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TMI Blog2023 (3) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms of the said agreement which is a matter inter se between the two parties as to whether there is a breach of terms and condition of the agreement entered into, so long as the same is not considered as a breach of law of the land, what is relevant to consider is the factum of actual rendering of services by these three related entities and the corresponding payments made by the assessee and I find that there is no findings recorded by the lower authorities challenging the factum of rendering of services by these entities. All documentation are on record in terms of the copies of the agreement entered into, the invoices raised, the payments made through the banking channel, TDS done while making the payment, filing of the TDS returns and also the fact that the related entities have confirmed the same in their communication to the AO and have also the fact that they have offered the same in their respective tax returns. None of these documentation have been questioned by the lower authorities. Quantum of commission paid to these entities is concerned, the assessee has reasonably demonstrated before the lower authorities through third party data that these are comparable transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selected for complete scrutiny to verify business expenses compare to large commission receipts. Accordingly, notice under section 143(2) and 142(1) were issued. After calling for information and explanation from the assessee, the AO made an addition of Rs. 27,50,000/- by disallowing the whole of the commission expenses claimed by the assessee as paid to M/s. United Pest Management, M/s. Mahadev Industries and M/s. A.K. Associates and the relevant findings read as under: "Commission Expense incurred to the above 3 entities: On verification of the copy of the agreements entered into by the assessee with these parties namely and their Profit And Loss Accounts, it is clearly seen that the assessee had earned commission income not from sales or supply of any material. Rather, such earning was for only and only for the services executed for and on behalf of the parties, from whom it had earned commission income i.e. Sumitomo & UPL. The assessee appears to have acted as an agent in liaising and procuring sales for these two Cos. It is also seen that all the above three entities have furnished the details of sale showing the amount mentioned by the assessee as sale and not as co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lient New Malwa Sales Corp. showing sales of total amount of Rs. 10,00,538/-. M/s. Mahadev industries also submitted the invoice number 2017-18/0010 dated 14.01.2018 showing the commission against ULALA sales amounting to Rs. 10,00,538/-. It also reported that, on perusal of the acknowledgement of ITR of M/s. Mahadev Industries for A.Y. 2018-19. it is noticed that Shri Nikhil Singh Arora (Prop of M/s. Mahadev Industries) is son of the assessee Shri Gagan Singh Arora, therefore said expenses of Rs. 10,00,000/- paid are hereby disallowed from the business income of the assessee. On verification of commission paid to A.K. Associates (Prop. Akhil Singh Arora), a copy of agreement dated 22.09.2017 with New Malwa Sales Corp which was not complete and not legible, based upon the agreement with other sister concerns viz: Mahadev industries showing the rate of commission @2.5%(upto 10 MT) and 3% (greater than 10MT), the rate of commission may be estimated at the same percentage. In this regard the assessee accepted that the said firm is related party but all the payments are at comparable prices in the market and all payments are at arm's length. However, considering the fact of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The United Pest Management Services, M/s. Mahadev Industries and M/s. A.K. Associates are belonging to Shri Nikhil Singh Arora and Akhil Singh Arora who are sons of the appellant. During the course of assessment proceedings, the appellant accepted that the said firms are related parties but all the payments are at comparable prices in the market and all payments are at arm's length. 4.3 In this instant case the main issue picked up for scrutiny under CASS, to examine low income compare to large commission receipts. Further, as seen from the facts emanating from the details gathered by the AO and explanation offered by the appellant during the course of appellate proceedings, the appellant is not able to substantiate his claim of payment of commission and had not substantiated/supported by material evidence. Further, during the course of proceedings, appellant did not filed any supporting evidence i.e. Commission paid through banking channel, any TDS deducted on the commission paid and filed only one case law which has different facts and circumstances. 4.4 However, in the instant case, as explained elsewhere in this order, the appellant has miserably failed to discharge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Facts of the case are that the assessee is engaged in the business of Trading and liaison agent on Commission basis for Agent Chemicals, Pesticides and other crop protection product. He conducts his business as a proprietary concern in the name of M/s. New Malwa Sales Corporation. 2.1. For the purpose of earning commission he had entered into Liaison Agreement with two concerns namely:-i) Sumitomo Chemical Pvt. Ltd. & ii). UPL Limited and had earned Rs. 7,18,474/- and Rs. 84,15,603/- respectively from each Company. The total commission earned being Rs. 91,34,007/-. The respective agreements are placed at Page 84 & 90 of the Paper Book. 2.2. The area of operation as per the agreement was to procure orders form the whole of state of Punjab. However, as he was suffering from Angina problem, in 2017 and had under gone bye pass surgery in 2019, he assigned part of the territory to three different concern, which belonged to his sons namely:-S. Nikhil Singh & S. Akhil Singh and parted with commission of Rs. 27,50,000/- as per the following table. S. No Name Prop Commission Area 1. United Pest Mg. Services Partnership Concern Rs. 7,50,000/- District Amritsar 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lwa Sales Corporation only. The Agreement with the other party i.e. Sumitomo Chemical India Pvt. Ltd. silent on this aspect. Reliance placed on the case of DCIT Vs. M/s. Ganges International Pvt. Ltd. B-36, Lawrence Road, Industrial Area, New Delhi 110035 Date of Pronouncement 09-04-2021 ITA No. 3370/chny/2019 A.Y. 2016-17" 6. Per contra, the Ld. DR submitted that firstly, these commission payments have been paid to related parties and the assessee has not submitted any satisfactory justification for making these payments to the related parties. Secondly, it was submitted that these payments are not even authorized in terms of initial agency agreements entered into by the assessee and in absence thereof, the assessee cannot appoint sub-agent. It was further submitted that the Ld. CIT(A) has taken the said findings of the AO into consideration and has held that even during the appellate proceedings, the assessee couldn't substantiate his claim of payment of commission by filing any supporting evidence in terms of whether commission paid through banking channel, whether any TDS done on such payments or not and therefore couldn't provide sufficient evidence and proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ume because our commission directly linked to the sales quantity volume. The appointed firm have to demonstrate the product to the farmers who actually consumed such products i.e. ULALA and the commission based on such performance. Further the said firm is related party but all the payments are at comparable prices in the market. I can say all the payments are at arm's length. 2. Commission paid to M/S. Mahadev Industries on the basis of service provided by such firm in a particular area to the state of Punjab purpose for appoint to maximize the sales volume because our commission directly linked to the sales quantity volume. The appointed firm have to demonstrate the product to the fanners who actually consumed such products i.e. ULALA and the commission based on such performance. Further the said firm is related party but all the payments are at comparable prices in the market. 1 can say all the payments are at arm's length. 3. Commission paid to M/S. A.K. Associates on the basis of service provided by such firm in a particular area to the state of Punjab purpose for appoint to maximize the sales volume because our commission directly linked to the sales quantity volu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd similarly Shri Akhil Singh, another son of the assessee is the proprietor of M/s. A.K. Association. It therefore appears that the AO was guided by the fact that since the payment have been made to related parties and the assessee has not furnished any satisfactory justification for payment to related parties, the same has been disallowed. Further, the AO was also guided by the fact that the initial agreement entered into by the assessee with M/s. UPL Ltd. does not allow any appointment of sub-agent by the assessee. Further on perusal of the order passed by the Ld. CIT(A), he has stated that the assessee has not filed any supporting evidence as to whether the commission has been paid through banking channel or whether any TDS has been deducted thereof and he therefore has gone ahead and confirmed the findings of the AO. 11. As far as the matter as to whether the initial agreement entered into between the assessee and M/s. UPL allows the appointment of sub agent or not, in our view, irrespective of the terms of the said agreement which is a matter inter se between the two parties as to whether there is a breach of terms and condition of the agreement entered into, so long as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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