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2016 (7) TMI 672 - ITAT KOLKATA

2016 (7) TMI 672 - ITAT KOLKATA - TMI - Commission expenditure - deduction u/s.37(1) - whether services were provided or not - Held that:- In the absence of any evidence to show that services were in fact rendered by the persons to whom the Assessee paid commission, all these considerations fade into insignificance. The CIT(A) has proceeded under the assumption that it is the revenue that has to prove that services were in fact not rendered by the person to whom commission was paid. This approac .....

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ol/2012 - Dated:- 11-5-2016 - Shri P. M. Jagtap, AM And Sri N. V. Vasudevan, JM For the Appellant : S.S.Alam, JCIT, Sr. DR For the Respondent : Shri A.K.Upadhyay, Advocate ORDER Per N.V.Vasudevan, JM This is an appeal by the Revenue against the order dated 23.01.2012 of CIT(A)- VIII, Kolkata, relating to AY 2008-09. 2. There is a delay of about 4 days in filing appeal by the revenue. The same has been explained in an affidavit filed before us as owing to inability to trace the assessment records .....

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from Multi System Operator M/S.Wire and Wireless (India) Pvt. Ltd. (WWIL). Multi-System Operator (MSO) means a cable operator who receives a programming service from a broadcaster and re-transmits the same directly or through one or more local cable operators. Broadcaster are persons providing programming services. 4. WWIL apart from acting as MSO is also engaged in the business of producing and or acquiring various televisions programs and motion pictures. WWIL wanted to market and sell the tel .....

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arrange for execution of requirsite agreement with broadcasters and generally liaison and co-ordinate with broadcasters. In consideration of the above services to be rendered by the Assessee, WWIL agreed to pay 50% of the consideration that it receives from broadcasters as consideration that the Assessee might render. 5. The Assesee received a sum of ₹ 2,52,44,351/- as liaison & consultancy charges from WWIL. The Assessee claimed that it outsourced the job of doing liaison by appointin .....

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stainless Ltd ₹ 44,74,961 3. C P Re-rollers Ltd. ₹ 1 ,82,44,954 4. Maxpro Tracon Pvt. Ltd. ₹ 1,25,000 5. Statt investment & services P. Ltd ₹ 2,05,000 TOTAL ₹ 2,35,97,622 6. The assessee claimed the aforesaid payment as deduction while computing its income from business. The Assessee claimed that it had made payments to all these persons by account payee cheques and after duly deducting tax at source. It was further claimed that the aforesaid persons to whom it .....

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nd exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession. Explanation-1 to Sec.37(1) of the Act provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. Th .....

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television programs to television broadcasters. Similarly there was no evidence whatsoever to show that M/S.Vaishnavi Trade Pvt.Ltd., another recipient of commission from the Assessee had such expertise to do liaison work for marketing programs to television broadcasters. 9. The AO issued notices u/s.133(6) of the Act to C.P.Rerollers Ltd., calling upon them to furnish certain information. One of information sought for by the AO was the name and designation of the person who liaised on behalf o .....

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his statement on oath. CPRerollers Ltd., sent a reply to the said summons taking a stand that Mr.Mahendra Maurya had already left their services and that one Mr.Mrityunjoy Dutta, Accountant will appear in response to the summons u/s.131 of the Act. 10. The AO was not satisfied with the aforesaid reply of CPRerollers Ltd., and he therefore addressed another notice u/s.133(6) of the Act, calling for the following details: i.Furnish the name of employee with his PAN who liaise with broadcasters wh .....

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r, whose name you have answered as per question no.2 ;" iv, Liaison work requires travel, more so when the Broadcasters are Based in other cities. Therefore Furnish the details of tours made by your employee to cities outside your place of work in following format v. Place visited Mode of visit (Rail/Air/By car Date of Visit Place of stay with complete address In support of your answer, provide evidence in form of Hotel Bills , Air Ticket or Train Ticket etc. x. Naturally Broadcasters must .....

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OU Hi 'I'ech or WWIL? xvi. How much business did you do in four years before and-after the' relevant IT 2007 -08? Furnish evidence in support of your claim xvii. Furnish evidence in support of your claim :that you have qualification experience and required skill 'for procuring a business which completely different to your traditional business which is steel. 11. CPRerollers Ltd., sent reply to the said letter in which the modus operandi by which programs are selected by broadcast .....

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tainless Ltd. A further notice u/s.133(6) of the Act together with a questionnaire raising the same question set out in the earlier paragraph of this order was sent to this person by the AO. BMA Stainless Ltd., sent a reply dated 15.12.2010 which did not answer the specific query raised by the AO in as much as the person who liaised on behalf of BMA Stainless Ltd., and the parties with whom they concluded business for the Assessee remained unanswered. In response to a summon u/s.131 of the Act, .....

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ice u/s.133(6) of the Act to all the broadcasters who paid consideration to WWIL and 50% of which was given by WWIL as liaison fee to the Assessee. Three broadcasters TV today Network, Zoom Entertainment and Viacom 18 had sent replies in which they maintained that they did not negotiate with any of the three companies referred to above and that one Mr. Suresh Sethia of WWIL was negotiating with them. 15. The AO disallowed the claim of the Assessee for deduction of a sum of ₹ 2,35,97,622/- .....

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was "Name of the employee and his designation in sour company who liaison on behalf of, you for HTVCPL". -letter of assessee [Annex VII] (ii) When summon u/s131 was served on BMA, it did not appear but submitted a letter dt 09/12/22010 in which states: In this connection, we would further like to inform you that the persons who has dealt this matter has already left .out organization [ Annex III] So, a company claiming' to liaison service failed even name its employee who helped i .....

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d on assessee; and Mr. Mahendra Maurya was called for examination under oath, a letter dt. 11/12/2010 was submitted on13/12/2010 which says in last para asunder: "In this connection we would have by inform you that the persons who has worked in this matter has already left our company. So, in this case also, similar to BMA steel, persons responsible for liaison job has left the company [Annex II] Is it coincidence that both the persons were with them only three-months back i.e. in August wh .....

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nse of ₹ 2,35,97,622 debited to P & L account under the head "Liaising & Consultancy Charges. 16. Aggrieved by the order of the AO, the Assessee preferred appeal before CIT(A). No additional evidence whatsoever was produced by the Assessee before the CIT(A). Based on material already available on record submissions were made by the Assessee that the expenditure in question ought not to have been disallowed by the AO. The CIT(A) agreed with the contention of the Assessee that t .....

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merely he opined that based on his judgment the liaison Job has been done by appellant himself Whereas, it was stated to him that the appellant has no marketing set up, proper Manpower strength or net work to do the job. The appellant due to its connection with WWIL as Cable Operator, had obtained the work. However due to its lack of marketing strength and adequate set up off loaded the jobs to assigns. (II) The appellant had appointed sub agents or assigns, namely BMA Stainless Ltd, C.P.Re-roll .....

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letters filed by the parties. Despite of the fact, the appellant sought the cooperation of such payee to file their reply and supporting documents. (IV)The AO drew the conclusion wrong or misconceived reasoning with properly appreciating the facts and only by analyzing the replies filed by the assigns which can be observed from the comments in the assessment order by comparing the replies submitted by the assigns. (V) The AO failed to appreciate the fact that with effect from 1st April 2008 fro .....

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s paid to these two parties too. (VII) The appellant declared and confirmed all the supporting and documents relied upon have been duly filed and discussed before the AO. (VIII) Alternatively, it is argued that the appellant has not made any expenditure' to earn that income save and except the expenses admissibility thereof are in dispute. The expenses are the payments .to such assigns and commission .payment to the subagents, who arranged the assignment job for the appellant. (IX) It has no .....

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he expenditures in dispute. If it is assumed that appellant had executed the job, then there must be some expenditure on salary, telephone, travelling or conveyance. None of such expenses is debited to the audited annual accounts of the appellant. On. the other hand, the payees of the liaison fees had admitted the transactions and receipt of such fees from the appellant. (X)The transactions relating to the payment of liaising fees took place through proper banking channel. The payees are income .....

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cussion, the claim of the appellant that it had appointed the assigns to do the job in its behalf and has not done the job by itself cannot be denied. Keeping in view the above, considering the facts and circumstances of the case and perusing the impugned assessment order and other materials on records, I am of the opinion that disallowance of ₹ 2,35,97,622/- and addition made thereof to the total income of the appellant to delete the addition so made of ₹ 2,35,97,622/- on account of .....

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sion that in the absence of any evidence to show that services were in fact rendered by the person to whom commission was paid, the deduction claimed cannot be allowed. It was his submission that the CIT(A) had ignored this vital requirement of law and has proceeded to give relief to the Assessee based on irrelevant considerations. He prayed that the order of the AO be resorted. 18. The learned counsel for the Assessee reiterated submissions as was made before the CIT(A) and relied on the order .....

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essee has not let in any evidence to show that the persons to whom it paid commission in fact rendered services. From the enquires conducted by the AO and the replies given by CP Rerollers Ltd., BMA Stainless Ltd., and Vaishnavi Trade Pvt.Ltd., it is clear that they were not able to give even the names of the person of the broadcasters with whom they liaised and the person who liaised from their organization. None of the reasons given by the CIT(A) for coming to the conclusion that the expenditu .....

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proper manpower strength or net work to do the job. The appellant due to its connection with WWIL as Cable Operator, had obtained the work. However due to its lack of marketing strength and adequate set up off loaded the jobs to assigns. The A.O never question the authenticity of the liaison job by assessee . In fact there is evidence of record that only assessee had done the liaison job. This is stated by the broadcasters who paid ,the amount. So, LD CIT(A) wrongly assumed that the assessee ha .....

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ising that LD CIT(A) has raised such question in favour of assessee despite the fact that A.O has on the basis or the evidence gathered has concluded that the those parties claim of doing any liaison. job is not correct, not commenting on the fake agreements, does not become a proof of job done by parties. Where is not questioning the agreement arises? III) The assessing officer did not provide the proper opportunity to represent the case under various pleas, as appear from the letters filed by .....

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ft our organization" So where is the question of not giving proper opportunity? Ld CIT(A) did not give attention to A.O remark in his assessment order that the same party was not even able to identify the staff who actually did the job in its letter dt 04/08/2010'. Regarding CP Re-roller Pvt.ltd C.P Reroller vide its letter dt 22/08/2010 in compliance to notice U/S 133(6) stated that" Mr Mahendra Maurya " was the' person who worked 'On the liaison job, - When notice u/ .....

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ere issued on 08/12/2010 IV The AO drew the conclusion on wrong or misconceived reasoning with properly appreciating the facts and only by analyzing the replies filed by the assigns which can be observed from the comments in the assessment order by comparing the replies submitted by the assigns. Fact is that, A.O did not get any replies to his pointed question; So this remark is without any fact on record. V The AO failed to appreciate the fact that with effect from 1st April 2008 from the subse .....

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liaison job. VI The AO did not enquire about the payment with other two parties namely M/s. Maxpro Tracon Pvt Ltd and Statt Investment & Services Pvt Ltd. However, he added to the total income, the amount of liaison fees paid to these two parties too. The three parties who were enquired into got 99% of. the payment for alleged liaison job. Therefore, A. 0 concentrated his effort on the same. Even if no enquiry was done, how come that proves other three parties' dealing correct . Without .....

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AO. The statement of Ld CIT(A) IS factually incorrect . Neither the assessment folder was called for ,nor the statement of A.O was asked for, nor was he. called for hearing. How can Ld CIT(A) give certificate of authenticity that assessee had given all the documents". The fact is on record that none of the parties appeared u/s 131 of the I T Act. Did not submit any evidence which was later asked u/s 133(6). On 27/12/2010 ,just three days before it merely filed letter in office without any c .....

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gents, who arranged the assignment job for the appellant. This argument can not be substitute for the complete lack of even basic evidence that the parties had done any liaison job The expense is allowable under Income tax Act only when it is incurred for the purpose of one's business. Only point which has been proved by assessee is that a certain amounts were issued through cheque and tds was deducted., That is not a proof of a genuine expenditure..A genuine expenditure require .supporting .....

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th the broadcasters. It can conversely stated that the liaison job has taken place. The AO had no different view on this. The point of dispute is who did this job. Whether appellant itself did the same job or it assigned to any third parties. The appellant had not claimed any expenditure than the expenditures an dispute. If it is assumed that appellant had executed the job then there must be some expenditure on salary, telephone, travelling or conveyance. None of such expenses is debited to the .....

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mption that the assessee did not claim expense , can not become proof of any liaison job by others. X) The transactions relating to the Payment of liaising fees took place through proper banking channel. The payees are income tax assessees and their total income includes such fees, which is subject to tax. The accounts of the recipients are duly checked and audited by the statutory auditors under the Companies Act and Income-tax Act. It is totally irrelevant because the issue involved is not reg .....

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