BISQUARE TECHNOLOGIES P LTD Vs. ITO
LAWS(IT)-2008-1-17
INCOME TAX APPELLATE TRIBUNAL
Decided on January 31,2008

Appellant
VERSUS
Respondents

JUDGEMENT

R.C. Sharma, A.M. - (1.) THIS is an appeal filed by the assessee against the order of Commissioner (Appeals)-XIX, New Delhi, dated 8-2-2005 for the assessment year 2001-02, in the matter of order passed under Section 143(3) of the Income Tax Act, 1961, wherein following grounds of appeal have been taken with regard to disallowance of commission income: The learned Commissioner (Appeals) erred in law and on facts in confirming disallowanceof Rs. 9,50,000 for commission paid to M/s. Narendra Presstech (P.) Ltd. forservices rendered by it to the assessee ignoring the facts and evidences placed on record. Thus, the addition may be deleted.
(2.) Rival contentions have been heard and record perused. The briefs of the case are that the assessee-company was deriving income from business of information technology and providing digital security solutions for networking, internet multimedia, and also claims to have carried on research and development in the area of robotics, ASIC, micro controller etc. During the course of scrutiny assessment, after verification of books of account, the assessing officer found that the assessee had shown consultancy income of Rs. 1.59 crores and sale of goods at a value of Rs. 12.48 lakhs. The assessing officer observed that the names and addresses of all its clients to whom the assessee-company actually rendered consultancy services as well as provided other services during the year, and the extent of expenditure incurred during the year on each of such assignments have not been explained and corroborated with proper verifiable records. The income declared for the year was on account of fee received for licensing of its fixed assets, namely, "set top box technology to M/s. Cybermatics Network (P.) Ltd. The assessing officer found that against this income, a sum of Rs. 9,50,000 in the form of commission was booked by the assessee under the head "General expenses". It was explained that this commission was paid to M/s. Narendra Press Tech Pvt. Ltd. and the commission was claimed on the sales orders of Rs. 1.15 crores. The assessing officer observed that it was simply an arrangement made by the assessee to lower its profit for the year and, in fact, no services were rendered by M/s. Narendra Press Tech Pvt. Ltd. who are not in this field. He concluded that simply debiting expenses under certain head and to make credit to a party at the end of the year to adjust the taxability of profit will not make the assessee entitled to a deduction of expenses which in real sense has not been incurred. The action of the assessing officer was confirmed by the Commissioner (Appeals) by observing that the assessee has failed to furnish any cogent, relevant and reliable evidence to prove that the above party had actually rendered any services for the purpose of assessee's business. Accordingly, the expenditure on commission amount-ing to Rs. 9,50,000 was held to be not incurred wholly and exclusively for the purpose of business. It was contended by the learned Authorised Representative that sales of the company has increased from Rs. 35,000 to Rs. 1.95 crores and the commission agent has procured the orders of the company for Rs. 1.5 crores and in turn the assessee-company paid commission in consideration of the services rendered by them. The identity of the commission agent was established and he has also confirmed the same in reply to the assessing officer's query under Section 133(6) of the Act. As per learned Authorised Representative, the commission income was properly accounted for by the recipient and offered to the department in the return of income of recipient who was regularly assessed to tax and his PAN number was also furnished. On the other hand, learned Departmental Representative submitted that neither the assessee nor the recipient of the commission income could explain the nature of services rendered for procuring the orders, therefore, lower authorities were justified in disallowing the same, by recording concurrent finding to this effect. We have considered the rival contentions, carefully gone thorough the orders of the authorities below and also other material placed on record. We found that the assessee has explained the payment of commission to M/s. Narendra Presstech (P.) Ltd. by account payee cheque in consideration of sales order procured by him. However, precise nature of services rendered for procuring the order along with relevant correspondence was not furnished by the assessee. The assessing officer has also issued notice under Section 133(6) of the Act directly to M/s. Narendra Presstech (P.) Ltd. and which has been replied by it vide its letter dated 25-2-2003. After receipt of this letter, the assessing officer observed that no services were rendered by M/s. Narendra Presstech. By quoting the contents of the letter with regard to nature of services rendered, the assessing officer inferred that it was simply an arrangement made by the assessee and in fact no services were rendered. The Commissioner (Appeals) has also confirmed the disallowance just by stating in general terms that deduction for commission expenses cannot be allowed under Section 37(1) of the Act when it is not provedthat expenditure was incurred wholly and exclusively for the purposes of business. The Commissioner (Appeals) concluded that the facts of the case indicate that the assessee has failed to furnish any cogent, relevant and reliable evidence to prove that the above party had actually rendered any services for the purpose of business. The allegation of the assessing officer that recipient of commission income was not in the field in which the assessee was dealing with ie., information technology, was not replied by assessee with support of any material on record. If the assessing officer had any doubt, he should have issued notice under Section 131 of the Act to the concerned person and record his statement to find out the factual thing which he has failed to do. The Commissioner (Appeals) has also got co-terminus powers which he has not exercised to find out the services rendered by commission agent in respect of sales orders having been procured and in connection with which the assessee has paid the commission amount. However, the assessee has also failed to brought on record in clear terms as to what are the precise services actually rendered for which the assessee has paid Rs. 9.50 lakhs and the basis of its computation. Mere non-existence of any written agreement in advance cannot be made the reasons for disallowing the genuine business expenditure incurred in the course of business. Whether services are actually rendered or not is a question of fact. The decision of co-ordinate Bench dated 8-9-2006 as cited by the learned Authorised Representative, in case of ITO v. Jetendra Dev Seth in I.TA No. 1786/ Delhi/2003, wherein appeal of revenue was dismissed, was based on the finding recorded by the Commissioner (Appeals). In that case, categorical finding was recorded by the Commissioner (Appeals) with regard to precise nature of services rendered by commission agent. As the revenue could not controvert the finding of Commissioner(Appeals) which was as per material on record, the Tribunal did not interfere such finding of Commissioner(Appeals) resulting into deletion of disallowance of commission. Whereas in the instant case concurrent finding has been recorded by both the lower authorities that assessee could not explain the services rendered by commission agent to whom commission of Rs. 9.50 lakhs was paid by the assessee. Thus, the decision cited by the learned Authorised Representative cannot be said to cover the issue in the present appeal, the contentions of the learned Authorised Representative to this effect is, therefore, rejected. In view of above discussion, we set aside both the orders of the lower authorities and the matter is restored back to the file of the assessing officer for deciding the issue afresh and the assessee is also directed to state precisely the services rendered and to produce relevant correspondence with the recipient of the commission income as well as the third party from whom the orders were alleged to be procured. Needless to say that the assessee should be given due opportunity to explain and the assessing officer may also call upon the recipient of the commission by issuing summons under Section 131 to find out the factual position regarding field in which he was operating and the nature of services precisely rendered to the assessee for getting the commission income along with the correspondence entered into by it. We direct accordingly. This ground is allowed for statistical purposes.
(3.) FOLLOWING grounds have been taken by the assessee with regard to denial of claim of depreciation: 1. The learned Commissioner (Appeals) erred in law and on facts in confirming the disallowance of depreciation of Rs. 32,81,530 on various assets purchased and put to use by the assessee in its business during the year under consideration ignoring the facts and evidences placed on record. Thus the disallowance so made should be deleted. 2. That the order of the learned Commissioner (Appeals) is wrong on the facts and erroneous in point of law which should be quashed and total addition of Rs. 42,31,530 should be deleted. 3. The learned assessing officer hurriedly framed and passed the assessment order without affording sufficient opportunity to the appellant and, therefore, the action of the assessing officer should be reversed. 4.The appellant craves the leave to add, substitute, modify, delete or amendall or any ground of appeal either before or at the time of hearing.;


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