Chemfab Alkalis Ltd., CHENNAI V. DCIT, Pondicherry

CO 149/CHNY/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3198 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: SRIDHAR
• Keywords: Gift; Depreciation; Reasonable cause
• Section: 133(6)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2810/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE I, PUDUCHERRY 605 003 VS M/S. CHEMFAB ALKALIS LTD., NO.1, GNANANDA PLACE, KALAPET, PONDICHERRY 605 014. PAN: AAACC1957D ( /APPELLANT) ( /RESPONDENT) & C.O. NO. 149/MDS/2014 (IN I.T.A. NO.2810/MDS/2014) M/S. CHEMFAB ALKALIS LTD., NO.1, GNANANDA PLACE, KALAPET, PONDICHERRY 605 014. VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE I, PUDUCHERRY 605 003 PAN: AAACC1957D ( /APPELLANT) ( /RESPONDENT) /REVENUE BY : SMT. S. VIJAYAPRABHA, JCIT /ASSESSEE BY : SHRI SRIDHAR, ADVOCATE ! /DATE OF HEARING : 26.09.2017 ! /DATE OF PRONOUNCEMENT : 20.11.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- 2 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 VI, CHENNAI DATED 30.04.2014 IN ITA NO.711/13-14/A- VI FOR THE ASSESSMENT YEAR 2010-11 PASSED U/S.250(6) R.W.S. 14 3(3) OF THE ACT. THE ASSESSEE HAS ALSO RAISED CROSS OBJECTION T OWARDS THE SAME ORDER OF THE LD.CIT(A) SUPRA. 2. THERE IS A DELAY OF 111 DAYS IN FILING THE APPEA L BY THE REVENUE. THE LD.DCIT HAS FURNISHED AN AFFIDAVIT BEF ORE US STATING THAT THE DELAY WAS DUE TO THE MISPLACEMENT OF FILE AND DUE TO THE TIME TAKEN FOR TRACING THE FILE. THE LD .DR PLEADED THAT THE DELAY IN FILING THE APPEAL MAY BE CONDONED. THE LD.AR OBJECTED TO THE SUBMISSION OF THE LD.DR. AFTER HEAR ING BOTH SIDES, THOUGH WE DO NOT APPRECIATE THE LETHARGIC AT TITUDE OF THE REVENUE, IN THE INTEREST OF JUSTICE WE ARE OF THE C ONSIDERED VIEW THAT THE DELAY IN FILING THE APPEAL REQUIRES TO BE CONDONED. ACCORDINGLY WE HEREBY CONDONE THE DELAY OF 111 DAYS IN FILING THE APPEAL BY THE REVENUE AND PROCEED TO HEAR THE C ASE ON MERITS. 3. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE LD.AO TOWARDS SALES 3 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 COMMISSION OF RS.2,57,30,495/- (RS.2,66,03,538-RS.8 ,73,043) OUT OF THE TOTAL DISALLOWANCE OF RS.2,66,03,538/-. 4. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS C ROSS OBJECTION HOWEVER THE CRUXES OF THE ISSUES ARE AS F OLLOWS:- (I) THE REVENUE HAS FILED THE APPEAL BEFORE THE TRI BUNAL BELATEDLY BY 111 DAYS WITHOUT REASONABLE CAUSE AND THEREFORE LIABLE TO BE DISMISSED. (II) THE LD.CIT(A) HAS ERRED IN PARTLY CONFIRMING T HE DISALLOWANCE OF SALES COMMISSION MADE BY THE LD.AO. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURE AND SALE OF HEAVY CHEMICALS LIKE HYDROCHLORIC ACID, CHLORINE, CAUSTIC SODA ETC., FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-1 1 ON 24.09.2010, ADMITTING TOTAL INCOME OF RS.11,72,78,2 46/-. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND F INALLY ASSESSMENT WAS COMPLETED VIDE ORDER DATED 20.03.201 3 WHEREIN THE LD.AO MADE SEVERAL ADDITIONS AMONGST WHICH ONE OF THE ADDITION WAS TOWARDS DISALLOWANCE OF SALES COMMISSI ON AMOUNTING TO RS.2,93,25,806/-. 