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TMI Blog2018 (8) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... rores (approx) as against ₹ 2.38 crores (approx) in the preceeding year and the fact is also worth noting that salary expenditure has not increased in the proportion of increase in sales and the credit for this increase in sales directly goes to the efforts put in by the commission agents to advertise and educate the farmers which in turn have created the demand of the products sold on consignment basis by the assessee to these two nodal agencies. Entire claim of commission expenses allowed - Decided in favor of assessee. - ITA No.779/Ind/2014 - - - Dated:- 31-7-2018 - SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER For The Revenue : Shri K.G. Goyal, Sr.DR For The Assessee : Shri Rajesh Mehta, CA ORDER PER MANISH BORAD, AM. This appeal filed by the revenue pertaining to the A.Y. 2011- 12 is directed against the order of ld. Commissioner of Income-tax (Appeals)-II, Indore dated 30.09.2014 which is arising out of the order u/s 143(3) of the Income Tax Act dated 31.12.2013 passed by DCIT-Circle 5(1), Indore. 2. Sole grievance of the assessee raised in detailed grounds of appeal relates to disallowance of commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Aggrieved assessee filed an appeal before this Tribunal with following grounds; 1. That, partly disallowance restricting the addition to ₹ 27.92 Lacs against the addition of ₹ 58.62 Lacs on the facts and circumstances of the case, and the grounds of appeal written submission filed by us is quite erroneous, improper, arbitrary unjustified. 2. That, we appreciate the fact that Hon'ble Commissioner of Income Tax Appeals-2 Indore heard/gone carefully through the order of Assessing Officer and the grounds of appeals and written submission filed by us and accepted our grounds of appeal filed. 3. That, while partly disallowing the addition of ₹ 27.92 Lacs u/s 37(1) on A/c of commission paid to third parties is unjustify and improper. The Learned Hon'ble Commissioner of Income Tax Appeals(2) Indore ought to have considered the fact that the expenditure should satisfy the test of commercial expediency. Only expenditure laid out or expended wholly and exclusively for the purpose of the business is allowable. The expression wholly and exclusively does not mean necessarily. The businessman and not the tax collector is the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther services including advisory services. (b) Role of Commission Agent : There is an agreement between M/s Farm Services and Commission Agent along with promoting the sales of product of assessee, also assist assessee and perform any and all services required or requested in connection with assessee s business, including but not limited to, such services of an advisory nature as may be requested from time to time by the assessee. (c) Help actually received from Commission Agent: Due to the efforts, energy and skill on a regular and consistent basis made by the commission agents the turnover of the assessee increased by steep growth during the A.Y. 2011-12. A.Y Turnover (InRs.) Increase in Turnover from previous year Commission to Agents (In Rs.) Increase in commission from previous year 2009-10 1,98,19,093/- - 3,52,740/- - 2010-11 2,37,53,270/- 39,34,177/- 5,05,000/- 1,52,260/- 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1968, solely at the risk and cost of the supplier . 8. Ld. Counsel referred and relied on; (i) ITAT Delhi Bench in the Bony Rubber Co. (P) Ltd ITA No.2898/Del/2009 ITA 4530/Del/2009. (ii) (1979) 118 ITR 261 (Supreme Court) Session J. David Co. P.Ltd (iii)(1972) 86 ITR 11 (Supreme Court) Aluminium Corp. of India Ltd. (iv) (1993) 69 Tax man 415 (Supreme Court) Woodcraft Products Ltd. (v) (1994) 73 Tax man 245 (Cal) Indian Products Ltd. (vi) CIT vs. Swadeshi Mining Mfg. Co. Ltd (1979) 118 ITR 975 (Cal.) (vii) M/s. Stallion Laboratories Pvt.Ltd (2017) ITA Nos. 1981 2404/Ahd/2015 (viii)PCIT Vs Satish Jain (2018) ITA No.92/2017, ITA No.93/17, ITA No.94/17 ITA No.96/17 dated 13.4.18. (ix) CIT vs. Panipat Woolens General Mills Co.Ltd (1976) 103 ITR (x) CIT vs. Neimla Textile Finishing Mills (P) Ltd (1981) 130 ITR 397 (P) Ltd (xi) CIT vs. Bharat Colleries Ltd. (1968) 68 ITR 42 (P) Ltd. 9. On the other hand departmental representative vehemently argued supporting the order of Assessing Officer and further referring to the letters given by the Government nodal agency stated that no such agents were required to be hired for the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made directly from the party. The appellant has also not denied the same. But the contention of the appellant is that in order to facilitate the creation of demand for the product, to procure the orders, to ensure the delivery and to provide services thereafter, the appellant had appointed a number of liaisoning agents in various parts of the state who monitor the demand and supply issues of the products in various districts. In my opinion, the Assessing Officer is not justified in disallowing the entire commission simply on the basis of the letter and the statement given by the District Managers of Agro Industries who are not supposed to know the peculiar business expediency of the appellant company. Therefore, the existence of expenditure on account of commission cannot be ruled out. But, from perusal of the agreements with liaisoning agents, it is found that it is a very generally drafted document without specifying the nature and extent of work. The relevant part of the agreement is reproduced hereunder: Organisation hereby appoints Liaisoning Agent as an authorised nonexclusive independent representative to sell and promote all products provided by organisation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the head commission. It has been explained that since the commission is based on the sales and the sales have increased in absolute terms. Therefore, the expenditure under this head has gone up. The explanation of the appellant has not been found fully tenable. There is no doubt that the increased expenditure on this account will boost sale and also the increased sale will mean the increased expenditure under this head, yet in percentage terms, the increase has been found abnormally high. Therefore, it shall be reasonable to restrict the expenditure at 4% of the turnover which will take care of increased turnover during the relevant assessment year. Accordingly, the Assessing Officer is directed to restrict the addition of ₹ 27.92 lacs as against the addition of ₹ 58.62 lacs which will result into relief of ₹ 30.70 lacs. Accordingly, these grounds of appeal are partly allowed. 13. We further find substance in the submissions of the Ld.Counsel for the assessee that there is a corresponding increase in the sales vis- -vis the commission expenses, so much so that the turnover has increased to ₹ 6.98 crores (approx) as against ₹ 2.38 crores (appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , confirming the transaction, details of the TDS made, Bank account details with returns of income of agents. The AO has also examined these person on oath by summoning them under Section 131 of the Act, wherein they have categorically admitted of having received the commission and service rendered by them and justification of higher rate of commission. We also note that the question framed by the AO to various Government Department like PWD a d IDA was whether they (Government Department) required the service of commission agents for making the supplies? If yes, the names and addresses of such commission agents. Therefore, the reply to this question had to be in negative as the commission agents were appointed by the assessee and not by the Government nodal agencies. We also note that the assessee is dealing in supplies of sign board etc which required fixing site visit measurement etc for which commission agent have rendered the service as these agents are having experience in work and expertise of government supply. Therefore, requirement of representatives for doing such jobs cannot be denied. Further, PWD, MP vide their letter dated 24.02.2014 placed at paper book page no.53, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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