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TMI Blog2012 (5) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... he commission agents involving such huge amounts of money over a period of time. Further, the assessee is unable to furnish the details of customers introduced by each agent and also the exact working of commission payment made to each of the agents. Mere payment of commission through account payee cheque after deduction of TDS does not absolve the assessee from discharging its burden with regard to proving business purpose of the payments. In the absence of any credible evidence for making such payments, we are inclined to disallow the same. X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of M/s. Vijay Mining P Ltd., and Sri Ravi Kalyan Reddy, Managing Partner of M/s. R K Marketing Services. The Assessing Officer noted that from the above statements of so called commission agents, the following further inference could be drawn: (1) None of the commission agents was able to provide definitive list of customers, quantity of sales effected, working of commission. (2) In fact, M / s. R K Marketing services claimed that they did not know any customers (leave alone introducing them). They stated that they were only ensuring the quality of ore loaded into trucks. (3) The agents received commission only from 3 parties, viz. M/ s. Sun Infra; M/s. Sun Minerals and M/s. K V Minerals and no one else, despite the fact that Bellary is a big centre for iron ore trading. (4) These agents did not provide similar services to any other parties, despite boasting their expertise in iron ore trading. (5) All the agents appeared to be disparate and the assessee's claim that all its customers had been introduced by all those agents did not appear to be a reliable statement. (6) Most glaring in consistency appeared In the statement of Smt. B. Bhagyalaxmi, who stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission. He noted that in the assessee's case there were no agreements, and there was no evidence of any correspondence or personal meetings between the assessee and the commission agents, so as to suggest that there was any relationship on whose basis the commission agents procured customers for the assessee and for which they were entitled to receive commission. He noted that the understanding between the parties was an oral understanding and it was doubtful that such an oral understanding could have been arrived without any long lasting relationship having been established between the assessee and the commission agent involving such huge amounts of money over a period of time. It was also noted that the assessee was unable to furnish the details of customers introduced by each agent, as also the exact working of commission payment. He concluded that mere payment of commission through account payee cheque, after deduction of TDS, did not absolve the assessee from discharging its burden regarding proving the business purpose of such payments. Accordingly, the commission payments made by the assessee were disallowed and added back, holding that such expenditure had not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bound to be some inconsistencies. It was argued that the adverse points noted by the Assessing Officer can give raise to suspicion but such suspicion cannot take the place of proof when the transactions were routed through bank and the amounts were paid through account payee cheques, besides the fact that most of them are assessed to Income tax. The assessee maintained that the evidences tendered by the Managing Partner and other witnesses were in the realm of documentary evidence, which on any account have precedence over oral evidence. 2.11 The assessee also tried to distinguish the facts of the case of Lachminarayan Madan Lal Vs. CIT (supra) contending that in the assessee's case commission agents were independent parties and transactions with them were routed at Arms Length, while in the above case, the selling agency firm had no genuine existence but the same was another manifestation of the assessee firm itself. 3. On appeal, the CIT(A) confirmed the order of the Assessing Officer. Aggrieved, the assessee is in appeal before us. 4. The learned AR submitted that in both the above cases, the assessment orders and the appellate orders are almost similar, if not identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the list. Others did not carry such lists at the time of oral evidence. 2. But the firm specified and affirmed that services were rendered by its staff who are well versed in examining the quality of the ores. 3. This is highly irrelevant because one need not necessarily have many principals for getting orders and commission 4. This is not correct because the work orders, the payments and the TDS clearly mark out the individual performance and earnings. 5. This is not apparent from the statement recorded and cited. This is, in any case, really not material. 4.3 The lower authorities have then relied on the decision of the Supreme Court in the case of Lakshminarayan Madanlal Vs CIT (86 ITR 439) and also on the decision of the Delhi High court in the case of Schneider Electric India Ltd. Vs Commissioner of Income Tax 304 ITR 360 (Del) applying it. It is submitted that the lower authorities are not justified in making the above inferences and disallowing the expenditure incurred on that basis. Once the recipients of the commission have affirmed on oath about the services rendered by them and the receipt of commission by them, the onus of proof lying on the assessee stood disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the above assessee firms vide Answer to Question No. 3 (Page 7 of the assessment order). He gave the PAN of the Company and narrated its business activities. Sri Ravi Kalyan Reddy, Managing Partner of M/s RK Marketing Services stated that his firm was helping the customers introduced by M/s Vijay Mining Pvt. Ltd in getting good quality iron ore from the assessee firm vide Answer to Question No. 2 (Page 8 of the Assessment order). He also gave the PAN of the firm and stated that the firm was assessed to tax in Range 11, Hyderabad. 4.5 The AR submitted that the payment of commission for the purpose of marketing the iron ore is a trade practice which is not denied by the AO. Unless the commission is paid, the assessee cannot market the ore and cannot market it profitably. The payment of the commission is thus made out of commercial expediency. There can be no denying this widely prevalent trade practice. The learned lower authorities failed to notice that the transactions between the firms and the marketing agents were at an arm's length. There was no collusion to transfer funds from the assessee to the several agents. The whole transactions have been made openly and transpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee". 4.9 The learned AR relied on in the case of Eastern Investments Ltd vs CIT (20 ITR 1), wherein the Supreme Court held as under : "Most commercial transactions are entered into for the mutual benefit of both sides, or at any rate each side hopes to gain something for itself. The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent transaction which resulted in ultimate gain to the assessee, but whether it was properly entered into as a part of the appellants legitimate commercial undertakings in order directly to facilitate the carrying on of its business" (emphasis supplied). In the case of the assessee, the transactions are entered into as part of legitimate commercial interests. The lower authorities have failed to notice this aspect. 4.10 The AR further relied on in the case of CIT Vs Bombay Walchand & Co Pvt. Ltd (65 ITR 381), wherein the Supreme Court held as under : "When a claim for allowance u/ s 10(2)(xv) of the Income Tax Act is made, the income tax authorities have to decide wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in Eastern Investments Ltd Vs CIT (20 ITR l){SC), that in the absence of fraud, the question whether a transaction had the effect of reducing the assesses taxable income or whether it was a prudent or judicious transaction or whether it was indispensable or necessary for the assessee to enter into the transaction, are all irrelevant in determining whether the expenditure relating to that transaction should be allowed u/ s 37 of the Act." 4.15 The AR submitted that the ratio of the judgements in the above case law is applicable to the facts of the assessee's case and therefore the lower authorities are not at all justified either on facts or in law in disallowing the commissions paid by the above two assessees in the assessment year 2008-09. Accordingly, he prayed that the additions be deleted. 5. On the other hand, the learned DR submitted that the assessee sold the goods to 29 parties through various middlemen. However, no details regarding the services rendered by those commission agents were furnished. If the facts of the assessees' case are examined, it can be seen despite contending that the assessee sold iron ore to 29 parties through them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of Smt. Bhagyalaxmi, who, giving a different version, gave a list of customers. While Smt. Bhagyalaxmi claimed that even the assessee firm, M/s. K V Minerals, had been introduced by her, her statement indeed goes against the contention of the assessee that all the five agents had collectively introduced the clients. In fact, the alleged commission agents themselves, as could be seen from their statements reproduced by the Assessing Officer, could not provide any evidence or details regarding their specific services. They could not give even the list of customers, leave alone the quantities of sales effected through them in terms of tonnage, so as to demonstrate that they were entitled to any commission from the assessee firm. It is beyond human comprehension and business prudence that any person rendering any services 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 was stated to be different by M/s. R K Marketing Services, who after categorically admitting that they did not know any customers at all, stated that they had only ensured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative of the assessee also do not come to the rescue of the assessee. 5.6 The DR submitted that in the final analysis, it is clear that in the instant case neither the assessee nor the alleged agents could produce any documentary evidence to substantiate the scope of services expected to be rendered, nor could they furnish any evidence to establish that any such services were actually rendered. Besides, the parties could not put forth any secondary or circumstantial evidence also in support of such claim. The assessee therefore, grossly failed to discharge the onus of establishing its claim with evidence. Accordingly, it can be said that the facts and circumstances of the assessee's case are not such as can establish that the claimed expenditure of commission had been laid out or expended wholly and exclusively for the purpose of the assessee's business during the year. Therefore, such 'commission' or any part thereof cannot be said as deductible u/s. 37 of the Act. 6. We have heard both the parties and perused the material on record. It is settled law that if the assessee claimed deduction of any expenditure the burden of proof is on the assessee to est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it did not know any customers (leave alone introducing them). It states that it was only ensuring quality of ore loaded into trucks. The agents received commission only from three parties namely, M/s. Sun lnfraa. M/s. Sun Minerals and M/s. K V Minerals and no one else despite the fact that Bellary is a big centre for iron ore trading. These agents did not provide similar services to any other parties despite boasting their expertise in iron ore trading. All the agents appear to be disparate and the assessee claim, that all its customers were introduced by all these agents, does not appear to be a reliable statement. The most glaring inconsistency appears in the statement of Smt. B. Bagya Lakshmi, who states that she introduced even M/s. K V Minerals. 9. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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