M/s. AGRA ENGINEERING CO., MUMBAI v. ACIT CIR. - 12(3), MUMBAI

ITA 5326/MUM/2008 | 2005-2006
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 532619914 RSA 2008
Assessee PAN AAAFA2297H
Bench Mumbai
Appeal Number ITA 5326/MUM/2008
Duration Of Justice 1 year(s) 6 month(s) 3 day(s)
Appellant M/s. AGRA ENGINEERING CO., MUMBAI
Respondent ACIT CIR. - 12(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 26-02-2010
Date Of Final Hearing 23-02-2010
Next Hearing Date 23-02-2010
Assessment Year 2005-2006
Appeal Filed On 22-08-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.K. GUPTA J.M. AND SHRI J. SUDHAKAR REDDY A.M. I.T.A. NO. 5 326/MUM/2008 ASSESSMENT YEAR : 2005-06. M/S AGRA ENGINEERING CO. ASSTT. COM MISSIONER OF INCOME-TAX C-5 LAXMI TOWERS VS. CIRCLE-12(3) MUMBAI. BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400051. PAN : AAAFA2297H APPELLANT RESPONDENT I.T.A. NO. 5620/MUM/2008 ASSESSMENT YEAR : 2005-06. ASSTT. COMMISSIONER OF M/ S AGRA ENGINEERING CO. INCOME TAX CIR.12(3) VS. MUMBAI. MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI NARAYAN ATAL. DEPARTMENT BY : SHRI VIKRAM GAUR. O R D E R PER J. SUDHAKAR REDDY A.M. THESE ARE CROSS APPEALS DIRECTED AGAINST TH E ORDER OF THE CIT(APPEALS)-XII DATED 30-06-2008 FOR ASSESSMENT YE AR 2005-06. 2. THE ASSESSEE IN THIS CASE IS IN THE BUSINESS O F MANUFACTURING OF ENGINE PARTS FOR AUTOMOBILE TRUCKS BUSES AND TR ACTORS. IT IS A PARTNERSHIP FIRM. IT WAS ESTABLISHED IN THE YEAR 19 53 AND IS HAVING 100% 2 EXPORTS. THE EXPORTS ARE DONE TO MORE THAN 75 COUNT RIES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29-10-2005 DECLARING TOTAL INCOME OF RS.1 15 74 150/-. THE AO COMPLETED THE ASSESSMENT U /S 143(3) DISALLOWING THREE ITEMS OF EXPENDITURE CLAIMED I.E. A) OVERSEAS COMMISSION EXPENSES B) TRAVELLING EXPENSES AND C) EXPORT COMMISSION EXPENSES. ON APPEAL THE FIRST APPELLATE AUTHORITY DELETED THE ADDITION MADE ON ACCOUNT OF OVERSEAS COMMISSION EXPENSES. AS REGARDS THE OTHER DISALLOWANCES THE CIT(APPEALS) GRANTED PART RELIEF . AGGRIEVED WITH THIS ORDER BOTH THE ASSESSEE AS WELL AS THE REVENUE HAV E FILED THESE APPEALS. 3. WE HAVE HEARD MR. NARAYAN ATAL LEARNED COUNSEL FOR THE ASSESSEE AND MR. VIKRAM GAUR LEARNED DR. 4. WE FIRST TAKE UP THE ASSESSEES APPEAL. 5. GROUND NO. 1(A) IS AGAINST THE ORDER OF THE FIR ST APPELLATE AUTHORITY SUSTAINING THE DISALLOWANCE OF RS.1 43 29 1/- BEING FOREIGN TRAVELLING EXPENSES INCURRED IN RESPECT OF THE WIFE DAUGHTER OF THE PARTNERS NAMELY MS. SANGITA GUPTA AND MS. ANUSHA GUPTA. AFTER PERUSING THE RECORD WE FIND THAT THE ASSESSEE COUL D NOT DEMONSTRATE BEFORE THE REVENUE AUTHORITIES THAT THE TRAVELLING EXPENSES IN RESPECT OF VISIT OF THE WIFE AND THE DAUGHTER OF THE PARTNERS WERE FOR BUSINESS PURPOSES. THUS WE SUSTAIN THE DISALLOWANCE AND DISM ISS THIS GROUND OF THE ASSESSEE. 6. COMING TO GROUND NO. 1(B) THE ASSESSEE CHALLEN GES THE REDUCTION OF ADHOC DISALLOWANCES OF TRAVELLING EXPE NSES BY THE CIT(APPEALS) FROM 40% TO 10%. THE ASSESSEES CLAIM IS THAT NO DISALLOWANCE WHATSOEVER SHOULD BE MADE ON ADHOC BAS IS AS THE SAME IS ACTUAL EXPENDITURE AND THERE IS NO BASIS FOR SUCH A DHOC DISALLOWANCES. 