TaxTMI 
TaxTMI 
2012 (5) TMI 438
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....e the A.O. that the said commission was paid to M/s. KAP Ltd. for sales of the company's products to Icon Household Products Ltd. (in short Icon), Knight Queen Industrial Pvt. Ltd and Fumakilla. The commission was said to have been paid @ 4.55% of the sales of the specified products. As M/s. KAP Ltd. was at New Delhi, the A.O. issued the commission u/s.131(1)(d) of the I.T. Act by appointing DDI (Inv.), Unit-III, New Delhi to make enquire into the commission payments claimed to have been made to M/s. KAP Ltd.. The DDI (Inv.), New Delhi issued summons to M/s. KAP Ltd. to enquire into the claim of the commission payment by assessee and the said company vide their letter dated 9.3.2006 stated that they have not received any commission from the assessee-company. As noted by the A.O., they also stated that, they have not marketed any goods of the assesse company. At the same time the said company has also stated that though they have no transaction with the assessee-company but their transactions are with M/s. SC Enviro Agro India Pvt. Ltd. (In short M/S. S C Enviro') which was an associate concern of the assessee. The A.O. confronted the assessee-company with the report of the DDI (Inv....
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....written off the balance amount outstanding. The A.O. was of the view that burden was on the assessee to prove that they had no expectations of the recovery and it was the responsibility of the assessee to get the proper information of the debtor whereby debt would not be bad. The A.O., therefore, disallowed the amount of Rs. 31,09,022/- made the addition into the total income and simultaneously initiated the penalty proceedings u/s.271(1)(c) of the Act. The A.O. levied the penalty u/s.271(1)(c) of the Income-tax Act on the claim of the commission payment of Rs. 51,70,764/- as well as the bad debt written off of Rs. 31,09,022/- vide order dated 25.3.2008 on the reason that the assessee has filed the inaccurate particulars of income and the penalty was levied at Rs. 30,43,000/-. The assessee challenged the penalty order before the Ld. CIT (A). The Ld. CIT (A) deleted the penalty in respect of the addition of Rs. 31,03,022/- which was towards the bad debt written off, but sustained the penalty on the amount of Rs. 51,70,764/- confirming the action of the A.O. The operative parts of the reasons given by the Ld. CIT (A) are as under:- "6. I have considered the above submissions ....
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....nquire about the commission received by M/s KAPL from the appellant. M/s KAPL, vide their letter dated 09/03/06 addressed to DDIT(Inv.), Unit-III, Delhi denied that they have received any commission from the appellant. vi) Immediately thereafter vide letter dated 14/03/06, the appellant stated that credit note was issued by the assessee during the current year to M/s KAPL. However this credit note was adjusted from the payments due to the sister concern M/s S.C. Enviro Agro India Pvt (S.C. Enviro) through their ledger account during the current year. It was thus stated by the appellant that this accounting error was discovered after the detailed scrutiny. However inspite of detection of this error the appellant still did not withdraw the wrong claim of commission as per this letter. Instead the appellant claimed that "Should you propose to make any additions/disallowances, please grant us an opportunity of being heard before making such an adjustment". vii) After receipt of report from DDIT(Inv.), Unit-III regarding denial of receipt of commission by M/s KAPL, vide their letter dated 09/03/06 the A.O. issued a show cause notice vide letter dated 20/03/06 to the appe....
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....9.3.2006 (Annexure-17) to the Director Income-tax (Inv.), Unit-III, New Delhi in response to the summons issued u/s.131 of the Act. On perusal of the reply filed by M/s. KAP Ltd. we find that the said company is in the manufacturing of mosquito repellent and liquid refills and apparatus under the brand name ("All Out"). They also trade in mats and coils, which are manufactured for them by the third party manufacturers, namely Icon Household Product Private Limited. M/s. KAP Ltd. purchases material for the manufacturing of 'All Out' refills mainly from the assessee and M/S. S C Enviro. As per the reply filed by M/s. KAP Ltd. to the DDI(Investigation,) the third party manufacturers of the said company purchased some chemicals from the assessee and its associate concern for manufacturing of mats and coils for M/s. KAP Ltd. M/s. KAP Ltd. has given point-wise reply to the queries raised by the DDI (Inv), New Delhi. Point no.1 is in respect of the basic information of the said company and where the said company is assessed. Point no.2 is directly on the issue of commission payment. It is stated that as per the reply given by M/s. KAP Ltd it is admitted that they buy the materials and che....
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....of the statement of account filed by M/s. KAP Ltd. to the DDI (Inv.), New Delhi; (Annex-17) we find that the credit note was issued by the assessee in the financial year 2001-02 (A.Y. 2002-03) for the purchase of the chemicals by M/s. Icon, third party manufacturer of M/s. KAP Ltd. We further find that the assessee requested M/s. KAP Ltd. to adjust the amount of Rs. 51,70,763/- against M/S. SC Enviro, Xerox copy of the letter DT 02.01.03 being Annexure -B furnished by M/s. KAP Ltd. to the DDI (Inv) is filed in the compilation at serial no.17. As per the request of the assesse, M/s. KAP Ltd. passed the requisite journal entry and adjusted the amount against M/s. SC Enviro on 31.3.2003. We find that the assessee had only one transaction with M/s. KAP Ltd. in the financial year 2002-03 relevant to A.Y. 2003-04 and as per the books of account of M/s. KAP Ltd., the assessee's account was made 'nil' as on 31.3.2003. 9. Now, let us examine the reply given by the assessee to the A.O. vide letter dated 11.1.2006 (Xerox copy at sr. no.7 in the Compilation), wherein, it is stated in the reply to the query of the A.O. by the assessee that "commission" of Rs. 51,70,764/- was paid on sal....