Income Tax Appellate Tribunal - Ahmedabad
J.P. Shah, Adv. vs K.V. Dave, Adv. on 31 May, 1999
ORDER
T.J. Joice, A.M.
1. Since identical issues were involved in both these appeals they are being disposed of by this common order for the sake of convenience.
2. These are appeals filed by the assessees against the order of the CIT(A) dated 26-6-1992 for the assessment year 1986-87. The assessee in ITA No. 3089/Ahd/92 is a firm by name - M/s. Kashiram Atmaram, Surat and the assessee in ITA No. 3165/Ahd/92 is another firm by name M/s. Kashiram Atmaram and Sons, Surat. Both are apparently sister concerns in which all the partners are common. In both the cases original assessments were completed on 7-3-1989. The Assessing Officer subsequently reopened the assessments in both the cases by issue of notices under section 148. The reason for reopening was that the commission claimed to have been paid to M/s. V.A.P. Corporation was found to be not genuine by the assessing authorities. This information was obtained by the Assessing Officer assessing Shri Suresh Thakkar, one of the Directors of the V.A.P. Corporation (P.) Ltd. Shri Suresh Thakkar admitted before the Assessing Officer that the commission payment claimed by the assessee-firms to M/s. V.A.P. Corpn. (P.) Ltd. was not genuine. Shri Suresh Thakkar further stated that he was willing to face cross-examination and other attending circumstances. On the basis of this information the Assessing Officer in the present cases recorded the reasons for reopening and issued notices under section 148. In the reassessment proceedings the assessees filed returns of income showing the same income as originally returned.
3. In the reassessment proceedings the Assessing Officer communicated a copy of the reasons recorded for reopening of assessments and also copy of the statement of Shri Suresh Thakkar dated 17-3-1989 to the assessees for their perusal and for giving fair opportunities to the assessees.
4. During the reassessment proceedings, the Assessing Officer examined Shri Suresh Thakkar and also permitted cross-examination by the assessees' counsel. In the cross-examination Shri Suresh Thakkar confirmed that his company, M/s. V.A.P. Corporation (P.) Ltd. had only provided an entry for profit absorption and no real commission was taken by them. This was a repetition of his earlier statement dated 17-3-1989. On cross-examination by Shri S. D. Jhaveri, the Assessing Officer was still of the view that Shri Suresh Thakkar provided only hawala entries in favour of the assessee. In the assessment order relating to M/s. Kashiram Atmaram & Sons, the Assessing Officer has observed that the facts and circumstances of that case are identical to those in the case of M/s. Kashiram Atmaram and he has made a reference to the details of the latter assessment order in the case of the former. For the detailed reasons given in the latter order the Assessing Officer disallowed the commission payment claimed by the assessee amounting to Rs. 19,91,230 in the first mentioned case and Rs. 12,01,958 in the second mentioned case. The reasons given for the addition are briefly summarised below :
(i) The assessees M/s. Kashiram Atmaram and M/s. Kashiram Atmaram & Sons did not know M/s. V.A.P. Corporation or Shri Suresh Thakkar as admitted by both the assessees and confirmed by Shri Suresh Thakkar. Both the parties agreed that they came to know each other through one Shri Ratilal J. Muchala who was then operating as an Executive Officer in Reliance Industries, Bombay.
(ii) Shri Suresh Thakkar denied having done any business for the assessees. He, however, stated that certain papers like bills, letters, etc. were received by him and certain letters etc. were issued by him for the sake of record so that he could absorb the profit in his books.
(iii) Shri S. D. Jhaveri in his cross-examination could not show any business transaction between the assessees and M/s. V.A.P. Corporation Ltd. All that he could prove was that certain documents exchanged hands, that too through the medium of Shri Muchala. At no point of time a direct contact between the assessees and M/s. V.A.P. Corporation was established.
(iv) There were two contracts for sale of goods drawn on 6-12-1984 by the assessees with M/s. Golden Tobacco Co. Ltd. (M/s. GTC) and these contracts were entered into only after an earlier letter dated 13-11-1984 was received by M/s. GTC. This letter dated 13-11-1984 was written at the instance of M/s. VAP Corporation. But for the introduction given by M/s. VAP Corporation the contracts would not have materialised. Further the goods were despatched to M/s. GTC Ltd. only in the light of letter dated 17-12-1984 written by M/s. VAP Corpn. in which they had expressed their readiness to ensure prompt payment of the goods. The Assessing Officer doubted the genuineness of these transactions because for dealing with a well-known company like GTC Ltd. the assessee need not have gone through unknown entities like M/s. V.A.P. Corpn. From the circumstances the Assessing Officer concluded that Shri Suresh Thakkar was only a hawala giver arranged through the office of Shri Muchala.
(v) The two contracts did not speak anywhere of M/s. V.A.P. Corpn. There was no provision for liquidated damages in case there was a breach of contract. M/s. VAP Corpn. was not privy to the contract between the assessees and the GTC Ltd. and, therefore, could never have stood surety for payment to the assessee. The whole commission agreement was a concocted story for the purpose of evading taxes.
(vi) There was only a single transaction sought to have been done for the first and last time and the commission of Rs. 20 lacs was shown as paid by the assessees to M/s. VAP Corporation.
(vii) The payer and the payee were not in direct contact with each other. They did not know each other and they exchanged documents, if at all, through a third party. Therefore, the question of performance of services under such circumstances never arises.
(viii) Shri Suresh Thakkar has categorically stated that all the documents were prepared after the transaction was over and have been back dated. The date '6-2-1985' as originally typed has been corrected by overwriting to '6-12-1984'. These overwriting by M/s. Kashiram Atmaram and Sons clearly proves that it was a back-dated document and it confirms the statement given by Shri Suresh Thakkar.
(ix) The assessees' alternative argument was that the commission paid by them was real since it was not proved by the Revenue that the money withdrawn by Shri Suresh Thakkar from his bank account ever reached back the assessee. The Assessing Officer considered these arguments as having no relevance. It may be possible that Shri Muchala might have returned the cash back to the assessee but this does not prove the genuineness of the commission stated as claimed but was non-existent.
(x) Finally, the Assessing Officer has also given the following circumstances surrounding M/s. V.A.P. Corpn. which according to him is self-explanatory :-
"(i) It did not have any office of its own, such entities could not have been relied.
(ii) It operated from a residential address with telephone number also being c/o, such entities could not have been relied, still the assessee says he relied on than in reference to their written contract with an established dealer e.g. Golden Tobacco Co. Ltd.
(iii) M/s. VAP Corpn. has now admitted having given accommodation entries to 24 concerns (our assessee included). None of them have chosen to pay tax immediately.
(iv) Reliance Industries for which Shri Muchala was then working had also taken services of M/s. V.A.P. Corpn. and have subsequently paid taxes after facts of M/s. V.A.P. Corpn. became known to the Income-tax Department and Reliance Industry was asked to face the evidence in the form of statement of Shri Suresh Thakkar.
(v) Shri Muchala had utilised the hawala services of Shri Suresh Thakkar in his own personal business also and had not even opted to cross-examine Shri Suresh Thakkar and is paying taxes."
On the basis of the above reasoning the Assessing Officer disallowed the commission amounts stated to have been paid by the assessee to M/s. V.A.P. Corpn. The details as mentioned above are seen included in the assessment order relating to M/s. Kashiram Atmaram, the appellant in ITA No. 3089/Ahd./92. The same details are relied upon by the Assessing Officer while passing the order in the case of M/s. Kashiram Atmaram & Sons, the appellant in ITA No. 3165/Ahd./92. In both the cases, commission was claimed to have been paid to M/s. VAP Corpn. The only difference in two cases is that purchases were made from M/s. GTC Ltd. in the case of M/s. Kashiram Atmaram whereas in the case of the second firm, i.e., M/s. Kashiram Atmaram & Sons, the purchases were made from one M/s. Praful Marketing Co. Ltd., a trading company floated by Reliance Group of industries. In the first case, the commission paid was of Rs. 19,91,230 and in the second case it comes to Rs. 12,01,958.
5. The assessees challenged the said additions before the CIT(A) who confirmed the order of the Assessing Officer in its totality and dismissed the assessees' appeals. The assessees are in further appeals before us.
6. The ld. counsel for the assessee has objected to the reassessment proceedings as bad in law. It is pointed out that in the original assessment made, the claim of the commission was examined by the Assessing Officer and found to be allowable. Therefore, the reopening of the assessments for examining the allowability, was not justified.
7. According to the ld. counsel for the assessees the commission was paid to M/s. V.A.P. Corporation for procuring business from M/s. GTC Ltd. and M/s. Praful Marketing Co. Ltd. (M/s. PMC Ltd.) for the assessees. The assessees had made payment to M/s. V.A.P. and M/s. PMC through drafts. The statement of Shri Suresh Thakkar when closely read would prove that the commission payment was genuine and was made for the above purpose. The assessee M/s. Kashiram Atmaram sold goods for Rs. 2.15 crores to M/s. GTC Ltd. and within a short period of 32 days virtually received the total amount due. Similarly, the other assessee M/s. Kashiram Atmaram & Sons sold the goods for Rs. 1.36 crores to M/s. PMC and virtually received the total amount from the purchaser within a short period of 25 days. It may be noted that the assessees had no business transaction with the abovesaid companies in the past and, therefore, without the aid of a middleman it was impossible to do such business of a large-scale with a stranger. Therefore, the payment of commission was necessitated by business expediency. The department should have given more weightage to the assessees' versions backed by sales made to M/s. GTC Ltd. and M/s. PMC rather than merely relying on Shri Suresh Thakkar's statement as he was only trying to avoid income-tax by telling lies. The CIT (A) further failed to appreciate that even in the deposition of Shri Suresh Thakkar it is made clear that the assessees got big orders from M/s. GTC and M/s. PMC with the help of Shri Sanjay Muchala, son of Shri Ratilal Muchala and Shri Dipak Muchala, nephew of Shri Ratilal Muchala fixed his commission and that he acted as a sub-agent of Shri Muchala to whom he paid the commission in cash after deducting his own commission and that it is Shri Dipak Muchala who took Shri Suresh Thakkar to the office of M/s. GTC and even now this commission is fully allowable. It is, therefore, pleaded that the CIT (A) erred in law in holding that the reassessment was valid and also in holding that the commission was paid without services being rendered by M/s. VAP Corporation.
8. The ld. counsel for the assessees, Shri J. P. Shah, drew our attention to the paper book submitted by him containing details of the transactions between the assessees and M/s. VAP Corpn., correspondence between the assessees and M/s. GTC Ltd./M/s. PMC Ltd. copies of the statements for computation of income, copy of accounts of the various parties involved in the transactions including bank statement and copy of the correspondence during the course of the assessment proceedings. The ld. counsel pointed out that there is clear evidence to show the payment of commission to M/s. VAP Corpn. as it was paid by draft. On the other hand, the Assessing Officer has not proved that the money has come back to the assessee from the payees. Shri Muchala, the sub-agent of M/s. VAP Corporation, has not been examined at all by the assessing authority. The ld. counsel further relied on the decision of the Hon'ble Gujarat High Court in CIT v. M.K. Bros. [1987] 163 ITR 249/30 Taxman 547 in support of the contention that since the payment did not come back to the assessee in any form, the disallowance of commission in the present case was not justified.
9. On the other hand, the ld. D.R. Shri K. V. Dave, strongly supported the orders of the Assessing Officer, and the CIT (A). When the claim of payment of commission was made by the assessees the onus was on the assessees to prove that the expenditure was laid out for the purpose of business. The ld. D.R. defended the action of the Assessing Officer in reopening the assessments and the orders of the CIT (A) upholding the reopening. Shri Suresh Thakkar, Director of M/s. VAP Corpn. was examined, he gave deposition to the effect that the commission payment by the assessees was a bogus transaction. On the basis of this information, the Assessing Officer reopened the assessments and the reopening was done validly under the law. The ld. D.R. relied on the following case laws in support of his arguments relating to reopening of assessments :-
P. M. Shah v. CIT [1994] 209 ITR 135/75 Taxman 86 (Bom.), Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC), Zohar Siraj Lokhandwala v. M. G. Kamat [1994] 210 ITR 956 (Bom.), Assam Forest Products (P.) Ltd. v. CIT [1995] 211 ITR 447 (SC) and 220 ITR 554 (SC)(sic).
10. Coming to the merits of the case, the ld. D.R. submitted that the facts of the case should be viewed in their entirety and logic of probability should be applied to see whether such commission payment was really incurred by the assessees. The mere fact that there was no evidence to indicate that the money came back to the assessee does not mean that the commission payment was genuine. The ld. D.R. has placed heavy reliance on the statement given by Shri Suresh Thakkar by drawing our attention to the relevant portions of the statements. The Assessing Officer had afforded the assessees opportunity to cross-examine Shri Suresh Thakkar and even after the cross-examination, Shri Suresh Thakkar did not deviate from the original statement made by him. There is also evidence to show that some of the documents were back-dated deliberately that create evidence for a transaction which was not genuine. In support of his argument, on the substantive points the ld. D.R. has relied on the following case laws :-
Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC), Nawabganj Sugar Mills Co. Ltd. v. CIT [1972] 86 ITR 44 (SC), Subodhchandra Popatlal v. CIT [1953] 24 ITR 566 (Bom.), Shahzada Nand & Sons v. CIT [1977] 108 ITR 358 (SC), Amritlal & Co. (P.) Ltd. v. CIT [1977] 108 ITR 719 (Bom.), Vijayakumar Mills Ltd. v. CIT [1963] 50 ITR 332 (Mad.), Vishnu Agencies (P.) Ltd. v. CIT [1979] 117 ITR 754/1 Taxman 422 (Cal.), Madura Knitting Co. v. CIT [1956] 30 ITR 764 (Mad.), Chemaux (P.) Ltd. v. CIT [1977] 109 ITR 705 (Bom.) and Anand Jyoti Printers (P.) Ltd. v. CIT [1987] 165 ITR 771/32 Taxman 48 (MP).
11. We have considered the rival submissions and the evidence on record. As regards the validity of reopening of the assessment under section 147, we are not persuaded by the arguments of the ld. counsel that once the original assessment was completed, the commission allowed by the Assessing Officer in the original assessment could not have been made subject-matter for reopening. There is a catena of case laws where the Hon'ble High Courts and the Hon'ble Supreme Court have considered similar issues and decided the cases in favour of the Revenue by upholding the validity of the reopening even in the case of subsequent information coming to the Department against the assessee after original assessment was completed. In the case of Phool Chand Bajrang Lal (supra), the Supreme Court held that the notice for reassessment was valid and the sufficiency of the reasons for forming the belief was not to be judged by the court. In that case the original assessment was completed after accepting as genuine a cash loan taken by the assessee from a company. Later on information came to the Assessing Officer that the company had not advanced any loan to any person during the period. This information was definite and specific and reliable as it was confirmed by the Managing Director of the said company. The Court in the circumstances upheld the validity of the reassessment proceedings. In the case of Assam Forest Products (P.) Ltd. (supra) enquiries made after the original assessment showed that the persons under whose names cash credits were shown, were only bogus names. The Supreme Court upheld the validity of the reassessment. In Sri Krishna (P.) Ltd. v. ITO [1996] 221 ITR 538/87 Taxman 315, the Apex Court held that the reopening of the assessment for an earlier year was valid when it was found in the subsequent years' assessment by the Assessing Officer that bogus claims were made in respect of some hundi loans some of which related to the earlier year. The Bombay High Court in the case of P. M. Shah (supra) held that reopening of the assessment in that case was valid for the assessment years 1965-66 to 1967-68 because information came to the Assessing Officer in the course of the assessment proceedings for the assessment year 1967-68 that the loans accepted in the original assessment were only hawala transactions and were made to aid the assessee for his own undisclosed income. In other words the reopening of assessment for earlier year by the Assessing Officer on the basis of the subsequent information coming to the Assessing Officer was held valid. In the case of Zohar Siraj Lokhandwala (supra) the Bombay High Court upheld the validity of the assessment proceedings as the assessee did not disclose all primary facts relevant for the assessment. There are similar decisions by various other courts also in favour of the Revenue. In the present case there is no dispute regarding the validity of reassessment proceedings on the ground of limitation. The only question is whether the Assessing Officer was justified in reopening the assessment on getting subsequent information that the commission originally claimed and allowed was bogus. This information was based on the statement of Shri Suresh Thakkar, Director of M/s. V.A.P. Corpn. (P.) Ltd. to whom commission was claimed to have been paid. Hence this information available to the Assessing Officer was specific and reliable. In the light of the ratio decidendi of the case laws cited above it is clear that the Assessing Officer is justified in issuing notices for reassessment in the present cases. Hence, we dismiss the assessee's ground challenging the validity of the reassessment proceedings.
12. Coming to the merits of the case, we shall first deal with case law relied on by the ld. counsel for the assessee namely - M. K. Bros.' case (supra). This was a case where certain purchases made by the assessee were disallowed by the Assessing Officer on the ground that the transactions were bogus. There were some allegations that there was a sales-tax racket by certain parties issuing bogus vouchers. However, the Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt there were certain doubtful features but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. Therefore, the Tribunal did not sustain the addition made by the Assessing Officer and retained by the first appellate authority. The Hon'ble Gujarat High Court upheld the findings recorded by the Tribunal and observed that nothing was shown to indicate that any part of the fund given by the assessee to these parties came to the assessee in any form as noted by the Tribunal and that it cannot be said that the notice for the purchase of the goods made in the books of account were bogus entries. On this basis the Hon'ble High Court held that the disallowance for bogus purchases was not rightly made and thus confirmed the finding of the Tribunal.
13. With respect, we are unable to agree with the arguments advanced by the ld. counsel for the assessee, based on the case of M. K. Bros. (supra). That was a case of disallowance of purchases made. The disallowance was deleted by the Tribunal on the ground that evidence was not available to indicate that the purchases were bogus. The ld. counsel placed special emphasis on the observation of the Tribunal and the High Court that any part of the fund given by the assessee in that case to the parties did not come back to the assessee in any form (vide p. 251). However, reading the observation of the Hon'ble High Court in the proper context it is evident that the High Court was observing to the effect that there was no adequate evidence to sustain the disallowance as rightly observed by the Tribunal also. The emphasis on this observation in the case of M. K. Bros. (supra) by itself does not advance the assessees' case in the present appeals for the reasons which we proceed to record in the ensuing paragraphs.
14. Here we are not concerned with alleged bogus purchase. The issue involved is whether commission claimed to have been paid to M/s. V.A.P. Corpn. was genuine or bogus. There is a clear unambiguous and emphatic statement by none other than Shri Suresh Thakkar one of the Directors of M/s. V.A.P. Corpn. who was exclusively dealing with the affairs of the said concern as the only other director was living in U.K. for the last two years. Before proceeding any further, it is necessary for us to reproduce the following portion of the detailed deposition given by the Shri Suresh Thakkar before the Assessing Officer on 17-3-1992 :
Q. 12. You have admitted in your last statement on oath on 17-3-1989 and also in your statement today that you did receive commission from M/s. Kashiram Atmaram & Sons either in own right or as an agent to Shri Muchala. Do you confirm ?
A. 12. Before confirming I would like to explain that I have received drafts of M/s. Kashiram Atmaram & Sons from Mr. Muchala. I do not know in which capacity he had handed over but I know my capacity I received on behalf of VAP Corpn. because I do not know what understanding Mr. Muchala is having with M/s. Kashiram Atmaram & Sons.
Q. 13. Then how is it that you return commission to Mr. Muchala ?
A. 13. In hawala business we return the money to the person who is giving us the payment and not to anybody else because these are unaccounted transactions and for which we cannot rely upon third parties.
Q.14. Have you ensured after making payment to Mr. Muchala that Mr. Muchala has retained the amount with him or he has passed it on to other parties ?
A. 14 In hawala business when we give cash for unaccounted amounts to the parties who has handed over us the drafts we do not question him because we understood that he is in hand and gloves with the party who is giving drafts.
Last question to Shri Suresh Thakkar from Dy. Commissioner of the Income-tax (Asst.), Spl. Range-1, Surat.
Q. 3. How did you enter into all the correspondence like bills, letters, receipts issued by you to M/s. Kashiram Atmaram & Sons ? Kindly explain what was the medium of communications ? That is to say post office, telephonic calls through Angadia service etc. ?
A. 3. I have never talked with M/s. Kashiram Atmaram & Sons directly but all correspondence or bills and the receipts of the drafts even returning the cash payments has been done through Mr. Ratilal Muchala whom only I know in this transaction and I have done some other transactions with him of this nature.
Shri S. D. Jhaveri was again given an opportunity to cross-examine him. He said that he has nothing to ask him.
At the end of the statement, Shri Suresh Thakkar affirmed that he had given this statement and subjected himself to the cross-examination by Shri S. D. Jhaveri, ITP of M/s. Kashiram Atmaram & Sons out of his free will and no coercion whatsoever of any kind was exercised on him while he gave this statement.
Signed by Shri Suresh J. Thakkar I certify that the above statement was recorded in my office and in my presence.
Sd/-
D. P. Sharma Dy. Commissioner of Income-tax (Asst.), Spl. Range-1, Surat."
15. The above extract from the long and detailed sworn deposition by Shri Suresh Thakkar proves beyond doubt that he did not in fact receive any commission from the assessee-firms for having rendered any services to these firms and that what was done in reality was only an accommodation entry in hawala business so as to "absorb the profit". What we have extracted above is the concluding portion of Shri S. Thakkar's deposition dated 17-2-1992 before Shri D. P. Sharma, Dy. CIT (Asst.), S.R.-1, Surat. It may be recalled in this connection that this is in addition to the earlier sworn statement recorded from him on 17-3-1989 by the Dy. CIT, Range-6, Bombay. A copy of this statement was given by the Assessing Officer to the assessees in the present cases while issuing the notices for reassessment. When both the statements are read in their entirety, it is found that Shri S. Thakkar has not deviated from his stand that he did not receive any commission and did not render any service to the assessee-firms except by way of helping them in the hawala transaction in association with Shri Muchala. The inescapable conclusion from the sworn statement of Shri Suresh Thakkar is that the alleged commission payment to M/s. VAP Corpn. was not at a genuine.
16. Coming to the assessees' plea that Shri Muchala was not examined by the assessing authorities, we have to observe that this plea does not come to the rescue of the assessees as they were given sufficient opportunity to cross-examine Shri S. Thakkar. The Assessing Officer in the circumstances of the case, was not duty-bound to examine Shri Muchala because no claim of payment of commission to Shri Muchala was made by the assessees during the assessment proceedings. On the other hand, the entire commission is shown as having been paid to M/s. V.A.P. Corpn. Shri Suresh Thakkar, the only man managing the affairs of the V.A.P. Corpn. at the relevant time having denied the receipt of such commission and the assessees having been confronted with the deposition of Shri S. Thakkar, the onus was on the assessee to disprove the deposition. The probabilities of the case go heavily against the assessees and an adverse inference has been drawn by the Assessing Officer after painstaking enquiries giving adequate opportunity to the assessees for cross-examining Shri Suresh Thakkar. In the circumstances we have no hesitation in holding that the Assessing Officer was justified in disallowing the claim of commission payment which turns out to be bogus. The CIT (A) also is fully justified in dismissing the assessees' appeals in this connection by confirming the Assessing Officer's orders.
17. The facts of the case and the conclusion reached by us as narrated above, have to be now examined in the light of some of the case laws cited before us. We have already discussed the applicability of the case law reported in M. K. Bros.' case (supra). As regards the commission payment to employees, the Courts have consistently held that it should stand the test of reasonableness and commercial expediency with regard to the special services rendered by the employees so as to earn the commission in addition to the regular payment of salary vide the following case laws
1. Amritlal & Co. (P.) Ltd.'s case (supra),
2. Vijayakumar Mills Ltd's case (supra),
3. Chemaux (P.) Ltd.'s case (supra), and
4. Anand Jyoti Printers (P.) Ltd's case (supra).
In all the above cases it was held that where the test of reasonableness and commercial expediency was not satisfied or where extra services rendered were not proved, the claim of commission payment was disallowable. In the case of Vijayakumar Mills Ltd. (supra), the Hon'ble Madras High Court held that the Tribunal was justified in refusing to allow a sum to be deducted as business expenditure. When such expenditure was shown as commission payment to a financier in addition to interest on loan, the Court gave this ruling on the ground that the onus of establishing that an item of expenditure was properly incurred and was allowable directly rests upon the assessee making the claim and solely for the reason that he has entered into an agreement, it does not follow that requirements of section 10(2)(xv) of the I.T. Act, 1922 (corresponding to section 37 of the I.T. Act, 1961) are satisfied.
18. The Hon'ble Supreme Court in the case of Nawabganj Sugar Mills Co. Ltd. (supra) considered a case where commission was said to have been paid to a selling agent. The Supreme Court approved the finding of fact given by the Tribunal in that case that there was no service rendered by the selling agent so as to justify the receipt of commission payment. In this case the finding of the Tribunal was that there was no privity of contract between the assessee and the sole selling agent. The decision of the Apex Court upholding the finding of the Tribunal in that case is directly applicable to the facts of the present case as it is clearly established that there was no privity of contract between the assessees on the one hand and M/s. VAP Corpn. on the other because otherwise a third party by name Shri Muchala would not have emerged during the examination of Shri S. Thakkar.
19. In the case of Vishnu Agencies (P.) Ltd. (supra), the Hon'ble Calcutta High Court decided a similar issue holding that the claim of commission payment was not allowable as a business expenditure because there was no evidence in that case to show that a particular agent had not rendered any service to the assessee. The Court also held that it was the duty of the authorities to consider oral as well as documentary evidence to determine whether payment was for business purpose. The ratio of this decision squarely applies to the facts of the present case before us. It is clear that the Assessing Officer has done his duty of considering oral and documentary evidence to see whether payment was given. It is also proved by the statement of Shri S. Thakkar that he did not receive any commission payment and did not render any service for earning such huge commission except in aiding and abetting the assessees in a hawala transaction.
The Hob'ble Supreme Court in Sumati Dayal's case (supra) considered a case of cash credits added as income from undisclosed sources. The Apex Court ruled that the onus was on the assessee to prove that the credits were genuine. The Supreme Court upheld the finding given in the majority view of the Settlement Commission to the effect that the assessee in that case had not participated in any of the horse races except to the extent of purchasing of winning tickets after the events presumably with unaccounted funds. The following observation of their Lordships is worth quoting :-
"In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence."
Applying the test of human probabilities (as laid down by the Supreme Court in the above-mentioned case) in the present case before us, it is quite clear that Shri S. Thakkar's statement stands uncontroverted and the assessees' claim of having paid commission to Shri S. Thakkar is a big hoax being played on the Revenue. The whole transaction smacks of a shady deal.
In the light of the detailed reasoning given by us we endorse the action taken by the Assessing Officer in disallowing the claim of commission said to have been paid by the assessees to M/s. VAP Corpn. We do not find any infirmity in the order of the CIT(A) in confirming the disallowance. We have also discussed the relevant judicial principles in the light of reported case laws while drawing our conclusion.
In the result, the appeals are dismissed.