Megastock Investment Services Pvt. Ltd., New Delhi v. ITO, New Delhi

ITA 232/DEL/2011 | 2001-2002
Pronouncement Date: 31-03-2011 | Result: Dismissed

Appeal Details

RSA Number 23220114 RSA 2011
Assessee PAN AAACM0350Q
Bench Delhi
Appeal Number ITA 232/DEL/2011
Duration Of Justice 2 month(s) 17 day(s)
Appellant Megastock Investment Services Pvt. Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 31-03-2011
Date Of Final Hearing 28-03-2011
Next Hearing Date 28-03-2011
Assessment Year 2001-2002
Appeal Filed On 14-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI B.C.MEENA ACCOUNTANT MEMBER I.T.A NO. 232/DEL/11 ASSTT. YEAR 2001-02 MEGASTOCK INVESTMENT SERVICES PVT. LTD. C/O. SH. ANUP SHARMA ADVOCATE 108 LAWYERS CHAMBER DELHI HIGH COURT NEW DELHI. PAN AAACM0350Q VS. ITO CO. WARD 6(3) C.R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) AND I.T.A NO. 190/DEL/11 ASSTT. YEAR - 2001-02 ITO WARD 6(3) ROOM NO. 185 CR BUILDING NEW DELHI. VS. MEGASTOCK INVESTMENT SERVICES PVT. LTD. D-251 COUNTRY CLUB ROAD NAIB SARAI NEW DELHI. AAACM0350Q (APPELLANT) (RESPONDENT) ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 2 APPELLANT BY: SHRI ANOOP SHARMA ADVOCATE RESPONDENT BY: SHRI PEEYUSH SONKAR SR. DR ORDER PER RAJPAL YADAV JM: THE ASSESSEE AND REVENUE ARE IN CROSS APPEAL AGAIN ST THE ORDER OF LD. CIT(A) DATED 22 ND SEPTEMBER 2010 PASSED FOR ASSTT. YEAR 2001- 02. THE SOLITARY GROUND OF APPEAL TAKEN BY BOTH THE APPELLANTS IS INTERCONNECTED TO EACH OTHER. THE GRIEVANCE OF REVE NUE IS THAT LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF COMMISSION TO ` 9 99 090/- AS AGAINST ` 29 99 090/- MADE BY THE AO MEANING THEREBY REVENUE IS IMPUGNING THE DELETION OF ` 20 LACS WHEREAS ASSESSEE IS IMPUGNING THE CONFIRMATION OF DISALLOWANCE AT ` 9 99 090/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY. IT HAS FILED ITS RETURN OF INCOME ON 30 TH OCTOBER 2001. IT HAS OFFERED ITS INCOME U/S 115JB. IT IS PROVIDING CONSU LTANCY SERVICES. THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 54 99 090/- AS A COMMISSION PAID / PAYABLE TO M/S. JAIN FERRO ALLOYS PVT. LTD. ACCORDI NG TO THE ASSESSEE AN AGREEMENT WAS EXECUTED BETWEEN IT AND M/S. JAIN FER RO ALLOYS (P) LTD. ON 8 TH OCTOBER 1997. IN PURSUANCE OF THIS AGREEMENT M/S . JAIN FERRO ALLOYS (P) LTD. PROVIDED ITS SERVICES TO THE ASSESS EE AND A DEBIT NOTE FOR ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 3 COMMISSION WAS RAISED BY M/S. JAIN FERRO ALLOYS PVT . LTD. ON 17 TH SEPTEMBER 2000. THE LD. AO EXAMINED THE DETAILS AN D ARRIVED THAT AGREEMENT WAS SIGNED BY ONE MR. SUBHASH CHAND JAIN WHO HAS RESIGNED FROM DIRECTORSHIP ON 15 TH FEB 1996. HE WAS NOT A COMPETENT PERSON TO SIGN THE AGREEMENT. THE AO ON AN ANALYSIS OF OTHER FACTS ARRIVED AT A CONCLUSION THAT IN THIS YEAR M/S JAIN FERRO ALLOYS HAD RECEIVED COMMISSION OF ` 25 LACS. THIS AMOUNT WAS OFFERED FOR TAX ALSO BY THE RECIPIENTS. THE AO GRANTED THE DEDUCTION OF ` 25 LACS TO THE ASSESSEE AND DISALLOWED THE REST OF CLAIM I.E. ` 29 99 090/-. 3. DISSATISFIED WITH THE ACTION OF AO ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). IT PLEADED THAT IT I S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTANCY. THE AO HIMSELF HAD NOT DOUBT ED THE GENUINENESS OF THE SERVICES RENDERED BY M/S JAIN FE RRO ALLOYS. HE RESTRICTED THE CLAIM OF ASSESSEE TO THE EXTENT ACTU AL PAYMENT HAS BEEN MADE IN THIS YEAR AND ACTUAL PAYMENT HAS BEEN SHOWN AS RECEIVED BY M/S JAIN FERRO ALLOYS. ACCORDING TO THE ASSESSEE O N THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTANCY THE TOTAL AMOUNT DEBITED BY THE ASSESSEE AS PAYABLE TO M/S JAIN FERRO ALLOYS FOR TH EIR SERVICES HAS TO BE ALLOWED LD. FIRST APPELLATE AUTHORITY HAS EXAMINED THE FACTS IN DETAIL AND FURTHER ALLOWED A SUM OF ` 20 LACS. THE FINDING RECORDED BY THE LD. CIT(A) IN PARAGRAPH 4.4. READ AS UNDER :- ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 4 4.4. I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE THE FINDINGS RECORDED BY THE AO IN THE ASSESS MENT ORDER AND THE DETAILED WRITTEN AND ORAL SUBMISSIONS MADE BY THE L D. AR. IT IS AN ADMITTED FACT THAT AN AMOUNT OF RS. 25 LACS WAS PAI D BY THE APPELLANT TO M/S. JAIN FERRO ALLOYS (P) LTD. DURING THE PREVI OUS YEAR RELEVANT TO THE A.Y. 2001-02 AND AN AMOUNT OF RS. 20 LACS WAS P AID IN THE FOLLOWING YEAR. THUS A TOTAL OF RS. 45 LACS HAS BE EN PAID BY THE APPELLANT AND HAS BEEN RECEIVED BY M/S. JAIN FERRO ALLOYS (P) LTD. IT HAS BEEN CONTENDED BY THE APPELLANT THAT IT SHOULD NOT BE PENALIZED IF M/S. JAIN FERRO ALLOYS (P) LTD. HAS ACCOUNTED FOR R S. 20 LACS IN THE SUBSEQUENT YEAR AND THE SAME SHOULD BE ALLOWED TO I T ON ACCRUAL BASIS AS BEING A COMPANY. IT IS MANDATORY FOR IT TO FOLLO W MERCANTILE SYSTEM OF ACCOUNTING. I FIND MERIT IN THE CONTENTION OF TH E APPELLANT THAT AN AMOUNT OF RS. 45 LACS SHOULD BE ALLOWED TO IT HAVIN G BEEN PAID BY IT AND RECEIVED BY M/S. JAIN FERRO ALLOYS (P) LTD. I A M FURTHER INCLINED TO ACCEPT THE SUBMISSION OF THE APPELLANT THAT AS PER THE MERCANTILE SYSTEM OF ACCOUNTING IT HAD BOOKED THE AMOUNT OF EX PENDITURE IN THE YEAR IT HAD ACCRUED AS PER THE TERMS OF AGREEMENT. HOWEVER SINCE ONLY AN AMOUNT OF RS. 45 LACS HAS BEEN PAID BY THE APPELLANT AND THE BALANCE AMOUNT OF RS. 9 99 000/- IS STILL OUTSTANDI NG EVEN AFTER A