MADHYAM BUILDTECH P.LTD,NOIDA vs. DCIT, CIRCLE-16(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI

BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [Through Video Conferencing]

ITA No.6400/Del./2017 Assessment Year: 2013-14 Madhyam Buildtech Pvt. Vs. DCIT, Ltd., Circle-16(1), C-20, Ground Floor, Sector- New Delhi 2, Noida PAN :AAGCM3594G (Appellant) (Respondent)

Appellant by None Respondent by Ms. Rinku Singh, Sr.DR Date of hearing 01.03.2021 Date of pronouncement 11.03.2021

ORDER PER O.P. KANT, AM:

This appeal by the assessee is directed against the order dated 18.08.2017 passed by the learned Commissioner of Income-tax (Appeals)-6, Delhi [in short ‘the learned CIT(A)’] for assessment year 2013-14, raising following grounds: 1. That authorities below have failed to appreciate that source of commission paid by account payee cheques which are duly accounted for in the account books of the appellant not having been doubted and explanation furnished about the source of the expenditure also not having been found unsatisfactory, expenditure on account of commission is not covered by the provisions of section 69C of the IT Act and therefore, the impugned disallowance of Rs.48,07,109/- Is without jurisdiction and liable to be deleted.

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Officer disallowed the commission expenses amounting to Rs.48,07,109/-. On further appeal, the learned CIT(A) upheld the disallowance. Aggrieved, the assessee is before the Income Tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. 5. Before us, the learned DR appeared through Video Conferencing facility and relied on the orders of the lower authorities. 6. We have heard the submissions of the learned DR and perused the relevant material on record. 6.1 We find that the assessee has claimed commission expenses of Rs.1,58,66,893/- out of which the Assessing Officer on test check basis called for details for justification of the expenses in following cases: S. No. Name of party Amount (in Rs.) 1. Shri Anil Sharma 12,00,000/- 2. M/s. Goldmine Developers Pvt. Ltd. 10,31,929/- 3. Shri Harish Sharma 7,75,180/- 4. Shri Kumar Gaurav 5,00,000/- 5. Ms. Mitali 6,00,000/- 6. M/s. Property Point 7,00,000/- Total 48,07,109/-

6.2 The learned Assessing Officer called for copy of the return, computation, profit and loss account and balance-sheet etc. filed by those persons, using authority u/s 133(6) of the Act. The Assessing Officer was also asked to file copy of the bank statement and details of property sold or purchased by those persons, for the assessee company. The Assessing Officer on verification under Section 133(6) of the Act found that either no reply was received or the letter sent was returned back. The reply

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furnished by the assessee on behalf of those persons was found in the same format with part information only. The Assessing Officer accordingly issued notice under section 142(1) to the assessee to produce those persons along with their books of account. However, the assessee submitted that the payments to those persons were made by company through cheques, which were subjected to deduction of TDS and service tax. The assessee also filed copy of its bank account. On the request of the assessee, the Assessing Officer issued summons under Section 131 of the Act to all those persons, however, none appeared before him. In the circumstances, the learned Assessing Officer disallowed the commission claimed to have paid to those persons observing as under: “2.7 The assessee's submissions are considered on merits. However, the fresh submission of the assessee still does not address the remarks made in para 2.5 above. Further, in light of the assessee's request, summons u/s 131 were issued to all the above persons vide notices dated 15.3.2016. However, none appeared in response the summonses issues. In fact, the summonses issued to Sh. Anil Sharma and Ms. Mitali have been received back. Further, the director/s of M/s Goldmine Developers Pvt. Ltd did not appear in response to the summons issued but sent their reply dated 21.3.2016 through speed post. Therefore, the doubt that was cast on the identity of the aforesaid six persons has not been cleared. 2.8 In view of the above discussion, it is apparent that the assessee has failed to discharge the onus upon it to prove the identity of persons to whom commission has been paid and the genuineness of the transactions undertaken. Therefore, the amount of Rs. 48,07.109/-, being '' e amount of commission paid, is disallowed u/s 69 and added back to the income of the assessee.” 6.3 On further appeal, the learned CIT(A) upheld the disallowance observing as under: “3.2.3. The facts of the case and the submissions of the appellant have been carefully considered. Appellant-company was engaged in sale/booking of builders flat on commission basis on behalf of various builders/real estate developers through its sales

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team at different locations in India. During the year under consideration, it had debited commission expenses amounting to Rs. 1,58,66,893/- in its profit and loss account. Assessing Officer issued notice under section 133(6) to various parties to whom commission aggregating to Rs. 48,07,109/- was paid, viz., Shri Anil Sharma, M/s Goldmine Developers Pvt. Ltd., Shri Harish Sharma, Shri Kumar Gaurav, Ms. Mitali and M/s Property Point, wherein parties were asked to produce Income tax return, computation of income, profit & loss account, balance sheet, bank statement, copy of ledger account of appellant in books of parties, details of payment received from appellant along with nature and details of products sold to/purchased from appellant-company. The reply to notice under section 133(6) was received only from Shri Harish Sharma, however, ledger and confirmation was not filed by said party. Appellant submitted return and confirmation of remaining parties. The confirmation filed by appellant of various parties was in same format. Further, out of a1 parties, only Ms. Mitali claimed commission income in her return of income. By virtue of notice under section 142(1), appellant was asked to produce said parties with books otherwise addition of Rs. 48.07 lakh would be made. The reply was received only from M/s Goldmine Developers Pvt. Ltd acknowledging receipt of commission. In that stage also, appellant furnished copy of accounts of parties in its books and bank statement highlighting payment. Appellant stated that payments were made through account payee cheque and TDS & service tax was deducted therefrom. On being issued summons under section 131, none of said parties appeared. Even summons issued to Shri Anil Sharma and Ms. Mitali were received back. Thus, identity of payee of commission and genuineness of commission payment were not proved and accordingly, the Assessing Officer made addition of Rs. 48,07,109/- under section 69. Appellant submitted that activity was done with sub agents to whom commission paid for services. Appellant contended that provisions of section 69 deals with unexplained investment, hence, not applicable in instant case. In addition to it, since payment was made through cheques and TDS & service tax was deducted from payment of commission made, there was no doubt on source of expenditure, hence section 69C is also not applicable.

So far as contention of appellant that addition made by Assessing Officer is not sustainable as addition was made under section 69 instead of section 69C, it is a well settled principle of law that mentioning of wrong section does not invalidate an order if authority had the requisite jurisdiction under law and the proceedings were carried out in conformity with the intent and purpose of the law. This position has been explicitly laid out in Section 292B of the Act. Thus, quoting of wrong provision of section 69 in the assessment order by the Assessing Officer does not take away the jurisdiction of the

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authority under section 69C of the Income tax Act, 1961. Therefore, assessment order cannot be quashed on this sole ground as contended by the appellant. In support thereof, reliance may be placed on following decisions :

In Galaxy Nirmaan Pvt. Ltd. v. ACIT in ITA No. 1247/Del/2014 dt. 19-5-2017, assessee did not file return of income up to due date. The Assessing Officer issued notice under section 142(1) requiring assessee to file the return of income. The assessee did not comply this notice. Another notice under section 142(1) requiring assessee to file the return of income. The assessee did not comply this notice also. Again a fresh notice was issued under section 142(1) for filing return of income. In response to this notice, the assessee filed return of income declaring total income of Rs.2,39,16,490/-. The case was selected for scrutiny and notice under section 143(2) was issued and served. During the assessment proceeding, the Assessing Officer observed that tax liability of Rs.1,09,71,691/- on the income declared in the return of income was shown payable under section 140A. In view of non-payment of admitted tax liability under section 140A(1), the Assessing Officer asked assessee to furnish the evidence of tax paid as computed in the return of income and issued show cause that in absence of no such evidence as why the penalty might not be levied for non- payment of admitted tax. In the show cause notice, Assessing Officer mentioned the section 140A(3) for levy of penalty. In response, the assessee submitted the circumstances under which the admitted tax could not be paid including liquidity crunch. The assessee also referred to provision of section 221, which says that if there is sufficient reason for non-payment of tax under section 140A, no penalty should be levied. But, the assessee also referred the relevant section of penalty as under section 140A(3). The Assessing Officer considered the submission of the assessee, however, in absence of any supporting documentary evidence of liquidity crunch, he was not satisfied with the reasons cited by the assessee for non- payment of admitted tax. The Assessing Officer held the assessee in default for not making payment of admitted tax liability of Rs.l,09,71,691/-and levied a penalty of an amount equal to admitted tax liability quoting section 140A(3). Before Commissioner of Income-tax (Appeals), the assessee raised the ground that the order passed by the Assessing Officer was liable to be quashed as the penalty has been levied under section 140A(3), whereas it should have been levied under section 221. The CIT(A) however, held that provisions of section 292B would cover such inadvertent mistake in quoting the correct section as the appellant had participated in the proceedings without rendering any objection and accordingly, dismissed the appeal of assessee. Assessee submitted that quoting wrong section was fatal to levy of penalty and the assessee could not get opportunity to defend the penalty levied. On

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the other hand, revenue submitted that the exact nature of contravention for which the assessee was liable was duly referred in the show cause notice and there was a only wrong mention of section 140A(3) instead of section 221 and assessee was duly provided the opportunity and was heard. Further, assessee also duly complied and submitted the reasons as why the admitted tax liability could not be paid, to satisfy the Assessing Officer that the default was for good and sufficient reasons. Revenue submitted that in view of the above the penalty levied should be sustained. It was held that the Assessing Officer has issued show cause notice as to why the proceedings under section 140A(3) for imposing penalty should be considered. The perusal of show cause notice, makes it evident that the assessee was first informed the relevant provisions of section 140A(3) and then it was show caused as why it may not be deemed to be an assessee in default for non-payment of self assessment tax. Thereafter, the Assessing Officer show caused as why the penalty might not be levied for non-compliance of section 140A. This shows sufficient compliance of first proviso to the section 221. Further, it is evident that the assessee has duly replied the reasons for nonpayment of self-assessment tax amounting to Rs. 1,09,71,691/- in order to discharge its onus to show "good and sufficient cause" for non-payment of tax at the time of filing of return, as required under proviso to section 221. Thus, in substance, the assessee was duly provided opportunity of hearing and to discharge its onus to show "good and sufficient reasons", which being requirements for levy of penalty under section 221. Thus, before levy of the penalty, the assessee has been communicated exact nature of contravention, for which the assessee was liable, for penalty under section 221. It was found that the Assessing Officer has mentioned all the allegations and charges against the assessee in clear terms in the show cause notice and the assessee has also duly responded to those charges. The assessee in its submission also referred to the relevant section for levy of penalty as 140A(3). In the circumstances, the proceeding of the Assessing Officer in the impugned order, in substance and effect in conformity with provisions of section 221 of the Act and thus, proceedings in question of the Assessing Officer cannot be held as invalid.

In the decision of the Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income Tax v. Sugar Developers, reported in (2016) 72 taxmann.com 321(Guj), it was held that whenever administrative action is found to be suffering from breach of principal of natural Justice, the decision-making process should be placed at a stage where defect is detected rather than to permanently annul action of the authority. In case of P.K. Palanisamy Vs. N Arumugham and another in Civil Appeal No. 2099, arising out of SLP (Civil) No. 2308 of 2009, the Hon'ble Supreme Court observed that it is a well settled principle

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of law that mentioning of wrong provision or non-mentioning of provision does not invalidate an order if the court and/or statutory authority had the requisites jurisdiction therefore.

In Ram Sunder Ram v. Union of India &Ors. (2007) 9 SCALE 197, it was held that it appears that the competent authority has wrongly quoted section 20 in the order of discharge whereas, in fact, the order of discharge has to be read having been passed under Section 22 of the Army Act. It is well settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law. Thus, quoting of wrong provision of section 20 in the order of discharge of the appellant by the competent authority does not take away the jurisdiction of the authority under section 22 of the Army Act. Therefore, the order of discharge of the appellant from the army service cannot be vitiated on this sole ground as contended by the appellant.

In N. Mani v. Sangeetha Theatres & 0rs.(2004) 12 SCC 278, it was held that it is well settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law.

On merits, it can be said that the use of words 'any expenditure' in section 69C indicates that the said section is very widely worded and the Assessing Officer is not precluded from making enquiries about the same if he is having doubt on source of such expenditure. Mere fact that the payment was made by account payee cheques did not prove that the transaction was genuine. It is a settled principle of law that the parties who make claim, burden lies upon such parties to prove and substantiate its claim. In the instant case, admittedly, appellant-company claimed commission expenses paid to various parties. The Assessing Officer wanted to verify the genuineness of transactions and therefore, asked the appellant to produce payee of commission, but appellant failed to do so. Thereafter, Assessing authority issued a summon under section 131 but no one appeared in pursuance thereof. Thus, in instant case, the Assessing Officer had given sufficient opportunity to appellant to produce those parties and prove genuineness of transactions. However, despite efforts by Assessing Officer, appellant failed to produce those parties. Thus, the appellant failed to prove the genuineness of the commission payment and identity of various parties to whom commission was purportedly paid by appellant. In

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view of above facts and circumstances of case, disallowance of commission expenses amounting to Rs. 48,07,109/- made by the Assessing Officer is upheld.

In support thereof, reliance is placed on following decision of Jurisdictional High Court:

In KahanUdyogv. Commissioner of Income-tax (2013) 38 taxmann.com 261 (Delhi), revenue found and seized various papers of unaccounted expenditure of inventories at business premises of assessee. These expenses were not recorded in books of account. The Assessing Officer made additions of Rs. 7.63 lakhs under section 69C and taxed it as unaccounted expenditure. In appeal, the Commissioner (Appeals) and the Tribunal confirmed the addition except giving relief to the extent of Rs. 1,50,000. It was held that the appellant has not furnished details or explained nature and purpose behind the ’expenditure1. Some expenses have been incurred towards kabadi, etc. Names of persons do find mention but the nature of activities undertaken, why and for what purpose the payment was made, are not known. It was for the appellant to produce relevant material or produce the said person to justify the payment and show and establish that the expense was not personal in nature but related to or was pertaining to unaccounted business. No one mentioned in the list had appeared before the Assessing Officer to testify and explain the nature and character of the said payments. The appellant has accepted that these transactions were not recorded in the books. The appellant ran and took the risk when he entered into these transactions and, therefore, should face the consequences prescribed and mandated under section 69C. Thus, order of the Tribunal was upheld.

Lastly, the decision of Honble Supreme Court in case of Commissioner of Income-tax v. Orissa Corpn, (P.) Ltd. (1986) 25 Taxman 80F (SC) relied upon by appellant does not support appellant's case as Orissa Corpn. Case [supra) was related to section 68, whereas, instant case relates to addition on account unexplained expenditure under section 69C of the Income-tax Act, 1961.

The decision of Jurisdictional Delhi High Court pronounced in Commissioner of Income-tax v. Radhika Creation (2011) 10 taxmann.com 138 (Delhi), will not support case of appellant as in that case addition was made merely on the basis that said expenditure was not authenticated by vouchers, whereas, in instant case, genuineness of commission payment itself was in doubt and appellant could not prove it by producing payees of commission expenses.

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6.4 We have perused the finding of the lower authorities. The assessee was required to justify the payment of commission expenses. The Assessing Officer pointed out discrepancy in the information filed by the assessee on behalf of those persons and asked the assessee to produce those parties for verification of the services rendered by them for which they were given commission by the assessee. We find that no such details of the property, which has been sold through those persons, have been filed by the assessee to justify the services rendered by them despite due opportunity provided to the assessee. The assessee failed to discharge its obligation, and therefore, on such circumstances, the learned CIT(A) is justified in sustaining the disallowance. We do not find any infirmity in the order of the learned CIT(A) on the issue in dispute. Accordingly, we uphold the same. Grounds of appeal of the assessee are accordingly dismissed. 7. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 11th March, 2021

Sd/- Sd/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 11th March, 2021. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi