9911796707
TMI Blog2013 (6) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciating the submissions, evidences, demand of cross examination & relevant case laws submitted by the appellant as decided by the Supreme Court and other courts." 2.2 The question before us, therefore, is whether the disallowance u/s.37(1) of the Act as made, and confirmed by the first appellate authority, is sustainable in law under the given facts and circumstances of the case. The facts 3.1 The basic facts of the case stand stated in sufficient detail by both the authorities below per their respective orders. However, the matter being primary factual, it would be relevant to recount the same, albeit in brief. The assessee, a company in the business of financial consultancy and loan syndication from Financial Institutions (FIs), was during the course of the assessment proceedings for the relevant year found to have been claimed professional fees in the sum of Rs.358.30 lakhs to the following parties: 1. Comfort Infotech Limited 13,46,880 2. Nupur Management Consultants Pvt. Ltd. 16,58,912 3. Nova Corporate Services Pvt. Ltd. 27,95,797 4. Nishi Advertising & Marketing Services P. Ltd. 74,73,781 5. Nishal Corporate Services P. Ltd. 47,67,660 6. Olympia Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigated by the Department, with Shri Sandeep Sitani having been subject to search u/s.132 of the Act, and his statement recorded on oath on 24.06.2008 and 15.10.2008. It was admitted by him that no real business was being conducted in the said companies, and that they were only issuing bills for a commission of 0.25%. The payments received were paid back to the beneficiaries after retaining commission, and in most cases through the brokers. The names and addresses of the brokers and their mobile numbers were also furnished. At times, even signed cheque books were left with the brokers/agents to facilitate the work, so that the same could be used by them at their convenience, and the tedium involved in withdrawing cash and remitting it back to the beneficiary company, saved. The directors in these companies, as Shri Pradeep Prajapati and Shri Dinanath Yadav, in the case of Nischal Corporate Services Pvt. Ltd., were in fact paid employees with nominal salaries, acting on his instructions. They were men of no means without any technical qualifications; rather, hardly literate. Their separate statements were also recorded independently on oath, whereat they confirmed what had been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to provide any services. The appraisal report by DDIT Unit-VIII (1), Mumbai, as well as the statement of Shri Sandeep Sitani and others, were shown to the assessee's counsel, Shri Rohit Agarwal, CA by the A.O., and the assessee specially called upon to produce these parties so that they could be cross examined by him. On the assessee failing to do so, the A.O. disallowed the impugned expenditure, relying for the purpose on the decisions in the case of CIT vs. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); Ramanand Sagar vs. Dy. CIT [2002] 256 ITR 134 (Bom.); and Madathil Brothers vs. Dy. CIT [2008] 301 ITR 345 (Mad.), capsuling the basis of his decision at para 3.10 of his order. The respective cases 3.4 In appeal, the assessee's stand was that the commission was paid to the payee companies on the advice and instruction of Shri Sandeep Sitani, a Chartered Accountant (CA) by profession. All that was relevant from the stand point of the assessee-company was that Shri Sandeep Sitani got it business through his contacts. Shri Sandeep Sitani was taken at face value, as would normally be the case when a CA represents a firm, and there was no need or occasion to meet the directors of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law from the courts of England, as well as the decisions by the apex court, as in the case of McDowell and Co. Ltd. vs. CIT [1985] 154 ITR 148 (SC) and Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), the jurisprudence as to tax evasion was stated by him as in disregard of colorable devices, which are only tax avoidance measures. The A.O. had clearly brought out that the transactions served no commercial purpose. The entire documentation was nothing but an eye-wash, constructed to give a legal form to a scheme for tax advantage by way of tax rebate on one-hand and the claim of TDS on the other. The same was ab initio bogus. Coming to the aspect of right of cross examination, he dwelled on the doctrine of 'audi alteram partem', which embodies a principle of natural justice. The same, in his view, stood adequately met in the facts and circumstances of the case. Several decisions by the apex court were relied upon and also quoted from by him. Cross examination would become a necessity where the assessment was based directly on the basis of an incriminating statement, but not where the material or evidence used is collateral in nature. In the present case, the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture of Rs. 1 lakhs and odd, against the gross income of Rs.106.02 lakhs, has been allowed (PB pg. 304). Reference was made by him during the course of hearing to pages 40 (Q. No.6), 55 (Q.No.13) of the paper-book, besides the decisions in the case of ITO vs. M. Pirai Choodi [2011] 334 ITR 262 (SC); CIT vs. Rice India Exports P. Ltd. [2010] 8 TMI 32 (Del.); and Madathil Brothers vs. Dy. CIT (supra). His attention was specifically drawn to Rule 18(6) of the Appellate Tribunal Rules, 1963, which reads as under, inasmuch as the assessee had filed a voluminous paper-book containing 362 pages, of which though only a few were referred to during the course of the arguments: "18. Preparation of paper books, etc. 1. ......................... 2. ........................ 3. ........................ 4. ......................... 5. ........................ 6. Documents that are referred to and relied upon by the parties during the course of arguments shall alone be treated as part of the record of the Tribunal." 4.2 The ld. DR, on the other hand, would place reliance on the orders of the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn to be infirm. Only on the basis of the facts before the Revenue authorities as well as their findings, could the Tribunal appreciate the respective cases of the parties. Be that as it may, we proceed further, having already profiled their orders, so as to inform ourselves of the same (refer para 3.1 to 3.5 of this order), i.e., the factual matrix in the light and the background of which their decisions, including qua findings of fact, stand issued by them. 5.2 To begin with, the consultancy agreements pursuant to which the payments have been made by the assessee, were again not referred to by the ld. AR during hearing. This is not comprehensible; the same forming the fulcrum of the assessee's case; it being trite that the mere fact of 'payment' itself, or of it being by cheque, would not impart the quality of an 'expenditure' to a payment, which it must qualify as in order to be an allowable business deduction where incurred for the purposes of business. Only the same would reveal the scope of the services that the payees were required to render or perform. This is also relevant from another view point, i.e., non-returning and payment of service tax. The assessee claims ignoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct of market surveys and preparation of reports in their respect; presentations for banks, etc. The assessee, therefore, cannot feign ignorance in the matter. The services are, as it appears, taxable. The service provider would provide it with its service tax registration number. This would also be required for the assessee to claim credit in its respect on the service tax charged by it to, or payable on the services provided to, its clients. 5.3 The Agreement/s, besides being a primary document, becomes all the more relevant as the assessee has, as between the assessing authority and the first appellate authority, modified the scope of the services for which the payments are stated to have been made. While before the A.O., the assessee's case was of the payee-companies being required to provide services, as by way of preparation of feasibility reports, at least surely in case of some of them, that before the ld. CIT(A), as well as before us, is of the same being only for 'introducing' clients. It becomes, therefore, imperative to in the very least see as to what the agreement/s says or states with regard to the 'services', which as aforenoted, were not even referred to durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has - for whatever reason - chosen to state what he has, all that was required to establish the truth was to obtain confirmations from the clients to that effect. Rather, if necessary by requiring them to produce themselves before the A.O., or requesting the latter to secure their attendance and examination. In fact, even their records should bear this out, as being a professional public accountant, his 'contact' with them ought to be linked with or have its origin in professional transaction/s or relationship. They are ostensibly neutral, third parties, and have no reason to side either party, i.e., the assessee or Sh. Sitani, having in fact business relations now with the assessee as well, who is a direct service provider, as against Shri Sandeep Sitani, who was only capitalizing his contacts. The assessee does not do so. Further, being the assessee's business model or, as stated, the regular practice of its trade, it could have even got this fact ratified or confirmed through a number of ancillary or corroborative facts/incidents. The assessee has cited the example of real estate industry, in which the brokers play a major role. Though their role is not limited to merely an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed a doubt in the mind of any person, i.e., as to their antecedents, particularly considering that they shared the same office address. Now, this, i.e., the absence of the Agreements, is again not understandable. This is as the said Agreements constitute the sole basis on the strength of which Shri Sandeep Sitani could claim the payment from the assessee. This is more so as the only 'service' actually provided is 'introduction', which fact is not only difficult to establish, i.e., unless the meeting/s (i.e., between the parties introduced and the middleman) is documented and minutes thereof recorded, and which has not been, but by itself too tenuous a service to hinge a claim of payment for lakhs of rupees, on. As such, there is no reason for Shri Sandeep Sitani not to preserve them, i.e., if the agreements represented such a crucial document entitling him to his earnings. In fact, surprisingly, the Agreements bear no reference to the consideration for the services. In other words, the payments being not genuine, and of him being only entitled to a commission thereon, besides TDS benefits, is consistent with the fact of the agreements being not found from either the office or resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of market surveys, presentations to the banks, etc. Non production thereof by the assessee, in substantiation of its claim for rendering of the services, despite being called upon repeatedly to do so, is not understood at all. In fact, their preparation would require visit/s by the staff of the said companies to the client's works/premises, to acquaint themselves first hand of its operations, besides meetings with its personnel as well as with that of the assessee-company. Not to speak of production thereof, which would entail and generate another set of incidental queries and questions, the assessee quietly, if not also surreptitiously, omits to refer to these services (reports) in its submission before the ld. CIT(A), a fact also noted earlier by us. It is apparent that the said companies had no wherewithal whatsoever to provide these services, and were only paper companies, a fact of which the assessee was only well aware. Finally, we also note that Sh. Sitani was during search found to be a man of modest means/wealth, and not with hoards of money, as the assessee's charge of siphoning off crores of rupees would seem to suggest. Decision 6.1 In sum, the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Co. vs. Collector of Central Excise [1983] ELT 1486 (SC) 4. Union of India & Anr. vs. Tulsiram Patel AIR [1985] SC 1416;. 5. DCW Ltd. vs. Collector of Central Excise [1990] (46) ELT 233 (Mad.); 6. Chairman, Board of Mining Examination v. Ramjee, AIR 1977 SC 965; 7. 44 STC 61 (SC) This is as the impugned disallowance is not based primarily on the basis of statement of Shri Sandeep Sitani, but on a consideration of the entirety of the facts and circumstances of the case. There has been rather a complete failure on the part of the assessee to prove the transactions. A disallowance u/s. 37(1), it may be noted, does not require for its validity in law, the Revenue to disprove the transaction/s under reference. It is only if it were so, or where the statement/s forms the sole basis of the Revenue's case in doubting or discrediting the transaction, that its reliance thereon would be subject to the assessee being afforded an opportunity to cross examine the deponent. The assessee, who relies on the truth of its books as a true and fair account of the transactions they bear or reflect, having been confronted with the copies of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the genuineness of the transactions, a still heavier burden of proof was cast on the assessee in the present case. We are again unable to appreciate the assessee's reliance on the decision in the case of Madathil Brothers vs. Dy. CIT (supra), relied upon by the Revenue, inasmuch as the hon'ble court has held that the law does not contemplate or require compliance of an impossible act. The purport of the said reliance is not understood, as the assessee has not stated as to what is the impossible act it has been called upon to do by the Revenue. If the production of Shri Sandeep Sitani is being referred to, we have already clarified the said person, with whom the assessee was admittedly solely dealing with, to be the assessee's witness; the two working in unison. In fact, the assessee has not even led primary materials in the form of agreements, project reports and confirmations from the clients introduced, etc. It has not shown in any manner as to how the statement of Shri Sandeep Sitani, which is corroborated by the surrounding facts and circumstances of the case, is not correct. The said reliance is, therefore, again misplaced. 7. In the result, the assessee's appeal is dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
