SHRI RAM RATAN JOSHI,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4, JAIPUR

ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 13/03/2018 of ld. CIT(A)-2, Jaipur for the A.Y. 2013-14. The assessee has raised following grounds of appeal: “1. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in restricting the lump sum disallowance, made by the ld. AO, to 10% of the expenses incurred on Conveyance, Staff & Labour Welfare, Travelling and Telephone. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may 2 ITA 668/JP/2018 Shri Ram Ratan Joshi Vs ACIT please be granted by deleting the entire such disallowance made by the ld. AO and sustained by the ld. CIT(A).

3. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirming the action of ld. AO, by sustaining disallowance of commission expenses of Rs. 13,00,000, incurred by the assessee. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the entire such disallowance made by the ld. AO and sustained by the ld. CIT(A).

4. The assessee craves his rights to add, amend or alter any of the grounds on or before the hearing.”

2. At the time of hearing, the AR of the assessee has stated at bar that due to smallness of the amount involved in grounds No. 1 and 2, the assessee does not press ground Nos. 1 and 2 of the assessee’s appeal and the same may be dismissed as not pressed. The ld DR has raised no objection if grounds No. 1 and 2 of the appeal is dismissed as not pressed. Accordingly, grounds No. 1 and 2 of the assessee’s appeal are dismissed being not pressed.

3. Ground No. 3 of the appeal is regarding disallowance of commission expenses of Rs. 13.00 lacs. The assessee is an individual and 3 ITA 668/JP/2018 Shri Ram Ratan Joshi Vs ACIT engaged in the business of manufacturing and trading of sprinkler system and accessories in the name and style of M/s Rama Plastics. The assessee filed his return of income on 04/09/2013 declaring income of Rs. 21,76,847/-. During the course of scrutiny assessment, the A.O. noted that the assessee has claimed an amount of Rs. 15.00 lacs under the head commission expenses. The A.O. asked the assessee to give details of sales commission on which commission has been paid. The assessee explained that he has paid commission to six parties total amounting to Rs. 15.00 lacs. On further verification and enquiry conducted by the A.O., it was found that only one of the parties namely Shri Deepak Kumar Tripathi was appointed as authorized representative to represent the assessee before the Agriculture Department, Uttar Pradesh for supply of irrigation systems. The A.O. also examined Shri Deepak Kumar Tripathi and Shri Vikash Pandey. Since the other parties were not appeared or produced before the A.O., therefore, the A.O. found that the other parties are not doing any independent work but are working with Shri Deepak Kumar Tripathi. Hence, the A.O. has allowed claim of commission paid to Shri Deepak Kumar Tripathi of Rs. 2.00 lacs and the balance of amount of Rs. 13.00 lacs paid to five other parties were disallowed. The assessee 4 ITA 668/JP/2018 Shri Ram Ratan Joshi Vs ACIT challenged the action of the A.O. before the ld. CIT(A) but could not succeed.

4. Before the Tribunal, the ld AR of the assessee has submitted that all these six persons to whom the assessee has paid commission are commission agents of the assessee and were assessed to income tax. The commission was paid through banking channels after deducting TDS U/s 194H of the Income Tax Act, 1961 (in short, the Act) @ 10%. He has further contended that due to the nature of the business activity of the assessee, the assessee needs the services of these persons to sell the products in the State of Uttar Pradesh. The assessee is at the panel of the department of Agriculture of Uttar Pradesh for supplying of irrigation system as an approved vendor. For the purpose of all these activities for getting itself registered and approved vendor as well as representing the assessee before the government department, the assessee pointed Shri Deepak Kumar Tripathi as his authorized representative. The other five persons to whom the assessee has paid commission have rendered their services in respect of sales of the goods supplied by the assessee. Thus, without services of these persons, the assessee could not be able to sell its product in the State of Uttar Pradesh and that too at different locations and in the remote areas of the Uttar Pradesh. Once the assessee has 5 ITA 668/JP/2018 Shri Ram Ratan Joshi Vs ACIT established the fact of payment through banking channels after deduction of tax and other parties have confirmed the receipt of commission against the services that the assessee has discharged its onus to prove the claim. The A.O. has doubted the role of the other persons without bringing anything material on record, therefore, the payment of commission is not in dispute then the same cannot be disallowed without bringing anything contrary on record. The ld AR has further submitted that the assessee has not paid any commission for the sale undertaken in the State of Rajasthan and further no claim has been made for any travelling expenses in respect of sale made in the State of Uttar Pradesh, thus it established that the assessee has availed the services of six persons regarding sales made in the Uttar Pradesh and the commission paid is an allowable business expenditure. He has referred to the statements recorded by the A.O. of Shri Vikash Pandey as well as Shri Deepak Kumar Tripathi and submitted that these persons were admitted to have received commission and rendering the services. The commission was paid @ 5% of the total sale which is not excessive. The ld AR has thus pleaded that the disallowance made by the A.O. and sustained by the ld. CIT(A) may be deleted.

6 ITA 668/JP/2018 Shri Ram Ratan Joshi Vs ACIT 5. On the other hand, the ld DR has submitted that the assessee has not produced any documentary evidence for availing the services of these five persons except Shri Deepak Kumar Tripathi which was allowed by the A.O. The A.O. has conducted an enquiry from the office of Additional Director, Agriculture Department, Krishi Bhawan, Lucknow (U.P.) and it was found that the assessee has appointed Shri Deepak Kumar Tripathi as authorized representative. There is no other evidence either claimed or produced by the assessee in respect of other five persons. Thus, the claim of the assessee is devoid of merits that the assessee has failed to produced any documentary evidence regarding payment of the other persons as commission agent or rendering of services in respect of sales of the assessee. The mere payment of the amount through banking channel will not ipso facto proved the fact that the expenditure is incurred wholly or exclusively for the business of the assessee. The ld DR has relied upon the orders of the authorities below.

Order pronounced in the open court on 19th September, 2019

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सहायक पंजीकार@Aेेज. त्महपेजतंत