×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
10-04-2019, Chloride Power Systems, Section 133(6), 37(1), Tribunal Kolkata
The captioned appeal filed by the Revenue pertaining to assessment year 2010-11, is directed against the order passed by the ld.CIT (Appeals)-4, Kolkata, in ITA No. 478/CIT(A)-4/Circle-12/Kol/14-15, dated 06-08-2015, which in turn arises out of an assessment order passed by the Assessing Officer u/s.143(3) of the Income-Tax Act, 1961 (in short, the ‘Act’), dated 21-03-2013.
2. The grievances raised by the Revenue are as follows:
“1.On the facts and circumstances of the case and in law, ld. CIT(A) has erred in deleting addition of Rs.39,69,958/- as a commission payment even though evidences regarding services rendered were not produced by the recipient of commission.
2.On the facts and circumstances of the case and in law, ld. CIT(A) has erred in allowing the amount of Rs.28,85,681/- as written off which was standing as advance given for acquiring Capital Rights to M/s. Ifinity EV Motors (P) Ltd even though such payment was of Capital Nature.
3.That the assessee craves leave to add, alter, amend or modify the grounds of appeal during the course of hearing proceedings of this case.
3. Ground No. 1 relates to deletion of addition of Rs.39,69,958/- on account of commission payment.
4. The brief facts qua the issue are that the assessee filed its return of income (ROI) on 23-09-2010, declaring, total income to the tune of Rs.1,66,93,300/-. The said ROI was processed by the Department u/s. 143(1) on 15-07-2011 with total income of Rs.1,71,36,740/-. Later on, the assessee`s case was selected for scrutiny under section 143(2) of the Act. During the assessment proceedings, the assessee submitted the details of commission paid as follows:
In order to verify the genuineness of the commission paid, the AO issued notices under section 133(6) of the Act to these parties However, notices returned back unserved. The assessee submitted before the AO that the payments were made for sale of battery to M/s CGPL. Notices was issued to M/s CGPL. However, M/s CGPL submitted, vide letter dated 06.12.2012 that they have no transaction with any other party except the assessee company. AO noticed that Assessee could not provide any explanation for the same, therefore he made addition of Rs.39,69,958/-.
5. Aggrieved by such order of the AO, passed u/s. 143(3) of the Act, the assessee filed an appeal before the ld. CIT(A), who deleted the impugned addition of Rs. 39,69,958/-. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.
6. Before us, the ld. DR for the Revenue submitted that assessing officer has passed a reasoned order therefore, the same should be sustained. On the other hand, the ld. Counsel for the assessee has defended the order of the ld. CIT(A).
7. We have heard both the parties and perused the material available on record. We note that the genuineness of the transaction of payment of commission amounting to Rs. 39,69,958/-, by the assessee, has not been questioned or doubted by the AO during the assessment proceedings. The payments were made by the assessee through account payee cheques and duly recorded in the books of account. In other words, there was actual outflow of Rs. 39,69,958/-, from the coffers of the assessee. Each party payment was subjected to TDS and tax deduction certificates were issued by the assessee. The bank statement reflected that the cheques were duly encashed. The agents duly filed their return of income and the income received were all subjected to taxation as per the provision. There is no further allegation of the AO that the said parties were benami or alias of the assessee or that the amount of commission ch rges paid to the said parties had flown back to the assessee. The fact that various agents had rendered some services in connection with obtaining orders or conducting various scope of work in catering to the domestic market of the assessee is without doubt, as would be evident from the detailed submission made vide letter dated 05/12/ 2012 and the relevant agreements also submitted in subsequent hearing. We note that the auditors report and the tax audit report had categorically stated that there was no personal expenditure incurred by the company. From the details enclosed it is clear that all the payments were made to parties against valid contracts. The AO did not hold a single instance that any part of the amount was specifically used for personal purpose. He has just made an adverse inference that the amount is not spent for business purpose. It may be noted that commission is based on percent of ex works price against valid contractual agreements and the same cannot be stated as personal payments for the company or its employees.
8. We note that there is no doubt that by involving the services of these agents, the company had received some business and thus added to its profitability. It also used their expertise and connections to recover the amounts, collect tax forms and other clearances, which other-wise would have required a full time employee of the assessee company to devote its time. There would have been travel and stay expenses too. All these were dispensed with by the appointment of an agent who acts for and behalf of the company to carry out various activities. We note that the said expenditure incurred by the assessee on account of commission, is allowable under section 37(1) of the Act, having been laid out wholly and exclusively for the business of the assessee. The payment of such commission was driven by business expediency. It is now a settled principle of law that business or commercial expediency has to be judged from the perspective of the businessman and not of the Revenue, since it is the businessman who is being benefited from the services rendered and also it is he who knows to what extent the benefit ensures to him. This concept is popularly known as "director's arm chair principle" or "man on the platform omnibus".
The Hon'ble Supreme Court has held in the decision rendered in the case of CIT vs. Dhanrajgiri Raja Narasingirji, reported in 91 ITR 644 (SC) at page 550 of the said report that "it is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. Every business man knows his interest best. The Hon'ble Supreme Court in the decision rendered in the case of Eastern Investments Limited vs. CIT reported in 20 ITR 1 (SC) has opined that the aspect of prudency of entering into a transaction and making an expenditure in connection therewith will have to be judged from the point of view of the businessman and not of the Department. The ratio of the said decision clearly emanates the view that one should not be concerned with the legality or propriety of a transaction or whether the result could have been achieved in another way. What one should be concerned with is whether the transaction was done in the ordinary course of business, however mistaken an assessee might have been. The Hon'ble Supreme Court has held in the decision rendered in the case of Sassoon J David & Co. P Ltd vs. CIT reported in 118 ITR 261 (SC) at page 275 of the said report that "It has to beobserved
here that the expression 'wholly and exclusively' used in section 10(2)(xv) of the Act [of the 1922 Act, corresponding to section 37(1) of the 1961 Act] does not mean