AVLON SYNTEX PVT. LTD.,,SURAT vs. THE DCIT, CIRCLE-1,, SURAT

Arlon Syntex Pvt. Ltd., vs DCIT, Circle-1, Surat /ITA No.1052/AHD/2016 Page 1 of 10

आयकर अपील�य अ�धकरण,सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A.No.1052/AHD/2016 �नधा�रण वष�/Assessment Year : 2011-12 Avlon Syntex Pvt. Ltd., Vs The Deputy Commissioner 2nd Floor, Vishwakarma Chambers, . of Income Tax, Majuragate, Ring Road, Surat – 395002. Circle-1, Surat – 395 001. [PAN: AACCA 0034 B] अपीलाथ� Appellant ��यथ�/Respondent �नधा�रती क� ओर से /Assessee by: Shri Hiren Vepari – CA राज�व क� ओर से /Revenue by: Shri Prasoon Kabra - Sr.DR

सुनवाई की तारीख/ Date of hearing: 15.05.2019 उ�घोषणा क� तार�ख/Pronouncement on: 16.05.2019 आदेश /O R D E R PER BHAVNESH SAINI, JM: This appeal by the assessee has been directed against the order of 1. Learned Commissioner of Income Tax (Appeals)-4 [ld.CIT(A)], Surat dated 17.02.2016 for assessment year 2011-12.

We have heard the Learned Representative of both the parties and 2. perused the material available on record.

The Learned Counsel for the assessee did not press Ground No.1 3. of appeal of the assessee, the same is dismissed as not pressed.

On the Ground No.2, the assessee challenged the orders of 4. authorities below in disallowing a sum of Rs.69,47,904/- on account of commission paid to M/s.SRM Logistics.

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The facts of the assessee are that assessee company filed return 5. of income on 30.09.2011 showing total income of Rs.21,24,110/-. Subsequently, assessee filed a revised return of income showing total income at Rs.28,53,420/- wherein commission income of Rs.7,29,304/- was shown, it was not reflected in the original return of income. The assessee company is engaged in the business of Subletting Storage Facility at Port during the year under consideration. The assessee has not deducted TDS on the entire amount paid to M/s.SRM Logistics for which separate addition have made. The Assessing Officer noted that assessee has claimed commission expenses of Rs.69,47,904/- in the profit and loss account . It was found apparently abnormal for the assessee company to have incurred such commission expenses of Rs.69,47,904/- against the total turnover of Rs.2.08 crores. It was further noted that Gross Profit Ratio of the assessee has decreased from 56.88% in the immediately preceding year to merely 16.73 % in the year under scrutiny assessment. The Assessing Officer on the basis of the documents available on record found that there are certain discrepancies in the bills produced by the assessee in support of claim of payment of commission to M/s.SRM Logistics. It was seen that address of the head of office of the commission agent in two bills is different. The phone number provided in the bills was not found existing. On enquiry from BSNL online telephone directory it was noticed that the telephone number does not belong to commission agent but to M/s.CLS Systems. The PAN number of commission agent provided by the assessee was also found incorrect and not genuine because the same belong to Ms.Sumedha Mittal resident of Noida, Uttar Pradesh. In the entire income tax records, there was no reference of M/s.SRM Logistics at all. The Assessing Officer

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in view of the above facts summoned Shri Manoj Omprakash Goel, director of the assessee company u/s.131 of the Income Tax Act and recorded his statement on oath. His statement is reproduced in the assessment order in which he has admitted that in lieu of the alleged commission payment to M/s.SRM Logistics, no specific services has been provided by them for the assessee. He has further admitted in his statement that he has never known Ms.Sumedha Mittal personally and that as per his remembrance, she is the wife of one Shri Rajnish Mittal who in turn has been the manager of M/s.Polyplex Pvt. Ltd., a client of our assessee company M/s.Avlon Syntex Pvt Ltd., Shri Manoj Goel has also admitted that he or any other office bearer of the assessee company has never met in person or otherwise any office bearer or employee or delegate from M/s.SRM Logistics and the payments in the name of “commission” have actually been made without any services offered in lieu thereof. The assessing officer, therefore noted that there is an admission which has directed Revenue implication in the case of assessee, M/s.Avlon Syntex Pvt. Ltd. Any payment made by assessee in lieu of other consideration other than the business cannot by no means considered to have been laid out or incurred wholly and exclusively for business purposes. The Assessing Purposes issued show cause notice to the assessee based on the above facts and called for the explanation of the assessee.

The reply of the assessee is reproduced in the assessment order in 6. which the assessee briefly explained that the assessee know Mr.Rajnish Mittal who is the key person behind arranging all their business dealings with M/s.Ployplex Pvt Ltd. Copy of the email correspondence amongst Mr.Rajnish Mittal, Sandeep Agarwal and Gaurav Mantro of Polyplex were

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filed. It would prove that services provided to M/s.Polyplex Pvt Ltd., was arranged by Mr.Rajnish Mittal and commission was paid on his instance against the bills send to us in the name of M/s.SRM Logistics, leaving no scope for conclusion that no services have been provided to us. The assessee got a sufficient business out of same Mr.Manoj Omprakash Goel has stated that it is a business secret that means business was secret and but not the payment. The expenses were incurred wholly and exclusively for the purposes of business.

The Assessing Officer, however, did not accept contention of the 7. assessee because deduction could be allowed if these expenditure laid out or incurred wholly and exclusively for the purpose of business of assessee. The Assessing Officer relied upon judgment of the Supreme Court in the case of Lachminarayan Madanlal Vs. CIT [1972] 86 ITR 439 in which it was held as under : “The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee’s business. Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section 37 of the Act.” The Assessing Officer, therefore noted that these circumstances 8. would show that there was no agreement or evidence indicating any services rendered by M/s.SRM Logistics to the assessee company. On the contrary, the director of the assessee company stated that company has had neither any real connection or contact with M/s.SRM Logistics nor has received any kind of services therefrom. The Assessing Officer followed certain other decisions also and rejected the book results

Arlon Syntex Pvt. Ltd., vs DCIT, Circle-1, Surat /ITA No.1052/AHD/2016 Page 5 of 10

u/s.145(3) of the Income Tax Act, disallowed the entire commission payment of Rs.69,47,904/-.

The addition was challenged before the ld.CIT(A). The assessee 9. reiterated the same facts before the ld.CIT(A). It was submitted that difference in the address of the commission agent was due to change of address. Copy of the income tax return of the commission agent was filed. It was also stated that M/s.SRM Logistics is proprietary concern of Ms.Sumedha Mittal, therefore PAN of her was provided. Copy of the bills to show payments of commission have been filed have not been considered. The ld.CIT(A) considering the explanation of the assessee and material confirmed the addition. His findings in para 8 of the appellate order is reproduced as under: “8. I have gone through the facts of the case, assessment order and the submissions of the appellant. The startling and undisputed fact that emerges is that M/s.SRM Logistics whose Prop. Is Mrs. Sumedha Rajnish Mittal has provided no specific services to the appellant company. Not only this Shri Manoj Omprakash Goyal, director clearly stated that any one from SRM Logistics has ever met him or anyone from the appellant company (refer to replies to question no.4 to 7 of his statement reproduced on page no. 9 & 10 of the assessment order). Neither in the assessment proceedings nor even now in the appellate proceedings; there is even a claim that M/s. SRM Logistics which has raised the bills has provided any service whatsoever to the appellant company. Any payment made on a bill without providing any services particularly of a nature of commission, cannot be allowed u/s.37(1) of the I.T.Act. It is held that the AO was perfectly justified in disallowing the claim of such commission expenses as these have not been incurred or expended wholly and exclusively for the purpose of business. The various decisions including that of Hon'ble Supreme Court in the case of Lachminarayan Madanlal Vs. CIT [1972] 86 ITR 439; Hon'ble Calcutta High Court in the case of Jayshree Tea & Industries Ltd. Vs. CIT (Cal) 272 ITR 193 and Jurisdictional Gujarat High Court in the case of Gujarat Insecticides Ltd. Vs. DCIT 40 taxman.com 166 (Guj) as relied upon by the AO; are squarely applicable on the facts of the case. The ground of appeal is dismissed. 8.1 Without prejudice to the above, I would like to discuss and examine the claim made in appeal that

Arlon Syntex Pvt. Ltd., vs DCIT, Circle-1, Surat /ITA No.1052/AHD/2016 Page 6 of 10

“…..the appellant had taken tankers on hire at a particular rate. In the meantime, one Mr. Rajnish Mittal came into contact with the appellant company. He claimed that being consultant of Polyplex Corporation Limited he would be able to get good hire charges for the tanker and it was agreed to give him substantial part of such hire charges received provided hire charges gave good profit to the appellant company. The appellant company was also given to understand by Mr. Mittal that this transaction has to be done through his concern viz. SRM Logistic to whom the payment was to be made. The appellant remained under the impression that he was the proprietor of that unit..” The version is clearly an afterthought and far from truth as is proved by the following facts and circumstances: 1) In the statement recorded by the AO he clearly stated that he was knowing not only Rajnish but also his wife Sumedha. Now the appellant claims that it was under the impression that Shri Rajnish Mittal was proprietor of M/s. SRM Logistics. However, if it was true, how would the appellant explain the fact that the director clearly stated that any one from SRM Logistics has ever met him or anyone from the appellant company (refer answer to q. no. 7). It has to be kept in mind that now it is being claimed that the deal was clinched when Rajknish Mittal came into contact with the appellant 2) If the diprector really believed that Shri Rajnish Mittal was a consultant to thoe Client Company and proprietor of M/s. SRM Logistics; why he would have said that no specific that no specific service has been provided by M/s. SRM_Logistics_as stated by him in reply to q. no. 7. The contradictions as above prove that the explanation is bogus and false and deserves to be rejected. This is without prejudice to the decision already arrived in para 8.1 above. 8.2 AS the expense of claimed commission of Rs.69,47,904/- claimed paid to SRM Logistics has been held not allowable u/s.37 and is completely disallowed in the preceding paragraphs of this order; no double disallowance u/s.40(a)(ia) with respect to expenses debited to it is required. However, if the disallowance is set aside in further appeal or otherwise, than disallowance u/s.40(a)(ia) would have to be made as per the direction given in paragraph 6.3 and the following subparagraph.” The learned Counsel for the assessee reiterated the submissions 10. made before the authorities below and submitted that addresses of the commission agent was changed, therefore there was change in the address in the bill. The telephone number was properly provided. Tax has been paid by the commission agent on the amount received form assessee PB 30 copy of email between Rajnish Mittal and other to show business transaction with M/s.Polyplex PB 31-47 are the bills to show the rates of the items in higher amount as compared to PB 48 in which lesser amount is mentioned. He has therefore, submitted that difference in

Arlon Syntex Pvt. Ltd., vs DCIT, Circle-1, Surat /ITA No.1052/AHD/2016 Page 7 of 10

amount in the bills were paid to the commission agent as commission. PB 113 is the one of the bills of the commission. He has submitted that since TDS has been deducted on commission payment which is also offered for tax by the commission agent, therefore addition is wholly unjustified. In support of his contention he has relied upon following decisions :- 1) Judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Medical Technologies Ltd 215 taxman 10; 2) Judgment of Hon'ble Delhi High Court in the case of Pawan Kumar Jain Vs. CIT [2011] 334 ITR 23 (Delhi) ; 3) Judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Nangila Fabrics Pvt. Ltd., 220 taxman 17 ; 4) Order of ITAT Kolkata Bench in the case of ITO vs LGW Ltd., 174 TTJ 553.

On the other hand, the Learned Departmental Representative 11. relied upon the orders of the authorities below and submitted that director of the assessee company was examined on oath in which he has denied any relation with the commission agent. He has also denied if commission agent did any services for the assessee company. He has admitted that expenditure was not incurred wholly and exclusively for the purpose of business. The Departmental Representative has submitted that the entire facts would show that it was illegal payment made by assessee to unknown and non-genuine company. Copy of the email would not provide anything if the commission agent did any services for the assessee. He has therefore submitted that addition may be confirmed.

We have considered rival submissions and perused the material 12. available on record. The assessee claimed commission expenses of Rs.69,47,904/- has been paid to M/s.SRM Logistics. Since the assessee claimed deduction of the expenditure, therefore burden is upon assessee

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to prove in terms of section 37 of the Income Tax Act that these expenses were laid out or expanded wholly and exclusively for the purpose of business of assessee. The assessee produced copies of the bills to show that M/s.SRM Logistics (commission agent) rendered services for the business of assessee. But the Assessing Officer found certain discrepancy in the same. The PAN was found to have belong to Ms.Sumedha Mittal, resident of Noida. The Assessing Officer therefore recorded the statement of Shri Manoj Omprakash Goel on oath. The director of the assessee company in his statement denied to have any connection or relation with Smt.Sumedha Mittal. He has stated that Shri Rajnesh Mittal is manager of M/s.Polyplex with whom assessee has a business relation but he has no relation with Mr.Rajnesh. He has denied to have any business connection with M/s.SRM Logistics (commission agent). He denied having relation with any employee or officer of the commission agent. He has also admitted that in lieu of the payment made to the commission agent, no services have been rendered by them for business of the assessee. He has stated that due to above business relationship he got a business profit for which he refused to divulge the information. It is therefore admitted fact that the commission agent did not render any services for the business of the assessee. The director of the assessee company also stated that he does not know Ms.Sumedha Mittal, but later on she was found to be proprietor of the commission agent, but no services were rendered by the proprietorship concern of Ms.Sumetha Mittal to the assessee. The director of the assessee company also admitted he does not met any officer or other employee of the commission agent. It is thus undisputed fact that M/s.SRM Logistics proprietorship concern of Ms.Sumedha Mittal have not provided any specific services to the business of assessee company. No bill was issued by the commission agent for rendering any services for business of assessee. There is no question of making any commission payment to

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the commission agent for business purpose of the assessee company. It is a bogus payment made by assessee company to M/s.SRM Logistics (commission agent). The assessee company later on merely implicated M/s.Polyplex Corporation without any reasons. It is well settled law that admission is a good evidence against the maker. The Learned Counsel for the assessee admitted during the course of arguments that the director of the assessee company never retracted from his statement made on oath to the Assessing Officer. These facts clearly disentitled the assessee for making a claim of genuine commission expenses. The ld.CIT(A) examined the claim of the assessee at appellate stage and found that an explanation given by the assessee incorrect that it was under the impression that Rajnesh Mittal was proprietor of M/s.SRM Logistics. However, Shri Manoj Omprakash Goel director of the assessee company in his statement recorded on oath clearly stated that he does not know Smt.Sumedha Mittal or Rajnesh Mittal personally. Therefore, there is no question of involving another company for the purpose of showing any services rendered for the business of the assessee. We may also note here that as against turnover of the assessee at 2.08 crore, commission was paid of Rs.69,49,704/- which was very high and exorbitant. The assessee initially did not disclosed commission income in the return of income and the Assessing Officer found that in preceding assessment year assessee has shown Gross Profit Rate of 56.88% but in assessment year under appeal Gross Profit Rate has been shown at 16.73%. These facts clearly show assessee made a bogus claim of commission paid to M/s.SRM Logistics who did not render any services for the business of assessee. The entire story have been fabricated by the assessee just to give a colour of commission payment was made for business purpose of the assessee company. The assessee inflated expenses to conceal income. Thus, the initial onus upon the assessee to prove genuineness of the commission payment have not been discharged

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by the assessee company. The ld.Counsel for the assessee failed to rebut the findings of recorded by the authorities below against the assessee. Merely because commission payment have been made through banking channel, part TDS have been deducted and that the commission agent has shown the same amount as their income would not prove genuineness of the commission payment in the matter. The conditions of section 37 of the Income Tax Act are not satisfied in the present case. The decisions relied upon by Learned Counsel for the assessee would not support the claim of the assessee. We, therefore do not find any infirmity in the orders of the authorities below in disallowing or confirming the commission payment.

In the result, appeal of the assessee is dismissed. 13.

The order pronounced in the open court 16-05-2019. 14. Sd/- Sd/- (O.P.MEENA) (BHAVNESH SAINI) (लेखासद�यकेसम� /ACCOUNTANT MEMBER) (�याियकसद�यतथा/JUDICIAL MEMBER) सुरत/ Surat, �दनांक Dated: 16th May , 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat