IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 103 of 2009()
1. THE COMMISSIONER OF INCOME TAX, COCHIN.
... Petitioner
Vs
1. EASTERN CONDIMENTS (P) LTD.,
... Respondent
For Petitioner :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
For Respondent :SRI.P.BALAKRISHNAN (E)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :28/10/2009
O R D E R
C .N. RAMACHANDRAN NAIR &
V.K. MOHANAN, JJ.
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I.T.A. Nos. 103,132,196 & 272 OF 2009
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Dated this the 28th day of October, 2009
JUDGMENT
Ramachandran Nair, J.
Even though several questions are raised by the revenue in the
connected appeals filed against the very same assessee for the
assessment years 2001-02 to 2004-05, we notice that there is only one
question that could be treated as a substantial question of law, which is
reframed by us as follows:
Whether on the facts and in the circumstances of the case,
was the Tribunal justified in cancelling the disallowance of
excess over 5% discount given by the assessee to it’s
Managing Director towards sales commission?
We have heard standing counsel appearing for the appellants and Sri. P.
Balakrishnan, counsel appearing for the respondent-assessee.
2. The assessee-company is part of a group engaged in
manufacture and export of spices, spices powder, curry powder, etc.,
under the common brand name “Eastern”. Export is done by the
proprietorship concern of the Managing Director which is located at
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Okkal in Ernakulam Dist. whereas the assessee’s manufacturing and
packing unit is at Adimaly in Idukki Dist. Normal commission paid by
the assessee for marketing it’s products is 5%. However, for the sales
effected to the proprietorship concern of the Managing Director the
assessee paid higher discount of 10% which is double the normal rate.
The Assessing Officer noticed that the purpose is to evade payment of
tax in respect of 5% because the Managing Director’s concern being
engaged in export is entitled to deduction under Section 80HHC of the
I.T. Act. Even though the assessee put forward a claim that sales to
Managing Director was in bulk and the packing was done by the
Managing Director, the assessing officer noticed that during assessment
year 2001-02 export sales were made by the Managing Director from
the very beginning of the previous year 2000-01 and he purchased
certain machinery for packing only in December, 2000. Further it was
established by him in the assessment order that goods immediately on
receipt from the assessee were exported by the Managing Director.
The assessing officer based on these findings disallowed 5% discount
which was confirmed in first appeal. However, on second appeal, the
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Tribunal allowed the appeal for the assessment year 2001-02 and for
the remaining years also, following the said order, the Tribunal allowed
the claim, against which these appeals are filed by the revenue.
3. On going through the Tribunal’s order and after hearing both
sides, we are unable to sustain the order of the Tribunal because the
Tribunal assumed the claim of the assessee that the additional discount
is attributable to the packing cost incurred by the Managing Director as
true. In order to prove that the Managing Director was left with
packing for export and sale of the commodity locally, it was for the
assessee to prove that sales were in bulk quantity and the Managing
Director was engaged in packing. In this case, the finding by the
assessing officer is that the Managing Director purchased certain
machinery only in December, 2000 whereas goods purchased from the
respondent were from April, 2000 onwards. It is the further finding of
the assessing officer that the goods while in transit from assessee to the
Managing Director straightaway went to the export stream which is
impossible unless the goods were in packed conditions. It is seen from
the order of the Tribunal that Tribunal has not cared to consider any of
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these findings, nor was there any finding by the Tribunal that the
Managing Director maintained even a facility for packing. We notice
that the Tribunal assumed certain facts which were contrary to the facts
found by the assessing officer and confirmed in first appeal. We
therefore allow the appeals by vacating the orders of the Tribunal.
However, we feel that disallowance cannot be restored as such because
the Managing Director was stated to be engaged in packing at least for
subsequent years and if additional discount of 5% is attributable to
packing cost incurred, certainly disallowance should not be made at
least to the extent made by the assessing officer. It is for the assessee
in co-ordination with the Managing Director to prove that sales were of
bulk quantity and the export was made after sufficient time lag within
which time, the Managing Director packed the commodity for export
and for local sale. In fact, the accounts of the Managing Director
would contain the employees’ strength, purchase of packing materials,
receipt of goods, etc., and the documents pertaining to despatch of
goods for export and local sale which will clearly show whether
Managing Director was engaged in packing. We therefore allow the
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appeal by setting aside the order of the Income Tax Appellate Tribunal
and remand the assessments to the assessing officer for giving an
opportunity to the assessee as well as to the Managing Director to
prove that packing was done by the Managing Director to justify
additional discount granted and if the assessee fails to do so,
disallowance can be made in the assessment.
4. As already stated, other issues pertaining to disallowance of
small items of expenditure like vehicle expenditure, advertisement
charges, do not give rise to any substantial question of law. We
therefore decline to entertain the appeals on these issues.
Appeals are allowed in part as above.
(C.N.RAMACHANDRAN NAIR)
Judge.
(V.K. MOHANAN)
Judge.
kk
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