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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM This appeal has been filed by the assessee against the order dated 30/12/2010 passed by CIT(A) , Ghaziabad for Assessment Year 2005-06.
The grounds of appeal are as under:-
1. The CIT (Appeals) erred both on facts and in law in upholding the disallowance of Rs. 15,16,345/- in respect of Commission and incentive made by the AO. 2. The CIT (Appeals) while upholding the disallowance impugned, did not consider the detailed submissions supported by evidence and case law made by the appellant but chose to follow the order of his predecessor contrary to the settled legal position that principles of res judicata do not apply to tax proceedings.
3. The assessee is a Private Limited Company and is engaged in manufacture of Industrial explosives and sales thereof. The assessee filed return of income on 25/10/2005 showing a loss of Rs.34,18,708/-. The case was selected for scrutiny. Accordingly, notice u/s 142(2) dated 18/8/2006 was issued and served upon the assessee. In compliance thereof, the Assessee’s Representative attended the assessment proceedings from time to time and filed the replies to the queries raised during the course of the assessment proceedings. The Assessing Officer noticed that the assessee received a capital subsidy of Rs. 3,22,914/- which was not included by the assessee in receipt shown in profit and loss account. A notice u/s 142(1) dated 28/9/2006 was issued asking the assessee to explain as to why the same should not be taxed as income of the assessee Company. The assessee did not submit any reply at that time. On 10/12/2007, the assessee filed reply stating therein that the capital subsidy was given by ‘District Industries Centre’, Chanderpur, Maharashtra for making fixed capital investment in the area under the charge of said authority. The assessee further submitted in the reply that the same was based on the capital cost of the project and is a capital incentive. The assessee reiterated in the reply that under no circumstance, the same was revenue in nature. The assessee also furnished copy of the eligibility certificate for special capital incentive, copy of package scheme of incentive notified under the Government Resolution, Industries, Energy and Labour Department dated 31/3/2001 was not furnished under which the said eligibility Certificate was issued. The Assessing Officer made addition of Rs.3,22,914/- in respect of capital subsidy thereby treating it as revenue receipt and added back to the total income of the assessee. The Assessing Officer further observed that the assessee Company claimed expenses for commission of Rs.14,38,510/- and incentive of Rs.77,835/-. The assessee replied to the Assessing Officer that the commission and incentive were paid for handling and getting the order from the Coal India Limited as well to pursue in realizing the payment. The Assessing Officer made addition of Rs.15,16,345/- in respect of payment of incentive and commission.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that the assessee is challenging disallowance of commission and incentive paid at Rs.15,16,345/- in the present appeal. The Ld. AR submitted that the Assessing Officer as well as the CIT(A) ignored the material on record as well. The Ld. AR submitted that it is a settled law that res-judicata does not apply to tax proceedings more so when the earlier order is not of the assessee, but that of another assessee. The Assessing Officer as well as the CIT(A) confirmed the disallowance without taking cognizance of the evidence produced by the assessee during the assessment proceedings and also not taken into account the correct legal position. The assessee has given all the relevant evidence before the CIT(A) which was forwarded to the Assessing Officer for a remand report, but the Assessing Officer never filed any remand report. The Ld. AR submitted that the CIT(A) instead of drawing an interference against the Assessing Officer proceeded to uphold the disallowance by mere reference to the order of his predecessor in another case. The Ld. AR submitted that there is no bar in law to appoint agents to deal with Government Departments and each case has to be examined on its own facts. The commission agent in the present case does not have any role to play in the tendering proceedings. The Ld. AR pointed out that the assessee deals entirely with Coal India Limited Headquarter at Kolkata and its various subsidiaries including Western Coal Fields Ltd. Its own Industrial Unit is located in District Chanderpur, Maharashtra. It is necessary in the interest of business to appoint agents to deal with the aforesaid companies in routine matters pertaining to sales affected and which in case, the assessee was to perform by employing its own staff to deal with such faraway clients otherwise the expenditure would be much more. The Ld. AR further submitted that the expenditures was incurred for the business of the assessee who is best equipped to decide as to which type of expenditure is suitable for the business. The Ld. AR submitted that the Assessing Officer cannot judge the decision of the assessee and decide otherwise. The Ld. AR relied upon the decision of the Hon’ble Punjab & Haryana High Court in case of CIT Vs. Bharat Medical Store (2009) 308 ITR 373 (P &H) as well as Escorts Ltd. Vs. ACIT (2007) 104 ITD 427 (Delhi) and Bulk Explosive Ltd. vs. DCIT in order dated 28th June, 2013 (Delhi). The Ld. AR further submitted that the issue is covered by the decision of the Tribunal in case of Bulk Explosives which is a sister concern of the assessee.
The Ld. DR relied upon the assessment order and the order of the CIT(A).
We have heard both the parties and perused the material available on record. It is pertinent to note that the CIT(A) and the Assessing Officer has relied upon the assessment order for Assessment Year 2003-04 but failed to appreciate that in the assessee’s own sister concern in case of Bulk Explosives, this issue has been decided in favour of the assessee. In-fact, the CIT(A) has noted the said decision in paragraph 6(3) of the order at Page 17 but still confirmed the disallowance without giving any proper reasons. We find the Tribunal in case of Bulk Explosives Ltd. in order dated 28th June, 2013 (Delhi) for A.Y. 2005-06 held as under:- “13. Coming to ground no.2, we find that the Ld.AO disallowed the claim of payment of commission and incentive aggregating to sum of Rs.22,82,903/- on the ground that dealing with government undertaking does not justify/require this type of expenses. The First Appellate Authority called for a remand report. The Assessing Officer reiterated that the assessee never furnished PAN number of the parties receiving commission during the assessment proceedings. He further observed that the issue is not whether the parties receiving the commission had disclosed the same in the return of income but whether the claim is justified specifically as it is ;for the purpose of procuring orders from a government concern. The First Appellate Authority followed the ofder of his predecessor for the Assessment 'Year 2002-03 and upheld the disallowance. On a query from the Bench the Ld. Counsel submitted that this addition has not been challenged previously by the assessee during the Assessment Year 2003-04, for the reason that the amount was small. A perusal of the order of the Ld. Commissioner of Income Tax (Appeals) for the Assessment Year 2003-04 demonstrates that the disallowance was upheld on the ground that commission of 3% paid for handling and getting order from M/s Coal India Ltd. and to pursue the realization of payments, was not justified at any stage by the assessee.
Before us the assessee made similar submissions. The issue is whether the assessee could prove that the parties who received the commission/incentive have rendered services. The submissions of the assessee are as follows:-
"Since there is no bar in law in appointing commission agents to deal with government concerns where such commission agents may not play' any role in the award of tenders but all other follow up work has to-be conducted, through agents which includes paper work, pursuing payments, checking up delivery schedules etc. The assessee in its letter dt. 10.12.2007 which is appended at page 1 of the paper book has, indicated the nature of work carried out by the commission agents in para 2.
It was further submitted before the AO that all payments to such commission agents whose names and addresses along with agreements had been placed on record had been made by cheques and TDS deducted thereof. Even their copies of accounts in the books of the assessee company were furnished during the course of the assessment proceedings. A reference may be made to pages 6 to 9 of the Paper Book.
The AO has proceeded to disallow the claim merely on suspicion1, surmises and conjectures whereas requisite enquiries should have been from the commission agents to whom the payments had been made and it is quite a narrow view to express just because the sales are to a government undertaking. It may be submitted that the headquarters of Coal India Limited are located at Kolkata and in case the assessee company was to place some of its employees .at such afar of place then, the expenditure on salaries etc. may be much more or equivalent to the claim which is being made on account of commission etc.
The A.O has not doubted the payment or its genuineness and neither has he complete details in respect of the payments including details of TDS are furnished. It may be emphasized at this stage that in respect of one of the commission agents namely M/s Combined Associates Singrauli, the Income Tax Department at Satna had issued a certificate on 14.05.2004 for deduction of tax at source at a lower rate vis-a-vis section 197(1) of the I.T. Act (page 39 of the paper book)”
14.1. These submissions have not been specifically dealt either by the Assessing Officer or by the Ld. Commissioner of Income Tax (Appeals). Out of an amount of Rs.22.8 lakhs, Rs. 16.37 lakhs was paid to M/s Combined Associates and in this case a certificate u/s 197(1). of the Act was issued by the Revenue. The party is identified and the fact that a certificate u/s 197(1) is given shows that the A.O. of M/s Combined Associates is satisfied with the genuineness of the expenditure claimed by M/s Combined Associates. These aspects have not been commented upon by the Assessing Officer in the remand proceedings. The Ld. Commissioner of Income Tax (Appeals) has also ignored the same.
15.Coming to the case law on the matter in the case of CIT vs. Bharath Medical Stores, tlie-Hon’ble Court held as follows:
Likewise, there are findings by the Tribunal that the expenditure on payment of commission vas for advancing the purpose of the assesses A business and the services of the agents procured by the assessee firm, in fact, helped in persuading the institutions to place orders with the IDPL and arrange acceptance of supplies made by the IDPL. Accordingly,. a categorical finding has been recorded that the agents were instrumental in getting all the terms of the contract between IDPL .and the assessee firm complied with and that the agents were appointed for commercial expediency because the assessee firm was not in aposition to cover all 13 districts of Punjab and Chandigarh left to itself. Therefore, these are questions of fact as has been held by a Division Bench of this Court in the case of CIT vs. Ishwar Prakash and Bros.(1986) 159 ITR 843 (P&H). Likewise, reliance could be placed on a judgement of the Hon’ble Supreme Court in the case of Shahzada Nand and Sons vs. CIT'(.1977) 108 ITR 358, wherein it was held that the commission paid to the two employees of the assessee film was reasonable having regard to all the circumstances of the case and was allowable as a deductible expenditure u/s 36(l)(ii) of the Act. The Hon’ble Supreme Court was dealing with a matter in respect of the AYs 1960-61 to 1963-64.
15.1. The Hon’ble Delhi High Court in the case of Sidhardha Trading Ltd. 206 Taxman 92, upheld the finding of the Tribunal on the ground that the order is not perverse, as the payment of commission was established. In these judgements, the Hon’ble Jurisdictional High Court has not found fault with payment of commission for services rendered to the assessee in their dealing with Government Enterprises.' In principle these cases help the assessee.
15.2. Coming to the decision of Hon’ble Delhi High Court relied upon by the Revenue, in the case of Precision Electronics Ltd. (supra) the Hon’ble High Court baised its finding on the fact that the ITAT had found that the assessee could not file requisite particulars or produce the concerned persons for verification/examination. This decision is also based on the facts that the assessee has failed to explain the nature of services provided, by the Commission Agents, the disallowance was confirmed. This case law cannot be applied to the facts on hand. This is a case where the assessee has proved the identity of the Commission Agents. The nature of services were stated. Tax was deducted at source and payments made through cheques. In the case of Combined Associates, the major commission agent, the genuineness of the claim has been prima facie accepted by the A.O. of Combined Associates. In our view the assessee has discharged the burden of proof that lay on it-. There is no adverse material collected by the A.O. There is no allegation of illegal payments, much less evidence. The disallowance was made on mere surmises. Hence we are inclined to allow the claim of the assessee. Hence this ground is allowed.
In the result the appeal by the assessee is allowed in part.”
Thus, the issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal and that to in case of assessee’s sister concern. Hence, the appeal of the assessee is allowed.
In result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 15th OCTOBER, 2018.