The ITO, Ward-11(4),, Ahmedabad v. Shri Pravinkumar Shripal Jain, Ahmedabad

ITA 452/AHD/2012 | 2008-2009
Pronouncement Date: 28-09-2016 | Result: Dismissed

Appeal Details

RSA Number 45220514 RSA 2012
Assessee PAN AAUPJ0387R
Bench Ahmedabad
Appeal Number ITA 452/AHD/2012
Duration Of Justice 4 year(s) 7 month(s) 10 day(s)
Appellant The ITO, Ward-11(4),, Ahmedabad
Respondent Shri Pravinkumar Shripal Jain, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-09-2016
Date Of Final Hearing 21-09-2016
Next Hearing Date 21-09-2016
Assessment Year 2008-2009
Appeal Filed On 17-02-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI AMARJIT SINGH ACCOUNTANT MEMBER ./ ITA.NO.452/AHD/2012 / ASSTT. YEAR: 2008-2009 AND ITA NO.165/AHD/2014 ASSTT.YEAR : 2010-11 ITO WARD - 11(4) AHMEDABAD. VS SHRI PRAVINKUMAR SHRIPAL JAIN C/O. DHANANJAY TRADING CO. 580 NEW CLOTH MARKET O/S.RAIPUR GATE RAIPUR 380 001. AHMEDABAD. PAN : AAUPJ 0387 R ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI JAMES KURIAN SR.DR ASSESSEE BY : SHRI ASEEM THAKKAR AR / DATE OF HEARING : 21/09/2016AND 23/09/2016 / DATE OF PRONOUNCEMENT: 28/09/2016 $%/ O R D E R PER RAJPAL YADAV JUDICIAL MEMBER: PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDERS OF THE LD.CIT(A)-XVI AHMEDABAD DATED 15 .12.2011 AND 13.11.2013 PASSED FOR THE ASSTT.YEAR 2008-09 AND 20 10-11RESPECTIVELY. 2. GROUND NO.1 IS THE ONLY SUBSTANTIAL GROUND OF AP PEAL IN BOTH THE ASSESSMENT YEARS. IT READS AS UNDER: ITA NO.452/AHD/2012 (2 APPEALS) 2 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.58 35 521/- AND RS.60 19 227/- FOR T HE ASSTT.YEARS 2008- 09 AND 2010-11. 3. IN THE ASSTT.YEAR 2008-09 THE LD.CIT(A) HAS REC ORDED A FINDING IN DETAIL. THIS FINDING HAS BEEN FOLLOWED IN THE ORDE R PASSED IN THE ASSTT.YEAR 2010-11. THE FACTS ON ALL VITAL POINTS ARE COMMON. THEREFORE FOR THE FACILITY OF REFERENCE WE ARE TAKING UP THE FACTS FROM THE A SSTT.YEAR 2008-09. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL. HE WAS RUNNING A PROPRIETORSHIP CONCERN IN THE NAME AND ST YLE OF MICROCHEM. HE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING CHEMIC ALS DYES AND AUXILIARIES USED IN THE MANUFACTURING AND PROCESSING OF TEXTILE AND ALLIED PRODUCTS. IN THE ASSTT.YEAR 2008-09 THE ASSESSEE HAS CARRIED OUT TR ADING ACTIVITY ALSO. HE HAS FILED ITS RETURN OF INCOME FOR THE ASSTT.YEAR 2008- 09 ON 31.3.2009 DECLARING TOTAL INCOME AT RS.4 94 244/-. SIMILARLY IN THE A SSTT.YEAR 2010-11 HE HAS FILED HIS RETURN OF INCOME ON 28.3.2011 DECLARING T OTAL INCOME AT RS.6 51 550/-. BOTH YEARS WERE SELECTED FOR SCRUTI NY ASSESSMENTS AND NOTICES WERE ISSUED UNDER SECTION 143(2) ON 31.8.2009 AND 2 5.8.2011 RESPECTIVELY. ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT IN THE ASSTT.YEAR 2008- 09 THE ASSESSEE HAS DEBITED A COMMISSION OF RS.53 37 126/-. HE ALSO DEBITED SERVICE TAX OF RS.6 72 028/-. THE AO ON VERIFICATI ON OF THE RECORD FOUND THAT A SUM OF RS.61 09 154/- INCLUDING SERVICES TAX WAS DEBITED UNDER THE HEAD COMMISSION PAID TO DISHMAN PHARMACEUTICALS AND CHE MICALS LTD. (DPCL FOR SHORT). IN ORDER TO VERIFY THE GENUINENESS OF THE EXPENDITURE HE ISSUED SUMMONS UNDER SECTION 131 TO DPCL ON 13.10.2010. THE LD.AO HAS CALLED FOR FOLLOWING INFORMATION FROM THE PAYEE: (1) NAME & ADDRESS OF THE PERSONS TO WHOM THE SALE HAVE BEEN MADE THROUGH YOU ON BEHALF OF PRAVINKUMAR S JAIN PROP. M/S. MICROCHEM. ITA NO.452/AHD/2012 (2 APPEALS) 3 (2) COPY OF RETURN OF INCOME FOR THE A. Y. 2007-200 8 ALONGWITH COPY OF AUDITED ACCOUNTS. IN RESPONSE TO THE ABOVE SUMMONS DISHMAN PHARMACE UTICALS AND CHEMICALS LIMITED HAS FURNISHED THE FOLLOWING DETAI LS. (1) NAME & ADDRESS OF THE PERSONS TO WHOM SALES HAV E BEEN MADE THROUGH DISHMAN PHARMACEUTICALS AND CHEMICALS LIMIT ED ON BEHALF OF THE ASSESSEE. (2) SALES COMMISSION ACCOUNT AND COPY OF ACCOUNT OF THE ASSESSEE. (3) COPY OF RETURN OF INCOME ALONGWITH AUDIT REPORT . 5. THE LD.AO THEREAFTER RECORDED STATEMENT OF THE ASSESSEE ON OATH ON 16.11.2010. HE REPRODUCED THE QUESTIONS AND ANSWER S ON PAGE NOS.4 TO 6 OF THE ASSESSMENT ORDER. THELD.AO HAS OBSERVED THAT A S FAR CLAIM OF COMMISSION EXPENDITURE IS CONCERNED GENUINENESS OF THE PAYMEN T AND PAYMENT OF TAX BY PAYEE ON SUCH COMMISSION ARE NOT SOLE CRITERIA TO A LLOW DEDUCTION TO THE ASSESSEE. THE ASSESSEE SHOULD ALSO PROVE SERVICES RENDERED BY THE PAYEE FOR CLAIMING COMMISSION EXPENSES. AFTER MAKING AN ANAL YSIS OF THE STATEMENT OF THE ASSESSEE THE LD.AO HAD ARRIVED AT A CONCLUSION THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO INCUR THIS EXPENDITURE. WE WIL L MAKE A DETAILED DISCUSSION IN SUBSEQUENT PART OF THIS ORDER ON THIS ANALYSIS. THE LD.AO IN THIS WAY DISALLOWED CLAIM OF THE ASSESSEE. 6. ON APPEAL THE LD.CIT(A) HAS RE-EXAMINED THE ISS UE AND ALLOWED THE DEDUCTION TO THE ASSESSEE. WHILE IMPUGNING THE ORD ERS OF THE LD.CIT(A) THE LD.DR CONTENDED THAT PERUSAL OF THE STATEMENT GIVEN BY THE ASSESSEE WOULD INDICATE THAT HE WAS NOT AWARE OF NAMES OF DIRECTOR S OF DPCL. HE WAS NOT AWARE TO WHOM THEY HAVE MADE SALES AND THEREFORE THE LD.AO HAS RIGHTLY DOUBTED THE INCURRENCE OF THIS EXPENDITURE FOR THE PURPOSE OF BUSINESS. ITA NO.452/AHD/2012 (2 APPEALS) 4 7. ON THE OTHER HAND THE LD.COUNSEL FOR THE ASSESS EE TOOK US THROUGH WRITTEN SUBMISSIONS FILED BEFORE CIT(A) WHICH HAS B EEN REPRODUCED IN THE IMPUGNED ORDER. HE POINTED OUT THAT ON PAGE NO.10 OF THE CIT(A)S ORDER THE ASSESSEE HAS TABULATED THE REASONING GIVEN BY THE A O FOR MAKING DISALLOWANCE AND THEREAFTER GIVEN ITS COMMENTS AS TO HOW THIS REASONING IS NOT SUFFICIENT FOR DOUBTING THE EXPENDITURE INCURRE D BY THE ASSESSEE. 8. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO OBSERVE THAT IN ORDE R TO CLAIM EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT THE ASSESSEE I S REQUIRED TO FULFILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE EXPENDITURE (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 (C ) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EX PENDITURE OF THE ASSESSEE AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE EXPRESS ION WHOLLY EMPLOYED IN SECTION 37 REFERS TO QUANTIFICATION OF EXPENDITURE WHILE EXPRESSION EXCLUSIVELY REFERS TO THE MOTIVE OBJECTIVE AND P URPOSE OF THE EXPENDITURE. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMER PVT. LTD. VS. CI T 129 ITR 105 (GUJ). THIS DECISION WAS REFERRED BY THE ASSESSEE IN HIS W RITTEN SUBMISSIONS FILED BEFORE THE LD.CIT(A) AND FOLLOWING OBSERVATIONS WER E BROUGHT TO THE NOTICE OF THE LD.CIT(A). SO FAR AS THE QUESTIONS OF COMMERCIAL EXPEDIENCY A ND BUSINESS NEED OF AN ORGANIZATION ARE CONCERNED IT IS NOT THE VIE W POINT OF A REVENUE OFFICER WHICH SHOULD COUNT BUT IT SHOULD BE THE VI EW OF AN ORDINARY BUSINESSMAN DEALING WITH A SITUATION LIKE THE ONE F ACED BY THE ASSESSEE. ITA NO.452/AHD/2012 (2 APPEALS) 5 IN A SIMILAR CIRCUMSTANCE THE HONBLE DELHI HIGH C OURT HAD AN OCCASION TO EXAMINE ASPECT OF COMMERCIAL EXPEDIENCY CONSIDERED BY A BUSINESSMAN WHILE INCURRING ANY EXPENDITURE. THE H ONBLE DELHI HIGH COURT HAS MADE THE FOLLOWING OBSERVATIONS ON THIS ASPECT IN THE DECISION OF THE CIT VS. DALMIA CEMENT LTD. 254 ITR 377. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRI CAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW THE BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE. THE TERM 'COMMERCIAL EXPEDIENC Y' IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERVES TO PROMOTE COM MERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE T EST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINES S THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE (SEE CIT V. WALCHAN D AND CO. (P.) LTD. ; J. K. WOOLLEN MANUFACTURERS V. CIT; ALUMINIU M CORPORATION OF INDIA LTD. V. CIT AND CIT V. PANIPAT WOOLLEN AND GE NERAL MILLS CO. LTD. . BUT IT MUST NOT SUFFER FROM THE VICE OF COLL USIVENESS OR COLOURABLE DEVICES. 9. IN THE LIGHT THE ABOVE LET US EXAMINE THE FACTS OF THE PRESENT CASE. THE FIRST REASON ASSIGNED BY THE AO WHILE DRAWING INFER ENCE THAT THE ASSESSEE OUGHT TO HAVE NOT INCURRED THIS EXPENDITURE IS THAT THE ASSESSEE HAS BEEN SELLING GOODS DIRECTLY TO THE CUSTOMERS AND FROM T HE ASSTT.YEAR 2008-09 IT HAS STARTED GIVING COMMISSION TO DPCL AT THE RATE 15% TO 20%. IN RESPONSE TO THIS OBJECTION THE STAND OF THE ASSESS EE WAS THAT IT HAS INCURRED EXPENDITURE OF RS.39 74 129/- EVEN IN THE ASSTT.YEA R 2007-08. THE EXPENDITURE WAS UNDER THE FOLLOWING HEADS: I. BROKERAGE RS.15 01 624 II. SALES INCENTIVES RS.1 21 941 III. PROMOTIONAL EXPENSES RS.3 85 000 IV. COMMISSION EXPENSES RS.12 95 752 V. BUSINESS DEVELOPMENT EXPENSES RS.7 69 807 ITA NO.452/AHD/2012 (2 APPEALS) 6 THE LD.AO THEREAFTER POINTED OUT THAT OUT OF FIVE PARTIES TO WHOM SALES WERE MADE BY DPCL THE ASSESSEE HAS DEALING WITH THREE IN THE PAST. THEREFORE IT WAS NOT NECESSARY FOR THE ASSESSEE TO INCUR THIS EXPENDITURE. HE MADE REFERENCE TO THE CASE OF MODERN TERRY TOWELS L TD. RIBA TEXTILES LTD. AND CHENAB TEXTILES LTD. THE STAND OF THE ASSESSEE WAS THAT DPCL HAS TAKEN RESPONSIBILITY OF RECOVERY OF SALE PROCEEDS F ROM ALL THE CONCERNS TO WHOM SALES WERE MADE. NOW THIS IS THE STAGE WHERE THE ASSESSEE HAS TO DECIDE HOW TO CONDUCT HIS BUSINESS. IF IT WAS NOT CONVENIENT TO THE ASSESSEE TO DO BUSINESS DIRECTLY WITH CERTAIN PARTIES WHO MIGH T HAVE CREATED SOME PROBLEMS IN REMITTING SALES OR LIFTING THE GOODS T HEN HOW THE AO COULD INTERFERE IN PERSUADING THE ASSESSEE TO CONDUCT BUS INESS IN A PARTICULAR MANNER. THE AO HAS ALSO POINTED OUT THAT DPCL HA S NOT DISCLOSED HOW IT WILL CARRY OUT RESPONSIBILITY OF RECOVERING SALE PR OCEEDS AS PLEADED BY THE ASSESSEE. NOW THE STAND OF THE ASSESSEE WAS THAT W HATEVER ASKED BY THE LD.AO IT HAS BEEN REPLIED. THE LD. AO HAS ASKED N AMES AND ADDRESS OF THE PERSONS TO WHOM SALES HAVE BEEN MADE THROUGH DPCL . COPY OF THE RETURN ALONG WITH COPY OF AUDITED ACCOUNTS WERE CALLED FOR . BOTH THESE INFORMATION WERE SUPPLIED BY THE DPCL. THE AO THEREAFTER DRE W INFERENCE THAT INVOICES SUBMITTED BY THE DPCL MIGHT HAVE NOT DIS CLOSED THE NATURE OF SERVICES. GP SHOWN BY THE ASSESSEE IN THE ASSTT.Y EAR 2010-11 AND 2008-09 ARE BETTER THAN THE MOST OF THE YEARS. GP CHART HA S BEEN PLACED IN THE SUBMISSIONS FILED BEFORE THE LD.CIT(A) AND IT HAS B EEN REPRODUCED AT PAGE NO.16. IN THE ASSTT.YEAR 2004-05 THE GP WAS 16.15 % WHEREAS IN THE ASSTT.YAR 2008-09 THE GP SHOWN BY THE ASSESSEE IS OF 25.55%. THERE IS AN INCREASE IN SALES TURNOVER ALSO. THUS THE ASSESSE E WAS ABLE TO CARRY OUT ITS BUSINESS MORE SCIENTIFICALLY. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT PAYMENT OF COMMISSION WAS NOT CONSTANT AT THE RATE OF 20% RATHER IT GOES ON DECREASING. IN THE ASSTT.YEAR 2010-11 IT WAS GIVE N AT THE RATE OF 15%. IN THE ITA NO.452/AHD/2012 (2 APPEALS) 7 ASSTT.YEAR 2011-12 IT WAS GIVEN AT THE RATE OF 10% . THUS COMMISSION WAS CALCULATED ACCORDING TO THE SALES AND SERVICES REND ERED BY DPCL. 10. NO DOUBT THE STATEMENT GIVEN BY THE ASSESSEE BE FORE THE AO SUFFERED MANY INHERENT DEFICIENCIES I.E. THE ASSESSEE FAILED TO DISCLOSE NAMES OF DIRECTORS OF DPCL AND THERE ARE OTHER INFIRMITIE S ALSO BUT IN OUR OPINION THE INTELLECTUAL COMPATIBILITY OF THE ASSESSEE WHIL E CONDUCTING HIS INCOME-TAX PROCEEDINGS MIGHT NOT BE MATCHING WITH TRAINED REVE NUE OFFICER WHO HAS EXAMINED HIM. HIS COMPATIBILITY IS TO BE SEEN AS T O HOW HE HAS CARRIED OUT HIS BUSINESS ACTIVITIES. THE INFIRMITY EMERGED OUT WHILE RECORDING STATEMENT EXTEMPORE WOULD NOT BE OF SUCH NATURE WHICH COULD FALSIFY T HE RECORD I.E. DETAILS OF PAYMENTS DETAILS OF SALES ETC. MUCH IM PORTANCE CANNOT BE GIVEN TO THIS STATEMENT WHILE DRAWING THE INFERENCE OF THE E XPENDITURE WHETHER INCURRED BY THE ASSESSEE OR NOT. THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE AND AFTER ANALYZIN G COMPLETE DETAILS WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDING OF T HE LD.CIT(A). 11. AS FAR AS ASSTT.YEAR 2010-11 IS CONCERNED THER E IS NO DISPARITY ON FACTS. THE LD.CIT(A) HAS SIMPLY RELIED UPON HIS FI NDING RECORDED IN THE ASSTT.YEAR 2009-10 AS WELL AS IN THE ASSTT.YEAR 200 8-09. THEREFORE WE DO NOT FIND ANY MERIT IN THE APPEAL FOR THE ASSTT.YEAR 2010-11 ALSO. 12. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 28 TH SEPTEMBER 2016 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 28/09/2016