Income Tax Appellate Tribunal - Ahmedabad
Panchsheel Intermediates, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
Before SHRI T K SHARMA,JM & SHRI A N P AHUJ A, AM
ITA No.4095/Ahd/2007
(Assessment Year:-2004-05)
Assistant Commissioner of V/s M/s Panchsheel
Income-tax, Circle-6, Room Intermediates, 36, GIDC,
No.623, Aayakar Bhavan, Pandesara, Surat
Majura Gate, Surat [PAN: AADFP 1002 C]
[Appellant] [Respondent]
Revenue by :- Shri K M Mahesh, DR
Assessee by:- None
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 10- 08-2007 of the ld. CIT(Appeals)-IV, Surat, raises the following grounds:-
1 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowances of commission paid to various persons of Rs.7,34,054/- made by the AO.
2 On the facts and in the circumstances of the case and in law, the learned CIT(A), Surat ought to have upheld the order of the AO.
3 It is, therefore, prayed that the order of the learned CIT(A) may be set aside and that of the AO restored.
2. At the outset, none appeared on behalf of the assessee, despite service of notice when the appeal was called for hearing. Considering the issue involved, the Bench decided to dispose of the appeal after hearing the ld. DR.
3. Adverting first to the ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.23,63,100/- filed on 31-10-2004 by the assessee, manufacturing industrial dyes, chemicals and intermediates, after being processed u/s 143(1)(a) of the Income-tax Act, 1961 [hereinafter referred to as ITA No.4095/Ahd/2007 the "Act"], was selected for scrutiny with the issue of notice u/s 143(2) of the Act on 09-08-2005. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee claimed deduction of commission of Rs.7,34,054/-in the year under consideration as against commission of only Rs.3,91,865/- in the preceding assessment year. In response to a show cause notice dated 13-11-2006, the assessee vide letter dated 27-11-2006 submitted confirmation of Shri Mehul D Naik, relative of the assessee, copy of ledger along with the bank statement as also copy of TDS certificate in respect of commission for an amount of Rs.91,133/- paid to him. For the remaining parties, the assessee assured to submit the relevant confirmations, the parties being located outside Surat. Since the assessee did not submit any evidence of services rendered by the recipients of commission, despite request made by the AO while there was abnormal increase of 87% in the sales commission vis-a-vis increase in sales of merely 10.25% and the assessee did not submit the confirmations of the remaining parties, relying upon the decisions in the case of CIT vs. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC), CIT vs. Imperial Chemical Industries (India) (P) Ltd. (1969) 74 ITR 17, CIT vs. C Parekh & Co. (India) Ltd. (1956) 29 ITR 661 and CIT vs. Chandravilas Hotel (1987) 164 ITR 102 (Guj), the AO disallowed the claim for deduction of commission.
4 On appeal, the learned CIT(A) allowed the claim in the following terms:-
"I have considered the details and find that the AO has passed the order without considering the submissions made by the appellant. In the case of one of the parties to whom commission was paid at the rate of 2% of the sales, complete details were furnished by the appellant during the assessment proceedings. Even then the AO disallowed the 100% of such payment. Section 37(1) talks about the expenditure incurred 'wholly & exclusively' for the purpose of business. However, it does not mean 'necessarily' and it is for the businessman to decide whether any expenditure should be incurred or not during the course of its business. As held by Hon'ble Gujarat High court, in the case of C.J. Patel & Co., vs. CIT 2 ITA No.4095/Ahd/2007 158 ITR 486, the expenditure has to be for the purpose of business and not necessarily for the purpose of earning profits. The quantum of an expenditure incurred cannot be compared to the sales made, since every expenditure would not result in increased sales but could have other benefits also. In the instant case, there is no denying the facts that the appellant has incurred expenditure in the shape of commission, the evidence of which has been furnished and therefore, there is no justification in disallowing 100% of such commission payment on the only ground that sales have not increased proportionately. This kind of addition made without taking into account the submissions and evidences furnished by the appellant is not justified and has apparently been made only with a view to make high pitched assessments and is hereby directed to be deleted. In the result, the appeal is allowed."
5 The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the findings of the AO, while pointing out that the assessee did not submit confirmations of most of the parties to whom the commission had been paid nor even an iota of evidence in respect of services rendered by the recipients of commission.
6. W e have heard the ld. DR and gone through the facts of the case. W e find that the assessee did not file confirmation of the parties to whom the commission had been paid except in the case of Shri Mehul D Naik nor submitted any evidence of services rendered by any of the recipient of commission. Even then, the CIT(A) concluded that the expenditure having been incurred wholly and exclusively for the purpose of business, is allowable. In order that payments made as commission to persons appointed as selling agents are allowable as deduction, the assessee has to establish that i) the amounts sought to be deducted have been expended by the assessee in fact and ii) the payments have been made for services rendered to the assessee.If there is nothing to show that the agents had rendered any services at all to the assessee, payments can not be deducted u/s 37 of the Act.[Madura Knitting Co. vs. CIT,30ITR 764(Mad.),Vishnu Agencies P Ltd. vs, CIT,117 ITR 754(Cal.),117 ITR 823(Cal.),Chemaux P Ltd. vs. CIT,109 ITR 3 ITA No.4095/Ahd/2007 705(Bom.).Mere existence of an agreement without anything more is not enough for allowance of deduction of commission [Lachminarayan Madan Lal vs. CIT,86 ITR 439(SC).] In the instant case, the AO disallowed the claim for deduction of commission since the assessee did not furnish any evidence of services rendered by the agents, to whom commission had been paid. The ld. CIT(A) without recording any findings as to whether or not the selling agents had indeed rendered services to the assessee and the amount has been expended in fact, allowed the claim for deduction . W e are of the opinion this approach of the ld. CIT(A) is not in accordance with law. In the absence of any finding on the nature of services rendered by the recipients of commission or the amount had been expended in fact, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issues raised in this ground afresh in accordance with law in the light of our aforesaid observations, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the issue, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly the nature of services rendered by each of the recipient of commission . W ith these observations, ground no.1 in the appeal is disposed of.
8 Ground nos.2 and 3 in the appeal being mere prayer and general in nature, do not require any separate adjudication and are, therefore dismissed.
9 In the result, appeal is allowed, but for statistical purposes.
Order pronounced in the court today on 11 -10-2010 Sd/- Sd/-
(T K SHARMA) (A N P AHUJA) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 11-10-2010 4 ITA No.4095/Ahd/2007 Copy of the order forwarded to:
1. M/s Panchsheel Intermediates, 36, GIDC, Pandesara, Surat
2. Assistant Commissioner of Income-tax, Circle-6, Room No.623, Aayakar Bhavan, Majura Gate, Surat
3. CIT concerned
4. CIT(A)-IV, Surat
5. DR, Bench-C, ITAT, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 5