TaxTMI 
TaxTMI 
2018 (5) TMI 1156
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....f business. 3. At the outset, the learned counsel of the assessee submitted that he shall not be pressing ground number one and two. Hence, these grounds are dismissed as not pressed. Apropos disallowance of commission: 4. Brief facts of the case are that during the course of assessment proceedings the Assessing Officer noticed from the P & L account that the assessee had debited an amount of Rs. 53,90,000/- under the head "commission". It was noticed from the ledger copy that the commission had been paid to M/s. Drishti Adventure Sports Pvt. Ltd., a group concern of the assessee. The Assessing Officer asked the assessee to furnish the details of this expense and also to explain as to why the same was incurred. The assessee furnished that commission was paid to M/s, Drishti Adventure Sports on account of technical expertise provided by them and all the concerned suppliers were only known to M/s Drishti Adventure Sports Pvt, Ltd., and it has provided the necessary knowhow for direct deals with the suppliers and charged a commission @ 23% on total sales to M/s. Drishti Special Response Services Pvt. Ltd. On going through the assessee's submission the Assessing Officer no....
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....d the maintenance and supply of spares business to be worth Rs. 2.65 crores per year for 3 years. Thus, the business turnover of the assessee for achieving lifeguarding work was projected at about Rs. 19.75 crores or say about Rs. 20 crores during the first 3 years. The payment of Rs. 53,90,000 as commission was @ 2.7 %. This stand of the assessee is quite contradictory. The asseessee vide etter dated 22.08.2011 had stated that commission was paid @ 23% on total sales. Now, the assessee says that the commission is a one-time payment @ 2.7% of the total projected sales for three years. The assessee has arrived at a hypothetica sales figure of Rs. 20 crores which includes Rs. 11.80 crore sales to M/s.Drishti Special Response Services Pvt. Ltd. It is fair to assume that this is based on the Contract bid of Rs. 12.71 crores transferred by M/s.Drishti Adventure Sports Pvt. Ltd to M/s.Dnshti Special Response Services Pvt. Ltd. However, no evidence for such assumption was submitted for the balance projected sale of Rs. 8.20 cr. The assessee simply stated that the maintenance and supply of spares business was worth Rs. 2.65 crores per year for 3 years. (iv) While on this, it may a....
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....ion of not paying taxes on its income has diverted the same to its sister concern which will get set off against its losses. The expenses have in fact been booked at the fag end of the financial year. Thus, this is nothing but a case of avoiding taxes. (viii) The assessee has made wrong claim of expense with a view to reduce the tax liability of the year under review and it is for such type of case that the Hon'ble Supreme Court has held in the case of M/s McDowell & Co Ltd (154 ITR 148) as under: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain a belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is obligatory of every citizen to pay the taxes honestly without resorting to subterfuges." After taking into consideration the above elaborate discussion, the expense of Rs. 53,90,000/- claimed by the assessee as commission is held to be non-obligatory and not for the purpose of business as the assessee has failed to provide any evidences to the contrary. The amount of Rs. 53,90,000/- is therefore d....
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....ort wherein it is stated that during the assessment proceedings at three occasions reference was made to the commission expenses yet the appellant did not file the evidence which has now been filed during the appeal therefore the same should not be accepted at this stage. On merit of the evidence the AO has submitted that at this stage also the assessee has not furnished any evidence to prove that the equipments were purchased by the from various suppliers through the influence of M/s. Drishti Adventure Sports Pvt. Ltd. to whom commission had been paid. Further, initially it was stated by the assessee that commission has been paid @ 23% on total sales made during the year to M/s. Drishti Special Response Services Pvt. Ltd. and subsequently it was stated that the commission is a one time payment @ 2.7% of the total projected sales for three years. It is also highlighted by A.O. that Shri Rajeev Somani was holding 50% shares in M/s. Drishti Adventure Sports Pvt. Ltd., so he was in a commanding position to influence the purchase deals and if any genuine commission was to be paid it should have been paid by M/s. Drishti Special Response Service Pvt. Ltd. to M/s. Drishti Adventure Sport....
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....s actually been benefitted by any noticeable services provided by the concern to whom commission was paid, there is no clarity even on the basis of calculation of the commission because initially it was claimed as commission on purchases whereas later on the appellant changed its stand to claim that commission was paid on the projected receipts for three years. Normally, commission is paid on predetermined basis and it is restricted to the amounts of transactions which are finalized during the year under consideration. Commission is generally not paid in advance in anticipation of projected sales in subsequent years which have also not materialized in the instant case. After considering all these material facts and circumstances, it appears that the commission has been paid to a closely group concern just with the sole intention of reducing the tax liability. Such commission cannot at all be held as a deductible business expenditure. The same has correctly been disallowed by the AO, which is confirmed. 8. Against the above order, the assessee is in appeal before us. 9. We have heard both the counsel and perused the records. The learned counsel of the assessee summari....
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.... in which expenses is to be incurred. Commercial expediency must be decided from businessman's point of view. CIT vs. Sales Magnesite P. Ltd. (1995) 214 ITR i (Bom.)(HC)(PG.6)(Pg. No.363-369)(rel pg.s67) Shahzada Nand & Sons v. CIT (1977) 108 ITR 358 (SC) (366)(Pg. No. 370 - 379) For deciding the commercial expediency, contractual obligation is not required. CIT vs. Associated Electrical Agencies (2004) 266 ITR 63 (Mad)(HC)(38o- 387)(rel Pg.386) 12. Goa Lifeguarding Contract: > The tender was bid by Drishti Adventure Sports Pvt Ltd and the Work Order was issued to Drishti Adventure Sports Pvt Ltd . (Pg. No. 20). > The shareholding of Drishti Adventure Sports Pvt Ltd was held by two groups (a) Rajiv Somani Family and (b) Sunil Shetty group. > The successful bidder vizDrishti Adventure Sports Pvt Ltd informed the Government of Goa that a special purpose company had been incorporated vizDrishti Special Response Services Pvt Ltd which would sign the contract, execute the work, raise the invoices and receive the payments for the work to be performed under the tender. > ....
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.... group concern taxes are being sought to be avoided. In this regard, the assessing officer has placed reliance upon the decision of Hon'ble Apex Court in the case of Mcdowell & Co. 12. The ld. Commissioner of Income Tax (Appeals) has also affirmed the assessing officer's order. He has concluded that it appears that the commission has been paid to a closely group concern just with the sole intention of reducing the tax liability. Such commission cannot at all be held as deductible business expenditure. We find that assessee's group company won a bid. Thereafter it got the contract transferred to the assessee company. A sum of Rs. 53,90,000/- has been paid by the group company to the assessee company as commission. We find that assessing officer's ground that a lesser amount of commission should have been paid is not at all sustainable, in light of the various decisions including that from Hon'ble Apex Court, which expounded that assessing officer should not sit into the shoes of the businessman and decide what is the necessity for the business. Moreover the fact of the case clearly indicates that the group concern had won the bid. Thereafter, it got the contract transferr....