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Income Tax Appellate Tribunal, DELHI BENCH “SMC-2” NEW DELHI
Before: SHRI S.V. MEHROTRA :
Date of hearing : 20/07/2016. Date of order : 29/07/2016. O R D E R PER S.V. MEHROTRA, A.M:
This is assessee’s appeal against the order dated 18.3.2015 passed by the ld. CIT(A)-10, New Delhi, relating to A.Y. 2011-12. 2. Following grounds have been raised by the assessee in its appeal: “1. Ld.CIT (A) erred in facts and in Law in confirming an Addition of Rs.54,060/-towards Car maintenance and Telephone and Travelling.
2. That Car was used for Business purposes and Telephone expenses are for Telephones at Business Premises and Travel was done for Business disallowance @ 5% is highly excessive and the Addition made at Rs.54,060/- is Bad in Law.
Ld.CIT (A) erred in facts and in Law in confirming and disallowance of Rs.9,36,900/- towards commission payments ..
4. That Ld. A.O. made observations regarding Commission Payments in the Asstt. order at Page 6 Para (1) to VII are opposed to facts Law and circumstances of the Case an documents produced and Addition made and confirmed by Ld.CIT (A) and Addition confirmed is Bad in Law. 5. Ld.CIT (A) ignored the evidence place on Record by observing of services rendered and commission earned at Rs.22, 19,369/ - and Turnover generated at Rs.6,78,40,322/ - and confirmation of disallowance at Rs.9,36,900/- is Bad in Law”. 3. Brief facts of the case are that the assessee, proprietor of M/s Micro Devices Inc., in the relevant assessment year, was engaged in the business of trading in computer peripherals and electronic components. He filed his return of income showing income of Rs. 20,51,397/-.
3.1. AO completed the assessment after making following disallowances:
(a) out of expenses claimed Rs. 1,27,797/- (b) Addition on account of commission paid Rs. 11,64,500/- 3.2. Ld. CIT(A) partly allowed the asessee’s appeal. Being aggrieved, the assessee is in appeal before the Tribunal.
Brief facts apropos ground nos. 1 & 2 are that the AO noticed from the P&L A/c that the assessee had debited a sum of Rs. 2,04,312/- under the head car repair & maintenance; Rs. 1,47,786/- on telephone, Rs. 1,96,785/- on depreciation on car and Rs. 7,29,096/- on travelling. The AO made disallowance of 10% of these expenses on account of personal use of these facilities, observing as under:
The issue of non business use of car and telephone was discussed with ld. counsel who agreed that non business use of these items cannot be ruled out completely. Accordingly, 10% of these expenses being fair proportionate is disallowed u/s 37 & 38 of the Income Tax Act, 1961. The total of these expenses comes to Rs. 12,77,979/- (Rs. 2,04,312+Rs. 1,47,786+ Rs. 1,96,785/- Rs. 7,29,096/-) and Rs. 1,27,797/- being 10% of this amount is added in the income of assessee.
I have heard both the parties. Ld. counsel for the assessee pointed out that keeping in view the assessee’s turnover of Rs. 6 crores, the disallowance made by AO is on higher side. I find that AO has not pointed out any specific item of disallowance, but at the same time since it cannot be denied that there was personal use of various facilities under consideration, therefore, I direct that the disallowance be restricted to 3% of the total expenses as against 5% made by ld. CIT(A). Ground is partly allowed.
Ground nos. 3 & 5: Brief facts apropos ground nos. 3 & 5 are that the AO called for the details of expenses debited to P& L a/c. The assessee, inter alia, submitted copy of ledger account of commission expenses. The AO noticed that assessee had paid all the commission in cash and no TDS had been deducted by the assessee on these payments except three payments made on 28.2.2011 paid to M/s Swastic Marketing and Shri Ashok Anand through cheque. The assessee pointed out that no tax was deducted except in respect of three bills of M/s Swastic Marketing and Shri Ashok Anand, as the payments made were below Rs. 20,000/-. The AO has reproduced the entire ledger account of the commission aggregating to Rs. 17,64,500/- and from that concluded as under:
(i) During the year payments have been made to different persons as a single payment and their names never been repeated. The commission agents are usually common and. they took orders continuously. (ii) All the above figures of commission payments are in round figures, the amount of the sale I orders may be some in rounds figures but mostly it is not possible that orders can be placed in rounds figures only. In this case all payments have been made in round figures. (iii) The assessee was asked to produce the persons to whom commission had been paid but the assessee have been shown his inability to produce the persons and also stated in favour of his version that the commission agents are not common and not coming continuously for orders, hence could not be produce in person in absence of any residential addresses of the agents. (iv) Maximum payments have been made on different dates and to different persons. It is not possible that moreover 60 to 70 commission agents come to receive his commission on different dates, because the commission expenses are fixities hence, the assessee tried to adjust the expenses debited under this head to the whole year. (v) Most important reason for disallowance is that the assessee has made all the payments in cash while he knows that he has to pay commission to his agents which are regularly placed the orders. He can force him to open an account in the bank for payments and which agents not fulfill this condition, he can deny for taking further orders. (vi) All the above transactions (other than three transactions made on 28.02.2011) have been made keeping in mind the provisions of sec. 40 of IT Act, 1961, which is not to made any payments above RS.20,OOOI- in cash. All the above transactions clearly show that the limit provided in the Act has not been break very wisely. (vii) The assessee was also called for to produce all the vouchers of these commission expenses but the assessee shows his inability to produce the same and stated that vouchers are misplaced. In this condition, the commission expenses should not be allowed.”
Ld. counsel for the assessee submitted that assessee is operating in Nehru Place, where customarily he has to make the payment of commission to various parties in order to meet the extensive competition in the market. He submitted that they are petty sales agent and, therefore, it was not possible for assessee to produce them.
Ld. DR submitted that assessee has not linked the commission with the sales and, therefore, the disallowance has to be confirmed. 9. I have considered the submissions of both the parties and have perused the record of the case. Admittedly, assessee had paid commission against three bills through cheque after duly deducting TDS and, therefore, ld. CIT(A) had allowed a relief of Rs. 2,27,600/-. It cannot be denied that the computer industry is in highly competitive field, as also noted by ld. CIT(A) also and, therefore, in order to ensure sales, the assessee must be paying commission to various sales agent. The AO has primarily drawn adverse inference from adjoining circumstances noted earlier. However, he has not pointed out any specific instance to controvert the stand taken by assessee. But at the same time it cannot be denied that the onus was on assessee to substantiate the claim made by it. Considering the custom prevailing in the market, I am of the considered opinion that it would meet the ends of justice if expenditure on commission is restricted to 1% of the gross sales being Rs. 6,78,40,322/-, which will include the commission paid through cheque by assessee, which has been allowed by ld. CIT(A). the AO will allow the balance amount as expenditure. 11. In the result, assessee’s appeal is partly allowed. Order pronouncement in open court on 29/07/2016.