TaxTMI 
TaxTMI 
2018 (8) TMI 1127
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....e case was selected for scrutiny and necessary notices u/s 143(2) and 142(1) duly served upon the assessee. Necessary details has called for and were furnished by the assessee and examined by Ld.A.O. During the course of assessment proceedings from the perusal of Profit & Loss account the Ld.A.O observed that assessee has claimed commission expenses of Rs. 58,62,685/- and he accordingly sought information from the assessee about the justification of this expenditure. It was submitted by the assessee that the sales are made on consignment basis to two nodal agencies of Madhya Pradesh Government namely MARKFED/MPSAIDCL and the commission was paid to various agents in order to promote the sales of the supplier i.e. MARKFED and MPSAIDCL. It was also contended that the sales have increased three folds during the year under assessment whereas the expenditure on salary remain almost same and assessee has spent more on commission to increase the sales. However, these submissions could not convince the L.A.O and he on the basis of the information received from the Government Nodal agencies concluded that no such agent services were required by the Government departments and did not find any....
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....of the recipient of commission but for no reason has restricted the commission expenditure to 4% of the turnover. It was a commercial decision of the assessee not to recruit employees and avail services of representatives, which saved various fixed costs and various allowances of travelling, dearness allowance, P.F., E.S.I.C liability and compliance thereof. Further the payment of salary has not increased during the A.Y. 2011-12 although the turnover increased steeply. This was due to the appointment of agents only. Although the supply on consignment basis made to the MP Government nodal agencies (MARKFED/MPSAIDCL) but the responsibility to promote the sale is of the supplier i.e. M/s. Farm services only. He further submitted that the MARKFED and MPSAIDCL, both being the Government of Madhya Pradesh Undertaking (Nodal Agencies), offers more than fifty suppliers across India to supply bio fertilizers, bio pesticides (Organic product) to MARKFED and MPSAIDCL on consignment basis for sale to farmers (Clause 2 of agreement with MARKFED). Farmers get the subsidy which ranges from 25% to 90% according to the category of farmers/customer, from the MP Government for purchase of said organi....
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....t and more than 50 companies also supply this organic product to MARKFED and MPSAIDCL. So the assessee i.e. M/s. Farm Services had to faced the competition with these more than 50 companies who are in queue before the MARKFED and MPSAIDCL to sale their product through MARKFED and MPSAIDCL. 7.4 Expiry dates of different products: Expiry date of products range from six months to maximum twelve months, not more than this. Only one or two plant regulators have shelf life of two years. Expired products have to be scrapped by M/s Farm Service at its cost as per the Insecticides Act 1968. 7.5 Risk and Responsibility of expired/unsold goods: Farm services is responsible for expiry material. It has to take back the unsold and the expired stock from MARKFED and MPSAIDCL after stipulated time period. Clause 22 of agreement with MARKFED. "At the end of Kharif season i.e. 30th September 2010 and the end of Rabi season i.e. 31st March 2011, the supplier shall life and take back the unsold stocks of the various products supplied by him and not required for the following season, within a period of 30 days back and from the end of the Rabi & Kharif season aforementioned. In case the ....
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....ents with Madhya Pradesh Government Nodal agencies namely MARKFED and MPSAIDCL assessee was required to sale the goods i.e Bio fertilizer and bio pesticides on consignment basis to these two agencies. These two nodal agencies used to further make the sale to the farmers. The alleged commission expenditure has been paid by the assessee to promote its products by way of marketing and educating the farmers for the benefits of using fertilizer and pesticides so that these farmers come to the office locations of MARKFED and MPSAIDCL which are scattered across various parts of the state of Madhya Pradesh and to buy these products. The basic purpose of making such payment is to promote the sale of these two nodal agencies which in turn will make the sale to the farmers. As the demand from the farmers increases then the MARKFED/ MPSAIDCL purchases more goods from the assessee firm. 12. We further find that the Ld.CIT(A) after making detailed examination of the recipient of commission as well as the terms of the agreements entered into between the assessee and the MP State Government nodal agencies accepted the fact that the commission was genuinely required to be paid for the promotion ....
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....all periodically, or at any time upon Organisation's request, submit appropriate documentation of any and all sales and promotional efforts performed and to be performed for organisation pursuant to this Agreement". 3.3 From perusal of above terms of agreement, it is observed that there are very general in nature and do not specify the nature of efforts and the directions on which the liaisoning agents are supposed to work for the company. In view of the above terms, the appellant was required to furnish complete details of nature of services rendered by each one of the liaisoning agents and also to file the copies of appropriate documentation as required by the company from the liaisoning agents as specified in the above terms and conditions. But, the appellant has not been in a position to explain the same. Therefore, in my opinion, the reasonableness of commission in this case is under question. In order to verify the reasonableness of the commission, I have gone through the assessment record of the appellant for the last two years. It was observed that in the A.Y. 2009-10, the appellant had debited an amount of only Rs. 3.52 lacs as commission as against the sale of Rs....
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....strict assessee's commission payments @3% after observing that the said authority had not been careful before disallowing the impugned payments wherein the assessee has placed on record all possible details in order to discharge its onus on the one hand whereas the commission payments have been held to be excessive without any such comparison on the other. We thus accept assessee's arguments supporting its sole substantive ground and to direct the Assessing Officer to allow its entire claim of commission payments amounting to Rs. 67,77,001/-. The revenue's contentions seeking to restore entire disallowance amount are accordingly rejected." 15. Further the ITAT Delhi Bench in the Bony Rubber Co. (P) Ltd ITA No.2898/Del/2009 & ITA 4530/Del/2009. "Dismissed the appeal of revenue by stating that the assessee has produced a detailed note on the justification of salary and wages paid, details of employees, copies of the ledger account of wages, salary, workers welfare, leave encashment, attendance and other expenses incurred on employees and workers. The expenditure cannot be disallowed on the ground of prudence. It is well settled that the Assessing Officer cannot sit in the....