TMI Blog1991 (1) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... Stores Department are spectacular. The main argument of the department is that though the sales have been increased but there is no evidence that M/s. M.S. Textiles did any work at all, and it is further contended by the department that major part of the commission received by M/s. M.S. Textiles has been shown by them as passed on to M/s. Bafna Traders and there is no trace of M/s. Bafna Traders and against cheques credited in the bank account of M/s. Bafna Traders almost immediately cash is withdrawn. The assessing officer has written a very detailed order and this point is dealt with at pages 2 to 9 of the assessment order. The CIT(A) also has written a very detailed order and the point is dealt with in paras to 28 of his order on pages 2 to 11 thereof. 3. The learned Chartered Accountant, on behalf of the assessee, has taken us through the relevant portions of both the orders. On our specific query it was admitted before us that there was no factual error worth the name in either of these orders. While taking us through the orders he pointed out the aspects on which the assessing officer and the CIT(A) allegedly went wrong in drawing inference. We shall point out those aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and the plea taken is that the assessee is obliged to show the person to whom it has made the payments and it is not for the assessee to find out or show how M/s. M.S. Textiles dealt with the amount or what happened to the payment made by M/s. M.S. Textiles to M/s. Bafna Traders. It is also submitted before us that at any rate most of the payments have, been made by M/s. M.S. Textiles to M/s. Bafna Traders after the close of the previous year of the assessee i.e., after 31-7-1983 and, therefore, that aspect was irrelevant for considering the facts and circumstances in this year. In para marked 2-D on pages 13 and 14 of the assessment order, the assessing officer has drawn inferences against assessee in sub-clauses (a) to (f). Assessee's reply to sub-clause (a) thereof is that the assessee has paid commission on sales to Canteen Stores Department @ 5% in the first year and @ 4% in the second year. It is submitted on behalf of the assessee that it is a very reasonable rate of sales commission particularly looking to the fantastic increase in the figures of sales to the Canteen Stores Department. In regard to clause (b) of para marked 2-D(ii) on page 13 of assessment order, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 19 of his appellate order, the CIT(A) has cited a comparable case of Universal Luggage Mfg. Co. Pvt. Ltd. and assessee's reply thereto is that that case is not really comparable because that company had its own sales organisation. In para 27 of the appellate order on page 11, the CIT(A) has mentioned that there was no need for the utilisation of contact of M/s. M.S. Textiles when the assessee was already having substantial orders from Canteen Stores Department. To this assessee's reply is that existence or non-existence of need is not relevant and it is for the assessee to decide whether it should utilise the service of any person for enhancing the sales. 5. The learned departmental representative also took us to various portions of assessment order to emphasise that in the assessment order the assessee's case for claim of deduction has been very effectively met and rejected. He specifically drew our attention to the finding given in clauses (a) to (f) of para 2-D(ii) on pages 13 and 14 of the assessment order. He, in particular, invited our specific attention to para 6 on pages 3 and 4 of the appellate order to emphasise the finding given by the IAC (Asst.) and upheld by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per the Annexure. From the debit side of the Profit Loss A/c. we have selected items of salary, conveyance, travelling and telephone because in the context of assessee's claim of personal canvassing and running about by M/s. M.S. Textiles those four items would be most relevant. Then we have taken the figure of total expenses and net profit. From the credit side we have taken the sales and gross profit. Then we have taken the figures of commission received and commission paid and the net commission as taken on the credit side of the Trading-cum-Profit Loss A/c. As already mentioned, previous years of the assessee and that of M/s. M.S. Textiles do not coincide. Commission payments to M/s. M.S. Textiles as shown by the assessee fall in two years i.e., from 1-8-81 to 31-7-83, corresponding to assessment years 1983-84 and 1984-85. This period would fall in three previous years of M/s. M.S. Textiles during years ending Diwali, 1981, Diwali, 1982 and Diwali, 1983. For the years ending Diwali, 1984 and Diwali, 1985 for M/s. M.S. Textiles, there was no payment of commission by the assessee. The assessee has shown commission paid/payable at Rs. 18.39 lakhs in assessment year 1983-8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a pie out of that had been paid up to the end of July, 1982 and it is indicated on behalf of the assessee that M/s. M.S. Textiles paid to M/s. Mansukhram Textiles (P.) Ltd. the whole sum of Rs. 9.19 lakhs in the assessment year 1984-85. Similarly, for year ending 31-7-1983, relevant to assessment year 1984-85 of the assessee, commission is shown as fallen due in October, 1982, January, 1983, April, 1983 and July, 1983 but payments are shown as made by the assessee to M/s. M.S. Textiles up to September, 1985 and the dates of payment by M/s. M.S. Textiles to M/s. Bafna Traders give rise to a very very interesting position. For the work allegedly done by M/s. Bafna Traders from August 1982 to July 1983, payments are shown from May, 1984 to December, 1984. Now the interesting point is that M/s. M.S. Textiles and other three parties to whom M/s. M.S. Textiles have in turn allegedly paid commission are supposed to have done running about for contacting the persons of Canteen Stores Department all over the country with 29 outlets. Such contact was admittedly not established through correspondence. Therefore, such contact was possible only either by telephone or travelling. Now the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and yet another in the second year. There is no trace of any of these parties; (h) Bank account of one of the parties M/s. Bafna Traders has been found but cheques deposited therein have been followed by heavy cash withdrawals; (i) As per the accounts of M/s. M.S. Textiles, commission paid by them to others is 40% of the commission received by them in the years ending Diwali, 1984 and Diwali, 1985 i.e., after they ceased to receive commission from the assessee but in the three previous years which would cover a period of 2 years of receipt of commission by them from the assessee, the commission payments shown by them are in the vicinity of 80% of the commission received by them ; (j) For doing the work of contacting the persons concerned in Canteen Stores Department, no expenditure worth the name is shown to have been incurred by M/s. M.S. Textiles. The three parties who allegedly received major part of commission from M/s. M.S. Textiles would have been required to incur the expenditure out of their own resources but two of them have not been even identified and one of them M/s. Bafna Traders has not shown resource for incurring that expenditure. The point is that identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee also relates to quantification of disallowance under section 37(3A). As already mentioned assessee paid commission of Rs. 26,99,863 to M/s. M.S. Textiles which has been disallowed in full and the disallowance has been upheld above. But a further sum of Rs. 8,27,431 was paid as sales commission to M/s. Blow Plast Ltd. and Kemps Co. Assessing Officer held that the Commission of Rs. 8,27,431 paid to these two parties was includible in quantification of addition under section 37(3A). CIT(A) vide paras 34 and 35 of his order held that the sales commission of Rs. 8,27,431 was not wholly for sales promotion, publicity and advertisement and only 25% of that sum should be included for quantification of addition under section 32(3A). 15. Before us it was explained on behalf of the assessee that almost all the sales were direct and only at Madras the sales were effected through consignment agents and the commission was paid as sales commission. Reliance was placed on the Tribunal's decision in Mopeds India Ltd. v. IAC [1984] 7 ITD 324 (Hyd.) and on Delhi Bench decision in ITO v. Premier Chit Fund Finance (P.) Ltd. [1990] 32 ITD 647. We find that the assessee's submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. 20. Ninth set of grounds of appeal objects to the disallowance of extra shift allowance on jigs, tools, fixtures, internal telephone, scales and electric installations. Our attention is drawn to Tribunal's order in assessee's own case for assessment year 1981-82 in ITA No. 4854 (Bom.) of 1985 dated 19-6-89 and also to the earlier decision for assessment years 1980-81, 1982-83 and 1983-84. Therein by relying on an earlier decision of the Tribunal, the assessee's contentions have been accepted that extra shift allowance would be allowable on electrical installations and weighing scales. It is also held therein that investment allowance is available to the assessee on jigs, tools, fixtures, and electrical installations. Assessing Officer is directed to accept the assessee's claim for extra shift allowance on jigs, tools, fixtures, internal telephones, scales and electrical installations. Assessee's this ground of appeal is also treated as accepted. 21. Tenth set of grounds of appeal of the assessee objects to the disallowance of investment allowance on canteen equipment. In Tribunal's decision dated 27-5-88 in ITA No. 1772 (Bom.) of 1985 for assessment year 1981-82 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------- 1981 1982 1983 1984 1985 --------------------------------------------------------------------------------------------------------------------------------------------------- (i) (ii) (iii) (iv) (v) (vi) (vii) --------------------------------------------------------------------------------------------------------------------------------------------------- 1. Salary 32,770 68,543 62,956 1,18,050 1,47,075 2. Conveyance 23,834 26,926 51,737 80,609 77,487 3. Travelling 1,01,014 1,18,324 1,02,171 1,80,641 1,54,225 4. Telephone 9,990 45,958 35,194 41,803 69,758 5. Total expenses 3,15,891 4,80,386 4,74,874 8,01,577 8,79,794 6. Net profit 41,463 55,673 67,867 1,01,502 91,549 --------------------------------------------------------------------------------------------------------------------------------------------------- Credit Side 7. Sales 1,16,871 4,39,762 6,50,708 7,25,523 59,08,404 8. G.P. on sales - 4,176 24,348 722 4,64,081 9. (a) Commission 5,82,804 21,54,868 27,99,990 13,03,485 8,26,006 received Less: (b) Commission 2,33,125 16,50,011 24,50,377 5,31,210 3,18,743 paid (c) Net com- 3,49,679 5,04,856 3,49,613 7,72,275 5,07,263 mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red any expenditure. In the accounting period 1980-81 relevant to assessment year 1982-83, sales to Canteen Stores Department accounted for Rs. 211.43 lakhs. In the accounting period 1981-82 relevant to assessment year 1983-84 these sales stood at Rs. 367.69 lakhs and in the accounting period 1982-83 relevant to assessment year 1984-85, i.e. assessment year under appeal, these stood at a figure of Rs. 675.82 lakhs. Percentage of increase over previous years vis-a-vis base accounting period 1980-81 relevant to assessment year 1982-83 was 75 % and 84% and increase of sales in accounting period 1982-83, which is relevant to assessment year under appeal, over that of accounting period 1980-81 is 220%. As against that, percentage of increase in total sales is 70%, 22% and 110% respectively. Whereas in the accounting period 1981-82 other sales were Rs. 1665.61 lakhs and for the assessment year under appeal these accounted for Rs. 1800.86 lakhs and increase was 8 % qua sales to Canteen Stores Department the relevant figures were Rs. 367.69 lakhs and Rs. 675.82 lakhs, which accounted for increase of 84%. There being no material on record to warrant the inference that either the constitue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harat Vijay Mills Ltd. - Textiles. (vi) VIP Industries Luggage bags - For two years only (vii) Digvijay Woollen Mills. Jamnagar - Textiles. (viii) Jiyajee Cotton Mills, Gwalior - Textiles. Q.(3): Who is the main partner looking after the sales and representation? Ans. : There are two partners - one myself and another Mr. Mohanlal B. Jain. We both are equally important in sales/representation. We are both 50% partners. Q.(4): Give qualification and experience of each partner. Ans.: (i) Mohanlal Jain - Matric - age 32 yrs. - 10 years experience in selling to Armed Forces. (ii) Shekhar Shah - B.Com. - age 37 years. - 15 yrs. in selling line. Q.(5): What do you do to obtain orders from Canteen Stores Deptt. generally for your clients and what specifically you did in this regard in respect of VIP Industries? Ans. : We meet the concerned officers of the Canteen Stores Deptt. and request them and convince them regarding products of my clinets such as durability, longevity and pricing in comparison to other competitors' products. This is all we do to get the orders. Something has been done in respect of VIP Industries. Q.(6) : Do you have any power of attorney or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohanlal Jain - only two of us except for some clerks. Q.(18): Please state whether during the relevant period when you were working for M/s. VIP Industries, did any of the competitors of M/s. VIP also got the order from Canteen Stores Deptt.? Ans.: Yes the system is that M/s. Canteen Stores Deptt. has been buying luggage bags from the three reputed manufacturers like VIP, Aristocrat and Safari. Q.(19) : Please state why your services were terminated after two years? Ans.: They wanted some price increase which I was unable to get. Q.(20): When did you do the first job with Canteen Stores Deptt. and when did you first get the assignment from VIP Industries. Ans.: In 1981. The first successful job with the Canteen Deptt. is in respect of VIP Industries only that started in 1981. After that no successful job has been done. I am trying. Q.(21): How did you come in contact with M/s. Bafna Traders and what is their expertise? Ans.: Mr. Mafatlal Bafna of M/s. Bafna Traders is operating looms at Bhiwandi and is a general. commission agent and I met him due to certain purchases of powerloom textiles. His expertise when I selected was powerloom business. Q.(22) : Who re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. : M/s. D. Vensimal Basarmal, Opp. Edward Cinema, Kalbadevi, I will furnish this in few days (A/cs.) Q.(32) : Please give details of foreign travelling in the last 4 years and produce passport of yourself and your family members. Ans. : I have been going abroad and in the last 6 years I might have gone twice or thrice. Passport will be produced. Q.(33): Opportunity is given to Mr. Shah to say anything if he so wants. Ans. : No comments. Statements are recorded to the best of my knowledge, belief and they are recorded without any coercion. Sd/ Sd/- (Shekhar R. Shah) (S.K. Jha)' From the above, it is apparent that M/s. M.S. Textiles are not only representing the assessee-appellant but seven other mills/companies also and with all of the eight mills mentioned in reply to question No. 2 M/s. M.S. Textiles are representatives agents. For the assessee, M/s. M.S. Textiles have worked for two years. 4. The above statement having been made before the Inspecting Assistant Commissioner of Income-tax (Assessment) as required by him, certainly becomes a piece of evidence and material on record and there is no material to rebut the same and, accordingly, this piece of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome into force from 1st August 1981 and will remain valid for a period of one year i.e. up to 31st July 1982. Thereafter, this arrangement is renewable on mutual consent. We are liable to terminate this arrangement within the above period if your services are not found to be in accordance with our agreement. (5) It is agreed that you will not represent any other firm dealing in luggage and having business with the Canteen Stores Department. We will appreciate if you could sign and return the duplicate copy of this letter signifying your acceptance of the terms given above. Thanking you, Yours faithfully, for VIP Industries Ltd. Sd/- Harmeet Singh Vice President-Marketing' 'VIP Industries Ltd. VIP House A wholly owned subsidiary 88C Old Prabhadevi Road, of Blow Plast Ltd. Bombay-400 025 22nd July, 1982 M/s. M.S. Textiles, 208, Dwarkesh Market, 2nd Floor, Bhuleshwar, Dr. Atmaram Merchant Road, Bombay-400 002. Dear Sirs, We refer to the recent discussion your Mr. Shekhar Shah had with the undersigned, in context with our arrangement with you for promoting sales of VIP luggage to the Canteen Stores Department. (1) We are pleased to extend the period of our arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own by over 200%. This increase has been possible mainly on account of our regular follow-up with the various departments of CSD to ensure regular orders and prompt payments. We therefore request you to consider the various difficulties that were explained by us to you with regard to price increase as well as reduced orders from CSD during the last few months and to continue to avail of our services, which we are confident would lead to further substantial increase in your business with CSD. Thanking you, Yours faithfully For M/s. M.S. Textiles, Sd/- Partner.' 'VIP Industries Ltd. VIP House 88C Old Prabhadevi Road, Bombay-400 025 22nd July, 1983 M.S. Textiles 208, Dwarkesh Market, 2nd Floor, Bhuleshwar, Dr. Atmaram Merchant Road, Bombay-400 002. Dear Sirs, We refer to your letter dated 19th July, 1983 and our subsequent discussion on the subject. We regret that we are unable to reconsider our decision regarding direct dealings with CSD. We shall however get in touch with you in future if there are possibilities of mutually beneficial business arrangements. Thanking you, Yours faithfully For VIP Industries Ltd., Sd/- Director.' Pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to serve summons to me have failed as you could not locate me and a registered letter was returned stating "Party not found". In the above, M/s. M.S. Textiles have asked me to contact you immediately. However I beg to state that I am unable to do so as I am leaving Bombay for urgent prior business engagements and shall not return for some time. I however confirm having received Rs. 20,06,250 from M/s. M.S. Textiles being commission on A/c for sales of VIP luggage to the CSD (Canteen Stores Department). This commission was paid by them for various services granted by me to them which included extensive travelling smooth despatch of stores and quick follow up for orders. I am herewith enclosing an affidavit of the said effect. Thanking you, Yours faithfully, For Bafna Traders, Sd/- Proprietor.' Encl : As above 'AFFIDAVIT' I, Mafatlal D. Bafna, aged about 40 years, C/o Purushottam Patel, 132-E, Bhagathwadi, 1st Floor, Bhuleshwar, Bombay-400 002 and formerly carrying, on business in the name, of "Bafna Traders" at 2/4, Old Hanuman Lane, 1st Cross Lane, 1st Floor, Bombay-400 002 solemnly affirm and declare as under:--- That I was working a an agent of M/s. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. IAC, Assessment Range VI(E), Bombay, involving assessment year 1984-85 is being referred to the Hon'ble President of the Income-tax Appellate Tribunal for making reference to Third member as provided for in section 255(4) of the Income-tax Act, 1961:--- "Whether, on the facts, and in the circumstances of the case, the sum of Rs. 26,99,863 is allowable as deduction in computing the total income of the assessee for the assessment year under appeal?" THIRD MEMBER ORDER The Members of 'A' Bench Bombay owing to difference of opinion between them on the following point referred this matter to me under section 255(4) of the Income-tax Act, for my opinion: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 26,99,863 is allowable as deduction in computing the total income of the assessee for the assessment yew under appeal?" 2. I have heard Shri Ashwani Kumar for the assessee and Shri Keshav Prasad for the department and I perused the orders of the authorities below as well as the opinions expressed by my learned Brothers. On a careful consideration of this material, I have come to the conclusion that the disallowance of commission does not deem j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the payment of commission @ 4% on sales made to Canteen Stores Department. Further enquiries made by the Inspecting Asstt. Commissioner revealed the following: (a) M/s. M.S. Textiles was a small partnership firm dealing in textiles and also having some commission business in textiles but not in moulded luggage. (b) M/s. M.S. Textiles never had any dealings with Canteen Stores Department before and after the alleged deal with the said Department on behalf of the assessee company. No documentary evidence was produced showing the dealings by it with the Canteen Stores Department. No correspondence was produced or admitted. (c) Major portion of this commission was paid by M/s. M.S. Textiles to another concern called M/s. Bafna Traders. The efforts made by the Department to trace Bafna Traders at the address given were in vain. (d) In the sworn deposition recorded by one of the partners, he was not able to say the names of the officials either by rank or by name of the Canteen Stores Department who were contacted in this connection. His version that all the dealings were concluded by word of mouth was too much to believe. (e) It was also discovered that the assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing maximum benefits out of the contacts that one had with the concerned officials or if those contacts were utilised and as a consequence there was a enormous improvement in turnover it could not be said that no services were rendered. It should be seen that as against a turnover of Rs. 367.69 lacs, the turnover this year had gone to Rs. 675.82 and that was all due to the efforts of M/s. M.S. Textiles who actuated their contacts and it should also be seen that in a case of this nature, there would be no direct evidence available about the activity of M/s. M.S. Textiles figuring in any correspondence with the Canteen Stores Department and it would, therefore, be natural for the Canteen Stores Department to deny the existence of M/s. M.S. Textiles as they are not supposed to deal with any middle man except directly with the supplier and, therefore, no reliance should have been placed for drawing adverse inference against the assessee on the letters written by Canteen Stores Department that M/s. M.S. Textiles did not deal with them, that in any case payment of commission of Rs. 18.38 lacs was paid to this very party in the immediately preceding assessment year and that was allowed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment have undoubtedly shown fantastic rise; (b) There is correspondence to show that the assessee and M/s. M.S. Textiles had agreed on some terms and conditions on whose basis payment of commission is claimed by the assessee; (c) In the ultimate analysis, assessee is able to show that it has paid the impugned amounts to M/s. M.S. Textiles; (d) It is, however, an admitted position that there is no documentary evidence of either M/s. M.S. Textiles or any of the three recipients of commission from M/s. M.S. Textiles having done any work for increasing the sales to Canteen Stores Department; (e) Canteen Stores Department have completely denied having dealt with or knowing either with M/s. M.S. Textiles or any of the recipients of commission from M/s. M.S. Textiles; (f) Analysis of relevant figures of final accounts of M/s. M.S. Textiles shows that before and during the relevant period M/s. M.S. Textiles had not incurred any expenditure worth the name for orally contacting the various out-lets of Canteen Stores Department said to be 29 spread all over the country; (g) M/s. M.S. Textiles claimed to have passed on payments 80% of the commission received by them from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds after providing for the allowance of commission paid by it to M/s. Bafna Traders, nothing remained to prove or doubt that M/s. M.S. Textiles did not render any service. He noted that in the assessment year under appeal, the sales to Canteen Stores Department went up to Rs. 675.82 lacs from the turnover of Rs. 367.69 lacs in the immediately preceding assessment year and Rs. 211.43 lacs in the still preceding assessment year and that the increase in turnover which was about 84% over the turnover of the previous year or 220% over the turnover of 1983-84 assessment year, was purely on account of the efforts put in by M/s. M.S. Textiles and it would, therefore, be inappropriate and unjust to suggest that M/s. M.S. Textiles did not render any services at all. He was of the opinion that the preponderance of probabilities in this case favoured the view that commission must have been paid to M/s. M.S. Textiles as otherwise there would not have been any increase in turnover although the assessee was directly dealing with Canteen Stores Department in the earlier years. 8. He then referred to the examination of Shri Shekhar R. Shah, one of the partners of M/s. M.S. Textiles, made by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x copies of the correspondence, promising to produce the originals the next day. Then there was another question put to him as to whether he could furnish copies of bills raised by them and M/s. Bafna Traders and his answer was in the positive. There was another question put to him in response to which he answered that Canteen Stores Department not only placed orders for the purchase of luggage bags with the assessee, i.e., VIP Industries but also with Aristocrat and Safari. He was then asked a question as to why his services were terminated after two years, to which Mr. Shah replied stating that M/s. VIP Industries wanted to obtain some price increase and since they failed to get the increase, their services were terminated. Then his association with M/s. Bafna Traders were enquired into, to which suitable answers were given. According to the Judicial Member, a close reading of the questions and answers indicated, that it was M/s. Bafna Traders that did the entire leg work of canvassing and obtaining the orders from Canteen Stores Department and for that they charged a major chunk of the commission from M/s. M.S. Textiles and then M/s. M.S. Textiles charged a high rate of commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement and the Department was not justified in brushing aside this evidence only because M/s. Bafna Traders was not available for cross-examination or the Canteen Stores Department stated that they dealt with the assessee directly or because the payment was made to M/s. M.S. Textiles which in turn made the payments to M/s. Bafna Traders belatedly. 11. Then the learned Judicial Member referred to letter written by M/s. M.S. Textiles to the IAC wherein M/s. M.S. Textiles pointed out that they were requesting M/s. Bafna Traders to appear before him in connection with the assessee's case and that they would certainly contact the IAC (Asst.). M/s. Bafna Traders also wrote a letter to the IAC on 9-3-1987 confirming the arrangement of working for the assessee through M/s. M.S. Textiles and promised to appear before the IAC after a little while as by then he was leaving for Bombay for urgent prior business engagement and would not be available to appear on that day. An affidavit was also sworn to by Mr. Mafatlal D. Bafna by M/s. Bafna Traders wherein, the entire arrangement was again vividly explained and was confirmed and was filed. It was relying upon these documents, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is the sophisticated methods of persuasions. These are the days of aggressive advertising, persuasion by contact, by word of mouth. In all these cases, the names of the persons who induced or persuaded the persons and authority who were authorised to place the orders are not generally written much less agreed to. In a competitive market, it is the personal contact that is more important to persuade the persons and authority to place orders, and if those authorities are asked as to how they preferred a particular article to another article available in the market, they will never admit that they are persuaded by the personal contact made by the representatives of the manufacturers rather they would say that they were persuaded by the general information gathered. The gathering of general information will always mean personal contact. This is a reality which has to be borne in mind. If we approach the problem before us now with this reality in the background, we would appreciate how the Canteen Stores Department was not able to commit itself to the fact that it was on account the personal contact made by M/s. Bafna Traders that they were persuaded to place orders for the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the other or it was paid for some illegal purpose opposed to public policy only then it could be said that the entire arrangement was a bogus arrangement. Only then he could say that the arrangement was a sham arrangement or a collusive arrangement. No such attempt was made by the Department. They relied upon the statement given by the Inspector who said that Bafna Traders was not available at the address given. I do not think that this is sufficient to discharge the responsibility placed upon the department to disprove the claim made by the assessee to justify the disallowance of the claim. 14. In a letter written to the IAC (Asst.) on 9-3-1987 M/s. Bafna Traders categorically admitted that they have rendered services to VIP Industries through M/s. M.S. Textiles and received a commission of Rs. 20,06,250. It is not, therefore, a fact that was hidden from the knowledge of the IAC (Asst.). I find nothing from the orders of the authorities below that any effort was made by them to disprove this claim. The contention of the department that the amounts which were deposited were immediately withdrawn is no justification to say that no services were rendered or the money withdrawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. M.S. Textiles had always stated that it was through M/s. Bafna Traders that they were able to render services to VIP Industries in promoting their sales and having regard to the fact that a similar arrangement was already approved by the Department in the earlier assessment year, when a payment of about Rs. 18 lacs was allowed as a deduction, it is very difficult to accede to the view of the Department now that the same M/s. M.S. Textiles did not render any service and that the increase in sales was achieved only by the direct contact of assessee with Canteen Stores Department unaided of any other agency. 18. In this context, it is very relevant to point out that the learned Accountant Member and the Judicial Member agreed on some of the aspects namely: (a) that the assessee's sales during the previous years relevant to the assessment years 1983-84 and 1984-85 to Canteen Stores Department had undoubtedly showed enormous increase; (b) there was correspondence to show that the assessee and M/s. M.S. Textiles had agreed on some terms and conditions on whose basis payment of commission was claimed by the assessee; (c) that the assessee was able to show that it paid the commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, this circumstance by itself does not lead to the conclusion adverse to the assessee and on the contrary this contradicts the earlier finding given by the learned Accountant Member that the parties were not traceable. When the parties were not traceable, how could the bank account of M/s. Bafna Traders could be traced. For these reasons, for the reasons shown above and for the reasons given in the order of Judicial Member, I am in agreement with the view expressed by him. 21. Before I close this matter, I would like to deal with one or two arguments addressed to me by the learned Departmental Representative on which he placed much reliance. One was neither M/s. M.S. Textiles nor M/s. Bafna Traders had any experience in dealing with moulded luggage. Therefore, they could not have rendered any service to the assessee in promoting the sales. This argument does not detain me for long for the reason that M/s. M.S. Textiles was dealing in a variety of products which included dealings with the Defence Department. Once an agent dealing in the products of established popular companies knows that a particular Government Department needs a particular item, he does not have to have any ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts on record show or lead to a different conclusion. 23. The assessee had established the identity of the parties, produced the documentary evidence and had discharged the primary onus that lay on it but the Department failed to prove that the documentary evidence produced by the assessee was false or fake. The Department could not, therefore, say that the assessee had failed to prove its case. 24. It appeared to me that the entire edifice of the case of the Department was built around the solitary circumstances (viz.) their belief of the non-existence of M/s. Bafna Traders which is now found to be incorrect. All the other points shown were only supporting points. Since M/s. Bafna Traders was found to be a party in existence which was proved beyond doubt by the correspondence that took place between them and the IAC (Asst.), I have to hold that the basis for the Department was mostly suspicion. Having accepted the claim in the earlier year on the same set of facts, the disallowance of the claim for subsequent year may not be proper. I have, therefore, preferred to rely upon the unfalsified evidence led by the assessee in preference to the suspicions relied upon by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X
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