TMI Blog2018 (9) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively for the purpose of business and, therefore, the AO is directed to allow commission expenditure incurred by the assessee. - Decided in favour of assessee - I.T.A. No. 2380/Kol/2016 - - - Dated:- 11-9-2018 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For The Appellant : Shri S. M. Surana, Advocate For The Respondent Shri Pinaki Mukherjee, Add. CIT ORDER Per Shri A.T.Varkey, JM This appeal preferred by the assessee is against the order of Ld. CIT(A)-13, Kolkata dated 01.08.2016 for AY 2012-13. 2. Though the assessee has raised as many as five grounds of appeal but the sole issue involved in this appeal of assessee is against the action of Ld. CIT(A) in confirming the addition made by the AO on account of commission/service charges. 3. Briefly stated facts are that the assessee is engaged in trading of cotton and iron and steel through the business venture named as M/s. Sharp International and M/s. Peacon International respectively. Both these business units are proprietorship concern of the assessee. In respect of commission expenses claimed in the accounts of M/s. Sharp International, the assessee disclosed gross sales of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of business or not. The AO observed that Commission means a form of payment to an agent for services rendered. According to AO commission is usually paid to agents and brokers for procuring sale order or to facilitate some other works which eventually will result in higher sale and profits. The AO, therefore, sought to cross examine such agents / brokers as well as the parties from whom sale orders were received or the parties with whom such agents were in contact to facilitate assessee's works. According to AO, only after such cross examination, it would be possible to verify whether assessee's claim that commission paid to the five parties were expended wholly and exclusively for the purpose of business or not is authentic and genuine. For that purpose the assessee was requested to furnish the details such as purpose of paying commission, parties from whom sale orders were received through the respective agents / brokers, agreement for commission, etc. The AO observed that assessee had furnished only the evidence in support of deduction of tax at source against such expenses. According to AO, TDS is only a secondary condition for allowing a business expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by one party to another party. According to AO, the circumstantial evidences clearly indicate that such payments were in no way expended exclusively and wholly for the purpose of business which is the basic condition for eligibility of an expense as deduction u/s 37(1) of the Act. Hence, the commission paid to the above five parties was disallowed for not satisfying the conditions laid down in section 37(1) of the Act and added back to total income . 6. In respect of commission expenses claimed in the accounts of M/s. Peacon International, the AO has observed as under: M/s. Peacon International which deals in trading of scrap iron. In the audited accounts of this concern, assessee has disclosed gross sales of ₹ 2,41,46,011/-, purchases of ₹ 2,20,26,409/- and commission expenses of ₹ 2,76,346/-. As per details furnished during the course of hearing it was noticed by the AO that goods were purchased mainly from M/s. Jessop Co. Ltd. Commission was stated to have been paid to M/s. Govardhan Nirman Pvt. Ltd. of 55, Chowringhee Road, Kolkata. 7. On 24/2/2015, AR furnished a letter stating therein that M/s. Govardhan Nirman Pvt. Ltd. was paid commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm that M/s. Peacon International had purchased scrap iron from us during the financial year 2011-12. We had sold the goods to M/s. Peacon International. They might have availed the services of M/s. Govardhan Nirman Pvt. Ltd. According to AO, if any agent was involved in business dealings, the company would have surely known about it, therefore, the AO discarded the confirmation from M/s. Jessop Co. Ltd. 10. So, the AO disallowed the commission claim made by the assessee as false, concocted and an arrangement of mutual understanding of providing adjustment entries by one party to another party. Hence, the commission paid to the above five parties and detailed as under is disallowed for not satisfying the conditions laid down in section 37(1) of the Act and added back to total income. i. Swaraj Vanijya Pvt. Ltd. --- 5,08,194.00 ii. Metro Niketan Pvt. Ltd. --- 5,35,938.00 iii. Bihariji Consultancy Pvt. Ltd. --- 6,77,483.00 iv. Kamini Ferrous Ltd. --- 7,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r total export and local sale of cotton was more than ₹ 10 Crores. The export was also of substantial quantity which is proved from the fact that duty draw back received by the assessee was more than ₹ 10 lakhs. The assessee for the purpose of purchasing the finest quality of cotton engaged and took the services of the two agents viz. M/s. Behariji Consultancy Pvt Ltd and Kamini Ferrous Ltd. We note that the payments were made by account payee cheques and TDS was duly deducted. We note that the purchase price of cotton from the parties for which the commission was paid to both the parties was also made by account payee cheques and thus purchased cotton was exported. These facts having not been disputed we note that the role of agents for sale and purchase of goods cannot be ignored and for the services rendered they are entitled to be compensated as per agreement. We note that the assessee obtained the export orders through foreign agent Mr. H. Yam for supply of cotton to M/s Sun Hing Lee Textiles Ltd Hongkong whom assessee claims to have never met, but the fact of export has been believed. The export of cotton was made from the purchase thus made through the agents M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services rendered by the agents viz. M/s Behariji Consultancy Pvt. Ltd and Kamini Fashions could only procure cotton of the export value of 10,35,940 USD and 10,45,604 USD only making total export of 20,91,544 USD as against the order of 41,88,640 USD. Since the assessee could not procure the required quantity of fine cotton in order to fulfill the export obligation, had to search for some party to meet the export obligations. Accordingly the services of the two agents viz.M/s Swaraj Vanijya Pvt Ltd and Metro Niketan Pvt Ltd was taken and they arranged two parties to undertake the remaining export obligation which assessee could not do on his own viz. M/s. Harman Kotex Seeds Pvt Ltd and Luxminarayan Udyog Pvt Ltd . The assessee thereafter arranged with his Singapore Agent H Yam to make M/s. Harman Kotex Seeds Pvt Ltd and M/s. Luxminarayan Udyog Pvt Ltd as second beneficiary of the L. C. so that they can export the cotton. The Singapore agent persuaded the buyer and in the LC those two parties were made second beneficiaries of the LC who ultimately exported the remaining quantity of the order of the fine quality of cotton to the foreign buyer. The two agents were therefore paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn to the following cases wherein it has been held that if there is no evidence to show that the agents were relatives of the assessee and that the commission paid has not come back to the assessee, then it cannot be said that the commission paid was not genuine. For the said proposition we rely on the Judgment of the Hon'ble Kolkata High Court in the case of Commissioner of Income Tax Vs Inbuilt Merchants Pvt Ltd in ITAT No. 225 of 2013, GA No. 2825 of 2013 wherein it was taken note by the Hon ble HighCourt that with the advancement of the Technology it has become possible to sell goods throughout the country through Internet and for this purpose agents are required throughout the country and so the assessee has to recruit the agents. The Hon ble HighCourt took note that it may not be possible for the assessee in such cases to know them personally. And since the assessee has furnished the address of the agents which they have provided to the assessee to the AO and payments were admittedly made by cheque after deduction of Tax, the Hon ble High Court after taking note that apart from the payment by cheque there were other evidence like (a)Books of account maintained by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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