TaxTMI 
TaxTMI 
2006 (6) TMI 265
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....firstly. 4. Briefly stated, facts of this case are that the assessee is a company and is engaged in the business of financial advertising since 1987. For assessment year 1995-96, return of income was filed on 30-11-1995 declaring a total income at Rs. 85,79,794 was subsequently revised on 19-11-1996 showing a revised total income at Rs. 85,13,860. The case was selected for scrutiny. The Assessing Officer noted that assessee had claimed a deduction of Rs. 1,14,10,882 on account of commission/service charges. The Assessing Officer asked the assessee to furnish the details to justify it's claim. The assessee furnished the details of parties to whom the commission was paid. It was explained that the company was engaged in the highly competitive business of financial advertising and publicity campaigns for Corporates coming out with public issues, therefore, the assessee paid commission to various parties (both Corporates and individuals) since beginning of it's operations from 1987 for generating business for the company. It was also explained that commission/service charges were paid through account payee drafts on the basis of debit notes/bills raised by the parties acting as agents....
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....umstances and position of law, the expenditure of Rs. 1,00,00,818 on account of commission/service ahcrges cannot be said to have been laid out or expended wholly and exclusively for the purposes of the business of the assessee within the meaning of section 37(1) of the Act and, therefore, deduction cannot be allowed for the same in computing the income of the assessee. Accordingly, deduction claimed for the above commission/service charges is disallowed and, in the result, a sum of Rs. 1,00,00,818 will be added to the total income. Penalty proceedings under section 271(1)(c) of the I.T. Act, 1961 are also initiated on this account." The Assessing Officer, however, accepted payment of commission of Rs. 14,10,064 to other parties at H.O. and payment of commission at other places. Aggrieved by the decision of the Assessing Officer, the assessee preferred an appeal before the learned CIT(A). In the appellate proceedings, findings of Assessing Officer were controverted by the assessee by submitting a series of explanations and arguments. The learned CIT(A) after considering the submissions made by the assessee and findings of Assessing Officer deleted the addition and recorded his fin....
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....I. Even during the current assessment year commission of Rs. 14,10,064 paid to several parties under similar facts and circumstances have been accepted by the Assessing Officer himself. Considering the rates of commission paid in earlier years, the rate of commission during this year cannot be said to be excessive or unreasonable. Nothing relevant has been brought on record to show that commission paid to SIL was for extra commercial consideration and, therefore, the expenditure was not spent wholly and exclusively for purposes of appellant's business. Therefore, commission paid to Snowcem India Ltd. during this year under similar circumstances cannot be disallowed. Under the circumstances, I find no justification for the disallowance of the payment of commission of Rs. 1,00,00,818. The Assessing Officer is directed to delete the same." In assessment year 1993-94, disallowance of commission of Rs. 67,87,536 paid to various parties by Assessing Officer was deleted by learned CIT(A). The findings of learned CIT(A) are as under :-- "I have carefully considered the submissions of the learned counsel as also the facts of this case. I find that the appellant is carrying on business in....
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....n expended was wholly and exclusively for the purposes of the assessee's business. The learned D.R. further submitted that the facts in both the years were identical qua of issue of commission paid, and hence for the purposes of his arguments, he relied on the order for assessment year 1995-96 wherein commission paid, to only one party i.e. Snowcem India Ltd. had been disallowed by the Assessing Officer referring to the evidence submitted in support of the claim of payment of commission, the learned D.R. firstly stated that the assessee-company had merely filed copies of debit notes raised and they had not filed any evidence by way of written contract, correspondence or reports etc. to prove that the commission agents had actually rendered services for the purposes of assessee's business. Secondly he submitted that Snowcem India Ltd., the commission recipient, though having acknowledged the receipt of commission, had not given specific replies to all the questions asked by the Assessing Officer. Thirdly, he submitted that only a few clients of the assessee-company had admitted to the involvement of Snowcem India Ltd. as an intermediary. It was also contended by the learned D.R. tha....
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....the assessee and the nature of services rendered by the commission agents. The learned counsel contended that the commission agents had rendered the services of introducing new customer, for securing advertising contracts etc. He further contended that such services were more personal in nature wherein the commission agent was able to prevail over the prospective customers to assign their advertising contract to the assessee-company. He further submitted that normally for such services there would be no correspondence, records or documents. He further clarified that as per the SEBI regulations there was no requirement on the advertising agency to maintain the records, as was the case with the Lead Manager, Advisor to the issue or the Registrar to the issue. To support his contention regarding commission paid for introducing new customers, for securing advertising contracts, for canvassing business etc. was allowable expenditure, the learned counsel relied on the following decisions : i. Swastik Textile Co. Pvt. Ltd. v. CIT 150 ITR 155 (Guj.) j. CIT v. Hewitt Robins 141 ITR 278 (Cal) k. CIT v. Ishwar Prakash & Bros. 159 ITR 843 (P&H) l. Pennzol Investment & Trading Co. (P.) Ltd.....
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....ty i.e. Snowcem (India) Ltd. has been disallowed by the Assessing Officer. In this connection the learned counsel submitted that Snowcem India Ltd. was not a related entity and that the entire transaction was at an arm's length. He further invited our attention on page 119 of the paper book to show that Snowcem India Ltd. had reflected the commission received as its income and had made a provision for taxation of Rs. 80,00,000 for the tax liability arising on current year's income of Rs. 6,55,33,473. He further stated that Snowcem India Ltd. was engaged in the business of exterior paints since last 37 years and during all these years had developed extensive business contacts and associations. On being asked, he stated that the assessee-company was associated with Snowcem India Ltd. as its advertising agency. The learned counsel submitted that under section 37 the extent of evidences required for the purposes of determining the allowability of expenditure was not prescribed and merely because the evidence in the manner and form in which it was required by the Assessing Officer was not available, the disallowances could not be made. The learned counsel also contended that the assesse....
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....f expenditure incurred the commission was held to be non-allowable expenditure. As regards the decision in case of Vishnu Agencies (P.) Ltd. v. CIT (supra), it was submitted that the commission paid to the sole selling agency was disallowed as there was no documentary evidence to show that the agent had rendered any services. The Hon'ble Calcutta High Court held that it was the duty of the Authorities to consider both oral as well as documentary evidences and hence set aside the matter to the ITAT. As regards the decision in the case of Precision Instrument Mfg. Co. v. CIT (supra), it was held that selling agency firm was not genuine and no services were rendered by the agency. As regards to the decision in the case of Tarini Tarpauline Productions v. CIT (supra) it was held that the secret commission was not deductible in view of the amendment to provisions of section 37 by Finance (No. 2) Act, 1998. The learned counsel further pointed out that the analysis made by the Assessing Officer in assessment year 1993-94 regarding the percentage of commission was incorrect, because the assessee had paid commission only on Rs. 9,05,00,487 being the value of sales procured through agents wh....
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....4,56,21,734.00 4,84,82,574.00 2,14,563.00 7.50 1990-91 2,66,30,963.00 6,46,64,853.57 9,12,95,816.57 19,97,322.23 7.50 1991-92 3,17,82,896.71 8,15,62,285.81 11,33,45,182.52 18,87,118.00 5.94 1992-93 6,34,45,579.95 12,22,05,369.84 18,56,50,949.79 28,19,032.59 4.44 1993-94 9,05,00,487.00 22,38,86,103.38 31,43,86,590.38 67,87,536.50 7.50 1994-95 8,38,59,690.00 26,80,28,660.69 35,18,88,350.69 62,89,476.79 7.50 1995-96 20,73,15,609.40 36,83,48,890.39 57,56,64,499.79 1,38,37,147.90 6.67 The individual rate of commission has varied from party to party but the same is not under dispute. The assessee has also placed details on record regarding business assignments procured through parties to whom commission had been paid and business procured through direct efforts. In the impugned years, the business procured through such intermediaries is more than 27% of total business done by the company. The assessee has also furnished the details of sales promotion and advertising expenses from assessment year 1989-90 to assessment year 1995-96, which are given as under :-- Sl. No. Assessment Year Particulars Amount (Rs.) 1. 1989-90 Sales Promotion & Adver....
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....rlier years on a routine manner. This is further supported by the fact that the manner of investigations is almost identical and the language of the order is also similar. The facts of the case of the year under consideration are all almost identical to the facts of the case of earlier years. Therefore, the ratio of the orders of the earlier years and the fact of acceptance of payment of commission in one year at the assessment stage only lend considerable support to the case of the assessee. Having stated so, we find that the issue involved in this appeal is regarding nature of services rendered by the parties to whom the commission has been paid which is quite interesting and requires our consideration. Admittedly, the claim of deduction of commission paid has been denied by the Assessing Officer for the reason that no specific services were rendered by the recipients and also there was no documentary evidence with regard to such services. The assessee has consistently claimed that the commission was paid to the parties who had taken the services of the company at one or other point of time and to persons/parties who could generate business for the assessee. The role of such part....
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....ractice is prevalent in all trade/industrial and commercial activities. A satisfied customer or social contact can bring business more effectively as compared to own marketing efforts. It is also a fact that a person may help other person once or twice without any monetary consideration but when some interest is created then more focused efforts are made, however, generally no direct evidence can be produced and the relationship of the services rendered and business purpose has to be established only by circumstantial evidence and growth in business in such cases. The assessee has placed statistical data showing growth in business which also supports the case of assessee. It is also in the common knowledge that even medical professionals get referral commission from the hospitals for referring clients to such hospitals without having formal agreement with such institutions. Further, details of advertisement expenses have also been placed on record to show that in addition to commission, the assessee has not incurred heavy expenditure on advertisement and publicity for marketing of it's services which further support the case of assessee. 7.1 As stated earlier that the Assessing Of....
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..... The rendering of services is a matter of fact and it can be established so or otherwise only on the basis of facts of that case. Hence, no general principles can be laid down regarding the allowance of commission. However, once it is concluded that the intermediary, in fact rendered services to the assessee then, general proposition of law becomes inapplicable to the present case. 7.2 We also find force in the contention of the assessee regarding discharging of its onus by submitting the particulars of the payees and the assessee cannot be faulted where some parties do not comply with the requirements of the Assessing Officer. We also find force in the contention of the assessee that the Assessing Officer ignoring the actual requirements of assessee and nature of services rendered by the parties resulting into the business required the assessee to prove the fact of rendering of services in his own way which was not accepted by the learned CIT(A) while deleting the disallowance. Although the "principle of Res judicata" is not applicable to the Income-tax proceedings, it is also a settled judicial proposition that there must be consistency in the approach of the Department in deal....
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.... the specific facts and the circumstances of this case, we are of the considered opinion that the order of the learned CIT(A) is in accordance with law, therefore, we uphold the same. Thus, this ground of the revenue is rejected for both the years under consideration. 8. The other issue in assessment year 1993-94 is regarding the allowability of Director, Shri Vinnet Suchanti's foreign trading expenses. The Assessing Officer has disallowed the expenditure on the basis that the expenditure was personal in nature and not incurred wholly and exclusively for the purpose of the business. According to the Assessing Officer, the expenditure was incurred for the reason that the Shri Vineet Suchanti was the son of Shri Nirmal Suchanti, the Chairman and Managing Director of the company; that the expenses incurred was for a new line of activity i.e. 'product advertising'; and that the appellant-company had not incurred similar expenses on training of any other employee. In support of the disallowance, the Assessing Officer relied upon the decision of Hon'ble Bombay High Court in the case of Hindustan Hosiery Industries ( 209 ITR 383 ). The learned CIT(A) reversed the decision of the Assessin....
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.... the nexus of the expenditure with the business activities of the assessee, the learned counsel submitted that the advertising field is a creative and ever evolving field and it was essential that the assessee kept itself abreast of all the new techniques and developments. He submitted that the term, 'product advertising' should not be confused as a new line of activity as in real sense the assessee was itself engaged in the business of 'financial products advertising'. The learned counsel submitted that similar expenditure incurred on another employee in the subsequent year was allowed as a deduction by the Assessing Officer and hence it was clear that the nature of training expenses was incidental to the carrying on of business. The learned counsel also submitted that the sole reason for which the disallowance had been made is that Shri Vineet Suchanti was a relative of the Chairman & Managing Director of the assessee-company. The learned counsel also pleaded that the payment was not for extra commercial considerations and the selection of Vineet Suchanti to pursue training abroad was purely for commercial consideration. In support of his arguments, the learned counsel relied on ....