MANOJ SHARMA,CHENNAI vs. ACIT, NCC-15(1), CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned Appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 26.09.2025 Assessment Year 2017-18. 2. The following grounds of appeal have been raised by the assessee: 1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case and is opposed to the principles of equity, natural justice and fair play.

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 2 :: 2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer passed u/s. 143(3) is without jurisdiction.

Disallowance of expenditure of Rs.50,00,000/- claimed u/s.57

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 3 :: Levy of Interest u/s.234A, 234B and 234C 11. For that the appellant objects to the levy of interest u/s. 234A, 234B and 234C of the Income Tax Act. 2.1 Brief facts of the case: The assessee, an individual, filed his return of income for the Assessment Year (AY) 2017-18 on 29.10.2017 declaring a total income of Rs.71,18,930/-. The assessee is a partner in M/s. Triveni Chem Trade, a partnership firm engaged in the business of trading in industrial chemicals and starch products. During the relevant previous year, the assessee received commission income of Rs.57,91,990/- from M/s. Nanny Starch Corporation Pte. Ltd., Singapore, for facilitating the sale of cationic starch to Indian customers, namely ITC Limited and West Coast Paper Mills Limited. The commission income was offered to tax under the head "Income from Other Sources". Against the said commission income, the assessee claimed deduction of Rs.50,00,000/- u/s. 57 of the Income-tax Act, 1961, being commission paid to M/s. Triveni Chem Trade. According to the assessee, the partnership firm possessed the necessary expertise, business network, customer relationships, technical knowledge and infrastructure for coordinating with the Indian customers and successfully facilitating the transactions between M/s. Nanny Starch Corporation Pte. Ltd. and the ultimate purchasers. 2.2 The case was selected for scrutiny primarily on account of the substantial deduction claimed u/s. 57. During the assessment proceedings, the Assessing Officer (AO) called upon the assessee to substantiate the claim of expenditure by furnishing documentary evidence including agreements, correspondence and details explaining the basis of payment of Rs.50 lakhs to the partnership firm. The assessee submitted that the payment had been made

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 4 :: through banking channels and reflected in the bank statements. It was further explained that the firm rendered various coordination and facilitation services in relation to the supplies made by the Singapore company. However, the assessee could not produce any formal agreement or memorandum of understanding among himself, M/s. Nanny Starch Corporation Pte. Ltd. and M/s. Triveni Chem Trade evidencing the role of the partnership firm in the impugned transactions. Consequently, the AO disallowed the entire claim of Rs.50,00,000/- u/s. 57 of the Act. The AO disallowed the claim u/s. 57 mainly on the following grounds: i. The agreement for earning commission was exclusively between the assessee and M/s. Nanny Starch Corporation Pte. Ltd. The partnership firm was not a party to the agreement. ii. A partnership firm is only a juridical entity acting through its partners and the assessee failed to explain how the firm independently rendered any services. iii. No agreement, memorandum of understanding or documentary evidence was produced to establish the engagement of M/s. Triveni Chem Trade for rendering services. iv. The assessee failed to furnish details regarding: o nature of services rendered; o manpower deployed; o expenses incurred by the firm; and o basis for fixing commission at exactly Rs.50,00,000/-. v. Mere production of bank statements proving payment did not establish that the expenditure had been incurred wholly and exclusively for earning the commission income. vi. Accordingly, the Assessing Officer held that the expenditure did not satisfy the conditions prescribed u/s. 57 and added Rs.50,00,000/- to the total income.

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 5 :: • M/s. Triveni Chem Trade was nowhere mentioned in the agreement. • Although the assessee claimed that the firm possessed expertise and business networks, no evidence was produced to demonstrate the actual services rendered by the firm. • The additional evidence merely established that payment had been made to the partnership firm. • The additional evidence did not explain: o the precise role of the firm; o the nature of services rendered; o the extent of involvement of the firm; or o the basis of charging Rs.50 lakhs. • Since the assessee himself was a partner exercising control over the affairs of the firm, the possibility of tax planning or diversion of income could not be ruled out. • In the absence of satisfactory evidence regarding the genuineness and commercial expediency of the payment, the disallowance of Rs.50,00,000/- was confirmed.

Now assessee is in appeal before the Tribunal.

The additional evidences are as under:

Sr. Page Remarks No. Reference in Additional Evidence Petition 1 Page 4 Partnership Firm dealing in sale of starch 2 Page 14 Customer Name: ITC Limited – Customer of partnership firm in AY 2016-17

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 6 :: 3 Page 17 Customer Name: ITC Limited – Customer of partnership firm in AY 2017-18 4 Page 23 Customer Name: ITC Limited – Customer of partnership firm in AY 2018-19 (Sale of starch during this year)

5 Page 36 Customer Name: The West Coast Paper Mills Ltd. – Customer of partnership firm in AY 2016- 17 6 Page 53 Customer Name: The West Coast Paper Mills Ltd. – Customer of partnership firm in AY 2017- 18 7 Page 72 Customer Name: The West Coast Paper Mills Ltd. – Customer of partnership firm in AY 2018- 19 (Sale of starch during this year)

The assessee further demonstrated that the amount of Rs.50,00,000/- had already been credited in the books of M/s. Triveni Chem Trade and offered to tax in its hands. 4. The ld. Authorised Representative (AR) submitted as under: In this connection, it may be noted that the appellant is a partner in a firm M/s.Triveni Chem Trade which is in the business of dealing in industrial chemicals and starch. The partnership firm procures chemicals and starch from leading industrial chemical manufacturers such as BASF for sale to companies in the paper industry including ITC Limited and West Coast Paper Mills Limited etc. The partnership firm also facilitates sale of certain starch products to its customers as mentioned above and these products were imported from entities in Singapore through the contacts of the appellant. In support of the fact that the M/s. Triveni Chem Trade is in the business of trading of starch and also that ITC Limited and West Coast Paper Mills Limited were its customers, the appellant filed certain additional evidences before this Hon'ble Tribunal on 06.04.2026 (Refer black colour taped book). A table containing contents regarding the relevant pages to be referred in the said additional evidence petition filed in terms of Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 is enclosed as Annexure 1 for the immediate reference of this Hon'ble Tribunal. The purchase orders of ITC Limited on 02.05.2016 and 15.07.2016 and West Coast Paper Mills Limited on 13.02.2016 which led to the earning of commission by the appellant which was passed to M/s. Triveni Chem Trade are as under: A) Purchase Order of ITC Limited dated 02.05.2016 addressed to Nanny Starch Corporation Pte Ltd., Singapore for the supply of Cationic Starch - Annexure 2.

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 7 :: B) Purchase Order of ITC Limited dated 15.07.2016 addressed to Nanny Starch Corporation Pte Ltd., Singapore for the supply of Cationic Starch - Annexure 3. C) Purchase Order of West Coast Paper Mills Ltd. dated 13.02.2016 addressed to Nanny Starch Corporation Pte Ltd., Singapore for the supply of Cationic Starch -Annexure 4. The appellant wishes to place the above to show that the appellant was in fact carrying on competing business with that of the partnership firm in which he is a partner.

On perusal of the above documents, it may be noted that the purchase orders relate to supply of Cationic Starch. At this juncture, it would be relevant to reiterate that the partnership firm M/s. Triveni Chem Trade is in the business of trading of tapioca starch, T-135 starch and various other products used in the paper industry. It is submitted that T-135 starch is not a different category of starch but is the brand or commercial name for a specific premium-grade cationic tapioca starch. Cationic starches represent a unique class of high performance starch derivatives which have gained commercial acceptance because of their affinity towards negatively charged substrate such as cellulose, aqueous suspensions of minerals and slimes and biologically active macromolecules. In simple words, it may be noted that because T-135 starch is a variant of Cationic Starch, comparing them is not about two different products, but rather comparing a specific commercial formulation versus the broad category of cationic starches. In essence, the Cationic Starch (that is supplied by Nanny Starch Corporation Pte. Ltd. to ITC Ltd. and West Coast Paper Mills Ltd.) and the T-135 starch that is dealt with by M/s. Triveni Chem Trade, sold to another customer (Refer Page 4 of additional evidence petition) and sold to ITC Ltd. (Refer Page 23 of additional evidence petition) and West Coast Paper Mills Ltd. (Refer Page 72 of additional evidence petition) are no different but one and the same. The appellant during the impugned year received Rs.57,91,990/- as commission income from M/s.Nanny Starch Corporation Pte. Ltd. (A Singapore based company) for the business of supply of starch to ITC Limited and West Coast Paper Mills Limited, which was offered as income from other sources. The appellant paid with Rs.50,00,000/- to M/s.Triveni Chem Trade as commission for earning the said income and claimed the same as expenditure u/s.57. It may be noted that M/s. Triveni Chem Trade had the expertise, industry networks and necessary resources for carrying out the facilitation role for transactions between the appellant and the end customers for supply of starch by M/s.Nanny Starch Corporation Pte. Ltd. for which it was paid a commission of Rs.50,00,000/- by the appellant. Considering the business of M/s.Triveni Chem Trade in which the appellant is a partner and the transaction in question, i.e., sale of starch by Nanny Starch Corporation Pte. Ltd. to ITC Limited and

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 8 :: West Coast Paper Mills Limited (facilitated by M/s. Triveni Chem Trade) in respect of which the appellant claimed an expenditure u/s.57 out of the total commission income earned, one may note that the appellant has carried out a competing business with that of the partnership firm in which he is a partner. At this juncture, attention of this Hon'ble Tribunal in drawn to the decision of the Hon'ble Calcutta High Court in the case of Pulin Bihari Roy and Ors. v Mahendra Chandraghosal and Ors. 67IND. CAS.10 (Copy of the same was submitted during the course of hearing) wherein the Hon'ble Court held as under: 5. As regards the third and fourth grounds, we have been invited to hold that each partner was entitled to have separate dealings in salt and could not be called upon to account for the profits of such transactions for the benefit of all the partners of the original business. This contention is opposed to the elementary rule that if a partner, without the consent of the other partners, tarries on any business of the same nature as, and competing with, that of the firm, he must account for and pay over to the firm all profits made by him in such business, and be must also make compensation to the firm for any loss occasioned thereby. This obligation is formulated in Section 259 of the Indian Contract Act and has long been recognised as a fundamental rule in the law of partnership: Aas v. Benham (1891) 2 Ch. 244: 65 L.T. 25, Trimble v. Goldberg (1908) A.C. 494: 75 L.J.P.C. 92: 93 L.T. 163: 22 T.L.R. 717, Glamington v. Thwaites (1823) 1 Sim. & St. 121 1LJ. Ch. 118:24 R.R. 153: 57 E.R. 50......" (Emphasis supplied) From the above decision, it can be seen that the fundamental rules of partnership is that if a partner, without the consent of the other partners, carries on any business of the same nature as, and competing with, that of the firm, he must account for and pay over to the firm all profits made by him in such business. It is submitted that in light of the above stated rule that the appellant has similarly in the instant case parted with the firm a sum of Rs.50,00,000/- and claimed the same as expenditure u/s.57. It may be noted that the partnership firm has offered the same to tax as other income which was evidenced by the extract of the financials of the firm submitted during the course of hearing before the Hon'ble Tribunal. This being the scenario, it is humbly submitted that the appellant is eligible to claim the expenditure of Rs.50,00,000/- as deduction u/s.57 or even otherwise allowable in the light of the decision of the Hon'ble Calcutta High Court cited supra as the said income rightfully belongs to the firm and not to the appellant. Therefore, it is most humbly prayed that this Hon'ble Tribunal may be pleased to direct the Assessing Officer to allow the claim of expenditure to the tune of Rs.50,00,000/- considering the additional evidences furnished before this Hon'ble Tribunal.

4.1 In sum and substance, the ld.AR submitted that both the AO and the ld.CIT(A) proceeded on an incorrect appreciation of facts and ignored the true commercial nature of the transaction. It was

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 9 :: submitted that M/s. Triveni Chem Trade is an established concern engaged in trading of industrial chemicals and starch products supplied to large paper manufacturers including ITC Limited and West Coast Paper Mills Limited. The assessee received commission from the Singapore company only because of the extensive customer base, goodwill, market presence and industry network developed by the partnership firm over several years. The firm actively coordinated with the customers regarding: procurement requirements; • technical specifications; • • logistics; • shipment schedules; • quality coordination; • commercial negotiations; and • execution of supplies.

The assessee himself did not possess the necessary infrastructure to independently execute such large commercial transactions. 5. The additional evidence produced before the Tribunal conclusively demonstrated that: • the firm had been dealing in starch products over several assessment years; ITC Limited and West Coast Paper Mills Limited were regular • customers of the firm; • purchase orders issued by the customers to M/s. Nanny Starch Corporation Pte. Ltd. related to cationic starch; • T-135 starch dealt with by the partnership firm was commercially a premium variant of cationic starch; and Therefore, the transactions facilitated by the assessee were • directly connected with the firm's existing business.

The assessee further submitted that the commission income actually represented profits arising from a competing business undertaken by him individually. Reliance was placed upon the judgment of the Calcutta High Court in Pulin Bihari Roy & Ors. v. Mahendra Chandra

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 10 :: Ghosal & Ors., 67 Ind Cas 10, wherein it was held that if a partner carries on a competing business without the consent of other partners, he is bound to account for the profits earned therefrom to the partnership firm. Applying the above principle, it was argued that the assessee rightly transferred substantial commission income to the partnership firm. It was further submitted that the firm had duly credited the amount in its books. The receipt had been offered to tax by the firm. Therefore, there was no revenue loss whatsoever. The payment was genuine, fully accounted for and supported by banking channels and the deduction was allowable u/s. 57 as expenditure incurred wholly and exclusively for earning the commission income. The assessee accordingly prayed that the additional evidence be admitted and the AO be directed to allow deduction of Rs.50,00,000/-. 6. The ld. Departmental Representative (DR) strongly supported the orders of the lower authorities. It was contended that the agreement for earning commission was solely between the assessee and M/s. Nanny Starch Corporation Pte. Ltd.. The partnership firm had no contractual relationship with the foreign company. No contemporaneous agreement existed evidencing the firm's engagement. The payment of Rs.50 lakhs was made to a concern in which the assessee himself was a partner. The assessee failed to establish the exact services rendered by the firm. No basis was shown for determining commission at Rs.50 lakhs and mere subsequent production of purchase orders could not establish that the firm had rendered services warranting deduction u/s. 57 of the Act. The revenue, therefore prayed that the disallowance be sustained.

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 11 :: 7. We have carefully considered the rival submissions, perused the assessment records, the appellate order, the additional evidences filed before us under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and the material available on record. The controversy before us is confined to the allowability of deduction of Rs.50,00,000/- claimed u/s. 57 against commission income earned from M/s. Nanny Starch Corporation Pte. Ltd. 7.1 The additional evidences produced before the us include purchase orders issued by ITC Limited and West Coast Paper Mills Limited, sales records of M/s. Triveni Chem Trade and documents demonstrating that the partnership firm had been consistently engaged in the business of trading in starch products supplied to the very same customers. These documents were not available before the Assessing Officer. From the additional evidence, it prima facie emerges that: M/s. Triveni Chem Trade possessed established business • relations with ITC Limited and West Coast Paper Mills Limited; • the firm was actively engaged in the trade of cationic starch and allied products; • the products supplied by M/s. Nanny Starch Corporation Pte. Ltd. substantially overlapped with the products dealt with by the partnership firm; and the firm had the commercial infrastructure and customer • network necessary for facilitating the transactions which generated the commission income.

7.2 The assessee has also demonstrated that the commission paid to M/s. Triveni Chem Trade has been duly credited in the books of the partnership firm and subjected to tax in its hands. The Revenue has not disputed either the receipt of commission from the Singapore company or the actual payment of Rs.50 lakhs through banking channels. The only dispute pertains to the allowability of

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 12 :: the expenditure. The additional evidence materially explains the commercial background of the transaction and establishes the nexus between the services rendered by the partnership firm and the commission income earned by the assessee. In our considered opinion, these documents go to the root of the matter and deserve to be admitted in the interest of substantial justice. Having regard to the entirety of the facts, particularly the business carried on by the partnership firm, its long-standing relationship with the ultimate customers, the evidence establishing its role in facilitating the transactions and the fact that the corresponding receipt has already been assessed in the hands of the partnership firm, we are satisfied that the expenditure of Rs.50,00,000/- bears a direct nexus with the earning of the commission income and satisfies the requirements of section 57 of the Act. Accordingly, the additional evidence filed by the assessee is admitted. The orders of the lower authorities on this issue are set aside. The Assessing Officer (AO) is directed to allow the deduction of Rs.50,00,000/- claimed u/s. 57 after taking on record the additional evidences furnished before us. The grounds raised by the assessee on this issue are allowed. The Assessing Officer shall grant consequential relief in accordance with law, if any. 8. In the result, the appeal of the assessee is allowed as above. Order pronounced in the open court on the 14th day of July 2026 in Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद)या/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER

ITA No 3553/Chny/2025 (AY 2017-18) Manoj Sharma Vs ITO ACIT NCC 15(1) :: 13 :: चे�नई/Chennai, *दनांक/Dated: 14th July, 2026. SNDP, Sr. PS आदेश क ��त+ल,प अ-े,षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

Digitally signed SANDE by SANDEEP KUMAR EP Date: 2026.07.15 KUMAR 17:34:03 +05'30'