9911796707
TMI Blog1988 (1) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee firm and the aforesaid company on 1st Sept., 1976, a copy whereof is included in the paper book filed by the assessee. Under this agreement, the aforesaid company appointed the assessee firm as their Depot Managers and Sales Officers at the branch office and godown of the company at Calcutta. The assessee firm was entitled to get commission from the company at the rate of 1 per cent of sale price of yarn. According to the assessee, w.e.f. 1st June, 1977, M/s Kothari (Madras) Ltd., agreed to pay commission at the rate of 2 per cent on the sale price of yarn sold by the assessee. 3. The assessee derives income mainly from commission and brokerage. For the asst. yr. 1981-82 the assessee showed receipt of Rs. 5,88,410 from commission business, details whereof are as follows: . Rs. 1. M/s Kothari (Madras) Ltd. 5,67,552.91 2. Anantapur Cotton Mills 15,691.62 3. M/s. Tiripathi Cotton Mills 3,666.06 4. Sree Minakshi Mills 1,500.00 . 5,88,410.59 4. From the details filed by the assessee before the ITO, it appeared that whereas it received commission f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .L. Trivedi the ITO concluded that the assessee paid kick backs to M/s Kothari (Madras) Ltd. at 40 percent of the commission received from that company. 6. According to the assessee, brokerage aggregating to Rs. 2,65,490 was paid to 29 different brokers. The ITO has stated in the assessment order that out of 29 brokers, six were not produced before him. To those six brokers, brokerage aggregating to Rs. 64,850 was said to have been paid. The ITO was of the view that on account of the failure on the part of the assessee to produce those six brokers the onus of providing payment of brokerage could not be discharged. On 20th March, 1984, one Dulal Chakraborty, accountant of one of the brokers, namely, Shankarlal Gupta was examined by the ITO. He also produced a bank pass book which showed a deposit of Rs. 10,123.55 on 5th Aug., 1980. This was the amount of brokerage said to have been paid to Shri Shankarlal Gupta. On the next day, i.e. 21st March, 1984 Shri Shankarlal Gupta appeared before the ITO and denied having any bank account. He further stated that he never knew M/s Kantilal Sons. He also filed a letter containing similar assertions. However, subsequently Shri Shankarlal G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved, the assessee has come up in second appeal before the Tribunal. 8. So, in this appeal we are concerned with the disallowance of Rs. 1,59,406 out of the brokerage said to have been paid by the assessee to different brokers. Shri N.K. Poddar, learned counsel for the assessee stated before us that the assessee firm was appointed by M/s Kothari (Madras) Ltd., as their Depot Agents at Calcutta for sale of cotton yarn manufactured by the said company. It was submitted that the statement of Shri K.L. Trivedi, senior most partner in the assessee firm recorded by the ADI on the date of the search related to a loose sheet recording transactions which took place between February 1982 and June, 1983 from which the ITO concluded that 40 per cent of the commission received by the assessee firm from M/s Kothari (Madras) Ltd. at the rate of 2 per cent of sale price was paid as kick-back to Kotharis. It was submitted that since the said statement as also the loose sheet to which it related was in respect of different period, the ITO was not justified in replying on that statement and that loose sheet of paper in coming to the conclusion that the payments made to brokers were not genuine a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere filed. Notices under s. 131 were issued to all the brokers. It was further submitted that the ITO was wholly unjustified in disbelieving the payment made to six brokers who failed to appear before the ITO. In this connection it was pointed out that the assessee did all that it could do; except two brokers, namely, Tapan Kumar Datta and Nishit Baran Datta both of whom appeared before the ITO, all other brokers are income-tax assessee. Their file numbers were duly supplied to the ITO alongwith their names and addresses. The ITO did not take any further step for securing the attendance of the said six brothers. In support of the contention that the ITO was not justified in disbelieving the assessee's case because of non-appearances of six brokers before him, reliance has been placed on the decision of the Supreme Court in the case of CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC). Shri Poddar then stated that all the 23 brokers who appeared before the ITO and were examined by him supported the assessee's case regarding payments of brokerage to them and that the ITO without any valid reason disbelieved the payments made to them. Shri Poddar then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 20th Dec., 1976. The assessee has filed a copy of the letter dt. 28th Feb., 1977 sent on behalf of M/s Kothari (Madras) Ltd. to the assessee firm agreeing to the request of the assessee for increasing rate of commission from 1 per cent to 2 per cent with an understanding that the assessee would improve upon the performance. A perusal of this letter further goes to show that the assessee sent several reminders to the aforesaid company regarding its request for increasing the rate of commission. The company finally agreed to pay commission at the increased rate of 2 per cent in the hope that it could lead to an increase in the turnover at Calcutta. It is noticeable in this connection that the assessee firm has been carrying on business of cotton yarn for Kothari (Madras) Ltd., since 1957 and so, there is a long standing business link between the two concerns. It is, therefore, not at all surprising that when repeated requests were made on behalf of the assessee, M/s Kothari (Madras) Ltd. agreed to pay commission at the increased rate of 2 per cent. True, the aforesaid agreement did not contain any specific provision for increasing or varying the rate of commission, but the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential addresses of the brokers. He only has business dealings with the brokers and was not expected to be familiar about their personal matters. 14. Shri Dulal Chakraborty, accountant of one of the brokers, namely, Shankarrlal Gupta was examined by the ITO on 20th March, 1984. He supported the assessee's case regarding payment of Rs. 10,123.55 as brokerage to Shankarlal Gupta. He produced the bank pass book which shows that the aforesaid amount was deposited in bank on 5th Aug., 1980. However, on 21st March, 1984, Shri Gupta appeared before the ITO and gave out a different version by stating that he did not know the assessee firm and did not have any bank account. He also stated that he did not receive any brokerage from the assessee. However, subsequently an affidavit was filed before the ITO sworn by Shankarlal Gupta and in that affidavit, he made a sworn statement to the effect that he acted as a broker of the assessee firm and received brokerage amount from the firm. He also owned the bank pass book produced before the ITO by his accountant Dulal Chakraborty. The ITO disbelieved Shankarlal Gupta on the ground that the statement contained in his affidavit was the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese circumstances, the ITO, in our opinion, was not justified in disbelieving the assessee's case that brokerage was not paid to those six brokers. In taking this view, we are supported by the decision of the Supreme Court in the case Orissa Corporation (P) Ltd. 16. The ITO seems to have drawn an adverse inference against the assessee from the fact that some of the brokers withdrew the amounts from their respective bank accounts soon after the amount of brokerage paid to them had been deposited in their bank accounts. None of the brokers has stated that after receipt of brokerage, he paid back any amount either to the assessee or to M/s Kothari (Madras) Ltd. The mere fact that some of the brokers withdrew the amounts from their bank accounts soon after deposits had been made by them cannot legitimately lead to the conclusion that the amounts given to them by way of brokerage were received back by the assessee or were paid to Kotharis. 17. The story of payment of kick-back by the assessee to Kotharis has been disbelieved even by the CIT(A) and in support of this story, no evidence worth-the-name could be brought on record by the ITO. His finding on the point is based on suspic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout the consent of other partners in contravention of cl. 8 of the partnership deed. The ITO then referred to cl. 18 of the partnership deed which provided that all the partners shall diligently attend to the business of the firm either in person or through a duly authorised representative. The ITO noted that one of the partners, Shri D.K. Trivedi was a whole-time employee of M/s Usha Martine Black and later on he became an employee of M/s TELCO, Jamshedpur and that Shri R.K. Trivedi, one of the partners, lived at Bombay and looked after the factory of M/s Rishi Plastics, a sister concern. According to the ITO, these two partners were not devoting their energy diligently to the business of the firm. The ITO further found that the assessee's books were not properly maintained and they do not show the real state of affairs. For these reasons, the ITO by means of his order dt. 10th Dec., 1984 passed under s. 186(1) cancelled the registration granted to the firm and also refused to allow continuation of registration under s. 184(7) for the asst. yr. 1981-82. 20. The assessee appealed to the CIT(A) who upheld the ITO's action holding that a genuine firm did not exist. 21. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the firm is not sufficient to hold that firm is not genuine. 24. The partners made drawings in excess of the limits prescribed in cl. 8. The ITO was of the view that since the excess withdrawals have been made without consent of all the partners, there was violation of cl. 8 and hence, there was no genuine firm. From the fact that partners have over-drawn, it cannot be inferred that no genuine firm was in existence at the relevant time. In taking this view, we are supported by the decision of the Orissa High Court in the case of Jammula Venkataswamy and Sons. The ITO was also not justified in cancelling the registration on the ground that the accounts were not properly maintained and that they do not reveal the real state affairs. We are clearly of the view that there was no justification for the lower authorities to hold that a genuine firm was not in existence. 25. In view of what has been said above, we cancel the impugned order of the ITO cancelling the registration granted to the assessee firm and direct the ITO to allow continuation registration of the assessee firm for the asst. yr. 1981-82. 26. In view of what has been said above, both the appeals sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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