2005 (5) TMI 577 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of commission payments to M/s. P.M.P. Auto Industries and M/s. Shivshanker & Co.
2. Addition on account of estimated premium earned on alleged sale of imported material to untraceable parties.
3. Addition on account of estimated premium earned on alleged sales to parties who denied making any purchases.

Detailed Analysis:

1. Disallowance of Commission Payments to M/s. P.M.P. Auto Industries and M/s. Shivshanker & Co.:

The Revenue's appeal challenged the CIT(A)'s decision to reduce the disallowance of commission payments to M/s. P.M.P. Auto Industries and M/s. Shivshanker & Co. by Rs. 5,68,622. The assessee's appeal contested the partial sustenance of the disallowance by the CIT(A). The assessee argued that the commission was paid for information about prospective buyers of imported raw materials, and produced confirmations and income-tax details of the Commission Agents. However, the Assessing Officer disallowed the commission due to the non-production of one agent and insufficient evidence of services rendered.

The Tribunal examined whether the commission payments were made on grounds of commercial expediency for the benefit of the business. The assessee failed to produce any agreement or documentary evidence of services rendered by the Commission Agents. The Tribunal noted that the assessee's records were destroyed and the agents were not produced before the Assessing Officer. The Tribunal held that the assessee did not establish that the payments were for commercial expediency and reversed the CIT(A)'s order, fully disallowing the commission payments.

2. Addition on Account of Estimated Premium Earned on Alleged Sale of Imported Material to Untraceable Parties:

The Revenue's second ground contested the deletion of an addition of Rs. 29,37,339 by the CIT(A) on account of estimated premium earned from sales to 29 untraceable parties. The Assessing Officer had presumed that the goods were sold in the open market at a premium due to the untraceability of these parties.

The Tribunal referred to a similar issue in the assessee's case for the assessment year 1992-93, where the Tribunal had accepted the sales as genuine based on documentary evidence provided by the assessee, including letters to the Assistant Collector of Customs and bills from clearing and forwarding agents. The Tribunal found no evidence that the goods were cleared by the assessee from Customs or sold in the open market at a premium. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the profit disclosed by the assessee was reasonable and comparable to previous years.

3. Addition on Account of Estimated Premium Earned on Alleged Sales to Parties Who Denied Making Any Purchases:

The third ground in the Revenue's appeal challenged the deletion of an addition of Rs. 1,68,498 by the CIT(A) for sales to M/s. Nakoda Industrial Corporation and Shreeji Polypropylene Industries, who denied making any purchases from the assessee. The Assessing Officer had presumed that the goods were sold at a premium due to the denial by these parties.

The Tribunal considered the documentary evidence provided by the assessee, including letters to the Assistant Collector of Customs and bills from clearing and forwarding agents, which supported the genuineness of the sales. The Tribunal found no evidence that the goods were cleared by the assessee from Customs or sold in the open market at a premium. The Tribunal upheld the CIT(A)'s deletion of the addition, noting that the profit disclosed by the assessee was reasonable and comparable to previous years.

Conclusion:

The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal. The Tribunal fully disallowed the commission payments to M/s. P.M.P. Auto Industries and M/s. Shivshanker & Co., and upheld the CIT(A)'s deletion of additions related to the estimated premium earned on alleged sales of imported material to untraceable parties and parties who denied making any purchases.