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TMI Blog2012 (8) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... d - against assessee. - ITA No. 655/Hyd/2006 - - - Dated:- 29-6-2012 - SHRI CHANDRA POOJARI, AND SHRI SAKTIJIT DEY, JJ. Appellant by: Shri S. Rama Rao Respondent by: Shri Nageswara Rao O R D E R PER CHANDRA POOJARI, AM: This appeal by the assessee is directed against the order of the CIT(A)-VI, Hyderabad dated 6.2.2006 for the assessment year 2004-05. 2. The assessee raised the following grounds of appeal: 1. The order of the learned CIT (Appeals) is erroneous both on facts and in law. 2. The learned CIT (Appeals) erred in confirming the addition made of Rs. 13,60,300/- towards commission by the Assessing Officer. 3. The learned CIT(A) failed to see the fact that all the payments were made for the purpose of business through cheques and the tax was deducted at source wherever necessary. 4. The learned CIT (A) erred in not appreciating the evidence produced before him which clearly indicates that the payment of commission was during the course of business activity and is allowable as a deduction u/s. 37(1) of the IT Act. 3. Brief facts of the case are that the assessee firm, a trader in iron and steel goods, filed its return of income on 1.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g) When the information collected by the Department from the agents and from various parties and bank were confronted to the assessee, the managing partner denied the cross examination with the agents which is evident from the order sheet noting dated 24.2.2005. 4. Considering the above facts the Assessing Officer assessee's case as connivance made with the agents to evade payment of taxes and in the wake of no evidentiary value for the transactions, he disallowed the commission payments of Rs. 13,60,300 and added to the total income of the assessee. Against this, the assessee went in appeal before the CIT(A). 5. The CIT(A) observed that it is an undisputed fact from the findings of the Assessing Officer that the assessee could not prove the genuineness of the commission payments to the tune of Rs. 13,60,300 even though several opportunities were provided by the Assessing Officer. The assessee was not willing to cross examine the agents who denied any commission payments received from the assessee. It is a settled position of law that where assessee is claiming any expenses as allowable u/s. 37(1) of the Act, the burden is on him to prove that the same were incurred wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions from some of the purchasers which affirmed the parties who introduced them to the assessee from whom the purchases were ultimately made by them, and bill copies relating to the same. 7. Further the AR submitted that the said amounts were paid towards services rendered by the above mentioned two persons in arranging the sales. During the course of' assessment proceedings, the Assessing officer examined the said two persons. They accepted that they have rendered services and received commission. The persons also admitted the said amount as their income for the respective assessment years while filing their returns of income. The Assessing Officer recorded the statements of Sri P. Venkatesh of J.T Alloys Pvt. Ltd. and Sri Pramod Kumar Goenka. The Assessing Officer, however, is of the view that liability was created as on 31.3.2004 by making a journal entry and payments were made during October, 2004 to .January, 2005. It was also mentioned by the Assessing Officer that no such payments were made in the earlier years and, therefore. there was no necessity to pay commission. The Assessing Officer observed that advance tax was paid on an income of Rs. 33 lakhs whereas at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cheques. The recipients of the commission have accepted and admitted the same in their returns of income. Returns of income of the recipients were filed in normal course. They have other sources of income and other business activities also. In so far as the statement of the purchasers are concerned it is submitted that the agents when approach the purchaser they claim as "representing the assessee". They are treated as part of the assessee's establishment and are not considered as separate persons. They always claim that they are from assessee. The fact that they are middleman securing the orders is not necessary to be mentioned by the agents before the purchaser. For example, if an agent of Godrej Company visits the business premises for securing orders will say that he is coming from Godrej Co., and will not mention as middleman or from other concern. The agent always acts on behalf of the principal and never acts on his own and hence his name shall not be known to the purchasers. Therefore, the purchaser may not be knowing about the middleman. The purchaser has to know about the existence of the trader, and therefore, the trader makes. Arrangement to advertise or by approach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's business that is entitled to deduction but also any expenditure which is incurred with a view to facilitating the carrying on of the business. (c) CIT v. Dhanrajgirji Raja Narasingirji (91 ITR 544) (SC) wherein the apex court observed that every business man knows his interest best and he is the best judge of his business expediency. A similar view is taken by the Rajasthan High Court in the case of Jaipur Electro Pvt. Ltd. vs CIT (134 CTR 237) and the Bombay High Court in the case of Ramanand Sagar v. DCIT (255 ITR 134). (d) CIT v. Walchand and Co. Pvt. Ltd. (65 ITR 381) (SC) wherein it is held by the Supreme Court in the case of that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of business man and not that of the Revenue. A similar view is taken by the Supreme Court in the case of K. Woollen Manufacturers v CIT reported in 72 ITR 612, Aluminium Corporation of India Ltd. v. CIT (86 ITR 11) and CIT v. Panipat Woollen and General Mills Co. Ltd.(103 ITR 66). 12. The learned AR furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. In view of the above, the learned AR submitted that the cases cited are to be applied under the facts and circumstances of each case and the various courts did not lay down any legal proposition but only observed that the genuineness has to be examined in each case. In the case of the assessee genuineness was examined by the Assessing Officer and on the facts it is clear that the transaction is genuine and therefore, the Assessing officer is not justified in disallowing the claim of the assessee. 14. On the other hand, the learned DR submitted that it is ascertained by the assessing officer on enquiries that all the purchasers have denied the existence or involvement of the middlemen in the purchases made by them. The agents, who are claimed to have been paid commission, have filed in most of the cases, loss returns or returns declaring negligible income. Hence, he submitted that it is only a part of tax saving device. He also submitted that there is no agreement between the assessee and the parties to whom the 'commission 'payments were made. There is not even agreement between the recipients of the commission and the customers. Not even one customer to whom the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese impugned recipients of the payments rendered any service for which commission has been paid. Therefore, it cannot be said that the assessee has discharged the onus to prove that the commission was paid wholly and exclusively for the purpose of assessee's business. The assessee relied on various judgements which cannot be applied to the assessee's case as these judgements are on their own facts. The question whether the assessee has established that the expenditure was incurred wholly and exclusively for the purpose of business is essentially a question of fact to be decided on merit of each case. 17. There was no agreement between the assessee and the commission agents and there was no document on the basis of which it could be said that the commission was due and payable. As it has been already pointed out, even the agreements do not bind the Assessing Officer from enquiring into deductibility of commission. In this case there are no agreements and also there was no evidence of any correspondence or any personal meetings between the assessee and the commission agents to suggest that there was any relationship on the basis of which the commission agents procured customers f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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