M/s. Sun Infraa v. The Addl. Commissioner of Income Tax, range-6, Hyderabad
[Citation -2016-LL-0928-60]

Citation 2016-LL-0928-60
Appellant Name M/s. Sun Infraa
Respondent Name The Addl. Commissioner of Income Tax, range-6, Hyderabad
Court ITAT-Hyderabad
Relevant Act Income-tax
Date of Order 28/09/2016
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags account payee cheque • additional evidence • commission payment • written agreement • business purpose • commission agent • burden of proof • cogent evidence • onus to prove • sugar factory • iron ore
Bot Summary: As in earlier year 2008-09, assessee claimed commission payment but to one person Smt. B. Bhagyalaxmi of I.T.A. No. 1667/Hyd/2012 :- 2 -: M/s. Sun Infraa Rs. 25,05,885/- as against the commission of Rs. 2,30,73,945/- paid in AY. 2008-09 to various persons including Smt. Bhagyalaxmi. Ld. CIT(A) on considering assessee s submissions and noting that ITAT in AY. 2008-09 has upheld the disallowance of commission, confirmed the action of AO. His order at para 6.8 onwards are as under: 6.8 Finally, it was held in the appellate order to the A.Y. 2008-09 that neither the appellant nor the alleged agents could produce any documentary evidence to substantiate the scope of services expected to be rendered, nor could they furnish any evidence to establish that any such services were actually rendered. In the course of present proceedings, assessee filed additional evidence in the form of copy of IT returns of Smt. B. Bhagyalaxmi along with computation of incomes and Balance Sheet and Ledger account copy of assessee and contra account in the books of Smt. B. Bhagyalaxmi. Additional evidence in the form of return of income filed by Smt. B. Bhagyalaxmi are similar to the evidence furnished in the earlier year also and there being no change in the facts, except the amount of commission paid during the year, we have no option than to follow the Co-ordinate Bench decision given in the case of assessee s own case in earlier year. Now in the assessee's case there is even an iota of evidence regarding render of any services to the assessee to procure business to the assessee. Though the assessee made a claim that the commission agents collectively introduced the parties there is no correspondence between the commission agents. The assessee relied on various judgements which cannot be applied to the assessee's case as these judgements are on their own facts.


IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. No. 1667/HYD/2012 Assessment Year: 2009-10 M/s. Sun Infraa Addl. Commissioner HYDERABAD Vs of Income Tax, [PAN: ABCFS2833A] Range-6, HYDERABAD (Appellant) (Respondent) For Assessee : Shri V. Raghavendra Rao, AR For Revenue : Shri A. Sitharama Rao, DR Date of Hearing : 15-09-2016 Date of Pronouncement : 28-09-2016 ORDER PER B. RAMAKOTAIAH, A.M. : This is appeal by assessee against order of Commissioner of Income Tax (Appeals)-IV, Hyderabad dated 31-07-2012. only issue in this appeal is with reference to disallowance of commission payment of Rs. 25,05,885/- paid to one Smt. B. Bhagyalaxmi during year. 2. Brief facts of case are that, assessee is engaged in screening, grading, processing and trading of mineral and hiring of machinery. As in earlier year 2008-09, assessee claimed commission payment but to one person Smt. B. Bhagyalaxmi of I.T.A. No. 1667/Hyd/2012 :- 2 -: M/s. Sun Infraa Rs. 25,05,885/- as against commission of Rs. 2,30,73,945/- paid in AY. 2008-09 to various persons including Smt. Bhagyalaxmi. In line with earlier year, Assessing Officer (AO) noted that assessee could not justify above commission payment by furnishing various information. AO also issued show cause notice in which he has referred to statement recorded from Smt. B. Bhagyalaxmi, in course of assessment proceedings for AY. 2008-09. He also listed out reasons for disallowing commission as under: (i) There are no written agreement with parties to whom commission was paid; (ii) There is no written correspondence with these parties regarding customers introduced by them and sales effected; (iii) assessee cannot identify party wise list of customers introduced by said parties. It was giving vague reply that all customers were collectively introduced; (iv) assessee could not specify tonnage details of sales effected through each of commission agent; (v) assessee claimed that all its customers were introduced by all agents, whereas list of customers furnished by Smt. Bhagyalaxmi was inconsistent with claim; (vi) In nutshell, assessee could not produce any documentary evidence in support of services rendered and could not also produce basis for commission. 2.1. In response, assessee submitted that commission was paid to Smt. B. Bhagyalaxmi in connection with smooth carrying and promotion of business. It was reiterated that nature of iron-ore business requires assistance of middle-men and further submitted that commission was paid through account-payee cheques which were cleared through banking channels only. It was further I.T.A. No. 1667/Hyd/2012 :- 3 -: M/s. Sun Infraa submitted that Smt. B. Bhagyalaxmi had PAN card and had offered incomes and confirmed same. Rejecting assessee s contentions, AO in tandem with earlier year and referring to various decisions held that commission payment is not allowable u/s. 37 of Act. He gave similar findings as in AY. 2008-09 while denying claim of assessee. 3. Ld. CIT(A) on considering assessee s submissions and noting that ITAT in AY. 2008-09 has upheld disallowance of commission, confirmed action of AO. His order at para 6.8 onwards are as under: 6.8 Finally, it was held in appellate order to A.Y. 2008-09 that neither appellant nor alleged agents could produce any documentary evidence to substantiate scope of services expected to be rendered, nor could they furnish any evidence to establish that any such services were actually rendered. Besides, parties could not put forth any secondary or circumstantial evidence also in support of such claim. appellant therefore, had grossly failed to discharge onus of establishing its claim with evidence. Accordingly, it could be said that facts and circumstances of appellant's case are not such as could be establish that claimed expenditure of commission had been laid out or expended wholly and exclusively for purpose of appellant's business during year. Accordingly, entire commission payment claimed in A.Y. 2008-09 was disallowed holding that same or any part thereof could not be said as properly deductible u/s. 37 of Act. 6.9. It is seen that facts obtaining in A.Y. 2009-10 are identical. Even in this year, appellant has not been able to produce any documentary evidence to substantiate scope of services, nor has it furnished any evidence to prove that such services were indeed rendered by Srnt. B. Bhagyalaxmi. No primary or secondary evidence has also been submitted to support claim and appellant has therefore again failed to discharge onus of establishing its claim with any verifiable evidence. 6.10 On other hand,' it is seen that in their decision in appellant's appeal in ITA No. 2117/Hyd/2011 for A.Y. 2008-09 dtd. 18.5.2012, Hon'ble ITAT have also opined that it is settled law that the, burden of proof is on assessee to establish that any expenditure is I.T.A. No. 1667/Hyd/2012 :- 4 -: M/s. Sun Infraa incurred wholly and exclusively for purpose of business. They noticed that in appellant's case there was no written agreement with recipients. They observed that even if there was no written agreement, appellant could have claimed deduction provided it established such claim with documentary and cogent evidence. However, in appellant's case there was not even iota of evidence regarding rendering of any services for procurement of business, nor could appellant produce any correspondence between parties as could have served as contemporaneous circumstantial evidence. Hon'ble ITAT also took note of fact that there was no evidence to effect that recipient parties even knew parties to whom sales were made. They held that judgments relied upon by appellant were not applicable to appellant's case and mere payment of commission to account payee cheque after deduction of TDS could not absolve assessee from discharging burden of proving business purpose. Hon'ble ITAT also referred to decisions in cases of Davinder Singh VS. ACIT (104 lTD 325)(ASR), CIT Vs. Calcutta Agency Ltd. (19 ITR 191)(S.C), Lakshmiratan Cotton Mills Co Ltd. Vs. CIT (73 ITR 634)(S.C), and L H Sugar Factory & Oil Mills (P) Ltd. Vs. CIT (19 CTR )(S.C) 185: (1980) 125 ITR 293 (S.C). They have also relied on decision of Hon'ble Delhi bench of ITAT in case of Roger Enterprises (P) Ltd. Vs. DCIT (88 ITD 95) for dismissing appeal of appellant. 6.11 In view of above discussion, finding no infirmity in action of Assessing Officer, disallowance of claim of commission payment of Rs. 25,05,885/- in A.Y. 2009-10 is upheld, as even in this year no evidence could ever be produced to substantiate that such expenditure was incurred wholly and exclusively for purpose of appellant's business. Therefore, grounds raised in this regard are decided against appellant . 4. Assessee has raised following grounds in his appeal: 2. learned Commissioner of Income Tax (Appeals) erred in upholding disallowance of Commission payment of Rs. 25,05,885. 3. learned Commissioner of Income Tax (Appeals) erred in considering fact that, commission was incurred wholly and exclusively for purpose of business . Ground Nos. 1 & 4 are general in nature. I.T.A. No. 1667/Hyd/2012 :- 5 -: M/s. Sun Infraa 5. In course of present proceedings, assessee filed additional evidence in form of copy of IT returns of Smt. B. Bhagyalaxmi along with computation of incomes and Balance Sheet and Ledger account copy of assessee and contra account in books of Smt. B. Bhagyalaxmi. Assessee also prayed for Additional Grounds of Appeal, which are as under: Additional Grounds of Appeal: 1. Learned CIT(A) has erred in not noticing that facts for assessment year 2009-10 are different from those for assessment year 2008-09 and in mechanically applying order of Hon'ble ITAT for assessment year 2008-09. 2. Learned A.O has erred in presuming that there was more than one agent (Para 8. 15th line of assessment order) whereas there is only one agent Smt. Bhagyalakshmi in respect of who commission payment has been made. 3. Learned A.O has also erred in stating that list of customers was not produced ignoring that Smt. Bhagyalakshmi stated in her statement 'List enclosed' in answer to Q.5. Without prejudice to above grounds, 4. Orders of Learned CIT(A) & A.O have resulted in double assessment of income returned by Smt. Bhagyalakshmi. Income returned was Rs.11,56,470/- and tax paid thereon by way of TDS was Rs. 2,83,917/-. Disallowance ought to have been restricted to Rs.13,49,415/- (Rs. 25,05,885/- - Rs. 11,56,470/-) . 6. Ld. Counsel submitted that facts in this year are different from earlier year in sense that there is only one commission payment and so relying on other year s order is not correct. It was submitted that referring to statement recorded during proceedings, said Bhagyalaxmi has confirmed amount and has introduced middle-men. Therefore payment of commission is business necessity. I.T.A. No. 1667/Hyd/2012 :- 6 -: M/s. Sun Infraa 7. Ld. DR however, reiterated orders of AO and CIT(A) and submitted that on similar facts in assessee s own case, ITAT has confirmed disallowance in earlier year, therefore, facts being same, there is no necessity for differing from earlier year s order. 8. We have considered rival contentions and perused facts on record. Even though assessee has raised additional grounds in this year, there is only one commission payment as against many in earlier year, common factor is that Smt. B. Bhagyalaxmi was paid amount of Rs. 2,30,73,945/- in AY. 2008-09 and amount of Rs. 25,05,859/- in this year. Additional evidence in form of return of income filed by Smt. B. Bhagyalaxmi are similar to evidence furnished in earlier year also and there being no change in facts, except amount of commission paid during year, we have no option than to follow Co-ordinate Bench decision given in case of assessee s own case in earlier year. ITAT having considered detailed submissions and enquiries conducted by Department have held in AY 2008-09 as under: 6. We have heard both parties and perused material on record. It is settled law that if assessee claimed deduction of any expenditure burden of proof is on assessee to establish that such expenditure was incurred wholly and exclusively for purpose of assessee's business. In present case it is admitted fact that there is no written agreement between assessee and recipients of 5 commission agents. Even if there is no written agreement, assessee could claim deduction for expenses provided if it is established with documentary and cogent evidence that such expenditure was incurred for purpose of its business. Now in assessee's case there is even iota of evidence regarding render of any services to assessee to procure business to assessee. assessee could not even produce any correspondence between parties I.T.A. No. 1667/Hyd/2012 :- 7 -: M/s. Sun Infraa which could have served as contemporaneous circumstantial evidence. assessee is not able to correlate commission payments with reference to sale. Though assessee made claim that commission agents collectively introduced parties there is no correspondence between commission agents. As seen from paras 6.2 and 6.3 of CIT(A)'s order, statements given by assessee are contradictory in nature. parties herein have not given any evidence about names of persons who were recommended by them . 7. Being so, it cannot be presumed that parties whom assessee made any sales were through these parties to whom commission has been paid. As there is no evidence whatsoever to support claim of assessee that these impugned recipients of payments rendered any service for which commission has been paid when they did not even know them. Therefore, it cannot be said that assessee has discharged onus to prove that commission was paid wholly and exclusively for purpose of assessee's business. assessee relied on various judgements which cannot be applied to assessee's case as these judgements are on their own facts. question whether assessee has established that expenditure was incurred wholly and exclusively for purpose of business is essentially question of fact to be decided on merit of each case. 8. From statements of so called commission agents further inferences can be drawn that none of commission agents is able to provide definitive list of customers, quantity of sales effected, and working of commission. In fact M/s. R K Marketing Services claims that it did not know any customers (leave alone introducing them). It states that it was only ensuring quality of ore loaded into trucks. agents received commission only from three parties namely, M/s. Sun lnfraa. M/s. Sun Minerals and M/s. K V Minerals and no one else despite fact that Bellary is big centre for iron ore trading. These agents did not provide similar services to any other parties despite boasting their expertise in iron ore trading. All agents appear to be disparate and assessee claim, that all its customers were introduced by all these agents, does not appear to be reliable statement. most glaring inconsistency appears in statement of Smt. B. Bagya Lakshmi, who states that she introduced even M/s. K V Minerals. 9. There was no agreement between assessee and commission agents and there was no document on basis of which it could be said that commission was due and payable. As it has been already pointed out, even agreements do not bind Assessing Officer from enquiring into deductibility of I.T.A. No. 1667/Hyd/2012 :- 8 -: M/s. Sun Infraa commission. In this case there are no agreements and also there was no evidence of any correspondence or any personal meetings between assessee and commission agents to suggest that there was any relationship on basis of which commission agents procured customers for assessee for which they were entitled to receive commission. understanding between parties was oral understanding and it was doubtful that such oral understanding could have been arrived at without any longstanding relationship having been established between assessee and commission agents involving such huge amounts of money over period of time. Further, assessee is unable to furnish details of customers introduced by each agent and also exact working of commission payment made to each of agents. Mere payment of commission through account payee cheque after deduction of TDS does not absolve assessee from discharging its burden with regard to proving business purpose of payments . 8.1. Nothing was brought on record to counter findings of authorities and also findings of ITAT in earlier year. Even though Ld. Counsel tried to make out case that facts in this case are different, We do not find any difference in sense, same statement, same agreement and same sort of details are being furnished in support of claim which was already analysed and rejected by ITAT in earlier year. order of CIT(A) is in tune with findings in earlier year. Since there being no change in facts of case, we affirm order of CIT(A) and reject grounds of assessee. 9. In result, appeal of assessee is dismissed. Order pronounced in open Court on 28th September, 2016 Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 28th September, 2016 TNMM I.T.A. No. 1667/Hyd/2012 :- 9 -: M/s. Sun Infraa Copy to : 1. Sun Infraa, Hyderabad. C/o. P.R. Datla & Co., Chartered Accountants, 6-3-788/A/9, First Floor, Durga Nagar, Ameerpet, Hyderabad. 2. Addl. Commissioner of Income Tax, Range-6, Hyderabad. 3. CIT (Appeals)-IV, Hyderabad. 4. CIT-III, Hyderabad. 5. D.R. ITAT, Hyderabad. 6. Guard File. M/s. Sun Infraa v. Addl. Commissioner of Income Tax, range-6, Hyderabad
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