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Income Tax Appellate Tribunal, “G” Bench, Mumbai
PER RAVISH SOOD, JM
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-3, Mumbai, dated 31.03.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 07.03.2014. The revenue has assailed the impugned order on the following effective ground of appeal
before us: “1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of commission paid amounting to Rs.3,03,68,212/- ignoring the fact that out of the said commission claimed, an amount of Rs.2,01,65,945/- was paid only to M/s Rajrani Steel casting P. Ltd. and no details of the services rendered had been demonstrated by the assessee.”
2. Briefly stated, the assessee company which is engaged in the business of an indenting agent in news prints had e-filed its return of income for A.Y. 2011-12 on 29.09.2011, declaring its total income at Rs.39,53,670/-. The return of income filed by the assessee was processed as DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd. such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. The A.O while framing the assessment observed that the assessee had failed to furnish the requisite documentary evidence to substantiate the actual commission receipts of its business of an indenting agent. Accordingly, it was observed by the A.O that the commission income as well as the profit margin on purchases had not been fully and truly disclosed by the assessee. Observing, that the book results of the assessee were not reliable, the A.O rejected the same under Sec.145 of the Act. As the assessee had not supported its income from indenting commission, the A.O estimated the same at Rs.9 crores. In the backdrop of the fact that the assessee had disclosed commission income of Rs.6,71,74,165/-, the A.O made an addition towards suppressed indenting commission of Rs.2,28,25,835/-. Also, it was observed by the A.O that the assessee had claimed to have paid commission/service charges aggregating to Rs.3,03,68,212/-. On the basis of his observations recorded in the assessment order, the A.O was of the view that the assessee had failed to substantiate his aforesaid claim of expenditure. It was noticed by the A.O, that neither the assessee had furnished the details as regards the nature of services which were rendered by the payees, nor placed on record their respective confirmations. On the basis of his aforesaid observations the A.O disallowed the commission/service charges of Rs.3,03,68,212/- that were claimed by the assessee to have been paid in the course of its business during the year under consideration. After inter alia making the aforesaid additions/disallowances, the A.O assessed the total income of the assessee company at Rs.5,73,93,810/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was observed by the CIT(A) that the A.O had rejected the books of accounts of the assessee company under Sec.145 of the Act, for two reasons, viz. (i) that, the net commission credited in the books of accounts of the assessee did not tally with that shown in Form No. 26AS; (ii) that, though the assessee was a del-credere agent, however, it had shown creditors and debtors in its books of accounts. Further, it was observed by the CIT(A) that the A.O had also doubted the reliability of the books of accounts, for the reason, that the aggregate of the credits in its bank accounts had exceeded the gross receipts of the assessee. On the basis of the details furnished by the assessee, it was observed by the CIT(A) that the assessee had successfully DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd.
demonstrated that there was no difference in the net commission credited in its books of accounts as against that reflected in Form No. 26AS. As regards the observation of the A.O that the assessee despite being a del-credere agent had reflected debtors and creditors in its books of accounts, it was observed by the CIT(A) that the same were bound to exist on account of the nature of the business of the assessee company. Lastly, as regards the observation of the A.O that the amount credited in the bank account of the assessee company had exceeded its gross receipts, the CIT(A) was of the view that as all the transactions including inter bank account transfers were routed through the bank accounts, therefore, no adverse inferences on the said count was liable to be drawn in the hands of the assessee. In the backdrop of his aforesaid deliberations, the CIT(A) was of the view that in the absence of any justifiable reason the books of account of the assessee could not have been rejected under Sec. 145 of the Act. Accordingly, on the basis of his aforesaid observations the CIT(A) vacated the addition of the suppressed indenting commission of Rs.2,28,25,835/- made by the A.O. As regards the disallowance of the commission expenses of Rs.3,03,68,212/-, it was observed by the CIT(A) that the assessee had in the course of the assessment proceedings duly substantiated the same by placing on record supporting documentary evidence. Rebutting the observation of the A.O that the assessee had failed to justify its aforesaid claim of expense on the basis of supporting documentary evidence, it was submitted by the assessee that the requisite details were filed in the course of the assessment proceedings, vide letter dated 20.11.2013. It was the claim of the assessee that complete particulars of commission/supervision charges along with the names, addresses, amounts, PAN, confirmations, and also the bank statements of the payees were furnished in the course of the assessment proceedings. Apart from that, it was the claim of the assessee that the nature of commission/service charges that were paid during the year, had remained the same as against those which were paid in the preceding years and had been accepted by the revenue. Also, the assessee submitted before the CIT(A) that considering the nature of its business as that of an indenting agent for news prints, tremendous amount of follow-up with production and marketing departments of mills, transporters and every centre of the publisher was involved. Accordingly, it was the claim of the assessee that the role of the intermediaries to follow-up the work with the mills and the publishers was indispensable, failing which it was impossible to successfully conduct the business.
DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd.
After deliberating on the aforesaid submissions of the assessee, the CIT(A) was of the view that considering the nature of the business of the assessee, it could safely be concluded that the role of the intermediaries who were engaged mainly in the follow-up work with the mills and publishers was very critical to ensure timely delivery of material to the customers, which formed the essence of its business. Also, in the course of the appellate proceedings the assessee in order to substantiate its claim of commission/service charges furnished with the CIT(A) details of commission paid, comparative chart of commission expenses, list of sundry debtors and creditors, confirmations, and also the copies of their bank statements. The CIT(A) forwarded the said details to the A.O and called for his report. After considering the remand report of the A.O and the counter comments of the assessee, the CIT(A) was of the view that the assessee had duly substantiated its claim of payment of commission/service charges. It was observed by the CIT(A) that details as regards the commission/service charges paid by the assessee viz. name and addresses of the payees, TDS, confirmations, PAN Numbers etc. were filed with the A.O in the course of the assessment proceedings, as well as before him. Apart from that, the CIT(A) was of the view that in case the A.O had any doubts as regards the genuineness of the payments made by the assessee on account of commission to the aforementioned parties, then he ought to have verified the same by invoking the powers that were vested with him under Sec. 131 of the Act. Also, it was observed by the CIT(A), that the amounts claimed by the assessee to have been paid to the parties towards commission charges were duly routed through the bank statements, which inspired substantial confidence as regards the authenticity of the aforesaid claim of the assessee. Accordingly, on the basis of his aforesaid deliberations the CIT(A) not finding favour with the view taken by the A.O, therein vacated the disallowance of commission/service charges of Rs.3,03,68,212/-.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As observed by us hereinabove, the revenue had only assailed the order of the CIT(A) to the extent he had vacated the disallowance of commission/service charges of Rs.3,03,68,212/-, which were claimed by the assessee to have been paid in the normal course of its business during the year under consideration. On a perusal of the records, we find that the assessee during the year had claimed to have paid commission/service charges aggregating to Rs.3,03,68,212/-, as under:
DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd. Supervision charges HIGHLAND INDUSTRIES LTD. 906618 NIMBUS INDUSTRIES LTD. 906618 RAJRANI STEEL CASTING P. LTD. 20165945 21979181 SERVICE CHARGES A P HOLDING P LTD. 8389031 TOTAL 30368212 Further, the A.O on a comparative analysis of the aforesaid claim of expenses raised by the assessee during the year under consideration, as against that for the immediately preceding year i.e A.Y. 2010-11, had observed, that the same were substantially highly pitched, as under:
31.03.2011 31.03.2010 GROSS COMMISSION 6,71,74,165 (4,73,49,964) COMMISSION/SERVICE 3,03,68,212 1,36,30,477 CHARGES PAID % OF COMMISSION 45.20% 28.70% EXPENSES The ld. Departmental Representative (for short „D.R‟) took us through the facts of the case. It was submitted by the ld. D.R, that as the assessee in the course of the assessment proceedings had failed to substantiate the authenticity of its aforesaid claim of commission/service charges, therefore, the A.O had rightly disallowed the same. It was averred by the ld. D.R that the CIT(A) was in error in dislodging the well reasoned order of the A.O, and resultantly allowing the aforesaid claim of deduction of the assessee.
Per contra, the ld. Authorized Representative (for short „A.R‟) for the assessee relied on the order of the CIT(A). It was submitted by the ld. A.R, that complete details in support of the genuineness of the aforesaid claim of commission/service charges aggregating to Rs. 3,03,68,212/- were filed by the assessee before the lower authorities. In order to drive home his aforesaid claim the ld. A.R took us through the observations of the CIT(A), wherein the latter had observed that the assessee had furnished details of the parties to whom commission was paid alongwith their addresses, PAN, confirmations, and also the copies of their respective bank statements wherein the aforesaid payments stood reflected. The ld. A.R took us through a letter dated 20.11.2013 that was addressed by the assessee to the A.O, wherein the assessee had elaborated at length the nature of services that were rendered by the agents, in lieu whereof commission/service charges were paid to them. It was further averred by the ld. A.R that the complete details of the commission/service charges paid to the aforementioned 4 DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd.
parties, along with their respective confirmations were also furnished in the course of the remand proceedings with the A.O. In order to fortify his aforesaid claim, the ld. A.R took us through the copy of the „remand report‟ of the A.O, dated 17.03.2017. Apart from that, it was the claim of the ld. A.R that the assessee had vide its letter dated 23.01.2014 that was filed with the A.O, therein submitted that in case there were any doubts as regards the authenticity of its claim of commission expenses, then the same may be verified by summoning the concerned commission agents. On the basis of his aforesaid contentions, it was submitted by the ld. A.R that as the complete details in support of the authenticity of the commission/service charges paid by the assessee were brought on the record of the lower authorities, therefore, the CIT(A) appreciating that the assessee had duly discharged the „onus‟ that was cast upon it, had thus righty vacated the disallowance of Rs.3,03,68,212/- that was made by the A.O.
We have given a thoughtful consideration to the issue before us and find substantial force in the claim of the ld. A.R. Admittedly, on a comparative perusal of the expenses booked by the assessee under the head commission/service charges, we find, that there is a steep incline in the said expenses during the year under consideration, as in comparison to those for the immediately preceding year i.e A.Y. 2010-11. However, we find that the assessee in the course of the assessment proceedings had furnished the complete details as regards the nature of the services rendered by the commission agents, in lieu whereof the aforesaid amounts were paid to them. Apart from that, we find that the complete details of the commission agents viz. names, addresses, amounts of commission, PAN Numbers, confirmations, and also their bank statements were also furnished by the assessee in the course of the remand proceedings. Also, we find that the assessee had categorically vide its letter dated 23.01.2014 submitted before the A.O that in case he had any doubts as regards the genuineness of its claim of commission/service charges, then the respective payees whose complete details were available with him may be summoned for cross-examination. However, the A.O in all his wisdom had chosen to sit tight, and did not deem it fit to summon the aforesaid parties and make any further verification. In our considered view, once the A.O had exhausted his discretion, and despite specific request by the assessee to verify the factual position by summoning the payees, had not thought it fit to act upon the same, thereafter he cannot be permitted to turn around and draw adverse inferences as regards the authenticity of the commission paid by the assessee to the aforementioned parties, without bringing on record DCIT-1(3)(1) Vs. M/s Shreerang Mercantile (I) Pvt. Ltd.
any „material‟ proving to the contrary. On the basis of our aforesaid observations, we are of a strong conviction that as per the details furnished by the assessee in support of its claim as regards the genuineness of the commission paid to the agents, the A.O without placing on record any concrete material which could irrefutably dislodge the authenticity of the said claim, could not have drawn adverse inferences as regards the same. Also, the fact, that similar payment of commission in the preceding years had been accepted by the revenue, therein goes to substantiate the authenticity of the claim of the assessee as regards incurring of the aforesaid expenditure during the year under consideration. In the backdrop of our aforesaid observations, we are of the considered view that after considering the material placed on record by the assessee to support the authenticity of its aforesaid claim of expense, the CIT(A) on the basis of a well reasoned order, had after exhaustive deliberations concluded that the disallowance of the commission/service charges of Rs.3,03,68,212/- made by the A.O could not be sustained, observing as under : “7.3 I have carefully considered the rival submission and the nature of business. It is correct that business in print media requires timely delivery and follow up action. The appellant had submitted details of parties to whom the commission was paid including names of parties, with their complete address, TDS deducted, confirmations filed with PAN, during the course of assessment proceedings, as well as during the appellate proceedings. Further, the A.O has not made any attempt to make an inquiry and verify the genuineness of payments made on account of commission by invoking section 131 of the IT Act, 1961, if he is not satisfied with confirmations furnished by the appellant. Further perusal of the bank statements from where the amount was paid is duly reflected and there is no occasion to doubt on the payments made of commission. In view of these facts and circumstances of the case, I do not find any reason to make further addition of Rs. 3,06,68,212/-, on account of commission paid when the results of the appellant have been accepted as correct as stated above. The A.O is directed to delete the addition of Rs. 3,03,68,212/-. Therefore, Ground No. 4 is allowed.” Accordingly, finding ourselves to be in agreement with the view taken by the CIT(A), we uphold the deletion of the disallowance of commission/service charges of Rs. 3,03,68,212/- by him. The Ground of appeal
No. 1 raised by the revenue is dismissed.