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TMI Blog2017 (8) TMI 1612X X X X Extracts X X X X X X X X Extracts X X X X ..... tice does not necessarily mean that the agent is not aware of the buyers. In no situation commission can be earned by a person like HUF is also not tenable. We find that no material could be brought before us to show that the person to whom commission was paid were accommodation/entry provider and the money which was paid through banking channel to them came back to the assessee. Absence of any specific defect being pointed out in the order of the CIT(A), we find no good reason to interfere with the order of the CIT(A), which is hereby confirmed and the ground of appeal of the revenue is dismissed. - ITA No. 142/CTK/2015 - - - Dated:- 31-8-2017 - S/Shri N.S Saini, Accountant Member And Pavan Kumar Gadale, Judicial Member Assessee by: Shri D.Pati, AR Revenue by: Shri Kunal Singh, CIT DR ORDER N.S.Saini, AM This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 28.1.2015 for the assessment year 2010-2011. 2. The sole issue involved in this appeal is that the CIT(A) is not correct in deleting the entire addition 7,09,10,967/- under the head brokerage and commission . 3. The brief facts of the case are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee stated that all the commission agents are regular assessee and their respective status has no relevance with the assessee s business. The Assessing Officer observed that it is further seen that the assesse has paid commission to corporate assessee who are loss making and self/assessment tax defaulter. The assessee has made TDS and service tax and then also it is beneficial for the commission agents as they have never rendered any services and consuming TDS components. Therefore, he held that it is established fact that commission agents have never rendered any services to the assessee and simply raised bills in regard to commission on which mere provision of TDS was made to sustain the claim of commission expenses. The commission agents are providing accommodation entry to the assessee by which, the assessee could able to inflate the expenses by way of commission. Accordingly, he made category wise disallowance as under: i) Category -1 (Buyers have denied) : ₹ 5,08,01,314 ii) Category -II (letters sent to buyers unserved) : ₹ 55,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of service tax paid, wherever applicable, details of tax deducted at source , details of buyers etc and as such it discharged its onus as regard the genuinity of the expenditure incurred by it. 5. The CIT(A) after considering the submissions of the assessee deleted the addition. 6. Ld D.R. supported the order of the Assessing Officer whereas ld A.R. fully justified the order of the CIT(A). 7. We have heard rival submissions, perused the orders of lower authorities and materials available on record. We find that the CIT(A) deleted the disallowance of ₹ 7,09,10,967/- out of total commission payment of ₹ 14,13,86,450/- by observing as under I have considered the content and substance of the impugned assessment order and the Grounds of Appeal preferred and the additional submissions filed by the Appellant, and accordingly decide as under: a) It is clear from the outset that the AO has not correctly understood the meaning and import of the term agent . It is not necessary that an agent receiving Commission payments has to always be a physical go-between between the principal (the Appellant in the instant case) and his/her/its customers being buyers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and are motivated to that end; it is in this connection that some of them may keep track of buyers/customers in their own interests. Such tracking and retrieval of customer details upon demand, as the AO has insisted upon, is not. part of a mandatory or statutorily stipulated nature of duties of all agents. d) There are Commission agents who arrange and participate in the sales and arrange outbound- movement-and-packing, transport and logistics in the interests of the principal, and there are agents who do not. The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person (the agent), who is authorized to act on behalf of another (the principal) to create legal relations with a third party. Succinctly, it may be referred to as a more-or-less equal relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under his or her or its control and on his or her or its behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him or her and third parties into a contractual relationship. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mise, conjecture, supposition, and a summary and unilateral conclusion based on rudimentary facts (of the buyers being presumably non-existent or apparently unaware of the agents and the agents being unable to list the buyers) taken in prejudiced isolation and based on a spurious implied transcendental principle that seeks to cover/fill the schism between flimsy foundations and meretricious arguments on one side and a tendentious decision on the other. This is not a scientific, professional and responsible exercise carried out by the AO. Much more homework was required to be done by the AO in discharge of his responsibilities, which he plainly failed to carry out. g) How to go about doing one s business sis the prerogative of the business man, as are the related matters like incurring expenses, making investments, obtaining loans and providing advances, etc. The decision of Hon ble Supreme Court in the case of S.A. Builders Limited vs CIT, 288 ITR 1 (SC) is relevant. The Hon ble Court held in the above ratio reiterated the settled position in the past that no businessman can be compelled to maximize his profit. While considering the claim of deduction of any expenditure, incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual buyers would automatically disentitle the agents of their status and rights to receive Commission payments. In the scheme set in place by the Appellant, the buyers directly transacted with her; the agents did not enroll them and therefore in most cases would not know them. The agents would be able to only provide some names of buyers in respect of whom/which the agent would have facilitated the supply after the sales were made. Likewise, sworn depositions from the buyers that they did not know the agents would not make for adverse finding because in the minds of these buyers, they had transacted directly with the Appellant, and the person referred to as an agent would have appeared in their eyes like an employee of the Appellant or other individual engaged in facilitating the movement of the goods, and not in a formal position of engagement as an agent . k) What was needed for the AO was to prove any of the following: a) the impugned agents did not exist or were not genuine agents; b) the agents had not carried out any facilitation work for the Appellant; and c) the agents had not actually received the stated Commission moneys. He has instead proceeded on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to easy definition or connotation. It means different things to different people. When undoubtedly physical man inhabits a physical world, it stands to deductive reason that groups of such men such as Associations of Persons (AoPs) and Bodies of Individuals (Bols) too are physical in essence. Employing the canonic principle of noscitur a sociis (a word is known by the company it keeps), it can be readily seen that an HUF as defined u/s 2(15) of the Income-tax Act is accompanied by other persons that include individual . It obviously cannot be the AO s case that an individual is not a physical entity , and it follows therefore that an HUF, and all the other persons mentioned therein are physical entities under the statute. n) The word physical itself is derived from the Latin word physis which meant matter in its indivisibly elemental form. However, the physical world is both tangible and intangible. The human mind inhabits the physical world and there are philosophies that hold that mind is made up of an intangible physical substance. The corpus of human knowledge as it exists today is indeed regarded as a physically substantive entity by such philosophers. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UFs can earn commission incomes that are assessable in its hands (as against those of the karta) under certain conditions. In any event, in this case, the payment has been made and whether the same is to be assessed in the hands of the HUFs or their respective kartas is a decision to be taken by the respective AOs possessed of the jurisdiction of those cases. p) The AO s pejorative statements in the assessment order that 7/ may also be recalled that an expenditure is an expenditure when the payer and the payee are two different hands and two different beings. Here it is the services which are being paid for and these services could only be provided by flesh and blood. Such income cannot be attributed to an entity like HUF as the HUF cannot perform functions of an individual being because of not existing in physical form is to be seen against the fact that the Appellant and the receivers (the HUFs) are two different hands and two different beings. Also and in particular, no fair and reasonable opportunity has been provided to the Appellant to argue the point of the physicality or otherwise of an HUF. q) In consequence of all the above, it is held that the AO s action in d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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