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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per George George K, JM
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 19.02.2018. The relevant assessment year is 2010-2011.
There is a delay of 16 days in filing appeal. The assessee has filed petition for condonation of delay. We have perused the reasons stated for filing the appeal belatedly. We find that there is sufficient cause for the delayed filing of the appeal and no latches can be attributed to the assessee. Hence, we condone the delay and proceed to dispose off the same on merits.
Three issues are raised in the grounds, viz., - (i) Disallowance of depreciation on lorry.
ITA No.217/Coch/2018. 2 Ms.Seetha Nair. (ii) Disallowance of commission paid amounting to Rs.10,00,000. (iii) Disallowance of sundry creditors of Rs.8,99,273.
In the course of hearing, the learned AR did not press the ground relating to disallowance of depreciation on lorry, hence, the same is dismissed. The other two issues are adjudicated as under :-
Disallowance of commission paid amounting to Rs.10 lakh:
The assessee is proprietor of M/s.Kuttiyil Agencies. The proprietorship concern is engaged in the business of dealing in building material like steel, sanitary fittings, paints, cement, sheets etc. The assessee had debited in the profit and loss account a sum of Rs.11,22,830 as commission payments to various persons. In the course of assessment, the assessee was directed to furnish the details of the commission paid. The assessee furnished list of the persons to whom the commissioners were paid including the details of name, address, invoice number and the amount of commission paid. The Assessing Officer was of the view that the assessee could not link the commission payments to any specific sale and the recipients for the commission payments could not be identified in each and every case. Therefore, the Assessing Officer held that in the absence of convincing proof, an adhoc disallowance was required. The A.O. disallowed on adhoc basis Rs.10 lakh out of total commission of Rs.11,22,830.
ITA No.217/Coch/2018. 3 Ms.Seetha Nair. 5.1 Aggrieved by the disallowance of commission, the assessee raised this issue before the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer. The relevant finding of the CIT(A) reads as follows:- “4.1.3 The facts of the case, the grounds of appeal and the arguments of the assessee have been considered. The Assessing Officer disallowed some part of the expenditure as the assessee could not substantiate the expenditure with proper evidences. Even during the appeal proceedings also, the learned A.R. has not produced any evidence to prove that the expenditure was actually incurred except arguing that the expenditure is reasonable. In absence of proper proof of expenditure, the disallowance made by the assessing officer is confirmed and the ground of appeal raised on this issue is dismissed.”
5.2 Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. The learned AR reiterated the submissions made before the Income-tax authorities. The learned Departmental Representative supported the assessment order and the order of the CIT(A).
5.3 We have heard the rival submissions and perused the material on record. When asked to furnish the details, the assessee produced a list of persons to whom the commissions were paid. The Assessing Officer, on perusal of the list, was of the view that the assessee had made up the list as on the date of each month with amounts less than Rs.2,000 per person aggregating to Rs.11,22,830. The assessee was directed to substantiate the commission payments, however she could not link each and every such payment to specific sales. Moreover, some of recipients of the commission payments could not be
ITA No.217/Coch/2018. 4 Ms.Seetha Nair. identified. We are of the view that in absence of convincing proof, the disallowance of the commission payments by the A.O. is justified.
5.4 However, we notice that the disallowance of Rs.10 lakh out of the total claim of Rs.11,22,830 is excessive. The assessee is a dealer in building material such as paints, cement etc. The total commission payments made for the relevant assessment year works out to 1.76% of the total turnover (Total turnover is Rs.6,36,57,688). In assessment year 2008-2009, no commission was paid and the total sales turnover was only Rs.3,57,04,181. For assessment year 2009-2010 and the current assessment year namely A.Y. 2010-2011, the commission amounts were paid and there was substantial increase in the sales turnover to Rs.4,55,76,697 and Rs.6,36,57,688 respectively. In facts and circumstances of the case, it cannot be stated that no commission was paid. The A.O. himself had allowed a portion of commission expenditure claimed. The adhoc disallowance made by the Assessing Officer is on the higher side. In the interest of justice and equity, we are of the view that 1% of the sales turnover in the current assessment year would justify the expenditure debited as commission payments. The one per cent of the total sales turnover of Rs.6,36,57,688 would be Rs.6,36,576. This figure of Rs.6,36,576 will be allowed as deduction instead of Rs.1,22,830 allowed by the Assessing Officer as commission payments for the current assessment year. It is ordered accordingly.
ITA No.217/Coch/2018. 5 Ms.Seetha Nair.
5.4 Hence, the ground No.2 raised is partly allowed.
Disallowance of sundry creditors amounting to Rs.8,99,275
The Assessing Officer had disallowed a sum of Rs.8,99,275 as unexplained credit by observing as under:-
“9. The assessee has claimed an amount of Rs.69,95,949/- against sundry creditors. During the course of hearing the assessee was asked to produce confirmation. The assessee produced confirmation for an amount of Rs.60,96,674/- only. The difference in ledger balance is amounting to Rs.8,99,275/-. Since the assessee could not produce any confirmation for the said amount, I hereby disallow the unexplained credits amounting to Rs.8,99,275/-.”
6.1 The view taken by the Assessing Officer was confirmed by the CIT(A). The finding of the CIT(A) reads as follows:-
“4.3.3 The facts of the case, the grounds of appeal and the arguments of the assessee been considered. The onus to prove the genuineness of transactions and credit worthiness of the creditors, lies on the assessee. Since the assessee has not filed confirmation for an amount of Rs.899275, the assessing officer has rightly disallowed the same and added it back to the income returned. Hence, the ground of appeal raised on this issue is dismissed.”
6.2 The assessee being aggrieved, has raised the following ground before the Tribunal:-
“5. Lastly, the appellant is aggrieved by rejecting the claim of Rs. 8,99,285/- towards Sundry creditors. The appellant claimed a total amount of sundry creditors as
ITA No.217/Coch/2018. 6 Ms.Seetha Nair. Rs.69,95,949.46/-. To substantiate the above figure, the appellant submitted the detailed list of the sundry debtors, including the Addresses and phone details. But shockingly, the lower authorities disallowed an amount of Rs.8,99,285/- towards Sundry creditors, for lack of details. This is highly irregular for the fact that the veracity of the total claim of Rs. 69,95,949.46/- was proved by the appellant by submitting the aforesaid details. In such case, partly disallowing Rs. 8,99,285/- towards Sundry creditors is highly unjust and untenable. If the authority was doubtful of any balance, it could have contracted the parties directly as all details were available with them. But without adverting the grounds raised in the hearing note and the details submitted, the lower authorities have erroneously added an amount of Rs.8,99,285/- as Sundry debtors not proved, which needs to be corrected by this Hon'ble Tribunal. For these and other reasons to be urged at the time of hearing, it is humbly prayed that this Hon'ble Tribunal be pleased to set aside Annexure D order of the Appellate Commissioner and allow this appeal with consequential reliefs to the ·appellant.” 6.3 The learned Departmental Representative supported the orders of the Income-tax authorities.
6.4 We have heard the rival submissions and perused the material on record. Admittedly, these are trade creditors and not loan creditors. The assessee has not been able to fully produce the confirmation letter. In the course of hearing of the appeal, the learned AR submitted that he may be provided with one more opportunity to produce the confirmation and tally the trade creditors. In view of the submissions made by the learned AR, in the interest of justice and equity, we grant one more opportunity to the assessee to prove the sundry creditors and produce the confirmation for the same. Since this is an assessment pertaining to assessment year 2010-2011 the assessee is directed to co-operative with the Department and furnish the necessary material to prove her case. The Assessing Officer shall dispose off the matter as expeditiously as possible,
ITA No.217/Coch/2018. 7 Ms.Seetha Nair. after affording a reasonable opportunity of being heard to the assessee. It is ordered accordingly.
6.5 Hence, ground No.5 is allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 08th day of July, 2019.
Sd/- Sd/- (Chandra Poojari) (George George K.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Cochin ; Dated : 08th July, 2019. Devdas*
Copy of the Order forwarded to : 1. The Appellants 2. The Respondent. 3. The CIT (Appeals)-Kottayam 4. The Pr.CIT Kottayam. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin