TMI Blog2009 (12) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... pical in nature, which are reproduced below: 1. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred both in law and on facts in deleting the disallowance of Rs. 11,67,114 made out of commission paid to various persons. 2. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred both in law and on facts in ignoring the fact that the assessee had surrendered the commission as bogus payment during the survey operation. 3. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred both in law and on facts in ignoring the fact that during the assessment proceedings the assessee had failed to produce any evidence in support of commission payments. 4. On the facts and in the circumstances of the case the Commissioner of Income-tax (Appeals) has erred both in law and on facts in holding that the addition cannot be made on the basis of statement while admitting the fact that a statement given by the assessee carries great evidence value. 5. On the facts and in the circumstances of the case the order of the Commissioner of Income-tax (Appeals) is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are contained in paragraphs 9 to 10.2, which are reproduced overleaf : 9. I have considered the submissions made by the appellant, the statement recorded by the Assessing Officer, rejoinder of the appellant and have also gone through the assessment order. It is noticed that the case of the appellant was reopened on the basis of a report received from the Deputy Director of Income-tax (Investigation) Unit-IV, New Delhi, vide his letter dated December 16, 2005. In the said report it was stated that M/s. Smit Enterprises, the proprietary concern of the appellant, had received commission from M/s. Rochen Separation System (India) P. Ltd. and, in turn, it incurred commission expenditure amounting to Rs. 11,67,114, Rs. 8,10,276, Rs. 18,01,865, Rs. 13,52,857, Rs. 22,10,000 and Rs. 7,49,736 in the assessment years 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05 respectively. The Assessing Officer disallowed the claim of this expenditure on the ground that the appellant had failed to discharge the primary onus of establishing that the payment made to the sub-agents were for services rendered by them. The main reason for reaching this conclusion was that the concerned sub-agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion was bogus. Addition cannot be made merely on the basis of a statement. It would be worthwhile to note here the observations made by the Andhra Pradesh High Court in the case reported in CIT v. Shri Ramdas Motor Transport [1999] 238 ITR 177. While deciding the evidentiary value of the statement recorded under section 132(4), the hon ble court held as under (page 183) : Thus, the question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the sole basis for making the impugned addition. There is no other corroborative evidence to support the additions made in different years. The additions, therefore, appear to be without any basis and are, accordingly, deleted. His successor in office took a contrary view and decided the matter in favour of the Revenue in the assessment year 2005-06. The findings recorded by the learned Commissioner of Income-tax (Appeals) in this year are contained in paragraphs 19 to 23, which are reproduced below : 19. I have gone through each and every invoice raised by M/s. Rochem Separation System Ltd. which have been encapsulated in the previous paragraph. None of the invoices suggest or mention the name of the sub-agents. It is natural that no proof of service rendered has been manifested or adduced. As such the letter dated November 19, 2008 from the principal to the assessee is a self-serving document and does not manifest any service rendered by the sub-agent in issue. In any case, this letter dated November 19, 2008 was never before the learned Assessing Officer for his consideration. If this was not selfserving document, a confirmation from the principal could have been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no evidence to accept that the amounts were paid for specified services rendered. The hon ble Tribunal held that the assessee had failed to discharge the onus and in view of the fact that there was no evidence with regard to service rendered, the disallowance of payment of commission was upheld. 22. In another case, in Schneider Electric India Ltd. v. CIT [2008] 304 ITR 360 (Delhi) ; 12 DTR 237, the hon ble jurisdictional High Court held that there being no evidence except an internal note, showing relationship between the assessee and one R about entitlement of R for commission nor there being any material suggesting procurement of sale orders by R for the assessee, commission paid could not be allowed as deduction, even though the payments were made by account payee cheques. 23. The above decisions of the hon ble Delhi High Court and the hon ble Tribunal only fortify my conclusion that since no evidence had been rendered for service rendered by the sub-agent, the genuineness of payment of commission becomes unproved and, therefore, the disallowance of Rs. 22,59,257 made by the learned Assessing Officer under section 37(1) is upheld. The assessee fails in ground Nos. 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiries were directed by Rochem to the assessee. The assessee also did not have its set up in all places from where enquiries of purchase originated from the Indian Navy or the Indian Coast Guards, therefore, there was a necessity of employing sub-agents at different locations to service these organisations. The assessee received commissions from Rochem, which were shared with the sub-agents. Apart from the above, the assessee was also carrying on the business of supplying spare parts and rendering repair services on its own to its clients. It was further submitted that Rochem was searched by the Investigation Wing, Mumbai somewhere in August, 2005. Subsequently, survey was conducted under section 133A at the premises of the assessee somewhere in October, 2005 at Delhi. In the course of survey, the statement of the assessee was recorded on oath on October 27, 2005. He was, inter alia, questioned about the commission received and commission paid in the financial years 1998-99 to 2004-05. Thereupon, it was deposed that the commissions of Rs. 1,03,51,135, debited in the books for various years, were adjustment entries. The parties to whom these payments were made had not rendered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. M/s. Bureau Intellect Rs. 2,42,466 4. M/s. Raghuveer Metal Industries Ltd. Rs. 10,14,603 The ledger account of these parties and confirmations were filed in the course of assessment. However, the Assessing Officer disallowed the commissions on the grounds, inter alia, that agreement or correspondence with the agents was not produced and the nature of services availed of was not established. However, it was the claim of the assessee that commission at 3.75 percent of the value of orders procured was paid to the sub-agents while it received commission at 5 percent from Rochem. It was also mentioned by him that all the bills issued by Raghuveer Metal Industries Ltd. were issued on January 30, 2005 and the same were accounted for by the assessee in the books of account in March, 2005. In view of the above peculiar facts and the contents of the statement recorded in the course of survey, the Assessing Officer came to the conclusion that the claim of the assessee regarding payments to sub-agents was not tenable. Therefore, the payments aggregating to Rs. 22,59,257 were disallowed in computing the total income. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed proof of the return of income, copy of balance-sheet and the profit and loss account. He was directed to file the details of nature of services rendered to M/s. Smit Enterprises, nature of services rendered by the company, account of M/s. Smit Enterprises, bank statement, memorandum and form No. 18. It is also recorded on December 19, 2007 that Shri Arun Kumar Jain, chartered accountant, attended on behalf of Kay Dee Electricals and stated that it was dealing in electrical goods, no correspondence in respect of commission was available, all transactions were oral, the payments were received by cheques for which bank statement was provided, and liaison services were rendered to the assessee. Pages 20 to 33 contain evidence in respect of payment of commission to Kay Dee Electricals, which consists of the invoices of Rochem in respect of which a part of the commission paid to the assessee was passed on to this party, letter dated December 19, 2007 to the Assessing Officer confirming receipt of commission, the ledger account for the relevant period, the bank account in which commission was credited, and return of income for the assessment year 2005-06 along with its accompaniments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been expressly provided, but that has not been done in section 133A. Section 132(4) also provides that the statement can be used as an evidence under the Income-tax Act. However, no such evidentiary value has been given to the statement recorded under section 133A. Accordingly, it was held that the statement recorded in survey has no evidentiary value. Reliance was also placed on the order of F Bench of the Delhi Tribunal in the case of Surya Foods and Agro Ltd. v. Addl. CIT in I. T. A. No. 494(Del)/ 2009 for the assessment year 2005-06 dated April 30, 2009 ([2009]-TIOL403-ITAT-DEL). In paragraph 6 of the order, it was mentioned that the assessee incurred expenditure of commission for the purpose as mentioned by the assessee and no evidence has been shown to the contrary. Just because the assessee had made payment of commission to persons who have assisted in obtaining information in regard to requirement of Kendriya Bhandar and CSD Canteens, it cannot be said that the payment of commission is illegal or is a payment against public policy. This being so, in view of the principle laid down by the coordinate Bench in the case of Asst. CIT v. Jindal Saw Pipes Ltd. [2008] 118 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider Electric India Ltd. v. CIT [2008] 304 ITR 360 ; 12 DTR 237 and Picker India Ltd. v. Deputy CIT [2008] 7 DTR (Trib) 391. In the rejoinder, learned counsel submitted that the main task of the assessee was to bring Rochem and the prospective clients together. Since it lacked infrastructure facilities all over India, the work was assigned to subagents, who were the persons on the spot with capability to ascertain the likely purchaser and his requirement. The commission was allowed in the case of Rochem and by the same logic it should be allowed in the case of the assessee. We have considered the facts of the case and submissions made before us. The facts are that on the basis of a letter dated November 19, 2008 from Rochem to the assessee, it claims to be an agent of the former in respect of sale to the Indian Navy and the Indian Coast Guard. The enclosure to this letter, forwarded by the assessee to Rochem, in regard to services rendered by four sub-agents in this year, has also been confirmed by Rochem. The paper book contains evidence regarding payment of commissions to these parties and accounting for the same in their returns of income. M/s. Kay Dee Electricals had confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic policy. The provision contained in the Explanation to section 37(1) uses the words which is an offence or which is prohibited by law . No evidence has been produced to show that payment of commission to the sub-agents was either an offence or it was prohibited by law. Therefore, the ratio of the decision of the aforesaid cases is applicable to the facts of this case. Coming to the cases relied upon by the learned Departmental representative, the facts of the case of Precision Electronics Ltd. (supra) were that the assessee claimed deduction of commission paid to SLF Industries Ltd., which was engaged in procuring orders from the DOT and the MTNL. There was no evidence regarding the nature of services rendered by the agent. There was also no evidence regarding any correspondence by the agent with the buyers and there was also no list of orders procured by it. The hon ble court upheld the order of the Tribunal that in these circumstances, the Revenue authorities were justified in disallowing the claim of the assessee. On proper comparison of the facts of the two cases, it will be clear that the facts of the case of Rochem are in pari materia with the facts of the case of Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not make any difference to the tax liability of the assessee. We may also consider the effect of the statement of the assessee, recorded during the course of survey under section 133A, in which the whole of the commission paid to sub-agents was surrendered for taxation. The facts are that this statement was retracted when the assessee did not file any revised return in this year and in respect of earlier years intimated to the Assessing Officer that earlier returns may be considered as returns under section 148 of the Act. The statement was furnished after search and seizure operation had been conducted in the case of Rochem, in which evidence was found that after retaining his commission, the assesse passed on the balance money to Rochem. Obviously, the contents of the statement, in so far as surrendering the amount is concerned, are against the evidence collected by the Revenue in the case of Rochem. Section 133A does not permit the recording of statement on oath. On the facts of the case, it is clear that the statement is not in conformity with the actual facts found by the Revenue in the search of Rochem. While, we may be wary of holding that the statement is of no evidenti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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