KULIN KUMAR SHAH,MUMBAI vs. ITO 16(1)(4), MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

(AY 2010-11) 3. First of all we take up assessee’s appeal in (AY 2010-11) on the grounds mentioned herein below:- Ground No.1.

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the Ground No. 2 On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in holding that the commission paid to Janaki K. Shah (wife of the appellant) was required to be added to the total income of the appellant in accordance with provisions of section 64(1)(ii) of the Act.

The appellant craves to add, alter, amend or delete all or any of the grounds of appeal before or during the course of hearing.

4 1415 & 1189/Mum/2015 Kulin Kumar Shah The assessment u/s 143(3) was completed by the AO on 14.03.13 determining the total income at Rs. 50,26,520/-. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. Aggrieved by the order of Ld. CIT(A), both i.e. assessee as well as the revenue have filed their respective appeals before us. However at present we are dealing with the appeal filed by the revenue bearing on the grounds mentioned herein above.

Ground No. 1 5. This ground raised by the assessee is against challenging the order of Ld. CIT(A) in confirming the disallowance of commission amounting to Rs. 6 lacs.

6. We have heard the counsels for both the parties and we have also perused the material placed on record as well as orders passed by the revenue authorities. From the records, we find that the assessee is an individual and deriving its income 5 1415 & 1189/Mum/2015 Kulin Kumar Shah from business and other sources. Return of income for the year under consideration was filed on 14.10.2010 declaring Rs. 15,26, 250. The AO completed the assessment thereby determining the total income of the assessee at Rs. 50,26,250/- thereby making additions. As per the facts of the present case, the AO noticed that the assessee had claimed commission expenses to the tune of Rs. 35 lacs and it was observed that out of the total seven parties to whom commission of Rs. 35 lacs was paid, four persons were falling in the category of persons specified u/s 40A(2) (b) of the I.T. Act. Therefore after seeking reply from the assessee and after verification, it was held by the AO that the commission paid to all seven parties stand disallowed on the basis of non-genuineness of the claim. It was also noticed by the AO that the audit report u/s 44AB of the Act was signed by the auditors on 29.09.10 and the finalisation of audit was done on 29.09.10 and payment of TDS on 28.09.10, was not a coincidence, but indicator of belated realization of need to bring down business income by making non-genuine claim of commission. Out of the seven persons, one had not filed the 6 I.T.A. No. 1414, 1415 & 1189/Mum/2015 Kulin Kumar Shah return of income and five others had also filed the return of income belatedly long after due date of filing of return of income. Commission paid to Ms. Saloni P. Shah was not reflected in the return of income filed by her on 03.08.10, which established the fact that the so-called commission was never due to her. Therefore, considering these circumstances, the AO disallowed the assessee's claim of commission payment of Rs. 35 Lacs. Ld. CIT(A) during the appellate proceedings, upheld the disallowance of claim of commission in respect of Ms. Sheetal R. Jodhani and Ms. Saloni P. Shah by taking into consideration that in the case of Ms. Sheetal R. Jodhani, commission payment of Rs. 3 lacs was made, but no return of income was filed. As far as the case of Ms Saloni P. Saha is concerned, in that case, the computation of total income furnished by her along with the return of income showed the business income of Rs. 1,96,300, therefore the disallowance of commission payment in respect of these two persons were upheld.

7 1415 & 1189/Mum/2015 Kulin Kumar Shah Ld. AR reiterated the same arguments before us, as were raised by him before Ld. CIT(A). It was submitted that the commission expenditure incurred by the assessee during the year under consideration was an essential item of expenditure and in view of the fact that all the seven entities had filed their respective replies in response to the notice u/s 133(6), therefore it could not be said that the parties did not exist. It was also submitted that when the commission in respect of five parties was allowed then there was no cause before the revenue authorities to disallow the commission in respect of the above parties. The detailed submissions made by the assessee are contained in para number 2.3.1 of the order of Ld. CIT(A). We noticed that Ld. CIT(A) had passed detailed reasoned order which is contained in para no. 2.4.7 to 2.4.10 of its order, wherein it was held by Ld. CIT(A) that there was no material with the revenue authorities which could point out that the above two persons i.e. Ms. Sheetal and Ms. Saloni had ever rendered any services to the assessee.

8 1415 & 1189/Mum/2015 Kulin Kumar Shah After perusal of the records, we also noticed that as per the provisions of section 37 of the I.T. Act, an expenditure is allowable if and only if it is ‘wholly and exclusively’ laid out for the purpose of business. Mere payment by itself would not entitle an assessee to the deduction of a particular expenditure, unless the same is proved to be paid for commercial consideration. We further noticed that the assessee has not been able to fully support its contention to suggest any real connection between the expenditure and the object and as held in the case laws mentioned in the order of Ld. CIT(A). In the case in hand, the assessee has failed to adduce sufficient evidence in respect of these two entities. The Ld. AR also could not point out any document before us in order to show that Ms. Sheetal and Ms Saloni ever rendered any services to the assessee. It is a settled law that in order to claim that an expenditure falls within the ambit of section 37(1) of the I.T. Act, the burden of proving the necessary facts is on the assessee as held by Hon’ble Supreme Court in the case of CIT 9 I.T.A. No. 1414, 1415 & 1189/Mum/2015 Kulin Kumar Shah versus Calcutta agency Ltd 19 ITR 191(SC) and Laxmi Ratan cotton Mills Co Ltd versus CIT 73 ITR 634(SC). After considering the facts as well as legal position in the present case, we are also of the view that assessee has miserably failed to discharge its onus by producing any document in support of its claim regarding paying of commission to these two parties. The Ld. AR also could not point out before us as to what services were being rendered by these two persons to the assessee. Even the assessee could not prove that the expenditure of making commission payment to these two persons were ‘wholly and exclusively’ laid out for the purpose of assessee's business. Mere payment by itself would not entitle an assessee to the deduction of a particular expenditure unless the same is proved to be paid for ‘commercial consideration.’ Therefore considering the totality of facts and circumstances, we find that the orders passed by Ld. CIT(A) are judicious. No new facts or contrary judgments have been brought on record before us by the Ld. AR in order to controvert or rebut the findings recorded by the Ld.CIT (A).

10 1415 & 1189/Mum/2015 Kulin Kumar Shah Moreover, there are no reasons for us to deviate from the findings recorded by the Ld. CIT (A). Therefore, we are of the considered view that the findings recoded by the Ld. CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground raised by the assessee stands dismissed.

Ground No. 2 7. This ground raised by the assessee is against challenging the order of Ld. CIT(A) in holding that the commission paid to Janaki K. Shah (wife of the appellant) was required to be added to the total income of the appellant in accordance with provisions of section 64(1)(ii) of the Act.

8. We heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. From the records, we find that it has been claimed that Smt Janaki K Shah was associated with M/s. Kulin Kumar holidays without any benefits prior to AY 2009-10. The Ld. AR could not convince us on our query, as to what was her actual technical or 11 1415 & 1189/Mum/2015 Kulin Kumar Shah professional qualification. In the absence of any material on record, we could not believe that the income earned by Smt. Janki K Shah is covered by the proviso to section 64(1) of the I.T. Act. No new facts or contrary judgments have been brought on record before us by the Ld. DR in order to controvert or rebut the findings recorded by the Ld.CIT (A). Moreover, there are no reasons for us to deviate from the findings recorded by the Ld. CIT (A). Therefore, we are of the considered view that the findings recoded by the Ld. CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground raised by the Revenue stands dismissed.

9. In the net result the appeal filed by the assessee is dismissed.

ITA No. 1415 & 1189/Mum/2015 (AY 2011-12) 10. Now we take up assessee as well as revenue appeal filed in and 1189/Mum/2015 respectively for AY 2011-12. Since, we have already decided 12 I.T.A. No. 1414, 1415 & 1189/Mum/2015 Kulin Kumar Shah the similar grounds of appeal in AY 2010-11 on merits. Therefore, following our own decision in ITA No. 1414/Mum/15, we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis.