Income Tax Appellate Tribunal - Chandigarh
Shri Manu Jain, Ludhiana vs Dcit, C-Vii, Ludhiana on 30 September, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "एकल सद यीय', च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH 'SMC' CHANDIGARH
ीमती दवा संह, या#यक सद य
BEFORE: SMT. DIVA SINGH, JM
आयकर अपील सं./ ITA No. 1096/CHD/2017
नधा रण वष / Assessment Year : 2009-10
Shri Manu Jain, बनाम The DCIT,
56-C, Udham Singh Nagar, VS Circle-VII,
Ludhiana. Ludhiana.
थायी लेखा सं./PAN No: ADOPJ6470C
अपीलाथ /Appellant यथ /Respondent
नधा रती क! ओर से/Assessee by : Shri Tej Mohan Singh, Proxy
Counsel for Shri Gaurav Sharma
राज व क! ओर से/ Revenue by : Shri Manjit Singh, CIT (DR)
सन
ु वाई क! तार&ख/Date of Hearing : 12.09.2019
उदघोषणा क! तार&ख/Date of Pronouncement : 30.09.2019
आदे श/ORDER
Th e present appeal has been filed by the assessee assaili ng the orde r date d 28.04.2 017 of CI T( A)-4 Lu dh iana pertaining to 2009-10 assessment year on the following grounds :
1. The ld. CIT (Appeals) failed to appreciate the fact that the addition of Rs. 619453/-on account of commission paid is unjustified, illegal and arbitrary.
2. C I T (Appeals) failed to appreciate that out of total commission of Rs.
2182476/- paid to seven persons only the commission of Rs. 619453/- paid to two persons were disallowed merely on the ground of inability of the appellant to personally produce these two persons before the Ld. Assessing Officer at the time of assessment proceedings.
3. Ld. C I T (Appeals) failed to appreciate the fact that the addition was made without considering the evidences submitted by the appellant during the assessment lings and without taking recourse of issuing notice u/s 131 of the Income Tax Act, 1961, to these persons.
ITA 1096/CHD/2017 A.Y. 2009-10 Page 2 of 13
4. The appellant craves leave to add, amend, alter, vary and/or withdraw all or any of the abov e grounds of appeal.
2. At the time of hearing, no one was present on behalf of the assessee and an adjournment application was moved. Mr. Te j Mohan Singh as Proxy Counsel for the argu ing cou nse l. However, it was seen that detailed submissions of the assessee stand extracted in the impugned order itself. Accordingly, it was deemed appropriate to proceed with the appeal on the basis of material available on record. In the circumstances, the adjournment request was passed over re quiring the par ties e specially the ld . CI T-DR to ad dress the record.
3. In the se cond r oun d, the ld . CI T-D R was heard . He was specifically required to go through the detailed submissions extracted in the order and address his submissions justifying the order passed where the facts had not been up set. The ld. CI T-D R vehe me ntly relyin g u pon the or der of the CI T( A) dre w speci fi c atte ntion to the f in di ngs arrived at in pages 39-40 in para 6.3. Referring to these observations, it was his submission that the assessee despite having been aff orded more than adequate opportu ni ty by the CI T(A ) f ailed to produce the commission agents and infact expressed its categoric helplessness in not being able to produce the said parties. I n these circumstances, it was his submission that ITA 1096/CHD/2017 A.Y. 2009-10 Page 3 of 13 rejecting the ad jour n me nt application, the addition su stained by the CI T( A) may be sustained .
4. Th e submissions of the ld. CI T-DR have been considered. In view of the fact that facts are already available on record, the ad jour n me nt request moved on behalf of the assessee was rejected and, it was deemed appropriate to proceed with the appeal ex-parte qua the assessee appellant on merits.
5. I have heard the submissions and pe rused the material on record. Before adverting to the facts to which attention of the ld. C I T- D R was specifically invited which demonstrated that the order could not be upheld, it would be appropriate at first to refer to certain other relevant facts from the record.
5.1 Th e assessee i n the ye ar under consi de rati on, it is see n, is shown to be trading in pharmaceuticals and has returned an income of Rs. 30,75,510/-. The assessee, in the course of the scrutiny proceedings was required to justify its claim of commission expenses amounting to Rs. 21,82,476/- debited to its Profit & Loss Account.
5.2 Th e asses see's par ty-wise cl aim of commi ssi on e xpenses have been tabulated by the AO in the order in the following manner :
ITA 1096/CHD/2017 A.Y. 2009-10 Page 4 of 13 S.No. Name of the person Amount of commission paid
1. Sh. Amrit Pal Singh Rs. 3,11,746/-
2. Sh. Rozer Tandon Rs. 3,26,564/-
3. Sh. Neeraj Aggarwal Rs. 3,16,598/-
4. Sh. Mohit Papneja Rs. 3,07,396/-
5. Sh. Niranjan Kumar Rs. 3,00,719/-
6. Sh. Abhay Pal Jaswal Rs. 3,01,501/-
7. Ms. Shilpi Tandon Rs. 3,17,952/-
Total Rs. 21,82,476/- 5.3 It is seen that the assessee produced 5 out of the above 7 commission agents. Th e i r s t a t e m e n t s w e r e r e c o r d e d b y t h e
AO and the claimed expenses to that extent were allowed.
The assessee, however, failed to produce Shri Abhay Pal Jasw al and Ms. S hilpi Tand on. The AO disallowed the claim of expenses qua these two Agents as he was of the view that since despite opportunity, the assessee failed to produce them, the assessee had not satisfactorily explained the expense. Th e asse ssee car ried the iss ue i n appeal be fore the CI T( A).
5.4 It is seen that be fore the CI T( A) also, the asse ssee reiterated that these two persons since were no longer associated with the assessee, accordingly could not be produced. However, reliance was placed on the supporting evidences on the basis of these it has been argued that relying on similar disallowance the AO has accepted the claim for the five persons, thus similar set of documents, it is seen has been argued for these two parties could not be d isc arded. Th e assesse e rei terated its reply dated 12 .1 2.2011 ITA 1096/CHD/2017 A.Y. 2009-10 Page 5 of 13 made before the AO that "since these persons have lef t the d e a l i n g s wi t h t h e a s s e s s e e , h e n c e t h e s e p e r s o n s c a n n o t b e physically produced bef ore learned A.O. f or recording of their state ments." It was further reiterated that the necessary details in regard to acknowledgement of their return of In come ; thei r PAN nu mber an d TD S Certifi cate etc. alongwith sworn Affidavits of these two persons had been made available to the AO. The record shows that i t was argued that in case the presence of these two persons was considered necessary, the AO having sufficient powers vested in him by the Act by way of Section 131 could direct the presence of these persons. The as sessee, it has been argued had no authority to command their presence. The specific nature of evidences relatable to these two persons namely S h r i A b h a y P a l J a s w a l a n d M s . S h i l p i Ta n d o n h a v e b e e n extracted in para 5 and 6 at page 29 of the order have been noticed. Attention of the ld. CIT-DR was specifically invited to these. The ld . CI T-D R i n the absen ce of any c omme nt in the order assailing these re-iterated that since the parties could not be produced, the claim has been doubted. How and why their Affidavits on record have remained un addresse d cou ld not be resp onded to by the ld. CI T-DR as the orde rs were s ilent on the iss ue. The as sessee as per record, it is seen was also found to have argued facts ITA 1096/CHD/2017 A.Y. 2009-10 Page 6 of 13 claiming specific benefit derived by the assessee as a result of the commission agents including these two persons as brought out in page 30 para 7 of the impugned order. For ready reference, these paras are extracted hereunder for the sake of completene ss :
"4. That learned A.O. was duly provided with their addresses by way of fling of acknowledgment of Income Tax Returns, PAN No., TDS Certificates as well as duly sworn in affidavits of these two persons. Had their personal presence was so necessary, the learned A.O. was well within his power to call these persons by issuing notice under section 131(1A) of the act directing them to personally present for recording their statements, but no such notice was served on these persons in the entire assessment proceedings.
5 That in the case of Shilpi Tandon, she dealt with only one party namely M/s. Medilloyd, Cuttack who confirmed in his letter dated 10.12.2011 that the entire dealing on behalf of the assessee used to be looked after by her and the copy of the confirmation letter was also filed during the course of assessment alongwith the reply dated 12.12.2011, filed against show cause notice dated 05.12.2011. The assessee had made sales of Rs. 1,05,98,400/- to this party on which commission @ 3% was paid. The copy of the Income Tax Return filed by her, copy of duly sworn in affidavit, photocopy of the confirmation letter received from M/s. Medilloyd, Cuttack are enclosed.
6. That in the case of Abhey Pal Jaswal, he was allocated the area of eastern Utter Pradesh wherein he dealt with thirteen parties. The assessee made the sales of Rs.61,75,240/- to these parties through this agent, on which commission ranging from 4-5% was paid. The party-wise details of sales made and commission paid is enclosed. MJs. Matrix Pharmaceuticals, Gorakhpur, MJs. R.K. Enterprises, Gorakhpur, M/s. Swati Drug Agencies, Gorakhpur and MJs. Sharda Medical Agency, Partapgarh, had also issued confirmation letter regarding services rendered by this agent on behalf of the assessee, which were also filed during the course of assessment proceedings alongwith the reply dated 12.12.2011, filed against the show cause notice dated 05.12.2011. The turnover achieved through these four parties amounts to Rs. 47,14,058/- which constitutes 76.34% of the turnover achieved by this person. The copy of the Income Tax Return filed by him, copy of duly sworn in affidavit, photocopy of the confirmation letters received from these four parties are enclosed.
7. That the expenditure of commission was wholly and exclusively for the purpose of business of the assessee, as the assessee was able to boost its turnover from Rs. 718.27 Lac during the assessment year 2008-09 to Rs. 1,058.35 Lac during A.Y. 2009-10, registering an increase by 47.35% which cannot be doubted as the same was duly reconciled with VAT returns during the course of assessment proceedings. The increase in turnover has enabled the assessee to ITA 1096/CHD/2017 A.Y. 2009-10 Page 7 of 13 file its income tax return showing an income of Rs. 30,75,514/- on which income tax of Rs. 9,59,215/- was paid for A.Y. 2009-10 as against income tax return of Rs. 5,08,770/- filed by the assessee for A.Y. 2008-09 on which income tax of Rs. 1,14,557/- was paid. The change in marketing strategy by appointing area wise commission agents, has enabled the assessee to earn income manifold and accordingly pay higher income tax."
(emphasis supplied) 5.5. It is further seen that as per written submissions extracted at page 30 para 8, the assessee had again reiterated that the assessee believed that its burden stood discharged by providing complete addresses of these persons and the other documentary evidences for payment of commission. The assessee in categoric terms submitted be fore the ld . CI T-DR that in case any fur ther e nquiry was required, the AO was at liberty to direct and call for the presence of these persons. For ready reference, relevant paras with all its addendums bringing out these submissions extracted in the impugned order are reproduced hereunder for the sake of completeness:
7. That the disallowance of expenditure on account of "Commission" in aforesaid manner is absolutely wrong, arbitrary and against natural justice, due to the following facts :-
a) The learned A.O. did not issue any summon under section 131(1A) of the act to these two persons for making their personal presence for recording their statements as their complete addresses were available with A.O. When summon itself was not issued to these persons, there was absolutely no question of non-compliance by these persons. The assessee sincerely and honestly delivered its burden by providing complete addresses of these persons and other documentary evidences for the payment of commission.
b) The assessee duly proved the genuineness of the commission paid to these persons by filing during the course of assessment proceedings Income Tax Returns of these two persons in which they had shown ITA 1096/CHD/2017 A.Y. 2009-10 Page 8 of 13 commission as one of their source of income, TDS" Certificates, duly sworn in affidavits given by these persons, names and addresses of the parties & allocated areas in which these persons had rendered their services on behalf of the assessee, nature of work done was also given in their affidavits, party wise details of sales made by the assessee through these persons and even confirmation from the parties to whom these persons had rendered their services on behalf of the assessee. All the payments were made through account payee cheques. Both these persons were genuine and are not related to the assessee. Moreover, there was considerable increase in sales as well as profitability. None of these documents have been rebutted/disowned by the learned A.O. in his assessment order. Rather, same set of documents have been accepted by learned A.O. in case of five out of seven agents.
c) That the learned A.O. has not given any specific findings regarding the non-genuineness of the commission paid to these persons."
(emphasis supplied) 5 .6 The ld . CI T-DR was speci ficall y requi re d to ad dress these su bmissions which have been left unadd re ssed by the CI T(A) . However, in the absence of any discussion thereon, in the order no meaningful argument could be advanced. It is further seen on a perusal of page 35 of the impugned order that the assessee voicing its objections to the AO's comments has specifically submitted that the AO infact did not afford sufficient opportunity and also re-iterated that these were not related parties. It was claimed that these agents had effected sales which had been identified and have been accepted.
5.7 In the case of Ms. Shilpi Tan don her area stood i d e n t i f i e d a s C u t t a c k . Th e s a l e s m a d e b y M s . S h i l p i T a n d o n , an unrel ated per son has bee n confi r me d by the said p ar ty. As noted Ms. S . Ta n d o n is not a related party and the ITA 1096/CHD/2017 A.Y. 2009-10 Page 9 of 13 assessee has no authority to insist that she be present before the tax authorities.
5.8 In the case of Shri Abhay Pal Jaswal, his area has been identified as Eastern U.P., 13 different buyers had been identified. Most of whom have confirmed the sales made through him. Similarly he also is claimed to be unrelated party over whom the assessee by lack of further association had no authority to command his presence. Th e se facts remain unrebutted.
5.9 Th e copies of res pective returns by t hese tw o p ar ties are stated to have been filed alongwith copies of their sworn affidavits. Th e as sessee havi ng no authori ty to c ommand their presence as the parties were unrelated is a consistent stand. The factum of sale and the genuineness of the transactions has not been assailed. The payments have be en made through the banking channels on which TDS has been de ducted and TD S returns had been filed giv in g P AN details etc. For ready reference, these submissions noticed above are extracted at page 35 and 36 in the impugned order are also extracted hereunder for the sake of completeness :
"2.2 At the outset, it is submitted that the assessee was never given an opportunity to further substantiate the expenditure as the show cause notice was issued on 05.12.2011 and the reply to the said show cause was filed on 12.12.2011. On the same day the assessee showed his inability to produce the said agents, however, no further opportunity to prove the genuineness of the transaction was given after that and the order was passed merely within two days after the last hearing.
ITA 1096/CHD/2017 A.Y. 2009-10 Page 10 of 13 2.3 It is submitted that the genuineness of the payments have never been doubted by the Ld. AO as the payments were made through account payee cheques after deduction of the applicable TDS to all the commission agents. Moreover, the said commission agents were not related or sister concerns of the assessee, thus, what is point of making any payment to a non-related persons when not for incurring any expenditure. The Ld. AO has passed the order merely on the basis of non-production of the commission agents and stating that the "assessee did not produce any evidence with regard to the work done by these two persons ". In this regard, it is submitted that the order has been passed so abruptly on non-production of the commission agents that the assessee was never allowed any opportunity to present the same as explained above.
2.4 Now, it is submitted that the total commission incurred for the year has been paid on the sales affected by the commission agents. The impugned two commission agents have also affected sales for the assessee. The one commission agent namely ShilpiTondon has affected the sales made to Medilloyd Pharmaceuticals, Municipal Complex, OMP Square, Cuttak and the other agent namely Abhay Paul Jaiswal has affected the sales made to 13 different buyers. The details of the same depicting the dates on which the sales has been made to the said concerns and the commission incurred on the same along with the sworn affidavit, photocopies of the confirmation letter of Medilloyd Pharmaceuticals, Mis Matrix Pharmaceuticals, MJs R.K. Enterprises, M/s Swati Drug Agencies & MJs Sharda Medical Agency have already been filed before your goodself.
2.5 From a perusal of the above Annexure, it is very much clear that the commission has been paid to the two agents on the sales affected through them. Further, it is for your information that the rates of the commission vary from one case to another based on the nature of the products sold, profit margins on the same and negotiation power of the individuals. The fact that the appellant is engaged in the business of trading sale of drugs and pharmaceuticals and in this line of business, it is a common and well established business practice that agents and middlemen are engaged to handle and promote the sales. In fact the department has itself verified and accepted this fact in the assessee's case wherein 5 commission agents have been produced before the Ld. AO. Thus, the factum of incurring of commission expenses has not been doubted by the Ld. AO from the point of view of business expediency. Now, the only reason making the disallowance is non-production of 2 of the agents. In this regard, it is submitted that even though the assessee could not produce these two persons, however, that does not in any manner lead to a conclusion that the expenditure incurred by the assessee is bogus. It is a fact on record that the assessee has paid commission tathese agents after due deduction of TDS and the same is verifiable from the records before the department in the form of TDS returns filed by the assessee and the PAN of these 2 commission agents. The transactions having been made through regular banking channel is another aspect which cannot be ignored It is also not a case of cash credit where the entire burden is on the assessee to prove the creditworthiness of the parties. Therefore, if at all the AO had any doubt, he was well within his powers to issue summons u/s 131 or call for information u/s 133(6) from the said agents which has not been done. Under these circumstances, it is imperative that the Ld.AO has only acted in a haste and made the addition for the sake of making the disallowance without making any enquiry and verification 5.10 A s n oted, the l d. CI T-DR has re iter ated the fact th at the assessee has failed to produce these two Commission ITA 1096/CHD/2017 A.Y. 2009-10 Page 11 of 13 Agents. Emphasis was laid on the following findings of facts available on record :
".......... It has also been submitted that the assessee has provided complete particulars of the persons to whom commission has been paid and the Assessing Officer could have used his power under the Act to verify the genuineness of commission payments. When asked as to whether the assessee is ready to produce the persons now for verification, the learned AR of the assessee has shown his inability in this regard. It means, the assessee is not ready to produce the persons to whom the commission payments have been made inspite of the fact that he has been allowed opportunity to do so during appellate proceedings. It has also been noticed that no such request has been made during assessment proceedings otherwise the Assessing Officer must have used his powers to call for the persons for verification and to-verify the genuineness of commission payments. It may be noted that the assessee has himself produced five persons out of seven persons to whom commission has been paid and the Assessing Officer has also allowed commission expenses in respect of five persons who were produced. It means, the Assessing Officer was very fare in his approach. I am, therefore, of the opinion that the commission payments to remaining two persons who were not produced cannot be treated as genuine and as such the action of the Assessing Officer does not need any interference."
5.11 Considering the facts as set out hereinabove in detail, I am of the view that in the peculiar facts and circumstances of the case in the absence of any rebuttal on relevant facts na me ly; that S hr i Abhay P al Jas wal a nd Ms. Shilpi Ta nd on were non related parties to whom payme nts had been made throug h ban ki ng channel on wh ich TD S stood de ducted and TDS returns stood filed. Copies of their Income Tax Returns were made available. Sales effected by these agents in specific areas to specific parties has been identified and confirmed by the parties which have been referred to in detail in the submissions extracted from the impugned order, none of these facts and evidences have been assailed by the Revenue. No reason has been set out in the order why these be discarded especially in facts where the assessee ITA 1096/CHD/2017 A.Y. 2009-10 Page 12 of 13 consistently state s that since these parties were no longer associated with the assessee, he had no authority to command their presence. The ir af fi davi ts are avail able on record. In the circumstances, the argument advanced on behalf of the assessee as per record, it is seen is that the assessee was under a bonafide belief that the explanation offered supported by way of affidavits etc. was sufficient, to discharge the burden of proof cast upon him. In case the evidence in the face of assessee's inability to produce the parties with whom the assessee had no further interaction and infact had no authority to command their presence was to be discarded or disbelieved. I am of the view reasons should be available on record. If their presence was so ne cessary, AO could have exercised his powers to summon them. It is seen that neither the evidence is discredited nor the affidavits available on record have been upset. In the circumstances, in the absence of any rebuttal on the evidences on record, the AO, it appears merely ignored these evidences and insisted on the presence of the parties. The said exercise in all fairness cannot be justified. It is not a case that the parties were not available at the addresses provided by the assessee. Th e A O havi ng failed to issue summons or rebut the evidences, in these peculiar facts and circumstances, cannot be said to be justified in making the ITA 1096/CHD/2017 A.Y. 2009-10 Page 13 of 13 addition. The se in firmi ties in the order p asse d have been assaile d b y the assessee in appe al , howe ver, the ld . CI T( A) also not cared to address them and has confirmed the additions solely on the ground that the parties were not produced ignoring the fact that the assessee had no auth ority to command thei r p resen ce. Th e evide nce s re lied upon in support of the claim and the submissions extracted in detail in the impugned order, it is seen have not been assailed or upset. Being satisfied with the explanation advanced for the reasons set out hereinabove, it is directed that the additions made by way of disallowance on account of these two parties i.e. Shri Abhay Pal Jaswal and Ms. Sh il pi Tand on are to be deleted. Said order was pronounced in the Open Court at the time of hearing itself.
6. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 30th
Se pt.,2019.
Sd/-
( दवा संह )
(DIVA SINGH)
या#यक सद य/Judicial Member
"Poonam"
आदे श क! त,ल-प अ.े-षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु/त/ CIT
4. आयकर आयु/त (अपील)/ The CIT(A)
5. -वभागीय त न2ध, आयकर अपील&य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानुसार/ By order, सहायक पंजीकार/ Assistant Registrar