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TMI Blog2022 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Paras Petrofils Ltd. and Sonic Biochem Extractions Ltd. was substantiated by the exhaustive inquiries conducted by AO which proved that the requisite services were not rendered. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,11,25,000/- made on account of unsecured loans received treating as deemed dividend u/s 2(22)(e) of the Act, though the assessee company had received unsecured loans from the group company, which satisfy the stipulation of the provisions of Section 2(22)(e) of the Act. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the ld. CIT(A)-2, Surat may be set aside and that of the Assessing Officer's order may be restored. 4. On the facts and circumstances of the case and in law, the appellant craves its right to add, alter, amend, deleted, any of the ground or grounds of appeal." 3. The assessee in its appeal has raised following grounds of appeal: "1. On the facts and circumstances of the case as well as law on the subject, the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai. The Assessing Officer further noted that the assessee paid commission to Paras Petrofils Ltd. @ 5% of sales which is higher that the prevailing market rate. The Assessing Officer in order to verify the genuineness of commission paid to Paras Petrofils Ltd., issued summon under Section 131 of the Income Tax Act, 1961 (in short, the Act) on 21/02/2014. In response to summon under Section 131 of the Act, Mr. Mahesh K. Baheti, DGM (Finance) of Paras Petrofils Ltd. attended the office of Assessing Officer and his statement was recorded. The Assessing Officer also gathered certain information like issuing the notice under Section 133(6) of the Act. On collecting certain information and on the basis of statement of DGM(Finance) of Paras Petrofils Ltd., the Assessing Officer issued show cause notice to the assessee on 18/03/2014, the contents of show cause notice is extracted by the Assessing officer in para 4.5 of assessment order. In the show cause notice, the Assessing Officer noted that Mr. Mahesh K. Baheti, DGM (Finance) of Paras Petrofils Ltd. has not produced any document to prove that they rendered any service to the assessee except agreement executedbetween the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The assessee filed its reply vide reply dated 28/02/2014 and 26/03/2014. In the reply, the assessee explained that writing off loan entries received from Pawan Syntax Pvt. Ltd. Rashmi Polyfab Pvt. Ltd. are wrong entry made by the Accountant. Actually, it should be included into debtors. The Assessing Officer recorded that in earlier submission madeon 18/11/2013, the assessee furnished detail of unsecured loans with copy of ledger and made statement highlighting the transaction. In the said submission, the assessee stated that it has received unsecured loans of Rs. 82.25 lacs from Pawan Syntex Pvt. Ltd. which is also reflected in the bank statement. Similarly in case of Rashmi Polyfab Pvt. Ltd., the assessee accepted unsecured loan of Rs. 29.00 lacs and furnished bank statement and copy of audited accounts. In case of Pawan Syntex Pvt. Ltd., who is having more than 10% shareholding in assessee and granted loan of Rs. 82.25 lacs in the month of February, 2011 and the accumulated profit as on 31/3/2010 was of Rs. 2.50 crores and as on 31/3/2011 was also Rs. 2.50 crores which is much higher than the loan given by Pawan Syntex Pvt. Ltd. to the assessee. Therefore, the said loan was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.00 crores on purchase of raw material to Sonic Biochem Extractions Ltd. The commission payments were made by way of written agreement before the parties. In the written agreement, the rate of brokerage commission was mentioned. Besides the agreement, there was oral agreement and mutual understanding regarding services to be rendered by both the parties from time to time. In the agreement with Paras Petrofils Ltd. after December, 2010, the rate of commission was reduced from 5% to 1% as they failed to achieve the target sales of Rs. 150.00 crores till the end of December, 2010. The turnover had reached on Rs. 97.27 crores. The sales commission and purchase commission were supported by this agreement, confirmation of parties, quarterly bills issued by the parties, service tax payment of commission, payment were made through account payee cheques and tax was deducted at source. With details of sales and purchase made on which commission/brokerage was paid and consequent follow up with the parties for technical and marketing guidance by the assessee. While entering into agreement with both the commission parties, the assessee was represented by Shri Bachhraj Begani and the rates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the production of assessee, quality of marketing network was progressed very much compared to earlier years. The assessee claimed that in F.Y. 2008-09, the sale of assessee was Rs. 52.00 crores and the net profit of Rs. 3.06 crores which was 5.89%. In F.Y. 2009-10, the turnover of assessee was increased to Rs. 109 crores and net profit increased to 10.47 crores which is 9.61% and in F.Y. 2011-12, the sales of assessee was increased to Rs. 125 crores and net profit was Rs. 11.00 crores @ 8.79%. By the performance of commission parties, the assessee company had increased about 2.5 times in the current year compared to F.Y. 2008-09 and overall profitability was also increased. The Assessing Officer wrongly rejected the explanation of assessee on the ground that the normal business practice was to give brokerage at 1 or 2 percent of shares made through agent. The assessee not only paid brokerage commission but also sought services to exploit marketing network and expertise of Paras Petrofils Ltd. in the marketing of assessee's product. The Assessing Officer failed to appreciate that there was no need for mentioning the name of Paras Petrofils Ltd. on each sales invoices as much as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem Extractions Ltd. The assessee explained that broker of JBF Industries had no concern at all with Sonic Biochem Extractions Ltd. The Sonic Biochem Extractions Ltd. were the purchased agent of the assessee and were devising the strategies for procurement of raw materials for the assessee from various suppliers at reasonable rates and it was their duty to arrange for raw material as and when required by assessee. Sonic Biochem Extractions Ltd. supported by agreement executed between the parties, payments were made through cheques. TDS were deducted and thus, the assessee discharged its onus for proving the genuineness of payment. The Assessing Officer has not granted cross examination of Shri Nishant Sharma or Shri Sher Singh Sharma and proceeded to make addition that they were acting as a broker of JBF Industries. 12. On the addition under Section 2(22)(e) of the Act, the assessee submitted that during the year, the assessee sold yarn to Pawan Syntex Pvt. Ltd. and grey fabrics to Rashmi Polyfab Pvt. Ltd., certain payments were made by them, by inadvertent mistake, credited to a separate account viz Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. instead of crediting the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance could have been made. 14. The ld. CIT(A) after considering the assessment order, submission of assessee on addition of commission expenses, held that the assessee paid purchase commission @ 4% to Sonic Biochem Extractions Ltd. and sales commission @ 5% to Paras Petrofils Ltd. The Assessing Officer made disallowance for the following reasons: "(i) Test check inquiries from customers of the appellant company revealed that in the sale bills, the name of Paras Petrofils Ltd was not reflected and rather either direct or some other agents names were mentioned on the bills. (ii) Raw materials suppliers of appellant company - M/s. JBF Industries Ltd., AlokInds Ltd, Garden Silk Mills bills did not indicate names of any commission agent. (iii) Mr. Manish K. Baheti, DGM of Paras Petrofils Ltd did not produce any document to support the claim that Paras Petrofils Ltd had provided any services to the appellant. (iv) Technicalities of the agreement vis-a-vis statement of Manish Baheti was compared by the AO and it was pointed out that in the agreement, Paras Petrofils Ltd was not supposed to provide technical assistance in quality of goods produced by appellant as claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as realised as compared to Rs. 3.00 crore in immediately preceding year, when no such commission was paid to those two parties. Thus, the assesse was benefited from the services rendered by them. The ld. CIT(A) held that it is not the case of Assessing officer that the commission agents are better companies and have shown only commission receipt from assessee which was returned back in cash to the assessee. Both the companies have huge turnover in their business and have expertise in the relevant filed cannot be brushed aside without any adverse finding. Both the parties are not related with the assessee. The sales of assessee was jumped drastically i.e. 209% in A.Y. 2010-11 and 241% in A.Y. 2011-12 which could be achieved only when the assessee appointed these agents for sales, purchase and for procurement of raw material. The conclusion by the Assessing officer is based on mere presumption and guess work. On the aforesaid observation, the ld. CIT(A) deleted the entire disallowance of commission expenses. 15. On the addition of deemed dividend under Section 2(22)(e) of the Act, the ld. CIT(A) held that on going through the ledger account of both the concerns i.e. Pawan Syntex Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by those parties, the commission paid to such parties cannot be treated as expenses incurred wholly and exclusively for the purpose of business. 19. On the other hand, the ld. AR of the assessee submits that the assessee paid commission of Rs. 3.24 crores i.e. @ 5% of sales of finished goods to Paras Petrofils Ltd. and commission @ 4% i.e. Rs. 3.00 crores on purchase of raw material to Sonic Biochem Extractions Ltd. The commission payments were made on the basis of written contract / agreement between the parties. In the written agreement, the rate of brokerage commission and various conditions are clearly mentioned. The copies of the written agreements with the commission's parties were filed before the assessing officer. Besides the agreement, there was oral agreement and mutual understanding regarding services to be rendered by both the parties from time to time. As per agreement with Paras Petrofils Ltd. after December, 2010, the rate of commission was reduced from 5% to 1% as they failed to achieve the target sales of Rs. 150.00 crores till the end of December, 2010. The turnover had reached only on Rs. 97.27 crores. The assessee furnished all complete details and the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ingredients. However, he failed to appreciate that it was not the real criteria to judge and determine the exact business of the company from broad projection displayed on any website. The website itself suggesting large area of business operations of said company. The Assessing Officer failed to appreciate the confirmation of the said company about the services rendered by them without leading evidence that the said company was not involved in rendering any services to the assessee company. The Assessing Officer alleged that as the assessee has purchased raw material through Sonic Biochem Extractions Ltd. and purchases were made by Sonic Biochem Extractions Ltd. from M/s JBF Industries, the brokers of JBF Industries would have known Sonic Biochem Extractions Ltd.. Sonic Biochem Extractions Ltd. supported by agreement executed between the parties, payments were made through cheques. TDS were deducted and thus, the assessee discharged its onus for proving the genuineness of payment. The Assessing Officer has not granted cross examination of Shri Nishant Sharma or Shri Sher Singh Sharma and proceeded to make addition that they were acting as a broker of JBF Industries. Both the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not the case of Assessing officer that the commission agents are better companies and have shown only commission receipt from assessee or the commission was returned back in cash to the assessee. Both the companies have huge turnover in their own business and have expertise in the relevant filed, which cannot be brushed aside without any adverse finding. It was also appreciated that both the parties are not related with the assessee. The ld CIT(A) held that the sales of assessee was jumped drastically i.e. 209% in A.Y. 2010-11 and 241% in A.Y. 2011-12 which could be achieved only when the assessee appointed these agents for sales, purchase and for procurement of raw material. We find that the assessee made TDS on payments of commission, similarly it was also subject to service charges payments. Both the parties are taxed at the maximum rates. The assessing officer has not brought any adverse evidence on record to discard the evidences filed by the assessee to substantiate the genuineness of the commission payment. We find that Hon'ble Gujarat High Court in CIT Vs Sujlon Energy Ltd (supra) held that where there was sufficient evidence regarding authenticity of payment of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that On the addition under Section 2(22)(e) of the Act, the ld. AR of the assessee submitted that during the year, the assessee sold yarn to Pawan Syntex Pvt. Ltd. and grey fabrics to Rashmi Polyfab Pvt. Ltd., certain payments were made by them, by inadvertent mistake, credited to a separate account viz Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. instead of crediting the account in respect of sales of goods made to them. Thus, erroneously the said amounts were shown as unsecured loans. The assessee sold goods of Rs. 2.14 crores and 1.87 crore and had job work of Rs. 1.36 crore and 2.46 crores of Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. respectively. At the end of year as on 31/3/2011, there was a credit balance of Rs. 1.92 crore in case of Pawan Syntex Pvt. Ltd. and Rs. 2.14 crores in case of Rashmi Polyfab Pvt. Ltd. In fact the amount of Rs. 82.25 lacs and Rs. 29.00 lacs in case of Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. should have been credited towards their respective sales account, then closing balance of both these parties as on 31/3/2011 would have been Rs. 1.10 crore and 1.85 crore respectively. A substantial amount was receivables from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.87 crore and had job work of Rs. 1.36 crore and 2.46 crores of Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. respectively. At the end of year as on 31/3/2011, there was a credit balance of Rs. 1.92 crore in case of Pawan Syntex Pvt. Ltd. and Rs. 2.14 crores in case of Rashmi Polyfab Pvt. Ltd. In fact the amount of Rs. 82.25 lacs and Rs. 29.00 lacs in case of Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd. should have been credited towards their respective sales account, then closing balance of both these parties as on 31/3/2011 would have been Rs. 1.10 crore and 1.85 crore respectively. We further noted that the ld CIT(A) after considering the submissions of assessee accepted the contention/ explanation of the assessee held that on going through the ledger account of both the concerns i.e. Pawan Syntex Pvt. Ltd. and Rashmi Polyfab Pvt. Ltd., it is apparent that at the beginning of F.Y. 2010- 11 i.e. on 01/04/2010, the assessee had amount receivable from both the companies, therefore, lump sum amounts shown in separate accounts cannot be treated as unsecured loans. The net effect of merging of both the accounts of the two companies ultimately indicates balance receivable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection to grant relief/ decide the appeal as per the outcome of Special Leave Petition of GSRTC by the Hon'ble Apex Court. Further similar direction was given by this bench in case of Puja Chemicals Vs DCIT (ITA No. 161 & 162/SRT/2021 dated 25/02/2022. The AR for the assessee prayed that this appeal may also be decided with similar direction to Lower Authorities. 31. On the other hand, the DR for the Revenue submits that as on today, the issue is covered against the assessee by the decision of jurisdictional High Court in CIT vs. Gujarat State Road Transport Corporation (supra). The combination of this Bench in other cases has already dismissed the similar appeals of different assessee's. 32. We have considered the rival contentions of both the parties and have gone through the orders of the lower authorities. We find that as on today the issue is covered against the assessee by the decision of Hon'ble High Court in CIT Vs GSRTC (supra). Therefore, the assessee has no merit in its case. However, we noted that on similar issue our predecessor in Decor Home (India) Pvt. Ltd. Vs. ACIT, Circle-1(1)(2), Surat dated 24.07.2019, passed the following order: "6. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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