R.K. OVERSEAS,MUMBAI vs. CIT -18, MUMBAI

This appeal by the assessee is directed against the order of the CIT-18, Mumbai and it pertains to A.Y. 2008-09 on following grounds:- “I.a) That the order passed by the Commissioner of Income Tax U/s. 263 setting aside the assessment made is illegal and without jurisdiction and the same may be cancelled. b) That there is no material whatsoever oil to show that the assessment order passed by the assessing officer was erroneous and prejudicial to the interest of the revenue and as such the invoking of the provisions of Section 263 of the Act by the Commissioner of Income Tax is illegal and without jurisdiction.

In this case the assessment order was passed under section 143(3) on 28.12.2010 in which returned income of `78.76 lakhs was accepted. The case was selected for scrutiny inter alia for examining the claim of deduction under section 10B of the Act and also to examine the genuineness of commission expenses claimed by assessee. According to the CIT the Assessing Officer has not examined the issue properly. According to him due to lack of enquiry/investigation the assessment order passed in a hurried manner is erroneous and prejudicial to the interest of Revenue. Assessee has claimed deduction of `21.90 lakhs in respect of commission paid to various parties. As stated earlier, no efforts have been made to inquire into the genuineness of the said expenses. Prior to this the CIT observed that the assessee claimed deduction under section 10B in respect of income of `1.10 lakhs although this income cannot be attributed to export business. Further the CIT observed that several expenses has been debited to Profit & Loss Account which have not been examined by the Assessing Officer. For example, assessee has debited a sum of `20.03 lakhs as exchange rate difference which has not been examined at all by the Assessing Officer. There was addition to building and machinery account amounting to `18.70 lakhs and `7.79 respectively as per the depreciation chart. However, the entire claim of depreciation on these assets have been allowed without calling for even preliminary details such as nature of assets, date of purchase, date of installation, etc. Likewise, assessee debited `26.96 lakhs on account of travelling expenses. However, no query has been raised to examine the genuineness of such expenses and also its business expediency.

In response to the show cause notice under section 263 assessee made written submission, inter alia, contesting the proposed action under section 263. It has been claimed that the assessment order has been framed after detailed enquiry and investigation by the concerned Assessing Officer. Assessee has submitted relevant details from time to time with regard to deduction claimed under section 10B in respect of interest income. It has been stated that the interest was received on statutory deposits given to bank for availing various facilities. This income was required to be netted out against the interest paid to bank amounting to `14,64,871/-. In respect of commission expenses it was claimed that relevant details have been furnished. Moreover, commission amounting to `12,32,867/- pertains to Amritsar Unit which was eligible for deduction under section 10B. As such, any disallowance made in this regard would result in higher deduction and the net income would remain the same. As regards applicability of section 40(a)(ia) it was claimed that the provisions are not applicable since the amount was payable to persons residing outside India. With regard to other expenses, it has been claimed that as major part of such expenses related to Amritsar Unit, any disallowance would not have made any material difference to the income. However, the CIT set aside the order of the Assessing Officer under provisions of section 263 by observing as under: -

The same has been opposed before us and the stand of the assessee has been that the CIT has passed the order without taking the facts and circumstances under consideration. The CIT eared in not giving due weight to the reply dated 02.06.2012 and 05.06.2012 filed by the assessee firm alongwith enclosures mentioned therein. According to learned A.R. for the assessee all objections raised by the CIT were met of by assessee before the Commissioner of Income Tax in response to the show cause notice. In this regard assessee drew our attention to its letter dated 02.06.2012 filed with the Commission in response to the notice under section 263. According to the assessee all details were called for by the concerned Assessing Officer vide its notice under section 142(1) dated 19.07.2010. Copy of the said notice and questionnaire was filed with the said letter for ready reference. Assessment proceedings were in progress for more than five months and thereafter the order was passed on 28.12.2010. During the said period all the documents called for by the Assessing Officer from time to time were furnished and were checked by the Assessing Officer and he was fully satisfied about the genuineness of the assessee as he could not find any discrepancies and thereafter passed the order accepting assessee’s returned income. The learned A.R. for the assessee also submitted that assessee’s case has been continuously scrutinized for the last more than five years and except for some allocations of salary and commission of Mumbai HO to Amritsar Branch, the results shown by the assessee were fully accepted. As such it was submitted that assessment order passed was proper and there is no haste in the said assessment order. Assessee, in the said letter also justified its claim of deduction under section 80IB of the Act in respect of Amritsar Unit. All these documents were claimed to be filed before the Assessing Officer and he was duly satisfied. In this background the learned A.R. for the assessee submitted that the order passed by the Assessing Officer does not attract provisions of section 263. Accordingly the order of CIT be set aside. On the other hand, the learned D.R. supported the order of the CIT.

After going through the rival submissions and material on record we find that the Commissioner of Income Tax, in the order under section 263, observed that it was incumbent on the assessee to examine the genuineness of the commission expenses which was apparently not being done. The findings of the CIT are contrary to the document on record. In its letter dated 02.06.2012 filed with the CIT in response to the show cause notice under section 263 assessee filed complete details of commission debited to Profit & Loss Account, which were filed before Assessing Officer during assessment proceedings and the same were on record. The said letter was filed with datewise details of every purchases and sale made in the Amritsar Unit and Mumbai HO as demanded by Assessing Officer at relevant point of time which shows that the case was scrutinized in detail as per facts. Assessing Officer also called for further billwise details of commission paid in Mumbai HO and Amritsar Unit and same were handed over to the Assessing Officer on 07.12.2010 and copies of the same were placed on pages 11.16 of the paper book. The said letter along with details filed give complete picture of assessee’s business. The details filed by the assessee were also examined by the Assessing Officer at relevant point of time and no discrepancy, whatsoever, was found in this regard. After furnishing such details on 07.12.2010 the assessment order was passed on 28.10.2010 i.e. after scrutinizing all the details filed. It was not passed in a hasty manner as claimed by the CIT. The amount of `12,32,867/- pertains to Amritsar Unit of the assessee firm and it would make no difference to the total income even if any portion of the commission is disallowed as the entire income of the said unit is exempt and if any disallowance is made, the deduction allowable under section 10B would go up and the net income would remain the same. Thus no prejudice is caused to Revenue in this regard. In the Mumbai HO the commission paid is only 1.61% of the turnover and the commission paid in Amritsar Unit is only 1.55% of the turnover and these figures go to show that the commission paid is very reasonable and proper. The accounts of the assessee firm are duly audited except for minor variations in figures. No disallowance has been made in the hands of the assessee as discussed above. Assessee filed before the Assessing Officer a letter received from the bank regarding remittance made abroad of commission paid.

In view of this there was nothing for the Assessing Officer or the Commissioner to doubt the genuineness of the commission paid.