TMI Blog2007 (11) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... We noted that Hon'ble Gujarat High Court in the case of Sayaji Iron [ 2004 (2) TMI 6 - GUJARAT HIGH COURT] which is a private limited company is a distinct assessable entity as per the definition of 'person' under section 2(31) of the Act. Therefore, it cannot be stated that when the vehicles are used by the directors, 'even if they are personally used by the directors' the vehicles are personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provision of section 40(c) and section 40A(5) of the Act. Thus, we do not find any infirmity in the order of the CIT(A) - Consequently, the appeal of the revenue is dismissed. Order JM - I am of the view that since the ld. CIT(A) has not considered this issue in proper perspective and did not consider the objections raised by the Assessing Officer in the assessment order. The ld. CIT(A) was not justified in deleting the addition and the matter requires reconsideration at the level of the ld. CIT(A). I, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the order proposed by the ld AM. The impugned order of the learned CIT(A) should be confirmed. Thus, the file should now be placed before the regular Bench for passing an appropriate order as per law. Ground No. 2 was dismissed vide separate order. However, on Ground No. 1, Third Member agreed with the order proposed by the AM - In view of the opinion of the majority of Members, the ground No. 1 in departmental appeal stands dismissed. As a result, appeal of the revenue is dismissed. - Member(s) : VIMAL GANDHI., BHAVNESH SAINI. ORDER Per M.L. Gusia, Accountant Member.- This appeal of the revenue is directed against the order passed by the CIT(A), Ujjain, on 31-5-2004, for assessment year 1993-94. 2. None appeared on behalf of the assessee, therefore, the case was heard ex parte. 3. The first ground of appeal is that the ld. CIT(A) erred in allowing brokerage payment of Rs. 13 lakhs, which was disallowed by the Assessing Officer on account of company's failure to prove the nexus between the commission payment and sales. 4. Facts of the issue are that the assessee is a Limited Company, which filed return of income declaring loss of Rs. 6,06,15,483. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas smaller broker received commission at the rate of 1.39 per cent. Further, the Assessing Officer noted that as per the agreement between the assessee-company and the brokers, the brokers required to prepare a statement of sales made by them and work out the commission payable to them every quarter of the year. The assessee failed to produce such quarterly reports. According to the Assessing Officer, the assessee failed to specify the services actually rendered by the brokers to verify the claim. The assessee was further required to produce the counterfoils of cheques by which payment was made to them. However, no such evidence was produced before the Assessing Officer. Thus, in view of the above facts and circumstances, he disallowed the commission claimed at Rs. 13 lakhs on the following reasons:- (i) The assessee has failed to prove the nexus between commission payments and sales. (ii) The assessee failed to explain the services rendered by the brokers for which commission was paid and the orders procured on the basis of that goods sold in terms of quantum. (iii) It is unreasonable to presume that the major brokers were paid commission at the rate of 0.90 per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age and brokerage related to smaller sales and in absence of quarterly reports from the brokerage as well as proof of payment of commission, the entire commission claim of Rs. 13 lakhs was disallowed. The CIT(A) mentioned in his order that the contention put forward by the assessee-company has sufficient merit being a company under the State Government Management. The Assessing Officer was not justified in making disallowance of commission payment, for the so called discrepancies noticed and on account of absence of quarterly reports and further details. According to the CIT(A), the Assessing Officer should have appreciated that without marketing efforts, the sales to the tune of nearly Rs. 13 crores could not have been achieved. Further, the Assessing Officer should have appreciated that the amount claimed was not unreasonable and excessive vis-a-vis total sales and after all, it was a case of State Government undertaking. Thus, the Assessing Officer's action in disallowing of commission is not found by the ld. CIT(A) to be based on sound reasoning and footings. Accordingly, the addition of Rs. 13 lakhs was deleted by the ld. CIT(A). 7. During the course of hearing, the ld. Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was only to Gram Panchayat. There was no requirement to appoint further brokers, when a regular agent in the form of M/s. Annapurna Agencies was already promoting sales of the assessee's products. Further appointment of these two alleged agents appeared not believable and unnecessary. The Tribunal also required the assessee to explain with evidence in regard to the services rendered by the alleged agents M/s. Agarwal Traders and M/s. Sanjay Agencies, for which the ld. Authorized Representative in that case required some time, which was given by the Tribunal. However, in spite of that no such evidence of services rendered by these alleged two brokers was supplied. In that circumstances, the disallowance of commission was confirmed by this Bench. We noted from pages 8 and 9 of the paper book filed by the ld. Departmental Representative that details of 19 major brokers have been given with their complete addresses, amount of commission and the amount of sales made through them. In case the Assessing Officer had any doubt about the genuineness of payment of commission, he could have issued summons to those brokers to find out the genuineness of the payments of commission, but the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in the assessment order. 10. The Hon'ble Supreme Court in the case of Aluminium Corpn. of India Ltd. v. CIT [1972] 86 ITR 11, reversed the decision of the High Court for the reasons that the Tribunal after taking into consideration various terms of the agreement as well as significance of the deduction given in the earlier assessment year had come to conclusion that the commission paid was expended wholly and exclusively for the purposes of the assessee's business. Further the Hon'ble Jurisdictional High Court of M.P. in the case of CIT v. Pure Pharma (P.) Ltd. [2004] 270 ITR 382 has held that since a doubt was raised with regard to payment made to various parties as commission, inquiry was held. It was found that all the payments had been made as commission to various parties by Demand Drafts, wherein the identity of each of the Agent was also established. It had also been found that commission was paid exclusively for business purposes only. In the instant case, the assessee has explained that all the payments have been made by account payee cheque/Demand Draft. In case the Assessing Officer had any doubt, he could have made inquiry directly with the Commission Agents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, for referring a question of law. On an application under section 256(2). 12. Keeping in view, the facts and circumstances, discussed above and having regard to the various decisions referred to above, we noted that without making any inquiry by the Assessing Officer, he disallowed the huge amount of Rs. 13 lakhs. Further, the assessee had declared loss of Rs. 6,06,15,483, which was assessed by the Assessing Officer at Rs. 1,86,09,750. Therefore, we are unable to understand that why the assessee will claim bogus payment of commission of Rs. 13 lakhs without any gain as the company is running in loss and further the company is running under the State Government Management. Therefore, there is hardly any scope for claiming false payment of commission. In view of the above, facts and circumstances, we do not find any infirmity in the order of the CIT(A). Hence, this ground of appeal of the revenue is dismissed. 13. The next ground is that the ld. CIT(A) erred in allowing the claim of telephone expenses of Rs. 50,000, which was disallowed by the Assessing Officer for personal call. 14. Facts of the issue are that in the misc. expenses, the assessee had included Rs. 3,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uphold the view taken by the ld. CIT(A) in deleting the addition of Rs. 13 lakhs and in allowing the appeal of the assessee. However, I agree with the conclusion arrived at by my learned brother on the issue of disallowance of telephone expenses of Rs. 50,000. The departmental appeal to the extent of disallowance of Rs. 50,000 on ground No. 2 shall stand dismissed as is proposed by my learned brother (Accountant Member). 18. The facts of the case are not in dispute and the same have been elaborately mentioned above in this order. For the sake of avoidance of repetition, I am not repeating the same as well as the arguments of the ld. DR. The Assessing Officer has very categorically recorded the fact that the assessee is engaged in the business of manufacture of cotton cloth. The assessee-company was closed because of suffering heavy losses which was restarted in July, 1989 under the management of State Government. The assessee-company has been declared a relief undertaking by the M.P. State Government and BIFR has also registered a case under Sick Industrial Companies Act, 1985. The Assessing Officer on issue of commission payment of Rs. 13 lakhs directed the assessee to give name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer accordingly disallowed Rs. 13 lakhs stated to have been paid on account of commission payment. The assessee reiterated the same submissions before the CIT(A). On going through the findings of the CIT(A), I find that the CIT(A) did not consider any of the objections noted by the Assessing Officer as referred to above while deciding the appeal of the assessee. The ld. CIT(A) while deleting the addition merely considered the fact that the assessee being under the State Government management has properly paid the commission payment. The ld. CIT(A) also has given reason for deleting the addition that the assessee could not have achieved sales of Rs. 13 crores approximately without marketing efforts. The ld. CIT(A) also has given reason that the commission payment is not unreasonable or excessive vis-a-vis total sales. On consideration of the findings of the CIT(A), I am of the view that the CIT(A) did not address himself to the points and objections raised by the Assessing Officer in the assessment order for making the disallowance. It is a settled law that if the deduction is claimed by the assessee then the burden of proof would lay upon the assessee to prove the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d wholly and exclusively for the purpose of business. The DR also correctly pointed out that the assessee being a sick company declared by BIFR and the management was taken over by the State Government but the commission agreements were not signed by any responsible Officer. Therefore, looking to the financial position of the assessee, the Assessing Officer had been justified to look into all aspects of the matter to verify as to whether any genuine payment is made on account of commission payment or what services are rendered by the commission agents to the assessee. However, the assessee has not produced any specific or reliable material before the Assessing Officer to satisfy the conditions for making the payment of commission to the commission agents. It, therefore, appears to me that the ld. CIT(A) has been swayed by irrelevant consideration and did not consider the reasons given by the Assessing Officer while deleting the disallowance. I may also state with great respect to my ld. brother that the ld. Accountant Member in para 12 has noted that the Assessing Officer disallowed the commission payment without making any enquiry. However, the assessment order revealed something ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, following question has been referred to me as a Third Member under section 255(4) of the Income-tax Act:- "Whether, on the facts and in the circumstances of the case, the ld. CIT(A) was justified in deleting the addition of Rs. 13 lakhs on account of disallowance of commission payment claimed during the assessment years, in question." 2. The facts of the case are that the assessee-company was engaged in the business of manufacture and sale of cotton cloth in the relevant period. The company was closed down in February, 1986 because of heavy losses and was restarted in July, 1989 under the Management of M.P. Government through M.P. State Textile Corporation Limited. For the assessment year, under consideration, it filed a return declaring loss of Rs. 6,06,15,483. After making various disallowances/additions, the Assessing Officer assessed the assessee at a loss of Rs. 1,86,09,750. One of the expenditure claimed by the assessee was commission/brokerage of Rs. 131akhs on total sales of Rs. 1329.14 lakhs. 3. The claim of commission was disallowed by the Assessing Officer with the following observations:- "The profit and loss account submitted by the assessee along with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem. No such evidence was produced either. Thus in view of the following facts, I disallow the whole of the commission paid of Rs. 13 lakhs:- (i) The assessee has failed to prove the nexus between commission payment and sales if any. (ii) The exact services rendered or the goods sold in terms of quantum could not be brought on record. (iii) It is unreasonable to presume that major brokers were paid 0.90 per cent of sales while smaller brokers were paid 1.399 of sales. (iv) No quarterly reports as per the agreement between the assessee and the brokers could be produced. (v) No proof of payment of commission was produced. Thus, the whole of commission of Rs. 13 lakhs is disallowed." 4. The disallowance of commission was challenged in appeal before the learned CIT(A) and it was contended by the assessee that the Assessing Officer has wrongly disallowed the commission which is being given since the start of the company. The commission was given to brokers' agents to procure orders and take the responsibility of payment and for doing such type of activities they do as per business practice. The assessee further claimed that the commission was paid as per agreements with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e based on sound reasoning and footing and the same is hereby deleted." 6. The revenue being aggrieved challenged the above deletion in appeal before the Tribunal. 7. After hearing the appeal, a difference arose between the learned Accountant Member and the Judicial Member of the Bench who heard the appeal. The learned Accountant Member upheld the order of the learned CIT(A) in a very elaborate order running into more than 10 pages. He has noted each and every important fact and held that the commission payment was fully justified. The learned Accountant Member has also quoted the relevant case law in support of his proposed order. 8. The learned Judicial Member did not agree with the order proposed by the learned Accountant Member. For the reasons given in paras 19 and 20 of his order, he has set aside the impugned order of the learned CIT(A) and remitted the matter for reconsideration to the learned CIT(A). The pertinent observations made are as under:- "19. The ld. DR has pointed out from the sample agreement that the commission agents are required to file statement of sales in order to work out the commission. However, the assessee has not filed any such statement befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the Assessing Officer has tried to make proper inquiry into the matter and directed the assessee to furnish several details before him as noted above in order to justify the commission payment. However, the assessee filed a very brief reply before the Assessing Officer which was also not supported through relevant material. Thus, the assessee has failed to bring sufficient evidence before the Assessing Officer to prove as to what services were rendered by the commission agents for the assessee. 20. Considering the above discussion, I am of the view that since the ld. CIT(A) has not considered this issue in proper perspective and did not consider the objections raised by the Assessing Officer in the assessment order. The ld. CIT(A) was not justified in deleting the addition and the matter requires reconsideration at the level of the ld. CIT(A). I, therefore, set aside the order of the CIT(A) and restore the matter to his file with direction to decide the issue of commission payment afresh by giving reasonable sufficient opportunity of being heard to the assessee. The ld. CIT(A) shall also take into consideration the objections raised by the Assessing Officer in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and was ultimately closed. Due to closure of the mill, the case could not be very effectively persuaded. He emphasized that even after the addition, what has been assessed is loss and no tax is involved in this appeal. There is no question of adjustment of huge brought forward losses as in the relevant period, the mill only suffered heavy losses without making any positive profit. He further submitted that the objection of the Assessing Officer relating to execution of agreements with brokers by a non-Director of the company was without any basis as Mr. Pande, who had signed agreements, was General Manager of the company on deputation from M.P. State Trading Corporation. At any rate, the accounts prepared were duly adopted by the Board of Directors in which admittedly large number of senior Officers of the Government were Directors. The accounts of the assessee having been approved by the Board, the objection that the competent person did not enter into agreement did not have any meaning. The General Manager was fully competent to enter into agreement with brokers. 12. Shri Manoj Fadnis, ld. counsel, further submitted that alleged defects pointed out by the Assessing Officer we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of services rendered was fully established. Similar brokerage was also paid in earlier year as has been specifically noted by the learned CIT(A) in the opening part of para 2. This finding has been rightly confirmed by the learned Accountant Member in his order. The ld. counsel for the assessee, accordingly, supported the proposed order of the learned Accountant Member. 15. I have given careful thought to the rival submissions of the parties. I have also examined the material available on record to which my attention was drawn. Having done so, in my opinion, the proposed order of the learned Accountant Member is required to be upheld. As is clear from the submissions of the ld. counsel for the assessee, all the objections raised by the Assessing Officer in the assessment order have been fully met within the impugned order of the learned CIT(A) and in the proposed order of the learned Accountant Member. Therefore, after the matter was elaborately discussed by the learned Accountant Member, in my humble opinion and with utmost respect, there was no scope for the learned Judicial Member to differ and remand the matter for the purpose of further enquiry. It is clearly prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above observations, the file should now be placed before the regular Bench for passing an appropriate order as per law. ORDER Per M.L. Gusia, Accountant Member .-This appeal was filed by the revenue on the following grounds of appeal:- "(i) On the facts and in the circumstances of the case, the ld. CIT(A) erred in allowing the brokerage payment of Rs. 13,00,000 which was disallowed by the Assessing Officer on account of companies failure to prove the nexus between the commission payment and sales. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) further erred in allowing the claim of telephone expenses of Rs. 50,000 which was disallowed by the Assessing Officer for personal call." 2. Ground No. 2 was dismissed vide separate order. However, on Ground No. 1, there was a difference of opinion between the Members of Tribunal, therefore, matter was referred to the Third Member for his opinion. Hon'ble President of Income-tax Appellate Tribunal being Third Member vide his order dated 26-11-2007 agreed with the order proposed by the AM. 3. In view of the opinion of the majority of Members, the ground No. 1 in departmental appeal stands dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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