Income Tax Appellate Tribunal - Chandigarh
Ropar Distt. Cooperative Milk ... vs Acit, Mohali on 28 August, 2017
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER &
Dr. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA Nos. 625 & 626/Chd/2017
Assessment Years: 2012-13 & 2013-14
Ropar Distt. Cooperative Milk Vs. The ACIT, Circle 6(1),
Producers Union Ltd., Mohali
Milk Plant,
Mohali
PAN No. AAAAT5977G
(Appellant) (Respondent)
Appellant By : Sh. M.R. Sharma
Respondent By : Smt. Chandrakanta
Date of hearing : 18.08.2017
Date of Pronouncement : 28.08.2017
ORDER
Per DR. B.R.R. KUMAR, AM:
The above captioned appeals have been preferred by the assessee agains t the separate orders of the Commissioner of I ncome Tax (Appeals), [hereinafter referred to as CI T(A)], Chandigarh-2 dated 18.1.2017 and 12.1.2017 respectively relating to the additions made u/s 143(3) of the I ncome-tax Act, 1961 (in short ' the Ac t') by Assessing officer and confirmed by CI T(A).
22. Since the grounds raised and issue involved in both the appeals are identical, the appeals were heard together and are being disposed off by this common order for the sake of convenience.
3. Assessee has raised the following effective grounds of appeal :
" Th at t h e or der of t h e A s se s si n g O f fi cer a s up h el d b y t h e C om m i ssi on er of In com e Ta x ( A p p e al s ) - 2 C h an di ga rh di sal l o wi n g com m i ssi on p ai d b y t h e a p p el l an t am o un t i n g t o Rs . 50, 0 8, 3 72 /- t o ot h e r c o op erat i ve s oci et i es af t er de d uc t i n g t a x at s o ur ce t h ro u gh b an k i n g ch an n el s cl ai m ed a s b usi n e ss exp en di t ur e i s b ad i n l a w an d n ee d s t o b e set a si de. "
4. Brief facts of the case are that during the course of assessment proceedings, on perusal of Schedule 25 (Financial Expenses) of the P&L Account of the assessee, Assessing Officer observed that the assessee has debited an amount Rs, 50,08,372/- under the head of "Commission paid to Other Unions''. During the assessment proceedings the counsel of the assessee was asked to provide the details of the same and was also asked to justify the same expenses for which the counsel replied as under:
" Th at re ga r di n g t h e p aym e n t of c om m i ss i on /r o yal t y t o Pat i al a Di st ri ct Co o p Mi l k P r od uc er s U n i on Lt d . Mi lk Pl an t Pat i al a at R s. 72, 17, 8 03 /- d u ri n g t h e y ea r u n d er con si der at i on . It i s sub m i t t ed t h at an aff i davi t of t h e sai d Mi l k Un i on i s b e i n g en cl o se d f o r y o u r p er u sal a n d rec or d. It m a y al s o b e s u b m i tt ed h er e t h at t h e ab ov e n ot e d a s s es s ee d u ri n g t h e f i n an ci al ye a r un de r con si der at i on h a s p a i d Rs . 1 0, 21, 6 66 /- t o t h e H o sh i arp ur Di st ri ct Co o p er at i ve Mi l k Pr od uc er s Un i on Lt d ., Ho sh i a rp ur . A c op y of t h e af f i davi t of t h e sai d a s se s see i s b ei n g en cl o sed f o r y o u r p er us al an d rec or d. It i s sub m i t ted t h at t h e regi st ra r co op erat i ve s oci et i es, P un jab vi d e i t s l et t er dat e d 0 4 .11 .1 99 3 h ad al l oc at ed a rea of o p erat i on of t h e a s se s se e a s wel l a s ot h e r m i l k un i on s a n d ac c ordi n gl y ev e ry m i l k un i on wa s re q ui red t o c ol l ect m i l k f rom t h e a rea al l ot t ed t o i t f urt h er . A c o p y o f t h e l et t er i s b ei n g en cl o se d f o r y o ur p er u sal an d re co rd. F u rt h er vi de l e t t er N o. 1 12 4 1 dat ed 0 3. 03 .2 00 9 t h e Pat i al a Di st ri ct Co op Mi l k Un i on s Lt d. a s p er t h e n orm s f i xed rai s ed a dem an d @ Rs . 3 /- p er It r. o n ac c o un t of r o yal t y /c om m i ssi on ch a rg es on t h e m i l k p urch a sed f rom i t s a rea b y t h e ab o ve n ot e d a s se s see . A co p y of t hi s l et t er i s b ei n g en cl o sed f o r y o ur p er u sal a n d rec or d. Th u s i t i s un d er t h i s con si der at i on t h at the a ss e ss ee has p ai d com m i ssi on / r o yal t y t o b ot h t h es e m i l k u n i on s. It m a y 3 al s o b e s ub m i t t ed h er e t h at t h e a ss e s se e h a s al s o ap p oi n t ed t h e P un jab St at e C o op M i l k Pro d uce rs Fe de rat i on Lt d ., C h a n di ga rh a s i t s c on si g n ee age n t f or t h e sal e of va ri o us p ro d uct s i n ot h e r st at es i .e. ot h e r t h an Pu n jab an d com m i ssi on / ro y al t y i s al so b ei n g - p ai d b y t h e a s se ss e e t o t h e P u n jab St a t e C o op Mi l k Pr od u ce rs Fe d. Lt d., Ch an di ga rh . T h e exp en di t ur e t hu s b ei n g i n ci den t al t o t h e b usi n e s s of t h e a ss e ss ee i s al l o wab l e e xp e n di t u re wi t h i n t h e p ro vi si on s of s ect i on 37 of t h e In c om e t a x Act i t m ay b e s ub m i t t ed h ere t h at t h e a ss es se e wh i l e m ak i n g t h e p aym en t of com m i ssi on / r o yal t y h a s d ul y d ed uct e d t h e t a x at s o urc e un d er t h e p ro vi si on of s ect i on 19 4H of t h e In com e T a x Act . I a m en cl o si n g h e re wi t h cop y of t h e F orm 16- A i ss u ed b y t h e ab ov e n ot ed a s se s see . T h e p aym e n t s of t h e c o m mi ssi on h a ve b een m ade t h r o u gh t h e b an k i n g ch an n e l s on l y . Th i s f act i s evi den t f r om t h e p er u sal of t h e cop y of t h e acco un t of t h e ab o v e n ot e d a ss e ss ee . A co p y of t h e a gre em en t of con si gn e e/ co n si gn e r agr eem e n t is al s o b ei n g en cl o sed f or y o u r p er u sal an d r ec or d. A c on f i rm at i on f rom t h e Mi l k f ed i s al s o b ei n g en cl o s ed f o r y o ur p er u sal an d r ec or d" .
5. The assessee has further contended that Tax at Source has also been duly deducted while making/crediting the said payments. The Assessing Officer found the explanation of the assessee is untenable and non acceptable due to the following reasons:
" Se ct i on 37( 1 ) st at es t h at an y e xp e n di t ure n ot b ei ng exp en di t ur e of t h e n at ur e de sc ri b e d i n s ect i on 3 0 t o 36 an d n ot b ei n g i n t h e n atur e of cap i t al exp e n di t ure or p er s on al exp en s e s of t h e a ss es se e, l ai d out or e x p en d ed wh oll y an d excl u si ve f or t h e p ur p o se s of t h e b u si n es s o r p r of e s si on sh al l b e al l o we d i n com p ut i n g t h e i n com e Ch a rg eab l e u n de r t h e h ead b u si n es s o r p r of e ssi on . Ac c ordi n g t o t h i s sect i on , t h e on u s i s on t h e a s se s se e t o p r o ve t h at sa i d exp en di t ur e h a s b een i n cu rr ed ex c l u si vel y an d wh ol l y f or h i s b usi n es s p u rp os e s. Th e ref o re, t h e a ss e ss ee wa s a sk ed t o di sc h a r ge t h i s ob l i gat i on . Ho wev er, t h e a s se s se e h a s f ai l ed t o f u rn i sh an y s uc h d et ai l s wh i ch co ul d s ub st an t i at e i t s cl ai m . It h a s ev en f ai l ed t o di vul ge t h e n at ure of se r vi ces et c. r en der ed b y t h e c on ce rn s t o wh om c om m i ssi on wa s p ai d ex cep t t h e f act t h at p aym en t of c om m i ssi on t o ot h er Mi l k un i on s wa s m ade a s d u ri n g t h e yea r un der c o n si derat i on i t h ad p ro c ur ed m i l k f rom t h e m i l k sh ed a r ea f al l i n g i n t he ju ri sdi ct i on of Pat i al a an d H o sh i a rp ur Mi l k Un i on " .
6. The Assessing Officer further held that for the A.Y. 2009-10 the same issue was discussed reveals that as per letter No. PSF/ACCTTS/A1/2522 dated 30.01.2006 (which was addressed to General Manager Milk Union, Ropar issued by Additional MD of MilkFed}. regarding rates of charges to be levied for use of Verka Trade Mark, it was decided that Trade Mark Charges @ 0.5% on the 4 turnover will be charged instead of high rate of commission w.e.f.
F.Y. 2004-05 and the decision was approved by BOD of MilkFed. As per this order, the assessee was not supposed to make commission payment to Milk Fed. (The Punjab S tate Co-operative Milk Federation Chandigarh) except the payment of Trade Mark Expenses. But in spite of that, it has made huge commission payment to Milkfed. I t is pertinent to mention here that the assessee has also made payment of Rs. l,59,15,481/-on account of "Trade Mark Expenses" to Milkfed during the year under consideration in compliance to the above order of the Addl. M.D. Milk Fed.
7. Holding thus the Assessing Officer disallowed the expenses of Rs. 50,08,372/- under the head "Commission Expenses".
The Ld. CI T(A) has confirmed the addition by following the earlier order of the CI T(A) for the AY 2010-11 in appeal No. 184/13-14 vide order dated 15.10.2014 as under-
6.3 I h av e c on si der ed f act s of t h e i ss u e. Th e ap p el l an t h a s n ot exp l ai n ed a s t o h o w t h e f i n di n gs of t h e A ss e ssi n g Of f i cer reg a rdi n g ser vi ces r en d ere d i n res p ect of t h e com m i ssi on p ai d a re n ot c o rr ect . T h e p l ea t ak en b y t h e ap p el l an t i s t h at TD S h a s b e en de d u ct ed o n t h es e p a y m en t s, doe s n ot hol d wat er si n ce de d uct i on of t a x at so urc e on an y am o u nt do es n ot n ec e ss a ri l y e n t i t le t h e ap p el l an t t o c l ai m t h at am oun t a s exp en di t ur e.
6.3 .2 C om m i ssi on i s an al l o wan c e, rec om p e n se or re wa r d m ad e t o a gen t s, b r ok e rs an d ot h er s f o r af f ect i n g sal e s an d ca rr yi n g o ut b usi n e ss t r an s act i on s. Th e c om m i ssi on i s a f ee p ai d t o a th i rd p a rt y i n exch an ge f or a ssi st an c e i n com p l et i n g a f i n an ci al t ran sact i on . Th e ap p el l an t had cl ai m ed t h at t h e ex p en se s i n cu rr ed a re el i gi b l e f or d ed u ct i on u /s 3 7 of t h e A ct . A s p e r t h e p r ovi si o n s of s ect i on 3 7( 1 ), exp en di t ur e n ot b ei n g i n t h e n at ur e of c a p i t al exp en di t ure o r p er s on al e xp e n s es of t h e ap p el l an t , l ai d out o r exp en ded wh o l l y an d e xcl u si vel y f or t h e p ur p o se s of b usi n e ss o r p rof e s si on i s t o b e al l o we d i n c om p ut i n g t h e i n c om e ch a rg eab l e un d er t h e h ea d " b usi n e ss o r p r of es si on " . A s p e r t h i s sect i on , t h e on u s i s on t h e a ss e ss e e t o p ro ve t h at t h e exp en di t ur e h a d b e en i n cu rr ed wh ol l y a n d e xcl u si vel y f o r i t s b u si n es s p urp o s es . In t h e i n st an t ca se, t he ap p el l an t f ai l ed t o di sch a r ge i t s o b l i gat i on t o s ub st an t i at e i t s cl ai m t h at com m i ssi on exp en se s i n curr ed we r e b o n af i de an d wh oll y an d 5 excl u si vel y f or t h e b u si n es s p urp o se s of t h e ap p el l an t . N ot h i n g wa s b ro u gh t on r ec or d b ef or e t h e As s es si n g Of f i cer or ev en b ef o re t h e un d er si gn ed re g a rdi n g t h e Se rvi ce s ren d er ed t o t h e ap p el l an t b y t h e Mi l k Un i on s, i n l i eu of / wh i ch t h e c om m i ssi on wa s p ai d. Th e A ss e ssi n g Of f i cer h a s ri gh t l y di sal l o we d t h e en t i re com m i ssi on exp en di t ur e an d h er act i on i n t h i s re ga r d i s up h el d . G ro u n d of ap p e al n o . 4 i s di sm i ssed.
7.3 .1 I am i n t otal agr eem en t wi t h t h e deci si on of m y p re dec es s or CI T ( Ap p eal ) on t h i s p oi n t an d i t i s h el d t h at t h e a s se s si n g Of fi cer h a s ri gh t l y di sal l o wed t h e en t i re com m i ssi on exp en di t ur e an d h i s f i n di n gs a re up h el d ."
8. Before us the Ld. AR relied on the order of the I TAT for the AY 2010-11 whereas the Ld. AR relied on the order of the Assessing Officer. On the similar issue the Coordinate Bench of I TAT, Chandigarh in I TA No. 1127/CHD/2014 dt. 23/05/2016 held that "............ the Assessing Officer has also pointed out that as per the order of Additional M.D., Milk Fed., the assessee was not supposed to make commissi on payment to MP, Chandigarh, except the payment of trademark expenses, but still huge commission was paid to the said party. The Assessing Officer has categorically observed that the Milk Fed. has not provided any information to him. The Assessing Officer has also observed that inspite of repeated reminders and requests, the information sought from Milk Fed. was not f urni shed. The only plea taken by the learned counsel for the assessee is that TDS has been deducted and the above parties have shown the commissi on income. Alternatively, the lower authorities submitted that the authorities below have not given sufficient opportunity to the assessee to explain the exact nature of its claim. According to him, the assessee had sufficient evidence to prove that the expenditure claimed by it had been incurred wholly and exclusively for its business purposes. Considering the entire facts and circumstances of the present case, we think it appropriate to set aside the findings of the learned CIT (Appeals) on this issue and remand the matter to the Assessing Officer with a directi on to decide the issue afresh in accordance with law, after affording due and reasonable opportunity of being heard to the assessee. It is also made clear that the assessee is free to produce relevant evidence in support of its claim. We may also add here that the plea taken by the assessee that TDS has been deducted on the disputed payments, is of no consequence, since deduction of tax at source of any amount does not necessarily enable the assessee to claim that amount as expenditure. As we have already observed hereinabove that under section 37(1) of the Act onus is on the assessee, claiming such deduction to establish that such payments were made for services rendered. The mere deduction of TDS is not sufficient to prove that the amount in question was i ncurred wholly and exclusively 6 for the business purposes. We direct the Assessing Officer to pass a speaking order in accordance with law.
9. Since the Assessing Officer and the Ld. CI T(A) hel d that the assessee failed to discharge its obligation to substantiate its cl aim , we respectfull y foll owing the order of the Tribunal (supra) remand the matter to the Assessing Officer with a direction to decide the issue afresh in accordance with l aw and in the light of the Tribunal order dt. 15/10/2014(supra) after affording due and reasonable opportunity of being heard to the assessee. It is al so made cl ear that the assessee is free to produce rel evant evidence in support of its claim.
10. I n the resul t, both the appeal s fil ed by the assessee are allowed for statistical purposes.
Order pronounced in the Open Court on 28/08/2017.
Sd/- Sd/- (SANJAY GARG) (Dr.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 28.08.2017 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR