TMI Blog2014 (9) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company was effecting sales to these customers in AY 1999-2000 also, when no commission was paid to M/s Klassic Enterprises Prop. Subash Bhagat, it cannot be said that these parties were introduced by this commission agent to the assessee - few parties are new to whom no sales was effected in AY 1999-2000 but when in majority cases, the claim of commission payment is found bogus, in respect of these few new parties also, it cannot be said that any service was rendered by this person to the assessee company because it is not possible to say that commission is to be compulsorily paid for effecting sale to a party for the first time and therefore, commission paid to him is allowable as business expenditure in the hands of the assessee even when the assessee is not able to establish that services were rendered by the agent – Decided against assessee. Although the AO has invoked the provisions of section 40A(2) of the Act but he has not established that the increase in remuneration to the directors is excessive or unreasonable. In the present case, the AO has compared the remuneration paid to these lady directors with the maximum salary paid to employees and has noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deserves to be vacated and the order of the Assessing Officer be restored. 3. Learned D.R. of the Revenue supported the assessment order whereas Learned A.R. of the assessee supported the order of learned CIT (A). 4. We have considered the rival submissions. We find that this issue was decided by CIT(A) as per Para 5.4 to 5.4.1 of his order, which are reproduced below for the sake of ready reference: 5.4 I have gone through the finding given by the assessment order in the assessment order and also the observations made in the remand report called by my predecessor. I have also considered the submissions made by the learned authorized representative, appearing on behalf of the appellant. The mute question to be decided is as to whether the payment of commission on purchases made to Asian Chemicals products company Mumbai was incidental to the business of the appellant? From the records, it is seen that during the year under consideration purchases from M/s Auchtel products Ltd Mumbai was to the tune of ₹ 1.24 crore approx as against total purchases of 1.49 crore. It is also seen that tie appellant had dealings with M/s Auchtel products Ltd Mumbai since 1997 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t M/s. Asian Chemicals Products Company is closely associated with your company; with two of the partners namely Shri Rajiv Tandon and Smt. Deepa Tandon being the director of your company. As per the bank details (Bank of Baroda, Worli Branch), the address of Asian Chemicals Product Company is your registered office address and the introducer of that accounts is also your company. The authorized person of M/s. Asian Chemicals Product Company is/was Shri V.N. Athalye who is/was, V.P. of your company. Further, Shri V.N. Athalye in his statement before the Income-tax Authorities had stated: I have no evidence to establish that the above services were rendered by M/s. Asian Chemicals Products Company, it is only our oral assertion unsubstantiated by documentary evidence. 2. Under the facts and circumstances, I have reasons to believe that the so called commission paid by M/s. Shalini Chemicals Pvt. Ltd., Kanpur to M/s. Asian Chemicals Product Company, was a ruse and was actually part of the sale consideration receivable by you on account of sales made by you to M/s. Shalini chemicals Pvt. Ltd. Kanpur. 3. I am giving you an opportunity u/s 150/153 of the I.T. Act 1961 to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Chemicals Products Company is an independent and a separate entity of its own with which Shalini Chemicals Pvt. Ltd. had an agreement under which it paid/credited certain amount as commission to it Just because M/s. Asian Chemicals Products company happened to have some directors of our company as its partners and that their bank account was introduced by the company, it does not mean that an income which belonged to them would become our income. Upon receipt of your letter/notice we contacted M/s. Asian Chemicals Products Company and were informed by them that in fact on an enquiry and exchange of information made in the year 2005 by your office only while deciding Shalini Chemicals Pvt. Ltd. appeal before your honour in respect of payment of commission by Shalini Chemicals Pvt. Ltd. to M/s. Asian Chemicals Products Company for the income tax case of M/s. Asian Chemicals Products Company for the Asstt Year 2001-02 which had been assessed was re-opened by its Assessing Officer in Mumbai and after fully satisfying itself an assessment order u/s 1.43 read with section 147 was passed accepting the returned income which included the amount of commission received by M/s. Asian Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the terms and conditions of the company and to compulsorily part with certain amount by way of commission to the sister concern of the supplier company which in the opinion of the CIT(A) was nothing but part of the sale consideration payable by the assessee company to the supplier company. These findings of facts of CIT(A) could not be controverted by Learned D.R. of the Revenue and hence, on this aspect, we find no reason to interfere in the order of CIT(A). Hence, we decline to interfere in his order on this issue. 5. In the result, the appeal of the Revenue stands dismissed. 