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Income Tax Appellate Tribunal, ‘’SMC’’BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned Cross appeals have been filed at the instance of the Assessee and Revenue against the order of the Commissioner of Income Tax (Appeals)- 9, Ahmedabad[CIT(A) in short] vide appeal no.CIT(A)-
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 2
9/406/DCIT Cir-8/14-15 dated 04/03/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 28/02/2013 relevant to Assessment Year (AY) 2010-11. 2. First, we take assessee appeal in ITA No.1777/Ahd/2015 for A.Y. 2010-2011. The assessee has raised following grounds of appeal.
‘’On the facts and circumstances of the case, the Hon"ble Members may kindly be pleased to hold that the addition made by the Learned Assessing Officer and confirmed by the Ld. CIT (Appeals)-9 is bad in law and on facts, on due appreciation of any one or more of the following contentions:
To delete the disallowance of late payment of employees' contribution of PF of Rs.97,601/- (i) That the Appellant Company has made the payment of employee's contribution of PF of Rs. 97,601/-. The said payment was deposited by little delay of 1 - 2 days with respective department. (ii) That in view of recent judgement of Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusion Ltd. ( 319 ITR 306 ) even Deposit of Employee's contribution towards ESI & PF before due date of filing of Income Tax Return is allowable expenses and cannot be treated as income of the Assessee U/s.36(l)(va) r.w.s. 2(24)(x). (iii) That the judgement relied on by the Assessing Officer are of lower authority i.e. Tribunal and it appears before them, the decision of Hon'ble Supreme Court and various High Courts were not placed. (iv) That disallowance made by the A.O. for delay in depositing of employees' contribution should be allowed in full. To delete disallowance of Commission of Rs.6,58,680/-
That the A.O. has arbitrarily disallowed the Commission expenses Rs.6,58,680/-.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 3
That the Assessing Officer has ignored the basic requirements of Section 37(1) and arbitrarily made disallowance of expenses which is required to be deleted in full. That your Honour may kindly be pleased to grant such further or alternative reliefs as are just and equitable on due appreciation of facts submitted & filed before your Honour and further it craves your Honour's leave to add or amend any of the grounds of appeal either before or in the course of hearing.’’
The first issue raised by the assessee is that Ld.CIT(A) erred in confirming the disallowance made by the AO for Rs.97,601/- on account of delay in the deposit of employee’s contribution towards ESI and PF.
At the outset, Ld.AR for the assessee fairly conceded that the issue stands covered against the assessee by the judgment of Juri ictional High Court in the case of Gujarat State Road Transport Corporation, 366 ITR 170. The juri ictional High Court in the above case held that where assessee did not deposit employees' contribution in the relevant fund before the due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B.
Hence we are not inclined to interfere in the order of the Revenue authorities on this issue. Thus the ground of appeal of the assessee is dismissed.
The second issue raised by the assessee is that Ld.CIT(A) erred in confirming the disallowance of Commission expenses for Rs.6,58,680/-
The assessee during the year has paid commission to 3 parties amounting to Rs.6,58,680/- only. The commission was paid in connection with the purchases of cotton through the involvement of commission agents.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 4
2 The assessee in support of such commission expenses filed a copy of the ledger, pan, form 16A showing amount of TDS deducted, debit notes issued by the commission agents and details of purchases in respect of which the commission was paid.
3 However, the AO found that there was no agreement between the assessee and the commission agents. Therefore he was of the view that the basis of commission amount and service rendered by the commission agents were not ascertainable in the absence of the agreement.
4
Accordingly the AO held that merely deduction of TDS would not justify the allowability of commission expenses and therefore he treated the commission expenses as non-genuine. Thus, he disallowed the commission claim by the assessee and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before Ld.CIT (A) submitted that similar amount of commission was paid in the immediately preceding year amounting to Rs. 6.90 lacs whereas commission in the year under consideration is of Rs. 6.58 lacs only. As such the amount of commission expenses decreased in the year under consideration which was paid against the turnover of Rs. 2633.58 lacs for the year under consideration.
1 The cotton is an agriculture product which is normally sold by the farmers/ginning factory through the local agents. Accordingly, the assessee to purchase the cotton has taken the services of the commission agents. The farmers/ginning factories are located across the state of Gujarat, and it is not possible for the assessee to deal with all the factories. Therefore the ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 5
involvement of commission agents in connection with the purchases of cotton becomes important.
2 The price of cotton is very much fluctuating hence the job of making the agreement with the commission agent is time-consuming. But the disallowance cannot be made of the commission expenses merely for the reason of non-availability of agreement with the commission agent.
However, the Ld.CIT (A) disagreed with the contentions of the assessee on the ground that none of the commission agents were either produced before the AO or him. Thus, Ld.CIT (A) doubted on the genuineness of the services rendered by the agents. Accordingly, Ld.CIT (A) confirmed the order of AO.
Being aggrieved by the order of the Ld.CIT (A). The assessee is in appeal before us.
The Ld.AR before us filed a paper book running from pages 1 to 34 and submitted that the Ld.CIT(A) never directed the assessee to produced commission agent. Therefore these agents were not brought/produced before the authorities below.
1 The Ld.AR, further submitted that similar disallowance was made in the earlier and succeeding Assessment Year by the AO which were deleted by the Ld.CIT(A).
On the other hand the Ld.DR vehemently supported the order of the authorities below.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 6
We have considered the arguments of both the parties and perused the materials available on record. The issue in the instant case relates to the disallowance of the commission made by the AO of ₹ 6,58,680/-. The AO made the disallowance on the ground that the assessee failed to furnish the basis for the payment of the commission and details of the services rendered by the commission agents. The observation of the AO was based on the fact that the assessee does not have an agreement with the commission agents.
1 The learned CIT (A) subsequently confirmed the order of the AO by observing that the commission agents were not produced either before the AO or before him. Therefore, the CIT(A) was of the view that the services rendered by these commission agents could not be ascertain.
2 From the preceding discussion, we note that the assessee has filed certain documents justifying the amount of commission as detailed under:
The copies of the ledgers for the commission expenses which are placed on page 1 of the paper book.
The commission paid to Gurukrupa cotton broker and Shah Chimanlal Premchand was also allowed by the learned CIT (A) in the immediately preceding assessment year. The details are placed on page 2 of the paper book. The copies of the learned CIT (A) orders are placed on pages 23 to 27 of the paper book.
The copies of the form 16A issued to all the commission agents are placed on pages 3 to 6 of the paper book.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 7
The debit note issued by the commission agents along with the details of the purchases made by the assessee are placed on pages 7 to 12. 5. The copy of the debit advice issued by the assessee to the commission agents acknowledging the commission to be paid to the commission agents is placed on pages 13 to 22 of the paper book.
3 In view of the above, we note that the commission expenses have been disallowed by the authorities below merely on the ground that there was no agreement between the assessee and the commission agents. There is no dispute that there was no agreement as pointed out by the authorities below. However, we note that none of the authorities below has pointed out any iota of defects in the submissions filed by the assessee. Besides this, in case of any doubt the authorities below could have taken the confirmation/clarification from the commission agents about the nature of the commission paid to them by way of issuing notice under section 131/ 133(6) of the Act.
4 We also note that the assessee has paid the commission in the earlier assessment year and succeeding assessment year which was deleted by the learned CIT (A). The learned DR in this regard has not brought any evidence suggesting that the Revenue has filed an appeal against those orders.
5 We also note that the basis of commission expenses has been duly specified in the debit notes issued by the commission agents. The assessee also specified the details of the purchases made through the involvement of commission agent. The said details were also annexed with the debit notes.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 8
6 The AO to verify the genuineness of the expenses could have issued the notices under section 133(6)/131 of the Act to the parties from whom the assessee has purchased cotton with the assistance of the commission agents. But the AO has not done such exercise.
7 The learned AR also argued before us that the learned CIT (A) never directed the assessee to produce the commission agents. Therefore, no commission agent was produced before the learned CIT (A). However, in this regard, we note that in case of any clarification is required from the 3rd party, the Revenue has ample power to take necessary steps for getting the desired information from them directly and independently without the involvement of the assessee. But the authorities below have not exercised their powers.
8 We also find support and guidance from the judgment of High court of Karnataka in case of Ritz hotel (Mysore) Ltd. vs. CIT (196 ITR 614) wherein it was held as under:
“The burden in the instant case, having regard to the circumstances of the case, is quite heavy on the revenue to establish that no services were rendered and the payment of commission was unauthorised or not warranted by any business considerations. We have, no doubt, in our mind that the commission in the instant case should have been paid and accordingly the Board resolved to make the payment in September 1978.”
9 In view of the above, we hold that the genuineness of the commission expenses incurred by the assessee cannot be doubted without bringing any tangible material on record. There was also no allegation by the Revenue that the money has come back to the assessee from the parties (commission agents) in unaccounted form.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 9
10 Hence, we are not impressed with the finding of the authorities below. Thus we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Thus the ground of appeal of the assessee is allowed.
In the result the appeal of the assessee is partly allowed.
Now coming to the Revenue appeal in ITA no. 1832/Ahd/2015 for A.Y 2010-11. Revenue has raised following grounds of appeal.
Whether the Ld. Commissioner of Incom-Tax (Appeals) is right in law and on facts in allowing disallowance in respect of amortization of lease rent.
Whether the Ld. Commissioner of Incom-Tax (Appeals) is right in law and on facts in deleting the disallowance of depreciation on Wind Mill.
Whether the Ld. Commissioner of Incom-Tax (Appeals) is right in law and on facts in deleting the disallowance of depreciation, insurance and interest on vehicle.
Whether the Ld. Commissioner of Incom-Tax (Appeals) is right in law and on facts in deleting the disallowance made u/s 14A of the Act.
On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals) ought to have upheld the order of the Assessing Officer.
It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals) may be set-a-side and that of the order of the Assessing Officer be restored.
At the outset, after going through the grounds of appeal and the impugned orders of the Revenue authorities below, a query was raised by the Bench as to applicability and maintainability of the appeal filed by the ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 10
Revenue in view of recent CBDT Circular No.3/2018 dated 11.7.2018 restricting the filing of the appeal by the Revenue where the tax effect is below Rs.20 lakhs, the ld. DR did not dispute the same and submitted that the issue is left to the Tribunal to be decided in accordance with law.
We find that the appeal of the Revenue is presented on 05/12/2018. On 11/07/2018 the CBDT has issued Instructions bearing No. 3 of 2018 under file No.F.No.279/Misc.142/2007-ITJ(Pt) prohibiting its subordinate authorities from the filing of the appeal to the Tribunal against the order of the CIT(A) where the tax effect by virtue of the relief given by the CIT(A) is less than Rs.20 lakhs. The instructions have been made applicable with retrospective effect, meaning thereby, these instructions are applicable on pending appeals also. In the present case, “tax effect” on the total income assessed minus the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issue against which appeal is filed, is less than Rs.20 lakhs. Further, the case of the Revenue does not fall within the ambit of exceptions provided in the Circular. Thus, keeping in view the above CBDT circular and provisions of section 268A of the Income Tax Act, we are of the view that the present appeal of the Revenue deserves to be dismissed. It is accordingly dismissed.
1 However, it is observed that in the case on re-verification at the end of the AO it comes to the notice that the tax effect is more or Revenue’s case falls within the ambit of exceptions provided in the Circular, then the Department will be at liberty to approach the Tribunal for recall of this order. Such application should be filed within the time period prescribed in the Act. In view of the above, the appeal of the Revenue is dismissed due to low tax effect.
ITA nos.1777 & 1832/AHD/2015 Asstt. Year 2010-11 11
In the result, the appeal of the Revenue is dismissed.
In the combined result, the appeal of the assessee is partly allowed whereas the appeal of the Revenue is dismissed.
Order pronounced in the Court on 01/01/2019 at Ahmedabad.
- - (MS MADHUMITA ROY) ACCOUNTANT MEMBER () Ahmedabad; Dated 01/01/2019 manish
आदेश क" ""त"ल"प "े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त(अपील) / The CIT(A)
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण / DR, ITAT, 6. गाड" फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.