Income Tax Appellate Tribunal - Chandigarh
Sh. Raj Kumar Wadhwa,, Patiala vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.697/Chd/2009
Assessment Year: 2006-07
The AC IT, Vs. Shri Raj Kumar Wadhwa,
Circle, Patiala. Prop. Lucky Traders,
Patiala
PAN No. AABPW6062H
(Appellant) (Respondent)
&
ITA No.741/Chd/2009
Assessment Year: 2006-07
Shri Raj Kumar Wadhwa, Vs. The AC IT,
Prop. Lucky Traders, Circle, Patiala
Patiala
PAN No. AABPW6062H
Appellant By : Smt J aishree Sharma
Respondent By: Shri Pankaj Jain / Shri D.K.Goyal
ORDER
PER SUSHMA CHOWLA, JM
Both the appeals of the Revenue and assessee are against the order of C IT(A), Patiala dated 30.4.2009 relating to assessment year 2006-07 against the order passed under section 143(3) of the Act.
2. The Revenue has raised the following grounds of appeal:- 2
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.
41,14,518/- claimed as liaisoning commission, ignoring the fact that both the assessee as also so called sub-agents had failed to prove that the sub agents had rendered any service to the assessee.
2. In the facts and circumstances of the case, the Ld. CIT(A) has further erred in deleting the above addition without appreciating the fact that alleged appointment of sub agents by the assessee was in violation of the agreement that existed between the assessee and his principal i.e. M/s Sarvashaktiman Traders Pvt Ltd.
3. In the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the above disallowance is also covered by Hon'ble jurisdictional High Court's decision in the case of M/s Emson Tools Manufacture Corpn. Ltd v CIT reported in (2006) 296 ITR 304(P &H).
3. The assessee in its appeal has raised the following ground of appeal:-
"On the facts and circumstance, the Ld. CIT(A) has erred in sustaining the addition of Rs. 3,02,690/-, wrongly and illegally made by the Assessing Officer under section 69C of the Income Tax Act, 1961, allegedly for unexplained household expenses.
4. Both the appeals relating to the same assessee were heard together and are being disposed off by this consolidated order for the sake of convenience.
5. Brief facts of the case are that the assessee was a cement stockiest and was acting as handling cum sales promoter of M/s J.K. Cement Works. The assessee was also providing liaison services against which the assessee was receiving liaison commission from M/s Sarv Shaktiman Traders Pvt Ltd., New Delhi for soliciting the products of the Company to the government and semi-government organizations and institutional 3 buyers. The assessee during the year under consideration had received commission of Rs. 55.86 lacs against which the assessee claimed to have paid commission to the sub agents on account of liasioning amounting to Rs. 41.14 lacs. During the course of assessment proceedings the assessee was asked to explain the nature of the payments and the identit y of the persons to whom the payments on account of laisoinng expenses were made. The part y wise list of commission paid is incorporated at pages 4 & 5 of the assessment order. The plea of the assessee was that the said payments were made after deduction of service tax and TDS. The Assessing Officer requisitioned the assessee to produce the said persons. Even summons were issued u/s 131 of the Income Tax Act, 1961 but none of the said persons / concern complied with the notices u/s 131 of the Act. In respect of two concerns i.e. M/s Rajasthani Engineering Works and M/s S.K. Wooltex, the letters were returned back. The Assessing Officer also issued penalt y notice to all the parties for non compliance of the notices u/s 131 of the Income Tax Act, 1961. Meanwhile Shri Rajeesh Garg, partner of M/s Punjab Engineering Works and sole proprietor of M/s Rajneesh Kumar who had received commission of Rs. 14.28 lacs and Rs. 2.50 lacs respectively, appeared before the Assessing Officer on 1.12.2008 and his statement was recorded. The copy of the said statement is enclosed as annexure 1 to the assessment order. The Assessing Officer anal yzed the statement of Shri Rajneesh Garg and observed as under:-
a) Shri Rajneesh Garg or his concern had never acted previousl y as liaison agent for Cement.
b) The firm M/s Punjab Engineering Works was engaged in the business of manufacture of iron and steel and sale and purchase of iron scrap.4
c) Shri Rajneesh Garg had entered into an agreement with the assessee that his firm would be responsible for collection of payments as well as settling of disputes.
d) When questioned, in repl y, Shri Rajneesh Garg stated that he had no evidence of how much collection he had made as he was not doing any collection work directl y, as the purchasing agency directl y sent the drafts to M/s J.K. Cements. He was unable to tell the name of any agency or department in which he was instrumental to effect any such collection.
e) The Assessing Officer asked as to how many disputes regarding suppl y of payment arose and were settled by him. In repl y it was submitted by him that neither any dispute arose nor was settled. Further, he had no evidence of collection of payments made on behalf of the assessee. With regard to the raising and settlement of bills and receiving payment in March 2006, it was explained by Shri Rajneeh Garg that the same was settled at the end of the year.
f) The bills raised by M/s Punjab Engineering Works revealed that all the bills were raised in the month of March, 2006 though the services were claimed to have been rendered through out the year. Further, the said bills pertained to the supplies made to various government authorities but details regarding name, address, place and quantit y of cement supplied have not been mentioned. The bill simpl y mentions the gross quantit y of the cement supplied to various government authorities.
g) The said part y as per Assessing Officer failed to produce any evidence of having done any work for M/s Luck y Traders, Sole Proprietary concern of the assessee, apart from the copies of bills raised.5
6. The Assessing Officer noted that the bills of commission charged by M/s Sham Lal Rajneesh Kumar of which Shri Rajneesh Garg was the Proprietor, do not contain any details about the commodit y, quantit y, rate of commission charged and place where the supplies were made. The gross amount of commission charged amounting to Rs. 2,50,000/- is mentioned on the said bill raised by M/s Sham Lal Rajneesh Kumar.
7. The statement of Shri John Jacob, partner of M/s Rajasthani Engineering works was recorded on 22.12.2008 wherein he stated that he never made any transaction in person with M/s Lucky Traders and there was no written contract with M/s Lucky Traders. The said part y when enquired of any evidence of having rendered services to the assessee, denied to have any such evidence. Bill of commission of Rs. 76,46,947/- was raised and quantified at the end of the year and the bill was not raised on accrual basis. The bills suffered from the same infirmit y as in the case of the firm of which Shri Rajneesh Garg was the partner. The Assessing Officer found that though the said concern was rendering services to the assessee throughout the year, the bill of commission of Rs. 7,46,947/- was raised by the said part y onl y on 31.3.2006, despite the firm maintaining its account on mercantile basis.
8. The Assessing Officer also recorded the statement of Shri S.K. Chhabra, Prop. M/s S.K. Wooltex u/s 131 of the Act, to whom commission of Rs. 9,67,217/- was paid. The infirmit y found in the statements are enlisted by the Assessing Officer at pages 14 to 16 of the assessment order and the said part y failed to furnish any evidence to substantiate that it had in essence rendered any services to the assessee except for furnishing one 6 bill raised on 11.2.2006. There was no written agreement between the parties, though the assessee claimed to have entered into an agreement with M/s S.K.Wooltex, but was unable to produce the same. The said person could not explain the exact nature of services of the concern, for which liaisoning commission was paid.
9. The Assessing Officer further noted the assessee to have received commission on account of liaisoning at the rate of Rs. 25/- PMT from M/s Saravshaktiman Traders Pvt Ltd (M/s S.S.T.P.L), the chief stockiest of J.K. Cement against which the assessee had claimed to have paid commission at the rate of Rs. 20 PMT to M/s Punjab Engineering Works and others despite the fact that as per clause 9 of the agreement placed at annexure II with the assessment order, the work of liasoning would not be assigned or charged or mortgaged by the assessee in favour of any other part y. The conclusion of the Ld. Assessing Officer was that the assessee had alleged to have paid the commission to the concerns who had either closed down their regular business or their income was nominal. The Assessing Officer observed that 80% of the commission received had been paid by the assessee for the services, the nature of which was not known. The commission was held to be have been paid to evade correct tax liabilit y. The genuineness of the transactions of payment of commission by the assessee being made wholl y and exclusivel y for the purpose of the business of the assessee not being established, the Assessing Officer disallowed the same. Reliance was placed on Emson Tools Manufacture Corporation Ltd Vs. CIT [296 ITR 304(P&H)
10. The CIT(A) held as under:-
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4. I have gone through the rival submissions and documents placed on record. I am of the firm view that there is no doubt about the existence of assessee's agreement with his principals M/s Saravshaktiman Traders Private Limited to provide liaison services to the principals. In connection with supply to Govt., Semi-Govt. and Institutional buyers and the appellant has his won establishment with other related infrastructure at Patiala, Bhatinda & Rajpura station only and he has no permanent establishment for the liaison services undertaken in the state of Haryana. The assessing officer has failed to point out any thing adverse to find out and defect in agreement or services to be provided as per agreement and he himself admitted the existence of agreement with principals with appellant & appellant with his sub-agents and said sub-agents in the statement recorded before AO has admitted the receipt of payments from Appellant for services rendered on his behalf and quantification of services as well as type of services provided by them to the appellant and it is also pertinent to mention that all the payment has made to liaison agents by appellant by account payee cheques and Tax deductions at source has been deducted properly also on all the commission payments, proper Service Tax has levied and paid as per evidence submitted by the appellant in support of his contention.
5. The appellant has provided proper details to AO regarding payment of amount to his agents with services provide during the assessment proceedings and AO never converted by the AO.
And AO finding regarding short comings is just procedural in nature and not of substance which lead to disallowance of expenditure incurred.
Further AO's finding that the appellant has passed high volume of commission to his sub agents is without any basis and totally unwarranted as the action of a businessman to spend any expenditure in guided by various factors such as business exigency, lack of in house support, future growth and business development, overall profit after meeting all the expenditure etc. hence businessman has to done his business independently and without any advice from other person not connected with his business. Hence AO is no person to advice the appellant to suggest the ways to make expenses and to conduct his business.
6. The A.O. has observed that appointment of subagents/service providers has made in violation of appellant agreement with his principal is not correct as there is no clause in the agreement 8 placed on record which forbids the engagement of any other persons by appellant further the agreement with principals provide for termination of agreement in case of violation by either party and such agreement remain in fact also support the view point of the appellant that the subagent appointment is not violation to the agreement with principles and the AO has failed to submit anything contrary to this or in support of his contention. It is also worth mentioning that the appellant claim in immediate preceding years on the same grounds has never been challenged and accepted as it is in the assessment made under section 143(3). The AO has nothing to state that question the genuineness of transaction, identity of parties to the agreement further as the payment has made through a proper banking channel after deduction of TDS and all recipient are Income Tax Assessee and duly charge & deposit service tax on the services providers by them to the appellant so the addition so made is unwarranted and can not be sustained therefore is deleted. I decide the ground of appeal against the revenue and in favour of the appellant."
11. The Revenue is in appeal against the order of C IT(A) in deleting the addition of Rs. 41.14 lacs.
12. The Ld. DR for the Revenue rel ying on the order of Assessing Officer pointed out that the dispute was with regard to the kind of services rendered by the said parties. The Ld. DR further pointed out that the CIT(A) rel ying on paper evidence had nowhere controverted the findings of Assessing Officer, which in the present case were that no services were rendered by the aforesaid parties to whom commission is claimed to have been paid. Our attention was elaboratel y drawn to the findings of the Assessing Officer in respect of each party to whom commission is alleged to have paid. It was further pointed out by Ld. DR that the CIT(A) had allowed the claim of assessee merel y because of payments made to parties. The Ld. AR for the assessee pointed out that the assessee had 9 appointed sub agents as per the agreement placed at page 102 of the paper book. He further stated that the terms of the agreement are not disputed and the said agreement is enforceable in law. The Ld. AR further submitted that no doubts were raised by the Assessing Officer and the same cannot be challenged and hence no question of any disallowance. In any case, the Assessing Officer before making the disallowance had not confronted the assessee with the same. The Ld. AR further drew our attention to the details of commission furnished at page 9 of the paper book and pointed out that the further details included agreement/s with sub agents for providing liasoning services. The next plea of the Ld. AR was that the Assessing Officer while completing the assessment for assessment year 2005-06 allowed similar claim of the assessee. A reference was made the copy of the order u/s 143(3) of the Act placed at pages 83 and 84 of the paper book. In respect of the reliance by the Assessing Officer on Amson Tools Manufacture Corporation Ltd Vs. CIT (296 ITR 30)(P&H)], the Ld. AR pointed out that the said proposition is not strictly applicable to the assessee as it deals with a case of commission being paid to persons having negligible income and there being no written contract. The Ld. AR was of the view that under the provisions of section 37 of the Act, any expenditure incurred for the purposes of business is an allowable expenditure. It was further pointed out that in the present case there is no finding that the expenditure incurred is a capital expenditure and further it has not been laid for the purpose of business. Further, it was pointed out that the parties have confirmed to the receipts of payments and in the absence of any cross verification there is no merit in the said disallowance. The Ld. AR further pointed out that in the succeeding year similar payment to same parties was allowed as a deduction vide order passed u/s 143(1) of the Act.
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13. We have heard the rival contentions and perused the records. The assessee during the year under consideration had claimed expenditure of Rs. 41.14 lacs on account of liason charges paid. The assessee was carrying on commission business of handling cum sales promotion for M/s J.K. Cement Works. In addition, the assessee was earning liason commission from M/s SSTPL for soliciting products of M/s J.K. Cement Works to the Government and semi government organizations and institutional buyers. During the year under consideration, the assessee had received total commission of Rs. 55,86,869/- against which the payment to sub agents was claimed at Rs. 41,14,518/-. The assessee claims to have made the said payments to the under mentioned parties as detailed at page 9 of the paper book, which are as under:-
Name of the party Inv.No Date Liason Area
amount of (Distt. Wise)
commission
(in Rs.)
S.K. Wooltex, 643 11.02.06 8,87,693/- Bhiwani, HIssar
Panipat & Rohtak
Shyam Lal Rajneesh 1 13.03.06 2,50,000/- Rewari,
Kumar, Kaithal Faridabad,
Gurgaon, Jind,
Mohindergarh,
Sirsa, Sonepat,
Panipat, Kaithal
Tek Chand Shyam 195 13.3.06 3,50,000/- Rewari,
Lal, Faridabad,
Kaithal Gurgaon, Jind,
Mohindergarh,
Sirsa, Sonepat,
Panipat, Kaithal
Punjab Engg. Works, 81 20.03.06 14,28,891/- Rewari,
Distt. Faridabad,
Patiala Gurgaon, Jind,
Mohindergarh,
Sirsa, Sonepat,
Panipat, Kaithal
Punjab Engg. Works, 88 30.03.06 4,60,987/- Rewari,
11
Distt. Patiala Faridabad,
Gurgaon, Jind,
Mohindergarh,
Sirsa, Sonepat,
Panipat, Kaithal
Rajasthani Engg. 88 31.03.06 7,46,9547/- Rewari,
Works, Faridabad,
Rajgarh Gurgaon, Jind,
Mohindergarh,
Sirsa, Sonepat,
Panipat, Kaithal
41,14,518/-
14. The claim of the assessee is that it had entered into an agreement with M/s SSTP L for providing services of a service agent. The copy of agreement dated 18.5.2005 is placed at pages 6 & 7 of the paper book. As per the terms of said agreement, the assessee was appointed as service agent for suppl y of material to Director Supplies and Disposals (DS&D). The said agreement was executed on 18.5.2005 and was valid upto 31.3.2006. As per clause (2), it was agreed upon that M/s SSTPL would suppl y quantit y on the recommendation of the assessee and as per clause (3), the bills were to be submitted to the authorities in time and payment against the same was to be received within stipulated period. For the above said services, commission as negotiated, subject to maturit y of contract with DS&D was to be paid to the assessee, as per Clause (8) of the agreement. As per Clause (9) of the agreement, it was agreed upon "this agreement shall not be assigned or charged or mortgaged by you in favour of any other party". M/s SSTPL vide letter dated 30.5.2005 confirmed that the commission on all the supplies to the department shall be made @ Rs. 25 PMT. A copy of the said letter is placed at page 109 of the paper book.
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15. In respect of the commission paid to various entities, the assessee confirms to have allotted the areas for liasoning to the sister concern of M/s Punjab Engineering Works (M/s PEW), Shergarh. The assessee claims to have entered into a mutual understanding with M/s PEW through its partners Shri Rajneesh Garg vide letter dated 8.4.2005 placed at page 1 of the paper book. As per the said understanding, M/s PEW was responsible for collection of payments and in case of any disputes raised in the government department due to supplies, the same would be settled by M/s PEW. However, M/s PEW was also allowed to liason in the name of his firm as well as sister concern / famil y firm name. The agreed liason commission was @ Rs. 20 PMT for the period. At pages 2 & 3 of the paper book are placed communications between the assessee and M/s PEW dated 1.4.2005 and 5.4.2005. During the course of assessment proceedings, the Assessing Officer issued summons u/s 133 (6) to various parties to whom commission was paid. The assessee has enclosed the copies of the summons issued to various parties along with copies of invoice raised by each part y, copy of account of the assessee in the respective books of account of the said part y/s and in some cases, bank statements of the respective parties. The copies of the abovesaid communications are placed at pages 10 to 52 of the paper book. The perusal of the bill raised by M/s S.K. Woltex at page 13 reveals that the liaisoning charges are charged against order No. 23 dated 12.7.2004 of DS&D, Haryana. The total commission excluding service tax was Rs. 8,77,693/-. The quantit y supplied has been mentioned in the said invoice, however, the bill wise and date wise details of quantit y supplied has not been furnished on record as admitted by the parties u/s 131 / 133(6) of the Act. One bill was raised at the close of the year in respect of total service charges to be received. The second part y to whom service 13 charges has been paid is M/s Sham Lal Rajneesh Kumar and the copy of the invoice is placed at page 18 of the paper book. However, the said invoice does not detail the quantit y or the items against which the commission has been paid. The total commission paid to the said part y was Rs. 2,50,000/-. Similarl y, the bill of M/s Tek Chand Shyam Lal of Rs. 3,50,000/- is placed at page 25 of the paper book and the said invoice do not detail the quantit y supplied or the parties to whom the supplies were made. The invoice raised by M/s PEW are placed at pages 37 & 38 of the paper book in which it has been mentioned that commission is charged on supplies made to DS&D, Haryana at various stations and the total quantit y supplied is also mentioned. The first invoice No. 81 dated 20.3.2006 is for a total consideration of Rs. 14,28,891/- and the second invoice No. 88 dated 30.3.2006 is for a consideration of Rs. 4,60,987/-. The two invoices are placed at pages 37 & 38 of the paper book. The commission of Rs. 7,46,947/- has been paid to M/s Rajashanti Engg. Works and the copy of the invoice is placed at page 47 of the paper book. The invoice No. 88 dated 31.3.2006 is in respect of commission charged on supplies to DS&D, Haryana at various stations. The assessable value is mentioned in the said invoice, however, no part y wise and date wise details of the supplies made have been given by the assessee.
16. During the course of assessment proceedings, the assessee vide letter dated 12.9.2008 placed at pages 53 & 54 of the paper book, brought to the notice of the Assessing Officer that the assessee was providing liaisoning services to M/s SSTPL, New Delhi by soliciting the products of the company. It was further clarified that the bills for such services are raised on monthl y basis. However, the payment thereof, are received very late, obviously on the completion of the related transactions of supply at 14 the end of the company concern and payments are received from the purchasers concerned. The details of month wise bills raised by the assessee were claimed to have been already filed. The assessee furnished a chart showing the amount actuall y received which reflected the assessee not to have received the payments on monthl y basis and a sum of Rs. 15,83,538/- due on 31.3.2006, was received in May 2006 and Jul y 2006 onl y. The payments in relation to the expenditure incurred were claimed to have been cleared by 31.3.2006. The chart showing the receipts / payments in respect of liaisoning services for the period concerned is placed page 55 of the paper book under which the expenses in connection with liaisoning were paid by 31.3.2006 as against the receipts not being received up to 31.3.2006. The assessee has also furnished on record the copies of account of the respective parties which reflect the payments vide cheques to the said parties on various dates upto 31.3.2006. The respective parties have furnished on record the copies of bank statement reflecting the receipts of the said amount. During the course of assessment proceedings, the Assessing Officer recorded statements of the various persons to whom the said liason commission has been paid, which have been referred to by us in the paras hereinabove. The said parties though admit to have received the payments but have failed to furnish the details of names, address, places of the parties and quantit y of the cement supplied date wise and part y wise, during the year. The bills reflect the quantit y supplied during the year (consolidated ) in respect of the some of the parties, but the details about the commodit y, quantit y, rate of commission charged and places of supplies are missing from the said bills. The main concern M/s PEW has not maintained the day to day record of liaisoning commission. The said parties have failed to bring on record any documentary evidence of rendering the services 15 except for the copies of bills raised and copies of the account of the assessee in their books of account. When confronted, Shri Rajneesh Garg, partner of M/s PEW confirmed that he was carrying on the business of manufacturing iron and steel and sale and purchase of iron scrap. He further confirms that he had entered in an agreement with the assessee where he would be responsible for collection of payments and settlement of disputes. When confronted as to the quantum of collection made and disputes settled, he deposes that purchasers used to send money directl y to M/s J.K. Cement and no dispute arose in the territory. The partner of M/s Rajasthani Engineering Works when confronted, stated not to have entered into any transactions in person with the assessee and that his firm had no written contract with the assessee. He also failed to bring on record any evidence of rendering the services to the assessee except for raising the bills of commission receivable at the end of the year. However, the said firm did not produce the books of account regarding its business with the assessee. The statement of Shri S.K.Chhabra, Proprietor of M/s S.K. Woltex was also recorded. He could not explain the nature of services rendered and nor any basis for raising the bills of service charges could be explained.
17. In the facts and circumstances of the case before us, the role of the assessee vis-a-vis services to be provided to M/s SSTP L Ltd was to get the orders from the government and semi-government organization and other institutional buyers and to ensure timel y schedule for supplies and timel y payments against such supplies. The said services were being provided by the assessee to M/s SSTPL against which it was entitled to liason commission as per the agreement entered into between parties. The assessee admittedl y was maintaining offices in Patiala and Bhatinda and 16 his employees were looking after activities in the State of Punjab. Further claim of the assessee was for providing the services in the State of Haryana, the assessee engaged service providers and sub agents for the said purpose. The assessee had received commission @ 25 PMT for rendering services to M/s SSTPL and in turn the assessee alleges to havae paid liason commission @ Rs. 20 PMT to the service providers. The issue raised before us is in respect of the aforesaid payments being made to the service providers. The assessee while making the payments admittedl y had deducted TDS and Service Tax as applicable and its claim was that similar payments were being allowed in the earlier years. The assessee had furnished on record a chart relating to the liason commission paid for the financial years 2003-04 to 2006-07. From the perusal of the said chart, we find that in the earlier years, the said liason commission was being paid to the parties other than M/s PEW, M/s Rajneesh Engineering Works and M/s S.K. Woltex. The assessee during the year under appeal i.e. financial year 2005-06 had also paid commission to M/s Tek Chand Sham Lal and M/s Sham Lal Rajneesh Kumar, to whom commission was paid in the financial year 2003-04 also. The allowabilit y of commission in assessment year 2005-06 has no bearing as the parties are different. In the succeeding year i.e. financial year 2006-07, commission has been paid to the parties as in the financial year 2005-06. The stand of the assessee that similar payments have been allowed in the succeeding years has no bearing to the allowablilit y of claim during the year as no investigation was made in the succeeding year and onl y intimation was issued u/s 143(1) of the Act. The basis for disallowing the commission is the investigation carried out by the Assessing Officer and the statement recorded of the various persons to whom the aforesaid commission is claimed to have been paid. In the said statement recorded, 17 none of the parties have been able to justifiabl y explain the nature and services offered by them entitling them to the receipt of the commission. Even the details of services rendered party-wise on which commission was due could not be forwarded by the said parties. In the entiret y of facts and circumstances of the case, where the assessee has failed to explain with evidence the nature of services being rendered by the sub agents, disentitles it to the claim of deduction on account of the service charges. Merel y because certain bills have been raised and payments against the same have been released by the assessee, does not entitle the assessee to claim of deduction on account of said expenditure, in the absence of the assessee establishing that the said expenditure had been laid down wholl y and exclusivel y for the purpose of business of the assessee. The said parties had failed to bring on record the exact nature of services rendered and even the quantitative details of the services vis-a-vis, date wise and part y wise details to whom supplies were made on behalf of the assessee were not furnished, except for raising a consolidated bill at the end of the year. The acceptance of allowablility of the said expenditure in the succeeding year vide intimation issued us/ 143(1) of the Act as against the evidence and material collected by the Assessing Officer during the year, does not establish the claim of the assessee in respect of the allowablilit y of the said expenditure. Further, we find that the alleged agreement with M/s PEW was entered into by the assessee on 8.4.2005 whereas the assessee was appointed as service agent by M/s SSTPL vide appointment letter dated 18.5.2005. Even the said appointment letter debarred the assessee from assigning the agreement with M/s SSTPL in favour of any other part y. In the totalit y of facts and circumstances, we find no merit in the order of the C IT(A) in allowing the claim of the assessee on the basis 18 of existence of agreement with one of the sub agents and admission of receipts of payments by the parties.
18. In the year under appeal, the Assessing Officer has recorded the statements of Shri Rajneesh Garg in connection with Sham Lal Rajneesh Kumar and Tek Chand Sham Lal which admittedl y are the sister concern of M/s PEW and in his statement the said persons had failed to establish its case of rendering the services to the assessee. Shri Rajneesh Garg in his statement admitted to have been carrying on the business of manufacture of iron and steel and sale of iron scrap and has completel y denied his carrying on any business in the field of cement. When questioned about the nature of services provided, he replied that he was collecting the payments on behalf of the assessee, but in reply to another question it was explained by him that the payments in connection with the supplies were directly made by the parties to M/s J.K.Cement Works. The Assessing Officer also put to him to give the details of dispute/s settled against which he was paid commission, if any, and in his reply he stated not to have settled any disputes. The said statement of Shri Rajneesh Garg was given on behalf of M/s PEW and other concerns. Further, statement of Shri S.K. Chhabra of M/s S.K. Woltex was also recorded and he admits to have received the commission in respect of a specific order and related to a period prior to the year under consideration. The copy of bill of M/s S.K.Wooltex placed at page 13 reflects the liason charges being made against order No. 23 dated 12.7.2004 whereas the bill raised is dated 11.2.2006. In respect of M/s Sham Lal Rajneesh Kumar, and Tek Chand Sham Lal, the consolidated service charges has been raised and in the absence of the details of services rendered by them, we find no merit in allowing the claim of the assessee for the year under consideration, 19 even though the assessee claims in the earlier year payments to the said parties were allowed. Further, the said parties were produced by the assessee before the Assessing Officer and there is no merit in the contention of the assessee that the Assessing Officer has failed to confront the assessee with his findings, based on the statements recorded, before making the aforesaid disallowance.
19. The second aspect of the issue is the assessee making payments due to sub agents before or by 31.3.2006, even before the receipt of commission from M/s SSTPL, part of which is received in May 2006 and July, 2006 i.e. after the close of the year. The liason commission was to be received by the assessee after the parties to whom the supplies have been made had cleared their dues and dispute, if any, in respect of the supplies settled with the said parties by the assessee on behalf of M/s SSTPL. We find no justification in the claim of the assessee in respect of the liason expenses paid which admittedly were cleared up to March, 2006 in respect of the commission being received from the Principals, which becomes due on settlement of the payments schedule and also settlements of disputes regarding schedule, if any. Undoubtedl y, the incurring of expenditure by the business man cannot be questioned, but the allowablilit y of the said expenditure is covered under the provisions of the Income Tax Act, which lay down that all such expenditure, which is incurred wholl y and exclusivel y for the purpose of carrying on of the business, is to be allowed as an expenditure. The onus is upon the assessee to establish that it had incurred a particular expenditure for the purpose of carrying on of its business. The second limb of section 37, of the I.T.Act, of incurring the expenditure for the purpose of business, have not been satisfactoril y established by the assessee. In view of the 20 evidence collected by the Assessing Officer and the statement recorded of the sub agents, we find no merit in the claim of the assessee in respect of the liason commission paid by it, which in any case is debarred from vis-a-vis terms of agreement entered between the assessee and its Principal M/s STP L. The said expenditure being allowed in the earlier year, under order passed u/s 143(3) doe not establish the case of the assessee for the year under consideration as the parties to whom commission was paid for assessment year 2004-05, are completel y different and in respect of the parties in assessment year 2003-04, though there was two common parties, but the assessee has failed to furnish on record the evidence in respect of the services rendered in financial year 2003-04 by the said parties for which commission was allowed. We find support from the ratio laid down in Emson Tools Manufacturing Corporation Ltd Vs. CIT (supra). Accordingl y, reversing the order of CIT(A), we confirm the order of Assessing Officer in making an addition of Rs. 41,14,518/-. The grounds of appeal raised by the Revenue are thus allowed.
ITA No.741/Chd/2009 (assessee's appeal)
20. The onl y issue raised in the appeal filed by the assessee is against the addition of Rs. 3,02,690/- made u/s 69C of the Act for unexplained house hold expenses.
21. The Assessing Officer estimated the house hold expenses at Rs. 4,20,000/- as against the assessee claiming the same at Rs. 45,310/-. The assessee further submitted that his son-in-law, who was staying with him, had contributed Rs. 72,000/- to the house hold expenses. The Assessing 21 Officer tabulated the month wise withdrawals made by the assessee for house hold expenses, electricit y and travel expenses. The total cash withdrawals for house hold expense were Rs. 19,500/- and Rs. 5,630/- for electricit y and Rs. 1,434/- for traveling. The total withdrawal out of capital account of the assessee was Rs. 26,564/-. The size of the famil y of the assessee consisted of four members and the Assessing Officer as detailed at page 31 estimated the house hold expenses month-wise totaling Rs. 35,000/- per month. The Assessing Officer estimated the expenditure at Rs. 4,20,000/- and after allowing the expenditure shown by the assessee at Rs. 1,17,310/- made an addition of Rs. 3,02,690/- on account of unexplained expenditure of house hold expenses. The CIT(A) upheld the order of the Assessing Officer as the assessee had failed to submit any positive evidence to justify the house hold expenses relating to the size of the famil y and his living standard.
22. We have heard the rival contentions and perused the records. The total withdrawals made by the assessee during the period was Rs. 45,310/- on account of house hold expenses whereas the famil y of the assessee consisted of four members. The assessee claimed that his son-in-law contributed Rs. 72,000/- towards house hold expenses and the credit for the total withdrawals of Rs. 1,17,310/- was allowed by the Assessing Officer. The Assessing Officer had estimated the monthl y expenditure of assessee and made addition of Rs. 3,02,690/-. However, no evidence has been brought on record by the Assessing Officer to establish the incurrence of expenditure over and above the amount claimed by the assessee. In the absence of the same, we find no merit in the addition made by the Assessing Officer and the same is deleted. The ground of appeal raised by the assessee is allowed.
22
I TA No s.6 9 7 & 7 4 1 / C h d/2 0 0 9
23. In the result, the appeal of the Revenue and assessee are allowed.
Order Pronounced in the Open Court on this 23 r d day of February, 2011.
Sd/- Sd/-
(N.BARATHVAJA SANKAR) (SUSHMA CHOWLA)
VICE PRESIDENT JUDICIAL MEMBER
Dated : 23 r d February, 2010
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR