M/s DSM Sinochem Pharmaceuticals India Pvt. Ltd. , Toansa V. DCIT, C-1(1), Chandigarh

ITA 1478/CHANDI/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2723 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 16-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEEPIKA MOHAN
• Assessee Lawyers: K RAM GUPTA; HARISH GUPTA
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1478/CHD/2017 (ASSESSMENT YEAR : 2006-07) M/S DSM SINOCHEM PHARMACEUTICALS VS. THE D.C.I.T., INDIA PVT. LTD., TOANSA. C-1(1), CHANDIGARH. PAN: AABCM4314K (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI K.RAM GUPTA, ADV. & HARISH GUPTA, CA RESPONDENT BY : MS.DEEPIKA MOHAN, JCIT DATE OF HEARING : 15.05.2018 DATE OF PRONOUNCEMENT : 13.08.2018 ORDER PER ANNAPURNA GUPTA, A.M . : THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, CHANDIGARH DATED 31.7.2017 RELATING TO ASSESSMENT YEAR 2006-07. 2. THIS IS THE SECOND ROUND OF APPEAL IN THE PRESEN T CASE BEFORE US AND THE SOLE ISSUE BEFORE US RELATES TO DISALLOWANCE OF COMMISSION EXPENSES CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE ON EXPORT SALES. 3. BRIEF FACTS LEADING TO THE PRESENT APPEAL BEFORE US ARE THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER PROPOSED DISALLOWANCE ON THE COMM ISSION ITA NO.1478/CHD/2017 A.Y.2006-07 2 PAID ON EXPORT SALES TO THREE PARTIES AMOUNTING IN ALL TO RS.53,37,931/- AS UNDER: 1) M/S P.T. MENJANGAN SAKTI = RS.40,97,191/- 2) M/S EDWARD KELLER(PHILS) INC = RS. 6,95,475/- 3) M/S MELACHITE CHEMICALS = RS. 5,45,257/- FOR THE REASON THAT THE ASSESSEE HAD BEEN UNABLE T O SUBSTANTIATE THE SAME BY WAY OF ANY CONFIRMATION OR WRITTEN AGREEMENT WITH REGARD TO THE PAYMENT OF COMMISSION AND ON FINDING THAT THE SALES HAD ALSO BEEN MADE TO THE SA ID PARTIES AND THERE WAS NO REASON TO PAY ANY COMMISSION ON SA LES MADE TO THEM. THE ASSESEE FILED OBJECTION AGAINST THE SAME TO THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFER RED TO AS DRP)WHO UPHELD THE DISALLOWANCE PROPOSED BY THE ASSESSING OFFICER. ACCORDINGLY THE AFORESAID COMMIS SION EXPENSES WERE DISALLOWED BY THE AO. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE I.T .A.T. WHERE THE ASSESSEE CONTENDED THAT IT HAD FILED ADEQ UATE EVIDENCES TO SUPPORT ITS CLAIM OF COMMISSION PAID O N EXPORT SALES BY WAY OF CONFIRMATION OF ONE OF THE PARTIES M/S P.T. MENJANGAN SAKTI AND DETAILS OF PARTIES ALONGWITH RA TE OF COMMISSION, SALES MADE TO THE SAID PARTIES AND TOTA L COMMISSION PAID TO THE SAID PARTIES. THE ASSESSEE A LSO CONTENDED THAT THE SAID AGENTS WERE ALSO TRADERS OF DRUGS AND THE ASSESSEE HAD MADE SALES TO THEM ON PRINCIPA L TO PRINCIPAL BASIS ON ACCOUNT OF THE SAME, AND THAT CO MMISSION HAD BEEN PAID ONLY ON SALES EFFECTED THROUGH THEM. THE I.T.A.T. FOUND MERIT IN THE CASE OF THE ASSESSEE BU T NOTED ITA NO.1478/CHD/2017 A.Y.2006-07 3 THAT NO DETAILS WERE AVAILABLE WHETHER COMMISSION H AD BEEN PAID ON THE SALES MADE TO THE SAID PARTIES. THE ISS UE WAS, THEREFORE, RESTORED TO THE ASSESSING OFFICER TO VER IFY THE CLAIM OF THE ASSESSEE THAT IT HAD NOT PAID COMMISSI ON ON SALES MADE TO THE SAID PARTIES AND ALLOW THE CLAIM OF THE ASSESSEE IF THE CONTENTION OF THE ASSESSEE WAS FOUN D TO BE TRUE. 6. THE ASSESSING OFFICER IN THE SECOND ROUND FOUND THAT THE ASSESSEE HAD NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM WITH EVIDENCE THAT NO COMMISSION WAS PAID ON SALES MADE TO THE SAID PARTIES. HE, THEREFORE, UPHELD THE FINDINGS OF THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT. 7. THE ASSESSEE FILED APPEAL AGAINST THE AFORESAID ORDER OF THE ASSESSING OFFICER TO THE CIT(APPEALS) WHERE THE CIT(APPEALS) NOTED THAT THE ASSESSEE HAD SUBMITTED CONFIRMATIONS FROM ALL THE THREE PARTIES BUT HAD SU BMITTED DETAILS OF THE SALES AND CORRESPONDING COMMISSION O NLY WITH RESPECT TO M/S MALACHITE CHEMICALS. HE, THEREFORE, DELETED THE DISALLOWANCE OF COMMISSION EXPENSES PAID TO M/S MALACHITE CHEMICALS UPHOLDING THE BALANCE COMMISSIO N PAID TO THE OTHER TWO PARTIES. 8. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US RAISING FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ['CIT (A)' HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.47,92,67 4 BEING COMMISSION PAID IN AGGREGATE TO TWO FOREIGN AGENTS . ITA NO.1478/CHD/2017 A.Y.2006-07 4 2. THAT THE LD. AO ALSO ERRED IN PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(I)(C) OF THE ACT FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME. 9. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE RELIED UPON THE SUBMISSIONS MADE BEFOR E THE LD.CIT(APPEALS) WHICH ARE REPRODUCED AT PARA 5.2 OF HIS ORDER AS UNDER: 5.2 IN APPEAL, THE CASE WAS REPRESENTED BY SH. SIDDHARTH DADU, C.A. AND SH. HARISH BISHT, C.A. THEY ARGUED THAT CONFIRMATION CERTIFICATE FROM THE COMMIS SION PARTIES WERE FILED BEFORE THE ASSESSING OFFICER AND THE INVOICES SHOWING THAT SALES WAS MADE TO PARTIES DIFFERE NT FROM THE ONES TO WHOM COMMISSION WAS PAID. THE RELEVA NT PORTION OF THE APPELLANT PLEA IS REPRODUCED AS UNDER : - '.....IN THE COURSE OF REMAND BACK PROCEEDINGS, THE APPE LLANT HAD SUBMITTED FOLLOWING DETAILS TO COMMISSION ON EXPORT SALES; (I) SUBMISSION DATED FEBRUARY 4, 2015 - CONFIRMATION CERTIFICATES, WHEREIN THE PARTIES HAVE CONFIRMED THE RECEIPT OF COMMISSION (REFER APPENDIX-3 AT PAGE 59 TO 63 OF PAPER BOOK) (II) SUBMISSION DATED MARCH 12, 2015 - COPY OF SAMPLE INVOICES RAISED BY THE APPELLANT THE SAID INVOICES WERE RAISED IN THE NAME OF THIRD PARTIES I. E, ACTUA L BUYERS EVIDENCING THE TRANSACTIONS NOT TO BE ON PRINCIPAL TO PRINCIPAL BASIS, (REFER APPENDIX-4 AT PAGE 64 TO 74 OF PAPER BOOK) FROM THE PERUSAL OF THE INVOICES FILED BEFORE THE LD. AO VIDE SUBMISSION DATED MARCH 12, 2015 (REFER APPENDBC4 AT PAGE 64 TO 74 OF PAPER BOOK), YOU HONOUR WILL APPRE CIATE THAT THE INVOICES ARE RAISED IN THE NAME OF THE THI RD PARTIES I.E. ACTUAL PAYERS, WHICH MAKES IT CLEARLY EVIDENT THAT TRANSACTIONS BETWEEN THE APPELLANT AND P, T. MENJANG AN SAKTI/ EDWARD KELLER/ MALACHITE CHEMICALS ARE ON PRIN CIPAL TO AGENT BASIS. FURTHER, THE CONFIRMATORY CERTIFICATE FILED BEFORE TH E LD, AO VIDE SUBMISSION DATED FEBRUARY 4, 2015 (REFER PAGE 61 TO 63 OF PAPER BOOK) SUPPORTS THE CASE OF THE APPELLAN T THAT THE TRANSACTION OF THE COMMISSION ARE GENUINE AND INCURRED IN ORDINARY COURSE OF BUSINESS, THUS THE SAME ITA NO.1478/CHD/2017 A.Y.2006-07 5 SHOULD BE ALLOWED BY FOLLOWING THE DIRECTIONS OF THE HON'BLE ITAT IN THIS REGARD. FURTHER, IT IS NOT DISPUTED THAT DURING ..THE COURSE OF APPELLATE PROCEEDINGS FOR THE CAPTIONED ASSESSMENT YEAR, THE APPELLANT HAS PLACED ON RECORD THE CONFIRMATION CERTIFICATE FROM P.T, MENJANGAN SAKTI BEFORE THE HON 'BLE DRP AND THE HON'BLE ITAT. THE SIMILAR CONFIRMATION FROM TH E ABOVE PARTY HAD BEEN PLACED ON RECORD DURING THE COU RSE OF ASSESSMENT PROCEEDINGS IN THE SUBSEQUENT YEAR IE, A Y 2007-08, WHEREIN THE LD. AO HAD ALLOWED THE COMMISSIO N PAID TO P. T. MENJANGAN SAKTI (COPY OF THE CONFIRMATOR Y CERTIFICATE FOR THE AY 2006-07 AND AY 2007-08 ARE EN CLOSED AT PAGE NO 66 AND 67 OF PAPER BOOK). THUS IT IS SPECIF IC SUBMISSION OF THE APPELLANT THAT BY FOLLOWING THE RUL E OF CONSISTENCY AND ADMITTED POSITION OF THE LD. AO THAT THE COMMISSION PAID TO P.T. MENJANGAN SAKTI FOUND TO BE ADMISSIBLE DEDUCTION IN SUCCEEDING YEAR, THEREFORE THE COMMISSION PAID TO P.T. MENJANGAN SAKTI DURING THE YEAR UNDER CONSIDERATION OUGHT TO BE ALLOWED IN VIEW OF THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. EXCEL INDUSTRIES LTD 12 013} 358 ITR 295 (SC), WHEREIN THE HON'BLE SUPREME COURT HE LD THAT REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSES AND DID NOT PURSUE THE MATTER ANY FURTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT A NY SUCCESS. THAI BEING SO, THE REVENUE CANNOT BE ALLOWED TO FLIP- FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RA THER THAN SPEND THE TAX PAYERS' MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT IN THIS REGARD, RELIANCE CAN ALSO BE PLACED O N THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OFRADH ASOAMI SATSANG VS. CJFT/1992/ 193 ITR 321 (SC). IN ADDITION TO THE ABOVE, THE APPELLANT FURTHER SUB MITS THAT IN THE APPELLATE PROCEEDINGS BEFORE THE HON'BLE ITA T, THE CONTENTION OF THE REVENUE WAS THAT SUCH EXPENSES CO ULD NOT ALLOWED FOR THE FOLLOWING REASONS:- ABSENCE OF CONFIRMATION OF THE COMMISSION RECEIVED BY SUCH PARTIES; AND APPELLANT HAD ALSO MADE DIRECT SALES TO SUCH PARTIES. IT IS CLARIFIED THAT BOTH THE CONTENTION HAVE BEEN R EVERTED BY THE APPELLANT IN THE APPELLANT PROCEEDINGS AS WELL AS I N PRESENT REMAND PROCEEDINGS. THE CONFIRMATION CERTIF ICATE FROM P.T, MENJANGAN SAKTI WAS PLACED BEFORE DRP/ ITAT IN THE ORIGINAL PROCEEDINGS AND FOR OTHER TWO PARTIES WERE DULY FILED IN REMAND PROCEEDINGS. SIMILARLY, THE CONTENTION THAT THE APPELLANT IS MAKING DIRECT SALES TO THOSE PARTIE S IS NOT DISPUTED BY THE APPELLANT AND IT HAD RIGHTLY CONTENDE D THAT THE COMMISSION WAS PAID ON SALES OTHER THAN THAT, NOT O NLY ITA NO.1478/CHD/2017 A.Y.2006-07 6 BEFORE THE HON'BLE ITAT BUT ALSO IN THE COURSE OF REM AND PROCEEDINGS. ACCORDINGLY, IN SUPPORT OF THE SAME, TH E SAMPLE INVOICES WERE ALSO PLACED ON RECORD IN THE COURSE O F REMAND PROCEEDINGS ALONG WITH THE CONFIRMATORY LETTER. THUS, IT IS EVIDENT THAT THE ONUS ON APPELLANT TO P ROVE THE GENUINENESS OF THE PAYMENT OF COMMISSION IS PROVED B EYOND DOUBT. HOWEVER, THE LD. AO OBSERVATION IN ITS REMAND B ACK ORDER THAT THE SUBMISSION MADE IN THE COURSE OF REM AND PROCEEDINGS BY THE ASSESSES DOES NOT ENABLE HIM TO CARRY ON VERIFICATION AS DIRECTED BY THE HON'BLE ITAT IS DEVOID OF ANY MERIT AND IN CONTRADICTION TO THE FINDINGS ACCEPT ED BY LD. AO IN SUBSEQUENT YEARS AT LEAST IN RELATION TO P.T. M ENJANGAN SAKTI. IT IS FURTHER SUBMITTED THAT THE LD. AO IN ITS IMPUGNE D ORDER TRAVELLED BEYOND THE SCOPE OF THE REMAND PROCEEDING S WHEREIN HE OBSERVED THE APPELLANT DO NOT FULLY EXPLAIN ED NECESSITY OF SAID PAYMENTS. HE FURTHER OBSERVED THAT THE COMMISSION HAS BEEN SPECIFICALLY MADE TO THOSE CONCER NS AND POSSIBILITY OF AN UNDERLYING TRANSFER OF PRO/ITS CAN NOT BE RULED OUT. IN THIS REGARD, THE LD. AO HAS PLACED RELIANCE ON T HE CASE OF LG ELECTRONICS PVT. LTD ITA NO.5140/DEL/2011. AT THE OUTSET, IT IS SUBMITTED THAT ALLEGATION THAT THERE IS UNDERLYING TRANSFER OF PROFITS IS NOT MADE IN THE O RIGINAL ASSESSMENT AND THE PARTIES IN QUESTION ARE NOT ASSOC IATED ENTERPRISE TO APPELLANT, WHICH IS IN DISPUTE IN THE CASE OF LG ELECTRONICS PVT. LTD, ITA NO, 5140/DEL/2011. IN ADDITION TO ABOVE, IT IS FURTHER SUBMITTED THAT TH E ALLEGATION OF UNDERLYING TRANSFER OF PROFITS IS UNSTAINABLE AND VAGUE AS THE MAJORITY OF EXPORT COMMISSION WAS ALLOWED IN THE ORIGINAL ASSESSMENT ORDER AND THE DISALLOWANCE OF THE ABOVE AMOUNTS OF COMMISSION WAS MADE ONLY ON GROUND THAT THE APPELLANT HAD NOT FURNISHED CONFIRMATION OF THE ABO VE PARTIES AND WAS NOT ABLE TO EXPLAIN THE RATIONALE. IT IS AN ADMITTED POSITION THAT THE REMAND PROCEEDIN GS ARE LIMITED TO DIRECTIONS ISSUED BY THE HON'BLE ITAT AND N O MANNER IT COULD BE EXPANDED OR ENLARGED OR FRESH ALLE GATION CAN BE MADE ON SURMISES AND CONJECTURES. THE HON'BLE I TAT IN ORDER UNEQUIVOCALLY HELD THAT THE AMOUNT IN QUESTION IS ALLOWABLE SUBJECT TO LIMITED VERIFICATION THAT THE P AYMENTS OF COMMISSION IS ALLOWABLE IF THE COMMISSION PAID TO THE SAID CONCERN HAD NO CONNECTION WITH THE SALE MADE TO THE SAID CONCERNS, THUS , IT IS SUBMITTED THAT THE ABOVE BASIS OF MAKING ADDITION ARE DEVOID OF ANY MERIT ON ABOVE ACC OUNT AS WELL AS ON ACCOUNT OF RULE OF CONSISTENCY AS EXPLAI NED ABOVE WHEREIN THE PAYMENTS OF SAID COMMISSION TO SA ID PARTIES WERE ALLOWED IN SUBSEQUENT YEARS. ITA NO.1478/CHD/2017 A.Y.2006-07 7 10. REFERRING TO THE SAME, THE LD. COUNSEL FOR ASSE SSEE STATED THAT THE ASSESSEE HAD SUBMITTED CONFIRMATION CERTIFICATES OF THE COMMISSION PAID TO THE SAID PAR TIES AND HAD ALSO FILED SAMPLE INVOICES WHICH WERE IN THE NA ME OF THIRD PARTY I.E. THE ACTUAL BUYER SHOWING THAT THE TRANSACTIONS WERE NOT ON PRINCIPAL TO PRINCIPAL BAS IS. THE LD. COUNSEL FOR ASSESSEE FURTHER CONTENDED THAT ON THE BASIS OF CONFIRMATION FILED OF ONE OF THE PARTIES M/S P.T . MENJANGAN SAKTI IN SUBSEQUENT ASSESSMENT YEAR I.E. 2007- 08, THE ASSESSING OFFICER HAD ALLOWED THE COMMISSIO N AND, THEREFORE, FOLLOWING THE RULE OF CONSISTENCY THE CO MMISSION PAID TO THE SAID PARTY OUGHT TO BE ALLOWED IN THE I MPUGNED YEAR ALSO. RELIANCE WAS PLACED ON THE DECISION OF T HE HON'BLE APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. (2013) 358 ITR 295 AND IN THE CASE OF RADHASWAMI SA TSANG VS. CIT (1992) 193 ITR 321. THE LD. COUNSEL FOR ASS ESSEE FURTHER CONTENDED THAT BY WAY OF FILING THE ABOVE E VIDENCES IT HAD REBUTTED THE CONTENTION OF THE REVENUE FOR SUPP ORTING THE DISALLOWANCE OF EXPENSES THAT NO CONFIRMATION H AD BEEN FILED OF THE COMMISSION PAID AND THAT THE ASSESSEE HAD MADE DIRECT SALES TO SUCH PARTIES. BESIDES THE ABOVE, TH E LD. COUNSEL FOR ASSESSEE CONTENDED THAT THOUGH IT WAS UNABLE TO FILE DIRECT EVIDENCE TO PROVE THAT IT HAD PAID THE COMMISSION ONLY ON EXPORT SALES EFFECTED THROUGH SUCH PARTIES BUT AT THE SAME TIME, IT HAD BEEN ABLE TO PROCURE EVIDENCES IN THIS REGARD IN RESPECT OF COMMISSION PAID TO ONE OF THE PARTIES ITA NO.1478/CHD/2017 A.Y.2006-07 8 M/S EDWARD KELLER (PHILS) INC IN SUCCEEDING YEAR I. E. ASSESSMENT YEARS 2007-08, 2008-09 AND 2009-10. THE SAID EVIDENCES WERE FILED BEFORE US. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THE MATTER BEING VERY OLD PERTAINING TO ASSESSMENT YEAR 2006-07 RELATING TO FINANCIAL YEAR 2005-06 AND ASSESSEE HAVING CHANGED ITS ERP SYSTEM, IT WAS DIFFICULT FOR IT TO PROCURE DIRECT EVIDENCES IN THIS REGARD F OR THE IMPUGNED YEAR AND SINCE IT HAD PLACED EVIDENCES OF HAVING PAID COMMISSION ON EXPORT SALES MADE BY THESE PARTI ES IN SUBSEQUENT YEARS ALSO, IT CAN BE SAFELY PRESUMED TH AT THE ASSESSEE HAD PAID COMMISSION ON EXPORT SALES MADE I N THE IMPUGNED YEAR ALSO. 11. THE LD. DR, ON THE OTHER HAND, STATED THAT THE CASE IS VERY CLEAR WHEREIN THE ASSESSEE HAS FAILED TO VERIF Y THAT NO COMMISSION HAD BEEN PAID ON DIRECT SALES MADE TO T HE IMPUGNED PARTIES AS PER THE CLEAR DIRECTIONS OF THE I.T.A.T. AND HAD ALSO ADMITTED TO THE SAME. THEREFORE, THE L D. DR CONTENDED THAT THE CIT(APPEALS) HAD RIGHTLY UPHELD THE DISALLOWANCE OF COMMISSION PAID TO TWO PARTIES. 12. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES, PERUSED THE ORDERS OF AUTHORITIES BELOW AND GONE TH ROUGH THE DOCUMENTS PLACED BEFORE US. SINCE THIS IS THE S ECOND ROUND OF HEARING BEFORE US IN CONSEQUENCE TO DIRECT IONS GIVEN BY THE I.T.A.T. IN THE FIRST ROUND AND THE CO NTENTION OF BOTH THE PARTIES PRIMARILY IS VIS--VIS COMPLIANCE WITH THE SAID DIRECTIONS, IT IS PERTINENT TO REPRODUCE THE O RDER OF THE ITA NO.1478/CHD/2017 A.Y.2006-07 9 I.T.A.T. GIVING THE SAID DIRECTIONS WHICH IS ALSO R EPRODUCED IN THE CIT(APPEALS)S ORDER AT PAGE 4 AS UNDER: 85. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND NO. 4 IS AGAIN ST THE DISALLOWANCE OF COMMISSION EXPENSES TOTALING RS.96,15,144/-. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD CLAIMED TOTAL EXPENDITURE OF RS.2.60 C RORES UNDER THE HEAD COMMISSION. THE SAID COMMISSION INCLUDED BOTH COMMISSION PAID ON ACCOUNT OF EXPORTS AND ALSO THE COMMISSION PAID ON DOMESTIC SALES. THE CAS E OF THE REVENUE IS THAT THE ASSESSEE HAD MADE SALES TO CERTAIN PARTIES, TO WHOM COMMISSION WAS ALSO PAID A ND THE SAME BEING NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE, WAS NOT TO BE ALLOWED AS AN EXPENDITURE. HOWEVER, THE CASE OF THE ASSESSEE BEFORE US IS THAT THE SAID COMMISSION HAS BEEN PAID AGAINST THE PURCHASE ORDERS BOOKED BY THE SAID CONCERN, WHO WERE ENGAGED IN TRADING AND WERE ALSO COMMISSION AGENTS. THE TWO TRANSACTIONS WERE CLAIMED TO BE DIFFERENT AND WITHO UT ANY CONNECTION TO EACH OTHER. THE ASSESSEE HAS PLAC ED ON RECORD THE DETAILS OF COMMISSION PAID AT PAGES 291 & 292 OF THE PAPER BOOK. THE ABOVE SAID DETAILS REFLECT C OMMISSION ON EXPORT SAFES PAID OF RS.105,63,783/- AND DOMESTI C COMMISSION OF RS.155,27,136/-. THE ASSESSEE HAD FUR THER FURNISHED THE DETAILS OF THE PARTIES ALONG WITH THE RATES OF COMMISSION, SALES MADE TO THE SAID PARTIES AND THE TOTAL COMMISSION PAID TO THE SAID PARTIES, WHICH ARE PLACED AT PAGES 293 AND 294 OF THE PAPER BOOK. AS AGAINST THE EXPORT COMMISSION, THE ASSESSEE HAD PAID A SUM OF RS.695,475/ - ON SALES OF RS.2.35 CRORES TO M/S EDWARD KELLER @ 2.95 0%. FURTHER COMMISSION OF RS.40,97,199/- ON SALE VALUE OF RS.13.80 CRORES HAS BEEN PAID TO P.I. MENSANGAN SAKT I. THE NEXT ITEM OF PAYMENT IS TO M/S MALACHITE CHEMICALS, WH ICH AS PER THE ASSESSEE IS RS.8S5,880/- ON SALE VALUE OF RS.2.98 CRORES @ RS.2.966%. THE ASSESSING OFFICER H AS ADOPTED THE COMMISSION PAID TO M/S MALACHITE CHEMICA LS AT RS.455,257/-. THE CASE OF THE ASSESSEE BEFORE US IS THAT THE COMMISSION, AGENTS ARE ALSO TRADERS OF THE DRUGS AND ARE ALSO ACTING AS COMMISSION AGENTS. THE ASSESSEE IS ENGA GED IN THE MANUFACTURE OF INTERMEDIARIES AND BULK DRUGS, 'WHICH IN TURN ARE UTILIZED BY OTHER CONCERNS FOR THE PREP ARATION OF THE FINAL PRODUCTS. THE ASSESSEE, THROUGH THE SAID COMMISS ION AGENTS HAD SOLD THE ITEMS MANUFACTURED BY IT TO DIF FERENT CONCERNS. THE ASSESSEE HAS PLACED ON RECORD THE CONFIRMATION FROM P.I. MENSANGAN SAKTI IN RESPECT O F RECEIPT OF COMMISSION OF RS.40,97,199/-. THE SAID CERTIFICATE IS PLACED AT PAGES 305 OF THE PAPER BOOK. WE FIND MERIT IN THE CASE OF THE ASSESSEE. HOWEVER, THE NECESSARY DETAIL S IN THIS REGARD ARE NOT AVAILABLE, IN PARTICULAR THE PLE A OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE SALES T O THE SAID PARTIES ON WHICH COMMISSION HAD BEEN PAID. WE, THEREFORE, REMIT THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO ITA NO.1478/CHD/2017 A.Y.2006-07 10 VERIFY THE CLAIM OF THE ASSESSEE THAT THE COMMISSION PAID TO THE SAID CONCERN HAD NO CONNECTION WITH THE SALES MAD E TO THE SAID CONCERNS AND IF THE CONTENTION OF THE ASSES SEE IS FOUND TO BE CORRECT, THE ASSESSING OFFICER IS DIRECT ED TO ALLOW THE CLAIM OF EXPENDITURE BOOKED ON ACCOUNT OF COMMISS ION PAID ON EXPORT SALES. REASONABLE OPPORTUNITY OF HEARI NG SHALL BE AFFORDED TO THE ASSESSEE TO PUT FORWARD ITS CONTE NTIONS. IN VIEW THEREOF, THIS ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER WITH OUR DIRECTIONS.' 13. A PERUSAL OF THE ABOVE SHOWS THAT ON THE ISSUE OF ALLOWABILITY OF THE COMMISSION PAID ON EXPORT SALES , THE I.T.A.T. ON APPRECIATING THE EVIDENCES FILED BY THE ASSESSEE BY WAY OF DETAILS OF THE COMMISSION PAID, SALES MAD E TO THE SAID PARTIES AND ALSO THE CONFIRMATIONS FROM ONE OF THE PARTIES, FOUND MERIT IN THE CLAIM OF THE ASSESSEE, BUT AT THE SAME TIME FOUND THAT NECESSARY DETAILS OF THE COMM ISSION PAID WERE NOT AVAILABLE CONSIDERING THE FACT THAT T HE PARTIES TO WHOM THE SAID COMMISSION HAD BEEN PAID HAD MADE PURCHASES FROM THE ASSESSEE BOTH ON PRINCIPAL TO P RINCIPAL BASIS AND AS AGENTS ALSO AND IT WAS THEREFORE NOT C LEAR AS TO ON WHICH COMPONENT THE COMMISSION HAD BEEN PAID SI NCE THE REVENUE HAD CONTENDED THAT THE ASSESSEE HAD PAI D COMMISSION ON SALES MADE TO THE SAID PARTIES ON PRI NCIPAL TO PRINCIPAL BASIS. THE I.T.A.T., HELD THAT THE COMMIS SION WAS ALLOWABLE ONLY ON SALES EFFECTED THROUGH THESE PART IES AND NOT THAT MADE DIRECTLY TO THE SAID PARTIES, SINCE T HE SAME COULD NOT BE TERMED AS COMMISSION. THEREFORE, THE I .T.A.T. RESTORED THE ISSUE TO THE ASSESSING OFFICER TO VERI FY THAT THE COMMISSION PAID TO THE SAID PARTIES ONLY RELATED TO THE SALES EFFECTED THROUGH THEM AND NOT ON SALES MADE DIRECTL Y TO THEM. IN THE LIGHT OF THE SAID DIRECTION, THE LIMIT ED ISSUE RESTORED TO THE AO WAS VERIFICATION OF THE FACT THA T ITA NO.1478/CHD/2017 A.Y.2006-07 11 COMMISSION PAID TO THE IMPUGNED PARTIES HAD NO CON NECTION WITH THE SALE MADE TO THEM AND WAS ONLY FOR THE SAL ES EFFECTED TO OTHER PARTIES THROUGH THEM. 14. HAVING SAID SO, WE FIND THAT THE ADMITTED POSIT ION BEFORE US IS THAT THE ASSESSEE HAS BEEN UNABLE TO F ILE ANY DIRECT EVIDENCE IN THIS REGARD WITH RESPECT TO COMM ISSION PAID TO TWO PARTIES M/S P.T. MENJANGAN SAKTI AND M/ S EDWARD KELLER (PHILS) INC, AMOUNTING TO RS.40,97,19 9/- & RS.6,95,475/- RESPECTIVELY, WHICH HAS BEEN UPHELD BY THE CIT(APPEALS). NOW THE QUESTION BEFORE US IS THAT CO NSIDERING SPECIFIC DIRECTIONS OF THE I.T.A.T., WHETHER INDIRE CT EVIDENCES OR OTHER EVIDENCES FILED BY THE ASSESSEE TO PROVE I TS CLAIM THAT IT HAD MADE PAYMENT OF COMMISSION ONLY OF EXP ORT SALES EFFECTED THROUGH THEM WOULD BE SUFFICIENT COM PLIANCE WITH THE DIRECTIONS OF THE I.T.A.T. AT THE COST OF REPETITION IT MAY BE STATED THAT THE DIRECTIONS OF THE I.T.A.T. W AS TO VERIFY THE FACT THAT THE COMMISSION WAS PAID ONLY ON EXPOR T SALES EFFECTED THROUGH THESE PARTIES AND NOT ON DIRECT SA LES MADE TO THEM. THE DIRECTIONS, THEREFORE, HAVE TO BE READ AS SUCH AND WHAT HAS TO BE SEEN IS WHETHER THE EVIDENCES FI LED BY THE ASSESSEE ADEQUATELY PROVE THE SAID CONTENTION OF THE ASSESSEE. 15. COMING TO THE EVIDENCES NOW RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE, THE SAME ARE AS UNDER: CONFIRMATIONS OF THE IMPUGNED TWO PARTIES OF RECEIP T OF COMMISSION. THAT ON THE BASIS OF CONFIRMATION ALONE, THE CLAIM HAD BEEN ALLOWED IN SUCCEEDING YEAR BY THE AO. ITA NO.1478/CHD/2017 A.Y.2006-07 12 SOME COPIES OF INVOICES RAISED IN THE NAME OF THIR D PARTIES BY THESE AGENTS EVIDENCE OF COMMISSION PAID ON SALES EFFECTED THROU GH ONE OF THE PARTIES M/S EDWARD KELLER IN F.Y 2006-07 TO F.Y 2008-09 ,PERTAINING TO A.Y 2007-08 TO A.Y 2009- 10 A PERUSAL OF THE EVIDENCE FILED BY WAY OF CONFIRMA TIONS OF THE SAID TWO PARTIES, PLACED AT PAPER BOOK PAGE NOS .185 AND 186 RELATING TO M/S P.T. MENJANGAN SAKTI AND M/S ED WARD KELLER (PHILS) INC, RESPECTIVELY SHOW THAT THEY HAV E MERELY CONFIRMED THE RECEIPT OF COMMISSION ON SUPPLY OF BU LK DRUGS DURING THE IMPUGNED YEAR FROM THE ASSESSEE. THE CONFIRMATION, IN BOTH THE CASES READS AS UNDER : 1. EDWARD KELLER DATE: 6 TH JANUARY 2015 CERTIFICATE WE EDWARD KELLER, CERTIFY THAT WE HAVE RECEIVED COMMISSION USD 15,666 ON SUPPLIES OF BULK DRUGS DURING THE PERIOD 1' APRIL.'2005 TO 31 ST MATCH 2006 MADE FROM DSM ANTI- INVECTIVES INDIA LTD,, FOR EDWARD KELLER (SIGNED) AUTHORISED SIGNATORY JANUARY 27, 2010 2. PT MENJANGAN SAKTI CERTIFICATE WE, PT MENJANGAN SAKTI, CERTIFY THAT WE HAVE RECEIV ED COMMISSION ON SUPPLIES OF BULK DRUGS DURIN G THE PERIOD 1 ST APRIL 05 TO 31 S * MARCH 06 MADE FROM DSM ANTI-LNFECTIVES INDIA LTD, INDIA AS MENTIONED BELOW: ITA NO.1478/CHD/2017 A.Y.2006-07 13 COMMISSION AMOUNT COMMISSION RECEIVED ON USS 29.760.22 21/04/2006 US4 65.447.68 08/02/2007 FOR P.T.MENJANGAN (SIGNED) YUNANTO 16. THE CONFIRMATIONS NOWHERE STATE THAT THE COMMIS SION WAS RECEIVED BY THEM ON ACCOUNT OF EXPORT SALES EFF ECTED THROUGH THEM, WHICH WAS THE REQUIRED INFORMATION, CONSIDERING THE FACT THAT THESE PARTIES WERE RECEIV ING SUPPLIES FROM THE ASSESSEE BOTH ON PRINCIPAL TO PRI NCIPAL BASIS AND ON PRINCIPAL TO AGENT BASIS. THEREFORE, T HE CONFIRMATIONS NOW FILED ARE, WE HOLD, OF NO ASSISTA NCE TO THE ASSESSEE IN COMPLYING WITH THE SPECIFIC DIRECTION O F THE ITAT IN THE FIRST ROUND. 17. AS FOR THE INVOICES RAISED IN THE NAME OF THIRD PARTIES, WE FAIL TO SEE HOW THE SAID INVOICES SERVE THE PURP OSE SINCE THE ONLY FACT WHICH THESE INVOICES SERVE IS TO SHO W THAT THE ASSESSEE HAD SUPPLIED DRUGS TO THE CONCERNED PARTI ES AS AGENTS ALSO WHICH FACT IS NOT DENIED, BUT AT THE SA ME TIME IT DOES NOT ESTABLISH THAT THE COMMISSION WAS PAID ON THE EXPORT SALES EFFECTED THROUGH THEM. THEREFORE, EVEN THESE INVOICES SERVE NO PURPOSE. 18. THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT IN SUCCEEDING YEAR THE ASSESSING OFFICER HAD ALLOWED I TS CLAIM OF COMMISSION ON THE BASIS OF CONFIRMATIONS FILED I S ALSO WE HOLD OF NO ASSISTANCE CONSIDERING THE SPECIFIC DIR ECTION OF THE ITAT TO VERIFY THAT THE COMMISSION PAID DID NO T RELATE TO ITA NO.1478/CHD/2017 A.Y.2006-07 14 DIRECT SALES MADE TO THE PARTIES AND FURTHER SINCE CONFIRMATIONS OF PARTIES HAD BEEN TAKEN INTO CONSID ERATION BY THE I.T.A.T. WHILE GIVING THE AFORESAID DIRECTIO NS AND CONSIDERING THE SAME NOT SUFFICIENT, HAD GIVEN THE SAID DIRECTIONS. THEREFORE, EVEN THIS CONTENTION OF THE LD. COUNSEL FOR ASSESSEE IS REJECTED. 19. AS FOR THE EVIDENCES NOW FILED GIVING DETAILS OF SALES EFFECTED THROUGH ONE OF THE PARTIES IN SUCCEEDING Y EARS, WE FIND THAT THE SAME IS ALSO OF NO ASSISTANCE TO THE ASSESSEE. THE REASON BEING THAT FIRSTLY THE SAID DOCUMENTS R ELATE TO ONE COMMISSION AGENT ONLY I.E. M/S EDWARD KELLER T HEREFORE IN ANY CASE IT WOULD NOT SUFFICE TO PROVE THE COMMI SSION PAID TO THE OTHER AGENT. FURTHER ALL THE EVIDENCES RELAT E TO SUCCEEDING YEARS AND BEING A MATTER OF FACT, THE SA ME HAS TO BE DEMONSTRATED FOR EACH YEAR SEPARATELY AND CANNOT BE STRETCHED FROM OTHER YEARS TO APPLY FOR A DIFFERENT YEAR. THEREFORE THESE EVIDENCES ARE ALSO REJECTED FOR PRO VING THAT COMMISSION HAD BEEN PAID TO THE IMPUGNED PARTIES ON LY ON SALES EFFECTED THROUGH THEM. 20. IN VIEW OF THE ABOVE WE AGREE WITH THE LD.CIT (A) THAT THE ASSESSEE HAD FAILED TO COMPLY WITH THE DIRECT IONS OF THE ITAT TO PROVE THAT NO COMMISSION HAD BEEN PAID ON S ALES DIRECTLY MADE TO THE SAID PARTIES. WE THEREFORE UPH OLD THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF COMMISSION PAID TO M/S P.T. MENJANGAN SAKTI AND M/S EDWARD KELLER (PHILS) INC, AMOUNTING TO RS.40,97,19 9/- & ITA NO.1478/CHD/2017 A.Y.2006-07 15 RS.6,95,475/- RESPECTIVELY . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THEREFORE DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH AUGUST, 2018 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH