Indian Kanoon - Search engine for Indian Law

Income Tax Appellate Tribunal - Indore

The Acit-Circle 4(1), Indore vs Shri Satish Jain, Indore on 16 January, 2017

आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE ी डी.ट .गरा सया, या यक सद य तथा ी ओ.पी.मीना, लेखा सद य के सम% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER आ.अ.सं./ I.T.A. No. 620/Ind/2016 %नधा'रण वष' /Assessment Year: 2011-12 ACIT, Shri Satish Jain, Circle 4(1), Vs. Prop. Satish Agro Industries, Indore.

Indore.

था.ले.सं./PAN: ABVPJ0983D अपीलाथ /Appellant यथ /Respondent अपीलाथ क ओर से/Appellant by Shri Pankaj Shah and Shri G.J.Shah, C.A. यथ क ओर से/Respondent by Shri Lalchand, CIT DR and Shri Mohd. Javed, Sr. DR सुनवाई क तार ख 20.12.2016 Date of hearing उ घोषणा क तार ख 16.01.2016 Date of pronouncement आदे श /O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR.

This appeal is filed by the Revenue against the order of ld. Commissioner of Income-tax (Appeals)-II, Indore I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

[hereinafter referred to as the CIT(A)] dated 31.03.2016 and pertains to assessment year 2011-12 as against appeal decided in assessment order passed u/s 143(3) of the Act dated 26.03.2014 of ACIT, Circle 4(1), Indore [hereinafter referred to as the AO].

2. The Revenue has taken following grounds of appeal :-

(i) Whether on the facts and circumstances of the case, the ld. CIT(A)-II, Indore, is right in deleting the addition made by the AO on account of commission expenses.

(ii) Whether the ld. CIT(A) is justified in deleting the disallowance on account of commission expenses when assessee is unable to prove the services rendered for which such commission payment is being made.

(iii) Whether the ld. CIT(A) is justified in deleting the disallowance on account of commission when the business of the assessee is spread all over the M.P. I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

but the maximum of commission agents belongs to Indore.

3. Briefly stated, the facts of the case are that the assessee is dealing in sales of plant protection equipments which are used only for agricultural purposes. More than 80% of the sales are made through Government nodal agencies viz. Madhya Pradesh Agro Industries Development Corporation Limited and Madhya Pradesh State Co-operative Marketing Federation in state of Madhya Pradesh, Maharashtra State Agro Industries Development Corporation Limited in the State of Maharashtra, Chhattisgarh Mandi Prakosth Marketing Board in the State of Chhatisgarh. The AO noted that the assessee has debited a sum of Rs. 1,64,08,950/- on account of commission and brokerage in profit and loss account. In order to examine the genuineness of transaction and requirement of commission agents for facilitating the purchases from the assessee, the notice u/s 133(6) of the Act were issued to the aforesaid agencies, in response to which the agencies have I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

replied that there was no requirement of agents. On this basis, the AO issued show cause notice to the assessee proposing to disallow commission expenses. The assessee filed evidences like affidavits of agents describing the services rendered and confirming the transactions, details of TDS made, Bank account details, returns of income of agents were filed. However, the AO was of the view that replies from various Government Departments proved that such commission expenses are not genuine. Therefore, the AO concluded that the assessee has adopted modus operandi for reducing the profit by way of booking commission. Further, such incorrect and invariably payment of commission is also against the policy of Government of India. The AO further observed that most of the agents were based at Indore, therefore, they could not have catered to 32 districts of the State. The assessee has also claimed before the AO that such payment of commission was allowed by the AO in the assessment for financial year 2010-11. However, the AO was not satisfied with the assessee and observed that the assessee has inflated debit side of the I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

profit by booking fictitious expenses under the head "commission". Therefore, the commission expenses of Rs. 1,64,08,950/- was disallowed.

4. Being aggrieved, the assessee has filed the appeal before the CIT(A).

5. Before the ld. CIT(A), it was contended that the detailed nature of services rendered by such commission agents, which included entering into rate contract, marketing in the villages, educating the usage, demonstration, completing paper formalities, documentation, follow up for payment after sales services were submitted. Therefore, it was contended that such funds/jobs could not have been executed without man-powers ear-marked for the villages and various works. Further, all the expenses included travelling, lodging etc. in providing services were supposed to borne by the representatives/agents. Therefore, it was argued that this business policy to pay commission instead of fixed salary has been found economical also, which also reduced travelling and daily allowances, which were required to be paid to employees I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

for different station work besides statutory compliances in case of permanent employees such as P. F., E. S. I., Gratuity, Bonus etc. It was also submitted that the federation/agencies were not concerned whether the assessee provided services to employees or with the help of agents. It was also submitted that the AO did not choose to cross -examine the agents, who had furnished details of services rendered and confirmed the transactions on affidavits, which is against the decision of Apex Court in the case of Mehta Parekh & Co. vs. CIT, (1956) 30 ITR 181 (S.C.), where the law has been laid down that affidavits cannot be rejected in law unless such deponents have either been cross-examined or called upon to produce documentary evidence in support of the affidavit sworn by them. The assessee has also relied on the decision of the Jurisdictional M.P. High Court in the case of CIT vs. Pure Pharma (P) Limited, 270 ITR 382 (MP), wherein commission was found paid on supplies made to Government and its agencies and all the payments were made to various parties by account payee cheques/demand drafts, the identity of each of I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

the agents was established and the expenditure was found incurred for business purposes. It was held that such expenses were allowable and consequently the addition was deleted. In the instant case also, the agents have confirmed the services rendered and the AO has not brought on record anything contrary to the admission of the agents, whether the payments have been made by cheques after deduction of TDS. Considering these facts, the ld. CIT(A) observed that the assessee has been a supplier of agricultural equipments to the farmers of as many as three states and 80 % of the sales has brought by the AO has been made through these government agencies. The ld. CIT(A) noted that the AO while framing the queries has directly asked the nodal agencies as under :-

"b. Whether such purchase was made through any commission agent ? If yes, name and address of such commission agent. "

6. Therefore, the ld. CIT(A) noted that the reply to this query has to be negatived as the requirements of agents for I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

facilitating of sales and after sales services is of the assessee company and not of the Government nodal agencies. Therefore, the basis adopted by the AO for making disallowances of commission has not been considered as well founded as the same has emanated from the wrong question framed by the AO. There are number of formalities related to tender, sales, issues related to payments, awareness of farmers, installation of equipments, proper handling, after sale services etc. which are generally handled by the assessee or the representatives/agents. The ld. CIT(A) after going through the letters of M.P. State Agro Industries Development Corporation Limited dated 21.02.2014 submitted to AO on 25.02.2014, wherein they have detailed the various formalities and services required to be handled by the assessee or representatives/agents. Considering all these facts and relying on the decision of Hon'ble M.P. High Court in the case of CIT vs. Pure Pharma (P) Limited, 270 ITR 382 (MP) and on totality of facts, the ld. CIT(A) concluded that the commission expenses have been genuinely and reasonably claimed as I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

such. Therefore, the AO was directed to delete the addition of Rs. 1,64,08,950/-.

7. Aggrieved by the order, the Revenue has filed this appeal before the Tribunal.

8. The ld. Sr. Departmental Representative submitted that the assessee is supplying agricultural equipments to the farmers through nodal agencies of Madhya Pradesh Agro Industries Development Corporation Limited and others. The AO on enquiry found that Government agencies do not require any agents. Therefore, the ld. Sr. Departmental Representative contended that the AO's findings were correct as the assessee has adopted this type of modus operandi to reduce its profit. The ld. Sr.Departmental Representative vehemently supported the order of the AO.

9. On the other hand, the Ld. Counsel for the assessee supported the order of the ld. CIT(A) and submitted that the allegation of the Revenue is that the business related to Government supplies, no commission is required. However, it was submitted that the Government agencies are merely I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

facilitators and the actual buyers are farmers and, therefore, representatives of the assessee create demand, advertise the product of the assessee, complete the formality, follow up the payment and carry out various other services as described in the detailed submission before the AO as well as CIT(A) and incorporated in order of the ld. CIT(A) also. It was submitted that it was a commercial decision of the assessee not to recruit employees and avail services of representatives, which saved various fixed costs and was for a performance oriented were like various allowances of travelling, dearness allowance, P.F. E.S.I.C. liability and compliance thereof. It was also submitted that the Government Agencies have confirmed the roles of their representatives in carrying out functions related to supply in their letters. The Ld. Counsel for the assessee further placed reliance in the case of CIT vs. Pure Pharma, (2005) 144 Taxman 364 (MP) of Jurisdictional High Court, wherein the requirement of Agents/ Representatives in the case of business of Government supplies and payment of commission therein has been approved by the Hon'ble I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

Jurisdictional High Court. Further, Government Agencies have confirmed the involvement of the Representatives and TDS of payment of commission was made through cheques and confirmation was filed with the agents with their tax returns, their affidavits and PAN details etc. Therefore, the genuineness of expenses as well as identity has been established. Hence, the ld. CIT(A) was correct in deleting the disallowances made by the AO.

10. We have considered the facts, rival submissions and perused the material available on record. On going through the assessment record as well as findings of the ld. CIT(A), we find that the assessee has submitted detailed evidences like names of the agents, PAN numbers, describing services rendered by the Agents, confirming the transaction, details of the TDS made, Bank account details with returns of income of agents. However, the AO has failed to examine or cross- examine these evidences by calling the concerned Agents. We also note that the question framed by the AO to various Government Agents like Madhya Pradesh Agro Industries I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

Development Corporation Limited and Madhya Pradesh State Co-operative Marketing Federation etc. was whether such purchases were made through any commission agents ? If yes, the names and addresses of such commission agents. Therefore, the reply to this question had to be in negative as the commission agents were appointed by the assessee and not by the Government nodal agencies. We also note that the assessee is dealing in supplies of equipments to the farmers in as many as three states spread over a large geographical area. Therefore, requirement of Representatives for doing such jobs cannot be denied. Further, M.P. State Agro State Marketing Development Corporation Limited vide their letter dated 21.02.2014 placed at paper book page no. 53, prescribes the various formalities and services required to be handled by the assessee or representatives of the agents. Therefore, we are of the considered opinion that the ld. CIT(A) was justified in deleting the addition on account of commission payments debited to the profit and loss account. This view is also supported by the decision of the Jurisdictional High Court as I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

relied upon by the ld. Authorized Representative of the assessee, the Hon'ble High Court in the case of CIT vs. Pure Pharma, (2005) 144 Taxman 364 (MP) in para 3 & 4 held as under :-

"3, A few facts material for deciding the said appeal, in short, may be mentioned as under :

The Respondent/assessee company is engaged in manufacturing and sale of pharmaceutical formulations. During the previous financial year, the assessee had paid total commission of Rs. 13,35,336/-. Out of this, a sum of Rs. 10,24,290/- was paid as commission on sales made to the Government and its agencies and a sum of Rs. 3,11,046/- was paid as commission to non-Government purchases. Since, a doubt was raised with regard to the payments made to various parties as commission, enquiry was held. It was found that all the payments have been made as commission to various parties by demand drafts, wherein the identity of each of the agents was also established. It has also been found that the commission was paid exclusively for business purposes only.

4. All these are findings of fact and no substantial question of law, as is required to be formulated for deciding the appeal, arises in the same. The Tribunal has also placed reliance on a judgment of the Delhi High Court reported in I.T.A.No. 620/Ind/2016 - A.Y.2011-12 Shri Satish Jain, Indore.

CIT vs. Electric Construction Equipment Co. Ltd., [1990] 182 ITR 510, wherein the Delhi High Court dealing with identical question has already decided the matter against the present appellant-Revenue."

11. Therefore, considering the totality of the facts and respectfully following the decision of Jurisdictional High Court, we are not inclined to interfere with the findings of the ld. CIT(A). Accordingly, the appeal of the Revenue in respect of above three grounds is dismissed.

12. In the result, the appeal of the Revenue is dismissed.

The order has been pronounced in open court on the 16th January, 2017.

           Sd/-                                     Sd/-
      (डी.ट .गरा सया)                             (ओ.पी.मीना)
      या यक सद य                                 लेखा सद य
    (D.T.GARASIA)                              (O.P.MEENA)
   JUDICIAL MEMBER                         ACCOUNTANT MEMBER


*दनांक /Dated : 16th January, 2017.

CPU*