M/S. SAGAR RUBBER PRODUCTS PVT. LTD,MEHSANA vs. ACIT, MEHSANA CIRCLE,, MEHSANA

The assessee company filed its return of income on 30.09.2014 declaring total income of Rs.45,41,940/- which was processed u/s 143(1) of the Act. Subsequently, notice u/s 143(2) of the Act under scrutiny dated 28.08.2015 was served upon the assessee. During the course of assessment proceeding, upon verification of the Profit and Loss account, it was found that the assessee has debited an amount of Rs.36,81,895/- under the head “Sales commission expenses”. Previously during the course of assessment proceeding for A.Y. 2013-14 upon enquiry in respect of some of the recipient of the “Sales commission expenses” claimed by the assessee, disallowance equal to 25% was made by the AO. The Learned AO was of the view since the assessee has paid the due tax demand raised and not preferred even an appeal against such addition following the same order added such 25% of the entire expenses of Rs.36,81,895/- i.e. Rs.9,20,480/-. Such plea of the Assessing Officer was found suitable by the Learned CIT(A) and he therefore confirmed said addition.

At the time of hearing of the instant appeal, Learned counsel appearing for the assessee has taken us to the order passed by the Learned CIT(A) for A.Y. 2013-14 in the appeal preferred by the assessee after the addition was made by the Learned AO for A.Y. 2014-15 whereby and whereunder the addition in respect of disallowance of 25% of the commission expenses for the year under consideration i.e. for A.Y. 2013-14 was deleted. In that view of the matter, the disallowance made by the Revenue has been prayed to be deleted by us. However, the Learned DR has failed to controvert the said contention made by the AR before us.

Heard the respective parties, perused the relevant materials available on record. We have also carefully considered the order passed by the Learned CIT(A) for A.Y. - 3 - Sagar Rubber Products pvt. Ltd. vs ACIT Asst.Year – 2014-15 2013-14. The relevant portion of the observation while deleting such disallowance is as follows: “… The A.O. has not doubted the genuineness of the payment which has been made through banking channel with compliance of provisions of relating to TDS from commission. The A.O. has though noted that there were subsequent withdrawals from the bank accounts of the recipients of commission but did not bring any evidence to demonstrate that the money was given back to the appellant company or used by them for their personal needs. The copses of returns of income in cases of some of the commission agents were filed in the form of paper book which reflected the due disclosure of the commission income either directly in the statement of total income or through Profit & Loss Account. Therefore, in view of the above facts, the A.O.'s findings given for making ad-hoc disallowance @ 25% of total commission expenses cannot be held to be validly made. The appellant has also relied on several decisions which demonstrate that no disallowance on estimate basis can be made by arbitrary exercise of power without identifying a specific item of such expenses or the persons to whom such payments are made which have to be held as excessive, bogus or ingenuine in absence of any adequate evidence or Information on record for deriving the conclusion that the expenses were bogus etc. Considering overall facts of the case, the disallowance made of Rs.24,48,300/- is directed to be deleted. Accordingly, ground no.1 of the appeal is allowed.”

Ground No.2 relates to disallowance of employee’s contribution towards PF to the tune of Rs.17,737/-.

The amount for PF contribution for the month of December 2013 paid on 20.01.2014 though beyond the due date but within the grace period under PF Act as the case made out by the assessee before us and we thus find it fit and proper to offer a further opportunity to the assessee to represent his case before the Assessing Officer with relevant documents in support of its claim. Hence, we set aside the issue to the file of the - 4 - Sagar Rubber Products pvt. Ltd. vs ACIT Asst.Year – 2014-15 Learned AO to consider the same afresh upon giving an opportunity of being heard to the assessee and also upon taken into consideration the evidences on record which the assessee may choose to file at the time of hearing of the appeal. We, further, make it clear that the assessee will also co-operate with the Learned AO and will not take any unnecessary adjournment. Hence, assessee’s appeal is allowed for statistical purposes.

Ground No.3 and 4 are usual grounds, hence no order need be passed.