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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SH. J. S. REDDY & SMT. BEENA A. PILLAI
Date of hearing : 27.01.2017 Date of Pronouncement: 16.03.2017 ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been filed by revenue against order dated 01.08.2012 and 17.08.2012 for assessment year 2007-08 passed by Ld. CIT (A) 15, New Delhi on the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A] has erred in admitting the additional evidence without providing opportunity to A.O. to verify the facts.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in giving a relief of Rs.78,72,763/- out of disallowance of commission of Rs,98,56,324/-. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in applying a rate of commission of 2.36% despite the fact that during the year commission paid to other parties ranged between 1.94%, 2%, 2.04%. 4. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. ITA No. 5692/del/2012
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in his order dated 17.08.2012, passed in consequence to CIT(A)-XV’ order No. 256/11-12 dated 01.08.2012 which was not accepted by the Revenue and a second appeal has been recommended, wherein he has restricted the disallowance from Rs.19,83,561/- to Rs.13,60,965/- out of the total disallowance of commission of Rs. 98,56,324/-.
The appellant craves leave, to add, alter or amend any ground of appeal
raised above at the time of the hearing.
2. The brief facts of the case are as under:
The assessee filed its return of income on 22.10.2007 declaring a total income of Rs.1,82,93,259/-. The case was selected for scrutiny and order, dated 22.12.2009 under section 143(3) was passed completing the assessment at assessed income of Rs.1,55,73,945/-. Thereafter vide order dated 28.09.2010 was passed under section 263 of the Act, Ld. CIT, New Delhi set aside the assessment on various issues, for carrying out necessary verification and cross enquiry to determin true nature and correctness of the issues raised in order passed. In view of the directions of Ld. CIT, notices were issued under section 143(2) to assessee, giving opportunity to plead evidence and argument in support of its claim.
Assessing Officer made addition to income at Rs. 3,17,97,870/- as against the assessed income of Rs.1,55,73,945/-by making following additions:
S.No. Particulars Amount (in Rs.) 1. Arithmetical mistake in addition under the head 1,00,000 Travelling Expenses 2. Disallowance of commission expenditure 98,56,324 3. Disallowance of expenditure under the head Rent 3,60,000 4. Disallowance of interest for non-deduction of IDS 6,22,596 5. Disallowance of investment 2,85,000
6. Addition on account of increase in share capital 50,00,000
Total: 1,62,23,920
Assessing Officer made disallowance of Rs.98,56,324/- on account of commission paid to Gulshan Sugars and Chemicals Ltd., sister concern of the assessee, on the ground that the assessee did not establish reasonability of the payment made to Gulshan Sugars and Chemicals Ltd., and also have not specified any specific services rendered by Gulshan Sugars and Chemicals Ltd., which prompted the assessee to make such payment.
Aggrieved by the order passed by Assessing Officer assessee preferred an appeal before Ld. CIT(A), who deleted the addition made by Assessing Officer.
Aggrieved by order passed by Ld. CIT(A,) the revenue is in appeal before us now.
Ld. DR submits that Ld. CIT(A) has passed the order violation of rule 46A. He submitted that the details advanced by assessee was not verified by Ld. AO and therefore, order passed by Ld. CIT(A) must be set-aside to Assessing Officer. He placed reliance upon order passed by assessing officer.
On the contrary, Ld. AR placed reliance upon the reasoning given by Ld. CIT(A) for deleting the addition in respect of the commission paid to Gulshan Sugars and Chemicals Ltd. Ld. AR submitted that commission paid to Gulshan Sugars and Chemicals Ltd., was Rs.92,33,728/- instead of Rs.98,56,324/-. He submitted that assessee paid interest amounting to Rs. 6,22,596/- to another group company and the sum total of these payments amounted to Rs.98,56,324/-. Ld. AR further submitted that Assessing Officer has not denied the interest paid by the assessee to the group concern; however, he submitted that Assessing Officer has included the said sum by considering it in the commission paid by the assessee.
Ld. AR submitted that assessee was formed in the year 2000-01 as a result of demerger of Gulshan Sugars and Chemicals Ltd. On the merger assessee company took over the manufacturing unit of Bharuch, with all marketing and network remaining with Gulshan Sugars and Chemicals Ltd. He submitted that assessee continued to produce orbital as before the demerger but since it did not have marketing network/arrangement, it took support from Gulshan Sugars and Chemicals Ltd., who had all the India Marketing Network having marketing offices in Delhi, Bombay, Chennai, and that, Bangalore, Hyderabad etc.
