TaxTMI 
TaxTMI 
2015 (1) TMI 98
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....s under:- Grounds of ITA No. 191/JP/2014 (A.Y. 2003-04)(Assessee) "1. That the order of learned Commissioner of Income-tax (Appeals) is bad in law and on facts of the case. 2. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition to the extent of Rs. 5,98,323/- out of disallowance of Rs. 10,61,432/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid to sales by the assessee. 3. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance without appreciating the fact that the disallowance was made without allowing an opportunity of confronting the material gathered at the back of the assessee. 4. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the additions on account of disallowance made in the account of commission paid on sales by the assessee in proceedings under section 153A without there being any material found in the course of search from the premises of the assessee and its directors contrary to the claim made by the assessee. 5. That the learned Commissioner of Income-tax (Appeals) ....
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.... the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2. The appellant craves the right to amend alter or add to any of the grounds of appeal given above. Grounds of ITA No. 473/JP/2012 (A.Y. 2005-06) (Assessee) "1. That the order of learned Commissioner of Income-tax (Appeals) is bad in law and on facts of the case. 2. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition to the extent of Rs. 16,27,750/- out of disallowance of Rs. 22,09,955/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid on sales by the assessee. 3. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition of Rs. 29,13,655/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid on purchases made by the assessee. ....
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....n 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid on purchases made by the assessee. 4. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance without appreciating the fact that the disallowance was made without allowing an opportunity of confronting the material gathered at the back of the assessee. 5. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the additions on account of disallowance made in the account of commission paid on sales and commission paid on purchases by the assessee in proceedings under section 153A without there being any material found in the course of search from the premises of the assessee and its directors contrary to the claim made by the assessee. 6. The above grounds of appeal are without prejudice to each other. 7. That the appellant craves leave to add, alter amend and/or modify the above grounds of appeal. Grounds of Revenue's cross appeal i.e. I.T.A. 603/JP/2012 (A.Y. 2006-07) "1(i) Whether on the facts and circumstances of the case, the CIT(A)(Central), Jaipur has erred in law and on facts in deleting ....
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....f Revenue's cross appeal i.e. I.T.A. 604/JP/2012 (A.Y. 2007-08) "1(i) Whether on the facts and circumstances of the case, the CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of Rs. 36,16,923/- out of the total disallowance of Rs. 1,11,65,917/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2(i) Whether on the facts and circumstances of the case, the learned CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of Rs. 1,14,23,789/- out of the total disallowance of Rs. 3,35,85,302/- made by the A.O. in respect of the commission expenses claimed on purchases. 2(ii) Whether on the facts and circumstances of the case, the learned CIT(A....
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....44,696/- out of the total disallowance of Rs. 1,16,81,213/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2(i) Whether on the facts and circumstances of the case, the learned CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of Rs. 2,01,45,742/- out of the total disallowance of Rs. 6,02,47,957/- made by the A.O. in respect of the commission expenses claimed on purchases. 2(ii) Whether on the facts and circumstances of the case, the learned CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on purchase even though the assessee could not prove the genuineness....
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....) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2. The appellant craves the right to amend alter or add to any of the grounds of appeal given above." 2. All the grounds of all the appeals are revolving around the payment of commission either on sale or purchase and challenging the validity of order passed U/s 153A of the Income Tax Act, 1961 (hereinafter referred as the Act). The learned Assessing Officer observed that a search operation was conducted on 17/9/2008 in Kamdhenu Group of cases. M/s Ashiana Ispat Ltd. is the flagship company of the Ashiana sub-group. During the course of search proceedings, Shri Puneet Jain, Director of the company surrendered a sum of Rs. 7 lacs as undisclosed income of the assessee company on account of excess cash found, which had not been included in the return of income filed for the A.Y. 2009-10. Howe....
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....ay Traders, Shri Vikrant Mahajan, Shri Subhash Chand Garg, Shri Sanjay Gupta, M/s Rajendra Steels, M/s Garg Steel Corporation, Shri Naresh Garg, Shri Narender Goyal, Shri Maman Chand Goyal, Shri Kamlesh Kumar HUF, Shri Gulshan Gupta, Shri Dharampal, Shri Anil Mahajan, Shri Anil Sharda, Shri Chander Shekhar Goyal, Shri Amit Goyal and Shri Vipul Biyani to provide details as under:- 1. File duly acknowledged copy of your income tax return for the assessment year 2003-04 alongwith computation of income. 2. File copy of the bill submitted by you to M/s Ashiana Ispat Ltd. in respect of the sales arranged during the relevant financial year against which commission payments were received by you. 3. File complete name and addresses of the parties to whom sales were made by M/s Ashiana Ispat Ltd. which were arranged by you during the relevant financial year. 4. File details regarding modus of operation, i.e. as to how you know and contact the parties and arrange and execute the sales on which commission has been earned by you. 5. For the relevant financial year, file copies of booking forms received from the customers for whom sales were arranged by you and copies of booking f....
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....s issue. If these so claimed brokers, had done any dealing over telephone with so claimed customers they could have easily got complete postal addresses of the parties over telephone or by personal visit even after the notice U/s 133(6) had been issued to them, if it was not readily available, and would have passed on the same to the undersigned. In view of inability of these so claimed brokers to provide the addresses and telephone numbers of the customers for sale, he considered that the reasons for not supplying addresses and telephone numbers of these parties was that they do not know them and had not done any transaction with them. Had they known them and had done some transaction with them, they could have easily provided the desired information. It proved that no services have been provided by these so claimed brokers to the assessee company to earn commission. He further observed that in almost all the cases to whom such commission payments had been made by the assessee company, it is observed that the respective accounts of the brokers had been credited by them brokerage amount on the last day of the accounting year and the payments had been made in the next year. In addit....
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....ion. The commission paid claimed by the assessee is not wholly and exclusively for the purposes of business. He relied on the decision in the case of Assam Pesticides and Agro Chemicals Vs. CIT 227 ITR 846 for discount and commission paid without any commercial consideration. The assessee has not provided the addresses of the customers, addresses of the brokers, copy of order booking forms etc., which leads to the conclusion that commission paid by the assessee was without any commercial consideration or business expediency and without any service rendered by them, these transactions are sham and only a device to reduce the income of the assessee company. Therefore, he made addition of Rs. 10,61,432/- in A.Y. 2003-04. 3. For A.Y. 2004-05, the learned Assessing Officer raised the query on similar nine points, which was replied by the assessee. It is observed that the reasons of raising these queries from the assessee were two papers i.e. page No 65 of Annexure A/5 and page No. 32 of Annexure- A/5 seized from the group office of the assessee company at C-9/25, Sector-8, Rohini, New Delhi. The contents of page No. 65 of Annexure- A/5 was discussed by the Assessing Officer in para (....
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....mpany and the so claimed brokers to bring down its profit to reduce its tax liability. During the A.Y. 2004-05, the assessee had claimed commission paid on sale was Rs. 28,73,276/- which had been bifurcated commission paid on consignment sale at Rs. 2,32,930/- and commission paid on CTD sales at Rs. 26,40,346/-. It is further observed that similar to other years, the assessee raised the commission bills on 31/3/2004. The Assessing Officer Assessing Officer issued notice U/s 133(6) of the Act to 12 brokers namely Shri Abhishek Garg, Shri Kamlesh Kumar, Shri Ashok Kumar Dang, Shri Gulshan Gupta, M/s Kamlesh Kumar HUF, Shri Maman Chand Goel, Shri Naresh Kumar Garg, Shri Sanjeev Kumar Dang, Smt. Shashi Bala Garg, Smt. Sashi Goel, Shri Sumit Goel and Shri Vipul Biyani and raised the query similar to A.Y. 2003-04 and other years on 10 points. In response to notice U/s 133(6) of the Act, only Shri Ashok Kumar Dang, Shri Maman Chand Goel, Shri Naresh Kumar Garg, Shri Sanjeev Kumar Dang, Smt. Sashi Goel, , Shri Sumit Goel and Shri Vipul Biyani replied. These parties had submitted only name of the parties to whom sales were made by the assessee through them during the year but not the addres....
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....and rough projection of profitability of the company before commissions. The books of account were not finalized as financial year had not been ended. Therefore, it was a projection of the financial result. The submission of assessee is reproduced as under:- "The said page 32 of annexure A-5 is a rough paper as pointed out by your goodself for and up to 29/03/2008. The said rough projection of the profitability of the company before commissions. Since the books were not final and year has not been ended here for only a projection was made and one had to try to know the situation, in which position we would better so as to make the arrangement of next year as the next year was nearest, whether it would be nearest on percentage or per MT basis. So this calculation was made to know in which situation we do better for you company by saving the overall cost of product manufactured by us and to increase our profitability by analysis of current year as well as keeping in view the probable market conditions of next year. Without any calculation or projection one cannot know the position of profitability of the business. Commission on ingot and the commission on CTD is paid as per the ag....
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.... of the figures of commission. Thus, the assessee's plea that the same was a projection for next year is not true. Further, that the paper seized at s.no. 32 of Annexure-A-5 seized from C-9/25, Sector-8, Rohini, New Delhi in itself is an indicator, rather it is a speaking evidence that the commission payments have been devised by the assessee at the fag end of the year only to reduce its tax liability. Though the document under consideration pertains to A.Y. 2008-09 but still the paper in question explains the modus operandi of the assessee which is equally applicable in the assessment years 2003-04 to 2009-10 which are under scrutiny assessment as per the provisions of section 153A r.w.s. 143(3) of the Act and proves the nexus between the assessee company and the so claimed brokers to reduce its tax liability at the fag end of the year." The assessee filed further reply on 16/12/2010 for A.Y. 2004-05, which was also not found satisfactory to the Assessing Officer on the basis of following reasons: "I have considered the reply of the assessee and the same is not found satisfactory in view of the reasons given herein under: (i) It is not a matter of norms of market regarding p....
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....Shri Dharampal Khera, Shri Arun Kansal, Shri Manish Gautam, Smt. Sandhya Gupta, Smt. Shimla Agarwal, shri Padam Kumar Agarwal, Smt. Usha Agarwal, Shri Nand Lal Gupta HUF, Shri Vivek Agarwal HUF, Smt. Sunita Arora, Shri Shailendra Kumar Arora & Sons HUF, Smt. Manju Goel on 10 points, which was identical to the other years. Only Smt. Manju Goyal, Shri Nand Lal Gupta HUF, Shri Padam Kumar Agarwal, Smt. Shimla Agarwal, Smt. Sandhya Gupta, Shri Manish Gautam, Shri Dharampal Khera, Smt. Shashi Bala Garg, Shri Maman Chand Goyal, Shri Vikrant Mahajan, Shri Anil Kumar Mahajan and Shri Naresh Kumar Garg replied. The other findings of the learned Assessing Officer was identical to A.Y. 2003-04. He also relied upon the same case laws, which was referred in A.Y. 2003-04. The assessee has not provided the addresses of the customers, addresses of the brokers, copy of order booking forms etc., which leads to the conclusion that commission paid by the assessee was without any commercial consideration or business expediency and without any service rendered by them, these transactions are sham and only a device to reduce the income of the assessee company and concluded that the commission paid on sal....
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.... between the assessee company and the so claimed brokers. The other findings were similar to other years that commission was credited on the last day of the financial year and no payment had been made during the year under consideration but paid in subsequent year. It is further observed that the commission had been paid to some ladies also, who happened to be the relatives or wives of the brokers, therefore, these ladies appeared to the Assessing Officer to be just name lenders and he found that the commission paid on sale or purchase made was a make believe arrangement between the assessee and so claimed brokers to siphon off the profit to evade tax. He relied upon the same case laws in the year under consideration and held that the commission paid on sale was not incurred wholly and exclusively for the business purposes. Thus, he made addition of Rs. 33,34,221/- in the income of the assessee (in computation it is Rs. 33,34,321/-). 6.1 Commission paid on purchase:- During the year under consideration, the assessee had claimed commission paid on purchases at Rs. 9,27,758/-. The assessee was asked to furnish the details by the Assessing Officer, but it submitted only details wit....
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....hus, he made addition of Rs. 1,11,65,217/- in the income of the assessee. 7.1 Commission paid on purchase:- the learned Assessing Officer observed that on going through the details of P&L, balance sheet and other annexure enclosed with the return of income, no commission on purchases was evident whereas commission on sale was separately mentioned in the schedule for selling and distribution expenses. In order to verify whether any payment of commission on purchases has been paid, the assessee was asked to file details of commission paid on purchases. In response thereof, the assessee had filed details in respect of four persons to whom commission payment on purchases amounting to Rs. 3,35,85,302 had been made by the assessee. On perusal of reply filed by some of these so claimed brokers, revealed that so claimed brokers had stated to have carried out the necessary transactions through telephone and that no order booking forms either from/to the assessee company or from/to the raw material supplier have ever been prepared by them. On the basis of the information received from these brokers, notices U/s 133(6) were issued to some of the raw material suppliers, for which, they have....
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....subsequent year. It is further observed that the commission had been paid to some ladies also, who happened to be the relatives or wives of the brokers, therefore, these ladies appeared to the Assessing Officer to be just name lenders and he found that the commission paid on sale or purchase made was a make believe arrangement between the assessee and so claimed brokers to siphon off the profit to evade tax. He relied upon the same case laws in the year under consideration and held that the commission paid on sale was not incorrect wholly and exclusively for the business purposes. Thus, he made addition of Rs. 1,16,81,231/- in the income of the assessee. 8.1 Commission paid on purchase:- During the year under consideration, the assessee had claimed commission paid on purchases at Rs. 6,02,47,957/-. The assessee was asked to furnish the details but it submitted only details with respect to 5 parties to whom commission on purchases amounting to Rs. 6,02,47,957/- had been made by the assessee. The other findings that bills raised by the assessee on 31/3/2008 and no payments were made during the year but made payments in subsequent year, it was not found practicable by the Assessing....
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....ers were working with it regularly, payments made to the brokers through account payee cheques. The assessee is a limited company. There is no relation with the brokers. The recipients of commission are assessed to tax. The percentage of commission, brokers had duly confirmed the commission and service provided in their reply sent to the learned Assessing Officer U/s 133(6) with the detail of parties to whom sales made through them with quantity sold, parties to whom sold, place from which party belonged etc.. Addresses to the brokers, PAN numbers, quantity sold with name of the parties, amount of commission given to them and copy of bank statement submitted before the Assessing Officer, sufficient time has not been provided by the learned Assessing Officer to submit the required information. There is no contradictory evidence with Assessing Officer, copy of ITR and bank statement of brokers. In past, commission payment has been accepted by the department. He also relied on the various case laws before the learned CIT(A), which has been narrated on page Nos. 12 to 14 of the CIT(A) order. The learned CIT(A) has further held as under:- "5.3 I have carefully considered the submissi....
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....ers, who had duly executed the agreement on stamp paper in A.Y. 2009-10 and in A.Y. 2008-09 respectively though in earlier years the agreement was on letterhead, can be considered to be genuine and had been paid commission for the purpose of affecting the sales. Details of such brokers in A.Y. 2004-05 are as below:- S. No. Broker Name Commission Payment during the year Page No. of P.B. A.Y. 1. Anil Sharda 54,846.00 53,016.00 140 2009-10 2 Gulshan Gupta 168,331.00 153,759.00 153 2009-10 3. Maman Chand Goel 83,298.00 79,581.00 161 2009-10 4. Naresh Kumar Garg 69,252.00 63,809.00 165 2009-10 5. Shashi Bala Garg 80,763.00 - - 2009-10 6. Sumit Goel 39,180.00 37,155.00 180 2009-10 7. Shashi Goyal 86,122.00 - - 2008-09 Total 581,792.00 387,320.00 Incidentally, brokers at sr. No. 3,4,6, and 7 have also replied directly to the A.O. in response to notice U/s 133(6). 3.1.1 Accordingly, addition to this extent of Rs. 5,81,792/- is deleted and balance addition of Rs. 20,58,554/- is hereby confirmed in A.Y 2004-05. 3.2 In A.Y 2005-06, such list of broker and commission amount paid to them is as below:- S. No. Broker N....
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....ker's parties. It is noticed that out of total commission of Rs. 47.92 lakhs, commission amounting to Rs. 34,85,767/- has been shown to be paid to one concern namely Bihar Rafia Industries Ltd, Calcutta. The appellant has failed to file any evidence so as to prove that this concern has any experience in dealing with iron and steel material and has actually provided services to the appellant by way of arranging purchases of ingots except the copy of bill and confirmation from the party. In view of these facts and circumstances, I see no reason to interfere in the finding of the A.O. and addition of Rs. 34,85,767 is hereby confirmed. Next bigger amounts are commission paid to Sh. Mahendra Goyanka, Sh. Jaibhagwan Goyal and Smt. Neelam Khurana and Sh. Sunil Kumar. The facts related to these parties' are also similar. In brief, neither there is any direct evidence of rendering services by these parties and nor any circumstantial evidence that these persons are having expertise and experience in dealing in commission for arranging the purchases of Ingots that too from the parties situated in iron and steel producing belt, which is geographically far away from their usual place of....
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..... 4.3 As regards A.Y 2006-07, is concerned, in the assessment proceedings, the A.R. filed details in respect of 2 persons only to whom commission totaling Rs. 6,04,935/- has been paid. During appellate proceedings, the A.R. filed further details of two more brokers to whom commission of Rs. 3,22,823/- has been shown. The facts related to these parties are also same as in A.Y. 2004-05 and A.Y 2005-06, in as much as that the appellant has failed to furnish any direct evidence to prove that these persons have provided services for purchasing the M.S. Ingot and moreover, even the circumstantial evidence are against the appellant. Accordingly, addition of Rs. 9,27,758/- so made by the A.O. is hereby confirmed." 11. For A.Ys. 2007-08 to 2009-10, the learned CIT(A) considered the assessee's reply, which has been reproduced on page No. 6 to 21. The reply of the assessee was identical to A.Y. 2003-04 alongwith evidences. After considering the assessee's submission, the learned CIT(A) held that in A.Y. 2009-10, the learned Assessing Officer disallowed total commission on sale at Rs. 1,50,55,500/-. Similarly in other two years also, the entire commission on sale has been disallowed by t....
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....n and steel most of the sales are made through brokers as this trade practice prevalent in the market. The learned AR also clarified in the appellate proceedings that some of the brokers not only was receiving commission on sale from the assessee but other company also. The learned CIT(A) held that as regard rendering of service was concerned, it was clear that the appellant had not been able to prove the aspect by filing the evidence but the A.R. argued that the circumstantial evidence wherein the brokers had confirmed the commission, had shown commission in their return of income and there is formal agreement with these brokers, clearly infer that commission has been paid for the services rendered by the brokers. The learned CIT(A) further held as under:- "The A.R. has also brought to my notice that the appellant company has not kept any sales and marketing network and expenditure on sales and services is not at all incurred except this commission on sales. After considering the aforesaid facts and circumstances, it cannot be said that whole of the commission so debited by the appellant company is bogus or is an afterthought arrangement to reduce profit. ON the other han....
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....iced by the undersigned that around 13 parties out of the list of these 44 parties of A.Y. 2009-10 have been continuously working as sales broker from A.Y. 2006-07 onward and 7-8 parties had been working as sales broker even as back as from A.Y. 2004- 05 onward. Though agreement with these parties is only on letterhead of the appellant company in these earlier years but the fact cannot be denies that for increasing the sale, the appellant has to incur some expenses on commission to the sales brokers and therefore, the entire commission cannot be considered to be bogus or non-genuine in earlier years also. It will be unjustified to disallow the entire commission as has been done by A.O. in all the years. Particularly, it will be unreasonable to disallow entire commission in A.Y. 2007-08 and in earlier years in the present appeal order on the ground that in A.Y. 2007-08 and earlier years there is no formal agreement duly executed on stamp paper and the agreement is only on letterhead, as this would also be contrary to the generally accepted trade practice that sales are normally being made through broker, which has also resulted into increase in the sale year to year and moreover, co....
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....ecord. As regards for A.Y. 2008-09, it is seen that A.O. has given detailed reasoning disallowing the commission shown to be paid by the appellant on purchases of M.S. Ingot made from outside Rajasthan. Moreover, the A.R. has equally submitted detailed reply covering broadly each and every reasoning given by the A.O.. Now both these rival submissions have to be appraised by me considering the entire facts and circumstances relevant to the issue under consideration. Coming to the firstly the case of commission shown to be paid to Shri Ruchiraraj, it is seen from the copy of the bill of Shri Ruchiraraj given to the appellant company for the so called commission on purchases that he is basically consultant and contractor and is having office at DLF Kutub Enclave, Gurgaon. No evidence has been filed by the appellant either before the A.O. or even in the appeal proceedings by way of additional evidence to prove that he has been having dealings with as much as 33 companies from whom the purchases have been claimed to be arranged by him. The appellant was well aware that A.O. has taken the adverse view and has disallowed the commission. Then it becomes all the more important on the part o....
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....P&L account and even this profit may not be ultimately taxable considering that normally the depreciation claimed under I.T. Act is quite more than the depreciation as per the companies account. Therefore, disallowed/addition related to M/s Sidhabali Paper Mills Ltd. amounting to Rs. 2,31,41,467/- is hereby confirmed. 5.2 Broadly similar is the position in relation to M/s Maruti paper Ltd. as was in the case of M/s Shri Sidhbhai Paper Mills Ltd.. However, A.R. has drawn my attention to the fact that three suppliers of M.S. Ingots have directly confirmed to the A.O. in response to notice U/s 133(6) that Pankaj Agarwal/Atul Bansal have contacted them for sale of their ingots to appellant company. The A.R. has furnished the details of the company M/s maruti paper Ltd. inflecting that Sh. Pankaj Agarwal and Sh. Atul bansal is Director of the company. In fact M/s VSP Udyog Pvt. Ltd. has itself mentioned that Mr. Atul Bansal, Director of M/s Maruti Paper Ltd. has worked as intermediary on behalf of appellant company. The purchases made by the appellant company from these three concerns namely M/s VSP Udyog Pvt. Ltd. amounting to Rs. 1,61,62,567/- and from M/s Yash Alloys Pvt. Ltd. amo....
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....ate for lower deduction of TDS on the commission income receivable specifically from Ashiana Ispat Ltd. i.e. the appellant company in the month of July itself i.e. on 18/07/2007. It gives credence to the inference that payment made to M/s Dev Concast Pvt. Ltd. cannot be an afterthought and is thus not non-genuine and is considered for business purpose. Therefore, addition of Rs. 35,27,079/- is deleted. 5.5 In brief addition to the extent of Rs. 4,01,02,215/- is confirmed and balance addition of Rs. 2,01,45,742/- is hereby deleted for A.Y. 2008-09. 6. Now coming to A.Y. 2007-08, the facts related to M/s Balaji Cellulose Product Ltd. are more or less same as in the case of M/s Sidhabali paper Ltd, i.e. the company is basically dealing in cellulose pulp, paper and boards and other packing material. Further neither in the main clause nor in the incidental or ancillary clause of the memorandum and articles of association of the company, there is any mention of dealing in iron or steel products that too on commission basis. Hence entire commission is disallowable subject to the observation given in foregoing sentences. A.R. has brought on record that in this case also, two supplier....
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.... commission shown to be paid on purchases from these three parties totaling to Rs. 17,62,051/- is straightway disallowable and therefore the addition to this extent is confirmed. A.R. has argued that in one case namely BDG Metal and Power Ltd., (formerly known as Bishan Dayal Goyal & Sons Pvt. Ltd.) there is positive reply (P.B. page 146). Accordingly, commission paid on purchase from this party amounting to Rs. 3,34,638/- is allowable. In respect of remaining amount of commission of Rs. 1,10,67,542/-, it will be appropriate to confirm the addition to the extent of 3/4th and give relief to the extent of 1/4th in absence of any specific reply either way from the remaining suppliers and considering that replies received from three suppliers were negative and only one supplier was positive. Therefore, out of the aforesaid remaiing amount, addition of Rs. 83,00,656/- is confirmed and balance amount of Rs. 27,66,886/- is hereby deleted. In brief the relief is allowed to the extent of Rs. 31,01,524/- and addition to the extent of Rs. 1,00,62,707/- is confirmed. 6.3 Therefore, out of total commission of Rs. 3,35,85,302/- debited in A.Y. 2007-08 and fully disallowed by the A.O., additio....
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....mission on sales/purchases. iv. None of the parties to whom commission has been paid towards sales/purchases are in any way related to the directors of the appellant company. v. There is no allegation that the payments have been made to any 'entry operator'. vi. There are no direct or indirect expenses debited to the P&L account in respect of expenses for marketing of finished goods and/or procurement of raw material. vii. All the parties to whom commission has been paid are separate income tax assessees and their particulars have been filed before the learned A.O. viii. TDS has been deducted by the appellant assessee in respect of commission paid to brokers for sales and purchases in all the cases. The learned CIT(A) has confirmed the commission on sales in A.Y. 2003- 04 to 2009-10. The learned Assessing Officer issued notice U/s 133(6) of the Act to verify the commission paid on sales to the brokers. Some of the brokers have directly filed the reply which has been narrated by the learned Assessing Officer and confirmed the receipts of commission. This aspect has not been disputed by the Revenue. The allegation made by the learned Assessing Officer that the recip....
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.... has been entered into on the contended date mentioned on the agreement and therefore the same is part of an afterthought arrangement. The agreements were between two parties which has been duly signed and executed by them and a copy of the same has been found during the course of search and there is nothing to the contrary. The Hon'ble ITAT in the case of Chicago Pneumatic India Ltd. Vs. DCIT (2007) 15 SOT 252 (Mum.) has held that "we also do not find any substance in the contention of revenue that agreements of appointment of commission agents should have been executed on legal documents instead of letter form because this not so required under any law." Therefore, the learned CIT(A)'s finding is against the law and without any basis. In A.Y. 2009-10 to all the 62 brokers, payments were made at Rs. 1,50,49,643/- as against the debit of Rs. 1,50,55,500/-, therefore, he requested to allow the entire commission debited by the appellant in P&L account on sale. 13.1 Commission paid on purchases:- The learned AR for the assessee submitted that position with regard to commission on purchases which are made through the brokers from various parties accross the country is similar to com....
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....aj at Rs. 1,39,94,122/- is allowable. 13.2 For A.Y. 2008-09, similar objections had been raised by the learned CIT(A) on commission paid to Sidhbhai Paper Mill Ltd. at Rs. 2,31,41,467/-. The learned CIT(A) referred the memorandum and articles of association and held that there is mention in it that the assessee was manufacturing of paper and paper related items, but it is submitted that the recipient was commission agent who had arranged the material for the appellant and issued the commission bill on which service tax has been charged by the recipient. As far as commission paid to M/s Sidhbhai Paper Mill Ltd. laws as no bearing on commission paid on purchases as there is no control on the business of the recipient of the appellant, the commission bill was raised after charging of service tax by it. M/s Sidhbhai Paper Mill Ltd. has also applied for lower deduction of tax before the Assessing Officer, which has been ignored by the learned CIT(A) while passing the appellate order. Thus, he requested to allow the commission paid on purchase to M/s Sidhbhai Paper Mill Ltd. at Rs. 2,31,41,467/-. 13.3 Similarly, the assessee had paid commission on purchased at Rs. 65,92,445/- to M/....
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....) confirmed the addition in absence of any experience of broker in this line of business and actually provided any service to the appellant by way of arranging purchase of ingots except copy of bill and confirmation from the parties. It is submitted that the supplier had shown the name of the party as a broker in the bill itself and it had acted as agent of the appellant and these facts have been confirmed by it separately. It is further argued that only in this line of business, the knowledge of the market, knowledge of demand and supply and material available, are required to execute the order. The remaining commission also confirmed by the learned CIT(A) on account of no experience for which the appellant relied upon same argument as given in the case of Bihar Rafia Industries Ltd. Calcutta. 13.6 For A.Y. 2005-06, the assessee has claimed commission on purchase at Rs. 10,60,201/- paid to M/s Sand Chem (I) Ltd.. The learned CIT(A) gave the identical findings that the assessee actually had not rendered any service, no experience in the line of business by way of arranging purchases of ingots except copy of bill and confirmation from party. It is submitted by the AR that bill of....
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....illets either they were contractor or consultant. In some of the cases either brokers' main business was paper business or in some other cases, there was no main object mentioned in the memorandum of article and association that the assessee was dealing in the iron and steel material. Even in the ancillary object, this was not object of company. The learned CIT(A) heavily relied upon the order of the learned Assessing Officer and partly learned CIT(A). The learned CIT(A) has thoroughly examined this issue, he has confirmed the addition on the basis of fact and evidence produced by the assessee of each brokers. Therefore, she prayed to confirm the order of the Assessing Officer. She further reiterated the findings given by the Assessing Officer that to do this business, the telephone is not sufficient. The income disclosed by the brokers in every case was marginal. Particularly she has also drawn our attention on paper book page Nos. 401 and 360 for A.Y. 2009-10. In A.Y. 2007-08, the learned Assessing Officer called on one of the supplier who had denied services of any brokers in its transaction. No record had been maintained by the brokers in form of booking of order and supply of ....
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....1. Ajay Traders 2. Sh. Naresh Garg 2. Sh. Anil Kumar 3. Aman Steel. 3. Sh. Jagdish Manchanda 4. Sh. Chandrashekhar Steel 4. Sh. Naresh Kumar Garg 5. Sh. Jagdish Manchand 5. Sh. Rajiv Garg (HUF) 6. Sh. Kanta Modi 6. Smt.Sharda Manchanda 7. Sh. Maman Chand Goyal 7. Smt. Shashi Bala Garg. 8. Project Consultant 8. Sh. Vikrant Mahajan. 9. Smt. Sharda Manchanda 10. Sh. Vikrant Mahajan. A.Y. 2007-08 A.Y. 2008-09 Party's name Party's name 1. Sh. Jagdish Manchand 1. Agarwal Steel Corp. 2. Ajay Traders 2. Sh. Anil Kumar 3. Sh. Gulshan Gupta 3. Sh. Anil Kishara 4. Sh. Dharmpal Khera 4. Sh. Ankit Garg 5. M/s Garg Steel 5. Sh.Ashoka Kr.Dang & Sons 6. Sh. Manchand Gupta 6. Sh. Deepak Mittal 7. Sh. Sanjay Gupta 7. Sh. Dharampal Khera 8. Sh. Vikrant Mahajan 8. Ganpati Steel Corp. 9. Garg Steel 10. Sh. Gulshan Gupta 11. Smt. Kirtika Jain 12. Sh. Manchand Goyal 13. Sh. Maman Jain 14. Sh. Naresh Kr. Garg 15. Sh. Neeraj Jain 16. Sh.Neeraj jain & Sons HUF 17. Sh. Purshotam Kr. Goyal 18. Sh. Roshan Lal Gupta 19. Sangam Buildway 2....
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....made through account payee cheques to him (page No. 58 of paper book of A.Y. 2008-09), in which, the recipient charged service tax, which proves that he has rendered service for the appellant. It is further found that in the assessee's group, search seizure operation had carried out by the department but no incriminating documents found on account of commission payment. The assessee had shown turnover in A.Y. 2003-04 at Rs. 57.04 crores, in A.Y. 2004-05 Rs. 73.11 crores, in 2005-06 Rs. 99.45 crores, in A.Y. 2006-07 Rs. 117.75 crores, in 2007-08 Rs. 170.02 crores, in A.Y. 2008-09 Rs. 196.05 crores and in A.Y. 2009-10 Rs. 234.44 crores. The assessee has discharged primary onus cast upon it. There is no material with the Assessing Officer to dispute the evidences such as confirmation, copy of PAN, copy of return, TDS certificate, copy of bank account etc. filed by the assessee. In case of commission paid to M/s Sidhbali Paper Mill Ltd., the assessee had drawn our attention on page No. 451 of paper book and Maruti Paper Ltd. on page No. 455 of paper book for A.Y. 2008-09. For Balaji Cellulose Product Ltd. page No. 176 of paper book and Baba alloys Pvt. Ltd. page No. 153 of paper book o....
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....Sh. Puneet Jain, Director of the company had expressed his inability to comment on the difference in stock i.e. difference in stock as per books of account and stock found physically, stating that the same shall be replied later on. The Assessing Officer gave reasonable opportunity of being heard on this issue during the course of assessment proceedings. In response to this, the assessee filed reply vide letter dated 30/09/2010 and 03/12/2010, it was submitted that the stock was laying at stretch of factory premises of the assessee in thousands of bundles/bunches/rows. The officers conducting the search did not carry out the exercise of actual weighment of goods. The weight in the stock inventory was taken on estimate basis by counting of bunch and rows and then multiplying the same with the average weight of a piece, that too of bundles. The assessee maintains stock on the basis of actual weighment and not on the basis of counting the piece and rows and multiplying the estimated weight. The appellant was maintained stock registers according to complying with the applicable provisions of Excise rules and regulations and regular audits were conducted by Excise authorities. No discre....
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....rmed the same by putting their signatures on the inventory and the Directors of the company namely Sh. Puneet Jain and Sh. Sanjay Jain have also accepted the inventory of stock by putting in their signatures on the lists prepared during the course of search. Normally, in income tax search operations the witnesses are the prerogative of the assessee." He further observed that the assessee did not make any objection before the authorized officer. The search panchnama was signed by the Director alongwith two independent witnesses to prove that the inventory of stock was drawn correctly and method adopted for drawing the inventory of the stock was acceptable to the representative of the assessee company who were present during the search. The learned Assessing Officer further relied upon the decisions of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra Vs. Union of India & Ors. Special Leave Petition (C) No. 14028 of 1996 order dated 25/10/1996, Hon'ble Punjab & Haryana High Court's decision in the case of Rakesh Mahajan Vs. CIT Tax appeal No. 642 of 2007 (Taxpert) and 214 CTR 218 and Hon'ble Kerala High Court decision in the case of V. Kunhambu and Sons Vs. CIT (2....
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....apacity of 15 tonne would have been required. It transpired that the appellant company has only one weighing machine. Accordingly, this exercise of loading and unloading of M.S. Ingot in about 260 trucks for weighment purpose would have continued for day together or even would have taken a week or more thus disrupting normal usual business of the company, which would not at all be in the interest of the appellant company, more particularly when the weight of the particular size of ingot has been very scientifically arrived at by the concerned staff under the guidance of directors by taking the standard width and thickness of different ingots as well as the length and then converting the volume into weight. 8.2 It may be further added that the appellant has completely failed to furnish the specific defects/discrepancy before the A.O. during assessment proceedings. Accordingly, prima facie, it appears that now the so called defect have been cited before me only with a view to try to take a chance. 8.3 Without prejudice to above, even considering the specific contended defects, the appellant has mentioned that from sr. no. 25 to 31, the ingot size has been shown as 4.5" x 4.5", ....
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....rence of per inch length weight taken within the ingot of 4.5"x3.5" size and thus the method so taken is not scientific. Even considering this new argument of the A.R., if we take all the three items together i.e. 57 inch + 52 inch + 54inch= 163 and simultaneously their weight per piece which is taken as 110+105+96=311, the average weight per inch of length comes to 1.91 kg. Considering that area of 4.5"x3.5" is 15.75 sq. inch, the weight per inch length taken on the basis of 4"x4" inch Ingot having 2 kg per inch length will come to 1.96 kg. Thus the weight so taken in the case of 4.5"x3.5" inch ingot is more or less same (taken on average basis) and rather is slightly less, which is rather beneficial to the appellant and therefore in view of the above, appellant should not have any grievance. 8.4 In respect of TMT Bar, the discrepancy is very minor, wherein A.R. has pointed out about 97.2 kg at sr. no. 2 of page 7 and 97 kg at sr. no. 34 of page 8. It is a case is just ignoring the figure after decimal. As regards difference in the weight of 16 mm x 40 ft TMT Bar taken at sr. no. 18 and 55 of page no. 8 having average weight 94 kg and at sr. no. 59, 74 and 80 of page no. 9 havi....
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....scrap/sponge iron, the same were heavy and could not be easily handled manually without the help of a crane. Same error was made in counting of saria/TMT bars, which are no uniform weight per bundle of TMT and per piece of Ingot/Billets. The assessee has been maintained stock register on the basis of weight only. The facts can be verified from the panchnama that authorized officer has counted the closing stock in very short time and in hurried manner with the help of unskilled employee of the company. The alleged excess stock was creation of faulty process of stock taking adopted by the search party and did not exist in reality. In this connection reliance is placed on the decision of ITAT Cuttak (TM) in the case of Utkal Steels Ltd. Vs Dy.CIT, 82 ITD 120 wherein relying upon the judgment of Hon'ble Orissa High Court in the case of Haribhagat Agarwalla Vs. State of Orissa, 51 STC 355 (Orr). It was held that no addition could be made on the basis of difference of stock arrived at by sampling method. It was held in that case that assessing authorities were not justified in estimating the value of stock without physically weighing them, particularly when the assessee maintained regula....
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....008 during the course of search proceeding. The learned AR raised a technical reason before the learned Assessing Officer that the stock was taken on the basis of estimation by counting of the number of M.S. Ingots/bundles/bunches/rows by multiplying it, which is a scientific method for verifying the closing stock in case of manufacturing of saria/TMT bars. She further relied in the order of the learned CIT(A) and argued that the learned CIT(A) had given detailed findings on valuation of closing stock of M.S. Ingots on page 62 of his order that it can be weighted on the basis of density and volume. During the course of search, weight of various M.S. Ingots were taken at the instance of the staff as well as Director to arrive the actual weight. The appellant had only one weighing machine and for weighing 3572-3917 M.T. of M.S. Ingots was required to more than week's time. The learned CIT(A) also verified the size of physical stock of M.S. Ingots with the inventory prepared with purchase bill. She further argued that if this physical stock so found is not mentioned in the stock register, as claimed by the A.R. then obviously it is the stock outside the books of account. Hence this ar....
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....so in volume and in size, the time taken by the authorized officer for verifying the closing stock was very short as search was concluded on 18/09/2008 i.e. second day of search. During the course of search, no incriminating documents regarding purchase of raw material and sales of goods outside the book was found and seized by the authorized officer, which supports the assessee's claim that weighment done by the authorized officer was not scientific to arrive the correct discrepancy in the stock of the appellant company. The case law relied on by the appellant i.e. Utkal Steels Ltd. Vs Dy.CIT (supra) are squarely applicable in the case of the assessee being deiced on identical and similar facts of the case and addition in the stock on the basis of sampling method without physically weighing. The learned Assessing Officer was not justified in making addition on account of excess stock as stocks were checked by the Central Excise authorities from time to time. Further we find that even we accept the stand of the revenue that there was excess stock, which is added during the year under consideration, would automatically become opening stock of the subsequent year. Therefore, there is....