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TMI Blog2012 (8) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(1) of the IT Act. 3. Brief facts of the case are that the assessee firm, a trader in iron and steel goods, filed its return of income on 1.11.2004 declaring total income of Rs. 5,42,777. The case was taken up for scrutiny. During the course of examining the books of account, it was found by the Assessing Officer that the assessee firm claimed for the first time the commission payments made to the tune of Rs. 13,60,000. A survey operation was conducted in this case on 18.2.2005. Sworn statements were recorded from the managing partner of the assessee firm, Sri Vinod Kumar Sarogi, commission agents Sri Venkatesh and Sri Promod Kumar Goenka, prop. Jagadamba Hardware Store. The Assessing Officer duly collected the evidences during the course of survey operation and subsequent enquiries and found the following: a) It was noticed from the commission agent's accounts recorded in the books of assessee that the liability for payment of commission was created on 31.3.2004 i.e., on the last day of the accounting year and carried forward as on 1.4.2004. b) The entries were passed when the assessee could ascertain the higher profit and the commission payments were shown as liability. c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is claiming any expenses as allowable u/s. 37(1) of the Act, the burden is on him to prove that the same were incurred wholly and exclusively for business purposes. It is not on the Assessing Officer to prove it otherwise. When the assessee has claimed commission expenses of Rs. 13,60,000 the onus lying on him to prove that the services were rendered by the said commission agents. Mere confirmation and the payments of commission by account payee cheques is not a conclusive proof that any services were actually rendered by the commission agents who earned that commission. For this purpose the CIT(A) relied on the judgement of the Supreme Court in the case of Laxmiratan Cotton Mills Co. (73 ITR 634) wherein it was held that the burden is on the assessee to prove that services were rendered by the commission agents and the expenditure was made wholly and exclusively for business purposes. The CIT(A), while observing that the assessee could not discharge the onus lying on it and could not prove that any services were rendered by the commission agents to whom the commission was paid, observed that the Assessing Officer has conclusively proved that no services were rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no necessity to pay commission. The Assessing Officer observed that advance tax was paid on an income of Rs. 33 lakhs whereas at the time of filing the return of income, the assessee admitted income of Rs. 5,42,277. It was also observed by the Assessing Officer that no evidence was available at the' time of survey that the payments were made to the said concerns. The Assessing Officer mentioned that there was no documentation for rendering the services as an agent and the commission paid was fixed at Rs. 100 per ton arbitrarily. The Assessing Officer observed that during the course of survey, the partners of the firm could not mention the names of the directors of the company to whom the commission was paid. Therefore, the Assessing Officer is of the view that the commission is not allowable as a deduction as such payment does not represent any legitimate business requirement. 8. In this regard, the learned AR submitted that a letter of confirmation from J.T. Alloys Pvt. Ltd. was submitted before the Assessing Officer which clearly mentioned that they received commission of Rs. 12,10,300 through cheques. An amount of Rs. 62,030 was also deducted at source from the said commission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The purchaser has to know about the existence of the trader, and therefore, the trader makes. Arrangement to advertise or by approaching the purchasers for business purposes. In the process it is necessary that the assessee engages agents and makes payments to them. The commission is paid for the purpose of business. It was paid for securing sale orders. Therefore, it is not correct for the Assessing Officer to mention that the assessee is not entitled for deduction. It is not the case for the Assessing Officer that the provisions of Section 40A(ii) are applicable. Further, the AR submitted that the assessee proved the existence of the parties to whom it paid commission and also proved the fact that commission was paid. Therefore, the Assessing Officer is not correct in rejecting the claim. The Assessing Officer may please be directed to allow the claim made by the assessee. 10. In this regard, the AR submitted as under: (1) There is no written agreement between the assessee and the recipients of the commission; as such agreement will act as counter productive. If there is any agreement with any agent, the assessee has to limit his transactions only with him. If no agreement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT (86 ITR 11) and CIT v. Panipat Woollen and General Mills Co. Ltd.(103 ITR 66). 12. The learned AR further submitted that the provisions of Sec. 37 make it very clear that the expenditure should be wholly and exclusively for the purposes of business. The word "wholly and exclusively" is explained by the apex court in the case of Sassoon J. David and Co. Pvt. Ltd. v. CIT (118 ITR 261). It is held by the apex court that the words "wholly and exclusively" do not mean necessarily. Therefore, the question whether the expenditure was necessary or not cannot be considered for deciding the question whether the expenditure is allowable or not. This view is also supported by the decision of the Supreme Court in the case of CIT v. Chandulal Keshavlal and Co. reported in 38 ITR 601. 13. The AR submitted that the cases referred by the Assessing Officer are not applicable to the facts of assessee's case. In the case of Lachminarayan Madan Lal v. CIT reported in 86 ITR 439, the Supreme Court mentioned that the Assessing Officer has to consider all the relevant factors and determine whether the commission was paid to the selling agents for the purpose of business or not. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even agreement between the recipients of the commission and the customers. Not even one customer to whom the department addressed letters has confirmed the existence of middlemen. When the denial by the purchasers was put to the assessee, the assessee expressed that it was not aware as to why the customers have denied the existence of middlemen. Initial onus for the allowability of the expenditure is on the assessee, which the assessee failed to discharge. The names of commission agents are not available in the sale bills. Hence, it is only a colourable device adopted by the assessee to reduce the tax liability. IN the circumstances, the DR pleaded that the Assessing Officer was justified in disallowing the commission payments claimed by the assessee, which disallowance, the CIT(A) should not have deleted. 15. We have heard both the parties and perused the material on record. It is settled law that if the assessee claimed deduction of any expenditure the burden of proof is on the assessee to establish that such expenditure was incurred wholly and exclusively for the purpose of assessee's business. In the present case it is an admitted fact that there is no written agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to suggest that there was any relationship on the basis of which the commission agents procured customers for the assessee for which they were entitled to receive commission. The understanding between the parties was an oral understanding and it was doubtful that such an oral understanding could have been arrived at without any longstanding relationship having been established between the assessee and the commission agents involving such huge amounts of money over a period of time. Further, the assessee is unable to furnish the details of customers introduced by agent and also the exact working of commission payment made to each of the agents. Mere payment of commission through account payee cheque after deduction of TDS does not absolve the assessee from discharging its burden with regard to proving business purpose of the payments. 18. In the absence of any credible evidence for making such payments, we are inclined to disallow the same. 19. Reliance is placed on the decision of the Tribunal in the case of Davinder Singh v. ACIT (104 ITD 325) (ASR), CIT vs. Calcutta Agency Ltd. (19 ITR 191) (SC), Lakshmiratan Cotton Mills Co. Ltd. vs. CIT (73 ITR 634) (SC) and L.H. Sugar Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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