TMI Blog2016 (10) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... and in respect of Creators Corporation , commission was paid for policy decision resulting into sales of company’s products which varied from ₹ 450 to ₹ 2000 on sale of each product. All these facts are brought out clearly in the assessment order itself. We find that in addition to the above, the assessee had also provided the agreement copy , Ledger Account , TDS details on commission payments , Copy of bills raised by parties and IT return and accounts including balance sheet of recipient companies wherein the said commission income has been duly offered to tax by them. All these evidences clearly prove beyond doubt the claim of expenditure on account of commission. We find that the disallowance has been made merely based on wild allegation and on surmise and conjecture. In this regard, the support drawn by the ld AR by placing reliance on the decision of the Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd vs CIT reported in (1954 (10) TMI 12 - SUPREME Court ) is well founded. Hence in the facts and circumstances, we hold that there is absolutely no material brought on record to disallow 50% of the claim made by the assessee and accordingly the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack installation and bridge) . The historical background of the assesseee remains that M/s Shalimar Fastening Pvt Ltd incorporated on 15.2.2002 was renamed as Rahee Track Technologies Pvt Ltd from 5.7.2005. It manufactures railway products like Turnouts, carved switch, improved switch, expansion points, steel sleeper, crossing and switch devices for railway tracks including high speed. Consequent to the search, notices u/s 153A of the Act was issued and assessments were framed u/s 153A of the Act for the Asst Years 2006-07 to 2011-12 by making the following disallowances :- (a) Disallowance of Commission for Asst Years 2006-07 to 2011-12 (b) Disallowance of Employees Contribution to PF / ESI for Asst Years 2006-07, 2007- 08 , 2008-09 and 2011-12 (c) Disallowance of FBT liability u/s 40(a) for Asst Years 2008-09 and 2009-10 (d) Disallowance of Bonus u/s 43B for Asst Years 2010-11 and 2011-12 2.2. The assessee stated that the original assessments for the Asst Years 2006-07 to 2009- 10 were completed u/s 143(3) of the Act as on the date of search. Hence those years would fall under the category of unabated assessments and hence the income assessed originally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search. He argued that the basic foundation for conducting the search is governed by the provisions of section 132 of the Act which has to be read harmoniously with section 153A of the Act. There are three conditions based on which a search action could be initiated u/s 132 of the Act on an assessee. They are :- Section 132(1) - If the concerned authority has in consequence of information in his possession, has reason to believe that - (a) where a person fails to produce the books of accounts and other documents in response to notice u/s 142(1) or summons issued u/s 131(1) of the Act ; or (b) where a person fails to comply with the requirements of summons issued u/s 131(1) of the Act ; or (c) where a person is in possession of any money, bullion, jewellery or other valuable article or thing and such assets represents either wholly or partly income or property which has not been , or would not be, disclosed for the purposes of the Act (hereinafter referred to as the undisclosed income or property) ; then the officer , so authorized could conduct a search and proceed as per the requirements laid down in the said section. He argued that the aforesaid three primary co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: 2.6. We find that the Co-ordinate Bench of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 reported in 2016-TIOL-167- ITAT-KOL had explained the aforesaid provisions as below:- 6.4. In our opinion, the scheme of assessment proceedings should be understood in the following manner pursuant to the search conducted u/s 132 of the Act :- a) Notice u/s 153A of the Act would be issued on the person on whom the warrant of authorization u/s 132 of the Act was issued for the six assessment years preceding the year of search and assessments thereon would be completed u/s 153A of the Act for those six assessment years. b) In respect of the year of search, notice u/s 143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to file returns for six AYs immediately preceding the previous year relevant to the Ay in which the search takes place. ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv) Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). Hence it could be safely concluded that the decision of Hon ble Delhi HC in the case of Kabul Chawla supra is the latest one on the impugned issue which had considered the decisions that were quoted by the ld DR and distinguished the same. 2.10. We also find that the Hon ble Jurisdictional High Court recently in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.2016 had endorsed the aforesaid view of Hon ble Delhi High Court in Kabul Chawla s case and also placed reliance on its own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC). 2.11. We find that the provisions of section 132 of the Act relied upon by the ld DR would be relevant only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and ₹ 3,47,000- respectively made by the ld AO in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee company paid commission to the following parties for procuring sale orders for the products manufactured by the company:- Asst Year 2010-11 Asst Year 2011-12 Steel Crackers Pvt Ltd 86,23,684 Creators Corporation 29,15,100 6,94,000 The ld AO observed the following in his order:- From the bills raised by the commission agents like M/s Micky Metals M/s Steel Crackers it appears that commission @ 3% on sales was charged by them and in case of M/s Creator Corporation the commission was charged for policy decision resulting into sales of company's products which varied from ₹ 450/- to ₹ 2,000/-on sale of each product. As the bulk of the purchase of company's product has been the Indian Railways which is a Government Agency the commission paid to these brokers appears to be excessive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognizance of the aforesaid documents filed by the assessee before him. He however concluded that the assessee did not submit any evidence of quantum of services rendered by the persons and also failed to establish that the quantum of commission payment is commensurate with the services rendered by the parties. Accordingly, he upheld the disallowances made by the ld AO. Aggrieved, the assessee is in appeals before us on the following grounds:- AY 2010-11 1b) That without prejudice to ground No. 1(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm disallowance of commission of ₹ 57,69,392/- is erroneous, arbitrary and bad in law even on merits. AY 2011-12 1b) that without prejudice to ground No. 1(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm disallowance of commission of rs.3,47,000/- is erroneous, arbitrary and bad in law even on merit. 3.4. The ld AR argued that the entire details of commission payments to parties were filed before the lower authorities. The ld AO did not dispute the nature of services rendered by those parties to the assessee in lieu of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments. We are not in agreement with the argument of the ld DR that no comparable cases need to be brought on record by the ld AO in the instant case, for which purpose , he placed reliance on the observation of the ld AO that the assessee group was involved in inflation of expenditure in order to reduce the taxable profits as found in the course of search. Infact the ld AO in order to make this observation had placed reliance on the observation made by the investigation wing in their appraisal report. But we find that the same ld AO had not made any other disallowance of expenditure on the ground of inflation of expenditure and more so, there is no iota of evidence brought on record to prove that the assessee had indeed involved in inflation of expenditure to reduce the taxable profits and it only remained as a wild allegation. Hence in these facts and circumstances, we have no other option but to dismiss the arguments of the ld DR advanced in that regard. If that be so, there is absolutely no basis for the ld AO to allow 50% of the claim of the assessee. We find that the ld AO himself in his order had mentioned the various activities to be carried out by the parties justifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of employee's contribution to PF/ESI of ₹ 23,846/- U/s 36(1)va) read with section 2(24)(x) of Income Tax Act, 1961 without proper appreciation of the ratio of decision of ITAT, Special Bench, Mumbai in All Cargo Global Logistics Ltd. - Vs - DCIT (ITA No. 5018 to 5022 5059/M/2010) and by misreading the facts of the present case. (b) That without prejudice to ground No.2(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm the addition U/s 36(1)(va) read with section 2(24)(x) is erroneous, arbitrary and bad in law even on merit. 4.2. The ld AR argued that the PF / ESI was remitted before the due date of filing the return of income and hence placed reliance on the decision of this Tribunal in the case of Vijay Shree Cement wherein it was held that if the payments were made before the due date of filing the return of income, even the employees contribution would be allowed as a deduction. However, he fairly agreed that the same may be directed to be verified by the ld AO and prayed for set aside of this to the file of the ld AO for verification of the dates which was also accepted by the ld DR. 4.3. We have h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case, the action of Ld. CIT(A) to confirm disallowance U / s 43B of Income Tax Act, 1961 is erroneous, arbitrary and bad even on merit. AY 2011-12 3. (a) That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong and unjustified in confirming disallowance of Bonus, leave salary etc of ₹ 12,79,715/- U/s 43B of Income Tax Act, 1961 without proper appreciation of the ratio of decision of ITAT, Special Bench, Mumbai in All Cargo Global Logistics Ltd. - Vs - DCIT. (b) That without prejudice to Ground No. 3(a) and on the facts and in the circumstances of the case, the action of Ld. CIT(A) to confirm disallowance U / s 43B of Income Tax Act, 1961 is erroneous, arbitrary and bad even on merit. 5.2. The ld AR argued that at the time of signing of the tax audit report, the bonus and leave salary were not paid and accordingly the tax auditor had reported that the same were not paid by the assessee. But the same were paid by assessee before the due date of filing the return of income which may kindly be directed to be verified by the ld AO and accordingly decide the issue. The ld DR fairly agreed for this verification b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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