Income Tax Appellate Tribunal - Ahmedabad
Stallion Laboratories Pvt.Ltd.,, ... vs Department Of Income Tax on 2 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' C " BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1162 & 2145 /Ahd/2013
Asst. Years: 2009-10 & 2010-11
ITO, Wd-8(2), Vs. M/s Stallion Laboratories Pvt.
Ahmedabad Ltd., 8th floor, dev Path Lal
Bunglow, CG Road, Navnagpura,
Ahmedabad.
Appellant Respondent
PAN AACCS6205N
Appellant by Shri Kalpesh Makwana, Sr. DR
Respondent by Shri Ketan H. Shah, AR
Date of hearing: 10/12/2015
Date of pronouncement: 2 / 3 /2016
ORDER
PER Manish Borad, Accountant Member.
These two appeals of the Revenue for Asst. Years 2009-10 & 2010-11 are directed against two separate orders of CIT(A)-XIV, Ahedabad, dated 25.2.2013 & 5/6/2013 respectively. Assessment for Asst. Year 2009-10 was framed u/s 143(3) of the IT Act, 1961 (in short the Act) on 27.12.2011 and that for Asst. Year 2010-11 u/s 143(3) of the Act on 11.3.2013 by ITO, Wd-8(2), Ahmedabad.
2. We first take up ITA No.1162/Ahd/2013 for Asst. Year 2009-
10. Revenue has raised following grounds in this appeal :-
ITA No.1162 & 2145/Ahd/2013 2Asst. Year 2009-10 & 2010-11
1). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.51,40,632/-
made on account of commission expenses not incurred wholly & inclusively for the purpose of business and the Assessee has failed to produce any evidential proof regarding services rendered by such parties.
2). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.
3). It is therefore, prayed that the order of the Ld. Commissioner of Income-
Tax (Appeals)-XlV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.
3. Briefly stated facts as culled out from the records are that assessee is a private limited company engaged in the business of manufacturing and formulation of medicines. It filed its return of income on 17.9.2009 through electronic media declaring total income of Rs.24,80,610/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 19/08/2010 and duly served upon the assessee. During the course of assessment proceedings information was called for by the Assessing Officer about the genuineness of commission expenditure of Rs.51,56,882/- and various details and explanation were submitted by the assessee. However, it partly satisfied the Assessing Officer and so he assessed the income by making addition of Rs.51,40,632/- disallowing commission payment, addition on account of interest of Rs.15,694/- and disallowance of depreciation of Rs.7,626/-.
4. Aggrieved, assessee went in appeal before ld. CIT(A) who deleted the addition on account of disallowance of commission of Rs.51,40,632/- and dismissed the grounds relating to addition on ITA No.1162 & 2145/Ahd/2013 3 Asst. Year 2009-10 & 2010-11 account of interest income being not pressed by the assessee and sustained the disallowance of depreciation of Rs.7,626/-.
5. Aggrieved, revenue is now in appeal before the Tribunal against the action of ld. CIT(A) deleting the addition of Rs. 51,40,632/- on account of commission expenditure which were not incurred wholly and exclusively for the purpose of business.
6. Ld. DR supported the order of Assessing Officer.
7. On the other hand ld. AR relied on the order of ld. CIT(A) and submitted that during the course of assessment proceedings complete details of commission paid to various parties were provided which included the copies of the proof of identity, PAN, confirmation letters, basis of calculation of commission, business provided through these parties, details of TDS deducted and deposited and copies of agreements with some parties and thus all details has been rightly appreciated by the ld. CIT(A) and he has rightly deleted the addition of Rs.51,40,632/- made on account of commission expenses. Ld. AR further submitted that gross turnover for the year under appeal stood at Rs.15.17 crores whereas in the preceding Asst. Year 2008-09 the turnover of the company was at Rs.10.67 crores and, therefore, has been increased of Rs.4.5 crores of sales. Commission expenses have been regularly incurred in previous years also which have been allowed accordingly. Further it was also submitted that net profit of the company has almost doubled from Rs.11.6 lacs in Asst. Year ITA No.1162 & 2145/Ahd/2013 4 Asst. Year 2009-10 & 2010-11 2008-09 to Rs.20.74 lacs in the year under appeal and, therefore, ld. CIT(A) has rightly deleted the impugned addition.
8. We have heard the rival contentions and perused the material on record. We find that ld. CIT(A) has given following finding while deleting the addition of Rs.51,40,632/- -
3.3 Decision I have carefully perused the assessment order and the submissions given by the appellant. The AO has disallowed the commission paid expenditure on grounds, no confirmation filed for Venkata Yamuna Impex and no proof submitted by assessee for services rendered by the parties in question. The AO has given proper opportunity to the appellant and asked for the confirmations from the parties to whom commission has been paid. The show cause for commission paid account of R$. 49,32,229/- has been given. The affidavit dated 29706/2012 filed by Shri Dhaval Shah (AR attended assessment proceedings) saying that no proper opportunity was given and only 7 days were given to file details including certain details to be called from outstation parties. The details which the appellant intended to file for consideration have been filed during the course of appeiiate proceedings and same were sent to the AO for his comments. .
Further, in the assessment order, the AO has relied on following case laws:
(i) Assam Pesticides Vs. CIT [227 ITR 846], Gauhati HC
(ii) CIT Vs. Premier Breweries Ltd. [279 ITR 51 (Ker)
(iii) Bhargav Refrigeration Industries Pvt. Ltd. Vs. ITO [28 TTJ 587], ITAT, Delhi Bench
(iv) ITO Vs. Maddi Laxmaiah & Co. (P) Ltd. [31 ITJ 71 (Hyd] The AO has emphasized that the mere payment by itself does not qualify for deduction in computing the income unless, the necessity for such payment was also shown as for the purpose of business. No recourse to section 40(A) (2) (b) of the I.. T. Act, 1961 has been taken for related parties.ITA No.1162 & 2145/Ahd/2013 5
Asst. Year 2009-10 & 2010-11 On the other hand, the appellant has filed different case laws and distinguished the decision of Swadeshi Cotton Mills Co. Ltd. reported at [63ITR 57 (SC)] and instead relied on the decision of Anupam Synthetics reported at [104 TTJ 119 (Del.)]. The appellant has filed confirmations from the parties, TDS details, full addresses with PA No. and submitted that the commission payment is a usual practice and without the payment of such commission, the conducting of business is not expedient. Therefore, it is claimed that the expenditure incurred is genuine through banking channel and the same has been done as it was necessity of its business. The fact remains that the AO has not proved that this was non-genuine expenditure. The AO also could not extract positive evidences for revenue by recording statements u/s. 131 of the I. T. Act, 1961 of the commission agents to prove that no such services were rendered to the appellant. The full details were on record and the AO could have done the same as he is bestowed with such powers which would have been very much within the Departmental procedure. I have also gone through the copy of each of the appointment letters issued by the appellant company to the commission agents. The specific work or territory of operation is mentioned in such appointment letters. The working of commission to be paid has also been placed on record and gone through the other details submitted and not reproducing for sake of brevity (please see pages 2 to 5 of this order). As regards, specific name of commission agent - M/s. Venkata Yamuna Impex, the appellant has filed a copy of appointment letter appointing M/s. Venkata Yamuna Impex as liaison agent for client named New Heights Pharma Limited, Lagos, stipulating other conditions of their relationship. A copy of debit note of M/s. Venkata Yamuna Impex dated 15/03/2009 addressed to appellant is also filed giving specific details of working of commission. A copy of ledger account giving details about TDS is also filed. A copy of Form No. 16A is also filed. All these details were forwarded to AO for his comments before admitting the additional evidence under Rule 46A. The information submitted by appellant is reproduced in tabular form below:
Sl. Name of the Address P.A.No. Gross TDS Net
No. party commis amount commissio
sion n
1. Allianz Plot No.201, Bapuji AAMFA 99110 10209 88901
Pharma Care Nagar, 3767G
Bhubaneshwar-
771003
2 Amegh B-606, Crystal Plaza, AAGCA 642000 66125 575874
Pharma P. New Link Road, 4614H
ITA No.1162 & 2145/Ahd/2013 6
Asst. Year 2009-10 & 2010-11
Ltd. Andheri(W), Mumbai-
400053
3. Gokul 9, 1st floor, National AJBPS 217462 22464 194998
Traders Chambers, Nr. City 1381E
Gold Multiplex,
Ashram Road,
Ahmedabad-380009
4 Jigna S Shah 121,Manekbaug Society, ANKPS 399932 41192 358740
Nehru Nagar, 7883E
Ahmedabad
5 Sanidh B. 6, 1" Floor, AJBPS 195000 20085 174915
Shah National Chambers, 2294N
Nr. City Gold
Multiplex, Ashram Road,
Ahmedabad 380009
6 Jagumani Plot No. 90, Lane No. 3, AIEPD 262047 26991 235056
Dash Jagannath Vihar, 5322Q
Baramunda,
Bhubaneshwar -751003
7 Spectrum S. No. 1A, 4, ACLPI 214140 22056 192084
Enterprise Ganesh Park 1316K
(Anand Park),
Chinchwadgaon, Pune-
411 033
8 Venkata Plot No. 80, AAFFV 1250000 128750 1121250
Yamuna Kacyam Gardner, B/h. 0754M
Impex Sainikpuri, Secundrabad
-500 894
9 Venus B-603, Corolla AAYPM 100000 10300 89700
International Jewel, Military Road, 2525L
Marol, Andheri
(E), Mumbai - 400059
10 Vijay J. Shah 26/B, Jain ANTPS 880000 90640 789360
Merchant Society, Paldi, 6602C
Ahmedabad
11 Vijay J. Shah 814, Devpath, Nr. Lal AABHS 890000 91670 7983331
(HUF) Bungalow, Off C. G. 4374J
Road, Ahmedabad.
TOTAL 5149691 530483 4619208
ITA No.1162 & 2145/Ahd/2013 7
Asst. Year 2009-10 & 2010-11
- The appellant has been able to discharge its onus [63 TTJ 191 (Del.)] - Instrumed (India) International Vs. ITO and successfully shifted the burden to prove on revenues as has been held in [159 ITR 78 (SC)] - Orissa Corporation. The appellant has also filed relevant judgment to advance its argument in the case of BharatBijIi Ltd. reported at [71 ITD412 (Mum.)]. I am inclined to accept the argument of appellant and rely on the ratio laid down by Hon'ble Gujarat High Court in the case of Rohini Builders .reported at [256 ITR 360 (Guj.)]. The ratio laid down by ITAT, Ahmedabad in the case of Deputy Commissioner of Income Tax Vs. Tyco Valves & Control India (P) Ltd. [(2013) 81 DTR(Ahd) (Trib) 48] is relevant and has been relied, "Assessee having furnished the statement of commission • payment giving the names of the commission agents and the services rendered by them as well as voucher numbers, dates of payments, PANs of the agents, amount of Invoices, rate of commission, etc. and the AO having not found the payment of commission to be bogus payments, deduction thereof Is allowable."
The appellant has submitted copy of appointment letters issued to the commission agents stipulating conditions of their contract, the business plan has been executed and working of commission thereon submitted, indicates that the services have been rendered for appellant's business by these commission agents. In my opinion, the appellant has discharged its onus by filing all possible details including confirmations and TDS and successfully established that the genuine expenditure has been expended for the business purposes. On the other hand, the AO could not gather the positive evidences for the department and taken decision based on presumptions and not on the facts on record. The ground of appeal is accordingly allowed.
9. We find from going through the order of ld. CIT(A) that assessee has submitted complete details of party-wise commission paid, as well as TDS deducted thereon, along with confirmation from ITA No.1162 & 2145/Ahd/2013 8 Asst. Year 2009-10 & 2010-11 the parties, full particulars with PAN and copies of liaison agreement with various parties. It is a general accepted fact that in pharma business commission expenses are incurred for boosting up sales and it is a usual practice. We further find that assessee gross turnover is also increased to 15.17 crores from Rs.10.66 crores in the immediate preceding financial year and profit has also doubled reaching Rs.20.74 lacks in the year under appeal from Rs.11.06 lacs. We therefore are of the view that looking to the nature of business of assessee various details and documentary evidences produced before the lower authorities, increase in sales along with increase in profits and allowability of commission expenditure in previous years, we are of the view that ld. CIT(A) has rightly deleted the impugned addition made by the Assessing Officer disallowing commission of Rs.5140632/- and we find that the same has been incurred wholly and exclusively for the purpose of business and assessee has produced sufficient proof regarding services rendered by these parties. We, therefore, find no reason to interfere with the order of ld. CIT(A) and accordingly dismiss the ground of Revenue.
10. Other two grounds are general in nature, which need no adjudication.
11. Now we take up Revenue's appeal in ITA No.2145/Ahd/2013:
Following grounds have been raised by the Revenue in this appeal- ;
1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowances of Rs.38,43,245/- & of Rs.3,81,930/- made on account of commission and distribution charges, ITA No.1162 & 2145/Ahd/2013 9 Asst. Year 2009-10 & 2010-11 respectively even though the Assessee failed to prove any service rendered by the persons to whom payment is claimed.
2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.2,76,912/- made on account of prior period expenses.
3) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.13,601/- made on account of late payment of employees contribution to Provident Fund u/s.36(1)(va) of the Act.
4). On the facts and in the circumstances of the case: the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.
5). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedahad may he set-a-side and that ot the order of the Assessing Officer be restored.
12. Briefly stated facts are that the assessee is a private limited company. It filed its original return of income on 29.9.2010 declaring total income at Rs.15,81,530/-. Thereafter assessee filed revised return of income on 30.09.2011 declaring total income of Rs.16,03,900/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 21.9.2011 and duly served upon the assessee. After receiving the submissions and various details from assessee assessment was framed on 11.3.2013 assessing the income of assessee at Rs.61,26,790/- after making following additions :-
1) Disallowance of commission & distribution charges Rs.42,32,375/-
2) Disallowance of prior period expenses Rs. 2,76,912/-
3) Disallowance u/s 36(1)(va) Rs. 13,601/- ITA No.1162 & 2145/Ahd/2013 10 Asst. Year 2009-10 & 2010-11
13. Aggrieved, assessee went in appeal before CIT(A) who deleted the additions made by the Assessing Officer.
14. Aggrieved, Revenue is now in appeal before the Tribunal.
15. Ground no.1 of the appeal relates to deletion of disallowance of commission and distribution expenses. After considering the rival contentions and perusing the material on record, we would like to mention that we have already dealt with similar ground for Asst. Year 2009-10 in ITA No.1162/Ahd/2013 above and have dismissed the ground of Revenue vide para no.8 & 9 above holding that the commission expenditure claimed by the assessee was genuine. The issue being similar, we apply the ratio of our above decision to this ground also and accordingly we uphold the order of ld. CIT(A). This ground of revenue is dismissed.
16. Ground no.2 of Revenue's appeal relates to deletion of disallowance of Rs. 2,76,912/- on account of prior period expenses.
17. The ld. DR supported the order of Assessing Officer
18. On the other hand ld. AR relied on the order of CIT(A) and submitted that the expenses of Rs. 2,76,912/- were reported in the audit reports itself. The amount in question relates to expenses incurred by the Rudrapur Branch of assessee. The assessee was having no information about the expenditure in the prior period and ITA No.1162 & 2145/Ahd/2013 11 Asst. Year 2009-10 & 2010-11 the invoices were received and expenditure crystallized during Asst.
Year 2010-11 so the same were rightly claimed.
19. We have heard the rival contentions and perused the material on record. We find that ld. CIT(A) while deleting the impugned disallowance has observed as under :-
3.3 Decision:
I have carefully perused the assessment order and the submissions given by the appellant. This ground is regarding disallowance of prior period expenditure of Rs.2,76,912/-, which is as per Assessing Officer's order page 7 para 4 thereof. Before the Assessing Officer, appellant stated that this expenditure is incurred for the Rudrapur Branch of the appellant and the account is maintained at Head Officer at Ahmedabad. As the invoice was received in the F.Y.2009-10, the expenditure has been claimed in the year under consideration. It is admitted fact that no such expenditure has been claimed in the immediate preceding year. The submission before the Assessing Officer is dated 30.0] .2013 at Paper Book Page 1 para 4 thereof. The details regarding invoices, date wise in tabular form submitted by appellant as per page 5 to 5F vide submission dated 30/01/2013. The appellant relied on the ratio laid down in the judgment of Gauhati High Court in the case of CIT Vs. Nathmal Tolaram [88 ITR 234 (Gauhati)] as well as Calcutta High Court in the case of Sutna Stone & Lime Co. Ltd. Vs. CIT [192 ITR 478 (Ko!)], wherein it is laid down that the liability is ascertained in the year of claim, the same is required to be allowed. The fact remains that the genuineness of expenditure has not been disputed. It is concluded by the AO that the expenditure should have been claimed in A. Y. 2009-10. However, as per facts there is no postponement of liability by the appellant. Having not claimed expenditure in A. Y. 2009-10, the appellant has paid more income tax in A. Y. 2009-10. In view of ratio laid down by Hon'ble Bombay High Court decision in the case of CIT vs. Nagri Mills reported in 33 ITR 681 (Bom), Gauhati High Court in the case of CIT Vs. Nathmal Tolaram [88 ITR 234 (Gauhati)] and Calcutta High Court in the case of Sutna Stone & Lime Co. Ltd. Vs. CIT [192 ITR 478 (Kol), the disallowance made by the AO is directed to be deleted and the ground of appeal is accordingly allowed.
20. From going through the above observations made by ld. CIT(A) as well as going through the facts of the case that these expenses were claimed in the preceding years and the same has not been ITA No.1162 & 2145/Ahd/2013 12 Asst. Year 2009-10 & 2010-11 controverted by the Revenue and looking to the course of business of assessee wherein assessee is having various branches and details of expenses are to be sent to the head office then there remains the possibility that some invoices which pertain to prior period have been received by the head office of the assessee during the year under appeal. As the genuineness of the expenditure has not been doubted we find no reason to interfere with the order of ld. CIT(A) who has rightly deleted the addition made on account of disallowance of prior period expenses by Assessing Officer. Accordingly, we dismiss this ground of Revenue.
21. Ground no.3 relates to disallowance of Rs.13,601/- made on account of late payment of employees contribution.
22. We have heard the rival contentions and perused the material on record. We find that ld. CIT(A) has observed as under while dealing with this ground :-
4.3 Decision:
! have carefully perused the assessment order and the submission given by the appellant. The appellant has relied on various case laws. No case law from jurisdictional ITAT or High Court was produced before the undersigned during the course of appellate proceedings. The proposition by appellant is that if the amount is paid so as to enable it to get deduction u/s 43B, it should be allowed. In my opinion, there are two portion of contribution to PF Account i.e. one part by the employer and another by the employees. The contribution of the employee if not paid before the stipulated date as per provisions under section 36(1 )(va) is not allowable as per plain reading of provisions of income Tax Act, 1961. As regards another portion which is equal contribution by employer on behalf of employee, a liberal view is possible and the appellant can get benefit of doubt. The impugned amount is the contribution of employees towards their PF Account i.e. the amount has been contributed but ITA No.1162 & 2145/Ahd/2013 13 Asst. Year 2009-10 & 2010-11 remained in the account of employer who got enriched at the cost of exchequer. Similar issue has been decided recently by Hon'ble ITAT in the case of LKP Securities Pvt. Ltd. [May, 2013] against appellant. However, the appellant has submitted that the employees contribution were deposited after the due date but the same has been deposited before the due date of fifing of return u/s. 139(1) of the Income Tax Act, and therefore, the deduction should be allowed. The appellant has also relied on several judicial pronouncements which has been mentioned in the written submission of the appellant. Recent judgment of Supreme Court in the case of CIT v. Alom Extrusions Ltd.[2009] 319 ITR 306 is relied. I have gone through this judgment by Hon'ble Supreme Court and find that the benefit of payment u/s. 43B, before due date of filing was available for payment of tax, duty, cess and fee but was not available for any contribution to labour welfare funds (PF - ESIC). As per judgment, the same benefit is now available w.e.f, 01/04/2004 by the amendment by Finance Act, 2003. it has been held that the first proviso to section 43S was curative in nature and, hence, retrospective in operation with effect from 1-4-1988. It is important to note once again that by the Finance-Act, 2003, not only the second proviso is deleted but even the first proviso is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason to hold that the Finance Act, 2003, is retrospective in operation. Moreover, the judgment in Allied Motors (P) Ltd.'s case supra) is delivered by a Bench of three judges, which is binding on the Court. Accordingly, the Finance Act, 2003., to the extent indicated above, is curative in nature and, hence, it is retrospective and would operate with effect from 1-4-1988 when the first proviso came to be inserted. Respectfully following the judgment of Hon'ble Supreme Court and as things stand today, the contribution to PF / ESIC both by employees or employers' contribution towards employees' PF / ESIC are allowable u/s. 43B provided the same are deposited before the due date of filing return of income u/s. 139(1) of the I.T.Act, 1961. Considering all the facts and circumstances and the fact that the payment has been made before due date of filing of return u/s. 139(1) of the Income Tax Act, the disallowance made by the A. O. is directed to be deleted. The ground of appeal is, therefore, allowed.
Looking to the facts of the case,we agree with the view taken by ld. CIT(A) on this ground and we uphold his order on the issue. The ground raised by the Revenue is dismissed.
23. Other two grounds are of general nature and need no adjudication.
ITA No.1162 & 2145/Ahd/2013 14Asst. Year 2009-10 & 2010-11
24. In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced in the open Court on 2/3/ 2016 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 2 / 3 /2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 18/02/2016
2. Date on which the typed draft is placed before the Dictating Member: 25/02/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 2/3/16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: