TaxTMI 
TaxTMI 
2014 (1) TMI 194
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....s against receipt of Rs. 10,60,95,656, the assessee-company has incurred expenditure of Rs.11,15,29,056 thereby the company has claimed loss of Rs. 54,33,400. The company is not engaged in any kind of manufacturing or trading activity but it simply facilities commission on behalf of Bajaj Allianz and even then the company has incurred losses of Rs. 54,33,400. From a careful perusal, it is learnt that out of total expenses of Rs.11,15,29,056 the main expenses relates to mainly three heads, i.e., (i) certified data purchase of Rs.70,36,440 ; (ii) referral fee to medicare of Rs. 4,03,52,970, and (iii) Rs.4,49,63,429 under the head salary, wages and bonus. To understand the nature of business and this heavy expenses incurred on the above three heads, statement of Shri Ram Baboo Singh, the managing director of the assessee was also recorded on October 5, 2010. Shri Ram Baboo Singh has explained the entire process of doing insurance to the various persons. 2.1. The gist of the statement is that the assessee is a corporate agent of Bajaj Allianz Life Insurance Co. who is procuring insurance policy. The assessee has taken agency of the same and that after giving training, the assessee c....
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....ated 15th May, 1991) has granted, subject to conditions therein specified, benefit of ad hoc deduction for expenses at 50 per cent. of the gross receipts of commission, to the authorised agent of the Unit Trust of India and the agents of the securities specified in the Circular. The benefit of ad hoc deduction is available only where no detailed accounts are maintained and the gross commission received by the agents is less than Rs. 60,000. 2. The Board has received representations for grant of similar ad hoc deduction to agents of mutual funds. 3. The Board has considered these representations and has decided that the benefit of ad hoc deduction for expenses at 50 per cent. of the gross receipts of commission be given to the agents of those mutual funds which are notified by the Central Government for the purposes of section 10(23D) of the Income-tax Act, 1961. The benefit of ad hoc deduction will only be available to agents not maintaining detailed accounts for the expenses incurred by them and having gross commission of less than Rs. 60,000 for the year, including gross commission as authorised agents of the Unit Trust of India and agents of securities specified in Board's....
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.... 9. Yashvir Singh H.No.468 B 29 Azad Pur Vill, New Delhi Delhi 9990478564 10. Sandhya 228 Block P 2 Sultanpuri, New Delhi Delhi 9918423373 However, from the above table, it is not understood how this data can be used by the assessee and why the assessee was paying Rs. 50 to Rs. 75 per information. This much information can be easily be collected from any Governmental and private service providing agency like municipal corporation, telephone department, Tata yellow pages, trade directories, etc. Therefore, prima facie the genuineness and the purpose of the expenses incurred by the assessee is not very clear specially when the assessee itself conceded that even if the above information does not materialise in the business, the assessee has to pay Rs. 50 to Rs. 75 per information. Furthermore, the information has been purchased from M/s. Shiva Fund Trust, controlled, managed and run by the brother of the managing director of the assessee-company residing at the same address whose credentials are also under doubt. Therefore, the assessee could not fully expla....
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....ion 194H has been complied with. For an argument, if it is a salary, no PF/ESI has been deducted from this amount, in such circumstances, Rs. 3,51,62,561 remained unsubstantiated. 2.8. Expenses relating to referral fee The Assessing Officer further noted that the third head for the procurement of information relates to the referral fee. There are innumerable accounts relating to the payment to referral fee though a sincere effort was made to arrive at the quantum of the possible expenses incurred by the assessee in this business of commission under the head payment to referral fee. To verify the genuineness of the referral fee, assessee was asked to produce vouchers of any branch of its choice since most of the payments have been made through cash and it appeared that lot of people have been paid referral fee by the assessee-company. During the process of examination of the payments made under the referral fee, 14 show-causes were issued to the assessee on the discrepancies noted after careful perusal of the vouchers submitted by it and the sum and substance of each show cause is as under : Show causes Nos. 1, 2 ....
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....y to the person to whom the payment has been shown in the books of account but to a person other than him. (iii) It has also been gathered that the person who has received the payment on behalf of other has no authority to receive the same. (iv) The assessee could not produce persons for the examination before the Assessing Officer. (v) The assessee could not file the adequate acknowledgments of the receipt of payment in all the cases which were taken up for the detailed scrutiny. 2.9. Since the assessee could not furnish the persons or acknowledgment of receipt of payment, therefore, the Assessing Officer was constrained to make the independent inquiry and notices under section 133(6) were issued to the following persons on random basis on the total addresses of 1012 persons furnished by the assessee on November 29, 2010 : 1. Shri Kapil Kumar, G-102, Sector-56, Noida. 2. Shri Udai Tripathi, 5/50, Bag Kuncha, Farrukhabad. 3. M/s. Rekha Tripathi, 19-A, Aruna Nagar, Etah. 4. M/s. Archana Chauhan C/o G.S. Chauhan, Murli Vihar, Airface, Tata Gate, Agra. 5. Ms. Mithlesh Chauhan, G-97, Sector 56, Gautam Budh Nagar, Noida. 6. Shri Naresh Kumar, House No.331, ....
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....v Etah-207246 14. Ms. Anupama Mishra, 81-A, Maitri Bagh, Agra 15. Ms. Sheela Shakya, Malawar Distt. (Etah) 16. Shri Rahul Shakya, Village Post Sariaghat Distt. (Etah) 2.11. These summons and letter under section 133(6) of the Income-tax Act were sent through speed post at the address given by the assessee in its replies. In response to these, 40 summons/letters, the replies of the following persons were received in the office : 1. Smt. Sangeeta Shankwar-She reported in her affidavit dated December 8, 2010 that she had received Rs. 2,152 as commission from M/s. Recent Insurance company Ltd. as she had insured two persons. Hence, it cannot be said that Smt. Shankwar had received any referral fee. 2. Shri Nirmal Chand Tiwari-In his affidavit Shri Tiwari has stated that he had received Rs. 1,000, however, for what reasons this payment has been received had not been disclosed by him. Hence, it cannot be said that any payment in the shape of referral fee had been received by Shri Tiwari. 3. Shri Yogesh Chandra Dubey-In his reply dated December 8, 2010,....
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....nder the head "Referral fee". Therefore, the assessee could not discharge its onus by stating why the same does not fall within the Explanation to section 37(1) of the Act. 2.14. Now, coming to the cases where no confirmation was received in compliance of letter under section 133(6) of the Income-tax Act, summons under section 131 of the Income-tax Act were returned unserved for reason given against them : Name of the person Whether letter under section 133(6) or summons under section 131 of the Income-tax Act Returned with postal remark M/s Manju, R/o 422 C Block Panki (Near Railway Station), Kanpur Letter under section 133(6) of the Income-tax Act dated November 29, 2010 422-C mein is nam ka koi nahi hai Shri Pradeep Kumar, H.No.Gali No. 3, Ashok Vihar Gargaon Haryana -do- Is nam ka koi nahi hai M/s. Vimal Dubey, Pata 38 Rajiv Nagar Mohamdabad, Farukhabad -do- Praptkarta ka Nahi hai Sunita Sharma, 20-B Shanti Nagar Etah -do- Prapt karta Agra hai M/s Namita Pariza, 12-B Patel Nagar, Star Colony, Lucknow -do- Refused ....
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....ponse to notice under section 142(1) in respect of the payment shown to have made as referral fee expenses. In compliance thereto, the assessee has furnished few confirmations. A perusal of these confirmations reveal that these were not the actual acknowledgments of the person to whom the referral fee payment has been shown. From the close perusal of these confirmations filed by the assessee, the following facts have emerged- (A) From the comparison of confirmation letters dated November 29, 2010 of Durbesh Kumar (Code No. 30292) and Brijesh Kumar it appears that the signature on both the letters have been made by a single person. (B) Similarly the signature on the confirmation letters Dated November 25, 2010 received on December 6, 2010 in the office in respect of Shri Satya Pal Singh (Code 31454) and Shyam Veer Singh (Code 16638) the signature handwritings appear to be of a same person. (C) The signature of Mamta Mishra (Code 20277) and Shri Pramod Kumar Mishra (Code 207249) appears to be done by a single person. (D) The signature on the confirmation letters of Shekaher Diwedi and Avinash Kumar Diwedi (25440) appear to be done by a single person. (E) The signature ....
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....6 shown to have been made for Shri Brahmdutt Singh on October 17, 2007 was made to Shri Gyan Singh. Thus, the recipient has been shown as Shri Brahm Dutt Singh, however, the payment has been made to Shri Gyan Singh. Therefore, the assessee was required to furnish the latest mailing address of the recipient of referral fee debited by it in the profit and loss account thereafter on the basis of information provided the recipient was contacted for verification. On verification it was found that almost all the referral fee payments are not genuine. In compliance to notice dated December 16, 2010, the counsel of the assessee has attended the office and suo motu produced Mrs. Kunti Devi for examination and she was examined on the same day. Moreover, in each and every show cause the date compliance has been intimated to you in such circumstances your objection that the date of production of referral persons for examination were not intimated to you does not survive. (D) As regards the contention that genuineness may be verified through the city's Income-tax Officer, the assessee has forgotten that in most of the cases the address furnished by it were incomplete. As a result of which....
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....eimbursement of expenses as per rule is also provided to him. In this process there appears no violation of natural justice as raised by the assessee in its reply. Moreover, no bill of expenses claimed by any witness is pending for payment. Therefore, the objection on this count also does not survive. (H) The assessee has claimed that the nature of business does not require to verify addresses individually of all the persons to whom payment of referral fee has been made because there is no risk of any default of those persons so that the assessee were not in position to verify individual address of all the above persons. Thus, the assessee itself is not in position to discharge its onus to prove the genuineness of expenses claimed in the return of income in the shape of referral fee. However, it required the attendance of Shri Brahmdutt Singh which is a bogus entity created by the assessee itself to justify a claim of expenses shown under the head "referral fee". Hence, the question of his personal attendance does not arise. It is a matter of surprise as to how details of bogus person such as name, father's name, address, phone number have been generated by the assessee. 2....
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....e assessee has inflated its expenses under the above heads of expenses and the intention of the Legislature is clear from Circular No. 677 ([1994] 205 ITR (St.) 331)) that admissibility of the expenditure is permissible up to 50 per cent. of the expenditure. The Assessing Officer, therefore, disallowed 30 per cent. of the expenses under the above heads of expenditure which comes to Rs. 2,77,05,851 (Rs. 9,23,52,839 x 30 per cent.). 3. The assessee challenged the assessment order before the learned Commissioner of Income-tax (Appeals), however, the learned Commissioner of Income-tax (Appeals) on the same reasons as has been given by the Assessing Officer has confirmed all the addition and dismissed the appeal of the assessee. 4. Learned counsel for the assessee reiterated the submissions made before the authorities below and submitted that all additions are wholly unjustified because all the expenditures were incurred wholly and exclusively for the purpose of business and filed two paper books in support of his contention and also filed chart of the history of the assessee in preceding and subsequent assessment years to show that the Assessing Officer has made excessive disallo....
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....e heads salary, wages and bonus. The Managing Director of the company was summoned by the A.O. who has explained the nature of business of the assessee and payment of the amounts under different heads for earning commission income. It was, therefore, finding of the A.O. that salary expenses are attributed primarily to the persons who informed the public and promote them to get their insurance done. The data purchased information is regarding the prospective buyers. Further it was explained that referral fees is the payment that relates to the parties who provide the necessary reference to the assessee about the prospective buyers meaning thereby, the assessee has to incur all above expenses under different heads for completing the work of agency obtained from Bajaj Alianz. The Assessing Officer despite giving certain observation against the assessee has ultimately the accepted a claim of assessee in principle that substantial expenses of 70% have been incurred by assessee wholly and excessively for the purpose of business activities of the assessee. The assessee's counsel has filed a chart showing the history of the assessee in earlier year as well as in subsequent years to show ho....
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....the view that this data can be collected from any government and private agency. However, the Assessing Officer failed to note that the Revenue authorities could not dictate to the assessee as to how and in what manner the businessman shall have to run its business. The expenditure shall have to be considered from the point of view of the businessman/assessee and not from the point of view of the Revenue authorities. We are fortified in our view by judgments of the hon'ble the Supreme Court in the cases of CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC), CIT v. Walchand and Co. P. Ltd. [1967] 65 ITR 381 (SC) and Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC). The Assessing Officer found that assessee has purchased data from M/s. Shiva Fund Trust which is run and managed by the brother of the managing director of the assessee. The Assessing Officer did not accept contention of the assessee regarding the same because the assessee could not explain contents and utility of the information purchased and whether such data was used by the assessee or not and that the credential of the information supplied by M/s. Shiva Fund Trust is doubtful. The assessee in ....
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....nt. of the income. In the subsequent assessment year 2009-10 the claim of the assessee has been accepted under heads of the expenses and in the assessment year 2010-11 the Assessing Officer also passed regular assessment order under section 143(3) of the Act dated March 26, 2011 in which the Assessing Officer did not make any addition/disallowance on account of certified data purchased from M/s. Shiva Fund Trust and only out of small parties disallowance was made of Rs. 10,39,528. Thus, the Assessing Officer did not doubt the credential of M/s. Shiva Fund Trust in providing data to the assessee, for the purpose of completing the agency work. It may also be noted here that in the assessment year under appeal the percentage of expenditure under data purchase is 6.64 per cent. and in subsequent assessment years 2009-10 and 2010-11 the percentage of expenditure incurred by the assessee under this head was 61.92 per cent. and 47.42 per cent. and the same have been accepted by the Revenue Department. Thus, as compared to subsequent assessment year, the assessee has incurred lesser expenses under the head certified data purchased, therefore, the history of the assessee would also suggest ....
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....assessment year 2010-11 despite assessment order passed under section 143(3) of the Act. The chart submitted by the learned counsel for the assessee would clearly show that in the preceding assessment year 2007-08 the assessee has paid salary to the staff in 39.05 per cent. of the total commission and in the assessment year under appeal, i.e., 2008-09, the assessee paid salary to the staff in 42.40 per cent. of the commission. Thus, the same is very reasonable looking to the previous year salary paid to the staff in percentage and volume of business receipts. Thus, there is no question on inflating expenses by the assessee under the head salary as has been found by the Assessing Officer The assessee's counsel has demonstrated before us that the complete data were produced before the Assessing Officer in which no specific details against the assessee have been pointed out by the Assessing Officer Further salary accounts have been filed from pages 27 to 43 of the paper book to show that payment of salary have been made to large number of employees and details of month-wise and namewise have been maintained. Payment of salary cannot constitute payment of commission. No specific detail....
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....to the principal for the purpose of issuing the insurance policy in favour of the prospective buyers. The person made reference is not directly connected with the insurance company. He cannot claim commission directly from insurance company. Thus, even if the word "commission" was used by certain persons, it would be of no help to the Assessing Officer to make disallowance against the assessee as noted above. The assessee proved payment made to team leaders for providing reference data provided by his team for which complete details are prepared. The Assessing Officer in the preceding assessment year 2007-08 in the order under section 143(3) of the Act did not make any disallowance/addition on account of referral fees. In the preceding assessment year 2007-08, 43.76 per cent. referral fee expenses is incurred but in the assessment order under appeal the same expenditure is incurred at 38.06 per cent., therefore, it is still lesser expenses incurred as against the expenses incurred in the preceding assessment year 2007-08. Therefore, considering the nature of the expenses incurred by the assessee in the earlier year and the subsequent year, it is difficult to believe that the ass....