DCIT 2(3), MUMBAI v. TRACTOR ENGINEERS LTD, MUMBAI

ITA 4594/MUM/2009 | 2005-2006
Pronouncement Date: 23-07-2010

Appeal Details

RSA Number 459419914 RSA 2009
Assessee PAN AAACT4499B
Bench Mumbai
Appeal Number ITA 4594/MUM/2009
Duration Of Justice 11 month(s) 17 day(s)
Appellant DCIT 2(3), MUMBAI
Respondent TRACTOR ENGINEERS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Bench Allotted I
Tribunal Order Date 23-07-2010
Date Of Final Hearing 01-07-2010
Next Hearing Date 01-07-2010
Assessment Year 2005-2006
Appeal Filed On 06-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I BEFORE SHRI N.V. VASUDEVAN (JM) & RAJENDRA SINGH (A M) I.T.A.NO. 4594/MUM/2009 (ASSESSMENT YEAR : 2005-0 6) ACIT 2(3) ROOM NO. 555 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. TRACTOR ENGINEERS LTD. L&T HOUSE N.M. MARG BALLARD ESTATE MUMBAI-400 001. APPELLANT RESPONDENT PAN/GIR NO. : AAACT4499B ASSESSEE BY : MS. HEENA DOSHI DEPARTMENT BY : SHRI SUMMET KUMAR ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 28.5.2009 OF LEARNED CIT(A)-XXX MUMBAI RELATING TO A.Y. 2005-06. 2. FIRST GROUND OF APPEAL OF THE REVENUE READS AS F OLLOWS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A) ERRED IN NOT EXAMINING THE ISSUE OF ADMISSIB ILITY OF THE EXPENSES OF RS. 35 10 985/- ALLEGEDLY INCURRED BY T HE ASSESSEE FOR PAYING TO LARSEN & TOURBO LTD. WITHOUT ANY STATUTOR Y OR CONTRACTUAL LIABILITY OF THE ASSESSEE TOWARDS THE L ARSEN & TOURBO LTD. 3. THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN T HE BUSINESS OF MANUFACTURING AND SUPPLY OF PARTS OF EARTHMOVING MA CHINERY MATERIAL HANDLING EQUIPMENTS AND OIL FIELD EQUIPMENTS. DURIN G THE YEAR UNDER REFERENCE THE ASSESSEE COMPANY HAS INCURRED AN AMO UNT OF RS. 35 10 985/- AS CANTEEN EXPENSES. THIS AMOUNT REPRES ENTS PAYMENTS MADE TO LARSEN & TOURBO LTD. FOR PROVIDING MEALS T EA SNACKS ETC. TO THE EMPLOYEES OF THE ASSESSEE COMPANY. THE SAID AMOUNT HAD BEEN REIMBURSED AGAINST DEBIT NOTES RAISED BY LARSEN & T OURBO LTD.(L&T LTD.) ON THE ASSESSEE COMPANY. THE ASSESSEE SUBMITTED THA T UNIT AT POWAI M/S. TRACTOR ENGINEERS LTD. 2 MUMBAI WAS SITUATED WITHIN A HUGE MANUFACTURING CO MPLEX OF M/S .LARSEN & TOUBRO LTD.(L&T LTD.) AT SAKI VIHAR ROAD POWAI. AS ITS PLANT WAS SITUATED WITHIN L&T LTD.S COMPLEX IT AVAILED OF VARIOUS SERVICES AND FACILITIES WHICH ARE CENTRALLY AVAILABLE FOR L&T L TD. UNITS AT POWAI. L&T LTD. MEETS THE ENTIRE COST OF CANTEEN AND CHARGES T HE GROUP COMPANIES BASED ON THE AGREED MENU AND THE NUMBER OF EMPLOYEE S CATERED TO. THE ASSESSEE IS ALSO A GROUP COMPANY OF L & T LTD. AD DITIONALLY THE ASSESSEE HAS ENTERED INTO THE MEMORANDUM OF SETTLEM ENT WITH THE EMPLOYEES UNION UNDER SECTION 12(3) READ WITH SECT ION 18(3) OF THE INDUSTRIAL DISPUTE ACT 1947 BEFORE THE CONCILIATIO N OFFICER BOMBAY. ONE OF THE TERMS OF SETTLEMENT INCLUDES PROVISIONS OF MEALS TEA SNACKS ETC. TO ITS EMPLOYEES. UNDER SEC.40A(9) OF THE ACT ANY SUM PAID BY AN ASSESSEE AS AN EMPLOYER TOWARDS CONTRIBUTION TO ANY COMPANY FOR ANY PURPOSE WILL BE ALLOWED AS A DEDUCTION ONLY TO THE EXTENT PERMITTED BY THE RELEVANT LAW UNDER WHICH THE SAID CONTRIBUTION IS MADE. THE ASSESSEE SUBMITTED THAT HAVING REGARD TO THE LEGISL ATIVE HISTORY OF SECTION 40A(9) THE IMPUGNED EXPENDITURE DOES NOT A TTRACT SECTION 40A(9). THIS IS BECAUSE SECTION 40A(9) WAS BROUGHT ON THE STATUTE TO CHECK THE PRACTICE OF FORMING DISCRETIONARY TRUSTS AND CLAIMING AS DEDUCTION OF LARGE SUMS OF MONIES CONTRIBUTED TO SU CH TRUSTS PURPORTEDLY SET UP TO PROMOTE EMPLOYEE WELFARE. TH E ASSESSEE POINTED OUT THAT LARSEN & TOURBRO GRAHAK SAHAKARI SAUNSTHA MARYADIT OPERATES CANTEEN FACILITIES FOR L&T GROUP OF COMPANIES AT TH E POWAI COMPLEX. L&T MEETS THE ENTIRE COST OF THE CANTEEN AND CHARGES TH E GROUP COMPANIES BASED ON THE AGREED MENU AND THE NUMBER OF EMPLOYEE S CATERED TO. THEREFORE IT IS A CASE OF EXPENDITURE INCURRED BON AFIDE BY THE ASSESSEE ON PROVIDING FOOD TO ITS EMPLOYEES AT WORK PLACE. T HE PAYMENT WAS NOT MADE TO SET UP OR MAINTAIN ANY FUND/TRUST LEAST OF ALL A DISCRETIONARY TRUST. ONCE PAID THE ASSESSEE HAS NO CONTROL OVER THE FUNDS. IN SHORT IT WAS CONTENDED THAT THE AMOUNT REPRESENTS EXPENDITUR E ACTUALLY INCURRED IN TERMS OF THE EMPLOYEES SERVICE AGREEMENT. IT WAS CONTENDED THAT THE EXPENDITURE IS NOT HIT BY SECTION 40A(9) AS CLE ARLY RECOGNIZED IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF SECTION 40A (9). M/S. TRACTOR ENGINEERS LTD. 3 4. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE CONTENTIONS ON BEHALF OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER PROVISIONS OF SECTION 40A(9) OF THE ACT WERE ATTRACTED AND THE AS SESSING OFFICER ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FO R DEDUCTION. THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE ASSESSIN G OFFICER THAT ITAT IN ASSESSEES OWN CASE FOR A.Y. 1989-90 TO 1996-97 IN ITA NO. 9521/BOM/91 DATED 31.8.1999 WAS PLEASED TO DELETE SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE ASS ESSING OFFICER HOWEVER HAS OBSERVED IN ASSESSMENT ORDER THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE ITAT AND HAS FILED AN APPEAL BEFORE HON'BLE BOMBAY HIGH COURT U/S. 260A OF THE ACT. THE ASSESSI NG OFFICER ACCORDINGLY MADE THE DISALLOWANCE. 5. ON APPEAL BY THE ASSESSEE LEARNED CIT(A) DELETE D THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOLLOWING THE TRIBUNA LS ORDER IN ASSESSEES OWN CASE FOR A.Y. 1989-90 TO 1996-97. AGGRIEVED B Y THE ORDER OF LEARNED CIT(A) THE REVENUE HAS RAISED GROUND NO. 1 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THIS ISSUE HAD COME UP FOR CONSIDERATION IN ASSESSEES OWN CASE AND THIS TRIBU NAL HELD AS FOLLOWS :- WE DO NOT FIND MERIT IN THE CONTENTION OF THE LEAR NED DR. UNDISPUTEDLY THE SETTLEMENT IN THE UNION WAS ENTER ED INTO BEFORE THE CONCILIATION OFFICER UNDER THE RELEVANT PROVISI ONS OF INDUSTRIAL DISPUTES ACT SO WE ARE OF THE VIEW THAT THE EXPEND ITURE IN QUESTION IS STATUTORILY REQUIRED UNDER THE TERMS OF ANY OTHER LAW FOR THE TIME BEING IN FORCE AS CONTEMPLATED UNDER T HE PROVISIONS OF SECTION 40A(9). THE GROUND IS ALLOWED. IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN RESPECT O F IDENTICAL ISSUE IN A.Y. 1990-91 THE TRIBUNAL HAD DELETED SIMILAR DISALLOWA NCE FOLLOWING THE ORDER MADE BY THE TRIBUNAL IN A.Y. 1989-90 REFERRED TO ABOVE. THE REVENUE PREFERRED THE APPEAL BEFORE HON'BLE BOMBAY HIGH COURT IN ITA NO. 504 OF 2005 AND HON'BLE BOMBAY HIGH COURT BY IT S JUDGMENT DATED 21.1.2009 DISMISSED THE REVENUES APPEAL ON THE ABO VE ISSUE. IN VIEW OF M/S. TRACTOR ENGINEERS LTD. 4 THE ABOVE WE CONFIRM THE ORDER OF LEARNED CIT(A) A ND DISMISS GROUND NO. 1 RAISED BY THE REVENUE. 7. GROUND NO. 2 RAISED BY THE REVENUE READS AS FOLL OWS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE EXPENSES O N ACCOUNT OF COMMISSION TO AGENTS WITHOUT THERE BEING ANY EVIDE NCE TO SHOW THAT THE ALLEGED AGENTS HAVE RENDERED ANY SERVICE T O THE ASSESSEE. 8. THE ASSESSEE HAD CLAIMED AS A DEDUCTION UNDER TH E HEAD COMMISSION EXPENSES THE FOLLOWING SUMS :- S. NO NAME OF THE AGENT AMOUNT NAME OF THE CLIENT FOR WHO M THE SERVICES OF COMMISSION AGENT AVAILED 1 AADINATH INDIA PVT. LTD. 102 753 ONGC-DEHRADUN SHREE CEMENTS 2 BOMBAY REFRIGERATION 265 766 RAICHUR THERMAL POW ER STATION ACC-WADI 3 EASTERN TRADE & AGENCIES 150 263 ONGC-SIBSAGAR ONGC-JORHAT 4 GLOBAL MARKETING SERVICES 257 348 ONGC-ANKLESHWA R ONGC-MEHSANA 5 SHAILJA ENTERPRISES 122 261 ECL 6 RAJ ENTERPRISES 190 559 CHENNAI PORT TRUST-CHENN AI HVF-AVADI 7 LPF SYSTEMS PVT. LTD. 184 670 OFMK-MEDAK BHEL-HYDERABAD THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO F URNISH THE NATURE OF SERVICES RENDERED FOR WHICH COMMISSION WAS PAID. IN RESPONSE THERETO THE ASSESSEE VIDE LETTER DATED 1.11.2007 GAVE THE B RIEF NATURE OF SERVICES RENDERED BY EACH OF THE PARTIES IN CONSIDERATION OF WHICH THE COMMISSION WAS PAID :- A) GENERATION OF BUSINESS REPORTS CUSTOMER-WISE/AREA W ISE AND PRODUCT-WISE FOR THE COMPANYS (TENGL) PRODUCTS AS WELL AS MARKET SHARE DATA ANALYSIS B) ATTENDING QUARTERLY BUSINESS REVIEW MEETING WITH TE NGL. C) PREPARATION OF REQUIREMENT/FORECAST BASED ON MARKET INTELLIGENCE D) FOLLOW-UP OF ENDERS AND ENQUIRIES E) TECHNICAL AN ADMINISTRATIVE LIAISON AND CO-ORDINATI ON WITH CUSTOMER. M/S. TRACTOR ENGINEERS LTD. 5 F) ARRANGE AND OTHERWISE INDEPENDENTLY MEET CONCERNED OFFICIALS. G) FOLLOW-UP FOR ALL RECEIVABLES ON OR BEFORE DUE DATE . H) MONITOR PRODUCT PERFORMANCE OF TENGL AS WELL AS COMPETITORS PRODUCTS AND SEND REPORTS AT REGULAR I NTERVALS. I) TO GENERATE ENQUIRIES ARRANGE TECHNICAL MEETING J) DEMONSTRATION OF PRODUCTS FOLLOW UP FOR PROCUREMEN T CO- ORDINATE EXECUTIONS FOLLOW UP AT EVERY STAGE K) TECHNO-COMMERCIAL ASSISTANCE L) CO-ORDINATE WITH OFFICIAL OF THE COMPANY ON THE INTERPRETATION OF TENDER SPECIFICATIONS TECHNO COM MERCIAL REQUIREMENTS THE ASSESSEE ALSO SUBMITTED THAT WHILE ENGAGING THE ABOVE SERVICES FROM THE RESPECTIVE PARTIES THE COMPANY ALSO ENSURED TH AT :- A) SUCH PARTIES HAVE SPECIALIZED TECHNICAL ENGINEERIN G AND MARKETING KNOWLEDGE IN THE CONCERNED INDUSTRIES; B) PAYMENT IS BEING MADE ONLY AFTER FIRM AND WORKABLE ORDER IS RECEIVED; C) THE AMOUNT OF COMMISSION WAS FIXED AFTER NEGOTIATIO N WHILE APPRAISING THE KIND OF SERVICES AVAILED FROM RESPEC TIVE PARTIES; D) THERE IS NO SHARING OF ANY BUSINESS INFORMATION (IN CLUDING WITH MEDIA) WITHOUT WRITTEN CONSENT FROM THE COMPAN Y. E) NO COMMITMENT WOULD BE MADE BY THE PARTY ON BEHALF OF THE COMPANY WITHOUT COMPANYS CONSENT AND F) THE PAYMENTS TOWARDS COMMISSION WERE MADE ONLY BY W AY OF CROSSED ACCOUNT PAYEE CHEQUES TO THE PARTIES AS PER COMPANYS POLICY AND SUBJECT TO DEDUCTION OF TAX AT SOURCE. THE ASSESSEE SUBMITTED THAT COMMISSION WAS PAID TO THE CONCERNED PARTIES FOR VARIOUS TECHNICAL/ADMINISTRATIVE/MANAGE RIAL MARKETING AND LOGISTIC SERVICES RENDERED BY THEM AS DETAILED ABOV E. 9. THE ASSESSING OFFICER ISSUED NOTICE U/S. 133(6) OF THE ACT ASKING THE CLIENTS OF THE ASSESSEE AS TO WHETHER THEY DEAL T WITH THE ASSESSEE THROUGH ANY COMMISSION AGENT. THE CLIENTS OF THE AS SESSEE CONFIRMED THAT THEY HAD DEALINGS WITH THE ASSESSEE COMPANY BU T NOT THROUGH COMMISSION AGENT. WHEN THIS WAS POINTED OUT TO THE ASSESSEE THE ASSESSEE REPLIED THAT THE COMMISSION AGENTS RENDERE D SERVICES AS IF THEY WERE PART OF THE ASSESSEE WITHOUT DISCLOSING THAT T HEY WERE ACTING AS COMMISSION AGENT. THE ASSESSEE EXPLAINED THAT THIS IS THE REASON WHY M/S. TRACTOR ENGINEERS LTD. 6 CLIENTS HAVE SAID THAT THEY HAD NO DEALINGS THROUGH ANY COMMISSION AGENTS. THE ASSESSEE FURTHER POINTED OUT THAT THE FACT THAT THE CLIENTS HAD DEALINGS WITH THE ASSESSEE WERE CONFIRMED BY T HE CLIENTS AND IT IS ONLY IN RESPECT OF SUCH BUSINESS PROCURED THAT THE COMMISSION WAS PAID AND THEREFORE THE CLAIM OF THE ASSESSEE SHOULD BE A LLOWED. THE ASSESSEE ALSO FURNISHED PAN DETAILS OF COMMISSION AGENT SAM PLE COPIES OF AGREEMENT WITH THE COMMISSION AGENT AND SAMPLE COPI ES OF THE INVOICE RAISED BY THE COMMISSION AGENT. THE ASSESSEE ALSO F URNISHED THE STATEMENT INDICATING DETAILS OF CHEQUE NUMBER IN RE SPECT OF PAYMENT OF COMMISSION ADDRESS OF COMMISSION AGENT ETC. 10. THE ASSESSING OFFICER HOWEVER WAS OF THE VIEW THAT THE CLIENTS OF THE ASSESSEE DENIED HAVING HAD ANY TRANSACTIONS WIT H THE ASSESSEE THROUGH A COMMISSION AGENT AND THAT THEY WERE DEALI NG WITH THE ASSESSEE ON PERSON TO PERSON BASIS. THE ASSESSING OFFICER THEREFORE WAS OF THE VIEW THAT THE EXPENDITURE IN QUESTION WAS NO T INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE CLIENTS IN MOST OF THE CASES WERE GOVERNMENT COMPANIES AND IN SUCH EVENT PAYMENT OF COMMISSION IN SUCH CASES HAS TO BE HELD AS HIT BY THE PROVISIONS OF EXPLANATION TO SECTION 37(1) WHICH LAYS DOWN THAT ANY EXPENDITURE INCURRED BY THE ASSE SSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW S HALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE DEDUCTION ON ACCOUNT OF COMMISSION PAID OF SUM OF RS. 12 73 620/-. 11. ON APPEAL BY THE ASSESSEE LEARNED CIT(A) DELET ED THE ADDITION MADE BY THE ASSESSING OFFICER. THE LEARNED CIT(A) H ELD THAT THE ASSESSEE HAS EXPLAINED THE NATURE OF SERVICES RENDERED BY TH E COMMISSION AGENT. THERE WAS WRITTEN AGREEMENT BETWEEN THE ASSESSEE AN D RECIPIENT OF THE COMMISSION. THE AMOUNT OF COMMISSION HAS BEEN PAID THROUGH CROSS ACCOUNT PAYEE CHEQUE. THE ASSESSEE HAS FURNISHED PA N OF COMMISSION RECIPIENT. THE LEARNED CIT(A) THEREFORE HELD THAT T HE ASSESSEE HAD M/S. TRACTOR ENGINEERS LTD. 7 ESTABLISHED COMMISSION EXPENSES INCURRED WERE WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IS ALLOWABLE AS DED UCTION. THE LEARNED CIT(A) ALSO HELD THAT THE ASSESSING OFFICER HAS MAD E THE ADDITION WITHOUT MAKING PROPER AND SUFFICIENT INQUIRIES. 12. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) THE R EVENUE HAS RAISED GROUND NO. 2 BEFORE THE TRIBUNAL. 13. WE HAVE HEARD THE SUBMISSIONS OF LEARNED DR. T HE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. THE L EARNED COUNSEL FOR THE ASSESSEE BESIDES RELYING ON THE ORDER OF LEARNED CI T(A) FURTHER BROUGHT TO OUR NOTICE THAT IN THE EARLIER YEARS NO SUCH DI SALLOWANCE WAS MADE ON THIS ACCOUNT. IT WAS ALSO BROUGHT TO OUR NOTICE THA T IN A.Y. 2006-07 DETAILS OF COMMISSION WAS CALLED FOR BY THE ASSESSI NG OFFICER AND FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER CO MPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT ACCEPTING THE PAY MENT OF COMMISSION AS ONE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE. THE RELEVANT DOCUMENTS IN THIS REGARD WER E FILED BEFORE US. THE LEARNED DR HOWEVER SUBMITTED THAT THE ISSUE HAS T O BE DECIDED IN THE LIGHT OF THE INQUIRIES MADE BY THE ASSESSING OFFICE R IN THE CURRENT ASSESSMENT YEAR AND THE FACT THAT NO DISALLOWANCE W AS MADE IN THE PAST AND IN THE SUBSEQUENT ASSESSMENT YEAR WILL NOT BE R ELEVANT. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS. SOME OF TH E SAMPLE BILLS RAISED BY THE RECIPIENT OF THE COMMISSION HAVE BEEN FILED IN THE PAPER BOOK. ONE OF THE RECIPIENT OF THE COMMISSION M/S. G LOBAL MARKETING SERVICES HAS RAISED BILLS IN RESPECT OF SERVICE CHA RGES FOR LIAISON WORK DONE WITH ONGC. THESE BILLS ARE AT PAGE NO. 87-88 O F THE PAPER BOOK. SIMILARLY COMMISSION PAID TO BOMBAY REFRIGERATION IS PURSUANT TO AN INVOICE DATED 31.8.2004 IN WHICH DESCRIPTION IS JU ST COMMISSION. THIS INVOICE IS AT PAGE NO. 89 OF THE PAPER BOOK. SIMILA RLY IN RESPECT OF THE COMMISSION PAID TO AADINATH INDIA PVT. LTD. THERE ARE INVOICE RAISED; COPY OF WHICH AT PAGE NO. 90-91 OF THE PAPER BOOK. THIS INVOICE MENTIONS THE DESCRIPTION OF SERVICE AS COMMISSION