COMMISSIONER OF INCOME TAX GUNTUR V. SRI MOPURU SESHA REDDY

ITTA/46/2003

AI Insights

The case revolves around an appeal by the Revenue against the orders of the Income Tax Appellate Tribunal, which had allowed the deduction of a sales commission paid by the assessee, a wholesale distributor of Indian Made Foreign Liquors, to M/s SFTPL. The Revenue contended that the commission was not a genuine business expense. The Tribunal, after examining the evidence and the agreements between the parties, concluded that the commission was indeed for services rendered in marketing and distributing the assessee's products. The High Court, upon reviewing the Tribunal's decision, found no substantial questions of law that warranted interference and thus dismissed the appeal.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 718826 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 27-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: J V PRASAD
• Keywords: Allowable deduction; Genuine transaction; Income tax appellate tribunal; Perversity; Sales commission; Assessment year 1990-1991
• Section: 143(3); 260-A

Judgement Text

"HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.46 OF 2003 JUDGMENT:- (per Hon’ble Sri Justice Challa Kodanda Ram) The Revenue is in appeal against the orders of the Income Tax Appellate Tribunal, Visakhapatnam (for short “the Tribunal”) in I.T.A. No.312/H/97, dated 31.01.2002, for the assessment year 1990-1991. In the appeal three substantial questions of law set out below, said to be arising from the orders of the Tribunal, have been raised for consideration of this Court: 1) Whether on the facts and in the circumstances of the case, the order of the Tribunal suffers from perversity? 2) Whether on the facts and in the circumstances of the case the Tribunal is correct in holding that the alleged payment of sales commission paid by assessee to M/s SFTPL is an allowable deduction? 3) Whether on the facts and in the circumstances of the Tribunal is correct in not giving a finding as to the expenditure incurred on the payment of the alleged sales commission of Rs.2,26,04,992/- is wholly and exclusively for the purpose of the business of the assessee? 2) The assessee is a wholesale distributor of Indian Made Foreign Liquors of United Breweries Group of Companies at Vijayawada. For the assessment year 1990-1991, he filed a return declaring an income of Rs.10,29,609/-. The assessment was completed under Section 143(3) of the Income Tax Act (in short “the Act”) and the Assessing Officer made an addition of Rs.2,26,04,992/- by disallowing the sales commission paid to M/s Suvarna Filters and Tobacco Products Limited (in short “SFTPL”), on the ground the said payment was not genuine. In the course of assessment proceedings, the Assessing Officer issued notices and examined M/s Chandra Tobacco Co. Ltd., and M/s Deccan Tobacco Processor Ltd., on the ground that the assessee had utilized the services of the said two parties. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), Vijayawada. The Commissioner (Appeals) on further careful examination of the records, including the statements recorded in the course of assessment by the Assessing Officer in relation to various parties, and considering the orders of the Tribunal had set aside the order of the Assessing Officer and directed to allow the sales commission paid to M/s SFTPL, Hyderabad. The Revenue filed an appeal before the Tribunal and the Tribunal dismissed the appeal of the Revenue by an order dated 31.01.2002. Revenue is in further appeal before this Court under Section 260-A of the Act raising the substantial questions of law referred to in Para No.1. 3) Sri J.V. Prasad, learned Senior Standing Counsel for the Income Tax Department would urge before this Court, by drawing our attention to the order of the Assessing Officer, that the Tribunal has gravely erred in interfering with the orders of the Assessing Officer. The learned counsel contends that the Assessing Officer had found, as a matter of fact, no service whatsoever was rendered by the M/s SFTPL, Hyderabad, to the assessee to earn the commission, which has been claimed to have been paid to them by the assessee. In the absence of any material evidencing the service rendered to the assessee, the Assessing Officer was justified in disallowing the sales commission notwithstanding the fact, the said payment was through banking channels and the same came to be assessed as income in the hands of the recipients i.e. M/s. SFTPL, Hyderabad. 4) Though notice was received there was no appearance on behalf of the respondent. 5) We have considered the submissions of the learned Senior Standing Counsel for the Revenue and perused the record. The record reveals that there was enormous record that was placed before the first appellate authority and the same was also available before the Tribunal. The Commissioner (Appeals) had in detail analyzed the same, including the material gathered by the Assessing Officer in relation to M/s Deccan Tobacco Processor Ltd., and M/s. Chandra Tobacco Co. Ltd. The Commissioner (Appeals) in his orders had recorded that there was an agreement dated 28.03.1986 between the assessee and other two parties and as per the agreement, assessee had agreed to pay commission of Rs.105/- per case of IMFL and Rs.2/- for dozen of beer. The agreement was found to be genuine and in fact transactions took place in terms of the agreement. The Appellate Commissioner found, as against the turnover of Rs.17,94,75,375/-, expenditure incurred towards salaries and travelling expenditure were meager i.e., Rs.Rs.1,43,985/- and Rs.46,462/-. The Appellate Commissioner had come to the conclusion that it is well nigh impossible for achieving the turnover of that magnitude with a meager expenditure as noted above. The Assessee’s contention that M/s. SFTPL, Hyderabad, the recipient of the commission, is the marketing and distribution unit of well known company GTC, who in fact were engaged in the distribution of IMFL in the States of Andhra Pradesh, Tamilnadu, Kerala, Karnataka and West Bengal with wide contacts and experience was found to be genuine. The Commissioner had also in detail considered the nature of the business and the nature of the intense competition in the trade, particularly the fact that the assessee was new to the business and had to distribute the products in Andhra Pradesh through 6000 retailers, 200 wholesalers and 1200 bars. The Appellate Commissioner had recorded in the order as follows: “From the details of the agreements and the correspondence filed before me, I find that the marketing agents are furnishing the information relating to competitors, and the strategy undertaken by other distributors are also reporting about the sales of other brands and their efforts for effective organisation of retail distribution in the area of distribution of the appellant. I find from the Balance Sheet of SFTPL and profit & Loss Account that they have disclosed considerable amount by way of commission (Schedule “K” to profit & Loss Account of SFTPL) and Rs.17,65,438/- towards salaries which would shows that SFTPL might have undertaken marketing and distribution services in a big way. It is also to be noted that the department found the agreement and other correspondence with appellant in the course of survey u/s 133A of the Act on 26.03.1990 which clearly indicates that the agreement and the transactions are genuine and not sham.” 6) The Appellate Commissioner also found that analysis of the statements recorded there exists an agreement between the assessee and M/s. SFPTL, Hyderabad for promoting sales of IMFL products and have had in fact received the commissions for rendering the services as set out in the agreement. The Appellate Commissioner found that the Assessing Officer had selectively relied on the statements of the persons examined i.e., officials of M/s. SFTPL, Hyderabad and M/s. Deccan Tobacco Processors Ltd., Further the Appellate Commissioner had recorded a finding that the Department Officials had summoned one Sri P.K. Khethira, Accounts Officer of M/s. SFPTL, Hyderabad, a second time and obtained the revised statement under threat and coercion. On detailed analysis of various statements, the appellate commissioner found that the Assessing Officer had not made out any case that the payment made to the M/s. SFPTL, Hyderabad by the assessee was for extra commercial consideration and there was no evidence to come to a conclusion that the said amount had flown back to the assessee. The Tribunal had once again undertaken detailed examination of the material on record and Tribunal came to the conclusion that the facts are all corroborated with the material evidence and the finding arrived at by the appellate authority about the service rendered by the M/s. SFPTL, Hyderabad to the assessee was found to be genuine and reasonable. Considering the fact that the entire commission was paid through banking channels, the Tribunal reasoned, merely on account of certain statements made by unrelated persons, the Tribunal can not come to a different conclusion and eschew all other material available on record. 7) The entire analysis of the record would only go to show that the Tribunal had reappreciated the evidence on record as found by the first appellate authority and came to an independent and categorical conclusion that the transaction entered into by the assessee with M/s. SFTPL, Hyderabad was genuine and the assessee in fact had incurred an expenditure of Rs.2,26,04,992/- towards commission to enable him to achieve a turnover of Rs.17,94,75,375/-. There is no contra material available before the Tribunal to come to a conclusion and there is also no material before us to take a different view. In that view of the matter, the issues raised in the appeal being in fact in the realm of pure finding of facts, we do not find any reason to interfere with the orders of the Tribunal. There are no substantial questions of law that are required to be answered and in that view of the matter the appeal deserves to be dismissed. 8) Accordingly, the appeal is dismissed. No order as to costs. ___________________________ L. NARASIMHA REDDY, J ____________________________ CHALLA KODANDA RAM, J Date:27.08.2014. Ssv "