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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER
PER S. S. GODARA, JM :
This assessee’s appeal for A.Y. 2012-13 is directed against the CIT(A) - 7, Pune’s order dated 03/08/2017 passed in case No. PN/CIT(A) -7/Cir- 14/64/2015-16 involving proceeding u/s. 143(3) of the Income Tax Act, 1961; in short "the Act”.
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The assessee’s first and foremost substantive ground seeks to reverse both the lower authorities’ action disallowing agency commission payment(s) made to M/s. Microlog Systems, Kolhapur. The CIT(A)’s detailed discussion affirming the Assessing Officer’s action to this effect reads as under :
“5.3 I have carefully considered the facts of the case and law apparent from records. The assessee has e-filed return of income on 26/09/2012 declaring total income of Rs.7,68,07,610/-. The AO observed that assessee has claimed agency commission of Rs.85,21,164/- on account of commission paid. The assessee has paid commission of Rs.43,00,318/- to Mrs. Microlog Systems Kolhapur. The AO sought explanation of the assessee and assessee submitted that M/s. Microlog Systems Kolhapur proprietor Atul Sindhe is providing agency services to the assessee and sister concern since 2000. The assessee sold to Manugraph India Ltd. to tune of Rs. 8.37 crores. The assessee also submitted that agency commission to Microlog is supported by parties invoices and paid through cheque after deducting TDS. Similar issue involved in A.Y.2010-11 has been accepted. The AO rejected explanation of the appellant /assessee. The AO observed that Microlog has been paid nearly 55% of agency commission whereas turnover of business at Kolhapur is negligible. The AO also observed that the commission has been paid to the entities which are in the status of systems houses. The AO also observed that commission paid to Microlog is in pre-decided manner and pre-decided rate is as systematic drain to the profit of the assessee company. The AO considered that payment is not in the character of the commission and added to the total income of the assessee. 5.4 During the appellate proceedings the appellant reiterated its stand. The appellant also submits that the M/s. Microlog System has always paid the commission @5% of the sale. The appellant submits that M/s. Microlog Systems House of the assessee and instance referred by the AO of M/s. Energypack Pvt. Ltd. The appellant further that the commission is paid @5% to @ 5.72% of sales to system houses. The appellant further
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contends that AO has not found any malafied arrangement. The appellant relied on the judicial pronouncements mentioned in para 4 of this order. The appellant further submits that the issue has arisen in A.Y. 2009-10 and 2010-11 and has been decided by the CIT(A) and ITAT, Pune in favour of the assessee. 5.5 Ostensibly, the appellant is receiving agency commission of Rs.52,86,307/- as mentioned in note 14 revenue from operations in Audited accounts. The appellant has not demonstrated through documentary evidences the rate of commission paid to the parties including M/s. Microlog System. The appellant is dealing with M/s. Microlog System for last 20 year and despite that no documentary evidence produced showing the terms and conditions and entitled rate of commission of 5% on sales. It is also evident from the commissions of the appellant that M/s. Microlog System is providing services to Manugraph India Ltd. It has not been demonstrated that what is the term and condition of sales and services and commission between assessee, M/s. Microlog System and Manugraph India Ltd. The appellant has also not demonstrated that whether any agency commission has been received from M/s. Microlog System as has been received from other to the tune of Rs.52,86,307/- mentioned above. Under these circumstances, it could not be demonstrated by the appellant the nature of services rendered by M/s. Microlog System for which it has been remunerated by way of commission except sales. The appellant has also not demonstrated that what is the difference in sales and commission through agency of the assessee and through M/s.Microlog System. Further, the contention of the appellant is self contradictory as the appellant has mentioned fixed 5% commission to M/s. Microlog System during the appellate proceedings whereas the ITAT in order dated 19.05.2017 for A.Y. 2009-10 in para 4 has noted rate of commission at 7.5% to M/s. Microlog System for sales made to Manugraph India Pvt. Ltd. It is also evident that M/s. Manugraph India Pvt. Ltd. is regularly purchasing from the assessee for decades then where is the needs of commission agent for effecting the sales of M/s. Manugraph India Pvt. Ltd. Which is sole major customer at Kolhapur. It is also not demonstrated that no amount is being charged
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by M/s. Microlog System to M/s. Manugraph India Pvt. Ltd. for services rendered on products of the assessee. Therefore, under factual matrix the appellant could not substantiate its claim through documentary evidences. 5.6 The appellant has claimed agency commission allowable u/s. 37(1). The onus to prove the necessary facts is on the appellant as has been held by the Supreme Court in case of CIT vs. Calcutta Agency Ltd. reported in 19 ITR 191(SC) and in case of Lakshmiratan Cotton Mills Co. Ltd. vs. CIT reported in 73 ITR 634(SC). Further, the Supreme Court in case of L.H. Sugar Factory & Oil Mills (P.) Ltd vs. CIT reported in 125 ITR 293 (SC) wherein it has been held that where an assessee claims deduction the onus on him to bring all material facts on record to substantiate his claim. In the instant case the appellant has failed to substantiate its claim with documentary evidence the nature of services rendered by the M/s. Microlog System while affecting sales to M/s. Manugraph India Pvt. Ltd in view of these facts judicial pronouncements relied upon by the appellant does not support the case of the appellant. 5.7 The Bombay High Court in case of Umakant B. Agrawal vs. DCIT reported in 369 ITR 220(Bom) has held that: “Since appellant failed to produce evidence regarding sub-agency commission paid by showing nature of services rendered by sub- agents, said expenditure could not be allowed” 5.8 In view of the above, the action of the AO of disallowing Agency Commission of Rs.43,00,318/- paid to M/s. Microlog Systems is upheld and ground No.1 of the appeal is dismissed.”
We have given thoughtful consideration to rival stands and find no merit in the Revenue’s arguments supporting the impugned disallowance since the assessee has already succeeded on the very issue in preceding assessment year(s) before the tribunal involving commission payments to
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M/s. Microlog Systems only. Coming to the Revenue’s stand there is hardly any need to pay impugned sum, we quote Sassoon J David & Co P.Ltd. 118 ITR 261(SC) that the statutory expression “wholly and exclusively” in section 37 does not mean “necessarily” incurred expenditure. This is indeed coupled with the fact that the assessee has continued very scheme of agreement with prevailed in preceding years having attained finality. We accordingly delete the impugned agency commission disallowance of Rs.43,00,318/- in same terms by adopting judicial consistency. The assessee succeeds in the instant first substantive issue therefore.
Next comes sales promotion disallowance of Rs.2,94,527/- made @ 25% of total claim of Rs.11,78,111/-. We find that neither the assessee has explained each and every item by filing the necessary cogent evidence nor the department has given any comparative analysis regarding 25% rate adopted herein. Faced with this situation, we restrict the impugned disallowance @ of 8% only with a rider that the same shall not be treated as a precedent. This second substantive grievance is partly allowed in very terms.
Lastly comes Section 14A read with rule 8D disallowance of Rs.4,62,477/- comprising of direct and administrative expenses of Rs.88,501/- & Rs.3,73,976/-; respectively relatable to the assessee’s exempt income of Rs.23,38,644/-. Learned counsel could hardly rebut the former head of direct expenditure. The same stands confirmed. Coming to the latter disallowance component of Rs.3,73,976/-, we deem it appropriate to restore the same back to the Assessing Officer for his afresh computation
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after considering dividend yielding investments only in the relevant previous year in light of M/s. ACB India Ltd v/s ACIT (2015) 374 ITR 108 (Delhi). This third substantive ground is partly accepted in very terms.
This assessee’s appeal is partly allowed in above terms. Order pronounced in the Open Court on this 8th day of June, 2022.
Sd/- Sd/-
(DR.DIPAK P.RIPOTE) (S.S. GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER पपणे / Pune; ददनधांक / Dated : 8th June, 2022. Ashwini आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : अपऩलधथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(A)-7, Pune. 4. The Pr.CIT-6, Pune. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. गधर्ा फ़धइल / Guard File. आदेशधनपसधर / BY ORDER, 6. // True Copy // Senior Private Secretary आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune.
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S.No. Details Date Initials 1 Draft dictated on 06.05.2022 2 Draft placed before author 25.05.2022 Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order