TMI Blog1983 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of commission amounting to Rs. 60,743 to Photo Colour Co., Lucknow (the recipient company). 4. The ITO asked the assessee to justify the payment of the aforesaid commission to the recipient company. 5. The assessee offered the explanation vide its written reply dated 18-3-1977 wherein it stated that the recipient company was a registered firm which was assessed to tax, separately ; that the amount of commission paid was in terms of an agreement entered with it ; that the payment had been made for the services rendered by the recipient company to the assessee ; that the deduction for payment of the aforesaid commission to the recipient company was allowed in the years 1972-73 and 1973-74 respectively. 6. The ITO did not accept the said claim of the assessee as the explanation offered by the assessee was unsatisfactory and unjustified. So, he disallowed the claim and thereby added a sum of Rs. 60,743 to the income of the assessee on the pleas that the payment of commission to the recipient company was not at all justified and it was not for the purpose of business and would be of other than business consideration ; that the argument that it had been allowed for earlier years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness expediency in this case. The commission paid is much more than the profit earned by the assessee. I, therefore, add back this amount to the total income of the assessee." 7. The assessee went in appeal before the AAC who upheld the action of the ITO and confirmed the aforesaid disallowance of Rs. 60,743 made by the ITO, observing as under : "I have given my anxious thoughts to the submissions made by the learned counsel for the appellant and I have also gone through the records of the case. I find that the ITO's action was fully justified in making the said disallowance and for this finding, apart from the reasonings given by the ITO in the order, I add the following reasoning supporting my finding. As far as the form of transaction is concerned, probably the form is complied with and probably that might support the appellant's case but considering the substance of the transactions the allowance cannot be made. Each year is a separate entity under the Income-tax Act and in each year it has to be shown that the payment for the business considerations. For this year it is noted that the firm to which the payment has been made and the appellant firm have some of the common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the income-tax authorities after enquiry and due consideration :-- A.Y. 1972-73 A.Y. 1973-74 A.Y. 1974-75 Commission claimed 96,496.81 60,427.68 60,743 Commission allowed 96,496.81 60,427.68 Nil 3. The learned AAC's present order cannot be said to be a speaking order as much of what has been stated in the appeal does not find any mention in the body of order. 4. Without prejudice to the aforesaid grounds the disallowance of Rs. 60,743 made and confirmed by the learned AAC is very highly excessive and contrary to facts and laws of natural justice." 10. From the memorandum of appeal, it is clear to us that the assessee has reiterated the same stand which was taken by it before the authorities below ; while on the other hand, Shri Chandra Bhushan has contended that the impugned order is justified and merited no interference. 11. We have heard Shri Chandra Bhushan and gone through the record of the case. 12. We are of the opinion that the assessee should fail and its appeal is to be dismissed. 13. The reason is that the authorities below have given the assessee proper or reasonable opportunity of being heard and its explanation and contentions and submissions are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee ; as the recipient company has neither rendered any service for its claim nor the assessee proved that it rendered service and the payment of commission is for the services rendered for business purposes to the assessee by the recipient company ; hence, we confirm the order of the AAC as we do not see any infirmity or illegality in it. 17. In the result, the appeal is dismissed. Per Shri Anand Prakash, Accountant Member -- I have gone through the order of my learned brother, the Hon'ble Judicial Member II. As I am not able to persuade myself to agree with his reasoning and conclusions, I am writing a separate order as below. 2. The assessee-firm had entered into an agreement with Photo Colour, Lucknow on 2-9-1969. The preamble of the said agreement clearly states that : "Whereas Photo Colour has been able to obtain work order for Mono Cartons from Mohan Meakin Breweries Ltd., Lucknow on certain terms and conditions and hope to obtain more such orders, and whereas Photo Colour desires the work to be executed through G.W. Lawrie Co. on certain terms and conditions, and whereas G.W. Lawri Co. have agreed to undertake the execution of such work orders taken by Photo Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are the same as in the previous years. . . The commission has been paid for exclusive services rendered by them this year also." 5. After considering the above reply of the assessee, the assessment was completed on 23-3-1977--no further material or evidence is on record. Thus, the true position is that on identical facts and bearing identical submissions, the ITO has changed his position and has justified it by quoting the maxim that the principle of res judicata does not apply to the income-tax proceedings. This may be true, and yet the fact remains that the established positions are not disturbed and departed from unless there are change either in fact or in law or in reasoning. In this case, it appears to me that there is change in respect of none of the above factors. Therefore, I see no justification to make a departure this year from the stand taken by the revenue earlier prove that Photo Colour did not render the services contracted for. They have been rendering services in the earlier years, there is an assertion from the assessee that they rendered the services this year. There is no contradiction from the revenue of this stand, nor did it ever ask the assessee to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of doubt on the genuineness of the commission payment, (4) that "as both the parties are common and inter-related to each other, they can draw any agreement for diverting the profits of the firm". The true position in law is that the apparent is real, unless proved to the contrary. It is the averment of the ITO that there is collusion that the genuineness of commission payment is under a 'shadow of doubt', that the partners of the firm themselves could have procured the business from Mohan Meakins and that there was no need to take the help of Photo Colour. Was any opportunity given to the assessee to make its submissions on these points ? Was it faced with any evidence supporting the above inferences ? Is there any evidence on record to support these inferences or they are mere impsi dixit of the ITO ? To me it appears that there is no evidence on record whatsoever to addition made and allow the appeal. THIRD MEMBER Per Shri Prakash Narain, Accountant Member -- The above case has been referred to me by the President of the Tribunal under section 255(4) of the Act, as there was difference of opinion between the two members, who had earlier heard the appeal : 2. I may br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove the genuineness of the agreement, referred to above. On the basis of the above detailed reply, the ITO passed the following order : "The assessee has submitted that he had to pay commission because the orders were actually procured by Photo Colour and this is a business expenditure. It has further been argued that the rate of commission is 5 per cent and is reasonable under the agreement. I have considered the assessee's argument and I feel that due to special circumstances this year, as discussed above, no addition to the Trading Account is called for." 4. A similar enquiry was made in the assessment year 1973-74, and the assessee's claim was accepted by the ITO himself to the extent of Rs. 60,427.68 paid as commission to Photo Colour. 5. In the assessment year 1974-75, which is now under consideration before us, the ITO vide an entry in the order sheet on 31-1-1977 again required the assessee to justify the payment of commission to Photo Colour. The assessee vide his letter dated 18-3-1977 gave the following reply : "Justification of commission paid to Photo Colour : Photo Colour, Lucknow is a registered firm and they are assessed in 'B' Ward, Circle II. The com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee then came in appeal to the Tribunal. The learned Judicial Member confirmed the findings of the lower authorities mainly for the following reasons as contained in para 15 of his order : "Besides, there is no proof on the record that the recipient company rendered services to be assessee that entitled the said commission agreed upon and, as such, the assessee was bound to make payment regarding the aforesaid commission ; hence is entitled to claim for the payment of the said commission ; rather the recipient company consists of only one male member and others are lady members who are closely related to the partners of the assessee-firm and as such it was for the assessee to prove its claim as well as that the contract was there and acted upon in the year under consideration." 8. The learned Accountant Member passed a separate and dissenting order. He was of the view that there was no fresh evidence on record to warrant a departure from the established and admitted position, namely, that Photo Colour had been rendering services to the assessee as per the agreement dated 2-9-1969, and that the arrangement entered into between the assessee and that concern was neither sham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Photo Colour had been procuring orders from time to time, i.e., regular orders were procured by it and that it was not the case of the department that there was one single order with a view to divert any part of the assessee's income. With the help of the above evidence, he submitted that there was an agreement between the parties, that it had been acted upon, that Photo Colour had rendered services to the assessee since 2-9-1969 and that it was also entitled to commission. The learned counsel also referred to the decision of the Bombay High Court in the case of H.A. Shah Co. v. CIT [1956] 30 ITR 618 and contended that although the doctrine of res judicata or estoppel by record did not apply to the decisions of income-tax authorities, yet a previous finding or decision of such an authority could be re-opened or departed in subsequent years only in the following circumstances, namely : (a) the previous decision is not arrived at after due enquiry ; (b) the previous decision is arbitrary ; (c) if fresh facts come to light which on investigation would entitle the officer to come to a conclusion different from the one previously reached. The Court also observed that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of H. A. Shah the previous decision of the ITO had been arrived at after due enquiry that it was not arbitrary and that no fresh facts had come to light, which on investigation would entitle the ITO to come to a conclusion different from the one previously reached. In the absence of such circumstances, the ITO could not arbitrarily depart from the finding reached after due enquiry by his predecessor. 13. Even on facts I agree with the findings of the learned Accountant Member. Except doubting that the firm Photo Colour was not a genuine concern or that it had not rendered any services, there is no evidence on record to suggest that the services had not been rendered or that it was not genuinely constituted. The learned Accountant Member has rightly pointed out that there is no prohibition in law against the relatives doing business inter se. The ITO has not made any enquiry to find out whether the lady members were also actively engaged in the conduct of the business or that they were responsible for procuring the orders from time to time from Mohan Meakin Breweries Ltd. He has also made any enquiry from Mohan Meakin Breweries Ltd. I do not agree with the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