6. Now we take up the assessee's appeal i.e. I.T.A. No.349/Lkw/2012 for assessment year 2001-02. In its appeal, the assessee has raised the following grounds: 1. The learned CIT(A) was wrong in law and on facts in confirming the following additions made by the learned Assessing Officer in the asstt of the appellant for Asstt Year 2001-2002:- (i) ₹ 10,72,720/- Disallowance out of Commission paid on sales (ii) ₹ 2,00,000/- Disallowance out of remuneration paid to Directors 2. That learned CIT(A) while making the aforesaid disallowance has failed to appreciate the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allig International 14,33,070.00 4. Alig Tannery 8,13,415.00 5. Bharat Tanning Industries 28,16,131.45 6. Leather Age Tannery 1,18,162.00 7. Leather Age Nepal 12,870.00 8. N.C. S. India 8,46,074.48 9. Rusk International 4,65,340.00 10. Rehman Exp[orts 49,059.20 11. Seema Tanning Ind. 2,86,615.00 12. Super Tannery India Ltd. 2,68,002.00 13. Super House Leather Ltd. Goat 22,04,653.62 14. Super House Leather Ltd Goat 2,32,385.00 1,07,33,967.19 Commission @ 10% 10,72,720.00 9.1 We also reproduce the details submitted by Learned A.R. of the assessee for the present year as well as for the preceding two years in respect of commission paid on sales in these three years: S. No N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,65,340.00 10. Rehman Exports - 1,01,294.40 15,379.00 49,359.00 11. Seema Tanning Ind. 8,07,166.10 1,61,125.00 3,39,655.00 2,86,615.00 12. Super Tannery India 59,502.00 5,31,414.00 2,68,002.00 2,68,002.00 Ltd. 13. Super House Leather 22,28,741.66 15,56,643.00 23,07,403.37 22,04,653.00 Ltd. Goat 14. Super House Leather - 63,075.00 2,32,385.00 2,32,385.00 Ltd. Goat 9.3 From the above details, we find that no commission was paid to M/s Klassic Enterprises Prop. Subash Bhagat in assessment year 1999-2000 and the amount of commission paid in assessment year 2000-2001 was only ₹ 2,94,387/- as against current year of ₹ 10,72,720/-. As per the details of party-wise sales in the present year as well as preceding two years, we find that in most of the cases, sales was effected in assessment year 1999-2000 also to the same parties but no commission was paid in that year to M/s Klassic Enterprises Prop. Subash Bhagat. Hence it cannot be said that these parties were introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal related to the earlier year has been dismissed by this court on 25/09/2007 and in view of this, the appeal for assessment year 1999-2000 was also dismissed. Hence, it is seen that the commission payment was allowed by the Tribunal by following its earlier decision for assessment year 94-95. In the present case, no such Tribunal decision has been shown by the assessee as per which commission payment under similar circumstances was allowed by the Tribunal in the case of the present assessee and therefore, this judgment of Hon'ble Allahabad High Court is not applicable in the present case. 9.4.2 The next judgment cited by Learned A.R. of the assessee is also a judgment of Hon'ble Allahabad High Court rendered in the case of Jaswant Sugar Mills Ltd. (supra). In that case, the issue in dispute before the Hon'ble court was as to whether commission payment to sole agent in respect of controlled sugar was allowable expenditure or not. Under these facts, it was held by Hon'ble Allahabad High Court that since the validity of the agreement of 01/10/98 was not in dispute and the agreement remained in force at all material times under clause 12 of the agreement, the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the facts are entirely different and it is not established by the assessee that any service was rendered by Shri Subhash Bhagat resulting into profit to the assessee company. In fact, we have seen that in most of the cases, the assessee company was making sales to the customers in earlier years also when no commission was paid to this person and hence, it is not acceptable that the sales was effected to these parties in the present year only on the basis of any service rendered by this person. Hence, this judgment is also not applicable in the present case. 9.5 As per the above discussion we have seen that none of the judgments cited by Learned A.R. of the assessee is rendering any help to the assessee and moreover, since the assessee could not establish the fact of rendering any service by Subhash Bhagat and because of this reason that the assessee was already making sales to most of the parties, we do not find any reason to interfere in the order passed by learned CIT (A) on this issue. Accordingly this issue is decided against the assessee. 9.6 Regarding the disallowance out of remuneration paid to directors of ₹ 2 lac, Learned A.R. of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that his predecessor has also adjudicated upon the same issue in favour of the assessee in assessee's own case in the immediately preceding year and nothing has been brought on record before us by learned D.R. of the Revenue that the order of CIT(A) in the earlier year was reversed or modified by the Tribunal. We also find that although the Assessing Officer has invoked the provisions of section 40A(2)(b) of the Act but he has not established that the increase in remuneration to the directors is excessive or unreasonable. Under these facts, we do not find any infirmity in the order of learned CIT(A) on this issue. Accordingly, this ground of Revenue is rejected. 11.1 From the above Para from the order of the Tribunal, we find that in this case, it is found by the Tribunal that although the Assessing Officer has invoked the provisions of section 40A(2) of the Act but he has not established that the increase in remuneration to the directors is excessive or unreasonable. In the present case, the Assessing Officer has compared the remuneration paid to these lady directors with the maximum salary paid to employees and has noted in Para 30 of the assessment order that the maximu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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