PAAVAN COMMERCIAL PVT. LTD.,,KOLKATA vs. ACIT, CIRCLE 5(1),, KOLKATA

आयकर अपीलीय अधिकरण, कोलकाता पीठ, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “D”BENCH KOLKATA Before Shri Rajesh Kumar, AccountantMember and Shri Pradip Kumar Choubey, JudicialMember ITA No.2376/Kol/2025 Assessment Year: 2017-18 Paavan CommercialPvt. Ltd..………...………..............................……….……Appellant 22, Armenian Street, Burrabazar, Kol-1. [PAN: AADCP0987B] vs. ACIT, Circle-5(1), Kolkata…………..….……………………...……...…..…..Respondent Appearances by: Shri S. K. Tulsiyan, Adv., appeared on behalf of the appellant. Shri S. B. Chakraborthy, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : April 17, 2026 Date of pronouncing the order : April 24, 2026 ORDER Per Rajesh Kumar, Accountant Member: This is an appeal preferred by the assessee against the order of the NFAC, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 25.09.2025passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’) for the A.Y 2017-18. 2. The issue in Ground no.1 is general in nature and does not require any specific adjudication. 3. The issue raised in Ground no.2 is against the confirmation of disallowance of Rs.19,705/- by ld. CIT(A) as made by the AO on account of service tax return filing, VAT return filing, ROC filing fees etc on the alleged ground that these expenses were capital in nature. 4. After hearing the rival submissions, we find that the assessee has incurred expenses in the ordinary course of business. These expenses

ITA No.2376/Kol/2025 are in the nature of Professional charges paid for Service-tax Return filing, for DSC, to file ROC for annual filing fee and for VAT Return filing etc . We further find that these expenses were incurred to run and maintain the business and did not result in the acquisition of a new asset or an enduring advantage of a permanent character and hence the same being revenue in nature has rightly been claimed as business expenditure. The Ld. A.O without giving any reasons or basis whatsoever has disallowed the said expenditure as capital in nature and added to the total income. Sec. 37(1) of the Act provides for deduction for all expenditure laid out wholly and exclusively for the purpose of the business/profession. Filing fees of various returns as stated above and related expenditure are routine and recurring in nature incurred for the day-to-day operations and for doing mandatory legal compliances of the existing business. Consequently, we set aside the order of the ld. CIT(A) and delete the disallowance of Rs.19,705/-. Ground No.2 is allowed. 5. Ground No.3 is against the confirmation of disallowance of Rs.1,33,083/- incurred on account of payment of interest on late payment of VAT in spite of the fact that such interest is compensatory in nature and not penal and is accordingly admissible under the Act. 6. After hearing the rival submissions, we find that the disallowance of Rs.1,33,083/- is comprising of Interest on Income-tax of Rs. 54,030/- which is not pressed at the time of hearing and Interest on late payment of VAT/Sales-tax of Rs.79,053/-. The Assessing Officer disallowed the said expenditure as the same were not allowable and the ld. CIT(A) upheld the order of the Assessing Officer. We find that the disallowance of expenditure of Rs.79,053/- on payment of interest on delayed VAT/Sales tax is an allowable business expenditure u/s 37(1) of the Act, as the same is compensatory in nature and not penal. The Hon'ble Supreme Court in the case of LachmandasMathuradas v. CIT [2002] 254

ITA No.2376/Kol/2025 ITR 799 (SC) reaffirming the earlier decisions of Hon'ble Supreme Court on this issue reported in Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC) and Prakash Cotton Mills Pvt. Ltd. vs. CIT (1993) 201 ITR 684 (SC) has held that interest charged for delayed payment of sales tax is a normal business expense incurred for the purpose of the business, akin to borrowing money for working capital. Therefore, we are inclined the set aside the order of the ld. CIT(A) partly on this issue and direct the Assessing Officer to delete the addition to the extent of Rs.79,053/-. Ground No.3 is partly allowed. 7. Ground No.4 is against the confirmation of disallowance of Rs.4,77,289/- being 10% of total expenses under the head ‘misc expenses’ without even rejecting the books of account on ad hoc basis and also without considering the vouchers, charts and details submitted by the assessee. 8. After hearing the rival submissions, we find that the company had incurred the following expenses such as Handling, Cooliage and Cartage expenses of Rs.11,49,987/-, Loading & Unloading chargesof Rs.14,32,296/-, Van Hire chargesof Rs.21,90,601/-aggregating to Rs.47,72,886/- which had been wholly and exclusively laid out for the purpose of earning income and duly accounted for in its audited books of account. The Ld. A.O. disallowed 10% of the said expenditure of Rs.47,72,886/-, i.e. Rs.4,77,289/- on ad hoc basis alleging non- submission of supporting bills and vouchers. The Ld. CIT(A) upheld the order of the Assessing Officer. The expenditure was properly vouched and passed through the P/L Account and the accounts were subject to audit u/s 44AB of the Act. During the assessment proceeding, in response to various notices, the company had filed documents, account statements etc. and no specific bills/vouchers in relation to the above business expenditure had been asked for by the Assessing Officer,

ITA No.2376/Kol/2025 although the same were part of the audited P/L Account and filed during the course of assessment proceeding. We find that the Ld. A.O. has nowhere raised any doubt on the allowability of the expenses and has also not pointed any specific defect or the Assessing Officer rejected the books of account u/s 145(3) of the Act. It is noted that all the above expenses incurred on different dates throughout the year in small quantum of amounts and directly related to the running of the business were duly vouched and the Ld. A.O. disallowed 10% of the same only alleging absence of proof like vouchers, bills etc. As these payments were made on daily basis to many casual labourers for handling and carriage charges, vouchers were numerous. Therefore, incurring of such expenses in the ordinary course of business is for the purpose of running business operation of the assessee. The books of account are properly audited and no adverse inference was drawn by the auditor. We are of the view that the order of the ld. CIT(A) upholding the order of the Assessing Officer making the said disallowance is on surmises and conjecture and cannot be survive. The case of the assessee is squarely covered by the decision of Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax v. R.G. Buildwell Engineers Ltd. reported in[2018] 99 taxmann.com 284 (SC) wherein the Hon’ble Supreme Court specifically held that where books of accounts are maintained and produced, the Assessing Officer cannot make arbitrary or ad hoc estimations of disallowances without proper verification and without rejecting the books of accounts. Consequently, we set aside the order of the ld. CIT(A) on this ground and delete the disallowance of Rs.4,77,289/-. The ground no 4 is allowed. 9. Ground No.5 is against the confirmation of disallowance of Rs.60,94,580/- made by the Assessing Officer on account of commission payments alleging the same as unexplained expenses u/s 69C of the Act.

ITA No.2376/Kol/2025 10. The facts in brief are that during the course of assessment proceedings, the Ld. A.O. required the assessee to provide the details of commission paid amounting to Rs.60,94,580/- along with documentary evidences like supporting bills/vouchers, details of TDS on such commission payments etc. In reply, the assessee submitted explanation and produced details in relation to the commission payments, nature of services rendered by each of the commission agents etc. besides submitting bills/vouchers, confirmations of services rendered, bank statement evidencing the payment of commission and also TDS details in Form 26AS etc. The Assessing Officer did not call for further details from the assessee however disallowed the entire expenses as unexplained and bogus u/s 69C on the ground that most of the commission was paid to related parties and the transactions appeared to be highly suspicious. The ld. CIT(A) upheld the order of the Assessing Officer. 11. After hearing the rival submissions, we find that the assessee is a authorized distributor of M/s Hindustan Unilever Ltd. and M/s Heinz India Pvt. Ltd. and dealing in fast moving consumer goods/products and the nature of business of the assessee is such that it has to take help of some third parties/persons for expanding its client base. During the course of assessment proceeding, the assessee-company had provided details of commission paid to the different entities having PANs aggregating to Rs.60,94,580/-through bank transfer and TDS deducted against each of such payment and deposit thereof into the Govt. Treasury Rs.3,04,733/-. The necessity of engaging agents to boost up the sales was in the regular course of business the assessee which was an authorized distributor of FMCG products. We note that the AO has not disputed the payments made for that purpose. The assessee produced that the invoices or bills issued by the respective commission agents and furthermore, such commission payments were passed 5

ITA No.2376/Kol/2025 through proper banking channel and subject to deduction of tax at source which were duly evidenced by Form-16A. We also note that the provisions of section 142(2) & 143(3) of the Act which deals with the requirement to make enquiry by the Assessing Officer, which was not followed by the Assessing Officer in the case at hand. The Assessing Officer for the purpose of obtaining full information on the expenditure incurred by the assessee against payment of commission paid to several commission agents, ought to have issued notices u/s 133(6) of the Act and summons for proper enquiry. After the details of the parties to whom the commission was paid and the services rendered by them were brought to the notice of the Ld. A.O., he did not conduct any further enquiry to dislodge the claim of the assessee. Nor did he issue any SCN, nor was any adverse material collected by him brought to the knowledge of the assessee to make this disallowance. Therefore, the disallowance made was based on the assumption and presumption violating the statutory provisions of Section 142(2) of the Act. We place reliance on the judgment of the Coordiante Bench of the Tribunal in the case of M/s SPML Infra Ltd vs DCIT in ITA No.1228/Kol/2018 wherein on identical facts it was held as under: "14. To conclude: We note that none of the statements were recorded by the assessing officer of the assessee company, and no opportunity for cross examination has been provided to the assessee company. The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act. Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of assessee collected by AO u/s 142(1) has to be necessarily put to the assessee u/s 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through the process of assessment u/s 143(3) of the Act."

ITA No.2376/Kol/2025 12. Considering the above, we are inclined the set aside the order of the ld. CIT(A) on this issue and consequently addition of Rs.60,94,580/- u/s 69C of the Act is deleted. Ground No.5 is allowed. 13. Ground Nos.6 & 7 are general in nature. 14. In the result, the appeal of the assessee is partly allowed.

Kolkata, the 24th April, 2026.

Sd/- Sd/- [Pradip Kumar Choubey] [Rajesh Kumar] JudicialMember Accountant Member

Dated: 24.04.2026. RS Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- , 5. CIT(DR),

//True copy// By order Assistant Registrar, Kolkata Benches