TMI Blog1995 (3) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... r export of detergents toUSSR 30,00,000 (iv) Commission received for import of textile machinery fromUSSR 27,85,000 (v) Commission received for import of textile machinery fromUSSR 10,96,788 Total : 1,34,60,308 Against his receipts from commission the assessee claimed deduction of Rs. 90,45,600 as business expenditure being commission paid, inter alia, to: . Rs. (i) M/s Multi-Tech International Ltd. for export of compressors 18,00,000 (ii) M/s GFC for export of Nirma detergents 22,50,000 (iii) M/s APVN on textile machinery imported fromRussia 46,65,600 2.1 The Assessing Officer disallowed assessee's claim on account of commission paid to all the three above parties, but in appeal the learned CIT(A) allowed assessee's claim with regard to first party, namely, M/s Multi Tech International Ltd. (Rs. 18,00,000). The Revenue is not in appeal on this account. 2.2 With regard to commission paid to M/s GFC the Assessing Officer noted that the assessee had got commission of Rs. 43,20,000 from M/s Nirma Ltd. for arranging exports of detergents while it claimed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee made his submissions in his letters dt.15th Feb., 1993and5th March, 1993. The assessee also furnished copy of letter dt.18th Feb., 1993from M/s Novo Export ofMoscowconfirming the involvement of Shri S.K. Maheshwari as also the assessee with regard to export of detergents. The Assessing Officer took the view that the letter from Novo Export was merely an after thought and could not be relied upon as necessary evidence regarding the assessee's claim when M/s GFC had played no role in the export of detergents to USSR. The Assessing Officer accordingly disallowed the claim of Rs. 22,50,000 being not related to the business expenditure of the assessee. The Assessing Officer also noted that the object of payment was to ensure freedom from competition and, therefore, the payment represented capital expenditure, as was held by the Hon'ble Madras High Court in the case of Chelpark Co. Ltd. vs. CIT (1991) 94 CTR (Mad) 71 : (1991) 191 ITR 249 (Mad). 2.3 The assessee went in appeal before the learned CIT(A) who on a consideration of relevant facts and circumstances, as also on an appraisal of correspondence exchanged between the assessee and M/s GFC observed that the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file and the correspondence with the Police department noted that APVN is a company which indulged in illegal activities and its managing director and his wife syphoned all the money and all the documents relating to this company were seized by the Police (Crime Railways) and the alleged payment was not verifiable. She also noted that it was not possible to determine as to what services were rendered by this company to the assessee. In these circumstances, the disallowance made was sustained by the learned CIT(A) also. The assessee is in appeal. 3. According to the learned authorised representative, the authorities below mis read and misconstrued the facts and, therefore, reached erroneous conclusion. Shri Dinodia submitted that the authorities below have been unduly influenced by the quantum of deduction claimed by the assessee overlooking the quantum of assessee's receipt from commission. Shri Dinodia submitted that this is the second year when the assessee has earned income from commission. In the immediately preceding assessment year (of 22 months) such commission income aggregated to Rs. 87,77,747 against which the assessee paid commission of Rs. 51,26,680 and the claim ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate dt.18th Feb., 1993issued by M/s Novo Export (Russian party) certifying that both the assessee, namely, M/s Texcomash Export, Prop. Shri N.K. Rajgarhia and M/s GFC through Shri S.K. Maheshwari were negotiating for export of detergents toUSSRand for that purpose had been visiting the Russian Trade Office atNew Delhi. It also states that Shri S.K. Maheshwari of GFC guided them with necessary technical specifications of the economics achieved and better results obtained with the use of machine mixed detergent powder and ultimately they entered into an agreement with M/s Nirma. He submitted that this certificate has been termed an after thought by the Assessing Officer even though it was filed during the course of assessment proceedings. The learned authorised representative submitted that it is not denied that the transaction between the assessee and M/s GFC is genuine and the payments have been made by account payee cheques. It was, thus, urged that the payment made is only for one particular contract and both the parties are free to compete with each other after the conclusion of that contract and, therefore, the payment is made for the purpose of business in obtaining servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to bank certificate dt.20th Jan., 1993issued by UCO Bank, Defence Colony to the Assessing Officer in response to notice under s. 133(6). Advancing his arguments further the learned authorised representative invited our attention to the written submissions made before the learned CIT(A), as also various documents in support of the claim including correspondence between the assessee and M/s APVN. He submitted that the assessee gave all possible evidence in support of his claim. It was, thus, urged that the Revenue erred in disallowing the claim. 5. On the other hand, the learned Departmental Representative strongly defended the orders of the authorities below and submitted that full and proper opportunity was given to the assessee to substantiate the claim made and services rendered by the two parties and merely because the payments were made by cheques did not entitle the assessee to succeed. The Departmental Representative also submitted that it is all an arranged affair by the assessee to reduce his tax liability. 6. We have heard the learned representatives of the parties at length and have also perused the relevant record, including the paper book filed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of quantity of 6000 MT of detergent powder under contract to USSR and the arrangement "does not extend to any similar or repeat contracts for supply of any detergent goods or commodities in future to USSR or any other party and both the parties under this deed are free to compete in the manner best suitable to them". It is a matter of record that the assessee received repeat orders for supply of detergent on which he earned commission but no amount was paid to M/s GFC on that account. The amount has been paid by the assessee only in respect of contract for 6000 MT and is not in respect of any other contract for supply of detergent goods or commodities toUSSRor any other party. Both are free to compete with each other in the manner best suitable to them. As is manifest, the assessee has not eliminated M/s GFC from carrying on its business activities, inasmuch as, both are free to compete with each other in the manner best suitable to them but for the contract of 6000 MT. The assessee admittedly received further commission on supply of detergents by Nirma subsequent to this contract of 6000 MT but did not pay any commission to M/s GFC. M/s GFC are not shown to have ceased from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to two different parties. The Assessing Officer also communicated that "In asst. yr. 1990-91 the execution of contract for sale of Russian textile machinery to M/s Prakash Cotton Mills at FOB value of Rs. 7,77,60,000 has been shown. The assessee is entitled to receive commission of Rs. 2,52,10,177, it is stated that Rs. 61,10,644 had already been received and the balance of Rs. 1,90,99,532 is recoverable as per terms of agreement of the Govt. of India with Russia Govt. On this amount the share of M/s Anand Pratyabhut is stated to be Rs. 46,65,000 amounting to Rs. 18.5% of the total commission receipts and the entire amount is shown paid, against the debit notes raised by M/s Anand Pratyabhoot vide cheques as detailed on p. 33 and 34 of the submissions. The relevant cheques are seen debited to assessee's bank account. Details of correspondence with M/s Anand Pratyabhoot which apparently arranged for opening of LC and bank guarantee by M/s Prakash Cotton Mills and copies of its debit notes, of cheques paid forwarding letters had been filed". The learned Assessing Officer also forwarded a copy of letter received from the bank manager, UCO Bank, Defence Colony with his remand repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance of Rs. 41,872 the amount includes expenditure on entertainment of Russian party atAgra, Khajuraho andGoa(Rs. 26,739) and a sum of Rs. 20,133 was spent on business promotion considered entertainment, or Rs. 46,872. The Assessing Officer allowed admissible deduction of Rs. 5,000 and disallowed the balance. The learned CIT(A) upheld the finding of the Assessing Officer after going through the relevant details. We find ourselves in agreement with the reasoning of the learned CIT(A) and, therefore, uphold her order. 9.2 With regard to (b), i.e., Rs. 9,440 out of rent, the issue involved is same as is pending in assessee's appeal before the Tribunal for the immediately preceding assessment year. We accordingly hold that the view taken by the Tribunal on that appeal will be equally applicable to the claim of the assessee for this assessment year. 9.3 Ground No. (c) with regard to telephone expenses is not pressed. 9.4 As regards claim for legal expenses, we note that the same was incurred by the assessee in defending a suit filed in the High Court at Calcutta by Sunil Kumar Rajgarhia also claiming partnership in assessee's business M/s Texcomash Export and ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia but only earned profits like commission, just like in the case before us, the export turnover as well as the total turnover would remain one and the same and it does not lose the deduction by virtue of the fact that it does not carry on business in India but merely earned profits on commission". Advancing his arguments further Shri Dinodia submitted that in terms of the provisions of s. 80HHC the assessee would be entitled to deduction in terms of the formula laid down by the Special Bench in their order as under: Profits Gain of business Export Turnover Total Turnover On the other hand, the learned Departmental Representative supported the orders of the authorities below. 10.1 We have heard the learned representatives and have also perused the relevant record. The business carried on by the assessee consists exclusively of the export out ofIndiaand, therefore, deduction under s. 80HHC is governed in accordance with the provisions of sub-cl. (a) of sub-s. (3) of s. 80HHC, which defines profits derived from the export of goods out ofIndiafor the purposes of deduction under sub-s. (1). We, therefore, find merit in the submission made by the learned au ..... X X X X Extracts X X X X X X X X Extracts X X X X
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