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Income Tax Appellate Tribunal, DELHI BENCH: ‘H’: NEW DELHI
Before: SHRI INTURI RAMA RAO & SHRI SUDHANSHU SRIVASTAVA
ORDER PER INTURI RAMA RAO, A.M.: These are the appeals filed by the assessee as well as by the Revenue. Appeal in for AY 2007-08 filed by the assessee is directed against the order of CIT(A), dated 28.02.2011 whereas the appeals in ITA Nos. 2545/Del/2011 for AY 2007-08 and 4530/Del/2011 for AY 2008-09 filed by the Revenue are directed against the orders of CIT(A) dated 28.02.2011 and 25.07.2011 respectively. The assessee raised the following grounds of appeal in ITA No. 1674/Del/2011:
2 1. The CIT(A) erred in law and on facts in: a) Confirming disallowance of Rs. 10,76,828/- (5%) while allowing Rs. 2,04,59,739/- (95%) of the total commission of Rs. 2,15,36,567/- paid by accepting not only the services received and the agents. b) Confirming the said addition on ad-hoc estimated basis without pointing out any deficiency in the information and evidence submitted or in respect of any particular agent. c) Ignoring that once the services are proved then the quantum of payment for the said services is the sole discretion of the businessman. d) Thus, the ad-hoc disallowance of commission so confirmed on estimated basis ignoring the evidences placed on record should be deleted.
The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal
either before or at the time of hearing.
2. The brief facts of the case are that the assessee is a company incorporated under the provision of Companies Act, 1956. It is engaged in the business of manufacturing and selling of off-set printing machines both in domestic market as well as in foreign market. The assessee-company filed the return of income for the assessment year 2007-08 on 31.10.2007, declaring total income of Rs. 22,20,87,977/-. Against the said return of income, the assessment was completed at a total income of Rs. 24,61,85,400/-. While doing so, the Assessing Officer disallowed the commission paid of Rs. 2,15,36,567/- and the disallowance of Rs. 25,60,860/- under the provisions of Section 14A was also made. During the course of assessment proceedings, the Assessing Officer noticed that the assessee company claimed deduction of commission payment of Rs. 2,15,36,567/-. The details of commission paid were furnished by vide page nos. 4 & 5 of the assessment order. During the course of the assessment proceedings, the Assessing Officer had called upon the assessee company to furnish the following details with regard to the commission payment:
3 i. The confirmation from the parties to whom the commission was paid. ii. To explain the role of commission agents and services provided by them. iii. Copy of agreement between the assessee and commission agents. iv. Whether similar percentage of commission was given for similar service to the commission agents. v. Whether the commission is for the purpose of business or not. vi. The gist of replies with whom the work was done.
The Assessing Officer further observed that the assessee company was provided sufficient opportunities to lead the evidence in support of the services rendered by the commission agent which the assessee company failed to do so. Therefore, the Assessing Officer drew the conclusion that the commission payment was made for the purpose other than the business and disallowed the same. Being aggrieved by this assessment order, an appeal was preferred by the assessee company before the CIT(A) who vide order dated 28th February, 2011 set aside the issue relating to the disallowance made under Section 14A of the Act to the file of the Assessing Officer and in respect of the commission payment, 5% of the commission paid was disallowed vide para nos. 17.1 to 18, which read as under: “17.1 The AO categorically mentioned that to keep the issue alive, the commission payment was disallowed. The observations of the AO are as under: “4.1 In the books for Financial Year 2003-04 and 2004-05 relevant for AY 2004-05 and AY 2005-06 under the head commission on sales, the assessee booked an expense of Rs. 32,19,958/- and Rs. 1,93,14,967/- respectively as payment of commission. In the AY 2004-05, this expense was examined and after careful consideration and investigations, the entire expenses was disallowed being not spent for the ‘purposes of business’. In the assessment proceedings assessee failed to produce any evidence in support of services rendered by the commission agents. The addition made on this account was confirmed by CIT(A)-XIX, New 4 Delhi, vide order dated 20.08.2007 in Appeal No. 119/2006-07. The Hon’ble ITAT and Hon’ble High Court allowed the expenses on account of money paid to the commission agents. However, the department has decided to go on SLP against the order of Hon’ble High Court. In A.Y. 2005-06 & 2006-07, the matter has been decided by the Ld. CIT(A)- XIX, New Delhi by following the order of Hon’ble ITAT in A.Y. 2004- 05. Since the nature of the commission in this year is more or less the same therefore to keep the issue alive the amount of money given by the assessee company to its commission agents is being disallowed and added to the income of the assessee which is being discussed in the following paras of the assessment order.” 17.2 Moreover, on-third of the commission expenditure was paid to old parties as mentioned in the para 9 above.
The facts being the same, following the appellate orders for 2005-06 & 2006-07, the disallowance is restricted to 5% of the commission expenditure of Rs. 2,15,36,567/- claimed by the assessee.”
Against the above order, the assessee company as well as the Revenue is before us with the present appeals. The assessee company challenged the orders of CIT(A) confirming the disallowance of 5% of commission paid whereas the Revenue has filed the appeals challenging the direction of CIT(A) for deleting the 95% of the commission paid.
Before us, the ld. Authorized Representative for the assessee company submitted that the issue in appeal is covered by earlier order of the Hon’ble Tribunal in the assessee’s own case in passed for AY 2004-05, dated 6th June, 2008 and the same was confirmed by the Hon’ble Delhi High Court vide his order dated 16th April, 2009, against which an SLP filed by the Department before the Hon’ble Apex Court had been dismissed vide order dated 29th January, 2010. He further submitted that full details of the 5 commission paid have been filed before the Assessing Officer and therefore no disallowance is called for. 6. On the other hand, the learned Sr. DR submitted that the assessee company had not placed any evidence on record in support of the services rendered in consideration of which commission was paid. The mere fact that the amount was paid by account payee cheque and the TDS made does not ipso facto entitle the assessee for deduction. 7. We heard the rival submission and perused the material on record. The issue that comes up for consideration in the present appeals is whether the claim for deduction of commission expenses of Rs. 2,15,36,567/- paid to different commission agents is allowable, having regard to the fact that the assessee could not lead any evidence on record in support of the services rendered by the commission agents. Indisputably, the assessee company had paid commission through account payee cheques and TDS has been made thereon. The assessee company also filed copies of agreement between the assessee company and the commission agents in some cases. In our considered opinion, this fact alone does not enable the assessee to claim deduction. The Hon’ble Supreme Court in the case of Laxmi Narain Mandanlal Vs. CIT, 86 ITR 439, held as follows: “The mere existence at an agreement between the assessee and its selling agents or payment of certain amount as commission, assuming there was such payment, does not bind Income Tax Officer to hold that the payment was made exclusively and wholly for the purpose of assessee’s payments might have been made. It is still open to the Income Tax Officer to consider the relevant facts and determine for himself whether the commission set to have been paid to the selling agents or any part thereof is properly deductible under Section 37 of the Act.”
6 8. Thus, the Assessing Officer is empowered to probe further and reache at a conclusion whether the commission was paid for the services actually rendered and determine whether the expenditure was laid out wholly and exclusively for the purpose of business. In the present case, the Assessing Officer had called upon the assessee company to furnish evidence in support of the services rendered by the commission agents. In response to this, vide its letter dated 23rd December, 2009, except highlighting the role of commission agent, no evidence was furnished in support of the services rendered by the commission agent. Even before us, the learned Authorized Representative miserably failed to demonstrate before us as to what kind of proof was filed before the lower authorities in support of services rendered by the commission agent. Thus, the assessee failed to discharge the burden of proving that the expenditure let out were incurred wholly and exclusive for the purpose of business. We may further add that the Hon’ble Supreme Court in the case of CIT Vs. Imperial Chemical Industries (India) Pvt. Ltd. (1969) 74 ITR 17 has unequivocally held that the burden of proving that a particular expenditure had been laid out or incurred wholly and exclusively for the purpose of business entirely lies on the assessee. The discharge of the burden has to be effective and meaningful and not to cover up by merely book entries and paper work. In view thereof, we see no infirmity in the order of the lower authorities in making this disallowance, which is upheld. The mere fact of payment of commission by account payee cheques and compliances with the TDS provisions shall not alone enable the assessee to claim deduction unless an amount has been expended wholly and exclusively for 7 the purpose of business. The fact that similar expenditure was came to be allowed by the Tribunal which was confirmed by Hon’ble Delhi High Court in the assessee’s own case cannot come in the way of disallowing the same in the succeeding years, since the principle of res judicata do not apply to income tax proceedings. Each and every assessment is separate and independent and the Hon’ble High Court of Delhi in the assessee’s own case confirmed the order of Tribunal deleting the addition of commission payment in the following words: “There is no evidence on record to show that the commission was paid to any near relative, family member or sister concern. There is no iota of evidence to show that the payment of commission represented only accommodation entry or was only a paper transaction. There is also no evidence to show that the amount of commission came back to the assessee in any form. Since the assessee has given full details including the addresses of buyers and addresses of the agents, as well as details of payment etc. the transactions of payment of commission as well as the aspect of rendering services by the commission agents were fully verifiable. However, neither the A.O. nor the learned CIT(A) made any attempt at their end to make probe into the matter for coming to the conclusion that the transactions were bogus, unfair and fraudulent. In our opinion, in the absence of any such material on record and in absence of any inquiry conducted to prove the non-genuineness of the transactions the departmental authorities were not justified in disallowing the claim of the assesee which was fully supported by the documentary evidence on record.”
From the above, it is clear that the Hon’ble High Court had come to conclusion that the commission payment is allowable only because the Assessing Officer had not made any inquiry about whether the assessee had given full details of the commission payment as well as the aspect of rendering of services Whereas in the present assessment year the assessee company chosen not to file any evidence in respect of the services rendered by the commission agent. Therefore, the reliance placed by the learned Authorized Representative 8 on the decision of the Hon’ble Delhi High Court is totally misplaced. A coordinate bench of Tribunal of Delhi High Court in the case of Kanu Kitchen Kulture (P.) Ltd. Vs. DCIT, (2013) 28 ITR (T) 49 (Delhi-Trib.), held that whether the assessee failed to demonstrate the services rendered by the commission agent, the commission was disallowed. The relevant paragraphs of the judgment are reproduced below: “22. Thus the assessee has utterly failed to demonstrate the nature and extent of service rendered by the agent and availed of by the assessee for its business of modular kitchens. In this scenario what appears on record is merely book entries coupled with TDS the amount which will be claimed as a refund by the recipient being a loss making concern. In our considered view the assessee has produced only skeletal paper work of the arrangement without any iota of evidence about actual business services rendered.
The assessee's claim for allowing similar commission payment in subsequent year caries no merit inasmuch as the learned Departmental representative has rightly pleaded that each and every year of assessment is separate and independent unit and principles of res judicata do not apply. The assessment for the assessment year 2009-10 is under section 143(1) and for the assessment year 2010-11 there is no mention of the commission at all. Therefore, we are unable to give credence to the facts whose record is not before us and not referred to before the lower authorities.”
Similarly, the Hon’ble Jurisdictional High Court in the case of Schneider Electric (India) Ltd. Vs. CIT, (2008) 304 ITR 360 (Del.) held that in the absence of material on record suggesting that the commission agents had procured the sale orders, no commission should be allowed. The relevant para of the judgment is reproduced below: “13. We agree with the Tribunal that there is absolutely no material on record to suggest that M/s. Ram Agencies had procured any sale orders for the assessee. The production of a few bills or payments having been made by account-payee cheques cannot by itself show that M/s. Ram Agencies had procured sale orders for the assessee. Apart from an internal note, 9 there is no evidence of any correspondence or any personal meetings etc. between the assessee and M/s. Ram Agencies to suggest that there was any relationship on the basis of which M/s. Ram Agencies procured some orders for the assessee for which it was entitled to receive commission. Moreover, we find that the understanding between the parties was an oral understanding and it appears to be doubtful that such an oral understanding can be arrived at without any long standing relationship having been established between the assessee and M/s. Ram Agencies. It seems a bit out of place that the parties entered into an oral business relationship involving such huge amounts of money over a period of time.”
Thus, having regard to the ratio laid down in the above cases that in the absence of proof in support of the services rendered by the commission agent, no commission can be allowed as a deduction. Therefore, we dismiss the appeal filed by the assessee and allow the appeals filed by the Revenue.
In the result, the appeals filed by the Revenue are allowed and the appeal filed by the assessee is dismissed. The decision is pronounced in the open court on 16th October, 2015.