PRAKASH G. SHETTY,MUMBAI vs. ASST CIT 18(1), MUMBAI

The learned Commissioner of Income Tax (Appeals) failed to appreciate in proper perspective the facts of the case in as much as the appellant had made the impugned payment of commission out of the discount of Rs. 1,22,92,685/- received from its purchasers.

The conclusion of the learned Commissioner of Income Tax (Appeals) is bad in law and required to be set aside in as much as the same is arrived at ignoring the relevant facts of the earlier and later assessment years wherein identical claims made by the appellant were allowed by the assessing officer after due verification.”

Briefly stated facts are that the AO during the course of assessment proceedings observed from the profit and loss account of M/s Kiran Corporation, the propriety concern of the assessee that it has debited the commission amount of ₹ 62,03,200/- on sales in this assessment year whereas the assessee has not debited any expenses under this head in the previous assessment year. The AO required the assessee to explain with evidences the commission expenses like bills, ledger accounts, services availed in detail, payment in detail and comparison with previous year percentage of commission and copy of agreement or contract if any. The assessee before the AO filed details of commission paid for earlier years and further years. It was claimed by the assessee that the commission paid for services rendered to liaisoning for purchase of material with base rates and to earn discount and commission from the purchase party. It was also explained that this commission was also paid to procure orders for sale orders and to get new customers. There was no agreement prepared for payment of commission but it was paid as per vouchers. The AO doubted only commission payment for purchase of items and accordingly, summoned were issued to parties namely Shri Ganesh Enterprises and RR Enterprises under section 131 of the Act. There was no compliance for RR Enterprises. Whereas, Shri Ganesh enterprises appeared through proprietor Shri Ramchander T Pavekar, who admitted providing services regarding purchase made by the assessee of chemicals, which was ultimately supply to BMC (Bombay Municipal Corporation). The assessee claimed before the AO that the commission was paid after deduction TDS and paid by account payee cheques. The assessee submitted complete name Address, PAN No and name of the bank vide letter dated 24.03.2014 but the AO was not convinced and he disallowed the claim of commission expenses to the extent of ₹ 62,03,200/- for the reason that the assessee has failed to produce any written contract or agreement with the parties. He further, recorded that the previous year no such commission was paid on purchases. Proprietor of Shri Ganesh Enterprises, Shri Ramchander T Pavekar is not able to explain how he has able to get assessee and discount of 15% on purchase made from Sumito Chemicals India Private Ltd. Even the summons issued to M/s RR Enterprises was served but not compiled with and further assessee is unable to produce party. Accordingly, the commission claimed by assessee was disallowed as bogus expenses and added to the total income of the assessee amounting to ₹ 62,03,200/-. Aggrieved assessee preferred the appeal before CIT(A), who confirmed the action of the AO by observing in Para 11 to 15 as under: - “11. From the details submitted by the appellant, it is observed that the purchases are made from only two concerns, Sumitomo Chemicals (P) Ltd of Rs. 4,45,62 404/- & M/S Harihar FertiIizers & Chemicals of Rs 3,97,80,000/- while almost entire sales is to Municipal Corporation of Greater Bombay In earlier years too, a major portion of purchases was from Sumitomo Chemicals (P) Ltd, while total sales was to Municipal Corporation of Greater Bombay Under these circumstances, there appears to be no justification for paying such a huge commission expense for procurement of sates and purchase orders when the sales and purchase parties are almost fixed for over me years

The Assessing Officer has disallowed the commissions paid to the parties in question after making independent investigation and by calling and recording their statement u/s 131 Perusal of the statement recorded u/s 131 of Shri Rameshchandra T. Pavekar, proprietor of Shri Ganesh Enterprise clearly shows that he does not know the appellant personally Further, he was neither aware of the goods supplied by him nor aware of the kind of services rendered by him to the appellant The only fact he knew about this commissions payments was the cheques received by him on account of some references made by him to the appellant for supply of goods The references was also not known to him and what goods were supplied in respect of those references were also not known to the receiver of the commission. It is also observed that the summon issued to the another concern was not complied with

It is further highlighted oy the AO that no written contract or agreement for agency commission exists that can throw light on the genuineness of the payment or commercial expediency there exists no bill or voucher related to payment of commission in the earlier course of assessment proceedings and as admitted by Shri Ramchander T Pavekar, proprietor of Shree Ganesh Enterprise who was a dealer in footwear, totally unconnected with chemical industry. It is only at the far end of the assessment proceedings that the bills were produced whose genuineness were in doubt. Shri Ramchander T. Pavekar could not explain before the AO, the methodology of getting discount of 15% on purchase from Sumi Tomo Chemicals India Pvt. Ltd. amounting to ₹ 38,75,178/-

All the above stated facts clearly prove that the claim of the commission payments to the all the above parties as not genuine. The only contention of the AR of the appellant is that the payment to these parties is through cheque but that does not prove the genuineness of the claim of the commission payment to these parties for the purposes of the business of the appellant Mere payment through banking channels does not establish that the expenditure incurred by the appellant for payment of commission to these parties, is a genuine business expenditure The parties receiving the commission payments have categorically stated that they have not rendered any specific services to the appellant and further there is no agreement entered into with them and the appellant for rendering such services.

Further, the learned Counsel for the assessee also drew our attention to page 41 and 42, where detail commission paid for AY 2010- 11, 2011-12 and 2012-13 is enclosed which reads as under:-

On the other hand, the learned Sr. Departmental Representative heavily relied on the assessment order of CIT(A) and he particularly referred to the statement of the proprietor of Shri Ganesh Enterprises Shri Ramchander T Pavekar has categorically admitted that they have not raised any bill for commission.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has made this payment as commission by account payee cheque to these parties on account of purchase is made by assessee from Sumito Chemicals India Private Ltd. and the details like name, address, Pan number, cheque number, name of the bank was submitted before the AO as well as before CIT(A) and even now before us. The assessee has incurred expenses of demanding and commission at ₹ 1,22,92,685/- and out of this 62,03,200/- was on account of discounts from purchase with Sumito Chemicals India Private Ltd. this commission was paid to procure orders of purchase. The assessee has confirmed that liaisoning done by M/s RR Enterprises and M/s Shri Ganesh Enterprises with this party i.e. Sumito Chemicals India Private Ltd. The assessee had made purchase in earlier years and future years and the same commission was allowed by the AO while framing the assessment under section 143(3) of the Act and the details are available in the assessee’s paper book i.e. assessment order for this two assessment years. The complete detail of above is clearly reveals that Revenue is unable to confront the parties and being on record that this is not actually paid or paid without rendering any services. The assessee has given the name and address of Sumito Chemicals India Private Ltd. In view of this facts and circumstances and for the sake of consistency that in earlier years for AY 2010-11 and in future year i.e. AY 2012-13, the similar commission was allowed, in this year also, we allow the commission. The appeal of assessee is allowed.

In the result, the appeal assessee is allowed.