THE DCIT, CIRCLE-6,, AHMEDABAD vs. M/S. TECHNO INDUSTRIES ,, AHMEDABAD

Briefly stated the assessee, a partnership firm, derives business income from sale of capital goods. The assessee has declared a business turnover of Rs. 19.23 crores during the year and declared taxable income of Rs. 67,24,730/-. The return filed by the assessee was subjected to scrutiny assessment. In the course of the assessment proceedings, the Assessing Officer noted that assessee has inter alia claimed commission expenses of Rs. 32,65,628/-. The Assessing Officer made certain enquiries regarding the genuineness and business purposes of the commission expenses so claimed. For this purpose, the Assessing Officer issued notices under section 133(6) of the Act to all the 18 parties to whom assessee has claimed to have paid commission. The Assessing Officer observed that only 04 parties responded to the aforesaid notices and that too did not file the crucial details called for such as details of services provided to the assessee. The Assessing Officer in these broad facts held that expenses claimed

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 3 - by the assessee on account of commission is not proved. The Assessing Officer accordingly relied upon the decision of the Hon’ble Supreme Court in the case of Laxminarayan Madan Lal vs. CIT (1972) 86 ITR 439(SC) and disallowed the expenses claimed by the assessee. While doing so, the Assessing Officer also observed that majority of parties have not even confirmed the factum of receipt of commission. The assessee has failed to prove the nexus between its business and the expenses incurred. The particulars of services rendered against commission is not placed on record. The Assessing Officer observed that payment to the recipient by cheque and deduction of TDS thereon is of no consequence to establish the genuineness and business purpose of the expenses claimed.

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 4 - not established that the payment of commission was not for the business purposes. The CIT(A) accordingly reversed the action of the Assessing Officer and deleted the addition made by the Assessing Officer on this score.

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 5 - urged that the appellate order of the CIT(A) on the issue involved required to be set aside and the action of the Assessing Officer requires to be restored.

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 6 - towards services and the corresponding business. The Assessing Officer has refused to accept the payment by cheque and deduction of TDS as determinative factor for establishing genuineness of such expenses and rightly so. The initial onus is always of the assessee to establish the bona fide of commission expenses when called upon to do so. A mere furnishing of basic details of parties and mode of payment does not necessarily shift the onus on the Revenue. It was always for the assessee to come out with the details of services obtained against the expenses claimed. The increase in turnover by itself is not conclusive although may somewhat indicate need for presence of such services. It is very surprising that CIT(A) has accepted the case made out by the assessee as a gospel truth without making any enquiry on lack of response from majority of parties and inadequacy in important details called for from those recipient parties. It is manifest that CIT(A) has incorrectly appreciated the facts and wrongly shifted the onus on the Assessing Officer to establish that the payment of commission was not for the purposes of business and further shifted the responsibility on the Assessing Officer to prove that services were not rendered by the commission agents. The onus on the fact that the expenses were incurred for the purposes of business and services were actually rendered always lay on the assessee. Thus the action of the CIT(A) does not stand to reason. The Hon’ble Supreme Court in the case of Laxminarayan Madanlal

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 7 - (supra) squarely applies to the facts of the case. The rendition of services must be proved as a matter of fact when called for. The fact that the commission expenses were allowed in a different year was found to be irrelevant by the Hon’ble Supreme Court in the case of Ganapathy and Company vs. CIT 381 ITR 363 (SC). The mere payment by cheque does not tie down the Assessing Officer to hold that the payment was exclusively for the purposes of business. It is true that the assessee, at times has no command over the parties who have rendered services to push them for compliance of the statutory notices. However at the same time the assessee is expected to bring on record some material (viz correspondences, e-mails, pattern of commission payments and its nexus to corresponding services or business garnered, qualification and experiences of commission agents showing their expertise and capabilities etc. to list a few) which may corroborate with the supply facilitated owing to such services by parties with some particulars/details.

ITA No.1019 /Ahd/2015 Techno Industries vs. DCIT Asst.Year – 2011-12 - 8 - the Assessing Officer for determination of issue afresh after making such enquiries as he may consider expedient to ascertain the genuineness of the claim towards commission expenses and its nexus in relation to the business of the assessee. Needless to say, the Assessing Officer shall determine the issue in accordance with the law after giving proper opportunity to the assessee in this regard.