Shree Govind Buildneed Private Limited v. Assistant Commissioner Of Income Tax, Circle

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 24/2019 Shree Govind Buildneed Private Limited, Having Its RegisteredAddress At C-30, Doctor Bunglow, Jhotwara Road, Bani Park,Shastri Nagar, Jaipur In The State Of Rajasthan. ----Appellant Versus Assistant Commissioner Of Income Tax, Circle-4, Jaipur HavingIts Address At New Central Revenue Building, Statue Circle,Bhagwan Das Road, C-Scheme, Jaipur In The State OfRajasthan. ----Respondent For Appellant(s) : Mr. Siddharth Ranka HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA REPORTABLEPer S. Ravindra Bhat, CJ.16/07/2019 Judgment 1.The assessee’s complaint in appeal under Section 260Aof the Income Tax Act, is that the disallowance to the tune of₹97,98,305/- is unsupportable, as it was made entirely on anarbitrary basis without rationale. 2.The assessee, inter alia, carries on business in pipesand sanitary wares and other fittings used in the construction ofbuildings. The company is also engaged in trading of irrigationpipes and fittings. In the Assessment Year (AY) 2013-14, theassessee declared its total income as ₹ 46,08,958/-. The AO whocarried scrutiny under Section 143(c), assessed the income as₹1,43,79,630/- and disallowed commission expenditure to the tune of ₹ 97,98,305/-. The assessee’s appeal was rejected by theCIT(A). It approached the ITAT, unsuccessfully. 3.Learned counsel for the assessee points out that in allthe previous years, especially in the last three years, similarcommission expenditure was claimed and though the disallowancewas made, it was only marginal. Learned counsel submits that therationale for disallowance of 100% in respect of the commissionpaid to ten parties, was entirely arbitrary, since all the relevantdocuments, such as ITR, amount paid as well as the documentaryevidence pertaining to each party were made available. 4.Attacking the approach of the revenue authorities, inadding entire amount, and disallowing the expenditure, theassessee submitted that the mere circumstance that three partiessent their representatives, despite repeated summons to ten ofthem and that small discrepancies were found in the explanationand documents given by such three parties, is tenuous andarbitrary. Explaining this aspect, learned counsel for the assesseesubmitted that the material on record showed that the assesseehad discharged the burden of showing that the payments weremade to its agents through banking channel, and as such, thepresumption of regularity attached to them. 5.Furthermore, according to counsel, the assessee alsodeducted TDS while making payments and that the three partieswho did approach the AO in answer to summons had, in fact,disclosed that the amounts were utilized for entirely subjectivereasons and the assessee in these circumstances could not befound fault with. Lastly, the learned counsel for the assessee reliedupon the rule of consistency and cited Radhasoami Satsang vs.Commissioner of Income Tax, (1991) 193 ITR 327. 6.At the outset, this Court notices that the issue ofdisallowance has been consistently and concurrently ruled againstthe assessee. The CIT(A) in this regard noticed that the assesseewas impressed upon with the need for verification of commissionexpenses repeatedly in December, 2016 and January, 2017. Despite this, the assessee did not produce a single witness.Summons were issued to ten witnesses under Section 131. Threefrom the list of ten persons replied. None of these individuals, infact, appeared before the AO for verification and inquiry. Even thereplies by the three parties were unsatisfactory. On this aspect,this Court notice that in Para 5.6, CIT(A) has extracted relevantdetails with respect to the concerned parties which shows, primafacie, that the amounts were deposited on a particular date andwithin two day the same or marginally higher amounts werewithdrawn. Despite this, the assessee did not produce a single witness.Summons were issued to ten witnesses under Section 131. Threefrom the list of ten persons replied. None of these individuals, infact, appeared before the AO for verification and inquiry. Even thereplies by the three parties were unsatisfactory. On this aspect,this Court notice that in Para 5.6, CIT(A) has extracted relevantdetails with respect to the concerned parties which shows, primafacie, that the amounts were deposited on a particular date andwithin two day the same or marginally higher amounts werewithdrawn. 7.The assessee’s argument on this aspect was that itcould not be expected to state why the amount was withdrawn butthat, explanation as such could be valid and legitimate in thehands of the third parties. The CIT(A) pertinently held, asfollows:- “5.4 In the adverse background of non-production anywitness for commission payment, several adverseobservations made by the AO in Para 4.6 does carryweight to adjudicate the matter because theincreasing turnover by itself do not necessarily justifythe increase in expenses. The relevant adverseobservations of the AO are reproduced as under:- a. The assessee has paid commission ofRs.97,58,305/- on sales of Rs.15,66,26,437/-i.e. at average rate of 6.23% which is muchhigher in this trade or in any trade. d. No bills were furnished by any of the personfor commission expenses. The assessee has so-moto paid commission to them. e. Sale bills do not contain name any of thebroker or person alleged to the broker, so itcannot be verified that for which sales they havebeen paid commission. f. The commission paid varied from 4% to 8%. g. Commission has alleged to have been paid onsales to individuals also. 5.5 Though there cannot be strait-jacket formula forthe percentage of commission, sales which may ormay not carry commission expenses, and reasonableand justifiable level of commission expenses, theverification exercise intended and undertaken by theAO was precisely to come at right conclusion on above aspects. It is precisely the failure of theappellant in producing witness of commissionexpenses the AO was under compulsion to makecertain adverse observations as under:- b. Assessee’s non-commission sales was Rs.7,88,90,251.45, if we calculate only commissionpart on this sale then it comes to Rs.48,91,195/- where as the income as per returnwas Rs. 46,08,958/- which is below the figure.It means that the assessee has paid commissionout of its pocket and not out of profits. Which isnot possible in any business?7,88,90,251.45, if we calculate only commissionpart on this sale then it comes to Rs.48,91,195/- where as the income as per returnwas Rs. 46,08,958/- which is below the figure.It means that the assessee has paid commissionout of its pocket and not out of profits. Which isnot possible in any business? c. During the year under consideration grossprofit rate and net profit rate has been declinedfor which assessee failed to submit anyjustification.profit rate and net profit rate has been declinedfor which assessee failed to submit anyjustification. g. It was seen that for sale of some of the goodsto a particular builder commission is shown tohave been paid and for other sales to samebuilder no commission has been paid.to a particular builder commission is shown tohave been paid and for other sales to samebuilder no commission has been paid. 5.6 The replies received from three parties to whomcommission is claimed to have been paid by theappellant, the following excerpted finding of the AO asmentioned in Para 4.5 on page 3 & 4 of theassessment order does not inspire to treat whole ofcommission expenses as genuine:- g. It was seen that for sale of some of the goodsto a particular builder commission is shown tohave been paid and for other sales to samebuilder no commission has been paid.to a particular builder commission is shown tohave been paid and for other sales to samebuilder no commission has been paid. 5.6 The replies received from three parties to whomcommission is claimed to have been paid by theappellant, the following excerpted finding of the AO asmentioned in Para 4.5 on page 3 & 4 of theassessment order does not inspire to treat whole ofcommission expenses as genuine:- 1. Shri Ashok Kumar Baid:- He had submittedthat he received commission of Rs. 3,31,470/-from M/s Shree Govind Buildned Pvt. Ltd. Hehad not mentioned the details of sales on whichhe received commission. He had not attendeddespite specifically written in the summon. Onexamination of Bank account it was found thaton 01.01.2013 Rs. 2,98,323/- was deposited inhis bank account and on 04.01.2013 Rs.3,00,000/- were siphoned out. Since Shri AshokKumar Baid had not attended personallytherefore, nature of work done by him cannot beverified. Withdrawal of Rs.3,00,000/- on04.01.2013 cannot be verified. 2. Sri Sanjay Kumar Harlalka:- He did notattend the office on requisite date. He submittedreply on 26.02.2016 stating that he hadreceived commission of Rs. 4,37,974/- fromShree Govind Bildneed Pvt. Ltd. he filed copy ofITR-V for the A.Y. 2013-14 and copy of Bankaccount was furnished. Gross total income ofassessee was Rs.6,58,727/- this includescommission or not verifiable. On verification of bank account it was found that Rs. 3,94,177/-was deposited on 07.03.2013 and on very nextday Rs. 4,00,000/- was transferred to Shri NandKishore through RTGS Vide letter no.ACIT/Cir.-4/92/2015-16/1918 dated 02.02.2016 ShriSanjay Harlalka was again requested to attendthis office on 04.03.2016. This letter was dulyserved upon him on 02.03.2016 but he did notattend. Signature on submission filed on26.02.2016 and confirmation filed by theassessee during assessment proceedings wereentirely different. 3. Shri Manoj Vyas:- He did not attend butfurnished reply on 14.03.2016 stating that hereceived a sum of Rs.3,49,455/- on account ofcommission. On examination of bank account itwas found that he received Rs.3,14,509/- on28.03.2013 and on 29.03.2013 Rs. 3,14,539/-was transferred to Mahendra Kumar by RTGS.Shri Manoj Vyas is not filing return of income.Signature on submission filed on 14.03.2016and confirmation filed by the assessee duringassessment proceeding were entirely different. 5.7 There cannot be dispute to the ration laid downby the Hon’ble Rajasthan High Court in the case ofM/s Laxmi Engineering Industries vs. ITO (2008) 215CTR 0319 that for incurring of any expenditure duringthe course of business there is no requirement of anywritten agreement for the payment of commission. Atthe same time, the very conduct of business, relevantvouchers, accounting made and general instructionsfrom time to time on subject by the businessman arealways able to justify the claim of businessexpenditure when called upon by the AO. In this casethere is visibly failure to do so by the appellant. I amsurprised to note that none of above is present todefend the appellant and justify the ever increasingcommission expenses. This is required of appellantwhen this issue is getting attention of the departmentsince last three/four years. Therefore, the decision ofthe AO to not consider such unverifiable expenses isconfirmed. In my considered view, the commissionexpenses claimed of Rs.97,58,305 is non-genuine andhence the same is confirmed.” 8.This Court is of the opinion that all three authorities i.e.AO, CIT(A) and ITAT scrutinized the record and held that thecommission claimed, was not supportable in law and therefore,disallowed the deduction claimed, the only ground on which the 8.This Court is of the opinion that all three authorities i.e.AO, CIT(A) and ITAT scrutinized the record and held that thecommission claimed, was not supportable in law and therefore,disallowed the deduction claimed, the only ground on which the court could, if at all entertain the appeal is that the basis for suchdisallowance was entirely nonexistent. Such an argument in theopinion of the court is insubstantial in cases like present. 9.In court’s opinion, the reliance upon the so called ruleof consistency in Radhasoami Satsang (supra) did not bar therevenue authorities from carrying out their task independently andas they did discharge in respect of the assessment in question.That in the past year or years, the orders made no doubt providea guide as to the nature of business and the manner in which theassessing authorities adopted the method of assessing income.The method adopted by AO for completing the task, however, doesnot preclude in any manner the conducting of independentscrutiny of the material presented before the assessee in lateryears. The rule of consistency in the opinion of the court does notpreclude the AO from conducting inquiry which he is bound by lawto do, for determining in law what are the true and correctamounts, to determine the amounts legally chargeable as tax(Ref. Kedarnath Jute Manufacturing Co. vs. Commission of IncomeTax, 82 ITR 363 (SC). 10.For the above reasons, no substantial question of lawarises and the appeal is dismissed. (SANJEEV PRAKASH SHARMA),J(S. RAVINDRA BHAT),CJ Anil Makwana /10