RAGHANI TRADELINK,AHMEDABAD vs. INCOME TAX OFFICER, WARD 1(3)(1), AHMEDABAD, GUJARAT

For that the Ld. CIT(A) erred in confirming the action of AO in completing the assessment without giving any proper show cause notice for various additions made by him.”

For that the Ld. CIT(A) erred in confirming the disallowances of expenses made on ad-hoc basis when the audited books of accounts were not rejected.

For that the Ld. CIT(A) erred in confirming the disallowance of 10% of the Sub- brokerage expenses on ad hoc basis simply on the basis of suspicion and surmises when all the details were submitted and the onus that lay on assessee was discharged but the AO failed to make enquiry of his own.

For that the Ld. CIT(A) erred in disallowing Rs 46,261/- (30% of Rs 1,54,206) being the Sub brokerage expenses on which allegedly no TDS was deducted when proper TDS as per law was deducted and even otherwise the payee had paid taxes on the income and filed its return of income.

For that the Ld. CIT(A) erred in confirming the disallowance of 10% of the total administrative expenses i.e. Rs 20,56,298/- on ad hoc basis on total suspicion and surmises without pin pointing specific items of expenses.

For that the additions and disallowances made by the AO and confirmed by the Ld. CIT(A) are nor in accordance with law and the same are liable to be deleted.”

A perusal of the aforesaid grounds of appeal would reveal that the assessee has mainly contested the action of the Ld. CIT(A) in confirming the disallowance of 10% of the sub-brokerage expenses and also 10% of the total administrative expenses which was made by the Assessing Officer (AO) purely on adhoc basis.

Brief facts of the case are that the assessee-firm is a Collection cum Commission agent for Sarees, suits & other ladies readymade garments and introduce the buyers/purchasers of the goods to the manufacturing / trading houses all over India with branches at Kolkata, Varanasi and Ahmedabad. Asst. Year : 2020-21

1. During the assessment proceedings, in response to the notice u/s 142(1) issued by the AO, the assessee made the following submissions:

The copy of audited financial statements were submitted against notice u/s 143(2) however, they are again submitted with tax audit report and computation of income.

Copies of all the bank statements are enclosed herewith.

While carrying out our business activities PAN India as stated above, we have also appointed three sub-agents for collection of orders, pursuing despatch of goods from suppliers, collection of payments from buyers and other sort of help as may be required by the buyers and/or suppliers. For these services, we pay them Sub- brokerage as has been debited in the P/L account. The details such as Name, PAN and address of the parties to whom sub- brokerage is paid is enclosed herewith.

The copy of agreements entered into with two of the above sub-parties are enclosed herewith.

We are not engaged in any trading activities. We earn commission income on the basis of collection of sale proceeds of the sales made by the sellers to their customers through our persuasion. There are 5000-6000 sellers with whom we deal. The modus Asst. Year : 2020-21

As stated above, we do not maintain the details of sale made by the sellers to the buyers viz. Date of sale, Nature of item, Quantity and value of such sale or any these information related to the transportation of the goods. We are not engaged in any trading activities. We are commission agents and are not supposed to maintain details. We are middleman only to search customers so that the seller get the orders for sale. However, your honour can verify the same from the sellers, the name, PAN and addresses of which are submitted in point no. 6 above.

In respect of the commission expenses paid by us to sub brokers, the entire details as required are enclosed herewith in the required format along with the ledger copies of the sub-brokers and commission payments. TDS has been deducted on all payments made and the sub-brokers are our regular sub- brokers. 9. ……”

1. On further queries by the AO, the assessee also explained as under: “Point no. 1

2. The assessee also furnished details of addition to fixed assets, expenses debited in P/L account, details of loans and advances, details of sundry creditors, details of current liabilities and copy of partnership deed was furnished by the assessee.

However, the AO observed that though the assessee had claimed that the assessee had been consistently following the aforesaid business module for the last three years since its incorporation, however, the AO observed that there was no scrutiny assessment in earlier years and comparison of expenses cannot be made with previous years. He, though accepting that the assessee- firm had made business expenses during the year under consideration, however, was of the view that the same seem to be exaggerated. He, observed that though the assessee had earned commission income of Rs.10,39,21,921/- , whereas, the net profit was shown at Rs.88,13,803/- only. He observed that out of the total expenditure of Rs.9,56,05,747/-, the assessee had claimed a sum of Rs.2,53,63,362/- on sub-brokerage. He observed that the assessee had failed to furnish the documentary evidence as to how the sub-brokerage helped in coordinating with the buyers and suppliers for despatch of goods, Asst. Year : 2020-21

1. Further, in respect of administrative expenses, the AO observed that the assessee had claimed administrative expenditure of Rs.2,05,62,989/- and an amount of Rs.3,28,67,666/- on account of salary and remuneration. He observed that as per the agreement furnished by the assessee with the sub- broker, the sub-broker was supposed to manage the office and whereas the assessee itself had claimed such huge expenses. On being asked to explain in this respect, the assessee gave the bifurcation of the administrative expenses as under: Business Promotion Rs. 22,42,762/- Conveyance 41,22,996/- Office Maintenance 30,80,471/- Parking Expenses 57,204/- Printing & Stationery 4,33,635/- Rent 16,95,390/- Vehicle Upkeep 36,26,783/- Asst. Year : 2020-21

2. On being asked to produce bills and vouchers the assessee also produced the same. The AO, further observed that the assessee had provided bills/vouchers of business promotion amounting to Rs.22,42,762/-, however, on some of the bills, no GST number was mentioned. That two bills of the same person of different dates were bearing same bill number. He, therefore, noting that there were certain discrepancies in the bills and vouchers. The AO further observed that the assessee had also not furnished documentary evidence relating to conveyance expenses. He observed that such expenditure was exaggerated, disallowed 10% of the total administrative expenses claimed and made the addition of Rs.20,56,298/-.

3. He also observed that the assessee had claimed an amount of Rs.3,28,67,666/- on account of salary and remuneration expenses. He observing that the said salary and remuneration was also exaggerated, disallowed 10% of the same at Rs.32,86,766/-.

In appeal, the Ld. CIT(A) confirmed the adhoc disallowance made by the AO @10% of the expenditure claimed in respect of sub-brokerage expenses and administrative expenses. He, however, deleted the disallowance made by the AO relating to salary and remuneration expenses observing that the assessee had duly furnished the requisite documents to prove the incurring of the said expenditure. Asst. Year : 2020-21

Being aggrieved by the aforesaid order of the Ld. CIT(A) confirming the adhoc disallowance @10 % of the total expenditure claimed on account of sub-brokerage and on account of administrative expenditure.

We have heard the Ld. Representatives of the parties and perused the material on record. We note that, in this case, the AO had asked the assessee to furnish various details relating to the claim of the expenditure which the assessee duly furnished. The assessee also explained the modus operandi of his business operations. It was explained that the assessee was not engaged in any trading activities; the assessee earns commission income on the basis of collection of sale proceeds of the sales made by the sellers to their customers through their persuasion; that there were 5000-6000 sellers with whom the assessee deals; the modus operandi was that the assessee collects the ledger copies of the buyers from the sellers on a periodic basis and accordingly pursue for collection of the outstanding dues. It was also explained that the assessee do not retain the details of sales made by the manufacturers after receipt of its commission. However, assessee duly furnished the names, addresses and PANs of the sellers along with the amount of collection made. It was also requested to the AO that he may verify the facts from the parties as per law. It was also explained that the sellers also deduct TDS on the payments wherever applicable as evident from 26AS on the portal. The assessee also furnished the entire details of the sub-brokerage paid along with the ledger copies of the sub-brokers and commission payments. TDS had been deducted on all payments made. The assessee also furnished the details such as Name, PAN and address of the parties to whom sub-brokerage was paid. The assessee also furnished the copy of agreements entered into with two of the above sub-brokers. The Raghani Tradelink vs. ITO Asst. Year : 2020-21

Similar is the position regarding the adhoc disallowance on account of administrative expenses. The assessee had duly given the details of each and every expenditure. There were 8 heads of administrative expenses, however, the AO noting that in some of the bills the concerned party had not mentioned its GST number and in respect of one party two bills of different dates contained the same bill number and further noting that documentary Asst. Year : 2020-21

In view of the observations made above, the impugned additions made/confirmed by the lower authorities are hereby ordered to be deleted.

In the result, the appeal of the assessee stands allowed. Order pronounced in the Open Court on 16/03/2026. (Annapurna Gupta ) Accountant Member अहमदाबाद/Ahmedabad, िदनांक/Dated 16/03/2026

अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)- 5. िवभागीय #ितिनिध , अिधकरण