TMI Blog1996 (5) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... He was of the view that there was no agreement under which the assessee was required to pay the abovesaid amounts to M/s Indira Chemical Agencies (P) Ltd. The assessee could not explain why the said commission was being paid to the above company. Since the statements filed by the assessee-company were at variance with the books of accounts, books were impounded under s. 131 of the IT Act. The impounded books have been examined. On page 197 of the general ledger maintained by the assessee where the account of M/s Indira Chemical Agency (P) Ltd., is to be found, the first entry on 1st Jan., 1981, has been erased and a fresh entry had been made. On 18th Sept., 1981, the account of India Chemical Agency (P) Ltd., showed a debit entry of Rs. 1,00,000 with the narration "to demand draft". Examination of the cash book showed that the following entries have been made on 18th Sept., 1981, on the credit side: Indira Chemical Agency LF 197 chq. 376349 Rs. 1,00,000 R.N. Kathare account 151 Rs. 25,000 Bank commission for DD for Rs. 1,50,000 favouring R.N. Kathare LF 80 Rs. 45 The AO concluded that the entries in the cash book is that the payment has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the assessee was not entitled to the deduction of the commission alleged to have been paid by it to M/s Indira Chemical Agency (P) Ltd., merely because the latter has chosen to show the amount of commission as its income for the asst. yr. 1982-83. He accordingly disallowed the claim of commission for both the years under appeal. He accordingly levied penalty of Rs. 50,120 and Rs. 73,765 under s. 271(1)(c) of the IT Act, 1961, for the asst. yrs. 1981-82 and 1982-83 for concealment of income chargeable to tax by way of diverting 50% of its income by way of commission payment without being able to substantiate its claim. 3. Aggrieved by the penalty levied by the AO for the two years under appeal, the assessee carried the matter in appeal to the first appellate authority. The first appellate authority confirmed the levy of penalty holding that since the assessee had not been able to prove the genuineness of the commission payment the AO was justified in holding that the assessee had deliberately attempted to divert 50% of its income and thereby evaded its tax liability. The assessee is, therefore, on second appeal before us. 4. It may also be mentioned that the appeals pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as represented by its Managing Director, Sri Balakrishna N. Kathare and M/s Indira Chemicals, Bangalore, was represented by the partner, Sri S.N. Kathare, a partnership-firm. In the P L account of the assessee-firm, commission of Rs. 1,89,847 is shown to have been paid for the asst. yr. 1981-82 and Rs. 2,92,557 for the asst. yr. 1982-83. As per the balance sheet Rs. 1,84,744.72 has been shown as commission paid in the asst. yr. 1981-82 and Rs. 2,79,413 in the asst. yr. 1982-83. Copies of the P L account and summary of the balance sheet are on file. 6. The agreement between the parties is disputed before us. The agreement was executed on 15th March, 1979, and the terms and conditions as mentioned in cls. 1, 2 and 3 are as follows : "1. The first party has given up in favour of the second party the agency of The Atul Products Ltd., P.O. Atul, Dist. Valsad, Gujarat, held by the first party w.e.f. 1st Jan., 1979 and has delivered the list of customers and also transferred the field staff along with the Sales Office at Aabkavi, Dist. Bijapur and made available all the necessary data and particulars regarding the said agency business in favour of the second party agreeing to pay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not complete. 7. The learned Departmental Representative has further relied on the statement of B.N. Kathare dt. 17th Oct., 1994. He is a partner of Indira Chemicals Agencies having 50% share of profit and loss for the asst. yrs. 1981-82 and 1982-83. During the two assessment years, for a period from 1st Jan., 1980, to 31st Dec., 1980, and from 1st Jan., 1981 to 31st Dec., 1981, respectively the assessee-firm claimed that it had incurred expenditure to the tune of Rs. 1,89,847 and Rs. 2,79,413. According to the statement of R.N. Kathare, before starting the assessee-firm, himself and B.N. Kathare, Managing Director of Indira Chemical Agencies (P) Ltd. had discussion with the Chairman of Atul products Ltd., Ahmedabad, and agreed that Atul Products' products will be sold on indenting basis for which Atul Products will pay certain rate of percentage varying from item to item and out of that 50% of the net profit will be given to Indira Chemical Agencies (P) Ltd. and the remaining 50% will be shared among the partners M.N. Kathare, R.N. Kathare and S.N. Kathare in the ratio of 30 : 30 : 40. R.N. Kathare was not in a position to give any explanation about the assessment under s. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts. In the document, it is specifically stated that Indira Chemical Agencies (P) Ltd. has been engaged in the agency business of Atul Products upto 1st Jan., 1979, and the assessee agreed to pay to Indira Chemical Agencies (P) Ltd. 50% of the commission earned. It is argued, on behalf of the assessee, that the claim was disallowed in the assessment on the ground that there was no agreement to show the payment of commission. Now, a copy of the agreement is produced. In para 6 of the assessment order, for the asst. yr. 1981-82, dt. 14th Dec., 1984, the case of the AO is that there is no agreement to show that the assessee is required to pay the commission to Indira Chemical Agencies (P) Ltd. According to the CIT(A), the genuineness of the payment is not proved.. The officers of the Department are not objectively satisfied that there was concealment of income. The AO has not examined B.N. Kathare, the Managing Director of Indira Chemical Agencies (P) Ltd. The assessee has also produced copy of the balance sheets ending on 31st Dec., 1979, 31st Dec., 1980 and 31st Dec., 1981. In the balance sheet ending on 31st Dec., 1979, the commission paid for the asst. yr. 1980-81 is shown at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asst. yr. 1981-82 on the ground that there is no direct payment in the asst. yr. 1981-82. Regarding asst. yr. 1982-83, the payment towards commission is Rs. 2,79,413. A copy of the account is produced. According to the learned counsel for the assessee, the commission is not paid by cash. Payments were made by way of DDs. It is also brought to our notice that the recipient company has admitted that they have received the amount towards commission and that they have deposited Rs. 1,00,000 with another company. Hence, this is only an adjustment entry. Even if there is an omission it does not give rise to any cause of action for imposing penalty under s. 271(1)(c). Though there was an omission subsequently it is debited in the account but no corresponding debit entry has been made. It is subsequently rectified at the time of audit. Even if there is a variation about the payment of commission in the statement of S.N. Kathare and R.N. Kathare, it is argued on behalf of the assessee that the variation in the payment of commission will not give rise to any cause of action for concealment of income. In this case, the recipient company has filed a letter admitting receipt of the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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