ITO Ward 11 (4), V. Interga Products (P) LTd,

ITA 4737/DEL/2007

• Counselvise Citation: 473720114 RSA 2007
• Duration Of Justice: 4 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 07-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Keywords: Business income; Income from undisclosed sources; Non-deduction of tax; Assessment record
• Section: 143(3); 115JB; 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT & SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO. 4737/DEL/2007 ASSESSMENT YEAR: 2003-04 INCOME TAX OFFICER, VS. M/S INTEGRA PRODUCTS P. LT D., WARD 11(4), 100, SOUTH EXTN., PLAZA-1, NEW DELHI. NDSE PART-II, NEW DELHI. AAACI 2448H (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SALIL MISHRA, SR. DR RESPONDENT BY : S/SH. S.D. KAPILA, PRAVESH SHARMA, R.R. MORYA, ADVOCATES ORDER PER C.L. SETHI, J.M. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPE AL FILED AGAINST THE ORDER DATED 28.09.2007 PASSED BY THE LD. CIT(A), FOR THE A.Y. 2003-04 IS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE COMMISSION INCOME OF RS. 89,93,990/- AS BUSINESS INCOME INSTEAD OF INCOME FROM UNDISCLOSED SOURCES AS ASSESSED IN THE ASSESSMENT ORDER DATED 29.03.2006 U/S 143(3), BY APPLYING THE PROVISION OF SECTION 68. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT ANY TIME OF TH E HEARING. ITA NO. 4737/D/07 2 2. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10 .2003 DECLARING TOTAL INCOME AT RS. 1,43,817/-. THE ASSE SSEE HAS ALSO WORKED OUT THE TOTAL INCOME ON THE BASIS OF BO OK PROFIT U/S 115JB AT RS. 6,86,027/- ON WHICH TAX WAS PAID. THE RETURN WAS SELECTED FOR SCRUTINY AND, ACCORDINGLY, NOTICE U/S 143(2) WAS DULY ISSUED AND SERVED UPON THE ASSESSEE. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD SHOWN COMM ISSION INCOME AMOUNTING TO RS. 89,93,990/- IN THE PROFIT A ND LOSS ACCOUNT AGAINST WHICH THE ASSESSEE CLAIMED EXPENSES ON ACCOUNT OF SALARY OF RS. 1,02,792/- AND MISCELLANEO US EXPENSES OF RS. 77,208/-. THE ASSESSEE COMPANY WAS ASKED BY THE AO VIDE ORDER-SHEET ENTRY DATED 07.02.2006 T O FURNISH DETAILS OF COMMISSION RECEIVED AND ALSO TO EXPLAIN THE SERVICES PROVIDED BY THE ASSESSEE TO M/S GREAT VALU E FOODS LTD. FROM WHOM COMMISSION WAS RECEIVED. THE ASSESS EE WAS ASKED TO EXPLAIN THE SAME WITH DOCUMENTARY EVIDENCE S AND WAS ALSO ASKED TO FURNISH COPY OF AGREEMENT, IF ANY . THE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED BEFOR E THE AO AND FILED CERTAIN REQUIRED DETAILS. TO VERIFY T HE FACTUM OF COMMISSION RECEIVED BY THE ASSESSEE, THE ASSESSEE W AS ITA NO. 4737/D/07 3 ASKED BY THE AO TO PRODUCE THE DIRECTOR OF THE ASSE SSEE COMPANY. HOWEVER, ON THE DATE OF HEARING, NOBODY A TTENDED THE PROCEEDINGS. THEREAFTER, TO VERIFY THE GENUINE NESS OF COMMISSION THE AO ISSUED SUMMON U/S 131 OF THE ACT TO THE PRINCIPAL OFFICER OF M/S GREAT VALUE FOODS LTD. FIX ING THE MATTER ON 20.02.2006. NOBODY FOR AND ON BEHALF OF GREAT VALUE FOODS LTD. HAD APPEARED BEFORE THE AO ON THE DATE FIXED. THEREAFTER, ASSESSEES AUTHORIZED REPRESENT ATIVE APPEARED ON 21.03.2006 AND FILED CERTAIN DETAILS AL ONG WITH LETTER DATED 21.03.2006 AND EXPLAINED THAT SINCE AS SESSEES DIRECTOR WAS OUT OF STATION, THE ASSESSEE COMPANY C OULD NOT PRODUCED HIM AS ASKED FOR. THE AO, THEN, ISSUED A LETTER DATED 24.03.2006 TO THE ASSESSEE COMPANY TO EXPLAIN AS TO WHY INCOME FROM COMMISSION IS NOT TO BE ASSESSED ON PROTECTIVE BASIS AS ASSESSEE FAILED TO JUSTIFY THAT ANY SERVICES WERE PROVIDED/RENDERED BY THE ASSESSEE COMPANY TO G REAT VALUE FOODS LTD. IN REPLY, THE ASSESSEE VIDE LETTE R DATED 27.03.2006 SUBMITTED THAT THE COMMISSION RECEIVED I S ASSESSABLE AS BUSINESS INCOME AND NOT ON PROTECTIVE BASIS AS THE ASSESSEE COMPANY WAS RENDERING THE SERVICES AS AN AGENT FOR COLLECTION OF PAYMENTS FROM THE CLIENTS O F M/S GREAT VALUE FOODS LTD. HOWEVER, THE AO HAS STATED THAT A SSESSEE HAS NOT GIVEN THE DETAILS OF MODUS-OPERANDI OR RESO URCES ITA NO. 4737/D/07 4 WHICH THE ASSESSEE USED TO RECOVER HUGE PAYMENTS FR OM THE DEBTORS, AND ASSESSEE HAS ALSO NOT BEEN ABLE TO EXP LAIN AS TO WHY M/S GREAT VALUE FOODS LTD. WAS NOT ABLE TO RECO VER THE PAYMENTS FROM DEBTORS AND APPOINTED SUB-AGENTS. TH E AO, THEREFORE, TAKEN A VIEW THAT NO SERVICES WERE PROVIDED/RENDERED BY THE ASSESSEE COMPANY TO M/S GR EAT VALUE FOODS LTD., BUT TO REDUCE THE TAX LIABILITY, M/S GREAT VALUE FOODS LTD. HAS SHOWN AS COMMISSION PAID AND T HE ASSESSEE HAS SHOWN THE INCOME OF COMMISSION TO SET OFF THE SAME AGAINST BROUGHT FORWARD BUSINESS LOSSES. THE AO, THEREFORE, TAKEN A VIEW THAT ASSESSEE IN CONNIVANCE WITH M/S GREAT VALUE FOODS LTD. HAS TRIED TO ROUTE ITS UNDIS CLOSED INCOME UNDER THE GARB OF COMMISSION, AND HAS TRIED TO EVADE TAXES THEREON BY ADJUSTING BROUGHT FORWARD LOSSES, AND THUS, ALLOWING OPPORTUNITY TO M/S GREAT VALUE FOODS LTD. TO CLAIM BOGUS EXPENSES AS COMMISSION PAID TO THE ASSESSEE. THE AO, THEREFORE, TREATED THE AMOUNT LIABLE TO BE TAXE D AS INCOME FROM UNDISCLOSED SOURCES U/S 68 OF THE ACT AND ASSE SSED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES AND THEREBY DENYING THE BENEFIT OF SET OFF OF BROUGHT F ORWARD LOSSES TO THE ASSESSEE. ITA NO. 4737/D/07 5 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A), THE SUBMISSIONS OF THE AS SESSEE WERE, IN BRIEF AS UNDER: - I) SINCE INCORPORATION ON 15.05.1987 THE ASSESSEE COMPANY HAVE BEEN ENGAGED IN VARIOUS BUSINESS ACTIVITIES; II) THAT M/S GREAT VALUE FOODS LTD. WAS AN AGENT OF MODERN FOOD INDS. INDIA LTD. AND THE LATTER SUPPLIE D MID DAY MEALS UNDER THE U.P. GOVERNMENTS INTEGRATED CHILD DEVELOPMENT PROGRAMME TO GOVT. AIDED SCHOOLS IN U.P. M/S GREAT VALUE FOODS LTD. APPOINTED THE ASSESSEE AS ITS SUB AGENT FOR REALIZING OUTSTANDING PAYMENT AND FOR LIAISON WITH THE GOVT. DEPARTMENTS, AND THE ASSESSEE COMPANY WAS PROVIDING ASSISTANCE IN COLLECTING OLD OUTSTANDING DUES IN RESPECT OF SUPPLIES MADE BY MODERN FOOD INDIA LTD. THE FLOW SHEET OF THE ACTIVITIES AND STAGES INVOLVED IN CONNECTION WITH T HE RELEASE OF PAYMENT TO MODERN FOODS LTD. WAS FURNISHED WHICH WOULD INDICATE FAIRLY THE NATURE OF SERVICES RENDERED BY THE ASSESSEE IN REALIZING THE PAYMENTS. THE M/S GREAT VALUE FOODS LTD. IS NOT RELATED TO THE ASSESSEE IN ANY MANNER AND, THEREFORE, THERE WAS NO JUSTIFICATION IN HOLDING TH AT THE ASSESSEE COMPANY HAS NOT RENDERED ANY SERVICES FOR WHICH IT WAS PAID COMMISSION BY GREAT VALUE FOODS LTD. ITA NO. 4737/D/07 6 6. WITH REGARD TO INVOKING OF THE PROVISIONS OF SEC TION 68 OF THE ACT THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A ) THAT ADDITION U/S 68 IN THIS CASE WAS NOT CALLED FOR. 7. THE LD. CIT(A) ALSO CALLED FOR A REMAND REPORT F ROM THE AO, WHERE THE AO REITERATED HIS STAND THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE AND ESTABLISH OF ANY SERVICES BE ING RENDERED BY THE ASSESSEE COMPANY TO M/S GREAT VALUE FOODS LTD. 8. THE ASSESSEE THEN SUBMITTED A COUNTER REPLY TO T HE REMAND REPORT SUBMITTED BY THE ASSESSEE WHICH HAS B EEN DISCUSSED BY THE LD. CIT(A) IN PARA 1.5 OF HIS ORDE R. 9. AFTER CONSIDERING THE AOS ORDER, HIS REMAND REP ORT, ASSESSEES SUBMISSION, AND THE ASSESSEES COUNTER R EPLY TO THE REMAND REPORT, THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: - 2(A) I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER AND AS PER REMAND REPORT, AND THE FACTS ON RECORD. ON AN ANALYSIS OF FACTS AND UPON HIS INTERPRETATION, THE AO HOLD THAT THE PROVISIONS OF SEC. 68 ARE ATTRACTED IN ITA NO. 4737/D/07 7 THIS CASE, SINCE THE APPELLANT HAS INTRODUCED ITS UNDISCLOSED INCOME THROUGH GREAT VALUE FOODS LTD. UNDER THE GARB OF COMMISSION. THIS LINE OF ARGUMENT IS REQUIRED TO BE CONSIDERED IN THE CONTEXT OF THE LEGAL INTERPRETATION ON THE SCOPE OF SECTION 68. ACCORDING TO SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT SATISFACTORY IN THE OPINION OF THE AO, THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. IN THE CASE OF SHANKER INDS. VS. CIT 114 ITR 689 (CAL.), IT WAS HELD THAT THE ASSESSEE MUST PROVE PRIMA FACIE THE TRANSACTION WHICH RESULTS IN A CREDIT IN HIS BOOKS OF ACCOUNTS. SUCH PROOF INCLUDES THE PROOF OF IDENTITY OF THE PAYER, THE CAPACITY OF THE CREDITORS TO ADVANCE THE MONEY AND LASTLY THE GENUINENESS OF THE TRANSACTION. ONLY AFTER THE ASSESSEE HAS ADDUCED EVIDENCE TO ESTABLISH PRIMA FACIE THE AFORESAID, THAT THE ONUS SHIFTS TO THE DEPARTMENT. IN THE CASE UNDER APPEAL, THE GENUINENESS OF THE PAYER I.E. GREAT VALUE FOODS LTD. HAS NOT BEEN DOUBTED. IN FACT, THROUGH LETTER DATED 13.10.06 TO THE AO IN COURSE OF THE REMAND PROCEEDINGS THAT GREAT ITA NO. 4737/D/07 8 VALUE FOODS LTD. CONFIRMED THE FACT OF PAYMENT OF COMMISSION TO THE APPELLANT AND ALSO CONFIRMED THE CURRENCY OF THE AGREEMENT UNDER WHICH SUCH COMMISSION HAS BEEN PAID FOR THE RELEVANT YEAR. THE AO HAS NOT DOUBTED THE GENUINENESS AS REGARDS THE IDENTITY OF THE PAYER. AS REGARDS THE SECOND LIMB OF THE REQUIREMENT FOR INVOKING THE PROVISIONS OF SECTION 68 I.E. CREDITWORTHINESS OF THE PAYER, A COPY OF LEDGER A/C OF THE APPELLANT IN THE BOOKS OF GREAT VALUE FOODS LTD. HAS BEEN SUBMITTED TO THE AO IN COURSE OF REMAND PROCEEDINGS AND WHICH IN TURN HAS BEEN SUBMITTED BY THE AO IN COURSE OF THE PRESENT APPEAL PROCEEDING. THE APPELLANT HAS BEEN PAID RS. 66,30,978/- FROM OUT OF A TOTAL OF RS. 89,94,762/-, PAYABLE BY GREAT VALUE FOODS LTD. FOR THE YEAR UNDER APPEAL. THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE PAYER DID NOT HAVE THE CAPACITY TO PAY OR THAT THE PAYER ONLY CHANNELED THE UNACCOUNTED FUNDS OF THE APPELLANT THROUGH THE GUISE OF COMMISSION. THE ISSUE OF CREDITWORTHINESS COULD HAVE BEEN CALLED TO QUESTION, IF THE APPELLANT WOULD HAVE FAILED TO PROVE THE CAPACITY OF THE PERSON FROM WHOM PAYMENTS HAVE BEEN RECEIVED. IN THE CASE UNDER APPEAL M/S GREAT VALUE FOODS LTD. CONFIRMED THE FACT OF THE PAYMENT, THE ITA NO. 4737/D/07 9 SOURCES FROM WHICH THE PAYMENTS HAVE BEEN MADE AND WHY SUCH PAYMENTS HAVE BEEN MADE TO THE APPELLANT. I HOLD THAT THE ISSUE OF CREDITWORTHINESS OF THE PAYER IS NOT A MATTER OF DISPUTE IN ORDER TO INVOKE THE PROVISIONS OF SEC. 68 OF THE ACT. AS REGARDS THE GENUINENESS OF THE TRANSACTION RESULTING IN PAYMENT TO THE APPELLANT, IT IS A SETTLED JUDICIAL POSITION THAT THE RECIPIENT IN QUESTION HAS TO PROVE THAT THE TRANSACTION IS REAL, TRUE AND NOT COUNTERFEIT. THAT IN ASCERTAINING THE GENUINENESS OF THE TRANSACTION, THE RECIPIENT MAY AS WELL BRING ON RECORD EVIDENCES WITH REGARD TO CONFIRMATION FROM THE PAYER THAT THE PAYER HAS INDEED MADE THE IMPUGNED PAYMENT. IN THE CASE UNDER APPEAL, GREAT VALUE FOODS LTD. CONFIRMS TO HAVE MADE THE PAYMENT. IT HAS BROUGHT ON RECORD EVIDENCES TO SHOW THE MANNER OF THE TRANSMISSION OF FUNDS. THERE IS NO OTHER EVIDENCE REQUIRED IN ORDER TO PROVE THE GENUINENESS OF A CREDIT, IN VIEW OF THE FACT THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE APPELLANTS OWN UNACCOUNTED INCOME OF EARLIER YEARS HAVE BEEN ROUTED THROUGH THE MODALITY OF COMMISSION IN ITS OWN BOOKS. I HOLD THAT NONE OF THE 3 LIMBS FOR INVOKING THE PROVISIONS OF SECTION 68 HAVE NOT BEEN SATISFIED IN RESPECT OF THE PAYMENTS SAID TO HAVE BEEN RECEIVED FROM GREAT VALUE FOODS LTD. ITA NO. 4737/D/07 10 EVEN OTHERWISE, WHAT HAS BEEN OFFERED AS AN INCOME IN THE RETURN CANNOT BE TAXED AS UNDISCLOSED INCOME. SECTION 68 READS AS UNDER : WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NO, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASESSEE OF THAT PREVIOUS YEAR. IN THE CASE UNDER APPEAL, RECEIPTS FROM GREAT VALUE FOODS LTD. BY WAY OF COMMISSION HAVE BEEN CREDITED TO THE APPELLANTS BOOKS OF ACCOUNT. THEY HAVE ALSO BEEN OFFERED TO TAX, SINCE MADE TO FORM PART OF GROSS INCOME (RS. 1,39,34,636/-), AS PER THE P&L A/C. SINCE DECLARED SUO MOTU AS AN INCOME BEARING ENTRY IN THE APPELLANTS P&L A/C, THE PROVISIONS OF SECTION 68 DO NOT APPLY. (B) THE OTHER LIMB OF THE AOS ARGUMENT IS THAT THE COMPANY RECEIVED COMMISSION FOR THE FIRST TIME IN THE YEAR UNDER ASSESSMENT. THAT THERE WERE NO COMMENSURATE EXPENSES TO JUSTIFY THE RECEIPT OF SUCH LARGE SUM OF MONEY. THAT THE ARRANGEMENT OF COMMISSION WAS CONTRIVED, IN SO FAR AS GREAT VALUE FOODS LTD. RECEIVED ENTRIES OF EXPENDITURE AND THAT THE APPELLANT DID NOT HAVE TO PAY TAXES ON THE ITA NO. 4737/D/07 11 AMOUNT OF COMMISSION RECEIVED, SINCE IT WAS CARRYING BUSINESS LOSSES. IN THAT VIEW, THE AO HOLDS THAT COMMISSION SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. FURTHER IN THE REMAND REPORT, IT WAS STATED THAT THERE IS NO EVIDENCE OF ANY ACTIVITIES CARRIED ON BY THE APPELLANT FOR REALIZATION OF PROCEEDS FROM UP GOVT. AS THE SUB AGENT OF GREAT VALUE FOODS LTD. THAT WHERE AS THE APPELLANT WAS REQUIRED TO MAINTAIN MAN POWER RESOURCES, TRAVELING, MAINTENANCE OF OFFICE OR DOCUMENTATION ETC. IN ORDER TO REALIZE THE PAYMENTS FROM UP GOVT., THERE ARE NO WORTHWHILE EVIDENCES OF COMMENSURATE EXPENSES, AND THE EXPENDITURE ON SALARY OF RS. 1,02,792/- OR MISCELLANEOUS EXPENSES OF RS. 77,208/- DO NOT ADEQUATELY JUSTIFY HUGE RECEIPT OF COMMISSION. THE AO FURTHER HOLDS IN THE REMAND REPORT THAT THERE IS NO REASON FOR PAYMENT OF DIFFERENT RATES OF COMMISSION FOR DIFFERENT PERIODS OR THE LACK OF A CLAUSE REGARDING PENAL DEDUCTION IN CASE OF DELAY IN RECOVERY. THAT THE AGREEMENTS ARE NOT LEGALLY PROPER, IN AS MUCH AS THERE ARE NO WITNESSES, AND THAT THESE HAVE NOT BEEN EXECUTED ON STAMP PAPER. IT HAS ALSO BEEN STATED IN THE REMAND REPORT THAT WHILE ALLOWING CREDIT TO THE APPELLANT WITH REGARD TO COMMISSION, NO TAX HAS BEEN DEDUCTED AT SOURCE BY GREAT VALUE FOODS LTD. MOREOVER THE AO INFERS INCIDENCE ITA NO. 4737/D/07 12 OF ADVANCE PAYMENT IN THE ARRANGEMENT BETWEEN MODERN FOODS INDIA LTD. AND M/S GREAT VALUE FOODS LTD., WHEREAS THERE IS NO SUCH CLAUSE IN THE AGREEMENT. THE FACTS AS PER DOCUMENTS ON RECORD RUN THUS : MODERN FOODS INDS. INDIA LTD. VIDE LETTER DATED 02.01.02 TO GREAT VALUE FOODS LTD. FORMALIZED AN ARRANGEMENT WITH THE LATTER IN RESPECT OF SUPPLEMENTARY NUTRITION FOODS (SNF) BUSINESS IN U.P. AND OTHER STATES. GREAT VALUE FOODS LTD. WAS APPOINTED AS SNF ORDER DISTRIBUTION AND COLLECTION AGENT FOR U.P., UTTRANCHAL, MAHARASHTRA, TAMILNADU. GREAT VALUE FOODS LTD. WAS TO MAINTAIN AND EXPAND THE SNF BUSINESS IN U.P. AND OTHER STATES OF UTTRANCHAL, ORISSA, MAHARASHTRA, TAMILNADU AND HIMACHAL PRADESH. EXPENSES ON HUMAN RESOURCES, TRAVELING AND OTHER CHARGES FOR THE PURPOSE OF THE SNF BUSINESS OF MODERN FOODS INDIA LTD. WAS TO BE TO THE ACCOUNT OF GREAT VALUE FOODS LTD. AMONG OTHERS, GREAT VALUE FOODS LTD. WAS REQUIRED TO (A) CO-ORDINATE IN FILING OF TENDERS, OBTAINING SPECIAL DOCUMENTATION (B) IN U.P., SUPPORT FOR PROVIDING INTENSIVE SERVICES TO BLOCK OFFICES, SO THAT PAYMENTS ARE RELEASED IN A TIMELY MANNER (C) COORDINATING WITH QUALITY CONTROL AGENCY (D) OBTAINING PERMISSION FOR SUGAR MIXING FOR WFP ORDERS BY MFIL BY THE STATE CONCERNED (E) COORDINATING FOR EXTERNAL ITA NO. 4737/D/07 13 CERTIFICATION (F) ENSURING RECEIPTS OF PAYMENT WITHIN THE STIPULATED TIME OF 60 DAYS FROM THE DATE OF BILL RECEIVED AT THE DEPARTMENT BY COORDINATING WITH CHILD DEVELOPMENT BLOCK OFFICES, ICDS DEPARTMENT AND THE TREASURY. IN TERMS OF THE AGREEMENT, GREAT VALUE FOOD LTD. WAS TO BE PAID 2% OF THE SALE VALUE REALIZED FOR THE PERIOD JANUARY TO JUNE, 2002 AND 4% OF THE SALES VALUE REALIZED FROM JULY TO DECEMBER, 2002. THE AGREEMENT ABOVE HAS BEEN EXTENDED VIDE LETTER OF MODERN FOODS INDS. INDIA LTD. DATED 07.01.03, WHEREBY THE CURRENCY OF THE OLD AGREEMENT HAS BEEN EXTENDED TO 30 TH JUNE, 2003, AND THAT THE AGENCY COMMISSION HAS BEEN AMENDED TO 3%. FOLLOWING THE AGENCY AGREEMENT DATED 02.01.02 BETWEEN MODERN FOODS INDS. INDIA LTD. AND GREAT VALUE FOODS LTD., THE APPELLANT HAS ENTERED INTO A SUB AGENCY AGREEMENT WITH GREAT VALUE FOODS LTD. ON 01.04.02. CLAUSES 1, 2, 9, 10, 11, 13, 14, 15, 16, 17 & 18 OF THE AGREEMENT BETWEEN MODERN FOODS INDS. INDIA LTD. & GREAT VALUE FOODS LTD. (DATED 02.01.02) ARE IDENTICAL TO THE CLAUSES IN THE AGREEMENT BETWEEN THE APPELLANT AND GREAT VALUE FOODS LTD. (DATED 01.04.02) EXCEPT THAT THE APPELLANTS HAVE BEEN DESIGNATED AS THE SNF ORDER DISTRIBUTION AND COLLECTION AGENT FOR ITA NO. 4737/D/07 14 U.P. ONLY. THAT THE APPELLANT HAS BEEN SPECIFICALLY MADE RESPONSIBLE FOR ENSURING RECEIPTS OF PAYMENTS WITHIN THE STIPULATED TIME OF 60 DAYS FROM THE DATE ;OF BILL RECEIPTS AT THE DEPARTMENT BY COORDINATING WITH CHILD DEVELOPMENT BLOCK OFFICES, ICDS DEPARTMENT AND THE TREASURY. HOWEVER, AS PER CLAUSE 8 OF THE AGREEMENT BETWEEN THE APPELLANT AND GREAT VALUE FOODS LTD., THE APPELLANT WAS TO RECEIVE GRADED % OF COMMISSION ON SALES VALUE REALIZED FOR SNF (0.95% OF SALES FROM APRIL TO JUNE, 2002, 1.25% OF SALES FROM JULY TO DECEMBER, 2002, 1% OF SALES FROM JANUARY TO MARCH, 2003 ETC.) GREAT VALUE FOODS LTD. IN ITS COMPLIANCES BEFORE THE AO IN COURSE OF REMAND PROCEEDINGS HAS PROVIDED THE BASIS FOR DETERMINING THE SUB-COMMISSION DUE TO THE APPELLANT IN RESPECT OF REALIZATION OF DUES OF MODERN FOODS INDS. INDIA LTD. FROM THE GOVT. OF U.P. THE TABULATION IS AS UNDER: MONTH PAYMENT RECEIVED MODERN FROM UP GOVT. (RS.) NET AMOUNT PAYABLE (RS.) MAY, 2002 99430641 944591 JUNE, 2002 57181989 543229 JULY, 2002 37603885 522810 AUGUST, 2002 86549038 1081863 SEPTEMBER, 2002 59756031 746950 OCTOBER, 2002 83944562 1049307 NOVEMBER, 2002 85133797 1119052 DECEMBER, 2002 85103834 1137867 JANUARY, 2003 91485780 914858 FEBRUARY, 2003 30909 MARCH, 2003 90332749 903327 ITA NO. 4737/D/07 15 THE RATE OF PAYMENT OF SUB COMMISSION TO THEN APPELLANT FROM GREAT VALUE FOODS LTD. WAS NOT IN ANY MANNER DIFFERENT FROM THE RATE AT WHICH SUCH COMMISSION WAS TO BE PAID AS PER THE AGREEMENT DATED 01.04.02. THE AMOUNTS DUE TO THE APPELLANT IN RESPECT OF ITS WORK TOWARDS REALIZATION OF DUES FROM THE GOVT. FROM THE MONTH OF MAY, 2002 TO MARCH, 2003 AMOUNTED TO RS. 89,93,990/-. OF THE ABOVE, GREAT VALUE FOODS LTD. PAID RS. 18,95,000/-, RS. 20,00,000/-, RS. 23,68,750/-, VARIOUSLY ON 14.12.02, 24.12.02 AND 25.02.03 TO THE APPELLANT BY CHEQUE ON HDFC BANK. AFTER THE END OF THE RELEVANT ASSESSMENT YEAR, THE BALANCE HAS BEEN PAID ON 31.05.03 (RS. 9,47,500/-) AND ON 02.06.03 (RS. 14,15,555/-). THE AMOUNT OF SUB COMMISSION TO THE APPELLANT IN RESPECT OF REALIZATION OF DUES FROM THE UP GOVT. OF RECEIVABLE OF MODERN FOODS INDS. INDIA LTD., WAS IN TURN DEPENDENT ON THE AMOUNT OF COMMISSION PAYABLE BY MODERN FOODS INDS. INDIA LTD. TO GREAT VALUE FOODS LTD., GREAT VALUE FOODS LTD. HAS CONFIRMED BEFORE THE AO IN COURSE OF THE REMAND PROCEEDINGS THAT WITH REGARD TO REALIZATION OF DUES TO MODERN FOODS INDS. INDIA LTD., IT HAS ACCOUNTED FOR A TOTAL AMOUNT OF RS. 2,69,21,587/- BY WAY OF COMMISSION FROM MODERN FOODS INDS. INDIA LTD. THE ENTIRE AMOUNT BARRING RS. 7,13,825/- HAS BEEN ITA NO. 4737/D/07 16 RECEIVED BY GREAT VALUE FOODS LTD. FROM MODERN FOODS INDS. LTD. BEFORE THE END OF A.Y. 2003-04. 3. IN THE LIGHT OF THE FACTUAL DETAILS OF THE CASE MENTIONED HEREIN BEFORE, MY FINDING ON THE ISSUE ON HAND IS AS UNDER: (A) THE AO STATES THAT NO TAX HAS BEEN DEDUCTED AT SOURCE IN RESPECT OF CREDIT OF THE AMOUNTS DUE TO THE APPELLANT FROM GREAT VALUE FOODS LTD. THE COPY OF ACCOUNT OF THE APPELLANT IN THE BOOKS OF GREAT VALUE FOODS LTD. SHOWS TDS OF RS. 1,25,000/- ON 31.12.02, RS. 1,31,250/- ON 26.02.03 AND RS. 1,30,935/- ON 31.03.03. TDS HAS BEEN MADE AT THE TIME OF PAYMENT OF SUB AGENCY COMMISSION TO THE APPELLANT. IN CASE THAT TDS HAS NOT BEEN MADE ON THE AMOUNT AT THE TIME OF CREDIT OF RS. 48,88,750/- (CREDITED ON 31.10.02), AND CREDIT OF RS. 41,06,012/- (ON 31.03.03) BY GREAT VALUE FOODS LTD., BUT SUCH TDS HAS BEEN MADE AT THE TIME OF ACTUAL PAYMENT ONLY, THE FAILURE TO DEDUCT TAX AT SOURCE IS NOT A GROUND TO HOLD THAT THE PAYMENTS FROM GREAT VALUE FOODS LTD. WAS OF A NATURE, DIFFERENT FROM WHAT HAS BEEN STATED IN THE AGREEMENT BETWEEN THE APPELLANT AND GREAT VALUE FOODS LTD. (B) IN SO FAR AS THE AO STATES THAT AN AMOUNT OF RS. 30.00 LAKHS HAS BEEN PAID BY MODERN FOODS INDS. INDIA LTD. TO GREAT VALUE ITA NO. 4737/D/07 17 FOODS LTD. ON 17.04.02, WHEN IN FACT NO REALIZATION OF DUES HAD BEEN EFFECTED, THE ARRANGEMENT OF PAYMENT OF AGENCY COMMISSION BY MODERN FOODS INDS. INDIA LTD. TO GREAT VALUE FOODS LTD., WHETHER ON ACCOUNT OR OTHERWISE, DOES NOT HAVE A FACTUAL OR LEGAL BEARING TO DECIDE ON THE NATURE OF THE RECEIPTS FROM GREAT VALUE FOODS LTD. BY THE APPELLANT. IN ANY CASE, THE APPELLANT HAS BEEN CREDITED WITH AN AMOUNT OF SUB AGENCY COMMISSION BY GREAT VALUE FOODS LTD. ONLY IN THE MONTH OF OCTOBER, 2002 AND THEREAFTER IN MARCH, 2003, WHEN IN FACT GREAT VALUE FOODS LTD. HAVE CONFIRMED THAT DUES FROM UP GOVT. HAVE BEEN REALIZED SINCE MAY, 2002. (C) THE AO STATES THAT THE AGREEMENTS BETWEEN THE APPELLANT AND GREAT VALUE FOODS LTD. AND THAT BETWEEN GREAT VALUE FOODS LTD. AND MODERN FOODS INDS. INDIA LTD. ARE NOT LEGAL, SICNE NOT EXECUTED ON STAMP PAPER OR COUNTER SIGNED BY INDEPENDENT WITNESSES. THAT THERE SHOULD HAVE BEEN NO DIFFERENT SLABS OF COMMISSION PAYMENT FOR DIFFERENT PERIODS, AND THAT THERE SHOULD HAVE BEEN A PENAL CLAUSE, IN CASE OF DELAY IN RECOVERY. THE ARGUMENTS ARE BEREFT OF MERITS. IN SO FAR AS THE AGREEMENTS AS PER LETTER DATED 01.04.02 OF GREAT VALUE FOODS LTD. TO THE APPELLANT, OR AS PER LETTER DATED 02.01.02 AND 07.01.03 OF MODERN FOODS INDS. INDIA LTD. TO ITA NO. 4737/D/07 18 GREAT VALUE FOODS LTD. HAVE BEEN ACTED UPON BY THE PARTIES TO THE RESPECTIVE AGREEMENT, THOSE COULD NOT HAVE BEEN ASSAILED ON GROUNDS OF FRAUD OR MISREPRESENTATION, WITHOUT THE SUPPORT OF ATTENDANT EVIDENCE. AGENCY COMMISSION HAS BEEN PAID BY MODERN FOODS INDS. INDIA LTD., AND SUB AGENCY COMMISSION HAS BEEN PAID BY GREAT VALUE FOODS LTD. ON THE BASIS OF AGREEMENTS IN FORM OF LETTERS. SINCE THERE IS NO LEGAL REQUIREMENT TO REDUCE THE TERMS OF THE AGREEMENT ON A STAMP PAPER BEFORE INDEPENDENT WITNESSES, FOR THE PURPOSES OF DETERMINING THE FINANCIAL SIGNIFICANCE OF THE SAID AGREEMENT FOR THE PURPOSES OF DECIDING THE NATURE OF RECEIPT THEREIN AND TAXABILITY THEREOF, I HOLD THAT THERE WAS NO BASIS TO HOLD THE NATURE OF RECEIPT AS INCOME FROM OTHER SOURCES/UNDISCLOSED SOURCES ON THE PREMISE THAT THE AGREEMENT WAS NOT DOCUMENTED ON A STAMP PAPER. AS REGARDS ABSENCE OF A CLAUSE FOR PENAL DEDUCTION IN THE EVENT OF DELAY IN RECOVERY, THE AO COULD NOT HAVE PRONOUNCED UPON THE TERMS OF THE AGREEMENT OR THE COMMERCIAL EXIGENCIES FOR NOT HAVING SUCH A CLAUSE IN THE AGREEMENT, SINCE IT IS NOT OPEN TO THE AO IN THE CASE OF THE APPELLANT TO PRESCRIBE WHAT EXPENDITURE MUST GREAT VALUE FOODS LTD. INCUR, WHAT CIRCUMSTANCES IT SHOULD HAVE INCURRED THE EXPENDITURE AND WHAT SHOULD BE ITA NO. 4737/D/07 19 THE FORM OF THE AGREEMENT UNDER WHICH SUCH EXPENDITURE COULD HAVE BEEN INCURRED. THE AOS ARGUMENT THAT IN THE ABSENCE OF A PENAL CLAUSE IN THE AGREEMENT WITH GREAT VALUE FOODS LTD., THE RECEIPTS THERE-FROM PARTAKE THE CHARACTER OF INCOME FROM UNDISCLOSED SOURCES/OTHER SOURCES IS WITHOUT MERITS. (D) IT HAS BEEN STATED AT PAGE 1 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAS SHOWN COMMISSION RECEIVED AMOUNTING TO RS. 89,93,990/- FIRST TIME IN THE YEAR UNDER ASSESSMENT. THE FINDING IS FACTUALLY INCORRECT. THE APPELLANT HAS SHOWN INCOME FROM COMMISSION AMOUNTING TO RS. 88,46,099/- IN ITS RETURN FOR A.Y. 1993-94, RS. 5,99,420/- IN ITS RETURN FOR A.Y. 1994-95, RS. 83,346/- IN ITS RETURN FOR A.Y. 1998-99, RS. 16,67,858/- IN ITS RETURN FOR A.Y. 2000-01. IT HAS BEEN CLAIMED BY THE APPELLANT THAT IN NONE OF THE YEARS IN WHICH SUCH COMMISSION INCOME WAS DISCLOSED IN THE ACCOUNTS, THAT A DIFFERENT VIEW HAS BEEN TAKEN BY THE DEPARTMENT IN ORDER TO CHARACTERIZE THE NATURE OF RECEIPT OF COMMISSION AS INCOME FROM UNDISCLOSED SOURCES OR FORM OTHER SOURCES. THE CLAIM IS SUBSTANTIATED WITH REFERENCE TO EVIDENCES IN THE FORM OF AUDITED ACCOUNTS FOR THE RELEVANT YEARS AND ALSO SCRUTINY ASSESSMENT ORDERS IN CERTAIN CASES. IN THE ORDER DATED 04.03.97 U/S 143(3) OF THE ACT FOR ITA NO. 4737/D/07 20 A.Y. 94-95, THE CLAIM THAT COMMISSION INCOME PARTOOK THE CHARACTER OF INCOME FROM BUSINESS HAS NOT BEEN HELD OTHERWISE BY THE AO. IN THE ORDER U/S 143(3) DATED 12.01.01 FOR A.Y. 1998- 99, THE AO HAS TAXED INCOME FROM COMMISSION UNDER THE HEAD OF INCOME FROM BUSINESS. IN REST OF THE YEARS WHERE COMMISSION INCOME HAVE BEEN DECLARED AS PER RETURN UNDER THE HEAD OF BUSINESS, THOSE HAVE BEEN ACCEPTED AS SUCH U/S 143(1) OR SECTION 143(1)(A). (E) IT HAS BEEN JUDICIALLY HELD THAT ALTHOUGH EACH ASSESSMENT YEAR BEING INDEPENDENT OF THE OTHER AND THAT THE PRINCIPLE OF RES JUDICATA OR ESTOPPEL DOES NOT APPLY TO INCOME TAX PROCEEDINGS, YET FOR THE SAKE OF CONSISTENCY AND FOR THE PURPOSE OF FINALITY IN ALL LITIGATIONS, EARLIER DECISIONS ON THE SAME QUESTION SHOULD NOT BE REOPENED UNLESS SOME FRESH FACTS ARE FOUND IN THE SUBSEQUENT YEAR. THIS VIEW FINDS SUPPORT IN CIT VS. ARJ SECURITY PRINTERS 264 ITR 276 (DEL), CIT VS. DALMIA PROMOTERS DEVELOPERS P. LTD. (2006) 151 TAXMAN 202 (DEL), CIT VS. NEO POLYPACK P. LTD. (2000) 112 TAXMAN 363 (DEL), CIT VS. RAJEEV GRINDING MILLS (2005) 142 TAXMAN 567 (DEL). THE RATIO IS THAT ALTHOUGH DOCTRINE OF RES JUDICATA IS NOT APPLICABLE, BUT CONSISTENCY HAS TO BE MAINTAINED UNLESS THERE IS A MANIFEST DISTINGUISHABLE FEATURE. IN THE LIGHT ITA NO. 4737/D/07 21 OF THE DECISION SUPRA, THE ARGUMENT OF THE AO THAT COMMENSURATE EXPENSES HAVE NOT BEEN DEBITED IN THE ACCOUNTS IN ORDER THAT HUGE QUANTUM OF COMMISSION COULD HAVE BEEN REALIZED, IS REQUIRED TO BE EXAMINED ON THE BASIS OF THE RECORDS OF THE CASE FOR EARLIER YEARS. FOR A.Y. 1993-94, AS AGAINST RECEIPT OF COMMISSION OF RS. 88,46,099/- (WITHIN AN OVER ALL RECEIPT OF RS. 2,74,12,727/-), THE APPELLANT HAS INCURRED AN OVERALL ADMINISTRATIVE EXPENSE OF RS. 3,07,179/-. FOR A.Y. 1994-95, AS AGAINST THE RECEIPT OF COMMISSION OF RS. 5,99,420/- (WITHIN AN OVER ALL RECEIPT OF RS. 65,27,904/-), THE APPELLANT HAS INCURRED AN OVERALL ADMINISTRATIVE EXPENSE OF RS. 16,67,858/- (WITHIN AN OVER ALL RECEIPT OF RS. 20,25,892/-) THE APPELLANT HAS INCURRED EXPENSE OF RS. 43,590/- ON SALARY AND RS. 18,977/- ON MISCELLANEOUS EXPENSES. FOR THE YEAR UNDER APPEAL AS AGAINST RECEIPT OF COMMISSION OF RS. 89,93,990/- (WITHIN AN OVER ALL RECEIPT OF RS. 1,39,34,636/-), THE APPELLANT HAS INCURRED EXPENSES OVER SALARY OF RS. 1,02,792/- AND MISCELLANEOUS EXPENSES OF RS. 77,208/-. AS A PROPORTION OF ADMINISTRATIVE EXPENSES OVER RECEIPT OF COMMISSION OVER THE YEARS, THE EXPENSES FOR THE YEAR UNDER APPEAL ARE NOT DISPROPORTIONATE SO MUCH SO THAT THE RECEIPTS OF COMMISSION COULD BE HELD AS ITA NO. 4737/D/07 22 INCOME FROM OTHER SOURCES, AS AGAINST A HISTORICALLY ACCEPTED STAND OF THE APPELLANT AND THE DEPARTMENT AS WELL THAT THE RECEIPTS OF THE COMMISSION PARTAKE THE CHARACTER OF INCOME FROM BUSINESS. THE PROPORTION OF EXPENDITURE TO RECEIPT OF COMMISSION IS NOT A GROUND TO CHARACTERIZE THE RECEIPT OF AS INCOME FROM OTHER SOURCES, SINCE HISTORICALLY SUCH RATIOS HAVE BEEN DECLARED AND ALSO ACCEPTED. IT WOULD ALSO BE RELEVANT TO REFER TO THE ASSESSMENT ORDER U/S 143(3) DATED 11.12.2006 IN THIS CASE FOR A.Y. 04-05 WHERE INCOME FROM COMMISSION AMOUNTING TO RS. 58,70,372/- HAS BEEN ACCEPTED AS INCOME FROM BUSINESS. IT WOULD BE RELEVANT TO NOTE THAT FOR A.Y. 04-05 THERE WAS NO EXPENDITURE DEBITED UNDER SALARY AND THE ONLY EXPENSE SAID TO HAVE BEEN APPLIED FOR THE PURPOSE OF RECEIPT OF COMMISSION WAS MISCELLANEOUS EXPENSE OF RS. 54,939/-. I HOLD ON THE BASIS OF THE RECORDS OF THIS CASE FOR EARLIER ASSESSMENT YEARS AS ALSO THE RATIO OF THE DECISION ARRIVED AT AS PER ASSESSMENT ORDER FOR A.Y. 04-05, THAT THE AO DID NOT BRING ON RECORD ANY MANIFEST DISTINGUISHABLE FEATURE OR EVIDENCE SO AS TO DIFFER FROM THE STAND ADOPTED HISTORICALLY IN THIS CASE TO TAX INCOME FROM COMMISSION UNDER THE HEAD OF BUSINESS. THE RATIO OF ITA NO. 4737/D/07 23 EXPENDITURE TO THE QUANTUM OF RECEIPT NOT BEING INCONSISTENT FOR THE YEAR UNDER APPEAL VIS--VIS THOSE YEARS OR FOR A.Y. 04-05, THE VIEWS OF THE AO TO ASSESS INCOME FROM COMMISSION UNDER THE HEAD OF INCOME FROM OTHER SOURCES IS NOT JUSTIFIED. (F) U/S 2(13) OF THE ACT, BUSINESS INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. BUSINESS HAS BEEN SAID TO MEAN REAL, SUBSTANTIAL, SYSTEMATIC AND ORGANIZED COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE (NARAIN SWADESHI WEAVING MILLS VS. CEPT 26 ITR 765 (SC). TO REGARD AN ACTIVITY AS BUSINESS, THERE MUST BE A COURSE OF DEALING, EITHER ACTUALLY CONTINUED OR CONTEMPLATED, AND MOTIVATED WITH PROFIT. IT IS AN ACTIVITY CARRIED ON CONTINUOUSLY AND SYSTEMATICALLY BY A PERSON BY APPLICATION OF SKIL AND LABOUR WITH A VIEW TO EARN PROFIT (BARENDRA PRASHAD RAY VS. ITO 1981 (6 TAXMAN 19) (SC). IN THE CASE UNDER APPEAL, THE APPELLANT STATES THAT THE DIRECTORS OF THE COMPANY ON ACCOUNT OF THEIR CONTACTS AND SKILL, WERE ABLE TO SECURE THE RELEASE OF FUNDS. THAT THE ONLY DIFFICULT PART OF THE AGREEMENT ENTERED INTO WITH GREAT VALUE FOODS LTD. AS RELEASE OF FUNDS, AND THE SAID TASK WAS ACHIEVED THROUGH THE DIRECTORS OF THE COMPANY, WHO INTER ALIA EXERTED THE ITA NO. 4737/D/07 24 NECESSARY INFLUENCE TO REALIZE THE TERM OF THE AGREEMENT WITH THE COUNTER PARTY. THIS CONTENTION HAS NOT BEEN PROVED UNTRUE. THE MAGNITUDE OF THE TRANSACTIONS AND THE INTENTION WHILE ENTERING INTO THE TRANSACTION ARE EQUALLY RELEVANT IN ORDER TO CLASSIFY THE NATURE OF A RECEIPT. IN THE CASE UNDER APPEAL, THE TRANSACTIONS WITH THE COUNTER PARTY NOT ONLY SPANNED FOR THE ENTIRE LENGTH OF THE RELEVANT ASSESSMENT YEAR, BUT IT ALSO WENT TO THE SUBSEQUENT YEAR. AS PER THE ACCOUNTS DRAWN BY GREAT VALUE FOODS LTD. (CONFIRMED BY THE APPELLANT), SUB AGENCY COMMISSION HAS BEEN PAID ON THE BASIS OF THE TERMS OF THE AGREEMENT. THE BOOKS OF ACCOUNTS OF BOTH PARTIES CONFIRM TO THE FACT OF PAYMENT AND RECEIPT. THE MAGNITUDE OF THE TRANSACTION IN SO FAR AS PAYMENTS FROM THE GOVT. HAS BEEN RELEASED FROM MAY, 2002 TO MARCH, 2003 IN FAVOUR OF M/S MODERN FOODS INDS. INDIA LTD. FOR EACH OF THOSE MONTHS WOULD SUGGEST THAT THE ACTIVITY OF THE APPELLANT, AS PER THE TERMS OF THE AGREEMENT, WAS SYSTEMATIC, ORGANIZED, REAL AND SUBSTANTIAL. THE PAYER DOES NOT DISPUTE THE FACT THAT SERVICES HAVE BEEN RENDERED BY THE APPELLANT IN REALIZING THE DUES FROM THE GOVT. MOREOVER, THE INTENTION OF THE APPELLANT IN ENTERING INTO SUB-AGENCY AGREEMENT WITH GREAT VALUE FOODS LTD. COULD NOT HAVE BEEN ITA NO. 4737/D/07 25 OTHER THAN TO EARN PROFIT BY ENGAGING ITSELF AND ITS EXPERTISE IN FURTHERING THE TERMS OF THE SUB- AGENCY AGREEMENT. ON FACTS ALONE, AND ON THE BASIS OF THE FACTUAL PRECEDENTS OF THIS CASE, I HOLD THAT INCOME FROM COMMISSION FOR THE YEAR UNDER APPEAL COULD ONLY HAVE BEEN ASSESSED UNDER THE HEAD OF INCOME FROM BUSINESS. IN THAT VIEW, THE AO COULD NOT HAVE TAXED RECEIPTS OF COMMISSION EITHER U/S 68 AS INCOME FROM UNDISCLOSED SOURCES OR AS INCOME FROM OTHER SOURCES. GROUNDS NO. 1.1 AND 1.2 ARE ALLOWED. 10. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BE FORE US. 11. IN THE COURSE OF HEARING OF THIS APPEAL, THE LD . COUNSEL FOR THE ASSESSEE SUBMITTED ON 29.04.2011 THAT THE COMMISSION PAID BY M/S GREAT VALUE FOODS LTD. TO TH E ASSESSEE HAS BEEN ALLOWED AS BUSINESS DEDUCTION IN THE HANDS OF M/S GREAT VALUE FOODS LTD., AND IN THE LIG HT OF THE SUBMISSIONS THE LD. DEPARTMENTAL REPRESENTATIVE WAS DIRECTED TO ASCERTAIN THE OUTCOME OF THE CLAIM OF PAYMENT OF COMMISSION IN THE HANDS OF M/S GREAT VALUE FOODS LT D. AND TO PRODUCE THE ASSESSMENT RECORD. HOWEVER, NO SUCH INFORMATION COULD BE PROVIDED BY THE LD. DEPARTMENT AL ITA NO. 4737/D/07 26 REPRESENTATIVE TILL 23.11.2011, WHEN THE MATTER WAS FINALLY HEARD. HOWEVER, THE LD. DR SUBMITTED THAT THE ASSE SSEE HAS NOT BEEN ABLE TO PROVE AND ESTABLISH THE NATURE OF SERVICES RENDERED BY IT TO GREAT VALUE FOODS LTD. AND HAS FA ILED TO PRODUCE THE DIRECTOR OF GREAT VALUE FOODS LTD. FOR HIS EXAMINATION BEFORE THE AO. HE FURTHER SUBMITTED TH AT THE AMOUNT OF COMMISSION HAS BEEN SHOWN BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME JUST ONLY TO AVORD ITS UNDISCLOSED INCOME FROM BEING TAXED BY CLAIMING THE SET OFF OF BROUGHT FORWARD LOSSES AVAILABLE IN THE HANDS OF TH E COMPANY. HE, THEREFORE, REITERATED THE VARIOUS CONTENTIONS A ND REASONS GIVEN BY THE AO IN THE ASSESSMENT ORDER. 12. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE HAS POINTED OUT THE VARIOUS EVIDENCES AND DOCUMENTS FIL ED BY THE ASSESSEE WHICH HAVE BEEN EXAMINED AND VERIFIED BY T HE LD. CIT(A). HE FURTHER SUBMITTED THAT VARIOUS OBJECTIO NS RAISED BY THE AO HAS BEEN DULY EXPLAINED AS WOULD BE CLEAR FR OM THE LD. CIT(A)S ORDER. IN OTHER WORDS, THE LD. COUNSEL FO R THE ASSESSEE SUPPORTED THE LD. CIT(A)S ORDER. 13. ON PERUSAL OF STATEMENT OF BUSINESS ACTIVITIES FOR THE YEAR ENDED 31.03.1992 TO 31.03.2003, WE FIND THAT T HE ITA NO. 4737/D/07 27 ASSESSEE COMPANY HAD SHOWN COMMISSION INCOME OF RS. 88,46,099/- IN THE A.Y. 1993-94, SUM OF RS. 5,99,42 0/- IN THE A.Y. 1994-95, RS. 83,346/- IN A.Y. 1998-99, RS. 16, 67,858/- IN A.Y. 2000-01 AND RS. 89,93,990/- IN A.Y. 2003-04. IN THIS VIEW OF THE MATTER, IT IS THUS, SEEN THAT THE AOS OBSERVATION THAT ASSESSEE HAS SHOWN THE COMMISSION INCOME FOR T HE FIRST TIME IN THE A.Y. 2003-04 IS NOT CORRECT. IN THIS C ASE, THE ASSESSEE HAS PRODUCED THE COPY OF AGREEMENT DATED 01.04.2002 ENTERED INTO BETWEEN THE ASSESSEE AND GR EAT VALUE FOODS LTD. ALONG WITH ADDENDUM. THE ASSESSEE HAS ALSO PRODUCED THE PRINCIPLE AGREEMENT BETWEEN M/S M ODERN FOOD INDIA LTD. AND GREAT VALUE FOODS LTD. THE ASS ESSEE HAS FURNISHED THE STATEMENT SHOWING AMOUNT OF COMMI SSION PAID BY GREAT VALUE FOODS LTD. TO THE ASSESSEE. TH E ASSESSEE HAS ALSO FILED A COPY OF LEDGER ACCOUNT OF MODERN FOOD INDIA LTD. AS WELL AS THE ACCOUNT OF ASSESSE M AINTAINED BY GREAT VALUE FOODS LTD. IN THEIR BOOKS. THE COPY OF PERMANENT ACCOUNT NUMBER OF GREAT VALUE FOODS LTD. WAS ALSO FURNISHED. IT IS ALSO SEEN THAT GREAT VALUE F OODS LTD. HAD FURNISHED A REPLY DATED 13 TH OCTOBER, 2006 TO THE AO IN RESPONSE TO THE NOTICE ISSUED U/S 131 OF THE ACT AL ONG WITH VARIOUS ENCLOSURES. THE DETAILS OF THE COMMISSION RECEIVED BY M/S GREAT VALUE FOODS LTD. AS AN AGENT FROM M/S MODERN ITA NO. 4737/D/07 28 FOODS INDS. INDIA LTD. AND THE DETAILS OF COMMISSIO N PAID BY M/S GREAT VALUE FOODS LTD. TO THE ASSESSEE AS SUB-A GENT WERE ALSO FURNISHED. ALL THESE DOCUMENTS AND DETAI LS HAVE BEEN EXAMINED AND VERIFIED BY THE LD. CIT(A) AS WOU LD BE SEEN FROM HIS ORDER, WHICH HAS BEEN REPRODUCED ABOV E. IN THE COURSE OF HEARING OF THIS APPEAL, THE LD. DR HA S NOT POINTED OUT ANY MATERIAL TO REBUT THE FINDINGS AND CONCLUSIONS GIVEN BY THE LD. CIT(A). THE LD. DR HAS ALSO NOT B EEN ABLE TO PROVE AND ESTABLISH THAT THE CLAIM OF COMMISSION EX PENSES IN THE HANDS OF M/S GREAT VALUE FOODS LTD. HAS BEEN DI SALLOWED BY THE AO. HOWEVER, ON THE OTHER HAND, THE LD. COU NSEL FOR THE ASSESSEE HAS SUBMITTED THAT HE HAS INFORMATION THAT NO DISALLOWANCE OF COMMISSION PAID HAS BEEN MADE IN TH E HANDS OF M/S GREAT VALUE FOODS LTD. BY THE DEPARTMENT. 14. IN THE LIGHT OF THE DETAILED DISCUSSION AND REA SONING GIVEN BY THE LD. CIT(A) IN HIS ORDER, WE DO NOT FIN D ANY REASON TO TAKE A VIEW OTHER THAN THE VIEW TAKEN BY THE LD. CIT(A) ON THE FACTS OF THE PRESENT CASE. IN THE LIGHT OF THE VARIOUS REASONS AND APPRECIATION OF THE FACTS MADE BY THE L D. CIT(A), WE ARE IN AGREEMENT WITH HIM HOLDING THAT THE AMOUN T OF RS. 89,93,990/- SHOWN BY THE ASSESSEE AS COMMISSION INC OME IN ITS PROFIT AND LOSS ACCOUNT IS NOT ASSESSABLE AS IN COME FROM ITA NO. 4737/D/07 29 OTHER SOURCES U/S 68 OF THE ACT OR AS INCOME FROM O THER SOURCES BUT IS ASSESSABLE AS BUSINESS INCOME. THUS , THE ORDER OF LD. CIT(A) IS UPHELD. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 20.12.2011 SD/- SD/- (G.D. AGGRAWAL) (C.L. SETHI ) VICE PRESIDENT JU DICIAL MEMBER DATED: 20.12.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR ITA NO. 4737/D/07 30 ITA NO. 4737/D/07 31