AI Drafter 
TaxTMI 
TaxTMI 
2018 (7) TMI 2356
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....issions of any evidence. Further, the CIT-A found that the AO himself allowed an amount of Rs. 9,00,000/- each paid on account of brokerage to M/s. Vita Vinimoy Viniyog Pvt. Ltd and M/s. Saffron Financial Services Pvt. Ltd in the year under consideration. It is also noticed from the impugned order of the CIT-A that the assessee has given names, addresses and PAN to the AO. The assessee deducted the TDS on such payments. The entire transactions were through banks. Relevant portion of order of CIT-A is reproduced herein below:- "4.2. I have considered the issue in the assessment order" framed by the AO in light of the arguments made by the appellant. The short issue for my consideration is that whether the amounts paid on account of "Brokerage & Commission" warrant disallowance or not. It is found that the appellant had been making this payment on account of "Brokerage & Commission" since its inception and it is a common occurrence in this line of trade that brokerage is paid to persons on successful referrals. In the instant case, the AO had disbelieved the claim of the appellant on the ground that the appellant was unable to substantiate the expenses incurred on that ....
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....any independent enquiry before resorting to such prejudicial conclusion. In my opinion, without making any enquiry, the finding that the brokerage paid was not genuine could not be arrived at. Similarly, the finding that no services were rendered was also without any basis or justification. It is noted that the turnover of the appellant was more than Rs. 1,16,48,68,471.79 and the same could not be arrived at without the help of brokers. These persons were also responsible for getting the vehicles financed. In the light of the evidences adduced on record and payments by cheques after due deduction of tax at source, the case for services rendered stand fully established. It is also imperative to refer to the decision in the case of CIT vs. Inbuilt Merchant P. Ltd. (ITAT No. 225 of 2013) dated 14.03.2014 wherein it was held as under: - "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 subsection (2) of Section 32 of the Indian Evidence Act, 1872. The books of accounts maintained in the o....
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....uly appeared in the books of the appellant. The amounts deducted on account of tax at source were duly deposited to the credit of the Central Government. The details of the recipients were duly furnished. In the impugned order the AO has neither disbelieved nor disproved this factual aspect. On receipt of the details furnished the AO however did not conduct any enquiries by issuing notices u/s 133(6) of the Act. Therefore, to simply discard the expense on account of "Commission & Brokerage" and brand it as inadmissible is simply unsustainable. 4.3. In the facts and circumstances of the instant case, I also find force in the submissions of the AR that nowadays the customers largely depend on these brokers for procuring not only vehicles but also for obtaining requisite auto finance from banks or private sources. These brokers besides arranging for loan facilities look for competitive offers from insurance companies and also take care procedural formalities in obtaining documentation for the vehicles from the authorities. I therefore find merit in the submissions of the AR that these brokers a crucial role in marketing of the vehicles from the appellant to the ultimate custo....
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....hat even if transactions are genuine and even if it is acted upon, if the transaction is entered into with the intention to avoid taxes, then the transaction would constitute a colorable device. He has cited case of Twinstar Holdings Ltd. vs. CIT (2003) 260 ITR 6 (Bombay) wherein similar analogy was decided. Further in the case of Bhagat Construction Co. Pvt. Ltd. vs. CIT 2001 250 ITR 291 (Delhi) it was held that a colourable transaction is one which is seemingly valid, but a feigned or counterfeit transaction is entered into for ulterior purpose. In the case of Workmen of Associated Rubber Industries Ltd. vs. Associated Rubber Industries Ltd. (1986) 157 ITR 77 (SC) it has been held that the duty of the court in every case where ingenuity is expended to avoid taxation and welfare legislations, to go behind the smoke screen and discover the true state of affairs. The Court is not to be satisfied with the form and leave alone the substance of a transaction. The rationale of the AO in applying the aforesaid principle was to conclude that he had pierced the corporate veil and went behind the smoke and discovered the true state of the business which had shown that the appellant had paid....
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....ties, we find that the assessee filed list detailing the amount of donation and puja expenses paid on account of various occasions to different parties, but for non-filing any documentary evidence or receipts, the AO disallowed an amount of Rs. 6,18,131/-. The CIT-A by placing reliance on the decision of the Hon'ble Madras High Court in the case of CIT Vs. Aruna Sugars Ltd reported in (1981) 132 ITR 718(Mad) deleted the impugned addition made by the AO. Relevant portion of CIT-A order is reproduced herein below:- "5.2 I have considered the issue in the assessment order framed by the AO in light of the arguments made by the appellant. The short issue for my consideration is that whether the amounts expended on account of "Donation & Puja" warrant disallowance or not. It is found that the appellant had been making this payment on account of "Donation & Puja" since its inception. It is observed that on facts there is no dispute that the appellant had incurred expenditure in the sum of Rs. 83,546/- in performing Puja. The AO was also apprised that performing such ritual gives peace of mind and inculcates loyalty in its employees and increases work efficiency. It is n....
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.... Income Tax Appellate Tribunal, Kolkata "A" Bench in Tunu Cold Storage vs. ACIT (ITA No. 7/Ko1/07) dated 28.02.2007, relied on by the A/R, has held as under: - " ..... Since there is no dispute that the subscription and donation was given by the assessee to various organizations to avoid confrontation and for smooth running of its business, therefore, the expenses incurred by the assessee on subscription and donation Rs. 2568/- is incidental to assessee' business and allowable as business expenditure. This view also finds support from the decision of the Hon'ble Calcutta High Court in the case of CIT -Vs- Bata India Ltd. (1993) 201 ITR 884 (Cal) wherein it has been held at page 890 that "contribution to local puja and the festivals committees or organizations to avoid confrontation and for smooth running of its relationship are allowable as business expenditure". 5.4 Therefore, considering the totality of the facts and circumstances of the case and respectfully following the judicial pronouncements on the issue, I am of the considered view that the AO has erred in resorting to the impugned disallowance on account of Donation and Puja expenses whi....
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....ght before me, it transpires that the action of the AO is fraught with a taint of illegality. The AO has recorded a finding that the appellant had produced books of accounts and also complied with the show cause notice by explaining the nature of expenses and detailed head wise statement of expenses. There is no dissatisfaction recorded by the AO in this respect. The limited grievance recorded by the AO is that "... in absence of proper supporting evidences .... " in support of such expenses. Thus, the AO has made ad hoc disallowance on estimate basis, although he did not dispute the business purposes of such expenses. There is no dispute as to the fact that the expenditure incurred by way of payments made under these heads were duly explained before the AO who did not deny the veracity thereof. The appellant has maintained the details of these expenses, which are supported by vouchers; The appellant's accounts are statutorily audited u/s. 44AB of the Act and no adverse comment was found to be recorded by the Auditor about maintenance of vouchers in relation to above expenses. Merely on presumption of absence of proper evidence do not lend authority to the AO to justify ad hoc ....
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....r: - "As regards the second contention, although ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under section 23(3) he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all and there must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT [1944]12 393. In the instant case, the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the assessee to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result was that the assessee had not had a fair hearing. ....