Income Tax Appellate Tribunal - Indore
The Ito, Ward-1(1), Indore vs M/S. Agro Equipment Co. P. Ltd., Indore on 5 January, 2017
ACIT vs. Agro Equipment
ITA Nos. 49/Ind/2013 & 803/Ind/2014
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. 49/Ind/2013
नधारण वष /Assessment Year: 2009-10
ACIT 4(1)
Indore :: अपीलाथ /Appellant
Vs
M/s Agro Equipment Co.Pvt. Ltd.
Indore
था.ले.सं./PAN: AABCA 4685R :: यथ /Respondent
आ.अ.सं./I.T.A. No. 803/Ind/2014
नधारण वष /Assessment Year: 2010-11
ITO Ward 1(1)
Indore :: अपीलाथ /Appellant
Vs
M/s Agro Equipment Co.Pvt. Ltd.
Indore
था.ले.सं./PAN: AABCA 4685R :: यथ /Respondent
राज व क ओर से/Revenue by Shri Mohd. Javed
नधा रती क ओर से/Assessee by Shri Sudhir Padlia
सन
ु वाई क तार#ख 9.11.2016
Date of hearing
उ&घोषणा क तार#ख 5.1.2017
Date of pronouncement
1
ACIT vs. Agro Equipment
ITA Nos. 49/Ind/2013 & 803/Ind/2014
आदे श /O R D E R
PER SHRI D.T. GARASIA, JM
These appeals have been filed by the revenue against the orders of the learned CIT(A)-II, Indore, dated 27.11.2012 and 30.9.2014.
2. The common issue involved in these appeals is whether the learned CIT(A) was justified in allowing the commission expenses disallowed by the Assessing Officer.
3. The brief facts of the case are that the assessee filed its return of income electronically on 29.9.2009 declaring total income at Rs.27,09,870/- for the assessment year 2009-10 and Rs.7,40,450/- for the assessment year 2010-
11. The Assessing Officer found that in the profit and loss account a sum of Rs.14,15,925/- has been shown as commission paid to Madhya Pradesh Laghu Udyog Nigam Limited. Simultaneously, commission amounting to 2 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Rs.66,00,024/- has been debited as paid to other persons. The assessee was asked by the Assessing Officer to establish the genuineness as well as reasonableness of expenditure in question. The assessee was further required to explain the services rendered against which the commission has been claimed as expenditure. The A.O., after considering the submissions of the assessee, observed that "presence of middlemen in Government transaction is not welcomed by the Government. Thus no Government Officer would dare to propagate and allow presence of middlemen. That is why the Government is following the method and practice of assigning the task to Madhya Pradesh Laghu Udyog Nigam. The Government departments constitute a purchase committee for bulk purchases and seek the services of Madhya Pradesh Laghu Udhog Nigam. Thus there is no scope for entry of any middlemen". In this 3 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 view of the matter, the Assessing Officer disallowed the commission claimed to have been paid by the assessee.
4. On appeal, the learned CIT(A) allowed the claim of commission payment by the assessee with the following observations :-
" I have gone through the assessment order and also seen the submission of appellant. Appellant is into the business of supply and installation of submersible pumps which are purchased by Government departments mainly by Public Health Engineering Deptt. For this purpose services services of commission agent are required in order to gather the quantity and type of submersible pumps needed by various Government departments. After persuing various Govt. agencies, the commission agent works for issuing of indents from such Govt. Offices, quoting requirment of pumps. Such indents are then submitted by commission agents to 4 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Madhya Pradesh Laghu Udyog Nigam Ltd. (MPLUN). Thereafter commission agents pursue MPLUN to get the tendering process done on such indent and there liasoning and persuasion is required for getting the purchase order for such pumps being placed in name of appellant. After getting purchase orders in favour of appellant, commission agents are required to ensuren supply of pumps in time, getting them properly installed and get a favourable inspection report from resective government deptt. so that the payment is released by that deptt in favour of the appellant.
Hence the role of MPLUN in Government contract is limited to job of calling tenders for every purchase order and finalisation of tender process by placing order in name of one of the parties. The commission agents are involved in pre-tender and post tender work. Considering the description given MPLUN and 5 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Commission agents are working towards same goal of placing Government work orders, but they have separate and independent areas of work which are not overlapping. The A.O.'s view that in Government contracts there is no space for commission agents, is not a correct view and facts narrated above disprove such view.
There is no bar on commission agents in getting pre-tender and post tender work done in Government contracts. Their use of persuasive skills in garnering government orders, their involvement in getting all the conditions of contract properly complied and their help in getting the inspection report of such work signed are all parts of commercial expediency.Payment to commission agents in Government contract is consistently held as an allowable expense by various courts namely Bharat Medical Stores (2009) 308 ITR 6 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 373(P&H), Laxmi Engineering Industries (2008) 298 ITR 203 (Raj.), Nestor Pharmaceuticals (P) Ltd. (2000) 33 DTR (Del) etc. The only prohibition is on gaining Government contracts through illegal gratification or commission payment to Government or its representation as that is against the public policy and that is disallowable under explanation to section 37(1) of IT Act. But in present case neither there is any allegation of such payment, nor there is any proof of the same.
There is no restriction on person of Ratlam working as commission agent in Indore and vice versa. It is basically a liason work and can be done by person acquainted with officers of Govt. Deptt. Depending on quantum of work, more than one commission agents could be deployed.
7 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 There is also no bar on payment of commission to relatives if services are rendered by them as held in Computor Graphics Ltd. (2006) 235 ITR 84(Mad) and Microtex Separators Ltd. (2007) 293 ITR 451(Kar.). Payment of commission is made to only one related person namely Shri Rajesh Gadia who is instrumental in organising entire work of appellant company and as a result of such commission payment the turnover of appellant has substantially improved over the years as shown in table given above.
After the appellant filed details of services rendered by commission agents, copy of their ledger accounts, copy of bills, details of cheque payments to such agents, the onus shifted on A.O. to disprove such facts. But A.O. did not conduct any enquiries and no evidence was gathered to disprove the evidences produced by appellant.
8 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 On this issue of commission payment, rule of consistency has to be followed. It is seen from submission of appellant dated 23.11.2012 that appellant has claimed such commission expenses in at least 4 earlier years i.e. in A.Y. 2005-06 to 2008-09 and commission expenses have been allowed to appellant in all 4 years, even when scrutiny assessments were conducted in A.Y.2005-06 and A.Y. 2006-07. Following the rule of consistency, such commission expenses has to be allowed to appellant in A.Y. 2009-10 also. For such decision reliance is placed on the caase of Mandeep Singh (2010) 328 ITR 169 (P&H).
Appellant has filed copy of acknowledgement for filing return and computation of income for A.Y. 2005-06 of all its commission agents. It is seen from the same that entire commission receipt is reflected by them in their return of income and after claiming only minor 9 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 expenses from it, substantial part is shown in their net income. For example a commission of Rs. 2,05,912/- was paid to Shri Mukesh Ratanlal Khaniwal HUF, who has reflected this receipt in return and after claiming expenses of Rs.30912 has offered net income on this transaction at Rs.1,75,000/- in his return. Similar facts are found in returns of other commission agents.
Considering all the factors mentioned above, the claim of commission expenses of Rs.66,00,024/- are held as expenditure incurred for business and same is held allowable expense. As a result Ground no. 2 of the appeal is allowed."
Against the above findings of the learned CIT(A), the revenue is in appeal before the Tribunal.
5. The learned DR submitted that in the case of Nathulal & Sons, ITA No. 78/Ind/2013 the Tribunal has decided the commission expenditure relating to 10 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Government supplier wherein the Tribunal has discussed various issues wherein it was held that the assessee should produce the evidence for services rendered by the commission agent who were closely related with the assessee. The commission payment made only through cheque is not sufficient to prove the services rendered by the commission agent, therefore, the issue was restored to the file of the Assessing Officer regarding the same. Therefore, on this issue, the file must be restored to the Assessing Officer and the learned CIT(A) is not justified in allowing the claim.
6. On the other hand, the learned AR objected to the submissions of the learned DR on the ground that in this case the facts are entirely different whereas in this case the assessee was never asked to prove the genuineness of expenses claimed by him 11 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 but the same was disallowed as thumb rule that in case of Government supplies, no middleman is required. Moreover, in this case the assessee has paid liasoning charges to various persons in connection with the services rendered by these persons relating to contract arrangement made with State Government through MPLUN. In this case the assessee has made supplies against the annual rate system and those supplier who is qualified in financial bid and technical bid on tender system during the year the assessee was qualified to supply the goods at the rates approved by various Government departments. The department has liberty to choice to distribute the order considering the production capacity of unit, past performance of vendor and location of the vendor. All this procedure was given to the department. The assessee has to 12 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 convince the department for the assessee's items and after obtaining the rate contract, the assessee has to attain their individual requirement. Therefore, after considering this, the learned CIT(A) has allowed the claim. Moreover, in the assessment years 2005-06 to 2008-09 commission has been allowed, therefore, following the rule of consistency, the claim has been allowed. Moreover, he relied upon the decision of the Hon'ble M.P. High Court in the case of CIT vs Pure Pharma; 144 taxmann.364 (MP).
7. We have considered the submissions of both the sides. Looking to the facts and circumstances of the case, we find that in this case the Assessing Officer has disallowed the commission expenses including commission paid to MPLUN of Rs.14,15,925/-, a Corporation of M.P. State 13 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Government enjoying the sole right to convert the intend of purchases. The assessee has shown the commission ranging from 7% to 9% above the commission to MPLUN. The expenditure is supported by the bills raised by the payee. The assessee has given PAN mentioning the bill. The commission has been paid for collecting the requirement from the Government offices located at Indore, Khargone, Mandla, Balaghat, Chhindwara and Dewas. The assessee is engaged in manufacture of sub-mersible pumps and during the year the assessee has supplied the product of the assessee to Public Health Engineering Department, Govt. of M.P. and many other Government departments. Therefore, the assessee has to identify various places, thereafter for getting the orders the assessee has to make installation of submersible pumps at the various 14 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 sites identified by Public Health Department and liasoning charges have been paid by the commission account. Thus, the assessee has made payment for the services rendered. Moreover, the assessee has explained the nature of services rendered. Therefore, we are of the view that the learned CIT(A) is justified in allowing the claim. The same kind of commission was allowed in four earlier assessment years 2005-06 to 2008-09 and it was allowed in scrutiny assessments for the assessment years 2005-06 and 2006-07. Therefore, rule of consistency is followed by the learned CIT(A). We are of the view that the learned CIT(A) is justified. Moreover, the assessee has given sufficient evidence to prove the same. Therefore, we do not find any discrepancy in the order of the learned CIT(A). We also get support from the decision of the Hon'ble High Court in the case 15 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 of CIT vs. Pure Pharma, (2005) 144 Taxman 364 (MP) in which in para 3 & 4 it was 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 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."
5. 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."
16 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 This view is also supported by the decision of the Jurisdictional High Court as 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 CIT vs. Electric Construction Equipment Co. Ltd., [1990] 182 ITR 510, wherein the Delhi High 17 ACIT vs. Agro Equipment ITA Nos. 49/Ind/2013 & 803/Ind/2014 Court dealing with identical question has already decided the matter against the present appellant-Revenue."
8 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 is dismissed.
6. The CO filed by the assessee is of supportive nature, therefore, same is also dismissed.
7. In the result, the appeal of the Revenue and CO filed by the assessee are dismissed.
The order has been pronounced in open court on 5.1.2017.
Sd/- sd/-
(O.P. MEENA) (D.T. GARASIA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 5.1.2017
18