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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-11, Kolkata [in short the ld CIT(A)] in appeal no. 43/CIT(A)-11/Cir-37/Kol/15-16/Kol dated 29.03.2017 passed by the ACIT, Circle- 37, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 24.03.2015 for the Assessment Year 2012-13.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance of Rs. 6,00,000/- paid to Mr. Alok Jalan (brother of the assessee) towards commission, in the facts and circumstances of the case.
Ashok Kumar Jalan A.Yr. 2012-13
The brief facts of this issue is that the assessee is an individual engaged in the business of trading of steel tubes. The assessee had made payment of Rs. 23,17,317/- to his brother Mr. Alok Jalan as under: Salary Rs. 1,80,000/- Commission as percentage of turnover Rs. 21,37,317/- Total Rs.23,17,317/- The ld. AO observed that the brother of the assessee i.e. Mr. Alok Jalan was looking after the finance, accounts and sale execution of the business of the assessee for the past several years. He also observed that the assessee had taken loan from Mr. Alok Jalan and paid interest to him to the tune of Rs. 18,71,164/-. He observed that the assessee had paid commission to his brother on one hand and on the other hand had received back the said sum as unsecured loan from his brother and again he paid interest thereon. Accordingly, he disallowed a sum of Rs. 6,00,000/- u/s 40A(2)(b) as excessive and unreasonable. This action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us.
We have gone through the rival submissions. We find that the assessee has been making payment of salary and commission to his brother at agreed terms for the past several years for the services rendered by the brother to the business of the assessee. There is no dispute with regard to services rendered by Mr. Alok Jalan as is quite evident from the findings given by the ld. AO in para 2.1 of the assessment order. We find the brother of the assessee i.e. Alok Jalan had also duly included the said sum as his income and had paid taxes thereon. Though this aspect is not relevant for allowability of commission expenditure in the hands of the assessee payer, we find that when there is no dispute on the factum of services rendered by the said party to 2
Ashok Kumar Jalan A.Yr. 2012-13 the assessee in view of which commission has been paid and the ld. AO without bringing any comparable instances to prove as to how the commission paid by the assessee is excessive or unreasonable within the meaning of section 40A(2)(b) of the Act, the ld. AO cannot resort to make any disallowance of expenditure on ad hoc basis. We also find that the instant issue is already covered in favour of the assessee by the Co-ordinate Bench of this Tribunal for assessment year 2010-11 in dated 16.08.2017 in his own case. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, Ground No. 1 raised by the assessee is allowed.
The last ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance of various expenditures at 100% on ad hoc basis in the facts and circumstances of the case.
The brief facts of this issue is that the assessee furnished the books of accounts and bills and vouchers before the ld. AO and from the examination of the same, the ld. AO observed that certain expenditures were incurred by the assessee in cash which are not supported with supporting evidences except the vouchers. The ld. AO identified seven heads of income and proceeded to make disallowance at 10% thereon on ad hoc basis as under:
Ashok Kumar Jalan A.Yr. 2012-13 This action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us.
We have heard the rival submissions. The ld. AR argued that the books of accounts and vouchers were duly submitted before the AO and no defects were found by the ld. AO thereon. The ld. AR has furnished tabulation of various expenditures for the assessment years 2010-11, 2011-12 and 2012-13 and argued that the percentage of expenditure thereon on sales remained static with a very minor increase year after year. He also argued that there are certain expenditures which have gone down during the year under appeal when compared to earlier years. He argued that except travelling expenses, all the expenditures had been maintained properly and in respect of travelling expenses, the same had increased during the year in view of the fact that the assessee had to travel frequently to such new places for exploring new businesses. Further he fairly agreed for some percentage of disallowance that could be made in respect of such travelling expenditure alone in view of the huge variation of percentage in that expenditure during the year when compared to earlier years. We have gone through the tabulation filed by the ld. AR and we find lot of force in the argument made by the ld. AR and accordingly, direct 4
Ashok Kumar Jalan A.Yr. 2012-13 the ld. AO not to make any disallowance of expenditure on an ad hoc basis except on account of travelling expenditure. With regard to travelling expenditure we hold that disallowance made thereon at 5% would meet the ends of justice. Accordingly, ground no. 2 raised by the assessee is partly allowed.
Ground nos. 3 and 4 raised by the assessee are general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 19.09.2018