ACIT, CHENNAI v. M/s. Devi Designers & Decorators, CHENNAI

ITA 652/CHNY/2010 | 2007-2008
Pronouncement Date: 06-08-2010 | Result: Dismissed

Appeal Details

RSA Number 65221714 RSA 2010
Assessee PAN AAAFD5017G
Bench Chennai
Appeal Number ITA 652/CHNY/2010
Duration Of Justice 2 month(s) 30 day(s)
Appellant ACIT, CHENNAI
Respondent M/s. Devi Designers & Decorators, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 06-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 06-08-2010
Assessment Year 2007-2008
Appeal Filed On 07-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI PRADEEP PARIKH VICE-PRESIDENT AND SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NOS.652/MDS/2010 ASSESSMENT YEAR : 2007-08 THE ASST. COMMISSIONER OF INCOME-TAX BUSINESS CIRCLE-III CHENNAI. VS. M/S. DEVI DESIGNERS & DECORATORS 59 L.B. ROAD THIRUVANMIYUR CHENNAI-41. PAN : AAAFD5017G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI B. RAMAKRISHNAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A)-VIII CHENNAI IN APPEAL NO.42/09-10 DATED 26 -2-2010 FOR THE ASSESSMENT YEAR 2007-08. I.T.A. NO.652/MDS/2010 2 2. SHRI SHAJI P. JACOB LEARNED SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI B. RAMAKRISHNAN CHARTERED ACCOUNTANT REPR ESENTED ON BEHALF OF THE ASSESSEE. 3. IN THE REVENUES APPEAL THE REVENUE HAS RAISED T HE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO T HE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAI M F ASSESSEE ON COMMISSION PAYMENT OF ` 34 11 260/- ON THE GROUND THAT THE PERSONS TO WHOM THE COMMISSION WAS MADE ARE NOT RELATIVES TO ASSESSEE AND THEREFORE NO T COVERED U/S. 40A(2)(B) OF THE ACT. 2.2. THE LEARNED CIT(A) HAVING OBSERVED THAT THE PERSONS TO WHOM THE PAYMENTS WERE MADE ARE NOT CLOS E RELATIVE AS DEFINED U/S. 40A(2)(B) OF THE ACT HAS FAILED TO NOTE THAT THE ADDITION WAS MADE ONLY ON THE GROUND THAT THE SAID PAYMENTS WERE NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND NOT U/S 40A(2) (B) OF THE IT ACT. 2.3. THE LEARNED CIT(A) FAILED TO APPRECIATE THE F ACT THAT A.O. IN HIS PARA 4 OF THE ASSESSMENT ORDER ESTABLIS HED THAT THE RECIPIENTS OF PURPORTED COMMISSION FAILED TO PR OVE THAT ANY SERVICE WAS RENDERED TO JUSTIFY THE RECEIPT. T HE PAYMENT WAS FOUND TO BE IN THE NATURE OF COLOURABLE DEVICE IN ORDER TO ARTIFICIALLY REDUCE THE INCOME O F THE ASSESSEE AND HENCE IN VIEW OF THE RATIO OF THE DECI SION OF I.T.A. NO.652/MDS/2010 3 THE CASE OF M/S. MCDOWELL AND COMPANY. IN 154 ITR 1 48 THE LEARNED CIT(A) SHOULD HAVE CONFIRMED THE DISALLOWANCE. 2.4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE CLAIM AND THE CLAIM THAT THE TDS WAS DEDUCTED AGAIN ST SUCH PAYMENTS AND THOSE PERSONS HAVE NO CLOSE RELATIONSHIP WITH THE PARTNERS OF THE FIRM IS IRREL EVANT TO THE SUBJECT MATTER. 2.5. THE LEARNED CIT(A) FAILED TO APPRECIATE THE F ACT THAT DURING THE COURSE OF EXAMINATION U/S131 SMT.JAMUNA ANAND COULD NOT EXPLAIN THE REASONS FOR RECEIVING S UCH COMMISSION AND COULD NOT FURNISH ANY DETAILS ABOUT THE SERVICES RENDERED TO THE ASSESSEE AND M/S. FURNITEC H IN THEIR ACCOUNT SHOWN THE SAID AMOUNT AS CONTRACT REC EIPTS AND CLAIMED HUGE EXPENSES TO REDUCE THEIR TAX LIABI LITY. 2.6. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RECIPIENTS THOUGH ADMITTED THE RECEIPT OF THE S AID AMOUNTS FROM THE ASSESSEE HAVE OFFERED ONLY MEAGRE INCOME FOR TAXATION WHICH ONLY SHOW THE INTENTION O F THE ASSESSEE TO EVADE TAX. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) MAY BESET ASID E AND THAT OF ASSESSING OFFICER RESTORED. IT WAS SUBMITTED BY THE LEARNED D.R. THAT THE ASSES SEE HAD CLAIMED COMMISSION PAYMENTS TO TWO PERSONS NAMELY SMT. JAMUNA ANAND F OR AN AMOUNT OF ` . I.T.A. NO.652/MDS/2010 4 191 501/- AND ANOTHER TO M/S. FURNITECH FOR AN AMOU NT OF ` . 22 19 579/-. IT WAS THE SUBMISSION THAT THE RECIPIENTS OF THE COMMISSIO N HAVE NOT RENDERED ANY SERVICES. IT WAS THE SUBMISSION THAT THE LEARNED C IT(A) DELETED THE ADDITION MADE BY THE AO BY HOLDING THAT THE RECIPIENTS HAD R ENDERED SERVICES TO THE ASSESSEE AND THE RECIPIENTS HAD ALSO DECLARED THE I NCOME IN THEIR HANDS. HE RELIED UPON THE DECISION OF THE HON'BLE KARNATAKA H IGH COURT IN THE CASE OF DCIT V. MCDOWELL AND COMPANY. LTD. (291 ITR 107) WHEREIN THE HON'BLE HIGH COURT HAD HELD THAT IN THE ABSENCE OF ANY EVIDENCE TO PRO VE THAT THE COMMISSION AGENTS HAVE RENDERED SERVICES TO THE ASSESSEE THE ASSESSEE WAS NOT ENTITLED TO THE DEDUCTION OF THE COMMISSION PAID. 4. IN REPLY THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MCDOWELL AND COMPANY. LTD. DID NOT APPLY INSOFAR AS IN THE SAID DECISION THE BUSINESS OF THE ASSESSEE WAS CONTROLLED BY GOVERNMENT AUTHORITIES A ND THE SALES WERE MADE DIRECTLY BY THE GOVERNMENT AND THE GOVERNMENT CORPO RATIONS AND CONSEQUENTLY NO NECESSITY OF ANY AGENTS IN THE BUSINESS OF THE A SSESSEE THEREIN. IT WAS THE SUBMISSION THAT IN THE ASSESSEES CASE THIS WAS NOT SO. THE ASSESSEE WAS IN THE BUSINESS OF INTERIOR DECORATION AND THE BUSINESS GR EW ONLY ON ACCOUNT OF THE AGENTS AND THE CONTACTS OF THE PARTNERS OF THE ASSE SSEE FIRM. IT WAS THE SUBMISSION THAT THE AO HAD EXAMINED THE TWO PERSONS BEHIND THE BACK OF THE ASSESSEE AND BOTH THE PERSONS CONFIRMED THAT THEY H AVE RECEIVED THE I.T.A. NO.652/MDS/2010 5 COMMISSION. IT WAS THE SUBMISSION THAT THE AO THOU GH HAS SAID THAT MRS. JAMUNA ANAND COULD NOT REMEMBER THE NAMES OF THE PE RSONS THEIR ADDRESSES AND DETAILS WITH WHOM SHE DEALT WITH IT SHOULD BE APPRECIATED THAT THIS TRANSACTION RELATED TO THE ASSESSMENT YEAR 2007-08 AND THE EXAMINATION HAD BEEN DONE IN 2009 AND TO ASK THE DETAILS OF THE NAM ES AND ADDRESSES OF PERSONS WITH WHOM THE ASSESSEE DEALT WITH ON ACCOUNT OF THE INTRODUCTION BY MRS. JAMUNA ANAND WOULD BE AN ABSOLUTE FUTILITY INSOFAR AS THE ASSESSEE SHOULD ALSO HAVE BEEN PRESENT WHEN THE EXAMINATION WAS DONE SO THAT THE DETAILS COULD HAVE BEEN SHOWN. IT WAS THE SUBMISSION THAT THE CO MMISSION HAD BEEN PAID TO BOTH MRS. JAMUNA ANAND AND M/S. FURNITECH EVEN IN T HE EARLIER YEARS AND THERE WAS NO DISALLOWANCE IN THE EARLIER YEARS AND IN FAC T THE GENUINENESS OF THE PAYMENTS AND THE RENDERING OF THE SERVICES HAD BEEN ACCEPTED IN THE EARLIER YEARS. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE CONFIRMED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AO HAS EXAMINED MRS. J AMUNA ANAND AND M/S. FURNITECH BEHIND THE BACK OF THE ASSESSEE. IT WAS ALSO NOTICED THAT THIS STATEMENT HAVING BEEN RECORDED HAS BEEN PUT TO THE ASSESSEE ON 7.12.2009 AND THE ASSESSMENT ORDER HAS BEEN PASSED ON 24.12.2009. THE STATEMENT HAS NOT BEEN GIVEN TO THE ASSESSEE FOR CROSS-EXAMINATION. UNLESS THE STATEMENT HAS BEEN GIVEN TO THE ASSESSEE FOR CROSS-EXAMINATION S UCH STATEMENT CANNOT BE I.T.A. NO.652/MDS/2010 6 RELIED UPON AND NOR IT CAN BE CONSIDERED FOR THE PU RPOSE OF ASSESSMENT. ON THAT GROUND ITSELF THE STATEMENT OF BOTH MRS. JAMUNA ANA ND AND M/S. FURNITECH STAND DISCARDED. OBVIOUSLY IN THE ABSENCE OF STATEMENT RECORDED THERE IS NO OTHER EVIDENCE AVAILABLE WITH THE AO TO MAKE THE DISALLOW ANCE. 6. NOW WE WILL CONSIDER THE PRESUMPTION THAT THE ST ATEMENT IS CORRECT. MRS. JAMUNA ANAND HAS CATEGORICALLY ADMITTED AS PER THE STATEMENT OF THE AO THAT SHE HAS DONE INTERIOR DECORATIONS AND SHE IS QUALIF IED AS AN INTERIOR DECORATOR THOUGH SHE DOES NOT HAVE ANY FORMAL EDUCATION/EXPER IENCE IN THAT AREA. HOW THE AO SAYS THAT FORMAL EDUCATION IN INTERIOR DECOR ATION IS ABSOLUTELY NECESSARY IS NOT COMING OUT OF THE ASSESSMENT ORDER. NOW COMING TO THE NATURE OF WORK WHICH HAS BEEN DISPUTED BY THE AO THE AO SAYS THAT SHE DOES NOT REMEMBER THE NATURE OF THE BUSINESS WHICH HAS BEEN BROUGHT T O THE ASSESSEE FIRM NOR THE ADDRESSES OF THE PARTIES NATURE OF THE WORK DONE O R THE VALUE OF THE WORK. ONE SHOULD APPRECIATE THAT WHEN COMMISSION PAYMENTS ARE INVOLVED COMMISSION IS PAID FOR BRINGING TWO PARTIES TOGETHER. FOR EXAMPLE IN REAL ESTATE BUSINESS THE COMMISSION AGENT NEED NOT KNOW WHAT IS THE ACTUAL T RANSACTED FIGURE. HE IS GETTING THE COMMISSION FROM BOTH THE PURCHASER AND SELLER OF THE PROPERTY WHEN THE TRANSACTION GOES THROUGH. HE IS NOT INVOLVED I N THE REGISTRATION PROCESS EVEN. NOR IS HE CAPABLE OF DOING DOCUMENT VERIFICA TION. ALL THIS IS DONE AT THE RISK OF THE BUYER. THE COMMISSION IS PAID ONLY FOR BRINGING THE BUYER AND THE SELLER TOGETHER. WHAT IS THE SPECIAL SERVICE THAT IS REQUIRED IS NOT SHOWN BY THE I.T.A. NO.652/MDS/2010 7 AO IN THE ASSESSMENT ORDER IN RESPECT OF THE ACTIVI TIES DONE BY MRS. JAMUNA ANAND. IN THE CIRCUMSTANCES IT CANNOT BE SAID THA T THE COMMISSION PAID TO MRS. JAMUNA ANAND IS BOGUS OR FOR THE PURPOSE OF REDUCIN G THE TAXABLE INCOME OF THE ASSESSEE. 7. IN RESPECT OF THE PAYMENT MADE TO M/S. FURNITECH IT IS NOTICED THAT THE ASSESSEE HAS PRODUCED THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF M/S. FURNITECH ALSO. IT IS NOT THE CLAIM OF THE REVENUE THAT THE LABOUR CHARGES AND OTHER EXPENSES CLAIMED BY M/S. FURNITECH ARE IN FAC T THE EXPENSES WHICH BELONGED TO THE ASSESSEE BUT WHICH HAVE BEEN SEPARA TELY CLAIMED BY M/S. FURNITECH OR THAT THEY HAVE BEEN CLAIMED IN DUPLICI TY BY M/S. FURNITECH. THE STATEMENT RECORDED BEHIND THE BACK OF THE ASSESSEE FROM THE WORKING PARTNER OF M/S. FURNITECH SHOWS THAT THE WORKING PARTNER CATEG ORICALLY STATED THAT THIS WAS NOT A COMMISSION BUT A LABOUR CONTRACT RECEIPT. HE KNEW WHAT HE IS TALKING ABOUT. IT HAS BEEN ACCEPTED BY THE WORKING PARTNER THAT HE AS WELL HIS WIFE WERE EMPLOYEES OF THE ASSESSEE FIRM FOR A LONG TIME . THUS THE EXPERIENCE AND THE EFFICIENCY OF THE TWO PARTNERS OF M/S. FURNITEC H CANNOT BE DISPUTED. JUST BECAUSE HE HAS BEEN AN EMPLOYEE OF THE ASSESSEE FIR M DOES NOT BAR HIM FROM TAKING CONTRACT WORK FROM THE ASSESSEE FIRM. WHEN THE PARTNERS OF M/S. FURNITECH FOUND IT MORE FEASIBLE TO WORK ON CONTRAC T BASIS WITH THE ASSESSEE IT CANNOT BE HELD THAT THE ASSESSEE HAS NOT TAKEN THE SERVICES OF M/S. FURNITECH WHEN THE PARTNERS OF M/S. FURNITECH THEMSELVES HAVE ADMITTED FOR HAVING TAKEN I.T.A. NO.652/MDS/2010 8 LABOUR CONTRACT UNDER THE ASSESSEE. IN THE CIRCUMS TANCES WE ARE OF THE VIEW THAT THE FINDING OF THE LEARNED CIT(A) IS FOUND TO BE ON RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. IN THE CIRCUMSTANCE S THE APPEAL OF THE REVENUE IS DISMISSED. 8. THE ORDER WAS PRONOUNCED IN THE COURT ON 6 TH AUGUST 2010. SD/- SD/- (PRADEEP PARIKH) (GEORGE MATHAN) VICE PRESIDENT JUDICIAL MEMBER CHENNAI DATED THE 6 TH AUGUST 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE