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2016 (10) TMI 969 - ITAT KOLKATA

2016 (10) TMI 969 - ITAT KOLKATA - TMI - Disallowances of Commission, PF/ ESI , Fringe Benefit Tax u/s 40(a) and Bonus u/s 43B - search assessments framed u/s 153A - Held that: -Various disallowances made towards Commission, PF/ESI and FBT for the Asst Years 2006-07 to 2009-10 , which were unabated / concluded assessments, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly directed to be deleted. Hence we h .....

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- Held that:- It is not in dispute that the commission @ 3% is paid to M/s Steel Crackers Pvt Ltd on sales made through them and in respect of Creators Corporation , commission was paid for policy decision resulting into sales of company’s products which varied from ₹ 450 to ₹ 2000 on sale of each product. All these facts are brought out clearly in the assessment order itself. We find that in addition to the above, the assessee had also provided the agreement copy , Ledger Account , .....

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ion of the Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd vs CIT reported in (1954 (10) TMI 12 - SUPREME Court ) is well founded. Hence in the facts and circumstances, we hold that there is absolutely no material brought on record to disallow 50% of the claim made by the assessee and accordingly the entire disallowance made on this account deserves to be deleted - Disallowance made on account of employees contribution to PF / ESI - Held that:- It needs to be verified wheth .....

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quires to be verified by the ld AO with regard to the actual date of remittance of the aforesaid expenditure which would have a bearing on the allowability of the expenditure in terms of section 43B of the Act. We direct the ld AO to verify the same and decide the issue in accordance with law - Decided in favour of assessee by way of remand - I.T (SS). A Nos. 08 to 13/Kol/2015 - Dated:- 7-10-2016 - Shri M. Balaganesh, AM And Shri S.S. Viswanethra Ravi, JM For the Appellant: Shri Manish Tiwari, F .....

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ted order. 2. The first issue to be decided in these appeals is that as to whether the ld CITA is justified in upholding the various disallowances of expenses such as Commission, PF/ ESI , Fringe Benefit Tax u/s 40(a) and Bonus u/s 43B of the Act in the search assessments framed u/s 153A of the Act in the absence of any incriminating material found during the course of search to that effect. 2.1. The brief facts of this issue is that there was a search and seizure operation conducted u/s 132 of .....

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el sleeper, crossing and switch devices for railway tracks including high speed. Consequent to the search, notices u/s 153A of the Act was issued and assessments were framed u/s 153A of the Act for the Asst Years 2006-07 to 2011-12 by making the following disallowances :- (a) Disallowance of Commission for Asst Years 2006-07 to 2011-12 (b) Disallowance of Employees Contribution to PF / ESI for Asst Years 2006-07, 2007- 08 , 2008-09 and 2011-12 (c) Disallowance of FBT liability u/s 40(a) for Asst .....

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years. It was argued that admittedly no incriminating materials were found for those assessment years in the course of search and accordingly pleaded not to disturb the originally assessed income. The ld AO however did not heed to the contentions of the assessee and proceeded to frame the assessments u/s 153A of the Act by making regular disallowance of expenses on the plea that the assessments to be framed u/s 153A of the Act clears all the decks and would enable the ld AO to assess or reassess .....

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erated the submissions made before the ld CITA with regard to framing of additions in section 153A assessments without any incriminating material found thereon. Reliance was placed on the following decisions in support of his contentions:- (a) CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC) (b) Decision of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 (c) CIT vs Kabul Chawla reported in (2016) 380 ITR 573 ( .....

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urt in the case of Canara Housing Development Co vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) wherein it was held that search assessments could be framed even without the existence of incriminating materials found in the course of search. He argued that the basic foundation for conducting the search is governed by the provisions of section 132 of the Act which has to be read harmoniously with section 153A of the Act. There are three conditions based on which a search action could be ini .....

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ellery or other valuable article or thing and such assets represents either wholly or partly income or property which has not been , or would not be, disclosed for the purposes of the Act (hereinafter referred to as the undisclosed income or property) ; then the officer , so authorized could conduct a search and proceed as per the requirements laid down in the said section. He argued that the aforesaid three primary conditions for invoking search proceedings cannot be given a go by while framing .....

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thout the existence of any incriminating materials found in the course of search. The scheme of the act provides for abatement of pending proceedings as on the date of search. It is not in dispute that the assessments for the Asst Years 2006-07 to 2009-10 were originally completed u/s 143(3) of the Act and hence it falls under concluded proceeding , as on the date of search. Hence the legislature does not differentiate whether the assessments originally were framed u/s 143(1) or 143(3) or 147 of .....

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of search or requisition.77 153A. 78[(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person79 where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the r .....

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t to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: 2.6. We find that the Co-ordinate Bench of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 reported in 2016-TIOL-167- ITAT-KOL had explained the aforesaid provisions as below:- 6.4. In our opinion, the schem .....

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ment thereon would be completed u/s 143(3) of the Act. c) In respect of concluded assessments prior to the year of search, no addition could be made in the relevant assessment year unless any incriminating material is found during the course of search with respect to the relevant assessment year. d) Pursuant to the search u/s 132 of the Act, the pending proceedings would get abated. In respect of abated assessments, the total income needs to be determined afresh in accordance with the provisions .....

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sment proceedings contemplated u/s 153A of the Act are totally different and distinct from the proceedings contemplated u/s 147 of the Act and these procedures of assessment operate in different fields and have different purposes to be fulfilled altogether. 6.4.3. The expression assess or reassess stated in section 153A(1)(b) has to be understood as below:- assess means assessments to be framed in respect of abated assessment years irrespective of the fact whether there are any incriminating mat .....

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s thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i) Once a search takes place under section 132 of the act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the Ay in which the search takes place. ii) Assessments and reassessments pending on the date of the search shall abate. The total in .....

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d the undisclosed income would be brought to tax". iv) Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the .....

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3A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii) Completed assessments can be interfered with by the AO while making the assessment under section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produ .....

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manner advance the case of the revenue as admittedly the Hon ble Delhi High Court in para 24 of its order had held as under:- 24. We are not concerned with a case where no incriminating material was found during the search conducted under section 132 of the Act. We, therefore, express no opinion as to whether Section 153A can be invoked even in such a situation. That question is therefore left open. 2.9. We find that the decision of Hon ble Delhi High Court in the case of CIT vs Kabul Chawla rep .....

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; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). Hence it could be safely concluded that the decision of Hon ble Delhi HC in the case of Kabul Chawla supra is the latest one on the impugned issue which had considered the decisions that were quoted by the ld DR and distingui .....

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pon by the ld DR would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A of the Act. Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and unabated assessments. At the cost of repetition, we state that in respect of abated assessments (i.e pending proceedings on the date of search) , fresh assessments are to be framed by t .....

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ect understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance. Hence the arguments advanced by the ld DR in this regard deserves to be dismissed. 2.11. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the various disallowances made towards Commission, PF/ESI and FBT .....

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ve our findings on the merits of the disallowances made towards Commission , PF/ESI and FBT for Asst Years 2006-07 to 2009-10. Accordingly the grounds raised by the assessee in this regard for those asst years are allowed. 3. The next issue to be decided in the appeals for the Asst Years 2010-11 and 2011-12 are as to whether the ld CITA is justified in upholding the disallowance of commission paid in the sums of ₹ 57,69,392/- and ₹ 3,47,000- respectively made by the ld AO in the fact .....

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t commission @ 3% on sales was charged by them and in case of M/s Creator Corporation the commission was charged for policy decision resulting into sales of company's products which varied from ₹ 450/- to ₹ 2,000/-on sale of each product. As the bulk of the purchase of company's product has been the Indian Railways which is a Government Agency the commission paid to these brokers appears to be excessive as the government agency calls for a tender and a lowest bidder are given .....

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nflating expenses the assessee company may reduce its profit at least to some extent. So, in order to restrict that, 50% of the expenditure booked on account of brokerage and commission paid to these parties on estimate basis is being disallowed and added back to the total income of the assessee in the respective assessment years. Accordingly, the ld AO disallowed the commission paid to the extent of 50% to the tune of ₹ 57,69,392/- and ₹ 3,47,000/- for the Asst Years 2010-11 and 201 .....

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nce sheet of recipient companies wherein the said commission income has been duly offered to tax by them. It was also submitted that the aforesaid details were also submitted by the assessee before the ld AO who did not make any comments regarding the same. It was argued that the addition has been made by the ld AO merely based on guess work dehors the materials on record. Reliance in this regard was placed on the decision of the Hon ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd .....

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establish that the quantum of commission payment is commensurate with the services rendered by the parties. Accordingly, he upheld the disallowances made by the ld AO. Aggrieved, the assessee is in appeals before us on the following grounds:- AY 2010-11 1b) That without prejudice to ground No. 1(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm disallowance of commission of ₹ 57,69,392/- is erroneous, arbitrary and bad in law even on merits. AY 2 .....

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d AO himself had elaborated in his assessment order the various activities to be carried out by the respective parties but simply stated that the commission payment seems to be on the higher side. He argued that both the ld AO and the ld CITA failed to bring in comparable cases to establish that the commission payments made by the assessee is on the higher side. The assessee had duly established that the commission payments were made pursuant to agreements entered into with parties, tax was duly .....

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en the regular practice of the assessee . 3.5. In response to this, the ld DR argued that there is no need to bring the comparable cases in the instant case as it had been found during the search that the assessee had been engaged in the practice of inflating expenditure. Moreover the assessee had not proved with evidences to justify the quantum of commission payments made by it and hence the ld AO had reasonably granted deduction to the extent of 50% of the claim made by the assessee which does .....

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on the commission payments and assessee had also furnished the income tax returns together with the balance sheets and profit and loss account of those parties wherein the commission income had been duly offered to tax by the respective parties. We find that the assessee had discharged its complete onus to establish the genuineness of the claim of commission payments. We are not in agreement with the argument of the ld DR that no comparable cases need to be brought on record by the ld AO in the .....

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more so, there is no iota of evidence brought on record to prove that the assessee had indeed involved in inflation of expenditure to reduce the taxable profits and it only remained as a wild allegation. Hence in these facts and circumstances, we have no other option but to dismiss the arguments of the ld DR advanced in that regard. If that be so, there is absolutely no basis for the ld AO to allow 50% of the claim of the assessee. We find that the ld AO himself in his order had mentioned the v .....

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bove, the assessee had also provided the agreement copy , Ledger Account , TDS details on commission payments , Copy of bills raised by parties and IT return and accounts including balance sheet of recipient companies wherein the said commission income has been duly offered to tax by them. All these evidences clearly prove beyond doubt the claim of expenditure on account of commission. We find that the disallowance has been made merely based on wild allegation and on surmise and conjecture. In t .....

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11 and 2011-12 are allowed. 4. The next issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance made on account of employees contribution to PF / ESI in the sum of ₹ 23,846/- for Asst Year 2011-12 in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that as per Clause 16(b) of Tax Audit Report , there was a delayed deposit of ₹ 3,871/- towards employees contribution to PF and ͅ .....

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of ₹ 23,846/- U/s 36(1)va) read with section 2(24)(x) of Income Tax Act, 1961 without proper appreciation of the ratio of decision of ITAT, Special Bench, Mumbai in All Cargo Global Logistics Ltd. - Vs - DCIT (ITA No. 5018 to 5022 & 5059/M/2010) and by misreading the facts of the present case. (b) That without prejudice to ground No.2(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm the addition U/s 36(1)(va) read with section 2(24)(x) is e .....

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nd prayed for set aside of this to the file of the ld AO for verification of the dates which was also accepted by the ld DR. 4.3. We have heard the rival submissions. We find that the issue is squarely covered in favour of the assessee by the following decisions :- Akzo Nobel India Ltd vs CIT in ITA NO. 110 of 2011 dated 14.6.2016 (Cal HC) CIT vs Vijay Shree Limited in ITA No. 245 of 2011 dated 6.9.2011 (Cal HC) CIT vs P.M.Electronics Ltd reported in (2008) 220 CTR 635 (Del) CIT vs Sabari Enterp .....

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see. Hence we deem it fit and appropriate to set aside this issue to the file of the ld AO to verify the said dates and if the same are remitted before the due date of filing return of income, deduction is to be granted to the assessee. Accordingly, the Ground No. 2(a) and (b) raised by the assessee for Asst Year 2011-12 are allowed for statistical purposes. 5. The last issue to be decided in these appeals is as to whether the ld CITA is justified in upholding the disallowance of bonus, leave sa .....

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the assessee is in appeals before us on the following grounds:- AY 2010-11 2. (a) That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong and unjustified in confirming disallowance of Bonus of ₹ 5,22,670/- U/s 43B of Income Tax Act, 1961 without proper appreciation of the ratio of decision of ITAT, Special Bench, Mumbai in All Cargo Global Logistics Ltd. - Vs - DCIT. (b) That without prejudice to Ground No. 2(a) and on the facts and in the circumstances of the case, the .....

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