Income Tax Appellate Tribunal - Delhi
Indore Pvt. Ltd., vs Assessee on 23 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G' DELHI
BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL
ITA No. 1695(Del)/2003
Assessment year: 1999-00
The Indure Pvt. Ltd., Income-tax Officer,
Indure House, Greater Kailash-II, Vs. Coy. Ward 16(1),
New Delhi. New Delhi.
(Appellant) (Respondent)
Appellant by : Shri Ashwani Kumar, C.A.
Respondent by : Smt. S. Mohanty, DR
Date of hearing: 23.11.2011
Date of pronouncement: 09.12.2011.
ORDER
PER K.G. BANSAL : AM In this appeal, the assessee has taken up only one ground that the revenue erred on facts and in law in disallowing commission of Rs. 10.00 lakh.
2. The facts of the case are that the return was filed on 28.12.1999 declaring total income of Rs.91,82,740/-. The return was processed u/s 143(1)(a) on 20.10.2000. Later on, assessment proceedings were initiated by issuing notice u/s 143(2) of the Income-tax Act, 1961 ("the Act" for short) on 22.12.2000, which was duly served on the assessee- 2 ITA No.1695(Del)/2003 company. In the course of assessment proceedings, it was inter-alia found that the assessee claimed deduction of the commission of Rs. 44.20 lakh paid to four parties, Giant Marine Co., Sewoong Plant Co. Ltd. , Satpushp Steels Pvt. Ltd. and Sewa Steels Pvt. Ltd. The two parties are located in South Korea while the latter two parties are situated in India. The assessee was required to file the evidence regarding tendering of services by these companies and payment of commission to them. Such evidence was filed in respect of South Korean companies. However, in case of Satpushp Steels Pvt. Ltd. and Sewa Steels Pvt. Ltd., only general information was furnished. According to the AO, no evidence was tendered to show that commissions to these parties were paid for the purpose of business. Therefore, the expenditure of Rs. 10.00 lakh debited in the books in respect of these parties was disallowed.
3. In the course of proceedings before the first appellate authority, the assessee sought to file additional evidence. It was stated that the evidence could not be filed because the AO never asked for the evidence. The comments of the AO were invited, who objected to the admission on the ground that sufficient opportunities had been provided to the assessee in the course of assessment proceedings to lead any evidence in the 3 ITA No.1695(Del)/2003 matter. The ld. CIT(Appeals) considered the facts of the case and mentioned that the contention that the evidence was not called for by the AO is incorrect. Further, the case of the assessee is not covered under any provision under Rule 46A of Income-tax Rules, 1962. Therefore, in absence of any reasonable cause as mentioned in the aforesaid rule, the addition was not admitted. Coming to the merits, the submissions of the assessee were that the details of the expenditure were called for by the AO, which were furnished on 12.02.2002. Some more details were asked for and filed in the course of assessment proceedings. The assessee had filed complete details regarding sales, commission paid, agency agreement and the necessity of availing of the services of the agents. The particulars of services rendered were also filed. Therefore, it was contended that the expenditure should be allowed in computing the total income. The ld. CIT(Appeals) considered the facts of the case and submissions made before him. It is mentioned that the disallowance was made in assessment year 1998-99, which was upheld by the first appellate authority in order dated 04.02.2002. This order was confirmed by the 'C' Bench of the Tribunal in ITA No. 1232(Del)/2002 dated 19.08.2002. In the decision of the Tribunal, it was inter-alia mentioned that this makes us believe that the assessee has established staff, workforce and 4 ITA No.1695(Del)/2003 experience at its back that is why they could in this competitive world exist for such a long time, as has been claimed by them that they were well established in the field. It is further mentioned that the assessee did not file any documentary evidence regarding rendering of services by the agent. Satpushp Steels Pvt. Ltd. allegedly rendered service in respect of M/s Rain Calcining Limited. No evidence exists that this company rendered any service. Even the additional evidence, which has not been admitted, is in the nature of general correspondence between the assessee and the agent. In the case of Sewa Steel Pvt. Ltd., it is claimed that the company had done liaison work with Andhra Pradesh State Electricity Board for supply of ash handing plant spares. The Board is a government body and, therefore, there could not be any liaison work for procuring order from it. Thus, it was held that the AO was right in disallowing the expenditure stated to be incurred for availing off services from these companies.
4. Aggrieved by this order, the assessee is in appeal before us. The ld. counsel took us through the orders of the lower authorities and submitted that the AO has given a finding that there is no evidence in support of rendering of services by the agents. The ld. CIT(Appeals) did not admit 5 ITA No.1695(Del)/2003 additional evidence. However, he relied on the order of the Tribunal for earlier year for upholding the disallowance. The assessee had claimed payment of commission in all the years starting from financial year 1989- 90 to financial year 2005-06. In all assessments up to assessment year 1997-98, the expenditure of commission was allowed in assessments made u/s 143(3) of the Act. The quantum of commission paid in these years varied between 0.12% to 0.60% of the turnover. In assessment year 1998-98, the assessee had claimed the deduction of the expenditure at Rs. 31.75 lakh, which constituted 0.60% of the total turnover. The AO disallowed the expenditure. However, the ld. CIT(Appeals) allowed the expenditure of Rs. 30.00 lakh. In second appeal, the disallowance to the extent of Rs. 28.75 lakh was upheld. The appeal is pending with Hon'ble Delhi High Court. The expenditure has been allowed in full in assessments made u/s 143(3) for assessment year 2001-02 to assessment year 2006-07. On the basis of this data, the case of the ld. counsel is that the services had been rendered and, therefore, the expenditure is deductible in computing the total income. Further, coming to the additional evidence, it is submitted that it consisted of the statement of turnover and profitability, commissions paid and turnover in assessment years 1990-91 to 1999-00, copies of correspondence with the agents and copies of 6 ITA No.1695(Del)/2003 orders procured through them. This evidence has however not been admitted by the ld. CIT(Appeals). Various submissions were made before the AO in respect of payment of commission. In the case of Satpushp Steels Pvt. Ltd., to whom commission of Rs. 8.85 lakh was paid, it was submitted that the agent approached the assessee-company for rendering help in the process of making tenders with power utilities. It offered services in the area of pre/post tender stage, arranging travels, qualification of technical/commercial bids, securing job orders, assisting in execution of job and orders and to undertake follow-up action on regular basis including in respect of payments. It was informed that Rain Calcining Ltd. had invited offer for ash handing system, an area in which it can render assistance. With the help of the agent, the assessee was able to secure contract from S & L Engineers Ltd., consultants to Rain Calcining Ltd. for ash handing plant of the value of Rs. 1.77 crore. Although it is the claim of the assessee that a photocopy of the letter received from the agent dated 23.04.1997was filed with the AO along with aforesaid submissions dated 21.03.2002, the letter does not form part of the annexure to this letter, which is placed in the paper book from page nos. 18 to 33. In the case of Sewa Steels Pvt. Ltd., it was submitted that there was a keen competition of sale of spares to State Electricity 7 ITA No.1695(Del)/2003 Boards. The agent approached the assessee for rendering help in procuring order for supply of spares to Andhra Pradesh State Electricity Board. The payment to the agent was made through banker's cheque and he is assessed to tax. In this case also, while it is mentioned that copy of the agent dated 25.02.1998 is enclosed, the same does not form part of the aforesaid submissions as placed in the paper book. The case of the ld. counsel is that the companies exist and payments to them has been made by way of cheques. Therefore, even in absence of additional evidence, the assessee is entitled to deduction of the expenditure.
4.1 In reply, the ld. DR relied on the decision of the ld. CIT(Appeals), in which it has been held that there was no necessity of liaison work with Andhra Pradesh State Electricity Board and general correspondence between Satpushp Steels Pvt. Ltd. and the assessee-company does not constitute sufficient evidence of rendering of services.
5. We have considered the facts of the case and submissions made before us. We find that the assessee has not taken up any ground in respect of rejection of additional evidence by the ld. CIT(Appeals). Further, no application has been moved for admission of the evidence for the first time 8 ITA No.1695(Del)/2003 before the Tribunal. The ld. counsel has argued the case de-hors the additional evidence filed before the ld. CIT(Appeals). Therefore, it is not taken into account for deciding this appeal.
5.1 The facts which emerge are that the assessee claimed expenditure by way of payment of commission of Rs. 8.85 lakh to Satpushp Steels Pvt. Ltd. and Rs. 1.15 lakh to Sewa Steels Pvt. Ltd. The payment of commission, albeit to other parties was not allowed to be deducted by the Tribunal in the proceedings for assessment year 1998-99. The assessee has furnished general correspondence between itself and the agents and no independent evidence from Andhra Pradesh State Electricity Board or Rain Calcining Ltd. had been filed to show that they had any interaction whatsoever with the agents. In other words, there is no independent evidence, which could be said to be reliable evidence, for procuring of orders by the agents from Rain Calcining Ltd. and Andhra Pradesh State Electricity Board. Obviously, the agent would submit some correspondence trying to show that they were in a position to procure orders on behalf of the assessee and such order was actually obtained by them for receipt of consideration. The ld. counsel has not been able to displace the finding of the Tribunal in the earlier year that in view of established staff, 9 ITA No.1695(Del)/2003 workforce and experience the assessee could survive in competitive world for a long time and, therefore, there was no need to avail services of the agents. It may be mentioned here that the Andhra Pradesh State Electricity Board is a government body which does not require the services of an intermediary. In the case of the other agent, no evidence has been filed regarding actual rendering of services or procuring order which in any case is stated to have been received from S & L Engineers Ltd. 5.2 The ld. senior DR relied on the decision of 'E' Bench of Delhi Tribunal in the case of Picker India Ltd. Vs. Deputy CIT, (2008) 7 DTR (Del) (Trib.) 391. One of the questions before the Tribunal was regarding allowability of commission expenditure, the payment in respect of which was made to an agent. It was found that the copy of the sale bill did not have particulars about the agent. There was no agreement between the parties. There was no evidence that the services were rendered for specified services. However, there was no dispute regarding payment of the commission. It was mentioned that in the context of provisions contained in section 37(1), the purpose is very important as the expenditure can be allowed only if it has been incurred wholly and exclusively for the purpose of business.
10 ITA No.1695(Del)/20035.3 Considering the facts and position of law as discussed above, we find that the assessee has not been able to bring on record any objective evidence regarding rendering of services by the commission agents. Therefore, the case is covered by the decision in the case of Picker India Ltd. (supra). Accordingly, it is held that the ld. CIT(Appeals) was right in disallowing the payment of commission of Rs. 10.00 lakh.
6. In the result, the appeal is dismissed.
Sd/- sd/- (Rajpal Yadav) (K.G. Bansal) Judicial Member Accountant Member SP Satia Copy of the order forwarded to:- The Indure Pvt. Ltd., G.K.-II, New Delhi. ITO, Coy. Ward 16(1), New Delhi. CIT(A) CIT The DR, ITAT, New Delhi. Assistant Registrar.