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D.S. AGENCIES AND ASSOCIATES & USHA DISTRIBUTORS Versus ADDITIONAL COMMISSIONER OF INCOME-TAX

Addition as undisclosed income in respect of commission expenses treated as non-genuine - Held that:- Assessing Officer has made addition purely on the basis of statement made during the course of survey under section 133A, which was later on retracted by the assessee, therefore, we are of the considered view that any addition made on the basis of these statements is without any basis and deserves to be deleted as there is no corroborative materials on record. It seems that addition has been mad .....

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section 40(a)(ia) - appellant has not deducted tax at source from such payments - Held that:- The transportation expenses on which no TDS has been stated to be deductible and also the transportation charges stands paid before March 31, 2006. However, the issue is being restored back to the file of the Assessing Officer to verify the claim of the assessee whether the amount was paid or payable at the end of the year and if the amount is found to be paid then it has to be allowed in the light of .....

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Accountant Member).-These two appeals by two different assessees are directed against the orders of the Commissioner of Income-tax (Appeals) (hereinafter referred to as (the CIT(A)) of even dated December 28, 2010 for the assessment year 2006-07. Since the main issue involved in both these appeals is common, therefore, the same are clubbed together, heard together and disposed of by this consolidated order for the sake of brevity and convenience. 2. We first take up the appeal in I. T. A. No. 34 .....

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me of/in connection with the survey under section 133A, though validly retracted subsequently, without any cogent/corroborating material to support and also ignoring/ not appreciating in right perspective the appellant's submissions as well as the evidence produced. The appellant prays that since the said commission expenses are genuine and are incurred wholly and exclusively for the purposes of the appellant's business the same be allowed as business expenditure under section 37(1) and .....

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nt prays that since ad hoc disallowance is impermissible in law and since all the repairs and maintenance expenses are genuine and are supported by proper vouchers/evidence, the above ad hoc disallowance of ₹ 20,000 be deleted. 3. Ad hoc disallowance out of travelling expenses-Rs. 25,000 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not disposing of the concerned ground of appeal and thereby erred in upholding the ar .....

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earned Commissioner of Income-tax (Appeals) erred in not disposing of the concerned ground of appeal and thereby erred in upholding the disallowance of ₹ 13,88,405 under section 40(a)(ia) in respect of trans portation expenses on the ground that the appellant has not deducted tax at source from such payments. The appellant prays that since tax was either not deductible or was properly deducted and paid into the Government treasury the provisions of section 40(a) are not attracted to the co .....

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expenses. The appellant prays that since ad hoc disallowance is impermissible in law and since all the transportation and octroi expenses are genuine and are supported by proper vouchers/evidence, the above ad hoc disallowance of ₹ 1,00,000 be deleted. 6. Deduction under section 80G On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in not directing the Assessing Officer to grant deduction under section 80G in respect of the .....

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pany was M/s. Litaka Pharmaceuticals Ltd. A survey under section 133A was conducted on October 30, 2006 on M/s. Litaka Pharmaceuticals Ltd. and its sister-concern M/s. Twilight Mercantile Ltd. at 206, Shiva Industrial Estate, 89, Andheri Kurla Road, Sakinaka, Andheri(E), Mumbai 72 and a statement of Shri Gopal Ramourti, director of the above companies was recorded under section 131 of the Act on the same day which is exhibited at pages 59 to 63 of the paper book No. 1, filed by the assessee. In .....

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on November 28, 2006 whereas no such proceedings were conducted on the head office at Nagpur. Two statements of Shri Kiran Wasudeo Somalwar partner of the assessee was recorded on November 28, 2006 and November 29, 2006 under section 131 of the Income-tax Act, which are exhibited at pages 46 to 58 of the paper book No. 1, filed by the assessee. During the course of survey, the partner of the assessee admitted that during the year under reference commission was paid to M/s. Litaka Pharmaceuticals .....

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o question No. 9 of the said statement Mr. Somalwar replied that the commission paid through account payee cheques were received back in cash. He replied to question No. 10 that commission to Litaka Pharmaceuticals Ltd. was not genuine as the same were book entries. He further stated that commission was paid by cheques, TDS was deducted and deposited. It was also stated that Litaka Pharmaceuticals Ltd. used to take 3 per cent. of the total payment and the balance amount was stated to be returned .....

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January 16, 2007, Shri Vijay Wasudeo Somalwar, another partner of the assessee and its sister concerns retracted the statements by Shri Kiran Somalwar on November 28, 2006 and November 29, 2006 by stating that the survey team of the Department put undue pressure, misguided the partner of the assessee and compelled him to confess the commission to be bogus. Mr. Somalwar was threatened that if the confession in the statement was not made, it shall be followed by raids and searches on all the offi .....

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ce tax was duly paid. 6. The learned Assessing Officer disallowed the commission of ₹ 2,04,84,477 to M/s. Litaka Pharmaceuticals Ltd. on the ground that the same was bogus and non-genuine for which no services were rendered by M/s. Litaka Pharmaceuticals Ltd. He referred to replies of Mr. Kiran Wasudeo Somalwar to various queries put to him during the course of survey in the statement recorded on November 28 and 29, 2006. He also observed that the commission paid by the assessee to Litaka .....

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er of Income- tax (Appeals). 8. The learned Commissioner of Income-tax (Appeals) observed that the assessee, who was engaged in supplying and distribution of pharmaceuticals products since 1987, has entered into an agreement with M/s. Litaka Pharmaceuticals Ltd. only in the financial year 2005-06 and no such commission was paid to the said company either prior or subsequent to the financial year 2005-06 and rejected the contention of the assessee qua the liasioning services rendered by personnel .....

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ssed the appeal of the assessee. 9. The learned authorised representative of the assessee submitted before us that the order of the Assessing Officer and the Commissioner of Income-tax (Appeals) are bad in law and perverse on the ground that the disallowance solely based upon the two statements recorded during the course of survey under section 133A. Learned counsel further submitted that though the partner of the assessee admitted in his statements that the commission to M/s. Litaka Pharmaceuti .....

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e course of assessment proceedings on record. Learned counsel for the assessee drew our attention towards memorandum of understanding exhibited at pages 67 and 68, debits notes with details of sales by Litaka Pharmaceuticals exhibited at pages 71 to 75, bank statements evidencing the payments exhibited at pages 76 to 93, receipts for payment received pages 94 to 99 and other documents such TDS certificates, challans for deposit of TDS, service tax receipts, etc., pages 100 to 103 of the paper bo .....

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30 TTJ (Mum) 159; (iv) B. Ramakrishnaiah v. ITO [2010] 39 SOT 379 (Hyd) ; (v) Asst. CIT v. Smt. Usha Rani Talla [2010] 6 ITR (Trib) 37 (Delhi) ; and (vi) Unitex Products Ltd. v. ITO [2008] 22 SOT 429 (Mumbai). 10. The learned authorised representative further argued that the survey was conducted on the assessee on November 28, 2006 and November 29, 2006 after a survey on M/s. Litaka Pharmaceuticals Ltd. on October 30, 2006. The learned authorised representative further drew out attention to the .....

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ntended that a general statement without taking the name of the assessee cannot be made basis for disallowance by placing reliance upon the following judicial pronouncements : (i) Shri Kirti Chandulal Oswal v. Deputy CIT [2009] 317 ITR (AT) 285 (Pune) ; (ii) CIT v. Uttamchand Jain [2010] 320 ITR 554 (Bom) ; (iii) CIT v. M. K. Brothers [1987] 163 ITR 249 (Guj) ; (iv) ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) ; (v) CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC) ; and (vi) S. P. A .....

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ssee. Learned counsel for the assessee strongly placed reliance on the following decisions : (a) Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC) ; (b) CIT v. Land Development Corporation [2009] 316 ITR 328 (Karn) ; (c) CIT v. Ashwani Gupta [2010] 322 ITR 396 (Delhi) ; (d) Ashok Lalwani v. ITO [2010] 328 ITR 272 (Delhi) ; and (e) CIT v. Sanjeev Kumar Jain [2009] 310 ITR 178 (P&H). 12. The learned authorised representative also argued that no addition/ disallowance could be made on the ba .....

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les by Litaka Pharmaceuticals, bank statements evidencing the payments, receipts for payment received, TDS certificates, challans for deposit of TDS, service tax receipts and correlation of commission paid which increased turnover, etc. The learned authorised representative relied on the following judgments : (i) CIT v. Jamnadevi Agrawal [2010] 328 ITR 656 (Bom) ; (ii) CIT v. Uttamchand Jain [2010] 320 ITR 554 (Bom) ; and (iii) Babulal C. Borana v. Third ITO [2006] 282 ITR 251 (Bom). 13. The lea .....

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(Trib) 219 (Delhi), Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), CIT v. Neo Poly Pack P. Ltd. [2000] 245 ITR 492 (Delhi) and others. 14. He also referred to the Central Board of Direct Taxes Instruction F. No. 286/2/2003/IT-(Inv.) 3, dated March 10, 2003 which provided that no surrender or addition should be made during the course of survey which was not based on the concrete evidences. 15. The learned Departmental representative on the other hand, relied upon the orders of the authorities .....

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e statement recorded on November 28, 2006. In reply to question No. 8, the partner of the assessee replied that the commission charges paid to M/s. Litaka Pharmaceuticals Ltd. were not genuine and no services were rendered by the said company and these were only book entries. In the second statement recorded on November 29, 2006, in reply to question No. 2, the partner of the assessee reiterated the commission was bogus and these were only accommodation entries. 17. We note that vide letter date .....

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FK8570A Reference : Survey under section 133A conducted at our branch office at A-40, Kalayaji Morarjee Warehousing Ltd., Prem Estate, Mazgoan, Mumbai-400010 Dear Sir, With reference to the survey conducted and statement recorded of Mr. Kiran Wasudev Somalwar partner of M/s. Kiran Agencies on November 28, 2006 and again recorded on November 29, 2006, I the undersigned partner of Kiran Agencies wish to state as under in view of Mr. Kiran W. Somalwar being out of India as of date and shall be avai .....

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rvey team was in our office till 11.00 p.m. he was fully exhausted. 2. That the official of the survey team carried out extensive verification of our books of account, records, etc., to find out any irregularity, errors or concealment of our income and no discrepancies were found in the books of account nor in the stock. In the course of survey he was co-operating though he was extensively tired and exhausted. 3. The survey team has recorded his statement again on November 29, 2006 at the Income .....

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n November 28, 2006 and again on November 29, 2006. He was not at all in a proper state of mind due to 11 Income-tax executives in our office threatening him of dire consequences like raid and search at our Nagpur office and residence. Our mother who is 82 years old is diabetic and cardiac patient could not have stood of even hearing the news of raid. Hence we wanted to avoid it at all cost and decided to concede to all the demands as the survey team to begin with. 5. That the firms have not pai .....

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is paid through account payee cheques and the same was accepted by the parties. That M/s. Litaka Pharmaceuticals has nowhere mentioned that the commission paid was bogus and nor they have mentioned that the commission paid is not genuine. We have deducted and paid TDS and also paid service tax on the commission paid. 7. Therefore we hereby request that you may send inferences of your investigations to the competent Income-tax authorities for their assessment at Nagpur as we are assessed at Nagp .....

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erred to above meaning thereby that the statements recorded made on November 28, 29, 2006 under section 131 stands withdrawn on the various allegation undue influence, coercion and pressure by the survey team. Now the issue before us for adjudication is whether a statement made during the survey proceedings can solely form the basis of assessment without any cogent and corroborative material being brought on record to strengthen the said statement. The assessee referred to various judicial rulin .....

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IT v. S. Khader Khan Son (supra) has held that in view of the scope and ambit of material collected during the course of survey action under section 133A shall not have any evidentiary value. It could not be said solely on the basis of the statement given by one of the assessee-firm that disclosed income was assessable as lawful income of the assessee. 20. In the case of Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker), the hon'ble Kerala High Court, has gone into the evidentiary value .....

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d officer only under section 132(4) of the Income-tax Act in the course of any search and seizure. Thus, the Income-tax whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been specifically provided whereas section 133A does not empower the Assessing Officer to examine any person on oath. On the other hand, whenever the statement recorded under section 133A of the Income-tax Act, it is not given any evidentiary value obviously for the reason that .....

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the case of Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC), that an admission is an extremely important piece of evidence but it cannot be said that it is a conclusive and it is open to person who made the admission to show that it is incorrect. 23. Vide Central Board of Direct Taxes Circular F. No. 286/2/2003/IT-(Inv.) dated March 10, 2003 it has been made clear that no attempt should be made to obtain confession as to the undisclosed income and the addition should .....

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le Supreme Court and hon'ble courts and in view of the Central Board of Direct Taxes Instruction (supra), section 133A of the Act does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement cannot by itself, be made the basis for addition unless the Assessing Officer has corroborative material in hand to make such addition. We also note the statement of third party has been relied upon against the asse .....

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33A, which was later on retracted by the assessee, therefore, we are of the considered view that any addition made on the basis of these statements is without any basis and deserves to be deleted as there is no corroborative materials on record. It seems that addition has been made merely on the basis of statement/presumptive basis and no corroborative material has been brought on record. Presumption cannot take the shape of evidence, however, strong it may be. It is also noted that the statemen .....

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on expenses under section 40(a)(ia) on the ground that the appellant has not deducted tax at source from such payments. 27. The facts of the case are that the assessee paid transportation charges to the tune of ₹ 1,93,66,966 out of which, no TDS was deducted on ₹ 13,88,405, therefore, the Assessing Officer disallowed the said amount under section 40(a)(ia) of the Income-tax Act. 28. The Commissioner of Income-tax (Appeals) has not decided the issue of disallowance of transportation c .....

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