M/s. STOCK TRADERS PVT. LTD., MUMBAI V. ACIT CIR 2(3), MUMBAI

ITA 2803/MUM/2003

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4286 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 05-01-2016
• Assessment Year: 1996-1997
• Appeal Filed On: 09-04-2003
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARSHAD VENGURLEKAR
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Business expenditure; Principle of natural justice; Permanent establishment; Corroborative evidences
• Section: 143(3); 37(1)

Judgement Text

ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI L BENCH, MUMBAI [CORAM : PRAMOD KUMAR AM AND PAWAN SINGH JM] ITA NOS . 2802 , 2803 & 2 088 /MUM/03 AS SESSMENT Y EAR S : 1995 - 96, 96 - 97 AND 97 - 98 STOCK TRADERS PVT . LTD . .. ....... .APPELLANT 63, BOMBAY SAMAC HAR MARG FORT, MUMBAI 400 001 [PAN: AAACS7235A] VS. ASSISTANT COMMISSIONER OF INCOME TAX RANGE 2 (3), MUMBAI ... RESPONDENT APPEARANCES BY: P J PARDIWALA AND NITESH JOSHI FOR THE A PPELLANT HARSHAD VE NGURLEKAR F OR THE RESPONDENT DATE OF CO NCLUDING THE HEARING : JANUARY 8 , 201 6 DATE OF PRONOUNCING THE ORDER : APRIL 5 TH , 201 6 O R D E R PER PRAMOD KUMAR AM : 1. A COMMON GRIEVANCE IN ALL THESE APPALS IS THAT THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE PAYMENT OF P ROFESSIONAL FESS (OF RS . 45,09,637 FOR THE ASSESSMENT YEAR 1995 - 96, OF RS . 1,00,49,742 FOR THE ASSESSMENT YEAR 1996 - 97 AND RS . 1,21,42,602 FOR THE ASSESSMENT YEAR 1997 - 98) T O PREROY AG (A SWITZERLAND BASED COMPANY) . ALL THE THREE APPEAL S PERTAIN TO THE SAME ASSESSEE, ARISE OUT OF A COMMON SET OF FACTS AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, WE DEEM IT APPROPRIATE TO DISPOSE OF ALL THE THREE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSM ENT YEAR 1995 - 96. 3 . THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 17 TH JANUARY 2003 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UNDER ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 2 OF 16 SEC TION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 1995 - 96. GRI EVANCES IN THIS APPEAL, AS SET OUT IN THE MEMORANDUM OF APPEAL, ARE AS FOLLOWS: AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - XXXIII, MUMBAI [HEREINAFTER REFERRED TO AS 'THE LEARNED CIT(A)'], UNDER SECTION 250 OF THE INCOME - TAX ACT, 1961 ('ACT') AND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, STOCK TRADERS PRIVATE LIMITED [HEREINAFTER REFERRED TO AS 'APPELLANT'] RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT, ON THE FOLLOWING GROUNDS. 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE PAYMENT OF PROFESSIONAL FEES OF RS.4,509,637 TO PREROY AG ('PAG'). 2. THE CIT(A) ERRED IN MAKING THE FOLLOWING ERRONEOUS OBSERVATIONS AND CONCLUSIONS IN GROSS VIOLATION OF THE PRINCIPLE S OF NATURAL JUSTICE: (A) IN OBSERVING THAT THE APPELLANT HAS CLAIMED INCOME EARNED BY PAG AS EXEMPT FROM TAX IN INDIA. (B) IN OBSERVING THAT PAG HAS NO OTHER BUSINESS EXCEPT THAT IT RECEIVES PROFESSIONAL FEES FROM THE APPELLANT. (C) IN OBSERVING THAT P AG HAS ONLY ONE CLIENT ALL OVER THE WORLD IE THE APPELLANT. (D) IN OBSERVING THAT EVIDENCE BROUGHT ON RECORD DOES NOT SHOW ANY PAST HISTORY OF PAG HAVING ANY TECHNICAL EXPERTISE. (E IN OBSERVING THAT THE APPELLANT AND PAG HAVE COMMON DIRECTORS. (F) IN OBSERVING THAT PAG IS AN AGENT OF THE APPELLANT. (G) I N OBSERVING THAT CONSULTANCY SERVICES RENDERED BY PAG TO THE APPELLANT ARE NOT SUPPORTED BY AN AGREEMENT. (H) I N OBSERVING THAT THE NATURE OF SERVICES PROVIDED BY PAG TO THE APPELLANT COULD NOT BE ASCERTAINED FROM THE DOCUMENTATION SUBMITTED BY THE APPELLANT. (I) IN OBSERVING THAT THE APPELLANT'S CLAIM THAT ALL FOREIGN COMPANIES HAVE ENTERED INTO A JOINT VENTURE WITH THE APPELLANT ON THE ADVISE OF PAG IS NOT ACCEPTABLE AS IT IS NOT SUP PORTED BY ANY AGREEMENTS OR DOCUMENTS. (J) IN DISALLOWING THE PROFESSIONAL FEES RELYING ON CERTAIN JUDICIAL PRECEDENTS NOT BROUGHT TO THE NOTICE OF THE APPELLANT. ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 3 OF 16 3. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.599,832 IN RESPECT OF TRAVELLING EXPENSES. 4. SO FAR AS THE FIRST GROUND OF APPEAL IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE BEFORE US IS A COMPANY ENGAGED IN THE BUSINESS OF FINANCING AND MAKING INVESTMENTS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS PAID A SUM OF RS . 49,09,637 TO A SWITZERLAND BASED COMPANY BY THE NAME OF PREROY AG. AS NOTED BY THE ASSESSING OFFICER, THIS FEES WAS PAID AS THE PAG WAS REQUIRED TO RENDER SERVICES TO ASSESSEE FOR LOCATING NEW BUSINESS OPPORTUNITIES, RECOMMEND PROPOSAL FOR NEW PROJECTS AND COORDINATE EXISTING AND NEW JOINT VENTURE PARTNERS FOR TECHNOLOGY TRANSFERS, EQUITY PARTICIPATION AND SECURE THE SUPPORT FOR NEW BUSINESS STRATEGIES . IT WAS ALSO NOTED THAT THE ASSESSEE S STAND IS THAT THE MAIN SOURCE OF ASSESSEE S INCOME IS INTEREST AND DIVIDENDS, THAT THE ASSESSEE USES THESE INCOMES TO EXPAND ITS INVESTMENT BASE THROUGH DIRECT INVESTMENTS IN THE NEW PROJECTS AND THAT A SIGNIFICANT NUMBER OF SUCH PROJECTS, IN WH ICH INVESTMENTS ARE MADE BY THE ASSESSEE, ARE FOREIGN PROJECTS. IT WAS ON THE BASIS OF THESE, AND OTHER, ARGUMENTS THAT THE DEDUCTION FOR PAYMENT MADE TO PAG WAS SOUGHT TO BE JUSTIFIED. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT THE EXPENDITURE INCURRED BY THE ASSESSE, BY WAY OF MAKING IMPUGNED PAYMENTS TO PAG, WERE TO PROTECT AND PRESERVE THE INVESTMENTS OF THE ASSESSEE, AND SINCE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS, THE EXPENSES SO INCURRED BY THE ASSESSEE WERE DEDUCTIBLE UNDER SECTION 37(1) AND IN THE LIGHT OF HON BLE SUPREME COURT S JUDGMENT IN THE CASE OF CIT VS DELHI SAFE DEPOSIT CO LTD [(1982) 133 ITR 756 (SC)]. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HON BLE BOMBAY COURT, IN THE CASE OF CIT VS RAJARAM BONDEKAR [(1994) 2 08 ITR 503 (BOM)], IN SUPPORT OF THE PROPOSITION THAT THE MERE FACT THAT EXPENDITURE INCURRED BY THE ASSESSEE BENEFITS A THIRD PARTY WOULD NOT LEAD TO DISALLOWANCE AS LONG AS THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSES. THESE SUBMISSIONS, HOWEVER, DID NOT IMPRESS THE ASSESSING OFFICER. HE NOTED THAT SUSHIL K PREMCHAND (SKP, IN SHORT) WHO IS MAJOR SHAREHOLDER AND DIRECTOR IN THE ASSESSEE COMPANY, IS ALSO ONE OF THE TWO DIRECTORS OF PAG. HE NOTED THAT THE SERVICES, ON BEHALF OF PAG, WERE RENDERED BY SKP BUT THEN THERE WAS NO CLINCHING EVIDENCE OF THE ACTUAL RENDITION OF SERVICE. THERE WERE, ACCORDING TO THE ASSESSING OFFICER, ONLY BILLS AND INVOICES FOR SERVICES ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 4 OF 16 BUT THAT DID NOT CONSTITUTE ANY EVIDENCE ABOU T THE SERVICES HAVING BEEN RENDERED. COMING TO THE INVOICES RAISED ON THE ASSESSEE, HE NOTED THAT THESE INVOICES WERE ALSO RATHER VAGUE. IT WAS NOTED THAT BILL NO. 1 DATED 1/11/94 FOR US $ 10,000 WAS FOR SERVICES RENDERED IN CONNECTION WITH NEGOTIATIONS F OR DEVELOPMENT OF SPECIALITY GREASES , THE BILL NO. 2 FOR US $ 10,000 WAS FOR SETTING UP PROPOSAL FOR JOINT VENTURES , THE BILL NO. 3 WAS FOR SERVICES RENDERED FOR OKS INDIA - INDONESIA PROJECTS ..FOR DISCUSSIONS IN SINGAPORE, JAKARTA AND MUNICH . IT WAS ALSO NOTED THAT OUT OF 11 BILLS RAISED BY PAG, 7 BILLS WERE OKS INDIA PROJECTS IN WHICH ASSESSEE HAD 57% SHAREHOLDING. IT WAS ALSO CONCLUDED THAT THE BILLS RAISED BY PAG WERE QUITE GENERAL AND VAGUE WHICH WERE FOR NOTHING BUT TRANSFER OF FUNDS BY THE A SSESSEE TO PAG WERE S K PREMCHAND IS MAIN DIRECTOR IN BOTH THE COMPANIES . THE ASSESSING OFFICER ALSO REFERRED TO, AND RELIED UPON, HIS ORDERS FOR THE ASSESSMENT YEAR 1997 - 98 WHICH WAS ALREADY PASSED MUCH BEFORE THE IMPUGNED ORDER, AS THIS YEAR, I.E. YEAR BEFORE US, WAS CARRIED IN APPEAL BEFORE THE CIT(A) AND THEN REMITTED TO THE FILE OF THE ASSESSING OFFICER; WHAT WE ARE DEALING WITH RIGHT NOW IS THE ORDER PASSED IN THE COURSE OF THE REMANDED PROCEEDINGS. COMING TO THE OBSERVATIONS IN THE ASSESSMENT YEAR 1997 - 98, WHICH WERE SPECIFICALLY RELIED UPON BY THE ASSESSING OFFICER, WE FIND THAT, AFTER TAKING NOTE OF THE OWNERSHIP PATTERN OF THE ASSESSEE COMPANY AND THE PAG, THE ASSESSING OFFICER, INTER ALIA, CONCLUDED THAT THESE CIRCUMSTANCES ALSO SHOW THAT SO CALLED PROFESSIONAL SERVICES HAVE BEEN RENDERED, IF I MAY SAY, BY SHRI SKP TO SHRI SKP FOR SHRI SKP AND ADDED THAT SINCE PAG IS REGISTERED IN SWITZERLAND, BY USING THIS CHANNEL OF PAYMENT FOR SO CALLED PROFESSIONAL SERVICES, THE ASSESSEE COMPANY IS HE LPING SHRI SKP IN SIPHONING OFF SUBSTANTIAL PROFITS TO HIS OVERSEAS BANK ACCOUNT . AS REGARDS THE EVIDENCE FOR SERVICES RENDERED BY THE PAG, THE ASSESSING OFFICER MADE SPECIFIC OBSERVATIONS AS FOLLOWS: 5.8 LET US NOW EVALUATE THE EVIDENTLY STRENGTH OF T HE EVIDENCES SUBMITTED BY THE ASSESSEE COMPANY. THE BREAKUP OF ALL 34 INVOICES RAISED BY PAG DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1997 - 98 IS AS UNDER : INVOICE NO. PARTICULARS REMARK 1 TO 7 RELATED TO BUSINESS OF ASSESSEE'S SUBSIDIARY OKS (1) . 8 TO 11 RELATED TO JOINT VENTURE CONCERN COSATEC 12 TO 15 RELATED TO BUSINESS OF JOINT VENTURE ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 5 OF 16 DME INDIA. 16 TO 17 RELATED TO BUSINESS OF CASONI F.L. SPA 18 TO 22 RELATED TO BUSIN ESS OF JOHNSON & JOHNSON 23 TO 27 RELATED TO JOINT VENTURE ISS INDIA 28 TO 29 RELATED TO A. BOSS & CO. FOR EXPORT OF HANDMADE PAPER 30 RELATED TO BNSMESS OF OKS 31 RELATED TO UNIDENTIFIED CO. FOR DEFENCE SERVICES 32 RELATED T O ALFRED CARCHER GMBH & CO. CLEANING SYSTEM PROJECT 33. MIS EUROPE LIMITED DATA SECURITY SYSTEM 34. NEW OPPORTUNITY IN USA. 5.9 FROM THE DETAILS ACCOMPANYING ALL 34 INVOICES FOLLOWING COMMON FEATURES ARE OBSERVED : I) THE NATURE OF SERVICES STATED TO HAVE BEEN RENDERED ARE MENTIONED IN VERY GENERAL AND VAGUE TERMS. ALL THESE INVOICES TALK OF RENDERING SERVICES IN CONNECTION WITH THE ATTENDING, DISCUSSING, NEGOTIATING, SECURING A COMMITMENT, PRESENTING THE CASE, ESTABLISHING CREDIBILITY, REVI EWING THE NEED FOR FOCUSED, SELLING, ENSURING THE SMOOTH INITIAL ION, PARTICIPATING IN VARIOUS ETC. II) THE SUPPORTING EVIDENCE CONSIST OF MAINLY XEROX COPIES OF FAX MESSAGES SENT, COPIES OF RECEIPTS OF HOTEL BOOKING, COPIES OF BOARDING PASSES FOR AIR T RAVEL AND SOME PAMPHLETS RELATING TO CERTAIN PRODUCTS, III) AT THE END OF EACH SET OF SUPPORTING EVIDENCE RELATING TO A PARTICULAR INVOICE FILED, NOTE/RECOMMENDATION SIGNED BY SHRI SUSHIL K. PREMCHAND, MANAGING DIRECTOR BAS BEEN APPENDED. IV) ALL THE P APERS INCLUDING THE INVOICES THE FAX MESSAGE, THE ITINERARY DETAILS, HOTEL BOOKING, BOARDING PASSES ETC. HAVE RELEVANT DATES APPEARING ON THEM. BUT NONE OF THE FIFED NOTE/RECOMMENDATION HAS ANY DATE ON IT. IT RAISES DOUBT WHETHER THEY WERE EVER ACTUALLY SENT OR NOT. 5.10 EACH FILE NOTE/RECOMMENDATION STARTS WITH THE WORD AT THE REQUEST OF THE BOARD OF STPL .. . HOWEVER, NO EVIDENCE IN ANY OF THE SET OF SUPPORTING DOCUMENTS IN RESPECT OF ANY OF THE INVOICE IS ACCOMPANIED BY WRITTEN REQUEST OF THE BOA RD OF STPL ASKING PAG TO MAKE CERTAIN INQUIRIES OR CONTACTS IN RESPECT OF ANY SPECIFIC MATTER. NO RESOLUTION HAS BEEN PASSED BY STPL TO MAKE SUCH A REQUEST TO PAG. IN THIS REGARD, IT IS IMPORTANT TO NOTE THAT ITEM NO.1 OF CLAUSE (E) OF AGREEMENT BETWEEN P AG & STPL ENTITLED COMPENSATION/PAYMENT READS AS UNDER: ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 6 OF 16 ' FOR THE SERVICES RENDERED BY PAG UNDER THIS AGREEMENT, STPL WAS PAID FEES TO PAG AT RATES TO BE AGREED BY THE PARTIES ON A CASE TO CASE BASIS. THE FEES IN RESPECT OF ASSIGNMENT WILL BE AGREED UPON BY THE PARTIES BEFORE FAG COMMENCED WORK ON THE SAID ASSIGNMENT' IT WAS STATED BY THE ASSESSEE COMPANY THAT THE REQUESTS WERE MADE BY STPL ORALLY. THIS FACT WAS CONFIRMED IN ASSESSMENT YEAR 1995 - 96. ONCE AGAIN, IT IS INTERESTING HERE TO NOTE THAT ALL TH E REQUESTS ON BEHALF OF STPL ARE MADE ORALLY AND THE RECOMMENDATIONS HAVE ALSO BEEN COMMUNICATED ORALLY (AS ALREADY MENTIONED NONE OF THE RECOMMENDATIONS HAS MENTIONED DATE ON IT). THIS IMPLIES THAT SHRI SKP(STPL) IS REQUESTING TO SKP (PAG). SIMILARLY SHRI SKP (PAG) MAKES A RECOMMENDATIONS TO SHRI SKP (STPL) WHO MAY OR MAY NOT ACT ON SUCH RECOMMENDATION, 5.11 WHILE SUBMITTING ITS BILL VIDE INVOICE NO. 31 (RUNNING INVOICE NO.1996 - 24) DATED 3.10.1996, THE NARRATION OF THE SERVICES RENDERED IS AS UNDER : DE FENCE SERVICES OPPORTUNITY BILLING FOR SERVICES RENDERED IN CONNECTION WITH DISCUSSIONS WITH A MEMBER OF THE BOARD OF DIRECTORS OF SWISS COMPANY THAT HAS DEVELOPED A NEW PRODUCT THAT PERMITS AMMUNITION FREE TARGET PRACTICE (USING LASER TECHNOLOGY), WHICH IS AVAILABLE FOR LICENSING TO INDIA, FOR CONSIDERATION BY STPL AS A NEW PROJECT OPPORTUNITY, AMOUNTING TO US DOLLARS TEN THOUSAND ONLY. 5.12 IT IS STRANGE THAT THE INVOICE TALKS OF SERVICES RENDERED IN CONNECTION WITH THE DISCUSSION WITH A MEMBER OF BOAR D OF DIRECTORS OF SWISS COMPANY. THE COMPANY HAS NOT BEEN MENTIONED. THE MEMBERS OF THE BOARD OF THE DIRECTORS HAS ALSO NOT BEEN NAMED. HOWEVER, LITERATURE OF LASER SHOT IS ENCLOSED ALONG WITH THE INVOICE. IT IS NORMAL PRACTICE THAT WHENEVER A NEW PRO DUCT IS INTRODUCED IN THE MARKET, THE MANUFACTURER, PUBLISHES BROCHURES AND PAMPHLETS GIVING THE NEW FEATURES AND UTILITY OF THE PRODUCT. THESE BROCHURES AND PAMPHLETS ARE FREELY AVAILABLE IN THE MARKET. ANYBODY CAN HAVE ACCESS TO THEM. SINCE PAG HAS NOT MENTIONED ANY REFERENCE TO THE NAME OF THE COMPANY OR TO THE MEMBER OF THE BOARD OF DIRECTORS, IT CANNOT BE SAID THAT THE DISCUSSION WERE ACTUALLY HELD WITH THAT EMBER OF THAT COMPANY FOR EXPLORING THE POSSIBILITIES OF STPL'S ENTERING INTO TRANSACTION WITH THAT COMPANY. 5.10 SIMILARLY, INVOICE NO.34 (RUNNING INVOICE NO.1996 - 13) DATED 23 FD MAY 1996 READS AS UNDER : EXAMINATION OF NEW OPPORTUNBITIES FOR AINDIA DURING RECENT VISIT TO THE USA: BILLING FOR SERVICES RENDERED IN CONNECTION WITH MEETING ME MBERS OF THE SENIOR MANAGEMENT OF TWO EUROPEAN COMPANIES AT AN INTERNATIONAL CONFERENCE IN CHICAGO IN MAY 1996, TO REVIEW THE ROTE THAT STPL COULD PLAY IN BOTH THESE OPPORTUNITIES FOR SPECIFIC PROJECT IN INDIA, RESULTING IN ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 7 OF 16 INVITATIONS FOR FURTHER DISCUSSI ONS IN EUROPE, IN THE NEAR FUTURE, AMOUNTING TO US DOLLAR TEN THOUSAND ONLY.' FROM A PERUSAL OF INVOICES AND ACCOMPANYING DOCUMENTS, IT IS SEEN THAT DOCUMENTS SHOW ONLY THE TRAVEL SCHEDULE OF SHRI SKP, SLAY AT HOTEL ETC. IT APPEARS THAT SHRI SKP JUST HAPP ENED TO GO TO CHICAGO IN MAY 1996 AND BE FOUND IT PROPER TO UTILISE THIS VISIT FOR BILLING TO STPL. AS ALREADY MENTIONED THAT STPL HAD NEVER REQUESTED SKP TO GO TO CHICAGO. 5.13 ALL ABOVE FACTS CONSIDERED TOGETHER GIVE A DEFINITE INDICATION THAT ACTUALL Y NO SERVICES HAVE BEEN RENDERED BY PAQ TO STPL. MOREOVER, CREDENTIALS OF PAG HAVING EXPERTISE IN RELATION TO PROVIDING VARIOUS CONSULTANCY SERVICES HAVE ALSO NOT BEEN ESTABLISHED. ANOTHER IMPORTANT FACT SEEN FROM THE DETAILS FURNISHED BY THE ASSESSEE DU RING THIS YEAR AS WELL AS IN EARLIER YEAR IS THAT THE RUNNING INVOICE ( PAG APPEARS TO BE FOLLOWING CALENDAR YEAR) HAVE BEEN ISSUED TO STPL ONLY AND TO NO OTHER PARTY. THIS IS CLEAR FROM THE FACT THAT 24 INVOICES OF 1996 (I.E. INVOICE NO. 9 OF 1996 TO INVO ICE NO. 32 OF 1996) AND 10 INVOICES OF 1997 ( I.E. INVOICE NO.1 OF 1997 TO INVOICE 10 OF 1997) HAVE ALL BEEN ISSUED TO STPL IF PAG WAS ACTUALLY ENGAGED IN PROVIDING CONSULTANCY SERVICES IN GENERAL, SOME OF THE INVOICES WOULD DEFINITELY HAVE BEEN ISSUED TO OTHER PARTIES. 5.14 ANOTHER IMPORTANT FACT IS THAT ALL THE INVOICES ARE OF US $ 10,000/ - IRRESPECTIVE, WHETHER THE SO CALLED SERVICES WERE ONLY IN CONNECTION WITH THE TELEPHONIC DISCUSSION OR WHETHER THEY WERE IN CONNECTION PREPARATION AND CONDUCT OF P RESENTATION GIVING DEMONSTRATION OF SOME PRODUCT. IT IS HIGHLY UNLIKELY THAT ALL SUCH SERVICES HAVE SAME COST. IT MAY BE MENTIONED THAT AS PER THE AGREEMENT BETWEEN PAG & STPL ALL OUT OF POCKET EXPENSES INCURRED BY PAG TO PROVIDE THESE SERVICES SHALL BE REIMBURSED BY STPL ON A ACTUAL BASIS. HOWEVER, NO SUCH REIMBURSEMENT HAS EVER BEEN ASKED FOR BY PAG IN RELATION TO ANY OF THE INVOICES. THIS ALSO IS HIGHLY UNBELIEVABLE THAT IN ANY OF 34 INVOICES NO OUT OF POCKET EXPENSES WERE ACTUALLY INCURRED. GENER ALLY SOME INCIDENTAL EXPENSES ARE ALWAYS INCURRED IN ANY KIND OF ACTIVITY. THE INCIDENTAL EXPENSES CAN BE NIL ONLY IF THERE IS ACTUALLY NO ACTIVITY AT ALL. THE SAID AGREEMENT, OF COURSE, HAS AN OVERRIDING CLAUSE IN RESPECT OF OUT OF POCKET EXPENSES THAT IS TO SAY EITHER THESE EXPENSES ARE TO BE REIMBURSED ON ACTUAL BASIS OR AS CREDIT BEFORE HAND. HOWEVER, ONCE AGAIN, THERE IS NO EVIDENCE ON RECORD TO SHOW THAT PAG HAD AGREED BEFORE HAND - THAT IS TO SAY BEFORE THE COMMENCEMENT OF THE ASSIGNMENT - NOT TO CLA IM OUT OF POCKET EXPENSES IN RESPECT OF THAT PROJECT THIS CREATES SERIOUS DOUBT REGARDING GENUINENESS OF THE SERVICES BECAUSE AS PER THE AGREEMENT DATED 2.1.1995, EACH INVOICE HAS TO BE PREPARED AND APPROVED ON CASE TO CASE BASIS BEFORE THE INVOICED ACTIVI TY COMMENCES. OBVIOUSLY, NEITHER THE ASSESSEE NOR PAG BOTHERED TO DO SO BECAUSE BOTH OF THEM KNEW FOR SURE THAT THERE WAS NO SERVICES TO BE ACTUALLY RENDERED AND HENCE, THERE WAS NO OUT OF POCKET EXPENSES TO BE INCURRED AT ALL. BOTH OF THEM WERE CLEAR THA T PAG HAS TO ONLY RAISE AN INVOICE AND STPL HAS ONLY TO MAKE PAYMENT THEREOF AND THAT WOULD BE THE END OF THE MATTER. ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 8 OF 16 5.15 IN VIEW OF ABOVE DISCUSSION I AM CONVINCE THAT NO SERVICES WHATSOEVER WERE ACTUALLY RENDERED BY PAG AND THUS, THE PAYMENT MADE BY TH E ASSESSEE COMPANY CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE COMPANY. ACCORDINGLY EXPENSES OF RS.1,21,42,602/ - ARE NOT ALLOWABLE EXPENDITURE U/S.37(1). 5. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFI CER DISALLOWED THE FEES FOR CONSULTANCY CHARGES PAID TO PAG. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) UPHELD THE DISALLOWANCE. IN HER SHORT ORDER, LEARNED CIT(A) REASONED AS FOLLOWS: 3.9 I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS OF THE CASE. THE MAIN CONTENTION OF THE APPELLANT IS THAT THE PROFESSIONAL FEES HAVE BEEN BROUGHT TO TAX IN COMPLETING PAG'S ASSESSMENT ON THE BASIS THAT THE TECHNICAL AND STRATEGIC SERVICES HAVE BEEN REN DERED. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE A.O. IN THE CASE OF PAG FOR THE A.Y. 97 - 98. THE OBSERVATION OF THE A.O. IN THE CASE OF PAG IS VERY RELEVANT HERE. IT WAS OBSERVED THAT 'THE ASSESSEE COMPANY (PAG) HAVING ONLY ONE CLIENT IN THE WHOLE WORLD I.E. M/S. STPL FROM WHOM IT HAS RECEIVED FEE FOR MANAGEMENT CONSULTANCY. THE ASSESSEE COMPANY (PAG) IS A SHOW OF SINGLE INDIVIDUAL SHRI PREMCHAND WHO HOLDS 100% SHARES IN THE ASSESSEE COMPANY. THIS ONE MAN COMPANY HAS RECEIVED FROM ONE GROUP CONCERN WHICH IS ENGAGED IN THE SAME BUSINESS IN INDIA. THE ASSESSEE HAS NO OTHER BUSINESS. THIS FACTS CLEARLY LEADS TO CONCLUSION THAT THE INDIAN CO. (STPL) IS DEPENDANT AGENT OF THE FOREIGN COMPANY. SINCE THE FOREIGN COMPANY HAS A DEPENDENT AGENT, IT HAS PERMANENT ESTABLISHMENT IN INDIA. EVEN IF THE ASSESSEE'S INCOME IS TREATED AS BUSINESS INCOME IT WILL BE TAXABLE UNDER ARTICLE 7 OF THE TREATY.' IN THE CASE OF PAG THE APPELLANT HAD CLAIMED THAT ITS INCOME ARE EXEMPT IN INDIA AS THE FEES RECEIPT B Y THE ASSESSEE COMPANY (PAG) ARE BUSINESS PROFIT UNDER ARTICLE 7 OF THE TREATY. NO FEES HAVE BEEN INCLUDED SERVICES AND THE ASSESSEE HAS NO P.E. IN INDIA, F ROM THE ABOVE FINDINGS OF THE A.O IN THE CASE OF PAG CLEARLY SHOW THAT BOTH PAG AND STPL ARE BASICAL LY CONTROLLED BY ONLY ONE PERSON SHRI S.K. PREMCHAND WHO HOLDS 100% SHARES IN PAG AND ALSO ONE OF THE DIRECTORS IN STPL. IT IS ALSO INTERESTING TO NOTE THAT PAG HAS NO OTHER BUSINESS EXCEPT IT RECEIVES PROFESSIONAL FEES FROM STPL. IT HAS ONLY ONE CLIENT A LL OVER THE WORLD I.E. ITS ASSOCIATE COMPANY STPL ONLY. EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE DOES NOT SHOW ANY PAST HISTORY OF SWISS COMPANY (PAG) HAVING ANY TECHNICAL EXPERTISE AS STPL IS THE ONLY COMPANY TO WHICH PAG CLAIMS TO HAVE RENDERED TECHNIC AL SERVICES. BOTH THE COMPANIES HAVE COMMON DIRECTORS AND INDIAN COMPANY HAS GIVEN NO BASIS ON WHICH THE ALLEGED COMMISSION HAS BEEN PAID. THERE IS NO EVIDENCE TO SHOW THAT SERVICES HAVE BEEN RENDERED BY THE AGENT PAG NOR ANY EVIDENCE TO SHOW THAT ANY WOR K HAS BEEN DONE BY THE PAG. NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE APPELLANT TO SHOW THAT BUSINESS WAS PROCURED DUE TO THE ACTIVE INVOLVEMENT OF THE AGENT. ANY AGENT WHO HAS TO EARN COMMISSION/PROFESSIONAL ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 9 OF 16 FEE HAS TO PUT IN SOME EFFORTS TO GET THE B USINESS BUT THE APPELLANT HAS BROUGHT NOTHING ON RECORD TO SHOW WHETHER ANY EFFORT WAS PUT IN BY THE SAID AGENT. I HAVE GONE THROUGH THE DOCUMENTS/PAPERS FURNISHED BY THE APPELLANT. THE APPELLANT HAS FURNISHED A STATEMENT INDICATING THE LIST OF PROJECTS UN DERTAKEN BY THE APPELLANT WHEREIN IT CLAIMS THAT PAG HAD RENDERED CONSULTANCY SERVICES DURING THE F.Y. UNDER CONSIDERATION. THE NAMES OF SOME FOREIGN COMPANIES WITH WHOM THE APPELLANT HAS ENTERED INTO JOINT VENTURE HAVE BEEN FURNISHED BY THE APPELLANT LIKE OKS INDIA, D & E INDIA, JOHNSON & JOHNSON, ISS INDIA PROJECT ETC. BUT THE DETAILS FURNISHED BY THE APPELLANT WHEREIN THE APPELLANT CLAIMS THAT PAG HAD RENDERED CONSULTANCY SERVICES ARE NOT SUPPORTED BY ANY AGREEMENT OR ANY OTHER DOCUMENTARY EVIDENCE. IT I S ONLY A SUMMARY OF SO CALLED SERVICES PREPARED BY THE APPELLANT ITSELF. ALL THESE PAPERS ARE GENERAL IN NATURE AND GIVEN BY THE APPELLANT ITSELF. NO DOUBT A FEW CORRESPONDENCE HAVE ALSO BEEN FILED BUT ALL THESE PAPERS DOES NOT PROVE THE NATURE OF SERVICE S RENDERED BY PAG. THESE LETTERS/CORRESPONDENCE ARE PERSONAL IN NATURE. THUS, IT COULD NOT BE ASCERTAINED AS TO WHAT WAS THE NATURE OF SERVICES RENDERED BY PAG TO STPL. THE ONLY RELEVANT DOCUMENT IS INVOICES WHICH HAVE BEEN RAISED BY PAG TO STPL. IT IS INT ERESTING TO NOTE THAT FOR EVERY KIND OF SERVICES PAG CLAIMS TO HAVE CHARGED 10,000 $ ONLY IRRESPECTIVE OF THE FACT WHETHER THE SO CALLED SERVICES WERE ONLY IN CONNECTION WITH THE TELEPHONIC DISCUSSION OR WHETHER THEY WERE IN CO NNECTION OF PREPARATION OF TH E REPORT OR PRESENTATION GIVING DEMONSTRATION OF SOME PRODUCT. IT IS HIGHLY UNLIKELY THAT ALL SUCH SERVICES HAVE SAME COST. IT IS ALSO PERTINENT TO MENTION HERE THAT AS PER THE AGREEMENT BETWEEN PAG & STPL ALL OUT OF POCKET EXPENSES INCURRED BY PAG TO PR OVIDE THESE SERVICES SHALL BE REIMBURSED BY STPL ON ACTUAL BASIS. HOWEVER, NO SUCH REIMBURSEMENT HAS EVER BEEN ASKED BY PAG IN RELATION TO ANY OF THE INVOICES. ALL SUPPORTING EVIDENCE CONSISTING OF MAINLY ZEROX COPIES OF FAX MESSAGES SENT, COPIES OF RECEIP T OF HOTEL BOOKING, COPIES OF BOARDING PASSES OF AIR TRAVEL AND SOME PAMPHLETS RELATING TO CERTAIN PRODUCTS DO NOT PROVE THE NATURE OF TECHNICAL SERVICES RENDERED BY PAG. THE CLAIM OF THE ASSESSEE THAT ALL THE FOREIGN COMPANIES HAVE ENTERED INTO JOINT VENT URE WITH STPL ON THE ADVICE GIVEN BY PAG IS NOT ACCEPTABLE AS IT IS NOT SUPPORTED BY ANY AGREEMENT OR DOCUMENTS. ONLY INVOICES RAISED BY PAG AND THE SUMMARY GIVEN FOR NATURE OF SO CALLED SERVICES CLAIMED TO HAVE RENDERED BY PAG ARE NOT SUFFICIENT TO PROVE THAT PAG WAS ACTUALLY ENGAGED IN PROVIDING CONSULTANCY SERVICES TO STPL. IN THE CASE OF LAXMINARAYAN MADANLAL VS. CIT 86 ITR 439 THE APEX COURT HAS HELD THAT MERE EXISTENCE OF AN AGREEMENT TO PAY COMMISSION DOES NOT BIND A.O TO ALLOW THE DEDUCTION. THE MER E EXISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGENT OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION DOES NOT BIND THE ITO TO HOLD THAT THE PAYMENTS WERE MADE EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS DESPITE THE EXIST ENCE OF SUCH AGREEMENT/PAYMENT, IT IS OPEN TO THE ITO TO CONSIDER THE RELEVANT FACTS AND DETERMINED FOR HIMSELF WHETHER THE COMMISSION SAID TO HAVE BEEN PAID IS PROPERLY DEDUCTIBLE U/S. 37(1). IN THE CASE OF ASSAM PESTICIDES AND AGRO CHEMICALS VS. CIT (GUW AHATI) 227 ITR 846 THE HON'BLE COURT HAS HELD THAT MERE PAYMENT BY ITSELF WOULD NOT ENTITLE AN ASSESSEE FOR DEDUCTION OF THE SAID EXPENDITURE UNLESS THE SAME WAS PROVED TO BE PAID FOR COMMERCIAL CONSIDERATIONS. THE ONUS OF PROOF AT ALL RELEVANT TIMES REST UPON THE ASSESSEE. IN THE CASE OF SWADESHI COTTON MILLS 63 ITR 57 (SC) THE APEX ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 10 OF 16 COURT HAS HELD THAT ADDITIONAL COMMISSION TO DIRECTORS IN ADDITION TO MONTHLY REMUNERATION FOR EXTRA COMMERCIAL REASON IS NOT ALLOWABLE AS DEDUCTION. UNDER THE CIRCUMSTANCES A ND FACTS OF THE CASE I HOLD THAT NO SERVICES HAVE BEEN RENDERED BY THE PAG AS THE EVIDENCE BROUGHT ON RECORD BY THE APPELLANT DOES NOT SHOW ANY PAST HISTORY OF THE SWISS COMPANY HAVING ANY TECHNICAL EXPERTISE AS STPL IS THE ONLY ASSOCIATE COMPANY TO WHICH PAG CLAIMS TO HAVE RENDERED TECHNICAL SERVICES WHERE BOTH THE COMPANIES HAVE COMMON DIRECTORS AND THE INDIAN COMPANY HAS GIVEN NO BASIS ON WHICH THE ALLEGED COMMISSION/PROFESSIONAL FEE HAS BEEN PAID. IN THE RESULT THE FINDINGS OF THE A.O IS UPHELD AND THI S GROUND OF APPEAL IS DISMISSED.' 6. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSIT ION. 8. WE FIND THAT, AS EVIDENT FROM THE ASSESSMENT ORDERS OF THE PAG - WHICH WERE PLACED BEFORE US IN THE PAPER - BOOK, ONE HUNDRED PERCENT OF THE SHARE IN THE PAG WERE OWNED BY SHRI SUNIL K PREMCHAND (SKP, IN SHORT) WHO IS ALSO A DIRECTOR, AND MAJORITY SH AREHOLDER, IN THE ASSESSEE BEFORE US. WE HAVE ALSO NOTED THAT WHATEVER EVIDENCE THE ASSESSEE HAS LEAD, SO FAR AS THE RENDITION OF SERVICE BY THE PAG IS CONCERNED, REFERS TO THE INVOLVEMENT OF SKP AND INPUTS BY HIM. THERE IS NOTHING BEFORE US TO ESTABLISH, OR EVEN INDICATE, CONSULTANCY OR ADVISORY WORK DONE BY ANY PERSON OTHER THAN SKP. IN PICTORIAL TERMS THIS FLOW OF ADVISORY WORK COULD BE EXPLAINED AS FOLLOWS 100% SHAREHOLDINGS AND DIRECTOR SERVICES RENDERED MAJORITY SHAREHOLDINGS AND DIRECTOR 9. EVEN IN THE SITUATION DESCRIBED ABOVE, THERE COULD POSSIBLY BE NO OBJECTIONS TO THE SITUATION IN WHICH THE SERVICES ARE RENDERED BY PREROY AG IN ITS OWN RIGHT AND SKP PREROY AG, SWITZERLAND STOCK TRADERS PVT LTD INDIA REND ITION OF SERVICE FOR PAG ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 11 OF 16 WITH INHERENT STRENGTHS OF ITS OWN. WHAT WE FIND, ON AN ANALYSIS OF E VIDENCE PRODUCED BEFORE US IN SUPPORT OF RENDITION OF SERVICE, IS THAT DE FACTO SERVICES ARE PROVIDED BY SKP WEARING THE PAG HAT. A LINE OF DEMARCATION IS THUS DRAWN UP BETWEEN WHAT SKP DOES AS DIRECTOR OF THE ASSESSEE COMPANY AND WHAT SKP DOES AS DIRECTOR OF PREROY AG EVEN AS SUBJECT MATTER OF HIS WORK IS THE INTEREST OF THE ASSESSEE ONLY. TAKE FOR EXAMPLE, INVOICE NO. 1 DATED 1 ST NOVEMBER 2014 FOR US $ 10,000. THE NARRATION ON THE INVOICE AND THE SUPPORTING DOCUMENTS IN THIS REGARD ARE AS FOLLOWS: OKS IN DIA - CARL BECHEM GMBH, HAGEN NEGOTIATION ON BEHALF OF STPL IN MARCH 1994, IN RESPECT OF DEVELOPMENT OF A PROPOSAL FOR THE MANUFACTURE OF SPECIALITY GREASE AT OKS PLANT IN MYSORE SUPPORT ING DOCUMENTS A ) PREROY S FILE NOTE SETTING OUT A SUMMARY OF SERVICES R ENDERED AND THE RECOMMENDATIONS MADE TO STPL B ) SUSHIL S FIILE NOTE ON THE MEETING AT OKS MUNICH ON MARCH 7,1994 DISCUSSING SEVERAL ISSUES SUCH AS 1993 - 94 SALES OF OKS GREASE PLANT ISSUE, FINANCING SITUATION OF STPL, BECHEM PRODUCT PRICING ETC C ) CORPORATE B ROUCHERS OF OKS AND CARL BECHEM 10. CLEARLY, THE WORK IS DONE BY SKP, THE MEETING IS TAKEN BY THE SKP AND IT PERTAINS TO THE INVESTMENTS OF THE ASSESSEE IS OKS. WHEN A MEETING IS TAKEN BY DIRECTOR OF THE COMPANY, ANALYSIS IS DONE BY THE DIRECTOR OF THE C OMPANY AND THE RECOMMENDATIONS ARE MADE BY DIRECTOR OF THE COMPANY, IT IS DIFFICULT TO BE PERSUADED BY THE CONTENTION THAT THESE SERVICES ARE REQUIRED TO BE TREATED AS RENDERED BY THE PREROY AG BECAUSE, THE DIRECTOR WAS ALSO A ONE HUNDRED PERCENT OWNER AND A DIRECTOR OF PREROY AG, AND BECAUSE, AT THE POINT OF TIME WHEN HE WAS DOING ALL THIS WORK, HE HAD DISCARDED THE HAT OF DIRECTOR IN THE ASSESSEE COMPANY TO WEAR THE HAT OF DIRECTOR OF PREROY AG. THAT IS THE SITUATION WITH RESPECT OF THE ENTIRE WORK IN RE SPECT OF WHICH PREROY AG IS PAID. THE EVIDENCE IN SUPPORT OF RENDITION OF SERVICES, WHETHER DURING THE ASSESSMENT YEAR 1995 - 96 OR EVE IN RESPECT OF SUBSEQUENT ASSESSMENT YEARS, INCLUDES FAX MESSAGE BY SKP, TRAVEL SCHEDULES OF SKP , ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 12 OF 16 BOARDING PASSES OF SKP AND FAX MESSAGE BY PREROY AG TO A BUSINESS HOUSE INFORMING THE TIME OF SUSHIL S ARRIVAL AT AMSTERDAM ON JULY 1, 1994 AND SUGGESTING A MEETING AT THE KLM LOUNGE AT AMSTERDAM . THE WORK DONE BY PREROY AG DID NOT HAVE ANY INDEPENDENT EXISTENCE BEYOND WORK D ONE BY SKP OR, AS THE DOCUMENTATION FREQUENTLY REFERS TO HIM AS, SUSHIL. AS A MATTER OF FACT ALMOST ENTIRE WORK, FOR WHICH THE PREROY AG IS PAID, IS THE WORK DONE BY SKP. THERE IS NO EVIDENCE FOR ANY INDEPENDENT WORK DONE BY PREROY AG. A LOT OF EMPHASIS IS PLACED ON THE WORK DONE IN CONNECTION WITH OKS INDIA AND THE FACT THAT THE ASSESSEE HAD SUBSTANTIAL STAKES IN THIS ENTITY. LEARNED COUNSEL HAS TAKEN PAINS TO EMPHASIZE THE FACT THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENTS AND THE WORK DONE TO PROTE CT HIS INVESTMENTS IN THESE COMPANIES IS ALSO FOR THE PURPOSES OF HIS BUSINESS OF MAKING INVESTMENTS. THE OCCASION TO DEAL WITH THIS ASPECT OF THE MATTER WILL, HOWEVER, ARISES ONLY WHEN THERE IS A FINDING THAT BONAFIDE EXPENDITURE IS INCURRED FOR THE PURPO SES OF OKS INDIA. WHEN SKP TAKES A MEETING, AS A DIRECTOR IN THE ASSESSEE COMPANY, AND WORKS TOWARDS PROTECTING HIS INVESTMENT IN OKS INDIA, THAT IS WHAT HE IS EXPECTED TO DO IN FURTHERANCE OF HIS LEGITIMATE BUSINESS INTERESTS. THE TROUBLE, HOWEVER, ARISES WHEN A CLAIM IS MADE THAT WHILE DOING THIS WORK, SKP WAS WEARING A DIFFERENT HAT, I..E PREROY HAT, AND, THEREFORE, PREROY AG SHOULD BE PAID FOR THE WORK SO DONE. WE ARE UNABLE TO ACCEPT THIS CLAIM, WHICH, IN OUR CONS IDERED VIEW, IS TOO FAR FETCHED. HERE I S A DIRECTOR OF THE COMPANY RENDERING SERVICES TO THE COMPANY IN WHICH HE IS A DIRECTOR AND A RANK OUTSIDER COMMERCIAL ENTITY, OWNED BY THE DIRECTOR, IS BEING PAID FOR THE WORK DONE BY THE DIRECTOR. IT APPEARS THAT THE FOREIGN TRIPS, DURING WHICH THE WORK IS CLAIMED TO HAVE BEEN DONE, WERE TAKEN UP IN THE CAPACITY AS DIRECTOR OF THE ASSESSEE COMPANY, AND, YET BILLING FOR THE WORK DONE IN THE COURSE OF TRIPS SO UNDERTAKEN AT THE COST OF THE ASSESSEE COMPANY, HAS BEEN DONE IN THE NAME OF PREROY AG. THERE IS N OTHING ON RECORD TO SHOW THAT THESE FOREIGN TRIPS WERE UNDERTAKEN BY SKP AT THE COST OF PREROY AG OR IN THE COURSE OF HIS WORK AS DIRECTOR OR OWNER OF PREROY AG. TAKE, FOR EXAMPLE, THE MEETING AT KLM LOUNGE AT AMSTERDAM ON 1 ST JULY 1994 REFERRED TO EARLIE R IN THIS PARAGRAPH. WE FIND THAT, AS EVIDENT FROM DETAILS OF TRAVELLING EXPENSES FILED AT PAGES 77 ONWARDS IN THE PAPER BOOK BEFORE US, THE VISIT TO GERMANY, NETHERLANDS AND UK, WHICH LASTED FROM 30 TH JUNE TO 12 TH JULY 1994, IS STATED TO HAVE BEEN UNDERTA KEN BY SKP FOR ATTENDING BUSINESS MEETINGS AND REPRESENTING STPL IN A MEETING WITH POTENTIAL ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 13 OF 16 BUSINESS PARTNERS . WHEN IT COMES TO CLAIMING THE TRAVELLING EXPENSES, THE ASSESSEE TRAVELS AS DIRECTOR IN STPL (I.E. THE ASSESSEE) TO ATTEND THE BUSINESS MEETING S, YET THE ASSESSEE CLAIMS TO HAVE ACTUALLY MET THE POTENTIAL BUSINESS PARTNER IN A DIFFERENT CAPACITY, I.E. AS A REPRESEN TATIVE OF PREROY AG, AND SEEKS A DEDUCTION FOR FEES PAID TO PREROY AG IN RESPECT OF THE SAME. THE SAME IS THE POSITION WITH RESPECT TO ALMOST ALL THE INVOICES. TAKE FOR EXAMPLE, INVOICE NO. 11 FOR US $ 10,000 WITH THE NARRATION AS NEGOTIATION IN RESPECT OF EXTENDING RELATIONSHIP BETWEEN OKS - MUNICH AND INCHEM, TO INCLUDE OKS - INDIA WHICH MAKE AVAILABLE TO OKS INDIA SPECIALITY GEAR OIL PRODUCTS NOT AVAILABLE FROM EXISTING TECHNOLOGY PARTNERS . THIS BILL IS SUPPORTED BY SKP S BOARDING PASSES AT ZURICH AND MUNICH AD REPORT ON INCHEM VISIT ON 18 TH AUGUST 1994. IN THE DETAILS OF TRAVELLING EXPENSES, HOWEVER, SKP HAS JUSTIFIED HIS GERMANY TR IP, PROBABLY WITH A STOPOVER AT ZURICH, ON THE GROUND THAT HE REPRESENTED STPL AT BUSINESS MEETINGS WITH JOINT VENTURE PARTNERS IN GERMANY . WHEN SKP WAS REPRESENTING THE ASSESSEE IN THE MEETING WITH THE JOINT VENTURE PARTNERS, THERE CANNOT BE ANY QUESTIO N FOR THE PAYMENT OF THE SAME PRESENCE, OF THE SAME PERSON, TO PREROY AG AS WELL. THE DESCRIPTION OF SERVICES RENDERED IN THE INVOICES DOES NOT, THEREFORE, MEET OUR APPROVAL. 11. WE HAVE ALSO NOTED THAT THE DESCRIPTION OF SERVICES, IN THE AGREEMENT DATED 2 ND JANUARY 1995 ENTERED INTO BY THE ASSESSEE WITH THE PREROY AG - A COPY OF WHICH HAS BEEN PLACED BEFORE US IN THE PAPER - BOOK, IS VAGUE. CLAUSE A2 DEFINES THE SERVICES AS ANY OR ALL THE SERVICES ENVISAGED TO BE PROVIDED BY PAG UNDER THIS AGREEMENT . CA USE C1 AND C2 FURTHER DESCRIBES DEALS WITH THE SERVICES AS FOLLOWS: C1. PAG SHALL RENDER ANY OR ALL THE SERVICES UNDER THIS AGREEMENT AT ANY PLACE OUTSIDE THE TERRITORY OF THE REPUBLIC OF INDIA, DEPENDING ON THE REQUIREMENTS OF STPL. C2. PAG SHALL MAKE ENDEAVOUR TO LOCATE NEW BUSINESS OPPORTUNITIES AND PARTNERS OF STPL AND RECOMMEND PROPOSALS FOR NEW PROJECTS, AND NEGOTIATE, COORDINATE WITH EXISTING AND NEW JOINT VENTURE PARTNERS OR TECHNOLOGY TRANSFERS, EQUITY PARTICIPATION ETC, AND SECURE THEIR SUPPORT FOR, AND APPROVAL OF, NEW BUSINESS STRATEGIES AND POLICIES, PROVIDED HOWEVER THAT THE PAYMENT FOR FEES FOR THE SERVICES RENDERED BY PAG SHALL BE DETERMINED IN ACCORDANCE WITH THE COMPENSATION CLAUSE OF THIS ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 14 OF 16 AGREEMENT AND SHALL NOT, IN ANY MANNER, BE AFFEC TED EITHER BY THE SUCCESS OR THE FAILURE OF A PROJECT, STRATEGY OR BUSINESS APPROACH RECOMMENDED BY PAG. 12. AS REGARDS THE COMPENSATION FOR THESE SERVICES, WE FIND THAT THE AGREEMENT MERELY STATES, AT CLAUSE E 1, THAT FOR THE SERVICES RENDERED BY PAG UN DER THIS AGREEMENT, STPL SHALL PAY FEES TO PAG AT RATES TO BE AGREED BY THE PARTIES ON A CASE TO CASE BASIS AND THAT THE FEES IN RESPECT OF ANY ASSIGNMENT WILL BE AGREED UPON BY THE PARTIES BEFORE PAG COMMENCE WORK ON THE SAID ASSIGNMENT . THERE IS, HOWE VER, NO EVIDENCE LEAD BEFORE US WHICH SUGGESTS THAT THE FEES FOR ANY ASSIGNMENT WAS AGREED TO BEFORE ANY ASSIGNMENT COMMENCED. THERE IS HARDLY ANY BASIS FOR THE BILLING WORK DONE. THERE SEEMS TO A CHARGE OF US $ 10,000 ON EVERY BILLING POINT. THERE IS NO EVIDENCE FOR ANY WORK DONE BY A PERSON OTHER THAN SKP AND THE SKP HAS DONE THIS WORK, DURING HIS VISITS ABROAD, IN THE CAPACITY OF DIRECTOR IN THE STPL (I.E. THE ASSESSEE) - AS IS CLEARLY DISCERNIBLE FROM THE DETAILS OF FOREIGN TRAVELLING EXPENSES ON RECORD . THE JUSTIFICATION FOR THE IMPUGNED PAYMENT DOES NOT, IN OUR CONSIDERED VIEW, DOES NOT EXISTS, AS THERE ARE NO INDEPENDENT SERVICES RENDERED BY THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE HAS LAID LOT OF EMPHASIS ON THE CONTENTION THAT THE ASSESSEE WAS IN THE BUSINESS OF MAKING INVESTMENTS AND, THEREFORE, EVEN EXPENSES INCURRED IN CONNECTION WITH THE BUSINESS OF HIS SUBSIDIARY, OKS INDIA , WILL ALSO BE ELIGIBLE FOR DEDUCTION AS THESE EXPENSES ARE TO PROTECT HIS INVESTMENT. THERE DOES NOT SEEM TO BE ANY ISSUE WITH THE LEGAL PRINCIPLES EMBEDDED IN THIS PROPOSITION BUT THIS PROPOSITION WILL BE RELEVANT ONLY WHEN WE COME TO A CONCLUSION THAT LEGITIMATE AND GENUINE BUSINESS EXPENSES ARE SO INCURRED FOR THE SERVICES RENDERED BY PREROY AG. WE ARE YET TO REACH T HIS STAGE. AS THERE ARE NO INDEPENDENT SERVICES RENDERED BY PREROY AG, IN OUR OPINION, IT IS WHOLLY IRRELEVANT WHETHER THE SERVICES, FOR WHICH BILLING IS DONE BY PREROY AG, ARE FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. AS REGARDS LEARNED COUNSEL S CONT ENTION THAT THE INCOME IN QUESTION, IN THE HANDS OF PREROY AG, HAS BEEN BROUGHT TO TAX IN INDIA, AND, THEREFORE, IT CANNOT BE SAID THAT NO SERVICES ARE RENDERED, WE ARE OF THE VIEW THAT MERELY BECAUSE AN INCOME HAS BEEN TAXED IN THE HANDS OF RECIPIENT OF A N INCOME, DOES NOT MEAN THAT IT S A DEDUCTIBLE EXPENDITURE IN THE HANDS OF THE PERSON MAKING THE PAYMENT. THE DEDUCTION IS REQUIRED TO BE EXAMINED AND ADJUDICATED UPON IN ACCORDANCE WITH THE LAW, AND, WHEN WE DO SO, WE DONOT FIND LEGALLY SUSTAINABLE MERITS IN THE CLAIM OF THE ASSESSEE. ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 15 OF 16 1 3 . AS REGARDS THE OBSERVATIONS MADE BY THE CIT(A), WHICH HAVE BEEN CHALLENGED IN THIS APPEAL, WE ARE NOT INCLINED TO DEAL WITH THE SAME INDIVIDUALLY. WHAT MATTERS IS THAT THE DISALLOWANCE IN QUESTION, FOR THE DETAILED REASON S SET OUT IN THIS ORDER, IS CONFIRMED AND EVEN IF THE CIT(A) MADE SOME EXTRANEOUS OBSERVATIONS, THAT DOES NOT AFFECT THE OUTCOME OF THIS APPEAL. ALL THE SPECIFIC ISSUES HAVE BEEN DEALT WITH IN THIS ORDER ANYWAY. 14. GROUND NO. 1 IS THUS DISMISSED. 15. AS REGARDS THE SECOND GROUND OF APPEAL, I.E. AGAINST DISALLOWANCE OF RS . 5,99,832 IN RESPECT OF THE TRAVELLING EXPENSES, THIS DISALLOWANCE PERTAINS TO THE TRAVELLING EXPENSES IN RESPECT OF MRS NEETA PREMCHAND, WIFE OF THE DIRECTOR, WHO ACCOMPANIED HER ON TH E OFFICIAL TOURS. THE ASSESSING OFFICER NOTED THAT THERE WAS NO EVIDENCE THAT NP S FOREIGN TRAVELLING WAS FOR THE PURPOSES OF BUSINESS. IN APPEAL, LEARNED CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 16. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT AS NO EVIDENCE HAS BEEN LEAD BEFORE US TO DEMONSTRATE AND ESTABLISH THAT THE TRAVEL BY DIRECTOR S WIFE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE , AND IN THE LIGHT OF HON BLE KERALA HIGH COURT S FULL BENCH DECISION IN THE CASE OF RAM BAHADUR THAKUR LTD VS CIT [(2003) 261 ITR 390 (KER FB)], THE ACTION OF THE AUTHORITIES BELOW DESERVES TO BE CONFIRMED. WE, THEREFORE, CONFIRM THE STAND OF THE AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER. 17. GROUND NO. 2 IS THUS ALSO DISMISSED. 18. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YEAR 1995 - 96 IS DISMISSED. 19. AS REGARDS APPEAL FOR THE ASSESSMENT YEARS 1996 - 97 AND 199 7 - 98, LE ARNED REPRESENTATIVES FAIRLY AGREE THAT THE BARRING FOR THE QUANTUM OF DISALLOWANCES, WHICH IS OF RS 1,00,49,742 AND RS 1,21,42,602, IN RESPECT OF FEES PAID TO PREROY AG, AND OF RS 8,04,904 AND RS 9,11,057, IN RESPECT OF FOREIGN TRAVEL EXPENSES OF MRS N EETA ITA NOS . 2802 , 2803 & 2088 /MUM/03 ASSE SSMENT YEARS: 1995 - 96 TO 97 - 98 PAGE 16 OF 16 PREMCHAND, FOR THE ASSESSMENT YEAR 1996 - 97 AND 1997 - 98 RESPECTIVELY, ALL THE MATERIAL FACTS AND CIRCUMSTANCES ARE THE SAME. WHATEVER WE, THEREFORE, DECIDE FOR THE ASSESSMENT YEAR 1995 - 96 WILL APPLY MUTATIS MUTANDIS FOR THESE TWO ASSESSMENT YEARS AS WE LL. 20. IN THE RESULT, THE APPEALS FOR THE ASSESSMENT YEARS 1996 - 97 AND 1997 - 98 ARE ALSO DISMISSED. 21. IN THE RESULT, ALL THE THREE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 5 TH DAY OF APRIL, 2016 . SD/ - SD/ - PAWA N SINGH PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 5 TH DAY OF APRIL , 2016 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI B ENCHES, MUMBAI