ORDER
N. Barathvaja Sankar, A.M.
1. This is an appeal preferred by the Revenue for the asst. yr. 1991-92 in the case of the assessee Shri A.G. Govindarajulu, Coimbatore, assailing the order dt. 27th April, 1994, of the CIT(A), Coimbatore. The grounds of appeal of the Revenue read as under :
“1. The learned CIT(A) has erred in deleting the disallowance of commission amounting to Rs. 6,46,210.
2. The assessee has not established that the payment of commission has been incurred for the purpose of business.
3. There is no evidence to the effect that the agreement between the assessee and the sole-selling agent M/s Texind Corporation (P) Ltd. provided for payment of commission to third parties.
4. The assessee has not stated the exact nature of services rendered by the third parties and has also not clearly proved that the payments are genuine.”
Briefly stated the facts of the case are that the assessee, the proprietor of M/s Allied Engineering Industries, is a manufacturer of travelling cleaners, which is an accessory for spinning textile machineries. For the asst. yr. 1991-92 the total turnover was around Rs. 2 crores. For around 20 years the assessee had a sole selling agency agreement with M/s Texind Corporation (P) Ltd. and this agent has its registered office at Bombay and have branch offices in important cities. The assessee-company faces severe competition from several manufacturers in Coimbatore and Bombay. As per the usual practice in the industry secret commission had to be paid to some persons who are in a position to influence the purchase decision in the customer organisations. The commissions are termed ‘secret’ business the payments are supposed to be kept secret from the customer company’s management. According to the assessee this is a necessary evil to get orders in the difficult and competitive industry. It is the practice that the agent Texind Corporation (P) Ltd. will from time to time indicate the names and addresses of the persons who have to be paid ‘secret competition to bag the orders based on the computation from different regions.
But for the role of the persons receiving the commission it would be next to impossible to obtain the orders, according to the assessee. Thus, there is a direct nexus between the secret commission and the concerned sales, according to the. assessee. The commission payment was, however, disallowed by the AO in his order under Section 143(3) as not being business expenditure. On appeal the CIT(A) allowed the amount as deductible business expenditure. Now the Revenue is in appeal with the grounds of appeal extracted elsewhere in this order.
2. At the time of hearing the learned Departmental Representative apart from reiterating the grounds of appeal as his submissions, placed heavy reliance on para 2 of the assessment order. On the other hand, the learned counsel for the assessee placed on record a compilation consisting of 53 sheets comprising therein the contents as mentioned in the index to such paper book. The paper book contains written submissions also. He reiterated that contents of the written submissions as his arguments which are extracted below. The order of the learned AO disallowing the commission payment is payment is against the facts and circumstances of the case and in any case violative of the principles of equity and natural justice and contrary to the provisions of law. Unlike cases involving payment of secret commission, the respondent had willingly cooperated with the learned AO and provided the names and addresses of the persons whom the commission was paid. The respondent also got written confirmations from the parties who specifically stated that they received the amount towards commission for procuring orders for the customer company. The name of the customer company was also specifically stated in the written confirmations signed by the parties. The parties had also explicitly stated in their confirmations that but for them the respondent would not have the orders from the customer company. Thus, the respondent has more than discharged its onus to prove the business exigency and the genuinity (sic) of the commission payments. The learned AO has erred in disallowing the payments when the very fact that the payments were made which have not been questioned. The learned AO has erred in disallowing the amounts despite the following. Written confirmations were issued by the parties. The respondent requested the parties residing at Delhi to appear before the AO who had required their production before him. The respondent has himself suggested to the learned AO that to ensure the appearance of the parties residing at New Delhi whose production he had demanded before him at Coimbatore, he should issue summons as required under law, which, however, was never pursued by the learned AO. The learned AO has erred in ignoring the discharge of primary onus by the respondent and thereafter disallowing the commission payments without taking any step to verify the submissions made by the respondent. The learned officer has erred in disallowing the amounts despite the fact that the payments were all made only through crossed account payee cheques. The learned officer has erred in rejecting the submissions of the respondent on the ground that the nature of services rendered by the parties was never established. The respondent has always submitted that the parties due to their influential position could determine whether the orders would reach the respondent from the customer companies or not and the commission payments to them were imperative to persuade them to exercise this influence and get
orders for the respondent. The parties themselves have issued signed confirmations where they have clearly stated that but for their role, the orders would not have been given to the respondent. The learned officer has erred in ignoring all the facts and evidences placed before him and thereafter disallowing the commission payments without taking any step to verify the evidence submitted. The learned officer has erred in not considering the fact that the amount of commission paid amounts to only about 3 per cent of the total turnover and thus very insignificant. The learned counsel for the assesses relied on the following decisions :
1. Shahzada Nand & Sons v. CIT (1977) 108 ITR 358 (SC);
2. Aluminium Corpn. Ltd. v. CIT (1972) 86 ITR 11 (SC);
3. CIT v. Coimbatore Salem Transport (P) Ltd. (1966) 61 ITR 480 (Mad):
4. Swastic Textiles Co. (P) Ltd. v. CIT (1984) 150 ITR 155 (Guj);
5. Jamshedpur Motor Accessories Stores v. CIT (1974) 95 ITR 664 (Pat);
6. CIT v. A.S.K. Rathinasamy Nadar (1995) 212 ITR 527 (Mad);
7. Lakshminarain Madanlal v. CIT (1972) 86 ITR 439 (SC); and
8. Dr. G.G. Joshi v. CIT (1994) 209 ITR 324 (Guj).
Apart from the above he placed heavy reliance on para 3 of the appellate order.
3. We have heard the rival submissions and considered the facts and the materials on record including the paper book submitted by the learned counsel for the assessee and the case laws relied upon by him. After a careful consideration of the submissions of both the sides in the light of the facts and the materials coupled with the case laws relied upon by the learned counsel for the assessee. We feel that there is much force in the contention of the learned counsel for the assessee in supporting the impugned order. While passing the appellate order the learned CIT(A) has observed as under :
“I have given careful consideration to the contentions of the learned authorised representative- I have also perused the assessment order passed by the AO. Fact remains that the appellant has paid secret commission to certain persons connected with the textile industry in order to procure business in the face of heavy competition. The payments have also been made as informed by the sole selling agent M/s Texind Corporation. The persons who have actually rendered services have also confirmed having done so and also identified the various customers for whom they have canvassed orders. None of the recipients are either related to the appellant or his close relatives. The payments made by account payee cheques have been credited to their respective bank accounts. Such payments have been made even in earlier years and allowed as business deductions in the respective assessments. During the year the turnover has increased almost double, but the increase in commission is not even 50 per cent. There is no evidence that any portion of the payments has come back to the appellant in any form. There is, therefore, nexus between the expenditure and the conduct of the business. The decision of the Supreme Court in (1972) 86 ITR 439 (SC) (supra) has no application to the facts of the present case. There was a finding that the payment of commission under an agreement was found to have been a colourable device and sham. It was more in the nature of a make believe arrangement. There are no special circumstances warranting the disallowance of commission during the asst. yr. 1991-92, alone, while it has been allowed uptill the asst. yr. 1991-92. The disallowance of Rs. 6,46,210 is, therefore, deleted.”
In our considered opinion there is no infirmity in the above findings of the CIT(A) and the Revenue has not brought in any corroborative material to prove that these transactions were false. Hence, we have no hesitation to uphold the order of the first appellate authority for the reasons stated therein by him by dismissing the Revenue’s appeal.
4. In the result the Revenue’s appeal is dismissed.