TaxTMI 
TaxTMI 
2014 (1) TMI 194
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee-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 calls for reference from M/s. Shiva Fund Trust a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions 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 Circular No. 594 dated 27th February, 1991 and corrige....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 explain 1. The contents and utility of the information purchased by it. 2. The process by which the same information is being utilised by it. 3. The source of information is not very clear and the credential of the supplies of information, i.e. M/s. Shiva Trus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 and 3 : From perusal of the vouchers furnished by the assessee of Mainpuri Unit, it was learnt that the signature of the recipients were not available on the vouchers, therefore, the assessee was asked to explain mailing address of the 16, 33 and 20 persons respectively mentioned in the show causes. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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, New Basti Devpura, Mainpuri205001 7. Ms. Chitra Gupta, 151, A.K. Block, Yasoda Nagar, Kanpur. 8. Shri Tota Ram, 4/64, Avas Vikas Colony, Mainpuri. 9. Ms. Vimla Dubey, 138, Rajiv Nagar, Mohammadabad, Farrukhabad. 10. Ms. Namita Pariza, 12-B, Patel Nagar, Star Colony, Indira Nagar, Lucknow. 11. Ms. Manju, 422C Block Panki, Kanp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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, Shri Yogesh Chandra Dubey has stated that he had received commission of Rs. 2,153. Thus, this payment can also not be treated as referral fee. 4. Smt. Rekha Tripathi-Vide her letter dated December 6, 2010, Smt. Tripathi has informed that during the period March, 2006 to June, 2008 she worked as an agent of M/s. Recent Insurance Services Ltd., Agra (corporat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Laxmi Shakya, 9/3565 Kh.No.139 Dundala Chock Dharpoura Gandhi Nagar -do- Returned unserved Vinod Kumar Katiyar H.No.187 Gali No. 6 Surya Vihar Part-2 Sanjay Colony Sehat Pur Faridabad -do- Puchtach karne par prapt karta nahi mila Shri Umesh Kumar G.F. 267 Housing Board Colony Sector 48, Gurgaon Haryana 122001 -do- Adhora pata yeh SCII mein nahi hai atha vapas Shri Tota Ram, 4/64 Avas Vikas, Colony Mainpuri -do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 dated August 11, 2007 of Shri Vinod Kumar Singhal (code No. 16049) made on business statement filed during the assessment proceedings does not tally with the signature made on the confirmation letter dated November 25, 2010. (F) The signature of Lata Pandey (Code No. 26024) letters dated November 29, 2010 does not tally with the receipt voucher dated September 12, 2007. 2.19. After doing all this examination by way of notices and summons and careful perusal of the acknowledgment filed by the assessee, a final show cause notice under section 142(1) of the Income-tax Act dated December 16, 2010 fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 summons/letters under section 133(6) of the Income-tax Act sent by this office were returned unserved. Thus, the assessee has not discharged its onus to furnish the correct addresses of the payment of referral fees, in such circumstances it will not be a prudent step to ask the Income-tax Officer concerned for the verification of referral fee. (E) From the perusal of the reply received in this office from the referral persons, it was found that the amount of TDS has been deducted from the payment of Shri Udai Tripathi. Since almost all the referral persons do not come under the preview of TDS provisions, hence ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 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. 2.20. At the end, as the result of entire exercise undertaken by the Assessing Officer, the various discrepancies noted for the payment under the head "Referral fee" : (i) All the vouchers pertaining to the referral fee have not been produced for verification despite giving so many opportunities to the assessee which shows that the assessee has no evidence to substantiate expenses shown under the head referral fee. (ii) Whatever vouchers have been produced from their examination, it is learnt that almost all the payment have been made in cash through selfmade vouchers, which are not open for verification. (iii) Further, it h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficer 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 disallowances out of expenses. He has also filed copies of the assessment orders in the case of the same assessee for the assessment years 2007-08 and 2010-11 dated September 29, 2009 and March 26, 2013 passed under section 143(3) of the Act and submitted that in the assessment year 2007-08 no disallowances have been made against the assessee out of any of the above expenditures and in the assessment year 2010-11 no disallowances have been made under the head salary and certified data purchase from M/s. Shiva Fund Trust and only part addition is made for different parties. He has also relied upon the unreported decision of the hon'ble Delhi High Court in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 how much expenditure under the above three heads have been incurred by the assessee. The same chart is reproduced as under :- Recent Insurance Services Ltd. Assessment year 2008-09 ITA No. 276/AGR/2012 1 2 3 4 5 A/Y Insurance commission receipt (Rs.) Returned income (Rs.) Salary (Rs.) Referral fees (Rs.) 2007-08 8,47,37,809.00 4,36,930.00 3,30,89,788.00 3,70,85,078.00 39.05 43.76 2008-09 106,037,283.00 (5,831,542.00) 44,963,429.00 40,352,970.00 42.40 38.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 the paper book filed complete details of the data purchased and explained that data was purchased from December, 2007 up to March, 2008 (P.B.1). Copies of the data sheets are filed in the paper book from pages 191 to 290 to prove that the assessee maintained complete details of data purchased for the purpose of business which support the contention of learned counsel for the assessee that genuineness of expenditure have been incurred. Paper book page 291 is the copy of the acknowledgment of the return of income filed by M/s. Shiva Fund Trust for the assessment year 2008-09 showing the amount received from the assessee as income which is supported by the audited report as well. Learned counsel for the assessee submitted that in assessment year 2008-09 no regular assessment was framed in this case. However, regular assessment order was passed under section 143(3) of the Act in the assessment year 2010-11 date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 that the assessee has actually and genuinely incurred expenses under the head data purchased. The Assessing Officer did not point out any specific defect in any data purchased by the assessee for the purpose of business, therefore, in the absence of any incriminating material or finding against the assessee, the Assessing Officer was not justified in holding that the assessee could not substantiate the above expenses under the head data purchase. We are, therefore, of the view that the entire disallowance under the head is wholly unjustified, therefore, addition is deleted. 7.2. Salary expenses Learned counsel for the assessee explained that there are three types of salary paid as has been noted by the Assessing Officer in the assessment order, i.e., salary paid to administrative staff/supervisor and remaining salary/wages paid temporary staff, apprentice and field staff and in their cases no provident fund....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unts 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 details of violation of TDS provisions have been noted in assessment order. Since salary has paid for the purpose of business and the Assessing Officer has not brought any adverse material against the assessee, therefore, in the absence of any material against the assessee, we do not find any justification for the authorities below to disallow 30 per cent. of the expenses out of salary. We, therefore, do not find any justification to sustain the order of the authorities below to disallow 30 per cent. of the salary. The addition is therefore, deleted. 7.3. Expenses relating to referral fees Learned counsel for the assessee has filed complete evidence on this issue from pages 95 to 189 of the paper book which were filed on account on referral fees which is supported by complete data, vouchers and Form 16A, permanent account number and Tin-e-Tin payment data sheets. Learned counsel for the assessee, therefore, demonstrat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 assessee has inflated the expenses under this head as well. We may also note here that Circular No. 677 dated January 28, 1994 ([1994] 205 ITR (St.) 331)) relied upon by the Assessing Officer for the purposes of making disallowance admittedly applies to ad hoc deduction when no details of account are maintained, but in the case of the assessee, the assessee maintained complete details and books of account, therefore, the Assessing Officer cannot use such circular against the assessee for the purpose of making addition. The Assessing Officer did not point out any specific defect in maintaining of books of account by the assessee, such circular therefore is not applicable to the case of the assessee. The history of the assessee as noted above, in the preceding and subsequent years and the voluminous details maintained by the assessee would clearly show that if the addition as proposed by the Assessing Officer is confirmed, i....