TMI Blog2010 (2) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... . 215 (Jp.) of 2009 - - - Dated:- 26-2-2010 - I.C. SUDHIR, N.L. KALRA, JJ. L.R. Meena for the Appellant. Order Per N.L. Kalra, Accountant Member. The revenue has filed an appeal against the order of the ld. CIT(A), Alwar dated30-12-2008. 2. The above referred appeal has been fixed at number of occasions and the ld. AR was intimated at the time of last adjournment that the appeal will be heard on 9-2-2010 and accordingly the assessee was given the last opportunity. The adjournment application dated8-2-2010 was rejected because it was clearly mentioned on the last hearing that both the parties are being given the last opportunity. 3. The first grievance of the revenue is that the ld. CIT(A) has erred in deleting the disallowance of Rs. 46,46,867 made on account of payment of commission to M/s. Sadem India Ltd. 4. The assessee has filed the return of income on1-11-2004 and the same was processed under section 143(1) on24-2-2005. Notice under section 148 was issued on29-12-2006. In response to this notice, the assessee submitted that the return already filed may be treated as a return of compliance to notice under section 148. The Assessing Officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer (ACIT, Circle-2, Alwar) as income from other sources and is to be substantively assessed in the hands of Mehru Electricals Mechanical Engineering (P.) Ltd. It was a clear finding by the Assessing Officer in the assessment of Sadem India Ltd. that it had done no effort worth the name, had no technical expertise, failed to provide any documentary evidence or communication which could prove that it had done anything to earn this commission income from Mehru Electricals Mechanical Engineering (P.) Ltd., Bhiwadi. It was observed that since Mehru Electricals Mechanical Engineering (P.) Ltd., Bhiwadi had positive income it had routed this income in the hands of Sadem India Ltd., to set-off this income against its b/f losses and unabsorbed depreciation and to avoid taxability. As discussed at length by the Assessing Officer in the assessment order of the Sadem India Ltd. for the assessment year 2004-05 that this amount of Rs. 46,46,867 claimed on account of commission payment is to be disallowed as expenditure in the hands of the Mehru Electricals Mechanical Engineering (P.) Ltd. and to be added back to its total income. In view of the above, I have reason to belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observing as under : 3. The assessee has shown a substantial income of Rs. 74,63,431 from this commission activity. No business establishment will pay such a huge sum as commission unless substantial efforts have been made to procure the orders or it is necessary to have a mediator to apply for the orders. For procuring these order various activities like technical feasibility studies, market analysis, etc. would need to be done. These would also be reflected to activities like phone calls, meeting expenses, frequent travelling, discussions, competitor s reports, etc. and these expenses will be commensurate to the income receipt. In the instant organizations to whom these supplies have been done and on which commission income has been claimed to have been received are public sector undertakings. These PSUs float tenders at on the basis of the matching of technical specifications and the prices offered, the supply orders are issued. This leaves no scope for any liaisoning activity or use of contacts to get these orders. As already discussed earlier, the assessee has no experience in the field of telecommunication or transformers and it also cannot be accepted that any business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of commission expenses and there was no requirement of liaisoning activity to be done by any of the party for the assessee company. Before the ld. CIT(A), the assessee made the following submissions : 1. M/s. Sadem India Ltd. is a company registered with Registrar of Companies and having its registered office at Bhiwadi. 2. M /s. Sadem India Ltd. was assisted in business activity through its director namely Shri Satish Kumar Dhanda, Shri Uttam Juneja and Shri Prem Juneja. Shri Satish Kumar Dhanda was the Chairman of Engineering Export Promotion Council of India from the year 2000. The assessee company was in the business of manufacturing current transformer and potential transformers. Due to cut throat competition, the company was facing some problems in acquiring the orders. The assessee company was in search of local party which may guide and help the assessee in updating about the advertisement regarding purchase of transformers, acquiring application form on its behalf, completing the application form properly and accurately and submission of tenders form well in time before the stipulated date. 3. The rate to be quoted was a very crucial issue so that the assessee may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were actually rendered for which expenditure has been claimed. The ld. DR placed reliance on the following decisions : 1. Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439 (SC) 2. Swadeshi Cotton Mills Co. Ltd. v. CIT [1967] 63 ITR 65 (SC) 3. Bengal Enamel Works Ltd. v. CIT [1970] 77 ITR 119 (SC). 