M/s Shanti Ttading Co., V. The ACIT 5 (1),

ITA 489/IND/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47848 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: KAMLESH JAIN
• Keywords: Bad and doubtful debts
• Section: 133(6); 131

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.489/IND/2008 A.Y. 2005-06 M/S SAHANI TRADING COMPANY INDORE PAN AAMFS-4637H APPELLANT VS ACIT-4(1), INDORE RESPONDENT APPELLANT BY : SHRI KAMLESH JAIN, ADVOCATE RESPONDENT BY : SHRI KESHAV SAXENA, CIT DR O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 9.9.2008 OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2005-0 6. 2. THE FIRST GROUND RELATES TO THE CONFIRMATION BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OF THE DISALLO WANCE OF RS. 1,01,08,647/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF 2 COMMISSION PAYMENT. THE ASSESSEE CLAIMED TO HAVE PA ID THE COMMISSION TO THE FOLLOWING PARTIES :- NAME ADDRESS NATURE AMOUNT SHAILESH KASLIWAL 113, KANCHAN BAG, INDORE COMMISSION 97,482 SURESH KASLIWAL 113, KANCHAN BAG, INDORE COMMISSION 47,850 VARGOLA INDIA LTD. 4, UNITY 2 ND FLOOR, 8, MAMA PARMANAND MARG, COMMISSION 54,85,532 VENTURE BUSINESS ADVISOR PRIVATE LTD. 4 UNITY 2 ND FLOOR, 8, MAMA PARMANAND MARG, OPERA HOUSE, MUMABI COMMISSION 44,77,423 TOTAL 1,01,08,647 THE ASSESSING OFFICER, WITH A VIEW TO VERIFY THE CO RRECTNESS OF THE COMMISSION CLAIMED TO HAVE BEEN PAID TO THE PAR TIES, ISSUED SUMMONS U/S 131 TO SHRI SHAILESH KASLIWAL AN D SHRI SURESH KASLIWAL, WHO ARE FATHER AND SON. THE ASSESS ING OFFICER RECORDED THE STATEMENT OF SHRI SHAILESH KAS LIWAL AND FOUND THAT HE WAS AN ELECTRICIAN AND A PARTNER IN T HE FIRM M/S ELECTRONICS AND ELECTRICS, INDORE. THE ASSESSING O FFICER FOR THE REASONS RECORDED BY HIM AT PAGE 5 OF THE ASSESSMENT ORDER, DID NOT FIND THE EXPLANATION OF SHRI SHAILESH KASLI WAL AS PLAUSIBLE AND FOUND THAT NO SERVICES WERE RENDERED BY SHRI SHAILESH KASLIWAL AND IT WAS A CASE OF MERE COMMISS ION EXPENDITURE TO SET OFF THE LOSSES. THE ASSESSING OF FICER ALSO 3 ISSUED NOTICES U/S 133(6) OF THE ACT TO THE OTHER P ARTIES BASED AT MUMBAI FOR VERIFICATION OF THE FACTS. NOT ONLY T HIS, THE ASSESSING OFFICER ISSUED COMMISSION U/S 131(D) OF T HE ACT TO THE ACIT 2(3), MUMBAI. IN RESPECT OF THE ASSESSEES CLAIM OF COMMISSION TO SHRI SHAILENDRA KASLIWAL AND SHRI SUN IL KASLIWAL, WE FIND THAT NO AGREEMENT FOR PAYMENT OF SUCH COMMI SSION WAS EVER ENTERED INTO BY THE ASSESSEE WITH THESE PA RTIES NOR THE ASSESSEE COULD EXPLAIN THE SERVICES RENDERED BY THEM FOR WHICH COMMISSION WAS PAID. EVEN IN THE STATEMENT O F SHRI SHAILENDRA KASLIWAL AND SHRI SUNIL KASLIWAL IT WAS FOUND THAT NO SERVICES WERE RENDERED BY THEM TO THE ASSESSEE FIRM . THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION TH AT WHENEVER ANY EXPENDITURE IS CLAIMED, THE ONUS IS ON THE ASSE SSEE TO ESTABLISH THAT EXPENDITURE WAS INCURRED FOR PURPOSE OF BUSINESS. WHILE CLAIMING EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENT, THE ASSESSEE IS REQUIRED TO SHO W IF ANY AGREEMENT FOR RENDERING SUCH SERVICES HAS BEEN ENTE RED INTO WITH THE PARTIES TO WHOM SUCH COMMISSION HAS BEEN P AID AND ALSO TO DEMONSTRATE THE SERVICES SO RENDERED AND TH E BENEFIT 4 DERIVED BY THE ASSESSEE FROM SUCH SERVICES IN THE F ORM OF INCREASE IN SALES TURNOVER AND PROFITS. IN THE CASE OF COMMISSION PAID TO SHRI SHAILENDRA KASLIWAL AND SHR I SUNIL KASLIWAL, WE FIND THAT THE ASSESSEE COULD NOT ESTAB LISH THE SERVICES RENDERED BY THESE PARTIES SO AS TO JUSTIFY THEIR CLAIM OF EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENT NOR TH E ASSESSEE COULD SHOW IF ANY BENEFIT HAS BEEN DERIVED OUT OF THE COMMISSION PAYMENT MADE TO THEM. ACCORDINGLY, WE C ONFIRM THE ACTION OF THE LOWER AUTHORITIES WITH REGARD TO DISALLOWANCE OF COMMISSION PAID TO SHRI SHAILENDRA KASLIWAL AND SHR I SUNIL KASLIWAL. 3. NOW WE COME TO THE COMMISSION PAID TO M/S VARGOL A INDIA LIMITED AND M/S VENTURE BUSINESS PRIVATE LIMITED. T HE ASSESSING OFFICER HAS DECLINED THE ASSESSEES CLAIM FOR COMMISSION BY OBSERVING THAT NO SERVICES WERE RENDE RED, THE TURNOVER OF THE BUSINESS IS ALMOST SAME AS COMPARED AS COMPARED TO PREVIOUS YEAR AND THERE IS NO PAYMENT O F COMMISSION, IT WAS OUTSTANDING AS ON 31 ST MARCH, 2005. BY THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX 5 (APPEALS) HAS CONFIRMED THE DISALLOWANCE. WITH REG ARD TO GENUINENESS OF THE EXPENDITURE INCURRED ON COMMISSI ON AND ITS ALLOWABILITY UNDER THE INCOME TAX ACT, RELIANCE WAS PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE FOLLOWING D ECISIONS :- (A) 72 ITR 612 (S.C.) J.K. WOOLEN MILLS EXPENDI TURE COULD NOT BE DISALLOWED NEARLY ON THE BASIS OF SUSP ICION. (B) 298 ITR 203 (RAJASTHAN HIGH COURT) CANNOT BE DISALLOWED ON THE BASIS OF SUSPICION/ASSESSEE & THE RECIPIENT OF COMMISSION ARE NOT RELATED & NOT SISTE R CONCERN. 225 ITR PAGE 537/540 COMMISSION PAID IN TERMS OF AGREEMENT TO BE ALLOWED. (D) 112 ITR 285 COMMISSION TO BE ALLOWED IF THE COMMISSION AGENT TAKES RESPONSIBILITY FOR PAYMENT. (E) 305 ITR 295 (P&H) TO BE ALLOWED IF THE PAYM ENT BY THE ASSESSEE AS WELL AS THE RECEIPT BY THE PARTY IS PROVED. (F) 150 ITR 155 (GUJARAT) NO EVIDENCE ON RECORD TO SUPPORT THE OBSERVATION/CONCLUSION THAT NO SERVICES RENDERED BY THE PERSONS. (G) 171 ITR 373 NO EVIDENCE TO SUGGEST THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS ARE FALSE. (H) 59 ITR 632 (ASSAM) UNCHALLENGED ACCOUNT BOO KS ARE PRIMA FACIE PROOF OF THE CORRECTNESS OF ENTRIES MADE THEREIN. (I) 305 ITR 438 (MADRAS) EXPENSES INCURRED FOR BUSINESS IS TO BE ALLOWED. 