Ita/314/2015 Of Pawan Kumar Tah v. Commissioner Of Income Tax

ITA No.314 of 2015 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.314 of 2015 (O&M)Date of decision:04.04.2016 Pawan Kumar lah! .....- Appel Commissioner of Income Tax, Chandigarh ....mesponden CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MRS. JUSTICEK RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported in the Digest? Present: Mr. Ved Jain, Advocate for the appellant in ITA Nos.314 to 317 of20O15.. Ms. Urvashi Dhugga, Advocate for the appellant in ITA Nos.298 ,328 and 337 of 2015S. Ajay Kumar Mittal, J. 1]Delay in refiling ITA Nos.314 to 317 of 2015 1s condoned.9This order shall dispose of seven appeals bearing ITA Nos.314 to 317, 298, 328 and 337 of 2015. Four appeals have been filed by theassessee and three by the revenue against the common order dated24.12.2014 passed by the Income tax Appellate Tribunal, Bench ‘A’,Chandigarh (in short, “the Tribunal’) for the different assessment years, ITA No.314 of 2015 (O&M) 2 However, the facts are being extracted from ITA No.314 of 2015..3)ITA No.314 of 2015 has been filed by the appellant-assesseeunder section 260A of the income ax Act, 1961 (in short, “the Act’) againstthe order dated 24.12.2014, Annexure A.3 passed by the Tribunal in ITANo.542/Chd/2012 for the assessment year 2008-09, claiming followingsubstantial questions of law:- (a) Whether, 1n the facts and circumstances of the case, the ITATis correct in law, in holding that the commission paid cannotbe considered to be an expenditure incurred wholly andexclusively for the purpose of business?|is correct in law, in holding that the commission paid cannotbe considered to be an expenditure incurred wholly andexclusively for the purpose of business?| (b) Whether, in the facts and circumstances of the case, the ITATis correct in law in holding that the commission paid was notgenuine, despite the fact that initial burden of onus has beendischarged by the assessee by giving the names of the personsto whom this commission has been paid, alongwith theiraddress, confirmations, copy of accounts, TDS certificates etc.were also submitted?is correct in law in holding that the commission paid was notgenuine, despite the fact that initial burden of onus has beendischarged by the assessee by giving the names of the personsto whom this commission has been paid, alongwith theiraddress, confirmations, copy of accounts, TDS certificates etc.were also submitted? (c) Whether in the facts and circumstances of the case, the ITATis correct in law, in holding that the commission paid wasbogus, despite the fact that the persons to whom thecommission was paid, were duly examined by the AssessingOfficer and they confirmed the fact of receiving thecommission?”is correct in law, in holding that the commission paid wasbogus, despite the fact that the persons to whom thecommission was paid, were duly examined by the AssessingOfficer and they confirmed the fact of receiving thecommission?” In ITA Nos.315 to 317 of 2015 as well, identical three questions have beenclaimed.claimed. 4In ITA No.337 of 2015 filed by the revenue, the following twosubstantial questions have been claimed:- (a) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in allowing deduction onaccount of interest to assessee when funds given as interestfree advances still remain with the person to whom advancehas been made? (b) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT Chandigarh was right in confirming theorder of learned CIT(A) Chandigarh in deleting the additionot=a2,22,/8,800/- on account of unexplained cash creditunder section 68 of Income Tax Act, without affording theopportunity to the Assessing Officer, particularly when theAssessing Officer made addition after examining the issuesduring scrutiny proceedings under section 143(3) of IncomeTax Act, 1961 ?” 4] (a) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in allowing deduction onaccount of interest to assessee when funds given as interestfree advances still remain with the person to whom advancehas been made? (b) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT Chandigarh was right in confirming theorder of learned CIT(A) Chandigarh in deleting the additionot=a2,22,/8,800/- on account of unexplained cash creditunder section 68 of Income Tax Act, without affording theopportunity to the Assessing Officer, particularly when theAssessing Officer made addition after examining the issuesduring scrutiny proceedings under section 143(3) of IncomeTax Act, 1961 ?” 