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2017 (2) TMI 515 - ITAT KOLKATA

2017 (2) TMI 515 - ITAT KOLKATA - TMI - Disallowance of payment of commission - Held that:- The assessee has established that the payment of commission was for services rendered by ACPL as well as IMACO. No contrary evidence has been brought on record by the AO to disallow the expenditure on account of commission. The observations of the AO in the order of assessment that the transactions is bogus or sham and was undertaken to camouflage some expenses which are not legally admissible being in co .....

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y the recipients. The CIT(A) has rightly placed reliance on the decision of the Hon’ble Supreme court in the case of Sassoon J.David & Co.P.Ltd. vs CIT. (1979 (5) TMI 3 - SUPREME Court) to come to the conclusion that the revenue cannot assume the role of ascertaining how much the is reasonable expenditure having regard the circumstances of the case. The CIT(A) has also duly taken note of the fact that ACPL and the assessee were not related parties and that all the payment have been made through .....

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onsideration in these two appeals is as to whether CIT(A) was justified in deleting the addition made by the AO by disallowing the claim of the assessee for deduction of commission paid to M/s. Atirath Commercial (P)Ltd. (ACPL) and M/s. IMACO Projektentwicklungs GmbH, Austria (IMACO). The issue arises for consideration under identical facts and circumstances for both the assessment years. We therefore deem it convenient to pass a common order. 3. The Assessee is a company incorporated in Germany .....

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rlal Nehru National urban Renewal Mission (JNNURM) of the Government of India in the Ministry of Urban Development. The Assessee commenced the performance and execution of the work under the said contracts during the fiscal year 2008-09 and fiscal year 2009-10 by establishing a Project Office at Kolkata. 4. For A.Y.2010-11 and 2011-12 the assessee while computing its income from business had claimed as a deduction expenditure on account of agency commission as follows : Assessment Year Atirath C .....

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cial Pvt. Ltd. 3. Ledger of Atirath Commercial Pvt. Ltd in the books of assessee 4. Invoices raised by Atirath Commercial Pvt. Ltd. On the assessee The nature of services provided by M/s. Atirath Commercial Pvt. Ltd. As follows :- a) Assistance and personal advice in all stages of the offer, the contract negotiations and in completion of all formalities prior to signature of the contract and during the performance of the work upto the final completion of the project. b) Assistance and personal a .....

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, progress reports etc which are to be lawfully and contractually provided by KMC. e) To assist MB for setting up of a local office as may be required by Indian law and to arrange for all the formalities as may be required. All expenses for the same would be borne by MB. f) Assistance in securing the payment from KMC/finance bank, until receipt to the final payment and release of the corresponding bank guarantees. g) Assisting MB in having a smooth relationship with KMC. 6. As far as the payment .....

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es and is also described as payable based on the payments received by the assessee from KMC. 7. The AO examined Shri Aditya Marda, one of the directors of ACPL. The AO had also issued a questionnaire along with summons u/s 131 of the Income Tax Act, 1961 (Act) calling upon ACPL to produce several documents. In the examination of Shri Aditya Mard he confirmed the fact that he received commission from the assessee for services rendered and also explained the nature of services rendered by him. The .....

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ar contract in the country, was not substantiated by any documentary evidence. The AO also held that no evidence was filed to prove coordination by Shri Aditya Mard with KMC. The AO was also of the view that ACPL did not have sufficient work force to carry out the job liaison. The AO also went through various e-mail exchanged between ACPL and the assessee and was of the view that the assessee was providing only menial service of transferring information from KMC to the Assessee. The AO was also .....

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ecting mails. 8. After making all the above observations, the AO finally concluded as follows :- Considering the above facts and discussion, it is abundantly clear that Atirath possessed no special expertise and Michel Bau was, and is still, its first such client. The number of employees and the nature of minimal services rendered, all point to the inference that there was nothing that entitled Atirath to an agency commission of 8% of contract value. Thus the whole transaction is either sham or .....

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from a reading of the entire order of AO the AO has not made any enquiries with regard to the payment of commission to IMACO. Nevertheless the commission paid to IMACO has also been disallowed by the AO. As far as A.Y.2011-12 is concerned the facts are almost identical and for almost identical reasons the AO disallowed the claim of the assessee for deduction on account of commission expenses. 10. Before CIT(A) the assessee pointed out that in respect of identical payments made to ACPL the AO had .....

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unicipal Corporation. The agency commission paid to Atirath Commercial Pvt Ltd is stated to be for comprehensive local support such as administrative, liaison, technical, regulatory etc. in Kolkata. It has been stated that without such local support, it would have been very difficult for a foreign company to bid, secure and execute a complicated Govt. project especially because the appellant was entering in India for the first time for carrying out such business. Copy of agreement with Atirath C .....

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oint out any substantial work. After considering the facts and surrounding circumstances, I am inclined to agree with the appellant, that normally a foreign Company would need substantial local assistance to conduct the kind of business the Appellant has done. It is common knowledge that bidding for and execution of contract With a municipal body in India would require a lot of procedural and liaison work at local level. It is undisputed that the appellant is a foreign company without any establ .....

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ment of such substantial amount. However, it is well settled that IT authorities are not supposed to sit over judgment regarding the quantum of payment made by an assessee in course of his business. A business man is generally presumed to be the best judge of his business affairs. As long as it is established, that some services were being rendered and the payment was being made fully and responsively for purpose of business, the same is to be allowed as deduction. The ratio of the Supreme Court .....

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IT 77 ITR 119 (SC), CIT v. Raman & Raman Ltd. 71 ITR 345 (Mad.), CIT v. Vijayalakshmi Mills Ltd.94 ITR 173 (Mad.), Subodhchandra Popatlal v. CIT 24 ITR 566 (Born.) etc. It is also not the case of the assessing officer, that the appellant and Atirath Commercial Pvt. Ltd are related in any manner or there is some non- business association or nexus between them. The assessing officer has, in his order, also observed that Atirath Commercial Pvt. Ltd had, after receiving agency commission from th .....

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ise. As held in the decision in the case of CIT vs. Ram Narain Goel 224 ITR 180 (P&H) and various other cases, suspicion, however strong, cannot substitute for evidence for making addition. As held in the cases of Jindal Saw Pipes Ltd. (supra), Surya Foods & Agro Ltd. (supra), Dresser Valve India (P) Ltd. (supra) etc. cited by the appellant, merely because the order is from a govt./ semi- government body, it does not follow, that any payment to agent in connection to the same is against .....

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r the services rendered in relation to contract work carried out by it. The payment had been made through banking channel after deducting tax at source. Material has also been brought on record by the appellant to indicate that Atirath Commercial Pvt. Ltd had indeed rendered some services to it. On the other hand, no material, whatsoever, has been brought on record by the assessing officer to, suggest that to establish that payment was not for the purpose as stated by the' appellant. In my o .....

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d therefore the disallowance of commission paid to IMACO cannot be sustained. However in the remand report filed before CIT(A) the AO had sought to raise dispute regarding the genuineness of the agreement between the assessee and IMACO. The CIT(A) was of the view that the agreement between the assessee and IMACO which was an Austrian company had been made in Germany and was in german language which was duly translated into English language by a competent person and produced before him. He theref .....

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at source and paid to the credit of Govt. of India. 13. As far as commission paid to ACPL is concerned, the CIT(A) was of the view that the facts in A.Y.2010-11 and 2011-12 were identical to the facts as it prevailed in A.Y.2009-10. He also found that the reasons for disallowing commission was also identical in all the assessment years. In these circumstances, he was of the view that the conclusion drawn by the CIT(A) and while deciding the appeal of the assessee for A.Y.2009-10 were proper and .....

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ed that order of CIT(A) had to be accepted. The following were the relevant recommendations of the AO :- To The JDIT (Intl.Taxn.) range-2, Kolkata Aayakar Bhawan, Poorva, Kolkaya. Sir, Sub : Recommendation of the Range head on the scrutiny report of the AO in the Case of M/s. Michel Bau GmbH & Co. KG, in Appeal No.04/CIT(A)-VI/ADIT(IT) -2(1)/12-13/Kol dated 27.11.2013 in relation to A.Y.2009-10 re. Kindly refer to the above. 2. The Ld. DIT(IT &TP) , Kolkata suggested as follows : Perused .....

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he disallowance of commission were also identical, it would not be proper to allow the revenue to challenge the order of CIT(A) for A.Y.2010-11 and 2011-12. According to him since the issue is squarely covered by CIT(A) for A.Y.2009-10 the appeal should be taken up for hearing as a settled issue. 15. We have given a very careful consideration to the submissions of the ld.counsel for the assessee and are of the view that the issue now in so far as it relates to the payment of commission is settle .....

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on the disputed issue by not filing an appeal. We therefore reject the request for adjournment and proceed to decide the appeal after hearing the submissions of the ld. Counsel for the assessee. 16. From the evidence on record and the order of CIT(A) it is clear that the assessee has established that the payment of commission was for services rendered by ACPL as well as IMACO. No contrary evidence has been brought on record by the AO to disallow the expenditure on account of commission. The obse .....

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