SHRI SATISH JAIN,INDORE vs. THE CIT-2, INDORE

आदेश /O R D E R

PER O.P.MEENA, ACCOUTANT MEMBER. This appeal by the assessee for the assessment year 2010-11 filed against the order under section 263 of the Income-tax Act, 1961, dated 30.03.2015, passed by the Principal Commissioner of Income-tax-2, Indore. The assessee has taken following grounds of appeal:- Ground I: 1. On the facts and circumstances of the case and in law, the ld. Commissioner of Income-tax-2, Indore, [ the CIT] erred in invoking

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provisions of section 263 of Income Tax Act,1961 (the Act) and directing revision of assessment order passed under section 143 (3) of the Act by the Assistant Commissioner of Income Tax, Circle 4(1), Indore (the AO) on the alleged ground that the assessment order was erroneous and prejudicial to the interest of the revenue. 2. The Appellant prays that since the assessment order passed by the AO was after making specific and full enquiries therefore, the assessment order cannot be regarded as erroneous and accordingly the action of the CIT in invoking provisions of section 263 and revising assessment order be held ab-initio and / otherwise void and bad-in-law. 3. The Appellant further prays that order passed u/s. 263 of the Act pursuant to an addition made in subsequent assessment year ought to be, in the facts and circumstances, struck down as null and void-ab- initio. Ground II without prejudice to ground I 1. On the facts and circumstances of the case and in law, the CIT erred in partly setting aside the order and directing the AO to make a fresh assessment on issue of commission payments based on evidences presented by the AO and that the Assessee to the satisfaction of respective parties. 2. The Appellant prays that the order passed u/s. 263 of the Act be struck down as null and void and assessment order of the AO be restored and it be held that on the facts and circumstances, no disallowances of commission expenses is called for at all. GROUND III: without prejudice to GROUND I 1. On the facts and circumstances of the case and in law, the CIT erred in observing that commission payment is liable to be disallowed inspite of the fact that details of Name, Address, and PAN were provided to the AO and the AO had examined the commission agents during the original assessment proceedings. 2. The Appellant prays that the order passed u/s. 263 of the Act be struck down as null and void and assessment order of the AO be restored and it be held that on the facts and circumstances, no disallowance of commission is called for.

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Since all the above grounds of appeal are revolved around that the ld. Commissioner of Income Tax has erred in setting aside the assessment order u/s. 263 of the Act on the ground that no inquiry/ investigation was made, hence, the assessment order is erroneous and prejudicial to the interest of the revenue. Hence, all grounds are being considered together and being disposed-off in consolidated manner. 2. The brief facts of the case are that the assessee is engaged in the business of manufacturing of agricultural sprayers and related items. The assessee has filed return of income on 08.11.2011 declaring total income of Rs.81,57,930/- which was assessed at Rs.89,14,320/- under section 143 (3) on 18.01.2013. The AO based on assessment order passed for A.Y. 2011-12 sent a proposal u/s. 263 to the CIT to take remedial action as on identical basis commission payments not disallowed in A.Y. 2010-11. Accordingly, the CIT initiated proceedings u/s. 263 of the Act stating that it was found during assessment proceedings for A.Y. 2011-12 , that the assessee has paid commission even supply to government Department i.e. MP Agro Industries Development Corporation Limited and MP State Co-operative Marketing Federation. Further, in response to notice u/s. 133(6), they have informed that no agents required for facilitation of sale by the assessee. Therefore, a show cause notice issued on 19.01.2015 as to why payment of commission of Rs. 1,72,80,249/- allowed in assessment order for the assessment year 2010-11 should not be disallowed as government has disapproved the role of middlemen in government transaction as found during assessment proceedings in A.Y. 2010-11. The assessee filed his reply dtd. 06.02.2015 stating that the assessment order has been passed after making detailed investigation and in reply to Point no. 20 of questionnaire dtd. 19.11.2012, the Ld.AO asked the details of commission expenses and service rendered

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which were duly complied with giving details of name, PAN Service rendered and same having discussed with the AO on hearing dtd. 04.12.2012 and 11.01.2013. The said reply of the assessee was forwarded to the AO for his comments and after obtaining his comments, the ld. CIT observed that she is in agreement with the AO that commission payments to agents is for sole purpose of obtaining orders for business from government Department is not allowable expenditure as held by tribunal Indore Bench in the case of Nautamal & Sons (I.T.A. No. 78/Ind/2013) dtd. 19.07.2013 and Smt. Gunwanti N Sanghvi (I.T.A. No. 67/Ind/2013-AY09-10) dtd. 17.10.2013 . The ld. CIT was of the view that mere payment by cheque and deduction of TDS does not makes expenditure as legally admissible. The reply of the assessee is full of contradiction, as the assessee has debited salary of Rs. 20, 14, 765 /- which goes to prove that market and office related the salaried employees have done work and there was no further need to pay commission. 3. Aggrieved by the order of the Commissioner of Income tax passed under section 263 of the Act, the assessee preferred the present appeal before us. 4. The Ld. A.R. for the assessee submitted that there was a detailed application of mind by the AO since detailed questionnaire with respect to commission payments were issued even further enquiries were made based on details submitted and even certain agents were summoned and their statement on oath were recorded. This shows that the AO has applied his mind and has taken a conscious view in the matter; therefore, the order cannot be termed as erroneous. The sole reason assigned by the learned Pr. CIT is the presumption that no commission is required to be paid in case of government supplies. The ld. A.R. learned submitted that M/s. M. P State

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Agro Industries Development Corporation Ltd. vide letter dated 21.02.2014 filed before the AO on 25.02.2014 wherein details of various formalities and nature of service required to be carried out by the assessee or its representative have been spell out have been mentioned. Which proves that the assessee is required the service of agents to carry out his business of supply of goods to farmers through government nodal agency. The Ld. A.R. further submitted that the requirement of agents/ representative in case of business of government supplies and payment commission therein has been approved by Jurisdictional High Court in the case of CIT vs. Pure Pharma (P) Ltd. [2005] 270 ITR 382(MP)/ [2005] 144 Taxman 364(MP), wherein commission was found paid on supplies made to Government and its agencies and all the payments were made to various parties by account payee cheques/ demand drafts, the identity of each of the agents was established and the expenditure was found incurred for business purposes. It was held that such expenses were allowable and consequently, the addition was deleted. The learned Counsel for the assessee, submitted that genuineness of payments of commission cannot be doubted as government agencies have confirmed the involvement of representative, TDS was made on payment of commission made through cheques, confirmation were filed from agents along with tax returns and agents have called for through summons by the AO and they have explained the nature of service rendered confirming transaction. The learned Authorized Representative further submitted that the revision was made based on disallowance of commission in subsequent assessment year 2011-12, which has been deleted by the ld. CIT (A). Be that as it may, divergent views taken by the CIT(A) and Pr. CIT Indore itself proves that there are two views possible on the issue and therefore, revision

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cannot be made on following precedents; a. CIT vs. Hindustan Coca Cola 331 ITR 192(Del) , b. Arvind Jewellers 259 ITR 502 (Guj). The ld. A.R. learned further submitted that it was a commercial decision of the assessee not to recruit employees and to avail services of representatives which saved various fixed costs like salary, travelling allowance, D.A, PF, ESIC, etc. and was a performance oriented approach. 5. The Ld. A.R. has also elaborately argued distinguishing the case law referred to and relied upon by the Commissioner in his order under Section 263 of the Act. The ld. A.R. contended that the AO made proper enquiry and examined accounts, it could not be said that there was non-application of mind by him. The Ld. A.R. also filed photo copies of order sheet of the AO reflecting therein that the AO had asked detailed of commission payment vide order sheet noting’s (as filed at Paper Book Page -18). It is also mentioned on the order sheet noting that the assessee has produced Shri Vaibhav and his statement is being recorded. In the statement, Shri Vaibhav has clearly stated that he had received commission from the assessee for the service rendered. The Ld. A.R. also filed copies of questionnaire dtd 19.11.2011 issued to the assessee asking the details of commission payments. The Ld. A.R. also filed copy of reply furnished in response to the said questionnaire. Thus the Ld. A.R. has claimed that the commission payments have been allowed by the AO, after making detailed inquiry and after when the AO has satisfied with that. The AO also examined the commission agents. The ld. A.R. learned submitted that where the assessing officer during the scrutiny assessment proceeding raised a query which was answered by the assessee to the satisfaction of the AO but the same was not reflected in the assessment order by him, a conclusion cannot be drawn by the

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Commissioner that no proper enquiry with respect to the issue was made by the assessing officer, and enable him to assume jurisdiction under section 263 of the Act on the basis of following decisions : CIT vs. Ashish Rajpal [2009] 320 ITR 674 (Delhi) , CIT vs. Vikas Polymers [2012] 341 ITR 537(Del) /[2010] 194 Taxman 57(Del) and CIT vs. Vodafone Essar South Ltd. [2013] 212 Taxman 184(Del) /28 taxmann.com 273 (Del) submitted that once inquiry was made; a mere non discussion thereof in the assessment order cannot lead to assumption that the Assessing Officer did not apply his mind or that he has not made inquiry on the subject and this would not justify interference by the Commissioner by issue notice under section 263 of the Act. Lack of enquiry cannot be basis for revising order passed by the AO as held in the case of CIT vs. Sunbeam Auto Ltd. [2009] 289 Taxman 436(Del). 6. The learned counsel for the assessee further argued that it is a settled position of law that when the assessing officer has taken a certain view on the basis of evidence before him, in the shape of accounts and information furnished by the assessee regarding the extent and nature of its acidity in response to enquiries made by the assessing officer, the Commissioner of Income-tax cannot seek to revise the asset under Section 263 of the Act by taking a different view. The learned counsel for the assessee submitted that while the Commissioner has not discussed or referred to any of the decisions relied upon by the assessee, the decisions relied upon by the Commissioner in the impugned order under S.263, including Nautamal & Sons (I.T.A. No. 78/Ind/2013) dtd. 19.07.2013 and Smt. Gunwanti N Sanghvi (I.T.A. No. 67/Ind/2013-AY09-10) dtd. 17.10.2013 are clearly distinguishable from the facts of the present case, inasmuch as in the

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present case it is not a mere change of opinion on the part of the Commissioner, but it is a question of finding of fact as regards the nature assessee’s activity given by the assessee based on the evidence on record. 7. On the other hand, the learned D.R. submitted that the Pr. CIT was right in invoking the revision under section 263 of the Act as it was found during subsequent assessment proceedings that the assessee had supplied agricultural equipment to farmers through government nodal agencies, which do not require any intermediaries or agents. Further the payments so made is against the public of government hence, such payments is not allowable as deduction as expenses. The Ld. D.R. also placed reliance in the case of Smt. Gunwanti N Sanghvi (I.T.A. No. 67/Ind/2013-AY09-10) dtd. 17.10.2013 and Nautamal & Sons (I.T.A. No. 78/Ind/2013) dtd. 19.07.2013 in support of his contention. 8. We have heard the rival submissions and have perused the material available on record. We have gone through all the judgements cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. Section 263(1) of the Act empowers the Commissioner to call for and examine the record of any proceeding under the Act and if it is considered that any order passed by the Assessing Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue", he may after giving the assessee an opportunity to be heard and after making such inquiries as necessary, pass such orders thereon as the circumstances of the case would justify including an order enhancing or modifying the assessment. Thus, in order to exercise the powers under section 263(1) of the Act, the Commissioner of Income tax must be satisfied that the assessment order made by the

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Assessing Officer was (a) erroneous; and (b) prejudicial to the interests of the Revenue. The Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) had interpreted the provisions of section 263(1) in the following words (page 87) : "A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent— if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue—recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind . . . The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses

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permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law."

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taken by the ITO is unsustainable in law” (Emphasis by underlining supplied by us) 12. The view taken by the Assessing Officer, therefore, need not only be a possible view of the matter but also a view, which is not “unsustainable in law”. We find that the view taken by the Assessing Officer is sustainable in law at the point of time when the assessment order was passed, therefore, now the said to be a view of the AO cannot be disturb by the Ld. Pr. CIT in the revision proceedings.

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also requirement of against by the assessee for the purpose of sale of to famers are enumerated. Such commission payments were also found allowable in the light of decision of Hon`ble Jurisdictional High Court of M. P. in the case of CIT vs. Pure Pharma (P) Ltd. [2005] 270 ITR 382(MP)/ [2005] 144 Taxman 364(MP) wherein commission was found paid on supplies made to Government and its agencies and all the payments were made to various parties by account payee cheques/ demand drafts, the identity of each of the agents was established and the expenditure was found incurred for business purposes. It was held that such expenses were allowable and consequently, the addition was deleted. The decision of tribunal of Indore bench (Supra) relied by the Ld. Pr. CIT are not referred in the said decisions. Further the said decisions are distinguishable as in the said case commission paid @ 20% on supplies to State PWD and IDA for procurement of order from said Department of which bills were also not produced by the assessee, whereas in the case in hand, the commission payment is made by the assessee to facilitate the marketing in the villages, educating them the usage, demonstration, completing paper formalities, documentation and follow up for payments after sales and service. Such manpower employed by the assessee by employing less number of employees to that the assessee could save the fixed cost on account of salary, PF, Travelling allowance DA etc. It is because of such consideration of the issues on the part of the Assessing Officer that the claim by the assessee stood accepted with detailed scrutiny. The assessment order placed before us is clearly not erroneous as it was passed with proper examination or enquiry or verification or objective consideration of the

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claim made by the assessee. The Assessing Officer has completely gone through the issue in question from consideration and made the assessment in judicious and has taken a possible view. His order is a completely a speaking order. In our view, it was not a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he has not rightly exercised by directing the Assessing Officer to pass a fresh order considering the payments of commission payments.

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find that such disallowance of commission made in the assessment year 2011-12 by the AO has been stands deleted by the ld. CIT (A). Hence, we can say the view adopted by the AO is correct view. The revenue has also filed appeal for the assessment year 2001-12 on such deletion of commission by the ld. CIT (A) before tribunal. We have also examined that appeal and find the commission payment is allowable deduction for which separate order is being passed. In view of this matter, we are of the considered opinion that the revision made by the Ld. Pr. CIT cannot be upheld. Therefore, the aforesaid submission of the assessee must are to be upheld as correct for the reasons already explained in the foregoing paras of this order as the order, which is sought to be revised under Section 263 reflects proper application of mind by the Assessing Officer and thus not amenable to revision under Section 263 of the Act. It is in this view of the matter, we feel that the learned Commissioner has not correctly exercised his revisional jurisdiction under Section 263 of the Act. Hence, the revision order passed under section 263 of the Act is set-aside. Accordingly, the grounds of appeal of the assessee are allowed. 16. In the result, the appeal of the assessee allowed. 17. The order pronounced in open court on 03.01.2017 Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: January 3rd, 2017/ opm