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TMI Blog2003 (10) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... iness premises of the assessee atDelhion11th March, 1987. In the course of the said survey the relevant details pertaining to the stock inventory were drawn-up as also the trading account on the date of the survey. A shortage of stock to the tune of Rs. 1,09,492 was noticed. Subsequently, while framing the assessment the AO drew the trading account and found excess stock to the tune of Rs. 2,55,273 as per working at pp. 1 and 2 of the assessment order. The assessee was asked to explain the same. 4. The explanation of the assessee was that there were certain goods, which were received before the date of the survey and were lying unsold, but which had been included in the inventory taken and, therefore, appropriate debit in respect of the value of the impugned purchases should be considered since bills had not been received. The further submission was to the effect that the manner in which the closing stock had been arrived at by the AO was improper and further the valuation itself was not acceptable to the assessee. In considering the various objections the AO allowed partial credit in respect of the bills not entered into the purchases register, but in respect of which the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of additional services rendered in order to qualify for the receipt of the commission. It has reiterated what has been said earlier in the above letter and no evidence has been brought on record to suggest that the additional services were rendered by the directors or the manager of the company. In this connection it is pertinent to pointed out that the assessee has tried to make a case that there was agreement between it and the manager Shri Manjeet Singh which is placed at page No. 204 of the assessment folder wherein appointment letter of Shri Manjeet Singh is discussed. Letter is dt.15th Dec., 1981and this letter bears telephone Nos. 3328189 and 3324916. On confronting the assessee that this telephone No. was not in existence at the time of execution of the so-called agreement in the year 1981, the assessee came out with another copy of the letter dt.14th Feb., 1990. It has also stated that earlier letter filed was only a copy of this original now produced. The minutes book was not produced before the undersigned inspite of repeated opportunities. In addition there is another document on record, copy of the special resolution passed on23rd Feb., 1983, wherein salary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to other directors also no additional evidence has been brought on record to suggest the payment of such huge commission and also no additional services being rendered by the above persons. One more issue in this regard is that the commission has been paid this year for the first time where sales is over 50 lakks. But from the assessee s letter dt.20th Feb., 1989, it has stated that previous year sale was to the tune of Rs. 54,29,365 which shows that in the earlier year also sales were more than Rs. 50,00,000 but no commission was debited or paid to the directors. Therefore, this was also justifiable of payment of commission would also be engraved out. Moreover, the assessee has paid commission to Harjeet Singh Kochar, Peeku Kochar @ 1/1/2 per cent and 1/2 per cent of the sales as commission has been calculated for total sales made in Delhi, Calcutta and Bangalore branches. TheCalcuttabranch is managed by M/s Sahni Sons who are the agents of the company and the sales made by theCalcuttabranch during the year is Rs. 17,87,442. Similarly,Bangalorehas made a sales of Rs. 6,81,388. Even if you go through the computation made it is clear that commission is highly excessive as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition made by the officer in this respect is, therefore, confirmed." 7. As regards the disallowance on account of commission, the same was confirmed by the CIT(A) as follows: "The arguments of the assessee have been considered. The claim of commission to the three directors is made for the first time and earlier no such payment has been made to these persons. Therefore, the officer is justified in asking the assessee to prove that the payment is justified and that the persons have rendered any services to justify the payment of commission. No evidence has been filed before the officer to show that additional services are rendered by these three in order to justify the payment of commission, except a copy of the resolution. The Tribunal, C Bench,New Delhi, in their order No. ITA No. 5602/Del/1984, dt.30th July, 1986, in the case of M/s Gayways Publicity (P) Ltd.,New Delhivs. ITO has held that "Remuneration paid by the assessee-company, solely on the authority of the resolution passed by the directors cannot be allowed in the absence of evidence of services rendered and the nature of duties assigned to him." The directors are in a position to vote to themselves or else to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this score obviously because the assessee has no quantitative records. Therefore, to find out whether any amount of stock could have come out of the opening stock and purchases the AO had to prepare the trading account as on 11th March, 1987 and this method is correct. The AO accordingly has given appropriate deduction in respect of the stock which the assessee could hold and which could be fairly taken as having come out of opening stock and purchases and deducted the same from the value of the stock. This method adopted by the AO is quite correct because the same is prepared on the basis of details of turnover, percentage of gross profit, etc. shown by the assessee. Therefore, there is no defect in the working. Similarly, with regard to the goods received, for which the bills were received subsequently the assessee had asked for the deduction of an amount of Rs. 1,09,000 plus. After considering the relevant evidence the taxing authorities have taken into consideration part of the amount and the balance was rejected justifiably because the assessee had not been able to lead the necessary evidence to prove that the goods were received earlier and still remained in the stock. Besid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the issue under consideration was the addition under s. 69 on account of undisclosed investment in stock. The other legal contention raised on behalf of the assessee, i.e., the non-applicability of s. 69 to stock-in-trade also came to be rejected. 11. Coming to the addition on account of commission, the Tribunal confirmed the view taken by the tax authorities, observing as under: "Considering the entire material and the findings recorded by the tax authorities, we are of the view that disallowance is justified. The disallowance is not made on the basis of either s. 40A(5) or s. 40(c), but on account of the factual finding that the claim was for non-business consideration. Considering the principle laid down in the two cases cited by Mr. Gupta, where the controversies were identical, we do not find any reason to interfere with the appellate order. We, therefore, uphold the same." 12. In arguing the appeal of the Revenue, the learned Departmental Representative, at the outset, supported the penalty order passed by the AO emphasising that the assessee did not care to attend before the AO or respond to the penalty notice as also the subsequent reminders issued. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion as also the consequential penalty under s. 271(1)(c) the learned Departmental Representative as in the earlier item referred at length to the orders passed by the tax authorities both on the quantum and the penalty proceedings and thereafter referred to the observations of the Tribunal in deciding the quantum appeal. According to her, the assessee had not been able to prove the extra services rendered by the directors and the manager as compared to the preceding assessment years and emphasised that the documents filed in support of the claim were found to be false and an "afterthought". Further, according to the learned Departmental Representative the tax authorities as also the Tribunal had discussed the matter at length and the reasoning which emerged was that the claim was not bona fide, it was an afterthought and the relevant evidence placed on record was false. 17. In conclusion, it was urged that the penalty under s. 271(1)(c) having erroneously been cancelled by the CIT(A) the Tribunal be pleased to restore the penalty order passed by the AO. The learned counsel for the respondent, on the other hand, vehemently supported the order passed by the CIT(A) cancelling the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Gau); (iv) CIT vs. Manu Engineering Works (1979) 8 CTR (Guj) 141 : (1980) 122 ITR 306 (Guj); (v) AIR 1972 Guj 115; (vi) (1998) 150 CTR (Guj) 1 : (1999) 238 ITR 415 (Guj); (vii) CIT vs. C.K. Naha Bros. (1979) 117 ITR 19 (Cal); (viii) Addl. CIT vs. Kejriwal Iron Stores (1987) 60 CTR (Raj) 103 : (1987) 168 ITR 715 (Raj); (ix) T.A. Lokhandwala vs. CIT (1982) 135 ITR 543 (MP); (x) K.G. Nariman Alias N.K. Gajwani vs. ITO (1989) 33 TTJ (Bom) 565; (xi) 106 Taxman 123 (Del) (sic) (xii) CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del); (xiii) Roshan Lal Madan vs. Asst. CIT (1998) 62 TTJ (Chd)(TM) 1 : (2000) 245 ITR 36 (Chd)(TM)(AT); (xiv) ITO vs. Oswal Emporium (1989) 35 TTJ (Del)(TM) 225 : (1989) 30 ITD 241 (Del)(TM); and (xv) CIT vs. Ramakrishna Mills (Coimbatore) Ltd. (1974) 93 ITR 49 (Mad). 19. As regards the addition/disallowance on account of commission, the submissions of the learned counsel were that the payment was not in dispute, the books had not been rejected, the persons to whom the payments had been made had not denied the same and the payments of salaries to such persons had been allowed in full. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll; (iv) The assessee did not maintain any stock register and bills had been entered in the books of accounts only uptill5th March, 1987. The stand of the assessee about the stock inventory being an estimate was not correct since p. 244 of the paper book was the stock list for the assessee s godown and this represented exact figures; (v) There was no change in the basis for levy of penalty at any stage of the proceedings since the assessee had given relevant explanations with reference to "excess stock" and not anything else. That the detailed discussion in the order of the CIT(A) while deciding the quantum appeal had to be seen and individual observations were not to be picked out; (vi) The assessee was fully aware as to what was in the mind of the AO and on which aspect of the matter, queries had been raised and explanations sought; (vii) The bills mentioned at p. 2 of the assessment order by the AO were not found at the assessee s premises on the date of survey; (viii) The detailed discussion in the order of the AO could lead to no conclusion other than the one that proper satisfaction had been recorded with reference to the penalty under s. 271(1)(c); (ix) Penalty p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut non-placing on record of relevant evidence, the material available on record being inadequate and explanations tendered being false. We have in the earlier part of the present order reproduced relevant observations of the CIT(A) as also the Tribunal while disposing of the quantum appeals and emphasis has been offered wherever relevant. The Tribunal in considering the addition on account of stock treated the assessee s explanation to be false and there was also a reference to the "conduct of the assessee". 27. The position in respect of commission is also somewhat identical inasmuch as right at the assessment stage the AO expressed strong doubts about the nature of evidence/material being placed on record and we would specifically refer to the purported agreement between the assessee and its manager, Manjeet Singh. The AO specifically brought to the notice of the assessee that the telephone numbers mentioned on the letter did not pertain to the period during which the agreement was supposed to have been entered into. The assessee s argument before the AO as it is before us was that it was only a copy of the earlier agreement which had been filed on the letterhead pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the judgment of the Hon ble Delhi High Court in CIT vs. Ram Commercial Enterprises Ltd. The question is as to whether satisfaction has been recorded by the AO during the course of the assessment proceedings vis-a-vis the penalty under s. 271(1)(c). We do not find a single line in the entire assessment order and which, in our opinion, would lead us to conclude that satisfaction has not been recorded by the AO vis-a-vis the additions/ disallowances on account of stock and commission. Their Lordships of the Hon ble Delhi High Court which is the jurisdictional High Court in the present case observed as follows while dealing with the question of levy of penalty under s. 271(1)(c) vis-a-vis the petition filed by the CIT(A) under s. 256(2): "Having heard learned counsel for the parties and having given our anxious consideration to the material available on the record, in the light of the law laid down by Their Lordships of the Supreme Court, we are of the opinion that no fault can be found with the judgment of the Tribunal and, therefore, the question suggested by the Revenue does not arise as a question of law from the order of the Tribunal. The law is clear and explicit. Merely bec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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