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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy
Appearances by: Shri A.K. Tulsiyan, CA, appeared on behalf of the Appellant. Shri Robin Choudhury, Addl. CIT, appeared on behalf of the Respondent. Date of concluding the hearing : January 8, 2019 Date of pronouncing the order : January 16 , 2019 ORDER Per J. Sudhakar Reddy :-
This appeal by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-10, (hereinafter the ‘ld. CIT(A)’), dated 15.05.2018 passed u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’) for the assessment year 2014-15.
The assessee is an individual and engaged in the business of marketing and manufactured dyes. He has filed his return of income for the Assessment Year 2014-15 on 29.11.14 declaring income of Rs.4,10,990/-. The Assessing Officer assessed gross total income at Rs.16,35,126/- inter alia disallowing commission of Rs.11,72,440/-.
Aggrieved the assessee carried the matter in appeal before the First Appellate Authority without success. Further aggrieved the assessee is before us on the issue of disallowance of commissions.
2 Shri Ramakant Roy Sharma Assessment Year: 2014-15 4. The assessee’s contention is that similar commissions have been paid by the assessee for the last many years and also in the subsequent years and that these payments were accepted as genuine by the Assessing Officer and on the ground of consistency, the disallowance cannot be made. It was further submitted that the payments are necessitated for running of the business of the assessee and all the payments were made through account payee cheques and tax was deducted at source u/s 194H of the Act. Further, proof has been given as to the identity of the commission agents and the services rendered.
The ld. DR submits that the res judicata does not apply on the tax proceedings that the nature of the services was not demonstrated by the assessee. He was further pointed out that notices u/s 133(6) were given to the commission agents by the Assessing Officer and no reply was received except in the case of one person who denied having received commission. It was prayed that the order of the ld. CIT(A) be upheld.
After hearing rival contentions, considering the papers and records and the order of authorities below, I find that the assessee in this case has submitted all evidences in support of his contention that commission has been paid for the purpose of business. Proofs are in the form of confirmations, payments through bank, tax deduction at source etc. It is also a fact that similar commissions have been paid in the earlier assessment years for the very same business and that Revenue has not disputed the same. Merely because of notices issued u/s 133(6) to these commission agents have not been responded to, an addition cannot be made.
The Kolkata “D” Bench of this Tribunal in the assessee’s own case in Assessment Year 2001-02 at Para 6 held as follows: “6. On hearing the rival submissions, going through the assessment record and the Paper Book filed by the assessee, we find that the CIT(A) has stated the following observations while deleting the addition on the first issue at pages 19 & 20 of his order which are extracted below:
3 Shri Ramakant Roy Sharma Assessment Year: 2014-15 “Observations of the AO and submissions of the appellant have been considered. AO has made part disallowance of Rs.6,50,891/- out of the total commission payments claimed by the appellant at Rs.16,14,667/-. The disallowance has been made by the AO on the basis of confirmatory letters received from the parties with whom the appellant had trade transactions to the effect that no third party or agent was involved in the transaction. I do not find merit in the action of the AO in making the disallowance merely on the basis of the letters received from third parties who could not be in a position to certify the agents engaged on commission by the appellant for promoting his trade transactions. Payment of commission is a regular practice in the business of the appellant. In assessment year 90-91 in the case of the appellant commission was disallowed by the.AO but in appeal before Ld. CIT(A)-V, Kolkata the addition was deleted in appeal No. 203/R-14/V/94-95 dt. 19/10/19194. It is to be appreciated that in the nature of trade carried on by the appellant, namely, Chemical & Dyes business cannot be run smoothly without appointments of commission agents and payment of commission. Such payment of commission is in accordance with business mode and is a must. The appellant maintains audited books of accounts and all necessary papers and documents such as commission details, bills and vouchers and relevant entries in the books of accounts in support of the claim of having paid commissions are on record. The payments to the commission agent have been made by account payee cheques and the payees are not related to appellant. All the payees as required by AO appeared before him with relevant documents and all the papers/bills/books of accounts/bank statement in support of commission received and, wherever required, confirmed receipt of commission by them. They are assessed to Income Tax and have declared the commission income in their returns. The commission agents were engaged by the appellant for doing liaison work and represented the appellant for such liaison work. They did not act as middlemen for both the parties but represented the appellant only. Obviously for the parties with whom the appellant had trade transactions the commission agents represented the appellant and confirmatory letters issued by them show that the transactions were between them and the appellant as it was the legal position, the commission agents employed by the appellant having no independent existence on their own in respect of these transactions but merely facilitating the business of the appellant. It is also noteworthy that the appellant has a high turnover exceeding Rs.3 crores and there is an increase of 26% over the turnover of the preceding year. At no point does the AO say that the commission made is excessive. In fact he has allowed part payments of commission. The appellant has no separate marketing division and depended on the agents for sale and purchases. The total salary debited in the books of accounts by the appellant is Rs.2,11,912/- which is just 0.66% of the turnover. The appellant has the clientele over the whole country and it would be difficult for him to set up and maintain establishments all over the country for purchases and sale. As he deals in a specialized commodity the commission agents in various parts of the country assist him in the smooth running of the business. Access to big industries is difficult and commission agents are required for facilitating the transactions. Even secret commissions are accepted in the nature of this trade of chemicals, dyes and paints. The disallowance made by the AO is on pick-and- choose basis without specifying any basis while transactions in respect of one commission agent dealing with a particular party is considered allowable and the other commission agents deal with the same party are considered disallowable. There is merit in the submission of the appellant that owing up agents of the appellant by third parties with whom the appellant had trade transactions could lead to legal complications for the third parties and therefore they do not in the confirmation letters confirm the existence of the agents though it is an undeniable fact that commission agents are engaged to further the business interest in this trade and this fact has also not been denied by the A.O who has allowed part payments of commissions. In view of these facts the addition made is not sustainable and is deleted.”
4 Shri Ramakant Roy Sharma Assessment Year: 2014-15 8. Consistent with the view taken therein and keeping in view the principle of consistency, I am of the considered opinion that the disallowance is bad in law except to the extent where the party denied having received any commission. The commission claimed as paid to Smt. Radhika Shah of Rs.3,35,619/- has been rightly disallowed. The balance commission claimed of Rs.8,36,821/- 9. In the result, the disallowance deleted and the appeal of the assessee is allowed in part.