TaxTMI 
TaxTMI 
2018 (9) TMI 784
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.... goods were sold and as furnished by assessee, the AO found that the sale was made to only three parties. Rs. 10,19,91,795/- worth of cotton was exported to a party in Hong Kong, namely- M/s. Sunhing Lee Textiles Ltd. and fabrics worth Rs. 5,16,200/- was sold to two Indian parties, namely- M/s. Parlwar (sale amount being Rs. 4,66,313/-) and M/s. Metro Enterprises (sale amount being Rs. 49,892/-). Among the various expenses incurred and claimed as deduction included in the profit & loss accounts was Rs. 30,06,163/- towards commission. The assessee was first asked by notice u/s 142(1) of the Act issued on 11/11/2014 to furnish among other details and documents, the following in respect of the commission expenses- "Names and complete postal addresses of the agents / brokers to whom commission paid. Please state the purpose of paying such commission in detail. If the said commission was paid for procuring sale contracts then furnish confirmation from the parties to whom goods sold who will certify that the goods were purchased by them only due to the services provided by the said agents / brokers. Also furnish evidence in support of deduction and deposit of TDS on commission. Please ....
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....f it is of revenue in nature and expended wholly and exclusively for the purpose of business. According to AO, it is also irrelevant whether the other party has disclosed the corresponding income as his taxable income or not. According to AO, the logic is simple; expense for one is naturally income for other. The AO after detailed hearing and discussion which is written in the assessment order observed that it is clear that the assessee failed to establish that the commission claimed to have been paid to the four parties, viz. Swaraj Vanijya, Metro Niketan, Bihariji Consultancy and Kamini Ferrous were wholly and exclusively expensed for the purpose of business as the explanation provided by him were not justified and without any supporting evidence. The AO also tried to verify the same from the end of the respective agents also. For that he issued summons u/s. 133(6) of the Act to all the four parties to furnish the following details. i) Copy of acknowledgment of I. T. Return filed by you for the AY 2012-13; ii) Nature of services provided by you to M/s. Sharp International during the FY 2011- 12 for which they paid you commission; iii) If you arranged sales on behalf of M/s.....
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....lly will result in higher sale and profits. The AO therefore sought to cross examine the said agent as well as the parties from whom sale orders were received or the parties with whom such agents were in contact to facilitate assessee's works. According to AO only after such cross examination, it would have been possible to verify whether assessee's claim that commission paid to the said company Govardhan was expended wholly and exclusively for the purpose of business or not is authentic and genuine. On 12/3/2015, i.e. almost at the fag end of the financial year, assessee informed that the commission was paid for getting purchase from M/s. Jessop & Co. Ltd. According to AO, it is extremely unusual that a businessman will employ agent to purchase goods. AO was of the opinion that commission is generally paid to obtain sell orders or for providing other facilities. The assessee also furnished a copy of written agreement entered into with M/s. Govardhan Nirman and executed on 01.04.2011. It was disbelieved by AO to be an act of afterthought and was of the opinion that it was prepared only recently and in no way appeared to be four years old as claimed by assessee. All these fa....
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....that all the five parties submitted their copy of bill which contained their PAN. (2) Tax was deducted at source and paid in time. (3) Summon u/s 133(6) were served on all the parties, and all of them replied having received the commission. (4) Inspector deputed found the parties at the given address and also-found that the companies are group companies of Mohan Motors (who are the biggest distributors of Motor Vehicles in Kolkata) and have wide range of connections all over India. (5) All of them duly included the income in their return of income and paid taxes thereon and that (6) There was no evidence that the money has come back to assessee 13. We note that the assessee has paid commission to M/s. Swaraj Banijya Pvt Ltd & Metro Niketan Pvt Ltd for arranging two exporters to undertake the balance export obligation which resulted in transfer of LC to those exporters also, and commission was paid to M/s. Behariji Consultancy Pvt Ltd and Kamini Ferrous Ltd for arranging purchase of the export quality cotton and to Govardhan Nirman Pvt Ltd against purchase of Iron & Steel scraps from M/s. Jessop and Co. Ltd. 14. We note that the assessee is exporting fine quality of cotton to Hong....
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....aid for purchase cannot be accepted without material to support the AO's view. We note that all evidences of purchases were submitted including copy of bills, transport details and export of such goods. We note that the bills of the parties did contain their VAT No. as well as telephone numbers of those parties and therefore the commission payment made through bank after TDS to M/s. Behariji Consultancy Pvt Ltd and Kamini Ferrous Ltd for arranging purchase of the export quality cotton from far flung regions of Maharashtra etc was a business expense and needs to be allowed as 'deduction' since it is of revenue nature and expended wholly and exclusively for the purpose of business. 15. Coming next to the commission claimed to have been paid to M/s. Swaraj Vanijya Pvt Ltd and Metro Nikentan Pvt Ltd we note that was paid by assessee to the agents for their service in arranging two exporters to undertake assessee's export obligation which assessee could not himself fulfill which occasioned transfer of L.C in those exporters name too. As we have stated earlier the foreign agent Mr. H.Yam placed export orders with the assessee and during the year he placed export orders to the tune o....
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.... 29 to 85 goes on to show that it was transfer of the surplus order for export along with the L. C to be used by them. Moreover we note that on this transfer of surplus export order, the assessee earned Rs. 16,17,406/- which was duly credited in P.L. Account which fact is evident from perusal of paper book page 3 under the head "service charge on export order". Therefore, the service of the agent in the aforesaid facts and circumstances are for business purpose and therefore, the commission paid was a business expense and needs to be allowed as 'deduction' since it is of revenue nature and expended wholly and exclusively for the purpose of business. 16. The commission claimed to have been paid to M/s. Govardhan Nirman Pvt Ltd was for purchase of Scrap from M/s Jessop and Co. Ltd. The AO has issued notice U/s. 133(6) to M/s Jessop and Co and we note that the said Jessop replied to the notice. The AO however doubted the reply by Jessop on the ground it was a reputed company so the logo in the letter-head should have been in different colors etc which action of AO cannot be countenanced. We note that the AO has disallowed the commission simply on surmises without bringing any evi....