SIVIRA ORGANIKS P LTD,,MUMBAI vs. ITO, WARD-13(2)(2), MUMBAI

Assessee by: Smt Lavanya Rajpurohit Revenue by: Shri Anil K.Das सुनवाईकीतारीख/Date of Hearing : 09/03/2023 घोषणाकीतारीख/Date of Pronouncement : 26/04/2023 आदेश / O R D E R

PER ABY T .VARKEY, JM:

2. The main grievance of the assessee is against the action of the Ld. CIT(A) dismissing the appeal of the assessee. 3. The brief facts are that the assessee company had filed its return of income on 14.10.2016 for assessment year 2016-17 declaring total income of Rs.13,65,860/- and the same was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”); and later the case was selected for limited scrutiny under CASS. The Assessing Officer (AO) notes that assessee is P a g e | 2 SIVIRA ORGANIKS PVT LTD engaged in the business of manufacturing chemicals. The AO notes in this assessment order, the reason for selection of the limited scrutiny viz “Whether deduction claimed on account of business expenses is admissible” Therefore, on this issue the assessee was asked to provide details along with the documentary evidence of various expenses incurred during the year. And on perusal of the audited profit and loss account, he noted that the assessee had booked commission expenses to the tune of Rs.1,33,87,316/- as incurred by it, so he asked assessee to provide party-wise details of commission expenses incurred along with copy of invoice, commission agreement etc. However according to the AO, except for one (1) or two (2) parties, assessee failed to provide any documentary evidences in support of such expenses. The AO noted that from the commission details (party-wise) the rate of commission varied from 5% to 30% and also commission was paid on sales as well as purchase of materials. Therefore, the AO issued show-cause notice (SCN) dated 27.12.2018 to the assessee and directed it to justify the commission expenses and provide copy of all invoices raised by the parties, commission agreement etc. Pursuant to the SCN, the assessee replied through the e-proceedings portal along with debit/credit notes for the payment of commission; and it was brought to the notice of the AO that the assessee procured goods for their business activities through brokers; and these brokers not only contacted the potential buyers but also displayed before them the samples of the product; negotiated for rates; and other terms of sales and also procured sale orders; and thereafter, collected the receivables from them and then handed it over to assessee. According to the assessee, all the recipients i.e. the brokers worked hard and had to travel to far of places for procuring sales order and for such travelling also they incurred considerable expenses. It is also stated that all the recipients of brokerage are regular income tax assessees/payees; and that the assessee has deducted TDS from payments made to all of them; and that all of them have given debit note; P a g e | 3 SIVIRA ORGANIKS PVT LTD and assessee also had duly issued credit note for such commission. It was also stated that there is no practice of entering into any written agreement with brokers in the line of business carried out by assessee, and the debit/credit notes are based on oral agreements. And thus the assessee contented that expenditure incurred (commission) are wholly and exclusively for the purpose of business and since the expenditure was genuine and bonafide one, it need to be allowed and for that cited several case laws. However, the AO did not accept the contention of the assessee because according to him, the entire commission/brokerage payments are not made to the brokers and the same are shown as payable. According to the AO, the assessee failed to prove that the expense incurred were wholly and exclusively for the purpose of business. And merely deducting TDS according to AO cannot prove the genuineness of the expenses. Therefore, he disallowed commission expenses exceeding 10% on purchase/sales which he computed at Rs.66,60,296/-. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who noted that even though assessee was provided opportunity of hearing on several occasions especially vide notice dated 11.01.2021 to file written submissions on or before 26.01.2021, the assessee failed to file reply. Therefore, another notice was issued on 16.12.2021 to file submissions before 23.12.2021 which was also not replied by assessee. Therefore, the Ld. CIT(A) again issued notice on 11.03.2022 fixing the hearing on 22.03.2022 and final notice was issued on07.10.2022 calling for compliance on or before 14.10.2022. However, according to Ld. CIT(A), the assessee did not respond.Therefore, he decided the appeal based on material on record. The Ld. CIT(A) was of the opinion that assessee never bothered to give any explanation on the grounds raised by it before him, despite several opportunities given to it. And since, the assessee failed to prove that the expenses incurred by it was wholly and exclusively for the purpose of business, he confirmed the action of the AO.

P a g e | 4 SIVIRA ORGANIKS PVT LTD 4. Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is before us and has assailed the action of the Ld. CIT(A) to be bad in law for violation of the principle of natural justice. After carefully going through the assessment order as well as the impugned order of the Ld. CIT(A), it is noted that the AO has issued SCN notice which is reproduced at page 2 of his order dated 27.12.2018 and after going through the reply of assessee given in the e- proceedings portal, he has disallowed the claim of expenses to the tune of Rs.66,60,296/-. The plea of the assesseee that there has been violation of natural justice is found to be valid for the simple reason that AO had issued SCN dated 27.12.2018 and had framed the assessment order u/s 143(3) of the Act on 29.12.2018 meaning thereby assessee had been granted only two (2) days within which AO had passed the adverse order of making the addition/disallowance. This action of the AO cannot be countenanced on the legal maxim. “Justice should not only be done but it should be seen to be done.” So we find force in the submissions of Ld. AR that assessee did not get proper opportunity of hearing before the AO during assessment proceedings and he relied in the order of the Hon’ble Supreme Court in the case of Tin Box Company Vs. CIT (249 ITR 216) (SC), wherein the Hon’ble Supreme Court has held that if the assessee did not get proper opportunity before the AO, then the matter should be restored back to the file of AO for de novo assessment and the Hon’ble Supreme Court has held as under:

“ It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : "We will straightway agree with the assessee's submission that the ITO had not given to the assessee proper opportunity of being heard". That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts .That order must be made after the assessee has been given a reasonable opportunity of setting out his case .We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment P a g e | 5 SIVIRA ORGANIKS PVT LTD and remand the matter to the assessing authority for fresh assessment after giving to the assessee a proper opportunity of being heard.