Saga Departmental Stores Ltd. vs Commissioner Of Income ...
2009 Latest Caselaw 3072 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   ITA No.162/2009

                                                   Dated: 10th August, 2009.
SAGA DEPARTMENTAL STORES LTD.                                   ...Appellant.

                           Through:     Mr. Ajay Vohra, Ms. Kavita Jha, Mr.
                                        Amit Sachdeva and Mr. Sriram Krishna,
                                        Advocates.

              VERSUS

COMMISSIONER OF INCOME TAX(APPEALS)
                                                                 ....Respondent

                           Through:     Mr. Sanjeev Sabharwal, Sr. Standing
                                        counsel with Mr. Arvind Vasova and Mr.
                                        Mohan Prasad Gupta, Advocates.

CORAM:
HON'BLE MR. JUSTICE A. K. SIKRI
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

     1. Whether the Reporters of local papers may be allowed to see
        the judgment?


     2. To be referred to the Reporter or not?


     3. Whether the judgment should be reported in the Digest?

 %
VALMIKI J. MEHTA, J.

1. This appeal is preferred by the assessee against the order dated

29.8.2008 of the Income Tax Appellate Tribunal (I.T.A.T). According to us, no

substantial question of law arises and the appeal is therefore, liable to be

dismissed.

2. The only issue in this case pertains to the claim of the assessee of

expenditure incurred by it for payment of commission to taxi drivers, guides

and other commission agents. The assessee carries on the business of

departmental stores in which various handicrafts items, carpets etc. are sold to

tourists. For the Assessment Year in question i.e. 2005-2006, the assessee

claimed expenditure towards commission paid to the taxi drivers, guides and

other commission agent to the tune of Rs.11,45,47,937/-. The Assessing Officer

allowed Rs.1,21,55,213/- as expenditure out of the aforesaid amount claimed by

the assessee. The assessee declared a total income of only 1.43 crores on a

turnover of Rs.55,45,91,631/-. The declared gross profit rate was 54.15% and

the net profit rate was only 1.93%. The Assessing Officer noticed that payment

to the middlemen was around 18-20% of the total turnover. The A.O. noticed

that the majority of the expenditure of commission, being Rs.10,23,92,724

(Rs.11,45,47,937- 1,21,55,213), was actually the payments made below

Rs.2500/- on which TDS is not compulsory. The AO arrived at a finding that

the rule of consistency cannot be applied to a case where the business practice is

full of flaws and defects and the ratio of profit is unreasonably low. The AO

further found in view of the fact that the gross profit rate was 55.14% and net

profit rate was only 1.93% which showed that the expenses are unreasonably

inflated. It was noticed that in the past also on various grounds, disallowance

was made of different amounts from the expenses claimed towards payment of

commission. The assessee challenged the order before the CIT(A) and the

CIT(A) increased the amount of expenditure allowed from Rs.1,21,55,213/- to

3,69,05,109/-. The CIT(A) noted that onus is on the assessee to prove that the

commission has been paid for rendering the actual services and it was found in

the instant case that the asseseee had not furnished credible evidence in the

form of name, addresses etc. of the person to whom commission was paid. The

CIT (A) also noticed that none of the persons who were paid commission were

brought for verification before the A.O. The CIT(A) noticed that the assessee

had shown different number of persons, with reference to each sale, for

example, in respect to one sale made on 1.10.2004 (sale value Rs.1,50,891/-) the

assessee claimed to have paid commission to 26 person and in each case the

amount is less than Rs.2500/-. Similarly, on a single sale worth Rs.3,37,500/-

the assessee claimed to have made payments to 35 persons wherein the

commission is shown at less than Rs.2500/- i.e. Rs.2,458/- per head. It was

further noticed from the details that the name of a person is not repeated in a

month and that was an improbability taking the human probability into

consideration that any commission agent such as a taxi driver or a guide when

he is benefited by commission he would normally visit again by bringing

tourists. The CIT(A) further noted that payments were made to various persons

in odd figures such as Rs.2,378/-, Rs.2,458/- Rs.2,462/- etc. Considering the

aforesaid facts, CIT(A) allowed the aforesaid amount of Rs. 3,69,05,109/-

which works out to a deduction at the rate of Rs.14% of the total turnover. The

I.T.A.T. besides noting the above facts has also noticed that most of the

vouchers are self made and the assessee did not produce any of the recipients.

The I.T.A.T noticed that in the earlier years , some disallowance was regularly

sustained which in itself indicated that the assessee's books are not fullproof

and on each year the expenditure was estimated. The I.T.A.T duly noticed that

the additional factor in that year under consideration was that both the AO as

well as CIT(A) have made a detailed enquiry to highlight the improbability of

the payments claimed by the assessee and thus, it was a just case to deviate from

the consistent method claimed to have been followed earlier. In view of the

facts of the case, especially with regard to paying of TDS, only for an amount of

Rs. 1,21,55,213/-, out of the total expenditure, claimed of Rs.11,45,47,937/-; the

fact that none of the recipients were produced; various transactions were

questionable; extremely low figure of net profit as compared to the gross profit;

the fact that there were dis-allowances also in the earlier years and so on, the

I.T.A.T allowed commission at the rate of 16% of the total turnover as against

14% fixed by the learned CIT(A).

3. Therefore, the very limited dispute is whether the commission amount

payable which is allowed as expenditure should be 16% as held by the I.T.A.T

or 18-20% or so, as claimed by the assessee, the ITAT having in any case

increased the expenditure to 16%, from 14% as allowed by the CIT(A).

4. In view of the insufficiency in the probative value and probability value

of the expenditure incurred on account of facts detailed above, the factual

findings have been arrived at by the I.T.A.T. The counsel for the appellant has

strenuously urged that either the entire commission should have been allowed or

the books of accounts should have been rejected. We do not think this

contention is correct in the facts of the present case in as much as the authorities

below have clearly noted the deficiency in the proofs and that various

transactions were found to be questionable. In various cases, where transactions

run into huge numbers i.e. of hundreds or thousands, it is not unusual to take a

sample basis to arrive at a decision. Having done so, in the facts of the case,

and taking such facts in that totality, these findings of facts have been arrived at

by the I.T.A.T to allow expenditure towards commission at 16%. We do not

find any valid justification to interfere under Section 260-A of the Income Tax

Act, 1961 with the order of I.T.A.T. as the aforesaid facts do not raise any

substantial question of law.

The appeal is, therefore, dismissed.

A. K. SIKRI, J

VALMIKI J. MEHTA, J

AUGUST 10, 2009/ib