Inga Pharmaceuticals , Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH "I", MUMBAI ᮰ी. ᮰ी. राजे᭠ᮤ, ᮤ, लेखा सद᭭य एवं ᮰ी. ᮰ी. िववेक वमाᭅ, ᭠याियक सद᭭य के समᭃ BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA No. : 552/Mum/2012 (Assessment year: 2007-08) Inga Pharmaceuticals, Vs ACIT -20(1), Inga House, Mahakali Caves 6th Floor, Piramal Chamber, Road, Parel, Andheri (East), Mumbai Mumbai - 400 093 PAN: AAAFI1286N अपीलाथȸ(Appellant) ू×यथȸ(Respondent) Appellant by : Shri Vimal Punmiya Respondent by : Shri Sacchidanand Dubey

सुनवाई कȧ तारȣख /Date of Hearing : 26-11-2014 घोषणा कȧ तारȣख/Date of Pronouncement : 09-01-2015 आदेश ORDER ᮰ी िववेक वमाᭅ, ᭠या. ᭠या. स. PER VIVEK VARMA, J.M.:

The appeal is filed by the assessee against order of CIT(A)-31, Mumbai, dated 22.12.2011.

2. The brief facts are that the assessee is a partnership firm and is conducting the business as a trader and wholesaler dealer and exporter of pharma grade chemicals. The assessee firm was in the same business even in the preceding years. In the assessment proceedings, the AO noticed that although there was a fall in turnover, but the commission paid by it are diametrically opposite, as the commission paid has increased many folds.

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3. On this fact, the AO called for an explanation from the assessee, who submitted that the assessee was exporting the products to over 20 countries and since the business was on a downward spiral, it appointed a trading firm in Dubai, M/s Firestop Trading Establishment to look after the sales and paid a commission of Rs. 27,23,316/- to it. The AO was of the view that since in the preceding year there was a higher turnover but less commission but in the current year, the turnover was lower but higher commission, this showed that the payment was not for the purpose of business and he therefore, disallowed Rs. 24,25,570/-.

4. Before the CIT(A), the assessee reiterated its submissions and pleaded that the commission paid is for the business purposes.

5. The CIT(A), after considering the facts of the case, held that the commission paid to Firestop could not be for the business, because, the party was based in Dubai and the exports were being made to third countries and also no evidence was available with the assessee to prove that the party has made any efforts to boost the business of the assessee.

6. The CIT(A), therefore, sustained the disallowance.

7. Against this order of the CIT(A), the assessee is in appeal.

8. Before us, the AR reiterated the submissions made before the revenue authorities. The AR submitted that as it was evident, the business was going down and to sustain the international business had engaged Firestop, with whom, the assessee entered into an agreement (placed in the APB) and it was shown that the said concern introduced 54 parties to the assessee, with whom, the assessee was able to conduct the business. The AR also submitted that whatever 3 Inga Pharmaceuticals ITA 552/Mum/2012

payment was made, it went through regular banking channels and as per RBI guidelines. The AR further submitted that as per the agreement, the commission became due, once the sales confirmation was received from the buyer party.

9. The AR also submitted that the assessee had engaged in commission agent in the beginning of the accounting year and the commission agent had been raising debit notes to claim its remuneration.

10. On these facts, the AR submitted that since the expense was incurred only to augment the business, for which he produced detailed evidence, that the expense, as incurred by the assessee had a direct nexus with the business of the assessee. Hence the expense, as claimed should be allowed.

11. The DR on the other hand submitted that the revenue authorities had disallowed the payment of commission on the genuine reason that the turnover was coming down and as a corresponding inference, the commission should have come down as well but conversely, it was going up. Besides this, the GP, if compared with the preceding year, was much lower. From the chart, the comparative GP was 43% in the preceding year, as compared with 21% declared in the current year.

12. The DR, therefore, submitted that no adverse inference should be drawn toward the addition as made by the revenue authorities.

13. We have heard the arguments from either sides and have perused the orders as well as the synopsis submitted before us during the course of hearing.

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14. The AR has given the chart of comparative GP wherein he explained the extra ordinary jump in the GP in the preceding year. He explained that in the preceding year, the assessee executed orders from Sago Trading Co., who had given bulk orders of over Rs. 7 crores, because of which the turnover along with GP made a quantum jump and came back to the usual turnover with GP in the current year.

15. Besides this, the sales were in any case on decline. To maintain the business the assessee had to appoint commission agent, to whom the assessee paid the commission in Dubai through banking channels and in accordance with the RBI guidelines. The AR also demonstrated to us, that this party, M/s Firestop Trading introduced 54 new parties/clients to the assessee, with whom the assessee was able to conduct its business.

16. We accept that the modus operandi and the conduct of business is the prerogative of the assessee and not that of the revenue authorities. It is not expected of the assessee to run to the revenue authorities and seek guidance, as to how to run the business. Revenue authorities cannot and are not in a position to ascertain the market position and trends and determine the modus of the business. We find that the decision of Pune ITAT in the case of Kasat Textiles Pvt. Ltd. vs ACIT, reported in 66 ITD 510, also support the argument of the AR, holding that the information in the books of account have to be accepted unless proved wrong by the revenue authorities through concrete evidence.

17. When the revenue authorities accepted the audited books to be correct and showing correct results, the AO cannot proceed to make an addition of assumed discrepancy.

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18. We take support from the decisions of ITAT Mumbai in the case of Dresser Valve India (P) Ltd. vs ACIT, reported in 30 SOT 495, wherein it was held, "It was not the case of the revenue that the said payments were made in violation of any laws, such as, the prevention of the Corruption Act, etc. Its case revolved around the discharging of the onus in matters of submitting the details of rendering of the services. The said objection of the revenue was not bona fide in the light of the details furnished by the assessee. From the agreement entered into between the assessee and 'P', it was evident that the commission agent was under an obligation to generate the demand and also to find out the requirements for the products of the assessee from the corporates such as the NTPC and the UPSEB and procure the orders. Accordingly, the assessee got the orders through the agent and commission was payable. In the process, the assessee furnished requisite basic information to the Assessing Officer, who was not satisfied with the said information. Considering the quantum of information available with the Assessing Officer in the matter, the Assessing Officer should have attempted to disprove the contents of the agency agreement or that payments made through the banks were bogus or money had come back to the assessee by way of cash, etc., and in the process the Assessing Officer had not done his part of the duty in the matter. Thus, the assessee had discharged the duty of furnishing the basic information. Therefore, the assessee was entitled to deduction as claimed".

and the decision of Hon'ble Gujarat High Court in the case of CIT vs Suzlong Energy Ltd., reported in 33 taxman.com 151, wherein it was held, "From the above, it could be seen that the entire issue hinges on appreciation of material on record. The Commissioner as well as the Tribunal concurrently held that there was sufficient evidence on record of the assessee having paid commission to the agents who had rendered service as per the agreements. Such payments were made through cheques and were found to be genuine. Commission agents in no way related to the assessee- company and the payments were duly reflected in their income- tax returns.

Under the circumstances, we have no reason to interfere. This question is therefore, not entertained".

19. The submission of the AR that once the transaction(s) originate from an agreement and the payments are made through banking channels the AO cannot proceed to disallow the expense, unless he 6 Inga Pharmaceuticals ITA 552/Mum/2012

has some concrete evidence to show that the transaction was bogus, cannot be ignored. This is an accepted judicial principal. Once the revenue authorities accept the books, all entries are deemed to be correct, which would include the commission paid to Firestop Trading Establishment.

20. We do not find any word from either of the revenue authorities that the expense incurred was bogus in nature or that there was any malafide intent of the assessee was involved. Keeping in view the evidence as produced before us and the case laws cited by the AR and taken note of, we find ourselves in agreement with the arguments of the AR.

21. In these circumstances, we hold that the commission paid was genuine and for the purposes of business.

22. We therefore, set aside the order of the CIT(A) on the impugned issue and direct the AO to delete the addition as made at Rs. 24,25,570/-.

23. Since all the grounds are connected to the issue, as decided by us, here in above, all the grounds are treated as allowed.

Resultantly, appeal, as filed by the assessee stands allowed.

Order pronounced in the open Court on 9th January, 2015.

Sd/- Sd/- (राजे᭠ᮤ) ᮤ) (िववेक वमाᭅ) (िववे लेखा सद᭭य ᭠याियक सद᭭य (RAJENDRA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 9th January, 2015 7 Inga Pharmaceuticals ITA 552/Mum/2012

ूित/Copy to:-

1) अपीलाथȸ/TheApplicant. 2) ू×यथȸ/The Respondent. 3) The CIT (A)-31, Mumbai.

4) आयकरआयुƠ - 20, Mumbai/The CIT-20, Mumbai.

5) ǒवभागीयूितिनिध "आय" आयकरअपीलीयअिधकरण,मुंबई The D.R. "A" Bench, Mumbai.

6) गाड[ फाईल Copy to Guard File.

आदे शानुसार/By Order / / True Copy / /

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उप/सहायकपंजीकार आयकरअपीलीयअिधकरण,मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *Chavan, Sr. PS