Commissioner Of Income Tax,Chennaiappeals v. M/S.balaha Chemicals Agencies,Cissons Complex, Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16-12-2015 THE HONOURABLE MR.JUSTICE M.JAICHANDRENANDTHE HONOURABLE MRS.JUSTICE S.VIMALATax Case (Appeal) Nos.906 to 908 of 2013 Commissioner of Income Tax,Chennaiappeals. .. Appellant in all the Versus M/s.Balaha Chemicals Agencies,Cissons Complex, Room No.12, 4th Floor,150, Montieth Road,Egmore, Chennai-600 008. ppeals .. Respondent in all the Prayer in T.C.A.No.906 of 2013: Appeal filed against the orderof the Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013,in ITA No.308/Mds/2012, under Section 260 A of the Income TaxAct, 1961 arising against the consolidated order of the CIT(A)-XII, Chennai, dated 25.11.2011 in assessment year 1997-98against the order dated 27.03.2007 passed by the DeputyCommissioner of Income Tax, Business Circle-IX, Chennai for theAssessment Year 1997-98, against the Assessment Order dated28/03/2005. Prayer in T.C.A.No.907 of 2013: Appeal filed against the orderof the Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013,in ITA No.309/Mds/2012, under Section 260 A of the Income TaxAct, 1961 arising against the consolidated order of the CIT(A)-XII, Chennai, dated 25.11.2011 in assessment year 1998-99against the order dated 27.03.2007 passed by the DeputyCommissioner of Income Tax, Business Circle-IX, Chennai for theAssessment Year 1998-99, against the Assessment Order dated24/03/2005. Prayer in T.C.A.No.908 of 2013: Appeal filed against the orderof the Income Tax Appellate Tribunal "A" Bench, dated 14.2.2013, https://hcservices.ecourts.gov.in/hcservices/ in ITA No.310/Mds/2012, under Section 260 A of the Income TaxAct, 1961 arising against the consolidated order of the CIT(A)-XII, Chennai, dated 25.11.2011 in assessment year 2001-02against the order dated 27.03.2007 passed by the DeputyCommissioner of Income Tax, Business Circle-IX, Chennai for theAssessment Year 2001-02, against the Assessment Order dated31/03/2004. The above Tax Case Appeals have been filed against thecommon order passed by the Income Tax Appellate Tribunal, `A'Bench, Chennai, in I.T.A.Nos.308, 309 and 310 of 2012, relatingto the assessment years, 1997-1998, 1998-1999 and 2001 and 2002. 2.1) The respondent in the present appeals, (hereinafterreferred to as "the assessee") had been engaged in thedealership and distribution of various industrial chemicals,which are being used in the textile industry. The assessment ofthe assessee, for the assessment years 1997-1998, 1998-1999 and2001-2002, had been completed, disallowing the claim fordeduction of commission, as expenditure paid to D.D.Vyas,Proprietor of M/s.Shree Narottam Agencies, Srinivas Vyas,Proprietor of M/s.Pushpak Sales Corporation and Manohar Vyas,Proprietor of M/s.Srinivasa Enterprises. 2.2) The Assessing Officer had concluded in the assessmentthat no services had been rendered, by the agent, for thepayment of the commission. Such a finding was based on thesurvey conducted in the case of D.D.Vyas. The additions made inthe assessment years had been upheld by the Income Tax AppellateTribunal, in I.T.A.Nos.1236, to 1239/Mds/2006, dated 15.6.2007.On being satisfied that the assessee firm had concealed theparticulars of its income and had furnished inaccurateparticulars of such income, by claiming false expenditure, theAssessing Officer had levied penalty, under Section 271(1) (c)of the Income Tax Act, 1961. 2.3) Aggrieved by the said order, the assessee had preferredappeals before the Commissioner of Income Tax (Appeals). The https://hcservices.ecourts.gov.in/hcservices/ Commissioner of Income Tax (Appeals) had held that thecommission payments made to D.D.Vyas and his sons cannot betreated as false or inaccurate particulars and accordingly, theappeals had been allowed. 2.3) Aggrieved by the said order, the assessee had preferredappeals before the Commissioner of Income Tax (Appeals). The https://hcservices.ecourts.gov.in/hcservices/ Commissioner of Income Tax (Appeals) had held that thecommission payments made to D.D.Vyas and his sons cannot betreated as false or inaccurate particulars and accordingly, theappeals had been allowed. 2.4) Aggrieved by the order passed by the Commissioner ofIncome Tax (Appeals), the Revenue had filed appeals before theIncome Tax Appellate Tribunal. The Tribunal had held that it isnot the case of the Revenue that the payments claimed by theassessee, as deductible, were found to be bogus in nature. Ithad also been held that no material was brought on record beforethe Tribunal, by the Revenue, to show that the decision of theSupreme Court, in C.I.T. Vs. Reliance Petroproducts PrivateLimited (322 ITR 158 SC) and the decisions of the Madras HighCourt, in C.I.T. Vs. S.Sankaran [241 ITR 822 (MAD)] and C.I.T.Vs. Cafco Syndicate Shipping Company [294 ITR 134 (Mad)], wouldnot be applicable to the facts and circumstances arising in theappeals. Thus, the Tribunal had dismissed the appeals filed bythe appellant. 2.5) Aggrieved by the order passed by the Tribunal, theRevenue has preferred the present appeals before this Court,under Section 260A of the Income Tax Act, 1961, raising thefollowing substantial question of law. "1. Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wascorrect in dismissing the appeal preferred by therevenue against the order of the Commissioner ofIncome Tax (Appeals) directing the assessing officerto delete the penalty levied by the assessing officerunder Section 271(1)(c) of the Income Tax Act, 1961?" 3. The learned counsel appearing on behalf of the appellanthad submitted that the Income Tax Appellate Tribunal had erredin dismissing the appeals preferred by the appellant, againstthe order of the Commissioner of Income Tax (Appeals), directingthe Assessing Officer to delete the penalty levied under Section271 (1)(c) of the Income Tax Act, 1961. He had further submittedthat the Income Tax Appellate Tribunal ought to have appreciatedthe fact that the assessee had concealed the particulars of itsincome or had furnished inaccurate particulars of such income. 4. The learned counsel had further submitted that theTribunal had failed to note that even though the payments ofcommission had been rooted through banking channels, thegenuineness of the transactions is vital to prove that thepayments had been made wholly and exclusively for the purpose ofthe business. He had further submitted that the Tribunal hadfailed to note that the assessee firm had concealed theparticulars of income, by claiming bogus payments of commission. 5. It had been further submitted that the Tribunal had erredin holding that it is not the case of the Revenue that thepayments claimed by the assessee were found to be bogus and thatthe assessee had not concealed particulars of income orfurnished inaccurate particulars of income, as laid down inSection 271(1)(c) of the Income Tax Act, 1961. 6. It had also been submitted that the Tribunal had failedto note that the judgment of the Delhi High Court, in C.I.T. Vs.Zoom Communication P Ltd. (327 ITR 510), would apply to thefacts of the present case. The learned counsel had furthersubmitted that the quantum appeals filed by the assessee hadbecome final. He had further submitted that it had been foundthat the sub agents of D.D.Vyas and his Sons were incapable ofbeing commission agents, as they had no knowledge of thebusiness. 6. It had also been submitted that the Tribunal had failedto note that the judgment of the Delhi High Court, in C.I.T. Vs.Zoom Communication P Ltd. (327 ITR 510), would apply to thefacts of the present case. The learned counsel had furthersubmitted that the quantum appeals filed by the assessee hadbecome final. He had further submitted that it had been foundthat the sub agents of D.D.Vyas and his Sons were incapable ofbeing commission agents, as they had no knowledge of thebusiness. 7. It had also been stated that the cheques deposited in thename of the commission agents had been withdrawn, immediately,thereafter. It had also been stated that, in spite of sufficientparticulars having been given, the assessee had not furnishedsufficient materials to show the bona fide nature of thetransactions carried on by the commission agents. No books ofaccounts had been maintained to prove that the transactions werebona fide in nature. As such, the Tribunal had erred indismissing the appeals filed by the Revenue. 8. The learned counsel appearing for the appellant hadrelied on the decision of the Supreme Court, in MAK DATA (P)LTD., Vs. COMMISSIONER OF INCOME-TAX – II (2013) 38 TAXMANN.COM448 (SC), wherein, it had been held that the question is whetherthe assessee has offered any explanation for the concealment ofthe particulars of income, or for furnishing inaccurateparticulars of income. The explanation to Section 271(1) of theAct raises the presumption of concealment when a difference isnoticed by the assessing officer, between reported and assessedincome. 9. The learned counsel appearing for the respondent/assesseehad submitted that Section 271(1)(c) of the Income Tax Act wouldnot apply to the facts and circumstances of the case, to levy apenalty on the assessee, alleging that it had concealed theparticulars of its income or had furnished inaccurateparticulars of such income. The learned counsel had furthersubmitted that there is no error in the findings of the IncomeTax Appellate Tribunal, dated 14.2.2013, while rejecting theappeals filed by the Revenue. 10. The learned counsel appearing for the respondents had relied on the following decisions in support of his contentions: 10.1. In Civil Appeal No.2463 of 2010, dated 17.3.2010,COMMISSIONER OF INCOME TAX Vs. RELIANCE PETROPRODUCTS (P) LTD,the Supreme Court had held that merely because the assesseeclaimed deduction of interest expenditure which has not beenaccepted by the Revenue, penalty under Section 271(1)(c) is notattracted. Mere making of the claim, which is not sustainable inlaw, by itself, will not amount to furnishing inaccurateparticulars regarding the income of the assessee. 10.2 In Tax Case Nos.1 and 2 of 1980, dated 29.6.1995,COMMISSIONER OF INCOME TAX Vs. CHANDRAKANT M.TOLIA, the DivisionBench of this Court had held that the assessee, having producedthe discharged hundis displaying the names and addresses of thecreditors and the relevant books in respect of the hundi loans,the initial burden cast on the assessee, under the explanationto Section 271(1)(c), stood discharged and, thereafter, theDepartment having taken no steps to discharge the burden thatshifted on it, the Tribunal was justified in deleting thepenalty. 10.3 In Tax Case (Appeal) No.246 of 2007, dated 5.3.2014,COMMISSIONER OF INCOME TAX Vs. CHOLAMANDALAM INVESTMENT &FINANCE CO. LTD., the Division Bench of this Court had heldthat, in order to invoke the penalty proceedings, under Section271(1)(c), the Revenue should prove that the claim made was notsustainable in law and the assessee had made a concealment ofthe particulars of income. 10.3 In Tax Case (Appeal) No.246 of 2007, dated 5.3.2014,COMMISSIONER OF INCOME TAX Vs. CHOLAMANDALAM INVESTMENT &FINANCE CO. LTD., the Division Bench of this Court had heldthat, in order to invoke the penalty proceedings, under Section271(1)(c), the Revenue should prove that the claim made was notsustainable in law and the assessee had made a concealment ofthe particulars of income. 10.4 In Tax Case (Appeal) No.504 of 2009, dated 12.11.2013,COMMISSIONER OF INCOME TAX Vs. GEM GRANITES, the Division Benchof this Court had held that, the Explanation to Section 271(1)raises a presumption of concealment, when a difference isnoticed by the Assessing Officer between the reported and theassessed income. The burden is on the assessee to showotherwise, by cogent and reliable evidence and when the initialonus placed by the explanation has been discharged by theassessee, the onus shifts on the revenue to show that the amountin question constituted their income and not otherwise. 11. In view of the submissions made by the learned counselsappearing on behalf of the appellant, as well as the respondentin the present appeals and on a perusal of the records availableand in view of the decisions cited supra, we do not find anycause or reason to interfere with the order passed by the IncomeTax Appellate Tribunal, dated 14.2.2013. 12. It could be noted, from the order of the Commissioner ofIncome Tax (Appeals), dated 25.11.2011, that the assessee hadbeen dealing in distribution of various industrial chemicals https://hcservices.ecourts.gov.in/hcservices/ during the relevant financial years. The manpower employed bythe assessee was too small to handle the distribution work, whencompared to the total volume of the business and the areas to becovered. Hence, the assessee firm had been engaging severalcommission agents to identify the customers, booking orders,recovering the dues etc. All the commission payments made to theCommission agents, by the assessee, except the payments made toD.D.Vyas and his sons had been found to be genuine andtherefore, allowed by the assessing officer. 13. It had also been found by the Commissioner of Income Tax(Appeals) that, in the survey conducted, under Section 133A ofthe Act, the receipts of commission from the assessee, byD.D.Vyas and his sons, had not been examined. The disallowanceof commission payments to the concerns of D.D.Vyas and his sonshad been made only on the presumption that the amounts paid tothe sub agents were not genuine in nature. The receipts ofcommission in the hands of D.D.Vyas and sons had not beenquestioned. In fact, the receipts of commission by D.D.Vyas andhis sons, from the assessee, had been assessed to tax. From theledger extract, it could be noted that the commission paymentsto D.D.Vyas and sons were at regular intervals, during therelevant financial years. The commission payments had been madeby way of cheques and there was no evidence on record, furnishedby the department, to show that the commission paid to D.D.Vyasand his sons had been received back, by the assessee or byanyone operating on its behalf. 14. From the facts available, it could be seen that thedepartment had not shown anything to prove that the assessee hadnot incurred expenses, by way of payments of commission toD.D.Vyas and his sons. The disallowance was only on the groundthat the sub-commissions claimed to have been paid by D.D.Vyasand his sons, to their sub-agents, were not genuine in nature.Based on the decision of the Supreme Court, in CIT Vs. ReliancePetroproducts Private Limited 322 ITR 158 (SC), it had been heldthat mere claim of deduction will not automatically attract apenalty, under Section 271(1) (c) of the Act. 14. From the facts available, it could be seen that thedepartment had not shown anything to prove that the assessee hadnot incurred expenses, by way of payments of commission toD.D.Vyas and his sons. The disallowance was only on the groundthat the sub-commissions claimed to have been paid by D.D.Vyasand his sons, to their sub-agents, were not genuine in nature.Based on the decision of the Supreme Court, in CIT Vs. ReliancePetroproducts Private Limited 322 ITR 158 (SC), it had been heldthat mere claim of deduction will not automatically attract apenalty, under Section 271(1) (c) of the Act. 15. It had also been held that mere failure of an assesseeto explain satisfactorily the amounts shown as expenditure wouldnot lead to imposition of the penalty, unless there are somematerials to prove that the claim was false, as held by IncomeTax Appellate Tribunal in the case of SUPER METAL INDUSTRIES Vs.DCIT 317 ITR (AT) 161 (Mumbai). 16. The allegation made by the department that the sub-agents were tea stall owners and soap sellers, who had beenintroduced by D.D.Vyas and his sons, for the purpose of opening https://hcservices.ecourts.gov.in/hcservices/ of bank accounts, cannot be put against the assessee. Theassessee cannot be held to be liable for the sub agents, if any,nominated by the Commission agents, who had received thepayments of commission. The department had failed to dischargethe onus of proving that the assessee had made false claims,wilfully, or had furnished inaccurate particulars, whileclaiming deductions on the payment of commission. 17. We find that the Tribunal had given proper reasons fordismissing the appeals, confirming the order passed by theCommissioner of Income Tax (Appeals). The Tribunal, had rightlydismissed the appeals filed by the Revenue holding that nospecific error could be pointed out in the order passed by theCommissioner of Income Tax (Appeals) - XII, Chennai, dated25.11.2011, relating to the assessment years 1997-1998, 1998-1999, 2001-2002. The Tribunal had also found that the Revenuehad relied upon the findings of the Tribunal in the quantumappeal filed by the assessee. However, it had been found, on aperusal of the order of the Tribunal passed in the quantumappeal, that the disallowance of commission payments was made bythe Tribunal, by observing that the assessee shall show that theservice was actually rendered and the expenditure is exclusivelyand wholly incurred for the purpose of the business. TheTribunal had also observed that the payment of commission inquestion had been made, by way of cheques and the recipient ofthe commission had been assessed to tax. 18. It had also been observed that it is not the case of theRevenue that the money which the assessee had paid to the agent,by way of cheques, had come back to the assessee. It had alsoheld that the genuineness of the payment is evidenced by thebanking transactions. Only the deductibility of the payments wasfound to be not tenable for want of evidence to establish thatthe payments had been made wholly and exclusively, for thepurpose of the business of the assessee. The Tribunal had alsoheld that it is not the case of the Revenue that the paymentsclaimed by the assesseee, as deductible, were found to be bogusin nature. 19. Relying on the decision of the Supreme Court, in C.I.T.Vs. Reliance Petroproducts Private Limited (322 ITR 158 SC) andthe decisions of the Madras High Court in C.I.T. Vs. S.Sankaran[241 ITR 822 (MAD)] and C.I.T. Vs. Cafco Syndicate ShippingCompany [294 ITR 134 (Mad)], the Tribunal had dismissed theappeals filed by the Revenue. The Tribunal had also held, whiledismissing the appeals filed by the Revenue, that no materialswere brought on record before the Tribunal, by the Revenue, toshow that the decisions relied on by the Tribunal, to arrive atits conclusions, were not applicable to the facts and 19. Relying on the decision of the Supreme Court, in C.I.T.Vs. Reliance Petroproducts Private Limited (322 ITR 158 SC) andthe decisions of the Madras High Court in C.I.T. Vs. S.Sankaran[241 ITR 822 (MAD)] and C.I.T. Vs. Cafco Syndicate ShippingCompany [294 ITR 134 (Mad)], the Tribunal had dismissed theappeals filed by the Revenue. The Tribunal had also held, whiledismissing the appeals filed by the Revenue, that no materialswere brought on record before the Tribunal, by the Revenue, toshow that the decisions relied on by the Tribunal, to arrive atits conclusions, were not applicable to the facts and circumstances of the present case. As such, the Tribunal had notfound sufficient cause or reason to interfere with the orderpassed by the Commissioner of Income Tax (Appeals) and hadrejected the claim made by the Revenue, while dismissing theappeals. 20. We are also of the view that the Revenue has not been ina position to show that the payments of commission made by theassessee, which is said to have been assessed to tax, were bogusin nature. Further, there is nothing on record to show that theassessee had concealed the particulars of its income or hadfurnished inaccurate particulars of such income. In suchcircumstances, we do not find any merit in the appeals filed bythe Revenue. As such, the question of law raised in the presentappeals is answered in favour of the respondent assessee andagainst the Revenue. Accordingly, the present Tax Case Appealsstand dismissed. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar To1. Commissioner of Income Tax,Chennai. +1cc to M/S.T.R.Senthil Kumar, Advocate, S.R.No.67971+1cc to M/S.S.Sridhar, Advocate, S.R.No.68146 Tax Case (Appeal) Nos.906 to 908 of 2013 rsk(CO)srg(08/01/2016)