ESSA I MERCHANT, MUMBAI V. JCIT RG 17(1), MUMBAI

ITA 1592/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0232 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Business income; Charitable institution; Accommodation entries; Assessment record; Commercial expediency
• Section: 143(3); 133(6); 37(1); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH E, MU MBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3618//MUM/2016 (ASSESSMENT YEAR-2011-12) ESSA ISMAIL MERCHANT (PROP. OF M/S ADVANCE COMPUTERS), 123, GROUND FLOOR, ZAKARI MASJID STREET, MASJID, MUMBAI-400009. PAN: AFSPM6894H VS. JCIT 13(3), AAYAKAR BHAVAN, MUMBAI-400020 (APPELLANT) (RESPONDENT) ITA NO. 4551//MUM/2016 (ASSESSMENT YEAR-2011-12) ACIT 17(1), AAYAKAR BHAVAN, MUMBAI-400020 VS. ESSA ISMAIL MERCHANT (PROP. OF M/S ADVANCE COMPUTERS), 123, GROUND FLOOR, ZAKARI MASJID STREET, MASJID, MUMBAI-400009. PAN: AFSPM6894H (APPELLANT) (RESPONDENT) ITA NO. 1592//MUM/2017 (ASSESSMENT YEAR-2012-13) ESSA ISMAIL MERCHANT (PROP. OF M/S ADVANCE COMPUTERS), UNIT NO.9, YUSUF BUILDING, GROUND FLOOR, JUNCTION OF M.G. ROAD & VEER NARIMAN ROAD, FLORA FOUNTAIN, FORT, MUMBAI-400001. PAN: AFSPM6894H VS. JCIT 17(1), AAYAKAR BHAVAN, MUMBAI-400020 (APPELLANT) (RESPONDENT) ITA NO. 3426//MUM/2017 (ASSESSMENT YEAR-2013-14) ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 2 ESSA ISMAIL MERCHANT (PROP. OF M/S ADVANCE COMPUTERS), UNIT NO.9, YUSUF BUILDING, GROUND FLOOR, JUNCTION OF M.G. ROAD & VEER NARIMAN ROAD, FLORA FOUNTAIN, FORT, MUMBAI-400001. PAN: AFSPM6894H VS. ACIT 13(3), ROOM NO. 117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NEELKANTH KHANDELWAL (AR) REVENUE BY : SHRI RAM TIWARI (DR) DATE OF HEARING : 27.12.2017 DATE OF PRONOUNCEMENT : 21.02.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS GROUP OF FOUR APPEALS UNDER SECTION 253 OF THE INCOME-TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER LD. CIT(A)-28, MUMBAI 13.04.2016 FOR ASSESSMENT YEAR (AY) 2011-12, 2012-13 & 2013-14. FO R AY 2011-12, THERE IS CROSS APPEAL. FOR AY 2012-13 & 2013-14, BO TH THE APPEALS ARE FILED BY THE ASSESSEE. IN APPEALS/ CROSS APPEALS BOTH THE PARTIES HAVE RAISED COMMON GROUNDS OF APPEAL. HENCE ALL APPEALS WERE CL UBBED TOGETHER AND ARE DECIDED BY CONSOLIDATED ORDER. WITH THE CONSENT OF PARTIES THE APPEAL FOR AY 2011-12 IS TREATED AS LEAD CASE. FOR AY 2011 -12 THE PARTIES HAVE RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO. 3618/MUM/2016 FOR AY 2011-12 BY ASSESSEE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 3 GROUND NO.1: DISALLOWANCE OF COMMISSION PAID BY THE APPELLANT TO AGENTS AMOUNTING TO RS. 17,79,865/- 1. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) -28 MUMBAI ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE MAD E BY THE JT. COMMISSIONER OF INCOME TAX-13(3), MUMBAI, ON ACCOUNT OF COMMISSION ON SALES PAID TO AGENTS TO THE EXTENT OF RS. 17,79,865/-. 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE ON AC COUNT OF COMMISSION EXPENSES CONFIRMED BY THE HONBLE CIT-A TO THE EXTENT OF RS. 17,79,865/- MAY BE DELETED, ON THE SAME GROUNDS AS THE ALLOWANCE OF COMMISSION EXPENSES OF RS. 75,08,484/- BY THE HONBLE CIT-A. GROUND NO.2: GENERAL 3. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER OR AMEND ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE HEARING. ITA NO. 4521/MUM/2016 FOR AY 2011-12 BY REVENUE 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD/ .CIT(A) HAS ERRED IN DIRECTING THE AO TO RESTRICT THE DISAL LOWANCE OF COMMISSION TO RS. 17,79,865/ - WITHOUT APPRECIATING THE FACTS THAT- I) THE SAID COMMISSION PAYMENT IN THE INSTANT YEAR HAS AUGMENTED ABNORMALLY BY 1107% OVER THE PREVIOUS YEAR. II) THE AO TOOK RECOURSE TO ISSUE OF NOTICES U/S 13 3(6) OF THE ACT, YET THE GENUINENESS OF THE PAYMENTS WAS NOT ESTABLISHED DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. III) IT WAS ASKED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS ISSUED CHEQUES AND IN LIEU THEREOF HAS OBTAINED BACK CASH. THE PAYMENT S ARE NOTHING BUT BOGUS AND THE ACCOMMODATION ENTRIES ARE CLOAKED AS COMMISSION PAYMENTS. THE FINDINGS SUPRA AS NARRATED IN THE ASSESSMENT OR DER HAVE NOT BEEN CONTROVERTED BY THE LD. CIT(A). 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE AO SH OULD BE RESTORED AND ORDER OF THE CIT(A) SHOULD BE SET ASIDE.' 2. BRIEF FACTS OF THE CASE AS GATHERED FROM THE RECORD OF THE CASE ARE THAT THE ASSESSEE IS PROPRIETOR OF M/S ADVANCE COMPUTER. THE ASSESSEE IS A REGIONAL DISTRIBUTOR OF MOBILE HANDSET AND ACCESSORIES IN MU MBAI. THE ASSESSEE DEALS MAINLY IN BLACKBERRY BRAND OF SMART PHONE AND RELATED MOBILE ACCESSORIES AND CERTAIN OTHER BRANDS. THE ASSESSEE FILED HIS RETURN OF INCOME ELECTRONICALLY FOR AY 2011-12 ON 23.08.2011 DECLARING TAXABLE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 4 INCOME OF RS. 2,41,41,870/-. IN THE COMPUTATION THE ASSESSEE HAS SHOWN PAYMENT OF COMMISSION OF RS.1,01,07,688/-. THE ASSE SSMENT WAS COMPLETED UNDER SECTION 143(3) ON 29.03.2014. THE ASSESSING O FFICER (AO) WHILE FRAMING THE ASSESSMENT ORDER BESIDES THE OTHER ADDI TIONS /DISALLOWANCE, DISALLOWED A SUM OF RS. 92,88,349/- ON ACCOUNT OF C OMMISSION PAYMENT. ON APPEAL BEFORE THE LD. CIT (A), THE DISALLOWANCE WAS RESTRICTED TO RS. 17,79,865/-. THUS, BEING AGGRIEVED, BOTH THE PARTIE S HAVE FILED THEIR CROSS APPEAL BY RAISING THE GROUNDS OF APPEAL AS REFERRED IN PARA-1 (SUPRA). 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PARTIE S. THE LD. AR OF THE ASSESSEE ARGUED THAT ASSESSEE IS REGIONAL DISTRIBUT OR IN MOBILE HANDSET AND ACCESSORIES IN MUMBAI. THE ASSESSEE MAINLY DEALS IN BLACKBERRY BRANDS OF SMART PHONES AND RELATED MOBILE ACCESSORIES. THE AS SESSEE ALSO DEALS IN OTHER BRANDS. DURING THE YEAR DUE TO ITS USER FRIE NDLY TECHNOLOGY IN NEW FEATURES, THE DEMAND OF PRODUCTS WHICH WAS DEALT BY ASSESSEE WAS RAPIDLY GROWING DUE TO THEIR GOOD QUALITY AND DEDICATED SER VICES. THE ASSESSEE PAID COMMISSION TO VARIOUS BROKERS AND AGENTS IN REGULAR PART OF HIS BUSINESS OPERATION. THE COMMISSION IN SUCH TYPE OF BUSINESS IS COMMON AND ESPECIALLY ON INTRODUCTION OF NEW MODEL OF SMART PH ONES. THE ASSESSEE PAID COMMISSION ONLY ON SALES. THE COMMISSION WAS PAID W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE REVENU E AUTHORITY CANNOT BE ALLOWED TO DISALLOW SUCH COMMISSION EXPENSES ON ARB ITRARY AND UNREASONABLE BASIS. DURING THE YEAR UNDER CONSIDERA TION, THE TOTAL TURNOVER ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 5 OF THE ASSESSEE WAS RS. 147,80,05,222/-. THE ASSESS EE PAID A COMMISSION OF RS. 1,01,05,438/-, WHICH IS LESS THAN 1% OF THE TOT AL TURNOVER. THE ASSESSEE HAS PAID ONLY .68% COMMISSION OF TOTAL TURNOVER. TH E COMMISSION WAS PAID TO 32 COMMISSION AGENT/PARTIES. THE COMMISSION PAYM ENT WAS VARYING FROM 0.15% TO 1% DEPENDING UPON THE BUSINESS RELATION WI TH THE AGENT OR THE PARTIES AND THE TARGET ACHIEVED BY THE RESPECTIVE A GENTS. THE AO CANNOT SIT ON THE CHAIR OF BUSINESSMAN. THE ASSESSEE DURING TH E ASSESSMENT PROCEEDING PROVIDED THE DETAILS OF PERSON TO WHOM COMMISSION W AS PAID. THE ASSESSEE PROVIDED NAME, ADDRESS AND PAN NUMBER AND AMOUNT OF THE SALE ON WHICH COMMISSION WAS PAID TO THE ALL GENUINE PARTIES. THE COMMISSION WAS PAID THROUGH BANKING CHANNEL AFTER DEDUCTING THE TDS. TH E TDS IS PROPERLY REFLECTED IN THE BOOKS OF ACCOUNT. DURING THE YEAR UNDER CONSIDERATION, THE TOTAL TURNOVER OF THE ASSESSEE WAS INCREASED DRASTI CALLY. THE AO OUT OF TOTAL COMMISSION PAYMENT OF RS. 1,01,07,688/- DISALLOWED COMMISSION OF RS.92,88,349/-. THE AO ISSUED NOTICE TO VARIOUS PAR TIES UNDER SECTION 133(6). THE AO RECEIVED THE CONFIRMATION FROM MANY AGENT/PARTIES WHICH HAVE BEEN DISREGARDED BY THE AO WHILE PASSING THE A SSESSMENT ORDER. THE ASSESSEE MADE THE SIMILAR SUBMISSION BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE ASSESSEE IS PAID COMMISSION ONLY ON THE SALES AND NOT ON THE PURCHASES. ON INSTRUCTION OF LD. CIT(A), THE AS SESSEE FURTHER FURNISHED THE COMPLETE DETAILS ALONG WITH THE DOCUMENTARY EVI DENCE INCLUDING CONFIRMATION, AGENT STATEMENT AND RETURN OF INCOME IN THE COMPUTATION OF ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 6 THEIR RETURN OF INCOME. THE LD. CIT(A) COMPILED ALL THE DETAILS IN ANNEXURE WHICH WAS MADE A PART OF HIS ORDER. THE LD. CIT(A) ON THE BASIS OF HIS OBSERVATION SUSTAINED/ CONFIRMED THE DISALLOWANCE I N RESPECT OF 9 PARTIES WHICH ARE LISTED AT SERIAL NO. 7, 9, 14, 26 TO 31 I N THE SAID ANNEXURE. THE LD CIT(A) SUSTAINED THE DISALLOWANCE OF COMMISSION OF RS. 17,79,685/-. THE LD. CIT(A) SUSTAINED THE PARTIAL DISALLOWANCE OF CO MMISSION OF RS. 17,79,685/-, ON HIS OBSERVATION THAT ASSESSEE COULD NOT PRODUCE CONFIRMATION, BANK STATEMENT AND RETURN OF INCOME O F THESE 9 PARTIES. THE AO AS WELL AS LD. CIT(A) HAS NOT MADE ANY FURTHER I NVESTIGATION ABOUT THE GENUINENITY OF THE PAYMENT, NO ADVERSE DETAILS MATE RIAL WAS BROUGHT ON RECORD. THE ASSESSEE HAS FURNISHED ALL DETAILS IN R ESPECT OF ALL PERSONS TO WHOM COMMISSION WAS PAID. THE LD. AR OF THE ASSESSE E PRAYED THAT THE DISALLOWANCE OF COMMISSION PAYMENT RESTRICTED/CONFI RMED IN RESPECT OF 9 PERSONS ARE ALSO LIABLE TO BE DELETED AS THE ASSESS EE HAS DISCHARGED HIS PRIMARY ONUS. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF PRINTERS HOUSE (P.) LTD. (188 TAXMAN 70(DELHI), SHRIRAM PISTONS & RINGS LTD. (206 TAXMAN 41 (DEL) ( MAG.), BHARAT MEDICAL STORE (308 ITR 373 (P&H), SEPTU INDIA (P.) LTD. 305 ITR 295 (P&H), GENESIS COMMENT (P.) LTD. 163 TAXMAN 482(DEL ) & MOBILE COMMUNICATION (INDIA) (P.) LTD. (125 ITD 666 (DELHI ). 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF AO. IT WAS ARGUED THAT DURING THE PRECEDING YEAR, THE ASSE SSEE HAS PAID ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 7 COMMISSION OF RS. 8,37,080/-. DURING THE YEAR, THE ASSESSEE HAS DEBITED COMMISSION PAYMENT OF RS. 1,01,06,688/- FROM ITS PR OFIT & LOSS A/C. THE ASSESSEE HAS NOT ADOPTED/FOLLOWED THE UNIFORM POLIC Y FOR PAYMENT OF COMMISSION TO VARIOUS PARTIES. ON VERIFICATION OF C ERTAIN FACT, THE AO FOUND THAT THE ASSESSEE HAS PAID COMMISSION TO SUCH PARTI ES TO WHOM NO COMMISSION WAS PAID IN PREVIOUS YEARS. THE AO AFTER HIS DETAILED ENQUIRY/INVESTIGATION HAS REFERRED IN THE ASSESSMEN T ORDER DISALLOWED THE ADDITION OF RS. 92,88,349/-. THE LD. DR FOR THE REV ENUE PRAYED TO SUSTAIN THE ENTIRE DISALLOWANCE MADE BY AO AND PRAYED TO SE T-ASIDE THE FINDING OF LD. CIT(A) IN GIVING PARTIAL RELIED TO THE ASSESSEE . 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES. WE HAVE NOTED THAT BOTH THE PARTIES HAVE CHALLENGED THE ADDITION/DELET ION OF THE DISALLOWANCE OF COMMISSION PAYMENT, HENCE WE WILL DISCUSSED AND DEI CIDE BOTH THE APPEALS. THE ASSESSEE HAS CHALLENGED TO SUSTAINING THE DISAL LOWANCE OF COMMISSION OF PAYMENT TO THE EXTENT OF RS. 17,79,685/-. SIMILA RLY, THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF COMMISSI ON TO THE EXTENT OF RS. 75,08,484/-. WE HAVE SEEN THAT DURING THE ASSESSMEN T PROCEEDING THAT AO NOTED THAT ASSESSEE HAS PAID THE COMMISSION OF RS. 1,01,07,688/-. IN IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAS PAID T HE COMMISSION OF RS. 8,37,080/-. THE AO MADE THE COMPARISON OF PRECEDING YEAR AND THE CURRENT YEAR SALE WITH NAMES OF AGENT/COMMISSION AGENT/PART IES. THE AO FURTHER NOTED THAT THE ASSESSEE HAS PAID THE COMMISSION TO SOME DIFFERENT PARTIES ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 8 FROM THAT OF PRECEDING YEAR. ON THE BASIS OF ABOVE OBSERVATION, THE AO WAS OF THE VIEW THAT THERE IS DISCREPANCY IN THE COMMIS SION PAYMENT. HENCE, A SHOW-CAUSE NOTICE DATED 20.03.2014 WAS ISSUED TO TH E ASSESSEE TO JUSTIFY THE COMMISSION PAYMENT. THE ASSESSEE FURNISHED HIS DETA ILED REPLY. IN THE REPLY, THE ASSESSEE CONTENDED THAT THE COMMISSION WAS NOT PAID TO SOME PARTIES IN PREVIOUS YEAR, THE PAYMENT OF COMMISSION DEPEND ON MANY FACTS SUCH AS NON-REALIZATION OF PAYMENT FROM CUSTOMERS, NON-ACHI EVEMENT OF DIRECTOR FOR PARTICULAR MODEL HANDSET, DISPUTE WITH THE CUST OMER AGAINST THE DEFECT IN MOBILE SET, NATURE OF HANDSET SOLD IN PREVIOUS AND CURRENT YEAR, LAUNCH OF NEW HANDSET BY DIFFERENT COMPANIES IN THE MARKET AN D NON-RECEIPT OF C- FORM, COMPLIANCE MATTER OTHERWISE ETC. THE ASSESSEE FURTHER CONTENDED THAT IN RESPECT OF NOTICE UNDER SECTION 133(6), THE TRAN SACTION HAS BEEN CONFIRMED BY THE COMMISSION AGENT WHICH PROVED THE GENUINENES S OF TRANSACTION. FOR THE NOTICES UNDER SECTION 133(6) WHICH WERE RETURNE D UN-SERVED. THE ASSESSEE CONTENDED THAT THEY HAVE ALREADY SUBMITTED COPY OF LEDGER STATEMENT, PURCHASE AND COMMISSION PAID WITH COPY O F SAMPLE INVOICES AND OTHER DETAILS LIKE PAN, ADDRESS ETC. THE ASSESSEE A LSO CONTENDED THAT THE COMMISSION DEBITED IN THE PROFIT & LOSS A/C IS LESS THAN 1% OF THE TOTAL TURNOVER. THE CONTENTION OF ASSESSEE WAS NOT ACCEPT ED BY AO ON HIS OBSERVATION THAT NO STANDARD BASE FOR POLICY FOR PA YMENT OF COMMISSION IS FOLLOWED BY ASSESSEE. THE AO CONDUCTED INVESTIGATIO N AND FOUND THAT NO COMMISSION ON PURCHASE AND SALE IN PREVIOUS YEAR WA S PAID BUT PAID IN THE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 9 CURRENT YEAR. THE ASSESSEE WAS HAVING RUNNING BUSIN ESS WITH VARIOUS CONCERNED AND WHY THE COMMISSION PAYMENT WAS NOT PA ID IN EARLIER YEARS. SOME OF THE CASES, THE AGENTS WERE CHANGED. THE AO ALSO NOTED THAT ASSESSEE HAS GIVEN CHEQUE AFTER DEDUCTING TDS AND R ECEIVED CASH BACK FROM THE PARTIES AND PAID MINOR COMMISSION TO THE NAME L ENDING PARTIES. THE AO DISALLOWED A COMMISSION PAYMENT OF RS. 92,88,349/- IN RESPECT OF 31 PARTIES OF HIS OBSERVATION THAT EITHER THERE WAS NO COMMISS ION PAID TO THEM IN PRECEDING YEAR OR NO SALE IN PRECEDING YEAR OR CHAN GE IN THE NAME OF COMMISSION AGENT. WE HAVE NOTED THAT THE AO HAS OBS ERVED THAT ASSESSEE HAD GIVEN CHEQUE AND AFTER DEDUCTING TDS RECEIVED B ACK THE CASH FROM THE PARTIES. THE AO HAS NOT IDENTIFIED THE NAME OF ANY SUCH PARTIES NOR EVEN THE BANK STATEMENT OR ANY OTHER INCRIMINATING MATERIAL TO SUPPORT HIS FINDING. THE AO HAS NOT GIVEN ANY FINDING THAT COMMISSION WA S PAID TO ANY RELATIVE, FAMILY MEMBER OR SISTER CONCERNED. THE AO HAS NOT B ROUGHT ANYTHING ON RECORD TO SHOW THAT COMMISSION CAME BACK TO THE ASS ESSEE IN ANY FORM. WE HAVE NOTED THAT THE ASSESSEE HAS PROVIDED FULL DETA ILS OF THE AGENT/PERSONS ALONG WITH THEIR ADDRESS. WE HAVE SEEN THAT IN THE PRECEDING YEAR (AY- 2010-11) THE SALE OF ASSESSEE WAS RS. 4,995.31 LAKH S AND THE SAME IS INCREASED TO RS.14,780.05 LAKHS IN AY 2011-12. FURT HER THE GROSS PROFIT IN THE EARLIER YEAR WAS RS.118.90 LAKHS WHICH IS INCRE ASED TO RS.446.80 LAKHS IN THIS ASSESSMENT YEAR. THE GROSS PROFIT OF ASSESS EE HAS INCREASED ALMOST FOUR TIMES DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) EXAMINED ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 10 THE ALL COMMISSION PAYMENT INDEPENDENTLY AND CONFIR MED THE DISALLOWANCE IN RESPECT OF 9 PARTIES ON HIS OBSERVATION THAT THE ASSESSEE COULD NOT PRODUCE CONFIRMATION, BANK STATEMENT, RETURN OF INCOME AND COMPUTATION OF TOTAL INCOME. WE HAVE NOTED THAT NEITHER THE AO NOR LD. C IT(A) MADE ANY ATTEMPT TO PROBE INTO THE MATTER TO ARRIVE ON A CON CLUSION THAT TRANSACTION OR WERE BOGUS, UNFAIR OR FRAUDULENT. THE LOWER AUTHORI TY HAS NOT DOUBTED THE COMMISSION PAYMENT ON ITS REASONABLENESS. THE TOTAL PAYMENT OF COMMISSION WAS LESS THAN THE 1% OF THE TOTAL TURNOV ER OF THE ASSESSEE. IN OUR VIEW, THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAININ G THE ADDITION OF RS. 17,79,685/-. THE HONBLE DELHI HIGH COURT OF CIT VS . PRINTERS HOUSE PVT. LTD., WHILE DEALING WITH THE SIMILAR QUESTION OF L AW HELD AS UNDER: 1 WE NOTE THAT THE TRIBUNAL HAS ALSO RECORDED THAT TH ERE IS NO EVIDENCE THAT COMMISSION FLOWED BACK TO THE ASSESSEE OR THAT THE ENTRIES WITH RESPECT TO COMMISSION PAYMENTS WERE JUST PAPER TRANSACTION. TH E FOLLOWING OBSERVATIONS BEING RELEVANT ARE EXTRACTED HEREINAFTER: '. . . THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE COMMISSION WAS PAID TO ANY NEAR RELATIVE, FAMILY MEMBER OR SISTER CONCERN. THERE IS NO IOTA OF EVIDENCE TO SHOW THAT THE PAYMENT OF COMMISSION REP RESENTED ONLY ACCOMMODATION ENTRY OR WAS ONLY A PAPER TRANSACTION . THERE IS ALSO NO EVIDENCE TO SHOW THAT THE AMOUNT OF COMMISSION CAME BACK TO THE ASSESSEE IN ANY FORM. SINCE THE ASSESSEE HAS GIVEN FULL DETAILS INCLUDING THE ADDRESSES OF BUYERS AND ADDRESSES OF THE AGENTS, AS WELL AS DETA ILS OF PAYMENT ETC. THE TRANSACTIONS OF PAYMENT OF COMMISSION AS WELL AS TH E ASPECT OF RENDERING SERVICES BY THE COMMISSION AGENTS WERE FULLY VERIFI ABLE. HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE LEARNED CIT (APPEALS) MAD E ANY ATTEMPT AT THEIR END TO MAKE PROBE INTO THE MATTER FOR COMING TO THE CONCLUSION THAT THE TRANSACTIONS WERE BOGUS, UNFAIR AND FRAUDULENT. IN OUR OPINION, IN ABSENCE OF ANY SUCH MATERIAL ON RECORD AND IN ABSENCE OF ANY I NQUIRY CONDUCTED TO PROVE THE NON-GENUINENESS OF THE TRANSACTIONS THE D EPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE WHICH WAS FULLY SUPPORTED BY THE DOCUMENTARY EVIDENCE ON RECORD.' 2. APART FROM EXPRESSING ITS SATISFACTION AS TO THE G ENUINENESS OF THE TRANSACTION THE ITAT HAS TAKEN INTO CONSIDERATION THE FACT THAT COMMISSION HAS BEEN PAID AND ALLOWED IN THE PAST AND THAT THE COMMISSION PER CENTAGE IS NEGLIGIBLE. MS. ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 11 BANSAL CONTESTS THIS POSITION. THE TOTAL TURNOVER O F THE ASSESSEE WAS RS. 68 CRORES BEFORE TAX, INTER ALIA OF WHICH INCLUDED RS. 25.68 CRORES OF EXPORT TURNOVER. THE TURNOVER WE ARE CONCERNED WITH IS STA TED TO BE RS. 3.74 CRORES ON WHICH THE COMMISSION HAS BEEN PAID. IT HAS BEEN POI NTED OUT BY MS. BANSAL THAT RATHER THAN THE STATED 0.05 PER CENT THE COMMISSION , THE COMMISSION WORKS OUT TO 1.5 PER CENT IN RELATION TO LOCAL SALES AND 7 PER C ENT AS FAR AS EXPORT TURNOVER IS CONCERNED. EVEN THEN ACCORDING TO US THERE REMAINS NO REASON TO DOUBT THESE PAYMENTS. 6. FURTHER, HONBLE DELHI COURT IN CASE OF CIT VS. SHR IRAM PISTONS & RINGS LTD. (SUPRA) HELD THAT WHEN THE PAYMENTS MADE TO AG ENTS, WHO WERE NOT BOGUS OR NON-EXISTENT PARTIES AS THEIR ADDRESS AND PAN NUMBER WERE FURNISHED TO THE AO, THE AO WAS TO ALLOW THE BUSINE SS EXPENDITURE. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. BHARAT MEDICAL STORE (SUPRA) ALSO HELD THAT WHEN THE AGENTS WERE A PPOINTED FOR COMMERCIAL EXPEDIENCY BECAUSE THE FIRM WAS NOT IN A POSITION T O COVER ALL DISTRICT OF PUNJAB AND CHANDIGARH, THE COMMISSION WAS REASONABL E HAVING REGARD TO ALL CIRCUMSTANCES AND WAS ALLOWABLE AS DEDUCTABLE EXPEN DITURE. 7. THE CO-ORDINATE BENCH OF DELHI TRIBUNAL IN MOBILE C OMMUNICATION VS. DCIT (SUPRA) ON IDENTICAL GROUNDS OF APPEAL, THE AS SESSEE IN THAT CASE WAS ALSO RUNNING ALMOST SIMILAR BUSINESS AS THE ASSESSE E IS DOING IN PRESENT CASE HELD AS UNDER: 7. WE HAVE CAREFULLY PERUSED THE SUBMISSIONS, MATERIA L ON RECORD AND, THE ORDERS OF THE AUTHORITIES BELOW. THE APPELLANT-COMPANY IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF WIRELESS COMMUNICATION EQUIPMENTS A ND, IS AUTHORIZED DISTRIBUTOR OF M/S. MOTOROLA INDIA LTD. THE APPELLANT-COMPANY, IN THE ORDINARY COURSE OF ITS BUSINESS ACTIVITIES, NOT ONLY SELLS EQUIPMENT ON BE HALF OF M/S. MOTOROLA INDIA LTD. BUT ALSO MAKES DIRECT SALES AFTER PROCURING EQ UIPMENTS OF MOTOROLA INDIA LTD. AND OTHER SUPPLIERS. AS REGARDS, THE EQUIPMENT S IN RESPECT OF WHICH, IT MAKES SALES ON BEHALF OF M/S. MOTOROLA INDIA LTD., IT RECEIVES ONLY COMMISSION FROM M/S. MOTOROLA INDIA LTD. AND, SO FAR AS THE EQ UIPMENTS IN RESPECT OF WHICH, ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 12 IT MAKES PURCHASES AND THEN SELLS TO VARIOUS SUPPLI ERS, IT RECEIVES NOT ONLY PROFIT ON PURCHASE AND SALE OF EQUIPMENT BUT ALSO COMMISSI ON ON SALE OF SUCH EQUIPMENTS. IN THE INSTANT YEAR, THE APPELLANT HAS MADE SALES OF RS. 4,45,13,661 AND PURCHASE OF RS. 4,26,70,048 WHICH RESULTED INTO GROSS PROFIT OF RS. 18,43,613. APART FROM THE ABOVE GROSS PROFIT OF RS. 18,43,613, THE APPELLANT HAD EARNED COMMISSION OF RS. 34,92,603. THUS, TOTAL PRO FIT ACCRUING ON PURCHASE AND SALE TRANSACTIONS WAS RS. 53,36,216. LIKEWISE, IN R ESPECT OF THE COMMISSION BASED TRANSACTION, THE APPELLANT HAD EARNED AGGREGA TE COMMISSION OF RS. 84,83,651. AGAINST THE ABOVE INCOME EARNED OF RS. 1 ,38,19,867 ON BOTH SALE/PURCHASE AND COMMISSION BASED TRANSACTIONS, TH E APPELLANT HAS PAID COMMISSION OF RS. 1,11,52,457. THE ASSESSING OFFICE R OUT OF THE AFORESAID COMMISSION PAID, HAS ALLOWED THE CLAIM OF RS. 35,72 ,457 PERTAINING TO FOUR PARTIES AND, DISALLOWED THE BALANCE COMMISSION PAID OF RS. 75,80,000 IN RESPECT OF TWO PARTIES, NAMELY, M/S. ASWAD STEELS & ALLOYS PVT. LTD. AND, SHAKUMBHARI PULP & PAPER MILL LTD. 7.1 THE CLAIM OF THE APPELLANT OF COMMISSION IS THAT, SUCH COMMISSION HAS BEEN PAID AS A REFERRAL FEE AND AS SUCH, IS AN ELIGIBLE BUSINESS DEDUCTION. HOWEVER, BOTH THE AUTHORITIES BELOW HAVE HELD THAT, REFERRAL FEE IS NOT AN ELIGIBLE DEDUCTION ON THE FACTS OF THE CASE OF THE APPELLANT AS THE SA ME HAS BEEN PAID IN RESPECT OF THE REFERRALS MADE FOR THE SUPPLIES TO GOVERNMENT O RGANIZATIONS AND UNDERTAKINGS. ACCORDING TO THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), IT IS MANDATORY NOW FOR THE GOVERNMENT ORGANIZATION S AND UNDERTAKINGS TO PLACE THE TENDERS ON THE INTERNET AND ALSO IN THE LEADING NEWSPAPERS, THEREFORE, REFERENCE TO ANY TENDER MADE BY THE ALLEGED COMMISS ION AGENTS TO THE APPELLANT FOR THE COMMISSION IS NOT IN ACCORDANCE WITH THE CO NDUCT OF PRUDENT REASONABLE PERSON AND, DOES NOT FIT INTO CONCEPT OF HUMAN PSYC HOLOGY AND PROBABILITIES. THIS BASIS IN OUR OPINION ON THE FACTS OF THE CASE OF THE APPELLANT DESERVES A SHORT SHIFT AS IT IS BASED ON INHERENT CONTRADICTIONS, AS SUMPTIONS AND PRESUMPTIONS. THE FUNDAMENTAL FACT WHICH EMERGES FROM THE MATERIA L PLACED ON RECORD IS THAT, THE APPELLANT IN THE COURSE OF BUSINESS OF OBTAININ G ORDERS FROM GOVERNMENT DEPARTMENTS, HAS BEEN CONSISTENTLY MAKING THE PAYME NT OF COMMISSION AS REFERRAL FEE AND SUCH COMMISSION SO PAID HAS BEEN A LLOWED AS DEDUCTION. THE COMPARATIVE CHART PLACED ON RECORD SHOWS THAT COMMI SSION PAID HAS BEEN ACCEPTED IN ASSESSMENT YEARS 2002-03, 2003-04 AND 2 004-05. IN FACT, THE SUMS OF COMMISSION PAID IN ASSESSMENT YEAR 2002-03 AGGREGAT ED TO RS. 2,85,01,907 AND IN ASSESSMENT YEAR 2004-05 OF RS. 2,13,05,361. FURT HER, EVEN IN THE SUCCEEDING ASSESSMENT YEAR, COMMISSION OF RS. 75,82,914 HAS BE EN ALLOWED AS DEDUCTION IN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT AND , THAT TOO AFTER THE IMPUGNED ORDER OF ASSESSMENT. IN SUCH CIRCUMSTANCES , IN OUR OPINION TO SUGGEST THAT, REFERRAL FEE IS NOT ELIGIBLE AS BUSINESS DEDU CTION IN THE LINE OF BUSINESS ACTIVITIES OF THE APPELLANT IS MANIFESTLY AN UNSUST AINABLE PROPOSITION. IT APPEARS THAT, AUTHORITIES BELOW HAVE CHOSEN TO CLEARLY OVER LOOK THE FACTUM OF PAYMENT OF COMMISSION AND ALLOWABILITY OF COMMISSION BOTH IN T HE PAST AND IN THE SUCCEEDING ASSESSMENT YEAR. IN FACT, EVEN IN THE IN STANT YEAR AS STATED ABOVE, ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 13 COMMISSION PAID OF RS. 35,72,457 HAS BEEN ALLOWED A S DEDUCTION IN THE INSTANT YEAR OUT OF TOTAL COMMISSION OF RS. 1,11,52,457. TH US, ONCE THIS FUNDAMENTAL FACT OF PAYMENT OF COMMISSION AND ALLOWABILITY OF C OMMISSION AS REFERRAL FEE HAS BEEN PERMITTED THROUGH ALL THE ASSESSMENT YEARS INCLUDING THE INSTANT ASSESSMENT YEAR THEN THE HYPOTHESIS ADOPTED BY THE AUTHORITIES BELOW TO HOLD THAT, COMMISSION IS NOT AN ELIGIBLE DEDUCTION IS NO T TENABLE SOLELY ON THE PRINCIPLES OF CONSISTENCY ALONE. IT IS SETTLED LAW THAT, WHEN THE FACTS OF THE APPELLANT ARE SAME BOTH IN THE PRECEDING YEAR AND S UCCEEDING YEAR AND EVEN IN THE INSTANT YEAR AND UNLESS THERE IS CHANGE IN THE POSITION OF LAW, THERE IS NO WARRANT TO DISALLOW THE CLAIM OF EXPENDITURE MADE B Y THE APPELLANT-COMPANY. IT IS SETTLED LAW THAT, IN ABSENCE OF ANY CHANGE EITHE R IN FACTS OR IN LAW, PRINCIPLES OF CONSISTENCY ITSELF CAN BE MADE A BASIS TO UPHOLD THE CLAIM OF THE APPELLANT- COMPANY. THE CONSTITUTION BENCH OF THE HONBLE APEX COURT IN THE CASE OF CIT V. J.K. CHARITABLE TRUST [2009] 308 ITR 161 1 HAS HELD AS UNDER : 'IN THIS CASE, IT IS ACCEPTED BY THE LEARNED COUNSE L FOR THE APPELLANT-REVENUE THAT THE FACT SITUATION IN ALL THE ASSESSMENT YEARS IS THE SAME. ACCORDING TO HIM, IF THE FACT SITUATION CHANGES THEN THE REVENUE CAN CERTAINLY PREFER AN APPEAL NOTWITHSTANDING THE FACT THAT FOR SOME YEARS NO APPEAL WAS PREFERRED.' 7.2 LIKEWISE, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. RAJEEV GRINDING MILLS [2005] 279 ITR 86 2 FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 3 HAS HELD AS UNDER : 'WE FIND THAT WHILE DELETING THE TRADING ADDITION I N TOTO, THE TRIBUNAL HAS NOTED THAT IN THE IMMEDIATELY PRECEDING TWO ASSESSM ENT YEARS, NAMELY, THE ASSESSMENT YEARS 1991-92 AND 1992-93, THE FIRST APP ELLATE AUTHORITY HAD DELETED THE TRADING ADDITIONS MADE ON ACCOUNT OF RA TE DIFFERENCE AND FURTHER IN RESPECT OF THE ASSESSMENT YEAR 1994-95, THE ASSE SSEE HAD DECLARED GRINDING LOSS AT 14.30 PER CENT WHICH WAS ACCEPTED BY THE DE PARTMENT AS SUCH UNDER SECTION 143(1) OF THE ACT. MOREOVER, IN RESPECT OF THE ASSESSMENT YEAR 1995 96, THE ASSESSEE HAD DECLARED GRINDING LOSS AT 17.2 5 PER CENT WHICH WAS AGAIN ACCEPTED BY THE REVENUE WHILE MAKING A REGULA R ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THE TRIBUNAL HAS ALSO NO TED THAT IN SUBSEQUENT ASSESSMENT YEARS ALSO THE GRINDING LOSS DECLARED BY THE ASSESSEE AT 12.44 PER CENT AND 12.58 PER CENT HAS BEEN ACCEPTED BY THE DE PARTMENT WHEN ASSESSMENTS HAVE AGAIN BEEN MADE UNDER SECTION 143( 3) OF THE ACT. THESE FACTS ARE NOT DISPUTED BY LEARNED SENIOR STANDING C OUNSEL FOR THE REVENUE. IN THE LIGHT OF THE AFORENOTED FACTS, WE FEEL THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE REVENUE SHOULD NOT HAVE TAKEN A DI FFERENT VIEW INSOFAR AS THE PRESENT ASSESSMENT YEAR WAS CONCERNED. AS OBSERVED BY THE APEX COURT IN RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 , THOUGH THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME-TAX PROCEEDINGS, PA RTICULARLY WHEN EACH ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 14 ASSESSMENT YEAR IS AN INDEPENDENT UNIT, WHERE A FUN DAMENTAL ASPECT PERMITTING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT AL L APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 7.3 ALSO, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. NEO POLY PACK (P.) LTD. [2000] 245 ITR 492 1 HAS HELD AS UNDER : 'IT IS TRUE THAT EACH ASSESSMENT YEAR BEING INDEPEN DENT OF THE OTHER, THE DOCTRINE OF RES JUDICATA DOES NOT STRICTLY APPLY TO INCOME-TAX PROCEEDINGS, BUT WHERE AN ISSUE HAS BEEN CONSIDERED AND DECIDED CONS ISTENTLY IN A NUMBER OF EARLIER ASSESSMENT YEARS IN A PARTICULAR MANNER, FO R THE SAKE OF CONSISTENCY, THE SAME VIEW SHOULD CONTINUE TO PREVAIL IN SUBSEQU ENT YEARS UNLESS THERE IS SOME MATERIAL CHANGE IN THE FACTS. IN THE PRESENT C ASE, LEARNED COUNSEL FOR THE REVENUE HAS NOT BEEN ABLE TO POINT OUT EVEN A SINGL E DISTINGUISHING FEATURE IN RESPECT OF THE ASSESSMENT YEAR IN QUESTION WHICH CO ULD HAVE PROMPTED THE ASSESSING OFFICER TO TAKE A VIEW DIFFERENT FROM THE EARLIER ASSESSMENT YEARS, IN WHICH THE SAME INCOME WAS BROUGHT TO TAX AS INCO ME FROM BUSINESS.' 7.4 APPLYING THE ABOVE RULE TO THE FACTS OF THE INSTAN T CASE, IT IS EVIDENT THAT, ONCE THE COMMISSION HAS BEEN PAID IN THE PRECEDING YEAR AND SUCCEEDING YEAR WHICH STANDS ACCEPTED AND ALLOWED THEN THERE IS NO JUSTIFICATION TO PARTIALLY WARRANT OF DISALLOWANCE OF EXPENDITURE EVEN IN THE INSTANT YEAR ONLY ON THE BASIS THAT, SUCH PAYMENT OF REFERRAL FEE IS NOT ALLEGEDLY A JUSTIFIED A PAYMENT IN THE LINE OF BUSINESS ACTIVITIES CARRIED OUT BY THE APPE LLANT-COMPANY. HOWEVER, THE ISSUE DOES NOT END HERE. IN OUR OPINION, DESPITE TH E FACT THAT, COMMISSION HAS BEEN ALLOWED IN THE PRECEDING YEAR, YET ALLOWABILIT Y OF COMMISSION PAID AND, CLAIMED AS DEDUCTION HAS TO BE EXAMINED INDEPENDENT LY. IN OTHER WORDS, WHETHER SUCH PAYMENTS CLAIMED AS DEDUCTION CONSTITUTE TO BE AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ALLOWABLE OF THE APPELLANT- COMPANY. 8. BEFORE US, THE APPELLANT IN SUPPORT OF THE ABOVE C LAIM, HAS PLACED ON RECORD THE FOLLOWING EVIDENCES : A. M/S. ASWAD STEEL & ALLOYS (P.) LTD. (RS. 37.50 LAKH S) S.NO. PARTICULARS 1 MEMORANDUM OF UNDERSTANDING 2 ORDER UNDER SECTION 197(1) FOR NON-DEDUCTION OF T AX. 3 REPLY FURNISHED BY ASWAD STEEL & ALLOYS UNDER SECTION 133(6) ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 15 4 LIST OF DIRECTORS OF ASWAD STEEL & ALLOYS 5 DEBIT NOTE RAISED BY ASWAD STEEL & ALLOYS 6 INCOME-TAX RETURN AND AUDIT REPORT 7 PAN LETTER 8 BANK ACCOUNT OF ASWAD STEEL & ALLOYS 9 STATEMENT OF ACCOUNT OF ASSESSEE IN THE BOOKS OF ASWAD STEEL & ALLOYS 10 SERVICE TAX CHALLAN EVIDENCING THE PAYMENT OF SE RVICE TAX 11 BASIS OF COMMISSION 12 COPY OF AGREEMENT 13 NET INCOME CHART, WITH SUPPORTING DOCUMENTS 14 COPY OF COMMISSION ACCOUNT B. M/S. SHAKUMBHARI PULP & PAPER MILLS (RS. 38.30 LAKH S) S.NO. PARTICULARS 1 COPY OF AGREEMENT DATED 9-1-2004 2 REPLY FURNISHED BY SHAKUMBHARI PULP & PAPER MILLS 3 BILL RAISED BY SHAKUMBHARI PULP & PAPER MILLS 4 PAN, AUDIT REPORT AND FINANCIAL STATEMENT 5 SERVICE TAX CHALLAN 6 BASIS OF COMMISSION 7 NET INCOME CHART 8 SUPPORTING DOCUMENTS 9. ON CAREFUL PERUSAL OF THE ABOVE EVIDENCES, WE FIND THAT, AS REGARDS THE COMMISSION PAID OF RS. 37.5 LAKHS TO M/S. ASWAD STE ELS & ALLOYS (P.) LTD., THE APPELLANT HAS PLACED ON RECORD THE COPY OF BUSINESS AGREEMENT DATED 1-8-2003. THE SAID AGREEMENT PROVIDES THAT M/S. ASWAD STEEL & ALLOYS (P.) LTD. WOULD PROVIDE LEADS OF VARIOUS PUBLIC SECTOR UNITS AND OT HER AGENCIES FOR PROCUREMENT OF ORDERS OF MOTOROLA TWO-WAY RADIOS AND ACCESSORIE S. IT HAS ALSO BEEN PROVIDED THAT M/S. ASWAD STEELS & ALLOYS (P.) LTD. WILL ALSO ASSIST IN PREPARATION AND ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 16 SUBMISSION OF THE TENDERS FROM TIME TO TIME. IN LIE U OF THE ABOVE, M/S. ASWAD STEELS & ALLOYS (P.) LTD. SHALL BE ENTITLED TO MAKE A PAYMENT OF REFERRAL FEE AND REFERRAL FEE SHALL BE INCLUSIVE OF ALL TAXES AND EX PENSES. IT HAS BEEN STATED THAT, INVOICE SHALL BE RAISED BY M/S. ASWAD STEELS & ALLO YS (P.) LTD. ONLY IN RESPECT OF SUCCESSFUL BIDDING OF LEADS AND/OR SUCCESSFUL CO NVERSION OF LEADS INTO ORDERS IN THE MANNER STATED HEREUNDER : LEADS CONVERTED INTO ORDERS MAXIMUM % MAXIMUM AMOUNT IN RS. ( A ) RS. 4 CRORES TO RS. 4.49 CRORES 8.00 35,00,000 ( B ) RS. 4.50 CRORES TO RS. 4.99 CRORES 8.25 40,00,000 ( C ) RS. 5 CRORES TO RS. 5.49 CRORES 8.50 45,00,000 ( D ) RS. 5.5 CRORES AND ABOVE 8.50 50,00,000 9.1 THE DETAILS PLACED ON RECORD FURTHER SHOW THAT, IN THE INSTANT YEAR, M/S. ASWAD STEELS & ALLOYS (P.) LTD. HAD PROVIDED LEADS AND OUT OF WHICH, NINE PARTIES WERE SPECIFICALLY CONVERTED INTO ORDERS. TH E APPELLANT HAS STATED THAT, SEVEN PARTIES PERTAINED TO SALE/PURCHASE TRANSACTIO NS AND, TWO PARTIES WERE COMMISSION BASED TRANSACTIONS. AS REGARDS SALE/PURC HASE TRANSACTION, ACCORDING TO THE APPELLANT, THE TOTAL INCOME EARNED WAS RS. 2 7.36 LAKHS AND, COMMISSION PAID WAS RS. 11.92 LAKHS AND THUS, THERE WAS NET IN COME OF RS. 15.45 LAKHS. SO FAR AS THE COMMISSION BASED TRANSACTIONS IS CONCERN ED, THE APPELLANT HAS SUBMITTED THAT, IT HAS EARNED COMMISSION OF RS. 46. 54 LAKHS AND, PAID COMMISSION OF RS. 25.58 LAKHS AND, THUS, THERE IS A NET INCOME OF RS. 20.96 LAKHS. IN OTHER WORDS, IN RESPECT OF NINE PARTIES, LEADS WERE SUCCESSFULLY CONVERTED INTO ORDERS AND, THE TOTAL INCOME EARNED BY THE APPELLANT WAS OF RS. 73.91 LAKHS OUT OF WHICH, COMMISSION WAS PAID OF RS . 37.50 LAKHS AND, THERE WAS NET INCOME OF RS. 36.41 LAKHS. IT IS SEEN THAT, IN RESPECT OF NINE PARTIES, AS IS ALSO EVIDENT FROM THE DETAILS AS EXTRACTED ABOVE IN PARA 4.2 OF THIS ORDER, TOTAL VALUE OF TENDERS WAS RS. 4.54 CRORES WHICH WAS IN E XCESS TO RS. 4 CRORES AND AS SUCH, COMMISSION WAS AT THE RATE OF 8.25 PER CENT U NDER THE AGREEMENT DATED 1-8- 2003. ACCORDINGLY, BASED ON VALUE OF THE TENDER, AP PELLANT HAS MADE PAYMENT OF COMMISSION AT THE RATE OF 8.25 PER CENT OF RS. 37.5 0 LAKHS. THUS, IT IS APPARENT THAT, UNDER THE BUSINESS AGREEMENT DATED 1-8-2003, SERVICES WERE RECEIVED BY THE APPELLANT FROM M/S. ASWAD STEELS & ALLOYS (P.) LTD. AND, COMMISSION WAS PAID OF RS. 37.50 LAKHS IN THE MANNER STIPULATED UNDER T HE AGREEMENT. IN RESPECT OF THE ENTIRE COMMISSION SO PAID OF RS. 37.50 LAKHS, S ERVICE TAX OF RS. 3,47,096 WAS CHARGED AND, WAS DULY DEPOSITED, AS IS EVIDENT FROM THE CHALLANS PLACED IN THE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 17 PAPER BOOK AND, BALANCE AMOUNT HAS BEEN PAID BY ACC OUNT PAYEE CHEQUES. IT IS ALSO A MATTER OF RECORD AND AS VERIFIED BY THE LEAR NED ASSESSING OFFICER FROM THE ASSESSMENT RECORDS OF M/S. ASWAD STEELS & ALLOYS (P .) LTD. THAT M/S. ASWAD STEELS & ALLOYS (P.) LTD. IS AN INCOME-TAX ASSESSEE AND, THE ENTIRE COMMISSION SO PAID STANDS DULY DECLARED AS INCOME BY M/S. ASWA D STEELS & ALLOYS (P.) LTD. MOREOVER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, M/S. ASWAD STEELS & ALLOYS (P.) LTD. HAD DULY CONFIRMED FACTUM OF RUNNING OF S ERVICES BY INDEPENDENT CONFIRMATION DATED 3-9-2007 WHEREIN FOLLOWING EVIDE NCES WERE PLACED ON RECORD: '1.COMPLETE NAMES AND ADDRESS OF THE DIRECTORS ALON G WITH THEIR PAN. 2.XEROX COPY OF DEBIT NOTES RAISED TO THE AFORESAID COMPANY. 3.XEROX COPY OF INCOME-TAX RETURN FOR THE ASSESSMEN T YEAR 2005-06. 4.XEROX COPY OF PAN CARD OF THE COMPANY. 5.XEROX COPY OF BANK STATEMENT OF MUZAFFARNAGAR AND DELHI BANKS, REFLECTING THESE CHEQUES/DRAFTS DEPOSITED INTO BANK . 6.COPY OF STATEMENT OF ACCOUNTS OF M/S. MOBILE COMM UNICATION (INDIA) (P.) LTD., FOR THE FINANCIAL YEAR 2005-06. 7.XEROX COPY OF SERVICE TAX CHALLAN RELEVANT TO THA T COMMISSION EARNED.' 9.2 THE LEARNED OFFICER DID NOT CHOOSE TO SUMMONS TO M /S. ASWAD STEELS & ALLOYS (P.) LTD. IN THE COURSE OF ASSESSMENT PROCEE DINGS BY ISSUING NOTICE UNDER SECTION 131 OF THE ACT AND IN SUCH CIRCUMSTANCES, I N OUR CONSIDERED OPINION, IT IS HIGHLY UNJUSTIFIED ON THE PART OF THE AUTHORITIES B ELOW TO HOLD THAT, COMMISSION HAS NOT BEEN PAID FOR RENDERING OF SERVICES AS EVID ENCED BY THE BUSINESS AGREEMENT DATED 1-8-2003. AT THIS JUNCTURE, IT WOUL D BE USEFUL TO MAKE A REFERENCE TO THE JUDGMENT OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT V. GENESIS COMMET (P.) LTD. [2007] 163 TAXMAN 482 (DELHI) WHEREIN, IT HAS BEEN HELD THAT, AN OFFICER, IF HE WAS NOT INCLINED TO BE LIEVE THE MATERIAL PLACED BY ASSESSEE HE COULD HAVE USED COERCIVE POWERS AVAILAB LE TO HIM. APPLYING THE AFORESAID PROPOSITION, IT IS EVIDENT THAT, HAVING N OT EXERCISED THE COERCIVE POWERS, THEN THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED TO DRAW ADVERSE INFERENCE ON THE EVIDENCE FURNISHED, MORE PARTICULA RLY WHEN THE PAYEE DULY CONFIRMED THE RENDERING OF SERVICES INDEPENDENTLY T O HIM. 9.3 ONE OF THE BASIS STATED BY LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) NOT TO ACCEPT THE CLAIM OF THE APPELLANT IS REGARDI NG THE VERACITY OF THE AGREEMENT DATED 1-8-2003. ACCORDING TO HIM, THE PAYMENTS HAVE BEEN MADE UNDER THE AGREEMENT DATED 4-4-2004 AND NOT AGREEMENT DATED 1- 8-2003. IN OUR OPINION, SUCH A COMMISSION IS MANIFESTLY CONTRARY TO THE FAC TS ON RECORD. APPARENTLY, IT IS NOT IN DISPUTE THAT, TOTAL COMMISSION PAID AND, CLA IMED AS DEDUCTION IS RS. 37.5 LAKHS WHICH HAS BEEN COMPUTED ON THE BASIS OF VALUE OF TENDERS OF RS. 4.54 CRORES AND, AT THE RATE OF 8.25 PER CENT. BOTH THE VALUE OF TENDERS AND, THE RATE OF COMMISSIONS ARE IN TERMS OF THE BUSINESS AGREEMENT DATED 1-8-2003. IN FACT, THERE ARE NO SUCH FIGURES STATED IN THE AGREEMENT D ATED 4-4-2004. ON THE CONTRARY, IN THE MOU DATED 4-4-2004, RATE OF COMMIS SION STATED IS 4.5 PER CENT ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 18 AND, IF RATE OF 4.5 PER CENT IS APPLIED THEN UNDER NO STRETCH OF IMAGINATION OF VALUE OF RS. 4.54 CRORES, COMMISSION AT RS. 37.5 LA KHS COULD HAVE BEEN PAID. IN VIEW THEREOF, IT IS INCORRECT ON THE PART OF THE AU THORITIES BELOW TO SUGGEST THAT REFERRAL FEE HAS BEEN PAID UNDER THE AGREEMENT DATE D 4-4-2004 AND NOT 1-8-2003. FURTHER, PERUSAL OF THE AGREEMENT DATED 4-4-2004 WO ULD SHOW THAT, SAME IS IN RESPECT OF PROCUREMENT OF ORDERS AS WELL AS POST-CO NTRACT SERVICES UNLIKE BUSINESS AGREEMENT DATED 1-8-2003 WHEREIN THE SAME IS FOR PROVIDING LEADS/REFERENCE AS WELL AS PREPARATION AND SUBMISSI ON OF THE TENDERS AND, NO MORE. THERE IS NO EVIDENCE TO ESTABLISH THAT, AGREE MENT DATED 4-4-2004 WAS EVER ACTED UPON AS NO SUMS HAVE EVER BEEN PAID OR CLAIME D AS DEDUCTION BY THE APPELLANT UNDER THE AGREEMENT DATED 4-4-2004. THE F INDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT THIS AGREEMENT WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER IS FACTUALLY INCORRECT AS HAS BEE N CORRECTLY CHALLENGED IN THE GROUNDS OF APPEAL BY THE APPELLANT. IN FACT, IN THE REPLY DATED 17-2-2009 BEFORE HIM, IT WAS CATEGORICALLY CLARIFIED THAT, UNDER MOU DATED 4-4-2004, NO COMMISSION WAS PAID BY THE APPELLANT-COMPANY AND TH E ENTIRE COMMISSION WAS PAID AT THE RATE OF 8.25 PER CENT IN ACCORDANCE WIT H BUSINESS AGREEMENT DATED 1- 8-2003. IN SUCH CIRCUMSTANCES, ONCE COMMISSION ITSE LF HAS BEEN PAID ONLY UNDER THE AGREEMENT DATED 1-8- 2003, THERE WAS NO JUSTIFI CATION FOR THE AUTHORITIES TO ALLEGE THAT, SUM SO CLAIMED AS DEDUCTION IS NOT ELI GIBLE BUSINESS DEDUCTION UNDER SECTION 37(1) OF THE ACT. IN ANY CASE, NON-ISSUE OF SUMMONS PER SE ENTITLES THE APPELLANT TO CLAIM OF DEDUCTION. IN FACT, SERVICE T AX CHALLANS PLACED ON RECORD DEMONSTRATE THAT SERVICES HAVE BEEN RENDERED BY THE APPELLANT. THE FACTUM OF CLAIM OF CREDIT BY THE APPELLANT OF THE SERVICE TAX PAID UNDER THE CENVAT RULES CANNOT BE A GROUND TO DENY THE CLAIM AND TO SUGGEST THAT SERVICES HAVE NOT BEEN RENDERED. IT IS THE WELL-SETTLED LEGAL POSITION AS LAID DOWN BY THE COURT OF APPEAL IN ENGLAND IN MOOUAT V. BETTS MOTORS LTD. 1958 (3) ALL ER 402, THAT TWO DEPARTMENTS OF THE GOVERNMENT CANNOT IN LAW ADOPT C ONTRARY OR INCONSISTENT STANDS OR RAISE INCONSISTENT CONTENTIONS OR ACT AT A CROSS PURPOSES. TOO USE THE FAMOUS WORDS OF LORD DENNING IN THAT CASE, 'THE RIG HT HAND OF THE GOVERNMENT CANNOT PRETEND TO BE UNAWARE OF WHAT THE LEFT HAND IS DOING'. THE SAME PRINCIPLE OF LAW HAS ALSO BEEN FOLLOWED BY APEX COURT IN THE CASE OF M.G. ABROL, ADDL. COLLECTOR OF CUSTOMS V. SHANTI LAL & CO. AIR 1966 SC 197, WHERE IT WAS LAID DOWN THAT THE CUSTOMS AUTHORITIES CANNOT IN LAW TAK E A STAND OR ADOPT A VIEW WHICH IS CONTRARY TO THAT TAKEN BY THE IMPORT CONTR OL AUTHORITY. IN THAT CASE, THE IMPORT CONTROL AUTHORITY HELD THAT A PARTICULAR PRO DUCT COULD BE EXPORTED UNDER AN EXPORT LICENSE, IT WOULD NOT THEN LIE IN THE MOU TH OF THE CUSTOMS AUTHORITIES TO DISALLOW THE EXPORT ON THE GROUND THAT THE PRODUCT COULD NOT LAWFULLY BE EXPORTED. THUS, THE UNDERLYING PRINCIPLE OF THESE J UDGMENTS DIRECTLY AND SQUARELY COVERS THE PRESENT CASE. IN VIEW THEREOF, IT IS HIGHLY INCORRECT TO SUGGEST THAT, SERVICE TAX HAS BEEN CHARGED ON THE SERVICES RENDERED AND DULY PAID AND DEPOSITED TO THE CENTRAL GOVERNMENT YET SERVICES HA VE NOT BEEN RENDERED. THE ASSESSING OFFICER HAD NO MATERIAL TO ALLEGE LET ALO NE CONCLUDE THAT SERVICES HAD NOT BEEN RENDERED BY THE PAYEES AND AS SUCH, THE AC TION TO DISALLOW THE CLAIM IS ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 19 TOTALLY AND WHOLLY UNSUSTAINABLE. IN FACT, LEARNED ASSESSING OFFICER HAS FAILED TO DISCHARGE HIS ONUS. IT IS REITERATED THAT IT IS NOT A CASE WHERE THE PARTY IS NOT IDENTIFIABLE. THE NAME AND ADDRESS OF THE PARTY IS FULLY VERIFIABLE, WHO COULD BE SUMMONED AND EXAMINED. IN FACT IT IS THE BURDEN OF THE LEARNED ASSESSING OFFICER, BEFORE DRAWING ANY ADVERSE INFERENCE, TO H AVE SUMMONED THE PARTIES AND EXAMINED HIM. IN OUR OPINION, IF THE OFFICER WA S OF THE OPINION, THAT THE EVIDENCE OF PARTIES, WAS NECESSARY, IT WAS HIS DUTY TO HAVE SUMMONED THEM AS HAS BEEN HELD BY THE HONBLE ALLAHABAD HIGH COURT I N THE CASE OF NATHU RAM PREMCHAND V. CIT [1963] 49 ITR 561 , MORE PARTICULARLY IN A CASE WHERE ONUS ON THE APPELLANT STANDS DISCHARGED. IT IS ADMITTED POS ITION OF FACT AS IS UNDISPUTED THAT, IN RESPECT OF NINE PARTIES, FROM WHOM LEADS W ERE RECEIVED BY M/S. ASWAD STEELS & ALLOYS (P.) LTD. AND THEREAFTER, SUCCESSFU LLY CONVERTED INTO ORDERS, THE APPELLANT HAS DULY SHOWN THE INCOME AND CREDITED. I T IS NOT A CASE WHERE NO INCOME WAS RECEIVED AND EXPENDITURE WAS INCURRED. O N THE CONTRARY, EVIDENCE ON RECORD CLEARLY SHOWS THAT, ON THE BASIS OF SERVI CES RECEIVED, LEADS WERE CONVERTED INTO ORDERS FOR WHICH, INCOME WAS DULY DE CLARED AND ACCOUNTED FOR AS INCOME OF THE APPELLANT-COMPANY. 9.3-1 THE NEXT BASIS STATED IS REGARDING THE FINANCIAL P OSITION OF M/S. ASWAD STEELS & ALLOYS (P.) LTD. IN OUR OPINION, FACTUM OF FINANCIAL POSITION OF M/S. ASWAD STEELS & ALLOYS (P.) LTD. HAS NO CONNECTION T O THE ISSUE UNDER CONSIDERATION. ALL WHAT HAS TO BE EXAMINED IS WHETH ER THE PAYEE HAD ACTUALLY RENDERED SERVICES. IN FACT, THEIR LORDSHIPS OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. ANSAL BUILDWELL LTD. [2008] 304 ITR 378 1 HAD HELD THAT, MERE FACT THAT PAYEE WAS A LOSS-MAKING COMPANY WAS AN IN ADEQUATE REASON TO CONCLUDE THAT COMMISSION PAID BY THE APPELLANT WAS BOGUS AND AS SUCH, THEREFORE, FOLLOWING THE SAME HERE TOO, IT IS HELD THAT ONCE THE ASSESSING OFFICER HAS NOT REBUTTED THE IRREFUTABLE EVIDENCE PLACED ON RECORD IN THE SHAPE OF INDEPENDENT CONFIRMATION, SERVICE TAX CHALLANS, DET AILS OF PARTIES IN RESPECT OF WHICH SERVICES WERE RENDERED AND THE AGREEMENT, THE COMMISSION PAID COULD NOT HAVE BEEN DISPUTED TO BE A NON-GENUINE TRANSACTIONS FOR WHICH, IT IS NOT ELIGIBLE TO COMMISSION. THUS, IN OUR CONSIDERED OPINION, THE PAYMENT BY ACCOUNT PAYEE CHEQUE AS PER BUSINESS AGREEMENT DATED 1-8-2003, CO NFIRMATION FROM PAYEE IS SUFFICIENT PROOF OF RENDERING OF SERVICES. THE FACT THAT, PROVIDING LEADS IS NOT THEIR CORE LINE OF ACTIVITIES OR THEY HAVE NOT STAT ED SUCH ACTIVITY IN ITS TAX AUDIT REPORT CANNOT BE A BASIS TO SUGGEST THAT THEY HAVE NOT RENDERED SERVICES TO THE APPELLANT-COMPANY. MERELY BECAUSE THE RECIPIENT OF COMMISSION WERE ALSO ENGAGED IN DIFFERENT LINE OF BUSINESS, WAS NOT A SU FFICIENT GROUND TO HOLD THAT NO SERVICES HAVE BEEN RENDERED AS HAS ALSO BEEN HELD B Y THE INCOME- TAX APPELLATE TRIBUNAL IN THE CASE V.I.P INDUSTRIES LTD. V. IAC [1991] 36 ITD 70 (BOM.) (TM). SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE HONBLE TRIBUNAL IN THE CASE OF M/S. AGVET CHEMICALS, COPY PLACED IN THE PB. FURTHE R, THEY HAVE INCURRED EXPENSES AND HOW MUCH THEY INCURRED EXPENSES IS ALS O WHOLLY IRRELEVANT CONSIDERATION. IN FACT, IF THE ASSESSING OFFICER HA D ANY DOUBT ABOUT SUCH ISSUE, HE OUGHT TO HAVE SUMMONED THE PAYEE AND, THEN ONLY AFTER EXAMINING THE PAYEE, ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 20 HE COULD HAVE CHOSEN TO DRAW ADVERSE INFERENCE, IF ANY. IN ABSENCE THEREOF, IT IS INCORRECT FOR THE AUTHORITIES BELOW TO HOLD THAT SU M PAID IS NOT AN ELIGIBLE BUSINESS DEDUCTION OF THE APPELLANT-COMPANY. THE CO MMISSIONER OF INCOME-TAX (APPEALS) IN HIS ORDER HAS ALSO MADE OBSERVATIONS R EGARDING THE VALUE OF SERVICES RENDERED. IN OUR OPINION, HE IS INCORRECT TO STATE THAT, IF THE AMOUNT OF RS. 34,02,904 IS EXTRAPOLATED AT THE RATE OF 4.5 PER CE NT, THE CONTRACT AMOUNT SHALL BE RS. 7,56,20,089 AND NOT RS. 4,54,54,531. THIS FINDI NG IS FACTUALLY INCORRECT. THE FACT OF THE MATTER IS THAT, APPELLANT HAS RECEIVED SERVICES OF RS. 4.5 CRORES AT THE RATE OF 8.25 PER CENT AS PROVIDED IN THE BUSINESS A GREEMENT DATED 1-8-2003, THE VALUE OF COMMISSION PAYABLE COMES TO RS. 37.5 LAKHS . FURTHER, EVEN IN THE OBSERVATIONS MADE THAT TENDERS WERE SUBMITTED AND P URCHASE ORDERS WERE AWARDED BUT THE COMMISSION HAS BEEN CLAIMED AND HAV E BEEN PAID AND AGREEMENT WITH M/S. ASWAD STEELS & ALLOYS (P.) LTD. WAS EXECUTED WITH EFFECT FROM 4-4-2004 IS ALSO NOT TENABLE. THE DETAILS OF S UCH ALLEGATIONS ARE EXTRACTED HEREUNDER: .. .. ... 