M/S. Landis+ Gyr Limited Vs. Commissioner of Income Tax, Kolkatai - Court Judgment

ORDER

SHEET ITA NO.236 OF2009IN THE HIGH COURT AT CALCUTTA SPECIAL JURISDICTION (INCOME-TAX) ORIGINAL SIDE M/S.LANDIS+ GYR LIMITED Versus COMMISSIONER OF INCOME TAX, KOLKATA-I BEFORE: The Hon'ble JUSTICE GIRISH CHANDRA GUPTA The Hon'ble JUSTICE ARINDAM SINHA Date : 22nd July, 2016.

MR.J.P.KHAITAN, SR.ADVOCATE, MR.ASIM CHOUDHURY, MR.SIDDHARTH DAS, ADVOCATES FOR APPELLANT MR.P.DUDHORIA,ADVOCATE FOR RESPONDENT The Court: The subject matter of challenge in the appeal is a judgment and order dated 17th April, 2009 passed by the learned Income Tax Appellate Tribunal, “B” Bench, Kolkata in ITA No.159/Kol/07 pertaining to the assessment year 2003-04 by which the learned Tribunal dismissed the appeal preferred by the assessee.

The assessee has once again come up in appeal.

The question of law formulated on 14th January, 2010 reads as follows:“Whether the learned Tribunal has lawfully rejected the relevant and material evidence on its record to uphold the decision of disallowance of the appellant’s legitimate business expenditure of payment of commission of Rs.1,89,52,952/- to its agents of marketing and related services ?.” The facts and circumstances of the case are that the assessee debited a sum of Rs.4,99,06,789/- on account of commission to the profit and loss account.

Out of the aforesaid sum of Rs.1.15,12,259/- paid to M/S.Consolidated Construction Co.(Agencies) PVT.LTD.and a sum of Rs.74,40,000/- paid to M/S.SPS Metal Cast &Alloys LTD.were disallowed on the following grounds:“a.

The important condition to be satisfied in respect of commission transaction is rendering of service and such condition i.e.rendering of service is not established in this case.b.The parties to whom sale on behalf of the assessee is claimed to have been effected by M/S.Consolidated Construction Co.(Agencies) PVT.LTD.and M/S.SPS Metals Cast & Alloys Ltd are Government Undertakings who purchase the goods direct from the seller i.e.without any via media.c.In this instant case the role of any middle man in form of commission agent is not applicable; d.

The mere payment and making TDS without rendering of service does not prove the genuineness of commission transaction.

In the case the important question i.e.rendering of service is missing.” The CIT(A) in concurring with the views of the assessing officer held that the nature of services rendered by the recipient companies of the aforesaid sums had not been established by the assessee.

The learned Tribunal in paragraphs 14 and 16 of its judgment has tabulated the documentary evidence adduced by the assessee and in paragraphs 17 and 18 of its judgment has recorded the inference drawn by it.

It will be proper to notice the aforesaid paragraphs in extenso which are as follows:“14.

In support of the claim that the agents rendered services as per the above agreement, the assessee has relied on the following documents :(i) Accounts of the assessee in the agents’ books of a/c (ii) Letters of the agent [ Consolidated Construction Co.(Agencies) P.

Ltd.].to the ACIT, Cir-1, Kolkata-1 dated 20th March 2006 and 27th March 2006.

(iii) Agent’s letter dtd.04-02-03 wherein collection of cheque no.222287 dtd.

3-2-03 for Rs.2,07,71,920/- from M/s.NPDCL, Warangal was intimated to the assessee.

(iv) Agent’s letter dtd.

24.01.03 to the assessee regarding collection of cheque no.891155 dtd.

20-1-03 for Rs.2,20,55,664/from CPDCL, Hyderabad.

(v) Agent’s letter dtd.

30.09.02 regarding receipt of two cheques from the Superintending Engineer, Southern Power Distribution Co.of A.P.Ltd., Vijayawada for Rs.37,83,091/- and Rs.5,87,589/respectively.

(vi) Agent’s letter dtd.

28-09-02 regarding receipt of cheque no.640574 dtd.

25.09.02 for Rs.3,52, 44,403/- from EPDCL, Visakhapatnam.

(vii) Agent’s letters dtd.

20-09-02, 19-08-02, 29-06-02 and 19-6-02 regarding the intimation to the assessee that inspection for supply of certain meters were waived by the various authorities.”

16. The assessee has relied on following documents to show that the agent rendered services to the assessee:(i) Letter of M/s.VXL Landis & Gyr LTD.dtd.

05-04-2001 to the General Manager (Material).CESC LTD.stating that M/s.SPS Metal Cast & Alloys LTD.was appointed as selling agent.

(ii) Letter of M/S.CESC LTD.dtd 18-10-01 to M/S.Siemens Metering Ltd.(Formerly VXL Landis & Gyr.

LTD.stating that M/s.Siemens Metering Ltd./their authorized representative M/S.SPS Metal Cast & Alloys LTD.should visit their office.

(iii) Letter of Agent, M/s.SPS Metal Cast & Alloys LTD.dtd.

20-10-01 to M/S.Siemens Metering LTD.intimating the assessee that purchase order no.131/TD/06 dt.

19-1-01 issued by the Executive Director (Material).CESC LTD.for supply of 1,00,000 Nos.CM Meters @ Rs.1,000/- is being enclosed together with the said purchase order dt.19/10/01 for Rs.11,94,80,000/-.

(iv) Letter of the agent dt.

03-08-02 to M/s.Siemens Metering LTD.that they were taking up the matter with CESC LTD.to carry out inspection of another lot of 6000 Nos.meteRs.(v) Letter of M/S.CESC dt.24-3-03 to M/s.Siemens Metering LTD.asking them to take necessary measure to adhere to change in meter specification and to obtain purchase order with reference to quotation MKTF063/CESC dtd.

27-12-02.

(vi) Agents letter dt.

25-3-03 to the Vice-President-Marketing, Siemens Metering LTD.stating that purchase order no.27/TD/06 dt.25-03-03 for supply of 40,000 Nos.single phase type CM-143 Meters @ Rs.900/- is being enclosed together with such purchase order for Rs.4,30,12,800/-.

(vii) Confirmation letter of sale dtd.27-03-03 of M/s.Siemens Metering LTD.to M/s.CESC Ltd for the supply of 40,000 Nos.of single phase meter valued at Rs.3,60,00,000/-.

(viii) Letters dtd.10-01-02 & 21-02-03 of M/s.CESC LTD.to M/s.Siemens Metering LTD.regarding collection of purchase order from their office.

(ix) Agent’s letter dtd.

25/10/02 & 27/02/2003 to M/s.Siemens Metering LTD.stating that cheque no.192288 dt.

25.10.02 for Rs.17,02,828.96 and cheque no.07545 dt.27.02.03 for Rs.11,94,800/- were collected.

(x) Copy of account of M/s.Siemens Metering LTD.in the agents books of a/c.”

17. From the above, it is clear that no evidence has been brought on record either by the assessee or by the said agents to show that any services were rendered by the said agent to the assessee.

The evidences on which reliance has been placed by the assessee are merely correspondences between the assessee and the said agents.

No independent evidence has been filed to show that the agents indeed carried on the work as evidenced/envisaged in the agreement entered into by the assessee with the said agents.

The Principal Officer of M/S.Consolidated Construction Co.(Agencies) Pvt LTD.in his statement before the AO has clearly stated that the company has not made any correspondence with the parties for whom the said agent was appointed as marketing agent of the assessee.

He has also stated that purchase orders were placed by the parties directly to the assessee.

No evidence whatsoever has been brought on record to show that the agent rendered any services as envisaged in the agencies’ agreement dated 4-4-02.

In the above circumstances, the case laws as relied on by the ld.AR for the assessee are not applicable in the present case.

We hold that the assessee has failed to bring on record any evidence to show that M/s.Consolidated Construction Co.(Agencies) P.LTD.indeed rendered any service as envisaged in the said agreement.

Thus, we uphold the disallowance of commission payment of Rs.1,15,12,259/- made to the said party.

Thus, ground no.1(a) of the assessee is rejected.

18.As regards the agent, M/S.SPS Metal Cast & Alloys Ltd., it is noticed that as per the said agreement the commission was payable @ 15% on ex-factory value of sale.

It is also noticed that the assessee has failed to bring on record any evidence to show that any services were rendered by the said party.

Though it has been claimed that the agent sent the purchase orders to the assessee, such claim has not been substantiated by producing any independent evidence.

As such the Principal Officer of M/s.SPS Metal Cast & Alloys LTD.did not appear before the AO, even though summon was issued to the said party.

The assessee thereafter was required by the AO to furnish evidence that the said party indeed rendered services to the assessee as per the agreement.

The assessee has not brought any independent evidence to substantiate its claim that the said agent rendered services as required by the said agreement.

The assessee also did not produce the Principal Officer of the agent company.

In the above circumstances, we are of the considered opinion that the assessee has failed to show that indeed the said party rendered services as per the said agreement entered into with the assessee.

In the above circumstances, we find no infirmity in the order of the ld.CIT(A) on this issue and uphold the disallowance of commission payment of Rs.74,40,000/- to M/s.SPS Metal Cast & Alloys LTD.Thus, ground no.1(b) taken by the assessee is rejected.” Mr.Khaitan, learned senior advocate appearing for the assessee-appellant submitted that the question really is whether the view taken by the learned Tribunal is perverse.

He submitted that the evidence which was in the power of the assessee was adduced.

The revenue did not bring any evidence to show that the agents appointed by the assessee did not render any service or that the payment was collusive.

It is as a matter of fact, he contended, not the finding that the payment was collusive or not genuine.

The learned Tribunal has tabulated the evidence adduced by the assessee but has drawn an inference which is contrary to common sense and is also opposed to business expediency.

He relied upon a judgment of the Apex Court in the case of Collector of CustoMs.Madras and Others Vs.D.Bhoormall reported in (1974) 2 SCC544 He relied upon paragraphs 30 and 31 thereof which are as follows:“30.

It cannot be disputed that in proceedings for imposing penalties under clause (8) of Section 167, to which Section 178-A does not apply, the burden of proving that the goods are smuggled goods, is on the Department.

This is a fundamental rule relating to proof in all criminal or quasi criminal proceedings, where there is no statutory provision to the contrary.

But, in appreciating its scope and the nature of the onus cast by it, we must pay due regard to other kindred principles, no less fundamental, of universal application.

One of them is that the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and – as Prof.Brett felicitously puts it – “all exactness is a fake”.

El Dorado of absolute proof being unattainable, the law accepts for it probability as a working substitute in this work-a-day world.

The law does not require the prosecution to prove the impossible.

All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue.

Thus, legal proof is not necessarily perfect proof; often it is nothing more than a prudent man’s estimate as to the probabilities of the case.”

31. The other cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered – to use the words of Lord Mansfield in Blatch v.

Archer – “according to the proof which it was in the power of one side to prove, and in the power of the other to have contradicted”.

Since it is exceedingly difficult, if not absolutely impossible, for the prosecution to prove facts which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden.” Mr.Dudhoria, learned advocate appearing for the revenue submitted that the view taken by the learned Tribunal is not a view which was arrived at for the fiRs.time.

That was the view taken by the assessing officer which was affirmed by the CIT(A) and which has also found approval of the learned Tribunal.

He submitted that whether the agents were appointed and whether the agents rendered any service are essentially questions of fact.

The questions of fact have been answered by all the three statutory authorities in the negative.

The finding has now become final.

He added that it is not the case of the assessee that any piece of evidence adduced by him has not been considered by them.

He submitted that it cannot be said that the view taken by the assessing officer or the CIT(A) or the learned Tribunal is perverse.

Therefore, the question even after it is reformulated, as suggested by Mr.Khaitan, has to be answered in the negative.

The case of the assessee is that SPS Metal Cast & Alloys LTD.was appointed as a selling agent for the purpose of dealing with CESC LTD.and M/s.Consolidated Construction Co.(Agencies) P.LTD.was appointed for the purpose of dealing with the buyers located in Andhra Pradesh.

From the documents tabulated in paragraph 16 of the impugned judgment (quoted above) it would appear that CESC LTD.was informed about SPS Metal Cast & Alloys LTD.having been appointed by the assessee as its agent.

CESC by its letter dated 18th October, 2001 agreed to deal with the aforesaid agent of the assessee.

The agent by its letters dated 20th October, 2002 and 25th March, 2003 forwarded the purchase orders collected from CESC.

The assessee by its letter dated 27th March, 2003 confirmed acceptance of the order collected by the agent for 40000 meteRs.The letter dated 3rd August, 2002 addressed by the agent to the assessee goes to show that the former was taking steps to have the goods inspected.

The letters dated 25th October, 2002 and 27th February, 2003 go to show that the agent was also collecting dues of the assessee.

The letters tabulated in paragraph 14 of the impugned judgement go to show that the agent Consolidated Construction Co.(Agencies) PVT.LTD.was taking steps for acceptance of the goods delivered by the assessee and was also collecting price of the goods sold by the assessee to the customers located in Andhra Pradesh.

The learned Tribunal was of the opinion that:“The evidences on which reliance has been placed by the assessee are merely correspondences between the assessee and the said agents.

No independent evidence has been filed to show that the agents indeed carried on the work as evidenced/envisaged in the agreement entered into by the assessee with the said agents.” The documentary evidence, adduced by the assessee, discussed above could not have been dismissed by saying that they were mere correspondences.

They were correspondences with respect to the various activities undertaken in discharge of the obligation undertaken by the agents under the contracts dated 4th April, 2002 respectively.

The learned Tribunal in deciding the matter was under an impression that the customeRs.with whom the agents were liaisoning on behalf of the assessee, were “Government Undertakings who purchase the goods direct from the seller i.e.without any via media.

In this instant case the role commission agent is not applicable.” of any middle man in form of Mr.Khaitan, submitted with some justification that the aforesaid impression is purely based on presumption, and not on the basis of any evidence.

He added that Court can take judicial notice of the fact that CESC Limited is not a government undertaking.

It is this incorrect impression, it was rightly contended, which has influenced the judgement of all the statutory authorities.

They have also discarded the contents of the documents, which throw light on the services rendered by the agents appointed by the assessee on the ground that they are “merely correspondences between the assessee and the said agents.” It is not in dispute, pursuant to notice issued by the Assessing Officer, both the agents confirmed in writing that they had rendered services to the assessee.

The assessee has, before making payment, deducted tax at source.

The Consolidated Construction Co.[Agencies].PVT.LTD.in its letter dated 15th February, 2006 addressed to the Assistant Commissioner of Income Tax has confirmed that they were appointed marketing agent of the assessee.

They have also disclosed extract of their books of account in order to show the dealings and transactions between the assessee and the aforesaid agent.

They have also disclosed their PAN card number.

By their letter dated 20th March, 2006 they once again wrote to the Assistant Commissioner of Income Tax furnishing various information including that the amount of commission earned by them had been indicated in their books of account and had also been offered for taxation and assessment was made which was also disclosed by them.

The other agent namely, SPS Metal Cast and Alloys LTD.by its letter dated 22nd March, 2006 furnished to the Assistant Commissioner of Income Tax, a copy of the extract of the ledger from its books of account disclosing the dealings and transactions between the assessee and the aforesaid agent and the copies of their balance sheet for the relevant period together with their PAN card number.

From the evidence disclosed by the assessee we are inclined to think that the assessee had adduced such proof as it was in its power to prove.

It is at this juncture that the judgement relied upon by Mr.Khaitan in the case of Collector of CustoMs.Madras and Others [supra].becomes relevant.

It goes without saying that it was in the power of the revenue to have contradicted the evidence adduced by the assessee and its agents to the extent that the income earned by them on account of commission paid by the assessee was not offered for taxation or that the particulars of the final accounts or the final accounts themselves disclosed by the agents were not in accordance with the Returns of income which they may have filed.

It is difficult to believe that it did not occur either to the Assessing Officer or to the CIT(A) that they could seek these information from their counterparts who may have been in seisin of the income tax files of the aforesaid two agents.

Therefore, the only inference, which may be drawn, is that these facts were not contradicted because they were factually undeniable.

Our attention was not drawn to any suggestion, far less any finding at any stage to show that it was even remotely suggested that the payment was collusive or the same was not genuine.

From the contracts of agency the following amongst other terms and conditions appear to have been agreed to between the assessee and Consolidated Construction Co.(Agencies) PVT.LTD.“You shall be responsible to us for realisation of all sale proceeds.

If any State or Central Sales Tax (Or any other impost) is chargeable on the Sale of the products, you shall recover the same from the buyers or obtain the necessary Sales Tax declaration forms in our favour.

In case you are unable to collect CST from, the difference of Sales Tax along with penalties and interest amount will be adjusted from your commission.” The following terms amongst others appear to have been agreed to between the assessee and S.P.S.Metal Cast & Alloys LTD.“You shall guarantee and be fully responsible to us all times for realisation of al sales proceeds and fulfilment of all contractual obligations by the buyeRs.This guarantee is the essence of the contract and your liabilities hereunder shall extend to all orders in respect of which you are entitled to claim commission.

Our records shall be final and binding in this respect.

If any State or Central Sales Tax (or any other impost) is chargeable on the sale of the products, you shall recover the same from the buyers or obtain the necessary valid sales tax declaration forms in our favour and keep us indemnified against all claiMs.demands and liabilities in respect of Sales Tax (including any other impost).” The fact that the agents made themselves liable to recover the price of goods sold and delivered pursuant to the orders procured by them is a pointer to show that they were del credere agents well-known in the commercial world.

This fact was not at all taken into consideration, nay, it did not occur to them when they held that “no evidence has been brought on record…….to show that any services were rendered by the said agents to the assessee.” Del credere agent has been defined in Black’s Law Dictionary, 9th Edition as follows:“An agent who guarantees the solvency of the third party with whom the agent makes a contract for the principal.

A del credere agent receives possession of the principal’s goods for purposes of sale and guarantees that anyone to whom the agent sells the goods on credit will pay promptly for them.

For this guaranty, the agent receives a higher commission for sales.

The promise of such an agent is almost universally held not to be within the statute of frauds.” For the aforesaid reasons, we are inclined to think that the view taken is plainly contrary to common sense and is a view, which no person of ordinary prudence properly instructed in law could have arrived at.

The aforesaid view is, therefore, perverse.

We are supported in our view by a judgement of the House of Lords in the case of Edwards – versus Bairstow reported in 1955(3) ALL.E.L.R48wherein the following view was taken:“…….it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal.

In those circumstances, too, the court must intervene.” We are also supported in our view by a judgement of the Apex Court in the case of Omar Salay Mohamed Sait versus C.I.T.Madras, reported in [1959].37 ITR151 wherein the following views were expressed:“We are aware that the Income-Tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere.

It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it.

The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so.

On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.” Moreover reasonableness of an expenditure has to be adjudged from the point of view of the businessman and not of the revenue.

Reference in this regard may be made to the judgement of the Apex Court in the case of Aluminium Corporation of India LTD.versus CIT, West Bengal, reported in [1972].86 ITR11 wherein the following views were taken:“The expenditure incurred must be for commercial expediency.

But, as observed by this court in Commissioner of Income-Tax v.

Walchand & Co.Private LTD.in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the exepnditure has to be adjudged form the point of view of the businessman and not of the revenue.” In that view of the matter, we are of the opinion that the judgement under challenge is perveRs.and cannot be sustained.

The question, reformulated by us, is answered in the affirmative.

The question originally formulated is answered in the negative and in favour of the assessee.

The appeal is allowed.

(GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) sb/sm