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TMI Blog2013 (7) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... . R.K. Marketing 29,76,000 S. Lava Kumar Reddy 7,44,000 M/s. Vijay Mining Pvt. Ltd. 22,32,000 4. The Assessing Officer, therefore, called upon the assessee to justify the commission payment to the concerned parties by furnishing the following information: 1. Details of the services provided by the parties to whom commission payments were made. 2. Details of clients arranged by these parties. 3. Copies of agreements entered into with these parties. 4. Copies of correspondence made with these parties. 5. Basis of commission payment. 5. Even after availing several opportunities when the assessee expressed its inability to produce the informations called for, the partner of the assessee firm Sri Viplav Kumar was summoned u/s. 131 of the Act and a statement was recorded from him on 24.12.2010. From the statement recorded the Assessing Officer drew the following inferences: 1. There are no written agreements with the parties to whom commission was paid. 2. There is no written correspondence with these parties regarding the customers introduced by them and sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause as to why the payments made to the agents should not be treated as not laid out or expended wholly and exclusively for the purpose of business. In his reply the partner Sri Viplav Kumar submitted that it is not possible to get customers and good price without paying sales commission. He submitted that there is no such trade practice in the region to enter into agreements with commission agents. He further submitted that all the payments were made through account payee cheques after TDS and the payees have also confirmed the receipt. He submitted that due to complexities in the iron trade, it is not possible to furnish exact details of sales procured by each agent. He claimed that all the correspondence happened in person only. 8. Considering the aforesaid facts in the light of the ratios laid down by the Hon ble Delhi High Court in case of Schneider Electric India Ltd. vs. CIT (304 ITR 360) and by the Hon ble Supreme Court in case of Lachminaryan Madanlal vs. CIT (86 ITR 49), the Assessing Officer noted that even if there is an agreement between the assessee and its selling agents for payment of certain amounts as commission, assuming there was such payment, that does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and could achieve turnover. It was contended that A.Y. 2008-09 being the first year of the business operations of the assessee, payment of commission was, therefore, essential to enter into the market and improve the firm's market there. In support of such contention, the assessee relied upon the decision of the Hon ble Patna High Court in the case of CIT vs. Bharat Collieries Ltd. (68 ITR 42). 10. It was further submitted that commission payments were made to the agents who are third parties and not related to the partners of the firm so as to warrant action u/s. 40A(2) of the Act. It was submitted that the statements of the agents do not establish that the concerns or the persons are not genuine. It was submitted that there being no material on record against the assessee, the agents and payments made to them have to be treated as genuine as all the agents confirmed having rendered services to the assessee. It was further submitted that the observation made by the Assessing Officer that the agents are located at Hyderabad and not at the work place at Bellary is neither relevant nor tenable. It was submitted that all the persons dealing in iron ore generally have their ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very working of commission payable to each of them not workable. The CIT(A) further held that the falsity of the claim is further proved from the statement of Smt. Bagyalakshmi who furnished a list of customers, wherein even the name of the assessee firm was included. 12. From the above facts, the CIT(A) came to a conclusion that even the so called commission agents themselves could not provide any evidence or details regarding their services. The commission agents could not give even the list of customers, leave alone the quantities of sale effected through them in terms of tonnage so as to demonstrate that they were entitled for commission from the assessee firm. The CIT(A) was of the view that it is beyond human comprehension and business prudence that any person rendering any service for consideration would not keep even the minimum records to make a claim for payment towards such services. Besides, the very nature of services claimed to have been rendered by them were stated to be different by M/s. R.K. Marketing Services who after categorically admitting that they did not know any customer at all, stated that they had only ensured the quality of iron ore loaded into trucks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no bearing on character of expenditure-Expenditure an integral part of profit earning process-Finding by Tribunal that high rate of commission was a normal Commercial transaction-Hence allowable expenditure under s. 10(2)(xv) 15. The AR submitted that the commission payments made to the agents are third parties and not related to the partners of the firm warranting the attraction of provisions u/s. 40A(2). All the commission recipients are third parties. Assessing Officer relied on Schneider Electric India Ltd v. CIT (304 ITR 360) (Del) and Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC) are not related in the present case of the assessee. Even the recipients have confirmed the receipt of the commissions which fact was already indicated in the assessment order. The assessing officer has already verified the expenditure and got the confirmations from the parties, who have received commission, through their sworn in statements recorded before the assessing officer. The recipients of the commissions have admitted the receipt of the commission to the assessing officer and there is no denial from not even a single party which is evident from the assessment order itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally all the persons deals in iron ore will have their main offices in Hyderabad for operational convenience though they have operations in various work places. Even the assessee has the registered offices at Hyderabad only. When the assessee has done the operations having head office at Hyderabad why not it be possible for the agents to have office at Hyderabad and there is no rule that the agent shall have offices at work place only. Similarly for quality control, the assessee has to dependent on one of the agents since he is new to his business and also new to the area. It is the first year of operations of the assessee. Accordingly the assessee has utilized the services of the experienced staff of the one of the commission agent to ensure the quality and paid the commission for their services. 18. The AR submitted that the commission paid ₹ 1,19,04,000 against the total turnover of ₹ 19,34,00,000 which is 6.15% of the turnover. Generally the commissions on this line of activity is about 10% where as the assessee has incurred at the rate of 6.15% which is not abnormal and it is within the allowable limits. The assessee has arrived a taxable net profit (after consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out for the purpose of business, the disallowance of such payment is perfectly justified. The learned DR further submitted that the issue in dispute is squarely covered by the decision of the ITAT Hyderabad Bench in case of M/s. Sun Infraa and M/s. Sun Minerals in ITA No. 2117/Hyd/2011 and ITA No. 2116/Hyd/2011 dated 18.5.2012 wherein the Tribunal while considering the disallowance of commission payment under identical facts and circumstances had upheld the disallowance. 22. We have considered submissions of the parties and perused the material on record. We have also applied our mind to the decisions relied upon by the parties. It is not in dispute that the assessee has not produced any evidence worth its name either before the Assessing Officer or before the CIT(A) to substantiate its claim that commission payment was actually made to the so called agents towards services rendered by them for improving business of the assessee and furthermore, the expenditure incurred was wholly and exclusively for the purpose of business. It is a fact on record, which is also admitted by the assessee, that neither there is any written agreement with the commission agents nor there is any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Though the assessee made a claim that the commission agents collectively introduced the parties there is no correspondence between the commission agents. As seen from paras 6.2 and 6.3 of the CIT(A)'s order, the statements given by the assessee are contradictory in nature. The parties herein have not given any evidence about the names of persons who were recommended by them. 7. Being so, it cannot be presumed that the parties whom the assessee made any sales were through these parties to whom the commission has been paid. As there is no evidence whatsoever to support the claim of the assessee that these impugned recipients of the payments rendered any service for which commission has been paid when they did not even know them. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to proving business purpose of the payments. 10. In the absence of any credible evidence for making such payments, we are inclined to disallow the same. 11. Reliance is placed on the decision of the Tribunal in the case of Davinder Singh v. ACIT (104 ITD 325) (ASR), CIT vs. Calcutta Agency Ltd. (19 ITR 191) (SC), Lakshmiratan Cotton Mills Co. Ltd. vs. CIT (73 ITR 634) (SC) and L.H. Sugar Factory Oil Mills (P) Ltd. vs. CIT (19 CTR) (SC) 185 : (1980) 125 ITR 293 (SC). 12. Reliance is also placed on the decision of Delhi Bench of the ITAT in the case of Roger Enterprises (P) Ltd. vs. DCIT (88 ITD 95) held as under; 51. Examining this matter from another angle, we feel that the onus of proof that the commission paid was genuine was on the assessee. The question that further arises is as to whether the assessee has discharged the onus and if yes then how. According to the assessee he has discharged the onus by proving that the payment has been made by cheque. Not only this, the name of the person to whom the payment by cheque is made is disclosed and therefore the payment is genuine. 52. This argument so raised by the assessee sounded well at the threshold b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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