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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri Sanjay Garg & Shri Girish Agrawal]
Per Girish Agrawal, Accountant Member :
Both these appeals preferred by the assessee against the separate orders of Ld. CIT(A)-6, Kolkata dated 05.05.2016 for AY 2010-11 vide appeal No. 448/CIT(A)- 6/Kol/13-14 and dated 06.05.2016 for AY 2011-12 vide appeal No. 393/CIT(A)- 6/Kol/14-15 against the assessment orders passed by ITO, Ward-55(1), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) dated 28.03.2013 and 27.03.2014 respectively.
The instant appeals were disposed of by Coordinate bench of this Tribunal for 2. non-prosecution vide order dated 23.08.2017. The assessee preferred Misc. Application vide MA Nos. 29 & 30/Kol/2018 which were allowed and the appeals reinstituted vide order dated 18.05.2018. After reinstitution, these appeals were again dismissed for non-prosecution vide order dated 12.12.2018. The assessee again preferred Misc. Applications which were allowed vide order dated 25.10.2019 (second reinstitution). After the second reinstitution, again none appeared before us on behalf of the assessee. We note that these appeals have been fixed for more than twenty times for hearing after the second reinstitution vide order dated 25.10.2019.
-2027/Kol/2016 Subir Kumar Roy, AYs 2010-11 & 2011-12 3. With the assistance of Sr. DR Smt. Ranu Biswas and on the strength of the findings recorded in the order of Ld. CIT(A) and the Ld. AO, we are inclined to take up the matter for adjudication ex parte qua the assessee as the appeals are pending since year 2016.
Briefly, there are two issues involved – (i) relating to disallowance of Rs.13,18,500/- in respect of commission expenses claimed by the assessee and (ii) relating to disallowance of Rs.4,88,810/- being 70% of the expenses in respect of carriage outward. These two issues are common in both the appeals except for change in quantum. Further, there is an additional issue of disallowance of Rs.4,57,283/- towards bogus purchases vide ground no. ‘D’ in Ay 2011- 12. For the sake of brevity and convenience, both the appeals are disposed of with the common order as hereunder.
Brief facts as culled out from the records are that the assessee is a wholesaler of medicines, who runs a proprietorship firm under the name and style of M/s. Roy Agency. For the assessment year 2010-11, return was filed by declaring an income of Rs.6,01,916/-. Assessment was completed u/s. 143(3) of the Act at a total income of Rs.24,78,963/-. The assessee had claimed total commission payment of Rs.13,18,500/- to ten persons for which the Ld. AO found on his examination that the assessee could have paid maximum commission of Rs.5,88,000/-, the balance being excessive and unsustainable. Further, the Ld. AO found that these expenses were inadmissible u/s. 40(a)(ia) of the Act as no tax was deducted at source on the payment of this commission. In respect of the second addition towards carriage outward, Ld. AO made an ad-hoc disallowance by adopting 70% of the total expenses claimed for the purpose of disallowance. In respect of the bogus purchases of Rs.4,57,283/- for AY 2011-12, Ld. AO noted that assessee has purchased medicines mainly from the manufacturers or their C&F agents and from whom he called their statement of accounts. From these statements, Ld. AO noted that there were differences in the figures of purchases as claimed by the assessee and as filed by the suppliers. For the differences noted in these figures, the Ld. AO proceeded to make the addition by holding them as bogus purchases. Aggrieved, the assessee went in appeal before the -2027/Kol/2016 Subir Kumar Roy, AYs 2010-11 & 2011-12 Ld. CIT(A), who gave part relief by placing reliance on the order of the then Ld. CIT(A) in assessee’s own case for AY 2006-07 in Appeal No. 610/CIT(A)- XXXVI/Kol/2011-12 dated 16/11/2012.
In the course of hearing, Ld. SR. DR took the bench through the orders of Ld. AO and Ld. CIT(A) and placed reliance on the findings given by the ld. CIT(A).
We have heard the matter, perused the material available on record and gone through the orders of the authorities below and record our findings as under:
7.1 In respect of first issue relating to disallowance in respect of commission for Rs.13,88,500/-, it is noted that commission was paid to ten individuals who procured orders and medicines from the retail medicine shops for the assessee, which was paid on weekly basis. The said commission has been paid to ten different persons @ 1% or lesser on the orders procured by them. For this, ten persons i.e. the recipients of commission were produced by the assessee before the Ld. AO who were examined and their depositions were duly recorded. In the course of assessment proceedings as noted in the impugned assessment order, the assessee had claimed in his submissions that the commission debited in the P&L Account was actually incentive paid in lieu of salary. It was due to use of wrong head/wrong nomenclature that the issue of TDS has arisen which is not applicable in the instant case. Thus, the payments made to these ten persons was in the nature of salary and not commission. In the appellate proceedings before the Ld. CIT(A), the assessee had made submission that on similar set of facts, 50% of disallowance of commission was made in the assessee’s own case in AY 2006-07 in Appeal No. 610/CIT(A)-XXXVI/Kol/2011-12 dated 16/11/2012 by the then Ld. CIT(A)-XXXVI, Kolkata. We find that Ld. CIT(A) has confirmed the disallowance of Rs.13,88,500/- made by the AO u/s. 40(a)(ia) of the Act. We note that the issue has already been dealt in appeal on similar set of facts in assessee’s own case in AY 2006-07 by deleting the disallowance and restricting it to 50% of the expenses claimed. Ld. CIT(A) did not pay heed to this finding of AY 2006-07 relating to disallowance of commission but relied on the same order of Ld. CIT(A) for AY 2006- 07 while dealing with the other issue of disallowance of carriage outward expenses. We do not find any justification in placing reliance on one issue and not on the other -2027/Kol/2016 Subir Kumar Roy, AYs 2010-11 & 2011-12 issue by the Ld. CIT(A) while dealing with identical issues. Considering this, we restrict the disallowance of commission in the present case before us to 50% of the claim of Rs.13,18,500/- and delete the balance. The assessee gets a relief accordingly.
7.2. In respect of second issue on disallowance of 70% made by Ld. AO on expenses towards carriage outward for the reasons that proper supporting evidence for the expenses was not produced, we note that this issue was also dealt with by the then Ld. CIT(A)-XXXIV, Kolkata in the order (supra) in assessee’s own case wherein the disallowance was restricted to 50% of the carriage outward expenses as against 70%. Following the same, we give part relief to the assessee on this issue by restricting the disallowance to 50% instead of 70% made by the Ld. AO. The assessee gets part relief accordingly.
7.3. Similar findings will apply in respect of AY 2011- 12 on the above two issues.
7.4. On the third issue in respect of bogus purchases of Rs.4,57,283/- vide ground no. (D) for AY 2011-12, we note that purchases were made by the assessee from three different parties namely, Alkem Laboratories, Wockhardt Ltd. (CIT Road) and Wockhardt Ltd. (Howrah). The AO had issued summons u/s. 133(6) of the Act to all the three parties who had filed their replies and furnished their statements in respect of purchases made by the assessee from them. Ld. AO tabulated the details in respect of purchases from these parties vis-à-vis the purchases as reported by the assessee. From the table furnished by the Ld. AO in his order, we note that the Ld. AO has figured out the differences on account of purchases as claimed by the assessee and as reported by the three parties in respect of opening balances in the statement furnished by the three parties. The tables from the order of the Ld. AO are reproduced hereunder for ease of reference:- -2027/Kol/2016 Subir Kumar Roy, AYs 2010-11 & 2011-12 7.5 We fail to understand how the opening balance in respect of purchases made by the assessee can lead to disallowance from the purchases of the current year since the purchases for the current year from the three parties by the assessee are in reconciliation and have no differences as tabulated by the Ld. AO. Ld. CIT(A) confirmed this addition by observing that no reconciliation was furnished in this respect. However, we note from the tables reproduced (supra) that there is no differences in the purchases made during the year. The difference is only on account of opening balance in the details as furnished by the three parties. We do not find any merit and rationality in making such a disallowance by treating the opening balance as bogus purchases from the purchases of the current year. The opening balance would -2027/Kol/2016 Subir Kumar Roy, AYs 2010-11 & 2011-12 always relate to the purchases which were made in the preceding years and not the year under consideration and, therefore, there cannot be any disallowance on account of the opening balance from the current year’s purchases. In terms of this observation and finding, we are inclined to delete the addition to Rs.4,57,283/- made by the Ld. AO and confirmed by the Ld. CIT(A) towards bogus purchases. The assessee accordingly gets the relief.
In the result, both the appeals of assessee are partly allowed. Order is pronounced in the open court on 18th May, 2022.