6 FROM RECORD WE FIND THAT THE ASSESSEE HAS ENTERED I NTO COMMISSION AGREEMENTS WITH THESE TWO COMPANIES WHIC H ARE PLACED ON RECORD BEFORE THE LOWER AUTHORITIES A CCORDING TO WHICH COMMISSION WAS TO BE PAID @ RS. 5635 PER MT ON ALL THE TRANSACTIONS, AGENT WAS ALSO RESPONSIBLE FOR THE RECOVERY OF SALE PROCEEDS AND IN CASE OF DELAY IN PAYMENT F OR INTEREST THEREON AND IN CASE THE PAYMENT IS NOT RECOVERED BY THE ASSESSEE FOR BAD DEBTS. AS PER THE TERMS OF THE AG REEMENT, THE COMMISSION WAS TO BE PAID BY CHEQUE AFTER DEDUC TING TDS. THE TERMS OF THE AGREEMENT, INTER ALIA, ALSO PROVID ED THAT PRICES OF THE MATERIAL WILL BE NEGOTIATED DIRECTLY BETWEEN THE BUYERS AND THE SELLERS AND THE COMMISSION AGENT HAS NO PAR T TO PLAY IN THIS REGARD. IT WAS ALSO PROVIDED THAT ALL QUALITY COMPLAINTS IN RESPECT OF THE GOODS SOLD BY THE ASSESSEE IN TERMS OF THE SALES EFFECTED BY THE ASSESSEE FIRM WILL NOT BE ENTERTAIN ED BY SELLER BUT BY THE COMMISSION AGENT. THE COMMISSION AGREEME NT PROVIDED THAT MAXIMUM TERM OF PAYMENT ALLOWED WOULD REMAIN 45 DAYS FROM THE DATE OF DISPATCH OF THE MATERIAL. IN CASE OF ANY DELAY IN PAYMENT OR BAD DEBTS ARISING FROM TH E BUYERS, 7 INTEREST IN CASE OF DELAY AND RECOVERIES IN CASE OF BAD DEBTS WILL BE THE RESPONSIBILITY OF THE COMMISSION AGENT. THIS AGREEMENT WAS EXECUTED FOR ONE YEAR STARTING FROM 1 .4.2004 TO 31 ST MARCH, 2005. THE AGREEMENT, INTER ALIA, ALSO PROV IDED THAT ONCE THE DEALING STARTS WITH THE BUYER IN THE CURRE NT YEAR, THE ASSESSEE WILL BE LIABLE TO PAY COMMISSION TO THE AG ENT FOR ALL THE TRANSACTIONS IN THAT COMPLETE YEAR @ RS. 5635/- PER M.T. AS PER THE AGREEMENT, COMMISSION WAS TO BE PAID WIT HIN 120 DAYS AFTER THE YEAR END AND ALSO AFTER DEDUCTING IN COME TAX THEREON. SIMILAR AGREEMENT HAS ENTERED INTO WITH OT HER COMPANY HAVING THE SAME TERMS AND CONDITIONS. THE AGREEMENT HAS BEEN SIGNED BY THE DIRECTOR OF M/S VE NTURE BUSINESS PRIVATE LIMITED AND COUNTER-SIGNED BY PART NER OF THE ASSESSEE COMPANY, M/S SAHNI TRADING COMPANY. THIS AGREEMENT WAS EXECUTED AT MUMBAI ON 24.4.2004 DULY WITNESSED BY TWO PERSONS HAVING THEIR FULL NAME, AD DRESS AND SIGNATURES. GENUINENESS OF AGREEMENT IS NOT IN DOUB T. IT IS CLEAR FROM THESE AGREEMENTS THAT THE ASSESSEE HAS E NTERED INTO THESE AGREEMENTS FOR ACHIEVING HIGHER SALES AN D TO ENSURE 8 FULL REALIZATION OF THEIR DEBTS IN RESPECT OF SALES SO EFFECTED. SO FAR AS THE PAYMENT OF COMMISSION TO THESE PARTIES I S CONCERNED, THE ASSESSING OFFICER HAS INQUIRED FROM THE OFFICE OF THE ACIT, MUMBAI. THE INSPECTOR OF INCOME TAX, MUM BAI, HAS ALSO VISITED THE BUSINESS PREMISES OF THESE PARTIES . THE STATEMENTS OF THESE PARTIES WERE ALSO RECORDED AND COPIES OF INCOME TAX RETURNS OF THESE PARTIES FOR THE ASSESSM ENT YEARS UNDER CONSIDERATION ALONG WITH COMPUTATION OF INCOM E, BALANCE SHEET, ETC. WERE OBTAINED AND SENT TO THE ASSESSING OFFICER AT INDORE. WE HAVE ALSO VERIFIED THE RESPECTIVE INVOIC ES RAISED BY THESE COMPANIES IN RESPECT OF COMMISSION DUE FOR E ACH OF THE QUARTER OF YEAR ENDING ON 30.6.2004, 30.9.2004, 31. 12.2004 AND 31.3.2005 COMPUTED WITH RESPECT TO QUANTITY OF SALES UNDERTAKEN IN EACH QUARTER. THE BILLS OF COMMISSION WERE ACCOMPANIED WITH DETAILED STATEMENT OF SALES INVOIC ES, ITS DATE, PRODUCTS SOLD, ITS QUANTITY AND VALUE. THE COMMISSI ON HAS BEEN CALCULATED ON THE BASIS OF TOTAL QUANTITY SOLD IN E ACH OF THE QUARTER, COMMISSION HAS BEEN CHARGED WITH RESPECT T O SALES AND PURCHASES PROVIDED TO THE PARTY. THE ASSESSEE H AD PAID 9 COMMISSION BY ACCOUNT PAYEE CHEQUES AFTER DEDECTING INCOME TAX DUE THEREON. WE HAD ALSO VERIFIED THE STATEMENT OF ACCOUNT WITH THESE COMPANIES, THE CERTIFICATE OF DEDUCTION OF TAX AND ITS PAYMENT TO GOVERNMENT TREASURY. THE COMMISSION REC EIVED BY THESE PARTIES WERE CREDITED BY THEM IN THEIR RESPEC TIVE BOOKS OF ACCOUNTS WHICH ARE DULY AUDITED AND THEY ARE ALL IN COME TAX ASSESSEES. NONE OF THESE DOCUMENTS WAS DISPUTED BY THE REVENUE AUTHORITIES. THE GENUINENESS OF THESE DOCU MENTARY EVIDENCES IS NOT IN DISPUTE. ALL THESE DOCUMENTARY EVIDENCES HAVE BEEN PLACED IN THE PAPER BOOK. DURING THE YEA R, UNDER CONSIDERATION, THE SALES OF THE ASSESSEE HAVE INCRE ASED FROM RS. 12.02 CRORES TO RS. 26.61 CRORES DUE TO EFFORTS OF THE COMMISSION AGENT. THUS, THERE WAS INCREASE IN SALE S BY MORE THAN 120% AS COMPARED TO THE SALES OF THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR 2003-04. HOWEVER, THE LOW ER AUTHORITIES HAVE BRUSHED ASIDE ALL THESE DOCUMENTAR Y EVIDENCES PLACED ON RECORD AND DECLINED THE CLAIM O F COMMISSION EXPENDITURE MERELY ON SURMISES AND CONJE CTURES. THE LOWER AUTHORITIES HAVE WRONGLY OBSERVED, WHICH IS CONTRARY 10 TO THE FACTS ON RECORD, THAT THERE IS NO SUBSTANTIA L INCREASE IN THE TURNOVER TO JUSTIFY THE COMMISSION. AS PER THE AUDITED PROFIT AND LOSS ACCOUNT PLACED ON RECORD, THERE IS APPAREN T INCREASE IN SALES DURING THE YEAR BY 120% AS COMPARED TO SAL ES OF IMMEDIATELY PRECEDING YEAR. WE ALSO FIND THAT DUE T O INCREASED SALES DURING THE YEAR, UNDER CONSIDERATION, THE GRO SS PROFIT OF THE ASSESSEE HAS ALSO INCREASED TO RS. 1.66 CRORES AS COMPARED TO GROSS PROFIT OF THE IMMEDIATELY PRECEDI NG YEAR AMOUNTING TO RS. 1.14 CRORES. 4. WITH REGARD TO THE ALLEGATION OF THE ASSESSING O FFICER THAT BOGUS COMMISSION WAS PAID TO M/S MOIRA STEELS LIMIT ED, THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT NO COMMISSION WAS PAID TO THIS FIRM DURING THE YEAR UN DER CONSIDERATION AND WHATEVER WAS PAID WAS RELATED TO THE ASSESSMENT YEAR 2003-04. ON THE BASIS OF SURVEY AT THE PREMISES OF M/S MOIRA STEELS LIMITED AND THE STATEM ENTS OF ITS DIRECTORS RECORDED, THE ASSESSING OFFICER HAS WRONG LY RELIED UPON THE STATEMENT WITH REFERENCE TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2005-06 WHEREAS THE ASSESS EE HAS 11 NEITHER PAID NOR CLAIMED ANY EXPENDITURE FOR COMMIS SION TO M/S MOIRA STEELS LIMITED DURING THIS YEAR. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS NOT AWARE OF ANY STATEMENT OF THE DIRECTOR OF M/S MOIRA STEELS LIMITED NOR ANY OPPORTUNITY TO CRO SS-EXAMINE THE DIRECTOR WAS GIVEN TO THE ASSESSEE, HENCE, THE STATEMENT CANNOT BE USED AGAINST THE ASSESSEE AS PER THE SETT LED LAW. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FIN D FROM RECORD THAT WHILE MAKING THE DISALLOWANCE OF COMMISSION DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER WAS INFLUENCED BY THE SURVEY CONDUCTED AT M/S MOIRA STEELS LIMITED S PREMISES DURING WHICH STATEMENT OF THE DIRECTOR OF M/S MOIRA STEELS LIMITED WAS RECORDED AND IT WAS FOUND THAT S OME COMMISSION WAS PAID TO THIS FIRM IN THE ASSESSMENT YEAR 2003- 04. ON THE BASIS OF STATEMENT OF THE DIRECTOR OF M /S MOIRA STEELS LIMITED, THE ASSESSING OFFICER PRESUMED THAT THE ASSESSEE HAD ALSO PAID SOME COMMISSION DURING THIS YEAR AND ON PRESUMPTION BASIS DISALLOWED THE COMMISSION EVEN PAID TO OTHER PERSONS DURING THE RELEVANT ASSESSMENT YEAR 2 005-06. IT 12 IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAS NEITHER PAID NOR CLAIMED ANY COMMISSION PAYMENT TO M/S MOIRA STE ELS LIMITED DURING THE ASSESSMENT YEAR 2005-06, UNDER CONSIDERATION. IF ANY COMMISSION HAS BEEN PAID IN T HE ASSESSMENT YEAR 2003-04, WHICH IS FOUND TO BE NOT G ENUINE, THE SAME CANNOT BE USED FOR DISALLOWING PAYMENT OF EXPENDITURE ON COMMISSION PAID TO THE PARTIES OTHER THAN M/S MOIRA STEELS LIMITED. WE ALSO FIND THAT NO STEPS HA D BEEN TAKEN BY THE DEPARTMENT FOR DISALLOWANCE OF SUCH CO MMISSION PAYMENT IN THE ASSESSMENT YEAR 2003-04. FROM RECOR D WE FIND THAT DETAILS OF SALES ARRANGED BY THESE TWO COMPANI ES WITH DETAILS OF BILL NUMBERS, QUANTITY, VALUE AND AMOUNT OF COMMISSION WERE FURNISHED BEFORE THE ASSESSING OFFI CER. THUS, WE DO NOT FIND ANY MERIT IN THE ASSESSING OFF ICERS ACTION IN DISALLOWING THE COMMISSION SO PAID TO THESE COMP ANIES WHICH RESULTED IN HUGE SALES GROWTH AND SUBSTANTIAL INCREASE IN GROSS PROFIT AND WAS DUE TO THE EFFORTS MADE BY THE SE TWO COMMISSION AGENTS. THE PAYMENT OF COMMISSION WAS BY ACCOUNT PAYEE CHEQUES AND PROPER TAX WAS DEDUCTED A T SOURCE 13 WHICH WAS DEPOSITED IN GOVERNMENT TREASURY. THE CON TENTION OF THE LEARNED CIT DR IS THAT AS PER THE TERMS OF T HE AGREEMENT FOR COMMISSION PAYMENT, THE COMMISSION WAS REQUIRED TO BE PAID AFTER 120 DAYS FROM THE END OF THE YEAR WHICH DOES NOT APPEAR TO BE JUSTIFIED INSOFAR AS IMMEDIATELY AFTER MAKING THE SALES, THE COMMISSION AGENT WOULD ASK FOR HIS REMUN ERATION IN THE FORM OF COMMISSION AND HE WILL NOT WAIT TILL 12 0 DAYS FROM THE END OF THE YEAR. THE LEARNED CIT DR ALSO SUBMI TTED THAT AS PER THE TERMS OF THE COMMISSION AGREEMENT, THE AMOU NT OF SALE PROCEEDS WAS TO BE PAID WITHIN 45 DAYS WHEREAS THER E IS NO EVIDENCE ON RECORD TO SHOW THAT THE ENTIRE PAYMENT OF SALE PROCEEDS WAS REALIZED WITHIN 45 DAYS FROM THE DATE OF SALE. IN THIS REGARD, WE ARE OF THE CONSIDERED OPINION THAT IF THE AGREEMENT SO ENTERED INTO BY THE ASSESSEE, WHEREIN A CLAUSE HAS BEEN INCORPORATED TO SAFEGUARD THE BUSINESS INT EREST TO THE EFFECT THAT COMMISSION WILL BE PAID AFTER 120 DAYS FROM THE END OF THE YEAR, CANNOT BE TAKEN ADVERSELY SO AS TO PRE SUME AS TO WHY THE ASSESSEE AND OTHER PARTY AGREED FOR PAYMENT OF COMMISSION AFTER 120 DAYS FROM THE END OF THE YEAR. THIS 14 CLAUSE PRECISELY PROTECTS THE ASSESSEES BUSINESS I NTEREST AND ALSO MAKES THE COMMISSION AGENT CAUTIOUS WITH REGAR D TO PAYMENT OF SALES REALIZATION INSOFAR HE WILL BE PER TURBED ABOUT HIS COMMISSION AMOUNT WHICH IS RECEIVABLE AFTER 120 DAYS AFTER THE END OF THE YEAR WHEREAS UNDER NORMAL TERMS OF S ALES, THE SALES REALIZATION IS REQUIRED TO BE REALIZED WITHIN 45 DAYS. IN THIS CASE WE FIND THAT COMMISSION WAS PAID NOT ONLY TO EFFECT THE INCREASE IN SALES BUT ALSO TO ENSURE THE FULL R EALIZATION OF SALE PROCEEDS WHICH WAS MADE A CONDITION IN THE SAL E COMMISSION AGREEMENT. AS PER THE AGREEMENT, THE COM MISSION AGENT WAS LIABLE TO BEAR ANY BAD DEBT OR NON-RECOVE RY OF SALE PROCEEDS. THIS IS VERY IMPORTANT AND CRUCIAL CONDIT ION AND FOR ENSURING SUCH REALIZATION OF SALES, IF THE ASSESSEE PAYS SOME COMMISSION, THE SAME CANNOT BE BRANDED AS EXCESSIVE OR NOT FOR PURPOSE OF BUSINESS. BY PAYING NORMAL COMMISSIO N, THE ASSESSEE HAS ENSURED FULL RECOVERY OF HIS SALES REA LIZATION WHICH IS ALSO EVIDENT FROM THE AUDITED ACCOUNTS PLA CED BEFORE THE ASSESSING OFFICER WHICH WAS FILED ALONG WITH RE TURN WHEREIN WE DO NOT FIND ANY BAD DEBT BEING CLAIMED BY THE AS SESSEE ON 15 ACCOUNT OF NON-RECOVERY OF ANY PART OF SALE PROCEED S NOR THERE IS ANY OBSERVATION OF THE ASSESSING OFFICER THAT IN SPITE OF CLAUSE IN THE COMMISSION AGREEMENT, THE ASSESSEE HA D CLAIMED ANY LOSS ON ACCOUNT OF BAD DEBTS. THE AGREE MENT ALSO PROVIDED FOR PAYMENT OF INTEREST, IF ANY, ON ACCOUN T OF DELAY IN RECOVERY OF SALE PROCEEDS WHICH WAS TO BE BORNE BY THE COMMISSION AGENT. THIS CONDITION ALSO GOES TO THE ROOT OF THE ISSUE AND JUSTIFIES THE PAYMENT OF COMMISSION FOR T HE SERVICES SO RENDERED. THE ASSESSEE HAS NOT ONLY ENSURED SAL ES BUT ALSO REALIZATION OF SALE PROCEEDS THROUGH THE COMMI SSION AGENTS, BUT THE ASSESSEE WAS ALSO IN A POSITION TO RECOVER INTEREST FROM THE COMMISSION AGENT IF THERE IS ANY DELAY IN THE RECOVERY OF SALE PROCEEDS EFFECTED THROUGH SUCH AGE NT. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ANY OF THE T ERMS AND CONDITIONS OF THE AGREEMENT WAS VIOLATED OR THAT TH E COMMISSION AGENT HAS NOT ACTED AS PER THE TERMS OF THE AGREEMENT. THE PAYMENT OF COMMISSION HAS BEEN JUSTI FIED BY WAY OF SERVICES RENDERED RESULTING INTO SUBSTANTIAL INCREASE IN THE SALES TURNOVER BY RS. 14.59 CRORES, ALMOST 120% MORE OVER 16 THE PREVIOUS YEAR. THUS, THE EFFORTS UNDERTAKEN BY THE COMMISSION AGENTS ARE CLEARLY DEMONSTRATED IN THE F ORM OF INCREASED SALES AND INCREASED GROSS PROFIT. NO CLA IM OF BAD DEBTS BY THE ASSESSEE IN RESPECT OF SALES EFFECTED ALSO SUPPORTS THE SERVICES RENDERED BY THE COMMISSION AG ENTS. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT IN OTHER YEARS, THE ASSESSEE HAS NOT PAID ANY COMMISSION ON SALES. WE FIND THAT SIMILAR COMMISSION WAS ALSO PAID BY THE ASSESS EE IN EARLIER AND SUBSEQUENT YEARS. THE NATURE OF THE AS SESSEES BUSINESS REQUIRES SUCH COMMISSION PAYMENT IN A COMP ETITIVE MARKET FOR ACHIEVING HIGHER SALES AND FOR ENSURING REALIZATION OF ITS SALE PROCEEDS. BURDENING THE COMMISSION AGENT WITH LIABILITY TO PAY INTEREST IN CASE OF ANY DELAY IN P AYMENT OF SALE PROCEEDS AND ALSO MAKING HIM LIABLE FOR BAD DEBTS, IF ANY, OUT OF SUCH SALE PROCEEDS, FULLY JUSTIFIES THE PAYMENT OF COMMISSION. NOTHING HAS BEEN BROUGHT ON RECORD BY T HE ASSESSING OFFICER TO SUGGEST THAT PAYMENT OF COMMIS SION WAS WITHOUT BUSINESS NEEDS. THE DEPARTMENTAL AUTHORITIE S HAVE BEEN GUIDED BY THE IRRELEVANT CONSIDERATION ON SURM ISES AND 17 CONJECTURES WHILE DISALLOWING THE PAYMENT OF COMMIS SION, WHICH IS CONTRARY TO TOTALITY OF FACTS AND CIRCUMST ANCES OF THE CASE AS DISCUSSED HEREINABOVE. MOREOVER, PAYMENT OF COMMISSION TO THESE TWO COMPANIES IS FULLY SUPPORTE D BY THE MATERIAL PLACED ON RECORD AS DISCUSSED ABOVE. WE, T HEREFORE, MODIFY THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW COMMISSION PA YMENTS MADE TO VARGOLA INDIA LIMITED AND VENTURE BUSINESS ADVISOR PRIVATE LIMITED. WE ORDER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST MAY, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GUARD FILE DN/-