3 THE DISALLOWANCE IN THIS CASE WAS MADE ON THE GROUN D THAT THE ASSESSEE HAD NOT PRODUCED ALL THE VOUCHERS AND BILLS AS REQU IRED BY THE AO. IT IS NOT THE CASE OF THE ASSESSEE THAT IT HAD PRODUCED A LL THE VOUCHERS AND BILLS TO PROVIDE EVIDENCE OF HAVING INCURRED THE SAID EXP ENDITURE. IN VIEW OF THE ABOVE FINDING OF THE REVENUE AUTHORITIES WE AR E OF THE CONSIDERED OPINION THAT THE RESTRICTION OF THE DISALLOWANCE ON AN ADHOC BASIS AT 10% IS REASONABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS WE UPHOLD THIS FINDING OF THE FIRST APPELLATE AUTHORITY AND D ISMISS GROUND NO. 1(B) OF THE ASSESSEE. 7. COMING TO GROUND NO. 2 THE ASSESSEE DISPUTES C ONFIRMATION OF AN ADHOC DISALLOWANCE AT 20% OF THE EXPORT PROMO TION EXPENSES BY THE CIT(APPEALS). THE AO MADE THE DISALLOWANCE ON THE G ROUND THAT NO DETAILS OF THE BENEFICIARIES HAVE BEEN PROVIDED AND THAT THE ASSESSEE FAILED TO PRODUCE THE DETAILS AS REQUESTED BY THE AO. THE FIRST APPELLATE AUTHORITY ON THE OTHER HAND OBSERVES THAT THE ASS ESSEE PRODUCED THE DETAILS AND EVIDENCE OF PURCHASES BEFORE THE AO. IT WAS ONLY THE DETAILS OF THE BENEFICIARIES WHICH HAD NOT BEEN GIVEN. HE O BSERVES THAT FOR 100% EXPORTER IT IS CUSTOMARY TO PRESENT GIFT ARTICLES S UCH AS CALENDARS PENS ETC. AND THAT THIRD PARTY RECEIPTS IN SUCH CASES MAY NOT BE POSSIBLE. HE ALSO NOTED THAT UNDER THE HEAD HOTEL BILLS RS.1 LAKH WA S PAID TO ITC HOTELS. HE OPINED THAT IT IS DIFFICULT TO CERTIFY THAT 100% OF THE EXPENSES WERE FOR THE PURPOSE OF BUSINESS. HENCE HE REDUCED THE DISAL LOWANCE TO 20% OF THE CLAIM. 8. AFTER CONSIDERING RIVAL CONTENTIONS WE ARE OF THE CONSIDERED OPINION THAT ONCE THE CIT(APPEALS) COMES TO A CONCL USION THAT IT IS CUSTOMARY TO PRESENT GIFT ARTICLES SUCH AS CALENDAR S PENS ETC. TO BUYERS SUPPLIERS TRADE FAIR VISITORS ETC. AND THAT THIR D PARTY RECEIPTS IN SUCH 4 CASES ARE NOT POSSIBLE NO ADHOC DISALLOWANCE SHOUL D HAVE BEEN MADE. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAD PRODUC ED THE DETAILS AND EVIDENCES OF THE PURCHASES. ON THIS FACTUAL MATRI X WE UPHOLD THE CONTENTION OF THE ASSESSEE AS FAR AS GROUND NO. 2 I S CONCERNED AND ALLOW THE SAME. 9. GROUND NO. 3 IS GENERAL IN NATURE AND REQUIRE N O SEPARATE ADJUDICATION. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. 11. COMING TO REVENUES APPEAL THE FOLLOWING GROU NDS ARE RAISED. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE COMMISSION ON OVERSEAS EXPENSES OF RS.25 54 349/- WITHOUT APPRECIATING THAT THE PAYMEN T HAS NOT BEEN MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND ASSESSEE HAS FAILED TO SUBSTANTIATE THESE EXPENSES WITH DOCUMENTARY EVIDENCES. 1.I) WHILE DOING SO THE LD. CIT(A) FURTHER IGNORED THAT THE ASSESSEE HAS MADE PROVISION FOR THESE EXPENSES FOR A.Y. 2006-07. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF AT RS.11 88 680/- ON ACCOUNT OF TRAVELLING EXPENSES IGNORING THE FACT THAT ASSE SSEE HAS FAILED TO SUBMIT FULL DETAILS OF FOREIGN TRIPS ALONG WITH SUP PORTING DOCUMENTS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED. 10. GROUND NO. 1 IS ON THE ISSUE OF DISALLOWANCE O F RS.25 54 349/- BEING THE CLAIM OF COMMISSION EXPENS ES. THE AO DISALLOWED THE CLAIM ON TWO COUNTS. THE FIRST BEING THAT THE COMMISSION PAYMENTS HAVE INCREASED FROM 0.24% TO 0.94% OF THE TURNOVER IN THE LAST FIVE YEARS. THE AO ASKED THE ASSESSEE TO EXPLAIN TH E REASONS FOR SUCH INCREASE UNDER THIS HEAD. FURTHER THE AO OBSERVED T HAT OUT OF RS.25.54 5 LAKHS ONLY RS. 7.25 LAKHS WERE PAID DURING THE YEA R AND THE BALANCE OF RS.18.28 LAKHS WERE CLAIMED AS PROVISIONS MADE. THI S AMOUNT WAS PAID IN THE SUBSEQUENT YEAR. THE FACT IS THAT THE PAYMEN TS WERE MADE BEFORE JULY 2006. THE AO APPLIED THE THEORY OF PREPONDERA NCE OF PROBABILITIES AND INFERRED THAT NO COMMISSION AGENT WOULD WAIT FO R SUCH A LONG TIME TO GET HIS COMMISSION PAYMENT. HE WAS ALSO OF THE OPIN ION THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE ON ANY SERVICES RENDERED BY SUCH PARTIES. HE DISALLOWED 100% OF THE CLAIM. FURTHER THE AO OBSERV ED THAT THE ASSESSEE FAILED TO DEDUCT PAYMENTS AT 5% U/S 194H AND HENCE HIS CASE IS HIT BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE AS SESSEE CONTENDED BEFORE THE CIT(APPEALS) THAT THE COMMISSION PAYMENTS WERE MADE TO FOREIGNERS OR TO NRIS WHO ARE LONG BACK SETTLED OUTSIDE INDIA. IT WAS SUBMITTED THAT SIMILAR PAYMENTS WERE BEING MADE FOR THE LAST MANY YEARS AND THE INCOME TAX DEPARTMENT WAS ACCEPTING THE SAME AS GEN UINE. THE ASSESSEE FURNISHED COPIES OF THE ASSESSMENT ORDERS FROM THE ASSESSMENT YEAR 2001- 02 TO ASSESSMENT YEAR 2004-05 TO SUBSTANTIATE THAT THE AO HAS ALWAYS ACCEPTED SUCH CLAIM AND HAS NEVER DISALLOWED ANY CO MMISSION PAYMENTS. HE SUBMITTED THAT THE THEORY OF PREPONDERANCE OF PR OBABILITIES APPLIED BY THE AO ON THE GROUND THAT THERE IS A DELAY IN PAYME NT OF THE COMMISSION IS BASELESS AND AGAINST THE FACTS OF THE CASE. THE IDENTITIES OF ALL THE OVERSEAS AGENTS WERE PROVED BEYOND DOUBT BEFORE THE AO AND COPIES OF THEIR PASSPORTS ETC. WERE FILED. ON THESE FACTS TH E FIRST APPELLATE AUTHORITY GRANTED RELIEF. AGGRIEVED THE REVENUE IS IN APPEAL . 11. AFTER HEARING THE RIVAL CONTENTIONS WE FIND T HAT THE FIRST APPELLATE AT PARA 1.21 TO 1.28 OBSERVED AS FOLLOWS : 1.21 IN FACT THE COMMISSION PAYMENT DEPENDS UPON S EVERAL FACTORS PLAYING IN THE MARKET LIKE BOOKING OF ORDE RS FOR OVERSEAS CLIENTS VARYING COMPETITIVE CLIMATE QUALITY OF GO ODS COMPETITION 6 AMONG SUPPLIERS AND PURCHASERS POSITION OF SUPPLY AND DEMAND WORTH OF THE COMMISSION AGENTS ETC. IT IS NOT AN STRICT ARITHMETIC WHERE TWO PLUS TWO IS ALWAYS FOUR. THEREFORE JUDGING THE COMM ISSION PAYMENTS IN THE SCALE OF FIXED PERCENTAGE ONLY IN ALL THE YEARS IS NOT POSSIBLE IN ANY BUSINESS OR TRADE. ONE HAS TO TAKE INTO ACCOUNT EVE RY POSSIBLE FACTOR AS STATED ABOVE. 1.22 THE AO HAS ALLOWED THE CLAIM OF DIFFERENT PERC ENTAGE OF COMMISSION PAYMENTS IN DIFFERENT YEARS WHICH VARIED CONSIDERABLY. IF ONE COMPARES THE SAME OF 0.94% OF AY 2005-06 WITH THAT OF 0.82% AY 1998-99 THE INCREASE IS NOT THAT SUBSTANTIAL. M OREOVER THE TURNOVER HAS INCREASED FROM RS.16.29 CRORES IN AY 1998-99 (0 .82%) TO RS.17.50 CRORES IN AY 2004-05 (0.75%) AND FINALLY TO RS.27.1 0 CRORES IN AY 2005-06 (0.94%). THE BIG JUMP IN THE TURNOVER JUSTI FIES THE COMMISSION PAYMENT @ 0.94% AND THE UNDERSIGNED DOES NOT FIND A NYTHING IRREGULAR IN THAT. THEREFORE THE AOS OBSERVATION IS NOT FOUN D TENABLE. 1.23 ANOTHER IMPORTANT ASPECT TO BE NOTED IS THAT T HE AO HAS MADE HIS OBSERVATION ABOUT THE JUMP IN THE CLAIM FR OM 0.24% TO 0.94% BUT ACTUALLY THE AO HAS NOT ALLOWED THE CLAIM EVEN UPTO 0.24%. HE HAS NOT STATED THE REASONS FOR ALLOWING ZERO % OF THE C LAIM WHILE DISALLOWING THE ENTIRE RS.25.54 LAKHS. 1.24 SECONDLY IT IS NOTED THAT THE AO HAS NOT COND UCTED ANY INDEPENDENT ENQUIRY TO ESTABLISH THAT ANY OF THE OV ERSEAS AGENTS WERE INDIANS OR THEIR INCOME WAS TAXABLE IN INDIA. IN TH E ABSENCE OF ANY EVIDENCE ADVERSE TO THE CLAIM THE AO SHOULD NOT DI SALLOW THE CLAIM IN ITS ENTIRETY. THE COPIES OF PASSPORTS SHOW THAT NON E OF THEM ARE INDIAN RESIDENTS. THERE IS NO DIRECT OR INDIRECT EVIDENCE TO SHOW THAT THEIR INCOME IS TAXABLE IN INDIA. 1.25 THEREFORE UNLESS THE INCOME OF SUCH OVERSEAS AGENTS ARE TAXABLE IN INDIA NO TDS CAN BE MADE ON THE PAYMENT S MADE TO THEM AS ENVISAGED IN SECTION 194 H OF THE IT ACT. 1.26 THUS IF THE PROVISION OF SECTION 194 H ARE NOT APPLICABLE THE INVOKING OF THE PROVISION OF SECTION 40(A)(IA) ALSO IS NOT POSSIBLE. THUS SUCH OBSERVATION OF THE AO ALSO DOES NOT HAVE ANY BASIS. 1.27 REGARDING RENDERING OF SERVICES IT IS NOTED T HAT EVERY COMMISSION PAYMENT TO EACH OF THE COMMISSION AGENT OVERSEAS I S LINKED TO SPECIFIC EXPORTS ORDERS BOOKED VIDE SPECIFIC INVOICES FOR SUPPLY OF CERTAI N GOODS. THERE ARE REGULAR CORRESPONDENCES BETWEEN TH E APPELLANT AND THE 7 RECEIVERS.. ALL THE TRANSACTIONS HAVE TAKEN PLACE T HROUGH BANKING CHANNELS AND THE AO HAS NOT POINTED OUT ANY FRAUD ANYWHERE. THEREFORE SUCH OBSERVATION OF THE AO HAS ALSO GOT N O BASIS. THE COMMISSION HAS BEEN ACTUALLY PAID TO OVERSEAS AGENT S DURING THIS YEAR AS WELL THE REMAINING ONES IN THE SUBSEQUENT YEAR/Y EARS AS ALREADY STATED ABOVE. THE AO HAS NEVER DISALLOWED SUCH CLAI MS IN EARLIER YEARS. 1.28 IN VIEW OF ALL OF THESE OBSERVATIONS AND FINDI NGS THE UNDERSIGNED IS OF THE OPINION THAT IT WAS NOT FAIR AND JUSTIFIABLE ON THE PART OF THE AO TO DISALLOW SUCH A CLAIM IN ITS ENTI RETY AND HENCE THE DISALLOWANCE OF RS.25 54 349/- BEING THE ENTIRE COM MISSION PAYMENT TO OVERSEAS AGENTS IS DELETED. WE FULLY AGREE WITH THESE FINDINGS AND DISMISS GROU ND NO.1 OF THE REVENUE. 12. COMING TO GROUND NO. 2 IN VIEW OF OUR DISCUSS ION IN THE ASSESSEES APPEAL WHEREIN WE HAVE UPHELD THE FINDIN GS OF THE CIT(APPEALS) WE DISMISS THIS GROUND OF THE REVENUE . 13. GROUND NO. 3 AND 4 ARE GENERAL IN NATURE AND R EQUIRE NO SEPARATE ADJUDICATION. 14. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON THIS 26 TH DAY OF FEBRUARY 2010. SD/- SD/- (R.K. GUPTA) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 26 TH FEBRUARY 2010. WAKODE 8 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.