CA Vinamar Gupta
What is apparent is not always real. To reach out to the real story, one has to undertake the scavenging exercise. This daunting task undertaken by ITAT Amritsar in a recent case pronounced on 05-02-2016 to resolve the mayhem when survey documents along with auditors qualifications had apparently almost maimed the assessee.
First round of proceedings
The assessee M/s. J&K Dairy Producers was during survey proceedings found to maintain a manual register containing record of commission paid Rs. 1833681/- along with purchases to persons who collected milk on the behalf of the assessee. However, entry in computerized records was consolidated both for purchase and commission. No TDS was deducted on the payment and auditors qualified their tax audit report for non deduction of TDS and also stated the fact of commission paid in statement recorded u/s 131, there by inviting disallowance by the department.
Since the assessee pleaded not having paid any commission, CIT A allowed the appeal of the assessee on presumption that even if some commission has been paid outside the books of the assessee as unexplained expenditure, deduction of the same as business expenditure has to be allowed. The observation of CIT A were in direct contradiction with proviso to section 69C which does not allow any such deduction of unexplained business expenditure. Hence ITAT disagreeing with the observations of CIT A and also finding some deficiencies in the exercise undertaken by the Assessing officer remanded the case back to Assessing Officer to examine the recipients of the commission.
Second Round of Proceedings
In second round of the proceedings, The Assessing Officer issued
summons to alleged recipients of the payment of commission which were received back for addresses not traceable except one recipient who denied having received any such commission. The assessing officer however alleged that the assessee has not been able to prove that no commission has been paid by it. And Further since auditors’ report also establishes the same fact, the disallowance of commission may be maintained.
The assessee filed an appeal before CIT A who again referred it for remand report to the Assessing Officer because scope of inquiry by assessing officer was not as per directions of ITAT. The remand report of the assessing officer mentioned that for examination of recipients, letter was written to Deputy Registrar of Co-op Societies who communicated that alleged recipient societies are not registered as per their record. AO also reiterated the factum of commission not having been received as stated by one of alleged recipient societies. Further a certificate from chartered accountant was also produced before AO which also certified that no commission had been paid to alleged recipient societies. Bankers of the assessee also furnished similar certificate. It was also stated that the amount of commission was not mentioned in the Profit and loss account. AO also stated that statement showing commission has not been signed by any recipient.
However, the CIT A concluded that vanishing of alleged recipients reflects the motive to avoid incident of tax both by person making payment as well as recipients. The CIT A also relied upon survey documents and disbelieved remand report holding that it is based on self serving documents.
Judgement of the ITAT :
a) The ITAT in first round of proceedings had instructed for examination of recipient societies, which was no adhered by AO in second round.
b) The CIT A has termed affidavit of one society, certificate by CA and bankers certifying the fact that no payment of commission has been made by assessee society as self serving documents, without rebutting the same.
c) CIT A has not commented on fact of commission not appearing in profit and loss account.
d) CIT A has placed reliance on survey documents which was again outside the purview of scope of enquiry as directed by ITAT in first round of proceedings i.e. examination of recipients. Even the CIT A requisitioned the remand report only because AO’s order in second round was not as per ITAT directions in first round.
e) CIT A has not been able to rebut the finding in remand report that statement showing commission is not signed by any recipient.
f) The assessee’s auditors qualified their report on basis of sheets not forming part of regular books of accounts without giving assessee an opportunity to explain the actual position. Also tax audit report stands over ridden by later certificate of CA.
Hence the amount of commission can not be disallowed to the assessee.
Conclusions: The exercise of exploring facts is more painstaking as compared to exploring the law. It is a popular saying that 95% of law practice is based on practice of facts. However the above judgment brings out that second round of proceedings by tax authorities should remain confined to directions of higher courts in first round. Further CIT A should not be stepping out of remand report requisitioned by himself by resorting to subjective considerations and also that the assessee can not be asked to prove a negative evidence. Also the revenue can not stand benefitted by qualification remarks in auditors’ report which have been rendered on documents not forming part of assessee’s regular books of accounts without giving assessee an opportunity of explaining actual position and which stand over ridden by subsequent CA certificate on the same issue.
(Author :CA Vinamar Gupta, 53-E, Dayanand Nagar-II, Lawrence Road, Amritsar, Mob: 9356048001, firstname.lastname@example.org)