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Facts
The assessee, a private limited company dealing in imitation jewellery, paid commission to Naaptol Online Shopping Pvt. Ltd. (NOSP) for sales promotion. The Assessing Officer (AO) disallowed a portion of this commission, treating it as excess and income from business. The assessee challenged this disallowance, arguing that the commission was paid for business promotion and that NOSP had disclosed this income.
Held
The Tribunal noted that NOSP is an established company providing a shopping platform and that the assessee's turnover increased after engaging their services. Citing precedents, the Tribunal held that it is the prerogative of the assessee to conduct business affairs with business acumen and that the revenue cannot substitute its judgment for that of the businessman. The Tribunal also found that a coordinate bench had decided a similar issue in favor of the assessee.
Key Issues
Whether the disallowance of commission paid to an online shopping platform for sales promotion was justified, considering the business necessity and prior acceptance by the AO in a previous assessment year.
Sections Cited
250, 143(3), 142(1), 40(a)(ia), 37(1), 194H, 270A
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Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 25.02.2025 Date of Pronouncement 21.03.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order 15.07.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / Ld. CIT(A) for the A.Y 2018-19. 2 Parshwanath Jewellers Pvt Ltd, Mumbai
2. All the grounds raised by the revenue are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the disallowance of commission paid to Naaptol online shopping Private Limited, therefore, we have decided to take up both the issues together and to adjudicate the same through the present consolidated order.
We have heard the counsels for both the parties, perused the material placed on record , judgements cited before us and the orders passed by the revenue authorities.
As per the facts of the present case, the assessee had paid commission to M/s Naaptol online shipping Private Limited (NOSP) on total sales effected by them. In this regard we noticed that Ld. AR relied upon the submissions filed by him before the revenue authorities and the same are reproduced here in below. The Assessee before your honour is the Private Limited Company and dealing in imitation jewellery since 2004. The Assessee usually, purchases the jewellery locally in the wholesale market and sales the same across the country. The Assessee to promote its products in the competitive market, entered into a Merchant Agreement on 18.04.2015 with the Naaptol Online Shopping Pvt. Ltd. [Hereinafter referred to as the NOSPL] The NOSPL is an established Company which provides the shopping platform to the people on Internet, Print and other alternate channels. It was an understanding between the Assessee and NOSPL that, the NOSPL would 3 Parshwanath Jewellers Pvt Ltd, Mumbai promote the Assessee's products on E-commerce which will resultantly increase its sales. Copy of merchant agreement are attached herewith in the paper book at page 1-20 of the paper book.
Apart from the sales through Naptol, the Assessee has also made the sales to the other parties directly. It Is pertinent to mentioned here that, out of the total sales, the major sales are executed through NOSPL only. This fact can be established from the details of year wise sales which are as under:
F.Y Total 2004-05 5,70,465 2005-06 34,72,647 2006-07 73,12,681 2007-08 74,96,789 2008-09 76,08,079 2009-10 84,20,158 2010-11 92,43,052 2011-12 1,48,14,777 2012-13 2,68,26,401 2013-14 2,64,05,627 2014-15 3,38,47,000 2015-16 17,45,08,421 2016-17 31,30,86,912 2017-18 29,20,53,964/
3. From the above table, it is apparent that the Assessee's turnover has increased / boosted from the financial year 2015- 16 after seeking business support service from the NOSPL of 1- 3 The Assessee filed the return of income for the consideration on 13.10.2018 declaring total year under Income at Rs.49,71,812/-, The return filed by the Assessee was selected for scrutiny assessment by Issuing the notices under section 143(2) and 142(1) of the Act. The same were duly responded by the Assessee along with details and documents called for by the Ld. A.O. from time to time. Return of Income is attached herewith in the paper book at page 21-93 of the paper book.
4. The Ld. A.O. completed the assessment vide assessment order dated 11.04.2021 under section 143(3) of the Act 4 Parshwanath Jewellers Pvt Ltd, Mumbai determining total income at Rs.3,85,85,549/- without appreciating the facts and circumstances of the case. While computing the total income, the Ld. A.O. rejected the claim of the assessee towards payment of commission on sales & added excess commission of Rs. 32986431/- and treated the same as 'Income from Business and Profession'. Apart from this, the Ld. A.O made the addition of Rs.8,79,299/- under section 40(a)(ia) of the Act without assigning any reason. The assessee strongly objects to the action of the LD A.O. and preferred the appeal before your honour. Copy of Assessment order is attached herewith in the paper book at page 94-106 of the paper book.
5. The Assessee now proceeds to make its submissions on the issues arising from the assessment order passed by the Ld. A.O. as under:
6. The Ld. A.O. in the assessment order has made incorrect observations and allegations based on which the AO doubted the reasonableness of the commission Rs. 10,65,55,105/- (paid @43.45% on sales amounting to Rs. 245228911/-) by the Assessee during the year under consideration. Consequently, the Ld. A.O. added excess commission of Rs. 3,29,86,431/- to the total income. The Assessee strongly objects to the said observations and allegations made by the AO in assessment order. The Assessee submits that the observations made by the AO in this paragraph are factually incorrect and same are made merely on the basis of conjecture and surmises without appreciating the facts and circumstances of the case. The Assessee strongly objects to the same.
7. The Assessee submits that, its total sales turnover during the year under consideration is to the tune of Rs.29,20,53,964/-. It is pertinent to mention here that out of the total sales, the sales of Rs.24,52,28,911/- were executed through Naaptol and the remaining sales of Rs.4,68,25,053/- were effected through the other parties. The Assessee has been paying the commission to Naaptol as well as the other parties to promote its products and sale the same in the market.
5 Parshwanath Jewellers Pvt Ltd, Mumbai
8. The Assessee submits that it has entered into a Merchant agreement on 18.04.2015 with the Naaptol Online Shopping Pvt. Ltd which is an established Company which provides the shopping platform to the people on Internet, Print and other alternate channels. It was an understanding between the Assessee and Naaptol that, the Naaptol would promote the Assessee's products on E-commerce which will resultantly increase its sales. It is pertinent to mention that the Assessee's turnover has gone up from the A.Y. 2015-16 onwards after availing business support from Naaptol. During the year under consideration, the Assessee has paid total commission of Rs. 10,86,98,105/- to the various parties through which the Assessee has done sale of its products. Out of total commission of Rs. 10,86,98,105/-, the Assessee has paid a commission of Rs. 10,65,55,105/- to Naaptol and also deducted the TDS of Rs 30,69,732/- on the same. The details of the commission paid and TDS deducted are enclosed. Herewith in the paper book at page 107 126 of the paper book. The Assessee had also paid the commission of Rs.4,25,55,271- to the Naaptol in the assessment year 2016-17 and deducted the TDS of Rs.30,69,732/- on the same. The said commission was paid as against the sales of Rs. 11,91,23,366/- executed through Naaptol. It was worthwhile to mention here that, during the course of assessment proceedings for the A.Y. 2016-17, the AO vide notice dated 20.11.2018 issued under section 142(1) of the Act has raised a specific query with respect to the payment of commission and asked the Assessee to provide the confirmations with PAN, Address of the parties, nature of service, agreement copy and the details and evidence of sales effected through these parties. The Assessee had duly provided the said details and documents called by the AO. The AO therefore, after appreciating the documents and evidence produce by the Assessee accepted the claim of the commission made under section 37(1) of the Act and passed the assessment order dated 22.12.2018 under section 143(3) of the Act. The copy of the notice under section 142(1) of the Act and the assessment order for the A.Y. 2016-17 are enclosed. Herewith in the paper book at page 127-133 of the paper book.
6 Parshwanath Jewellers Pvt Ltd, Mumbai
The AO has not appreciated the submission made by the Assessee and the documentary evidence provided during the year under consideration. The AO is not justified in doubting the genuineness of the commission paid by the Assessee merely on the basis of assumption of wrong facts. The AO in the assessment order has mentioned that the Assessee has paid a commission of Rs. 10,65,55,105/- to Naaptol against the sales of Rs.24,52,28,911/- through Naaptol.. Further, the Assessee has also deducted the TDS of Rs. 76,161/- on a/c of certificate of lower deduction of tax on the payment of /commission and duly deposited the same to the government account. To substantiate the same, the Assessee has also provided the ledger of accounts
10. For the period of 01.04.2017 to 31.03.2018. Further, the Assessee also submits that Naaptol has duly disclosed the commission received from the Assessee in its books of accounts and offered the said income to tax. Thus, the AO is not justified in doubling the commission paid by the Assessee to Naaptol during the year under consideration.
On the other hand, DR relied upon the orders passed by the AO.
Disallowance of commission:-
In reply dated 16.12.2020, the assessee had stated that 1. Commission was paid as the persons had effected the sales.
2. The details of persons to whom commission paid were as under:-
Sr. No Name PAN Amount of commission 1 Naaptol Online AACCN7103Q 106555105 Shopping P. Ltd 2 Arnab KR. Daw CGXPD5904R 500000 7 Parshwanath Jewellers Pvt Ltd, Mumbai 3 Santu Dutta AHZD4967D 530000 4 Rinku Dutta AFDPD6456 620000 5 Pinku Dutta AFXPD4348 480000 6 Amit Sheth 8500 7 Babu Rao 4500 Then the assessee was asked vide notice u/s.142(1) dated 09.03.2021 that "You have stated that you have paid commission to:-
Arnab Kumar Daw Santu Datta Rinku data Pinku Datta Amit Sheth Baburao You are requested to state.
How much Sales affected by each the above
2. At what rate commission was paid. How much commission is paid on what amount of sales.
3. Furnish ledger copy of transaction with each of the above parties.
In response to the query the assessee replied on 13.03.2021. the assessee replied as under:- Sr. Name Amount of Sales Rate of No. commission affected commission 1 Naaptol Online 10655105 245228911 Shoping P. Ltd 2 Arnab Kr. Daw 500000 4999614 10% 3 Santu Dutta 530000 5299825 10% 4 Runku Datta 620000 6199660 10% 8 Parshwanath Jewellers Pvt Ltd, Mumbai 5 Pinku Dutta 480000 4802262 10% 6 Amit Sheth 8500 85162 10% 7 Babu Rao 4500 44976 10% The assessee did not disclose the rate of commission for Naaptol Online Shopping P Ltd. Calculation revealed that the assessee had paid commission @ 43.45%.
Now, assessee paid commission @10% to the person who affected sales of Rs.44976 & Rs.6199660/- then the reason for payment of commission @43.45% is not rational.
It is a fact that Naaptol Online Shopping P. Ltd affected sales 40 times more than nearest sales person Rinku Dutta. But Rinku Dutta also had affected sales (Rs.61,99,660/-) of 137 times of Babu Rao (Rs.44,976/-), but both are paid commission at the same rate of 10%.
In this case by not stating the percentage of commission to Naaptol Online Shopping P. Ltd, the assessee expressed his inability to co-relate the payments on account of commission with the orders procured or sales effected. Following the judgement of Hon'ble Orissa High Court in the case of Tarini Tarpauline Productions v. CIT (2002) 254 ITR 495, It is considered most rationally that Commission payment to Naaptol Online Shopping P. Ltd should be at most @30% [ 3 times more commission than others ]. Therefore, allowable commission payment to Naaptol Online Shopping P. Ltd is 30% of Rs. 24,52,28,911.00 i.e. Rs.7,35,68,673/-.
Therefore commission disallowable is Rs. [ 10,65,55,105/- - 7,35,68,673/-] or Rs.3,29,86,431/-. Considering that the assessee had paid excess commission, penalty initiated u/s. 270A for underreporting as a consequence of misreporting of income.
After having heard the counsels for both the parties and going through the facts of the present case, we noticed 9 Parshwanath Jewellers Pvt Ltd, Mumbai that assessee had paid commission to NOSP on the total sales effected through them aggregating to Rs. 24,52,28,911/-. However, AO was of the view that on remaining sales of Rs. 4,68,25,053/-, the rate of commission is 10% whereas on the sales of Rs.24,52,2 ,911/- through NOSP, the rate of commission is 43.45% which according to him is not rational.
In this regard, we have observed that NOSP is established company which provides the shopping platform to the people on Internet, Print and other alternate channels. It was an understanding between the Assessee and Naaptol that, the Naaptol would promote the Assessee's products on E-commerce which will resultantly increase its sales. It is pertinent to mention that the Assessee's turnover has gone up from the A.Y. 2015-16 onwards after availing business support from Naaptol. During the year under consideration, the Assessee has paid total commission of Rs. 10,86,98,105/- to the various parties through which the Assessee has done sale of its products. Out of total commission of Rs. 10,86,98,105/-, the Assessee has paid a commission of Rs. 10,65,55,105/- to Naaptol and also deducted the TDS of Rs 30,69,732/- on the same.
Further, Naaptol has duly disclosed the commission received from the Assessee in its books of accounts and offered the said income to tax. Therefore after evaluating the facts of after hearing the facts we reach to the conclusion that the Naaptol Online Shopping Pvt. Ltd which is an established Company which provides the shopping platform to the people on Internet, Print and other alternate channels and Out of total commission of Rs. 10,86,98,105/NT the Assessee has paid a commission of Rs. 10,65,55,105/- to Naaptol and also deducted the TDS of Rs 30,69,732/- on the same u/s 194H. It is also noticed that Naaptol has duly disclosed the commission received from the Assessee in its books of accounts and offered the said income to tax. Thus in our view, it is prerogative of the assessee to conduct his affairs with his own wisdom and businessmen acumen. On this preposition we drawn strength from the decision in the case of Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 wherein it was held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm- chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.
9. Even the coordinate Bench has also decided the identical issue in favour of assessee in ITA No. 4648/Mum/2024. Thus considering our above discussion and also the fact that no new facts or documents have been placed on record by the revenue to controvert or rebut the lawful findings so recorded by Ld. CIT(A). Thus we see no reasons to interfere in the said findings. Consequently, this ground raised by the revenue stands dismissed.
In the result, the appeal filed by the assessee stands dismissed with no order as to cost.