NATWARIA SHRILAL LASARIA,PUNE vs. INCOME-TAX OFFICER,

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.

2 ITA No.1838/PUN/2016 A.Y.2001-02

section 40A(2)(b) was unwarranted and it be deleted.

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/-”

additions. Eventually, the Assessing Officer dismissed the contentions of

assessee. The major addition is on account of commission payment at

Rs.6,00,806/-.

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

4 ITA No.1838/PUN/2016 A.Y.2001-02

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.

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

5 ITA No.1838/PUN/2016 A.Y.2001-02

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.

Officer and the Commissioner of Income Tax (Appeals).

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.

6 ITA No.1838/PUN/2016 A.Y.2001-02

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.