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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
There are 4 appeals filed by the assessee under consideration involving two Assessment Years, i.e., 2007-08 and 2008-09. ITA Nos. 1061 and 1062/PUN/2015 relate to the disallowance of commission payment made in the assessment orders passed u/s.143(3) of the Act; whereas the appeals ITA Nos. 1063 and 1064/PUN/2015 relate to the penalty levied u/s.271(1)(c) of the Act on the said disallowance of claim of commission payment.
It is an admitted position that the penalties becomes unsustainable in law if the quantum addition issue relating to the
commission payments is decided in favour of the assessee. Therefore, we
shall take up the quantum appeals first.
ITA Nos. 1061 and 1062/PUN/2015 (A.Yrs. 2007-08 and 2008-09
The only ground commonly raised by the assessee in A.Yrs. 2007-
08 and 2008-09 read as under :
“Hon. Commissioner (Appeals) erred in confirming the additions of sales commission paid to related parties at Rs.9,18,000/- which may please be allowed.”
Briefly stated relevant facts culled out from the appeal ITA
No.1061/PUN/2015 are include that the assessee is a firm engaged in
the business of aluminum related activities. During the assessment year
under consideration, AO noticed that the assessee paid an amount of
Rs.10,37,499/- as commission and discount to Sri Pritesh P. Lodha, a
person specified u/s.40A(2)(b) of the Act. Assessee was to justify the fact
of payment of commission to Sri Pritesh P. Lodha and the services
rendered by Sri Pritesh Lodha. Assessee produced a sale bill which
conveys that Sri Pritesh P. Lodha sold goods worth Rs.4,58,99,997/- for
the assessee and raised the invoice for a sum of Rs.9,18,000/-. It works
out to 2% of the total sale. Assessee was therefore asked to produce the
account extract showing the commission. On perusal, AO noted certain
discrepancies in the said extract. Considering the same that assessee
did not file evidences in support of the services rendered by him to the
assessee, the AO invoked the provisions of section 40A(2)(b) of the Act
and held the payment as fictitious/bogus expenditure and added the
same to the total income of the assessee. Further, the AO also (1)
disallowed an amount of Rs. 5,20,000/- being salary paid to Smt.
Manisha Lodha and Smt. Samata Lodha as inflated expenditure, (2)
disallowed an amount of Rs.7,75,026/- towards burning loss restricting
the burning loss to 1% as against 3.5% claimed by the assessee.
Eventually, AO assessed the total income of the assessee at
Rs.1,07,20,416/-.
During the First Appellate proceedings, CIT(A) confirmed the
disallowance of Rs.9,18,000/- made by the AO. While doing so, he held
that assessee failed to discharge his onus with cogent evidences that
payee has rendered any services to the assessee. Therefore, the
commission so paid by the assessee to Pritesh P. Lodha is held to be not
incurred wholly and exclusively for the purpose of business. Contents of
Para Nos. 2.4.1 to 2.4.5 of the order of CIT(A) are relevant. CIT(A)
granted relief in respect of other additions.
Aggrieved with the order of CIT(A), the assessee filed the above appeals before the Tribunal with the ground referred above.
Before us, Ld. Counsel for the assessee filed a copy of order of
Tribunal in the assessee’s own case in ITA No.1085/PN/2009 order
dated 27-04-2012 and submitted that the Tribunal in the assessee’s own
case in the A.Y. 2006-07 has deleted similar claim of payment of
commission disallowed by the AO. In that year too, Sri Pritesh P. Lodha
is the recipient of commission and he is assessed to tax. Ld. Counsel for
the assessee submitted that there is no loss caused to the Department as
the commission is subjected to tax in the hands of Sri Pritesh P. Lodha
too. Therefore, he submitted that since the Tribunal has granted relief
on the similar facts in the immediate preceding year, the said order of the
Tribunal becomes a binding precedent and in favour of the assessee.
Ld. DR for the Revenue relied heavily on the order of the AO/CIT(A)
dutifully.
We heard both the sides and perused the written submissions filed
by the Ld. Counsel for the assessee. We perused the order of the
Tribunal on this issue and find it relevant to extract the finding given by
the Tribunal in assessee’s own case for A.Y. 2006-07. The same is
extracted as under:
“11. Considering the above submissions, we find that it is not the case of the Department that assessee has paid more commission to the above commission agents for similar work as prevailing in the market. The revenue has doubted the payment of commission only because the above stated two agents fall in the category of persons specified in 40A(2)(b) of the Act. It is now an admitted fact that due to competitiveness in the market, the manufacturer has to engage commission agents to market their products and for recovery of the payments in time. This material submission of the assessee that they have not employed any persons in their staff for marketing their products but they have engaged the above stated two persons for this job and due to their effort, turnover has also been increased from Rs. 7 Crores showing during the last year to Rs. 10 Crores during the year. Considering all these material facts in totality, we are of the view that there was no reason with the A.O to M/s. J.M. Industries, A.Y. 2006-07 Page of 8 doubt the claimed payment of commission to the above stated two commission agents. We thus while setting aside orders of the authorities below direct the A.O to delete the addition of Rs. 9,24,634/- (made by invoking the provision of Sec. 40A(2)(b) of the Act). We also observed that in view of the turnover of the assessee, the payment of commission claimed does not appear to be on higher side or excessive. The ground No. 2 is accordingly allowed.”
Considering the above stated position on the issue, we are of the
opinion that the commission paid to Sri Pritesh P. Lodha is an allowable
deduction. The payment to one person in the year under consideration
does not disentitle the assessee from making the claim so long as
business of the assessee is benefited by his services. The arguments
made by the Ld. DR are not allowed. Therefore, we are of the opinion
that the issue now stands covered in favour of the assessee by the order
of Tribunal in the immediate preceding assessment year. Accordingly,
the ground raised by the assessee is allowed.
The grounds and the facts for the A.Y. 2008-09 are para-materia to
that of the A.Y. 2007-08. The arguments and counter arguments are
having equal force. On hearing the parties, we find the said decision of
Tribunal covers the issue in this assessment year too.
Consequently, the ground raised for the assessment year is
allowed.
In the result, both appeals of the assessee are allowed.
Now we shall take up the appeals pertaining to penalty
u/s.271(1)(c) of the Act.
ITA Nos. 1063 and 1064/PUN/2015 (A.Yrs. 2007-08 and 2008-09)
Assessee filed the present appeals under consideration in
connection with the penalty levied by the AO u/s.271(1)(c) of the I.T. Act
vide his order dated 28-03-2013. AO levied the penalty of Rs.4,84,008/-
for the A.Y. 2007-08 and Rs.10,74,171/- for the A.Y. 2008-09. These
penalties were levied on the issue of commission and salary payments
made by the assessee.
After going through the facts of the case, we find the entire penalty
levied by the AO need to be deleted, in principle. Since the quantum
addition in respect of commission payment has been deleted by us
relying on the decision of the Tribunal (supra) and the quantum addition
in respect of salary paid to Ms. Manisha Lodha and Ms. Samata Lodha
was deleted by the CIT(A) vide order dated 27-02-2015, the penalty levied
by the AO in both the assessment years does not survive. Accordingly,
the appeals raised by the assessee in these two appeals becomes
infructuous and therefore, the same are dismissed as such.
In the result, both appeals of the assessee are dismissed.
To sum up, ITA Nos. 1061 and 1062/PUN/2015 filed by the
assessee are allowed and ITA Nos. 1063 and 1064/PUN/2015 filed by the
assessee are dismissed.
Order pronounced in the open court on this 28th day of February,
2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 28th February, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-2, Pune 4. CIT-2 Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune