Itta/46/2003 Of Commissioner Of Income Tax Guntur v. Sri Mopuru Sesha Reddy

HON’BLE SRI JUSTICE L. NARASIMHA REDDYAND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.46 OF 2003 JUDGMENT:- (per Hon’ble Sri Justice Challa Kodanda Ram) The Revenue is in appeal against the orders of the IncomeTax Appellate Tribunal, Visakhapatnam (for short “the Tribunal”) inI.T.A. No.312/H/97, dated 31.01.2002, for the assessment year1990-1991. In the appeal three substantial questions of law setout below, said to be arising from the orders of the Tribunal, havebeen raised for consideration of this Court: 1)Whether on the facts and in the circumstances of the case, theorder of the Tribunal suffers from perversity?order of the Tribunal suffers from perversity? 2)Whether on the facts and in the circumstances of the case theTribunal is correct in holding that the alleged payment of salescommission paid by assessee to M/s SFTPL is an allowablededuction?Tribunal is correct in holding that the alleged payment of salescommission paid by assessee to M/s SFTPL is an allowablededuction? 3)Whether on the facts and in the circumstances of the Tribunal iscorrect in not giving a finding as to the expenditure incurred onthe payment of the alleged sales commission ofRs.2,26,04,992/- is wholly and exclusively for the purpose of thebusiness of the assessee?correct in not giving a finding as to the expenditure incurred onthe payment of the alleged sales commission ofRs.2,26,04,992/- is wholly and exclusively for the purpose of thebusiness of the assessee? 2)The assessee is a wholesale distributor of Indian MadeForeign Liquors of United Breweries Group of Companies atVijayawada. For the assessment year 1990-1991, he filed a returndeclaring an income of Rs.10,29,609/-. The assessment wascompleted under Section 143(3) of the Income Tax Act (in short“the Act”) and the Assessing Officer made an addition ofRs.2,26,04,992/- by disallowing the sales commission paid to M/sSuvarna Filters and Tobacco Products Limited (in short “SFTPL”), on the ground the said payment was not genuine. In the course ofassessment proceedings, the Assessing Officer issued noticesand examined M/s Chandra Tobacco Co. Ltd., and M/s DeccanTobacco Processor Ltd., on the ground that the assessee hadutilized the services of the said two parties. The assessee filed anappeal before the Commissioner of Income Tax (Appeals),Vijayawada. The Commissioner (Appeals) on further carefulexamination of the records, including the statements recorded inthe course of assessment by the Assessing Officer in relation tovarious parties, and considering the orders of the Tribunal had setaside the order of the Assessing Officer and directed to allow thesales commission paid to M/s SFTPL, Hyderabad. The Revenuefiled an appeal before the Tribunal and the Tribunal dismissed theappeal of the Revenue by an order dated 31.01.2002. Revenue isin further appeal before this Court under Section 260-A of the Actraising the substantial questions of law referred to in Para No.1. 3)Sri J.V. Prasad, learned Senior Standing Counsel forthe Income Tax Department would urge before this Court, bydrawing our attention to the order of the Assessing Officer, that theTribunal has gravely erred in interfering with the orders of theAssessing Officer. The learned counsel contends that theAssessing Officer had found, as a matter of fact, no servicewhatsoever was rendered by the M/s SFTPL, Hyderabad, to theassessee to earn the commission, which has been claimed tohave been paid to them by the assessee. In the absence of anymaterial evidencing the service rendered to the assessee, theAssessing Officer was justified in disallowing the salescommission notwithstanding the fact, the said payment wasthrough banking channels and the same came to be assessed asincome in the hands of the recipients i.e. M/s. SFTPL, Hyderabad. 4) Though notice was received there was no appearanceon behalf of the respondent. 4) Though notice was received there was no appearanceon behalf of the respondent. 5)We have considered the submissions of the learnedSenior Standing Counsel for the Revenue and perused the record. The record reveals that there was enormous record that wasplaced before the first appellate authority and the same was alsoavailable before the Tribunal. The Commissioner (Appeals) had indetail analyzed the same, including the material gathered by theAssessing Officer in relation to M/s Deccan Tobacco ProcessorLtd., and M/s. Chandra Tobacco Co. Ltd. The Commissioner(Appeals) in his orders had recorded that there was an agreementdated 28.03.1986 between the assessee and other two parties andas per the agreement, assessee had agreed to pay commission ofRs.105/- per case of IMFL and Rs.2/- for dozen of beer. Theagreement was found to be genuine and in fact transactions tookplace in terms of the agreement. The Appellate Commissionerfound, as against the turnover of Rs.17,94,75,375/-, expenditureincurred towards salaries and travelling expenditure were meageri.e., Rs.Rs.1,43,985/- and Rs.46,462/-. The AppellateCommissioner had come to the conclusion that it is well nighimpossible for achieving the turnover of that magnitude with ameager expenditure as noted above. The Assessee’s contentionthat M/s. SFTPL, Hyderabad, the recipient of the commission, isthe marketing and distribution unit of well known company GTC,who in fact were engaged in the distribution of IMFL in the Statesof Andhra Pradesh, Tamilnadu, Kerala, Karnataka and WestBengal with wide contacts and experience was found to begenuine. The Commissioner had also in detail considered thenature of the business and the nature of the intense competition in the trade, particularly the fact that the assessee was new to thebusiness and had to distribute the products in Andhra Pradeshthrough 6000 retailers, 200 wholesalers and 1200 bars. TheAppellate Commissioner had recorded in the order as follows: “From the details of the agreements and thecorrespondence filed before me, I find that the marketingagents are furnishing the information relating to competitors,and the strategy undertaken by other distributors are alsoreporting about the sales of other brands and their efforts foreffective organisation of retail distribution in the area ofdistribution of the appellant. I find from the Balance Sheet ofSFTPL and profit & Loss Account that they have disclosedconsiderable amount by way of commission (Schedule “K”to profit & Loss Account of SFTPL) and Rs.17,65,438/-towards salaries which would shows that SFTPL mighthave undertaken marketing and distribution services in a bigway. It is also to be noted that the department found theagreement and other correspondence with appellant in thecourse of survey u/s 133A of the Act on 26.03.1990 whichclearly indicates that the agreement and the transactionsare genuine and not sham.”correspondence filed before me, I find that the marketingagents are furnishing the information relating to competitors,and the strategy undertaken by other distributors are alsoreporting about the sales of other brands and their efforts foreffective organisation of retail distribution in the area ofdistribution of the appellant. I find from the Balance Sheet ofSFTPL and profit & Loss Account that they have disclosedconsiderable amount by way of commission (Schedule “K”to profit & Loss Account of SFTPL) and Rs.17,65,438/-towards salaries which would shows that SFTPL mighthave undertaken marketing and distribution services in a bigway. It is also to be noted that the department found theagreement and other correspondence with appellant in thecourse of survey u/s 133A of the Act on 26.03.1990 whichclearly indicates that the agreement and the transactionsare genuine and not sham.” 6)The Appellate Commissioner also found that analysis ofthe statements recorded there exists an agreement between theassessee and M/s. SFPTL, Hyderabad for promoting sales ofIMFL products and have had in fact received the commissions forrendering the services as set out in the agreement. The AppellateCommissioner found that the Assessing Officer had selectivelyrelied on the statements of the persons examined i.e., officials ofM/s. SFTPL, Hyderabad and M/s. Deccan Tobacco ProcessorsLtd., Further the Appellate Commissioner had recorded a findingthat the Department Officials had summoned one Sri P.K.Khethira, Accounts Officer of M/s. SFPTL, Hyderabad, a secondtime and obtained the revised statement under threat andcoercion. On detailed analysis of various statements, theappellate commissioner found that the Assessing Officer had not made out any case that the payment made to the M/s. SFPTL,Hyderabad by the assessee was for extra commercialconsideration and there was no evidence to come to a conclusionthat the said amount had flown back to the assessee. TheTribunal had once again undertaken detailed examination of thematerial on record and Tribunal came to the conclusion that thefacts are all corroborated with the material evidence and thefinding arrived at by the appellate authority about the servicerendered by the M/s. SFPTL, Hyderabad to the assessee wasfound to be genuine and reasonable. Considering the fact that theentire commission was paid through banking channels, theTribunal reasoned, merely on account of certain statements madeby unrelated persons, the Tribunal can not come to a differentconclusion and eschew all other material available on record. 7)The entire analysis of the record would only go to showthat the Tribunal had reappreciated the evidence on record asfound by the first appellate authority and came to an independentand categorical conclusion that the transaction entered into by theassessee with M/s. SFTPL, Hyderabad was genuine and theassessee in fact had incurred an expenditure of Rs.2,26,04,992/-towards commission to enable him to achieve a turnover ofRs.17,94,75,375/-. There is no contra material available beforethe Tribunal to come to a conclusion and there is also no materialbefore us to take a different view. In that view of the matter, theissues raised in the appeal being in fact in the realm of purefinding of facts, we do not find any reason to interfere with theorders of the Tribunal. There are no substantial questions of lawthat are required to be answered and in that view of the matter theappeal deserves to be dismissed. 8)Accordingly, the appeal is dismissed. No order as tocosts. ___________________________ L. NARASIMHA REDDY, J Date:27.08.2014.Ssv ____________________________ CHALLA KODANDA RAM, J