TaxTMI 
TaxTMI 
2018 (4) TMI 1608
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....ccount under duty clearance and freight paid to the customs department for infringement of law. 3. Whether the Ld. CIT(A) has erred in deleting addition amounting to Rs. 8,50,000/- out of Rs. 12,74,800/- on account of disallowances under the head Commissioner paid by the assessee to M/s Vrinda International, a sister concern. Grounds raised in assessee's appeal: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting disallowance of Rs. 12,74,800/- fully as made by Ld. AO on account of commission paid to M/s Vrinda International u/s 40(A)(2)(a) and has further erred in sustaining the disallowance to the extent of Rs. 4,24,800/-. 2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in enhancing the income of the appellant by Rs. 3,28,073.257- (i.e. 5% of Rs. 65,61,465/-) on account of sale of imported raw material by treating the same as out of the books of appellant that too without giving opportunity as per law and impugned enhancement is beyond jurisdiction and contrary to law and facts. 3. That having regard to the ....
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....3.03.2013 specifically asking the assessee to justify the basis of giving rebate & discount to M/s. Vrinda International with documentary evidence. 4.1 In response, the assessee submitted that M/s. Vrinda International has been allowed the rebate and discount on the same basis as given to other consignees. It was further pleaded that the assessee transferred the goods worth Rs. 4,65,66,935/- against Form-F for sale, but owing to tough market competition and recession, the entire material could be sold for Rs. 4,24,93,343/- on behalf of the assessee with its due permission. Therefore, the balance amount of Rs. 40,73,592/- was credited to the account of M/s. Vrinda International under the head "rebate & Discount". 4.2 The Assessing Officer was not convinced with the with the reply of assessee and disallowed the claim of the assessee u/s. 40-A(2)(a) of the IT Act on the following premise : (i). M/s. Vrinda International is not an Agent of the assessee for the reason - (a). that M/s. Vrinda International engaged in the trading business of Alluminium Foil Containers etc., as specifically mentioned its audit report; (b). that assessee has shown sales to V....
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....ith reference to the detailed chart given by the assessee before him. He observed that a comparative study of two columns of the chart containing the selling price per unit and effective price per unit showed it reveals that the margin of profit was the maximum in the case of sales made through M/s. Vrinda International as compared to other consignment agents. It was also observed that the selling price per unit and effective price per unit realized on the sale made through M/s. Vrinda International was on the highest side and even after giving amount of rebate and Discount the net selling price was in the top three bracket. 5. The learned DR submitted that the ld. CIT(A) was not justified in disregarding the objections made by the Assessing Officer, as mentioned above, on the issue under consideration. It was submitted that the rebate and discount allowed to the proprietorship concern of one of the partners, M/s. Vrinda International, was given at the highest rate as compared to other consignment agents. It was also submitted that the ld. CIT(A) while deleting the addition u/s. 40A(2)(a) has failed to consider that undue expenditure has been paid by the assessee to the propriet....
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....ents, VAT assessment orders of the assessee showing stock transfers for consignment sales etc. Therefore, in our opinion, the objection of the Assessing Officer that M/s. Vrinda International was not the agent of assessee, has rightly been discarded by the ld. CIT(A). 8. A perusal of the impugned order further reveals that the ld. CIT(A) has also considered the assessment orders of assessee for preceding A.Yrs. 2008-09 & 2009-10 for deleting the impugned addition of Rs. 40,73,592/-. We have gone through these assessment orders and we find that the issue relating to rebate and discounts given to M/s. Vrinda International is neither addressed in those assessment orders nor is there any finding reached by the Assessing Officer on this issue. Therefore, the assessment orders of preceding years, as referred to by the ld. CIT(A) cannot be taken as valid ground for deleting the impugned addition in the instant case, as in this case, the Assessing Officer has specifically objected to the authenticity of rebates and discounts allowed to proprietary concern of one of the assessee's partners. 9. We, however, find that the ld. CIT(A) has deleted the entire addition after considering the ....
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....ctive unit price against this consignment agent of Delhi to compare the ratio of selling price realized by both these consignment agents of Delhi. There is no material on record, or any explanation of the assessee or finding of the ld. CIT(A) as to why the assessee did not mention the selling unit price and effective unit price against the name of the consignment agent, Devoir Deals, based in Delhi. The assessee has also failed to explain as to why no discount or rebate was given to this consignment agent to whom substantial amount of stock is shown to have been transferred for sale. We, therefore, no substance in the contention of assessee that there was no disparity in the basis of discounts given to all the consignment agents. Therefore, once no discount is admitted to have been allowed to this similarly based consignment agent, there remains no justification to accept such a huge discount given to proprietary concern of one of the assessee's partner as done in the instant case. We, therefore, are not inclined to endorse the conclusion reached by the ld. CIT(A) in the impugned order on this count. 10. The decisions relied by the assessee are found not applicable to the presen....
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....of the Revenue are that the assessee claimed deduction of expenditure of Rs. 20,00,000/- deposited as custom duties with the Custom Department under the head "duty clearance and freight". These payments have been claimed as expenses in the profit and loss account. The Assessing Officer observed that the above payments cannot be termed as revenue expenses allowable as per provisions of the Act, as the said payment was made on account of infringement of law including the provisions of Foreign Trade (Development & Regular Act, 1992). The Assessing Officer further observed that any expense incurred by the assessee for any purpose which is an offence or prohibited by law is not allowable u/s. 37 of the IT Act. He, therefore, disallowed these expenditure of Rs. 20,00,000/- claimed by the assessee. 13.1 In appeal, the ld. CIT(A) deleted this addition observing as under : On Grounds no. 5(a) & (b) agitating the addition of Rs. 20,00,000/- the Assessing Officer submitted as under in its remand report:- (i) The payment of Rs. 20,00,000/- was not towards custom duty as the appellant was guilty of selling the dutiable goods in the open market without using the same in the ....
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....f the Commissioner of Customs are extracted below:- I hereby confirm customs duty of Rs. 41,43,066/- in terms of the proviso to sub section (2) of the Customs Act, 1962 along with interest in terms of section 28AB upon M/s Singhania al Foil Containers Manufacturing Co. I further appropriate the amount of Rs. 20 lacs already paid (Rs 15 lacs vide TR-6 challan dated 29/1/2010 and Rs. 5 thousand vide TR-6 challan dated 12/2/2010) by the party towards this confirmed demand, /further order that the bank guarantee of Rs. 10 lakhs should also be encashed towards payment of this confirmed demand.'' In the above view of the matter, I am of the considered view that the amount of Rs. 20 lacs was not towards the payment of penalty but in fact towards customs duty. The reliance placed by the appellant on the judgments rendered by various courts of the country in the cases of Dy. Cit vs. Glaxo Smithkline Consumer Healthcare Ltd. 107ITD 343 (CHD.)(SB), CIT v. Modipon Lid. (No. 2) 334 ITR 106 (Delhi), Paharpur Cooling Towers Ltd. vs. CIT 61 DTK 309 (Cal), CIT vs Zaverchand Gaekwad (P) Ltd - 202 CTR 94 (Guj), CIT vs. Dharampal Satyapal Sons (P) Ltd. 50 DTR 287 (De....
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....e customs department, it is worth stating that stays do not wipe out the effect of an order. It merely puts the order in a state of suspended animation. Going by this settled principle of law the demand of customs duty raised against the appellant cannot be held to have been obliterated. Accordingly, the said objection of the AO is held to be devoid of merit. Accordingly, ground no. 5(a) & (b) are allowed and the addition of Rs. 20 lacs is deleted." 14. The learned DR relying on the assessment order, submitted that the ld. CIT(A) was not justified in deleting the addition without considering the fact that the custom duty paid by the assessee with the Custom Authorities was not permissible u/s. 37 of the Act because the assessee did not follow the Rules and regulations for importing and exporting the material. It was also not made clear whether the amount of Rs. 15 lacs and Rs. 5 lacs was paid exclusively for custom duties or includes interest, fine or penalty. Therefore, the Assessing Officer was justified to disallow these expenditures. 15. On the other hand, the ld. Counsel for the assessee, relied on the order of the ld. CIT(A), deleting the addition for good reas....
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....fficer, therefore, observed that the assessee has failed to prove any justification for giving commission to the said concern at such a higher rate. It was, therefore, concluded that since no services were rendered by M/s Vrinda International, being a trader and not the commission agent of assessee, for which commission expense can be termed as justified and allowable to the said concern. He accordingly, disallowed the expenditure on account of commission paid to M/s. Vrinda International amounting to Rs. 12,74,800/-. 18.1 However, in alternative, it is observed by the Assessing Officer that even if the Appellate Authorities are intended to allow commission to Vrinda International, the same cannot be allowed exceeding to 0.27% as allowed by assessee to another party of Delhi, namely, M/s Devoir Deals, Delhi. 18.2 In appeal, the ld. CIT(A) restricted the disallowance to Rs. 4,24,800/- representing to 2% of the sales made through M/s. Vrinda International and deleted the disallowance of Rs. 8,50,000/-. 19. The ld. DR relied on the order of the Assessing Officer while the ld. AR of the assessee reiterating the submissions made before the ld. CIT(A), further submitted small sy....
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....e been paid to M/s. Vrinda International in excess to 0.27% as given to M/s. Devoir Deals, Delhi, deserves to be disallowed u/s. 40A(2)(a), as the assessee has not been able to satisfactorily explain as to why there was such a huge difference in payment of commission made to the parties based on same location at Delhi. Accordingly, ground No. 3 of Revenue's appeal and ground No. 1 of assessee's appeal deserve to be partly allowed. Since, no other point is raised in Revenue's appeal, therefore, the appeal of the Department deserves to be partly allowed. 21. In appeal of assessee, ground No. 2 challenges the enhancement of income by Rs. 3,28,073/- (5% of Rs. 65,61,465/-) on account of sale of imported raw material by treating it as sale out of books of account. The contention of the assessee has been that no opportunity of being heard was given by the ld. CIT(A) before enhancing the income and hence, the action of the ld. CIT(A) is not sustainable in the interest of natural justice and under the provisions of law. The ld. DR could not controvert the plea of the assessee. We find that as per section 251(1)(a), the ld. CIT(A) has power to enhance income of the assessee, but as pe....