TaxTMI 
TaxTMI 
2016 (5) TMI 280
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....ment under section 143(3) of the Income Tax Act, 1961, for the assessment year 1995-96. Grievances in this appeal, as set out in the memorandum of appeal, are as follows: "Aggrieved by the order passed by the Commissioner of Income-tax (Appeals) - XXXIII, Mumbai [hereinafter referred to as 'the learned CIT(A)'], under section 250 of the Income-tax Act, 1961 ('Act') and based on the facts and circumstances of the case, Stock Traders Private Limited [hereinafter referred to as 'Appellant'] respectfully submits that the learned CIT(A) erred in disposing the appeal of the Appellant, on the following grounds. 1. The CIT(A) erred in confirming the disallowance of the payment of professional fees of Rs. 4,509,637 to Preroy AG ('PAG'). 2. The CIT(A) erred in making the following erroneous observations and conclusions in gross violation of the principles of natural justice: (a) In observing that the Appellant has claimed income earned by PAG as exempt from tax in India. (b) In observing that PAG has no other business except that it receives professional fees from the Appellant. (c) In observing that PAG has only one client all over the world ....
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....assessee was engaged in the business of making investments, the expenses so incurred by the assessee were deductible under section 37(1) and in the light of Hon'ble Supreme Court's judgment in the case of CIT Vs Delhi Safe Deposit Co Ltd [(1982) 133 ITR 756 (SC)]. Reliance was also placed on the judgment of Hon'ble Bombay Court, in the case of CIT Vs Rajaram Bondekar [(1994) 208 ITR 503 (Bom)], in support of the proposition that the mere fact that expenditure incurred by the assessee benefits a third party would not lead to disallowance as long as the expenses are incurred wholly and exclusively for the purposes of the business of the assesses. These submissions, however, did not impress the Assessing Officer. He noted that Sushil K Premchand (SKP, in short) who is major shareholder and director in the assessee company, is also one of the two directors of PAG. He noted that the services, on behalf of PAG, were rendered by SKP but then there was no clinching evidence of the actual rendition of service. There were, according to the Assessing Officer, only bills and invoices for services but that did not constitute any evidence about the services having been rendered. Coming to the in....
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.... to 17 Related to business of Casoni F.L. Spa 18 to 22 Related to business of Johnson & Johnson 23 to 27 Related to Joint Venture ISS India 28 to 29 Related to A. Boss & Co. for export of handmade paper 30 Related to bnsmess of OKS 31 Related to unidentified Co. for Defence services 32 Related to Alfred Carcher Gmbh & Co. Cleaning System project 33. MIS Europe Limited - Data Security system 34. New Opportunity in USA. 5.9 From the details accompanying all 34 invoices following common features are observed : i) The nature of services stated to have been rendered are mentioned in very general and vague terms. All these invoices talk of rendering services in connection with the attending, discussing, negotiating, securing a commitment, presenting the case, establishing credibility, reviewing the need for focused, selling, ensuring the smooth initial ion, participating in various - etc. ii) The supporting evidence consist of mainly xerox copies of fax messages sent, copies of receipts of Hotel booking, copies of boarding passes for Air Travel and ....
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...., amounting to US Dollars Ten Thousand only." 5.12 It is strange that the invoice talks of services rendered in connection with the discussion with a member of Board of Directors of Swiss Company. The company has not been mentioned. The members of the Board of the Directors has also not been named. However, literature of laser shot is enclosed along with the invoice. It is normal practice that whenever a new product is introduced in the market, the manufacturer, publishes brochures and pamphlets giving the new features and utility of the product. These brochures and pamphlets are freely available in the market. Anybody can have access to them. Since PAG has not mentioned any reference to the name of the company or to the member of the board of directors, it cannot be said that the discussion were actually held with that ember of that company for exploring the possibilities of STPL's entering into transaction with that company. 5.10 Similarly, invoice no.34 (running invoice no.1996-13) dated 23fd May 1996 reads as under : "EXAMINATION OF NEW OPPORTUNBITIES FOR AINDIA DURING RECENT VISIT TO THE USA: Billing for services rendered in connection with meeting members of t....
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.... if there is actually no activity at all. The said agreement, of course, has an overriding clause in respect of out of pocket expenses that is to say either these expenses are to be reimbursed on actual basis or as credit before hand. However, once again, there is no evidence on record to show that PAG had agreed before hand - that is to say before the commencement of the assignment - not to claim out of pocket expenses in respect of that project This creates serious doubt regarding genuineness of the services because as per the agreement dated 2.1.1995, each invoice has to be prepared and approved on case to case basis before the invoiced activity commences. Obviously, neither the assessee nor PAG bothered to do so because both of them knew for sure that there was no services to be actually rendered and hence, there was no out of pocket expenses to be incurred at all. Both of them were clear that PAG has to only raise an invoice and STPL has only to make payment thereof and that would be the end of the matter. 5.15 In view of above discussion I am convince that no services whatsoever were actually rendered by PAG and thus, the payment made by the assessee company cannot be said....
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....ry of Swiss Company (PAG) having any technical expertise as STPL is the only company to which PAG claims to have rendered technical services. Both the companies have common directors and Indian Company has given no basis on which the alleged commission has been paid. There is no evidence to show that services have been rendered by the agent PAG nor any evidence to show that any work has been done by the PAG. No evidence has been brought on record by the appellant to show that business was procured due to the active involvement of the agent. Any agent who has to earn commission/professional fee has to put in some efforts to get the business but the appellant has brought nothing on record to show whether any effort was put in by the said agent. I have gone through the documents/papers furnished by the appellant. The appellant has furnished a statement indicating the list of projects undertaken by the appellant wherein it claims that PAG had rendered consultancy services during the F.Y. under consideration. The names of some foreign companies with whom the appellant has entered into joint venture have been furnished by the appellant like OKS India, D & E India, Johnson & Johnson, ISS ....
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....at the payments were made exclusively and wholly for the purpose of the assessee's business despite the existence of such agreement/payment, it is open to the ITO to consider the relevant facts and determined for himself whether the commission said to have been paid is properly deductible u/s. 37(1). In the case of Assam Pesticides and Agro Chemicals Vs. CIT (Guwahati) 227 ITR 846 the Hon'ble Court has held that mere payment by itself would not entitle an assessee for deduction of the said expenditure unless the same was proved to be paid for commercial considerations. The onus of proof at all relevant times rest upon the assessee. In the case of Swadeshi Cotton Mills 63 ITR 57 (SC) the Apex Court has held that additional commission to Directors in addition to monthly remuneration for extra commercial reason is not allowable as deduction. Under the circumstances and facts of the case I hold that no services have been rendered by the PAG as the evidence brought on record by the appellant does not show any past history of the Swiss Company having any technical expertise as STPL is the only associate company to which PAG claims to have rendered technical services where both th....
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.... Brouchers of OKS and Carl Bechem 10. Clearly, the work is done by SKP, the meeting is taken by the SKP and it pertains to the investments of the assessee is OKS. When a meeting is taken by director of the company, analysis is done by the director of the company and the recommendations are made by director of the company, it is difficult to be persuaded by the contention that these services are required to be treated as rendered by the Preroy AG because, the director was also a one hundred percent owner and a director of Preroy AG, and because, at the point of time when he was doing all this work, he had discarded the hat of director in the assessee company to wear the hat of director of Preroy AG. That is the situation with respect of the entire work in respect of which Preroy AG is paid. The evidence in support of rendition of services, whether during the assessment year 1995-96 or eve in respect of subsequent assessment years, includes fax message by SKP, travel schedules of SKP, boarding passes of SKP and fax message by Preroy AG to a business house "informing the time of Sushil's arrival at Amsterdam on July 1, 1994 and suggesting a meeting at the KLM lounge at Amsterdam". T....
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....nding "business meetings and representing STPL in a meeting with potential business partners". When it comes to claiming the travelling expenses, the assessee travels as director in STPL (i.e. the assessee) to attend the business meetings, yet the assessee claims to have actually met the potential business partner in a different capacity, i.e. as a representative of Preroy AG, and seeks a deduction for fees paid to Preroy AG in respect of the same. The same is the position with respect to almost all the invoices. Take for example, invoice no. 11 for US $ 10,000 with the narration as "negotiation in respect of extending relationship between OKS-Munich and Inchem, to include OKS- India" which "make available to OKS India speciality gear oil products not available from existing technology partners". This bill is supported by SKP's boarding passes at Zurich and Munich ad report on Inchem visit on 18th August 1994. In the details of travelling expenses, however, SKP has justified his Germany trip, probably with a stopover at Zurich, on the ground that he "represented STPL at business meetings with joint venture partners in Germany". When SKP was representing the assessee in the meeting ....
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....d payment does not, in our considered view, does not exists, as there are no independent services rendered by the assessee. Learned counsel for the assessee has laid lot of emphasis on the contention that the assessee was in the business of making investments and, therefore, even expenses incurred in connection with the business of his subsidiary, OKS India , will also be eligible for deduction as these expenses are to protect his investment. There does not seem to be any issue with the legal principles embedded in this proposition but this proposition will be relevant only when we come to a conclusion that legitimate and genuine business expenses are so incurred for the services rendered by Preroy AG. We are yet to reach this stage. As there are no independent services rendered by Preroy AG, in our opinion, it is wholly irrelevant whether the services, for which billing is done by Preroy AG, are for the purposes of business of the assessee. As regards learned counsel's contention that the income in question, in the hands of Preroy AG, has been brought to tax in India, and, therefore, it cannot be said that no services are rendered, we are of the view that merely because an income ....