4 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 6. DURING THE COURSE OF SCRUTINY ASSESSMENT IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAS CLAIMED SUM OF RS.2,93,25,806/- AS EXPENDITURE INCURRED TOWARDS SA LES COMMISSION. THE ASSESSEE COMPANY FURNISHED THE NAM ES AND ADDRESSES OF NINE PERSONS AS ITS SALES AGENT. THER EAFTER THE LD.AO ISSUED NOTICE TO THOSE SALES AGENT U/S.133(6) OF THE ACT. REPLIES WERE RECEIVED FROM SOME OF THE AGENTS. FRO M THOSE REPLIES, IT WAS REVEALED THAT THOSE SALES AGENTS WE RE ONLY PROPRIETARY CONCERNS ENGAGED IN BUSINESS ONLY WITH THE ASSESSEE COMPANY. FURTHER THE LD.AO ON EXAMINING TH E FINANCIAL STATEMENTS SUBMITTED BY THOSE COMMISSION AGENTS OPINED THAT THEY ARE NOT CAPABLE OF EARNING COMMISS ION INCOME AS DISCLOSED BY THEM. THEREFORE THE LD.AO DIRECTED THE ASSESSEE TO PRODUCE THE SALES COMMISSION AGENTS BEF ORE HIM FOR FURTHER VERIFICATION. HOWEVER THE ASSESSEE COMPANY COULD NOT PRODUCE MANY OF THE SALES COMMISSION AGENTS. SOME O F THE SALES COMMISSION AGENTS ALSO TURNED HOSTILE. FEW SA LES COMMISSION AGENTS COULD ONLY FURNISH THEIR INCOME T AX RETURNS FOR ESTABLISHING THE COMMISSION RECEIVED BY THEM. SOME OF THE SALES COMMISSION AGENTS EXAMINED BY THE LD.AO DID N OT KNOW 5 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 THE BASIC DETAILS OF THE PRODUCE SOLD BY THE ASSESS EE COMPANY. THE SALES COMMISSION AGENTS EXAMINED BY THE LD.AO A LSO DID NOT KNOW THE DETAILS OF THE COMPANIES TO WHOM THEY HAVE CLAIMED TO HAVE SUPPLIED THE GOODS. THE SIMPLE REPL Y OF THOSE COMMISSION AGENTS WAS THAT THE ENTIRE WORK WAS CARR IED OUT BY THEIR EMPLOYEES ACTING ON THEIR BEHALF. THE SALES C OMMISSION AGENTS WERE ALSO DISCLOSING IN THEIR FINANCIAL STAT EMENTS SUBSTANTIAL AMOUNT OF COMMISSION DISBURSED TO SUB-A GENTS THEREBY REDUCING THEIR TAX LIABILITY. THE SALES CO MMISSION AGENTS WERE ALSO NOT ABLE TO FURNISH THE DETAILS OF THEIR SUB-AGENTS. AFTER FURTHER EXAMINING FEW SALES COMMISSION AGENTS THE L D.AO MADE THE FOLLOWING OBSERVATIONS: 1.THE SALES AGENTS HAVE NOT BEEN CHOSEN FOR THEIR EXPERTISE IN THE FIELD OF SALES OR KNOWLEDGE IN THE PRODUCTS OF THE COMPANY. THEY ARE SELECTED SINCE THEY ARE RELIABLE PERSONS, KNOWN ALREADY TO THE COMPANY/ DIRECTORS. 2. THE DOCUMENTS HE WITNESSES CARRIED RELATE ONLY T O PREVIOUS YEAR 2009-10. THEY ARE UNIFORMLY PREPARED TO MEET T HE REQUIREMENTS OF ACCOUNTING AND INCOME-TAX. THEY ARE NOT SUPPORTED BY BILLS AND VOUCHERS. NO WITNESS HAS CLA IMED TO HAVE SIMILAR DOCUMENTS FOR EARLIER YEARS OR EVEN TH E CURRENT YEAR. 3. THE WITNESSES DO NOT CLAIM TO HAVE ANY BOOKS OF ACCOUNT, ROUGH BOOKS, DIARIES, NOTING, BILLS AND VOUCHERS TO SUPPORT THE BOOKS OF THE PREVIOUS YEAR 2009-10 OR EARLIER / CUR RENT YEARS. 6 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 THE FINANCIAL STATEMENTS PRODUCED ARE NOT SUPPORTED BY THE BASIC MATERIALS. IT IS TO BE NOTED THAT THEY ARE CL AIMED TO BE REGULAR TAX PAYERS. 4. THE WITNESSES DO NOT POSSESS OR CLAIM TO POSSESS RECORDS FOR HAVING CARRIED OUT ANY SERVICE EITHER ON THE PART O F CAL OR THE BUYER COMPANIES. NEITHER THE PROPRIETORS/PARTNERS N OR THE SUB-AGENTS EVER HAD ANY RECORD OF THE DETAILS OF OR DERS SECURED, SALES EFFECTED, DISPATCH OF GOODS, DELIVER Y OF GOODS, TRANSPORT DETAILS, DEBIT / CREDIT NOTES ON VALUE OF GOODS, COLLECTIONS MADE, PENDING BALANCES AND THE PERIOD O F PENDENCY . SERVICES ARE CLAIMED TO BE CARRIED OUT I N THE ABSENCE OF THE ABOVE INEVITABLE DETAILS. 5. THE MOU'S PRODUCED ARE ONLY FOR THE PREVIOUS YEA R 2009- 10. THEY ARE UNIFORM AND STEREO TYPE. THE WITNESSES DO NOT HAVE ANY MOU'S FOR EARLIER OR EVEN CURRENT YEAR. TH E CLAUSES OF THE MOU ARE THE SAME BUT THE EXECUTION OF WORK I S CLAIMED TO BE DIFFERENT FROM WITNESS TO WITNESS. BUT THE RA TE OF COMMISSION IS ON THE SALES AND IS UNIFORM. WHERE SM T. ANURADHA ONLY CARRIES OUT THE TRANSPORTATION OF GOO DS SMT. HEMALATHA EXECUTES SALES. BOTH ARE PAID THE SAME RA TE OF COMMISSION. 6. THE PROPRIETORS I PARTNERS HAVE NOT ADMITTED THE WHOLE OF THE RECEIPTS AS THEIR INCOME. MAJORITY OF THE AMOUN TS ARE DIVERTED TO SUB-AGENTS. THE SUB-AGENTS CLAIMED BY S MT. ANURADHA SHRI P. SANTHANAM AND SHRI. K. PRAKASH ARE OVERLAPPING. (B.DINESH BABU, G GEETHA, M RAVICHANDR AN AND, SAILAS JEANS). BUT THE ADDRESS AND ASSESSMENT DETAILS OF THESE PERSONS ARE NOT MADE AVAILABLE. ALSO NO DETAI LS ARE MADE KNOWN ON THE SUB-AGENTS / EMPLOYEES FOR THE EA RLIER YEARS AND NO RECORDS ARE CLAIMED TO BE AVAILABLE. 7. THERE ARE NO EVIDENCES FOR THE PAYMENTS MADE TO THE SUB- AGENTS /EMPLOYEES. NO BANK ENTRIES ARE SHOWN TO SUP PORT A 7 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 PAYMENT TO A THIRD PERSON AND NO TAX HAS BEEN DEDUC TED ON SUCH DISBURSEMENTS. THE VOLUME OF PAYMENTS CLAIMED IN THE PROFIT AND LOSS ACCOUNT OF EACH WITNESS IS WELL ABO VE THE MINIMUM REQUIREMENTS OF TDS ON SUBAGENTS AND TAXABL E SALARY ON EMPLOYEES. 8. OUT OF THE SALES COMMISSION OF RS.2,93,25,806/- ONLY A SMALL PORTION IS ADMITTED AS INCOME FOR TAXATION BY THE S O CALLED SALES AGENTS. THE BALANCE SUM PAID TO THE SUBAGENTS / EMPLOYEES ARE UNPROVED AND NOT EXPLAINED. THUS, THE ULTIMATE BENEFICIARIES ARE NOT KNOWN. 9. THE WITNESSES HAVE NO KNOWLEDGE ON THE GEOGRAPHI CAL POSITION OF THE BUYER COMPANIES, THEIR INFRASTRUCTU RE, PRODUCTS, PURPOSE OF PURCHASE, NAMES AND TELEPHONE NUMBERS OF THE KEY PERSONS OF THE BUYER CONCERNS AND SOME ARE INDISPOS ED TO MAKE PERSONAL VISITS. 10. THE WITNESSES HAVE BEEN PROVED NOT TO HAVE THE BASIC KNOWLEDGE ABOUT THE PRODUCTS OF CAL, THEIR HAZARDS, LEGAL IMPLICATIONS AND THE UTILITY ON THE PART OF THE BUY ER CONCERNS. 11. MANY OF THE WITNESSES DO NOT HAVE ANY BUSINESS PREMISES. THEY CLAIM TO OPERATE FROM RESIDENCES. BUT, THIS CL AIM CANNOT HOLD WATER WHERE THE ELECTRICITY TARIFF IS PAID FOR ONLY DOMESTIC CONSUMPTION. THE VERY CLAIM OF RUNNING A BUSINESS C ONCERN TO EXECUTE SERVICES IS NOT PROVED. 12. THE ASSESSEE COMPANY HAS NOT PRODUCED ANY RECOR D TO SHOW THAT THE SALE AGENTS HAVE CARRIED OUT CERTAIN SERVICES TO THEM BY WAY OF DOCUMENTS, RECORDS, CORRESPONDENCES, MINUTES OR THE LIKE. THEY DO NOT EXIST ANYWHERE OTHER THAN IN THE BOOKS OF ACCOUNT. 13. NONE OF THE BUYER COMPANIES HAS CLAIMED THAT TH EY HAVE BEEN SERVED BY THE RESPECTIVE AGENTS THOUGH THE AGE NTS 8 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 CLAIMED TO HAVE SERVED FOR SUCH COMPANIES IN PARTIC ULAR. THESE DENIALS SHOW THE ACTUAL PICTURE OF NOT OPERAT ING THROUGH AGENTS. 7. THEREAFTER THE LD.AO ARRIVED AT THE FOLLOWING CO NCLUSIONS BY RELYING ON VARIOUS DECISIONS OF HIGHER JUDICIARY :- (I) THE ASSESSEE COMPANY HAS BEEN IN THE BUSINESS O F SALES OF CHEMICALS FOR OVER 25 YEARS AND THEREFORE THEY D O NOT NEED THE SERVICES OF NOVICES TO CANVASS ORDERS FOR THEM. (II) THE ASSESSEE COMPANY HAD MADE ARRANGEMENTS WIT H CERTAIN INDIVIDUALS FOR DISBURSING THEIR INCOME IN THE FORM OF SALES COMMISSION AND THEREBY CLAIMING DEDUCTION. (III) THOSE INDIVIDUALS IN TURN PASSED ON THE SALES COMMISSION TO SUB-DEALERS IN ORDER TO REDUCE THEIR TAX LIABILI TY. (IV) THE TRANSACTIONS ARE DOCUMENTED IN METICULOUS MANNERS WHICH ARE ALL DUBIOUS. (V) THEREFORE THE SALES COMMISSION PAYMENTS ARE DIS PROVED TO A REASONABLE AND LOGICAL EXTENT. (VI) THERE IS NO NECESSITY FOR THE REVENUE TO PROVE THE CASE AGAINST THE ASSESSEE COMPANY BEYOND DOUBT UNLIKE A CRIMINAL PROCEEDING. 9 ITA NO.2810/MDS/2014 & CO NO. 149/MDS/2014 (VII) RELIANCE WAS PLACED IN THE CASE SAI INDUSTRIE S LIMITED VS. ACIT REPORTED IN 70 TAXMANN.COM 161, WHEREIN THE DE LHI TRIBUNAL AFTER EXAMINING THE FACTUAL MATRIX ON PREPONDERANCE OF PROBABILITIES HELD THAT THE ASSESS EE WAS NOT THE OWNER OF THE ASSET AND THEREFORE WAS JUSTIF IED IN NOT ALLOWING THE ASSESSEES CLAIM OF DEPRECIATION. (VIII) RELIANCE WAS ALSO PLACED IN THE CASE A. RAJE NDRAN VS. ACIT REPORTED IN 127 ITD 361 AND THE DECISION OF TH E CASE CIT VS. P. MOHANAKALA REPORTED IN 291 ITR 278 WHERE IN BASED ON THE VARIOUS SURROUNDING CIRCUMSTANCES RELI ED BY THE LD.AO THE EXPLANATION OFFERED BY THE ASSESSEE F OR HAVING RECEIVED THE GIFT WHICH WAS UPHELD WAS REJEC TED. (IX) THE BASIC EVIDENCE FOR CARRYING OUT SERVICES B Y THE SALES COMMISSION AGENTS WERE ABSENT IN THE CASE OF THE ASSESSEE. (X) SINCE THE COMPANIES / CLIENTS WHO HAVE PURCHASE D GOODS FROM THE ASSESSEE COMPANY HAVE DENIED THE EXISTENCE OF ANY COMMISSION AGENTS BETWEEN THEM, THE TEST OF PREPONDERANCE OF PROBABILITIES HOLDS AGAINST THE AS SESSEE. (XI) FROM THE ABOVE FACTS IT WAS EVIDENT THAT THE A SSESSEE COMPANY DID NOT SELL THE PRODUCE THROUGH SALES 10 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 COMMISSION AGENTS AND THE SALES COMMISSION AGENTS L ISTED BY THE ASSESSEE ARE NOT GENUINE AND THEREFORE THE C LAIM OF SALES COMMISSION OF RS.2,95,25,806/- IS NOT ALLOWAB LE AS DEDUCTION. 8. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CI T(A). THE LD.CIT(A) AFTER EXAMINING THE REPLIES RECEIVED FROM THE COMMISSION AGENTS, STATEMENT RECORDED BY THE LD.AO WHILE EXAMINING THE WITNESSES AND CROSS EXAMINATION AND T HE FINDINGS STATED IN THE ASSESSMENT ORDER ARRIVED AT THE FOLLO WING CONCLUSION:- (I) THE ASSESSEE COMPANY HAD ESTABLISHED THE IDENTI TY OF THE COMMISSION AGENTS. (II) THE ASSESSEE COMPANY HAD ALSO SUBMITTED THE CONFIRMATION STATEMENTS, INCOME TAX RETURNS, BANK STATEMENTS, PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THE COMMISSION AGENTS ALONG WITH THE DETAILS OF THE TAX DEDUCTED AT SOURCE ON THE PAYMENT MADE TO THE COMMISSION AGENTS. (III) ALL THE PAYMENTS TO THE COMMISSION AGENTS WER E MADE THROUGH ACCOUNT PAYEE CHEQUES AFTER 11 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 DEDUCTING TAX AT SOURCE WHICH WAS PROMINENTLY DEPOSITED IN THE GOVERNMENT EXCHEQUER. (IV) ALL THE COMMISSION AGENTS WERE INCOME TAX PAYE ES WITH PROPER PAN NUMBERS AND HAVE FILED THE INCOME TAX RETURNS DISCLOSING THE COMMISSION RECEIPTS IN THEIR RESPECTIVE RETURNS. (V) IT IS AN ESTABLISHED FACT THAT NONE OF THE SALE S COMMISSION AGENTS ARE RELATED TO THE ASSESSEE COMPANY. (VI) SIMILAR COMMISSIONS WERE PAID TO ALL THE COMMI SSION AGENTS IN THE EARLIER ASSESSMENT YEARS WHICH WERE ACCEPTED BY THE DEPARTMENT. (VII) THE ASSESSEE WAS MAINTAINING THE BOOKS OF ACC OUNT FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY WAS CREDITING THE COMMISSION AGENTS ACCOUNT FOR THEIR ENTITLED COMMISSION ON ACCOUNT OF SALES MADE BY THEM WITH RESPECT TO THE ASSESSEES PRODUCE. (VIII) THERE WERE MATERIAL EVIDENCES TO ESTABLISH T HAT THE COMMISSION AGENTS WERE GENUINE BY VIRTUE OF THE SALES INVOICES RAISED BY THE COMMISSION AGENTS, 12 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 CONTRACTUAL AGREEMENTS FOR THE WORK PERFORMED BY THEM AND CHEQUE PAYMENTS MADE TO THE COMMISSION AGENTS FOR DISBURSEMENT OF COMMISSION. (IX) THE STATEMENT RECORDED BY THE LD.AO ESTABLISHE S THE FACT THAT THE COMMISSION AGENTS CONFIRMED THE SERVICE RENDERED BY THEM AND THE RECEIPT OF COMMISSION. (X) SOME OF THE COMMISSION AGENTS HAD EMPLOYED SUB- AGENTS IN ORDER TO SUPPLEMENT THEIR SERVICE OF SELL ING THE PRODUCT OF THE ASSESSEE AND THEIR DETAILS SUCH AS PROFIT & LOSS ACCOUNT, BANK STATEMENT, ETC., WERE A LSO FURNISHED, WHICH ESTABLISHES THE GENUINENESS OF THE TRANSACTIONS. (XI) ALL THE COMMISSION AGENTS HAD ALSO AFFIRMED IN THEIR SWORN STATEMENTS THAT THEY DO NOT REVEAL THEIR INDEPENDENT IDENTITY TO THE CUSTOMERS OF THE ASSESSEE AND FUNCTION ONLY AS THE REPRESENTATIVE OF THE ASSESSEE COMPANY IN THE NORMAL COURSE OF BUSINESS. (XII) THE EXPLANATION OF THE ASSESSEE COMPANY THAT IT IS NECESSARY TO SELECT RELIABLE PERSONS IN ORDER TO 13 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 MAINTAIN CONFIDENTIALITY FOR ENSURING THE ORDERS AR E NOT DIVERTED TO COMPETITORS OF THE ASSESSEE COMPANY IS ACCEPTABLE BECAUSE IT IS A PRUDENT BUSINESS PRACTICE IN THE TRADE. (XIII) THE EXPLANATION OF THE ASSESSEE COMPANY THAT THE AGENTS WORK UNDER THE SUPERVISION AND GUIDANCE OF THE MARKETING DEPARTMENT OF THE ASSESSEE COMPANY IS ALSO ACCEPTABLE BECAUSE SUCH PRACTICE IS GENERAL LY FOLLOWED IN THE TRADE. 8.1 THE LD.CIT(A) THEREAFTER RELIED IN THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE ITO VS. SHAKTI CA BLES REPORTED IN 50 TAXMANN 329, WHEREIN IT WAS HELD THAT WHEN TH E APPELLANT WAS ABLE TO PROVE THE IDENTITY OF THE COMMISSION AG ENTS, THE DETAILS OF SERVICES RENDERED BY THEM, CONFIRMATION OF WORK CARRIED OUT BY THE COMMISSION AGENTS AND THE PROOF OF PAYME NT TO COMMISSION AGENTS BY BANKING CHANNELS, THEN DEDUCTI ON CANNOT BE DENIED. BASED ON THE RATIO LAID DOWN BY THE ABO VE MENTIONED CASE DECIDED BY THE DELHI BENCH OF THE TRIBUNAL AND THE ABOVE MENTIONED CONCLUSIONS ARRIVED AT ON EXAMINING THE F ACTS OF THE CASE AND MATERIALS ON RECORD, THE LD.CIT(A) GRANTED RELIEF TO THE 14 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 ASSESSEE TO THE EXTENT OF RS.2,57,30,490/- AND SUST AINED THE ADDITION OF RS.8,73,043/- BEING THE COMMISSION PAID TO SRI AGENCIES BECAUSE THE ASSESSEE HAD NOT OBTAINED THE CONFIRMATION STATEMENT FROM THAT COMMISSION AGENT A ND ESTABLISHED THE GENUINENESS OF THE COMMISSION AGENT . 9. BEFORE US THE LD.DR VEHEMENTLY ARGUED BY REITERA TING THE FINDINGS MADE BY THE LD.AO IN HIS ORDER WHILE AS TH E LD.AR ARGUED IN SUPPORT OF THE ORDER OF THE LD.CIT(A) WIT H RESPECT TO THE RELIEF GRANTED BY THE LD.CIT(A) FOR RS.2,57,30,490/ -, HOWEVER STRONGLY OBJECT FOR SUSTAINING THE ADDITION ON THE COMMISSION PAID OF RS.8,73,043/- BY STATING THAT THE ASSESSEE HAD P RODUCED THE CONFIRMATION STATEMENT OF ALL THE COMMISSION AGENTS EXCEPT ONLY THAT OF M/S. SRI AGENCIES WHICH COULD BE IGNORED. THE LD.AR FURTHER SUBMITTED THAT THE DETAILS OF THE COMMISSIO N AGENT M/S. SRI AGENCIES WERE PRODUCED BEFORE THE LD.AO THUS THE ON US HAS SHIFTED ON THE REVENUE. IT WAS THEREFORE PLEADED T HAT DEDUCTION MAY BE ALSO GRANTED FOR THE COMMISSION PAID TO M/S. SRI AGENCIES BY WAY OF CHEQUE AMOUNTING TO RS.8,73,043/-. 15 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS O F THE CASE WE DO NOT FIND MUCH STRENGTH IN THE OBSERVATION MADE B Y THE LD.AO IN HIS ORDER AS DISCUSSED HEREIN BELOW:- (I) THE LD.AO HAD QUESTIONED THE GENUINENESS OF THE SALES AGENTS BECAUSE THEY WERE NOT APPOINTED ON MERITS BU T ON RELIABILITY AND KNOWN ACQUAINTANCE. WE ARE OF THE V IEW THAT APPOINTING SALES AGENTS BASED ON THEIR RELIABILITY AND ACQUAINTANCE MORE THAN THEIR MERIT IS ACCEPTABLE BE CAUSE IN SUCH CASE THE SCOPE OF DIVERTING THE CUSTOMERS OF T HE ASSESSEE COMPANY TO THEIR COMPETITORS WILL BE REMOT E WHICH IS VERY IMPORTANT IN HIGHLY COMPETITIVE BUSINESS. T HEREFORE THE DOUBT IN THE MIND OF LD.AO ON THIS ISSUE HAS NO MERIT. (II) THE LD.AO HAD DOUBTED THE TRANSACTION BECAUSE THE DOCUMENTS WERE PREPARED UNIFORMLY TO MEET THE REQUIREMENTS OF ACCOUNTING AND INCOME TAX. WE DO N OT FIND ANY REASON TO DOUBT THE DOCUMENTS WHEN THEY ARE PRE PARED UNIFORMLY TO MEET THE REQUIREMENTS OF ACCOUNTING AN D INCOME TAX BECAUSE THE TRANSACTION WITH RESPECT TO SALES COMMISSION WITH ALL THE SALES AGENTS ARE IDENTICAL. THEREFORE THE DOCUMENTS PREPARED FOR SUCH TRANSACTI ONS WILL 16 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 OBVIOUSLY HAVE TO BE SIMILAR. FURTHER SUCH DOCUMEN T SHOULD ALSO TAKE IN TO ACCOUNT OF THE REQUIREMENTS OF ACCO UNTING AND INCOME TAX MATTERS WHICH ARE MANDATORY. (III) THE LD.AO HAS OBSERVED THAT THE COMMISSION AG ENTS DO NOT HAVE ANY BOOKS OF ACCOUNTS, ROUGH BOOKS, DIARIES, N OTING, BILLS & VOUCHERS TO SUBSTANTIAL THEIR FINANCIAL STA TEMENTS, HOWEVER NO SUCH ALLEGATIONS ARE BROUGHT TO OUR NOTI CE FROM THEIR ASSESSMENTS MADE BY THE REVENUE AUTHORITIES. (IV) THE LD.AO HAS FURTHER OBSERVED THAT THE COMMIS SION AGENTS DO NOT POSSESS ANY EVIDENCE FOR CARRYING OUT SERVIC ES TO THEIR PRINCIPAL THE ASSESSEE COMPANY SUCH AS DETAIL S OF ORDERS SECURED, SALES EFFECTED, DISPATCH OF GOODS, DELIVERY OF GOODS, TRANSPORT DETAILS, DEBIT/CREDIT NOTES, ET C. IT IS PERTINENT TO MENTION THAT MOST OF THE ABOVE MENTION ED DOCUMENTS ARE TO BE MAINTAINED BY THE ASSESSEE COMP ANY AND NOT BY THEIR COMMISSION AGENTS. (V) THE LD.AO EVEN QUESTIONS THE UNIFORM RATE OF CO MMISSION PAID FOR TRANSPORTATION OF GOODS AND EXECUTION OF S ALES WHICH ARE THE MANDATE OF THE ASSESSEE COMPANY AND CANNOT BE QUESTIONED. 17 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 (VI) THE LD.AO HAS ALSO QUESTIONED THE NECESSITY FO R APPOINTING SUB-AGENTS. IT IS PERTINENT TO MENTION THAT THE LD. AO CANNOT SIT ON JUDGMENT WITH RESPECT TO THE COMMERCIAL DECI SIONS OF THE ASSESSEE. FURTHER THE LD.A.O HAS STATED THAT NO DETAILS OF THE TRANSACTIONS BETWEEN THE SALES COMMISSION AG ENT AND THEIR SUB-AGENTS WERE PRODUCED, HOWEVER SUCH DE TAILS COULD HAVE BEEN CALLED FOR FROM THE COMMISSION AGEN TS/SUB AGENTS OF THE ASSESSEE U/S. 133(6) OF THE ACT WHICH IS NOT ATTEMPTED BY THE LD.A.O. (VII) THE LD.AOS FURTHER GRIEVANCE IS THAT THE COM MISSION AGENTS HAVE ONLY DISCLOSED MINIMUM PROFIT IN THEIR RETURN OF INCOME. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINI ON THAT THE REVENUE OUGHT TO HAVE EXPOSED THE COMMISSION AG ENTS AFTER CALLING FOR DETAILS FROM THEM U/S 133(6) OF T HE ACT AND THEREAFTER MADE A CONCRETE FINDING ON THE ISSUE BEF ORE INFLICTING DAMAGE ON THE ASSESSEE. (VIII) IT IS NOT NECESSARY FOR THE COMMISSION AGENT S TO KNOW PERSONALLY THE GEOGRAPHICAL POSITION OF THEIR CLIEN TS, INFRASTRUCTURE, PRODUCTS, PURPOSE OF PURCHASE, NAME AND TELEPHONE NUMBERS OF KEY PERSON OF THEIR CLIENTS BE CAUSE IT 18 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 IS ONLY THEIR REPRESENTATIVES WHO DEAL WITH THE CLI ENTS ON DAY TO DAY BASIS. (IX) IT IS ALSO NOT MANDATORY FOR THE COMMISSION AG ENTS TO HAVE COMPLETE KNOWLEDGE ABOUT THE PRODUCTS OF THEIR CLIE NTS THOUGH IT MAY HELP THEM IN SOLICITING THE CLIENTS. (X) IT IS ALSO NOT NECESSARY TO HAVE SEPARATE BUSIN ESS PREMISES FOR THE COMMISSION AGENTS TO PERFORM THEIR WORK. (XI) THE LD.CIT(A) HAS MADE A CATEGORICAL FINDING T HAT COMMISSION AGENTS HAVE ESTABLISHED TO HAVE CARRIED OUT SERVICES TO THEIR PRINCIPAL CONTRARY TO THE FINDING OF LD.AO. 10.1 FURTHER, WE ARE OF THE VIEW THAT THE CONCLUSIO N ARRIVED AT BY THE LD.AO DO NOT HAVE ANY MERITS BECAUSE OF THE FOL LOWING REASONS:- 1) THE LD.AO WAS OF THE VIEW THAT SINCE THE ASSESSE E WAS IN THE BUSINESS FOR OVER 25 YEARS, THEY DO NOT NEED SE RVICES FOR CANVASSING SALES ORDER. SUCH OPINION OF THE LD. A.O DOES NOT CARRY MUCH WEIGHT BECAUSE WHEN THE ASSESSEE COMPANY IS IN THE HABIT OF ENGAGING SALES COMMISSIO N AGENTS FOR EFFECTING ITS SALES, BUSINESS PRUDENCE M ANDATES NOT TO BYPASS THE SALES COMMISSION AGENTS IN ORDER TO AVOID 19 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 DIVERTING THE CLIENTS OF THE ASSESSEE COMPANY TO OT HER COMPETITIVE COMPANIES. 2) THE ALLEGATION OF THE LD.AO THAT THE EXPENDITURE TOWARDS SALES COMMISSION INCURRED BY THE ASSESSEE COMPANY W AS A DELIBERATE ATTEMPT TO REDUCE THE PROFITS OF THE ASS ESSEE COMPANY DOES NOT APPEAR TO BE CORRECT BECAUSE THE ASSESSEE COMPANY WAS CONSISTENTLY EMPLOYING THE SAL ES COMMISSION AGENTS YEAR AFTER YEAR AND IT WAS ACCEPT ED BY THE REVENUE. 3) ENGAGING SALES COMMISSION AGENTS IS A NORMAL PRA CTICE IN ANY BUSINESS THEREFORE THE MATRIX OF PREPONDERANCE OF PROBABILITIES RELIED BY THE LD.AO DOES NOT CARRY MU CH WEIGHT. 4) THE VERY EXISTENCE OF THE SALES MADE BY THE ASSE SSEE ITSELF IS AN EVIDENCE FOR CARRYING OUT SERVICES BY THE SAL ES COMMISSION AGENTS. FURTHER DOCUMENTARY EVIDENCE CAN NOT BE GENERATED FOR PROVING THE SAME BECAUSE SALES ORD ERS ARE GENERALLY OBTAINED ORALLY AND EXECUTED IN THE N ORMAL COURSE OF THE BUSINESS. 20 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 10.2 FURTHER THE LD.CIT(A) AFTER DELIBERATING THE I SSUE IN DETAIL HAS ALSO ARRIVED AT A CONCLUSION THAT THE IDENTITY OF THE COMMISSION AGENTS IS ESTABLISHED. THE LD.CIT(A) HA S ALSO MADE A FINDING THAT MOST OF THE SALES COMMISSION AGENTS AND SUB- AGENTS ARE ASSESSEES RECOGNIZED BY THE REVENUE AND HAVE COMPLIED THEIR STATUTORY OBLIGATIONS. THE LD.CIT(A ) HAS FURTHER OBSERVED THAT THE ASSESSEE HAD MADE CHEQUE PAYMENTS TO ALL THE SALES COMMISSION AGENTS AFTER DEDUCTING TAX AT SOUR CE AND REMITTED THE SAME IN THE GOVERNMENT TREASURY. IT W AS ALSO ESTABLISHED BEFORE THE LD.CIT(A) THAT NONE OF THE C OMMISSION AGENTS ARE RELATED TO THE ASSESSEE COMPANY AND THE ASSESSEE COMPANY IS MAINTAINING PROPER BOOKS OF ACCOUNTS FOL LOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE LD.CIT(A) HAS ALSO RELIED ON THE DOCUMENTARY EVIDENCES GENERATED FOR ESTABLIS HING THE GENUINENESS OF THE SALES COMMISSION AGENTS. THE LD .CIT(A) HAS ALSO TAKEN INTO ACCOUNT WITH RESPECT TO THE CONFIRM ATION STATEMENT OF THE SALES COMMISSION AGENT WHICH WAS SUPPLEMENTE D BY THEIR STATEMENT OF ACCOUNTS, BANK STATEMENTS, INCOME TAX RETURNS ETC. FURTHER THE LD.CIT(A) HAS RIGHTLY PLACED RELIANCE I N THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE SHAKTI CABLES SUPRA WHEREIN IT WAS HELD THAT WHEN THE APPELLANT IS ABLE TO PROVE THE 21 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 IDENTITY OF THE COMMISSION AGENTS, THE DETAILS OF T HE SERVICES RENDERED BY THEM, CONFIRMATION OF WORK CARRIED OUT BY THE COMMISSION AGENTS AND THE PROOF OF PAYMENT TO COMMI SSION AGENTS BY BANKING CHANNELS THEN DEDUCTION CANNOT BE DENIED. IN THIS SITUATION CONSIDERING THE FACTS OF THE CASE AN D THE FINDINGS OF THE LD.CIT(A), WE DO NOT FIND IT NECESSARY TO INTER FERE IN HIS ORDER ON THE ISSUE. THEREFORE THE REVENUES APPEAL IS DE VOID OF MERITS. 11. ASSESSEES CROSS OBJECTION IN CO NO.149/MDS/2014:- WITH RESPECT TO THE CROSS OBJECTION OF THE ASSESSEE FOR BELATED FILING OF THE APPEAL BY THE REVENUE, WE HAVE CONDON ED THE DELAY HEREIN ABOVE WHILE HEARING THE APPEAL. THEREFORE TH IS GROUND RAISED BY THE ASSESSEE IS DECIDED AGAINST IT. FURT HER THE CROSS OBJECTION OF THE ASSESSEE WITH RESPECT TO THE DISAL LOWANCE OF SALES COMMISSION OF RS.8,73,043/- BEING THE AMOUNT PAID TO SRI AGENCIES WHICH IS SUSTAINED BY THE LD. CIT(A), WE D O NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED BY THE LD.AR BECAUSE EVEN BEFORE US AT THIS STAGE, NEITHER THE ASSESSEE NOR T HE LD.AR HAS PRODUCED ANY EVIDENCE TO SUBSTANTIATE THEIR CLAIM. THEREFORE THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE. 22 ITA NO.2810/MDS/201 4 & CO NO. 149/MDS/2014 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE A S WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMI SSED. ORDER PRONOUNCED ON THE 20 TH NOVEMBER, 2017 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 20 TH NOVEMBER, 2017 RSR *+ ,+ /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. / ( )/CIT(A) 4. / /CIT 5. + 2 /DR 6. /GF