TMI Blog2018 (3) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of palm kernel fatty acid to the assessee through other importers but it has itself directly effected sales to the assessee. Notably, in respect of palm kernel fatty acid directly supplied by the Golden Tobacco Co. Ltd. to the assessee service charges have been paid to two intermediaries viz. PPL Plastics Ltd. and Raigarh Papers Ltd. amounting to ₹ 12.50 lakh and ₹ 5.59 lakh. When Golden Tobacco Co. Ltd. itself is providing all ancillary and incidental services to the assessee in procuring palm kernel fatty acid through other importers, in case of direct supply of such material by Golden Tobacco Co. Ltd. Why service charges have to be paid to other intermediaries is not understood. When the Golden Tobacco Co. Ltd. itself is capable of providing such service, there is no necessity of paying service charges to others. In case of direct supply of goods by Golden Tobacco Co. Ltd., the payment of service charges to other parties acting as intermediaries is not in the business interest of the assessee. Therefore, service charges paid of ₹ 12.50 lakh and ₹ 5.59 lakh, totalling to ₹ 18.09 lakh, to PPL Plastics Ltd. and Raigarh Papers Ltd. should not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g afresh and called for necessary information / details from the assessee with regard to the disputed issues. After considering the submissions of the assessee and examining the evidences on record, the Assessing Officer accepted the purchases of palm kernel fatty acid effected by the assessee as genuine. However, so far as payment of service charges to various parties towards payment of palm kernel fatty acid is concerned, the Assessing Officer disallowed the payment on the reasoning that the assessee failed to furnish conclusive evidence to establish that services were actually rendered, to justify the payment of service charges. The Assessing Officer observed, the payment claimed to have been made by the assessee were not incurred wholly and exclusively for the purpose of business and were motivated by extra commercial consideration. Accordingly, he disallowed payment of service charges of ₹ 2,56,39,000. Being aggrieved of such disallowance assessee preferred appeal before the first appellate authority. 5. The learned Commissioner (Appeals) after considering the submissions of the assessee found them to be without any merit. He agreed with the Assessing Officer that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of indigenous oil was not adequate to meet the demand there was substantial increase in oil price. The coconut oil price moved up from ₹ 20,000 PMT in June 1983 to about ₹ 37,500 PMT in June 1984. It was submitted, as there were import restrictions Indian traders having import license started importing soap oil / fatty acid against their license and started selling directly or through agents to soap manufacturers. He submitted, due to the prevailing market conditions and considering the fact that the traders having import license have cornered the imported oil / fatty acid which were available at a cheaper rate they decided to sell the oil to soap manufacturers at their own terms. Therefore, the soap manufacturers had no option but to accept the terms offered by the sellers reason being, total cost of imported oil was less than the price of their local substitutes and secondly, in the absence of such oil manufacturing activity could not have been carried out. He submitted, in the contract entered with the importers of oil, therefore, included payment of service charges to the intermediaries. He submitted, since even after payment of service charges the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1979] 118 ITR 261 (SC). The learned Authorised Representative submitted, considering the fact that the assessee would not have been able to carry on its manufacturing activity in the absence of the imported fatty acids / oil, the Departmental Authorities have wrongly concluded that payment of service charges was not for business purpose. He submitted, when the assessee did not have the import license for purchase of fatty acid / oil and has to depend upon other traders / suppliers who had the license to import, the assessee had no other option but to depend upon them for supply of oil to continue its manufacturing activity. That being the case, the decision taken by the assessee as a prudent businessman cannot be called into question. More so, when the Assessing Officer has accepted the sales of fatty acids / oil to be genuine. Learned Authorised Representative submitted, in spite of specific directions of the learned Commissioner (Appeals), the Assessing Officer did not allow cross examine of the witness whose statements were relied upon to make the disallowance of service charges. Therefore, he submitted, the addition made on the basis of statements without allowing the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urvey conducted in the case of Golden Tobacco Co. Ltd., as well as on the assessee and relying upon statements recorded from third parties concluded that purchase of palm oil claimed to have been made from Golden Tobacco Co. Ltd. was not genuine. Accordingly, he disallowed the purchases of 738 MTs of palm kernel fatty acid worth ₹ 90,73,809 and 287.840 MTs worth ₹ 74,59,508 as bogus. While doing so, he also disallowed service charges amounting to ₹ 2,56,39,000 claimed to have been paid to third parties towards services rendered for purchase of imported palm kernel fatty acid. In the proceedings before the first appellate authority the assessee contested the disallowance / addition made by the Assessing Officer on account of purchase of palm kernel fatty acid and payment of service charges. The learned Commissioner (Appeals) after considering the submissions of the assessee having found that certain vital information filed before him could not be produced during the assessment proceeding restored back the issue to the Assessing Officer for deciding afresh after examining all the details furnished by the assessee. Further, the learned Commissioner (Appeals) directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd., a copy of which is at Page 80 of the paper book indicates that the concerned party was not only involved in facilitating the purchase of imported palm kernel fatty acid to the assessee but as per the terms of the contract Golden Tobacco Co. Ltd. was required to supervise the delivery of consignment on arrival, arrange to have storage tanks and pipeline cleaned to the satisfaction of the surveyor. In case, the material is to be transported by tank lorry Golden Tobacco Co. Ltd. was required to ensure that the tank lorries are placed on time and perfect for transportation. The terms of the contract further stipulated that in case of any loss in transit it will be borne by Golden Tobacco Co. Ltd. The contract also requires Golden Tobacco Co. Ltd. to arrange proper sampling and analysis of the samples, pumping into the tanks of the assessee and subsequent sealing of tanks. Thus, for providing aforesaid services Golden Tobacco Co. Ltd. was to be paid service charges @ ₹ 1,500 inclusive of all the expenses. The terms and conditions of contract entered with to the other parties with whom the assessee paid service charges are also in similar line. It is also noticed that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practice prevailing at the relevant point of time. Notably, neither the Assessing Officer nor the learned Commissioner (Appeals) have offered any comment on the documentary evidences submitted by the assessee. Moreover, when the purchases have been accepted as genuine, the payment of service charges cannot be disallowed by raising the bogey of business expediency or lack of evidence to show rendering of services. When the assessee has submitted documentary evidences to establish that the payment of service charges were in terms with contractual obligation and parties to the contract have also confirmed payment of service charges, such evidence cannot be ignored on flimsy ground. As far as the business expediency relating to payment of such service charges is concerned, it has to be seen from the perspective of the businessman. The Assessing Officer certainly cannot step into the shoes of the businessman to decide whether such expenditure was for the purpose of business or not. When the material on record suggest that there is scarcity of certain raw material in domestic market and as a practice soap industries were purchasing imported palm kernel fatty acid through traders having i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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