K.S. COMMODITIES PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

The learned assessing officer rejected the explanation of the assessee. He found that assessee has made payment of commission for export of 6652 metric ton of yellow maize which is INR 674/- per metric ton and works out to 6.32% of the sale value. Other commodities which have been sold by the assessee are Sugar and soya on which the assessee has paid commission at the rate of INR 120/- per metric ton of 0.42 percentage of the sale value which clearly means that the rate of commission on sale of maize is excessive and unreasonable as compared to the commission of sale of other commodities sold by the assessee. He further compared the commission paid on sale of maize and tabulated them at page No. 3 of the assessment order. He noted that the assessee has paid commission at the rate of Rs. 30 per metric ton to Mr. Mahesh Nagpal in the month of May and June 2011 whereas in the month of March 2012 assessee has paid to Vidhyashree Buildcon private limited commission of Rs. 750 per metric ton. Therefore, he noted that for the sale of same commodity assessee is paying commission to one party at the rate of Rs. 30 per metric ton and to the other party in question at the rate of Rs. 750/- per metric which is highly excessive and unreasonable on the face of it. He further stated that the genuineness of the bills was questioned, which could not be satisfactorily explained by the assessee. Accordingly, he disallowed a sum of Rs. 4989000/– out of the commission expenditure.

The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT (A) who confirmed the above disallowance. Therefore, assessee is in appeal before us.

The learned authorised representative submitted the facts of the case and stated that disallowance has been made by the learned assessing officer and confirmed by the learned CIT (A) for the simple reason that commission was found to be excessive and the genuineness of the same was doubted. He referred to the reason of the learned assessing officer that commission has been paid to the above entity at Rs. 750 per metric ton whereas the sale price of the maize as per the confirmation note fluctuates between Rs. 258 per metric ton to Rs 285 per metric ton which does not commensurate . In response to this he submitted that as per the confirmation note the rate of commission is specified at INR 7 50 per metric ton whereas the rate of export of maize is specified in US dollar and not in Indian rupees accordingly the commission paid is lower than the sale price for export of maize and the appellant has not suffered any loss because of the commission paid on export transactions. With respect to the disparity in the amount of commission paid to Vidhyashree Buildcon Pvt Ltd and Mahesh Agarwal on export of maize, he submitted that no commission has been paid to any other party on export of maize as stated by the learned assessing officer. The assessee has paid commission to Mahesh Agarwal at INR 3 0 per metric ton but the same was in view of domestic purchase of maize which is not comparable with the commission paid on export of maize to Bangladesh. He further referred to the copy of the account of the recipient of the commission Mr. Mahesh Agarwal along with his bills. With respect to the allegation that assessee has suffered losses in this transaction, he submitted that the appellant has earned average gross profit ratio of 8.02% on transaction on export of maize through Vidhyashree Buildcon private limited. With respect to the allegation of the excessive and unreasonableness of commission paid on export of sugar and soya been, he stated that appellant is primarily engaged in trading of sugar and soya been. The maize purchased by the appellant during the year was exported to only single country Bangladesh to that party and these were the only transactions of export entered through commission agent and no other transaction of export either through commission agent or otherwise were undertaken during the year. Therefore, he submitted that commission on export of maize cannot be compared to the export of different commodities. With respect to the discrepancy in the amount of commission as recorded in the audited financial statement and the Ledger account, he submitted that total brokerage recorded in the profit and loss account is INR 1 0998699/– which is pertaining to two different ledgers with respect to general commission and brokerage paid for sugar division and therefore there is no discrepancy in the amount of commission or brokerage recorded in the profit and loss account and the ledger accounts produced before the learned assessing officer. With respect to the date of confirmation note stated in the invoices, he submitted that the commission was paid for export orders secured by Vidhyashree Buildcon and each payment was supported by corresponding confirmation notes. The same date of confirmation order on each invoice was merely a typographical error however, other particular such as quantity and rate of commodity were correctly stated in the invoices. He further referred to the allegation of the learned assessing officer that the recipient of commission was apparently engaged in the business of construction and not in the agricultural commodities and assessee has not produced any evidence showing that the commission has been offered to tax by that recipient or tax deduction at source there from has been made by the assessee, he submitted that commission income was duly recorded in the books of accounts of the recipient who also offered the same to taxation. He further stated that tax deductions at source are also made by the assessee and the confirmation has been obtained from the broker. Merely because the commission agent is engaged in any other activity, it could not be said that the agent had not rendered any services to the assessee company. For this proposition, he relied upon the decision of the coordinate bench in 125 ITD 309. He further stated that the allegation of the learned assessing officer is without any basis that no proof of service actually has been rendered by the recipient of the brokerage, he submitted that service provided is duly supported by the confirmation notes exchanged between the parties and invoices raised by the broker. The payment was made after deducting tax at source through regular banking channels and there could not be any further evidence to prove the introduction of the parties. He further stated that the transaction is pertaining to month of May, June, July; August But payment and accounting entries were recorded in the month of March was main concern of the learned assessing officer. In response to that, he submitted that the payment of commission in March was purely commercial decision reached between the parties based on mutual understanding and availability of funds in the hands of the appellant. The transactions were recorded in the books when the appellant agreed to make payment to the recipient. The aforesaid was a commercial decision between the parties which cannot be dictated by the revenue. He further referred to a comparative gross profit chart on export of made therein it is stated that assessee has not incurred any losses in any of the transaction but has earned gross profit in all the four transactions. He further referred to the page number 53 – 54 of the paper book where the confirmations of the recipient of the brokerage are placed. He further referred to the page number 80 of the paper book to show that the tax was deducted at source on such payment. The page number 81 was also referred to with respect to the payment by the banking channel to the recipient of the income. At page number 91 – 96 of the paper book, he referred to the return of income and the profit and loss account of the recipient of the income to show that it has been recorded as the income of the broker. In view of this, he submitted that the disallowance made by the learned assessing officer and confirmed by the learned CIT – A deserves to be deleted.

The learned departmental representative vehemently supported the orders of the lower authorities and referred to page number 96 of the paper book to show that Vidhyashree Buildcon private limited did not have any income or activities to perform such services. He submitted that as on 31/03/2012 only operating income of Rs. 4989000 was shown by the recipient of the income which is the brokerage income received from the assessee. He further stated that other income is merely an interest income of INR 1 487208. He further referred to the profit and loss account and shown that it has shown very meager expenditure which itself suggest that such kind of services cannot be rendered to the assessee by the broker. Therefore, he submitted that assessee has failed to show that any services have been rendered by such company. He stated that even otherwise there is no reference that which clients were contacted by the broker to whom the maize is exported. He therefore submitted that the total transaction of the commission payment for the reasons given by the learned assessing officer and the learned CIT – A clearly shows that the payment made by the assessee is completely bogus and excessive.

We have carefully considered the rival contention. The facts have already been stated adequately in the year paragraphs. The only issue is about the allowability of commission expenditure paid by the assessee of Rs. 4989000/- by assessee to M/s. Vidhya Shree Buildcon Pvt. Ltd for four consignments of export of maize in the month of May 2011 and August 2011. In the present case the contentions of the assessee are that payment have been made through cheque, supported by the invoices, proof of earning the profits on the transaction, no such comparable transaction with any other party for export of similar product, therefore, the same is allowable. The ld Assessing Officer doubted the reasonableness, genuineness of the transaction. With respect to the genuineness of the transaction the ld CIT (A) has noted that at no stage the appellant has been able to provide evidences to show that services have actually been rendered. Even before us no such evidences have been placed. If the assessee has paid commission to the above party for securing export orders, the assessee could have placed before us that which are the parties introduced by the agent to the assessee, how the rates are agreed upon, with whom negotiations took place etc. Merely placing the confirmation of the recipient of the income does not show that services have been rendered by the commission agent. The payment by cheques, copies of the invoices, bank statement of the commission agent, details of tax deduction at source on such payment are all will be in order but unless the rendition of the services by the commission agent is proved, same cannot be allowed as deductible expenditure. Further, the audited balance sheet of the broker which has been downloaded by assessee from public domain placed at page Nos. 92 to 104 of the paper book also does not