ITO, Ward-2(3), Durgapur, Kolkata V. M/s Height Insurance Services Ltd., Kolkata

ITA 2266/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6376 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 30-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MD USMAN
• Assessee Lawyers: A K TIBREWAL
• Keywords: Business expenditure; Retrospective amendment; Question of law; Commercial expediency
• Section: 143(3); 201(1); 37

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 2266 / KOL / 20 16 ASSESSMENT YEAR :2011-12 INCOME TAX OFFICER, WARD-2(3), R/NO.10/21, 7 TH FLOOR, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 V/S . M/S HEIGHT INSURANCE SERVICES LTD., ROOM NO.319,3 RD FLOOR, KAMALAYA CENTRE, 156A, LENIN SARANI, KOLAKTA-13 [ PAN NO.AACCH 0943 G ] /APPELLANT .. / RESPONDENT /BY APPELLANT MD. USMAN, CIT-DR /BY RESPONDENT SHRI A.K. TIBREWAL, FCA /DATE OF HEARING 31-05-2018 /DATE OF PRONOUNCEMENT 08-06-2018 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2011-12 A RISES AGAINST COMMISSIONER OF INCOME TAX (APPEALS)-14, KOLKATAS ORDER DATED 31.08.2016 IN CASE NO. 188/CIT(A)-14/WD-1(1)/2015-16, IN PROCE EDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE REVENUES SOLITARY GRIEVANCE PLEADED IN THE INSTANT APPEAL SEEKS TO REVIVE SECTION 37 R.W 40(A)(IA) DISALLOWANCES / ADD ITION OF 66,18,00,000/- PERTAINING TO ASSESSEES SERVICE CHARGES PAID TO M/ S GOLDEN TRUST FINANCIAL SERVICES (GTFS) HEREAFTER FOR HAVING ACTED AS ITS A GENT. ITS NEXT TWO AVERMENTS ARE THAT THE CIT(A) HAS ERRED IN LAW AS W ELL AS ON FACTS IN EXAMINING ASSESSEES EXCLUSIVE METHOD OF ACCOUNTING IN SERVICE TAX RECEIVABLE ON OUTPUT SERVICES AS AGAINST INCLUSIVE METHOD OF SERVICE TAX ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 2 PAYMENTS IN RESPECT OF INPUTS SERVICES THEREBY HOLD ING THE IMPUGNED EXPENDITURE TO BE ELIGIBLE FOR DEDUCTION. ITS LAST GRIEVANCE IS THAT LOWER APPELLATE AUTHORITY HAS ERRED IN ADOPTED CONSISTENC Y ON THE ISSUE WHEREAS THE RELEVANT FACTS ARE TOTALLY DIFFERENT IN THE IMPUGNE D ASSESSMENT YEAR VIS--VIS THESE IN OTHER ASSESSMENT YEARS CONSIDERED IN LOWER APPELLATE FINDINGS UNDER CHALLENGE. 3. WE COME TO THE RELEVANT FACTS FIRST. THIS ASSESS EE IS A COMPANY ENGAGED IN CORPORATE INSURANCE BUSINESS. IT MAINLY DERIVED COMMISSION INCOME OF 212,51,34,690/- IN THE RELEVANT PREVIOUS YEAR FROM M/S RELIANCE LIFE INSURANCE COMPANY LIMITED. THE ASSESSING OFFIC ER TOOK UP SCRUTINY IN ITS CASE. HE CAME ACROSS ASSESSEES PAYMENT IN QUESTION MADE TO GTFS AS SERVICE CHARGES OTHER THAN OPERATING EXPENSE REIMBU RSEMENT OF 128,33,65,679.83. HE SOUGHT TO KNOW THE RELEVANT BA SIS THEREOF. HE WAS OF THE VIEW THAT MERE MAKING OF IMPUGNED PAYMENT AS PE R RELEVANT AGREEMENT WAS NOT SUFFICIENT REASON TO ACCEPT THE SAME. HE CO NSIDERED AN ADDENDUM TO THE AGREEMENT DATED 09.04.2010 PRIMA FACIE INDICATING ABSENCE OF ANY REALISTIC BASIS IN THE IMPUGNED PAYMENTS. EARLIER A GREEMENT BETWEEN ASSESSEE AND GTFS DATED 16.04.2009 STIPULATED PAYME NT OF 60 AND 6 CRORES FOR PERFORMING OBLIGATION AS AN AGENT AS WEL L AS FOR MAKING NECESSARY SERVICES THROUGH INFRASTRUCTURAL BACK UP; RESPECTIV ELY WHICH WAS LATER ON STOOD REDUCED TO 56 AND 4 (IN CRORES) THROUGH THE ABOVE ADDENDUM FOL LOWED ACTUAL PAYMENTS OF 66.18 CRORES. ALL THIS INDICATED EXCESS PAYMENT OF 6,18,00,000/-. THE ASSESSING OFFICER ISSUED HIS NOT ICE DATED 21.03.2014 PROPOSING TO DISALLOW THE SAME. 4. THE ASSESSEES REPLY FIRST OF ALL EXPLAINED THAT THERE WAS A WRITTEN AGREEMENT WITH GTFS INDICATING THE LATTER TO HAVE BEEN PROVIDING ALL OF ITS AGENCY AND INFRASTRUCTURAL BACK UP SERVICES. IT DRE W A COMPARATIVE CHART; FINANCIAL YEAR-WISE VIS--VIS PREMIUM COLLECTED AS WELL AS COMMISSION EARNED FROM FINANCIAL YEARS 2008-09 TO 2010-11 INDICATING TO SUMS OF 326.52 (FRESH), 755.48 AND 1114.56 (CRORES OF FRESH AND RENEWAL MON EY) INVOLVING CORRESPONDING COMMISSION EARNINGS OF 101.54, 204.26 AND 21.25 (ALL FIGURES ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 3 IN CRORES); RESPECTIVELY. THE ASSESSEE ATTRIBUTED I TS ABOVE INCOME TO PAYEESS AGENCIES AS WELL AS INFRASTRUCTURE SERVICES. FORMER OF THE SAID SERVICES WERE STATED TO HAVE BEEN AVAILED FROM ITS EMPLOYEES NET WORK OF LAKHS OF PEOPLE THROUGHOUT THE COUNTRY IDENTIFYING THE PROSPECTIVE INSURANCE TARGETS WHEREAS THE LATER SERVICES INVOLVED ITS 263 BRANCHES SOFTW ARE, HARDWARE AND NETWORKING ETC., 5. THE ASSESSEE FURTHER CLARIFIED THAT IT HAD PAID INCENTIVE / OTHER EXPENSES TO THE PAYEE AMOUNTING TO 128,33,65,793/- AFTER DEDUCTING TDS. NEXT CAME THE ADDENDUM DEVELOPMENTS. THE ASSESSEES CASE WA S THAT ITS ORIGINAL AGREEMENT DATED 16.04.2009 STIPULATED PAYMENTS UNDE R THE ABOVE TWO HEADS OF 60 AND 6 CRORES AS REVISED TO 56 AND 4 CRORES AND ALL THE APPLICABLE TAXES. THE RELEVANT SERVICE TAX AT THAT POINT OF TI ME WAS 10.3%. THIS INCREASED THE FORMER FIGURE TO 61,76,800/- AND LATER ONE TO BE 4,41,20,000/- TO 576,80,000/- AND 41,20,000; RESPECTIVELY AGGREGATIN G TO 66.18 CRORES IN QUESTION. 6. ALL THE ASSESSEES ABOVE PLEADINGS STOOD REJECTE D IN ASSESSMENT ORDER DATED 31.03.2014. THE ASSESSING OFFICER OBSERVED FI RST OF ALL THAT PAYEE GTFS WAS NOT ITS EXCLUSIVE AGENT. IT PROVIDED THE SERVIC ES IN QUESTION TO ITS OTHER CUSTOMERS AS WELL. HE THEN WAS OF THE VIEW THAT THI S PAYEES HAD ALREADY RECEIVED OTHER OPERATING EXPENSES OF 128,33,65,793/-.THIS MEANT THAT THERE WAS NO JUSTIFICATION TO PAY THE IMPUGNED EXPENDITUR E ANY MORE. THE ASSESSING OFFICER ALSO CONSIDERED ASSESSEES PREMIU M COLLECTED OF 1114.54 CRORES FOR (BOTH FRESH AS WELL AS RENEWABLE) TO REM ARK THAT ONLY ITS WORKING STRENGTH DESERVED CREDIT FOR THE SAME. HE DOUBTED G ENUINENESS OF IMPUGNED PAYMENT IN THIS BACKDROP OF FACTS. MORE PARTICULARL Y IN VIEW OF ASSESSEES PAYMENT OF 26,47,20,000/- MADE TO THE PAYEE ON THE LAST DATE O F FINANCIAL YEAR COMING TO 31.03.2011 AS AN ARTIFICIAL LIABILIT Y TO REDUCE ITS TAXABLE INCOME WITHOUT AVAILING ANY SERVICES FROM THE SAID RECIPIE NT. THE ASSESSING OFFICER FURTHER CONSIDERED ITS EXTENSIVE RECRUITMENT DRIVE AS WELL INCREASE IN STAFF STRENGTH FROM 334 IN APRIL 2010 TO 704 IN MARCH, 20 11. HE THEREFORE OBSERVED THAT ASSESSEES IMPUGNED CLAIM HAD PASSED OVER ALMO ST 90% OF RECEIPT OVER ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 4 AND ABOVE OPERATING EXPENSES TO GTFS (SISTER CONC ERN) WITHOUT INVOLVING ANY BUSINESS EXPEDIENCY THEREIN. ALL THIS DETAILED REASONING RESULTED IN IMPUGNED DISALLOWANCES BEING MADE IN ASSESSEES HAN DS. 7. THE CIT(A) REVERSES ASSESSING OFFICERS ACTION M AKING THE DISALLOWANCE IN QUESTION WITH THE FOLLOWING DISCUSSION:- A STUDY OF THE ABOVE REPRODUCED PROVISIONS OF THE A GREEMENT WITH RLIC CLEARLY SHOWS THAT THE APPELLANT HAS TO PERFORM SEVERAL COM PLEX AND SPECIALIZED FUNCTIONS TO EARN THE COMMISSION FROM THE PRINCIPALS. THE NUMBER AND COMPLEXITY OF FUNCTIONS OF THE APPELLANT WOULD UNDOUBTEDLY INVOLVE SPECIALIZED KNOWLEDGE OF THE FUNCTIONING OF THE PARTICULAR BUSINESS AS WELL AS MARKET INFORMATI ON AND ACCESS. THE SERVICE LEVEL AGREEMENT CLEARLY INDICATES THAT IT IS EXPECTED FRO M THE APPELLANT THAT IT WOULD 'EMPLOY THE BEST EFFORTS AND PROVIDE ALL NECESSARY RESOURCES TO PERFORM THE DUTIES AND OBLIGATIONS AS MENTIONED IN THE AGREEMENT. THE REFERENCE TO 'STANDARDS/DOCUMENTS PROCEDURES/PROCESS' WHICH THEM SELVES ARE SUBJECT TO CHANGES/MODIFICATIONS ACCORDING TO RLIC PRESENT AND FUTURE BUSINESS REQUIREMENTS FROM TIME TO TIME OR ANY OTHER PREVAILING LEGAL ENA CTMENTS AND RULES, REGULATIONS, CIRCULARS ETC BRINGS TO FORE THE INTRICATE, EXHAUST IVE AND HIGH LEVEL OF KNOWLEDGE BASE THAT IS ESSENTIAL FOR SUSTAINING THE AGREEMENT WITH RUC. IN ADDITION, THE PART OF THE AGREEMENT SPECIFYING THAT 'THE CIA (THE APPELLANT) SHALL DISCUSS AND REVIEW THE PROGRESS AND STATUS OF THE CURRENT/ AND ALL ASSIGNM ENTS ON A REGULAR BASIS AS AGREED AND IN ADDITION AS AND WHEN REQUIRED WITH RLIC', UN DERLINES THE FACT THAT THERE COULD NOT HAVE BEEN ANY SLIPPAGE IN THE QUALITY AND QUANT ITY OF SERVICES THAT WERE BEING PROVIDED BY THE APPELLANT TO RUC BECAUSE THERE WAS ALMOST A REAL-TIME MONITORING OF THE SERVICES BEING PROVIDED BY THE APPELLANT. THE T WO IMPORTANT ASPECTS THAT EMERGE FROM THIS AGREEMENT ARE: 1. THE APPELLANT HAD TO PROVIDE A VARIETY OF VERY SPECIALIZED SERVICES TO RLIC AND FOR WHICH IT HAD TO MAINTAIN DATA BANK OF SPEC IALIZED KNOWLEDGE NOT ONLY ABOUT THE MARKET WITH SPECIAL POTENTIAL TO ACCESS SUCH MARKET, THAT IS HAVE AN ENORMOUS VIRTUAL ARMY OF SPECIALIZED INDIVIDUALS WHO WOULD DO ACTUAL MARKET ACCESS ON BEHALF OF THE APPELLANT. 