TaxTMI 
TaxTMI 
2017 (12) TMI 1529
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....d facts are that the assessee in the present case is a partnership firm and engaged in the business of manufacturing and trading of iron & steel materials. The assessee, in the year under consideration, has claimed an expense of Rs. 118,47,513 under the head "commission". The AO during assessment proceedings compared the amount of commission expenses and the turnover of the current year with the earlier year data as depicted below:- A.Yr. Turnover (Rs) Commission paid (Rs) % 2007-08 55,11,52,854 23,232 0.0042 2008-09 69,94,50,911 1,18,47,513 1.6938 Increase 14,82,98,057(26.9%) 1,18,24,281,(50896%) From the above, the AO observed that the turnover of the assessee has increased by 26.90% whereas the amount of commission has increased by 50896% in comparison to the earlier year data. Accordingly the AO issued notices under section 131 of the Act to six parties on random basis to verify the genuineness of the commission expenses claimed by the assessee. Out of 6 parties four parties appeared in response to the notice issued u/s 131 of the Act whereas for remaining 2 parties the assessee filed necessary documents/ confi....
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....ortant in order to secure work from TATA and SAIL, which would have got diverted to the other small and medium dealers in case of any delay. 4) Moreover, the markets were very volatile during the year. A perusal of purchase invoices of different months will show the wide fluctuation in market rates. 5) As a result the assessee was required to monitor/ provide the following services: i) To lift material promptly from the stockyard in order to maximize lifting which would provide twin benefits to the assessee; (a) larger rebates, (b) secure more business. ii) To give information about the demand of the nature and quality of the materials in the market; iii) To book the order of the materials as per specification before SAIL & TATA and coordinate accordingly with SAIL & TATA for availability of the specified materials. Until last year due to fewer dealers in the market TATA & SAIL would themselves approach the assessee for orders, but now there was a need of initiative on the assessee's side; iv) To help the assessee make payment as per offer of materials issued by SAIL & TATA after taking into consideration the demand and pric....
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.... 'If a party fails to avail of the opportunity to cross-examine a person at the appropriate stage n the proceedings the said party would be precluded from raising such issue at a latter stage of the proceeding. Therefore the belated claim of the assessee at the appellate stage that it was denied the opportunity of cross-examining witness in the assessment receding is wholly untenable in law. I therefore find that the cross examination was offered to the appellant and he did not avail of the same and at this stage the appellant cannot be allowed to raise such a plea. I further find that the parties who were earning substantial Commission from the appellant and acting as agents to sell goods worth cross of rupees could not give details of services rendered, name of parties to whom they were servicing etc. Thus the basis details of the job claimed to be done by them was also not known by them. The parties to whom, these alleged agents were servicing also clarified that these parties were not known to them. I find that it is well established principle of law that the burden is upon the assessee to establish that any expenditure exclaimed a deduction was laid out or incu....
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....e genuineness of the claim. The assessee had been given sufficient opportunity to establish the genuineness of the claim of rendering of services. All these factors taken together do not leave any doubt in my mind that the assessee had miserably failed to discharge the onus and for which, according to Hon'ble High Court Calcutta in the case of Vishnu Agencies (P) Ltd. (supra), the Hon'ble Gauhati High Court in the case of Assam Pesticides & Agro Chemicals v. CIT and the Supreme Court in the case of Lachminryan Madan Lal v. CIT, I hold that the AO was justified in making the disallowance of Rs.1,17,47,513/- at the same is therefore upheld." Aggrieved by this, the assessee has come up in appeal before us. 5. The ld. AR before us submitted written submissions which are reproduced under:- 2.1 The assessee during the year procured H.R. Coils, P.M. Plates/HS~JCH Coil etc. from TAT A and SAIL. In the FY 2006-07, assessee was one of their few dealers. However, the position changed substantially in the current FY, when TAT A & SAIL gave dealership to many small and medium sized dealers. Accordingly, the level of competition at the procurement end was obviously higher ....
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.... In light of the aforesaid factual position, it is clear that service of commission agents was absolutely essential with a view to maximize profits. In fact, the profits during the year actually increased by 137.09% as compared to the profits of last year [turnover increased from Rs. 55.1 crores (last year) to Rs. 69.95 crores this year]. 3.1 Moreover, the assessee in course of assessment produced complete details of commission agents. Notices u/s 131 of the Act were issued to the agents who in turn appeared before him and produced the relevant details as requisitioned by the AO. 3.2 Let us now discuss in detail the documents furnished by the agents to the AO. In response to notice u/s 131 of the Act, the agent namely Gauri Shankar Bajaj & Sons (HUF) furnished the following: (i) PAN of the Karta & HUF (ii) Voter ID of Karta (iii) IT Acknowledgment of HUF (iv) Balance Sheet, P/L account of HUF together with its tax computation (v) Bank statement evidencing receipt of commission (vi) Invoice raised on the assessee together with a confirmation from the agent 3.3 A perusal of the invoice at page 8 of paper....
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...., evidence of commission payment etc. are on record. 6. The turnover & profit of the assessee has increased during the year by 26.90% & 137.09% in comparison to the last year. However, the AO disallowed the amount of commission on the basis that no service was rendered by the agents. The view taken by the AO was subsequently confirmed by the ld. CIT(A). However in identical facts & circumstances we find that the Hon'ble jurisdictional High Court in the case of CIT Vs. Hindustan Development Corporation Limited reported in 101 taxman 146 wherein it was held as under:- "Genuineness of the agreement had not been disputed. The assessee and ISC agreed that the sale would be through ISC and the commission on sales at a particular rate would be paid by the assessee. All payments were made by account payee cheques. Statements of partners of ISC were recorded by the ITO at the back of the assessee. No opportunity was given to the assessee to cross-examine them, not even copies of those statements were supplied to the assessee at the time of assessment, and these statements were used against the assessee. When the ITO had not allowed to submit copies of the evidences whic....
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.... Pl give details. Ans. I do not remember that. I tell you after the check books of accounts. Q7: Does that mean that you do not do the job regularly for M/s Bishandas Iron Works? Ans: Yes.... Q8: How did you Commission in contract with M/s Bishandas Iron Works? Do you know anybody from M/s Bishandas Iron Works? Ans: I know only one person name Goyalji. Q10: What were the terms & conditions for this job? Was there any written agreement? Ans:10 There is no written of terms & condition ... .. I do the job in moth of Oct & Nov and I got the payment in month of March most probably. Q 13: From the P & L A/c submitted by you, it appears that you have not debited a single rupee for travelling. How did you manage the lifting of iron goods from Tatanagar by sitting here in Kolkata? Pl specify. Ans: The job was done by my brother in law on my behalf. Q14: Do you know where this iron was lifted from, how it was transported, who made the payments for transport and where the goods were transported? Ans14: Goods lifted from Tata (Tatngar), exactly address I do not know. Transport charges pay by the ....
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....ion the appellant wanted from them." 6.2 We further rely on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Smc. Share Brokers Lt. (2007) 288 ITR 345 (Del) in this case the Hon'ble High Court held as follows:- "We are of the opinion that the Tribunal was right in its view that in the absence of Manoj Aggarwal being made available for cross-examination, despite repeated requests by the assessee, his statement could not be relied upon to his detriment." We rely in the judgment of Hon'ble jurisdictional High Court in the case of Bangodaya Cotton Mills Ltd. vs. CIT (2009) 21 DTR 200 (Cal). In the said case the Hon'ble jurisdictional High Court held as under:- "AO having made the impugned addition simply on the basis of some letters seized summons to the concerned person or making him available for cross-examination, the remanded back to the AO to consider the matter afresh." Again the Hon'ble jurisdictional High Court in the case of Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal) at page 111:- "It was true that 'R' had proved to be a shifty person as a witness. At the earlier case o....
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....the said case the Hon'ble High Court held as under:- ".... He had also prayed for an opportunity to cross-examine the auctioneers. When assessee to cross-examine the authors of those books. The petitioner had been denied that was sufficient to vitiate the order. The order of reassessment was not valid and was liable to be quashed." It is also undisputed fact that the lower authorities have not brought any defect on record in the documents submitted by the assessee to disprove the genuineness of the transactions. Here it is pertinent to note that the CBDT has discouraged to its officers to make the addition on the basis of the statements and without bringing any tangible materials in support of holding the transactions as bogus. The relevant extract of CBDT instructions issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 reads as under:- "Instances/complaints of undue influence/coercion have come to notice of the CBDT Searches/Surveys conducted by the Department. It is also seen that many such by credible evidence. Such actions defeat the very purpose of Search/Survey leave alone levy of penalty or launching of prosecution. Further, such ac....
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.... assessee has produced many documentary evidences to prove the genuineness of the commission transaction. The commission agents too have confirmed the transactions, which have been duly accounted for in their books of accounts. Therefore, the action of the AO in ignoring all the strong material evidence brought on record and merely relying on the statement of a third party (that too a statement which is contradicting the party's own written confirmation) is not justified. Going by the above judgment, in view of all documents in favour of the assessee's claim, the contention of the AO that entries were merely paper entries, based on statement of Manoj Sarda which is not supported by any other evidence, is not acceptable. Now whether in the given circumstances the statement of Mr. Sarda can be used as valid evidence against the assessee or not is a question of law which was answered by the Allahabad High Court in the case of Gargi Din Jwala Prasad v. Commissioner of Income-tax [0961TR 0097] held the following: "the mere grant of the permission to cross-examine those witnesses was an eyewash. The assessee could not have effectively cross-examined any particular person....