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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
आदेश / ORDER
PER D. KARUNAKARA RAO, AM
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-9, Pune dated 23.06.2016 for assessment year 2001-02.
The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case and in law the Ld. CIT(A)-9 Pune was not justified in confirming the addition made by the A.O. under section 40A(2)(b) of the Act on account of commission paid to two sons of the assessee. The payment of commission of Rs.6,00,000/- was essential for the existence of the business and business exigencies. The addition under
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section 40A(2)(b) was unwarranted and it be deleted.
On the facts and circumstances of the case and in law Ld. CIT was also not justified in rejecting the alternative submission based on the amendment to 2nd proviso to S. 40(a)(i-a) interpreted as having retrospective operation w.e.f 2005-06. In view of Hon'ble Supreme Court judgment in Hindustan Coca Cola (2007) 293 ITR 226 the provision i.e 2nd proviso to S. 40(a)(i-a) is presumed to be in existence since the enactment of law. The addition made be deleted following Hon'ble Supreme Court Judgment. 3. On the facts and circumstances of the case and in law the recipients of the commission the payment of which was added back in the hands of the assessee was genuine and was declared by the recipients in their respective returns of income with commensurate payments of taxes. In this view of the matter the addition made by the A.O. and confirmed by the Ld. CIT(A) was not sustainable. It be deleted. 4. The appellant craves to leave, add/ amend or alter any of the above grounds of appeal.”
Briefly stated relevant facts of the case are that the assessee is engaged in
the business of manufacturing of Plastic/Automobile Components and filed
return of income on 31.10.2001 declaring total income at Rs.4,82,175/-. The
Assessing Officer made various additions on the following counts and
determined total income of assessee at Rs.11,07,454/- :
“Add : As discussed above 1. On account of Commission 6,00,806/- 2. On account of personal expenses 8,842/- 3. On account of excess electricity 2,128/- 4. On account of ad-hoc addition 5,000/- 5. On account of interest u/s.244A not offered for taxation 8,504/-”
During the assessment proceedings, the assessee contested all the above
additions. Eventually, the Assessing Officer dismissed the contentions of
assessee. The major addition is on account of commission payment at
Rs.6,00,806/-.
The grounds raised by assessee in this appeal also revolves around the
said major addition of Rs.6,00,806/-. The facts relating to addition at Rs.
3 ITA No.1838/PUN/2016 A.Y.2001-02
6,00,806/- includes that the assessee made payments of commission to his two
sons namely, Shri Dheeraj N. Lasaria and Shri Neeraj N. Lasaria of
Rs.3,50,000/- and Rs.2,50,000/- respectively for business purpose of assessee.
The relevant findings of the order Commissioner of Income Tax (Appeals) on this
issue is extracted as under:
“5.3 I have considered carefully the facts of the case and submissions of the appellant on the issue. The AO after carrying out details investigation has disallowed commission payment of Rs. 6,00,806/- which was paid to his two sons as under:
i) Shri Dheeraj N. Lasaria Rs. 3,50,000/- ii) Shri Neeraj N. Lasaria Rs. 2,50,000/-
The AO has establish through inquires made and recording their statement that they did not provide any services for earning such commission shown to them by the appellant. Considering the facts gathered by the AO during the course of assessment proceedings, he had concluded in para 11 of the assessment order that both Shri Dheeraj and Shri Neeraj Lasaria could not produce any evidence to justify the commission payment to them. Dheeraj Lasaria had not filed any return of income for A.Y.2001-02. He only filed it after the inquires were started in the present case and the return was beyond the limitation time and was invalid return. Thus, the considering the facts of the case the AO concluded that the appellant has failed to justify the commission payment to his sons and accordingly he disallowed the same. Further, during the course of appellate proceedings the AR of the appellant was asked whether any TDS was made on the commission claimed to have made to the persons specified on 40A(2)(b). The reply filed vide letter dated 07.06.2016 revealed that no TDS was made on the said payment of the commission. However, the ld. AR in support of the claim has referred to the amendment introduced to second proviso to section 40A(ia) inserted by Finance Act, 2012. It has further claim that the amendment is applicable retrospectively with effect from 01.04.2005. Here also the argument of the assessee is not found acceptable as these provisions are applied in case of the payer assessee where the amount under question has been reflected in the return of the payee and due taxes have been paid. In the instant case it is clear from the discussion made by the AO that Shri Dheeraj Lasaria has not filed any return and thus has not offered any income and in the case of Neeraj Lasaria also it is not substantiated with proof that such income was offered in the return. Moreover, the appellant’s case pertains to A.Y.2001-02 and hence the above amended provisions are not applicable in his case. Thus, considering the facts of the case the appeal on ground No. 1 to 4 is dismissed.”