7. The ld. AR has filed the written submission in 6 pages and has also filed paper book containing 218 pages. In the written submission, it is mentioned that M/s. Sadem India Ltd. is a company of status. There was cut throat competition in the business of the assessee company. Therefore, the assessee company was facing problem in acquiring orders and not getting timely payments. Accordingly the assessee company made an agreement with M/s. Sadem India Ltd. M/s. Sadem India Ltd. rendered the services to the assessee company and on that basis, the assessee has also paid the commission. The ld. AR also referred to page Nos. 202 to 217 of the paper book to show that the commission has been paid on the basis of the agreement between the assessee company and M/s. Sadem India Ltd. The tax was also deducted at source. The copy of the TDS certificate has been attached in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Electricals Mechanical Engineers (P.) Ltd., the assessee company. The ld. AR of the M/s. Sadem India Ltd. submitted in the assessment of M/s. Sadem India Ltd. that nature of the job executed by M/s. Sadem India Ltd. was a job exploitation of personal connection and guidance. It does not involve special type of expenses. While making the assessment in the case of M/s. Sadem India Ltd., the Assessing Officer of that company held that M/s. Sadem India Ltd. has no experience in the business of manufacturing of transformers. The perusal of the assessment order in the case of M/s. Sadem India Ltd. clearly show that they wanted to say that the commission has been received on account of rendering services of personal connection and guidance. Since no specific expenses were debited by M/s. Sadem India Ltd. to substantiate the receipt of commission and therefore, it was stated by that company that commission was received by providing personal assistance and guidance of Shri Dhanda, director of the company. 8.1 The assessee company in the assessment order has stated that it has received adequate services from M/s. Sadem India Ltd. Copies of correspondences have been filed in the paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diency. However, the onus is squarely on the assessee to establish that the person to whom the payments have been made has rendered services. Merely, filing copy of the agreement is not sufficient. The Assessing Officer in his order has recorded a finding in which it has been stated that Indian Railways do not entertain any agents either to canvas or influence the decision. The appellant has not been able to give any evidence to suggest that the party to whom commission has been paid, has rendered services. It is not the case of assessee that they have submitted any correspondence between the appellant company and the agent. If the agent was rendering services then the appellant should have been able to show some evidence in respect of the service being rendered. Moreover, payments to agent for canvassing the products to the railways was against the public policy as Indian Railways never entertained the agent for canvassing. The Karnataka High Court in the case of CIT v. Bangalore Arrack Co. (201 ITR 25) has held that the expenditure opposed to public policy is not an allowable expenditure. For ascertaining the allowability of expenditure, the onus was on the assessee to establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocument is produced by the assessee to show that any correspondence is made with its agent. The other legal contention urged by the learned counsel on behalf of the Appellant is that the agent was also assessed in respect of the commission amount received and the agent paid the income-tax to the Revenue, is the fact pleaded before the Assessing Officer. Therefore, he should have exercised his power under section 131(1)( i ) of the Income-tax Act and got verified the said statement of fact and examined the claim of the assessee and accepted the claim. In not doing so, there is a failure on the part of the Assessing Officer to exercise his power, property by verifying the returns submitted by the Agent in respect of the Commission amount received by the Agent, which important aspect of the matter is not noticed by the Assessing Authority, while passing the assessment order by rejecting the claims of the assessee. Therefore, he has placed reliance upon the decision of the Supreme Court in the case of Commissioner of Income-tax, Orissa v. Orissa ( supra ) in support of the aforesaid contention. But, the said decision has no application to the fact situation in the case on hand. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Sadem India Ltd. noticed the modus operandi to evading the tax by diverting the receipt to a loss company. In the case of M/s. Sadem India Ltd., the contention of the company was that the commission was received on account of services of the director. However, the assessee company in the instant case is trying to submit that the commission has been paid as per the services rendered, preparation of tenders and other services. In the agreement, it is mentioned that M/s. Sadem India Ltd. is to provide assistance in preparation of tender during the valuation process and has also to provide assistance during the performance of the contract. There is no material on record that the services as mentioned in the agreement have been provided by M/s. Sadem India Ltd. The assessee company was made aware that M/s. Sadem India Ltd. has mentioned that it got commission on account of goodwill of the Director Shri Satish Dhanda. No expenses for providing services were there. The company which has provided so called services admitted of making no expenses or providing technical services then onus was on the assessee company to have adduced evidence. Briefly arguing that recipient of commi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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