TMI Blog2012 (5) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of customers introduced by each agent and also the exact working of commission payment made to each of the agents. Mere payment of commission through account payee cheque after deduction of TDS does not absolve the assessee from discharging its burden with regard to proving business purpose of the payments. In the absence of any credible evidence for making such payments, we are inclined to disallow the same. - ITA No. 2117/Hyd/2011 and ITA No. 2116/Hyd/2011 - - - Dated:- 18-5-2012 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER. Assessee by: Shri V. Raghavendra Rao Respondent by: Shri M.S. Rao ORDER PER CHANDRA POOJARI, AM: These two appeals are by different assessees directed against different orders of the CIT(A)-IV, dated 27.9.2011 for assessment year 2008-09. Since the issue involved in these appeals is common in nature, these appeals are clubbed together, heard together and are being disposed of by this common order for the sake of convenience. 2. We will take up the appeal in I.T.A. No. 2117/Hyd/2011. Brief facts of the issue are that the assessee is engaged in screening, grading, proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not pinpoint the sales procured by them. In this regard, he has reproduced the excerpts of the statements recorded from Smt. B. Bhagyalaxmi, wife of Sri B. Sri Ramulu (Minister in Karnataka Government), u/s 131 of the Act, besides the statement of Sri S. Lava Kumar Reddy, Sri C. Vijay Sekhar Reddy, Director of M/s. Vijay Mining P Ltd., and Sri Ravi Kalyan Reddy, Managing Partner of M/s. R K Marketing Services. The Assessing Officer noted that from the above statements of so called commission agents, the following further inference could be drawn: (1) None of the commission agents was able to provide definitive list of customers, quantity of sales effected, working of commission. (2) In fact, M / s. R K Marketing services claimed that they did not know any customers (leave alone introducing them). They stated that they were only ensuring the quality of ore loaded into trucks. (3) The agents received commission only from 3 parties, viz. M/ s. Sun Infra; M/s. Sun Minerals and M/s. K V Minerals and no one else, despite the fact that Bellary is a big centre for iron ore trading. (4) These agents did not provide similar services to any other parties, despite boasting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar, inasmuch as there was no agreement between the assessee and the commission agents, and there was no documents on whose basis it could be said that any commission was due and payable. He noted that, as held by the Supreme Court, even the agreement does not bind the Assessing Officer from enquiry into deductibility of commission. He noted that in the assessee's case there were no agreements, and there was no evidence of any correspondence or personal meetings between the assessee and the commission agents, so as to suggest that there was any relationship on whose basis the commission agents procured customers for the assessee and for which they were entitled to receive commission. He noted that the understanding between the parties was an oral understanding and it was doubtful that such an oral understanding could have been arrived without any long lasting relationship having been established between the assessee and the commission agent involving such huge amounts of money over a period of time. It was also noted that the assessee was unable to furnish the details of customers introduced by each agent, as also the exact working of commission payment. He concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration and gave out their assessment particulars. 2.10 The assessee submitted that the evidence utilised in the assessment order are ex-parte evidence and all the witnesses were departmental witnesses. It was contended that even a man with phenomenal memory cannot provide all the intricate details in a statement and there are bound to be some inconsistencies. It was argued that the adverse points noted by the Assessing Officer can give raise to suspicion but such suspicion cannot take the place of proof when the transactions were routed through bank and the amounts were paid through account payee cheques, besides the fact that most of them are assessed to Income tax. The assessee maintained that the evidences tendered by the Managing Partner and other witnesses were in the realm of documentary evidence, which on any account have precedence over oral evidence. 2.11 The assessee also tried to distinguish the facts of the case of Lachminarayan Madan Lal Vs. CIT (supra) contending that in the assessee's case commission agents were independent parties and transactions with them were routed at Arms Length, while in the above case, the selling agency firm had no genuine exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im that all its customers were introduced by all these agents does not appear to be a reliable statement. 6. Most glaring inconsistency appears in the statement of Smt. B Bagya Lakshmi, who states that she introduced even M/s. K V Minerals. 4.2 In regard to the above observations the AR submitted as follows: 1. Smt. B Bhagya Lakshmi furnished the list. Others did not carry such lists at the time of oral evidence. 2. But the firm specified and affirmed that services were rendered by its staff who are well versed in examining the quality of the ores. 3. This is highly irrelevant because one need not necessarily have many principals for getting orders and commission 4. This is not correct because the work orders, the payments and the TDS clearly mark out the individual performance and earnings. 5. This is not apparent from the statement recorded and cited. This is, in any case, really not material. 4.3 The lower authorities have then relied on the decision of the Supreme Court in the case of Lakshminarayan Madanlal Vs CIT (86 ITR 439) and also on the decision of the Delhi High court in the case of Schneider Electric India Ltd. Vs Commissioner of Income Tax 304 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers arranged by her. She also enclosed the copies of the Debit notes. She furnished copies of the returns filed by her and also of the Bank accounts. She also clearly stated that she was arranging customers for the iron ore materials supplied by the assessee companies. Sri C Vijayasekhara Reddy, Director of M/s Vijay Mining Pvt. Ltd., produced the work orders issued by the above assessee firms vide Answer to Question No. 3 (Page 7 of the assessment order). He gave the PAN of the Company and narrated its business activities. Sri Ravi Kalyan Reddy, Managing Partner of M/s RK Marketing Services stated that his firm was helping the customers introduced by M/s Vijay Mining Pvt. Ltd in getting good quality iron ore from the assessee firm vide Answer to Question No. 2 (Page 8 of the Assessment order). He also gave the PAN of the firm and stated that the firm was assessed to tax in Range 11, Hyderabad. 4.5 The AR submitted that the payment of commission for the purpose of marketing the iron ore is a trade practice which is not denied by the AO. Unless the commission is paid, the assessee cannot market the ore and cannot market it profitably. The payment of the commission is thus made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hire Brewery Ltd V. Bruce 6 TC 399(HL)). Another test is whether the transaction is properly entered into as a part of the assessee legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (Eastern Investments Ltd Vs CIT 20 ITR 1 (SC)). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee . 4.9 The learned AR relied on in the case of Eastern Investments Ltd vs CIT (20 ITR 1), wherein the Supreme Court held as under : Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for itself. The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent transaction which resulted in ultimate gain to the assessee, but whether it was properly entered into as a part of the appellants legitimate commercial undertakings in order directly to facilitate the carrying on of its business (emphasis supplied). In the case of the assessee, the transactions are entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o above. In our case, the account entries in the books of both the assessee and the agents are corroborative and provide fool-proof evidence. 4.14 The Gauhati High Court in the case of Narsingdas Surajmal Properties (P) Ltd Vs CIT (127 ITR 221) observed as under: The learned Tribunal shall bear in mind the principles laid down by the Supreme Court in Eastern Investments Ltd Vs CIT (20 ITR l){SC), that in the absence of fraud, the question whether a transaction had the effect of reducing the assesses taxable income or whether it was a prudent or judicious transaction or whether it was indispensable or necessary for the assessee to enter into the transaction, are all irrelevant in determining whether the expenditure relating to that transaction should be allowed u/ s 37 of the Act. 4.15 The AR submitted that the ratio of the judgements in the above case law is applicable to the facts of the assessee's case and therefore the lower authorities are not at all justified either on facts or in law in disallowing the commissions paid by the above two assessees in the assessment year 2008-09. Accordingly, he prayed that the additions be deleted. 5. On the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement admitted that since commission was shared by all agents, it is not possible to bifurcate the exact tonnage sold to each agent. 5.2 The DR further submitted that the falsity of the claim of the partner of the assessee firm regarding collective introduction of customers, while being unacceptable on the face of it, is further proved from the statement of Smt. Bhagyalaxmi, who, giving a different version, gave a list of customers. While Smt. Bhagyalaxmi claimed that even the assessee firm, M/s. K V Minerals, had been introduced by her, her statement indeed goes against the contention of the assessee that all the five agents had collectively introduced the clients. In fact, the alleged commission agents themselves, as could be seen from their statements reproduced by the Assessing Officer, could not provide any evidence or details regarding their specific services. They could not give even the list of customers, leave alone the quantities of sales effected through them in terms of tonnage, so as to demonstrate that they were entitled to any commission from the assessee firm. It is beyond human comprehension and business prudence that any person rendering any services for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re could not be substantiated. Similarly, the argument that such expenditure was inevitable in the first year business of the firm is also devoid of any merit, as in the absence of any documentary evidence or even circumstances justifying the claim of commission payments, the very claim of payment is not tenable. Accordingly, the case laws cited by the representative of the assessee also do not come to the rescue of the assessee. 5.6 The DR submitted that in the final analysis, it is clear that in the instant case neither the assessee nor the alleged agents could produce any documentary evidence to substantiate the scope of services expected to be rendered, nor could they furnish any evidence to establish that any such services were actually rendered. Besides, the parties could not put forth any secondary or circumstantial evidence also in support of such claim. The assessee therefore, grossly failed to discharge the onus of establishing its claim with evidence. Accordingly, it can be said that the facts and circumstances of the assessee's case are not such as can establish that the claimed expenditure of commission had been laid out or expended wholly and exclusively for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of business is essentially a question of fact to be decided on merit of each case. 8. From the statements of the so called commission agents further inferences can be drawn that none of the commission agents is able to provide definitive list of customers, quantity of sales effected, and working of commission. In fact M/s. R K Marketing Services claims that it did not know any customers (leave alone introducing them). It states that it was only ensuring quality of ore loaded into trucks. The agents received commission only from three parties namely, M/s. Sun lnfraa. M/s. Sun Minerals and M/s. K V Minerals and no one else despite the fact that Bellary is a big centre for iron ore trading. These agents did not provide similar services to any other parties despite boasting their expertise in iron ore trading. All the agents appear to be disparate and the assessee claim, that all its customers were introduced by all these agents, does not appear to be a reliable statement. The most glaring inconsistency appears in the statement of Smt. B. Bagya Lakshmi, who states that she introduced even M/s. K V Minerals. 9. There was no agreement between the assessee and the commission ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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