2. THAT THE LEVEL OF THE QUALITY OF THESE SERVICES HAD TO BE MAINTAINED AT TOP EFFICIENCY AT ALL TIMES. THESE TWO ASPECTS INDICATE THAT THE APPELLANT WOULD EITHER HAVE HAD TO DEVELOP ITS OWN RESOURCES, WHICH , THROUGH EVEN A CURSORY PERUSAL OF THE SAID AGREEMENT, CLEARLY SHOWS, WOULD TAKE AN ENORMOUS AMOUNT OF TIME, MONEY AND RESOURCES TO DEVELOP - IF THE APPELLANT WANTED TO DEVELOP THESE PROFICIENCIES IN-HOUSE. THE APPELLANT , FROM A STUDY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS APPARENTLY TAKEN AN ALTERNATIVE ROUTE BY SURRENDERING A PART OF ITS PROFITS WHILE ENSURING A RAPID GROWTH OF THIS BUSINESS, THUS OFF-SETTING THE DEPRESSION IN PROFIT S. THE APPELLANT HAS HIRED THE SERVICES OF A CONCERN THAT HAS SPECIALIZED IN T HE SERVICES THAT WERE REQUIRED BY THE APPELLANT FOR THE IMPLEMENTATION OF THE AGREEMENT WITH RUC. THIS SERVICE PROVIDER WAS GOLDEN TRUST FINANCIAL SE RVICES (GTFS). THE APPELLANT ENTERED INTO AN AGREEMENT WITH GTFS AND S ACRIFICED A LARGE PART OF ITS PROFITS, GAINING IN THE BARGAIN A SIMPLIFICATIO N OF ITS OWN OPERATIONS, THEREBY A CUT DOWN ON ITS OPERATIONAL COSTS AND SAVING ON M ONEY AS WELL AS TIME THAT WOULD HAVE BEEN SPENT ON THE DEVELOPMENT OF THESE P ROFICIENCIES. THE APPELLANT WAS ABLE TO ACHIEVE A VERY RAPID GROWTH I N CONSEQUENCE. THIS IS REFLECTED AS UNDER: ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 5 BUSINESS PERFORMANCE AND COMMISSION EARNED BY THE A PPELLANT COMPANY FOR THE FINANCIAL YEARS 2008-09 2009-10 AND 2010-11 FINANCIAL YEAR PREMIUMS COLLECTED (RS. IN CRORE) COMMISSION EARNED (RS IN CRORE) 2008-09 326.52 (FRESH PREMIUM) 101.54 2009-10 755.48 (FIRST AND RENEWAL) 204.26 2010-11 1114.56 (FRESH AND RENEWAL) 212.25 TOTAL 2196.56 518.05 IN PROVIDING A JUSTIFICATION FOR APPOINTING GTFS AS ITS SERVICE PROVIDER FOR PROVIDING THE APPELLANT COMPANY WITH SUPPORT IN ITS ENTIRE OP ERATIONS, THE APPELLANT HAD STATED THAT THE APPELLANT, HISL, COULD ACHIEVE SUCH SPECTA CULAR RESULTS IN SUCH A SHORT PERIOD ONLY THROUGH THE EFFORTS OF THE NETWORK AND INFRASTRUCTURE OF GTFS AND THE SPECIFIED PERSONS AND OTHER BACK OFFICE ORGANIZATIO N OF HISL. AN EXAMINATION OF THE MATERIAL ON RECORD BRINGS TO FORE THE FACT THAT GTFS WAS PROVIDING THE FOLLOWING SERVICES TO THE APPELLANT C OMPANY: (I) GTFS HAS NETWORK OF SEVERAL LAC PEOPLE IN ITS D IFFERENT LOCATIONS THROUGHOUT INDIA. IT IS THESE PEOPLE WHO WERE IN THE FIELD OF IDENTIF ICATION OF THE PROSPECTS OF INSURANCE WHO WOULD LIKE TO SECURE INSURANCE ON THEIR LIVES. FOR PROCURING PROSPECTS OF THESE INSURANCE THESE NETWORK PEOPLE ARE ENTITLED TO INCE NTIVES OTHER EXPENSES FROM THE ASSESSEE COMPANY HISL. IT APPARENT FROM THIS THAT THE APPELLANT WOULD HAVE HAD TO GO TO CONSIDERABLE EXPENSE AS WELL AS INVESTMENT IN TIME IF IT WISHED TO DEVEL OP AN ALL INDIA NETWORK OF SPECIALIZED PERSONS WHOSE NUMBER RAN IN LACS. EVEN THEN, IT WAS NOT GUARANTEED THAT SUCH AN EFFICIENT NETWORK COULD HAVE BEEN CREATED B Y THE APPELLANT COMPANY. IN THE MEANTIME, THE APPELLANT HAD ALREADY ENTERED INTO AN AGREEMENT WITH ITS PRINCIPAL - RLIC AND WOULD BE HARD-PRESSED TO PROVIDE COMPETITI VE SERVICES TO THE PRINCIPAL. IT COULD THEREFORE HARDLY BE EXPECTED THAT IT WOULD RI SK WASTING TIME AND MONEY IN THE DEVELOPMENT OF SUCH RESOURCES ON ITS OWN AND JEOPAR DIZING ITS CONTRACT WITH THE PRINCIPALS. IT INSTEAD HIRED THE SERVICES OF GTFS T HAT WAS ALREADY THERE WITH THE REQUIRED FRAMEWORK CONSTITUTING .INFRASTRUCTURE, MA N POWER, EXPERTISE AND MARKET REACH TO PROVIDE THE SAID SERVICES FOR A FEE. GTFS, IT IS SUBMITTED BY THE APPELLANT, WAS LIABLE TO PAY THE INCENTIVES/OTHER EXPENSES TO THE NETWORK ON BEHALF OF HISL. AT THE T IME OF PAYMENTS MODEL AMOUNTS CREDITED TO THE INDIVIDUAL NETWORK MEMBERS, GTFS HA S DULY DEDUCTED AND DEPOSITED TAX. HISL IN TURN REIMBURSES GTFS THESE EXPENSES, I .E., INCENTIVES/OTHER EXPENSES PAID TO THE NETWORK BY THE GTFS ON BEHALF OF HISL. IN ADDITION TO THE ABOVE, IT WAS SUBMITTED BY THE A PPELLANT THAT GTFS WAS PROVIDING SERVICES THROUGH, (II) 268 BRANCHES AND OTHER INFRASTRUCTURE (INCLUDI NG INFORMATION TECHNOLOGY, I.E, SOFTWARE, HARDWARE, NETWORKING ETC.) THESE BRANCHES AND OTHER INFRASTRUCTURE WERE PROVIDED AT THE DISPOSAL OF THE APPELLANT COMPANY, HISL, BY GTFS. NOW, IT IS CLEAR THAT GTFS WAS PROVIDING CRUCIAL SU PPORT TO THE APPELLANT COMPANY FOR THE SERVICES THAT THE LATTER HAD TO PROVIDE TO RUC. FOR WHICH, IN TURN, THE APPELLANT COMPANY WAS PAID COMMISSION. AGAINST THIS CRUCIAL, SPECIALIZED AND EXTENSIVE SUPPORT GTFS WAS ENTITLED TO REMUNERATION/SERVICE C HARGES FROM HISL ON TWO COUNTS FOR PROVIDING THE ABOVE MENTIONED TWO SERVIC ES: (I) ONE FOR PERFORMING ITS OBLIGATIONS AS PURE AGEN T (II) (II) ANOTHER FOR MAKING AVAILABLE NECESSARY SE RVICE THROUGH THE NECESSARY INFRASTRUCTURE TO HISL. NOW, THE MODUS OPERANDI OF THIS ENTIRE BUSINESS PRO CESS WAS AS FOLLOWS: ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 6 PAYMENT FLOW FOR THE ENTIRE BUSINESS PROCESS THE WORK FLOW IN THIS CASE IS THAT THE PRINCIPAL, R UC, GETS ITS BUSINESS FROM HISL. IN ORDER TO ENSURE THE EFFICIENCY OF WORKS BY HISL, THE LATTER EMPLOYS THE SERVICES OF GTFS. GTFS, IN TURN GETS THE-WORK DONE THROUGH THE INTERVENTION OF I. ITS SKILLS, II. INFRASTRUCTURE AND III. THE PERSONS WHO ARE PART OF NETWORK. IT IS THE PERSONS WHO CONSTITUTE THE NET-WORK WHO OBTAIN THE ACTUAL BUSINESS THROUGH CLI ENTS WHO ARE INTEREST IN BUYING INSURANCE POLICIES. THE PAYMENT FLOW FOR THIS ENTIRE BUSINESS SCHEME IS THAT RLIC MAKES THE PAYMENTS OF COMMISSION TO THE APPELLANT COMPANY. THEREAFTER, THE APPELLANT COMPANY (HEIGHT INSURANCE) MAKES THREE KINDS OF PAYMENTS TO GTFS. T HESE ARE, I. COMMISSION FOR SERVING AS A PURE AGENT II. PAYMENT FOR MAKING AVAILABLE ITS INFRASTRUCTURE III. REIMBURSEMENT OF COMMISSION/INCENTIVES/OTHER E XPENSES DISBURSED TO MEMBERS OF NETWORK FOR OBTAINING BUSINESS. A REGARDS THE THIRD ITEMS, IT IS FOUND THAT DURING THE FINANCIAL 2010-11 GTFS PAID INCENTIVES / OTHER EXPENSES RS.128,33,65,793/- TO T HE NETWORK PEOPLE FOR PROCURING PROSPECTS OF INSURANCE WHO WOULD LIKE TO SECURE INS URANCE ON THEIR LIVES, HISL, IN TURN MADE REIMBURSEMENT OF THIS AMOUNT OF RS 128,33 ,65,793/- TO GTFS AFTER DEDUCTION OF TAX AT SOURCE. THE AO HAS NOT DOUBTED THESE PAYMENTS IN HIS ASSESSMENT ORDER. COMING TO THE FIRST TWO ITEMS, WE FIND THAT ON THE BASIS OF ACHIEVEMENT OF THE PHENOMENAL GROWTH IN ITS BUSINESS, HISL HAS ENTERED INTO AN ADDENDUM AGREEMENT ON 16.4.2009 WITH GTFS TO BE EFFECTIVE FROM 1.4.200 9 FOR THE FINANCIAL YEAR 2009-10. A COPY OF THIS AGREEMENT WAS PRODUCED BY THE APPELL ANT, BOTH, DURING ASSESSMENT AS WELL AS APPEAL PROCEEDINGS. IN THIS AGREEMENT ON 16 .4.2009, THE REMUNERATION/SERVICE CHARGES ,TO BE PAID TO GTFS BY HISL WERE FIXED AS FOLLOWS: (I) RS 60,00,00,000/- (RS SIXTY CRORE) AND APPLICAB LE ALL TAXES FOR PERFORMING THE FUNCTION AS PURE AGENT - WHICH IS ITEM NUMBER 1 ABO VE. (II) RS 6,00,00,000/- (RS SIX CRORE) AND APPLICABLE ALL TAXES FOR MAKING AVAILABLE NECESSARY SERVICES THROUGH INFRASTRUCTURE. THIS IS FOR ITEM NUMBER 2 ABOVE. THE APPELLANT INFORMED DURING APPEAL PROCEEDINGS AS WELL AS DURING ASSESSMENT PROCEEDINGS, THAT AFTER TAKING INTO ACCOUNT ALL THE CIRCUMSTANCES OF THE BUSINESS, THIS ADDENDUM AGREEMENT WITH GTFS WAS AGAIN REVISED ON 9 .4.2010, TO BE EFFECTIVE FROM 1.4.2010, FOR THE FINANCIAL YEAR 2010-11. IN THIS A GREEMENT, ON 1.4.2010 THE REMUNERATION /SERVICE CHARGES TO BE PAID TO GTFS BY HISL WAS REVISED AS FOLLOWS: (I) RS 56,00,00,000/- (RUPEES FIFTY SIX CRORE) AND APPLICABLE ALL TAXES FOR PERFORMING THE FUNCTION AS PURE AGENT. (III) RS 4,00,00,000/- (RS FOUR CRORE) AND APPLICAB LE ALL TAXES FOR MAKING AVAILABLE NECESSARY SERVICES THROUGH INFRASTRUCTURE. AT THE RELEVANT TIME THE APPLICABLE RATE OF SERVICE TAX ON SERVICE TAX CHARGES WAS 10.3%. ACCORDINGLY THE ASSESSEE COMPANY HAS PAID TH E FOLLOWING AMOUNTS TO GTFS: ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 7 (I) RS 61,76,80,000 (RUPEES SIXTY ONE CRORE SEVENTY SIX LACS EIGHTY THOUSAND., I.E. RS 56,00,00,000/- PLUS SERVICE TAX OF RS.5,76, 80,000/- (BY APPLYING THE SERVICE TAX RATE OF 10.3% ON RS 56,00,00,000) FOR P ERFORMING THE FUNCTIONS AS PURE AGENT. (II) RS 4,41,20,000/- (RS FOUR CRORE FORTY ONE LACS TWENTY THOUSAND) I.E. 4,00,00,000/- PLUS SERVICE TAX OF RS 41,20,000/- (B Y APPLYING SERVICE TAX RATE OF 10.3% ON 4,00,00,000/-) FOR MAKING AVAILABLE NEC ESSARY SERVICES THROUGH THE INFRASTRUCTURE. IN THIS WAY THE ASSESSEE COMPANY AID PAID TO GTFS I N TOTAL RS 66,18,00,000/- (RUPEES SIXTY SIX CRORE EIGHTEEN LACS) I.E. RS 61,7 6,80,00/- (SIXTY ONE CRORE SEVENTY SIX LACS EIGHTY THOUSAND) FOR PERFORMING TH E FUNCTIONS AS PURE AGENT PLUS 4,41,20,000/- FOR MAKING AVAILABLE NECESSARY S ERVICES THROUGH INFRASTRUCTURE. GTFS, BEING AN INDEPENDENT ENTITY, HAS FILED ITS OW N RETURNS OF INCOME WHERE IT HAS SHOWN THESE RECEIPTS AND PAYMENTS. IT HAS AL SO PROVIDED A CONFIRMATION DATED 28.6.16 OF THE PAYMENTS RECEIVED BY IT FROM T HE APPELLANT COMPANY. IN THIS IT CONFIRMS THAT IT HAD RECEIVED THE ABOVE SAI D PAYMENTS FOR THE ITEMS SO MENTIONED AND OFFERED IT FOR TAXATION IN ITS OWN RE TURNS. THE TEXT OF THE SAID LETTER IS REPRODUCED BELOW: ... .. REGARDING SERVICES CHARGES OF RS.66.18 CROR ES RECEIVED FROM YOU DURING THE F.Y 2010-2011 AND ITS TAXABILITY IN OUR HAND WE SUBMIT AS FOLLOWS: THE SAID SERVICE CHARGES OF RS.66.18 CRORES WAS DUL Y TAKEN AS INCOME IN OUR BOOKS AND OFFERED FOR TAXATION FOR THE RELEVANT ASS ESSMENT YEAR. THE SAID SERVICE CHARGES OF 66.18 CRORES IS DULY INCLUDED IN OUR INCOME FROM OPERATION OF RS.348.62 CRORES FOR THE FINANCIAL YEAR 2010-201 1. PHOTOCOPY OF PROFIT & LOSS ACCOUNT OF GTFS FOR THE YEAR ENDED 31.03.2011, ITR AND ACKNOWLEDGMENT OF ASSESSMENT YEAR 2011-12 A ND COPY OF THE ASSESSMENT ORDER U/S. 143(3) OF THE IT ACT, 1961 FO R THE A.Y 2011-2012 IS ENCLOSED HEREWITH IN SUPPORT OF OUR CONTENTION. THESE WERE PRODUCED DURING APPEAL PROCEEDINGS BY TH E APPELLANT, IN RESPONSE TO A QUERY AT THE APPELLATE STAGE IF SUCH AMOUNTS HAD BEEN OFFERED FOR TAXATION BY GTFS OR NOT. THIS ISSUE HAD NOT BEE N RAISED BY THE AO DURING ASSESSMENT PROCEEDINGS. IN ANY CASE THE SAID RETURN S WERE PART OF THE RECORD AND IF NEEDED COULD HAVE BEEN CONFIRMED FROM THE RE CORDS OF THE DEPARTMENT ITSELF. IT WAS ALSO POINTED OUT BY THE APPELLANT TH AT THE CASE OF GTFS WAS SCRUTINIZED U/S 143(3) FOR THE AY 2011-12, WHICH WA S THE INSTANT ASSESSMENT YEAR UNDER THIS APPEAL. HE HAS ALSO PROVIDED A COPY OF THE SCRUTINY ORDER OF GTFS FOR THE AY 2011-12 WHEREIN IT IS CLEARLY SHOWN THAT SOME ADDITIONS WERE MADE BY THE AO, BUT THE RECEIPTS OR TRANSACTIO NS WITH RESPECT TO ITS BUSINESS WITH HISL WERE ACCEPTED AS SUCH. THE APPEL LANT HAS CONTENDED THAT THE DEPARTMENT THUS HAS ACCEPTED THE TRANSACTIONS O UTLINED ABOVE WHEN IT SCRUTINIZED THE ACCOUNTS OF GTFS, BUT SURPRISINGLY, HAD DOUBTED THE VERY SAME TRANSACTIONS IN THE HANDS OF THE PRESENT APPEL LANT. HE HAS STATED THAT IT IS STRANGE THAT WHILE THE AMOUNTS, WHEN SHOWN AS RE CEIPTS IN THE HANDS OF RECIPIENT FOR SERVICE RENDERED, ARE TAXED READILY B Y THE DEPARTMENT AS HAVING BEEN RECEIVED FROM THE PAYER (THE APPELLANT); THE S AME AMOUNTS, WHEN CLAIMED BY THE SAME PAYER AS EXPENSES FOR THE SAME SERVICES ARE NOT ALLOWED. AFTER DUE CONSIDERATION OF THIS ASPECT, I WOULD TEND TO AGREE WITH ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 8 APPELLANT ON THIS COUNT. HOWEVER, THE OTHER ASPECTS ALSO NEED FURTHER EXAMINATION. AFTER EXAMINING THE MATERIAL ON RECORD, I FIND THAT THE AO HAS NOWHERE DOUBTED ANY OF THE INDIVIDUAL CLAIMS OF EXPENSES. H E HAS NOT BEEN ABLE TO BRING ON RECORD, ANYTHING FROM THE BOOKS OR FROM TH E MATERIAL ON RECORD THAT THE SAID EXPENSES WERE BOGUS IN NATURE. THE EASIEST WAY TO CHECK THE BONA FIDES OF THESE EXPENSES WOULD HAVE BEEN TO EXAMINE IF THE PAYMENTS MADE TO GTFS WERE BONA FIDE BUSINESS EX-PENSES OR NOT. BUT THE AO HAS NOT DOUBTED THESE EXPENSES IN TERMS OF THE ITEM 3 OF THE THREE TYPES OF PAYMENTS TO GTFS LISTED ABOVE. THE AO HAS NOT DOUBTED THAT PAYMENTS WERE MADE TO THE TUNE OF RS 128 CRORE ODD ON ACCOUNT OF REIMBURSEMENTS OF PAYMENTS MADE BY GTFS ON ACCOUNT OF INCENTIVES/ OTHER EXPENSES ETC. IF THERE WAS ANY DOUBT AS TO THESE PAYMENTS OR THE PURPOSE OF THE SAID PAYMEN TS OR THEIR QUANTUM BY GTFS TO NETWORK, THEN THIS COULD EASILY HAVE BEEN V ERIFIED FROM THE BOOKS OF GTFS, WHICH WAS, DURING THE SAME PERIOD, BEING SCRU TINIZED FOR THE SAME ASSESSMENT YEAR IN THE SAME CITY OF KOLKATA. THE AO HOWEVER EVIDENTLY FOUND NO NEED TO QUESTION THESE PAYMENTS BY GTFS TO NETWO RK OR REIMBURSEMENTS THEREOF BY THE APPELLANT COMPANY. IN THESE CIRCUMST ANCES, WE ARE LEFT WITH THE SCENARIO OF THE AO ACCEPTING A PART OF THE WORKING RELATIONSHIP BETWEEN THE APPELLANT COMPANY AND GTFS AND NOT ACCEPTING THE OT HER. THE FACTS THAT EMERGE FROM THIS CASE ARE THAT THE A PPELLANT COMPANY HAS A WORKING RELATIONSHIP WITH GTFS, THE TERMS OF WHICH ARE GOVERNED BY THE ABOVE SAID AGREEMENTS BETWEEN THE TWO COMPANIES. TH E FACT ALSO REMAINS THAT HISL HAS BEEN ABLE TO ESTABLISH ITSELF IN THE FIELD OF LIFE INSURANCE THROUGH THE HARD WORK AND EFFORTS PUT IN BY THE LARGE NUMBE R OF PERSONS FORMING THE NETWORK AND THE FACILITIES PROVIDED BY GTFS'S VARIO US BRANCH OFFICES. THE SERVICE CHARGES AND REIMBURSEMENT OF VARIOUS EXPENS ES THAT HAVE BEEN INCURRED BY THE ASSESSEE COMPANY OF GTFS WERE PUREL Y FROM BUSINESS CONSIDERATIONS AND THE SAME REPRESENTS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF HISL. DE DUCTIONS THEREOF ARE ALLOWABLE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT 1961 WHILE DETERMINING THE INCOME FROM BUSINESS OF HISL COMING THE TO THE NEXT PART, THE PAYMENTS MADE BY T HE APPELLANT TO GTFS. WE FIND THAT IN THE RELATIONSHIP OF THE APPELLANT W ITH GTFS, WE HAVE ACCEPTED THAT THE APPELLANT DID REIMBURSE GTFS FOR THE EXPEN SES THAT GTFS HAD INCURRED ON NETWORK ON ACCOUNT OF DISBURSEMENT OF I NCENTIVES/ OTHER EXPENSES. BUT GTFS, WHICH HAS ADMITTEDLY DISBURSED THESE AMOUNTS AMONGST THE NETWORK PERSONS, WOULD THEN BE LEFT WIT H NOTHING FOR ITSELF. GTFS IS A GIGANTIC CONCERN WITH 268 BRANCHES AND A HUGE AMOUNT OF INFRASTRUCTURE, INCLUDING HARDWARE AND SOFTWARE, MENTION OF WHICH H AS BEEN MADE IN THE AGREEMENT BETWEEN GTFS AND THE APPELLANT, AS MENTIO NED SUPRA. IT HAS CLEARLY BEEN ACCEPTED AS UNDISPUTED THAT GTFS WAS I NDEED PROVIDING COMPREHENSIVE BUSINESS SUPPORT TO THE APPELLANT WHI CH WAS THE SOLE FACTOR RESPONSIBLE FOR THE EXPONENTIAL GROWTH IN THE LATTE R'S BUSINESS. IT IS ONLY LOGICAL, IN TERMS OF BUSINESS CONSIDERATIONS TO PRE SUME THAT FOR THESE SERVICES, GTFS WOULD BEEN CHARGING SOMETHING. IT WO ULD BE RECEIPTS FROM THESE CHARGES THAT WOULD ENABLE GTFS TO MAINTAIN IT S LARGE NUMBER OF BRANCHES, INFRASTRUCTURE, INFORMATION AND KNOWLEDGE BASE AS WELL AS SUPPORT- MECHANISM FOR ITS NETWORK PERSONS. IF IT DISTRIBUTE D ALL ITS RECEIPTS TO THE NETWORK THEN ALL THIS WOULD NOT BE POSSIBLE. IT IS EVIDENT FROM THE ABOVE ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 9 DISCUSSIONS AS WELL AS THE MATERIAL ON RECORD, IN A DDITION, OF COURSE, FROM CONSIDERATIONS OF BUSINESS EXPEDIENCY, THAT GTFS WA S RECEIVING THREE I. COMMISSION FOR SERVING AS A PURE AGENT II. PAYMENT FOR MAKING AVAILABLE ITS INFRASTRUCTURE III. REIMBURSEMENT OF COMMISSION/INCENTIVES/OTHER E XPENSES DISBURSED TO MEMBERS OF NETWORK FOR OBTAINING BUSINESS. THIS WAS ON ACCOUNT OF THE THREE KINDS OF SERVICES THAT IT WAS ADMITTEDLY PROVIDING, THAT IS, BUSINESS INTERVENTION THROUGH T HE SUPPLY OF I. ITS SKILLS, II. ITS INFRASTRUCTURE AND III. PROVIDING OF THE PERSONS WHO ARE PART OF NETWO RK. IT IS THE PERSONS WHO CONSTITUTE THE NETWORK WHO OBTAIN THE ACTUAL BUSINE SS THROUGH CLIENTS WHO ARE INTERESTED IN BUYING INSURANCE POLICIES. THE PAYMENT IN RESPECT OF THE FIRST TWO ITEMS ARE O BVIOUSLY GOVERNED BY THE AGREEMENT AND THEIR ADDENDA. THE FIRST ADDENDUM INC REASED THE AMOUNT OF REMUNERATION ON ACCOUNT OF THE PHENOMENAL GROWTH PO STED BY THE APPELLANT COMPANY. THEREAFTER, THIS WAS MARGINALLY DECREASED TO THE FIGURE AT WHICH IT FINALLY STOOD. IT IS SETTLED LAW THAT ASSESSING AUT HORITIES' CANNOT DICTATE THE QUANTUM OF PAYMENTS THAT ARE TO BE MADE ON SUCH COU NTS. WHAT CAN BE VERIFIED IS THE SAID PAYMENT WERE FOR THE PURPOSE O F BUSINESS OR NOT. WHAT CAN FURTHER BEEN VERIFIED IS WHETHER THE PAYMENTS WERE ACTUALLY MADE OR NOT AND WHETHER THE SAID PAYMENTS HAVE BEEN BROUGHT TO TAX BY THE RECIPIENT OR 'HOT. WE FIND, UPON EXAMINATION OF THE FACTS OF THE CASE AND THE MATERIAL ON RECORD AS WELL AS FOLLOWING THE DISCUSSIONS ABOVE, THAT TH E SAID PAYMENTS HAVE BEEN VERIFIED, ON ALL THE ABOVE COUNTS. THE AO HAS NOT D ENIED THAT GTFS WAS INDEED PROVIDING THE SUPPORT THAT HAS BEEN CLAIMED TO HAVE BEEN PROVIDED, TO THE APPELLANT.' IT HAS NOWHERE BEEN DOUBTED THAT TH E NETWORK WAS MADE AVAILABLE TO THE APPELLANT BY GTFS. IT HAS NOT BEEN ESTABLISHED BY THE AO THAT GTFS WAS NOT PROVIDING THE INFRASTRUCTURAL FACILITI ES, INCLUDING KNOWLEDGE BASE, HARDWARE AND SOFTWARE TO THE APPELLANT AS HAS BEEN CLAIMED BY THE APPELLANT. THE FACT OF THE PHENOMENAL GROWTH IN THE APPELLANT'S BUSINESS HAS NOT BEEN DOUBTED, NOR HAS IT BEEN SUGGESTED THAT TH IS GROWTH COULD HAVE BEEN, OR WAS INDEED, OBTAINED THROUGH ANY OTHER MEA NS THAN THROUGH THE SUPPORT OF GTFS. IN THESE CIRCUMSTANCES, IT IS DIFF ICULT TO ENDORSE THE CONCLUSION OF THE AO THAT THE SAID PAYMENTS WERE BO GUS. IT IS ESTABLISHED LAW AT THE LEVEL OF THE APEX COUR T THAT WHAT IS APPARENT IS REAL AND THAT IF ANYTHING TO THE CONTRARY IS TO BE PRESU MED THEN THE ONUS FOR ESTABLISHING THIS LIES UPON THE PERSON MAKING THIS, ASSERTION. IN THIS CASE, THE, FACT IS THAT THE AO HAS NOT DOUBTED THE QUANTUM OF SUCH EXPENSES OR THE FACT THAT SUCH PAYMENTS WERE INDEED MADE. HE HAS NOT DOU BTED THE FACT THAT SERVICES WERE ALSO PROVIDED BY GTFS TO THE APPELLAN T. WHAT HE HAS TRIED TO SUGGEST IS THAT THESE PAYMENTS WERE MADE AS A PART OF AN ARTIFICIAL CONSTRUCT TO DIVERT THE PROFITS OF ONE COMPANY INTO ANOTHER - PRESUMABLY THE PROFITS OF THE APPELLANT INTO GTFS. THE OTHER PRESUMPTION BY T HE AO IS THAT THE TWO ENTITIES, THE APPELLANT COMPANY AND GTFS WERE PART OF THE SAME GROUP AND THAT GTFS WAS EXCLUSIVELY AND SOLELY PROVIDING SERV ICES TO THE APPELLANT. BOTH THESE ASSERTIONS HAVE BEEN MADE BY THE AO, AND THER EFORE THE ON ONUS FOR ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 10 ESTABLISHING THEIR VERACITY LAY WITH THE AO, SINCE THERE WAS NOTHING AS PER RECORD TO SUPPORT EITHER OF THESE ASSUMPTIONS. THE ASSUMPTION OF SUPPRESSION OF SUPPRESSION OF PROFITS BY POSTING OF EXPENSES IS SOMETHING THAT COULD HAVE BEEN BUTTRESSED BY EXAMINING THE AFFAIRS OF GTFS AL SO WHICH BEING SCRUTINIZED DURING THE SAME PERIOD AS DISCUSSED EAR LIER. THIS HAS NOT BEEN DONE. THE AO HAS MERELY MADE A CURSORY MENTION OF A POSSIBILITY THAT THE TWO ENTITIES, THAT IS, THE APPELLANT AND GTFS, BELONGED THE SAME GROUP AND THAT GTFS WAS WORKING EXCLUSIVELY FOR THE APPELLANT. THE AO HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SUPPORT THIS ASSUMPTION, MUC H LESS ESTABLISH IT BEYOND DOUBT. IN THESE CIRCUMSTANCES, IT IS DIFFICULT TO A GREE WITH THE FINDINGS OF THE AO ON THIS COUNT ALSO. EXAMINATION OF THE RELEVANT MATERIAL ON RECORD BRINGS FORTH THE FOLLOWING ASPECTS IN RELATION TO THE AO'S SUSPICION THAT THE TWO CONCERNS, THE APPELLANT, AND GTFS WERE IN REALITY S ISTER CONCERNS: THAT GTFS DID NOT APPEAR TO BE A GROUP COMPANY OF H SIL. THE CORPORATE OFFICE OF BOTH THE COMPANIES WAS AT DIFFERENT POSTA L ADDRESSES. BOTH THE COMPANIES HAD DIFFERENT DIRECTORS, SHAREHOLDERS AND PARTNERS AND NONE OF THESE BEING COMMON FOR BOTH THE ENTITIES. DETAILS O F THE TWO ENTITIES IS AS BELOW: HEIGHT INSURANCE SERVICES LIMITED (HISL) IS A LIMIT ED COMPANY REGISTERED UNDER . COMPANIES ACT, 1956 HAVING REGISTERED OFFIC E AT 55, JATIN DAS ROAD, KOLKATA - 700029 AND GOLDEN TRUST FINANCIAL SERVICE S (GTFS), IS A PARTNERSHIP FIRM DULY CONSTITUTED UNDER THE INDIAN PARTNERSHIP ACT, 1932 HAVING ITS PRINCIPAL PLACE OF BUSINESS AT 16, R. N. MUKHERJEE ROAD, KOLKATA - 700 001. NAMES OF THE DIRECTORS OF HEIGHT INSURANCE SERVICES LIMITED AS ON 31.03.2011 ARE AS FOLLOWS: . A) SUMAN KUMAR DATTA B) SUBRATA MAJUMDER C) ASIS KUMAR SAHA NAMES OF THE SHARE HOLDERS OF HEIGHT INSURANCE SERV ICES LIMITED AS ON 31.03.2011 ARE AS FOLLOWS: A) SUMAN KUMAR DATTA B) JAYANTA SAHA C) NEEPA MAJUMDER D) TAPAS CHAKRABORTY E) DILIP BARAN SA HA F) INDRANIL GHOSH IN CONTRAST, THE NAMES OF THE PARTNERS OF GOLDEN TR UST FINANCIAL SERVICES AS ON 31.03.2011 ARE AS FOLLOWS: A) BHABESH MAJUMDER .' B) ASHIM SENGUPTA IT IS EVIDENT FROM THE ABOVE PARTICULARS THAT THE A BOVE TWO CONCERNS HISL & GTFS ARE NOT OWNED OR CONTROLLED BY THE SAME ENTITY OR PERSON. NONE OF THE SHARE HOLDERS AND DIRECTORS OF HISL, IS WAS FOUND, HAD ANY STAKE AND/OR CONTROL OVER THE AFFAIRS OF GTFS AND PARTNER S OF GTFS DID NOT HAVE ANY STAKE AND/OR CONTROL OVER THE AFFAIRS OF HISL. BETWEEN HISL AND GTFS ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 11 THERE SEEMED TO EXIST ONLY A BUSINESS RELATION. IN THE LIGHT OF THE ABOVE FINDINGS, THEY CAN IN NO WAY BE SAID TO BE GROUP CO NCERNS. GOING FURTHER, AND WITHOUT PREJUDICE TO THE ABOVE D ISCUSSIONS AND FINDINGS, EVEN IF FOR THE MOMENT IT IS ASSUMED THAT THE APPEL LANT COMPANY AND GTFS BELONGED TO THE SAME GROUP AND THAT THE LATTER WORK ED SOLELY AND EXCLUSIVELY FOR THE APPELLANT COMPANY - IT MUST BE REALIZED THA T THERE ARE TWO ASSUMPTIONS THAT THE AO HAS MADE HERE AND THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT THESE ASSUMPTIONS ARE SUPPORTED BY ANY EVIDENCE - E VEN IN THIS CASE, THE FURTHER ASSUMPTION OF THE AO THAT THE IMPUGNED EXPE NSES WERE POSTED MERELY TO CUT DOWN ON THE PROFITS OF ONE COMPANY AN D POST EXPENSES SOMEWHERE ELSE, HAS ITSELF TO BE ESTABLISHED THROUG H COGENT REASONING AND ACCOMPANYING EVIDENCE. IT HAS TO BE SHOWN AT LEAST THROUGH CIRCUMSTANTIAL DEDUCTION AND REASONING, THAT GTFS INDEED DID NOT P ROVIDE ANY SERVICES FOR WHICH THE IMPUGNED PAYMENTS WERE PURPORTEDLY MADE. NOT ONLY HAS NO ATTEMPT BEEN MADE AT THE ASSESSMENT STAGE TO ESTABL ISH THIS, BUT, IN FACT, SUCH A THING IS NOT BORNE OUT BY FACTS. THE CIRCUMS TANCES, AS DISCUSSED ABOVE, HAVE SHOWN THAT THERE WAS AN AMOUNT' OF BUSI NESS EXPEDIENCY IN THE APPELLANT'S DECISION OF EMPLOYING THE SERVICES OF A SPECIALIZED AGENCY LIKE THE GTFS. THE AO HAS NOWHERE DOUBTED THE SPECIALIZED KN OWLEDGE BASE, THE INFRASTRUCTURE - SOFTWARE AS WELL AS HARDWARE - OR THE VIRTUAL ARMY OF SPECIALIZED MANPOWER AT THE DISPOSAL OF GTFS. IN FA CT HE HAS ADMITTED THAT PAYMENTS TO THE NETWORK PERSONS WERE GENUINE. EVEN THEN IF THERE WAS ANY DOUBT THAT MIGHT HAVE EXISTED, IT WAS EASY TO VERIF Y THESE FACTS FROM THE SCRUTINY PROCEEDINGS THAT WERE UNDERWAY FOR GTFS IN THE SAME PERIOD. NO DOUBT HAS BEEN RAISED AS TO THE ACTUAL EXPERTISE AV AILABLE WITH GTFS. THE PAYMENTS TO NETWORK HAVE BEEN ACCEPTED ALONG WITH T HE PURPOSE FOR WHICH THEY WERE MADE; THE GROWTH OF BUSINESS AND THE CAUS E FOR IT HAVE BEEN ACCEPTED; THE NEXUS BETWEEN THE EXPERTISE AND THE S UPPORT PROVIDED BY GTFS AND THE GROWTH OF BUSINESS OF THE APPELLANT, A S CONTENDED BY THE APPELLANT HAS NOT BEEN DOUBTED, THE ACTUAL PAYMENTS AND THE GENUINENESS OF THESE PAYMENTS HAS NOT BEEN DOUBTED. IN ADDITION, T HE APPELLANT'S CONTENTIONS THAT SUCH PAYMENTS WERE MADE AFTER THE DUE APPLICAT ION OF SERVICE TAX RATES AND AFTER THE DUE. DEDUCTION OF TAX HAS BEEN ACCEPT ED BY THE AO. NO DEFECT HAS BEEN FOUND EITHER IN THE BOOKS OF THE APPELLANT OR, IN FACT, THE BOOKS OF GTFS IN THIS CONNECTION. DURING APPEAL PROCEEDINGS ALSO THE APPELLANT HAS PRODUCED THE BOOKS FOR EXAMINATION AND HAVE BEEN TE ST CHECKED. IN , THESE CIRCUMSTANCES, IT IS DIFFICULT TO UPHOLD THE FINDIN GS OF THE AO THAT THE SAID EXPENSES WERE BOGUS IN NATURE. COMING TO THE ISSUE RAISED BY THE AO THAT THE APPEL LANT HIMSELF WAS HAVING A LARGE STAFF OF ITS OWN ALONG WITH ESTABLISHMENTS-OF ITS OWN. THEN THERE WAS NO QUESTION OF OUTSOURCING THESE ASPECTS OF THE BUSINE SS ACTIVITIES OF THE APPELLANT TO GTFS. THIS COULD HAVE BEEN A VALID POI NT IF IT COULD HAVE BEEN ESTABLISHED BY THE AO THAT THE ENTIRE BUSINESS EXER CISES CLAIMED BY THE APPELLANT TO HAVE BEEN DONE BY GTFS COULD HAVE BEEN CARRIED OUT BY THE APPELLANT'S OWN STAFF. CONVERSELY, IT COULD BEEN AR GUED THAT THE EXPENSES CLAIMED BY THE APPELLANT SANS THE EXPENSES CLAIMED TO HAVE BEEN MADE OR ACCOUNT OF GTFS WERE EXCESSIVE OR NOT FOR BUSINESS PURPOSE. BUT THE AO HAS NOWHERE QUESTIONED THE' GENUINENESS OR REASONABLENE SS OF EXPENSES ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 12 CLAIMED BY THE APPELLANT ON ACCOUNT OF ITS OPERATIO NS WITHIN APPELLANT COMPANY. AS REGARDS THIS ASPECT, THE APPELLANT HAS EXPLAINED THAT DURING THE PERIOD OF BUSINESS OPERATIONS FOR THE INSTANT YEAR, THE INCREASE IN THE NUMBER OF STAFF FOR THE APPELLANT COMPANY WAS FROM 334 IN APRIL 2010 TO 704 IN MARCH 2011. AO IN HIS ORDER HAS MERELY OBSERVED THAT THE PAYMEN T TO GTFS ON ACCOUNT OF THE OF INFRASTRUCTURAL FACILITIES- AND SERVICE CHAR GES WAS NOT JUSTIFIED BECAUSE THESE TIES COULD HAVE BEEN PERFORMED BY THE APPELLA NT COMPANY ITSELF, WHICH HAD A LARGE WORK-FORCE OF ITS OWN. THE AO HAS NOT D ELVED FURTHER INTO THIS ASPECT OF THE OPERATIONS OF THE APPELLANT COMPANY. HE HAS NOT BEEN ABLE TO SAY HOW AND WHERE THIS STAFF COULD HAVE BEEN EMPLOY ED HAD THE SAID SERVICES - SOURCED TO GTFS, NOT BEEN SOURCED OUT AND HAD BEE N PERFORMED BY THE APPELLANT COMPANY ITSELF. IT HAS BEEN DISCUSSED EAR LIER THAT GTFS HAD THE- NECESSARY EXPERTISE TO HANDLE THE KIND OF WORK THAT HAD TO BE PERFORMED BY THE APPELLANT COMPANY UNDER ITS OBLIGATIONS CAST BY ' THE AGREEMENT WITH RLIC. FURTHER THE AGREEMENT WITH GTFS PROVIDES THAT THE L ATTER WOULD ALLOW THE APPELLANT COMPANY TO USE ITS OFFICES AS WELL AS THE INFRASTRUCTURE AVAILABLE WITHIN THESE OFFICES. THE APPELLANT, DURING APPEAL PROCEEDINGS HAS EXPLAINED THE REASON FOR INCREASE IN THE NUMBER OF PERSONNEL AND THE DEPLOYMENT OF SUCH STAFF BY SAYING THAT THAT PREMIUM COLLECTION D URING THE ASSESSMENT YEAR 2011-12 WAS 1,114.56 CRORES AS COMPARED TO RS.755.4 8 CRORES IN THE ASSESSMENT YEAR 2010-2011. WITH THE INCREASE IN VOL UME OF BUSINESS AND IN ANTICIPATION OF FURTHER INCREASE IN VOLUME OF BUSIN ESS, STAFF STRENGTH OF HISL WAS INCREASED TO 704 IN MARCH 2011 FROM 336 IN THE BEGINNING OF THE FINANCIAL YEAR. HE HAS EXPLAINED THAT THE -EMPLOYEES OF HISL WERE POSTED IN THE BRANCH OFFICES OF GTFS LOCATED AT VARIOUS PLACES AL L OVER INDIA. THEIR PRIMARY DUTY WAS TO EXPLAIN THE POLICY DETAILS TO THOSE WHO WERE INTENDING TO GET INSURED AND GUIDE THEM IN THEIR INSURANCE REQUIREME NTS. THE EMPLOYEES OF HISL COLLECTED THE PROPOSAL FORMS AND PREMIUM FROM THOSE INTENDING TO GET INSURED AND PERFORM NECESSARY PRELIMINARY UNDERWRIT ING AND THEREAFTER SENT THE PROPOSAL FORMS TO THE PRINCIPAL INSURANCE COMPA NY RELIANCE LIFE INSURANCE COMPANY LIMITED (RLIC). THEY ALSO COLLECT ED RENEWAL PREMIUM FROM THE INSURED. SO THE INCREASE IN THE NUMBER-OF EMPLOYEES IS JUSTIFIABLE AS IT WAS TO MAXIMIZE THE BUSINESS OF THE ASSESSEE. TH E APPELLANT HAS SUBMITTED DETAILS OF THE EMPLOYEES ALONG WITH THE DESIGNATION S, PLACE OF POSTING AND THEIR GROSS SALARY ON PAGE NOS 158 TO 170 OF THE PA PER BOOK SUBMITTED ALONG WITH THE WRITTEN SUBMISSIONS. IT IS SEEN FROM THE D ETAILS SUBMITTED THAT THE EMPLOYEES OF THE APPELLANT COMPANY WERE POSTED ALL OVER INDIA. IN MOST OF THE BRANCHES THERE WERE NOT MORE THAN ONE OR TWO EMPLOY EES THAT, IT IS EVIDENT, WOULD BE NECESSARY TO CARRY OUT THE BUSINESS OF EXP ANDING THE INSURANCE RELATED ACTIVITIES OF THE APPELLANT. THE EMPLOYEES SEEM TO BE PLACED ALL OVER INDIA EVEN IN REMOTE PLACES. IN KOLKATA SPECIFICALL Y, THE PLACEMENT IS MORE CONCENTRATED AND THERE ARE BRANCHES EVEN IN VARIOUS LOCALITIES. THE DESIGNATIONS OF THE EMPLOYEES VARY FROM SR MANAGER TO EXECUTIVE WITH REMUNERATION RANGING FROM ABOUT FIVE TO SIX THOUSAN D PER MONTH, GOING UP TO ALMOST 25,000/- PER MONTH. THESE DETAILS WERE AVAIL ABLE BEFORE THE AO. THE WOK OF THE APPELLANT WAS TO BE UNDERTAKEN WITH THE STRICTEST AMOUNT OF EFFICIENCY SINCE THE PRINCIPAL COMPANY WAS INTO REA LTIME MONITORING OF THE WORK OF THE APPELLANT AND THE STAFF DEPLOYED BY THE APPELLANT HAD TO AT ALL ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 13 TIMES BE AVAILABLE TO PROVIDE THEIR COOPERATION TO THE PERSONNEL OF THE PRINCIPAL COMPANY. THIS WAS CLEARLY BROUGHT OUT BY THE CLAUSE OF THE AGREEMENT BETWEEN PLIC AND THE APPELLANT COMPANY AS REPRODUCED BELOW: CIA SHALL CO-OPERATE WITH THE REPRESENTATIVES OF RL IC TO ATTEND CIAS OFFICES DURING NORMAL BUSINESS HOURS TO REVIEW ANY ASPECT O F THE BUSINESS OF CIA IN SO FAR AS IT RELATES TO ITS WORK AS CIA OF RLIC, IN CLUDING BOOKS AND RECORDS RELATING TO RLI AND ANY POLICYHOLDERS/. COIA SHALL PROVIDE ALL REQUIRED INFORMATION TO THE STAFF OF RLIC AUDITING/MONITORIN G THE BUSINESS ACTIVITIES OF CIA. THESE STRINGENT CONDITIONS THEMSELVES SHOW THAT THE RE HAD TO BE SUFFICIENT AND WELL TRAINED STAFF AVAILABLE AT ALL THE BRANCHE S FROM WHICH THE APPELLANT WAS CONDUCTING ITS BUSINESS. ALL THIS HAS NOT BEEN DOUBTED BY THEE AO. THE PAYMENT TO GTFS WAS MADE FOR SERVICE CHARGES, FOR T HE PROVISION OF INFRASTRUCTURE AS WELL AS REIMBURSEMENT OF PAYMENTS MADE TO NETWORK PERSONS. IN THIS REGARD, THE OBSERVATIONS OF THE AP EX COURT IN THE CASE OF (SASSION J. DAVID & CO. (P) LTD. VS. CIT (1979) 118 ITR 261 (S), ARE PERTINENT WHERE IT HAS BEEN HELD THAT THE ASSESSEE WAS TO DEC IDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PRO FITS, THE ASSESSEE CAN CLAIM DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. FURTHER, WITHIN THE JURISDICTIONAL HIGH COURT, IN T HE CASE OF BIRLA COTTON SPINNING & WEAVING MILLS LTD. VS. CIT (1967) 64 ITR 568 (CAL), IT WAS HELD THAT THOUGH THE MAIN OBJECTS OF BUSINESS IS TO EARN PROFITS, BUSINESS PURPOSES ARE WIDER THAN PROFIT-MAKING PURPOSES. BUSINESS EXP EDIENCY DOES NOT REQUIRE THAT EXPENSES SHOULD BE INCURRED ONLY FOR EARNING I MMEDIATE PROFITS. EXPENSES INCURRED THOUGH NOT DIRECTLY RELATED TO EA RNING OF INCOME, MAY BE ALLOWABLE DEDUCTIONS IF THEY ARE RELATED TO THE CAR RYING ON OF THE BUSINESS. AS EARLY AS IN THE CASE OF CIT VS. DHANRAJGIRI RAJA NARASINGIRI (1973) 91 ITR 544 (SC) IT WAS HELD THAT IT WAS FOR THE ASSESSEE T O DECIDE HOW BEST TO PROTECT HAS OWN INTEREST. IT IS NOT OPEN TO INCOME-TAX DEPA RTMENT TO PRESCRIBE WHAT EXPENDITURE. FURTHER IT WAS HELD THAT THE EXPRESSION COMMERCIAL EXPEDIENCY;IS NOT A TERM OF ART. IT MEANS EVERYTHING THAT SERVES TO PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. COMMERCIAL MEN AR E BEST EXPERIENCED IN COMMERCIAL EXPEDIENCY (INDIAN STEEL & WIRE PRODUCTS LTD. VS. CIT (1968) 69 ITR 379 (CAL). IN APPLYING THE TEST OF COMMERCIAL E XPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSES OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE (JAMSHEDPUR MOTOR ACCESSORIES STORES VS. CIT (1974) 95 ITR 664 (PAT); J.K. WOOLLLEN MANUFACTURERS VS CIT (1969) 72 ITR 612 ((SC). IN OR DER FOR AN EXPENDITURE TO BE ADMISSIBLE AS A DEDUCTION UNDER SECTION 10(2) (X V), IT IS NOT NECESSARY THAT THE PRIMARY MOTIVE IN INCURRING IT HAS TO BE DIRECT LY TO EARN INCOME THEREBY (SREE MEENAKSHI MILLS LTD. VS. CIT (1967) 63 ITR 20 7 (SC). ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 14 THE SUPREME COURT IN CIT VS. KALYAYANJI MAVJI & CO. (1980) 122 ITR 49 (SC), HAS OBSERVED (ON PAGE 53) THAT ON ACCEPTED CO MMERCIAL PRACTICE AND TRADING PRINCIPLES N ITEM OF BUSINESS EXPENDITURE M UST BE DEDUCTED IN ORDER TO ARRIVE AT THE TRUE FIGURE OF PROFITS AND GAINS FOR THE TAX PURPOSES. IT IS THUS WITHIN THE PROVINCE OF THE ASSESSING OFF ICER TO EXAMINE WHETHER AN ITEM OF EXPENDITURE WAS FOR GENUINE OR NOT, IT IS A LSO WITHIN THE AMBIT OF THE AOS POWERS AND DUTIES TO EXAMINE WHETHER THE SAID ITEMS WERE FOR BUSINESS PURPOSE OF THE ASSESSEE OR NOT. IT IS AT THIS POINT THAT THE FUNCTION OF THE AO STOPS. IT IS NOT WITHIN THE PURVIEW OF THE AOS POW ERS OR FUNCTIONS TO EXAMINE THE MEASURE OF BUSINESS EXPEDIENCY OR THE QUANTUM O F THE ASSESSEES EXPENDITURE IN RELATION TO THAT ITEM. THIS CAN BE E XAMINED IN SPECIAL CIRCUMSTANCES, WHEN THERE IS A SPECIAL CONNECTION B ETWEEN THE ASSESSEE AND THE PERSON IN RESPECT OF WHOM THE SAID ITEM OF EXPE NDITURE HAD BEEN MADE. SAY, IF THE TWO CONCERNS WERE SISTER CONCERNS. BUT THIS HAS TO BE ESTABLISHED BY THE AO. WE FIND THAT THIS IS NOT THE CASE HERE A S HAS BEEN DISCUSSED EARLIER. AS REGARDS THE DOUBT RAISED ON THE BONA FIDES OF TH E EXPENDITURE INCURRED BY THE APPELLANT COMPANY, ESPECIALLY IN RESPECT OF THE SERVICE CHARGES PAID TO GTFS, THE AO HAS RAISED THE ISSUE OF THEE BILL BEIN G RAISED ON THE LAST DAY OF THE FINANCIAL YEAR. ON THE LAST DAY OF THE FINANCIA L YEAR, GTFS HAD RAISED A BILL AMOUNTING TO RS.264720000/- ON THE APPELLANT. THIS WAS DOUBTED BY THE AO BY STATING THAT THIS WAS NOT A GENUINE EXPENSE A ND THAT THIS WAS TANTAMOUNT TO SIPHONING OF MONEY TO A GROUP CONCERN GTFS. IN THIS REGARD THE APPELLANT HAS SUBMITTED THAT HIS L ACCOUNTS FOR THE BILLS AS AND WHEN THEY ARE RAISED BY GTFS. OUT OF RS.6000000 00/-, TO BE PAID TO GTFS, BILLS MOUNTING TO RS.264720000/- ONLY WERE RA ISED ON THE LAST DAY OF THE FINANCIAL YEAR. THE APPELLANT HAS STATED THAT G TFS IS ALSO AN INCOME TAX ASSESSEE AND THE SAME AMOUNT HAS ALSO BEEN CREDITED IN THE BOOKS OF GTFS AND OFFERED FOR TAXATIONS. THE APPELLANT HAS ENCLOS ED THE INCOME TAX RETURN AND FINANCIAL STATEMENTS OF GTFS FOR THE ASSESSMENT YEAR 2011-12 FOR READY REFERENCE. THESE WERE PLACED ON PAGE NOS. 243 TO 24 5 OF THE PAPER BOOK ATTACHED WITH HIS WRITTEN SUBMISSIONS. IT WAS AS EARLY AS IN 1973 THAT THE APEX COURT, IN DAULAT RAM RAWAT MULL (1973) 87 ITR 349, LAID DOWN THE LAW FOR THE ONUS W HEN ANY PARTY TO A DISPUTE DISAGREED WITH WHATEVER WAS SHOWN AS APPARENT. THE SUPREME COURT HELD THAT THE ONUS OF PROVING WHAT WAS APPARENT WAS NOT REAL LAY WITH THE PARTY THAT CLAIMED IT TO BE SO. THERE SHOULD BE SOME DIRECT NE XUS BETWEEN THE CONCLUSIONS OF FACT ARRIVED AT BY THE AUTHORITIES C ONCERNED AND THE PRIMARY FACTS UPON WHICH THE CONCLUSION IS BASED USE OF EXT RANEOUS OR IRRELEVANT MATERIAL IN ARRIVING AT THE CONCLUSION WOULD VITIAT E THE CONCLUSION OF FACT, BECAUSE IT IS DIFFICULT TO PREDICATE TO WHAT EXTENT , THE EXTRANEOUS AND IRRELEVANT MATERIAL HAS INFLUENCED THE AUTHORITY IN ARRIVING A T THE CONCLUSION OF FACT. THEREFORE, IF A DECISION EXCLUDES OR IGNORES ADMISS IBLE OR RELEVANT EVIDENCE, TAKES INTO ACCOUNT INADMISSIBLE EVIDENCE, IRRELEVAN T CONSIDERATION OR EXTRANEOUS MATERIALS, A SUBSTANTIAL QUESTION OF LAW ARISE. SIMILARLY, WHEN AN AUTHORITY HAS PROCEEDED ON AN ASSUMPTION, WHICH IS ERRONEOUS IN LAW, A QUESTION OF LAW CAN ARISE. A FACTUAL DECISION IS PERVERSE IF THE AUTHORITY HAS ACTED WITHOUT ANY EVIDENCE OR ON VIEW OF FACTS, WHICH CANNOT BE REASONABLY ENT ERTAINED. A PERVERSE ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 15 FINDING IS ONE, IF IT IS ARRIVED AT WITHOUT ANY MAT ERIAL OR IF IT IS ARRIVED AT OR INFERENCE IS MADE ON MATERIAL, WHICH WOULD NOT HAVE BEEN ACCEPTED OR RELIED UPON BY A REASONABLE PERSON CONVERSANT WITH THE LA W. IF THE FINDING IS BASED UPON SURMISES, CONJECTURES OR SUSPICION AND IS NOT RATIONALLY POSSIBLE. A FACTUAL CONCLUSION IS REGARDED AS PERVERSE WHEN NO PERSON DULY INSTRUCTED OR ACTING JUDICIALLY COLD ACT UPON THE RECORD BEFORE H IM, HAVE REACHED THE CONCLUSION ARRIVED AT BY THE TRIBUNAL/AUTHORITY [SE E CIT VERSUS S.P.JJAIN, (1973) 87 ITR 370 (SC)]. WE ARE CONSCIOUS THAT T HAS BEEN OBSERVED THAT THE ORDER MUST E READ AS A WHOLE TO SEE WHETHER THE TEST OF PERVERSITY IS SATI SFIED BUT IN THE PRESENT CASE WHEN WE APPLY THE TEST EXPOUNDED IN DHIRAJLAL GIRDH RILAL (SUPRA) AND DAULAT RAM RAWAT MULL (SUPRA) AND ALSO READ THE ORDER AS A WHOLE, WE REACH THE AFFIRMATIVE OPINION IN FAVOUR OF THE APPELLANT-REVE NUE. IT IS THE AFORESAID TEST, WHICH HAS BEEN APPLIED BY US IN OUR CONCLUSION RECO RDED ABOVE. AS SIMILAR VIEW IS ECHOED BY THE HON'BLE DELHI HIGH COURT IIN ITS DECISION OF 1 ST JUNE, 2012, ITA NO. 562 OF 2008 IN THE CASE OF COMM ISSIONER OF INCOME TAX VERSUS SUNAERO LIMITED. SIMILARLY, IN CIT VERSUS S. P. JAIN (1973) 87 ITR 370 (S), THE APEX COURT HAS HELD THAT A FACTUAL CONCLUS ION IS REGARDED AS PERVERSE WHEN NO PERSON DULY INSTRUCTED OR ACTING JUDICIALLY COULD ACT UPON THE RECORD BEFORE HIM, HAVE REACHED THE CONCLUSION ARRIVED AT BY THE TRIBUNAL/AUTHORITY. IN THE PRESENT CASE, IT CANNOT BE SAID THAT THE FIN DINGS OF THE AO WERE BASED UPON ANY COGENT MATERIAL. THIS ISSUE BECOMES ALL TH E MORE SERIOUS IN VIEW OF THE UNDISPUTED FACT THAT BOTH, THE APPELLANT AS WEL L THE RECIPIENT CONCERN, GTFS WERE BEING SCRUTINIZED DURING THE SAME PERIOD, FOR THE SAME ASSESSMENT YEAR AND WITHIN THE SAME CITY OF KOLKATA . THERE WAS NO DEARTH OF MATERIAL AVAILABLE WITH THE AO. BUT FROM THIS MATER IAL, NO DEFECT HAS BEEN BROUGHT ON RECORD BY THEE AO TO CREATE THE EXPRESSI ON THAT THE APPELLANT OR INDEED GTFS WAS INDULGING IN ANY CREATION BOGUS ENT RIES OR BOOKING FALSE EXPENSES. IT HAS NOT EVEN BEEN EXPLAINED AS TO HOW THE ALLEGED SIPHONING OF FUNDS WAS TAKING PLACE - WHAT WAS GTFS DOING OR WHA T WAS THE NEED FOR THIS SIPHONING GTFS HAS BEEN SUBJECTED TO SCRUTINY AND A N ORDER U/S 143(3) PASSED IN ITS CASE, WHEREIN SOME ADDITIONS HAVE BEE N MADE BY THE AO; BUT EVEN AFTER DUE CONSIDERATION OF THE MATERIAL DURING THE SCRUTINY PROCEEDINGS OF GTFS, THE AO OF GTFS HAS NOT RAISED ANY DOUBTS WITH REGARD TO THE EXPENSES INCURRED BY GTFS IN RELATION TO ITS DEALIN GS WITH EITHER NETWORK OR THE PRESENT APPELLANT. HE HAS ALSO ACCEPTED AS GENU INE, THE PAYMENTS RECEIVED FROM THE PRESENT APPELLANT BY GTFS. IN THE SE CIRCUMSTANCES, THE STAND OF THE AO OF THE PRESENT APPELLANT BECOMES UN TENABLE IN LAW. THE OBJECTION AS TO THE RAISING OF A BILL ON THE LA ST DAY THE FINANCIAL YEAR, BY GTFS HAS BEEN CITED AS EVIDENCE OF THE BOGUS EXPENSES BE ING BOOKED BY THE APPELLANT. BUT, WHILE SUCH A CIRCUMSTANCE DEFINITELY MERITS AN INQUIRY, THE FACT THAT A BILL HAS BEEN RAISED ON THE LAST DAY OF THE FINANCIAL YEAR I S BY ITSELF NOT SUFFICIENT REASON TO WARRANT AN ADDITION - ESPECIALLY OF SUCH MAGNITUDE. THE AO HAS NOT EVEN ATTEMPTED TO PROVE THAT THE SAID BILL WAS NOT GENUINE EITHER IN ITSELF OR ON ACCOUNT OF THE SERVICES PROVIDED BY GTFS - AGAINST WHICH THE SAID BILL WAS RAISED. THE AO HAS NOWHERE DENIED THAT GTFS DID PROVIDE SERVICES TO TH E APPELLANT. THIS MATTER HAS BEEN DISCUSSED AT LENGTH EARLIER IN THIS ORDER, WHE RE IT HAS BEEN ESTABLISHED THAT THE ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 16 SAID PAYMENTS WERE MADE AGAINST SERVICES PROVIDED B Y GTFS. IT SEEMS SOMEHOW NOT OUT OF PLACE THAT AN AGENCY THAT IS PROVIDING S ERVICES ON A CONTINUAL BASIS, SHOULD RAISE BILLS, EVEN IF SUCH BILLS ARE RAISED ON THE L AST DAY OF THE FINANCIAL YEAR. THE APPELLANT HAS, DURING APPEAL PROCEEDINGS, PRODUCED THE NECESSARY BILLS AS WELL AS LEDGER COPIES. HE HAS SUBMITTED THAT IT WAS NOT TRU E THAT THE ONLY ONE BILL FOR THE ENTIRE AMOUNT PAYABLE TO GTFS WAS RAISED. ON THE LA ST DAY OF THE FINANCIAL YEAR. HE HAS SUBMITTED THAT BILLS WERE RAISED AT REGULAR INT ERVALS AND PAYMENTS MADE. HE HAS THAT THEE DETAILS WERE ALSO SUBMITTED BEFORE THE AO ALONG WITH ALL BOOKS OF ACCOUNT BUT THE LATTER HAD NOT RAISED DETAILS OF SERVICE CHARGES FROM THE PERIOD 1-APR-2010 TO 31-MAR-2011 DATE NATURE OF BILL RAISED DATE OF BILL GROSS AMAOUNT BASIC VALUE SERVICE TAX TDS- DEDUCTED NET AMOUNT PAID DATE OF PAYMENT GTFS- HEIGHT/SC /10-11/01 SERVICE CHARGE S 01/07/20 10 132,360,000 ,00 120,000,000 ,00 12,360,000. 00 13,236,000. 00 119,124,000 .00 01-7- 10,02- 07- 10,03- 07-10 GTFS- HEIGHT/SC /10-11/02 SERVICE CHARGE S 10/08/20 10 88,240,000. 00 80,000,000. 00 8,240,000.0 0 8,824,000.0 0 79,416,000. 00 16/08/20 10 GEFTS- HEIGHT/SC /10-11/03 SERVICE CHARGE S 06/09/20 10 44,120,000. 00 40,000,000. 00 4,120,000.0 0 4,412,000.0 0 39,708,000. 00 06-09- 10, 07- 09-10 GTFS- HEIGHT/SC /10-11/04 SERVICE CHARGE S 11/10/01 0 44,120,000. 00 40,000,000. 00 4,120,000.0 0 4,412,000.0 0 39,708,000. 00 11-10- 10,12- 10-10, 27-10- 10, 02- 11-10 GTFT- HEIGHT/SC /10-1/05 SERVICE CHARGE S 10/01/20 11 44,120,000. 00 40,000,000. 00 4,120,000.0 0 4,412,000.0 0 39,708,000. 00 12-01- 11,17- 01- 11,20- 01- 11,21- 01-11, 03-02- 11,24- 02-11 GTFS- HEIGHT/SC /10-11/06 SERVICE CHARGE S 24/03/20 11 44,120,000. 00 40,000,000. 00 4,120,000.0 0 1,103,000.0 0 43,017,000. 00 24-03- 11, 25- 03-11, 11-04- 11, 04- 11, 04- 05-11, 27-05-11 GTFS- HEIGHT/SC /10-11/07 SERVICE CHARGE S 31/03/20 11 264,720,000 .00 240,000,000 .00 24,720,000. 00 6,618,000.0 0 258,102,000 .00 27-05- 11, 01- 06-11, 02-06- 11, 06- 06-11, 11-07- 11, 25- 07-11, 26-7-11, 29-07- 11, 07- 0911,20- 09-11, 22-09- 11, 23- 09-11, 26-09- 11, 28- 09-11, ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 17 29-09- 11, 01- 10-11 TOTAL 661,800,000 .00 TOTAL 43,017,000. 00 618,783,000 .00 ANY SPECIFIC DOUBT OR POINTED OUT ANY SPECIFIC DEFE CT IN THESE BILLS. DETAILS OF THESE AND PAYMENTS THEREOF ARE ASUNDER: A PERUSAL THE MATERIAL ON RECORD 'CLEARLY BRINGS TO FORE THE FACT THAT ONE COMPLETE BILL OR THE ENTIRE SERVICE CHARGE WAS EVID ENTLY NOT RAISED Y THE APPELLANT ON THE LAST DAY OF THE FINANCIAL YEAR. A SIMILAR BILL WAS' ALSO RAISED FOR THE REIMBURSEMENT OF EXPENSES OF GTFS ON ACCOUNT OF EXPENSES INCURRED BY THE LATTER TOWARDS INCENTIVES/OTHER EXPENSES OF THE NETWORK PERSONNEL, ON THE LAST DAY OF THE FINANCIAL YEAR. THE AO HAS HOWEVER NOT DOUBTED THIS BILL OR HE PAYMENT MADE IN RESPECT OF THIS BILL. THERE SEEMS T O BE SOME INCONSISTENCY IN THE TREATMENT THAT THE AO HAS GIVEN TO VARIOUS I TEMS OF THE EXPENSES INCURRED BY THE APPELLANT COMPANY. THIS DIFFERENTIA L TREATMENT HAS BEEN MADE WITHOUT ASCRIBING ANY REASONS OR OFFERING ANY EXPLA NATIONS. IN HIS SUBMISSION, THE APPELLANT HAS GIVEN DETAILED REASONS FOR EMPLOYING THE SERVICES OF GTFS AND THE REASON WHY THE LATTER WAS PAID SUCH A HEFTY FEE. THE AGREEMENT BETWEEN THE APPELLANT AND ITS PRINCIP AL PROVIDES THE SCOPE OF WORK TO BE UNDERTAKEN BY THE APPELLANT AND THE AGRE EMENT BETWEEN THE APPELLANT - AND GTFS SPELLS OUT THE TERMS OF WORK A S WELL AS PAYMENTS FOR THESE WORKS, THAT ARE TO BE UNDERTAKEN BY GTFS. TH E BILLS AS WELL AS LEDGER ACCOUNTS WERE PRODUCED BY THE APPELLANT BEFORE THE AO. THE BOOKS ETC. - AS PER THE ASSESSMENT ORDER OF GTFS PRODUCED BY THE AP PELLANT DURING .APPEAL PROCEEDINGS - OF GTFS WERE EXAMINED BY THE AO OF TH AT ENTITY. NOTHING TO SHOW THAT THE BILLS SO RAISED WERE FOR ANYTHING BUT THE BONA FIDE PURPOSE OF THE BUSINESS OF THE APPELLANT AND OF GTFS HAS BEEN FOUND. IN THESE CIRCUMSTANCES, A FINDING BASED UPON MERE CONJECTURE S AND HYPOTHESES CANNOT BE UPHELD IN LAW. IT CANNOT BUT ALSO BE NOTED THAT THE AGREEMENT BETW EEN THE APPELLANT AND GTFS IS A DULY NOTARIZED AGREEMENT THAT IS ENFORCEA BLE IN A CIVIL COURT OF LAW. THE AGREEMENT CONSTITUTES A BINDING CONTRACT BETWEE N THE TWO PARTIES. THE BOMBAY HIGH COURT, IN THE FACTS OF CIT VS. C.K. THA KORE (1982) 136 ITR 464 (BOM.) 472 HAS TAKEN THE VIEW THAT THE RIGHTS AND L IABILITIES UNDER A CONTRACT BETWEEN THE ASSESSEE AND A THIRD PARTY IF AND AS DE TERMINED BY A COMPETENT CIVIL CURT CANNOT BE OVERLOOKED OR IGNORED WHILE D ETERMINING THE LEGAL NATURE OF THE RECEIPT IN THE HANDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, SINCE THIS IS A LEGALLY ENFORCEABLE AGREEMENT CASTING UNE QUIVOCAL DUTIES AND LIABILITIES UPON THE TWO PARTIES, THE EXPENSES IN T HE HANDS OF THE APPELLANT CANNOT BE IGNORED OUT OF HAND. THESE CAN UNDOUBTEDL Y BE CALLED INTO QUESTION, BUT THIS HAS TO BE DONE WITH MATERIAL FAC TS AND COGENT REASONING. THIS HAS NOT BEEN DONE BY THE ASSESSING OFFICER IN THE INSTANT CASE. THE REJECTION OF A LEGALLY ENFORCEABLE AGREEMENT, OUT O F HAND AND WITHOUT ASCRIBING ANY REASONS FOR DOING SO, CAN HARDLY BE U PHELD IN LAW. DURING APPEAL PROCEEDINGS, THE APPELLANT HAS ALSO A RGUED THAT THE AO HAS BEEN INCONSISTENT IN HIS TREATMENT OF THE SAME KIND S OF EXPENSES AND THE IDENTICAL BUSINESS ARRANGEMENT BETWEEN RLIC, THE AP PELLANT COMPANY AND GTFS, OVER THE YEARS. THE APPELLANT HAS SUBMITTED T HAT ITS CASE HAD BEEN SCRUTINIZED U/S 143(3) OF THE ACT FOR THE AY 2010-1 1 BY THE AO. IN THIS YEAR, ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 18 THE AO, UNDER THE SAME FACTS AND CIRCUMSTANCES AND BUSINESS ARRANGEMENTS, THAT HAD DULY BEEN EXPLAINED TO THE AO FOR THAT AY, THAT IS, 2010-11 HAD ACCEPTED THE FACT THAT THE SERVICE CHARGES PAID BY ASSESSEE TO GTFS WERE BONA FIDE. HE IN FACT HAD GONE FURTHER AND HAD MADE CERTAIN DISALLOWANCES BASED ON THE FACT THAT THE APPELLANT WAS PAYING LAR GE AMOUNTS OF MONEYS AS SERVICE CHARGES TO GTFS. IT WAS THESE SAME SERVICE CHARES, THAT THE AO THEREAFTER DISALLOWED - UNDER IDENTICAL CONDITIONS - FOR THE AY 2011-12. THE APPELLANT HAS PROVIDED A COPY OF THE SCRUTINY ASSES SMENT ORDER FOR AY AY 2010-11. THIS ORDER HAS BEEN PASSED ON10.3.2015. IN ADDITION TO THE ABOVE, THE APPELLANT HAS PROVIDE D A COPY OF THE SCRUTINY ASSESSMENT ORDER, FOR THE AY 2012-13, PASSED U/S 14 3(3) OF THE ACT, DATED 10.3.2015. IN THIS ORDER ONCE AGAIN, THE SAID EXPEN SES HAVE BEEN ACCEPTED UNDER IDENTICAL CIRCUMSTANCES. THE APPELLANT FURTHER PROVIDED A COPY OF THE ASSESS MENT ORDER - ONCE AGAIN PASSED AFTER SCRUTINY U/S 143(3) - FOR THE AY 2013- 14. THE SAID ORDER HAS BEEN PASSED AFTER ACCEPTING THE SAID SERVICE CHARGE S AND OTHER EXPENSES INCURRED BY THE APPELLANT UNDER THE SAME SET OF IDE NTICAL CIRCUMSTANCES. THIS ORDER WAS PASSED ON 21.3.2016. THE APPELLANT HAS PROVIDED A COMPARATIVE CHART OF T HE VARIOUS EXPENSES INCURRED BY THE APPELLANT COMPANY IN RESPECT OF GTF S OVER SEVERAL YEARS AND THE TREATMENT PROVIDED TO THEM UNDER SCRUTINY ASSES SMENT U/S 143(3) OF THE ACT. THIS IS AS UNDER: COMPARATIVE HART OF FOLLOWING EXPENSES EXPENSE TYPE ASSESSMENT YEAR 2010-11 ASSESSMENT YEAR 2011-12 ASSESSMENT YEAR 2012-13 ASSESSMENT YEAR 2013-14 REIMBURSEMENT EXPENSES PAID TO GTFS 1,151,33 2,152.00 1,283,36 5,793.00 653,034 568.00 3696,631 306.00 REIMBURSEMENT EXPENSES PAID TO GTFS ALLOWED AS PER 143(3) ORDER 1,151,33 2,152.00 5,793.00 653,034,568.00 396,631,306.00 SERVICE CHARGES PAID TO GTFS 727,980,000.00 661,800,000.00 198,540000.00 94,382, 400.00 SERVICE CHARGES PAID TO GTFS ALLOWED AS PER 143(3) ORDER 727,980,000.00 DISALLOWED 198,540,000.00 94,382,4 00.00 ANY OTHE P[PAYMENT MADE TO GTFS -00 -00 -00 -00 DATE OF ASSESSMENT ORDER U/S. 143(3) 23/03/13 31/03/14 10/3/15 21/03/16 PREMIUM COLLECTION FROM CUSTOMER 755.48 CRORES 1114.56 CRORES 929.29 CRORES 638.90 C RORES COMMISSION RECEIVED FROM RLIL 204.26 CRORES 212.51 CRORES 104.78 CRORES 67.30 CRO RES APPELLANT HAS CONTENDED THAT SINCE THE DATE OF THE PRESENT IMPUGNED ORDER WAS 31.3.2014, WITH THE SUBSEQUENT ORDERS FOR TWO ASSES SMENT YEARS - ONE BEFORE THE IMPUGNED ASSESSMENT YEAR AND ONE AFTER THE IMPUGNED ASSESSMENT YEAR - BEING PASSED ON 10.3.2015 AND 21.3.2016 RESPECTIVELY, IT SEEMED STRANGE THAT UNDER IDENTICAL CIRCUMSTANCES, THE AO FIRST DID NOT ACCEP T THE STAND OF THE APPELLANT AND DISALLOWED SERVICE CHARGES, WHILE IN THE ORDER PASS ED ON THE NEXT DATE MENTIONED ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 19 ABOVE, THE AO NOT ONLY ACCEPTED THE VERY SAME EXPEN SES ON ACCOUNT OF SERVICE CHARGES, BUT IN FACT MADE CERTAIN DISALLOWANCES BAS ED ON THIS PAYMENT OF SERVICE TAX. IN THE VERY NEXT ORDER, THE AO ONCE AGAIN ACCE PTED THE BONA FIDES AND GENUINENESS AND BUSINESS PURPOSE OF THE VERY SAME S ERVICE CHARGES. THE APPELLANT HAS SUBMITTED THAT ONCE THE AO HAD TAKEN ONE STAND IN ONE YEAR, IT WAS FORBIDDEN THAT HE CHANGE IT IN ANOTHER YEAR IN THE INTEREST O F CONSISTENCY. I HAVE EXAMINED THIS ASPECT OF THE ISSUE. WHAT THE APPELLANT IS APPEALING TO IS THE PRINCIPLE OF RES JUDICATA FROM JURISPRUDENCE. THIS SIMPLY MEANS THAT IF ON ANY FACT AND/OR LAW, ONE PARTICULAR VIEW IS TAKEN THEN SUBSE QUENTLY. IF ANY ISSUE ON A SIMILAR FACT AND/OR LAW IS TO BE DECIDED BETWEEN THE SAME P ARTIES, THE STAND SHOULD BE SAME AS MADE EARLIER. IT HAS BEEN HELD THAT IN DECIDING UPON LEGAL ISSUES , WHETHER BASED ON A SET OF FACTS .' OR ON AN ISSUE OF LAW, WHAT IS RELEVANT IS NOT THE 'PERSONALITY OF OFFICERS ADJUDICATING ~ BUT THE INSTITUTION OF ADJUDICATION ITSELF. IF IT I S CONCEDED THAT SIMPLY BECAUSE OF THE CHANGE IN THE PERSONNEL WHO ADJUDICATED, IT IS OPEN TO THEM, ON SAME SET OF FACTS, TO A CONCLUSION TOTALLY CONTRADICTORY TO THE CONCLUSIO N WHICH HAD BEEN REACHED BY EARLIER SUCH ADJUDICATING PERSONNEL, IT WILL NOT ON LY SHAKE THE CONFIDENCE OF THE PUBLIC IN JUDICIAL PROCEDURE AS SUCH, BUT IT WILL TOTALLY DESTROY SUCH CONFIDENCE THAT WILL BE DESTRUCTIVE OF THE INSTITUTIONAL INTEGRITY ITSELF. HOWEVER, THE PRINCIPLE OF RES JUDICATA HAS TO BE AP PLIED WITH CAUTION IN THE CASE OF INCOME TAX. THE HON'BLE BOMBAY HIGH COURT, IN H.A. SHAH AND CO. VS. CIT (1956) 30 ITR 618 (BOM.) HAS HELD THAT 'THE PRINCIPLE OF E STOPPEL OR RES JUDICATA DOES NOT STRICTLY APPLY TO THE INCOME TAX AUTHORITIES'. THE SAME COURT HAS HOWEVER, QUALIFIED THIS BY SAYING THAT: 'AN EARLIER DECISION ON THE SAME QUESTION CANNOT BE REOPENED IF THAT DECISION IS NOT ARBITRARY OR PERVERSE, IF IT HAD BEEN ARRIVE D AT AFTER DUE INQUIRY, IF NO FRESH FACTS ARE PLACED BEFORE THE TRIBUNAL GIVING T HE LATER DECISION AND IF THE TRIBUNAL GIVING THE EARLIER DECISION HAS TAKEN INTO CONSIDERATION ALL MATERIAL EVIDENCE.' IN CIT VS. L. G. RAMAMURTHY (1977)110 ITR 453 (MAD. ), THE COURT LAID DOWN THE PRINCIPLE THAT 'BUT WHAT IS RELEVANT IS NOT THE PERSONALITY OF OFFICERS PRESIDING OVER THE TRIBUNAL BUT THE TRIBUNAL AS AN INSTITUTION. IF IT IS CONCEDED THAT SIMPLY BECAUSE OF THE CHANGE IN THE PERSONNEL WHO MANNED THE TRIBUNAL, IT IS OPEN TO THEM TO A CONCLUSION TOTALLY CONTRADI CTORY TO THE CONCLUSION WHICH HAD BEEN REACHED BY EARLIER OFFICERS MANNING THE TR IBUNAL ON SAME SET OF FACTS IT WILL NOT ONLY SHAKE THE CONFIDENCE OF THE PUBLIC IN JUDICIAL PROCEDURE AS SUCH, BUT IT WILL TOTALLY DESTROY SUCH CONFIDENCE THAT WI LL BE DESTRUCTIVE OF THE INSTITUTIONAL INTEGRITY ITSELF'. IN AMALGAMATED COALFIELDS VS. JANAPADA SABHA AIR 19 64 SC 1013 HAVE EVINCED A HIGHLY, BALANCED APPROACH:- IN CONSIDERING THIS QUESTION, IT MAY BE NECESSARY TO DISTINGUISH BETWEEN DECISION ON QUESTIONS OF LAW WHICH DIRECTLY AND SUBSTANTIALLY ARISE IN ANY DISPUTE ABOUT THE ABILITY FOR A PARTIC ULAR YEAR, AND QUESTIONS OF LAW WHICH ARISE INCIDENTALLY OR IN A COLLATERAL MANNER ... THE EFFECT OF LEGAL DECISIONS ESTABLISHING THE LAW WOULD BE A DIF FERENT MATTER. IF, FOR INSTANCE, THE VALIDITY OF A TAXING STATUTE IS IMPEA CHED BY AN ASSESSEE WHO IS CALLED UPON TO PAY A TAX FOR A PARTICULAR YE AR AND THE MATTER IS TAKEN TO THE HIGH COURT OR BROUGHT BEFORE THIS COUR T AND IT IS HELD THAT THE TAXING STATUTE IS VALID, IT MAY NOT BE EASY TO HOLD THAT THE DECISION ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 20 ON THIS BASIC AND MATERIAL ISSUE WOULD NOT OPERATE AS RES JUDICATA AGAINST THE ASSESSEE FOR A SUBSEQUENT YEAR'. IN RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (S C) THE APEX COURT WHILE EXAMINING THIS PRINCIPLE IN DETAIL, MADE THE FOLLOWING OBSERVATIONS: WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING R ES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESS MENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO AL LOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR'. IN SOUTH INDIA TRUST ASSOCIATION VS. TELUGU CHURCH COUNCIL (1996) 2 SCC 520, THE APEX COURT HAS TAKEN THE VIEW THAT THE RUL E OF RES JUDICATA IS RESTS UPON CONSIDERATIONS OF PUBLIC POLICY. IT IS IN THE INTEREST OF PUBLIC AT LARGE THAT FINALITY SHOULD BE ATTACHED TO THE JUDICIAL DECISIO NS. IT WAS ALSO HELD TO BE IN THE PUBLIC INTEREST THAT INDIVIDUALS SHOULD NOT BE VEXED TWICE OVER WITH THE SAME KIND OF LITIGATION. IN THE CASE OF MUNICIPAL CORPORATION OF CITY OF THA NE VS. VIDYUT METALLICS LTD & ANR. (2007) 8 SCC 688, THE FACTS WERE THAT IN EAR LIER LITIGATION, THE COURT HAD CONSIDERED THE EVIDENCE OF QUALITY CONTROL MANAGER WHO WAS DESCRIBED AS AN ' EXPERT ' ON THE POINT AND ACCEPTING HIS EVIDENCE, THE COUR T HAD HELD THAT THE GOODS IMPORTED BY THE COMPANY WERE FERROUS IN NATUR E AND NOT NON FERROUS AND THE COMPANY WAS RIGHT IN PAYING OCTROI UNDER IT EM 71. IT WAS THUS CONCLUDED THAT THIS WAS A FUNDAMENTAL FACTOR' AND THE NATURE OF GOODS IMPORTED BY THE COMPANY WAS DIRECTLY AND SUBSTANTIA LLY IN ISSUE, ON THE BASIS OF WHICH THE DECISION WAS TAKEN. THE APEX COURT AFT ER EXAMINING THESE FACTS, OBSERVED THAT IN TAXATION MATTERS, THE STRICT RULE OF RES JUDICATA AS ENVISAGED BY SECTION 11, CPC 1908 HAD NO APPLICATION. AS A GE NERAL RULE, EACH YEAR'S ASSESSMENT IS FINAL ONLY FOR THAT YEAR AND DOES NOT GOVERN LATER YEARS, BECAUSE IT DETERMINES THE TAX FOR A PARTICULAR PERI OD. HOWEVER, QUALIFYING ITS OBSERVATIONS, THE HON'BLE S UPREME COURT AVERRED THAT IN THE FACTS OF THE INSTANT CASE IT WAS NOT POSSIBL E TO HOLD THAT THE EARLIER DECISION WOULD NOT CONTINUE TO OPERATE IN SUBSEQUEN T YEARS UNLESS IT WAS SHOWN THAT THERE WERE CHANGED CIRCUMSTANCES OR THE GOODS IMPORTED BY THE COMPANY IN SUBSEQUENT YEARS WAS DIFFERENT THAN THE ONE WHICH WAS IMPORTED EARLIER AND IN RESPECT OF WHICH DECISION HAD BEEN A RRIVED AT BY THE COURT. THEREFORE, IT WAS HEID THAT THE REVISIONAL COURT AS WELL AS THE HIGH COURT WERE RIGHT IN GIVING BENEFIT OF THE DECISION IN THE EARLIER LITIGATION TO THE RESPONDENT COMPANY. THE HON'BLE SUPREME COURT UPHEL D THE OBSERVATION OF SUPREME COURT IN CASE OF RADHASWAMI SATSANG (SUPRA) . IN THE INSTANT CASE, IT IS NOT. DISPUTED THAT THE F ACTS HAVE REMAINED IDENTICAL OVER THE THREE ASSESSMENT YEARS - 201Q-11 TO' 2012- 13. IT IS FURTHER UNDISPUTED THAT THE THREE YEARS HAVE BEEN DULY SCRU TINIZED AND ORDERS PASSED U/S 143(3) OF THE ACT. IT IS ALSO A MATTER OF FACT THAT THE INSTANT IMPUGNED ORDER ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 21 U/S 143(3) WAS PASSED BEFORE SIMILAR ORDERS WERE PA SSED FOR THE OTHER TWO ASSESSMENT YEARS. THEREFORE, IT CANNOT BE DENIED TH AT THE IMPUGNED ORDER WAS PRESENT BEFORE THE AO AT THE TIME OF PASSING TH E REMAINING TWO ORDERS. DESPITE THIS THE AOS IN THE OTHER TWO CASES HAVE, A FTER EXAMINING THE ISSUE - EVEN COMMENTING UPON IT - ACCEPTED THE FACTS TO BE TRUE. THIS FLUCTUATING STAND OF THE AO SEEMS TO INDICATE THAT HE WAS MAKIN G PURE SURMISES AND CONJECTURES AND WAS CHANGING HIS OPINION BASED ON T HE SAME FACTS FROM YEAR TO YEAR. THERE IS NOTHING ON RECORD TO INDICATE THA T THE AO IN THE CASE OF THE IMPUGNED ORDER, WAS IN THE KNOWLEDGE OF ANY EXTRA I NFORMATION OR THAT ANY EXTRA .EFFORTS ON TERMS OF INQUIRIES HAD BEEN MADE BY THE AO. THERE IS NO LAW 'POINT THAT HAD EITHER ARISEN OR BROUGHT TO THE NOT ICE OF OR RELIED UPON BY THE AO. FROM A STUDY OF THE MATERIAL ON RECORD AND THE IMPUGNED ASSESSMENT ORDER, IT APPEARS THAT THE AO HAS FORMED AN OPINION BASED ON A SET OF FACTS THAT REMAINED UNCHANGED FOR THE OTHER TWO ASSESSMEN T YEARS. THERE DOES NOT APPEAR TO BE ANY MATERIAL ON RECORD TO SHOW THAT TH IS OPINION EMANATED FROM ANY PERSUASIVE SET OF FACTS OR COGENT REASONING. SU CH AN OPINION THEREFORE LOSES MUCH OF THE FORCE OF LAW AND IF NOT BACKED BY ANY OTHER CIRCUMSTANCES SUPPORTING IT - AS IS THE CASE HERE - BECOMES DIFFI CULT TO UPHOLD AS AN UNEQUIVOCAL FINDING OF FACT AND LAW. DURING APPEAL PROCEEDINGS, THE APPELLANT HAS PLACED RELIANCE ON THE FOLLOWING AUTHORITIES: SUPREME COURT OF INDIA ALUMINIUM CORPORATION OF INDIA ... VS COMMISSIONER OF INCOME-TAX, WEST ... ON 29 AUGUST, 1972 EQUIVALENT CITATIONS: 1973 AIR 520, 1973 SCR (1)109 7 AUTHOR: K HEGDE BENCH: HEGDE, K.S. PETITIONER: ALUMINIUM CORPORATION OF INDIA LTD. VS. RESPONDENT : . COMMISSIONER OF INCOME-TAX, WEST BENGAL DATE OF JUDGMENT29/08/1972 BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN ;' KHANNA, HANS RAJ CITATION: 973 AIR 520 1973 SCR (1)1097 CATOR INFO : RE 1975 SC 5 (23) RF 1986 SC 98 (18) R 1986 SC1483 (4) ACT: INCOME TAX ACT 1922 S. 10(2) (XV) & 66-EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR BUSINESS-COMMISSION PAYABLE TO SELL ING AGENTS IN A CASE WHERE SALES ARE NOT ACTUALLY EFFECTED THROUGH SELLI NG AGENTS-CONSTRUCTION OF AGREEMENT-EXPENDITURE ON SUCH COMMISSION WHETHER AL LOWABLE AS A ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 22 DEDUCTION-QUESTION OF FACT DECIDED BY TRIBUNAL-HIGH COURT'S POWER TO INTERFERE IN REFERENCE PROCEEDINGS UNDER S. 66. HEADNOTE: UNDER CLAUSE (6) OF THE AGREEMENT BETWEEN THE ASSES SEE COMPANY AND ITS SELLING AGENT, DISCOUNT WAS TO BE ALLOWED TO THE SE LLING AGENTS NOT ONLY ON SALES EFFECTED THROUGH THE SAID AGENTS OR SUB-AGENT S BUT ALSO ON SALES EFFECTED DIRECTLY BY THE PRINCIPAL. UNDER CLAUSE (8 ) THE AGENTS WERE RESPONSIBLE FOR THE PAYMENT IF THE PRICE DUE FROM T HE PURCHASERS IMMEDIATELY AFTER-THE GOODS LEFT THE PRINCIPAL'S WORKS OR GODOW N. SUCH PAYMENT BAD TO BE MADE ON PRESENTATION OF NECESSARY PAPERS OR DOCUMEN TS BY THE ASSESSEE, NOT LATER THAN' A FORTNIGHT AFTER THE GOODS WERE AL UMINIUM CORPORATION OF INDIA ... VS COMMISSIONER OF INCOME-TAX, WEST ... ON 29 A UGUST, 1972 INDIAN KANOON - HTTP://INDIANKANOON.ORG/DOC/350650/ 1 I HAVE EXAMINED THE ISSUES RAISED BY THE APPELLANT IN THE CONTEXT OF THE MATERIAL ON RECORD AND PERUSED THE LEGAL OPINION RE LIED UPON BY THE APPELLANT. IN VIEW OF THE DISCUSSIONS ABOVE, I FIND THAT ON EA CH AND EVERY COUNT, THE ORDER OF THE AO DOES NOT STAND THE TESTS LAID DOWN BY LAW AND LEGAL OPINION AS OPINED BY LEGAL AUTHORITIES. IN THESE CIRCUMSTANCES , I FIND THAT I CANNOT UPHOLD THE FINDINGS OF THE AO AS REGARDS THE SUBJECT MATTE R OF THIS GROUND. THE GROUND IS ACCORDINGLY ALLOWED. 8. MR. USMAN ( CIT-DR) REITERATES REVENUES MAIN PL EA THAT CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE IM PUGNED DISALLOWANCE OF 66.08 CRORES OF COMMISSION PAID TO M/S GTFS. THE AS SESSEE ON THE OTHER HAND STRONGLY SUPPORTS THE CIT(A)S FINDINGS UNDER CHALLENGE. THERE IS NO DISPUTE THAT THE LOWER AUTHORITYS DISCUSSION EXTRA CTED IN PRECEDING PARAGRAPH HAS CONSIDERED THE ENTIRE ISSUE THREADBARE IN VIEW OF THE RELEVANT CLAUSES IN THE AGREEMENT PAYER-PAYEE BUSINESS RELATIONS BETWEE N THE TWO PARTIES INSTEAD OF GROUP RELATIONSHIP, THE PAYER M/S RELIAN CE LIFE INSURANCE COMPANYS BUSINESS PROCESS INVOLVING FOUR TIER SYST EM OF SERVICE AS WELL AS CORRESPONDING PAYMENTS, PAYEE GTFSS AGENCY AND INF RASTRUCTURE MADE AVAILABLE TO THE ASSESSEE ON YEAR-TO-YEAR BASIS AS WELL AS VARIOUS ADDENDUM DEVELOPMENTS (SUPRA). LEARNED CIT DR IS FAIR ENOUGH IN NOT DOULTING ASSESSEES AGREEMENT DATED 16.04.2009 STIPULATING P AYMENTS OF 60 AND 6 CRORES UNDER THE TWO HEADS (SUPRA) REDUCED TO 56 AND 4 CRORES; RESPECTIVELY BY WAY OF ADDENDUM DATED 09.04.2010. MR USMAN FAILS TO REBUT THE FACT THAT ORIGINAL SUM OF 66 CRORES HEREINABOVE FIXED AT FIRST INSTANCE HAS N OWHERE BEEN DISPUTED AT ANY STAGE. BOTH PARTIES INCLUDING ASSESSEE AND ITS PAYEE ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 23 REDUCED THE SAID SUM TO 60 CRORES ONLY AND FURTHER INCLUDED 10.3% SERVICE CHARGES COMPONENT. WE FAIL TO UNDERSTAND AS TO HOW THIS INCLUSION ATTRACTS GENUINENESS CLOUD ON ALREADY AGREED SUM OF 60 CRORES. THE ASSESSEE HAD EARLIER AGREED TO PAY 66 CRORES (NET) WHICH WAS REDUCED TO 60 CRORES CULMINATING IN ULTIMATE PAYMENT OF 66.18 CRORES BECAUSE OF SERVICE CHARGES ELEMENT EEING INCLUDED THEREIN. 9. MR. USMAN VEHEMENTLY CONTENDS THAT THE ASSESSEE HAD ALREADY PAID AN AMOUNT OF 128.33 CRORES AS OPERATING EXPENDITURE TO THE VERY PAYEE. HE TURNS THE IMPUGNED SUM OF 66.18 CRORES TO BE HIGHLY EXORBITANT. WE POSED A SPECIFIC QUERY AS TO WHETHER THE SAID OPERATING EXP ENDITURE INCLUDED ANY COMMISSION AGENCY SERVICES OR INFRASTRUCTURE USAGES OR NOT. THERE IS NO SUCH MATERIAL ON RECORD TO THIS EFFECT. IT EMERGES THERE FORE THAT THE ASSESSEE HAS BEEN FOLLOWING ITS CONSISTENT PRACTICE WHEREIN AGEN CY AND INFRASTRUCTURAL SERVICE ARE BEING AVAILED FROM THE PAYEE GTFS AS AC CEPTED BY THE ASSESSING OFFICER HIMSELF IN PRECEDING SUCCEEDING ASSESSMENT YEARS AS DISCUSSED IN ABOVE EXTRACTED CIT(A)S FINDINGS. THE TAXPAYERS BE FORE US AS HAS ALREADY FILED ALL THE RELEVANT PARTICULARS OF THE AGENCY AN D INFRASTRUCTURE UTILIZED ON SECURED AS ALREADY DISCUSSED AT LENGTH IN THE CIT(A )S FINDINGS UNDER CHALLENGE. COUPLED WITH THIS IS THE CLINCHING LOWER APPELLATE AUTHORITYS CONCLUSION THAT THESE TWO ENTITIES ARE NOT GROUP CO NCERNS AT ALL. THE ASSESSEES DIRECTORS NAMES ALONG WITH THEIR RESPEC TIVE STAKE HOLDINGS AS WELL AS PAYEE FIRMS PARTNERS DETAILS REPRODUCED HEREIN ABOVE DO NOT SHOW ANY GROUP(S) RELATIONSHIP BEFORE THESE. THE REVENUES V ERY FAIR IN NOT INVOLVING SECTION 40A(2)(B) OF THE ACT EVEN TO PROVE THE CON TRARY. IT IS THEREFORE A CASE OF THE ASSESSEE HAVING AVAILED BOTH AGENCY AS WELL AS INFRASTRUCTURE NETWORK OF THE PAYEES GTFS CARRYING OUT IN ITS CORPORATE IN SURANCE AGENT BUSINESS. 10. WE MUST ALSO STATE HERE THAT THE ASSESSING OFFI CER HAD INVOKED ONLY SECTION 37 OF THE ACT IN DOUBTING GENUINENESS OF TH E IMPUGNED PAYMENTS. MR. USMAN AT THIS STAGE SUBMITS THAT CIT(A) OUGHT TO H AVE APPLIED SECTION 40(A)(IA) DISALLOWANCE AS WELL SINCE THE ASSESSEE H AD NOT DEDUCTED TDS AT ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 24 THE PRESCRIBED RATE AS PER TABULATION CHART EXTRACT ED FORMING PART OF CIT(A)S DETAILED DISCUSSION. WE FAIL TO AGREE WITH THE REVE NUES INSTANT TECHNICAL PLEA. THE FACT REMAINS THAT THE ASSESSEE HAS FILED ITS PA YEES COMPUTATION OF INCOME, INCOME TAX RETURN AS WELL AS THE CORRESPOND ING ASSESSMENT ORDER SUFFICIENTLY INDICATING THAT THE IMPUGNED PAYMENT H AD BEEN DULY ASSESSED AS HIS CASE IN ITS HANDS. SECTION 40(A)(IA) 2 ND PROVISO INSERTED IN THE ACT BY WAY OF THE FINANCE ACT, 2012 WITH EFFECT FROM 01.04.201 3 PRESCRIBE NON APPLICATION OF THE IMPUGNED PROVISION IN CASE THE ASSESSEES CO NCERNED IS NOT AN ASSESSEE IN DEFAULT AS PER SECTION 201(1) 1 ST PROVISO. HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN DCIT VS. TIRIPATI CONSTRUC TION GA NO.2146 OF 2016 HAS CONCLUDED THAT THE SAID PROVISO IS A CURATIVE O NE HAVING RETROSPECTIVE EFFECT FROM 01.04.2005. WE THEREFORE DECLINE THE RE VENUES ARGUMENTS SEEKING TO INVOKE U/S 40(A)(IA) OF THE ACT. WE FURT HER HOLD THAT HON'BLE JURISDICTIONAL HIGH COURTS LAND MARK DECISION IN C IT(A) VS. M/S S.K. TEKRIWAL (2014) 361 ITR 432 (CAL) HAS FURTHER CONCLUDED THA T THE SECTION 40(A)(IA) DOES NOT APPLY IN CASE OF SHORT DEDUCTION OF TDS TH AN THE PRESCRIBED RATE. 11. LEARNED CIT DR NEXT REITERATES REVENUES TWO RE MAINING AVERMENTS THAT THE ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD OF ITS INBOUND RECEIVABLES AS AGAINST INCLUSIVE METHOD FOR IMPUGNED EXPENDITURE W HILST CLAIMING SERVICE TAX COMPONENT (SUPRA). LEARNED COUNSEL REPRESENTING ASS ESSEE CLARIFIES THAT THIS ASSESSEE IS NOT REGISTERED UNDER THE SERVICE TAX RE GIME. WHAT IT HAS DONE IT IS TO CLAIM THE IMPUGNED EXPENDITURE AFTER MAKING THE ACTUAL PAYMENT WHICH IS DULY ALLOWABLE UNDER THE ACT. IT HAS FURTHER NOT CL AIMED ANY BENEFIT ARISING OUT OF ITS EXCLUSIVE METHOD AS WELL. WE THEREFORE REJEC T REVENUES INSTANT ARGUMENT. 12. LEARNED CIT-DRS LASTLY CONTENDS THAT THE ARGUM ENT THAT CIT(A) HAS ERRED IN BOTH LAW AS WELL AS ON FACTS IN ADOPTING J UDICIAL CONSISTENCY ON THE ISSUE OF THE IMPUGNED PAYMENTS OF 66.18 CRORES DESPITE THE FACTS INVOLVED IN THE RELEVANT PREVIOUS YEAR ARE ALTOGETHER DIFFERENT THAN IN PRECEDING AND ITA NO.2266/KOL/2016 A. Y.2011-12 ITO WD-2(3) KOL. VS. M/S HEIGHT INSU RANCE SERVICES LTD. PAGE 25 SUCCEEDING ASSESSMENT YEARS. THERE IS NO MATERIAL O N RECORD PIN-POINTING ANY SUCH DISTINCTION ON FACTS SUMMARIZED IN THE LOWER A UTHORITIES FINDINGS EXTRACTED IN PRECEDING FOREGOING DISCUSSION. WE THE REFORE DO NOT FIND ANY SUBSTANCE IN REVENUES INSTANT LAST ARGUMENT AS WEL L. 13. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 08/ 06/2018 SD/- SD/- ( %) (' %) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S (- 08 / 06 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO WARD-2(3), R/NO.10/21, 7 TH FLOOR, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQARE , KOLKATA-700 069 2. /RESPONDENT-M/S HEIGHT INSURANCE SERVICES LEARNED., ROOM NO.319, 3 RD FLOOR, KAMALAYA CENTRE , 156A, LENIN SARNI, KOLKATA-13 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 ''3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,