Itxa/809/2007 Of M/S.carona Exim Ltd v. Asst.commissioner Of Income Tax And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 809 OF 2007 M/s.Carona Exim Ltd.,16, Byculla House,Mirza Ghalib Road,Opp. Fire Brigade,Byculla, Mumbai- 400 008.... Appellant. V/s. 1. Asst.Commissioner of Income Tax Circle-6(2), Aaykar Bhavan, Mumbai. Circle-6(2), Aaykar Bhavan, Mumbai. 2. Commissioner of Income Tax, Circle-6, Aaykar Bhavan, Mumbai. Circle-6, Aaykar Bhavan, Mumbai. 3. The Union of India, Law Ministry, Aaykar Bhavan, 2[nd] floor, M.K.Marg, Mumbai.... Respondents. Arun P. Sathe, senior counsel with Ms.Arti Sathe andKalpesh Turalkar i/b. Mandar Vaidya for the appellant.Suresh Kumar with P.S.Sahadevanfor the respondents. CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. DATED : 18[th] December 2009. JUDGMENT:(Per V.C.Daga, J.) This appeal raising following substantial questions of law for consideration of this Court has been admitted vide order dated 20[th] June, 2008. (a)Whether on the facts and in the circumstances of the case the Tribunal was right in law in confirming the order of Ld.CIT (Appeals) for the disallowance of an amount of Rs.28,38,838/- paid to M/s.Carona Ltd. as not being fully and exclusively for the purpose of appellant�s business? (b)Whether on the facts and in the circumstances of the case, the finding of the Tribunal that the commission paid to M/s.Carona Ltd. is not fully and exclusively for the purpose of business, is perverse. Factual Matrix: 2.factual matrix sketched hereinbelow: The aforesaid questions revolve around the 3.The appellant is a limited company, assessed in the status of domestic company is carrying on business of manufacture and trading of footwear having its office at 16, Byculla House, Mirza Ghalib Road, Mumbai- 400 008. The appellant- assessee filed income tax return for the assessment year 1999-2000 declaring a total loss of Rs.25,57,190/- for the financial year ending 31[st] March, 1999. The assessment order for the same was passed by the assessing officer under section 143(3) of the Income Tax Act, 1961 (�Act� for short) on31[st] January, 2002 holding that the appellant- assessee failed to show exact nature of services rendered by M/s.Carona Ltd. so as to allow it to claim deduction amounting to Rs.28,38,838/- on account of commission paid to the said company. The assessing officer went on to record factual matrix that the assessee company M/s.Carona Exim Ltd. was facing precarious financial conditions and it being a registered sick company under the provisions of Sick Industrial Companies Act, no suppliers were willing to extend any assistance to them. Upon the request of the parent company, the assessee company liaised with the suppliers of the finished goods and procured footwear on behalf of M/s.Carona Ltd. These goods/footwear were sold through outlets of M/s.Carona Ltd.; wherein all costs related to selling the footwear were borne by M/s.Carona Ltd. such as shop rents, shop salaries, commission to field staff, electricity, cost of distribution of the footwear etc. However, the assessing officer was not satisfied with the evidence produced, hence, recoded a finding that the appellant- assessee failed to establish the actual services rendered by the parent company M/s.Carona Ltd. With this finding, the assessing officer disallowed the deduction claimed by the assessee and added back the total amount of the assessee- company in the sum of Rs.28,38,838/-. 4.The appellant- assessee not being satisfied with the order of the assessing officer preferred appeal to the respondent No.2 - Commissioner of Income Tax (Appeals) [�C.I.T.(Appeals)� for short], who was pleasedto record findings as under: 4.The appellant- assessee not being satisfied with the order of the assessing officer preferred appeal to the respondent No.2 - Commissioner of Income Tax (Appeals) [�C.I.T.(Appeals)� for short], who was pleasedto record findings as under: �..... The appellant company has sold awayall its goods to the Carona Ltd. as atrader and Carona Ltd. is a dealer infootwear had sold such goods purchasedfrom the appellant company through itsoutlets which cannot be held that theCarona Ltd. has sold these goods as anagent of the appellant company. I, therefore, do not find any merit in the ground of appeal and hence, the same is rejected and the disallowance made by the AO of this amount is confirmed.� (Emphasis supplied) 5.Aggrieved by the aforesaid order of the C.I.T.(Appeals), the appellate jurisdiction of the Income Tax Appellate Tribunal was invoked by the present appellant without any success. The Tribunal agreed with the findings recorded by the C.I.T. (Appeals) and, vide its order dated 21[st] February, 2007, reached to the conclusion that the assessing officer was right in coming to the conclusion that payment was made for the purpose other than business purpose and went on to observe that it is very hard to believe that M/s.Carona Ltd. had rendered services for the assessee- company and recorded further finding that the assessee- company was exporting footwear manufactured by M/s.Carona Ltd. as such the explanation given by the assessee was not at all convincing. 6.Being aggrieved by the aforesaid order of the Tribunal, present appeal is filed under section 260A of the Act to challenge the order of the Tribunal. Submissions: 7.Mr.Sathe, learned senior counsel appearing for the appellant urged that the expenses by way of commission have been incurred wholly and exclusively for the purpose of business. He took us through the order of the Commissioner of Income Tax (Appeals) and also that of the Tribunal. While criticizing the order of both the authorities below, Mr.Sathe contended that none of the authorities has considered factual aspect of the matter in its proper perspective resulting in perverse finding in the impugned order. 8.Mr.Sathe heavily relied upon some of the judgments of this Court as well as that of the Apex Court in support of his submissions to contend that merely on the basis of surmises expenditure cannot be disallowed. In his submission, while analyzing the commission expenditure, in determining whether the expenditure was laid for the purpose of the assessee�s business, the reasonableness thereof is required to be judged from the point of view of the businessman. He further submits that in order to justify deduction the assessee is expected to give reasons for commercial expediency; which, according to him, were given. He submits that sometimes expenditure might not be voluntary, but so long as it was incurred for the assessee�s benefit the deduction needs to be allowed. He also tried to attack the findings recorded by the appellate authorities to contend that they are unsustainable in law. 9.Per contra, Mr.Suresh Kumar, learned counsel appearing for the Revenue tried to support the findings recorded by all the authorities below and went on to submit that findings of fact recorded by the authorities below are based on proper appreciation of evidence available on record and can hardly be said to be perverse warranting inference at the hands of this Court. 9.Per contra, Mr.Suresh Kumar, learned counsel appearing for the Revenue tried to support the findings recorded by all the authorities below and went on to submit that findings of fact recorded by the authorities below are based on proper appreciation of evidence available on record and can hardly be said to be perverse warranting inference at the hands of this Court. 10.Mr.Suresh Kumar did not dispute the proposition of law canvassed by Mr.Sathe and reliance placed by him on various judgments. He, however, submits that none of those judgments advance the case of the appellant. He reiterated findings recored by the first appellate authority as well as that of the Tribunal; wherein a positive and categorical finding has been recorded that no services were ever rendered by M/s.Carona Ltd. for the present assessee. 11.Mr.Suresh Kumar further went on to demonstrate shifting stand taken by the appellant before different authorities. The stand taken by the assessee before the assessing officer was that it made purchases from various parties amounting to Rs.65,65,909/- and that the goods with raw material and packing worth Rs.20,24,041/- have been sold to M/s.Carona Ltd. incurring a loss of Rs.3,50,925/- and further payment of Rs.28,38,838/- was made to M/s.Carona Ltd. Whereas, before the first appellate authority, the stand taken was that an agreement was entered into between the present appellant and M/s.Carona Ltd. agreeing therein to pay commission at the rate of 35% on sales, which was never produced before the assessing officer. Even at the time of hearing of the appeal, it was stated that there was no agreement between the appellant and M/s.Carona Ltd., but later on photocopy thereof, said to have been executed on 12[th] February, 1998 (relevant to assessment year 1998-1999), was produced. The genuineness thereof was also doubted by him since this agreement is on stamp paper drawn in the name of third party. It was neither registered nor notarized. According to Mr.Suresh Kumar, findings of fact needs no interference in this appeal. Consideration: 12.Having heard rival parties, it appears that the goods were supplied to M/s.Carona Ltd. by the present appellant- assessee. M/s.Carona Ltd. could not pay their dues, with the result, shortfall was sought to be claimed by way of commission alleged to have been paid to M/s.Carona Ltd. to claim benefit in the tax assessment. The categorical adverse finding recorded in this behalf by the authorities below based on material cannot be said to be perverse. The view taken is a possible view. Merely because another view is also possible on the same set of facts cannot be accepted to say that the order is perverse. No fault can be found with the concurrent findings of fact recorded by both the authorities below. 13.The appellant- assessee has been taking different stands before different authorities. This shifting stand cannot be overlooked by this Court. The agreement sought to be filed and relied upon does not inspire judicial confidence. It was not produced before the assessing officer. It was not a basis of claim. It is embossed on the stamp paper, which is not in the name of either of the parties to the transaction. It appears to be a document brought into existence to create evidence. This piece of evidence was rightly rejected by the authorities below. 13.The appellant- assessee has been taking different stands before different authorities. This shifting stand cannot be overlooked by this Court. The agreement sought to be filed and relied upon does not inspire judicial confidence. It was not produced before the assessing officer. It was not a basis of claim. It is embossed on the stamp paper, which is not in the name of either of the parties to the transaction. It appears to be a document brought into existence to create evidence. This piece of evidence was rightly rejected by the authorities below. 14.In the above facts and circumstance, in our considered view, the assessing officer was perfectly justified in disallowing a sum of Rs.28,38,838/- and both the appellate authorities below were right in confirming the said findings of fact with which no perversity could be demonstrated by the appellant- assessee either during the course of hearing or on the basis of material available on record. In the result, both the questions extracted in the opening part of this order are answered in favour of Revenue and against the assessee. 15.as to costs. Appeal is dismissed accordingly with no order (J.P.DEVADHAR, J.) (V.C.DAGA, J.)