TaxTMI 
TaxTMI 
1999 (8) TMI 105
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....on. It is claimed that the incentive commission was provided for in the year under consideration and paid in the next year. The revenue authorities and the Tribunal held the claim to be non-genuine and disallowed the same in the quantum proceedings. The learned CIT(A) in assessment proceedings found that sum of Rs. 75,000 was paid in cash and the balance Rs. 27,475 through cheque. While confirming the disallowance of Rs. 75,000 he restored the matter to the file of the AO to re-examine the case in respect of amount of Rs. 27,475. 3. The AO also initiated penalty proceedings under s. 271(1)(c) for the ingenuine claim in return by the assessee. Subsequently, he levied penalty in respect of amount of Rs. 75,000 the disallowance made and confirmed in appeal. The assessee impugned the above levy in appeal before the learned CIT(A) who found that disallowance in respect of balance amount of Rs. 27,475 was reconfirmed by the AO subsequently. While considering the issue of penalty in respect of Rs. 75,000, the learned CIT(A) enhanced the quantum of penalty by directing the AO to levy penalty in respect of sum of Rs. 27,475 paid through cheque. 4. The assessee is aggrieved and has com....
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....nfirmed the receipt of commission. Subsequently, the IAC cross-examined four of the six persons. The assessee then moved the IAC under s. 144A of the IT Act. The IAC in his directions under s. 144A after examining the statements of recipients disallowed the expenditure. The IAC concluded as under: "11. On reading the statements of the above persons, it does not look as though they are capable of fetching so much genuineness for which they have been paid such huge commission partly in cash and partly otherwise. The explanation is not tenable. Therefore, the ITO is directed to disallow the payment as commission to the above persons which includes the cash payment mentioned above, as these persons have been paid the same in disproportionate to their salaries and capacities. Without prejudice to the above reasoning the part of the commission which was paid in cash can also be disallowed under s. 40A(3) as the payments do not attract the various exceptions in r. 6DD." 6. Subsequently, the AO issued a draft order under s. 144B of the Act disallowing the incentive commission. The draft order was approved under s. 144B of the IT Act by the IAC. The disallowance was confirmed in appea....
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....eedings but there was no justification to levy penalty under s. 271(1)(c) as there was good material on record to show that claim of deduction was not bogus. Shri Patel, accordingly, emphasised that neither the concealment of income nor furnishing of inaccurate particulars of income was established in this case. Shri Patel relied on the following decisions: (1). Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC); (2). CIT vs. Anwar Ali (1970) 76 ITR 696 (SC); (3). CIT & Anr. vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC); (4). D.M. Manasvi vs. CIT 1972 CTR (SC) 437: (1973) 86 ITR 557 (SC); (5). CIT vs. Lakhdhir Lalji (1972) 85 ITR 77 (Guj); (6). CIT vs. Manu Engineering Works (1979) 9 CTR (Guj) 141 : (1980) 122 ITR 306 (Guj); (7). CIT vs. S.P. Bhatt (1974) 97 ITR 440 (Guj); (8). Vishwakarma Industries vs. CIT (1982) 29 CTR (P&H) 243 (FB): (1982) 135 ITR 652 (P&H) (FB); (9). Sreelekha Banerjee & Ors. vs. CIT (1963) 49 ITR 112 (SC); (10). S. Hastimal vs. CIT (1963) 49 ITR 273 (Mad); (11). CIT vs. Nipani Tobacco Stores (1984) 40 CTR (Pat) 1 : (1984) 145 ITR 128 (Pat); (12). J.K. Jajoo vs. CIT (1990) 83 CTR (MP) 41 :....
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....nbsp; copies of such applications. there is no dispute about No clear indication of salary, their employment. bonus or commission from application. 3). The employees/representatives -Do- had not signed the application in token of their acceptance of the terms. 4). The appointment letters were on -Do- plain papers and not on letterhead of assessee-company (5). No record of sales procured by The commission was agreed to these representatives could be be paid at 3 percent of sale produced by these representatives. and in statement on oath the Therefore, it is impossible to  ....
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....gligible admittedly debited in the daily allowance and traveling accounts. Other persons were expenses They hardly undertook not to be paid travelling any tour. The employees also expenses apart from the did not keep any details commission. regarding tour undertaken by them for getting order. (10) The assessee had seven directors It is not the job of and they were actually directors to go to villages responsible for getting orders. and promote sale of ....
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....sp; receipts at the time of audit although commission is duly provided in audited accounts. (15) The incentive commission was paid The commission paid on sales only on Rs. 34.20 lakhs out of effected by employees due to total sales of Rs. 39.75 lakhs no heavy losses suffered by the commission was paid in the next company the employees gave up year although agreement was in commission in the next year. force. (16) Only small ....
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....ion: "Credit to the account of Shri Amratlal L. Desai on account of deposit brought by him." The details about the person from whom Shri Amratlal brought the deposit have not been mentioned. (iii) On pp 22 of the cash book (21st July, 1975), an entry for payment of Rs. 15,000 was made at the end of other entries in different ink and different hand writing showing that the amount was paid by cash to Shri Gumanbhai J. Patel against account. As already brought out, the voucher was not shown to the auditors during the course of audit. (iv) On pp 24 (22nd July, 1975), an entry was made at the end of the day in different ink and different handwriting showing that cash of Rs. 25,000 was brought by Shri Prafulbhai L. Nayak, director as a deposit. Details in regard to the person from whom the deposit was brought have not been mentioned. (vi) On pp 42 (1st Aug., 1975), an entry was made at the end of the day in different ink and different handwriting stating that a sum of Rs. 15,000 was paid by cash to Shri Virendrabhai M. Nayak against account. The voucher for payment has not been seen by the auditor. (vii) On pp 46 (5th Aug., 1975), an entry was made at the end of the day....
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....and that the provisions in the relevant accounting year and made in order to reduce the tax liability. Consequently, the disallowance was justified." It is clear from the above observation that order of the Tribunal is based on the conclusion reached by the IAC and CIT(A). We have already pointed out that order of learned CIT(A) is based on directions of IAC under s. 144B. The material portions of above orders have already been referred to earlier. 11.2. Having considered the case made out against the assessee it would be only appropriate to refer to the case pleaded by the assessee. The assessee has mainly relied upon the statements of the recipients recorded by the AO in proceedings under S.144A of the Act. The first statements were recorded on 7th Sept., 1978. The relevant portion of these statements is as under: 1. Shri Virendra Maganlal Nayak In his statement he gave his age and address and in response to question about the source of income stated as under: "I am working in M/s Janak Distributors, I get Rs. 500 as salary and I am a partner in M/s Gulmohar Co., Surat." The witness was then asked about the other partners. The witness gave names of other partner....
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....ised this money by buying agricultural land, and by buying seeds and fertilizer to carry on agricultural operations. At pp 3 of the statement he was asked a pertinent question. The question and answer are as follows: Q. Who spent money when you went out? A. M/s Gulmohar Agro (P). Ltd. The other questions were also promptly replied by him. (3) Shri Bachugiri Khandugiri Goswami He gave his source of income as business of insecticide carried on since June, 1978 under name of Sharad Co., Katargaon, Surat. He stated that he was to get salary @ Rs. 425 besides commission. He further admitted that he received commission through cheque and in cash. He stated that he was paying income-tax. The pertinent question on orders booked by him and his reply are as under. "Q. Is there any note of your sale and the orders you got? A. No. I Informed the orders from farmers. Mainly they were Co-op. Societies such as: (1). Puna Seva Sahakari. (2). Navsari Bagayat Co-op. Society. (3). Ganat Vividh Karyakari Sahakari Mandli, Tal. Gandevi, (4). Pioneer Agro Co. Valsad. Q. Do you have any proof of getting orders? A. No." (4) Shri Govanbhai Jayrambhai Patel This w....
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....s He stated that his source of income was service. He did not pay income-tax. He stated that he received commission besides salary of Rs. 600 per month. He did not maintain any bank account but explained how he got the cheque of commission discounted. In respect of services done by him his statement is as under: "Q. Would you tell? Which Societies you get the orders from? A. Purshottam Farms, Olpad Group, Samrod, Dist. Broach Sodgaon Multipurpose Society Samrod, Vividh Karyakari Sahakari Mandali, etc. Q. What is the proof of the order you send? A. Order was sent through order book and were informing orders orally in the office also. Q. How much commission you got? A. I got commission of Rs. 15,000 approximately. Q. How much have you studied? A. Passed S.S.C." These witnesses were again summoned and examined on 5th Jan., 1980. They reconfirmed the receipt of commission from the assessee-company. 11.3. The IAC again examined four of the above said witnesses on 5th Sept., 1981 in proceedings under s. 144B. The four persons examined were as under: (1). Shri Fredrik G. Moses. (2). Shri Jaswantsing Motising Suratia. (3). Shri Virendra Maganlal Na....
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....ents were made w.e.f. 1st April, 1964. The later amendment made w.e.f. 1st April, 1976 took into account the conduct of the assessee to see whether any explanation was offered by the assessee; whether the same was substantiated or such explanation was found to be false. In recent time again, further amendments have been made in the provisions. The decisions in the cases of Hindustan Steel Ltd. and Anwar Ali are no more applicable to cases of penalties under s. 271(1)(c) in view of the statutory changes, fully discussed by the Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC). Now the question is whether in a given case burden of proof has been discharged or not would depend upon the facts and circumstances of the case. No uniform rule can be laid down which would apply to all cases. 7.2. It is well accepted that penalty proceedings are distinct and separate from the assessment proceedings. The assessee and the Revenue can lead evidence which they did not file in the assessment proceedings. The mere fact that addition has been made does not mean that the assessee is to be penalised under s. 271(1)(c). At the same time, it i....
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....ooks are not written in the regular course and should be rejected. But we do not know how on account of overwriting an inference can be drawn that Shri Amratlal L. Desai did not deposit any cash when amount was credited in his account on 18th July, 1995. Same is the position of deposit made by Shri Prafulbhai Nayak. It is not clear as to how without asking, the assessee was to explain "details about the person from whom Shri Amratlal brought the amount have not been mentioned". Similar observations are there is respect of amount brought by Shri Prafulbhai Nayak. We are not aware of any rule under which the narration of source of each credit is to be given in books of accounts. The AO should have questioned the depositors before drawing an adverse conclusion. This was not done and, therefore, from overwriting or writing in different ink it was concluded that entries relating to the payment of commission are not genuine. We, however, found force in criticism advanced on behalf of the assessee and noted above. 12.4. The assessee, on the other hand, has placed voluminous evidence to show that commission was paid to these employees for rendering services to the assessee and the commi....