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Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1018/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES “A”, JAIPUR Jh lanhi x®lkÃa] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1018/JP/2018 fu/kZkj.k o"kZ@Assessment Year: 2014-15 cuke Surendra Gajraj, I.T.O., F-132 C, Road No. 12, VKI Area, Vs. Ward- 4(2), Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABYPG 2156 Q Appellant Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Rahul Pandya (Adv.) jktLo dh vksj ls@ Revenue by: Smt. Monisha Choudhary (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 08/09/2021 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 14/09/2021 vkns'k@ ORDER PER: SANDEEP GOSAIN, J.M. This is the appeal filed by the assessee against the order of the ld. CIT(A)-2, Jaipur dated 18/06/2018 for the A.Y. 2014-15. The grounds taken by the assessee are as under:
That the ld. A.O., ITO Ward 4(2), Jaipur have made addition of Rs. 1058382/- disallowing on commission paid to Vikram Singh Kulhari Rs. 3,58,952/-, Rameshwar Singh Janu Rs. 3,46,569/- and Surendra Gajraj HUF Rs. 4,52,861/- and the ld. CIT(A)-2, Jaipur grossly erred in sustaining the addition of Rs. 1058382/-.
2. That the ld. A.O., ITO Ward 4(2), Jaipur have made trading additions of Rs. 100000/- on account of manufacturing Register not maintained by assessee and the ld. CIT(A)-2, Jaipur grossly
2 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO erred in sustaining the additions to Rs. 50,000/- and allowed partly relief of Rs. 50,000/-
3. That the ld. Lower authorities grossly erred in law and facts in passing order on the basis of assumption and presumptions.
That order of ld. Lower authorities are against principles of natural justice. Appellant was not confronted with the material used against the appellant and was not given opportunity of rebuttal.
That further submission shall be made at the time of hearing.
That appellant craves leave to add amend or alter all or any grounds of appeal and relief before or at the time of hearing of the appeal.”
The hearing of the appeal and C.O. were concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
The brief facts of the case are that the assessee is proprietor of firm M/s Jamna Industries and derived income from manufacturing and selling Sprinkler and its spare parts. The assessee filed his return of income on 27/11/2014 declaring total income of Rs. 11,70,880/-. The case of the assessee was selected for scrutiny. Necessary notices were issued to him and finally, the assessment was completed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act) at a total income of Rs. 23,29,260/- by making additions on accounts of disallowance on commission and the trading addition.
3 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO 4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions as well as material placed on record, given part relief to the assessee by upholding the action taken by the A.O. with regard to disallowance on commission and had restricted the addition to Rs. 50,000/- made with regard to trading addition.
5. Against the said order passed by the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above.
6. Ground No. 1 raised by the assessee relates to challenging the order of the ld. CIT(A) in confirming the order of A.O. disallowing the payment of commission paid by the assessee to three persons. In this respect, the ld. AR while reiterating the same arguments as were raised by him before the lower authorities has relied upon the written submissions filed before the Bench and the contents of the same are reproduced below:
“1. That firm have paid commission of Rs. 1058382/- to Following Persons:- S. No. Name of Person Amount (Rs.) Income Shown in their TDS ITR Deducted A. Vikram Singh Kulhari 358952.00 358952.00 (Page - 35896.00 (PAN-AKAPK8984B) 11 of Paper Book) (Page -32 of Paper Book)
4 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO B. Rameshwar Singh 246569.00 246569.00 (Page - 24657.00 (PAN-CNXPS9600J) 17 of Paper Book) (Page -32 of Paper Book) C. Surendra Gajraj HUF 452861.00 452861.00 (Page - 22 45286.00 (PAN-AAWHS0393E) of Paper Book) (Page -32 of Paper Book) Total 1058382.00 1058382.00 105838.00
The Commission is paid to enhance the sale or to maintain the Sales tat-get as per the turnover of proceeding year, since the Sales depot / office at Karnataka & Uttar Pradesh have closed down in the year 201213 due to government restriction in their state & Humble Appellant afraid that turnover is likely to down by 25%-30% due to closing of Sales Depot thus negotiated with these persons to enhance sale of their products in villages of Rajasthan. These persons are experienced in the field and villagers being illiterate are more convinced on mouth publicity / personal discussion than any type of publicity with the efforts of these representatives the Humble Appellant could maintained his sales target better than previous years.
(ii) That Humble Appellant have paid sales commission @ 1.5 % to these persons. The sales commission is paid on sale affected through their efforts & as per market usage & Practice. The sales commission is paid wholly & exclusively for business purpose to enhance sale is allowable expenditure as per provisions of Income Tax Act. That Commission paid to the persons are well known and experienced in the field of sprinkler and pipe business. The commission paid is allowable business expenditure U/s 37(1) of Income Tax Act.
(iii) We beg to submit that Family always signifies a group. Plurality of persons is an essential attribute of a family. A 5 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO single person, male or female does not constitute a family. A family consisting of a single individual is a contradiction in terms. Section 2(31) of the Income Tax Act, 1961, treats a Hindu undivided family as an entity distinct and different from an individual. Assessment in the status of a Hindu undivided family can be made only when there are two or more members of the Hindu undivided family (Refer C. Krishna Prasad vs. CIT (1974) 97 ITR 493(SC) & also in ITAT Delhi Bench 'E' in case of ITO Ward 36(2) New Delhi Vs. Mittal Investment Co. (a copy of Judgment is submitted is submitted herewith for your kind perusal).
Further we also beg to submit that 1-IUF is a separate legal entity which can perform its business through its Karta and other members. As the services rendered by Sh. Surendra Gajraj in his individual capacity had been accepted, there was no reason for not accepting his services in his capacity as a Karta of the IMF, the payment of commission to both the specified persons as well as persons other than specified persons had been made on the same basis and the same percentage & IDS had been deducted on the commission payments in terms of section 194H.
That we have already submitted Copy of ITR & Copy of Computation of Total Income of Shri Vikram Singh Kulhari, Shri Rameshwar Singh & M/s. Surendra Gajraj HUF told AO. It would be observed that the said person have surrendered the income of Commission & paid the due taxes. Thus Double Taxation cannot be levied (kindly Refer Page No. 10-26 of Paper Book(ITR8z Computation of Total Income) & Copy of TDS Return placed at Page No. 27-34 of Paper Book).
6 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO (iv) The sales commission is normal Business practice in the trade to engage person/ parties to market the product in villages to publish the Quality & uses of Product for better irrigation on minimum cost & wastage of water. The Learned AO have allowed business expenditure in earlier year also, while passing the order U/s 143(3) of IT Act and as per Act different view of one issue can not be taken by Ld AO, we request to your honour to kindly allow the Commission Paid as Business Expenditure.
(v) That the Hon'ble Delhi High Court in case of CIT v. Genesis Commet P. Ltd. (2007) 197 Taxation 248/ 163 Taxman 482 (Delhi)(High Court) held that The Assessing Officer disallowed commission paid by the assessee to agents on the ground that the assessee was not able to produce parties to whom commission was paid. Even though the copies of accounts at the parties and the particulars of services rendered were produced before the Assessing Officer the Tribunal allowed the claim.
On appeal at the instance of revenue the High Court confirming the findings of the Tribunal held that the commission paid was allowable as business expenditure as, the assessee had produced all the material that it could possibly produce. If the Assessing Officer was not inclined to believe the material so produced, he could have used coercive powers available to him which he failed to exercise. (A.Y. 2001-02)
(vi) "That the assessee had deducted TDS, payments were made through account payee cheques, given PAN number of the parties and confirmed the commission payment. The law does not require from the assessee to enter in agreement on stamp paper for claiming commission as held in the case of 7 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO Chicago Pneumatic India Ltd. Vs. Dy.CIT (2007) 15 SOT 252 (Mum.). The books of account are audited which has been accepted by the Assessing Officer, sale and purchase have been treated genuine, but doubted the commission payment and the learned Assessing Officer made addition on surmises and conjectures." Therefore, we are of the considered view that commission paid by the assessee either on sale and purchase are allowable as the expenses incurred wholly and exclusively for the purpose of business U/s 37 of the Act - as held in ITA No. 535/JP/2015. Order Dt 30/10/2015.
(vii) The Hon'ble ITAT AHMEDABAD BENCH '13' in case of Stallion Laboratories (P.) Ltd. v. Income-tax Officer [2017] 88 taxmann.com 880 (Ahmedabad - Trib.) held that "Excessive or unreasonable payments - Assessment year 2011-12 - Where assessee had made impugned commission payments after deducting TDS and had placed on record confirmations of payers by way of contra accounts, such payments could not be held to be excessive payments"
We therefore request your honour to kindly accept the ground & delete the Additions of Rs. 1058382.00.”
On the other hand, the ld. DR has vehemently supported the orders of the lower authorities.
We have considered the rival contentions and carefully perused the material placed on record. From perusal of record, we noticed that the assessee is engaged in manufacturing of Sprinkler and spare parts in its factory located at Jaipur under the name and style M/s Jamuna Industries
8 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO as registered with ISI and the assessee is manufacturing ISI products of high quality and weight as per ISI standards. Apart from this, the assessee has also awarded ISO 9001 certificate for its quality products. It was specifically asserted by the assessee that the firm of the assessee had paid commission of Rs. 10,58,352/- to three persons i.e. Sh. Vikram Singh Kulhari, Sh. Rameshwar Singh and Sh. Surendra Gajraj HUF and in this respect, he has also drawn our attention to a chart which is mentioned in his written submissions reproduced by us in the earlier para of this order and as per the said chart, we noticed that the required TDS had also been deducted by the assessee while making commission payments to the above persons and the only purpose for making payment of commission by the assessee was to enhance the sale or to maintain the sale targets on the turnover of the preceeding years. According to the assessee, since the sales depot / office at Karnataka & Uttar Pradesh have closed down in the year 2012-13 due to government restriction in their state, therefore, the assessee was afraid that his turnover is likely to go down by 25%-30% because of closing of Sales depot, therefore, under these peculiar circumstances, the assessee had entered into negotiations with these three persons namely Sh. Vikram Singh Kulhari, Sh. Rameshwar Singh and Sh.
Surendra Gajraj HUF to enhance sale of their products in villages of 9 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO Rajasthan. Since according to the assessee, these persons are experienced in the field of sales and villagers being illiterate are more convinced on mouth publicity / personal discussion than any other mode of publicity. Therefore, with the efforts of these representatives, the assessee could maintain his sale targets better than previous years. From the record, we further noticed that the assessee had paid sales commission @ 1.5 % to these persons on sale affected through their efforts and as per market usage & practice.
The assessee had categorically stated that sales commission was paid wholly and exclusively for business purpose to enhance sale and thus the same can be categorized as allowable expenditure as per provisions of Section 37(1) of the Act. Apart from this, the ld. AR relied upon its detailed written submissions which have already been considered by us.
We have gone through the supportive documents in the shape of copy of ITR, copy of computation of total income of respected persons to whom commissions were paid and which also shows that the said persons have shown the income of commission in their respective returns and have paid due taxes. We are also aware of the fact that in normal business practice in the trade to engage persons/parties to market the product in villages to publish the 10 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO quality and uses of product and for that sales person have to be engaged and payment of sales commission is a normal trade practice. We found support from the decision of the Hon'ble Delhi High Court in case of CIT v. Genesis Commet P. Ltd. (2007) 197 Taxation 248/ 163 Taxman 482 (Delhi)(High Court) wherein it was held that “the Assessing Officer disallowed commission paid by the assessee to agents on the ground that the assessee was not able to produce parties to whom commission was paid. Even though the copies of accounts at the parties and the particulars of services rendered were produced before the Assessing Officer the Tribunal allowed the claim. On appeal at the instance of revenue the High Court confirming the findings of the Tribunal held that the commission paid was allowable as business expenditure as the assessee had produced all the material that it could possibly produce. If the Assessing Officer was not inclined to believe the material so produced, he could have used coercive powers available to him which he failed to exercise.”
Considering the totality of facts and circumstances, we noticed that these are undisputed fact that the assessee is engaged in the business of manufacturing of sprinklers which used in the agriculture and had maintained his targets from the previous years and had made payements to the respective persons on account of commission payment through
11 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO account payee cheques and all those accounts are audited and required TDS had also been deducted. Since, engaging of these persons for enhancing of sales is specifically within the notice and knowledge of the assessee and the assessee has discharged his burden of proving the existence of circumstances for engaging the persons for enhancing the sales and had making payment towards commission @ 1.5% to the respective persons and apart from this nothing has been brought on record by the A.O. to controvert the said facts placed on record by the assessee alongwith supportive documents. Therefore, we see no reasons to disbelieve the specific averments and supportive documents made by the assessee to this effect. Therefore, we direct to delete the addition made qua this issue.
Ground No. 2 raised by the assessee relates to challenging the order of the ld. CIT(A) in confirming the trading addition of Rs. 50,000/-.
Having considered the rival contentions and carefully perused the material placed on record. From perusal of record, we noticed that the assessee’s proprietorship firm M/s. Jamna Industries is manufacturing of Sprinkler System and its Spare Parts and the assessee has maintained complete books of account including stock register. All the sales, purchases and expenses are fully vouched and verifiable.
12 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO There is no change in the method of accounting as compared to preceeding years. The books of account are duly audited. All the books of account and record of the unit were produced before the A.O.. All the details of purchases were furnished before the lower authorities and maintained stock register, production record and finished stock register of the unit. The assessee also filed complete stock chart of Raw Material, Finished Goods showing opening stock, purchase, manufacturing, sales and closing stock alongwith audit balance sheet before the Revenue authorities. Since the A.O. checked the books of account and also checked the manufacturing records and no any defect was pointed out then in that eventuality, sustaining of addition of Rs. 50,000/- on account of trading addition is no legs to stand, therefore, we direct to delete this addition.
In the result, this appeal of the assessee is allowed. Order pronounced in the open court on 14th September, 2021.