Income Tax Appellate Tribunal - Delhi
Shriram Piston & Rings Ltd., New Delhi vs Department Of Income Tax on 18 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G': NEW DELHI)
BEFORE SHRI RAJ PAL YADAV, JUDICIAL MEMBER
And
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No.5438/DEL/ 2012
(Assessment Year : 2009-10)
DCIT Vs. Shriram Piston & Rings Ltd.
Circle-8(1), Room No.163, 23, K. G. Marg
C. R. Building,
New Delhi. New Delhi.
PAN:AAACS0229G
ASSESSEE BY : Shri R. K. Kapoor, F. C.A,
REVENUE BY :Ms. Y. S. Kakkar, Sr.DR
ORDER
PER T.S. KAPOOR, AM:
This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-XI New Delhi dated 18.07.2012 for the assessment year 2009-10. The grounds taken by the Revenue are as under:
"1. The Ld. CIT (A) erred on facts and in law in allowing the deduction on account of expenditure on dyes for New Model Development Expenses as revenues in nature.
2. The Ld. CIT (A) erred on facts and in law in treating Total Productivity Maintenance Programme (TPM) expenditure and ISO Expenses as revenue in nature.
3. The Ld. CIT (A) erred on facts and in law in allowing the deduction of the whole of commission paid to the agents.2 ITA No.5438/Del/2012
4. The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
2. The brief facts of the case are that during the year under consideration the assessee company was engaged in the business of manufacturing various automotive components viz; Pistons, Pin Rings, Pins, Engine Valves, etc. The return of income declaring an income of Rs.35,50,52,150/- was filed on 30.09.2009. The case was selected for scrutiny through CASS.
3. The Assessing Officer made three additions following the similar additions in earlier years by holding as under:
Expenditure on Dies for New Model Development "3.3 The assessee's submission has been considered. It is pertinent to mention here that the same issue was involved and raised by the Assessing Officer during the assessment proceedings for the A. Y 2007-08 and 2008-09 and after recording the reasons claim of the assessee was disallowed. The decision taken by the Assessing Officer in preceding years is accepted on the basis of reasoning advanced in the assessment order. Accordingly, following the Principle of Consistency as well as to keep the issue alive, as the Department is in appeal, the expenditure on Dies is held to be a capital expenditure based on the same reasoning as was advanced by my predecessor officers in A. Y.2007-08 and 2008-09 and disallowed after providing the depreciation.
3.4 The Disallowance works out ton Rs.83,45,560/- after allowing normal depreciation (1,18,76,693/- less dep. Of 33,31,133/-) 3 ITA No.5438/Del/2012 Expenditure on Total Productivity Maintenance 4.2 The assessee's submission has been considered. These facts were same in previous year i.e. A. Y. 2007-08 and 2008- 09 but then the Assessing Officer disallowed the claim. The decision taken by the Assessing Officer in preceding years is found correct. Accordingly, following the Principles of Consistency as well as to keep the issue alive, as the Department is in appeal, the expenditure on TPM is held to be a capital expenditure based on the same reasoning as was advanced by my predecessor officers in A. Y. 2007-08 and 2008-09.
4.3 Hence, claim of TPM Expenses and ISO 9001 expenses as revenue expenses is disallowed. The amount of Rs.14,41,599/- (Rs.11,53,472/- +Rs.2,88,127) is therefore added to the taxable income of the assessee.
Commission on sales to Govt. Undertakings 5.3 The assessee's submission has been considered and found not tenable as the assessee has only given chart of such expense and has not supported it with other documentary evidences such as copy of agreement with the agents, details of actual services provided by the agents, copy of communications with the agent w.r.t. payment etc. Even if any such agreement exists, the transaction is not beyond doubts. In the case of Lachminarayan Madan Lal vs. CIT 86 ITR 439(SC) it is held that:
"The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as "Commission, assuming there was such payment did not bind the income tax officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made, it was still open to the income tax office to consider the relevant factors and determine for himself whether commission said to have 4 ITA No.5438/Del/2012 been paid to the selling agents or any port thereof was property deductible u/s 37"
5.4 It would be pertinent to mention here that these facts were same in previous years i.e. A. Y. 2007-08 and 2008-09 but then the Assessing Officer disallowed the claim. I fully agree with the decision of my predecessor officers in treating this expenditure as it is not expended wholly and exclusively in connection with the business because these organization make their purchase through a detailed tendering system where no outsider is involved as commission agent. Hence, claim of commission on sales to Government Undertakings and DGS and D amounting to Rs.14,34,216/- is disallowed and added to the total income.
4. On appeal the Ld. CIT (A) deleted the additions made by Assessing Officer by following Tribunal's orders for earlier years in the case of asessee itself. The Ld. CIT (A) has dealt with his findings at page 5 of appellate orders, which are reproduced as under:
"I have considered the submissions of the appellant and facts and record.
Ground no.1 is whether expenditure on new model, new dies costing Rs.93,11,548 is a capital or a revenue expenditure. In this regard the order of the CIT (A) for AY 2007-08 and 2008- 09 in appeal Nos.85/09-10 dated 26/03/2010 and 259/2010-11 dated 09/11/11 has decided the issue in favour of the appellant. Further the Hon'ble ITAT has also given its decision in favour of the appellant. The Hon'ble High Court has affirmed the finding of the Tribunal for AY 1998-99 on the issue.
Respectfully following the order of the Commissioner of Income Tax (appeals) and Hon'ble ITAT and Hon. High Court. I uphold the ground of the appellant and delete the amount of Rs.83,45,560/-.5 ITA No.5438/Del/2012
Regarding ground no.2 on whether TPM and ISO-900 expenses of Rs.58,08,137/- is capital or revenue in nature, the matter has been decided in favour of the appellant by the LD. CIT (A) for AY 2007-08 and 2008-09 in Appeal Nos.85/09-10 dated 26/03/2010 and 259/2010-11 dated 09/11/11.
The issue has also been decided by the Hon'ble ITAT giving its decision in favour of the appellant.
Respectfully following the order of the CIT (A) and Hon'ble ITAT I uphold the ground of the appellant and delete the amount of Rs.14,41,559/-.
Ground no.3 is in respect of commission on sales to Govt. Undertakings. The commission was disallowed as not incurred wholly for the purpose of business. In this regard the Ld. CIT (A) for AY 2007-08 has restricted commission to 4.5% and allowed the difference to the appellant. However, the Hon'ble ITAT for the appellant case for AY 1998-99 and 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08 has allowed the appellant the deduction of whole of the commission paid to the agents.
Respectfully following the order of the Hon'ble ITAT dated 25/02/11. I uphold the ground of the appellant and delete the amount of Rs.14,34,216/-."
5. Aggrieved the Revenue is in appeal before us. At the outset, the Ld. Departmental Representative heavily relied upon the order of Assessing Officer and with respect to the disallowance of commission relied upon explanation 1 to section 37 and argued that the commission expenses were not incurred wholly and exclusively for the purpose of business and, therefore, Assessing Officer had rightly disallowed the same. Reliance in 6 ITA No.5438/Del/2012 this respect was placed on the case of CIT vs. Dr. T. A. Qureshi as decided by Hon'ble Madhya Pradesh High Court as reported at 275 ITR 352.
6. The Ld. AR on the other hand submitted that the issues involved are squarely covered in favour of assessee. He further submitted that issue of expenses of commission was further upheld by Hon'ble Delhi High Court in favour of assessee vide decision dated 16th February 2012 and invited our attention to paper book page 55 to 65 which contained a copy of Hon'ble Delhi High Court's order in this respect. Regarding first two deletions made by the Ld. CIT (A), he relied upon the order of Ld. CIT (A) and argued that additions were made by Assessing Officer only to keep the issue alive as the matter was under appeal.
7. We have heard the rival contentions of both the parties and have gone through the material placed on record. We find that Ld. Commissioner of Income Tax (appeals) on the basis of earlier year order in the case of assessee itself has deleted the additions made by Assessing Officer. The Ld. CIT (A) has clearly dealt with the issue vide his findings reproduced elsewhere in this order.
8. The Ld. Departmental Representative could not produce any adverse decision of higher court in relation to first two grounds of appeal. Therefore, following the Tribunal's order in earlier years in the case of assessee itself 7 ITA No.5438/Del/2012 for which facts and circumstances are similar, we dismiss first two grounds of appeal.
9. As regards 3rd ground of appeal, we find that dispute arose because of certain commission paid by assessee on sales to Govt. Undertakings. The Revenue had taken the above issue to High Court for assessment year 1998- 99 wherein the Hon'ble Delhi High Court has decided in favour of assessee and against Revenue. The operative part of Hon'ble Delhi High Court as contained in par 9 is reproduced below:
"9. The conclusion reached by the tribunal is a finding of fact. The tribunal weighed the evidence before them and on preponderance of possibilities has accepted the claim/ contention of the respondent- assessee. The contention of the Revenue is that the existence of the agency agreement, payment to the agent did not prove and establish that the commission paid was an allowable expense u/s 37 of the Act. However, the contention does not notice that the tribunal has not merely relied on the agreement and the actual payment, but has accepted and agreed that evidence exists to show and establish nature of services actually rendered by various agents at different places throughout India. The order dated 25.02.2011 refers to a paper book filed by the respondent- assessee in support of his contention that the agents were interacting with the State Road/ Municipal Transport Corporation/ Undertakings. It was observed that there was no evidence or material, except suspicion or a surmise that the commission payment, in fact, represents illegal gratification paid to unknown officers and therefore, should not be allowed as a deduction. A factual decision is perverse if the authority has acted without any evidence or on a view of facts cannot be reasonably entertained. A perverse finding is one, if it is arrived at without any material or if it is arrived at or inference is made on material which would not have been accepted or relied upon 8 ITA No.5438/Del/2012 by any reasonable person. It is based on surmises, conjectures or suspicions and is not rationally possible. A factual conclusion is regarded as perverse, when no person duly instructed or acting judicially could upon the record before him, have reached the conclusion arrived at the tribunal/ authority (see CIT vs. S. P. Jain (1973) 87 ITR 370 (SC) ). On the basis of material referred to and the reasoning given by the tribunal it is not possible to hold that findings recorded are rationally illogical, inconsistent with the facts on record or not supported by evidence and material. The appeals are dismissed on the ground that no substantial question of law arises. No costs."
10. In the present case, the Assessing Officer had disallowed the commission expenses holding that the expenses were not supported by an agreement and detail of actual services provided by agents was not available. Whereas we find from the submissions of assessee as noted in the assessment order itself at page 7, that assessee had explained all payments along with copies of agreements. Therefore, facts and a circumstances of the present case are similar to the facts and circumstances as of earlier year in which Tribunal had allowed the expenses and Hon'ble Delhi High Court had upheld the same in favour of assessee.
11. Reliance put by Ld. Departmental Representative on the case law of Dr. T. A. Quershi does not apply to the facts and circumstances of the present case as in that case the assessee was engaged in the profession of a Doctor and during a raid in his house some quantity of heroine was seized and the assessee had claimed loss on account of seizure of heroine. The 9 ITA No.5438/Del/2012 claim of the assessee in that case was not allowed as carrying heroine was not part of business/ profession of the assessee, whereas in the present case the assessee had made payments for its business. In view of the above ground no.3 is also decided against Revenue and is dismissed.
In view of the above, the appeal filed by Revenue is dismissed.
Order pronounced in open court on 31st /10/ 2013
Sd/- Sd/-
(Raj Pal Yadav) (T. S. Kapoor)
Judicial Member Accountant Member
Dated the 31st day of October, 2013
S.Sinha
Copy forwarded to
1. APPELLANT
2. RESPONDENT
3. CIT
4. CIT (A)
5. CIT(ITAT), New Delhi. AR,ITAT
NEW DELHI.