Raj Kumar Wadhwa v. Commissioner Of Income Tax, Patiala

INCOME TAX APPEAL NO.117 OF 2012 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. INCOME TAX APPEAL NO.117 OF 2012Date of Decision: 18.7.2013 Raj Kumar Wadhwa ..Appellant versus Commissioner of Income Tax, Patiala ..Respondent CORAM:Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon Present:Mr. Pankaj Jain, Advocate, for the appellant.RAJIVE BHALLA J. The appellant challenges order dated 23.2.2010 passedby the Income Tax Appellate Tribunal, Chandigarh Bench-B,Chandigarh, dismissing his appeal thereby confirming order dated30.4.2009 passed by the CIT (Appeals) and order dated 22.8.2007passed by the Assessing Officer. The appellant-assessee is a cement stockiest and salespromoter for M/s J.K.Cement Works. The assessee receivedcommission of Rs.55.68 lacs out of which, he claimed that he hadpaid Rs.41.14 lac as commission for liaison work to sub-agents.After a detailed appraisal of the entire record, including statementsetc., the Assessing Officer disallowed the commission. Aggrieved bythis order, the appellant filed an appeal. The Commissioner ofIncome Tax (Appeals) allowed the appeal in part. The appellant andthe revenue filed their separate appeals. The Income Tax AppellateTribunal, vide impugned order dated 23.2.2010, allowed the appeal, filed by the revenue, set aside the order passed by the CIT (Appeals)and rejected the appeal filed by the assessee. Counsel for the appellant submits that the impugnedorders are illegal as it would lead to double taxation as similaramounts have already been charged in arriving at chargeable incomeof the recipient assessee. It is further argued that as paymentsmade by the assessee emerge out of commercial expediency andbusiness exigency, the additions made are erroneous as it could notbe assessed as chargeable income in the hands of the appellant. We have heard counsel for the appellant and perused theimpugned orders. The substantial question of law framed by theappellant reads as follows:- “ Whether under facts and circumstances of the case,while arriving at the Chargeable Income u/s 29, thededuction claimed u/s 37(1) of the Act, can be charged totax in the hands of payer in spite of the same having beenconsidered as a “Chargeable Income” in hands of thepayee?” The question of law has been raised in the context of aplea that payments made by the assessee emerged out ofcommercial expediency and business exigency and payment wasmade to sub-agents, after deducting TDS and service tax. Thesubmission, in our considered opinion, is entirely misconceived asthe Income Tax Appellate Tribunal has held, as a matter of fact, thatthe appellant was unable to establish the bona fides of paymentsmade to sub-agents, in essence, raising an inference that the entireVarinder Kumar2013.08.31 16:42I attest to the accuracy andintegrity of this documentHigh Court Chandigarh INCOME TAX APPEAL NO.117 OF 2012 3 list of sub-agents was a fraud perpetuated with the sole object ofevading payment of tax. The Income tax Appellate Tribunal as well asthe Assessing Officer have held that the appellant has failed to bringon record the exact nature of services rendered with quantitativedetails of services provided date-wise, party-wise details of supplyetc. and has only furnished consolidated bills at the end of the year. A perusal of the order passed by the Assessing Officerreveals a detailed analysis of the record and statements recordedbefore him, before recording his conclusions, which have beenaffirmed by the Income Tax Appellate Tribunal. A relevant extract fromthe order passed by the Tribunal reads as follows: INCOME TAX APPEAL NO.117 OF 2012 3 list of sub-agents was a fraud perpetuated with the sole object ofevading payment of tax. The Income tax Appellate Tribunal as well asthe Assessing Officer have held that the appellant has failed to bringon record the exact nature of services rendered with quantitativedetails of services provided date-wise, party-wise details of supplyetc. and has only furnished consolidated bills at the end of the year. A perusal of the order passed by the Assessing Officerreveals a detailed analysis of the record and statements recordedbefore him, before recording his conclusions, which have beenaffirmed by the Income Tax Appellate Tribunal. A relevant extract fromthe order passed by the Tribunal reads as follows: “ ...The basis for disallowing the commission is theinvestigation carried out by the Assessing Officer and thestatement recorded of the various persons to whom theaforesaid commission is claimed to have been paid. In thesaid statement recorded, none of the parties have beenable to justifiably explain the nature and services offeredby them entitling them to the receipt of the commission.Even the details of services rendered party-wise on whichcommission was due could not be forwarded by the saidparties. In the entirety of facts and circumstances of thecase, where the assessee has failed to explain withevidence the nature of services being rendered by the subagents, disentitles it to the claim of deduction on accountof the service charges. Merely because certain bills havebeen raised and payments against the same have been released by the assessee, does not entitle the assesseeto claim of deduction on account of said expenditure, inthe absence of the assessee establishing that the saidexpenditure had been laid down wholly and exclusively forthe purpose of business of the assessee. The said partieshad failed to bring on record the exact nature of servicesrendered and even the quantitative details of the servicesvis-a-vis, date wise and party wise details to whomsupplies were made on behalf of the assessee were notfurnished, except for raising a consolidated bill at the endof the year. The acceptance of allowability of the saidexpenditure in the succeeding year vide intimation issuedu/s 143(1) of the Act as against the evidence and materialcollected by the Assessing Officer during the year, doesnot establish the claim of the assessee in respect of theallowability of the said expenditure. Further, we find thatthe alleged agreement with M/s PEW was entered into bythe assessee on 8.4.2005 whereas the assessee wasappointed as service agent by M/s SSTPL videappointment letter dated 18.5.2005. Even the saidappointment letter debarred the assessee from assigningthe agreement with M/s SSTPL in favour of any otherparty. In the totality of facts and circumstances, we find nomerit in the order of the CIT (A) in allowing the claim ofthe assessee on the basis of existence of agreement withone of the sub agents and admission of receipts of payments by the parties.” Upon further consideration of the matter, the Income Tax Appellate Tribunal held as follows:- payments by the parties.” Upon further consideration of the matter, the Income Tax Appellate Tribunal held as follows:- “ .......The onus is upon the assessee to establish that ithad incurred a particular expenditure for the purpose ofcarrying on of its business. The second limb of Section 37of the I.T. Act, of incurring the expenditure for thepurpose of business, have not been satisfactorilyestablished by the assessee. In view of the evidencecollected by the Assessing Officer and the statementrecorded of the sub agents, we find no merit in the claimof the assessee in respect of the liaison commission paidby it, which in any case is debarred from vis-a-vis terms ofagreement entered between the assessee and itsPrincipal M/s STPL. The said expenditure being allowedin the earlier year, under order passed u/s 143 (3) doesnot establish the case of the assessee for the year underconsideration as the parties to whom commission waspaid for assessment year 2004-05, are completelydifferent and in respect of the parties in assessment year2003-04 though there was two common parties, but theassessee has failed to furnish on record the evidence inrespect of the services rendered in financial year 2003-04by the said parties for which commission was allowed. Wefind support from the ratio laid down in Emson ToolsManufacturing Corporation Ltd. Vs. CIT (supra). INCOME TAX APPEAL NO.117 OF 2012 6 Accordingly, reversing the order of CIT(A), we confirm theorder of Assessing Officer in making an addition ofRs.41,14,518/-. The grounds of appeal raised by theRevenue are thus allowed.” We find no reason to hold that the Income Tax AppellateTribunal has committed any error or that the question of law, asframed, arises for consideration. The appellant has not been able toprove the bona fides of his claim that he paid commission and,therefore, the question raised, on the basis of Section 29 and 37(1)of the Act, does not arise for consideration. The fraudulent nature ofthe transactions disentitles the appellant to any relief. Dismissed. ( RAJIVE BHALLA) JUDGE 18.7.2013VK ( DR. BHARAT BHUSHAN PARSOON) JUDGE