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TMI Blog2014 (3) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... han interest and expenditure on dealers meet which are separately dealt with. Claim of Interest – Held that:- Interest was paid to the partners along with an amount to Dhanalakshmi Bank - The amount paid to bank can be allowed in full - The amount paid to partners would get taxed separately in their hands, so there is no need to disallow as it was only appropriation. Dealers meet expenses – Held that:- The whole arrangement was a make believe arrangement as observed by the A.O. and confirmed by the CIT(A) - the claim of dealers meet in its entirety, disallowance of 30% of various expenditure claimed (other than interest) would meet the ends of justice on the given set of facts - The order should not be taken as a basis for considering the allowance of expenditure in the hands of the company, which we were informed is pending for adjudication – Decided partly in favour of Assessee. - ITA. No. 289/Hyd/2013 - - - Dated:- 7-3-2014 - Shri B. Ramakotaiah And Shri Saktijit Dey,JJ. For the Petitioner : Mr. V. Sivakumar For the Respondent : Mr. B. Yadagiri ORDER Per B. Ramakotaiah, A.M. This is an assessee's appeal against the Order of the CIT(A)-V, Hyder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement entered with the company assessee was supposed to get a minimum commission of Rs.6,00,000/- per month or 4% of the net invoices value whichever was more. There is no clause in the agreement for revising the commission payment and against the cancellation of the agreement prior notice of six months was required to be given by either party. However, the A.O. noticed that the commission was reduced from a minimum of Rs. 6,00,000/- to Rs.3,35,000/- per month without referring to the percentage of profit on invoice basis, which was one of the conditions in the original agreement. It was also noticed that assessee agreed in the middle of the year for further reduction of commission and A.O. was of the opinion that there was no basis for fixing of commission, except diverting the funds of the company in the guise of commission. A.O. also asked the assessee to furnish turnover achieved by the assessee firm, commission calculation and also asked for vouchers of various expenditure claimed in the P L account. A.O. further enquired about the expenses claimed on dealers conference at Rs.4,17,069/-, as the said expenditure was supposed to be borne by the company. Based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the same assessment year 1996-97 and reproduced the findings therein. The Assessing Officer thereafter, brought out the inconsistencies in the agreement entered by the appellant with M/s Unique Plastics Ltd., before the formation of the firm, i.e., in the month of March, 1996 and subsequent two amendments, all before the date of formation of tile appellant firm. From this agreement which was the basis for the business claimed by the appellant, the Assessing Officer started his findings and when how a back-dated agreement, i.e., when an agreed entered into in the name of the firm before its formation, can be shown as basis for the business carried, the appellant submitted that the partners of the firm almost agreed for the terms and before formation of the firm and accordingly they entered into agreement with the company, M/s Unique Plastics Ltd., for distribution of the goods manufactured by them. This very 'understanding' before formation of the firm between the two transacted parties throws a lot weight against their claims of actual business and has been made a conclusive basis by the Assessing Officer to hold against tile whole gamut of transactions claimed by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the time allotment schedules for their individual/group concerns businesses and the appellant firm's business in general terms. For proving that they had done agency / distribution business, the appellant on one hand, brings in the agreement they entered with the manufacturer and when clear cut inconsistencies / deviations from the agreement were pointed out, the appellant banks on business exigencies. 6.4. As could be seen from the line of events, right from the original assessment stage to the present proceedings, the appellant could not demonstrate that they had genuinely carried out any agency / distribution business for the manufacturing company, M/s Unique Plastics Ltd. As mentioned supra, the understanding between the partners of the appellant firm and the distributor resulted in entering into a plain agreement for the sake of it, to prove there is a transaction between the two parties. However, as demonstrated by the respective Assessing Officers in the respective assessments of the appellant firm and the company, the understanding is much above the contents of agreement entered into. Therefore, I find no reason to deviate from the stand take by the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, there is nothing for disallowing various expenditure claimed as was done by the A.O. 6.1. Ld. Counsel countered the observations of the learned CIT(A) and referred to paras 18 to 26 of his written submissions submitted that the opinion of the learned CIT(A) was not correct and assessee has genuinely did business and accordingly, the income returned should be accepted. 7. Learned D.R. however, relied on the Orders of the A.O. and learned CIT(A) to submit that the entire exercise undertaken by the assessee was only to help the company in passing on the commission and referred to various observations and statements placed on record. 8. We have considered the issue and examined the rival contentions. As briefly stated above, assessee came into existence in the beginning of the year and discontinued the business at the end of the year. The agreement for undertaking the business of commission agency was entered much prior to the firm came into existence and by the time the firm was finally started its operations, the agreement was revised unilaterally by the said company. Even though assessee stated to have furnished the details of commission, nothing was on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he salaried persons employed by the firm are also employed by the other group concerns of the assessee or by the company. As seen from the monthly payment details, there are some employees who are regularly paid over a period of 12 months and some of them for some period. Most of them are having bank accounts with continuous numbers. This indicate that these persons must have employed in group concerns and at the instance of the management, they may be called in to work in different places and their salaries were paid by different firms at the convenience of the management. It is not possible at this point of time to exactly verify each of the transactions. For example, for the payments supposed to be made in January 1997 alone at page 637 of the paper book one Mr. G. Paramjyoti Bank A/c. No. 4404 was figured in the list of employees with zero amount deposited in the bank account. In page 64 special quarterly incentives were given only for some people for the October-December, 1996 quarter and Dasara Scheme special reduction was not allowed to many people. There are many inconsistencies in the disbursement of salaries as the same person is not figuring in next month's list cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders were purchased from Mita Plastics vide Invoice dated 14.10.1996 but paid on 18/10 which was also after the dealers meet. These invoices are placed at pages 96 and 97 of the paper book. The invoices from Neesa Signs was for screen printing and brass metals for an amount of Rs.10,920/- was dated 19.10.1996 i.e., after the meet was over. There is no such mention of advance payment. Since the meet was supposed to be on 13th extended to 14th also, various expenditure bills dated subsequent to the meet could not be considered as expenditure on the meet, unless there is advance payment or placed orders much before. No such evidence is available on record. Therefore, the whole arrangement seems to be at the instance of the company. 8.5 Not only that, even the letter dated indicating the closure of the business has peculiar connotation. vide letter dated March 14,1997 (placed at page 22 of paper book) the assessee intimated that due to various reasons beyond the control, the assessee was not able to extend services and was closing the operations from 1st April, 1997. There was no six months notice period as required by the agreement and interesting aspect was the request that, af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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