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Income Tax Appellate Tribunal, BANGALORE BENCHES “SMC-C”, BANGALORE
Before: Shri George George K
O R D E R This appeal at the instance of the assessee is directed against CIT(A)’s order dated 21.11.2019. The relevant assessment year is 2016-2017.
The solitary issue raised is whether the CIT(A) is justified in confirming the addition made by the Assessing Officer, disallowing the commission expenses amounting to Rs.36,05,862 paid to other referral agents.
The brief facts of the case are as follow: The assessee is an individual. He is engaged in the business of a direct selling agent (DSA) for various Financial Institutions / Banks in the name and style of SSBS Financial Corp. The assessee gets various loans processed for his customers and earns commission from concerned financial institutions / banks. It is stated that the financial institutions / banks give commission based on slab system (higher number
Sri.Ranganna Ramanath. of loans higher the commission). Therefore, the assessee started pooling of cases with other DSAs to enter into higher slab and get better commission payout. In these processes, the assessee had to pay commission to other DSAs for cases being referred by them, from the total commission earned by him. While computing the income, the assessee claimed the amount of commission paid to other DSAs as direct expenses. The commission paid to various DSAs are as follows:-
(i) M/s.ACTIF Solutions Rs. 8,26,819 (ii) Mr.Ashwin V.S. Rs. 9,81,953 (iii) Mr.Manohar B. Rs.17,97,090 ----------------- Total Rs.36,05,862 ===========
The assessment was taken up for scrutiny and order u/s 143(3) of the I.T.Act was passed on 26.12.2018. In the said assessment order, the A.O. disallowed a sum of Rs.36,05,862 being commission paid by the assessee to other DSAs. The A.O. disallowed the amount for the reason that the assessee has failed to furnish necessary evidence to prove the credentials of the sub-agents.
Aggrieved by the order of the assessment, the assessee preferred an appeal to the first appellate authority. In support of assessee’s claim for deduction of commission expenses, the following additional documents were furnished before the CIT(A):-
Sri.Ranganna Ramanath. (i) PAN and confirmation letter from DSA M/s.Rashmi (Prop: ACTIF Solutions) acknowledging commission received from the assessee.
(ii) Bank statement of DSA, Mr.Manohar B, evidencing payments received by him from the assessee.
The assessee submitted that he could only collate the above information and other DSAs have not provided with any other details. The CIT(A)did not admit the additional documents on the ground that the assessee has not formally filed any request for admission of additional evidence and the assessee has not given any reason why the same could not be produced in proceedings before the A.O. Consequently, the disallowance of commission paid to other referral DSAs was confirmed by the CIT(A).
Aggrieved by the order of the CIT(A), the assessee has filed this appeal before the Tribunal. The assessee has filed a petition under Rule 29 of the ITAT Rules for admission of additional evidence. It was stated by the learned AR that in proceedings before the Assessing Officer a very short time was given to file the relevant details. It was stated that the details with regard to the commission payment was sought by the A.O. only on 10.12.2018, i.e. at the fag end of the limitation period and the assessment order was completed on 26.12.2018. It was submitted that the details were to be collected from third parties and assessee was not in control of the same. Therefore, the assessee could not furnish the details sought within a short span of time before the A.O. It was further contended that some
Sri.Ranganna Ramanath. of the documents in support of the claim were furnished to the CIT(A) and the same was rejected primarily for the reason that there was no formal petition for admission of those documents. The learned Counsel for the assessee submitted that though the assessee had not filed a petition for admission of additional evidence before the CIT(A), in Form No.35, the assessee had explicitly mentioned the fact that he has filed additional evidence in terms of Rule 46A of the I.T. Rules, 1962 and also mentioned the nature of those documents, which is sought to be admitted before the CIT(A). It was stated that the assessee was not conversant and well informed of the tax laws and was completely dependent on the Authorised Representative for handling the appeal matters. The Authorised Representative having not filed the petition, it was submitted that the assessee should not suffer any injustice and the CIT(A) has erred in concluding the proceedings without giving an opportunity to the assessee to rectify the defect, if any. The learned Counsel submits that the procedural law should not be strictly construed and in the interest of justice and equity, the additional documents now furnished before the Tribunal should be admitted and taken on record for a proper adjudication of the case. In this context, the learned AR relied on the CBDT Circular No.14 of 1955 dated 11.04.1955 and other judicial pronouncements for the proposition that the additional documents which goes to the root of the issue and for advancement of substantial cause, ought to be admitted and taken on record for a proper adjudication of the case.
Sri.Ranganna Ramanath. 8. The learned Standing Counsel supported the orders passed by the Income Tax Authorities.
I have heard rival submissions and perused the material on record. Before the Assessing Officer the details with regard to the referral commission were called for, for the first time only on 10.12.2018. Since the details called for were not in the control of the assessee, the assessee could not furnish the same before the assessment order being passed on 26.12.2018. Before the CIT(A) certain additional documents were filed, which were not accepted / taken on record by the CIT(A) primarily for the reason that the assessee has not filed any formal petition for admission of additional evidence. The assessee had appointed a new Counsel before the Tribunal and the Counsel highlighted the sufficiency of documentary evidence needed to be filed to support the claim of deduction of commission expenses. Consequently, the assessee made fresh efforts and collected invoices from DSAs, which also contained details like PAN, address etc. The assessee also furnished additional evidence containing the details of the names of the person, who was referred by these DSAs and the amount of loan sanctioned to those individuals. The assessee has also furnished his bank statements which indicate payments are made through banking channels for these commission expenditures. The documents which are now sought to be admitted as additional evidence are as follows:-
(i) Copies of the invoices issued by DSAs Ashwin V.S. and Manohar B. The invoices also contain the details of referrals made by them, their PAN and address.
Sri.Ranganna Ramanath. (ii) Copies of ledger accounts of DSAs in the books of the assessee. (iii) Copy of bank statement of the assessee highlighting the entries of payment made by the assessee to DSAs. (iv) Documents furnished before CIT(A) – PAN and confirmation letter from DSA M/s.Rashmi (Prop : ACTIF Solutions) and Bank statement of DSA, Mr.Manohar B.
9.1 The CBDT in its Circular No.14 of 1955 dated 11.04.1955, has stated the officers of the department must not take advantage of ignorance of the assessee about his rights and it is their duty to assist the tax payer in every reasonable way particularly in the matter of claiming and securing reliefs. In the instant case, the CIT(A) has rejected the additional documents filed by the assessee on the ground that a formal petition was not filed. Following the Board Circular, the CIT(A) should have given an opportunity to the assessee to file the formal petition. The Hon’ble Supreme court in the case of Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, has held that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Based on the above
Sri.Ranganna Ramanath. principle enunciated by the Hon’ble Apex Court, lapse in filing formal petition before the CIT(A) ought to have been condoned.
9.2 The Hon’ble Delhi High Court in the case of CIT v. Text Hundred India (P.) Ltd. reported in 351 ITR 57 (Del.), has held as under:
“In view of several decisions, a discretion lies with the Tribunal to admit additional evidence in the interest of justice, once the Tribunal affirms opinion that doing so would be necessary for proper adjudication of the matter and this can be done even when application is filed by one of parties to appeal and it need not to be a suo motu action of the Tribunal. The aforesaid rule is made for enabling the Tribunal to admit the additional evidence in its discretion, if the Tribunal holds the view that such an additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmaid for justice and should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that said evidence would have material bearing on the issue which needed to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect.
9.3 The Hon’ble High Court of Punjab and Haryana in the case of Principal CIT v. Daljit Singh Sra [2017] 80 taxmann.com 271 (Punjab & Haryana) has held that although the assessee did not co-operate with the Assessing Officer in completion of assessment proceedings but for delivery of justice, the real income of assessee has to be assessed and that too after hearing the assessee. The Court upheld the decision of Tribunal in directing the lower authorities to admit additional evidence and decide the case afresh after affording reasonable opportunity of being heard to the assessee.
9.4 The additional evidences now sought to be admitted goes to the root of the issue raised in this appeal. Therefore, for a proper adjudication of the case and for substantial cause, I admit the above additional evidence and the same is taken on record in light of aforesaid judicial pronouncement. Since I have admitted the additional evidence, the matter needs to be restored to the Assessing Officer de novo consideration. The A.O. shall take into consideration the additional evidences now admitted by the Tribunal. The A.O. shall afford a reasonable opportunity of hearing to the assessee and shall pass an order in accordance with law. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.