TMI Blog2018 (5) TMI 1156X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2009-10. 2. The grounds of appeal read as under: 1. The ld. Commissioner of Income Tax (Appeals) erred in disallowing the claim of deduction of interest paid of ₹ 30,834/- on PT, VAT and Service Tax. 2. The ld. Commissioner of Income Tax (Appeals) erred in disallowing the claim of depreciation of ₹ 1,01,634/- on motor cars used for the purposes of appellants business. 3. The ld. Commissioner of Income Tax (Appeals) erred in disallowing the claim of deduction of expenditure incurred on account of commission paid to Drishti Adventure Sports Pvt. Ltd., wholly and exclusively for the purposes of business. 3. At the outset, the learned counsel of the assessee submitted that he shall not be pressing ground number one and two. Hence, these grounds are dismissed as not pressed. Apropos disallowance of commission: 4. Brief facts of the case are that during the course of assessment proceedings the Assessing Officer noticed from the P L account that the assessee had debited an amount of ₹ 53,90,000/- under the head commission . It was noticed from the ledger copy that the commission had been paid to M/s. Drishti Adventure Sports Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s.Drishti Special Response Services Pvt. Ltd. Thus, Shri Rajiv Somani was in a commanding position to directly influence the purchase deals especially since he was being paid a huge remuneration of ₹ 30 lacs p.a. The assessee has conveniently chosen to ignore this aspect and paid commission for purchases made, that too, on total sales which is based on future three years imaginary profits, thereby leading one to doubt the commercial expediency of a prudent businessman. (iii) The assessee considered the total projected sales of marine rescue equipments for lifeguarding work to be about Rs.ll.80 crores. It further considered the maintenance and supply of spares business to be worth ₹ 2.65 crores per year for 3 years. Thus, the business turnover of the assessee for achieving lifeguarding work was projected at about ₹ 19.75 crores or say about ₹ 20 crores during the first 3 years. The payment of ₹ 53,90,000 as commission was @ 2.7 %. This stand of the assessee is quite contradictory. The asseessee vide etter dated 22.08.2011 had stated that commission was paid @ 23% on total sales. Now, the assessee says that the commission is a one-time payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed purchase rates from suppliers7 The answer lies in the tax records. The assessee has claimed expenses of ₹ 53,90,000/- as commission paid even though it was not duty bound to pay for such expenses which should have been borne entirely by M/s.Drishti Special Response direct beneficiary of the Contract Bid transferred by M/s. Drishti ture Sports Pvt. Ltd. The amount of ₹ 53,90,000/- has thus escaped taxation. In fact, on going through the records of M/s.Drishti Adventure Sports Pvt. Ltd it is seen that it has huge unabsorbed business losses/ depreciation which shows that it would never pay taxes on the income which are diverted to it. The assessee with the intention of not paying taxes on its income has diverted the same to its sister concern which will get set off against its losses. The expenses have in fact been booked at the fag end of the financial year. Thus, this is nothing but a case of avoiding taxes. (viii) The assessee has made wrong claim of expense with a view to reduce the tax liability of the year under review and it is for such type of case that the Hon'ble Supreme Court has held in the case of M/s McDowell Co Ltd (154 ITR 148) as under: Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: During the appeal proceedings, it was contented by the appellant that at the assessment stage the appellant could not file some evidence because it was under the impression that the AO will allow the commission expenditure after considering the explanation of the assessee that the same was paid for the purpose of business. Accordingly, the appellant requested for admission of additional evidence in form of work order etc. Vide letter dated 17/10/2012 my predecessor forwarded the submissions and additional evidence to the AO for his objections and comments on the merits of the additional evidence. Vide letter dtd:14/1/2013 the AO has submitted the remand report wherein it is stated that during the assessment proceedings at three occasions reference was made to the commission expenses yet the appellant did not file the evidence which has now been filed during the appeal therefore the same should not be accepted at this stage. On merit of the evidence the AO has submitted that at this stage also the assessee has not furnished any evidence to prove that the equipments were purchased by the from various suppliers through the influence of M/s. Drishti Adventure Sports Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sports, therefore, any transaction in the nature of commission has to be analysed in the light of this fact as well as the fact that the group company to whom huge commission has been paid was a company having accumulated losses. Under these circumstances, the payment of commission to such concern becomes a tool of tax evasion by connivance of group companies in such a way where the company paying commission reduces its tax liability as it gets deduction of this expenses and the company receiving payment does not pay any tax on the receipt of commission. In the instant case, it is also noted that not only there is no direct evidence to show that the appellant has actually been benefitted by any noticeable services provided by the concern to whom commission was paid, there is no clarity even on the basis of calculation of the commission because initially it was claimed as commission on purchases whereas later on the appellant changed its stand to claim that commission was paid on the projected receipts for three years. Normally, commission is paid on predetermined basis and it is restricted to the amounts of transactions which are finalized during the year under consideration. Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 425,13,010 March 2011 343,20,000 March 2012 305,40,280 March 2013 319,78,017 March 2014 397,61,104 March 2015 417,23,042 7. The Above chart shows the turnover of the appellant in future years has been increased. 8. The Appellant Company had deducted the TDS on the payment of Commission and same has been deposited to the Governments. Hence there is no any doubt about the payment of such huge commission. 9. The reasonable of expenses has to be judged from businessman's point of view. Revenue cannot sit in the arms chair of business man and hold that expenses are not deductible. 10. If the AO has doubt about the business transactions he could have examined the parties who are parties to the agreement. 11. The Department cannot dictate the circumstances in which expenses is to be incurred. Commercial expediency must be decided from businessman's point of view. CIT vs. Sales Magnesite P. Ltd. (1995) 214 ITR i (Bom.)(HC)(PG.6)(Pg. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any has paid a commission of ₹ 53,90,000/- to the said group company. The assessee's plea is that the works contract involved large purchases and the asseessee company was not equipped to handle this. Therefore, it needed the services of the said group company to execute the contract properly. Hence, it paid the impugned commission. The assessing officer was of the opinion that assessee company was not required to pay that much of commission. For this, the assessing officer referred to the assessee s statement regarding conflicting rates of commission agreed. He opined that commission of ₹ 6,46,783/- was only payable. The assessing officer also found that the magnitude of services claimed to have been provided by the group concern has not been established. The assessing officer largely took adverse inference on the ground that the group concern has large unabsorbed losses and by making large payment to the group concern taxes are being sought to be avoided. In this regard, the assessing officer has placed reliance upon the decision of Hon ble Apex Court in the case of Mcdowell Co. 12. The ld. Commissioner of Income Tax (Appeals) has also affirmed the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually executed the contract. Or that the contract had actually been executed by the group concern and the accountings of the sums involved are only paperwork. We find that the Company are artificially juridical entities. Even if for argument sake it is taken that some tax planning has been resorted to, there cannot be any adverse inference for that. As tax planning through legitimate means is not prohibited. 14. Even in the case of Mcdowell Company Ltd. vs. CTO 1986 AIR 649, 1985 SCR (3) 791, the majority decision delivered by Justice Misra Rangnath held that tax planning may be legitimate provided within the framework of law . The Mcdowell Company Ltd. (supra) decision on the issue of tax avoidance was again reconsidered by the Hon ble Supreme Court in the case of Union Of India vs Azadi Bachao Andolan And Anr dated 07.10.2003 in which three member bench categorically restored the right of tax payer to mitigate taxes by all legitimate means. Recently, the Hon ble Supreme Court has elaborately ruled in the case of Vodafone vide order dated 12.01.2012 that there was no conflict between the Mcdowell Company Ltd. (supra) and Azadi Bachao Andolan (supra) case and there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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