TMI Blog2018 (11) TMI 1902X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness expediency of such expenses before the lower authorities. We thus agree with assessee that when the revenues derived in the form of income from sale of telecommunication equipments and annual maintenance fees were accepted and not disputed by the Revenue then it was unjustified on their part to disbelieve the corresponding expenses incurred to derive such income. When the entire sequence of transactions starting from importing of telecommunication equipment, soliciting of orders, tendering process, delivering products, after sales support provided to customers, annual maintenance services provided to the customers, realization of payments etc. has not been disputed nor disbelieved by the lower authorities, then they could not disbelieve or doubt the genuineness of the commission and service fees paid to the agents service providers respectively and treat it as bogus expenses only because the notices issued to the payees went un-served. Assessee had discharged the onus cast by law in proving identity and creditworthiness of the payees as well as the genuineness of the agreements entered into with them - assessee has placed all the relevant details documents, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee deducted deposited TDS in accordance with withholding tax certificates provided to the payees u/s 197 of the Act by ITO (TDS) at Kolkata. The correctness and/or genuineness of the certificates issued by the Department u/s 197 of the Act has not been denied or disputed by any of the lower authorities. We understand that the payees had made the applications u/s 197 of the Act.It is after due examination of their accounts, estimate of income, past history etc. that the lower withholding tax certificates were issued by the TDS Department. This certificate is therefore an important piece of evidence, which clearly substantiated the identity, and creditworthiness of the payees. In the instant case, the assessee had made commission payments to certain North Eastern Indian residents. In the course of assessment the AO had issued notices u/s 133(6) to the brokers, which were returned unserved. The AO thus observed that the assessee could not establish the identity of the brokers and accordingly disallowed the commission payments. On appeal the High Court held that mere fact that the broker were not found at the address furnished by the assessee did not prove the fact that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of commission and annual maintenance expenses amounting to Rs.1,92,65,164/- and Rs.4,40,58,520/- made by the AO. Briefly stated the facts of the case are that the assessee is engaged in the business of sale providing maintenance services of imported telecommunication equipment. The assessee imports foreign telecom equipments from Japan, China, Finland, France USA. The assessee also provides agency services to reputed foreign telecom equipment manufacturing companies. The customers of the assessee comprised of both private players such as Tata Teleservices, Reliance etc. and as well as government companies such as BSNL MTNL etc. In the course of its business the assessee had appointed liaison agents to provide marketing services, for soliciting orders, ensuring timely delivery of goods, collection of payment etc., to the customers who were located across India and also render after sale services to its telecom customers. The assessee had also appointed service partners to render end-to-end annual maintenance services in respect of the telecom equipment sold to the customers. In the course of assessment proceedings the AO required the assessee to explain the business respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price of the products with the private players to ensure that best prices are finalized and assist in the tendering process with the PSU customers. The tendering process would entail both technical and commercial bids and hence it was imperative to ensure that these processes were duly executed so as to successfully obtain the orders. Once the orders were received, the agents would liaise to get the technical drawings approved and thereafter coordinate with the logistics to ensure that the equipments are delivered in a time bound manner. They would also coordinate its installation, commissioning and render after sales support. Apart from the foregoing, the marketing agents would also ensure that the payments were timely collected from these telecom customers. Having regard to the range of marketing services provided by them, in lieu thereof the assessee would pay a fixed rate of commission for each product successfully marketed and sold by them. The terms and conditions of these arrangement as well as the obligations of the assessee as well as the customers were agreed in writing vide a duly executed agreement, copy of which was placed in the paper book. 5. The Ld. AR further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd furnished their service tax registration certificates to the assessee company. The bank account of the assessee further established that the payments were made through proper banking channel. Furthermore, each payee had had furnished lower withholding tax certificate obtained u/s 197 from the Income-tax Department and it is in terms of that certificate the assessee had withheld lower TDS on the payments. The Ld. AR submitted that neither the AO nor the Ld. CIT(A) disputed the correctness and genuineness of the certificate issued by the Department u/s 197 of the Act. In view of these evidences the Ld. AR submitted that the sole premise on which the lower authorities justified the impugned disallowance i.e. non-service of notices u/s 133(6), was unjustified and unsustainable on facts in law and prayed that the orders of the lower authorities be reversed and the disallowance be deleted. In support of its claim, the Ld. AR relied on the judgments of the Hon ble Calcutta High Court in the case of Inbuilt Merchants Pvt. Ltd. (G.A. No. 3825 of 2013) and Gujarat High Court in the case of CIT Vs. Nangalia Fabrics Pvt. Ltd (40 taxmann.com 206). 8. On the other hand the Ld. DR vehemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be able to solicit orders for their telecom equipment requirements across India. Further, the very technical nature of these products as well as the fact that most of these equipments are imported from abroad, would necessitate professional servicing maintenance; which is also provided by the assessee. Considering the nature and modus operandi of the business of the assessee, the profile of the customers and the quantity and value of the products supplied by the assessee to them, the role of external marketing agents and maintenance service providers in their line of business cannot be denied. The facts on record clearly show that the assessee had indeed supplied imported equipments to its customers and also executed service maintenance contracts entered into with them. In these circumstances we cannot by persuaded to hold that in this entire value chain, the assessee was not required to put in any efforts or for that matter need not have engaged third parties to assist in procuring orders as well as to provide annual maintenance services. 10. We find that for marketing the telecommunication equipments the assessee had engaged the services of services of two agents viz. M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices to or take Services from any other party. 4. In consideration of services rendered by PAL, the TSHPL will pay the fixed rate commission on the items of instrument and spare parts. Purchase Order of the goods, as per Annexure-A procured by PAL. The claim of PAL will arose only of the items actually supplied by TSHPL. 5. Except as provided in this agreement PAL, is and at all times will be an independent body. Nothing contained in this agreement is to be constructed as constituting the PAL as a partner or employee or agent of TSHPL or foreign Company or authorizing the PAL to create and assume any obligation or liability in the name of TSHPL. 6. Any of the parties may terminate this agreement by serving a notice of three months to the other party. The accounts between the parties will be settled and adjusted finally within the aforesaid period of three months. 7. PAl will not be held liable for any claims arising due to shortages, inferior quality etc for goods supplied by the TSHPL. 8. In case of any dispute between the parties out of or in connection with the agreement, the same shall be referred to sole arbitrator, who may be appointed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the delivery or installation of goods performance of any service. 8) After execution of order we will send invoice to parties with a copy to you for follow up. 9) PAL will further responsible for follow up with the parties. PAL will be chasing Indian telecommunication player to make payment in entirety to our foreign principal's. 10) PAL will be responsible for giving us the feedback of supplied Telecom Equipment all over the India 11) PAL is required to give us all the documents and correspondence which are required to deliver to foreign principals. 12) finally you are also responsible to collect Form C (i.e. concessional rate of tax on CST sales) from the party and also making us available the same. We make it clear to you that this aforesaid job which were not mentioned in agreement is part and parcel of same job. The earlier agreed remuneration will remain same as this is not additional extrajob. We are pleased to appoint you as our Liaison work partner. Your scope of work is as follows: A. You will be responsible for taking the feedback of requirement of Telecom Equipment in all over India. B. From time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to provide the servicing solutions at various places and premises of the customers which were located across India. We therefore appreciate the assessee s contention that their in-house service team could not have been sufficient to meet the servicing needs of the clients and that they had sub-contracted some of their annual maintenance contracts to external service providers to execute the annual maintenance contracts at economical rates. We note that the assessee had appointed three service providers, M/sBhumi Financial Consultants Pvt Ltd, M/s Greenview Projects Pvt Ltd M/s Intimate Construction Pvt Ltd. for providing servicing solutions to their clients. The assessee had entered into agreements with each of these entities having similar terms conditions. The extracts of one of the terms conditions of the appointment letter with M/s. Greenview Projects Pvt Ltd entered into on 13.07.2010 is reproduced below: To Dated: 13/07/2010 Greenview Projects Pvt. Ltd. Arrah, Bidhan Park, Bidha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m their customers. We note that before the lower authorities the assessee had sufficiently demonstrated the linkage between the revenues earned and the payments made to the service providers. On these facts and circumstances, we find that even in respect of the payments made to the service providers, the assessee had duly substantiated the commercial as well as business expediency of such expenses before the lower authorities. We thus agree with the Ld. AR of the assessee that when the revenues derived in the form of income from sale of telecommunication equipments and annual maintenance fees were accepted and not disputed by the Revenue then it was unjustified on their part to disbelieve the corresponding expenses incurred to derive such income. 16. From the above facts we hold that when the entire sequence of transactions starting from importing of telecommunication equipment, soliciting of orders, tendering process, delivering products, after sales support provided to customers, annual maintenance services provided to the customers, realization of payments etc. has not been disputed nor disbelieved by the lower authorities, then they could not disbelieve or doubt the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of business is also discernible from the service tax registration certificates of other payees which corresponded with the services rendered by them to the assessee. The service tax liability charged by the payees was also duly paid discharged by the assessee. We further find that the assessee has furnished its relevant bank statements which substantiate the actual payment of commission service fees was received by the payees through normal banking channel. 19. We particularly note that the assessee deducted deposited TDS in accordance with withholding tax certificates provided to the payees u/s 197 of the Act by ITO (TDS) at Kolkata. The correctness and/or genuineness of the certificates issued by the Department u/s 197 of the Act has not been denied or disputed by any of the lower authorities. We understand that the payees had made the applications u/s 197 of the Act.It is after due examination of their accounts, estimate of income, past history etc. that the lower withholding tax certificates were issued by the TDS Department. This certificate is therefore an important piece of evidence, which clearly substantiated the identity, and creditworthiness of the paye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their respective tax assessments by the tax authorities. 21. From the orders of the lower authorities, it emanates that the only reason for making the impugned addition is that the notices issued to the payees went un-served.We are however of the considered view that mere non-service of notice could not lead to adverse conclusion that the expenditure was bogus or in-genuine. The non-service of notice alone was not a sufficient and decisive factor to disallow the payments in the given facts of the present case. It may have raised suspicion in the mind of the AO but it was not reason enough to disallow the expenditure. We agree with the Ld. AR of the assessee that the identity, creditworthiness and genuineness of the transaction cannot be proved only by producing the payer concerned for personal examination by the AO. We also find that the TDS department had issued certificates u/s 197 of the Act to the payees which fact established their identity. We also note that the addresses of the parties appearing in these certificates corroborated with the addresses provided before the lower authorities. In the circumstances if for the purpose of issuing certificates u/s 197, the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant FY 2010-11.Accordingly there was no continuing relationship with the payees. For the reasons set out in the foregoing we hold that no adverse inference be drawn against mere non-service of notice upon the payees. 23. We note that the AO relied on the decision of the Hon'ble Supreme Court in the case of Lachminarayan Madanlal Vs CIT(86 ITR 439) to justify his action of disallowing the commission. In the facts before the Hon'ble Apex Court, the assessee firm made payment of commission to another firm, which was not at all in existence when the commission agreement was entered into. Moreover, in the payee firm, the minor children and spouse of the partners of the payer firm ( ie assessee firm) were partners. These facts were duly appreciated by the Hon'ble Apex Court and thereafter the Hon ble Court held that the commission agreement is only a device to shift the profits from the payer firm to payee firm and accordingly upheld the disallowance of commission payment. In the instant case, there is no such finding recorded by the AO in his order. The revenue had not brought any material on record to prove that the payees were the related concerns of the payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that these entities were not in existence during the relevant financial year 2010-11. Instead the extracts from ROC website furnished by the Ld. DR shows that the entities were very much in existence in the relevant financial year 2010-11 and hence the genuineness of the payments made to them could not be doubted 26. It is noted that identical issue came up for consideration before the Hon'ble Calcutta High Court in the case of M/s. Inbuilt Merchants Pvt. Ltd. (G.A. No. 3825 of 2013) dated 14.03.2014. In the instant case, the assessee had made commission payments to certain North Eastern Indian residents. In the course of assessment the AO had issued notices u/s 133(6) to the brokers, which were returned unserved. The AO thus observed that the assessee could not establish the identity of the brokers and accordingly disallowed the commission payments. On appeal the High Court held that mere fact that the broker were not found at the address furnished by the assessee did not prove the fact that the payments were ingenuine. The Court observed that in this modern era it may not be possible for the assessee to know the brokers personally or be aware about their whereabouts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are as follows: a) Books of Accounts maintained by the assessee in the ordinary course of business; b) Deduction of Tax at source; c) Deposit of the money deducted at source; d) Particulars of the recipient were duly furnished; We are, as such, of the opinion that the views expressed by the learned Tribunal are unexceptionable. We, therefore refuse to admit the appeal. The appeal is thus dismissed. 27. We further find that the judgment of the Hon ble Calcutta High Court in the case of Mather Platt (I) Ltd Vs CIT (167 ITR 493) is also of much relevance in the facts of the present case. In the instant case as well the assessee had paid commission to two agents and in the course of assessment the notices issued by the AO u/s 131 had come back un-served. The AO therefore disallowed the commission treating it to be in-genuine. On appeal the Hon ble Calcutta High Court deleted the impugned disallowance by observing as under: 2. The facts which are material and the proceedings leading up to this reference are as follows: Mather Platt (India) Ltd., the assessee, carries on the business of manufacture and supply of, inter alia, food proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments. He disallowed the deduction of the amounts paid to the said two agents by way of commission. 6. Being aggrieved, the assessee preferred an appeal before the Commissioner (Appeals) from the order of the IAC. The Commissioner (Appeals) held that the contract with the MintopCorpn. was not void or illegal and as such the commission paid to the said MintopCorpn. was allowable for deduction. In respect of the commission paid to C.B. Singh and Vandana Sales Corpn. the Commissioner (Appeals) noted that the payments had been made in the case of the former by a bank draft on the State Bank of India, Lucknow and in the case of the latter by an account payee cheque which was encashed through a bank account of the commission agent. He also noted that the assessee had furnished the addresses of the said two commission agents from its records. The contentions of the assessee in respect of the said two commission agents were also accepted and the deduction as claimed by the assessee was allowed. 7. Being aggrieved, the revenue preferred a further appeal before the Tribunal. The Tribunal accepted the case of the assessee so far as the payment of commission to MintopCorpn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The learned advocate for the assessee submitted further that considering the volume of the business of the assessee which showed in its return an annual income of over Rs. 37 lakhs, there was no reason to doubt the genuineness of the two payments of commission amounting only to about Rs. 37,000. 12. In support of his contentions, the learned advocate for the assessee cited S. Hastimalv. CIT [1963] 49 ITR 273 (Mad.). In this case, the assessee was called upon to explain the source of an amount credited in his books. The assessee contended that he had borrowed the amount from a party at Bikaner which had been paid by the agent of the creditor by a bank draft. The assessee supported his explanation by other documentary evidence. The explanation of the assessee was rejected by the Tribunal on the ground that the draft was not sent by the creditor but by some other person and it had not been possible to contact either the creditor or his agent. 13. On these facts, it was held by the Madras High Court that the assessee had established the source of the said amount of credit and its explanation could not be rejected on the ground of disability of the revenue to ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y fact on which the Tribunal has proceeded is that four years after the transactions, summons served on the commission agents had come back unserved. On the entirety of the evidence it cannot be held that if a person is not found in an address after four years he is nonexistent. In our view, the assessee discharged its primary onus and established the identities of the said two commission agents and no evidence had been brought on record by the revenue to rebut the case of the assessee. On the entirety of the evidence, it would be unreasonable to hold that the assessee had failed to establish the identity of the said two commission agents and that payments to the said commission agents were not genuine. 17. For the reasons as above, we answer the question referred in the affirmative and in favour of the assessee. There will be no order as to costs. 28. We find that similar issue was also involved in the judgment rendered by the Gujarat High Court in the case of CIT Vs. Nangalia Fabrics Pvt. Ltd (40 taxmann.com 206). In the instant case the assessee had made purchases and also paid commission to brokers for sales. According to the AO the suppliers were untraceable and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Gujarat High Court in case of Kashiram Textile Mills. In view of the matter, addition made by the assessing officer is deleted. Ground No.1 of Assessee's appeal is allowed and ground No.1 of Revenue's appeal is dismissed. 4. The issue is essentially based on facts. The Tribunal, having been satisfied by genuineness of the purchases as also specially considering the payments made through the cheques, was of the opinion that such addition could not be sustained. Issue, essentially and pre-dominantly based on facts, requires no consideration as no question of law arises. 5. The second question pertains to brokerage commission of Rs. 72,37,808/- disallowed by the Assessing Officer. The Assessing Officer disallowed the commission on the ground that M/s. Shree Shantinath Silk Industries did not maintain its record and its name did not appear on sale bill. When it was challenged before the CIT(A) it was of the opinion that the only one party had been examined by the Assessing Officer and the person examined for and on behalf of such party in fact was not dealing with sales, and therefore, would not be having any knowledge of the brokerage. After dealing wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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