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TMI Blog2013 (1) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment can not be said to be an expenditure laid out wholly and exclusively for the purpose of business and secondly it would be disqualified under explanation to section 37(1) as being opposed to public policy As regards the traveling expenses claimed by the assessee, it pertains to Commission Agent - Since the commission payment itself is disallowed as non-genuine, therefore, there is no question of allowing traveling expenses on Commission Agent since the expenditures were not incurred wholly and exclusively for the purpose of business - decided in favor of Revenue - ITA No.188/Agr/2010 - - - Dated:- 18-1-2013 - Bhavnesh Saini (Judicial Member) And A. L. Gehlot (Accountant Member) For the Petitioner : Anuradha For the Respondent : N. C. Agarwal ORDER A.L. Gehlot (Accountant Member) 1. This is an appeal filed by the Revenue against the order dated 17.02.2010 passed by the ld. CIT(A)-I, Agra for the Assessment Year 2005-06. 2. The grounds raised by the Revenue in its appeal are as under:- 1. That the CIT(A)-I, Agra has erred in law and on the facts of the case in deleting the addition of ₹ 33,69,903/- made on account of commission pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It was further stated that he in the capacity as ITO, Ward-I, Srinagar, holding jurisdiction over new assessee, also certify that the case is not an existing one with this ward as per available record of this office. The A.O. further noticed that the ITO, Ward-1, Srinagar on the basis of Inspector's report who was deputed to make spot enquiry about the whereabouts of the party, has reported that no such assessee is available in the locality of New Colony, Batamalloo. The ITO also made enquiry from the Directorate of Fire and Emergency Services, Srinagar to whom supply are reported through this agent and find that no such person is known in the Directorate of Fire and Emergency Services, Srinagar. 4. The A.O. asked the assessees to furnish required information and details by issuing summon under section 131 of the Income Tax Act, 1961 dated 16.08.2007 to furnish entire correspondence made with M/s. SandS Traders, Srinagar with details of payments made, mode of dispatch/delivery of Fire Fighting vehicles and equipments etc. In response thereto, the assessee-company vide reply dated 20.08.2007 explained that correspondence with M/s. SandS Traders, Srinagar is not ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gar and family at Delhi. The assessee-company has no dealing in JandK except Directorate of Fire and Emergency Services. He visited Srinagar so many times for company's work. He further stated that he first time met with Shri Shaukat Ahmad at company's office at Delhi. He did not know the father's name of Shri Shaukat Ahmad, his family details and residential address, telephone numbers etc. He never visited office of Shri Shaukat Ahmad at JandK and never talked with him on phone. It was brought to his knowledge from Shri M.C. Agrawal, Director of the company that Shri Shaukat Ahmad was doing liaison work of the company at JandK. 7. The A.O. also made enquiries from Director Fire and Emergency Services (JandK) Jammu vide his office letter dated 31.08.2007 u/s. 133(6) of the I.T. Act, 1961. In response thereto, the Director General, Fire and Emergency Services, JandK, Srinagar has informed that as per records Shri Sunil Kaul, Service Engineer of Company was attending the meetings and other works on behalf of M/s. Brijwasi Hi-tech Udyog Ltd. and no person named Shri S. Ahmad/Shri Shaukat Ahmad/Proprietor/partner/employee of M/s. SandS Traders has been attending on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgement did not bear the clear seal of the Department and is filed beyond the date. The A.O. was of the view that it was not a valid return and cannot be accepted as an evidence for receipt of commission by Shri Ahmad from assessee-company. The A.O. observed that it was actually arranged by the assessee on being enquired to create evidence for assessee's claim. The A.O. noticed that the return was filed by Shri Shaukat Ahmad in October, 2007 while the assessee earlier stated that Shri Ahmad is assessed to Income-tax in JandK with ITO-4 but as per the report of the ITO from Srinagar as discussed above that no such return was filed by Shri Ahmad for the A.Y. 2005-06 with ITO Ward-4, Srinagar before Oct 2007. Thus, it is clear that the assessee wanted to create an evidence by filing the return of income in the name of Shri Shaukat Ahmad. 10. Under the facts and circumstances, the A.O. found that it is apparent from the letter of Directorate of Fire and Emergency Services, JandK, statement of Shri Sunil Kaul and Shri S.C. Agrawal, report of ITO, ward-1, Srinagar that the assessee-company has shown payment of commission of ₹ 33,69,903/- to a hidden person named Shri Shaukat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of the assessee-company. 13. The CIT(A) deleted the addition on the ground that there is no evidence to prove that the payee Shri Sheikh Shafat Ahmed had not rendered any services to the appellant, thereby warranting disallowance of the commission of ₹ 33,69,903/-. Let us see how CIT(A) reached to this conclusion. The CIT (A) from pages numbers 1 to 3 reproduced the grounds raised by the assessee in its appeal before the CIT(A). In Pages 3 to 9 reproduced assessee's submissions. Comments on assessee's submissions-Pages 9 to 12. Rejoinder of the assessee-Pages 12 to 14. The CIT(A) directed the A.O. to record the statement of Shri Sheikh Shafat Ahmad which were recorded by the A.O. and copied the statement from page no 15 to 27. The report submitted by the A.O. has been reproduced at page nos. 28 and 29 which is under:- 3.8 A report dated 12.05.2009 was submitted by the AO in compliance of directions issued u/s. 250(4) of the Act, stating therein as reproduced below:- As per your directions the assessee company was asked to produce the witness Sri Shafat Ahmed for examination and recording his statement with direction to ensure that he must bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd he was appointed a representative for JandK only on his request letter, however, he could not produced any such correspondence. Interestingly the Director of the company, Shri Suresh Agarwal had deposed during the assessment proceedings that there was no correspondence with the alleged agent with the company. It is evident from the body of the assessment order itself. 7. He claimed that company has also deputed Shri Sunil Kaul and Mr. Malhotra its employees for company's business activities at Kashmir and they also assisted him. But when he was asked about the denial of Shri Sunil Kaul of not knowing him and rather he himself used to look after the business interests of the company in JandK he could not give satisfactory reply. (Ref. Q. No. 22 and 25). 8. When he was confronted with the denial of the Director of Fire and Emergency (JandK) about the company being represented by Mr. Safar Ahmed he could not refute the said report. Neither he could produce any correspondence or documentary evidence about his involvement over there on behalf of the assessee company. (Ref. Q. No. 29,30 and 31). 9. The witness could not explain satisfactorily as to why he did not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned he stated that his consultant might be knowing the same and who has filed his return of income. 3. Returns of Income:- It is true that the witness had filed his return of income for AY 05-06, 06-07 and 07-08 on 04/10/2007 with wd-4 range KASHMIR (CIT Jammu) vide receipt no 2492, 2493 and 2491. Self certified copies of the acknowledgement of returns were filed before the assessing officer. He could not produce the original of the photo copies. Photo copies are legible and properly readable. 4. The witness clearly stated that his accounts and returns were prepared by his consultants. 5. Agreement:- The witness confirm that there is a written agreement between him and the company. He also confirmed that the said agreement was 'executed either in 2003 or in 2004. 6. The witness also confirmed that he has correspondence with the company but could not produce the same as he has not brought the same. The witness also confirmed that his main dealing is with M C Agrawal Managing Director of the company who looks after the sale and service at the Delhi office of the company and not with Sh S C Agrawal. 7. He confirm that he knows Mr. Sunil Koul, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eu of these services. It is impossible for the company to either open a office there or send the persons from Delhi/Mathura as the J and K is a disturbed and terrorist prone area. A local man can handle the local authorities very well. In his statement, Sh Shafat Ahmed has also confirmed that he is providing services to the company from 2003-2004. Sh Shafat Ahmed in his statement confirmed that he is providing repairs and maintenance services after sale on behalf of the company during warranty period of the equipment supplied by the assessee company. These vehicles are placed/stationed in the different hilly districts of J and K State. It is very difficult or impossible for the assessee company to provide after sale services in the hilly area of J and K State. 2. Evidence/Material:- The assessee has furnished the following evidences/materials for proving its claim before the assessing officer:- 1. Copy of the agreement. 2. Affidavit of Safat Ahmed duly sworn before the authorities and further confirmed by him before the assessing officer on 11/05/2009 in his statement. 3. Assessment particulars of Safat Ahmed. 4. Copy of Election card/Pan Card/Driving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e never made or that they were not made to Shri Sheikh Shafat Ahmed. TDS from the impugned commission payments was made by the appellant which has not been doubted by the AO. The CIT(A) further observed that in the written submissions dated 18.12.2008, the appellant has argued that the fact that Shri Sheikh Shafat Ahmad came to Delhi and Mathura in respect of the supplies made is evident from the booking of the air ticket by the assessee company in respect of traveling made by Shri Sheikh Shafat Ahmad frequently. The traveling expenses incurred on Shri Sheikh Shafat Ahmad has also been disallowed by the A.O. This fact has not been controverted by the A.O. The CIT(A) observed regarding assessee's submissions that when the customer is located at far flung area, there is a need for local agent for day to day liaisoning with the Government Department though tender is issued in the name of the main party. The local agent regularly remained in touch with the master and with the Department. The CIT(A) further observed that it is true that Government does not recognize the agent in between but the party has to appoint such local agent for smooth supplying of the order. The alleged comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le income of ₹ 3,55,017/- only against the impugned commission receipts of ₹ 33,69,903/- from the appellant. However, no adverse inference arises in the appellant's case on this count:- The appellant has disclosed substantial commission receipts in A.Y. 2006-07, 2007-08 and 2008-09 as detailed in para 3.14 above. Thus receipt and payment of commission appears to be q practice in this line of business. At the assessment stage, the existence of Shri Shafat Ahmed had been doubted by the AO as apparent from the following observations:- In view of above facts and circumstances, it is apparent from the letter of Directorate of Fire and Emergency Services, JandK, statement of Shri Sunil Kaul and Shri S.C. Agarwal, report of the ITO Ward-l, Srinagar that the assessee company has shown payment of commission of ₹ 33,69,903/- to a hidden person named Mr. Shaukat Ahmed not for the services rendered by him for the assessee's business but to reduce its tax incidences.... However, this doubt has been cleared due to the attendance of Shri Shafat Ahmed before the AO. In the assessment order as well as in the remand report the AO has held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.G., Fire Emergency Services, Govt. of J K, Gandhi Nagar, Jammu Multipurpose Fire Tender with Accessories. 22.09.2008 D.G., Fire Emergency Services, Govt. of J K, Gandhi Nagar, Jammu Fabrication of water Tender on (20 nos.) Tata Model. 06.08.2009 D.G., Fire Emergency Services, Govt. of J K, Gandhi Nagar, Jammu Fabrication of water Tender on (20 nos.) Tata Model. In the letters addressed to the above mentioned Govt. Authority, it is stated as under:- It is in reference to the above mentioned subject tender, we hereby authorise our authorized agent Mr. Shokat Ahmed in Jammu can submit/attend the tender opening on behalf of our company. This also corroborates the statement of D.G., Fire and Emergency Services, JandK, Srinagar in which it is stated that for the year 2004-05 to 2005-06 Shri Sunil Kaul was attending. Apparently, M/s. S.S. Traders was authorized by the appellant company as its agent from 2006-07 and onwards. The existence and role of liaison in business is well known and recognised. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital expenditure; (iii) It should not be a personal expenditure; and (iv) The expenditure should have been laid out or expended wholly and exclusively for the purposes of the business or profession. (v) That any expenditure should not be incurred for any purpose which is an offence or which is prohibited by law. 19. It is thus clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. The condition No. (v) is overriding to all other conditions number (i) to (iv) stated above. Thus, section 37(1) allows deduction of any expenditure subject to conditions noticed above. The burden of proving that a particular expenditure has been laid out or expended wholly and exclusively for the purposes of business is on the assessee. This position is well settled by the judgments of the apex court in CIT vd. Calcutta Agency Ltd. [1951] 19 ITR 191 and CIT vs. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17. The mere o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red against payment of commission, the A.O. asked assessee to furnish correspondence with M/s. SandS Traders, recipient of commission but the assessee failed to furnish the same on the ground that correspondence with M/s. SandS Traders is not available. The Managing Director of the assessee company admitted on oath, statement recorded on 21.08.2007 that there is nothing on record to support the facts that commission was paid against services to the assessee company. The Director of the assessee company also stated in his statement that same thing which was stated by the Managing Director of the assessee company. Manager Sales and Services of assessee company also did not have knowledge of such commission Agent. On direct enquiry from purchasers, Directorate General Fire and Emergency Service vide letter dated 29.09.2007 wherein it is clearly replied that Shri Shaikh Shafat Ahmad or any other person of M/s. SandS Traders did not attend their office on behalf of the assessee company. The relevant abstract of the letter is reproduced in above paragraph no. 7 of this order. In the remand report dated 12.05.2009 the A.O. submitted before the CIT(A) that even at the second time when oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that payee Shri Shaikh Shafat Ahmad had not rendered any service to appellant . The finding of CIT(A) is contrary to the law laid down by the Apex Court in the case of CIT vs. Calcutta Agency Limited, 19 ITR 191 (SC) that the burden in this regard is on the assessee. Whereas the CIT(A) shifted this onus on the A.O. There is no finding of CIT(A) that the assessee has furnished sufficient evidence to prove that the payee rendered service to the assessee against commission payment. There is no such material on record nor the assessee furnished any material basis on which it can be held that the payee rendered services to the assessee against commission payment. The CIT(A) cast negative burden on the A.O. which is not in accordance with law. Therefore, the order of CIT(A) is not sustainable in the eyes of law. Further it is also settled law that mere payment itself would not entitle the assessee to deduction of such commission unless the same is proved to be paid for commercial consideration and expended wholly and exclusively for the purpose of business. The onus of proof is always on the assessee. It cannot be said that even if the assessee does not produce any evidence in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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