Dy. CIT, Cir.6, Pune, Pune v. Softhard Automation Pvt.Ltd.,, Pune

ITA 80/PUN/2010 | 2006-2007
Pronouncement Date: 27-07-2011 | Result: Dismissed

Appeal Details

RSA Number 8024514 RSA 2010
Assessee PAN AACCS3523M
Bench Pune
Appeal Number ITA 80/PUN/2010
Duration Of Justice 1 year(s) 6 month(s) 8 day(s)
Appellant Dy. CIT, Cir.6, Pune, Pune
Respondent Softhard Automation Pvt.Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 27-07-2011
Date Of Final Hearing 14-07-2011
Next Hearing Date 14-07-2011
Assessment Year 2006-2007
Appeal Filed On 18-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI G.S. PANNU (AM) ITA NOS. 80 651 & 652/PN/2010 (ASSTT. YEARS : 2006-07 2005-06 & 2007-08) DEPUTY COMMISSIONER OF INCOME TAX ... APPELLANT CIRCLE-6 PUNE V. SOFTHARD AUTOMATION PVT. LTD. RESPONDENT 19 INDUS BLDG. CHITTAVIHARI SOCIETY DHANKAWADI PUNE 411 043 PAN : NOT AVAILABLE ITA NOS. 666 & 667/PN/2010 (ASSTT. YEARS : 2005-06 & 2007-08) SOFTHARD AUTOMATION PVT. LTD. APPELLANT 19 INDUS BLDG. CHITTAVIHARI SOCIETY DHANKAWADI PUNE 411 043 PAN : NOT AVAILABLE V. ASSTT. COMMISSIONER OF INCOME TAX . .. RESPONDENT CIRCLE-6 PUNE C.O. NO. 30/PN/2011 ( ARISING OUT OF ITA NO. 651/PN/2010) (ASSTT. YEAR : 2005-06 ) DEPUTY COMMISSIONER OF INCOME TAX .. . CROSS OBJECTOR CIRCLE-6 PUNE V. SOFTHARD AUTOMATION PVT. LTD. RESPONDENT 19 INDUS BLDG. CHITTAVIHARI SOCIETY DHANKAWADI PUNE 411 043 PAN : AACCS3523M ASSESSEE BY : SHRI S.N. DOSHI RESPONDENT BY : MS. ANN KAPTHUAMA ORDER PER BENCH ITA NOS. 80 651 AND 652/PN/2010 ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 2 IN THESE APPEALS PREFERRED BY THE REVENUE THE FIR ST APPELLATE ORDER HAS BEEN QUESTIONED ON SEVERAL GROUNDS INVOLVING TH E ISSUE AS TO WHETHER LD CIT(A) HAS ERRED IN DELETING ADDITION MADE BY TH E A.O U/S. 40A(2)(B) OF THE ACT (OF RS. 25 55 000/- IN A.Y. 2006-07 RS . 23 97 500/- IN A.Y. 2005-06 AND RS. 20 30 000/- IN A.Y. 2007-08). 2. THE RELEVANT FACTS ARE THAT SURVEY U/S. 133A WAS CONDUCTED IN THE CASE OF ASSESSEE ON 14.3.2008 WHEREIN STATEMENTS OF THE CHAIRMAN OF THE COMPANY WERE RECORDED. THE A.O OBSERVED THAT I N RESPONSE TO A QUERY RAISED DURING THE COURSE OF SURVEY OPERATION REGARDING THE PAYMENTS MADE ON ACCOUNT OF SALES COMMISSION OR SA LES PROMOTION BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN M/S. SOF THARD SALES AND SERVICES THE CHAIRMAN OF THE ASSESSEE COMPANY HAD AGREED THAT THE EXPENDITURE DEBITED UNDER THIS HEAD WAS EXCESSIVE A ND HAD VOLUNTARILY AGREED TO FORGO 35% OF THE EXPENDITURE DEBITED FOR PAYMENT TO M/S. SOFTHARD SALES AND SERVICES. SUCH DISALLOWANCE WAS WORKED OUT AT RS. 25 55 000/- (A.Y. 2006-07) RS. 23 97 500/- (A.Y. 2 005-06) AND RS. 20 30 000/- (A.Y. 2007-08). THE ASSESSEE HOWEVER DID NOT SHOW THE SAID FOREGONE CLAIM IN ITS RETURN OF INCOME FOR THE A.YS. UNDER CONSIDERATION. THE SUBMISSION IN THIS REGARD BY TH E ASSESSEE REMAINED THAT THE DECLARATION WAS MADE WITH THE UNDERSTANDIN G THAT BY DECLARING THE AMOUNT IN THE CASE OF THE COMPANY RECIPROCAL D EDUCTION IN INCOME WILL BE AVAILABLE TO THEM IN THE FIRMS CASE. OTH ERWISE THE EXPENDITURE PAID TO M/S. SOFTHARD SALES AND SERVICES WAS REASON ABLE CONSIDERING THE TREND IN INDUSTRY WITH RESPECT TO SALES PROMOTION A ND ANNUAL MAINTENANCE CONTRACT. IN SUPPORT OF THIS SUBMISSION THE ASSES SEE FURTHER SUBMITTED THAT 10% AMC OF THE PRODUCT PRICE IS REASONABLE AN D FURNISHED THE NEWS REPORT IN TIMES OF INDIA IN THIS REGARD FOR THE CO MPARISON THAT PAYMENT ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 3 MADE BY THE ASSESSEE WAS LESS. THE A.O DID NOT AGR EE WITH THIS SUBMISSIONS OF ASSESSEE AND ADDED THE AMOUNT IN QUE STION U/S. 40A(2)(B) OF THE ACT. THE LD CIT(A) HAS DELETED TH E SAME AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 3. IN SUPPORT OF THE GROUNDS INVOLVING THE ISSUE T HE LD. D.R. HAS BASICALLY PLACED RELIANCE ON THE ASSESSMENT ORDER W ITH THIS SUBMISSION THAT THE CHAIRMAN OF THE ASSESSEE COMPANY IN HIS S TATEMENTS BEFORE THE SURVEY PARTY HAD ADMITTED THE DISCREPANCY IN RESPEC T OF PAYMENTS MADE ON ACCOUNT OF SALES COMMISSION OR SALES PROMOTION T O ITS SISTER CONCERN AS EXCESSIVE AND HAD VOLUNTARILY SURRENDERED 35% OF TH E CLAIMED EXPENDITURE. 4. THE LD. A.R. ON THE OTHER HAND TRIED TO JUST IFY FIRST APPELLATE ORDER ON THE ISSUE. HE SUBMITTED THAT THERE WAS NO MATERIAL BEFORE THE A.O TO MAKE ADDITION IN QUESTION EXCEPT THE STATEME NTS U/S. 133A OF THE ACT OF THE CHAIRMAN OF THE COMPANY WHICH CANNOT BE TREATED AS ADMISSION ON THE PART OF THE CHAIRMAN THAT THE PAYM ENT IN QUESTION MADE TO THE SISTER CONCERN WAS EXCESSIVE. IN THIS REGARD HE REFERRED ANSWER OF THE CHAIRMAN IN RESPONSE TO QUESTION NO. 27 RAISED TO HIM DURING THE COURSE OF SURVEY PROCEEDINGS. THE SAME HAS BEEN PLACED AT PAGE NOS. 1 TO 15 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THE RELEVANT PAGE NOS. ARE 10 & 11 PERTAINING TO QUESTI ON NO. 27. HE SUBMITTED THAT THE A.O HAS NOT CITED ANY INSTANCE A S TO HOW HE CAME TO THE CONCLUSION THAT THE EXPENSES CLAIMED WAS EXCESS IVE WHILE INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. HE ALSO REFERRED PAGE NOS.16 TO 18 OF THE PAPER BOOK I.E. COPY OF MEMORAN DUM OF UNDERSTANDING BETWEEN ASSESSEE COMPANY AND M/S. SOF THARD SALES AND SERVICES REGARDING SALES COMMISSION/SALES PROMOTION . HE SUBMITTED THAT ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 4 DUE TO EFFORT OF THE SISTER CONCERN THE SALES HAVE BEEN GROWN FROM RS.4.8 CRORES TO 13 CRORES FROM A.Y. 2002-03 TO A.Y. 2006- 07. HE SUBMITTED THAT BEFORE THE SURVEY PARTY THE CHAIRMAN IN HIS S TATEMENTS IN RESPONSE TO QUESTION NO. 27 FIRSTLY TRIED TO JUSTIFY THE CLA IMED EXPENSES AS REASONABLE BEFORE AGREEING TO FORGO 35% OF EXPENDIT URE WHICH IS NOTHING BUT QUALIFIED ADMISSION. THE LD. A.R. ALSO REFERRE D PAGE NO. 50 OF THE PAPER BOOK I.E. CUT OUT OF ARTICLE PUBLISHED IN TI MES OF INDIA ON RIGHT PRICE FOR MAINTAINING CONTRACT. HE ALSO REFERRE D PAGE NOS. 51 TO 53 I.E. THE COPY OF ASSESSMENT ORDER FOR A.Y. 2008-09 U/S. 143(3) WHEREIN THE A.O HAS ACCEPTED SIMILAR CLAIM. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : I) CIT V/S. KHADER KHAN SON 214 CTR (MAD) 589 II) PULLANGODE RUBBER PRODUCE CO.LTD. VS. STATE OF KERALA & ANR. 91 ITR 18 (SC) III) PAUL MATHEW V/S. CIT & OTHERS 263 ITR 101 (K ER.) 5. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE FIRST APPELLATE ORDER ON THE QUESTION AS TO WHETHER THE CLAIMED PAY MENT MADE BY THE ASSESSEE TO ITS SISTER CONCERN ON ACCOUNT OF SALES COMMISSION OR SALES PROMOTION IS EXCESSIVE OR NOT IS REASONED ONE. THE LD. CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT BEFORE COMING TO THE F INDING THAT THE ASSESSEE HAS INCURRED EXCESSIVE OR UN-REASONABLE EX PENDITURE PAID TO SISTER CONCERN THE A.O SHOULD HAVE CONSIDERED THE FOLLOWING FACTORS : (I) FAIR MARKET VALUE OF GOODS; (II) SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; (III) LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSE SSEE; AND (IV) BENEFIT DERIVED BY THE ASSESSEE. ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 5 THE A.O HAS FAILED TO FURNISH ANY COMPARATIVE INSTA NCES TO JUSTIFY FINDING THAT THE PAYMENT MADE BY THE ASSESSEE TO ITS SISTER CONCERN TOWARDS THE SERVICES RENDERED BY THEM WAS EXCESSIVE OR UNREASO NABLE. THE ASSESSEE ON THE OTHER HAND TRIED TO JUSTIFY THE R EASONABLENESS OF THE PAYMENT. THE CHAIRMAN OF THE ASSESSEE IN HIS STAT EMENTS U/S. 133A IN RESPONSE TO QUESTION NO. 27 HAS ALSO TRIED TO JUSTI FY THE CLAIMED PAYMENT IN HIS SUBMISSION THAT THE ASSESSEE IS MANUFACTURIN G PRODUCTS AND ALL SALES PROMOTION ACTIVITY IS CONTRACTED TO ITS SISTE R CONCERN. THEY ARE DOING SALES PROMOTION IN 4 ZONES I.E. EAST WEST S OUTH AND NORTH AND HENCE TURNOVER HAS GROWN FROM RS. 4.8 CRORES TO RS . 13 CRORES FROM F.Y. 2002-03 TO 2006-07 AND AS AN ALTERNATIVE HE AGREED TO OFFER 35% OF THE SALES PROMOTION EXPENDITURE AS DISALLOWABLE WHICH CANNOT BE TAKEN AS A VOLUNTARY ADMISSION TO JUSTIFY THE ADDITION MADE BY THE A.O. UNDER THESE CIRCUMSTANCES WE FULLY CONCUR WITH THE FINDI NG OF THE LD CIT(A) THAT IT WAS NOT A FIT CASE FOR THE A.O TO INVOKE TH E PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WITHOUT ANY SPECIFIC FINDING THAT CLAIMED EXPENDITURE WAS EXCESSIVE OR UNREASONABLE HAVING RE GARD TO THE FAIR MARKET VALUE OF THE SERVICES. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE ISSUE IS DECIDED IN FAVOUR OF TH E ASSESSEE. THE GROUNDS INVOLVING THE ISSUE ARE THUS REJECTED. 6. IN RESULT APPEALS ARE DISMISSED. ITA NOS. 666 AND 667/PN/2010 7. IN THESE APPEALS THE ASSESSEE HAS QUESTIONED F IRST APPELLATE ORDER ON THE GROUND THAT THE LD CIT(A) HAS ERRED IN CONFI RMING THE ADDITION (OF RS.21 81 129/-) IN A.Y. 2007-08 AND RS. 3 76 744/ - AND RS. 10 37 094/-) IN A.Y. 2005-06) MADE U/S. 36(1))VA) R .W.S. 2(24)(X) ON ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 6 ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTI ON TO PROVIDENT FUND. 8. AT THE OUTSET OF HEARING THE LD. A.R. POINTED O UT THAT ISSUE RASIED IN THE GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SOFTHARD AUTOM ATION PVT. LTD. V/S. DCIT ITA NO. 1/PN/2010 (A.Y. 2006-07) VIDE ORDER D ATED 27 TH MAY 2011(COPY SUPPLIED). HE SUBMITTED THAT LD CIT(A) W HILE CONFIRMING THE ABOVE STATED ADDITION HAS OVERLOOKED THE PROVISIONS OF SECTION 43B OF THE ACT WHICH ALLOWS SUCH PAYMENT IF MADE BEFORE DUE DA TE OF FILING OF RETURN OF INCOME OF THE RELEVANT A.Y. THE LD CIT(A) HAS A LSO ERRED IN UPHOLDING THE VIEW OF THE A.O THAT THE PROVISIONS OF SECTION 36(1)(VA) R.W.S. 2(24)(X) IS NOT GOVERNED BY PROVISIONS OF SECTION 43B OF THE ACT HENCE DUE DATE PRESCRIBED IN THE PROVISIONS OF SECTION 4 3B IS NOT APPLICABLE TO EMPLOYEES CONTRIBUTION. THE LD. D.R. ON THE OTHE R HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. 9. CONSIDERING THE ABOVE SUBMISSIONS ESPECIALLY HA VING GONE THROUGH THE ORDER DATED 27 TH MAY 2011 OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SOFTHARD AUTOMATION PVT. LTD. V/S. DCIT (SU PRA) WE FIND THAT THE ISSUE RAISED IS FULLY COVERED BY THE SAID ORDER IN FAVOUR OF THE ASSESSEE. IN THE SAID ORDER THE TRIBUNAL HAS DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE WITH DIRECTION TO A.O TO ALLOW THE CLAIM O F ASSESSEE ON ACCOUNT OF PAYMENT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. WE HAVE ALSO OCCASION TO GO THROUGH THE DECISION OF HONBLE KARN ATAKA HIGH COURT IN THE CASE OF CIT V/S. SABARI ENTERPRISES 213 CTR (K ARN.) 269 WHEREIN SIMILAR CLAIM ON ACCOUNT OF DELAYED PAYMENT OF EMPL OYEES CONTRIUTION TO PROVIDENT FUND DISALLOWED BY THE A.O WAS ALLOWED BY THE HONBLE HIGH COURT SINCE THE PAYMENT WAS MADE BEFORE THE DUE DAT E OF FILING OF THE ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 7 RETURN OF INCOME FOR THE RELEVANT A.Y. WE THUS DIRECT THE A.O TO ALLOW THE CLAIMED DEDUCTION IN QUESTION TO THE ASSESSEE . THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THE GROUND IS ACCORDING LY ALLOWED. 10. IN RESULT APPEALS ARE ALLOWED. C.O.NO. 30/PN/2011 11. THE ASSESSEE HAS OBJECTED THE FIRST APPELLATE O RDER ON THE BASIS THAT LD CIT(A) HAS ERRED IN UPHOLDING THE VALIDITY OF ASSESSMENT ORDER FRAMED U/S. 143(3) R.W.S. 147 OF THE ACT WITHOUT AP PRECIATING THAT THE SAME IS BASED ON CHANGE OF OPINION. 12. SINCE WE HAVE ALREADY DISMISSED THE APPEAL PR EFERRED BY REVENUE AGAINST THE FIRST APPELLATE ORDER DELETING THE ADD ITION MADE BY THE LD CIT(A) FOR THE SAME A.Y. 2005-06 THE ISSUE RAISED IN THE CROSS OBJECTION HAS BECOME ACADEMIC ONLY. THE SAME THUS DOES NOT NE ED INDEPENDENT ADJUDICATION. THE CROSS OBJECTION IS ACCORDINGLY D ISMISSED. 13. IN SUMMARY ITA NOS. 80 651 & 652/PN/2010 ARE DISMISSED ITA NOS. 666 & 667/PN/2010 ARE ALLOWED AND C.O. NO. 30/ PN/2011 IS DISMISSED THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 27TH JULY 2011. SD/- SD/- ( G.S. PANNU ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 27TH JULY 2011 US COPY OF THE ORDER IS FORWARDED TO : ITA . NO 80 651 652/PN/2010 ETC. SOFTHARD AUTOMATION PVT. LTD. A.YS.2005-06 2007-08 ETC. PAGE OF 8 8 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-III PUNE 4. THE CIT(A)- III PUNE 5. THE D.R. A BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE