Income Tax Appellate Tribunal - Kolkata
Damodar Prasad Agarwala, Kolkata vs Assessee on 11 May, 2009
आयकर अपीलीय अधीकरण, Ûयायपीठ - " िस" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
(सम¢)Before ौी एस. भी. मेहरोऽा, लेखा सदःय एवं/and ौी महावीर िसंह, Ûयायीक सदःय)
[Before Hon'ble Shri S. V. Mehrotra, AM & Hon'ble Sri Mahavir Singh, JM]
आयकर अपील संÉया / I.T.A No. 1363/Kol/2009
िनधॉरण वषॅ/Assessment Year: 2006-07
Sri Damodar Prasad Agarwal Vs. Income-tax Officer, Wd-45(2), Kolkata
(PAN-ADBPA 7647 P)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
&
आयकर अपील संÉया / I.T.A No. 1558/Kol/2009
िनधॉरण वषॅ/Assessment Year: 2006-07
Income-tax Officer, Wd-45(2), Kolkata Vs. Sri Damodar Prasad Agarwal
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
For the Assessee: Shri R. Salarpuria
For the Revenue: Shri D. J. Shah
आदे श/ORDER
महावीर िसंह, Ûयायीक सदःय:
Per Mahavir Singh, JM/महावीर सदःय
These cross-appeals by assessee and revenue are arising out of the order of CIT(A)- XXX, Kolkata in Appeal No.158/CIT(A)-XXX/Wd-45(2)/2008-09 vide dated 11.05.2009. The assessment was framed by ITO, Wd-45(2), Kolkata u/s.143(3)(ii) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2006-07 vide his order dated 27.11.2008.
2. At the outset, Ld. Counsel for the assessee stated that revenue's appeal is not maintainable in view of the tax effect involved in the appeal. The tax effect involved in the appeal is Rs. 2,81,343/-, which is below the prescribed limit of Rs. 3 lacs by CBDT. The issue now remains before us is that the appeal of the revenue is below the prescribed limit of tax effect in view of the Board's Instruction issued from time to time revising the monetary limits for filing of appeals by the Department before ITAT and other superior courts. The appeal relates to Assessment Year 2006-07 and filed before the Tribunal on 03.09.2009. Since this 2 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07 appeal filed on 03.09.2009, the same will be covered by Instruction No. 3/2011 issued on 09.02.2011 i.e. the revised monetary limit for filing of appeal before ITAT, whereby the CBDT has fixed the limit of Rs. 3 lacs. Hon'ble Delhi High Court in the case of CIT Vs Delhi Race Club in ITA No.128/2008 dated 03.03.2011 has held as under:
"The tax effect involved in the present appeal is Rs.4,65,860/-. As per the recent guidelines of the CBDT, appeal in those cases where the tax effect is less than 10 lacs, are not to be entertained.
This court in the case of Commissioner of Income Tax-III v. M/s. P. S. Jain and Co. being ITA No. 179/1991 decided on 2nd August, 2010 has taken a view that such circular would also apply to pending cases."
In view of the decision of Hon'ble Delhi High Court, the revised monetary limit of Rs. 3 lacs as per Instruction No.3/2011 will apply to pending appeals.
The relevant circular issued by CBDT reads as under:
"INSTRUCTION NO. 3/2011 [F. NO. 279/MISC. 142/2007-ITJ], DATED 9-2-2011 Reference is Invited to Board's instruction No. 5/2008 dated 15-5-2008 wherein monetary limits and other conditions for filing departmental appeals (In Income-tax matters) before Appellate Tribunal, High Courts and Supreme Court were specified.
2. In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on merits before Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified below.
3. Henceforth appeals shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:--
S. No. Appeals in Income-tax matters Monetary Limit (in Rs.)
1. Appeal before Appellate Tribunal 3,00,000
2. Appeal u/s. 260A before High Court 10,00,000
3. Appeal before Supreme Court 25,00,000 It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.
4. For this purpose, "tax effect" means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as "disputed Issues"). However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.
5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect 3 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07 of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the 'tax effect' is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which 'tax effect' exceeds the monetary limit prescribed. In case where a composite order/judgment involves more than one assessee, each assessee shall be dealt with separately.
6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income- tax shall specifically record that "even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction". Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income- tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits.
7. In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value. As the evidence of not filing appeal due to this instruction may have to be produced in courts, the judicial folders in the office of CsIT must be maintained in a Systemic manner for easy retrieval.
8. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect.
a. Where the Constitutional validity of the provisions of an Act or Rule are under challenge, or b. Where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or c. Where Revenue Audit objection in the case has been accepted by the Department.
9. The proposal for filing Special Leave Petition under Article 136 of the Constitution before the Supreme Court should, in all cases, be sent to the Directorate of Income-tax (Legal & Research), New Delhi and the decision to file Special Leave Petition shall be in consultation with the Ministry of Law and Justice.
4 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07
10. The monetary limits specified in para 3 above shall not apply to writ matters and direct tax matters other than Income-tax, filing of appeals in other direct tax matters shall continue to be governed by relevant provisions of statute and rules. Further, filing of appeal in cases of Income-tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.
11. This instruction will apply to appeals filed on or after ........... 2011. However, the cases where appeals have been filed before ............ 2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed.
12. This issues under section 268(1) of the Income Tax Act, 1961."
3. On query from the Bench, the Ld. DR could not point out any of the exceptions as provided in the Circular as under:
(a) that this is a loss case having tax effect more than the prescribed limit, which should be taken into account,
(b) that this is a composite order for many assessment years where tax effect will be more than the prescribed limit as per para 5 of above instructions,
(c) that there is other year pending as disputed on the singular issue,
(d) that in the case of revenue, where constitutional validity of the provisions of the Act or I.T. Rules 1962 are under challenge,
(e) that Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires,
(f) that Revenue Audit Objection in the case has been accepted by the Department and the same is under challenge.
The Ld. DR could not point out any of the exceptions as provided above. Accordingly, this being a tax effect case, we dismiss the appeal of the revenue in limine and as unadmitted.
4. Another aspect of revenue's appeal and the appeal of the assessee is that the issue involved is common and on merits, revenue is in appeal against deletion of Rs.7 lacs and assessee is against confirmation of balance disallowance of Rs.6,25,812/-. For this, the assessee has raised the following ground no.1:
"1.For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in allowing partial relief of Rs.7,00,000/- only, out of total disallowance of expense of Rs.13,25,811/- made in assessment on a/c of brokerage & commission. The action of the Ld. CIT(A) in not allowing the full relief inspite of his acceptance of the services rendered by the brokers as such, was wholly unreasonable, uncalled for and bad in law.
Without prejudice and even otherwise the disallowance of the expense made in the assessment and to the extent confirmed by the ld. CIT(A) were highly excessive and wholly unreasonable."
5 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07 Revenue has raised the following ground:
"1. That Ld. CIT(A) is erred in his decision by part deletion of addition of Rs.7,00,000/- made by the A.O under head Commission & Brokerage."
5. We have heard rival submissions and gone through facts and circumstances of the case. We find that assessee's nature of business is that of supply and trading of Bed Sheets, towels, sarees etc. and he is a retail trader. The assessment in this case was framed by issuing notices u/s. 143(2)(ii) and 142(1) of the Act. Assessee claimed brokerage and commission at Rs.13,25,811/-. Assessing Officer required the assessee to file details and assessee filed list of parties to whom commission and brokerage was paid. The counsels of the brokers appeared before Assessing Officer and all of them were requested by the Assessing Officer to mention the role of broker in the business of the assessee with evidence. All claimed that brokers look after the matter of tenders, filing of tenders, pursuing for tenders, inspection of assessee's goods as well as payment matters. Assessing Officer noted that assessee's turnover increased by about 34% comparing assessment year 2005-06, but decreased by 37% from assessment year 2004-05. Assessing Officer noted that expenses on brokerage and commission increased by 530%. The assessee claimed before Assessing Officer that due to old age of assessee, it has to supply all the items through brokers and for that brokerage is paid. The Assessing Officer disallowed the claim of assessee by stating that assessee failed to establish the payments of alleged brokerage for the purposes of business. Hence, he added back a sum of Rs.13,25,811/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) deleted the disallowance of brokerage and commission at Rs. 7 lacs and confirmed the balance Rs.6,25,811/-. Aggrieved, both came in appeals before us.
6. The Ld. DR before us stated that CIT(A) has allowed the claim of brokerage and expenses to the extent of Rs. 7 lacs without any evidence qua the services rendered by these brokers for helping assessee in the business. He stated that assessee's business is of supply to Railways and for that purpose commission agents are not required and even hit by Explanation to Sec. 37(1) of the Act. On the other hand, the Ld. Counsel for the assessee stated that the assessee has paid this brokerage and commission due to his old age and he could not perform the duties of the business and for that he has engaged brokers for tender, filing of tenders, pursuing for tenders, inspect of assessee's goods as well as collection of payments. He stated that all the AR's of brokers appeared before Assessing Officer to clarify payments of brokerage and commission. He stated that CIT(A) has rightly allowed the claim of assessee to the extent of Rs. 7 lacs but erred in not allowing the claim of assessee to the extent of Rs.6,25,811/-. We after going through the case records find that the brokers have rendered services in respect of 6 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07 tenders, filing of tenders, pursuing for tenders, inspection of assessee's goods as well as for collection of payments. Assessee's turnover is increased in this year compared to earlier year to the extent of 34% and going by the age of the assessee, we are of the view that the payment of brokerage and commission is a necessity for the purpose of business. Even the assessee has deducted TDS on the brokerage and filed details before Assessing Officer. Before Assessing Officer, the claim of the assessee vide reply dated 17.11.2008 was as under:
"As regards increases in Brokerage expenses, please note that I am a 66 year old person, it is not possible for me to see the shop and supply business individually. Previously I used to see the total business individually. In the year 2005-06, I have taken the help of the brokers. So the expenditure has increased drastically but the realization was also good. The details of TDS paid for brokerage is enclosed as per Annexure-E."
7. We find that assessee has been in crisis of health as he has stricken with acute form of Diabetes coupled with hyper-tension and incapacitate him to maintain personal contact with clients, hence, dependence on brokers in these years was there. This restriction of activities of assessee to deal clients, as he has been engaging himself in the past years, compelled absolute reliance on the brokers to mediate on his behalf. Even contention of the assessee is that the Assessing Officer issued notice to these parties asking them to appear before him and notices were duly complied with and parties appeared before Assessing Officer (except M/s. Satvichar Vanijya Pvt. Ltd. (in short SVPL). The assessee claimed that all the brokers are income tax payers and brokerage received by them was duly reflected in their books of account and accordingly, offered the same for taxation while filing their returns of income. We find that apart from above observation only in respect of SVPL, the assessee could not substantiate the commission paid. The Assessing Officer recorded his finding in respect to these parties as under:
"Notice in the name of M/s. Satvichar Vanijya Pvt. Ltd. (total commission Rs.2,97,275/-) was returned by the departmental Inspector with remarks, 'not known'. The assessee was requested to furnish explanation. The A/R of the assessee filed one confirmation letter from M/s. Satvichar Vanijya Pvt. Ltd. But he failed to furnish any evidence to establish their role in the business of the assessee as per their claim. The A/R of the assessee failed to furnish any explanation about non tracing of M/s. Satvichar Vanijya Pvt. Ltd. at the given address. He failed to furnish the current address of the above party. At the same time, he failed to produce the said party to establish his claim."
In the totality of facts and circumstances of the case, we are of the view that the brokers have rendered services for the purpose of assessee's business. Hence, the commission paid is allowable except Satvichar Vanijya Pvt. Ltd. to the extent of Rs.2,97,275/-. Accordingly, appeal of revenue is dismissed and assessee's appeal is partly allowed on this issue.
7 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07
8. Next issue in this appeal of assessee is regarding the order of CIT(A) confirming disallowance of followings:
"i) Rs.1361/- disallowed in the assessment on a/c of demat charges by treating it as personal in nature.
ii) Rs.13,800/- disallowed in the assessment on a/c of purchase of inverter battery by treating it as capital in nature.
iii) Rs.24,427/- disallowed in the assessment @ 10% of Rs.2,44,268/- on a/c of labour charges paid to casual labourers i.e. coolies for loading and unloading, purely on estimate and without any basis on a vague and flimsy ground that the payments were made in cash against self-made vouchers."
9. After hearing rival contentions, in regard to the disallowance of demat charges, the Ld. Counsel for the assessee has not pressed this issue, hence the same is dismissed as not pressed. As regards to disallowance of purchase of inverter battery by treating the same in the nature of capital, we find that the Ld. Counsel for the assessee fairly conceded that the allowance of depreciation on the same will suffice for the justice. Accordingly, we direct the AO to allow depreciation on the same. This issue is partly allowed. In regard to disallowance of labour charges paid to casual labours i.e. coolies, we find that these expenses were incurred for labour payments. The AO as well as CIT(A) has disallowed 10% on estimate basis on the basis that vouchers are self-made and entire expenditure is not verifiable. We find that neither AO nor CIT(A) has pointed out any mistake or any defect in the vouchers, hence disallowance made is without any basis and we delete the same. This issue of assessee's appeal is allowed. In respect to above three issues, the issues are decided in terms of the above direction.
10. In the result, the appeal of the revenue is dismissed and that of assessee is partly allowed.
11. Order pronounced in open court on 30.6.2011.
Sd/- Sd/-
एस. भी. मेहरोऽा लेखा सदःय वीर िसंह, Ûयायीक सदःय
महावी
महावीर
(S. V. Mehrotra) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated 30th June, 2011
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
8 ITA 1363&1558//K/2009 Damodar Pd. Agarwal.
A.Y.2006-07
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT Shri Damadar Pd. Agarwal, C/o Salarpuria Jajodia & Co., 7, C. R. Avenue, Kolkata-72.
2 ू×यथȸ/ Respondent, ITO, Ward-45(4), Kolkata. .
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/CIT, Kolkata
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.