M/S ANKIT ROOFINGS LTD V. JOINT COMMISSIONER I T

ITA/371/2005

AI Insights

The case involves M/S Ankit Roofings Ltd, the appellant, challenging the Tribunal's decision which partly disallowed a commission payment to M/S Universal Supply Corporation. The commission was related to services purportedly rendered in procuring orders from the State Government. The Tribunal had found some merit in the appellant's claim but restricted the commission amount to Rs. 1,00,000, citing insufficient evidence of the services rendered. The High Court, however, found that the commission was justified based on the agreement between the parties and the services rendered were integral to the business operations of the appellant.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 768751 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 04-01-2017
• Assessment Year: misc
• Other Referred Cases: Additional Commissioner of Income Tax Vs. Rajasthan Spinning and Weaving Mills Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANUROOP SINGHI
• Assessee Lawyers: ASHISH SHARMA
• Keywords: Business expediency; Commission Payment; Income tax appeal; Public policy
• Section: 271(1)(c)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 371 / 2005 M/S Ankit Roofings Ltd ----Appellant Versus Joint Commissioner I T ----Respondent _____________________________________________________ For Appellant(s) : Mr. Ashish Sharma For Respondent(s) : Mr. Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR Judgment 04/01/2017 By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee. This court while admitting the matter, framed the following substantial question of law:- “Whether, in the facts and circumstances of the case, the Tribunal after being satisfied that M/s Universal Supply Corporation had rendered the services for which payment of commission is allowable, was legally justified in dis-allowing the assessee’s claim partly to the extent of Rs. 1,00,000/-?” The facts of the case are that this is the first Year of production and production was commenced on 7.1.97. The assessee company is engaged in manufacturing and selling of Asbestos Cement Pressure pipes and maximum supply is to State (2 of 6) [ITA-371/2005] Govt. This year the assessee has made sales of only Rs. 3540/- however, it is seen from the scrutiny of the details filed that the assessee has made payment of Rs. 2,09,400/- against debit notes of Rs. 1,34,400/- dt. 29.3.97 and against from Universal Supply Corpn. The assessee was asked to prove the services rendered by the company. M.D. was also called to explain the genuineness of the transaction and to prove the business expediency. On 13.1.2000 Shri Y.K. Sharma, CA and Shri N.K. Jain, MD attended the hearing and stated that M/s Universal Supply corpn. has helped the assessee in procuring the orders from State Govt. and also in obtaining the supply orders. The assessee has attached copies of certain letters from the super intending Engineers, PHED. However, they were unable to give any documentary evidence regarding the services rendered by the Universal Supply Corpn. to the assessee company. The aforesaid explanation given by the assessee was not found satisfactory for the following reasons:- 1. The assessee group is a very big established group and M.D. Shri N.K. Jain is very experienced person who is running several other companies also and having full infrastrecture of his group. Therefore, it is not believable that the assessee company needed any sort of help from M/s Universal Supply Corpn. for procuring orders from the PHED. 2. It is seen from the letters filed by the assessee that all letters and supply orders have been directly addressed and sent to the assessee company by the Chief Engineer, PHED and there is no role of M/s Universal Supply Corpn. between the assessee and PHED Deptt. 3. The quantum of sale shown is only Rs. 3540/- whereas the commission payment is Rs. 2,09,400/-. 4. The debit notes were given by the Universal supply Corpn. at the and or March 97 and the language used in the debit notes is against the norms of Govt. Policy for giving any job to a particular person. Particularly, (3 of 6) [ITA-371/2005] whenever any work/job is assigned to a person, open tenders are called and thereafter contracts are awarded on merits and rates quoted by the bidders. Therefore, it is not correct that M/s Universal Supply Corpn. has done any work for the assessee company in acquiring the business because the assessee has failed to prove the business the assessee has failed to prove the business expediency and the services rendered by the aforesaid concern. Otherwise also the payment in question is against the public policy and as such not allowable expenditure in view of court decisions. Therefore, the entire amount of commission payment will be disallowed and added back to the total income of the assessee company. Penalty proceedings u/s 271 (1) (c) are also initiated for furnishing inaccurate particulars of income. The assessing officer has disallowed the payment made to the Commission Agent- Universal Supply Corporation for carrying on different orders which were secured or procured through him by the assessee. The same was confirmed by the C.I.T. (Appeal), however, the Tribunal in this regard observed as under: By looking the totality of facts and circumstances of the case, we are satisfied that M/s. Universal Supply Corporation has rendered the services for which commission payment is allowable. However, the commission was paid in two installments – one for obtaining the orders and the other for obtaining the payment. The liaison work is comprehensive and it cannot be bifurcated. In these circumstances the claim made by the assessee is looking on higher side. Therefore, we modify both the orders of the lower authorities and restrict the addition to Rs. 1,00,000/- only. Thus the assessee will get the adhoc relief of Rs. 1,09,400/- from the orders of the lower authorities. Learned counsel for the appellant contended that inspite of the agreement between the parties which was before the Tribunal and this court has allowed to produce on record, which is taken on record. Clause (4) of the agreement reads as under: (4 of 6) [ITA-371/2005] a) On obtaining of the RATE CONTRACT in favour of First Part, a lump sum amount of Rs. 75,000/- (Rs. Seventy Five Thousand Only) shall be paid by the FIRST PART to the SECOND PART subject to satisfactory fulfillment of this Assignment. b) The FIRST PART shall make payment of an amount equal to FOUR PERCENT OF THE VALUE OF ORDERS procured by the SECOND PART in favour of the FIRST PART from PHED and other departments and parties. c) The FIRST PART shall make payment of an amount equal to THREE PERCENT OF THE VALUE of the amount of COLLECTION in favour of First part collected from the consignee’s of the PHED and other departments and parties for invoices raised by First Part. Inspite of that, all the authorities have not allowed Commission on the basis of agreement between the parties which has been executed by him and so reflected in the books of accounts. He has relied upon the judgment of this court in Additional Commissioner of Income Tax Vs. Rajasthan Spinning and Weaving Mills Ltd reported in(2005) 274 ITR 463 (Rajasthan) wherein it has been held as under:- “10. Undoubtedly, participation in any trade, association or fund set up for advancement of business, which is also carried on by the assessee, interest is primarily for advancing the assessee’s own business and not for philanthropic purposes. Essentially the finding, whether the expenses have been incurred wholly or exclusively for the purpose of assessee’s business, is a finding of fact. The fact that by becoming member of such association or contributing to such fund, such other participant or contributor is also benefited does not mean that the assessee has not spent sum exclusively and wholly for his business. The concept or \"wholly and exclusively\" is not that nobody else is to be benefited by making like expenses. Question is why the assessee makes such contribution. If his contribution is motivated by his own interest and there is nexus between the expense incurred and his business interest he has spent the money for his own business exclusively and wholly. The fact that recipient of such contribution viz., the association or fund exist for benefit for other persons also is not relevant. 11. It is well-settled that expression \"wholly and exclusively\" does not denote (5 of 6) [ITA-371/2005] \"necessarily\". The word \"wholly\" refers to quantum of expenditure. The word \"exclusively\" refers to motive, objective or purpose with which the particular expense has been incurred. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of its or his business. Such expenses can be incurred voluntarily and without necessity. If it is incurred for promoting the business and to earn the profits, the assessee can claim the deduction. Reference in this connection may be made to Sasoon J. David & Co. (P) Ltd. vs. CIT (supra) wherein the apex Court even considered the circumstance that as a matter of fact the word \"necessarily\" found place in the Income-tax Bill, 1961, but was dropped by legislature in favour of expression \"wholly and exclusively\". 15. Applying the aforesaid test to voluntary contribution to charitable fund or organisation it is also well established that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee’s business or which results in benefit to the assessee’s business has to be regarded as an allowable deduction under s. 37(1). Such a donation, whether voluntary or at the instance of the authorities concerned, when made to relief fund or a welfare fund or any other fund for the benefit of the public and with a view to secure benefit to the assessee’s business, cannot be regarded as payment opposed to public policy. It is not as if the payment in such circumstances had been made as an illegal gratification. There is no law which prohibits the making of such a donation. The mere fact that making of a donation for a charitable or public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee a deduction of that amount under s. 37(1).” Learned counsel for the respondent contended that it is concurrent finding of fact and no substantial question of law is made out and this court should not interfere in the appeal as the Tribunal has sufficiently granted indulgence, therefore, no interference is called for and the judgment cited by counsel for the appellant is not applicable in the facts of the case. We have heard the learned counsel for the parties. Before proceeding further with the matter, it will not be out (6 of 6) [ITA-371/2005] of place to mention that the agreement was entered between the parties that is not in dispute. In that view of the matter, the expenditure which are made pursuant to the agreement deserves to be allowed. Even otherwise, Tribunal has allowed the appeal partly. In our view the Commission is to be allowed completely or it is to be rejected. The Tribunal has committed serious error in partly allowing the appeal. Therefore, the issue is required to be answer in favour of the assessee and against the department. The appeal is accordingly allowed. (VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. /bm gandhi 55 "