TMI Blog2017 (12) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... d internal comparable cases have been rightly applied by the AO. In these comparable cases, the assessee itself is paying commission which ranges between 27% to 37% and in the instant case, the AO has thus taken the average of such commission which comes to 33%, compared it with the actual commission so paid by the assessee and has determined the excessive commission payment. We therefore donot find any infirmity in the action of the AO who has rightly disallowed the excessive commission under the provisions of section 40A(2)(b) - Decided against assessee Disallowance of supervision charges - Held that:- the assessee firm has not brought on record any evidence through which it can be verified that such supervision services have been rendered or availed by the assessee firm. It is no doubt true that the payments have been made to these entities during the year and these entities have also filed the confirmations of receipt of such charges, however, the fact of payment is ancillary and secondary to the rendering of services or availment of supervision services and cannot be a basis to hold that since the payment have been made, the services ought to have been rendered or availed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition ₹ 30,00,000/. 2. Regarding ground No. 1, briefly stated, the facts of the case are that the assessee is a partnership firm engaged in the business of magnetic sorting of iron ore at the mines situated at Khetri, Jhunjhunu, Rajasthan. During the year under consideration, it paid commission of ₹ 5,00,000 each to Kishan Agarwal (HUF) and Gaurav Bansal (HUF) on total sales of ₹ 10,34,690/- made by these two HUFs. These two HUFs are specified persons covered u/s 40A(2)(b) of the Act. A show cause notice was issued by the AO to the assessee as to why excess commission payment should not be disallowed u/s 40A(2)(b) of the Act. In response, the assessee submitted that there was no fixed percentage of commission on turnover. It was further submitted that although turnover made by them is of less amount but commission has been paid to them on lumpsum basis hence it is not matching with the percentage of commission paid to other parties. It was observed by the AO that commission paid to other parties during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two entities. The contention of the appellant that the AO cannot sit in the armchair of the assessee has no weight and deserves to be rejected looking to the peculiar facts and circumstances of the case. It is the duty of the AO to examine the payments to entities covered u/s 40A(2)(b) of the Act and the AO has appreciated the facts of the case in a correct perspective. The appellant has not brought on record copy of any agreement executed with these two HUFs for which commission was paid. 5. During the course of hearing, the ld. AR reiterated the submission made before the CIT(A) which we have already noted above. It was further submitted that it is undisputed fact that the amount of commission which was paid to both the parties was the minimum amount of commission decided, irrespective of the sales made by the assessee firm through such parties. It was submitted that the assessee firm unfortunately could not derive the benefit to the fullest out of such commission paid. Even after efforts made to increase sales, the same could not be increased and the desired benefits could not be obtained. However, since the assessee firm had mutually decided with the parties with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord. Firstly, the contention of the ld AR that the amount of commission which was paid to both the HUFs was the minimum amount of commission decided, irrespective of the sales made by the assessee firm through such parties remain unsubstantiated before us. There is nothing on record either in terms of written agreement or understanding between the assessee and these two HUFs or even where the agreement/understanding is verbal, the onus is on the assessee to bring on record some evidence by way of confirmation etc., which defines and lays down the terms of such engagement in terms of sales target, target customers/area, years of engagement, etc. The assessee has thus failed to discharge the said onus cast on it. Secondly, regarding the determination of excessive amount of commission so paid and the comparative cases whereby the onus is cast on the AO, we find that where the assessee itself is paying commission to other entities on the sales so made through them and where there is nothing on record to distinguish the nature of services so rendered by these entities vis- -vis two HUFs, the said internal comparable cases have been rightly applied by the AO. In these comparable cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awat and Miss Renu Nathawat. It would be relevant to refer to the order-sheet entry dated 13.01.2016 wherein the reasons have been recorded by the AO for issuance of the summons u/s 131 to the above said 5 parties which is reproduced as under: 1. R.K. Agarwal (HUF), Nitin Jain(HUF) and Sukhmal Kumar Jain: First of all, the addresses of Nitin Jain (HUF) and Sukhmal Kumar Jain are exactly identical and the letters of confirmation sent by both are exactly identical with even the signatures being done in identical handwriting, very apparently appearing fake. Moreover, Sukhmal Kumar Jain s date of birth is appearing to be 27.10.1945 which means he is around 71 years old. It is highly questionable as to how can a person of this age do any supervision work and that too in iron ore mines site in Khetri. Another reason for need of verification is that both R.K. Agarwal HUF and Nitin Jain HUF are getting fees for supervision and it is not clear as to why the supervision is being done by the HUF and not in individual capacity. In fact, even the handwriting on the envelopes in which confirmation have come of Nitin Jain HUF, Sukhmal Kumar Jain, Alka Jain one R.N. Forging Pvt. Ltd. (for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to these parties and the supervision charges of ₹ 30,00,000/- paid to these 5 parties cannot be allowed as a business expenditure. It was accordingly disallowed and brought to tax in the hands of the assessee. 12. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and it was submitted that allowing the deduction of ₹ 9,50,000/- to two entities establishes the fact that AO was convinced about the services of supervision received by it and summons to all the parties were duly served which is accepted by the AO at page 8 of the assessment order. The AO had all the authority under the law to enforce the attendance of these persons and the AO has not exercised the said authority for the reasons best known to him. It was further submitted that disallowing the sum simply for the reason for non appearance is not at all justified when no other material is brought on record by the AO that the said payments or the parties were non genuine or the services were not received. It was further submitted that similar supervision charges paid by the appellant firm for similar services for AY 2012-13 were accepted by the department and the assessment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the residence of the parties to whom supervision charges were paid were at a distance or that ladies and old persons were involved in supervision cannot be basis to consider the supervision charges to be non-genuine. These persons entered into the contract with the assessee firm for providing supervision. It was not the condition of the contract and which never remains so that the services will be provided by these persons themselves personally. It was for these persons to organize their business affairs properly by engaging proper people. Even the distance cannot in any way be a factor as even the assessee s office was situated in Mansarover, Jaipur whereas larger operations were carried out in Jhunjhunu. It was further submitted that supervision charges were even paid in the immediately preceding year i.e. AY 2012-13 by the assessee firm and no additions were made in this regard by the ld. AO. The ld. CIT(A) is not correct in contending that books of accounts of assessee firm were rejected and GP was estimated. In this regard it is submitted that the books were rejected by the ld. AO on all together a different footing that certain expenses were paid in cash and were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on services have been rendered or availed by the assessee firm. It is no doubt true that the payments have been made to these entities during the year and these entities have also filed the confirmations of receipt of such charges, however, the fact of payment is ancillary and secondary to the rendering of services or availment of supervision services and cannot be a basis to hold that since the payment have been made, the services ought to have been rendered or availed by the assessee firm. The payment is the consideration towards the discharge of consideration for rendering of services and unless such rendering of services is not proved, as in the instant case, mere payment is not sufficient enough to hold that the expenditure has been incurred and allowable in the hands of the assessee firm. Further, it is not a case that the AO has not taken any action to verify the transaction. He has issued notices under section 133(6) and when he was not convinced with the replies, he also issued summons under section 131 as well which remain uncomplied with and which has put further question mark on the authencity of the transaction under consideration. We have also gone through the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of supervision expenses, which it failed miserable not only at the assessment stage but also at the appellate stage. In fact, the appellant has not even elaborated what was the exact nature of work done, whether the ladies and the old man (Shri Sukhmal Kumar Jain aged 71 years) were capable of doing that work, especially in view of the fact that the site is situated more than 155 kms. from the residence of these entities. ( vi) It was the contention of the appellant that similar supervision expenses were allowed in its assessment order for the AY 2012- 13. It may be mentioned that as per the said assessment order, the AO noted that various expenses including supervision charges were not verifiable and the AO has rejected the books of accounts of the appellant u/s 145(3) of the Act and has made lump sum trading addition thereof. Hence, it cannot be said that the supervision charges were allowed by the AO for the AY 2012- 13. Thus, thus contention of the appellant deserves to be rejected. ( vii) Therefore, in view of the above discussion and looking to the totality of facts and circumstances of the instant case under consideration, it is held that the AO was just ..... X X X X Extracts X X X X X X X X Extracts X X X X
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