9.4 FROM THE PERUSAL OF THE ABOVE DETAILS, IT WILL BE SEEN THAT, IN THE AFORESAID CASE, THE CONTRACTS HAVE BEEN AWARDED IN FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06 AND BOTH OF WHICH ARE SUBSE QUENT TO BUSINESS AGREEMENT DATED 1-8-2003 AND, THEREFORE, APPARENTLY , IT IS NOT A CASE OF INFLATION OF EXPENDITURE. IT HAS ALSO BEEN OBSERVED THAT, IN THE FOLLOWING CASES, TENDERS WERE SUBMITTED AND PURCHASES ORDERS WERE AWARDED IN THE SUBSEQUENT YEAR IN THE FOLLOWING CONTRACTS: .. .. ... 9.5 THE FACT OF MATTER IN RESPECT OF THE ABOVE IS THAT , INCOME IN RESPECT OF THESE CONTRACTS STAND DULY DECLARED AND ASSESSED AND, THE REFORE, THIS GROUND TOO CANNOT BE SAID A BASIS TO SUPPORT THAT, SERVICES WERE NOT RENDERED. THE FACTUM OF RENDERING OF SERVICES IS NOT EXPLAINED BY DATE OF S UPPLIES OR INVOICES RAISED. WHAT HAS TO BE SEEN IS WHETHER SERVICES HAVE BEEN R ENDERED, WHICH HAS DULY BEEN ESTABLISHED IN THE INSTANT CASE. IN OUR CONSID ERED OPINION, IT IS A CASE WHERE DISALLOWANCE HAS BEEN MADE ON SURMISES, CONJECTURES AND SUSPICION AND, IT IS SETTLED LAW THAT, NO ADDITION CAN BE MADE ON THE BA SIS OF SURMISES, SUSPICION AND CONJECTURES. RELIANCE FOR THIS PROPOSITION IS PLACE D ON UMACHARAN SHAW & BROS. V. CIT [1959] 37 ITR 271 (SC). IT HAS BEEN FURTHER HELD IN THE FOLLOWING CA SES THAT SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLA CE OF PROOF : ( A ) OMAR SALAY MOHAMMAD SAIT V. CIT [1959] 37 ITR 151 (SC). ( B ) DHIRAJLAL GIRDHARILAL V. CIT [1951] 26 ITR 736 (SC). ( C ) DHAKESHWARI COTTON MILLS LTD. V. CIT [1954] 26 ITR 775 (SC). ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 21 ( D ) LALCHAND BHAGAT AMBICA RAM V. CIT [1959] 37 ITR 288 (SC). 9.6 IN LIGHT OF THE ABOVE FACTS, WE HOLD THAT, APPELLA NT HAS DULY ESTABLISHED THAT SERVICES WERE RENDERED BY M/S. ASWAD STEELS & ALLOY S (P.) LTD. AND, HENCE, IS ELIGIBLE FOR CLAIM OF DEDUCTION OF RS. 37.5 LAKHS. 10. NOW COMING TO THE PAYMENT OF COMMISSION PAID TO M/ S. SHAKUMBHARI PULP & PAPER MILL LTD. IN THIS CASE TOO, THE APPELLANT H AS SUPPORTED HIS CLAIM BY AN AGREEMENT DATED 9-10-2004 COPY OF WHICH HAS BEEN PL ACED IN THE PAPER BOOK. NO ADVERSE OBSERVATIONS HAVE BEEN MADE BY THE AUTHO RITIES BELOW IN RESPECT OF THIS AGREEMENT EXCEPT TO THE EXTENT THAT, PROCESS O F PROVIDING LEADS AND CONVERSION INTO SUCCESSFUL ORDERS IS NOT IN COMMENS URATE WITH THE SERVICES RENDERED. NO VALID BASIS HAS BEEN STATED FOR SUCH A CONCLUSION. THE FACT THAT, LEADS WERE PROVIDED WHICH WERE SUCCESSFULLY CONVERT ED INTO ORDERS IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUTE THAT SUCCESSFUL CONVERSION OF LEADS IN THE ORDERS WAS IN RESPECT OF FIVE PARTIES AND THE AGGREGATE IN COME EARNED BY THE APPELLANT IN RESPECT OF THESE LEADS WAS RS. 52.77 LAKHS BEING RS. 39.49 LAKHS AS COMMISSION AND RS. 13.28 LAKHS AS PROFIT ON SALE PU RCHASE TRANSACTIONS, OUT OF WHICH, COMMISSION IS PAID OF RS. 38.29 LAKHS AND NE T INCOME WAS EARNED OF RS. 14.48 LAKHS AND, SUCH INCOME RECEIVED HAS DULY BEEN ASSESSED TO TAX AND, COMMISSION HAS BEEN PAID BY ACCOUNT PAYEE CHEQUE. S ERVICE TAX ON SUCH SERVICES OF RS. 3.54 LAKHS HAS DULY BEEN DEPOSITED. MOREOVER, THIS FACT OF RENDERING SERVICES HAS BEEN CONFIRMED BY THE COMPAN Y IN INDEPENDENT CONFIRMATION AND NO FURTHER SUMMONS WERE ISSUED BY THE ASSESSING OFFICER. RELIANCE HERE IS ALSO PLACED ON THE JUDGMENT OF GUJ ARAT HIGH COURT IN THE CASE OF SWASTIC TEXTILE CO. (P.) LTD. V. CIT [1984] 150 ITR 155 WHEREIN HONBLE COURT WAS CONSIDERING A CASE WHERE ASSESSEE CARRIED ON THE BUSINESS OF MANUFACTURING AND SELLING TEXTILE MACHINERY. IT ALS O DERIVED INCOME AS A PARTNER IN TWO FIRMS. FOR THE ASSESSMENT YEAR 1970-71, IT C LAIMED DEDUCTION OF RS. 14,250 PAID AS COMMISSION TO N ON THE SALE OF MACHI NERY MANUFACTURED BY IT TO A MILLS. N HAD STATED ON OATH THAT HE HAD BROUGHT T HE ASSESSEE AND A MILLS TOGETHER AND A MILLS HAD ALSO ADMITTED IN ITS LETTE R THAT N HAD BEEN PRESENT WHEN THE NEGOTIATIONS FOR SALE WERE GOING ON. HOWEVER, T HE ITO NEGATIVED THE CLAIM AND, ON APPEAL, THE TRIBUNAL HELD THAT SINCE N WAS ONLY A STUDENT AND THERE WAS NO PROOF THAT HE HAD RENDERED ANY SERVICE TO THE AS SESSEE, THE AMOUNT WAS NOT DEDUCTIBLE. ON A REFERENCE, THIS FINDING OF FACT WA S ASSAILED AS BEING PERVERSE. IT IS FURTHER HELD THAT THE STATEMENT OF N THAT HE HAD BROUGHT THE TWO PARTIES TOGETHER HAD REMAINED UNCONTROVERTED BY THE REVENUE . THE ASSERTION OF A MILLS THAT N WAS ASSOCIATED WITH THE TRANSACTION ALSO REM AINED UNCONTROVERTED. AS A RESULT, IT WOULD BE DIFFICULT TO CONCLUDE THAT NO S ERVICES HAD BEEN RENDERED BY N TO THE ASSESSEE. THE FINDING OF FACT BY THE TRIBUNA L WAS CLEARLY UNREASONABLE. THE ASSESSEE WAS, THEREFORE, ENTITLED TO THE DEDUCT ION OF RS. 14,250 PAID BY WAY OF COMMISSION TO N. FOLLOWING THE ABOVE, IN OUR OPI NION, THERE WAS NO JUSTIFICATION TO SUGGEST THAT, PAYMENT OF COMMISSIO N WAS NOT FOR SERVICES RENDERED. THE OBJECTION REGARDING FINANCIAL STATEME NT OF M/S. SHAKUMBHARI PULP ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 22 & PAPER MILL LTD. IS WHOLLY IRRELEVANT CONSIDERATIO N AND CANNOT BE BASIS TO DISALLOW THE CLAIM OF DEDUCTION. IN OUR CONSIDERED OPINION HERE TOO, THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FAC TUAL MATRIX OF THE CASE AND PROCEEDED ON CONSIDERATIONS WHICH ARE WHOLLY IRRELE VANT TO DISALLOW THE CLAIM OF COMMISSION MADE BY THE APPELLANT-COMPANY AND, THERE FORE, THE SAME IS HELD TO BE UNTENABLE. 10.1 BEFORE CONCLUDING, WE WOULD SEEK TO REFER THE RECE NT DECISION OF THE TRIBUNAL IN THE CASE OF NESTOR PHARMACEUTICALS LTD. V. DY. CIT [IT APPEAL NOS. 2535 AND 2536 (DELHI) OF 2006], ETC., WHEREIN THE T RIBUNAL HAS HELD THAT COMMISSION SO PAID IS ELIGIBLE DEDUCTION AS WOULD B E EVIDENT FROM THE FINDINGS CONTAINED IN PARA 12 OF THE ORDER WHICH ARE EXTRACT ED HEREUNDER : '12. HERE, WE FIND THAT THE ASSESSING OFFICER HAS I N REGARD TO THE COMMISSION PAYMENT TO THE AGENTS WHO HAD ASSISTED THE ASSESSEE TO DEAL WITH THE GOVERNMENT AGENCIES HAVE BEEN SPECIFICALLY EARMARKE D AND DISALLOWED ON THE GROUND THAT THERE WAS NO NECESSITY OF AN AGENT WHIL E DEALING WITH THE GOVERNMENT. THOUGH, IT IS VERY MUCH TRUE THAT THE G OVERNMENT DOES NOT DEAL WITH THE MIDDLEMAN, IT DOES NOT MEAN THAT THERE IS NO ROLE FOR AN AGENT TO PLAY WHEN AN ASSESSEE IS DEALING WITH THE GOVERNMENT. TH E TRANSACTIONS AND THE DEALINGS WITH THE GOVERNMENT OBVIOUSLY CANNOT BE DO NE THROUGH AN AGENT BUT THE AGENT CAN ASSIST AN ASSESSEE IN OBTAINING SUPPL Y AND FACILITATING OF INFORMATION WHICH ARE REQUIRED FOR THE ASSESSEE. TH E EXPLANATION OF THE ASSESSEE THAT THE AGENTS ASSISTED THE ASSESSEE IN THE PRE-TE NDER AND THE POST-TENDER ACTIVITIES IS CLEARLY BORNE OUT OF THE EVIDENCES WH ICH ARE PART OF THE SEIZED MATERIAL. THIS BEING SO, IT CANNOT BE SAID THAT NO SERVICES HAVE BEEN RENDERED BY THE AGENTS TO THE ASSESSEE. IN THE CIRCUMSTANCES, W E ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS RIGHT IN DELETING THE DISALLOWAN CE OF THE COMMISSION AS MADE BY THE ASSESSING OFFICER. HIS IMPUGNED ORDERS ON THIS ISSUE FOR ALL THE SEVEN YEARS UNDER CONSIDERATION ARE, THEREFORE, UPH ELD AND THESE APPEALS OF THE REVENUE ARE DISMISSED.' 10.2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS ALSO PLACED RELIANCE ON THE JUDGMENT IN THE CASE OF LACHMINARAYAN MADAN LAL V. CIT [1972] 86 ITR 439 (SC). AS REGARDS THE FORMER JUDGMENT, IT WILL BE S EEN THAT THE HONBLE APEX COURT HELD THAT CLAIM OF EXPENDITURE H AD TO BE TESTED ON THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE ABOVE PROPO SITION AND SINCE ON THE FACTS OF THE CASE, IT WILL BE SEEN THAT EXPENDITURE IS DULY SUPPORTED BY NECESSARY EVIDENCE, THE SAME IS ELIGIBLE CLAIM OF DEDUCTION. SO FAR AS THE CASE OF LACHMINARAYAN MADAN LAL ( SUPRA ), IT IS SEEN THAT, IT WAS NOTED THAT MERE EXISTENCE OF AN AGREEMENT WOULD NOT BE SUFFICIENT F OR ALLOWABILITY OF CLAIM OF COMMISSION. THIS PROPOSITION IS UNDISPUTED AND IN A NY CASE, HOWEVER, CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE. IN THE IN STANT CASE, CLAIM OF THE APPELLANT IS NOT BASED ON THE SOLELY AGREEMENT BUT BASED ON T HE FACT THAT PAYEES HAVE DULY CONFIRMED THE RENDERING OF SERVICES. ALSO OTHER FAC TS SUCH AS DETAILS OF THE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 23 PARTIES FOR WHOM SERVICES HAVE BEEN RENDERED, PAYME NT OF SERVICE TAX AND PAYMENT BY ACCOUNT PAYEE CHEQUES AND DECLARATION FO R SUCH SUM AS INCOME BY PAYEES SUPPORTS THE CLAIM OF THE APPELLANT THAT SER VICES HAVE BEEN DULY RENDERED BY PAYEES, THE SAME IS DULY ELIGIBLE FOR DEDUCTION. AS REGARDS THE JUDGMENT IN THE CASE OF MODI INDUSTRIES LTD. V. CIT [1993] 200 ITR 329 1 (DELHI), THE SAME IS WHOLLY INAPPLICABLE AS THAT WAS A CASE WHERE THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF COMMISSION PAID TO S.E. COR PORATION ON ACCOUNT OF THEIR SERVICES. IN THAT CASE, IT WAS FOUND THAT CORPORATI ON HAD NOT EMPLOYED ANY PERSON WHO WAS SHOWN TO POSSESS THE NECESSARY EXPER IENCE AND QUALIFICATION THAT IT HAD NO GODOWN OF ITS OWN AND IT USED TO DRA W THE GOODS FROM THE SALES OFFICE OF THE ASSESSEE AND THAT THE CORPORATION DID NOT HAVE THE PHYSICAL RESOURCES NECESSARY TO HAVE CARRIED OUT ITS DUTIES. IN THE INSTANT CASE, THERE IS NEITHER ANY EVIDENCE TO THAT EFFECT AND, NOR ANY MA TERIAL TO SUPPORT SUCH A HYPOTHESIS. ON THE CONTRARY, IT IS A CASE WHERE SUM MONS WERE NOT ISSUED TO SUCH PARTIES AND IN SUCH CIRCUMSTANCES CONSIDERING THE E VIDENCE ON RECORD, IT IS INCORRECT TO SUGGEST THAT, SERVICES HAVE NOT BEEN R ENDERED. HENCE, SUCH JUDGMENT TOO HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 11. IN LIGHT OF THE REASONS STATED ABOVE, WE HOLD THAT , THE CIT WAS INCORRECT IN LAW AND, ON FACTS IN UPHOLDING THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RS. 75.80 LAKHS AND, THEREFORE, THE SAME IS DIRECTED TO BE DELETED. 8. FURTHER HONBLE HIGH COURT IN THE CASE OF CIT V. GENESIS COMMET (P.) LTD. [2007] 163 TAXMAN 482 (DELHI) WHEREIN, IT HAS BEEN HELD THAT, AN OFFICER , IF HE WAS NOT INCLINED TO BELIEVE THE MATERIAL PLACED BY ASSESSEE HE COULD HAVE USED COERCIVE POWERS AVAILABLE TO HIM. APPLYING THE AFORESAID PROPOSITION, IT IS EVIDENT THAT, HAVING NOT EXERCISED THE COERCI VE POWERS, THEN THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED TO DRAW ADVERSE INFERENCE ON THE EVIDENCE FURNISHED, MORE PARTICULARLY WHEN THE PAYE E DULY CONFIRMED THE RENDERING OF SERVICES INDEPENDENTLY TO HIM. 9. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSION, THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 17,79,6 85/- WHEN THERE WAS NO EVIDENCE THAT THE COMMISSION PAYMENT WAS PAID TO NO N-EXISTENT PARTY OR THE COMMISSION CAME BACK TO THE ASSESSEE IN ANY FORM. A S WE HAVE ALREADY ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 24 NOTED THAT ASSESSEE HAS GIVEN FULL DETAILS OF AGENT S/PARTIES INCLUDING THEIR ADDRESS, PAN NUMBER AND ACCOUNTS. THE ASSESSEE HAS DEDUCTED TDS WHEREVER APPLICABLE AND FURNISHED THE DETAILS THERE OF. THE HONBLE APEX COURT IN SA BUILDER VS CIT 288 ITR 1 (SC) HELD THAT THE REVENUE AUTHORITIES CANNOT STEP INTO SHOE OF THE ASSESSEE A ND DICTATE HIM HOW TO CONDUCT THE BUSINESS. THUS, CONSIDERING THE FACTS O F THE CASE AND FOLLOWING THE VARIOUS DECISIONS AS CITED ABOVE THE GROUND OF APPEAL RAISED BY ASSESSEE IN ITS APPEAL IS ALLOWED. THE AO IS DIRECTED TO DEL ETE THE DISALLOWANCE OF COMMISSION PAYMENT OF RS. 17,79,685/-. IN THE RESUL T, THE GROUND OF APPEAL RAISED BY ASSESSEE IN ITS APPEAL IS ALLOWED. 10. AS WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE AND D ELETED THE DISALLOWANCE OF RS. 17,79,685/-, RESULTANTLY THE GROUND OF APPE AL RAISED BY REVENUE IN ITS CROSS APPEAL IN DELETING THE COMMISSION OF RS. 75,0 8,484/- BY LD. CIT(A) IS DISMISSED. 11. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR AY 2011 -12 IS ALLOWED AND THE CROSS APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 1592/M/2017 FOR AY 2012-13 BY ASSESSEE 12. WE HAVE NOTED THAT THE ASSESSEE HAS RAISED IDENTICA L GROUNDS OF APPEAL AS RAISED IN APPEAL FOR AY 2011-12, EXCEPT VARIATION O F FIGURE OF DISALLOWANCE OF COMMISSION PAYMENT. THE ASSESSING OFFICER DISALL OWED THE COMMISSION PAYMENT ON THE BASIS OF ORDER FOR EARLIER ASSESSMEN T YEAR I.E. AY- 2011-12. THE ASSESSING OFFICER ALSO OBSERVED THAT APPEAL FOR AY 2011-12 FILED BY ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 25 ASSESSEE BEFORE LD CIT(A) WAS ALSO PENDING ADJUDICA TION. WE HAVE NOTED THAT THE TURNOVER OF THE ASSESSEE WAS INCREASED FRO M RS. 147 CRORE IN AY 2011-12 TO RS.154 CRORE (AY 2012-13) IN THE YEAR UN DER CONSIDERATION. THE COMMISSION ON TOTAL SALES IS ALSO INCREASED FROM .6 8 % TO 1.33%. BOTH THE PARTIES HAVE AGREED TO TREAT THE APPEAL FOR AY 2011 -12, THUS CONSIDERING OUR ORDER FOR EARLIER YEAR AND FOLLOWING THE PRINCIPAL OF CONSISTENCY, THE APPEAL OF THE ASSESSEE FOR THIS YEAR IS ALSO ALLOWED WITH SIMILAR OBSERVATIONS. ITA NO. 3426/M/2017 FOR AY 2013-14 BY ASSESSEE 13. WE HAVE NOTED THAT THE ASSESSEE HAS RAISED IDENTICA L GROUNDS OF APPEAL AS RAISED IN APPEAL FOR AY 2011-12 AND FOR AY 2012-13, EXCEPT VARIATION OF FIGURE OF DISALLOWANCE OF COMMISSION PAYMENT. THE A SSESSING OFFICER DISALLOWED THE COMMISSION PAYMENT ON THE BASIS OF O RDER FOR EARLIER ASSESSMENT YEARS I.E. AYS - 2011-12 AND 2012-13. T HE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER OBSERVED THAT TH E TURNOVER OF SALE IS DECREASED FROM RS.154 CRORE IN AY 2012-13 TO RS. 84 .72 LAKHS IN THIS YEAR, HOWEVER, THE COMMISSION PAYMENT IS INCREASED FROM 1 .33% TO 2.67%. THE ASSESSEE HAS FILED THE COMPLETE DETAILS OF TDS MADE ON EACH AND EVERY PAYMENT MADE ON ACCOUNT OF COMMISSION PAID ALONG WI TH AND TDS CERTIFICATES SPECIFYING THE PAN AND ADDRESS OF THE COMMISSION PAYMENTS (PAGE 97-98 OF PB). THE LD CIT (A) CONFIRMED THE AC TION OF ASSESSING OFFICER HOLDING THAT THE FACTS OF THIS YEAR IS SIMI LAR TO THE EARLIER YEAR I.E. AY 2012-13, WHICH WAS DISMISSED BY HIM. AS WE HAVE AL READY ALLOWED THE ITA NO. 3618 & 4521/M/2016 & 1592 & 3426/M/17 ESSA ISMAIL MERCHANT 26 APPEAL OF ASSESSEE FOR AY 2012-13 AND DELETED THE D ISALLOWANCES, THUS CONSIDERING OUR ORDER FOR EARLIER YEAR AND FOLLOWIN G THE PRINCIPAL OF CONSISTENCY, THE APPEAL OF THE ASSESSEE FOR THIS YE AR IS ALSO ALLOWED WITH SIMILAR OBSERVATIONS. 14. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF FEBRUARY, 2018. SD/- SD/-/- (R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED /02/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/