Income Tax Appellate Tribunal - Nagpur
M/S. Kiran Agencies,, Nagpur vs The Addl.Commissioner Of ... on 11 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
NAGPUR BENCH, NAGPUR
BEFORE SHRI JASON P. BOAZ, HON'BLE ACCOUNTANT MEMBER
& SHRI SANDEEP GOSAIN, HON'BLE JUDICIAL MEMBER
ITA No. 32/NAG/2011
(Asst. Year : 2006-07)
M/s. Kiran Agencies, vs. The Addl.CIT,
51, General Merchants Market, Aayakar Bhavan,
Fawara Chowk, Gandhibagh, Civil Lines, Nagpur.
Nagpur
PAN No. AADFK 8570 A
(Appellant) (Respondent)
Assessee by : Shri Abhay Agrawal, CA.
Department By : Shri Dr. Milind Bhusari, CIT DR
Date of hearing : 09/07/2018.
Date of pronouncement : 11/07/2018.
ORDER
PER JASON P. BOAZ, A.M.
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-II, Nagpur, dated 28/12/2010 for Assessment Year 2006-07.
2. Briefly stated, the facts of the case are as under:-
2.1) The assessee, a firm engaged in business as a dealer in pharmaceutical products and agent for pharmaceutical agencies, State Government agencies and Municipal Corporations etc., filed its return of income for Assessment Year 2006-07 on 30/10/2006 2 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) declaring total income of Rs. 1,13,20,210/-. A survey under section 133A of the Income Tax Act, 1961 (hereinafter referred to as the "Act") was conducted at the assessee's business premises on 28/11/2006. In the course of survey, a statement of Shri Kiran Somalwar, who is the partner of assessee's firm, was recorded under section 131 of the Act on 28/11/2006, wherein he stated that commission paid by the assessee and its sister group concerns to M/s. Litaka Pharmaceuticals Ltd., were admittedly not genuine. According to the deposition of Shri Kiran Somalwar, these commission payments made by the assessee are not genuine, as no services have actually been rendered by M/s.Litaka Pharmaceuticals Ltd. and the same was received back by the assessee in cash, for which M/s. Litaka Pharmaceuticals Ltd.
retained an amount at 3% thereof. It was confirmed by Shri Kiran Somalwar that such commission payments have been made in the case of M/s. Kiran Agencies - the assessee and its associate concerns i.e. M/s. Usha Distributors and M/s. D.S. Agencies & Associates. From the details in the impugned orders of the authorities below, it is seen from the statement of Shri Gopal Ramorti, dated 30/10/2006, Director of Twilight Litaka Ltd. that admissions are available in respect of non-genuine payments of commission received from the assessee and its associate concerns 3 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) (supra), which were returned to these parties in cash, and were collected by the assessee's staff or delivered at the assessee's place by staff members of M/s. Litaka Pharmaceuticals Ltd. Vide letter dated 16/01/2007, Shri Kiran Somalwar, partner of the assessee firm and its associates retracted his statements dated 28/11/2006 and 29/11/2006 stating that the assessee firm has not paid any commission to any party including M/s. Litaka Pharmaceuticals Ltd. and that, all payments of commission were by account payee cheques; TDS was effected on such payments and no cash was received back by the assessee. It was also submitted that the statements recorded by the Department from Shri Kiran Somalwar on 28/11/2006 and 29/11/2006 was under
coercion and threat and could not be relied or acted upon in the light of the assessee's retraction and the absence of corroborative evidence.
2.2) The Assessing Officer, however, after considering the assessee's submissions was of the view that the retraction on 16/01/2007 by Shri Kiran Somalwar was only afterthought; that the statements recorded under section 131 of the Act on 28 & 29/11/2006 and that of Shri Gopal Ramorti dated 30/06/2006 have evidentiary value; that the fact the assessee was supplying to Government agencies meant that it should have 4 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) necessarily paid some secret commission. In the above view of the matter, the Assessing Officer disallowed the assessee's claim of commission payments, amounting to Rs.96,82,058/-. The order of assessment was completed under section 143(3) of the Act vide order dated 29/12/2008, wherein the assessee's income was determined at Rs. 2,16,46,380/- in view of various additions/ disallowances.
2.3) Aggrieved by the order of the assessment, dated 29/12/2008 for Assessment Year 2006-07, the assessee preferred an appeal before the ld. CIT(A)-II, Nagpur. The ld. CIT(A) disposed of the appeal vide impugned order dated 28/12/2010 and allowed partial relief to the assessee.
3. The assessee, being aggrieved by the order of the ld.
CIT(A)-II, Nagpur dated 28/12/2010 for Assessment Year 2006-07, has filed this appeal, wherein it has been raised the following grounds:-
1) Addition as undisclosed income in respect of commission expenses treated as non-genuine - Rs. 96,82,058/-
On the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding the arbitrary addition as the appellant's undisclosed income a sum of Rs. 96,82,058/- in respect of commission expenses treated as non-genuine, relying purely upon the statements made at the time of / in connection with the survey under section 133A, though validly retracted subsequently, without any cogent/ corroborating material to support and also ignoring/not 5 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) appreciating in right perspective the appellant's submissions as well as the evidence produced.
The appellant prays that since the said commission expenses are genuine and are incurred wholly and exclusively for the purposes of the appellant's business the same be allowed as business expenditure under section 37(1) and the addition of the same as the appellant's undisclosed income be deleted.
2) Ad hoc disallowance of various expenses (transport, travelling and guest house expenses) - Rs. 50,000/- On the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding the arbitrary and ad hoc disallowance out of various expense s to the extent of an ad hoc amount of Rs. 50,000/- holding the same to cover up various discrepancies.
3) Other / consequential reliefs On the facts and circumstances of the case and in law, and in view of the reliefs prayed for hereinabove, the appellant prays Your Honours to grant such and / or further and / or consequential reliefs, including particulars deletion/reduction of the interest charged under various provisions, as may be deemed fit and as per law."
3.1) Earlier this appeal was dismissed for non-prosecution vide order of even number dated 08/05/2015, which was subsequently recalled vide order in M.A.No. 02/NAG/2017, dated 24/11/2017.
4. Ground No.1 relates to disallowance of commission expenses of Rs. 96,82,058/-.
4.1.1) In this ground (supra), the assessee assails the order of the ld. CIT(A) in upholding the disallowance of commission expenses amounting to Rs. 96,82,058/- by relying on the 6 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) statements made at the time of survey under section 133A of the Act in absence of any cogent/corroborative material. It is submitted that considering the facts of the said statements, which had been retracted on 16/01/2007 and also the fact that the assessee had not been afforded opportunity of cross-examining Shri Gopal Ramorti, Director of M/s. Litaka Pharmaceuticals Ltd. on his statement dated 30/10/2006, the disallowance ought not to have been confirmed. According to the ld. AR for the assessee, in identical factual circumstances in the case of the assessee's sister concerns, who were surveyed under section 133A of the Act at the same time, wherein similar disallowances of commission expenses were made, the ITAT, Mumbai 'J' Bench in its order in ITA No. 33/NAG/2011 in the case of M/s. D.S. Agencies & Associates and ITA No. 34/NAG/2011 in the case of M/s. Usha Distributors dated 04/09/2015 has considered and decided this issue in favour of the assessee and against the Revenue. It is submitted by the ld. AR that in view of the aforesaid decision of the ITAT, Mumbai 'J' Bench in the case of assessee's associate concerns (supra) on identical facts and issues for the very same Assessment Year 2006-07, the assessee's appeal on this issue should be allowed. 4.1.2) In support of the aforesaid contentions that the statements recorded in the course of survey have no evidentiary 7 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) value, the ld. AR placed reliance on the following judicial pronouncements:-
i) CIT vs. Khader Khan Son [(2013) 352 ITR
480(SC)]
ii) CIT vs. S. Khader Khan Son [(2008) 300 ITR 157
(Madras - HC)]
iii) Paul Mathews & Sons vs. CIT [(2003) 263 ITR 101 (Kerala - HC)]
iv) Pullangode Rubber Produce Company Ltd. vs. State of Kerala [(1973) 91 ITR 18] 4.1.3) The ld. AR also placed reliance on the following judicial pronouncements in support of the assessee's contention that relying on the statement of third party without providing assessee an opportunity for cross-examination, is bad in law:-
i) M/s. Andaman Timer Industries vs. Commissioner of Central Excise (Civil Appeal No. 4228/2006, dated 02/09/2015)(SC)
ii) M/s. CIT vs. M/s. Ashish International (ITA No. 4299/2009, dated 22/02/2011) (Bombay - HC) 4.1.4) Reference was also invited to CBDT Circular F.No. 286/2/2003-IT (Inv.), dated 10/03/2003 to submit that CBDT has discouraged attempts to obtain forced confession of additional income during the course of search and seizure and survey operations which are not based on credible evidence. 8 ITA No.32 /NAG/2011
(M/s. Kiran Agencies) 4.2) Per Contra, ld. Departmental Representative for the Revenue has placed reliance on the finding recorded in the orders of the authorities below to submit that the impugned order of the ld. CIT(A) ought to be upheld on this issue, as it is based on the statements recorded in the course of survey proceedings. It is submitted that the retraction by the partner of the assessee firm vide letter dated 16/01/2007 is only an afterthought and, therefore, ought not to be relied upon.
4.3.1) We have heard the rival contentions, perused and carefully considered the material on record; the statements of Shri Kiran Somalwar, partner of the assessee firm have been recorded on 28/11/2006 in the course of survey; Shri Kiran Somalwar's statement dated 29/11/2006; the letter of retraction dated 16/01/2007 of Shri Vijay Wasudeo Somalwar another partner in the assessee firm- M/s. Kiran Agencies; the judicial pronouncements cited including the decision of the ITAT, Mumbai 'J' Bench in the case of the assessee's associate concerns M/s.D.S. Agencies & Associates and M/s. Usha Distributors in ITA Nos. 33 & 34/NAG/2011, dated 04/09/2015.
4.3.2) As per the facts that emerge from the record, the question for adjudication before us is whether a statement made during the course of survey proceedings under section 133A of the 9 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) Act on 28 & 29/11/2006 can alone for the basis of assessment without any cogent and corroborative material being brought on record to establish the same. On a perusal of the judicial precedents placed before us, we find that the identical issue on identical facts for the same Assessment Year 2006-07 based on the very same statements dated 28 & 29/11/2006 of the partners of the assessee firm and retraction thereof vide the letter dated 16/01/2007 was considered at length by the ITAT, Mumbai 'J' Bench in the case of the assessee's associate concerns M/s. D.S. Agencies & Associates and M/s. Usha Distributors and in its order in ITA Nos. 33 & 34/NAG/2011 dated 04/09/2015. The Tribunal after considering the identical factual matrix, decided the issue in favour of the assessee and against the revenue by holding as under at para Nos. 10 & 11:-
"10. We have considered the rival submissions, the facts on record before us and various judicial pronouncements referred to by the Ld. AR. We first refer to relevant queries and answers to of the statement recorded on 28.11.2006. In reply to question no. 8, partner of the assessee replied that that the commission charges paid to M/s. Litaka Pharmaceuticals Ltd were not genuine and no services were rendered by the said company and these were only book entries. In the second statement recorded on 29th Nov. 2006, in reply to question no. 2, the partner of the assessee reiterated the commission was bogus and these were only accommodation entries.
10.1 We note that vide letter dated 16.01.2007 exhibited at page no. 64 to 66 of the paper book, No 1, filed by the assessee, Shri Vijay Wasudeo Somalwar partner in assessee retracted the statements recorded on 28th and 29th Nov. 2006 exhibited at 10 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) page no 64-66 of paper book No.1. The retraction letter is reproduced as under:-
Ref. No Dated 16-01-2007 BEFORE THE DEPUTY DIRECTOR OF INCOME TAX (INV) UNIT IV(3), MUMBAI IN THE MATTER OF: KlRAN WASUDEO SOMALWAR KlRAN AGENCIES 51, GNEREAL MERCHANT MARKET.
GANDHIBBAG, NAG PUR
PAN:AADFK8570A
REFERENCE: Survey u/s 133A conducted at our branch
office at A-40, Kalayaji Morarjee
Warehousing Ltd.
Prem Estate J Mazqoan, Mumbai-400010
Dear Sir,
With reference to survey conducted & statement recorded of Mr Kiran asudev Somalwar partner of M/s Kiran Agencies on 28.11.2006 & again recorded on . 29.11.2006, I the undersigned partner of Kiran Agencies wish to state as under in view of Mr. Kiran W Somalwar out of India as of date & shall be available after 01/02/2007.
1. That the officers and the staff of the Income Tax Department (survey team) entered our branch office situated at A-40, Kalyanji Morarji Warehousing Corporation Pvt Ltd, Santa Savta Marg, Mustafa Bazar, Mazagaon, Mumbai 400010 to conduct survey u/s. 133A of the Income Tax Act, 1961 at 10.30 a.m. on 28th Nov. 2006, Tuesday and conducted survey at 10.30 p.m. at night. That Mr. Kiran M. Somalwar is a diabetic patient and survive on insulin. As the survey team was in our office till 11.00 p.m. he was fully exhausted.
2. That the official of the survey team carried out extensive verification of our books of accounts J records etc to find out any irregularity, errors or concealment of our income and no discrepancies were found in the books of accounts nor in the stock In the course of sur.vey he was cooperating though he was extensively tired and exhausted.
3. The survey team has recorded his statement again on 29th November, 2006 at Income Tax Office and his statement was recorded u/s 131 of the Income Tax Act, 1961. Both the statements were recorded under coercion.
4. That the survey team and the officers put undue pressure & misguided him and compelled to confess the commission paid to Litaka Pharma Limited recorded in the books of accounts of the firms namely M/s Kiran Agencies, M/s Usha Distributors, M/s DS Agencies & Associates as non-genuine and bogus in his statement recorded on the day of survey on 28th November, 2006 and again on 29th Nov. 2006. He was not at all in a proper state of mind due to 11 Income tax executives in our office threatening him of dire consequences like raid & search at our Nagpur office & residence.11 ITA No.32 /NAG/2011
(M/s. Kiran Agencies) Our mother who is 82 years old is diabetic & cardiac patient could not have stood of even hearing the news of raid. Hence we wanted to avoid it at all cost & decided to concede to all the demands as the Survey team to begin with.
5. That the firms have not paid any bogus commission to any party whomsoever. Thus all the contents of the said statements taken on 28th and 29th November, 2006 are not factual. Each and every claim of commission is genuine and incurred for the purposes of business against the services rendered by the recipient.
6. I am therefore constrained to retract the same in view of his mental state then which pleas accept The contents of the said statements should be treated as binding on us or the said firms. That all the commission is paid through account payee cheques & the same was accepted by the parties. That M/s. Litaka Pharmaceuticals has nowhere mentioned that the commission paid was bogus & nor they have mentioned that the commission paid is not genuine. We have deducted & paid TDS & also paid service tax on the commission paid.
7. Therefore we hereby request that you may send inferences of your investigations to competent income tax authorities for their assessment at Nagpur as we are assessed at Nagpur. We shall pay all the income taxes that would be determined by the income tax authority at Nagpur after the assessment
8. May we request you to do the needful to the bet mutual interest and remain obliged.
Thanking You For Kiran Agencies (Vijay Wasudeo Somlwar) Partner 10.2. The facts of the case are res ipsa loquitor to the extent that assessee made statements which was recorded u/s 131 during the course of survey u/s 133A and retraction of the said statements as referred to above meaning thereby that statements recorded made on 28th and 29th Nov. 2006 u/s 131 stand withdrawn the various allegation -undue influence, coercion and pressure by the survey team. Now the issue before us for adjudication is whether a statement made during survey proceedings can solely form the basis of assessment without any cogent and corroborative material being brought on record to strengthen the said statement. The assessee referred to various judicial rulings in support of its case by arguing that the statement made u/s 131 has no evidentiary value and the consequent disallowance/ addition is uncalled for.
10.3 The Hon'ble Supreme Court in the case of CIT Vs. Khader Khan & Sons [2013] 252 ITR 480 (SC) affirmed the decision of 12 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) Madras High Court in the same case i.e. CIT Vs. Khader Khan & Sons [2008] 300 ITR 157 (Mad), thereby dismissing the appeal in view of the concurrent finding of fact. The Hon'ble High Court in the case of CIT Vs. Khader Khan & Sons (supra) has held that in view of the scope and ambit of material collected during the course of survey action u/s 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the assessee firm that disclosed income was assessable as lawful income of the assessee.
10.4 In the case of Paul Mathew & Sons Vs. CIT 263 ITR 101, the Hon'ble Kerala High Court, has gone into the evidentiary value of the statement recorded u/s 131 during survey proceedings u/s 133A and statement recorded u/s 132 (4) of the Income Tax Act. In the said decision it has been held that section 133A enables the income tax authorities to record any statement of any person which may be useful but does not authorize taking any sworn statement. On the other hand, the Hon'ble High Court finds that such a power to examine a person on oath is specifically conferred on authorized officer only u/s 132(4) of the income tax act in the course of any search and seizure. Thus, the Income Tax whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been specifically provided whereas section 133A does not empower the AO to examine any person on oath. On the other hand, whenever the statement recorded u/s 133A of the Income Tax Act, it is not given any evidentiary value obviously for the reason that officer is not authorized to administer the oath and to take any sworn statement which alone has evidentiary value as contemplated under law.
10.5 In ITA No. 4698/Mum/2006, for assessment year 2003-04 the Mumbai Bench of Tribunal in the case of DCIT Vs. Prem Sons held that without any material to correlate the additional income surrender during the survey u/s 133A, addition cannot be made when surrender is retracted.
10.6 Further it was held in the case of Pullangod Rubber Produce Company Ltd. Vs. State of Kerala [1973] 91 ITR 18 (SC), that an admission is an extremely important piece of evidence but it cannot be said that it is a conclusive and it is open to person who made the admission to show that it is incorrect.
10.7 Vide CBDT Circular F.No. 286/2/2003/IT-(Inv.) dated 10.03.2003 it has been made clear that no attempt should be made to obtain confession as to the undisclosed income and the addition should be made only on the basis of material gathered during the course of search & survey thereby issuing instruction to 13 ITA No.32 /NAG/2011 (M/s. Kiran Agencies) the Department that no addition can be made or sustained simply on the basis of statement recorded during survey/search. In other words, in order to make any addition on the basis of surrender during search or survey, it is sine qua non that there should be' some other material to correlate undisclosed income with such statement.
11. In view of the above judgment of Hon'ble Supreme Court and Hon'ble Courts and in view of the CBDT Instruction (supra), Section 133A of the Act does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement cannot by itself, be made the basis for addition unless the Assessing Officer has corroborative material in hand to make such addition. We also note the statement of third party has been relied upon against the assessee without affording cross examination of that party despite the assessee specifically asking for that which is not permissible under law. The principle of audi alteram partem requires that no person should be condemned unheard. In this the Assessing Officer did not allow the assessee to cross examine Mr Gopal Ramourti which is against spirit of law. In the case before us, the Assessing Officer has made addition purely on the basis of statement made during the course of survey u/s 133A, which was later on retracted by the assessee, therefore, we are of the considered view that any addition made on the basis of these statements is without any basis and deserves to be deleted as there is no corroborative materials on record. It seems that addition has been made merely on the basis of statement/presumptive basis and no corroborative material has been brought on record. Presumption cannot take the shape of evidence, however, strong it may be. It is also noted that the statement on oath, claimed to be recorded from Shri Kiran Wasudeo Somalwar (page-53 of the paper book no.1], neither bears the signature of the deponent nor of any officer, thus, in our view, its evidentiary value is also under cloud. Thus, this ground is, therefore, allowed in favour of the assessee."
4.3.3) Respectfully following the decision of the ITAT, Mumbai 'J' Bench in the case of the assessee's sister concerns M/s. D.S. Agencies and, M/s. Usha Distributors in ITA Nos. 33 & 34/NAG/2011, dated 04/09/2015 (supra), we allow this ground No.1 in favour of the assessee.
14 ITA No.32 /NAG/2011
(M/s. Kiran Agencies)
5. Ground No.2 relates to ad hoc disallowance of Rs.50,000/-
5.1) In this ground, the assessee had challenged the impugned order of the ld. CIT(A) in upholding ad hoc disallowances restricted to the extent of Rs.50,000/- in respect of ad hoc disallowances made by the Assessing Officer of Transport expenses of Rs. 1,00,000/-; Sales Commission of Rs. 50,000/-; Travelling Expenses of Rs.1,00,000/-; Transportation Charges of Rs.1,00,000/- and Guest House Expenses of Rs. 2,94,200/-, for want of supporting bills / vouchers/ evidence. Since, this ground was not urged before us in appeal proceedings, this ground No.2 is dismissed as not pressed.
6. Ground No.3 being general in nature, no adjudication is called for thereon.
7. In the result, assessee's appeal for Assessment Year 2006-07 is partly allowed.
Order Pronounced in open Court on this 11th day of July, 2018.
Sd/- sd/-
(SANDEEP GOSAIN) (JASON P. BOAZ)
Judicial Member Accountant Member
Dated : 11 t h July, 2018.
15 ITA No.32 /NAG/2011
(M/s. Kiran Agencies)
vr/-
Copy to:
1. The Assessee - M/s. Kiran Agencies, 51, General Merchants Market, Fawara Chowk, Gandhibagh, Nagpur.
2. The Revenue - The Addl.CIT, Aayakar Bhavan, Civil Lines, Nagpur.
3. The CIT
4. The CIT(A)-II, Nagpur.
5. The D.R., Nagpur.
6. Guard file.
By order (VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Nagpur (on tour).