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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM)
This appeal by the assessee is directed against the order of learned CIT(A) dated 29.8.2016 and pertains to A.Y. 2010-11. The grounds of appeal read as under :- “The grounds of appeal listed below are without prejudice to each other and the Appellant craves leave to add or modify the ground of appeal: A. The Learned CIT (A) and the AO erred in disallowing Rs. 14,51,000/- which is expenditure incurred by the Appellant, entirely through Banking channels, for earning his commission income; B. The Learned AO erred in giving short credit of TDS amounting to Rs. 45,4697- while preparing Income Tax Computation Form, which forms a part of the Assessment Order;
C. The Learned AO erred in making blanket ad hoc addition @ 20% on various Heads of Expenditure, even when proper supporting Bills, Vouchers, etc are available with Assessee, with respect to some of the Expenses claimed in Profit and Loss A/c.”
Brief facts of the case are as under : The assessee is working as an Insurance agent with the Oriental Insurance Company. During the year, the assessee claimed to have received
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commission income of Rs 29,02,800/- and after claiming various expenses, the net profit was shown at Rs 3,58,934/-. On perusal of the P&L Account, the AO noticed that the assessee had debited an amount of Rs 14,51,400/- towards payment of commission. In order to ascertain the genuineness of payment of commission, the A. O. required the assessee to furnish the proof for payments of commission. In compliance, the assessee squarely failed to furnish the supporting documentary evidences as well as justification, to substantiate .the payment of commission. The A.O, therefore, requisitioned information u/s 133(6) of the IT Act from the Insurance Company. In compliance, the Oriental Insurance Company, vide its letter dated 19.03.2013, informed that the payment of commission is prohibited, as per Section 41 of the Insurance Act. 1938 and this offence is punishable with fine which may extend to Rs 500/-. In view of the above, facts, the AO disallowed the commission expenditure of Rs 14,51,400/- as per the provisions of Section 37 of the IT Act, 1961 and added to the income of the assessee.
Upon assessee’s appeal learned CIT(A) noted that during the appellate proceedings, in the statement of facts, filed at the time of filing appeal, it has been claimed that the commission of Rs 14,51,000/- was paid to middlemen, who had introduced the clients. Accordingly, it is claimed that the commission was not paid to the insured persons, therefore, the provision of Section 41 of the Insurance Act would not be applicable, in the assessee's case. Learned CIT(A) further noted that in compliance, the Ld AR furnished the details of agents to whom commission was paid, alongwith PAN, address, amount and mode of payment as well as hank statements, reflecting such payments.
Thereafter learned CIT(A) held as under :- “On perusal of the said bank .statement it is noticed that the entire commission was paid through banking channels, in the month of August 200.9 to M/s. Tirupati Associates, which is found to be the business associate of the appellant. In clarification it is stated that the commission was paid through this own concern, on behalf of the appellant, in cash, to various persons, who claimed to have introduced the clients to the appellant. In compliance, the learned AR could not furnish the confirmation, basis of commission paid, terms and conditions for payment of commission and
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verifiable addresses of some of these persons to whom so called commission was paid in cash. The appellant also failed to furnish the name and addresses of the parties/clients who had been introduced through these agents. The appellant also could not produce these persons for examination in person and also failed to file their confirmations, to establish the claim of payment of commission "in cash, if any. Considering the facts in entirety, in my considered opinion, the AO has rightly disallowed the expenditure of commission of Rs 14,51,400/-. Accordingly, the disallowance of Rs. 14,51,400/- made by the AO, is hereby sustained and all the grounds of appeal, raised as above, are dismissed”.
Against this order assessee is in appeal before the ITAT.
At the outset it is noted that there is a delay of 613 days in filing this appeal. It is noted that there was a delay of 155 days before learned CIT(A) also. This was condoned by learned CIT(A). As regards the reasonable cause for the delay before the ITAT it is the submission of the assessee that the same was because assessee was in the process of preparing documents to counter the findings of learned CIT(A). That his counsel Shri C.A. Ketan Dawane did not find the papers submitted by the assessee to be convincing. Hence, he refused to file the appeal before the ITAT. Later on the assessee appointed another counsel to file the appeal. Thereafter considerable delay of the appeal was filed.
Upon careful consideration I note that the reasonable cause submitted by the assessee for the delay is that the papers which he was preparing to counter the learned CIT(A) findings were found to be inadequate by assessee designated counsel. Hence, he refused to file the appeal. Hence, assessee appointed another person. In my considered opinion the refusal by the counsel to file appeal can be considered to be a reasonable cause for the delay. Accordingly, I condone the delay.
As regards merits of the issue I find that it is the claim of the assessee that he has paid commission to obtain insurance business. Though it is admitted that paying commission for obtaining insurance business is prohibited, it is the plea of the assessee that the said sum was paid to
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middlemen to get business. In this regard the assessee has submitted that names and addresses of the persons to whom the money has been paid. However, learned CIT(A) has given the finding that the entire amount has been paid to M/s. Tirupati Associates in August 2009 through banking channels. This party is said to have given the money to those persons. Without any further enquiry the detail submitted by the assessee has been rejected. In my considered opinion, when assessee has given the necessary details the revenue authority should make enquiries. They cannot reject the submission at the threshold. Hence, in the interest of justice I remit this issue to the file of the Assessing Officer. The Assessing Officer is directed to make necessary enquiries from the details given by the assessee and thereafter decide as per law. Needless to add the assessee should be given proper opportunity of being heard.
The other grounds raised by the assessee are not arising out of the order of learned CIT(A). Hence, they are dismissed.
In the result, appeal filed by the assessee stands partly allowed. Order has been pronounced in the Court on 5.12.2019.
Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER Mumbai; Dated : 5/12/2019 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai