TaxTMI 
TaxTMI 
2018 (11) TMI 1902
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....gn telecom equipment manufacturing companies. The customers of the assessee comprised of both private players such as Tata Teleservices, Reliance etc. and as well as government companies such as BSNL & MTNL etc. In the course of its business the assessee had appointed liaison agents to provide marketing services, for soliciting orders, ensuring timely delivery of goods, collection of payment etc., to the customers who were located across India and also render after sale services to its telecom customers. The assessee had also appointed service partners to render end-to-end annual maintenance services in respect of the telecom equipment sold to the customers. In the course of assessment proceedings the AO required the assessee to explain the business response the assessee filed a detailed note explaining its modus operandi of the business and the nature of these payments. The AO issued notices u/s 133(6) to the two commission agents as well as the three service providers, who were appointed by the assessee and the notices went uncomplied. Having regard to the fact that the notices went un-served, the AO disbelieved the genuineness of the payments made by the assessee and accordingly....
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...., the agents would liaise to get the technical drawings approved and thereafter coordinate with the logistics to ensure that the equipments are delivered in a time bound manner. They would also coordinate its installation, commissioning and render after sales support. Apart from the foregoing, the marketing agents would also ensure that the payments were timely collected from these telecom customers. Having regard to the range of marketing services provided by them, in lieu thereof the assessee would pay a fixed rate of commission for each product successfully marketed and sold by them. The terms and conditions of these arrangement as well as the obligations of the assessee as well as the customers were agreed in writing vide a duly executed agreement, copy of which was placed in the paper book. 5. The Ld. AR further drew our attention to the several correspondence exchanged between the company and the agents and also the subsequent revision in the commission rates due to the enhanced scope of work. The Ld. AR further invited our attention to the tax invoices raised by the agents, which contained the detailed description of the equipments marketed by them and the commission char....
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....nd it is in terms of that certificate the assessee had withheld lower TDS on the payments. The Ld. AR submitted that neither the AO nor the Ld. CIT(A) disputed the correctness and genuineness of the certificate issued by the Department u/s 197 of the Act. In view of these evidences the Ld. AR submitted that the sole premise on which the lower authorities justified the impugned disallowance i.e. non-service of notices u/s 133(6), was unjustified and unsustainable on facts & in law and prayed that the orders of the lower authorities be reversed and the disallowance be deleted. In support of its claim, the Ld. AR relied on the judgments of the Hon'ble Calcutta High Court in the case of Inbuilt Merchants Pvt. Ltd. (G.A. No. 3825 of 2013) and Gujarat High Court in the case of CIT Vs. Nangalia Fabrics Pvt. Ltd (40 taxmann.com 206). 8. On the other hand the Ld. DR vehemently supported the order of the lower authorities. He submitted that the AO had confronted the assessee about the non-service of notices and even thereafter the assessee was unable to provide any cogent explanation regarding the whereabouts of these payees. The Ld. DR also furnished a written note in support of the orde....
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....he nature and modus operandi of the business of the assessee, the profile of the customers and the quantity and value of the products supplied by the assessee to them, the role of external marketing agents and maintenance service providers in their line of business cannot be denied. The facts on record clearly show that the assessee had indeed supplied imported equipments to its customers and also executed service maintenance contracts entered into with them. In these circumstances we cannot by persuaded to hold that in this entire value chain, the assessee was not required to put in any efforts or for that matter need not have engaged third parties to assist in procuring orders as well as to provide annual maintenance services. 10. We find that for marketing the telecommunication equipments the assessee had engaged the services of services of two agents viz. M/s. Bhumi Financial Consultants Pvt Ltd & M/s Passionate Agencies Pvt Ltd. We note that the payments were made to them by account payee cheques and TDS was deducted at the rates specified in the lower withholding tax certificates provided by the department. We note that the sale price of the telecommunication equipments so....
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....ly of the items actually supplied by TSHPL. 5. Except as provided in this agreement PAL, is and at all times will be an independent body. Nothing contained in this agreement is to be constructed as constituting the PAL as a partner or employee or agent of TSHPL or foreign Company or authorizing the PAL to create and assume any obligation or liability in the name of TSHPL. 6. Any of the parties may terminate this agreement by serving a notice of three months to the other party. The accounts between the parties will be settled and adjusted finally within the aforesaid period of three months. 7. PAl will not be held liable for any claims arising due to shortages, inferior quality etc for goods supplied by the TSHPL. 8. In case of any dispute between the parties out of or in connection with the agreement, the same shall be referred to sole arbitrator, who may be appointed by the parties by mutual agreement. The proceeding held by the arbitrator in making the award will be in accordance with the provisions of lndia Arbitration and Conciliation Act, 1996 or any statutory modification thereof. The award of Arbitrator shall be final and binding on the pa....
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....responsible for procuring the purchase orders either through tenders published all over India or through direct marketing and will inform us about the various tenders with respect to demand of the products of our foreign principals. 3) PAL will collect Tender documents on our behalf and send to us. 4) PAL will give us full details like rate quoted by various vendors to them and name of the bidders. 5) PAL not only engage for procuring the purchase order for supply of goods, but also will be responsible for any clarification if any required in regard to orders procured and send the same to us to forward the same to our foreign principal. 6) PAL will be responsible for getting confirmation of the material delivered & properly installed with the parties. 7) PAL will be responsible for proper communication with us with respect to any issue with regard to the delivery or installation of goods & performance of any service. 8) After execution of order we will send invoice to parties with a copy to you for follow up. 9) PAL will further responsible for follow up with the parties. PAL will be chasing Indian telecommunication pla....
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....uipments. 13. We further note that the assessee had entered into annual maintenance contracts with its customers. Following are the major services provided by TSHPL:- a. Annual Maintenance of Telecom equipment. b. Annual Maintenance of Air conditioning equipment. c. Technical Life Analysis of the equipment d. Assessment of Heat Load Factor e. Gas Charging 14. The assessee therefore acted as their service partners and provided maintenance services to ensure that the equipments supplied by them performed well and upto the specifications required by the customers. From the facts on record it is evident that the assessee had generated substantial revenues in the form of annual maintenance service fees from the customers. For instance, the annual maintenance fees from BSNL itself was in excess of Rs.100 lacs for the year. Considering the nature of assessee's business and the profile of the customers, the assessee was required to provide the servicing solutions at various places and premises of the customers which were located across India. We therefore appreciate the assessee's contention that their in-house service team could not have ....
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....t PAC is old and not in a position to reduce the head by any changes than your report should be for replacement. C. Any other major changes required to be made. D. If you think that PAC is OK but some parts of PAC can be replace and it will work as per our requirement. E. You will give us report for Each PAC along with site details. F. Job must be completed by End of October 2010. The whole idea of doing this exercise is to reduce the cost of recurring maintenance and also at the same time to ensure the PAC must work smoothly so that break down of PAC will be minimized. For this you will get remuneration of Rs.12101-(Rupees One Thousand two hundred ten Only.) per site plus service tax and TDS deductible as applicable. Details of the site along with PAC will be given to you separately. Further, this is for your information and it is being the part of the terms and conditions that you will use our trade name and represent our company name as principal while performing the service on behalf of us. You will not use the identity of your company at any point of time. For this we will issue an authorization letter for representing our ....
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....course of its business. Like any other item of expense, the relevant details such as copies of the agreements, tax invoices, service tax registration certificates, confirmation of accounts, details of payments, details of tax deducted along with the lower withholding tax certificates provided by the payees etc. were furnished before the lower authorities, which sufficiently proved the genuineness of the payments made. It is further noted that the assessee had also demonstrated the linkage between the revenues earned from the customers and the commission paid to the agents as well as service fees paid to annual maintenance service providers. The extracts of bank statement of the assessee and the confirmation furnished by the payeesare also available on record. Furthermore, we note that the parties to whom the payments were made were not associates or related enterprises of the assessee. Nothing has been brought on record that the payments made by the assessee had come back to it. In the circumstances even the creditworthiness of the customer and the genuineness of the transaction was duly established by the appellant. 18. From the documents on record we find that the commission w....
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....nbsp; Dated 06.05.2010 CERTIFICATE UNDER SECTION 197(1) OF THE LT .ACT, 1961 (READ WITH' SECTION 28AA OF THE INCOME TAX RULES, 1962) Name and address of the assessee: Passionate Agencies Pvt. Ltd. 1 H, Madan Mohan Burman Street Kolkata - 700 007 PAN AAFCP4215Q Financial Year 2010-11 Assessing Officer's Circle / Ward New Case In pursuance of Section 194C' (Payment made on account of Conturct/ Sub contruct). Section 194-H (Payment made on account of Commission/Brokerage) and Section 194J (Payment made on account for making payments towards Prof (Tech.Services), the undersigned hereby authorise the Principal Officers of the parties. responsible for making payment....
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....nce of these parties and hold the payees to be non-existent. As noted above, the assessee had placed on record sufficient evidence and documents to substantiate the genuineness of expenses. In these circumstances, without pointing out or establishing any infirmity or falsity, it was not proper for the lower authorities to out-rightly reject the claim for expenses. 22. We further note that the parties to whom the payments were made were not associates or related enterprises of the assessee. Unlike the relationship of a company & shareholder or the relationship of a lender-borrower; the relationship of a service providercustomer is not a continuing one. The relationship exists only till the transaction is in progress. Once the transaction is complete the relationship comes to an end. Further it is also not necessary that the agent or the service provider has to be a known associate of any director or shareholders of the assessee-company, unlike share applicants in private placement or any lenders. It is therefore not a case where as a result of the transaction, there was a creation of creditor-debtor relationship on long term basis. The assessee, particularly given the scale of it....
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....tax certificates issued u/s 197 by the Income-tax Department abundantly established the identity of the payees. Hence the reliance on the decision of the Apex Court by the revenue is totally misplaced and is not applicable to the facts of the instant case before us. 24. As far as the contention of the Ld. DR that the payments were made after unusual gap of almost a year from the date of invoices that raised suspicion on the genuineness of expenses, we find that the assessee has sufficiently demonstrated the linkage between the revenues earned from the telecom companies with the payments made towards commission & service fees. We note that the assessee had made the payments only when the customers had released their payments towards the corresponding services rendered by the agents & the service providers. The Ld. AR of the assessee explained that it is a well-known commercial practice that only when the payments for the orders executed through the agents are realized that their commission is actually released. Similarly in case of service providers, it is only when the customer is satisfied with the maintenance services and pays the annual maintenance fees that the corresponding....
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....that the payments were admittedly made by cheque after deduction of tax. In this background the Court rejected the Revenue's case and held that when the payment of commission is properly recorded in the books maintained by the assessee in the ordinary course of business, the payments are made by account payee cheques after deduction of tax, then such commission payments could not be disallowed. The relevant extracts of the judgment is as follows: "The views expressed by the Assessing Officer are erroneous in law. The Assessing Officer has overlooked the importance of the books of accounts maintained in the ordinary course of business. Reference in this regard may be made to sub-section (2) of Section 32 of the Indian Evidence Act, 1872. The books of accounts maintained in the ordinary course of business are relevant and they cannot be discarded in the absence of appropriate reasons. The mere fact that recipient did not reply in some cases or they were not found at the address furnished by the assessee does not in the least prove the fact that they were non existent or that the payments shown to have been made by the assessee were imaginary. With the advancement of technolo....
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....deration Ltd., Canners (India) Ltd. and the United Co-operative Distillery Ltd., Parite certain machinery. The said transactions were effected by the assessee respectively through three commission agents, viz., MintopCorpn. of New Delhi, C.S. Singh of Lucknow and Vandana Sales Corpn. of Bombay. The assessee paid commission to the said commission agents. The MintopCorpn. was paid Rs. 1,89,980, C.B. Singh was paid Rs. 20,038 and Vandana Sales Corpn. was paid Rs. 17,832. 3. For the assessment year 1975-76, the accounting year ending on 31-12-1974, the assessee was assessed to income-tax. In its assessment, the assessee claimed deduction of the said amounts paid to the commission agents. The IAC who made the assessment examined in details the said three transactions made by the assessee through the commission agents. Summons under section 131 of the Income-tax Act, 1961 ('the Act') were issued to each of the said commission agents calling upon them to confirm the payments of the said commission and the details of the services rendered by them. All the summons came back with the remark 'not known' from the postal authorities. The IAC thereafter called upon the a....
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.... on the basis of an open tender. It was held that the transaction was purely commercial and it could not be said that it had been brought about by undue influence. The decision of the Commissioner (Appeals) was confirmed. The Tribunal noted that the IAC was otherwise satisfied that the MintopCorpn. was an existing organisation and had proceeded on that basis. 8. In respect of C.B. Singh and Vandana Sales Corpn. the Tribunal noted that the IAC had found that the said two commission agents were not in existence and the assessee had not discharged the burden of proving their identities. The Tribunal held that in order to claim deduction of the commission paid to the said agents the assessee was required to establish their identity and that mere payment by an account payee cheque could not establish such identity. The Tribunal set aside the order of the Commissioner (Appeals) and restored the order of the IAC in respect of the said commission agents, disallowing the deduction of the commission paid to them. 9. At the hearing, the learned advocate for the assessee submitted that the assessee had brought on record sufficient evidence to establish the identity of the sai....
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....#39;s income from undisclosed source. Addl. CIT v. Bahri Bros. ( P.) Ltd. [1985] 154 ITR 244 (Pat.) was also cited. In this case, two deposits in the account of the assessee were claimed to have been obtained on loan. The assessee established that the amount had been paid by an account payee cheque. The assessee also established that it had repaid the amounts also by account payee cheques with interest and brokerage. Subsequent letters addressed to the creditors for confirmation came back with the postal remark 'the addressee left'. 14. On these facts, the Patna High Court upheld the order of the Tribunal and laid down that in the facts that the assessee had discharged its primary onus by disclosing the identity of the creditors and also the source of income. The onus shifted thereafter to the revenue to verify. As the alleged advance had been paid and repaid through a bank account it could not be said that the creditors were fictitious persons. Jha, J. observed in his judgment that as all the transactions were had through account payee cheques the question of identity of the creditors became irrelevant. 15. The learned advocate for the revenue co....
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....disallowed the purchases as well as the commission holding it to be bogus. On appeal the Tribunal delete the addition, which was upheld by the High Court. The relevant observations are as follows: "3. The question pertains to the purchases made by the assessee-respondent. On account of unverifiable purchases, the Assessing Officer made additions to the tune of Rs. 1.27 crores. He was of the opinion that none of the parties could be located and therefore, such purchases were held to be bogus. When it was challenged before the CIT(A), the CIT(A) was of the opinion that they could not be held bogus as the corresponding sales had been effected by the respondent in the next year. In subsequent year also and in the past, such purchases were made which were never questioned. When challenged before the Tribunal on the basis of the facts presented before us, it held that these purchases could not be held bogus by holding thus: "13. We have considered the rival submissions and the materials placed on record. The purchases are supported by bills, entries in the books of account, payment by cheque and quantitative details Assessing Officer did not find any inflation in purcha....
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....(rounded off). 6. When CIT(A)'s order was challenged before the Tribunal, the Tribunal deleted the entire addition by observing thus: "23. We have heard the rival submissions and the materials placed on record. We are inclined to agree with the submission made on behalf of the assessee and find that no evidence had been placed on record that the commission expense is bogus. Assessee made payment of commission expenses is bogus. Assessee made payment of commission through account payee cheques for sales canvassed by the party and also in consideration of the collection recovered from purchaser. Payments cannot be unreasonable particularly when M/s. Shree Shantinath Silk Industries is not related to the assessee and so even disallowance made by CIT(A) is not proper. We therefore delete the full disallowance of Rs. 72,37,808/- made by the assessing officer. Hence assessee's ground of appeal is allowed and revenue's ground of appeal is allowed and revenue's ground of appeal is dismissed." 7. This issue is again based on facts. Essentially, the Tribunal has, with cogent reasons dealt with the issue, no question of law, much less any substantial....