Globus Infocom Ltd. Versus Commissioner of Income Tax
ITA No. 1315/Del/2012
Order Dated.- September 7, 2015
The provision under Section 263 of the Act does not give powers to the Commissioner to make enquiry again for the issue which has been decided after verifying all the documents on record by the Assessing Officer. In fact the scope of Section 263 of the Act is in respect of the order passed by the assessing officer which is erroneous in so far as it is prejudicial to the interest of the revenue. In the present case, the Assessing Officer has verified all the documents in fact he has taken into consideration and after verifying the same has rightly held that no disallowance is to be made under Section 36(1) (ii) of the Act. We, therefore, set aside the impugned order of the Ld. CIT and restore the assessment order passed by the A.O.
N K Saini, AM And Suchitra Kamble, JM
For the Petitioner : Sh S Krishnan, Adv
For the Respondent : Sh A K Saroha
Per Suchitra Kamble, JM
This appeal is filed against order dated 29.02.2012 passed by the CIT, Delhi IV u/s 263 of the Income Tax Act 1961 (hereinafter referred as "the Act").
2. This matter is remitted back from the Hon'ble High Court, Delhi vide order dated 13.08.2014 (ITA No. 447 of 2013).
3. The assessee is engaged in manufacturing and trading of Projectors, Plasma, School Board, School Pads & other Audio/Visual Products, AMC & renting of Audio/Video Products. The assessee had filed its return under normal provisions. However, the return was taken up for scrutiny and the Assessing Officer had made additions to the income of assessee on both substantive and protective basis. The Assessing Officer had carried out due verification and scrutiny and was satisfied that the bifurcation/apportionment was justified and correct.
4. Subsequently, a notice was issued by the Commissioner u/s 263 of the Act. The Commissioner had issued notice by observing that commission required to the disallowed u/s 36(1) (ii) of the Act, as it was paid to the two Managing Directors. The Commissioner also observed that assessee had booked majority of expenses against the unit carrying out trading operations and thereby had inflated profits of the manufacturing unit for claiming exemption u/s 80IC of the Act, whereas expenses booked for eligible unit u/s 80IC of the Act were lesser than the amount as against expenses on account of trading activities.
5. The Commissioner in his order observed that the assessment made by the Assessing Officer accepting such commission payment without verifying as to whether provisions of Section 36 (1) (ii) of the Act are attracted, was set aside on this issue with a direction to the Assessing Officer to verify as to whether the concerned directors were stake holders/shareholders in the company, entitled to profits/dividend of the company and if these facts appear to be correct then the provisions of Section 36 (1) (ii) of the Act may be invoked to disallow the commission payment made to the said directors and the fresh assessment order u/s 143(3) of the Act may be passed accordingly.
6. On the second issue, the Commissioner, instead of commenting upon or giving a final finding whether aforesaid apportionment was acceptable or not, observed that it was possible that there was an attempt to inflate expenses on trading activity and an attempt might have been made to reduce actual expenses of the exempt unit. The use of the word 'possible' would indicate that there was no finding and adjudication by the Commissioner and his observations were based on mere suspicion.
7. The assessee went in appeal against the said order under Section 263 of the Act before the Tribunal. The Tribunal dismissed the appeal of the assessee vide order dated 26.042013. The assessee went to Hon'ble High Court and the Hon'ble High Court remitted back the matter by directing the Tribunal to consider the factual matrix as related to various documents on record and to examine the scope of Section 36 (1) (ii) of the Act.
8. The Hon'ble High Court has given clear cut finding in Para 11 that:
"11. It is clear from the order passed by the Commissioner under Section 263 that the issue relating to apportionment of common expenditure was specifically gone into and examined by the Assessing Officer, who was fully satisfied with the apportionment made. Thus, it was not a case of "no" enquiry but specific and pointed enquiries by the Assessing Officer. The said finding and apportionment could have been set aside and negated only with the finding by the Commissioner, that the Assessing Officer was erroneous and wrong. The Commissioner should have examined and gone into the question of apportionment on merits. Mere statement that it was possible that the Assessing Officer was erroneous, is not sufficient and does not meet the requirement stipulated by law."
9. Therefore, only one issue remains to be looked into relating to Commission paid to Manish Dham and Rajiv Bakshi and applicability of Section 36 (1) (ii) of the Act. In this regard the assessee has submitted three letters along with ledger accounts of the assessee before the Assessing Officer. The assessee has given the details of commission paid to related parties along with the copy of agreement and common business head manual and the same was enclosed to letter dated 22.06.2009. The assessee further submitted the copy of ledger accounts of commission/brokerage, sale promotion, freight and cartage, rebate and discount alongwith details of tours and travels. The assessee further submitted in the said letter that he has submitted the information related to Shri Rajiv Bakshi who is a Regional Head of the Company (also called the business head) who is old associate of the company and got the commission on the sale done by him in his respective region. The company has prescribed a Business Head Manual which prescribes the details of the terms and conditions of the commission sale contract. The assessee further submitted the chart of equity share holding as on 13/3/2012 related to various years starting from 31st March 2007 till 13th March 2012 in this particular, Mr. Manish Dham was not acquiring any percentage of equity in the year 2007 whereas Mr. Rajeev Bakshi was having 1.72% of equity in the year 31st March 2007. The same is annexed at page 42 of the paper book submitted by the assessee before this Tribunal. The assessee submitted the entire paper book with the relevant documents to Assessing Officer and after going through all the documents the Assessing Officer has passed reasoned assessment order. The assessee had booked majority of the expenses against the unit carrying out trading operations and thereby have inflated profits of the manufacturing unit exempt u/s 80IC of the Act expenses book for the eligible unit u/s 80IC of the Act were only ₹ 12,31,78,274/- as against expenses of ₹ 37,26,60,316/- booked against trading activities. The Hon'ble High Court in this respect has quoted para 6 of the CIT's order.
10. The AR submitted that the commission paid was duly approved by the shareholders of the company, and therefore, Section 36 (1) (ii) was not applicable. The AR further submitted that assessee has been maintaining separate books of account for manufacturing unit receipts and expenditure which was exempt u/s 80IC of the Act and the trading activities. However, there were certain common expenses, which were to be segregated, as common expenses were not unusual, abnormal or unique in such cases. In order to carry out the said segregation, the assessee has made apportionment and the ratio thereof was indicated and informed to the Assessing Officer.
11. The DR submitted that the ITAT's first order has to be taken into consideration and further submitted that the Department was not given enclosures to the documents of the letter dated 22.06.2009 of the assessee at the time of assessment proceedings. Therefore, the Commissioner of Income Tax has rightly passed order under Section 263 of the Act. The DR also mentioned that High Court has directed the Tribunal to decide both the issues in respect of applicability of Section 36(1) (ii) of the Act as well as apportionment. The DR further submitted that the AO though made observations by taking into account of the evidence placed before him still, the AO has not applied his mind, therefore submitted dismissal of the appeal.
12. We have perused all the records and taken into account all the submissions made by the AR as well as DR. The first contention of the DR in respect of directions given by the High Court is not as per the actual direction given by the Hon'ble High Court. The Hon'ble High Court has given a direction in respect of examining the scope of Section 36 (i) (ii) of the Act after taking into account various documents. Secondly, the enclosures supplied by the assessee to the Assessing Officer were actually given to the Assessing Officer and there was no proof given by the DR that at no point of time, that the documents were not available with the Department. The third aspect that AO has not applied his mind does not come in the purview of Section 263 of the Act. The scope of Section 263 of the Act has to be taken into account that if the Assessing Officer while passing the Assessment order has erroneously done the same and which is prejudicial to the interest of the revenue then only the revision of orders u/s 263 of the Act be passed by the Commissioner of Income Tax. The provision under Section 263 of the Act does not give powers to the Commissioner to make enquiry again for the issue which has been decided after verifying all the documents on record by the Assessing Officer. In fact the scope of Section 263 of the Act is in respect of the order passed by the assessing officer which is erroneous in so far as it is prejudicial to the interest of the revenue. In the present case, the Assessing Officer has verified all the documents in fact he has taken into consideration and after verifying the same has rightly held that no disallowance is to be made under Section 36(1) (ii) of the Act. We, therefore, set aside the impugned order of the Ld. CIT and restore the assessment order passed by the A.O.
13. In result, appeal of the assessee is allowed.
The order is pronounced in the open court on 7.9.2015.