From the above, it is the case of assessee that the payments are genuine 6.
and the same were made in response to services rendered by his sons. The
provisions of section 40A(2)(b) of the Act do not approve the decision of AO in
disallowance of entire expenditure as excessive and unreasonable. The assessee
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explained that the commission paid to his two sons @ 3% on total turnover of
Rs. 1.08 crores on account of one single contract of supplying gunny bags and
services rendered by Shri Dheeraj Lasaria and Neeraj Lasaria. The Commissioner
of Income Tax(Appeals) considered the said submission of the assessee and
dismissed the appeal as per discussion given in Para-5.3 of the order of
Commissioner of Income Tax (Appeals). The assessee’s failure to make TDS on
the said payments and the applicability of provisions of section 40A(ia) of the Act
are some of the reasons given by Commissioner of Income Tax (Appeals). The
Commissioner of Income Tax (Appeals) held that Shri Dheeraj Lasaria and Neeraj
Lasaria did not file the return of income. There is also no definite discussion
about applicability of provisions of section 40(a)(ia) of the Act to the assessment
year under consideration. Absence of the suitable explanations as well as the
clarity on various legal proposition relevant to the issues, the Commissioner of
Income Tax (Appeals) proceeded to confirm the additions made by the Assessing
Officer. Therefore, the assessee is in appeal before us raising the grounds
extracted above.
At the outset, the Ld. Counsel of assessee submitted that applicability of
section 40A(2)(b) of the Act in this case is premature as the Assessing Officer
failed to discharge his onus about establishing the excessiveness or
unreasonableness of payments/ commission by assessee to Shri Dheeraj Lasaria
and Neeraj Lasaria. It is the case of assessee that the commissioner of Income
Tax (Appeals) erred in rejecting alternative submission with regard to
applicability of the amended provisions of section 40(a)(ia) of the Act which
operates retrospectively w.e.f assessment year 2005-06 onwards. As such, the
year under consideration is prior to this amendment. Further, the applicability of
decision rendered by Jurisidictional High Court in the case of Indo Saudi
Services (Travel) Pvt. Ltd, 310 ITR 306 (Bom.) is relevant in law which is relevant
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for the proposition that disallowance on commission is called for only when
payer and payee are not subject to higher tax rates. As such, there are no papers
relating to the taxability of income of the payees at the commission. Thus,
according to Ld. AR when the AO failed to make out a case of excessiveness or
unreasonability of the commission payments to the payees based on the data
gathered from open market, the provision of section 40A(2)(b) of the Act cannot
be applied successfully and valid. In this case, the AO did not undertake any
investigation or collected any comparables cases before disallowing the claim of
the assessee. Therefore, the Ld. AR submitted for deleting the addition on this
account.
Ld. DR for the Revenue heavily placed reliance on the order of Assessing
Officer and the Commissioner of Income Tax (Appeals).
On hearing both the parties, we find that there is no dispute that
payments of commission on transactions are genuine. Therefore, the only issue
is with regard to the excessiveness and unreasonableness of the commission
payments. In this regard, we find that the Assessing Officer is under obligation
to bring comparable cases or gather data from the open market, if any. We find
the Assessing Officer failed to discharge his onus in this regard. From that point
of view, addition made by the Assessing Officer is premature. Under these
provisions, the 100% of the payments cannot be considered as excessive or
unreasonable. Further, coming to the applicability of the provisions of section
40A(ia), we are of the opinion that there was no conclusive findings of the
Authorities below in this regard. Therefore, in our view, the Assessing Officer did
not apply his mind to make out the applicability of provisions of section 40A(ia)
of the Act properly. Accordingly, grounds raised by the assessee are allowed.
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In the result, appeal of the assessee is allowed. 10.
Order pronounced on 26th day of March, 2018.
Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER
पुणे / Pune; �दनांक / Dated : 26th March, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-9, Pune 4. The Pr. CIT-5, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.
// True Copy // आदेशानुसार / BY ORDER,
�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.