Delhi High Court
Cit vs Siddartha Trade Links Pvt Ltd on 8 December, 2011
Author: Sanjiv Khanna
Bench: Sanjiv Khanna, R.V. Easwar
4
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : December 08, 2011
+ ITA 1249/2011
CIT ..... Appellant
Through: Mr. Kamal Sawhney, Sr. Standing
Counsel
versus
SIDDARTHA TRADE LINKS PVT LTD ..... Respondent
Through
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporters or not ?
3. Whether the judgment should be reported in the Digest?
SANJIV KHANNA,J: (ORAL)
The present appeal filed by the Revenue under Section 260A of the
Income Tax Act, 1961 (`the Act', for short) is directed against the order of
the Income Tax Appellate Tribunal (the `Tribunal', for short) dated
29.4.2011.
ITA 1249/2011 Page 1
2. The Revenue has raised two contentions/issues before us.
3. The first issue pertains to addition of Rs. 31,26,718/- on account of
failure of the assessee to show justification and explain the nature of cash
discount. This addition was made by the Assessing Officer recording the
following reasons:-
"The reply of the assessee has been considered. It may
be mentioned that Trade discounts are generally allowed on
catalogue prices. Cash discounts are allowed to give an
incentive for prompt payments. These discounts vary from
trade to trade and from place to place. It should be seen that
such discounts are duly accounted for by the assessee. But, in
case of such discounts, the onus is cast on the assessee to ensure
that the price entered in the accounts is "net" and not "gross".
Similarly, the onus is cast on the assessee to substantiate and
prove that full credit for cash discount received has been given
by the assessee. However such onus has not been discharged
by the assessee. The assessee could have discharged such onus
by the other leading evidences by filing confirmations from
those parties who received cash discounts. Nothing of this sort
has been done by the assessee. Under the circumstances, an
amount of Rs. 31,26,718/- is disallowed and added back to the
Income of the Assessee. Penalty proceeding u/s. 271(1) (C) of
the IT Act, 1961 are initiated on this issue for furnishing
inaccurate particulars of Income."
4. The aforesaid addition was deleted by the CIT (A) and this has been
affirmed by the Tribunal. They have accepted the stand of the assessee,
ITA 1249/2011 Page 2
which has been reproduced in the order passed by the CIT (A). For the sake
of convenience we are reproducing the said stand, which reads as under:-
"3.1 The Ld AR stated as below:
The appellant gives cash discount to the customers who
make the payment within 60 days of the raising of the bill. The
accounting practice followed by the appellant is that when a bill
of Rs. 1,00,000/- is raised, the parties account is debited and the
sales account is credited by Rs.1,00,000/-. If the party does not
make payment within 60 days, the accounting treatment
remains unchanged. In case the customers makes payment
within 60 days of Rs. 98,000/- (after availing of the discount),
then the customer's account is credited by Rs.1,00,000/-, and
bank account is debited by Rs.98,000/- and cash discount
account is debited by Rs. 2,000/-. The suggestion given by the
Ld AO to accounting for, on net basis is not practicable as at
the time of raising of the bill, the appellant has no information
as to who were the customers would be making payment within
60 days and hence the suggestions is not justified. Your
reference is invited to p-103/APB-I. In all the cases after
deducting CST /ST the appellant has given 2% discount on
each payment which can be verified from the confirmation of
accounts of M/s Hosiery Linkers."
5. The findings recorded by the CIT (A) and accepted by the Tribunal in
view of the stand of the respondent-assessee are findings of fact. The factual
position asserted by the assessee was not adverted to and examined by the
Assessing Officer in the reasons mentioned above. The Assessing Officer
ITA 1249/2011 Page 3
took a very myopic view and had opined that the assessee should have
followed the "net accounting system" and not "gross accounting system".
Assessee has right to adopt an accounting system of his choice. Interference
is permissible if the accounting system adopted is contrary to the prescribed
accounting standards etc. under Section 145/145A of the Act. No such
finding or justification has been recorded. The Assessing Officer has further
recorded that the assessee had failed to discharge the onus by filing
confirmations, but as per the appellate authorities, the assessee had
submitted the details of the bills and the discount given on prompt payment.
This has not been denied or stated to be factually incorrect. The first ground
fails.
6. The second condition/issue raised by the assessee pertains to payment
of commission to 16 persons. The Assessing Officer disallowed the
commission payment on the ground that the addresses of some of the
recipients were same though the persons/individuals were different. In the
assessment order it is also mentioned that in some cases PAN number or
addresses were not finished. The Assessing Officer had recorded the
following reasons:-
"The assessee company has submitted that commission or
brokerage is being paid to agents, to book orders and take
responsibility of collections or outstanding payment from
ITA 1249/2011 Page 4
customers on our behalf. It has further submitted that these are
all genuine payment and incidental to business. However, the
assessee company has failed to establish by corroborating and
leading evidence as to what actual services were rendered by
them for the business. Onus is cast on the assessee to prove
that an amount claimed as an expenditure was laid out or
expended wholly and exclusively for the purpose of the
business and this has not been fortified and proved/discharged
by the assessee."
7. The CIT (A) confirmed the said addition holding, inter alia, that there
was no material on record to suggest any special job was undertaken to earn
the said commission. But the CIT (A) had accepted that there were
agreements between the assessee and the agents and the fact of actual
payment was established. He disallowed the claim on the ground that the
assessee was not able to prove that payments were allowable as business
expenditure under Section 37 of the Act.
8. The Tribunal, however, deleted the said addition recording as under:-
"14. Before the Ld. Commissioner of Income Tax (Appeals)
assessee submitted as under:-
"In most of the cases sales are effected through sales
representatives / agents. On behalf of the appellant they procure
the sales order, promote new products, follow up collection etc.
For this, commission is paid to such agents. According to
Assessing Officer, no evidence of rendering of service could be
produced. In the remand stage, the Assessing Officer raised the
ground as to why the evidence of commission payment was not
ITA 1249/2011 Page 5
produced during the course of hearing. In reality the appellant
has produced the books of accounts and filed copies of bills
relating to commission. As there was no specific question the
same could not be answered, nevertheless the appellant paid
commission to 16 parties out of which 14 persons are
maintaining their PAN and the appellant has made TDS @ 5.1%
on the said amount and quarterly TDS return is soft form has
been filed evidencing the TDS payment made on such
commission amount."
14.1 Considering the above, Ld. Commissioner of Income Tax
(Appeals) observed that there is no material on record to suggest
that these persons have done special job so that commission is
given which is allegedly claim to be allowable u/s 37 of the Act.
Hence, he proceeded to confirm the disallowance holding that
there is no evidence of rendering the corresponding services by
such persons. Accordingly, he confirmed the Assessing
Officer's action.
15. Against this order the assessee is in appeal before us.
16. Ld. counsel of the assessee has duly submitted before the
Ld. Commissioner of Income Tax (Appeals) that assessee has
specified the purpose in which the commission was given, this
included (i) procuring sales orders, (ii) promotion of new
products and schemes launched, (iii) follow up for collections
from the customers, (iv) collection of C-Forms and other
statutory documents, (v) settlement of accounts with the
customers, (vi) information on competitor activities and (vii) day
to day communication.
16.1 In the paper book, Ld. counsel of the assessee submitted
various documents pertaining to the ledger accounts,
commission paid, bills raised and correspondence with the
parties to whom commission has been paid.
ITA 1249/2011 Page 6
17. We have heard the rival contentions and perused the
records. We find that in view of the voluminous evidence
submitted by the assessee in this regard, it cannot be said that
assessee, as failed to establish that there was no evidence of
rendering the corresponding services by such persons. We find
that assessee has duly submitted various documents pertaining to
ledger accounts, commission paid, bills raised and
correspondences in this regard. The services provided have also
been duly explained. It is a settled law that revenue authorities
cannot sit into the shoe of the businessman. In this regard, we
place reliance upon the decision of the Hon'ble Apex Court in
the case of CIT, Bombay Vs. Walchand and Co. Private Ltd. in
65 ITR 381, wherein it was held that "in applying the test of
commercial expediency for determining whether an expenditure
was wholly and exclusively for business, the expenditure has to
be adjudged from the point of view of the businessman and not
of revenue". Accordingly, we hold that assessee has duly
established that sufficient services were rendered for the
payment of the commission involved in this regard.
Accordingly, we set aside the orders of the authorities below on
this issue and decide the issue in favour of the assessee."
9. The Tribunal has highlighted that out of 16 parties, PAN number of
14 parties were submitted to the Assessing Officer. The respondent has also
deducted TDS at the rate of 5% and TDS returns was filed. With regard to
the work performed by the agents in paragraph 16 the Tribunal has recorded
the submission of the assessee with regard to the nature of work performed.
It is noticeable that the Assessing Officer did not issue any summons or call
ITA 1249/2011 Page 7
upon the assessee to produce the said agents for examination. Agreements
with agents and actual payments were established. The view taken by the
Tribunal cannot said to be perverse or something which ignores relevant
materials on record or take into consideration irrelevant factors. The view is
plausible and not absurd or based on surmises or conjectures.
The appeal is accordingly dismissed. No costs.
SANJIV KHANNA, J.
R.V.EASWAR, J. DECEMBER 08, 2011 mm ITA 1249/2011 Page 8