TaxTMI 
TaxTMI 
2009 (11) TMI 81
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....Rs. 1,11,52,457. In compliance, the appellant filed details of the party-wise commission paid as under: ------------------------------------------------------------ Name of party receiving commission Commission paid TDS (Rs.) (Rs.) ------------------------------------------------------------ 1. Linkwell Telecom 7,078 0 ------------------------------------------------------------ 2. Glow Fax Infotech 2,01,391 10,528 ------------------------------------------------------------ 3. Poorvi Bharat Steel Ltd.  ....
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.... two parties never disclosed the nature of business in this line of adventure in their audit reports; (d) That there is no apparent reason for allowing commission at different rates (4 per cent to Aswad and 8 per cent to Shakumbhari) for similar services allegedly rendered by them and for which too no details have been filed; (e) That both these companies have shown losses in their returns of income which has prompted them to obtain nil TDS certificates. Their losses did not improve despite receipt of commission and, no expenses appear in their P&L a/cs towards such services rendered by them to the assessee company; and (f) These companies are not known as liasoning agents for defence deals and have no experience in this field for which no evidence has been filed. In light of the above, he concluded that there is no basis, justification and commercial expediency for claim of commission paid to M/s Aswad Steel & Alloys (P) Ltd. and M/s Shakumbhri Pulp & Paper Mill Ltd. aggregating to Rs. 75,80,000 and therefore, disallowed the claim of expenditure by invoking the provisions contained in s. 40(a)(ia) and s. 37 of the Act. 4. The assessee being aggrieved, preferred appe....
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....bsp; (iv) Copy of list of directors of M/s Aswad Steels & Alloys (P) Ltd. --------------------------------------------------------------- (v) Copy of debit note raised by M/s Aswad Steels & Alloys (P) Ltd. --------------------------------------------------------------- (vi) Copy of IT return, audited balance sheet and financial statement of M/s Aswad Steels & Alloys (P.) Ltd. for financial ....
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.... (ii) Copy of business agreement dt. 9-1-2004 with M/s Shakumbhri Pulp & Paper Mill Ltd. --------------------------------------------------------------- (iii) Copy of bill raised by M/s Shakumbhri Pulp & Paper Mill Ltd. --------------------------------------------------------------- (iv) Copy of PAN and, audited financial statement of M/s Shakumbhri Pulp & Paper Mill Ltd. for asst. yr. 2005-06 ....
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....oth the parties to establish that rate of commission paid to both parties is not substantially at variance, as alleged by the learned AO. The basis provided by the appellant is extracted hereunder: Shakumbhri Pulp & Papers ------------------------------------------------------------ Sl. Party name Value of tender Rate Commission No. ------------------------------------------------------------ 1. Northern Command 1,54.28,608 8% 12,34,289 ------------------------------------------------------------ 2. Nagaland Power, Kohima 24,18,680 8% 1,93,494 ------------------------------------------------------------ 3. Bihar Police, Patna 50,34,854 8% 4,02,788 ------------------------------------------------------------ 4. Assam Rifle, Shillong 2,48,63,883 8% 19,89,111 ....
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....------------------------------------ 7. Forest Protection Force, Jammu 11,33,587 8.25% 93,521 ------------------------------------------------------------ 8. HQ Southern Command, Pune 45,50,662 8.25% 3,75,430 ------------------------------------------------------------ 9. NEESPCO, Assam 4,30,042 8.25% 35,479 ------------------------------------------------------------ Total 4,54,54,531 37,50,000 ------------------------------------------------------------ 4.3 Further, in reply dated (sic), it was specifically submitted that lear....
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....der the head 'Establishment expenses' from Rs. 7.19 lacs to Rs. 6.97 lacs. Thus, it is not comprehensible how the services were rendered by Aswad. In the case of Shakumbhari, the commission income disclosed is Rs. 34,75,000 as compared to nil in the preceding year. In this case, there is marginal increase in "personnel expenses" from Rs. 12.93 lacs to Rs. 14 lacs in this year. If the components of it are seen in Sch. 17, it is found that the major increase is on account of the ESI payment from Rs. 4,561 to Rs. 57,347. Thus, in this case also, the rendering of services by Shakumbhari is also not established vis-a-vis huge commission receipt; (iii) That the auditors for both Aswad and Shakumbhari in tax audit report in Form No. 3CD have clearly indicated the nature of business as such continued as for the preceding year. Likewise there is no mention of the rendering of any sort of services by them in the notes on account; which also cannot be the matter of coincidence in both the cases. (c) That the service-tax challans cannot be any evidence of services having been rendered because the appellant has claimed the credit of the said payment against the service-tax payable by it o....
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.... disallow the commission paid without making any enquiries from the commission agents was highly conjectural and nothing but suspicion. At this juncture, he proceeded to read the order of the CIT(A) and submitted that perusal of the order would show that all observations made by him are purely based on suspicion. He submitted that learned CIT(A) has failed to appreciate the agreement dt. 1st Aug., 2003 and proceeded to make observations on the basis of agreement dt. 4th April, 2004. It was observed that the observations of the learned CIT(A) that, agreement dt. 4th April, 2004 was an afterthought, is far-fetched particularly when the commission has been paid on the agreement dt. 1st Aug., 2003. In support, he also relied upon the following judicial case laws: (a) IAC vs. Haryana Conductors (P) Ltd. for asst. yrs. 1982-83 and 1983-84; (b) Shakti Cables vs. ITO for asst. yr. 1981-82; (c) Parveen International (P) Ltd. vs. Asstt. CIT for asst. yrs. 1986-87 and 1984-85; (d) Asstt. CIT vs. Parveen Industries (P) Ltd. for asst. yrs. 1986-87 and 1987-88; (e) Agvet Chemicals (P) Ltd. vs. Dy. CIT; (f) Nuchem Plastic Ltd. vs. Dy. CIT (1992) 44 TTJ (Del) 261 and; (g) M/s ....
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.... the referrals made for the supplies to government organizations and undertakings. According to the learned CIT(A), it is mandatory now for the Government organizations and undertakings to place the tenders on the internet and also in the leading newspapers therefore, reference to any tender made by the alleged commission agents to the appellant for the commission is not in accordance with the conduct of prudent reasonable person and. does not fit into concept of human psychology and probabilities. This basis in our opinion on the facts of the case of the appellant deserves a short shift as it is based on inherent contradictions, assumptions and presumptions. The fundamental fact which emerges from the material placed on record is that the appellant in the course of business of obtaining orders from Government Departments has been consistently making the payment of commission as referral fee, and such commission so paid has been allowed as deduction. The comparative chart placed on record shows that commission paid has been accepted in asst. yrs. 2002-03, 2003-04 and 2004-05. In fact. the sums of commission paid in asst. yr. 2002-03 aggregated to Rs. 2,85,01,907 and in asst. yr. 20....
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...., has held as under: "We find that while deleting the trading addition in toto, the Tribunal has noted that in the immediately preceding two assessment years, namely, the asst. yrs. 1991-92 and 1992-93, the first appellate authority had deleted the trading additions made on account of rate difference and further in respect of the asst. yr. 1994-95, the assessee had declared grinding loss at 14.30 per cent which was accepted by the Department as such under s. 143(1) of the Act. Moreover, in respect of the asst. yr. 1995-96, the assessee had declared grinding loss at 17.25 per cent which was again accepted by the Revenue while making a regular assessment. under s. 143(3) of the Act. The Tribunal has also noted that in subsequent assessment years also the grinding loss declared by the assessee at 12.44 per cent and 12.58 per cent has been accepted by the Department when assessments have again been made under s. 143(3) of the Act. These facts are not disputed by learned senior standing counsel for the Revenue. In the light of the afore noted facts, we feel that the Tribunal was justified in holding that the Revenue should not have taken a different view insofar as the present assess....
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....s placed on record the following evidences: A. M/s Aswad Steel & Alloys (P) Ltd. (Rs. 37.50 Lacs) ------------------------------------------------------------ Sl. No. Particulars ------------------------------------------------------------ 1. Memorandum of understanding ------------------------------------------------------------ 2. Order under s. 197(1) for non-deduction of tax ------------------------------------------------------------ 3. Reply furnished by Aswad Steel & Alloys under s. 133(6) ------------------------------------------------------------ 4. List of directors of Aswad Steel & Alloys ------------------------------------------------------------ 5. Debit note raised by Aswad Steel & Alloys ------------------------------------------------------------ 6. IT return and audit report ------------------------------------------------------------ 7.&....
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....areful perusal of the above evidences, we find that, as regards the commission paid of Rs. 37.5 lacs to M/s Aswad Steels & Alloys (P) Ltd., the appellant has placed on record the copy of business agreement dt. 1st Aug., 2003. The said agreement provides that., M/s Aswad Steel & Alloys (P) Ltd. would provide leads of various public sector units and other agencies for procurement of orders of Motorola two-way radios and accessories. It has also been provided that M/s Aswad Steels & Alloys (P) Ltd. will also assist in preparation and submission of the tenders from time to time. In lieu of the above, M/s Aswad Steels & Alloys (P) Ltd. shall be entitled to make a payment of referral fee and referral fee shall be inclusive of all taxes and expenses. It has been stated that invoice shall be raised by M/s Aswad Steels & Alloys (P) Ltd. only in respect of successful bidding of leads and/or successful conversion of leads into orders in the manner stated hereunder: ------------------------------------------------------------ Leads converted into orders Maximum % Maximum &....
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....the appellant from M/s Aswad Steels & Alloys (P) Ltd. and, commission was paid of Rs. 37.50 lacs in the manner stipulated under the agreement. In respect of the entire commission so paid of Rs. 37.50 lacs, service-tax of Rs. 3,47,096 was charged and, was duly deposited, as is evident from the challans placed in the paper book and, balance amount has been paid by account payee cheques. It is also a matter of record and as verified by the learned AO from the assessment records of M/s Aswad Steels & Alloys (P) Ltd. that M/s Aswad Steels & Alloys (P) Ltd. is an income-tax assessee and the entire commission so paid stands duly declared as income by M/s Aswad Steels & Alloys (P) Ltd. Moreover, in the course of assessment proceedings. M/s Aswad Steels & Alloys (P) Ltd. had duly confirmed factum of rendering of services by independent confirmation dt. 3rd Sept., 2007 wherein following evidences were placed on record: "1. Complete names and address of the directors along with their PAN. 2. Zerox copy of debit notes raised to the aforesaid company. 3. Zerox copy of IT return for the asst. yr. 2005-06. 4. Zerox copy of PAN card of the company. 5. Zerox copy of bank statement of....
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.... to suggest that referral fee has been paid under the agreement dt. 4th April, 2004 and not 1st Aug., 2003. Further, perusal of the agreement dt. 4th April, 2004 would show that same is in respect of procurement of orders as well as post-contract services unlike business agreement dt. 1st Aug., 2003 wherein the same is for providing leads/reference as well as preparation and submission of the tenders and, no more. There is no evidence to establish that agreement dt. 4th April, 2004 was ever acted upon as no sums have ever been paid or claimed as deduction by the appellant under the agreement dt. 4th April, 2004. The finding of the CIT(A) that this agreement was not produced before the AO is factually incorrect as has been correctly challenged in the grounds of appeal by the appellant. In fact, in the reply dt. 17th Feb., 2009 before him, it was categorically clarified that under MoU dt. 4th April, 2004, no commission was paid by the appellant company and the entire commission was paid @ 8.25 per cent in accordance with business agreement dt. 1st Aug., 2003. In such circumstances, once commission itself has been paid only under the agreement dt. 1st Aug., 2003, there was no justific....
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....f the opinion that the evidence of parties was necessary, it was his duty to have summoned them as has been held by the Hon'ble Allahabad High Court in the case of Nathu Ram Premchand vs. CIT (1963) 49 ITR 561 (All), more particularly in a case where onus on the appellant stands discharged. It is admitted position of fact as is undisputed that in respect of nine parties from whom leads were received by M/s Aswad Steels & Alloys (P) Ltd. and thereafter successfully converted into orders, the appellant has duly shown the income and credited. It is not a case where no income was received and expenditure was incurred. On the contrary, evidence on record clearly shows that on the basis of services received, leads were converted into orders for which income was duly declared and accounted for as income of the appellant company. The next basis stated is regarding the financial position of M/s Aswad Steels & Alloys (P) Ltd. In our opinion, factum of financial position of M/s Aswad Steels & Alloys (P) Ltd. has no connection to the issue under consideration. All what has to be examined is whether the payee had actually rendered services. In fact, their Lordships of Hon'ble Delhi High Court i....
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....3, the value of commission payable comes to Rs. 37.5 lacs. Further, even in the observations made that tenders were submitted and purchase orders were awarded but the commission has been claimed and have been paid and agreement with M/s Aswad Steels & Alloys (P) Ltd. was executed w.e.f. 4th April, 2004 is also not tenable. The details of such allegations are extracted hereunder: ---------------------------------------------------------------------- Name of party Date of Last date Date of furnishing Date of (to whom sales issue of of submission of revised price award of made) tender of tender bid contract documents documents ---------------------------------------------------------------------- 1. Haryana August, &....
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....; Purchase order supply by the assessee ---------------------------------------------------------------------- For Aswad ---------------------------------------------------------------------- Neepco. Assam 28-2-2005 31-5-2005 ---------------------------------------------------------------------- Southern Command, Pune 22-3-2005 Supply to be completed by 2-5-2005 ---------------------------------------------------------------------- Southern Command, Pune 10-3-2005 Supply to be completed by 7-5-2005 ---------------------------------------------------------------------- 9.5 The fact of matter in respect of the above is that income in respect of these contracts stand duly declared and assessed and therefore, this ground too cannot be said a basis to support that services were not rendered. The factum of rendering of services is not explained by date of supplies or invoices raised. What has to be seen is whether services have been rendered, which has duly been established in the instant case....
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....uj) wherein Hon'ble Court was considering a case where assessee carried on the business of manufacturing and selling textile machinery. It also derived income as a partner in two firms. For the asst. yr. 1970-71, it claimed deduction of Rs. 14,250 paid as commission to N on the sale of machinery manufactured by it to A mills. N had stated on oath that he had brought the assessee and A mills together and A mills had also admitted in its letter that N had been present when the negotiations for sale were going on. However, the ITO negatived the claim and, on appeal, the Tribunal held that since N was only a student and there was no proof that he had rendered any service to the assessee, the amount was not deductible. On a reference, this finding of fact was assailed as being perverse. It is further held that the statement of N that he had brought the two parties together had remained uncontroverted by the Revenue. The assertion of A mills that N was associated with the transaction also remained uncontroverted. As a result, it would be difficult to conclude that no services had been rendered by N to the assessee. The finding of fact by the Tribunal was clearly unreasonable. The assesse....
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....nce on the judgment in the cases of Swadeshi Cotton Mills Co. Ltd. vs. CIT (sic) and Lachminarayan Madan Lal vs. CIT 1972 CTR (SC) 418 : (1972) 86 ITR 439 (SC). As regards the former judgment, it will be seen that the Hon'ble apex Court held that claim of expenditure had to be tested on the facts of the case. There is no dispute to the above proposition and since on the facts of the case, it will be seen that expenditure is duly supported by necessary evidence, the same is eligible claim of deduction. So far as the case of Lachminarayan Madan Lal vs. CIT, it is seen that it was noted that mere existence of an agreement would not be sufficient for allowability of claim of commission. This proposition is undisputed and in any case however cannot be applied to the facts of the instant case. In the instant case, claim of the appellant is not based on the solely agreement but based on the fact that payees have duly confirmed the rendering of services. Also other facts such as details of the parties for whom services have been rendered, payment of service-tax and payment by account payee cheques and declaration for such sum as income by parties supports the claim of the appellant that se....