TaxTMI 
TaxTMI 
2010 (2) TMI 649
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....ice under section 148 was issued on29-12-2006. In response to this notice, the assessee submitted that the return already filed may be treated as a return of compliance to notice under section 148. The Assessing Officer in the assessment order has mentioned that the Assessing Officer who has passed the assessment order in the case of M/s. Sadem India Ltd. has held that the commission received by M/s. Sadem India Ltd. from the assessee was not genuine. Since M/s. Sadem India Ltd. was showing loss return, therefore, M/s. Sadem India Ltd. showed receipt of commission so that the assessee company may be benefited in avoiding the tax on the expenditure so shown as commission. The Assessing Officer in his order has mentioned that following findings have been given by the Assessing Officer while passing the assessment order in the case of M/s. Sadem India Ltd. "(i) M/s. Sadem India Ltd. failed to prove any involvement justifying receipt of commission. (Para 6 of the order) (ii) The payment of commission was nothing else but routing of the income through the assessee to avoid its taxability as M/s. Sadem India Ltd. has heavy brought forward losses and unabsorbed depreciatio....
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....aimed on account of commission payment is to be disallowed as expenditure in the hands of the Mehru Electricals & Mechanical Engineering (P.) Ltd. and to be added back to its total income. In view of the above, I have reason to believe that the income of Rs. 46,46,867 for the assessment year 2004-05 in the case of M/s. Mehru Electricals & Mechanical Engineering (P.) Ltd., which was assessable to tax, has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961." The assessee was provided the reasons for issuing the notice under section 148 on27-6-2007. While making the assessment, the Assessing Officer required the assessee to explain as to why the commission paid to M/s. Sadem India Ltd., Bhiwadi be not disallowed because the party to whom the commission is said to have been paid is not having any experience in line of business in which the assessee is engaged. In reply to the query, the assessee filed a written reply on27-9-2007. In the letter, it was submitted that the assessee has paid commission to M/s. Sadem India Ltd. on the basis of services rendered by such company. The assessee company procured tenders/orders with the assistance of M/s. Sadem....
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.... no scope for any liaisoning activity or use of contacts to get these orders. As already discussed earlier, the assessee has no experience in the field of telecommunication or transformers and it also cannot be accepted that any business experience can be put to any use by the assessee for procuring the tenders of these business. Hence, AR's claim in its reply submitted on22-12-2006that the services rendered by the assessee requires personal knowledge and personal relations is not acceptable. The assessee has failed to prove any involvement justifying commission payment to it for procuring these supply orders through tenders. (enclosed some copies of communication regarding tenders in 5 pages at Annexure-'b' in support of this finding) 7. In its reply submitted on22-12-2006, the AR of the assessee has submitted that since they had got the payment, therefore, the old correspondence record was not given specific importance. From this it is absolutely clear that no effort worth the name or any service worth consideration was ever done by the assessee, hence, no record was there to be maintained. Moreover, if because of their efforts done to earn this so claimed commission income, a....
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....s, acquiring application form on its behalf, completing the application form properly and accurately and submission of tenders form well in time before the stipulated date. 3. The rate to be quoted was a very crucial issue so that the assessee may be in a position to get the orders from the organizations. 4. M/s. Sadem India Ltd. rendered all the services relating to advertisement of the tenders, help in procuring the tender forms, help in deciding the price to be quoted and help in time of testing/inspection of good manufactured. 5. The expenses which have been debited by M/s. Sadem India Ltd. were not in our control. The assessee company was satisfied with the services being rendered by M/s. Sadem India Ltd. It is not the duty of principal to go on behind the curtain to see the details of the expenses incurred by the agent. 6. The payments have been made through account payee cheque. There is no evidence to suggest that the amount has been returned either by M/s. Sadem India Ltd. to the assessee company. 7. The assessee company was entitled to exemption of 30 per cent under section 80-IB of the Act while M/s. Sadem India Ltd. has paid tax under ....
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....o referred to page Nos. 202 to 217 of the paper book to show that the commission has been paid on the basis of the agreement between the assessee company and M/s. Sadem India Ltd. The tax was also deducted at source. The copy of the TDS certificate has been attached in the paper book. The Assessing Officer has not brought any material on record to establish that the commission paid to M/s. Sadem India Ltd. was routed back to the assessee. The ld. AR has referred to the decision of ITAT Jaipur Bench in the case of Venketeshwara Wires (P.) Ltd. (supra). 8. We have heard the ld. DR and have perused the written submission of the paper book filed by the ld. AR of the assessee. Pages 1 to 38 of the paper book contain the copy of the assessment order in the case of M/s. Sadem India Ltd. M/s. Sadem India Ltd. filed the return of income declaring nil income. It paid tax under section 115JB to the extent of Rs. 2,79,347. During the previous year relevant to the assessment year under consideration M/s. Sadem India Ltd. was in the business of manufacturing of footwears. In the Profit & Loss A/c, M/s. Sadem India Ltd. has shown commission income of Rs. 74,63,431. The commission income of Rs.....
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.... providing personal assistance and guidance of Shri Dhanda, director of the company. 8.1 The assessee company in the assessment order has stated that it has received adequate services from M/s. Sadem India Ltd. Copies of correspondences have been filed in the paper book from pages 39 to 194. We have gone through such correspondences. The correspondence is only in respect of tender submitted to PSEB, Rajasthan Rajya Vidyut Prasaran Nigam Ltd. Page 123 of the paper book is a letter dated 3-3-2003 signed by M/s. Sadem India Ltd. to the assessee company giving the information as to Floating of tender by M/s. Rajasthan Rajya Vidyut Prasaran Nigam Ltd. Page 127 of the paper book is a copy of letter from the assessee company to the Superintending Engineer (SSPC) which shows that the advertisement appeared in the Times of India on 4th April, 2003. In order to obtain the Tender Form, demand draft dated4-4-2003 was submitted. Thus the date mentioned in the copy of letter available at page 123 does not match with the date on which tender document was appearing in the newspaper. Moreover, the entire details are in respect of specifications provided by the assessee company to the supplier. T....
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....he Karnataka High Court in the case of CIT v. Bangalore Arrack Co. (201 ITR 25) has held that the expenditure opposed to public policy is not an allowable expenditure. For ascertaining the allowability of expenditure, the onus was on the assessee to establish the rendering of service by the agent. In absence of any such evidence furnished before lower authorities, we feel that the learned CIT(A) was justified in disallowing the expenditure. In view of the facts as existing in this case, we have satisfied that disallowance of commission payment is justified." 8.3 Elca Carbone Lorraine (P.) Ltd.'s case (supra) filed an appeal against the order of the Tribunal before the Hon'ble High Court of Karnataka. The Hon'ble High Court of Karnataka upheld the findings of the Tribunal after observing as under :- "5. Our answer to the aforesaid substantial questions framed by us in this Appeal, is against the assessee for the following reasons: 4(a) The claim of the assessee for deduction of Rs. 23,20,000 disallowing the commission paid to M/s. Kishorilal Sudarshan Kumar Metals (P.) Ltd. is based on the claim placing reliance upon the commission agreement dated 7-11-1996, the assig....
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....ced reliance upon the decision of the Supreme Court in the case of Commissioner of Income-tax, Orissa v. Orissa (supra) in support of the aforesaid contention. But, the said decision has no application to the fact situation in the case on hand. It is an undisputed fact that no correspondence between the assessee and its agent have been produced to show that the appellant availed the services from its agent and no documentary evidence is produce to that effect except the copy of the agreement, which does not prove the fact of rendering service by the Agent to the Assessee. Therefore, the fact that the appellant paid the commission to the agent and in turn, the agent was assessed for the said commission amount, the burden was on the assessee to prove the fact the same has not been discharged by the assessee. Therefore, the reliance placed upon the aforesaid provision of section 131 of Income-tax Act and the decision of the Supreme Court is misplaced and the same does not support the case of the assessee. The Original Authority, on the basis of the facts stated and the documents produced by the Assessee, has recorded a finding of fact which is concurred with by the two Appellate Autho....