Sikkas Kwick Handling Services (P) ... vs Assessee

1 ITA 1467/Del/2012

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "G" NEW DELHI BEFORE SHRI G.D. AGRAWAL : VICE PRESIDENT AND SHRI GEORGE GEORGE K.: JUDICIAL MEMBER

ITA no. 1467/Del/2012 Asstt. Yr: 2001-02 M/s Sikkas Kwick Handling Vs. ACIT Circle-8(1), Services (P) Ltd., New Delhi. N-67, Middle Circle, Connaught Place, New Delhi. PAN: AABCS 2867 D

( Appellant ) (Respondent)

Appellant by : Shri Ashwani Taneja Adv. Respondent by : Shri B.R.R. Kumar Sr. DR

Date of hearing: 04/03/2015. Date of order : _____/03/2015.

ORDER

PER G.D. AGRAWAL, V.P.:

This appeal, by the assessee, is directed against CIT(A)'s order dated

13-08-2010, relating to A.Y. 2001-02.

2. Ground no. 1 of the asessee's appeal reads as under:

"That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not complying with the directions of Hon'ble Income tax Appellate Tribunal wherein Hon'ble Bench has directed that mater needs to be examined afresh by Ld. AO after giving adequate opportunity of hearing to the assessee and 2 ITA 1467/Del/2012

has further erred in framing the impugned order without serving mandatory notices u/s 143(2) of the Income Tax Act, 1961."

2.1. Ld. counsel for the assessee, at the time of hearing , did not press ground no. 1. Accordingly, ground no. 1 stands dismissed being not pressed.

3. Ground no. 2 of the asessee's appeal reads as under:

"That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in confirming the action of Ld. AO in making addition of Rs. 4,02,803/- on account of miscellaneous expenses."

3.1. At the time of hearing before us, it was pointed out by the ld. counsel for the assessee that in the original assessment proceedings the AO vide order dated 29-3-2004 disallowed the sum of Rs. 80,000/- out of the total misc. expenses of Rs. 4,02,803/-.

3.2. On appeal, the ITAT vide order dated 31-8-2007 set aside the matter back to the file of AO. However, in the set aside assessment, the AO disallowed the entire misc. expenses of Rs. 4,02,803/-.

3.3. It is stated by the ld. counsel that in the set aside assessment, the AO could not have disallowed more than what was originally disallowed. He also stated that even otherwise there is no justification for the 100% disallowance out of expenses. In support of this contention, he relied upon the following decisions:

3 ITA 1467/Del/2012

- Hon'ble Delhi High Court in the case of - Multiplex Trading & Industrial co. Ltd. Vs. ITO ( ITA no. 762/2010 order dated 26-7- 2010);

- Hon'ble Delhi High Court in the case of - CIT Vs. Machino Plastic Ltd. (ITA no. 92/2011- order dated 28-2-2012); and

- M Coop Global (P) Ltd. Vs. CIT 309 ITR 434 (SC).

4. The Ld. DR, on the other hand, relied upon the orders of authorities below.

5. We have carefully considered the arguments of both the parties and perused the material placed before us. After considering the facts of the case, the decisions relied upon by the ld. Counsel and the order of the AO in the original proceedings, we are of the opinion that there was no justification for the disallowance of 100% of the misc. expenses. Admittedly assessee was carrying on the business during the accounting year relevant to assessment year under consideration. Therefore, incurring of the misc. expenses for the purpose of business, cannot be ruled out. The total expenditure incurred by the assessee was only Rs. 4,02,803/-. Therefore, in the original assessment proceedings, the AO has rightly disallowed the sum of Rs. 80,000/-. We, therefore, sustain the disallowance at Rs. 80,000/- out of the misc. expenses at Rs. 4,02,803/-.

6. Ground no. 3 of the assesse's appeal reads as under:

"That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition fully as by Ld. AO and has further erred in sustaining the action of Ld. AO in making addition of Rs. 8,16,505/- on account of commissions expenses."

4 ITA 1467/Del/2012

6.1. Facts of the case are that during the accounting year, relevant to the assessment year under consideration, the assessee claimed expenses of Rs. 1,14,58,396/-. The AO formed an opinion that the commission expenses paid by the assessee is to be restricted at 7% of the total freight handled by the assessee. He, accordingly, disallowed a sum of Rs. 8,54,837/-. The relevant portion of the assessment order reads as under:

"Therefore, in the absence of any verification, he restricted the commission paid to the various customers at 7% of the total freight handled as per the norms of the industry and the same was worked out to Rs.

1,06,04,100/- being 7% of the total freight handled by the assessee company. The remaining commission amounting to Rs. 8,54,837/- was disallowed and added to the income of the assessee."

6.2. Before the ld. CIT(A) the assessee explained that total freight handled by the assessee was Rs. 19.34 crores. On the total freight handled the commission @ 7% would be Rs. 1.35 crores. The assessee claimed the commission at 1.14 crores. Therefore, no disallowance is called for. However, after noticing the above facts, the CIT(A) was of the opinion that the commission is to be restricted at 5.5% of the total freight handled. He, therefore, sustained the disallowance at Rs. 8,16,505/- as against Rs. 8,54,837/-. The relevant finding of the CIT(A) reads as under:

"5.2 Examined the rival submissions. The observation made by the original AO as confirmed by the present AO is on a solid substantial footing. It is a fact that the appellant has failed to explain the discrepancy in the commission in case of various customers including M/s Young International, M/s Movers etc. There was no explanation whatsoever before the AO regarding such discrepancies. There was no explanation before the present 5 ITA 1467/Del/2012

AO passing the order from the side of the appellant. Hence the principle of rejecting part of the commission payment is correct. But it is also a fact that there was some calculation mistake. Although the AO has restricted the amount to r/o but in fact he has applied this ratio only on freight handled at Delhi. The total freight handled was Rs.19,34,88,938/-. He has not applied 7'% rate on this amount, otherwise the figure would have come Rs.1,35,44,225/- whereas the claim of the appellant was only Rs.1,14,58,3971- which is 5.9'10 of the total freight handled and less than the rate applied by the AO. This was a clerical mistake on part of the AO while framing the calculation for this purpose. Considering all the material facts in minutes details, I am of the opinion that ends of justice would be met by restricting the commission amount to 5.5'10 of the total freight handled of Rs.19,34,88,938/- which comes to Rs. 1,06,41,892/- . The claim of the appellant was Rs. 1,14,58,397/-. Hence the excess claim of the appellant comes to Rs. 8,16,505/- and I direct the AO to restrict the disallowance to that amount only."

6.3. We have carefully considered the arguments of both the sides and perused the material placed before us. In our opinion the ld. CIT(A) was not justified in restricting the commission to 5.5%of the total freight handled. He has not given any basis or reasoning for allowing the commission to the extent of 5.5%, when the AO has clearly mentioned in the assessment order that commission @ 7% of the total freight handled is the norm in the said industry. Thus, the AO allowed 7% of the commission which is being paid by the other persons in the same line of business. Since the commission claimed by the assessee is less than 7%, which, as per AO is normal rate of commission in this line of business, in our opinion, no 6 ITA 1467/Del/2012

disallowance on the commission is called for. Accordingly, disallowance of Rs. 8,10,505/- sustained by the CIT(A) is deleted. Ground is allowed.

7. In the result, assessee's appeal is partly allowed.

Order pronounced in open court on 10/03/2015.

Sd/- Sd/- ( GEORGE GEORGE K. ) ( G.D. AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT Dated: 10/03/2015. *MP* Copy of order to:

1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.