TMI Blog2015 (1) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee contended that it has maintained/recorded/received/issued the stock of raw material by weight and there is no concept of per piece or standard/averaging of weight per piece – the authorized officer gave the copy of panchnama at the end of search, but no copy of statement and copy of stock inventory taken at the time of search, which was asked to supply by the appellant on 06/9/2010 - when the scrutiny assessment proceedings were started by the AO, he supplied the copy of statement along with copy of inventory and copy of statement of various persons on 13/09/2010 - AO as well as CIT(A) has considered the assessee’s reply but which was not found convincing to them - it is also difficult for the authorized officer to weigh the stock lying in the factory premises on weighing machine but the item is excisable and is required to be inspected spontaneously by the excise authority when entry of the raw material in the factory and dispatch of the final product from the factory premises - Further the Director of the company has not able to explain the difference during the course of recording of statement U/s 132(4) of the Act and stated that he would explain the difference la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of seven cases filed by the assessee and in six cases, cross appeals filed by the Revenue are against the orders dated 22/01/2014 for the A.Y. 2003-04, 16/03/2012 for A.Ys. 2004-05, 2005- 06 and 2006-07 and dated 15/03/2012 for A.Ys. 2007-08, 2008-09 and 2009-10. Order dated 22/01/2014 for A.Y. 2003-04 was passed by the learned CIT(A), Alwar and for other A.Ys. i.e. from 2004-05 to 2009-10 by the learned C.I.T.(A)-Central, Jaipur. The effective grounds of all the appeals filed by the assessee as well as cross appeals by the department are as under:- Grounds of ITA No. 191/JP/2014 (A.Y. 2003-04)(Assessee) 1. That the order of learned Commissioner of Income-tax (Appeals) is bad in law and on facts of the case. 2. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition to the extent of ₹ 5,98,323/- out of disallowance of ₹ 10,61,432/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid to sales by the assessee. 3. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance without appreciating the fact that the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave to add, alter amend and/or modify the above grounds of appeal. Grounds of Revenue s cross appeal i.e. I.T.A. 601/JP/2012 (A.Y. 2004-05) 1(i) Whether on the facts and circumstances of the case, CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of ₹ 5,81,792/- out of the total disallowance of ₹ 26,40,346/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2. The appellant craves the right to amend alter or add to any of the grounds of appeal given above. Grounds of ITA No. 473/JP/2012 (A.Y. 2005-06) (Assessee) 1. That the order of learned Commissioner of Income-tax (Appeals) is bad in law and on facts of the case. 2. That the learned Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P/2012 (A.Y. 2006-07) (Assessee) 1. That the order of learned Commissioner of Income-tax (Appeals) is bad in law and on facts of the case. 2. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition to the extent of ₹ 23,80,561/- out of disallowance of ₹ 33,34,321/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid on sales by the assessee. 3. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the addition of ₹ 9,27,758/- made under section 37(1) of the Income Tax Act, 1961 by Assessing Officer in the assessment order on account of commission paid on purchases made by the assessee. 4. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance without appreciating the fact that the disallowance was made without allowing an opportunity of confronting the material gathered at the back of the assessee. 5. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the additions on account of disallowance made in the account of commission paid on sales and commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hered at the back of the assessee. 5. That the learned Commissioner of Income-tax (Appeals) has erred in sustaining the additions on account of disallowance made in the account of commission paid on sales and commission paid on purchases by the assessee in proceedings under section 153A without there being any material found in the course of search from the premises of the assessee and its directors contrary to the claim made by the assessee. 6. The above grounds of appeal are without prejudice to each other. 7. That the appellant craves leave to add, alter amend and/or modify the above grounds of appeal. Grounds of Revenue s cross appeal i.e. I.T.A. 604/JP/2012 (A.Y. 2007-08) 1(i) Whether on the facts and circumstances of the case, the CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of ₹ 36,16,923/- out of the total disallowance of ₹ 1,11,65,917/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion paid on sales and commission paid on purchases by the assessee in proceedings under section 153A without there being any material found in the course of search from the premises of the assessee and its directors contrary to the claim made by the assessee. 6. The above grounds of appeal are without prejudice to each other. 7. That the appellant craves leave to add, alter amend and/or modify the above grounds of appeal. Grounds of Revenue s cross appeal i.e. I.T.A. 605/JP/2012 (A.Y. 2008-09) 1(i) Whether on the facts and circumstances of the case, the CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of ₹ 55,44,696/- out of the total disallowance of ₹ 1,16,81,213/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises of the assessee and its directors contrary to the claim made by the assessee. 6. The above grounds of appeal are without prejudice to each other. 7. That the appellant craves leave to add, alter amend and/or modify the above grounds of appeal. Grounds of Revenue s cross appeal i.e. I.T.A. 608/JP/2012 (A.Y. 2009-10) 1(i) Whether on the facts and circumstances of the case, the CIT(A)(Central), Jaipur has erred in law and on facts in deleting the disallowance of ₹ 1,12,53,667/- out of the total disallowance of ₹ 1,50,55,500/- made by the A.O. in respect of the commission expenses claimed on sale. 1(ii) Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting the part of the disallowance made by the A.O. in respect of the commission expenses claimed on sale even though the assessee could not prove the genuineness of the expenses claimed as such these expenses did not fulfill the conditions laid down in Sec. 37(1) as they were not wholly and exclusively for the purpose of the business. 2. The appellant craves the right to amend alter or add to any of the grounds of appeal given above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, commission paid on consignment sale at ₹ 5,71,776/- and commission paid on CTD sales at ₹ 10,61,432/-. He further observed that as per details of commission filed by the assessee, it appears that the commission on CTD sales for ₹ 10,61,432/- had been paid to 17 parties and all the parties mentioned in the account to whom commission on sales were paid had raised bill on 31/3/2003 and accordingly the assessee company had debited the ledger commission on sales . Very fact that the bills have been raised on 31/3/2003 and no payment what so ever had been made to these parties during the year created doubt the credibility of the account. The learned Assessing Officer issued noticed U/s 133(6) of the Act to the brokers namely M/s Ajay Traders, Shri Vikrant Mahajan, Shri Subhash Chand Garg, Shri Sanjay Gupta, M/s Rajendra Steels, M/s Garg Steel Corporation, Shri Naresh Garg, Shri Narender Goyal, Shri Maman Chand Goyal, Shri Kamlesh Kumar HUF, Shri Gulshan Gupta, Shri Dharampal, Shri Anil Mahajan, Shri Anil Sharda, Shri Chander Shekhar Goyal, Shri Amit Goyal and Shri Vipul Biyani to provide details as under:- 1. File duly acknowledged copy of your income tax return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number. This information must be with these so claimed brokers if they really had done some dealing with such parties because for many of them commission income from the assessee is the only source of income or major source of income as has been revealed from the details of income filed by them. These brokers were also asked to file copies of booking forms received from the customers from whom sales were arranged by them and copies of booking forms submitted by them to M/s Ashiana Ispat Ltd. for arranging the sales on which commission has been earned. To this query, most of them had stated that the business had been conducted over telephone or by personal visit and they do not follow the system of booking forms, or had simply remained silent on this issue. If these so claimed brokers, had done any dealing over telephone with so claimed customers they could have easily got complete postal addresses of the parties over telephone or by personal visit even after the notice U/s 133(6) had been issued to them, if it was not readily available, and would have passed on the same to the undersigned. In view of inability of these so claimed brokers to provide the addresses and telephone numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointment with a few but it is not the conclusive proof that these brokers have really rendered some service to the assessee company, since the brokers have failed to give complete postal address, telephone numbers of the customers claimed to be provided by them to the assessee. Neither the assessee nor the brokers could provide any evidence of correspondence between them except agreement of appointment in few cases and one bill raised at the fag end of the year for commission. Facts in the cases mentioned above are very much similar to the facts of the case under consideration as discussed above, to disallow commission paid on sales. The Assessing Officer concluded that no services had been rendered by the so claimed brokers to warrant any commission. The commission paid claimed by the assessee is not wholly and exclusively for the purposes of business. He relied on the decision in the case of Assam Pesticides and Agro Chemicals Vs. CIT 227 ITR 846 for discount and commission paid without any commercial consideration. The assessee has not provided the addresses of the customers, addresses of the brokers, copy of order booking forms etc., which leads to the conclusion that commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable opportunity of being heard on this issue, which was replied by the assessee. The learned Assessing Officer concluded that the assessee had not been able to explain with cogent reasons that when the brokers were appointed by the assessee itself then what prevented the assessee to handover the cheques directly to these brokers rather than routing the same through other persons. Though, the document under consideration pertained to A.Y. 2008-09 but still the paper in question explained the modus operandi of the assessee, which was equally applicable in the assessment years 2003-04 to 2009-10, which were under scrutiny assessment as per the provisions of Section 153A read with Section 143(3) of the Act and proved the nexus between the assessee company and the so claimed brokers to bring down its profit to reduce its tax liability. During the A.Y. 2004-05, the assessee had claimed commission paid on sale was ₹ 28,73,276/- which had been bifurcated commission paid on consignment sale at ₹ 2,32,930/- and commission paid on CTD sales at ₹ 26,40,346/-. It is further observed that similar to other years, the assessee raised the commission bills on 31/3/2004. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer verified the genuineness of expenditure claimed by the assessee by issuing notice U/s 133(6) of the Act to the brokers. Some of the brokers filed reply and claimed that they had carried out the necessary transaction through telephone and that no order booking forms either from/to the assessee company or from/to the raw material supplier had ever been prepared by them. The payments of brokerage commission were made in subsequent years. The other findings of Assessing Officer were identical to finding given in commission paid on sale. He again analysed the documents seized as per Annexure-A/5 from office at Rohini, Delhi and concluded that this is a device to reduce the tax liability of the company. As per the assessee, the page No. 32 of Annexure-A/5 was a rough paper and rough projection of profitability of the company before commissions. The books of account were not finalized as financial year had not been ended. Therefore, it was a projection of the financial result. The submission of assessee is reproduced as under:- The said page 32 of annexure A-5 is a rough paper as pointed out by your goodself for and up to 29/03/2008. The said rough projection of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that as on 29/03/2008, it was trying to make projection for next year is also found non-tenable since normally at the end of the year an assessee carries out accounts compilation exercises and not projection for the next year, which is normally taken after the more important job of compilation of accounts is over. Had it been so the assessee would not have adopted the figure of turnover at ₹ 194.00 cr. and Excise duly at ₹ 26.41 cr., which are nothing but more or less the same as per P L account as on 31/3/2008 wherein the figure of turnover and excise duty are found to be reported at ₹ 196.05 cr. and ₹ 26.71 cr. respectively. As such, the only plausible explanation can be that the same was done by the assessee to arrive at the desired profits after manipulation of the figures of commission. Thus, the assessee s plea that the same was a projection for next year is not true. Further, that the paper seized at s.no. 32 of Annexure-A-5 seized from C-9/25, Sector-8, Rohini, New Delhi in itself is an indicator, rather it is a speaking evidence that the commission payments have been devised by the assessee at the fag end of the year only to reduce its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly and exclusively for the business purposes. 5. For A.Y. 2005-06:- The learned Assessing Officer asked to file required details in respect of the commission paid on 9 points, which were identical to other years. During the year, the assessee had claimed commission paid on sales at ₹ 22,11,799, which was bifurcated this total commission paid on consignment sale at ₹ 1844/- and commission paid on CTD sales at ₹ 22,09,955/-. The bills for commission on sale was raised on 31/3/2005. The learned Assessing Officer issued noticed U/s 133(6) of the Act to verify the genuineness of the expenditure claimed by the assessee to 19 brokers namely Shri Naresh Garg, Shri Anil Kumar Mahajan, Shri Vikrant Mahajan, Shri Rajeev Kumar HUF, Shri Rajeev Kumar Garg, Shri Maman Chand Goyal, Smt. Shashi Bala Garg, Shri Dharampal Khera, Shri Arun Kansal, Shri Manish Gautam, Smt. Sandhya Gupta, Smt. Shimla Agarwal, shri Padam Kumar Agarwal, Smt. Usha Agarwal, Shri Nand Lal Gupta HUF, Shri Vivek Agarwal HUF, Smt. Sunita Arora, Shri Shailendra Kumar Arora Sons HUF, Smt. Manju Goel on 10 points, which was identical to the other years. Only Smt. Manju Goyal, Shri Nand Lal Gupta HUF, Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Smt. Neelam Khurana, Shri Naresh Kumar Garg, Shri Anil Kumar Mahajan, Shri Maman Chand Goyal, Shri Pankaj Garg, Smt. Shashi Bala Garg, Shri Gulshan Gupta and Shri Anil Sharda and asked to reply on 10 points, which were identical to other years. Out of notice issued to 10 brokers U/s 133(6) of the Act, some had replied. The other findings are identical to the other years also. He further observed that out of so claimed brokers, five brokers namely Shri Maman Chand Goyal, Shri Naresh Kumar Garg, Shri Pankaj Garg, Smt. Shashi Bala Garg and Smt. Shashi Goyal are residing at a common address i.e. A-2, Janhit Apartment, Sector-9, Rohini, Delhi and it did not reflect the prudence of the assessee company to appoint 5 brokers in the same locality and that too residing in the same house but rather reflects that the same was nothing but an arrangement between the assessee company and the so claimed brokers. The other findings were similar to other years that commission was credited on the last day of the financial year and no payment had been made during the year under consideration but paid in subsequent year. It is further observed that the commission had been paid to some ladies also, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers U/s 133(6) of the Act, some had replied. The other findings are identical to the other years also. The other findings were similar to other years that commission was credited on the last day of the financial year and no payment had been made during the year under consideration but paid in subsequent year. It is further observed that the commission had been paid to some ladies also, who happened to be the relatives or wives of the brokers, therefore, these ladies appeared to the Assessing Officer to be just name lenders and he found that the commission paid on sale or purchase made was a make believe arrangement between the assessee and so claimed brokers to siphon off the profit to evade tax. He relied upon the same case laws in the year under consideration and held that the commission paid on sale was not incurred wholly and exclusively for the business purposes. Thus, he made addition of ₹ 1,11,65,217/- in the income of the assessee. 7.1 Commission paid on purchase:- the learned Assessing Officer observed that on going through the details of P L, balance sheet and other annexure enclosed with the return of income, no commission on purchases was evident whereas co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases at ₹ 3,35,85,302/- were not incurred wholly and exclusively for the business purposes. Thus, he made addition. 8. For A.Y. 2008-09:- The learned Assessing Officer raised query on commission payment on 4 points, which was replied by the assessee. During the year, the assessee had claimed commission paid on sales at ₹ 1,16,86,473/-, which had been bifurcated under two heads i.e. commission paid on consignment sale at ₹ 5,242/- and commission paid on CTD sales to brokers at ₹ 1,16,81,231/-. The learned Assessing Officer issued notice U/s 133(6) of the Act to verify the genuineness of the expenditure claimed by the assessee to some brokers and asked to reply on 10 points, which were identical to other years. Out of notice issued to some brokers U/s 133(6) of the Act, some had replied. The other findings are identical to the other years also. The other findings were similar to other years that commission was credited on the last day of the financial year and no payment had been made during the year under consideration but paid in subsequent year. It is further observed that the commission had been paid to some ladies also, who happened to be the relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ladies also, who happened to be the relatives or wives of the brokers, therefore, these ladies appeared to the Assessing Officer to be just name lenders and he found that the commission paid on sale or purchase made was a make believe arrangement between the assessee and so claimed brokers to siphon off the profit to evade tax. He relied upon the same case laws in the year under consideration and held that the commission paid on sale was not incurred wholly and exclusively for the business purposes. Thus, he made addition of ₹ 1,50,55,500/- in the income of the assessee. 10. Being aggrieved by the orders of the Assessing Officer, the assessee carried the matter before the learned CIT(A), who had decided the appeals for A.Y. 2007-08, 2008-09 and 2009-10 in a consolidated order dated 15/3/2012, for A.Ys. 2004-05, 2005-06 and 2006-07, in a consolidated order dated 16/3/2012 and for A.Y. 2003-04 vide order dated 22/1/2014. The learned CIT(A) in A.Y. 2003-04 had considered the assessee s reply alongwith list of brokers submitted before him. The assessee submitted that the brokers were working with it regularly, payments made to the brokers through account payee cheques. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments of ₹ 5,98,323/- are concerned, the AR of the appellant has agreed that the same may be disallowed. Thus, the balance addition of ₹ 5,98,323/- made by the A.O. on account of commission payments is confirmed. The learned CIT(A) rectified the remarks made in order dated 22/1/2014 in A.Y. 2003-04 that the appellant has agreed to disallow the same vide his rectification order dated 05/6/2014 and rectified as under:- the AR of the appellant has stated that these payments pertain to the brokers, whose payments were disallowed in the earlier years, in place of the AR of the appellant has agreed that the same may be disallowed. 10.1 For A.Ys. 2004-05 to 2006-07, the learned CIT(A) observed that: 3.1 This issue came up for consideration in the appeal for A.Y. 2007-08 to A.Y. 2009-10 in appeal No. 713 to 715/10-11, wherein vide common appeal order dated 15/03/2012, after considering the observations/arguments of both the sides i.e. A.O./A.R. and discussing the matter in detail, I had held that the brokers which have been continuing from earlier years out of the 44 and 14 brokers, who had duly executed the agreement on stamp paper in A.Y. 2009-10 and in A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Broker Name Commission Payment during the year Page No. of P.B. A.Y. 1. Anil Sharda 99,982.00 99,982.00 25 2009-10 2 Gulshan Gupta 99,989.00 99,989.00 30 2009-10 3. Maman Chand Goel 99,998.00 99,998.00 35 2009-10 4. Naresh Kumar Garg 99,872.00 99,872.00 40 2009-10 5. Pankaj Garg 69,988.00 69,988.00 49 2009-10 6. Rajendra Kumar Arora Sons 74,962.00 74,962.00 2009-10 7. Sameer Kataria (HUF) 59,918.00 59,918.00 2008-09 8. Shashi Bala Garg 49,985.00 49,985.00 54 2009-10 9. Shimla Agarwal 74,316.00 74,136.00 10. Sumit Goel 49,986.00 49.986.00 2009-10 11. Sumit Kataria (HUF) 49,993.00 49,993.00 2009-10 12. Vinod Kataria Sons (HUF) 74,774.00 74,774.00 2009-10 13. Shashi Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le being made through brokers so taken by the A.R. may be true with reference to sales of the iron steel products but this argument is not valid in respect of purchase of M.S. Ingot etc. Accordingly, entire addition of ₹ 47,92,383/- is hereby confirmed in A.Y 2004-05. 4.2 As regards A.Y 2005-06 is concerned, in the assessment proceedings, the A.R. filed details in respect of 11 persons to whom commission payment on purchases totaling to ₹ 10,16,407/- has been paid. The A.R. filed the details in respect of remaining 7 brokers in the appellate proceedings, wherein total commission payment is ₹ 18,97,248/-. On perusal of the details, it was noticed by the undersigned that major payment of ₹ 10,60,201- is to a concern namely M/s Sand Chem (I) Ltd. having address of Punjabi Bagh, New Delhi. The appellant has failed to file any evidence so as to prove that this concern has any experience in dealing with iron and steel material and has actually provided services to the appellant by way of arranging purchases of ingots except the copy of bill and confirmation from the party. In absence of any direct evidence about the services rendered, even no evidence has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Assessing Officer had disbelieved commission paid to all the parties in spite of the fact that some of them have replied directly to the Assessing Officer positively in response to notice U/s 133(6) of the Act sent by the Assessing Officer. The Assessing Officer also held that he found commission on sale not genuine on the ground that some of the brokers were having common addresses and belonged to the same family. According to him, it was an arrangement between the assessee and the brokers. The learned CIT(A) reiterated the arguments given by the Assessing Officer in the assessment order on page 22 for which the assessee has submitted reply before him that Smt. Shashi Goyal and Shri Sumit Goyal are respectively wife and son of Mumman Goyal. Shri Naresh Garg, Shri Pankaj Garg and Smt. Shashibala Garg are the relative of Shri Mumman Goyal and are residing nearby. Accordingly, the cheques of commission related to these five persons were also sent/given to Shri Mummon Goyal alongwith his own cheque and as all these cheques were account payee cheques, there was no question of any misappropriation or amount not reaching in correct hand. It is not unusual to handover the cheque of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the various defects which are still not met as discussed above. It is inferred that in some of the cases, the appellant has paid commission genuinely for the services rendered by the brokers and in some other cases it is just an afterthought arrangement. For this purpose, the undersigned segregated these brokers where the appellant has made proper agreement with the broker duly on stamp paper at the start of the financial year and other cases, wherein so called agreement was on just letterhead of the appellant company and thus cannot be said to have been positively entered into on the contended date mentioned on the letterhead and therefore are thus broadly part of the arrangement. Such lists of broker are 44 in number, wherein the agreement is duly on the stamp paper in A.Y. 2009-10. As regards some ladies included in this list, it is a known fact that male member in the family helps or rather works for an on behalf of lady member and this cannot be the ground for treating the commission payment as bogus. It is further noticed by the undersigned that out of total commission payment of ₹ 1,12,53,667/- to these 44 brokers, the amount as much as ₹ 1,12,44,748/- h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g team. Accordingly, a balanced approached has to be adopted while confirming disallowance considering the overall facts and circumstances for the earlier years also. It will be reasonable to infer that these 44 parties with whom the appellant has got duly executed agreement on stamp paper at the starting of the year itself in A.Y. 2009-10 have been genuinely working as sales broker even in the earlier years. It is seen that apart from 15 brokers with whom agreement to sale duly executed on stamp paper in the starting of F.Y. 2007- 08, there are 10 brokers in F.Y. 2007-08 out of the list of 44 brokers of F.Y. 2008-09 (services of which have been treated for business purpose). The total commission debited in F.Y. 2007-08 relevant to A.Y. 2008-09 in the name of these 25 brokers is ₹ 55,44,696/- (details of these are mentioned below), which can be considered genuine and for business purpose. It was further noticed that almost all the payments to all these 25 brokers have been made during the year itself, as sales through these brokers during the year are broadly known not at the yearend but earlier, though final bills are submitted at year end. Accordingly, addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to prove its claim. Accordingly, in absence of any proof so submitted from the side of the appellant and from the available details like the bill of Shri Ruchiraraj, it is seen that he is just consultants and contractors , it signifies that he does not have any expertise or experience in dealing in the purchase of ingot. Moreover, it is also noticed that during the whole year he has just issued 4 or may be one or two more invoices, as is evident from the fact that invoice dated 31/3/2008 (last day of financial year) issued to the appellant is having invoice No. 4. It is also not known as to how he was having business relationship with as many as 33 suppliers of ingots, which are mainly in the iron-steel producing belts geographically far away from his normal place of business. Accordingly, the payment shown to be made to Shri Ruchiraraj amounting to R. 1,39,94,122/- in the form of commission is held to be not at all for the business purpose of the appellant company and is rather an accommodation entry in order to reduce profit. 5.1 Similar to the position in the case of M/s Sidhbali Paper Mills Ltd. in short, the appellant has failed to file any evidence to support that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Kohinoor Steel Pvt. Ltd. amounting to ₹ 56,58,723/- was through the broker M/s Maruti Paper Ltd.. It will not be proper to sustain the addition of commission amount paid on these purchases totaling to ₹ 36,25,819/- for which the parties have directly confirmed to the A.O. and accordingly addition to this extent is deleted. However, addition of balance commission so shown to be paid to M/s Maruti Paper Ltd. amounting to ₹ 29,66,626/- is upheld in view of the facts and circumstances mentioned hereinabove and also considering that one supplier has denied involvement of any broker from the side of the appellant company. 5.3 Now coming to M/s Pashupati Casting Ltd., it is seen that A.R. has filed balance sheet and P L account of M/s Pashupati Casting Ltd. during the appellant proceedings, wherein as per Schedule-2 of the balance sheet, the said concern has shown, commission received amounting to ₹ 2,60,50,428/-, whereas commission paid by appellant is ₹ 1,29,92,844/-, which reflects that the said concern is doing commission work for other parties also. Moreover, this concern has also shown commission received in the preceding year amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers namely M/s T T Metals Pvt. Ltd. and M/s Surya Alloys Inds. Ltd. have directly confirmed to the A.O.in response to notice U/s 133(6). However, on perusal of these letters by the undersigned, it was noticed that only M/s T T Metals Pvt. Ltd. has mentioned that they have dealt through Pankaj Rajwanshi (PB Page 138) the Director M/s Balaji Cellulose Ltd.. But in the case of M/s Surya Alloys Inds. Ltd., the letter does not indicate that the aforesaid parties have dealing with M/s Ashiana Ispat Ltd. through broker of the appellant company. In view of these facts only commission paid on purchases from M/s T T Metals Pvt. Ltd. amounting to ₹ 54,300/- can at best be allowed. However, addition of the remaining commission shown to be paid M/s Balaji Cellulose Product Ltd. amounting to ₹ 1,20,98,806/- is sustained. 6.1 Facts related to Bhrigu Alloys Steel Pvt. Ltd. are more or less similar to M/s Pashupati Casting Ltd. as discussed in A.Y. 2008-09 inasmuch as that dealing in iron and steel is part of the incidental or ancillary object of memorandum and article of association of the company. The commission received has also been shown in Schedule 12 of P L account. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in A.Y. 2007-08 and fully disallowed by the A.O., addition of ₹ 2,21,61,513/- is hereby confirmed and balance addition of ₹ 1,14,23,789/- is hereby deleted. 12. Now the assessee as well as the Revenue are in appeals before us. 13. The learned A.R. for the assessee submitted that in the assessments framed after search additions in respect of commission payments on sales and purchases by the appellant were made by the Assessing Officer. The assessee challenged the addition before the learned CIT(A), who had allowed the appeal partly in favour of the assessee. Before the learned CIT(A), the appellant had filed a detailed paper book for each of the assessment year. Copies of which has been separately filed before the Hon ble Bench. Further additional evidences were filed before the learned CIT(A), copy of which has been also filed separately. The learned CIT(A) called for a remand report from the learned Assessing Officer, copies of which has also separately filed. The appellant has filed a rejoinder to the remand report before the learned CIT(A), copy of which is also filed separately. The learned CIT(A) passed common order in respect of assessment years 2007-08 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allegation made by the learned Assessing Officer that the recipients were having common addresses. It is contended by the learned AR that it is irrelevant factor that the brokers are having common addresses when it is established that they are separate assessees having their own separate business. Various discrepancies were pointed out by the learned Assessing Officer in the assessment orders, which has been narrated in the earlier paras of this order, has been addressed by the learned AR. The learned AR submitted his argument on the basis of learned CIT(A) s confirmation. The sales and purchases in the ferrous metal market are affected through the brokers and this is a common practice. The brokers act by word of mouth and communicate through telephone. It is not a common practice to maintain business order forms in this trade. It is not unusual that a person acts as a courier for other person in the nearby area. The cheques have been received by the persons in whose names they were issued and this fact is not in dispute meaning thereby that the payment has been made to the respective brokers and not to the courier. The learned CIT(A) has accepted that most of the payments were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the brokers from various parties accross the country is similar to commission paid on sales., which has been facilitated through the brokers, paid commission on purchases. These are the people who inform the appellant company about the quality of the raw material and the price range and its availability. For these services, they charged commission. It is through the verbal guarantee of the brokers that the raw material is available from unknown parties to the appellant company on credit. If the raw material is not purchased through brokers the appellant company would have had to have its own market survey and it would become very difficult for the appellant company to obtain goods on credit from unknown parties. The appellant company engaged brokers for the purchase made from outside state of Rajasthan. From within the state the purchases are made directly from the parties. The learned AR further submitted that the purchases made by the company was more expensive than the purchase made through the brokers on the basis of the facts and figures of the purchases. As far as commission paid to Ruchiraraj, the learned CIT(A) held that he is basically consultant and contractor and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.3 Similarly, the assessee had paid commission on purchased at ₹ 65,92,445/- to M/s Maruti Paper Ltd.. The learned CIT(A) had given the similar findings to M/s Sidhbhai Paper Ltd.. Learned CIT(A) further held that in this case three of the suppliers namely VSP Udyog Pvt. Ltd, M/s Yash Alloys Pvt. Ltd. and M/s Kohinoor Steel Pvt. Ltd. had confirmed the supply through its Director, therefore, he deleted the addition on account of commission paid on purchase at ₹ 36,25,819/- and remaining amount of ₹ 29,66,626/- was confirmed. The learned AR submitted that the learned CIT(A) assumed same party genuine broker but not genuine in other cases. The learned CIT(A) has not neglected the evidence submitted before him. 13.4 For A.Y. 2007-08 in case of brokerage paid to Balaji Cellulose Product Ltd. at ₹ 1,21,53,106/-, it is submitted that the assessee purchased the raw material from M/s T T Metals Pvt. Ltd. through Balaji Cellulose Product Ltd., for which the appellant had paid commission, which has been confirmed by the recipient on which the recipient had charged service tax, which shows that it is a genuine party. In case of Baba Alloys Pvt. Ltd. for commission p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging purchases of ingots except copy of bill and confirmation from party. It is submitted by the AR that bill of the supplier itself showed that these purchases were made through broker namely M/s Sand Chem (I) Ltd., which has been confirmed separately. The other allegations made by the learned CIT(A) are not relevant to confirm the addition. As already argued, in this line of business only knowledge of market, knowledge of demand and supply, quality and availability are required to arrange the goods. The learned CIT(A) similarly confirmed the remaining commission on purchases at ₹ 18,53,454/- on the basis of same argument as given in case of M/s Sand Chem (I) Ltd.. Therefore, he requested that the assessee had provided all the evidences directly or indirectly before the Assessing Officer or before the learned CIT(A). 13.7 For A.Y. 2006-07, the assessee had claimed commission on purchase at ₹ 9,27,758/-. It is submitted that the learned CIT(A) had given identical findings with A.Y. 2004-05 and 2005-06 i.e. the appellant has failed to furnish that these persons have provided services for purchasing the M.S. Ingots and circumstantial evidence is against the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any brokers in its transaction. No record had been maintained by the brokers in form of booking of order and supply of goods even sales/purchases bills does not indicate any middle man to materialize the transaction and paid them to as a brokerage. 15. We have heard the rival contentions of both the parties and perused the material on record. The assessee has filed confirmation either before the Assessing Officer or before the CIT(A). The learned CIT(A) had called remand report on additional evidence furnished before him. Besides confirmation, the appellant also submitted PAN number of the recipients and copy of return and also deducted the TDS on it. Service tax charged on the commission bill by the recipients. The payments were made to these brokers through banking channels. It is true that the appellant as well as suppliers has not mentioned in bill the name of the brokers through whom sales or purchases have been made. It is a fact that in the line of business, most goods is being sold through brokers, on which, commission is paid. The purchase is also made through brokers, therefore, it requires to paid commission to middle man who make available of goods from the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Vikrant Mahajan. A.Y. 2007-08 A.Y. 2008-09 Party s name Party s name 1. Sh. Jagdish Manchand 1. Agarwal Steel Corp. 2. Ajay Traders 2. Sh. Anil Kumar 3. Sh. Gulshan Gupta 3. Sh. Anil Kishara 4. Sh. Dharmpal Khera 4. Sh. Ankit Garg 5. M/s Garg Steel 5. Sh.Ashoka Kr.Dang Sons 6. Sh. Manchand Gupta 6. Sh. Deepak Mittal 7. Sh. Sanjay Gupta 7. Sh. Dharampal Khera 8. Sh. Vikrant Mahajan 8. Ganpati Steel Corp. 9. Garg Steel 10. Sh. Gulshan Gupta 11. Smt. Kirtika Jain 12. Sh. Manchand Goyal 13. Sh. Maman Jain 14. Sh. Naresh Kr. Garg 15. Sh. Neeraj Jain 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission paid by the appellant and their main object of memorandum of article as well as ancillary object have not been allowed to deal in such items. The appellant s arguments that for commission business no specific object is to be provided in the memorandum of articles but all the companies are allowed under the companies law to do miscellaneous business either in form of commission or any other income. Further commission paid to Ruchiraraj is given for supply of goods, which has been arranged by the brokers, is no bar under the law that a contractor or consultant cannot supply the goods on commission basis. It has been claimed by the appellant that Shri Ruchiraraj has information about supply and demand of the material. The appellant had made agreement with him. The assessee has filed copy of bill and ledger and payments have been made through account payee cheques to him (page No. 58 of paper book of A.Y. 2008-09), in which, the recipient charged service tax, which proves that he has rendered service for the appellant. It is further found that in the assessee s group, search seizure operation had carried out by the department but no incriminating documents found on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the records and registers in respect of the stock transactions which had been accepted by Shri Anil Singh in reply to question No.1 of his statement recorded U/s 132(4) during the course of search proceedings. Further in reply to question No. 6, Shri Anil Singh had submitted the stock position as per books of account as under: (i) Ingot/Billets :- 3576.755 MT (ii) CTD/TMT Bar :- 1242.100 MT (iii) Waster/scrap :- 931.600 MT The above stock position was also agreed to by the Directors of the company namely Sh. Puneet Jain and Sh. Sanjay Jain by putting their signatures on the stock position as stated by their employee Sh. Anil Singh. The position as per books of account was also confirmed by Sh. Puneet Jain in reply to question No. 19 of his statement recorded U/s 132(4) of the Act. Further, in reply to question No. 26 of his statement recorded U/s 132(4), Sh. Puneet Jain, Director of the company had expressed his inability to comment on the difference in stock i.e. difference in stock as per books of account and stock found physically, stating that the same shall be replied later on. The Assessing Officer gave reasonable opportunity of being heard on this issue during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the assessee till the date 16/12/2010 i.e. the date when the assessee has come up with this reply although the question in issue was put to it during the search proceedings and further vide notices u/s 142(1) dated 25/08/2010, 16/11/2010 and note sheet entry dated 07/12/2010 respectively. (iii) It is surprising to notice that what prevented the assessee during the period 17/09/2008 to 15/12/2010 i.e. a period of about 28 long months to come up with the objection which is being raised now. In view of the fact that no such objection was raised during the course of search proceedings nor even afterwards till passing of 28 months, the objection now raised is not acceptable. (iv) Further, during the course of search proceedings, the stock inventory was prepared in the presence of two independent witnesses who were provided by the assessee and who have confirmed the same by putting their signatures on the inventory and the Directors of the company namely Sh. Puneet Jain and Sh. Sanjay Jain have also accepted the inventory of stock by putting in their signatures on the lists prepared during the course of search. Normally, in income tax search operations the witnesses are the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... physical inventory of M.s. Ingot and other steel item. It is further noticed by the undersigned that the size of M.S. Ingot has been inventorised and number of pieces has also been counted. The M.S. Ingot has got a fixed density and accordingly and after knowing the volume, the weight may be very well arrived by the concerned person dealing in this field. Obviously the staff and directions Sh. Puneet Jain and Sh. Sanjay Jain were not only present but the weight of the various M.S. Ingots were taken at the instance and advice of these experienced persons in this field. Accordingly, the claim of the appellant that weight has been taken on estimated basis is totally lacking merit and is rejected. 8.1 Without prejudice to the above said finding, it may be further added that in any case for weighment of about 3572-3917 MT of M.S. Ingot 238 to 264 trucks having average capacity of 15 tonne would have been required. It transpired that the appellant company has only one weighing machine. Accordingly, this exercise of loading and unloading of M.S. Ingot in about 260 trucks for weighment purpose would have continued for day together or even would have taken a week or more thus disrupting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the weight per piece of 4 x4 ingot shown as per the inventory gives calculation of average weight per inch length at 2 kg, whereas item at sr. no. 19 to 21 though having same size, i.e. 4.5 x3.5 but average weight per inch of length is taken at 1.92 or 2.01 or 2.18. I have considered this argument. Firstly, it is very much clear that weight per piece of 4 x4 inch Ingot has been taken consistently at 2kg per inch length and thus there is no mistake or discrepancy in these items. It was made clear to the A.R. that weight per inch length of 4.5 x3.5 size Ingot would certainly be slightly different as the area of 4 x4 comes to 16 sq. inch, whereas area of 4.5 x3.5 comes to 15.75 sq. inch. Accordingly, this argument of the appellant is rejected having no merit. During appellate proceedings, the A.R. tried to further argue and clarify that he is referring to the difference of per inch length weight taken within the ingot of 4.5 x3.5 size and thus the method so taken is not scientific. Even considering this new argument of the A.R., if we take all the three items together i.e. 57 inch + 52 inch + 54inch= 163 and simultaneously their weight per piece which is taken as 110+105+96=311 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eight per inch. The differences of excess stock as arrived on estimate basis and not on actual weighment. The discrepancies crept in the inventory due to method of stock taking adopted by the search party in the case of finished stock and raw material. In product, there is neither standard size nor any standard weight per unit of length. The appellant company procured raw material from non-primary sources i.e. material made out of scrap and not from virgin metal and therefore the same is not as per the standards. The method of stock taken adopted by the search party was eye estimation counting of bundles in rows and then multiplying the same with the standard weight of a bundle in scissor of bundles. Even physical counting done by the authorized officer was not correct as it was not possible to count the stock, which was lying in rows within few hours. The ingots/billets/scrap/sponge iron, the same were heavy and could not be easily handled manually without the help of a crane. Same error was made in counting of saria/TMT bars, which are no uniform weight per bundle of TMT and per piece of Ingot/Billets. The assessee has been maintained stock register on the basis of weight only. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement recorded U/s 132(4) of the Act of Shri Anil Singh, page 22 of paper book, in reply to question No. 6, showed that he had computed opening balance as on 17/09/2008 of rolling division, furnace division after adjustment the certain bill, finally stock position was admitted as on 18/09/2008 as under:- (a) (i) Ingots/Billets (Rolling) 3404.635 M.T. (ii) Ingots (Furnace) 172.120 M.T. Total 3576.155 M.T. (b) (i) CTD/TMT Bar 9242.100 M.T. It has been certified by Shri Anil Singh in presence of the witnesses that stock position prepared on the basis of book and is correct. She further drawn our attention on page No. 46 of paper book in question No. 26 wherein the authorized officer asked to clarify the discrepancies found between the stock inventory prepared and stock shown in the books of account, which has not been replied by Shri Puneet Jain on 18/09/2008 during the course of search proceeding. The learned AR raised a technical reason before the learned Assessing Officer that the stock was taken on the basis of estimation by counting of the number of M.S. Ingots/bundles/bunches/rows by multiplying it, which is a scientific method for verifying the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of recording of statement U/s 132(4) of the Act and stated that he would explain the difference later on. It is also undisputed that authorised officer has taken closing stock on the basis of counting of M.S. Ingots/TMT Saria/CTD on the basis of rows and pieces. The size of the ingots also was not same of every piece. The assessee purchased the raw material from the primary source i.e. material made out of scrap and not from the virgin metal and therefore, the standard of M.S. ingots is not same in form of size and volume. The method of the stock taking adopted by the search party was eye estimation counting bundles in rows and then multiplying the same with the standard weight of a bundle in scissors of bundles. These items of stock are heavy in weight and it can be displaced with the help of crane. The total stock found during the course of search was also in volume and in size, the time taken by the authorized officer for verifying the closing stock was very short as search was concluded on 18/09/2008 i.e. second day of search. During the course of search, no incriminating documents regarding purchase of raw material and sales of goods outside the book was found ..... X X X X Extracts X X X X X X X X Extracts X X X X
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