Income Tax Appellate Tribunal - Hyderabad
Transport Corporation Of India Ltd.,, ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND
SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No. Assessme Appellant Respondent
nt year
1214/Hyd/2004 2001-02 M/s. Transport Asst. Commissioner of
295/Hyd/2006 2002-03 Corporation of India Ltd., Income-tax Circle-
430/Hyd/2007 2000-01 Secunderabad. 3(3), Hyderabad
431/Hyd/2007 2003-04
2004-05 (PAN AAACT 7966 R)
1125/Hyd/2007
2005-06
19/Hyd/2009
2001-02
789/Hyd/2009
21/Hyd/2005 2001-02 Asst. Commissioner of M/s. Transport
794/Hyd/2007 2000-01 Income-tax Circle Corporation of India
795/Hyd/2007 2003-04 3(3),Range-3, Hyderabad Ltd., Secunderabad.
(PAN AAACT 7966 R)
Assessee by : Shri Y.Ratnakar &
Shri R.S.Agarwal
Department by : Shri V.Srinivas
Date of Hearing 1.12.2011
Date of Pronouncement
ORDER
Per Bench:
This is a bunch of ten appeals -seven by the assessee and three by the Department. Assessment years relevant are from assessment year 2000- 01 to 2005-06. These appeals are directed against the orders of the CIT(A) IV, Hyderabad. Since common issues are involved, these appeals are being disposed of, with this consolidated order for the sake of convenience.2 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad
2. The first common issue involved in all these appeals of the assessee as well as the Department relates to disallowance of commission paid to employees, representatives and/or agents of customers.
3. Facts of the case in brief are that the assessee company engaged in the business as one of the largest cargo movers having more than 800 branches spread throughout the country. In the course of its transport business, assessee claimed to have made commission payments by way of incentive to various employees, representatives and agents of its customers, whose cargo was carried from one place to another through its largest fleet of surface transport carriers. These commission payments were made as an inducement for bringing transportation business to the assessee in preference to other transport carriers, besides to secure early payment of its bills for transportation and amicable settlement of the claims, which sometimes arise in the normal course of business on account of incidental and unavoidable delays and damages suffered to the cargo in the course of loading, unloading and transportation form one place to another.
4. While for the assessment years 2001-02 and 2002-03, the assessing officer disallowed 15% of the amounts of commission claimed of Rs.5,15,28,011 and Rs.5,21,16,149, which worked out to Rs.77,29,201 and Rs.78,17,422 respectively, on a total turnover of Rs.451,50,78,301 and Rs.468,09,42,289 respectively, for the assessment years 2000-01, 2003-04, 2004-05 and 2005-06, the assessing officer disallowed the entire amounts of commission claimed of Rs.4,71,59,038; Rs.4,59,79,292 and Rs.2,97,24,988 respectively, on total turnover of Rs.4,69,98,808, Rs.470,04,77,024, Rs.554,06,68,903 and Rs.615,30,35,812 respectively.
3 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
5. The factors which weighed with the assessing officer to make the impugned disallowances out of commission payments are summarized below-
a. The addresses of the payees are not available in the self made vouchers and other documents produced on behalf of the Assessee Company. Some of the vouchers do not contain the signatures of the payees. If the payments are genuine, the assessee should have furnished confirmation letters from the payees giving their full address. The signatures of the payees are in most cases mere scribbling. It could be possible that the employers of the assessee company, who prepared the vouchers, themselves signed as payees;
b. Affidavits of the Regional Managers filed by the assessee company are stereo typed in nature. Judicially it has been held that the affidavits cannot be treated as proper evidence unless the contents are based on proved facts. The self serving affidavits have no evidentiary value. c. The so called comparable cases of M/s. Patel Roadways Ltd., M/s. Associated Road Carriers Ltd., M/s. ABC India Ltd and M/s. Sri Ramdas Motor Transport Ltd. are not relevant. Most of the case are not comparable. In any event, the percentage of commission payment by the assessee is excessive;
d. Most of the orders for transportation executed by the assessee company are bulk in nature. These have been obtained on the basis of tenders called by big and reputed industrial companies. Therefore, there was no need to pay the secret commission to the agents/employees of the consignor.
e. The argument of the assessee company that it has to keep the employees of the consignors in good humour by way of inducement for bringing/granting transport business to the assessee company in 4 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad preference to other transport carries; to secure early payments of its bills, to minimize claims of its customers for delays as well as to secure amicable settlement of claims on account of damages suffered to the cargo in the course of loading, unloading and transportation from one place to another, appears to be self-serving statement and is not supported by the evidence. Such a stand is not acceptable. f. Moreover, payment commission by the assessee company is opposed to public policy, as held by the Hon'ble Andhra Pradesh High Court in CIT V/s. Kodandarama & Co.( 144 ITR 395).
g. The decision of the jurisdictional High Court in assessee's own case for assessment years 1981-82 to 1984-85, reported in 256 ITR 701 is against the assessee company. It was held therein in no uncertain terms that it is the duty of the assessee to prove the genuineness of payments. The assessee company failed to discharge its onus and prove the identity of the payees, as well as prove the genuineness of payments, since the payment vouchers did not contain the addresses of the payees. The decision of the Hon'ble High Court has also reached finality with the dismissal of SLP.
h. The fact that during the last several years, the department has accepted the claim of the assessee, is held irrelevant. There is no res judicata in assessment proceedings.
i. The fact that the assessee company is unable to furnish the addresses of the recipients or produce such persons before the assessing officer proves the fact that the entire commission payment was in the nature of secret commission and therefore, not admissible. Further, the effect of insertion of Explanation to S.37(1) of the Act with retrospective effect from assessment year 1962-63 is also to be considered in the context of assessee company's claim as to the allowability of secret commission. The decisions of the Madras High Court in G.A.Vasant 5 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad V/s. CIT (265 ITR 481) and of the Orissa High Court in Tarini Tarpuline Productions V/s. CIT (254 ITR 495) are in favour of the department, since in those cases disallowance of entire secret commission was upheld.
j. The assessee's company's of offer of disallowance of part of commission of a sum of Rs.70 lakhs for the assessment year 2000-01 and Rs.80,00,000 for each of the assessment years 2003-04 and 2004-05, through its letter dated 19.1.2006 is unilateral. Assessee's contention that the Addl. Commissioner and CIT agreed to the proposed disallowance by the assessee company in assessment year 2000-01 is not correct, and the assessee's unilateral offer of disallowance cannot be construed as consent by the Departmental officers, and in any case it is for the assessing officer to decide whether the amounts in question are disallowable or not.
6. On appeal, while the Commissioner of Income-tax(Appeals) sustained entire amounts of disallowance made by the assessing officer for the assessment years 2002-03, 2004-05 and 2005-06, he gave partial reliefs for the assessment years 2000-01, 2001-02, and 2003-04 and sustained disallowances only to the extent of Rs.93,99,774; 25,76,400, and 94,31,808 respectively for these three years.
7. Aggrieved by the disallowances sustained by the Commissioner of Income-tax(Appeals) for all these years, assessee preferred the present appeals before the Tribunal. Similarly, aggrieved by the partial reliefs granted by the Commissioner of Income-tax(Appeals) for the assessment years 2000- 01, 2001-02 and 2003-04, Revenue also preferred appeals for these three years.
6 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
8. Learned counsel for the assessee, reiterating the contentions urged before the lower authorities submitted that the vouchers prepared by every assessee are always self made, and as such this cannot be a ground to reject the evidence in the form of vouchers. It is submitted that in the present case, the vouchers of the assessee are accompanied with copies of relevant consignment notes giving full details about the consignment, the names and addresses of the consigners/consignees, the place of issue/booking, destination of the cargo and freight charges, the date of payment and the amount of commission paid and the names of the payees. The vouchers also contain the acknowledgements in respect of the receipt of commission by the concerned payee. In these circumstances, it cannot be said that the debit voucher read with the consignment note annexed thereto, is no good evidence in respect of payment of commission by the assessee company. The only missing link is the address of the payee. It has been explained that if the full identity of the agents/employees of the customers to whom such commission payments are made, is disclosed it would greatly jeopardize the business interests of the assessee company. Moreover, since the payments are made in very small amounts to large number of persons, the details as to the addresses of the payees are not maintained. The assessee company maintained vouchers in every case commission payment with the signature of the payee, and the assessing officer has not pointed out any specific case, where he did not find the signature of the payee.
9. The learned counsel for the assessee further submitted that the assessing officer has merely proceeded on suspicion when he stated that the employees of the assessee company who prepared the vouchers, may have signed as payees as well. Such an allegation is wholly baseless and arbitrary. The further allegation of the assessing officer that the signatures in most cases are mere scribbling is also not correct. The signatures on the vouchers are only 7 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad those of the payees and it is not correct for the assessee to dictate the customers or for any one else to expect the customers of the assessee to subscribe their signatures in a particular manner. It is affirmed by the learned counsel that the signatures on the vouchers are the normal signatures of the respective payees and observations/allegations of the lower authorities to the contrary are false and baseless.
10. Learned counsel further submitted that the assessee through its letter dated 3rd March, 2006 addresses to the assessing officer for the assessment year 2000-01, had also supplied addresses of some of the parties to whom commission as paid and also requested the assessing officer to examine the genuineness of the payment of commission independently by issuing summons under S.131 of the Act to these payees. The tax authorities did not find anything adverse on this issue from any of the parties. It is also submitted that the lower authorities were not justified in stating that the affidavits of the Regional managers are irrelevant. It is submitted that the Regional Managers are the functional heads of the respective regions falling within their assigned area. An affidavit is a good evidence in law and even the Civil Procedure Code requires affidavits to be filed by both the parties to the proceedings. He submitted that an affidavit cannot be rejected outright as a self serving document, unless the departmental authorities call for the deponents in order to cross examine them with reference to the averments made by them in the respective affidavits. He placed reliance on the decision of the Apex Court in Mehta Parikh (30 ITR 180) in support of this proposition.
11. The learned counsel for the assessee submitted that the comparable cases cited by the assessee are indeed comparable and are relevant. Elaborating the factual position in this behalf, he submitted that even though in the case of Patel Roadways Ltd., in their audited printed financial 8 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad accounts, exact amount of commission payment has not been disclosed, the fact of payment of commission by the said company is admitted inasmuch as the freight is disclosed in the audited accounts net of commission payments, which clearly indicates that the company is admittedly paying commission, and if necessary, the assessing officer could have verified the quantum of commission paid by that company by reference to the assessment records of that company already available with the department. As for ABC India Ltd, the data furnished were in respect of two financial years corresponding to assessment years 2000-01 and 2001-02 and the data for the other years could have been obtained by the assessing officer himself with reference to the ast records of that company. The data furnished by the assessee for the two years clearly prove that the said company also used to pay commission and the range of payment of commission by that company was 1.23% in assessment year 2000-01 and 1.57% in assessment year 2001-02. As against this, taking us through the statement filed giving information for the last 25 years, it was submitted, the percentage of commission payments in the case of the assessee company is far lower than that of ABC India Ltd. It is further submitted that the assessing officer was not correct and justified in alleging that the assessee company itself has conceded that the case of Sri Ramdas Motor Transport Ltd. is not comparable, since assessee's case has always been that the case of the said company was comparable. What was however stated before the lower authorities was that since Sri Ramdas Transport Ltd. also deals in sale of new vehicles as well as manufacture and sale of motor car, their turnover and profits are not comparable. The audited accounts of the said company clearly show that they have also made substantial payments by way of commission. The percentage of commission payments made by that company is in the range of 7.2 to 7.38 of the aggregate freight receipts, which percentage is far higher than that of the assessee company. Learned counsel also disputed the finding of the assessing officer that most of the orders for transportation of cargo were 9 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad executed by the assessee company during the years under appeal, were bulk in nature and have been obtained on the basis of tenders invited by big and reputed industrial company. It is submitted that major portion of the business of transportation carried on by the assessee company was in the nature of retail business. Orders for transportation are received for one or two lorries on day to day basis. Even when the assessee company deals with big and reputed industrial companies, the assessee company did not enjoy any monopoly in its field of business since even big and reputed companies engage several transport operators simultaneously. It is further submitted that there is no bulk order for transportation, since the representatives of big companies have the option to engage any one of the transport companies, which are empanelled by them based upon the tenders and if the assessee company does not pay any commission to these representatives, they will opt to book cargo with other transport companies already empanelled by them simultaneously. It is in the interest of business therefore, that the assessee company has to pay commission even in such cases, where transportation business is received from big industrial companies. He submitted that the assessee has to pay commission to keep the employees of the consignor company in good humour by way of inducement for bringing/granting transport business to the assessee company and for various other incidental purposes, and the lower authorities were not justified in brushing aside this plea of the assessee as a self-serving statement, since it is a well established and recognized practice in the assessee's line of business, viz. transportation business.
12. The learned counsel for the assessee submitted that the decisions of the Hon'ble High Court in assessee's own cases for earlier years, as well as in the case of Kodandarama & Co. (supra) are clearly distinguishable. Elaborating this point ad dealing with the decision of the jurisdictional High Court in the case of Kodandarama & Co (supra) 10 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad learned counsel submitted that in that case before the High Court, the assessee has made contributions to the Andhra Pradesh Welfare Fund, as he was told that he would not get the export permits unless he made the contributions. The Tribunal thereupon found that contribution to the Welfare Fund was a pre-condition for grant of export permits and as such, the same was held by the Court to be in contravention of the public policy. The Hon'ble High Court on that basis reversed the order of the Tribunal. Since in the present case, the assessee did not pay any commission either to any Government Department/Agency or to any Government servant, the said decision of the Hon'ble High Court in the case of Kodanda Rama & Co. (supra) has no application to the facts of the present case.
13. As for the decision of the jurisdictional High Court in assessee's own case (256 ITR 701), for earlier assessment years, viz. 1981-82 to 1984-85, learned counsel for the assessee sought to distinguish the same, by bringing out the peculiar facts and circumstances of the case involved in those years, and highlighted the following distinguishing features-
i. In the four years, considered by the Hon'ble High Court, the relevant payment vouchers were signed only by the employees of the assessee company. The vouchers for those years had not been signed by the recipients, namely the agents/employees of the customers. There were no details on these vouchers either in respect of the transactions in relation to which the commission 11 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad had been paid by the assessee company or in rspect of the recipients.
This is not the case for any of the five years under appeal inasmuch as, admittedly, the payment vouchers produced in the course of assessment proceedings, set out the names of the payees, the consignment nos., the names of the consignors and consignee, the date of consignment, the freight amount, as also the name of the relevant branch of the assessee company, where such consignment for transportation of goods was booked. All the vouchers are duly signed by the respective payees, whose names are noted on each of the concerned vouchers. The allegation to the contrary, as made by the assessing officer, in the assessment orders, to the effect that some of the vouchers did not contain signature of the payees, is wholly and factually incorrect. No such case has been specifically pointed out by the assessing officer anywhere in the assessment orders for any of the five years under appeal. The assessee company asserted that all the vouchers are duly signed by the respective payees.
ii. In the reported decision for the four assessment years 1981-82 to 1984-85, the Hon'ble High Court had referred to the statement of the branch manager of Jaipur Branch to the effect that he did not make any payment of commission to the employees of the contracting parties, after he joined the Jaipur Branch. Reference to the statement of the Jaipur Branch Manager, in the aforesaid judgment, appears to have been made inadvertently 12 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad because of the fact that the statement of Jaipur Branch Manager has already been rejected by the Inspecting Assistant Commissioner of Income-tax, in the course of proceedings in respect of that very year under S.144B of the Act. Shri Dukhi Pandey, the Regional Manager of Varanasi Branch, under whom, the new Manager of Jaipur Branch, Shri V.N.Upadhyay had all along been working at Varanasi, had filed an affidavit before the IAC in the course of the proceedings under S.144B of the Act to the effect that Shri Upadhyay was mainly looking after the operation of vehicles at Varanasi Branch, and was therefore, not concerned and/or aware with commercial matter, regarding payment of a commission which was made thorough Shri L.B.Roy, a senior employee of the Varanasi branch under his (Shri Pandey's) supervision and directions. The statement made by the Regional Manager of the Varanasi Branch in his aforesaid affidavit was believed by the IAC, who directed the ITO in his order passed under S.144B of the Act, not to make any disallowance based upon the statement of Srhi V.N.Upadhyay. These facts are clearly recorded in para 7.53 of the assessment order dated 7.7.1984 passed in the case of the assessee company for the assessment year 1981-82 and a copy of the relevant portion appears at pages 280 to 281 of the paper/book, Vol.II filed by the assessee company in relation to ITA No.430/Hyd/2007 in respect of assessment year 2000-01. It appears that the attention of Their Lordships of the Hon'ble High Court of Andhra Pradesh was perhaps not invited to this portion of the assessment order. Since the statement of Shri Upadhyay, 13 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad was held to be irrelevant by the IAC through his directions given under S.144B of the Act, the said statement was not considered by the assessing officer for the purpose of disallowance of the commission, and in such circumstances, the Hon'ble High Court also should not have considered the said statement of Shri Upadhyay for drawing any adverse inference in that year against the assessee company.
iii. In each of the years under appeal, the assessee had filed affidavits, numbering to as many as 52 in assessment year 2000-01; 76 in assessment year 2001-02; 62 in assessment year 2002-03; 65 in assessment year 2003-04 and 790 in assessment year 2005-06, sworn by the Regional/Zonal/Divisional/Aarea/Controlling Managers, Operational heads like Vice President, and senior executives declaring inter-alia on oath that the commission payments were made by the assessee company by way of incentives to the employees/agents/representatives of customers, who brought in cargo to the assessee company for booking; and that this was an accepted norm and established trade practice in the transport business and that without such payment, it was not possible to survive in the transport line of business.
As against this position in the years under appeal, no such affidavits have been filed by the assessee company earlier in relation to the assessment proceedings in any of the four years considered by the Hon'ble High Court earlier in assessee's own case (256 ITR 701).
14 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
14. So also, it is pleaded that the decisions relied upon by the lower authorities in support of their conclusions are clearly distinguishable. He has dwelt at length bringing out the points of distinction in this behalf.
15. Learned counsel for the assessee submitted that though large number of affidavits have been filed by the assessee during the assessment proceedings for the assessment years under appeal, as stated above, the same were arbitrarily and incorrectly rejected by the assessing officer merely on the ground that they are merely self-serving statements, which have no evidentiary value and could not be treated as proper evidence, unless the contents thereof were based on proven facts. He submitted by the very nature, every affidavit is a self-serving statement, but have the evidentiary value as recognized and emphasized by the Courts in several cases. He vehemently disputed this stand of the lower authorities in brushing aside the evidentiary value of the affidavits by taking us through the provisions of S.3(3) of the General Clauses Act, 1897 and Rule 1 of Order 19 of the Civil Procedure Code, 1908 and placed strong reliance on the following decisions-
(a) Mehta Parikh & Co. V/s. CIT (30 ITR 180)-SC
(b) Union of India & Anr. V/s. Delhi High Corut Bar Association &
Ors.(2002) 4 SCC 275(SC)
(c) Salem Advocates Bar Association V/s. Union of India(2003) 1 SCC
49(SC)
16. Learned counsel for the assessee submitted that in the case of assessee company payment of commission has all along been accepted and allowed by the department as business expenditure, but for small disallowances in some of the years, including for the four years for which matter reached the jurisdictional High Court, which decided the issue in favour of the Revenue. As such, it is pleaded that considering the stand taken by the Revenue for most of 15 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad the years in the past, and the decision of the jurisdictional High Court was rendered against the assessee considering the peculiar facts and circumstances of the relevant four years, was distinguishable from the facts for the years under consideration in these appeals, the commission payments for the years under appeal have to be accepted and allowed as business expenditure. It is submitted in this behalf that even though principles of res judicata do not apply to income-tax proceedings, it is settled position of law that unless facts and circumstances in the subsequent year different, the earlier decisions on the same point in the case of the same assessee cannot be brushed aside. On the merits of admissibility of deduction in respect of commission payments, the learned counsel for the assessee strongly relied on the decision of the Bombay High Court in the case of CIT V/s Sigma Paints Ltd, (188 ITR 6) and elaborating the facts of that case, submitted that facts and circumstances of that case are more or less similar to the case of the assessee and it squarely applies to the facts of the present case. He also placed strong reliance on the following decisions, which according to him, squarely covers the issue in favour of the assessee.
(a) CIT V/s. Goodlass Nerolac Paitns Ltd. (188 ITR 1)-Bom
(b) Dr.G.G.Joshi V/s. CIT(209 ITR 324)-Guj.
(c) CIT V/S/ASK Rathinasamy Nadar (212 ITR 527)-Mad.
(d) CIT V/s. Millsa Stores trading Co. India Pvt. Ltd. (1984) 18 Taxman 85(Bom)
(e) CIT V/s. Hoechst Dyues & Chemicals Ltd. (184) 17 Taxman 389(BOm)
(f) APL India Pvt. Ltd. V/s. DCIT(2010)96 ITD 227(Mum)
(g) Saga Departmental Stores Ltd. V/s. CIT(325 ITR 324(Del)
(h) CIT V/s. Printers House Pvt. Ltd. (23010)188 Taxman 70(Del) 16 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad The learned counsel for the assessee took us through the voluminous paper-
books which inter-alia contained all the affidavits in relation to the entirety of commission payments made by it in each of the relevant years under appeal,. And photocopies of some of the receipted vouchers by way of sample in each of the relevant years. It is submitted that the tax authorities have not pointed out any specific defect whatsoever in any of the vouchers evidencing payment of commission made by the assessee company in any of the years under appeal, but made sweeping remarks in general drawing adverse inferences, as discussed above, against the assessee.
17. Referring to the assessment order dated 31.3.2004 passed by the assessing officer for the assessment year 2001-02 under S.143(3), learned counsel for the assessee submitted that the observations of the assessing officer that from the vouchers of commission payments produced by the assessee company and examined by him, it was found that in certain cases commission was paid in the range of 11% to 32.84% of the freight amounts noted in the accompanying consignment notes; that instances of single payment of commission in respect of several consignments booked from different clienteles were noted; and that apparently payees could not be employees of so many different customers, are arbitrary, incorrect, baseless and false. Even though assessee requested vide its letter dated 21st April, 2004 addressed to the assessing officer, soon after the receipt of the assessment order dated 3st March, 2004, requested the assessing officer to give it copy of the statement allegedly prepared by the assessing officer and kept on the assessment records, giving details of payment of commission in the range of 11% to 32.84% of the freight amounts, the assessing officer did not give any reply to the said letter. It is submitted in this context that the assessee paid minimum level commission for securing the transport business and the commission paid is not at all disproportionate to the freight received in respect 17 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad of the relevant consignments as noted in the accompanying notes; and there was never an occasion whatsoever when single payment of commission as made in respect of several consignments booked form different clientele.
18. Referring to the assessment order dated 31.3.2004 passed by the assessing officer for the assessment year 2001-02 under S.143(3), learned counsel for the assessee submitted that the observations of the assessing officer that from the vouchers of commission payments produced by the assessee company and examined by him, it was found that in certain cases commission was paid in the range of 11% to 32.84% of the freight amounts noted in the accompanying consignment notes; that instances of single payment of commission in respect of several consignments booked from different clienteles were noted; and that apparently payees could not be employees of so many different customers, are arbitrary, incorrect, baseless and false. Even though assessee requested vide its letter dated 21st April, 2004 addressed to the assessing officer, soon after the receipt of the assessment order dated 3st March, 2004, requested the assessing officer to give it copy of the statement allegedly prepared by the assessing officer and kept on the assessment records, giving details of payment of commission in the range of 11% to 32.84% of the freight amounts, the assessing officer did not give any reply to the said letter. It is submitted in this context that the assessee paid minimum level commission for securing the transport business and the commission paid is not at all disproportionate to the freight received in respect of the relevant consignments as noted in the accompanying notes; and there was never an occasion whatsoever when single payment of commission as made in respect of several consignments booked form different clientele.
19. The learned Departmental Representative on the other hand, strongly supported the orders of the assessing officer for the years under 18 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad appeal, and submitted that no part of the commission payment claimed by the assessee for any of the years under appeal, is allowable. Even otherwise, he submitted that the assessee did not produce all the vouchers evidencing commission payments in respect of each of the relevant years and that the vouchers maintained by the assessee in respect of commission payment are self-made and contain several suspicious features and do not infuse confidence as to the genuineness of these commission payments in question, which are all along made in cash. In this behalf, he submitted that addresses of the payees are not available in the self made vouchers and other documents produced on behalf of the Assessee Company. Some of the vouchers do not contain the signatures of the payees. If the payments are genuine, the assessee should have furnished confirmation letters from the payees giving their full address. The signatures of the payees are in most cases mere scribbling and it is quite possible that the employees of the assessee company, who prepared the vouchers, themselves signed the vouchers as payees. He further submitted that affidavits of the Regional Managers filed by the assessee company are stereo typed in nature. Judicially it has been held that the affidavits cannot be treated as proper evidence unless the contents are based on proved facts. The self serving affidavits have no evidentiary value. On the admissibility and evidentiary value of the affidavits filed by the assessee, the learned Departmental Representative referred to the decision of the Kanhaiya Lal Doshi V/s. Assistant Commissioner of Income-tax(1996)56 TTJ 2907 (Trib-Jaipur) and of the Allahabad High Court in the case of Sri Krishna V/s. CIT(142 ITR 618).
20. The Learned Departmental Representative disputed the trade practice of commission payments and the comparable cases cited by the assessee and submitted that the so called comparable cases of M/s. Patel Roadways Ltd., M/s. Associated Road Carriers Ltd., M/s. ABC India Ltd and M/s. Sri Ramdas Motor Transport Ltd. are not relevant. Most of the cases are not 19 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad comparable. In any event, he submitted that the percentage of commission payment by the assessee is excessive as most of the orders for transportation executed by the assessee company are bulk in nature and these have been obtained on the basis of tenders called by big and reputed industrial companies. Therefore, according to him, there was no need to pay the secret commission to the agents/employees of the consignor. He also disputed the argument of the assessee company that it has to keep the employees of the consignors in good humour by way of inducement for bringing/granting transport business to the assessee company in preference to other transport carries; to secure early payments of its bills, to minimize claims of its customers for delays as well as to secure amicable settlement of claims on account of damages suffered to the cargo in the course of loading, unloading and transportation from one place to another, on the ground that it is only a self-serving statement and is not supported by any evidence and such a stand is not acceptable. He also pleaded that payment commission by the assessee company is opposed to public policy, as held by the Hon'ble Andhra Pradesh High Court in CIT V/s. Kodandarama & Co.( 144 ITR 395). He also relied on the decision of the jurisdictional High Court in assessee's own case for assessment years 1981-82 to 1984-85, reported in 256 ITR 701 is against the assessee company and emphasized that it was held therein in no uncertain terms that it is the duty of the assessee to prove the genuineness of payments. The assessee company failed to discharge its onus and prove the identity of the payees, as well as prove the genuineness of payments, since the payment vouchers did not contain the addresses of the payees. The decision of the Hon'ble High Court has also reached finality with the dismissal of SLP. In this connection, he did not find merit in the points of distinction brought out by the learned counsel for the assessee for the years under consideration as against the facts and circumstances of the case considered by the Hon'ble High Court in the reported decision, and submitted that those distinguishing features are not material enough to deviate from the 20 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad view taken by the Hon'ble High Court to accept the commission payments claimed by the assessee in the years under appeal.
21. The Learned Departmental Representative further submitted that the fact that during the last several years, the department has accepted the claim of the assessee with regard to commission payments is irrelevant as there is no res judicata in assessment proceedings and also since, for the years under appeal, the assessee company could to furnish the addresses of the recipients or produce such persons before the assessing officer, which proved the fact that the entire commission payment was in the nature of secret commission and therefore, not admissible. Further, it is submitted that the effect of insertion of Explanation to S.37(1) of the Act with retrospective effect from assessment year 1962-63 is also to be considered in the context of assessee company's claim as to the allowability of secret commission. The decisions of the Hon'ble Madras High Court in the case of G.A.Vasant (265 ITR
481) and of the Hon'ble Orissa High Court in the case of Tarini Tarpuline Productions V/s. CIT (254 ITR 495) are in favour of the department, since in those cases disallowance of entire secret commission was upheld. The assessee's company's of offer of disallowance of part of commission of a sum of Rs.70 lakhs for the assessment year 20001-01 and Rs.80,00,000 for each of the assessment years 2003-04 and 2004-05, through its letter dated 19.1.2006 is unilateral. Assessee's contention that the Addl. Commissioner and CIT agreed to the proposed disallowance by the assessee company in assessment year 2000-01 is not correct, and the assessee's unilateral offer of disallowance cannot be construed as consent by the Departmental officers, and in any case it is for the assessing officer to decide whether the amounts in question are disallowable or not. In relation to the appeal for the assessment year 2001- 02, he submitted that an additional question arises on account violation of the provisions of S.46A as the CIT(A) was not justified in law in admitting the 21 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad additional evidence in the form of affidavits of Regional Manager etc., which were filed by the assessee company for the first time in relation to the assessment year 2001-02, before the CIT(A), and the CIT(A) admitted those affidavits as evidence without giving any opportunity to the assessing officer in terms of Rule 46A.
22. He strongly relied on the decisions of the jurisdictional High Court in the case of Kodandarama & Co. (supra) and in assessee's own case(256 ITR
701) for the assessment years 1981-82 to 1984-85 and disputed the points of distinction brought forth by the learned counsel for the assessee and submitted, in any event, that they are not valid or good enough to ignore the binding decision of the jurisdictional High Court on this very issue and in assessee's own case. On the admissibility of deduction in respect of commission payments, the learned Departmental Representative also placed reliance on the decision s of Gujarat High Court in CIT V/s. Navsari Cotton and Silk Mills Ltd. (135 ITR
546) and of the Bombay high court in CIT Vs. Taraporvala Sons Co. Pvt. Ltd. (239 ITR 319).
23. The learned counsel for the assessee, in his reply, disputed the contention of the Learned Departmental Representative that the assessee did not produce all the vouchers. He submitted that the allegation made on behalf of the Revenue is wholly incorrect and stated that there are more than fifty lakh vouchers evidencing commission payments in the relevant years under appeal before the Tribunal and in the course of assessment proceedings, the assessee had taken before the assessing officer all its books of accounts alognwith the relevant vouchers and documents through truck loads, but the assessing officer examined some of the vouchers by way of sample, at his own option by way of pick and choose method. Similarly, all the vouchers were again produced 22 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad before the learned CIT(A) who also examined the vouchers by way of sample, at his option, by pick and choose method.
24. The learned counsel for the assessee also disputed the remark of the Learned Departmental Representative that the commission payments have all along been made in cash, and submitted that it was only the amounts of commission which were below the limits specified under S.40A(3) which were made in cash, while other payments of commission were always made through banking channel. In fact, it is submitted, that details of such payments made through banking channel in the financial year relevant to assessment year 2005-06, appear at page 45 of the paper-book filed for that year, and even those payments amounting to Rs.14,52,375 were disallowed by the assessing officer and the said disallowance was confirmed by the CIT(A). The learned counsel for the assessee also disputed the contention of the Learned Departmental Representative for the assessment year 2001-02 with regard to violation of the provisions of Rule 46A inasmuch as the CIT(A) called for a remand report from the assessing officer and the assessing officer indeed examined the additional evidence in question and submitted his report, after examining which, the CIT(A) determined the issue.
25. Distinguishing the decision of the Jaipur Bench of the Tribunal in the case of Kanhaiya Lal Doshi (supra) relied upon by the learned Departmental Representative, the learned counsel for the assessee stated that that decision was rendered by the Tribunal considering peculiar facts and circumstances of that case, wherein the affidavit in the course of assessment proceedings was preceded by a statement recorded on oath under S.132(4) of the Act during the course of search proceedings under S.132 of the Act, when huge amount of cash was seized from the possession of the assessee. It was taking note of the contradictory statements in the statement under S.132(4) and the affidavit filed 23 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad in the course of assessment proceedings, in the light of the facts and circumstances of the case before it, the Jaipur Bench of the Tribunal held that although as a general rule, if the deposition made in the affidavits is not tested through cross-examination, the same should be accepted, but before accepting any deposition contained in an affidavit, it was always necessary that the deposition should inspire confidence, and that the same should appeal to the reasons of a prudent man. In the circumstances, while there can be no quarrel with regard to the proposition laid down by the Jaipur Bench of the Tribunal in that case, considering peculiar facts and circumstances of that case which did not inspire confidence in the affidavit filed in that case and therefore the decision went against the assessee therein, the decision of the said case has no application to the facts of the present case. He also distinguished the other case law relied upon by the Learned Departmental Representative noted above.
26. The learned counsel for the assessee, on the issue of applicability of a precedent, invited our specific attention to the following observations of the Hon'ble Apex Court tin Commissioner of Central Excise, Bangalore V/s. Srikumar Agencies (2009) 1 SCC 469(SC)-
"4. Courts should not pace reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussion but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statue; their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton 1951 AC 737 at p.761 Lord Mac Dermot observed:
The matter cannot of course, be settled merely by treating the ipsissima vertra of Wiles, J as though they were part of an Act of Parliament and applying the rules of interpretation 24 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished judge.
In Home Officer v. Dorset Yacht Co. 1970(2) All ER 294 Lord Reid said, "Lord Atkin's speech,... is not to be treated as if it was a statute definition. It will require qualification in new circumstances. Megarry, J. in (1971) 1 WLR 1062 observed: "One must not, of course, construe even a reserved judgment of Russell L.J. as if it were an Act of Parliament. And, in Herrington v. British Railways Board 1972(2) WLR 537 Lord Morris said:
"There is always peril in treating the words of a speech of judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case."
5. Circumstantial Flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
The following words of Lord Denning in the matter of applying precedents have become locus classicus:
Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.
Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.
6. Since the factual position has not been analyzed in detail, disposal of appeals by mere reference to decisions, was not the proper way to deal with the appeals. The GEGAT also does not appeal to have dealt with the relevance and applicability of ITC's case (supra), on which strong reliance has been placed by learned Solicitor General."
It is submitted that the aforesaid observations of the Hon'ble Supreme Court had been reiterated in The State of Orissa V/s. Sudhansu Sekhar Misra & Ors.(AIR 1968 SC 647); Padmasundara Rao(Decd) V/s. State of Tamil Nadu (255 ITR 147)(SC); Bharat Petroleum Corporation Ltd. V/s. N.R.Vairamani 25 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad (2004) 8 SCC 579(SC) and in Bihar School Examination Board V/s. Suresh Prasad Sinha (2009) 8 SCC 483(SC).
27. We have considered the rival submissions and perused the orders of the lower authorities. We have also gone through the voluminous paper-books filed before us and elaborate written submissions filed by both the parties before us. In these cases, the assessee has paid commission to various persons and claimed as deduction. The claim was not allowed by the Assessing Officer or by appellate authority on the reason that this payment is not verifiable and they doubted the genuineness of the payments and it is also against public policy. According to the arguments of the learned Departmental Representative this issue was already settled by the judgement of High Court in assessee's own case for the assessment years 1981-82 to 1984-85. In that case it was held as follows:
"Held, that it was not for the Tribunal or for the court to allow disallowance solely on the ground that in respect of certain previous years such disallowance was allowed. The records showed that there was a very sharp increase of commission payments from the assessment year 1981-82 and the facts of the case before the assessment year 1981-92 and after the assessment year 1981-82 were not similar. It was the admitted case that the payment of secret commission in question was supported by the vouchers signed only by the employees of the assessee- company and those vouchers were not signed by the employees of its customers. the payment itself was not established. The Department took a specific stand that such vouchers signed only by the employees of the assessee-company could not be accepted as genuine because any number of such vouchers could be produced by the assessee to defraud the exchequer. This stand was supported by the manager of one of the branches of the assessee who stated that after he took over as the manager no secret commission was paid to anyone. All the reasons stated by the Tribunal to record the finding of fact were totally irrelevant and perverse to the decision-making. The Tribunal had not addressed itself to the relevant questions properly to see whether the necessary conditions existed or not to allow deduction under section 37(1) and whether the assessee had discharged the burden cast on it. Therefore, the findings given by the Tribunal were perverse and based on irrelevant considerations."
28. As seen from the above judgement it is observed that there is no quarrel with regard to the proposition that it is for the assessee to 26 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad discharge whether any expenditure should be incurred in the course of his business or trade and such expenditure may be incurred voluntarily and without any necessity and such expenditure is incurred, even voluntarily for promoting the business interest and to earn profit, the assessee is entitled to claim deduction under sub section (1) of 37, though there is no compelling necessity to incur such expenditure. It is also observed that payment itself not established and, secondly it is not the case of the assessee before the assessing authority that the particulars of the persons to whom the amounts of secret commission were made could be supplied without detriment to the business of the assessee having regard to the nature of the business of transport of cargo carried on by the assessee company. According to judgment the finding recorded by the Tribunal, is based on "no evidence", but is based irrelevant considerations. However, the high court not decided the issue whether the payment of commission is opposed to public policy or not. Further, it was observed that the mere fact that for the assessment year 1981-82 the ITO has allowed the similar claim of the assessee cannot be a ground to allow claim commission without examining whether necessary conditions existed to allow allowance under section 37 in terms of statute or not and whether the assessee had discharged the burden cast on it with regard to the subsequent assessment year. Allowance or disallowance of a claim under section 37(1) should depend upon existence or otherwise of the four conditions as follows:
1. The expenditure in question should not be of the nature described under the specific provisions ss 30 to 36 and 80VV of the Act( section 80VV was omitted w.e.f. from 1st April 1986)
2. The expenditure should not be of nature of capital expenditure
3. It should not be a personal expenditure 27 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad
4. The expenditure have been laid out for expended wholly and exclusively for the purposes business or profession.
29. Now, we will examine, whether in these years the assessee has fulfilled the requirement as envisaged by the above judgment. We have carefully gone though the provisions of sections 30 to 36. Section 30 relates to the allowability of payment like rent, rates, taxes, repairs and insurance for the premises used for the purpose of business or profession. In the instant case, the claim of the assessee does not relate to the kind of expenditure specified in S.30 and hence that section is not applicable. Section 31 is relates allowability of repairs and insurance in respect of machinery, plant and furniture used for the purpose of business. Similarly, section 32 is relates to allowability of depreciation on assets used in business. In the same way, while Section 32A is relating to investment allowance, section 32AB is relating to investment deposit account. Section 33 deals with development rebate, while Section 33A deals with development allowance. Similarly, Section 33AB deals with tea development account, coffee development, rubber development account, as against Section 33ABA relating to site restoration fund. Similarly, Section 33AC deals with reserves for shipping business. Section 33B relates to rehabilitation allowance and Section 34 deals with conditions for depreciation allowance and development rebate. Section 34A deals with restriction on unabsorbed depreciation and unabsorbed investment allowance for limited period in case of certain domestic companies. Section 35 deals with expenditure on scientific research. Section 35A deals with expenditure on acquisition of patent right or copy right. Section 35Ab deals with expenditure on know-how. Section 35ABB deals with expenditure for obtaining licence to operate telecommunication services. Section 35AC deals with expenditure on eligible project or 28 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad scheme. Section 35AD deals with deduction in respect of expenditure on specified business. Section 35B deals with export market development allowance. Section 35C deals with agricultural development allowance. Section 35CC deals with rural development allowance. Section 35CCA deals with expenditure by way of payment to association and institutions for carrying out rural development programmes. Section 35CCB deals with expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources. Section 35D deals with amortization of certain preliminary expenses and 35DD deals with amortization of expenditure in case of amalgamation or de- merger. Section 35DDA deals with amortization of expenditure incurred under voluntary retirement scheme. Section 35E deals with deduction for expenditure on prospecting etc. for certain minerals. Section 36 deals with other deduction in respect of premium paid, interest, etc.
30. The claim of payment of commission by the present assessee is not qualified for deduction under any of above sections. Now, coming to next question as to whether the expenditure is capital expenditure or not, we are of the opinion the expenditure is not a capital expenditure since the assessee did not acquire any capital asset.
31. As for the third condition as to whether the payment is in the nature of personal expenditure or not, again, in our opinion, this is not the payment relating to personal benefit of any employees or directors of assessee-company. Being so, it is not personal expenditure.
32. Now, we have to see whether the expenditure is incurred wholly and exclusively for the purpose of business. In the case of Sassoon J. David & Co. Ltd. Vs. CIT (118 ITR 261 (SC) wherein held that the expression 'wholly and exclusively' used in s. 10(2)(xv) does not 29 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv), if it satisfies otherwise the tests laid down by the law.
33. Considering the above judgement, we find that the jurisdictional High Court for the assessment years 1981-82 to 1984-85 held that the said payment of commission cannot be allowed as there is no evidence for payment of such commission. Now, the issue before us is whether the assessee has established the payment of commission by producing the necessary evidence as held by the jurisdictional High Court in the assessee's own case for earlier years. The vouchers were not signed by the recipient. It does not contain any details regarding the recipient or payments made. Moreover, the Assessing Officer examined the manager of Jaipur Branch of the assessee who stated that after he took over as manager of the Jaipur Branch no payment of 'secret commission' was made. For the year under consideration, the vouchers produced by the assessee are signed by the recipient. They are not the vouchers signed by the employees of the assessee. The assessee has furnished the affidavit from the regional managers to show that the commission was in fact paid to the employees or agents or representatives of the private companies, who book the consignments. We have gone through the relevant portion of the assessment order for the assessment year 1981-82 which was placed on record at page no. 280-281 of the assessee Paper Book, volume-II filed in relation to ITA No. 30 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad 430/Hyd/07 for the assessment year 2000-01. For the assessment year 1981-82 in a proceedings u/s 144B of the Income-tax Act, 1961, the Inspecting Assistant Commissioner of Income tax (IAC) rejected the statement of the Jaipur Branch manager on the basis of the affidavit filed by Sri Dukhi Pande Regional Manager of Varanasi Branch, under whom Mr. V.N. Upadhyay, the new manager of Jaipur Branch, had all along been working at Varanasi to the effect that Sri Upadhyaya was mainly looking after the operation of vehicles at Varanasi Branch and was therefore, not concerned and/or aware with commercial matters regarding payment of commission, which was made through Sri L.B. Roy, a senior employee of Varanasi Brach under Mr. Pandey's supervision and directions. The statement made by the Regional Manager of the Varanasi Brach in his affidavit was believed by the IAC, who directed the Assessing Officer in his order passed under section 144B of the said act, not to make any disallowance based upon the statement of Mr. Upadhyaya. The learned Authorised Representative contended that the direction of the IAC in the proceedings u/s 144B of the Act and affidavit filed by Varanasi Regional Manager were inadvertently not brought to the notice of the High Court. If it is so, the findings would have been entirely different.
34. In CIT v. Sigma Paints Ltd. (1991) 188 ITR 06 (Bom), their Lordships of the Hon'ble Bombay High Court held and observed at pages 7 & 8 of the Reports as under:
" ..... Shri Patel, learned counsel for the respondent- assessee, has invited our attention to the fact that the assessee had appeared as an intervener before the Special Bench of the Tribunal when it was considering the appeals relating to French Dyes and Chemicals (I.) (P.) Ltd. He has further invited our attention to paragraphs 24 to 28 of the judgment in that case to 31 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad show that the assessee had produced various details and the records maintained by the company relating to the secret commission payments. Vouchers for the amounts received by the sales officer or other responsible persons for the payment of secret commission were available. The details of sales transactions entered into with various mill-companies, in respect of which secret commission had to be paid, were available. There was a complete tally between the commission paid and the Extent of business done by the mill-company. Details were also available of the exact transactions in respect of which the assessee had to pay the secret commission The assessee had given a complete list showing the turnover and the amount of secret commission paid from year to year. The percentage of secret commission was minimal. The full details of payment on the above basis in respect of several parties were available. They were correlated to the transactions which the assessee had with those persons and the period during which the transactions were entered into. The only missing item was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business of the assessee in the very nature of things. Shri Patel then pointed out that, in paragraph 29 of the judgment, the Special Bench of the Tribunal noted that the position was the same in the case of Indochem Ltd. and that of the assessee.
On the above stated facts, our judgment in the case of CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1 (Income-tax Reference No. 606 of 1976) dated August 21, 1990, squarely applies. Accordingly, we agree with the Tribunal that its conclusion is based on a finding of fact arrived at on the basis of good and cogent material"
35. In the instant case of the assessee-company too, the facts are identical with those considered by the Hon'ble Bombay High Court in the case of Sigma Paints (188 ITR 6). The payment vouchers giving the relevant details, including the names of the payees, and also bearing the 32 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad signatures of the payees as recipients of commission, had been produced by the assessee-company before the Assessing Officer in each of the 5 years now under appeal. The payment vouchers contained full details of the nature of transaction viz. the Consignment No., the names of the consignor and consignee, the nature of goods carried, the freight amount, the amount of commission, the date of payment as well as the name of the payee etc. In other words, the details of all transactions in respect of which the commission had been paid by the assessee-company are duly recorded in the payment vouchers and the evidence in the form of consignment notes annexed thereto and such vouchers containing the signature of payee acknowledging the receipt of commission had been duly produced before the Assessing Officer by the assessee-company herein in each of the five years under appeal. The percentage of commission payment was minimal - as evident from the chart appearing under paragraph 6 herein above. The only missing link was the address of the payees, which it was all along submitted, were not maintained and could not be supplied, since it would, in the very nature of things, greatly jeopardise the business interest of the assessee-company.
36. Similarly, the assessee drew our attention to the paper-book which contained the copies of the vouchers along with consignment notes. The vouchers clearly mentioned the consignment note which was attached with the voucher. The other paper book filed by the assessee also contains similar voucher along with consignment note. In view of the above facts, we are unable to accept the contention of the learned Departmental Representative that the payment was not established by the assessee. In our opinion, genuineness of the payments was established by the assessee.
33 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
37. Now coming to the affidavits filed by regional managers before the lower authorities, the Assessing Officer rejected affidavits of the regional managers filed by the assessee on the ground that they were self serving documents. In our opinion, though the affidavits are always self serving documents, affidavit is a recognised method of proving the case of an assessee before the authorities and as such, the lower authorities cannot reject the affidavits filed by the assessee outright, without examining the deponents thereof in relation to the contents of such affidavits. In this case, admittedly, the deponents of the affidavits were not examined by the lower authorities. The affidavits of regional managers were filed in addition to vouchers and the copies of consignment notes. In our view, these pieces of evidence cannot be brushed aside to disallow the commission payments. We have carefully gone through the judgement of supreme court in the case of Mehta Parikh & Co vs. CIT (30 ITR 180)-SC, wherein it was held that if the departmental authorities do not consider it necessary to call for the deponents in order to cross examining them, with reference to the statements made by them in their respective affidavits, it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits.
38. Further, S. 3(3) of the General Clauses Act, 1897 defines an Affidavit to include an affirmation and declaration in the case of persons by law allowed to affirm or declare instead of swearing. The essential ingredients of an affidavit are that the statement or declaration is made by the deponent relevant to the subject matter, and in order to add sanctity to it, he swears or affirms the truth of the statement made in the presence of a person, who in law is authorised either to administer oath or accept the affirmation.
34 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
39. In Union of India & Anr. v. Delhi High Court Bar Association & Ors. (2002) 4 SCC 275 (SC) their Lordships of the Supreme Court in paragraph 23 of their judgement inter alia held and observed as under:
" ..... when the High Courts and the Supreme Court in exercise of their jurisdiction under Article 226 and Article 32 can decide questions of fact as well as law merely on the basis of documents and affidavits filed before them ordinarily, there should be no reason why a Tribunal likewise should not be able to decide the case merely on the basis of documents and affidavits before it. ...."
It may also be noted that in the aforesaid judgement, their Lordships of the Hon'ble Supreme Court, in paragraphs 17 & 25 of the said judgement, dealt with the powers of the Appellate Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 as also similar powers exercised by Tribunal pertaining to Income-tax, Sales Tax, Excise, Customs or Administration, throughout the country.
40. Again, in Salem Advocate Bar Association v. Union of India (2003) 1 SCC 49 (SC) their Lordships of the Supreme Court in paragraphs 17 & 18 of the judgement also referred to Order 18, Rule 4 of the Civil Procedure Code, 1908, which inter alia reads as under:
"R.4. Recording of evidence by Commissioner - (1) in every case, the evidence of a witness of his examination-in-chief shall be given by affidavit and copies thereof shall be supplied to the opposite party by the party who calls him for evidence."
Further Rule 1 of Order 19 of the Civil Procedure Code, 1908 also permits affidavits to be filed:
"R.1. Power to order any point to be provided by affidavit 35 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad .... Any Court may at any time for sufficient reason order that any particular fact or facts may be proved by affidavit, or that the affidavit of any witness may be read at the hearing on such conditions as the Courts thinks reasonable."
In our considered opinion, therefore, the tax authorities were not justified in law in arbitrarily rejecting the affidavits sworn by its senior officers of the assessee, merely on the ground that these were self serving declarations/documents, particularly when neither the assessing officer nor the CIT(A) called any of the deponents for cross examination, in course of the impugned assessment/appellate proceedings, for any of the years now under appeal. As correctly canvassed by the ld counsel for the assessee, every affidavit is a self serving declaration on oath made by the deponent thereof, and on that ground alone the affidavit cannot be rejected and/or ignored.
41. Though the learned Senior Departmental Representative appearing for the Revenue before the Tribunal referred to the decision of Jaipur Bench of the Tribunal in Kanhaiya Lal Doshi v. Asst. Commissioner (1996) 56 TTJ 207 (Trib-Jaipur) in support of his submissions that the affidavits, in all cases, the same cannot be accepted as good evidence for income tax proceedings. In that case, the evidence of the assessee, who was subjected to search and seizure proceedings under section 132 of the said Act had been recorded under section 132(4). In his statement under section 132(4), the assessee had accepted his ownership of the cash found and seized from his possession at the time of search. However, later in the course of assessment proceedings, the assessee filed an affidavit contradicting his earlier statement recorded u/s 132(4) at the time of search. In the background of these facts, the Jaipur Bench of the Tribunal held that although as a general rule if the deposition made in the 36 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad affidavits is not tested through cross examination, the same should be accepted, but, before accepting any deposition contained in an affidavit, it was always necessary that the deposition should inspire confidence and that the same should appeal to the reasons of a prudent man. The Jaipur Bench of the Tribunal noted that in that case huge amount of cash was seized from the possession of the assessee, and when at the time of search, he was asked about his possession of cash in such huge quantity, the assessee came out with the statement that it was his money earned in business but not disclosed to the Department. This was an instantaneous statement of a person, who was admittedly found in possession of certain property in the course of the search. Such a statement was required to be given due weight. Again, the later statement given by the assessee through affidavit, filled in the course of assessment proceedings, was found by the Tribunal to be not inspiring any confidence. In the later statement it was claimed by the assessee for the first time that his father had given a sum of Rs. 1,000 to the father of the bride as a security money, and the father of the bride had bequeathed this money to his daughter or son-in-law at a subsequent period. The Tribunal held and observed that it did not inspire any confidence that the sum of Rs. 1,000 would be given by the elder son-in- law to the assessee some 30/35 years back, and then the assessee would have stated running a dairy with that amount. On the face of these facts noted by the Tribunal in paragraph 16 of its said order, it held and observed that such a theory did not inspire confidence more particularly when the same stood contradicted by the assessee's own statement recorded earlier under section 132(4) at the time of search. From the aforesaid facts, it is clearly evident that the said decision of the Jaipur Bench of the Tribunal relied upon by the Revenue in the instant case, is 37 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad clearly distinguishable and does not support the stand of the Revenue that the statements made in the affidavits have no evidentiary value.
42. Similarly, though the learned Senior Departmental Representative also relied upon the decision of the Allahabad High Court in Sri Krishna v. CIT (1983) 142 ITR 618 (All) - copy appearing at pages 616-622 of the Compilation of Case decisions, Volume-V, in support of his submissions that the Affidavit need not always be accepted as correct, that decision of the Hon'ble Allahabad High Court is clearly distinguishable, on facts, as discussed by their Lordships at pages 623 of the Reports (142 ITR). Their Lordships noted that ordinarily, in absence of denial, the statements made in an Affidavit, in all cases, may be accepted as true, unless there are circumstances going to suggest that the statements on Affidavit should not be accepted as true. In that case, the assessee after 15 years, had asserted on Affidavit for the first time that notices of demand were not served on him. The court noted that the plea of alleged non service of notices of demand was never taken by the assessee earlier; and that he made this assertion after a long delay of 15 years, when he became sure that the income tax records proving the service of notices were no longer available with the tax department. Such an assertion by the assessee, after a long period of 15 years, was held by the Hon'ble Court to be nothing but false and an afterthought.
43. In the circumstances, the cases relied upon the by the Revenue are distinguishable on facts and in the light of well settled position of law that the statements on Affidavit cannot be rejected, without subjecting the deponent to cross examination, the tax authorities below were not justified in arbitrarily ignoring the Affidavits of Senior Officers of the assessee company to the effect that the commission in question was 38 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad actually and genuinely paid by the assessee company, year after year, wholly and exclusively for the purpose of business.
44. We may note at the cost repetition that the decision of the Hon'ble Bombay High Court in CIT vs. Sigma Paints Ltd. (1991) 188 ITR 6 (Born), clearly supports the case of the Assessee Company. In that case also there was payment of secret commission. The assessee company, in that case, had produced various details and records maintained by it relating to commission payments. The details of sales transactions entered into with various mill companies, in respect of which secret commission had been paid, were produced before the assessing officer along with payment vouchers. There was a complete reconciliation and tally between the commission paid and the extent of business done by the mill company. The payments were correlated to the transactions which the assessee had with those persons. The only missing link was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business interests of that assessee, considering the very nature of things.
45. In fact, this was the case of the assessee company all along from its very inception. The fact that the identity of the payee could not be disclosed without greatly jeopardizing Assessee Company's business interests was put down in writing before the Assessing Officer through Assessee Company's three letters, one dated 15.03.85, the other dated 10.09.85, and yet another dated 10.03.86, which had also been quoted by the Assessing Officer in the three assessment orders, one dated 15.03.85 passed in respect of the Assessment Year 1982-83, the other dated 10.09.85 passed in respect of the Assessment Year 1983-84, and yet another dated 27.03.86 passed in respect of the Assessment Year 39 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad 1984-85. Even in paragraph 1.24 of the assessment order passed in respect of the Assessment Year 1982-83, the Assessing Officer had himself recorded that in course of hearing before the CIT (Appeals), for which year also a similar disallowance for commission payment was made, it was contended that commission paid was in the nature of secret commission and that it would be against the interest of the assessee to reveal the identities of the recipients of the commission. Copies of the relevant portions of the assessment orders for the said three years appear at pages 282-286 of the Paper Book, Volume - II filed in relation to ITA No. 430/Hyd/07 in respect of the assessment year 2000-01.
46. It however appears that the attention of their Lordships of the Hon'ble High Court of Andhra Pradesh was inadvertently not drawn to the aforesaid contentions of the Assessee Company, as recorded by the assessing officer himself in the respective impugned assessment orders; and the High Court distinguished the case of the assessee Company with that of the decision of the Hon'ble Bombay High Court in CIT vs. Sigma Paints Ltd. (1991) 188 ITR 6 (Bom) only on the ground, as recorded at page 713 of the reports(256 ITR), that it was not the case of the assessee before the assessing authority that the particulars of the persons to whom secret commission was paid could not be supplied without detriment to the business of the assessee having regard to the nature of the business of transport of cargo carried on by the Assessee Company.
47. Even in the years under appeal, it was all along stated before the tax authorities on behalf of the Assessee Company that having regard to the small amount of commission being paid by it, the details of addresses of the payees viz. agents and employees of the customers had not been maintained by it, and that such addresses could not be supplied, 40 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad even otherwise, without causing serious detriment to the business interests of the Assessee Company, having regard to the fact that in that event, no agent/employee of its customers would come forward to book the cargo of their principal/employer with the Assessee Company therein. We have also taken note of the letter dated 05.03.2006 addressed by the Assessee Company to the Assessing Officer, in course of the assessment proceedings for the year under appeal, a copy whereof appears at pages 287-289 of the Paper Book, Volume II filed in relation to ITA No. 430/- Hyd/07 in respect of the assessment year 2000-01.
48. The initial onus and burden of proof, as rightly observed by the Hon'ble Andhra Pradesh High Court in assessee's own case (supra), is always on the assessee. In the instant case, such initial onus and burden of proof has been duly discharged by the Assessee Company by producing its audited books of accounts, payment vouchers-and other documents giving full details as to the nature of transactions, which necessitated the payment of such commission, including the affidavits sworn by the Regional/Zonal/Divisional/Area/Controlling Managers, Operational Heads viz. Vice-Presidents and Senior Executives etc. declaring, inter alia, on oath that the commission payments were actually and factually made by the assessee company by way of incentives to the employees/agents/ representatives of customers, who brought in cargo to the Assessee Company for booking; and that this was an accepted norm and established trade practice in the transport business; and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the Assessee Company all along.
49. We also be noticed that in the four years, considered by the Hon'ble Jurisdictional High Court, the total commission was never 41 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad disallowed. The amount of commission disallowed in those four years ranged from 9.45% to 11.98% of the aggregate freight received by the Assessee Company in each of the relevant years.
50. In view of the facts and circumstances discussed hereinabove the decision of the Hon'ble Andhra Pradesh High Court in Assessee Company's own case in respect of the Assessment Years 1981-82 to 1984-85 (supra), is clearly distinguishable on facts, and cannot support the stand of the revenue that the entire payment of commission claimed by the assessee company as a deductible business expenditure should be disallowed in each of the 5 years now under appeal.
51. We are also supported in this behalf by the following decisions, relied upon by the learned counsel for the assessee, wherein identical facts and circumstances as in the case of the assessee herein, for each of the five years under appeal, have been considered:-
a. CIT vs. Goodlass Nerolac Paints Ltd. (1991) 188 ITR 1 (Bom); b. CIT v. Sigma Paints Ltd. (1991) 188 ITR 6 (Bom); c. Dr. G.G. Joshi vs. CIT (1994) 209 ITR 324 (Guj); d. CIT vs. ASK Rathinasamy Nadar (1995) 212 ITR 527 (Mad); e. CIT vs. Mills Stores Trading Co. India Pvt. Ltd. (1984) 18 Taxman 85 (Bom);
f. CIT vs. Hoechst Dyes & Chemicals Ltd. (1984) 17 Taxman 389 (Born);
g. APL India Pvt. Ltd. vs. DCIT (2005) 96 ITD 227 (Mum);
h. Saga Departmental Stores Ltd. v. CIT (2010) 325 ITR 324 (Del) i. CIT v. Printers House Pvt. Ltd. (2010) 188 Taxman 70 (Del).
52. In Goodlass Nerolac Paints' case (supra), their Lordships of the Hon'ble Bombay High Court also found that in the earlier year of the very same assessee, the payment of commission was disallowed ; and that such disallowance was also confirmed by the Hon'ble High Court. However, in the later year, the Tribunal had allowed the payment of 42 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad commission in the case of the very same assessee. The following observations made by the Hon'ble Bombay High Court at pages 4, 5 & 6 of the Reports are extremely relevant and these also support the case of the assessee company herein;
"It cannot, perhaps, be disputed that, in order to be entitled to deduction of payments to persons whose names are not disclosed, the assessee has to establish the practice prevailing in that line of business for making such payments, it has to adduce satisfactory evidence to establish the payments, and has also to satisfy the authorities that the payments were made for the purpose of business. No doubt, for the earlier year, the matter came up before this court. The Tribunal had come to the conclusion that the assessee had not proved the payments by way of secret commission and as such was not entitled to deduction. This being a finding of fact, our court declined to interfere as the view taken by the Tribunal was a possible view.
In the present case, the Tribunal, it appears, had to consider some new facts and aspects of the matter. It found that the assessee was carrying on business in the line in which payments were made to the employees of the customers to keep them on the right side and to ensure the flow of orders, quick payment and smooth running of business in all respects, including quick payment of bills. The Tribunal also found that the assessee was maintaining proper accounts and records regarding these payments in that the payments were made under the instructions and directions of the top executives of the company and were approved by the board of directors at the end of every month. According to the Tribunal, the facts that the assessee was a public limited company, that the accounts were not merely audited but were also placed before the general body of the shareholders, that the assessee's turnover was increasing year after year and that such payments claimed as deduction had dropped from 1.34% for one of the years to 0.22% in the year in question, were very relevant. On the basis of these and other evidence, the Tribunal concluded that the fact of payment of 43 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad commission was established even though the names and addresses of the recipient were not given and that the payments were made for the purpose of business.
As observed by our High Court in the assessee's own case for the earlier year, it was perfectly open to the Tribunal to accept or not to accept the assessee's claim for payment. It was for the Tribunal to decide as a final judge of facts as to whether the case of the assessee that the amounts claimed to have been paid were actually paid should or should not be accepted in the absence of the names and addresses of the persons to whom the amounts were paid. Having then regard to the material referred to and relied upon by the Tribunal for coming to the conclusion in favour of the allowability of the claim for deduction, we decline to interfere, as the conclusion of the tribunal is a finding of fact and is based on cogent material. "
53. In the case of the assessee company too, the facts, as were found in Goodlass Nerolac Paints case (supra), are identical, as already set out herein above. Here too, the rate of commission payment is going down and has dropped from 4.09% in AY 1981-82 to 1.16% in AY 2001-02, and again to 0.48% in AY 2005-06. Therefore, the decision of the Hon'ble Bombay High Court in Goodlass Nerolac Paints' case (supra) fully supports the instant case of the assessee company herein.
54. In Dr. G.G. Joshi v. CIT (1994) 209 ITR 324 (Guj), their Lordships of the Hon'ble Gujarat High Court also followed the Bombay Decisions referred to hereinabove, and inter alia held and observed at paged 328 of the Reports as under:
"Further, a similar view is taken by the Bombay High Court in the case of CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1. The Bombay High Court, relying upon its earlier decision rendered in the case of Goodlass Nerolec Paints Ltd. v. CIT [1982] 137 ITR 58, held that it cannot, perhaps, be 44 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad disputed that, in order to be entitled to deduction of payments to persons whose names are not disclosed, the assessee has to -
(i) establish the practice prevailing in that line of business for making such payments;
(ii) adduce satisfactory evidence to establish the payments;
(iii) satisfy the authorities that the payments were made for the purpose of business.
It is further held that this would be a finding of fact and the court would normally decline to interfere with the view taken by the Tribunal. It is also held therein that the High Court would not interfere with the finding of fact unless such finding is perverse or is such that no reasonable person can give such finding.
As stated above, in the present case, the Tribunal has relied upon its previous decisions with regard to the same company for holding that it was a practice prevailing in the trade of dye-stuffs and colour chemicals which are being sold to the textile mills to pay secret commission. This aspect is also considered by this court in the case of Moolchand Jaikishandas and Co. [1977] 108 ITR 500. Considering the aforesaid facts and the established trade practice, it cannot be said that the finding given by the Tribunal of upholding partial disallowance can be interfered with by this court. In this view of the matter, as all these questions referred to this court are based upon a finding of fact, they are required to be answered accordingly. "
55. In CIT v. A.S.K. Rathinasamy Nadar (1995) 212 ITR 527 (Mad), their Lordships of the Hon'ble Madras High Court held and observed at pages 529, 531 & 532 of the Reports inter alia as under:
"It is seen from the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal and the statement of the case submitted to this court that the 45 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad Income-tax Officer examined the vouchers given in support of the payment of brokerage in connection with the transaction with Ashok Leyland Limited and to others. He, however, disallowed the commission on the ground that there were no addresses available in the vouchers. The assessee, however, submitted a letter stating that all the payments made by them were genuine, that the payments were made to several persons like carpenters and that they were not in a position to produce any of the recipients for the examination in respect of Ashok Leyland Limited, though they would produce them in all other cases. The Income-tax Officer, however, observed that Ashok Leyland Limited was an established concern and that if the payments had been made to effect purchases then the person concerned must be a person of status and there should be no difficulty for the assessee to produce the· recipient for cross-examination. The Appellate Assistant Commissioner, however, mainly took notice of the trade practice and recorded his disagreement with the view of the Income-tax Officer as regards the brokerage paid to Ashok Leyland Limited and others were concerned.
The Tribunal, however, has agreed with the Appellate Assistant Commissioner that there is a general trade practice of paying commission and brokerage on the timber sales made which is generally dictated by business needs and exigencies, a fact which has not been denied by the Income- tax Officer also, and he himself has allowed a small amount of commission on the said basis. It has, however, further said that so long as the prevailing practice of payment of commission and brokerage is recognised in this line of business and the commission payment claimed is reasonable and comparable to commission paid by others in this line of business, it is only reasonable to presume that the assessee must also have paid such commission in respect of sales effected by it. Viewed in this light, it has said that the order of the Appellate Assistant Commissioner allowing brokerage payment for sales effected to Ashok Leyland Limited and other allied purchasers has to be upheld.
xxxx xxxx
xxxx
Pages 531-532
46 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad
" ..... The Tribunal in the instant case has taken notice of the evidence as well as the trade practice and has accepted the case of the assessee as genuine. Once a court or a Tribunal, on the facts, has found certain evidence genuine and sufficient, it is not open to any appellate or supervisory authority to reverse the same merely on the ground that it has any other view on the sufficiency of the evidence and genuineness of the case of the assessee. One of the settled principles of law is that the High Court while answering any question shall not record its own findings on issues of facts. It can, undoubtedly, see whether there is any invalid material taken into consideration by the Tribunal or whether any valid material has been omitted and not taken into consideration. The High Court cannot, however, go into the facts first to decide any issue of fact which is opposite to the opinion and come to a finding opposite to that of the Tribunal and then hold that the Tribunal has committed an error of law. Learned counsel for the assessee has drawn our attention to a Bench decision of the Bombay High Court in the case of Goodlass Nerolac Paints Ltd. v. CIT [1982) 137 ITR 58, which has taken notice of the trade practice of secret commission paid to the customers and others and found no error in granting deduction of such expenditure under section 37 of the Act. To conclude, we hold that the Tribunal had full materials to support its conclusion and it has committed no error of law. The reference is answered accordingly ....."
56. In CIT v. Mills Stores Trading Co. India Pvt. Ltd. (1984) 18 Taxman 85 (Born), their Lordships of the Hon'ble Bombay High Court held and observed at page 86 of the Reports inter alia as under:
"2. The facts giving rise to this application are that the assessee carries on the business of the supplying mill stores to various mills. The assessee claimed an amount of Rs. 26,112 by way of secret commission paid to the employees of various mills who had purchased goods from the assessee. The ITO disallowed the sum of Rs. 26,112 on the ground that the fact of payment and its nexus with the business of the assessee has not been established. An appeal preferred by the assessee was, however, allowed by the Commissioner (Appeals). The Tribunal upheld this decision. The present application is direction against the order of the Tribunal. The 47 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad crucial question is whether there was any evidence before the Tribunal to prove the fact of payment of this amount as the secret commission and whether it could be said to have been an amount laid out wholly and exclusively for the purposes of the assessee's business. These are largely questions of fact. The assessee showed to the Tribunal that the payment of this amount as the commission had been approved by the board of directors of the assessee, which is a private limited company_ It was further pointed out by the learned counsel for the assessee that such payments had been made even in earlier years and had been allowed as deductions without any objection being raised by the department. The commission was paid at a uniform rate of 2 1/2 per cent. We further find that the assessee had filed before the Tribunal a detailed list containing names of the mills to whose agents and employees such commission had been paid and showing also the value of the goods sold to these mills. The assessee had also supplied to the Tribunal the particulars of the bills and the amounts of the commission paid, although the names of the person to whom it was paid were not disclosed. It is easy to understand why such names were not disclosed, because had they been disclosed, such employees would have been dealt with by their employers - the mills concerned. On this material, the Tribunal held that although the evidence was not direct, there was evidence to show that there was nexus between these payments and the business of the assessee.
3. In the state of facts set out above, it is not possible to say that the findings of the Tribunal, which we have referred to above, have been arrived at without any evidence. As pointed out by a Division Bench of this Court in Goodlass Nerolac Paints Ltd. v. CIT [1982] 137 ITR 58 the Court observed:
" ..... It was for the Tribunal to decide, as the final judge of facts, as to whether the case of the assessee that these amounts were actually paid by way of secret commission, should be believed or not, in the absence of the names and addresses of the persons to whom secret commissions were alleged to have been paid " (p.
62)
4. In that case, on the facts the Tribunal had disbelieved the case of the assessee regarding payments of such amounts as 48 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad secret commission and we declined to interfere with that finding for the reasons stated above. In the present case, the Tribunal has believed that case of the assessee that the payments were made as well as that there was nexus between the said payment and the business of the assessee and we do not see how these findings of fact can be interfered with in a reference. "
57. The same view was reiterated by the Hon'ble Bombay High Court in CIT v. Hoechst Dyes & Chemicals Ltd. (1984) 17 Taxman 389 (Bom).
58. In Saga Departmental Stores Ltd. v. CIT(A) (2010) 325 ITR 324 (Del), their Lordships of the Hon'ble Delhi High Court were considering the claim for deductibility of expenditure incurred by the assessee for payment of commission to taxi drivers, guides and other commission agents to the tune of Rs. 11,45,47,937 which was around 18- 20% of the total turnover of the assessee. It was noticed that the assessee had declared a gross profit rate of 54.15% of turnover as against the net profit rate of 1.93% only. The tax authorities held that the expenses by way of payment of commission to taxi drivers, guides and other commission agents was unreasonable inflated. The CIT(A) noted that the assessee was unable to prove that the commission had been paid for rendering the actual services, more particularly when the assessee had not furnished credible evidence in the form of names, addresses etc. of the persons to whom such commission was paid. Having regard to these facts, the CIT(A) had allowed deduction of expenditure by way of commission to the extent of 14% of turnover. The Tribunal, on further appeal noticed that most of the vouchers evidencing payment of commission were sales made and that the assessee did not produce any of the recipients of the commission. In that view of the matter the Tribunal allowed commission @ 16% of the turnover as against 14% 49 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad allowed by the CIT(A). The Hon'ble High Court, on further appeal under section 260A of the said Act confirmed the order of the learned Tribunal whereby expenditure by way of commission was allowed @ 16% of the turnover.
59. In the instant case of the assessee company herein, the payment of total commission in each of the 5 years under appeal is only ranging between 1.16% to 0.48% of its total turnover.
60. In CIT v. Printers House Pvt. Ltd. (2010) 188 Taxman 70 (Del), their Lordships of the Hon'ble Delhi High Court confirmed the order of the learned Tribunal which had allowed payment of commission @ 1.5% in relation to local sales and 7% of the exports sales, as a business expenditure with the following observations :
"... There is no evidence on record to show that the commission was paid to any near relative, family member or sister concern. There is no iota of evidence to show that the payment of commission represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of commission came back to the assessee in any form. Since the assessee has given full details including the addresses of buyers and addresses of the agents, as well as details of payment etc. the transactions of payment of commission as well as the aspect of rendering services by the commission agents were fully verifiable. However, neither the Assessing Officer nor the learned CIT (Appeals) made any attempt at their end to make probe into the matter for coming to the conclusion that the transactions were bogus, unfair and fraudulent. In our opinion, in absence of any such material on record and in absence of any inquiry conducted to prove the non-genuineness of the transactions the departmental authorities were not justified in disallowing the claim of the assessee which was fully supported by the documentary evidence on record."50 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad
61. Further, in paragraph 7 of his impugned assessment order dated 31st March, 2004 passed by the Assessing Officer, in the instant case of the assessee company, for the assessment year 2001-02 under section 143(3) of the said Act, the Assessing Officer had observed hat from the vouchers of commission payments produced by the assessee company and examined by him, it was found that in certain cases commission was paid in the range of 11 % to 32.84% of the freight amounts noted in the accompanying consignment notes and that instances of single payment of commission in respect of several consignments booked from different clients were noticed; and that apparently payees could not be employees of so many different customers. These allegations made by the Assessing Officer, as contended by the assessee company, appear to be incorrect. The assessee company vide its letter dated 21st April, 2004, addressed to the Assessing Officer soon after the receipt of the impugned assessment order dated 31st March, 2004 passed in the instant case for the assessment year 2001-02, requested the Assessing Officer to give it the copy of the statement allegedly prepared by the AO and kept on the assessment records, giving details of payment of commission in the range of 11 % to 32.84% of the freight amounts. The Assessing Officer did not give any reply to the said letter. Even in the course of hearing before the learned Tribunal, when this question was raised, the learned CIT (DR) also could not produce any statement and/or detail to prove any of these allegations made by the AO in his impugned assessment order dated 31st March, 2004 passed in respect of the assessment year 2001-02, in the aforesaid respect. No such details and/or statements were produced before the Tribunal on behalf of the Revenue.
62. In the circumstances discussed hereinabove, we find that the assessee company had made payment of commission for securing the 51 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad transport business on a minimum level and the commission paid is not at all disproportionate to the freight received in respect of the relevant consignments as noted in the accompanying consignment notes; there were no single payment of commission in respect of several consignments booked from different clienteles ; and that the allegations to the contrary made by the Assessing Officer in his impugned assessment order dated 31st March, 2004 passed under section 143(3) of the said Act in respect of the assessment year 2001-02 are wholly wild, incorrect and baseless.
63. In the course of the hearing before this Tribunal, it was inter alia submitted by the learned CIT(DR) on behalf of the Revenue that the assessee company did not produce all the vouchers evidencing commission payments in respect of each of the relevant years. The learned counsel for the assessee as noted above has countered this observation made on behalf of the revenue as wholly incorrect. It is the contention of the assessee company that there are more than fifty lakh vouchers evidencing commission payments in the relevant years now under appeal before the learned Tribunal. In course of the assessment proceedings, the assessee company had taken before the Assessing Officer all its books of accounts along with the relevant vouchers and documents through truck loads. The Assessing Officer however examined some of the vouchers by way of sample, at his own option, by pick and choose method. All the vouchers were again produced before the learned CIT(A), who also examined the vouchers by way of sample, at his own option, by pick and choose method.
64. In the circumstances mentioned hereinabove, while the assessee company filed all affidavits in relation to the entirety of commission payments made by it in each of the relevant years under appeal, in the Paper Books filed before this Tribunal, the assessee 52 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad company gave photocopies of some of the receipted vouchers, by way of sample in each of the relevant years. The photocopies of such receipted vouchers given way of sample are as under:
Assessment Year Page No. of the Paper Books
2000-01 237-256 of Volume - I
2001-02 236-305 of Volume - I
2002-03 173-207 of Volume - I
2003-04 257-289 of Volume - I
The tax authorities have not found any defect whatsoever in any of the vouchers evidencing payment of commission made by the assessee company in any of the years under appeal.
65. Further, in course of the hearing before the Tribunal, it was submitted on behalf of the Revenue that the assessee company has been making payment of commission all along only in cash. Countering this submission, it is submitted that the aforesaid contention made on behalf of the Revenue is also wholly incorrect. While the small payments of commission, which are far below the limits laid down in section 40A(3) of the Income-tax Act, 1961, were made in cash, the payments exceeding the statutory limits were always made through banking channel. In fact the details of such payments made through banking channels in the financial year relevant to the assessment year 2005-06 appear at page 45 of the Paper Book filed in respect of ITA No. 19/Hyd/09, which amounts were also disallowed by the Assessing Officer, and such disallowance was also confirmed on first Appeal by the learned CIT(A) vide his impugned order dated 17th October, 2008 passed in respect of the assessment year 2005-06. The assessee company, according to the assessee, has disputed even such disallowance before the Tribunal.
53 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
66. In the course of hearing before the Tribunal, the learned CIT(DR) appearing for the Revenue had also relied on the following two decisions on the issue relating to disallowance of commission payments:
i. CIT v. Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj); ii. CIT v. Taraporvala Sons Co. Pvt. Ltd. (1999) 239 ITR 319 (Bom)
67. In CIT v. Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj) - copy appearing at pages 623-633 of the Compilation of Case Decisions, Volume - V, their Lordships of the Hon'ble Gujarat High Court had laid down certain positive and negative tests, as are set out and summarized in the Head Notes at pages 546-547 of the Reports. The ld counsel for the assessee in relation to this decision submitted that the assessee company satisfied each of the positive tests laid down in the said judgment; and its case is not covered by any of the negative tests laid down by the Hon'ble'ble Gujarat High Court therein.
68. In CIT v. Taraporvala Sons Co. Pvt. Ltd. (1999) 239 ITR 319 (Bom) - copy appearing at pages 634-637 of the Compilation of Case Decisions, Volume - V, their Lordships of the Hon'ble Bombay High Court found that the tax authorities had not examined the issue whether the case of that assessee was covered by the new Explanation inserted under section 37(1) of the said Act with retrospective effect 01.04.1962. In that view of the matter, the Hon'ble High Court had remanded the matter to the Tribunal with a direction to examine the issue in the light of the said Explanation.
69. In the case of the assessee company herein, that aspect had already been examined by the tax authorities below. The case of the assessee company herein has, all along, been that the payment of 54 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad commission, in the instant case, to the employees / representatives and agents of the private sector enterprises, on whose behalf the cargo was carried by the assessee company to different destinations, does not fall within the category of "extortions, haftas, bribes and/or protection monies", which are in the nature of payments for a purpose which is an offence or which is prohibited by law; and which alone fall within the purview of the new Explanation inserted under section 37(1) of the said Act. In that view of the matter, the said decision of the Hon'ble Bombay High Court in Taraporvala's case(supra) has no application to the facts and circumstances of the instant case.
70. Now, we have to examine whether the payment of commission is opposed to public policy or not. The ld. AR pleaded that there is no single incident of payment of commission to any government employees or employees of public sector undertaking which violates the provisions of law to disallow the same. In this regard the reliance was placed by DR on the judgement of Orissa High Court in the case of Tarini Tarpaulin Productions V/s CIT ( 254 ITR 495) where in held that secret commission alleged to have been paid by the assessee to persons whose name it could not disclose was not allowable as deduction in view explanation to s. 37(1) inserted with retrospective effect. In the case before Orissa High Court the secret commission was paid to government employees as such it was disallowed being an offence or which opposed to public policy. But in the present case before us, no payment were made to government employees or agency.
71. We have also gone through the memorandum explaining the provisions of explanation to section 37 which reads as follows:
55 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad [Explanation - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.]
72. It is proposed to insert an explanation after sub section (1) of section 37 to clarify that no allowance shall be made in respect of an expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. This proposed amendment will result in disallowance of claim made by certain taxpayer of payments on account of protection money, extortion, hafta, bribes etc., as business expenditure. This amendment will take effect from 1st April 1962 and will accordingly apply in relation to assessment year 1962-63 and subsequent year.
73. The intention of above explanation is to disallow the expenditure incurred by the assessee for any purpose which is an offence or prohibited by law. Therefore, we have to examine whether the payment of commission to the employees/ agents/ representatives of the private companies for booking the consignments is an offence or is prohibited by any law.
74. As discussed earlier, judgement of jurisdictional High court in the case of CIT Vs Kodandarama & Co ( 144 ITR 395) has no application to the facts of present case. In that case, assessee, a dealer in paddy, rice etc; claimed the payment made to Andhra Pradesh Welfare Fund as business expenditure u/s 37(1) of the act. Assessee claimed that unless the said payment to the welfare fund was made, no permit for export of rice to the State of Kerala would be issued by District collector. However, the assessing officer disallowed the payment on the ground that the said 56 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad expenditure was not incurred wholly and exclusively for the purpose of business. The High court found that for the purpose of granting permission to export of rice to Kerala the collector imposed the conditions that the assessee has to deposit particular amour to the welfare fund. That the grant of the permit is governed by Southern States Regulation of Export of rice Order 1964. Under the above said regulation, the grant of permit has to be made by the collector on a reasonable and fair basis having regard to the facts and circumstances of the district and state, as case may be. It is not open to the district collector or any other authorities for that matter to impose the conditions that the grant licence shall be condition of making particular contribution to particular fund. Since the regulation does not permit the collector to put the condition on permit, the High Court found that it was against the provisions of law and opposed to the public policy. In the present case the payment of commission is not to any government employees and it is paid to employees of private companies for booking consignments and it is not against the provisions of any of the law and it is not an offence under any law of the land. Hence, the judgement in the case of Kondandarama & Co is not applicable to the facts of present case.
75. We have also carefully gone through the judgement in the case of Sigma Paints cited supra where in held that deductibility of secret commission payments under s. 37(1) is a question of fact. Further, it was held that deduction could be allowed on the basis of good and cogent material. This judgement was considered by jurisdictional High court while delivering the assessee's case for assessment years 181-182 to 184-185. judgment was distinguished by jurisdictional High court on two reasons viz., (1) the assessee has not established the payment itself for the assessment years 1981-82 to 1984-85 (2) It is not the case of the assessee that the particulars of person to whom the commission was paid 57 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad could not be supplied without detrimental to the business of the assessee having regard to the nature of transport cargo. For the year under consideration the assessee claims right from the assessing officer that the details of the addresses of the persons to whom the commission was paid could not be furnished without detrimental to the business of the assessee having regard to nature of transportation of cargo. On the other hand, the payment of commission is evidenced by vouchers signed by the recipients. The vouchers are having all the necessary particulars and the consignment note. The copy of consignment note is enclosed with each voucher. In our opinion, the payment for the year under consideration has been established by the assessee by producing the voucher signed by the recipient, consignment note and affidavit of 79 Regional managers before lower authorities. Therefore, as rightly observed by jurisdictional High court is burden of proof has been discharged by the assessee by producing audited books of accounts, payment vouchers and other documents giving full details as to the nature of transactions which necessitated the payment of such commission, including the affidavits sworn by the Regional/ Zonal/Divisional/ Area/ Controlling managers, operational heads viz. Vice presidents and Senior Executives etc., declaring, inter alia, on oath that the commission payments were actually and factually made by the assessee by way of incentives to the employees/ agents/ representatives of customers who brought in cargo to the assessee company for booking; and that this was an accepted norm and established trade practice in the transport business; and that without such payment, it was not possible to survive in this line of business, as well as the prevalent trade practice in the line of business carried on by the assessee company all along.
58 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
76. It may also found that in earlier years which were considered by jurisdictional High Court, the total commission payment was never disallowed. The amount of commission disallowed in those years ranged from 9.45% to 11.98% of the aggregate freight received by the assessee company in each of the relevant years. Being so, there is no merit in the arguments of ld. DR that entire commission payment to be disallowed in these assessments under consideration before us.
77. We have also carefully gone through order of this Tribunal in ITA No. 544/Hyd/2006 dated 28-9-2007 in the assessee's own case for the assessment year 2001-2002. In that the assessee has challenged the order passed under section 263 of Income Tax Act by Commissioner of Income Tax. Before the Tribunal the assessee contended that the CIT cannot invoke the provisions of section 263 of the Income Tax Act to consider the payment commission as the same issue was subject matter of an appeal filed before CIT(A) u/s 250 of the Income Tax Act. This contention of the assessee was approved by the Tribunal by holding that the issue of genuineness of the commission payment was subject matter of the appeal before the CIT(A), hence, the concerned CIT is not justified in invoking his revision powers in respect of an issue which was subject matter of an appeal before CIT(A).Now, coming to the present assessment years under consideration before us, the issue is relating to the genuineness of payment of commission. In these assessment years, there is distinguishing facts in respect of the material available on record when compared to assessment year 2001-02 and assessment years 1981-82 to 1984-85.
78. For the assessment years 1981-82 to 1984-85 the vouchers were signed by the assessee's own employees. Therefore, the assessing officer disallowed a portion of the commission. The High Court found that 59 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad the assessee has not substantiated the payment of commission. Thus, the High Court confirmed the partial disallowance made by the AO on estimated basis. It needless to say that the Tribunal on earlier occasion while adjudicating the appeal inn ITA No. 544/Hyd/2006 not decide the issue relating to genuineness of payment of commission. It is only concerned with the power of the CIT to invoke provisions of section 263 when same issue subject matter of appeal filed this assessee before CIT(A). On the other hand for assessment year 2001-2002 both the assessee and revenue is in appeal before us and challenged the genuineness of payment of commission and which shall be required to adjudicated by us.
79. Now, we have to examine whether the payment of commission is reasonable or it is excessive compared to nature of business. The assessee filed a statement showing the factual background in regard to the freight receipt, the commission paid by the assessee company, percentage paid with reference to the freight receipts, the amount disallowed by the lower authorities and the amount of disallowance sustained by the Tribunal in the respective years:
Freight % of Disallowed Sustained Sustained
Commission
A.Y. income commission by AO by CIT(A) by ITAT
paid (Rs.)
(Rs.) on freight (Rs.) (Rs.) (Rs.)
1976-77 123835249 1075410 0.87 15000 8000 7000
1977-78 130256082 1457766 1.12 25000 12000 10000
1978-79 144952475 2116115 1.46 35000 18000 10000
1979-80 177786531 2726604 1.53 12000 12000 No
appeal
1980-81 232095990 4560521 1.96 12000 12000 No
appeal
1981- 289773217 11852724 4.09 1285656 1285656 50000
82`
1982-83 354292813 11847846 3.34 1420531 1420531 50000
1983-84 550238000 11842204 2.15 1275229 1275229 50000
1984-85 628096000 13322009 2.12 1259807 1259807 50000
1985-86 548102056 14107711 2.57 3519156 458645 Nil
1986-87 605510389 12831004 2.12 2561377 50000 Nil
1987-88 684193743 14485319 2.12 7966905 50000 Nil
1988-89 733026200 17428188 2.38 11930493 50000 50000
60 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad
1989-90 1552015711 25961834 1.67 9993960 Nil Nil
1990-91 1103139302 17634708 1.60 Nil Nil Nil
1991-92 1318027959 18485926 1.40 Nil Nil Nil
1992-93 1525197305 20469689 1.34 Nil Nil Nil
1993-94 1729626762 21001371 1.21 Nil Nil Nil
1994-95 2115997389 24977221 1.18 Nil Nil Nil
1995-96 2631508627 29329341 1.11 Nil Nil Nil
1996-97 2895854178 30554341 1.06 Nil Nil Nil
1997-98 2699820800 35210513 1.30 Nil Nil Nil
1998-99 3121427641 42315219 1.36 Nil Nil Nil
1999-00 3507633882 43395767 1.24 Nil Nil Nil
2000-01 4036049311 46998868 1.16 46998868 9399774
2001-02 4515078301 51528011 1.14 7729201 2576400 Disputed
2002-03 4680942289 52116149 1.11 7817422 52116149 in the
2003-04 4700477024 47159038 1.00 47159038 9431808 instant
2004-05 5540668903 45979292 0.83 45979292 45979292 appeal
2005-06 6153035812 29724985 0.48 29724985 29724985
80. We have compared the above disallowance with disallowance made in the assessment years 1981-82 to 1984-85 which were considered by Jurisdictional High court in assessee own case is mentioned below-
Freight % of % of
Commission Disallowed
A.Y. income Commission disallowance
paid (Rs.) by AO (Rs.)
(Rs.) on freight made by AO
1981-82 289773217 11852724 4.09 1285656 10.84
1982-83 354292813 11847846 3.34 1420531 11.98
1983-84 550238000 11842204 2.15 1275229 10.76
1984-85 628096000 13322009 2.12 1259807 9.45
81. It is to be noted that High court has confirmed the disallowance for the assessment years 1981-2, 1982-83,1983-84 and 1984-85 at the rate of 10.84%, 11.98%, 10.76% and 9.45% of freight receipts respectively for these years.
82. Now, out of the five years now under appeal before us, the assessing officer had disallowed 15% of the aggregate commission paid by the assessee company in the assessment year 2001-02. The learned CIT(A) has sustained disallowance to the extent of 5% of the aggregate commission paid in that year. Both the Department as also the assessee 61 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad are in appeal on this issue before us. For this assessment year 2001-02, there is reassessment proceedings through which there is allowance of 100% commission payment against which the assessee in appeal before us on reopening and also challenging the 100% disallowance of commission payment.
83. For the assessment years 2000-01 and 2003-04, the Assessing Officer had disallowed 100% of the commission payment. The CIT(A) had sustained the disallowance of commission at 20%. Both the assessee as well as Department is in appeal before us.
84. For the assessment year 2002-03, the Assessing Officer had disallowed 15% of aggregate commission paid by assessee company. The CIT(A), enhanced such disallowance to 100%. The assessee is in appeal before us.
85. For the assessment year 2004-05 and 2005-06, the Assessing Officer had disallowed 100% of the commission paid by the Assessing Officer. The same was confirmed by CIT(A) on appeal by assessee.
86. We have gone through the above disallowances made by lower authorities. There is no uniform disallowance in these assessment years though the facts and circumstances in all these assessment years similar. Considering judgement of Jurisdictional High Court, in our opinion the payment commission is excessive and it warrants disallowance. We have also compared the commission payment in similar line business which can be seen from below mention statement:
62 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad (Rs. in lakhs) % of Profit % of commission Transport Freight profit to FY before Commission to freight Operator income freight tax income income A. Patel 2001-02 11259.61 82.97 0.74 See Note Roadways (1) Ltd., 2002-03 11216.01 21.01 0.19 See Note (1) 2003-04 11865.63 51.34 0.43 see Note (1) B. Associated 2001-02 16264.38 248.32 1.53 64.12 0.39 See Road 2002-03 17174.37 246.48 1.44 54.29 0.32 Note (ii) Carriers 2003-04 20457.46 207.58 1.01 76.66 0.37 Ltd. 2004-05 24875.48 205.10 0.82 85.51 0.34 C ABC India 1999-00 10884.41 200.61 1.84 133.56 1.23 Ltd. 2000-01 10675.52 160.30 1.50 167.54 1.57 D. Sri Ramdas 2002-03 3143.71 232.08 7.38 Motor 2003-04 3201.32 See 237.30 7.41 Transport 2004-05 3554.71 Note (iii) 255.96 7.20 Ltd.
E Transport 1999-00 40360.49 745.96 1.85 469.99 1.16
Corporation 2000-01 45150.78 830.26 1.84 512.28 1.13
of India Ltd. 2001-02 46809.42 764.26 1.63 521.16 1.11
- 2002-03 47004.77 911.76 1.94 471.59 1.00
the 2003-04 55406.69 1188.34 2.14 459.79 0.83
assessee 2004-05 61530.35 1523.68 2.48 297.25 0.48
company
herein
Notes:
i. Patel Roadways Ltd., has not disclosed the amount of commission separately. It is stated in the Notes on Accounts (para 2 C ii) that the freight income is after deduction of booking commission.
ii. Profit before tax of Associated Road Carriers Ltd., for the financial years 2001-02 and 2003-04 is after deduction of Rs. 40.57 lakhs and Rs. 50.34 lakhs respectively being profit on sale of investments.
iii. The principal business of Sri Ramdas Motor Transport Ltd., is sale of new vehicles and manufacture of motor parts.
The freight income is 17.84%, 17.09% and 13.53% of the total turnover for the financial years 2002-03, 2003-04 and 2004-05 respectively. Hence the turnover and profits are not comparable.
87. By taking into consideration the circumstances in which the commission was paid, the commission paid for earlier assessment years and the commission paid by similar companies in similar circumstances and reasonableness of the payment, in our opinion, we can definitely quantify the excessive payment of commission at 15% of the total commission paid by the assessee for these assessments years under consideration before us. This disallowance at 15% of total commission paid by the assessee would meet the ends of justice. Accordingly, we direct the assessing officer to disallow only 15% commission paid the assessee as excessive in these assessment years as inadmissible.
63 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
88. The next issue involved in the appeals of the Department, being ITA No.794/Hyd/2007 for assessment year 2000-01 and ITA No.21/Hyd/2005 for assessment year 2001-02, relate to disallowance of interest on borrowed funds on notional basis.
89. Facts of the case in brief relating to this issue are that the assessing officer while framing the assessment under S.143(3) read with S.147 for the assessment year 2000-01 observed that the assessee company had paid a sum of Rs.3,00,00,000 by way of advance to M/s. TCI Industries Ltd. (earlier known as Transport Corporation of India) in terms of Memorandum of Understanding dated 15th March, 1999. The said company owned a manufacturing unit at Colaba Mumbai, more popularly known as Mukesh Textile Mills, which was closed in 1982. The said company was desirous of developing the landed property forming part of the said Textile Mills by constructing a multi-storeyed building thereon. The assessee-company was admittedly trying to buy 25,000 sq. ft. in the said building complex, and for booking the said space, it advanced the aggregate sum of Rs.2,20,00,000 and not Rs.3,00,00,000, as incorrectly alleged by the assessing officer, to M/s. TCI Industries Ltd. It was provided in the said MOU that possession of the premises would be given to the assessee company on or before 31st October, 2001 and if the delivery cannot be given by the aforesaid date, M/s. TCI Industries, the owner would be entitled to reasonable extension of time. The assessing officer further stated that said MOU was cancelled and the entire amount was refunded to the assessee company in the subsequent years. The assessing officer was of the view that huge amount of borrowed funds were diverted by the assessee to its group concern, M/s. TCI Industries Ltd., in the guise of advance for purchase of office space in the multi-storeyed complex, which was yet to be constructed. Since the loans and liability of the assessee as per Balance Sheet were more than the share capital and reserves, the assessing officer concluded that the source for 64 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad making the advance to M/s. TCI Industries Ltd., must be taken to be borrowed funds. The purpose of the advance was for acquiring a capital asset. The assessee company paid huge sum of interest to secured and unsecured loan creditors. Therefore, interest attributable to loan funds diverted to sister concern for acquiring a capital asset has to be disallowed. On tat basis the assessing officer calculated interest at 12% on the opening balance fo Rs.1,52,27,202 and the closing balance of Rs.1,23,51,229 in the ledger account of M/s. TCI Industries Ltd., as appearing in the books of account of the assessee company. On that basis, he disallowed as notional interest in the sum of Rs.16,00,000 in the assessment year 2000-01 and another sum of Rs.48,00,000 calculated at 16% on the original advance of Rs.3,00,00,000 in the assessment year 2001-02.
90. On appeal, the CIT(A) deleted the said amounts of disallowance made out of the deduction towards interest claimed by the assessee for both the years. Aggrieved by the orders of the CIT(A) for the assessment year 2000-01 and 2001-02, Revenue preferred the present appeals.
91. The Learned Departmental Representative strongly supporting the orders of assessing officer, submitted that the CIT(A) was not justified in deleting the disallowance made by the assessing officer for these years.
92. The learned counsel for the assessee on the other hand, taking us through the relevant pages of the paper-book, including the audited Balance Sheets as on 31.3.1999 and 31.3.2000, submitted that the aggregate amounts advanced by the assessee company to M/s. TCI Industries Ltd. during the period 31.3.199 to 21.8.2000 aggregating in all to Rs.2.21 crores, was far below the assessee's own funds, and the same formed insignificant part of the assessee company's share capital and reserves. It is submitted that the 65 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad assessing officer has not brought any material on record to prove that the advances made by the assessee company for the proposed acquisition of office premises was in any way related to tee borrowed funds. There is no direct nexus between the amount borrowed by the assessee company and the amounts advanced by it to the group concern in question. In this view of the mater, it is submitted that the decision of the Hon'ble Supreme Court in the case of S.A. Builders V/s. CIT(288 ITR 1)(SC) clearly supports the case of the assessee and the disallowance made by the assessing officer, which is not justified, was correctly deleted by the CIT(A). He also placed reliance in this behalf, on the following decisions-
(a) Munjal Sales Corporation V/s. CIT(298 ITR 298)-SC
(b) CIT V/s. Tin Box Co.(260 ITR 7637)-Del
(c) Smt. Chanchal Katyal V/s. CIT (298 ITR 182)-All
(d) CIT V/s. Sambandham Spinning Mills Ltd. (298 ITR 306)-Mad.
It is further contended that the assessee company intended to acquire the proposed newly constructed office premises wholly and exclusively for its commercial land business purpose, and it is by now well settled that interest on monies borrowed for purchase of capital assets, in an existing continuing business concern, does not become a capital expenditure, whether or not the capital assert in question is used for the purposes of business during the relevant year. In this behalf, reliance is placed on the following decisions-
(a) JCIT Vs. United Phosphorous Ltd. (299 ITR 9)-SC
(b) ACIT V/s. Arvind Ploycot Ltd. (299 ITR 12)-SC
(c) DCIT V/s. Gujarat Alkalies and Chemicals Ltd. (299 ITR 85)-SC 66 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad
93. We have considered the rival submissions and perused the orders of the lower authorities, and other material available on record. We have also gone through the case-law relied upon by the parties before us. There is no dispute regarding fact that the assessee has advanced the money for the purpose of acquiring office premises from TCI Industries Ltd and entered into MOU on 15th March 1999 and total amount advanced was at Rs. 2,20,00,000/- and not Rs. 3,00,00,000/-. It was provided in the said MOU that the possession of the premises would be given to the assessee company on or before 31st October 2001; and if the delivery cannot be given by the aforesaid date M/S TCI Industries Ltd; the owner would be entitled to reasonable extension of time. The purpose of advance of the for the purpose of business and that is for the purpose of acquiring a business premise in course of business activity and being so, even the interest paid on borrowed funds is allowable and there cannot be any disallowance on notional basis. We confirm the order of CIT(A) on this issue. Grounds of the Revenue on this issue are rejected.
94. The next common issue arising out of the departmental appeals, ITA No.794/Hyd/2007 for assessment year 2000-01; ITA No.21/Hyd/2005 for assessment year 2001-02; and in ITA Noi.795/Hyd/2007 for the assessment year 2003-04 relate to treatment of loss arising on sale of shares, alleged to be speculative loss, under Explanation to S.73 of the Act.
95. Facts of the case in brief are that the assessee company had purchased on different dates 10,86,493 shares of TCI Infrastructure Finance Ltd. during the financial years 1996-97 and 1997-98 by way of investment. Further, the assessee company had also purchased on different dates 50,00,000 shares of Wheels International Ltd. during the financial year 1996-97 67 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad by way of investment. The shares of each of the said two companies were sold by the assessee company during the period from July, 1999 to February, 2000, which is within the financial year 1999-2000 corresponding to assessment year 2000-01. Taking into consideration the indexed cost of acquisition in terms of the second proviso to S.48 of the Act, the assessee company returned a long term capital loss, assessable to tax under S.45 of the Act in the aggregate sum of Rs.40,88,440, arising to it on sale of the aforesaid shares of each of the said two companies.
96. Similarly, the assessee company had purchased 57,200 units issued by the Unit Trust of India under the 1964 Scheme, in the financial year 1997- 98 and 2,70,00 shares of Chanderpal Investments Ltd. in August, 1999, i.e. during the financial year 1999-2000. The said units were sold by the assessee company in May and August, 1999 and the said shares were sold by it in March, 2001, resulting in an aggregate assessable long term capital loss of Rs.3,06,814, after taking into consideration the indexed cost of acquisition thereof. The assessee company was treating the aforesaid purchases as its investments at all material times. The said loss of Rs.3,06,814 was claimed by the assessee company as assessable to tax under S.45 of the Act.
97. Further, the assessee company sold, during the financial year 2002- 03 corresponding to the fast year 2003-04, 1,000 shares of Shamrao Vithal Cooperative Bank Ltd. acquired in financial year 1996-97, 1,000 shares of Pro Sports Management Ltd. acquired in financial year 1996-97, 50,000 shares of Island Finance Ltd. acquired in financial year 1996-97 and 1,00,000 shares of Chanderpal Investments Ltd., acquired in financial year 1999-2000. Taking into consideration the indexed cost of acquisition in respect of these shares held as short term capital assets, the assessee company returned assessable capital loss -long term in the aggregate sum of Rs.5,30,084 and short term in the 68 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad aggregate sum of Rs.20,072, as per details set out at page 2 of the paper-book Vol.III filed by the assessee for the assessment year 2003-04. While the assessee company treated the above transactions of purchase of shares and units as investments and accordingly computed the long term capital gains, deducting the indexed cost of acquisition from the respective amount of sale consideration received, which resulted figures of losses assessable under the head long term capital gain, the assessing officer treated the losses as speculative losses in view of the provisions contained in Explanation appearing under S.73 of the Act.
98. The learned Departmental Representative on the other hand, strongly supported the orders of the lower authorities and took us through the objects clause appearing in the Memorandum and Articles of Association of the assessee company, wherein clauses 3(2) & B(1) permit the assessee company to engage itself in the business of purchase and sale of shares of other companies. He also placed reliance on the following decisions-
(a) CIT V/s. Lokmat Newspapers Ltd. (32 ITR 43)-Bom
(b) CIT V/s. Sun Distributors and Mining Co. Ltd. (1993)68 Taxman 223(Cal)
(c) ITO V/s. Big Apple Clothing Pvt. Ltd. (2010) 5 ITR (Trib) 44(Del)
(d) Centurion Investment and International Trading Co. Pvt. Ltd. V/s.
ITO(319 ITR (AT) 24(Del)
(e) Gujarat Credit Corporation Ltd. V/s. ACIT(302 ITR (AT) 250(Ahd)
99. Learned counsel for the assessee, reiterating the contentions urged before the lower authorities, strongly supported the orders of the CIT(A). He subtitled that the provision of Explanation to S.73 is not at all applicable to the case of the assessee, inasmuch as it is applicable only when any part of the 69 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad business of a company, other than the excluded categories consist in the purchase and sale of shares of other companies. In other words, according to him, Explanation to S.73 applies only when the business of a company is that of dealing in shares. The assessee company, he submitted does not deal in shares and the shares purchased by it were all along held by it as investments and this fact is also proved from its printed Balance Sheets wherein the investments in shares, etc. were all along reflected under the head 'investments' and not under the head 'stock in trade'. He drew our specific attention to Schedule 6 of the Balance Sheets drawn as on 31.3.2000; 31.3.2001; 31.3.2003, copies of which are filed in the relevant Vol.II of the paper books for the relevant years filed before us. He further submitted that the losses arising on sale of shares and units cannot be treated as speculative loss within the meaning of Explanation appearing under S.73 of the Act, since the said Explanation has no application in the instant case. Moreover, it is submitted the units of UTI not being shares, the said Explanation even otherwise, does not apply in view of the decision of the Apex Court in Apollo Tyres Ltd. V/s. CIT(255 ITR 273).
100. The learned counsel for the assessee further submitted that mere existence of a power in the Memorandum and Articles of Association has no bearing on the nature of the transactions or on the question whether the profits/losses arising therefrom are capital accretion or on revenue account. In this connection, he placed reliance on the decision of the Apex Court in Kishan Prasad & Co. Ltd. V/s. CIT (27 ITR 49). He further submitted that none of the decisions relied upon by the ld Departmental representative, has any application to the facts of the present case.
70 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad 101 We have considered the rival submissions and perused the orders of the lower authorities and other material on record. We have carefully gone through the Explanation to section 73 which reads as follows:
[Explanation : Where any part of the business of a company [other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.]
102 Because of the above Explanation to section 73 which was introduced in the Act w.e.f. 1-4-1977, it is obvious that when any part of the business of the company consists of purchase and sale of shares of such companies, such companies shall for the purpose of section 73 shall be deemed to be carrying on speculation business. The explanation has also excluded the companies whose gross total income consists of mainly from interest on securities, income from business, capital gain and income other sources. In view of this explanation, it is to be shown that the assessee's business consists of purchase and sale of shares of other companies. The assessee company claims that it is not dealing in purchase and sale of shares. It is also admitted fact the assessee classified the shares and units of UTI as investment in its Balance Sheet and it was not held as current assets by treating as stock in trade. In our opinion, the shares and units of UTI held by the assessee as an investment portfolio and the mere provisions in the object clause of Memorandum and Articles of Association cannot be conclusive to hold 71 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad that the assessee is carrying on the business in shares and to classify the same as stock in trade. As the assessee is not carrying on business in shares, it is not possible to us hold that Explanation to section 73 is applicable to assessee case. Accordingly, we are opinion that the Explanation to section 73 cannot be applied to the case of assessee. The judgement relied by ld. DR in the case of CIT Vs Lokmat News Paper Ltd. 322 ITR 43 (Bom) cannot be applied to facts of assessee case. The issue before Bombay High Court was setting off of the speculation loss with other income. It was held that speculation loss cannot be set off against other income of the assessee either wholly or partly. Further it was observed that loss from speculation business which has not been set off either entirely or in part can be carried forward to the subsequent assessment year and can be set off against the profits and gains, if any, from speculation carried on by the assessee and assessable for that year. The Explanation to 73 is attracted in a situation where something more than an isolated transaction involving sale and purchase of shares is involved. It was further observed that unless business of a company does not consists of purchase and sale of shares, the deeming fiction could not apply.
103 Special Bench(Ahmedabad) of this Tribunal in the case of Gujarat Credit Corporation Ltd. Vs. ACIT (302 ITR (AT) 250 has considered similar issue and also have expressed similar view. In view of this, the loss has to be treated as capital loss and accordingly we confirm the order of CIT(A) and same is confirmed. Grounds of the Revenue on this issue are rejected.
104 The next issue arising out of the departmental appeal, ITA No.21/Hyd/2005 for assessment year 2001-02 relates to addition of 72 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad Rs.79,13,246 made by the assessing officer by disallowance of bad debt claimed by the assessee, which has been deleted by the CIT(A).
105 The Learned Departmental Representative strongly supporting the order of the assessing officer submitted that the CIT(A) was not justified in directing the assessing officer to accept the long term capital loss computed by the assessee.
106 Learned counsel for the assessee, taking us through the relevant details in respect of the debts, which had been actually written off by the assessee company during the financial year relevant to assessment year 2001- 02, appearing at pages 411 to 422 of the paper-book Vo. II filed for the said year, submitted that these debts represent unrealized bills raised by the assessee by way of transport freight receivables from its customers. It is submitted that the debts in question represent non-payments due to disputes on account of rate difference, amounts deducted by customers due to shortages, damages and late deliveries, etc. as well as on account of inadvertent double billing, both at booking as well as delivery stations. It is submitted that the outstanding debts relates to the financial years 1996-97 to 2000-01 and most of the unrealized amounts are individually small, and the expenditure on litigation, would have been wholly disproportionate to the expected results. Taking us through page 423 to445 and 447 of the paper- book Vol.II for the assessment year 2001-02, it is submitted that the assessee follows a definite procedure before writing off the debt as bad, and invited our attention to pages 423 to 445 of the said paper-book, which contain the correspondence made for seeking legal advice in relation to the bad debts in question. He also drew our attention to page 487 of the said paper-book, which is Schedule 18 of audited Profit and Loss Account, to demonstrate that the debts in question were in fact written off in the books of account.
73 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad 107 The learned counsel for the assessee further submitted that the issue is squarely covered in favour of the assessee with the decisions of the Hon'ble Supreme Court in TRF Ltd. Vs. CIT(323 ITR 397) and Vijaya Bank V/s. CIT(323 ITR 166), and also submitted that after the amendment carried out in S.36(1)(vii) read with S.36(2) of the Act by the Direct Tax Laws(Amendment)Act, 1987 with effect from 1.4.1989, a write off by an assessee in the books is sufficient to claim the deduction for bad debts, and it is no longer necessary to prove that any debt has actually become bad during the relevant year in question. Learned counsel therefore, strongly supported the order of the CIT(A) on this issue, and submitted that the same may be confirmed.
108 We have considered the rival submissions and perused the orders of the lower authorities. The claim of the bad debts has been denied by AO on reason that the assessee has not furnished the reasons for writing off the bad debts. However, there is no dispute regarding writing off the debts in the books of accounts of the assessee. After the amendment of the section 36(1)(vii) of the Income Tax Act by Direct Laws (Amendment) Act, 1987 w.e.f. 1-4-1989, it is not necessary for the assessee to prove that the debt has actually become bad. The only requirement is to write off of the debt in the books of accounts of the assessee. In this case the assessee actually written off of the debt in its books of accounts and corresponding entry is also appearing the Profit & Loss account prepared for the year ending on 31-03-2001. Being so, the claim of assessee is in order and it is to allowed. We find no infirmity in the order of the CIT(A) and same is confirmed.
109. The next issue arising out of the departmental appeal, ITA No.21/Hyd/2005 for assessment year 2001-02 relates to the addition by the 74 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad assessing officer by computing the long term capital gains on sale of three immovable properties, sold by the assessee during the financial year ending with 31.3.2001 at Rs.3,43,58,163 as against assessable loss of Rs.18,21,092 computed by the assessee.
110. The Learned Departmental Representative strongly supporting the order of the assessing officer submitted that the CIT(A) was not justified in directing the assessing officer to accept the long term capital loss computed by the assessee.
111 The learned counsel for the assessee, on the other hand, taking us through the details of immovable properties, which were sold by the assessee company during the financial year ending on 31.3.2001, relevant for assessment year 2001-02, which resulted in long term capital gains to the extent of Rs.18,21,092, which are filed at page 516 of Vol.III of the paper-book for the assessment year 2001-02, learned counsel for the assessee submitted that each of these properties had vested in the assessee-company in terms of the Scheme of Arrangement approved by the Hon'ble High Court of Andhra Pradesh dated 13th July, 1998, copy of which alongwith relevant documents is filed at pages 517 to 562 of the said paper-book. It is submitted that cost of acquisition in the hands of the assessee-company in respect of each of the said immovable properties was taken at the respective figures appearing in the audited books of account of the transferor company, in terms of the Scheme sanctioned by the Hon'ble High Court. However, it is submitted that the assessing officer by the impugned assessment order dated 31.3.2004 passed for the assessment year 2001-02, took the cost of acquisition of these properties at NIL, on the ground that the assessee company did not pay any consideration for acquisition of the said properties, which vested in it in accordance with the Scheme of Hive off of the Division and Reduction of Share 75 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad Capital of the parent company, as was approved by the Hon'ble High Court. It is submitted that the assessing officer in that manner has arbitrarily taken the long term capital gains in the sum of Rs.3,43,58,163l, as against the assessable loss of Rs.18,21,092 computed by the assessee after taking into account the indexed cost of acquisition in terms of Second proviso to S.48 of the Act as per the details furnished at page 516 of Paper Book Vol.III filed for the assessment year 2001-02. In the circumstances, it is submitted by the learned counsel for the assessee that the approach adopted by the assessing officer in ignoring the cost of acquisition is not correct and the CIT(A) was justified in direct the assessing officer to accept the long term capital loss computed by the assessee.
112 We have considered the rival submissions and perused the orders of the lower authorities and other material on record. In this case all the three properties got vested with the assessee due to scheme of arrangement approved by High court. The assets of Transport Division was transferred to the assessee company at book value. Though shares were allotted to the shareholders of the parent company, we have to see what was the cost of acquisition of the property sold by the assessee. The book value as on 1-4-1996 could be considered as cost of acquisition for the purpose of computing capital gain. As per provisions of section 49 of the income Tax act, there is no special provision for computation of cost in respect of property vest with the company by way of scheme of arrangement approved by the competent court of law. The assessee got the property as successor by a scheme approved by High Court. Therefore, the value as appeared in the audited books of the transferor company would be the cost of acquisition for the assessee company. In view of this, we do not find any infirmity in the order of CIT(A) in taking the cost of value at the respective figure appearing in the audited books 76 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad of account of the transferor in pursuance to the scheme sanctioned by the High Court. Grounds of the Revenue on this issue are rejected.
113. The next issue arising for consideration in the appeal of the assessee being ITA No.789/Hyd/2009 for the assessment year 2001-02, relates to validity of the re-assessment proceedings, initiated by the assessing officer by issuance of notice under S.147/148 dated 25.,2.2008.
114. Facts of the case in brief are that the assessee company was originally assessed in respect of the assessment year 2001-02, vide order of assessment dated 31.3.2004 passed under S.143(3) of the Act. While framing the said original assessment, the assessing officer for the detailed reasons set out by him, disallowed an amount of Rs.77,29,201, representing 15% of the aggregate commission payments amounting Rs.5,15,28,011. The said assessment order dated 31.3.2004 was subject matter of appeal before the CIT(A), who vide his order dated 14.10.,2004, reduced the disallowance made by teh assessing officer to 5% of the aggregate commission payments. Aggrieved by the order of the CIT(A), assessee as well as Revenue have filed appeals before the Tribunal, being ITA No.1214/Hyd/2004 of the assessee and ITA No.21/Hyd/2005 of the Department. During the pendency of the said two appeals before the Tribunal, the assessing officer issued notice dated 25.2.2008 under S.148/147 of the Act purporting to reopen the completed assessment of the assessee for the assessment year 2001-02. The reasons recorded by the assessing officer under S.148(2) of the Act before initiating the re-assessment proceedings, as set out in his letter dated 10th December, 2008, read as under-
"For the assessment year 2001-02, the assessment was originally finalized under section 143(3) of the Income-tax 77 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad Act, 1961, on 31.03.2004. The total income was computed at Rs.8,42,30,230 after making a disallowance of 15% of the commission claimed by the company. On an appeal filed by the company, the CIT(A) reduced the same to 5% in his order dated 14.10.2004.
The disallowance of 15% to 5% of the commission is against the disallowance of 100% of commission upheld by the Hon'ble Andhra Pradesh High Court in the company's own case for the assessment years 1981-82 to 1984-85 (reported in (2002)256 ITR 701(AP) In view of the fact that there being no material change in respect of facts available for the assessment years 1981-82 to 1984-85 and for the assessment year under consideration, the assessing officer had reason to believe that income chargeable to tax to the extent of Rs.4,81,51,611 has escaped assessment for the assessment year 2001-02, within the meaning of clause (c) of explanation 2 of section 147 of the Income-tax Act, 1961."
115. The CIT(A), on appeal of the assessee questioning the legality and validity of the reopening of the assessment, rejected the contentions of the assessee and upheld the action of the assessing officer in this regard. Hence, assessee is in second appeal for the assessment year 2001-02 on this aspect as well.
116. It is the contention of the learned counsel for the assessee that a bare perusal of the reasons put forth by the assessing officer for re-opening the assessment, would reveal that his action is based on mere change of opinion based on the reading of the judgment of the Honb'ble High Court in assessee's own case for the assessment years 1981-82 to 1984-85 cited supra. It is an admitted fact, as evident from the impugned orders of the lower authorities as well, that the assessing officer was fully conscious of the decision of the Hon'ble High Court in assessee's own case for the earlier years, and that the disallowance of 15% of the aggregate commission paid by the assessee company, was 78 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad made by the assessing officer, after considering all facts and circumstances of the case, including the decision of the Hon'ble jurisdictional High Court noted above. Further, it is pleaded that the CIT(A) had also duly considered the said decision of the Hon'ble jurisdictional High Court in the appellate proceedings arising out of the original assessment proceedings, and after considering the relevant facts and material on record as well as the said decision of the Hon'ble High Court reduced the disallowance out of commission payments from 15% made by the assessing officer to 5%. He pointed out that the assessment proceedings initiated by the assessing officer for teh assessment year 2001-02, by issuance of notice dated 25th February, 2008 under S.148/147 of the Act, was after the expiry of four years from the end of the relevant assessment year 2001-02. Our specific attention at this juncture is invited to proviso to S.147 of the Act, which lays down that where an assessment under S.143(3) has been made in the case of any assessee for any assessment year, no action shall be taken under S.147 after the expiry of four years from the end of the relevant assessment year, unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142(1) or section 148 of the said Act, or on the failure on the part of the assessee to disclose fully land truly all material facts necessary for his assessment for that assessment year. Learned counsel for the assessee submitted that it is settled position of law that the failure of the assessee to disclose fully and truly all material necessary for his assessment for that assessment year, envisaged in the aforesaid proviso should be primary facts, and consequently, it is an undisputed fact that the conditions set out in proviso to S.147 of the Act are not satisfied in the instant case of the assessee, since the assessee 79 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad company had field its return of total income for the assessment year 2001-02 voluntarily under S.139 of the Act on 31.10.2001, and the company had also disclosed fully and truly all material facts in the course of original regular assessment proceedings for the said year, which had been duly completed by the assessing officer under S.143(3) of the Act, vide original assessment order dated 31.3.2004.
117. It is further submitted by the learned counsel that both the assessing officer as well as the learned CIT(A) had applied their minds with reference to the facts and evidence on record and after considering the judgment of the Hon'ble jurisdictional High Court in assessee's own case for the assessment years 1981-82 to 1984-85, had disallowed a portion of such commission, vis. 15% by the assessing officer and 5% by the CIT(A), which shows that the issue whether the payment of commission by the assessee company was deductible as a business expenditure, wholly or partly, was duly considered and deliberated upon both by the assessing officer as well as by the CIT(A) in the course of original assessment proceedings for the assessment year 2001-02.
118. In view of the above, it is submitted by the learned counsel for the assessee that it is beyond all reasonable doubt that the attempt by the assessing officer to initiate the impugned re-assessment proceedings for the assessment year 2001-02 on the very same issue of commission is nothing but a clear case of change of opinion, which is not permissible in law. In support of this proposition, he placed reliance on the following case-law-
(a) CIT V/s. Kelvinator of India Ltd. (320 ITR 561)-SC
(b) Gemini Leather Stores V/s. ITO (100 ITR 1)-SC 80 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad
(c) CIT V/s. Rao Thakur Narayan Singh (56 ITR 234)-SC
(d) Jindal Photo Films Ltd. Vs/ DCIT (234 ITR 170)-Del.
(e) CIT V/s. Ramchandra Hatcheries (305 ITR 117)-Mad.
(f) Purity Techtextile Pvt. Ltd. V/s. ACIT(325 ITR 459)-Bom.
(g) Pradeep Trust V/s. CIT(325 ITR 1)-Cal.
(h) ICICI Prudential Life Insurance Co. Ltd. V/s. ACIT(325 ITR 471)-
Bom
(i) Arthur Anderson & Co. V/s. ACIT(324 ITR 240)
(j) D.T. & T.D.C. Ltd. V/s. ACIT (324 ITR 234)=Del.
(k) CIT V/s. Goetze India Ltd. (321 ITR 431)-Del.
(l) CIT V/s. K.K. Palanisamy (321 ITR 474)-Mad.
(m) Inductor Ispat Aloys Ltd. V/s. AIT( 320 ITR 458)-Guj
(n) CIT V/s. Empire Industries Ltd. (210 ITR 267)-Bom.
(o) Manoo Lal Kedarnath V/s. Union of India (114 ITR 884)-All.
119. It may be noted at this juncture, that the learned counsel for the assessee has discussed the ratio laid down in the above decisions in the written submissions filed by him, and also furnished copies of the same in the relevant paper-book for the assessment year 2001-02.
120. The learned departmental representative, on the other hand, strongly supported the orders of the lower authorities. He submitted that the reopening of assessment was not prompted by mere change of opinion as alleged by the assessee. He submitted that the assessing officer should have taken one of the lawfully permissible views to enable an inference of change of opinion in the context of S.147. However, in the present case, the assessing officer has failed to follow the law laid down by the jurisdictional High Court of the assessment years 1981-82 to 1984-85, on facts identical in those years, as noticed by the Tribunal, and consequently, the assessing officer is not permitted to entertain any 81 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad 'opinion' contrary to the position laid down by the jurisdictional High Court. Distinguishing the case-law relied upon by the learned counsel for the assessee, he placed reliance on the following decisions-
(a) Income tax Officer V/s. Saradbhai Lakhani (243 ITR 1)- SC
(b) Madras Rae Club Charitable trust V/s CIT(245 ITR 240)-Mad.
(c) CIT V/s. Raghunath Poddar (96 ITR 316)-Cal.
(d) Somdatt Builder Pvt. Ltd. V/s. DCIT (98 ITD 78)-Cal. Trib.
He further submitted that while simple and non-argumentative mistakes in the order of assessment are amenable to rectification in terms of provisions of S.154, others have to be set right by making recourse to the provisions relating to reassessment under S.147 or revision under S.263 of the Act. In the present case, he submitted not following the decision of jurisdictional High Court is a mistake apparent from record, as held by the Supreme Court the case of Saurashtra Kutch Stock Exchange Ltd. (305 ITR 227); and the Punjab & Haryana High Court in the case of Ramal Babulal (334 ITR 776), which can be rectified only reopening the assessment under S.147 of the Act.
121. We have heard the rival submissions. We have gone through the written submissions of both the parties and other material on record and also the case-law cited by the parties. In this case the assessment order was passed on 31-03-2004 wherein the assessing officer disallowed 15% of commission payment. It is needless to say that at the time of passing the assessment order, the Judgment of jurisdictional High court in assessee own case for the assessment year 1981-82 to 1984-85 was very much available which was pronounced on 06-06-2002. The assessing officer duly considered the jurisdictional High Court judgment in assessee own case and disallowed 15% of commission payment. In view 82 ITA No.1214/Hyd/04 and nine others M/s. Transport Corporation of India Ltd., Sec'bad of this, the assessing officer cannot reopen the concluded assessment only on the basis of very same judgment which was very much available for his consideration and also the assessment order was passed after duly considering the same. Further, the CIT(A) partly confirmed the disallowance by modifying the order of the AO and disallowed commission to the extent of 5% instead of 15% disallowed by assessing officer. Therefore, the order of assessing officer is merged with the order of CIT(A). Once the order of the assessing officer is merged with order of CIT(A), the assessing officer cannot exercise his power u/s 147 of the Income Tax Act to reopen the issue was decided by higher forum in the guise of income assessable to tax has escaped from assessment. There is no further question of any escapement of income from assessment when the CIT(A) considered the very same issue of payment of commission in the course of appellate proceedings before him under section 250 of the Act. The assessing officer could exercise the power of reopening of assessment on any issue if it is not subject matter of appeal before CIT (A) and it is before the CIT(A) for his consideration or if he has considered the same issue, in that circumstances, the AO is precluded from considering same for reopening of assessment in guise of bringing into tax the escaped income. The only remedy available to assessing officer is to prefer appeal before higher forum and not to reopen the same assessment. In view of this, without going into merit of the issue, we cancel the order of the lower authorities and the ground taken by the assessee on reopening is allowed.
122. The next issue arising for consideration in the appeal of the assessee being ITA No.431/Hyd/2007 for the assessment year 2003-04, relates to addition of Rs.25,02,677 made by the assessing officer, by way of long term capital gains by applying the provisions of S.50C of the Act.
83 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
123. Facts in brief relating to this issue are that the assessee company during the financial year ending 31.3.2003 relevant for assessment year 2003- 04, sold an immovable property being land and building situated at Naini, Allahabad for an aggregate consideration of Rs.11,40,000 allocated between land of Rs.5,54,323 and building of Rs.5,85,677. While filing the return of income, the assessee company declared long term capital loss of Rs.10,97,994 attributable to sale of land, taking the indexed cost of acquisition in terms of proviso to S.48 of the Act. The assessing officer however, while framing the assessment order dated 27.3.2006, observed that copy of the sale deed shows the stamp duty value of the land having been adopted for registration purposes at Rs.30,57,000, as against the actual consideration of Rs.5,54,323 received and recorded by the assessee company in its books of account. The assessing officer, therefore, invoking the provisions of S.50C of the Act brought to tax the sum of Rs.25,02,677, being the difference between the recorded consideration of Rs.5,54,323 and the value adopted for stamp duty purposes in the sum of Rs.30,57,000 by way of deemed capital gains on the sale of the said land. On appeal, the CIT(A) confirmed the action of the assessing officer. Hence, assessee is in second appeal before us on this issue.
124. Learned counsel for the assessee submitted that the assessee had not received any consideration over and above the amount of Rs.5,54,323 disclosed in the registered instrument of sale, and therefore, there is no justification for the addition made by the assessing officer, which is liable to be deleted. He also placed reliance on the decision of the Hon'ble Punjab and Haryana High Court in CIT V/s. Chandni Buchar (323 ITR 510) in support of his contentions in this behalf.
84 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
125. The Learned Departmental Representative strongly supporting the order of the assessing officer submitted that the CIT(A) was not justified in directing the assessing officer to accept the long term capital lsos computed by the assessee
126. We considered the rival submissions and perused the orders of the lower authorities and other material on record. The ld. AR contended that it has actually received only consideration of Rs. 5,53,323/- as against the registration value of Rs. 30,57,000/- and relied on the judgement of Punjab of Haryana High Court in the case of CIT Vs. Chandni Boucher ( 323 ITR 510) wherein held that in the absence of any evidence, valuation done by stamp duty authorities could not be taken as actual sales consideration and the value shown in the sale deed had to be accepted.
127. We have gone through the above judgment. In that case before Punjab & Haryana High Court the assessee categorically proved that the consideration passed is the consideration shown in the Sale Deed. However, in the present case, the assessee not discharged the burden cast on it. The assessee having not availed of the opportunity provided under sub-sections (2) and (3) of s 50C to object to the value adopted by the stamp valuation authorities, in our opinion, the AO justified in treating the value adopted by the said authorities as the deemed sale consideration received/ accruing as a result of transfer. This ground of the assessee is dismissed.
128. The next issue arising for consideration in the appeal of the assessee being ITA No.431/Hyd/2007 for the assessment year 2003-04, relates to denial of relief under S.80M of the Act.
85 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
129. Facts in brief are that the assessee company had earned by way of dividends in the sum of Rs.4,500 from a domestic company, viz. Shamrao Vithal Co-operative Bank Ltd., Mumbai. The assessee claimed relief under S.80M of the Act in respect of this receipt, which has been rejected by the assessing officer. The said disallowance made by the assessing officer has been confirmed by the CIT(A). Hence, assessee is in second appeal before us on this issue.
130. Learned counsel for the assessee submitted that the assessee company had distributed dividends to its shareholders in its Annual General Meeting held on 29th August, 2003 in the aggregate sum of Rs.189 lakhs, which amount is far in excess of the dividends received, and consequently, in view of the specific provisions contained in S.80M of the Act, the assessing officer should have granted deduction in the sum of Rs.4,500 on this account.
131. The learned Departmental Representative on the other hand, supported the orders of the lower authorities.
132. We heard both the parties and perused the material on record. The provisions of section 80M reads as follows:
"80M. Deduction in respect of certain inter-corporate dividends.--
(1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-86 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad mentioned domestic company on or before the due date.
(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.
Explanation : For the purposes of this section, the expression "due date" means the date for furnishing the return of income under sub-section (1) of section 139."
133. This section was deleted by Finance Act, 2003 w.e.f. 01-04- 2004. In this case, since the dividend received by the assessee does not exceed the amount of dividend distributed on or before due date, the said dividend received shall be allowed as deduction u/s 80M of the Act. The assessee has received only Rs. 4,500 and it has distributed Rs. 1,89,00,000 by way of dividend. Hence, we do not find any justification for disallowing the claim of the assessee. As such, the orders of lower authorities are set aside and the claim of the assessee is allowed.
134. In ITA No.21/Hyd/2005, the Revenue raised additional ground contesting that the CIT(A) has erred in admitting additional evidence in violation of Rule 46A. According to the Revenue, the CIT(A) ought to have followed the judgment of the Allahabad High Court in the case of H.Lal.Mohd. B. Works V/s. CIT in reference No.96 of 1987(2005) RD -AH- 219(date 20.1.2005), wherein High Court held that the tribunal has rightly set aside the assessment and dismissed the order of the CIT(A) for accepting the additional evidence under Rule 46A of Income-tax Rules. More so, the grievance of the Revenue is that the Assessing Officer has not got an opportunity to verify the claim of the assessee.
87 ITA No.1214/Hyd/04 and nine othersM/s. Transport Corporation of India Ltd., Sec'bad
135. We have heard both the parties on this issue. In our opinion, the grievance of the Revenue herein is with regard to consideration by the CIT(A), the 76 affidavits from branch managers, filed by the assessee, in respect of its contention that commission payments were made at the respective branches. The CIT(A), considering these affidavits sustained disallowance out of commission payments to the extent of 5%. In view of our decision on the disallowance out of commission payments, on merits, whereby we sustained disallowance worked out at 15%, we find no merit in this additional ground of the Revenue. The same is accordingly rejected.
136. In the result, these appeals are disposed of as follows-
ITA No. Assessment Appeal by Result
year
1214/Hyd/2004 2001-02 Assessee Dismissed
295/Hyd/2006 2002-03 Assessee Partly allowed
430/Hyd/2007 2000-01 Assessee Partly allowed
431/Hyd/2007 2003-04 Assessee Partly allowed
1125/Hyd/2007 2004-05 Assessee Partly allowed
19/Hyd/2009 2005-06 Assessee Partly allowed
789/Hyd/2009 2001-02 Assessee Allowed
21/Hyd/2005 2001-02 Department Partly allowed
794/Hyd/2007 2000-01 Department Dismissed
795/Hyd/2007 2003-04 Department Dismissed
Order pronounced in the court on 25th January, 2012
Sd/- Sd/-
(Chandra Poojari) (H.S.Sidhu)
Accountant Member Judicial Member
Dt/- 25th January, 2012
88 ITA No.1214/Hyd/04 and nine others
M/s. Transport Corporation of India Ltd., Sec'bad
Copy forwarded to:
1. M/s. Transport Corporation of India Ltd., 306 & 307 III Floor, Ashoka Bhopal Chambers, S.P. Road, Secunderabad.
2. Asst. Commissioner of Income-tax Circle 3(3), Hyderabad.
3. Commissioner of Income-tax(Appeals)-IV, Hyderabad.
4. Commissioner of Income-tax III Hyderabad
5. Departmental Representative, ITAT, Hyderabad.
B.V.S./tpr