M/s. Rajesh Automobiles,, Deesa. v. The Income tax Officer, Ward-4,, Palanpur.

ITA 1572/AHD/2004 | 2000-2001
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 157220514 RSA 2004
Assessee PAN AACFT4213A
Bench Ahmedabad
Appeal Number ITA 1572/AHD/2004
Duration Of Justice 6 year(s) 14 day(s)
Appellant M/s. Rajesh Automobiles,, Deesa.
Respondent The Income tax Officer, Ward-4,, Palanpur.
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 21-05-2010
Date Of Final Hearing 27-04-2010
Next Hearing Date 27-04-2010
Assessment Year 2000-2001
Appeal Filed On 07-05-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE SHRI MUKUL SHRAWAT JM & SHRI A N PAHUJA AM] ITA NO.1572/AHD/2004 (ASSESSMENT YEAR:-2000-01) M/S RAJESH AUTOMOBILES NR. RTO CHECK POST THARAD HIGHWAY DEESA [PAN:AACFT4213A] V/S INCOME-TAX OFFICER WARD- 4 PALANPUR [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N DIVATIA AR REVENUE BY:- SHRI M C PANDIT DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 27- 02-2004 OF THE LD. CIT(APPEALS)-XV AHMEDABAD RAIS ES THE FOLLOWING GROUNDS :- 1.1 THE ORDER PASSED BY LD. CIT(A)-XV ON 27-2-2004 PARTLY CONFIRMING THE DISALLOWANCES MADE BY AO IS WHOLLY ILLEGAL AND AGAI NST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING FOLLOWING DISALLOWANCES MADE BY AO: (I) DISALLOWANCE OF INTEREST RS.1 75 000/- (II) COMMISSION TO DURGA AUTOMOBILES RS.5 22 000/- (III) COMMISSION TO GANESH SALES AGN. RS.3 55 000/ - (IV) DIFFERENCE PARTIES RS. 84 000/- (V) DIFFERENCE IN CONTRA A/C. RS. 31 937/- 1.3 THAT IN THE FACTS & CIRCUMSTANCES AND IN LAW TH E LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF ABOVE SAID EXPEN SES. 2.1 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AD VANCE TO M/S NARENDRA FINANCE WAS MADE IN THE PAST SO THAT NO DISALLOWANC E COULD BE MADE IN THE YEAR UNDER APPEAL. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE SAID CONCERN WAS CLOSED AND WHEREABOUTS WERE NOT KN OWN SO THAT THERE WAS NO QUESTION OF EARNING ANY INCOME. ITA NO.1572/AHD/2004 2 3.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING THE DISALLOWANCE OF COMMISSION TO GANESH SALES AGENCIES AND DURGA AUTOMOBILES. 3.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT TO HAVE DIRECTED AO TO ALLOW THE APPELLANT TO CROSS EX AMINE THE SAID PARTIES NOW BECAUSE THE SAID PARTIES OWING TO DISPUTES AND DIFFERENCES HAD BECOME HOSTILE INSPITE OF THERE BEING EVIDENCE OF R ENDERING SERVICES. THE APPELLANT OUGHT TO HAVE BEEN ALLOWED REASONABLE OPP ORTUNITY TO CROSS EXAMINE THEM. 3.3 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF COMMISSION IN RESPECT OF DIFFERENT PARTIES MERELY ON THE GROUND T HAT NO PROOF WAS FILED OR CONFIRMATORY LETTERS GIVEN IN RESPECT OF THE SERVIC ES PROVIDED BY THEM. THE APPELLANT OUGHT TO HAVE BEEN ALLOWED REASONABLE OPP ORTUNITY DRAWING ADVERSE INFERENCE. 4.1 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISC REPANCY IN THE ACCOUNT OF MAHENDRA & MAHENDRA LTD. IGNORING THE FACT THAT TH E APPELLANT HAD PAYMENTS THROUGH BANK. THE APPELLANT OUGHT TO HAVE BEEN PROVIDED WITH THE PRECISE DETAILS OF THE ALLEGED DISCREPANCY AND SUFFICIENT TIME TO EXPLAIN THE SAME. 5 IT IS THEREFORE PRAYED THAT THE DISALLOWANCES CON FIRMED BY CIT(A) MAY PLEASE BE DELETED OR IN ALTERNATIVE REDUCED. 2 AT THE OUTSET GROUND NO.1.1 WAS NOT PRESSED BY T HE LD. AR ON BEHALF OF THE ASSESSEE .ACCORDINGLY THE SAID GROUN D IS DISMISSED. 3. ADVERTING NOW TO GROUND NOS. 1.2(I) & 2.1 FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.2 38 795/- FILED ON 30.10.2000 BY THE ASSESSEE A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEALERSHIP OF MAHINDRA TRACTORS WA S TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE INCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT]. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO I N SHORT] NOTICED THAT THOUGH THE ASSESSEE HAD GIVEN LOAN OF RS.9 7 5 000/- TO M/S NARENDRA FINANCE IT DID NOT CHARGE ANY INTEREST ON THIS AMOUNT. THE ASSESSEE HAD CLAIMED TOTAL INTEREST EXPENDITURE OF RS.43.52 LACS ON ITA NO.1572/AHD/2004 3 BORROWED FUNDS BUT FUNDS TO THE EXTENT OF RS.9 75 0 00/- WERE UTILIZED IN GIVING INTEREST FREE LOAN AS REFERRED ABOVE. THE AO OBSERVED THAT INTEREST EXPENDITURE ON THIS AMOUNT OF RS.9 75 000/ - NOT UTILIZED FOR THE BUSINESS PURPOSES CANNOT BE ALLOWED AS BUSINES S EXPENDITURE. ACCORDINGLY BEFORE MAKING ANY DISALLOWANCE THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY INTERES T EXPENSES OF RS.1 75 000/- @ 18% ON THIS AMOUNT OF RS.9 75 000/- UTILIZED FOR GIVING INTEREST FREE LOAN TO NARENDRA FINANCE SHOU LD NOT BE DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED VI DE HIS REPLY DATED 24-02-03 THAT THIS AMOUNT WAS GIVEN TO NAREND RA FINANCE BEFORE 01-04-99. THIS CONCERN WAS DOING MONEY LENDI NG BUSINESS AND WAS NOW CLOSED. SINCE WHEREABOUTS OF THE OWNER OF THIS CONCERN WERE NOT KNOWN IT WAS DIFFICULT TO HAVE EVEN CAPIT AL AMOUNT FROM THEM. HOWEVER THE AO REJECTED THESE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE BORROWED HUGE AMOUN T OF MONEY ON WHICH HE CLAIMED INTEREST EXPENDITURE AND THE ASSE SSEE DID NOT ESTABLISH THAT THE AMOUNT USED FOR GIVING ABOVE AMO UNT OF RS.9 75 000/- TO NARENDRA FINANCE WAS FOR HIS BUSIN ESS PURPOSE ONLY NOR ESTABLISHED THAT INTEREST FREE FUNDS ALONE WERE UTILIZED FOR GIVING LOAN TO NARENDRA FINANCE. ACCORDINGLY THE A O DISALLOWED INTEREST OF RS.1 75 000/- @ 18% ON THIS AMOUNT OF R S.9 75 000/- UTILISED IN GIVING INTEREST FREE LOAN HAVING BEEN NOT INCURRED FOR THE PURPOSE OF BUSINESS. 4. ON APPEAL THE ASSESSEE CONTENDED THAT THE AO HAS NOT ESTABLISHED ANY NEXUS BETWEEN BORROWED FUNDS AND TH E ADVANCE TO NARENDRA FINANCE AND DISALLOWED THE AMOUNT ON ASSUMPTIONS. W HILE RELYING UPON THE DECISIONS IN THE CASE OF MADHAV PRASAD JATIA VS. CI T REPORTED IN 118 ITR 200 (SUPREME COURT) BIRLA GWALIOR PVT LTD. VS. CIT 44 ITR 847 (MP) CIT VS. PUDUKOTTAI CO. (P) LTD. 84 ITR 788 (M ADRAS) D & H SECHERON ELECTRODES PVT. LTD. VS. CIT 142 ITR 528 ( MP) AND SHAHIBAUG ENTERPRISE VS. ITO ITAT AHMEDABAD BENCH THE LD. ITA NO.1572/AHD/2004 4 AR CONTENDED THAT ONCE IT WAS FOUND THAT THE CAPITA L HAD BEEN BORROWED FOR THE PURPOSE OF BUSINESS THE ASSESSEE WAS ENTITLED TO C LAIM THE INTEREST PAID THEREON AS DEDUCTION U/S. 36(L)(III) OF THE I.T. ACT. THE O NLY CONDITION WHICH SECTION 36(L)(III) OF THE PRESCRIBED WAS THAT THE CAPITAL MUST BE BOR ROWED FOR THE PURPOSE OF BUSINESS AND THE ASSESSEE MUST HAVE PAID THE INTERE ST ON THE SAID AMOUNT. IN THE CASE OF THE ASSESSEE THE BORROWINGS WERE MADE FOR BUSINESS. SINCE THE SAID FIRM WAS CLOSED NO AMOUNT OF INTEREST OR PRINCIPAL COULD BE RECOVERED.. IT WAS SUBMITTED THAT THE REAL INCOME ONLY CAN BE TAXED AN D NOT THE HYPOTHETICAL INCOME AS PER THE DECISION OF THE SUPREME COURT IN THE CAS E GODHRA ELECTRICITY COMPANY REPORTED IN 225 ITR 746(SC). THEREFORE IT WAS ARGU ED THAT NO ADDITION OR DISALLOWANCE OF INTEREST COULD BE MADE. AFTER CONSI DERING THESE SUBMISSIONS THE LD.CIT(A) HELD AS UNDER: 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE CAREFULLY. THE APPELLANT HAS NOT EST ABLISHED THE FACT THAT THE ADVANCE OF RS.9 75 000/-HAS BEEN GIVEN OUT OF I NTEREST FREE FUNDS AND NOT INTEREST BEARING BORROWED FUNDS. THEREFORE THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER IS FOUND TO BE JUSTIFIED. ACCORDINGLY THIS GROUND IS DISMISSED. 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS MADE BEFORE THE CIT(A) AND RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES 192 ITR 165. SINCE ADVANCE TO M/S NARENDRA FINANCE WAS MADE IN THE PAST NO DISALLOWANCE COULD BE MADE IN THE YEAR UNDER APPEAL IT WAS ARGUED. HE ADDED THAT THE SAID CONCERN WAS CLOSED AND WHEREABOUTS OF THE OWNER WERE NOT KN OWN AND THEREFORE THERE WAS NO QUESTION OF EARNING OF ANY INCOME. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDIN GS OF THE LEARNED CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. SECTION 36(1)(III) OF THE ACT ITA NO.1572/AHD/2004 5 PROVIDES FOR DEDUCTION OF INTEREST ON THE BORROWED FUNDS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTI ON THE ONUS IS ON THE ASSESSEE TO SATISFY THE AO THAT LOANS RAISED BY T HE ASSESSEE WERE USED FOR BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF CLAIM FOR SUCH A DEDUCTION IT TRANSPIRES THAT THE ASSESSEE HAD ADVA NCED CERTAIN FUNDS TO ANY OTHER PERSON WITHOUT ANY INTEREST THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE AO TO THE EFFE CT THAT IN SPITE OF PENDING LOANS ON WHICH THE ASSESSEE IS INCURRING THE LIABI LITY TO PAY INTEREST STILL THERE WAS JUSTIFICATION TO ADVANCE LOANS TO OTHER PERSONS FOR NON-BUSINESS PURPOSES WITHOUT ANY INTEREST. IN MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC) HONBLE SUPREME COURT OBSERVED THAT UNDER S. 10(2)( III) OF THE 1922 ACT( NOW SEC. 36(1)(III) OF THE 1961 ACT) THREE CONDITIONS WERE REQUIRED TO BE SATISFIED IN ORDER TO ENABLE THE TAXPAYER TO CLAIM A DEDUCTION I N RESPECT OF INTEREST ON BORROWED CAPITAL NAMELY (A) THAT MONEY (CAPITAL) MUST HAVE BEEN BORROWED BY THE ASSESSEE (B) THAT IT MUST HAVE BEEN BORROWED F OR THE PURPOSE OF BUSINESS AND (C) THAT THE ASSESSEE MUST HAVE PAID INTEREST O N THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. IT WAS ALSO HELD THAT TH E EXPRESSION 'FOR THE PURPOSE OF BUSINESS' OCCURRING UNDER THE PROVISION IS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING INCOME PROFITS OR GAINS'. I N THE CASE UNDER CONSIDERATION THE ASSESSEE IS STATED TO HAVE ADVANCED THE AMOUNT TO M/S NARENDRA FINANCE BEFORE 1.4.1998. THE AMOUNT IS OUTSTANDING SINCE 31 .3.1998. THERE IS NOTHING TO SUGGEST THAT IN THE PRECEDING YEARS ANY AMOUNT OF I NTEREST ON BORROWED FUNDS HAD BEEN DISALLOWED. IT APPEARS THAT THE AO ACCEPT ED THAT BORROWED FUNDS HAD BEEN UTILIZED FOR THE PURPOSE OF BUSINESS IN THE PR ECEDING YEARS. IN THE YEAR UNDER CONSIDERATION NO NEW ADVANCE HAS BEEN GIVEN. THERE IS NO MATERIAL ON RECORD THAT BORROWED FUNDS HAVE BEEN DIVERTED IN TH E YEAR UNDER CONSIDERATION FOR NON-BUSINESS PURPOSES. HONBLE KARNATAKA HIGH C OURT IN BIT TUL (P.) LTD. V. CIT (ITRC 141 OF 1977 DATED 29-7-1980) HELD THAT TH ERE SHOULD BE MATERIAL TO JUSTIFY THE CONCLUSION THAT ANY BORROWED MONEY BY T HE ASSESSEE IN A YEAR TO WHICH INTEREST HAD BEEN PAID HAD BEEN DIVERTED FOR NON-BUSINESS PURPOSE BEFORE MAKING ANY DISALLOWANCE. THERE IS NOTHING ON RECOR D TO SUGGEST THAT IN EARLIER YEARS BORROWED FUNDS ALONE HAD BEEN UTILIZED FOR M AKING THE AFORESAID ADVANCE ITA NO.1572/AHD/2004 6 NOR ANY DISALLOWANCE OF INTEREST ON BORROWED FUNDS SEEMS TO HAVE BEEN MADE IN EARLIER YEARS . IN THESE CIRCUMSTANCES THERE WAS NO JUSTIFICATION FOR MAKING ANY DISALLOWANCE IN THE YEAR UNDER CONSIDERATION ON THA T GROUND. IN THIS CONNECTION HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES 192 ITR 165(KAR) HELD THAT THE STATUS OF THE AMOUNT OUTSTANDING FROM NALAND A ON THE FIRST DAY OF THE ACCOUNTING YEAR IS THE AMOUNT THAT STOOD OUTSTANDIN G ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR AND THEREFORE ITS NATURE AND STATUS CANNOT BE DIFFERENT ON THE FIRST DAY OF THE CURRENT ACCOUNTING YEAR FRO M ITS NATURE AND STATUS AS ON THE LAST DAY OF THE PREVIOUS ACCOUNTING YEAR. REGARDING THE PAST YEARS THE ASSESSEE'S CLAIMS FOR DEDUCTION WERE ALLOWED IN RES PECT OF THE SUMS ADVANCED DURING THOSE YEARS ; THIS COULD BE ONLY ON THE ASSU MPTION THAT THOSE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSESSEE. THI S FINDING DURING THE PREVIOUS YEARS IS THE VERY BASIS OF THE DEDUCTIONS PERMITTED DURING THE PAST YEARS WHETHER A SPECIFIC FINDING WAS RECORDED OR NOT. A DEPARTURE FROM THAT FINDING IN RESPECT OF THE SAID AMOUNTS ADVANCED DURING THE PREVIOUS YEAR WOULD RESULT IN A CONTRADICTORY FINDING ; IT WILL NOT BE EQUITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND NOW IN RESPECT OF THE AMOUNTS WHICH WERE THE SUBJECT-MATTER OF PREVIOUS YEARS' ASSESSMENTS ; CONSISTENCY AND DEFIN ITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNISING T HE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE BASIS OF A C ONCLUDED ASSESSMENT WOULD NOT BE IGNORED WITHOUT ACTUALLY REOPENING THE ASSES SMENT. THE PRINCIPLE IS SIMILAR TO THE CASES WHERE IT HAS BEEN HELD THAT DEBT WHICH HAD BEEN TREATED BY THE REVENUE AS A GOOD DEBT IN A PARTICULAR YEAR CANNOT SUBSEQUENTLY BE HELD BY IT TO HAVE BECOME BAD PRIOR TO THAT YEAR. 6.1 IN THE CASE UNDER CONSIDERATION THERE IS NO MATERIAL BEFORE US ESTABLISHING NEXUS BETWEEN BORROWED FUNDS AND AFORESAID ADVANCE . MOREOVER WHEN PRINCIPAL AMOUNT WAS NOT BEING RECOVERED HOW COU LD ASSESSEE CHARGE INTERST FROM THE SAID PARTY ESPECIALLY WHEN WHEREABOUNTS O F THE SAID PARTY WERE NOT KNOWN. IN VIEW OF THE FOREGOING WE ARE OF THE OP INION THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE EVEN WHEN I N THE PRECEDING YEARS ENTIRE INTEREST SEEMS TO HAVE BEEN ALLOWED BY THE AO. THE REFORE GROUND NOS. 1.2(I) & 2.1 IN THE APPEAL ARE ALLOWED. 7. GROUND NOS.1.2(II) (III) (IV) 3.1 3.2 & 3.3 RELATE TO DISALLOWANCE ON ACCOUNT OF COMMISSION TO (I) DURGA AUTOMOBILES RS.5 22 000/- (II) GANESH SALES AGENCY RS.3 55 000/- AND (III) OTHER PARTIES-RS. 84 000/-. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE AO ITA NO.1572/AHD/2004 7 NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR PAYMENT OF COMMISSION TO VARIOUS PARTIES ON SALE OF 577 TRACTO RS. THE AO NOTICED THAT THE ASSESSEE BEING A DEALER OF MAHIND RA TRACTORS SOLD 355 TRACTORS OUT OF WHICH 32 TRACTORS WERE SOLD TO OTHER MAHINDRA TRACTORS DEALERS DIRECTLY AND THE REMAINING 323 T RACTORS TO INDIVIDUAL CUSTOMERS. ACCORDING TO THE AO THE ASSE SSEE DEBITED EXCESS COMMISSION ON ACCOUNT OF SALE OF 254 TRACTO RS. ON INQUIRY 11 PARTIES MENTIONED ON PAGE 10 OF THE ASSESSMENT ORDER CONFIRMED RECEIPT OF COMMISSION ON SALE OF 279 TRACTORS THROU GH THEM. IN THE LIGHT OF THESE FACTS THE AO OBSERVED THAT AFTER AL LOWING COMMISSION ON SALE OF 279 TRACTORS BALANCE COMMISSION IF ANY ALLOWABLE CAN BE MAXIMUM FOR SALE OF 44 TRACTORS THAT TOO ASSUMING T HAT ALL 323 TRACTORS WERE SOLD TO INDIVIDUAL CLIENTS THROUGH T HE AGENTS. SINCE THE ASSESSEE CLAIMED ADDITIONAL SALES COMMISSION FO R SALE OF 254 TRACTORS AS AGAINST BALANCE 44 TRACTORS SOLD THE AO VIDE NOTICE DATED 05-11-2001 AND ORDER SHEET ENTRY DATED 21-12 -01 ASKED THE ASSESSEE TO FURNISH EVIDENCE OF SERVICES PROVIDED B Y VARIOUS AGENTS TO WHOM SALES COMMISSION WAS PAID OR DEBITED IN THE IR NAMES. IN RESPONSE THE ASSESSEE VIDE HIS REPLY DATED 28-12-0 1 SUBMITTED A LIST OF THE PARTIES TO WHOM COMMISSION HAD BEEN GI VEN ALONG WITH THEIR CONFIRMATION LETTERS. SINCE THE ASSESSEE FAIL ED TO FURNISH SPECIFIC DETAILS OF SALES ORDER BOOKED / SALES INCU RRED THROUGH DIFFERENT AGENTS WHILE THE CONFIRMATION LETTERS DID NOT REVEAL ANY DETAILS OF SALES MADE BY AGENTS NOR THE ASSESSEE CO ULD PRODUCE ORIGINAL RECEIPT IN SUPPORT OF ACTUAL PAYMENT OF SU CH COMMISSION THE AO ASKED THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 23-12-02 TO PRODUCE THE PERSONS IN WHOSE NAMES SALES COMMISSION HAD BEEN DEBITED BY THEM. HOWEVER THE ASSESSEE FAILED TO P RODUCE THESE PERSONS FOR VERIFICATION OF GENUINENESS OF THEIR CL AIM OF SALES COMMISSION. THEREAFTER THE AO MADE INDEPENDENT INQ UIRIES AND RECORDED STATEMENTS OF VARIOUS PERSONS TO WHOM THE ASSESSEE IS CLAIMED TO HAVE PAID/ DEBITED COMMISSION. IN THE PR OCESS SOME OF ITA NO.1572/AHD/2004 8 THE PERSONS DENIED HAVING RECEIVED ANY AMOUNT BY WA Y OF SALES COMMISSION EITHER IN CASH OR OTHERWISE FROM THE ASS ESSEE DURING THE F.Y 1999-2000 (A.Y 2000-2001). THESE PERSONS ALSO DENIED THAT ANY AMOUNT BY WAY OF EITHER SALES COMMISSION OR OTH ER WISE WAS RECEIVABLE BY THEM AS ON 31-03-2000 FROM THE ASSES SEE AND ALSO DENIED TO HAVE ENTERED IN TO ANY AGREEMENT WITH TH E ASSESSEE FOR PROVIDING ASSISTANCE FOR SALE OF TRACTORS OR FOR PR OVIDING ANY SERVICE RELATING TO THE ASSESSEES BUSINESS ON COMMISSION BASIS. IN THE LIGHT OF THESE STATEMENTS THE AO ALLOWED THE ASSES SEE AN OPPORTUNITY FOR CROSS EXAMINATION OF THE PERSONS WHOSE STATEMENTS WERE RECORDED VIDE A SHOW CAUSE NOTICE ISSUED ON 11 -02-03 IN THE FOLLOWING TERMS. 'DURING THE ABOVE PROCEEDINGS STATEMENT OF VARIOUS PERSONS TO WHOM YOU HAVE CLAIMED TO HAVE PAID / CREDITED COMMISSION WER E RECORDED .FOLLOWING PERSONS HAVE CLEARLY DENIED RECEIVING ANY AMOUNT BY WAY OF COMMISSION OR OTHER WISE FROM YOU DURING F.Y 1999-2000. THESE PERSONS HAVE ALSO CLEARLY DENIED THAT ANY AMOUNT BY WAY OF EITHER COM MISSION OR OTHER WISE WAS RECEIVABLE BY THEM AS ON 31-03-2000 FROM YOUR F IRM M/S RAJESH AUTOMOBILES. THESE PERSONS HAVE ALSO DENIED TO HAVE ANY AGREEMENT FOR PROVIDING ASSISTANCE FOR SALES OF TRACTORS OR FOR P ROVIDING ANY SERVICE RELATING TO YOUR BUSINESS. NAME OF THESE PERSONS AN D AMOUNT OF COMMISSION DEBITED BY YOU IN YOUR BOOKS OF ACCOUNT ARE AS UNDER. NAME & ADDRESS OF PERSONS DATE OF STATEMENT AMOUNT DEBITED BY YOU DATE AMOUNT 1.SHRI RUPSINHBHAI BHARAMALBHAI PATEL PROP. OF GANESH SALES AGENCY BHABHAR & RESIDENT OF VILLAGE: KATAV DURING FY 99- 2000 & NOW AT BHABHAR 14-02-2002 & 08-01-2003 31-12-99 31-03-00 30-08-99 07-09-99 30-10-99 31-12-99 17-03-00 TOTAL RS.3 15 000 RS. 13 500 RS. 2 000 RS. 4 000 RS. 2 000 RS. 17 000 RS. 1 500 RS.3 55 000 2.SHRI RAJESH 14-02-2002 31-12-99 RS. 4 95 000 ITA NO.1572/AHD/2004 9 MAFATLAL ALIAS RAJU PATEL PROP. OF DURGA AUTOMOBILES HIGHWAY ROAD DEODAR 31-03-00 TOTAL RS. 27 000 ---------------- RS. 5 22 000 3.SHRI GANESHBHAI BHARMALBHAI PATEL VILLAGE: BHABHAR 08-01-2003 30-10-99 31-03-00 TOTAL RS. 2 000 RS. 12 000 ---------------- RS. 14 000 4.NANJIBHAI TARAJI PATEL GOLVI DEODAR 02-01-03 RS. 4 000 RS. 2 000 RS. 2 000 ---------------- RS. 8 000 YOU ARE HEREBY GIVEN AN OPPORTUNITY TO CROSS-EXAMIN E THE ABOVE PERSONS IF YOU WISH SO. TO CROSS EXAMINE THE ABOVE PERSONS YOU MAY REMAIN PRESENT IN THE OFFICE OF THE UNDERSIGNED ON DATE 17 -02-03 AT 11-00 AM. PLEASE NOTE THAT IF YOU DO NOT REMAIN PRESENT IN TH E OFFICE FOR CROSS EXAMINATION OF ABOVE PERSONS BEFORE UNDERSIGNED ON GIVEN TIME & DATE NO FURTHER OPPORTUNITY WILL BE PROVIDED TO YOU FOR CROSS EXAMINATION OF THESE PERSONS AND IT WILL BE ASSUMED THAT YOU HAVE NOTHING TO SAY IN THIS MATTER AND ISSUE OF COMMISSION WILL BE DECIDED ON M ERITS AND FACTS ON RECORDS. COPIES OF THE STATEMENTS RECORDED IN ABOVE CASES ARE ENCLOSED HERE WITH FOR YOUR KNOWLEDGE. IF YOU DO NOT WANT TO CROSS EXAMINE THE ABOVE PERSO N THEN YOU SHOULD SHOW CAUSE WHY ABOVE TOTAL AMOUNT OF RS.8 99 000/- DEBITED BY YOU IN NAME OF ABOVE PERSON AS COMMISSION IN YOUR BOOKS OF ACCOUNT SHOULD NOT BE DISALLOWED AS EXPENDITURE NOT INCURRED FOR YOUR BUSINESS PURPOSE? YOUR REPLY SHOULD REACH WITHIN SEVEN DAYS OF RECEIP T OF THIS NOTICE. 7.1 IN RESPONSE SHRI RAJESH M THAKKER PARTNER OF THE ASSESSEE ATTENDED ON L7-02-03 AT 12.30 P.M INSTEAD OF 11AM A ND AFTER COMPLETION OF CROSS EXAMINATION OF ONLY SHRI GANESH BHAI B PATEL AT 3-00 PM LEFT THE OFFICE STATING THAT HE HAD TO ATTE ND TO OTHER WORK. SINCE THE ASSESSEE DID NOT AVAIL THE OPPORTUNITY F OR CROSS EXAMINATION OF OTHER PERSONS AND INSTEAD VIDE HIS LETTER DATED 24- 02-03 SOUGHT NEXT DATE FOR CROSS EXAMINATION OF THE PERSONS REFERRED IN THE AFORESAID NOTICE DATED 11-02-03 THE AO OFF ERED ANOTHER OPPORTUNITY FOR CROSS EXAMINATION OF THESE PERSONS VIDE LETTER DATED ITA NO.1572/AHD/2004 10 25-02-03 REPRODUCED IN THE ASSESSMENT ORDER AND I S EXTRACTED AS UNDER:- 'KINDLY REFER TO THE SHOW CAUSE NOTICE DATED 11-02- 03 ISSUED TO YOU BY THE UNDERSIGNED AND YOUR REPLY GIVEN BY YOU VIDE YOUR L ETTER DATED 24-02-03. IN TINS CONNECTION YOU HAVE REQUESTED TO ALLOW CROS S EXAMINATION OF SHRI RUPSINHBHAI B. PATEL OF GANESH SALES AGENCY BHABHA R AND OF SHRI RAJU M. PATEL OF DURGA AUTOMOBILES DEODAR IN ABOVE REFE RRED YOUR REPLY BY IT IS TO BE NOTED THAT VIDE ABOVE REFERRED SHOW CAUSE NOT ICE DT 11-02-03 YOU WERE OFFERED SUFFICIENT OPPORTUNITY TO CROSS EXAMIN E THESE PERSONS REFERRED IN ABOVE NOTICE AND YOU WERE ASKED TO REMA IN PRESENT FROM 11.00 A.M ONWARDS ON 17-02-03 IN THIS OFFICE. HOWEVER YOU ATTENDED AT 12.30 A.M. AND YOU CROSS-EXAMINED ONLY SHRI GANESHBHAI B. PATE L. THOUGH YOU WERE ASKED TO REMAIN PRESENT IN THE OFFICE FOR THE CROSS EXAMINATION OF OTHER PERSONS WHO WERE CALLED FOR CROSS EXAMINATION AND WERE COMING FROM VERY DISTANT PLACES LIKE BHABHAR AND DEODAR WH ICH ARE APP. 80 KMS AND 60 KMS FAR FROM PALANPUR YOU LEFT OFFICE AFTER FINISHING CROSS EXAMINATION OF SHRI GANESHBHAI B. PATEL AT 3.00 P.M SAYING THAT YOU HAD TO ATTEND OTHER WORKS. THUS IN SPITE OF THE FACT TH AT YOU WERE OFFERED SPECIFIC OPPORTUNITY FOR CROSS EXAMINATION OF THE P ERSONS REFERRED IN NOTICE DATED 11-02-03 YOU HAVE NOT AVAILED THE SAME FULLY AND NOW YOU HAVE REQUESTED TO GIVE FURTHER OPPORTUNITY FOR CROSS EXA MINATION. IN VIEW OF YOUR REQUEST YOU ARE HERE BY GIVEN ONE MORE OPPORTUNITY TO CROSS EXAMINE THE ABOVE- REFERRED PERSONS AS UNDER: - NAME DATE AND TIME FOR CROSS EXAMI NATION -------- --------------------------- ---------------- 1.SHRI RUPSINHBHAI B PATEL DATE 27-02-03 T IME 11.00 AM 2.SHRI RAJU M PATEL DATE 27-02-03 TIME 10-30 AM YOU ARE REQUESTED TO REMAIN PRESENT IN THE OFFICE OF UNDER SINGED ON 10.15 AM ON WARDS ON 27-02-03 FURTHER AS YOU HAVE FAILED IN ESTABLISHING GENUINENESS OF THESE COMMISSION EXPENSES AS REFERRE D SHOW CAUSE NOTICE DATED 11-02-03 YOU ARE ASKED TO SHOW CAUSE W HY THE AMOUNT OF COMMISSION OF RS.8 99 000/- AND RS.90 800/- SHOULD NOT BE DISALLOWED AND ADDED IN YOUR INCOME. YOUR REPLY ALONG WITH EVI DENCES IF ANY SHOULD BE FURNISHED ON 27-02-03 AT 10.30 AM. KINDLY NOTE T HAT IN SPITE OF GIVING SUFFICIENT AND REPEATED OPPORTUNITIES YOU HAVE FAIL ED IN ESTABLISHING GENUINENESS OF ABOVE EXPENDITURE OF COMMISSION NO FURTHER OPPORTUNITY WILL BE GIVEN AND ISSUE WILL BE DECIDED ON THE BASI S OF MERITS AND FACTS ON RECORD. THIS MUST BE CONSIDERED AS FINAL SHOW CAUSE NOTICE FOR THIS ISSUE AND YOU ARE TO COMPLY THE SAME AS ASKED FOR.' ITA NO.1572/AHD/2004 11 7.2 HOWEVER THE ASSESSEE NEITHER REMAINED PRESENT FOR CROSS EXAMINATION OF THE AFORESAID PERSONS NOR SUBMITTED ANY REPLY OR ANY OTHER INFORMATION / EVIDENCE IN SUPPORT OF SERVICES PROVIDED OR SALES ORDERS BOOKED BY THE AFORESAID PERSONS FOR WHICH SA LES COMMISSION WAS DEBITED IN THEIR NAME NOR EVEN EVIDENCE OF ACT UAL PAYMENT OF COMMISSION TO THEM WAS FURNISHED. APPARENTLY DES PITE REPEATED OPPORTUNITIES THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF EXPENDITURE ON SALES COMMISSION. AS REGARDS PAYMENT OF COMMISSION TO GANESH SALES AGENCY BHABHAR AND DURG A AUTOMOBILES DEODAR THE AO CONCLUDED IN THE FOLLOW ING TERMS :- I) REGARDING PAYMENT OF FOLLOWING AMOUNTS ON ACCO UNT OF COMMISSION DEBITED / PAID IN NAME OF GANESH SALES AGENCIES BHABHAR - DATE AMOUNT NATURE 31-12-99 3 15 000 70 TRACTORS X 4500 PER TRACTOR CO MMISSION 31-03-00 13 500 3 TRACTORS X 4500 PER TRACTOR COMMISSION AN AMOUNT OF RS.160042/- WAS SHOWN AS OUTSTANDING AS ON 31-03- 2000 IN BALANCE SHEET. IN ADDITION THE ASSESSEE HA D ALSO SHOWN PAYMENT OF FOLLOWING AMOUNT OF COMMISSION TO SHRI R UPSINHBHAI BHARMALBHAI PATEL OF KATAV VILLAGE (WHO IS THE PROP RIETOR OF SHRI GANESH SALES AGENCY BHABHAR ) DATE COMMISSION 30-07-99 RS. 2000/- 07-09-99 RS. 4000/- 30-10-99 RS. 2000/- 31-12-99 RS.17000/- 17-03-00 RS. 1500/- THE ASSESSEE SUBMITTED A COPY OF AGREEMENT DATED 26-03-99 TERMED AS SERVICE CENTER AUTHORIZATION AGREEMENT' MADE WITH GANESH SALES AGENCY BHABHAR WHEREIN IN COLUMN 10 IT WAS ITA NO.1572/AHD/2004 12 MENTIONED THAT SALES COMMISSION OF RS.4500/- PER SA LES OF TRACTOR WILL BE PAID ONLY ON ACTUAL ORDER BOOKED BY GANESH SALES AGENCY BHABHAR. HOWEVER DESPITE REPEATED OPPORTUNITIES T HE ASSESSEE FAILED TO FURNISHING SPECIFIC DETAILS OF ORDER BOOK ED BY GANESH SALES AGENCY BHABHAR OR BY SHRI RUPSINHBHAI BHARMALBHAI PATEL PROP. OF GANESH SALES AGENCY BHABHAR NOR ANY OTHER EVIDENCE OF SERVICES RENDERED IN SALE OF TRACTORS OR ANY OTHER SERVICE RELATING TO HIS BUSINESS NOR EVEN ANY EVIDENCE OF ACTUAL PAYMENT O F COMMISSION OF EITHER RS.168458/- (SHOWN AS PAID OUT OF TOTAL COMM ISSION OF RS.328000/-) OR OF RS.160042/- (SHOWN UNPAID IN BAL ANCE OF SHEET) OR EVEN OF RS.26500/- SHOWN AS PAID TO HIM AS MENT IONED ABOVE WAS FURNISHED. SHRI RUPSINHBHAI BHARMALJIBHAI PATEL PROP. OF GANESH SALES AGENCY BHABHAR IN HIS STATEMENT U/S 1 31(1) OF THE ACT RECORDED ON 14-02-02 IN GUJARATI LANGUAGE DEN IED TO HAVE ENTERED IN TO ANY AGREEMENT FOR ANY AUTHORIZED SERV ICE STATION OR ANY SALES COMMISSION AGREEMENT WITH M/S RAJESH AUTO MOBILES DEESA. HE ALSO DENIED TO HAVE RECEIVED ANY AMOUNT AS SALES COMMISSION FOR SALE OF TRACTORS OR OTHER WISE FROM M/S RAJESH AUTOMOBILES DEESA EITHER IN CASH OR OTHER WISE AND STATED THAT NO SALES COMMISSION HAD ACCRUED DURING THE FY 1999-20 00 OR OUT STANDING AS RECEIVABLE AS ON 31-03-2000 FROM M/S RA JESH AUTOMOBILES DEESA. THE ENGLISH TRANSLATION OF REL EVANT PORTION OF STATEMENT DATED 14-02-2002 OF SHRI RUPSINHBHAI B PA TEL EXTRACTED IN THE ASSESSMENT ORDER REVEALS AS UNDER. Q. 2 WHAT ARE YOUR SOURCES OF INCOME? A. 2 I HAVE TWO TRACTORS PURCHASED BY LOAN FROM DEN A BANK WHICH ARE USED IN MY AGRICULTURAL ACTIVITY. IN ADDITION T O AGRICULTURAL INCOME SINCE LAST ONE YEAR I HAVE STARTED BUSINESS OF TRAC TORS SPARE PARTS AND SHELL GAS IN NAME OF GANESH SALES AGENCY AT BHA BHAR. GAS AGENCY IS STARTED ON IN JANUARY 2002 ONLY. Q 9 HAVE YOU DONE ANY BUSINESS ON COMMISSION IN F Y 1999-2000? A.9 NO I HAVE NOT DONE ANY BUSINESS ON COMMISSION DURING F.Y 99- 00 ITA NO.1572/AHD/2004 13 Q.10 DO YOU KNOW RAJESH AUTOMOBILES DEESA? A. 10 YES AS I SOME TIME PURCHASE TRACTORS PARTS F ROM THEM. Q.11. HAVE YOU WORKED AS COMMISSION AGENT OR SUB AG ENT OF M/S RAJESH AUTOMOBILES DEESA FOR SALE OF TRACTOR? A. 11 NO Q.12 HAVE YOUR RECEIVED ANY AMOUNT AS SALES COMMISS ION OR OTHER WISE FROM M/S RAJESH AUTOMOBILES DEESA DURING F.Y 9 9-00 OR F.Y 2000-01 OR TILL DATE? A 12 NO I HAVE NOT RECEIVED DURING F.Y 99-2000 OR F.Y 2000-01 OR TILL DATE ANY AMOUNT AS SALES COMMISSION FROM M/S R AJESH AUTOMOBILES DEESA I HAVE NO AMOUNT RECEIVABLE FROM RAJESH AUTOMOBILES AS COMMISSION OR OTHER WISE. Q.14 I AM SHOWING YOU A COPY OF AGREEMENT AS SUB AG ENT OF RAJESH AUTOMOBILES DEESA IN YOUR NAME? HAVE YOU MADE THIS AGREEMENT? A. 14 NO I HAVE NOT MADE ANY SUCH AGREEMENT WITH R AJESH AUTOMOBILES DEESA. THE SIGNATURE SHOWN IN THIS AGRE EMENT IS NOT MINE. Q.I5 HAVE YOU SIGNED ON ANY VOUCHER FOR PAYMENT OF COMMISSION RECEIVED IF ANY FROM RAJESH AUTOMOBILES DEESA ? A. 15 NO I HAVE NEVER RECEIVED ANY AMOUNT AS COMMI SSION OR OTHER WISE FROM RAJESH AUTOMOBILES DEESA SO I HAVE NOT SI GNED ANY VOUCHERS Q.16 RAJESH AUTOMOBILES DEESA HAS SHOWN PART AMOUNT OF COMMISSION AS OUT STANDING AND PAYABLE TO YOU IS I T CORRECT? A.16 NO. I HAVE NOT RECEIVED ANY AMOUNT AS COMMISSION FROM RAJESH AUTOMOBILES DEESA OR NO AMOUNT IS OUT STANDING AS R ECEIVABLE FROM THEM. THE AMOUNT SHOWN BY THE RAJESH AUTOMOBILES DE ESA IN MY NAME IS WRONG. Q.19 I AM ASKING YOU AGAIN THAT WHETHER YOU HAVE RE CEIVED ANY AMOUNT AS SALES COMMISSION OR OTHER WISE FROM RAJES H AUTOMOBILES DEESA DURING F.Y 99-2000 & 2000-2001 WHY RAJESH AU TOMOBILES DEESA HAS CREDITED SALES COMMISSION AMOUNT IN YOUR NAME. A.19 NO I HAVE NOT RECEIVED ANY AMOUNT AS COMMISSI ON FROM RAJESH AUTOMOBILES DEESA DURING F.Y 1999-2000 & 2000-2001 OR TILL DATE. NO AMOUNT IS OUT STANDING AS RECEIVABLE FROM THEM. I THINK THEY HAVE MISUSED MY NAME AND OUR RELATION AND HAS MADE BOGUS ENTRIES IN THEIR BOOKS AND HAVE SHOWN WRONGLY AS COMMISSION IN THEIR BOOKS I HAVE NOT RECEIVED ANY AMOUNT AS COMMISSION FROM THE M AND NO AMOUNT HAS ACCRUED OR OUTSTANDING AS RECEIVABLE FRO M THEM ANY TIME. ITA NO.1572/AHD/2004 14 7.21 THERE AFTER AGAIN ON 08-01-03 STATEMENT OF S HRI RUPSINHBHAI B. PALEL WAS RECORDED U/S 131(1) OF THE IT ACT IN G UJARATI LANGUAGE WHEN HE WAS CONFRONTED CERTAIN VOUCHERS FOR PAYMEN T HE DENIED TO HAVE SIGNED ANY SUCH VOUCHER AND FURTHER DENIED TO HAVE RECEIVED ANY SUCH AMOUNT AS SALES COMMISSION FROM M /S RAJESH AUTOMOBILES DEESA DURING F.Y 1999-2000 OR THERE AF TER. DESPITE REPEATED OPPORTUNITIES FOR CROSS-EXAMINATION ON 17- 02-03 AND 27- 02-03 THE ASSESSEE DID NOT AVAIL THESE OPPORTUNITI ES NOR ESTABLISHED GENUINENESS OF HIS CLAIM OF SALES COMMI SSION OF RS.3 55 000/- (RS. 328500/- + 26500. IN VIEW OF THE FOREGOING AND IN THE ABSENCE OF ANY EVIDENCE OF SERVICES RENDERED BY THE AFORESAID SHRI RUPSINHBHAI B.PATEL THE AO DISALLOWED THE CLA IM FOR DEDUCTION OF EXPENDITURE OF RS.3 35 000/- FOR SALES COMMIS SION DEBITED IN NAME OF GANESH SALES AGENCY AND IN NAME OF SHRI RUP SINHBHAI B. PATEL. 7.3 REGARDING THE FOLLOWING AMOUNT OF COMMISSI ON CLAIMED IN NAME OF DURGA AUTOMOBILES DEODHAR : DATE AMOUNT NATURE 31-12-99 4 95 000/- 110 TRACTORS X 4500 PER TRACTOR COMMISSION 31-03-00 27 000/- 6 TRACTORS X 4500 PER TRACT OR COMMISSION THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.3 43 276/- AS OUTSTANDING IN NAME DURGA AUTOMOBILES DEODAR AS ON 31-03-2000 I N THEIR BALANCE SHEET. THE ASSESSEE SUBMITTED A COPY OF AGR EEMENT DATED 26-03-99 TERMED AS SERVICE CENTRE AUTHORIZATION AG REEMENT MADE WITH DURGA AUTOMOBILES DEODAR WHEREIN IN COLUMN 10 IT WAS MENTIONED THAT SALES COMMISSION OF RS.4500/- PER SA LES OF TRACTOR WILL BE PAID ONLY ON ACTUAL ORDER BOOKED BY DURGA A UTOMOBILES DEODAR OR THROUGH SHRI RAJUBHAI M PATEL PROP. OF DU RGA AUTOMOBILES DEODAR. HOWEVER DESPITE REPEATED OPPO RTUNITIES THE ASSESSEE FAILED TO FURNISH ANY SPECIFIC DETAILS OF ORDERS BOOKED BY ITA NO.1572/AHD/2004 15 M/S DURGA AUTOMOBILES DEODAR OR BY SHRI RAJUBHAI M PATEL PROP. OF DURGA AUTOMOBILES DEODAR OR ANY OTHER EVIDENCE OF SERVICES RENDERED IN SALE OF TRACTORS OR ANY OTHER SERVICE RELATING TO HIS BUSINESS OR EVEN IN RESPECT OF ACTUAL PAYMENT OF COMMISSION OF EITHER RS.1 78 724/- (SHOWN AS PAID OUT OF TOTAL CO MMISSION OF RS.5 22 000/-) OR OF RS.3 43 276/- SHOWN UNPAID IN BALANCE SHEET. IN HIS STATEMENT RECORDED U/S 131(1) OF THE ACT ON 14-02-02 IN GUJARATI LANGUAGE SHRI RAJUBHAI M PATEL PROP. OF D URGA AUTOMOBILES DEODAR. DENIED TO HAVE MADE ANY AGREEM ENT FOR ANY AUTHORIZED SERVICE STATION OR ANY SALES COMMISSION AGREEMENT WITH M/S RAJESH AUTOMOBILES DEESA. HE ALSO DENIED TO H AVE RECEIVED ANY AMOUNT AS SALES COMMISSION FOR SALE OF TRACTORS OR OTHER WISE FROM M/S RAJESH AUTOMOBILES DEESA EITHER IN CASH O R OTHER WISE AND STATED THAT NO SALES COMMISSION HAD ACCRUED DU RING THE FY 1999-2000 OR OUT STANDING AS RECEIVABLE AS ON 31-03 -2000 FROM M/S RAJESH AUTOMOBILES DEESA. THE ENGLISH TRANSLATION OF RELEVANT PORTION OF STATEMENT DATED 14-02-2002 OF SHRI RAJUB HAI M. PATEL EXTRACTED IN THE ASSESSMENT ORDER REVEALS AS UNDER. Q. 3 WHAT IS YOUR BUSINESS? A3 I AM PROP OF DEVIKRUPA AUTO PARTS SINCE LAST TWO YEARS Q.4 HAVE YON FILED YOUR IT RETURNS? A.4 NO AS MY INCOME IS BELOW RS.50000/- I HAVE NOT FIL LED MY LT RETURNS Q.5 GIVE DETAILS OF BUSINESS CARRIED OUT BY YOU DU RING F.Y 99- 2000? A5 I WAS PROP. OF DEVIKRUPA AUTO PARTS SINCE 1999 IN ADDITION TO THAT I STARTED A SERVICE POINT FOR MAHINDRA TRACTOR S SOLD BY RAJESH AUTOMOBILES DEESA (WHICH IS DEALER OF MAHIND RA TRACTORS FOR WESTERN B.K. DISTRICT) FOR TRACTORS SO LD BY THEM IN DEODAR TALUKA. THIS BUSINESS WAS STARTED IN NAME OF DURGA AUTOMOBILES AND SERVICE CHARGE PER TRACTOR DECIDED WAS RS.40/- ONLY AND APPROXIMATELY RS.12 000/- WERE EAR NED FOR THIS TRACTOR SERVICE WORK FROM RAJESH AUTOMOBILES DEESA DURING F.Y 99-00 ITA NO.1572/AHD/2004 16 Q.6 HAVE YOU KEPT YOUR BOOKS OF ACCOUNTS ? A. 6 NO. AS MY BUSINESS IS VERY SMALL NO BOOKS OF ACCOUNT ARE KEPT. Q.8 HAVE YOU WORKED AS COMMISSION AGENTS FOR RAJESH AUTOMOBILES DEESA DURING F.Y 99-00 & 2000-01 ? HAVE YOU RECEIVE D ANY AMOUNT AS SALES COMMISSION OR IS ANY AMOUNT OUT STA NDING AS COMMISSION RECEIVABLE BY YOU FOR F.Y 99-2000 FROM R AJESH AUTOMOBILES DEESA? A.8 AS BECAUSE OF BUSINESS OF TRACTORS SPARE PARTS AND ALSO OLD RELATIONS WE KNOW RAJESH AUTOMOBILES VERY WELL AND SOME TIMES WE HAVE RECOMMENDED TO OUR RELATIVES AND KNOW N FARMERS TO PURCHASE TRACTOR FROM RAJESH AUTOMOBILES DEESA BUT FOR THESE RECOMMENDATIONS WE HAVE NOT RECEIVED ANY AMOUNT AS SALES COMMISSION FROM HIM TILL DATE. WE HAVE TALKED ABOUT COMMISSION BUT AS THIS WORK DID NOT SEEM REMU NERATIVE WE HAVE NOT TAKEN MUCH INTEREST IN IT SO NO COMMISS ION WAS RECEIVED Q.10 HAVE YOU MADE ANY AGREEMENT FOR WORKING AS SUB AGENT OF RAJESH AUTOMOBILES DEESA? A.10 NO I HAVE NEVER MADE ANY AGREEMENT AS SUB AGE NT OF RAJESH AUTOMOBILES DEESA. WE WERE TALKING TO MAKE AN AGREE MENT FOR SERVICE POINT BUT AS TERMS WERE NOT FINALIZED THE S AME WAS DROPPED Q.13 I AM ASKING YOU AGAIN HAVE YOU RECEIVED ANY S ALES COMMISSION FROM RAJESH AUTOMOBILES DEESA? A13 I CLEARLY AND SPECIFICALLY STATE TRUE FACT THAT DURING F.Y 1999- 2000 OR 2000-01 I HAVE NOT RECEIVED ANY AMOUNT AS COMMISSION OTHER THAN THE SERVICE CHARGE AS STATED EARLIER IN THIS STATEMENT FROM RAJESH AUTOMOBILES DEESA 7.31 THERE AFTER AGAIN ON 27-02-03 STATEMENT OF S HRI RAJUBHAI M PATEL (RAJESHKUMAR MAFATLAL PATEL) WAS RECORDED U/ S 131(1) OF THE IT ACT IN GUJARATI LANGUAGE. IN THIS STATEMENT HE AGAIN CONFIRMED THE FACTS STATED BY HIM IN HIS STATEMENT RECORDED O N 14-02-02. WHILE RECORDING THIS STATEMENT COPY OF SERVICE CENTER AU THORIZATION AGREEMENT IN NAME OF DURGA AUTOMOBILES DEODAR PRODU CED BY RAJESH AUTOMOBILES DEESA WAS CONFRONTED TO HIM AND HE WAS ASKED WHETHER IT WAS SIGNED BY HIM. IN RESPONSE HE STAT ED THAT HE HAS NEVER SIGNED ANY SUCH AGREEMENT. FURTHER HE WAS INF ORMED THAT ITA NO.1572/AHD/2004 17 RAJESH AUTOMOBILES DEESA HAD SHOWN A TOTAL RS.5 22 000/- SALES COMMISSION PAYABLE TO DURGA AUTOMOBILES DEODAR OUT OF WHICH RS.1 78 724/- WAS SHOWN AS PAID IN CASH AND BALANCE RS.3 43 276/- WAS SHOWN AS AMOUNT OF SALES COMMISSION OUTSTANDING AND PAYABLE TO DURGA AUTOMOBILES DEODAR AS ON 31-03-2000 IN HIS BOOKS OF ACCOUNTS AND HE WAS ASKED TO CLARIFY THIS. IN HIS R EPLY SHRI RAJUBHAI M PATEL CLEARLY STATED THAT NO TRANSACTION RELATIN G TO COMMISSION HAD TAKEN PLACE WITH RAJESH AUTOMOBILES DEESA DURIN G F.Y 99-00. HE ALSO CLEARLY STATED THAT HE HAD NOT RECEIVED AN Y AMOUNT AS COMMISSION AND NO AMOUNT OF COMMISSION WAS OUTSTAN DING TO BE RECEIVED AS COMMISSION AS ON 31-03-2000 FROM RAJESH AUTOMOBILES DEESA NOR HE HAD ANY RELATION WITH ENTRIES OF COMMISSION EITHER RECEIVED OR RECEIVABLE IN NAME OF DURGA AUTOMOBILES DEODAR MADE IN BOOKS OF ACCOUNTS OF RAJESH AUTOMOBILES DEESA. H E ALSO CONFIRMED THAT ALL THE FACTS NARRATED IN HIS EARLIE R STATEMENT DATED 14-02-2002 AND ALSO IN STATEMENT DATED 27-02-03 ARE TRUE AND TRUE ONLY AND THERE IS NO SCOPE OF ANY CHANGE IN THESE FACTS IN FUTURE. 7.32 IN VIEW OF AFORESAID DISCUSSION THE AO CONC LUDED THAT THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF TH EIR CLAIM OF SALES COMMISSION OF RS.5 22 000/- AND DESPITE REPEATED OP PORTUNITIES FOR CROSS-EXAMINATION ON 17-02-03 AND 27-02-03 THE ASS ESSEE DID NOT AVAIL THESE OPPORTUNITIES. IN VIEW OF THE FOREGOING AND IN THE ABSENCE OF ANY EVIDENCE OF SERVICES RENDERED BY THE AFORESAID SHRI RAJUBHAI M.PATEL THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF EXPENDITURE OF RS.5 22 000/- FOR SALES COMMISSION D EBITED IN NAME OF DURGA AUTOMOBILES DEODAR (PROP- SHRI RAJUBHAI M. PATAL) 7.4 THE ASSESSEE ALSO CLAIMED DEDUCTION FOR PAYME NT OF COMMISSION TO THE FOLLOWING FIVE PARTIES:- SHRI GANESHBHAI BHARMALBHAI PATEL - RS.14 000 SHRI NANJIBHAI T PATEL - RS. 8 000 SHRI HIRABHAI B PATEL - RS. 8 000 SHRI GOVABHAI M DESAI - RS.14 000 ITA NO.1572/AHD/2004 18 OTHER INDIVIDUAL AGENTS - RS.40 000 (OUT OF RS.3 20 300/-) 7.41 AS REGARDS CLAIM FOR DEDUCTION OF THE FOLLO WING AMOUNTS OF SALES COMMISSION PAID TO SHRI GANESHBHAI B PATEL OF BHABHAR: 30-10-1999 RS. 2 000 31-12-1999 RS. 12 000 THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE OF SER VICES PROVIDED BY SHRI PATEL OR DETAILS OF SALES ORDER BOOKED BY HIM NOR HE FURNISHED ANY EVIDENCE IN SUPPORT OF PAYMENT OF THE SAID AMOU NT. IN HIS STATEMENT U/S 131(1) OF THE ACT RECORDED ON 08-01- 2003 SHRI GANESHBHAI BHANNALBHAI PATEL OF BHABHAR DENIED TO H AVE RECEIVED ANY AMOUNT AS SALES COMMISSION FOR SALE OF TRACTORS OR FOR ANY OTHER SERVICES FROM M/S RAJESH AUTOMOBILES DEESA. THOUGH THE ASSESSEE WAS OFFERED CROSS EXAMINATION OF SHRI GANESHBHAI BH ARMALBHAI PATEL ON 17-02-03 AND WAS ASKED TO SHOW CAUSE WHY T HE COMMISSION RS.14000/- DEBITED IN NAME OF SHRI GANES HBHAI BHANNALBHAI PATEL SHOULD NOT BE DISALLOWED SHRI RA JESHBHAI M. THAKKAR DID NOT ASK ANY QUESTION STATING ON RECORD THAT HE DO NOT WANT TO ASHAME SHRI GANESHBHAI B. PATEL AND SO HE D O NOT WANT TO ASK ANY QUESTION. THIS FACT WAS TAKEN ON RECORD WIT H SIGNATURE OF SHRI RAJESHBHAI M. THAKKER PARTNER OF THE ASSESSEE FIRM. APPARENTLY DESPITE REPEATED OPPORTUNITY AND SHOW CA USE NOTICE THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE OF SERVICES PROVIDED BY SHRI GANESHBBAI B. PATEL OR EVEN IN SUPPORT OF PAYMENT OF COMMISSION OF RS.14000/- TO HIM. ACCORDINGLY THE AO DISALLOWE D THE CLAIM FOR DEDUCTION OF RS.14000/-. 7.42 LIKEWISE IN RESPECT OF AN AMOUNT OF RS.800 0/- DEBITED AS SALES COMMISSION IN THE NAME OF SHRI NANJIBHAI TAR AJI PATEL OF GOLVI THE ASSESSEE DID NOT FURNISH ANY EVIDENCE O F SERVICES RENDERED BY SHRI NANJIBHAI TARAJI PATEL OR EVEN IN RESPECT OF PAYMENT OF COMMISSION. IN HIS STATEMENT RECORDED U/ S 131 OF THE ACT ITA NO.1572/AHD/2004 19 ON 2.1.2003 SHRI NANJIBHAI TARAJI PATEL DENIED TO HAVE RECEIVED ANY AMOUNT AS SALES COMMISSION FOR SALES OF TRACTORS OR FOR ANY OTHER SERVICES FROM M/S RAJESH AUTOMOBILES DEESA DURING THE FINANCIAL YEAR 1999-2000. THOUGH THE ASSESSEE WAS OFFERED CRO SS EXAMINATION OF SHRI NANJIBHAI TARAJI PATEL ON 17-02 -03 AND WAS ASKED TO SHOW CAUSE WHY THE COMMISSION OF RS.8000/- DEBITED IN NAME OF SHRI NANJIBHAI TARAJI PATEL SHOULD NOT BE D ISALLOWED SHRI RAJESHBHAI M. THAKKER DID NOT WAIT FOR CROSS EXAMIN ATION NOR FURNISHED ANY EVIDENCE OR DETAILS OF SERVICES PROVI DED BY SHRI NANJIBHAI TARJI PATEL. SINCE DESPITE SPECIFIC & RE PEATED OPPORTUNITY AND SHOW CAUSE NOTICE THE ASSESSEE FAILED TO FURNI SH ANY EVIDENCE OF SERVICES RENDERED BY SHRI NANJIBHAI TARAJI PATEL OR EVEN IN RESPECT OF PAYMENT OF THE AMOUNT THE AO DISALLOWE D THE CLAIM FOR DEDUCTION OF RS.8000/-. 7.43 AS REGARDS AMOUNT OF RS.8000/- DEBITED AS SA LES COMMISSION IN THE NAME OF SHRI HIRABHAI B PATEL OF KATAV THE ASSESSEE DID NOT FURNISH ANY EVIDENCE OF SERVICE RENDERED BY SHRI HI RABHAI B PATEL AND EVEN IN RESPECT OF PAYMENT OF COMMISSION. IN R ESPONSE TO SUMMON U/S 131(L) OF THE ACT SHRI HIRABHAI B PAT EL SUBMITTED HIS DECLARATION DATED 27-02-03 WRITTEN ON STAMP PAPER O F RS.20/- WHEREIN HE DENIED TO HAVE RECEIVED ANY AMOUNT AS S ALES COMMISSION FOR SALES OF TRACTORS OR FOR ANY OTHER S ERVICES FROM M/S RAJESH AUTOMOBILES DEESA DURING THE FINANCIAL YEAR 1999-2000. SINCE DESPITE SPECIFIC AND REPEATED OPPORTUNITY AS ALSO SHOW CAUSE NOTICE THE ASSESSEE FAILED TO FURNISH ANY EVIDENC E OF SERVICES RENDERED BY SHRI HIRABHAI B PATEL OR IN SUPPORT OF PAYMENT OF COMMISSION THE AO DISALLOWED THE CLAIM FOR DEDUCTI ON OF EXPENDITURE OF RS.8000/- . 7.44 REGARDING CLAIM FOR DEDUCTION OF RS. 14 000 /- ON ACCOUNT OF DEBIT IN THE NAME OF SHRI GOVABHAI M DESAI THE SAI D PERSON IN HIS ITA NO.1572/AHD/2004 20 STATEMENT RECORDED ON 16-01-03 ADMITTED TO HAVE REC EIVED ONLY AN AMOUNT OF RS. 4000/- FROM THE RAJESH AUTOMOBILES DE ESA IN THE F.Y 99-00. SHRI GOVABHAI M. DESAI WAS ALSO CROSS EXAMIN ED BY SHRI MUKESH M. THAKKAR PARTNER OF THE ASSESSEE FIRM ON T HE SAME DAY IN PRESENCE OF ASHOK B THAKKAR ITP WHEREIN ALSO HE R EITERATED HIS EARLIER STATEMENT SINCE THE ASSESSEE HAD SHOWN COM MISSION OF RS.18 000/- IN NAME OF GOVABHAI M DESAI AS UNDER:- 31-12-1999 RS.4000/- 17-03-2000 RS.8000/- 31-03-2000 RS.6000/- THE AO SHOWCAUSED THE ASSESSEE VIDE NOTICE DATED 1 1-02-03 AS TO WHY THE REMAINING AMOUNT OF RS.14 000/- SHOULD NO T BE DISALLOWED. IN RESPONSE THE ASSESSEE VIDE HIS REPLY DATED 24-0 2-03 STATED THAT SHRI GOVABHAI M. DESAI MIGHT HAVE MISUNDERSTOOD AND MIGHT HAVE FORGOTTEN CORRECT FACTS AND TOTAL COMMISSION PAID T O HIM WAS RS.18000/- ONLY. SINCE THE AFORESAID PERSON CONFIRM ED RECEIPT OF RS.4000/- ONLY FOR THE TWO TRACTORS SOLD THROUGH HI M WHILE THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE OF SERVICES RENDERED IN RESPECT OF THE REMAINING AMOUNT NOR FURNISHED SPE CIFIC DETAILS OF SALES ORDER BOOKED FOR THIS ADDITIONAL AMOUNT OF CO MMISSION OR EVEN ANY EVIDENCE OF PAYMENT THE AO DISALLOWED THE AM OUNT OF RS.14 000/-. 7.45 THE AO FURTHER NOTICED THAT THE ASSESSEE HA D SHOWN PAYMENT OF SALES COMMISSION OF RS.5 92 600/- IN 173 CASES T O DIFFERENT AGENTS AS UNDER:- DATE NO. OF CASES AMOUNT OF SALES COMMISSION PAID (A) ON DATE 13-08-99 (B) ON DATE 30-08-99 (C) ON DATE 07-09-99 (D) ON DATE 30-10-99 (E) ON DATE 31-12-99 (F) ON DATE 17-03-00 13 22 19 16 82 12 34 000/- 46 000/- 61 400/- 47 500/- 3 12 000/- 49 500 ITA NO.1572/AHD/2004 21 (G) ON DATE 31-03-00 9 ----- 173 42 500 ------------- 5 92 600/- TO A QUERY BY THE AO SEEKING SPECIFIC DETAILS AND EVIDENCE OF SALES ORDER BOOKED BY THEM FOR MAKING AND EVIDENCE OF ACT UAL PAYMENT OF COMMISSION THE ASSESSEE VIDE HIS LETTER DATED 28- 12-01 FURNISHED SOME CONFIRMATION LETTERS. HOWEVER THE ASSESSEE DI D NOT FURNISH ANY DETAILS OF SALES ORDER BOOKED BY THESE PERSONS OR DETAILS OF SERVICES PROVIDED BY THESE PERSONS WHILE THE CONFIR MATION LETTERS PRODUCED BY THE ASSESSEE WERE FOUND TO HAVE BEEN P REPARED AFTER WARDS AND DID NOT CONTAIN ANY DETAIL OF SALES MADE BY SUCH AGENT. IN THE LIGHT OF THESE FACTS AND SINCE THE ASSESSEE DID NOT PRODUCE ORIGINAL VOUCHERS OBTAINED AT THE TIME OF ACTUAL PA YMENT OF COMMISSION IN THESE CASES VIDE ORDER SHEET ENTRY D ATED 23-12-02 THE ASSESSEE WAS ASKED TO PRODUCE THESE PERSONS PER SONALLY FOR EXAMINATION OF HIS CLAIM OF SALES COMMISSION EXPEND ITURE. THE ASSESSEE PRODUCED ONLY 9 PERSONS OUT OF 173 CASES O F COMMISSION. AFTER EXCLUDING THE AMOUNT ADMITTED BY DIFFERENT PE RSONS THE AO INTER ALIA DISALLOWED AN AMOUNT OF RS. 40 000/- DE TAILED HEREUNDER FOR WANT OF EVIDENCE OF SERVICES RENDERED BY THESE PERSONS: NAME AMOUNT OF COMMISSION DATE OF SUMMONS & RPAD 1.LILA BHURA IYER VAUVA 30-08-99 07-09-99 31-12-99 2000 6000 1500 9500 24-12-02 2. DHUDABHAI DESAI SHERGADH 31-12-99 4000 4000 24-12-02 3. VAGHAJI RATANA DESAI BAIVADA 31-12-99 17-03-00 31-03-00 7500 3500 4000 15 000 24-12-02 4. BABUBHAI JOSHI SURANA 31-12-99 30-10-99 5500 2000 7 500 24-12-02 ITA NO.1572/AHD/2004 22 5. VAGHAJIBHAI J PATEL RAVIYANA 30-10-99 17-03-00 2 000 2 000 4 000 --------- 40 000 24-12-02 EVEN THE RPAD SUMMONS WERE RETURNED UNSERVED BY THE POSTAL AUTHORITY WITH REMARK EITHER NOT KNOWN OR NO SUC H PERSONS AVAILABLE AT GIVEN ADDRESS OR WITH REMARK THAT ON INQUIRY NO SUCH PERSON FOUND IN THIS NAME IN THIS VILLAGE. IN THES E CIRCUMSTANCES THE AO DISALLOWED THE AMOUNT OF RS.40 000/- 8. ON APPEAL THE LD. CIT(A) UPHELD THE DISALLOWAN CE OF COMMISSION DEBITED IN THE NAME OF M/S GANESH SALES AGENCY & M/S DURGA AUTOMOBILES IN THE FOLLOWING TERMS : 6.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE CAREFULLY AND ALSO HAVE GORE THROUGH THE DETAILS FILED BY THE AUTHORISED REPRESENTATIVE. I F IND THAT ALTHOUGH THE APPELLANT HAD PRODUCED SERVICE STATION AUTHORIZATION AGREEMENTS MADE WITH GANESH SALES AGE NCIES AND DURGA AUTOMOBILES ON 26.3.99 THE SAID AGREEMEN TS PROVIDED THAT SALES COMMISSION OF RS.4500/- PER TRA CTOR WOULD BE PAID ONLY ON ACTUAL ORDERS BOOKED BY THE AGENTS AND THE TWO AGENTS HAVE DENIED TO HAVE BOOKED ANY ORDERS FO R SALE OF TRACTORS AND THEY HAVE COMPLETELY DENIED HAVING REC EIVED ANY SALES COMMISSION FROM THE APPELLANT AND ALSO CONFIR MED THAT NO COMMISSION WAS OUTSTANDING TO BE RECEIVED. THUS THE APPELLANT HAS NOT PROVED THAT SERVICES WERE ACTUALL Y RENDERED BY THE TWO AGENTS AND HAS ALSO NOT PROVED PAYMENT O F ACTUAL COMMISSION MADE TO THEM. THE MERE EXISTENCE OF AGRE EMENT BETWEEN THE APPELLANT AND THE AGENTS WOULD NOT BE E NOUGH FOR ALLOWANCE OF EXPENDITURE. IN THE CASE OF THE APPELL ANT EVEN THE PAYMENT OF COMMISSION TO THE ABOVE PARTIES HAS NOT BEEN PROVED AS THE ALLEGED RECIPIENTS HAVE DENIED TO HA VE RECEIVED ANY SUCH PAYMENTS AS CLAIMED BY THE APPELLANT. EVEN IN A CASE WHERE THE RECIPIENTS CONFIRM HAVING RENDERED S ERVICES AND HAVING RECEIVED COMMISSION THE RENDERING OF AC TUAL SERVICES HAS TO BE EXAMINED AND DISALLOWANCE CAN BE MADE IF NO SERVICES ARE ACTUALLY RENDERED. IN THE CASE OF T HE APPELLANT APART FROM CLAIM OF THE APPELLANT FOR HAVING PAID A PART AMOUNT OF COMMISSION THERE IS NO PROOF OF ACTUAL PAYMENT AS THE PAYMENTS HAVE BEEN CLAIMED TO HAVE BEEN MADE IN CAS H AND EVEN SIGNATURES OF RECIPIENTS HAVE NOT BEEN OBTAINE D BY THE ITA NO.1572/AHD/2004 23 APPELLANT ON THE VOUCHERS NOR THE RECIPIENTS HAVE CONFIRMED OF HAVING RECEIVED ANY SUCH PAYMENT. EVEN IT APPEAR S THAT THE APPELLANT WOULD NOT HAVE PAID THE OUTSTANDING AMOUN TS IN THE SUBSEQUENT YEARS. IN VIEW OF THE ABOVE FACTS THE DISALLOWANCES OF COMMISSION MADE BY THE ASSESSING O FFICER IN RESPECT OF THE TWO PARTIES I.E. GANESH SALES AGENCI ES AND DURGA AUTOMOBILES AMOUNTING TO RS.3 55 000/- AND RS.5 22 000/- ARE CONFIRMED. 8.1 AS REGARDS DISALLOWANCE OF AMOUNT OF RS. 84 000/- THE LD. CIT(A) UPHELD THE DISALLOWANCE SINCE THE ASSESSEE DID NOT SUBMIT ANY EVIDENCE OF SERVICES RENDERED BY SHRI GANESHBH AI B PATEL. NANJIBHAI T PATEL & HARIBHAI B PATEL AND RAT HER THESE THREE DENIED HAVING RENDERED ANY SERVICES OR RECEIVED ANY COMMISSION. AS REGARDS SHERI GOVARBHAI M DESAI AND THE OTHER PA RTIES TO WHOM AN AMOUNT OF RS. 40 000/- HAD BEEN PAID THE ASSESS EE DID NOT DISCHARGE ONUS LAID DOWN UPON THEM AND DID NOT PROD UCE ANY EVIDENCE OR EVEN CONFIRMATION WHICH COULD ESTABLI SH RENDERING OF SERVICES BY THESE PARTIES. ACCORDINGLY THE LD. CI T(A) UPHELD THE DISALLOWANCE.. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE CIT( A) AND CARRYING US THROUGH THE RELEVANT PAGES IN THE PAPER BOOK CONTEN DED THAT THE AO DID NOT ALLOW SUFFICIENT OPPORTUNITY BEFORE DISALLO WING THE COMMISSION PAID TO THE AFORESAID PARTIES.THE LEARNE D DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE LOWER AUTHOR ITIES AND POINTED OUT THAT M/S DURGA AUTOMOBILES AND GANESH SALES AG ENCY ADMITTED THAT THEY DID NOT RENDER ANY SERVICES NOR BOOKED A NY ORDER FOR SALE OF TRACTORS NOR EVEN RECEIVED ANY AMOUNT OF COMMISS ION. IN THE ABSENCE OF ANY EVIDENCE OF RENDERING OF SERVICE ESP ECIALLY WHEN THE AO ALLOWED SUFFICIENT OPPORTUNITY TO CROSS EXAM INE AS MENTIONED IN THE ASSESSMENT ORDER AND THE ASSESSEE DID NOT AV AIL OF THESE ITA NO.1572/AHD/2004 24 OPPORTUNITIES THE LD. CIT(A) WAS JUSTIFIED IN UPHO LDING THE DISALLOWANCE THE LD. DR ARGUED. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS THE LD. CIT(A) UPHELD THE DISALLOWANCE OF COMMISSION MADE BY THE A O SINCE THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE OF SERVICES RENDERED BY THE AFORESAID PARTIES NOR ESTABLISHED GENUINENESS OF PA YMENTS TO THEM. UNDISPUTEDLY M/S GANESH SALES AGENCIES AND M/S DUR GA AUTOMOBILES AS ALSO SHRI GANESHBHAI B PATEL. NANJ IBHAI T PATEL & HARIBHAI B PATEL DENIED TO HAVE BOOKED ANY ORDERS F OR SALE OF TRACTORS AND FURTHER DENIED HAVING RECEIVED ANY SAL ES COMMISSION FROM THE ASSESSEE. THE PROPRIETORS OF M/S GANESH SA LES AGENCIES AND M/S DURGA AUTOMOBILES DENIED TO HAVE RENDERED ANY SERVICES IN THE MATTER OF SALES OF TRACTORS AND FURTHER DENIED TO HAVE ENTERED IN TO ANY AGREEMENT WITH THE ASSESSEE FOR THAT PURPOSE AND ALSO DENIED HAVING RECEIVED ANY COMMISSION NOT ONLY ONC E BUT AT LEAST ON TWO OCCASIONS IN THEIR STATEMENTS RECORDED ON DI FFERENT DATES. THERE IS NOTHING TO SUGGEST THAT THESE PARTIES REND ERED ANY SERVICES AT ALL TO THE ASSESSEE FOR WHICH COMMISSION WAS DEB ITED IN THE BOOKS. EVEN WHEN COPIES OF STATEMENTS RECORDED OF T HE AFORESAID PERSONS WERE SUPPLIED TO THE ASSESSEE THE ASSESSEE DID NOT DISCHARGE A VERY HEAVY ONUS LAID DOWN UPON THEM IN SUPPORT OF THEIR CLAIM FOR DEDUCTION OF COMMISSION DEBITED IN THE NAME OF THE AFORESAID PARTIES. AS REGARDS OTHER PARTIES THE A SSESSEE DID NOT PROVE THAT SERVICES WERE ACTUALLY RENDERED BY THE A LLEGED AGENTS NOR THE ASSESSEE PROVED PAYMENT OF ACTUAL COMMISSION TO THEM NOR EVEN FILED THEIR CONFIRMATIONS . THE AO AND LD. C IT(A) FOUND THAT THERE WAS NO PROOF OF ACTUAL PAYMENT AS THE PAYMENT S WERE CLAIMED TO HAVE BEEN MADE IN CASH AND EVEN SIGNATURES OF RE CIPIENTS WERE NOT OBTAINED BY THE ASSESSEE ON THE VOUCHERS NOR T HE RECIPIENTS CONFIRMED OF HAVING RECEIVED ANY SUCH PAYMENT IN CA SH OR ITA NO.1572/AHD/2004 25 OTHERWISE. IT IS WELL SETTLED THAT ONUS IS ON THE A SSESSEE TO PROVE THAT THE AMOUNT SOUGHT TO BE DEDUCTED HAVE BEEN EXP ENDED BY THE ASSESSEE AND IN FACT THE PAYMENTS HAVE BEEN MADE F OR THE SERVICES RENDERED TO THE ASSESSEE. IF THERE IS NOTHING TO SH OW THAT THE AGENTS HAD RENDERED ANY SERVICES AT ALL TO THE ASSESSEE T HE PAYMENTS CAN NOT BE DEDUCTED. THE ONUS OF PROOF CLAIMING DEDUCT ION RESTS ON THE ASSESSEE. IT IS FOR THE ASSESSEE TO ESTABLISH BY EV IDENCE THAT A PARTICULAR ALLOWANCE IS JUSTIFIED. IN THE INSTANT CASE THE A SSESSEE DID NOT PRODUCE AN IOTA OF EVIDENCE IN SUPPORT OF THEIR CLAIM THAT THE AFORESA ID AGENTS HAD ACTUALLY BOOKED ORDERS FOR SALE OF TRACTORS OR RENDERED ANY SERVICE S AT ALL TO THE ASSESSEE FOR WHICH COMMISSION WAS DEBITED IN THE BOOKS. RATHER T HE SAID PERSONS DENIED TO HAVE RENDERED ANY SERVICES TO THE ASSESSEE AND CLA IMED THAT THEY DID NOT RECEIVE ANY AMOUNT ON ACCOUNT THE SAID COMMISSION . THE BURDEN OF PROVING THAT THE AMOUNTS WERE ACTUALLY EXPENDED LAY ON THE ASSES SEE. SECTION 37 OF THE ACT INTER ALIA CLEARLY PROVIDES THAT THE EXPENDITURE C LAIMED BY WAY OF DEDUCTION SHOULD BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF BUSINESS OR PROFESSION .IN LACHMINARAYAN MADANLAL VS. CIT 86 ITR 439(SC) HONBLE APEX COURT WHILE REFERRING TO THEIR DECISIO N IN SWADESHI COTTON MILLS CO. LTD. V. COMMISSIONER OF INCOME-TAX 63 ITR 57(SC) H ELD THAT THE QUESTION WHETHER AN AMOUNT CLAIMED AS AN EXPENDITURE WAS LAI D OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS HA S TO BE DECIDED ON THE FACTS AND IN THE LIGHT OF THE CIRCUMSTANCES IN EACH CASE. THE MERE EXISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGEN TS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION ASSUMING THERE WAS SUCH PAYM ENT DOES NOT BIND THE INCOME-TAX OFFICER TO HOLD THAT THE PAYMENT WAS MAD E EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS. ALTHOUGH TH ERE MIGHT BE AN AGREEMENT IN EXISTENCE AND THE PAYMENTS MIGHT HAVE BEEN MADE IT IS STILL OPEN TO THE INCOME-TAX OFFICER TO CONSIDER THE RELEVANT FACTORS AND DETERMINE FOR HIMSELF WHETHER THE COMMISSION SAID TO HAVE BEEN PAID TO TH E SELLING AGENTS OR ANY PART THEREOF IS PROPERLY DEDUCTIBLE UNDER SECTION 37 OF THE ACT. THOUGH THE LD. AR ON BEHALF OF THE ASSESSEE ARGUED BEFORE US THAT THE AO DID NOT ALLOW SUFFICIENT OPPORTUNITY BEFORE DISALLOWING THE COMMISSION PAID TO THE AFORESAID ITA NO.1572/AHD/2004 26 PARTIES THE ELABORATE REASONING GIVEN BY THE AO AND THE LD. CIT(A) JUSTIFIES THEIR CONCLUSION THAT THERE WAS NO EVIDENCE ON THE RECORD TO SHOW THAT ANY SERVICES WERE RENDERED BY THE AFORESAID PERSONS AND DESPITE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO TO CROSS-EXAMINE THE AFORESAID PERSONS THE PARTNERS OF THE ASSESSEE DID NOT AVAIL OF THESE O PPORTUNITIES ON ONE PRETEXT OR THE OTHER. AS ALREADY STATED THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THEIR CLAIM FOR DEDUCTION OF COMMISSION. THE ASSESSEE DID NOT DISCHARGE THE SAME AT ALL. EVEN WHEN THE AFORESAID PERSONS DENIED TO HAVE RENDERED ANY SERVICES TO THE ASSESSEE AND FURTHER DENIED TO HAVE RECEIVED AN Y AMOUNT DEBITED IN THE BOOKS OF THE ASSESSEE ON ACCOUNT OF COMMISSION AND ALSO DENIED TO HAVE ENTERED IN TO ANY AGREEMENT WITH THE ASSESSEE FOR T HAT PURPOSE AND COPIES OF THEIR STATEMENTS WERE ALSO SUPPLIED TO THE ASSESSEE THE ASSESSEE DID NOTHING TO CONTOVERT THEIR STATEMENTS . SINCE THE LD. AR ON B EHALF OF THE ASSESSEE DID NOT PLACE ANY MATERIAL BEFORE US TO CONTROVERT THE AFOR ESAID ELABORATE FINDINGS OF THE AO AND THE LD. CIT(A) WE ARE NOT INCLINED TO TAKE A DIFFERENT VIEW IN THE MATTER. THEREFORE THE AFORESAID GROUNDS RELATING TO CLAIM FOR DEDUCTION OF COMMISSION ARE DISMISSED. 11. GROUND NOS.1.2(V) & 4.1 RELATE TO DISALLOWANCE OF RS.31 937/- ON ACCOUNT RESPECT OF DISCREPANCIES IN THE ACCOUNT STATEMENT OF MAHINDRA & MAHINDRA LTD. DURING THE COURSE OF ASSES SMENT PROCEEDINGS ACCOUNT STATEMENT OF THE ASSESSEE FROM MAHINDRA & MAHINDRA LTD. WAS CALLED FOR AND VERIFIED WITH THE BOOKS OF ACCOUNT OF THE ASSESSEE FIRM AND AFTER VERIFICATION DISCRE PANCY OF RS.1327/- IN TRACTORS ACCOUNTS AND DISCREPANCIES OF RS.30 610 /- IN SPARES ACCOUNT WERE FOUND. DESPITE SPECIFIC REQUEST MADE B Y THE AO SEEKING EXPLANATION FOR THE SAID DISCREPANCIES THE ASSESSEE DID NOT FURNISH ANY EXPLANATION. THEREFORE DIFFERENCE AMOU NT OF RS.31 937/- [RS.1327 + RS.30610] WAS HELD AS STOCK PURCHASED BU T NOT TAKEN IN BOOKS OF ACCOUNTS BY THE ASSESSEE AND THE SAME WAS HELD AS UNEXPLAINED INVESTMENT IN STOCK AND ADDED TO THE I NCOME. ITA NO.1572/AHD/2004 27 12. ON APPEAL THE LEARNED CIT(A) CONFIRMED THE ADD ITION WITH THE FOLLOWING OBSERVATIONS:- 10 THE NEXT GROUND OF APPEAL IS AGAINST ADDITION O F RS.31 937/- ON ACCOUNT OF DISCREPANCY IN ACCOUNT OF MAHINDRA AND MAHINDRA LTD. AS THE APPELLANT COULD NOT EXPLAI N THE DISCREPANCY THE AO MADE THE ADDITION FOR THE DIFFE RENCE AMOUNT OF RS.31 937/- AS STOCK PURCHASED FROM MAHIN DRA AND MAHINDRA LTD. AND NOT SHOWN BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS. THE APPELLANT HAS CONTENDED IN THE GROUND OF APPEAL THAT THE AO OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPELLANT IS A DEALER OF MAHINDRA AND MAHINDRA LTD. AND ALL THE PAYMENT HAVE BEEN MADE THROUGH BANKING CHANNEL SO THERE WAS NO REASON TO MAKE ANY ADDITION TOWARDS UNEXPLAI NED INVESTMENT IN STOCK. I HAVE CONSIDERED THE SAID SUB MISSION OF THE APPELLANT. AS THE APPELLANT HAS NOT EXPLAINED T HE DISCREPANCY EVEN AT THE APPELLATE STAGE THE ADDITI ON IS FOUND TO BE IN ORDER AND THE SAME IS CONFIRMED. 13 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR APPEARING BE FORE US DID NOT EXPLAIN THE DISCREPANCIES POINTED OUT BY THE AO EV EN BEFORE US. IN THESE CIRCUMSTANCES ESPECIALLY WHEN NEITHER BEFOR E THE AO AND THE LD. CIT(A) NOR EVEN BEFORE US THE ASSESSEE EXPLAIN ED THE AFORESAID DISCREPANCIES THERE IS NO BASIS FOR US TO INTERF ERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NOS.1.2(V) & 4 .1 ARE ALSO DISMISSED. 14. GROUND NOS. 1.3 & 5 BEING GENERAL IN NATURE D O NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. 15. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 21-05-2 010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 21-05-2010 ITA NO.1572/AHD/2004 28 COPY OF THE ORDER FORWARDED TO : 1. M/S RAJESH AUTOMOBILES NR. RTO CHECK POST THAR AD HIGHWAY DEESA 2. THE ITO WARD-4 PALANPUR 3. CIT CONCERNED 4. CIT(A)-XV AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD