TaxTMI 
TaxTMI 
2018 (3) TMI 69
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....n account of disallowance of purchase of 738 MTs of split palm kernel fatty acid from Golden Tobacco Co. Ltd. and payment of bogus service charges of Rs. 2,56,39,000, towards purchase of split palm kernel fatty acid. Being aggrieved of the additions / disallowance made by the Assessing Officer, assessee preferred appeal before the first appellate authority. 4. The learned Commissioner (Appeals) after considering the submissions of the assessee, deleted some of the additions made by the Assessing Officer while restoring some of the issues for fresh consideration of the Assessing Officer. As regards the issue of purchase of split palm kernel fatty acid and payment of service charges, the learned Commissioner (Appeals) restored the issue to the Assessing Officer to examine all the details furnished by the assessee. He also directed the Assessing Officer to examine Golden Tobacco Co. Ltd., and allow the assessee adequate opportunity to cross-examine the witnesses whose statements were relied upon by the Assessing Officer while making the additions in the original assessment. In pursuance to the aforesaid direction of the learned Commissioner (Appeals), the Assessing Officer took up th....
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....f the first appellate authority while restoring the issue relating to purchase of oil and payment of service charges to the Assessing Officer submitted that the learned Commissioner (Appeals) had specifically directed the Assessing Officer to examine all the evidences furnished by the assessee and further to allow the assessee to cross-examine the witnesses whose statements were relied upon. He submitted, while completing the impugned assessment the Assessing Officer has failed to comply to the directions of the learned Commissioner (Appeals) as no opportunity was allowed to the assessee to cross-examine the witnesses whose statements were relied upon to conclude that the payment of service charges are not for the purpose of business. Learned Authorised Representative submitted, the necessity and requirement of purchasing the split palm kernel fatty acid (palm oil) was explained in detail both before the Assessing Officer and the first appellate authority. He submitted, during the year 1983-84, the Government has imposed ban on import of tallow which was used by soap manufacture for manufacturing of soaps. Due to ban on import of tallow there was increase in demand of oils / fatty ....
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.... charges should be disallowed as they were part of the same contract. In this context, the learned Authorised Representative drew our attention to the sample copies of contract entered with the parties to whom service charges were paid. He submitted, the perusal of the contract clearly reveal that the services in fact were rendered by the concerned parties. To impress upon the fact that service charges were paid towards services actually rendered by the intermediaries learned Authorised Representative relied upon various documentary evidences such as contract with the intermediaries, confirmations issued by the parties receiving service charges, debit notes. Learned Authorised Representative submitted, during the relevant period due to acute shortage of imported oil / fatty acid, there was market practice of paying service charges and which was paid by all manufacturers. Learned Authorised Representative submitted, when the assessee incurs certain expenditures for the purpose of its business, the department cannot question the necessity of incurring such expenditures. In this regard, he relied upon the decision of the Hon'ble Supreme Court in Sasson J. David and Co. P. Ltd. v/s....
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....sed the fatty acid / oil directly from the parties where is the necessity to pay service charges to intermediaries in the absence of any service rendered. He submitted, the assessee having failed to establish the necessity and business expediency of paying the service charges the deduction claimed was rightly disallowed. 8. We have heard rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Before proceeding to decide the disputed issue relating to allowability or otherwise of the service charges paid to different persons on purchase of oil it is necessary to deal with certain factual aspects which in our opinion are relevant for deciding the issue in dispute. Undisputedly, in the relevant assessment year, the assessee had claimed deduction on account of purchase of imported palm kernel fatty acid and payment of service charges relating to such purchase totalling to Rs. 4.81 crore. The purchase of palm kernel fatty acid was claimed to have been made from various parties including Golden Tobacco Co. Ltd. In the course of the original assessment proceeding, the Assessing Officer on the basis of material gathered in survey condu....
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....earned Commissioner (Appeals) also sustained the disallowance on service charges by accepting the reasoning of the Assessing Officer. Thus, in the aforesaid factual back-drop it has to be examined whether the service charges paid by the assessee were incurred wholly and exclusively for the purpose of business, hence, were allowable expenditure. It is evident from the factual discussion made earlier that assessee's claim that purchase of imported palm kernel fatty acid through traders holding import license was made due to shortage of locally available substitute at a higher price is correct. The aforesaid fact has not been disputed by the Department. The Department has also not disputed the fact that the price paid by the assessee for purchase of imported palm kernel fatty acid is at arm's length. The only dispute is with regard to rendering of services by the parties to whom service charges were paid. In this context, it is relevant to examine sample copies of contracts entered into by the assessee towards payment of service charges copies of which have been enclosed in the paper book. A perusal of the contract entered with Golden Tobacco Co. Ltd., a copy of which is at Page-....
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....ty acid to the assessee. The condition imposed under the contract making Golden Tobacco Co. Ltd. liable to pay damages in case of loss of goods clearly establishes the fact of rendering of service by Golden Tobacco Co. Ltd. It is also necessary to note that the assessee has brought material before the Departmental Authorities to demonstrate that payment of service charges to intermediaries towards purchase of imported palm kernel fatty acid was not restricted to the assessee alone but other reputed manufacturers in India also paid such service charges to intermediaries for procuring imported palm kernel fatty acid which are commercially viable than locally available substitute. In this context, it is necessary to observe that vide letter dated 10th October 1991, the assessee submitted documentary evidences before the Assessing Officer to demonstrate that other soap manufacturers were also paying similar service charges on purchase of imported oils. In fact, the purchase order in case of Godrej Soaps Ltd. enclosed at Page-314 and 315 of the paper book demonstrate that payment of service charges on import of palm kernel fatty acid is a market practice prevailing at the relevant point....