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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’, NEW DELHI
Before: SH. H.S. SIDHU
The Assessee has filed the Appeal against the Order dated 27.4.2018 of the Ld. CIT(A)-22, New Delhi pertaining to assessment year 2010-11 on the following grounds:-
1. That the order dated 27.4.2018 passed u/s. 250(6) of the Act by the CIT(A), New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the AO in sustaining the addition on account of brokerage of Rs. 8,26,778/- (comprising of Rs.
6,89,395/) on account of brokerage paid to various persons on the ground that notices sent to them u/s. 133(6) of the Act for verification and justification of payment has been received back unserved and the payments made to them are allegedly unverified and Rs. 1,37,383/- on account of brokerage paid on purchases to various parties on the ground that there is, allegedly, no justification for payment of brokerage on purchases.
2. That the order dated 27.4.2018 passed u/s. 250(6) of the Act by the Ld. CIT(A), New Delhi
is against law and facts on the file in as much as he was not justified in restricting the addition u/s. 40A(2)(b) of the Act in respect of purchases made from M/s Star Wire India Ltd., a related party, to Rs. 10,290/- being the difference in the price at which purchases have been made from M/s Star Wire India Ltd., a related party and from M/s Narayan & Co. an unrelated party.
The brief facts of the case are that regular assessment was made vide order dated 31.12.2012 u/s. 143(3) of the Income Tax Act, 1961 (In short “Act”) at total income of Rs. 22,59,020/- against returned income of Rs. 17,50,420/-. The difference between the returned income and assessed income was due to disallowance of Rs. 508599/- out of brokerage expense. The Ld. CIT (Central), Gurgaon vide his order passed u/s. 263 of the Act dated 18.3.2015, set aside the assessment to the file of the AO with the direction to examine denovo various issues.
Accordingly, notice u/s. 142(1) and 143(2) of the Act dated 18.1.2016 for fixing the hearing for 28.01.2016, when the assessee was required to produce complete details with documentary evidence. In response to the same, the AR of the assessee attended the assessment proceedings from time to time and furnished the various details. After considering the reply of the assessee, the AO made the additions on account of brokerage and disallowance u/s. 40A(2)(b) of the Act and assessed the income of the assessee at Rs. 27,86,230/- vide his order dated 31.3.2016 passed u/s. 143(3)/263 of the Act. Against the said assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 27.4.2018 has partly allowed the appeal of the assessee. Aggrieved with the impugned order, assessee is in appeal before the Tribunal.
During the hearing, Ld. counsel for the assessee has stated that Ld. CIT(A) is not justified in upholding the action of the AO in sustaining the addition on account of brokerage of Rs. 8,26,778/- (comprising of Rs. 6,89,395/) on account of brokerage paid to various persons on the ground that notices sent to them u/s. 133(6) of the Act for verification and justification of payment has been received back unserved and the payments made to them are allegedly unverified and Rs. 1,37,383/- on account of brokerage paid on purchases to various parties on the ground that there is, allegedly, no justification for payment of brokerage on purchases. It was further submitted that Ld. CIT(A) erred in restricting the addition u/s. 40A(2)(b) of the Act in respect of purchases made from M/s Star Wire India Ltd., a related party, to Rs. 10,290/- being the difference in the price at which purchases have been made from M/s Star Wire India Ltd., a related party and from M/s Narayan & Co. an unrelated party. Hence, he requested to delete the addition confirmed by the Ld. CIT(A) and allow the appeal of the assessee.
On the other hand, Ld. DR relied upon the order of the Ld. CIT(A) and stated that he has passed a well reasoned order, which does not need any interference.
I have heard both the parties and perused the records especially the impugned order. I find that assessee has submitted the documents relating to brokerage such as PAN and TDS before the AO. It is noted that the turnover over of assessee is Rs. 45.70 crore and the amount of brokerage was debited in P&L account of Rs. 50,85,988/- and in the preceding year the turnover of the assessee was Rs. 69.94 crore and the brokerage was paid of Rs. 29,72,014/-, which shows that there is quantum jump in the payment of brokerage despite the fact that the turnover of the assessee has gone down substantially. Notices u/s. 133(6) of the Income Tax Act, 1961 has not been served at the given address.
No effort is made by the Ld. AR to provide new addresses of the brokers.
No basis for payment of brokerage is either submitted before the AO or in the appellate proceedings. The Ld. AR has simply relied upon the documents of brokerage payment submitted. In business parlance role of brokers and payment of brokerage cannot be denied. However, there must be some basis for the payment and generally fixed brokers are used for many years. It is noted that Ld. CIT(A) in appeal has asked the Ld. AR that presently whether the assessee is engaging these brokers, the Ld. AR has no clue. In view of this the addition made by the AO was rightly confirmed by the Ld. CIT(A), which does not need any interference on my part, therefore, I uphold the order of the Ld. CIT(A) on this issue and reject the ground raised by the Assessee.
5.2 As regards disallowance u/s. 40A(2)(b) is concerned, I find that assessee has purchased from M/s Star Wire India Ltd. @ of Rs. 33,000/-
per metric ton and on the same date purchased same item from M/s Narayna & Co. @ of Rs. 32,330/- per metric ton. Therefore, the AO found the difference of Rs. 670 per metric ton and computed the disallowance accordingly. In appeal the assessee has submitted that the rate of purchase from M/s Narayan & Co. taken by the AO is incorrect and submitted the copy of the purchase bill which shows that the rate of purchase is Rs. 32,930/-. Therefore, the difference is only of Rs. 70/- instead of Rs. 670/- taken by the AO. Since there is difference in purchase rate of same item from two parties out of which rate is higher in 5 the case of related partly, Ld. CIT(A) has correctly observed that section 40A(2)(b) of the Act is attracted in the case of the assessee. However, he observed that the disallowance needs to be recomputed considering the rate from M/s Narayan & Co. @ Rs. 32,930/-. In view of disallowance of Rs. 10,290 was rightly confirmed by the Ld. CIT(A), which does not need any interference on my part, therefore, I uphold the order of the Ld. CIT(A) on this issue and reject the ground raised by the Assessee.
In the result, the Appeal of the Assessee is dismissed.
Order pronounced on 14-02-2019.