE JUDGMENT OF HONBLE HIGH COURT OF DELHI IN CASE OF SCHNEIDER ELECTRIC INDIA LTD. VS CIT (304 ITR 360) IN WHICH CASE DISALLOWANCE OF COMMISSION HAD BEEN AGREED AS NO DETAILS OF SERV ICES RENDERED WERE GIVEN AND ALSO NO COMPUTATION FILED. IT WAS ACCORDINGLY U RGED THAT THE ADDITION MADE BY THE AO SHOULD BE UPHELD. 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF COMMISSION OF RS.8 55 039/- . THE COMMISSION VARYING FROM 1% TO 3% HAD BEEN PAI D TO CERTAIN PARTIES FOR PROCURING ORDERS WHICH ALSO INCLUDED THE SON OF THE ASSESSEE AND THE WIFE OF AN EMPLOYEE. THE ASSESSEE IS EXPORTING GOODS AND COMMI SSION IS CLAIMED TO HAVE BEEN PAID FOR PROCURING ORDERS FROM THE FOREIGN PAR TIES. THE DISALLOWANCE HAS BEEN MADE MAINLY ON THE GROUNDS THAT THE ASSESSEE H AD ALREADY (I) PAID 3% COMMISSION TO THE FOREIGN BUYERS; (II) THAT THERE W ERE NO RECORDS OF ORDERS PROCURED BY THE COMMISSION AGENTS; AND (III) THAT N O TAX HAD BEEN DEDUCTED AT SOURCE. IT HAS BEEN EXPLAINED BY THE ASSESSEE THAT THE FINDING OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAD ALREADY PAID 3% COMMISS ION TO THE FOREIGN PARTIES WAS NOT CORRECT. THERE COULD NOT BE ANY COMMISSION PAYMENT TO THE FOREIGN BUYERS. THE AO HAD HIMSELF NOTED THAT THE AMOUNT HA D BEEN DEDUCTED FROM THE INVOICE VALUE. IT WAS A CASE OF DISCOUNT OR INCENTI VE GIVEN TO THE FOREIGN BUYERS WHICH HAS BEEN WRONGLY CONSIDERED AS COMMISSION. WE AGREE WITH THE 6 SUBMISSION OF THE ASSESSEE THAT THERE COULD NOT BE COMMISSION FOR PROCURING ORDERS TO THE BUYER ITSELF. THE AMOUNT @ 3% DEDUCTE D FROM THE BILLS HAD THEREFORE TO BE CONSIDERED AS ONLY A DISCOUNT. AS R EGARDS THE NON DEDUCTION OF TDS IT HAS BEEN SUBMITTED THAT NO TAX WAS REQUIRED TO BE DEDUCTED UNDER THE PROVISIONS OF SECTION 194H APPLICABLE FROM 1.4.2002 . THE TAX IS REQUIRED TO BE DEDUCTED ONLY IN CASE OF INDIVIDUAL OR HUF WHO ARE HAVING SALES OR TURNOVER/ GROSS RECEIPT EXCEEDING THE LIMIT OF RS.40 LACS PRE SCRIBED UNDER SECTION 44A IN THE IMMEDIATE PRECEDING YEAR. IN CASE OF THE ASSESS EE SALE IN THE IMMEDIATE PRECEDING YEAR WAS ONLY RS.14.68 LACS AND THEREFORE PROVISIONS OF SECTION 194H WERE NOT ATTRACTED. THE ONLY OTHER GROUND ON WHICH ADDITION HAD BEEN MADE WAS REGARDING NON FILING OF DETAILS OF ORDERS PROCU RED BY THE COMMISSION AGENT. THIS CLAIM OF THE AUTHORITIES BELOW IS ALSO FOUND T O BE NOT CORRECT AS THE ASSESSEE HAS PRODUCED DETAILS PLACED AT PAGE 5 OF T HE PAPER BOOK SHOWING THAT COMPLETE DETAILS GIVING THE NAME OF THE PARTIES NA ME OF THE BROKER INVOICE NUMBER AND LINKING EACH COMMISSION TO THE ORDER PRO CURED HAD BEEN GIVEN. THE LEARNED DR HAS HOWEVER POINTED OUT THAT BURDEN WAS ON THE ASSESSEE TO PRODUCE EVIDENCE REGARDING RENDERING OF SERVICES AN D THAT MERE PAYMENT BY ACCOUNT PAYEE CHEQUE WAS NOT ENOUGH. THERE CANNOT B E ANY DISPUTE ABOUT THIS PROPOSITION WHICH IS SETTLED BY THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF LAXMINARAYAN MOHANLAL (SUPRA) BUT IN CASE OF COM MISSION PAYMENT FOR PROCURING ORDERS THE PROCUREMENT OF ORDER ITSELF I S THE SERVICE PROVIDED. IN THIS CASE THE ASSESSEE HAD GIVEN DETAILS OF ORDERS PROCU RED BEFORE THE AO. HOWEVER IT IS NOTED THAT THE ASSESSEE HAD NOT FILED ANY CON FIRMATIONS. THE AO HAD ALSO NOT CALLED FOR CONFIRMATION FROM THE PARTIES WHICH IS A NORMAL PRACTICE IN THE ASSESSMENT PROCEEDINGS. THE ASSESSEE MAY HAVE THOUG HT THAT THE FILING OF DETAILS WAS ENOUGH AS NO SPECIFIC REQUISITION WAS M ADE REGARDING CONFIRMATION. THE COMMISSION HAS BEEN ACTUALLY PAID BY ACCOUNT PA YEE CHEQUE. THE TURNOVER 7 OF THE ASSESSEE HAD ALSO INCREASED MANY FOLD TO RS. 4.01 CRORES THIS YEAR COMPARED TO ONLY RS.14.68 LACS IN THE PRECEDING YEA R. PAYMENT OR COMMISSION FOR PROCUREMENT OF ORDER IS A NORMAL BUSINESS PRACT ICE. THEREFORE IN OUR VIEW CLAIM OF THE ASSESSEE CANNOT BE REJECTED SUMMARILY. HOWEVER AS POINTED OUT EARLIER THE ASPECT RELATING TO SERVICES RENDERED W AS NOT EXAMINED PROPERLY. IN OUR VIEW MATTER REQUIRES FURTHER VERIFICATION. WE T HEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING THE COMPUTATION OF ANNUAL VALUE FOR THE PURPOSE OF COMPUTING INCOME FROM HOUSE PROPERTY. TH E AO NOTED THAT THE ASSESSEE HAD DECLARED LOSS FROM HOUSE PROPERTY AMOU NTING TO RS.61 800/-. THE AO HOWEVER COMPUTED THE HOUSE PROPERTY INCOME AT RS .1 45 000/- ON THE BASIS OF MONTHLY RENTAL INCOME OF RS.12 000/- DECLA RED BY THE ASSESSEE. IN APPEAL THE ASSESSEE SUBMITTED THAT THE PREMISES HAD BEEN LET OUT AT A MONTHLY RENT OF RS.12 000/- W.E.F. 15.5.2005 AND THE TOTAL RENT RECEIVED DURING THE YEAR WAS RS.1 26 000/- WHICH HAD BEEN DECLARED AS ANNUAL VALUE. THE AO WAS NOT THEREFORE JUSTIFIED IN ESTIMATING THE ANNUAL VALUE AT RS.1 44 000/-. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTION RAISED. IT WA S OBSERVED BY HIM THAT THE ANNUAL VALUE HAD TO BE THE VALUE FOR WHICH THE PREM ISES CAN BE LET OUT FROM YEAR TO YEAR. IN THIS CASE THE MONTHLY RENT WAS RS. 12 000/- AND THEREFORE THE ANNUAL VALUE WOULD BE RS.1 44 000/- CIT(A) ACCORDIN GLY UPHELD THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBM ITTED THAT THE AUTHORITIES BELOW HAD NOT CONSIDERED THE PROVISIONS OF SECTION 23(1)(C) AS PER 8 WHICH IN CASE THE PROPERTY WAS VACANT DURING THE WH OLE OR PART OF THE PREVIOUS YEAR AND THE ACTUAL RENT RECEIVED OR RECEIVABLE WAS LESS THAN THE SUM MENTIONED IN SECTION 23(1)(A) THEN THE ACTUAL RENT RECEIVED / RECEIVABLE HAS TO BE TAKEN AS ANNUAL VALUE AND THEREFORE THE ASSESSEE HAD CORRECTLY SHOWN THE ANNUAL VALUE AT RS.1 26 000/-. THE LEARNED DR ON TH E OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF ANNUAL VALUE. THE PREMISES IN THIS CASE HAD BEEN LET OUT FOR A MONTHLY RENT OF RS.12 000/- W.E.F. 15.5.2005 AND THEREFORE THE TOTAL RENT RECEIVED WAS RS.1 26 0 00/-. THE ANNUAL VALUE OF THE PROPERTY HAS BEEN DEFINED IN SECTION 23 (1)(A) AS A SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FRO M YEAR TO YEAR. HOWEVER IN CASE THE PROPERTY IS LET OUT AND IS VACANT DURING T HE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND BECAUSE OF VACANCY THE ACTUAL RE NT RECEIVED OR RECEIVABLE IS LESS THAN THE VALUE FOR WHICH THE PROPERTY CAN BE L ET FROM YEAR TO YEAR THEN SUCH ACTUAL RENT RECEIVED/ RECEIVABLE HAS TO BE TAK EN AS ANNUAL VALUE UNDER SECTION 23(1)(A). THEREFORE IN VIEW OF THE PROVISIO NS OF SECTION 23(1)(C) WE DO NOT SEE ANY ERROR IN THE COMPUTATION OF HOUSE PROPE RTY MADE BY THE ASSESSEE ADOPTING THE ANNUAL VALUE OF RS.1 26 000/- BEING TH E RENT ACTUALLY RECEIVED/ RECEIVABLE. WE THEREFORE SET ASIDE THE ORDER OF CIT (A) AND ALLOW THE COMPUTATION MADE BY THE ASSESSEE. 9 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED IN TERMS OF THE ORDER ABOVE. 5. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 11.03.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 11.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR G BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK