RAJASTHAN TRANSMATE PVT. LTD.,JAIPUR vs. ITO, SIKAR

+आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh Hkkxpan] ys[kk lnL;] ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 823/JP/2015 fu/kZkj.k o"kZ@Assessment Year : 2008-09 cuke Rajasthan Transmate Pvt. Ltd. Income Tax Officer, Vs. G-100, RIICO Industrial Area, Ward-1, Bagru Ext., Jaipur. Sikar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCR 0662 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri B.P. Moondra (CA) jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 05/04/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/04/2017 vkns'k@ ORDER

PER: BHAGCHAND, A.M.

This is an appeal filed by the assessee emanates from the order

dated 24/09/2015 passed by the ld CIT(A)-III,Jaipur for the A.Y.2008-09.

manufacturing of transmission line hardware and their accessories.

During the year under consideration, the assessee had declared gross

profit at Rs. 47,50,516/- on total sales of Rs. 5,20,07,224/-. The

Assessing Officer made addition of Rs. 7,61,752/- of entire commission

ITA 823/JP/2015_ 2 Rajasthan Transmate P. Ltd. Vs ITO

debited in the Profit & Loss account. The Assessing Officer observed that

the assessee has not produced any specific document, record or

correspondence to establish that the commissions agents have actually

rendered any service to the assessee, what was the expertise of the

commission agent in the field, what was the basis for commission

amounts on which these were settled, how it was workwise allocated and

finally observed that this commission has been paid only on 25% of the

total sales, therefore, there appears to be no requirement of payment of

commission.

and now the assessee is in appeal before this Bench by taking following

ground of appeal:

“The ld. CIT (A) erred in confirming disallowance of commission expenses of Rs. 7,23,197/- out of disallowed by the ld. A.O. of Rs. 7,61,752/- as disallowances is bad in law and facts.”

disallowance of commission expenses of Rs. 7,23,197/- out of Rs.

7,61,752/- disallowed by the Assessing Officer. In this regard, the ld AR

of the assessee has submitted as under:

a. Assessee is a Private Limited Company engaged in the business of manufacturing of transmission line and hardware. Solitary issue in this appeal is with regards to disallowance of commission payment of Rs. 7,23,197/- paid by assessee to following parties:

ITA 823/JP/2015_ 3 Rajasthan Transmate P. Ltd. Vs ITO

1 Premier Associates Tender Commission 12538 2 Elegant Enterprises Commission on Sale 209198 3 Dev Enterprises Commission on Sale 121399 4 Line Equipments Commission on Sale 228259 5 Bikaner Polymers Commission on Sale 151803 TOTAL 723197

b. As far as payment of commission amounting to Rs.7,23,197/- is concerned, Assessing Officer asked the assessee company to explain the basis for making such commission payment, alongwith evidences regarding nature of services rendered, copies of invoices etc. According to Assessing Officer, assessee failed to provide justification/basis for making the impugned payment and supporting evidences during assessment proceedings. So, same was disallowed and added to the total income of assessee.

c. Your honour, the matter was carried before the Ld.CIT appeal, wherein assessee submitted complete details. Kindly see at page no. 5 to 7 of the order of the Ld. CIT appeal. Your honour the Ld. CIT appeal confirm that to justify the commission paid the assessee submit following documents.

S.No. Name, Address & PAN of Parties Commission Details of Justification for commission payment paid commission paid

1 Line equipments H-719 Road No. 228259/- Brokerage @ 4% Confirmation of account is enclosed at 9, F3 VKIA, Jaipur on total sales of PB 19. Details of bill wise sales is at PB AAAFL5933H Rs. 5706497/- to 20. Copy of debit note is at PB 21. Copy Bajaj Electricals of agreement is at PB 22. The party has Ltd. shown this as income in its return, P&L A/c and Balance sheet is at PB 23-27. From these documents, the commission payment to this firm is fully verifiable. 2 Bikaner polymers O-12, parizad, 151803/- Brokerage on sales This party is commission agent of ashok marg, C-scheme, Jaipur of Rs. 37,95,073 to assessee since last 2 years. It has been ACLPM1335R Angelique paid commission on sales made to International Ltd. Angelique International Ltd. confirmation of accounts is at PB 29. Copy of agreement is at PB 30. The party has shown this brokerage in its return of income. Copy of audited balance sheet, P&L A/c and ITR-V is at PB 31-55. From these documents, the commission payment to this firm is fully verifiable.

ITA 823/JP/2015_ 4 Rajasthan Transmate P. Ltd. Vs ITO

3 Elegant enterprises station road, 209198/- Brokerage @ 4% Confirmation of accounts has been Jaipur on total sales of received from the party (PB 3). Details AAAFE4780D RS. 5229945/- of bill wise sales is at (PB 4-8). Copy of agreement is at(PB 9). The party has shown this amount as income in its return of income. Copy of balance sheet, P&L A/c and ITR-V is enclosed at PB 10-14. Tax is deducted at source on commission payment to this firm is fully verifiable. 4 Dev Enterprises 14A, Panchsheel 121399/- Brokerage @ 4% Confirmation of accounts is at (PB 15). vihar, ahidki Malviya nagar, new on total sales of Details of bill wise sales to Kumar delhi Rs. 3034969/- construction, K.S. Transformers (p) Ltd. AADFD2157L and Kalptaru powers transmission Ltd. are at (PB 16-18). From these documents, the commission payment to this firm is fully verifiable. 5 Premier associates easwarila som 12538/- Commission @ Copy of debit note against KSEB order # road, jagathy, thiruvantapuram, 2.5% on Rs. TCM/106/07-08/3153 is enclosed at PB kerala 501500/- 58. From the same it can be noted that AHOPR6251P it has claimed reimbursement towards cost of stamp paper required for execution of agreement with KSEB which itself prove the services rendered by this party.

d. Your honour the above table appearing in the order of the Ld. CIT appeal that the Commission Agreement in all the cases is available and the commission has been paid on sales. 1. Line equipments H-719 Road No. 9, F3 VKIA, Jaipur AAAFL5933H has been paid Rs. 228259/- as Brokerage @ 4% on total sales of RS. 5706497/- /- to Bajaj Electricals Ltd. Confirmation of accounts has been received from the party. Details of bill wise sales, Copy of agreement, Copy of balance sheet, P&L A/c and ITR-V was also furnished. Tax was also deducted at source on commission payment to this firm. Your honour the ld. CIT appeal confirmed the disallowance with the finding that Sushil Kumar Saboo partner of firm was recorded wherein in reply to question no. 4,5 & 6 he accepted the fact that he has done the work for the assessee. He has also explained that his business was closed in the subsequent years. However AO in remand report mentioned that he could not adduce evidence in support of the services rendered. In these facts, the disallowance of commission of Rs. 228259/- paid to this party was confirmed. Your honour Mr. SushilKuamr Sahu in his statement clearly stated that he has done the work for the assessee also the assessee filed the copy of ITR-V as well as PAN No. as the assessee deducted TDS. Your honour the commission has been paid on the basis of agreement and by on achieving the sales of RS. 5229945/-. Since the party has changed the address and now

ITA 823/JP/2015_ 5 Rajasthan Transmate P. Ltd. Vs ITO

was not traceable to the assessee does not mean that the assessee has not paid justified commission to achieve the business. And since the agreement available on record as well as there is no adverse inference has been given by Ld. AO on sales achieved through Line equipments. Hence the confirmation by the Ld. CIT appeal of disallowance of commission paid is bad in law and facts. 2. Bikaner polymers O-12, Parizad, Ashok Marg, C-scheme, Jaipur ACLPM1335R equipments H-719 Road No. 9, F3 VKIA, Jaipur AAAFL5933H has been paid Rs. 151803/- as Brokerage @ 4% on total sales of 37,95,073 to Angelique International Ltd. This party is commission agent of assessee since last 2 years. It has been paid commission on sales made to Angelique International Ltd. confirmation of accounts. Copy of agreement. The party has shown this brokerage in its return of income. Copy of audited balance sheet, P&L A/c and ITR-V. Tax was also deducted at source on commission payment to this firm. Your honour the ld. CIT appeal confirmed the disallowance by giving finding that it is seen that the Ld. AR has filed confirmation. Bill wise details of sales made through him, copy of the agreement, return and balance sheet. Tax has been deducted at source. In remand proceeding, statement of Keshav Mundra proprietor of the firm was recorded wherein he has accepted the fact that he has done the work for the assessee. However AO in remand report mentioned that he could not adduce evidence in support of the services rendered. Considering all these facts, I find that the disallowance made by the AO is correct. Accordingly the disallowance made by the AO is confirmed. Your honour the assessee filed the copy of ITR-V as well as PAN No. as the assessee deducted TDS. Your honour the commission has been paid on the basis of agreement and by on achieving the sales of RS. 5229945/-. Since the party has changed the address and now was not traceable to the assessee does not mean that the assessee has not paid justified commission to achieve the business. And since the agreement available on record as well as there is no adverse inference has been given by Ld. AO on sales achieved through Line equipments. Hence the confirmation by the Ld. CIT appeal of disallowance of commission paid is bad in law and facts. 3. Elegant enterprises station road, Jaipur AAAFE4780D has been paid Rs. 209198/- as Brokerage @ 4% on total sales of RS. 5229945/ Confirmation of accounts has been received from the party. Details of bill wise sales, Copy of agreement, Copy of balance sheet, P&L A/c and ITR-V was also furnished. Tax was also deducted at source on commission payment to this firm. Your

ITA 823/JP/2015_ 6 Rajasthan Transmate P. Ltd. Vs ITO

honour the ld. CIT appeal confirmed the disallowance with the finding that the summons issued to this party has returned back with the remarks left this palace. The appellant should have given the correct address. Further the other argument of Ld. AR that partner of this firm is Sushil Kumar Saboo who is same as of Line Equipment makes no difference as Sushil Kumar Saboo in the statement nowhere stated about the commission received in this firm. In these facts, the disallowance of commission of Rs. 2,09,198/- paid to this party was confirmed. Your honour the assessee filed the copy of ITR-V as well as PAN No. as the assessee deducted TDS. Your honour the commission has been paid on the basis of agreement and by on achieving the sales of RS. 5229945/-. Your honour Mr. Sushil Kumar Sahu appeared before the Ld.AO on behalf of Line Equipments. But the Ld. AO had not asked any question regarding commission paid in Elegent Enterprise. The assessee had already given the PAN no. of Elegant enterprises as well as Mr. Sushil Kuamr Sahu appeared before the Ld. AO therefore the onus shifted to the Ld. AO to justify the disallowance. And since the agreement available on record as well as there is no adverse inference has been given by Ld. AO on sales achieved through Elegent enterprises. Hence the confirmation by the Ld. CIT appeal of disallowance of commission paid is bad in law and facts. 4. Dev Enterprises 14A, Panchsheel vihar, ahidki Malviya nagar, new delhi AADFD2157L has been paid Rs. 121399/-/- as Brokerage @ 4% on total sales of RS. 3034969/ Confirmation of accounts has been received from the party. Details of bill wise sales to Kumar construction, K.S. Transformers (p) Ltd. and Kalptaru powers transmission Ltd., Copy of agreement also furnished. Tax was also deducted at source on commission payment to this firm. Your honour the ld. CIT appeal confirmed the disallowance only on the basis that the summons issued to this party has returned back with the remarks left this palace. The appellant should have given the correct address, the disallowance of commission of Rs. 121399/- paid to this party was confirmed. Your honour the assessee filed PAN No. as the assessee deducted TDS. Your honour the commission has been paid on the basis of agreement and by on achieving the sales of RS. 3034969/-. Since the party has changed the address and now was not traceable to the assessee does not mean that the assessee has not paid justified commission to achieve the business. The assessee had already given the PAN no. before the Ld. AO therefore the onus shifted to the Ld. AO to justify the disallowance. And since the agreement available on record as well as there is no adverse inference has been given by Ld. AO on sales achieved through Dev Enterprises. Hence the

ITA 823/JP/2015_ 7 Rajasthan Transmate P. Ltd. Vs ITO

confirmation by the Ld. CIT appeal of disallowance of commission paid is bad in law and facts. 5. Premier associates easwarila som road, Jagathy, Thiruvantapuram, Kerala AHOPR6251P has been paid Rs. 12538/- as Brokerage @ 4% Commission @ 2.5% on Rs. 501500/- Copy of debit note against KSEB order # TCM/106/07- 08/3153 is enclosed at PB 58. From the same it can be noted that it has claimed reimbursement towards cost of stamp paper required for execution of agreement with KSEB which itself prove the services rendered by this party. Your honour the ld. CIT appeal confirmed the disallowance only on the basis that Commission paid to premier Associate Rs. 12,538/-:- the Ld. AR has filed copy of debit Note against KSEB order # TCM/ 106/07- 08/3153 showing reference of order and details of commission, however no confirmation from this party was filed to prove payment of commission. The explanation of the appellant is, therefore, not acceptable. Accordingly the disallowance made by the AO is confirmed. Your honour the assessee filed PAN No. as the assessee deducted TDS. Your honour the commission has been paid on the basis of agreement and by on achieving the sales of RS. 501500/-. Merely by not filling confirmation does not mean that the assessee has not paid justified commission to achieve the business. The assessee had already given the PAN no. before the Ld. AO therefore the onus shifted to the Ld. AO to justify the disallowance. And since the agreement available on record and also the claim of reimbursement towards cost of stamp paper required for execution of agreement with KSEB as well as there is no adverse inference has been given by Ld. AO on sales achieved through Premier associates. Hence the confirmation by the Ld. CIT appeal of disallowance of commission paid is bad in law and facts. e. Your honour both assessee and commission agent are paying tax. Similar expenses were claimed in earlier year, no disallowance was made. The assessee is supposed to maintain its affair in its own way and Revenue authorities had brought nothing on record to suggest that such payments were not for business purpose.

f. There is also nothing on record that such payments have routed back to assessee in any manner.

g. The assessee has paid the amount in question after deducting TDS and recipient has paid taxes on same.

ITA 823/JP/2015_ 8 Rajasthan Transmate P. Ltd. Vs ITO

He relied on the following case laws:-

authorities below.

the materials available on the record on this issue. The assessee is a

private limited company. The assessee was also paid commission in the

preceding year also i.e. for the financial year 2006-07 relevant to

assessment year 2007-08 of Rs. 7,66,192/-, which has been allowed by

the Assessing Officer. I have noted that in the case of Line equipment,

commission was paid of 228259/-, which was 4% of total sales of Rs.

57,06,497/- to Bajaj Electricals Ltd.. In this regard, confirmation of

account was submitted. Details of bill wise sales were also given and

copy of debit note was also placed on the record. The copy of agreement

was also submitted. Income from this commission was shown in

the P&L account by the payee. Relevant documents in this

ITA 823/JP/2015_ 9 Rajasthan Transmate P. Ltd. Vs ITO

regard were also submitted. Thus, the assessee submitted sufficient

material from where the verification of the payment was possible. The

relevant sales were also shown by the assessee. The basis was also

stated. Similarly in the case of Bikaner Polymers, the amount of Rs.

1,51,803/- was paid @ 4% on the sales of Rs. 37,95,073/- on the sales

affected of Angelique International Ltd.. This party was commission

agent of assessee since last two years. The relevant agreement between

the assessee and Angelique International Ltd. were also submitted. Copy

of the audited accounts where income from such brokerage were

declared by the payee Angelique International Ltd. was also submitted.

Thus, the payments were made on the sales affected to Angelique

International Ltd. and TDS was also deducted. The commission of Rs.

2,09,198/- paid to Elegant Enterprises was on the sales of Rs.

52,29,945/- @ 4%, in this regard also, necessary documents were

submitted. Copy of balance sheet, P&L account and ITR of the payee

were also submitted. The tax was deducted on the payments made on

commission. Similarly the payment to Dev Enterprises of Rs. 1,21,399/-

was made on the sales of Rs. 30,34,969/- @ 4%. Bill wise details were

submitted. The sales were affected to Kumar Construction, K.S.

Transformers (P) Ltd. and Kalptaru Power transmission Ltd. Necessary

documents were submitted in this regard. Similarly the payment of Rs.

ITA 823/JP/2015_ 10 Rajasthan Transmate P. Ltd. Vs ITO

12,538/- to Premier Associates was also made on the sales of Rs.

5,01,500/- @ 2.5%. In this regard also, necessary documents were

submitted. Further Shri Sushil Kumar Saboo partner of Line Equipments

has also stated in his statement recorded that he has done the work for

the assessee and he has subsequently closed his business. The partner

of the firm has confirmed that he has worked for assessee and for the

same he has received commission and also submitted copy of income tax

return, PAN. TDS was also deducted on the commission paid. In such a

situation when the party has changed the address and at present it has

been untraceable then there is no justification to disallow the claim of the

assessee for the payment of the commission in earlier years when the

same is based on an agreement on identified sales with certain

percentage. Similarly in the case of Bikaner Polymers, the confirmation of

accounts was submitted, copy of agreement was made available, the

brokerage income declared by the Bikaner Polymers in their return of

income was also submitted, TDS was also deducted, bill wise details of

sales affected through Bikaner Polymers were also submitted and copy of

agreement was submitted. In the remand proceedings, Shri Keshav

Moondra, proprietor of the firm accepted that he has worked for the

assessee. In such a situation, disallowance of commission paid to Bikaner

Polymers was completely unjustified. In the case of Elegant enterprises

ITA 823/JP/2015_ 11 Rajasthan Transmate P. Ltd. Vs ITO

also the sales were identified and commission paid was a certain

percentage of the sales. Bill wise details were submitted, copy of

agreement was submitted. Commission recipient Elegant enterprises has

submitted its income tax return and the TDS was deducted on the

payment of the commission. In the case of Dev Enterprises also, the

sales were identified and commission was paid @ 4%. TDS was also

deducted. The parties to whom the sales affected were also identified.

The only basis that summons returned back with the remarks that the

party has left the place, cannot be made the sole basis for disallowance

of the commission paid. This commission was paid on the basis of an

agreement. Similarly in the case of Premier associates also, the

commission was paid @ 2.5% on the sale of Rs. 5,01,500/- and the debit

note issued against KSEB was also produced. The necessary TDS was

deducted on the payment of commission. PAN of the person to whom the

commission was paid were also submitted and necessary agreement was

made available on the record. Therefore, considering all these aspects in

respect of the various persons to whom the commissions were paid after

deducting necessary TDS, I hold that there was no merit in sustaining

such disallowances when there is nothing on the record that the

assessee has received back anything from these payments. I also get

support from the decision of Hon’ble Rajasthan High Court in the case of

ITA 823/JP/2015_ 12 Rajasthan Transmate P. Ltd. Vs ITO

Laxmi Engineering Industries Vs. ITO (supra) wherein the Hon'ble High

Court has held as under:-

“Assessee firm having adduced evidence of payment of commission to a company by deposing to the effect that there was an understanding between the assessee and the company that the latter would promote the sales of the assessee, and the assessee would pay commission and also led evidence comprising of affidavits of the purchasers of machines manufactured by the assessee, payment of commission could not be disallowed on the ground that the company is a sister concern of the assessee firm and that the payment is bogus, more so when the company has already been assessed on that amount.”

The ITAT, Jaipur Bench in the case of M/s Ankit Pipes Pvt. Ltd. Vs. JCIT

in ITA No. 560/JP/2002 for the assessment year 1997-98 has held as

under:-

“Assessee company is engaged in the manufacture and sale of Asbestos Cement Pressure Pipes. Assessee appointed M/s Universal Supply Corporation as its agent for obtaining orders as well as for obtaining payments as per agreement for doing liaison work. Orders for supply of these pipes worth Rs. 55,40,694/- were obtained through the agent from RICCO and supply was made to various branches at Jaipur, Bhiwadi, Jhalawar, Abu Road, Bhilwara, Churu and other places. For this assessee paid commission totaling Rs. 2,09,400/- through

ITA 823/JP/2015_ 13 Rajasthan Transmate P. Ltd. Vs ITO

account payee cheques. A.O. disallowed the commission payment after holding that agent did not render any service since supplies were made to Government department. CIT(A) upheld the disallowance. Now Tribunal have restricted the disallowance to Rs. 1,00,000/- after observing that it is on higher side. Whether commission paid for rendering service for the purpose of business is allowable as deducted? Held Yes.

Further held that in the facts of this case, agent rendered services for the purposes of assessee’s business for which payment of commission if allowable.

Also held that even in the Government department liasioning work is required due to heavy competition.

The ITAT, Jaipur Bench in the case of M/s G.S. Enterprises Pvt. Ltd. Vs.

DCIT in ITA No. 610/JP/1999 for the assessment year 1996-97 has held

as under:-

Whether commission payment can be disallowed simply because assessee did not produce the recipients before A.O. for examination? Held no, in the complete details of such persons and payments were duly filed before the A.O.

Further held that A.O. himself could have summoned these persons U/s 131 since these were identifiable.

Also held that payments in these case were made by account payee cheques.”

ITA 823/JP/2015_ 14 Rajasthan Transmate P. Ltd. Vs ITO Considering all these factual aspects and the case laws relied upon by

the ld. AR, I allow the appeal of the assessee.

Order pronounced in the open court on 06/04/2017.

Sd/- ¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 06th April, 2017

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