SATYA PRAKASH CHOUDHARY, Jaipur V. DCIT, JHUNJHUNU

ITA 410/JPR/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5269 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUNI PAL JCIT DHK
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Commercial expediency; Capital expenditure
• Section: 143(3); 37(1); 80G; 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO. 410/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 . SATYA PRAKASH CHOUDHARY, VILLAGE JHATAWA KURD, PO NIRDHANU, JHUNJHUNU. CUKE VS. THE DCIT, CIRCLE, JHUNJHUNU. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AGDPC 6852 H VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : WRITTEN SUBMISSION JKTLO DH VKSJ LS@ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 29.04.2016. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 25 /05/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF LD. CIT (A)-III, JAIPUR DATED 09.01.2013 FOR THE ASSESSMENT YEAR 2008-09 WH EREIN IT HAS TAKEN FOLLOWING GROUNDS OF APPEAL :- 1. IMPUGNED ORDER PASSED U/S 143(3) IS BAD IN LAW AND ON FACTS BEING AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND FOR MANY MORE OTHE R REASONS. FURTHER LD. CIT (A) HAS ERRED BY NOT CONSIDERING THE SUBMISSION OF ASSE SSEE. 2. UNDER THE FACTS AND CIRCUMSTANCES, LD. AO HAS ERRED BY MAKING ADDITIONS OF RS. 9,94,760/- BY DISALLOWING EXPENSES ON AD-HOC BASIS, FURTHER LD. CIT (A) ERRED BY SUSTAINING THESE ADDITIONS. THE DISALLOWANCE MADE I S UNJUSTIFIED, ILLEGAL OR EXCESSIVE. 2 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT 3. UNDER THE FACTS AND CIRCUMSTANCES, THE LD. A.O. HAS ERRED BY DETERMINING TOTAL INCOME TO BE RS. 18,70,250/- & BY MAKING AN ADDITIO N OF RS. 9,94,760/-, FURTHER LD. CIT (A) ERRED BY CONFIRMING THE SAME. 2. AT THE TIME OF HEARING, A REQUEST FROM LD AR VIN OD GUPTA WAS RECEIVED REQUESTING THE BENCH THAT DUE TO SOME EMERGENCY CIR CUMSTANCES, HE COULD NOT ATTEND THE HEARING AND REQUESTED TO DECIDE THE CASE ON THE BASIS OF WRITTEN SUBMISSION. HENCE, BASED ON MATERIAL AVAILABLE ON RECORD, THE MATTER IS HEREBY DECIDED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM COMMISSION RECEIVED FROM M/S. PRIYA HOME STUDY PVT. LTD., A COMPANY ENGAGED IN MULTI LEVEL MARKETING BUSINESS. THE ASSE SSEE HAS FILED RETURN ON 13.01.2009 DECLARING AN INCOME OF RS. 8,75,491/- FO R THE YEAR UNDER CONSIDERATION. THE CASE OF THE ASSESSEE WAS SCRUTINIZED UNDER SECT ION 143(3) AND THE ASSESSMENT WAS COMPLETED ON 24.01.2011 DETERMINING THE TOTAL I NCOME AT RS. 18,70,250/-. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, O N BEING ASKED BY THE AO TO PRODUCE THE BOOKS OF ACCOUNT, THE ASSESSEE VIDE ORD ER SHEET ENTRY DATED 08.03.2010 ADMITTED THAT NO BOOKS OF ACCOUNTS ARE AVAILABLE, T HOUGH IN THE AUDIT REPORT FILED IN FORM NO. 3CD ON 19.02.2010 IT IS MENTIONED THAT CAS H BOOK, LEDGER AND VOUCHERS ETC ARE MAINTAINED. THE AO, THEREFORE, FOR NON-MAIN TENANCE/NON-PRODUCTION OF BOOKS OF ACCOUNTS, INVOKED PROVISIONS OF SECTION 14 5(3) OF THE IT ACT AND ACCORDINGLY PROCEEDED TO DECIDE THE CASE OF THE ASS ESSEE AS UNDER. 3.2. THE AO WHILE SCRUTINIZING THE CASE OF THE ASSE SSEE, NOTICED THAT THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES AS MENTIONED UNDER VAR IOUS HEADS, IN PROFIT & LOSS ACCOUNT, AS UNDER :- 3 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT SR. EXPENSES TOTAL EXPENSES AMOUNT PERCENTAGE DISALLOWED AMOUNT DISALLOWED 1. SALARY 3,60,000.00 1% 3,600.00 2. CONFERENCE EXPENSES 5,25,715.00 3% 15,771.00 3. TRAVELLING EXPENSES 4,25,875.00 2% 8,517.00 4. OTHER EXPENSES 75,250.00 30% 22,575.00 5. HOTEL BOARDING & LODGING 4,75,825.00 10% 47,580.00 6. FESTIVAL 45,285.00 LUMP-SUM 20,000.00 7. DONATION 4,00,000.00 100% 4,00,000.00 8. COMMISSION 4,37,250.00 100% 4,37,250.00 9. CONVEYANCE 45,285.00 20% 9,057.00 10. TELEPHONE 54,250.00 20% 10,850.00 11. DEPRECIATION 97,804.00 20% 19,560.00 TOTAL 9,94,760.00 SINCE THE ASSESSEE HAS FAILED TO PRODUCE NECESSARY BILLS/VOUCHERS/DETAILS OF EXPENSES INCURRED BY THE ASSESSEE, THE AO COMPARING WITH THE SIMILAR OTHER CASES, MADE THE DISALLOWANCES PERCENTAGE-WISE AS MENTIONED HEREIN ABOVE AGAINST THE RESPECTIVE HEADS TOTALING TO RS. 9,94,760/-. THE AO OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT ENTIRE EXPENSES HAVE BE EN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION 37(1) OF THE IT ACT. THE AO HELD THAT THE MOST IMPORTANT ELEMENT FO R AN EXPENDITURE TO BE ALLOWED AS DEDUCTION IS COMMERCIAL EXPEDIENCY OF THAT EXPEN DITURE. MERE EXISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGEN T OR PAYMENT OF CERTAIN AMOUNT 4 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT AS COMMISSION TO THE SELLING AGENT WILL NOT BIND TH E ITO TO HOLD THAT THE PAYMENT WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS. IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO PROVE THAT THE EXPENSES INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEREF ORE, HE DISALLOWED AN AMOUNT TOTALING TO RS. 9,94,760/- AND ADDED TO THE TOTAL I NCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD. CIT (A), WHO CONFIRMED THE ACTION OF THE AO BY OBSE RVING AS UNDER :- 2.3. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. LD. AR HAD NOT DENIED THE FACT THAT ACCOUNT BOOKS AND BILLS/VOUCHERS WERE NOT PRODUCED FOR VERIFICATION B EFORE THE A.O. DURING THE APPEAL PROCEEDINGS, FURTHER OPPORTUNITY WAS GIVEN T O THE APPELLANT VIDE ORDER SHEET NOTING DATED 08.01.2013 TO PRODUCE THE ACCOUN T BOOKS AND BILLS/VOUCHERS FOR VERIFICATION. LD. AR EXPRESSED H IS IN ABILITY TO PRODUCE THE SAME. IT IS, THEREFORE, EVIDENT THAT APPELLANT HAS NO EVIDENCE TO SUBSTANTIATE THE EXPENSES CLAIMED AGAINST THE COMMISSION RECEIPT S. IT IS A SETTLED POSITION OF LAW THAT IN ORDER TO CLAIM ANY EXPENDITURE FALLI NG U/S 37(1) OF THE ACT, THE ENTIRE BURDEN OF PROVING THE NECESSARY FACTS INCLUD ING THE GENUINENESS OF EXPENSES AND WHETHER THE SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE, LIES ON THE ASSESSEE. RELIANCE I S PLACED ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA AGENC Y LTD. (19 ITR 191) AND LAKSHMIRATAN COTTON MILLS CO. LTD. (73 ITR 634). IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO DISCHARGE THIS ONUS LYING ON HIM. HENCE, A.O. IS JUSTIFIED IN MAKING DISALLOWANCE OF EXPENSES. ON THE PERUSAL OF THE EXPENSES DISALLOWED, IT IS EV IDENT THAT A.O. HAS DISALLOWED 1%-3% OF EXPENSES UNDER THE HEADS SALARY , CONFERENCE AND TRAVELING. NOMINAL DISALLOWANCES WERE MADE UNDER TH E HEADS CONVEYANCE, TELEPHONE, HOTEL BOARDING AND LODGING, FESTIVAL AND DEPRECIATION. MAJOR DISALLOWANCE IS MADE OF DONATION AND COMMISSION EXP ENSES. THE APPELLANT CLAIMED DONATION EXPENSES OF RS. 4,00,000/- FOR WHI CH NO DETAILS AND RECEIPTS WERE FURNISHED. THE SAME CAN NOT BE ALLOWED AS BUSI NESS EXPENSES. THE APPELLANT CLAIMED COMMISSION EXPENSES OF RS. 4,37,2 50/- IN RESPECT OF WHICH NO DETAILS OF RECIPIENTS OR EVIDENCES WERE FURNISHE D. WHEN THE ASSESSEE HAS CLAIMED COMMISSION EXPENSES, THE ONUS LYING ON HIM TO PROVE THAT THE SERVICES WERE RENDERED BY THE SAID COMMISSION AGENT S. MERE CONFIRMATION AND THE PAYMENTS OF COMMISSION BY ACCOUNT PAYEE CHE QUES IS NOT A CONCLUSIVE PROOF THAT ANY SERVICES WERE ACTUALLY RE NDERED BY THE COMMISSION AGENT WHO EARNED THAT COMMISSION. IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF LAXMIRATAN COTTON MILLS CO. (7 3 ITR 634) THAT THE BURDEN 5 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT IS ON THE ASSESSEE TO PROVE THAT SERVICES WERE REND ERED BY THE COMMISSION AGENT. AGAIN IN THE CASE OF LAXMINARAYAN MADANLAL (86 ITR 439) IT WAS HELD BY THE HONBLE SUPREME COURT THAT MERE EXISTENCE OF AN AGREEMENT AND PAYMENT OF CERTAIN AMOUNTS DOES NOT BIND THE ASSESS ING OFFICER TO HOLD THAT THE PAYMENT WAS GENUINE AND WAS MADE WHOLLY AND EXC LUSIVELY FOR BUSINESS PURPOSES. IN THE INSTANT CASE NEITHER THE APPELLANT HAS FURNI SHED THE DETAILS OF RECIPIENTS NOR ANY EVIDENCE OF SERVICES RENDERED BY THEM. HENC E, THE COMMISSION EXPENSES CLAIMED BY THE APPELLANT ARE NOT ALLOWABLE . CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF THE EXPENSES MADE BY AO IS CONFIRMED. 5. NOW THE ASSESSEE IS BEFORE US. 5.1. THE LD. A/R FOR THE ASSESSEE SUBMITTED THAT NO COMPARISON OF EXPENDITURE WITH SIMILARLY PLACED OTHER ASSESSEES, AS CLAIMED B Y THE AO IN HIS ORDER, IS AVAILABLE IN THE ASSESSMENT ORDER. THE LD. A/R SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NEITHER PROVIDED THE COMPARABLE EXPENDITURE INCURRED BY OTHER SIMILARLY PLACED ASSESSEES AS MENTIONED IN HIS ORDE R NOR PROVIDED THE DATA OF THESE ASSESSEES TO THE APPELLANT FOR HIS CONFRONTATION, H ENCE THE APPROACH OF THE LD. A.O. IS NOT ONLY WRONG ON FACTS BUT ALSO GROSSLY VIOLATE D THE SETTLED PRINCIPLE OF NATURAL JUSTICE. IN THIS REGARD HE PLACE RELIANCE ON THE FO LLOWING JUDGMENTS:- A. THE PRINCIPLES OF NATURAL JUSTICE ARE APPLICABLE TO ASSESSMENT PROCEEDINGS. THE ELEMENTARY PRINCIPLE OF NATURAL JUSTICE IS THAT THE ASSESSEE SHOULD HAVE KNOWLEDGE OF THE MATERIAL WHICH IS GOING TO BE USED AGAINST HIM SO THAT HE MAY BE ABLE TO MEET IT - GARGI DIN JWALA PRASAD V. CIT [1974] 96 ITR 97 (ALL.). B. JOSEPH THOMAS V/S. CIT, 68 ITR 796 (KER), WHEREIN, IT IS HELD THAT THE ADDITION MADE APPLYING G.P. RATE ON THE BASIS OF CO MPARABLE CASES 6 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT WITHOUT FURNISHING THE DETAILS OF THE SAID CASE TO THE ASSESSEE, TO BE IN VIOLATION OF THE SETTLED PRINCIPLE ON THE SUBJECT A ND THE PROVISIONS OF SECTION 142(3) AND SO ILLEGAL. C. ITO VS. SHARDA TIMBER STORE, ITA NO. 5662/DEL/2010 DATED 31.01.2012, IN THIS CASE HONBLE ITAT DELHI HELD THAT TO MAKE A COMPARISON WITH A BUSINESS CONCERN WHOSE PARTICULARS ARE NOT KNOWN TO THE ASSESSEE CANNOT BE UPHELD AS MERELY CONFRONTING THE NAMES CANNOT BE SAID TO BE AFFORDING A GENUINE AND EFFECTIVE OPPORTUNITY OF BEING HEARD AS RELEVANT FACTS HAVE NOT BEEN DISCLOSED. THE AO MUST TAKE INTO CONSIDERA TION THE LOCAL PRACTICES AND ALSO REFER TO PREVIOUS RECORD OF THE ASSESSEE AND CONSIDER COMPARABLES AFTER CONFRONTING THESE FACTS OF THE AS SESSEE SO AS TO ARRIVE AT A FAIR AND PROPER ESTIMATE IF BEST JUDGMENT HAS TO BE RESORTED TO. THE AO WHILE MAKING THE BEST JUDGMENT IS NOT ENTITLED T O IGNORE THE ASSESSEES OWN HISTORY AS WHAT BETTER COMPARISON THEN ONES OWN PAST. THUS, THE ASSESSEES OWN CASE CAN BE CONSIDERED AND IF STILL NEED BE FELT JUDICIALLY TO MAKE COMPARISONS WITH COMPARABLES, THEN IT CAN BE D ONE ONLY AFTER CONFRONTING THEIR FACTS TO THE ASSESSEE. LOOKING TO THE FACT, THE VERY BASIS OF FOUNDING THE DISALLOWANCE IS NOT ONLY AGAINST THE PRINCIPLE OF NATURAL JUSTICE BUT ALSO EVEN BY T HE ASSESSMENT ORDER NOT SUBJECTED TO THE VERIFICATION OR COMPARISON OR WRONG ON FACT, HENCE, THAT BASIS SHOULD NOT BE ACCEPTED. 5.2. THE LD. A/R FURTHER SUBMITTED THAT THE ASSESSE E AT HIS OWN LEVEL COLLECTED THE TURNOVER FIGURES OF TWO ASSESSES, LISTED IN THE ASS ESSMENT ORDER, ONE IS AJAY KUMAR SAINI, WHOSE TURNOVER IS RS. 23.88 LACS AND THE OTH ER IS SHRI AZAD HUSSAIN WHOSE TURNOVER IS RS. 13.17 LACS, IN COMPARISON, THE TURN OVER OF THE ASSESSEE IS MUCH 7 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT HIGHER. FURTHER, TO ASCERTAIN WHETHER PARTICULAR E XPENDITURE ARE IN EXCESS OR NOT, IF HAVE TO DECIDE ON THE BASIS OF COMPARABLE CASE, THE FACTS AND CIRCUMSTANCES OF SUCH COMPARABLE CASE MUST BE MATCH WITH THE FACTS AND CI RCUMSTANCES OF THE APPELLANT. IN THE INSTANT CASE, NATURE OF BUSINESS IS SO, WHER E THE AMOUNT OF TURNOVER IS VERY RELEVANT FOR JUDGING THE EXPENDITURE. THEREFORE, WE ARE ELABORATING THE NATURE OF BUSINESS AS FOLLOWS:- APPELLANT UNDER CONSIDERATION WAS WORKING FOR PRIYA HOME STUDY PRIVATE LIMITED (THE COMPANY). A COMPANY ENGAGED IN THE BUS INESS OF MULTI LEVEL MARKETING, WHEREIN, IMPARTING COMPUTER EDUCATION BA SED ON CONCEPT OF EARNING WHILE LEARNING. THE COMPANY WAS OFFERING LUCRATIVE COMMISSION TO THE PERSONS, WHO BRING PEOPLE TO THE COMPANY FOR BE COMING MEMBER. THE DETAIL NOTE ON THE NATURE OF BUSINESS OF THE COMPAN Y HAS BEEN GIVEN ON PAGES 2 AND 3 OF THE ASSESSMENT ORDER. IN THE MLM SYSTEM OF MARKETING, PERSON TO PERSON CO NTACT, PERSON TO PERSON CONVINCING NOT ONLY ABOUT THE PRODUCT BUT ALSO ABOU T THE CONCEPT OF MARKETING, FUTURE OPPORTUNITIES AND CREDITABILITY O F THE COMPANY IN THE LONG RUN ARE REQUIRED. THE PERSON TO PERSON CONVINCING R EQUIRES LOT OF ENERGY, MOBILIZATION OF THE PEOPLE AND RESOURCES. THE MOST IMPORTANT ADVANTAGE OF SAID BUSINESS MODULE IS EXPENSES IS DIRECTLY RELATE D WITH THE SALES OR RECEIPTS ACHIEVED. WHEREAS, IN OTHER BUSINESS MODULE, HUGE F IXED EXPENDITURES IS REQUIRED, TO CREATE PHYSICAL ESTABLISHMENT. THEREFO RE, IN THIS BUSINESS MODULE, EXPENSES INCREASE WITH GREATER PACE WITH INCREASE I N SALES IN COMPARISON TO THE TRADITIONAL BUSINESS MODULES, WHERE, FIXED EXPE NDITURE REMAINS ALWAYS HIGH MEANS HIGH RISKS IF BUSINESS VOLUME IS LESS, W HEREAS, IN MLM MODULE, SUCH TYPE OF RISK REMAINS LOW BUT THAT LOW RISK HAS TO COMPENSATE WITH HIGHER EXPENDITURE WITH HIGHER GROWTH. 8 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT IT IS IMPORTANT TO NOTE THAT DURING THE YEAR UNDER CONSIDERATION, THE TOTAL RECEIPTS WERE RS.41.87 LAC IN COMPARISON TO RECEIPT IMMEDIATE PREVIOUS YEAR I.E. RS. 7.54 LAC, MEANS GROWTH OF APPROX. 455% WAS ACHIEVED BY HIM. THE GROWTH ACHIEVED IS A PHENOMENAL GROWTH AND CAN ACHI EVE ONLY WITH SUBSTANTIAL RESOURCES, PARTICULARLY, IN DIRECT SELL ING MODULES. AS DISCUSSED EARLIER, IN THIS MODULE, IT REQUIRES TO CONVINCE, E ACH AND EVERY PERSON, FURTHER, THE TURNOUT RATIO IS ALWAYS VERY LESS BECAUSE IT IS REQUIRE TO CONVINCE A PERSON ABOUT THE PRODUCT, PLAN, FUTURE GROWTH PROSPECTS AN D CREDIBILITY OF THE COMPANY AND THEN IT MUST MATCH TO THE NEED OF A PAR TICULAR PERSON. THEREFORE, IN THIS BUSINESS, WHEN PERSON MEETS THOU SANDS OF OTHER PERSONS THEN ONE PERSON JOINED THE COMPANY. THE PROCESS OF CONVENIENCE REQUIRE TRAVELLING, LECTURES, BUSINESS KITS, LOGISTIC SUPPO RTS, MOTIVATIONAL LECTURES, EXAMPLES OF ACHIEVERS AND TIME TO TIME BUSINESS PRO MOTIONAL INCENTIVES (COMMISSION) TO THE PERSONS WHO HAS ALREADY JOINED UNDER HIM TO THE COMPANY, BUT NOT GENERATING FURTHER BUSINESS, TO EN COURAGE THEM BECAUSE IT IS FURTHER WELL ESTABLISHED FACTS THAT MOST OF PERS ONS JOINED ONLY FEW PERFORMS CONSISTENTLY. MOBILIZATION OF HUGE PEOPLE INVOLVES FREQUENT TRAVELLING AND CONVEYANCE EXPENSES ALSO. FROM THE ABOVE DISCUSSIONS, IT IS CLEAR THAT IN SUC H TYPE OF BUSINESS, STRAIGHT COMPARISON OF PERCENTAGE IS NOT JUSTIFIED BECAUSE A S RECEIPTS INCREASES, EXPENDITURE INCREASES WITH GREATER PACE OR THE HEAD OF EXPENDIT URE MAY BE DIFFERENT, OF DIFFERENT PEOPLE, AS ALL THESE ARE SMALL SERVICE PROVIDER AND NOT SUBJECTED TO FOLLOW STANDARD ACCOUNTING HEAD. FURTHER, TO INCREASE THE SALE, DIF FERENT PEOPLE DEPLOY DIFFERENT METHODS, THEREFORE, THERE MAY BE DIFFERENCE IN HEAD AS WELL, HENCE, HEAD TO HEAD COMPARISON CANNOT GIVE THE RIGHT PICTURE OF THE EXP ENDITURE. IT EMERGED FROM THE FORGOING DISCUSSIONS THAT THE BASIS ADOPTED IS UNJU STIFIED AND CANNOT LEAD TO RATIONAL RESULT. 9 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT 5.3. THE LD. A/R FURTHER SUBMITTED THAT IN THE INST ANT CASE, LD. A.O. AFTER REJECTING THE BOOKS OF ACCOUNTS DISALLOWED THE VARIOUS EXPENS ES INSTEAD OF EXAMINING THE NET PROFIT DECLARED BY THE APPELLANT. IT IS IMPORTANT T O NOTE THAT DURING THE YEAR UNDER CONSIDERATION, APPELLANT DECLARED NET PROFIT OF RS. 8.75 LACS ON TOTAL RECEIPTS OF RS. 41.87 LACS (N.P. RATE 20.91%) IN COMPARISON TO INCO ME OF RS. 1.52 LACS ON TOTAL RECEIPT OF RS. 7.54 LACS (N.P. RATE 20.15%) IN PREC EDING YEAR. WHEREAS, AFTER MAKING DISALLOWANCES OF RS. 9.95 LACS BY THE LD. A. O., THE TOTAL INCOME COMES TO RS. 18.70 LACS (N.P. RATE 44.66%). THE ULTIMATE EFF ECT OF DISALLOWANCE SHOWS THAT ORDER HAS BEEN MADE WITH THE OBJECT TO ARRIVE THE M AXIMUM AMOUNT OF INCOME, WHICH IS NOT ONLY UNJUSTIFIED BUT ALSO AGAINST THE PRINCIPLE OF DETERMINATION OF REAL INCOME. IN THIS REGARD, HE PLACED RELIANCE ON THE J UDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SIMON CARVES LTD. (197 6) 105 ITR 212. 5.4. THE LD. A/R FURTHER SUBMITTED THAT IN THE INST ANT CASE, NET PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS 20 .91% IN COMPARISON TO 20.14% IN PRECEDING YEAR. IT IS IMPORTANT TO NOTE THAT THE NE T PROFIT RATE IS BETTER DURING THE YEAR UNDER CONSIDERATION DESPITE STEEP JUMP OF 455% IN THE TOTAL RECEIPTS FOR THE YEAR UNDER CONSIDERATION. THEREFORE, A FAIR VIEW SH OULD HAVE BEEN TAKEN WHILE ASSESSING THE INCOME AFTER REJECTION OF BOOKS OF AC COUNTS. IN SUPPORT, THE LD. A/R PLACED RELIANCE ON THE FOLLOWING DECISIONS :- CIT VS. GOTTON LIME KHANIZ UDYOG (2002) 256 ITR 243 (RAJ.) SANGRUR VANASPATI MILLS LTD. VS. ACIT (2003) 133 TA XMAN 37 (CHD.) 10 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT IN VIEW OF THE ABOVE SUBMISSION, THE LD. A/R PRAYED THAT THE DISALLOWANCES MADE BY THE AO AND CONFIRMED BY LD. CIT (A) BE DELETED. 5.5 THE LD AR FURTHER SUBMITTED THAT UNDER THE CIRC UMSTANCES, AT MOST, NET PROFIT RATE CAN BE ESTIMATED, THEN THE QUESTION ARISES HOW TO ESTIMATE THE NET PROFIT RATE. THE PAST RESULT OF THE APPELLANT ITSELF IS THE BEST GUIDE TO ESTIMATE THE NET PROFIT RATE. IN THIS REGARD WE PLACE OUR RELIANCE ON THE F OLLOWING JUDGMENTS. CIT V. INANI MARBLES PRIVATE LIMITED [2009] 316 ITR 125 (RAJ.). ITO V. KUNDANMAL SURANA(2004) 3 SOT 632(JODH). ITO VS. SHARDA TIMBER STORE, ITA NO. 5662/DEL/2010 DATED 31.01.2012 5.6 LD AR FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED BY NOT ACKNOWLEDGING THE FACT THAT ORDER BEFORE HIM WAS PASSED BY INVOKI NG SECTION 145(3). INVOCATION OF SAID SECTION IMPLIES, ASSESSMENT HAS BEEN MADE U/S 144 AS BEST JUDGMENT ASSESSMENT ON THE BASIS OF MATERIAL BEFORE ASSESSIN G OFFICER. THE APPELLANT HAS NOT PRESSED THE GROUND RELATED TO THE INVOCATION OF SEC TION 145(3). THE SUBMISSION MADE BEFORE HIM WAS RELATED TO LEGAL AND FACTUAL AS PECTS OF ESTIMATING THE INCOME. CIT(A) HAS NOT ADDRESSED ANY OF SUCH ASPECTS RATHER HOLD THAT ASSESSEE FAILED TO DISCHARGE HIS ONUS OF PROVING EXPENDITURE, WHEREAS, THE CONTENTION BEFORE HIM WAS THE DISCREPANCIES IN ESTIMATION OF INCOME BY THE LD . A.O. AND REQUEST OF JUDICIOUS APPROACH FOR ESTIMATING THE INCOME ONLY. THEREFORE, THE ENTIRE ORDER PASSED BY CIT(A) IS MISPLACED AND WITHOUT APPRECIATING THE FA CTS OF THE CASE. 11 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT 5.7 LR AR FURTHER SUBMITTED THAT NOT PREJUDICIAL TO THE SUBMISSION ALREADY MADE, IT IS FURTHER SUBMITTED THAT LD. A.O. DISALLOWS THE SALARY, CONFERENCE EXPENSES, TRAVELLING EXPENSES, OTHER EXPENSES, HOTEL BOARDING & LODGING EXPENSES, CONVEYANCE EXPENSES AND TELEPHONE EXPENSES BASED ON CERTAIN PERCENTAGE AND FESTIVAL EXPENSES ON LUMP SUM BASIS. IT IS NOT CLEA R FROM WHOM IT IS COMPARED AND WHAT IS THE PERCENTAGE OF EXPENDITURE OF COMPARABLE CASE, IN ABSENCE OF SUCH DETAILS, SUCH DISALLOWANCES IS NOT MORE THAN ARBITR ARY DISALLOWANCES UNDER THE GRAB OF COMPARABLE CASE. WHEREAS, LOOKING TO THE TURNOVE R AND THE NATURE OF THE BUSINESS, EXPENDITURE CLAIMED IS FULLY JUSTIFIED AN D ESSENTIAL TO ACHIEVE THE TURNOVER ACHIEVED BY HIM. 5.8 LR AR FURTHER SUBMITTED THAT DONATION OF RS. 4. 00 LACS WAS CLAIMED BY THE ASSESSEE AND IT WAS DISALLOWED FOR THE WANT OF RECE IPT. IT IS PERTINENT TO NOTE THAT APPELLANT IS ENGAGED FOR PREEYA HOME STUDY PRIVATE LIMITED, THE SAID COMPANY IS ENGAGED IN PROVIDING COMPUTER EDUCATION THROUGH MUL TI LEVEL MARKETING, WHERE, APPELLANT PROVIDING HIS SERVICES AS COMMISSION AGEN T, WHEREIN, BRINGING MORE AND MORE STUDENTS TO THE COMPANY AND GETTING MORE AND M ORE COMMISSION THERE FROM. THE NATURE OF THE BUSINESS REQUIRES INTERACTION WIT H THE STUDENTS. THE DONATION OF RS. 4.00 LACS WAS GIVEN TO THE JAI PRAKASH KEVAN ME MORIAL SHIKSHAN SANSTHAN, JHUNJHUNU. A SANSTHAN ENGAGED IN THE EDUCATION, THE REFORE, SAID DONATION HELP THE APPELLANT IN APPROACHING THE STUDENTS, STUDYING IN SAID SANSTHAN. FURTHER, BECAUSE OF SAID DONATION, HE HAS CARRIED OUT VARIOUS LECTUR ES IN SAID SANSTHAN TO MOTIVATE THE STUDENTS, TO ENROLL THE COMPUTER EDUCATION. THEREFO RE, THE PAYMENT OF SAID DONATION 12 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT IS IN FACT A BUSINESS PROMOTION EXPENDITURE RATHER THAN DONATION AND SHOULD BE ALLOWED U/S 37, AS THE EXPENDITURE WAS INCURRED AS A MEASURE OF COMMERCIAL EXPEDIENCY. IN THIS REGARD, THE AR RELIED UPON CIT VS. RAJASTHA N SPG. & WVG. MILLS LTD. [2005] 147 TAXMAN 131 (RAJ.) WHERE IT WAS HELD THAT THE M OTIVATION OF EXPENDITURE INCURRED FOR ACQUIRING THE BUS AND SURRENDERING IT TO SCHOOL HAS NOT BEEN FOUND TO BE OTHER THAN WHAT HAS BEEN STATED BY THE ASSESSEE I.E . TO SAY THE EXPENSES WERE INCURRED FOR THE BENEFIT OF WELFARE OF THE CHILDREN OF STAFF/WORKMEN OF THE COMPANY AS A PART OF EMPLOYEES WELFARE EXPENSES INCURRED F OR THE PURPOSE OF SECURING HEALTHY SERVICES FOR STAFF MEMBERS. APPLYING THE TE ST INDICATED BY THIS COURT IN THE ORDER REFERRED TO ABOVE, IT IS NOT DIFFICULT TO REA CH TO THE CONCLUSION THAT THE TRIBUNAL WAS RIGHT IN HOLDING THE EXPENSES TO BE INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS AND SINCE THE ASSESS EE HAS NOT ACQUIRED ANY ASSET, IT IS NOT CAPITAL EXPENDITURE EITHER AND, THEREFORE, T HE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION IN FULL UNDER SECTION 37(1). IT IS NOT BE ING CONTENDED BY THE LEARNED COUNSEL FOR THE APPELLANT THAT THE ALLOWANCE OF EXP ENDITURE IS OTHERWISE NOT PROVIDED UNDER ANY PROVISION OF THE ACT. CONSEQUENTLY, THE P RINCIPLE OF LAW WAS CORRECTLY ENUNCIATED AND APPLICATION OF LAW HAS BEEN CORRECTL Y MADE BY THE TRIBUNAL. FROM THE FOREGOING DISCUSSION IT EMERGED THAT IN AL L THE ABOVE CASES DONATION, WHETHER DONATION IN FORM OF BUS OR FOR BUILDING, OR FOR UPGRADING SCHOOL, OR REIMBURSEMENT OF EXPENDITURE, HAS BEEN PAID WHICH H AS BEEN ALLOWED AN A BUSINESS EXPENDITURE U/S 37, AS THESE EXPENSE FOR BENEFIT OF THE BUSINESS. IN THE INSTANT CASE 13 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT ALSO THE DONATION WAS PAID BY THE ASSESSEE, WHOLLY AND EXCLUSIVELY FOR THE BENEFIT OF THE BUSINESS, THUS THE SUBSTANCE IS IMPORTANT RATHE R THAN ITS NOMENCLATURE. PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE AND T HE BANK STATEMENT WAS FURNISHED DURING THE ASSESSMENT PROCEEDINGS, THEREF ORE, DETAIL OF PAYMENT WAS FURNISHED. HOWEVER, AS CONTENDED THE BOOKS OF ACCOU NTS WAS LYING WITH ACCOUNTANT AND APPELLANT WAS NOT IN POSITION TO PRODUCE THE RE CEIPT AS ACCOUNTANT WAS NOT COOPERATIVE WITH HIM. THEREFORE, NON PRODUCTION OF SUCH RECEIPTS BEFORE A.O. IS BECAUSE OF GENUINE HARDSHIP. HOWEVER, APPELLANT FILED COPY OF THE RECEIPT WITH C OMPLETE DETAILS OF PAYMENT AND PAN OF THE RECIPIENT BEFORE CIT(A). THE MONEY GIVEN IS PURELY ON THE BASIS OF THE COMMERCIAL EXPEDIENCY AND SHOULD BE ALLOWED AS BUSI NESS EXPENDITURE. 5.9 LR AR FURTHER SUBMITTED THAT COMMISSION OF RS. 4,37,250/- WAS CLAIMED BY THE ASSESSEE AND IT WAS DISALLOWED, WHILE DISALLOWI NG THE SAME, LD. A.O. AT PAGE 4 OF HIS ORDER HAS OBSERVED THAT IT IS NOT UNDERSTAN D AS TO WHY THE ASSESSEE CLAIMED COMMISSION PAYMENT LET US DISCUSSED LEGAL POSITION IN THIS RESPECT. SECONDLY, THE REASON FOR DISALLOWANCE HAS BEEN GIVEN AT PAGE 5 OF THE ASSESSMENT ORDER AND NOTED THAT OUT OF ALL COMPARABLE CASES I.E. 11 INCLUDING ASSESSEE, ONLY ASSESSEE HAVE PAID THE COMMISSION. A PERUSAL OF THE AOS ORDER SHOWS THAT LD. A.O. HAV E TRIED TO EXAMINE WHETHER ASSESSEE SHOULD PAID THE COMMISSION OR SHOULD NOT P AID THE COMMISSION. IT IS NOT HIS CASE THAT COMMISSION HAS NOT PAID OR BOGUS OR O THER COMMERCIAL CONSIDERATION OR PAYMENT HAS BEEN RECEIVED BY BACK BY THE ASSESSEE O R RECIPIENT ARE NOT TRACEABLE. WHEREAS, FIRSTLY, IT IS A SETTLED LEGAL POSITION, F URTHER, TIME AND AGAIN VARIOUS JUDICIAL 14 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT BODIES HAVE DECIDED THAT THE COMMERCIAL EXPEDIENCY OF EXPENDITURE HAS TO BE JUDGED WITH THE POINT VIEW OF A PRUDENT BUSINESSMAN AND CANNOT OPENED FOR SUBJECTIVE OPINION OF THE ASSESSING OFFICER. THE AS SESSING OFFICER CANNOT STEP INTO THE SHOE OF BUSINESSMAN AND ASSUME THE ROLE OF ASCE RTAINING WHETHER COMMISSION SHOULD BE PAID OR NOT. HOWEVER, WE FURTHER SUBMIT THAT THE TURNOVER OF AJA Y KUMAR SAINI IS RS. 23.88 LACS AND AZAD HUSSAIN IS RS. 13.17 LACS AS AGAINST TURNO VER OF ASSESSEE OF RS. 41.87 LACS, CLEARLY THE TURNOVER OF THE ASSESSEE IS MUCH HIGHER, AND TO ACHIEVE SUCH HIGHER TURNOVER EXTRA EFFORTS ARE REQUIRED TO BE MADE AND HUGE RESOURCES ARE REQUIRED. FURTHER, AS ALREADY ELABORATED HEREINBEFORE, IN SUC H TYPE OF BUSINESS A PERSON IS REQUIRED TO MEET MORE AND MORE PEOPLE TO EXPAND BUS INESS BUT EVERY PERSON HAS HIS OWN LIMITATIONS AND HE CANNOT CONVINCE AND MOTI VATE PEOPLE BEYOND A CERTAIN NUMBER, TO OVERCOME THIS SITUATION OTHER PEOPLE ARE MOTIVATED TO PUBLICIZE AND ENCOURAGE MORE AND MORE PEOPLE TO JOIN THE SCHEME F OR WHICH CONSIDERATION IS PAID IN FORM OF COMMISSION AND WHICH IS INCIDENTAL IN SU CH TYPE OF BUSINESS ACTIVITY. FURTHER ALL CASES RELIED UPON BY THE LD. AO AND THE CIT(A) ARE CLEARLY DISTINGUISHABLE ON THE FACTS. INSTANT CASE IS A CASE, WHERE THE DIS ALLOWANCE HAS BEEN MADE ON THE GROUND THAT OUT OF TOTAL 11 COMPARABLE CASES INCLUD ING ASSESSEE, ONLY ASSESSEE HAS CLAIMED THIS EXPENDITURE. LD. CIT(A) HERE AGAIN CONFIRMED THE ADDITION BY STA TING THAT DETAILS OF RECIPIENTS NOR ANY EVIDENCE OR SERVICE RENDERED BY THEM HAVE BEEN FILED, WHEREAS, LD. A.O. DISALLOWED BY CLAIMING THAT IN NONE OF THE COMPARAB LE CASE AS STATED BY HIM HAVE CLAIMED THE COMMISSION. IT WAS NOT HIS CASE THAT DE TAILS NOT FILED, SINCE BOOKS WERE 15 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT NOT PRODUCED AND ASSESSMENT HAVE BEEN COMPLETED BY INVOKING SECTION 145(3), THEREFORE, UNDER THE CIRCUMSTANCES, THE DISCREPANCI ES BROUGHT BEFORE HIM IN THE FACTS TAKEN INTO ACCOUNT BY THE A.O. SHOULD BE CONS IDERED. FURTHERMORE, NO SUCH DETAILS WERE CALLED DURING THE APPELLATE PROCEEDING S, HENCE, SUCH FINDING IS NOT SUSTAINABLE. THEREFORE, DISALLOWANCE MADE ON WRONG INFERENCE DESERVES TO BE DELETED 5.10. ON THE OTHER HAND, THE LD. D/R FOR THE REVENU E SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5.11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE BOOKS OF ACCOUNTS HAVE BEEN REJECTED U/S 145(3) OF THE ACT AND THE ESTIMATION OF INCOME HAS BEEN MADE BY T HE AO BY MAKING COMPARISON WITH CERTAIN OTHER ASSESSEES IN APPARENTLY SIMILAR LINE OF BUSINESS. IN THIS REGARD THE COURTS HAVE HELD THAT THE ESTIMATE OF INCOME UNDER THE BEST JUDGEMENT ASSESSMENT SHOULD HAVE FAIR LINK OR NEXUS WITH THE AVAILABLE M ATERIAL AND INFORMATION RELATED TO THE TAXPAYER. IT IS ALSO BEEN HELD BY THE COURTS T HAT WHERE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED, THE ESTIMATION OF GP/NP RATE SHOULD BE ON THE BASIS OF COMPARABLE CASES AND WHERE THERE IS NO SUBSTANTIA L CHANGE IN THE FACTUAL POSITION OF THE ASSESSEE, PROFIT DECLARED AND ACCEPTED IN TH E PREVIOUS YEAR CONSTITUTE GOOD BASIS FOR ESTIMATING THE GP/NP RATE. IN THIS REGA RD, USEFUL REFERENCE CAN BE DRAWN TO THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF BRIJ BHUSHAN LAL PURDAN KUMAR 115 ITR 540, THE STATE OF KERALA VS. C. VELUK UTTY 60 ITR 239, AND INANI MARBLES PVT. LTD.(2009) 316 ITR 125 (RAJ.)(HC). IN THE INSTANT CASE, THE LD. AO HAS STATED THAT HE HAS CARRIED OUT THE COMPARISON OF TH E EXPENSES CLAIMED BY THE 16 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT APPELLANT WITH OTHER SIMILAR ASSESSEES IN THE SIMIL AR LINE OF BUSINESS. IT IS NOTED FROM PERUSAL OF THE RECORDS THAT BESIDES LISTING DO WN THE NAME OF THE COMPARABLE CASES, THE AO HAS NOT SPELT OUT HOW SUCH CASES ARE COMPARABLE WITH THAT OF THE APPELLANT AND THE BASIS OF DISALLOWANCE OF THE VA RIOUS EXPENSES WHICH VARY FROM 1% TO 30% OF THE RESPECTIVE EXPENSES. IN ABSENCE OF THIRD PARTY COMPARABLES, MERELY BY SAYING THAT APPELLANT HAS CLAIMED EXCESSI VE EXPENSES ARE NOT SUSTAINABLE IN THE EYES OF LAW. IN OUR VIEW, THE APPROACH OF T HE AO IS CLEARLY ARBITRARY AND IS DEVOID OF ANY RATIONAL AND FAIR BASIS FOR ESTIMATIN G THE INCOME OF THE ASSESSEE. FURTHER, IT IS NOTED THAT DURING THE YEAR UNDER CON SIDERATION, THE APPELLANT HAS DECLARED N.P RATE OF 20.91% ON TOTAL RECEIPT OF RS. 41.87 LACS AS AGAINST N.P RATE OF 20.15% ON TOTAL RECEIPT OF RS. 7.54 LACS IN THE PRE CEDING YEAR. WHERE THE APPROACH FOLLOWED BY THE AO IS APPROVED, IT COULD R ESULT IN THE N.P RATE OF 44.66% WHICH IS CLEARLY ON AN EXTREMELY HIGHER SIDE AND CA NNOT BE SAID TO BE A CLEAR INDICATION OF THE N.P RATE IN THIS LINE OF BUSINESS AND WILL BE ARBITRARY IN NATURE. IN ABSENCE OF COMPARABLE CASES, WE ARE THEREFORE OF TH E VIEW THE PAST HISTORY OF THE APPELLANT IS THE BEST GUIDE TO ESTIMATE THE N.P. RA TE AND GIVEN THAT THE N.P RATE OF 20.91% IS BETTER THAN 20.15% OF THE PRECEDING YEAR, THE APPELLANT DOES NOT DESERVES N.P BASED ADDITION/DISALLOWANCES IN ITS HA NDS INSPITE OF THE FACT THAT THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED. IN THIS REGA RD USEFUL REFERENCE CAN BE DRAWN TO THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF GOTTON LIME KHANIJ UDHYOG 256 ITR 243 WHERE THE COURT HAS HELD THAT ME RE REJECTION IN THE BOOKS OF ACCOUNT WOULD NOT MEAN THAT IT MUST NECESSARILY LEA D TO ADDITIONS TO THE RETURN INCOME. 17 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT 5.12 HAVING SAID THAT, LETS EXAMINE TWO SPECIFIC D ISALLOWANCES IN TERMS OF DONATION AND COMMISSION PAYMENT WHICH HAVE BEEN DEALT WITH A T LENGTH BY THE LOWER AUTHORITIES AND WHOLE OF WHICH HAS BEEN DISALLOWED AND CONFIRMED BY THE LD. CIT(A). FIRSTLY, REGARDING THE DONATION OF RS. 4 LAKHS, THE ASSESSEE HAS SUBMITTED THAT THE SAID AMOUNT WAS GIVEN TO JAIN PRAKASH KEVAN MEMORI AL SHIKSHAN SANSTHAN, JHUNJHUNU AND THOUGH A COPY OF THE RECEIPT COULD NO T BE FURNISHED BEFORE THE AO, THE SAME WAS FURNISHED BEFORE THE LD. CIT(A) WHO HA S FAILED TO CONSIDER THE SAME. THE ASSESSEE HAS SUBMITTED THAT IT IS ENGAGED IN PR OVIDING COMPUTER EDUCATION AND THEREFORE THE NATURE OF ITS BUSINESS REQUIRES INTER ACTION WITH THE STUDENTS IN VARIOUS SCHOOLS AND COLLEGES AND SAID DONATION HELP THE ASS ESSEE IN APPROACHING THE STUDENTS AND DELIVERING VARIOUS LECTURES TO MOTIV ATE THE STUDENTS TO ENROLL FOR THE COMPUTER EDUCATION. THEREFORE, THE SAID PAYMENT OF DONATION IS IN FACT THE BUSINESS PROMOTION EXPENDITURE RATHER THAN THE DONATION AND SHOULD BE ALLOWED U/S 37 OF THE ACT. IN SUPPORT THE ASSESSEE HAS DRAWN REFERENCE T O DECISION OF VARIOUS COURTS INCLUDING HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF RAJASTHAN SPINNING AND WEAVING MILLS LTD. 147 TAXMAN 131. FURTHER WITHOUT PREJUDICE THE ASSESSEE HAS SUBMITTED THAT DEDUCTION SHOULD BE ALLOWED U/S 80G OF THE ACT FOR DONATION PAID BY THE ASSESSEE. WE HAVE GONE THROUGH THE CONTENTIONS OF THE LD. AR AND ALSO VARIOUS DECISIONS RELIED UPON BY HIM. IN OUR VIEW T HE SAID DECISIONS ARE RENDERED IN THE LARGER CONTEXT OF PAYMENTS BY CORPORATES IN THE NATURE OF EMPLOYEE AND THEIR FAMILY WELFARE EXPENDITURE AND FALLS IN THE REALM OF CORPORATE SOCIAL RESPONSIBILITY EXPENDITURE AND ARE THUS DISTINGUISHED ON FACTS. AT THE SAME TIME, THERE IS NO DISPUTE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF OUTREACH TO THE 18 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT STUDENT COMMUNITY TO EDUCATE THEM ABOUT THE COMPUTE R EDUCATION AND THE EXPLANATION OF THE ASSESSEE REGARDING BUSINESS EXPE DIENCY SOUND ACCEPTABLE TO US. IN ANY CASE, IT IS FOR THE ASSESSEE TO DETERMINE TH E EXPENDITURE WHICH IS REQUIRED TO BE INCURRED FOR THE PURPOSES OF THE BUSINESS. THE E DUCATION INSTITUTE IS ALSO REGISTERED FOR THE TAX DEPARTMENT U/S 80G AND AS SU CH, THERE IS NO DISPUTE ABOUT THE EXISTENCE OR INCURRENCE OF SUCH EXPENDITURE. THE SA ID EXPENDITURE IS THEREFORE CLEARLY IN THE NATURE OF BUSINESS EXPENDITURE ALLOW ABLE UNDER SECTION 37(1) OF THE ACT. WE ACCORDINGLY DELETE THE SAID DISALLOWANCE O F RS 4,00,000 IN THE HANDS OF THE APPELLANT. 5.13 NOW COMING TO PAYMENT OF COMMISSION OF RS. 4 ,37,250/-, THE AO HAS DISALLOWED THE SAME WITH OBSERVATION THAT OUT OF AL L THE COMPARABLE CASES EXAMINED BY THE AO, ONLY THE ASSESSEE HAS PAID COMMISSION AN D SOLELY ON THAT ACCOUNT, HE HAS DISALLOWED WHOLE OF THE COMMISSION PAYMENT. FU RTHER, LD CIT(A) HAS HELD THAT WHEN THE ASSESSEE HAS CLAIMED COMMISSION EXPENSES, THE ONUS LIES ON HIM TO PROVE THAT THE SERVICES WERE RENDERED BY THE SAID COMMISS ION AGENTS. MERE CONFIRMATION AND THE PAYMENTS OF COMMISSION BY ACCOUNT PAYEE CHE QUES IS NOT A CONCLUSIVE PROOF THAT ANY SERVICES WERE ACTUALLY RENDERED BY THE COM MISSION AGENT WHO EARNED THAT COMMISSION. IN THIS REGARD, ON PERUSAL OF THE ASSESSMENT ORDER, IT IS NOTED THAT THE LD. AO HAS DISCUSSED IN DETAIL THE BUSINESS MODEL A ND THE MODUS OPERANDI OF THE ASSESSEE COMPANY WHICH IS REPRODUCED BELOW: THAT THE COMPANYS MAIN OBJECT IS IMPARTING OF COM PUTER EDUCATION TO ITS MEMBERS, THE MEMBERSHIP OF THE COMPANY IS SPREAD TH ROUGH THE SCHEME EARN WHILE YOU LEARN. THIS CONCEPT FOLLOWS NETWO RK MARKETING, WHEREAS 19 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT EVERY MEMBER TRIES TO INTRODUCE NEW MEMBERS. WHEN A NEW MEMBER JOINS THE COMPANY, A MAJOR PART OF THE FEES PAID BY IT I S DISTRIBUTED TO THE MEMBERS AT HIGHER STAGES AS PER VARIOUS SCHEMES. T HE COMPANYS MARKETING POLICY IS TO MAKE MORE AND MORE MEMBERS SO THAT THE MEMBERS AND THE COMPANY BOTH EARN ONLY ON ACCOUNT OF EXPANSION OF T HE MEMBERSHIP. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SC HEME OF DISTRIBUTION OF INCENTIVE WAS DISCUSSED. IN THE RELEVANT YEAR, THE MEMBERSHIP HAD BEEN FIXED AT RS. 7800/- WHICH EXCLUDING SERVICE TAX AM OUNTED TO. OUT OF THE SAME, AN AMOUNT IS NORMALLY DISTRIBUTED AS COMMISSI ON TO OTHER MEMBERS WHO ARE IN HIGHER STAGES OF THE MEMBERSHIP. APART FROM THE BASIC COMMISSION, A MEMBER BECOMES E NTITLED TO HIGHER COMMISSION, IF HE MEETS HIGHER TARGETS. DEPENDING O N THE LEVEL OF ONES ACHIEVEMENT, A MEMBER CAN BE CALLED AS A SINGLE ST AR (EXECUTIVE) DOUBLE STAR (SENIOR EXECUTIVE) OR TRIPLE STAR (SUPER SE NIOR EXECUTIVE) . FURTHER ON ACHIEVEMENT OF FURTHER HIGHER FEE TARGET, A M EMBER QUALIFIES TO BECOME A SILVER, GOLD, DIAMOND OR PREEYA STAR. DEPENDING ON THE LEVER OF FEE TARGET MET AND BECOMES ELIGIBLE FOR FURTHER HIGHER AMOUNTS OF COMMISSIONS. AS AGAINST THE BASIC COMMISSION, WHICH COMES AUTOMATICALLY ON THE BASIS OF THE STAGE OF A MEMBER, THE COMMISSION TO STARS OR EXECUTIVES IS DEPEND ON THE FEE TARGET ACHIEVEMENT. AS THE NUMBER OF SUCH EXECUTIVES IS V ERY LESS COMPARED TO THE BASIC MEMBERS, WHEN EVEN SMALL COMPONENT OF THE FEE OF A NEW MEMBER IS APPORTIONED BETWEEN THE EXECUTIVES OR STARS, IT RES ULTS IN A VERY HEFTY PAYMENT. 20 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT THIS HIGHLY LUCRATIVE COMMISSION STRUCTURE HAS MADE THE SCHEME VERY ATTRACTIVE FOR THE NEW MEMBERS, RESULTING IN MANIFO LD EXPANSION IN THE MEMBERSHIP OF THE COMPANY. AS PER THE SCHEMES OF T HE COMPANY, SOME OF THE COMMISSION PAYMENT IS DISTRIBUTED AS MONTHLY IN COME. OR IS SOMETIMES CALLED AS BONUS, ROYALTY OR DIVIDEND ETC. THE ME MBERS OF THE SCHEME ARE GIVEN LIE INSURANCE COVER, SOME MONTHLY INCOME AS W ELL AS SOME OTHER PROMOTIONS. 5.14 ON PERUSAL OF THE ABOVE, IT IS CRYSTAL CLEAR T HAT THE LD. AO HAS EXAMINED THE MATTER IN DETAIL IN TERMS OF RECEIPT OF COMMISSION AND SUBSEQUENT PAYOUT TO VARIOUS MEMBERS AND HAS THUS NOT CHALLENGED SUCH COMMISSION PAYMENT AS BOGUS OR NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS ES OF BUSINESS. RATHER, HE HAS EXAMINED THE NECESSITY AND HOW THE INCURRING OF SUC H EXPENDITURE IS RELEVANT FOR THE PURPOSES OF THE ASSESSEES BUSINESS. THUS, THE APPE LLANT HAS DISCHARGED THE NECESSARY ONUS IN TERMS OF INCURRING OF SUCH BUSINE SS EXPENDITURE. NOW COMING TO THE LIMITED GROUND THAT OUT OF THE COMPARABLE CASES , ONLY ASSESSEE HAS INCURRED THE SAID EXPENDITURE, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE HAS NEVER BEEN CONFRONTED WITH THESE COMPARABLE CASES AND IN THE ABSENCE OF THAT THE SAME CANNOT BE USED AGAINST THE APPELLANT. FURTHER, THE ASSESSEE HAS SUBMITTED THAT BASED ON ITS OWN EFFORTS, DATA REGARDING TWO OF THE COMPARABLE CASES HAVE BEEN COLLECTED AND IN CASE OF AJAY KUMAR SAINI WHERE ASS ESSMENT HAS BEEN FRAMED U/S 143(3) OF THE ACT, THE COMMISSION EXPENDITURE OF RS . 2,30,636/- HAS BEEN ALLOWED. THUS, THE OBSERVATION OF THE AO THAT IN OTHER COMPA RABLE CASES, COMMISSION EXPENDITURE WAS NOT FOUND IS ALSO NOT CORRECT. IN A NY CASE, THE ASSESSEE HAS NOT 21 ITA NO. 410/JP/2013 SHRI SATYA PRAKASH CHOUDHARY VS. DCIT BEEN CONFRONTED WITH SUCH DATA AND IN ABSENCE THERE OF, THE SAME CANNOT BE USED. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE ARE OF THE VIEW THAT THE BUSINESS MODEL OF THE ASSESSEE IS SUCH THAT THE RE ARE RECEIPTS OF COMMISSION AND CORRESPONDING PAY OUT OF COMMISSION IN ORDER TO ATTRACT NEW MEMBERS AND GENERATE MORE BUSINESS. SUCH EXPENDITURE IS THUS C LEARLY IN THE NATURE OF BUSINESS EXPENDITURE AND THE SAME SHOULD BE ALLOWED IN THE H ANDS OF THE ASSESSEE. 5.15 IN THE RESULT THE WHOLE OF THE DISALLOWANCES O F RS 9,94,760 IN THE HANDS OF THE APPELLANT ARE DELETED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 25 /05/201 6. SD/- SD/- VKJ-IH-RKSYKUH FOE FLAG ;KNO (R.P.TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 25/05/2016 DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI SATYA PRAKASH CHOUDHARY, JHU NJHUNU. 2. THE RESPONDENT- THE DCIT, CIRCLE, JHUNJHUNU. 3. THE CIT(A)III, JAIPUR 4. THE CIT, III, JAIPUR 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO.410/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR