DCIT, Kanpur V. M/s. Frost International Ltd., Kanpur

ITA 731/LKW/2010

• Counselvise Citation: 73123714 RSA 2010
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 06-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-12-2010
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Corroborative evidences
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B BB B, LUCKNOW , LUCKNOW , LUCKNOW , LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI ITA NO.731/LKW/2010 ASSESSMENT YEAR:2003-04 DY. CIT KANPUR V. M/S FROST INTERNATIONAL LTD. 24/147, KALPALA PLAZA, 410/411, BIRHANA ROAD, KANPUR PAN:AAACF2299P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P. K. BAJAJ, D.R. RESPONDENT BY: SHRI ABHINAV MEHROTRA, C.A. O R D E R PER H. L. KARWA: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-I, KANPUR DATED 30.9.2010 RELATING TO ASSESSMENT YEAR 2003-04. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION MADE ON ACCOUNT OF COMMISSION PAID TO M/S PATHFINDE RS SOFTWARE INTEGRATED PRIVATE LIMITED OF $ 19,91,693 WITHOUT APPRECIATING THE FACTS THAT THE CLAIM COULD NOT BE SUBSTANTIATED BY THE AS SESSEE. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS A RECOGNIZED EXPORT HOUSE ENGAGED IN THE EXPORT OF VARIOUS COMMODITIES AS A TRADER SINCE LAST SEVERAL YEARS. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER DISALLOWED COMMISSION ON SALES AMOUNTING TO $ 19,91,693. THE ASSESSEE HAD PAID COMMISSION OF $ 19,91,693 TO AN INDIAN COMPANY FOR COORDINATING CERTAIN SALES. THE ASSESSING OFFICER DISALLOWED THIS AMOUNT OBSERVING AS UNDER:- FROM SCHEDULE -11 RELATING TO OTHER EXPENSES IT WA S NOTICED THAT ASSESSEE COMPANY HAD INTER ALIA CLAIMED AN EXPENDITURE AMOUN TING TO RS.1,85,20,164/- UNDER THE HEAD 'COMMISSION' AS AGA INST RS.1,57,74,694/- CLAIMED IN THE IMMEDIATELY PRECEDING ACCOUNTING PER IOD. AS THE CLAIM WAS :-2-: FOUND TO HAVE SUBSTANTIALLY INCREASED IN THE RELEVA NT PERIOD. VIDE PARA -22 OF THE NOTICE U/S. 142(1) DATED 29.10.2004 ASSESSEE COMPANY WAS SPECIFICALLY REQUIRED TO FURNISH COMPLETE DETAILS I N RESPECT OF THE CLAIM AND WAS ALSO CALLED UPON TO SUBSTANTIATE THE SAME WITH SUPPORTING EVIDENCE. THE DETAILS WERE FILED VIDE WRITTEN SUBMISSION DATE D 25.07.2005 AND THE EXAMINATION OF THE DETAILS FILED REVEALED THAT OUT OF THE EXPENDITURE CLAIMED UNDER THIS HEAD, COMMISSION TO THE EXTENT O F RS.19,19,693/- WAS PAID TO ONE M/S. PATH FINDERS SOFTWARE INTEGRATED P VT. LTD. IT WAS EXPLAINED THAT THE COMMISSION TO THE SAID PARTY WAS PAID FOR COORDINATION RELATING TO THE SALES OF LADIES NIGHTWEAR IN RUSSIA AND FOR THE SERVICES RENDERED RELATING TO COORDINATION WITH OVERSEAS BUY ER STATIONED AT RUSSIA COMMISSION @ 2% WAS PAID. THE SUBMISSION MADE BY TH E ASSESSEE COMPANY WHEREBY IT HAD SOUGHT TO JUSTIFY THE GENUIN ENESS OF THE CLAIM IN RESPECT OF COMMISSION WAS APPARENTLY FOUND TO BE GE NERAL IN NATURE AND ACCORDINGLY WAS FOUND TO BE NOT CONVINCING. IT WAS IN THIS VIEW OF MATTER THAT ASSESSEE COMPANY WAS GIVEN ANOTHER OPPORTUNITY FOR SUBSTANTIATING ITS CLAIM RELATING TO COMMISSION WITH NECESSARY SUP PORTING EVIDENCE. THE ASSESSEE COMPANY WAS ALSO REQUIRED TO FURNISH THE C OPY OF AGREEMENT WITH SAID M/S. PATH FINDERS SOFTWARE INTEGRATED PVT. LTD . AND THE RECIPIENT WAS ALSO REQUIRED TO BE PRODUCED FOR EXAMINATION. FOR THE SAKE OF CLARITY THE RELEVANT PORTION OF THE ORDER SHEET ENTRY IS EXTRAC TED HERE UNDER: 'THE CLAIM IN RESPECT OF COMMISSION AMOUNTING TO RS .19,91,693/- SHOWN IN THE NAME OF ONE M/S. PATH FINDERS SOFT WAR E INTEGRATED PVT. LTD. BE SUBSTANTIATED WITH SUPPORTING EVIDENCE INCLUDING WITH REFERENCE TO THE RENDERING OF SERVICES. THE RECIPIE NT BE PRODUCED FOR EXAMINATION. THE COPY OF AGREEMENT IF ANY ENTERED I NTO WITH THE RECIPIENT BE ALSO FIELD. THE COPY OF BILLS RAISED B Y THIS CONCERN BE PRODUCED, THE GENUINENESS OF THE CLAIM IN RESPECT O F THE COMMISSION BE JUSTIFIED IN THE BACKGROUND OF THE FACT THAT ENT IRE AMOUNT OF COMMISSION WAS SHOWN IN THE AUDITED ACCOUNT AS PAYA BLE AS ON 31.03.2003. :-3-: IN RESPONSE, THE ASSESSEE COMPANY DID NOT MAKE ANY SUBMISSION IN THE SENSE THAT NEITHER THE COPY OF AGREEMENT ENTERED IN TO WITH THE RECIPIENT OF THE COMMISSION WAS FILED NOR WAS RECIPIENT PRODUCED FOR EXAMINATION. THE ASSESSEE COMPANY ALSO DID NOT SUBMIT ANY SUPPORTING EVIDENCE WHICH COULD DEMONSTRATE THAT M/S. PATH FINDER SOFTWARE IN TEGRATED PVT. LTD. HAD ACTUALLY RENDERED ANY SERVICES TO ASSESSEE COMPANY WHICH COULD MADE IT ELIGIBLE FOR PAYMENT OF COMMISSION. AT THIS JUNCTUR E, IT WOULD BE APPROPRIATE TO PLACE ON RECORD THAT OUT OF EXPENDIT URE CLAIMED UNDER THE HEAD COMMISSION AND PAID TO THE AFORESAID M/S. PATH FINDER SOFTWARE INTEGRATED PVT. LTD. AMOUNTING TO RS.19,91,693/-, R S.16,87,129/- WAS SHOWN PAYABLE TO SAID RECIPIENT AND WAS SHOWN AS IN THE DETAILS RELATING TO SUNDRY CREDITORS FOR EXPENSES. FROM THE FACTS MENT IONED HERE IN BEFORE, IT IS MORE THAN CLEAR THAT THE ASSESSEE COMPANY SQUARE LY FAILED TO SUBSTANTIATE THE CLAIM RELATING TO COMMISSION WITH ANY KIND OF SUPPORTING EVIDENCE INSPITE OF BEING PROVIDED REPEATED OPPORTU NITIES INCLUDING THE PRODUCTION OF RECIPIENT FOR EXAMINATION. THE CLAIM RELATING TO COMMISSION THEREFORE, REMAINED UNSUBSTANTIATED AND THEREFORE, WILL BE DISALLOWED. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), THE ASSESSEE HAS FURNISHED COPY OF THE AGREEMENT WITH THE AGENT. THE ASSESSEE ALSO MADE DETAILED SUBMISSIONS WHICH READ AS UNDER:- THE ASSESSEE COMPANY DOES NOT HAVE ANY OFFICES OUT SIDE INDIA AND THEREFORE PROCUREMENT OF ORDERS IN THE INTERNATIONA L MARKETS WITHOUT THE SPECIALIZED SERVICES OF INTERMEDIARIES/COORDINATORS IS NOT ONLY CUMBERSOME AND COSTLY BUT IN FACT UNIMAGINABLE CONSIDERING THE CURRENT TRADE PRACTICES AND THE RISKS INVOLVED. THAT THE COMPANY HAS ALWAYS BEEN AVAILING SERVICES OF AGENTS FOR CONDUCT AND EXPANSION OF BUSINESS OVERSEAS. THAT DURING THE YEAR UNDER ASSESSMENT THE PERCENTAG E OF COMMISSION PAID :-4-: TO OVERALL SALES IS 1.77% AS AGAINST 3.11 % IN THE IMMEDIATELY PRECEDING YEAR WHICH IS MUCH LESSER THAN THE PREVIOUS YEAR WH EREIN THE ENTIRE COMMISSION HAS BEEN ALLOWED U/S 143(3). THAT THE VERY NATURE OF THE EXPENSE WAS SUCH THAT I T COULD NOT BE FOR NON- BUSINESS PURPOSES AND WAS DIRECTLY LINKED TO THE SA LES OF THE COMPANY. THAT THE TERMS OF AGENCY BETWEEN THE SAID PARTY AND THE APPELLANT WERE GOVERNED BY A CONTRACTUAL AGREEMENT, COPY WHEREOF W AS DULY FURNISHED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THAT THE COMMISSION WAS PAID AT A RATE OF 2% OF THE SALE VALUE OF GOODS SOLD THROUGH THE AGENT, WHICH WAS FAIR AND REASONAB LE IN TERMS OF THE PREVALENT TRADE PRACTICE. THE RECIPIENT OF COMMISSION WAS A REGULAR INCOME TA X ASSESSEE AND TAX HAS BEEN DEDUCTED BY THE COMPANY ON THE SAID AMOUNT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961. 5. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OB SERVING AS UNDER:- 35. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AND THE MATERIAL PLACED ON RECORD. THE FACTS RELEVANT TO THE CASE AR E: A. THE IDENTITY OF THE COMMISSION AGENT WAS DULY ES TABLISHED. THE AGENT IS A COMPANY INCORPORATED UNDER THE COMPA NIES ACT, 1956 AND IS ALSO A REGULAR INCOME TAX ASSESSEE. B. THE SERVICES RENDERED BY THE AGENT WERE ALSO EVI DENT FROM THE CONTRACT WITH THE AGENT HELD ON RECORD AND SUBM ITTED BEFORE THE ASSESSING OFFICER. C. THE APPELLANT HAS ACTUALLY EFFECTED EXPORT SALES OF RS.9,95,84,668/- OF THE ITEM IN RESPECT OF WHICH TH E AGREEMENT WITH THE COMMISSION AGENT WAS ENTERED INTO. :-5-: D. THE RATE OF COMMISSION IS ALSO WELL WITHIN THE I NDUSTRY STANDARDS. E. THE DELAYED PAYMENT IS AS PER CONTRACTUAL TERMS WITH THE PARTY AND TO SAFEGUARD ITS OWN INTEREST. THEREFORE, THE COMMISSION PAID TO M/S PATH FINDERS INTEGRATED SOFTWARE LTD. DOES NOT CALL FOR ANY DISALLOWANCE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. AS PER PARA 4 OF THE REPLY FI LED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, IT IS CLEAR THAT THE ASSESSEE-CO MPANY HAD PAID AN AMOUNT OF $ 19,91,693 (BEING 2% OF THE SALE VALUE OF LADIES NIG HTWEAR TO RUSSIA) AS COMMISSION TO M/S PATHFINDERS SOFTWARE INTEGRATED PRIVATE LIMITED FOR COORDINATING THE SALE OF LADIES NIGHTWEAR IN RUSSIA ON BEHALF OF THE ASSESSEE-COMPA NY. THE TERMS WERE GOVERNED BY A CONTRACTUAL AGREEMENT ENTERED BETWEEN THE SAID PART Y AND THE ASSESSEE-COMPANY, COPY OF WHICH WAS SUBMITTED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE HAS FILED THE COPY OF THE SAID AGREEMENT BEFORE US ALSO, WHICH ARE PLACED AT PAGES 23 TO 25 OF THE ASSESSEE S PAPER BOOK, THE CONTENTS OF WHICH READ AS UNDER:- THIS AGREEMENT IS MADE THIS 3 RD DAY OF APRIL TWO THOUSAND TWO BETWEEN: PATH FINDUS INTEGRATED PVT. LTD., A PRIVATE LIMITED COMPANY WITHIN THE MEANING OF THE COMPANIES ACT, 1956 AND HAVING ITS R EGISTERED OFFICE AT 127/132, S BLOCK, JUHI KALAN, KANPUR - 208014, HERE INAFTER REFERRED TO AS CO-ORDINATOR (WHICH EXPRESSION SHALL UNLESS EXCLUDE D BY OR REPUGNANT TO THE CONTEXT BE DEEMED TO MEAN AND INCLUDE ITS SUCCE SSORS AND ASSIGNS). AND FROST INTERNATIONAL LTD., A COMPANY REGISTERED UNDE R COMPANIES ACT, 1956 AND HAVING OFFICE AT 410-411, KALPANA PLAZA, 24/147 -A, BIRHANA ROAD, KANPUR-208001 HEREINAFTER REFERRED TO AS 'EXPORTER' (WHICH EXPRESSION :-6-: SHALL UNLESS EXCLUDED BY OR REPUGNANT TO THE CONTEX T BE DEEMED TO MEAN AND INCLUDE ITS SUCCESSORS AND ASSIGN. WHEREAS 1. CO-ORDINATORS HAVE GOOD CONTACT IN OVERSEAS MARK ET SPECIALLY IN RUSSIA. 2. EXPORTER IS INTERESTED IN UNDERTAKING THE EXPORT INCLUDING TO RUSSIA. 3. CO-ORDINATOR STATES THAT ALL THE EXPORTS THROUGH HIM WILL BE ON DELIVERY AGAINST ACCEPTANCE BASIS AND PAYMENT FOR W HICH IS RECEIVED ON AGREED TERMS. 4. EXPORTER IS READY TO UNDERTAKE EXPORTS AND SEND DOCUMENTS ON DELIVERY AGAINST ACCEPTANCE BASIS. NOW THIS INDENTURE WITNESS AS ON AGREEMENT ARRIVED BETWEEN CO-ORDINATOR AND EXPORTER AS FOLLOWS :- PATHFINDERS SOFTWARES INTEGRATED FOR FORST INTERNATIONAL LTD. PVT. LTD. SD/- SD/- MANAGING DIRECTOR DIRECTOR I) THAT CO-ORDINATOR SHALL INTRODUCE THE EXPORTER T O OVERSEAS IMPORTERS. II) THAT EXPORTER WILL EVALUATE THE CAPACITY AND CR EDIBILITY OF THE OVERSEAS IMPORTERS. III) THAT CO-ORDINATOR WILL ARRANGE EXPORTS OF VARI OUS ITEMS TO DIFFERENT COUNTRIES FOR THE EXPORTERS. IV) THAT CO-ORDINATOR WILL CHARGE COMMISSION AND EX PORTER SHALL PAY ON :-7-: DIFFERENT ITEMS FOR DIFFERENT COUNTRIES AS FOLLOWS ON C & F VALUE: ITEM COUNTRY COMMISSION LADIES NIGHTWEAR RUSSIA 2% V) THAT THE FULL PAYMENT OF THE SAME WILL BE RECEIV ED BY THE EXPORTER WITHIN THREE MONTHS OF THE EXPORT UNDERTAKEN OR WIT HIN THE TIME MUTUALLY AGREED UPON. VI) THAT THE COMMISSION WILL BE PAYABLE WITHIN 30 D AYS OF THE RECEIPTS OF THE FULL PAYMENT OF THE CONSIGNMENT AND IN CASE FULL PAYMENT IS NOT RECEIVED WITHIN 90 DAYS AND THE EXPORTER CONTIN UES TO MAKE EXPORT TO THE PARTIES INTRODUCED BY THE CO-ORDINATO R EVEN AFTER NON RECEIPT OF THE FULL PAYMENT AFTER EXPIRY OF THE CO- ORDINATOR WILL BE CEASED AND THE COMMISSION WILL BE PAYABLE BY THE EX PORTER FOR THE FIRST YEAR WITHIN 30 DAYS OF THE RECEIPT OF THE PAY MENT OR ON COMPLETION OF 365 DAYS OF THE BILL OF LADING OF THE FIRST CONSIGNMENT WHICHEVER IS EARLIER AND IN THE SUBSEQUENT YEAR IT WILL BE PAYABLE IMMEDIATELY AFTER COMPLETION OF THE EXPORT AS THERE AFTER EXPORT AND RECEIPT OF PAYMENT WILL DEPEND UPON THE MUTUAL AGRE EMENT ARRIVED BETWEEN EXPORTER AND OVERSEAS IMPORTER. VII) THAT INITIALLY THIS ARRANGEMENT WILL BE EFFECT IVE UPTO 31.03.03, HOWEVER IT COULD BE RENEWED/AMENDED ON MUTUALLY AGR EED TERMS & CONDITIONS. VIII) IF ANY DISPUTE OR DIFFERENCES OF ANY KIND WHA TSOEVER SHALL ARISE BETWEEN THE PARTIES IN CONNECTION WITH OR ARISING O UT OF THIS AGREEMENT (AND WHETHER BEFORE OR AFTER THE TERMINAT ION OF BREACH OF THIS AGREEMENT) THE PARTIES SHALL PROMPTLY AND I N GOOD FAITH NEGOTIATE WITH A VIEW TO ITS AMICABLE SOLUTION AND SETTLEMENT. IN CASE NO AMICABLE SETTLEMENT IS REACHED WITHIN A REA SONABLE PERIOD :-8-: FROM THE DATE THE DISPUTE AROSE, THEN SUCH DISPUTE OR DIFFERENCE SHALL BE REFERRED TO AND SETTLED PROVISION OF THE A RBITRATION AND CONCILIATION ACT, 1996. THE PLACE OF ARBITRATION S HALL BE AT KANPUR AND THE COURTS OF KANPUR ALONE WOULD HAVE THE JURIS DICTION. IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THESE PRESENTS ON THE 3 RD DAY OF APRIL 2002. PATHFINDERS SOFTWARES INTEGRATED PVT. LTD. SD/- MANAGING DIRECTOR SIGNED AND DELIVERED FOR AND ON BEHALF OF COORDINAT OR FOR FROST INTERNATIONAL LTD. SD/- DIRECTOR SIGNED AND DELIVERED FOR AND ON BEHALF OF EXPORTER. 6.1 SHRI ABHINAV MEHROTRA, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE-COMPANY DOES NOT HAVE ANY OFFICE OUTSIDE I NDIA AND THEREFORE THE PROCUREMENT OF ORDERS IN THE INTERNATIONAL MARKETS WITHOUT THE SPECIALIZED SERVICES OF INTERMEDIARIES/COORDINATORS IS NOT ONLY CUMBERSOME AND COSTLY BUT IN FACT UNIMAGINABLE CONSIDERING THE CURRENT TRADE PRACTICES AND THE RIS KS INVOLVED. IN THESE CIRCUMSTANCES, THE ASSESSEE-COMPANY ENTERED INTO AN AGREEMENT WITH M/S PATHFINDERS SOFTWARE INTEGRATED PRIVATE LIMITED. SHRI ABHINAV MEHROTRA, THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE SERVICES RENDERED BY THE SAID COMPANY ARE ALSO EVIDENT FROM THE AFORESAID CONTRACT. IT IS AN ADMITTED FACT THA T THE RECIPIENT OF COMMISSION IS A REGULAR INCOME-TAX ASSESSEE AND TAX HAS BEEN DEDUCT ED BY THE COMPANY ON THE SAID AMOUNT IN ACCORDANCE WITH THE PROVISIONS OF THE INC OME-TAX ACT, 1961. 6.2 SHRI ABHINAV MEHROTRA, THE LD. COUNSEL FOR THE ASSE SSEE ALSO SUBMITTED THAT THE ASSESSEE-COMPANY HAS ACTUALLY EFFECTED EXPORT SALES OF $ 9,95,84,668 OF THE ITEM IN :-9-: RESPECT OF WHICH THE AGREEMENT WITH THE COMMISSION AGENT WAS ENTERED INTO. IT WAS ALSO STATED THAT THE RATE OF COMMISSION IS ALSO WEL L WITHIN THE INDUSTRY STANDARDS. CONSIDERIGN THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, WE ARE OF THE VIEW THAT M/S PATHFINDERS SOFTWARE INTEGRATED PRIVATE LI MITED HAS ACTUALLY RENDERED SERVICES AND IN LIEU OF IT, THE SAID COMPANY RECEIVED COMMIS SION @ 2% OF THE SALE VALUE. SHRI ABHINAV MEHROTRA, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID COMPANY HAS SHOWN THE AMOUNT OF COMMISSION IN ITS RETURN OF INC OME AND THEREFORE THERE WAS NO JUSTIFICATION IN MAKING THE DISALLOWANCE BY THE ASS ESSING OFFICER. IN OUR VIEW, THE ORDER OF THE LD. CIT(A) IS PERFECTLY CORRECT ON THIS ISSU E AND DESERVES TO BE UPHELD. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS GROUND NO. 1 OF REVENUES APPEAL. 7. GROUND NO. 2 OF THE APPEAL READS AS UNDER:- 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN ALLOWING THE SALARY PAID TO THE STAFF OF M/S COMET OVERSEAS (P) LTD. WI THOUT VERIFYING THE FACT THAT THE SAID STAFF HAS ACTUALLY WORKED FOR THE ASS ESSEE OR NOT. 8. BY WAY OF THIS GROUND, THE REVENUE HAS CHALLENGED T HE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF $ 2.40 LAKHS OUT OF SALARY AND WAGES PAID TO M/S COME T OVERSEAS (P) LTD. 9. DURING THE YEAR UNDER CONSIDERATION, A DEBIT NOTE O F $ 2.40 LAKHS WAS RAISED BY M/S COMET OVERSEAS (P) LTD., A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, AGAINST THE ASSESSEE. THE SAID COMPANY IS AN ASSOC IATE CONCERN OF THE ASSESSEE- COMPANY. THE DEBIT NOTE WAS RAISED SO AS TO APPORT ION THE ASSESSEE-COMPANYS SHARE IN THE SALARY AND OTHER EXPENSES INCURRED BY THE LATTE R. M/S COMET OVERSEAS (P) LTD. AND THE ASSESSEE-COMPANY SHARE A COMMON OFFICE AND CERT AIN COMMON STAFF. THE ASSESSING OFFICER TOOK THE VIEW THAT M/S COMET OVERSEAS (P) L TD. COULD NOT BE AN EMPLOYEE OF THE ASSESSEE-COMPANY FOR WHICH SALARY COULD BE PAID TO IT. HE, THEREFORE, DISALLOWED THE AMOUNT OF $ 2.40 LAKHS. 10. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT M/S COMET OVERSEAS (P) LTD.S OPERATIONS HAD GONE DOWN SUBSTANTIALLY. HOWEVER, T HE ASSESSEES OPERATIONS HAVE INCREASED SIGNIFICANTLY. M/S COMET OVERSEAS (P) LT D. HAD WELL TRAINED STAFF HAVING KNOWLEDGE AND EXPERIENCE OF THE SAME BUSINESS AS TH E ASSESSEES, WHO WERE NOT BEING :-10-: FULLY UTILIZED BY THE SAID COMPANY ON ACCOUNT OF DE CLINE IN BUSINESS. A LIST OF SUCH STAFF WAS ALSO FURNISHED. IT WAS ACCORDINGLY AGREED TO B ETWEEN THE ASSESSEE-COMPANY AND THE SAID COMPANY THAT SERVICES OF THESE STAFF BE AL SO UTILIZED BY THE ASSESSEE-COMPANY WHILE THEY WERE ON ROLL OF M/S COMET OVERSEAS (P) L TD. AND THAT 50% OF THEIR SALARY BE REIMBURSED BY THE ASSESSEE-COMPANY TO THE SAID COMP ANY. ACCORDINGLY, A DEBIT NOTE TO THIS EFFECT WAS RAISED BY M/S COMET OVERSEAS (P) LT D. AS AT THE YEAR END, CLAIMING 50% OF THE SALARY EXPENSES. THE LD. CIT(A) ALLOWED THE CLAIM OBSERVING AS UNDER:- 45. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. IT IS APPARENT THAT THE TURNOVER OF THE APPELLANT COMPANY HAS DOUB LED VIS--VIS THE PRECEDING YEAR. THE SALARY EXPENSES HAVE HOWEVER N OT INCREASED IN THAT RATIO AND EVEN OTHERWISE IS LESS THAN EVEN 50% OF T HE TURNOVER. I, THEREFORE, ALLOW THE APPELLANTS CLAIM. THIS GROUN D OF THE APPELLANT IS ALLOWED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI P.K. BAJAJ, LD. D.R. REL IED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, SHRI ABHINAV MEHROTRA, THE LD. C OUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE FURTHER POINTED OUT THAT A DEBIT NOTE OF $ 2.40 LAKHS WAS RAISED BY M/S COMET OVERSEAS (P) LTD ., A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, AGAINST THE ASSESSEE . THE SAID COMPANY IS AN ASSOCIATE CONCERN OF THE ASSESSEE-COMPANY. THE DEBIT NOTE WA S RAISED SO AS TO APPORTION THE ASSESSEE-COMPANYS SHARE IN THE SALARY AND OTHER EX PENSES INCURRED BY THE LATTER. IT IS STATED THAT M/S COMET OVERSEAS (P) LTD. AND THE ASS ESSEE-COMPANY SHARE A COMMON OFFICE AND CERTAIN COMMON STAFF. THIS IS OWING TO THE FACT THAT THE EMPLOYEES IN M/S COMET OVERSEAS (P) LTD. ARE TRAINED IN THE SAME LIN E OF BUSINESS, ARE ASSOCIATED WITH THE COMPANY SINCE LONG, AND SINCE THE COMPANYS BUSINES S ACTIVITY IS REDUCING, THE EMPLOYEES SERVICES WERE BEING AVAILED BY THE ASSES SEE-COMPANY. SINCE THESE EMPLOYEES CONTINUED TO BE ON ROLL OF M/S COMET OVER SEAS (P) LTD., WHICH IS STILL OPERATING, THE SAID COMPANY RAISED DEBIT NOTE AGAIN ST THE ASSESSEE FOR APPORTIONING ITS SHARE IN EXPENDITURE ON THESE EMPLOYEES REMUNERATI ON. THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE ABOVE CONTENTION OF THE LD. COUNS EL FOR THE ASSESSEE. IN OUR VIEW, THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEES BUSINESS. :-11-: FURTHER MORE, THERE IS NO MATERIAL ON RECORD TO CON TROVERT THIS FACT THAT THE EMPLOYEES OF M/S COMET OVERSEAS (P) LTD. HAD NOT RENDERED THEIR SERVICES TO THE ASSESSEE-COMPANY. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCE S OF THE PRESENT CASE, WE DO NOT SEE ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD THE SAME. HENCE, GROUND NO. 2 OF THE APPEAL IS DISMISS ED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 7.4.2011 . SD/- SD/- [ N. K. SAINI] [H. L. KARWA] ACCOUNTANT MEMBER VICE PRESIDENT DATED:7.4.2011 JJ:0604 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR