ITO, WARD - 2(3), KOLKATA, KOLKATA vs. M/S. HEIGHT INSURANCE SERVICES LTD.,, KOLKATA

3.When this appeal was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 08.06.2018, passed by the Tribunal in assessee’s own case in for assessment year 2011-12, whereby the issue of written agreement with GTFS have been discussed and adjudicated in favour of the assessee. This Tribunal also discussed the other ground raised by the Revenue. The ld. Counsel for the assessee submitted that the present issue is squarely covered by the above said order of the Tribunal, a copy of which is also placed before the Bench.

4. The ld. DR relied upon the orders of the authorities below.

6. All the assessee’s above pleadings stood rejected in assessment order dated 31.03.2014. The Assessing Officer observed first of all that payee GTFS was not its exclusive agent. It provided the services in question to its other customers as well. He then was of the view that this payees had already received other operating expenses of ₹128,33,65,793/-.This meant Page | 3

M/s Height Insurance Services Ltd. Assessment Year:2009-10 that there was no justification to pay the impugned expenditure any more. The Assessing Officer also considered assessee’s premium collected of ₹1114.54 crores for (both fresh as well as renewable) to remark that only its working strength deserved credit for the same. He doubted genuineness of impugned payment in this backdrop of facts. More particularly in view of assessee’s payment of ₹26,47,20,000/- made to the payee on the last date of financial year coming to 31.03.2011 as an artificial liability to reduce its taxable income without availing any services from the said recipient. The Assessing Officer further considered its extensive recruitment drive as well increase in staff strength from 334 in April 2010 to 704 in March, 2011. He therefore observed that assessee’s impugned claim had passed over almost 90% of receipt over and above operating expenses to “GTFS” (sister concern) without involving any business expediency therein. All this detailed reasoning resulted in impugned disallowances being made in assessee’s hands.

1. 1. The appellant had to provide a variety of very specialized services to RLIC and for which it had to maintain data bank of specialized knowledge not only about the market with special potential to access such market, that is have an enormous virtual army of specialized individuals who would do actual market access on behalf of the appellant.

2. That the level of the quality of these services had to be maintained at top efficiency at all times. These two aspects indicate that the appellant would either have had to develop its own resources, which, through even a cursory perusal of the said agreement, clearly shows, would take an enormous amount of time, money and resources to develop - if the appellant wanted to develop these proficiencies in-house. The appellant, from a study of the facts and circumstances of the case, has apparently taken an alternative route by surrendering a part of its profits while ensuring a rapid growth of this business, thus off- setting the depression in profits. The appellant has hired the services of a concern that has specialized in the services that were required by the appellant for the implementation of the agreement with RUC. This service provider was Golden Trust Financial Services (GTFS). The appellant entered into an agreement with GTFS and sacrificed a large part Page | 4

M/s Height Insurance Services Ltd. Assessment Year:2009-10 of its profits, gaining in the bargain a simplification of its own operations, thereby a cut down on its operational costs and saving on money as well as time that would have been spent on the development of these proficiencies. The appellant was able to achieve a very rapid growth in consequence. This is reflected as under:

Business performance and commission earned by the appellant company for the financial years 2008-09 2009-10 and 2010-11

Financial Premiums collected Commission Year (Rs. In crore) earned (Rs in crore) 2008-09 326.52 (fresh premium) 101.54 2009-10 755.48 (First and 204.26 Renewal) 2010-11 1114.56 (Fresh and 212.25 renewal) Total 2196.56 518.05 In providing a justification for appointing GTFS as its service provider for providing the appellant company with support in its entire operations, the appellant had stated that the appellant, HISL, could achieve such spectacular results in such a short period only through the efforts of the Network and infrastructure of GTFS and the specified persons and other back office organization of HISL.

An examination of the material on record brings to fore the fact that GTFS was providing the following services to the appellant company: (i) GTFS has Network of several lac people in its different locations throughout India. It is these people who were in the field of identification of the prospects of insurance who would like to secure insurance on their lives. For procuring prospects of these insurance these Network people are entitled to incentives other expenses from the assessee company HISL.

It apparent from this that the appellant would have had to go to considerable expense as well as investment in time if it wished to develop an all India network of specialized persons whose number ran in lacs. Even then, it was not guaranteed that such an efficient network could have been created by the appellant company. In the meantime, the appellant had already entered into an agreement with its principal - RLIC and would be hard-pressed to provide competitive services to the principal. It could therefore hardly be expected that it would risk wasting time and money in the development of such resources on its own and jeopardizing its contract with the principals. It instead hired the services of GTFS that was already there with the required framework constituting .infrastructure, man power, expertise and market reach to provide the said services for a fee. GTFS, it is submitted by the appellant, was liable to pay the incentives/other expenses to the Network on behalf of HISL. At the time of payments model amounts credited to the individual Network members, GTFS has duly deducted and deposited tax. HISL in turn reimburses GTFS these expenses, i.e., incentives/other expenses paid to the Network by the GTFS on behalf of HISL. In addition to the above, it was submitted by the appellant that GTFS was providing services through, (ii) 268 branches and other infrastructure (including information technology, i.e, software, hardware, networking etc.) These branches and other infrastructure were provided at the disposal of the appellant company, HISL, by GTFS. Now, it is clear that GTFS was providing crucial support to the appellant company for the services that the latter had to provide to RUC. for which, in turn, the appellant company was paid commission. Against this crucial, specialized and extensive support GTFS was entitled to remuneration/Service charges from HISL on two counts for providing the above mentioned two services: Page | 5

M/s Height Insurance Services Ltd. Assessment Year:2009-10 (i) One for performing its obligations as pure agent (ii) (ii) Another for making available necessary service through the necessary infrastructure to HISL. Now, the modus operandi of this entire business process was as follows: PAYMENT FLOW FOR THE ENTIRE BUSINESS PROCESS The work flow in this case is that the principal, RUC, gets its business from HISL. In order to ensure the efficiency of works by HISL, the latter employs the services of GTFS. GTFS, in turn gets the-work done through the intervention of i. Its skills, ii. Infrastructure and iii. The persons who are part of Network. It is the persons who constitute the Net- work who obtain the actual business through clients who are interest in buying insurance policies. The payment flow for this entire business scheme is that RLIC makes the payments of commission to the appellant company. Thereafter, the appellant company (Height Insurance) makes three kinds of payments to GTFS. These are, i. Commission for serving as a pure agent ii. Payment for making available its infrastructure iii. Reimbursement of commission/incentives/other expenses disbursed to members of Network for obtaining business. A regards the third items, it is found that during the financial 2010-11 GTFS paid incentives / other expenses Rs.128,33,65,793/- to the Network people for procuring prospects of insurance who would like to secure insurance on their lives, HISL, in turn made reimbursement of this amount of Rs 128,33,65,793/- to GTFS after deduction of tax at source. The AO has not doubted these payments in his assessment order. Coming to the first two items, we find that on the basis of achievement of the phenomenal growth in its business, HISL has entered into an addendum agreement on 16.4.2009 with GTFS to be effective from 1.4.2009 for the financial year 2009-10. A copy of this agreement was produced by the appellant, both, during assessment as well as appeal proceedings. In this agreement on 16.4.2009, the remuneration/service charges ,to be paid to GTFS by HISL were fixed as follows: (i) Rs 60,00,00,000/- (Rs sixty crore) and applicable all taxes for performing the function as pure agent - which is item number 1 above. (ii) Rs 6,00,00,000/- (Rs six crore) and applicable all taxes for making available necessary services through infrastructure. This is for item number 2 above. The appellant informed during appeal proceedings as well as during assessment proceedings, that after taking into account all the circumstances of the business, this addendum agreement with GTFS was again revised on 9.4.2010, to be effective from 1.4.2010, for the financial year 2010-11. In this agreement, on 1.4.2010 the remuneration /service charges to be paid to GTFS by HISL was revised as follows: (i) Rs 56,00,00,000/- (rupees fifty six crore) and applicable all taxes for performing the function as pure agent. (iii) Rs 4,00,00,000/- (Rs four crore) and applicable all taxes for making available necessary services through infrastructure.

M/s Height Insurance Services Ltd. Assessment Year:2009-10 At the relevant time the applicable rate of service tax on service tax charges was 10.3%. Accordingly the assessee company has paid the following amounts to GTFS: (i) Rs 61,76,80,000 (rupees sixty one crore seventy six lacs eighty thousand., i.e. Rs 56,00,00,000/- plus service tax of Rs.5,76,80,000/- (by applying the service tax rate of 10.3% on Rs 56,00,00,000) for performing the functions as pure agent. (ii) Rs 4,41,20,000/- (Rs four crore forty one lacs twenty thousand) i.e. 4,00,00,000/- plus service tax of Rs 41,20,000/- (b y applying service tax rate of 10.3% on 4,00,00,000/-) for making available necessary services through the infrastructure. In this way the assessee company aid paid to GTFS in total Rs 66,18,00,000/- (Rupees sixty six crore eighteen lacs) i.e. Rs 61,76,80,00/- (Sixty one crore seventy six lacs eighty thousand) for performing the functions as pure agent plus 4,41,20,000/- for making available necessary services through infrastructure. GTFS, being an independent entity, has filed its own returns of income where it has shown these receipts and payments. It has also provided a confirmation dated 28.6.16 of the payments received by it from the appellant company. In this it confirms that it had received the above said payments for the items so mentioned and offered it for taxation in its own returns. The text of the said letter is reproduced below: “... .. regarding services charges of Rs.66.18 crores received from you during the F.Y 2010-2011 and its taxability in our hand we submit as follows: The said service charges of Rs.66.18 crores was duly taken as income in our books and offered for taxation for the relevant assessment year. The said service charges of 66.18 crores is duly included in our income from operation of Rs.348.62 crores for the financial year 2010-2011. Photocopy of Profit & Loss Account of GTFS for the year ended 31.03.2011, ITR and acknowledgment of Assessment Year 2011-12 and Copy of the assessment order u/s. 143(3) of the IT Act, 1961 for the A.Y 2011-2012 is enclosed herewith in support of our contention.”

These were produced during appeal proceedings by the appellant, in response to a query at the appellate stage if such amounts had been offered for taxation by GTFS or not. This issue had not been raised by the AO during assessment proceedings. In any case the said returns were part of the record and if needed could have been confirmed from the records of the department itself. It was also pointed out by the appellant that the case of GTFS was scrutinized u/s 143(3) for the AY 2011-12, which was the instant assessment year under this appeal. He has also provided a copy of the scrutiny order of GTFS for the AY 2011-12 wherein it is clearly shown that some additions were made by the AO, but the receipts or transactions with respect to its business with HISL were accepted as such. The appellant has contended that the department thus has accepted the transactions outlined above when it scrutinized the accounts of GTFS, but surprisingly, had doubted the very same transactions in the hands of the present appellant. He has stated that it is strange that while the amounts, when shown as receipts in the hands of recipient for service rendered, are taxed readily by the department as having been received from the payer (the appellant); the same amounts, when claimed by the same payer as expenses for the same services are not allowed. After due consideration of this aspect, I would tend to agree with appellant on this count. However, the other aspects also need further examination. After examining the material on record, I find that the AO has nowhere doubted any of the individual claims of expenses. He has not been able to bring on record, anything from the books or from the material on record that the said expenses Page | 7

M/s Height Insurance Services Ltd. Assessment Year:2009-10 were bogus in nature. The easiest way to check the bona fides of these expenses would have been to examine if the payments made to GTFS were bona fide business ex-penses or not. But the AO has not doubted these expenses in terms of the item 3 of the three types of payments to GTFS listed above. The AO has not doubted that payments were made to the tune of Rs 128 crore odd on account of reimbursements of payments made by GTFS on account of incentives/ other expenses etc. If there was any doubt as to these payments or the purpose of the said payments or their quantum by GTFS to Network, then this could easily have been verified from the books of GTFS, which was, during the same period, being scrutinized for the same assessment year in the same city of Kolkata. The AO however evidently found no need to question these payments by GTFS to Network or reimbursements thereof by the appellant company. In these circumstances, we are left with the scenario of the AO accepting a part of the working relationship between the appellant company and GTFS and not accepting the other. The facts that emerge from this case are that the appellant company has a working relationship with GTFS, the terms of which are governed by the above said agreements between the two companies. The fact also remains that HISL has been able to establish itself in the field of life insurance through the hard work and efforts put in by the large number of persons forming the Network and the facilities provided by GTFS's various branch offices. The service charges and reimbursement of various expenses that have been incurred by the assessee company of GTFS were purely from business considerations and the same represents expenditure incurred wholly and exclusively for the purpose of business of HISL. Deductions thereof are allowable in accordance with the provisions of the Income Tax Act 1961 while determining the income from business of HISL Coming the to the next part, the payments made by the appellant to GTFS. We find that in the relationship of the appellant with GTFS, we have accepted that the appellant did reimburse GTFS for the expenses that GTFS had incurred on Network on account of disbursement of incentives/ other expenses. But GTFS, which has admittedly disbursed these amounts amongst the Network persons, would then be left with nothing for itself. GTFS is a gigantic concern with 268 branches and a huge amount of infrastructure, including hardware and software, mention of which has been made in the agreement between GTFS and the appellant, as mentioned supra. It has clearly been accepted as undisputed that GTFS was indeed providing comprehensive business support to the appellant which was the sole factor responsible for the exponential growth in the latter's business. It is only logical, in terms of business considerations to presume that for these services, GTFS would been charging something. It would be receipts from these charges that would enable GTFS to maintain its large number of branches, infrastructure, information and knowledge base as well as support-mechanism for its Network persons. If it distributed all its receipts to the Network then all this would not be possible. It is evident from the above discussions as well as the material on record, in addition, of course, from considerations of business expediency, that GTFS was receiving three i. Commission for serving as a pure agent ii. Payment for making available its infrastructure iii. Reimbursement of commission/incentives/other expenses disbursed to members of Network for obtaining business. This was on account of the three kinds of services that it was admittedly providing, that is, business intervention through the supply of Page | 8

M/s Height Insurance Services Ltd. Assessment Year:2009-10 i. its skills, ii. its infrastructure and iii. providing of the persons who are part of Network. It is the persons who constitute the Network who obtain the actual business through clients who are interested in buying insurance policies.

The payment in respect of the first two items are obviously governed by the agreement and their addenda. The first addendum increased the amount of remuneration on account of the phenomenal growth posted by the appellant company. Thereafter, this was marginally decreased to the figure at which it finally stood. It is settled law that assessing authorities' cannot dictate the quantum of payments that are to be made on such counts. What can be verified is the said payment were for the purpose of business or not. What can further been verified is whether the payments were actually made or not and whether the said payments have been brought to tax by the recipient or 'hot. We find, upon examination of the facts of the case and the material on record as well as following the discussions above, that the said payments have been verified, on all the above counts. The AO has not denied that GTFS was indeed providing the support that has been claimed to have been provided, to the appellant." It has nowhere been doubted that the Network was made available to the appellant by GTFS. It has not been established by the AO that GTFS was not providing the infrastructural facilities, including knowledge base, hardware and software to the appellant as has been claimed by the appellant. The fact of the phenomenal growth in the appellant's business has not been doubted, nor has it been suggested that this growth could have been, or was indeed, obtained through any other means than through the support of GTFS. In these circumstances, it is difficult to endorse the conclusion of the AO that the said payments were bogus. It is established law at the level of the apex court that what is apparent is real and that if anything to the contrary is to be presumed then the onus for establishing this lies upon the person making this, assertion. In this case, the, fact is that the AO has not doubted the quantum of such expenses or the fact that such payments were indeed made. He has not doubted the fact that services were also provided by GTFS to the appellant. What he has tried to suggest is that these payments were made as a part of an artificial construct to divert the profits of one company into another - presumably the profits of the appellant into GTFS. The other presumption by the AO is that the two entities, the appellant company and GTFS were part of the same group and that GTFS was exclusively and solely providing services to the appellant. Both these assertions have been made by the AO, and therefore the on onus for establishing their veracity lay with the AO, since there was nothing as per record to support either of these assumptions. The assumption of suppression of suppression of profits by posting of expenses is something that could have been buttressed by examining the affairs of GTFS also which being scrutinized during the same period as discussed earlier. This has not been done. The AO has merely made a cursory mention of a possibility that the two entities, that is, the appellant and GTFS, belonged the same group and that GTFS was working exclusively for the appellant. The AO has not brought on record any evidence to support this assumption, much less establish it beyond doubt. In these circumstances, it is difficult to agree with the findings of the AO on this count also. Examination of the relevant material on record brings forth the following aspects in relation to the AO's suspicion that the two concerns, the appellant, and GTFS were in reality sister concerns: Page | 9

M/s Height Insurance Services Ltd. Assessment Year:2009-10 That GTFS did not appear to be a group company of HSIL. The corporate office of both the companies was at different postal addresses. Both the companies had different directors, shareholders and partners and none of these being common for both the entities. Details of the two entities is as below: Height Insurance Services Limited (HISL) is a Limited Company registered under . Companies Act, 1956 having registered office at 55, Jatin Das Road, Kolkata - 700029 and Golden Trust Financial Services (GTFS), is a partnership Firm duly constituted under the Indian Partnership Act, 1932 having its principal place of business at 16, R. N. Mukherjee Road, Kolkata - 700 001. Names of the Directors of Height Insurance Services Limited as on 31.03.2011 are as follows: . A) Suman Kumar Datta B) Subrata Majumder C) Asis Kumar Saha Names of the Share holders of Height Insurance Services Limited as on 31.03.2011 are as follows: a) Suman Kumar Datta b) Jayanta Saha c) Neepa Majumder d) Tapas Chakraborty e) Dilip Baran Sa ha f) Indranil Ghosh In contrast, the names of the Partners of Golden Trust Financial Services as on 31.03.2011 are as follows: a) Bhabesh Majumder .' b) Ashim Sengupta It is evident from the above particulars that the above two concerns HISL & GTFS are not owned or controlled by the same entity or person. None of the Share Holders and Directors of HISL, is was found, had any stake and/or control over the affairs of GTFS and partners of GTFS did not have any stake and/or control over the affairs of HISL. Between HISL and GTFS there seemed to exist only a business relation. In the light of the above findings, they can in no way be said to be group concerns.

Going further, and without prejudice to the above discussions and findings, even if for the moment it is assumed that the appellant company and GTFS belonged to the same group and that the latter worked solely and exclusively for the appellant company - it must be realized that there are two assumptions that the AO has made here and that there is nothing on record to suggest that these assumptions are supported by any evidence - even in this case, the further assumption of the AO that the impugned expenses were posted merely to cut down on the profits of one company and post expenses somewhere else, has itself to be established through cogent reasoning and accompanying evidence. It has to be shown at least through circumstantial deduction and reasoning, that GTFS indeed did not provide any services for which the impugned payments were purportedly made. Not only has no attempt been made at the assessment stage to establish this, but, in fact, such a thing is not borne out by facts. The circumstances, as discussed above, have shown that there was an amount' of business expediency in the appellant's decision of employing the services of a specialized agency like the Page | 10

M/s Height Insurance Services Ltd. Assessment Year:2009-10 GTFS. The AO has nowhere doubted the specialized knowledge base, the infrastructure - software as well as hardware - or the virtual army of specialized manpower at the disposal of GTFS. In fact he has admitted that payments to the Network persons were genuine. Even then if there was any doubt that might have existed, it was easy to verify these facts from the scrutiny proceedings that were underway for GTFS in the same period. No doubt has been raised as to the actual expertise available with GTFS. The payments to Network have been accepted along with the purpose for which they were made; the growth of business and the cause for it have been accepted; the nexus between the expertise and the support provided by GTFS and the growth of business of the appellant, as contended by the appellant has not been doubted, the actual payments and the genuineness of these payments has not been doubted. In addition, the appellant's contentions that such payments were made after the due application of service tax rates and after the due. deduction of tax has been accepted by the AO. No defect has been found either in the books of the appellant or, in fact, the books of GTFS in this connection. During appeal proceedings also the appellant has produced the books for examination and have been test checked. In , these circumstances, it is difficult to uphold the findings of the AO that the said expenses were bogus in nature.

Coming to the issue raised by the AO that the appellant himself was having a large staff of its own along with establishments-of its own. Then there was no question of outsourcing these aspects of the business activities of the appellant to GTFS. This could have been a valid point if it could have been established by the AO that the entire business exercises claimed by the appellant to have been done by GTFS could have been carried out by the appellant's own staff. Conversely, it could been argued that the expenses claimed by the appellant sans the expenses claimed to have been made or account of GTFS were excessive or not for business purpose. But the AO has nowhere questioned the' genuineness or reasonableness of expenses claimed by the appellant on account of its operations within appellant company. As regards this aspect, the appellant has explained that during the period of business operations for the instant year, the increase in the number of staff for the appellant company was from 334 in April 2010 to 704 in March 2011.

AO in his order has merely observed that the payment to GTFS on account of the of infrastructural facilities- and service charges was not justified because these ties could have been performed by the appellant company itself, which had a large work-force of its own. The AO has not delved further into this aspect of the operations of the appellant company. He has not been able to say how and where this staff could have been employed had the said services - sourced to GTFS, not been sourced out and had been performed by the appellant company itself. It has been discussed earlier that GTFS had the- necessary expertise to handle the kind of work that had to be performed by the appellant company under its obligations cast by' the agreement with RLIC. Further the agreement with GTFS provides that the latter would allow the appellant company to use its offices as well as the infrastructure available within these offices. The appellant, during appeal proceedings has explained the reason for increase in the number of personnel and the deployment of such staff by saying that that premium collection during the assessment year 2011-12 was 1,114.56 crores as compared to Rs.755.48 crores in the assessment year 2010-2011. With the increase in volume of business and in anticipation of further increase in volume of business, staff strength of HISL was Page | 11

M/s Height Insurance Services Ltd. Assessment Year:2009-10 increased to 704 in March 2011 from 336 in the beginning of the financial year. He has explained that the -employees of HISL were posted in the branch offices of GTFS located at various places all over India. Their primary duty was to explain the policy details to those who were intending to get insured and guide them in their insurance requirements. The employees of HISL collected the proposal Forms and premium from those intending to get insured and perform necessary preliminary underwriting and thereafter sent the proposal Forms to the principal Insurance Company Reliance Life Insurance Company Limited (RLIC). They also collected renewal premium from the insured. So the increase in the number-of employees is justifiable as it was to maximize the business of the assessee. The appellant has submitted details of the employees along with the designations, place of posting and their gross salary on page nos 158 to 170 of the Paper Book submitted along with the written submissions. It is seen from the details submitted that the employees of the appellant company were posted all over India. In most of the branches there were not more than one or two employees that, it is evident, would be necessary to carry out the business of expanding the insurance related activities of the appellant. The employees seem to be placed all over India even in remote places. In Kolkata specifically, the placement is more concentrated and there are branches even in various localities. The designations of the employees vary from Sr Manager to executive with remuneration ranging from about five to six thousand per month, going up to almost 25,000/- per month. These details were available before the AO. The wok of the appellant was to be undertaken with the strictest amount of efficiency since the principal company was into realtime monitoring of the work of the appellant and the staff deployed by the appellant had to at all times be available to provide their cooperation to the personnel of the principal company. This was clearly brought out by the clause of the agreement between PLIC and the appellant company as reproduced below:

CIA shall co-operate with the representatives of RLIC to attend CIA’s offices during normal business hours to review any aspect of the business of CIA in so far as it relates to its work as CIA of RLIC, including books and records relating to RLI and any policyholders/. COIA shall provide all required information to the staff of RLIC auditing/monitoring the business activities of CIA. These stringent conditions themselves show that there had to be sufficient and well trained staff available at all the branches from which the appellant was conducting its business. All this has not been doubted by thee AO. The payment to GTFS was made for service charges, for the provision of infrastructure as well as reimbursement of payments made to Network persons. In this regard, the observations of the Apex Court in the case of (Sassion J. David & Co. (P) Ltd. Vs. CIT (1979) 118 ITR 261 (S), are pertinent where it has been held that the assessee was to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. Further, within the jurisdictional High Court, in the case of Birla Cotton Spinning & Weaving Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal), it was held that though the main objects of business is to earn profits, business purposes are wider than profit-making purposes. Business expediency does not require that expenses should be incurred only for earning immediate profits. Expenses incurred though

M/s Height Insurance Services Ltd. Assessment Year:2009-10 not directly related to earning of income, may be allowable deductions if they are related to the carrying on of the business.

As early as in the case of CIT Vs. Dhanrajgiri Raja Narasingiri (1973) 91 ITR 544 (SC) it was held that it was for the assessee to decide how best to protect has own interest. It is not open to Income-tax department to prescribe what expenditure.

Further it was held that the Expression “commercial expediency;”is not a term of art. It means everything that serves to promote commerce and includes every means suitable to that end. Commercial men are best experienced in commercial expediency (Indian Steel & Wire Products Ltd. Vs. Cit (1968) 69 ITR 379 (Cal). In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purposes of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue (Jamshedpur Motor Accessories Stores Vs. CIT (1974) 95 ITR 664 (Pat); J.K. Woolllen Manufacturers Vs CIT (1969) 72 ITR 612 ((SC). In order for an expenditure to be admissible as a deduction under section 10(2) (xv), it is not necessary that the primary motive in incurring it has to be directly to earn income thereby (Sree Meenakshi Mills Ltd. Vs. CIT (1967) 63 ITR 207 (SC). The Supreme Court in CIT Vs. Kalyayanji Mavji & Co. (1980) 122 ITR 49 (SC), has observed (on page 53) that on accepted commercial practice and trading principles n item of business expenditure must be deducted in order to arrive at the true figure of profits and gains for the tax purposes.

It is thus within the province of the assessing officer to examine whether an item of expenditure was for genuine or not, it is also within the ambit of the AO’s powers and duties to examine whether the said items were for business purpose of the assessee or not. It is at this point that the function of the AO stops. It is not within the purview of the AO’s powers or functions to examine the measure of business expediency or the quantum of the assessee’s expenditure in relation to that item. This can be examined in special circumstances, when there is a special connection between the assessee and the person in respect of whom the said item of expenditure had been made. Say, if the two concerns were sister concerns. But this has to be established by the AO. We find that this is not the case here as has been discussed earlier. As regards the doubt raised on the bona fides of the expenditure incurred by the appellant company, especially in respect of the service charges paid to GTFS, the AO has raised the issue of thee bill being raised on the last day of the financial year. On the last day of the Financial Year, GTFS had raised a bill amounting to Rs.264720000/- on the appellant. This was doubted by the AO by stating that this was not a genuine expense and that this was tantamount to siphoning of money to a group concern – GTFS. In this regard the appellant has submitted that HISL accounts for the bills as and when they are raised by GTFS. Out of Rs.600000000/-, to be paid to GTFS, bills mounting to Rs.264720000/- only were raised on the last day of the financial year. The appellant has stated that GTFS is also an income tax assessee and the same amount has also been credited in the books of GTFS and offered for taxations. The appellant has enclosed the Income Tax Return and Financial Statements of GTFS for the assessment year 2011-12 for ready reference. These

M/s Height Insurance Services Ltd. Assessment Year:2009-10 were placed on Page Nos. 243 to 245 of the Paper Book attached with his written submissions. It was as early as in 1973 that the Apex Court, in Daulat Ram Rawat Mull (1973) 87 ITR 349, laid down the law for the onus when any party to a dispute disagreed with whatever was shown as apparent. The Supreme Court held that the onus of proving what was apparent was not real lay with the party that claimed it to be so. There should be some direct nexus between the conclusions of fact arrived at by the authorities concerned and the primary facts upon which the conclusion is based use of extraneous or irrelevant material in arriving at the conclusion would vitiate the conclusion of fact, because it is difficult to predicate to what extent, the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact. Therefore, if a decision excludes or ignores admissible or relevant evidence, takes into account inadmissible evidence, irrelevant consideration or extraneous materials, a substantial question of law arise. Similarly, when an authority has proceeded on an assumption, which is erroneous in law, a question of law can arise. A factual decision is perverse if the authority has acted without any evidence or on view of facts, which cannot be reasonably entertained. a perverse finding is one, if it is arrived at without any material or if it is arrived at or inference is made on material, which would not have been accepted or relied upon by a reasonable person conversant with the law. if the finding is based upon surmises, conjectures or suspicion and is not rationally possible. a factual conclusion is regarded as perverse when no person duly instructed or acting judicially cold act upon the record before him, have reached the conclusion arrived at by the tribunal/authority [see CIT versus S.P.Jjain, (1973) 87 ITR 370 (SC)]. We are conscious that t has been observed that the order must e read as a whole to see whether the test of perversity is satisfied but in the present case when we apply the test expounded in Dhirajlal Girdhrilal (supra) and Daulat Ram Rawat mull (supra) and also read the order as a whole, we reach the affirmative opinion in favour of the appellant-Revenue. It is the aforesaid test, which has been applied by us in our conclusion recorded above. As similar view is echoed by the Hon'ble Delhi High Court iin its decision of 1st June, 2012, of 2008 in the case of Commissioner of Income Tax Versus Sunaero Limited. Similarly, in CIT versus S.P. Jain (1973) 87 ITR 370 (S), the apex court has held that a factual conclusion is regarded as perverse when no person duly instructed or acting judicially could act upon the record before him, have reached the conclusion arrived at by the tribunal/authority.

In the present case, it cannot be said that the findings of the AO were based upon any cogent material. This issue becomes all the more serious in view of the undisputed fact that both, the appellant as well the recipient concern, GTFS were being scrutinized during the same period, for the same assessment year and within the same city of Kolkata. There was no dearth of material available with the AO. But from this material, no defect has been brought on record by thee AO to create the expression that the appellant or indeed GTFS was indulging in any creation bogus entries or booking false expenses. It has not even been explained as to how the alleged siphoning of funds was taking place - what was GTFS doing or what was the need for this siphoning GTFS has been subjected to scrutiny and an order u/s 143(3) passed in its case, wherein some additions have been made by the AO; but even after due consideration of the material during the scrutiny Page | 14

M/s Height Insurance Services Ltd. Assessment Year:2009-10 proceedings of GTFS, the AO of GTFS has not raised any doubts with regard to the expenses incurred by GTFS in relation to its dealings with either Network or the present appellant. He has also accepted as genuine, the payments received from the present appellant by GTFS. In these circumstances, the stand of the AO of the present appellant becomes untenable in law.

The objection as to the raising of a bill on the last day the financial year, by GTFS has been cited as evidence of the bogus expenses being booked by the appellant. But, while such a circumstance definitely merits an inquiry, the fact that a bill has been raised on the last day of the financial year is by itself not sufficient reason to warrant an addition - especially of such magnitude. The AO has not even attempted to prove that the said bill was not genuine either in itself or on account of the services provided by GTFS - against which the said bill was raised. The AO has nowhere denied that GTFS did provide services to the appellant. This matter has been discussed at length earlier in this order, where it has been established that the said payments were made against services provided by GTFS. It seems somehow not out of place that an agency that is providing services on a continual basis, should raise bills, even if such bills are raised on the last day of the financial year. The appellant has, during appeal proceedings, produced the necessary bills as well as ledger copies. He has submitted that it was not true that the only one bill for the entire amount payable to GTFS was raised. on the last day of the financial year. He has submitted that bills were raised at regular intervals and payments made. He has that thee details were also submitted before the AO along with all books of account but the latter had not raised Details of Service Charges from the period 1-Apr-2010 to 31-Mar-2011 Date Nature Date of GROSS Basic Value Service Tax Tds- Net Amount Date of of Bill Bill AMAOUNT Deducted Paid payment raised GTFS- Service 01/07/20 132,360,000 120,000,000 12,360,000. 13,236,000. 119,124,000 01-7- HEIGHT/SC Charge 10 ,00 ,00 00 00 .00 10,02- /10-11/01 s 07- 10,03- 07-10 GTFS- Service 10/08/20 88,240,000. 80,000,000. 8,240,000.0 8,824,000.0 79,416,000. 16/08/20 HEIGHT/SC Charge 10 00 00 0 0 00 10 /10-11/02 s GEFTS- Service 06/09/20 44,120,000. 40,000,000. 4,120,000.0 4,412,000.0 39,708,000. 06-09- HEIGHT/SC Charge 10 00 00 0 0 00 10, 07- /10-11/03 s 09-10 GTFS- Service 11/10/01 44,120,000. 40,000,000. 4,120,000.0 4,412,000.0 39,708,000. 11-10- HEIGHT/SC Charge 0 00 00 0 0 00 10,12- /10-11/04 s 10-10, 27-10- 10, 02- 11-10 GTFT- Service 10/01/20 44,120,000. 40,000,000. 4,120,000.0 4,412,000.0 39,708,000. 12-01- HEIGHT/SC Charge 11 00 00 0 0 00 11,17- /10-1/05 s 01- 11,20- 01- 11,21- 01-11, 03-02- 11,24- 02-11 GTFS- Service 24/03/20 44,120,000. 40,000,000. 4,120,000.0 1,103,000.0 43,017,000. 24-03- HEIGHT/SC Charge 11 00 00 0 0 00 11, 25- /10-11/06 s 03-11, 11-04- 11, 04- 11, 04- 05-11, Page | 15

M/s Height Insurance Services Ltd. Assessment Year:2009-10 27-05-11 GTFS- Service 31/03/20 264,720,000 240,000,000 24,720,000. 6,618,000.0 258,102,000 27-05- HEIGHT/SC Charge 11 .00 .00 00 0 .00 11, 01- /10-11/07 s 06-11, 02-06- 11, 06- 06-11, 11-07- 11, 25- 07-11, 26-7-11, 29-07- 11, 07- 0911,20- 09-11, 22-09- 11, 23- 09-11, 26-09- 11, 28- 09-11, 29-09- 11, 01- 10-11 Total 661,800,000 Total 43,017,000. 618,783,000 .00 00 .00 any specific doubt or pointed out any specific defect in these bills. Details of these and payments thereof are asunder: A perusal the material on record 'clearly brings to fore the fact that one complete bill or the entire service charge was evidently not raised y the appellant on the last day of the financial year. A similar bill was' also raised for the reimbursement of expenses of GTFS on account of expenses incurred by the latter towards incentives/other expenses of the Network personnel, on the last day of the financial year. The AO has however not doubted this bill or he payment made in respect of this bill. There seems to be some inconsistency in the treatment that the AO has given to various items of the expenses incurred by the appellant company. This differential treatment has been made without ascribing any reasons or offering any explanations. In his submission, the appellant has given detailed reasons for employing the services of GTFS and the reason why the latter was paid such a hefty fee. The agreement between the appellant and its principal provides the scope of work to be undertaken by the appellant and the agreement between the appellant - and GTFS spells out the terms of work as well as payments for these works, that are to be undertaken by GTFS. The bills as well as ledger accounts were produced by the appellant before the AO. The books etc. - as per the assessment order of GTFS produced by the appellant during .appeal proceedings - of GTFS were examined by the AO of that entity. Nothing to show that the bills so raised were for anything but the bona fide purpose of the business of the appellant and of GTFS has been found. In these circumstances, a finding based upon mere conjectures and hypotheses cannot be upheld in law. It cannot but also be noted that the agreement between the appellant and GTFS is a duly notarized agreement that is enforceable in a civil court of law. The agreement constitutes a binding contract between the two parties. The Bombay High Court, in the facts of CIT vs. C.K. Thakore (1982) 136 ITR 464 (Bom.) 472 has taken the view that the rights and liabilities under a contract between the assessee and a third party if and as determined by a competent Civil Curt cannot be overlooked or ignored while determining the legal nature of the receipt in the hands of the assessee. Under these circumstances, since this is a legally enforceable agreement casting unequivocal duties and liabilities upon the two parties, the expenses in the hands of the appellant cannot be ignored out of hand. Page | 16

M/s Height Insurance Services Ltd. Assessment Year:2009-10 These can undoubtedly be called into question, but this has to be done with material facts and cogent reasoning. This has not been done by the Assessing Officer in the instant case. The rejection of a legally enforceable agreement, out of hand and without ascribing any reasons for doing so, can hardly be upheld in law.

During appeal proceedings, the appellant has also argued that the AO has been inconsistent in his treatment of the same kinds of expenses and the identical business arrangement between RLIC, the appellant company and GTFS, over the years. The appellant has submitted that its case had been scrutinized u/s 143(3) of the Act for the AY 2010-11 by the AO. In this year, the AO, under the same facts and circumstances and business arrangements, that had duly been explained to the AO for that AY, that is, 2010-11 had accepted the fact that the service charges paid by assessee to GTFS were bona fide. He in fact had gone further and had made certain disallowances based on the fact that the appellant was paying large amounts of moneys as service charges to GTFS. It was these same service chares, that the AO thereafter disallowed - under identical conditions - for the AY 2011- 12. The appellant has provided a copy of the scrutiny assessment order for AY AY 2010-11. This order has been passed on10.3.2015.

In addition to the above, the appellant has provided a copy of the scrutiny assessment order, for the AY 2012-13, passed u/s 143(3) of the Act, dated 10.3.2015. In this order once again, the said expenses have been accepted under identical circumstances.

The appellant further provided a copy of the assessment order - once again passed after scrutiny u/s 143(3) - for the AY 2013-14. The said order has been passed after accepting the said service charges and other expenses incurred by the appellant under the same set of identical circumstances. This order was passed on 21.3.2016. The appellant has provided a comparative chart of the various expenses incurred by the appellant company in respect of GTFS over several years and the treatment provided to them under scrutiny assessment u/s 143(3) of the Act. This is as under: Comparative hart of following expenses Expense Assessment Assessment Assessment Assessment type year 2010- year 2011- Year 2012- Year 2013- 11 12 13 14 Reimburse 1,151,33 1,283,36 653,034 3696,631 ment 2,152.00 5,793.00 568.00 306.00 Expenses paid to GTFS Reimburse 1,151,33 5,793.00 653,034,56 396,631,30 ment 2,152.00 8.00 6.00 Expenses paid to GTFS allowed as per 143(3) order Service 727,980,00 661,800,00 198,54000 94,382,400 Charges 0.00 0.00 0.00 .00 paid to GTFS Service 727,980,00 “Disallow 198,540,00 94,382,400 Charges 0.00 ed” 0.00 .00 Page | 17

M/s Height Insurance Services Ltd. Assessment Year:2009-10 paid to GTFS allowed as per 143(3) order Any othe -00 -00 -00 -00 p[payment made to GTFS Date of 23/03/13 31/03/14 10/3/15 21/03/16 assessment order u/s. 143(3) Premium 755.48 1114.56 929.29 638.90 collection crores crores crores crores from Customer Commissio 204.26 212.51 104.78 67.30 n received crores crores crores crores from RLIL Appellant has contended that since the date of the present impugned order was 31.3.2014, with the subsequent orders for two assessment years - one before the impugned assessment year and one after the impugned assessment year - being passed on 10.3.2015 and 21.3.2016 respectively, it seemed strange that under identical circumstances, the AO first did not accept the stand of the appellant and disallowed service charges, while in the order passed on the next date mentioned above, the AO not only accepted the very same expenses on account of service charges, but in fact made certain disallowances based on this payment of service tax. In the very next order, the AO once again accepted the bona fides and genuineness and business purpose of the very same service charges. The appellant has submitted that once the AO had taken one stand in one year, it was forbidden that he change it in another year in the interest of consistency. I have examined this aspect of the issue. What the appellant is appealing to is the principle of res judicata from jurisprudence. This simply means that if on any fact and/or law, one particular view is taken then subsequently. if any issue on a similar fact and/or law is to be decided between the same parties, the stand should be same as made earlier. It has been held that in deciding upon legal issues, whether based on a set of facts ." or on an issue of law, what is relevant is not the 'personality of officers adjudicating ~ but the institution of adjudication itself. If it is conceded that simply because of the change in the personnel who adjudicated, it is open to them, on same set of facts, to a conclusion totally contradictory to the conclusion which had been reached by earlier such adjudicating personnel, it will not only shake the confidence of the public in judicial procedure as such, but it will totally destroy such confidence that will be destructive of the institutional integrity itself. However, the principle of res judicata has to be applied with caution in the case of Income Tax. The Hon'ble Bombay High Court, in H.A. Shah and Co. vs. CIT (1956) 30 ITR 618 (Bom.) has held that "the principle of estoppel or res judicata does not strictly apply to the Income Tax authorities". The same court has however, qualified this by saying that: "An earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence." In CIT vs. L. G. Ramamurthy (1977)110 ITR 453 (Mad.), the court laid down the principle that "But what is relevant is not the personality of officers presiding Page | 18

M/s Height Insurance Services Ltd. Assessment Year:2009-10 over the Tribunal but the Tribunal as an institution. If it is conceded that simply because of the change in the personnel who manned the Tribunal, it is open to them to a conclusion totally contradictory to the conclusion which had been reached by earlier officers manning the tribunal on same set of facts it will not only shake the confidence of the public in judicial procedure as such, but it will totally destroy such confidence that will be destructive of the institutional integrity itself".

In amalgamated Coalfields vs. Janapada Sabha AIR 1964 SC 1013 have evinced a highly, balanced approach:- “In considering this question, it may be necessary to distinguish between decision on questions of law which directly and substantially arise in any dispute about the ability for a particular year, and questions of law which arise incidentally or in a collateral manner ... the effect of legal decisions establishing the law would be a different matter. If, for instance, the validity of a taxing statute is impeached by an assessee who is called upon to pay a tax for a particular year and the matter is taken to the High Court or brought before this Court and it is held that the taxing statute is valid, it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year".

In Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) the Apex Court while examining this principle in detail, made the following observations: “ We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year".

In South India Trust Association vs. Telugu Church Council (1996) 2 SCC 520, the Apex Court has taken the view that the rule of res judicata is rests upon considerations of public policy. It is in the interest of public at large that finality should be attached to the judicial decisions. It was also held to be in the public interest that individuals should not be vexed twice over with the same kind of litigation.

In the case of Municipal Corporation of City of Thane vs. Vidyut Metallics Ltd & Anr. (2007) 8 SCC 688, the facts were that in earlier litigation, the court had considered the evidence of Quality control Manager who was described as an "expert" on the point and accepting his evidence, the court had held that the goods imported by the company were ferrous in nature and not non ferrous and the company was right in paying octroi under item 71. It was thus concluded that this was a “fundamental factor" and the nature of goods imported by the company was directly and substantially in issue, on the basis of which the decision was taken. The Apex Court after examining these facts, observed that in taxation matters, the strict rule of res judicata as envisaged by section 11, CPC 1908 had no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period.

M/s Height Insurance Services Ltd. Assessment Year:2009-10 However, qualifying its observations, the Hon'ble Supreme Court averred that in the facts of the instant case it was not possible to hold that the earlier decision would not continue to operate in subsequent years unless it was shown that there were changed circumstances or the goods imported by the company in subsequent years was different than the one which was imported earlier and in respect of which decision had been arrived at by the court. Therefore, it was heId that the Revisional Court as well as the High Court were right in giving benefit of the decision in the earlier litigation to the respondent company. The Hon'ble Supreme Court upheld the observation of Supreme Court in case of Radhaswami Satsang (Supra).

In the instant case, it is not. disputed that the facts have remained identical over the three assessment years - 201Q-11 to' 2012-13. It is further undisputed that the three years have been duly scrutinized and orders passed u/s 143(3) of the Act. It is also a matter of fact that the instant impugned order u/s 143(3) was passed before similar orders were passed for the other two assessment years. Therefore, it cannot be denied that the impugned order was present before the AO at the time of passing the remaining two orders. Despite this the AOs in the other two cases have, after examining the issue - even commenting upon it - accepted the facts to be true. This fluctuating stand of the AO seems to indicate that he was making pure surmises and conjectures and was changing his opinion based on the same facts from year to year. There is nothing on record to indicate that the AO in the case of the impugned order, was in the knowledge of any extra information or that any extra .efforts on terms of inquiries had been made by the AO. There is no law "point that had either arisen or brought to the notice of or relied upon by the AO. From a study of the material on record and the impugned assessment order, it appears that the AO has formed an opinion based on a set of facts that remained unchanged for the other two assessment years. There does not appear to be any material on record to show that this opinion emanated from any persuasive set of facts or cogent reasoning. Such an opinion therefore loses much of the force of law and if not backed by any other circumstances supporting it - as is the case here - becomes difficult to uphold as an unequivocal finding of fact and law.

During appeal proceedings, the appellant has placed reliance on the following authorities: Supreme Court of India Aluminium Corporation Of India ... vs Commissioner Of Income-Tax, West ... on 29 August, 1972 Equivalent citations: 1973 AIR 520, 1973 SCR (1)1097 Author: K Hegde Bench: Hegde, K.S. PETITIONER: ALUMINIUM CORPORATION OF INDIA LTD. Vs. RESPONDENT: . COMMISSIONER OF INCOME-TAX, WEST BENGAL DATE OF JUDGMENT29/08/1972 BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN ;' KHANNA, HANS RAJ Page | 20 M/s Height Insurance Services Ltd. Assessment Year:2009-10 CITATION: 973 AIR 520 1973 SCR (1)1097 CATOR INFO : RE 1975 SC 5 (23) RF 1986 SC 98 (18) R 1986 SC1483 (4) ACT: Income Tax Act 1922 s. 10(2) (xv) & 66-Expenditure laid out wholly and exclusively for business-Commission payable to selling agents in a case where sales are not actually effected through selling agents-Construction of agreement- Expenditure on such Commission whether allowable as a deduction-Question of fact decided by Tribunal-High Court's power to interfere in reference proceedings under s.

M/s Height Insurance Services Ltd. Assessment Year:2009-10 concluded that the section 40(a)(ia) does not apply in case of short deduction of TDS than the prescribed rate.