Income Tax Appellate Tribunal - Delhi
Rajesh Kumar Pasricha, New Delhi vs Department Of Income Tax on 19 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F' NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No. 2745/Del/2012
AY: 2008-09
ACIT, vs Rajesh Kumar Pasricha,
Circle-23(1), Flat No. 102, A-13,
C.R. Building, Kailash Colony,
New Delhi. New Delhi.
(PAN: AAHPP3063B)
(Appellant) (Respondent)
Appellant by: Shri Atiq Ahmad, Sr. DR
Respondent by: Shri Sudhir Jain, CA
ORDER
PER SUDHANSHU SRIVASTAVA, JM
The present appeal has been preferred by the Department against order dated 29.2.2012 passed by the Ld. CIT(A)-XXIII, New Delhi for Assessment Year 2008-09.
2. The facts of the case are that the assessee is an individual engaged in the business of export of engineering goods to USA and gulf countries under the name and style of M/s Vortex Systems. The only dispute is with regard to the disallowance of commission amounting to Rs. 1,04,08,243/- paid to Mrs. Rakhi Arora .
3. The assessee had incurred commission expenses of Rs. 1,04,08,243/- in AY 2008-09, which was paid to Mrs. Rakhi Arora I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 under an agreement appointing Mrs. Rakhi Arora as agent for canvassing and promoting orders for sales of castings and machine parts in USA and for realization of sale proceeds.
4. The AO made disallowance by making reference to similar disallowance in AY 2006-07. The observations of the AO in paragraph 8 are extracted here under:
"8. The facts of the current year case is no way different from that of A.Y. 2006-07 except that the assessee has made available a copy of agreement but he has completely failed to prove as to what was the actual effort made by Mrs. Rakhi Arora in affecting the sale. A number of opportunities were given to assessee to produce the recipient so that the same can be examined. However, those were not availed off for the reasons best known to assessee. In view of the above, it is crystal clear that the payment made by the assessee is in fact a sham transaction and does not call for allowance u/s. 37(1) of the Income Tax Act, 1961. Accordingly, the amount of Rs. 1,04,08,243/- is being disallowed u/s. 37(1) of the Income Tax Act, 1961 and shall be added in the income of assessee. "
5. It was submitted by the Ld. AR that the issue of disallowance of commission paid to Mrs. Rakhi Arora for Assessment Year 2006-07 came up before 'F' Bench of ITAT, Delhi and the matter was restored to Assessing Officer by the Bench vide order dated 25.10.2011 in I.T.A. No. 252/Del/2010 with the following observations:-
"In the present case, it is not in dispute that the assessee had produced the copy of agreement and the details of the payment before the Assessing Officer. The details of commission paid and payable was also furnished. The details of sales made by the assessee to 2 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 overseas customers were also available on record. The assessee had subsequently produced a confirmation letter from M/s Waukesha Iron Foundary Inc. before the learned CIT (A), which was admitted for consideration at the appellate stage. The details of invoices issued by the assessee to M/s Waukesha Iron Foundary Inc. and details of payment received from M/s Waukesha Iron Foundary Inc. are part of the assessee's record and the relevant entry in respect thereof have been made in the books of account. The assessee has now collected the various e-mail communication made between the parties from time to time and filed before us for consideration to further prove the assessee's claim. Since these e-mail communications go to the root of the issue regarding activities or services rendered by Mrs. Rakhi Arora, we are inclined to admit these evidences for consideration so that the issue whether Mrs. Rakhi Arora had actually rendered any services to the assessee, can be decided in its right and correct perspective. However, the veracity and genuineness of these e-mail communications and other documents, now filed before us, have never been examined and verified by the AO as the AO had no occasion to examine and verify the same. We, therefore, restore the issue regarding factors of services alleged to have been rendered by Mrs. Rakhi Arora back to the file of the AO for his fresh adjudication, after examining all the evidences, documents and papers, that have now been filed by the assessee before us, in course of which he shall provide reasonable opportunity of being heard to the assessee. The assessee shall produce all these details and evidences before the AO for his examined and verification. We order accordingly, thus ground No. 1 raised by the assessee is restored back to the file of the AO for his fresh adjudication."
6. Subsequently, in pursuance of directions of Tribunal, AO accepted the claim of commission vide order u/s 254/143(3) dated 19.11.2012 for AY 2006-07.
3 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09
7. In the year under consideration, the Ld. CIT (A) after detailed consideration of facts and order of ITAT (for AY 2006-07) accepted the claim of commission vide paragraph 5.2 of the appellate order dated 29.02.2012. Findings of Ld. CIT (A) are extracted as below:
"5.2 It may be seen from the assessment order, that the disallowance of claim of commission has been made principally on the grounds that evidence of services rendered was not provided, and that Smt. Arora was not produced for examination. Reliance was also placed on the assessment order for the A.Y. 2006-07, and the CIT (A)'s order of that year. However, the assessment for that year has been set aside by the Hon'ble ITAT, with specific Directions for verification of such evidences as Affidavit and copy of passport of Smt. Rakhi Arora, copies of purchase orders, debit notes, payments of commission, payments received from M/s WFI, email communications between the parties, and copies of invoices. All these relevant evidences have been produced and verified for the year presently under appeal. There can be no doubt that the documents have direct bearing to the issue under adjudication. A plethora of evidences have been produced to prove the identity of the UAE based agent, and the genuineness of the services rendered and payments made. After carefully examining the evidences filed by the appellant in support of the claim of commission, it is held that the commission has been paid in lieu of actual services rendered, and constitutes an expenditure deductible from the profits of the business. Accordingly, the appellant succeeds at ground no. 1. The remaining grounds of appeal is general/consequential in nature and require no separate adjudication."
8. Aggrieved and now in the appeal before us, the Department has raised the following grounds of appeal:-
"(i) On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the disallowance of 4 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 commission u/s 37(1) of Rs. 1,04,08,243/- claimed as deduction by assessee.
(ii) On the facts and circumstances of the case the Ld. CIT(A) has erred in admitting the additional evidences under Rule 46A of the I.T. Rule 1962 without providing opportunity to the Assessing Officer as required under sub Rule 3 of Rule 46A.
(iii) The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal."
9. Ld. DR submitted that the assessee had claimed deduction of Rs.1,04,08,243/- on account of commission expenses. The assessee had made available a copy of agreement entered by him with Mrs. Rakhi Arora and also a copy of the bank statement identifying the payment. However, the assessee had failed to prove the nexus of payment made by him vis-à-vis sales made. The Ld. DR submitted that the mere existence of an agreement between the assessee and its selling agent or payment of certain amounts as commission, does not bind the Assessing Officer to hold that the payment was made exclusively and wholly for the purpose of assessee's business. The Ld. DR submitted that the Ld. CIT (A) had erred in deleting the addition. He also reiterated that the Ld. CIT (A) had erred in admitting additional evidences under Rule 46A of the Income Tax Rules, 1962 without providing opportunity to the Assessing Officer. 5 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09
10. The Ld. AR on the other hand supported the order of the Ld. CIT (A) and also filed a synopsis.
11. We have heard the rival submissions and carefully perused the relevant material placed on record. We find that the issues disputed by the Department have been addressed by the Ld. CIT(A) in para nos. 4 to 5.2 of his order which are being reproduced below for ready reference:-
"4. I have carefully considered the written submissions made on behalf of the appellant and perused the assessment order. I have also carefully gone through the order of the CIT (A) and of the ITAT for the Assessment Year 2006-07. The CIT(A)XXIII, vide order dated 16.11.2009, had confirmed the order of the Assessing Officer disallowing the claim of commission payment of Rs. 26,42,636/- made to Smt. Rakhi Arora. The CIT (A)'s finding is based on the facts that the appellant did not produce evidence of services rendered in the form of correspondence, and even the existence and identity of the agent was not proved. The Hon'ble ITAT, Delhi, vide order dated 25.10.2011, has set aside the order of the CIT(A) restoring the issue to the file of the Assessing Officer for fresh adjudication. The extract of the ITAT's order is reproduced in the appellant's submissions above. The ITAT has directed that the Assessing Officer should verify the invoices issued by the assessee to M/s Waukesha Foundry Inc., USA (hereafter referred to as WFI), details of payment received by WFI, copies of purchase orders from WFI, e- mail communication between the assessee and Smt. Rakhi Arora, and the relevant entries in the books of accounts. The learned Bench has directed that 'the issue whether Smt. Rakhi Arora has actually rendered any services to the assessee (is to) be decided in its right and correct perspective'. These observations have 6 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 been kept in mind in deciding the issue of allowability of commission paid to Smt. Rakhi Arora in the current year.
{5} The appellant has furnished copy of the complete passport of Smt. Rakhi Arora, evidencing her residence in the UAE from 1998 onwards. The appellant has also furnished the confirmation of Smt. Rakhi Arora affirming the receipt of commission of US$ 249,065 from M/s Vortex Systems for mobilizing orders and supplies to M/s WFI in the Financial Year 2007-08. The appellant has further produced the copies of bills issued to M/s WFI by the appellant, along with debit notes of commission of 12.5% of the same invoice value issued by Smt. Arora. Copies of regular and frequent e- mail correspondence between the appellant and Smt. Arora have been filed. The e-mail correspondence shows that Smt. Arora has placed the orders, monitored short supplies and delayed shipments, and has evidently been involved in ensuring despatches as per the requirement of the principal. An example of correspondence dated 5.10.2007 is as under:
"From: Rakhi Arora (mailto:aarora&emirates.net.ae) Sent: Friday, October 05, 2007 1:29 AM To:'vortex @ airtelbroadband.in' Attach: Vortex Schedule WF Rev34_100407.xis Subject: FW: VortexSchedule WFRev34_ 100407 Rajesh, Please mark your shipments in "Blue" on a weekly basis and return back by Wednesday every week >Return by Wed. 10/10 7 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 The parts highlighted in "Red" are the critical parts, please advise status on each.
What are you going to do to catch up on the negative quantities? We will wait for your reply. Please advise status on the following parts: 40676- When shipping by Air? What is your plan to catch up on the negative quantities?
101860- You have 30 pcs scheduled for Oct 20- Do not ship- We will not take- (No requirements) 130001000C- You have an extra 40 pcs scheduled in red for October- Do not ship! Push out to November. 101861- You are short 16 pcs in Sept. When will they ship? Will we get in Oct?
034001110S- You are short 15 pcs in Sept. When will they ship? Will we get in Oct?.
122054- None scheduled for Oct. When will they ship? Will we get in Oct?
122056- You are short 30 pcs in Oct. When will they ship? Will we get in Oct? How will you catch up on the negative qty?
122058- You are short 40 pcs in Sept. When will they ship? Will we get in Oct?
Thanks Rakhi Arora."
(5.1) The agreement signed by the appellant with Smt Arora, being 'appointment of canvasser for promoting sales of castings and machine parts to WFI, USA' dated 12.3.2007 for the period 1.4.2007 to 31.3.2008 is on record. The main terms and conditions for payment of commission @ 12.5% are stated in detail in the agreement. The appellant has also 8 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 furnished the copy of account of commission in the books showing the amount payable, and the copy of the bank account showing the payments made between 16.4.2008 and 3.12.2008. The appellant has also furnished the confirmation of M/s WFI, USA affirming that the orders were placed on M/s Vortex Systems through Smt. Rakhi Arora. The appellant has furnished copies of the instructions to the Bank for remittance against commission to the overseas agent through its EEFC account, along with the form A-2 as per the requirements of the Reserve Bank of India and the Foreign Exchange Management Act. The appellant has certified that all the evidences relied upon were provided to the Assessing Officer during assessment proceedings. {5.2} It may be seen from the assessment order, that the disallowance of claim of commission has been made principally on the grounds that evidence of the services rendered was not provided, and that Smt. Arora was not produced for examination. Reliance was also placed on the assessment order for the Assessment Year 2006-07, and the CIT (A)'s order for that year. However, the assessment for that year has been set aside by the Hon'ble ITAT, with specific directions for verification of such evidences as affidavit and copy of passport of Smt. Arora, copies of purchase orders, debit notes, payments of commission, payments received from M/s WFI, e-mail communications between the parties, and copies of invoices. All these relevant evidences have been produced and verified for the year presently under appeal. There can be no doubt that the documents have direct bearing to the issue under adjudication. A plethora of evidences have been produced to prove the identity of the UAE based agent, and the genuineness of the services rendered and payments made. After carefully examining the evidences filed by the appellant in support of the claim of commission, it is held that the commission has been paid in lieu of actual services rendered, and constitutes an expenditure deductible from the profits of the business. Accordingly, the appellant succeeds at ground of appeal No 1. The remaining grounds of appeal are general/consequential in nature and require no separate adjudication."
9 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09
12. On a careful consideration of the findings by the Ld. CIT (A) as above mentioned, we are of the considered opinion that the assessee has discharged his onus regarding the commission on both the counts viz. (i) that the payment was actually made; and (ii) that the payment was made for the purpose of business. As far as the issue of allowing additional evidence to be submitted before the Ld. CIT(A) is concerned, the Ld. CIT(A) has given a specific finding in Para 5.1 of the impugned order that, "the appellant has certified that all the evidences relied upon were provided to the Assessing Officer during assessment proceedings ." Therefore, on an overall consideration of the facts of the case, we are not inclined to interfere with the findings recorded by the Ld. CIT (A). Hence we dismiss ground nos. 1 & 2 of the Department. Ground no. 3 being general in nature is not being adjudicated upon.
13. In the result, the appeal of the Department is dismissed.
Order pronounced in the open court on 19th of February, 2016.
Sd/- Sd/- ( G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DT. 19th FEBRUARY, 2016 'GS' 10 I.T.A. No. 2745/Del/2012 Assessment Year 2008-09 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR By Order Asstt. Registrar 11