UMAKANT AGRAWAL, MUMBAI V. DCIT 9(1), MUMBAI

CO 41/MUM/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5424 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 13-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEVDASAN
• Assessee Lawyers: R C JAIN
• Keywords: Business income
• Section: 142(1); 133(6); 37(1); 37; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 4853/MUM/2009 (ASSESSMENT YEAR: 2006-07) DEPUTY COMMISSIONER OF INCOME TAX 9(1) APPELLANT MUMBAI VS SHRI UMAKANT B AGRAWAL, MUMBAI RESPONDENT (PAN: AAYPA7843D) CROSS OBJECTION NO: 41/MUM/2010 (ARISING OUT OF I T A NO: 4853/MUM/2009) (ASSESSMENT YEAR: 2006-07) SHRI UMAKANT B AGRAWAL, MUMBAI CROSS OBJECTOR VS DEPUTY COMMISSIONER OF INCOME TAX 9(1) RESPONDENT MUMBAI ASSESSEE BY: SHRI R C JAIN REVENUE BY: SHRI DEVDASAN O R D E R R V EASWAR, PRESIDENT: THE APPEAL IS BY THE DEPARTMENT AND THE CROSS OBJE CTION IS BY THE ASSESSEE. THEY RELATE TO THE ASSESSMENT YEA R 2006-07. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS IN THE NAME AND STYLE OF M/S SUNRISE ENTERPRISES. THE BUSINESS CON SISTS OF TRADING IN CEMENT, STEEL, ACTING AS AUTHORIZED STOCKIEST, I NVESTMENT AND COMMISSION AGENCY. DURING THE RELEVANT PREVIOUS YE AR THERE WERE ALSO CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE APPEAL AND CROSS OBJECTION ARISE OUT OF THE ASSESSMENT ORDER P ASSED ON 30 TH DECEMBER 2008 UNDER SECTION 144 READ WITH SECTION 1 45(3) OF THE INCOME TAX ACT, 1961. 2. WE MAY FIRST TAKE UP THE APPEAL BY THE DEPARTMEN T, IN WHICH THE FOLLOWING GROUNDS HAVE BEEN TAKEN: - ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 1,22,56,320/- BEING DISALLOWANCE OF COMMISSION PAID TO M/S PANJAM PHARMA LTD. ( ` 1,11,49,220/-) AND M/S SUVIDHA REALTORS AND CONSTRUCTION PVT. LTD. ( ` 11,07,000/-) WITHOUT APPRECIATING THE FACTS THAT (I) EVIDENCE OF PROCUREMENT OF ORDERS THROUGH THESE PARTIES WAS NOT PRODUCED, (II) A NUMBER OF CUSTOMERS OF THE ASSESSEE DENIED HAVING TRANSACTED WITH THESE PERSONS AND THE ASSESSEE COULD NOT OTHERWISE ESTABLISH THE GENUINENESS OF THE SERVICES RENDERED BY THESE PARTIES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE SAID DISALLOWANCE OF ` 1,22,56,320/- BY ACCEPTING THE ASSESSEES EXPLANATION FOR NOT FURNISHING EVIDENCE REGARDING SERVICES RENDERED ON THE ERRONEOUS GROUNDS THAT THE NAMES OF THE AGENTS NEVER COME ON RECORDS OF EITHER PRINCIPAL OR CUSTOMER DUE TO SENSITIVE NATURE OF BUSINESS WITH THE GOVERNMENT AND BIG CORPORATE HOUSES AND IT WAS NATURAL THAT SOME OF THE CUSTOMERS DENIED HAVING ANY TRANSACTIONS WITH THESE PERSONS. THE BRIEF FACTS RELATING TO THE ABOVE GROUNDS ARE A S FOLLOWS. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER NO TICED FROM THE DETAILS RELATING TO THE COMMISSION INCOME DECLARED BY THE ASSESSEE THAT THE ASSESSEE RECEIVED COMMISSION OF ` 1,58,67,306/- FROM M/S GRASIM INDUSTRIES LTD., M/S SHREE DIGVIJAY CEMENT C O. LTD. AND OTHERS. AGAINST THE COMMISSION INCOME, THE ASSESSE E CLAIMED COMMISSION EXPENSES OF ` 1,22,56,320/-, THUS DECLARING NET COMMISSION INCOME OF ` 36,10,986/-. THE COMMISSION WAS CLAIMED TO HAVE BEEN PAID TO THE FOLLOWING PERSONS: - (1) M/S PANJON PHARMA LTD. ` 1,11,49,220/- (2) M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. ` 11,07,100/- ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 3 ON THE BASIS OF THE ABOVE DETAILS, THE ASSESSING OF FICER CALLED UPON THE ASSESSEE TO PROVE THE NATURE OF THE SERVICES PR OVIDED BY THE AFORESAID PERSONS ALONG WITH THEIR NAMES AND ADDRES SES. THE ASSESSEE FURNISHED THE DETAILS EXCEPT THOSE REGARDI NG THE NATURE OF SERVICES. THE ASSESSING OFFICER OBSERVED THAT THER E WAS NO EVIDENCE ON RECORD TO SHOW THAT THE ASSESSEE PROCUR ED BUSINESS WITH THE HELP OF THE SERVICES OF THE BROKERS. HE T HEREFORE ADDRESSED NOTICES UNDER SECTION 133(6) TO THE AFOREMENTIONED COMPANIES WHO WERE IN RECEIPT OF COMMISSION FROM THE ASSESSEE AND CALLED UPON THEM TO FURNISH THE RELEVANT DETAILS INCLUDING COPI ES OF THE AGREEMENT WITH THE ASSESSEE FOR PAYMENT OF COMMISSI ON, COPY OF THE BILLS RAISED ON THE ASSESSEE FOR THE COMMISSION AND THEY WERE ALSO ASKED TO CONFIRM THE NATURE OF THE SERVICES RE NDERED TO THE ASSESSEE WITH BRIEF DETAILS OF TRANSACTIONS FOR THE EARLIER AND SUBSEQUENT YEARS ALSO. THE ASSESSING OFFICER ALSO CALLED UPON THEM TO FURNISH THE COPIES OF THE SERVICE TAX RETUR NS FILED BY THEM AS WELL AS THE LEDGER ACCOUNT OF THE ASSESSEE IN TH EIR BOOKS. THE NOTICES ISSUED BY THE ASSESSING OFFICER WERE RETURN ED UNSERVED WITH THE POSTAL REMARK NOT FOUND. THE ASSESSEE W AS TOLD ABOUT THIS FACT AND WAS ASKED AGAIN TO FURNISH THE NAMES AND ADDRESSES OF THE PERSONS TO WHOM THE ASSESSEE HAD SOLD THE MA TERIALS THROUGH THE BROKERS TO WHOM COMMISSION WAS PAID. T HE ASSESSEE WAS ALSO ASKED TO FURNISH THE TOTAL SALES MADE THRO UGH THE BROKERS AND COMMISSION PAID TO THEM, BROKER-WISE FOR THE PR ECEDING THREE YEARS. THE ASSESSEE WAS ALSO ASKED TO FILE THE COP IES OF THE AGREEMENT WITH THE BROKERS FOR PAYMENT OF THE COMMI SSION. IN ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 4 RESPONSE TO THIS LETTER, THE ASSESSEE FURNISHED THE NAMES AND ADDRESSES OF THE BROKERS BUT DID NOT FURNISH THE DE TAILS OF THE SERVICES PROVIDED BY THEM AS REQUIRED BY THE ASSESS ING OFFICER. 3. ON A PERUSAL OF THE DETAILS FILED BY THE ASSESSE E, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE A SSESSEE COULD NOT PROVE THE SERVICES RENDERED BY THE BROKERS WITH EVIDENCE. HE ALSO NOTED THAT IN SO FAR AS THE BROKERAGE PAID BY THE ASSESSEE FOR SUPPLY OF MATERIALS TO ONGC DEHRADUN, THERE WERE NO DETAILS OF THE SERVICES RENDERED BY THE BROKER M/S SUVIDHA REALTOR S & CONSTRUCTION PVT. LTD. THE BILL RAISED BY M/S SUVI DHA REALTORS & CONSTRUCTION PVT. LTD. UPON THE ASSESSEE HAS BEEN S ET OUT IN PARAGRAPH 11.1 OF THE ASSESSMENT ORDER, FROM WHICH THE ASSESSING OFFICER NOTED THAT THE COMMISSION WAS CLAIMED FOR SERVICES RENDERED AND ASSISTANCE PROVIDED BY US TO SUNRISE E NTERPRISES FOR PROCUREMENT OR ORDERS, SUPPLY OF OIL WELL CEMENT . THE TOTAL BILL RAISED INCLUDING SERVICE TAX AND EDUCATION CESS CAM E TO ` 11,20,385/-. ON VERIFICATION OF THE BANK STATEMENT OF M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD., THE ASSESSING OF FICER NOTICED THAT THE AMOUNTS CREDITED THEREIN WERE SUBSEQUENTLY TRAN SFERRED TO THE ACCOUNT OF M/S SUVIDHA REALTORS, ANOTHER ENTITY, WH ICH WAS CONSIDERED BY THE ASSESSING OFFICER TO EXCITE SUSPI CION. 4. THE ASSESSING OFFICER ADDRESSED A NOTICE UNDER S ECTION 133(6) ON 19.11.2008 TO ONGC DEHRADUN AND QUERIED W HETHER THE CEMENT SUPPLIED TO THEM BY THE ASSESSEE WAS PROCURE D BY M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. ON BEHALF OF THE ASSESSEE OR WHETHER THEY WERE ACTING AS AGENTS FOR M/S GRASI M INDUSTRIES ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 5 LTD. / M/S SHREE DIGVIJAY CEMENT CO. LTD. THIS LET TER CAME BACK UNSERVED WITH THE POSTAL REMARK INCOMPLETE ADDRESS . THE ASSESSING OFFICER THEREFORE THOUGHT THAT THE ASSESS EE AND THE BROKERS WERE INDULGING IN DELAYING TACTICS SO THAT THE ASSESSMENT MAY GET BARRED BY LIMITATION BY 31.12.2008 AND THAT THEY WERE NOT COOPERATING IN THE ENQUIRY. 5. AS REGARDS M/S PANJON PHARMA LTD., THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 133(6) CALLING FOR CERT AIN DETAILS, WHICH WERE SUBSTANTIALLY THE SAME AS WERE CALLED FROM M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. M/S PANJON PHARM A LTD. REPLIED BY LETTER DATED 15.11.2008 AND STATED THAT THERE WA S NO WRITTEN AGREEMENT WITH THE ASSESSEE FOR PAYMENT OF COMMISSI ON. ALONG WITH THE LETTER, M/S PANJON PHARMA LTD. ENCLOSED TH E DETAILS OF THE PERSONS IN CONNECTION WITH WHOM SERVICES WERE PROVI DED, THE DEBIT NOTES RAISED ON THE ASSESSEE WHICH ACCORDING TO M/S PANJON PHARMA LTD. CONTAINED ALL THE DESIRED INFORMATION, COPIES OF THE SERVICE TAX RETURNS, BANK STATEMENT, ASSESSEES ACC OUNT IN THE LEDGER, ETC. THE ASSESSING OFFICER NOTICED FROM TH ESE DETAILS THAT THE COMMISSION WAS REFERRED TO AS SELLING COMMISSIO N. M/S PANJON PHARMA LTD. ALSO CLAIMED TO HAVE RENDERED SERVICES IN CONNECTION WITH THE FOLLOWING: - (1) PROCUREMENT OF ORDERS FOR SUPPLY OF CEMENT; AND (2) RELEASE OF PAYMENT FROM VARIOUS PARTIES SUCH AS ONGC, CGEWHO, IRRIGATION AND AGRICULTURE DEPARTMENTS, TAT A POWER LTD., TATA MOTORS LTD., AIRPORT AUTHORITY OF INDIA, CENTRAL WAREHOUSING COMPANY AND A FEW OTHER COMPANIES. THE ASSESSING OFFICER NOTICED FROM THE DETAILS SUBM ITTED BY M/S PANJON PHARMA LTD. THAT THE SAID COMPANY WAS NOT IN THE BUSINESS ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 6 OF PROVIDING ANY SERVICES IN THE PAST AND THAT THIS WAS THE FIRST YEAR WHERE HUGE COMMISSION INCOME HAS BEEN SHOWN TO HAVE BEEN RECEIVED FROM THE ASSESSEE. THE ASSESSING OFFICER ALSO EXPRESSED HIS SURPRISE THAT A COMPANY WHICH WAS CARRYING ON P HARMACEUTICAL BUSINESS COULD RENDER SERVICES IN CONNECTION WITH S ALE OF CEMENT AND PROCUREMENT OF ORDERS FOR SUPPLY OF CEMENT. M/ S PANJON PHARMA LTD. HAD HUGE BROUGHT FORWARD BUSINESS LOSS WHICH WAS SET OFF AGAINST THE COMMISSION INCOME RECEIVED FROM THE ASSESSEE. APART FROM THESE FACTS, THE ASSESSING OFFICER ALSO NOTICED THAT THE COMMISSION AMOUNT WAS CREDITED IN THE ACCOUNT IN HD FC BANK, FORT BRANCH, HELD BY M/S PANJON PHARMA LTD. AND IMM EDIATELY THE NEXT ENTRY WAS TO TRANSFER THE FUNDS TO ANOTHER ACC OUNT FOR REASONS WHICH WERE NOT DISCLOSED TO THE ASSESSING OFFICER. 6. IN THE MEANTIME THE ASSESSEE SUBMITTED BY LETTER DATED 10.11.2008 ADDRESSED TO THE ASSESSING OFFICER THAT HE WAS SELLING CEMENT ON BEHALF OF M/S GRASIM INDUSTRIES LTD., M/S ULTRATECH CEMENT LTD. AND M/S SHREE DIGVIJAY CEMENT CO. LTD. TO VARIOUS CUSTOMERS THROUGHOUT INDIA; THAT MANY OF HIS CLIENT S ARE GOVERNMENT BODIES AND CORPORATE ENTITIES LOCATED AT REMOTE PLACES; THAT HE WAS TAKING THE HELP OF OTHER PARTIE S TO SECURE ORDERS FROM THE CUSTOMERS; THAT IT WAS DUE TO THESE PARTIE S THAT HE WAS ABLE TO BOOK ORDERS FOR HIS PRINCIPALS; THAT THESE PARTIES WERE HELPING HIM IN GETTING THE PAYMENTS AND WERE TAKING CARE OF UNLOADING PROBLEMS, ISSUE OF VARIOUS STATUTORY FORM S, ETC.; AND THAT THE COMMISSION WAS BEING PAID ON PER TONNE BASIS AS WAS BEING PAID TO HIM BY HIS PRINCIPALS. THE ASSESSEE ALSO E XPLAINED THAT THE ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 7 RATE OF COMMISSION MAY VARY FROM CASE TO CASE. HE THUS PLEADED THAT THE COMMISSION WAS PAID FOR SUCH SERVICES. 7. ON RECEIPT OF THE ABOVE LETTER, A FRESH NOTICE W AS ISSUED UNDER SECTION 133(6) BY THE ASSESSING OFFICER TO M/ S PANJON PHARMA LTD. AND M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. IN THIS LETTER THEY WERE AGAIN REQUESTED TO PROVIDE DE TAILS OF THE NATURE OF THE SERVICES, LEDGER ACCOUNT, AGREEMENT COPY WIT H THE ASSESSEE IF ANY, BANK STATEMENT, ETC. THEY WERE ALSO ASKED TO FURNISH THE DETAILS OF ANY OTHER PERSONS FOR WHOM THEY PROCURED ORDERS AND WERE ASKED TO EXPLAIN WHETHER THEY HAD PERSONALLY V ISITED DIFFERENT PARTIES IN THE COURSE OF ACTING AS COMMISSION AGENT AND IF SO, TO FURNISH DETAILS OF THE PERSONS VISITED, DATE OF JOU RNEY, THE PERSONS WHOM THEY HAVE MET IN CONNECTION WITH THE PROCUREME NT OF ORDERS, THE DETAILS OF TRAVELLING EXPENSES, THE NUMBER OF D AYS STAYED, ETC. THEY WERE ALSO ASKED TO FURNISH DOCUMENTARY EVIDENC E TO SHOW THEY VISITED DIFFERENT PLACES SUCH AS COPY OF JOURN EY TICKETS, CORRESPONDENCE, ETC. 8. THE REPLY RECEIVED BY THE ASSESSING OFFICER FROM M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. TO THE AB OVE NOTICE DID NOT CONTAIN THE DETAILS CALLED FOR. THE ASSESSING OFFICER OBSERVED THAT THE ABOVE COMPANY WAS BASED IN HUBLI AND THERE HAS TO BE AN ACCEPTABLE BASIS FOR ENTERTAINING ITS CLAIM THAT IT PROCURED ORDERS FOR THE ASSESSEE FROM ONGC, WHICH IS BASED IN DEHRADUN WITHOUT EVEN TRAVELLING TO DEHRADUN. THE TRAVELLING EXPENS ES DEBITED BY THE ABOVE COMPANY IN ITS PROFIT & LOSS ACCOUNT WERE ONLY ` 17,200/-. ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 8 9. A FINAL NOTICE UNDER SECTION 142(1) WAS THEREAFT ER ISSUED TO THE ASSESSEE ON 15.12.2008, IN WHICH ALL THE FACTUA L MATERIAL GATHERED BY THE ASSESSING OFFICER THROUGH HIS ENQUI RIES WERE CONDENSED AND THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM FOR THE DEDUCTION OF THE COMMISSION PAYMENT. IN PARTICULAR , THE ASSESSING OFFICER INFORMED THE ASSESSEE IN THE NOTICE THAT IT WAS ESTABLISHED THAT BOTH THE BROKERS HAD NOT RENDERED ANY SERVICES TO PROCURE THE SALE ORDERS ETC. AND, THEREFORE, THE COMMISSION PAY MENT OF ` 1,22,56,320/- WILL HAVE TO BE TREATED AS MERE ACCOM MODATION ENTRIES. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLA IM BY ADDUCING EVIDENCE FOR THE SERVICES RENDERED BY THE BROKERS. 10. IN RESPONSE TO THE ABOVE NOTICE, THE ASSESSEE S UBMITTED A DETAILED REPLY ON 19.12.2008, WHICH IS REPRODUCED I N PARAGRAPH 21 OF THE ASSESSMENT ORDER. BESIDES REITERATING HIS C LAIM, THE ASSESSEE FURTHER STATED THAT SINCE HE WAS ONLY THE AUTHORIZED STOCKIEST, THE PARTIES CANNOT APPROACH HIM FOR PURC HASING THE GOODS AND IT IS THE ASSESSEE WHO HAS TO APPROACH THE PART IES FOR GETTING BUSINESS AND THIS COULD BE DONE ONLY THROUGH THE SE RVICES OF M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. AND M/S P ANJON PHARMA LTD. THE ASSESSEE POINTED OUT THAT M/S SUVIDHA REA LTORS & CONSTRUCTION PVT. LTD. AND M/S PANJON PHARMA LTD. W ERE INFLUENTIAL AND WERE HAVING GOOD CONTACTS IN SOCIAL, POLITICAL AND BUSINESS COMMUNITIES, WHICH HELP THE ASSESSEE IN GETTING BUS INESS. THE ASSESSEE ALSO STATED THAT HE COULD NOT UNDERSTAND W HY THE ASSESSING OFFICER WANTED THE NAMES OF OFFICIALS WHO WERE CONTACTED BY THE AGENTS. ACCORDING TO THE ASSESSEE , THOSE OFFICIALS ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 9 WERE ONLY ACTING ON BEHALF OF THE ORGANIZATION THEY REPRESENTED. A REQUEST WAS MADE TO THE ASSESSING OFFICER NOT TO IN SIST SO MUCH ON THE NAMES OF THE OFFICERS AND THEIR PERSONAL DETAIL S BEING DIVULGED. THE ASSESSEE ALSO LISTED THE NAMES OF SEVERAL PROJE CTS WITH WHICH HE WAS ASSOCIATED BY SUPPLYING CEMENT. THE ASSESSE E ALSO REITERATED HIS CLAIM THAT THE AGENTS PROVIDED ASSIS TANCE TO HIM BY USING THEIR INFLUENCE AND RELATIONS IN THE MATTER O F GETTING PAYMENTS RELEASED FROM THE PURCHASERS OF CEMENT. IT WAS ALS O POINTED OUT THAT M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. AND M/S PANJON PHARMA LTD. WERE WORKING FOR THE ASSESSEE AND WERE NOT DIRECTLY RESPONSIBLE EITHER TO THE ASSESSEES CUSTOMERS OR T O HIS PRINCIPALS AND THAT THE AGENTS CARRIED ON THEIR WORK SILENTLY. IT WAS POINTED OUT THAT THE COMMISSION WAS PAID THROUGH CHEQUES FROM W HICH TAX WAS DEDUCTED AND SERVICE TAX WAS ALSO PAID. ON THE BAS IS OF THESE FACTS THE ASSESSEE CLAIMED THAT THE ASSESSING OFFIC ER SHOULD TAKE A SYMPATHETIC VIEW AND ALLOW THE COMMISSION AS A DEDU CTION. 11. THE ASSESSING OFFICER CONSIDERED THE SUBMISSION S OF THE ASSESSEE IN PARAGRAPHS 22 TO 31 OF THE ASSESSMENT O RDER. IT IS NOT NECESSARY TO EXAMINE THESE PARAGRAPHS IN DETAIL AND SUFFICE TO SAY THAT THE FOLLOWING FINDINGS WERE RECORDED BY HIM: - (A) THE ASSESSEE DID NOT ESTABLISH THE SERVICES REN DERED BY THE AGENTS AND COULD NOT ESTABLISH THE GENUINENESS OF THE TRANSACTIONS, WHICH WERE ONLY PAPER TRANSACTIONS. (B) THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSE SSEE AND THE BROKERS. ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 10 (C) THE BROKERS WERE NOT INVOLVED IN BROKERAGE BUSI NESS IN ANY OF THE EARLIER YEARS. THEY WERE CARRYING ON BU SINESS IN DIFFERENT LINES. (D) THE BROKERS DID NOT INCUR ANY REALISTIC EXPENSE S FOR EARNING SUCH HUGE COMMISSION INCOME. (E) THERE WAS NO EVIDENCE OR CORRESPONDENCE OR MEET INGS HELD BETWEEN THE BROKERS AND THE ULTIMATE PURCHASER S OF THE CEMENT. THUS THE SERVICES CLAIMED TO HAVE BEEN RENDERED BY THEM WERE NOT PROVED. 12. THE ASSESSING OFFICER ALSO ISSUED NOTICES UNDER SECTION 133(6) TO ONGC AND SOME OTHER COMPANIES (NAMES MENT IONED IN PARAGRAPH 23 OF THE ASSESSMENT ORDER) INCLUDING DEP ARTMENTS OF THE STATE GOVERNMENTS AND CALLED UPON THEM TO CONFI RM WHETHER THE TRANSACTIONS WERE PUT THROUGH M/S SUVIDHA REALT ORS & CONSTRUCTION PVT. LTD. OR M/S PANJON PHARMA LTD., W HO CLAIMED TO HAVE ACTED ON BEHALF OF THE ASSESSEE. THEY WERE AL SO ASKED TO SUBMIT WHETHER THEY PROCURED ORDERS THROUGH TENDER OR OTHERWISE. MOST OF THE NOTICES CAME BACK UNSERVED WITH THE POS TAL REMARK INCOMPLETE ADDRESS. HOWEVER, M/S SHAPOORJI PALLO NJI & CO. LTD., BANGALORE AND M/S TATA POWER LTD., WHO RECEIVED THE NOTICES, REPLIED TO THE ASSESSING OFFICER DENYING ANY COMMER CIAL DEALINGS IN THE RELEVANT PREVIOUS YEAR WITH EITHER THE ASSESSEE OR M/S PANJON PHARMA LTD. M/S IRCON INTERNATIONAL LTD., TAMIL NA DU ALSO DENIED HAVING GIVEN ANY ORDER TO M/S PANJON PHARMA LTD. S IMILAR IS THE CASE WITH THE EXECUTIVE ENGINEER, DHOOM CANAL DIVIS ION, SATARA AND THE EXECUTIVE ENGINEER, PRESIDENCY DIVISION, OL D CUSTOM ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 11 HOUSE, MUMBAI. THE ASSESSING OFFICER THUS CAME TO THE CONCLUSION THAT THERE WAS NO EVIDENCE BROUGHT ON RE CORD TO PROVE THE GENUINENESS OF THE TRANSACTIONS OR THE SERVICES RENDERED BY M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. OR M/S PA NJON PHARMA LTD. 13. ON THE BASIS OF THE ABOVE FACTS AND FINDINGS, B ASED ON THE ENQUIRY MADE BY THE ASSESSING OFFICER, HE CAME TO T HE CONCLUSION THAT THE COMMISSION PAYMENT CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE ASSESSEES BUSINESS INCOME. HE ACCOR DINGLY DISALLOWED THE COMMISSION PAYMENT OF ` 1,22,56,320/-. 14. ON APPEAL, THE CIT(A) RECORDED THE FOLLOWING FI NDS: - (A) UNDER SECTION 37(1) OF THE ACT, THE ASSESSEE HA S TO PROVE THE FACT OF INCURRING THE EXPENDITURE AS ALSO THAT IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THIS ONUS WAS DISCHARGED BY THE ASSESSEE BY ESTABLISHING THE IDENTITY AND GENUINENESS OF THE PA YEES OF THE COMMISSION (M/S SUVIDHA REALTORS & CONSTRUCT ION PVT. LTD. AND M/S PANJON PHARMA LTD.) (B) THE DETAILS OF SERVICES RENDERED BY THE AGENTS HAVE BEEN EXPLAINED BY THE ASSESSEE (PARAGRAPH 3.5 OF THE IMPUGNED ORDER). (C) THE AGENTS HAVE CONFIRMED THE RECEIPT OF COMMIS SION FROM THE ASSESSEE AND HAVE SUBMITTED COPIES OF INVOICES, INCOME TAX RETURNS, BALANCE SHEETS, SERVI CE TAX RETURNS, LEDGER ACCOUNTS, BANK STATEMENTS, ETC. ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 12 (D) THE ASSESSEE AND THE COMMISSION AGENTS ARE NOT RELATED IN ANY WAY. (E) THE NAMES OF AGENTS NEVER COME ON THE RECORD OF EITHER THE PRINCIPAL OF THE ASSESSEE OR HIS CUSTOMERS FOR THE REASON THAT IN THE CASE OF BUSINESS WITH GOVERNMENT AGENCIES OR LARGE CORPORATE HOUSES, TOO MANY PEOPLE CANNOT BE ACCOMMODATED ON RECORD DUE TO SENSITIVE NATURE OF BUSINESS . (F) THE ASSESSEES AGENTS PERFORM THEIR RESPONSIBIL ITIES AND COLLECTED THEIR COMMISSION. (G) THE ASSESSING OFFICER CANNOT APPLY HIS SUBJECTI VE STANDARDS BUT HAS TO RESPECT THE POINT OF VIEW OF T HE BUSINESSMAN. THE TEST IS NOT WHETHER THE ASSESSEE WAS PRUDENT IN INCURRING THE EXPENSES. 15. AFTER RECORDING THE AFORESAID CONCLUSIONS / FIN DINGS, THE CIT(A) PROCEEDED TO MAKE SOME GENERAL OBSERVATIONS AS TO WHAT HAPPENS WHEN ORDERS HAVE TO BE OBTAINED FROM GOVERN MENT DEPARTMENTS OR LARGE CORPORATE ENTITIES. HE NOTED THAT IN SUCH CASES THE NAMES OF MIDDLEMEN OR AGENTS DO NOT GENER ALLY GET MENTIONED IN THE CORRESPONDENCE UNLESS THEY ARE ACC REDITED AGENTS. WITH PARTICULAR REFERENCE TO THE PRESENT C ASE, HE OBSERVED THAT THOUGH THE CEMENT WAS DIRECTLY SOLD BY THE MAN UFACTURER, THE ASSESSEE HAD PAID COMMISSION TO M/S PANJON PHARMA L TD. AND M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. FOR SERVI CES RENDERED BY THEM IN PROCURING ORDERS FROM GOVERNMENT AND SEMI-G OVERNMENT DEPARTMENTS AND LARGE CORPORATES. THERE WAS NO EVI DENCE, ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 13 ACCORDING TO THE CIT(A), TO SHOW THAT ANY PART OF T HE COMMISSION WAS PAID FOR EXTRA COMMERCIAL CONSIDERATION OR THAT THE PAYMENT WAS BOGUS OR SHAM. NO DISALLOWANCE CAN BE MADE MER ELY ON THE BASIS OF SUSPICION OR SURMISES. HE REFERRED TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. GOODLASS NEROL AC PAINTS LTD., 188 ITR 1 (BOM), IN WHICH IT WAS HELD THAT WH ERE COMMISSION IS PAID WHOLLY FOR THE PURPOSE OF THE BUSINESS, IT IS AN ALLOWABLE DEDUCTION NOTWITHSTANDING THE FAILURE OF THE ASSESS EE TO FURNISH INFORMATION REGARDING NAMES AND ADDRESSES OF THE RE CIPIENTS OF THE COMMISSION. REFERENCE WAS ALSO MADE TO THE DECISIO N OF THE GUJARAT HIGH COURT IN SWASTIK TEXTILE COMPANY PVT. LTD. VS. CIT, 150 ITR 155 (GUJ), WHEREIN IT WAS HELD THAT COMMISS ION PAID TO A PERSON WHO IS INSTRUMENTAL IN BRINGING THE SUPPLIER AND THE PURCHASER FOR NEGOTIATING A TRANSACTION, THE SAME W AS AN ALLOWABLE DEDUCTION. 16. FOR THE ABOVE REASONS THE CIT(A) DELETED THE DI SALLOWANCE OF THE COMMISSION PAYMENT AND HELD THAT IT WAS ALLO WABLE UNDER SECTION 37 OF THE ACT AS HAVING BEEN INCURRED FOR T HE PURPOSE OF THE BUSINESS. 17. THE REVENUE IS IN APPEAL BEFORE US TO STRONGLY CONTEND THAT IN THE ABSENCE OF ANY EVIDENCE SHOWING THE SERVICES RENDERED BY THE AGENTS OR BROKERS TO THE ASSESSEE, THE COMMISSI ON PAYMENT CANNOT BE ALLOWED AS A DEDUCTION AND THE CIT(A) ERR ED IN ALL HIS FINDINGS OVERLOOKING THAT THE ASSESSEE COULD NOT PR ODUCE ANY EVIDENCE OF PROCUREMENT OF ORDERS THROUGH THE AGENT S AND THAT A NUMBER OF CUSTOMERS OF THE ASSESSEE HAD DENIED HAVI NG PLACED ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 14 ORDERS THROUGH THE SO CALLED AGENTS OF THE ASSESSEE . IT WAS CONTENDED VEHEMENTLY THAT THE ASSESSEE WAS UNABLE T O ESTABLISH THE GENUINENESS OF THE CLAIM BY NOT BEING ABLE TO P ROVE THE NATURE OF SERVICES RENDERED BY THE AGENTS. HE SUBMITTED T HAT THE OBSERVATION OF THE CIT(A) THAT THE NAMES OF THE AGE NTS NEVER COME ON RECORD EITHER OF THE PRINCIPAL OR THE CUSTOMER D UE TO THE SENSITIVE NATURE OF BUSINESS WITH GOVERNMENT AND LARGE CORPOR ATE HOUSES IS TOTALLY UNACCEPTABLE AND PUTS A PREMIUM ON THE A SSESSEES INABILITY TO ESTABLISH THAT THE AGENTS RENDERED ANY SERVICES JUSTIFYING THE PAYMENT OF COMMISSION. THE LEARNED SENIOR DEPA RTMENTAL REPRESENTATIVE TOOK US THROUGH THE ASSESSMENT ORDER AND POINTED OUT THAT THE ASSESSING OFFICER HAS MADE A THOROUGH ENQUIRY INTO THE MATTER AND DESPITE SEVERAL OPPORTUNITIES GIVEN; THE ASSESSEE WAS NOT ABLE TO SATISFY THE ASSESSING OFFICER THAT THE AGENTS DID RENDER SERVICES JUSTIFYING THE PAYMENT OF COMMISSION. HE CONTENDED THAT THERE WAS ABSOLUTELY NOTHING ON RECORD TO SHOW THAT THE AGENTS DID RENDER ANY SERVICES TO THE ASSESSEE. HE THEREFORE STRONGLY URGED THAT THE DISALLOWANCE OF THE COMMISSION PAYMENT SHO ULD BE RESTORED. 18. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, BESIDES STRONGLY RELYING ON THE FINDINGS RECO RDED BY THE CIT(A), CONTENDED THAT BOTH M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. AND M/S PANJON PHARMA LTD. WERE ACTING FO R THE ASSESSEE AND NOT FOR THE ONGC OR OTHER GOVERNMENTAL AGENCIES OR CORPORATE HOUSES AND, THEREFORE, IT IS NOT SURPRISI NG THAT THEY DENIED HAVING HAD ANY CONTACT WITH THE AGENTS. HE SUBMITTED THAT ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 15 THE SERVICES WERE RENDERED TO THE ASSESSEE FOR WHIC H COMMISSION WAS PAID AND IN THIS CONNECTION STRONGLY RELIED ON THE FINDINGS RECORDED BY THE CIT(A). HE POINTED OUT THAT THERE WAS SUFFICIENT EVIDENCE BROUGHT BEFORE THE ASSESSING OFFICER TO IN DICATE THE NATURE OF SERVICES RENDERED BY THE AGENTS TO THE AS SESSEE AND THAT THE MERE ABSENCE OF A WRITTEN AGREEMENT FOR PAYMENT OF COMMISSION WAS NOT FATAL TO THE ALLOWABILITY OF THE CLAIM. HE DREW OUR ATTENTION TO THE LETTER WRITTEN BY M/S GRASIM I NDUSTRIES LTD. ON 23.12.2008, WHICH IS REFERRED TO IN PARAGRAPH 3.7 O F THE IMPUGNED ORDER, TO THE EFFECT THAT THE ASSESSEE IS INDEPENDE NT TO TAKE DECISIONS FOR SMOOTH RUNNING OF THE BUSINESS AND TO TAKE HELP OF ANY PERSONS HE LIKES AND THAT THIS LETTER WAS CONVE NIENTLY OMITTED BY THE ASSESSING OFFICER TO BE REFERRED TO. THE LE ARNED REPRESENTATIVE FOR THE ASSESSEE ALSO ADDED THAT THE RE WAS NO EVIDENCE TO SHOW THAT THE AMOUNTS PAID AS COMMISSIO N THROUGH ACCOUNT PAYEE CHEQUES AND CREDITED TO THE BANK ACCO UNTS OF M/S PANJON PHARMA LTD. AND M/S SUVIDHA REALTORS & CONST RUCTION PVT. LTD. HAD FOUND THEIR WAY BACK TO THE ASSESSEE. IN THIS CONNECTION HE SUBMITTED THAT THE MERE FACT THAT THE AMOUNTS WE RE TRANSFERRED TO ANOTHER ACCOUNT BY M/S PANJON PHARMA LTD. AND M/ S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD., WERE NOT OF ANY RELEVANCE EXCEPT TO EXCITE THE SUSPICION OF THE ASSESSING OFFICER AN D THAT MERE SUSPICION CANNOT TAKE THE PLACE OF PROOF, IN THE AB SENCE OF ANY FURTHER ENQUIRY REVEALING THAT THE AMOUNTS CAME BAC K TO THE ASSESSEE. STRONG RELIANCE WAS PLACED ON THE FINDIN GS OF THE CIT(A) IN PARAGRAPH 3.10 OF HIS ORDER AND ON THE OBSERVATI ONS MADE IN ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 16 PARAGRAPH 3.11 OF THE ORDER. IT WAS THUS CONTENDED BY HIM THAT THE COMMISSION PAYMENT WAS RIGHTLY ALLOWED AS DEDUCTION . 19. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. IT NEEDS HARDLY TO BE STATED THAT WHENEVER A DEDUCTION IS CL AIMED BY THE ASSESSEE UNDER SECTION 37(1) OF THE ACT, IT IS FOR THE ASSESSEE TO DISCHARGE THE ONUS OF PROVING THE CLAIM IN ALL ITS ASPECTS. IN THE PRESENT CASE THE ASSESSEE HAS CLAIMED A HUGE COMMIS SION PAYMENT OF ` 1,22,56,320/- TO M/S PANJON PHARMA LTD. AND M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD., AGAINST THE COMMISSION INCOME OF ` 1,58,67,306/-, WHICH AMOUNTS TO ALMOST 80% OF THE COMMISSION INCOME. IT IS THE ASSESSEES CLAIM THAT THE COMMISSION WAS PAID FOR CERTAIN SERVICES RENDERED BY M/S PANJO N PHARMA LTD. AND M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. IT WAS THEREFORE INCUMBENT UPON THE ASSESSEE TO ESTABLISH ITS CLAIM FOR DEDUCTION OF THE COMMISSION PAYMENT BY PROVING THE SERVICES REND ERED BY THE AGENTS. IT IS TRUE THAT THE EXISTENCE OF A WRITTEN AGREEMENT FOR PAYMENT OF THE COMMISSION IS NOT NECESSARY. HOWEVE R, IT IS EQUALLY TRUE THAT THE ASSESSEE IS REQUIRED TO CLEARLY ESTAB LISH WHAT SERVICES WERE RENDERED BY THE AGENTS TO JUSTIFY THE COMMISSI ON. THE ASSESSING OFFICER HAS CONDUCTED A THOROUGH ENQUIRY INTO THE ASSESSEES CLAIM AND THE RESULTS OF THE ENQUIRY HAV E ALSO BEEN PUT BEFORE THE ASSESSEE FOR EXPLANATION. TAKING THE CA SE OF M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD., TO WHOM COMMISSION OF ` 11,07,100/- HAS BEEN PAID, IT IS A COMPANY BASED IN HUBLI, KARNATAKA. THE ASSESSEE HAS CLAIMED THAT M/S SUVID HA REALTORS & CONSTRUCTION PVT. LTD. HELPED HIM IN PROCURING ORDE RS FOR CEMENT ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 17 SUPPLY. IT IS ALSO THE ASSESSEES CLAIM THAT HIS O PERATIONS ARE SPREAD OUT ALL OVER INDIA AND IT WAS THE ASSESSEE W HO GAVE THE NAMES OF HIS CUSTOMERS. IT WAS THEREFORE NATURAL F OR THE ASSESSING OFFICER TO CALL FOR THE TRAVELLING EXPENSES DETAILS FROM M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. AS ALSO FROM M/S PANJON PHARMA LTD. AS WELL AS THE NAMES AND ADDRESSES OF PERSONS WHO VISITED DIFFERENT PLACES, DATES OF JOURNEY, NAMES AND ADDRE SSES OF THE COMPANY AND THE REPRESENTATIVE OF THE COMPANY WHO W AS MET IN CONNECTION WITH THE PROCUREMENT OF ORDERS, NUMBER O F DAYS SPENT, ETC. THE ASSESSING OFFICER FOUND THAT THE TRAVELLI NG EXPENSES DEBITED IN THE BOOKS OF M/S SUVIDHA REALTORS & CONS TRUCTION PVT. LTD. WERE ONLY ` 17,200/-. PRIMA FACIE THIS SEEMS TOO LOW CONSIDERING THAT M/S SUVIDHA REALTORS & CONSTRUCTIO N PVT. LTD. HAS EARNED A COMMISSION OF MORE THAN ` 11,00,000/- AND THAT TOO HAVING ITS HEADQUARTER IN HUBLI. BE THAT AS IT MAY , EXCEPT GENERALLY STATING THAT M/S SUVIDHA REALTORS & CONSTRUCTION PV T. LTD. AND M/S PANJON PHARMA LTD. WERE ASSISTING THE ASSESSEE IN P ROCURING ORDERS, GETTING PAYMENTS RELEASED, ATTENDING TO LOA DING / UNLOADING PROBLEMS AND QUALITY ETC., THE ASSESSEE HAS NOT EST ABLISHED THAT SUCH SERVICES WERE ACTUALLY RENDERED BY THE AGENTS. HIS CLAIM MADE IN HIS LETTER DATED 19 TH DECEMBER 2008 WRITTEN TO THE ASSESSING OFFICER CONTAINS ONLY GENERAL STATEMENTS REGARDING THE ROLE CLAIMED TO HAVE BEEN PLAYED BY M/S SUVIDHA REA LTORS & CONSTRUCTION PVT. LTD. AND M/S PANJON PHARMA LTD. W ITHOUT BEING SPECIFIC. IT IS EVEN SURPRISING THAT THE ASSESSEE REQUESTED THE ASSESSING OFFICER NOT TO INSIST ON KNOWING THE NAME S OF THE OFFICERS ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 18 ALLEGED TO HAVE BEEN MET BY THE ASSESSEES AGENTS A ND THEIR PERSONAL DETAILS. IT IS NOT CLEAR AS TO WHAT THE A SSESSEE MEANS BY PERSONAL DETAILS OF THE OFFICERS BECAUSE FROM THE A SSESSMENT ORDER IT IS SEEN THAT THE ASSESSING OFFICER ONLY WANTED T HE NAMES AND COMPLETE ADDRESSES OF THE COMPANY AND THE PERSON WH OM THE ASSESSEES AGENTS MET REGARDING THE PROCUREMENT OF ORDER. THE ENTIRE LETTER WRITTEN BY THE ASSESSEE ON 19 TH DECEMBER 2008 TO THE ASSESSING OFFICER CONTAINS VAGUE AND GENERAL STATEM ENTS FROM WHICH THE SPECIFIC SERVICES RENDERED BY THE AGENTS CANNOT BE GLEANED. IT SHOULD NOT HAVE BEEN DIFFICULT FOR AN AGENT SUCH AS M/S PANJON PHARMA LTD., WHO IS IN RECEIPT OF A HUGE COM MISSION OF ` 1.11 CRORES FROM THE ASSESSEE, TO PLACE MATERIAL BE FORE THE ASSESSING OFFICER SHOWING THE NATURE OF THE SERVICE S RENDERED BY IT TO JUSTIFY THE RECEIPT OF THE COMMISSION. IT WAS F OR THE ASSESSEE TO MAINTAIN PROPER RECORDS AS TO THE NATURE OF THE SER VICES RENDERED BY THE AGENTS, WHO ARE HIS AGENTS, SO THAT THE CLAI M CAN BE PROPERLY SUPPORTED. IT IS ALSO NOTEWORTHY THAT M/S PANJON P HARMA LTD. WAS A COMPANY WHICH WAS ENGAGED IN THE PESTICIDE BUSINESS AND HAD NO EARLIER EXPERIENCE IN ACTING AS AGENTS OR BROKERS. THIS ASPECT HAS BEEN NOTICED BY THE ASSESSING OFFICER. HE HAS FURT HER NOTICED THAT THE COMMISSION RECEIVED BY M/S PANJON PHARMA LTD. H AS BEEN ADJUSTED AGAINST THE BROUGHT FORWARD BUSINESS LOSS. THE BANK ACCOUNT OF M/S PANJON PHARMA LTD. ALSO REVEALED THA T THE FUNDS REPRESENTING THE COMMISSION RECEIPT WERE TRANSFERRE D TO ANOTHER ACCOUNT FOR WHICH NO EXPLANATION WAS FORTHCOMING. IN ANY CASE, THERE IS PRECIOUS LITTLE EVIDENCE TO SHOW THE NATUR E OF THE SERVICES ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 19 CLAIMED TO HAVE BEEN RENDERED BY THE AGENTS. IT IS ALSO SEEN THAT MANY CUSTOMERS OF THE ASSESSEE HAVE WRITTEN TO THE ASSESSING OFFICER DENYING ANY CONTACT WITH EITHER M/S PANJON PHARMA LTD. OR M/S SUVIDHA REALTORS & CONSTRUCTION PVT. LTD. ONE MAY POSSIBLY BE ARGUE, AS IT WAS ARGUED BEFORE US ON BEHALF OF T HE ASSESSEE, THAT THE AGENTS ARE OF THE ASSESSEE AND NOT THOSE O F THE CUSTOMERS BUT SUCH AN ARGUMENT WOULD BE BESIDES THE POINT. E VEN GRANTING THAT THE AGENTS ARE ACTING ON BEHALF OF THE ASSESSE E, IT WOULD BE QUITE NATURAL FOR THE AGENTS TO COME IN CONTACT WIT H THE ASSESSEES CUSTOMERS IN CONNECTION WITH THE PROCUREMENT OF ORD ERS, RELEASE OF PAYMENTS, QUALITY ISSUES, LOADING AND UNLOADING PRO BLEMS, ETC. THE AGENTS MAY NOT GET THEIR COMMISSION FROM THE CUSTOM ERS, BUT CERTAINLY THERE WILL BE SOME INTERACTION BETWEEN TH EM AND THE ASSESSEES CUSTOMERS. THE DENIAL OF SOME OF THE IM PORTANT CUSTOMERS OF THE ASSESSEE TO THE EFFECT THAT THEY D ID NOT COME IN CONTACT OR PLACE ANY ORDER TO M/S PANJON PHARMA LTD ., THEREFORE, ASSUMES SIGNIFICANCE. 20. WE ARE UNABLE TO UPHOLD THE FINDINGS OF THE CIT (A) RECORDED IN PARAGRAPH 3.10. AS ALREADY NOTICED, THE ASSESSE E HAS FAILED TO DISCHARGE THE ONUS OF PROVING THAT THE COMMISSION W AS PAID FOR SERVICES RENDERED BY THE AGENTS. HE HAS REFERRED T O PARAGRAPH 3.5 OF HIS ORDER AS THROWING LIGHT ON THE NATURE OF THE SERVICES RENDERED BY THE AGENT. A PERUSAL OF PARAGRAPH 3.5 OF THE IM PUGNED ORDER SHOWS THAT IT IS ONLY A GIST OR SUMMARY OF WHAT THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER AS SERVICES RE NDERED BY THE AGENTS. TO REPEAT, THE ASSESSEES EXPLANATION WAS VAGUE AND TOO ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 20 GENERAL AND WAS NOT SUPPORTED BY ANY DOCUMENTARY EV IDENCE. EVEN THE CORRESPONDENCE, WHICH PASSED BETWEEN THE A GENTS AND THE ASSESSEES CUSTOMERS OR EVEN BETWEEN THE ASSESS EE AND HIS AGENTS WERE NOT PLACED BEFORE THE ASSESSING OFFICER . THERE IS NOTHING IN PARAGRAPH 3.5 OF THE ORDER OF THE CIT(A) , WHICH THROWS ANY FURTHER LIGHT ON THE ROLE CLAIMED TO HAVE BEEN PLAYED BY THE ASSESSEES AGENTS. TO COME BACK TO THE FINDINGS OF THE CIT(A) IN PARAGRAPH 3.10, THE FACT THAT THE ASSESSEE AND HIS AGENTS ARE NOT RELATED TO EACH OTHER IN ANY WAY DOES NOT IPSO FACT O MEAN THAT THE COMMISSION PAYMENT IS GENUINE OR THAT THE RENDERING OF THE SERVICES HAS BEEN ESTABLISHED. THE OBSERVATION IN THE ORDER OF THE CIT(A) THAT IN CASE OF BUSINESS WITH GOVERNMENT AGE NCIES OR LARGE CORPORATE HOUSES TOO MANY PEOPLE CANNOT BE ACCOMMOD ATED ON RECORD DUE TO THE SENSITIVE NATURE OF THE BUSINESS, IS UNACCEPTABLE. THE MERE FACT THAT THE AGENTS CONFIRMED THE RECEIPT OF COMMISSION AND ALSO PROVED THE SAME BY SUBMITTING THEIR INCOME TAX AND SERVICE TAX RETURNS, BANK STATEMENTS, COPIES OF INV OICES, ETC. IS NOT SUFFICIENT TO ESTABLISH THEIR SERVICES ESPECIALLY W HEN THEY HAVE BEEN SPECIFICALLY ASKED TO PROVE THE SAME. THE FACT THA T THE MONIES HAVE NOT COME BACK TO THE ASSESSEE IS ALSO NOT RELEVANT FOR THE SAME REASON. THE REFERENCE TO THE SUBJECTIVE STANDARDS APPLIED BY THE ASSESSING OFFICER IN THE ORDER OF THE CIT(A) IS NOT JUSTIFIED. HEREIN THE ASSESSING OFFICER IS NOT QUESTIONING WHY THE AS SESSEE PAID SUCH A HUGE AMOUNT AS COMMISSION WHEN THE SERVICES RENDERED BY THEM DID NOT JUSTIFY THE SAME. IT IS NOT HIS CASE THAT THE PAYMENT OF THE COMMISSION WAS UNREASONABLE OR EXCESSIVE SO THA T IT CAN BE ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 21 SAID THAT IT IS NOT OPEN TO HIM TO APPLY HIS OWN ST ANDARDS OF WHAT IS REASONABLE. IN THE PRESENT CASE, THE ASSESSING OF FICER HAS TAKEN THE STAND THAT THE ASSESSEE COULD NOT ESTABLISH THA T HIS AGENTS RENDERED ANY SERVICES AT ALL TO JUSTIFY THE COMMISS ION AND THAT THERE WAS NO EVIDENCE TO THAT EFFECT. HE HAS NOT APPLIED ANY SUBJECTIVE STANDARD. IT IS NOT A QUESTION OF THE ASSESSEES C LAIM BEING CONSIDERED BY THE ASSESSING OFFICER TO BE IMPRUDENT . IT IS MUCH MORE BASIC AND BEYOND THAT. THE ASSESSING OFFICER IS REALLY QUESTIONING THE ASSESSEES CLAIM ON THE GROUND THAT THERE IS NO EVIDENCE TO SHOW THAT THE AGENTS RENDERED ANY SERVI CES TO JUSTIFY THE COMMISSION. 21. THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT I N CIT VS. GOODLASS NEROLAC PAINTS LTD. (SUPRA) IS NOT APPLICA BLE TO THE FACTS OF THE PRESENT CASE WHERE THERE IS NO FAILURE ON TH E PART OF THE ASSESSEE TO FURNISH INFORMATION REGARDING THE NAMES AND ADDRESSES OF THE RECIPIENTS OF THE COMMISSION. IN THE PRESENT CASE, UNLIKE IN THE CASE BEFORE THE HIGH COURT, THERE IS TOTAL ABSENCE OF ANY EVIDENCE TO SHOW THAT THE AGENTS RENDERED ANY S ERVICES TO THE ASSESSEE TO JUSTIFY THE PAYMENT OF COMMISSION. THE JUDGMENT OF THE GUJARAT HIGH COURT IN SWASTIK TEXTILE COMPANY P VT. LTD. VS. CIT (SUPRA) IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE FOR THE VERY SAME REASON. 22. WE MAY ALSO REFER TO PARAGRAPH 32.7 OF THE ASSE SSMENT ORDER WHERE THE ASSESSING OFFICER HAS SUMMARIZED HI S FINDINGS AND CONCLUSIONS REGARDING THE DISALLOWANCE OF THE COMMI SSION. WE ARE ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 22 IN COMPLETE AGREEMENT WITH THESE FINDINGS WHICH HAV E NOT BEEN PROPERLY APPRECIATED AND ADDRESSED BY THE CIT(A). 23. IN THE RESULT, WE HOLD THAT THE ASSESSING OFFIC ER WAS JUSTIFIED IN DISALLOWING THE COMMISSION PAYMENT OF ` 1,22,56,320/-. WE RESTORE THE DISALLOWANCE AND ALLOW THE GROUNDS TAKE N BY THE DEPARTMENT. THE APPEAL THUS STANDS ALLOWED. 24. TURNING TO THE CROSS OBJECTION FILED BY THE ASS ESSEE, THE FIRST THREE GROUNDS RELATE TO SUNDRY DISALLOWANCES UNDER THE HEAD TELEPHONE EXPENSES, VEHICLE EXPENSES AND ENTERTAINM ENT & STAFF WELFARE EXPENSES IN THE AMOUNTS OF ` 15,603/-, ` 5,981/- AND ` 16,827/-. ON A PERUSAL OF THE ORDERS OF THE DEPART MENTAL AUTHORITIES AND AFTER HEARING BOTH THE SIDES, WE AR E OF THE VIEW THAT THE DISALLOWANCES HAVE BEEN PROPERLY MADE AND NO IN TERFERENCE IS CALLED FOR. WE MAY HOWEVER CLARIFY THAT THE ENTERT AINMENT & STAFF WELFARE EXPENSES HAVE BEEN DISALLOWED ONLY TO THE E XTENT OF 5% BY THE CIT(A) WHICH WOULD COME TO ` 10,754/- AS AGAINST ` 16,827/-. THUS GROUND NO.3 IS ALLOWED TO THAT EXTENT AND GROU ND NOS. 1 AND 2 ARE DISMISSED. 25. GROUND NOS. 4 AND 5 ARE AGAINST THE ADDITION OF THE DIFFERENCE IN COMMISSION INCOME OF ` 3,85,516/- AND THE ADDITION OF ` 7,860/- ON ACCOUNT OF DIFFERENCE IN PURCHASES. THE SE GROUNDS ARE DEALT WITH IN PARAGRAPH 2.3 OF THE IMPUGNED ORDER. THE AFORESAID ADDITIONS HAVE BEEN MADE BY INVOKING SECTION 145(3) OF THE ACT AND THE FINDING OF THE CIT(A) IN PARAGRAPH 2.3 THAT THE SECTION APPLIES HAS NOT BEEN CHALLENGED BEFORE US. THE LEARNED COU NSEL FOR THE ASSESSEE CLARIFIED BEFORE US THAT THE GROUNDS ARE O NLY FOR DIRECTIONS ITA NO: 4853/MUM/2009 CO NO: 41/MUM/2010 23 THAT THE AMOUNTS ADDED IN THIS YEAR SHOULD BE EXCLU DED FROM ASSESSMENT IN THE NEXT ASSESSMENT YEAR. WE ARE UNA BLE TO GIVE ANY SUCH DIRECTION BECAUSE WE ARE NOT SEIZED OF THE APPEAL FOR THE NEXT ASSESSMENT YEAR AND THE JURISDICTION OF THE TR IBUNAL EXTENDS ONLY TO THE YEARS WHICH ARE IN APPEAL BEFORE IT. W E ARE THEREFORE UNABLE TO GIVE ANY SUCH DIRECTION. ALL THAT WE CAN SAY IS THAT IT WOULD BE OPEN TO THE ASSESSEE IF SO ADVISED AND IF IT IS OTHERWISE PERMITTED BY LAW, TO RAISE THESE ISSUES IN THE NEXT YEAR. THESE GROUNDS ARE THUS DISMISSED. THE CROSS OBJECTION IS THUS PARTLY ALLOWED. 26. TO SUM UP, THE APPEAL OF THE DEPARTMENT IS ALLO WED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER 2010. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 27 TH OCTOBER 2010 SALDANHA COPY TO: 1. SHRI UMAKANT B AGRAWAL A-102/103, RAGHAV VASANT VALLEY COMPLEX FILM CITY ROAD, MALAD (EAST), MUMBAI 400 097 2. DCIT 9(1) 3. CIT-IX 4. CIT(A)-IX 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI