GENUS POWER INFRASTRUCTURES LTD., Jaipur V. ADD. CIT, Jaipur

ITA 358/JPR/2011

• Counselvise Citation: 35823114 RSA 2011
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: O P AGARWAL
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Search and seizure; Document seized; Charitable institution; Principle of natural justice; Rule of consistency; Additional evidence; Permanent establishment; Question of law; Fair market value; Corroborative evidences; Accommodation entries; Capital receipt; Onus to prove; Revised return; Documents seized; Revenue expenditure; Capital expenditure
• Section: 143(3); 133A; 260A; 115JB; 37(1); 131

Judgement Text

1 ITA 358(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 358/JP/2011 ASSTT. YEAR : 2007-08. M/S. GENUS POWER INFRASTRUCTURES LTD., VS. THE ADDL . CIT, C/O SHRI O.P. AGARWAL, FCA, RANGE-7, H-8, CHITRANJAN MARG, C-SCHEME, JAIPUR. JAIPUR. ITA NO. 544/JP/2011 ASSTT. .YEAR : 2007-08. THE ACIT, CIRCLE-7, VS. M/S. GENUS POWER INFRAST RUCTURES JAIPUR. LTD., JAIPUR. (APPELLANTS) (RESPONDENTS) APPELLANT BY : S/SHRI O.P. AGARWAL & MANISH AGARWAL RESPONDENT BY : SHRI SUNIL MATHUR DATE OF HEARING : 01.11.2011 DATE OF PRONOUNCEMENT : 22.12.2011. ORDER DATE OF ORDER : 22/12/2011. PER R.K. GUPTA, J.M. THESE ARE TWO CROSS APPEALS BY THE ASSESSEE AND DE PARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. 2. WE WILL TAKE UP THE APPEAL OF THE DEPARTMENT FIR ST. 2 3. FOLLOWING GROUNDS HAVE BEEN TAKEN IN THE APPEAL OF THE DEPARTMENT :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT (A) HAS ERRED IN (1) DELETING THE DISALLOWANCE OF RS. 8,72,90,400/- MADE BY THE A.O. ON ACCOUNT OF EXPENDITURE CLAIMED IN RESPECT OF SOF TWARE DEVELOPMENT. (2) ALLOWING THE APPELLANTS CLAIM OF RS. 2,68,43,5 28/- MADE IN RESPECT OF THE SALES-TAX INCENTIVE WHICH WAS DISALL OWED BY THE A.O. (3) DIRECTING THE AO TO ALLOW CLAIM OF DEDUCTION OF RS. 2,26,65,423/- MADE IN RESPECT OF THE EXPENDITURE INCURRED FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) (4) DIRECTING THE AO TO ALLOW EXPENDITURE OF RS. 3, 01,23,469/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF PUBLICITY AND SALES P ROMOTION EXPENSES. (5) DELETING THE DISALLOWANCE MADE BY THE AO AT RS. 8,38,022/- ON ACCOUNT OF DEPRECIATION ON PICK AND PLACE MACHINE . (6) DIRECTING THE AO TO ALLOW DEDUCTION OF RS. 10,2 8,944/- CLAIMED UNDER SECTION 80IA(4) OF THE I.T. ACT, 1961 BY THE ASSESSEE. (7) DIRECTING THE AO TO ALLOW DEDUCTION UNDER SECTI ON 80JJAA OF RS. 66,73,927/- AS CLAIMED BY THE ASSESSEE. 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PUBLIC LIMITED COMPANY INCORPORATED ON 06.08.1992 UNDER THE COMPANIES ACT, 1956 UNDER THE NAME AND STYLE AS GENUS OVERSEAS ELECTRONICS LTD. THE NAME WAS CHANG ED TO M/S. GENUS POWER INFRASTRUCTURE LTD. W.E.F. 31.3.2007. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ENERGY METERS, HMC. PCB AND TAXI METERS, INVERTORS AND EXECUTING TURNKEY PROJECTS. RETURN OF INCOME FOR T HE YEAR WAS FILED ON 30.10.2007 DECLARING TOTAL INCOME AT RS. 15,33,00,780/-. THE ASSESSMENT WAS COMPLETED ON 30.12.2009 ON A TOTAL INCOME OF RS. 62,35,51,970/-. THE AO ALSO RE-DETERMINED BOOK PROFITS OF THE ASSESSEE COMPANY BY HOLDING THAT ADJ USTMENT CLAIMED ON ACCOUNT OF CAPITAL 3 RECEIPT AND TRANSFER TO CAPITAL REDEMPTION RESERVE CANNOT BE REDUCED FROM THE PROFITS DETERMINED AS PER PART-II AND III OF SCHEDULES OF C OMPANIES ACT, 1956. 4.1. VARIOUS ADDITIONS WERE MADE BY THE AO AFTER AS SIGNING DETAILED REASONS IN THE ASSESSMENT ORDER WHICH WERE CHALLENGED BEFORE LD. C IT (A). THE LD. CIT (A) HAS ALLOWED THE APPEAL OF THE ASSESSEE IN PART. WHERE RELIEF HA S BEEN ALLOWED BY LD. CIT (A), DEPARTMENT IS IN APPEAL AND WHERE ADDITION HAS BEEN SUSTAINED BY LD. CIT (A), ASSESSEE IS IN APPEAL. 5. NOW ADDITIONS DELETED BY LD. CIT (A) ARE DISCUSS ED ITEM-WISE HERE AS UNDER :- 6. FIRST ADDITION DELETED BY LD. CIT (A) IS RS. 8,7 2,90,400/- MADE BY AO ON ACCOUNT OF EXPENDITURE CLAIMED IN RESPECT OF SOFTWARE DEVEL OPMENT. 7. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 4.1 ONWARDS AT PAGE 36 ONWARDS OF HIS ORDER. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF SOFTWARE DEVELOPMENT EXPENSES BY GIVING HIS REASONING IN PAR A 2 OF HIS ORDER, WHICH IS REPRODUCED BY LD. CIT (APPEALS) IN PARA 4.1 OF HIS ORDER AS UN DER :- 2. SOFTWARE DEVELOPMENT EXPENSES 2.1 THE INVESTIGATION WING, DELHI CONDUCTED A SEARC H AT THE PREMISES OF SHRI S.K.GUPTA, CHARTERED ACCOUNTANT, ON 12.12.2 006, AFTER GATHERING INFORMATION THAT SHRI S.K.GUPTA IS RUNNING A RACKET ISSUING ACCOMMODATION ENTRIES BY CHARGING SOME COMMISSION. IN THE COURSE OF THE SEARCH SALE BILLS/INVOICES ISS UED BY THE CONCERNS OF SHRI S.K.GUPTA WERE SEIZED. STATEMENT O F SHRI S.K.GUPTA WAS ALSO RECORDED IN THE COURSE OF SEARCH WHEREIN HE AD MITTED OF ISSUING ACCOMMODATION BILLS TO VARIOUS COMPANIES. THE COMPA NIES CONTROLLED BY HIM DID NOT HAVE THE NECESSARY INFRASTRUCTURE OR, R EQUISITE MANPOWER FOR PROVIDING THE SOURCES. THE SERVICES SHOWN ON THE BI LLS VERIFIED FORM ADVERTISING CONSULTANCY TO SOFTWARE DEVELOPMENT. IT WAS ADMITTED BY SHRI GUPTA THAT AFTER RECEIPT OF CHEQUES FROM PARTIES, A MOUNTS HAD BEEN RETURNED BACK BY HIM EITHER IN CASH, OR BY CHEQUE T HROUGH OTHER GROUP 4 THE DOCUMENTS SEIZED IN THE COURSE OF SEARCH CONTAI NED AN INVOICE OF M/S B.T.TECHNET LTD. DATED 16.10.2006, WHICH WAS IN THE NAME & ADDRESSES OF THE ASSESSEE. THIS INVOICE NO. 2006-07 /10/151 WAS FOR RS. 1,95,00,000/- (RS. 1.95 CRORE) WHICH HAD BEEN SHOWN TOWARDS CHARGES FOR SOFTWARE DEVELOPMENT (SOFTWARE FOR AUTOMATIC METER READING) THROUGH VARIOUS COMMUNICATION CHANNEL OF REAL SOFTWARE BASI S UPLOADING OF DATE OF WEB-PAGES WITH GENERATION OF BILLS AND TRACKING OF PAYMENT (4100 USER)' THIS INVOICE WAS SEIZED IN THE COURSE OF THE SEARCH AS P3GE 87 OF ANNEXURE A-6 OF THE DOCUMENTS SEIZED FROM THE PREMISE OF SHR I S.K.GUPTA. IN THE COURSE OF THE SEARCH SHRI S.K.GUPTA ADMITTED OF ISSUING ACCOMMODATION BILLS. 2.2. IN THIS BACKGROUND, ALL DETAILS OF SOFTWARE R ELATED EXPENSES WERE CALLED FOR FROM THE ASSESSEE, ALONGWITH NATURE OF S OFTWARE CHARGES AND COPY OF THE BILLS. IN ORDER TO EXAMINE THE GENUINEN ESS OF THE PAYMENTS RELATING TO SOFTWARE DEVELOPMENT CHARGES, THE AR OF THE ASSESSEE, VIDE ORDER SHEET ENTRY DATED 19.11.2009, WAS ASKED TO PR ODUCE THE EXECUTIVE/OFFICIAL/PERSONNEL WHO HAD TAKEN THE DECI SION FOR ENGAGING THE FIRMS/CONCERNS FOR SOFTWARE DEVELOPMENT. AS THE DETAILS RELATING TO THE SOFTWARE CHARGES PAI D WERE NOT FURNISHED AND THE EXECUTIVES WHO TOOK THE DECISION REGARDING APPOINTMENT OF SOFTWARE FIRMS/CONCERNS WERE NOT PRODUCED FOR EX AMINATION, VIDE ORDER SHEET ENTRY DATED 7.12.2009, THE A.R. OF THE ASSESS EE WAS DULY INFORMED ABOUT THE FINDING OF THE SEARCH AND SEIZURE OPERATI ON IN THE CASE OF SHRI S.K. GUPTA ON 12.12.2006 AND REGARDING THE ADMISSIO N MADE BY SHRI S.K. GUPTA REGARDING ISSUE OF ACCOMMODATION BILLS BY HIM . IT WAS ALSO INFORMED THAT THE SEIZED DOCUMENTS CONTAINED AN INV OICE IN THE NAME OF THE ASSESSEE, RAISED BY M/S B.T. TECHNET LTD. DATED 16.10.2006 FOR RS. 1.95, TOWARDS SOFTWARE DEVELOPMENT CHARGES. ONE MOR E OPPORTUNITY WAS GIVEN TO PRODUCE THE CONCERNED PERSONNEL/ EXECUTIVE S ON 11.12.2009 FOR EXAMINATION. HOWEVER, THE CONCERNED EXECUTIVES/PERSONNEL OF THE ASSESSEE COMPANY WHO HAD TAKEN THE DECISION RELATING TO APPO INTMENT OF VENDORS FOR SOFTWARE DEVELOPMENT WERE NEVER PRODUCED, EITHE R ON THE GIVEN DATE, OR THERE AFTER. VIDE LETTER DATED 11.12.2009, THE DETAILS OF SOFTWA RE DEVELOPMENT EXPENSES WERE FURNISHED. IT WAS CLAIMED THAT DURING THE RELEVANT YEAR, THE COMPANY HAD EXECUTED THE ORDER FOR MANUFACTURING AN D INSTALLATION, METERING OF 44000 METERS FOR WBSEB. THE METERS WERE TO BE OF DIFFERENT TYPE AND WERE REQUIRED TO BE INSTALLED AT RCC POLES WITH HT DISTRIBUTION LINES AND THE READING OF METER CAN BE READ ONLY THR OUGH REMOTE 5 COMMUNICATION SYSTEM. THE AUTOMATIC METER READING S OFTWARE (AMR) WAS TO BE INSTALLED IN EACH METER AND WAS TO BE VAL IDATED AFTER INSTALLATION. IT WAS CLAIMED THAT THE ASSESSEE UTILIZED SERVICES OF 4 COMPANIES FOR THE WORK, WHO HAD UNDERTAKEN DEVELOPMENT OF SOF TWARE AS PER THE SPECIFICATION, UPDATION, VALIDATION, INSTALLATION A ND DEBUG AS AND WHEN REQUIRED. THE PAYMENT DETAILS SHOWED :- 1. . MIS SCORE INFORMATION TECHNOLOGIES LTD 1,35,00,000 /- 2. QUANTUM NET TECHNOLOGIES LTD. 2,58,00,000/- 3. NET 4 INDIA LTD. 2,03,90.400/- 4. CADIX INFOSOFT LTD. 2,76,00,000/- TOTAL 8,72,90,400/- THE BILLS OF THESE PARTNERS SHOWED PURCHASE OF AMR SOFTWARE AT UNIT PRICE OF RS. 1200/-. THE BILL FORM NET 4 INDIA LIMITED WAS FOR PURCHASE OF UP-GRADATION SOFTWARE FOR AUTOMATIC MET ER READING. IT IS PERTINENT TO NOTE THAT THESE SOFTWARE DEVELOP MENT EXPENSES HAD BEEN SHOWN AS PART OF RAW MATERIAL COST AND HAS NOT BEEN SHOWN UNDER CAPITAL EXPENDITURE, OR AS A SEPARATE ITEM IN THE P &L ACCOUNT. IN THE BACKGROUND OF THE RESULT OF THE SEARCH OPERA TION ON SHRI S. K.GUPTA, THE GENUINENESS OF THE EXPENSES SHOWN UNDE R SOFTWARE DEVELOPMENT CHARGES WAS DOUBTFUL. FURTHER, THE CONC ERNED EXECUTIVES WHO HAD TAKEN DECISION REGARDING THE SOFTWARE PURCHASE WERE NOT PRODUCED FOR EXAMINATION. VIDE ORDER SHEET ENTRY DATED 16.12.2009, THE AR OF THE ASSESSEE WAS ASKED TO GIVE THE FOLLOWING DETAILS:- (1) AMOUNT OF SOFTWARE DEVELOPMENT EXPENSES INCUR RED IN THE PRECEDING YEAR AND IN SUCCEEDING YEARS. (2) AMOUNT PAID BY THE ASSESSEE IN THE SUBSEQUEN T YEARS FOR MAINTENANCE SUPPORT OF THE SOFTWARE. (3) EXPERIENCE OF THE VENDOR IN THIS FIELD. (4) IN CASE THE SOFTWARE CONTRACT HAD BEEN AWARD ED ON THE BASIS OF BID/TENDER, COPY' OF ADVERTISEMENT PUBLISHED BY THE ASSESSEE. 6 THESE DETAILS HAVE NOT BEEN FILED BY THE ASSESS EE. THE OBSERVATIONS RELATING TO THE EXPENSES CLAIM ED BY THE ASSESSEE FOR SOFTWARE DEVELOPMENT ARE SUMMARIZED BELOW:- (1) THE SEARCH & SEIZURE OPERATION IN THE CASE OF SHRI S.K.GUPTA ON 12.12.2006, CLEARLY SHOWED THAT THE ASSESSEE HAD AP PROACHED HIM FOR PROVIDING ACCOMMODATION ENTRY. THE INVOICE OF M/S B .T.TECHNET LTD. IN THE NAME OF THE ASSESSEE HAS BEEN SEIZED BY THE DEP ARTMENT. (2) APPARENTLY BECAUSE THE SEARCH TOOK PLACE IN A SHORT SPAN I.E. ON 12.12.2006, THE DEAL WAS NOT CONCLUDED. HENCE, NO P URCHASE WAS SHOWN FROM MIS B.T.TECHNET LTD. (3) THE TRANSACTIONS HAVE BEEN SHOWN DURING THE SIMILAR PERIOD. (4) THE SOFTWARE DEVELOPMENT EXPENSES HAVE BEEN SHOWN UNDER RAW MATERIAL PURCHASE, WHICH MAKES IT DOUBTFUL. (5) IT IS NOT UNDERSTOOD AS TO WHY THE SAME AMR SOFTWARE HAD BEEN PURCHASED FROM DIFFERENT PARTIES. NORMALLY ONE PART Y WOULD HAVE BEEN APPOINTED FOR THE ENTIRE SOFTWARE SUPPLY. (6) TECHNICALLY, SEPARATE SOFTWARE MAY NOT BE RE QUIRED FOR EVERY METER, BUT MAY BE REQUIRED ONLY BY THE DEVICE USED FOR READING OF THE METERS. HENCE, THE CLAIM OF THE ASSESSEE THAT EVERY METER WAS REQUIRED TO BE INSTALLED WITH SOFTWARE DOES NOT APPEAR ACCEPTABLE. (7) THE EVIDENCE RELATING TO THE BIDS/TENDERS PU BLISHED IN THE NEWSPAPERS, WERE NOT PRODUCED. (8) THE DETAIL OF EXPENSES IN THE SUCCEEDING YEA RS RELATING TO MAINTENANCE OF THE SOFTWARE WAS NOT PROVIDED. (9) THE EXECUTIVES/PERSONNEL OF ASSESSEE'S COMPA NY WHO TOOK THE DECISION RELATING TO APPOINTMENT OF SOFTWARE VENDOR S WERE NOT PRODUCED FOR EXAMINATION. (10) THE HISTORY OF THE CASE RELATING TO RECEIPT OF ENTRIES RELATING TO COMMISSION ALSO SHOWS THAT THE ASSESSEE HAS BEEN TA KING ACCOMMODATION ENTRIES. ON THE BASIS OF THESE OBSERVATIONS, IT IS PROVED TH AT THE SOFTWARE DEVELOPMENT EXPENSES SHOWN IN THE NAME OF THE 4 PAR TIES, RELATING TO AMR SOFTWARE, IS NOT GENUINE AND HAS BEEN SHOWN TO INFL ATE THE EXPENSES OF THE COMPANY. 7 ACCORDINGLY, THE AMOUNT OF RS. 8,72,90,400/- IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 8. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT ( A) WHICH HAS ALSO BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) IN PARA 4.2 AT PAGES 39 TO 45 ARE AS UNDER :- ' IT I S SUBMITTED THAT DURING THE YEA R UNDE R CON S I DER ATION , T T1E APPE LL A NT COMPANY I NCURRED EXPENDITURE ON SOFTWARE DEVELOPMENT OF RS . 8, 7 2 , 90 , 400/ - D E TAILS OF WHICH ARE TABULATED HEREUNDER : . S.NO . NAME OF THE PARTY, PAN NO. ADDRESS AMOUNT 1. MIS SCORE INFORMATION TECHNOLOGIES LTD. 1,35,00,000/- 2. QUANTUM NET TECHNOLOGIES LTD. 2,58,00,000/- 3. NET 4 INDIA LTD. 2,03,90,400/- 4. CADIX INFOSOFT LTD. 2,76,00,000/- TOTAL 8,72,90,400/- 17 . 1 I T I S FURTHER SUBMITTED THA T , T HE AP P EL LA NT IN SUPPORT ()F THE ABOVE CLA I M OF DEDUCTION , HAS FURNISHED FOLLO WI NG EVI DEN C E S : M/S. SCORE INFORMATION TECHNOLOGIES LTD. S.NO. EVIDENCE PAGE S OF PAPER BOOK-II 1. BALANCE SHEET & P&L: AS AT 31.03.07 417-440 2. COPY OF LEDGER ACCOUNT 441 3. COPY OF ACCOUNT CONFIRMATION 442 4. COPY OF INVOICE 443 5. CUSTOMERS & BUSINESS PROFILE 444-445 6. LIST OF DIRECTORS & FORM 234AC 456-462 7 COPY OF LETTER ISSUED BY APPLICANT FOR PRODUCTION BEFORE AO U/S 131 WITH PROOF OF DISPATCH 463-464 8 QUANTUM NET TECHNOLOGIES LTD. S.NO. EVIDENCE PAGE S OF PAPER BOOK-II 1. BALANCE SHET & P&L AS AT 31.03.07 465-478 2. COPY OF LEDGER ACCOUNT 479 3. COPY OF ACCOUNT CONFIRMATION 480 4. COPY OF INVOICE 481 5. CUSTOMERS & BUSINESS PROFILE 482-498 6. LIST OF DIRECTORS & FORM 234AC 499-504 7 COPY OF LETTER ISSUED BY APPLICANT FOR PRODUCTION BEFORE AO U/S 131 WITH PROOF OF DISPATCH 506-507 NET 4 INDIA LTD. S.NO. EVIDENCE PAGE S OF PAPER BOOK-II 1. BALANCE SHEET & P&L AS AT 31.03.07 508-531 2. COPY OF LEDGER ACCOUNT 532 3. COPY OF ACCOUNT CONFIRMATION 533-534 4. COPY OF INVOICE 535-539 5. CUSTOMERS & BUSINESS PROFILE 540-550 6. LIST OF DIRECTORS & FORM 234AC 551-562 7. INCOME TAX ACKNOWLEDGEMENT FOR AY 2006-07 563 8. COPY OF LETTER ISSUED BY APPLICANT FOR PRODUCTION BEFORE AO U/S 131 WITH PROOF OF DISPATCH 564-565 9 CARDIX INFOSOFT LTD. S.NO. EVIDENCE PAGE S OF PAPER BOOK-II 1. BALANCE SHEET & P & L, TAX AUDIT REPORT AS AT 31.03.07 566-579 2. COPY OF LEDGER ACCOUNT 580 3. COPY OF ACCOUNT CONFIRMATION 581 4. COPY OF INVOICE 590 5. INCOME TAX ACKNOWLEDGEMENT FOR AY 2006-07 590 6. COPY OF LETTER ISSUED BY APPLICANT FOR PRODUCTION BEFORE AO U/S 131 WIOTH PROOF OF DISPATCH 591-592 7. COPY OF PURCHASE AGREEMENT WITH CARDIX INFOSOFT INC. 593-602 17.2 APART FROM ABOVE, FOLLOWING EVIDENCES WERE ALS O FURNISHED: S.NO. EVIDENCE PAGE S OF PAPER BOOK-II 1. COPY OF ORDER OF WBSEB 603-672 2. COPY OF USER MANUAL OF METER 673-683 3. COPY OF FLOW CHART OF THE METER FUNCTIONS 684 4. COPY OF THE PROCESS FLOW CHART OF METER PRODUCTION 685 5. COPY OF THE PROCESS FLOW CHART OF METER INSTALLATION 686 6. COPY OF THE AREA ALLOTTED 687-696 7. JOB CHART OF THE VENDORS 697-699 8. ACTIVITIES BREA-UP OF THE AMR SOLUTION DEVELOPMENT 700 9. COPY OF MRI & SEAL TRACKING APPLICATION SOFTWARES 701-716 10. COPY OF THE SOURCES CODE OF AMR,. BASE COMPUTER & MRI SOFTWARE 717-730 10 11. CORRESPONDENCE FROM WESEB IN RESPECT OF THE EARLY DISPOSAL & WIRELESS COMMUNICATIONS ETC. 731-768 12. COPY OF MATERIAL (BOM) SUPPLIED TO THE BOARD AND BILL OF QUANTITY (BOQ) ORDERED BY BOARD 764-769 13. PROGRESS ACHIEVED IN THE PROJECT WITH THE HELP OF VENDORS 699 17.3 'THE APPELLANT, IN THE COURSE OF ASSESSMENT PR OCEEDINGS, HAD ALSO EXPLAINED THE NATURE OF SERVICES PROVIDED BY THE AF ORESAID VENDORS TO THE APPELLANT COMPANY. THE RELEVANT PORTION OF THE REPL IES IS EXTRACTED HEREUNDER: 'DETAILS OF SOFTWARE CHARGES:- IN THIS CONNECTION I T IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE COMPA NY HAS EXECUTED THE ORDER FOR MANUFACTURING AND INSTALLATION, METE RING OF 44,000 EEM FOR THE WBSEB OUT OF TOTAL ORDER OF 50,000 UNIT S. AS PER TERMS OF THE ORDER THE FEATURES OF THE METER WERE D IFFERENT IN NATURE AS PER OUR EXPERIENCE IN METER PRODUCTION AND INSTA LLATION. THE METER WERE REQUIRED FOR AGRI-METERING IN VILLAGE FA RMS AND THE METER WERE REQUIRED TO BE INSTALLED AT RCC POLES WI TH HT DISTRIBUTION LINES DIRECTLY TO MEASURED THE ELECTRI CITY CONSUMPTION AT HT LINE. THE METERING OF THE CONSUMPTION WAS BAS ED ON RADIO FREQUENTLY MODE (LOW POWER RADIO) I.E. THE READING OF THE METER CAN BE READ ONLY THROUGH WIRE LESS SYSTEMS OR REF17 0TE COMMUNICATION SYSTEM. AS PER THE FEATURES OF THE METER THE METER WERE REQ UIRED TO BE LOADED WITH AMR (AUTOMATIC METER READING) SOFTWARE. THIS SOFTWARE, WAS REQUIRED TO BE INSERTING IN EACH METE R BEFORE INSTALLATION AT RCC POLE AND TO BE VALIDATED AFTER INSTALLATION THROUGH METER READING INSTRUMENT (MRI). MR/'S WERE ALSO, REQUIRED TO BE EQUIPPED WITH REMOTE COMMUNICATION SOFTWARE. FOR DEVELOPMENT/UPDATING AND INSTALLATION SUPPORT O F THE AMR SOFTWARE WE HAVE ENGAGED FOLLOWING REPUTED COMPANIE S WHO HAVE EXPERTISE IN SOFTWARE LINE. THE COMPANIES ENGAGED I N THIS RESPECT HAVE FULL-FILLED FOLLOWING MAJOR REQUIREMENTS:- I) DEVELOPMENT OF SOFTWARE AS PER SPECIFICATION IN THE ORDER II) UPDATING OF THE SOFTWARE DEVELOPED III) VALIDATION OF THE SOFTWARE IV) INSTALLATION SUPPORT DURING THE COURSE O F TESTING OF METER V) D-BUG THE SOFTWARE WHEREVER REQUIRE 11 IN SUPPORT TO THE SOFTWARE DEVELOPMENT / UPDATING / INSTALLATION SUPPORT CHARGES FOLLOWING IS ENCLOSED FOR YOUR KIND REFERENCE- 1. COPY OF BILLS RAISED BY THE SOFTWARE COMPANIES 2. COPY OF ACCOUNT CONFIRMATION 3. COPY OF THE ORDER RECEIVED FROM WBSEB 4. COPY OF THE USER MANUAL SUPPLIED WITH THE METER TO WBSEB 5. COPY OF THE ORDER RAISED TO THE SOFTWARE COMPANIES 6. COPY OF THE EXCISE BILLS OF METER SOLD TO THE SEB 7. COPY OF THE PROCESS FLOW CHART OF THE METER 8. DETAILS OF THE SOFTWARE CHARGES WITH NAME, ADDRESS & PAN. 17.4 HOWEVER, DESPITE THE AFORESAID EVIDENCE AND, E XPLANATION TENDRED BY THE APPELLANT COMPANY THE LEARNED OFFICE R HAS DISALLOWED THE CLAIM OF DEDUCTION ON THE FOLLOWING BASIS: (A) THAT AN INVOICE DATED 16.102006 OF M/S B.T. TEC HNET LTD. FOR RS. 1,95,00,000/- SHOWING CHARGES PAID FOR SOFTWARE DEVELOPMENT OR SEIZED FROM THE PREMISES OFR SH. S.K . GUPTA IN THE COURSE OF SEARCH ON 12.12.2006 WHO ADMITTED THAT HE WAS ISSUING ACCOMMODATION BILLS; AND (B) THAT ALL THE DETAILS RELATING TO SOFTWARE CHAR GES PAID WAS NOT FURNISHED AND THE EXECUTIVES WHO TOOK THE DECISION REGARDING APPOINTMENT OF SOFTWARE FIRMS/CONCERNS WERE NOT PRO DUCED FOR EXAMINATION. 17.5 HE HAS HELD IN REGARD TO THE ABOVE CLAIM OF D EDUCTION AT PAGE 24 AND 25 OF THE ORDER AS UNDER: '(1) THE SEARCH & SEIZURE OPERATION IN THE CASE OF SHRI S.K. GUPTA ON 12.12.2006, CLEARLY SHOWED THAT THE ASSESSEE HAD APPROACHED HIM FOR PROVIDING ACCOMMODATION ENTRY. THE INVOICE OF M/S. B. T. TECHNET LTD. IN THE NAME OF THE ASSESSEE HAS BEEN SEIZED BY THE DEPARTMENT. (2) APPARENTLY BECAUSE THE SEARCH TOOK PLACE IN A SHORT SPAN I.E. ON 12.12.2006, THE DEAL WAS NOT CONCLUDED. HENCE, NO PURCHASE' WAS SHOWN FROM NVS. B.T. TECHNETLTD, (3) THE TRANSACTIONS HAVE BEEN SHOWN DURING THE SIMILAR PERIOD. (4) THE SOFTWARE DEVELOPMENT EXPENSES HAVE BEEN SHOWN UNDER RAW MATERIAL PURCHASE, WHICH MAKES IT DOUBTFUL. (5) IT IS NOT UNDERSTOOD AS TO WHY THE SAME AMR SOFTWARE HAD BEEN PURCHASED FROM DIFFERENT PARTIES. NORMALLY ONE PARTY WOULD HAVE BEEN APPOINTED FOR THE ENTIRE SOFTWARE SUPPLY. 12 (6) TECHNICALLY, SEPARATE SOFTWARE MAY NOT BE REQUIRED FOR EVERY METER, BUT MAY BE REQUIRED ONLY BY THE DEVICE USED FOR READING OF THE METERS. HENCE, THE CIAIM OF THE ASSESSEE THAT EVERY METER WAS REQUIRED TO BE INSTALLED WITH SOFTWARE DOES NOT APPEAR ACCEPTABLE. (7) THE EVIDENCE RELATING TO THE BIDS/TENDERS PUBLISHED IN THE NEWSPAPERS, WERE NOT PRODUCED. (8) THE DETAIL OF EXPENSES IN THE SUCCEEDING YEARS RELATING TO MAINTENANCE OF THE SOFTWARE WAS NOT PROVIDED. . (9) THE EXECUTIVES/PERSONNEL OF ASSESSEE'S COMPANY WHO TOOK THE DECISION RELATING TO APPOINTMENT OF SOFTWARE VENDORS WERE NOT PRODUCED FOR EXAMINATION. (10) THE HISTORY OF THE CASE RELATING TO RECEIPT OF ENTRIES RELATING TO COMMISSION ALSO SHOWS THAT THE ASSESSEE HAS BEEN TAKING ACCOMMODATION ENTRIES. ON THE BASIS OF THESE OBSERVATIONS, IT IS PROVED THAT THE SOFTWARE DEVELOPMENT EXPENSES SHOWN IN THE NAME OF THE 4 PARTIES, RELATING TO AMR SOFTWARE, IS NOT GENUINE AND HAS BEEN SHOWN TO INFLATE THE EXPENSES OF THE COMPANY. 17.6. A T T HE OUTSE T , I T I S S UB MIT TED T H AT , IT WILL BE SEEN THAT, THE LEARNED OFFICER ON THE B ASI S OF AN A LLEGED INVOIC E N O . 20 06 -07/10/151 PURPORTEDLY OF RS . 1 . 95 CRORES H AS HELD THAT E XPENDITURE CLAIMED BY WAY OF S OFTWARE E X PENSES ARE N O T ALLOWABL E DEDUCT I O N BE I NG NOT GENUINE EXPENSES. IT IS THUS EVIDENT THAT , FO UNDAT I ONAL PURPO R TED MATER I AL L E ADING TO MA K IN G OF DISALLOW A NCE IS AN ALLEGED I NVOICE AND , STATED TO BE VALUE O F RS . 1. 9 5 CRO RES . IT IS NOT KNOWN AS TO WHAT THE S A I D I NVOICE I S AND . WHETHER S U CH INVOICE IS GE NUINE AND WHO HAS RAISED THE I NVOICE AND WHAT IS THE S OU RC E O F A L LEG ED I N VOICE . IN F A CT , IN THE I NSTANT ASSESSMENT YEAR 200(5-0 7, THE APP EL LA N T H A S I N CURR E D AN EXPENDITURE OF RS. 8.72 C RORES AND , THE FOLLOW I NG INV OICE S WER E R A IS E D : 13 S.NO . NAME OF THE INVOICE NO . DATE OF AMOUNT PAG E OF PARTY INVOICE . P AP ER B O OK 1 . S COR E S I TUGENU S/200 6 - 31.1 0 . 2 00 6 1 , 35,00 , 000/ - 443 I NFORMATION 07 / 3 TECHNO L OG I E S LTD . 2 . QUA N TM NE T NET / SER L O6 - 23 . 3 . 2007 2 , 58,00 , 000/- 481 T , ECHNOLOGIE S 17 / 102 LTD . . ' 3 . NET 4 INDIA N41 / WP SIOCT L026 31.10.2006 43 , 20 , 000/ - 535 L I MI T ED NET 4 INDIA N41 /WPSIOCTL025 28 . 10 . 2006 43 , 20,000/ - 536 LI MITED NET 4 INDIA N41/WP SIOC T L 0 24 25.10.2006 43 , 20,000/- 537 LI MITE D NET 4 INDIA N41 /W PS I MA R/061 15 . 3 . 2007 30 , 68,730/ - 538 LIM I TED NET 4 INDIA N41/WPSIO C T L023 23 . 1 0 .2006 43,20 , 000/- 539 LIM I TED 4. . CADI X INFOSOFT CADIX L 1 75 12 . 1 . 2007 36,00 , 000/- 582 I N C. CAD IX I NFO S OF T C ADI XL174 6 . 1.2007 30,00 , 000/- 583 I N C . CAD I X INFOSOF T C ADI XL173 17 . 12.2006 24,00 , 000/- 584 I N C . CAD I X INFOSOFT CAD I X L172 15.12 . 2006 36 , 00 , 000/- 585 I NC . CAD I X INFO S OFT C ADI XL 169 13 . 11 . 2006 48,00 , 000/- 586 INC . . CAD IX INFOSOFT CAD I X L 168 11 . 11 . 2006 30 , 00,000/ - 587 INC . CAD IX INFOSOFT C AD IXL1 6 7 10 . 11.2006 36 , 00 , 000/- 588 INC . CADI X INFOSOFT CADIX L 166 7.11.2 006 3 6 ,00 , 000/- 589 IN C. 17 . 7 I T I S S UBM I TTED T HAT , I T IS E VIDENT FROM THE ABOVE THAT, THERE WAS NO I NVOICE OF RS. 1 . 95 CRORE S AS HAS BEE N A LLE GED B Y THE L EA RNED OFFICER . IT IS THUS SUBMITTED THAT SUCH EXPENDITURE I NCURRE D IS GENUIN E LY INCURRED AND, IS FOR THE PURPOSE OF BUSINESS . I T I S THEREFORE S UB MI TT ED THA T , IN SO FAR AS THE ' FINANCIAL YEAR 2005-06 RELEVANT TO THE I NSTANT A S SE SSMENT YEAR IS CONCERNED, THE . APPELLANT HAS NOT C LAIMED AN Y EXPENDI T U RE OF RS. 1 . 95 CRORES . IT IS THUS SUBMITTED THAT , FINDING IN PARA 2.1 I S WHOLLY M I S C O NC E IV E D AND PREMATURE . 17.8 IT IS FURTHER SUBMITTED THAT, THE AFORESAID AL LEGED INVOICE WAS FOUND FROM SH. S.K . GUPTA IS ABSOLUTELY IRRELEVANT AND, HAS NO CONNECTION AND HAS NOTHING TO DO WITH THE ASSESSEE COMPANY . IT APPEARS THAT, THE ASSESSEE IS LABORING UNDER COMPLETE MISCO NCEPTION WHEN HE IS MISREADING THE STATEMENT OF SH. S.K . GUPTA TO DISALLOW THE CLAIM OF EXPENDITURE INCURRED BY THE ASSESSEE COMPANY. IT IS SUBMITTED THAT 14 STATEMENTS OF SH . S.K . GUPTA THOUGH WERE SUPPLIED BY THE LEARNED OFFICER BUT WAS NEVER CONFRONTED TO THE ASSESSEE IN THE COU RSE OF ASSESSMENT PROCEEDINGS . IN FACT, PERUSAL OF THE STATEMENT WOULD SHOW THAT, HE HAS NOWHERE ALLEGED THAT EXPENDITURE INCURRED BY THE AS SESSEE IN THE INSTANT YEAR OF RS. 8.72 CRORES REPRESENT ACCOMMODATION ENT RY. IT IS A PATENT FIGMENT OF IMAGINATION . THE ASSESSING OFFICER HAS NOT ONLY SIDETRACKED THE ISSUE BUT HAS COMPLETELY FAILED TO APPRECIATE T HAT SOFTWARE ACQUIRED BY THE ASSESSEE WAS UTILIZED FOR THE PURPOSE OF . CARRYING ON BUSINESS. NEEDLESS TO REPEAT HERE THAT, WITHOUT SUCH SOFTWARE AS HAD BEEN ACQUIRED BY THE APPELLANT, IT COULD NOT CARRY ON ITS MANUFAC TURING ACTIVITIES OF ELECTRICITY METERS SUPPLIED . TO WEST BENGAL . STATE ELECTRICITY BOARD. IT IS SUBMITTED THAT INFACT, THE ASSESSING OFFICER HAS IG NORED SOFTWARE ACQUIRED HAS BEEN INSTALLED AS PART OF SUPPLY OF METER . THE NATURE OF SOFTWARE IS LIKE PACEMAKER AND AS SUCH, NUMBER OF UNIT OF SOFTW ARE ACQUIRED BY THE ASSESSEE HAVE GONE TO ENABLE THE ASSESSEE TO MANUFA CTURE EQUAL NUMBER OF ELECTRICITY METERS AND THUS, THIS IS VERIFIABLE FRO M THE NUMBER OF METERS SUPPLIED. THIS SINGULAR FACT APPARENTLY ESTABLISHES THAT LEARNED OFFICER HAS PROCEEDED ON PRECONCEIVED NOTIONS AND PREMEDITATED CONSIDERATIONS TO DISALLOW . GENUINE BUSINESS EXPENDITURE INCURRED BY THE APPELL ANT COMPANY . 17 . 9 IN LIGHT OF THE ABOVE, IT IS SUBMITTED THAT, MER E ALLEGATION THAT, PURPORTEDLY AN INVOICE IN THE NAME OF THE APPELLANT HAD BEEN SEIZED FROM SH . S.K. GUPTA, WHICH HAS NEVER BEEN CLAIMED AS AN EXPE NDITURE CANNOT BE A GROUND TO ALLEGE, ASSUME OR CONCLUDE THAT ANY EXPENDITURE OF SOFTWARE DEVELOPMENT INCURRED BY THE APPELLANT IS N OT AN ELIGIBLE BUSINESS EXPENDITURE AND HENCE, DISALLOWANCE SO MADE IS APPA RENTLY NOT TENABLE AND UNSUSTAINABLE . 17.10 IN FACT , IN MAKING THE DISALLOWANCE, THE LEARNED OFFICER HAS ALSO OVERLOOKED THE DETAILED REPLY FURNISHED BY THE APPE LLANT IN THIS REGARD WHICH IS PLACED IN THE . PAPER BOOK AT PAGE 405 TO 406 OF THE PAPER BOOK WHICH IS AS UNDER : 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS CONDUCTED ON DT . 04112109 YOUR GOOD SELF HAS INFORMED THAT 'AS PER INFORMATION AVAILABLE IN THIS OFFICE THAT ASSESSEE HAD MADE PAYMENT OF RS. 1.95 CRORES TOWARDS BILLS ISSUED BY MIS. B. T. TECHNET VIDE INV . NO. 20061071101151 ON DT. 16/10/06 TOWARDS SOFTWARE DEVELOPMENT EXPENSES. SUBSEQUENTLY A SEARCH AND SEIZE EXPLORATION WAS CARRIED OUT BY IT DEPTT. ON 12112106 ON SH . . S.K . GUPTA AND IT WAS FOUND THAT S.K . GUPTA IS MANAGING AROUND 30 PAPER COMPANIES AND IS INDULGING IN GIVING BOGUS ACCOMMODATION ENTRIES. SK GUPTA HAS ADMITTED IN HIS STATEMENT RECORDED IN THE COURSE OF SEARCH THAT HIS GROUP OF COMPANIES WERE ENGAGE IN PROVIDING . ACCOMMODATION ENTRIES. M/S. B. T TECH - NET LTD. IS ONE OF THESE PAPER COMPANIES USED BY SH. SK GUPTA TO PROVIDE ACCOMMODATION ENTRIES. THIS CONCERN AS WELL AS THE OTHER CONCERN RUN SH . S.K . GUPTA HAVE BEEN FOUND TO HAVE PROVIDED ONLY 15 ACCOMMODATION ENTRIES IN THE FORM OF SALES/EXPENSES AND HAVE NOT DONE ANY GENUINE BUSINESS. THE DETAILS OF TRANSACTION (ENTRIES) R ELATING T O THE ASSE S S EE OF M/S G E NUS OVERS E AS ELECTRON I C S LID . I S RECORDE D IN THE SEARCH DOCUM E NT (ANX A - 6 , PA GE 8 7) C O N S IDERING THE A B OV E FAC T S THE EX PE N SE S OF RS . 1 . 95 CRORES CAN N OT BE CONSID E R ON GE NUINE AND IS TO BE DISALLO W E D . ' . I N THIS CONN E CTION I T IS SUBMI TTE D TH A T DURING THE FY 2006 - 0 7 THE AS S ES S EE COMPANY HAS NOT PAID AN Y AMOUNT O R C RED IT ANY SUM I N THE ACC OU NT OF M/S B . T . TECHNET I . E . NO ANY TR A NS A CTI ON WERE H E LD W I T H T HE ABOVE MENTIONED P ARTY , T HE R EFO R E I T IS R EQU E ST E D THAT THE I NFERENCE DRAW N BY YOUR GOOD SELF IS NOT R ELATED WI T H THE ASSESSE E COM PA NY AND THE QU E S TI ON OF D I S ALL OWAN C E OF R S . 1 . 9 5 CROR E S ON A CC OUNT OF S OFTWARE CHA R GES DO ES NOT A RISE I N THIS C A S E . IN THIS R ESPEC T THE C OP Y O F TH E BANK ACCOUNTS HAS ALRE A DY BEEN S UBMITTED ON D T . 15 / 09 / 09 . 17 . 11 IT I S T H U S S UBM I TTE D THAT T HE ENTIRE BASIS TO DENY THE CLAIM OF DEDUCTION IS SEIZURE O F THE I NVO I CE WHIC H IS NOTHING TO DO WITH THE EXPENDITURE CLAIMED BY THE A PPE L LANT I N THE I NSTAN T Y EA R AND THEREFORE , DISALLOWANCE SO MADE IS NOT TENABLE . 17 . 12 A PAR T F R OM ABO VE , T H E LEARNED OFFICER HAS ALSO STATED THAT IN THE COURSE OF A SSESSMEN T PRO C EED I NG S , A PP E LLANT HAD BEEN DIRECTED VIDE ORDER SHEET DATED 19 . 1 1.2 009 T O PRODU C E TH E EXECUTIVE/OF F ICIALS/PERSONNEL WHO HAD TAKEN THE DECIS IO N F OR E N GA GI NG T HE FIRMS/CONCERNS FOR SOFTWARE DEVELOPMENT WHICH NEITHER I N LAW AND , NO R ON FACT C A N B E MADE A BASIS TO DISALLOW A GENUINE EXPENDITURE I NCURRED BY T HE APPE L L A N T COMPANY . IT IS SUBMITTED THAT A COMPANY ACTS THROUGH I TS OFFICERS AND EMPLOY E ES A N D , T H EREFORE, IT IS AN WHOLLY IRRELEVANT CONSIDERATION . TH E I SS U E IS, W HETH ER V E ND O RS HAD PERFORMED SERVICES AS WERE ENGAGED BY THE ASSESSEE . TH E F A C T O F MA T T ER IS THAT, SUCH AGENTS HAD BEEN ENGAGED BY THE ASSE S SEE AN D T HEY WERE DULY RENDERING SERVICES FOR DEVELOPMENT OF SOF TWARE AND N ECESSARY C ONS I DERAT I ON W A S ALSO PAID . INFACT, EVIDENCE FURNISHED WOULD SHOW THAT ' T H E VE NDO RS H A D DULY ESTABLISHED RENDERING OF SERVICES BY WAY OF C ON FIR MAT I O N, C O PY OF WHICH IS PLACED AT PAGE S 44 2, 480, 533 TO 534 AND 581 OF P A PER B O OK-II . IT IS SU B MITTED THAT THE ENTIRE PAYMENT HAS BEEN MADE BY ACCOUNT PAYEE C HEQUE TO T HE PART I E S WHO ARE INCOME TAX ASSESSES AND , NO ENQUIRIES H A VE BEE N C ON DU CTED B Y THE LEARNED OF F ICER IN TERMS OF JUDGEMENT IN THE CASE OF CIT V GENESIS C OMNET (P) L T D REPORTED IN 163 TAXMAN 482 . IT IS THUS SUBMITTED T HA T, T HE ENTI R E B A SIS TO DIS A LLOW SUCH EXPENDITURE , I N ABSENCE OF ANY ENQUIRY , IS ABSOLUTELY U NTENABLE AND WHOLL Y UNSUSTAINA B L E . . 17 . 13 I N FAC T, T HE DISALLO W ANCE IS M A DE ON CONJECTURES , SURMISES AND SUSPICION . IT IS SETTLED L A W TH A T , NO ADD I T I O N CAN BE MADE ON THE BASIS OF SURMISES, SUSPICION AND CONJECTURES . RE LI ANCE FO R TH IS P R OPOSITION IS PLAC E D ON 37 ITR 271 (SC) UMA C HAR A N SHA W & BROS . C O . V. CIT . IT HAS BE E N FURTHER HELD IN THE FOLLOWING CASES T H AT SUS PI CI O N H O WSOEVER STRONG C A N NOT T AKE THE PLAC E OF P R OO F : 16 (A) 3 7 ITR 1 5 1 ( S C) O MA R SALAY MOHAMMAD SAIT V CIT ) (B) 2 6 I TR 73 6 ( SC ) D H IRA J LAL GIRDHA R ILAL V CIT , BOMBAY (C) 26 I T R 77 5 ( SC ) DHA K E S H WARI COTTON MILLS LTD. V CIT (D) 37 I TR 2 88 (SC) LA L CHAND BHAGAT AMBICA RAM V CIT 17.14. IT IS THUS PRAYED THAT, DISALLOWANCE MADE OF EXPENDITURE INCURRED ON SOFTWARE DEVELOPMENT OF RS. 8.72 CRORES, MAY KINDLY BE DELETED. 9. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) GAVE HIS FINDING IN PARA 4.3 AT PAGE 46 ARE AS UNDER :- 4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE AND SUBMISSIONS OF LD. AR. ON PERUSAL OF THE RELEVANT DETAILS/DOCUMENT S, I FIND MERIT IN THE CONTENTIONS/ARGUMENTS RAISED BY THE LD. AR IN SUPPO RT OF THIS GROUND OF APPEAL (NOTED IN DETAIL IN PARA 4.2 ABOVE). IN THIS REGARD, IT IS OBSERVED THAT THERE IS NO DISPUTE REGARDING THE FACT THAT THE APP ELLANT HAS CLAIMED THE TOTAL SOFTWARE DEVELOPMENT EXPENSES OF RS. 8,72,90,400/-, WHICH RELATED TO THE PAYMENTS TO THE FOUR PARTIES, NAMELY: I) M/S SC ORE INFORMATION TECHNOLOGIES LTD., II) M/S QUANTUM NET TECHNOLOGIES LTD., III) M/S. NET 4 INDIA LTD. AND IV) M/S CADIX INFOSOFT LTD. THEREFOR E, IT IS EVIDENT THAT THE APPELLANT HAS NOT MADE/CLAIMED ANY PAYMENTS/EXPENSE S TO THE CONCERN M/S B.T. TECHNET LTD., IN QUESTION, THE INVOICE OF WHICH WAS FOUND AT THE PREMISES OF SHRI S.K. GUPTA DURING THE COURSE OF SE ARCH IN HIS CASE. HENCE, AS THE APPELLANT COMPANY, UNDISPUTEDLY, HAS NOT SHOWN/CLAIMED ANY EXPENSE/PAYMENT TO THE SAID M/S B.T. TECHNET LT D., IN ITS BOOKS OF ACCOUNT, THEREFORE, MERELY BECAUSE AN INVOICE OF TH AT CONCERN, IN THE NAME OF THE APPELLANT COMPANY, WAS FOUND AT THE PREMISES OF SHRI S.K. GUPTA, WHO ADMITTED TO HAVE ISSUED ACCOMMODATION BILLS IN THE NAMES OF HIS VARIOUS CONCERNS, THE SAME CANNOT BECOME A BASIS FO R THE DISALLOWANCE OF THE ENTIRE SOFTWARE DEVELOPMENT EXPENSES PAID TO TH E AFOREMENTIONED FOUR, ALTOGETHER DIFFERENT, CONCERNS BY THE APPELLANT COM PANY. FURTHER, IT IS ALSO OBSERVED THAT THE APPELLANT HAD FILED ALL THE BASIS AND RELEVANT DETAILS/DOCUMENTS (AS NOTED IN PARAS 17.1, 17.2, AN D 17.3 OF THE WRITTEN 17 SUBMISSION, REPRODUCED IN PARA 4.2 ABOVE) IN SUPPOR T OF THE CLAIMED EXPENSES/PAYMENTS MADE TO THE AFOREMENTIONED FOUR C ONCERNS, TOTALING TO RS. 8,72,90,400/-, WHEREIN NO SPECIFIC DEFECT WAS F OUND BY THE LD. AO. THEREFORE, ON THESE FACTS, IT IS HELD THAT THE IMPU GNED DISALLOWANCE MADE BY THE LD. AO, MERELY ON THE BASIS OF SUSPICION/DOU BT, IS NOT SUSTAINABLE. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE IMPUG NED DISALLOWANCE. CONSEQUENTLY, THIS GROUND OF APPEAL IS ALLOWED. 10. THE LD. CIT D/R WHO, APPEARED ON BEHALF OF THE DEPARTMENT STRONGLY RELIED ON THE REASONING GIVEN BY AO AT PAGES 23 AND 24 OF HIS ORD ER. ORDER OF AO WAS ALSO READ BY LD. D/R AND IT WAS SUBMITTED THAT AO WAS CORRECT IN DIS ALLOWING THE CLAIM OF THE ASSESSEE IN RESPECT OF SOFTWARE DEVELOPMENT EXPENSES. 11. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). FURTHER, DETAILED WRITTEN SUBMISSIONS CONTAINING 69 PAGES WERE ALSO FILED. IN THESE WRITTEN SUBMISSIONS THE ADDITION SUSTAINED AND DELETED BY LD. CIT (A) HAS BEEN EXPLAINED. 12. WE HAVE GONE THROUGH THE ORDERS OF AO AND LD. C IT (A) AND ARGUMENTS OF BOTH THE PARTIES AND ALSO THE WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE. AFTER GOING THROUGH THE WRITTEN SUBMISSIONS OF THE ASSESSEE, IT IS SEEN THAT THE WRITTEN SUBMISSIONS ARE SIMILAR AS FILED BEFORE LD. CIT (A) WHICH HAS ALREA DY BEEN TABULATED SOMEWHERE ABOVE IN THIS ORDER. WE NOTED THAT LD. CIT (A) HAS TAKEN IN TO CONSIDERATION ALL THE ASPECTS MINUTELY. IT WAS FOUND BY LD. CIT (A) THAT SOFTWAR E DEVELOPMENT EXPENSES WERE PAID TO FOUR PARTIES I.E. M/S. SCORE INFORMATION TECHNOLOGI ES LTD., M/S. QUANTUM NET TECHNOLOGIES LTD., M/S. NET 4 INDIA LTD. AND M/S. C ADIX INFOSOFT LTD. IT IS ALSO A MATTER OF FACT THAT THESE COMPANIES DO NOT RELATE TO M/S. B.T. TECHNET LTD. WHO WAS FOUND 18 INDULGING IN CLAIMING BOGUS EXPENSES. THE LD. CIT (A) ASCERTAINED THAT THESE FOUR COMPANIES ARE INDEPENDENT AND LD. CIT D/R HAS ALSO FAIRLY ACCEPTED THIS FACT THAT THEY WERE NOT CONNECTED WITH M/S. B.T. TECHNET LTD. HOW EVER, HE HAS PLACED STRONG RELIANCE ON THE REASONING GIVEN BY AO. 12.1. THIS FACT HAS BEEN DISCUSSED BY LD. CIT (A) I N HIS ORDER IN PARA 4.3 WHICH IS REPRODUCED SOMEWHERE ABOVE IN THIS ORDER THAT THE F OUR COMPANIES TO WHOM THE SOFTWARE DEVELOPMENT EXPENSES WERE PAID DO NOT RELATE TO M/S . B.T. TECHNET LTD. IN WHOSE CASE ONE SHRI S.K. GUPTA, WHO ADMITTED IN HAVING ISSUED ACCOMMODATION BILLS IN THE NAME OF VARIOUS CONCERNS. PAYMENTS WERE MADE THROUGH PROPE R BANKING CHANNEL AND THERE IS NO DOUBT ABOUT THE PAYMENT AS THE AO HAS NOT COMMENTED ANY ADVERSE INFERENCE. THE AO MADE DISALLOWANCE ONLY BY DRAWING INFERENCE THAT SO FTWARE DEVELOPMENT EXPENSES ARE NOT INCURRED AS THEY HAVE AS MANY COMPANIES PROVIDE D ACCOMMODATION BILLS ONLY. THE STATEMENT OF SHRI S.K. GUPTA WAS RECORDED ON 12.12. 2006 WHO BELONGS TO M/S. B.T. TECHNET LTD. WHO HAS ADMITTED THAT HE WAS INVOLVED IN ISSUING ACCOMMODATION BILLS. HOWEVER, NOWHERE THE NAME OF FOUR COMPANIES TO WHOM THE SOFTWARE DEVELOPMENT EXPENSES WERE PAID WERE MENTIONED BY SHRI S.K. GUPT A. THEREFORE, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE. THE LD. CIT (A) HAS CONSIDERED THIS ASPECT AND THEN ONLY HAS DELETED THE ADDITION. THE FINDING OF LD. CIT (A) THAT MERELY ON THE BASIS OF SUSPICION/DOUBT, ADDITION MADE CANNOT BE SUSTAINED, REMAINED UNCONTROVERTED. THEREFORE WE SEE NO REASON TO INTERFERE WITH THE FINDING OF L D. CIT (A) ON THIS ISSUE. ACCORDINGLY, WE CONFIRM HIS ORDER DELETING THE ADDITION. 13. SECOND ISSUE RELATES TO ALLOWING THE CLAIM OF A SSESSEE ON ACCOUNT OF SALES-TAX INCENTIVE. 19 14. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN HIS ORDER AT PAGE 47. THE BRIEF FACTS AND FINDINGS OF THE LD. CIT (A) HAVE BEEN DIS CUSSED IN PARA 5.1 AT PAGE 47 OF HIS ORDER ARE AS UNDER :- 5.1 WITH REFERENCE TO THIS GROUND OF APPEAL, LD. AR SUBMITTED, AT THE VERY OUTSET, THAT THIS GROUND WAS COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF HONBLE ITAT, JAIPUR BENCH, JAIPUR PASSED IN ITA NO. 655/JP/09 DATED 31.03.2010, IN THE APPELLANTS OWN CASE FOR T HE A.Y. 2006-07. IN SUPPORT, LD. AR PLACED A COPY OF THE SAID DECISION OF THE HONBLE TRIBUNAL ON RECORD AND PLEADED THAT, IN VIEW OF THE SAID ORDER, THE IMPUGNED DISALLOWANCE MADE BY THE AO BE DELETED. ON PERUSAL OF PARA 3 OF THE ASSESSMENT ORDER, WHEREIN THE LD. AO HAS DIS CUSSED THE IMPUGNED DISALLOWANCE, THE SUBMISSIONS OF THE LD. AR MADE IN SUPPORT OF THIS GROUND OF APPEAL AND AFTER GOING THROUGH THE AFORES AID ORDER OF THE HONBLE JURISDICTIONAL BENCH OF THE ITAT, I FIND TH AT THE CONTENTION OF THE LD. AR IS CORRECT. THEREFORE, RESPECTFULLY FOLLOWIN G AFOREMENTIONED ORDER OF THE HONBLE ITAT, JAIPUR BENCH, PASSED IN THE AP PELLANTS OWN CASE FOR A.Y. 2006-07, THIS ISSUE IS DECIDED IN FAVOUR OF TH E APPELLANT. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE APPELL ANTS CLAIM OF RS. 2,68,43,528/- MADE IN RESPECT OF THE SALES-TAX INCE NTIVE. 15. SINCE FINDINGS OF LD. CIT (A) ARE IN CONSONANCE WITH THE FINDINGS OF LD. CIT (A) FOR ASSESSMENT YEAR 2006-07, ADDITION MADE BY AO WA S MADE ON THE BASIS OF ADDITION MADE IN THE ASSESSMENT YEAR 2006-07. THE TRIBUNAL HAS DELETED THE ADDITION AND LD. CIT (A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL WHILE DE LETING THE ADDITION FOR THE YEAR UNDER CONSIDERATION. 20 16. THE LD. D/R HAS ALSO FAIRLY ACCEPTED THAT SIMIL AR ADDITION WAS MADE IN EARLIER YEAR ALSO. HOWEVER, HE HAS STATED THAT IN VIEW OF THE E XPLANATION-10 OF SECTION 43(1) IT SHOULD HAVE BEEN CONSIDERED. 17. SINCE TRIBUNAL HAS TAKEN INTO CONSIDERATION THI S VERY ISSUE ALSO, THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A) OTHERWISE IT WILL INVITE INCONSISTENCY. ACCORDINGLY, WE CONFIRM THE ORDER O F LD. CIT (A) ON THIS ISSUE ALSO. 18. NEXT ISSUE RELATES TO ALLOWING THE CLAIM OF ASS ESSEE OF RS. 2,26,65,423/- IN RESPECT TO EXPENDITURE INCURRED ON FOREIGN CURRENCY CONVERT IBLE BONDS (FCCB). 19. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 6 ONWARDS AT PAGE 47 ONWARDS IN HIS ORDER. THE AO DISALLOWED THE CLAIM ON ACCOUNT OF FOREIGN CURRENCY CONVERTIBLE BONDS EXPENSES ON THE FOLLOWING REASONS WHICH HAVE BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) AT PAGES 47 TO 49 ARE AS UNDER :- FCCB ISSUE EXPENSES IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOW N FCCB ISSUE EXPENSES AMOUNTING TO RS. 2,26,65,423/- WHICH HAS BEEN CLAIMED AS A DEDUCTION. IN THE BOOKS, THE ASSESSEE HAD CLAIMED 1 /5 TH OF THIS AMOUNT BEING RS. 45,33,085/- AND HAD SHOWN IT AS A DEFERRED REVENUE EXPENDITURE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E DETAILS OF SUCH FCCB ISSUE EXPENSES WERE CALLED FOR. IT IS SEEN THAT THE COMPANY ISSUED FOREIGN CURRENCY CONVERTIBLE BONDS IN THE NA ME OF 14 TH JULY, 2006 US 7.5 MILLION ZERO COUPON UNSECURED CONVERTIBLE BO NDS DUE 2011' AND RAISED RS. 32,82,25,000/- (7.5 MILLION USD) ON 14.7.2006. VIDE ORDER SHEET ENTRY DATED 11.12.2009 THE AR OF T HE ASSESSEE WAS ASKED TO GIVE JUSTIFICATION AND ALLOW-ABILITY O F THE EXPENSES CLAIMED (FCCB ISSUE EXPENSES). THOUGH THE BONDS WERE REDEEMABLE ON 21.7.11 IN CASH @ 150.054% OF THE PRINCIPAL AMOUNT, BEFORE THE REPORT ING DATE OF BALANCE SHEET I.E. 25.8.2007, THE COMPANY RECEIVED CONVERSI ON NOTICE FROM THE 21 FCCB HOLDERS THAT THEY ARE INTERESTED TO OPT FOR CO NVERSION OPTION. ACCORDINGLY, THE ASSESSEE DID NOT PROVIDE FOR INTER EST ON SUCH BONDS IN ITS BOOKS. FROM THE ABOVE IT IS CLEAR THAT FIRSTLY, THE EXPEND ITURE WAS NOT IN RELATIVE TO A LOAN OR, BORROWING BY THE COMPANY, BU T IT WAS FOR ISSUE OF CONVERTIBLE BONDS, WHICH WERE CONVERTIBLE TO SHARES . THE FACT THAT ALL SUCH FCCB HOLDERS OPTED FOR CONVERSION OPTION FURTHER AU GMENTS THE FINDING THAT THE EXPENDITURE WAS TO AUGMENT THE SHARE CAPIT AL OF THE COMPANY. ANY EXPENDITURE INCURRED FOR INCREASING THE SHARE C APITAL OF A COMPANY IS NOT ALLOWABLE EXCEPT AS PROVIDED I SECTI ON 350 OF THE INCOME TAX ACT, WHICH ALLOWS AMORTIZATION OF CERTAIN EXPEN SES, UPTO A CERTAIN LIMIT, CALCULATED ON THE BASIS OF CAPITAL EMPLOYED IN THE BUSINESS OF THE COMPANY. THE ISSUES INVOLVED REGARDING ALLOW-ABILITY OF SUCH EXPENSES ARE DISCUSSED BELOW:- (1) ALLOW-ABILITY OF EXPENSES FOR RAISING SHARE C APITAL IS COVERED UNDER SECTION 350 OF THE I.T. ACT. AS PER SECTION 350(1) IT IS AVAILABLE TO AN INDIAN COMPANY, BEFORE COMMENCEMENT OF ITS BUSINESS, OR, A FTER COMMENCEMENT OF BUSINESS, IN CONNECTION WITH THE EXTENSION OF HIS U NDERTAKING, OR SETTING UP A NEW PLANT. THE ASSESSEE HAS NOT SHOWN THIS FCCS ISSUE TO BE LINKED WITH ANY EXTENSION OF THE UNDERTAKING OR SETTING UP OF A PLANT. HENCE, THE AMOUNT INCURRED IS NOT DEDUCTIBLE. (2) THE AMOUNT ALLOWABLE IS CALCULATED AT 5% OF THE CAPITAL EMPLOYED. THE ASSESSEE HAS ALREADY AVAILED THE 2.5% LIMIT U/S 350. FOR BEING ELIGIBLE FOR CLAIMING ADDITIONAL 2.5%, THE EXPENDITURE IS TO BE LINKED WITH THE COMMENCEMENT OF THE NEW UNIT OR, EXTENSION OF THE U NDERTAKING, AND WILL BE ALLOWABLE IN THE YEAR IN WHICH SUCH EXTENSION IS CO MPLETED OR, THE UNIT COMMENCES ITS PRODUCTION, IN SO FAR AS SUCH CAPITAL /DEBENTURE HAVE BEEN OBTAINED IN CONNECTION WITH EXTENSION OF THE UNDERT AKING OR SETTING UP OF THE NEW UNIT. AS NO NEW UNIT HAS COMMENCED WHICH COULD BE LINKE D TO THE DEBENTURE, THE CLAIM CAN NOT BE ALLOWED IN THE RELEVANT YEAR. (3) WITH REGARD TO THE APPLICABILITY OF THIS SECT ION IN RESPECT OF DEBENTURES, THE SAME HAS BEEN CLARIFIED IN THE DECI SION OF HON'BLE M.P.HIGH COURT IN THE CASE OF SHREE SYNTHETICS LTD. VS. CIT (MP)(200B)(303 ITR 0451), WHEREIN THE HON'BLE COURT HELD THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE TOWARDS EXECUTION OF THE DEBENTURE ISSUE W AS IN THE NATURE OF 22 PRELIMINARY EXPENSES AND HEREBY COVERED BY SECTION 350, AND HAD TO BE WORKED OUT IN THE MANNER PROVIDED THEREIN' (4) THE HON'BLE M.P.HIGH COURT HAS HELD THAT DEB ENTURES INCLUDE BOTH CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES. IN THE CASE OF THE ASSESSEE, NOT ONLY THESE ARE FULLY CONVERTIBLE, BUT ALL THE BOND HOLDERS HAVE ACTUALLY OPTED FOR CONVERSION. HENCE, ALLOWANCE. OF THE SAME AS RE VENUE EXPENDITURE IS NOT CORRECT. (5) EVEN IF IT IS CONSIDERED THAT THESE ARE BORR OWING COST FOR ANY EXPANSION OR, NEW UNIT, SUCH EXPENSE COULD HAVE BEE N CAPITALIZED, BUT CAN NOT BE ALLOWED AS REVENUE EXPENDITURE. (6) EVEN THE ASSESSEE HAS AMORTIZED EXPENSE IN 5 YEARS, BY TAKING IT AS DEFERRED REVENUE EXPENDITURE. WITH THESE DISCUSSIONS, THE ENTIRE FCCB ISSUE EXPEN SE EXPENDITURE AMOUNTING TO RS. 2,26,65,423/- IS DISALLOWED. PENALTY PROCEEDING U/S 271 (1)(C) IS INITIATED SEPARATELY FOR MAKING A WRONG C LAIM OF DEDUCTION. 20. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH HAVE BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) IN PARA 6.2 AT PAGES 49 TO 51 ARE AS UNDER :- 19.1 THE LEARNED OFFICER IN THIS REGARD, HAS OB SERVED IN PARA 3 AT PAGE 30 OF THE ORDER OF ASSESSMENT THAT, THE APPELLANT C OMPANY ISSUED FCCB BONDS ON 14.7.2006 OF US 7.5 MILLION COUPON UNSECUR ED CONVERTIBLE BONDS DUE 2011 AND RAISED RS. 32,82,25,000/- (7.5 M ILLION USD). IT HAS BEEN STATED VIDE ORDER SHEET ENTRY DATED 11.11.2001 , THE APPELLANT WAS DIRECTED TO JUSTIFY AND ALLOWABILITY OF THE EXPENSE S. THE APPELLANT IN REPLY DATED 11.12.2009 SUBMITTED AS UNDER: DETAILS OF DEFERRED REVENUE EXPENSES: IN THIS REGA RD IT IS SUBMITTED THAT DURING THEY YEAR UNDER CONSIDERATION THE COMPANY HAS INCURRED RS. 6,03,19,759/- TOWARDS THE ADVERTISEMENT CAMPAIGN FOR NEW PRODUCT RANGE OF INVERTER/UPS AND FCCB ISSUE EXPENSES. OUT OF TOTAL DEFERRED REVENUE EXPENSES RS. 3,76,54,337/- WERE INCURRED ON ADVERTISEMENT CAMPAIGN AND RS.2,26,65,422/- ON FCCB ISSUE EXPENSES. 23 ADVERTISEMENT CAMPAIGN WAS CARRIED OUT FOR COUNTRYW IDE PUBLICITY OF OUR NEW PRODUCTS RANGE THROUGH PRINT, ELECTRONIC MEDIA. FOR ACCOUNTING PURPOSES AND RETAIL PROFITABI LITY ANALYSIS THE EXPENDITURE WAS CARRIED AS FICTITIOUS ASSETS AN D CLAIMED IN THE PROFIT & LOSS ACCOUNT IN 5 EQUAL INSTALLMENTS S UBSEQUENT FROM FY 2006-07. THE FCCB ISSUE EXPENSE WAS INCURRED FOR ISSUANCE OF FCCB 14 TH JULY 2006 US $7,500,000 ZERO COUPON UNSECURED CONVERTIBLE BONDS DUE 2011. IN THE PROCESS OF ISSU E THE IPA (ISSUING & PAYING AGENT) ON OUR BEHALF COLLECTED TH E SUBSCRIBED MONEY AND DISBURSED THE FCCB TO THEIR SUBSCRIBERS A ND REMITTED THE COLLECTED MONEY IN OUR ACCOUNT AND RAI SED THE BILL FOR HIS SERVICES. FOR ACCOUNTING PURPOSES AND LOGIC AL BOOK PROFITS THE EXPENDITURE WAS CARRIED AS FICTITIOUS A SSETS AND CLAIMED IN THE PROFIT & LOSS ACCOUNT IN 5 EQUAL INS TALLMENTS SUBSEQUENT FROM FY 2006-07. THE CALCULATION OF AMORTIZATION AND DEFERMENT OF AB OVE EXPENSES IN THE BOOKS IS AS UNDER:- PARTICULARS TOTAL AMOUNT INCURRED RS. CLAIMED IN P&L BEING 1/5 OF THE TOTAL DEFERRED REVENUE EXPENSES CARRIED AS ASSETS ADVERTISEMENT CAMPAIGN EXP 3,76,54,337/- 75,30,868/- 3,01,23,469/- FCCB ISSUE EXPENSES 2,26,65,422 45,33,084/- 1,81,32,338/- TOTAL 6,03,19,756/- 1,20,63,952/- 4,82,55,807/- THE DETAILS OF THE ABOVE EXPENDITURE ARE ENCLOSED WITH THE LETTER. 19.1 FURTHER, THE APPELLANT VIDE REPLY DATED 15.12. 2009 SUBMITTED AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS CONDUC TED ON DT 11/12/09 YOUR GOOD SELF HAS DESIRED THE DETAILS OF THE FCCB ISSUE EXPENSE WAS INCURRED IN RESPONSE TO THE ISSUA NCE OF FCCB 14 TH JULY 2006 US$7,50,000 ZERO COUPON UNSECURED CONVERTIBLE BONDS DUE 2011. DURING THE YEAR UNDER CONSIDERATION THE COMPANY HAS RECEIVED RS. 32822500 0 (7500,000 USD) ON DT.14/07/06. IN THE PROCESS OF IS SUE THE IPA (ISSUING & PAYING AGENT) ON OUR BEHALF COLLECTE D THE 24 SUBSCRIBED MONEY AND DISBURSED THE FCCB TO THEIR SU BSCRIBERS AND REMITTED THE COLLECTED MONEY IN OUR ACCOUNT AND RAISED THE BILL FOR HIS SERVICES. FOR ACCOUNTING PURPOSES AND LOGICAL BOOK PROFITS THE EXPENDITURE WAS CARRIED AS FICTITIOUS A SSETS AND CLAIMED IN THE PROFIT & LOSS ACCOUNT IN 5 EQUAL INS TALLMENTS SUBSEQUENT FROM FY 2006-07. THE CALCULATION OF AMORTIZATION AND DEFERMENT OF AB OVE EXPENSES IN THE BOOKS IS AS UNDER: PARTICULARS TOTAL AMOUNT INCURRED RS. CLAIMED IN P&L BEING 1/5 OF THE TOTAL DEFERRED REVENUE EXPENSES CARRIED AS ASSETS FCCB ISSUE EXPENSES 2,26,65,422 45,33,084/- 1,81,32,338/- THE DETAILS OF TOTAL EXPENDITURE INCURRED RS. 2,26,65,422/- IS ENCLOSED WITH THE LETTER. 19.2 IT IS SUBMITTED THAT, ENTIRE EXPENDITURE INCUR RED ON ISSUE OF FCCB BONDS OF RS. 2,22,65,423/- HAD BEEN CLAIMED BY THE APPELLANT AS REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THE DETAILS OF SU CH EXPENDITURE OF RS. 2,26,65,422/- IS PLACED AT PAGE 852 OF THE PAPER BO OK II. IT IS SUBMITTED THAT, BASIS ADOPTED BY THE LEARNED OFFICER TO DISAL LOW THE CLAIM AND, AS WOULD BE EVIDENT FROM PAGE 32 OF THE ORDER OF ASSES SMENT IS THAT SUCH EXPENSES ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 35D OF THE ACT. IT HAS ALSO BEEN STATED THAT, M.P. HIGH COURT IN THE CASE OF SHREE SYNTHETICS LTD. VS. CIT REPORTED IN 303 ITR 451 IN THE CONTEXT OF D EBENTURES HAS HELD THAT, EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS EXECUT ION OF THE DEBENTURE ISSUE WAS IN THE NATURE OF PRELIMINARY EXPENSES AND HEREBY COVERED BY SECTION 35D AND SINCE IN THE INSTANT CASE, PROVISIO N OF SECTION 35D OF THE ACT WAS NOT FULFILLED THEREFORE, EXPENDITURE OF FCC B BONDS IS NOT ALLOWABLE. 19.3 IT IS SUBMITTED THAT, THE AFORESAID BASIS ADOP TED BY THE LEARNED OFFICER TO DENY THE CLAIM OF EXPENDITURE IS LEGALLY MISPLACED AND IN FACT, OVERLOOKS THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. SECURE METERS LTD (PAGES 1882 TO 1889 OF PB) . IT WILL BE SEEN FROM THE AFORESAID JUDGMENT THAT, EXPENDITURE INCURRED O N FCCB HAS BEEN HELD TO BE ELIGIBLE BUSINESS EXPENDITURE UNDER SECTION 3 7(1) OF THE ACT AND, THE AFORESAID JUDGMENT STANDS CONFIRMED BY APEX COURT, COPY OF WHICH IS PLACED AT PAGE 1890 OF PAPER BOOK AND THEREFORE, DI SALLOWANCE SO MADE MAY KINDLY BE DELETED. 25 19.5 IN LIGHT OF THE AFORESAID FACTS, IT IS SUBMITT ED THAT SUCH EXPENDITURE INCURRED ON FCCB RS. 2,26,65,423/- IS ELIGIBLE FOR DEDUCTION AND THUS, THE SAME MAY KINDLY BE DELETED. 21. AFTER CONSIDERING THE ORDER OF AO AND SUBMISSIO NS OF ASSESSEE, THE LD. CIT (A) FOUND THAT THE ISSUE SQUARELY COVERED BY THE DECISI ON OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF M/S. SECURE METERS LTD., 321 ITR 6 11 (RAJ.). ACCORDINGLY, HE DELETED THE ADDITION. 22. THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE AO. IT WAS FURTHER SUBMITTED THAT SINCE PROVISIONS OF SECTION 35D ARE APPLICABLE, THE AO HAS MADE DISALLOWANCE IN VIEW OF PROVISIONS OF SECTION 35D. PROVISIONS OF SECTION 3 5D WAS READ ALSO BY LD. D/R. ACCORDINGLY, IT WAS SUBMITTED THAT ORDER OF AO IS L IABLE TO BE RESTORED. 23. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), WE FIND THAT LD. CIT (A) HAS DELETED THE DISALLOWANCE FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF M/S. SECURE METERS LTD., 321 ITR 611 (RA J.). WE HAVE GONE THROUGH THE DECISION OF HONBLE RAJASTHAN HIGH COURT AND FOUND THAT THIS VERY ISSUE HAS BEEN EXAMINED THOROUGHLY BY THE HONBLE RAJASTHAN HIGH C OURT. THE HONBLE RAJASTHAN HIGH COURT HAS TAKEN INTO CONSIDERATION THE DECISIO N OF HONBLE APEX COURT IN CASE OF BROOKE BOND INDIA LTD. VS. CIT, 225 ITR 798 (SC) WH ICH WAS RELIED UPON ON BEHALF OF THE DEPARTMENT. AFTER CONSIDERING THIS DECISION, T HEN ONLY THE HONBLE RAJASTHAN HIGH COURT CAME TO CONCLUSION THAT THE EXPENDITURE INCU RRED ON FCCB ARE OF REVENUE IN NATURE. THE DETAILED REASONING GIVEN BY HONBLE RAJ ASTHAN HIGH COURT IS RECORDED IN PARA 7 TO 11 OF ITS ORDER ARE AS UNDER :- 26 7. WE HAVE GONE THROUGH THE JUDGMENT IN BROOKE B OND INDIA LTD.'S CASE [1997] 225 ITR 798 ( SC) AND FIND THAT THAT WAS A CASE WHERE THE REGISTRATION FEE TO THE TUNE OF RS. 1,50,000 WAS PA ID TO THE REGISTRAR OF COMPANIES FOR INCREASING THE SHARE CAPITAL OF THE COMPANY, WHILE IN THE CASE OF INDIA CEMENTS LTD. [1966] 60 ITR 52, T HE MATTER RELATED TO THE BORROWING OF RS.40 LAKHS FROM A FINANCIAL INSTITUT ION, WHICH LOAN WAS SECURED BY A CHARGE ON THE FIXED ASSETS OF THE COM PANY. THE HON'BLE SUPREME COURT IN THIS JUDGMENT CONSIDERED VARIOUS ASPECTS OF THE MATTER INCLUDING THE PREVIOUS ENGLISH JUDGMENTS AND COUPLE OF JUDGMENTS OF THE ENGLISH COURTS BASED ON THE ENGLISH INCOME TAX ACT AND PROCEEDED TO DRAW DISTINCTION BETWEEN THE INCOME TAX LAW IN ENG LAND AND INDIA. NOT ONLY THIS, THE HON'BLE SUPREME COURT FURTHER PROCE EDED TO EXAMINE A NUMBER OF CASES DECIDED BY VARIOUS HIGH COURTS LIK E KERALA, ANDHRA PRADESH, CALCUTTA, BOMBAY, ETC., AND HAD GONE TO T HE EXTENT OF HOLDING THAT SOME OF THE JUDGMENTS WERE WRONGLY DECIDED. TH EN, THE HON'BLE SUPREME COURT PROCEEDED TO HOLD AS UNDER (PAGE 63) : '10. TO SUMMARISE THIS PART OF THE CASE, WE ARE OF THE OPINION THAT : (A) THE LOAN OBTAINED IS NOT AN ASSET OR ADVANTAG E OF AN ENDURING NATURE ; (B) THAT THE EXPENDITURE WAS MADE FOR SECU RING THE USE OF MONEY FOR A CERTAIN PERIOD ; AND (C) THAT IT IS IRR ELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAINED.' 8. THUS, IT WAS HELD THAT THE EXPENDITURE INCURRED IN PROCURING THE LOAN WAS REVENUE EXPENDITURE WITHIN SECTION 10(2)( XV) OF THE OLD INCOME- TAX ACT, WHICH CORRESPONDS TO SECTION 37 OF THE PR ESENT ACT. BY GOING THROUGH THE SAID JUDGMENT, IT FURTHER TRANSPIRES T HAT THE HON'BLE SUPREME COURT ALSO PROCEEDED TO EXAMINE THE ASPECT OF PURP OSE OF RAISING LOAN AND ITS IMMEDIATE OR SUBSEQUENT UTILISATION FOR DIFFER ENT PURPOSE AND EXAMINED THAT EVEN IF A LOAN IS RAISED FOR PURCHAS ING RAW MATERIAL AND AFTER RAISING THE LOAN THE COMPANY FINDS IT UNNECE SSARY TO BY RAW MATERIAL AND SPENDS THE AMOUNT ON CAPITAL ASSET, STILL IT C ANNOT BE SAID TO BE CAPITAL EXPENDITURE, AS IT WAS HELD THAT THE PURPOSE FOR W HICH THE NEW LOAN WAS REQUIRED WAS IRRELEVANT TO THE QUESTION AS TO WHET HER THE EXPENDITURE FOR OBTAINING LOAN WAS REVENUE OR CAPITAL EXPENDITURE. WE ARE TOLD THAT RELYING ON THIS JUDGMENT MANY OF THE HIGH COURTS OF THE COUNTRY HAVE CONSISTENTLY TAKEN THE VIEW THAT THE EXPENDITURE I NCURRED IN ISSUING ANY DEBENTURES AND RAISING LOAN ON DEBENTURES IS ADMIS SIBLE OBVIOUSLY BECAUSE THE DEBENTURE IS ALSO A LOAN. 9. AT THIS STAGE IT WAS CONTENDED BY THE LEARNED CO UNSEL FOR THE REVENUE THAT A DISTINCTION SHOULD BE DRAWN BETWEEN THE CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES INASMUCH AS IF THE DEBEN TURE IS CONVERTED INTO SHARES THEN IT PARTAKES OF THE CHARACTER OF CAPITA L AND IN THAT EVENT THE EXPENDITURE WOULD NOT BE REVENUE EXPENDITURE AND W OULD BE CAPITAL 27 EXPENDITURE. LEARNED COUNSEL FOR THE ASSESSEE INFO RMS THAT THOUGH IT HAS NOT COME ON RECORD SO FAR BUT AS A MATTER OF FACT THE DEBENTURES ISSUED WERE OF CONVERTIBLE NATURE. THEN, THE LEARNED COUNS EL FOR THE ASSESSEE ARGUED RELYING UPON THE JUDGMENT OF THE CALCUTTA H IGH COURT IN CIT V. EAST INDIA HOTELS LTD. REPORTED IN [2001] 252 ITR 860, THAT THE EXPENDITURE INCURRED EVEN IN RAISING LOAN BY CONVE RTIBLE DEBENTURE WOULD ALSO BE ADMISSIBLE AS REVENUE EXPENDITURE. THE CAL CUTTA HIGH COURT HAD ADOPTED THE REASONING THAT CONVERSION OF DEBENTURES RESULTS IN REPAYMENT OF LOAN AND ISSUANCE OF SHARES. THIS IS ONE ASPECT OF THE MATTER. IN OUR VIEW, THE OTHER MORE IMPORTANT ASPECT OF THE MATTE R IS THAT THE HON'BLE SUPREME COURT IN INDIA CEMENTS' CASE [1966] 60 ITR 52 HA S CLEARLY EXCLUDED THIS ASPECT FROM CONSIDERATION BY HOLDING THAT IT IS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAIN ED. 10. ADMITTEDLY, THE DEBENTURES WHEN ISSUED IS A LOA N AND, THEREFORE, WHETHER IT IS CONVERTIBLE OR NON-CONVERTIBLE DOES N OT MILITATE AGAINST THE NATURE OF THE DEBENTURE, BEING LOAN AND, THEREFORE, THE EXPENDITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE . 11. THUS, WE DO NOT FIND ANY ERROR IN THE FINDING O F THE LEARNED TRIBUNAL ON THIS ASPECT ALSO. CONSEQUENTLY, QUESTIO N NO. 2 ALSO AS FRAMED, IS REQUIRED TO BE AND IS ANSWERED AGAINST THE REVE NUE AND IN FAVOUR OF THE ASSESSEE. 23.1. THE FINDINGS OF HONBLE RAJASTHAN HIGH COURT ARE SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE AS IN THIS CASE ALSO THE EXPEND ITURE INCURRED BY ASSESSEE IS SIMILAR. THE AOS MAIN REASON FOR DISALLOWING THIS EXPENDITU RE WAS THAT ASSESSEE IN THE BOOKS OF ACCOUNT HAS CLAIMED DEDUCTION AT 1/10 TH TREATING THE EXPENDITURE ENDURING IN NATURE. IT I S WELL SETTLED IN LAW THAT ENTRIES IN THE BOOKS OF AC COUNT ARE NOT DECISIVE IN NATURE. IT HAS TO BE SEEN THAT ANY EXPENDITURE BOOKED BY ASSESSEE IS WHETHER CAPITAL IN NATURE OR REVENUE IN NATURE OR HAVING ANY ENDURING BENEFIT WHICH CANN OT BE ALLOWED IN ONE YEAR. IN VIEW OF THESE FACTS, THE AO ALLOWED 1/10 TH OF EXPENDITURE AND REMAINING EXPENDITURE WAS TREAT ED AS ALLOWABLE IN SUBSEQUENT 10 YEARS. THE LD. D/R H AS ALSO STATED THAT IN VIEW OF PROVISIONS OF SECTION 35D ONLY 1/10 TH EXPENDITURE HAS TO BE ALLOWED. AFTER GOING THROUG H THE RATIO OF HONBLE JURISDICTIONAL HIGH COURT IN C ASE OF M/S. SECURE METERS LTD. (SUPRA), 28 IT IS CLEARLY ESTABLISHED THAT EXPENDITURE INCURRED BY ASSESSEE IS OF REVENUE IN NATURE AND, THEREFORE, IT CANNOT BE COVERED UNDER SECTION 35D A S THE SAME IS ALLOWABLE UNDER SECTION 37(1). ACCORDINGLY, WE HOLD THAT LD. CIT (A) WAS J USTIFIED IN ALLOWING THE EXPENDITURE TREATING THE SAME AS REVENUE IN NATURE. THE ORDER OF LD. CIT (A) IS, THEREFORE, CONFIRMED ON THIS ISSUE. 24. NEXT ISSUE IN THE APPEAL OF THE DEPARTMENT IS A GAINST ALLOWING EXPENDITURE OF RS. 3,01,23,469/- CLAIMED ON ACCOUNT OF PUBLICITY AND S ALES PROMOTION EXPENSES. 25. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 7.1 AT PAGE 51 ONWARDS. THE FACTS DISCUSSED BY LD. CIT (A) ARE THAT THE ASSESSE E HAD CLAIMED AN EXPENDITURE OF RS. 3,76,54,336/- IN THE COMPUTATION TOWARDS PUBLICITY AND SALES PROMOTION, THOUGH IN THE BOOKS ONLY 1/5 TH OF SUCH EXPENDITURE, BEING RS. 75,30,867/-, HAD BEEN SHOWN. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD INCURRED EXP ENSES OF RS. 1,16,23,038/- AND RS. 3,76,54,337/- DURING THE YEAR TOWARDS PUBLICITY AND SALES PROMOTION. IN THIS REGARD, THE AO NOTICED THAT THE EXPENDITURE OF RS. 1,16,23,038/- HAD BEEN TREATED BY THE ASSESSEE AS ROUTINE EXPENDITURE AND HAD BEEN CLAIMED DURING THE YEAR, BUT THE EXPENSES OF RS. 3,76,54,337/- WERE TREATED AS SPECIFIC EXPENDITURE AND WERE AMORTIZED IN THE BOOKS OVER A PERIOD OF 5 YEARS. ACCORDINGLY, FOR THE F.Y. 2006-0 7, RS. 75,30,868/- WERE AMORTIZED, WHEREAS IN THE COMPUTATION OF INCOME, THE ENTIRE AM OUNT OF RS. 3,76,54,337/- WAS CLAIMED. THE AO OBSERVED THAT, THEREFORE, THE AFORE SAID EXPENSES OF RS. 3,76,54,337/- WERE MADE FOR GETTING ENDURING BENEFIT TO THE ASSES SEE. THE AO FURTHER OBSERVED THAT THOUGH THE INCOME TAX ACT DID NOT HAVE A SEPARATE P ROVISION RELATING TO AMORTIZATION OF SUCH EXPENSES, IN CASE OF EXPENDITURE RESULTING IN BENEFITS OF ENDURING NATURE, YET SUCH EXPENSES COULD BE AMORTIZED IN SEVERAL YEARS FOR PR OPER ACCOUNTING. ACCORDINGLY, THE AO 29 AMORTIZED THOSE EXPENSES OVER A PERIOD OF 5 YEARS A ND THUS, ALLOWED THE EXPENDITURE OF RS. 75,30,867/- IN THIS YEAR AND NOTED THAT THE BAL ANCE WAS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS AS DEFERRED REVENUE EXPENDITURE. 26. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A), WHICH ARE RECORDED IN THE ORDER OF LD. CIT (A) IN PARA 7.2 AT PAGES 52 TO 55 ARE AS UNDER :- 20. GROUND NOS. 8 TO 8.2 OF THE GROUNDS OF APPEAL ARE REGARDING DISALLOWANCE OF RS. 3,01,23,469/- REPRESENTING EXPE NDITURE INCURRED ON PUBLICITY AND SALES PROMOTION. THE LD. AO IN THIS R EGARD, HAS NOTED THAT THE APPELLANT HAS CLAIMED EXPENDITURE OF RS. 3,01,2 3,469/- IN THE COMPUTATION TOWARDS THE PUBLICITY AND SALES PROMOTI ON THOUGH IN THE BOOKS, ONLY 1/5 TH OF SUCH EXPENDITURE BEING RS. 75,30,867/- HAS BEEN SHOWN. HE FURTHER NOTED THAT, FROM THE DETAILS FILE D BY THE APPELLANT, IT IS SEEN THAT, THE APPELLANT COMPANY HAD INCURRED EXPEN SES OF RS. 1,16,23,038/- AND RS. 3,76,54,337/- DURING THE YEAR TOWARDS PUBLICITY AND SALES PROMOTION. HE HAS FURTHER STATED THAT, THE EX PENDITURE OF RS. 1,16,23,038/- HAS BEEN TREATED AS ROUTINE REVENUE E XPENDITURE AND HAS BEEN CLAIMED DURING THE YEAR WHILE EXPENSES OF RS. 3,76,54,337/- WHICH WAS TREATED AS SPECIFIC WAS AMORTIZED IN THE BOOKS OVER FIVE YEARS PERIOD. HE HAS FURTHER STATED THAT, ADVERTISEMENT AND PUBLI CITY HAVE ENDURING BENEFIT TO THE ASSESSEE THOUGH THE ACT DOES NOT HAV E A SEPARATE PROVISION RELATING TO AMORTIZATION OF SUCH EXPENSES, IN CASE OF EXPENDITURE RESULTING IN BENEFIT OF ENDURING NATURE, THE EXPENSE CAN BE A MORTIZED IN SEVERAL YEARS FOR PROPER ACCOUNTING. HE HAS THUS HELD THAT, SINCE PART OF THE EXPENSES ON PUBLICITY AND SALES PROMOTION HAS BEEN TREATED AS ROUTINE AND PART OF THE SAME HAS BEEN TREATED AS SPECIFIC, THER EFORE, THE PART WHICH HAS BEEN TREATED AS SPECIFIC HAS BEEN AMORTIZED IN THE BOOKS OVER FIVE YEARS AND THUS, HE HELD THAT BALANCE OF RS. 3,01,23,000/- WAS HELD TO BE NOT ALLOWABLE AS EXPENDITURE IN THE INSTANT YEAR. 20.1 IT IS SUBMITTED THAT, THE DISALLOWANCE IS BASE D ON COMPLETE MISCONCEPTION. IT IS SUBMITTED THAT THE DETAILS OF EXPENDITURE OF RS. 3.76 CRORES ARE PLACED AT PAGES 914 TO 918 OF THE PAPER BOOK-III. IT WILL BE FURTHER SEEN FROM THE DETAILS THAT EXPENDITURE INCU RRED IS REVENUE EXPENDITURE AND THEREFORE, ELIGIBLE BUSINESS EXPEND ITURE UNDER SECTION 37(1) OF THE ACT. IT IS SUBMITTED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE UNDER THE INCOME TAX ACT AND AS SUCH, THE ENTIRE EXPENDITURE IS ELIGIBLE UNDER SECTION 37(1) OF THE ACT. THE APPELLANT SEEKS TO RELY UPON THE ORDER OF INCOME TAX APPELLATE TRIB UNAL, IN THE CASE OF M/S SALORA INTERNATIONAL (IT APPEAL NO. 1999 (DELHI ) OF 2004), WHICH HAD BEEN UPHELD BY THE HONBLE HIGH COURT OF DELHI REPO RTED IN (2009) 308 30 ITR 199 (DEL). IN THE SAID ORDER, HONBLE TRIBUNAL HELD THAT, SUCH A DISALLOWANCE IS NOT PERMISSIBLE, SINCE EXPENDITURE HAD BEEN INCURRED IN THE COURSE OF BUSINESS AND MERELY BECAUSE IT WILL ENURE BENEFIT TO A LONGER PERIOD, THE SAME CAN NOT BE HELD TO BE NOT FULLY AL LOWABLE. IT IS THUS THE SAME LEGAL PRINCIPLE HAS BEEN ADOPTED IN RESPECT OF THE EXPENDITURE INCURRED AND CLAIM IS ALLOWABLE. IN FACT, HONBLE DELHI HIGH COURT IN (2009) 308 ITR 199 (DEL) HAS HELD AS UNDER: THE FIRST ISSUE THAT IS SOUGHT TO BE RAISED IN THI S APPEAL PERTAINS TO ADVERTISING EXPENDITURE OF APPROXIMATEL Y RS 3.08 CRORES. ACCORDING TO THE ASSESSING OFFICER/THE EXPE NDITURE WERE INCURRED FOR LAUNCHING OF ITS PRODUCTS. THE AS SESSING OFFICER WAS OF THE VIEW THAT SUCH EXPENDITURE WAS O F AN ENDURING NATURE AND, THEREFORE, TREATED ONE-THIRD A S 'CAPITAL EXPENDITURE' AND ONLY ALLOWED THE TWO-THIRDS OF THE SAID AMOUNT AS 'EXPENDITURE, TO THE ASSESSEE'. THE COMMI SSIONER OF INCOME-TAX (APPEALS) ALLOWED THE ENTIRE AMOUNT A FTER TREATING THE EXPENDITURE AS 'REVENUE EXPENDITURE'. THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS ) WERE CONFIRMED BY THE INCOME-TAX APPELLATE TRIBUNAL BY V IRTUE OF THE IMPUGNED ORDER. PARTICULARLY, THE TRIBUNAL HELD THAT THERE WAS A DIRECT NEXUS BETWEEN THE ADVERTISING EXPENDIT URE AND THE BUSINESS OF THE ASSESSEE AND THAT THE ASSESSEE HAD TO INCUR SUCH EXPENDITURE TO MEET THE COMPETITION IN THE IND IAN MARKET FOR SELLING ITS PRODUCTS IN INDIA. A FINDING WAS RE TURNED THAT UNLESS THE ASSESSEE MADE ITS PRODUCTS KNOWN TO THE MARKET, ITS BUSINESS WOULD SUFFER. CONSEQUENTLY, THE TRIBUNAL H ELD THE ENTIRE EXPENDITURE ON ADVERTISING TO BE OF A REVENU E NATURE AND ALLOWED THE SAME. THE TRIBUNAL ALSO NOTED THE D ECISION OF THE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LT D. V. CIT [1980] 124 ITR 1 WHEREIN THE SUPREME COURT HELD THA T THERE COULD BE CASES WHERE THE EXPENDITURE EVEN IF IT WAS INCURRED FOR OBTAINING OF A BENEFIT OF AN ENDURING NATURE MA Y, NEVERTHELESS, BE ON THE REVENUE ACCOUNT AND, IN SUC H CASES, THE TEST OF 'ENDURING BENEFIT' MAY BREAK DOWN. WE ARE OF THE VIEW THAT THE DECISION OF THE TRIBUNA L ON THIS ASPECT OF THE MATTER DOES NOT CALL FOR ANY INTERFER ENCE AND, THEREFORE, NO SUBSTANTIAL QUESTION OF LAW ARISES ON THIS ASPECT. 20.2. IN FACT, IT IS THE OPINION OF THEIR LORDSHIP S OF HONBLE HIGH COURT OF DELHI THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE AND HAD BEEN HELD IN THE FOLLOWING DECISIONS: 31 I. CIT VS. BHARAT ALUMINIUM CO. LTD., (2008) 303 ITR 256 (DEL) II. CIT VS. GUJARAT GUARDIAN LTD., (2009) 222 C TR (DEL) 526 III. 17 SOT 29 (DEL) 20.3 IT HAS BEEN HELD BY THE APEX COURT IN THE CASE OF M/S INDIAN MOLASSES COMPANY PVT. LTD. VS. CIT REPORTED IN (1959) 37 ITR 66 (SC) AT PAGE 78, EXPENDITURE CAN BE SAID TO HAVE BEEN INCURRED WHEN THE SAME IS PAID OUT OR AWAY AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY. FURTHER, APEX COURT IN THE CASE OF CIT VS. ASSOCIATED CEMENT COMPANIES LTD. REPORTED IN (1988) 172 ITR 257 (SC) HAS HELD THAT, WHEN A LUMP-SUM PAYMENT WAS MADE WHICH WILL ENURE B ENEFIT FOR 15 YEARS IS REVENUE EXPENDITURE. IT IS SUBMITTED THAT, ASSESSEE COMPANY DERIVED NO ENDURING BENEFIT BY INCURRING THE AFORES AID EXPENDITURE AND, IN ANY CASE, EVEN IF IT IS ASSUMED THAT, SOME ENDURING BENEFIT WAS DERIVED, THEN TOO SINCE EXPENDITURE HAD BEEN INCURRED TO CON DUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED MORE PROFITABLY, THE SAME IS REVENUE EXPENDITURE IN VIEW OF THE JUDGEMENT OF APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS CIT REPORTED IN (1980)124 ITR 1 (SC) , WHEREIN IT WAS HELD THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCU RRED FOR OBTAINING ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENE FIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING N ATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE A ND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD TH AT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITAT ING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAG EMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FI XED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFIN ITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. 32 SIMILARLY, THE APEX COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT REPORTED AT (1989) 177 ITR 3 77 (SC) HAS HELD THAT: THERE IS ALSO NO SINGLE DEFINITIVE CRITERION WHICH , BY ITSELF, IS DETERMINATIVE AS TO WHETHER A PARTICULAR OUTLAY IS CAPITAL OR REVENUE. THE ONCE FOR ALL PAYMENT TEST IS ALSO INCO NCLUSIVE. WHAT IS RELEVANT IS THE PURPOSE, OF THE OUTLAY AND ITS INTENDED OBJECT AND EFFECT, CONSIDERED IN A COMMON SENSE WAY HAVING REGARD TO THE BUSINESS REALITIES. IN A GIVEN CASE, THE TEST OF ENDURING BENEFIT MIGHT BREAK DOWN. 20.4 APPLYING THE ABOVE TO THE FACTS OF THE CASE OF THE ASSESSEE COMPANY, IT IS SUBMITTED THAT THE EXPENDITURE INCUR RED FOR ADVERTISEMENT AND PUBLICITY OF THE INVERTORS IS REVENUE EXPENDITU RE ELIGIBLE FOR DEDUCTION U/S 37(1) OF THE ACT. IN SUPPORT OF THE ABOVE ARGU MENT, RELIANCE IS ALSO PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: A) (2008) 307 ITR 363, SHRIRAM PISTONS & RINGS LTD. V. CIT B) (2009) 309 ITR 371, CIT V. J. K. SYNTHETICS L TD. C) (1968) 69 ITR 692 (SC), CIT V. CIBA OF INDIA LTD. 20.5 IT IS SUBMITTED THAT, UNDER THE ACT, INCOME IS TO BE COMPUTED NOT ON THE BASIS OF ACCOUNTING TREATMENT BUT ON THE WELL E STABLISHED PRINCIPLES OF LAW INTERPRETED BY THE COURTS ON THE BASIS OF LAW, AS HAS BEEN HELD IN THE CASE OF CIT VS. SAHARA INDIA INVESTMENT LTD. REPORTED IN (2 004) 266 ITR 641 (ALL) .THE ASSESSEE ALSO SEEKS TO RELY UPON THE JUDGEMENT OF APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT REPORTED IN (1997) 227 ITR 172 (SC) TO CONTEND THAT THE TRANSACTION RECORDED IN THE BOOKS OF ACCOUNTS ARE NOT DECISIVE. 20.6 IN LIGHT OF THE AFORESAID SUBMISSIONS AND THE ORDER OF LD. CIT(A) ON THE SAME ISSUE IN FAVOUR OF THE APPELLANT COMPAN Y IN THE PREVIOUS ASSESSMENT YEAR, IT IS SUBMITTED THAT, EXPENDITURE INCURRED OF RS.2,09,89166/- MAY KINDLY BE HELD TO BE REVENUE EX PENDITURE ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT AND AS SUC H, DISALLOWANCE MADE OF RS.1,67,91,332/- MAY KINDLY BE DELETED. 27. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) FOUND THAT THE EXPENDITURE CLAIMED BY ASSESSEE IS ALLOWABLE UNDER SECTION 37(1 ). THE LD. CIT (A) HAS CONSIDERED 33 VARIOUS CASE LAWS ALSO. THE FINDINGS OF LD. CIT (A ) HAVE BEEN RECORDED IN PARA 7.3 AT PAGE 55 OF HIS ORDER ARE AS UNDER :- 7.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. ON PERUSAL OF THE RELEVANT DETAILS/DOCUMENT S, I FIND MERIT IN THE CONTENTIONS/ARGUMENTS OF THE LD. AR, RAISED IN SUPP ORT OF THIS GROUND OF APPEAL. IN THIS REGARD, IT IS NOTED THAT THERE IS N O DISPUTE REGARDING THE FACT THAT THE CLAIMED EXPENSES OF RS. 3,76,54,337/- WERE RELATING TO THE PUBLICITY AND SALES PROMOTION OF THE PRODUCTS MANUF ACTURED BY THE APPELLANT. THEREFORE, THOUGH THE SAID EXPENSES WOUL D HAVE GIVEN SOME BENEFIT OF ENDURING NATURE IN THE BUSINESS OF THE A PPELLANT, YET THE SAME WERE ALLOWABLE U/S 37(1) OF THE I.T. ACT, IN VIEW O F THE DIRECT DECISION OF HONBLE DELHI HIGH COURT, IN THE CASE OF M/S SALORA INTERNATIONAL (SUPRA) REPORTED AT 308 ITR 199 AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT V/S CORE HEALTHCARE LTD., 308 I TR 263 (GUJARAT). HENCE, RESPECTFULLY FOLLOWING THE SAID DECISIONS OF HONBLE DELHI AND GUJARAT HIGH COURTS, THIS GROUND OF APPEAL IS ALLOW ED IN FAVOUR OF THE APPELLANT. THE AO IS DIRECTED TO ACCORDINGLY GRANT RELIEF TO THE APPELLANT. 28. THE LD. D/R PLACED RELIANCE ON THE ORDER OF AO. 29. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 30. AFTER CONSIDERING THE FINDINGS OF AO AND LD. CI T (A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE LD. CIT (A) HAS DISCUS SED THE ISSUE IN DETAIL AFTER TAKING INTO CONSIDERATION THE DETAILED SUBMISSIONS OF THE ASSES SEE REPRODUCED IN THE ORDER OF LD. CIT (A), WHICH ARE ALSO TABULATED SOMEWHERE ABOVE IN TH IS ORDER. IT IS FURTHER SEEN THAT LD. CIT (A) HAS TAKEN INTO CONSIDERATION THE DECISION O F HONBLE DELHI HIGH COURT IN CASE OF M/S. SALORA INTERNATIONAL, 308 ITR 199 (DEL.) AND THE DECISION IN CASE OF M/S. CORE 34 HEALTHCARE LTD., 308 ITR 263 (GUJARAT) WHICH HAS NO W BEEN AFFIRMED BY HONBLE SUPREME COURT ALSO. SIMILAR FACTS ARE INVOLVED BEF ORE HONBLE DELHI HIGH COURT AS WELL AS BEFORE HONBLE GUJARAT HIGH COURT. THEREFORE, W E SEE NO REASON TO INTERFERE WITH THE FINDINGS OF LD. CIT (A) WHICH REMAINED UNCONTROVERT ED. ACCORDINGLY WE CONFIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE ALSO. 31. NEXT ISSUE IN THE APPEAL OF THE DEPARTMENT IS A GAINST DELETING THE ADDITION OF RS.8,38,022/- ON ACCOUNT OF DEPRECIATION ON PICK AND PLACE MACHINE. 32. THE AO DISALLOWED THE DEPRECIATION ON PICK AND PLACE MACHINE. THE LD. CIT (A) ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE FOLLOW ING THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 DECIDED IN ITA NO. 655/JP/2 009 DATED 31.3.2010 IN CASE OF ASSESSEE ITSELF. 33. SINCE LD. CIT (A) ALLOWED THE ISSUE FOLLOWING T HE ORDER OF TRIBUNAL IN CASE OF ASSESSEE ITSELF, THEREFORE, THERE IS NO REASON TO I NTERFERE WITH THE FINDING OF LD. CIT (A) ON THIS ISSUE ALSO. ACCORDINGLY, ORDER OF LD. CIT (A) IS CONFIRMED. 34. NEXT ISSUE IN THE APPEAL OF THE DEPARTMENT IS A GAINST DELETING THE DISALLOWANCE OF RS. 10,28,944/- ON ACCOUNT OF DEDUCTION CLAIMED UND ER SECTION 80IA(4) OF THE I.T. ACT. 35. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE UND ER SECTION 80IA(4) IN RESPECT OF PROFIT OF WIND MILLS OWNED BY THE ASSESSEE INSTALLE D AT BARAMSAR, JAISALMER, RAJASTHAN, BY OBSERVING THAT ASSESSEE HAD UTILIZED THE ELECTRI CITY PRODUCED BY THE WIND MILLS FOR ITS CAPTIVE CONSUMPTION. THEREFORE, THE AO DISALLOWED T HE DEDUCTION CLAIMED. 36. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT THE EN TIRE POWER GENERATED BY THE APPELLANT, FROM THE AFORESAID WIND MILLS, WAS SUPPL IED TO M/S JAIPUR VIDHYUT VITRAN NIGAM LTD. (JVVNL). IT WAS FURTHER EXPLAINED THAT, HOWEVER, THE JVVNL WHILE RAISING 35 THE BILLS FOR THE ELECTRICITY CONSUMED BY THE APPEL LANT COMPANY AT APPELLANTS INDUSTRIAL UNDERTAKING AT JAIPUR, HAD REDUCED THE TOTAL CONSUM PTION OF THE APPELLANT BY THE QUANTITY OF ELECTRICITY SUPPLIED TO JVVNL AT JAISALMER (MINU S THE WHEELING CHARGES, WHICH WERE EQUIVALENT TO 10% OF THE TOTAL ELECTRICITY GENERATE D). IN SUPPORT, LD. AR FILED COPIES OF THE RELEVANT DOCUMENTS AND CLAIMED THAT, ON THESE F ACTS, IT WAS NOT A CASE OF CAPTIVE CONSUMPTION, BUT THAT OF SALE OF THE ELECTRICITY TO JVVNL BY THE APPELLANT. LD. AR FURTHER SUBMITTED THAT, EVEN OTHERWISE, THE CAPTIVE CONSUMP TION CANNOT BE A GROUND TO DENY THE CLAIMED DEDUCTION, AS HELD BY THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. DCM SHRIRAM CONSOLIDATED LTD. 176 TAXMAN 149 (DELHI). 37. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) WAS SATISFIED. ACCORDINGLY HE ALLOWED THE CLAIM OF THE ASSESSEE. 38. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY THE RESPECTIVE PARTY, WE FIND NO INF IRMITY IN THE FINDING OF LD. CIT (A). IT IS SEEN THAT SIMILAR ISSUE WAS DECIDED BY HONBLE D ELHI HIGH COURT IN CASE OF DCM SHRIRAM CONSOLIDATED LTD., 176 TAXMAN 149 (DELHI) W HICH HAS BEEN CONSIDERED BY LD. CIT (A). IT IS FURTHER SEEN THAT THE ASSESSEE HAS ACTUALLY SOLD THE ELECTRICITY GENERATED FROM WIND MILLS TO M/S. JVVNL, WHO IN TURN HAD MADE THE CORRESPONDING ADJUSTMENTS IN THE CONSUMPTION OF ELECTRICITY BY THE ASSESSEE AT I TS JAIPUR FACTORY. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS CONSUMED THE ELECTRICITY OF ITS OWN. IN VIEW OF THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) WAS JUS TIFIED IN ALLOWING THE DEDUCTION CLAIMED UNDER SECTION 80IA(4). ACCORDINGLY, WE CON FIRM HIS ORDER ON THIS ISSUE ALSO. 39. REMAINING ISSUE IN THE APPEAL OF THE DEPARTMENT IS AGAINST ALLOWING DEDUCTION UNDER SECTION 80JJAA OF RS. 66,73,927/-. 36 40. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 12 AT PAGE 67 OF HIS ORDER. THE AO DISALLOWED THE CLAIM OF DEDUCTION UNDER SECT ION 80JJAA OF THE ACT. THE LD. CIT (A) ALLOWED THE ISSUE BY OBSERVING THAT IDENTICAL I SSUE HAS BEEN DECIDED BY THE TRIBUNAL WHILE DISPOSING THE APPEAL FOR ASSESSMENT YEAR 2006 -07 IN FAVOUR OF THE ASSESSEE. ACCORDINGLY HE ALLOWED THE CLAIM OF THE ASSESSEE. 41. THE LD. D/R FIRSTLY PLACED RELIANCE ON THE ORDE R OF AO. IT WAS FURTHER SUBMITTED THAT THOUGH THE ISSUE HAS BEEN DECIDED BY THE TRIBU NAL IN FAVOUR OF THE ASSESSEE, HOWEVER, THE TRIBUNAL HAS NOT CONSIDERED THE MATTER IN RIGHT PERSPECTIVE. IT HAS BEEN STATED THAT THERE ARE VARIOUS CONDITIONS WHICH ARE TO BE SATISF IED. ATTENTION OF THE BENCH WAS DRAWN ON I.T. RULES WHEREIN FORM NO. 10DA IS PRESCRIBED. ATTENTION OF THE BENCH IS ALSO DRAWN ON CLAUSES (A), (B), (C), (D) AND (E) ETC. AN D ACCORDINGLY IT WAS SUBMITTED THAT THIS ISSUE SHOULD BE RE-EXAMINED. 42. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ISSUE HAS BEEN EXAMINED BY THE TRIBUNAL THOROUGHLY. ATTENTIO N OF THE BENCH WAS DRAWN ON THE ORDERS OF THE TRIBUNAL PLACED IN THE PAPER BOOK. I T WAS FURTHER SUBMITTED THAT ALL THE CONDITIONS ARE SATISFIED AND IN THIS RESPECT ATTENT ION OF THE BENCH WAS DRAWN ON PAGE 791 OF THE PAPER BOOK WHEREIN A COPY OF CERTIFICATE ISS UED BY SHRI M.L.AGARWAL, CHARTERED ACCOUNTANT, WHO QUANTIFIED THE ADDITIONAL WAGES AS PER RULES. CALCULATION SHEET OF THE ADDITIONAL WAGES ARE PLACED AT PAGES 792 TO 797 IN THE PAPER BOOK. IT WAS ALSO SUBMITTED THAT THE AO HAS NOT CONTRADICTED THIS QUANTIFICATIO N BUT HAS DISALLOWED THE CLAIM MERELY ON THE BASIS THAT SIMILAR CLAIM WAS DISALLOWED IN E ARLIER YEAR. IT WAS ALSO SUBMITTED THAT ASSESSEE IS A LIMITED COMPANY AND CANNOT CLAIM DEDU CTION HYPOTHETICALLY. 37 43. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT AO HAS DISALLOWED THE CLAIM BY OBSERVING THAT SINCE THE CONDITIONS ARE NOT SATISFIED AS THE NUMBER OF WORKERS WHO WERE EMPLOYED IN FINAN CIAL YEARS 2004-05 AND 2005-06 ARE NOT AS PER RULES. IT IS FURTHER SEEN THAT A COPY O F FORM NO. 10DA CERTIFICATE BY THE AUDITORS IS PLACED AT PAGE 791 AND AS PER COLUMN NO . 9 TOTAL ADDITIONAL WAGES PAID IN PREVIOUS YEAR RELEVANT TO ASSESSMENT UNDER CONSIDER ATION IS ASCERTAINED AT RS. 2,22,46,427/-. 30% OF THE SAME I.E. RS. 66,73,927/ - HAS BEEN CLAIMED. THIS FIGURE HAS BEEN MENTIONED IN PARA 10 OF THIS REPORT GIVEN IN F ORM 10DA. IN PARA 12, THE AUDITOR HAS CERTIFIED THAT ANNEXURES FOR PREVIOUS YEARS 2 004-05 AND 2005-06 DULY CERTIFIED HAS BEEN FILED ALONG WITH THE INCOME-TAX RETURN FOR ASS ESSMENT YEARS 2005-06 AND 06-07 FOR THE NEW REGULAR WORKMEN EMPLOYED IN PREVIOUS YEARS 2004-05 AND 05-06 IN TERMS. IN THIS FORM FILED ALONG WITH THE RETURN, NO DEFECT WH ATSOEVER HAS BEEN POINTED OUT BY THE AO. CALCULATION SHEET WAS ALSO ENCLOSED, COPY OF W HICH IS PLACED AT PAGES 792 TO 797 AS MENTIONED ABOVE. THE LD. CIT (A) HAS CATEGORICALLY MENTIONED IN HIS ORDER THAT TRIBUNAL HAS ALLOWED THIS ISSUE FOR ASSESSMENT YEAR 2006-07 AND, THEREFORE, IN OUR CONSIDERED VIEW IT WILL BE FUTILE EXERCISE TO RESTORE THE MATTER TO THE FILE OF AO TO EXAMINE THE CONDITIONS ONCE AGAIN. THE AUTHORIZED AUDITORS HAVE CERTIFIED WHO HAS SIGNED FORM NO. 10DA, COPY OF WHICH IS PLACED ON RECORD AT PAGE 791 TO 797 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE CONSISTENCY AND IN VIEW OF FACTUAL ASPECT EXAMI NED BY THE AUDITORS WHICH WAS NOT COMMENTED UPON BY THE AO, WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE PART CLAIM OF THE ASSESSEE. IN FACT, FOR ASSESSMENT YE AR 2006-07 DEDUCTION CLAIMED AT RS. 51,00,000/- OR ODD WAS DISALLOWED UNDER SECTION 80J JAA. THE LD. CIT (A) ALLOWED THE DEDUCTION IN PART AND ON SECOND APPEAL, THE TRIBUNA L FOUND THAT IN ASSESSEES OWN CASE 38 FOR ASSESSMENT YEARS 2002-03 TO 05-06 SIMILAR DEDUC TION WAS DISALLOWED AND THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2002- 03 IN ITA NO. 259/JP/2006 & 314/JP/2009 AND IN ITA NO. 536/JP/2008 AND 956/JP/2 008 FOR ASSESSMENT YEAR 2004-05 AND 2005-06 HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY CONFIRMING THE ORDER OF LD. CIT (A). SINCE LD. CIT (A) HAS DECIDED THE ISS UE FOLLOWING THE ORDER OF TRIBUNAL FOR VARIOUS YEARS, THEREFORE, WE SEE NO REASON TO INTER FERE WITH THE FINDING OF LD. CIT (A). ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE. 44. NOW WE WILL TAKE UP THE APPEAL OF THE ASSESSEE. 45. FIVE GROUNDS OF APPEAL HAVE BEEN TAKEN BY THE A SSESSEE IN ITS APPEAL. 46. GROUND NO. 3 IS AGAINST RESTRICTING THE DEDUCTI ON UNDER SECTION 80JJAA WAS NOT PRESSED. THEREFORE, THE SAME IS DISMISSED AS NOT P RESSED. 47. GROUND NO. 4 IS AGAINST NOT ALLOWING DEDUCTION ON ACCOUNT OF CAPITAL RECEIPTS FOR THE PURPOSE OF COMPUTING PROFIT UNDER SECTION 115JB WAS ALSO NOT PRESSED. THEREFORE, THE SAME IS ALSO DISMISSED AS NOT PRESSED. 48. GROUND NO. 5 IS GENERAL IN NATURE, NEEDS NO ADJ UDICATION. 49. GROUND NO. 1 IS AGAINST UPHOLDING DISALLOWANCE OF RS. 28,87,65,173/- DISALLOWED BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED ON COM MISSION AND BROKERAGE. 50. THE BRIEF FACTS HAVE BEEN DISCUSSED BY LD. CIT (A) IN PARA 3.1 AT PAGES 2 TO 12 OF HIS ORDER ARE AS UNDER :- 3.1 THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF HYBRID MI CRO CIRCUIT ELECTRONICS METERS AND PRINTED CIRCUIT BOARDS. THE ORIGINAL RETURN OF INCOME WAS E-FILED ON 31.10.2007 DECLARING A TOTAL INCOME OF RS. 15,33,00,780/-. HOWEVER, A REVISED RETURN WAS E-FIL ED ON 30.03.2009, BY 39 AMENDING THE CALCULATION OF MAT. THE CASE WAS SELEC TED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED T HAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 28,42,89,476/- UNDER THE HEAD BROKERAGE, COMMISSION, SALES INCENTIVES AND DISCOUNT. THE AO F URTHER NOTED THAT A SUBSTANTIAL PART OF THAT EXPENDITURE, AMOUNTING TO RS. 25,72,74,744/- HAD BEEN CLAIMED AS PAID TO SIX PARTIES. HOWEVER, AS PE R HIS DETAILED DISCUSSION / REASONING, CONTAINED IN PARA 1, ON PAGES 4 TO 20 OF THE ASSESSMENT ORDER, THE AO FOUND THAT THE AFORESAID COMMISSION PAYMENT OF RS. 25,72,74,744/- WAS NOT GENUINE AND THEREFORE, THE A O DISALLOWED THE SAME. FURTHER, THE AO HELD THAT THE SERVICE TAX OF RS. 3,08,72,969/- THEREON AND CESS ON THE SERVICE TAX AMOUNTING TO RS. 6,17,460/-, SHOWN ON SUCH COMMISSION PAYMENT, WAS ALSO NOT ALLOWABLE, AS THE SAME WAS NOT INCURRED FOR THE BUSINESS PURPOSES. ACCORDINGLY, TH E AO MADE THE IMPUGNED DISALLOWANCE OF RS. 28,87,65,173/- [ RS. 25,72,74,744 + 3,08,72,969 + 6,17,460]. WITH A VIEW TO UNDERSTAND THE REASONING OF THE LD. AO FOR MAKING THE IMPUGNED DISALLOWANCE, THE AF ORESAID PARA 1 OF THE ASSESSMENT ORDER IS REPRODUCED BELOW: 1. COMMISSION: IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DE BITED AN AMOUNT OF RS. 28,42,89,476/- UNDER BROKERAGE, COMMISSION, SALES INCENTIVE AND DISCOUNT. THIS INCLUDED NOMINAL AMOUNTS OF SALES IN CENTIVES PAID ON SALE OF INVERTERS AS WELL AS EXPENDITURE BY WAY OF DISCO UNT. A SUBSTANTIAL PART OF THIS EXPENDITURE, AMOUNTING TO RS. 25,72,74,744 /- HAD BEEN CLAIMED TO HAVE BEEN PAID TO 6 PARTIES IN RELATION TO VARIOUS PROJECT CONTRACTS UNDERTAKEN BY THE ASSESSEE. ON THE COMMISSION AMOUN T FURTHER SERVICE TAX OF RS. 3,08,72,969/- AND CESS ON SERVICE TAX AMOUNTING TO RS. 6,17,460/- HAD BEEN SHOWN. 40 THE COMMISSION HAS BEEN PAID TO THE FOLLOWING PARTI ES AS PER DETAILS GIVEN BELOW: S.NO. PARTICULARS ORDER NO. COMMISSION INCENTIVE & DISCOUNT 1. RE/ AGRI-METERING / 144 / SUPPLY / B-747 DT. 29.04.06 (794081000) 2. RE/ AGRI-METERING / 144 / ERECTION / B-748 DT. 29.04.06 (139293000) 3. RE/ AGRI-METERING / 144/READING / B-746 DT. 29.04.06 (243144000) 164712520 1. ADHUNIK CORPORATION LTD., KOLKATA JPD/SE (TW)/ XEN (C&B) / TN-129/MAT / GENUS / D-3/2006 DT. 29.04.06 16030332 JPD/SE(TW)/XEN (C&B)/TN- 128/MAT/GENUS/D-4/2006 DT. 29.04.06 24313401 LOI NO. 593/APDRPU/EE-11/05-06/56GENUS DT. 09.08.05 2522201 LOI NO. 2522/PVVNL (V) MMAPDRP/EAV- 07/05-06/64 GENUS DT. 09.11.05 5432713 LIO NO. 653/APDRPU/EE-11/05-06/57GENUS DT-31.05.05 5807690 LIO NO. 703/APDRPU/EE-11/05-06/59GENUS DT-14.08.05 2907743 LIO NO. 846/APDRPU/EE-11/05-06/64GENUS DT-28.10.05 12493405 LIO NO. 705/APDRPU/EE-11/05-06/63GENUS DT. 14.09.05 3525966 2. SHYAM SEL LIMITED KOLKATA LIO NO. 848/APDRPU/EE-11/05-06/58GENUS DT. 14.09.05 2634020 3. C.P. REROLLERS LTD. 02-03/CE(S&P)SEPI/EEPI/1286 DT. 05.07.06 4019803 4. CRESENT BAKES PVT. LTD., KOLKATA ORDER NO. 31182 MKM-11.09.06 2124000 20061021/13.08.06 SEC- 1276275 30000QTY 212713 20060770/04.07.06 SEC- 1275000 5000QTY 200601022/13.08.06 SEC- 5. R.S. ISPAT PVT. LTD., KOLKATA 10000QTY 1247078 6. NAIYADIH HI-TECH PVT. LTD. JPD/SE(TW)/XEN (C&B)/TN- 115/MAT/GENUS/4119, 2006 5908499 TOTAL 257274744 1.1 THE ISSUE RELATING TO CLAIM OF EXPENDITURE O N COMMISSION PAYMENT IS REQUIRED TO BE EXAMINED IN THE CASE OF T HE ASSESSEE ON THE BASIS OF PAST HISTORY. SUCH COMMISSION PAYMENTS SHO WN BY THE ASSESSEE SINCE THE AY. 1999-2000 HAVE BEEN CONSIDER ED TO BE BOGUS IN THE ASSESSMENTS. THOUGH SUCH ADDITIONS HAVE BEEN DE LETED BY THE ITAT (TILL AY. 2005-06), THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HON'BLE ITAT AND HAS PREFERRED APPEAL U/S 260A BEFO RE THE HON'BLE HIGH COURT. IT IS ALSO PERTINENT TO MENTION SUCH AD DITIONS IN AY. 2004- 05, 2005-06 & 2006-07 HAVE BEEN CONFIRMED BY THE LD . CIT(A). 41 1.2 A SURVEY U/S 133A HAD BEEN CONDUCTED ON 5.9. 2007 AT THE BUSINESS PREMISE OF THE ASSESSEE IN ORDER TO EXAMIN E THE GENUINENESS OF THE COMMISSION PAYMENT. IT IS PERTINENT TO NOTE THAT TILL THE DATE OF SURVEY NO PAYMENT OF COMMISSION HAD BEEN MADE DURIN G FY. 2007-08 (AY. 2008-09). THE DETAILS OF COMMISSION PAYMENTS P ERTAINING TO AY. 2006-07(AY. 2007-08) WERE EXAMINED, AND STATEMENTS OF THE KEY PERSONNEL PRESENT WERE RECORDED. THESE STATEMENTS A RE RELEVANT FOR EXAMINATION OF THE ISSUE OF COMMISSION PAYMENT. 1.3 A SEARCH AND SEIZURE OPERATION CARRIED OUT BY THE INVESTIGATION WING IN DELHI ON 12.12.2006, SHOWED THAT ONE SHRI S .K.GUPTA, CHARTERED ACCOUNTANT WAS ENGAGED IN RUNNING SEVERAL BOGUS CONCERNS FOR ISSUING ACCOMMODATION ENTRIES. COPY OF INVOICE SEIZED DURING THE COURSE OF THE SEARCH SHOWED THAT ONE INVOICE FOR RS . 1.95 CRORE WAS IN THE NAME OF THE ASSESSEE. SHRI GUPTA ADMITTED THAT THE COMPANIES RUN BY HIM WERE ONLY ENGAGED IN PROVIDING ACCOMMODATION ENTRIES. THIS FINDING ALSO CORROBORATES THE FACT THAT THE ASSESSE E HAS BEEN TAKING ACCOMMODATION ENTRIES. 1.4 DURING THE COURSE OF THE ASSESSMENT PRECEDING, THE AR OF THE ASSESSEE WAS ASKED TO PRODUCE THE EXECUTIVES/ PERSO NNEL WHO HAD TAKEN THE DECISION IN RESPECT OF APPOINTMENT OF COMMISSIO N AGENTS. IN RESPONSE TO THIS SHRI ANANT LUHADIA, GM OF THE COMPANY ATTEN DED AND HIS STATEMENT WAS RECORDED. HOWEVER, FROM HIS STATEMENT IT WAS EVIDENT THAT ACTUALLY HE HAD NOT TAKEN THE DECISION REGARDING AP POINTMENT OF COMMISSION AGENTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E AR OF THE ASSESSEE, VIDE ORDER SHEET ENTRY DATED 22.10.2009 W AS ASKED TO FURNISH DETAILS OF THE COMMISSION PAID DURING THE YEAR, (WI TH NAME, ADDRESS AND CONFIRMATION) AND PURPOSE FOR WHICH THE COMMISSION HAS BEEN PAID. HOWEVER, BEFORE THE DATE FIXED FOR HEARING, THERE W AS A FIRE IN THE VICINITY OF THE ASSESSEE'S CORPORATE OFFICE LEADING TO LOSS OF LIFE AND PROPERTY. ADJOURNMENT WAS SOUGHT AND THE SAME WAS G RANTED. VIDE ORDER SHEET ENTRY DATED 13.11.2009, THE AR OF THE ASSESSEE WAS ASKED TO INFORM AS TO WHO, IN THE ASSESSEE'S CO MPANY HAD TAKEN THE DECISION IN RESPECT OF APPOINTMENT OF COMMISSION AG ENTS. AS THIS INFORMATION WAS NOT FURNISHED VIDE ORDER SHEET ENTR Y DATED 19.11.2009, THE AR WAS ASKED TO PRODUCE THE EXECUTIVE/PERSONNEL WHO HAD TAKEN THE DECISION IN RESPECT OF APPOINTMENT OF COMMISSION AG ENTS. THE LIST OF PARTIES TO WHOM COMMISSION HAD BEEN PAID WAS FILED ON 7.12.2009. 42 VIDE ORDER SHEET ENTRY DATED 7.12.2009, THE AR OF T HE ASSESSEE WAS ONCE AGAIN REMINDED THAT NEITHER THE INFORMATION WI TH REGARD TO WHO HAD TAKEN THE DECISION REGARDING APPOINTMENT OF COMMISS ION AGENTS, HAS BEEN FURNISHED, NOR THE CONCERNED EXECUTIVES HAVE BEEN P RODUCED FOR EXAMINATION. FURTHER, THE AR OF THE ASSESSEE WAS AS KED TO .GIVE EXACT DETAILS OF SERVICES RENDERED BY THE 6 COMPANIES FOR WHICH COMMISSION PAYMENT HAS BEEN MADE, FROM THE PROCESS OF APPOINTM ENT OF COMMISSION AGENTS. ON 11.12.2009, A DETAILED REPLY WAS FURNISHED WITH REGARD TO THE FUNCTION PERFORMED BY THE COMMISSION AGENTS AND HOW THE COMPANY HAS UTILIZED THE SERVICES RENDERED BY THEM. IT WAS CLAIMED THAT THE SERVICES RELATED TO PRE TENDER SERVICES, POST TENDER SERVICES, PRE DISPATCH SERVICES, POST DISPAT CH SERVICES AND FOLLOW-UP FOR REALIZATION. THE REPLY WAS ALMOST A R EPETITION OF THE REASONING FURNISHED IN THE PRECEDING ASSESSMENT YEA RS. THE ASSESSEE'S CLAIM AND THE OBSERVATIONS THEREON ARE DISCUSSED BE LOW: 1. IT HAS BEEN STATED THAT THE MANUFACTURER, EITH ER DIRECTLY CORRESPONDS WITH THE MAN IN AUTHORITY BY GIVING THE SPECIFICATI ONS, UTILITY, PRICE RANGE ETC. IN A BID TO PERSUADE THEM TO BUY THEIR P RODUCTS IN PREFERENCE TO THE PRODUCTS OF OTHER MANUFACTURER OR SOMETIMES THESE ARE FOLLOWED UP BY THE REPRESENTATIVES WHO DO COME AND GIVE DEMONSTRATIONS OF THEIR PRODUCT. THE HIGHER THE COS T THE MORE IS THE SOPHISTICATED METHODS OF PERSUASIONS. THESE ARE THE DAYS OF AGGRESSIVE ADVERTISING, PERSUASION BY CONTACT, BY W ORD OF MOUTH. IN ALL THESE CASE, THE NAMES OF THE PERSONS WHO IND UCED OR PERSUADED THE PERSONS AND AUTHORITY WHO WERE AUTHOR IZED TO PLACE THE ORDERS ARE NOT GENERALLY WRITTEN MUCH LESS AGRE ED TO. IN A COMPETITIVE MARKET. IT IS THE PERSONAL CONTACT THAT IS MORE IMPORTANT TO PERSUADE THE PERSONS AND AUTHORITY TO PLACE ORDERS, AND IF THOSE AUTHORITIES ARE ASKED AS TO HOW THEY P REFERRED A PARTICULAR ARTICLE TO ANOTHER ARTICLE AVAILABLE IN THE MARKET, THEY WILL NEVER ADMIT THAT THEY ARE PERSUADED BY THE PERSONAL CONTACT MADE BY THE REPRESENTATIVES OF THE MANUFACTURERS RATHER THEY WOULD SAY THAT THEY WERE PERSUADED BY THE GENERAL INFORMATION GATHERED. THE GATHERING OF GENERAL INFORMATION WILL ALWAYS MEAN P ERSONAL CONTACT. THIS IS REALITY, WHICH HAS TO BE BORNE IN MIND. THE ASSESSEE HAS TRIED TO EXPLAIN THAT THE COMMIS SION AGENTS HAD RENDERED SERVICE BY PERSUADING THE PERSONS IN AUTHO RITY WHO WERE AUTHORIZED TO PLACE THE ORDERS, BY MAKING PERSONAL CONTACT WIT H THEM. 43 FIRSTLY, NO EVIDENCE HAS BEEN FURNISHED TO SHOW THA T ANY PARTICULAR SALES OR TENDER, WHICH HAS BEEN FINALIZED BY MEANS OF THE PERSUASION. SECONDLY, THE ASSESSEE DEALS WITH GOVERNMENT BODIES , PARTICULARLY STATE ELECTRICITY BOARDS, WHERE THERE CAN NOT BE AN Y ROLE OF A MIDDLE MAN. FURTHER, WHILE THE RECORDING THE STATEMENT OF SHRI ANAND LUDHADIA ON 11.12.2009 HE WAS CLEARLY ASKED TO GIVE THE NAME OF THE OFFICIALS IN JWNL WHO HAD BEEN CONTACTED FOR GETTING HELP IN TENDENCY PROCESS. SHRI LUDHADIA MADE A GENERALIZED STATEMENT THAT THE COMMISSION AG ENTS KEEP THIS INFORMATION CONFIDENTIAL, BUT INFORMALLY IT IS KNOW N THAT THE AEN, XEN ETC. WERE CONTACTED FOR PERSUASION. THIS IS A GENERALIZE D REPLY, WHICH CAN NOT BE ACCEPTED. 2. THE COMPANY HAS STATED THAT BEFORE PARTI CIPATING IN A TENDER, THEY NEED CORRECT INFORMATION IN RESPECT OF DEMAND CREATED BY SEB IN REGARD TO THE PARTICULAR ITEM TO DEFEAT THE NECK TO NECK COMPETITION. THIS ASSERTION OF THE ASSESSEE COMPANY CANNOT BE AC CEPTED. IT IS A WELL SETTLED PRINCIPLE OF TENDERING THAT THE QUANTI TY / DEMAND OF THE PERSON INVITING TENDERS IS QUOTED IN THE TENDER DOCUMENT I TSELF HENCE, TO SAY THAT THEY REQUIRED COMMISSION AGENT TO KNOW ABOUT THE DE MAND CREATED BY SEBS APPEARS TO BE PATENTLY FALSE. 3. A PERTINENT POINT IN RELATION TO THE PAYMENT O F COMMISSION IS THAT IN CASE THE ASSESSEE DOES NOT SUCCEED IN THE TENDER , NO AMOUNT IS PAID TO THE AGENT. IN THIS REGARD, IT WAS SUBMITTED THAT IN CASE THE A SSESSEE DOES NOT SUCCEED IN THE TENDER THE COMMISSION AGENT DOES NOT GET ANY REMUNERATION, BUT, HIS SERVICES ARE PUT ON HOLD, AND LATER ON IF THE COMPANY FINALLY SUCCEEDS, THEM THE AGENT GETS REMUNERATION ON THE B ASIS OF THE TENDER PRICE AND MARKET SERVICES REQUIRED FORM THE AGENT. THIS FACT IS NOT BORNE OUT OF THE RECORD, BECAUSE I N NO CASE PAYMENT HAS BEEN MADE OR PROVISION HAS BEEN MADE FOR ANY CO MMISSION AGENT, IN RESPECT OF AN UNSUCCESSFUL BID. FROM THE REPLY IT CAN BE SEEN THAT IT IS GENERAL IN NATURE. THOUGH THE AR OF THE ASSESSEE HAD BEEN ASKED TO GIVE THE E XACT DETAILS OF SERVICES RENDERED BY THE 6 COMPANIES FOR WHICH COMMISSION PA YMENT HAS BEEN MADE, FROM THE PROCESS OF APPOINTMENT OF COMMISSION AGENTS, NO SUCH INFORMATION WAS EVER PROVIDED. NO INFORMATION HAS B EEN PROVIDED IN RESPECT OF THE SPECIFIC FUNCTIONS PERFORMED BY ANY AGENT. FURTHER, THE COMMISSION HAS BEEN PAID AS A PERCENTAGE OF THE TEN DER/CONTRACT AMOUNT, 44 AND NOT BASED ON THE ACTUAL CALCULATION OF UTILIZAT ION OF THE SERVICES OF THE AGENT. WHEN THE COMMISSION AMOUNT IS RELATED TO THE CONTRACT BILL AMOUNT, IT IS NOT CLEAR AS TO HOW THE ASSESSEE EVALUATES TH E POST TENDER PERFORMANCE OF THE AGENTS. A PERTINENT QUESTION ARISES AS TO HOW THE AGENTS AR E APPOINTED AND WHO TAKES THE DECISION REGARDING APPOINTMENT OF COM MISSION AGENTS. THIS INFORMATION HAS NOT BEEN COMPLETELY PROVIDED BY THE ASSESSEE. NO PAYMENT IS MADE IN RESPECT OF UNSUCCESSFUL BIDS. IF A COMMISSION AGENT PROVIDES SOME SERVICE AND UTILIZES SOME RESOURCES, THEN TO SAY THAT THE ASSESSEE WILL NOT PAY ANYTHING TO T HE AGENTS IF THE BID IS NOT SUCCESSFUL, DOES NOT APPEAR ACCEPTABLE. 1.5 IN ORDER TO EXAMINE THE ISSUES, THE AR OF THE A SSESSEE WAS ASKED TO PRODUCE THE PERSONS WHO HAD TAKEN THE DECISION REGA RDING APPOINTMENT OF COMMISSION AGENTS. SHRI ANANT L1UHADIA, G.M. APPEAR ED ON 11.12.2009 AND HIS STATEMENT WAS RECORDED. RELEVANT PARTS OF H IS STATEMENTS ARE REPRODUCED BELOW:- IZ05 D;K BL FOFRR; O'KZ ESA 06&07 ESA VKIDS }KJK DK SBZ COMMISSION AGENT FU;QDR FD;K X;K GSA A MRRJ DEIUH }KJK BL O'KZ ESA VK/KQFUD XZQI VKQ B.M0] ';KE LSY XQZI VKQ DEIUHT] VKJ0 ,L0 L;KR FY0 RFKK DBZ VU; AGENTS DKS FU;QDR FD;K X;K FTLDH IWJH LWPH FJDKMZ IJ MIYC/K GSA BLESA HKH VK/KQFUD XZQI VKQ B. M DS EKFYD HKH TQXY FDKKSJ TH RFKK EUKST FLAG MUES LS ESUS VK/KQFUD RFKK ';KE ESY B.M0 DKS FU;QDR DJUS ESA ESUS HKH TS0DS0 VXZOKY TH DK LG;KSX FD;K D;KSFD AGENT FU;QDR DJUK MUDH GH FTEESNKJH GSA A IZ06 DRS.I;K CRK;S VKIUS JH TS-DS- VXZOKY TH DK FDL RJG LG;KSX FD;S FKS \ MKJ TGKA RD EQ>S ;KN GS FU;QFDR DK IZLRKO TS-DS- V XZOKY TH DS IKL GH VKRS GS EQ>S MUDH FOOFU;RK] DK;Z VUQHKO DS CKJSA ESA TKAP DJ VXZ OKY TH DKS CRKUK GKSRK GS ESJH TKUDKJH DS VUQLKJ FU;QFDR;KA TS-DS- VXZOKY GH DJRS GSA IZ07 O'KZ 06&07 ESA FDU FDU PROJECT DS FY;S ESA VK/ KQFUD DKIKSZJSKU FY0 DKS COMMISSION FN;K X;K A MRRJ TGKAW RD EQ>S ;KN GSA VK/KQFUD DKIKSZJSKU FY0 US GEKJS FY;S WEST CAXKY RFKK T;IQJ FO?KQR FORJ.K FUXE ESA GEKJS DK;Z ESA LG;KSX FD;K FKK MLDS CNYS MLS COMMISSION DK HKQXRKU FD;K X;K A IZ08 T;IQJ PROJECT DS FY;S VK/KQFUD DKIKSZJSKU US VKIDKS D;K LG;KSX FD;K FKK VKIDH DEIUH MRRJ VK/KQFUD DKIKSZJSKU US JKTHO XKA/KH XZKEH.K F O+|QRHDJ.K ;KSTUK DS FY;S GEKJS FY;S R.S.E.B. ESA VS.MJ RFKK NJS RFKK DK;Z DS CKJS ESA RSEB DKS EXPLAIN FD;K RFKK GESA ;G DK;Z FNYOKUS ESA LG;KSX FD;K RSEB FDLH HKH O;FDR DH E/;LFKRK LOHDKJ UGHA DJRH GSA 45 YSFDU FQJ HKH CONCERNING VF/KDKJH VIUS TKUUS OKYS RFKK BU NKSUKS LS CONSULTANCY IZNKU DJ JGS YKSXKS ESA EKSF[KD TKUDKJH BR;KFN YSRS GSA FTLESA FD OG LDHE DKS DPR DKS PROJECT REPORT DKS TENDER DKS RFKK BOQ (BILL OF QUANTITY) VKFN DKS CUK LDS RFKK VS.MJ FUDYUS DS CKN RFKK MLLS IGYS HKH BU DEIF U;KS US GEKJH DEIUH DKS GJ IZFDZ;K ESA LG;KSX FD;K FTLLS FD GE TECH. RFKK FINANCIAL BID SHARE BY DJ LDS A IZ-9 T;IQJ PROJECT DS FY;S FDL DKE DS FY;S FDRUK HKQXRKU FD;K X;K \ MKJ & FDLH HKH NKK ESA VKMZJ FEYS FCUK DKSBZ HKQX RKU UGHA FD;K TKRK VKMZJ FEYUS DS IPKR~ TKS HKQXRKU FD;K X;K MLDK C;KSJK GE NS PQDS GSA IZ010 VS.MJ LFOZL DS VYKOK D;K VK/KQFUD DKIKSZJSKU ESA DKSBZ VKSJ SERVICE IZNKU DH GSA RFKK MLDS FY;S FDRUK HKQXRKU FD;K X;K GSA A MRRJ ES VK/KQFUD AGREEMENT ESA FY[KH LHKH LFOZLST DS FY;S BOUND GS A COMMISSION IWJS ORDER VALUE DK FD;K TKRK GSA A LFOZLST VKSJ MLDS REMUNERATIONS DKS VQDM+KS ESA UGHA CKVK TKRK A IZ012 TENDERING DS CKN OKYS PROCESS ESA VK/KQFUD DKIKSZJSKU DH VKSJ LS DKSU O;FDR DEAL DJ JGS FKS A MRRJ VS.MJ FEYUS DS CKN EYECUTIUM RFKK VU; DK;KSZ ESA ESJK IMPROVEMENT UGH GSA TGKAW RD COMMISSION AGENT DK IZU GSA A IZ013 VK/KQFUD DKIKSZJSKU DKIKSZJSKU FD RJQ ESA JVNL DS FDL VF/KDKJH ;K VF/KDKFJ;KSA LS LEIDZ FD;K X;K FTLDH OTG LS TENDERING PROCESS ESA VKIDKSA LG;KSX FEYK \ MKJ%& VK/KQFUD DKIKSZJSKU BL RJG DH TKUDKJH DKS XKSIUH; J[KRH GS RFKK VUKSIPKFJD :I LS ;G IKR GS FD ;G RRDKFYU AEN, XEN, SE DS LEIDZ ESA JGRS GSA IZ015 FDU PROJECT DS FY;S FDL COMMISSION AGENT DKS FU;QDR DJUK GSA OG DSLS FUFPR FD;K TKRK GSA A MRRJ COMMISSION AGENT GJ MIT DS FY;S D0 ESA EQ[;R% J.K. AGRAWAL LS RFKK MUDS VUQEKSNU DS I'PKR EQ>LS LEIDZ DJRS RFKK MUDS F INYS VUQHKO DS VK/KKJ IJ AGENT DH FU;QFDR DH TKRH GSA A IZ017 T;IQJ PROJECT DS CKJS ESA FTURH VKIDKSA TKUDKJH GS MRUH GH TKUDKJ H VU; PROJECT DS EKEYS GS VFKOK VU; PROJECT DS CKJS ESA VKIDKSA BL RJG DH TKUDKJH DS VYKOK DKSBZ VKSJ TKUDKJH GS \ MKJ %& EKSF[KD :I ESA EQ>S VU; PROJECT DS CKJS ESA DKSBZ FOKS'K TKUDKJH UGHA GSA IZ018 LKWVOS;J MOYESUV DS FY;S FTL CONCERN DKS FU;QDR FD;K D;K ;G VKIDS FU.KZ; LS GQVK GS \ MKJ%& ;G FU;QDRH ESJS }KJK UGHA DH XBZ VFKOK BLDK FU.KZ; ESJS LS LECFU/KR UGHA GSA 46 FROM THE STATEMENT OF SHRI LUHADIA, IT WAS CLEAR TH AT HE WAS NOT THE MAIN PERSON WHO HAD TAKEN THE DECISION REGARDING AP POINTMENT OF COMMISSION AGENTS. IT WAS STATED BY HIM THAT SHRI J.K. AGARWAL IS THE MAI N PERSON TO DECIDE THE PROCESS. BUT, SHRI J.K. AGARWA L WAS NEVER PRODUCED FOR EXAMINATION AND THE SAME WAS DULY INFORMED TO T HE AR. THE AR OF THE ASSESSEE HAS MADE A CLAIM THAT THE COPY OF STATEMEN T OF SHRI LUHADIA HAS NOT BEEN SUPPLIED. BUT, IN THIS REGARD IT IS CLARIF IED THAT THE ONUS WAS ON THE ASSESSEE TO PRODUCE THE CONCERNED PERSON WHO HAD TA KEN THE DECISION REGARDING APPOINTMENT OF COMMISSION AGENT. IF SHRI J.K. AGARWAL WAS THE MAIN PERSON FOR TAKING THE DECISION IN THIS REGARD, HE SHOULD HAVE BEEN PRODUCED FOR EXAMINATION. 1.6 FROM THE SUBMISSIONS AND DETAILS FURNISHED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE FOLLOWING OBS ERVATIONS ARE BEING MADE: I) THE ASSESSEE HAS NEVER GIVEN ANY SINGLE REPLY / INFORMATION IN RELATION TO ANY PARTICULAR CONTRACT INVOLVING ANY P ARTICULAR AGENT. II) THE MANNER IN WHICH ANY PARTICULAR AGENT WAS APPOINTED AND THE ACTUAL WORKS ENTRUSTED TO THIS AGENT WAS NOT CLARIF IED. III) THE EXACT SERVICES RENDERED BY ANY AGENT 'D URING THE COURSE OF EXECUTION OF ANY CONTRACT WERE NOT SPECIFIED. IV) CONSIDERING THE CLAIM OF THE ASSESSEE THAT A GENTS ARE INVOLVED FROM THE STAGE OF TENDERING PROCESS. IT IS SURPRISING TO NOTE THAT NO AGENT HAS BEEN PAID ANY AMOUNT FOR HELPING IN ONLY TENDER ING PROCESS. THERE COULD BE A SITUATION THAT THE ASSESSEE HAS AP PLIED FOR A TENDER AND HAS NOT SUCCEEDED. IT WILL BE ABSURD TO SAY THA T THE ASSESSEE WILL NOT MAKE ANY PAYMENT TO THE AGENT IF THE TENDE R BID IS NOT SUCCESSFUL. FROM THE ABOVE INCONSISTENCIES, IT CAN BE INFERRED THAT THE ASSESSEE DOES NOT WANT TO PROVIDE PROPER INFORMATION. RATHER ONLY GENERALIZED INFORMATION HAS BEEN PROVIDED TO SUPPORT THE CLAIM RELATING TO EXPENDITURE ON COMMISSION. AS THE ASSESSEE HAS MADE THE PAYMENT AND HAS CLAIMED THE SAME AS EXPENDITURE IN ITS BOOKS, THE ONUS WAS ON IT TO PROVE THE GENUINENESS OF THE COMMISSION AND THE SERVICES REND ERED BY THE COMMISSION AGENTS. IT HAS NOT BEEN ABLE TO DISCHARG E THE ONUS AND ACCORDINGLY, THE ENTIRE COMMISSION PAYMENT IS UNVER IFIABLE. THE POINTS WHICH NEED TO BE CLARIFIED IS THAT MEREL Y BECAUSE AN AMOUNT HAS BEEN PAID AND THE RECIPIENT CONFIRMS THA T HE HAS RENDERED SERVICE, DOES NOT PROVE THAT ACTUALLY GENUINE SERVI CE WAS PROVIDED OR THAT 47 THE EXPENDITURE CAN BE DEDUCTED U/S 37 OF THE I.T. ACT. 1.7. IN THIS CASE, A LIMITED SURVEY OPERATION U/S 133A OF THE I.T. ACT WAS CONDUCTED AT .THE FACTORY PREMISES OF THE ASSES SEE COMPANY ON 5.9.2007. THE MAIN' ISSUE SURVEY WAS FOCUSED TO VER IFY THE GENUINENESS OF THE CLAIM OF COMMISSION PAYMENT BY THE ASSESSEE. DURING THE COURSE OF SURVEY, STATEMENTS OF VARIOUS KEY-PERSONS WERE RECORDED. THIS INCLUDED THE STATEMENT OF SHRI SURESH KUMAR GUPTA, IN CHARGE OF ACCOUNTS AND FINANCE AS WELL AS STATEMENT OF SHRI ANANT LUHADIA. SHRI LUHADIA HAD BEEN ASKED TO EXPLAIN THE ENTIRE P ROCESS IN WHICH THE ASSESSEE PARTICIPATED IN VARIOUS TENDERS. HE CLAIMED THAT THE NEWS ABOUT 80% OF THE TENDERS IS RECEIVED FROM COMM ISSION AGENTS. HE WAS ASKED AS TO HOW COMMISSION AGENTS ARE APPOINTED . IN RESPONSE TO THIS; HE CLAIMED THAT WE APPOINT THOSE AGENTS WHO H AD EXPERIENCE IN DEALING WITH STATE OR GOVT. MINISTRY AND STATE ELEC TRICITY BOARD AND ON THE BASIS OF HOW MUCH BUSINESS HAD BEEN GIVEN BY TH EM EARLIER. HOWEVER, ON FURTHER QUERIES, IT WAS SEEN THAT THE C LAIM REGARDING AGENTS WAS WITHOUT ANY BASIS AS NO SUPPORTING EVIDE NCE RELATING TO THE SERVICES PROVIDED BY THESE AGENTS OR CALCULATION OF RATES PAYABLE TO THEM COULD BE PROVIDED AT THE TIME OF SURVEY. SOME OF THE ANSWERS SHOWED CLEAR DISCREPANCIES. SOME OF THE RELEVANT QU ESTIONS ASKED TO SHRI LUHADIA AND THE REPLY GIVEN BY HIM AT THE TIME OF THE SURVEY ARE REPRODUCED BELOW: IZU 9 D;K VKI DS }KJK FU;QDR DEHKU ,TSUV ISESUV DYSDKU DK DKE RFKK EKY (GOODS) FMLISFPAX DK DKE HKH DJRS GSA DRS.I;K CRK,S ? MRRJ UGHA] OS DSOY VKWMJ FNYKUS DK DK;Z GH DJRS GSA A OKS MIJKSDR OF.KZR DK;Z UGHA DJRS GSA A IJURQ T:JR IM+US IJ OKS EQ>S MIJKSDR VU; DK;Z ESA LGK;RK DJRS GSA A IZU 13 VKIDS MIJ FYF[KR C;KU LS D;K ;G LI'V GSA FD FTU O;FDR;KS DKS DEIUH DEHKU DK HKQXRKU DJRH GSA MUDS }KJK FN;S X;H LSOK DK DKSBZ HKH LK{K; VKIDS IKL MIYC/K UGHA GSA RFKK ,STSUV VKIDH N;K IJ FUHKZJ GSA FD DC VKIDH FINANCE FLFKFR GKSXH MLDKS HKQXRKU DJUS DS FY, RS;KJ GKSXH ;G DSOY EK= V KIDK GH FOKS'K VF/KDKJ GSA RFKK LSOK DK EWY;KADU FDLH IIIRD O;FDR DS }KJK UGHA FD;K TK LDRK VKIDS DK;KZY; DS MIYC/K LK{K; DS VK/KKJ IJ DKSBZ ,SLK NLRKOST IZKIR UGHA GQVK TKS ,STSUVKS }KJK NH XBZ LSOK DK MYYS[K DJRK GKS] ;KFU LK{; DS VHKKO ESA ;G DSOY EK= VKIDH BPNK IJ FUHKZJ GSA FD FDLS VKSJ DC DEHKU DK HKQXRKU DJUK GSA DRS.I;K LI' V DJS A MRRJ GEKJS VKSJ ,STSUV DS }KJK IZNRR DH X;H LSOKVKS DK VK/KKJ XKSIFU;RK RFKK FOOLFU;RK GSA RFKK NKSUKS GH I{K ,D REPUTED ORGANISATION GSA (COMMISSION AGENT) BLFY, N;K DK DKSBZ IZU GH UGHA GSA VKSJ R; GQ;H P HTKS DH TKUDKJH FINANCE DEPTT. DKS VKWMJ IZKIR GKSUS DS I'PKR GH NH TKRH GSA VKSJ ;G MUDH GH FTEESNKJH GSA FD 48 MLDK HKQXRKU RFKK DOCUMENTATION 'KH?KZ LS 'KH?KZ DJS YSFDU MUDS }KJK I}R DH X;H LSOKVKS DK IZFRQY GESA QSLM ESUJ ESA IZKIR GKSRK GS A RKS MLDK HKQXRKU HKH LKEKU;R% MLH DS VUQ:I DH TKUS DH DKSFKK DH TKRH GSA YSFDU FQJ HKH FUNDS DH MIYC/KRK MLDH IZCY VKO;DRK IJ GEKJS }KJK Q.ML FJYHT FD;K TKRK GSAA IZU 15 DEHKU DK HKQXRKU ,STSUVKS DKS VS.MJ FEYU S DS FY, VFKOK DK;Z FU'IKNU GSRQ FD;K TKRK GSA CRK;S ? MRRJ TSLK ESUS CRK;K IWJK&DK IWJK DK;Z ,STSUV DK FO LFU; LWPUK,AW IZKIR DJKUS DK GSA FTLESA VS.MJ FUDYUS DH ADVANCE INFORMATION IKVHZLHISV PARTICIPATE DJUS OKYS DEIUH DS CKJS ESA TKUDKJH MUDH VU; DK;KZS ESA O;LRR K MUDS }KJK NWLJS VS.MJL ESA TKSFD IGYS GH [KQY PQDS GSA MLDS CKJS ESA TKUDKJH RFKK CK SMZ ;K VU; LALFKK DH FORRH; FLFKFR DS CKJS ESA DKS /K;KU ESA J[KRS GQ, OG GES COMPETITIVE PRICE LTS'V DJRS GSA RKS BLFY, BUDK HKQXRKU HKH VKWMJ FEYUS RFKK GEKJS ISESUV DH L ;KSFJVH DS VK/KKJ IJ PHASED ESUJ (MANNER) IJ FD;K TKRK GSA PWFD VKWMJ DK YKHK ,D FNU ESA IZK IR UGHA GQVK MUDS }KJK HKQXRKU ,D LKFK UGHA FD;K TKRK GSA A ;?KFI HKQXRKU DJUS DS VF/KDKJH GSA YSFDU ISESUV R; DH XBZ 'KRKSZ DS VK/KKJ IJ GHA FD;K TKRK GSA] PWAFD GEKJK HKQXRKU IZKIR DJUK MUS }KJK CKSMZ DS CKJS ESA NH XBZ FOFRR; FLFKFR IJ BLFY, OKS IWJH RJG LS ,DT;WDSKU ESA HKH INVOLVED BUOKSYM JGRS GSA A IZU 19 VKI FDL&FDL PROJECT ESA DEHKU ,TSUVKS DS VK/KKJ IJ NH XBZ LWPUKVKS DS VK/KKJ IJ FDLS YKHKKFUOR GQ, GS MLDK VKIDS IKL DKSB Z DOCUMENTARY/MATERIAL PROOF GSA DRS.I;K IZLRQR DJS ? MRRJ MLDH IWJH LWPUK ESJS IKL MIYC/K GSA FTLDKS ESA VKIDKS CRK DS NWAWXK ;G LWPUK ESJS IKL FYF[KR ESA MIYC/K UGHA GSA A IZU 21 FDL VK/KKJ IJ DEHKU DK HKQXRKU GKSRK GSA MLDH TKUDKJH VKIDKS D;K GSA ? MRRJ TSLK FD ESUS IWOZ ESA C;KU FN;K GSA FD IWJK DK IWJK DECISION COMMISSION AGENT DKS LVHD INFORMATION DS VK/KKJ IJ GKSRK GSA FTL IJ GKSRK GSA FTL IJ DEI UH YKHKIZN GQBZ GSA A VKSJ DKS HKQXRKU DS FY, ESA SUPPORTIVE ROLE VNK DJRK GWW A YSFDU VFURE FU.KZ; VUDKS GKSRK GSAA IZU 28 COMMISSION AGENT DS LKFK VKIDH DEIUH DH RJQ LS IGYS DKSU DEAL DJRK GSA DRS.I;K CRK;S ? MNKGJ.K LO:I ESA WB DS PROJECT DS FY, TENDERING DS IGYS LS YSDJ FDL IZDKJ LS AGENT DS LKFK INTERACTION GQVK GSA FOOJ.K FNFT, ? MRRJ WEST-BENGAL ESA PROJECT ESA VS.MJ FUDYUS LS IGYS EQ>S DIRECTOR MARKETING US EUKST FLAG LS CONTACT DJUS DS FY, DGKW A COMMISSION DK FU/KKZJ.K VS.MJ FUDYUS DS CKN R; GQVK A IZU 29 JH EUKST FLAG LS VKIDK O;FDRXR :I LS DKSB Z EQYKDKR GQVK GSA DRS.I;K CRK;S ? MRRJ ESJK DHKH HKH JH EUKST FLAG LS O;FDRXR LEIDZ U GHA GQVK A ESA MUDKS RHU PKJ O'KZ LS TKURK GWW MULS ESJH DSOY BUSINESS DK FJRK GSA A 49 IZU 30 VXJ JH EUKST FLAG LS IZKIR LWPUK DS VK/KKJ IJ DEIUH DKS VXJ QK;NK GQVK GSA RKS DEIUH US DEHKU DK HKQXRKU JH EUKST FLAG DKS D; KS UGHA GQVK ? MRRJ FTL RJG LS ESA THUL DKS REPRESENT DJRK GWW VKS J GJ IMPORTANT DKS GENUS DS FY, DK;Z ESA YSRK GWW MLH RJG ESA CKSL DS FUNSZ KKUQLKJ FDLH DEIUH DS REPRESENTATIVE LS CKRPHR DJRK GWWA MLH GSFL;R LS ESA MULS CKRPHR DJRK GWW A IZU 31 DEHKU PAYMENT DH LIST NS[KUS ESA ;G VK JGK GS JH EUKST FLAG TH VK/KQFUD DKIKSZ- FY- VKSJ VK/KQFUD BLIKR FY- NKSUKSA LS CONTACT PERSON GS RKS VKI DSLS FU/KKZJ.K DJRS GS FD DEHKU DK BILLING FDL DEIUH DKS GKSXK \ MKJ TGK RD ESA LE>RK GW BU NKSUKSA GH DEIUH;KSA US JH EUKST DKS AUTHORIZED FD;K GKSXK BLFY, EUKST DS DGUS IJ DEHKU DK [KPKZ MLDS C RKBZ XBZ DEIUH DS VK/KKJ IJ DIRECTOR MARKETING DK SUGGEST DJRK GWA FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE WAS N OT IN A POSSESSION OF ANY CONCRETE EVIDENCE RELATING TO THE PAYMENT OF COMMISSION AND APPOINTMENT OF AGENTS. AS MENTIONED ABOVE, SHRI MANOJ SINGH HAS BEEN CLAIMED AS THE CONTACT PERSON IN CASE OF BOTH MIS. ADHUNIK CORPORATION AS WELL AS MIS. R.S. ISPAT PVT. LTD. THIS ONLY PROVES THAT THE COMPANIES HAVE BEEN USED ONLY AS NAME LENDER TO WHOM PAYMENTS ARE TO BE MADE UNDER THE GUISE OF COM MISSION PAYMENTS. WHILE IT HAS BEEN CLAIMED IN THE COURSE OF ASSESSME NT PROCEEDINGS THAT COMMISSION HAS BEEN PAID FOR ALL T HE STAGES OF THE CONTRACT, NO EVIDENCE HAS BEEN SHOWN THAT ANY OUTSI DE AGENCY WAS ANY WAY INVOLVED IN EXECUTION OR FOLLOW UP OF ANY WORK ONCE CONTRACT WAS RECEIVED BY THE ASSESSEE. DURING THE SURVEY, NO EVIDENCE WAS FOUND IN THE SHA PE OF ANY CORRESPONDENCE WITH ANY AGENT REGARDING THE SERVICE S RENDERED BY THEM OR THE BASIS ON WHICH THE COMMISSION RATES HAV E BEEN FIXED. THE FINDING OF THE SURVEY CORROBORATES THE NON GENU INE NATURE OF THE COMMISSION PAYMENTS. 1.8 IT IS ALSO PERTINENT TO MENTION THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY. 2004-05, INQUIRI ES HAD BEEN CONDUCTED BY CALLING FOR INFORMATION FROM THE ELECT RICITY BOARDS. THE MAIN AGENTS IN THESE PROJECTS RELATING TO THESE SEB S WERE R.S. ISPAT PVT. LTD., ADHUNIK CORPORATION LTD. AND MAA KALI CORPORA TION, AGARTALA. THE RESULT OF THESE INQUIRIES ARE MENTIONED BELOW: I) ELECTRICITY BOARD, AHEMDABAD : THEY HAVE ALSO CATEGORICALLY REFUSED FOR APPOINTMENT OF ANY MEDIATOR AND FURTHER CATEGORICALLY DENIED ANY ASSISTANCE / FACILITY TO EXECUTE THE PUR CHASE CONTRACT IN 50 FAVOUR OF THE ASSESSEE BY RS ISPAT. THEY HAVE SPECI ALLY MENTIONED THAT THE SALE PROCEEDS ARE DIRECTLY DEALT WITH THE ASSES SEE. II) NORTH DELHI POWER LTD. : THE COMPANY HAS STATED THAT PURCHASE ORDER WAS MADE DIRECTLY WITH THE ASSESSEE. NO PERSO N OR COMPANY WAS APPOINTED AS A MEDIATOR TO COMPLETE THE PURCHASE DE AL. NO COMMISSION WAS PAID TO ANY PERSON OR COMPANY. THEY HAVE CATEGORICA LLY DENIED THAT AADHUNIK CORP. LTD., KOLKATTA DID PROVIDE ANY ASSIS TANCE / FACILITY TO EXECUTE THE PURCHASE CONTRACT IN FAVOUR OF THE ASSE SSEE COMPANY. NEITHER ANY SERVICE WAS PROVIDED BY M/S. AADHUNIK CORPORATI ON ON BEHALF OF MIS. GENUS ELECTRONICS LTD. IT IS NOT PERTINENT TO MENTION THAT ALL THE PURCHAS ERS OF THE ASSESSEE COMPANY ARE GOVT. BODIES AND THERE IS NO QUESTION F OR APPOINTING ANY MEDIATOR OR PAYMENT OF ANY COMMISSION ON THE SALES. THE STATE ELECTRICITY BOARDS ADVERTISE THEIR REQUIREMENTS IN THE NEWS PAP ERS, THEREFORE, THE ASSESSEE COMPANY CAN EASILY APPROACH THE STATE ELEC TRICITY BOARDS DIRECTLY ACCORDING TO THEIR REQUIREMENTS. 1.9 THE OBSERVATIONS AS ABOVE ARE SUMMARIZED AS UND ER: 1. THE REPLY REGARDING THE SERVICES RENDERED BY TH E COMMISSION AGENTS IS GENERAL IN NATURE. THE ASSESSEE HAS NOT P RODUCED ANY SPECIFIC DOCUMENT, RECORD OR CORRESPONDENCE TO ESTABLISH THA T THE COMMISSION AGENTS, IN QUESTION, ACTUALLY RENDERED ANY SERVICE FOR OBTAINING PURCHASE ORDERS FORM THE ELECTRICITY BOARDS, OR RENDERED IN SERVICE THEREAFTER IN RELATION OF THE BILLS. 2. THE ASSESSEE HAS NOT INFORMED ABOUT THE EXPERTI SE OF THE COMPANIES IN THE FIELD, BECAUSE OF WHICH THEY WERE APPROACHED , OR, THEY WERE ACCEPTED AS COMMISSION AGENTS. 3. THERE IS NO EVIDENCE ON RECORD TO SHOW AS TO ON WHAT BASIS THE COMMISSION AMOUNTS WERE SETTLED . 4. THE COMMISSION AGREEMENTS DID NOT SPECIFY W ORK-WISE ALLOCATION OF AMOUNTS, BUT THE AMOUNTS WERE RELATED TO THE TEN DER VALUE. 5. THE PERSONNEL WHO TOOK THE DECISION RELATING TO APPOINTMENT OF COMMISSION AGENTS WERE NOT PRODUCED FOR EXAMINATION . 6. DURING THE ASSESSMENT PROCEEDING. OF EARLIER YEAR, THE STATE ELECTRICITY BOARDS HAD CATEGORICALLY DENIED THE ROL E OF ANY MIDDLEMEN. 51 7. THE SEARCH SHRI S.K. GUPTA ON 12.12.2006 CLE ARLY SUGGESTED THAT THE ASSESSEE TAKES ACCOMMODATION ENTRIES TO SHOW RE DUCED PROFITS. HENCE, IN THE ABSENCE OF ANY EVIDENCE TO PROVE THAT SERVICES WERE ACTUALLY RENDERED BY THE COMMISSION AGENTS, THE COM MISSION AMOUNT IS DISALLOWABLE AS THE ONUS TO PROVE THAT AN EXPENSE W AS INCURRED FOR THE PURPOSES OF BUSINESS IS ON THE ASSESSEE. IN THE ABS ENCE OF A PROPER DISCHARGE OF THIS ONUS, THE COMMISSION AMOUNT REQUIRES TO BE DISALLOWED. THE RESULT OF THE ENQUIRIES CONDUCTED IN THE PRECED ING YEAR AND COPY OF THE INFORMATION RECEIVED FROM THE ELECTRICI TY BOARDS CONCLUSIVELY PROVE THAT NO SERVICE HAS BEEN RENDERED BY ANY SO-C ALLED RECIPIENTS OF COMMISSION. FURTHER, THE FINDINGS IN THE COURSE OF THE SURVEY CONDUCTED ON 5.9.2007 ALSO SUPPORT THIS FACT. IN ANY CASE, THE O NUS CAST ON THE ASSESSEE TO PROVE THAT SERVICES WERE IN FACT RENDERED BY THE RE CIPIENTS OF THE COMMISSION HAS NOT BEEN DISCHARGED. THE HON'BLE SUPREME COURT IN THE CASE OF LAXMINARAI N MADANLAL VS. CIT, \NEST BENGAL, 86 ITR 439 HELD THAT MERE EX ISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGENTS OR PAYM ENT OF THE COMMISSION DOES NOT TIE DOWN THE INCOME TAX OFFICER TO HOLD TH AT THE PAYMENT WAS EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. EVEN IN SU CH CASES, THE INCOME TAX OFFICER CAN CONSIDER THE FACT AND CIRCUMSTANCES TO DETERMINE WHETHER THE COMMISSION PAID WOULD BE DEDUCTIBLE U/S 37 OR NOT. THEREFORE FOR REASONS DISCUSSED ABOVE IT IS HELD TH AT THE COMMISSION PAYMENT WAS NOT FOR THE PURPOSES OF BUSI NESS. IN VIEW OF THE SPECIFIC DENIALS BY THE STATE ELECTRICITY BOARDS, T HERE CAN BE A CASE OF PAYMENT OF COMMISSION AS ILLEGAL GRATIFICATION FOR THE PURPOSES OF PROCUREMENT OF TENDERS WHICH CANNOT BE ALLOWED IN V IEW OF THE RECENT AMENDMENT TO SECTION 37 OF THE I.T. ACT. THE ASSESSEE HAS MADE A CLAIM THAT IN EARLIER YEARS THE COMMISSION ISSUES HAVE BEEN DECIDED IN ITS FAVOUR BY THE HON'B LE ITA T. HOWEVER, THE DEPARTMENT HAS NOT ACCEPTED THE DECISION AND HAS CO NTESTED THE SAME U/S 260A OF INCOME TAX ACT. FURTHER, THE ASSESSMENT ORD ER FOR A.Y. 2006-07 HAS BEEN CONFIRMED BY THE LD. CIT(A). WITH THE ABOVE OBSERVATIONS, THE COMMISSION PAYMENT OF RS. RS. 25,72,74,744 /- IS CONSIDERED NON GENUINE AND IS DI SALLOWED. FURTHER SERVICE TAX OF RS. 3,08,72,969/- AND CESS ON SERVICE TAX AMOUNTING TO RS. 6,17,460/- ON THE COMMISSION PAYMENT IS ALSO NOT C ONSIDERED ALLOWABLE AS THE SAME IS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS. TOTAL DISALLOWANCE OF RS. 28,87,65,173/- . 52 51. ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). DETAILED WRITTEN SUBMISSIONS SPREAD OVER 70 PAGES ALONG WITH VARIOUS DETAILS/DOC UMENTS FORMING PART OF 6 PAPER BOOKS WERE FILED BEFORE LD. CIT (A). THE LD. CIT ( A) SUMMARIZED THE WRITTEN SUBMISSIONS AT PAGES 13 TO 32 OF HIS ORDER. 52. AFTER CONSIDERING THE ORDER OF THE AO AND WRITT EN SUBMISSIONS ALONG WITH OTHER MATERIAL FILED BEFORE LD. CIT (A), THE LD. CIT (A) REJECTED THE CONTENTION OF THE ASSESSEE BY GIVING HIS FINDING IN PARA 3.3 AT PAGES 33 TO 36 OF HIS ORDER, WHICH ARE REPRODUCED HERE AS UNDER :- 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. HOWEVER, I DO NOT FIND MERIT IN THE CONTENT IONS / ARGUMENTS OF THE LD. AR RAISED IN SUPPORT OF THIS GROUND OF APPEAL. IN THIS REGARD, IT IS SEEN THAT THE MAIN CONTENTION OF THE LD. AR, IN SUPPORT OF THE GROUND, HAS BEEN THAT THE ASSESSEE EXPLAINED THE NATURE OF SERVICES RENDERED BY THE CONCERNED COMMISSION AGENTS AND ALSO FILED THEIR CO NFIRMATIONS, CONTAINING THEIR COMPLETE ADDRESSES, ASSESSMENT PAR TICULARS AND BILLS RAISED TOWARDS THE SERVICES PROVIDED BY THEM. LD. A R ALSO POINTED OUT THAT THE ASSESSEE HAD FILED THE COPIES OF AGREEMENTS WIT H THOSE COMMISSION AGENTS, WHEREIN THE NATURE OF THE SERVICES TO BE RE NDERED BY THEM AND OTHER TERMS AND CONDITIONS WERE MENTIONED. IN ADDITION, L D. AR HAVE ALSO CONTENDED THAT THE IDENTICAL ISSUE WAS INVOLVED IN THE APPELLANTS CASE IN THE EARLIER A.YRS. OF 1999-2000 TO 2004-05, WHICH I S COVERED IN FAVOUR OF THE ASSESSEE, BY THE ORDER OF HONBLE ITAT. HOWEVER , I FIND THAT THE REAL ISSUE INVOLVED IN THIS GROUND IS AS TO WHETHER THE PARTIES, TO WHOM THE ASSESSEE HAS CLAIMED TO HAVE MADE PAYMENTS OF COMMI SSION, ACTUALLY RENDERED ANY SERVICES FOR THE ASSESSEE TO EARN THAT COMMISSION. IN THIS REGARD, ON PERUSAL OF THE RELEVANT RECORDS, IT IS S EEN THAT THE COMMISSION PAYMENTS, IN QUESTION, HAVE BEEN MADE MAINLY WITH R EFERENCE TO THE 53 PROCUREMENT OF ORDERS BY THE ASSESSEE FROM THE ELEC TRICITY BOARDS OF VARIOUS STATES, WHICH ARE GOVERNMENT / PUBLIC SECTO R BODIES. THE PURCHASES OF THOSE BOARDS ARE IN ACCORDANCE WITH THE ESTABLIS HED OPEN TENDER SYSTEM, PRESCRIBED THE SUCH GOVERNMENT / PUBLIC SEC TOR ORGANIZATIONS. FURTHER, SUCH BOARDS HAVE ALSO CONFIRMED THAT THEY DO NOT ENTERTAIN ANY MIDDLEMAN / COMMISSION AGENT, WITH REFERENCE TO THE IR PURCHASES. THEREFORE, THE AO HAD, JUSTIFIABLY, REQUIRED THE AS SESSEE TO SPECIFY THE SERVICES ACTUALLY RENDERED BY THE COMMISSION AGENTS , FOR PROCURING THE SUPPLY ORDERS FROM THOSE ELECTRICITY BOARDS / COMPA NIES, AND TO FURNISH DOCUMENTS / EVIDENCES TO PROVE THE RENDERING OF THO SE SERVICES BY THE COMMISSION AGENTS. FURTHER, IT IS OBSERVED THAT THE LD. AO, AS PER HIS DETAILED DISCUSSION CONTAINED ON PAGES 4 TO 20 OF T HE ASSESSMENT ORDER (REPRODUCED IN PARA 3.1 ABOVE), HAS BEEN ABLE TO ES TABLISH THAT THOUGH THE ASSESSEE HAS MENTIONED THE NATURE OF SERVICES, WHIC H WERE TO BE PROVIDED BY THE COMMISSION AGENTS, YET THE ASSESSEE HAS FAIL ED TO PRODUCE ANY SPECIFIC DOCUMENT / EVIDENCE TO PROVE THAT ANY OF T HOSE SERVICES WAS ACTUALLY RENDERED BY THE COMMISSION AGENTS. IN ADDI TION, IT IS NOTICED THAT EVEN DURING THE SURVEY ACTION U/S 133A OF THE I. T. ACT AT THE FACTORY PREMISES OF THE ASSESSEE ON 05.09.2007, CONDUCTED B ASICALLY TO VERIFY THE GENUINENESS OF THE CLAIM OF THE COMMISSION PAYMENT BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FAILED T O PRODUCE ANY SPECIFIC DOCUMENT / RECORD / CORRESPONDENCE TO PROVE AND EST ABLISH THAT THE COMMISSION AGENTS, IN QUESTION, ACTUALLY RENDERED A NY SERVICE FOR OBTAINING THE PURCHASE ORDERS FROM THE CONCERNED ST ATE ELECTRICITY BOARDS (SEBS). IN FACT, THE ASSESSEE HAS, INDIRECTLY, ADMI TTED THE ABSENCE OF ANY SUCH DOCUMENT / EVIDENCE, AS PER THE WRITTEN SUBMIS SION DATED 11.12.2009 FILED BEFORE THE AO (PB PAGE NO. 140), THE RELEVANT PART THEREOF IS REPRODUCED BELOW: PARTICIPATION IN THE TENDERS OF DIFFERENT SEBS IN DIFFERENT STATES IN ORDER TO GET THE MAXIMUM MARKET SHARE AND TO ENSURE SUPPLY OF THE GOODS TO THE CUSTOMER I N A 54 DEFINED TIME FRAME AS PER THE TERMS OF THE ORDER, I S NOT POSSIBLE WITHOUT GETTING THE AID OF EXTERNAL HANDS AND MINDS. THEREFORE WHAT IS MORE IMPORTANT IN OUR CASE IS THAT WHERE ORDERS ARE TO BE OBTAINED FROM GOVERNMEN T DEPARTMENTS, THE NAMES OF THE MIDDLEMEN OR REFERENC ES TO THE MIDDLEMEN WOULD NOT BE GENERALLY MENTIONED I N CORRESPONDENCE UNLESS THEY ARE ACCREDITED AGENTS. I N OTHER WORDS IF A PERSON IN-CHARGE OF PURCHASES IN T HE GOVERNMENT DEPARTMENT HAS TO MAKE SOME PURCHASES, THERE IS A PRESCRIBED PROCEDURE. ONE IS BY INVITING TENDER IN WHICH CASE THE LOWEST TENDER COULD BE ACCEPTED A ND THE ORDER IS PLACED. THE OTHER IS BY NEGOTIATIONS. THE THIRD IS PLACING ORDERS DIRECTLY TO SUPPLIERS APPROVED BY TH E GOVERNMENT. EVEN IN CASE WHERE PURCHASES ARE MADE B Y NEGOTIATIONS OR PLACING ORDERS DIRECTLY ON THE APPR OVED SUPPLIERS, CERTAIN AMOUNT OF PRE-INFORMATION REGARD ING THE QUALITY OF THE GOODS PRODUCED BY THE MANUFACTUR ER IS NECESSARY. WE EITHER AS THE MANUFACTURER, DIRECTLY CORRESPOND WITH THE MAN IN AUTHORITY BY GIVING THE SPECIFICATIONS, UTILITY, PRICE RANGE ETC. IN A BID TO PERSUADE THEM TO BUY OUR PRODUCTS IN PREFERENCE TO THE PRODU CTS OF OTHER MANUFACTURERS OR SOMETIMES THESE ARE FOLLOWED UP BY THE REPRESENTATIVES WHO DO COME AND GIVE DEMONSTRATIONS OF OUR PRODUCT. THE HIGHER THE COST THE MORE IS THE SOPHISTICATED METHODS OF PERSUASIONS. T HESE ARE THE DAYS OF AGGRESSIVE ADVERTISING, PERSUASION BY CONTACT, BY WORD OF MOUTH. IN ALL THESE CASES, THE NAMES OF THE PERSONS WHO INDUCED OR PERSUADED THE PERSONS AND AUTHORITY WHO WERE AUTHORISED TO PLACE THE ORDERS A RE NOT GENERALLY WRITTEN MUCH LESS AGREED TO. IN A COMPETI TIVE MARKET, IT IS THE PERSONAL CONTACT THAT IS MORE IMP ORTANT TO PERSUADE THE PERSONS AND AUTHORITY TO PLACE ORDE RS, AND IF THOSE AUTHORITIES ARE ASKED AS TO HOW THEY PREFE RRED A PARTICULAR ARTICLE TO ANOTHER ARTICLE AVAILABLE IN THE MARKET, THEY WILL NEVER ADMIT THAT THEY ARE PERSUAD ED BY THE PERSONAL CONTACT MADE BY THE REPRESENTATIVES OF THE MANUFACTURERS RATHER THEY WOULD SAY THAT THEY WERE PERSUADED BY THE GENERAL INFORMATION GATHERED. THE GATHERING OF GENERAL INFORMATION WILL ALWAYS MEAN PERSONAL CONTACT. THIS IS A REALITY, WHICH HAS TO B E BORNE IN MIND. (EMPHASIS SUPPLIED BY ME). 55 THEREFORE, IN VIEW OF THE DISCUSSION ABOVE, IT IS S EEN THAT THERE IS NO DOCUMENT / EVIDENCE WITH THE ASSESSEE TO PROVE T HAT THE SERVICES, SPECIFIED IN THE AGREEMENTS, WERE ACTUALLY RENDERED BY THE COMMISSION AGENTS. HENCE, IN SUCH CIRCUMSTANCES, MERELY ESTABL ISHING THE IDENTITY OF THE COMMISSION AGENTS, HAVING AGREEMENTS WITH THEM OR MAKING PAYMENTS, BY CHEQUES, TO THEM OR FILING THEIR CONFI RMATIONS IS NOT ENOUGH. IN THIS REGARD, WHAT IS MOST IMPORTANT IS TO PROVE AND ESTABLISH THAT THE SERVICES WERE ACTUALLY RENDERED BY THE COMMISSION A GENTS, BECAUSE OF WHICH THE ASSESSEE WAS ABLE TO PROCURE THE SUPPLY O RDERS. THUS, IN THE ABSENCE OF ANY MATERIAL / EVIDENCE TO PROVE THAT SE RVICES WERE ACTUALLY RENDERED BY THE COMMISSION AGENTS, IN PROCURING THO SE ORDERS FROM THE ELECTRICITY BOARDS, ANY COMMISSION PAYMENT MADE BY THE ASSESSEE TO THOSE COMMISSION AGENTS IS NOT ALLOWABLE AS BUSINES S EXPENDITURE IN TERMS OF S. 37(1) OF THE I.T. ACT. THIS VIEW IS SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADAN LAL VS. CIT 86 ITR 439 (SC). THEREFORE, ON PERUSAL OF THE ENTIR E RELEVANT RECORDS, I FIND THAT NEITHER BEFORE THE AO, NOR DURING THE APP ELLATE PROCEEDINGS, THE APPELLANT COULD PRODUCE ANY DOCUMENT / EVIDENCE TO PROVE ACTUAL RENDERING OF ANY SERVICE BY THE COMMISSION AGENTS, IN QUESTION, WHICH HELPED THE ASSESSEE TO PROCURE THE PURCHASE ORDERS FROM THE ELECTRICITY BOARDS / ELECTRICITY COMPANIES. HENCE, IT IS HELD T HAT THE CLAIMED COMMISSION PAYMENT WAS CORRECTLY DISALLOWED BY THE LD. AO. FURTHER, REGARDING THE CONTENTION OF LD. AR THAT THE IDENTIC AL ISSUE HAS BEEN DECIDED IN APPELLANTS FAVOUR IN EARLIER YEARS BY T HE HONBLE TRIBUNAL, I FIND THAT A NUMBER OF COMMISSION AGENTS, TO WHOM TH E COMMISSION PAYMENT HAS BEEN CLAIMED IN THIS YEAR, ARE DIFFEREN T AS COMPARED TO THE COMMISSION AGENTS, TO WHOM THE COMMISSION PAYMENT H AD BEEN CLAIMED IN THE EARLIER YEARS. IN ADDITION, IT IS OBSERVED T HAT LD. AO HAS BROUGHT ON RECORD SOME NEW FACTS RELATING TO THE ISSUE INVOLVE D IN THIS GROUND IN THIS YEAR, WHICH WERE NOT THERE IN THE EARLIER YEARS. TH EREFORE, AS EACH ASSESSMENT YEAR IS AN INDEPENDENT YEAR FOR THE PURP OSES OF THE INCOME TAX 56 ACT AND AS ALSO THE FACTS ARE DIFFERENT IN THIS YEA R AS COMPARED TO THE EARLIER YEARS, IN MY HUMBLE OPINION, I FIND THAT TH E DECISION OF HONBLE ITAT GIVEN IN THE EARLIER YEARS, IS NOT BINDING IN THIS YEAR. HENCE, IN ACCORDANCE WITH THE ABOVE DISCUSSION, THE DISALLOWA NCE OF RS. 28,87,65,173/- MADE BY THE AO IS CONFIRMED. CONSEQU ENTLY, THIS GROUND OF APPEAL IS REJECTED. 53. NOW THE ASSESSEE IS IN APPEAL HERE BEFORE THE T RIBUNAL. 54. THE CONTENTION RAISED BEFORE THE LOWER AUTHORIT IES WERE REITERATED HERE BEFORE THE TRIBUNAL. THE WRITTEN SUBMISSIONS WHICH WERE FILED BEFORE LD. CIT (A) ARE RE- SUMMARIZED IN THE WRITTEN SUBMISSIONS, COPY OF WHIC H IS PLACED ON RECORD. IT WAS FURTHER SUBMITTED THAT ON IDENTICAL FACTS, THE ADDITION WAS MADE FOR LAST SO MANY YEARS AND THE TRIBUNAL HAS DELETED THE IDENTICAL ADDITION FOR LAS T SO MANY YEARS. THERE IS NO CHANGE IN FACTS OR CIRCUMSTANCES AND, THEREFORE, IN VIEW OF R ULE OF CONSISTENCY, THE LD. CIT (A) WAS BOUND TO FOLLOW THE ORDER OF THE TRIBUNAL WHICH HE HAS FAILED TO DO SO. ACCORDINGLY IT WAS REQUESTED THAT THE ORDER OF TRIBUNAL IS LIABLE TO BE FOLLOWED. COPY OF THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 DECIDED IN ITA NO. 539/JP/2009 VIDE ORDER DATED 31.3.2010 WAS ALSO FILED. RELIANCE WAS PLACED ON VARIOUS CASES MENTIONED IN THE WRITTEN SUBMISSIONS. IT WAS FURTHER SUBMITTED THAT LD. CIT (A) HAS MENTIONED IN HIS ORDER THAT THERE ARE DIFFERENT COMMISSION AGENTS AS COMPA RED TO EARLIER YEAR WHICH IS FACTUALLY INCORRECT. IT WAS SUBMITTED THAT ASSESSEE HAS PAID COMMISSION TO 6 COMMISSION AGENTS IN THE YEAR UNDER CONSIDERATION AND 5 OF THEM WERE THE COMMISSION AGENTS FOR EARLIER YEAR ALSO. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF WRITTEN SUBMISSIONS WHERE A CHART SHOWING THE NAME OF COMMISSION AGENTS IN THE YEAR U NDER CONSIDERATION AS WELL AS IN THE EARLIER YEAR IS GIVEN. IT WAS FURTHER SUBMITTED THA T LD. CIT (A) HAS MENTIONED THAT AO HAS 57 BROUGHT ON RECORD SOME NEW FACTS WHICH WERE NOT INV OLVED IN EARLIER YEAR AND, THEREFORE, LD. CIT (A) HAS NOT FOLLOWED THE ORDER OF TRIBUNAL. THIS FINDING OF LD. CIT (A) AGAIN IS FACTUALLY INCORRECT AS THERE IS NO CHANGE IN FACTS AND NO NEW FACTS HAVE BEEN BROUGHT ON RECORD. THE AO HAS ALSO MADE ADDITION ON THE BASIS OF PAST YEARS ADDITION. THE AO HAS CLEARLY MENTIONED IN HIS ORDER THAT THOUGH IN EARLI ER YEAR ADDITION HAS BEEN DELETED BY THE TRIBUNAL BUT SINCE THE DEPARTMENT IS IN APPEAL BEFO RE HONBLE HIGH COURT, THEREFORE, DEDUCTION ON ACCOUNT OF COMMISSION PAYMENT WAS DISA LLOWED FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY IT WAS SUBMITTED THAT T HERE IS NO CHANGE IN THE FACTS AS COMPARED TO EARLIER YEAR. FURTHER RELIANCE WAS PLA CED ON THE WRITTEN SUBMISSIONS FILED. 55. ON THE OTHER HAND, THE LD. D/R STRONGLY PLACED RELIANCE ON THE ORDERS OF THE AO AND LD. CIT (A). IT WAS FURTHER SUBMITTED THAT THE AO HAS DISCUSSED THE ISSUE IN DETAIL BY GIVING DETAILED REASONING WHICH HAS BEEN CONSIDERED BY LD. CIT (A). THEREFORE, ORDERS OF THE AO AND LD. CIT (A) ARE LIABLE TO BE CONFIRMED. 56. WE HAVE GONE THROUGH THE ORDERS OF THE AO AND L D. CIT (A) AND THE WRITTEN SUBMISSIONS FILED HERE BEFORE THE TRIBUNAL DURING T HE APPELLATE PROCEEDINGS. THE WRITTEN SUBMISSIONS FILED BY ASSESSEE COMPRISING BRIEF FACT S OF THE CASE, FINDING OF THE AO, FINDING OF LD. CIT (A) AND SUBMISSIONS OF THE ASSES SEE ALONG WITH VARIOUS CASE LAWS. THEREFORE, IT WILL BE VERY USEFUL TO REPRODUCE THES E WRITTEN SUBMISSIONS HERE AS UNDER :- DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD PAID COMMISSION OF RS. 28,87,65,173/- TO 6 PARTIES, OUT OF WHICH RS. 25,88,40,792/- OF THE AGGREGATE PAYMENTS HAD BEEN MADE TO SUCH OF THE PARTIES, WHO HAD PROVIDED SIMILAR SERVICES TO THE A SSESSEE COMPANY IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2006-07. THE L EARNED ASSESSING OFFICER HAD MADE THE DISALLOWANCE OF THE EXPENDITUR E INCURRED IN THAT YEAR 58 ALSO, WHICH EXPENDITURE HAD BEEN INCURRED FOR RENDE RING IDENTICAL SERVICES I.E. ASSISTING THE ASSESSEE COMPANY IN EXECUTING TH E ORDERS OBTAINED FOR SUPPLIES MADE. SUCH SERVICES INCLUDED FOLLOW UP SER VICES OF ORDERS RECEIVED AND FOR IDENTIFYING THE CUSTOMERS. THE DIS ALLOWANCE MADE HAD FINALLY BEEN FOUND AS UNSUSTAINABLE AND HAD THUS BE EN DELETED BY THE HONBLE BENCH. FROM THE PERUSAL OF THE TABULAR CHART GIVEN BELOW, IT WOULD BE SEEN THAT THE PAYEES TO WHOM COMMISSION HAS BEEN PAID I N THE INSTANT YEAR WERE SAME AS ARE APPEARING AT SL. NO. 1 TO 5. IN SO FAR AS REMAINING PAYEE AT SL. NO. 6 IS CONCERNED IT IS SUBMITTED THAT SUCH PARTY HAS ALSO RENDERED SIMILAR SERVICES AS WOULD BE EVIDENT FROM DETAILS G IVEN IN THE TABLE BELOW: ASSESSMENT YEAR 2006-07 ASSESSMENT YEAR 2007-08 (UN DER APPEAL) S. NO NAME OF CONCERN AMOUNT NAME OF CONCERN AMOUNT EXISTED IN AY 2006-07 1 AADHUNIK CORP. LTD. 57,03,450 AADHUNIK CORP. LTD. 20,55,56,253 2 R.S. ISPAT P. LTD. 1,02,10,201 R.S. ISPAT P. LTD. 59,08,499 3 SHYAM SEL LIMITED KOLKATA 3,53,23,738 SHYAM SEL LIMITED KOLKATA 3,53,23,738 4 NAIYADIH HI-TECH PVT. LTD. 59,08,499 NAIYADIH HI-TECH PVT. LTD. 59,08,499 5 C. P. REROLLERS LTD. 1,07,88,607 C. P. REROLLERS LTD. 40,19,803 6 CRESENT BAKES PVT. LTD. 21,24,000 TOTAL 6,79,34,495 TOTAL 25,88,40,792 89.64% THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF ENERGY METERS, HMC, PCB, TAXI METERS, INVERTERS, TURN KEY PROJECTS, RCC POLES AND TRANSFO RMERS HAVING ITS PRINCIPAL PLACE OF BUSINESS IN RAJASTHAN. THE MAJOR ITY BUYERS/CUSTOMERS OF THE GOODS MANUFACTURED BY THE APPELLANT ARE VARI OUS ELECTRICITY BOARDS AND PUBLIC SECTOR COMPANIES WHICH ARE SPREAD THROUG HOUT THE COUNTRY. IN OTHER WORDS THE APPELLANT ALTHOUGH BASED IN RAJASTH AN HAS EXISTING/PROSPECTIVE BUYERS/CLIENTS AND BUSINESS OP ERATIONS THROUGHOUT THE 59 COUNTRY.THE MAJOR CUSTOMERS OF THE APPELLANT COMPAN Y TO WHOM THE SUPPLIES WERE MADE IN THE ASSESSMENT YEAR 2007-08 A RE AS UNDER:- 1. WEST BENGAL STATE ELECTRICITY BOARD,KOLKATA 2. THE AHMEDABAD ELECTRICITY COMPANY LTD., AHMEDABAD 3. THE SURAT ELECTRICITY COMPANY LTD., SURAT 4. UTILITY ENERGYTECH ENGINEERS PVT.LTD., LUCKNOW 4. JHARKHAND STATE ELECTRICITY BOARD 5. CHHATTISGARH STATE ELECTRICITY BOARD, CHHATTISGARH 6. JDVVNL/JODHPUR VIDYUT VITRAN NIGAM LTD., JODHPUR 7. KALPATARU POWER TRANSMISSION LTD. 8. DAKSHINANCHAL VIDYUT VITRAN NIGAM LTD., AGRA 9. U. P. POWER CORPORATION LTD., LUCKNOW 10. CESC LIMITED, KOLKATA 11. AJMER VIDYUT VITRAN NIGAM LTD. THESE ELECTRICITY BOARDS AND PUBLIC SECTOR COMPANIE S USUALLY HAVE/FOLLOW THE SYSTEM OF SELECTING VENDORS THROUGH THE PROCESS OF FLOATING TENDERS AND INVITING BIDS FROM THE OPEN MA RKET. HOWEVER, IN SOME CASES THE SALES ARE ALSO AFFECTED THROUGH OPEN NEGOTIATIONS WITH THE SUPPLIERS/MANUFACTURERS THE APPELLANT BEING A MANUFACTURER, THE PRIMARY/IND ISPENSIBLE FUNCTION/BUSINESS ACTIVITY OF THE APPELLANT IS TO M ARKET ITS GOODS AND TO CREATE DEMAND FOR ITS MANUFACTURED PRODUCTS IN THE MARKET BY IDENTIFYING PROSPECTIVE BUYERS AND MARKET. THIS REQUIRES AGGRES SIVE ADVERTISING, PERSUASION BY CONTACT, BY WORD OF MOUTH ETC. IN MAN Y CASES THE WINNER OF THE TENDER IS EXPELLED FROM THE EXECUTION OF THE OR DER LEADING TO THE FORFEITURE OF HIS PERFORMANCE GUARANTEE DUE TO INCA PABILITY TO FULFIL THE SCHEDULED SUPPLY, QUALITY PROBLEMS, SMALL INFRASTRU CTURE, LOW CREDIBILITY. IT IS THEREFORE VERY IMPORTANT TO KEEP A VERY GOOD FOLLOW UP FROM THE STAGE PRIOR TO FLOATATION OF TENDER TO THE STAGE OF DELIV ERY AND ACTUAL USE OF GOODS BY THE BUYERS. IN THE PRESENT ERA OF INTENSE COMPETITION, THE SIGN IFICANCE OF BUSINESS INFORMATION IS VITAL AND KEY TO THE MARKET ING STRATEGY/FUNCTION. 60 THE BUSINESS INFORMATION MAY BE IN THE FORM OF CUST OMER REQUIREMENTS, PRODUCT SUBSTITUTES, COMPETITORS DETAILS, PRESENT AND LIKELY FUTURE PRODUCT REQUIREMENT/DEMAND, PRODUCT PRICING, OTHER IMPORTAN T NEWS, MARKET RESEARCH , CREDIT AND FINANCIAL INFORMATION, COMPANY AND EXE CUTIVE PROFILES, ETC. THE APPELLANT BEING BASED IN RAJASTH AN AND HAVING PROSPECTIVE CLIENTS SPREAD AND SITUATED IN VARIOUS STATES, IT IS NOT COMMERCIALLY PRUDENT/VIABLE FOR THE APPELLANT TO HA VE PERMANENT ESTABLISHMENTS AND PERSONNEL AT ALL THE PLACES AND INCURR FIXED OVERHEADS FOR THE SAME. HOWEVER, AT THE SAME TIME IT IS OUTMO ST IMPERATIVE FOR THE APPELLANT TO ACTIVELY PARTICIPATE IN THE TENDERS AN D MARKET ITS PRODUCT EFFECTIVELY AND PERFORM OTHER RELATED AND CONNECTED ACTIVITIES. THIS IMPORTANT FUNCTION IN THE CASE OF THE APPELLANT IS PERFORMED BY SOME EXTERNAL ORGANIZATIONS AND ENTITIES AS AGENTS IN CO NSIDERATION OF COMMISSION. THESE COMMISSION AGENTS PROVIDE VARIOUS MARKETING SERVICES TO THE APPELLANT CLASSIFIED AS PRE-TENDER SERVICES, POST TENDER SERVICES, PRE-DISPATCH SERVICES, POST-DISPATCH SERV ICES AND FOLLOW UP FOR THE REALISATION OF PAYMENTS. THE SAID AGENTS FURTHE R ARE THE SOURCE OF BUSINESS INFORMATION FOR THE APPELLANT WHICH HAS A VERY HIGH VALUE AND IMPORTANCE FROM THE POINT OF VIEW OF A BUSINESSMAN. THESE COMMISSION AGENTS ASSIST THE APPELLANT IN ESTIMATING/QUOTING P RICE IN RESPECT OF TENDERS, NEGOTIATIONS. IN THE PRESENT ERA OF INTENS E COMPETITION AND AGGRESSIVE MARKETING THE PRESENCE OF SUCH AGENCIES IN RELATION TO A BUSINESS OF THE MAGNITUDE OF THE APPELLANT CANNOT B E UNDERMINED OR DOUBTED BY THE DEPARTMENT. IT IS SUBMITTED THAT THE PRACTICE OF OUTSOURCING CE RTAIN BUSINESS ACTIVITIES IS AN ESTABLISHED WAY OF DOING BUSINESS IN THE PRESENT TIME AS IT ALLOWS COMPANIES TO MAXIMIZE THEIR BUDGETS AND RESO URCES, GET HUMAN SKILLS THEY NEED, FLEXIBILITY TO PURCHASE SERVICES ON AS-NEEDED BASIS INSTEAD OF MAINTAINING A FULL-TIME EMPLOYEE. THIS ARRANGEME NT FURTHER ALLOWS THEM TO AVOID PAYING EMPLOYEE-RELATED EXPENSES SUCH AS SALARIES, PAID 61 VACATION AND SICK LEAVE, INSURANCE WHICH RESULTS IN A LOWER OVERHEAD. OUTSOURCING ALSO OFFERS A WIDE VARIETY OF OTHER BEN EFITS, INCLUDING, FASTER SETUP OF THE FUNCTION OR SERVICE, ACQUIRE INNOVATIV E IDEAS, IMPROVE CREDIBILITY AND IMAGE BY ASSOCIATING WITH SUPERIOR ORGANIZATIONS, LESS DEPENDENCY UPON INTERNAL RESOURCES, GREATER CONTROL OF BUDGET, INCREASE FLEXIBILITY TO MEET CHANGING BUSINESS CONDITIONS, P URCHASE OF INDUSTRY BEST PRACTICE, GAIN MARKET ACCESS AND BUSINESS OPPORTUNI TIES THROUGH OTHERS NETWORK, TURN FIXED COSTS INTO VARIABLE COSTS. THE SAID BUSINESS PRACTICE OF THE APPELLANT HAS TUR NED OUT TO BE COMMERCIALLY EXPEDIENT FOR THE APPELLANT IN THE PAS T AND IN THE IMPUGNED YEAR ALSO THE APPELLANT WITH THE ASSISTANCE OF THES E AGENTS HAS BEEN ABLE TO ACHIEVE A WHOPPING TURNOVER OF RS. 384.67 CRORES. A COMPARATIVE CHART OF THE COMMISSION PAYMENTS MADE AND THE TURNOVER AC HIEVED IN THE PREVIOUS YEARS IS PRODUCED HEREIN-BELOW FOR THE SAK E OF READY REFERENCE:- S. NO ASSESSMENT YEAR COMMISSION TURNOVER 1. 1999-2000 40,39,953 21,62,31,209 2. 2000-2001 2,17,27,480 25,23,81,665 3. 2001-2002 4,56,47,826 57,48,60,427 4. 2002-2003 7,35,74,784 1,39,25,64,873 5. 2003-2004 4,71,58,021 72,52,30,813 6. 2004-2005 55,96,327 92,00,78,936 7. 2005-2006 5,75,23,747 1,52,00,60,576 8. 2006-2007 9,13,38,015 2,29,72,00,097 9. 2007-2008 28,42,89,476 3,84,67,85,942 THE APPELLANT AS A MATTER OF POLICY AND COMMERCIAL PRUDENCE IS CONSISTENTLY FOLLOWING THE PRACTICE OF APPOINTING B USINESS AGENTS WHO HAVE SUFFICIENT EXPERIENCE AND EXPOSURE OF PROCURIN G GOVERNMENT CONTRACTS. AS PER THE TERMS OF THE CONTRACT BETWEEN THE APPELLANT AND THE COMMISSION AGENTS, THE APPELLANT IS IN A VERY ADVAN TAGEOUS POSITION IN AS MUCH AS THESE COMMISSION AGENTS USE THEIR OWN RESOU RCES / INFRASTRUCTURE AND INCUR EXPENDITURE IN THE PURSUIT OF PROCURING C ONTRACT FOR THE APPELLANT, WHEREBY IN RETURN THE APPELLANT IS OBLIG ED TO PAY COMMISSION 62 COMPUTED AT A FIXED PERCENTAGE OF THE TENDER/CONTRA CT VALUE ONLY IN THE EVENT OF SUCCESSFUL PROCUREMENT/AWARDING OF THE ORD ER TO THE APPELLANT AND NOT OTHERWISE. IN OTHER WORDS, THE APPELLANT IS NOT REQUIRED TO PAY THESE COMMISSION AGENTS FOR THEIR SERVICES IN CASE THE CONTRACT/ORDER IS NOT AWARDED TO THE APPELLANT AND IN CASE THE ORDER IS A WARDED TO THE APPELLANT A SMALL TRANCHE OF THE MARGIN IS PAID TO THESE COMM ISSION AGENTS. THE ADDITIONAL AND OVER AND ABOVE BENEFIT TO THE APPELL ANT OUT OF THE SAID ARRANGEMENT IS THAT THESE AGENTS IN THE ALLURE OF G ETTING COMMISSION GETS SELF MOTIVATED AND MAKE THEM GIVE THEIR BEST IN ORD ER TO PROCURE ORDERS FOR THE APPELLANT. THESE COMMISSION AGENTS ARE IN THE BUSINESS OF REND ERING AFORESAID SERVICES AND BESIDES THE APPELLANT THEY H AVE ALSO RENDERED SIMILAR SERVICES TO THE COMPETITORS OF THE APPELLAN T AND OTHER BUSINESS ENTITIES AS PER THE FOLLOWING DETAILS: COMMISSION RECEIVED BY ADHUNIK CORPORATION LTD. FR OM OTHER PARTIES AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELANT 18% PAID BY OTHERS 82% 2006-07 9 56659431 5703450 50955981 2007-08 7 230795521 205056253 25739268 2008-09 4 15387247 - 15387247 2009-10 5 243086017 - 24308601 7 2010-11 18 374006153 - 3740061 53 2011-12 10 276412083 - 2764120 83 TOTAL 1196346452 210759703 985586749 COMMISSION RECEIVED BY SHYAM SEL POWER LTD. (SHYAM SEL LIMITED) AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELANT 28% PAID BY OTHERS 72% 2006-07 2 48572419 35323738 1,32,48,681 2007-08 2 43400764 35323738 80,77,026 2008-09 1 98492 - 98,492 2009-10 3 59787965 - 5,97,87,9 65 2010-11 7 32008977 - 3,20,08,9 77 2011-12 2 66841800 - 6,68,41,8 00 TOTAL 250710417 70647476 180062941 63 COMMISSION RECEIVED BY C. P. RE-ROLLERS LTD. AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELLANT 12% PAID BY OTHERS 88% 2006-07 3 27283616 10788607 1,64,95,009 2007-08 1 38386982 4019803 3,43,67,179 2008-09 1 35151065 96,22,969 2,55,28,096 2010-11 4 48201841 - 4,82,01,841 2011-12 5 53890488 - 5,38,90,488 TOTAL 202913992 24431379 178482613 COMMISSION RECEIVED BY R. S. ISPAT LTD. AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELANT 34% PAID BY OTHERS 66% 2006-07 1 40700698 10210201 3,04,90,497 2007-08 7 101222059 4842451 9,63,79,608 2008-09 6 119843146 26,29,224 11,72,13,922 2009-10 3 134748066 - 13,47,48,066 2010-11 4 165646186 - 16,56,46,186 2011-12 1 51570069 - 5,15,70,069 TOTAL 51570069 17681876 596048348 THESE COMMISSION AGENTS HAVE RENDERED SIMILAR SERVI CES TO THE APPELLANT IN THE PAST ASSESSMENT YEARS ALSO FOR WHI CH COMMISSION PAYMENTS HAVE ALSO BEEN MADE TO THEM AND CLAIMED AS DEDUCTION U/S 37(1) OF THE ACT. A COMPARATIVE CHART OF THE COMMIS SION PAYMENTS MADE TO THE AFORESAID PARTIES IN THE PAST ASSESSMENT YEA RS IS PRODUCED HEREIN BELOW FOR THE SAKE OF READY REFERENCE:- 64 ASSESSMENT YEAR S. NO NAME OF THE COMPANY 2004-05 2005-06 2006-07 2007-08 (INSTANT YEAR) REMARKS 1. ADHUNIK CORPORATION LTD. 2,12,20,938/- 3,23,73,523/- 57,03,450/- 20,50,56,25 3/- DISALLOWED IN ALL THE RESPECTIVE ASSESSMENT YEARS STANDS DELETED ON APPEAL BY HONBLE TRIBUNAL 2. R. S ISPAT PVT. LTD. 1,34,38,925/- 1,07,99,250/- 1,02,10,201/- 48,42,451 /- --DO-- 3. SHYAM SEL LIMITED - - 3,53,23,738/- 3,53,23,738/- --DO-- 4. NAIYADIH HI-TECH PVT.LTD. - - 59,08,499/- 59,08,499/- --DO-- 5. C.P. REROLLERS LTD. - - 1,07,88,607/- 40,19,803/- --DO-- ORDER OF ITAT 29.08.2008 30.06.2009 31.03.2010 PENDING THE AFORESAID COMMISSION PAYMENTS BY THE APPELLANT TO THE AFORESAID PARTIES HAD BEEN A SUBJECT MATTER OF DISP UTE WITH THE DEPARTMENT IN THE PAST ASSESSMENT YEARS, WHEREBY THE ORDER OF THE ASSESSING OFFICER OF MAKING DISALLOWANCE OF THE COMMISSION PAYMENTS HAVE BEEN CONSISTENTLY OVERRULED BY THIS HONBLE TRIBUNAL BY HOLDING THE S AID COMMISSION PAYMENTS AS GENUINE AND FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND THE ISSUE IN HAND IS THEREFORE SQUARELY COVERED BY THE DECISION OF THIS HONBLE TRIBUNAL. A COMPARATIVE CHART OF THE ORDER PASSED BY THIS HONBLE TRIBUNAL IN THE PAST ASSESSMENT YEARS REVER SING THE ORDER OF THE ASSESSING OFFICER AND THE LD.CIT(A) FOR THE PAST AS SESSMENT YEARS IS PRODUCED HEREIN BELOW FOR THE SAKE OF READY REFEREN CE: 65 THE COMMISSION PAYMENTS MADE BY THE APPELLANT DURIN G THE IMPUGNED YEAR WERE LIABLE FOR DEDUCTION OF TAX AT S OURCE U/S 194H OF THE ACT AND ACCORDINGLY THE TAX HAS BEEN DEDUCTED BY TH E APPELLANT AND DEPOSITED IN THE TREASURY ON BEHALF OF THESE PARTIE S FOR WHICH CORRESPONDING CREDIT HAS BEEN CLAIMED BY THE SAID C OMMISSION AGENTS IN THEIR RESPECTIVE RETURN OF INCOME. A SUMMARISED CHA RT FOR THE SAME IS PRODUCED HEREIN BELOW FOR THE SAKE OF READY REFEREN CE. THE ACCEPTANCE OF THE COMMISSION PAYMENTS BY THE SAID COMMISSION AGEN TS THROUGH ACCOUNT PAYEE CHEQUES IS NOT IN DISPUTE BY THE DEPARTMENT A ND RENDERING OF ABOVE MENTIONED SERVICES HAS EVEN OTHERWISE BEEN CONFIRME D AND ACKNOWLEDGED BY THE SAID COMMISSION AGENTS. S.N O NAME OF THE PARTY TOTAL AMOUNT PAYABLE AMOUNT PAID BY CUEQUE TDS DEDUCTED 1. ADHUNIK CORPORATION LTD. 23,01,55,138/- 21,86,51 ,482/- 1,15,03,656/- 2. SHYAM SEL LIMITED 3,96,47,364/- 3,76,65,700/- 19,81,664/- 3. C.P. REROLLERS LTD. 45,11,827/- 42,86,316/- 2,25 ,,511/- 4. CRESENT BAKES PVT. LTD. 23,83,978/- 22,50,236/- 1,33,742/- 5. R. S ISPAT PVT. LTD. 54,35,167/- 52,27,942/- 2,0 7,225/- 6. NAIYADIH HI-TECH PVT.LTD. 66,31,699 63,00,232/- 3,31,467/- TOTAL 28,87,65,173/- 27,43,81,908/- 1,43,83,265/- TREATMENT BY CIT TREATMENT BY TRIBUNAL S. NO. A.Y. COMMISSION PAID AND CLAIMED AS DEDUCTION DISALLOWANC E MADE IF ANY ASSESSMENT U/S (PAGE OF PB) CONFIRMED DELETED CONFIRMED DELETED 1. 1999-00 40,39,953/- 40,39,953/- 148/143(3) 2,21, 400/- 38,18,553/- 2,21,400/- 38,18,553/- 2. 2000-01 2,17,27,480/- 2,17,27,480/- 148/143(3) 1 1,88,493/- 2,05,38,987 11,88,493/- 2,05,38,987/- 3. 2001-02 4,56,47,826/- 4,56,47,826/- 148/143(3) 4 ,56,22,058/- - 25,00,000/- 4,31,22,058/- 4. 2002-03 7,35,74,784/- 7,35,74,784/- 143(3) 41,14 ,566/- 6,94,60,218/- 41,14,566/- 5. 2003-04 4,71,58,021/- 4,70,20,155/- 143(3) 4,70, 20,155/- - - 4,70,20,155/- 6 2004-05 5,35,96,327/- 5,18,62,462/- 143(3) 5,18,6 2,462/- - - 5,18,62,462/- 7. 2005-06 5,75,23,747/- 5,69,95,982/- 143(3) 5,69, 95,992/- - - 5,69,95,992/- 8. 2006-07 9,13,38,715/- 9,11,92,738/- 143(3) 9,11, 92,738/- - - 9,11,92,738/- 66 THE GENUINENESS OF THE COMMISSION PAYMENTS HAS BEEN FURTHER A SUBJECT MATTER OF VERIFICATION BY THE SERVICE TAX D EPARTMENT AS WELL WHEREIN ALSO THE COMMISSION PAYMENTS HAVE BEEN HELD TO BE GENUINE AND PROPER. A SURVEY OPERATION U/S 133A OF THE ACT WAS ALSO CON DUCTED AT THE PREMISES OF THE APPELLANT ON 5.09.2007 AND ADMITTED LY DURING THE COURSE OF SURVEY CLINCHING EVIDENCES IN THE FORM OF COMMIS SION AGREEMENTS, INVOICES, CONTACT DETAILS OF THE COMMISSION AGENTS AND PURCHASE ORDERS ETC. WERE FOUND TO ESTABLISH BEYOND DOUBT THAT THAT THE CLAIM OF DEDUCTION OF THE APPELLANT WAS GENUINE BEING INCURRED IN THE COURSE OF THE BUSINESS OF THE APPELLANT. BESIDES DOCUMENTARY EVIDENCE, THE ORAL EVIDENCE IN THE FORM OF STATEMENTS RECORDED OF THE FOLLOWING PERSONS ALSO G OES TO SUBSTANTIATE AND ESTABLISH THE CLAIM OF THE APPELLANT TOWARDS THE DE DUCTION OF THE COMMISSION PAYMENTS U/S 37(1) OF THE ACT. S.NO. NAME OF THE PERSON DESIGNATION 1. R.K. AGGARWAL DIRECTOR OF THE ASSESSEE COMPANY 2. S.K. GUPTA GENERAL MANAGER, FINANCE 3. ANANT LUHADIA GENERAL MANAGER, MARKETING THE AFORESAID THREE PERSONS IN THEIR RESPECTIVE STA TEMENTS HAVE CATEGORICALLY CONFIRMED THE PAYMENT OF THE COMMISSI ON AND RENDERING OF SERVICES BY THE AFORESAID AGENTS.THE APPELLANT ON T HE STRENGTH OF THE THESE POSITIVE EVIDENCES ON RECORD DULY DISCHARGED THE BU RDEN/ONUS ON IT, WHEREAS THE DEPARTMENT ON THE OTHER HAND HAS MISERA BLY FAILED TO BRING ON RECORD ANY EVIDENCE TO SHOW THE TRANSACTION IN QUES TION AS SHAM OR BOGUS. THE LD. ASSESSING OFFICER AS WELL AS THE LD. CIT (A ) HAS DISALLOWED THE DEDUCTION CLAIMED BY THE APPELLANT U/S 37(1) OF THE ACT MECHANICALLY BY OVERLOOKING/DISCARDING DOCUMENTARY, ORAL AND CIRCUM STANTIAL EVIDENCE ON RECORD AND FURTHER DEVIATING FROM THE ORDERS PASSED BY THIS HONBLE 67 TRIBUNAL IN THE CASE OF THE APPELLANT ITSELF FOR TH E PRECEEDING YEARS UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE ON THE NON-EXISTENT BASIS AND IN THE ABSENCE OF ANY REASONING. ALLEGATIONS OF LD. ASSESSING OFFICER: THE LD. ASSESSING OFFICER DISALLOWED THE COMMISSION EXPENDITURE AMOUNTING TO RS. 28,87,65,173/- ON ACCOUNT OF THE FOLLOWING REASONIN G: THE REPLY FILED BY THE APPELLANT REGARDING THE SERV ICES RENDERED BY THE COMMISSION AGENTS IS GENERAL IN NATURE. THE ASS ESSEE HAS NOT PRODUCED ANY SPECIFIC DOCUMENT, RECORD OR CORRESPON DENCE TO ESTABLISH THAT THE COMMISSION AGENTS, IN QUESTION, ACTUALLY RENDERED ANY SERVICE FOR OBTAINING PURCHASE ORDERS FROM THE ELECTRICITY BOARDS, OR RENDERED IN SERVICE THEREAFT ER IN RELATION OF THE BILLS. THE ASSESSEE HAS NOT INFORMED ABOUT THE EXPERTISE O F THE COMPANIES IN THE FIELD, BECAUSE OF WHICH THEY WERE APPROACHED, OR, THEY WERE ACCEPTED AS COMMISSION AGENTS. THERE IS NO EVIDENCE ON RECORD TO SHOW AS TO ON WHA T BASIS THE COMMISSION AMOUNTS WERE SETTLED. THE COMMISSION AGREEMENTS DID NOT SPECIFY WORK-WISE ALLOCATION OF AMOUNTS, BUT THE AMOUNTS WERE RELATED TO THE TEN DER VALUE. THE PERSONNEL WHO TOOK THE DECISION RELATING TO APP OINTMENT OF COMMISSION AGENTS WERE NOT PRODUCED FOR EXAMINATION . DURING THE ASSESSMENT PROCEEDINGS OF EARLIER YEARS, THE STATE ELECTRICITY BOARDS HAD CATEGORICALLY DENIED THE ROL E OF ANY MIDDLEMEN. 68 IN THE SEARCH ON SH.S.K. GUPTA ON 12.12.2006, HE CL EARLY SUGGESTED THAT THE ASSESSEE TAKES ACCOMMODATION ENT RIES TO SHOW REDUCED PROFITS. IN THE ABSENCE OF ANY EVIDENCE TO PROVE THAT SERVIC ES WERE ACTUALLY RENDERED BY THE COMMISSION AGENTS, THE COMMISSION A MOUNT IS DISALLOWABLE AS THE ONUS TO PROVE THAT AN EXPENSE W AS INCURRED FOR THE PURPOSE OF BUSINESS IS ON THE ASSESSEE. IN THE ABSENCE OF A PROPER DISCHARGE OF THIS ONUS, THE COMMISSION AMOUN T REQUIRES TO BE DISALLOWED. FINDINGS OF LD. CIT(A) THE LD. CIT(A) UPHELD THE ORDER PASSED BY THE ASSES SING OFFICER BY HOLDING AS UNDER: THE REAL ISSUE INVOLVED IS AS TO WHETHER THE PARTIE S, TO WHOM THE ASSESSEE HAS CLAIMED TO HAVE MADE PAYMENTS OF COMMI SSION, ACTUALLY RENDERED ANY SERVICES FOR THE ASSESSEE TO EARN THAT COMMISSION. IN THIS REGARD, ON PERUSAL OF THE RELEV ANT RECORDS, IT IS SEEN THAT THE COMMISSION PAYMENTS IN QUESTION, HAVE BEEN MADE MAINLY WITH REFERENCE TO THE PROCUREMENT OF ORDERS BY THE ASSESSEE FROM THE ELECTRICITY BOARDS OF VARIOUS STATES, WHIC H ARE GOVERNMENT/ PUBLIC SECTOR BODIES. THE LD. AO HAD JUSTIFIABLY, REQUIRED THE ASSESSEE T O SPECIFY THE SERVICES ACTUALLY RENDERED BY THE COMMISSION AGENTS , FOR PROCURING THE SUPPLY ORDERS FROM THOSE ELECTRICITY BOARDS/ CO MPANIES AND TO FURNISH DOCUMENTS/ EVIDENCES TO PROVE THE RENDERING OF THOSE SERVICES BY THE COMMISSION AGENTS. THE LD. AO, AS PER HIS DETAILED DISCUSSION IN THE A SSESSMENT ORDER HAS BEEN ABLE TO ESTABLISH THAT THOUGH THE ASSESSEE HAS MENTIONED 69 THE NATURE OF SERVICES, WHICH WERE TO BE PROVIDED B Y THE COMMISSION AGENTS, YET THE ASSESSEE HAS FAILED TO P RODUCE ANY SPECIFIC DOCUMENT/EVIDENCE TO PROVE THAT ANY OF THO SE SERVICES WAS ACTUALLY RENDERED BY THE COMMISSION AGENTS. IN ADDI TION, IT IS NOTICED THAT EVEN DURING THE SURVEY ACTION U/S 133A OF THE ACT AT THE FACTORY PREMISES OF THE ASSESSEE ON 05.09.2007, CONDUCTED BASICALLY TO VERIFY THE GENUINENESS OF THE CLAIM OF THE COMMISSION PAYMENT BY THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION, THE ASSESSEE FAILED TO PRODUCE ANY SPECIFIC DOCUMENT/RECORD/CORRESPONDENCE TO PROVE AND ESTABLI SH THAT THE COMMISSION AGENTS, IN QUESTION, ACTUALLY RENDERED A NY SERVICE FOR OBTAINING PURCHASE ORDERS FROM THE CONCERNED STATE ELECTRICITY BOARDS (SEBS). THERE IS NO DOCUMENT/EVIDENCE WITH THE ASSESSEE TO PROVE THAT THE SERVICES, SPECIFIED IN THE AGREEMENTS, WERE ACTUALL Y RENDERED BY THE COMMISSION AGENTS. HENCE, IN SUCH CIRCUMSTANCES , MERELY ESTABLISHING THE IDENTITY OF THE COMMISSION AGENTS, HAVING AGREEMENTS WITH THEM OR MAKING PAYMENTS, BY CHEQUES , TO THEM OR FILING THEIR CONFIRMATIONS IS NOT ENOUGH. THE APPELLANT ASSESSEE COULD NOT PRODUCE BEFORE US ANY DOCUMENT/EVIDENCE TO PROVE ACTUAL RENDERING OF ANY SERVICE BY THE COMMISSION AGENTS, WHICH HELPED THE ASSESSEE TO PRO CURE THE PURCHASE ORDERS FROM THE ELECTRICITY BOARDS/ ELECTR ICITY COMPANIES. HENCE, THE CLAIMED COMMISSION PAYMENTS W ERE CORRECTLY DISALLOWED BY THE LD. AO. REGARDING THE CONTENTION OF THE APPELLANT ASSESSEE THAT THE IDENTICAL ISSUE HAS BEEN DECIDED IN ITS FAVOUR IN E ARLIER YEARS BY THE HONBLE TRIBUNAL, THE CIT(A) ALLEGEDLY FOUND THAT A NUMBER OF COMMISSION AGENTS TO WHOM THE COMMISSION PAYMENTS H AVE BEEN 70 CLAIMED IN THIS YEAR, ARE DIFFERENT AS COMPARED TO THE COMMISSION AGENTS, TO WHOM THE COMMISSION PAYMENT HAD BEEN CLA IMED IN THE EARLIER YEAR. IN ADDITION, THE CIT(A) ALLEGEDLY OBS ERVED THAT LD. AO HAS BROUGHT ON RECORD SOME NEW FACTS RELATING TO THE ISSUE INVOLVED IN THIS GROUND IN THIS YEAR, WHICH WERE NO T THERE IN THE EARLIER YEARS. THEREFORE, AS EACH ASSESSMENT YEAR I S AN INDEPENDENT YEAR FOR THE PURPOSE OF THE INCOME-TAX AND AS ALSO THE FACTS ARE DIFFERENT IN THIS YEAR AS COMPARED TO THE EARLIER Y EARS, THEREFORE THE DECISION OF THE HONBLE ITAT GIVEN IN THE EARLIER Y EARS, IS NOT BINDING IN THIS YEAR. SUBMISSIONS: WITH REGARD TO THE PRESENT APPEAL, AT THE OUTSET, I T IS MOST RESPECTFULLY SUBMITTED, THAT THE IMPUGNED ORDER OF ASSESSMENT PASSED BY THE LD. AO AND THE FURTHER APPELLATE ORDER PASSED B Y LD. CIT (A) IS AGAINST THE PRINCIPLE OF JUDICIAL CONSISTENCY AND J UDICIAL PROPRIETY. THE IMPUGNED ORDERS FURTHER SUFFERS FROM THE VICE OF AR BITRARINESS, NON APPLICATION OF MIND, MISREADING AND OVERLOOKING OF DOCUMENTARY, ORAL AND CIRCUMSTANTIAL EVIDENCE AND IS THUS UNDER CHALLENGE BEFORE THIS HONBLE TRIBUNAL VIDE VARIOUS GROUNDS OF APPEAL STATED IN T HE MEMORANDUM OF APPEAL. THE GROUNDS OF APPEAL REPRESENT THE DIFFERE NT FACTS OF THE CONTROVERSY IN HAND AND ARE ELABORATED HEREINAFTER IN THE SUBSEQUENT PARAGRAPHS. WITHOUT PREJUDICE AND PRIOR TO DILATING UPON THE ME RITS OF THE SUSTENANCE OF THE ADDITION OF RS. 28,87,65,163/- ON ACCOUNT OF THE DISALLOWANCE OF THE EXPENDITURE INCURRED ON COMMISS ION AND BROKERAGE, IT IS IMPERATIVE TO POINT OUT AT THE VERY THRESHOLD TH AT THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN MAKING DISALLOWANCE OF RS. 28,87,65,163/- WHICH IS IN EXCESS OF THE EXPENDITURE ACTUALLY CLAIMED BY TH E APPELLANT AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PAYMENT MADE TO 71 THE SAID SIX PARTIES. IT CAN BE SEEN FROM THE FOLLO WING TABULATION THAT THE APPELLANT ASSESSEE COMPANY INCURRED AN AGGREGATE EX PENDITURE OF RS. 28,87,65,173/- WHICH INCLUDED THE EXPENDITURE BY WA Y OF COMMISSION AND INCENTIVE OF RS. 25,72,74,744/-, SERVICE TAX PAYABLE OF RS. 3,08,72,969/- AND CESS ON SERVICE TAX PAYABLE OF RS. 6,17,460/-, WHICH HAVE BEEN DISALLOWED BY THE LD. AO IN THE ASSESSMENT PROCEEDI NGS AND FURTHER CONFIRMED BY THE LD. CIT(A) IN THE APPELLATE PROCEE DINGS. S. NO. NAME OF THE PARTY ALONG WITH PAN AND ADDRESS BILL AMOUNT COMMISSION SERVICE TAX CESS ON SERVICE TAX 1. ADHUNIK CORPORATION LTD. KOLKATA, AABCB4521H, 14, NETAJI SUBHAS ROAD, II FLOOR, KOLKATA 700 001 23,01,55,138/- 20,50,56,253/- 2,46,06,750/- 4,92,13 4/- 2. SHYAM SEI LIMITED, KOLKATA AAECS9421J, 29, GANESH CHANDRA AVENUE, 1 ST FLOOR, KOLKATA 700 013 3,96,47,364/- 3,53,23,738/- 42,38,849/- 84,777/- 3. C.P. REROLLERS LTD., AABCC8496Q 11/A, MAHARSHI DEVENDRA ROAD, 5 TH FLOOR, SUIT NO.2, KOLKATA 700 007 45,11,827/- 40,19,803/- 4,82,376/- 9,648/- 4. CRESENT BAKES PVT.LTD., KOLKATA AACCC2483Q, 207, MAHARSHI DEVENDRA ROAD, ROOM NO.34, 1 ST FLOOR, KOLKATA 700 006 23,83,978/- 21,24,000/- 2,54,880/- 5,098/- 5. R.S. ISPAT PVT. LTD., KOLKATA, AABCR1890D 54,35,167/- 48,42,451/- 5,81,094/- 11,622/- 6. NAIYADIH HI-TECH PVT. LTD. KALYANI APARTMENT, FLAT NO.5, 2 ND FLOOR, TAH COMPLEX, GANDHI CHOWK, GIRIDIH 815 301 (JHARKHAND) 66,31,699/- 59,08,499/- 7,09,020/- 14,180/- TOTAL 28,87,65,173/- 25,72,74,744/- 3,08,72,969/- 6 ,17,459/- IT IS HEREBY HUMBLY SUBMITTED THAT, THE SERVICE TAX PAID AND CESS ON SERVICE TAX PAID BY THE APPELLANT COMPANY TO THE CO MMISSION AGENTS WAS SET OFF BY THE APPELLANT AGAINST THE SERVICE TAX RE COVERED FROM THE CUSTOMERS, AND THEREFORE THE SAME WAS NOT CLAIMED A S EXPENDITURE BY THE APPELLANT COMPANY . 72 IN THE P&L A/C LOSS ACCOUNT ASSESSEE HAS CLAIMED E XPENDITURE ON ACCOUNT OF COMMISSION AND BROKERAGE IN RESPECT OF S IX PARTIES AGGREGATED TO RS. 25,72,74,744/- AND AGGREGATE FIGURE CREDITED IN TH E ACCOUNTS OF ALL THE PARTIES (INCLUDING SIX) WAS RS. 28,42,89,476/-. IN OTHER WORDS, SINCE NO DEDUCTION WAS CLAIMED FOR RS. 3,08,72,969/- REPRESENTING THE SERVICE TAX PAYABLE AND CESS ON SERVICE TAX PAYABLE OF RS. 6,17,460/- BY DEBITING THE SAME TO THE PROFIT & LOSS ACCOUNT AND THUS APPA RENTLY, THE DISALLOWANCE SO MADE OF RS. 3,14,90,429/- OUT OF AGGREGATE DISALLOWANCE OF RS. 28,87,65,173/- IS MISCONCEIVED, MISPLACED AND NOT SUSTAINABLE. THE DISALLOWANCE MADE CANNOT BE IN ANY CASE EXCESSIVE O F THE DEDUCTION CLAIMED, HENCE THE ADDITION AT MOST CAN BE OF RS. 25,72,74,744/- BEING THE EXPENDITURE ACTUALLY CLAIMED AS DEDUCTION U/S 37(1) OF THE ACT. FURTHER, REGARDING THE SUSTENANCE OF ADDITION OF RS. 25,72,74,744/- ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 37(1) OF THE ACT IN RESPECT OF COMMISSION PAYMENTS TO VARIOUS AGENTS, I T IS SUBMITTED THAT THE SAID MONEY HAS BEEN EXPENDED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS AND IS THEREFORE ALLOWABLE AS DEDUCTION W HILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT HAS BEEN EXPLAINED DURING THE COURSE OF ASSESSME NT PROCCEDINGS THAT THE APPELLANT IS IN THE BUSINESS OF SELLING & MARKETING ITS GOODS IN DIFFERENT STATES IN THE COUNTRY TO VARIOUS STATE EL ECTRICITY BOARDS/COMPANIES. TO GET THE MAXIMUM ORDERS THE AP PELLANT COMPANY PARTICIPATES IN VARIOUS TENDERS FLOATED BY STATE EL ECTRICITY BOARDS (SEBS) FOR TIME TO TIME IRRESPECTIVE OF THE FACT THAT TEND ERS ARE EVENTUALLY ALLOTTED TO IT OR NOT. APART FROM STATE ELECTRICITY BOARDS, THERE ARE VARIOUS PRIVATE SECTOR UTILITIES, WHO DO NOT INVITE TENDERS FOR ISS UING ORDERS BUT THERE IS NEGOTIATION PROCESS AND ORDERS ARE PLACED AFTER DET AILED NEGOTIATIONS. 73 THE APPELLANT IN ORDER TO PROCURE ORDERS HAS TO PAR TICIPATE IN THE TENDERS OF DIFFERENT SEBS IN DIFFERENT STATES IN O RDER TO GET THE MAXIMUM MARKET SHARE. SINCE THE APPELLANT DOESNT HAVE ITS OFFICES AND PERSONNEL AT ALL THE PLACES, THEREFORE IN ORDER TO ENSURE SUPPLY OF THE GOODS TO THE CUSTOMER IN A DEFINED TIME FRAME AS PER THE TERMS O F THE ORDER, THE APPELLANT GETS THE AID OF EXTERNAL SUPPORT AND IDEA S FROM CERTAIN ORGANISATION AND MAKES COMMISSION PAYMENT TO THEM. A PECULIAR FEATURE IN THE LINE OF THE BUSINESS OF T HE APPELLANT IS THAT WHERE ORDERS ARE TO BE OBTAINED FROM GOVERNMENT DEP ARTMENTS, THE NAMES OF THE MIDDLEMEN OR REFERENCES TO THE MIDDLEM EN WOULD NOT BE GENERALLY MENTIONED IN CORRESPONDENCE UNLESS THEY A RE ACCREDITED AGENTS. IN OTHER WORDS, IF A PERSON IN-CHARGE OF PURCHASES IN THE GOVERNMENT DEPARTMENT HAS TO MAKE SOME PURCHASES, THERE IS PRE SCRIBED PROCEDURE. ONE IS BY INVITING TENDER IN WHICH CASE THE LOWEST TENDER COULD BE ACCEPTED AND THE ORDER IS PLACED. THE OTHER IS BY NEGOTIATIONS. THE THIRD IS PLACING ORDERS DIRECTLY TO SUPPLIERS APPROVED BY THE GOVERNMENT. EVEN IN CASE WHERE PURCHASES ARE MADE BY NEGOTIATIONS OR PLACING ORDERS DIRECTLY ON THE APPROVED SUPPLIERS, CERTAIN AMOUNT OF PRE-INFORMATION REGARDING THE QUALITY OF THE GOODS PRODUCED BY THE MANUFACTURER IS NECESSARY. THE APPELLANT EITHER AS THE MANUFACTURER, DIRECTLY CORRESPOND WITH THE MEN IN AUTHORITY BY GIVING THE SPECIFICATIONS, UTILITY, PRICE RANGE ETC. IN A BID TO PERSUADE THEM TO BUY ITS PRODUCTS IN PR EFERENCE TO THE PRODUCTS OF OTHER MANUFACTURERS OR SOMETIMES THESE ARE FOLLO WED UP BY THE REPRESENTATIVES WHO DO COME AND GIVE DEMONSTRATIONS OF ITS PRODUCTS. THE HIGHER THE COST THE MORE IS THE SOPHISTICATED M ETHODS OF PERSUASION. THESE ARE THE DAYS OF AGGRESSIVE ADVERTISING, PERSU ASION BY CONTACT, BY WORD OF MOUTH. IN ALL THESE CASES, THE NAMES OF TH E PERSONS WHO INDUCED OR PERSUADED THE PERSONS AND AUTHORITY WHO WERE AUT HORIZED TO PLACE THE 74 ORDERS ARE NOT GENERALLY WRITTEN MUCH LESS AGREED T O. IN A COMPETITIVE MARKET, IT IS THE PERSONAL CONTACT THAT IS MORE IMP ORTANT TO PERSUADE THE PERSONS AND AUTHORITY TO PLACE ORDERS, AND IF THOSE AUTHORITIES ARE ASKED AS TO HOW THEY PREFERRED A PARTICULAR ARTICLE TO ANOTH ER ARTICLE AVAILABLE IN THE MARKET, THEY WILL NEVER ADMIT THAT THEY ARE PERSUAD ED BY THE PERSONAL CONTACT MADE BY THE REPRESENTATIVES OF THE MANUFACT URES RATHER THEY WOULD SAY THAT THEY WERE PERSUADED BY THE GENERAL INFORMA TION GATHERED. THE GATHERING OF GENERAL INFORMATION WILL ALWAYS MEAN P ERSONAL CONTACT AND THE SAME IS A REALITY, WHICH CANNOT BE IGNORED. MEA NING THEREBY, THAT IN MANY CIRCUMSTANCES THE WINNER OF THE TENDER GETS EX PELLED FROM EXECUTION OF THE ORDER AND HIS PERFORMANCE GUARANTEE ALSO GET S FORFEITED DUE TO HIS INCAPABILITY O FULFILL THE SCHEDULED SUPPLY CAUSE O F QUALITY PROBLEMS, INFRASTRUCTURES, ISSUES, SMALL SCALE, LOW OR BAD CR EDITABILITY IN THE MARKET, R&D FACILITIES ETC. AND THE ELECTRICITY COMPANY MOV ES TO ANOTHER OPTION. BEFORE GOING FOR ANY OPTION THE ELECTRICITY COMPANY COFORMS CREDENTIALS OF THE OTHER PARTICIPANTS THROUGH PERSONAL CONTACTS WITH THE PARTICIPANTS OR THEIR REPRESENTATIVE WHICH NEED NOT BE DEPENDENT OR BASED ON WRITTEN COMMUNICATIONS OR CORRESPONDENCES. THEREFORE THE AG ENCIES TO WHOM COMMISSION HAS BEEN PAID HAS A SIGNIFICANT ROLE TO PLAY CONTINUOUSLY AT EVERY STAGE. FURTHER THE APPELLANT BEFORE PARTICIPATING IN THE T ENDERS NEED CORRECT INFORMATION IN RESPECT TO THE DEMAND CREATE D BY SEBS FOR BEING LOWEST PARTICIPANT IN TENDER PARTICIPATION PROCESS IN REGARD TO THE PARTICULAR ITEM TO DEFEAT THE NECK-TO-NECK COMPETIT ION PREVAILING THE MARKET AND TO GET THE ORDERS AT MAXIMUM POSSIBLE MA RGIN. IN THIS PROCESS, IF FINALLY THE COMPANY DO NOT SUCCEEDED IN THE TEND ER OR IS NOT OPTED FOR ORDER AWARDED ON ACCOUNT OF COST AND BENEFIT INVOLV ED THAN THE AGENT DO NOT GET ANY REMUNERATION BUT HIS SERVICES WHICH THE AGENT RENDERED DURING THE PROCESS OF TENDER PARTICIPATING PUT ON HOLD TIL L THE NEXT ORDER PARTICIPATION AND THERE FINAL OUTCOME. LATER ON IF IN ANY TENDER 75 PARTICIPATION THE COMPANY FINALLY SUCCEDED THAN THE AGENTS REMUNERATION WILL DEPEND UPON THE PRICES AT WHICH THE COMPANY GE TS ORDER AND OTHER MARKET SERVICES REQUIRED FROM THE AGENT. THESE PARTIES TO WHOM THE COMMISSION HAS BEEN PAID ARE ENGAGED IN THE BUSINESS OF RENDERING AFOREMENTIONED SERVICE S AND HAVE ALSO WORKED FOR THE COMPETITORS OF THE APPELLANT AND OTH ER COMPANIES WHO ARE IN THE SAME LINE OF BUSINESS. FOR INSTANCE, ONE OF THE COMMISSION AGENTS OF THE APPELLANT NAMELY SHYAM SEL LIMITED HAS AFFIR MED BEFORE THE LD. ASSESSING OFFICER THAT IT HAS GIVEN SERVICES TO ONE OF THE COMPETITORS OF THE APPELLANT I.E. M/S EMCO IN RESPECT OF TENDER OF ANOTHER ELECTRICITY COMPANY. THE DETAILS WITH REGARD TO SUCH COMMISSION AGENTS PROVIDING SUCH SIMILAR SERVICES TO THE COMPETITOR COMPANIES O F THE APPELLANT COMPANY AND TO OTHER INDUSTRIAL SECTORS WERE PROVID ED/SUBMITTED TO THE CIT(A) DURING THE COURSE OF FIRST APPELLATE PROCEED INGS AS ADDITIONAL EVIDENCE DUE TO THE FACT THAT NO OPPORTUNITY TO SUB MIT THESE DETAILS WAS PROVIDED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ALTHOUGH, THE LD. CIT(A) ACCEPTED SUCH DETAILS AS A DDITIONAL EVIDENCE, HOWEVER, DID NOT GIVE ANY CONSIDERATION TO THESE DE TAILS AND DID NOT EVEN DISCUSSED ABOUT THESE DETAILS IN THE ORDER AND CHOS E TO UPHELD THE ADDITION MADE BY THE LD. AO. THE COMPLETE DETAILS/PARTICULAR S REGARDING THE COMPANIES TO WHOM SIMILAR SERVICES HAVE BEEN RENDER ED BY THESE COMMISSION AGENTS BESIDES THE APPELLANT COMPANY ARE PLACED AT APB 420- 518. THESE COMMISSION AGENTS PROVIDED VARIOUS KIND OF MA RKETING SERVICES TO THE APPELLANT COMPANY FROM TIME TO TIM E DURING THE RELEVANT PERIOD AS DESCRIBED HEREIN : PRE TENDER SERVICES CERTAIN INFORMATION IS REQUIRED BEFORE PARTICIPATIN G IN ANY TENDER LIKE WHAT IS GOING ON IN THE MARKET IN RESPECT TO T HE DEMAND AND SUPPLY. 76 WHAT POLICIES HAVE BEEN DECLARED BY THE UNION AND S TATE GOVT. OR LIKELY TO BE DECLARED IN NEAR FUTURE? WHICH STATE/COMPANY IS GOING TO ENHANCE ITS INFRASTRUCTURE FACILITIES IN RESPECT TO THE POWER D ISTRIBUTION FISCAL CHANGES IN SEBS POSITION. WHICH SEB IS GOING TO PRIVATIZE. STATISTICS OF POWER DISTRIBUTION AND CONSUMPTION SUCH AS TOTAL POWER GE NERATED IN INDIA, RATIO OF PUBLIC AND PRIVATE SECTOR IN POWER GENERATION, S OURCES OF POWER GENERATION SUCH AS THERMAL, NUCLEAR, WIND, WATER, H YDRO ETC. POWER DISTRIBUTION RATIO IN BETWEEN SEB AND PRIVATE UTILI TIES IN DIFFERENT STATES. TREND OF INCREASE OF CONSUMPTION IN DIFFERENT STATE S. SPECIFIC SERVICES WHICH SEB IS GOING TO FLOAT TENDERS AND WHAT IS THE BUDGET. WHICH COMPETITORS ARE INVOLVED AND WERE INVOLVED IN LAST TENDERS IF FLOATED ANY, WHICH COMPETITOR GOT SUCCED IN THE LAS T TENDER. FINANCIAL WORTH & CAPACITY OF THE COMPETITORS. FINANCIAL POSI TION OF THE SEB/COMPANY. WHAT WAS THE PAYMENT POSITION OF THE S EB/CO. SIGNIFICANT TECHNICAL DIFFICULTIES INVOLVED IN THE TENDER? POSSIBLE COST STRUCTURE OF THE PRODUCT. POST TENDER SERVICES ARRANGE TO COMPLY ALL THE DISCREPANCIES IN THE TEND ER SUBMISSION. DAY TO DAY FOLLOW-UP FOR EXPECTED DATE OF OPENING O F TENDER PARTICIPATE THROUGH REPRESENTATIVES IN TENDER OPENING MEET. CAL CULATION OF PRICES OF COMPETITION. FINAL BID GIVEN BY COMPETITORS. BID AC CEPTED BY THE SEB. CONFIRMATION OF BID AND TENDER. GENERAL SERVICES ARRANGE TO OBTAIN THE WORK ORDER ALLOTMENT. ARRANGE TO INSPECT THE GOODS IN SATISFACTION OF THE SEB/CO OFFICIALS AT FA CTORY SITE. DAY TO DAY FOLLOW-UP OF THE DELIVERY SCHEDULE. POST DISPATCH SERVICES ARRANGE TO ENSURE THE GOODS DELIVERY AT THE DESIRED DESTINATION THAT ALL THE GOODS HAVE BEEN DELIVERED IN THE MANNER SPE CIFIED IN THE TENDER/ORDER AND IF THERE IS AN DEVIATION INFORM TH E COMPANYS OFFICIALS 77 ABOUT THE REMEDIAL STEPS. ARRANGE TO SEND BACK THE MATERIAL, WHICH IS NOT ACCEPTED Y THE SEB/CO. FOLLOW-UP FOR THE REALIZATION ARRANGE TO ENSURE THAT ALL THE FORMALITIES HAVE BEE N COMPLETE IN RESPECT TO THE DELIVERY SCHEDULE SPECIFIED IN THE T ENDER/ORDER. DAY TO DAY FOLLOW-UP OF PAYMENTS SO AS TO ENSURE THE PAYMENTS ON DUE DATES. ARRANGE TO ENSURE THE REMITTANCES TO THE COMPANY WELL IN TI ME. ON ACCOUNT OF THE AVAILMENT OF THE AFORESAID SERVIC ES BY THE APPELLANT DURING THE COURSE OF CARRYING ON ITS BUSI NESS FROM THE COMMISSION AGENTS, THE APPELLANT HAS MADE COMMISSIO N PAYMENTS TO THE AFORESAID SIX PARTIES AS AN ORDINARY BUSINESS EXPEN DITURE ON COMMERCIAL PRINCIPLES AND ACCORDINGLY CLAIMED THE SAME AS DEDU CTION U/S 37(1) OF THE ACT. THE EXPENDITURE SO INCURRED BY THE APPELLANT QUALIF IES FOR DEDUCTION UNDER THE PROVISIONS OF SECTION 37(1) OF THE ACT AS IT FULFILS AND MEETS ALL THE CONDITIONS FOR ALLOWABLILITY OF EXPEN DITURE UNDER THAT SECTION. THE PROVISIONS OF SECTION 37 OF THE ACT IS REPRODUC ED HEREIN BELOW FOR THE SAKE OF READY REFERENCE: 1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CA PITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESS ION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION' EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED T O HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DE DUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. (2B) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), NO ALLOWANCE SHALL BE MADE IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE ON 78 ADVERTISEMENT IN ANY SOUVENIR, BROCHURE, TRACT, PAM PHLET OR THE LIKE PUBLISHED BY A POLITICAL PARTY. IT IS SUBMITTED THAT THE EXPENDITURE OF RS. 25,72,74,744/- ON ACCOUNT OF PAYMENT OF COMMISSION HAS BEEN INCURRED BY THE APPELLANT WHOLLY & EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINES S AND IS NOT A PERSONAL OR CAPITAL EXPENDITURE, AND IS THEREFORE ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT BEING AN EXPENDITURE IN THE ORDINARY COURSE OF BUSINESS. IT IS ALSO PERTINENT TO MENTION THAT NONE OF THE PAYMENT IS TO RELATED PARTIES. THE SERVICES PERFORMED BY THE PAYEES CAN ALSO NOT BE DO UBTED IN LIGHT OF THE NATURE OF APPELLANTS BUSINESS, INEVITABLE NEED OF THEIR SERVICES AND IMPOSSIBILITY OF CARRYING ON THE BUSINESS ACTIVITIE S WITHOUT INVOLVEMENT OF THEIR SERVICES. THE APPELLANT PLACES RELIANCE ON THE DECISION OF TH E DELHI BENCH OF THE HONBLE TRIBUNAL IN THE CASE OF M/S ELECTRIC CO NSTRUCTION AND EQUIPMENT COMPANY LTD. VS. ITO NOT ONLY TO SUPPORT ITS LEGAL CONTENTIONS BUT ALSO TO SUBSTANTIATE THE ESTABLISHE D BUSINESS PRACTICES IN THIS LINE OF BUSINESS, WHEREIN IN CASE OF AN ASSESS EE CARRYING ON SIMILAR BUSINESS, ON IDENTICAL FACTS AND CIRCUMSTANCES, IT HAS BEEN HELD THAT : FURTHER, THERE IS ALSO NOT LIKELY TO BE ANYTHING FR OM THE RECORDS OF THE PUNJAB STATE ELECTRICITY BOARD TO SHOW THAT THE COMMISSION WAS PAID TO IMPEX COMMERCIAL CORPORATION LIMITED AND ITS SER VICES WERE UTILISED IN SECURING THE ORDERS FOR THE ASSESSEE. THESE FIND INGS FOR OBVIOUS REASONS AS ALSO EVEN IN THE NORMAL COURSE ARE NOT LIKELY TO BE AVAILABLE FROM THE RECORD OF THE PURCHASER. NORMALLY THE AGENTS OR THE MIDDLEMAN CARRY OUT THEIR ACTIVITIES PERSONALLY WITHOUT ENTERING INTO A NY CORRESPONDENCE WITH THE PURCHASERS. IN ANY CASE, IN THE PRESENT CASE, I F THERE IS NOTHING ON RECORD OF PUNJAB STATE ELECTRICITY BOARD, AN ADVERS E INFERENCE CANNOT BE DRAWN AGAINST THE ASSESSEE WITH REFERENCE TO EITHER THE PAYMENT OR THE EXISTENCE OF COMMISSION AGENT. 79 THIS VIEW WAS REITERATED IN THE CASE OF NESTOR PHAR MACEUTICALS (P) LTD. V. CIT, ITA NO.2535/DEL/2006 ORDER DATED 30.01 .2008, AND THE SAID ORDER WAS UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. NESTOR PHARMACEUTICALS (P) LTD., (2010) 33 DTR (DEL ) 293, VIDE ORDER DATED 19.11.2009 BY HOLDING AS UNDER: THE INCOME TAX APPELLATE TRIBUNAL (ITAT) HAS CONFI RMED THE AFORESAID FINDING OF FACTS IN APPEAL PREFERRED BY T HE REVENUE AGAINST THE DECISION OF THE CIT(A) ALLOWING THE EXPENDITURE CLA IMED BY THE ASSESSEE. THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL WOUL D ALSO INDICATE THAT THE ASSESSING OFFICER HAD MAINLY NURTURED DOUBT ABO UT THE PAYMENT OF COMMISSION FOR THE SERVICES RENDERED BY BOTH THE PA RTIES FOR GOVT. INSTITUTIONS WHICH WAS QUESTIONABLE. THIS DOUBT OF THE AO HAS BEEN BRUSHED ASIDE BY THE TRIBUNAL IN THE FOLLOWING MANN ERE: HERE WE FIND THAT THE AO HAS IN REGARD TO THE COMM ISSION PAYMENT TO THE AGENTS WHO HAD ASSISTED THE ASSESSEE TO DEAL WITH THE GOVT. AGENCIES HAVE BEEN SPECIFICALLY EARMARKED AND DISAL LOWED ON THE GROUND THAT THERE WAS NO NECESSITY OF AN AGENT WHILE DEALI NG WITH THE GOVERNMENT. THOUGH, IT IS VERY MUCH TRUE THAT THE GOVT DOESNT DEAL WITH THE MIDDLEMAN, IT DOESNT MEAN THAT THERE IS NO ROLE FO R AN AGENT TO PLAY WHEN AN ASSESSEE IS DEALING WITH THE GOVT. THE TRANSACTI ON AND THE DEALINGS WITH THE GOVERNMENT OBVIOUSLY CANNOT BE DONE THROUGH AN AGENT BUT THE AGENT CAN ASSIST AN ASSESSEE IN OBTAINING SUPPLY AND FACI LITATING INFORMATION WHAICH ARE REQUIRED FOR THE ASSESSEE. THE EXPLANATI ON OF THE ASSESSEE THAT THE AGENTS ASSISTED THE ASSESSEE IN THE PRE-TENDER AND POST TENDER ACTIVITIES IS CLEARLY BORNE OUT OF THE EVIDENCES WH ICH ARE PART OF THE SEIZED MATERIAL. THIS BEING SO, IT CANNOT BE SAID THAT NO SERVICES HAVE BEEN RENDERED BY THE AGENTS TO THE ASSESEE. IN THESE CIR CUMSTANCES, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS RIGHT IN DELETING T HE DISALLOWANCE OF THE COMMISSION AS MADE BY THE AO.HIS IMPUGNED ORDERS ON THIS ISSUE FOR ALL THE SEVEN YEARS UNDER CONSIDERATION ARE, THEREFORE, UPHELD AND THESE APPEALS OF THE REVENUE ARE DISMISSED. THE ABOVE CASE IS ON THE SAME LINES AT THAT OF THE APPELLANT ASSESSEE HEREIN, EVEN THE FACTS OF THE ABOVE CASE A RE SIMILAR TO THE FACTS OF THE PRESENT MATTER AND THEREFORE, IT IS SUBMITTED T HAT AS IN THE ABOVE CASE, THE HONBLE HIGH COURT OF DELHI HAS SPECIFICALLY HE LD THAT SUCH COMMISSION AMOUNT PAID TO AGENTS FOR SECURING GOVER NMENT CONTRACTS CANNOT BE BOGUS IN THE LIGHT OF THE FACT THAT EVEN THE COMMISSION AGENTS WHO HAVE BEEN PAID THE COMMISSION AMOUNT HAVE VERIF IED AND ACCEPTED 80 THAT THEY HAVE RECEIVED THE SAME, AND HENCE, SUCH C OMMISSION IS ALLOWED AS BUSINESS EXPENDITURE. IN THE SAME WAY, AS IN THE PRESENT CASE, THE COMMISSION AMOUNT IS PAID TO COMMISSION AGENTS FOR HELP IN SECURING THE CONTRACTS FROM STATE GOVERNMENT ELECTRICITY DEPARTM ENTS OF VARIOUS STATES AND EVEN THE COMMISSION AGENTS WHO HAVE RECEIVED SU CH COMMISSION HAVE ACCEPTED AND VERIFIED IN WRITING THAT THEY HAV E RECEIVED SUCH COMMISSION AS PAID BY THE APPELLANT ASSESSEE HEREIN , AND THEREFORE, SUCH COMMISSION AMOUNT SHOULD BE ALLOWED AS BUSINESS EXP ENDITURE FOR THE ASSESSEE. THIS CASE ALSO ESTABLISHES THE NEED OF I NVOLVEMENT AND PERFORMANCE OF SERVICES BY SUCH COMMISSION AGENTS I N THIS LINE OF BUSINESS AND THAT IT IS THE WELL ESTABLISHED MARKET PRACTICE TO INVOLVE THEM AND FURTHER THAT SINCE OTHERS ARE DOING THIS, IT IS IMPOSSIBLE FOR THE APPELLANT TO CARRY ON ITS BUSINESS WITHOUT FOLLOWIN G THE SAME PRACTICE SO AS TO COMPETE WITH THEM IN MARKETING/SELLING THROUG H BETTER EQUIPPING ITSELF. ALSO, AS IN THE PRESENT CASE, THE COMMISSION EXPENS E WAS INCURRED BY THE APPELLANT ASSESSEE FOR THE PURPOSE OF FACILI TATING THE GROWTH ITS OWN BUSINESS THROUGH BONAFIDE MEANS AND NOT FOR ANY ILL EGAL PURPOSE WHICH WOULD HAVE SOME ADVERSE EFFECT ON THE MARKET OR ON THE COMPETITION. IN ONE OF THE CASE BEFORE DELHI D BENCH OF THE HONB LE ITAT, N.K. RAJGARHIA V. DEPUTY COMMISSIONER OF INCOME TAX (199 5) 52 TTJ (DEL) 631, THE HONBLE TRIBUNAL WHILE DECIDING UPON THE A LLOWABILITY OF PAYMENT OF COMMISSION TO ONE AGENT FOR LETTING ASSE SSEE BAG ORDER FOR EXPORT OF DETERGENT TO RUSSIA, HAD HELD THAT THE PA YMENT OF COMMISSION WAS MADE, NOT TO WARD OFF COMPETITION BUT TO FACILI TATE BUSINESS AND THEREFORE SUCH EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. FURTHER, IN ONE OF THE CASES OF V.I.P. INDUSTRIES L TD. V. INSPECTING ASSISTANT COMMISSIONER (1991) 36 ITD (BOM) 70, THE HONBLE ITAT, BOMBAY BENCH (3 RD MEMBER), WHILE DECIDING ON A VERY SIMILAR ISSUE OF 81 ALLOWABILITY OF PAYMENT OF COMMISSION AS BUSINESS E XPENDITURE HAS HELD THAT IN A CASE OF THIS NATURE WHERE ORDERS HAD TO BE OB TAINED FROM GOVERNMENT DEPARTMENTS AND THE RULES GOVERNING THE PLACEMENT OF ORDERS, THE NAMES OF THE MIDDLEMEN OR REFERENCE TO THE MIDDLEMEN WOULD NOT BE GENERALLY MENTIONED IN CORRESPONDENCE UNLESS THEY ARE ACCREDITED AGENTS. ASSESSEE APPOINTED M TO ACT AS THEIR AGENT TO IMPROVE THEIR TURNOVER WITH CANTEEN STORED DEPARTMENT BY AFFIXING A TARGET OF 30 PER CENT INCREASE IN THE SECOND YEAR AND MAKING THE PAY MENT OF COMMISSION ON THE ACHIEVEMENT OF THIS TARGET AND ALSO MAKING I T A CONDITION THAT THEIR FURTHER CONTINUANCE WOULD DEPEND UPON OBTAINING PRI CE INCREASE AND THEY APPOINTED B TO WORK ON THEIR BEHALF AND THE CORRESP ONDENCE BETWEEN THEM AND B WAS PRODUCED BEFORE HIM. NO ATTEMPT WAS MADE BY THE IAC TO DISPROVE ANY OF THESE LETTERS PRODUCED. THE DEPARTMENT SHOULD HAVE ENQUIRED INTO THE RECEIP T OF THIS COMMISSION FROM ALL ANGLES AND THEN PROVED THAT THI S COMMISSION WAS REACHED BACK TO THE ASSESSEE IN ONE SHAPE OR THE OT HER OR IT WAS PAID FOR SOME ILLEGAL PURPOSE OPPOSED TO PUBLIC POLICY ONLY THEN IT COULD BE SAID THAT THE ENTIRE ARRANGEMENT WAS A BOGUS ARRANGEMENT . ONLY THEN HE COULD SAY THAT THE ARRANGEMENT WAS A SHAM ARRANGEMENT OR A COLLUSIVE ARRANGEMENT. NO SUCH ATTEMPT WAS MADE BY THE DEPART MENT. THE CONTENTION OF THE DEPARTMENT THAT THE AMOUNTS WHICH WERE DEPOSITED WERE IMMEDIATELY WITHDRAWN IS NO JUSTIFICATION TO SAY TH AT NO SERVICES WERE RENDERED OR THE MONEY WITHDRAWN BY B HAD REACHED TH E ASSESSEE IN SOME WAY OR THE OTHER. ON THE CONTRARY B HAVE CATEGORICA LLY STATED IN THEIR AFFIDAVIT THAT THE MONEY RECEIVED FROM M.S. TEXTILE S BY WAY OF COMMISSION WAS BY ACCOUNT PAYEE CHEQUE AND THAT MONEY WAS DEPO SITED IN THEIR BANK ACCOUNT. B WROTE A LETTER TO THE IAC AFFIRMING THE RENDERING OF SERVICE, RECEIPT OF COMMISSION AND ENCLOSING AN AFFIDAVIT. I N THE FACE OF THE EVIDENCE HOW WAS IT POSSIBLE TO ACCEPT THE CONTENTI ON OF THE DEPARTMENT THAT THEY WERE NOT ABLE TO REACH B AND THAT B WAS N ON-EXISTENT AND THE PAYMENT OF COMMISSION TO B WAS A FAKE CLAIM. SINCE B WAS FOUND TO BE A PARTY IN EXISTENCE WHICH WAS PROVE D BEYOND DOUBT B Y THE CORRESPONDENCE THAT TOOK PLACE BETWEEN THEM AND THE IAC (ASST.), T HE BASIS FOR THE DEPARTMENT WAS MOSTLY SUSPICION. HAVING ACCEPTED TH E CLAIM IN THE EARLIER YEAR ON THE SAME SET OF FACTS, THE DISALLOW ANCE OF THE CLAIM FOR SUBSEQUENT YEAR MAY NOT BE PROPER. AS IT IS PROVED BEYOND DOUBT THAT THE ASSESSEE APPOINTED AN AGENT WHO HAD EVIDENTLY RENDE RED SERVICES IN PROMOTING THEIR SALES, AND HENCE, THE ARRANGEMENT W AS NOT SHAM OR A COLLUSIVE AND THEREFORE COMMISSION ADMITTED BY B IS ALLOWABLE AS DEDUCTION. THERE ARE A PLETHORA OF OTHER JUDGMENTS OF VARIOUS BENCHES OF THE HONBLE TRIBUNAL AND VARIOUS HIGH COURTS ON THE SAM E ISSUE OF PAYMENT 82 OF COMMISSION TO COMMISSION AGENTS FOR SECURING GOV ERNMENT CONTRACTS, WHEREIN IT HAS BEEN HELD THAT SUCH COMMISSION IS AL LOWED AS BUSINESS EXPENDITURE. IN THE CASE OF ANUPAM SYNTHETICS (P) L TD. V. JCIT (2006) 104 TTJ (DEL) 119, THE DELHI F BENCH OF HONBLE I TAT, IN A MATTER RELATED TO PAYMENT OF COMMISSION TO COMMISSION AGEN TS FOR PROCURING GOVERNMENT CONTRACTS HAD WHILE ALLOWING THE SAID EX PENDITURE ON COMMISSION HELD THAT: THE SUPPLY OF THE GOODS BY THE ASSESSEE STOOD FULL Y ESTABLISHED. THUS, THERE REMAINS NO DOUBT ABOUT THE VOLUME OF BU SINESS DONE BY THE ASSESSEE AND THE PAYMENTS RECEIVED BY IT FROM J&K G OVERNMENT. SO FAR AS THE ISSUE RELATING TO RENDERING OF SERVICE IS CONCE RNED, THE CONFIRMATORY LETTER WAS FILED BY THE ASSESSEE. IT WAS POINTED OU T BY THE COUNSEL FOR THE ASSESSEE THAT IN SUBSEQUENT YEAR ALSO THE SAME AGEN T WORKED FOR THE ASSESSEE AND PROCURED ORDERS FROM THE SAME DEPARTME NT OF THE GOVERNMENT OF J&K. ON THIS ASPECT ALSO, NO FURTHER ENQUIRY WAS MADE. THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINI NG THE DISALLOWANCE WHEN ASSESSEE HAD IN FACT DISCHARGED ITS BURDEN BY FILING THE CONFIRMATORY LETTER AND OTHER EVIDENCE AND IN SUPPORT OF WHICH D OCUMENTS HAVE BEEN FILED IN THE PAPER BOOK. IN VIEW OF THE DOCUMENTARY EVIDENCE FILED OR RECORD, IT IS ESTABLISHED THAT THE VOLUME OF BUSINE SS OF THE ASSESSEE- COMPANY ASSUMED BIG BOOST ON ACCOUNT OF SUPPLY OF G ARMENTS TO THE GOVERNMENT OF J&K. IN THE IMMEDIATELY PRECEDING YEA R THE ASSESSEE HAD SHOWN NET PROFIT OF RS.2,171 ONLY WHEREAS IN THE AS SESSMENT YEAR UNDER CONSIDERATION ITS NET PROFIT WENT UP TO RS.13,06,95 8. THIS BOOST WAS DEFINITELY ON ACCOUNT OF THE CONTRACT FOR SUPPLY OF SCHOOL UNIFORMS CLOTH BY THE ASSESSEE. THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE IS CREDIBLE AND COGENT AND THE SPAM OF TIME WITHIN WHI CH THE TENDERS WERE AWARDED IN FAVOUR OF THE ASSESSEE, SUPPLIES MADE AF TER GETTING THE WORK DONE FROM OTHER MANUFACTURERS AND TIMELY PAYMENT RE CEIVED, SHOW THE HAND OF THE AGENT WHO WAS INSTRUMENTAL FOR ALL THES E TRANSACTIONS. THE ASSESSEE MADE SUPPLIES OF UNIFORMS CLOTH WORTH RS.5 CRORES WITHIN TWO MONTHS TO THE GOVERNMENT OF J&K. THE SUPPLIES WERE APPROVED ON THE BASIS OF INSPECTIONS DONE AND THE PAYMENTS WERE ALS O RELEASED. ALL THIS WAS POSSIBLE ONLY THROUGH EFFECTIVE SERVICES RENDER ED BY THE AGENT. FROM THE DATE OF CALLING OF TENDERS FOR SUPPLY OF THE SC HOOL UNIFORMS CLOTH TO THE DATE OF PAYMENT, IN SEVERAL STAGES, V MIGHT HAVE RE NDERED VERY EFFECTIVE SERVICES FOR SECURING THE TENDERS, IN MAKING NEGOTI ATIONS WITH THE CONCERNED OFFICERS IN ENSURING TIMELY SUPPLIES AND IN GETTING THE RELEASE OF PAYMENT. THE ASSESSEE HAS FILED CONFIRMATION OF V T HROUGH WHICH NOT ONLY RECEIPT OF THE PAYMENT IS CONFIRMED BUT IT IS SPECI FICALLY WRITTEN THAT THE AMOUNT HAS BEEN RECEIVED AS INTRODUCTION FEE/BUSINE SS DEVELOPMENT FOR THE SUPPLY OF SCHOOL UNIFORMS CLOTH . IT IS ALSO MENTIONED IN THIS LETTER THAT THE FEE WAS CHARGED AND RECEIVED BY HIM FOR GUIDING THE ASSESSEE IN THE 83 MATTER OF PARTICIPATING IN THE BUSINESS, MAKING TIM ELY SUPPLIES IN SECURING FULL PAYMENTS. FROM THIS CERTIFICATE ALSO IT IS CLE AR THAT THE AGENT HAD RENDERED SERVICES TO THE ASSESSEE. IF THE AGENT WAS NOT ASSESSED TO TAX OR IF HE DID NOT APPEAR BEFORE THE CIT(A) DESPITE REQUEST OF THE ASSESSEE, THE ASSESSEE CANNOT BE BLAMED FOR THE SAME. SO FAR AS T HE RENDERING OF SERVICE IS CONCERNED, THERE MAY NOT BE A WRITTEN AGREEMENT BUT THE CIRCUMSTANCES OF THE PRESENT MATTER STRONGLY ESTABLISH THAT WITHO UT THE SERVICES OF THE COMMISSION AGENT THE ASSESSEE COULD NOT ACHIEVE SUC H BUSINESS RESULT AS HAS BEEN ACHIEVED BY HIM. THE BUSINESS DEVELOPMENT EXPENSES ARE, THEREFORE, FULLY JUSTIFIED AS THE RENDERING OF SERV ICE IS PROVED FROM THE CIRCUMSTANCES OF THE PRESENT MATTER. THEN, IN THE CASE OF ACIT V. JINDAL SAW PIPES LTD., (2008) 118 TTJ (DEL) 228, THE DELHI I BENCH OF HONBLE ITAT, WHILE DECIDING UPON A SIMILAR ISSUE OF ALLOWABILITY OF COMMISSION PAID TO AGENTS FOR PROCURING GOVERNMENT ORDERS HAS HELD THAT : PAYMENT OF COMMISSION THROUGH ACCOUNT PAYEE CHEQUE S MADE TO IDENTIFIABLE PARTIES WHO ARE ASSESSED TO TAX, FOR S ERVICES RENDERED FOR PURPOSES OF BUSINESS, COULD NOT BE DISALLOWED BY IN VOKING EXPLANATION TO S.37 IN THE ABSENCE OF ANY EVIDENCE OF VIOLATION OF ANY PUBLIC POLICY OR PROVISIONS OF ANY STATUTE AND ON THE FOUNDATION OF MERE ASSERTION OR SURMISES OF SUSPICION. ALSO, CBDT CIRCULAR NO.772, DT. 23 RD DEC.,1998 CLEARLY EXPLAINS THE LEGISLATIVE INTENT, PURPOSES A ND OBJECT AND TARGETED EXPENDITURE COVERED UNDER THE SAID EXPLANATION TO S .37(1). THE SPEECH OF THE FINANCE MINISTER, ALSO HIGHLIGHTS THE LEGISLATI VE INTENT, FOR INSERTION OF THE SAID EXPLANATION. THE REVENUE HAS FAILED TO JUS TIFY APPLICABILITY OF THE SAID EXPLANATION TO THE FACT-SITUATION OF THE CASE, BY LEADING RELIABLE, COGENT AND CORROBORATIVE EVIDENCES. THE CLEAR AND U NAMBIGUOUS LANGUAGE OF THE SAID EXPLANATION RULES OUT THE APPL ICABILITY OF THE SAME, TO THE PRESENT CASE, AS HELD BY THE CIT(A). THE CIT(A) AFTER CONSIDERING ASSESSMENT ORDER AND SUBMISSIONS MADE BEFORE HIM PA SSED AN SPEAKING AND DETAILED ORDER AND CATEGORICALLY HELD THAT THE AO INVOKED THE EXPLANATION TO S.37(1), PURELY ON SURMISES AND SUSP ICION AND NO COGENT MATERIAL WAS BROUGHT ON RECORD TO JUSTIFY THE VALID ITY OF SUCH APPROACH ADOPTED IN THE ASSESSMENT ORDER. THE CIT(A) SPECIFI CALLY HELD THAT THE AO FAILED TO ADDUCE MATERIAL EVIDENCE TO ESTABLISH THA T THE PAYMENT OF SUCH COMMISSION IS AN OFFENCE OR SUCH PAYMENT IS PROHIBI TED BY LAW . MERE ASSERTION WITHOUT ANY CORROBORATION CANNOT BE SUBST ITUTE FOR CREDIBLE EVIDENCE LEADING TO INVOCATION OF THE SAID EXPLANAT ION BY THE AO. IT REMAINS TO BE DEMONSTRATED BY PLAUSIBLE JUSTIFICATI ON THAT THE PAYMENT OF COMMISSION TO IDENTIFIABLE PARTIES, THROUGH ACCOUNT PAYEE CHEQUES WHO ARE ASSESSED TO TAX, FOR THE SERVICES RENDERED AS D EFINED IN THE AGREEMENT, IN THE ABSENCE OF COLOURABLE OR COLLUSIVE NATURE OF TRANSACTIONS, PAYMENTS MADE FOR THE PURPOSE OF BUSINESS, CANNOT BE TERMED AS AGAINST PUBLIC 84 POLICY, AS CONSTRUED BY THE AO . NO EVIDENCE HAS BEEN PLACED BY THE REVENUE BEFORE THE CIT(A) OR BEFORE THE BENCH ESTAB LISHING ANY VIOLATION OF PUBLIC POLICY OR PROVISIONS OF ANY STATUTE. IT I S WELL-SETTLED LEGAL PROPOSITION THAT REVENUE CANNOT DECIDE ON AN ISSUE WITHOUT PROPER FACTS SUPPORTING ITS DECISION. A DECISION BASED ON THE FO UNDATION OF MERE ASSERTION OR SURMISES OR SUSPICION IS LIABLE TO BE QUASHED BY HIGHER COURT . THE DECISION MUST BE SUPPORTED BY CONCRETE FACTS AN D COGENT EVIDENCES. THIS IS A FUNDAMENTAL RULE OF JUSTICE. THUS, IN THE FACT-SITUATION OF THE INSTANT CASE, THE REVENUE HAS FAILED TO JUSTIFY INV OCATION OF THE SAID EXPLANATION AND CONSEQUENT ADDITION, AS THE PARTIES TO WHOM COMMISSION WAS PAID, MODE OF PAYMENT THROUGH ACCOUNT PAYEE CHE QUES, QUANTUM OF COMMISSION, FOR THE PURPOSE OF BUSINESS AND FOR THE SERVICES RENDERED BY THE PARTIES, REMAINED UNDISPUTED FACTS, EMANATING F ROM THE ASSESSMENT ORDER, CIT(A)S ORDER AND SUBMISSIONS. HAVING REGAR D TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, THERE IS NO REASON AND JUS TIFICATION TO WARRANT ANY INTERFERENCE WITH THE FINDINGS OF THE CIT(A), B ASED ON PROPER APPRECIATION OF THE LEGAL AND FACTUAL POSITION OF T HE CASE, AS DISCUSSED IN DETAIL IN THE IMPUGNED APPELLATE ORDER. HENCE, IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) WAS JUSTIFIED IN QUASHING THE DISALLOWANCE. THEREFORE, IN THIS CASE THE HONBLE HIGH COURT HAD EXPRESSLY HELD THAT THE REASONABLENESS OF ANY EXPENDITURE HAS TO B E JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN INCURRING SUCH EXPENDITU RE AND NOT FROM THE POINT OF VIEW OF THE REVENUE. WHERE, THE ASSESSEE C AN PROVE THAT SUCH EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BU SINESS ONLY AND CAN ALSO PROVE THAT IT HAS ACTUALLY BEEN PAID TO THE OT HER PARTY, THEN IT MUST BE ALLOWED AS BUSINESS EXPENDITURE. THE RELIANCE PLACED BY THE LD. CIT (A) ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF LACHMINARAYAN MADANLAL VS. CIT 86 ITR 439 (SC) FOR DISALLOWING THE CLAIM OF THE APPELLANT IS TOTALLY MISPLACED. IN THE SAID CASE THE EXPENDITURE CLAIMED BY THE APPELL ANT AS COMMISSION TO SELLING AGENCY WAS DISALLOWED BY THE ITAT ON THE GR OUND THAT THE SELLING AGENCY FIRM HAS NO GENUINE EXISTENCE SINCE THE DAY ON WHICH THE SELLING AGENCY AGREEMENT WAS EXECUTED THE SAID SELLING AGEN CY FIRM HAD NOT EVEN COME INTO EXISTENCE. THE TRIBUNAL FURTHER OBSERVED THAT OUT OF THE PARTNERS OF THE SAID SELLING AGENCY FIRM TWO WERE MINORS WHO COULD NOT HAVE 85 RENDERED ANY ASSISTANCE IN THE SELLING OF PRODUCTS OF THE ASSESSEE FIRM, THREE OF THE PARTNERS OF THE FIRM WERE LADIES WHO H AD NO PRIOR EXPERIENCE, THE ONLY MALE ADULT PARTNER HAD ONLY 1/9 TH SHARE IN THE PROFIT OF THE FIRM. FURTHER THE SAID PARTNER WAS ALSO PARTNER IN ANOTHE R MANUFACTURING CONCERN SITUATED AT A PLACE QUITE DISTANCE FROM THE PLACE W HERE THE SELLING AGENCY BUSINESS WAS SET TO HAVE BEEN CARRIED OUT. THE TRIB UNAL FURTHER TOOK NOTE OF THE FACT THAT THE BUSINESS ADDRESS OF THE SELLIN G AGENCY FIRM WAS THE SAME AS THAT OF THE ASSESSEE FIRM. THE SELLING AGEN CY FIRM HAD NO GODOWN OF ITS OWN NOR ANY TRANSPORT VEHICLES. ON THE CONTR AST UNDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE EXISTENCE OF THE COMMISSION AGENTS AND THEIR CAPACITY TO RENDER THE SERVICES IN QUESTI ON IS NOT A SUBJECT MATTER OF DISPUTE. THE AGENTS HAVE RENDERED SIMILAR SERVIC ES TO THE COMPETITORS OF THE APPELLANT COMPANY. HENCE, THE SAID JUDGMENT REL IED UPON BY THE LD. CIT (A) IS CLEARLY DISTINGUISHABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IN RELATION TO THE OBSERVATION OF THE LD. CIT(A) TO THE EFFECT THAT NO DOCUMENTARY PROOF/ EVIDENCE HAS BEEN FURNISHED T O PROVE THAT SERVICES WERE ACTUALLY RENDERED IS PERVERSE, ARBITRARY AND C ONTRARY TO THE MATERIAL ON RECORD.THE CLAIM OF THE APPELLANT IS DULY SUPPOR TED BY DOCUMENTARY, ORAL AS WELL AS CIRCUMSTANTIAL EVIDENCE. THE EVIDEN CES IN RESPECT OF SERVICES RENDERED BY THE COMMISSION AGENTS ARE IN T HE CUSTODY OF THE DEPARTMENT EVEN PRIOR TO THE INITIATION OF ASSESSME NT PROCEEDINGS. A SURVEY OPERATION WAS CARRIED OUT AT THE PREMISES OF THE APPELLANT ON 5.09.2007 DURING THE COURSE OF WHICH UNDERMENTIONED DOCUMENTS WERE FOUND AND IMPOUNDED: 86 EVIDENCES GATHERED DURING THE COURSE OF SURVEY S.NO. NAME OF THE COMMISSION AGENTS EVIDENCE FOUND IN THE COURSE OF SURVEY AND IMPOUNDED BUT NOT SUPPLIED TO THE APPELLANT 1. ADHUNIK CORPORATION LTD. AGREEMENT BILLS CONTRACT DETAILS PURCHASE ORDER DETAILS 2. SHYAM SEL LIMITED --DO-- 3. C.P. REROLLERS LTD. --DO-- 4. CRESENT BAKES PVT. LTD. --DO-- 5. R.S. ISPAT PVT. LTD. --DO-- 6. NAIYADIH HI-TECH PVT. LTD. --DO-- A BARE PERUSAL OF THE ABOVE MENTIONED EVIDENCE/DOCU MENTS FOUND DURING THE COURSE OF THE SURVEY AND IMPOUND BY THE DEPARTMENT ITSELF WOULD LEAVE NO SCOPE FOR THE ALLEGATION THAT THE CO MMISSION PAYMENTS BY THE APPELLANT IS NOT GENUINE AND RATHER IT SUPPORTS THAT SUCH PAYMENTS ARE IN CONSIDERATION OF SERVICES RENDERED BY SUCH AGENT S TO THE APPELLANT IN THE COURSE OF CARRYING ON OF ITS BUSINESS. THUS THE COR RESPONDING DEDUCTION CLAIMED U/S 37 OF THE ACT WAS JUSTIFIED AND IN ORDE R. THE AFORESAID DOCUMENTS WERE IMPOUNDED BY THE DEPARTMENT DURING T HE COURSE OF SURVEY AND ARE WITHIN THE CUSTODY OF THE DEPARTMENT TILL DATE. THE APPELLANT HAS REPEATEDLY REQUESTED THE LD. ASSESSIN G OFFICER TO ALLOW IT TO INSPECT AND OBTAIN THE COPIES OF THE DOCUMENTS BUT NO AVAIL AS THE SAID DOCUMENTS ARE STILL IN THE CUSTODY AND POSSESSION O F THE DEPARTMENT. APART FROM THE ABOVE CLINCHING DOCUMENTARY EVIDENCE , ORAL EVIDENCE RECORDED DURING THE COURSE OF SURVEY ALSO GOES TO SUBSTANTIATE THE APPELLANTS CLAIM OF DEDUCTION U/S 37 OF THE AC T. AS A MATTER OF RECORD, STATEMENTS OF FOLLOWING PERSONS WERE RECORDED DURIN G THE COURSE OF SURVEY WHEREIN ALL OF THEM HAVE CONFIRMED ABOUT THE RENDERING OF SERVICES BY THE COMMISSION AGENTS TO THE APPELLANT COMPANY. 87 S.NO. NAME OF THE PERSON DESIGNATION PAPER BOOK 1. R.K. AGGARWAL DIRECTOR OF THE ASSESSEE COMPANY COPY NOT PROVIDED 2. S.K. GUPTA GENERAL MANAGER, FINANCE COPY NOT PRO VIDED 3. ANANT LUHADIA GENERAL MANAGER, MARKETING PAPER B OOK PAGE NO.519- 532 IT IS PERTINENT TO POINT OUT HERE THAT THE AFORESAI D STATEMENTS RECORDED DURING THE COURSE OF SURVEY HAVE NOT BEEN CONFRONTED /PROVIDED TO THE APPELLANT TILL DATE EVEN AFTER SEVERAL REQUE STS MADE BY THE APPELLANT ASSESSEE IN WRITING THROUGH VARIOUS LETTERS EXCEPT THE STATEMENT OF SH. LUHADIA, WHICH TOO WAS SUPPLIED ON 27.01.2010 SUBSE QUENT TO THE PASSING OF THE ASSESSMENT ORDER. THE SAID ACTION OF THE DEP ARTMENT IS IN GROSS VIOLATION OF THE PRINCIPLE OF NATURAL JUSTICE WHICH REQUIRES THE DEPARTMENT TO CONFRONT THE ASSESSEE WITH ALL THE DOCUMENTS/EVI DENCES INTENDED TO BE USED AGAINST THE ASSESSEE BEFORE ACTUALLY USING THE SAME AGAINST THE ASSESSEE. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT A PERUSAL OF THE STATEMENT OF SHRI LUHADIA (GENERAL MANAGER, MARKETI NG) RECORDED BY THE DEPARTMENT DURING THE COURSE OF SURVEY CLEARLY REVE ALS THAT SHRI LUHADIA HAS CONFIRMED THE FACT OF APPOINTING SERVICE AGENTS AND SERVICES BEING RENDERED BY THE COMMISSION AGENTS. THE RELEVANT EXT RACTS OF THE SAID STATEMENT ARE REPRODUCED HEREIN-BELOW APB 522 IZ'U 12 DRS.I;K ;G LI'V DJS FD TKS VS.MJ IZKFIR (SALE) VKI DEHKU NSRS GS OKS DEHKU ,STSUV VKIDKS D;K LSOK IZNKU DJRS GSA A O MU LSOKVK S DK LACAF/KR FO|QR FOHKKX DH BDKBZ IJ D;K LK{; MIYC/K GSA RFKK DEHKU JKFK DK FU/KKZJ .K FDL VK/KKJ IJ FD;K TKRK GSA A VKSJ MLDK HKQXRKU DC FD;K TKRK GSA A CRK;S A MRRJ PWAFD VHKH TKS GEKJK FCTFUL GSA ;G IZFRLI/KKZ FCTFUL GSA BLESA LEKVZ ,OA ,MOKAL EKDSZFVAX DS CHUK VKMZJ IZKIR DJUK LAHKO UGHA GSA T KS EQ[;R% TKS ,STSUV J[KS GSA BUDK DK;Z VS.MJ FUDYUS LS IWOZ BLDH TKUDKJH IZNKU DJUK TKS BL ESA VU; IKFVZ;KW DK;Z DJ JGH GSA MUDS CKJS ESA HKKX YS JGH GSA MUDS CKJS ESA FOLRRS. R TKUDKJH DKS ,DF=R DJRS GSA VKSJ MUDS 88 CKJS ESA TKS HKH MUGS FJDKMZ IRK GKSRK GSA VKSJ MUD S O;OLKF;D VK/KKJ IJ IZKSCSOY DKSEISVHVHO IZKBZL LTSL DJRS GSA VKSJ MLH LSOK DS CNYS ESA GE M UGS HKQXRKU DJRS GSA YSFDU PWAFD ;G GEKJH LVSFVDL EKDSZFVAX DK FGLLK GSA BLFY, BLDK MK SD;WESAVSKU TUZY DEHKU CZKSDST DS ,SXZHESUV TSLK GH FD;K TKRK GSA A MUDS }KJK IZNKU D H XBZ LSOK;S IW.KZR;K O;OLKF;D DQKYRK IJ VK/KKFJR GSA BLFY, BLDK LK{K; FO|QR FOHK KX DH BDKBZ IJ LKEKU;R;K MIYC/K UGHA GKSRK GSA A DEHKU JKFK DK FU/KKZJ.K M UDS }KJK NH XBZ LWPUK DS CNYS GESA GQ;S YKHK DS VK/KKJ IJ DH TKRH GSA BLDK HKQXRKU VKWMJ FE YUS DS CONFIRMATION DS I'PKR PKGS OG EKSF[KD GKS ;K FYF[KR GKSA MLDS I'PKR FD;K TKRK GSA A ,D CKJ TC GE DEHKU R; DJ YSRS GSA RKS BLDS CKN BLDH LWPUK GE FINANCE DEPTT. ESA NS NSRS GSA VKSJ MLDK DOCUMENTATION RFKK OKS POST MARKETING OKYS DJRS GSA A PWAFD HKQXRKU Q.M DH MIYC/KRK RFKK GEKJS FUNSZKU DS VK/KKJ IJ FINANCE }KJK LE;&2 IJ FD;K TKRK GSA A TKS PSD@MHMH LS GKSRK GSA FTLDS LK{K; MIYC/K GSA A IZU 13 VKIDS MIJ FYF[KR C;KU LS D;K ;G LI'V GSA FD FTU O;FDR;KS DKS DEIUH DEHKU DK HKQXRKU DJRH GSA MUDS }KJK FN;S X;H LSOK DK DKSBZ HKH LK{K; VKIDS IKL MIYC/K UGHA GSA RFKK ,STSUV VKIDH N;K IJ FUHKZJ GSA FD DC VKIDH FINANCE FLFKFR GKSXH MLDKS HKQXRKU DJUS DS FY, RS;KJ GKSXH ;G DSOY EK= V KIDK GH FOKS'K VF/KDKJ GSA RFKK LSOK DK EWY;KADU FDLH IIIRD O;FDR DS }KJK UGHA FD;K TK LDRK VKIDS DK;KZY; DS MIYC/K LK{K; DS VK/KKJ IJ DKSBZ ,SLK NLRKOST IZKIR UGHA GQVK TKS ,STSUVKS }KJK NH XBZ LSOK DK MYYS[K DJRK GKS] ;KFU LK{; DS VHKKO ESA ;G DSOY EK= VKIDH BPNK IJ FUHKZJ GSA FD FDLS VKSJ DC DEHKU DK HKQXRKU DJUK GSA DRS.I;K LI' V DJS A MRRJ GEKJS VKSJ ,STSUV DS }KJK IZNRR DH X;H LSOKVKS DK VK/KKJ XKSIFU;RK RFKK FOOLFU;RK GSA RFKK NKSUKS GH I{K ,D REPUTED ORGANISATION GSA (COMMISSION AGENT) BLFY, N;K DK DKSBZ IZU GH UGHA GSA VKSJ R; GQ;H P HTKS DH TKUDKJH FINANCE DEPTT. DKS VKWMJ IZKIR GKSUS DS I'PKR GH NH TKRH GSA VKSJ ;G MUDH GH FTEESNKJH GSA FD MLDK HKQXRKU RFKK DOCUMENTATION 'KH?KZ LS 'KH?KZ DJS YSFDU MUDS }KJK I}R DH X;H LSOKVKS DK IZFRQY GESA QSLM ESUJ ESA IZKIR GKSRK GS A RKS MLDK HKQXRKU HKH LKEKU;R% MLH DS VUQ:I DH TKUS DH DKSFKK DH TKRH GSA YSFDU FQJ HKH FUNDS DH MIYC/KRK MLDH IZCY VKO;DRK IJ GEKJS }KJK Q.ML FJYHT FD;K TKRK GSAA IZU 9 D;K VKI DS }KJK FU;QDR DEHKU ,TSUV ISESU V DYSDKU DK DKE RFKK EKY (GOODS) FMLISFPAX DK DKE HKH DJRS GSA DRS.I;K CRK,S ? MRRJ UGHA] OS DSOY VKWMJ FNYKUS DK DK;Z GH DJRS GSA A OKS MIJKSDR OF.KZR DK;Z UGHA DJRS GSA A IJURQ T:JR IM+US IJ OKS EQ>S MIJKSDR VU; DK;Z ESA LGK;RK DJRS GSA A IZU 15 DEHKU DK HKQXRKU ,STSUVKS DKS VS.MJ FEYU S DS FY, VFKOK DK;Z FU'IKNU GSRQ FD;K TKRK GSA CRK;S ? MRRJ TSLK ESUS CRK;K IWJK&DK IWJK DK;Z ,STSUV DK FO LFU; LWPUK,AW IZKIR DJKUS DK GSA FTLESA VS.MJ FUDYUS DH ADVANCE INFORMATION IKVHZLHISV PARTICIPATE DJUS OKYS DEIUH DS CKJS ESA TKUDKJH MUDH VU; DK;KZS ESA O;LRR K MUDS }KJK NWLJS VS.MJL ESA TKSFD IGYS GH [KQY PQDS GSA MLDS CKJS ESA TKUDKJH RFKK CK SMZ ;K VU; LALFKK DH FORRH; FLFKFR DS CKJS ESA DKS /K;KU ESA J[KRS GQ, OG GES COMPETITIVE PRICE LTS'V DJRS GSA RKS BLFY, BUDK HKQXRKU HKH VKWMJ FEYUS RFKK GEKJS ISESUV DH L ;KSFJVH DS VK/KKJ IJ PHASED ESUJ (MANNER) IJ FD;K TKRK GSA PWFD VKWMJ DK YKHK ,D FNU ESA IZK IR UGHA GQVK MUDS }KJK HKQXRKU ,D LKFK UGHA FD;K TKRK GSA A ;?KFI HKQXRKU DJUS DS VF/KDKJH GSA YSFDU ISESUV R; 89 DH XBZ 'KRKSZ DS VK/KKJ IJ GHA FD;K TKRK GSA] PWAFD GEKJK HKQXRKU IZKIR DJUK MUS }KJK CKSMZ DS CKJS ESA NH XBZ FOFRR; FLFKFR IJ BLFY, OKS IWJH RJG LS ,DT;WDSKU ESA HKH INVOLVED BUOKSYM JGRS GSA A IZ'U 18 DEHKU ,STSUV DS }KJK NH XBZ LWPUK DS VK/KKJ IJ DEIUH FDRUH YKHKKAFOR GQ;H BLDK EKIN.M @ FU/KKZJ.K D;K GSA BLDK ,STSUV DKS DC O DSLS CRK;K TKRK GSA A BLDK LK{K; IZLRQR DJS A MRRJ TSLK DH ESUS MIJ CRK;K GSA ,STSUV DK EQ[; DK;Z COMPETITIVE BUSINESS IZKIR DJUS ESA LGK;RK IZKIR DJUK RFKK VKFFKZD FLFKF R DS CKJS ESA LGH&2 LWPUK NSUK RFKK ,STQDSKU ESA VKUS OKYH CK/KKVKS DS CKJS ES VOXR DJ UK GS BLFY, MLDS }KJK NH X;H TKUDKJH DHRUH LVHD GSA BLDS VK/KKJ IJ MLDK DEHKU R ; FD;K TKRK GSA] DEHKU R; DJUS DK VK/KKJ MLDS }KJK CRKBZ XBZ DKSEIHVSVHO IZKB ZL DHRUH LGH GSA BLDK FU/KKZJ.K IZKBZL VKSIU GKSRS GH GKS TKRK GSA BLFY, BLDH TKUDK JH MLS VKSJ GESA TKUDKJH RRDKY EHY TKRH GSA A MNKGJ.K DS FY, ;FN MLDS }KJK CRKBZ X BZ DKSEIHVSVHO IZKBZL RFKK NWLJH ALTU IKVHZ DK DIFFERENCE CGQR DE GSA RKS FUFPR :I LS MLDH LWPUK LVHD GSA VK SJ BLDK IZFRQY MLH VK/KKJ IJ R; GKSRK GSA A IZU 19 VKI FDL&FDL PROJECT ESA DEHKU ,TSUVKS DS VK/KKJ IJ NH XBZ LWPUKVKS DS VK/KKJ IJ FDLS YKHKKFUOR GQ, GS MLDK VKIDS IKL DKSB Z DOCUMENTARY/MATERIAL PROOF GSA DRS.I;K IZLRQR DJS ? MRRJ MLDH IWJH LWPUK ESJS IKL MIYC/K GSA FTLDKS ESA VKIDKS CRK DS NWAWXK ;G LWPUK ESJS IKL FYF[KR ESA MIYC/K UGHA GSA A IZU 21 FDL VK/KKJ IJ DEHKU DK HKQXRKU GKSRK GSA MLDH TKUDKJH VKIDKS D;K GSA ? MRRJ TSLK FD ESUS IWOZ ESA C;KU FN;K GSA FD IWJK DK IWJK DECISION COMMISSION AGENT DKS LVHD INFORMATION DS VK/KKJ IJ GKSRK GSA FTL IJ GKSRK GSA FTL IJ DEI UH YKHKIZN GQBZ GSA A VKSJ DKS HKQXRKU DS FY, ESA SUPPORTIVE ROLE VNK DJRK GWW A YSFDU VFURE FU.KZ; VUDKS GKSRK GSAA IZU 28 COMMISSION AGENT DS LKFK VKIDH DEIUH DH RJQ LS IGYS DKSU DEAL DJRK GSA DRS.I;K CRK;S ? MNKGJ.K LO:I ESA WB DS PROJECT DS FY, TENDERING DS IGYS LS YSDJ FDL IZDKJ LS AGENT DS LKFK INTERACTION GQVK GSA FOOJ.K FNFT, ? MRRJ WEST-BENGAL ESA PROJECT ESA VS.MJ FUDYUS LS IGYS EQ>S DIRECTOR MARKETING US EUKST FLAG LS CONTACT DJUS DS FY, DGKW A COMMISSION DK FU/KKZJ.K VS.MJ FUDYUS DS CKN R; GQVK A IZU 29 JH EUKST FLAG LS VKIDK O;FDRXR :I LS DKSB Z EQYKDKR GQVK GSA DRS.I;K CRK;S ? MRRJ ESJK DHKH HKH JH EUKST FLAG LS O;FDRXR LEIDZ U GHA GQVK A ESA MUDKS RHU PKJ O'KZ LS TKURK GWW MULS ESJH DSOY BUSINESS DK FJRK GSA A IZU 30 VXJ JH EUKST FLAG LS IZKIR LWPUK DS VK/KKJ IJ DEIUH DKS VXJ QK;NK GQVK GSA RKS DEIUH US DEHKU DK HKQXRKU JH EUKST FLAG DKS D; KS UGHA GQVK ? 90 MRRJ FTL RJG LS ESA THUL DKS REPRESENT DJRK GWW VKS J GJ IMPORTANT DKS GENUS DS FY, DK;Z ESA YSRK GWW MLH RJG ESA CKSL DS FUNSZ KKUQLKJ FDLH DEIUH DS REPRESENTATIVE LS CKRPHR DJRK GWWA MLH GSFL;R LS ESA MULS CKRPHR DJRK GWW A EVIDENCES GATHERED/FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT AS A MATTER OF RECORD DURING THE COU RSE OF ASSESSMENT PROCEEDINGS FURNISHED COMPLETE DETAILS I N RESPECT OF THE SERVICES RENDERED BY THE COMMISSION AGENTS. IT WAS SUBMITTED BY THE APPELLANT THAT THE SERVICES ARE RENDERED BY THE AGE NT AT 3 STAGES I.E. PRE- TENDER, POST-TENDER AND AT THE TIME OF EXECUTION OF TENDER. THE APPELLANT APART FROM FURNISHING DETAILS IN RESPECT OF EACH OF THE SIX PARTIES ALSO FURNISHED FOLLOWING EVIDENCES TO SUPPORT THE CLAIM OF SERVICES HAVING BEING PROVIDED BY EACH OF THE AGENTS:- 1. COPY OF LEDGER ACCOUNT 2. COPY OF ACCOUNT CONFIRMATION 3. COPY OF INVOICE 4. COPY OF LETTER ISSUED BY THE APPELLANT FOR PRODU CTION BEFORE AO U/S 131 WITH PROOF OF DISPATCH 4. COPY OF ASSESSMENT ORDER U/S 143(3) AND APPELLAT E ORDER IN SOME CASE 5. COPY OF LETTER ISSUED BY APPELLANT FOR PRODUCTIO N BEFORE AO U/S 131 WITH PROOF OF DISPATCH THE ABOVE MENTIONED EVIDENCES WERE FURNISHED BY THE APPELLANT AS SUPPLEMENTARY TO THE EVIDENCES GATHERED BY THE DEPA RTMENT DURING THE COURSE OF SURVEY. ALL THE SIX PARTIES TO WHOM COMMI SSION PAYMENTS WERE MADE HAVE CONFIRMED THE VERSION OF THE APPELLANT TO THE EFFECT OF SERVICES BEING RENDERED BY THESE COMMISSION AGENTS AND HAVE ACCOUNTED THE COMMISSION RECEIPTS IN THEIR RESPECTIVE INCOME FOR THE CONCERNED ASSESSMENT YEAR 2007-08. IT IS EVIDENT FROM THE AFORESAID THAT, THE APPELLAN T HAS ESTABLISHED NOT ONLY THE IDENTITY OF THE PARTIES BUT ALSO FURNI SHED THE EVIDENCE OF SERVICES RENDERED, IN THE SHAPE OF BUSINESS AGREEME NTS AND, CONFIRMATIONS. 91 IT IS NOT IN DISPUTE THAT, ALL THE PARTIES ARE INCO ME TAX ASSESSEES AND, THE ENTIRE PAYMENT OF COMMISSION HAS BEEN MADE BY ACCOU NT PAYEE CHEQUES. IN VIEW THEREOF, IT IS RESPECTFULLY SUBMITTED THAT, APPELLANT HAS FURNISHED ALL THE NECESSARY EVIDENCE TO DISCHARGE THE BURDEN, WHICH LAY UPON THE APPELLANT FOR ALLOWABILITY OF COMMISSION. THE APPEL LANT FURTHER FURNISHED THE COMPLETE BASIS OF THE PAYMENT OF COMMISSION TO EACH OF THE AFORESAID PARTIES SUCH AS PARTICULARS OF THE ORDER, AWARDER O F THE ORDER, VALUE OF THE ORDER, RATE OF COMMISSION ETC. FURTHER THE STATEMENT OF SHRI ANANT LUHADIA WAS REC ORDED ONCE AGAIN DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE RELEVANT PORTION OF THE STATEMENT WHICH DULY ESTABLISHES THAT COMMIS SION HAD BEEN PAID AND WAS ENGAGED FOR THE SERVICES PROVIDED BY THE AS SESSEE COMPANY IS EXTRACTED AS UNDER: APB 533 Q.3 BL FOFRR; O'KZ ESA TKS COMMISSION HKQXRKU GQVK GSA A OG FDL DK;Z DS FY;K FD;K X;K GSA BL LUNHKZ ESA] ESA IGYS HKH C;KU NS PQDK GSA FTLESA COMMISSION AGENTS }KJK IZNRR DH XBZ LSOKVKS DK C;KSJK GSA A RFKK BL O'KZ HKH COMMISSION AGENTS }KJK IZNKU DH XBZ VU; LSOKVKS DK C;KSJK FY[KR ESA HKH UJSK CEY DEPUTY MANAGER }KJK FN; SUBMISSIONS ESA GSA A FDL COMMISSION AGENT DKS FDL DK;Z DS FY;S FD;S X, HKQXRKU DK C;KSJK ESA VHKH VKIDKS NS JGK GSA A IZ04 VKIDH DEIUH DS }KJK COMMISSION AGENT DSLS FU;QDR GQ;S FKSA MRRJ BL CKJS ESA FTRUH TKUDKJH ESJS IKL MIYC/K GSA MLDS VUQLKJ COMMISSION AGENT FU;QDR DJUS DK VK/KKJ EQ[;R;K AGENT DH FOOLFU;RK RFKK MLDK O;KIKFJD VUQHKO VKIDH TKUDKJH RFKK VU; VK/KKJ FTLESA MUDS }K JK DH XBZ LEKU :I ESA LSOK;S TKS FD OG GEKJS COMPETITION VKFN DKS IZNKU DJRS GSA A VU; O'KKSZ ESA VU; LECAF /KR DK;KSZ ESA MNKGJ.K DS FY;S ';KE ESY FY0 GEKJS COMPETITOR EMCO LTD. DKS IZNKU DJRK FKK ;K DJRK GSA MLDH TKUDKJH GEKJS IKL FKH A IZ05 D;K BL FOFRR; O'KZ ESA 06&07 ESA VKIDS }KJK DK SBZ COMMISSION AGENT FU;QDR FD;K X;K GSA A 92 MRRJ DEIUH }KJK BL O'KZ ESA VK/KQFUD XZQI VKQ B.M0] ';KE LSY XQZI VKQ DEIUHT] VKJ0 ,L0 L;KR FY0 RFKK DBZ VU; AGENTS DKS FU;QDR FD;K X;K FTLDH IWJH LWPH FJDKMZ IJ MIYC/K GSA BLESA HKH VK/KQFUD XZQI VKQ B. M DS EKFYD HKH TQXY FDKKSJ TH RFKK EUKST FLAG MUES LS ESUS VK/KQFUD RFKK ';KE ESY B.M0 DKS FU;QDR DJUS ESA ESUS HKH TS0DS0 VXZOKY TH DK LG;KSX FD;K D;KSFD AGENT FU;QDR DJUK M UDH GH FTEESNKJH GSA A IZ07 O'KZ 06&07 ESA FDU FDU PROJECT DS FY;S ESA VK/ KQFUD DKIKSZJSKU FY0 DKS COMMISSION FN;K X;K A MRRJ TGKAW RD EQ>S ;KN GSA VK/KQFUD DKIKSZJSKU FY0 US GEKJS FY;S WEST CAXKY RFKK T;IQJ FO?KQR FORJ.K FUXE ESA GEKJS DK;Z ESA LG;KSX FD;K FKK MLDS CNYS MLS COMMISSION DK HKQXRKU FD;K X;K A IZ08 T;IQJ PROJECT DS FY;S VK/KQFUD DKIKSZJSKU US VKIDKS D;K LG;KSX FD;K FKK VKIDH DEIUH MRRJ VK/KQFUD DKIKSZJSKU US JKTHO XKA/KH XZKEH.K F O+|QRHDJ.K ;KSTUK DS FY;S GEKJS FY;S R.S.E.B. ESA VS.MJ RFKK NJS RFKK DK;Z DS CKJS ESA RSEB DKS EXPLAIN FD;K RFKK GESA ;G DK;Z FNYOKUS ESA LG;KSX FD;K RSEB FDLH HKH O;FDR DH E/;LFKRK LOHDKJ UGHA DJRH GSA YSFDU FQJ HKH CONCERNING VF/KDKJH VIUS TKUUS OKYS RFKK BU NKSUKS LS CONSULTANCY IZNKU DJ JGS YKSXKS ESA EKSF[KD TKUDKJH BR;KFN YSRS GSA FTLESA FD OG LDHE DKS DPR DKS PROJECT REPORT DKS TENDER DKS RFKK BOQ (BILL OF QUANTITY) VKFN DKS CUK LDS RFKK VS.MJ FUDYUS DS CKN RFKK MLLS IGYS HKH BU DEIF U;KS US GEKJH DEIUH DKS GJ IZFDZ;K ESA LG;KSX FD;K FTLLS FD GE TECH. RFKK FINANCIAL BID SHARE BY DJ LDS A IZ010 VS.MJ LFOZL DS VYKOK D;K VK/KQFUD DKIKSZJSKU ESA DKSBZ VKSJ SERVICE IZNKU DH GSA RFKK MLDS FY;S FDRUK HKQXRKU FD;K X;K GSA A MRRJ ES VK/KQFUD AGREEMENT ESA FY[KH LHKH LFOZLST DS FY;S BOUND GS A RS. COMMISSION IWJS ORDER VALUE DK FD;K TKRK GSA A LFOZLST VKSJ MLDS REMUNERATIONS DKS VQDM+KS ESA UGHA CKVK TKRK A IZ010 VK/KQFUD DKIKSZJSKU DH VKSJ LS TENDERING PROCESS ESA ENN DJUS OKYS DKSU DKSU O;FDR FKS A MRRJ TGKAW RD ESJH TKUDKJH GSA VK/KQFUD DKIKSZJSKU ESA EUKST FLAG RFKK TQXY FDKKSJ TH BL DK;Z DKS NS[KRS GSA A LKFK GH ;G DEIUH BL {KS= D KS FOKS'KKKS DH ENN YSRH GSA FTLDH IWJH TKUDKJH VKSIPKFJD :I LS ESJS IKL UGHA GSA A IZ011 JH EUKST FLAG RFKK TQXY FDKKSJ FDL IN IJ ;NK LFKKFIR GSA MUDH ;KSX;RK D;K GSA A MRRJ JH TQXY FDKKSJ D0 ESA MK;JSDVJ GSA RFKK JH EU KST FLAG OGKAW IJ DEFKZ;Y ESUSTJ GSA A BUDH O;OLKF;D IRS.'BHKWFE GSA A BUDH EDUCATION QUALIFICATION DS CKJS ESA EQ>S TKUDKJH UGHA GSA A 93 IZ012 TENDERING DS CKN OKYS PROCESS ESA VK/KQFUD DKIKSZJSKU DH VKSJ LS DKSU O;FDR DEAL DJ JGS FKS A MRRJ VS.MJ FEYUS DS CKN EYECUTIUM RFKK VU; DK;KSZ ESA ESJK IMPROVEMENT UGH GSA TGKAW RD COMMISSION AGENT DK IZU GSA A IZ014 D;K VK/KQFUD DKIKSZJSKU ESA LGK;RK YSUS DS C KOTWN DHKH TENDER U FEYUS OKYH FLFKFR VKBZ GSA ? MRRJ VK/KQFUD ESA LGK;RK YSUS DS CKOTWN EGKJK'V ES A GESA ,D TENDER XOKUK IM+K TKS FD INBRIA DK PROJECT FKK BLFY;S BLDS I'PKR VK/KQFUD DKIKSZJSKU ESA BLE SA VKXS DK;Z UGHA FD;K A IZ015 FDU PROJECT DS FY;S FDL COMMISSION AGENT DKS FU;QDR DJUK GSA OG DSLS FUFPR FD;K TKRK GSA A MRRJ COMMISSION AGENT GJ MIT DS FY;S D0 ESA EQ[;R% J.K. AGRAWAL LS RFKK MUDS VUQEKSNU DS I'PKR EQ>LS LEIDZ DJRS RFKK MUDS F INYS VUQHKO DS VK/KKJ IJ AGENT DH FU;QFDR DH TKRH GSA A IT WILL BE SEEN FROM THE ABOVE THAT, SH. LUHADIA IN THE COURSE OF HIS EXAMINATION HAD CONFIRMED RENDERING OF SERVICES BY THE AGENTS AND THUS, IN ABSENCE OF ANY MATERIAL HAVING BEEN LED BY THE LEARNED OFFICER, THERE IS NO JUSTIFICATION TO DENY CLAIM OF DEDUCTIO N. EVIDENCES FURNISHED BY WAY OF ADDITIONAL EVIDENCES BEFORE THE LD. CIT(A) THE AFORESAID EVIDENCES FURNISHED/FOUND DURING THE COURSE OF SURVEY AND ASSESSMENT PROCEEDINGS WERE FURTHER SUPP LEMENTED BY THE APPELLANT DURING THE COURSE OF APPEAL BY WAY OF UND ER-MENTIONED ADDITIONAL EVIDENCES UNDER RULE 46A OF INCOME TAX R ULES, 1962:- M/S. ADHUNIK CORPORATION LTD. (APB 420-440) S.NO. PARTICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS 3. COPY OF AIR TICKET RESERVATION 94 M/S. R.S. ISPAT LTD. (APB 441-468) S.NO. PARICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS M/S. SHYAM SEL LTD. (APB 467-494) S.NO. PARICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS M/S. CRESCENTBAKES LTD. (APB 495-503) S.NO. PARICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS M/S. C.P. RE-ROLLERS LTD. (APB 504-513) S.NO. PARICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS M/S. NAIYADIH HITECH PVT. LTD. (APB 514-518) S.NO. PARICULARS 1. PROFIT & LOSS ACCOUNT AND BALANCE SHEET 2. COPY OF INCOME TAX RETURNS FURTHER THE APPELLANT BY WAY OF ADDITIONAL FACTS AN D EVIDENCES BROUGHT ON RECORD A VERY VITAL ASPECT OF THE CONTRO VERSY THAT THE PAYMENTS TO THE SERVICE AGENTS WAS ALSO INVESTIGATED BY THE OFFICE OF THE SUPERINTENDENT, CENTRAL EXCISE RANGE-IV, SECTOR-10, VIDHADHAR NAGAR, JAIPUR WHEREBY A NOTICE DATED 11.05.2007 (APB 565) WAS ISSUED. THE RELEVANT PORTION OF THE SAID NOTICE IS REPRODUCED H EREIN-BELOW FOR THE SAKE OF READY REFERENCE. 95 PARA 4: WRONG AVAILMENT OF INPUT SERVICE CREDIT OF COMMISSION AND INSURANCE PREMIUM PAID TO TURNKEY CONTRACTS TO THE EXTENT OF COST OF MATERIALS SUPPLIED BY THE ASSESSEE FROM MARKET AMOU NTING RS. 63,91,239/- IT IS OBSERVED THAT YOU HAVE OBTAINED AN ORDER FRO M JVVNL FOR RURAL ELECTRICITY INFRASTRUCTURE AND HOUSEHOLD ELEC TRIFICATION FOR VARIOUS STATIONS ON TURNKEY BASIS. YOU HAVE FURTHER ENTERE D INTO TWO SEPARATE CONTRACTS FOR THIS ACTIVITY: (1)FOR SUPPLY OF MATERIAL/EQUIPMENT (2)FOR ERECTION, TESTING AND COMMISSION OF MATERIAL /WORKS THE ASSESSEE HAD PAID S. TAX ON THE VALUE OF OUTPUT SERVICE I.E. ERECTION & COMMISSIONING. THE ASSESSEE PAID COMMISSION TO THE PERSON WHO SAID TO HAVE HELPED HIM IN PROCURING THESE ORDER OF SUBSTATIONS. THE COMMI SSION TO SUCH PERSON HAS BEEN PAID @ CERTAIN AGREED RATE ON THE TOTAL AM OUNT OF CONTRACT INCLUDING THE COST/VALUE OF MATERIAL SUPPLIED FROM OPEN MARKET (NOT FINISHED GOODS OF MANUFACTURER) WHICH INCLUDES ITEM S LIKE PCC POLES, TRANSFORMER ELECTRIC WIRE AND CABLES ETC. THESE PA RTIES ARE PAYING SERVICE TAX ON THE AMOUNT OF COMMISSION RECEIVED BY THEM. THE ASSESSEE HAS TAKEN CREDIT OF ENTIRE AMOUNT OF S . TAX EVEN ON THE AMOUNT WHICH PERTAINED TO THE VALUE OF MATERIAL S SUPPLIED BY THEM FROM THE OPEN MARKET. SINCE THE CREDIT TAKEN BY AS SESSEE TO THE EXTENT OF VALUE OF SUPPLY OF MATERIAL FROM THE OPEN MARKET AP PEARS TO BE NOT USED IN PROVIDING THE OUTPUT SERVICE OF ERECTION COMMISS IONING AND INSTALLATION AND THEREFORE INPUT SERVICE CREDIT TAK EN TO THIS EXTENT APPEARS TO BE INCORRECT BECAUSE THE ASSESSEE HAS OPTED FOR PAYMENT OF S.TAX ONLY ON THE VALUE OF ERECTION & COMMISSIONING AND HAS NO T INCLUDED VALUE OF MATERIAL USED BY AVAILING BENEFIT OF NOTIFICATION N O. 19/2003-ST DATED 21.08.2003 (NOW NOTIFICATION NO. 01/2006-ST DATED 0 1.03.2006). THUS IT ESTABLISHED THAT THE INPUT SERVICE WAS INFACT NOT U SED IN PROVIDING THE OUTPUT SERVICE (RATHER THE INPUT SERVICE WAS USED I N EXEMPTED SERVICE). YOU ARE REQUESTED TO KINDLY DEPOSIT THE INCORRECT A VAILMENT OF INPUT SERVICE CREDIT OF COMMISSION & INSURANCE PREM IUM IMMEDIATELY. IT IS EVIDENT FROM THE AFORESAID NOTICE THAT, IT WA S OBSERVED THAT IN RELATION TO AN ORDER FROM JVVNL FOR RURAL ELECTRICI TY INFRASTRUCTURE AND HOUSEHOLD ELECTRIFICATION FOR VARIOUS STATIONS ON T URNKEY BASIS, ASSESSEE PAID COMMISSION TO THE PERSON WHO SAID TO HAVE HELP ED HIM IN PROCURING THESE ORDER OF SUBSTATIONS. IT HAS BEEN STATED THA T, COMMISSION TO SUCH PERSONS HAS BEEN PAID AT CERTAIN AGREED RATE ON THE TOTAL AMOUNT OF CONTRACT INCLUDING THE COST/VALUE OF MATERIAL SUPPL IED FROM OPEN MARKET 96 (NOT FINISHED GOODS OF MANUFACTURER) WHICH INCLUDES ITEMS LIKE PCC POLES, TRANSFORMER ELECTRIC WIRE AND CABLES ETC. I T HAS BEEN FURTHER NOTED THAT, THESE PARTIES ARE PAYING SERVICE TAX ON THE A MOUNT OF COMMISSION RECEIVED BY THEM AND, THE ASSESSEE HAS TAKEN CREDIT OF ENTIRE AMOUNT OF SERVICE TAX EVEN ON THE AMOUNT WHICH PERTAINED TO T HE VALUE OF MATERIALS SUPPLIED BY THEM FROM THE OPEN MARKET. ON THE AFORE SAID FACTS, IT WAS ALLEGED THAT, SINCE THE CREDIT TAKEN BY ASSESSEE TO THE EXTENT OF VALUE OF SUPPLY OF MATERIAL FROM THE OPEN MARKET APPEARS TO BE NOT USED IN PROVIDING THE OUTPUT SERVICE OF ERECTION COMMISSION ING AND INSTALLATION AND THEREFORE INPUT SERVICE CREDIT TAKEN TO THIS EX TENT APPEARS TO BE INCORRECT BECAUSE THE ASSESSEE HAS OPTED FOR PAYMEN T OF S.TAX ONLY ON THE VALUE OF ERECTION & COMMISSIONING AND HAS NOT INCLU DED VALUE OF MATERIAL USED BY AVAILING BENEFIT OF NOTIFICATION N O. 19/2003-ST DATED 21.08.2003 (NOW NOTIFICATION NO. 01/2006-ST DATED 0 1.03.2006). THE APPELLANT IN RESPONSE TO THE SAID NOTICE HAD SUBMIT TED VIDE REPLY DATED 06.06.2007 ( APB 568-572 ). IN FACT SUMMONS WAS ALSO ISSUED TO SHYAM SEL LTD., ONE OF THE AGENTS WHO HAS DULY COMPLIED WITH AND THE FACT OF R ECEIVING COMMISSION IN LIEU OF SERVICES RENDERED WAS CONFIRMED AND REIT EREATED BESIDES CONFIRMING THAT THEY RENDER SIMILAR SERVICES TO CON CERN NAMED AMCO ALSO. IN LIGHT OF THE AFORESAID, IT IS EVIDENT THAT SERVI CE TAX AUTHORITIES HAD DULY VERIFIED THE CLAIM OF THE APPELLANT REGARD ING THE FACTUM OF INCURRING OF EXPENDITURE ON COMMISSION AND ACCEPTED THE SAME AFTER CONDUCTING DUE VERIFICATION FROM THE AGENT. IT IS S UBMITTED THAT, IN LAW IT IS NOT PERMISSIBLE FOR ANOTHER DEPARTMENT OF THE GOVER NMENT TO TAKE A CONTRARY OR INCONSISTENT VIEW. IT IS THE WELL SETTL ED LEGAL POSITION AS LAID DOWN BY THE COURT OF APPEAL IN ENGLAND IN MOOUAT V/ S BETTS MOTORS LIMITED-1958, (3) ALL ENGLAND REPORT PAGE 402, THAT TWO DEPARTMENTS OF THE GOVERNMENT CANNOT IN LAW ADOPT CONTRARY OR INCO NSISTENT STANDS OR RAISE INCONSISTENT CONTENTIONS OR ACT AT ACROSS PUR POSES. TOO USE THE 97 FAMOUS WORDS OF LORD DENNING IN THAT CASE, THE RI GHT HAND OF THE GOVT. CANNOT PRETEND TO BE UNAWARE OF WHAT THE LEFT HAD I S DOING. THE SAME PRINCIPLE OF LAW ALSO BEEN FOLLOWED BY OUR SUPREME COURT IN THE CASE OF M.G.ABRO, ADDITIONAL COLLECTOR OF CUSTOMS VS. SHANT I LAL & CO. AIR 1966 SC 197, WHERE IT WAS LAID DOWN THAT THE CUSTOM S AUTHORITIES CANNOT IN LAW TAKE A STAND OR ADOPT A VIEW WHICH IS CONTRA RY TO THAT TAKEN BY THE IMPORT CONTROL AUTHORITY. IN THAT CASE THE IMPORT C ONTROL AUTHORITY HELD THAT A PARTICULAR PRODUCT COULD BE EXPORTED UNDER A N EXPORT LICENSE, IT WOULD NOT THEN LIE IN THE MOUTH OF THE CUSTOMS AUTH ORITIES TO DISALLOW THE EXPORT ON THE GROUND THAT THE PRODUCT COULD NOT LAW FULLY BE EXPORTED. IT IS RESPECTFULLY SUBMITTED THAT THE UNDERLYING PRINCIPL E OF THESE JUDGMENTS DIRECTLY AND SQUARELY COVERS THE PRESENT CASE. IT I S THUS SUBMITTED THAT THE LEARNED AO HAD NO MATERIAL TO ALLEGE LET ALONE CONC LUDE THAT THE SUM PAID BY THE APPELLANT TO COMMISSION AGENTS WAS NOT FOR S ERVICES RENDERED AND AS SUCH, THE ACTION OF THE LEARNED OFFICER TO MAKE ANY DISALLOWANCE IS TOTALLY AND WHOLLY UNSUSTAINABLE. IN FACT, THE SAME IS NOT PERMISSIBLE UNDER THE PROVISIONS OF THE STATUTE. IT WAS ONLY ON THE BASIS OF SOME VALID MATERIAL THAT THE LEARNED AO COULD HAVE PROCEEDED T O DISALLOW THE CLAIM AND, IN ABSENCE THEREOF, THE ACTION IS UNTENABLE AN D ILLEGAL. IT IS THUS SUBMITTED THAT COMMISSION SO PAID IS AN ELIGIBLE BU SINESS EXPENDITURE U/S 37(1) OF THE ACT. IN VIEW OF THE AFORESAID DOCUMENTARY, ORAL AND CIRC UMSTANTIAL EVIDENCE, IT IS RESPECTFULLY SUBMITTED THAT THE OBS ERVATION OF THE LD. CIT (A) TO THE EFFECT THAT NO DOCUMENT/EVIDENCE WITH TH E ASSESSEE TO PROVE THAT THE SERVICES, SPECIFIED IN THE AGREEMENTS, WERE ACT UALLY RENDERED BY THE COMMISSION AGENTS IS PERVERSE, ARBITRARY AND SUFFER S FROM VICE OF OVERLOOKING OF EVIDENCES AND MATERIAL ON RECORD AND DESERVES TO BE VACATED. THESE EVIDENCES SUPPORT THE DEDUCTION CLAI MED BY THE APPELLANT. 98 IT IS MOST HUMBLY SUBMITTED THAT THE APPELLANT ASSE SSEE DURING THE COURSE OF ASSESSMENT AND THE APPELLATE PROCEEDINGS FURNISHED ALL THE RELEVANT DOCUMENTARY/ ORAL EVIDENCES TO PROVE THAT THE COMMISSION WAS PAID FOR THE SERVICE RENDERED BY THE COMMISSION AGE NTS AND SUCH SERVICES PROVIDED WERE SPECIFICALLY MENTIONED IN THE AGREEME NT BETWEEN THE ASSESSEE AND THE AGENTS AND FURTHER THE SAME BEING CONFIRMED BY THE SAID COMMISSION AGENTS. HOWEVER, A BARE READING OF THE O RDERS PASSED BY THE LD.AO AND THE CIT(A) WOULD REVEAL THAT THE AUTHORIT IES BELOW NEVER LOOKED INTO SUCH DETAILS/DOCUMENTS AS THEY HAD A PR E-CONCEIVED NOTION TO DISALLOW SUCH COMMISSION AMOUNT BY JUST GOING AS PE R THE PREVIOUS YEARS TRACK RECORD. IN LIGHT OF THE AFORESAID FACTS AND, FOLLOWING THE FINDINGS OF THE HONBLE TRIBUNAL FOR PRECEDING ASSESSMENT YEARS, IT IS SUBMITTED THAT, DISALLOWANCE MADE OF COMMISSION MAY KINDLY BE DELET ED AND IT BE HELD THAT, ENTIRE EXPENDITURE INCURRED ON COMMISSION OF RS. 28,87,65,173/- IS AN ELIGIBLE BUSINESS EXPENDITURE UNDER SECTION 37(1 ) OF THE ACT. FURTHER, IT IS SUBMITTED THAT IN ANY CASE, AND WITH OUT PREJUDICE, THE LD.AO BEFORE DRAWING AN ADVERSE INFERENCE IN THE CA SE OF APPELLANT ASSESSEE, HAS NOT CONFRONTED IT WITH ANY ADVERSE MA TERIAL TO SHOW THAT THE COMMISSION PAID WAS BOGUS.THE HONBLE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DRESSER VALVE INDIA (P) LTD. VS. ACI T (2009) 30 SOT 495 (MUM) HELD AS UNDER: WHERE THE ASSESSEE FURNISHED BASIC INFORMATION REL ATING COMMISSION PAYMENT TO AGENTS FOR PROCURING ORDERS, THE SAME HAS TO BE ALLOWED UNLESS THE AO DISPROVES THE CONTENT O F THE AGENCY AGREEMENT OR SHOWN THE PAYMENTS MADE THROUGH THE BA NK WERE BOGUS OR THAT THE MONEY HAD FLOWN BACK TO THE ASSES SEE BY WAY OF CASH ETC. 99 IT IS FURTHER SUBMITTED THAT A WELL KNOWN DICTUM OF LAW STATES THAT APPARENT IS REAL, UNLESS PROVED TO THE CONTRARY A ND THE BURDEN OF PROVING SO LIES ON THE OTHER PARTY. THEREFORE, IN THE PRESE NT CASE, THE COMMISSION WAS PAID FOR SERVICES RENDERED BY THE COMMISSION AG ENTS AND WAS SHOWN AS SUCH TO BE PAID BY THE APPELLANT COMPANY TO THE COMMISSION AGENTS. NOW, THE ONUS WAS ON THE LD.AO TO PROVE THE SAME OT HERWISE, AND HE FAILED TO DISCHARGE HIS BURDEN OF PROVING THAT THE COMMISSION WAS NOT PAID FOR THE PARTICULAR PURPOSE OF BUSINESS AS SHOW N BY THE APPELLANT COMPANY. IN THIS REGARD, THE CASE OF MOBILE COMMISSION (INDI A) (P) LTD. V. DCIT, (2010) 128 TTJ (DEL) 666, MAY BE KINDLY PERUS ED BY THE HONBLE TRIBUNAL, WHEREIN THE DELHI E BENCH OF HONBLE IT AT WHILE DECIDING UPON ALLOWABILITY AND GENUINENESS OF A COMMISSION P AYMENT AS BUSINESS EXPENDITURE HAD DISCUSSED AND HELD THAT: AO DISALLOWED COMMISSION PAID BY ASSESSEE TO AS LTD . AND SP LTD. AS A REFERRAL FEE ON THE GROUND THAT THE SAME HAS BEEN PAID IN RESPECT OF THE REFERRALS MADE FOR SUPPLIES TO GOVER NMENT ORGANISATIONS AND SUCH PAYMENT IS NOT IN ACCORDANCE WITH THE CONDUCT OF A PRUDENT BUSINESSMAN. THE SAME IS NOT J USTIFIED. DETAILS PLACED ON RECORD SHOW THAT AS LTD. PROVIDED LEADS AND NINE SUCH CASES WERE CONVERTED INTO ORDERS. TOTAL V ALUE OF TENDERS WAS RS.4.54 CRORES AND AS SUCH ASSESSEE MADE PAYMEN T OF COMMISSION OF RS.37.50 LACS @ 8.25% UNDER THE AGREE MENT DT. 1 ST AUG., 2003. SERVICE TAX WAS CHARGED AND DULY DEPOSI TED IN RESPECT OF THE ENTIRE COMMISSION. AS LTD. IS AN INCOME TAX ASSESSEE AND THE ENTIRE COMMISSION SO PAID STANDS DULY DECLARED AS INCOME BY IT. MOREOVER, AS LTD. HAS DULY CONFIRMED THE FACTUM OF RENDERING OF SERVICES BY INDEPENDENT CONFIRMATION. HOWEVER, A O DID NOT CHOOSE TO SUMMON AS LTD. IN THE COURSE OF ASSESSMEN T PROCEEDINGS BY ISSUING NOTICE UNDER S.131. THUS, AUTHORITIES BE LOW WERE UNJUSTIFIED IN HOLDING THAT COMMISSION HAS NOT BEEN PAID FOR RENDERING SERVICES . THERE IS NO EVIDENCE TO ESTABLISH THAT THE AGREEMENT DT. 4 TH APRIL, 2004 WAS EVER ACTED UPON AS NO SUMS HAVE BEEN PAID OR CLAIMED AS DEDUCTION BY THE ASSESSEE U NDER THE SAID AGREEMENT. IT IS NOT A CASE WHERE NO INCOME WAS REC EIVED AND EXPENDITURE WAS INCURRED. FACT THAT PROVIDING LEADS IS NOT THE CORE LINE OF ACTIVITIES OF AS LTD. OR THAT IT HAS NOT ST ATED SUCH ACTIVITY IN 100 ITS TAX AUDIT REPORT CANNOT BE A BASIS TO SUGGEST T HAT IT HAS NOT RENDERED SERVICES TO THE ASSESSEE COMPANY. THUS, AS SESSEE HAS DULY ESTABLISHED THAT SERVICES WERE RENDERED BY AS LTD. SIMILARLY WAS THE POSITION IN RESPECT OF SP LTD. THAT APART, ASSESSEE HAS BEEN CONSISTENTLY MAKING PAYMENT OF COMMISSION AS R EFERRAL FEE FOR OBTAINING ORDERS FROM GOVERNMENT DEPARTMENTS AN D SUCH COMMISSION HAS BEEN ALLOWED AS DEDUCTION IN THE EAR LIER YEARS. EVEN IN THE SUCCEEDING ASSESSMENT YEAR SUCH COMMISS ION HAS BEEN ALLOWED AS DEDUCTION IN THE ASSESSMENT UNDER S.143( 3). IN THE ABSENCE OF ANY CHANGE EITHER IN FACTS OR IN LAW, PR INCIPLE OF CONSISTENCY ITSELF CAN BE MADE A BASIS TO UPHOLD AS SESSEES CLAIM. THEREFORE, CLAIM OF DEDUCTION OF COMMISSION IS ALLO WABLE. THEREFORE, APPLYING THE RATIO OF THE ABOVE CASE, IN THE FACTS OF THE PRESENT CASE, IT IS VERY MUCH CLEAR THAT ALL THE NE CESSARY EVIDENCES WERE PRODUCED BY THE APPELLANT ASSESSEE BEFORE THE LOWER AUTHORITIES I.E. BEFORE THE LD.AO AND THE LD. CIT(A), WITH REGARD TO THE AM OUNT OF COMMISSION PAID, TO WHOM IT HAS BEEN PAID, THE DETAILS OF HOW THE PAYMENT HAS BEEN MADE AND ALSO THE DETAILS OF PERSONS TO WHOM THE CO MMISSION HAS BEEN PAID, THE COPY OF AGREEMENTS ENTERED INTO WITH AGEN TS IN THIS REGARD ETC. ALSO, SUCH PAYMENTS WERE REGULARLY MADE BY THE APPE LLANT ASSESSEE TO THE COMMISSION AGENTS FROM LAST MANY YEARS AND THE SAME IS STILL CONTINUED IN THE FURTHER ASSESSMENT YEAR. IN FACT, IN ALL THE PR EVIOUS YEARS, THE HONBLE ITAT HAS ALLOWED SUCH COMMISSION AS BUSINESS EXPEND ITURE IN ALL THE CASES OF THE APPELLANT ASSESSEE. THEREFORE, EVEN AP PLYING THE RULE OF CONSISTENCY, SUCH COMMISSION PAYMENT COULD NOT HAVE BEEN DISALLOWED BY THE LOWER AUTHORITIES. IN VIEW OF THE AFORESAID IT IS SUBMITTED THAT THE I MPUGNED ORDER PASSED BY THE LD. CIT (A) SUFFERS FROM THE INFIRMIT Y OF THE OVERLOOKING OF EVIDENCES ON RECORD AND NON APPLICATION OF MIND. TH E SAID ACTION FURTHER GOES TO SUPPORT THE CONTENTION OF THE APPELLANT THA T THE LD. FIRST APPELLATE AUTHORITY HAD A PRECONCEIVED NOTION TO DECIDE THE A PPEAL IN THE LINES OF HIS EARLIER DECISIONS IRRESPECTIVE OF THE DOCUMENTS AND EVIDENCES ON RECORD. 101 IT IS MOST HUMBLY SUBMITTED THAT THE APPELLANT HAS DULY DISCHARGED THE PRIMARY ONUS IN REGARD TO HIS CLAIM U/S 37(1) O F THE ACT. THE APPELLANT AS A MATTER OF RECORD HAS ESTABLISHED NOT ONLY THE IDENTITY OF THE PARTIES BUT ALSO FURNISHED THE EVIDENCE OF SERVICES RENDERED, I N THE SHAPE OF BUSINESS AGREEMENTS AND CONFIRMATIONS. IT IS NOT IN DISPUTE THAT, ALL THE PARTIES ARE INCOME TAX ASSESSEES AND, THE ENTIRE PAYMENT OF CO MMISSION HAS BEEN MADE BY ACCOUNT PAYEE CHEQUES. THE APPELLANT HAS AL SO FURNISHED THE REPLY FILED BY THESE COMMISSION AGENTS TO THE SERVI CE TAX DEPARTMENT WHEREIN THEY HAVE CONFIRMED THE FACT OF RENDERING S ERVICES. IN VIEW THEREOF, IT IS RESPECTFULLY SUBMITTED THAT, APPELLA NT HAS FURNISHED ALL THE NECESSARY EVIDENCE TO DISCHARGE THE PRIMARY BURDEN AS HELD IN THE CASE OF ITO VS. R.L. MALHAN PROP. (2004) 1 SOT 435 (ASR), W HEREIN IT WAS HELD THAT IT IS OBSERVED THAT THE ASSESSEE HAS FIL ED THE AFFIDAVIT FROM THE COMMISSION AGENTS AND ALSO PRODUCED ALL OF THEM BEF ORE THE AO FOR THEIR EXAMINATION. ALL THE COMMISSION AGENTS HAVE CONFIRM ED THAT THEY HAVE RECEIVED THE COMMISSION AND THE COMMISSION WAS PAID THROUGH PAYEE CHEQUES TO THE AGENTS. IN MY OPINION THE ASSESSEE H AS DULY DISCHARGED HIS ONUS. MOREOVER, IT IS SUBMITTED THAT IF THE LD. CIT(A) MA Y KINDLY SEE THE FINDINGS IN THE ORDER OF ASSESSMENT, IT IS VERY MUC H EVIDENT THAT NOTHING ADVERSE IS CONTAINED IN THE SAID STATEMENTS. IN FAC T, SH LUHADIA EXPLAINED THAT 80% OF THE TENDERS ARE RECEIVED THROUGH COMMIS SION AGENTS AND IN RESPONSE TO A QUERY MADE, HE CLAIMED THAT WE APPOIN T THOSE AGENTS WHO HAD EXPERIENCE IN DEALING WITH STATE OR GOVERNMENT MINISTRY AND STATE ELECTRICITY BOARD AND ON THE BASIS OF HOW MUCH BUSI NESS HAD BEEN GIVEN BY THEM EARLIER. THEREFORE, EVEN THE STATEMENT PER SE CANNOT BE A GROUND TO HOLD THAT COMMISSION SO PAID AND INCURRED IS NOT ELIGIBLE BUSINESS EXPENDITURE FOR THE APPELLANT ASSESSEE. IT IS PERTI NENT TO POINT OUT HERE THAT SH. LUHADIA IN HIS BOTH STATEMENTS RECORDED AT DIFF ERENT POINT OF TIME I.E 5.09.2007 AND 11.12.09 AND IN DIFFERENT SITUATIONS I.E. FIRST AT THE TIME OF 102 SURVEY PROCEEDINGS AND ANOTHER AT THE TIME OF ASSES SMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR HAS CONFIRMED THE REND ERING OF SERVICES BY THE COMMISSION AGENTS AND THEREFORE THERE IS ABSOLU TELY NO BASIS WITH THE DEPARTMENT TO DRAW ANY ADVERSE INFERENCE OF WHATSOE VER KIND TO HOLD THAT THE COMMISSION PAYMENTS ARE NOT GENUINE. A REFERENCE BY THE LD. ASSESSING OFFICER, TO THE SE ARCH AND SEIZURE OPERATION WAS CARRIED OUT BY THE INVESTIGATION WING IN DELHI ON 12.12.2006 ON ONE SH. S.K. GUPTA, CHARTERED ACCOUNTANT WHO HAS BEEN ALLEGED TO HAVE BEEN ENGAGED IN RUNNING SEVERAL BOGUS CONCERNS FOR ISSUING ACCOMMODATION ENTRIES AND THAT A COPY OF INVOICE SE IZED DURING THE COURSE OF THE SEARCH SHOWED THAT, ONE INVOICE OF RS. 1.95 CRORE WAS IN THE NAME OF THE ASSESSEE AND, THAT SH. GUPTA ADMITTED THAT T HE COMPANIES RUN BY HIM WERE ONLY ENGAGED IN PROVIDING ACCOMMODATION EN TRIES FOR DRAWING INFERENCE THAT THE THE TRANSACTIONS IN QUESTION ARE ACCOMMODATION ENTRIES IS TOTALLY MISPLACED AND IIRELEVANT FOR THE ADJUDIC ATION OF THE IMPUGNED CONTROVERSY. THE COMMISSION DOES NOT REPRESENT ANY PAYMENT TO EI THER SH. SK. GUPTA OR HIS GROUP COMPANIES. IT IS SUBMITTED THAT, THERE IS NO MATERIAL ON RECORD WHICH COULD ENABLE THE LEARNED OFFICER TO AR RIVE AT SUCH AN ARBITRARY INFERENCE. IT IS SUBMITTED THAT, ENTITIES TO WHOM, COMMISSION HAS BEEN PAID AND CLAIMED AS DEDUCTION BY THE APPELLANT IN T HE INSTANT ASSESSMENT YEAR HAVE NO CONNECTION WITH SH. S.K. GUPTA IN AS M UCH AS SH. S.K. GUPTA IS NEITHER THE DIRECTOR NOR THE SHAREHOLDER IN ANY OF THE COMPANIES. THE DETAILS OF THE DIRECTORSHIP OF THE SIX COMPANIES AS OBTAINED BY THE APPELLANT ARE TABULATED HEREUNDER: 103 S.NO. NAME OF THE COMPANY NAME OF THE DIRECTOR 1. ADHUNIK CORPORATION LTD. I) SHRI JUGAL KISHORE AGGARWAL II) SHRI MAHESH KUMAR AGGARWAL III) SHRI GHYANSHAYAM DAS AGGARWAL 2. SHYAM SEL LIMITED I) SHRI B. BHUSHAN AGGARWAL II) SHRI BAJRANG LAL AGGARWAL III) SHRI PAWAN KUMAR AGGARWAL IV) SHRI SANJAY AGGARWAL 3. C.P. REROLLERS LTD. I) SHRI MOHAN CHAWLA II) SHRI KUMAR CHAWALA 4. CRESENT BAKES PVT. LTD. I) SHRI RAJ KUMAR AGGARWAL II) SHRI ARUN KUMAR MODI IT IS THUS SUBMITTED THAT, SINCE SH. S.K. GUPTA IS IN NO WAY CONNECTED WITH THE AFORESAID COMPANIES AND IN ANY C ASE, THE LEARNED ASSESSING OFFICER HAS ALSO FAILED TO BRING ON RECOR D ANY MATERIAL IN SUPPORT OF HIS ARBITRARY AND ERRONEOUS CONCLUSION T O DENY CLAIM OF DEDUCTION. FURTHER INFERENCE DRAWN BY THE LD. ASSESSING OFFICE R ON THE BASIS OF THE FACT THAT MR. MANOJ SINGH IS CONTACT PERSON IN M/S ADHUNIK CORPORATION AND M/S R.S ISPAT PVT. LTD. THAT BOTH T HE COMPANIES ARE MERE NAME LENDERS IS AGAIN MISPLACED, DEVOID OF SUBSTANC E AND BASED ON MERE CONJECTURES AND SURMISES. THE HONBLE SUPREME COURT IN THE CASE OF CIT V.NEO POLY PACK (P) LTD., (2000) 245 ITR 492 (DEL),HAS HELD THAT: IT IS TRUE THAT EACH ASSESSMENT YEAR BEING INDEPEND ENT OF THE OTHER, THE DOCTRINE OF RES-JUDICATA DOES NOT STRICT LY APPLY TO INCOME-TAX PROCEEDINGS, BUT WHERE AN ISSUE HAS BEEN CONSIDERED AND DECIDED CONSISTENTLY IN A NUMBER OF EARLIER ASSESSMENT YEAR S IN A PARTICULAR MANNER, FOR THE SAKE OF CONSISTENCY, THE SAME VIEW SHOULD CONTINUE TO PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS SOME MA TERIAL CHANGE IN THE FACTS. IN THE PRESENT CASE, THE LD. COUNSEL FOR THE REVENUE HAS NOT BEEN ABLE TO POINT OUT EVEN A SINGLE DISTINGUISHING FEAT URE IN RESPECT OF THE ASSESSMENT YEAR IN QUESTION WHICH COULD HAVE PROMPT ED THE ASSESSING 104 OFFICER TO TAKE A VIEW DIFFERENT FROM THE EARLIER A SSESSMENT YEARS, IN WHICH THE SAME INCOME WAS BROUGHT TO TAX AS INCOME FROM B USINESS. THUS, APPLYING THE RATIO OF THE ABOVE CASES AND THE RULE ENUNCIATED FROM THERE TO THE FACTS OF THE INSTANT CASE, IT IS SUBMITTED THAT SINCE COMMISSION PAID STANDS ALLOWED IN ALL THE PRECEDING ASSESSMENT YEARS, COMMISSION SO PAID EVEN IN THE INSTANT ASSESSMENT Y EAR IS AN ELIGIBLE BUSINESS EXPENDITURE AND IS ALLOWABLE FOR DEDUCTION U/S 37(1) OF THE ACT. THEREFORE, IN SUCH CIRCUMSTANCES MENTIONED ABOVE, S INCE NO NEW FACTS HAVE BEEN BROUGHT ON RECORD BY THE LD. AO AND THE L D. CIT(A) AND THE DISALLOWANCE HAS BEEN MADE WITHOUT FRESH APPLICATIO N OF MIND AND WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD AND ON THEORETICAL GROUNDS, THE DISALLOWANCE SHOULD BE STRUCK DOWN. THE RULE OF JUDICIAL PRECEDENT FLOWS FROM ARTICLE 1 4 OF THE CONSTITUTION OF INDIA WHICH GUARANTEES EQUALITY TO EVERY CITIZEN BEFORE LAW. EQUALITY BEFORE LAW IMPLIES RULE OF LAW FOR AL L WHEREIN THERE IS NO SCOPE FOR ARBITRARINESS OR ANY DISCRIMINATION. IT I S A SETTLED LAW THAT THE RULE OF JUDICIAL PRECEDENT ARE BINDING NOT ONLY ON THE COURTS OR QUASI JUDICIAL AUTHORITIES BUT EVEN ADMINISTRATOR, TAX AN D REVENUE AUTHORITIES AS THE SAME ASSURES CONSISTENCY, EQUALITY AND NON-PREJ UDICE. THE HONBLE SUPREME COURT IN S.I. ROOPLAL AND ANOTHER VS. LT. G OVERNOR AIR 2000 SC 594 OBSERVED THAT PRECEDENTS WHICH ENUNCIATE RUL ES OF LAW FROM THE FOUNDATION OF ADMINISTRATION OF JUSTICE UNDER OUR S YSTEM. THIS IS FUNDAMENTAL PRINCIPLE WHICH EVERY PRESIDING OFFICER OF THE JUDICIAL FORUM OUGHT TO KNOW, FOR CONSISTENCY IN INTERPRETATION OF LAW ALONE CAN LEAD TO PUBLIC CONFIDENCE IN OUR JUDICIAL SYSTEM. THE HONB LE SUPREME COURT HAS LAID DOWN TIME AND AGAIN THAT PRECEDENT LAW MUST BE FOLLOWED BY ALL CONCERNED, DEVIATION FROM THE SAME, SHOULD BE ONLY ON A PROCEDURE KNOWN TO LAW. A SUBORDINATE COURT IS BOUND BY THE ENUNCIA TION OF LAW MADE BY THE SUPERIOR COURTS. 105 THE LD. CIT (A) WHILE PASSING THE IMPUGNED ORDER HA S FAILED TO APPRECIATE THAT THOUGH THE PRINCIPLE OF RES-JUDICAT A AND DOCTRINE OF ESTOPPEL ARE NOT APPLICABLE TO TAX PROCEEDINGS YET THE DISPUTE MUST ACHIEVE FINALITY AND UNLESS AND UNTIL THERE IS CHANGE IN FA CTUAL MATRIX OR LAW OR THERE ARE STRONG REASONS TO DEVIATE, THE ASSESSING OFFICER MUST FOLLOW THE VIEW EXPRESSED BY THE SUPERIOR AUTHORITY. ALTHOUGH THE ASSESSING OFFICER ADMINISTRATIVELY DOES NOT FUNCTION UNDER THE TRIBUN AL BUT THE TRIBUNAL BEING THE FINAL FACT FINDING BODY, A QUASI JUDICIAL AUTHORITY, THE ASSESSING OFFICER MUST FAITHFULLY OBEY ITS ORDERS. THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE O F AGARWAL WAREHOUSING & LEASING LTD. VS. CIT, 257 ITR 235 (MP ) HAS HELD THAT SUB-SECTION 4 OF SECTION 254 ATTACHES FINALITY TO T HE ORDER OF THE TRIBUNAL SUBJECT TO THE PROVISIONS OF SECTION 256 (OR SECTIO N 268). NEEDLESS TO SAY, THAT THE ORDERS PASSED BY THE TRIBUNAL ARE BINDING ON ALL THE REVENUE AUTHORITIES FUNCTIONING UNDER THE JURISDICTION OF T HE TRIBUNAL. OBVIOUSLY THE CIT(A) NOT ONLY COMMITTED JUDICIAL IMPROPRIETY BUT ALSO ERRED IN LAW IN REFUSING TO FOLLOW THE ORDER OF THE TRIBUNAL. EV EN WHERE HE MAY HAVE SOME RESERVATIONS ABOUT THE CORRECTNESS OF THE DECI SION OF THE TRIBUNAL, HE HAD TO FOLLOW THE ORDER. THE HONBLE MADRAS HIGH COURT IN SHRI RAJENDRA MILL S LTD. VS. JT. CTO (191) STC 483 (MAD) OBSERVED:IN THE HIERARCHY OF THE AUTHORITIES SET UP UNDER THE SALES-TAX ACT, THE TRIBUNAL IS SUP ERIOR TO THE APPELLATE ASSISTANT COMMISSIONER, WHO IS BOUND BY THE ORDERS OF THE TRIBUNAL WHICH WILL BE AS EFFECTIVE AS THE ORDERS OF THE HIGH COUR T AS FAR AS THEIR BINDING CHARACTER ON HIM IS CONCERNED. MERELY BECAUSE A TAX CASE HAS BEEN FILED BY THE DEPARTMENT, IT DOES NOT ACT AS A KIND OF STA Y OF OPERATION OF THE ORDER OF THE TRIBUNAL. SO LONG AS THE ORDER OF THE TRIBUNAL IS NOT SET ASIDE, THE APPELLATE ASSISTANT COMMISSIONER IS BOUND TO GI VE EFFECT TO AND HIS FAILURE TO DO SO ON THE GROUND THAT THE DEPARTMENT HAS FILED AN APPEAL WILL 106 BE REALLY A CONTEMPT OF THE TRIBUNALS ORDER. THOUG H IT IS OPEN TO HIM TO TAKE HIS OWN VIEW ON THE FACTS, AS FAR AS THE LAW PROPOUNDED BY THE TRIBUNAL IS CONCERNED, IT IS BINDING AND SHOULD BE APPLIED TO THE FACTS BEFORE HIM. THE HONBLE ALLAHABAD HIGH COURT IN K.N. AGARWAL VS . CIT (1991) 100 CTR (ALL) 170: (1991) 189 ITR 769 (ALL) OBSERVED THAT THE ORDERS OF THE TRIBUNAL ARE BINDING UPON THE ASSESSI NG OFFICER AND SINCE HE ACTS IN A QUASI-JUDICIAL CAPACITY, THE DISCIPLINE O F SUCH FUNCTIONING DEMANDS THAT HE SHOULD FOLLOW THE DECISION OF THE T RIBUNAL. THE APEX COURT IN UNION OF INDIA VS. KAMLAKSHI FINA NCE CORPORATION LTD. AIR 1992 SC 711, A CASE UNDER THE EXCISE LAW, OBSERVED: IT CANNOT BE TOO VEHEMENTLY EMPHASIZED T HAT IT IS OF UTMOST IMPORTANCE THAT, IN DISPOSING OF THE QUASI-JUDICIAL ISSUES BEFORE THEM, REVENUE OFFICERS ARE BOUND BY THE DECISIONS OF THE APPELLATE AUTHORITIES. THE ORDER OF THE APPELLATE COLLECTOR IS BINDING ON THE ASSISTANT COLLECTORS WORKING WITHIN HIS JURISDICTION AND THE ORDER OF TH E TRIBUNAL IS BINDING UPON THE ASSISTANT COLLECTORS AND THE APPELLATE COL LECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCIP LES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER APPELLATE AUT HORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIE S. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPT ABLE TO THE DEPARTMENT IN ITSELF AN OBJECTIONABLE PHRASE AND IS THE SUBJEC T-MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS O PERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. IF THIS HEALTHY RUL E IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEE AN D CHAOS IN ADMINISTRATION OF TAX LAWS. THE LD. TRIBUNAL, DELHI BENCH IN THE CASE OF MAHANA GAR TELEPHONE NIGAM LTD. VS. ACIT (2006) 100 TTJ (DEL) 1 HAS HELD THAT A 107 JUDGMENT DELIVERED BY THE TRIBUNAL IS BINDING ON TH E AO. HE IS BOUND TO FOLLOW THE JUDGMENT OF THE TRIBUNAL IN ITS TRUE LET TER AND SPIRIT. THE AO BEING AN INFERIOR OFFICER VIS-A-VIS THE TRIBUNAL, W AS BOUND BY THE JUDGMENT OF THE TRIBUNAL AND THEREFORE, HE SHOULD N OT HAVE TRIED TO DISTINGUISH THE SAME ON UNTENABLE GROUNDS. IT IS AL SO NECESSARY FOR THE JUDICIAL UNITY AND DISCIPLINE THAT ALL THE AUTHORIT IES BELOW TRIBUNAL MUST ACCEPT AS BINDING JUDGMENT OF THE TRIBUNAL. THE CIT (A), THEREFORE SHOULD NOT HAVE COMMITTED ANY JUDICIAL IMPROPRIETY IN REFU SING TO FOLLOW THE ORDER OF THE TRIBUNAL. EVEN IF SHE HAD SOME RESERVA TIONS ABOUT THE CORRECTNESS OF THE DECISION OF THE TRIBUNAL, SHE SH OULD HAVE FOLLOWED THAT ORDER. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK O F BARODA VS. H.C. SRIVASTAVA (2002) 256 ITR 385 (BOM) HELD T HAT THE JUDGMENT DELIVERED BY THE TRIBUNAL WAS VERY MUCH BINDING ON THE AO. THE AO WAS BOUND TO FOLLOW THE JUDGMENT IN ITS TRUE LETTER AND SPIRIT. IT WAS NECESSARY FOR THE JUDICIAL UNITY AND DISCIPLINE THAT ALL THE AUTHORITIES BELOW THE TRIBUNAL MUST ACCEPT AS BINDING THE JUDGMENT OF THE TRIBUNAL. THE AO BEING INFERIOR OFFICER VIS-A-VIS THE TRIBUNAL WAS B OUND BY THE JUDGMENT OF THE TRIBUNAL AND THE AO SHOULD NOT HAVE TRIED TO DI STINGUISH THE SAME ON UNTENABLE GROUNDS. IN THIS BEHALF, IT WILL NOT BE O UT OF PLACE TO MENTION THAT IN THE HIERARCHICAL SYSTEM OF COURTS, WHICH EX ISTS IN OUR COUNTRY, IT IS NECESSARY FOR EACH LOWER TIER INCLUDING THE HIGH CO URT, TO ACCEPT LOYALLY THE DECISIONS OF THE HIGHER TIERS. IT IS INEVITABLE IN HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPE LLATE TRIBUNALS, WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBER S OF THE JUDICIARY. BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS ALLOWE D TO HAVE THE LAST WORD AND THAT LAST WORD ONCE SPOKEN IS LOYALLY ACCEPTED. THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. 108 THE HONBLE DELHI HIGH COURT ALSO IN THE CASE OF CI T VS. A.R.J. SECURITY PRINTERS (2003) 264 ITR 276 (DEL) HAS OBSE RVED THAT TRUE THAT EACH ASSESSMENT YEAR BEING INDEPENDENT OF THE OTHER , AS A GENERAL RULE, THE PRINCIPLE OF RES-JUDICATA OR ESTOPPEL BY RECORD, WH ICH APPLIES TO CIVIL COURTS, DOES NOT APPLY TO INCOME TAX PROCEEDINGS BU T, YET FOR THE SAKE OF CONSISTENCY AND FOR THE PURPOSE OF FINALITY IN ALL LITIGATIONS INCLUDING LITIGATION ARISING OUT OF FISCAL STATUS, EARLIER DE CISIONS ON THE SAME QUESTION SHOULD NOT BE REOPENED UNLESS SOME FRESH FACTS ARE FOUND IN THE SUBSEQUENT YEAR. THE HONBLE SUPREME COURT IN BHARAT SANCHAR NIGAM L TD.VS. UNION OF INDIA (2006) 201 CTR (SC) 346: (2006) 282 ITR 273(SC) OBSERVED: RES JUDICATA DOES NOT APPLY IN MATTERS PERTAINING TO TAX FOR DIFFERENT ASSESSMENT YEARS BECAUSE RES JUDICATA APP LIES TO DEBAR COURTS FROM ENTERING ISSUES ON THE SAME CAUSE OF ACTION WH EREAS THE CAUSE OF ACTION FOR EACH ASSESSMENT YEAR IS DISTINCT. THE CO URTS WILL GENERALLY ADOPT AN EARLIER PRONOUNCEMENT OF THE LAW OR A CONCLUSION OF FACT UNLESS THERE IS A NEW GROUND URGED OR A MATERIAL CHANGE IN THE FACT UAL POSITION. THE REASON WHY COURTS HAVE HELD PARTIES TO THE OPINION EXPRESSED IN A DECISION IN ONE ASSESSMENT YEAR TO BE SAME OPINION IN A SUBS EQUENT YEAR IS NOT BECAUSE OF ANY PRINCIPLE OF RES JUDICATA BUT BECAUS E OF THE THEORY OF PRECEDENT OR PRECEDENTIAL VALUE OF THE EARLIER PRON OUNCEMENT. WHERE THE FACT AND LAW IN A SUBSEQUENT ASSESSMENT YEAR ARE TH E SAME, NO AUTHORITY WHETHER QUASI-JUDICIAL OR JUDICIAL CAN GENERALLY BE PERMITTED TO TAKE A DIFFERENT VIEW. THIS MANDATE IS SUBJECT ONLY TO THE USUAL GATEWAYS OF DISTINGUISHING THE EARLIER DECISION OR WHERE THE EA RLIER DECISION IS PER IN CURIAM. HOWEVER, THESE ARE FETTERS ONLY ON A CO-ORD INATE BENCH, WHICH, FAILING THE POSSIBILITY OF AVAILING OF EITHER OF TH ESE GATEWAYS, MAY YET DIFFER WITH THE VIEW EXPRESSED AND REFER THE MATTER TO A BENCH OF SUPERIOR JURISDICTION. THE AFOREMENTIONED JUDGEMENTS AND JUDICIAL PRONOUNC EMENTS BY THE HONBLE APEX COURT, VARIOUS HIGH COURTS AND TRI BUNALS ESTABLISHES A VERY IMPORTANT LEGAL POSITION THAT THE COURTS SHALL GENERALLY ADOPT AN EARLIER PRONOUNCEMENT OF THE LAW OR A CONCLUSION OF FACT UNLESS THERE IS A 109 NEW GROUND URGED OR A MATERIAL CHANGE IN THE FACTUA L POSITION, WHICH IS PRECISELY THE CASE OF THE APPELLANT WHEREIN THE LD. CIT(A) WAS BOUND TO ALLOW THE CLAIM OF THE APPELLANT OF DEDUCTION ON AC COUNT OF PAYMENT OF COMMISSION BY FOLLOWING THE DECISION OF THIS HONBL E TRIBUNAL IN THE CASE OF THE APPELLANT ITSELF FOR THE PREVIOUS ASSESSMENT YEARS AS THERE IS ABSOLUTELY NO MATERIAL CHANGE IN THE FACTUAL POSITI ON. 57. AFTER GOING THROUGH THESE WRITTEN SUBMISSIONS A ND ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THERE IS NO CHANGE IN THE MATERIAL FAC TS IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR. IT IS SEEN THAT THE ASSE SSEE HAS FILED DETAILS BEFORE THE LD. CIT (A) AS WELL AS BEFORE THE AO IN RESPECT TO THE PART IES TO WHOM COMMISSION PAYMENT HAS BEEN MADE. A CHART SHOWING NAMES OF THE PARTIES IN EARLIER YEAR AS WELL AS IN THIS YEAR HAS BEEN MENTIONED IN THE WRITTEN SUBMISSION WHICH HAS BEEN TABULATED IN THE ORDER OF LD. CIT (A) AT PAGE 16. THE DETAILS OF PAYMENT TO THE PARTIES TO WHOM THE COMMISSION HAS BEEN PAID IN THE YEAR UNDER CONSIDERATION HAS BEEN SHOWN FROM ASSESSMENT YEARS 2004-05 TO 07-08 WHICH IS THE YEAR UNDER CONSIDERATION. TH E ASSESSEE PAID COMMISSION TO M/S. ADHUNIK CORPORATION LTD. OF RS. 2,00,00,000/- OR OD D IN ASSESSMENT YEAR 2004-05, RS. 3.23 CRORE OR ODD IN ASSESSMENT YEAR 2005-06, RS. 5 7,00,000/- OR ODD IN ASSESSMENT YEAR 2006-07 AND FOR CURRENT YEAR THE COMMISSION PAYMENT WAS MADE OF RS. 20.50 CRORE OR ODD. FOR ALL THE YEARS THE AO DISALLOWED THE CLAI M OF COMMISSION ON ALMOST ON THE SAME REASONING BY WHICH IT WAS HELD THAT ASSESSEE H AS NOT ENGAGED ANY COMMISSION AGENT BUT HAS CLAIMED DEDUCTION UNDER THE GARB OF COMMISS ION PAYMENT. IT HAS BEEN STATED THAT THE ASSESSEE DEALS WITH THE GOVERNMENT DEPARTMENT W HO DOES NOT ENTERTAIN ANY THIRD PARTY, THEREFORE, THE CLAIM OF DEDUCTION IS WRONG. IT HAS BEEN FURTHER STATED THAT ASSESSEE HAS NOT FILED ANY FURTHER DETAILS TO ESTABLISH THAT THE COMMISSION AGENTS WERE INVOLVED FOR 110 ASSESSEES WORK. SIMILAR PAYMENTS HAVE BEEN MADE TO M/S. R.S. ISPAT PVT. LTD. FOR ASSESSMENT YEAR 2004-05 TO 2007-08. RS. 1,34,38,92 5/-, RS. 1,07,99,250/- AND RS. 1,02,10,201/- WERE PAID FOR ASSESSMENT YEARS 2004-0 5 TO 06-07 RESPECTIVELY. DURING THE YEAR UNDER CONSIDERATION A SUM OF RS. 48,42,451/- H AS BEEN PAID BY THE ASSESSEE TO THIS PARTY. SIMILARLY, COMMISSION PAYMENTS WERE MADE TO M/S. SHYAM SEL LIMITED, M/S. NAIYADIH HI-TECH PVT. LTD. AND M/S. C.P. REROLLERS LTD. FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. THE AO DISALLOWED THE PAYMENT OF COMMI SSION ON THE SAME REASONING AS DISCUSSED ABOVE. MATTER REACHED UPTO THE STAGE OF TRIBUNAL AND APPEALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 TO 06-07 HAVE BEEN ALLO WED. THE OPERATIVE PARA HAS BEEN MENTIONED IN THE WRITTEN SUBMISSIONS FILED BY ASSES SEE BEFORE LD. CIT (A) WHICH HAS BEEN REPRODUCED IN THE ORDER OF LD. CIT (A), AND THE SAM E IS REPRODUCED SOMEWHERE ABOVE IN THIS ORDER ALSO. FOR THE SAKE OF FURTHER CLARIFIC ATION, AT THE COST OF REPETITION, WE REPRODUCE THE RELEVANT PARA 7 OF THE ORDER OF TRIBU NAL FOR EARLIER YEAR I.E. ASSESSMENT YEAR 2005-06, WHICH IS REPRODUCED IN THE ORDER OF LD. CI T (APPEALS) AT PAGES 14 AND 15, ARE AS UNDER :- 7. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL AVAILABLE ON RECORD AND THE PRECEDENTS RELIED UPON. WE FIND T HAT THE DISALLOWANCES ON ACCOUNT OF COMMISSION PAYMENT WITH SIMILAR NATURE WERE ALSO MADE IN THE PAST IN THIS CASE. THE ASSESS EE COMPANY HAD BEEN SUCCESSFUL BEFORE THE TRIBUNAL (IN ITA NO. 160 /JP/05 - A.Y. 2001-02) WHEN THE DISALLOWANCES MADE ON ACCOUNT OF PAYMENT OF COMMISSION WERE RESTRICTED TO RS. 25 LACS BY THE TR IBUNAL AS AGAINST RS. 4,56,22,058/- DISALLOWED BY THE AO AND CONFIRME D BY THE LD. CIT(A). SO ALSO THE APPEALS FOR A.Y. 1999-2000, 200 0-01, 2002-03 IN ITA NO. 263 & 312/JP/06, 260 & 313/JP/06 AND 259 & 314/JP/06 RESPECTIVELY, WERE DISPOSED OF BY THIS BENCH BY HOL DING THE ISSUE TO BE SIMILAR IN NATURE FOR THOSE YEARS AND HAD ALLOWED T HE APPLICATION OF THE ASSESSEE U/S 158A PERMITTING THE ASSESSEE TO HAVE A COMMON DECISION ON THE ISSUE IN AN APPEAL FILED BY THE REVENUE AGAI NST THE ORDER OF THE 111 TRIBUNAL IN ITA NO. 160/JP/05 FOR A.Y. 2001-02 BEFO RE THE HONBLE RAJASTHAN HIGH COURT WITH THE FOLLOWING GROUND. SUBSTANTIAL QUESTION OF LAW: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN LAW AND NOT ACTED PERVERSELY IN AL LOWING THE BROKERAGE AND COMMISSION TO THE TUNE OF RS. 4,31,33 ,058/- WITHOUT ANY PROPER MATERIAL ON RECORD AND WHEN THE PURCHASE RS CATEGORICALLY INFORMED THAT THERE WAS NO AGENT INVO LVED IN THE CONTRACT. FURTHER THE APPEALS FOR AY 2003-04 AND 2004-05 IN I TA NOS. 536/JP/08 AND 537/JP08 WERE DECIDED BY THIS BENCH O F TRIBUNAL WHEREIN THE EXPENDITURE ON ACCOUNT OF PAYMENT OF CO MMISSION AND BROKERAGE CLAIMED HAS BEEN HELD AS ALLOWABLE EXPEND ITURE BEING GENUINELY INCURRED IN THE NORMAL COURSE OF BUSINESS . WITH THE ABOVE BACKGROUND THE ISSUE RAISED BY THE ASSESSEE IS DECI DED ON MERIT. THE ASSESSEE AS IN THE PAST CONTINUES TO BE A MANUFACTU RER OF ELECTRONIC HYBRID CIRCUIT METER AND HAD CONTINUED ITS SUPPLIES TO VARIOUS STATE ELECTRICITY BOARDS/COMPANIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAD SUBMITTED DOCUMENTS/EVIDEN CES TO PROVE THAT THE IT HAD ENGAGED THE COMMISSION AGENTS AND H AD AGREED UPON CERTAIN TERMS AND CONDITIONS AS PER THE AGREEMENTS EXECUTED BETWEEN THEM WHICH WERE FILED BEFORE THE AO AND ACCORDINGLY THE COMMISSION WAS PAID TO THE AGENTS FOR THE SERVICES RENDERED BY THEM. ALL THE COMMISSION AGENTS ARE EXISTING INCOME TAX ASSESSEE AND THEY ARE IDENTIFIABLE AND HAVE CONFIRMED THE SERVICES RENDER ED BY THEM AND RECEIPT OF PAYMENT FOR THEIR SERVICES. FROM THE EVI DENCES FILED AND DOCUMENTS BROUGHT ON RECORD BY THE ASSESSEE AND ALS O LOOKING TO THE TURNOVER AS WELL AS NATURE OF BUSINESS IT WOULD BE DIFFICULT TO HOLD THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENTS. THE REVENUE AUTHORITIES HAVE IGNORED THE VERY VITAL FACT THAT T HE COMMISSION WAS PAID TO THE PARTIES WHICH ARE TOTALLY UNRELATED TO THE ASSESSEE COMPANY AND ARE OTHERWISE INCOME TAX ASSESSES AND, HAVE BEE N ASSESSED TO INCOME TAX IN RESPECT OF THE AMOUNT RECEIVED. FURTH ER NO LOGICAL AND WORTHWHILE REASON WAS GIVEN BY THE ASSESSING AUTHOR ITY TO ESTABLISH THAT BY MAKING SUCH A HUGE CLAIM OF EXPENDITURE IN THE BOOKS OF ACCOUNTS THE ASSESSEE COMPANY HAS ANY ADVANTAGE WHE N IT HAS HEAVY UNABSORBED BROUGHT FORWARD LOSSES. THE ASSESSEE COM PANY HAS DISCHARGED ITS BURDEN BY SUBMITTING THE REQUIRED DE TAILS IN RESPECT OF COMMISSION AGENTS SUCH AS THEIR COMPLETE ADDRESSES, THEIR ASSESSMENT PARTICULARS INCLUDING THEIR PAN AND ADDRESSES OF TH E ASSESSING AUTHORITIES AND THE PAYMENTS WERE MADE THROUGH PAYE ES ACCOUNT CHEQUE. THE ASSESSING AUTHORITY HAS DISALLOWED THE CLAIM OUT RIGHTLY WITHOUT MAKING ANY EFFORT OF EXAMINING ANY OF THE C OMMISSION 112 AGENTS THOUGH HE HIMSELF HAD POWERS TO ISSUE SUMMON S U/S 131 OF THE INCOME TAX ACT, 1961. IT IS THUS APPARENT THAT THE ASSESSING AUTHORITY GOT CARRIED AWAY BY THE IRRELEVANT AND EXTRANEOUS C ONSIDERATIONS. THE DENIAL OF KNOWLEDGE OF COMMISSION AGENTS BY THE STA TE ELECTRICITY BOARDS IS NTO A VALID BASIS FOR DRAWING AN ADVERSE INFERENCE SINCE IT WAS AN INTERNAL ARRANGEMET BETWEEN THE ASSESSEE AND ITS AGENT WHO HAD BEEN REPRESENTING THE ASSESSEE IN THE CONDUCT O F ITS BUSINESS. WITH THIS OBSERVATION, WE BY FOLLOWING OUR VIEW EXP RESSED IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2003-04 A ND 2004-05 (SUPRA) EXPRESS OUR CONSIDERED VIEW THAT THE ASSESS EE COMPANY HAS BY EVERY POSSIBLE EVIDENCE PROVED THAT THE SERVICES WE RE RENDERED BY THE COMMISSION AGENTS AND THE EXPENDITURE BEING INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS HOLD THAT T HE ASSESSEE COMPANY IS ENTITLED FOR THE DEDUCTION OF EXPENDITUR E INCURRED ON ACCOUNT OF PAYMENT OF COMMISSION TO THE AGENTS, THU S THE DISALLOWANCE OF COMMISSION OF RS. 5,69,95,992/- IS DIRECTED TO BE DELETED. THUS GROUNDS OF APPEAL OF THE ASSESSEE NO. 1 TO 1.3 ARE ACCORDINGLY ALLOWED. 58. FOR ASSESSMENT YEAR 2006-07 VIDE ORDER DATED 31 .3.2010 THE TRIBUNAL HAS OBSERVED IN HIS ORDER AS UNDER :- FURTHER, THE LEARNED OFFICER HAS ALSO RELIED UPO N THE STATEMENT RECORDED IN THE CASE OF SHRI ANANT LUHADIA, GENERAL MANAGER (METER & PROJECT DIVISION) AND SHRI SURESH KUMAR GUPTA. IN CHARGE OF ACCOUNTS ON 5.09.2007. FROM THE STATEMENTS SO RECORDED, IT IS EVIDENT THAT THEY DULY CONFIRMED THE RENDERING OF SERVICES AND IN ANY CASE, SUCH STATEMENTS HAVE BEEN RECORDED WITHOUT GRANTING ANY OPPORTUNITY TO THE APPELLANT AND THEREFORE, EVEN OTHERWISE THE SAME CA NNOT BE RELIED UPON AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN TH E CASE OF KISHNICHAND CHELLARAN REPORTED IN 125 ITR 713 (SC) WHEREIN IT HAS BEEN HELD AS UNDER: MOREOVER, EVEN IF THE FINDINGS IN THE ORDER OF ASSESSMENT ARE SEEN, IT IS EVIDENT THAT NOTHING ADVERSE IS CONTAIN ED IN THE SAID STATEMENTS. INFACT, SHRI LUHADIA EXPLAINED THAT 80 % OF THE TENDERS ARE RECEIVED FROM COMMISSION AGENTS AND IN RESPONSE TO A QUERY MADE, HE CLAIMED THAT WE APPOINT THOSE AGENTS WHO H AD EXPERIENCE IN DEALING WITH STATE OR GOVERNMENT MINISTRY AND ST ATE ELECTRICITY BOARD AND ON THE BASIS OF HOW MUCH BUSINESS HAS BEE N GIVEN BY THEM EARLIER. IN VIEW THEREOF, EVEN THE STATEMENT PERSE CANNOT B E A 113 GROUND TO HOLD THAT COMMISSION SO PAID AND INCURRED IS NOT ELIGIBLE BUSINESS EXPENDITURE. 59. THE TRIBUNAL HAS FURTHER OBSERVED THAT IN OUR OPINION, ONCE THE ASSESSING OFFICER DID NOT CHOOSE TO SUMMON ANY OF NINE PARTIES IN THE COURSE OF ASSESSM ENT PROCEEDINGS BY ISSUE OF NOTICE UNDER SECTION 131 OF THE ACT, IT IS HIGHLY UNJUST FOR THE COMMISSION OF INCOME TAX (APPEALS) AND ASSESSING OF FICER TO HOLD THAT SERVICES HAVE NOT BEEN RENDERED BY THE AGENTS. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GENESIS COMNET (P ) LTD. REPORTED IN 163 TAXMAN 482 (DEL) HAS HELD THAT AN OFFICER IF HE WAS NOT INCLINED TO BELIEVE THE MATERIAL PLACED BY THE ASSESSEE, HE COU LD HAVE USED COERCIVE POWERS AVAILABLE TO HIM. EVEN THE SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF NAT HU RAM PREMCHAND VS. CIT U. P. REPORTED IN 49 ITR 561 (ALL), WHEREIN IT WAS HELD THAT IF THE OFFICER WAS OF THE OPINION THAT EVIDENCE OF THE PARTIES WAS NECESSARY THEN IT WAS FOR HIM TO HAVE ISSUED THE SUMMONS. IN LIGHT OF THE EVIDENCES PLACED ON RECORD WHICH REMAINED UNREBUTTE D, IT HAS TO BE HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DRA WING ADVERSE INFERENCE ON THE EVIDENCE FURNISHED WHICH INCLUDED THE CONFIR MATION FROM THE PARTIES OF RENDERING OF SERVICES. 60. THEREAFTER THE TRIBUNAL HAS GIVEN ITS FINDING I N THE FOLLOWING MANNER :- LASTLY, BEFORE CONCLUDING, WE MAY ADD HERE THAT TH E ENTIRE BASIS TO DISALLOW CLAIM OF DEDUCTION OF COMMISSION IS BASED ON AN ASSUMPTION THAT, SINCE TENDERS ARE RECEIVED FROM ST ATE ELECTRICITY BOARD/COMPANIES, THEREFORE THE SAME, IS NOT TENABLE . THIS IS ENTIRELY BASED ON MISCONCEPTION AS HAS BEEN CONSISTENTLY HEL D IN THE CASE OF THE APPELLANT IN PRECEDING ASSESSMENT YEARS FOLLOWING D ELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S ELECTRONIC CONSTRUCTION COMPANY VS. ITO WHEREIN IT HAS BEEN HELD AS UNDER: FURTHER, THERE IS ALSO NOT LIKELY TO BE ANY THINGS FROM THE RECORDS OF THE PUNJAB STATE ELECTRICITY BOARD TO SHOW THAT THE COMMISSION WAS PAID TO IMPEX COMMERCIAL CORPORATION LIMITED AND IT S SERVICES WERE UTILIZED IN SECURING THE ORDERS FOR THE ASSESSEE. THESE FINDINGS FOR OBVIOUS REASONS AS ALSO EVEN IN THE NORMAL COURSE A RE NOT LIKELY TO BE AVAILABLE FROM THE RECORD OF THE PURCHASER. NORMAL LY THE AGENTS OR THE MIDDLEMAN CARRY OUT THEIR ACTIVITIES PERSONALLY WIT HOUT ENTERING INTO ANY CORRESPONDENCE WITH THE PURCHASERS. IN ANY CASE, I N THE PRESENT CASE, IF THERE IS NOTHING ON RECORD OF PUNJAB STATE ELECTRIC ITY BOARD AN ADVERSE 114 INFERENCE CANNOT BE DRAWN AGAINST THE ASSESSEE WITH REFERENCE FOR EITHER THE PAYMENT OR THE EXISTENCE OF COMMISSION AGENT. IN FACT, RECENTLY, THIS VIEW REITERATED BY THE DELH I BENCH OF THE TRIBUNAL IN THE CASE OF M/S NESTOR PHARAMACEUTICALS ITANO. 2 535/DEL/2006 AND ORS. ORDER DATED 30.01.2009, COPY IS PLACED ON RECORD BY THE LEARNED A/R WHEN IT WAS HELD AS UNDER: 12. HERE WE FIND THAT THE AO HAS IN REGARD TO THE COMMISSION PAYMENT TO THE AGENTS WHO HAD ASSISTED THE ASSESSEE TO DEAL WITH THE GOVERNMENT THAT THERE WAS NO NECESSITY OF AN AGENT WHILE DEALING WITH THE GOVERNMENT. THOUGH, IT IS VERY MUCH TRUE THAT THE GOVERNMENT DOES NOT DEAL WITH THE MIDDLEMAN, IT DOES NOT MEAN THAT THERE IS NO ROLE FOR AN AGENT TO PLAY WHEN AN ASSESSEE IS DEALING WITH T HE GOVERNMENT. THE TRANSACTIONS AND THE DEALINGS WITH THE GOVERNMENT O BVIOUSLY CANNOT BE DONE THROUGH AN AGENT BUT THE AGENT CAN ASSIST AN A SSESSEE IN OBTAINING SUPPLY AND FACILITATING OF INFORMATION WHICH ARE RE QUIRED FOR THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE THAT THE AGENTS ASSISTED THE ASSESSEE IN THE PRE TENDER AND THE POSIT TENDER ACT IVITIES IS CLEARLY BORNE OUT OF THE EVIDENCES WHICH ARE PART OF THE SEIZED M ATERIAL. THIS BEING SO, IT CANNOT BE SAID THAT NO SERVICES HAVE BEEN EN TERED BY THE AGENTS TO THE ASSESSEE. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE OF TH E COMMISSION AS MADE BY THE AO. HIS IMPUGNED ORDERS ON THIS ISSUE FOR ALL THE SEVEN YEARS UNDER CONSIDERATION ARE, THEREFORE, UPHELD AN D THESE APPEALS OF THE REVENUE ARE DISMISSED. THE AFORESAID ORDER OF THE TRIBUNAL WAS UPHELD BY T HE HIGH COURT OF DELHI IN AN ORDER DATED 19.11.2009 BY HOLD ING AS UNDER, COPY IS PLACED ON RECORD BY THE LEARNED A/R. THE INCOME TAX APPELLATE TRIBUNAL (ITAT) HAS CONFI RMED THE AFORESAID FINDING OF FACTS IN APPEAL PREFERRED BY T HE REVENUE AGAINST THE DECISION OF THE CIT(A) ALLOWING THE EXPENDITURE CLA IMED BY THE ASSESSEE. THE ORDER OF THE INCOME TAX APPELLATE TR IBUNAL WOULD ALSO INDICATE THAT THE ASSESSING OFFICER HAD MAINLY NURT URED COMMISSION AS MADE BY THE AO. HIS IMPUGNED ORDERS ON THIS ISSUE FOR ALL THE SEVEN YEARS UNDER CONSIDERATION ARE, THEREFORE, UPHELD AN D THESE APPEALS OF THE REVENUE ARE DISMISSED. THE ITAT HAS ALSO DISCUSSED THE PROOFS FURNISHED BY THE ASSESSEE IN THE FORM OF DOCUMENTARY EVIDENCE IN RESPECT OF S ERVICES RENDERED ETC. FOR ARRIVING AT THE AFORESAID FINDING. ALL THESE A RE FINDINGS OF FACT AND NO QUESTION OF LAW ARISES FOR DETERMINATION IN THES E APPEALS. 115 IN LIGHT OF THE AFORESAID, WE ARE OF THE CONSIDERED OPINION THAT, COMMISSION PAID BY THE APPELLANT TO THE VARIOUS PAR TIES IS ELIGIBLE BUSINESS EXPENDITURE AND IS DIRECTED TO BE DELETED AS SUCH. IN THE RESULT, DISALLOWANCE MADE OF RS. 9,11,92,738/- IS DELETED A ND GROUNDS OF APPEAL NO. 1 TO 1.2 OF THE APPELLANT ARE ALLOWED. 61. WHILE DECIDING THE APPEALS IN ITA NOS. 536 AND 537/JP/2008 FOR ASSESSMENT YEARS 2003-04 AND 04-05 SIMILAR FINDINGS HAVE BEEN GIVEN BY THE TRIBUNAL. THEREFORE, IT CANNOT BE SAID THAT THERE IS A CHANGE IN FACTS OR S OME NEW FACTS HAVE BEEN BROUGHT ON RECORD. NEITHER THERE IS A CHANGE IN FACTS NOR ANY NEW FACTS HAVE BEEN BROUGHT BY THE AO OR BY LD. CIT (A). OUT OF 6 PARTIES, 5 PARTIES ARE OLD. THEREFORE, IT WAS WRONG ON THE PART OF LD. CIT (A) IN OBSERVING THAT NUMBERS OF PARTIES ARE NEW AND NEW FACTS HAVE BEEN BROUGHT ON RECORD BY THE AO AND, THEREFORE, HE IS N OT FOLLOWING THE ORDER OF THE TRIBUNAL. IN OUR VIEW, THE LD. CIT (A) WAS NOT JUSTIFIED IN N OT FOLLOWING THE ORDER OF THE TRIBUNAL WHICH IS BINDING IN NATURE, AS HELD BY HONBLE SUPR EME COURT IN CASE OF J.K. CHARITABLE TRUST, 308 ITR 161 (SC) AND IN CASE OF M/S. BERGER PAINTS, 266 ITR 99 (SC) AND IN VARIOUS OTHER CASES MENTIONED IN THE ORDER OF LD. C IT (A) AT PAGES 15 AND 16. RULE OF CONSISTENCY HAS TO BE FOLLOWED IF THERE IS NO CHANG E IN MATERIAL FACTS. 61.1. ONE OF THE ARGUMENTS OF THE DEPARTMENT IS THA T ASSESSEE DEALS WITH THE GOVERNMENT DEPARTMENTS AND GOVERNMENT DEPARTMENT DO ES NOT DEAL WITH THE THIRD PARTY AND, THEREFORE, THERE WAS NO REASON TO MAKE PAYMENT TO THE COMMISSION AGENTS. SIMILAR ISSUE CAME BEFORE THE VARIOUS BENCHES OF THE TRIBUN AL AT DELHI DECIDED IN ITA NO. 2535/DEL/06 DATED 30.1.2008 IN CASE OF NESTOR PHARM ACEUTICALS (P) LTD. THIS CASE HAS BEEN CONSIDERED BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2006-07. THIS ORDER OF DELHI BENCH OF THE TRIBUNAL HAS BEEN AFFIRMED BY HONBLE DELHI HIGH 116 COURT VIDE ITS ORDER DATED 19.11.2009. THIS ORDER OF HONBLE HIGH COURT WAS ALSO CONSIDERED BY THE TRIBUNAL WHILE DECIDING THE APPEA L FOR ASSESSMENT YEAR 2006-07. 61.2. ANOTHER DECISION OF DELHI BENCH I.E. IN CASE OF M/S. ELECTRIC CONSTRUCTION AND EQUIPMENT COMPANY LTD. WAS ALSO TAKEN INTO CONSIDER ATION BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2006-07. N OT ONLY ON SIMILAR BUT ON IDENTICAL FACTS, THE COMMISSION PAYMENT WAS DENIED BY THE AO. IN THE CASES BEFORE DELHI BENCHES OF THE TRIBUNAL, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. OPERATIVE PARA OF THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YE AR 2006-07 HAS BEEN REPRODUCED SOMEWHERE ABOVE IN THIS ORDER WHERE THESE CASES HAV E BEEN DISCUSSED. THEREFORE, WE ARE NOT IN HESITATION IN HOLDING THAT LD. CIT (A) WAS N OT JUSTIFIED IN NOT FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS. EVEN THE AO IN HIS ORDER HAS MENTIONED THAT HE IS MAKING ADDITION FOR THE REASON THAT ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AS APPEALS ARE PENDING B EFORE THE HONBLE RAJASTHAN HIGH COURT. 61.3. IT IS FURTHER SEEN THAT THE ASSESSEE HAS DEDU CTED TAX ON THE AMOUNT OF TAX AS PER PROVISIONS OF LAW. THE SERVICE TAX AND CESS ON SER VICE TAX HAS BEEN RECOVERED FROM THESE PARTIES AND NO DEDUCTION HAS BEEN CLAIMED BY THE AS SESSEE ON THIS AMOUNT. 61.4. IT IS ALSO SEEN THAT THERE ARE MANY GOVERNMEN T DEPARTMENTS WHICH ARE SPREAD OVER IN ALL OVER COUNTRY AND THESE PARTIES TO WHOM COMMI SSION HAS BEEN PAID HAVE APPROACHED THE GOVERNMENT DEPARTMENT ON BEHALF OF THE ASSESSEE FOR NECESSARY WORK TO BE DONE FOR THE ASSESSEE I.E. OBTAIN INFORMATION IN RESPECT TO ORDERS, THEN OBTAIN TENDER FORMS, SUBMIT THE TENDER FORMS, FULFILL THE ORDERS AS PER ORDER O BTAINED ON BEHALF OF THE ASSESSEE. ALL THE EVIDENCES IN RESPECT OF THESE HAVE BEEN PLACED ON R ECORD. IT IS ALSO NOT A CASE OF THE 117 DEPARTMENT THAT ASSESSEE HAS SIMULTANEOUSLY INCURRE D EXPENDITURE BY DEPUTING ITS OWN STAFF FOR OBTAINING INFORMATION IN RESPECT TO ORDER S OR TO SUBMIT TENDER FORMS AND OBTAIN ORDERS AND THEN SUPPLY THE MATERIAL. ALL THESE WOR KS HAVE BEEN DONE BY THESE RESPECTIVE COMMISSION AGENTS TO WHOM THE COMMISSION HAS BEEN P AID. 61.5. IT IS ALSO A MATTER OF FACT THAT A SURVEY OPE RATION UNDER SECTION 133A WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 5.9.20 07 AND ADMITTEDLY DURING THE COURSE OF SURVEY CLINCHING EVIDENCES IN THE FORM OF COMMISSIO N AGREEMENT, INVOICES, CONTRACT DETAILS OF COMMISSION AGENTS AND PURCHASE ORDERS ET C. WERE FOUND TO ESTABLISH BEYOND DOUBT THAT THE CLAIM OF DEDUCTION OF THE ASSESSEE W AS GENUINE BEING INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSEE. BESIDES DOCUME NTARY EVIDENCE, ORAL EVIDENCE IN THE FORM OF STATEMENT RECORDED OF SHRI R.K. AGARWAL, DI RECTOR OF THE ASSESSEE COMPANY, OF SHRI S.K.GUPTA, GENERAL MANAGER (FINANCE) AND OF SH RI ANANT LUHADIA, GENERAL MANAGER (MARKETING) AND THESE OFFICIALS OF THE COMP ANY HAVE CATEGORICALLY ADMITTED IN HAVING ENGAGED THE COMMISSION AGENTS. THEREFORE, I T IS NOT A CASE THAT ASSESSEE HAS CLAIMED BOGUS EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENT. 61.6. IT IS ALSO SEEN THAT COMMISSION AGENTS WHO AR E ENGAGED BY ASSESSEE WERE NOT DOING THE BUSINESS OF COMMISSION FOR ASSESSEE ALONE AS THEY ARE DOING THE COMMISSION AGENCY WORK FOR OTHER PARTIES ALSO. A CHART OF COM MISSION PAYMENT BY ASSESSEE AND COMMISSION EARNED BY THESE PARTIES FROM OTHER PARTI ES IS ALSO TABULATED SOMEWHERE ABOVE IN THIS ORDER AND IT IS SEEN THAT PERCENTAGE OF COM MISSION EARNED BY THESE PARTIES IS MUCH LESS THAN AS COMPARED TO PERCENTAGE OF COMMISSION E ARNED FROM OTHER PARTIES. THEREFORE, IT IS ALSO NOT A CASE THAT THESE PARTIES ARE NAME L ENDER AND HAVE NO EXPERIENCE OF WORK 118 ASSIGNED TO THEM. VARIOUS SERVICES RENDERED BY TH EM HAVE ALSO EXPLAINED IN THE WRITTEN SUBMISSIONS WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. 61.7. IT IS FURTHER SEEN THAT ONE OF THE REASONS WA S THAT ONE SHRI S.K. GUPTA, CHARTERED ACCOUNTANT ON WHOSE PREMISES SURVEY WAS CONDUCTED A T DELHI AND IN ONE OF THE BILLS, THE NAME OF ASSESSEE WAS APPEARING. SHRI S.K. GUPTA HA S STATED THAT HE WAS INDULGING IN ISSUING BOGUS BILLS. ASSESSEE HAS NOT PAID ANY COM MISSION THROUGH SHRI S.K. GUPTA NOR HE WAS RELATED TO THE VARIOUS CONCERNS TO WHOM THE ASSESSEE HAS PAID COMMISSION. 61.8. EVEN THE ASSESSEE HAS OBTAINED LIST OF DIRECT ORS OF THOSE COMPANIES AND NOWHERE NAME OF SHRI S.K. GUPTA IS APPEARING. DETAILS OF T HESE COMPANIES SHOWING LIST OF DIRECTORS ARE GIVEN IN THE WRITTEN SUBMISSIONS, WHI CH ARE REPRODUCED IN THE ORDER OF LD. CIT (A) AT PAGE 18. THIS CHART HAS ALSO BEEN REPRO DUCED IN THIS ORDER SOMEWHERE ABOVE. FROM THESE FACTS ALSO, IT CANNOT BE SAID THAT SHRI S.K. GUPTA WAS INVOLVED IN HELPING THE ASSESSEE TO OBTAIN THE BILLS FROM THE CONCERNED PAR TIES. 61.9. EVEN ASSESSEE HAS FILED THE DETAILS OF ALL TH E PARTIES I.E. AGREEMENT, BILLS, CONTRACT DETAILS, PURCHASE ORDER DETAILS AND THE ASSESSING O FFICER HAS NOT FOUND THESE DETAILS INCORRECT OR WRONG. 61.10. IN CASE OF M/S. ADHUNIK CORPORATION LTD. TO WHOM THE COMMISSION OF RS. 20 CRORE OR ODD HAS BEEN PAID, THE ASSESSEE HAS FILED COPIES OF PROFIT & LOSS ACCOUNT ALONG WITH BALANCE SHEET OF THIS PARTY, COPY OF INCOME-TA X RETURN AND COPY OF AIR TICKET RESERVATION. ALL THESE DETAILS ARE PLACED IN THE PA PER BOOK AT PAGES 420 TO 440. SIMILARLY, IN CASE OF M/S. R.S. ISPAT PVT. LTD. SIMILAR DETAIL S ARE PLACED IN THE PAPER BOOK PAGES 441 TO 468. IN OTHER CASES ALSO I.E. M/S. SHYAM SEL LT D., M/S. CRESENT BAKES PVT. LTD., M/S. C.P. REROLLERS LTD. AND NAIYADIH HI-TECH PVT. LTD. DETAILS ARE FILED AND COPIES OF SIMILAR 119 DETAILS ARE PLACED IN PAPER BOOK AT PAGES 467 TO 51 8. ALL THESE PARTIES ARE ASSESSEED TO TAX AND THEY HAVE PAID TAX ON THE AMOUNT OF COMMISS ION PAID BY ASSESSEE, THEIR COPIES OF RETURNS ARE ALSO PLACED ON RECORD AND WE HAVE FOUND THAT ALL THE ASSESSEE ARE TAX PAYERS OF HIGHEST BRACKET AND THEY HAVE PAID ACCORDINGLY. TH EREFORE, THIS IS NOT A CASE OF TAX AVOIDANCE ALSO. IT IS FURTHER SEEN THAT M/S. ADHUNI K CORPORATION LTD., THE ASSESSEE WAS REQUESTED THAT THE CONCERNED AO MAY BE INFORMED TO CALL THEM BY ISSUING NOTICE UNDER SECTION 131, IF HE DESIRES SO. HOWEVER, IT IS SEEN THAT THE AO HAS NOT CALLED THIS PARTY BY ISSUING NOTICE UNDER SECTION 131. NO ENQUIRY WAS MADE FROM ALL THE PARTIES TO WHOM COMMISSION PAYMENT HAS BEEN MADE AS ARGUMENT WAS MA DE FROM ONE PARTY ONLY WHO HAS CONFIRMED IN RENDERING SERVICES TO THE ASSESSEE. WI THOUT MAKING ANY ENQUIRY OR WITHOUT BRINGING ANY MATERIAL, ANY ADVERSE INFERENC E DRAWN AGAINST ASSESSEE, IN OUR CONSIDERED VIEW WAS NOT JUSTIFIED AT ALL AND, THERE FORE, LD. CIT (A) WAS NOT JUSTIFIED IN NOT ACCEPTING THE EXPLANATION OF THE ASSESSEE AND N OT FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS. 61.11. VARIOUS CASES HAVE BEEN RELIED UPON ON BEHAL F OF THE ASSESSEE THROUGH WRITTEN SUBMISSIONS AND SOME OF THE DECISIONS WE FIND THAT THEY ARE IN SUPPORT OF THE CASE OF THE ASSESSEE WHEREIN IT IS CLEARLY HELD THAT IF THERE I S NO CHANGE IN MATERIAL FACTS, THEN THE PAST HISTORY OF THE CASE HAS TO BE TAKEN INTO CONSIDERAT ION. THIS IS AN ADMITTED FACT THAT IF THERE IS NO CHANGE IN MATERIAL FACTS, THEN PAST HISTORY C ANNOT BE BRUSHED ASIDE WITHOUT BRINGING ANY MATERIAL OR WITHOUT ASSIGNING ANY COGENT REASON S. THE DETAILED WRITTEN SUBMISSIONS FILED WHICH HAS BEEN TABULATED IN THIS ORDER REMAIN ED UNCONTROVERTED. SIMILAR WRITTEN SUBMISSIONS WERE FILED BEFORE LD. CIT (A) ALSO, WHI CH HAS BEEN TABULATED IN HIS ORDER AT PAGES 13 TO 32. THE LD. CIT (A) HAS NOT COMMENTED IN RESPECT TO EXPLANATION THAT WHY 120 THE SAME IS NOT ACCEPTABLE. WITHOUT CONSIDERING TH E EXPLANATION DRAWING ANY ADVERSE VIEW CANNOT BE SUSTAINED. THEREFORE, TAKING INTO CONSIDERATION THE WRITTEN SUBMISSIONS AND TAKING INTO CONSIDERATION OUR DISCUSSIONS ABOVE , WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED FOR DEDUCTION CLAIMED ON ACCOUNT OF COMMIS SION PAID TO VARIOUS PARTIES. AS STATED ABOVE, SIMILAR ISSUE WAS DECIDED EARLIER BY THE TRIBUNAL, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL ALSO, WE HELD THAT COMMISSION PAYMENT FOR THE YEAR UNDER CONSIDERATION IS ALLOWABLE. ACCORDINGLY THIS GROUN D OF THE ASSESSEE IS ALLOWED. 62. NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS AGA INST CONFIRMING THE REDUCTION OF DEDUCTION CLAIMED UNDER SECTION 80-IC FROM RS. 4,12 ,06,689/- TO RS. 3,57,05,468/- BY MAKING FOLLOWING ADJUSTMENTS MADE TO THE PROFITS OF THE ELIGIBLE UNDERTAKING AT HARIDWAR :- S.NO. PARTICULARS AMOUNT 1. PURCHASES FROM JAIPUR UNIT 11,29,786/- 2. SALE PRICE TO JAIPUR UNIT 9,46,351/- 3. ALLEGED COMMON EXPENSES 31,76,280/- 4. INTEREST INCOME 2,48,804/- TOTAL : 55,01,221/- 63. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN PARA 11.1 AT PAGE 58 ONWARDS. THE BRIEF FACTS HAS BEEN DISCUSSED AT PAGES 58 AND 59 IN THE ORDER OF LD. CIT (A) IN THE FOLLOWING MANNER :- 10. DEDUCTION CLAIMED U/S 80IC OF THE INCOME TAX A CT, 1961: THE ASSESSEE HAS SET UP A NEW PLANT AT HARIDWAR, UT TARANCHAL WHICH COMMENCED PRODUCTION ON 1.4.2006. THE TURNOVE R WAS RS. 35,32,21,146/- ON WHICH PROFIT OF RS. 4,12,06,689/- WAS SHOWN, FOR WHICH DEDUCTION ULS 80LE OF THE INCOME TAX ACT HAS BEEN C LAIMED. THE DEDUCTION HAS BEEN CLAIMED FOR THE FIRST TIME. 121 DURING THE COURSE OF THE ASSESSMENT PROCEEDING, THE AR OF THE ASSESSEE WAS ASKED TO GIVEN DETAILS OF MACHINERY IN STALLED IN THE PLANT, DETAILS OF TRANSFER OF STOCK/MACHINERY/FINISHED PRO DUCTS FROM, OR, TO THE OTHER FACTORIES OF THE ASSESSEE, AND AMOUNT OF COMM ON EXPENSES OF THE COMPANY ALLOCATED FOR HARIDWAR PLANT AND BASIS THER EOF. FROM THE REPLIES FILED, IT IS SEEN THAT OUT OF THE COMMON EXPENSES, AN AMOUNT OF RS. 21,49,655/- HAS BEEN ALLOCATED TO THE HARIDWAR PLA NT. THE DETAILS OF THE STOCK TRANSFER SHOWED THAT GOODS AMOUNTING TO RS. 22,23,66,332/- HAS BEEN TRANSFERRED FROM THE MAIN PLANT AT JAIPUR TO HARIDWAR PLANT. IT IS PERTINENT TO NOTE THAT THE TOTAL RAW MATERIAL PU RCHASE OF HARIDWAR PLANT WAS SHOWN AT RS. 38,90,32,044/-. SIMILARLY, SALES MADE BY HARIDWAR PLANT TO JAIPUR PLANT AMOUNTED TO RS. 2,47,09,791/-. THE SALES INCLUDED A VERY SMALL AMOUNT OF SALE OF RAW M ATERIAL AS WELL. THE ASSESSEE HAS FURNISHED THE DETAILS OF THE STOCK TRANSFERRED AND THE REASON THEREOF. IT WAS CLAIMED THAT GOODS WERE PURCHASED IN BLOCK TO AVAIL MAXIMUM QUALITY AND RATE DISCOUNT. SUBSEQUENT LY, THE RAW MATERIAL PERTAINING TO HARIDWAR PLANT HAS BEEN SENT IN SMALL ER PACKETS AND DIFFERENT TRANSPORT TO SAVE ON FREIGHT AND RATE DIS COUNT. IT WAS STATED THAT RAW GOODS TO THE TUNE OF RS. 18,45,19,489/-(NET) HAD BEEN TRANSFERRED TO HARIDWAR PLANT. IT WAS ALSO SHOWN THAT SEMI RAW GOO DS OF RS. 1,31 ,37,052/-(NET) WAS ALSO TRANSFERRED TO HARIDWAR UNI T AT NET REALICABLE VALUE I.E. COST OF MATERIAL AND FIXED LABOUR AND OT HER EXPENSES. IT IS PERTINENT TO NOTE THAT AS PER PROVISIONS OF S ECTION 80IC(7) OF INCOME TAX ACT, 1961, READ WITH SECTION 80-IA(8), T HE INTER UNIT TRANSFER OF GOODS OR SERVICES HAS TO BE EXAMINED ON THE BASI S OF THE MARKET VALUE OF SUCH GOODS OR SERVICES. AS PER SECTION 80IA(8), IF ANY GOODS OR SERVICES HE LD FOR THE PURPOSE OF ANY OTHER BUSINESS CARRIED ON BY THE ASS ESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS, AND IF SUCH TRANSFER AS RECO RDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MA RKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER, THEN FOR THE PURPOSE OF THIS SECTION, THE PROFIT & GAINS OF SUCH ELIGIBLE BUSINE SS SHALL BE COMPUTED AS IF THE TRANSFER HAS BEEN MADE AT THE MARKET VALUE OF S UCH GOODS OR SERVICES AS ON THAT DATE. THIS SECTION ALSO EMPOWERS THE ASSESSING OFFICER TO COMPUTE THE PROFIT ON A REASONABLE BASIS, IN CASE THERE IS EXCE PTIONAL DIFFICULTY IN THE COMPUTATION OF THE PROFIT OF THE ELIGIBLE BUSINESS. 122 AS THE ASSESSEE HAS UNDERTAKEN TRANSFER TO GOODS BE TWEEN THE NORMAL UNIT AND THE ELIGIBLE UNIT, AND HAS ALSO UND ERTAKEN SOME COMMON EXPENSES AT THE HEAD OFFICE FOR THE HARIDWAR UNIT, THE MARKET VALUE OF THESE HAVE TO BE CONSIDERED FOR DETERMINATION OF THE PROF IT OF THE ELIGIBLE BUSINESS FOR CLAIM OF DEDUCTION U/S 801E. (1) THE PROFIT BEFORE TAX OF HARIDWAR UNIT AS PER BOOKS IS RS. 6,36,84,969/- ON A TOTAL TURNOVER OF RS. 35,32,21,143/-. AT THE SAME TIME, THE PROFIT BEFORE TAX OF THE ENTIRE COMPANY IS RS. 33,07,35,878/- ON TOTAL TURNOVER OF RS. 384.67 CRORE. THUS, THE PROFIT OF HARIDWAR UNIT HA S BEEN SHOWN AT 18.02% AS AGAINST, 8.6% OF THE ASSESSEE AS A WHOLE. (2) MOST OF THE STOCK TRANSFERRED TO THE HARIDWAR UNIT HAS BEEN SHOWN TO BE AT COST. FURTHER, THE SEMI-RAW GOODS OF RS. 1 ,31,37,052/- HAS BEEN SHOWN TO HAVE BEEN TRANSFERRED BY ADDING COST OF MA TERIAL AND FIXED PERCENTAGE OF OVERHEAD LIKE LABOUR AND OTHER EXPENS ES. THESE SEMI-FINISHED GOODS SHOULD HAVE A COMPONENT TOWARDS PROFIT AS WELL, WHICH HAS NOT BEEN TAKEN INTO ACCOUNT BY THE ASSESS EE. IF THE NET PROFIT OF 8.6% IS CONSIDERED THEN THIS SALE OF SEMI-FINISHED GOODS WOULD HAVE REALIZED RS. 11,29,786/- MORE FORM THE HARIDWAR UNIT. (3) HARIDWAR UNIT HAS SOLD GOODS FOR RS. 2,47,09,791/- TO JAIPUR UNIT. AS HAS BEEN DISCUSSED EARLIER, THE PROFIT RATE OF H ARIDWAR UNIT IS MUCH HIGHER THAN (18.02%) AS COMPARED TO THE ENTIRE BUSINESS (8 .6%). IT IS EXPECTED THAT HARIDWAR UNITS PROFIT WOULD BE REASONABLY AT 13.5% BY TAKING THE GOODS SOLD TO JAIPUR UNIT AT 18.02% PROFIT, THE SALE VALUE AT 13.5% PROFIT WOULD BE RS. 2,37,63,440/- I.E. RS. 9,46,351/- LESS. (4) COMMON EXPENSES OF RS. 21,49,655/- ONLY HAVE BEEN ALLOCATED TO HARIDWAR UNIT. IT MAY BE SEEN THAT THE COMPANY AS A WHOLE HAS SPENT RS. 38.86. CRORE ON ADMINISTRATION, MARKETING AND MISC. EXPENSES. EVEN AFTER EXCLUSION OF COMMISSION AND DISCOUNT OF RS. 28.42 CRORE, THE EXPENSE IS 10.44 CRORE. THE TURNOVER OF HARIDWAR FACTORY IS AR OUND 9.18% OF THE TOTAL SALES OF THE COMPANY. HENCE, 9.18% OF THE LEGAL & P ROFESSIONAL EXPENSES (1.23CRORE), ADVERTISEMENT AND PUBLICITY (1.16 CROR E) OTHER EXPENSES (1.07 CRORE) I.E. RS. 31,76,280/- IS CONSIDERED FOR ALLOCATION TO HARIDW AR UNIT AS WELL. (5) THE PROFIT OF HARIDWAR PLANT INCLUDED RS. 2,48,804/- INTEREST INCOME, WHICH IS NOT DERIVED BY THE INDUSTRIAL UNDE RTAKING FROM THE MANUFACTURING ACTIVITY AND IS NOT ELIGIBLE FOR DEDU CTION U/S 80LE OF THE INCOME TAX ACT. 123 WITH THIS DISCUSSION, THE ELIGIBLE PROFIT FROM HARI DWAR PLANT IS RECALCULATED AS PER FOLLOWING:- PROFIT SHOWN AS PER AUDIT REPORT : RS. 4.12.06.6 89/- 1. PURCHASE FROM JAIPUR UNIT RS. 11,29,786/- 2. SALE TO JAIPUR UNIT RS. 9,46,351/- 3. COMMON EXPENSES ALLOCATED NOW RS. 31,76,280/- 4. INTEREST INCOME RS 2.48,804/- . RS. 55,01,221/- DEDUCTION U/S 80IC ALLOWED RS. 3,57,05,468/- 65. DETAILED SUBMISSIONS WERE FILED BEFORE LD. CIT (A) WHICH HAS BEEN TABULATED AT PAGES 60 TO 66 OF HIS ORDER. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) WAS IN AGREEMENT WITH THE FINDING OF THE AO. ACCORDINGLY HE CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER :- 11.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. HOWEVER, ON PERUSAL OF THE R ELEVANT DETAILS / DOCUMENTS ON RECORD AND ALSO AFTER GOING THROUGH TH E RELEVANT PROVISIONS OF THE INCOME TAX ACT, I FIND THAT THE LD. AO HAS B EEN QUITE LOGICAL AND REASONABLE IN HIS RELEVANT ESTIMATIONS (AS NOTED IN THE ASSESSMENT ORDER, THE RELEVANT PART OF WHICH HAS BEEN REPRODUCED IN P ARA 11.1 ABOVE), AND IN RESTRICTING THE DEDUCTION AT RS. 3,57,05,468/-, AGAINST THE CLAIMED DEDUCTION OF RS. 4,12,06,689/- U/S 80IC OF THE I.T. ACT. THEREFORE, THE SAID ACTION OF THE LD. AO IS CONFIRMED AND CONSEQUENTLY, THIS GROUND OF APPEAL IS REJECTED. 66. THE LD. A/R INVITED THE ATTENTION OF THE BENCH ON THE WRITTEN SUBMISSIONS AT PAGES 42 TO 50 WHICH ARE AS UNDER :- 124 IN THIS REGARD, AT THE OUTSET, IT IS HUMBLY SUBMITT ED THAT THE ORDER OF LD. CIT(A) SUFFERS FROM NON-APPLICATION OF MIND AS HE MERELY CONFIRMED THE ORDER OF LD. AO WITHOUT EVEN APPRECIA TING THE SUBMISSIONS MADE AND EVIDENCE ADDCED BY THE APPELLANT COMPANY. IT IS FURTHER SUBMITTED THAT, THE APPELLANT COMPANY UNDISPUTEDLY HAS AN UNDERTAKING AT HARIDWAR, UTTARANCHAL WHOSE P ROFITS ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. IT IS SUB MITTED THAT, DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT DECLARED PR OFITS FROM AFORESAID UNDERTAKING AT RS. 4,12,06,689/-. HOWEVER, THE LD. AO HAS HELD THAT, T HE ENTIRE AMOUNT OF PROFITS AS DECLARED BY THE APPELLA NT FROM THE ELIGIBLE UNIT ARE NOT ELIGIBLE TO DEDUCTION UNDER SECTION 80-IC O F THE ACT AND, THE SAID PROFITS WARRANTS REDUCTION ON VARIOUS ACCOUNTS AS S UBMITTED ABOVE. IT IS SUBMITTED THAT, FIRST ADJUSTMENT/DEDUCTION MA DE BY THE LD. AO AND CONFIRMED BY LD. CIT(A) IS REGARDING DEDUCTI ON OF RS. 11,29,786/- FROM THE EXEMPTED PROFITS OF THE HARIDW AR UNIT WHICH IS AN ELIGIBLE UNIT U/S 80-IC OF THE ACT. AS ALLEGED BY L D. AO, THIS IS THE AMOUNT BY WHICH PURCHASE PRICE OF HARIDWAR UNIT WAS LOWER THAN THE MARKET VALUE FOR THE PURPOSE OF PURCHASES OF SEMI-F INISHED GOODS FROM JAIPUR UNIT, WHICH IS A NON-ELIGIBLE UNIT OF THE AP PELLANT COMPANY. THE BASIS ADOPTED BY THE LD. AO TO MAKE THE ADJUSTM ENT IS THAT, MOST OF THE STOCK TRANSFERRED TO THE HARIDWAR UNIT BY THE JAIPUR UNIT HAVE BEEN SHOWN TO BE AT COST AND, FURTHER, THE SEMI-FIN ISHED GOODS OF RS. 1,31,37,052/- HAVE BEEN SHOWN TO HAVE BEEN TRANSFER RED BY ADDING COST OF MATERIAL AND FIXED PERCENTAGE OF OVERHEAD LIKE LABO UR AND OTHER EXPENSES. HE HAS OBSERVED THAT, THE APPELLANT COMPANY ON AN O VERALL BASIS, IS MAKING A PROFIT OF 8.6% OF THE TOTAL TURNOVER SINCE TURNOVER OF THE ASSESSEE COMPANY IS RS. 384.67 CRORE; WHEREAS THE PROFIT OF THE ASSESSEE 125 COMPANY IS RS. 33.07 CRORES. IN VIEW THEREOF, HE PROCEEDED TO HOL D THAT, PROFIT ON THE SALE OF SEMI FINISHED GOODS TO HARIDW AR UNIT SHOULD HAVE BEEN OF 8.6% AND THEREFORE, HAS HELD THAT THERE SHO ULD BE ADJUSTMENT OF RS.11,29,786/- I.E. 8.6% OF RS. 1,31,37,052/-. IT IS SUBMITTED THAT, THIS ADJUSTMENT IS BASED ON M ISINTERPRETATION OF PROVISIONS CONTAINED IN SECTION 80-IC READ WITH SECTION 80-IA(8) OF THE ACT. SECTION 80-IA(8) OF THE ACT PROVIDE AS UNDER: WHERE ANY GOODS HELD FOR THE PURPOSES OF THE ELIGI BLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS HELD FOR THE PURPOSES OF ANY OTHER BUSINE SS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS A ND IN EITHER CASE, THE CONSIDERATION IF ANY FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS AS ON THE DATE OF THE TRANSFER, THEN FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBL E BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER IN EITHER CASE HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS AS ON THAT DATE PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSIN G OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICU LTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION.-FOR THE PURPOSES OF THIS SUB-SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRI CE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. 126 IT IS SUBMITTED THAT AFORESAID PROVISIONS, AS CONTA INED IN SUB- SECTION (8) OF SECTION 80IA OF THE ACT, THUS PROVID E THAT, (A) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSE OF ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARR IED ON BY THE ASSESSEE; OR (B) WHERE GOODS OR SERVICES HELD FOR THE PURPOSES OF AN Y OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO ELIGIBLE BUSINESS AND IN EITHER CASE, THE CONSIDERATION IF A NY FOR SUCH TRANSFERRED GOODS AS RECORDED IN THE ACCOUNTS OF TH E ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER, THEN FOR THE PURPOSES OF THE DEDUCTION UNDER SECTION 80IA OF THE ACT, THE PROFITS OF SUCH BUSINESS SHALL BE COMPUTED AS IF TH E TRANSFER, IN EITHER CASE HAD BEEN MADE AT THE MARKET VALUE OF SU CH GOODS OR SERVICES ON THAT DATE. THE AFORESAID SECTION FURTH ER PROVIDES THAT, WHERE IN THE OPINION OF THE ASSESSING OFFICER , THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREIN BEFORE SPECIFIED PRESENTS EXCEPTI ONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUC H PROFITS AND GAINS ON REASONABLE BASIS AS HE MAY DEEM FIT. THE EXPLANATION BELOW THE AFORESAID SUB-SECTION FURTHER PROVIDES THAT FOR THE PURPOSES OF SUB SECTION, MARKET VALUE MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET . AT THE OUTSET, IT IS SUBMITTED THAT, SUB-SECTION (8 ) OF SECTION 80IA OF THE ACT IS APPLICABLE ONLY WHEN THE GOODS TRANSF ERRED ARE MARKETABLE OR WHEN THE MARKET VALUE OF SUCH GOODS CAN BE ASCERTAI NED. IN A CASE, WHERE THE GOODS TRANSFERRED ARE NOT MARKETABLE ONLY AND T HEIR MARKET VALUE CANNOT BE ASCERTAINED, THEN IN SUCH A CASE, THE SUB -SECTION (8) OF SECTION 127 80-IA OF THE ACT CANNOT BE APPLIED AT ALL. IN THIS REGARD, THE EXPLANATION TO SUB-SECTION (8) CLARIFIES THAT THE MARKET VALUE MEA NS THE PRICE THAT SUCH GOODS WOULD ORFINARILY FETCH IN THE OPEN MARKET. IN THE PRESENT CASE OF THE APPELLANT COMPANY, THE G OODS TRANSFERRED FROM JAIPUR UNIT TO HARIDWAR UNIT WERE SEMI-FINISHE D/SEMI-RAW GOODS/STOCK WHICH WERE PURCHASED BY THE JAIPUR UNIT AT ONCE AND LATER TRANSFERRED TO THE HARIDWAR UNIT FOR FURTHER PROCES SING AND SALE IN THE MARKET. AT THE STAGE, WHEN THESE WERE TRANSFERRED F ROM JAIPUR UNIT TO HARIDWAR UNIT, THEY WERE NOT MARKETABLE AS THEY WER E SEMI-FINISHED GOODS AND WERE MERELY RAW MATERIALS/W.I.P. FOR THE HARIDW AR UNIT. THEREFORE, IN SUCH A CASE, THE ISSUE OF ASCERTAINING THE MARKET V ALUE OF SUCH GOODS OR THE ISSUE OF THEIR TRANSFER AFTER ADDING VALUE OF P ERCENTAGE OF PROFITS TO THE ACTUAL COST ON WHICH SUCH GOODS WERE TRANSFERRED CA NNOT ARISE AS THEY WERE NON-MARKETABLE AND HENCE, THE SUB-SECTION (8) OF SECTION 80-IA OF THE ACT IS NOT APPLICABLE IN THIS CASE. CONSEQUENTL Y, THE ALLEGATION OF LD. AO THAT THE GOODS WERE NOT TRANSFERRED AT MARKET VA LUE FALLS. TO SUM UP, IT IS SUBMITTED THAT, SEMI-FINISHED GOOD S TRANSFERRED FROM JAIPUR UNIT TO THE HARIDWAR UNIT DID NOT CONST ITUTE GOODS UNDER THE PROVISION OF SUB-SECTION (8) OF SECTION 80-IA OF TH E ACT SINCE SUCH SEMI- FINISHED GOODS ARE NOT MARKETABLE. RELIANCE IN THIS CONTEXT IS ALSO PLACED ON THE DECISION OF THE DELHI BENCH OF INCOME TAX AP PELLATE TRIBUNAL IN THE CASE OF NTPC LTD. V. ADDL. CIT REPORTED IN (200 4) 91 ITD 101 (DEL). ALSO, WITHOUT PREJUDICE TO THE ABOVE, IT IS HUMBLY SUBMITTED THAT NO BASIS HAS BEEN STATED BY THE LD. AO TO ESTABLISH THAT, THE CONSIDERATION AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINES S I.E. HARIDWAR UNIT DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS AS ON THE DATE OF THE TRANSFER PRICE. IT IS SUBMITTED THAT APPELLANT COMP ANY ON AN OVERALL BASIS HAS MADE A PROFIT OF 8.6% CANNOT BE CONSIDERED TO B E A VALID BASIS TO 128 EITHER ALLEGE OR EVEN CONCLUDE THAT, TRANSFER WAS N OT MADE BY THE APPELLANT COMPANY AT MARKET VALUE OF SUCH GOODS. THE BURDEN T HAT, TRANSFER AT COST WAS NOT AT THE MARKET VALUE OF GOODS ON THE DATE OF TRANSFER PRICE WAS ON THE LEARNED AO, WHICH HAS NOT BEEN DISCHARGED. IT I S SUBMITTED THAT IN ABSENCE OF ANY BASIS WHATSOEVER TO SUPPORT PROFIT O F 8.6% PERCENTAGE REPRESENTS MARKET VALUE OF GOODS ON THE DATE OF TRA NSFER, THE ADJUSTMENT MADE IS NOT TENABLE. THE APPELLANT FURTHER SEEKS TO RELY UPON THE DECISION OF THE HONBLE TRIBUNAL IN THE CASE OF MITTAL METAL V. ITO REPORTED IN (2008) 21 SOT 186 (DEL), WHEREIN IT HAS BEEN HELD A S UNDER: UNDER THE GENERAL LAW, TRANSACTIONS EVEN WITH THE RELATIVES AND ASSOCIATE CONCERNS CANNOT BE DISCARDED. THE ONUS I S ON THE DEPARTMENT TO PROVE THAT THE TRANSACTION WAS SHAM OR NOT BONAFIDE OR THE VALUE SHOW IN THE BOOKS WAS NOT THE VALUE REALLY PAID. THE ASSES SING OFFICER MUST ESTABLISH THAT THE PAYMENT IS EXCESSIVE OR UNREASON ABLE. HE CANNOT PROCEED MERELY ON THE BASIS OF SURMISES AND CONJECT URES. HE HAS TO PLACE ON RECORD EVIDENCE AS REGARDS EXCESSIVENESS OR UNRE ASONABLENESS. IN THIS REGARD, THE PROVISION OF SECTION 40A(2) OF THE ACT MAY ALSO BE REFERRED TO WHICH IS IN RELATION TO DISALLOWANCE OF EXCESSIVE OR UNREASONABLE PAYMENTS MADE IN RELATION TO EXPENDITU RE ON THE PURCHASE OF ANY GOODS, AVAILMENT OF ANY SERVICE OR FACILITY AND WHICH IN THE OPINION OF THE ASSESSING OFFICER IS EXCESSIVE/UNREASONABLE. IN SUCH A CASE ALSO, THE ASSESSING OFFICER WOULD DETERMINE THE UNREASONABLEN ESS/EXCESSIVENESS OF THE PAYMENT HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH GOODS, SERVICES OR FACILITIES. IN SUCH CASES, WHERE THE GOODS ARE N OT MARKETABLE, THEIR FAIR MARKET VALUE CANNOT BE DETERMINED AND THEREFORE IN SUCH CASES, SECTION 40A(2) IS ALSO NOT APPLICABLE. FOR THE ABOVE SECTIO NS TO APPLY, THE GOODS HAVE TO BE MARKETABLE AND THEIR MARKET VALUE SHOULD BE ASCERTAINABLE. 129 RELIANCE IS ALSO PLACED ON THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT V. COMPUTER GRAPHICS LTD. REPORTED IN (2006) 285 ITR 84 (MAD) AT PAGE 90, WHEREIN IT HAS BEEN HELD AS UNDER : THE REASONABLENESS OF THE EXPENDITURE FOR THE PURP OSE OF BUSINESS HAD TO BE ADJUDGED FROM THE VIEW POINT OF A BUSINES SMAN AND NOT THAT OF THE REVENUE, EVEN WHILE INVOKING SECTION 40A(2). T HE TRIBUNAL HAD GIVEN A FINDING THAT THE EXPENDITURE INCURRED WAS R EASONABLE EXPENSES TOWARDS ITS SOLE SELLING AGENCY HAVING ITS OWN WORK ING FORCE AND ALSO OUTLETS AS AGENTS THROUGHOUT INDIA, WHICH HAD UNDOU BTEDLY RESULTED IN THE ASSESSEES GAINING BUSINESS AND ON A CONSIDERATION OF ALL THE FACTS IT WAS HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OF FICER WAS UNJUSTIFIED. ALSO, THERE WAS NO PROOF OF EXCESSIVE UNREASONABLE PAYMENT AND HENCE, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40A(2) OF THE ACT. THE APPELLANT ALSO PLACES RELIANCE ON THE JUDGEMENT OF KARNATAKA HIGH COURT IN THE CASE OF DCIT V. MICROTEX SEPARATO RS LTD. REPORTED IN (2007) 160 TAXMAN 244 (KAR), WHEREIN IT HAS BEEN HE LD THAT UNLESS THERE IS NO INTENTION TO EVADE TAX AND SUBJECT EXPENSE IS NOT SHOCKING, NO DISALLOWANCE U/S 40A(2)(B) IS ATTRACTED. RELIANCE I S ALSO PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: A) VARINDER AGRO CHEMICALS LTD. V. ASSTT. CIT (2002) 1 20 TAXMAN 150 (CHD.) IN THE ABSENCE OF ANY STATUTORY PROVISION THE ASSES SING OFFICER CANNOT TAX ANY NOTIONAL INCOME ON ACCOUNT OF CHARGING OF LESSE R PRICE FROM SISTER- CONCERN. B) MARWAN & CO. V. ASSTT. CIT (1993) 46 ITD 42 (DEL.) THE BURDEN TO PROVE THAT THE AFFAIR IS STAGE MANAGE D IS SQUARELY ON THE REVENUE WHERE IT ALLEGES SO. 130 IT IS THEREFORE SUBMITTED THAT, APPLYING THE AFORES AID PRINCIPLES CONTAINED IN SECTION 40A(2)(B) OF THE ACT WHICH IS AKIN TO SECTION 80-IC OF THE ACT, THE ADJUSTMENT/DEDUCTION MADE OF RS. 11,29,786/- BY THE AO TO THE PROFITS OF THE ELIGIBLE UNDERTAKING IS UNSUS TAINABLE AND, THEREFORE BE DIRECTED TO BE DELETED. IT IS ALSO SETTLED LAW THAT , NO ADDITION CAN BE MADE ON THE BASIS OF SURMISES, SUSPICION AND CONJECTURES - UMACHARAN SHAW & BROS. V. CIT, (1959) 37 ITR 271 (S C) - OMAR SALAY MOHAMED SAIT V. CIT, (1959) 37 ITR 151 ( SC) - DHIRAJLAL GIRDHARILAL V. CIT, (1954) 26 ITR 736 (SC ) - DHAKESWARI COTTON MILLS LTD. V. CIT, (1954) 26 ITR 775 (SC) - LALCHAND BHAGAT AMBICA RAM V. CIT, (1959) 37 ITR 28 8 (SC) IN ANY CASE, IT MAY SUBMITTED THAT, ALL INTER-UNIT TRANSFERS ARE RECORDED AT COST. IN OTHER WORDS, EVEN WHEN FINISHE D GOODS OF RS. 2.47 CRORES WERE TRANSFERRED FROM HARIDWAR TO JAIPUR, NO PROFIT WAS CHARGED WHICH IN THE OPINION OF THE LD. AO HIMSELF SHOULD B E AT 13.5% I.E. RS. 33,35,821/- WHICH HAS NOT BEEN CONSIDERED AT ALL AN D, THUS ALLEGED OVER- STATED PROFIT OF RS. 11.29 LACS MAY BE SET OFF AGAINST THE UNDERSTATED PROFIT OF RS. 33.35 LACS AND, THEREFORE, THE RESPECTFUL SU BMISSION IS THAT, ON ALL COUNTS, NO ADJUSTMENT/DEDUCTION IS WARRANTED. THE NEXT ADJUSTMENT MADE BY THE LD. AO AND CONFIRME D BY LD. CIT(A) IS OF RS. 9,46,351/- REPRESENTING THE SALES MADE BY HARIDWAR UNIT I.E. ELIGIBLE UNIT TO JAIPUR UNIT. IN THIS REGARD, IT IS HUMBLY SUBMITTED THAT, THE SO LITARY BASIS TO MAKE THE ADJUSTMENT IS THAT, PROFIT RATE OF HARIDWA R UNIT IS 18.02% AS COMPARED TO THE ENTIRE BUSINESS AND THEREFORE, HE H AS ASSUMED PROFIT WOULD BE REASONABLY AT 13.5% AND BALANCE IS EXCESSI VE PROFIT. IT IS SUBMITTED THAT, THE LD. AO, IN MAKING THE SAID ADJU STMENT HAS OVERLOOKED THE FACT THAT, THE TRANSFER TO JAIPUR UNIT WAS AT C OST AND THUS ADJUSTMENT 131 MADE IS MISCONCEIVED SINCE NO PROFITS HAVE BEEN CON SIDERED FOR SUCH TRANSFER. THUS THERE IS NO BASIS WHATSOEVER TO MAKE THE IMPUGNED ADJUSTMENT AND THEREFORE, APPARENTLY, ADJUSTMENT MA DE BY ADOPTING PROFIT AT 13.5% AND ASSUMING THAT, DIFFERENCE OF 18.02% AN D 13.5% IS INFLATED PROFIT IS MISCONCEIVED AND NOT SUSTAINABLE. IN VIEW THEREOF, IT IS SUBMITTED THAT ADJUSTMENT MADE OF RS. 9,46,351/- IS BASED ON COMPLETE MISCONCEPTION, ARBITRARY, PRESUMPTIVE AND THUS MAY KINDLY BE DELETED. THE NEXT ADJUSTMENT/DEDUCTION MADE BY THE LD. AO AN D CONFIRMED BY THE LD.CIT(A) IS OF RS. 31,76,280/- ALLEGEDLY REPRESENTING THE COMMON EXPENSES ALLOCATED TO THE ELIGIBLE UNIT. IT COULD BE SEEN FROM THE ABOVE THAT, THE LD. AO HA S NOTED THAT, THE TURNOVER OF HARIDWAR FACTORY IS AROUND 9.18% OF THE TOTAL SALES OF THE COMPANY AND HENCE, 9.18% OF THE LEGAL AND PROFESSIO NAL EXPENSES, ADVERTISEMENT AND PUBLICITY AND OTHER EXPENSES I.E. RS. 31,76,280/- SHOULD BE ALLOCATED TO HARIDWAR UNIT. IT IS SUBMITTED THAT , BASIS ADOPTED BY THE LD. AO TO ALLOCATE EXPENSES IS TABULATED HERE-UNDER : SNO. NATURE OF THE HEAD EXPENDITURE INCURRED AMOUNT ALLOCATED BY APPLYING 9.18% TO THE EXPENDITURE INCURRED 1. LEGAL AND PROFESSIONAL EXPENSES 1.23 CRORES 11,29,140/- 2. ADVERTISEMENT AND PUBLICITY 1.16 CRORES 10,64,88 0/- 3. OTHER EXPENSES 1.07 CRORES 9,82,260/- TOTAL 3.46 CRORES 31,76,280/- IT IS SUBMITTED THAT, THE AFORESAID ADJUSTMENT HAS BEEN MADE BY THE LD. AO OVERLOOKING THE DETAILS FURNISHED BY THE APP ELLANT. IT IS HUMBLY SUBMITTED THAT THE PERUSAL OF THE SAME WOULD SHOW T HAT, APPELLANT HAS ALREADY ALLOCATED THE AFORESAID EXPENSES ON ACTUAL BASIS IN THE FOLLOWING MANNER: 132 S.NO. NATURE OF HEAD AMOUNT ALLOCATED BY THE ASSESSING OFFICER AMOUNT ALLOCATED BY THE ASSESSEE 1. LEGAL AND PROFESSIONAL CHARGES 11,29,140/- 66,44 8/- 2. ADVERTISEMENT AND PUBLICITY 10,64,880/- NIL 3. OTHER EXPENSES 9,82,260/- 20,83,207/- TOTAL: 31,76,280/- 21,49,655/- IT CAN BE CLEARLY SEEN FROM THE AFORESAID THAT, THE APPELLANT COMPANY HAD ALREADY ALLOCATED THE EXPENSES ON ACTUA L BASIS AND YET, THE LD. AO ARBITRARILY BY ADOPTING TURNOVER BASIS, ALLO CATED RS. 31,76,280/- AS EXPENDITURE TO THE HARIDWAR UNIT. IN THIS REGARD , IT IS HUMBLY SUBMITTED BEFORE THE HONBLE TRIBUNAL THAT THERE ARE TWO KIND S OF EXPENSES WHICH MAY BE INCURRED IN RELATION TO VARIOUS UNITS OF AN ORGANIZATION/COMPANY I.E. DIRECT EXPENSES AND INDIRECT EXPENSES. IN CASE OF DIRECT EXPENSES, THEY ARE INCURRED UNIT WISE AND ARE INCURRED SEPARATELY FOR EACH UNIT. IN CASE OF INDIRECT EXPENSES, THEY ARE INCURRED AS A WHOLE AND IN SUCH CASES, APPORTIONMENT OF EXPENSES IS REQUIRED. IN CASE, WHE RE THERE IS A DIRECT EXPENDITURE INCURRED ON A UNIT, THERE IS NO NEED FO R APPORTIONMENT OF EXPENSES. IN OTHER WORDS, WHERE DIRECT ATTRIBUTION CANNOT BE MADE, THEN ONLY NEED FOR APPORTIONMENT OF EXPENSES ARISES. MOR EOVER, THE SECTION 80- IC OF THE ACT CONTEMPLATES THAT EXEMPTION WOULD BE PROVIDED TO SUCH PROFITS AND GAINS OF AN ASSESSEE WHICH ARE DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SEC TION (2) OF SECTION 80- IC OF THE ACT. THE TERM DERIVED BY IS VERY RESTRI CTED IN ITS APPROACH AND INCLUDES ONLY THOSE PROFITS AND GAINS WHICH ARE SPE CIFICALLY DERIVED FROM THE EXEMPTED UNIT. THEREFORE, WHEN PROFITS AND GAIN S DERIVED FROM THE EXEMPTED UNIT ARE ONLY EXEMPTED U/S 80-IC OF THE AC T, THEN, AS A COROLLARY TO THE ABOVE, FOR THE PURPOSE OF CALCULATING SUCH P ROFITS AND GAINS, ONLY THOSE EXPENSES SHOULD BE DEDUCTED FROM THE PROFITS WHICH ARE SPECIFICALLY INCURRED FOR THE EXEMPTED UNIT. IN SUCH CASES, THE APPORTIONMENT OF EXPENSES BETWEEN THE EXEMPTED UNIT AND THE NON-EXEM PTED UNIT CANNOT BE DONE. IN THE CASE OF THE APPELLANT, THE HEADS OF EX PENSES SO APPORTIONED TO 133 THE HARIDWAR UNIT WERE ACTUALLY INCURRED DIRECTLY B Y THE HARIDWAR UNIT AND WERE VERY MUCH ASCERTAINABLE AND ATTRIBUTABLE TO TH E HARIDWAR UNIT AS PER RECORDS. THEREFORE, THERE WAS NO NEED FOR APPORTION MENT OF EXPENSES ALLEGING THAT THEY WERE COMMON EXPENSES. HENCE, THE SAME MAY BE DELETED. RELIANCE IS PLACED ON THE THIRD MEMBER DECISION OF DELHI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF DCIT V. DELHI PRESS SAMACHAR PATRA (P) LTD. REPORTED IN (2006) 103 TTJ (DEL)(TM) 445, WHEREIN IT HAS BEEN HELD AS UNDER: I SEE SOME PARALLEL BETWEEN THE FACTS OF THE ABOVE CITED CASE AND CASE IN HAND, BECAUSE PROFIT WAS DISCLOSED IN UNIT NOS. II & III ON WHICH DEDUCTION UNDER SECTION 80-I WAS CLAIMED AND NO PRO FIT WAS DISCLOSED IN UNIT NO.I ON WHICH NO SUCH DEDUCTION WAS PERMISSIBL E AND EXPENSES IN AFORESAID UNIT NO. I WERE MUCH HIGHER THAN THIS IN THE OTHER TWO UNITS. IT WAS PROBABLE THAT MORE EXPENSES WERE CLAIMED IN UNI T NO.I AND SOME OF THE EXPENSES OF UNIT NOS. II & III WERE DIVERTED AN D CLAIMED IN UNIT NO. I. BUT NO PRESUMPTION UNDER THE LAW COULD BE RAISED THAT EXPENSES WERE SO DIVERTED. THE ASSESSEE HAS PRODUCED ACCOUNTS WITH DETAILS AND, THEREFORE, CORRECT POSITION COULD HAVE BEEN ASCERTAINED FROM THE MATERIAL STATEMENT OF RELEVANT PERSONS INCLUDING MANAGEMENT AND STAFF OF THE ASSESSEE COULD HAVE BEEN EXAMINED. BUT WITHOUT ANY INVESTIGATION AND WITHOUT COLLECTING ANY MATERIAL AN ARBITRARY ASSESSMENT BY HOLDING THAT EXPENSES IN UNIT NO. I SHOULD BE PROPORTIONATE TO THOSE IN U NIT NOS. II & III WAS MADE. ASSESSMENT BASED ON SUCH INFERENCE HAS TO BE HELD AS ARBITRARY. SIMILAR VIEW HAS BEEN EXPRESSED IN THE CASE OF ADDL . CIT V. DELHI PRESS PATRA PRAKASHAN REPORTED IN (2006) 103 TTJ (D EL) 578. IN ANY CASE, DISALLOWANCE SO MADE IS EXCESSIVE SINC E THE LD. AO AND THE LD. CIT(A) HAVE OMITTED TO CONSIDER AMOUNT ALREADY ALLOCATED OF 134 RS. 21,49,655/- AND THEREFORE, IF AT ALL DISALLOWANCE IS TO BE MADE, THE SAME BE RESTRICTED TO RS. 10,27,149/- AND, BALANCE DISALLOWANCE OF RS. 21,49,655/- BEING DOUBLE DISALLOWANCE MAY KINDLY BE DELETED. WITH REGARD TO THE LAST ADJUSTMENT, THE LD. AO HAS HELD THAT INTEREST OF RS. 2,48,804/- IS NOT ELIGIBLE FOR DEDUCTION UNDER SEC TION 80-IC OF THE ACT SINCE INTEREST INCOME IS PART AND PARCEL OF THE INDUSTRIAL UNDERTAKING AND IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IC OF THE ACT. IN THIS REGARD, IT IS HUMBLY SUBMITTED THAT TH E INTEREST INCOME HAS BEEN EARNED BY THE HARIDWAR UNIT IN RESPECT OF SECU RITY GIVEN AGAINST THE WORK ORDER. THEREFORE, THE INTEREST INCOME BEING DE RIVED FROM THE ELIGIBLE UNDERTAKING, REQUIRES TO BE ALLOWED AS PART OF THE PROFITS OF THE ELIGIBLE UNIT AT HARIDWAR AND MAY KINDLY BE ALLOWED AS DEDUC TION UNDER SECTION 80-IC OF THE ACT. 67. ON THE OTHER HAND, THE LD. D/R HAS PLACED RELIA NCE ON THE ORDER OF THE AO AND LD. CIT (A). 68. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED IN THIS GROUND IN PART. FIRST ADJUSTMENT WAS ON ACCOUNT OF TRANSFER OF SEMI FINISHED GOODS TO HARIDWAR UNIT AND SINCE THE GOODS WERE TRANSFERRED AT THE PRICE LESS THAN THE MARKET VALUE OF SUCH GOO DS AS PROVIDED IN SECTION 80IA(8) THEREFORE NO ADJUSTMENT IS REQUIRED TO BE MADE ON T HIS ACCOUNT. FURTHER, THE GOODS UNDER REFERENCE WERE SEMI FINISHED GOODS THEY ARE NOT MAR KETABLE THEREFORE NO ADJUSTMENT IS REQUIRED TO BE MADE ON THIS ACCOUNT AND WE DIRECT T O DELETE THE ADJUSTMENT MADE AT RS. 11,29,786/- ON THIS ACCOUNT. 68.1. SECOND ADJUSTMENT WAS OF RS. 9,46,351/- MADE ON ACCOUNT OF THE PROFIT OF THE SA LE OF GOODS FROM HARIDWAR UNIT TO JAIPUR UNIT. THE AO WRONGLY OBSERVED THAT THE GOODS 135 WERE TRANSFERRED TO JAIPUR UNIT BY CHARGING PROFIT @ 18.02% ON SUCH GOODS WHEN ACTUALLY THE GOODS WERE TRANSFERRED AT COST PRICE. THESE FAC TS WERE BROUGHT TO THE NOTICE OF THE AO ALSO BUT HE FAILED THE APPRECIATE THE SAME. UNDER T HESE CIRCUMSTANCES WHEN THE GOODS WERE TRANSFERRED AT COST NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF HIGHER PROFIT AND THEREFORE THE REDUCTION OF RS. 9,46,351/- MADE ON THIS ACCOUNT IS DIRECTED TO BE DELETED. 68.2. NEXT ADJUSTMENT OF RS. 31,76,280/- IS ON ACCOUNT OF ALLOCATION OF COMMON EXPENSES. FROM THE RECORDS, IT IS OBSERVED THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS FILED DETAILS OF COMMON EX PENSES AND ALSO FILED THE COPY OF THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF HARIDWAR UNIT WHICH ARE AVAILABLE AT PAPER BOOK PAGES 599 TO 607. ON PERUSAL OF THE PAPER BOOK PAGE 604 IN SCHEDULE 16, THE ADVERTISEMENT, PUBLICITY AND SALES PROMOTION EXPENS ES TO THE TUNE OF RS. 47,47,738/- WERE CLAIMED BESIDES LEGAL AND PROFESSIONAL CHARGES OF RS. 2,43,269/-. SINCE THESE DIRECT EXPENSES HAVE ALREADY BEEN DEDUCTED FROM THE PROFIT COMPUTED FOR HARIDWAR UNIT FURTHER DEDUCTION OF THE EXPENSES INCURRED AT JAIPUR UNIT U NDER THESE HEADS IS NOT REQUIRED. HOWEVER, THE FACT THAT SOME BENEFITS OUT OF THESE E XPENSES WOULD BE RECEIVED BY THE HARIDWAR UNIT COULD NOT BE DENIED, THEREFORE, WE AR E OF THE CONSIDERED VIEW THAT FURTHER ALLOCATION OF TOWARDS COMMON EXPENSES AT RS. 7.50 LACS WOULD BE REASONABLE THEREFORE THE ALLOCATION MADE BY THE AO AT RS. 31,76,280/- IS DIRECTED TO BE REDUCED TO RS. 7. 5 LACS. 68.3. NEXT ADJUSTMENT IS ON ACCOUNT OF INTEREST INC OME NOT DERIVING FROM THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKIN G AND NOT ELIGIBLE FOR DEDUCTION U/S 80IC. THE ISSUE IS ALREADY DECIDED BY THE HONBLE A PEX COURT IN THE CASE OF LIBERTY INDIA REPORTED IN 317 ITR 218 WHEREIN THE HONBLE C OURT IS HELD THAT THE INTEREST HAS NOT 136 DERIVED FROM THE MANUFACTURING ACTIVITY OF AN INDUS TRIAL UNDERTAKING, WE THUS RESPECTFULLY FOLLOWING THE DECISION OF HONBLE APEX COURT (SUPRA ) HOLD THAT THE INTEREST INCOME OF RS. 2,48,804/- IS NOT ELIGIBLE FOR DEDUCTION U/S 80IC, THUS THE ACTION OF THE AO IS UPHOLD ON THIS ISSUE. THIS GROUND IS PARTLY ALLOWED. 69. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 70. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22 .12.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- M/S. GENUS POWER INFRASTRUCTURES LTD., JAIPUR. THE ACIT, RANGE-7, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 358(2)/JP/2011) BY ORDER, AR ITAT JAIPUR. 137