KAUSHALYA DEVI PAWANI, RAIPUR,RAIPUR vs. ITO, WARD-3(1), RAIPUR, RAIPUR

आदेश / ORDER PER PARTHA SARATHI CHAUDHURY, JM The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 27.07.2026 for the assessment year 2020-21 as per the grounds of appeal on record.

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The Assessing Officer disallowed advertisement expenses of Rs.5,92,926 as the assessee failed to establish that the Goa trip was incurred for business purposes. A further Rs.5,67,849 claimed as advertisement expenses was disallowed since it pertained to the preceding year and was claimed again during the current year. Further, 50% of the commission paid to family members amounting to Rs.11,68,094 was disallowed under section 40A(2)(b) as the assessee failed to substantiate the services rendered or produce any valid agreement. In addition, travelling expenses of Rs.46,295 and 50% of conveyance expenses amounting to Rs.75,240 were disallowed for want of evidence establishing business purpose. Accordingly, the assessment was completed under section 143(3) read with section 144B, and penalty proceedings under section 270A were initiated for under-reporting of income due to misreporting.”

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particulars of the "10 staff' claimed to have travelled to Goa for "training". No such material has been placed on record even before this Appellate Authority. The mere deduction of tax at source under section 1940 of the Act, reflected in the ledger extract now filed, does not by itself establish that the expenditure was incurred wholly and exclusively for the purpose of business; deduction of tax at source is a procedural compliance under Chapter XVII-B of the Act and is not determinative of the allowability of the underlying expenditure under section 37(1) of the Act. As held by the Hon'ble Supreme Court in Somali Dayal v. CIT, (1995) 214 ITR 801 (SC), following CIT v. Durga Prasad More, (1971) 82 ITR 540 (SC), the taxing authorities are entitled to look into the surrounding circumstances to find out the reality of a transaction, and the matter has to be considered by applying the test of human probabilities; .the apparent need not be treated as real merely because some documentation exists. Applying the said test, a payment described alternately as "advertisement" and, on the appellant's own showing, as expenditure for a "Goa trip" for staff training, made to a non-filer/untraceable entity without any corroborative material, cannot be accepted as genuine business expenditure. It is also relevant that no activity report or comparable corroborative material of the kind furnished in respect of the Nacha Party expenses paid to unrelated third parties (Sh. Mahesh Kumar Verma and Sh. Rajendra Kumar Sahu) has been placed on record for this claim, which reinforces the finding of the Assessing Officer. The disallowance of .5,92,926/- is accordingly confirmed. 5.4.2.3 As regards the further sum of , 5,67,849/-, the Assessing Officer has recorded a specific and unrebutted finding that the expenditure pertains to F.Y. 2018-19 and had already been debited in that year, and that its claim once again in the Profit & Loss Account for F.Y. 2019-20 amounts to a double claim of the same expenditure. Under the mercantile system of accounting mandated by section 145 of the Act, an item of expenditure is allowable in the year in which the liability to pay accrues and crystallises, and not in any other year, much less in two different years. It is a settled principle of income-tax law that double deduction of the same expenditure is impermissible, as held by the Hon'ble Supreme Court in Escorts Ltd. v. Union of India, (1993) 199 ITR 43 (SC). The appellant has failed to file any reconciliation, ledger account, or computation for A.Y. 2019-20 to demonstrate that the amount was in fact treated as "advance/pre-paid" and had not already been claimed as a deduction in the earlier year. In the absence of any such material, the finding of the Assessing Officer that this represents a duplicate claim remains unrebutted, and the disallowance of 5,67,849/- is accordingly confirmed.

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5.4.2.4 In view of the above, Ground Nos. 1 and 2 of the appeal are dismissed, and the aggregate addition of 11,60,775/- on account of advertisement expenses stands confirmed. 5.4.3 Ground No. 3: Disallowance under Section 40A(2)(b) of 11,68,094/- 5.4.3.1 Section 40A(2)(a) of the Act provides that where the Assessing Officer is of the opinion that any expenditure in respect of which payment has been or is to be made to a person referred to in clause (b) of the said sub-section is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, or the legitimate needs of the business, or the benefit derived by or accruing to the assessee therefrom, so much of the expenditure as is so considered to be excessive or unreasonable shall not be allowed as a deduction. Clause (b) of the said sub-section includes, in the case of an individual assessee, any relative of such individual. It is not in dispute that Sh. Bhajan Lal Pawani (husband), Smt. Sakshi Pawani (daughter-in-law) and , Sh. Ranjit Pawani (son) are "relatives" within the meaning of section 40A(2)(b) of the Act. 5.4.3.2 The onus of demonstrating that a payment to a specified person under section 40A(2)(b) is reasonable, having regard to the fair market value of the services rendered and the legitimate needs of the business, lies squarely on the assessee. In the course of assessment proceedings, the appellant had, on her own showing as recorded by the Assessing Officer, furnished only "a letter issued by her to the respective family members stating that commission at the rate of 4/- per nug/quantity will be paid" and certain "trip sheets" claiming reimbursement of travelling/hotel expenses; The agreement placed on record was not found tenable, merely written in para does not seems genuine and thus not acceptable. It is only at the appellate stage, for the first time, that typed Sales Agent Agreements dated 01.04.2019, 06.04.2019 and 10.04.2019 have been produced. 5.4.3.3 On careful consideration of these agreements, it is noted that they are unilateral, self-serving documents executed between the appellant, as sole proprietor of M/s. Baba Trading Company, and her own husband, son and daughter-in-law, and "accepted" by the slid family members themselves. No independent, contemporaneous or third-party corroboration of the said agreements, or of actual rendition of sales agent services thereunder, has been furnished. Unlike the advertisement expenses paid to unrelated third parties (Sh. Mahesh Kumar Verma and Sh. Rajendra Kumar Sahu), in respect of which detailed, date-wise and

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village-wise Nacha Party Activity Reports certifying actual field activity have been furnished, no comparable activity report, sales register, or quantity-wise (nag-wise) record correlating the commission paid to each family member with actual sales effected by them has been placed on record, either before the Assessing Officer or before this Appellate Authority. The mere fact that tax was deducted at source under section 194H of the Act does not, by itself, discharge the onus of proving that the payment was reasonable and was in fact made for services genuinely rendered; deduction of tax at source, as noted above, is only a procedural compliance and does not establish the reasonableness or genuineness of the underlying payment for the purposes of section 40A(2)(a) of the Act. 5.4.3.4 It is also a relevant surrounding circumstance, within the meaning of the test laid down in Surnati Dayal v. CIT, (1995) 214 ITR 801 (SC) and CIT v. Durga Prasad More, (1971). 82 ITR 540 (SC), that an identical arrangement of paying commission to the very same family members was examined by the Department in the appellant's own case for A.Y. 2018-19 (order dated 26.03.2021 passed under section 143(3) r.w.s. 143(3A) & 143(3B), DIN ITBA/AST/S/143(3)/2020-21/1031786581(1)), wherein it was specifically found that the commission arrangement with the family members "appears to have been paid... with the intension to reduce tax liability of assessee and at the same time take the benefit of basic exemption limits in the hands of family members", resulting in a consequential addition in respect of the commission paid to Sh. Ranjit Pawani. This establishes a reccuring pattern, across more than one assessment year, of the appellant routing a part of her commission income to family members occupying lower tax slabs, which is a matter the taxing authorities are entitled to take into account while examining the genuineness and reasonableness of a similar claim in the year under consideration. 5.4.3.5 Documents created and produced for the first time at the appellate stage, specifically to answer a pointed objection raised by the Assessing Officer, and which are not corroborated by any independent material demonstrating actual rendition of services commensurate with the fair market value thereof, cannot be treated as sufficient to discharge the onus placed on the appellant under section 40A(2)(a) of the Act. The apparent, in the form of a belatedly produced agreement between an assessee arid her own close relatives, cannot be treated as the real, particularly where no bill, invoice, sales register or other primary document evidencing actual rendition of service has been furnished; in the absence of primary documentary evidence, the claim, on facts, does not inspire confidence and does not withstand the test of human probabilities.

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Applying the aforesaid tests, the appellant has failed to discharge the onus of establishing that the commission of 23,36,188/- paid to the three family members was reasonable and was in fact paid for genuine services rendered. The disallowance made by the Assessing Officer, restricted to 50% of the commission so paid, being 1,11,68,094/-, was, if anything, conservative on the facts of the case. The addition of 11,68,094/- is accordingly confirmed and Ground No. 3 of the appeal is dismissed. 5.4.4 Ground No. 4: Disallowance of Travelling Expenses of 46,295/- 5.4.4.1 The Assessing Officer disallowed the said expenditure, being the difference between the cost of air tickets booked (72,001/-) and the refund received on their subsequent cancellation (25,706/-) on the ground that the identity, designation and business connection of three of the four persons named in the ledger, namely Sh. Sanjay Faldayak, Sh. Bijendra Nath Mishra and Sh. Rajesh Galphat, remained unexplained. Before this Appellate Authority, the appellant has reiterated the very explanation that was before the Assessing Officer, namely that the tickets were booked for these three persons .and the appellant, for travel to the RSPL office at Gurg.aciritfor a business meeting. However, no evidence establishing the identity of these persons, their relationship with or engagem-ent in the appellant's business, or any correspondence evidencing the said meeting, such as a call letter, agenda, or minutes, has been furnished either at the assessment stage or in appeal. 5.4.4.2 As held in CIT v. Calcutta Agency Ltd., (1951) 19 ITR 191 (SC), the burden of establishing the necessary facts to justify an expenditure claimed as a deduction is on the assessee, and a bare assertion, unsupported by any, corroborative material, does not discharge this burden. Since the appellant has failed to place any material on record identifying the said persons or establishing the business purpose of their travel, the finding of the Assessing Officer remains unrebutted. The disallowance of 46,295/- is accordingly confirmed and Ground No. 4 of the appeal is dismissed. 5.4.5 Ground No. 5: Disallowance of Conveyance Expenses of 75,240/- 5.4.5.1 The Assessing Officer disallowed 50% of the conveyance expenditure of 1,50,480/- claimed under the head "Conveyance Marketing Expenses", on the ground that the appellant had merely stated that the expenditure represented the daily petrol expenses of the proprietor, without furnishing any documentary evidence.

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5.4.5.2 In appellate proceedings, the appellant has furnished a set of original cash memos issued by various authorised petrol pumps, namely Vijay Kumar Damani & Co., Bharat Petroleum (Power House, Bhilai), Vardhman Highway Service (Kumhari), Udai Service Station (Abhanpur), Yuvraj Filling Station (Arang) and Premier Auto Centre (Bhilai), covering the period April to June 2019, all of which consistently bear the same vehicle registration number, CG07 BM 6929. The amounts reflected in the said cash memos, ranging between 1,500/- and 3,600/- per transaction on a broadly weekly frequency, are consistent with the pattern of expenditure recorded in the conveyance ledger examined by the Assessing Officer. The cash memos bear the TIN/GSTIN particulars of the respective petrol pumps and constitute contemporaneous, verifiable, third-party documents evidencing actual expenditure. 5.4.5.3 It is well settled that reasonable business expenditure, genuinely incurred and vouched by evidence without any specific finding that the expenditure, or any part thereof, was incurred for a non-business or personal purpose. The Hon'ble Supreme Court in CIT v. Chandulal Keshavlal & Co., (1960) 38 ITR 601 (SC), has held that commercial expediency is to be judged from the point of view of the businessman and not hat of the Revenue. The appellant, being the sole proprietor of a trading concern dealing in the distribution of Ghari required to travel/commute Detergent products across multiple districts of Chhattisgarh, and for business purposes, including in connection with her dealings with M/s. RSPL Limited and her network of commission agents, the incurring of conveyance expenditure by way of fuel is a normal incident of the business carried on by her. The Assessing Officer has not brought on record any specific instance of personal, non-business use of the vehicle in question; the disallowance of 50% appears to have been made on a purely ad hoc basis. Since the genuineness of the expenditure now stands substantiated by contemporaneous third-party cash memos, and in the absence of any material indicating personal use, the ad hoc disallowance of 75,240/- is not sustainable in law. 5.4.5.4 The addition of 75,240/- made on account of disallowance of conveyance expenses is accordingly deleted, and Ground No. 5 of the appeal is allowed. 5.4.6 Ground No. 6, being general in nature and consequential to the above grounds, does not require separate adjudication. 5.5 Computation of Total Income 5.5.1 As a consequence of the findings recorded above, the total income of the appellant for A.Y. 2020-21 is recomputed as under:

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6.0 Decision 6.1 In the result, out of the five substantive grounds of appeal, Ground No. 5, relating to the disallowance of conveyance expenses of 75,240/-, is ALLOWED, and the said addition stands deleted. Ground Nos.1, 2, 3 and 4, relating to the disallowance of advertisement expenses of 5,92,926/- and 5,67,849/-, disallowance under section 40A(2)(b) of the Act amounting to 11,68,094/-, and disallowance of travelling expenses of 46,295/-, are DISMISSED,

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and the said additions, aggregating to 23,74,164/-, stand CONFIRMED. Ground No. 6, being general in nature, requires no separate adjudication. 6.2 The Assessing Officer is directed to re-compute the total income of the appellant for A.Y. 2020-21 at 32,16,160/- (Rupees Thirty- Two Lakh Sixteen Thousand One Hundred Sixty only), after allowing consequential relief of 75,240/- as directed in Para 7.5 above, and to give effect to this order in terms of section 251 read with section 250 of the Act, together with consequential computation of interest under sections 234A, 234B, 234C and 234D of the Act, as applicable. 6.3 Since the disallowances confirmed hereinabove arise on account of the appellant's failure to substantiate her claims with cogent, verifiable and contemporaneous evidence, despite specific opportunities having been granted at the assessment stage, the penalty proceedings initiated under section 270A of the Act for under-reporting of income in consequence of misreporting shall continue in accordance with law, to the extent of the additions sustained by this order. 6.4 In the result, the appeal is PARTLY ALLOWED.”

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documentary evidences were furnished before the First Appellate Authority by the assessee and secondly, whatever evidences were submitted, they were not forwarded to the A.O for his verification and comment. The order of the Ld. CIT(Appeals)/NFAC is not in terms with Section 250(4) & (6) of the Act. In the interest of natural justice, I, therefore, set aside the order of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file for denovo adjudication as per law while complying with the principles of natural justice. It is also directed that this being the final opportunity, the assessee shall duly comply with the hearing notices and submit all the relevant documentary evidence and represent her case on merits.

Sd/- (PARTHA SARATHI CHAUDHURY) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 26th October, 2026. SB, Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT-1, Raipur (C.G.) 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च,

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रायपुर / DR, ITAT, “SMC” Bench, Raipur. ड� फ़ाइल / Guard File.

आदेशानुसार / BY ORDER, SAMIRAN Digitally signed by SAMIRAN BERA // True Copy // BERA Date: 2026.10.26 14:34:58 +05'30' Senior Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur