Itat/449/2004 Ramesh Kumar Nangalia Karta (Huf v. Commissioner Of Income Tax-Xvi, Kolkata

O–103 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE ITAT/449/2004RAMESH KUMAR NANGALIA KARTA (HUF)VS. COMMISSIONER OF INCOME TAX-XVI, KOLKATA BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE SUPRATIM BHATTACHARYADate : SEPTEMBER 9, 2022. Appearance:Mr. Ananda Sen, Adv..… for appellantMr. Prithu Dudhoria, Adv.…for respondent The Court:- This appeal by the revenue filed under Section 260A of the IncomeTax Act, 1961 (the Act) is directed against the order dated 24[th] September, 2003 passedby the Income Tax Appellate Tribunal “C” Bench, Kolkata (Tribunal). The assessee has raised the following substantial questions of law forconsideration. 1.Whether, on the facts and in the circumstances of the case, the Tribunalmisdirected itself in law in not appreciating that all the necessaryparticulars for verification of the allowability of the claim of deductibility ofthe Commission payment in computation of income were found out andverified in the order of the First Appellate Authority, that is theCommissioner of Income Tax [Appeals] and whether the Tribunal wasjustified in law in upholding the disallowance of claim for deduction of theCommission payment made by the Assessing Officer and whether thefinding arrived at was perverse ? 2.Whether, on the facts and in the circumstances of the case, the order of theTribunal was perverse, in so far as, it completely ignored the satisfactionrecorded by the Commissioner of Income Tax [Appeals] in his order aboutthe due discharge of onus by the Assessee before the Assessing Officer inthe matter of furnishing all necessary particulars in support of claim ofdeduction of commission payment for which the onus shifted, thereafter, tothe Assessing Officer which the Assessing Officer failed to discharge ?Tribunal was perverse, in so far as, it completely ignored the satisfactionrecorded by the Commissioner of Income Tax [Appeals] in his order aboutthe due discharge of onus by the Assessee before the Assessing Officer inthe matter of furnishing all necessary particulars in support of claim ofdeduction of commission payment for which the onus shifted, thereafter, tothe Assessing Officer which the Assessing Officer failed to discharge ? 3.Whether, on the facts and in the circumstances of the case, the order of theTribunal was correct in the ignoring non-rejection of the books of accountby the Assessing Officer and the fact that the persons, to whomCommissions were paid, were Income Tax Assessees for which the claim ofpayments were verifiable and the payment were assessed in their hands ?Tribunal was correct in the ignoring non-rejection of the books of accountby the Assessing Officer and the fact that the persons, to whomCommissions were paid, were Income Tax Assessees for which the claim ofpayments were verifiable and the payment were assessed in their hands ?4.Whether in view of the fact that the agreement entered into by theappellant with different parties for agency service and the said agreementbeing never questioned and also genuineness being not in dispute andpayments have been also actually made by account payee cheques bydifferent parties whose identities are not in dispute, the commission paid tothe different parties for the services rendered in terms of the saidagreement was lawfully disallowed by the Tribunal and whether suchdisallowance is without any material and/or evidence and is otherwiseunreasonable and perverse merely because there were allegeddiscrepancies in the two letters arising out of typographical errors ?appellant with different parties for agency service and the said agreementbeing never questioned and also genuineness being not in dispute andpayments have been also actually made by account payee cheques bydifferent parties whose identities are not in dispute, the commission paid tothe different parties for the services rendered in terms of the saidagreement was lawfully disallowed by the Tribunal and whether suchdisallowance is without any material and/or evidence and is otherwiseunreasonable and perverse merely because there were allegeddiscrepancies in the two letters arising out of typographical errors ? The present appeal was initially filed by the assessee against the order passed bythe Tribunal dated 29[th] April, 2004, which is an order which was passed under Section254(2) of the Act. Subsequently, the assessee sought leave of this Court to file the appealchallenging the main order passed by the Tribunal and the Division Bench by order dated 11[th] May, 2015 granted leave to the appellant to challenge the main order passedby the Tribunal dated 24[th] September, 2003, subject to payment of costs. The cost hasbeen remitted and the assessee has filed a supplementary affidavit dated 12[th] July, 2022challenging the main order passed by the Tribunal and the said affidavit is taken onrecord. We have heard Mr. Ananda Sen,, learned Advocate appearing for theassessee/appellant and Mr. Prithu Dudhoria, learned standing Counsel for therespondent/revenue. dated 11[th] May, 2015 granted leave to the appellant to challenge the main order passedby the Tribunal dated 24[th] September, 2003, subject to payment of costs. The cost hasbeen remitted and the assessee has filed a supplementary affidavit dated 12[th] July, 2022challenging the main order passed by the Tribunal and the said affidavit is taken onrecord. We have heard Mr. Ananda Sen,, learned Advocate appearing for theassessee/appellant and Mr. Prithu Dudhoria, learned standing Counsel for therespondent/revenue. The question involved in the instant case is whether the commission paid by theassessee to various agents was allowable as deduction under Section 37 of the Act. Theassessee during the course of assessment proceedings supplied the relevant detailsabout the payment of commission, explained the nature of services rendered by thecommission agents, relevant bills and vouchers were also produced, the payments whichwere made through account payee cheques were also furnished and the assessing officerdid not find any defect in the books of accounts nor rejected the same. On the contrary,to examine the genuineness of the claim of the assessee summons were issued underSection 131 of the Act and statements were recorded from the Karta of the assessee whohad in clear terms stated above the circumstances under which the commission waspaid to various companies for not only the purpose of securing the materials but also forrendering the services of recovering payments and facilitating the business activities ofthe assessee. However, the assessing officer took up a few of the transactions and heldthat the payment made by the assessee were not in connection with the business andprofession of the assessee but for some other reasons and, therefore, the claim was heldto be not tenable. The assessee preferred appeal before COMMISSIONER OF INCOMETAX (APPEALS) 17, KOLKATA [CIT(A)] contending that full particulars of the commissionagents of purchase and sales were provided to the assessing officer at the time of hearing, all the payments were made through account payee cheques of the thirteencommission agents, who procured business for the assessee were being income taxassessee and PAN numbers were available with the income tax officers. The books ofaccounts produced before the assessing officer and more particularly the payment ofcommission was not unique assessment year under consideration but has been paid inthe previous years and the subsequent years, which were never disallowed by theassessing officer. The CIT(A) after considering the evidence placed before it was satisfiedthat the payments effected by the assessee were in the nature of commission andaccordingly reversed the order passed by the assessing officer. Aggrieved by the same, the revenue preferred the appeal before the learnedTribunal. On perusal of the order of the learned Tribunal we find that the argument madeby the revenue as well as the assessee has been elaborately set out and the documentswhich were made available before Tribunal were also examined. However, the Tribunaltook up for consideration only one transaction with M/s Hi-Tec Coir Foam and in ourview has made a hair splitting exercise and disbelieved the payment of commission onthe ground that the assessee has failed to prove or establish that M/s. Hi Tec Coir Foamhad actually rendered services to the assessee. In respect of other commission agentsthe Tribunal has not discussed the facts which are already on record. The legal positionbeing that the initial burden is on the assessee to establish that payments were in thenature of commission. In the previous paragraphs we have set out as to what are therecords which were produced before the assessing officer as well as before CIT(A). Noneof the records, documents, books of accounts were disputed by the assessing officerrather accepted. In such circumstances, the burden of proof shifts to the revenue and itis for the revenue to establish that payments which have been made by the assessee were not in the nature of commission. This has not been done by the revenue in thecase on hand. At this juncture, it would be relevant to take note of the decision of the Hon’bleSupreme Court in ALUMINIUM CORPORATION OF INDIA LTD. V. COMMISSIONER OFINCOME TAX [1972] 86 ITR 11 (SC), wherein the Hon’ble Supreme Court after noting thedecision in SWEDESH COTTON MILLs CO. LTD. Vs. COMMISSIONER OF INCOME TAX,[1967] 63 ITR 57 (SC) and the decision in COMMISSIONER OF INCOME TAX V.WALCHAND & CO. (P) LTD. [1967] 65 ITR 381 (SC) held that in applying the test ofcommercial expediency for determining whether the expenditure was wholly andexclusively laid out for the purpose of the business, reasonableness of the expenditurehas to be adjudged from the point of view of the businessman and not of the revenue.The Rule laid down in the decision of WALCHAND & CO. (P) LTD.(supra) was followed bythe Hon’ble Supreme Court in J.K. WOOLLEN MANUFACTURERS V. COMMISSIONER OFINCOME-TAX, [1969] 72 ITR 612 (SC). In COMMISSIONER OF INCOME TAX V. HEWITT ROBINS (NEW YORK), [1982], 9Taxman 250(CAL) the Division Bench of this Court confirmed the order passed by theTribunal which held that the commission paid to those two companies was but rewardfor the assistance rendered by them in securing the contracts and since the payment ofsuch commission was incidental to the assessee’s business which consisted in taking upcontracts and executing them as no-profit making machinery was set up or anyadvantage or asset by an enduring nature came into existence as a sale of thosepayments and those payments were not a condition precedent to the assessee executingthe contracts and earning profits therefrom and accordingly held the payments to be ofrevenue in nature. In Landis + GYR Ltd. vs. Commissioner of Income Tax, Kolkata-I,(2017) 77 taxmann.com 253(Cal.) the Division Bench of this Court went one step aheadand held that where agents procured orders for the assessee and made themselves liable to recover price of goods sold by them, the commission paid to them would be liable asdeduction under section 37 of the Act. We need to point out that as against the said decision, the revenue has preferredappeal before the Hon’ble Supreme Court and leave has been granted as reported in(2018) 97 taxmann.com 140 (SC), Commissioner of Income Tax, Kolkata-I vs. Landis + GYRLtd. Thus, the commercial expediency, the nature of business activity done by theassessee, are all to be taken into consideration while examining the nature of paymentwhich has been effected. The assessee in no uncertain terms has stated that apart from facilitatingprocuring of raw material, the agents also facilitated in securing speedy payment to theassessee. This factor has not been taken note of by the Tribunal, which, in our opinion,is a very vital factor to decide the sustainability of the claim of the assessee. That apart,the Tribunal was of the view that most of the companies with which the assessee hadbusiness transactions were all Government of India concerns. However, the Tribunal hasfailed to note that the Assessing Officer has noted the names of all the 13 customerswith whom the assessee had transactions and many of them are private limitedcompanies and are not government entities. Thus, when the payments made by theassessee were for the purpose of procuring the business and to get the supplied items tobe ensured that they have delivered to the customers and arrangement for speedypayment, the payment is in the nature of commission. That apart, for the earlier andsubsequent assessment years the payments were never disallowed by the AssessingOfficer. Thus, we find the learned Tribunal committed an error in reversing the orderpassed by the CIT(A). For the above reasons, the appeal filed by the assessee is allowed. The order passed by the learned Tribunal is set aside and the order passed by theCIT(A) stands restored and the substantial questions of law are answered in favour of theappellant/assessee. Thus, we find the learned Tribunal committed an error in reversing the orderpassed by the CIT(A). For the above reasons, the appeal filed by the assessee is allowed. The order passed by the learned Tribunal is set aside and the order passed by theCIT(A) stands restored and the substantial questions of law are answered in favour of theappellant/assessee. Consequently, the order passed by the Learned Tribunal dated 29th April, 2004also stands set aside. (T.S. SIVAGNANAM, J.) (SUPRATIM BHATTACHARYA, J.) Pkd/GH/SN/S.Pal