SHRI SURENDRA GAJRAJ ,JAIPUR vs. INCOME TAX OFFICER, WARD-4-2, JAIPUR

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:

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/-

conference in view of the prevailing situation of Covid-19 Pandemic.

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.

preferred the present appeal before the ITAT on the grounds mentioned

above.

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.”

of the lower authorities.

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.

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.”

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.

order of the ld. CIT(A) in confirming the trading addition of Rs. 50,000/-.

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.

Sd/- Sd/- ¼foØe flag ;kno½ ¼lanhi x®lkÃa½ (SANDEEP GOSAIN) (VIKRAM SINGH YADAV) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 14/09/2021 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Surendra Gajraj, Jaipur. 1.

13 ITA 1018/JP/2018 _ Surendra Gajraj Vs ITO izR;FkhZ@ The Respondent- I.T.O., Ward- 4(2), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 1018/JP/2018) 6.

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत