THE ACIT-3(1), Indore v. M/s. KRITI INDUSTRIES INDIA LTD., Indore

ITA 492/IND/2016 | 2011-2012
Pronouncement Date: 27-10-2016 | Result: Dismissed

Appeal Details

RSA Number 49222714 RSA 2016
Assessee PAN AAACL7098B
Bench Indore
Appeal Number ITA 492/IND/2016
Duration Of Justice 5 month(s) 17 day(s)
Appellant THE ACIT-3(1), Indore
Respondent M/s. KRITI INDUSTRIES INDIA LTD., Indore
Appeal Type Income Tax Appeal
Pronouncement Date 27-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 27-10-2016
Date Of Final Hearing 29-09-2016
Next Hearing Date 29-09-2016
Assessment Year 2011-2012
Appeal Filed On 10-05-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE .. ..!' #$ # !% BEFORE SHRI D.T. GARASIA JUDICIAL MEMBER AND SHRI O.P. MEENA ACCOUNTANT MEMBER I.T.A. NO. 268/IND/2016 ASSESSMENT YEAR: 2011-12 M/S KRITI INDUSTRIES INDIA LTD. INDORE PAN AAACL 7098B :: APPELLANT VS ACIT 4(1) INDORE :: RESPONDENT I.T.A. NO.492/IND/2016 ASSESSMENT YEAR: 2011-12 ACIT 3(1) INDORE :: APPELLANT VS M/S KRITI INDUSTRIES INDIA LTD. INDORE :: RESPONDENT M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 2 /ASSESSEE BY SRI SUMIT NEMA & SRI P.D. NAGAR REVENUE BY SHRI MOHD. JAVED ! DATE OF HEARING 29.9.2016 '#$% ! DATE OF PRONOUNCEMENT 27.10.2016 ' O R D E R PER SHRI D.T. GARASIA JM THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL AGAINST THE ORDER DATED 29.1.2016 PASSED BY THE LEARNED CIT(A)-II INDORE. 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PIPES AND FITTINGS AND SUBMITTED THE RETURN OF INCOME DECLARING INCOME AT RS. 6 62 45 740/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS CLAIMED BROKERAGE AND COMMISSION OF RS.2 51 45 944/-. THE ASSESSEE SUBMITTED DETAILS OF NAMES AND ADDRESSES PAN AND TDS DEDUCTED. THE LEARNED COUNSEL FOR THE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 3 ASSESSEE DID NOT FURNISH THE ADDRESS AND PHONE NUMBERS. THE ASSESSEE WAS ALSO REQUESTED TO FURNISH THE DESIRED INFORMATION AND WHAT KIND OF SERVICES RENDERED BY THE COMMISSION AGENT AND DETAILS OF COMMISSION WERE TO BE FILED. ON PERUSAL OF RECORD IT WAS OBSERVED THAT THE ASSESSEE HAS PAID COMMISSION EVEN ON SUPPLY TO THE GOVERNMENT DEPARTMENTS. FOR VERIFICATION OF GENUINENESS OF THE COMMISSION CLAIMED TO BE PAID FOR SUPPLY OF GOODS TO GOVERNMENT DEPARTMENTS NOTICES WERE SENT TO THE GOVERNMENT DEPARTMENTS AND NOTICE U/S 133(6) OF THE ACT WAS ISSUED. THE REPLIES HAVE BEEN RECEIVED FROM THE DEPARTMENT. IT WAS INFORMED BY ALL THESE DEPARTMENTS THAT NO AGENT IS REQUIRED FOR FACILITATION OF SALE TO TH EM AND PURCHASES HAVE BEEN MADE DIRECTLY FROM KIRTI INDUSTRIES INDORE AND THE ASSESSING OFFICER HAS ALSO REPRODUCED THE COPY OF REPLY RECEIVED FROM VARIOUS M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 4 GOVERNMENT AGENTS IN PARAS 3 AND 4 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS ALSO VERIFIED FROM ONE MANJU ENTERPRISES GWALIOR AND IT WAS FOUND THAT SHRI HUKUM SINGH BHADORIA WAS 72 YEARS OLD AND FROM MANJU ENTERPRISES THE SIGNATURE PUT BY HER IN THE ITR AND THE SAID LETTER WAS DIFFERENT. THEREFORE THE ASSESSING OFFICER HAS TRIED TO VERIFY AS TO WHETHER S HE HAS RECEIVED THE COMMISSION OR NOT. THE ASSESSING OFFICER HAS ALSO ISSUED COMMISSION TO NIRMALA ENTERPRISES JAIN ENTERPRISES AND RAKHI ENTERPRISES FOR SUPPLY TO GOVERNMENT AGENTS AND THEREAFTER INSPECTOR WAS DEPUTED TO VERIFY WHETHER THESE THREE FIRMS EXISTED OR NOT BUT NO BOOKS OF ACCOUNTS WERE FOUND. THEREAFTER THE ASSESSING OFFICER RECEIVED RE PLY FROM THE GOVERNMENT AGENCY THAT NO COMMISSION HAS BEEN GIVEN BY THE GOVERNMENT FOR PURCHASE. THEREFORE THE ASSESSING OFFICER WAS OF THE VIEW THAT NO M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 5 COMMISSION AGENT IS REQUIRED TO MAKE SALES TO GOVERNMENT DEPARTMENTS. THE ASSESSEE FAILED TO SUBSTANTIATE THE GENUINENESS OF THE COMMISSION. REPLIES FROM VARIOUS GOVERNMENT DEPARTMENTS PROVE THAT SUCH COMMISSION EXPENSES ARE NOT GENUINE AND THE ASSESSEE HAS ADOPTED TYPICAL MODUS OPERANDI FOR REDUCING THE PROFIT BY WAY OF BOOKING COMMISSION WHICH IS FACTUALLY INCORRECT UNVERIFIABLE AND AGAINST THE POLICY OF THE STATE GOVERNMENT. SUCH TYPE OF IMMORAL PRACTICE IS UNWARRANTED AND UNCALLED FOR AND AS THE DEPARTMENT DISAPPROVED THE PRACTICE OF MIDDLEMAN IN THE TRANSACTION WITH THE GOVERNMENT DEPARTMENTS MADE BY ANYBODY THEREFORE THE ASSESSING OFFICER HAS DISALLOWED COMMISSION EXPENSES OF RS. 2 02 07 630/-. M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 6 3. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LEARNED CIT(A) AND THE LEARNED CIT(A) ALLOWED THE CLAIM BY OBSERVING AS UNDER :- 2 .2 I H A V E G ON E TH R O U G H TH E R E L EV A NT F AC T S BR O U G HT ON R EC ORD B Y T H E AO I N TH E AS SE SSME N T OR DER AN D A L SO TH E S U B M ISS I O N S FI LED B Y THE A P P E LL A NT A S R EP R ODUCE D A B OVE. TH E A PPE LL ANT CO MP AN Y IS E N GAGE D IN M ANU FACTUR I NG OF P VC PI P E S W H I C H A R E B E I N G SO LD THR O UGH DISTR I B U TORS A N D DEAL E RS. A. S CL A IMED B Y T HE A PP E LL A NT DU R I N G A . \ ' . 2 0 1 0-1 1 IT HA D A PPOI NTE D SE V E N C OM MISSI O N AGE N TS WHO R E N D E RED EX T EN S IV E S E RV IC E S NO T ON L Y F OR P ROC UR I NG T H E ORD E RS BUT A LS O FO R C ONTI NU OU S L IA S O N I NG F OR DI S P A TC H OF T H E G O O DS AT VA R IOUS IN TE RIOR L O CAT ION S IT S I NS PECTIO N A S WE L L EX PEDIT IOU S RE L EA S E OF PA Y M ENTS F R O M M . P . GO V T . D E P ARTME NT ET C . I N O RDER T O VERI FY TH E GENU I N EN ESS OF COMMISSION PAID TO SUCH AGENTS DURING THE YEAR UNDE R APPEAL THE LETTERS WERE ISSUED BY THE AO TO AGENTS TO CINFIRM THE SERV ICES RENDERED BY THEM WHO HAVE CONFIRMED THE SERVICES RENDERED AS WELL RE CEIPT OF COMMISSION. 2 . 3 T HE A . O. HAD I SSUE D LETTERS TO ACIT GWALIO R A ND INC O M E T AX OFFICE R MA NDSAUR TO V E RI FY THE PAYMENT OF COMMISSION TO MI S . MANJU E N T ERPRI SE S GW A LIOR MI S . N IRMALA ENT E RPRISES M A NDSAUR MIS . J A IN ENTERPRISES MAND S AU R A ND M I S. RA K HI ENT ER PRISES MANDS A UR . IN R E SP O N S E TO SUCH LETT ERS INCOM E TA X INSPECTOR W AS DEPUT E D T O V ERI F Y THE FACTS W HO SUBMITT ED T HE REPORTS TH A T THE S I GN BOARDS O F T H E AGE NTS W ER E NOT F O UND AT T H E PR EMISES A N D T H EY W ER E N OT AV A IL A BL E ON TH E M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 7 DATE OF IN S PE C TION. 2 . 4 HO WEV ER I T WA S CLA IMED B Y THE APPELL A NT TH A T NO OPP O RTUNITY W AS GIVEN TO PRODU CE CO MMISSION AGENTS OR CROSS E XAMINE TH E M . T H E C OMMIS S ION AG E NTS WER E CALLED B Y THE APPELL A NT AT ITS O W N YE T T HE A.O. DID NOT C ROSS EXAM INE THEM ON 25 TH MARCH INS T EAD OF 24 T H MARCH 2 014. TH E V A RIOUS D OC U M ENTS WER E FURNISH E D IN S U PPOR T O F SERV I C ES R E NDE RE D BY THE A G E NT S Y ET THE PA Y MENT OF C OMM I SS I ON W A S DIS A L LO W E D A S THE A GEN TS DI D N O T AP PEAR BEFO R E HIM ON TH E D A T E FIX E D FO R HEARIN G 2. 5 TH E AP PELL A NT C LAI ME D THAT SUCH S AL E S WE R E EF FE CTED TO MP S TAT E CO - OPERATIV E M A RK E T I N G FED E RATION UNDER A S CHEME T O PROMOTE CU L T I VATORS FO R DR I P IRRIGA TION A ND TO CONVI N CE T H EM F OR PURCHASE O F D R IP IRRI GA TION S YSTE M . T HE STATE A S WEL L C ENTR A L GOVT . G R A NT E D S UB S ID Y FOR P U RCHASING SUCH PROD U C TS B Y T HE CULTIVATORS AND S U CH S UBS I DY I S ROUTE D T H R O U GH M ARKE TING FED E R AT I O N O NL Y . A LL T H E T HR EE ORGANI Z ATI O N S IN COMPLIANC E T O L ETTERS U L S 133( 6 ) OF I . T.ACT 196 1 I SS U E D B Y T HE AO CONFIR M E D T H A T S U P PL I E S WERE MA DE BY AP P E LL A NT COMPAN Y IN F. Y . 2010-11 A ND A L S O CONFIRMED THE DETA IL S OF PURCHASES A ND P AYME N T S M A D E AGA INST IT BUT STATED TH A T N O C OMMI SS ION A G E NT WA S REQUIRED FOR FACILITATIO N OF S UC H SALE T O T H E F EDE R A TI O N AND T H E RE WA S N O PROV I S IO N TO INVO LVE CO M MI SSI ON AG EN T S F OR S U C H B US IN ESS ACTIVI T IES . HOWEVER THE A O PROCEEDED TO C ONC LUD E THAT T H E PA Y MENT O F COMM I SSION WAS NOT GE N UIN E BAS E D ON TH E REPORT FR OM TH E ABOVE ORGAN I Z AT I O N S TH AT NO C O MMISSION A GE NTS ARE REQUIRED F O R F AC ILIT A T I N G TH E SALES . DU RI NG T H E CO U RSE OF APPEA L PRO CEE DI N G S IT HAS BEEN CONTE N DED B Y THE A PP E LLANT THAT AN A D VERSE C ON C LU S I ON CANN O T BE DRAWN BASED ON REPLIES RECEIVED FROM FEDERATION THA T NO MIDDLE MAN IS ALLOWED BY GOVT. AGENCIES AND SUPPLY ORDERS WERE IS SUED DIRECTLY BY THEM IGNORING DETAILS OF SERVICES RENDERED BY THE AGENTS VIZ. TO MOTIVATING THE AGRICULTURISTS COMPILATION OF THEIR REQUIREMENTS SUBMISSION OF DETAILS RELATING TO LAND RECORDS PREPARATION OF CASE FIL ES A PP R O VA L F ROM JA NP A T M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 8 P A N C H AY A T OF F I CE P L AC E M E NT O F SUPPLY OR DER B Y M .P. AG R O INDU ST RI A L D E V COR P . . FUR T H ER IT H AS B EE N C O NT E N D E D T H AT THE AO HAD NOT M A D E AN Y INQUIR Y REGARDING SERVICE REND E R E D A F TER DELI V ER Y OF G OODS AT T HE M A RK E TING FEDERATION SITES SUCH A S SUPPL Y OF P IPES TO CULT IV ATORS AT VARIOUS DESTINATI O NS TRANSPOR TA T I ON & INST ALL ATION OF PIPES IN THE FARMS OF THE AGRICULTU R IST ETC. IT HAS FURTHER BEE N CONTENDED THAT THE GENUINENESS OF PAYMENT OF COMMISSION WAS W ELL S UPPORTED NOT ONLY B Y TH E AGREEMENTS EXECUTED BETWEE N THE APPELLANT COMPANY AND THE A GENTS ' BUT WAS ALSO SUPPORTED FROM THE FACT THAT THE AGENTS WERE BEING ASSESSED TO INCOME T A X AND THEY HAD FI L ED RETURNS OF INCOM E FOR A.YO 2011 - 12 AND DEPOSITED THE TAX LIABILITY AFTER CLAIMING THE NORM A L BUS I NESS EXPENDITU R E . THE PAYMENTS WERE MADE TO THE AGENTS BY ACCOUNT PAY EE CHEQUES A FTER DEDUCTING TAX AT SOURCE AND SUCH INCOME HAS BE EN D I SCLOSED BY THE AGENTS IN THEIR RETURNS FOR THE RELE VANT ASSESSMENT YEARS. 2 . 6 DURING THE COURSE OF APPEAL PROCE E DIN G S THE APPELLANT HAD CONTENDED T HAT THE QUESTIONS RAISED V IDE NOTICE UJ S 133(6) OF LT.ACT 1 96 1 ISSUED TO MARKETIN G FEDER A TI O NS WERE MISL E ADING BECAUSE THE APPELLANT NEVER ST A TED T HAT S A L E S WE R E EFFECT E D THROUGH COMMISSION AG E NTS . NO QUESTION W AS RAISED IN RE L ATION T O E ITH E R PR I MAR Y WO RK OR POST S UPPLY S E R V IC ES. IT WAS CL A IMED THAT IN F A C T NO GOVT . D E P A R T M E NT WILL STAND THAT THE SERVI CE S OF MIDDLEMAN AR E REQUIRED FOR PURCHASE OF ANY COMMODIT Y WHEN SU C H PURCHASES ARE FOR THE BENEFI T OF THE PUBL I C AT LAR GE UNDER SUBSIDY SCHEMES W I TH TH E ULTIM A T E PURPOS E OF AG R ICULTURAL G R OWT H . TH E TH E N CIT(A)-II INDORE IN ORD E R T O VE R I FY T HE FA C T S CLAIMED B Y THE APPELLANT AS ABO V E I SSU E D LETTERS TO A LL DISTRICT MARKETING FED E RATIONS TO WHOM SUPPLIES WE RE MADE B Y T HE APPELLANT TO ASCERTAIN THE SERV I C E S RE NDERED B Y A G ENTS AND G E NUI N EN E SS OF CLA I M OF COMMISS I ON. IN RESPONS E TO SUCH L E TTERS ALL ST A T E AG R O INDUSTR IA L DEVELOPM EN T COR PO R A TIONS AND MA R KE TIN G M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 9 F E D E R AT I O N S T O W HOM SUP PLIES WERE MADE BY T H E AP P E LLANT ' CO NFI R M ED TH E NAMES OF COM M I S SIO N AGE N TS AS WEL L NAT U RE OF VAR I O US SER V ICES R END E R E D BY T HEM ON BE HALF OF A PP E LL A NT. NON E OF T H E M HA VE DEN I E D T HE NECESS ITY OF DIFFERE NT T Y PE OF S E R VICE S REQUIRED W HILE EFFECTIN G SA L ES TO THE AGR IC ULTURIST SU CH A S TO MO T IVAT E THE AGRICULTURISTS COMPILATION OF THEIR RE Q U IR EMEN T S SU BMISSION OF D E TAILS RELATING TO LAND RECORDS PREPARATIO N OF CASE FIL E S APPROVAL FROM JANPAT PANCHAYAT OFFICE PLACEMENT OF SUPPLY ORDER BY M.P. AGRO INDUSTRIAL DEV. CORP. SUPPLY AND DISTRIBUTION OF PIPES TO CULTIVATORS AT VARIOUS DESTINATIONS TRANSPORT A T IO N & IN S TA L L A TIO N THEREAFTER IN THE FORMS OF THE A G RICUL T U R I S T E T C . D U RI N G T H E CO UR SE O F APPEAL PROCEEDINGS THE REPLIES RECEIVED . FR O M STAT E A GR O INDUSTRIA L DEVELOPMENT CORPORATION AND MARKETING FEDERATIONS W ERE FOR W ARDED TO THE CONCERNED AO FOR HIS /HER PERUSAL AND C OM M ENTS . TH E AO HAS FILED THE . REPL Y VIDE LETTER DATED 3 0.12.2015 WH E RE IN IT HAS BEEN STATED THAT SINCE TH E SE ORG A NIZATIONS HAD G IVEN DIFFERENT REP L IES TO TH E AO AND THE CIT(A) - II THE REPLIES GIVEN TO T HE AO DU R ING THE COURSE OF ASSESSMENT PRO C EEDINGS SHOULD B E CONSIDERED FOR THE PURPOSE OF DISALLOWANCES OF COMMISSIO N PAYMEN T. IN M Y CONSID E RED OPINION THE DIFFER E NT REPLIES H A V E BEEN BECAUSE OF NATURE OF QU E STION FRAMED BY AO AND TH E N CIT(A)-II . THE AO H A D D IR ECTLY PUT AN QUESTION WHETHER THE SERVICES OF COMMISSION AGEN T S WER E REQUIRED B Y THE DEPARTMENTS TO PROCURE THE GOODS FROM THE APP E L LA NT COMPAN Y WHEREAS THE CORRECT QUESTION WOULD HA VE BEEN W H ET HER THE APPELLANT COMPANY REALLY NE E DED COMMISSION AGENTS/ RE P R ESENTATIVES TO FACILITATE SALES AND TO WORK AS NODAL PERSONS FOR G O V E RNMENT DEPARTMENTS AND ULTIMATE USERS OF THE PRODUCT I . E. THE AGRICUL T URIST . IN FACT THE REPLIES RECEI V ED IN COMPLIAN C E TO TH E L ETT ERS WR I TTEN B Y THE CIT ( A)-II HA VE BE E N FOUND TO B E COMPREHENSI V E AND R E L EV ANT WHICH BRING OUT THE R E QUIREM E NT OF M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 10 R E PR ESE NT A TI VE OR AGE N T OF T HE C O M P A N Y A ND TH E NATU RE O F S E R V IC E S R EQ UIR E D T O B E R E ND ERED B EFOR E A ND AFTER S AL ES OF TH E PRODU CT . 2 . 7 TH E A PPE LL A NT HA S A LS O PL AC E D ON REC OR D TH E CO PI E S O F S T A T E M ENTS OF VA RIO US CO MM ISS I O N A G ENTS R EC O R D E D B Y TH E A . O. DURIN G A S S E SS M ENT PR O CEED IN G S F OR S U B SEQUE N T Y E AR S I . E . A . Y. 2 0 1 2 - 13 W H E N CO M M I S S I O N W A S PA I D T O SAM E C OMM IS S ION AG E N TS . T H E C O MMI SS I O N A G E N T S V I Z. SHER YA N S H H IN GA D P ROP. J A IN EN TE RPRIS E S AN D A SS OC I A TE O F M / S R A KHI EN T ER P R IS E & M I S N IR MALA ENTER P R I S E MAN DSAUR A N D 8 HR I BRIJ A ND ERA S I N GH J ADON P R OP . J ADO N A G R O T EC H G W A LIOR A N D A L S O P A RTN E R O F MI S BA L A J I A G RO T EC H G WA LIOR APP EAR ED BEFORE A S S ESS I NG OF FIC ERS A N D THE STA TEMEN TS W ER E RE CO RDE D ON 04 . 0 3. 2 0 1 5 U / S 13 1 OF IN CO M E TA X A C T ; 19 61 W HO H AVE DUL Y CON F I RM ED T H E SE R V I C E S REN D E R E D BY TH E RN AN D R E C E I PT O F C O MM I S S I ON. 2.8 IT HAS THUS BEEN ESTABLISHED BEYOND DOUBT THAT THE AGENTS APPOINTED BY THE APPELLANT RENDERED VARIOUS BEFORE AND AFTER THE SALES SERVICES WHICH PROVED TO BE MORE BENEFICIAL NOT ONLY BY HIGHER NET SALES REALIZATION BUT ALSO ON THE GROUND OF BUSINESS EXPEDIENCY I.E. OUTSOURCI NG INSTEAD OF INVOLVING THE EMPLOYEES FOR SUCH SERVICES. THE MARKETING FEDE RATIONS HAVING DIRECTLY CONFIRMED THE NATURE OF SERVICES RENDERED BY THE AG ENTS AND THE PAYMENTS BEING NEITHER E X CESSIV E N O R U N R EASO N A BLE TH E DI SA LLO WA N CE SO L E L Y ON T H E G R OUNC T H AT N O CO MMISS I ON AGENT I S R EQU I R ED T O F A C ILI T A TE T HE SA L ES T O TH E F ED E R A T I O N OR C O M M I SS I ON AGENT S A RE NOT IN V O L VE D FOR S U C H BUSI N ES S ACTI V I T Y IS U N JU ST I F I ED . TH E JUD GM E NTS R E LI ED U P O N B Y T H E A PP E L L A NT V I Z. CIT VS . PUR E PH A RRN A P VT. LTD. (2004) 32 I T C 2 4 3 (MP) CIT VS . ELECTRI C M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 11 CONST R U C T I ON E QU IPME NT CO. L T D 182 I T R 510 (D E L) AND S A NCTU S DRU GS & PHAR M AC E UTICA L P V T . L TD . VS . ACI T I N D ORE B E NCH (SUP R A) C I T VS. RA J RATA N EXPORTS PVT . LTD. (2014) 3 6 1 ITR 15 2 ( CA L) HA VE A L S O B EEN F O U ND APP LI CABLE TO THE FACTS O F THE CASE B ECA US E IN T HO SE C A S ES AL SO TH E SA L E S WERE M A DE T O GOVT. ORG ANIZ A TION TH RO UGH TEND E R YET T H E P AY M EN T OF COM MI SSI ON WAS C O N SIDERED A S EXCLUS I V E L Y FO R BU S IN ESS PURP O S E S B Y TH E COURT S . THEREFOR E A FTER TAKING INTO ACCOUNT THE ABO V E DIS C U SSI ON A ND CON S ID E RING TH E O VE RALL FACTS A ND C IRCUMSTAN CES OF T H E C A S E THE I NQ UIRIE S MADE DUR ING APPELL ATE PR O C EE DINGS A ND TH E STAT EME N T S R E C ORD E D DURING ASSES SM ENT PRO CE EDIN G S FO R A .Y. 2 012 - 1 3 TH E CONC L US I ON DR A WN B Y T H E A O I S CONSI DE R ED TO BE MI S CON C EI VED A ND T HE P AY M E NT O F COMMIS SION TO TH E AGE N T S AMOUNT I NG T O RS.2 07 07 630J- IS DI R E CTE D T O BE ALLOW E D A S BUSIN E SS EXPENDITUR E . TH E GROUNDS OF APP EA L ARE ALLOWED . 4. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS PAID COMMISSION TO SEVEN AGENTS FOR RENDERING SERVICE S TO SUPPLY THE GOODS TO THE GOVERNMENT DEPARTMENT. THE LEARNED DR SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE INQUIRY FROM THE STATE GOVERNMENT AND FROM THE STATE GOVERNMENT IT HAS BEEN SPECIFICALLY M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 12 REPLIED THAT THEY ARE PURCHASING DIRECTLY FROM THE ASSESSEE AND NO COMMISSION AGENT IS INVOLVED WHILE PURCHASING FROM THE ASSESSEE COMPANY. ASSESSEE HAS TAKEN THE CONTENTION THAT ON COMMISSION TDS HAS BEEN DEDUCTED AND COMMISSION HAS BEEN MADE THROUGH CHEQUE BUT BY SIMPLY DEDUCTING TDS AND THE PAYMENT THROUGH CHEQUE THE COMMISSION DID NOT BECOME GENUINE. THIS BENCH OF THE TRIBUNAL IN THE CASE OF GUNVANTI SANGHVI HAS HELD THAT WHEN THE ASSESSEE IS UNABLE TO PROVE THE SERVICES RENDERED FOR SUCH COMMISSION THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF COMMISSION AND STATE GOVT. DISAPPROVED SUCH PRACTICE OF MIDDLEMAN IN TRANSACTION WITH THE GOVERNMENT. THE A.O. HAS RIGHTLY DISALLOWED THE COMMISSION. MOREOVER THE LEARNED CIT(A) HAS VERIFIED FROM THE STATE GOVT.DEPTT. BUT TH E CIT(A) HAS NOT APPRECIATED THE FACT AND THE DECISION OF M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 13 ITAT. THE LEARNED DR ALSO RELIED UPON THE DECISION O F ITAT IN THE CASE OF ACIT VS. SMT. GUNVANTI N. SANGHVI; ITA NO. 67/IND/2013. 5. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT DURING THE APPELLATE PROCEEDINGS THE ASSESSEE EXPLAINED THAT THE ASSESSEE COMPANY DISPATCHED THE GOODS FROM ITS FACTORY TO HEAD QUARTER OF THE FEDERATION OR MANDSAUR OR GWALIOR AND THEREFORE AGENTS ARE REQUIRED. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF PVC PIPES FITTINGS AND SPRINKLER PIPES AND THESE PRODUCTS ARE USEFUL IN DEEP IRRIGATION AND IT IS SUPPLIED TO THE GOVERNMENT DEPARTMENT FOR SUPPLY TO THE FARMERS. THE ASSESSEE COMPANY ONCE DESPATCHED THE GOODS FROM ITS FACTORY TO HEADQUARTER AT MANDSAUR OR GWALIOR THEREAFTER AGENTS ARE RESPONSIBLE TO UNLOAD THE PIPES SPRINKLERS AND TRANSPORT THE SAME TO VARIOUS VILLAGES AND INSTALL THE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 14 PVC LINE IN THE FIELD FOR COMMISSION AT THEIR COST. THE SERVICES AFTER SALES TOWARDS MAINTENANCES ARE ALSO GIVEN UP TO ONE YEAR. THESE SERVICES ARE NOT RENDERE D BY ANY EMPLOYEE OF THE COMPANY NOR ANY EXPENDITURE TOWARDS LOADING UNLOADING TRANSPORTATION AND INSTALLATION WERE INCURRED BY THE COMPANY. THE FEDERATION MAKES PAYMENT TO THE ASSESSEE COMPANY ONLY AFTER RECEIPT OF THE SUBSIDIARY AMOUNT FROM THE GOVERNMENT AND COMMISSION AGENT HAS TO CONTINUOUSLY FOLLOW UP FOR RELEASE OF PAYMENT TO THE COMPANY. THEREFORE THE SERVICES OF COMMISSION AGENTS ARE REQUIRED. MOREOVER THE ASSESSEE HAS EARNED RS.86 71 739/- AS ADDITIONAL INCOME FOR SUPPLYING SPRINKLER TO THE GOVERNMENT ORGANIZATIONS THROUGH THESE COMMISSION AGENTS. SIMILARLY THE ASSESSEE HAS ALSO EARNED RS. 58 21 853/- AS ADDITIONAL INCOME FROM SALE OF PVC PIPES TO GOVT. ORGANIZATIONS. THEREFORE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 15 AFTER DEDUCTING THE COMMISSION THE COMPANY HAS EARNED MORE REVENUE OF RS.1 44 93 632/-. ALL THE PAYMENTS TO COMMISSION AGENTS WERE MADE BY CHEQUE ONLY AFTER DEDUCTING TDS. THE LEARNED CIT(A) HAS IN ORDER TO VERIFY THE GENUINENESS OF THE COMMISSION AN D WHETHER ANY PAYMENT HAS BEEN MADE BY M/S KRITI INDUSTRIES AND WHETHER ANY COMMISSION AGENT IS REQUIRED FOR FACILITATION OF SALE HAD ISSUED LETTERS TO ALL ORGANIZATIONS. THE FEDERATION HAS REPLIED TO THE LEARNED CIT(A) THAT IN ORDER TO PROMOTE MICRO IRRIGATI ON SCHEME THE COMMISSION AGENTS ARE REQUIRED TO GIVE FACILITY TO FARMERS. THE COMMISSION AGENT INSTALLS THE PVC LINE AND THEY ALSO GIVE TEACHING TO FARMERS TO RUN THIS DEEP IRRIGATION SYSTEM AND AFTER INSTALLING ALL THESE IRRIGATION SYSTEMS THE COMMISSION AGENT INFORMED TO THE FEDERATION AND THEREAFTER THE PAYMENT HAS BEEN MADE. THEREFORE THE ASSESSEE APPOINTED M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 16 VARIOUS COMMISSION AGENTS FOR EFFECTING SALES TO THE GOVERNMENT DEPARTMENTS. STATE AS WELL CENTRAL GOVT. GRANTED SUBSIDY FOR PURCHASE OF SUCH PRODUCTS BY THE CULTIVATORS AND SUCH SUBSIDY IS ROUTED THROUGH MARKETING FEDERATION ONLY. AGREEMENTS WERE EXECUTED BETWEEN THE ASSESSEE COMPANY AND THE AGENTS FOR RENDERING THE SERVICES LETTERS WERE ISSUED BY ASSESSING OFFICER TO AGENTS TO VERIFY THE SERVICES RENDERED BY THEM WHO SUBMITTED THE REPLIES IN RESPONSE THERE TO AND CONFIRMED NOT ONLY THE SERVICE S RENDERED BUT ALSO THE RECEIPT OF COMMISSION PAYMENT. THE COUNSELS FURTHER INVITED THE ATTENTION TO THE FAC T THAT THE AGENTS ARE BEING ASSESSED TO INCOME TAX WHO DISCLOSED COMMISSION EARNED BY THEM IN THEIR RETURNS BY WHICH IDENTITY OF THE RECIPIENTS WAS PROVED BEYON D DOUBT. THE PAYMENTS WERE MADE TO THE AGENTS BY ACCOUNT PAYEE CHEQUES AFTER DEDUCTING TAX AT SOURCE. M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 17 ACCORDING TO LEARNED COUNSEL FOR THE ASSESSEE NO GOV T. DEPARTMENT WILL ADMIT THAT THE SERVICES OF MIDDLEMAN ARE REQUIRED FOR PURCHASE OF ANY COMMODITY WHEN SUCH PURCHASES ARE FOR THE BENEFIT OF THE PUBLIC AT LARGE UNDER SUBSIDY SCHEMES WITH THE ULTIMATE MOTIVE OF AGRICULTURAL GROWTH. THE REPLY GIVEN BY THE FEDERATION COULD NOT THEREFORE BE CONSIDERED AGAINST THE ASSESSEE IN ANY MANNER. THEREFORE THE LEARNED CIT(A) AFTER VERIFYING THESE FACTS HAS ALLOWED THE COMMISSION. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAM PISTONS & RINGS LTD. (2012) 80 CCH 55 (DEL). THEREFORE WHEN ALL THE PAYMENTS HAVE BEEN MADE AND ALL THE STATEMENTS OF COMMISSION AGENTS WERE RECORDED U/S 131 OF THE ACT AND WHEN THEY HAVE NOT ONLY CONFIRMED THE RECEIPT OF COMMISSION BUT VARIOUS SERVICES RENDERED BY AGENTS M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 18 WERE ALSO PROVED BEYOND DOUBT HENCE THE LEARNED CIT(A) IS JUSTIFIED IN ALLOWING THE COMMISSION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING OF PVC PIPES WHICH ARE BEING SOLD THROUGH DISTRIBUTORS AND DEALERS. THE ASSESSEE HAS APPOINTED 7 COMMISSION AGENTS WHO RENDER EXTENSIVE SERVICES NOT ONLY FOR PROCURING THE ORDERS BUT ALSO FOR CONTINUOUS DESPATCH OF GOODS AT VARIOUS INTERIOR LOCATIONS INSPECTION AND EXPEDIOUS RELEASE OF PAYMENT FROM M.P. GOVERNMENT DEPARTMENTS. DURING THE YEAR THE ASSESSEE HAS EFFECTED SALES TO M.P. STATE COOPERATIVE MARKETING FEDERATION UNDER A SCHEME TO PROMOTE CULTIVATOR FOR DEEP IRRIGATION AND TO CONVINCE THEM FOR PURCHASE OF DEEP IRRIGATION SYSTEM. WE ALSO FIND THAT THE STATE AS WELL AS CENTRAL GOVERNMENT M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 19 GRANTED SUBSIDY FOR PURCHASE OF SUCH PRODUCT TO CULTIVATORS THROUGH THE MARKET FEDERATION TO PROMOTE AGRICULTURAL ACTIVITIES IN THE COUNTRY. THE ASSESSEE AN D THE AGENT HAVE EXECUTED AGREEMENT WHICH IS AT PAGES 7 TO 27 OF THE PAPER BOOK. ALL THE AGENTS HAVE CONFIRME D THAT THEY HAVE RENDERED THE SERVICES AND ALSO RECEIVED THE COMMISSION. ALL THE COMMISSION AGENTS ARE BEING ASSESSED TO INCOME TAX AND THEY HAVE DEPOSITED TAX LIABILITY AFTER CLAIMING NORMAL BUSINESS EXPENDITURE FO R EARNING SUCH BUSINESS INCOME. SUCH INCOME HAS BEEN DISCLOSED BY THE AGENT AND IDENTITY OF THE COMMISSION AGENT IS PROVED. WE FIND THAT THE AGENTS HAVE RENDERED THE SERVICES MOTIVATED THE AGRICULTURISTS COMPILATIO N OF THEIR REQUIREMENTS SUBMISSION OF RETURN RELATING TO LAND RECORDS PREPARE THE FILE FROM JAN PANCHAYAT OFFICE ARRANGING DELIVERY OF GOODS BY MARKETING FEDERATION SITES SUPPLY OF PIPE INSTALLATION OF PIPE S TO M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 20 THE AGRICULTURISTS AND MAINTENANCE OF PIPES FOR THE PRESCRIBED PERIOD. THEREFORE THE ASSESSEE HAS MADE THESE SERVICES. THE MARKET FEDERATION DID NOT REQUIRE ANY MIDDLEMAN FOR GIVING ORDER TO THE COMPANY BUT WHEN THE NOTICE WAS ISSUED TO MARKET FEDERATION THEY HAVE EXPLAINED WHY THE SERVICES OF MIDDLEMAN IS REQUIRED. THEREFORE THIS HAS BEEN EXPLAINED BY THE MARKETING FEDERATION ITSELF. THEREFORE THE LEARNED CIT(A) HAS ALLOWED THE CLAIM. MOREOVER THE ASSESSEE HAS ALSO CLAIMED THAT IT HAS EARNED MORE REVENUE AFTER DEPUTING THE MIDDLEMAN COMMISSION AGENT. THEREFORE IT MAY BE ALLOWED. THEREFORE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED AT ALL. WE ALSO GET SUPPOR T FROM THE DECISION OF THE HON'BLE DELHI HIGH COURT I N THE CASE OF CIT VS. RAM PISTONS & RINGS LTD. (SUPRA) WHEREIN IT IS HELD AS UNDER :- M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 21 COMMISSION PAYMENTS DISALLOWANCE OF COMMISSION PAYMENTS MADE BY ASSESSEE TO ITS AGENTS ON THE GROUND THAT COMMISSION PAYMENTS REPRESENT ILLEGAL GRATIFICATION PAID TO OFFICERS TRIBUNAL RECORDED THAT EVIDENCE EXISTS TO SHOW AND ESTABLISH NATURE OF SERVICES ACTUALLY RENDERED BY VARIOUS AGENTS AT DIFFERENT PLACES THROUGHOUT INDIA HELD NO EVIDENCE OR MATERIAL EXCEPT SUSPICION OR A SURMISE THAT THE COMMISSION PAYMENT REPRESENTS ILLEGAL GRATIFICATION PAID TO UNKNOWN OFFICERS FINDINGS RECORDED ARE RATIONALLY ILLOGICAL INCONSISTENT NOT SUPPORTED BY EVIDENCE AND MATERIAL APPEAL DISMISSED. IN VIEW OF THE ABOVE OBSERVATIONS WE FIND NO INFIRM ITY IN THE ORDER OF THE LEARNED CIT(A) AND UPHOLD THE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 22 SAME. ACCORDINGLY THIS APPEAL OF THE REVENUE FAILS AND DISMISSED. ASSESSEES APPEAL 7. SO FAR AS THE ASSESSEES APPEAL IS CONCERNED THE ONLY ISSUE INVOLVED IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 40 16 463/- OUT OF GROSS INTEREST PAID BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF IT RULES . 8. WE HAVE HEARD BOTH THE SIDES. THIS BENCH OF THE TRIBUNAL HAD AN OCCASION TO CONSIDER THE IDENTICAL ISSUE IN THE CASE OF KAMAL KUMAR JAGDISH PRASAD LATH IN ITA NO.264/IND/2016 AND VIDE ORDER DATED 21 ST JUNE 2016 THE TRIBUNAL HAS HELD AS UNDER :- 6. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES. HON'BLE HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENT PVT. LTD. (SUPRA) HAS HELD AS UNDER :- 9. IN THE PRESENT CASE THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2 97 440/-AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DE TERMINE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 23 AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNT S AND REJECTION IF ANY OF THE ASSESSEES CLAIM OR EXPLANAT ION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRU TINY OF THE ACCOUNTS BY THE AO -AN ASPECT WHICH IS COMPLETE LY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD A ND IN THE OPINION OF THIS COURT IMPORTANT ANOMALY WHICH WE C ANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.48 90 000/- THE DISALLOWANCE ULTIMATELY DIRECTE D WORKS OUT TO NEARLY 110% OF THAT SUM I.E. RS.52 56 197/ -. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D B E INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A AND IS ONLY TO THE EXTENT OF DISALL OWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION T O THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS H AS HAPPENED IN THIS CASE. 10. FOR THE ABOVE REASONS THE IMPUGNED O RDER OF THE ITAT IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY ORDER OF THE AO IS SET ASIDE. THE INITIATION OF PENALTY PROCEEDINGS ALSO IS SET ASIDE . THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDERATION IN AC CORDANCE WITH THE ABOVE DIRECTIONS. THE APPEAL IS PARTLY ALL OWED. I THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER TO CONSIDER THE ABOVE HIGH COURT JUDGMENTS CITED ABOVE AND DECIDE THE ISSUE IN VIEW THEREOF. I ORDER ACCORDINGLY. 9. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH THE DIRECTION TO THE ASSESSING OFFICER TO CONSIDER THE ABOVE M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 24 HIGH COURT JUDGMENTS CITED ABOVE AND DECIDE THE ISSUE IN VIEW THEREOF AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 11. FINALLY THE APPEAL OF THE REVENUE FAILS AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 27 TH OCTOBER 2016. SD/- SD/- ( ..!') (..) #$ (O.P.MEENA) (D.T.GARASIA) ACCOUNTANT MEMBER J UDICIAL MEMBER (') / DATED : 27 TH OCTOBER 2016. DN/ M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 25 M/S KRITI INDUSTRIES INDIA LIMITED ITA NOS.268/IND.2016 & 492/IND/2016 26