4] 4]In ITA Nos.298 and 328 of 2015 filed by the revenue, thefollowing question which has been claimed reads thus:- 6. “Whether on the facts and circumstances of the case and inlaw, the Hon'ble ITAT had ignored the spirit of theprovisions in the light of clarification issued by CBDT videCircular No.5 of 2014 exercising power under section 119 ofIncome Tax Act, 1961 that Rule 8D read with Section [4A ofthe Act provides for disallowances of the expenditure evenWhere tax payer in a particular year has not earned anyexempt income the directions of Hon'ble ITAT are justified?” A few facts relevant for the decision of the controversy involved as narrated in ITA No.314 of 2015 may be noticed. The assessee-appellant 1s carrying on the business of advertising and marketing servicesas proprietor in the name and style of M/s Ram Advertising services which1s an accredited agency of the Indian Newspaper society. The assessee has been maintaining regular books of account. All the income and expenditure ITA No.314 of 2015 (O&M) 4 account which are being audited. The income tax returns are being filedregularly on the basis of the audited financial statements prepared everyyear. The appellant filed income tax return for the assessment year 2008-09 on 30.9.2008 declaring income of|LT10,54,900/- which was accompaniedby audit report as required under section 44AB of the Act alongwith balancesheet, profit and loss account and other documents. The return was selectedfor scrutiny. During the course of assessment, the Assessing Officer raisedthe issue of commission of<23,17,999/- paid by the assessee. The assesseesubmitted a detailed reply alongwith necessary details. The names of thefour persons to whom this commission had been paid alongwith theiraddress, confirmations, copy of accounts, TDS certificates etc. were alsosubmitted. The details about business in respect of which thesecommissions had been paid, were also filed. The Assessing Officerfollowing its earlier order for the assessment year 2006-07, vide order dated25.11.2010, Annexure A.1 held that the commission paid could not beconsidered to be an expenditure incurred wholly and exclusively for thepurpose of business and accordingly disallowed the entire commission ofL23,17,999/-. Agegrieved by the order, the assessee filed appeal before theCommissioner of income Tax (Appeals) [CIT(A)]. Vide order dated29.2.2012,Annexure A.2, the CIT(A) upheld the order passed by theAssessing Officer. Not satisfied with the order, the assessee filed appealbefore the Tribunal. Vide order dated 24.12.2014, Annexure A.3, theTribunal upheld the order passed by the CITI(A) and disallowed thecommission paid to three persons namely G.S.Sadana, Sanjay Sardana (HUF) and Sandeep Sardana(HUF). Hence the instant appeals. ITA No.314 of 2015 (O&M) 5 TdWe have heard learned counsel for the parties. (HUF) and Sandeep Sardana(HUF). Hence the instant appeals. ITA No.314 of 2015 (O&M) 5 TdWe have heard learned counsel for the parties. |The issue relates to commission paid by the assessee. Theargument was raised with regard to consistency that for the assessment years2005-06 and 2011-12, the commission paid by the assessee was allowed asdeduction. Consequently, the finding was sought to be challenged on theground of perversity. It has been categorically recorded by the Tribunal afterexamining the entire evidence on record that the payment had been madeby the assessee 1n a mechanical way. No commission had been paid by theassessee and it was only a bogus entry. The findings recorded by theTribunal on this issue regarding commission paid to different persons by theappellant read thus:- “23. If Shri G.S.Sardana, was really doing haisoning business forthe assessee and had received commission of=a9,60,053/- 1nthe whole year and further such payment was received byabout 10 cheques in various months then how it 1s possiblethat he does not know even the address of the assesseecompany because in reply to question No.2, he has stated thatthe office 1S in sector 22-B but he does not remember the SCOnumber. In reply to question number 7, Shri Sardana statedthat he got the business of the assessee from the head officeof the BSNL. If so, then he does not remember even the placewhere its head office 1s located because in reply to questionNo.8, he simply stated that it 1s located in Delhi and in replyto question No.9, he further admits that he does not rememberthe exact address at Delhi because he has never been to thehead office. How it is possible that M/s Sardana who 1s goingto head office of BSNL company able to obtaining thebusiness for Shri Pawan Kumar Tah. In answer to questionNo.9, he has very categorically stated that he used to contactthe assessee and had received commission of=a9,60,053/- 1nthe whole year and further such payment was received byabout 10 cheques in various months then how it 1s possiblethat he does not know even the address of the assesseecompany because in reply to question No.2, he has stated thatthe office 1S in sector 22-B but he does not remember the SCOnumber. In reply to question number 7, Shri Sardana statedthat he got the business of the assessee from the head officeof the BSNL. If so, then he does not remember even the placewhere its head office 1s located because in reply to questionNo.8, he simply stated that it 1s located in Delhi and in replyto question No.9, he further admits that he does not rememberthe exact address at Delhi because he has never been to thehead office. How it is possible that M/s Sardana who 1s goingto head office of BSNL company able to obtaining thebusiness for Shri Pawan Kumar Tah. In answer to questionNo.9, he has very categorically stated that he used to contact ITA No.314 of 2015 (O&M) 6] the person suggested by Shri Pawan Kumar Tah to whosedepartment Shri Pawan Kuamr Tah has already madepresentation. If this 1s so, we fail to understand what 1s therole of Shri Sardana if the presentation was already made to aperson by Shri Pawan Kuamr Tah 1.e. assessee then he shouldhave been able to contact such person directly. Further, 1f theSuggestion 1s that some underhand payments were beinghanded over for which services of Shri Sardana were requiredthen the same would be hit by explanation to Section 37(1)which reads as under:- “Explanation - For the removal of doubts, it is herebydeclared that any expenditure incurred by an assessee for anypurpose which is an offence or which 1s prohibited by lawshall not be deemed to have been incurred for the purpose ofbusiness or profession and no deduction or allowance shall bemade in respect of such expenditure.” 2222222222222222222 “Explanation - For the removal of doubts, it is herebydeclared that any expenditure incurred by an assessee for anypurpose which is an offence or which 1s prohibited by lawshall not be deemed to have been incurred for the purpose ofbusiness or profession and no deduction or allowance shall bemade in respect of such expenditure.” 2222222222222222222 24. The above question answers very clearly show that ShriSardana does not know anything about the business ofBSNL, the location of their office, the addresses of theiroffices. He does not know any particular officer there. He hasnot visited any of the offices from where he had obtainedbusiness for assessee then we fail to understand what role hehas performed particularly when no _ agreement correspondence is existing between the assessee and ShriSardana. It was contended before us that 1n such type of dealsthe only role is to introduce the person but Shri Sardanamiserably fails even to name such persons who wereintroduced by him to the assessee. In fact the perusal of theentire statements clearly shows that he does not knowanything about the BSNL and he also does not know any oftheir officers. Further, the pattern of payments which hasbeen extracted by the Assessing Officer at page 25 1s as ITA No.314 of 2015 (O&M) 7| under:- H22222222222222222 The above also clearly shows that payment has been made ina mechanical fashion then how it 1s possible that payments toall three parties have been made on same date of the sameamount. All these factors clearly shows that no commissionhas been paid by the assessee and it 1s only a bogus entry,The statements of other two persons 1.e. Shri Sanjay Sardanaand Shri Sandeep Sardana also are on the similar pattern andhave been extracted by Assessing Officer at pages 18 to 20and 21 to 24. 222222222222222222 26. It was also contended that some payments have been claimedand allowed in earlier two assessment years 1.e. 2004-05 and2005-06 as well as later year in assessment year 2011-12. Wehave carefully perused these assessment orders andinterestingly both in assessment years 2004-05 and 2005-06respectively, no questions have been raised by the Assessingofficer in reply to commission. In assessment year 2011-12,the only inquiry made by Assessing officer was from ShriG.S.Sardana, therefore, it 1s again a case of no enquiry andbecause of a particular Assessing Officer does not make anenquiry and commits a mistake the same 1s not required to befollowed in later years. In this regard, we would like to referto the observations of Hon'ble Supreme Court in the case ofCIT vs. British Paints India Limited,188 ITR 44 (SC) whichread as under:- “It 1s not only the right but the duty of the AssessingOfficer to consider whether or not the books disclose thetrue state of accounts and the correct Income can bededuced therefrom. It 1s incorrect to say as contended onbehalf of the assessee that the officer 1s bound to accept thesystem of accounting regularly employed by the assessee ITA No.314 of 2015 (O&M) re) the correctness of which had not been questioned in thepast. There 1s no estoppel in these matters and the officer 1snot bound by the method followed in the earlier years.”XXXXKXKKXKKXKXKXXXXXX! “It 1s not only the right but the duty of the AssessingOfficer to consider whether or not the books disclose thetrue state of accounts and the correct Income can bededuced therefrom. It 1s incorrect to say as contended onbehalf of the assessee that the officer 1s bound to accept thesystem of accounting regularly employed by the assessee ITA No.314 of 2015 (O&M) re) the correctness of which had not been questioned in thepast. There 1s no estoppel in these matters and the officer 1snot bound by the method followed in the earlier years.”XXXXKXKKXKKXKXKXXXXXX! 29. After perusing the above reply the Assessing Officerobserved that it becomes clear that business was procured forShri Gian Chand Singla in the earlier years and commissionhas been disallowed because business pertain to earlier years.In respect of this commission, we find force 1n the contentionof learned counsel for the assessee that it does not makedifference in which year the business was_ procureparticularly when there was dispute between the parties andcommission has been settled through a compromiseagreement. The Assessing Officer has not doubted thepayment of commission to Shri Gian Chand Singla on anyother context which means he has accepted the servicesprovided by Shri Gian Chand Singla, therefore, 1n ouropinion, this commission was allowable. Accordingly, we setaside the order of learned CIT(A) and hold that payment madeto Shri Gian Chand Singla 1s allowable as commission paid toS/Shri Sandeep Sardana, HUF, Shri G.S.Sardana and ShriSanjay Sardana HUF which has been correctly disallowed byAssessing Officer and CIT(A).” Q.Learned counsel for the assessee was unable to controvert thefindings recorded by the Tribunal on the issue of commission whichdepends upon facts and circumstances of each transaction and cannot beclaimed to be genuine on the principle of consistency having been allowedin the earlier year. Thus, no question of law arises in ITA Nos.314 to 317 of2015 as claimed by the assessee. 10,With regard to question No.(a) in ITA No.337 of 2015, learned counsel for the parties have agreed that the said question has already been ITA No.314 of 2015 (O&M) 9 remanded to the Assessing Officer. Thus, no substantial question of lawarises. As regards question No.(b) in the said appeal with regard to deletingthe addition of.Ly2,22,/8,800/- on account of unexplained cash credit undersection 68 of the Act, we have scanned the order passed by the Tribunal. Wefind that the Tribunal being final fact finding authority 1s required to recordits factual conclusion by recording convincing reasons which are missing inthe instant case. The order passed by the Tribunal reads thus:- “62. In our opinion, the learned CIT(A) has correctly decided theissue. Basically assessee has floated various entities to obtainextra money from the banking system by issuing and circulatingcheques which were got discounted from bank and money washanded over to the assessee which was later on paid aftersometime. Even if assuming that there are certain noncompliance with other laws that would not alter the basic natureof the transactions because money has come from bank throughvarious propriety entities, therefore, we find nothing wrong withthe order of learned CIT(A) and we confirm the same.”issue. Basically assessee has floated various entities to obtainextra money from the banking system by issuing and circulatingcheques which were got discounted from bank and money washanded over to the assessee which was later on paid aftersometime. Even if assuming that there are certain noncompliance with other laws that would not alter the basic natureof the transactions because money has come from bank throughvarious propriety entities, therefore, we find nothing wrong withthe order of learned CIT(A) and we confirm the same.” Therefore, the said issue 1s remanded to the Tribunal for passing a speaking order giving its own cogent reasons by assessing the evidence on record andexamining the genuineness of the transactions after hearing the parties inaccordance with law. | Therefore, the said issue 1s remanded to the Tribunal for passing a speaking order giving its own cogent reasons by assessing the evidence on record andexamining the genuineness of the transactions after hearing the parties inaccordance with law. | 11.The question with regard to disallowance of expenditure evenwhere tax payer in a particular year had not earned any exempt incomeraised in ITA Nos.298 and 328 of 2015 has already been remitted back tothe Assessing Officer by the Tribunal and as such, no substantial questionot law arises. 12)In view of the above, ITA Nos.314 to 317 filed by the assessee| ITA No.314 of 2015 (O&M) 10 and ITA Nos.298 and 328 of 2015 filed by the revenue are dismissedwhereas ITA No.337 of 2015 filed by the revenue is partly allowed in themanner indicated above. (Ajay Kumar Mittal)Judge April 04, 2016I5&6 (Raj Rahul Garg)Judge|