Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Circle- 5(3),, Ahmedabad vs Shri Pravin Shripal Jain ,, Ahmedabad on 10 October, 2017
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD सव ी द प कुमार के डया, लेखा सद य एवं महावीर साद, या यक सद य के सम । BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No.162/Ahd/2015 ( नधा रण वष / Assessment Year : 2011-12) Dy.CIT बनाम/ Shri Pravin Shripal Jain Circle-5(3) Vs. 580, New Cloth Market Ahmedabad-6 Out side Raipur Gate Ahmedabad-6 थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAUPJ 0387 R (अपीलाथ& /Appellant) .. ( 'यथ& / Respondent) अपीलाथ& ओर से / Appellant by : Shri Mudit Nagpal, Sr.DR 'यथ& क) ओर से/Respondent by : Shri A.L. Thakkar, AR ु वाई क) तार ख / सन Date of Hearing 26/09/2017 घोषणा क) तार ख /Date of Pronounce ment 10/ 10 /2017 आदे श / O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue whereby the relief granted by the Commissioner of Income Tax(Appeals)-XVI, Ahmedabad [CIT(A) in short] on disallowance of commission amounting to Rs.55,04,422/- paid to M/s.Dishman Pharmaceuticals and Chemical Ltd. (DPCL) vide its order dated ITA No.162/Ahd/2015 DCIT vs. Shri Pravin Shripal Jain Asst.Year - 2011-12 -2- 10/11/2014 relevant to Assessment Year (AY) 2011-12 has been challenged.
2. With the assistance of the Ld. Representatives of the Revenue and assessee, we find that identical issue of payment of commission to DPCL in the AYs 2008-09, 2009-10 & 2010-11 disallowed by the Assessing Officer (AO) on similar facts has been reversed by the appellate authorities. The CIT(A) has followed the decision of his predecessor passed for AY 2008-09 and granted relief to the assessee.
3. In the course of hearing, it was pointed out that similar disallowances carried out by the AO in preceding AY 2010-11 was also reversed by the CIT(A). The Revenue carried the matter before the Coordinate Bench of the Tribunal. The Tribunal after visiting the facts and circumstances of the case in ITA No.452/Ahd/2012 order dated 28/09/2016 sustained the aforesaid relief granted by the CIT(A). The relevant operative para of the order of the Coordinate Bench of the Tribunal is reproduced hereunder for ready reference.
"8. We have duly considered rival contentions and gone through the record carefully. It is pertinent to observe that in order to claim expenditure under section 37(1) of the Income tax Act, the assessee is required to fulfill certain conditions viz. (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36, (c) the expenditure must not be in the nature of capital expenditure or personal expenditure of the assessee, and
(d) expenditure must be laid out or expended wholly and exclusively for the ITA No.162/Ahd/2015 DCIT vs. Shri Pravin Shripal Jain Asst.Year - 2011-12 -3- purpose of business or profession. The expression "wholly" employed in section 37 refers to quantification of expenditure while expression "exclusively" refers to the motive, objective and purpose of the expenditure.
The assessee has relied upon the judgment of the Hon'ble Gujarat High Court in the case of Voltamp Transformer Pvt. Ltd. Vs. CIT, 129 ITR 105 (Guj). This decision was referred by the assessee in his written submissions filed before the ld.CIT(A) and following observations were brought to the notice of the ld.CIT(A).
"So far as the questions of commercial expediency and business need of an organization are concerned, it is not the view point of a revenue officer which should count, but it should be the view of an ordinary businessman dealing with a situation like the one faced by the assessee."
In a similar circumstance, the Hon'ble Delhi High Court had an occasion to examine aspect of commercial expediency considered by a businessman while incurring any expenditure. The Hon'ble Delhi High Court has made the following observations on this aspect in the decision of the CIT Vs. Dalmia Cement Ltd., 254 ITR 377.
"An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how the businessman himself treats a particular item of expenditure. The term "commercial expediency" is not a term of art. It means everything that serves to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the Revenue (see CIT v. Walchand and Co. (P.) Ltd. ; J. K. Woollen Manufacturers v. CIT; Aluminium Corporation of India Ltd. v. CIT and CIT v. Panipat Woollen and General Mills Co. Ltd. . But it must not suffer from the vice of collusiveness or colourable devices."
9. In the light the above, let us examine the facts of the present case. The first reason assigned by the AO while drawing inference that the assessee ought to have not incurred this expenditure is that the assessee has been ITA No.162/Ahd/2015 DCIT vs. Shri Pravin Shripal Jain Asst.Year - 2011-12 -4- selling goods directly to the customers, and from the Asstt.Year 2008-09, it has started giving commission to "DPCL" at the rate 15% to 20%. In response to this objection, the stand of the assessee was that it has incurred expenditure of Rs.39,74,129/- even in the Asstt.Year 2007-08. The expenditure was under the following heads:
i. Brokerage Rs.15,01,624
ii. Sales incentives Rs.1,21,941
iii. Promotional expenses Rs.3,85,000
iv. Commission expenses Rs.12,95,752
v. Business Development expenses Rs.7,69,807
The ld.AO, thereafter pointed out that out of five parties to whom sales were made by "DPCL", the assessee has dealing with three in the past. Therefore, it was not necessary for the assessee to incur this expenditure. He made reference to the case of Modern Terry Towels Ltd., Riba Textiles Ltd. and Chenab Textiles Ltd. The stand of the assessee was that "DPCL" has taken responsibility of recovery of sale proceeds from all the concerns to whom sales were made. Now this is the stage where the assessee has to decide how to conduct his business. If it was not convenient to the assessee to do business directly with certain parties, who might have created some problems in remitting sales or lifting the goods, then how the AO could interfere in persuading the assessee to conduct business in a particular manner. The AO has also pointed out that "DPCL" has not disclosed how it will carry out responsibility of recovering sale proceeds as pleaded by the assessee. Now the stand of the assessee was that whatever asked by the ld.AO, it has been replied. The ld. AO has asked names and address of the persons to whom sales have been made through "DPCL". Copy of the return along with copy of audited accounts were called for. Both these information were supplied by the "DPCL". The AO thereafter drew inference that invoices submitted by the "DPCL" might have not disclosed the nature of services. GP shown by the assessee in the Asstt.Year 2010-11 and 2008-09 are better than the most of the years. GP chart has been placed in the submissions filed before the ld.CIT(A) and it has been reproduced at page no.16. In the Asstt.Year 2004-05, the GP was 16.15% whereas in the Asstt.Yar 2008-09, the GP shown by the assessee is of 25.55%. There is an increase in sales turnover also. Thus, the assessee was able to carry out its business more scientifically. The ld.counsel for the assessee pointed out that payment of commission was not constant at the rate ITA No.162/Ahd/2015 DCIT vs. Shri Pravin Shripal Jain Asst.Year - 2011-12 -5- of 20%, rather it goes on decreasing. In the Asstt.Year 2010-11, it was given at the rate of 15%. In the Asstt.Year 2011-12, it was given at the rate of 10%. Thus, commission was calculated according to the sales and services rendered by "DPCL".
10. No doubt the statement given by the assessee before the AO suffered many inherent deficiencies i.e. the assessee failed to disclose names of directors of "DPCL", and there are other infirmities also, but in our opinion, the intellectual compatibility of the assessee while conducting his income-tax proceedings might not be matching with trained revenue officer, who has examined him. His compatibility is to be seen as to how he has carried out his business activities. The infirmity emerged out while recording statement extempore, would not be of such nature which could falsify the record i.e. details of payments, details of sales etc. Much importance cannot be given to this statement while drawing the inference of the expenditure, whether incurred by the assessee or not. The ld.CIT(A) has appreciated the controversy in right perspective and after analyzing complete details, we do not see any reason to interfere in the finding of the ld.CIT(A).
11. As far as Asstt.Year 2010-11 is concerned, there is no disparity on facts. The ld.CIT(A) has simply relied upon his finding recorded in the Asstt.Year 2009-10 as well as in the Asstt.Year 2008-09. Therefore, we do not find any merit in the appeal for the Asstt.Year 2010-11 also.
12. In the result, both the appeals of the Revenue are dismissed."
4. No material difference on facts of the case as noted for AY 2010- 11 was pointed out in the course of hearing. We also observe from the assessment order that the AO has not accepted the decision of the CIT(A) as Tribunal decision was not available to the AO. Since the issue on identical facts in assessee's own case has been decided in favour of assessee and against the Revenue, we do not intend dwell upon the same ITA No.162/Ahd/2015 DCIT vs. Shri Pravin Shripal Jain Asst.Year - 2011-12 -6- once again. Respectfully following the decision of the Coordinate Bench, we do not find any infirmity in the order of the CIT(A).
5. In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 10/ 10 /2017
Sd/- Sd/-
(महावीर साद) ( द प कुमार के डया)
या यक सद य ले खा सद य
( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 10/ 10 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. 'यथ& / The Respondent.
3. संब6ं धत आयकर आय8
ु त / Concerned CIT
4. आयकर आय8
ु त(अपील) / The CIT(A)-
5. 9वभागीय त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स'या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 03.10.17 (dictation-pad 4-pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...03.10.17
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......10.10.17
7. Date on which the file goes to the Bench Clerk.....................10.10.17
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................