TMI Blog2016 (10) TMI 1387X X X X Extracts X X X X X X X X Extracts X X X X ..... on did not require any middleman for giving order to the company but when the notice was issued to Market Federation, they have explained why the services of middleman is required. Therefore, this has been explained by the Marketing Federation itself. Therefore, CIT(A) has allowed the claim. Moreover, the assessee has also claimed that it has earned more revenue after deputing the middleman commission agent. Therefore, it may be allowed. Therefore, we are of the view that the learned CIT(A) is justified in his action and our interference is not required at all. Decided against revenue. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- As decided in Kamal Kumar Jagdish Prasad [ 2016 (6) TMI 1474 - ITAT INDORE] no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. The question of law is answered in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also issued commission to Nirmala Enterprises, Jain Enterprises and Rakhi Enterprises for supply to Government agents and thereafter Inspector was deputed to verify whether these three firms existed or not, but no books of accounts were found. Thereafter, the Assessing Officer received reply from the Government agency that no commission has been given by the Government for purchase. Therefore, the Assessing Officer was of the view that no commission agent is required to make sales to Government departments. The assessee failed to substantiate the genuineness of the commission. Replies from various Government Departments prove that such commission expenses are not genuine and the assessee has adopted typical modus operandi for reducing the profit by way of booking commission which is factually incorrect, unverifiable and against the policy of the State Government. Such type of immoral practice is unwarranted and uncalled for and as the department disapproved the practice of middleman in the transaction with the Government departments made by anybody, therefore, the Assessing Officer has disallowed commission expenses of Rs. 2,02,07,630/-. 3. The matter was carried in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 issued by the AO, confirmed that supplies were made by appellant company in F. Y. 2010-11 and also confirmed the details of purchases and payments made against it but stated that no commission agent was required for facilitation of such sale to the Federation and there was no provision to involve commission agents for such business activities. However the AO proceeded to conclude that the payment of commission was not genuine based on the report from the above organizations that no commission agents are required for facilitating the sales. During the course of appeal proceedings, it has been contended by the appellant that an adverse conclusion cannot be drawn based on replies received from federation that no middle man is allowed by Govt. agencies and supply orders were issued directly by them ignoring details of services rendered by the agents viz. to motivating the agriculturists, compilation of their requirements, submission of details relating to land records, preparation of case files, approval from Janpat Panchayat office, placement of supply order by M.P. Agro Industrial Dev Corp.. Further it has been contended that the AO had not made any inquiry regarding service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various destinations, transportation installation thereafter, in the forms of the agriculturist etc. During the course of appeal proceedings the replies received. from State Agro Industrial Development Corporation and Marketing Federations were forwarded to the concerned AO for his /her perusal and comments. The AO has filed the. reply vide letter dated 30.12.2015 where in it has been stated that since these organizations had given different replies to the AO and the CIT(A)-II, the replies given to the AO during the course of assessment proceedings should be considered for the purpose of disallowances of commission payment. In my considered opinion the different replies have been because of nature of question framed by AO and then CIT(A)-II. The AO had directly put an question whether the services of commission agents were required by the departments to procure the goods from the appellant company whereas the correct question would have been whether the appellant company really needed commission agents/representatives to facilitate sales and to work as nodal persons for government departments and ultimate users of the product i.e. the agriculturist. In fact the replies received i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded during assessment proceedings for A.Y. 2012-13 the conclusion drawn by the AO, is considered to be misconceived and the payment of commission to the agents amounting to Rs.2,07,07,630j- is directed to be allowed as business expenditure. The grounds of appeal are allowed . 4. The learned DR submitted that the assessee has paid commission to seven agents for rendering services to supply the goods to the Government department. The learned DR submitted that the Assessing Officer has made the inquiry from the State Government and from the State Government it has been specifically replied that they are purchasing directly from the assessee and no commission agent is involved while purchasing from the assessee company. Assessee has taken the contention that on commission TDS has been deducted and commission has been made through cheque, but by simply deducting TDS and the payment through cheque, the commission did not become genuine. This Bench of the Tribunal in the case of Gunvanti Sanghvi has held that when the assessee is unable to prove the services rendered for such commission, the assessee failed to prove the genuineness of commission and State Govt. disapproved such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplied to the learned CIT(A) that in order to promote micro irrigation scheme, the commission agents are required to give facility to farmers. The commission agent installs the PVC line and they also give teaching to farmers to run this deep irrigation system and after installing all these irrigation systems, the commission agent informed to the Federation and thereafter the payment has been made. Therefore, the assessee appointed various commission agents for effecting sales to the Government departments. State as well Central Govt. granted subsidy for purchase of such products by the cultivators and such subsidy is routed through Marketing Federation only. Agreements were executed between the assessee company and the agents for rendering the services, letters were issued by Assessing Officer to agents to verify the services rendered by them who submitted the replies in response there to and confirmed not only the services rendered but also the receipt of commission payment. The counsels further invited the attention to the fact that the agents are being assessed to Income tax who disclosed commission earned by them in their returns by which identity of the recipients was proved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the agent and identity of the commission agent is proved. We find that the agents have rendered the services, motivated the agriculturists, compilation of their requirements, submission of return relating to land records, prepare the file from Jan Panchayat office, arranging delivery of goods by Marketing Federation sites, supply of pipe, installation of pipes to the agriculturists and maintenance of pipes for the prescribed period. Therefore, the assessee has made these services. The Market Federation did not require any middleman for giving order to the company but when the notice was issued to Market Federation, they have explained why the services of middleman is required. Therefore, this has been explained by the Marketing Federation itself. Therefore, the learned CIT(A) has allowed the claim. Moreover, the assessee has also claimed that it has earned more revenue after deputing the middleman commission agent. Therefore, it may be allowed. Therefore, we are of the view that the learned CIT(A) is justified in his action and our interference is not required at all. We also get support from the decision of the Hon'ble Delhi High Court in the case of CIT vs. Ram Pistons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed. I, therefore, set aside the orders of the authorities below with the direction to the Assessing Officer to consider the above High Court judgments cited above and decide the issue in view thereof. I order accordingly. 9. Following the above order of the Tribunal, we set aside the orders of the authorities below with the direction to the Assessing Officer to consider the above High Court judgments cited above and decide the issue in view thereof, after afford ..... X X X X Extracts X X X X X X X X Extracts X X X X
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