M/S. FARM SERVICES INDORE, Indore V. THE DCIT CIRCLE 5(1), Indore

ITA 779/IND/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6373 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 11-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G GOYAL
• Keywords: Assessment record
• Section: 143(3); 37(1); 131

Judgement Text

FARM SERVICES INDORE ITA NO.779/IND/2014 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.779/IND/2014 ASSESSMENT YEAR: 2011-12 REVENUE BY SHRI K.G. GOYAL , SR.DR ASSESSEE BY SHRI RAJESH MEHTA, CA DATE OF HEARING 18.7.2018 DATE OF PRONOUNCEMENT 31 .7.2018 O R D E R PER MANISH BORAD, AM. THIS APPEAL FILED BY THE REVENUE PERTAI NING TO THE A.Y. 2011- 12 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONE R OF INCOME-TAX (APPEALS)-II, INDORE DATED 30.09.2014 WHICH IS ARIS ING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT DATED 31.12. 2013 PASSED BY DCIT-CIRCLE 5(1), INDORE. FA RM SERVICES INDORE 6 SIKH MOHALLA, INDORE VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1), INDORE APPELLANT (RESPONDENT ) PAN NO.AACFF0163F FARM SERVICES INDORE ITA NO.779/IND/2014 2 2. SOLE GRIEVANCE OF THE ASSESSEE RAISED IN DETAILE D GROUNDS OF APPEAL RELATES TO DISALLOWANCE OF COMMISSION EXPEND ITURE OF RS.27.92 LAKHS. 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TRADING I N BIO-PESTICIDES, BIO-FERTILIZERS, WEEDICIDES, FUNGICIDES AND ALL KIN DS AND VARIETIES OF AGRI INPUTS. THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.19,22,310/- WAS FILED ON 08.09.2011. THE CASE W AS SELECTED FOR SCRUTINY AND NECESSARY NOTICES U/S 143(2) AND 142( 1) DULY SERVED UPON THE ASSESSEE. NECESSARY DETAILS HAS CALLED FO R AND WERE FURNISHED BY THE ASSESSEE AND EXAMINED BY LD.A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FROM THE PERUSAL O F PROFIT & LOSS ACCOUNT THE LD.A.O OBSERVED THAT ASSESSEE HAS CLAIM ED COMMISSION EXPENSES OF RS.58,62,685/- AND HE ACCORDINGLY SOUGH T INFORMATION FROM THE ASSESSEE ABOUT THE JUSTIFICATION OF THIS E XPENDITURE. IT WAS SUBMITTED BY THE ASSESSEE THAT THE SALES ARE MADE O N CONSIGNMENT BASIS TO TWO NODAL AGENCIES OF MADHYA PRADESH GOVE RNMENT NAMELY MARKFED/MPSAIDCL AND THE COMMISSION WAS PAI D TO VARIOUS AGENTS IN ORDER TO PROMOTE THE SALES OF THE SUPPLIER I.E. FARM SERVICES INDORE ITA NO.779/IND/2014 3 MARKFED AND MPSAIDCL. IT WAS ALSO CONTENDED THAT T HE SALES HAVE INCREASED THREE FOLDS DURING THE YEAR UNDER AS SESSMENT WHEREAS THE EXPENDITURE ON SALARY REMAIN ALMOST SAM E AND ASSESSEE HAS SPENT MORE ON COMMISSION TO INCREASE T HE SALES. HOWEVER, THESE SUBMISSIONS COULD NOT CONVINCE THE L .A.O AND HE ON THE BASIS OF THE INFORMATION RECEIVED FROM THE G OVERNMENT NODAL AGENCIES CONCLUDED THAT NO SUCH AGENT SERVICES WERE REQUIRED BY THE GOVERNMENT DEPARTMENTS AND DID NOT FIND ANY GEN UINENESS IN ALLEGED COMMISSION EXPENSES AND DISALLOWED THE SAME , ADDING IT BACK TO THE INCOME OF THE ASSESSEE. ACCORDINGLY AF TER DISALLOWING THE COMMISSION ON SALES OF RS.58,62,685/-, INCOME A SSESSED AT RS.77,84,995/-. 4. AGGRIEVED ASSESSEE FILED APPEAL BEFORE LD.CIT(A ) AND PARTLY SUCCEEDED AS THE LD.CIT(A) ACCEPTED THE GENUINENESS OF THE EXPENDITURE BUT ON ACCOUNT OF REASONABLENESS RESTRI CTED IT TO 4% OF THE TURNOVER AS AGAINST 8.39% CLAIMED BY THE ASSESS EE THEREBY GIVING RELIEF OF RS.30.70 LACS AND SUSTAINING THE D ISALLOWANCE OF THE REMAINING AMOUNT OF COMMISSION EXPENDITURE OF RS.27 .92 LACS. FARM SERVICES INDORE ITA NO.779/IND/2014 4 5. NOW THE ASSESSEE IS IN APPEAL AGAINST THE DISAL LOWANCE OF RS.27.92 LAKHS SUSTAINED BY LD.CIT(A). IT IS ALSO BROUGHT ON RECORD THAT REVENUE HAS NOT FILED ANY APPEAL AGAINST THE O RDER OF LD.CIT(A). 6. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THIS TRIBUNAL WITH FOLLOWING GROUNDS; 1. THAT, PARTLY DISALLOWANCE & RESTRICTING THE ADDI TION TO RS.27.92 LACS AGAINST THE ADDITION OF RS.58.62 LACS ON THE F ACTS AND CIRCUMSTANCES OF THE CASE, AND THE GROUNDS OF APPEAL & WRITTEN SUBMISSION FILED BY US IS QUITE ERRONEOUS, IMPROPER, ARBITRARY & UNJUSTIFIED. 2. THAT, WE APPRECIATE THE FACT THAT HON'BLE COMMIS SIONER OF INCOME TAX APPEALS-2 INDORE HEARD/GONE CAREFULLY THROUGH THE ORDER OF ASSESSING OFFICER AND THE GROUNDS OF APPEALS AND WRIT TEN SUBMISSION FILED BY US AND ACCEPTED OUR GROUNDS OF APPEAL FILED. 3. THAT, WHILE PARTLY DISALLOWING THE ADDITION OF R S.27.92 LACS U/S 37(1) ON A/C OF COMMISSION PAID TO THIRD PARTIES IS U NJUSTIFY AND IMPROPER. THE LEARNED HON'BLE COMMISSIONER OF INCOM E TAX APPEALS(2) INDORE OUGHT TO HAVE CONSIDERED THE FACT T HAT THE EXPENDITURE SHOULD SATISFY THE TEST OF COMMERCIAL E XPEDIENCY. ONLY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE BUSINESS IS ALLOWABLE. THE EXPRESSION WHOLLY AND EXCLUSIVELY DOES NOT MEA N NECESSARILY. THE BUSINESSMAN AND NOT THE TAX COLLECTOR IS THE PRO PER JUDGE FOR THE JUSTIFICATION OF THE EXPENDITURE. IF THEREFORE IT IS ESTABLISHED THAT THE FARM SERVICES INDORE ITA NO.779/IND/2014 5 EXPENDITURE IS INCURRED FOR THE PURPOSE OF THE BUSI NESS THE ASSESSING OFFICER CANNOT DISALLOW THE SAME ON THE GROUND THAT THERE WAS NOT NECESSITY. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LD. CIT(A) ON ONE HAND HAS ACCEPTED THE GENUINENESS, BUSINESS EXP EDIENCY AND IDENTITY OF THE RECIPIENT OF COMMISSION BUT FOR NO REASON HAS RESTRICTED THE COMMISSION EXPENDITURE TO 4% OF THE TURNOVER. IT WAS A COMMERCIAL DECISION OF THE ASSESSEE NOT TO RECRUI T EMPLOYEES AND AVAIL SERVICES OF REPRESENTATIVES, WHICH SAVED VARI OUS FIXED COSTS AND VARIOUS ALLOWANCES OF TRAVELLING, DEARNESS ALLO WANCE, P.F., E.S.I.C LIABILITY AND COMPLIANCE THEREOF. FURTHER THE PAYMENT OF SALARY HAS NOT INCREASED DURING THE A.Y. 2011-12 AL THOUGH THE TURNOVER INCREASED STEEPLY. THIS WAS DUE TO THE AP POINTMENT OF AGENTS ONLY. ALTHOUGH THE SUPPLY ON CONSIGNMENT BA SIS MADE TO THE MP GOVERNMENT NODAL AGENCIES (MARKFED/MPSAIDCL) BUT THE RESPONSIBILITY TO PROMOTE THE SALE IS OF THE SUPPLI ER I.E. M/S. FARM SERVICES ONLY. HE FURTHER SUBMITTED THAT THE MARKFE D AND MPSAIDCL, BOTH BEING THE GOVERNMENT OF MADHYA PRADE SH UNDERTAKING (NODAL AGENCIES), OFFERS MORE THAN FIFT Y SUPPLIERS ACROSS INDIA TO SUPPLY BIO FERTILIZERS, BIO PESTICI DES (ORGANIC PRODUCT) TO MARKFED AND MPSAIDCL ON CONSIGNMENT BAS IS FOR SALE TO FARMERS (CLAUSE 2 OF AGREEMENT WITH MARKFED ). FARMERS GET THE SUBSIDY WHICH RANGES FROM 25% TO 90% ACCORD ING TO THE CATEGORY OF FARMERS/CUSTOMER, FROM THE MP GOVERNMEN T FOR PURCHASE OF SAID ORGANIC PRODUCT FROM MARKFED AND M PSAIDCL. FURTHER THE MARKFED AND MPSAIDCL SALE THE PRODUCT T O FARMERS FARM SERVICES INDORE ITA NO.779/IND/2014 6 AT THE PRICE WHICH IS BELOW THE MRP OF THE PRODUCT. THE COMMISSION OF MARKFED AND MPSAIDCL IS FIXED @5% CHA RGED FROM THE SUPPLIER I.E. M/S. FARM SERVICES ON THE VA LUE OF GOODS SOLD TO USERS ON SALES VALUE. 7.1 INVOLVEMENT OF COMMISSION AGENT IN SELLING OF P RODUCT OF M/S FARM SERVICES: (A) NEED OF COMMISSION AGENT: THERE IS AN AGREEMEN T BETWEEN MARKFED/MPSAIDCL AND M/S. FARM SERVICES. AS STATED IN THE CLAUSE NO.15 OF AGREEMENT WITH MARKFED/MPSAIDCL THA T THE SUPPLIER AGREES & UNDERTAKE TO ALSO TAKE SUCH STEPS TO PROMOTE SALES OF THEIR PRODUCT KEPT WITH MARKFED AND AT ITS DIFFERENT STORAGE CENTERS AS HE MIGHT THINK NECESSARY . THE ASSESSEE APPOINTED COMMISSION AGENTS TO PROMOTE THE SALES OF THEIR PRODUCT AND OTHER SERVICES INCLUDING ADVISORY SERVICES. (B) ROLE OF COMMISSION AGENT : THERE IS AN AGREEMENT BETWEEN M/S FARM SERVICES AND COMMISSION AGENT ALONG WITH P ROMOTING THE SALES OF PRODUCT OF ASSESSEE, ALSO ASSIST ASSES SEE AND PERFORM ANY AND ALL SERVICES REQUIRED OR REQUESTED IN CONNE CTION WITH ASSESSEES BUSINESS, INCLUDING BUT NOT LIMITED TO, SUCH SERVICES OF AN ADVISORY NATURE AS MAY BE REQUESTED FROM TIME TO TIME BY THE ASSESSEE. (C) HELP ACTUALLY RECEIVED FROM COMMISSION AGENT: DUE T O THE EFFORTS, ENERGY AND SKILL ON A REGULAR AND CONSISTE NT BASIS MADE BY FARM SERVICES INDORE ITA NO.779/IND/2014 7 THE COMMISSION AGENTS THE TURNOVER OF THE ASSESSEE INCREASED BY STEEP GROWTH DURING THE A.Y. 2011-12. A.Y TURNOVER (IN RS.) INCREASE IN TURNOVER FROM PREVIOUS YEAR COMMISSION TO AGENTS (IN RS.) INCREASE IN COMMISSION FROM PREVIOUS YEAR 2009 - 10 1,98,19,093/ - - 3,52,740/ - - 2010 - 11 2,37,53,270/ - 39,34,177/ - 5,05,000/ - 1,52,260/ - 2011 - 12 6,98,28,769/ - 4,60,75,499/ - 58,62,685/ - 53,57,685/ - 7.2 MODE OF PAYMENT OF COMMISSION TO AGENTS: ALL PAYMENTS TO THE RESPECTIVE COMMISSION AGENTS/LIASONING AGENTS ARE M ADE VIDE CHEQUE OR RTGS AFTER DEDUCTING TDS. NO COMMISSION WILL BE DUE AND PAYABLE TO LIASONING AGENTS UNTIL RECEIPT OF PA YMENT FROM ANY CUSTOMER (FARMERS) ON THE CONTRACT FOR ANY UNDERLYI NG INVOICE. (AS PER 3 RD CLAUSE OF AGREEMENT WITH LIASONING AGENTS) 7.3 AVAILABILITY OF PRODUCTS SUPPLIED BY FARM SERVI CES IN OPEN MARKET: MANY COMPANIES ACROSS INDIA MANUFACTURE A ND SUPPLY THIS ORGANIC PRODUCT IN THE OPEN MARKET AND MORE TH AN 50 COMPANIES ALSO SUPPLY THIS ORGANIC PRODUCT TO MARKF ED AND MPSAIDCL. SO THE ASSESSEE I.E. M/S. FARM SERVICES HAD TO FACED THE COMPETITION WITH THESE MORE THAN 50 COMPANIES W HO ARE IN QUEUE BEFORE THE MARKFED AND MPSAIDCL TO SALE THEIR PRODUCT THROUGH MARKFED AND MPSAIDCL. 7.4 EXPIRY DATES OF DIFFERENT PRODUCTS: EXPIRY DAT E OF PRODUCTS RANGE FROM SIX MONTHS TO MAXIMUM TWELVE MONTHS, NOT MORE THAN FARM SERVICES INDORE ITA NO.779/IND/2014 8 THIS. ONLY ONE OR TWO PLANT REGULATORS HAVE SHELF LIFE OF TWO YEARS. EXPIRED PRODUCTS HAVE TO BE SCRAPPED BY M/S FARM SE RVICE AT ITS COST AS PER THE INSECTICIDES ACT 1968. 7.5 RISK AND RESPONSIBILITY OF EXPIRED/UNSOLD GOOD S: FARM SERVICES IS RESPONSIBLE FOR EXPIRY MATERIAL. IT HA S TO TAKE BACK THE UNSOLD AND THE EXPIRED STOCK FROM MARKFED AND MPSAI DCL AFTER STIPULATED TIME PERIOD. CLAUSE 22 OF AGREEMENT WIT H MARKFED. AT THE END OF KHARIF SEASON I.E. 30 TH SEPTEMBER 2010 AND THE END OF RABI SEASON I.E. 31 ST MARCH 2011, THE SUPPLIER SHALL LIFE AND TAKE BACK THE UNSOLD STOCKS OF THE VARIOUS PRODUCTS SUPP LIED BY HIM AND NOT REQUIRED FOR THE FOLLOWING SEASON, WITHIN A PERIOD OF 30 DAYS BACK AND FROM THE END OF THE RABI & KHARIF SEA SON AFOREMENTIONED. IN CASE THE SUPPLIER MAKES DEFAULT , HE SHALL BE LIABLE TO PAY TO MARKFED GODOWN RENT BEYOND THE EXPI RY OF THE SAID PERIOD OF 30 DAYS @ FIXED BY MARKFED. HOWEVER, IF THE SUPPLIER FURTHER FAILS TO TAKE BACK & REMOVE THE EN TIRE UNWANTED & UNSOLD MATERIAL WITHIN 60 DAYS OF THE END OF EACH R ESPECTIVE SEASON, AS MENTIONED SPECIFIED ABOVE, MARKFED SHALL NOT IN ANY WAY BE RESPONSIBLE FOR ANY LOSS, DETERIORATION OR D ESTRUCTION OF THE SAID STOCKS, DUE TO ANY COST WHATSOEVER AND MARKFED SHALL HAVE RIGHT TO DISPOSE IT OFF AS PER PROVISIONS OF THE RE LATED INSECTICIDES ACT, 1968, SOLELY AT THE RISK AND COST OF THE SUPPL IER. 8. LD. COUNSEL REFERRED AND RELIED ON; (I) ITAT DELHI BENCH IN THE BONY RUBBER CO. (P) LT D ITA NO.2898/DEL/2009 & ITA 4530/DEL/2009. FARM SERVICES INDORE ITA NO.779/IND/2014 9 (II) (1979) 118 ITR 261 (SUPREME COURT) SESSION J. DAVID & CO. P.LTD (III)(1972) 86 ITR 11 (SUPREME COURT) ALUMINIUM COR P. OF INDIA LTD. (IV) (1993) 69 TAX MAN 415 (SUPREME COURT) WOODCRAFT PRODUCTS LTD. (V) (1994) 73 TAX MAN 245 (CAL) INDIAN PRODUCTS LTD. (VI) CIT VS. SWADESHI MINING & MFG. CO. LTD (1979) 118 ITR 975 (CAL.) (VII) M/S. STALLION LABORATORIES PVT.LTD (2017) ITA NOS. 1981 & 2404/AHD/2015 (VIII)PCIT VS SATISH JAIN (2018) ITA NO.92/2017, IT A NO.93/17, ITA NO.94/17 & ITA NO.96/17 DATED 13.4.18. (IX) CIT VS. PANIPAT WOOLENS & GENERAL MILLS CO.LTD (1976) 103 ITR (X) CIT VS. NEIMLA TEXTILE & FINISHING MILLS (P) LTD (1981) 130 ITR 397 (P) LTD (XI) CIT VS. BHARAT COLLERIES LTD. (1968) 68 ITR 42 (P) LTD. 9. ON THE OTHER HAND DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED SUPPORTING THE ORDER OF ASSESSING OFFICER AN D FURTHER REFERRING TO THE LETTERS GIVEN BY THE GOVERNMENT NO DAL AGENCY STATED THAT NO SUCH AGENTS WERE REQUIRED TO BE HIRED FOR T HE SALE OF PRODUCTS TO THE FARMERS. 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE JUDGMENTS AND DECISIONS REFERRED AND RELIEF BY THE LD. COUNSEL FOR THE ASSE SSEE. THE ISSUE BEFORE US IS WITH REGARD TO COMMISSION EXPENDITURE OF RS.58.62 LAKHS PAID BY THE ASSESSEE OUT OF WHICH LD. CIT(A) HAS ALREADY FARM SERVICES INDORE ITA NO.779/IND/2014 10 GRANTED RELIEF OF RS.30.70 LAKHS AND NOW THE ASSEES SEE IS AGGRIEVED WITH THE SUSTAINING OF DISALLOWANCE OF RS.27.92 LAK HS. 11. WE FIND THAT THE ASSESSEE DEALS IN BIO PESTICI DES AND BIO FERTILIZERS AND UNDER THE WRITTEN AGREEMENTS WITH M ADHYA PRADESH GOVERNMENT NODAL AGENCIES NAMELY MARKFED AND MPSAID CL ASSESSEE WAS REQUIRED TO SALE THE GOODS I.E BIO FER TILIZER AND BIO PESTICIDES ON CONSIGNMENT BASIS TO THESE TWO AGEN CIES. THESE TWO NODAL AGENCIES USED TO FURTHER MAKE THE SALE TO THE FARMERS. THE ALLEGED COMMISSION EXPENDITURE HAS BEEN PAID BY THE ASSESSEE TO PROMOTE ITS PRODUCTS BY WAY OF MARKETING AND EDUCAT ING THE FARMERS FOR THE BENEFITS OF USING FERTILIZER AND PE STICIDES SO THAT THESE FARMERS COME TO THE OFFICE LOCATIONS OF MARKF ED AND MPSAIDCL WHICH ARE SCATTERED ACROSS VARIOUS PARTS O F THE STATE OF MADHYA PRADESH AND TO BUY THESE PRODUCTS. THE BASI C PURPOSE OF MAKING SUCH PAYMENT IS TO PROMOTE THE SALE OF THESE TWO NODAL AGENCIES WHICH IN TURN WILL MAKE THE SALE TO THE FA RMERS. AS THE DEMAND FROM THE FARMERS INCREASES THEN THE MARKFED/ MPSAIDCL PURCHASES MORE GOODS FROM THE ASSESSEE FIR M. 12. WE FURTHER FIND THAT THE LD.CIT(A) AFTER MAKIN G DETAILED EXAMINATION OF THE RECIPIENT OF COMMISSION AS WELL AS THE TERMS OF THE AGREEMENTS ENTERED INTO BETWEEN THE ASSESSEE AN D THE MP STATE GOVERNMENT NODAL AGENCIES ACCEPTED THE FACT THAT TH E COMMISSION WAS GENUINELY REQUIRED TO BE PAID FOR THE PROMOTION OF SALES. FARM SERVICES INDORE ITA NO.779/IND/2014 11 HOWEVER HE RESTRICTED THE COMMISSION EXPENSE TO RS. 30.70 LAKHS OBSERVING AS FOLLOWS; 3.2 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND ALSO THE WRITTEN SUBMISSIONS FILED BY THE APPELLANT. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS DIS ALLOWED THE ENTIRE COMMISSION ONLY ON THE BASIS OF THREE LETTER S RECEIVED FROM MP STATE AGRO INDUSTRIES FROM VARIOUS DISTRICTS OF MP S TATE. IN THEIR LETTERS, THEY HAVE NOT DENIED OF HAVING PURCHASED TH E BIO-PESTICIDE AND BIO-FERTILIZER FROM THE APPELLANT. BUT THEY HA VE SIMPLY SAID THAT THE PROCUREMENT HAVE BEEN MADE DIRECTLY FROM THE PA RTY. THE APPELLANT HAS ALSO NOT DENIED THE SAME. BUT THE CO NTENTION OF THE APPELLANT IS THAT IN ORDER TO FACILITATE THE CREATI ON OF DEMAND FOR THE PRODUCT, TO PROCURE THE ORDERS, TO ENSURE THE DELIVE RY AND TO PROVIDE SERVICES THEREAFTER, THE APPELLANT HAD APPOINTED A N UMBER OF LIAISONING AGENTS IN VARIOUS PARTS OF THE STATE WHO MONITOR THE DEMAND AND SUPPLY ISSUES OF THE PRODUCTS IN VARIOUS DIS TRICTS. IN MY OPINION, THE ASSESSING OFFICER IS NOT JUSTIFIED I N DISALLOWING THE ENTIRE COMMISSION SIMPLY ON THE BASIS OF THE LETTER AND THE STATEMENT GIVEN BY THE DISTRICT MANAGERS OF AGRO INDUSTRIES W HO ARE NOT SUPPOSED TO KNOW THE PECULIAR BUSINESS EXPEDIENCY OF THE APPELLANT COMPANY. THEREFORE, THE EXISTENCE OF EXPENDITURE O N ACCOUNT OF COMMISSION CANNOT BE RULED OUT. BUT, FROM PERUSAL O F THE AGREEMENTS WITH LIAISONING AGENTS, IT IS FOUND THAT IT IS A VER Y GENERALLY DRAFTED DOCUMENT WITHOUT SPECIFYING THE NATURE AND EXTENT OF WORK. THE RELEVANT PART OF THE AGREEMENT IS REPRODUCED HEREUND ER: ORGANISATION HEREBY APPOINTS LIAISONING AGENT AS A N AUTHORISED NON- EXCLUSIVE INDEPENDENT REPRESENTATIVE TO SELL AND PR OMOTE ALL PRODUCTS PROVIDED BY ORGANISATION. FARM SERVICES INDORE ITA NO.779/IND/2014 12 LIAISONING AGENT SHALL DEVOTE SUCH TIME, ENERGY AND SKILL ON A REGULAR AND CONSISTENT BASIS AS IS NECESSARY TO SELL AND PROMOT E THE SALE OF ORGANISATIONS PRODUCTS DURING THE TERM OF THIS AGR EEMENT. LIAISONING AGENTS SALES AND PROMOTIONAL EFFORTS SHALL BE DIRE CTED TOWARDS THE FOLLOWING: LIAISONING AGENT SHALL ASSIST ORGANISATION AND SHAL L PERFORM ANY AND ALL SERVICES REQUIRED OR REQUESTED IN CONNECTION WITH O RGANISATIONS BUSINESS, INCLUDING, BUT NOT LIMITED TO, SUCH SERVICES OF AN ADVISORY NATURE AS MAY BE REQUESTED FROM TIME TO TIME BY ORGANISATION. LIAIS ONING AGENT SHALL PERIODICALLY, OR AT ANY TIME UPON ORGANISATIONS RE QUEST, SUBMIT APPROPRIATE DOCUMENTATION OF ANY AND ALL SALES AND PROMOTIONAL EFFORTS PERFORMED AND TO BE PERFORMED FOR ORGANISATION PURS UANT TO THIS AGREEMENT. 3.3 FROM PERUSAL OF ABOVE TERMS OF AGREEMENT, IT IS OBSERVED THAT THERE ARE VERY GENERAL IN NATURE AND DO NOT SPECIFY THE NATURE OF EFFORTS AND THE DIRECTIONS ON WHICH THE LIAISONING A GENTS ARE SUPPOSED TO WORK FOR THE COMPANY. IN VIEW OF THE AB OVE TERMS, THE APPELLANT WAS REQUIRED TO FURNISH COMPLETE DETAILS O F NATURE OF SERVICES RENDERED BY EACH ONE OF THE LIAISONING AGEN TS AND ALSO TO FILE THE COPIES OF APPROPRIATE DOCUMENTATION AS REQU IRED BY THE COMPANY FROM THE LIAISONING AGENTS AS SPECIFIED IN T HE ABOVE TERMS AND CONDITIONS. BUT, THE APPELLANT HAS NOT BEEN IN A POSITION TO EXPLAIN THE SAME. THEREFORE, IN MY OPINION, THE RE ASONABLENESS OF COMMISSION IN THIS CASE IS UNDER QUESTION. IN ORDER TO VERIFY THE REASONABLENESS OF THE COMMISSION, I HAVE GONE THROU GH THE ASSESSMENT RECORD OF THE APPELLANT FOR THE LAST TWO YEARS. IT WAS OBSERVED THAT IN THE A.Y. 2009-10, THE APPELLANT HA D DEBITED AN AMOUNT OF ONLY RS.3.52 LACS AS COMMISSION AS AGAINS T THE SALE OF RS.1.86 CRORES WHICH IS 1.89% OF THE TURNOVER. SIM ILARLY, IN THE A.Y 2010-11, THE COMMISSION DEBITED IS RS.5.05 LACS AS A GAINST SALE OF RS.2.37 CRORES WHICH IS JUST 2.13% OF THE TURNOVER. BUT, IN THE RELEVANT A.Y, THE COMMISSION PAID IS RS.58.62 LACS A S AGAINST SALE OF FARM SERVICES INDORE ITA NO.779/IND/2014 13 RS.6.98 CRORES WHICH GIVES 8.39%. THEREFORE, IT IS OBSERVED THAT COMPARATIVELY DURING THE RELEVANT ASSESSMENT YEAR, T HE AMOUNT DEBITED ON ACCOUNT OF COMMISSION IS VERY HIGH AND UNRE ASONABLE. DURING THE COURSE OF APPEAL PROCEEDINGS, THE APPELL ANT WAS REQUIRED TO EXPLAIN THE MULTIFOLD INCREASE IN THE EXPENDITURE UNDER THE HEAD COMMISSION. IT HAS BEEN EXPLAINED THAT SINCE THE C OMMISSION IS BASED ON THE SALES AND THE SALES HAVE INCREASED IN ABS OLUTE TERMS. THEREFORE, THE EXPENDITURE UNDER THIS HEAD HAS GONE U P. THE EXPLANATION OF THE APPELLANT HAS NOT BEEN FOUND FULL Y TENABLE. THERE IS NO DOUBT THAT THE INCREASED EXPENDITURE ON THIS AC COUNT WILL BOOST SALE AND ALSO THE INCREASED SALE WILL MEAN THE INCREA SED EXPENDITURE UNDER THIS HEAD, YET IN PERCENTAGE TERMS, THE INCREA SE HAS BEEN FOUND ABNORMALLY HIGH. THEREFORE, IT SHALL BE REASO NABLE TO RESTRICT THE EXPENDITURE AT 4% OF THE TURNOVER WHICH WILL TA KE CARE OF INCREASED TURNOVER DURING THE RELEVANT ASSESSMENT YEA R. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RE STRICT THE ADDITION OF RS.27.92 LACS AS AGAINST THE ADDITION OF RS.58.6 2 LACS WHICH WILL RESULT INTO RELIEF OF RS.30.70 LACS. ACCORDINGLY, T HESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 13. WE FURTHER FIND SUBSTANCE IN THE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE THAT THERE IS A CORRESP ONDING INCREASE IN THE SALES VIS--VIS THE COMMISSION EXPENSES, SO MUCH SO THAT THE TURNOVER HAS INCREASED TO RS.6.98 CRORES (APPRO X) AS AGAINST RS. 2.38 CRORES (APPROX) IN THE PRECEEDING YEAR AND TH E FACT IS ALSO WORTH NOTING THAT SALARY EXPENDITURE HAS NOT INCREA SED IN THE PROPORTION OF INCREASE IN SALES AND THE CREDIT FOR THIS INCREASE IN SALES DIRECTLY GOES TO THE EFFORTS PUT IN BY THE CO MMISSION AGENTS TO FARM SERVICES INDORE ITA NO.779/IND/2014 14 ADVERTISE AND EDUCATE THE FARMERS WHICH IN TURN HAV E CREATED THE DEMAND OF THE PRODUCTS SOLD ON CONSIGNMENT BASIS BY THE ASSESSEE TO THESE TWO NODAL AGENCIES. 14. ITAT AHMEDABAD B BENCH IN THE CASE OF M/S. ST ALLION LABORATORIES PVT. LTD (2017) ITA NOS. 1981 &2404/AH D/2015 OBSERVED AS FOLLOWS:- THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSES SING OFFICER TO RESTRICT ASSESSEES COMMISSION PAYMENTS @3% AFTER O BSERVING THAT THE SAID AUTHORITY HAD NOT BEEN CAREFUL BEFORE DISALLOWING THE IMPUGNED PAYMENTS WHEREIN THE ASSESSEE HAS PLACED ON RECORD AL L POSSIBLE DETAILS IN ORDER TO DISCHARGE ITS ONUS ON THE ONE HAND WHEREA S THE COMMISSION PAYMENTS HAVE BEEN HELD TO BE EXCESSIVE WITHOUT ANY SUCH COMPARISON ON THE OTHER. WE THUS ACCEPT ASSESSEES ARGUMENTS SUP PORTING ITS SOLE SUBSTANTIVE GROUND AND TO DIRECT THE ASSESSING OFFIC ER TO ALLOW ITS ENTIRE CLAIM OF COMMISSION PAYMENTS AMOUNTING TO RS.67,77, 001/-. THE REVENUES CONTENTIONS SEEKING TO RESTORE ENTIRE DIS ALLOWANCE AMOUNT ARE ACCORDINGLY REJECTED. 15. FURTHER THE ITAT DELHI BENCH IN THE BONY RUBBER CO. (P) LTD ITA NO.2898/DEL/2009 & ITA 4530/DEL/2009. DISMISSED THE APPEAL OF REVENUE BY STATING THAT THE ASSESSEE HAS PRODUCED A DETAILED NOTE ON THE JUSTIFICATION OF SALARY AND WAGES PAID, DETAILS OF EMPLOYEES, COPIES OF THE LEDGER ACCOUNT O F WAGES, SALARY, WORKERS WELFARE, LEAVE ENCASHMENT, ATTENDANCE AND O THER EXPENSES INCURRED ON EMPLOYEES AND WORKERS. THE EXPENDITURE C ANNOT BE DISALLOWED ON THE GROUND OF PRUDENCE. IT IS WELL SETT LED THAT THE ASSESSING FARM SERVICES INDORE ITA NO.779/IND/2014 15 OFFICER CANNOT SIT IN THE ARM CHAIR OF THE BUSINESS MAN AND SUBSTITUTE HIS VIEWS FOR THAT OF THE BUSINESSMEN. 16. WE FURTHER OBSERVE THAT THE HONORABLE JURISDIC TIONAL HIGH COURT IN THE CASE OF PCIT VS SATISH JAIN (SUPRA) HA VE ADJUDICATED SIMILAR TYPE OF ISSUE RELATING TO COMMISSION EXPEND ITURE AND HONBLE COURT DECIDED IN FAVOUR OF THE ASSESSEE OBS ERVING AS FOLLOWS: ON GOING THROUGH THE ASSESSMENT RECORD AS WELL AS F INDINGS OF THE LD.CIT(A), WE FIND THAT THE ASSESSEE HAS SUBMITTED DET AILED EVIDENCES LIKE NAMES OF THE AGENTS, PAN NUMBERS, DESC RIBING SERVICES RENDERED BY THE AGENTS, CONFIRMING THE TRAN SACTION, DETAILS OF THE TDS MADE, BANK ACCOUNT DETAILS WITH RETURNS O F INCOME OF AGENTS. THE AO HAS ALSO EXAMINED THESE PERSON ON OA TH BY SUMMONING THEM UNDER SECTION 131 OF THE ACT, WHEREIN THEY HAVE CATEGORICALLY ADMITTED OF HAVING RECEIVED THE COMMISS ION AND SERVICE RENDERED BY THEM AND JUSTIFICATION OF HIGHER R ATE OF COMMISSION. WE ALSO NOTE THAT THE QUESTION FRAMED B Y THE AO TO VARIOUS GOVERNMENT DEPARTMENT LIKE PWD A D IDA WAS WHETHER THEY (GOVERNMENT DEPARTMENT) REQUIRED THE SERVICE OF COMMISSION AGENTS FOR MAKING THE SUPPLIES? IF YES, THE NAMES AND ADDRESSES OF SUCH COMMISSION AGENTS. THEREFORE, THE REPLY TO TH IS QUESTION HAD TO BE IN NEGATIVE AS THE COMMISSION AGENTS WERE APPOIN TED BY THE ASSESSEE AND NOT BY THE GOVERNMENT NODAL AGENCIES. WE ALSO NOTE THAT THE ASSESSEE IS DEALING IN SUPPLIES OF SIGN BO ARD ETC WHICH REQUIRED FIXING SITE VISIT MEASUREMENT ETC FOR WHICH COMMISSION AGENT HAVE RENDERED THE SERVICE AS THESE AGENTS ARE HAVING EXPERIENCE IN WORK AND EXPERTISE OF GOVERNMENT SUPPL Y. THEREFORE, REQUIREMENT OF REPRESENTATIVES FOR DOING SUCH JOBS CANNOT BE FARM SERVICES INDORE ITA NO.779/IND/2014 16 DENIED. FURTHER, PWD, MP VIDE THEIR LETTER DATED 24.0 2.2014 PLACED AT PAPER BOOK PAGE NO.53, AND REPRODUCED BY CIT(A) AT PAGE 14 OF HIS ORDER IN ASSESSEES SUBMISSION (PAGE 2.1-3) PRES CRIBES THE VARIOUS FORMALITIES AND SERVICES REQUIRED TO BE HANDLE D BY THE ASSESSEE OR REPRESENTATIVES OF THE AGENTS. THEREFO RE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF COMMISSION DEBITED TO THE PROF IT AND LOSS ACCOUNT 17. FROM PERUSAL OF THE CLAUSE NO.15 OF THE AGREEM ENT WITH MARKFED/MPSAIDCL WE FIND THAT THE SUPPLIER I.E. THE ASSESSEE AGREED TO UNDERTAKE ALL SUCH STEPS TO PROMOTE SALES OF THEIR PRODUCTS KEPT WITH MARKFED/MPSAIDCL AND AT ITS DIFF ERENT STORAGE CENTERS AS THE ASSESSEE FEELS IF NECESSARY. THE AGREEMENT FURTHER DISCLOSE THAT THE ASSESSEE IS RESPONSIBLE F OR THE EXPIRED MATERIALS, IN OTHER WORDS IT HAS TO TAKE BACK THE U NSOLD AND EXPIRED STOCK WHICH LIES WITH MARKFED/MPSAIDCL AFTER THE ST IPULATED TIME PERIOD AND THE SAME IS REFERRED IN CLAUSE NO.2 2 OF THE AGREEMENT. THE REASON FOR MENTIONING THESE TWO CLA USES ARE THAT THE ASSESSEE IS ALWAYS IN A NEED TO MAKE MORE SALES SO THAT NO UNSOLD STOCK IS LEFT AND SECONDLY THE TWO NODAL AGE NCIES ITSELF AUTHORIZE THE ASSESSEE TO TAKE NECESSARY STEPS TO P ROMOTE THE SALES OF ITS PRODUCTS. 18. WE THEREFORE EXAMINING THE FACTS IN THE LIGHT OF ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT AND RESPECTFULLY F OLLOWING THE SAME ARE OF CONSIDERED OPINION THAT THE ALLEGED COMMISSI ON EXPENDITURE FARM SERVICES INDORE ITA NO.779/IND/2014 17 OF RS.58.62 LAKHS HAVE BEEN INCURRED BY THE ASSESSE E WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF PROMOTIN G ITS SALES WHICH GAVE POSITIVE RESULTS THEREBY INCREASING THE SALES THREE FOLD IN COMPARISON TO THE PRECEEDING YEARS TURNOVER AND AL SO THE IDENTITY AND THE GENUINENESS OF THE RECIPIENT OF COMMISSION HAVE BEEN PROVED WITH DOCUMENTARY EVIDENCE IN THE SHAPE OF ID ENTITY PROOF, PAN NUMBER, CONFIRMATION, PAYMENT THROUGH ACCOUNT P AYEE CHEQUE AND TAX DEDUCTED AT SOURCE. 19. IN VIEW OF THE ABOVE WE FIND THAT LD. AO WAS N OT JUSTIFIED IN DISALLOWING THE GENUINE COMMISSION EXPENDITURE OF R S.58,62,685/- CLAIMED BY THE ASSESSEE. WE THEREFORE SET ASIDE TH E FINDINGS OF LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE AND ALSO DELETE THE DISALLOWANCE OF RS.27.92 LAKS SUSTAINED BY LD.CIT(A ). 20. IN THE RESULT ALL THE GROUNDS OF THE ASSESSEES APPEAL ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 31.7 .2018. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 31 ST JULY, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE