ORDER
Dinesh K. Agarwal, J.M.
1. This appeal is preferred by the Revenue against the order passed by the CIT(A), dt. 31st July, 1992. The Revenue has raised the following grounds of appeal :
“On the facts and in the circumstances of the case, the CIT(A) has erred in :
(1) deleting the addition of Rs. 1,07,196 made by the AO under the provisions of s. 40A(3) despite the fact that in such cases payments are made to a party through truck drivers as such the payments were not covered under exceptional circumstances.
(2) Deleting the addition of Rs. 6,85,681 made by the AO on account of disallowance of commission under s. 40A(2)(b) despite the fact that the assessee failed to produce any evidence regarding services rendered by agent so as to qualify for the said commission.”
2. The ground No. 1 is with regard to the disallowance of Rs. 1,07,196 made by the AO under s. 40A(3). During the course of assessment proceedings it was noticed by the AO that the assessee’s auditors in the tax audit report has pointed out that the assessee had made certain cash payment exceeding Rs. 10,000 to 9 parties aggregating Rs. 1,07,196. Since it was a violation of s. 40A(3), therefore, the AO disallowed the whole sum of Rs. 1,07,196. On first appeal, the CIT(A) has accepted the assessee’s plea that the payment made at Delhi in cash for purchases were on account of there being no operational bank account and the other payments were made to truck drivers on account of truck freight. In such a situation the existence of exceptional circumstances cannot be disputed and, therefore, the CIT(A) has deleted the disallowance.
3. Now the Revenue is in appeal before us. It was submitted by the learned Departmental Representative that the disallowance was made as per the report of the assessee’s tax auditors; the payments were made to the known parties of Delhi and as regards the payments made to truck drivers, it was argued that the payment is actually on behalf of transporters. Since the assessee has clearly violated the provisions of ss. 40A(3), therefore, the AO has rightly disallowed the same and it should be upheld.
4. On the other hand, the learned authorised representative submitted that the assessee has made cash payments to 3 parties at Delhi where the firm does not have any operational bank account. In regard to the other payments, it was submitted that the same represented freight and octroi charges paid to drivers of different trucks who have insisted for cash payment at the time of delivery of goods. Therefore, the assessee’s case is fully covered by the exceptional circumstances as mentioned in CBDT Circular No. 220, dt. 31st May, 1977. The CIT(A) has rightly deleted the same. He, therefore, urged that the order of the CIT(A) should be upheld.
5. We have carefully considered the rival submissions of the parties and we find that so far as the six payments made to truck drivers for freight and octroi charges are concerned this Bench is of the consistent view that the payment in cash falls under the exceptional circumstances as mentioned in r. 6DD(j) r/w CBDT Circular, supra. We, therefore, upheld the order of the CIT(A) on this account. However, so far as the other three payments made in cash at Delhi amounting to Rs. 21,000 + 10,084 + 10,232 = 41,316 by the appellant firm, the only plea of the appellant is that since there was no operational bank account at Delhi, therefore, the payment in cash was made at Delhi. We find that at p. 67 of the paper book the assessee submitted a reply dt. 20th March, 1992, to the AO wherein at Para 2(g) it was mentioned by the assessee that “depositing collected cheques into our bank account in Delhi”. Therefore, it appears that the assessee has a bank account at Delhi. We, therefore, direct the AO to verify the same after giving an opportunity to the assessee as per law and if it is found that the assessee has a bank account at Delhi, the disallowance should be sustained otherwise not.
6. The next ground of the Revenue is with regard to the deletion of addition of Rs. 6,85,681 made by the AO on account of disallowance of commission under s. 40A(2)(b) paid to M/s. Saurav Marketing (P) Ltd., New Delhi. The appellant was asked by the AO to give the details of services rendered by the said company to the appellant. It was explained by the appellant that the assessee does not have any organisation at Delhi or Gurgaon, therefore, the assessee entered into a written agreement with M/s. Saurav Marketing (P) Ltd. through managing director Shri Sushil Poddar w.e.f. 1st January, 1985, to look after the supplies made to Maruti Udyog Ltd. by the appellant. Therefore, Shri Sushil Poddar is doing the entire work on behalf of the company for procurement of orders; day-to-day follow up of demand and supply; follow up of requisitions, follow up of payments and collection of cheques and follow up of price amendments and negotiations. In support of his claim the appellant has also filed various correspondence between assessee and the M/s. Saurav Marketing (P) Ltd., identity card issued by Maruti Udyog Ltd. to Shri Sushil Poddar, director of the company and copies of certain meetings with Maruti Udyog Ltd. indicating presence of Shri Sushil Poddar in those meetings and also the details of payments.
7. The AO found that the identity card was issued on 20th September, 1991, a date beyond the accounting period; the details filed were mostly correspondence between the assessee and the agent M/s. Saurav Marketing (P) Ltd. The details do not reflect the quantum of services and nature of services rendered. Besides this, the AO also made enquiries from the agent and wrote a letter of Maruti Udyog Ltd. The AO in absence of any conclusive evidence of actual services rendered, disallowed the entire commission payment amounting to Rs. 6,85,681 under s. 40A(2)(b). On first appeal, the CIT(A) after discussing all the objections raised by the AO has deleted the entire addition made by the AO under s. 40A(2)(b).
8. At the time of hearing of the appeal, the learned Departmental Representative filed a paper book and strongly relied upon the photocopy of identity card issued on 20th September, 1991, letter dt. 3rd March, 1992, written to Maruti Udyog Ltd. and its reply and also the report dt. 3rd March, 1992, of the ITO who made enquiries with M/s. Saurav Marketing (P) Ltd., letter of the AO to the assessee and assessee’s explanation thereon and the statement of account of M/s. Saurav Marketing (P) Ltd. and also the annexure-B of the audited report wherein the auditors have described the payment as made under s. 40A(2)(b).
9. On the other hand, the learned authorised representative relied upon the order of the CIT(A) and argued that since the appellant has no office at Delhi, therefore, the appellant has appointed M/s. Saurav Marketing (P) Ltd. as their agent to look after the interest of the assessee. The learned authorised representative has drawn our attention towards the various correspondence made by the appellant firm and agent, nature of work done by the agent on behalf of the appellant and, therefore, he argued that in view of various services rendered by the agent, the payment made to M/s. Saurav Marketing (P) Ltd. is for business purposes and, therefore, it is allowable. It was also submitted that most of the objections raised by the learned Departmental Representative has already been taken into consideration by the CIT(A). As regards the letter dt. 30th March, 1992, issued by Maruti Udyog Ltd., it was submitted by the learned authorised representative that it was not shown to the assessee. He, therefore, urged that the assessee has rightly made the payment to M/s. Saurav Marketing (P) Ltd. which was allowed by the CIT(A) and the same should be upheld.
10. We have carefully considered the rival submissions of the parties and we noticed that the appellant has filed a paper book which contained 150 pages and out of which, it was claimed that 73 pages represents this claim which is under consideration. On scrutiny of these papers it was noticed that in the months of July, 1987, to April, 1988, July, 1988 and September, 1988, there is no correspondence between the appellant firm and the agent. There is only one letter each in the month of May, 1988, June, 1988, December, 1988 and February, 1989. In the months of August, 1988, there are 6 letters, in the month of October and November 1988, there are 2 letters each, in the month of January, 1989, there are 5 letters and in the month of March, 1989, there is no letter. Thus, there are only 19 letters in between appellant firm and agent in only 8 months out 21 months of the accounting period + 2 letters dt. 31st March, 1989, showing the meetings with Maruti Udyog Ltd. plus 3 bills raised by the agent on the basis of which the commission amounting to Rs. 6,85,681 was claimed which is not sufficient for such a huge claim although it is a fact that the assessee has entered into an agreement with M/s. Saurav Marketing (P) Ltd. to look after its interest on its behalf with Maruti Udyog Ltd. We also find that some correspondence was not confronted to the assessee by the AO. We, therefore, are of the opinion that this matter should go back to the AO who will re-examine the issue after giving reasonable opportunity to the assessee in support of its claim and then decide the matter according to law.
11. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.