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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the appeals filed by the assessee against the order of CIT(A)-40, Mumbai dated 03/04/2017 for A.Y.2010-11 and 2012-13 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. Assessment Year 2010-11 2. Following grounds have been taken by the assessee:-
1. The Commissioner (Appeals) erred in confirming the disallowance of commission of Rs.6,04,984/- paid to various commission agents by the assessee in the course of the business of trading in chemical gases used in the Pharma and Industrial sectors.
2. The Commissioner (Appeals) failed to appreciate that all the commission agents who are assessed to tax, had confirmed having received the payment by crossed account payee cheques for the services rendered for either procuring chemical gases or for selling the chemical gases to various parties.
3909/Mum/2017 Shri Ataul Usmangani Memon 3. The Commissioner (Appeals) failed to appreciate that the assessee paid commission to the agents on the basis of the discount obtained from the parties from whom chemical gases were purchased by the assessee.
The Commissioner (Appeals) failed to appreciate that the assessee paid commission to the agents on the basis of the increased price obtained while selling the chemical gases and thus the commission was based on the price procured while selling the gases.
The Commissioner (Appeals) failed to appreciate that the assessee has shared the additional profit earned due to the services of the commission agents by giving commission which was based on the profit earned from each of the transactions.
The Commissioner (Appeals) failed to appreciate that in the course of the business of trading in chemical gases, the assessee had incurred expenditure of paying commission to various agents and therefore, the same ought to have been allowed while computing business income of the assessee.
7. The order of the Commissioner (Appeals) disallowing commission of Rs.6,04,984/-is bad in law and without jurisdiction.
8. Your appellant craves leave to add to, alter, amend or delete any of the foregoing grounds of appeal.
3. Common grounds have been taken in the A.Y.2012-13.
4. Rival contentions have been heard and record perused. 5. Facts in brief are that the assessee, the proprietor of M/s. A. A. Traders, is carrying on the business of trading in chemical gases used for the purpose of Pharma and Industrial sectors. The assessee is dealing in gases like helium, nitrogen, oxygen, carbon dioxide, liquid nitrogen, liquid helium, gas mixtures, empty gas cylinders, accessories, etc., buys cylinders filled with these gases from the companies who are buying the gases in bulk and fill them in small cylinders. The assessee also buys gas filled cylinders from manufacturers of gas. The assessee sells the gas filled 3909/Mum/2017 Shri Ataul Usmangani Memon cylinders to the end consumers. The cylinders with gas are delivered and the cylinders are returnable and therefore, the assessee charges only for the gases supplied by it. The assessee is carrying on this business for more than 15 years. In order to induce customers, sometimes the assessee delivers cylinders at the premises of the customers and thus accommodates them for their urgent requirements. In order to approach more and more customers who regularly use these gases the assessee appoints agents so that they can bring business of supplying gases to customers introduced by them through their acquaintance, contacts, etc. 5. During the year ended 31st March, 2010, the assessee had sales of Rs.3,22,30,744/- for which the assessee had paid commission to various agents aggregating to Rs.6,04,984/-. While competing the assessment u/s.143(3) r.w.s. 147 of the Act, the AO called for the explanation regarding commission paid by the assessee to six different agents. In the course of the hearing, the assessee had filed the explanation in respect of each of the six agents/representatives along with details of payment of commission as well as supportings in the form of e-mail and other evidence to prove that these agents had either procured different gases in cylinders within the time frame for the assessee or these agents had procured orders for supply of gas cylinders to different customers for and on behalf of the assessee. However not satisfied with the explanation of assessee, the AO disallowed the commission mainly on the ground that the assessee failed to establish the genuineness of the commission paid 3909/Mum/2017 Shri Ataul Usmangani Memon and the nature of the services rendered. Action of A.O. was confirmed by CIT(A) against which assessee is in further appeal before me.
6. It was argued by learned AR that assessee had produced the evidence in the form of name, address, PAN and details of payment of commission by crossed account-payee cheques after deducting TDS to each of the six commission agents. The assessee had also furnished confirmation of accounts of each of these commission agents before the Commissioner (Appeals). The assessee also adduced evidence in the form of e-mails and other details to show that these commission agents rendered services for which the assessee had paid commission to them. It was also brought to our notice that out of six agents, three agents namely, Mr. Sandeep More. Mr. R.B. Rahate and Mr. Narayan Hegde, were the commission agents to whom commission was paid for the A.Y. 2009-10 and the said commission was allowed by the AO while making scrutiny assessments u/s.143(3). To these three commission agents, the assessee paid aggregate commission of Rs.5,41,538/-out of total commission paid of Rs.6,04,984/-.
On the other hand learned DR relied on the order of the lower authorities.
I have considered rival contentions and carefully gone through the orders of the authorities below. From the record, I found that the assessee had paid commission of Rs.2,16,719/- to one Mr. Sandeep More and Rs.24,613/- to one Mr. Gautam Kamble for purchase of different gases in 3909/Mum/2017 Shri Ataul Usmangani Memon cylinders from the manufacturers with whom both these parties were working.
Mr. Sandeep More was working in the Accounts Department of M/s. Linde India Limited (formerly known as M/s. BOC India Limited) which was manufacturing high quality gases like Helium, Argon, Nitrogen, etc. used by pharmaceutical industries. During the year ended 31st March. 2010, the assessee had purchased different gases from M/s. Linde India Limited for the aggregate amount of Rs.35,66,838/-. Mr. Sandeep More used to facilitate the procurement of different gases required by the assessee for supply of the same to its customers in the timeframe given by the customers including preparing of documents for supply of the said gases. To show that Mr. Sandeep More used to assist the assessee in procurement of gas cylinders for its customers, copies of e-mail correspondence with Mr. Sandeep More as well as other officers of the company were filed before lower authorities which are placed at pages 16 to 21 of the Paper Book. To prove that Mr. Sandeep More was working in the Accounts Department of M/s. Linde India Limited, copies of payment receipt were also filed which are at pages 14 &. 15 of the Paper Book.
From the record, I also found that in the previous year relevant to A.Y. 2009-10, the assessee had paid commission of Rs.77,932/- to Mr. Sandeep More for the aforesaid services in procuring the various gas cylinders of Rs.14,44,270/-. The assessment for A.Y. 2009-10 was scrutinized and the AO had allowed commission paid to Mr. Sandeep More vide the assessment order u/s.143(3) of the Act dated 15lh 3909/Mum/2017 Shri Ataul Usmangani Memon December, 201 1. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s.143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid by the assessee to various agents, both for procuring gas cylinders and for selling the gas cylinders to various customers, was allowed.
In respect of the commission paid to Mr. Gautam Kamble I find that Mr. Gautam Kamble was working as a Sales Manager of M/s. Chemtron Science Laboratories Pvt. Ltd. which was engaged in the business of manufacturing various special mixture gases used for Pharma and Industrial use, Mr. Gautam Kamble had facilitated the assessee in procuring various special mixture gases, calibration gas mixture, pure gases, etc. within the timeframe from the said company and accordingly, the assessee had compensated him for the assistance by paying commission of Rs.24,613/- on purchase of various special mixture gases of Rs.5,85,668/-from M/s, Chemtron Science Laboratories Pvt. Ltd. . At pages 23 to 31, the assessee had filed e-mail correspondence with Mr. Gautam Kamble for different requirements of the assessee of special mixture gases which showed that Mr. Gautam Kamble had assisted the assessee in procuring special mixture gases from M/s. Chemtron Science Laboratories Pvt. Ltd. within the timeframe provided by the customers of the assessee.
With respect to the commission paid to Shri Rajendra B. Rahate I found that Mr. Raiendra B. Rahate was an employee of M/s. Development Corporation of Konkan Ltd. He had introduced himself to the proprietor 3909/Mum/2017 Shri Ataul Usmangani Memon Mr. Ataul U. Memon for providing assistance in sharing tenders, product requirements and ensuring the steady sales from the assessee to M/s. Development Corporation of Konkan Ltd. through his involvement. The assessee had sold Liquid Nitrogen amounting to Rs.5,1 1,155/- during the year under consideration through the involvement of Mr. R.B. Rahate. The assessee paid commission of Rs.27,056/- to Mr. R.B. Rahate by account- payee cheques.
From the record I also found that in the previous year relevant to A.Y.2009-10, the assessee had paid commission of Rs.32,413/- to Mr. R.B.Rahate for the aforesaid services in procuring the various gas cylinders to M/s. Development Corporation of Konkan Limited of Rs.5,34,758/-. The assessment for A.Y.2009-10 was scrutinized and the AO had allowed commission paid to Mr. R.B. Rahate vide the assessment order u/s. 143(3) of the Act dated 15th December, 201 1. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s.143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid by the assessee to various agents, both for procuring gas cylinders and for selling the gas cylinders to various customers, was allowed.
With regard to commission payment of Mr. Narayan Hegde I found that Mr. Narayan Hegde was representative of the assessee managing the business relationship between the assessee and its customer namely, M/s. Revti Industries Pvt. Ltd. He was rendering services to the assessee in respect of procuring orders for various gas requirements from M/s.
3909/Mum/2017 Shri Ataul Usmangani Memon Revti Industries Pvt. Lid. for the assessee and ensuring the timely delivery and follow up for outstanding payment clearance, etc., The assessee had sold Oxygen, Nitrogen, Helium, Argon and various mixture gases etc. amounting to Rs.18,04,185/- during the year under consideration through the representative, Mr. Narayan Hegde. The confirmation letter dated 20th March, 2012 of Mr. Anil Kumbhar of M/s. Revti Industries Pvt. Ltd. confirming that Mr. Narayan Hegde was representative of the assessee, M/s, A.A. Traders, through whom M/s. Revti Industries Pvt. Ltd. had purchased various gases such as Argon, Nitrogen, Helium, Oxygen etc., was also filed and placed on record.
From the record I also found that in the previous year relevant to A.Y. 2009-10, the assessee had paid commission of Rs.3,02,500/- to Mr. Narayaan Hegde for the aforesaid services in procuring the various gas cylinders of Rs. 13,98,311/-. The assessment for A.Y. 2009-10 was scrutinized and the AO had allowed commission paid to Mr. Narayan Hegde vide the assessment order u/s. 143(3) of the Act dated 15lh December, 2011. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid by the assessee to various agents, both for procuring gas cylinders and for selling the gas cylinders to various customers, was allowed.
As per documents placed on record, I found that during the year ended 31st March, 2010, relevant to A.Y. 2010-11, one Mr. Ketan Panchal introduced M/s. DNA Entertainment Pvt. Ltd. for sale of various gas 3909/Mum/2017 Shri Ataul Usmangani Memon cylinders and accordingly, the assessee had sold gas cylinders aggregating to Rs.2,68,606/-. As this was a new customer, the assessee paid commission of Rs.27,778/- to Mr. Ketan Panchal.
In respect of payment of commission to Mr. Sandeep Sonar, I found that Mr. Sandeep Sonar had introduced himself to the assessee as a Sales Representative for procuring orders for sale of gas cylinders from the existing customers as well as from the new customers. In this endeavour, he brought business of selling gas cylinders to one M/s. Exe! Gas & Equipments Pvt. Ltd. for supply of gas cylinders of Rs.1,25,000/- and accordingly, the assessee paid commission of Rs.11,000/- to him from which the assessee deducted TDS of Rs.1100/- and paid Rs.9900/- by crossed account-payee cheque.
In view of the above discussion, I do not find any justification for the disallowance of commission paid by assessee in the normal course of business for the purpose of business. Accordingly, I direct the AO to delete the disallowance of commission payment. Assessment Year 2012-13:- 19. During the year ended 31st March, 2012. the assessee had sales of Rs. 4,48,66,306/- for which the assessee had paid commission to various agents aggregating to Rs.19,57,700/-. While competing the assessment u/s. 143(3) of the Act, the AO called for the explanation regarding commission paid by the assessee to six different agents. In the course of the hearing, the assessee had filed the explanation in respect of each of the six agents/representatives along with details of payment of 3909/Mum/2017 Shri Ataul Usmangani Memon commission as well as supportings in the form of e-mail and other evidence to prove that these agents had either procured different gases in cylinders within the time-frame for the assessee or these agents had procured orders for supply of gas cylinders to different customers for and on behalf of the assessee. The AO disallowed the commission mainly on the ground that the assessee failed to establish the genuineness of the commission paid and the nature of the services rendered. The Commissioner (Appeals) confirmed the disallowance of commission paid to six different agents on the ground that the assessee could not prove with supporting evidence that services were rendered by the payees. Learned AR has drawn our attention to pages 8 and 9 of the paper book wherein the name, address. PAN rate of commission and details of payment of commission through banking channel are given. On pages 10 to 13, the assessee had explained the nature of services rendered by the six agents to whom the assessee had paid commission during the year under consideration. In this respect, I found that the assessee had paid commission of Rs.2,53,333/- to one Mr. Sandeep More and Rs.64,833/- to one Mr. Gautam Kamble for purchase of different gases in cylinders from the manufacturers with whom both these parties were working. Mr. Sandeep More was working in the Accounts Department of M/s. Linde India Limited (formerly known as M/s. BOC India Limited) which was manufacturing high quality gases like Helium, Argon, Nitrogen, etc. used by pharmaceutical industries. During the year ended 31il March, 2012, the assessee had purchased different gases from M/s. Linde India Limited for 3909/Mum/2017 Shri Ataul Usmangani Memon the aggregate amount of Rs. 42,75,413/-. Mr. Sandeep More used to facilitate the procurement of different gases required by the assessee for supply of the same to its customers in the time frame given by the customers including preparing of documents for supply of the said gases. To show that Mr. Sandeep More used to assist the assessee in procurement of gas cylinders for its customers, copies of e-mail correspondence with Mr. Sandeep More as well as other officers of the company were filed which are placed at pages 17 to 22 of the Paper Book. To prove that Mr. Sandeep More was working in the Accounts Department of M/s. Linde India Limited, copies of payment receipt were also filed which are at pages 15 & 16 of the Paper Book.
Following the reasoning given in the A.Y.2010-11 in respect of payment of similar commission to Shri Sandeep More, I do not find any justification for the disallowance so made by the AO in so far as in the previous year relevant to A.Y. 2009-10, the assessee had paid commission of Rs.77.932/- to Mr. Sandeep More for the aforesaid services in procuring the various gas cylinders of Rs.14,44,270/-. The assessment for A.Y. 2009-10 was scrutinized and the AO had allowed commission paid to Mr. Sandeep More vide the assessment order u s. 143(3) of the Act dated 15th December 2011. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid to Mr. Sandeep More was allowed.
3909/Mum/2017 Shri Ataul Usmangani Memon 21. Mr. Gautam Kamble was working as a Sales Manager of M/s. Chemtron Science Laboratories Pvt. Ltd. which was engaged in the business of manufacturing various special mixture gases used for Pharma and Industrial use. Mr. Gautam Kamble had facilitated the assessee in procuring various special mixture gases, calibration gas mixture, pure gases, etc. within the timeframe from the said company and accordingly, the assessee had compensated him for the assistance by paying commission of Rs. 1,64,833/- on purchase of various special mixture gases of Rs. 12,72,589/- from M/s. Chemtron Science Laboratories Pvt. Ltd. At pages 24 to 25, the assessee had filed e-mail correspondence with Mr. Gautam Kamble for different requirements of the assessee of special mixture gases which would show that Mr. Gautam Kamble had assisted the assessee in procuring special mixture gases from M/s. Chemtron Science Laboratories Pvt. Ltd. within the timeframe provided by the customers of the assessee.
With respect to payment of commission to Shri Rajendra B Rahate, I found that Mr. Rajendra B. Rahate was an employee of M/s. Development Corporation of Konkan Ltd. He had introduced himself to the proprietor Mr, Ataul U. Memon for providing assistance in sharing tenders, product requirements and ensuring the steady sales from the assessee to M/s. Development Corporation of Konkan Ltd. through his involvement. The assessee had sold Liquid Nitrogen amounting to Rs.3,82,364/- during the year under consideration through the involvement of Mr. R.B. Rahate. The assessee paid commission of Rs. 16,7577- to Mr. R.B. Rahate by 3909/Mum/2017 Shri Ataul Usmangani Memon account-payee cheques. Copy of sample invoices indicating the regular supply of Liquid Nitrogen along with delivery challan and email correspondences indicating that the agent used to share the relevant tenders and requesting for quotation of liquid nitrogen, thereby assisted the assessee to sell its product and by managing the relationship between the assessee and the customer namely, M/s. Development Corporation of Konkan Ltd., I also find that in the previous year relevant to A.Y. 2009-10. the assessee had paid commission of Rs.32.413/- to Mr. R.B. Rahate for the aforesaid services in procuring the various gas cylinders to M/s. Development Corporation of Konkan Limited of Rs.5.34,758/-. The assessment for A.Y. 2009-10 was scrutinized and the AO had allowed commission paid to Mr. R.B. Rahate vide the assessment order u/s.143(3) of the Act dated 15n December, 2011. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s.143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid by the assessee to various agents, both for procuring gas cylinders and for selling the gas cylinders to various customers, was allowed.
As per material placed on record Mr. Narayan Hegde was representative of the assessee managing the business relationship between the assessee and its customer namely. M/s. Revti Industries Pvt. Ltd. He was rendering services to the assessee in respect of procuring orders for various gas requirements from M/s. Revti Industries Pvt. Ltd. for the assessee and ensuring the timely delivery and follow up for 3909/Mum/2017 Shri Ataul Usmangani Memon outstanding payment clearance, etc. The assessee had sold Oxygen, Nitrogen, Helium, Argon and various mixture gases, etc. amounting to Rs. 14.95,086/- during the year under consideration through the representative, Mr. Narayan Hegde. The confirmation letter dated 20th March, 2012 of Mr. Anil Kumbhar of M/s. Revti Industries Pvt. Ltd. confirming that Mr. Narayan Hegde was representative of the assessee, M/s. A.A. Traders, through whom M/s. Revti Industries Pvt. Ltd. had purchased various gases such as Argon, Nitrogen. Helium, Oxygen, etc. was filed and also placed at (page 32) of paper book.
From the record I found that in the previous year relevant to A.Y. 2009-10, the assessee had paid commission of Rs.3,02,500/- to Mr. Narayan Hegde for the aforesaid services in procuring the various gas cylinders of Rs.13,98,311/-. The assessment for A.Y. 2009-10 was scrutinized and the AO had allowed commission paid to Mr. Narayan Hegde vide the assessment order us.143(3) of the Act dated 15th December. 2011. Subsequently, the assessment for A.Y. 2009-10 was reopened and the assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 13th November, 2014. In both these scrutiny assessments, commission paid by the assessee to various agents, both for procuring gas cylinders and for selling the gas cylinders to various customers, was allowed.
In respect of payment of commission to Mr.Mukesh P Jain I found that Mr. Mukesh P. Jain was appointed by the assessee for managing the relationship with the customer. M/s. Arch Pharma Lab Ltd., for aforesaid 3909/Mum/2017 Shri Ataul Usmangani Memon locations to get more business for the assessee. Mr. Mukesh Jain with his good business relationship with the officers at Taloja units could bring more business for the assessee. The assessee had sold various gases to the R&D division of the unit of M/s. Arch Pharma Lab Ltd. at Taloja through the agent amounting to Rs.11,08,798/- in A.Y. 2012-13 (twice the sales in comparison to A.Y. 2011-12). Similarly, the representative brought more business from the factory at G-06 of M/s. Arch Pharma Lab Ltd. situated at Taloja of Rs.47,78,278/- (3l/2 times the sales in A.Y. 2011- 12). The assessee has sold liquid nitrogen to M/s. Arch Pharma Lab Ltd. through the agent at a rate ranging between Rs.38/- and Rs.47/- per cubic meter which is much higher than the market rate for the same product. The confirmation letter dated 27th September, 2013 of Mr. Azeem Shemna of M/s. Arch Pharma Lab Ltd. confirming that Mr. Mukesh Jain was representative of the assessee through whom M/s. Arch Pharma Lab Ltd. had purchased various gases such as Argon, Nitrogen, Helium. Oxygen, etc. was also filed and placed on record. The assessee had paid commission of Rs.13,02,777/- to Mr. Mukesh Jain by account-payee cheques.
In respect of payment of commission to Mr. Ajay Sharma, Mr. Ajay Sharma had introduced himself to the assessee as a Sales Representative for procuring orders for sale of gas cylinders from the existing customers as well as from the new customers. In this endeavour, he brought business of selling gas cylinders to M/s. Panacea Biotech Ltd. and M/s. Wipro GE Healthcare Pvt. Ltd. for supply of gas cylinders of