Gujarat High Court
Commissioner Of Inciome Tax I vs Jayco Synthetics Pvt ... on 15 January, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/1050/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 1050 of 2013
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COMMISSIONER OF INCIOME TAX I....Appellant(s)
Versus
JAYCO SYNTHETICS PVT LTD....Opponent(s)
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Appearance:
MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 15/01/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI)
1. Following are the substantial questions of law proposed:-
"[A] Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in confirming the deletion of Rs.61,29,624/- out of a total addition of Rs.63,23,887/- made by the A.O. on account of disallowance of interest payment?
[B] Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in confirming the deletion of Rs.63,61,788/- in respect of addition made by the A.O on account of payment of commission to directors as the assessee failed to prove that the commission paid was for business purpose?
[C] Whether on the facts and circumstances of Page 1 of 6 O/TAXAP/1050/2013 ORDER the case and as per law, the Hon'ble ITAT is right in confirming the deletion in respect of addition made by the A.O. in respect of payment of rate difference of Rs.15,00,000/- as the assessee failed to prove that the same was paid exclusively for business purpose?"
2. Present Tax Appeal preferred by the Department against the order of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated 17.5.2013.
3. We have heard at length learned advocate Mr.Sudhir Mehta for the Revenue. With regard to Question [A], he has relied upon the admission of the Tax Appeal No.726 of 2013 and the decision of this Court in the case of A. Murali and Co.P.Ltd. vs. Assistant Commissioner of Income-Tax reported in [2013]357 ITR 580(Mad), and therefore, this question requires consideration.
4. With regard to Question [B], it concerns with the deletion of sum of Rs.63,61,788/- of addition made by the Assessing Officer on account of payment of commission to the directors.
5. When this issue was challenged before CIT(Appeals), it noted that the two directors were whole time Directors, who did not have time for their Page 2 of 6 O/TAXAP/1050/2013 ORDER own business. After a detailed examination of the issue, the CIT(Appeals) deleted such addition.
6. The Tribunal, having noted an elaborate examination of the issue by CIT(Appeals) held that there was sufficient material on record brought by the assessee including the production of confirmation of various parties on record establishing unequivocally that there was a regular business dealing with the assessee company and such dealing was handled by Mr. Shah, a commission agent of the assessee company. This confirmation certificate and other substantiating evidence led the Tribunal to confirm the findings of CIT(Appeals) and thus both the authorities concurrently held in favour of the assessee.
7. We are of the opinion that decision of both the authorities is based on cogent material available on record which is sufficient to arrive at the conclusion in favour of the assessee.
8. Issue is predominantly based on facts. With no question of law arising, the same deserves no consideration.
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O/TAXAP/1050/2013 ORDER
9. Question [C] pertains to addition made by the Assessing Officer in respect of payment of rate difference of Rs.10 lakhs to Shri Trading Company and Rs.5 lakhs to Parshwanath Corporation totalling to Rs.15 lakhs. Such amount, according to the assessee, was paid as rate difference of the material not supplied to the party by the assessee as per the purchase order placed by both these parties before the respondent. This was claimed as business expenditure in the return of income. However, the Assessing Officer disallowed such claim on the ground that no evidence of claim of damage or of rate difference claimed by the assessee from the party from whom it intended to purchase the material, came on the record.
10. When challenged before CIT(Appeals), it noted that both the parties have placed confirmed orders of Caustic Soda, which the assessee could not procure and could not fulfill the contract. CIT(Appeals) deleted the addition by making following observations:-
"7.3 I have considered the submission made by the appellant and observation of the AO. The fact that the agreements were made with the two parties for supply of goods is evidenced by written agreements and is not disputed by the AO. The contention of the AO is that the appellant would have made corresponding purchase agreements and so in the absence of failure of that party to Page 4 of 6 O/TAXAP/1050/2013 ORDER supply the material it should have charged the rate difference from that party. The appellant has stated it had made the purchase arrangement with its principals mainly IPCL with whom it is doing a much greater business. The IPCL could not supply the material in time and in the meantime the market rate of the goods increased considerably. If the assessee had purchased the material at that rate it would have suffered a greater loss. If it had made a claim on IPCL there was a danger of losing the already existing business and therefore it entered into a negotiated settlement with these two parties and paid the difference which is even less than as compared to the market rate. In view of this reason the explanation given by the appellant is acceptable. Further, this claim is allowable in view of the various decisions relied upon by the appellant viz. Morarilal Ahuja & Sons (supra), National Steel and General Mills Pvt. Ltd.(supra) etc. In view of these reasons the disallowance made by the AO is deleted and this ground of appeal is allowed."
11. The Tribunal concurred with the findings of CIT(Appeals) on the ground that the assessee if had not agreed for payment of negotiated damage, might have suffered greater loss. Moreover, no fault was found by the Tribunal in the finding arrived at by the CIT(Appeals).
12. We do not find any error in such concurrent findings of facts nor is there any reason to interfere with the findings of both the authorities, who have aptly held that the respondent had to fulfill its contract regarding the supply and also noted that the Page 5 of 6 O/TAXAP/1050/2013 ORDER assessee, in anticipation of falling of the prices, had purchased the material and when prices had gone up, it had to reduce the loss. The sale of material to those two parties and the failure on the part of the assessee to fulfill its contract since had not been doubted by any of the parties, we find no perversity in such findings. This question essentially is based on the factual matrix, no consideration further is required.
13. Resultantly, the Tax Appeal is admitted only for considering the following sole substantial question of law i.e. Question [A], reproduced again hereunder:-
[A] Whether on the facts and circumstances of the case and as per law, the Hon'ble ITAT is right in confirming the deletion of Rs.61,29,624/- out of a total addition of Rs.63,23,887/- made by the A.O. on account of disallowance of interest payment?"
To be heard with Tax Appeal No.726 of 2013.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) SUDHIR Page 6 of 6