M/s Unique Enterprises, C/o M/s Mahaveer Enterprises Private Limited, Hyderabad V. ITO, Ward-4(4), Hyderabad

ITA 289/HYD/2013

• Counselvise Citation: 28922514 RSA 2013
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SIVA KUMAR
• Assessee Lawyers: ADAGIRI
• Keywords: Business expenditure; Search and seizure; Condonation of delay; Reassessment proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.289/HYD/2013 ASSESSMENT YEAR 1997-1998 M/S. UNIQUE ENTERPRISES HYDERABAD PAN AAAFU9170H VS. ITO, WARD 4(4) HYDERABAD (APPELLANT) (RESPONDENT) FOR REVENUE : MR. V. SIVAKUMAR FOR ASSESSEE : MR. B. YADAGIRI DATE OF HEARING : 08.01.2014 DATE OF PRONOUNCEMENT : 07.03.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 31.12.2012. ASSESSEE RAISED SIX GROUNDS ON THE ISSUE OF DISALLOWING THE ENTIRE EXPE NDITURE AND TREATING THE ENTIRE RECEIPTS AS INCOME, WHILE HOLDI NG THAT ASSESSEE HAD NOT GENUINELY CARRIED OUT ANY BUSINESS . 2. BRIEFLY STATED, THE ASSESSEE FIRM FILED ITS RET URN OF INCOME FOR A.Y. 1997-98 ON 28.08.1997 ADMITTING INC OME OF RS.82,330/-. CONSEQUENT TO THE SEARCH AND SEIZURE O PERATIONS IN THE HANDS OF THE COMPANY M/S. UNIQUE PLASTICS LT D. THE A.O. EXAMINED THE TRANSACTIONS OF THE ASSESSEE FIRM WITH THAT OF COMPANY AND CAME TO A FINDING THAT CLAIM OF BUSI NESS ACTIVITY BY THE ASSESSEE FIRM DURING THE YEAR IS NO T GENUINE. IN THE ASSESSMENT COMPLETED ORIGINALLY ON 31.03.2000, ENTIRE RECEIPTS FROM THE COMPANY AS COMMISSION OF RS.40,20 ,000/- 2 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD WAS BROUGHT TO TAX DISALLOWING THE ENTIRE CLAIM OF EXPENDITURE HOLDING THAT IT WAS NEITHER PROVED NOR GENUINE. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE ASSESSEES APPEAL. ASSESSEE PREFERRED FURTHER APPEAL TO HONBLE ITAT WHICH SET ASIDE THE MATTER T O THE A.O. TO ASSESS AFTER GIVING DUE OPPORTUNITY TO THE ASSES SEE. AN ORDER UNDER SECTION 143(3) READ WITH SECTION 254 WAS PASS ED ON 29.03.2004 WHICH IS THE IMPUGNED ASSESSMENT ORDER I N THIS APPEAL. ASSESSEE PREFERRED APPEAL TO THE CIT(A) AN D THE CIT(A) DISMISSED THE APPEAL VIDE ORDER DATED 03.01.2012 AS THERE WAS NO APPLICATION FOR CONDONATION OF DELAY AND APPEAL WAS FILED BELATEDLY. ON FURTHER APPEAL, THE ITAT VIDE ORDER D ATED 30.05.2012 IN ITA.NO.233/HYD/2012 CONDONED THE DELA Y AND SET ASIDE THE MATTER TO THE FILE OF CIT(A) TO DISPO SE OF THE APPEAL ON MERITS. THE LEARNED CIT(A)-V, HYDERABAD VIDE THE IMPUGNED ORDER CONFIRMED THE ACTION OF THE A.O. HENCE, THE A SSESSEE IS IN APPEAL BEFORE US. 4. IN THE ASSESSMENT ORDER DATED 29.03.2004, THE A.O. BROUGHT OUT THE BACKGROUND OF THE FIRM. A.O. N OTICED THAT THE FIRM WAS FORMED ON 01.01.1996 AND DISSOLVED ON 31.03.1997 AND DURING THIS ONE YEAR PERIOD ASSESSEE SUPPOSED TO HAVE ENGAGED IN AGENCY BUSINESS OF PLASTIC ITEMS MANUFACTURED BY M/S. UNIQUE PLASTICS LTD. A.O. NOTI CED THAT THE FIRM CAME INTO EXISTENCE ON 01.04.1996 BUT THE AGREEMENT WITH UNIQUE PLASTICS LTD. WAS ENTERED ON 02.03.1996 I.E., ONE MONTH BEFORE THE FIRM CAME INTO EXISTENCE AND FURTH ER BEFORE IT STARTED OPERATIONS THE AGREEMENT WAS AMENDED ON 06.03.1996 AND 10.03.1996 TWICE. FURTHER, A.O. ALSO NOTICED THAT AS PER CLAUSE 18 OF THE AGREEMENT ENTERED WITH THE 3 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD COMPANY ASSESSEE WAS SUPPOSED TO GET A MINIMUM COMMISSION OF RS.6,00,000/- PER MONTH OR 4% OF THE NET INVOICES VALUE WHICHEVER WAS MORE. THERE IS NO CLA USE IN THE AGREEMENT FOR REVISING THE COMMISSION PAYMENT AND A GAINST THE CANCELLATION OF THE AGREEMENT PRIOR NOTICE OF S IX MONTHS WAS REQUIRED TO BE GIVEN BY EITHER PARTY. HOWEVER, THE A.O. NOTICED THAT THE COMMISSION WAS REDUCED FROM A MINI MUM OF RS. 6,00,000/- TO RS.3,35,000/- PER MONTH WITHOUT R EFERRING TO THE PERCENTAGE OF PROFIT ON INVOICE BASIS, WHICH WA S ONE OF THE CONDITIONS IN THE ORIGINAL AGREEMENT. IT WAS ALSO N OTICED THAT ASSESSEE AGREED IN THE MIDDLE OF THE YEAR FOR FURTH ER REDUCTION OF COMMISSION AND A.O. WAS OF THE OPINION THAT THER E WAS NO BASIS FOR FIXING OF COMMISSION, EXCEPT DIVERTING TH E FUNDS OF THE COMPANY IN THE GUISE OF COMMISSION. A.O. ALSO ASKED THE ASSESSEE TO FURNISH TURNOVER ACHIEVED BY THE ASSESS EE FIRM, COMMISSION CALCULATION AND ALSO ASKED FOR VOUCHERS OF VARIOUS EXPENDITURE CLAIMED IN THE P & L ACCOUNT. A.O. FURT HER ENQUIRED ABOUT THE EXPENSES CLAIMED ON DEALERS CONF ERENCE AT RS.4,17,069/-, AS THE SAID EXPENDITURE WAS SUPPOSED TO BE BORNE BY THE COMPANY. BASED ON THE FINDING OF THE A .O. IN THE CASE OF COMPANY M/S. UNIQUE PLASTICS LTD., A.O. WAS OF THE OPINION THAT THE TRANSACTION OF THE ASSESSEE FIRM A RE NOT GENUINE AND WAS MAINLY FOR DIVERTING THE FUNDS OF C OMPANY. SINCE THE BUSINESS WAS NOT GENUINE, HE DISALLOWED T HE ENTIRE EXPENDITURE AND BROUGHT TO TAX THE COMMISSION RECEI VED FROM THE SAID COMPANY. ASSEESSEE SUBMITTED THAT THE PART NERS HAVE ENTERED INTO AN AGREEMENT ON 02.03.1996 AND THE AGR EEMENT WAS FORMALISED BY CREATION OF THE FIRM W.E.F. 01.04 .1996 AND SINCE ASSESSEE COULD NOT DO THE EXPECTED BUSINESS, COMPANY WENT ON REDUCING THE COMMISSION. ASSESSEE SUBMITTED IT HAD 4 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD OBTAINED REGISTRATION OF VARIOUS AUTHORITIES, ENGAG ED SALES PERSONNEL, DID BUSINESS AND SINCE THE BOOKS OF ACCO UNTS OF THE COMPANY WERE SEIZED, ASSESSEE IS NOT IN A POSITION TO SUBSTANTIATE THE TURNOVERS. HOWEVER, WITH REFERENCE TO THE VARIOUS EXPENDITURE, IT SUBMITTED VARIOUS VOUCHERS IN SUPPORT AND AS FAR AS THE DEALERS CONFERENCE EXPENDITURE WA S CONCERNED, IT WAS THE SUBMISSION THAT FIRM AS WELL AS THE COMPANY JOINTLY CONDUCTED THE DEALERS CONFERENCE AN D AT THE INSTANCE OF THE COMPANY AGREED TO SHARE THE EXPENDI TURE AT 2/3 RD OF THE TOTAL EXPENDITURE WHICH WAS CLAIMED IN ASSE SSEES HANDS. IT WAS FURTHER SUBMITTED THAT SINCE THE EXPE CTED TURNOVER WAS NOT REACHED, THE ASSESSEE FIRM DISCONT INUED THE BUSINESS. IT WAS SUBMITTED THAT AS ASSESSEE DID BUS INESS FOR ONE YEAR, TAXING THE ENTIRE COMMISSION IS NOT APPRO PRIATE. 5. LD. CIT(A) AFTER CONSIDERING THE ELABORATE WRITTEN SUBMISSIONS AND REMAND REPORTS DISMISSED THE ASSESS EES APPEAL BY HOLDING AS UNDER : 6. I HAVE GONE THROUGH THE FACTS OF THE CASE, ORI GINAL ASSESSMENT ORDER, ORDER OF MY PREDECESSOR ON THE OR IGINAL ASSESSMENT, ORDER OF THE TRIBUNAL SETTING ASIDE THE ORDER, REASSESSMENT PROCEEDINGS, AND THE SUBMISSIONS MADE BY THE APPELLANT RIGHT FROM THE BEGINNING TO THE SUBMI SSIONS MADE DURING THE COURSE OF PRESENT PROCEEDINGS. 6.1 THE BASIC ASSERTION MADE BY THE ASSESSING OFFI CER IN THIS CASE IS THAT THE FIRM CARRIED ON ITS BUSINE SS WHICH IS IN THE NATURE OF ACCOMMODATION ENTRY FOR THE COMPAN Y, M/S. UNIQUE PLASTICS LTD., AND THERE IS NO MATERIAL EVID ENCE IN SUPPORT OF THE ACTUAL BUSINESS OF 'DISTRIBUTION AGE NT' AND ACCORDINGLY NO EXPENSES ARE ALLOWABLE. FOR THIS FIN DING, THE ASSESSING OFFICER REFERRED TO THE ASSESSMENT ORDER MADE IN THE CASE OF M/S. UNIQUE PLASTICS LTD., FOR THE SAME ASSESSMENT YEAR 1996-97 AND REPRODUCED THE FINDINGS THEREIN. THE ASSESSING OFFICER THEREAFTER, BROUGHT OUT THE INCONSISTENCIES IN THE AGREEMENT ENTERED BY THE APP ELLANT 5 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD WITH M/S UNIQUE PLASTICS LTD., BEFORE THE FORMATION OF THE FIRM, I.E., IN THE MONTH OF MARCH, 1996 AND SUBSEQUENT TWO AMENDMENTS, ALL BEFORE THE DATE OF FORMATION OF TIL E APPELLANT FIRM. FROM THIS AGREEMENT WHICH WAS THE BASIS FOR THE BUSINESS CLAIMED BY THE APPELLANT, THE ASSE SSING OFFICER STARTED HIS FINDINGS AND WHEN HOW A BACK-DA TED AGREEMENT, I.E., WHEN AN AGREED ENTERED INTO IN THE NAME OF THE FIRM BEFORE ITS FORMATION, CAN BE SHOWN AS BASI S FOR THE BUSINESS CARRIED, THE APPELLANT SUBMITTED THAT THE PARTNERS OF THE FIRM ALMOST AGREED FOR THE TERMS AND BEFORE FORMATION OF THE FIRM AND ACCORDINGLY THEY ENTERED INTO AGREE MENT WITH THE COMPANY, M/S UNIQUE PLASTICS LTD., FOR DISTRIBU TION OF THE GOODS MANUFACTURED BY THEM. THIS VERY 'UNDERSTA NDING' BEFORE FORMATION OF THE FIRM BETWEEN THE TWO TRANSA CTED PARTIES THROWS A LOT WEIGHT AGAINST THEIR CLAIMS OF ACTUAL BUSINESS AND HAS BEEN MADE A CONCLUSIVE BASIS BY TH E ASSESSING OFFICER TO HOLD AGAINST TILE WHOLE GAMUT OF TRANSACTIONS CLAIMED BY THE APPELLANT. 6.2. IT IS DURING THE COURSE OF ASSESSMENT PROCEED INGS THE ASSESSING OFFICER ASKED THE APPELLANT TO PRODUC E THE DETAILS OF BUSINESS / ORDERS GATHERED BY THEM FOR THE GOODS, PERSONNEL APPOINTED BY THEM AND THE DEALERS' DETAIL S. THESE BASIS DETAILS WERE NEVER MADE AVAILABLE BY THE APPE LLANT AND AT ONE STAGE, IT WAS REPLIED THAT THE DETAILS O F ORDERS PLACED BY THEM WITH UNIQUE PLASTICS LTD., ON BEHALF OF THE DEALERS WERE AVAILABLE WITH M/S UNIQUE PLASTICS LTD ., AND THE SAME MAY BE GATHERED FROM THEM. 6.3. AS REGARDS THE EXPENSES CLAIMED BY THE APPELL ANT, THE ASSESSING OFFICER VERIFIED THE BILLS / VOUHERS PRODUCED BY THE APPELLANT DURING THE COURSE OF HEARINGS AND ALSO DURING THE COURSE OF REMAND REPORT STAGE. IT WAS NO TICED THAT MOST OF THE BILLS PRODUCED BY THE APPELLANT AR E STANDING IN THE NAME OF THE COMPANY OR IN SOME OTHER NAME. W HEN THE SAME WAS PUT TO THE APPELLANT, IT WAS CLAIMED T HAT THEY REACHED AN UNDERSTANDING TO SHARE 1/3 RD OF THE EXPENSES UNDER SOME HEADS AGAINST THE AGREEMENT ENTERED INTO BY THEM. COMING TO THE EVIDENCES FILED BY THE APPELLAN T DURING THE APPELLATE PROCEEDINGS, IT IS SEEN THAT THE INVI TATION TO THE DEALERS MEET WAS IN THE NAME OF THE MANUFACTURING COMPANY, M/S UNIQUE PLASTICS LTD., AND THE APPELLAN T. THE LEAFLETS PRODUCED CONTAIN THE PRODUCTS DEALT WITH U NDER THE BRAND NAME OF 'UNIQUE' AND NOT SPECIFICALLY IN THE NAME OF THE APPELLANT FIRM. THE PHOTOGRAPHS ENCLOSED DO NOT PROVE THAT THE MEETING WAS HELD BY THE APPELLANT ALONE AN D THE EXPENSES INCURRED FOR SUCH MEETING WERE BORNE BY TH E 6 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD APPELLANT. THE ASSESSING OFFICER REFERRED TO CLAUSE 13 OF THE AGREEMENT WHICH MENTIONS THAT THE COMPANY HAS TO BE AR THE EXPENSES ON DISTRIBUTOR MEETINGS. HOWEVER, THE APPELLANT ALSO CLAIMED EXPENSES UNDER THIS HEAD AND REFERS TO THE FURTHER AGREEMENT REACHED BETWEEN THEM AFTER COMMENCEMENT OF THE BUSINESS. THE SAME IS THE ISSUE ON THE RATE OF COMMISSION. IN THE AGREEMENT, A CERTAIN AMOUNT OR PERCENTAGE OF ORDERS BOOKED WAS MENTIONED TO BE THE COMMISSION. LATER, IT WAS REDUCED TO CERTAIN AMOUNT AND AGAIN TO A REDUCED FIXED AMOUNT. FOR ALL THESE DEVI ATIONS, WHAT THE APPELLANT SUBMITS IS THAT IT IS ACCORDING TO BUSINESS EXIGENCIES AND ALSO AS THEY COULD NOT DO G OOD BUSINESS AS CONTEMPLATED, THEY AGREED FOR THE REVIS ED TERMS REDUCING THE RATE OF COMMISSION. DURING THE A PPEAL PROCEEDINGS, THE PARTNERS OF THE FIRM FURTHER REFER S TO THE TIME ALLOTMENT SCHEDULES FOR THEIR INDIVIDUAL/GROUP CONCERNS BUSINESSES AND THE APPELLANT FIRM'S BUSINE SS IN GENERAL TERMS. FOR PROVING THAT THEY HAD DONE AGENC Y / DISTRIBUTION BUSINESS, THE APPELLANT ON ONE HAND, B RINGS IN THE AGREEMENT THEY ENTERED WITH THE MANUFACTURER AN D WHEN CLEAR CUT INCONSISTENCIES / DEVIATIONS FROM THE AGREEMENT WERE POINTED OUT, THE APPELLANT BANKS ON BUSINESS EXIGENCIES. 6.4. AS COULD BE SEEN FROM THE LINE OF EVENTS, RIG HT FROM THE ORIGINAL ASSESSMENT STAGE TO THE PRESENT PROCEE DINGS, THE APPELLANT COULD NOT DEMONSTRATE THAT THEY HAD GENUINELY CARRIED OUT ANY AGENCY / DISTRIBUTION BUSINESS FOR THE MANUFACTURING COMPANY, M/S UNIQUE PLASTICS LTD. AS MENTIONED SUPRA, THE UNDERSTANDING BETWEEN THE PARTNERS OF THE APPELLANT FIRM AND THE DISTRIBUTOR RESULTED IN ENTERING INTO A PLAIN AGREEMENT FOR THE SAKE OF IT, TO PROVE THERE IS A TRANSACTION BETWEEN THE TWO PARTIES. HOW EVER, AS DEMONSTRATED BY THE RESPECTIVE ASSESSING OFFICERS I N THE RESPECTIVE ASSESSMENTS OF THE APPELLANT FIRM AND TH E COMPANY, THE UNDERSTANDING IS MUCH ABOVE THE CONTEN TS OF AGREEMENT ENTERED INTO. THEREFORE, I FIND NO REASON TO DEVIATE FROM THE STAND TAKE BY THE ASSESSING OFFICE R IN THE CASE OF THE APPELLANT AND ACCORDINGLY, I CONFIRM TH E DISALLOWANCE MADE AND THE TREATMENT GIVEN TO THE IN COME OFFERED BY THE APPELLANT. 6. LD. COUNSEL FILED WRITTEN SUBMISSIONS AND ALSO PAPER BOOK CONTAINING PAGES 1 TO 105 IN SUPPORT OF VARIOUS CONTENTIONS. THE CONTENTION WAS THAT ASSESSEE HAD E NTERED 7 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD INTO AN AGREEMENT WITH THE COMPANY ON 2 ND MARCH, 1996 AND AS PER TERMS OF THE AGREEMENT ASSESSEE WAS TO LOOK AFTER THE MARKET ACTIVITIES ALL OVER INDIA FROM 01.04.1996 AN D IN THE FIRST PHASE SOUTH INDIA REGION HAS BEEN TAPPED. IT WAS TH E SUBMISSION THAT ASSESSEE WAS ENTITLED TO A MINIMUM MONTHLY COMMISSION OF RS. 6,00,000/- OR 4% OF THE NET INVOI CE VALUE AND EVEN BEFORE ASSESSEE COMMENCED ITS BUSINESS THE COMPANY VIDE LETTER DATED 6 TH MARCH, 1996 INFORMED THAT THERE WAS MISCONCEPTION ABOUT COMMISSION MENTIONED IN THE AGREEMENT AND OFFERED COMMISSION AT 2% OF NET INVOI CES VALUE OR RS.4,00,000/- PER MONTH, FOR WHICH ASSESSEE FIRM AGREED. IN THE MONTH OF NOVEMBER, 2006, THE COMPANY REVIEWED T HE OPERATIONS OF THE ASSESSEE FIRM AND NOTICED THAT IT S ACHIEVEMENTS WERE NOT AS PROMISED AT THE TIME OF NE GOTIATIONS. ACCORDINGLY, THE COMPANY REDUCED THE COMMISSION FUR THER TO RS.3,35,000/- PER MONTH EFFECTIVE FROM APRIL, 1996. IT WAS THE SUBMISSION THAT ASSESSEE FIRM HAD NO CHOICE AND ULT IMATELY CLOSED DOWN THE BUSINESS AT THE END OF THE YEAR. IT WAS THE SUBMISSION THAT RECEIPT OF RS. 40.20 LAKHS AS COMMI SSION WAS FULLY EVIDENCED AND DECLARED BY THE ASSESSEE FIRM. IT WAS THE SUBMISSION THAT A.O. WAS NOT JUSTIFIED IN HOLDING T HAT COMMISSION RECEIVED WAS NOT GENUINE. WITH REFERENCE TO THE VARIOUS EXPENSES, PARTICULARLY, WITH REFERENCE TO T HE DEALERS CONFERENCE CHARGES, IT WAS SUBMITTED THAT THE ASSES SEE HAS FURNISHED THE LIST OF DEALERS, EXPENDITURE DETAILS AND COMPLETE VOUCHERS FOR THE AMOUNT OF EXPENDITURE OF RS.6,25,4 31/-. IT WAS SUBMITTED THAT 2/3 RD OF THE ABOVE AMOUNT WHICH WORKED OUT TO RS.4,17.069/- WAS CLAIMED BY THE ASSESSEE. T HEREFORE, THE EXPENDITURE CLAIMED HAS TO BE ALLOWED AS GENUIN E BUSINESS EXPENDITURE WHICH WAS INCURRED FOR PROMOTION OF THE BUSINESS 8 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD EVEN THOUGH, CARRIED ON BY M/S. UNIQUE PLASTICS BUT AS GENUINE EXPENDITURE OF THE ASSESSEE AGAINST THE COM MISSION RECEIPTS. WITH REFERENCE TO THE OTHER EXPENDITURE, IT WAS THE SUBMISSION THAT ASSESSEE HAS FURNISHED VOUCHERS, IN VOICES, BILLS, MUSTER ROLLS AND OTHER DETAILS, EVIDENCING T HE EXPENDITURE. THEREFORE, THERE IS NOTHING FOR DISALL OWING VARIOUS EXPENDITURE CLAIMED AS WAS DONE BY THE A.O. 6.1. LD. COUNSEL COUNTERED THE OBSERVATIONS OF THE LEARNED CIT(A) AND REFERRED TO PARAS 18 TO 26 OF HI S WRITTEN SUBMISSIONS SUBMITTED THAT THE OPINION OF THE LEARN ED CIT(A) WAS NOT CORRECT AND ASSESSEE HAS GENUINELY DID BUSI NESS AND ACCORDINGLY, THE INCOME RETURNED SHOULD BE ACCEPTED . 7. LEARNED D.R. HOWEVER, RELIED ON THE ORDERS OF T HE A.O. AND LEARNED CIT(A) TO SUBMIT THAT THE ENTIRE E XERCISE UNDERTAKEN BY THE ASSESSEE WAS ONLY TO HELP THE COM PANY IN PASSING ON THE COMMISSION AND REFERRED TO VARIOUS OBSERVATIONS AND STATEMENTS PLACED ON RECORD. 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RIVAL CONTENTIONS. AS BRIEFLY STATED ABOVE, ASSESSE E CAME INTO EXISTENCE IN THE BEGINNING OF THE YEAR AND DISCONTI NUED THE BUSINESS AT THE END OF THE YEAR. THE AGREEMENT FOR UNDERTAKING THE BUSINESS OF COMMISSION AGENCY WAS ENTERED MUCH PRIOR TO THE FIRM CAME INTO EXISTENCE AND BY THE TIME THE FI RM WAS FINALLY STARTED ITS OPERATIONS, THE AGREEMENT WAS R EVISED UNILATERALLY BY THE SAID COMPANY. EVEN THOUGH ASSES SEE STATED TO HAVE FURNISHED THE DETAILS OF COMMISSION, NOTHIN G WAS ON RECORD HOW THE COMMISSION WAS RECEIVED IN THE FIRST 5 MONTHS OF THE BUSINESS, AS THE COMMISSION WAS REVISED IN N OVEMBER, 1996 TO BE REDUCED TO RS.3,35,000/- PER MONTH AS AG AINST 9 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD RS.6,00,000/- INITIALLY AGREED AND REVISED TO RS.4, 00,000/- SUBSEQUENTLY IN THE MONTH OF MARCH 2006 ITSELF. THE PAYMENT OF COMMISSION OF AT LEAST RS. 4,00,000/- IN THE INI TIAL MONTHS SHOULD HAVE BEEN FURNISHED IN ORDER TO COUNTER THE OBSERVATIONS OF THE A.O. THAT THE FIRM CAME INTO EX ISTENCE ONLY FOR THE PURPOSE OF DIVERTING THE FUNDS OF THE COMPA NY. BE THAT AS IT MAY, WE ARE NOT CONCERNED WITH THE DIVERSION OF FUNDS OF THE COMPANY WHICH IS A SEPARATE ISSUE TO BE EXAMINE D IN THE HANDS OF THE COMPANY BUT, AS FAR AS THE ASSESSEE FI RM IS CONCERNED, THERE WAS NO DISPUTE WITH REFERENCE TO T HE RECEIPT OF RS.40,20,000/- AS COMMISSION. VARIOUS TERMS IN T HE AGREEMENT WHICH ARE NOT IMPLEMENTED (LIKE REVISION OF COMMISSION, NOT GIVING SIX MONTH NOTICE FOR WINDING UP), THE WAY BUSINESS WAS DONE ONLY FOR ONE YEAR AND THAT TO O AT THE UNILATERAL DIRECTIONS OF THE COMPANY, DO INDICATE T HAT THE CLAIM OF BUSINESS ACTIVITY REQUIRE THOROUGH EXAMINATION, WHICH MAY NOT BE POSSIBLE AT THIS POINT OF TIME. 8.1 SINCE ASSESSEE ADMITTED THE RECEIPT OF INCOM E, AS FAR AS THIS ASSESSEES CASE IS CONCERNED, WHAT IS RELEVANT IS TO EXAMINE THE VARIOUS CLAIMS OF EXPENDITURE. THEREFOR E, WITHOUT GOING INTO THE OBSERVATIONS OF THE A.O. AND LEARNED CIT(A) THAT THE BUSINESS ACTIVITY OF THE ASSESSEE FIRM IS NOT G ENUINE, WHICH MAY BE RELEVANT WHILE EXAMINING THE ALLOWANCE OF EX PENDITURE IN THE NATURE OF COMMISSION IN THE HANDS OF THE COM PANY, WE ACCEPT THE RECEIPT OF RS.40,20,000/- ON WHICH THER E IS NO DISPUTE EITHER BY THE ASSESSEE OR BY THE A.O. 8.2 ISSUE BOILS DOWN TO THE ALLOWANCE OF VARIO US EXPENDITURE CLAIMED BY THE ASSESSEE. IT WAS THE CON TENTION THAT AS AGAINST THE COMMISSION RECEIVED, ASSESSEE H AS SPENT 10 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD VARIOUS AMOUNTS IN THE GUISE OF ADVERTISING, SALARY EXPENDITURE, COMMISSION TO SALES REPRESENTATIVES, T RAVELLING EXPENSES AND DEALER MEET EXPENSES ETC. AS SEEN FROM THE EVIDENCE, ASSESSEE DID HAVE TELEPHONES IN ITS NAME AND ALSO REGISTRATION WITH THE SALES TAX AND OTHER AUTHORITI ES. EVEN THE LIST OF EMPLOYEES FURNISHED WITH THE AMOUNTS DEPOSI TED IN THE BANK ACCOUNT, DO INDICATE THAT SOME OF THE STAFF ME MBERS ARE WORKING WITH THE FIRM. HOWEVER, WHAT THE A.O. HAS N OT EXAMINED NOR THE ASSESSEE FURNISHED IS, WHETHER THE SALARIED PERSONS EMPLOYED BY THE FIRM ARE ALSO EMPLOYED BY T HE OTHER GROUP CONCERNS OF THE ASSESSEE OR BY THE COMPANY. A S SEEN FROM THE MONTHLY PAYMENT DETAILS, THERE ARE SOME EM PLOYEES WHO ARE REGULARLY PAID OVER A PERIOD OF 12 MONTHS A ND SOME OF THEM FOR SOME PERIOD. MOST OF THEM ARE HAVING BANK ACCOUNTS WITH CONTINUOUS NUMBERS. THIS INDICATE THAT THESE P ERSONS MUST HAVE EMPLOYED IN GROUP CONCERNS AND AT THE INS TANCE OF THE MANAGEMENT, THEY MAY BE CALLED IN TO WORK IN DI FFERENT PLACES AND THEIR SALARIES WERE PAID BY DIFFERENT F IRMS AT THE CONVENIENCE OF THE MANAGEMENT. IT IS NOT POSSIBLE A T THIS POINT OF TIME TO EXACTLY VERIFY EACH OF THE TRANSACTIONS. FOR EXAMPLE, FOR THE PAYMENTS SUPPOSED TO BE MADE IN JANUARY 199 7 ALONE AT PAGE 637 OF THE PAPER BOOK ONE MR. G. PARAMJYOTI BANK A/C. NO. 4404 WAS FIGURED IN THE LIST OF EMPLOYEES WITH ZERO AMOUNT DEPOSITED IN THE BANK ACCOUNT. IN PAGE 64 SP ECIAL QUARTERLY INCENTIVES WERE GIVEN ONLY FOR SOME PEOPL E FOR THE OCTOBER-DECEMBER, 1996 QUARTER AND DASARA SCHEME SP ECIAL REDUCTION WAS NOT ALLOWED TO MANY PEOPLE. THERE ARE MANY INCONSISTENCIES IN THE DISBURSEMENT OF SALARIES AS THE SAME PERSON IS NOT FIGURING IN NEXT MONTHS LIST CONSIST ENTLY. THEREFORE, EVEN THOUGH ASSESSEE HAS SUBMITTED THE L IST OF 11 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD SALARIES, COMMISSION, INCENTIVES AND TRAVELLING EXP ENDITURE INCURRED BY THEM, IT MAY BE DIFFICULT AT THIS POINT OF TIME TO ESTABLISH THAT ASSESSEE DID INDEED EMPLOY THEM AND PAID THE AMOUNTS. DUE TO INFLUX OF TIME IT IS NOT POSSIBLE T O EXAMINE EACH AND EVERY AMOUNT AS THE ASSESSEE HAS DONE BUSI NESS ONLY IN ONE YEAR AND HAS CLOSED DOWN ITS OPERATIONS BY THE END OF MARCH, 1997. THEREFORE, WE ARE OF THE OPINION TH AT 30% OF THE EXPENDITURE CLAIMED, OTHER THAN THE EXPENDITURE ON DEALERS MEET AND INTEREST, COULD JUSTIFY IN THE FACTS OF TH E CASE AND ACCORDINGLY, A.O. IS DIRECTED TO DISALLOW 30% OF TH E VARIOUS EXPENDITURE CLAIMED, OTHER THAN INTEREST AND EXPEND ITURE ON DEALERS MEET WHICH ARE SEPARATELY DEALTWITH. 8.3 AS FAR AS THE INTEREST CLAIM IS CONCERNED, THE SAME WAS PAID TO THE PARTNERS ALONG WITH AN AMOUNT OF RS.5,50,502/- TO DHANALAKSHMI BANK. THIS AMOUNT PAI D TO BANK CAN BE ALLOWED IN FULL. THE AMOUNT PAID TO PAR TNERS WOULD GET TAXED SEPARATELY IN THEIR HANDS, SO THERE IS NO NEED TO DISALLOW AS IT WAS ONLY APPROPRIATION. 8.4 NOW COMING TO THE DEALERS MEET EXPENSES, THERE IS AN ADMISSION THAT THIS AMOUNT WAS SPENT BY THE COMP ANY AND AT THEIR INSTANCE ASSESSEE HAS UNDERTAKEN 2/3 RD OF THE EXPENDITURE. THEREFORE, AS PER THE AGREEMENT ENTERE D WITH THE COMPANY, THIS EXPENDITURE WAS NOT AT ALL AN EXPENDI TURE OF THE FIRM BUT OF THE COMPANY. HOWEVER, IN THE INTEREST O F BUSINESS, ASSESSEE CLAIMS THAT IT HAS UNDERTAKEN TO BEAR THE EXPENDITURE AT 2/3 RD OF THE AMOUNT. EVEN THOUGH NECESSARY VOUCHERS WERE PLACED ON RECORD, THE MAIN CONTENTION OF THE ASSESS EE WAS THAT THE EXPENDITURE WAS BORNE BY THE ASSESSEE AT THE IN STANCE OF THE COMPANY IN THE INTEREST OF BUSINESS ACTIVITY. W E ARE NOT 12 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD CONVINCED WITH THE ASSESSEES CLAIM. AS SEEN FROM T HE INVITATIONS PLACED ON RECORD, THE COMPANY M/S. UNIQ UE PLASTICS LTD. HAS SENT THE INVITATIONS AND CONDUCTE D THE MEETING. EVEN THOUGH ASSESSEE SEEMS TO HAVE BORNE SOME OF THE EXPENDITURE, AS PER THE VOUCHERS THERE ARE INCO NSISTENCIES IN VARIOUS BILLS FURNISHED BEFORE US. THE HOTEL BIL LS ARE DATED 13.10.1996 AND 14.10.1996, WHEREAS, ADVANCES FOR BU S SERVICE FOR THE DEALERS MEET WAS DATED 16.10.1996. HOW ADVA NCES COULD BE GIVEN ON 16.10.1996 WHEN THE MEET WAS TO B E CONDUCTED ON 13 TH AND 14.10.1996 COULD NOT BE EXPLAINED OR VERIFIED. LIKEWISE, SOME 702 NUMBERS OF FOLDERS WER E PURCHASED FROM MITA PLASTICS VIDE INVOICE DATED 14. 10.1996 BUT PAID ON 18/10 WHICH WAS ALSO AFTER THE DEALERS MEET. THESE INVOICES ARE PLACED AT PAGES 96 AND 97 OF THE PAPER BOOK. THE INVOICES FROM NEESA SIGNS WAS FOR SCREEN PRINTING AND BRASS METALS FOR AN AMOUNT OF RS.10,920/- WAS D ATED 19.10.1996 I.E., AFTER THE MEET WAS OVER. THERE IS NO SUCH MENTION OF ADVANCE PAYMENT. SINCE THE MEET WAS SUPP OSED TO BE ON 13 TH EXTENDED TO 14 TH ALSO, VARIOUS EXPENDITURE BILLS DATED SUBSEQUENT TO THE MEET COULD NOT BE CONSIDERE D AS EXPENDITURE ON THE MEET, UNLESS THERE IS ADVANCE PA YMENT OR PLACED ORDERS MUCH BEFORE. NO SUCH EVIDENCE IS AVAI LABLE ON RECORD. THEREFORE, THE WHOLE ARRANGEMENT SEEMS TO B E AT THE INSTANCE OF THE COMPANY. 8.5 NOT ONLY THAT, EVEN THE LETTER DATED INDICATI NG THE CLOSURE OF THE BUSINESS HAS PECULIAR CONNOTATION. VIDE LETT ER DATED MARCH 14,1997 (PLACED AT PAGE 22 OF PAPER BOOK) THE ASSESSEE INTIMATED THAT DUE TO VARIOUS REASONS BEYOND THE CO NTROL, THE ASSESSEE WAS NOT ABLE TO EXTEND SERVICES AND WAS CL OSING THE 13 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD OPERATIONS FROM 1 ST APRIL, 1997. THERE WAS NO SIX MONTHS NOTICE PERIOD AS REQUIRED BY THE AGREEMENT AND INTE RESTING ASPECT WAS THE REQUEST THAT, AFTER FINALIZATION OF THE ACCOUNTS AND MAKING NECESSARY TRANSFER ENTRIES FOR ASSETS ET C., THE FINAL AMOUNT DUE TO US MAY BE TREATED AS A LOAN FROM EACH PARTNER AS DETAILED BELOW. THE SAID STATEMENT WAS NOT PL ACED ON RECORD BUT AS SEEN FROM THE PARTNERS ACCOUNT PLACE D IN THE PAPER BOOK, AN AMOUNT OF RS.10,33,381/- EACH OF THR EE PARTNERS HAS BEEN TRANSFERRED TO UNIQUE PLASTICS LT D., THEREBY INDICATING THAT AN AMOUNT OF MORE THAN RS. 30 LAKHS WAS WITH THE COMPANY BY THE TIME THE FIRM CLOSED ITS OPERATI ONS. THIS ALSO INDICATE THAT THE WHOLE ARRANGEMENT WAS A MAKE BELIEVE ARRANGEMENT AS OBSERVED BY THE A.O. AND CONFIRMED B Y THE CIT(A). WE ARE NOT CONVINCED WITH THE EVIDENCE PLAC ED ON RECORD THAT THE DEALERS MEET EXPENDITURE WAS REQUIR ED TO BE SPENT BY THE ASSESSEE. THEREFORE, THE ENTIRE AMOUNT OF RS.4,17,069/- CLAIMED BY THE ASSESSEE REQUIRES TO B E DISALLOWED. 8.6 AS BRIEFLY STATED, THE APPEALS IN THIS CASE HAS ALREADY REACHED THE ITAT EARLIER TWICE AND DUE TO EFFLUX OF TIME, IT MAY NOT BE POSSIBLE TO EXAMINE EACH AND EVERY ASPECT. T HEREFORE, CONSIDERING THE OVERALL EVIDENCES ON RECORD, WE ARE OF THE OPINION THAT INSTEAD OF DIRECTING THE A.O. TO EXAMI NE VARIOUS ISSUES AS NOTED ABOVE, WE ARE OF THE OPINION THAT T HE CLAIM OF DEALERS MEET IN ITS ENTIRETY, DISALLOWANCE OF 30% O F VARIOUS EXPENDITURE CLAIMED (OTHER THAN INTEREST) WOULD MEE T THE ENDS OF JUSTICE ON THE GIVEN SET OF FACTS. THIS ORDER SH OULD NOT BE TAKEN AS A BASIS FOR CONSIDERING THE ALLOWANCE OF E XPENDITURE IN THE HANDS OF THE COMPANY, WHICH WE WERE INFORMED IS 14 ITA.NO.289/HYD/2013 M/S. UNIQUE ENTERPRISES, HYDERABAD PENDING FOR ADJUDICATION. WITH THESE OBSERVATIONS, THE GROUNDS OF THE ASSESSEE ARE CONSIDERED PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.03.2 014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 07 TH MARCH, 2014 VBP/- COPY TO : 1. M/S. UNIQUE ENTERPRISES, C/O. M/S. MAHAVEER ENTERPR ISES PVT. LTD. PLOT NO.253/A, WELKIN HOUSE, VENKATESW ARA COLONY, BANJARA HILLS, HYDERABAD. 2. ITO, WARD 4(4), AAYAKAR BHAVAN, BASHEER BAGH, HY DERABAD. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. D.R. ITAT, A BENCH, H YDERABAD.