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Income Tax Appellate Tribunal, [ DELHI BENCH “S.M.C.” : DELHI ]
Before: SHRI CHALLA NAGENDRA PRASAD,
आदेश / O R D E R PER C. N. PRASAD, J. M. :
This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) [hereinafter referred to CIT (Appeals)] Muzaffar Nagar, dated 29.10.2017 for assessment year 2013-14.
The assessee has raised the following substantive ground of appeal :-
1. (a) The Ld. CIT(A) has erred in confirming the addition of Rs. 7,23,480/- out of Rs. 12,70,005/- disallowed by the AO on account of commission payments made to two parties(namely Sh Mrigank Singh Rs. 4,58,500/- and M/s Manohar Lal Inder Sen Rs. 2,64,980/-). (b) The Ld. CIT (A) has erred in enhancing the disallowance on account of commission paid to M/S Manohar Lal Inder Sen, which was 25% of Rs. 264980 to 100% of Rs. 264980 without any enhancement notice.
2. The Ld. CIT(A) has erred in confirming the disallowance of Rs. 9,76,794/- on account of Handling and Lifting charges. 3. The Ld. CIT(A) has erred in confirming the disallowance of Salary amounting to Rs. 60,000/-. 4. The Ld. CIT(A) has erred in confirming the disallowance of Rebate & Discount amounting to Rs. 1,38,494/- 5. The Ld. CIT(A) has erred in partly confirming the disallowance of Car expenses of Rs. 28,197/- out of Rs.56,394/-.”
The assessee an Individual engaged in the business of commission agent through proprietary concern, namely, M/s. Deepak Traders filed return of income on 13.09.2012 declaring income of Rs.10,55,030/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (the Act) on 28.03.2016 determining the income of the assessee at Rs.43,79,027/-. While completing the assessment the Assessing Officer made various disallowances as referred to above in the grounds of appeal.
The first ground of appeal is in respect of sustaining the disallowance of Rs.7,23,480/- out of Rs.12,70,005/- on account of commission paid by the assessee to Shri Mrigank Singh of Rs.4,58,500/- and M/s. Manohar Lal Inder Sen of Rs.2,64,980/-. The ld. Counsel for the assessee submits that the Assessing Officer disallowed commission to the above commission agents in respect of commission paid to Shri Mrigank Singh for the reason that the notice issued under section 133(6) of the Act was un-served ignoring the confirmation filed by the assessee on 1.03.2016. The ld. Counsel submits that the assessee has provided new address of the commission agent who was residing in Noida to the Assessing Officer along with copy of bill and also filed new confirmation with Noida address. The ld. Counsel submits that addition was made on the ground that the commission agent was not produced and no payment of commission was made so far. The ld. Counsel further submits that copy of ledger account with bank statement reflected the payment to Shri Mrigank Singh was filed before the ld. CIT (Appeals) as additional evidence under Rule 46A and the Assessing Officer has not commented anything adverse in the remand report furnished before the ld. CIT (Appeals). The ld. Counsel submits that the reason for late payment of commission by the assessee is that the assessee has received commission from the sugar factories after considerable lapse of time.
The ld. Counsel further submits that in the assessments for 2009-10 to 2012-13 which were made under section 143(3) of the Act no disallowance of commission was made by the Assessing Officer and the assessment orders are placed in the paper book at page Nos. 84 to 94. The ld. Counsel further referring to page 96 of the paper book, which is the ledger copy of Shri Mrigank Singh in the books of the assessee submits that the assessee has made payment to the commission agent during the financial year 2016-17 relevant to assessment year 2017-18 and the assessee has also deducted TDS @ 10% and this TDS was already remitted during the current assessment year and the balance of Rs.4,12,650/- was only paid by the assessee during the assessment year 2017-18. Therefore, the ld. Counsel submits that the commission paid to Shri Mrigank Singh is genuine and no disallowance is called for.
The ld. DR strongly supported the orders of the lower authorities.
Heard rival submissions perused the orders of the authorities below and the evidences placed before me. The Assessing Officer disallowed commission paid by the assessee to Shri Mrigank Singh for the reason that the assessee could not produce the commission agent and there is no payment made by the assessee to the commission agent. The confirmations furnished by the assessee were examined by the Assessing Officer and he found out some discrepancies in the signatures confirmations. The ld. CIT (Appeals) sustained the disallowance for the reason that there was no payment made by the assessee to the commission agent. The evidences produced before me in the form of copy of cheques, bank statement and the ledger statement clearly show that the assessee has remitted the commission to Shri Mrigank Singh during the assessment year 2017-18 relevant to the financial year 2016-17. It is also noticed that the assessee had deducted TDS @ 10% during the assessment year 2014-15 itself and the commission payable to Shri Mrigank Singh. It is the submission of the ld. Counsel that the commission was remitted after a lapse of considerable time as the assessee received the amounts from the sugar mills at a much later point of time. It is the submission that this is the reason for delay for payment of commission. I also notice that in none of the earlier assessment years such disallowance was made by the Revenue even though the assessee has been making commission payments. Therefore, considering the evidences placed on record this clearly shows that the assessee has made commission payments for the services rendered by the commission agent as shown in the copy of invoice raised. Therefore, there is no justification in disallowing commission payment to Shri Mrigank Singh by the authorities below. Thus, I set aside the order of the ld. CIT (Appeals) on this issue and direct the Assessing Officer to delete the addition of Rs.4,58,500/-.
Coming to the commission payment made to M/s. Manohar Lal Inder Sen the ld. Counsel submits that the Assessing Officer disallowed 25% of the commission paid to M/s. Manohar Lal Inder Sen observing that the confirmation is not in proper manner. The ld. Counsel submits that the assessee has paid commission of Rs.3,95,600/- to M/s. Manohar Lal Inder Sen and, therefore, even if 25% of the said commission is disallowed it comes to Rs.98,900/-, but not Rs.2,64,980/- as directed by the ld. CIT (Appeals). The ld. Counsel submits that the ld. CIT (Appeals) held that there is no basis for disallowance of adhoc 25% in respect of remaining commission but confirmed the disallowance in respect of M/s. Manohar Lal Inder Sen at Rs.2,64,980/- whereas the disallowance made by the Assessing Officer was only Rs.98,900/- which is 25% of Rs.3,95,600/-.
On hearing both the sides, I find that there is considerable force in the argument of the ld. Counsel for the assessee. On reading of the assessment order it is noticed that the Assessing Officer disallowed commission of Rs.4,58,500/- payable to Shri Mrigank Singh out of total commission of Rs.37,04,520/- and further 25% was disallowed on the balance commission of Rs.32,46,020/- and arrived at Rs.8,11,505/- as the commission disallowable. The ld. CIT (Appeals) while sustaining the disallowance towards commission directed the Assessing Officer to disallow commission of Rs.4,58,500/- made to Shri Mrigank Singh and Rs.2,64,980/- from commission paid to M/s. Manohar Lal Inder Sen. However, it is observed that the Assessing Officer disallowed 25% of the commission paid in respect of all other commission agents except Shri Mrigank Singh. The ld. CIT (Appeals) deleted adhoc disallowance of 25% paid to commission agents. However, in the case of M/s. Manohar Lal Inder Sen, the ld. CIT (Appeals) sustained commission disallowance to the extent of Rs.2,64,980/-. It is seen that the assessee has paid commission of Rs.3,95,600/- to M/s. Manohar Lal Inder Sen. The ld. Counsel submits that the commission said to have been paid to M/s. Manohar Lal Inder Sen is the amount of brokerage paid by the assessee during the assessment year 2013-14 and it is not the commission paid to M/s. Manohar Lal Inder Sen. Therefore, it is observed that the ld. CIT (Appeals) wrongly considered Rs.2,64,980/- as the commission paid by the assessee to M/s. Manohar Lal Inder Sen. Since the ld. CIT (Appeals) already disallowed adhoc disallowance of commission paid to other agents other than Shri Mrigank Singh, the disallowance of Rs.2,64,980/- which was paid as brokerage during the assessment year under consideration cannot be considered as commission payment to M/s. Manohar Lal Inder Sen. Thus the Assessing Officer is directed to delete the addition/disallowance of Rs.2,64,980/- which was sustained by the ld. CIT (Appeals). Ground No. 1 of grounds of appeal
is allowed.
10. Ground No. 2 is in respect of disallowance of handling and lifting charges. The ld. Counsel for the assessee submits that the assessee being the agent of sugar factories undertake for the lifting of certain quantity of sugar and when there is delay in the contract the sugar factories impose handling and lifting charges, which is claimed as expenses. These charges are subject to negotiations and finalised after a substantial period sometimes there is reversal also (PB 46-47). The Assessing Officer disallowed the same being pertaining to earlier years though claimed by the assessee during the year being it is crystallize during the year. The income of the assessee is always in the higher slab so he has not to gain any tax benefit in claiming during the year and not in earlier year. This is an allowable expenses being part of his business. Reliance was placed in the case of Prakash Cotton Mills Pvt. Ltd. Vs. CIT [(SC) 201 ITR 684].
The ld. DR supported the orders of the lower authorities.
Heard rival submissions perused the orders of the authorities below. The Assessing Officer while completing the assessment disallowed prior period expenses of Rs.9,76,794/- observing that all the 5 debit entries of Rs.8,96,694/- have been debited on 16.04.2012. It is also observed that debit entries to the extent of Rs.12,71,184/- have been accounted for on the very first day of the accounting year 1.04.2012 and, therefore, he was of the view that the liability is not crystallized during this assessment year. He has examined the various debit notes issued by the parties to the assessee and noted that the debit notes raised are partly pertained to as old as for the financial years 2009-10 and 2010-11. It is also the observation of the Assessing Officer that some of the debit notes dated 18.02.2011 amounting to Rs.1,60,810/- and not even the date pertaining to immediately preceding financial year 2011-12 there was the earlier earlier communication in the debit note even before 18.02.2011. He also observed that the debit note appearing dated 24.03.2012 is only a reminder wherein in the debit note it is the earlier date of 20.11.2012 was referred to has been finalized on 24.03.2012. It is the observation of the ld. Assessing Officer that for all debit note there is no evidence in the form of correspondence or e-mail etc. has been put forth to suggest that some initial negotiation was going on. The ld. CIT (Appeals) sustained the disallowance observing as under:- 8
“14. The facts of the case along with submission of the appellant have been gone through. The AO has made disallowance of Rs.976794/- on account of prior paid expenses out of handling and lifting charges. These expenses have been debited in the books of account on 01-04-2012. The AR during the appellate proceedings has stated that complete details in respect of the same have been furnished during the assessment proceedings. The detailed submission of the AR has been reproduced as above.
On going through the facts of the case and material available on record, it is noted that the appellant has not brought on record any material to show that liability in respect of these expenses was determined and crystallized during AY 2013-14. No particulars have been furnished to show the complete trail of transactions, their stage of quantification so that their accrual could be claimed in assessment year under consideration. The onus was on the appellant to do so which he has failed. In the circumstances and under the facts of the case, it is held that the AO was justified to make disallowance of Rs.9,76,794/-. The same is hereby confirmed. Ground of appeal No.4 is dismissed.”
On going through the order of the Assessing Officer as well as the ld. CIT (Appeals) no infirmity could be seen in the orders of the lower authorities. The assessee could not completely proved that the liability is crystallized during the financial year relevant to the assessment year under consideration. Therefore, the disallowance is sustained and Ground No. 2 of grounds of appeal is rejected.
Coming to ground No. 3 of grounds of appeal
of the assessee is in respect of disallowance of salary. Out of salary expenses claimed an amount of Rs.60,000/- was disallowed which was paid to Mr. Ashok Kumar on the ground that identity of one of the employees could not be established. The ld. Counsel submits that the employee left the job and is not in touch with the assessee and, therefore, the employee could not be produced. The ld. Counsel submits that salary paid in earlier year 2011-12 was Rs.4,04,400/- and further submits that in the year 2013-14 the total salary paid was Rs.3,36,600/-. The ld. Counsel submits that in fact there is reduction in payment of salary during the relevant assessment year under consideration.
15. On hearing both the sides it is noticed that salary payment of Rs.60,000/- paid to Mr. Ashok Kumar was disallowed as the assessee could not produce the employee. It is observed that the assessee has been paying salary in earlier years and since the employee has left the job he could not be presented to substantiate its claim. Therefore, simply because the employee could not be produced the payment of salary cannot be disallowed. Therefore, the Assessing Officer is directed to delete the disallowance made towards salary of Rs.60,000/-.
16. Ground No. 4 is in respect of rebate and discount. The ld. Counsel for the assessee submitted that the ledger account is placed at PB 59-62, which are both debit and credit entries for amount written off on account of short and excess. Further certain recoveries on account of service tax is made by the sugar factories is debited, whose gross commission is always offered for tax in the accounts. Hence Assessing Officer and CIT(A) are wrong to observe that the amounts are not offered as income.
17. On hearing both the sides and considering the submissions of the assessee this issue is restored to the file of the Assessing Officer for examining afresh in the light of the submissions made by the assessee. This ground is allowed for statistical purposes.
18. Ground No. 5 is in respect of car expenses of Rs.28,197/-.
19. The ld. Counsel submits that the Assessing Officer while completing the assessment disallowed 25% of the car expenses on the ground that as the assessee is not maintaining log book for use of cars for personal use cannot be ruled out. The ld. Counsel submits that the CIT (Appeals) restricted the disallowance to 10% which is on higher side.
20. On hearing both the sides and perusing the orders of the authorities below it would be reasonable to estimate the disallowance at 5% as against 10% sustained by the ld. CIT (Appeals). This ground is partly allowed.
21. In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on : 28/02/2023.