Umakant B. Agrawal v. The Deputy Commissioner Ofincome Tax – 9(1).…

bsb IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1906 OF 2011 Umakant B. Agrawal … Appellant v/s The Deputy commissioner ofIncome Tax – 9(1).… Respondent Mr.J.D. Mistry, senior counsel with Niraj Seth i/by Mint & Conferers for the appellant. Mr.Arvind Pinto for the respondent. CORAM: S.C. DHARMADHIKARI & G.S. KULKARNI, JJ. DATED : 12TH MARCH, 2014 P. C. : 1This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) challenges the judgment and order passed by the Income Tax Appellate Tribunal dated 27[th ]October, 2010. 2The Income Tax Appellate Tribunal allowed the appeal of the respondent revenue and reversed the order of the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), had by his order dated 16[th] June, 2009 set aside the order of the Assessing Officer dated 30[th] December, 2008. 3Mr.Mistry, learned senior counsel appearing on behalf of the appellant would urge that the questions of law which are formulated by the appellant at page 9 of the paper-book are substantial and would arise for determination and consideration in this appeal. 4He submits that, in such cases this Court must necessarily find out as to what is the onus on a party like the appellant assessee. Mr.Mistry submits that, if the details have been provided as sought by the Assessing Officer including the identification of the parties, the nature of the dealings and the transactions, monies paid, then, this is a case where the primary onus has been discharged. Once it has been discharged by the assessee, then, really the burden shifts on the revenue. The revenue has then to consider and hold as to whether the primary onus, and which is claimed to be discharged, has indeed been done and it has been discharged. Unless and until the revenue is able to demonstrate and prove the negative by producing contrary material, the assessee must succeed. 5Inviting our attention to the nature of the transactions, it is submitted by Mr.Mistry that Shree Digvijay Cement Co. Ltd. is the manufacturer and supplier of cement. Admittedly, the assessee appellant before this Court is trading in cement and was appointed as an agent of M/s.Shree Digvijay Cement Co. Ltd. In earning business for M/s.Grasim Industries Ltd., what the appellant has done is to get in touch with several parties. The nature of the agreement between M/s.Grasim and the appellant allowed the appellant to engage the services of a sub-agent on commission basis. Such services have been engaged of M/s.Panjon Pharma Ltd. and M/s.Suvidha Realtors & Construction (P) Ltd. (hereinafter referred to as “M/s.Suvidha”). These are the instances cited in the assessment proceedings. These parties were identified. The nature of the arrangement between appellant and these two parties was produced on record. It is through these parties that the appellant was able to reach out to several corporate and public sector undertakings which were implementing and executing public projects. The cement was supplied at the site of these projects. In such circumstances, there was nothing fishy or underhand about any of these dealings as alleged. In such circumstances, the Commissioner of Income Tax (Appeals) in allowing the appeal of the appellant assessee did not commit any error of law or perversity enabling the Income Tax Appellate Tribunal to reverse the findings of fact. The appeal of the appellant was allowed by assigning cogent and satisfactory reasons. Once the appellate authority had before it the entire material, then, merely because another view is possible and on the same factual aspects, the Income Tax Appellate Tribunal could not have reversed the order of the Commissioner of Income Tax (Appeals). The Income Tax Appellate Authority in reversing the said order has held that the appellant has failed to discharge the burden cast upon him by law. Mr.Mistry would submit that the appellant cannot be expected to discharge the burden and to prove which is impossible. The burden was discharged by production of the documents which evidence the dealings and transactions, disclose the identity and equally the bank accounts of parties. Once the cement has been supplied, the receiving entity such as Oil & Natural Gas Commission, the Irrigation Department, M/s.Shapoorji Pallonji & Co. Ltd., have been indicated in the correspondence of M/s.Panjon Pharma, then, the very approach of the Tribunal in reversing the finding of fact, gives rise to a substantial question of law. 6Mr.Mistry would rely upon (1) the Division Bench judgment of this Court in the case of Commissioner of Income Tax v/s Sigma Paints Ltd., reported in 1991 Vol.188 ITR 6; (2) the judgment of the Calcutta High Court in the case of Mather & Platt (India) Ltd. v/s Commissioner of Income Tax, reported in 1987 Vol.168 ITR 493; and (3) the judgment of the Gujrat High Court in the case of Swastic Textiles Co. Pvt. Ltd. v/s Commissioner of Income Tax, Gujrat-IV, Ahmedabad, reported in (1984) Vol.150 ITR 155. According to Mr.Mistry, all these judgments are on the point as to whether the burden is said to be discharged by production of primary documents. 7On the other hand, Mr.Pinto, the learned counsel appearing on behalf of the respondent, would urge that this appeal does not give rise to any substantial question of law. He submits that this is an attempt of re-appreciation and re-appraisal of factual material which is improper. There is absolutely no perversity in the finding of the Income Tax Appellate Tribunal, rather, the Tribunal has performed its duty in law of reversing the order of the Commissioner of Income Tax (Appeals). The Tribunal has meticulously scrutinized and verified all the requisite details and has upheld the findings of the Assessing Officer. It has upheld the finding of the Assessing Officer by assigning cogent and satisfactory reasons. Ultimately, in all such matters, the test is of preponderance of probabilities. In such circumstances, the appeal does not give rise to any substantial question of law and should therefore be dismissed. 8We have with the assistance of the learned counsel for the parties perused the memo of appeal and all the annexures including the impugned order. We have also carefully perused the relevant statutory provisions and the decisions brought to our notice. 9The present assessee, admittedly, claimed that there was a principal – agent relationship between M/s.Grasim Industries and appellant. Being a trader and dealer in cement and cement products, M/s.Grasim Industries appointed the appellant as its agent and to enable it to procure business through the appellant. The appellant in turn got into touch with several parties and through whom he obtained details of on going projects of major entities, public sector corporation and Government undertakings. It is on that basis that the parties informed the appellant that such of these entities which are implementing the project would require cement in 9The present assessee, admittedly, claimed that there was a principal – agent relationship between M/s.Grasim Industries and appellant. Being a trader and dealer in cement and cement products, M/s.Grasim Industries appointed the appellant as its agent and to enable it to procure business through the appellant. The appellant in turn got into touch with several parties and through whom he obtained details of on going projects of major entities, public sector corporation and Government undertakings. It is on that basis that the parties informed the appellant that such of these entities which are implementing the project would require cement in large quantity. That is how the business was procured and the assessee tried to urge that from the commission amount paid by M/s.Grasim Industries to him he can book the expenses. He booked the expenses by pointing out that M/s.Panjon and M/s.Suvidha Realtors & Construction (P) Ltd. assisted him in obtaining details of the business. That is how they have been remunerated and which payments were essentially probed. 10The Assessing Officer had, before him, the details of payment of commission of M/s.Grasim Industries to the appellant. They were to the tune of Rs.One crore and fifty nine lacs approximately. The appellant booked the expensesof Rs.One crore twenty two lacs approximately i.e. payment to certain entities who assisted him in procuring the business. The claim was of sub-agency. In probing such claimss, the Assessing Officer has found that the appellant named the two entities, namely, M/s.Panjon Pharma and M/s.Suvidha. Therefore, the Assessing Officer called upon the appellant to prove the nature of the services provided by these two entities and with their details. The Assessing Officer found, as a matter of fact, that the details were furnished, save and except the nature of the services. The Assessing Officer found that one of the entities, M/s.Panjon Pharma was not in business of trading in cement but was a pharmaceutical company. He, therefore, held that there was no evidence on record to show that the assessee procured business with the help of the service of brokers. Notices were addressed to companies who are stated to be in receipt of commission. They were called upon to furnish the relevant details including the copies of the agreement with the assessee for payment of commission and copies of the bills raised on the assessee for commission. They were also asked to confirm the nature of the services rendered with proof of the transactions for the earlier and subsequent years. They were also called upon to furnish copies of the service tax returns filed by them as well as ledger account of the assessee in their books. The notices addressed were returned unserved with the postal remark “not found”. The assessee was, therefore, told about this and was asked to furnish the details of total sales made and commission paid broker-wise for preceding three years. Copies of the agreement with the brokers and other details were sought for. The assessee furnished the names and addresses but did not furnish the details of services provided by them. 11That is how the Assessing Officer came to the conclusion that the assessee could not prove the services rendered by brokers with evidence. The instances which have been referred to by the Assessing Officer and the Income Tax Appellate Tribunal are eloquent enough. The claim was that, once M/s.Suvidha Realtors & Construction Pvt. Ltd. assisted the assessee in supplying the cement to a site of M/s. Oil & Natural Gas Commission at Dehradun. However, the bill raised by M/s.Suvidha upon O.N.G.C. has been referred to in the assessment order and the Assessing Officer noted that the commission amount which has been paid was claimed for services rendered and assistance provided to the assessee M/s.Sunrise Enterprises for procurement of orders of supply of oil well cement. The total bill raised including the service tax and education cess came to Rs.11,20,385/-. However, the bank statement of M/s.Suvidha Realtors & Constructions Pvt. Ltd. indicated that the amount credited in the said bank account of M/s. Suvidha Realtors was subsequently transferred to the account of M/s.Suvidha Realtors, another entity. 12Upon a query made to M/s.Oil and Natural Gas Commission with regard to their Dehradun site and by a notice dated 19[th ] November, 2008 resulted in Assessing Officer being informed that the postal authorities were unable to trace the site. The address given by the assessee was incomplete. That is how insofar as M/s.Suvidha Realtors & Constructions P. Ltd. is concerned, the Assessing Officer came to the conclusion that the bills are suspicious. This finding of fact, and which was based on the material produced before the Assessing Officer including his own communications, has been reversed by the Commissioner of Income Tax (Appeals). 13The Income Tax Appellate Tribunal, in a well considered reasoned order, then referred to M/s.Panjon Pharma Ltd. The details with regard to this Company were also similar and to a great extent with M/s.Suvidha Realtors & Constructions Pvt. Ltd. M/s.Panjon Pharma produced details of persons in connection with whom services were provided and the debit notes raised on the assessee which according to M/s.Panjon Pharma contained all the desired information, copies of the service tax returns, bank statements, assessee's account in the ledger, etc. The Assessing Officer noted from these details that commission was referred as selling commission. M/s.Panjon Pharma has rendered services with procurements of orders of supply of cement and release of payment : 11 : from various parties, such as, M/s.O.N.G.C. Ltd., Irrigation Department, Agriculture Department, Tata Power Ltd., M/s.Central Warehousing Company, etc. The Assessing Officer noted that M/s.Panjon Pharma was not in the business of providing any services in the past. This was the first order in which huge commission is shown to have been paid and received from the assessee appellant before us. The Assessing Officer was surprised therefore and rightly as to how the Company in the pharmaceutical business could render services in connection with sale of cement and procurement of order for supply of cement. M/s.Panjon Pharma had huge brought forward business loss which was set off against the commission income received from the assessee. The Assessing Officer also noticed that the commission amount was credited in the account of Panjon Pharma in the H.D.F.C. Bank and the next entry was to transfer this sum to another account, for the reasons which were disclosed to the Assessing Officer. 14It is in these circumstances that further details were sought for from the assessee and which have been referred to by the Income Tax Appellate Tribunal in paragraphs 6 to 9 of the impugned order. It also refers to the final notice and a detailed reply dated 19[th ] 14It is in these circumstances that further details were sought for from the assessee and which have been referred to by the Income Tax Appellate Tribunal in paragraphs 6 to 9 of the impugned order. It also refers to the final notice and a detailed reply dated 19[th ] December, 2008 furnished by the assessee. The assessee had nothing to add than to reiterate his earlier assertion. He contended that he was the authorized stockist and interested parties cannot approach him for purchasing the goods and it is he who had approached them for business. He used the contacts of M/s.Suvidha Realtors & Constructions Pvt. Ltd. and M/s.Panjon Pharma. 15We are of the opinion that the Income Tax Appellate Tribunal, therefore, did not commit any error and rather applied the correct test in reversing the order of Commissioner of Income Tax (Appeals). The appellant has not been able to discharge the burden and it is not impossible. It is a primary onus and which was to be discharged and which has been held as not discharged by providing the requisite details. These are not matters which were to the knowledge of the Assessing Officer and the assessee was called upon to clarify them. It was a matter solely to the knowledge of the appellant. It was personal to him. It was the assertion of the appellant and which was being probed, however, in greater details. It was a clear case where the onus which was resting on the assessee in law, has not been discharged by producing the details with regard to the matters which are to the personal knowledge only of the assessee. It is assessee's assertion that the two entities have been approached by him for procuring business not only for himself but through him for M/s.Grasim Industries. It is in these circumstances that the Tribunal found that the three judgments relied upon by Mr.Mistry before us will not assist the assessee any further. 16We do not find that the reasons assigned by the Tribunal consistent with the material produced are vitiated by perversity or an error of law apparent on the face of the record which would enable us to exercise our powers under Section 260A of the Act. The reasons assigned from paragraphs 19 to 21 of the impugned order would indicate that the Tribunal corrected the error which was committed by the Commissioner of Income Tax (Appeals) of interfering in findings of facts and which were not demonstrated to be perverse. 17Such an exercise of the Tribunal and in the peculiar facts and circumstances of the case do not give rise to any substantial question of law. The appeal is, therefore, devoid of any merits and deserves to be dismissed. It is accordingly dismissed. 18All the three judgments, of this Court, the Calcutta High Court and the Gujrat High Court, which have been referred before us, must be seen in the backdrop in the backdrop of the peculiar facts. In the Bombay High Court judgment, the commission paid and the extent of business done by the mill company was referred and set out with complete details. The case was a payment of secret commission. The assessee gave complete list showing the turnover and the amount of secret commission paid from year to year. The percentage of secret commission was minimal. The full details of payment in respect of several parties were available. They were co-related to the transactions which the assessee had with these persons and the period during which the transactions were entered into. The only missing item was stated to be the names of the particular parties to whom the payments were made. This, the Tribunal held, could not be supplied without detriment to the business of the assessee in the very nature of things. It is, in these circumstances, that the procedure followed was held to be justified and in upholding the payment of secret commission of Rs.1,41,346/-. From such an exercise no substantial question of law arises and that is why the appeal is dismissed.This judgment, therefore, is clearly distinguishable on facts. 19In the case of Mather & Platt (India) Ltd. (supra), commission agents were employed to sell the machinery. The assessee claimed deduction of certain amounts paid to such agents in the assessment year 1975-1976. These transactions were examined and after the summons was issued to the parties, it was revealed that payments were made by a bank draft in one case and in the case of the latter by an account payee cheque which was encashed through a bank account of the commission agent. The commission agents were identified and the records were produced. It is, in these circumstances, the deduction was allowed. However, the Tribunal held that the assessee has not discharged the burden of proving the identities of the two parties i.e. S and V. 20In reversing that finding of the Tribunal and holding that the assessee has been entering into such transactions in the regular and ordinary course of business through commission agents. As far as the case of S and V is concerned, the commission was paid and there was correspondence on record. The banking details were also available. It is in these circumstances that the Calcutta High Court held that merely because a person was not found in the address after four years, he cannot be presumed to be non-existent. That is why the Court held that the primary onus has been discharged by establishing the identities of the two commission agents and no rebuttal evidence had been brought on record by the Revenue. This judgment again must be read in the peculiar facts and circumstances emerging from the record before the Calcutta High Court. 21Equally, before the Gujrat High Court, in the case of Swastic Textile Co. Pvt. Ltd. (supra), the assessee was carrying a business of manufacturing and selling textile machinery. Commission was paid on sale of machinery by N to A mills. It is in that context that the Court found that one intermediary had brought two parties together. His statement that he brought the two parties together remained uncontroverted. That is why the Division Bench held that the Tribunal was not justified in rejecting the claim of the assessee. Therefore, when there are complete explanations and with proper details on record that the Courts have been reluctant in interfering and probing further the deals undertaken and of the nature brought before us. Thus, whether the primary onus has been discharged or not, is essentially a question of fact. The finding in that behalf cannot be interfered with unless it is demonstrated to be perverse. In the facts and circumstances before us, the finding of the Tribunal that the primary onus has not been discharged and by furnishing complete and truthful explanation, does not give rise to any substantial question of law. The appeal is, therefore, dismissed. (G.S. KULKARNI, J.) (S.C.DHARMADHIKARI, J.)