SHRI KAMAL AGARWAL,KOLKATA vs. A.C.I.T, CIR-53, KOLKATA, KOLKATA

- This assessee’s appeal for assessment year 2009-10, arises against the Commissioner of Income Tax (Appeals)-XXXIII, Kolkata’s order dated 25.03.2013, in case No.125/CIT(A)-XXXIII/ACIT, Cir 53, Kol/11-12, in proceedings u/s 143(3) of the Income Tax Act, 1961; hereinafter ‘the Act’. Heard both the parties. Case file perused.

It emerges from assessee’s pleadings that the its solitary substantive grievance challenges correctness of both the lower authorities’(s) action disallowing commission paid of ₹18,61,052/- to seven parties. The CIT(A)’s detailed discussion on the above sole issue reads:- 5. Ground No. 4 & 5 relate to addition of Rs. 18,61,052/-. The appellant had claimed commission of Rs. 18,61,052/- shown to be paid to seven persons. The assessing officer called for details such as copy of agreement, copy of TDS return, PAN of recipients and details of relevant sales. He issued summons u/s 131 to all the agents. However, none of them complied on the Sh Kamal Agarwal Vs. ACIT Cir-53 Kol. Page 2 scheduled date. From the details produced, it was observed by him that though the appellant was residing in Kolkata, his entire business was run in Gujarat and all the customers were also based in Gujarat. The seven parties, to whom commission had been paid, were all based in Kolkata. They were either his relatives or friends/business associates not having any nexus with such sales. One of the recipients, viz. Inter Globe Finance Pvt. Ltd. was primarily engaged in business of financial services. It was not clear, as to what was role of a finance company based in Kolkata for trading in welding electrodes in Gujarat. Many of the other recipients were also belonging to family of Shri Suresh Kumar Jain who was Managing Director of the said company. One of them was his married daughter, who was a housewife and another was his teen- aged daughter. The assessing officer was of the view that such commission payment was a manipulated transaction made by the appellant to his friend cum business associate Shri Suresh Kumar Jain. He, therefore, disallowed commission of Rs. 18,61,052/-. 5.1. In the appellate proceedings it was stated, that the appellant had filed all the details of commission paid, including names, addresses and PANs of the parties, the corresponding parties to whom sale was made, amount of sale as well their addresses. The assessing officer had wrongly considered that the parties to whom the commission was paid were relatives of the appellant. As a matter of fact, none of the parties was his relative. The payments were made through account payee cheques and tax was duly deducted at source. The parties to whom sale was made, were duly identified and confirmation has been given by one such party stating that the person in between was Mr. Awdesh Agarwal, who is one of the commission recipients. The assessing officer did not conduct any enquiry, either from the parties who had received commission or from parties to whom sales has been made. The entire addition was based on surmises. It is true that the appellant's business was mainly with parties located in Gujarat and the recipients of the commission were based in Kolkata. However, in present day of advanced communication through mobile, e-mail etc., physical location was not all that important. It was also mentioned that in the immediately succeeding year AY. 2010-11 the appellant's case was selected for scrutiny to examine genuineness of commission expenses. In the order dated 26.12.2012 passed under section 143(3), the assessing officer has not made any disallowance in respect of commission after conducting detailed enquiry. It was stated that commission paid in that year as a percentage of turnover was in the same range as during year under consideration and one of the recipients was also common. 5.2. I have carefully considered the facts of the case. It is true, that the appellant has paid commission through account payee cheques and after making TDS. However, that, by itself, is not sufficient to decide allowablity of the expenditure. In computation of business income, only expenditure incurred wholly and exclusively for purpose of business is to be allowed as deduction. Moreover, onus to establish this fact is upon the assessee. Since the appellant was claiming commission paid to the seven persons as deduction, he was required to establish that such commission was paid wholly and exclusively for purpose of business, whether or not the recipients were his relatives. This was more so because the recipients of commission had not Sh Kamal Agarwal Vs. ACIT Cir-53 Kol. Page 3 complied with the summons issued by the assessing officer on the scheduled date. The facts, which have been brought on record by the assessing officer, are that put of the seven persons, the highest amount of commission has been paid to Inter Globe Finance Pvt. Ltd. which is a company engaged in financial management and advisory service. Out of the remaining persons, two are directors of the same company, whereas three more are close relatives of the managing director of the company including one housewife and one teen-aged girl. It has not been explained as to what services have been performed by the company and so many members of its directors' family. No agreement regarding the agency has been produced, either during assessment, or in the appellate proceedings. The persons are based at Kolkata, while entire sales under consideration took place in Gujarat. While it is true that with advent of modern means of telecommunication, physical location and distance are not as important as they were earlier, they have not become altogether irrelevant and heavy burden was on the appellant to explain exactly what kind of services these persons rendered. In the appellate proceedings, the appellant was asked to give evidence regarding services rendered and documents relating to commission. Alongwith with his written submission, the appellant had filed one letter from Katyani Engineering and Co., one of the customers of the appellant stating that Mr. Awdesh Agarwal (not part of Jain family) was involved as a contact person in respect to the sale made to the appellant. It was stated that this confirmation was produced before the assessing officer. Vide this office letter dated 08.10.2012, the assessing officer was enquired regarding the same. In reply it was stated by the assessing officer vide his letter dated 05.11.2012, that no such conformation had been furnished by M/s. Katyani Engineering and Co. When the matter was discussed with the authorized representative of the appellant, he changed his earlier stand by stating that the confirmation was produced by the party, not before the assessing officer, but given to the appellant. In response to the query on documents relating to services rendered and commission the appellant has only produced some debit notes raised by the agents. On going through them it is seen, that all of them are dated 31.03.2009 stating that they have debited the appellant's account by the commission at certain rate (varying from 5% to 11 % in respect of various agents) for the sale made during the year. In the debit notes issued by Inter Globe Finance ·Pvt. Ltd., Pramod Kr. Jain, HUF and Mr. Awdesh Agarwal the number of note I bill has been given as 01 implying that this was the first debit note I bill issued by the concerned parties. On debit notes from other parties, there is no number found. It is also seen that in the immediately succeeding year, none of the persons involved, except one (Mr. Awdesh Agarwal), was recipient of commission. It is indeed peculiar, that the entire Inter Globe Finance Group (company and Individuals) through which the appellant had claimed to have achieved sales of about Rs 1.8 crores during the year to which majority of the commission was paid was not involved at all in the immediately succeeding year. 5.3. After considering all these facts and surrounding circumstances in entirety, I am of the view that the appellant has not been able to establish that commission paid by him was in consideration of genuine services rendered by them and the commission was paid wholly and exclusively for purpose of Sh Kamal Agarwal Vs. ACIT Cir-53 Kol. Page 4 business. So far as the appellant's contention that similar commission payment has been allowed in subsequent year's assessment where the case was taken up for scrutiny for verification of commission is concerned, it is to be kept in mind that each assessment year is independent. Moreover, as mentioned earlier only one of the parties involved in this year has received commission in the subsequent year. In any case, so far as the present year is concerned, the appellant has, as discussed earlier, failed to discharge his onus to establish that the commission had been paid for genuine services. It is well settled that onus to establish that any expenditure was incurred wholly and exclusively for purpose of business lies squarely upon the assessee. Since the onus has not been discharged satisfactorily, I find no reason to interfere with the addition made by the assessing officer. The disallowance of Rs. 18,61,0521- is accordingly confirmed.”

We have given our thoughtful consideration to rival submissions. Learned Departmental Representative appearing at Revenue’s behest vehemently contends during the course of hearing that the assessee has failed to prove genuineness of the impugned commission payments. His case therefore is that the above mere documentary evidence in the nature of payee’s confirmation, TDS deduction, income tax returns coupled with all the other details does not form sufficient reason to accept the commission claim in question. We find no merit in Revenue’s instant arguments. There is no dispute first of all, that the assessee has actually incurred the impugned commission expenditure of ₹18,61,052/- in seven payees parties cases in the relevant previous year. The Revenue seeks to highlight the fact that the assessee has made entire sales in Gujarat whereas the payee concerned are based in Kolkata only. We fail to agree with Revenue’s instant plea. The relevant case record reveals that the assessee has provided for all the relevant details including addresses of commission agents corresponding customers’ parties details, invoices, third parties documents pointing the fact that above payee(s) have acted as their commission agents, profit and loss account, balance-sheet, tax audit report (for assessment year 2010-11) alongwith assessment order of the said succeeding assessment year indicating that no such disallowance has been made in respect of identical commission claim, comparative chart of assessee’s turnover vis-à-vis gross profit, commission and net profit figures during the relevant previous year vis- Sh Kamal Agarwal Vs. ACIT Cir-53 Kol. Page 5 à-vis earlier and latter assessment years to be at uniform rate; respectively. All this overwhelming evidence forms sufficient reason for us to conclude that lower authorities have erred in disallowing the impugned commission expenditure of ₹18,61,052/- on mere conjectures and surmises. The assessee’s sole substantive ground is therefore accepted.