CHARGES AG AINST PURCHASE ORDERS M/S. TRACTOR ENGINEERS LTD. 8 OF SREE CEMENTS LTD. AND J.K. CEMENTS WORKS. THE CO PIES OF THE AGREEMENT BETWEEN THE ASSESSEE FOR RENDERING SERVIC ES OF THE RECIPIENT OF COMMISSION HAVE BEEN FILED BEFORE US AND THEY ARE A T PAGE NO. 93 TO 113 OF THE PAPER BOOK. THE ASSESSING OFFICER ISSUED NOT ICE U/S. 133(6) TO THE CLIENTS OF THE ASSESSEE. THE CLIENTS OF THE ASSESSE E ACCEPTED THAT THEY HAD TRANSACTIONS WITH THE ASSESSEE; BUT THEY HAD STATED THAT THEY DEALT WITH THE ASSESSEE DIRECTLY AND NOT THROUGH ANY AGENT. TH E ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE FACT THAT PER SONS WHO DEALT WITH THE CLIENTS WERE COMMISSION AGENT OF THE ASSESSEE WAS N OT DISCLOSED TO THE CLIENTS AND THIS WAS THE REASON WHY CLIENTS HAVE EX PLAINED THAT THEY DID NOT DEALT WITH ANY AGENT. THOUGH SAMPLE INVOICE FIL ED BY THE ASSESSEE GAVE NATURE OF SERVICES RENDERED BY THE RECIPIENT O F THE COMMISSION AGENT THAT BY ITSELF WILL NOT BE CONCLUSIVE ESPECI ALLY IN A CASE WHERE THE SERVICES RENDERED ARE CLAIMED TO BE FOR LIASONING W ITH GOVERNMENT AGENCIES. THE BURDEN WAS ON THE ASSESSEE TO SHOW TH AT COMMISSION WAS PAID FOR SERVICES RENDERED. THE ASSESSEE IS ALSO BO UND TO PROVE THE NATURE OF SERVICE RENDERED FOR WHICH COMMISSION WA S PAID. THE SAMPLE BILLS FILED BY THE ASSESSEE WILL NOT BE SUFFICIENT TO PROVE THE CLAIM OF THE ASSESSEE. THE FACT THAT THE PAYMENT OF COMMISSION W AS UNDER AN AGREEMENT OR THE PAYMENT WAS BY CHEQUE WILL NOT BE CONCLUSIVE IN THE MATTER. THE ASSESSING OFFICER DID NOT EXAMINE THE R ECIPIENT OF THE COMMISSION TO FIND OUT THE EXACT NATURE OF SERVICE. THE ASSESSING OFFICER HAS DRAWN AN ADVERSE INFERENCE ON THE BASIS OF REPL IES GIVEN BY THE CLIENTS. IN OUR VIEW LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSEE TO ESTABLISH THE NATURE OF SERVICES RENDERED. IT IS ON LY WHEN THE NATURE OF SERVICES ARE EXPLAINED THAT THE ASSESSING OFFICER C AN EXAMINE AS TO WHETHER EXPENDITURE IN QUESTION WAS HIT BY THE PRO VISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. MERE OBSER VATION BY THE ASSESSEE THAT THE RECIPIENT OF THE COMMISSION RENDERED LIAIS ON SERVICES WILL NOT BE SUFFICIENT BECAUSE THE MAJOR PORTION OF COMMISSION WAS WITH REFERENCE TO LIASONING WITH GOVERNMENT ORGANIZATIONS. WE THEREFO RE SET ASIDE THE ORDER OF LEARNED CIT(A) AND REMAND THE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSEE WILL ESTABLISH TH E NATURE OF SERVICES M/S. TRACTOR ENGINEERS LTD. 9 RENDERED FOR WHICH COMMISSION WAS PAID. THE ASSESSI NG OFFICER WILL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER AFFOR DING THE ASSESSEE OPPORTUNITY OF BEING HEARD. GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT APPEAL BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED ON 23 RD DAY OF JULY 2010. SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 23 RD JULY 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS