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Income Tax Appellate Tribunal, ‘B’ BENCH, BENGALURU
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee firm directed against the order of the learned Commissioner of Income-tax (Appeals)-II, Bengaluru, [CIT(A)] dated 28/07/2014 for the assessment year 2010-11.
The appellant raised the following grounds of appeal.
3. Briefly, the facts of the case are that the assessee is a partnership firm engaged in the business of distribution of medical equipment. The return of income for the assessment year 2010-11 was filed through electronic mode on 27/07/2010. Against the return of income, the assessment was completed by the Income-tax Officer, Ward 4(4) Bengaluru, vide order dated 28/03/2013 passed under section 143(3) `` at total income of 56,30,890/-. While doing so, the Assessing Officer made the following disallowances:
I. Addition on account of capital contribution in the name of (i) Shri K.C.M.Gowda - Rs.13 lakhs. (ii) Shri Jayaprakash Gowda - Rs.13,50,000/- II. Disallowance of commission payment of Rs.26,96,000/-.
4. Being aggrieved, an appeal was preferred before the ld.CIT(A), who vide the impugned order confirmed the addition on account of introduction if capital contribution vide para 4.2 by holding as under:
As regards the commission payment, the ld. CIT(A) confirmed the same vide para. 3.3 which reads as under :
Being aggrieved, the assessee is before us in the present appeal.
4.1 The learned counsel for the assessee vehemently contended that the assessee furnished details regarding commission paid to various parties and also furnished the detailed work done by the commission agent in promoting their products in the market, though there was no agreement between the commission agent and the assessee. He further submitted that the commission agent was examined by the ld.CIT(A). They also confirmed receipt of commission payment and the commission payment was made by account payee cheque and the genuineness of the transaction was not in doubt. Therefore, the same should be allowed as deduction. As regards the addition on introduction of capital, it is the contention of the learned counsel for the assessee that the assessee had Page 5 of 8 discharged the initial onus lying upon it by furnishing confirmatory letters and therefore it is not expected of the assessee to prove source of source. Thus it is submitted that the addition made cannot be sustained.
4.2 On the other hand, the learned DR placed reliance on the orders of the lower authorities.
We heard rival submissions and perused the material on record. The AO disallowed the commission payment primarily on the ground that the expenditure was not incurred wholly and exclusively for the purpose of business as the commission agent could not furnish proof of rendering services. It is important to note that payments were made by way of account payee cheques and the payees have confirmed the receipt of money. The only ground on which the AO disallowed the payment is for want of proof of rendering of services by the commission agent. It is settled proposition of law that the mere fact that payment is made by account payee cheque does not absolve the assessee to prove the receipt of services. In this context, we can quote the observation made by this Tribunal in the case of M/s. M/s. 3M India Ltd., vs. Asst. CIT, LTU, in IT(TP)A 725/Bang/2011 dated 13/05/2016 :
“For allowability of this kind of expenditure, condition sine qua non is proof of actual services rendered. The co-ordinate bench of the Tribunal, to which one of us i.e. the Accountant Member is the author of the order, in the case of M/s.B Fouress Pvt. Ltd. vs. DCIT in & 847/Bang/2014 dated 30/12/2015 held as follows: ............Thus, the assessee failed to discharge the burden of proving that the expenditure laid out were incurred wholly and exclusively for the purpose of business. We may further add that the Hon’ble Supreme Court in the case of CIT Vs Imperial Chemical Industries (Ind.) Pvt. Ltd (1969) 74 ITR 17 has unequivocally held that the burden of proving that a particular expenditure had been laid out or incurred wholly and exclusively for the purpose of business entirely lies on the assessee. The discharge of the burden had to be effective and meaningful and not to cover up by merely book entries and paper work. The mere fact of payment of commission by account payee cheques and compliances with the TDS provisions shall not alone enable the assessee to claim deduction Page 6 of 8 unless and amount has been expended wholly and exclusively for the purpose of business.
A Co-ordinate Bench Tribunal of Delhi in the case of Kanu Kitchen Kulture (P)Ltd Vs DCIT (2013) 28 ITR (T) 49 (Del.- Trib.) held that whether the assessee failed to demonstrate the services rendered by the commission agent, the commission was disallowed. The relevant paras of the judgment are reproduced below; “22. Thus the assessee as utterly failed to demonstrate the nature and extent of service rendered by the agent and availed of by the assessee for its business of modular kitchen. In this scenario what appears on record is merely book entries coupled with TDS the amount which will be claimed as a refund by the recipient being a loss making concern. In our considered view the assessee has produced only skeletal paper work of the arrangement without any iota of evidence about actual business services rendered.
The assessee’s claim for allowing similar commission payment in subsequent year caries no merit inasmuch as the learned DR has rightly pleaded that each and every year of assessment is separate and independent unit and principles of resjudicata do not apply. The assessment for the assessment year 2009-10 is under section 143(1) and for the assessment year 2010-11 there is no mention of the commission at all. Therefore, we are unable to give evidenced to the facts whose record is not before us and not referred to before the lower authorities”.
Similarly, the Hon’ble Delhi High Court in the case of Schneider Electric (Ind.) Ltd Vs CIT (21008) 304 ITR 360 (Del.) held that in the absence of material on record suggesting that the commission agents had procured the sale orders, no commission should be allowed. The relevant para of the judgment is reproduced below; “13. We agree with the Tribunal that there is absolutely no material on record to suggest that M/s Ram Agencies had procured any sale orders for the assessee. The production of a few bills or payment having been made by account payee cheques cannot by itself show that M/s Ram Agencies had procured sale orders for the assessee. Apart from an internal note, there is no evidence of any correspondence or any personal; meetings etc. between the assessee and M/s Ram Agencies to suggest that the was any Page 7 of 8 relationship on the basis of which M/s Ram Agencies procured some orders for the assessee for which it was entitled to receive commission. Moreover, we find that the understanding between the parties was an oral understanding and it appears to be doubtful that such an oral understanding can be arrived at without any long standing relationship having been established between the assessee and M/s Ram Agencies. It seems a bit out of place that the parties entered into an oral business relationship involving such huge amounts of money over a period of time”.
The Co-ordinate Bench of Delhi in the case of Printer House Pvt .Ltd. Vs DCIT (Del.) authored by Accountant Member, after referring to the above precedence on this issue held as follows: “Thus, having regard to the ratio laid down in the above cases that in the absence of proof in support of the services rendered by the commission agent, no commission can be allowed as a deduction. Therefore, we dismiss the appeal filed by the assessee and allow the appeals filed by the revenue”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Thus, for allowance of commission as allowable expenditure, the onus lies always with the assessee to prove that services are actually received by the assessee, which is a condition precedent, as held supra. In the present case, no proof as to the services rendered by the commission agent was furnished before us. In the circumstances, we confirm the addition.
5.2 As regards addition on account of capital contribution, it is undisputed fact that the assessee has discharged the initial onus by filing confirmation letters. Now, the onus shifts to the revenue to rebut the evidence filed by the assessee. Therefore, without rebutting the evidence filed by the assessee, no addition can be made. However, keeping in view the submission made by the learned counsel for the assessee that the issue may be remitted back to the file AO, we remit the issue back to the file of the AO for de novo examination of the issue in accordance with law after affording due opportunity of being heard.
Page 8 of 8 6. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.