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TMI Blog2014 (3) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... tax disallowing the entire claim of expenditure holding that it was neither proved nor genuine. 3. Assessee preferred an appeal before the CIT(A) who dismissed the assessee's appeal. Assessee preferred further appeal to Hon'ble ITAT which set aside the matter to the A.O. to assess after giving due opportunity to the assessee. An order under section 143(3) read with section 254 was passed on 29.03.2004 which is the impugned assessment order in this appeal. Assessee preferred appeal to the CIT(A) and the CIT(A) dismissed the appeal vide order dated 03.01.2012 as there was no application for condonation of delay and appeal was filed belatedly. On further appeal, the ITAT vide order dated 30.05.2012 in ITA.No.233/Hyd/2012 condoned the delay and set aside the matter to the file of CIT(A) to dispose of the appeal on merits. The learned CIT(A)-V, Hyderabad vide the impugned order confirmed the action of the A.O. Hence, the assessee is in appeal before us. 4. In the assessment order dated 29.03.2004, the A.O. brought out the background of the firm. A.O. noticed that the firm was formed on 01.01.1996 and dissolved on 31.03.1997 and during this one year period assessee supposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not in a position to substantiate the turnovers. However, with reference to the various expenditure, it submitted various vouchers in support and as far as the dealers conference expenditure was concerned, it was the submission that firm as well as the company jointly conducted the dealers conference and at the instance of the company agreed to share the expenditure at 2/3rd of the total expenditure which was claimed in assessee's hands. It was further submitted that since the expected turnover was not reached, the assessee firm discontinued the business. It was submitted that as assessee did business for one year, taxing the entire commission is not appropriate. 5. Ld. CIT(A) after considering the elaborate written submissions and remand reports dismissed the assessee's appeal by holding as under : "6. I have gone through the facts of the case, original assessment order, order of my predecessor on the original assessment, order of the Tribunal setting aside the order, reassessment proceedings, and the submissions made by the appellant right from the beginning to the submissions made during the course of present proceedings. 6.1 The basic assertion made by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant are standing in the name of the company or in some other name. When the same was put to the appellant, it was claimed that they reached an understanding to share 1/3rd of the expenses under some heads against the agreement entered into by them. Coming to the evidences filed by the appellant during the appellate proceedings, it is seen that the invitation to the dealers meet was in the name of the manufacturing company, M/s Unique Plastics Ltd., and the appellant. The leaflets produced contain the products dealt with under the brand name of 'Unique' and not specifically in the name of the appellant firm. The photographs enclosed do not prove that the meeting was held by the appellant alone and the expenses incurred for such meeting were borne by the appellant. The Assessing Officer referred to clause 13 of the agreement which mentions that the company has to bear the expenses on distributor meetings. However, the appellant also claimed expenses under this head and refers to the further agreement reached between them after commencement of the business. The same is the issue on the rate of commission. In the agreement, a certain amount or percentage of orders b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was misconception about commission mentioned in the agreement and offered commission at 2% of net invoices value or Rs.4,00,000/- per month, for which assessee firm agreed. In the month of November, 2006, the company reviewed the operations of the assessee firm and noticed that its achievements were not as promised at the time of negotiations. Accordingly, the company reduced the commission further to Rs.3,35,000/- per month effective from April, 1996. It was the submission that assessee firm had no choice and ultimately closed down the business at the end of the year. It was the submission that receipt of Rs. 40.20 lakhs as commission was fully evidenced and declared by the assessee firm. It was the submission that A.O. was not justified in holding that commission received was not genuine. With reference to the various expenses, particularly, with reference to the dealers conference charges, it was submitted that the assessee has furnished the list of dealers, expenditure details and complete vouchers for the amount of expenditure of Rs.6,25,431/-. It was submitted that 2/3rd of the above amount which worked out to Rs.4,17.069/- was claimed by the assessee. Therefore, the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s commission. Various terms in the agreement which are not implemented (like revision of commission, not giving six month notice for winding up), the way business was done only for one year and that too at the unilateral directions of the company, do indicate that the claim of business activity require thorough examination, which may not be possible at this point of time. 8.1 Since assessee admitted the receipt of income, as far as this assessee's case is concerned, what is relevant is to examine the various claims of expenditure. Therefore, without going into the observations of the A.O. and learned CIT(A) that the business activity of the assessee firm is not genuine, which may be relevant while examining the allowance of expenditure in the nature of commission in the hands of the company, we accept the receipt of Rs.40,20,000/- on which there is no dispute either by the assessee or by the A.O. 8.2 Issue boils down to the allowance of various expenditure claimed by the assessee. It was the contention that as against the commission received, assessee has spent various amounts in the guise of advertising, salary expenditure, commission to sales representatives, travelling exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest claim is concerned, the same was paid to the partners along with an amount of Rs.5,50,502/- to Dhanalakshmi Bank. This amount paid to bank can be allowed in full. The amount paid to partners would get taxed separately in their hands, so there is no need to disallow as it was only appropriation. 8.4 Now coming to the dealers meet expenses, there is an admission that this amount was spent by the company and at their instance assessee has undertaken 2/3rd of the expenditure. Therefore, as per the agreement entered with the company, this expenditure was not at all an expenditure of the firm but of the company. However, in the interest of business, assessee claims that it has undertaken to bear the expenditure at 2/3rd of the amount. Even though necessary vouchers were placed on record, the main contention of the assessee was that the expenditure was borne by the assessee at the instance of the company in the interest of business activity. We are not convinced with the assessee's claim. As seen from the invitations placed on record, the company M/s. Unique Plastics Ltd. has sent the invitations and conducted the meeting. Even though assessee seems to have borne some o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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