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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
Date of Hearing : 14.03.2018 Date of Pronouncement : 21.03.2018 ORDER Per Bench:
This appeal by the Revenue and the Cross Objection by the assessee directed against the order passed by the Learned Commissioner of Income Tax (Appeals) – 10, Kolkata (in short the ld CITA) in Appeal No. 23/CIT(A)-10/Cir-35/2013-14/Kol dated 01.09.2016 against the order passed by the ACIT, Circle-35, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 25.03.2013 for the Assessment Year 2010-11. As the issues are identical, both these appeals are taken up together and disposed off by this common order for the sake of convenience.
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 2. The first issue to be decided in the appeal of the revenue is as to whether the ld CITA was justified in deleting the addition of Rs 3,51,932/- made on account of machinery hire charges in the facts and circumstances of the case.
2.1. The brief facts of this issue is that the assessee is a partnership firm engaged in the manufacturing of Ballasts / Choke and had filed its return of income for the Asst Year 2010-11 on 24.9.2010 disclosing total income of Rs 1,33,14,980/-. During the course of assessment proceedings, the ld AO observed that the assesse had debited an amount of Rs 39,24,876.53 under the head ‘Machinery Hire Charges’ in its profit and loss account. The ld AO issued a questionnaire u/s 142(1) of the Act dated 16.8.2012 asking the assessee to furnish the details in respect of the same. The assessee submitted the related documents and stated as under:-
Payment to Philips Electronics India Ltd - Rs 38,69,298.96 Payment to Amit Kr Ghose & Others - Rs 55,577.57 The ld AO asked the assessee to produce the relevant bills and vouchers for the same. The assessee produced the same except one bill. The assessee was asked to show these payments in the bank statements which was not done by the assessee. Accordingly, the ld AO disallowed the same in the assessment.
2.2. Before the ld CITA, it was submitted that the entire payment of machinery hire charges were made after due deduction of tax at source and payments were made by account payee cheques. It was also pleaded as to how and where from the ld AO had arrived at the figure of Rs 3,51,932/- that was ultimately disallowed in the assessment. It was pleaded further that the entire books of accounts were produced before the ld AO 2
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 which were also verified by the ld AO and no discrepancy was found by the ld AO in the same. The ld CITA appreciated the contentions of the assessee and found that the assessee had furnished the entire details of machinery hire charges paid to M/s Philips Electronics India Ltd together with the details of bill date, bill amount, tax deducted at source and date of remittance of TDS to account of central government. The ld CITA also observed that the assessee had produced all the copies of debit notes relating to the payments made to the parties such as Philips India and Amit Kr Ghose and the same are available in the assessment records. He appreciated the contentions of the assessee by observing that the ld AO has not specifically pointed out as to which bill was not submitted for the impugned figure of Rs 3,51,932/- disallowed by him. He held that when all the payments are made through banking channels, there is no reason to disbelieve a small portion of the payments when they are properly vouched . Accordingly, he deleted the addition made in the sum of Rs 3,51,932/-. Aggrieved, the revenue is in appeal before us on the following ground:- i) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 3,51,932/- made by the AO on account of an machinery hire charges by holding that the same was properly vouched and made through bank account of the assessee.
2.3. The ld DR argued that the ld CITA was not sure as to whether the assessee had submitted all the bills . This is clear from the observation of the ld CITA that ‘all the payments appear to be reconciled with the debit notes and the TDS effected for the parties’. Hence he argued that the ld CITA himself was doubtful about the factum of furnishing of necessary details by the assessee before the ld AO or before him, and accordingly erred in granting relief to the assessee. He argued that when the ld AO had given relief for 90% of the expenditure, why at all he would not have given relief for the remaining 10% of the expenditure. Hence the action of the ld AO need to be seen in a C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 holistic manner in as much as he had disallowed only to the extent of bill and evidence not provided by the assessee in the sum of Rs 3,51,932/-. In response to this, the ld AR vehemently supported the order of the ld CITA and stated that it is not known as to wherefrom the ld AO had taken the figure of Rs 3,51,932/- to justify his conclusion that the assessee had not submitted the supporting documents in that regard.
2.4. We have heard the rival submissions and perused the materials available on record. The dispute arises only with regard to payment made to Philips Electronics India Ltd. We have gone through the contents of pages 122 to 124 of paper book containing the date wise details of machinery hire charges paid to Philips Electronics India Ltd together with bill details, PAN , gross amount, TDS details and TDS remittance details. We have also gone through the entire ledger account of Philips Electronics India Ltd for the period 1.4.2009 to 31.3.2010 enclosed in the paper book and we are not able to find the figure disallowed by the ld AO in the sum of Rs 3,51,932/-. Even the ld DR was not able to identify the said figure from the said ledger account before us. It is not in dispute that these papers were submitted before the ld AO. In view of these facts, we hold that the ld CITA had rightly deleted the addition in the sum of Rs 3,51,932/-. Accordingly, the Ground No. 1 raised by the revenue is dismissed.
The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition of Rs 97,02,695/- on account of commission in the facts and circumstances of the case.
3.1. The brief facts of this issue is that the ld AO observed that the assessee had debited an amount of Rs 97,02,694.86 in the profit and loss account under the head ‘Commission Payment’ and was asked to produce all relevant documents of the said expenses. The assessee submitted the following table along with the bills and ledger account :- 4
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 3.2. The ld AO further issued a questionnaire dated 28.1.2013 raising the following queries :- a) Ledger and TDS certificate of commission paid . b) Party wise purchase for which you have paid the commission. c) Whether there is any agreement between the assessee and the commission agent ? If yes, the copies thereof to be produced. d) Whether such types of commission has been claimed in earlier years by employing the same commission agent ? If yes, details to be furnished. e) Whether the parties from whom the purchase have been procured by the commission agent, are new parties introduced for the first time during the relevant period i.e for the C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 FY 2009-10 or they are old parties from whom purchase have been made by the assessee in earlier years without engaging any commission agent ?
3.3. The assessee stated that there was no written agreement between party and commission agent for such transactions. Assessee had claimed commission expense in earlier years also but the commission agents were new (except Pramod Kumar Agarwal). The ld AO observed that the assessee did not submit any reply further. He observed that it was found that the total amount which was claimed by the assessee as commission payment was outstanding till the end of the year i.e 31.3.2010, which raises a question of doubt about the genuineness of such transactions as any commission agent would not allow any assessee to linger the payment of such commission if he or she had actually acted as a commission agent. The commission bill was raised at the fag end of the financial year although the purchases from the parties were made regularly from very beginning of the financial year. The ld AO conducted further inquiry in this regard by issuing summosn u/s 131 of the Act dated 22.2.2013 to the following parties :- a) Pramod Kumar Agarwal b) Director of Mittal Iron & Foundry Ltd c) Director of Tijiya Steels Pvt Ltd In response , Shri Pramod Kumar Agarwal appeared before the ld AO on 4.3.2013 , Director of Mittal Iron & Foundry Ltd Mr Vijay Kumar Agarwal appeared on 6.3.2013 and authorized representative of Tijiya Steels Pvt Ltd Mr Amit Kumar Jaiswal appeared on 12.3.2013. During the course of proceedings u/s 131 of the Act, Shri Vijay Kumar Agarwal presented a bill according to which he earned commission from Khaitan Electronics in their purchase of items from the respective 12 parties. Mr Agarwal stated that he met few parties personally in their offices and contacted the rest of the parties over phone. The ld AO observed that Mr Agarwal was unable to provide the addresses 6
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 or contact numbers of any of the parties, furnish the quantity of goods purchased as well as their approximate purchase price. This made the ld AO to disbelieve the commission payment made to Mittal Iron & Foundry Ltd in as much as the services rendered by the commission agent were not conclusively proved by the agent.
Similar was the case with Shri Pramod Kumar Agarwal and authorized representative of Tijiya Steels Pvt Ltd Mr Amit Kumar Jaiswal. The ld AO observed that the services rendered to the assessee for earning commission had not been conclusively proved by these three parties. The statements recorded from these parties were shown to the AR of the assessee and was asked to explain to prove the genuineness of the payments of commission by the assessee in the light of the statements shown to him. The ld AO observed that deduction of tax at source on commission payments is not sacrosanct to prove the genuineness of commission expenditure. Accordingly the ld AO disallowed the entire commission expenditure of Rs 97,26,495 in the assessment.
3.4. The assessee pleaded before the ld CITA that all the commission agents are income tax assessees and had duly reflected the commission received from the assessee as their income and paid taxes thereon. It is not the case that those commission agents had only commission income in their returns and it is also not the case that they had received commission only from the assessee herein. The assessee furnished evidences in this regard to prove the genuinity of the transactions before the ld CITA.
3.5. The ld CITA examined the assessment records and also the statements recorded by the ld AO from the aforesaid three commission agents. The ld CITA observed that the assessee had effected purchases of Rs 37,91,73,428.28 during the year and that commission of Rs 97,02,695/- was payable on account of such purchases. He observed 7
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 that the ld AO had not mentioned whether the commission was payable on account of the whole purchases or relates only to part of the said purchases. From the examination of the three commission agents by the ld AO, the ld CITA found that the assessee had submitted a fair amount of details and documentary evidences before the ld AO. With regard to the details of 12 parties mentioned in the bill submitted by Shri Vijay Kumar Agarwal, Director of Mittal Iron & Foundry Ltd, wherein he had stated that Mittal Iron & Foundry Ltd was instrumental in sourcing the purchases from these 12 parties to the assessee for which the assessee had paid commission to Mittal Iron & Foundry Ltd. In this regard, the ld CITA observed that Shri Vijay Kumar Agarwal, Director of Mittal Iron & Foundry Ltd , had stated that he had submitted the list of vendors who had supplied goods to assessee and also observed that the said company had also received commission income from M/s Sendoz. The ld CITA observed that Shri Vijay Kumar Agarwal had also made a mention in his statement regarding the names of some of the products like bobbins, connectors, varnish paint, plastic covers and igniters. The ld CITA observed that similar is the position in the statements recorded from other two commission agents. The ld CITA also observed that the commission payments were not made to any related parties so as to allege any connivance of the assessee with the said parties. The ld CITA in addition to placing reliance on various decisions, placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Alfa Hydronics Pvt Ltd in of 2004 dated 10.11.2014 wherein it was held that when there was nothing to show that the transaction of the payments of commission was not genuine or the commission was excessive or unreasonable, no disallowance can be made. Accordingly, he deleted the disallowance of commission in the sum of Rs 97,26,495/- made by the ld AO. Aggrieved, the revenue is in appeal before us on the following ground:-
(ii) On the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs. 97,02,695/- made by the AO on account of payment of commission paid by the assessee which is bogus. 8
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 3.6. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee filed in this regard comprising of details of commission paid (enclosed in page 36 of the paper book) ; bills raised by commission agents for commission together with TDS certificates (enclosed in pages 37 to 45 of PB) ; copy of audited balance sheet and profit and loss account together with the IT Acknowledgement Return copy of the commission agents M/s Mittal Iron & Foundry Ltd and M/s Tijiya Steels pvt Ltd for the Asst Year 2010-11 (enclosed in pages 46 to 102 of PB) ; copy of bank statement of assessee showing the payment made to these commission agents ( enclosed in pages 103 to 119 of PB) and comparative statement of net profit earned which is highest during the year (enclosed in page 120 of PB) . We also find that the details of sundry creditors exceeding purchase value of Rs 10 lacs and above were furnished by the assessee before the ld AO. In the said details, the names and addresses of various sundry creditors where purchase value is more than Rs 10 lacs are furnished. We find that the very same parties are also mentioned in the bills raised by the commission agents and the value of purchases to prove that the commission bill is raised for sourcing the purchases from these parties to the assessee herein. This document conclusively goes to prove that the commission agents had indeed rendered services to the assessee. Moreover, the assessee had made the payment of commission to agents by account payee cheques after deduction of tax at source and those commission agents had reflected the commission income in their respective income tax returns. We also find that those commission agents have disclosed more taxable income in their returns which includes assessee’s commission also and we find that those parties are in receipt of commission from various persons other than assessee also. The ld CITA had stated that these commission agents are not related parties or family members of the assessee which facts remain uncontroverted by the revenue before us. Hence there is no reason to suspect these transactions. The three commission agents to whom summons were issued u/s 131 of the Act had appeared before the ld AO and had submitted necessary documents and clearly deposed that they had rendered services to 9
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 the assessee for which commission was received from the assessee firm by them. The names and addresses of the vendors from whom the purchases were sourced to the assessee were also provided to the ld AO. Hence if at all, there is any doubt on the same, the ld AO could have verified the same with the concerned vendors to ascertain the veracity of the transactions. This is not the case that the assessee as well as the commission agents had not submitted any details so as to give one more opportunity to the revenue for making fresh enquiry. We also find that the net profit shown by the assessee during this year had increased substantially when compared to that in the earlier year. Since the services rendered by the commission agents had been proved conclusively in the instant case, the reliance placed on the decision of Hon’ble Jurisdictional High Court in the case of Vishnu Agencies (P) Ltd vs CIT reported in 117 ITR 754 (Cal) does not come to the rescue of the revenue, as in that case, the services rendered were not proved by the assessee. Hence the same is factually distinguishable. Hence in view of the aforesaid facts and circumstances , we hold that the fact of rendering of services by these commission agents to the assessee has been proved beyond doubt and accordingly the assessee is squarely eligible for deduction of commission expenditure u/s 37 of the Act. Accordingly, the Ground No. 2 raised by the revenue is dismissed.
The Ground No. 3 raised by the revenue is general in nature and does not require any specific adjudication.
The ld AR stated that the cross objection preferred by the assessee is withdrawn by him. Accordingly the Cross Objection of the assessee is dismissed as withdrawn.
C.O. No. 93/Kol/2016 M/s Khaitan Electronics A.Yr.2010-11 6. In the result, the appeal of the revenue is dismissed and cross objection of the assessee is dismissed.
Order pronounced in the Court on 21.03.2018
Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 21.03.2018 SB, Sr. PS Copy of the order forwarded to:
1. 1. ACIT, Circle-35, Kolkata, Aayakar Bhawan Poorva, 8th Floor, 110, Shantipally, Kolkata-700107.
2. M/s Khaitan Electronics, P-38, India Exchange Place, Arun Chambers, 3rd Floor, Kolkata-700001.
3. C.I.T(A)- , Kolkata 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.