LAPSE OF A PERIOD CLOSE TO 10 YEAR AND M/S. JAIN FERRO AL LOYS (P) LTD. HAS MADE NO CLAIM / EFFORT FOR THE RECOVERY OF THE SAME THE SAME AMOUNT CANNOT BE ALLOWED TO IT. WHEN CONFRONTED WITH THE A BOVE THE LD. AR SUBMITTED AS UNDER :- WHEREAS OUT OF THE TOTAL AMOUNT OF RS. 54 99 090/ - A SUM OF RS. 45 00 000/- HAS ALREADY BEEN PAID AND RS. 9 99 090/ - BEING THE BALANCE AMOUNT IS BEING SHOWN AS OUTSTANDING. THE R ELATIONS BETWEEN THE TWO COMPANIES HAVE SINCE SOURED OVER TIME DUE T O TAX LITIGATION. M/S. JAIN FERRO AND ALLOYS PVT. LTD. HAVE NOT PREFE RRED ANY CLAIM AGAINST THE ASSESSEE. IN VIEW THEREOF AND WITHOUT P REJUDICE THE ASSESSEE IS NOW WILLING TO TREAT THE OUTSTANDING AM OUNT OF RS. 9 99 090/- AS INCOME PROVIDED AN AMOUNT OF RS. 20 00 000 ALREADY PAID TO THE JAIN FERRO ALLOYS PVT. LTD. IS ALLOWED AS VALID EXPENSE. HOWEVER THE ASSESSEE FEELS THAT IT MAY HAVE TO PAY THE MONEY WHEN DEMANDED SINCE IT IS BOUND BY THE CONTRACT THEREFOR E AS AND WHEN THE MONEY IS PAYABLE TO M/S. JAIN FERRO IN FUTURE THE SAME SHALL BE TREATED AS AN EXPENSE BY THE COMPANY. 4.5 IN VIEW OF THE DISCUSSION IN THE EARLIER PA RAS OF THIS ORDER I HOLD THAT AN AMOUNT OF RS. 45 LACS IS ALLOWABLE TO THE A PPELLANT AS EXPENDITURE ON ACCOUNT OF COMMISSION PAYABLE FOR TH E A.Y. IN QUESTION. THE APPELLANT THEREFORE GET A RELIEF OF RS. 20 LA CS (29 99 090- 9 99 090). THUS GROUND NO. 1 IS PARTLY ALLOWED TO THE APPELLANT. ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 5 4. THE LD. DR WHILE IMPUGNING THE ORDER OF LD. CIT( A) CONTENDED THAT M/S JAIN FERRO ALLOYS (P) LTD. DID NOT SHOW T HIS AMOUNT OF ` 29 99 090/- AS RECEIVABLE IN ITS BOOKS OF ACCOUNT. THEREFORE IT CREATES DOUBTS WHETHER THIS AMOUNT WAS ACTUALLY PAYABLE TO M/S. JAIN FERRO ALLOYS OR NOT. THE RIGHT TO RECEIVE THIS AMOUNT HAS NOT BEEN ACCRUED IN FAVOUR OF M/S. JAIN FERRO ALLOYS (P) LTD.. ON THE O THER HAND LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF LD. CIT(A ). HE POINTED OUT THAT ASSESSES IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTA NCY. IT HAS MADE A PROVISION FOR PAYMENT OF COMMISSION ON THE BASIS OF DEBIT NOTE RAISED BY M/S. JAIN FERRO ALLOYS. THE AO ALLOWED THE CLAIM TO THE EXTENT AMOUNT HAS ACTUALLY BEEN PAID IN THIS ASSTT. YEAR. THE ASS ESSEE HAS FILED CONFIRMATION INDICATING THAT ` 20 LACS HAS BEEN PAID IN F.Y. 2001-02 I.E. NEXT YEAR AND THIS INCOME WAS ALSO OFFERED FOR TAX BY M/S. JAIN FERRO ALLOYS. THE DISALLOWANCE AT ` 9 99 090/- CANNOT BE MADE IN THIS YEAR. THE ASSESSEE HAS OFFERED IT FOR TAX IN THE SUBSEQUE NT YEARS WHEN THE AMOUNT WAS WRITTEN BACK IN THE BOOKS. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE AGREEMENT AND THE DEBIT N OTE HAVE BEEN SIGNED BY SHRI SUBHASH CHAND JAIN WHO ACCORDING TO THE AO WAS NOT A MANAGING DIRECTOR AT THAT POINT OF TIME. HE HAS RES IGNED ON 15.2.96. THE ASSESSEE HAD MADE A PROVISION TOWARDS THE COMMISSIO N PAYABLE. ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 6 ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE THE AGREEMENT IS IMMATERIAL EVEN IF ON THE BASIS OF ORAL UNDERSTANDI NG IT IS ESTABLISHED THAT M/S. JAIN FERRO ALLOYS PVT. LTD.. HAS PROVIDED SERVICES TO THE ASSESSEE AND A COMMISSION IS PAYABLE THEN THE PROV ISION MADE FOR PAYMENT OF SUCH COMMISSION HAS TO BE ALLOWED. ACCOR DING TO THE LD. COUNSEL THIS PART HAS NOT BEEN DISBELIEVED BY THE AO. HE HAS DISALLOWED THE COMMISSION ONLY FOR THAT AMOUNT WHIC H WAS NOT ACTUALLY PAID IN THIS YEAR. IF THE AO HAS ANY DOUBT ABOUT TH E SERVICES THEN THE TOTAL COMMISSION ALLEGED TO HAVE BEEN PAYABLE OUGHT TO HAVE BEEN DISALLOWED. ON DUE CONSIDERATION OF THE MATERIAL AN D THIS ARGUMENT WE FIND THAT IN THE PAPER BOOK NOT A SINGLE DOCUMENT H AS BEEN PLACED ON THE RECORD WHICH SUGGEST THAT THE RECIPIENT M/S JAI N FERRO ALLOYS PVT. LTD. HAD TO RECEIVE ` 54 99 090/- THE ONLY DOCUMENT IS THE ALLEGED DEBI T NOTE WHICH IS SIGNED BY MR. SUBHASH CHAND JAIN. WE HAVE CONFRONTED THE LD. COUNSEL FOR THE ASSESSEE TO SHOW AS TO HOW THE LIABILITY TO PAY OF ` 9 99 090/- IS TO BE DEMONSTRATED AS ACCRUED. THE L D. CIT(A) HAS ALLOWED THE AMOUNT WHICH IS ACTUALLY BEEN PAID BY T HE ASSESSEE IN THE NEXT YEAR. THIS AMOUNT OF ` 9 99 090/- HAS NOT BEEN PAID UPTO THE DECISION OF LD. CIT(A) I.E UPTO 22 ND SEPTEMBER 2010. THIS HAS BEEN RETURNED BACK SUBSEQUENTLY AFTER A PERIOD OF MORE THAN 10 YEARS AND OFFERED FOR TAX BY THE ASSESSEE. THOUGH THIS ASPEC T MAY NOT BE VERY RELEVANT FOR DECIDING THE ISSUE WHEN THE ASSESSEE H AS FILED THE RETURN ITA NOS. 232 190/DEL/11 ASSTT. Y EAR 2001- 02 7 BUT IN THE ABSENCE OF ANY SIGNIFICANT DOCUMENT IT GIVES AN IMPRESSION THAT THIS AMOUNT WAS NEVER AGREED BEING PAYABLE BY THE ASSESSEE. IN OTHER WORDS IF WE EXCLUDE THE ALLEGED DEBIT NOTE W HICH IS SIGNED BY SHRI JAIN THEN NO OTHER DOCUMENT IS AVAILABLE FOR THIS A MOUNT OF ` 9 99 090/-. THE OTHER TWO DOCUMENTS ARE THE CONFIRMATIONS WHICH ONLY SUGGEST THE AMOUNT PAID BY ASSESSEE IN TWO ASSTT. YEARS. LD. CI T(A) HAS LOOKED INTO THIS ASPECT AND ALLOWED THE DEDUCTION TO THAT EXTEN T. WE DO NOT FIND ANY ERROR IN THE ORDER OF LD. CIT(A) AND BOTH THE APPEA LS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH 2011. SD/- [B.C. MEENA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.3.2011 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT