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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal has been preferred before us by the assessee against the order dated 29.07.2016 passed by the Commissioner of Income Tax(Appeals)-7, Ahmedabad under section 143(3) of the Income Tax Act, 1961 arising out of the order dated 23.11.2015 passed by the Assistant Commissioner of Income Tax, Circle-7(2), Ahmedabad for the Assessment Year 2013-14 with the following grounds :
“1.1 The order passed u/s 250 on 29.07.2016 for A.Y. 2013-14 by CIT(A)-7, Abad confirming the disallowance of commission exp. of Rs.12,66,325/- is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant.
- 2 - ITA No.3492/Ahd/2016 M/s. Mahendra Chemicals vs. ACIT. Asst.Year – 2013-14 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in confirming the disallowance of commission exp. of Rs. 12,66,325/-. Though, the appellant had produced necessary material and the parties were also rendering services as employees of the firm and such commission was paid in earlier year.
2.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grievously erred in confirming the disallowance of commission exp. of Rs. 12,66,325/-.
It is therefore prayed that the disallowance of Rs. 12,66,325/- made by the AO should be deleted.”
Assessee engaged in the business of manufacturing and sale of bulk drugs filed its return on 08.10.2013 declaring total income of Rs.42,67,983/- for the assessment year 2013-14. The case was selected for scrutiny on which notice u/s 143(2) of the Act was issued on 04.09.2014, it was served upon the assessee on 11.09.2014. On account of change of incumbent notice u/s 142(1) r.w.s. 129 of the Act was issued along with detailed questionnaire upon the assessee. Upon which the assessee submitted that the books of accounts and other details too. On verification of profit and loss accounts it was found that the assessee firm debited commission expenses amounting to Rs.22,65,634/- for the A.Y. 2012-13 as against the commission expenses of Rs.20,73,417/- for the A.Y. 2012-13. The commission expense therefore has increased from 20.73 lakhs to 22.65 lakhs while verifying the genuineness of the assessee’s claim. The assessee was asked to furnish details with supporting evidence as well as confirmation for payment of commission on sales particularly made to Shri Dipak J Amin and Shri Jignesh J. Patel at higher rate to the persons covered u/s 40A(2)(b) of the Act.
The ld AO was not satisfied to the reply given by the assessee and ultimately the claim towards payment of commission made to the said two parties found not correct, genuine and neither acceptable, therefore rejected. Amount of Rs.12,66,325/- out of the
- 3 - ITA No.3492/Ahd/2016 M/s. Mahendra Chemicals vs. ACIT. Asst.Year – 2013-14 commission payment has been disallowed and added back to the total income of the assessee.
In appeal, the ld CIT(A) confirmed the order passed by the Ld AO and hence the instant appeal before us.
At the time of hearing of the matter, the ld Representative of the assessee submitted before us that in the previous year the identical claim was ultimately allowed by the Co-ordinate Bench of this Tribunal in assessee’s own case being ITA No. 2516/Ahd/2016 for Asst. Year 2012-13. Therefore, the claim of the assessee against which the appeal has been preferred before us is squarely covered in favour of the assessee.
The representative of the department also not raised any objection to the submission made by the ld Representative of the assessee. A copy of the order dated 30.08.2018 has also been handed over to us by assessee’s Representative.
We have heard the Respective parties and perused the relevant documents available on records. We find from the orders passed by the coordinate bench of this learned Tribunal wherein, the claim of the assessee has been allowed. The relevant portion of the order is reproduced herein below. “4. The brief fact of the case is that return of income declaring income of Rs. 17,19,830/- was filed on 19th Sep, 2012. Subsequently, the case was selected under scrutiny u/s. 143(2) of the act on 6th August, 2013. The assessee firm is engaged in the business of manufacturing of bulk drugs. During the course of assessment proceedings, the assessing officer noticed that assessee has debited commission expenses amounting to Rs. 20,73,417/- for the year under consideration. The assessing officer observed that during the year under consideration the gross turnover of the assessee has been reduced to Rs. 629.82 lacs compared to gross turnover of 863.12 lacs to preceding year. He has further observed that commission expenses has been increased from Rs. 16.64 lacs to Rs.
- 4 - ITA No.3492/Ahd/2016 M/s. Mahendra Chemicals vs. ACIT. Asst.Year – 2013-14 20.73 lacs in spite of decrease in the turnover of the asssessee. Therefore, the assessing officer has asked the assesse to justify the increase in payment of commission as the gross turnover has been reduced during the year under consideration. The assessee explained the nature of commission paid and furnished supporting information. On perusal of the details filed, the assessing officer noticed that commission has been paid to the following two persons:-
Sr. No Name Sales in Kg. Commission Paid Commission paid @
1 Dipak J. Amin 29975.00 752135 Rs.25 per kg.
2 Jignesh J. Patel 26705.00 797900 Rs.30perkg.
Total 15,50,035/-
The assessing officer found that the above two persons were on the payroll of assessee and were covered u/s. 40(A)(2)(b) of the act. The assesse explained that M/s. Dipak J. Amin has been looking after production and environment treatment plant and also participated in the exhibitions at various places and brought new customer for the company. It was explained that Shri Jignesh Patel has been looking after the production and packaging department. He has also carried out marketing work and developed new customers. The assessing officer has not accepted the explanation of the assessee. He was of the view that both of them were squarely covered u/s.40A(2)(b) of the act and the assessee has failed to prove why these persons paid commission over and above the salary. Consequently, the assessing officer has disallowed the entire amount of commission Rs. 15,50,035/- .
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee by observing as under:- “3.2 I have considered the assessment order and the submissions made by the appellant. The AO after a detailed discussion in the assessment order held that the payment of commission to Shri Dipak Amin and Shri Jignesh Patel was excessive and not justifiable. It was noted by him that both these persons were also covered u/s. 40A(2)(b) of the I.T. Act. The appellant on the other hand has stated that the commission was paid as per earlier years
- 5 - ITA No.3492/Ahd/2016 M/s. Mahendra Chemicals vs. ACIT. Asst.Year – 2013-14 and that all debit notes in this regard had been filed by it. After going through the submission made by the appellant and the details filed, I find that there is no written agreement in respect of the commission to be paid to these two persons who are covered u/s. 40A(2)(b) of the Act. It is also seen that the rate of commission of Rs.25/- per kg and Rs.30/-per kg was fixed only in financial year i.e. 2010-11 i.e. just one year before the year under consideration and not "long back" as claimed by the appellant. It is also true that the net profit and the gross sales have decreased substantially during the year under consideration. The appellant has not been able to give instances and details of the orders procured by Shri Dipak Amin and Shri Jignesh Patel to justify the commission of Rs.15,50,035/- paid to them. Moreover, both these persons were employees on the payroll of the appellant firm and have also been paid huge salary on account of their regular work. In view of all these facts, I am inclined to agree with the AO that the payment of commission was excessive and the reasonableness of the same could not be justified by the appellant. The disallowance of commission expenses of Rs.15,50,035/- made by the Assessing Officer is confirmed. Grounds of appeal Nos. 5.1 & 5.2 are dismissed.” 6. During the course of appellate proceedings before us, the ld. counsel has furnished copies of ledger account of commission expenses and details of commission paid during the year under consideration. He has also submitted copy of assessment order u/s. 143(3) passed in the case of assesseee itself for the assessment year 2011-12 stating that no such disallowance of commission expenses were made by the assessing officer. He has also furnished paper book containing details of submission made before assessing officer and ld. CIT(A) during the course of assessment proceedings and appellate proceedings. On the other hand, the ld. departmental representative has supported the order of CIT(A).
We have heard both the sides and perused the material on record. It is noticed that the assessing officer has disallowed the entire commission expenses of Rs. 15,50,035/- u/s. 40(A)(2)(b) of the act. The assessee has substantiated the payment of commission with supporting materials, debit notes etc along with the details of services rendered for which commission was paid. It is also undisputed facts that these two persons were also paid commission along with salary in the past years. The provision of section 40(A)(2)(b) provide for disallowance of only the excessive or unreasonable expenditure and not the entire expenditure. In the light of the above facts and circumstances, we consider that the assessing officer has failed to disprove supporting material furnished by the assessee in support of the aforesaid commission payment. The assessing officer has also failed to substantiate with relevant material that commission payment made by the assessee is excessive or unreasonable having regard to the fair
- 6 - ITA No.3492/Ahd/2016 M/s. Mahendra Chemicals vs. ACIT. Asst.Year – 2013-14 market value of the goods, services or facilities for which the payment has been made. We consider that the decision of the assessing officer to disallow the entire commission expenses u/s. 40A(2)(b) of the act without substantiating and restricting the disallowance to the unreasonable and excess payment of expenses is not correct. In view of the above facts and circumstances we are not inclined with the decision of the ld. CIT(A), therefore, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed. 8. We do not hesitate to mention that the issue relying to the above matter also pertains to the commission paid to the same parties as has been paid in the case in hand. We therefore respectfully following the judgment passed by the coordinate bench allow the appeal preferred by the assessee by deleting the addition made by the authorities below.
In the result appeal of the assessee is allowed. This Order pronounced in Open Court on 12/10/2018
Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 12/10/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-7, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad