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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT (A)-3, Bangalore dated 25.10.2013 for Assessment Year 2010-11.
The grounds raised
by the assessee are as under. “1. The CIT (Appeals) erred in upholding the assessment order to the extent of disallowance of commission paid to the Managing Director and Sri Prabhakar Dayanidhi and also disallowing the labour charges to the extent of 10%.
2. The CIT (Appeals) erred in upholding the disallowance of the commission paid to Sri A. Dayanidhi, MD of the Appellant-company without considering the submissions made by the Appellant in regard to the same.
3. The CIT (Appeals) has wrongly inferred that the payments had no legitimate needs for the business, whereas the payments by way of commission was paid to get more customers and to increase the revenue.
4. The CIT (Appeals) further erred in upholding the disallowance of the commission paid to Sri Prabhakar Dayanidhi under Section 40(a)(ia) of the Act.
The CIT (Appeals) ought to have allowed labour and other charges amounting to Rs.2 crores and ought not to have restricted the same to 10% as these expenses were bona fide and no single payment exceeded Rs.20,000/-. The CIT (Appeals) had no evidence, on the basis of which 10% is disallowed. Merely on assumption, the CIT (Appeals) cannot disallow the expenses.
6. The CIT (Appeals) also erred in not considering the case law furnished before him by the Appellant during the hearing of the appeal. 7. The CIT (Appeals) erred in confirming the levy of interest under Sections 234B and 234C of the Act. 8. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.”
Regarding ground nos. 1 to 4 of assessee’s appeal, it was submitted by the learned AR of the assessee that only one issue is involved in these four grounds and the same is regarding disallowance of Rs. 43,43,052/- in respect of commission paid to Shri A. Dayanidhi, MD of the company and Rs. 3,34,440/- to Shri Prabhakar Dayanidhi. Regarding this issue, it was submitted by ld. AR of assessee that in fact, the assessee had not claimed any deduction about these two commission payments of Rs. 43,43,052/- to Shri A. Dayanidhi, MD and Rs. 3,34,440/- to Shri Prabhakar Dayanidhi. She drawn our attention to the audited P&L account and balance sheet of the assessee, copy of which is available on pages 72 to 81 of appeal memo and in particular, our attention was drawn to page 9 of the appeal memo where the P&L account of the assessee is available for the relevant year. She pointed out that apart from debiting materials cost of Rs. 2311.18 Lakhs, the assessee has debited Rs. 127.22 Lakhs on account of employment expenses, Rs. 266.69 Lakhs on account of other operating expenses and the remaining debits are on account of finance charges of Rs. 9.38 Lakhs and Director’s remuneration of Rs. 6.21 Lakhs along with depreciation of Rs. 11.70 Lakhs. She submitted that the details of amount of employment expenses are available in schedule M which includes salaries and allowances, contribution to PF and staff welfare expenses. The commission payment is not included in Schedule M. Regarding operating expenses, she submitted that the details are available in Schedule N on pages 13 and 14 of appeal memo and in the same also, the said amount of commission payment is not included. She submitted that when the assessee has not debited the said commission to P&L account, no disallowance can be made either u/s. 40(a)(ia) or for this reason that the assessee failed to provide the details of which transaction / work order these commissions were paid. At this juncture, a query was made by the bench as to whether this contention was raised before the authorities below that the amounts in question were not debited to P&L account. In reply, it was submitted by ld. AR of assessee that although no such claim was made before the authorities below but in the interest of justice, the matter may be restored back to the file of AO for fresh decision. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. We are of the considered opinion that if it is found that these two amounts in question were not debited to P&L account, no disallowance can be made u/s. 40(a)(ia) or on this basis that the assessee has not provided the details regarding the transactions / work orders for which these commissions were paid. But since this aspect was not examined by the authorities below, we feel it proper to restore this matter back to the file of AO for fresh decision after providing adequate opportunity of being heard to the assessee. Accordingly these grounds are allowed for statistical purposes.
5. Regarding ground no. 5, it was submitted by ld. AR of assessee that it is noted by the AO in paras 7.1 and 7.2 of assessment order that ld. AR of assessee was asked to produce the details and invoices of labour charges, carpentry charges, polishing & paining charges, civil works charges. She further pointed out that the AO has also noted that approximately, an amount of Rs. 2 Crores is debited under these heads and the ld. AR of assessee has not been able to produce all the details asked for. The AO has also noted that a substantial amount of details are mentioned on self certified vouchers and thereafter, the AO has noted that the net profit of the assessee company is only 2.65% which is low when compared to the Net Profit of earlier years as also in the succeeding years. Thereafter, the AO has disallowed 20% of Rs. 2 Crores, which amounts to a disallowance of Rs. 40 Lakhs. She submitted that such adhoc disallowance is not justified. At this juncture, the bench wanted to know
that whether comparative chart is available regarding these expenses in the present year and in the earlier years. In reply, she submitted that no such comparative chart is readily available and hence, this matter may also be restored back to the file of AO for fresh decision. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. From the relevant para of the assessment order, we find that disallowance has been made by the AO on adhoc basis for this reason that the expenses are incurred in cash and such expenses are supported by self certified vouchers and there is decrease in net profit in present year as compared to earlier years. But apart from that, one more exercise is required to be done i.e. comparison of these expenses for the current year and earlier years. If it is found that such expenses are excessive in present year as compared to earlier years then also opportunity should be provided to the assessee to explain such increase in the present year and the issue should be decided and disallowance should be made only if it is found that expenses are excessive in earlier years and assessee has not explained such increase in expenditure in present year. Hence we set aside the order of CIT(A) and restore this matter also back to the file of AO for fresh decision in the light of above discussion after providing adequate opportunity of being heard to assessee. Ground no. 5 is also allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.