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Income Tax Appellate Tribunal, SMC BENCH, PUNE
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the assessee against the order of CIT(A)-2, Aurangabad dated 29-08-2016 for the Assessment Year 2009-10.
Grounds raised by the assessee read as under :
“On facts and in law, 1. The learned CIT(A) erred in confirming the disallowance or commission of Rs.15, 11 ,800/- paid to Shri Laxrniniwas V. Agarwal on the ground that the assessee bad failed to substantiate any evidence of services rendered by the said person. 2. The learned CIT(A) failed to appreciate that Shri Laxminiwas V, Agarwal was a Director in the assessee company and was rendering various services to the assessee company and accordingly, there was no reason to disallow any commission paid to him. 3. The learned CIT(A) erred in not appreciating the various documentary evidences submitted by the assessee to prove the fact that services were rendered by Shri Laxminiwas V. Agarwal arid therefore, there was no reason to confirm the disallowance of commission paid to him.
The learned CITCA) erred in confirming the disallowance of commission or Rs.l,92,992/- and Rs.4,57 ,510/- paid to Ramesh Chandak (HUF) and Ravindra Agarwal (HUF) respectively on the ground that the assessee had failed to prove that any services were rendered by the said two parties.
The learned C1T(A) failed to appreciate that the services were rendered bythe above two parties to the assessee company and accordingly, there was no reason to disallow the commission paid to them.”
The above grounds give rise to the issues that relate to the
correctness of disallowance of commission paid to Shri Laxminiwas V.
Agrawal, the (Director) of the company and also to Shri Ramesh Chandak
(HUF) and Shri Ravindra Agrawal (HUF), the commission agents. AO
disallowed the said commission in the fresh assessment made u/s.143(3)
r.w.s. 263 of the Act for failure of the assessee in substantiating with
evidences regarding the allowability of the payment of commission. In the
First Appellate Proceedings, Ld. CIT(A) confirmed the same.
Background facts of this case include that the assessee is a company
engaged in the business of investment in land and sale of the same at
Latur. Assessee filed the return of income originally declaring total income
of Rs.8,64,440/-. Ld. CIT invoked the provisions of section 263 of the Act
in this case on the issue of allowability of the claim of commission
payments. Ld.CIT passed the revision order dated 27-03-2014 setting aside
the order of the AO.
Giving effect to the same, AO passed the fresh assessment order
u/s.143(3) r.w.s 263 of the Act. From the fresh assessment order, it is
evident that the company paid commission of Rs.15,11,800/- to Shri
Laxminiwas V. Agrawal, who is the Director of the company and claimed it
as an allowable expenditure. The said amount was offered to tax by Shri
Laxminiwas V. Agrawal in his return of income. On finding that Shri
Laxminiwas V. Agrawal is neither an employee nor there is evidence that
services rendered by him for receiving the said commission, AO granted an
opportunity to the assessee for substantiating the claim. Assessee filed a
written submission informing the AO that Shri Laxminiwas V. Agrawal is
duly authorized to receive the commission by virtue of the resolution
passed by the Board of Directors right from the start of the business. In
support of this claim and allowability of the said expenditure, assessee
relied on various decisions. However, there is no information about the
facts on rendering of services to the company. To that extent, there is
failure to discharge the onus on part of the assessee before the AO/CIT(A).
Same is the case with regard to the commission payments made to
Shri Ramesh Chandak (HUF) and Shri Ravindra Agrawal (HUF), the
commission agents. On considering the above submissions of the assessee,
AO proceeded to disallow the commission as per the discussion given in
Para 6 and 7 of the assessment order. For the sake of completeness of this
order, we proceed to extract the said paras as follows :
“6. The submissions of the assessee has duly been considered. The fact of the case relied upon are distinguishable from the facts of instant case, as in the case refereed above, the payment of commission was made to Managing Director, who was an employee and commission was paid to him towards services rendered by him in respect of the achievement of annual target of sales of Rs.10 Crs and the services rendered by him on a term of employment. However, in the instant case, the assessee is not an employee of the Company and there was no target provided to him and although commission was paid as per Board's resolution, the details of services rendered by the director of the company for which he was obliged commission has neither been provided to the AO during the course of assessment proceedings nor before the undersigned. No credible evidence has been brought on record by the assessee to justify the claim of commission paid except Board's Resolution. Hence, the commission paid to Laxminiwas Vishudas Agrawal is disallowed and added to the total income of the assessee at Rs.15,11,800/- . . . . . . . .
As regards commission paid to Ramesh Chandak, HUF and Ravindra Agrawal, HUF, the assessee has submitted copy of resolution and extract from AGT and it has been stated that as applied to Company and accepted by the Board of directors and by share holders, commission has been paid to HUF's of the directors. It has also been stated that HUFs are regularly doing this business of commission agency since many years. The submission of the assessee have duly been considered. However, the same are not acceptable for the reason that the commission to HUFs is paid for first time by the assessee company and the nature of services rendered by these HUFs is also not specified. In the light of above facts, the commission paid to Ramesh Chandak HUF and Ravindra Agrawal HUF is disallowed at Rs.1,92,992/- and 4,57,510/- respectively. . . . . . . . .”
Assessee could not improve his case before the First Appellate
Authority. Eventually, the CIT(A) confirmed the disallowances and
proceeded to dismiss the appeal of the assessee.
It is the case of the assessee before the CIT(A) that the commission
paid to Shri Laxminiwas V. Agrawal is an allowable expenditure in view of
the Board resolution of the company. According to the assessee, the
relationship between the assessee and Mr. Laxminiwas V. Agrawal is not
that of the employee or employer relationship. Therefore, the commission
received by Shri Laxminiwas V. Agrawal should be an allowable claim.
Assessee submitted that the commission is duly offered to tax in the return
of income filed by Shri Laxminiwas V. Agrawal under the head “income
from other sources”. The TDS return of the assessee was also relied in
support of the genuineness of payment of commission to Shri Laxminiwas
V. Agrawal. Assessee submitted that the payment made to Shri
Laxminiwas V. Agrawal is a genuine transaction and there is no intention
to evade the tax. However, CIT(A) did not appreciate the same. In Para
No.13 of his order, CIT(A) reasoned that when there is no employee-
employer relationship between the company and Shri Laxminiwas V.
Agrawal, the onus is on the assessee to demonstrate with evidences the
nature and extent of services rendered by Shri Laxminiwas V. Agrawal to
the company. The failure to demonstrate the same attracts the
disallowance and accordingly, the CIT(A) confirmed the disallowance made
by the AO.
Further, regarding the allowability of the commission payments made
to Shri Ramesh Chandak (HUF) and Shri Ravindra Agrawal (HUF), it is the
case of the CIT(A) that the same is not an allowable deduction u/s.37 of the
Act as the assessee failed to file the proof in support of rendering of the
services by the HUF. Contents of Para 16 of his order are relevant.
Before us, there is none to represent the case of the assessee.
Despite service of notice on the assessee on 26-02-2018 informing the date
of hearing on12-03-2018, neither there is any letter for adjournment of the
case nor the assessee presented himself before us. Considering the facts
of the case and with the assistance of Ld. DR for the Revenue, we proceed
to adjudicate the appeal in the following manner.
During the hearing before us, Ld. DR for the Revenue submitted that
this is a case where the disallowance of claims of commission made to the
Director/commission agents was made for want of evidences in support of
the claim of rendering of services by Shri Laxminiwas V. Agrawal and two
others. The onus is on the assessee to prove rendering of services by the
Director as well as the commission agents. On considering the same, we
find the appeal can be adjudicated with the help of Ld. DR for the Revenue
and also based on the papers available on records.
Further, Ld. DR for the Revenue submitted that the onus is on the
assessee to submit the requisite evidences when a claim of deduction is
made u/s.37 of the Act. It is the claim of the assessee that the commission
payments were offered to tax by the payees in their respective returns of
income and paid the taxes at higher rates. However, there is a requirement
of assessee to file the evidences to show disclosing of the commission
receipts in their respective returns of income and the applicable rates.
Referring to the said failure of the assessee qua the tax rates applicable to
the assessee and the payees, Ld. DR for the Revenue submitted that the
matters need to revisit the file of the AO for want of data on the applicable
maximum marginal rates and also the applicability of the binding judgment
in the case of Indo-Saudi Services (Travel) Pvt. Ltd. 310 ITR 306 (Bom.)
After hearing the Ld. DR for the Revenue and after going through the
orders of the Revenue available on record, we are of the opinion that the
assessee paid commission to Shri Laxminiwas V. Agrawal, Director of the
company and the same has the support of the Board’s Resolution. In our
view this part of the claim is allowable subject to the documentation
relating to the filing of computation of income of Shri Laxminiwas V.
Agrawal and the applicable higher tax rates. This line of adjudication has
the support of binding judgments of Hon’ble Bombay High Court in the
case of CIT Vs. Indo-Saudi Services (Travel) Pvt. Ltd. 310 ITR 306 (Bom.).
Of course, AO shall note that this judgment is delivered in the context of
the invoking of the provisions of section 40A(2) of the Act. In the said case,
it is held that the incentive commission need to be allowed in the hands of
the payer, when the payee pays tax at higher tax rate. Accordingly, this
part of the ground is allowed as above.
Regarding the commission payments made to the commission agents,
i.e. Shri Ramesh Chandak (HUF) and Shri Ravindra Agrawal (HUF), we find
these payments are made to these parties for the first time and the
deduction is claimed u/s.37 of the Act. Therefore, there is need for
discharge of onus by the assessee with reference to the nature of services
rendered by them to the company. Therefore, for want of discharge of
onus by the assessee, we find this portion of the issue needs to be
remanded to the file of the AO. Assessee shall be granted reasonable
opportunity of being heard to the assessee in accordance with the set
principles of natural justice.
In the remand proceedings before the AO, the assessee shall
discharge the onus with reference to furnishing of the details of the services
rendered by the payees and others as mentioned above. Further, we direct
the AO to entertain the evidences if any in the interest of administration of
justice. With these directions, we remand the aforesaid issues to the file of
AO for fresh adjudication. Accordingly, the grounds raised by the assessee
are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical
purposes.
Order pronounced on this 21st day of March, 2018.
Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 21st March, 2018. Satish
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत
अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-2, Aurangabad 3. आयकर आयु� / The CIT-2, Aurangabad 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “एक सद�य 5. एक सद�य एक सद�य” / एक सद�य DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune