ESSA I MERCHANT,MUMBAI vs. JCIT RG 17(1), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER:

Ground No.1: Disallowance of Commission paid by the appellant to agents amounting to Rs. 17,79,865/-

1. 1. The Hon’ble Commissioner of Income Tax (Appeals) -28 Mumbai erred on facts and in law in confirming the disallowance made by the Jt. Commissioner of Income Tax-13(3), Mumbai, on account of commission on sales paid to agents to the extent of Rs. 17,79,865/-.

2. The appellant prays that the disallowance on account of commission expenses confirmed by the Hon’ble CIT-A to the extent of Rs. 17,79,865/- may be deleted, on the same grounds as the allowance of commission expenses of Rs. 75,08,484/- by the Hon’ble CIT-A. Ground No.2: General 3. The appellant reserves the right to add, alter or amend any ground or grounds of appeal on or before the hearing. for AY 2011-12 by revenue

1. "On the facts and in the circumstances of the case and in Law, the Ld/ .CIT(A) has erred in directing the AO to restrict the disallowance of commission to Rs. 17,79,865/ - without appreciating the facts that- i) The said commission payment in the instant year has augmented abnormally by 1107% over the previous year. ii) The AO took recourse to issue of notices u/s 133(6) of the Act, yet the genuineness of the payments was not established during the course of assessment proceedings. iii) It was asked in the assessment order that the assessee has issued cheques and in lieu thereof has obtained back cash. The payments are nothing but bogus and the accommodation entries are cloaked as commission payments. The findings supra as narrated in the assessment order have not been controverted by the Ld. CIT(A). 2. "The appellant prays that the order of the AO should be restored and order of the CIT(A) should be set aside."

2. Brief facts of the case as gathered from the record of the case are that the assessee is proprietor of M/s Advance Computer. The assessee is a regional distributor of Mobile handset and accessories in Mumbai. The assessee deals mainly in Blackberry brand of smart phone and related Mobile Accessories and certain other brands. The assessee filed his return of income electronically for AY 2011-12 on 23.08.2011 declaring taxable income of Rs. 2,41,41,870/-. In the computation the assessee has shown payment of commission of Rs.1,01,07,688/-. The assessment was completed under section 143(3) on 29.03.2014. The Assessing Officer (AO) while framing the assessment order besides the other additions /disallowance, disallowed a sum of Rs. 92,88,349/- on account of commission payment. On appeal before the ld. CIT (A), the disallowance was restricted to Rs. 17,79,865/-. Thus, being aggrieved, both the parties have filed their cross appeal by raising the grounds of appeal

as referred in para-1 (supra).

3. We have heard the ld. representatives of the parties. The ld. AR of the assessee argued that assessee is regional distributor in Mobile Handset and accessories in Mumbai. The assessee mainly deals in Blackberry brands of Smart phones and related Mobile accessories. The assessee also deals in other brands. During the year due to its user friendly technology in new features, the demand of products which was dealt by assessee was rapidly growing due to their good quality and dedicated services. The assessee paid commission to various brokers and agents in regular part of his business operation. The commission in such type of business is common and especially on introduction of new model of Smart Phones. The assessee paid commission only on sales. The commission was paid wholly and exclusively for the purpose of business. The revenue authority cannot be allowed to disallow such commission expenses on arbitrary and unreasonable basis. During the year under consideration, the total turnover 4 of the assessee was Rs. 147,80,05,222/-. The assessee paid a commission of Rs. 1,01,05,438/-, which is less than 1% of the total turnover. The assessee has paid only .68% commission of total turnover. The commission was paid to 32 commission agent/parties. The commission payment was varying from 0.15% to 1% depending upon the business relation with the agent or the parties and the target achieved by the respective agents. The AO cannot sit on the chair of businessman. The assessee during the assessment proceeding provided the details of person to whom commission was paid. The assessee provided name, address and PAN Number and amount of the sale on which commission was paid to the all genuine parties. The commission was paid through banking channel after deducting the TDS. The TDS is properly reflected in the books of account. During the year under consideration, the total turnover of the assessee was increased drastically. The AO out of total commission payment of Rs. 1,01,07,688/- disallowed commission of Rs.92,88,349/-. The AO issued notice to various parties under section 133(6). The AO received the confirmation from many agent/parties which have been disregarded by the AO while passing the assessment order. The assessee made the similar submission before the ld. CIT(A). The ld. CIT(A) observed that the assessee is paid commission only on the sales and not on the purchases. On instruction of ld. CIT(A), the assessee further furnished the complete details along with the documentary evidence including confirmation, agent statement and return of income in the computation of 5 their return of income. The ld. CIT(A) compiled all the details in Annexure which was made a part of his order. The ld. CIT(A) on the basis of his observation sustained/ confirmed the disallowance in respect of 9 parties which are listed at serial no. 7, 9, 14, 26 to 31 in the said Annexure. The ld CIT(A) sustained the disallowance of commission of Rs. 17,79,685/-. The ld. CIT(A) sustained the partial disallowance of commission of Rs. 17,79,685/-, on his observation that assessee could not produce confirmation, bank statement and return of income of these 9 parties. The AO as well as ld. CIT(A) has not made any further investigation about the genuinenity of the payment, no adverse details material was brought on record. The assessee has furnished all details in respect of all persons to whom commission was paid. The ld. AR of the assessee prayed that the disallowance of commission payment restricted/confirmed in respect of 9 persons are also liable to be deleted as the assessee has discharged his primary onus. In support of his submission, the ld. AR of the assessee relied upon the decision of Printers House (P.) Ltd. (188 Taxman 70(Delhi), Shriram Pistons & Rings Ltd. (206 Taxman 41 (Del) (Mag.), Bharat Medical Store (308 ITR 373 (P&H), Septu India (P.) Ltd. 305 ITR 295 (P&H), Genesis Comment (P.) Ltd. 163 Taxman 482(Del) & Mobile Communication (India) (P.) Ltd. (125 ITD 666 (Delhi).

4. On the other hand, the ld. DR for the Revenue supported the order of AO. It was argued that during the preceding year, the assessee has paid 6 commission of Rs. 8,37,080/-. During the year, the assessee has debited commission payment of Rs. 1,01,06,688/- from its Profit & Loss A/c. The assessee has not adopted/followed the uniform policy for payment of commission to various parties. On verification of certain fact, the AO found that the assessee has paid commission to such parties to whom no commission was paid in previous years. The AO after his detailed enquiry/investigation has referred in the assessment order disallowed the addition of Rs. 92,88,349/-. The ld. DR for the Revenue prayed to sustain the entire disallowance made by AO and prayed to set-aside the finding of ld. CIT(A) in giving partial relied to the assessee.

5. We have considered the rival submission of the parties. We have noted that both the parties have challenged the addition/deletion of the disallowance of commission payment, hence we will discussed and deicide both the appeals.

The assessee has challenged to sustaining the disallowance of commission of payment to the extent of Rs. 17,79,685/-. Similarly, the revenue has challenged the deletion of disallowance of commission to the extent of Rs. 75,08,484/-. We have seen that during the assessment proceeding that AO noted that assessee has paid the commission of Rs. 1,01,07,688/-. In immediately preceding year, the assessee has paid the commission of Rs. 8,37,080/-. The AO made the comparison of preceding year and the current year sale with names of agent/commission agent/parties. The AO further noted that the assessee has paid the commission to some different parties 7 from that of preceding year. On the basis of above observation, the AO was of the view that there is discrepancy in the commission payment. Hence, a show-cause notice dated 20.03.2014 was issued to the assessee to justify the commission payment. The assessee furnished his detailed reply. In the reply, the assessee contended that the commission was not paid to some parties in previous year, the payment of commission depend on many facts such as non-realization of payment from customers, non-achievement of Director for particular model handset, dispute with the customer against the defect in mobile set, nature of handset sold in previous and current year, launch of new handset by different companies in the market and non-receipt of C- Form, compliance matter otherwise etc. The assessee further contended that in respect of notice under section 133(6), the transaction has been confirmed by the commission agent which proved the genuineness of transaction. For the notices under section 133(6) which were returned un-served. The assessee contended that they have already submitted copy of ledger statement, purchase and commission paid with copy of sample invoices and other details like PAN, Address etc. The assessee also contended that the commission debited in the Profit & Loss A/c is less than 1% of the total turnover. The contention of assessee was not accepted by AO on his observation that no standard base for policy for payment of commission is followed by assessee. The AO conducted investigation and found that no commission on purchase and sale in previous year was paid but paid in the 8 current year. The assessee was having running business with various concerned and why the commission payment was not paid in earlier years.

Some of the cases, the agents were changed. The AO also noted that assessee has given cheque after deducting TDS and received cash back from the parties and paid minor commission to the name lending parties. The AO disallowed a commission payment of Rs. 92,88,349/- in respect of 31 parties of his observation that either there was no commission paid to them in preceding year or no sale in preceding year or change in the name of commission agent. We have noted that the AO has observed that assessee had given cheque and after deducting TDS received back the cash from the parties. The AO has not identified the name of any such parties nor even the bank statement or any other incriminating material to support his finding.

The AO has not given any finding that commission was paid to any relative, family member or sister concerned. The AO has not brought anything on record to show that commission came back to the assessee in any form. We have noted that the assessee has provided full details of the agent/persons along with their address. We have seen that in the preceding year (AY- 2010-11) the sale of assessee was Rs. 4,995.31 lakhs and the same is increased to Rs.14,780.05 lakhs in AY 2011-12. Further the gross profit in the earlier year was Rs.118.90 lakhs which is increased to Rs.446.80 lakhs in this assessment year. The gross profit of assessee has increased almost four times during the year under consideration. The ld. CIT(A) examined 9 the all commission payment independently and confirmed the disallowance in respect of 9 parties on his observation that the assessee could not produce confirmation, bank statement, return of income and computation of total income. We have noted that neither the AO nor ld. CIT(A) made any attempt to probe into the matter to arrive on a conclusion that transaction or were bogus, unfair or fraudulent. The lower authority has not doubted the commission payment on its reasonableness. The total payment of commission was less than the 1% of the total turnover of the assessee. In our view, the ld. CIT(A) was not justified in sustaining the addition of Rs. 17,79,685/-. The Hon’ble Delhi High Court of CIT vs. Printers House Pvt. Ltd., while dealing with the similar question of law held as under:

“1………We note that the Tribunal has also recorded that there is no evidence that commission flowed back to the assessee or that the entries with respect to commission payments were just paper transaction. The following observations being relevant are extracted hereinafter: ". . . There is no evidence on record to show that the commission was paid to any near relative, family member or sister concern. There is no iota of evidence to show that the payment of commission represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of commission came back to the assessee in any form. Since the assessee has given full details including the addresses of buyers and addresses of the agents, as well as details of payment etc. the transactions of payment of commission as well as the aspect of rendering services by the commission agents were fully verifiable. However, neither the Assessing Officer nor the learned CIT (Appeals) made any attempt at their end to make probe into the matter for coming to the conclusion that the transactions were bogus, unfair and fraudulent. In our opinion, in absence of any such material on record and in absence of any inquiry conducted to prove the non-genuineness of the transactions the departmental authorities were not justified in disallowing the claim of the assessee which was fully supported by the documentary evidence on record."

7. We have carefully perused the submissions, material on record and, the orders of the authorities below. The appellant-company is engaged in the business of distribution of wireless communication equipments and, is authorized distributor of M/s. Motorola India Ltd. The appellant-company, in the ordinary course of its business activities, not only sells equipment on behalf of M/s. Motorola India Ltd. but also makes direct sales after procuring equipments of Motorola India Ltd. and other suppliers. As regards, the equipments in respect of which, it makes sales on behalf of M/s. Motorola India Ltd., it receives only commission from M/s. Motorola India Ltd. and, so far as the equipments in respect of which, 11

it makes purchases and then sells to various suppliers, it receives not only profit on purchase and sale of equipment but also commission on sale of such equipments. In the instant year, the appellant has made sales of Rs. 4,45,13,661 and purchase of Rs. 4,26,70,048 which resulted into gross profit of Rs. 18,43,613. Apart from the above gross profit of Rs. 18,43,613, the appellant had earned commission of Rs. 34,92,603. Thus, total profit accruing on purchase and sale transactions was Rs. 53,36,216. Likewise, in respect of the commission based transaction, the appellant had earned aggregate commission of Rs. 84,83,651. Against the above income earned of Rs. 1,38,19,867 on both sale/purchase and commission based transactions, the appellant has paid commission of Rs. 1,11,52,457. The Assessing Officer out of the aforesaid commission paid, has allowed the claim of Rs. 35,72,457 pertaining to four parties and, disallowed the balance commission paid of Rs. 75,80,000 in respect of two parties, namely, M/s. Aswad Steels & Alloys Pvt. Ltd. and, Shakumbhari Pulp & Paper Mill Ltd. 7.1 The claim of the appellant of commission is that, such commission has been paid as a referral fee and as such, is an eligible business deduction. However, both the authorities below have held that, referral fee is not an eligible deduction on the facts of the case of the appellant as the same has been paid in respect of the referrals made for the supplies to Government organizations and undertakings. According to the learned Commissioner of Income-tax (Appeals), it is mandatory now for the Government organizations and undertakings to place the tenders on the Internet and also in the leading newspapers, therefore, reference to any tender made by the alleged commission agents to the appellant for the commission is not in accordance with the conduct of prudent reasonable person and, does not fit into concept of human psychology and probabilities. This basis in our opinion on the facts of the case of the appellant deserves a short shift as it is based on inherent contradictions, assumptions and presumptions. The fundamental fact which emerges from the material placed on record is that, the appellant in the course of business of obtaining orders from Government departments, has been consistently making the payment of commission as referral fee and such commission so paid has been allowed as deduction. The comparative chart placed on record shows that commission paid has been accepted in assessment years 2002-03, 2003-04 and 2004-05. In fact, the sums of commission paid in assessment year 2002-03 aggregated to Rs. 2,85,01,907 and in assessment year 2004-05 of Rs. 2,13,05,361. Further, even in the succeeding assessment year, commission of Rs. 75,82,914 has been allowed as deduction in assessment made under section 143(3) of the Act and, that too after the impugned order of assessment. In such circumstances, in our opinion to suggest that, referral fee is not eligible as business deduction in the line of business activities of the appellant is manifestly an unsustainable proposition. It appears that, authorities below have chosen to clearly overlook the factum of payment of commission and allowability of commission both in the past and in the succeeding assessment year. In fact, even in the instant year as stated above, 12 commission paid of Rs. 35,72,457 has been allowed as deduction in the instant year out of total commission of Rs. 1,11,52,457. Thus, once this fundamental fact of payment of commission and allowability of commission as referral fee has been permitted through all the assessment years including the instant assessment year then the hypothesis adopted by the authorities below to hold that, commission is not an eligible deduction is not tenable solely on the principles of consistency alone. It is settled law that, when the facts of the appellant are same both in the preceding year and succeeding year and even in the instant year and unless there is change in the position of law, there is no warrant to disallow the claim of expenditure made by the appellant-company. It is settled law that, in absence of any change either in facts or in law, principles of consistency itself can be made a basis to uphold the claim of the appellant- company. The Constitution Bench of the Hon’ble Apex Court in the case of CIT v. J.K. Charitable Trust [2009] 308 ITR 1611 has held as under : "In this case, it is accepted by the learned counsel for the appellant-revenue that the fact situation in all the assessment years is the same. According to him, if the fact situation changes then the revenue can certainly prefer an appeal notwithstanding the fact that for some years no appeal was preferred." 7.2 Likewise, the Hon’ble Delhi High Court in the case of CIT v. Rajeev Grinding Mills [2005] 279 ITR 862 following the judgment of the Hon’ble Apex Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 3213 has held as under : "We find that while deleting the trading addition in toto, the Tribunal has noted that in the immediately preceding two assessment years, namely, the assessment years 1991-92 and 1992-93, the first appellate authority had deleted the trading additions made on account of rate difference and further in respect of the assessment year 1994-95, the assessee had declared grinding loss at 14.30 per cent which was accepted by the Department as such under section 143(1) of the Act. Moreover, in respect of the assessment year 1995 96, the assessee had declared grinding loss at 17.25 per cent which was again accepted by the revenue while making a regular assessment under section 143(3) of the Act. The Tribunal has also noted that in subsequent assessment years also the grinding loss declared by the assessee at 12.44 per cent and 12.58 per cent has been accepted by the Department when assessments have again been made under section 143(3) of the Act. These facts are not disputed by learned senior standing counsel for the revenue. In the light of the aforenoted facts, we feel that the Tribunal was justified in holding that the revenue should not have taken a different view insofar as the present assessment year was concerned. As observed by the Apex Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321, though the principles of res judicata do not apply to income-tax proceedings, particularly when each 13 assessment year is an independent unit, where a fundamental aspect permitting 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." 7.3 Also, the Hon’ble Delhi High Court in the case of CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 1 has held as under : "It is true that each assessment year being independent of the other, the doctrine of res judicata does not strictly apply to income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts. In the present case, learned counsel for the revenue has not been able to point out even a single distinguishing feature in respect of the assessment year in question which could have prompted the Assessing Officer to take a view different from the earlier assessment years, in which the same income was brought to tax as income from business." 7.4 Applying the above rule to the facts of the instant case, it is evident that, once the commission has been paid in the preceding year and succeeding year which stands accepted and allowed then there is no justification to partially warrant of disallowance of expenditure even in the instant year only on the basis that, such payment of referral fee is not allegedly a justified a payment in the line of business activities carried out by the appellant-company. However, the issue does not end here. In our opinion, despite the fact that, commission has been allowed in the preceding year, yet allowability of commission paid and, claimed as deduction has to be examined independently. In other words, whether such payments claimed as deduction constitute to be an expenditure incurred wholly and exclusively for the purpose of business allowable of the appellant- company.

4 List of Directors of Aswad Steel & Alloys 5 Debit note raised by Aswad Steel & Alloys 6 Income-tax return and Audit report 7 PAN Letter 8 Bank account of Aswad Steel & Alloys 9 Statement of account of assessee in the books of Aswad Steel & Alloys 10 Service Tax Challan evidencing the payment of service tax 11 Basis of commission 12 Copy of agreement 13 Net income chart, with supporting documents 14 Copy of commission account B. M/s. Shakumbhari Pulp & Paper Mills (Rs. 38.30 lakhs) S.No. Particulars 1 Copy of agreement dated 9-1-2004 2 Reply furnished by Shakumbhari Pulp & Paper Mills 3 Bill raised by Shakumbhari Pulp & Paper Mills 4 PAN, audit report and financial statement 5 Service Tax Challan 6 Basis of commission 7 Net income chart 8 Supporting documents

submission of the tenders from time to time. In lieu of the above, M/s. Aswad Steels & Alloys (P.) Ltd. shall be entitled to make a payment of referral fee and referral fee shall be inclusive of all taxes and expenses. It has been stated that, invoice shall be raised by M/s. Aswad Steels & Alloys (P.) Ltd. only in respect of successful bidding of leads and/or successful conversion of leads into orders in the manner stated hereunder : Leads converted into Maximum Maximum orders % amount in Rs. (a) Rs. 4 crores to Rs. 8.00 35,00,000 4.49 crores (b) Rs. 4.50 crores to Rs. 8.25 40,00,000 4.99 crores (c) Rs. 5 crores to Rs. 8.50 45,00,000 5.49 crores (d) Rs. 5.5 crores and 8.50 50,00,000 above 9.1 The details placed on record further show that, in the instant year, M/s. Aswad Steels & Alloys (P.) Ltd. had provided leads and out of which, nine parties were specifically converted into orders. The appellant has stated that, seven parties pertained to sale/purchase transactions and, two parties were commission based transactions. As regards sale/purchase transaction, according to the appellant, the total income earned was Rs. 27.36 lakhs and, commission paid was Rs. 11.92 lakhs and thus, there was net income of Rs. 15.45 lakhs. So far as the commission based transactions is concerned, the appellant has submitted that, it has earned commission of Rs. 46.54 lakhs and, paid commission of Rs. 25.58 lakhs and, thus, there is a net income of Rs. 20.96 lakhs. In other words, in respect of nine parties, leads were successfully converted into orders and, the total income earned by the appellant was of Rs. 73.91 lakhs out of which, commission was paid of Rs. 37.50 lakhs and, there was net income of Rs. 36.41 lakhs. It is seen that, in respect of nine parties, as is also evident from the details as extracted above in para 4.2 of this order, total value of tenders was Rs. 4.54 crores which was in excess to Rs. 4 crores and as such, commission was at the rate of 8.25 per cent under the agreement dated 1-8- 2003. Accordingly, based on value of the tender, appellant has made payment of commission at the rate of 8.25 per cent of Rs. 37.50 lakhs. Thus, it is apparent that, under the business agreement dated 1-8-2003, services were received by the appellant from M/s. Aswad Steels & Alloys (P.) Ltd. and, commission was paid of Rs. 37.50 lakhs in the manner stipulated under the agreement. In respect of the entire commission so paid of Rs. 37.50 lakhs, service tax of Rs. 3,47,096 was charged and, was duly deposited, as is evident from the challans placed in the 16

Paper Book and, balance amount has been paid by account payee cheques. It is also a matter of record and as verified by the learned Assessing Officer from the assessment records of M/s. Aswad Steels & Alloys (P.) Ltd. that M/s. Aswad Steels & Alloys (P.) Ltd. is an income-tax assessee and, the entire commission so paid stands duly declared as income by M/s. Aswad Steels & Alloys (P.) Ltd. Moreover, in the course of assessment proceedings, M/s. Aswad Steels & Alloys (P.) Ltd. had duly confirmed factum of running of services by independent confirmation dated 3-9-2007 wherein following evidences were placed on record: "1.Complete names and address of the Directors along with their PAN. 2.Xerox copy of Debit notes raised to the aforesaid company. 3.Xerox copy of Income-tax return for the assessment year 2005-06. 4.Xerox copy of PAN card of the company. 5.Xerox copy of bank statement of Muzaffarnagar and Delhi banks, reflecting these cheques/drafts deposited into Bank. 6.Copy of statement of Accounts of M/s. Mobile Communication (India) (P.) Ltd., for the financial year 2005-06. 7.Xerox copy of service tax challan relevant to that commission earned."

9.2 The learned Officer did not choose to summons to M/s. Aswad Steels & Alloys (P.) Ltd. in the course of assessment proceedings by issuing notice under section 131 of the Act and in such circumstances, in our considered opinion, it is highly unjustified on the part of the authorities below to hold that, commission has not been paid for rendering of services as evidenced by the business agreement dated 1-8-2003. At this juncture, it would be useful to make a reference to the judgment of the jurisdictional High Court in the case of CIT v. Genesis Commet (P.) Ltd. [2007] 163 Taxman 482 (Delhi) wherein, it has been held that, an officer, if he was not inclined to believe the material placed by assessee he could have used coercive powers available to him. Applying the aforesaid proposition, it is evident that, having not exercised the coercive powers, then the learned Assessing Officer was not justified to draw adverse inference on the evidence furnished, more particularly when the payee duly confirmed the rendering of services independently to him. 9.3 One of the basis stated by learned Commissioner of Income-tax (Appeals) not to accept the claim of the appellant is regarding the veracity of the agreement dated 1-8-2003. According to him, the payments have been made under the agreement dated 4-4-2004 and not agreement dated 1-8-2003. In our opinion, such a commission is manifestly contrary to the facts on record. Apparently, it is not in dispute that, total commission paid and, claimed as deduction is Rs. 37.5 lakhs which has been computed on the basis of value of tenders of Rs. 4.54 crores and, at the rate of 8.25 per cent. Both the value of tenders and, the rate of commissions are in terms of the business agreement dated 1-8-2003. In fact, there are no such figures stated in the agreement dated 4-4-2004. On the contrary, in the MOU dated 4-4-2004, rate of commission stated is 4.5 per cent 17 and, if rate of 4.5 per cent is applied then under no stretch of imagination of value of Rs. 4.54 crores, commission at Rs. 37.5 lakhs could have been paid. In view thereof, it is incorrect on the part of the authorities below to suggest that referral fee has been paid under the agreement dated 4-4-2004 and not 1-8-2003. Further, perusal of the agreement dated 4-4-2004 would show that, same is in respect of procurement of orders as well as post-contract services unlike business agreement dated 1-8-2003 wherein the same is for providing leads/reference as well as preparation and submission of the tenders and, no more. There is no evidence to establish that, agreement dated 4-4-2004 was ever acted upon as no sums have ever been paid or claimed as deduction by the appellant under the agreement dated 4-4-2004. The finding of the Commissioner of Income-tax (Appeals) that this agreement was not produced before the Assessing Officer is factually incorrect as has been correctly challenged in the Grounds of Appeal by the appellant. In fact, in the reply dated 17-2-2009 before him, it was categorically clarified that, under MOU dated 4-4-2004, no commission was paid by the appellant-company and the entire commission was paid at the rate of 8.25 per cent in accordance with business agreement dated 1- 8-2003. In such circumstances, once commission itself has been paid only under the agreement dated 1-8- 2003, there was no justification for the authorities to allege that, sum so claimed as deduction is not eligible business deduction under section 37(1) of the Act. In any case, non-issue of summons per se entitles the appellant to claim of deduction. In fact, service tax challans placed on record demonstrate that services have been rendered by the appellant. The factum of claim of credit by the appellant of the service tax paid under the Cenvat rules cannot be a ground to deny the claim and to suggest that services have not been rendered. It is the well-settled legal position as laid down by the Court of Appeal in England in Moouat v. Betts Motors Ltd. 1958 (3) All ER 402, that two Departments of the Government cannot in law adopt contrary or inconsistent stands or raise inconsistent contentions or act at a cross purposes. Too use the Famous words of Lord Denning in that case, "The right hand of the Government cannot pretend to be unaware of what the left hand is doing". The same principle of law has also been followed by Apex Court in the case of M.G. Abrol, Addl. Collector of Customs v. Shanti Lal & Co. AIR 1966 SC 197, where it was laid down that the Customs authorities cannot in law take a stand or adopt a view which is contrary to that taken by the Import Control Authority. In that case, the import control authority held that a particular product could be exported under an export license, it would not then lie in the mouth of the customs authorities to disallow the export on the ground that the product could not lawfully be exported. Thus, the underlying principle of these judgments directly and squarely covers the present case. In view thereof, it is highly incorrect to suggest that, service tax has been charged on the services rendered and duly paid and deposited to the Central Government yet services have not been rendered. The Assessing Officer had no material to allege let alone conclude that services had not been rendered by the payees and as such, the action to disallow the claim is 18 totally and wholly unsustainable. In fact, learned Assessing Officer has failed to discharge his onus. It is reiterated that it is not a case where the party is not identifiable. The name and address of the party is fully verifiable, who could be summoned and examined. In fact it is the burden of the learned Assessing Officer, before drawing any adverse inference, to have summoned the parties and examined him. In our opinion, if the officer was of the opinion, that the evidence of parties, was necessary, it was his duty to have summoned them as has been held by the Hon’ble Allahabad High Court in the case of Nathu Ram Premchand v. CIT [1963] 49 ITR 561, more particularly in a case where onus on the appellant stands discharged. It is admitted position of fact as is undisputed that, in respect of nine parties, from whom leads were received by M/s. Aswad Steels & Alloys (P.) Ltd. and thereafter, successfully converted into orders, the appellant has duly shown the income and credited. It is not a case where no income was received and expenditure was incurred. On the contrary, evidence on record clearly shows that, on the basis of services received, leads were converted into orders for which, income was duly declared and accounted for as income of the appellant-company. 9.3-1 The next basis stated is regarding the financial position of M/s. Aswad Steels & Alloys (P.) Ltd. In our opinion, factum of financial position of M/s. Aswad Steels & Alloys (P.) Ltd. has no connection to the issue under consideration. All what has to be examined is whether the payee had actually rendered services. In fact, their Lordships of Hon’ble Delhi High Court in the case of CIT v. Ansal Buildwell Ltd. [2008] 304 ITR 3781 had held that, mere fact that payee was a loss-making company was an inadequate reason to conclude that commission paid by the appellant was bogus and as such, therefore, following the same here too, it is held that once the Assessing Officer has not rebutted the irrefutable evidence placed on record in the shape of independent confirmation, service tax challans, details of parties in respect of which services were rendered and the agreement, the commission paid could not have been disputed to be a non-genuine transactions for which, it is not eligible to commission. Thus, in our considered opinion, the payment by account payee cheque as per business agreement dated 1-8-2003, confirmation from payee is sufficient proof of rendering of services. The fact that, providing leads is not their core line of activities or they have not stated such activity in its tax audit report cannot be a basis to suggest that they have not rendered services to the appellant-company. Merely because the recipient of commission were also engaged in different line of business, was not a sufficient ground to hold that no services have been rendered as has also been held by the Income- tax Appellate Tribunal in the case V.I.P Industries Ltd. v. IAC [1991] 36 ITD 70 (Bom.) (TM). Similar observations have been made by the Hon’ble Tribunal in the case of M/s. Agvet Chemicals, copy placed in the PB. Further, they have incurred expenses and how much they incurred expenses is also wholly irrelevant consideration. In fact, if the Assessing Officer had any doubt about such issue, he ought to have summoned the payee and, then only after examining the payee, 19 he could have chosen to draw adverse inference, if any. In absence thereof, it is incorrect for the authorities below to hold that sum paid is not an eligible business deduction of the appellant-company. The Commissioner of Income-tax (Appeals) in his order has also made observations regarding the value of services rendered. In our opinion, he is incorrect to state that, if the amount of Rs. 34,02,904 is extrapolated at the rate of 4.5 per cent, the contract amount shall be Rs. 7,56,20,089 and not Rs. 4,54,54,531. This finding is factually incorrect. The fact of the matter is that, appellant has received services of Rs. 4.5 crores at the rate of 8.25 per cent as provided in the business agreement dated 1-8-2003, the value of commission payable comes to Rs. 37.5 lakhs. Further, even in the observations made that tenders were submitted and purchase orders were awarded but the commission has been claimed and have been paid and agreement with M/s. Aswad Steels & Alloys (P.) Ltd. was executed with effect from 4-4-2004 is also not tenable. The details of such allegations are extracted hereunder: ……….. ……….. ………... 9.4 From the perusal of the above details, it will be seen that, in the aforesaid case, the contracts have been awarded in financial year 2004-05 relevant to assessment year 2005-06 and both of which are subsequent to business agreement dated 1-8-2003 and, therefore, apparently, it is not a case of inflation of expenditure. It has also been observed that, in the following cases, tenders were submitted and purchases orders were awarded in the subsequent year in the following contracts: ……….. ……….. ………... 9.5 The fact of matter in respect of the above is that, income in respect of these contracts stand duly declared and assessed and, therefore, this ground too cannot be said a basis to support that, services were not rendered. The factum of rendering of services is not explained by date of supplies or invoices raised. What has to be seen is whether services have been rendered, which has duly been established in the instant case. In our considered opinion, it is a case where disallowance has been made on surmises, conjectures and suspicion and, it is settled law that, no addition can be made on the basis of surmises, suspicion and conjectures. Reliance for this proposition is placed on Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC). It has been further held in the following cases that suspicion howsoever strong cannot take the place of proof : (a) Omar Salay Mohammad Sait v. CIT [1959] 37 ITR 151 (SC). (b) Dhirajlal Girdharilal v. CIT [1951] 26 ITR 736 (SC). (c) Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC). 20 (d) Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC). 9.6 In light of the above facts, we hold that, appellant has duly established that services were rendered by M/s. Aswad Steels & Alloys (P.) Ltd. and, hence, is eligible for claim of deduction of Rs. 37.5 lakhs.

10. Now coming to the payment of commission paid to M/s. Shakumbhari Pulp & Paper Mill Ltd. In this case too, the appellant has supported his claim by an agreement dated 9-10-2004 copy of which has been placed in the Paper Book. No adverse observations have been made by the authorities below in respect of this agreement except to the extent that, process of providing leads and conversion into successful orders is not in commensurate with the services rendered. No valid basis has been stated for such a conclusion. The fact that, leads were provided which were successfully converted into orders is not in dispute. It is also not in dispute that successful conversion of leads in the orders was in respect of five parties and the aggregate income earned by the appellant in respect of these leads was Rs. 52.77 lakhs being Rs. 39.49 lakhs as commission and Rs. 13.28 lakhs as profit on sale purchase transactions, out of which, commission is paid of Rs. 38.29 lakhs and net income was earned of Rs. 14.48 lakhs and, such income received has duly been assessed to tax and, commission has been paid by account payee cheque. Service tax on such services of Rs. 3.54 lakhs has duly been deposited. Moreover, this fact of rendering services has been confirmed by the company in independent confirmation and no further summons were issued by the Assessing Officer. Reliance here is also placed on the judgment of Gujarat High Court in the case of Swastic Textile Co. (P.) Ltd. v. CIT [1984] 150 ITR 155 wherein Hon’ble Court was considering a case where assessee carried on the business of manufacturing and selling textile machinery. It also derived income as a partner in two firms. For the assessment year 1970-71, it claimed deduction of Rs. 14,250 paid as commission to N on the sale of machinery manufactured by it to A Mills. N had stated on oath that he had brought the assessee and A Mills together and A mills had also admitted in its letter that N had been present when the negotiations for sale were going on. However, the ITO negatived the claim and, on appeal, the Tribunal held that since N was only a student and there was no proof that he had rendered any service to the assessee, the amount was not deductible. On a reference, this finding of fact was assailed as being perverse. It is further held that the statement of N that he had brought the two parties together had remained uncontroverted by the revenue. The assertion of A Mills that N was associated with the transaction also remained uncontroverted. As a result, it would be difficult to conclude that no services had been rendered by N to the assessee. The finding of fact by the Tribunal was clearly unreasonable. The assessee was, therefore, entitled to the deduction of Rs. 14,250 paid by way of commission to N. Following the above, in our opinion, there was no justification to suggest that, payment of commission was not for services rendered. The objection regarding financial statement of M/s. Shakumbhari Pulp 21

& Paper Mill Ltd. is wholly irrelevant consideration and cannot be basis to disallow the claim of deduction. In our considered opinion here too, the authorities below have failed to appreciate the factual matrix of the case and proceeded on considerations which are wholly irrelevant to disallow the claim of commission made by the appellant-company and, therefore, the same is held to be untenable. 10.1 Before concluding, we would seek to refer the recent decision of the Tribunal in the case of Nestor Pharmaceuticals Ltd. v. Dy. CIT [IT Appeal Nos. 2535 and 2536 (Delhi) of 2006], etc., wherein the Tribunal has held that commission so paid is eligible deduction as would be evident from the findings contained in para 12 of the order which are extracted hereunder : "12. Here, we find that the Assessing Officer has in regard to the commission payment to the agents who had assisted the assessee to deal with the Government agencies have been specifically earmarked and disallowed on the ground that there was no necessity of an agent while dealing with the Government. Though, it is very much true that the Government does not deal with the middleman, it does not mean that there is no role for an agent to play when an assessee is dealing with the Government. The transactions and the dealings with the Government obviously cannot be done through an agent but the agent can assist an assessee in obtaining supply and facilitating of information which are required for the assessee. The explanation of the assessee that the agents assisted the assessee in the pre-tender and the post-tender activities is clearly borne out of the evidences which are part of the seized material. This being so, it cannot be said that no services have been rendered by the agents to the assessee. In the circumstances, we are of the view that the learned CIT(A) was right in deleting the disallowance of the commission as made by the Assessing Officer. His impugned orders on this issue for all the seven years under consideration are, therefore, upheld and these appeals of the revenue are dismissed." 10.2 The learned Commissioner of Income-tax (Appeals) has also placed reliance on the judgment in the case of Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439 (SC). As regards the former judgment, it will be seen that the Hon’ble Apex Court held that claim of expenditure had to be tested on the facts of the case. There is no dispute to the above proposition and since on the facts of the case, it will be seen that expenditure is duly supported by necessary evidence, the same is eligible claim of deduction. So far as the case of Lachminarayan Madan Lal (supra), it is seen that, it was noted that mere existence of an agreement would not be sufficient for allowability of claim of commission. This proposition is undisputed and in any case, however, cannot be applied to the facts of the instant case. In the instant case, claim of the appellant is not based on the solely agreement but based on the fact that payees have duly confirmed the rendering of services. Also other facts such as details of the 22 parties for whom services have been rendered, payment of service tax and payment by account payee cheques and declaration for such sum as income by payees supports the claim of the appellant that services have been duly rendered by payees, the same is duly eligible for deduction. As regards the judgment in the case of Modi Industries Ltd. v. CIT [1993] 200 ITR 3291 (Delhi), the same is wholly inapplicable as that was a case where the assessee has claimed deduction in respect of commission paid to S.E. Corporation on account of their services. In that case, it was found that Corporation had not employed any person who was shown to possess the necessary experience and qualification that it had no godown of its own and it used to draw the goods from the sales office of the assessee and that the Corporation did not have the physical resources necessary to have carried out its duties. In the instant case, there is neither any evidence to that effect and, nor any material to support such a hypothesis. On the contrary, it is a case where summons were not issued to such parties and in such circumstances considering the evidence on record, it is incorrect to suggest that, services have not been rendered. Hence, such judgment too has no application to the facts of the present case.

8. Further Hon’ble High Court in the case of CIT v. Genesis Commet (P.) Ltd.

[2007] 163 Taxman 482 (Delhi) wherein, it has been held that, an officer, if he was not inclined to believe the material placed by assessee he could have used coercive powers available to him. Applying the aforesaid proposition, it is evident that, having not exercised the coercive powers, then the learned Assessing Officer was not justified to draw adverse inference on the evidence furnished, more particularly when the payee duly confirmed the rendering of services independently to him.

9. In view of the above legal and factual discussion, the ld. CIT(A) was not justified in sustaining the addition of Rs. 17,79,685/- when there was no evidence that the commission payment was paid to non-existent party or the commission came back to the assessee in any form. As we have already 23 noted that assessee has given full details of agents/parties including their address, PAN Number and accounts. The assessee has deducted TDS wherever applicable and furnished the details thereof. The Hon’ble Apex Court in SA Builder Vs CIT 288 ITR 1 (SC) held that the revenue authorities cannot step into shoe of the assessee and dictate him how to conduct the business. Thus, considering the facts of the case and following the various decisions as cited above the ground of appeal

raised by assessee in its appeal is allowed. The AO is directed to delete the disallowance of commission payment of Rs. 17,79,685/-. In the result, the ground of appeal raised by assessee in its appeal is allowed.

10. As we have allowed the appeal of the assessee and deleted the disallowance of Rs. 17,79,685/-, resultantly the ground of appeal raised by revenue in its cross appeal in deleting the commission of Rs. 75,08,484/- by ld. CIT(A) is dismissed.

11. In the result, appeal filed by assessee for AY 2011-12 is allowed and the cross appeal of the revenue is dismissed. for AY 2012-13 by assessee

12. We have noted that the assessee has raised identical grounds of appeal as raised in appeal for AY 2011-12, except variation of figure of disallowance of commission payment. The assessing officer disallowed the commission payment on the basis of order for earlier assessment year i.e. AY- 2011-12.

The assessing officer also observed that appeal for AY 2011-12 filed by 24 assessee before ld CIT(A) was also pending adjudication. We have noted that the turnover of the assessee was increased from Rs. 147 Crore in AY 2011-12 to Rs.154 Crore (AY 2012-13) in the year under consideration. The commission on total sales is also increased from .68 % to 1.33%. Both the parties have agreed to treat the appeal for AY 2011-12, thus considering our order for earlier year and following the principal of consistency, the appeal of the assessee for this year is also allowed with similar observations.