ITO,WARD-7(1), KOLKATA, KOLKATA vs. M/S HITECH VISUAL CHANNEL PVL. LTD., KOLKATA

I.T.O., Ward-7(1), -vs.- M/s.Hitech Visual Channel Pvt. Ltd. Kolkata Kolkata [PAN : AABCH7580A] (Respondent) (Appellant) For the Appellant : S.S.Alam, JCIT, Sr.DR For the Respondent : Shri A.K.Upadhyay, Advocate Date of Hearing : 04.04.2016. Date of Pronouncement : 11.05.2016. ORDER

Per N.V.Vasudevan, JM

3. The only ground of appeal raised by the revenue in this appeal is that the CIT(A) erred in law and facts by deleting the addition of Rs.2,35,97,622/- made by the AO. The Assessee is a company. The Assessee provides Cable TV services to subscribers. Assessee obtains cable TV signals from Multi System Operator M/S.Wire and Wireless (India) Pvt. Ltd. (WWIL). “Multi-System Operator” (MSO) means a cable operator who receives a programming service from a broadcaster and re-transmits the same directly or through one or more local cable operators. Broadcaster are persons providing programming services.

2 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 4. WWIL apart from acting as MSO is also engaged in the business of producing and or acquiring various televisions programs and motion pictures. WWIL wanted to market and sell the television programs and motion picture produced by it to various broadcasters. The Assessee represented to WWIL that it has good contacts and exposure in the broadcasting sector and was providing services pertaining to liaison with broadcasters. WWIL and the Assessee have entered into an agreement dated 1.4.2007 whereby WWIL appointed the Assessee to render liaison services by identifying and ascertaining requirement of broadcasters for various programs, negotiate and settle fee with broadcasters, arrange for execution of requirsite agreement with broadcasters and generally liaison and co-ordinate with broadcasters. In consideration of the above services to be rendered by the Assessee, WWIL agreed to pay 50% of the consideration that it receives from broadcasters as consideration that the Assessee might render.

5. The Assesee received a sum of Rs.2,52,44,351/- as liaison & consultancy charges from WWIL. The Assessee claimed that it outsourced the job of doing liaison by appointing the following five persons as sub agents, namely

2. BMA stainless Ltd:

3 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 4. Maxpro Tracon Pvt. Ltd. Rs. 1,25,000 5. Statt investment & services P. Ltd Rs. 2,05,000 TOTAL Rs. 2,35,97,622

In support of your answer, provide evidence in form of Hotel Bills , Air Ticket or Train Ticket etc. x. Naturally Broadcasters must have written you sometime regarding the negation or eve order placement .Furnish copy of, any letter written by broadcaster to you? xi. Furnish copy of order placement letter- written by broadcaster with whom your employee liaise. xii. How did you know about the business you got from channels? : xiii. How did the WWIL came to know which channel .is going to take their services. xiv. How did you know how much money or rate is to be. paid by the channels to WWIL? xv. Who collected the payments - YOU Hi 'I'ech or WWIL? xvi. How much business did you do in four years before and-after the' relevant IT 2007 -08? Furnish evidence in support of your claim xvii. Furnish evidence in support of your claim :that you have qualification experience and required skill 'for procuring a business which completely different to your traditional business which is steel.”

7 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 So, a company claiming' to liaison service failed even name its employee who helped it earn income, from HTVCL and when it was time to bring truth on record, it informs that such person has left the job. Conduct of C.P. Rerollers Ltd:: i. G.P.Reroller replied to 133(6) notice vide. its letter dt, 22/8/2010 and against question No.4 regarding the employee who did liaison Job, the said letter inform as under. ' Mr. Mahendra Maurya, as looking the business with M/s. HVCPL and he is working as Manager Accounts as well as liaison works. [Annexure I] ii. After 131 notice was served on assessee; and Mr. Mahendra Maurya was called for examination under oath, a letter dt. 11/12/2010 was submitted on13/12/2010 which says in last para asunder: "In this connection we would have by inform you that the persons who has worked in this matter has already left our company. So, in this case also, similar to BMA steel, persons responsible for liaison job has left the company [Annex II] Is it coincidence that both the persons were with them only three-months back i.e. in August when they replied notice u/s 133(6)and both quit the employment at the time of stating truth. " On the aforesaid ground, I conclude that the claim of assessee that it incurred expenditure in form of liaising and consultancy charges paid to aforesaid three persons are bogus and sham. .It never happened although, assessee tries to garb it as expense by deducting tax and payment by cheque. The work for which WWIL has paid to assessee was done by· assessee itself. I therefore disallow expense of Rs.2,35,97,622 debited to P & L account under the head "Liaising & Consultancy Charges.”

8 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 to him that the appellant has no marketing set up, proper Manpower strength or net work to do the job. The appellant due to its connection with WWIL as Cable Operator, had obtained the work. However due to its lack of marketing strength and adequate set up off loaded the jobs to assigns. (Il) The appellant had appointed sub agents or assigns, namely BMA Stainless Ltd, C.P.Re-rollers Ltd, Vaishnavi Traders Pvt Ltd, Max pro Tracon (p) Ltd and Statt Investment & Securitas (P) Ltd with the permission and in due know edge of the Wire and Wireless India Ltd. only as mentioned in the letter of Wire and Wireless India Ltd , copy of which was also given to AO during the course of hearing. The AO has not commented on it or not taken into cognizance. III) The assessing officer did not provide the proper opportunity to represent the case under various pleas, as appear from the letters filed by the parties. Despite of the fact, the appellant sought the cooperation of such payee to file their reply and supporting documents. IV)The AO drew the conclusion wrong or misconceived reasoning with properly appreciating the facts and only by analyzing the replies filed by the assigns which can be observed from the comments in the assessment order by comparing the replies submitted by the assigns. V) The AO failed to appreciate the fact that with effect from 1st April 2008 from the subsequent periods, WWIL had directly appointed BMA Stainless Ltd as its liaison agent in place of the appellant. Thus the question on the capability of the said party to work as assign of the appellant does not arise. More so when the authenticity of the job is not in doubt. (VI) . The AO did not enquire about the payment with other two parties, namely M/s. Maxpro Tracon (P) Ltd. and . Statt Investment & Services (P) Ltd. However he added to the total income, the amount of liaison fees paid to these two parties too. (VII) The appellant declared and confirmed all the supporting and documents relied upon have been duly filed and discussed before the AO. (VIII) Alternatively, it is argued that the appellant has not made any expenditure' to earn that income save and except the expenses admissibility thereof are in dispute. The expenses are the payments .to such assigns and commission .payment to the subagents, who arranged the assignment job for the appellant. (IX) It has not been denied that the appellant had earned such income and the principal has paid the sum on the execution of the job only. It cannot be denied that WWIL had appointed the appellant to do liaison job with the broadcasters. It can conversely. stated that the liaison job has taken place. The AO had no different view on this. The point of dispute is who did this Job. Whether appellant itself did the same job or it assigned. to any third parties. The appellant had not claimed any expenditure than the expenditures in dispute. If it is assumed that appellant had executed the job, then there must be some expenditure on salary, telephone, travelling or conveyance. None of such expenses is debited to the audited annual accounts of the appellant. On. the other hand, the payees of the liaison fees had admitted the transactions and receipt of such fees from the appellant. (X)The transactions relating to the payment of liaising fees took place through proper banking channel. The payees are income tax assesses and their total income includes such 9 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 fee, which is subject to tax. The accounts of the recipients are .duly checked and audited by the statutory auditors under the Companies act and Income tax act. (XI) Such payments of liaising fees were subject to proper deduction of tax at source and such compliances have been duly made. The copies of the respective income tax records and audited annual accounts of the assigns are furnished. (XII) In view of the above observation/findings and discussion, the claim of the appellant that it had appointed the assigns to do the job in its behalf and has not done the job by itself cannot be denied. Keeping in view the above, considering the facts and circumstances of the case and perusing the impugned assessment order and other materials on records, I am of the opinion that disallowance of Rs.2,35,97,622/- and addition made thereof to the total income of the appellant to delete the addition so made of Rs.2,35,97,622/- on account of disallowances of liaising fees to the sub-agents.”

I) I) The AO had not questioned the The A.O never question the authenticity authenticity of work and merely he of the liaison job by assessee . In fact opined that based on his judgment there is evidence of record that only the liaison job has been done by assessee had done the liaison job. This is appellant himself. Whereas, it was stated by the broadcasters who paid ,the stated to him that the appellant has amount. no marketing setup, proper So, LD CIT(A) wrongly assumed that manpower strength or net work to the assessee has no adequate set up. do the job. The appellant due to its connection with WWIL as Cable Operator, had obtained the work. However due to its lack of marketing strength and adequate set up off loaded the jobs to assigns.

2. II) The appellant had appointed sub It is surprising that LD CIT(A) has agents or assigns, namely BMA raised such question in favour of Stainless Ltd, C P Re-rollers Ltd, assessee despite the fact that A.O has on Vaishnavi Traders Pvt Ltd, Max Pro the basis or the evidence gathered has Tracon Pvt Ltd and Statt Investment concluded that the those parties claim of & Securities Pvt Ltd with the doing any liaison. job is not correct, not permission and in due knowledge of commenting on the fake agreements, the Wire and Fireless India Ltd only does not become a proof of job done by as mentioned m the letter of Wire parties. and Wireless India Ltd, copy of which is also given to the AO- Where is not questioning the agreement during the course of hearing. The arises? AO has not commented on it or not 10 III) The assessing officer did not This is factually incorrect. provide the proper opportunity to BMA Stainless represent the case under various Received the notice on 23/1112010. pleas, as appear from the letters They prayed for time vide its letter dt filed by the parties. Despite of the 24111/2010 on the ground that fad, the appellant sought the co- concerned person ,is out of station. The operation of such payee to file their time was allotted on 06/12/2010 . No reply and supporting documents. body appeared on the said date. On 10/12/2010, BMA writes “we. would like to inform you that the persons who has dealt this matter has already left our organization" So where is the question of not giving proper opportunity? Ld CIT(A) did not give attention to A.O remark in his assessment order that the same party was not even able to identify the staff who actually did the job in its letter dt 04/08/2010'. Regarding CP Re-roller Pvt.ltd

C.P Reroller vide its letter dt 22/08/2010 in compliance to notice U/S 133(6) stated that" Mr Mahendra Maurya " was the' person who worked 'On the liaison job, - When notice u/s. 131 was issued for examination .purpose, the , it stated vide its letter dt 11112/2010 "inform you that the persons who has worked in this matter has already left our company" ' So where is question of not giving opportunity. In fact just after that all the parties including the assessee were issued. the questionnaire, so that even by answering those question they could prove and bring' on record the evidence' that the parties, had indeed done liaison job. These letter were issued on 11

12 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 08/12/2010 IV The AO drew the conclusion on Fact is that, A.O did not get any replies wrong or misconceived reasoning to his pointed question; So this remark with properly appreciating the facts is without any fact on record. and only by analyzing the replies filed by the assigns which can be observed from the comments in the assessment order by comparing the replies submitted by the assigns. V The AO failed to appreciate the fact Since the period from 0110"4/2008 is that with effect from 1st April 2008 not under consideration, it can help the from the subsequent periods, WWIL case of BMA.. So , it would have been had directly appointed BMA better that BMA Stainless should have Stainless Ltd, as its liaison agent in placed some evidence that during FY place of the appellant. Thus the 2007-08 , it actually did the liaison job. question on the capability of the said party to work as assign of the appellant does not _ arise. More so when the authenticity of the job is not in doubt.

VI The AO did not enquire about the The three parties who were enquired into payment with other two parties got 99% of. the payment for alleged namely M/s. Maxpro Tracon Pvt Ltd liaison job. and Statt Investment & Services Pvt Therefore, A. 0 concentrated his effort Ltd. However, he added to the total on the same. income, the amount of liaison fees Even if no enquiry was done, how come paid to these two parties too. that proves other three parties' dealing correct . Without agreeing Ld CIrCA) , it can be' at best can be said that if Ld CIT(A) has thought that the A.O did not enquire into affair of Maxpro & Satt investment , the at best he can delete at best amounts related to them. The benefit can not be extended to parties who were enquired into and abjectly failed to bring on record even most fundamental evidence on record.

VII The appellant ,declared and The statement of Ld CIT(A) IS factually confirmed all the supporting and incorrect . Neither the assessment folder 12

13 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 documents relied upon have been was called for ,nor the statement of A.O duly filed and discussed before the was asked for, nor was he. called for AO. hearing. How can Ld CIT(A) give certificate of authenticity that assessee had given all the documents". The fact is on record that none of the parties appeared u/s 131 of the I T Act. Did not submit any evidence which was later asked u/s 133(6). On 27/12/2010 ,just three days before it merely filed letter in office without any corroborative evidence asked for . Even that letter itself says at any places "enclosure " .however no enclosure was attached . The date of letter was chosen on 27112/2010 , knowing fully well that letter cannot be countered for paucity of fund.

VIII Alternatively, it is argued that This argument can not be substitute for appellant has not made any the complete lack of even basic evidence expenditure to earn that income save that the parties had done any liaison job and except the expenses admissibility thereof are in dispute. The expense is allowable under Income The expenses are the. payments in tax Act only when it is incurred for the such assigns and commission purpose of one's business. payment to the subagents, who Only point which has been proved by arranged the assignment job for the assessee is that a certain amounts were appellant. issued through cheque and tds was deducted., That is not a proof of a genuine expenditure..A genuine expenditure require .supporting documents. In the instant case the parties who received the payment themselves. abjectly. failed to bring on record even one evidence that any work was done by them. Therefore ,the cheque payment is not for any business expenditure. One can give any name to it but an expenditure. 13

14 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 IX It has not been denied that the The A.O accepts that the assessee appellant had earned such income received the job, that he concluded that and the principal has paid the sum' the job was performed by itself only on the execution of the job only. It which is confirmed by the broadcaster cannot be denied the WWIL had that Sri Suresh Sethia, Director of appointed the appellant to do liaison assessee had done the job. job with the broadcasters. It can Non claiming expense was opted conversely stated that the liaison job because whole factious. expense claim has taken place. The AO had no left no amount to claim as expense. different view on this. The point of Anyway the assumption that the assessee dispute is who did this job. Whether did not claim expense , can not become appellant itself did the same job or it proof of any liaison job by others. assigned to any third parties. The appellant had not claimed any expenditure than the expenditures an dispute. If it is assumed that appellant had executed the job then there must be some expenditure on salary, telephone, travelling or conveyance. None of such expenses is debited to the audited annual accounts of the appellant. On the other hand, the payees of the liaison fees had admitted the transactions and receipt of such fees from the appellant.

X) The transactions relating to the It is totally irrelevant because the issue Payment of liaising fees took place involved is not regarding-source of the through proper banking channel. The payment. payees are income tax assessees and How come this fact proves any work their total income includes such fees, done by parties ?? which is subject to tax. The accounts of the recipients are duly checked and audited by the statutory auditors under the Companies Act and Income-tax Act.

XI) Such payments of liaising fees were Same as above . These action does not subject to proper deduction of tax at make a fake expense as authentic source and such compliances have expense. 14 XII) In view of the above observation / In all the aforesaid 11 points , not a findings and discussions-the claim of single evidence in support of the parties the appellant that it had appointed who abjectly- failed , parties who did not the assigns to do the job in its behalf abide by law were discussed in the and has not done the job by itself assessment order. For example Ld CIT cannot be denied. (A) did not even wrote a word regarding the denial by the Broadcaster about .the involvement of parties. ' Ld CIT (A) did not even state at any place why the questions which were asked by A.O u/s 133(6) were answered before him

16 M/s. Hitech Visual Channel Pvt. Ltd. A.Yr.2008-09 22. For the reasons given above, we reverse the order of the CIT(A) and restore the order of the AO. In the result, appeal by the Revenue is allowed.

Order pronounced in the Court on 11.05.2016.