TMI Blog2018 (5) TMI 1943X X X X Extracts X X X X X X X X Extracts X X X X ..... pening of assessment by mere change of opinion. By relying on the above judicial precedents, in our view, AO has reopened the assessment merely based on presumption and change of opinion. Therefore, the reopening of assessment in AY 2009-10 2010-11 are bad in law. Accordingly, ground raised by the assessee is allowed in both the years under consideration. - ITA Nos. 1430, 1431, 1432 & 1433/Hyd/2015 - - - Dated:- 25-5-2018 - SMT P. MADHAVI DEVI, JUDICIAL MEMBER And AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER Assessee by : Shri K.A. Saiprasad Revenue by : Shri B. Suresh Babu ORDER PER S. RIFAUR RAHMAN, A. M. These four appeals filed by the assessee are directed against orders, all dated, 26/10/2015 of CIT(A) 6, Hyderabad for AY 2009- 10, 2010-11, 2011-12 and 2012-13. Since identical issues are involved in these appeals, the same were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. ITA No. 1432/H/2015 for AY 2011-12 2. Briefly the facts of the case are, the assessee is a proprietor of M/s Classic Chemicals that deals in trading and sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out with an iota of credible detail to substantiate their stand that they had rendered any service to the assessee to have deserved to receive any payment on that account. The Assessing Officer on the basis of his analysis arrived at the conclusion that the assessee had over the years adopted the modus operandi of booking certain expenses under the head commission and had tried to legitimise the same by deducting necessary TDS. 2.3 After placing reliance on various case laws, the Assessing Officer concluded that the payments were made by the assessee not for the actual services rendered by the agents for the assessee's business but to reduce tax incidence. Therefore, he found the payments to be not genuine and added the expenditure of ₹ 52,57,750/- to the income of the assessee. 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). 4. During appellate proceeding, the assessee reiterated the submissions made before the Assessing Officer and submitted that the Assessing Officer ought to have appreciated that the agent need not maintain any record of the nexus and addresses of the persons who had purchased the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what to expect from each other and, in case of breach, are able to enforce specific performance. In this case, there is no contract. There are only stereotype letters addressed by the assessee to the alleged commission agents to the effect that they had been appointed as commission agents and that they would be eligible to receive commission as mutually agreed. Payment of commission on the basis of such bland letters of intent are not generally seen in regular businesses. 06.3.2 Genuineness: For a transaction to be considered as genuine, it is necessary that the apparent must be the real, i.e. the parties to the transaction should have the requisite documents and knowledge which a person, if he had actually done the transaction, would have in the ordinary course of the business. In this case, commission is claimed to have been paid to as many as 16 persons. But, all of them, by and large, displayed lack of primary knowledge about the basic facts of the business, viz. goods for which orders had been procured by them, persons contacted in course of procuring the orders, the contact numbers, etc. Some of them did not even know the assessee (even though they confirmed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dimpel Agarwal AIZPA4974A 24,510 23,779 Indu Jhunjhunwala ACUPJ4786C 23,000 15,685 Ajay Jhunjhunwala AAGHA0988F 17,506 17,506 Keshav Agarwal ARHPA2978D 23,345 19,204 Subhash Chand Gaoddia AAJPG6304J 20,002 6,486 Umesh Kumar Agarwal AAAHU5753L 21,340 17,686 Parikh Neema Bhavesh AGKPP0932G 50,000 0 5.3 CIT(A) observed that the assessee could not furnish any documentary evidence to substantiate that services had actually been rendered by these persons. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le computing his profit of business. Considering, however, that some of the payees were in regular business, benefit of doubt to some extent can be allowed. It is noted that the claim of commission payment included a payment of ₹ 1,10,000/- to M/s. Sridhar Clearing Services Pvt Ltd, Chennai. The said company was acting as his clearing agent at the dockyard and documentary evidence of the services rendered has also been submitted. Ends of justice should be met if deduction of ₹ 5,00,000/- was allowed towards commission expenditure which might have been incurred even though the relevant evidence to the desired degree of satisfaction may not have been furnished by the assessee. The addition is accordingly reduced to ₹ 47,57,750/-. 6. In AY 2012-13, ld. CIT(A) followed the same decision as in AY 2011-12 by accepting the findings of AO and gave relief to the extent of ₹ 5 lakhs to meet the ends of justice. 7. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds, which are common in 2011-12 and 2012-13, except the quantum of addition: 1. The order of the learned Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and tax was deducted at source. All the agents were assessed to tax and in some cases the tax is paid at highest slab. He submitted that before the Assessing Officer, the assesse had filed complete details of commission payments. The said details placed at page 15 of paper book show the commission payment agent wise, date wise and the details of deductee of tax. The statement itself indicates the PAN of the agents. Further commodity wise, date-wise, quantity-wise and agent wise commission workings were filed and placed at pages 16 to 30 of the paper book. Statement of TDS, section-wise, filed before Assessing Officer is placed at page 31 of the paper book. He submitted that copies of the Income tax return acknowledgement and computation of the commission agents filed before Assessing Officer are placed at pages 33 to 59 and pages 89 to 92 of the Paper book respectively. All the evidences thus filed before the Assessing officer prove beyond doubt the genuineness of claim of commission to agents. The assessee had duly complied with all the procedures required, to establish and substantiate his claim. 8.3 Ld. AR contended that in spite of this heavily loaded evidences, and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and available in other cases also. Hence allowing some payments and disallowing others on similar and identical set of facts is unjustified and arbitrary. This establishes the fact that the disallowance is only on presumptions and not based on any concrete evidences. vi. The theory of the Assessing Officer that assesseeresorted to agency commission payments only to reduce profit is also not correct. All the recipients have offered the said commission to tax. Some of the agents are in the 20% tax bracket and hence the theory of the evasion / reduction also has no basis. vii). Another glaring instance is that the Assessing Officer in his over enthusiasm to disallow the commission on sales, disallowed even the commission paid by the assesse to the customs clearance agent on the purchases made. S.No.16 page 2 of the asst. order is the payment of ₹ 1,10,000 for Asst. Year 2011-12 to Sridhar clearing service Pvt Ltd. This party is the customs clearing agent at Chennai Port. He renders the service in this regard. The purchases made by the assesse outside India was shipped to India and at the Chennai port the goods were got delivered through the services of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for doing the sales on behalf of the assesse against commission. The assesse has paid commission by account payee cheque. Due TDS paid, identity of the commission agent is verifiable which are sufficient evidence on record to prove the genuineness of the transaction and creditworthiness and identity of the so called commission agent. In view of the above I am of the view that the entire commission is allowable. This ground of appeal is allowed . (emphasis supplied). 8.5 In the light of the above submissions, the ld. AR submitted that the revenue authorities have not justified to disallow the claim of commission payment simply/based on the presumptions and assumptions especially when each one of the agents have categorically confirmed the receipt of agency commission. He, therefore, pleaded the bench to delete the addition made on this count. He relied on the following decisions: 1. Sachin B. Desi Vs. ITO, ITAT Kolkata dt. 07/08/2015. 2. Pinkcity Industries Vs. ITO Rajasthan High Court, D.B. Income Tax Appeal No. 290/2010. 3. Smt. B. Subhadra Vs. ITO, 92 ITD 285 (Hyd. 4. ITO Vs. shyam Sunder Jajodia, 26 SOT 541 (Delhi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le proceeds. 10.3 Further, ld. CIT(A) has brought on record that the agents have declared the commission as income in their return and all have claimed refund. We find it difficult to understand, on what way, it will decide the genuineness of transaction in the case of assessee, particularly, when there is no finding that the assessee has received back any commission or enjoyed any benefit out of this transaction except achieving targeted sales. 10.4 CIT(A) observed that assessee made the payment to certain persons ostensibly and has not established the services rendered by them. She further observed that it can be called gratuitous payments to persons known to assessee, but, she could not establish the relationship with the assessee but expressed that it is not clear whether they are relatives, but, they were not strangers either. Further, she held that there is a preponderance of probability to conclude that the payments did not constitute for remuneration for services of agency. At the same time, she allowed a random amount of ₹ 5 lakhs as commission without any basis. 10.5 She failed to consider the other aspects in this case, none of the age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure not being expenses described in sections 30 to 36 and not being in the nature of capital expenses or personal expenses laid out and spent wholly and exclusively for the purpose of business, one's claim has to be examined under the residuary provision of section 37. Hence, in order to be eligible for an expense under this section, one has to fulfil the conditions; (t) the expenditure must not be governed by the provisions of sections 30 to 36, (ii) the expenditure must have been laid out wholly and exclusively for the purpose of the business of the assessee, (iii) the expenditure must not be personal in nature and (iv) the expenditure must not be capital in nature. The expression 'wholly' employed in section 37 refers to the quantum of expenditure, while the word 'exclusively' refers to the motive, objective and purpose of the expenditure. In the instant case, the assessee had established that payment was made through banking channel. All the payees responded to the query of the Assessing Officer and some of them supplied the information about the services rendered by them. The commission had been allowed in the earlier years and in the subsequent ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the Tribunal in paragraphs 7 to 7.13 of the impugned judgment. We note that the Tribunal has also recorded that there is no evidence that commission flowed back to the assessee or that the entries with respect to commission payments were just paper transaction. The following observations being relevant are extracted hereinafter: .. There is no evidence on record to show that the commission was paid to any near relative, family member or sister concern. There is no iota of evidence to show that the payment of commission represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of commission came back to the assessee in any form Since the assessee has given full details including the addresses of buyers and addresses of the agents as well as details of payment etc. the transactions of payment of commission as well as the aspect of rendering services by the commission agents were fully verifiable. However, neither the Assessing Officer nor the learned CIT (Appeals) made any attempt at their end to make probe into the matter for coming to the conclusion that the transactions were bogus, unfair and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively for business, the expenditure has to be adjudged from the point of view of the businessman and not of revenue . Accordingly, we hold that assessee has duly established that sufficient services were rendered for the payment of the commission involved in this regard. Accordingly, we set aside the orders of the authorities below on this issue and decide the issue in favour of the assessee. In the given case also, assessee has produced the details of sales achieved by the agents by submitting item-wise, agent-wise details before revenue authorities. Further, assessee has filed the relevant books of account relating to agents, payment details, advance tax compliance before authorities. It shows that assessee knows the business he carries on and as per the Hon ble High Court s observation, it is settled law that revenue authorities cannot sit into the shoe of the businessman. By referring to CIT Vs. Walchang and Co (supra), in applying the test of commercial expediency for determining whether an expenditure was wholly or exclusively for business, the expenditure has to be adjudged from the point of view of the businessman and not of revenue. 10.10 From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished details of the same. The assessment was made without disallowing the expenditure. That being the case, it could be argued that AO had examined the issue and was satisfied with the explanation. If the AO reached a different conclusion on the same facts, it could be argued that such an action was not appropriate. But, it is not the case where the facts and circumstances of the case were the same when the original assessment was made and when the reassessment was made. As discussed above, he enquired into the issue of commission expenses in case of the assessment proceeding for A.Y. 2011-12 and, based on that finding reached the satisfaction that the expenditure for A.Y. 2009-10 should also be disallowed. The finding of the enquiry for A.Y. 2011-12 constituted a fresh evidence based on which he recorded the reason and initiated proceeding for reassessment for the assessment year under consideration. Hence, it is a case not of mere change of opinion but application of fresh evidence justifying reaching of the different conclusion on the same set of facts. In so far as the payees of the commission were the- same persons as those for A.Y. 2011-12, the application of the adverse f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the notice u/s 148 is issued less than 4 years from the end of the relevant assessment year 2009-10. Hence the proviso to sec 147 may not be directly applicable. However the Hon'ble Income Tax Appellate Tribunal Hyderabad in the case of DCIT Vs. Lee Pharma held that in such cases also the reopening is bad in law if the material facts were disclosed in the original assessment. 18.1 Ld. AR submitted that in the course of the initial assessment in response to the questionnaire issued (page 20 of paper book) the assessee filed the details of commission payments with TDS details. Hence the material facts are available on record and the reopening is bad in law. In any case since the Assessing Officer has no tangible material on record, the reopening is bad in law. 18.2 Further, He also submitted that the judicial authorities have decided that in the absence of tangible material on record, notice u/s 148 cannot be given even within 4 years from the end of the relevant asst.years. For this proposition, he relied on the following cases: 1. Kelvinator, 320 ITR1 560 (SC) 2. Asian Paints, 308 ITR 195 (Bom.) 3. Western O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s escapement of income from assessment, reasons must have link with the formation of the belief. In CIT vs. Atlas Cycle Industries [(1989) 180 ITR 319 (P H)], it was held that Assessing Officer will not have jurisdiction to proceed with the reassessment the moment he finds the ground mentioned in the reassessment notice as incorrect or non-existent. 20.2 In the case of Asian Paints, 308 ITR 195 (Bom.), the Hon ble Court held as under: It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under Section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase reason to believe , admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which the Assessing Officer could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso to Section 147 of the Act. (3) In Jai Hotels Co. Limited Vs. Asst. DIT, (2009) 24 DTR 37 (Del), the Delhi High Court has held that there being no new material in the hands of the Revenue leading to view that there was reason to believe that income had escaped assessment, the case is a classic instance of a change of opinion. The High Court further observed that when copies of statement of income, trading account, profit and loss account, audit report etc., were appended to the return filed by the assessee, taking resort to Section 147/148 was unwarranted as it constituted a change of opinion, since the material acted upon had been made available along with return of income. (4) In Satnam Overseas vs. Addl. Commissioner of Income Tax, (2010) 329 ITR 237 (Delhi), the High Court held that the only reason which has been given seeking reopening of the assessment for the years 1997-98 and 1998-99 is that suppression of sales has taken place on account of the fact that when average price of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld give arbitrary powers to the Assessing Officer to reopen the assessments on the basis of mere change of opinion which cannot be per se reason to reopen. The conceptual difference between the power to review and power to reassess is to be kept in mind. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on the fulfillment of certain pre conditions and if the concept of change of opinion is removed, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the Assessing officer. Hence, after 01-08-1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. 20.4 In view of the above discussion, in this case, AO came to conclusion that the payments of commission claimed by assessee are not genuine in AY 2011-12 and he came to conclusion on the same breath that the payments were made in the earlier years are also not genuine even though these asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
