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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 ..... s by party was not bogus payment. In Voltamp Transformers (P) Ltd [ 1980 (10) TMI 35 - GUJARAT HIGH COURT] as held that when assessee-company, dealers in transformers, appointed firm consisting wives of its main shareholder as partners, as its sole selling agent at agreed commission ranging from 3% to 5%, the Tribunal was not justified and wrongly concluded that commission was exorbitant and was not justified by the test of commercial expediency. As held that the commercial expediency and the business need of organisation are concerned, it is not the view point of the assessing officer which should count but it should be the viewpoint of the ordinary bussiessman dealing with a situation faced by the assessee. The Coordinate bench of Mumbai Tribunal in Quantum Advisors (P) ltd [ 2016 (10) TMI 1 - ITAT MUMBAI] also took view that where the group concern had adequate infrastructure and ability to render marketing and distribution in term of agreement with the assessee as a result of which assessee got business, payment could not be rejected on mere hypothetical basis. - Decided against revenue. Deemed dividend u/s 2(22)(e) - HELD THAT:- CIT(A) after considering the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) for short] both dated 03/12/2019. 2. Firstly we are taking the revenue s appeal for the A.Y. 2011-12 wherein, the Revenue in its appeal has raised the following grounds of appeal:- 1. 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. 6,39,69,595/- made on account of disallowance of commission expenses despite of the fact that the non-genuineness of the commission paid 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, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service rendered Rate of commission 1 Paras Petrofils Ltd., 301, JeevandeepAppartment, Opp. J.K. Tower, Ring Road, Surat. AABCP4038P Comm. On Yarn Grey Sales 5.00% 2. Sonic Biochem Extractions Ltd., 38, Patel Nagar, Indore-452001 (MP) AABCS5326B Comm. On Raw Material Purchased 4.00% 5. On perusal of ledger of Sonic Biochem Extractions Ltd. in the books of Assessee Company, the address of Sonic Biochem Extractions Ltd. was mentioned as 7A, Vimal UdhyogBhawan, 3rd Floor, Opp. Star Cinema, Sivaji Park, Matunga West, 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. att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras Petrofils Ltd. and Sonic Biochem Extractions Ltd. The assessee tried to justify the payment of commission which is incorrect. The commission parties have not rendered services, therefore, the expenses cannot be allowed under section 37 of the Act. The Assessing Officer disallowed the entire expenses of sales and purchase commission paid to both the parties whereby making addition of 6.396 crores. 7. The Assessing Officer further noted that the assessee received unsecured loan from Rashmi Polyfab Pvt. Ltd. and Pawan Syntax Pvt. Ltd. wherein the assessee is having more than 10% shareholding. The assessee was asked to show cause as to why it should not be treated as deemed dividend under Section 2(22)(e) of the Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,29,476 On the basis of aforesaid observation, the Assessing Officer issued show cause notice as to why Rs. 1,48,464/- (Provident Fund of Rs. 18,988 + ESI of Rs. 1,29,476) should not be added to the total income of assessee. The Assessing Officer recorded that the assessee has not furnished any reply or explanation. The Assessing Officer by following the judgment of Hon ble Gujarat High Court in the case of CIT Vs Gujarat State Road Transport Corporation dated 13/01/2014 wherein it was held that employee s PF/ESI contribution is not covered by Section 43B and is only allowable as deduction u/s 36(1)(va) if paid by the due date prescribed under those Acts, accordingly disallowed Rs. 1,48,464/-. 9. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. The submission on all three additions is recorded in para 5 of order of ld. CIT(A). On the addition/disallowance of commission payment, the assessee submitted that the assessee paid commission of Rs. 3.24 crores i.e. @ 5% of sales of finished goods to Paras Petrofils Ltd. and commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nish name of broker through whom purchase of polyster chips and the name of broker through whom sales of yarn/grey fabric was made. The assessee vide his reply dated 14/3/2014 submitted that for selling of its product, technical services were also expected to be rendered by the agent who orally agreed for such arrangement. The technical services were incidental for procurement of sales order. The Assessing Officer disregarded the submission of assessee and disallowed the entire commission expenses. 10. The assessee further explained that the commission of Rs. 3.24 crore was paid to Paras Petrofils Ltd. @ 5% of sales. The assessee paid commission on yarn and grey fabric sales in pursuance of agreement with the commission agent. The assessee company made huge investment as per main objective of the company and to increase its sale and profitability sought services of Paras Petrofils Ltd. The said company established background and wide network in yarn market since long time and was having wide experience in the line of business. The assessee company approached them to exploit their business network and experience to achieve the goal of increase in the turnover. Due to services pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Sonic Biochem Extractions Ltd., confirmed to have received commission. They furnished all the evidence like bank statement, copy of return of income which clearly suggests the genuineness of commission payment. The Assessing Officer merely on assumption and guesswork concluded that the commission paid by assessee was bogus on various illogical grounds. The Assessing Officer alleged that Sonic Biochem Extractions Ltd. was in the business of pharmaceuticals 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns as the part of business and commercial transaction. The accountant had opened two separate accounts in respect of both the companies in respect of debit transactions and payment receive from them. It was an inadvertent mistake in keeping separate accounts in respect of different transactions and therefore, payments received from these concern were credited in the separate ledger. As a result of wrong treatment, the amount received from them were reflected under the schedule of unsecured loans , whereas substantially the higher amount receivable from them were reflected under thehead sundry debtors. The copy of audit report were furnished. The assessee also furnished the details of debit amount and prayed for deleting the entire addition. 13. On the disallowance of late deposit of ESI and PFcontribution, the assessee submitted that the assessee has made payment of ESI andPF after relevant due date. However, the said amount had been deposited before the end of financial year. The assessee has not retained the amount of ESI/PF contribution, but itself had deposited the same as soon as it came to notice of assessee. As no part and it was retained which could be its deemed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerns M/s. Rashmi Polyfab Pvt Ltd and M/s. Pawan Syntex Pvt Ltd who could have helped the appellant rather than outsider company charging huge commission @ 5%. (xii) The increase in N.P. of current A.Y. was due to reduced finance charges and depreciation. (xiii) The AO rejected the appellant's contention of commission payments proof, TDS deducted on the same by referring to the decision of Hon'ble Supreme Court in the case of Laxminarayan Madanlal Vs CIT 86 ITR 439 wherein it was held that mere existence of an agreement between the assessee and its selling agents or payment of commission does not bind the ITO to hold that the payment was made wholly and exclusively for the purpose of business. It is open to the AO to consider relevant factors and determine whether the commission said to have been paid is properly deductible u/s. 37 of the Act. Before him, the assessee reiterated the similar submission as made before the Assessing officer that the commission was supported by written agreement formed by the parties, payments were made through cheques on making TDS and service tax on such commission. The turnover of assessee was jumped by 241% compare to F.Y. 2008-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition under Section 2(22)(e) of the Act. On the other hand, the assessee has challenged the addition/disallowance on account of delay in payment of employees contribution towards PF and ESI. 18. We have heard the submissions of ld. CIT-DR for the revenue and the learned authorised representative (AR) of the assessee and have gone through the orders of the lower authorities carefully. Ground No. 1 of the revenue s appeal relates to deleting the addition of Rs. 6.39 crores made on account of disallowance of commission expenses. The ld. CIT-DR for the revenue submits that the assessee has paid commission of Rs. 3.24 crores to Paras Petrofils Ltd. and Rs. 3.00 crores to Sonic Biochem Extractions Ltd. The rate of commission was on the higher side. The Assessing Officer made inquiries under Section 133(6) and issued summons under Section 131 of the Act to Paras Petrofils Ltd. The Assessing officer also made inquiries from third parties and made detailed analysis on the details furnished by assessee. The payment made to the parties were unreasonable, excessive particularly when the assessee failed to prove the services rendered by the parties to whom the commissions were mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s practice was to give brokerage at 1 or 2 percent of sales 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 sale invoices as much as the commission with the assessee company was on overall arrangement of creating marketing network and providing guidance for expansion of its turnover and no customer wise services. For commission payment to Sonic Biochem Extractions Ltd., the ld. AR submits that they entered into agreement with the said party. The agreement was furnished to the Assessing Officer. The assessee company had started a new business of manufacturing of yarn and therefore, suppliers were not known to assessee. For the purpose of uninterrupted supply of ram material for continuous production, the assesse availed services of Sonic Biochem Extractions Ltd.. The Assessing Officer made independent inquiry by issuing notice under Section 133(6) of the Act. The Assessing Officer alleged that Sonic Biochem Extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shnan) and marketing staff (Kanubhai Pate) of Paras Petrofils Ltd were not furnished by Mr. Baheti, . The Website- www. Sonicbiochem.co.in of Sonic Biochem Extractions Ltd indicate business domain which did not include raw materials for yarn manufacturing industry. Further Paras Petrofils Ltd was itself in yarn manufacturer and AO doubted as to why such costumer details were not used by Paras for its own sales rather than acting as commission agent. In the agreement with Paras Petrofils Ltd, no reference of certain target turnover was there to justify high commission rate of 5%. Mr Baheti of Paras Petrofils could not produce minutes of board meetings herein the proposal of the appellant for acting as commission agent was discussed. Directors of assessee company was well versed in the field of knitting and grey fabrics manufacturing and had sister concerns M/s. Rashmi Polyfab Pvt Ltd and M/s. Pawan Syntex Pvt Ltd who could have helped the appellant rather than outsider company was paid huge commission @ 5%. 21. We find that the ld CIT(A) deleted the disallowance of commissions payment to both the parties by holding that the conclusion by the Assessing officer is based on mere pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs DCIT (supra) also took view that where the group concern had adequate infrastructure and ability to render marketing and distribution in term of agreement with the assesse as a result of which assessee got business, payment could not be rejected on mere hypothetical basis. Thus, in view of the aforesaid factual and legal position, we affirm the order of ld. CIT(A) with above additional observations. 22. In the result, the ground No. 1 of appeal raised by the revenue is dismissed. 23. In the result, this ground of appeal is dismissed. 24. Grounds No.2 of the revenue s appeal relates to deleting the disallowance under Section 2(22)(e) of the Act. The ld. CIT-DR for the revenue submits that the ld. CIT(A) deleted the addition of Section 2(22)(e) of the Act by simply accepting the submission of assessee. The parties from whom the assessee has received unsecured loans was having more than 10% shareholding with the assessee company. When the assessee was show caused, the assessee took his plea that the accountant has made wrong entry. The stand of assessee was not accepted by the Assessing officer and the amount received from both the concerns were treated as deemed dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated 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. Rashmi Polyfab Pvt. Ltd., is also having more than 10% share in assessee, and granted loan of Rs. 29.00 lacs during the year. The accumulated profit of Rashmi Polyfab Pvt Ltd as on 31/3/2010 was Rs. 3.06 corers and as on 31/03/2010 was of Rs. 3.74 crores, which was much higher than granted by Rashmi Polyfab Pvt. Ltd., therefore, the said loan was also treated as deemed dividend under Section 2(22)(e) of the Act. The Assessing officer made addition of Rs. 82.25 lacs plus 29.00 lacs is equal to Rs. 1,11,25,000/-. We find that nt only before assessing officer, but even before ld CIT(A) the assessee explained 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 and due to inadvertent mistake, it was 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. It was urged that erroneously the said amounts were shown as unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of decision of Hon ble Gujarat High Court in the case of CIT Vs Gujarat State Road Transport Corporation (supra). The ld. AR for the assessee fairly admitted that as on today, this ground of appeal is covered again the assessee. 30. The ld AR for the assessee further submits that the Hon ble Jurisdictional High Court in Salasar Laminates Ltd. vs DCIT in Tax Appeal No.1186 of 2018 dated 01.10.2018 while considering the similar question noted that appeal against the decision of Gujarat High Court in CIT Vs GSRTC is pending before Hon'ble Supreme Court and Special Leave has been granted. The Hon'ble High Court on the prayer of assessee in the said case held that as and when the decision is rendered by Apex Court and in case judgment of High Court is reversed and in case the said appeal is allowed, the assessee may approach the High Court to claim the benefit of the judgment. The ld. AR for the assessee submits that a direction may be given to the ld. CIT(A) or Assessing Officer in case the decision of GSRTC is reversed by Hon'ble Supreme Court, the assessee may be allowed similar relief. The AR for the assessee further submits that on similar ground of appeal, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Apex Court. Accordingly, matter will be decided by the ld. CIT(A) as per provisions of law and direction of the Hon ble Supreme Court of India. Therefore, this ground of appeal is set-aside for statistical purpose. 33. We further find that Hon'ble Jurisdiction High Court in subsequent decision in Salasar Laminates Ltd. vs DCIT (supra), though dismiss that appeal. However it was directed that if the decision of GSRTC VS DCIT (supra) is reversed by Hon'ble Apex Court, the assessee is given opportunity to revive his appeal by filing application for seeking similar relief. 34. Considering the fact that the issue is squarely covered against the assessee as noted above. However, instead of keeping the matter alive, the case was restore to Ld.CIT(A) to give effect to the order of the Tribunal in accordance with the decision of Hon'ble Supreme Court in SLP of Gujarat State Road Transport Corporation(supra), In the result, appeal of the assessee is allowed for statistical purpose. 35. In the final result, the appeal of the assessee is allowed for statistical purpose. Order pronounced on 30/06/2022 in open court and result was placed on notice board. - - TaxTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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