Ld. AR submitted that it was for the marketing support advanced by Gulshan Sugars and Chemicals Ltd., that the commission has been paid on the sales since 2000-01. It has been submitted that such commission paid has never been disputed by Assessing Officer in the past assessment years. Ld. AR referred to the findings recorded by Ld. CIT(A) in para 6.2 of his order, which is as under:
“6.1. From the perusal of the above table, it is seen that during the year under consideration the commission of Rs.9,81,428 has been paid to other parties on the total turnover of Rs. 416.16 lacs, whereas to their own sister concern i.e. GSCL commission of Rs. 92,33,728 is being paid for giving the sales of Rs. 3693.49 lacs out of the total turnover of Rs. 7313.60 lacs made by the appellant in the year under consideration. It is further observed that as compared to last year, when the total turnover was to the tune of Rs. 4944.21 lacs, there have been increase in sales by almost 47% (Rs. 7313.63 lacs). This phenomenal increase in sale, in my opinion from the facts and evidences filed is obviously through the sales and marketing network of GSCL. There is no evidence which has been brought on record by the AO to show that the commission paid by the appellant is bogus. Whereas on the other hand the appellant has submitted the details of various services rendered by GSCL through their network as a result of which there is increase in sales as compared to the immediate proceedings years which totally belies the AO's arguments that no services were given by GSCL. 6.2. It is pertinent to mention here that from financial year 2000-01 till 2006-07, the sales are regularly been made through GSCL and commission is also paid and the rate of commission paid as per below mentioned details, are regularly been allowed as an expenses by the department.
Financial Turnover Commission Rate of Order under Year Through Paid to GSCL Commission Section GSCL (Rs. In 143(3)/143(1) Lacs) 2000-01 2118.37 43,16,272 2.04% 143(1)
2001-02 2622.51 60,94,483 2.32% 143(1) 2002-03 3245.18 75,28,579 2.32% 143(3) 2003-04 4057.10 87,11,989 2.15% 143(3) 2004-05 4087.16 86,77,358 2.12% 143(3) 2005-06 31.11 63,540 2.04% 143(3) 2006-07 3693.49 92,33,728 2.50%
Therefore in the circumstances when in the year under consideration no new evidences or facts have been brought on record by the AO then as a matter of consistency principle also, the AO can't take a new stand that the commission on sales made by GSCL is not an allowable expenses. In coming to this conclusion, I rely on the Apex Court's judgment in the case of 'Radhaswami Satsang vs. CIT (193 ITR 321) (SC) and Burgar Paints India Ltd. vs. CIT (266 ITR 98) (SC). 6.3. Therefore in view of the above discussion, I am of the considered view that the AO is not correct in holding that commission paid GSCL on account of sales made by them is not an allowable expense. 6.4. However with regard to the percentage of commission paid it is seen that in the year under consideration the commission paid to the outsider is @2.36% whereas, the commission paid to GSCL is @2.50%. This reason for excess commission of 0.14% paid to GSCL as per the appellant's submissions is that, since the GSCL is giving a huge volume therefore they give more commission. This plea of the appellant of paying excess commission is not acceptable because when the services are available at a commission of 2.36% which is the fair market value than in view of provisions of Section 40A (2)(a), I hold that the commission paid by the appellant to its sister concern i.e. GSCL should be restricted to @2.36% only. 6.5. Further during the course of appellate proceedings the appellant was asked to file the details of new parties to whom sales have been made through GSCL and on which commission @2.50% has been paid, it is seen from the details so filed that during the year sales to the tune of Rs.3335.91 lacs have been made and not to the tune of Rs.3693.49 lacs, accordingly the commission allowable is restricted to Rs. 78,72,763. (2.36% on Rs. 33,35,91,669) and balance commission of Rs. 19,83,561 is added to appellant's income as being excessive and unreasonable.”
He submitted that assessee has not disputed the commission that has been disallowed by Ld. CIT (A) before us. He thus submitted that commission paid cannot be treated as excessive or unreasonable having regard to the volume of sales organized by Gulshan Sugars and Chemicals Ltd., and the qualities of parties introduced.
We have produced the submissions advanced by both the parties in the light of the records placed before us.
It is observed from the reasoning given by Ld. CIT(A) that assessee has been consistently making such commission to Gulshan Sugars and Chemicals Ltd., since its inception in the year 2000-01 which has not been disputed by the authorities below in the preceding assessment years. It is also been observed by Ld. CIT(A) that for the year under consideration assessee has earned maximum sales from premium customers like Colgate-Palmolive India Ltd, Hindustan Lever Ltd, Dabur India Ltd., and Asian Paints Ltd., year wise details have been reproduced and considered by Ld. CIT(A) in his order. There has been no distinguishing feature, brought on record by Ld. AO, in order to prove that, the commission paid does not commensurate with services rendered, and that it is excessive or unreasonable. The assessee has also established consistency in the payment of commission to Gulshan Sugars and Chemicals Ltd., Ld. CIT(A) has relied upon the decision of Hon’ble Supreme Court in the case of Radhaswami Satsang vs. CIT, reported in 193 ITR 321.
We do not find any infirmity in the findings of Ld. CIT(A), as Ld. CIT (A) has restricted the commission at 2.36% and the balance has been added back to assessee’s income.
We are, therefore, inclined to dismiss the grounds raised by the revenue for assessment year 2007-08.
Insofar as is concerned, it is observed that Ld. CIT(A) has merely rectified mistakes that was apparent on record in respect of disallowance that has been confirmed by Ld. CIT(A). We do not find any necessity to interfere with the order. In the result the appeal filed by the assessee in ITA 5692/del/2012 stands dismissed.
In the result appeal filed by the revenue as well as assessee stands dismissed. Order pronounced in the open court on 16th March, 2017.