1. These are the two appeals filed one by the assessee and other filed by the Revenue and both are against the order of the CIT(A)-XXIX, New Delhi dt. 14th July, 2000. There are six grounds in the appeal of the assessee. Grounds 3 to 6 of the assessee's appeal are narrative and the issue that arises from them is whether the CIT(A) would have taken a decision based on the available facts and delete the addition of Rs. 1,61,86,880 instead of setting aside the issue relating to the alleged low GP to the files of the AO with certain guidelines. Further, the CIT(A) is directing the AO to apply the provisions of Section 92 of the IT Act and issuing certain directions in this regard. Finally, other two grounds Nos. 1 and 2 are: 1. That the CIT(A) erred on facts and in law in sustaining disallowance of commission of Rs. 11,07,251 paid to RTP Business Enterprises, Rs. 8,500 paid to JK Traders and Rs. 8,400 paid to Technomed Services on the ground that the appellant failed to bring any evidence on record to show that the payment was made in consideration of services rendered.
2. That the CIT(A) erred on facts and in law. in not holding expenses of Rs. 52,741 out of sales promotion expenses and Rs. 1,11,258 out of conference expenses are not being in the nature of entertainment expenses and hence not disallowable under Section 37(2) of the Act.
2.1 That the CIT(A) erred on facts and in law in not holding that expenses aggregating to Rs. 82,508 were, in any case, allowable business expenditure and were to be excluded from the purview of disallowable under Section 37(2) of the Act.
2. Ground 1 relates to sustaining the disallowance of commission of (a) Rs. 11,07,251 paid to RTP Business Enterprises, (b) Rs. 8,500 paid to JK Traders and (c) Rs. 8,400 paid to Technomed Devices for want of services rendered.
(a) Disallowance of commission of Rs. 11,07,251 paid to RTP Business Enterprises: (i) Assessee paid the commission to RTP Business Enterprises in the context of sale of CT scanner and its work station to Lady Hardinge Medical Hospital. Before the CIT(A), assessee filed a copy of the invoice i.e. p. 6 of the paper book, which does not contain any reference that RTP Business Enterprises is an agent and said amount is payable to him. As held in para 5.8 of the order of the CIT(A), CIT(A) sustained the disallowance of Rs. 11,07,251 holding that there is no evidence either for agent rendered services or for the agent is a person of influence to arrange business for the assessee.
He further held that mere payment does not lead to the inference that the services were rendered.
(ii) Aggrieved with the above decision of the CIT(A), the assessee is before us. The learned Authorised Representative for the assessee argued that AO is not justified in disallowing commission payments when the payments are made through the banking channClauses CIT-Departmental Representative for the Revenue argued that the point in question is whether services are rendered or not for which the agent must be entitled to a commission. Assessee failed to produce the details of the services and supportive evidences. He further argued that mere production of a sale bill of the CT scanner including its work station by Lady Hardinge Medical Hospital does not mean anything.
(iii) We have heard the rival submissions and perused p. 6 of the paper book in question. This is the copy of the sale bill and it does not have particulars about the agent i.e. RTP Business Enterprises and obviously, no details of payability of the commission by the assessee. There is no agreement between the parties also in this case unlike the case of M/s Meemar, another agent who received the commission for rendering services to the assessee. There is no evidence to accept that the said amounts are paid for specified services rendered in the sale transaction of CT scanner to Lady Hardinge Medical Hospital. There is no dispute on the payment of commission and the dispute is only on the purposes of such payment. The purpose is very important in the context of the provisions of Section 37 of the IT Act. In this case, the assessee has failed to discharge the onus. Accordingly, we find no reason to interfere with the order of the CIT(A) in this regard. Thus, the grounds in this regard are dismissed.
(b) and (c) Disallowance of commissions of Rs. 8,500 paid to JK Traders and Rs. 8,400 paid to Technomed Devices: (i) Assessee paid commissions of Rs. 8,500 to JK Traders and Rs. 8,400 to Technomed Devices. CIT(A), as held in para 5.8 of his order, sustained the disallowance of these amounts i.e. Rs. 8,500 and Rs. 8,400 made by the AO holding that there is no evidence on record regarding any services rendered by JK Traders and Technomed Devices.
(ii) Aggrieved with the above decision of the CIT(A), the assessee is before us. The learned Authorised Representative for the assessee argued that it has made the payments of Rs. 8,500 to JK Traders in connection with the sale of Nebula to St. Augustina Hospital and relied on the copy of the invoice placed in the paper book.
CIT-Departmental Representative for the Revenue argued that the point in question is whether the services are rendered or not and the payment of commission is for the business purposes or not and CIT-Departmental Representative mentioned that the assessee failed to produce the details of the services and supportive evidences. He further argued that mere production of a copy of the sale bill of the Nebula does not mean anything. Similarly, the payment of Rs. 8,400 paid to Technomed Devices for sale of Nevus equipment to Dr.
Ravi Section Konnur. In this case of payment also, the assessee furnished a copy of the sale bill.
(iii) We have heard the rival submissions and perused the relevant papers in question and found that admittedly, the amounts are paid to JK Traders and Technomed Devices. There is no agreement between the parties also in these cases, unlike the case of M/s Meemar, another agent who received the commission for rendering services to the assessee. There is no evidence to accept that he said amounts are paid for specified services rendered in the sale transaction of goods to St. Augustina Hospital and Dr. Ravi Section Konnur. There is no dispute on the payment of commission and the dispute is only on the purposes of such payment. The purpose is very important in the context of the provisions of Section 37 of the IT Act. In this case, the assessee has failed to discharge the onus. Accordingly, we find no reason to interfere with the order of the CIT(A) in this regard. Thus, the grounds in this regard are dismissed.
3. Grounds 2 and 2.1 of the assessee's appeal and ground 3 of the Revenue's appeal relate to the entertainment expenses. For the sake of convenience, both grounds are being disposed of together in this order.
In the ground 2 of the assessee appeal, the issue that arises from the grounds 2 and 2.1 above is whether the amounts of Rs. 52,741, Rs. 1,41,258 and Rs. 82,508, originally claimed by the assessee as entertainment expenses under Section 37(2), are business expenses or not and in that case, they are outside the purview of Section 37(2).
Further, the Revenue raises ground 3 against the CIT(A)'s direction to allow 50 per cent of the entertainment expenses towards employees is excessive and the said allocation of 50 per cent of the total entertainment expenditure of Rs. 11,50,709 is done without any basis.
(ii) Briefly, the facts are that the assessee claimed entertainment expenses to the tune of Rs. 11,50,709. While computing the disallowance under Section 37(2), the assessee has claimed 50 per cent of total expenditure towards employees. Assessee's figure in this regard is Rs. 2,82,677 whereas, the AO's computation for disallowance under Section 37(2) is as under:'Total amount spent on entertainment: Rs. 11,50,709Less: First Rs. 10,000 100% : Rs. 10,000Balance 50% : Rs. 5,70.354Entertainment disallowed works out to : 5.80,354 The difference in figure of the assessee and the AO is due to the fact, that the AO did not allow the assessee's claim of 50 per cent of Rs. 11,50,709 towards the employees and proceeded to calculate the amount to be disallowed under Section 37(2).
(iii) Aggrieved with the above disallowance, the assessee filed an appeal before the CIT(A). Based on the break-up given by the tax auditors for gross figure of Rs. 11,50,709, assessee mentioned that Rs. 52,741 and Rs. 1,41,256 (assessee wrongly mentioned as Rs. 1,11,258 in grounds) are spent under the heads' 'Sales promotion expenses' and 'Conference expenses' respectively in the context of meeting doctors and customers for business purposes. Assessee argued that these expenses are not entertainment expenses but they are business expenses and relied on judgment in the case of CIT v. Indo Asian Switchgears (P) Ltd. (1997) 137 CTR (P&H) 9 : (1997) 92 Taxman 86 (P & H). Assessee further submitted that an aggregate amount of Rs. 82,508 (expenses spent on purchase of dry fruits, Diwali gifts, car hire charges, layout preparation) are also business expenditures and not as entertainment expenses. Thus the amounts i.e. Rs. 52,741, Rs. 1,41,258 and Rs. 82.508 out of total of Rs. 11,50,709 relate to business expenditure and are outside the purview of Section 37(2).
CIT(A), after considering the above submissions, held that there is no firm data on the files on actual figures relating to entertainment expenditure as held in para 6.4 of his order.
Accordingly, he held that the expenses covered under Section 37(2) could not be worked out. Accordingly, he upheld the original claim of the assessee with some modification double disallowance by AO with regard to the expenses attributable to the employees.
(iv) Aggrieved with the CIT(A) order's failure to consider the amount of Rs. 2,76,507 (total of Rs. 52,741, Rs. 1,41.258 and Rs. 82,508) out of total amount of Rs. 11,50,709 as business expenditure, the assessee is before us. Learned Authorised Representative for the assessee argued that Rs. 2,76,507 is not an entertainment expense and they are allowable business expenditures under Section 37 of the IT Act. Whereas the Departmental Representative for the Revenue argued that the tax auditors have grouped them under the heading entertainment expenses and therefore, assessee is not allowed to take up an argument that aforementioned amounts are not entertainment expenses at this point of time.
Further he stated that the Revenue is aggrieved on CIT(A) allowing 50 per cent towards employees of the assessee.
(v) We have heard the rival submissions and perused the orders of the lower authorities. We have also gone through the pp. 164 to 168 of the paper book filed before us, which are basically grouping of entertainment expenses and the ledger extracts. Whether these Rs. 2,76,507 are business expenses or not is the issue as far as the assessee's appeal is concerned. In contrast, the allowing of 50 per cent towards employees, which is excessive and without any basis, is the ground in Revenue's appeal. It is an admitted position that there is estimation with regard to apportioning the entertainment expenses relatable to the employees. At the same time, the assessee claims that Rs. 2,76,507 are the allowable business expenses. Prima facie, we are of the opinion that the expenditure of Rs. 2,76,507 is a business expenditure. Further, regarding the allocation towards the employees, we understand that the relatable entertainment expenses are not ascertainable basing on the available facts on the files as observed from the difficulties faced by the tax auditors, assessee's submissions and the orders of CIT(A). It is pertinent to note that the AO has not given his finding in this regard as evident from the fact that he did not allow any expenditure towards to the employees. Therefore, in the interest of justice and in the absence of primary data, we are of the view that this issue must go to the files of the AO for adjudication on ascertaining the extent of expenditure relatable to employees. While deciding, the AO shall examine if amounts of Rs. 52,741, Rs. 1,41,258 and Rs. 82,508 are the business expenditure and are allowable under Section 37(1) of the IT Act instead of Section 37(2). Accordingly, these grounds of both Revenue and the assessee are set aside to the files of the AO.4. Grounds 3 to 6 of the assessee's appeal are narrative and the issue that arises from these grounds is whether the CIT(A) would have taken a decision based on the available facts and delete the addition of Rs. 1,61,86,880 instead of setting aside the issue relating to the alleged low GP to the files of the AO with certain guidelines.
(i) Briefly, the facts are that the assessee's sales turnover during the year is around Rs. 17 crores. Assessee received Rs. 1.4 crores of commission from Picker International Inc. for arranging sales in India (direct sales by PI). Assessee also purchased other items worth Rs. 6,34,28,393 from the PI. Assessee sold the items (purchased from PI) with the GP of mere 9.97 per cent. Assessee maintained higher GP in respect of other items (24.14 per cent, 26.5 per cent, 43.56 per cent, 47 per cent). Having found the lower GP and the assessee is in losses even after 17 years of business, the AO asked the assessee for explanation on this issue of lower GP of only 9.97 per cent and informed if any arrangement has been made between assessee and PI and further proposed to the assessee to bring to tax the difference as per Article 9 of the Indo-US Tax Avoidance Agreement. AO found that the GP margin on the direct sales by PI is more than the GP margin reported by the assessee on the same goods. He also noticed that the travelling expenses of the PI are booked to the assessee's account and there is no disallowance by the AO in this regard. The PI controls assessee and there is close connection between them. AO also found that the commission received by the assessee is set off against the losses and finally, no tax is paid. AO rejected the assessee's contention that its transactions with the PI are as per arm's length principle. As per the provisions of Article 9 of the DTAA, AO proceeded to tax the difference (35.325 per cent - 9.97 per cent) in GP (25.365 per cent on Rs. 6.34, 28,393), which works out to Rs. 1,61,86,880 and added the same to the loss declared by the assessee in the return.
(ii) Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A). The summary of the arguments of the assessee before the CIT(A) is : I. The profits on sale of Pi's goods and other goods are not comparable. AO's comparison of GPs of CT scanners (rates vary from Rs. 60 lakhs to Rs. 350 lakhs) and ultra sound equipment (vary from Rs. 2.5 to 10 lakhs) are not comparable, II. The transactions between PI and the assessee were at ALP as evidenced by ICTP (inter-company transfer price) list and no objection from the customs authorities, III. Inapplicability of the provisions of Article 9 of US-Indo DTAA, finally, IV. The commission was earned by the assessee for promoting their sales in India and no evidence to collaborate that commission has been offset by inflating the sale price, V. On legal issues, the assessee argued that the Article 9 of US-Indo DTAA apply to PI and not to the assessee in India, VI. Regarding applicability of Section 92, assessee argued that there is nothing on record to show that the course of business b.etween PI and assessee has been arranged in such a manner that no profit or less than ordinary profits accrued to the assessee. CIT(A) examined the applicability of the Article 9 of the US-Indo DTAA and the provisions of Section 40A(2)(b) and held that they are inapplicable. But CIT(A) held that prima facie, the provisions of Section 92 of the IT Act apply to the assessee's case and to that extent he agreed with AO's submissions vide AO's letter dt. 27th Jan., 2000 to the CIT(A). Accordingly, he set aside the assessment with the direction to apply Section 92 and given certain directions and manner of making the investigations.
(iii) To elaborate on other events during the period of appellate proceedings before the CIT(A), assessee filed volumes of paper books before him along with the assessee's submissions. CIT(A) sent all of them to the AO and called for a report. AO in his reply dt. 27th Jan., 2000 requested the CIT(A) to invoke the provisions of Section 92 and enhance the income as the assessee has also rendered 'after sales services' to the customers on behalf of the PI. He relied on the agreement between the assessee and PI in this regard. This agreement was not originally filed by the assessee as mentioned in para 3 of the order of the CIT(A). AO also mentioned in the said letter that the assessee submitted three volumes of paper books, which includes certain additional evidences too. CIT(A) admitted the said additional evidences on finding that the AO has hurriedly completed the assessment.
(iv) Aggrieved with the above direction of the CIT(A), the assessee is before us. Learned Authorised Representative of the assessee mentioned in the written submissions in para (v) that "In the facts of the case, considering that no order has been passed by the AO even after 8 years of setting aside by the CIT(A), would show that the remand/set aside was not warranted as held in the following cases". In this regard, the CIT-Departmental Representative filed a copy of the ITO's letter dt. 24th March, 2008 before us stating that the files are not traceable in spite of best efforts of the ITO and the same is attributable to the Departmental restructuring. Whereas, the Authorised Representative of the assessee mentioned that the fact is that assessee has not received any order from the Department giving effect to the directions in the order of the CIT(A) dt. 14th July, 2000. Period of 7 years and 8 months has lapsed. Further, the Authorised Representative of the assessee has reiterated all the other arguments detailed above.
(v) We have heard the rival submissions and perused the orders of the lower authorities. We have gone through the paper books filed before us. We find it is necessary to examine various issues here.
They are : scope of remand; even if the set aside direction is correct, the impracticability of those directions and the current status; legal inputs in this regard.
(a) Scope of CIT(A) in remanding cases : Section 251(1)(a) relating to powers of the CIT(A) as it stood prior to the amendment, is reproduced as under: 251. (1) In disposing of an appeal the CIT(A) shall have the following powers-- (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment or he may set aside the assessment and refer the case hack to the AO for making a fresh assessment in accordance with the directions given by the CITIA) and after making such further enquiry as may be necessary, and the AO shall thereupon proceed to make such fresh assessment and determine where necessary, the amount of tax payable on the basis of such fresh assessment....
The legal interpretation in this regard is that no remand if primary or basic facts are on the records, no remand just for the sake of giving one more opportunity to the AO and finally, the remand provisions must be used only in rare and exceptional cases and circumstances. In the written submissions, the Authorised Representative of the assessee relied on various judicial pronouncements.
There cannot be any remand of a case for further examination of facts, if basic facts necessary for the disposal of the matter are already on records or orders of the lower authorities--as held in the case of United Commercial Bank v. CIT .
Remanding of a case may be done in rare cases and only when it is not possible for the Tribunal to make a just order--as held in the case of Surinder Pal Verma v. Asstt. CIT (.
There cannot be any remand of a case for patching up the weak part of the case and fill up omission by giving another innings--as held in the case of Asstt. CIT v. Anima Investments Ltd. (2000) 68 TTJ (Del)(TM) 1 : (2000) 73 ITD 125 (Del)(TM) and in the case of Asstt.
CIT v. Arunudoi Apartments (P) Ltd. (2002) 123 Taxman 48 (Gau)(Mag) and in case of Smt Neena Syal v. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 ITD (Chd) 62.
CIT(A) should decide the matter one way or other rather than remanding the matter back to the AO and that order was to be set aside--as held in the case of United Builders v. Asstt. CIT (2000) 66 TTJ (Del) 13.
It is a settled law through series of decisions of Hon'ble Courts that remand should be made in very rare and in exceptional cases and circumstances to the base officer if at the original stage there was patently grave error committed by the original authority or that the action of the first authority was made in a haste owing to the limitation period or remand can also be justified if the first appellate authority has violated and not followed the statutory rules of natural justice--as held in the case of Tatia Skyline & Health Farms Ltd. v. Asstt. CIT (2000) 66 TTJ (Chennai) 203 : (1999) 70 ITD 387 (Chennai).
Harmonious reading of the provisions of Section 251(1)(a) and the available interpretation on the topic, provide that the CIT(A) has the powers to issue directions to the AO for further enquiries and application of mind by the CIT(A) in such matters is of paramount importance. Remanding should not be done routinely when CIT{A) or Tribunal is capable of deciding the issues or they do not want to decide despite the presence of all the requisite facts with them. In the background of the above scope of remand, we proceed to decide the grounds 3 to 6 as follows.
(c) We find that the CIT(A) also verified the applicability of Section 40A(2)(b) and again held these are also inapplicable. By this finding, the CIT(A) in fact, held that the payments made by the assessee to the PI on purchases are 'reasonable and not excessive'.
By these two findings, the CIT(A) has in fact decided the fate of the additions in favour of the assessee, but for his another prima facie finding on the applicability of Section 92 of the IT Act. AO made additions essentially invoking the provisions of Article 9 of US-Indo DTAA as evident in his order. In this regard, the OT(A) held that said Article 9 applies to the non-resident only i.e., PI and not the instant case.
(d) We find that the it is relevant to examine the said finding of the CIT(A). As commented on the provisions of Section 92, as it existed prior to 1st April, 2002, by the apex Court in the case of Mazagaon Docks Ltd. v. CIT , there are three limbs in Section 92 and they are : a business is carried on between a resident and non-resident person; there exists a close connection between resident and non-resident person; and the course of business is so arranged that the business produces either no profit or less than ordinary profit to the resident. CIT(A) found that all three limbs prima facie apply in assessee's case, we have reexamined the above provisions and their applicability to the assessee's case and found that (i) and (ii) above are undisputedly applicable. We find that there is difficulty in respect of third limb above. In the third limb itself, there are some other conditions. They are : the course of business is so arranged; that arrangement of business produces no profits to the resident or that arrangement of business produces less than ordinary profits to the resident. When all relevant conditions are satisfied, AO shall be entitled to determine the profits which may be reasonably deemed to have been derived from the relevant transactions between the resident and non-resident and include such income in the income of the resident assessee as held in the cases of Kusum Products Ltd. (1993) 71 Taxman 611 (Cal) and Slocum Investment (P) Ltd. us. Dy. CIT (2006) 101 TTJ (Del) 558.
Further, we find that the judgment of the apex Court in the case of Mazagaon Docks Ltd. (supra) is distinguishable on facts. Issue there is whether an addition could be made under Section 42(2) of IT Act, 1922, when the resident company has charged 'no profits' as analysed in the case of Hoechst Marion Roussel Ltd. v. Jt. CIT (2007) 16 SOT 15 (Mumbai). Whereas, in the assessee's case, the AO/CIT(A) made out that it is the case of less than ordinary profits.
(e) The provisions of Section 92 are aimed against the tax evasion by the assessees. In such matters the onus is on Revenue to prove that the assessee's course of business is so arranged to produce no profits or less than ordinary profits to the assessee as held in para 93 of the decision in the case of Addl. CIT v. Nestle India Ltd. . Even for the formation of prima facie opinion on the existence of business transactions between resident and nonresident or 'close connection' between them or loss making resident assessee, are not adequate to invoke the provisions of Section 92. They are important but the most important component is existence of an arrangement and result of such an arrangement should be to produce no profits or less than ordinary profits. In the light of the above, the examinations of the facts of the assessee show that the arrangement of the assessee's business with the non-resident is not the case of 'no profits' as the gross profits vary from 9.97 per cent and upwards. Alternatively, the arrangement of the assessee's business with the non-resident must be the case of 'less than ordinary profits'. In order to apply thispart of the legislation, AO or CIT(A) ought to have data or material on what are the 'ordinary profits' in the line of assessee's business. Unless the 'ordinary profits' are known, the AO cannot compare the recorded profits with the said 'ordinary profits' in order to arrive at the profits taxable under Section 92 of the IT Act, 1961. Comparative figures involving Picker India Inc. (PI) and other like dealers in India, if there are more than one such dealers or competitors of PI and their agents/dealers in India. In the absence of any such basic data, invoking the provisions of Section 92, as happened in the instant case, is prima facie unjustified. Cloud of suspicion or doubt may not lead the lower authorities to invoke the provisions of Section 92, as happened in the instant case. Suspicion of booking the Pi's expenses to the assessee's books, continuous losses of the assessee, GP differences between the GPs of direct sales and indirect sale of the CT scanner and others are the factors that led the AO or CIT(A) to the suspicion. Having found that there is travel expenses are not wholly and exclusively for the assessee's business, AO should have pointed out the extent of such travel expenses and made disallowance. Having failed to do so and merely there is loss, it cannot be suspected that the course of business is so arranged to have not profits or less than ordinary profits to the assessee as held in the case of Dy. CIT v. Rohm & Hass India (P) Ltd. (2006) 8 SOT 803 (Mumbai). In the light of the above, we find that the prima facie opinion of the CIT(A) is misplaced and accordingly, his remand is bad in law. Further, we also find that the CIT(A) has already called for remand report for which the AO has already responded vide his letter dt. 27th Jan., 2000 as discussed above. Except requesting the CIT(A) to invoke Section 92 to assessee's case, no particulars, data on comparable transactions, any other relevant information were gathered during the first remand. CIT(A)'s decision to set aside the issue to the file of the assessee is nothing but giving third round to the Revenue, which is not allowed in law as held in series of judgments described above.
(f) Further, the Authorised Representative's arguments on the inaction of the Revenue to the set aside directions of the CIT(A) deserves merit. In this regard, the CIT-Departmental Representative filed a letter informing us the non availability of the assessment files and thus, Departmental Representative is non-committal on the issue of giving effect to the said directions whereas the Authorised Representative of the assessee is categorical in stating that they have received any order in this regard till date i.e. after lapse of 7 years 8 months from the date of CIT(A). Authorised Representative for the assessee relied on the case of Asstt. CIT v. Govind Ram Agarwal (2001) 71 TTJ (Cal) (TM) 1 : (2001) 76 ITD 120 (Cal) (TM), which is on the issue of cash credits and period involved is two decades. Though the same is distinguishable on facts, the truth remains that the assessee is forced to keep the record beyond allowable period and it Is against the public policy. Accordingly, we find there is no need to interfere with the order of the CIT(A) so far as, his findings on the inapplicability of Article 9 of US-Indo DTAA and Section 40A(2)(b) are concerned. Further, we find that the CIT(A) fell into error in setting aside the issue to the AO and also in giving directions to the AO to apply the provisions of Section 92 as per the directions mentioned in his order. At the end, we are of the considered opinion that the additions made by the AO are without any basis and therefore, they are reqiaired to be deleted. Accordingly, the grounds 3 to 6 of the assessee are allowed.
6. There are three grounds in this appeal of the Revenue. They are against allowing of assessee's claim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange, which are speculative nature; allowing commission of Rs. 7 lakhs paid to M/s Meemar despite absence of any evidence in support of services rendered; and finally the issue of 50 per cent of the entertainment expenses relating to employees. The ground 3 in this appeal relating to the entertainment expenses and is raised in assessee's appeal also on slightly different issue. The same has been adjudicated as in para 3 above, setting aside to the files of the AO due to lack of primary facts on the issue and AO has not decided on this issue. Grounds 1 and 2 are left for adjudication by us in this Revenue appeal.
(a) Ground 1 relates to assessee's claim of Rs. 4.43 lakhs on account of transactions in forward market in foreign exchange, which are speculative nature. AO disallowed a sum of Rs. 18,43,621 which includes an amount of Rs. 4.43 lakhs. This amount relates to the payments made in respect of a forward foreign exchange contract undertaken by the assessee to safeguard against expected loss arising on account of foreign exchange rate fluctuation. Assessee submitted that the said liability is a definite and an ascertained liability and therefore, the AO has erred in holding that it is an estimated liability. CIT(A) allowed the claim of the assessee taking the AO's silence for no dispute on the facts during the remand proceedings. Though the Revenue has raised this ground before us, they have not submitted any fresh material before us, which was not there before the lower authorities. We have no reason to hold that it is not an ascertained liability, moreso, when the assessee already paid the amount subsequently as seen from the order of the CIT(A). Accordingly, we do not And any reason to interfere with the order of the CIT(A) on this issue.
(b) Ground 2 of the Revenue appeal is on allowing commission of Rs. 7 lakhs paid to M/s Meemar despite absence of any evidence in support of services rendered. Assessee paid a sum of Rs. 7 lakhs to M/s Meemar. The same was paid in respect of sale of a CT scanner to M/s Unity Health Complex, Mangalore. AO disallowed the same holding that "The expenditure was disallowed on the grounds inter alia that the details were not submitted and there was no need in the business of the assessee to incur such an expenditure as it was dealing in specialized goods". Before the CIT(A), as held in para 5.5 of his order, the assessee filed copy of the agreement between assessee and the Meemar, a copy of the sale bills showing the sale of a CT scanner to M/s Unity Health Complex, Mangalore and finally a letter from the buyer to the assessee to the effect that Meemar has satisfactorily completed the CT project work. Based on these evidences, the CIT(A) allowed the claim of the assessee. The CIT-Departmental Representative relied on the order of the AO in this regard. We have heard the rival submissions, perused the orders of lower authorities and the relevant papers from the paper book.
The letter dt. 13th Feb., 1996 from the buyer is very important document, which not only conveys the rendering of services but also shifts the onus to the Revenue side to prove otherwise. Therefore, we do not (find) any reason to interfere with the order of the CIT(A) in this regard. Accordingly, the ground of the Revenue is dismissed.