ARSH IRON & STEEL LTD.,BURDWAN vs. ACIT, CIR-3, ASANSOL, ASANSOL

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

Both appeals by the assessee are directed against the different orders of Commissioner of Income Tax (Appeals)-Asansol dated 27.11.2013 & 09.12.2013. Assessments were framed by JCIT/ACIT, Range-3/Circle-3, Asansol u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2011 & 13.02.2013 for assessment year 2009- 10 & 2010-11 respectively.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 2 Shri Shri Soumitra Choudhury, Advocate appeared on behalf of assessee and Shri Saurav Kumar, Ld. Departmental Representative represented on behalf of Revenue. 2. Both the appeals are heard together and are being disposed of by way of consolidate order for the sake of convenience.

First we take up ITA No. 206/Kol/2014 for the A.Y. 09-10. 3. The assessee before us has filed additional ground No.1, we for the sake of convenience are treating the same as ground No.10 in continuation of earlier grounds while considering of the same on merit. 4. First issue raised by assessee in this inter-connected ground No. 2 to 4 of this appeal is that Ld. CIT(A) erred in sustaining the disallowance of ₹ 1,50,98,433/- made by the AO on account of commission payment due to non service by the commission agent.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 3 vii) India Smelters Ltd viii) Jagdamba Spong Pt. Ltd. ix) J.S.Forge Ltd. x) Kokda Steel (P)- Ltd. xi) N.S. Ispta (I) Ltd xii) Om Sairman Steel & Alloys xiii) Shri Melcast Pvt. Ltd. xiv) S.K.K.Steel Enterprises Pvt Ltd. xv) Shiv Real Ispat Pvt Ltd. xvi) Shree Hanuman Tubes Pvt Ltd. xvii)Super Iron & Steel Pvt. Ltd.

Similarly the assessee paid the commission to Pardip Kumar Agarwal (HUF) for the sales made to the following parties:- “i) Pradip Kr. Agarwal (HUF) ii) Shree Hanuman Tubes Pvt. Ltd., iii) Mankameshwar Steel Pvt. Ltd. iv) Maya Steel Pvt. Ltd.

Similarly the assessee paid the commission to India Steel for the sales made to the following parties:- “The bills of India Steels claims commissions in respect of sales made to Cosmos Casting (I) Ltd., and Dhanshree Ispat. For sale to these parties, the assessee claims to have made payments to M/s Kunal Pipes also. It is not possible to pay commission to two different parties for sales made to the same party.”

The AO during assessment proceedings issued notice to the assessee under section 142(1) of the Act dated 28th September 2011 and 21st October 2011 to justify the aforesaid commission by furnishing the following documents. 1. The details of the TDS 2. List of the parties to whom the commission was paid with PAN and their business expertise 3. The services rendered by the commission agents along with the details of sales against which the commission was paid. 4. Details of the nexus between the commission and the business of the assessee.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 4 5. Bills of the commission by the parties raised to the assessee, details of mode of payment, copies of the Ledger, details of payment in earlier & subsequent years etc. 6. Other necessary details

However in spite of several reminders given to justify the amount of commission expenses paid during the year, the assessee failed to furnish the necessary details. The AO during the assessment proceedings also made the following observations : 1. Details of the commission viz a viz turnover of the assessee S.No. Financial Year Turn over Amount of commission i. 2006-07 Rs. 6,22,98,603.00 NIL ii. 2007-08 Rs. 15,37,77,172.00 Rs. 50,146.00 iii. 2008-09 Rs. 27,12,86,178.00 Rs.1,50,98,433.00

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 5 7. The commission agents in-spite of having such huge amount of commission have not taken the guarantee for the recovery of the sales amount. 8. The commission agent was not having the expert knowledge of the business of the assessee and they filed their income tax returns declaring the losses. They were paid the commission first time by the assessee in the year under consideration. 9. The salary paid by the assessee in the year under consideration was for Rs. 43,68,896.00 which has just become double in comparison to the immediate preceding year i.e. Rs. 21,29,382.00 10. The turnover of the assessee has gone high due to increase in sale price and there was as such no significant effect in the production capacity of the assessee. The price per ton in the year under consideration is Rs. 18,300.00 only whereas in the preceding year it was only Rs. 13,874.00 only. There was sudden demand of sponge iron worldwide in March 2008 to September 2008 thus the price of sponge iron was escalated. As such there was no role of the commission agents. The AO also recorded the statement of the Director of Kunal Pipe under section 131 of the Act. The relevant information from the statement is extracted below:- “a) All the payments were directly made by the parties to Arsh Iron. b) There was no employee working for the Kunal Pipes regarding the commission income. Whatever work was done was claimed to be have been done by Shri Tulsian only. c) The responsibility for ensuring the quality lied with the assessee and not with the commission agent. d) The sale price was determined by the assessee and not by the commission agent. e) The commission agent has never visited the premise of the assessee company. f) The commission agent stated that looking at spatial dispersal, the work of marketing could easily be done by the director or employee of the assessee company. It is not known why the work was assigned to the commission agent. g) The rate of commission was not determined by the commission agent but was decided by the assessee company.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 6 h) The commission agent is unaware of the amount of sale made through him. i) The commission agent has not done any work regarding commission for anyone else other than the assessee company in any of the years. j) There was no resolution of the board of the commission agent regarding change in the nature of work or taking up additional work of commission business. The company has not passed any resolution in this regard. k) On being asked that there was hardly any work that was done by the commission agent and that the work could easily have been done by any other employee, and also considering the fact that distance between Tilda (where Shri Tulsian is staying) and Raipur (where the assessee is based) is huge, why it should not be deducted that no services has been rendered; the commission agent stated that this was to be decided by the director of the assessee. l) The commission agente claimed to have interacted with Shri Firoz Bhai and one of the employee of the assessee company Mr Sharma. m) Shri Tulsian has no expertise or special qualification I the field of Sponge Iron. He claims that the work was given to him only because he was free. n) The commission agent could not furnish any evidence of service having being rendered.”

Besides the above the AO also issued notices to the commission agents under section 133(6) of the Act who have furnished the documents confirming the commission but failed to provide the details of the services rendered to the assessee. In view of above the AO has disallowed the commission expenses claimed by the assessee and added to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that commission agents has duly rendered the services as evident from the copy of the agreement. Therefore, turnover of the assessee was enhanced by a significant amount. However, Ld. CIT(A) after considering the submission made by assessee confirmed the order of AO by observing as under:- “15. I had considered the materials brought to record. Aspects mentioned in paragraph 12 stands out awkwardly against the appellant. The existence of a written agreement between the parties concerned does not prove that the expense goes ‘wholly and exclusively’ for business. The service rendered has to be documentarily proved to establish that the expense is ‘wholly and exclusively’ for business. Paragraph 5.21, 5.24, 5.25, 5.27, 5.34, 5.37, 5.39, 5.40, 5.41 etc. of assessment order clearly establishes that the ‘payment’ is an arrangement to reduce incidence of tax and cannot be considered as one incurred to be ‘wholly and exclusively’ for purpose of business. There is no record or proof on exact service rendered by the so called intermediary necessitating payment of commission. Documents which were to be

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 7 maintained as per agreement between the two parties were also not produced. 16. When these aspects stand against the appellant, I have no go but to sustain the addition made by Assessing Officer. I hold that the appellant has not established that the payment to Kunal Pipes (I) Pvt. Ltd. as a genuine expense incurred ‘wholly and exclusively’ for the purpose of business, the onus of which is on the appellant. Accordingly I dismiss the ground of appellant against disallowance of commission paid to Kunal Pipes (I) Pvt. Ltd., The case decisions cited by Assessing Officer in paragraph5.45, 5.46 and 5.47 applies here squarely and the same is repeated here:- “CIT vs. Durga Prasad More (1974) 82 ITR 540 (SC) Sumati Dayala vs CIT (1995) 214 ITR 801 (SC) Sickhomal & Sons vs. CIT (1980) 122 ITR 839, 844 (Del) Amritlal & Co. P Ltd. vs. CIT (1977) 108 ITR 719 (Bom) Travancore Titanum Product Ltd. vs. CIT (1966) 60 ITR 277 CIT vs. Indian Cements Ltd. (1975) 98 ITR 69 (Mad) Swadesh Cotton Mills vs. CIT (1967) 63 ITR 57 (SC) Lachminaryan Madan Lal vs. CIT (1972) 86 ITR 739 (SC) WT Suren & Co. P. LTd. vs. CIT (1971) 80 ITR 602 (Bom) CIT vs. Central India Machiery Mfg. Co. Ltd. (1985) 45 CTR (MP) 126, 135 17. In paragraph 12, I had upheld disallowance of commission paid to Kunal Pipes (I) Pvt. Ltd. There are other parties to whom commission paid. The services rendered by these parties are also not proved. Hence commission debited against these persons have also been rightly disallowed by Assessing Officer. Accordingly I uphold the total disallowance of Rs.1,50,98,433/- Ground 2.0 sand dismissed.”

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following grounds:- “2. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition amounting to Rs.1,50,98,433/- on account of commission payment which is completely arbitrary, unjustified and illegal. 3. For that on the facts of the case, the Ld. CIT(A) was wrong in confirming the disallowance on account of commission payment amounting to Rs.1,50,98,433/- without any basis, therefore, the whole addition is completely arbitrary, unjustified and illegal. 4. For that on the facts of the case, the Ld. CIT(A) has not considered the facts that all payments were made by cheque and TDs was deducted, therefore, the total disallowance of Rs.1,50,98,433/- is completely arbitrary, unjustified and illegal.”

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 8 ₹15.37 crores and this year the turnover has gone at ₹27.12 crores. Ld. AR also submitted that the statement of Shri Sushil Kumar Tulsiyian, Director of Kunal Pipe Infra Pvt. Ltd. u/s 131 of the Act was recorded wherein it was accepted that the services were rendered in connection with the sale of the assessee. On the other hand, Ld. DR before us submitted that he will file written statement in a day or two after hearing of this appeal and heavily relied on the order of Authorities Below. 7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the disallowance made by the Authorities Below for the commission paid by the assessee. The reason for the disallowance inter-alia was observed by the AO that no-service was rendered by the commission agents. There were as many as 5 parties to whom the commission was paid. But there is single party to whom the major amount of commission was paid for Rs. 1,49,73,810 leaving the balance of commission amount of Rs. 1,24,623.00 only which was paid to the remaining 4 parties. Therefore we are inclined to focus the issue of the commission payment to Kunal Pipe. After perusing the order of Authorities Below, we find that the identity of the commission agent in the instant case has not been doubted. The only issue for our consideration arises so as to whether commission agent has rendered the services to the assessee and therefore the impugned commission payment has nexus with the business of assessee. We find that to establish the nexus of the commission amount with the business of the assessee, the AO has recorded the statement u/s. 131 of the Act and relevant extract of the statement is reproduced below:- “ statement Today on 23.12.2011 Sri Sushil Kumar Tulsiyian s/o Sri Prahlad Roy Tulsiyian aged 59 years, r/o Kunal Pipe Infra Pvt. Ltd. Rasnada, Durg makes this statement u/s 131 of the Income Tax Act, 1961 before the Dy. Commissioner of Income Tax (Inv.)-I Range in his office under oath in the case of Kunal Pipe Infra Pvt. Ltd. I solemnly affirm that I will tell the truth. Sd/- illegible Sd/- Shrandip Sushil Kumar Tulsiyian

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 9 23/12/11 23.12.11 Administered oath (Shrandip Sinha) Dy. Commissioner of IT(Inv)-I Raiapur (CG) Q1 : Please identify yourself fully. A- : I am the aforesaid person. Q-2 : Please state in what post and since when are you working in Kunal Pipe I, Pvt. Ltd. A- : I am working as director since 2007 in Kunal Pipe Pvt. Ltd. Q-3 : Please say what the said company accomplished in the financial year 2008-09? A- : In financial year 2008-09 the said Sd/- illegible Sd/- Shrandip Sushil Kumar Tulsiyian 23/12/11 23.12.11

Administered oath (Sharandip Sinha) Dy. Commissioner of IT(Inv)I Raipur (CG) Company ran the rolling mill, tube mill was run in pipe plant, MS (illegible) machine, billet were taken and M.S. strip were made, and the strip were sold and MS tube were sold. Apart from this west and – were sold. Goods were sold to Arsh Sponge Iron on commission basis. Work was done also in the commodity market.

Q-4 : Please state what you did for Kunal Pipe I. Pvt. Ltd. in financial year 2008-09 A-: In financial year 2008-09 I would be told by Arsh Sponge Iron, M/s Kunal Pipe I Pvt. Ltd. such and such quantity would be sold dto different parties every day at the market rate which I would tell Arsh Sponge Iron. Goods used to be sent to parties from there and the parties would make payment for it directly to Arsh Iron. Q-5 : Please state what services the company rendered for the income of Rs.25253941/- of the company on commission basis?

A- : Firoz bhai the director and the employee Sharmaji of Arsh Sponge Iron would tell me and according to them I would contract different parties and speak to them and tell Firoz bhaia and Sharmaji. Goods used to be send from Arsh Sponge Iron on that basis. Kunal Pipe I. Pvt. Ltd. used to get commission on this basis

Sd/- illegible Sd/- Sharandip Sushil Kumar Tulsiyian 23/12/11 23.12.11 Administered oath

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 10 (Shrandip Sinha)

Dy..Commissioner of IT (Inv)-I Raipur (CG)

Pg-3 Q-6 : Please state what do you mean by goods? A- : By goods I mean the main manufactured item of Arsh Sponge Iron Q-7 : Pleas state what goods would come from which factory of Arsh Sponge Iron? A- : Sponge Iron lumps and sponge iron fives used to come from the Bilda-Neura factory of Arsh Sponge Iron. Q-8: Please state who had the responsibility of checking the quality?

A- : Arsh Sponge Iron had the responsibility of checking the quality of the above manufacture. Q-9: Please state who would decide the sale price.

A-: On the basis of supply, production and demand days before sale of the goods on looking at the market the conversation between myself and the client was told to the directs of Firoz bhai and emplolyee Sharmaji of Arsh Sponge Iron and it was them who decided the sale price.

Q-10: How many times have you been to the factory of Arsh Sponge Iron inn Tilda and how many people did you see working there? A-: I never went to the factory at Tilda. Q-11: Please state what is the distance of Tilda from Raipur>

Sd/- illegible Sd/- Shaandip Sushil Kumar Tulsiyian 23/12/11 23.12.11

Administered oath (Sharandip Sinha) Dy. Commissioner of It (Inv)-I Raipur (CG) Pg.4 A-: Tilda is around 50-60 kms. From Raipur. Q-: Please state how is Tilda is connected with Raipur by road and railway? A-: Tilda is connected to Raipur by road and also by rail. Q-13: Please state how much time is taken to travel from Tilda to Raipur? A-: By rail it taken about one to one and half hour and a half to two by road to travel from Tilda to Raiapur. Q-14: Please state Tilda to Raipur is situate at 40 kms. From Raipur. Your house is also situated around 40 kms. From Raipaur. The connectivity of Tilda and Rapaur is very good. Under these

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 11 circumstances don’t you think that the employer of Arsh Sponge Iron could have done those transactions too? A-: IT is correct that Tilda is at a distance of about 40 kms. From Raipur and Resmara is also 40 kms. Away from Raipur so it was for the employees or director of Arsh Sponge Iron to divide whether they could do the above work or not. Q-15: Please mention the special ability you have for which you have been join this work? A-: Firoj bhai the director ofArsh Sponge Iron

Sd/- illegible Sd/- Shrandip Sushil Kumar Tulsiyian 23/12/11 23.12.11 Administered oath (Shrandip Sinha) Dy. Commissioner of IT (Inv)-I Raipur (CG) Pg. 5 Came to know from the marker that there is less work in Kunal Pipe I Pvt. Ltd. and its director Sushil Tulsiyian has sufficient time in his hands. If you have the work done by him it will be done properly. Feroze bhai contracted me and gave me the work. Q-16: Please say who fixed the rate of commission? A-: Feroz bhai had fixed the rate of commission which are Rs.1500 per tonne. Q-17: Pleas state how was the knowledge of metallization of sponge iron received? A-: In ordinary language sponge iron metallization is said as 80% which is called FE 80 in lab testing, scientific language. If there is any change in it then the party was informed. Q-18: Please state how much additional sales did the company (Arsh Sponge Iron) have by the work done by you? A-: I can say this only after checking the accounts. Q-19: Please state as to what other firms you have worked for apart from Arsh Sponge Iron? A-: I have done this work practically only for Arsh Sponge Iron.

Sd/- illegible Sd/- Shrandip Sushil Kumar Tulsiyian 23/12/11 23.12.11 Administered oath (Shrandip Sinha) Dy. Commissioner of IT (Inv)-I Raipur (CG) Pg.6 Q-20: By what authority did you do this work, for the company Kunal Pipe) or yourself? A-: I did this as the director of K9unal Pipe I Pvt. Ltd.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 12 Q-21: Please state whether Kunal Pipe I Pvt. Ltd. had passed a resolution about the work done by you on commission and informal MCA (Ministry of Company Affairs)? A-: No thee was no resolution passed by the company Kunal Pipe I Pvt. Ltd. for the work done by me on commission. Q-22: If the company did not pass any resolution then why should the commission received by you not be deemed on your income? A-: I Sushil Kumar Tulsiyian director of Kunal Pipe I Pvt. Ltd. am living ini Rasmara Long and have done the above work for this company. Q-23: From the statement given by you it is found that Arsh Sponge Iron has not had any such special work done by you or your company for which commission of Rs.252563941/- is given. It was possible to have been done by any employer to have been done by any employer of the company at a for lower expense. On seeing the distance from Tilda to Raipur.

Sd/- illegible Sd/- Shrandip Sushil Kumar Tulsiyian 23/12/11 23.12.11

Administered oath (Shrandip Sinha) Dy. Commissioner of IT 9Inv)-I Raipur (CG) Pg-7 It was absolutely possible for any employee or the company to get it done. Please say why should it not be deemed that you have not given any service to Arsh Sponge Iron as a commission agent?

A-: From my above statement is clear that even though Tilda is 40 kms. Away from Raipur and Drug is 40 kms. Away Raipur still I have done my work and received my commission. The rent was to be decided by Feroz bhai the director of Arsh Sponge Iron. Q-24: Do you want to say anything else? A-: No I have given the above statement in full possession of senses out of my own accord without any pressure. And I have read and understood the statement and have signed by my own will.

Sd/- illegible Sd/- Shrandip Susil Kumar Tulsiyian 23/12/11 23.12.11 Admnistered oath (Shrandip Sinha) Du. Commissioner of IT (Inv)-I Raipur (CG)

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 13 From the aforesaid statement of the commission agent, we find that the agent was duly appointed by the assessee and his appointment was also supported on the basis of agency agreement which placed on pages 52-55 of the paper book. The commission agent was appointed by the assessee after having passed the resolution in the meeting of the board of directors which is placed on page 56 of the paper book. From the foregoing discussion, we find that the amount of commission was duly quantified on the basis of turnover achieved by the assessee through his appointed agents. The commission agents duly raised the bills to the assessee which are placed along with ledger copies on pages 68 to 91 of the paper book. The director of Kunal Pipe in question no. 5 in the aforesaid statement has duly explained the services it had rendered to the assessee in connection with the sales. In the instant case before us the genuineness of the commission payment has not been disputed by the lower authorities by the assessee to the party in relation to the sale. The assessee claimed to have paid the amount of commission to the parties for the sale orders received through it. The assessee and Kunal Pipe agreed that the sales will be through Kunal Pipe and the commission on sales on a particular rate will be paid by the assessee. All payments are made by the account-payee cheque. The director of Kunal Pipe had admitted that there was an agreement between the assessee and Kunal Pipe for sale of the products of the assessee on commission basis. The commission has been paid as per the agreement through account-payee cheque. Whether any service has been rendered by Kunal Pipe-basically it is a question of fact. In cases of sale promotion even sales can be procured on telephone if the purchaser is persuaded by the Agent. Merely, if the lower authorities are not satisfied with the answers of the assessee and commission agent-Kunal Pipe that does not mean that no services are rendered or to disbelieve the genuineness of the agreement for services or sales, as well as of the payment. The payments for the commissions have been duly acknowledged and the same have not been denied. Therefore, in such cases, it cannot be said that no services were rendered by the commission agent.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 14 When the finding of fact regarding rendering of service is not perverse, then how the payment of commission can be disallowed. In holding so we rely in the judgment of CIT vs. Inbuilt Merchant Private Ltd. in ITAT No. 225 of 2013, G.A. No. 3825 of 2013 vide order dated 14th March 2014 wherein it was held as under:- “… … With the advancement of technology, it has become possible to sell goods throughout the country through the internet. For that purpose, agent are required throughout the country. The mechanism in that regard has been disclosed by the assessee and has been recorded in the order of the CIT(Appeals). For the purpose of carrying on its business, the assessee has to recruit the agents. It may not be possible for the assessee to know them personally. Whatever address was furnished to the assessee, has been disclosed to the Income-tax Department. Payments were admittedly made by cheque after deduction of tax. The tax deducted as source has duly been deposited. The judgment in the case of CIT vs. Precision Finance Pvt. Ltd. reported in 208 ITR 465 relied upon b Mr. Bhowmick does not really assist him. The aforesaid judgment is an authority for the proposition that mere payment by account payee cheque cannot establish that the transactions was genuine, but in the case before us, besides the fact that payment was made by cheque, there are other pieces of evidence available which are as follows: a) Books of Accounts maintained by the assessee in the ordinary course of business’ b) Deduction We are, as such of the opinion that the view expressed by the learned Tribunal are unexceptionable. We, therefore refuse to admit the appeal. The appeal is thus dismissed.”

In addition to the above we find that the AO was having in his possession all the details of the parties to whom the assessee has claimed to have made sale through the commission agent. Thus the AO should have verified the fact whether there is any involvement of the commission agent in the impugned sale by exercising his power under section 133(6)/ 131 of the Act. But the AO erred in doing and doubted the payment of the commission on several grounds. Indeed in the immediate preceding year the amount of commission payment was of meager amount and in the current year it has increased manifolds. In this regard we find that the fact that the turnover of the assessee has increased substantially in the current year cannot be ignored. The turnover of

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 15 the assessee has increased by Rs.10 crores approximately in comparison to the earlier year. The comparison made by the AO for the sales and the commission payment by observing that the sale was increased by 80% and the commission was increased by 30,000% in comparison to the earlier year is not logical comparison. It is because the commission expenses were not compared by the AO in relation to the sale of the company. If the amount of commission is compared in relation to sale in the immediate preceding year then it works out at .032% only whereas in the current year it works out at 5.56% only. Thus the allegation of the AO that the commission has increased by 30000% in comparison to the earlier year is baseless as it should always be compared in relation to sales because there is direct nexus between the sale & the commission. The allegation of the AO that there was huge demand across the globe in the industry of sponge iron and therefore the sale price has gone high is not based on any tangible materials. Admittedly the sale price was increased in the year under consideration from Rs.13,874.31 per ton to Rs.18,300.76 per ton. As per the AO there was huge demand of the sponge iron across the globe thus the price per ton was increased whereas assessee claimed that it was increased due to the involvement of the commission agent. However on perusal of the order of lower authorities we find that no evidence has been brought on the record in support of their allegation, therefore we reject the same. Similarly we find that the allegation of the AO that commission was paid for the sales to the existing parties does not hold good. It is because when the assessee was selling the goods directly to its parties the price was less but in the current year when the goods were sold thorough the commission agents it fetched better price. Besides this the ld. AR before us submitted that market of the sponge iron is controlled though the commission agents and therefore the assessee had to resort to the services of the commission agents in-spite of the fact that it had dealings with the parties on earlier occasions. There is cut- throat competition in the market and to compete the competition the services

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 16 of the commission agents were very much required. The ld. DR has not brought anything on record contrary to the argument of the ld. AR. In view of above, we find that the commission expenses paid by the assessee qualified to be allowed as business expenditure. The AO cannot step into the shoes of the assessee to decide whether the commission expenses require to be incurred and what amount of profit is derived against the commission expenses. It was the conscious decision of the assessee which was duly approved in the board meeting of the directors. Therefore all other allegations made by the AO are not sustainable in regard to the commission payment and do not require any adjudication. Thus after considering the facts in totality we are inclined to reverse the order of authorities below. The ground of appeal of the assessee is allowed. 8. Next issue raised by assessee in ground No.5 is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹30,800/- on account of increase in authorized share capital. 9. The assessee in the year under consideration has increased its authorized share capital by ₹1.50 crores. The assessee in this connection has incurred an expenditure of ₹1.54 lacs which was amortized by the assessee over a period of five year. Thus, assessee claimed 1/5th of ₹ 1.54 lakh has i.e. ₹ 30,800/- by debiting in its profit and loss a/c. The AO found such expenditure is capital in nature and therefore disallowed the same by adding to the total income of assessee. 10. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of AO. Being aggrieved by this order of Ld. CIT(A) assessee came is second appeal before us on the following ground:- “5. For that on the facts of the case, the Ld. CIT(A) was wrong in dittoing the order of the AO and confirming the addition amounting to Rs.30,800/- on account of expenses for increase in Authorized share capital, although no share capital expenses were debited in this financial year, therefore, the total disallowance is completely arbitrary, unjustified and illegal.”

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 17 11. Ld.AR for the assessee before us fairly agreed that the impugned expenditure is capital in nature and therefore not allowable for deduction. On the contrary, Ld. DR agreed with the submission raised by Ld. AR.

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following ground:-

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 18 “6. For that on the facts of the case, the Ld. CIT(A) was wrong in not allowing additional depreciation amounting to Rs.46,68,086/- which is completely arbitrary, unjustified and illegal.”

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 19 examination of the facts we find that the assessee was entitled to claim the depreciation at the rate of hundred percent but the assessee inadvertently claimed the depreciation at a lower rate. In our view if the assessee has claimed the depreciation at wrong rate then the AO should have allowed the same at the correct rate. It is because it is mandatory for the assessee to claim the depreciation under the provisions of section 32 of the Act at the prescribed rate. The provisions of the Act reads as under : Depreciation. 7732. (1) 78[In respect of depreciation of— (i) buildings79, machinery79, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned79, wholly or partly, by the assessee79 and used for the purposes of the business79 or profession, the following deductions shall be allowed—] 80[(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed81;] (ii) 82[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed83:

A plain reading of the provisions reveals that the depreciation shall be computed at a prescribed rate. The assessee cannot claim the same either at a higher rate nor lower rate than the prescribed rate. In the instant case before us if the assessee failed to do so then it becomes duty of the assessing officer to allow the depreciation at a rate prescribed under the Act. The lower authorities had not brought anything on record any defect in the details submitted by the assessee in support of the depreciation in respect of pollution control equipments. The lower authorities have just denied the benefit of the appreciation on the ground that the same was allowed in the immediate preceding year at the rate of 15% only. We disagree with the action of the lower authorities on the ground that the assessee as per the provisions of law is entitled for the appreciation at the rate of hundred percent. If he has made some mistake in claiming the depreciation in one year and rectifies the same in the subsequent year in relation to depreciation, then he should be

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 20 given fair chance to rectify the mistake. In view of above we have no hesitation to reverse the order of authorities below. Hence this ground of appeal of the assessee is allowed.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 21 14.3 Clause (10D of s.10 of the IT Act exempts certain income from tax. The Finance (No.2) Act, 1996, amends cl.(10D) of s.10 to exclude any sum received under a Keyman Insurance Policy including the sum allocated by way of bonus on such policy for this purpose. 14.4 The Finance (No.2) Act, 1996, also lays down that the sums received by the said organization on such policies, be taxed as business profits; the surrender value of th9e policy, endorsed in favour of the employee (Keyman), or the sum received by him at the time of retirement be taken as “profits in lieu of salary” for tax purposes’ and in case of other persons having no employer- employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. The premium paid on the Keyman Insurance Policy is allowed as business expenditure. 14.5 The amendments take effect from the 1st day of October 1996”. A bare perusal of the aforesaid circular reveals that there is nothing in the circular which debars the allowance of deduction of premium paid on the life of the partners by the firm. In para 14.4 of the aforesaid circular it is only mentioned that in case of other persons having no employer-employee relationship, the surrender value of the policy or the sum received under the policy be taken as income from other sources and taxed accordingly. Apparently, only employer and employee relationship is not envisaged to allow the premium paid on Keyman Insurance Policy as business expenditure and there can exist other types relationship. It is also pertinent to note the term “person” or “persons” have been used in the explanation to Section 10(10D) which may refer to natural person or artificial i.e. legal persons or entities treated as having legal entity under the provisions of Income Tax Act, 1961 and in this view of the matter, the AO's conclusion in disallowing the claim is neither in accordance with the aforesaid circular nor in accordance with law. 5.1 Now adverting to the decision in the case of P.G. Electronics (supra) relief upon by the ld. AR, wherein it was held as under:

It may be seen from para 14.2 of the circular that the Board was aware of the doubts relating to the treatment of the premium paid in respect of a Keyman Insurance Policy issued by the LIC of India and has accordingly clarified, to put the doubts at rest, in the last sentence of para 14.4 that “The premium paid on the Keyman Insurance Policy is allowed as business expenditure.”

In the light of the above amendments and the circular clarifying the position relating to the allowability of the premium paid on Keyman Insurance Policy, the CIT, in my view, was not justified in directing the AO to disallow the premium paid by the assessee-firm in respect of the life of partner Anurag Gupta, assured under the Keyman Insurance Policy, as can be seen from para 2 of the order of the CIT. Therefore, the order of the CIT cannot be sustained as it runs counter to the amendments made to the Act as clarified by the circular issued by the

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 22 CBDT. It is well-settled that circular issued by the CBDT regarding the execution of the Act are binding on the IT authorities. The amended law is applicable to the year under consideration. The CIT was, therefore, not justified in assuming jurisdiction to revise the assessment under s.263. contrary to the law and circular issued by the Board. He could not have considered the assessment erroneous since the allowance of the premium as a deduction as business expenditure was in conformity with the circular of the Board which was binding on the AO. Even on merits, his view that the premium paid on Keyman Insurance Policy should be disallowed is not tenable, also because of the circular cited above, I therefore cancel the order under s.263 on both counts and allow the appeal.” 5.2 In the light of the aforesaid decision, circular dated 18-2/1998 and explanation to section 10(10D) of the Act, we are of the opinion that the premium paid under the Keyman Insurance Policy on the life of partners cannot be disallowed. Therefore, there is no ground for interference with the findings of the learned CIT(A). Accordingly, ground no.1 is dismissed.”

The assessee in the year under consideration has claimed an expenditure of ₹2,90,739/- in respect of pollution licence but failed to furnish necessary details in support of its expense. Therefore the AO disallowed same and added to the total income of assessee.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 23 24. Aggrieved assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that factory cannot run without having pollution certificate from the concerned authority. The assessee in support of its claim furnished ledger copy of pollution control expense. The assessee also submitted that all the expenses were incurred through banking channel. However, Ld. CIT(A) disregarded the claim of assessee and confirmed the order of AO by observing that it was the duty of the assessee to provide supporting evidence as assessee has failed to file the same. Therefore, the disallowance of expenditure was warranted.

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 25. Ld. AR before us reiterated the arguments that were made before the Ld. CIT(A) whereas Ld. DR vehemently relied on the order of Authorities Below. 26. We have heard the rival contentions and perused the materials available on record. At the outset, we find that all the payments were made through banking channel in connection with the pollution control expense as evident from the copy of the ledger submitted and placed on pages 167 to 169 of the paper book. Once the assessee has demonstrated that the payment was made through banking channel then the same cannot be disallowed merely on the ground that no documentary evidenced was submitted. The AO is well empowered u/s. 133(6) of the Act conducted to necessary enquiry before making such disallowance. Before us the circumstantial evidence suggesting that a factory cannot run without having pollution control device. Therefore, we are of the view the AO should have confirmed from the parties about the expense claimed by assessee which the AO has failed to do so. Therefore, we reverse the order of Ld. CIT(A) and delete the addition made by AO. Accordingly, AO is directed. This ground of assessee’s appeal is allowed. 27. Now coming to additional ground raised by assessee where the issue is that Ld. CIT(A) erred in not allowing additional depreciation u/s. 32(1)(iia) of the Act. 28. The assessee at the time of assessment proceedings submitted it is entitled additional depreciation on the plant and machinery acquired after 31.03.2005 as detailed under:- A.Y. Amount (Rs) 2007-08 7,39,32,596/- 2008-09 19,81,570/- 2009-10 12,88,177/-

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 24 7,72,02,343/- Total

The aforesaid depreciation was not claimed in the original return filed by assessee. However, same was claimed before the AO by way of filing a letter at the time of assessment proceedings, which was not accepted by AO. 29. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who denied the additional depreciation by observing as under:- “30. The matter is covered y decision in case Goetze (India) Ltd. vs. CIT (SC) 284 ITR 323. As per the decision any change to return of income must be through a revised return of income. In this case there is no revised return of income and hence the claim for additional depreciation is not admissible. Further additional depreciation is governed by section 329(1)9iia) and explanation 5 to section 32(1)(ii) cannot be applied to section 32(1)(iia). This is du9e to the fact that explanting 5 of section 32 is specific to section 32(10(ii). In any case the decision in Goetze (India) Ltd. vs. CIT (SC) 284 323 settles matter and that stands against appellant. Further in appeal a matter not arising out of the order appealed against cannot be adjudicated. Moreover for such errors provision like section 264 and section 154 (subject to built in limitations) can be considered by appellant for suitable remedy. Considering all these I decline to adjudicate ground 7.0”

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following additional ground:- “1. For that on the facts of the case, the Ld. CIT(A) was wrong in not allowing additional depreciation u/s. 32(1)(iia) of the IT Act amounting to Rs.1,54,40,469/- which is completely arbitrary, unjustified and illegal.”

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 25 the Ld. AR that assessee is very much entitled to claim additional depreciation whereas Ld. DR heavily relied on the order of Authorities Below. 31. We have heard rival contentions of both the parties and perused the materials available on record. At the outset, we find that Ld. CIT(A) disregarded the contention of the assessee for the additional depreciation after having reliance on the judgment of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT 284 ITR 323 (SC). It is an admitted fact that AO cannot admit fresh claim of assessee until and unless assessee made this claim either in its income tax return or in revised return filed. In the case before us, admittedly, assessee has not made any claim in its original income tax return and therefore, AO rightly rejected the claim of assessee. However, the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) also held that additional claim by the assessee can be made without filing the revised return of income before the Ld. CIT(A) as well as Hon'ble ITAT. Thus, in our considered view, we are of the opinion that Ld. CIT(A) was very much empowered to entertain the fresh claim of assessee. Thus, in the interest of natural justice and fair play we are inclined to restore this issue to the file of AO for fresh adjudication in accordance with law. The AO will verify whether the assessee is entitled for additional depreciation as provided u/s. 32(1)(iia) of the Act. Thus, the additional ground of assessee’s appeal is allowed for statistical purposes. 32. In the result, assessee’s appeal stands allowed partly for statistical purpose. Coming to ITA No.207/Kol/2014 for A.Y. 10-11. 33. First interconnected issue raised by assessee in grounds No. 2 to 7 of this appeal is that Ld. CIT(A) erred in confirming the order of AO by sustaining the disallowance of ₹64,90,439/- on account of non-deduction of TDS u/s. 194C vis-à-vis 40(a)(ia) of the Act. 34. During the course of assessment proceedings, AO observed that assessee has incurred freight charges for ₹2,26,14,316/- out of the said expense a sum of ₹69,86,305/- was directly paid to the truck drivers on which

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 26 no TDS was deducted. Therefore the AO disallowed a sum under the provision of Sec 40(a)(ia) of the Act for non-deduction of TDS and added to the total income of assessee. 35. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that there is no agreement between the assessee and the truck drivers and therefore, the provision of Sec 194C of the Act cannot be applied. It was also submitted that in many cases the payment was below ₹50,000/-, therefore the provision of Sec. 194C of the Act cannot be invoked. Ld. CIT(A) after considering the submission of assessee gave partly relief to assessee by observing as under:- “23. My findings in short on the issues are (a) the case law cited is in the context of position of law prevailing prior to Finance Act, 2007 i.e. before new section 194C(1) came into effect and Finance (No2) Act 2009 (b) TDS is to be effected in the bipartite transactions covered in section 194C(1) and not on a tripartite transactions when viewed on the basis preceding decisions where section 194C(2) was focus of attention, (c) when the appellant pays the contractor [the role of intermediary is irrelevant after section 194C(1) came into effect] for a work [execution of a precise sequence of events before payment of work on a regular basis] upon meeting specified conditions [aggregate payment exceeding Rs.50,000] tax was to be deducted at source and (d) the term ‘contractor’ is a nomenclature in section 194C(1) a the payment for work is the guiding factor in determining whether tax is to be deducted at source. 24. Considering all the above, I hold that the assessee indeed had liability to deduct tax under section 194C on the payment made. This is due to the fact that payment made is for carrying out work of transporting. The simplified procedure applicable w.e.f. 01.10.2009 by which all assessee has to do is to obtain PAN also has not been complied with. 25. Considering the plea that Assessing Officer has wrongly applied section 40(a)(ia) cases where aggregate payment is below Rs.50,000/-. I direct the Assessing Officer to verify whether the claim of assessee is correct and after giving assessee opportunity of being heard, reduce the disallowance made invoking section 40(a)(ia) to the extent assessee proves that disallowance made is incorrect. With this direction ground 3.0 is disposed of. Accordingly the ground is treated as partly allowed.”

Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us on the following grounds:- “2. For that on the facts of the case, the Ld. CIT(A) has not considered section 194C(6) which is clarificatory in nature and retrospectively applicable, therefore, the assessee was not liable to deduct TDS u/s. 194C of the IT Act.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 27 3. For that on the facts of the case, the Ld. CIT(A) was wrong in confirming the disallowance u/s. 40(a)(ia) of the IT Act amounting to Rs.64,90,439/- for payment on truck freight charges which is completely arbitrary, unjustified and illegal. 4. For that on the facts of the case, the Ld. CIT(A) has not considered the fact that the assessee had not entered into any oral or written contract with transporters as the goods were sent by the suppliers, therefore, section 194C was not applicable and the addition of Rs.64,90,439/- should not have been disallowed u/s. 40(a)(ia). 5. For that on the facts of the case, the Ld. CIT(A) was wrong in considering the fact that the assessee was not liable to deduct TDs on payment of truck freight charges amounting to Rs.69,86,305/-, therefore, the CIT(A) was wrong in restricting the disallowance u/s. 40(a)(ia) of the Income Tax Act amounting to Rs.64,90,439/-, although no TDs was deductible u/s. 194C of the IT Act on the total payment of lorry hire charges, therefore, the said disallowance is completely arbitrary, unjustified and illegal. 6. For that on the facts of the case, the Ld. CIT(A) was wrong in not considering the fats that the assessee was not liable to deduct TDS u/s. 194C of the IT Act on the payment of truck freight charges amounting to Rs.64,90,439/-, therefore, the disallowance made u/s. 40(a)(ia) of the IT Act on the said amount is completely arbitrary, unjustified and illegal. 7. For that on the facts of the case, the Ld. CIT(A) should have considered the fact, alternatively that TDS on lorry hire charges amounting to Rs.64,90,439/- was paid, therefore, the Ld. CIT(A) should not have disallowed the said amount of Rs.64,90,439/- u/s 40(a)(ia) of the IT Act.”

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 28 “It is urged before us that the learned Tribunal ought not to have accepted the judgment and order of the CIT (Appeal) who has quashed the disallowance of deduction of Rs.41,33,710/- and on account of tax deduction at source. The learned Tribunal has recorded the fact that the department has not been able to bring any material on record to show that the assessee has made the payment to the transporters in pursuance of contract for carriage of goods of the assessee and the question of deduction at source under section 194C does not and cannot arise. In the absence of evidence of payment made by the assessee to the transporters, the assessee cannot be saddled with the liability of deducting tax at source. Before us no other point has been urged not it is said that the aforesaid fact finding is truthful without any basis whatsoever. Hence, we dismiss the appeal having found no point of law having been involved.”

In view of above, we find that there was no contract between the assessee and lorry owners. The role of the lorry owners was very limited to the extent of carriage of goods without any other liability. Therefore, their payment cannot be considered as in pursuance of contract as envisaged under section 194C of the Act. Considering the facts and circumstances and cited case law, we reverse the orders of authorities below. The ground raised by assessee is allowed. Accordingly, AO is directed.

ITA No.206-207/Kol/2014 A.Y. 2009-10 & 2010-11 Arsh Iron & Steel Ltd. Vs. ACIT Cir-3 Asl. Page 29 It was further observed that the issue in the aforesaid ground of appeal before us was not raised before the learned CIT(A). Therefore we find that the impugned issue has not been adjudicated by the learned CIT(A). The instant issue has been filed first time before us and the same is not legal issue. Indeed the instant issue is emanating from the AO order but the same was not raised before the ld. CIT(A). Thus the impugned issue is not emanating from the ld. CIT(A). Therefore we are not inclined to admit the same for the adjudication. Hence this ground of appeal of the assessee is dismissed. 40. In the result, assessee’s appeal is partly allowed. 41. In the result, assessee’s appeal in ITA No.206/Kol/2014 for A.Y. 09- 10 is partly allowed for statistical purpose and that of ITA No. 207/Kol/2014 for A.Y. 10-11 is allowed partly. Order pronounced in the open court 12/05/2017

Sd/- Sd/- (Aby. T. Varkey) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata,

*Dkp �दनांकः- 12/05/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Arsh Iron & Steel Ltd., C/o Abdul Rashid, Dr. M.N. Ghosh Road, P.O. Raniganj, Dist. Burdwan-713 347 2. ��यथ�/Respondent-ACIT, Circle-3,ParmarBuilding,54,G.T.Road (West) Asansol-713 304, Burdwan 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से,

Sr. Private Secretary Head Office/DDO आयकर अपील�य अ�धकरण, कोलकाता ।