TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 1608
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....nt 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 facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the actio....
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....ional 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 Vrinda International and M/s. Vrinda International has been showing purchase from assessee in their books of account; (c). that M/s. Vrinda....
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....hat 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 proprietary concern of one of its partner Shri Himanshu Singhania, which were disallowable as contemplated u/s. 40A(2)(a) of the IT Act. The comparison of rebate and discounts made by the ld. CIT(A) also does not stand on any recog....
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....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 detailed chart of Rebate and Discounts allowed to various consignment Agents, prepared by the assessee on the basis of sample bills. The ld. CIT(A) after making comparison of rebates and discounts has categorically recorded a findi....
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.... 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 present case as in the reported cases, the matter under consideration was relating to trade discounts allowed to the purchasers of good on the sales made by the assessee. The trade discount is given on the sale of the goods and net amount ....
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....ss 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 manufacture of exported goods. (ii) Infringement of law and hence cannot be termed as revenue expenses. (iii) The payments were part of advance paid to the Customs Department for any future liability and were not on account of demand created on finalization of the ....
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.... 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 (Del), even in cases were duties were paid in advance compels me to accord consent to the claim made by the appellant for Rs. 20 lacs on account of payment of outstanding customs duty. Business disallowance - Certain deductions to be allowed only on actual payment - Assessment year 2001-02 - Whether for claiming deduction under sec....
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....nd 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 reasons. 16. We have considered the rival submissions and have gone through the entire material available on record and we find that the ld. CIT(A) while giving relief to the assessee has considered the facts of the issue in right perspective. He has made an elaborate discussion in the impugned order and has also relied on various decisions on the subject, against which no counter case is lai....
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....ordingly, 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 synopsis stating that the ld. CIT(A) has committed a factual error in observing that commission paid to Vrinda International was 3% which was actually 2.74%. He also committed another error that other parties were paid commission @ 2% whereas, it was 2.5%. Even if these mistakes are rectified, the disallowance could at the most be made @ 0.24% amounting to Rs. 1,11,661/- even if the stand of ld. CIT(A) ....
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....eserve 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 per section 251(2), the ld. CIT(A) has to give reasonable opportunity to the assessee before such enhancement of income. On perusal of the impugned order, we find that the ld. CIT(A) has mentioned that income of the assessee is enhanced by Rs. 3,28,073.25 after hearing the objections of the appellant. However, no fact regarding issuance of any notice to the assessee by the ld. CIT(A) or any objection of the a....