Raj Kumar Wadhwa V. Commissioner of Income Tax, Patiala

ITA/117/2012

AI Insights

Raj Kumar Wadhwa, a cement stockist and sales promoter for M/s J.K.Cement Works, appealed against the orders of the Income Tax Appellate Tribunal, which confirmed the disallowance of commission payments totaling Rs. 55.68 lacs. The commissions were paid to sub-agents for liaison work, of which Rs. 41.14 lacs was claimed to have been paid. The Assessing Officer disallowed these payments after finding insufficient evidence of the services rendered by the sub-agents. The Tribunal and the CIT (Appeals) upheld this decision, leading to Wadhwa's appeal to the High Court. The main legal issue was whether the commission payments, already considered as chargeable income in the hands of the payee, could be taxed again in the hands of the payer under Sections 29 and 37(1) of the Income Tax Act. The court dismissed the appeal, agreeing with the Tribunal's finding that the payments were not made for legitimate business purposes but were instead a means to evade tax.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 795939 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 18-07-2013
• Assessment Year: misc
• Other Referred Cases: Emson Tools Manufacturing Corporation Ltd. Vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Business exigency; Commercial expediency; Double taxation; Fraudulent transactions; Tax Evasion
• Section: 143(3); 143(1); 37(1); 29

Judgement Text

"INCOME TAX APPEAL NO.117 OF 2012 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. INCOME TAX APPEAL NO.117 OF 2012 Date of Decision: 18.7.2013 Raj Kumar Wadhwa ..Appellant versus Commissioner of Income Tax, Patiala ..Respondent CORAM: Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon Present: Mr. Pankaj Jain, Advocate, for the appellant. RAJIVE BHALLA J. The appellant challenges order dated 23.2.2010 passed by the Income Tax Appellate Tribunal, Chandigarh Bench-B, Chandigarh, dismissing his appeal thereby confirming order dated 30.4.2009 passed by the CIT (Appeals) and order dated 22.8.2007 passed by the Assessing Officer. The appellant-assessee is a cement stockiest and sales promoter for M/s J.K.Cement Works. The assessee received commission of Rs.55.68 lacs out of which, he claimed that he had paid Rs.41.14 lac as commission for liaison work to sub-agents. After a detailed appraisal of the entire record, including statements etc., the Assessing Officer disallowed the commission. Aggrieved by this order, the appellant filed an appeal. The Commissioner of Income Tax (Appeals) allowed the appeal in part. The appellant and the revenue filed their separate appeals. The Income Tax Appellate Tribunal, vide impugned order dated 23.2.2010, allowed the appeal, Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 2 filed by the revenue, set aside the order passed by the CIT (Appeals) and rejected the appeal filed by the assessee. Counsel for the appellant submits that the impugned orders are illegal as it would lead to double taxation as similar amounts have already been charged in arriving at chargeable income of the recipient assessee. It is further argued that as payments made by the assessee emerge out of commercial expediency and business exigency, the additions made are erroneous as it could not be assessed as chargeable income in the hands of the appellant. We have heard counsel for the appellant and perused the impugned orders. The substantial question of law framed by the appellant reads as follows:- “ Whether under facts and circumstances of the case, while arriving at the Chargeable Income u/s 29, the deduction claimed u/s 37(1) of the Act, can be charged to tax in the hands of payer in spite of the same having been considered as a “Chargeable Income” in hands of the payee?” The question of law has been raised in the context of a plea that payments made by the assessee emerged out of commercial expediency and business exigency and payment was made to sub-agents, after deducting TDS and service tax. The submission, in our considered opinion, is entirely misconceived as the Income Tax Appellate Tribunal has held, as a matter of fact, that the appellant was unable to establish the bona fides of payments made to sub-agents, in essence, raising an inference that the entire Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 3 list of sub-agents was a fraud perpetuated with the sole object of evading payment of tax. The Income tax Appellate Tribunal as well as the Assessing Officer have held that the appellant has failed to bring on record the exact nature of services rendered with quantitative details of services provided date-wise, party-wise details of supply etc. and has only furnished consolidated bills at the end of the year. A perusal of the order passed by the Assessing Officer reveals a detailed analysis of the record and statements recorded before him, before recording his conclusions, which have been affirmed by the Income Tax Appellate Tribunal. A relevant extract from the order passed by the Tribunal reads as follows: “ ...The basis for disallowing the commission is the investigation carried out by the Assessing Officer and the statement recorded of the various persons to whom the aforesaid commission is claimed to have been paid. In the said statement recorded, none of the parties have been able to justifiably explain the nature and services offered by them entitling them to the receipt of the commission. Even the details of services rendered party-wise on which commission was due could not be forwarded by the said parties. In the entirety of facts and circumstances of the case, where the assessee has failed to explain with evidence the nature of services being rendered by the sub agents, disentitles it to the claim of deduction on account of the service charges. Merely because certain bills have been raised and payments against the same have been Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 4 released by the assessee, does not entitle the assessee to claim of deduction on account of said expenditure, in the absence of the assessee establishing that the said expenditure had been laid down wholly and exclusively for the purpose of business of the assessee. The said parties had failed to bring on record the exact nature of services rendered and even the quantitative details of the services vis-a-vis, date wise and party wise details to whom supplies were made on behalf of the assessee were not furnished, except for raising a consolidated bill at the end of the year. The acceptance of allowability of the said expenditure in the succeeding year vide intimation issued u/s 143(1) of the Act as against the evidence and material collected by the Assessing Officer during the year, does not establish the claim of the assessee in respect of the allowability of the said expenditure. Further, we find that the alleged agreement with M/s PEW was entered into by the assessee on 8.4.2005 whereas the assessee was appointed as service agent by M/s SSTPL vide appointment letter dated 18.5.2005. Even the said appointment letter debarred the assessee from assigning the agreement with M/s SSTPL in favour of any other party. In the totality of facts and circumstances, we find no merit in the order of the CIT (A) in allowing the claim of the assessee on the basis of existence of agreement with one of the sub agents and admission of receipts of Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 5 payments by the parties.” Upon further consideration of the matter, the Income Tax Appellate Tribunal held as follows:- “ .......The onus is upon the assessee to establish that it had incurred a particular expenditure for the purpose of carrying on of its business. The second limb of Section 37 of the I.T. Act, of incurring the expenditure for the purpose of business, have not been satisfactorily established by the assessee. In view of the evidence collected by the Assessing Officer and the statement recorded of the sub agents, we find no merit in the claim of the assessee in respect of the liaison commission paid by it, which in any case is debarred from vis-a-vis terms of agreement entered between the assessee and its Principal M/s STPL. The said expenditure being allowed in the earlier year, under order passed u/s 143 (3) does not establish the case of the assessee for the year under consideration as the parties to whom commission was paid for assessment year 2004-05, are completely different and in respect of the parties in assessment year 2003-04 though there was two common parties, but the assessee has failed to furnish on record the evidence in respect of the services rendered in financial year 2003-04 by the said parties for which commission was allowed. We find support from the ratio laid down in Emson Tools Manufacturing Corporation Ltd. Vs. CIT (supra). Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 6 Accordingly, reversing the order of CIT(A), we confirm the order of Assessing Officer in making an addition of Rs.41,14,518/-. The grounds of appeal raised by the Revenue are thus allowed.” We find no reason to hold that the Income Tax Appellate Tribunal has committed any error or that the question of law, as framed, arises for consideration. The appellant has not been able to prove the bona fides of his claim that he paid commission and, therefore, the question raised, on the basis of Section 29 and 37(1) of the Act, does not arise for consideration. The fraudulent nature of the transactions disentitles the appellant to any relief. Dismissed. ( RAJIVE BHALLA) JUDGE 18.7.2013 ( DR. BHARAT BHUSHAN PARSOON) VK JUDGE Varinder Kumar 2013.08.31 16:42 I attest to the accuracy and integrity of this document High Court Chandigarh "