TaxTMI 
TaxTMI 
2018 (5) TMI 1943
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....unt of commission, disallowing 20% of expenses debited in profit and loss account under various heads. 2.1 During the assessment proceeding, the Assessing Officer found that the assessee had debited a sum of Rs. 52,57,750/- in the P&L account as commission expenses. The assessee was asked to furnish complete details of commission paid to parties, along with the name, address, amount paid, mode of payment, PAN and nature of services rendered by each party. All the parties were summoned and the statements were recorded in the presence of assessee who was also offered to cross-examine the parties by the Assessing Officer. On being asked to justify the amount paid as commission in the light that none of the persons could inform about any specific work done for the assessee, it was submitted that the commission expenses were incidental to run the business and the parties had been paid commission in earlier years also and that the same had been accepted by the Department. The commission was being paid because those parties were instrumental in procuring the business by introducing the customers/ potential customers; this had resulted in increase of the turnover. It was stated that the ....
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....act the commission claimed at Rs. 52,57,750/- in the previous year under consideration (A.Y. 2011-12) was much less than the commission of Rs. 64,76,842/- paid in the earlier year to it. According to the assessee, the salary claimed at Rs. 18,02,100/- showed that there were only 2 employees in sales. Therefore, he had appointed the agents, through proper appointment letters right at the starting stage of his business. The assessments for A.Y. 2008-09, 2009-10 2010-11 were completed u/s. 143(3) and in all the years the commission payment was accepted. Complete details of commission payments showing the commission payment, agent wise, date wise details of deductee of tax, PAN of the agents were filed before the AO. Copies of the income tax return acknowledgements and computation of income of the commission agents were also filed before the Assessing Officer. All the evidence before the Assessing Officer proved beyond doubt the genuineness of payment of commission to agents and all the payments were through banking channels. According to the assessee the only doubt that the Assessing Officer had was whether the agents had really rendered the services. Accordingly, called all the agent....
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....n to be working for the assessee as commission agents but none of them furnished satisfactory explanation about the nature, scope and details of the services rendered. These discrepancies have been discussed in detail by the AO in the assessment order." 5.2 CIT(A) observed that it is true that the persons had furnished their respective returns of income and shown the receipt of commission from the assessee. But it is equally noteworthy that they, almost without exception, claimed refund for practically the entire amount of tax deducted at source by the assessee. If they had paid tax at the same rate at which the assessee had, or at a higher rate, the dispute could be treated as merely academic in nature. But, if they practically did not pay any tax (even though they reported the receipts in their respective returns of income), such reporting of income by them and, for that matter, deduction of tax at source by the assessee on those payments, has hardly any meaning. The details are as below: Person PAN TDS REFUND CLAIMED Pannalal Fitkariwala AAIPF3460B 51,058 36,867 Sonal Fitkariwala AAGPF2455E 78,539 42,603 Bela Agarwal ABFPB5720L 89,543 81,877 K....
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....stensibly been made had not been rendered actually and, hence, such payments should not be allowed as business expenditure. The claim of deduction may have been allowed in the past. But, if, on the basis of specific enquiry carried out, the AO reaches a conclusion that the same is not allowable for the assessment year under consideration, there is nothing in law to prevent him from doing so. 5.5 In view of the above observations, the CIT(A) held that there is a preponderance of probability to conclude that the payments did not constitute remuneration for services rendered by these persons and, hence, are not allowable as deduction while computing his profit of business. Considering, however, that some of the payees were in regular business, benefit of doubt to some extent can be allowed. It is noted that the claim of commission payment included a payment of Rs. 1,10,000/- to M/s. Sridhar Clearing Services Pvt Ltd, Chennai. The said company was acting as his clearing agent at the dockyard and documentary evidence of the services rendered has also been submitted. Ends of justice should be met if deduction of Rs. 5,00,000/- was allowed towards commission expenditure which might have....
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....e had appointed the agents, through proper appointment letters right at the starting stages of his business. Copies of some of the appointment letters are placed at pages 60 to 64 of the paper book. 8.2 Ld. AR submitted that it is an undisputed fact that the assessments of the assesse for Asst. years 200809, 2009-10 & 2010- 11 were completed u/s 143(3) after detailed examination. In all the years the assessee paid the commission to all the agents. In all the years the commission was paid through Banking channel and tax was deducted at source. All the agents were assessed to tax and in some cases the tax is paid at highest slab. He submitted that before the Assessing Officer, the assesse had filed complete details of commission payments. The said details placed at page 15 of paper book show the commission payment agent wise, date wise and the details of deductee of tax. The statement itself indicates the PAN of the agents. Further commodity wise, date-wise, quantity-wise and agent wise commission workings were filed and placed at pages 16 to 30 of the paper book. Statement of TDS, section-wise, filed before Assessing Officer is placed at page 31 of the paper book. He submitted tha....
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.... for Asst.year 2010-11 in the order u/s 143(3) r.w.s.147 an amount of Rs. 16,32,955 was allowed on the similar set of facts. This shows that the Assessing Officer even in his reassessment order is satisfied with a portion of the commission payment. The evidences available for allowing such expenditure, not once but twice, once at the time of 143(3) and for the second time at in the course of 143(3) r.w.s.147, are same and equally applicable and available in other cases also. Hence allowing some payments and disallowing others on similar and identical set of facts is unjustified and arbitrary. This establishes the fact that the disallowance is only on presumptions and not based on any concrete evidences. vi. The theory of the Assessing Officer that assesseeresorted to agency commission payments only to reduce profit is also not correct. All the recipients have offered the said commission to tax. Some of the agents are in the 20% tax bracket and hence the theory of the evasion / reduction also has no basis. vii). Another glaring instance is that the Assessing Officer in his over enthusiasm to disallow the commission on sales, disallowed even the commission paid by the assesse t....
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.... such companies work for many types of clients. Quite possible a director might not be aware of names and details of all the clients of the company. The Assessing Officer should have enquired through the sales man of the commission agent or through the buyers of the products of the assesse in order to verify the actual commission given to M/s. Wide Angle Packaging System (P) Ltd for doing the sales on behalf of the assesse against commission. The assesse has paid commission by account payee cheque. Due TDS paid, identity of the commission agent is verifiable which are sufficient evidence on record to prove the genuineness of the transaction and creditworthiness and identity of the so called commission agent. In view of the above I am of the view that the entire commission is allowable. This ground of appeal is allowed". (emphasis supplied). 8.5 In the light of the above submissions, the ld. AR submitted that the revenue authorities have not justified to disallow the claim of commission payment simply/based on the presumptions and assumptions especially when each one of the agents have categorically confirmed the receipt of agency commission. He, therefore, pleaded the bench to de....
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.... and commission consistently over the years and the results are (refer financial results submitted by ld. AR) consistent. We also notice that assessee has not claimed any bad debts in the statement of accounts, it shows that the sales are genuine and the agents promptly collects the sale proceeds. 10.3 Further, ld. CIT(A) has brought on record that the agents have declared the commission as income in their return and all have claimed refund. We find it difficult to understand, on what way, it will decide the genuineness of transaction in the case of assessee, particularly, when there is no finding that the assessee has received back any commission or enjoyed any benefit out of this transaction except achieving targeted sales. 10.4 CIT(A) observed that assessee made the payment to certain persons ostensibly and has not established the services rendered by them. She further observed that it can be called gratuitous payments to persons known to assessee, but, she could not establish the relationship with the assessee but expressed that it is not clear whether they are relatives, but, they were not strangers either. Further, she held that there is a preponderance of probability to ....
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....ively for the purpose of business. On appeal, the Commissioner (Appeals) reappreciated the controversy and deleted the addition. On revenue's appeal : HELD In order to claim any expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expenses or personal expenses laid out and spent wholly and exclusively for the purpose of business, one's claim has to be examined under the residuary provision of section 37. Hence, in order to be eligible for an expense under this section, one has to fulfil the conditions; (t) the expenditure must not be governed by the provisions of sections 30 to 36, (ii) the expenditure must have been laid out wholly and exclusively for the purpose of the business of the assessee, (iii) the expenditure must not be personal in nature and (iv) the expenditure must not be capital in nature. The expression 'wholly' employed in section 37 refers to the quantum of expenditure, while the word 'exclusively' refers to the motive, objective and purpose of the expenditure. In the instant case, the assessee had established that payment was made through banking channel. All the payees responded to t....
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....payment of commission to those parties, since, no services had been rendered by the recipients of commission. This is completely belied by the detailed findings recorded by the Tribunal in paragraphs 7 to 7.13 of the impugned judgment. We note that the Tribunal has also recorded that there is no evidence that commission flowed back to the assessee or that the entries with respect to commission payments were just paper transaction. The following observations being relevant are extracted hereinafter: " .. There is no evidence on record to show that the commission was paid to any near relative, family member or sister concern. There is no iota of evidence to show that the payment of commission represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of commission came back to the assessee in any form Since the assessee has given full details including the addresses of buyers and addresses of the agents as well as details of payment etc. the transactions of payment of commission as well as the aspect of rendering services by the commission agents were fully verifiable. However, neither the Assessing Officer nor the learn....
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.... held that "in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively for business, the expenditure has to be adjudged from the point of view of the businessman and not of revenue". Accordingly, we hold that assessee has duly established that sufficient services were rendered for the payment of the commission involved in this regard. Accordingly, we set aside the orders of the authorities below on this issue and decide the issue in favour of the assessee." In the given case also, assessee has produced the details of sales achieved by the agents by submitting item-wise, agent-wise details before revenue authorities. Further, assessee has filed the relevant books of account relating to agents, payment details, advance tax compliance before authorities. It shows that assessee knows the business he carries on and as per the Hon'ble High Court's observation, it is settled law that revenue authorities cannot sit into the shoe of the businessman. By referring to CIT Vs. Walchang and Co (supra), in applying the test of commercial expediency for determining whether an expenditure was wholly or exclusively for business, the expenditure ....
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....ssee had also furnished details of the same. The assessment was made without disallowing the expenditure. That being the case, it could be argued that AO had examined the issue and was satisfied with the explanation. If the AO reached a different conclusion on the same facts, it could be argued that such an action was not appropriate. But, it is not the case where the facts and circumstances of the case were the same when the original assessment was made and when the reassessment was made. As discussed above, he enquired into the issue of commission expenses in case of the assessment proceeding for A.Y. 2011-12 and, based on that finding reached the satisfaction that the expenditure for A.Y. 2009-10 should also be disallowed. The finding of the enquiry for A.Y. 2011-12 constituted a fresh evidence based on which he recorded the reason and initiated proceeding for reassessment for the assessment year under consideration. Hence, it is a case not of mere change of opinion but application of fresh evidence justifying reaching of the different conclusion on the same set of facts. In so far as the payees of the commission were the- same persons as those for A.Y. 2011-12, the application ....
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....Hence the proviso to sec 147 may not be directly applicable. However the Hon'ble Income Tax Appellate Tribunal Hyderabad in the case of DCIT Vs. Lee Pharma held that in such cases also the reopening is bad in law if the material facts were disclosed in the original assessment. 18.1 Ld. AR submitted that in the course of the initial assessment in response to the questionnaire issued (page 20 of paper book) the assessee filed the details of commission payments with TDS details. Hence the material facts are available on record and the reopening is bad in law. In any case since the Assessing Officer has no tangible material on record, the reopening is bad in law. 18.2 Further, He also submitted that the judicial authorities have decided that in the absence of tangible material on record, notice u/s 148 cannot be given even within 4 years from the end of the relevant asst.years. For this proposition, he relied on the following cases: 1. Kelvinator, 320 ITR1 560 (SC) 2. Asian Paints, 308 ITR 195 (Bom.) 3. Western Outdoor, 286 ITR 620 (Bom.) 4. Bapalal & Sons, 289 ITR 37 (Chennai) 18.3 On Merits, Ld. AR submitted that the list of commission payments indicated at page....
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....urisdiction to proceed with the reassessment the moment he finds the ground mentioned in the reassessment notice as incorrect or non-existent. 20.2 In the case of Asian Paints, 308 ITR 195 (Bom.), the Hon'ble Court held as under: " It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under Section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment....
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....09) 24 DTR 37 (Del), the Delhi High Court has held that there being no new material in the hands of the Revenue leading to view that there was reason to believe that income had escaped assessment, the case is a classic instance of a change of opinion. The High Court further observed that when copies of statement of income, trading account, profit and loss account, audit report etc., were appended to the return filed by the assessee, taking resort to Section 147/148 was unwarranted as it constituted a change of opinion, since the material acted upon had been made available along with return of income. (4) In Satnam Overseas vs. Addl. Commissioner of Income Tax, (2010) 329 ITR 237 (Delhi), the High Court held that the only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales has taken place on account of the fact that when average price of the closing stock is multiplied with the quantity of the sales in the year then the value of the sales would be at a higher figure, than declared by the assessee. Clearly, there is no new material which is alleged to have come to the notice of the Assessing Officer which h....