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TMI Blog2005 (5) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are that the assessee derives income from manufacturing of plastic utensils such as bucket, etc. The assessee is importing raw material and the part of the imported raw material is sold on high-seas basis. On the above, high-seas sale of raw material, the assessee paid commission to the following two parties : [ ( a )M/s. P.M.P. Auto Industries Ltd. Rs. 4,21,246.50 ( b )M/s. Shivshanker Co. Rs. 3,04,496.00 Total Rs. 7,25,742.50 5. The Assessing Officer disallowed the above commission while the CIT(A) reduced the disallowance to Rs. 67,370 for commission paid to M/s. P.M.P. Auto Industries Ltd. and Rs. 84,750 for the commission paid to M/s. Shivshanker Co. Both the parties aggrieved with the order of the CIT(A) are in appeal before us. 6. At the time of hearing before us, the learned counsel for the assessee argued at length. He stated that the assessee was importing the raw material primarily for using the same in the manufacturing process. The assessee was permitted to sell part of the raw material which was not immediately required for the manufacturing purpose. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has verified certain sale instances. Some of the buyer parties were not found available at the time of verification by the Assessing Officer and therefore, the Assessing Officer disbelieved such high-seas sales. The CIT(A) has sustained the disallowance of commission in respect of sale to those parties who were not found at the addresses given by the assessee at the time of verification by the Assessing Officer. It is submitted by the learned counsel that the enquiries were made by the Assessing Officer after several years of sales by the assessee. Therefore, merely because the parties were not found at the addresses given, does not prove that no sale was made by the assessee or no services were rendered by the Commission Agents with regard to those sales. He submitted that the addition made for those unverifiable sales was also deleted by the CIT(A) and, therefore, there was no justification for sustenance of part of disallowance of commission by the CIT(A). In support of his contentions, he relied upon the following decisions. (1) J.R. Patel Sons Ltd. v. CIT [1968] 69 ITR 782 (Guj.) (2) Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105 (Guj.) (3) Mather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of his contentions he relied upon the following decisions : (1) CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC) (2) Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) (3) CIT v. Smt. Krishnaveni Ammal [1986] 158 ITR 826 (Mad.) (4) CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) (5) CIT v. Transport Corpn. of India Ltd. [1996] 221 ITR 127 (AP) (6) CIT v. Transport Corpn. of India Ltd. [2002] 256 ITR 701 (AP) (7) Precision Instrument Mfg. Co. v. CIT [1981] 137 ITR 5 (Delhi) (8) CIT v. Ramdas Ramlal [1984] 149 ITR 256 (AP) 8. We have carefully considered the rival contentions and perused the material placed before us. The Hon ble jurisdictional High Court in the case of J.R. Patel Sons Ltd. ( supra ) laid down the principle that should be followed to consider whether any payment was made for the purpose of business. Their Lordships held as under : "In deciding whether a payment was made for purposes of business, the correct approach would be to see whether it was made on grounds of commercial expediency for the ultimate benefit of the business. Whether that benefit is to accrue immediately or after a lapse of time and wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s told him to confirm the commission received by the company. From the above, it is evident that Shri Manoj R. Gandhi was only the messenger to convey the receipt of commission by M/s. P.M.P. Auto Industries Ltd. However, what were the services rendered by M/s. P.M.P. Auto Industries Ltd. and whether the payment of commission was for business expediency, has not been established by appearance of Mr. Gandhi. The assessee has also claimed to have furnished the assessment records of the Commission Agents from pages 29 onwards of the assessee s paper book. We find that at page 29 is Balance Sheet of M/s. Shivshanker Co. as on 31-3-1989. In the Balance Sheet of the company, the name of the assessee is not appearing. At page 30 there is a P L Account of M/s Shivshanker Co. for 31-3-1989 and we find that there was no receipt of commission and as per the P L Account there was net loss of Rs. 25,419. Moreover, the relevant assessment year under consideration before us is assessment year 1988-89. Therefore, the above P L Account and Balance Sheet of the period 31-3-1989 does not support in any way the claim of the assessee that there was any payment of commission to M/s. Shivshanker Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services rendered by the Managing Director to the managed company. Thus, there was clear evidence of the services being rendered by the Managing Director to whom the commission was paid. In the case of Voltamp Transformers (P.) Ltd. ( supra ) the commission was paid by the assessee to the sole-selling agent. There was evidence on record that the sales have increased due to efforts of the agent and the commission was received. Thus, in that case also, there was evidence of services being rendered by the agent. In the case of Mather Platt (India) Ltd. ( supra ) it was found that the assessee had entered into the business transactions through the commission agent. The assessee has also produced the correspondence with the agent. The payment was made by cheque. Considering the totality of the facts of the case, it was held by the Hon ble Calcutta High Court that the assessee has discharged its primary onus. However, in the case under consideration before us it has not been proved that the transactions of sales have taken place through the Commission Agents. No correspondence with the Commission Agents have been produced. In the case of Swastic Textile Co. (P.) Ltd. ( supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has claimed to have sold certain imported raw material on high-seas basis. That the Assessing Officer to verify the correctness of the assessee s claim asked the assessee to furnish the list of sales above Rs. 50,000. Thereafter, the Assessing Officer issued notice under section 133 of the Act to those parties. In the case of 29 parties, the list of which is given from pages 17 to 19 of the assessment order, the letters were returned unserved. Two parties, viz. M/s. Nakoda Industrial Corporation and Shreeji Polypropylene Industries, denied to have purchased the material from the assessee. Therefore, the Assessing Officer asked the assessee to produce those parties. However, the assessee could not produce a single party. Moreover, no evidence is produced by the assessee to prove that the goods were actually sold by the assessee on high-seas basis to the above parties. Therefore, the Assessing Officer rightly inferred that those goods were sold by the assessee in the open market at premium. At the relevant time there was shortage of the imported raw material and, therefore, the premium of 20% estimated by the Assessing Officer on sale is quite fair and reasonable. He subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84/Ahd./96. He further submitted that the Revenue has accepted the above order of the Tribunal on this ground though they filed reference application in respect of other grounds. 15. We have carefully considered the arguments of both the parties and perused the material placed before us. We find that the identical issue is considered by the Tribunal in the assessee s own case for assessment year 1992-93, wherein the Assessing Officer had made the addition of Rs. 13,78,575. On appeal, the CIT(A) deleted the addition. The Revenue filed the appeal before the Tribunal. However, the Tribunal vide order dated 7-5-1997 in ITA No. 3129/Ahd./96 upheld the order of the CIT(A). The relevant facts and the findings of the Tribunal contained in paras 25 to 27 of the order are reproduced herein below for ready reference : "25. As regards the last ground raised by the Revenue relating to the deletion of addition of Rs. 13,78,575 on account of understated profit of high-sea sales we find that the assessee sold raw material of 3,26,000 kgs. out of the total import of 4,98,378 kgs. The CIF cost of 3,26,000 kgs. of raw material was Rs. 67,98,657 and the same was sold for Rs. 68,92,875. The sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price lower than the CIF cost. The Assessing Officer on these facts held the view that the assessee received premium on such sale at 20 per cent on CIF cost and the same was worked out at Rs. 13,78,575. The Assessing Officer therefore, made an addition of Rs. 13,78,575 in the total income. 26. On appeal, it was submitted on behalf of the assessee that all the transactions made in the cases of high-sea sale were genuine and they were supported by proper documents. The written submissions made before the FAA were forwarded to the Assessing Officer for comments and thereon the Assessing Officer on making further enquiry reported to the FAA in his letter dated 23rd January, 1996 that the transactions made by the assessee with Devi Dayal Plastic Industries have been confirmed by the said party. Textplast Engineering (P.) Ltd. has also confirmed the transactions with the assessee. The FAA observed that various concerns of the assessee group had shown different GP rate on high-sea sales. Some of them have shown gross profit of about 10 per cent and that has been accepted by the Assessing Officer. The transactions made with other parties by the assessee have been confirmed. The FAA on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales were made on premium is not held justified and valid. In this view of the matter, we see no infirmity in the order of the FAA and the same is upheld." 16. The facts of the year under consideration are more or less similar. In that year also the Assessing Officer found that the assessee has sold goods on high-sea basis. On enquiry by the Assessing Officer one party viz. Textplast Engineering (P.) Ltd. denied to have purchased such goods and letters sent to several other parties were returned unserved. On the above facts the Assessing Officer presumed that the assessee sold the material by earning the premium of 20 per cent. Similarly in the year under consideration before us two parties have denied to have purchased the goods while the letters sent to several parties were returned unserved. However, in that case the CIT(A) forwarded the assessee s written submissions before the Assessing Officer and asked him to send his report after making further enquiry. On further enquiry by the Assessing Officer, some of the parties confirmed the sale made by the assessee. The only difference in the year under consideration is that the CIT(A) deleted the addition accepting the genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bills issued by the clearing and forwarding agents in the names of the buyers. The above documentary evidences support the case of the assessee to the extent that the goods were got cleared from the Customs Authorities by the buyers and not by the assessee. That if the buyer is not found at the address given, the Assessing Officer has every right to doubt the genuineness of sale to those parties but that by itself would not be sufficient to conclude that the sale was not made on high-sea basis and further presume that the goods were got cleared from the Customs Authorities on payment of Custom Duty and the same were sold by the assessee in open market on premium. No evidence of payment of Custom Duty or getting the goods cleared from the Customs Authorities is brought on record by the Revenue. Moreover, there is no evidence of sale of goods in the open market by the assessee. In the assessment year 1992-93 on identical allegations the addition was made which was deleted by the CIT(A) which is upheld by the Tribunal. In the said order the Tribunal has also noticed that similar sale is being made by the assessee and other group concerns in other years. The Tribunal has also observ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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