ACIT 18(2), MUMBAI v. M/s. ANAND ENTERPRISES, MUMBAI

ITA 3782/MUM/2008 | 2005-2006
Pronouncement Date: 19-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 378219914 RSA 2008
Assessee PAN AAAFA1725C
Bench Mumbai
Appeal Number ITA 3782/MUM/2008
Duration Of Justice 2 year(s) 7 month(s) 19 day(s)
Appellant ACIT 18(2), MUMBAI
Respondent M/s. ANAND ENTERPRISES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 19-01-2011
Date Of Final Hearing 15-04-2010
Next Hearing Date 15-04-2010
Assessment Year 2005-2006
Appeal Filed On 30-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI SHRI R.S. PADVEK AR (JM) I.T.A.NO.3782/MUM/08 (A.Y. 2005-06) ACIT-18(2) R.NO.115 1 ST FLOOR PIRAMAL CHAMBERS PAREL MUMBAI-400 012. VS. M/S. ANAND ENTERPRISES 337 ASHISH INDL.ESTATE GOKHALE RD. DADAR (W) MUMBAI-400 028. PAN: AAAFA1725C APPELLANT RESPONDENT APPELLANT BY SHRI VIPUL JOSHI. RESPONDENT BY SHRI R .S. SRIVASTAVA O R D E R PER R.S. SYAL AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 26-03-2008 IN RELATION TO THE ASSTT. YEAR 2005-06. 2. THE FIRST GROUND IS GENERAL WHICH DOES NOT REQUI RE ANY ADJUDICATION. 3. GROUND NO.2 IS ABOUT DELETION OF ADDITION OF RS. 32 11 200/- WHICH WAS MADE BY THE AO ON ACCOUNT OF EXCESS AGENCY COMMISSI ON. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE B USINESS OF MANUFACTURING AND EXPORT OF GARMENTS IN THE YEAR IN QUESTION. A SUM OF RS.97 01 702/- WAS CLAIMED AS DEDUCTION UNDER THE HEAD AGENCY COMMISS ION. THE AO NOTED THAT FIGURE UNDER THIS HEAD IN THE PRECEDING YEAR WAS RS .46 97 553/-. IT WAS NOTICED THAT THE COMMISSION WAS PAID ONLY TO ONE PARTY NAM ELY MR. LENNY KING. THE ASSESSEE WAS CALLED UPON TO FURNISH DETAILS OF COMM ISSION PAID AND SERVICES PROVIDED. THE ASSESSEE SUBMITTED THAT THE AGENCY CO MMISSION WAS PAYABLE AT 10% OF F.O.B. VALUE AS MENTIONED IN GRS WHICH WE RE APPROVED BY THE RESERVE BANK OF INDIA. SAMPLE OF BANK CERTIFICATE MENTIONI NG 10% AGENCY COMMISSION WAS ALSO ENCLOSED. THE REASON FOR THE INCREASE IN A GENCY COMMISSION IN THIS YEAR WAS STATED TO BE THE RENDERING OF SERVICES BY THE F OREIGN RECIPIENT IN RESPECT OF ITA NO.3782/M/08. 2 ALL EXPORTS EFFECTED BY THE ASSESSEE. THE AO HELD THE SUBMISSIONS OF THE ASSESSEE TO BE GENERAL IN NATURE. HE ADMITTED THE FACT THAT THE ASSESSEES TURNOVER WAS INCREASED BUT MAINTAINED THAT THERE WA S NO NEW BUYER INTRODUCED BY THE SAID AGENT. AS THE PERCENTAGE OF COMMISSION TO THE TOTAL EXPORTS IN THE PRECEDING YEAR WAS WORKED OUT AT 2.88% THE AO HELD THAT THE SAME PERCENTAGE WAS TO BE APPLIED IN THIS YEAR ALSO. RESULTANTLY A DDITION OF RS.32 11 200/- WAS MADE. THE LD. CIT(A) ORDERED FOR THE DELETION OF TH E ADDITION. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THERE IS NO DISPUTE AB OUT THE FACT THAT THE ASSESSEE AVAILED THE SERVICES OF THE FOREIGN AGENT IN RESPE CT OF EXPORTS EFFECTED BY IT AS WAS APPARENT FROM THE GRS. THIS FACT WAS ALSO APPRO VED BY THE RBI. FROM PAGE 18 OF THE PAPER BOOK BEING THE STATEMENT SHOWING COMPARISON OF GROSS PROFIT AND BUSINESS INCOME FOR THIS YEAR VIS--VIS EARLIER YEAR IT CAN BE NOTICED THAT THE EXPORT SALES IN THIS YEAR INCREASED FROM RS.8.06 CR ORES TO RS.11.15 CRORES. DESPITE THE PAYMENT OF COMMISSION AT 10% TO A PERSO N WHO IS UNRELATED TO THE ASSESSEE THE GROSS PROFIT AS WELL AS THE NET PROFI T OF THE ASSESSEE SAW SUBSTANTIAL INCREASE IN TERMS OF AMOUNT AS WELL AS PERCENTAGE. THE FACT THAT THE ASSESSEE DID PAY COMMISSION TO ITS FOREIGN AGENT HAS BEEN ACKNOW LEDGED BY THE AO AS IS APPARENT FROM HIS DECISION IN RESTRICTING THE DEDUC TION TO 2.88% OF THE TURNOVER. ONCE THE COMMISSION IS ACCEPTED TO HAVE BEEN PAID THERE IS NO LOGIC IN DISALLOWING SUCH EXPENDITURE BY HOLDING THAT IT WAS EXCESSIVE. IT IS FOR THE ASSESSEE TO DETERMINE THE WAY IN WHICH IT HAS TO C ARRY ON ITS BUSINESS. THE ASSESSEE HAS TO DECIDE THE PERCENTAGE OF COMMISSION WHICH IS TO BE ALLOWED BY HIM CONSIDERING ALL THE ATTENDING CIRCUMSTANCES AND THE BUSINESS EXIGENCIES. IN OUR CONSIDERED OPINION THE LD. CIT(A) WAS JUSTIFIE D IN DELETING THIS ADDITION. ITA NO.3782/M/08. 3 5. GROUND NO. 3 IS AGAINST THE DELETION OF ADDITION OF RS.2 55 827/- MADE BY THE AO ON ACCOUNT OF RENT RATES AND TAXES. ON VERI FICATION OF THE DETAILS IT WAS NOTICED BY THE AO THAT THE ASSESSEE CLAIMED DEDUCTI ON IN RESPECT OF TWO PAYMENTS AMOUNTING TO RS.1 29 166/- AND RS.1 26 661 /- TOTALING TO RS.2 55 827/- MADE BY SHRI ANUP L. ANAND AND MRS. N EELAM P. ANAND THE PARTNERS OF THE ASSESSEE FIRM RESPECTIVELY. THESE WERE THE AMOUNTS OF PROPERTY TAXES PAID TO BMC. ON BEING CALLED UPON TO EXPLAIN THE REASON FOR WHICH THIS EXPENDITURE WAS BOOKED IN THE FIRMS ACCOUNT THE A SSESSEE STATED THAT THE PROPERTIES PURCHASED BY THE PARTNERS IN THEIR INDIV IDUAL NAMES WERE UTILIZED FOR THE BUSINESS BY THE FIRM. IN THE ABSENCE OF ANY SUB STANTIATION OF THIS ARGUMENT THE AO MADE ADDITION OF RS.2.55 LAKHS. THE CIT(A) C AME TO DELETE THIS ADDITION ON THE ASSESSEES SUBMISSION THAT THESE TWO PROPERT IES WERE GALAS IN RESPECT OF WHICH LICENCES FROM BMC SHOP & ESTABLISHMENT DEPART MENT WERE OBTAINED. AS THESE TWO PARTNERS HAD NOT SHOWN ANY INCOME FROM TH ESE GALAS IN THEIR RESPECTIVE ASSESSMENTS IT WAS HELD THAT THE PROPER TIES WERE USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IN OUR CONSIDERED OPINION THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THIS ADDITION SIMPLY ON THE PREMISE THAT NO SEPARATE INCOME WAS OFFERED BY THE PARTNERS FROM THESE GALAS IN THEIR RESPECTIVE RETURNS. THUS IT SH OWS THAT HE HAS SIMPLY INFERRED THE FACT THAT THESE PROPERTIES WERE USED BY THE ASS ESSEE FOR ITS BUSINESS PURPOSES. DRAWING SUCH INDIRECT INFERENCE IS NOT PE RMISSIBLE IN LAW INASMUCH AS THE ONUS IS ON THE ASSESSEE TO JUSTIFY THE DEDUCTIO N. THE CLAIM OF DEDUCTION WOULD HAVE BEEN JUSTIFIED IF SOME EVIDENCE SHOWING THE USE OF THESE TWO GALAS FOR THE BUSINESS PURPOSES OF THE ASSESSEE FIRM HAD BEEN PRODUCED. HERE IS A CASE IN WHICH NO SUCH EVIDENCE WAS FILED BEFORE THE AUTH ORITIES BELOW AND THE SITUATION ITA NO.3782/M/08. 4 REMAINS SAME BEFORE US AS WELL. IN THESE CIRCUMSTAN CES WE ARE OF THE CONSIDERED OPINION THAT IN THE ABSENCE OF ANY EVIDE NCE TO SHOW THAT THE ASSESSEE USED THESE TWO PREMISES FOR ITS BUSINESS THE DEDUC TION CANNOT BE ALLOWED. WE THEREFORE OVERTURN THE IMPUGNED ORDER ON THIS ISSU E AND RESTORE THE ADDITION MADE BY THE AO. THIS GROUND IS ALLOWED. 7. GROUND NO. 4 IS AGAINST THE DELETION OF ADDITION OF RS.4 62 376/- MADE OUT OF LABOUR CHAGES. THE ASSESSEE DEBITED SALARY OF RS .16 63 775/- LABOUR CHARGES OF RS.46.23 LAKHS AND OUTSIDE LABOUR CHARGES AT RS. 14.37 LAKHS. ON PERUSAL OF THE REGISTER FOR SALARY & LABOUR CHARGES THE AO NOTICE D THAT THE RECIPIENTS HAD NOT SIGNED THE REGISTER PROPERLY. ON QUERY THE ASSESSE E STATED THAT BY OVERSIGHT SOME SIGNATURES WERE LEFT OUT TO BE TAKEN IN SOME M ONTHS ON THE SALARY/WAGES REGISTER. IT WAS STATED THAT IN THE SUBSEQUENT MONT HS THESE INDIVIDUALS HAD SIGNED THE REGISTER. THE ASSESSEE FURTHER PROPOSED TO RECTIFY THE MISTAKE BY GETTING THE REGISTER PROPERLY SIGNED. NOT CONVINCED THE AO MADE ADDITION OF RS.4 62 376/-. THE LD. CIT(A) DELETED THIS ADDITION . 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THOUGH THE REGISTER W AS NOT SIGNED BY SOME OF THE WORKERS FOR CERTAIN MONTHS BUT IT WAS SIGNED BY TH EM FOR SUBSEQUENT MONTHS. IT IS BORNE OUT FROM THE IMPUGNED ORDER THAT SALARY/WA GES HAVE BEEN PAID TO ALL THESE PERSONS AFTER DEDUCTING EPF & ESIC ON MONTH T O MONTH BASIS WHICH AMOUNT WAS DULY DEPOSITED. EVEN HALF YEARLY RETURN SUBMITTED IN THE OFFICE OF THE ESIC WAS ALSO PLACED BEFORE THE FIRST APPELLATE AUT HORITY. THAT APART WE FIND NO REASONS FOR MAKING AD HOC DISALLOWANCE AT 10% OF TO TAL LABOUR CHARGES. FURTHER WHEN THE ASSESSEE OFFERED TO GET THE MISTAKE RECTIF IED BY OBTAINING SIGNATURES OF LABOURERS ON THE REGISTER THE AO DID NOT ACCEPT TH E SUGGESTION. IN VIEW OF THE ITA NO.3782/M/08. 5 FOREGOING DISCUSSION WE ARE SATISFIED THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION. THIS GROUND IS NOT ALLOWED. 9. THE LAST EFFECTIVE GROUND IS AGAINST THE DELETIO N OF ADDITION OF RS.17 29 389/- FROM THE TOTAL ADDITION OF RS.36 47 447/- MADE BY THE AO ON ACCOUNT OF PAYMENTS MADE TO NON-RESIDENT SHIPPING C OMPANIES WITHOUT DEDUCTING TAX AT SOURCE. THIS GROUND ALSO CHALLENGE S THE ACTION OF THE LD. FIRST APPELLATE AUTHORITY IN DELETING THE ADDITION BY REL YING ON ADDITIONAL EVIDENCE FILED BEFORE HIM IN CONTRAVENTION OF RULE 46A OF THE IT R ULES. 10. AFTER CONSIDERING BOTH THE SIDES AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS SEEN FROM THE SECOND PARA OF PENULTIM ATE PAGE OF THE IMPUGNED ORDER STATES THAT THE ASSESSEE FURNISHED CERTAIN DE TAILS BEFORE THE LD. CIT(A) FOR THE FIRST TIME. THE LD. A.R. CANDIDLY ACCEPTED THAT SUCH DETAILS WERE NOT BEFORE THE AO. WITHOUT GOING INTO THE MERITS OF THE ADDITI ON WE SET ASIDE THE IMPUGNED ORDER FOR ACCEPTANCE OF ADDITIONAL EVIDENCE IN VIOL ATION OF RULE 46A AND RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING THIS ISSU E AFRESH AS PER LAW AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. NEEDLESS TO SAY THE ASSESSEE WILL BE AT LIBERTY TO LEAD ANY EVIDENCE BE FORE THE AO IN SUPPORT OF ITS CASE IN FRESH PROCEEDINGS. 11. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 19TH DAY OF JANUARY 2011. SD/- SD/- (R.S. PADVEKAR) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI:19TH JANUARY 2011. NG: ITA NO.3782/M/08. 6 COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-XVIII MUMBAI. 4 CIT CITY-XVIII MUMBAI. 5.DR A BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. ITA NO.3782/M/08. 7 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 12-01-2010 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 14-01-201 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER *