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Income Tax Appellate Tribunal, BENCH “B”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
This is an appeal by the assessee directed against the order dated 07.01.2013 of CIT(A)-VI, Kolkata relating to A.Y.2009-10.
2. Grounds of appeal
raised by the assessee reads as follows :- “1. That the Ld. CIT(A)-VI/Kol erred in confirming the disallowance of service charges amounting to Rs.67,62,207/- expended by the assessee wholly and exclusively for the purpose of its business. The disallowance is unjustified, arbitrary and untenable in law and need to be deleted.
2. That the appellant craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.”.
3. The assessee is a company. It is engaged in the business of distribution of Mutual Fund Schemes of various mutual fund houses for which it earns commission from mutual fund houses at specified percentages for different schemes. During the previous year the assessee earned total commission of Rs.1,01,93,430/- from the mutual fund houses. The assessee paid commission of Rs.67,62,027/- to M/s. Speedfast Finco (P)Ltd (hereinafter referred to as SFPL). The AO was of the view that M/s. Dhoot Advisory Services Pvt.Ltd. A.Yr.2009-10 the aforesaid commission payment was disproportionate to the income earned by the assesee himself. The AO summoned the director of SFPL and found that there is no formal agreement between the assessee and SFPL regarding the procurement of business by SFPL for the assessee. The AO also further noticed that the bills were presented for the commission payable of the previous year on 31.03.2009. In the course of the statement recorded of SFPL it was explained by SFPL that there is no specific reason that bills were raised only on 31.03.2009 even though the business were procured by them during the period from 01.04.2008 to 31.03.2009. The AO for the following reasons disallowed the claim of the assessee for deduction of a sum of Rs.67,62,207/-. “1.Both the commission giving and commission receiving company has transaction only with each other. The assessee company M/s. Dhoot Advisory Services (P)Ltd has given commission only to M/s. Speedfast Finco (P)Ltd and to no other company and M/s Speedfast Finco (P) Ltd has received commission only and only from M/s. Dhoot Advisory Services (P) Ltd.
They commission giver and taker does not have any agreement whatsoever regarding the rate of commission to be paid, volume to be procured for eligibility of commission.
The person to whom commission was given unable to prove with evidence as to how and from he has received business.
Both M/s Dhoot Advisory Services (P) Ltd the assessee company and M/s Speedfast Finco (P) Ltd is not produce the date wise procurement of business form different parties along with evidence 5. As per claim of M/s Speedfast Finco (P) Ltd the business was procured throughout the year but the bill was raised only on 31.03 2009 for the whole year which is quite absurd considering volume of Business generated as claimed by M/s Speedfast Finco (P) Ltd.
The person received advance only on 30/03/2009 of Rs 20,00,000/- and the entire amount only on June 2009. Thus the genuineness of the transaction is not proved. From the above it is amply clear that the assessee company at the end of the year has entered into a bogus transaction with M/s Speedfast Finco (P) Ltd to reduce its taxable income.
Before the CIT(A) the assessee pointed out that the mode of procurement of business under the mutual fund industry was very methodical and the fund houses employed a big distribution chain of agents and corporates across the country to tap the investments from the retail customers at the root level right till the High Net Worth Individuals and the corporate. The assessee explained that it was also a part of such a chain as the distribution agent and registered with the Association of Mutual Fund in India (AMFI) having been assigned AMFI Registration No.ARN-54995. The assessee
M/s. Dhoot Advisory Services Pvt.Ltd. A.Yr.2009-10 also pointed that the commission was paid to SFPL and Smt. Rashmi Agarwal as agents to procure major part of the business for the assessee. The assessee also pointed out that the total expenditure towards administration was Rs.81,37,559/- including the commission paid to SFPL of Rs.67,62,027/-. The assessee pointed out that addition has been made by the AO purely on assumption and surmises. The submission made by the assessee did not find favour to CIT(A). The CIT(A) was of the view that the reasons given by the AO for making the impugned addition were valid. The CIT(A) was also of the view that the arrangement between the assessee and SFPL was purely with a view to reduce the tax burden of the assessee as well as that of SFPL. The following are the relevant observations of the CIT(A) in this regard : “10. The perusal of the assessment record of the appellant (M/s. Dhoot Advisory Services Pvt. Ltd.) had the copy of accounts of M/s. Speedfast Finco Pvt. Ltd. and it shows that it is assessed to income tax ender PAN AAECS7551 F as per the copy of intimation u/s 143(1) of the Act for AY. 2009-10. The AO has duly accepted the fact that the assessee has made payments to t e distribution agents and has not questioned the amount of service charges (commission) paid. The intimation u/s 143(1) of the Act or A.Y. 2009-10 of M/z.Speedfast Finco Pvt. Ltd. shows that it had incurred a loss in the current year (A.Y. 2009-10) to be carried forward amounting to Rs.3,36,095/- and there is only income from capital gain of Rs.1,49,614/-. M/s. Speedfast Finco Pvt. Ltd., the advisor and agent in A.Y. 2009-10 has incurred a trading loss of Rs.7,65,873/- in the share trading; loss in equity/commodity! Derivative trading of Rs.46,95,446/-; short term loss on sale of investment of Rs.3,43,802l-;long term loss on sale of investment of Rs.1,21,304/-. It has merely an expenditure on salary and Bonus of Rs.1,50,000/- and general expenses of Rs.23,182/-; Telephone expenses of Rs.12,560/-; Books and periodicals of Rs.500/-; no consultancy charges, accounting charges of Rs.48,000/- etc. The activities of M/s. Speedfast Finco Pvt. Ltd. and their accounts do not show t rat it has done any activity on behalf of the appellant assessee i.e. M/s. Dhoot Advisory Services Pvt. Ltd. and it would have really received any service from a loss making company who has skeleton staff with no consultancy services providing infrastructure. The motive of the appellant is clear from this fact that it is avoiding payment of taxes by showing payment to a loss making company who has not to pay taxes on this expenditure (commission) ultimately during the year. It is a clear case of avoiding of payment of taxes. The principle of res judicata is not applicable in the income tax proceedings and especially when the matter has not been investigated in the earlier years as in the present year on the issue of genuineness of payment of commission by appellant to a loss making company and the various facts and circumstances as mentioned in para 5 to 10.”
Aggrieved by the order of the CIT(A) assessee is in appeal before the Tribunal.
M/s. Dhoot Advisory Services Pvt.Ltd. A.Yr.2009-10 4. We have heard the rival submissions of the ld. Counsel for the assessee and the ld. DR. The legal requirement for allowing deduction of account of commission is that the assessee submission that the services are rendered by the person to whom commission was paid. The evidence filed by the assessee in this regard shows the following position.
4.1. At page 36 is a letter by the assessee through SFPL dated 01.04.2008 whereby the SFPL was appointed as a sub-broker of the assessee. At page 35 is another letter dated 26.12.2008 agreeing pay brokerage at a particular rate for a particular mutual fund scheme. At page 37 is a list of Mutual Fund Schemes and the percentage of sub- brokerage agreed to be paid to SFPL by the assessee. Besides the above copy of the bills raised by SFPL on the assessee and the details of business procured by SFPL for the assessee are placed at pages 41 to 45 of the assessee’s paper book. At page 52 is a list of Mutual Fund Schemes for which SFPL acted as sub-broker for which commission was paid to it by the assessee. This statement also gives the names of the clients for whom SFPL acted as sub-broker. None of these documents were disputed by the AO. If the AO had entertained doubts with regard to SFPL having acted as sub- broker of the assessee he should have examined various clients whose names are given at page 52 of the assessee’s paper book to find out as to whether SFPL acted as sub-broker in the matter of investments made by these parties in various Mutual Fund Schemes. This has not been done by the AO. In the absence of such examination by the AO it is not possible to disregard the evidence available on record for the reasons that there was a tax evasion to the assessee as well as SFPL. Besides the above similar commission paid by the assessee in A.Y.2008-09 to SFPL has been accepted in the proceedings u/s 143(3) of the Act for A.Y.2008-09. Copy of the assessment order for A.Y.2008-09 is placed at page 57 and 58 of the paper book. The commission received by the assessee was Rs.1.4 crores and the commission paid by SFPL is Rs.66 lakhs. In the light of the evidence on record it is not possible to accept the claim of the revenue that the commission expenditure in question is not genuine or the assessee has failed to prove that the commission expenditure in question is wholly and exclusively for the purpose of the assessee’s business. The Hon’ble Punjab and Haryana High Court in M/s. Dhoot Advisory Services Pvt.Ltd. A.Yr.2009-10 the case of CIT vs Mandeep Singh 328 ITR 169 has taken a view that commission paid and allowed in an earlier year cannot be disallowed in the subsequent year when the facts and circumstances are identical. In the case of Mobile Communication (India) (P)Ltd vs DCIT 125 ITD 309 the Hon’ble ITAT Delhi Bench has also taken the same view. We are of the view that with the evidence on record the assessee ahs established that the commission paid to SFPL was for the purpose of services rendered by SFPL and therefore the same has to be allowed as deduction as the same is for the purpose of business of the assessee. We, therefore, direct the AO to allow the deduction as claimed by the assessee.
In the result the appeal of the assessee is accordingly allowed.
Order pronounced in the court on 02.12.2015.