SHRI ARUN KUMAR JHUNJHUNWALA,HOWRAH vs. ITO, WARD-48(1). KOLKATA, KOLKATA

This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -14 , Kolkata [ in short the ld CITA] in Appeal No. 301/CIT(A)- 14/Wd-47(2)/2011-12 dated 29.07.2016 against the order passed by the Income Tax Officer, Ward-48(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act ‘) dated 23.12.2011 for the Asst Year 2009-10. 2. At the outset, there is a delay in filing the appeal by the assessee by 35 days for which a delay condonation petition has been filed by the assessee. It was stated that the assessee is suffering from oral malignancy due to which he is not in a position to properly concentrate in his business and is undergoing treatment in various hospitals in Kolkata, Mumbai and Chennai. Because of his ill health, he had misplaced the order and the same could be traced only on 22.11.2016 and thereafter the appeal was filed immediately on 28.11.2016 with a delay of 35 days. We find that the reason adduced for the delay is reasonable and we deem it fit to condone the delay and admit the appeal for adjudication.

The brief facts of this issue is that the assessee is a proprietor of M/s Consol Engineering & Fasteners Industries engaged in the business of manufacture and export of engineering goods. The assessee filed his return of income for the Asst Year 2009-10 on 9.10.2009 declaring total income of Rs 9,67,121/-. In the course of assessment proceedings, the ld AO observed that the assessee had paid commission to four persons at different rates as below:- TABLE: - 1 Sl. Name of the Name of the Items Quantity Rate of Commission No Commission purchase purchased in Kgs. Commission paid in Rs. . Agent party 01 Kamal Baid & Sanvijay Steel 47730 Rs.5 per Kg 238650 Others (HUF) Rolling & Angle Engineering Ltd. 02 Sumit Sanvijay Steel 39760 Rs.5 per Kg 198800 Jhunjhunwala Rolling & Angle Engineering Ltd. Total Commission paid 437450

The assessee reiterated the same arguments taken before the ld AO and also submitted that the reasoning given by the ld AO cannot be extended to persons who are not related to the assessee. Accordingly the commission paid to Mr Uttam Kumar Agarwal would be outside the scope of section 40A(2) of the Act. The ld CITA observed that the provisions of section 40A(2) of the Act would be applicable only when the said payments or expenses are proved to be excessive or unreasonable and that those payments were made to the specified persons within the meaning of the said section. He held that these conditions are satisfied in the case of payments made to daughter in law of the assessee – Namrata Jhunjhunwala but not in the case of Uttam Kumar Agarwal. Accordingly, he upheld the disallowance u/s 40A(2) of the Act only in respect of Namrata Jhunjhunwala.

Aggrieved, the assessee is in appeal before us on the following grounds:- “01. That the Learned Commissioner of Income Tax (Appeals) - 14, Kolkata erred in law as well as on facts of the case while partly confirming the disallowance made by the learned Assessing Officer on account of commission expenses u/s 40(A) (2) of the Income Tax Act, 1961. 02. That the Learned Commissioner of Income Tax (Appeals) - 14, Kolkata erred in law as well as in facts of the case while considering Namrata Jhunjhunwala, being daughter in law of the appellant,. as specified person within the meaning of section 40(A) (2) of the Income Tax Act, 1961.

We have heard the rival submissions and perused the materials available on record. We find that the assessee had made commission payments at Rs 10 per kg to his daughter in law Mrs Namrata Jhunjhunwala. We find from page 2 of the paper book the marriage certificate issued on 18.8.2007 that both Sumit Jhunjhunwala and Namrata Jhunjhunwala are husband and wife and that Mr Sumit Jhunjhunwala is son of the assessee. Hence the payment of Rs 10 per kg towards commission was made by the assessee to his daughter in law. Section 40A(2)(b) of the Act defines ‘specified persons’ in respect of an ‘individual’ as ‘any relative of such individual. As such ‘daughter in law’ would fall in that meaning and therefore becomes ‘specified person’ within the meaning of section 40A(2) of the Act. Now the next point to be decided is as to whether the payment made to daughter in law by assessee is excessive or unreasonable so as to warrant partial disallowance of commission paid. It is not in dispute that the commission payment is meant wholly and exclusively for the purpose of business of the assessee. It is not in dispute that the assessee had paid Rs 5 per kg to both related and an unrelated party and had paid Rs 10 per kg to an unrelated party. While this is so, the comparable cases constitute Rs 10 per kg paid to an unrelated party i.e Uttam Kumar Agarwal. The same rate of commission is paid to daughter in law ie Namrata Jhunjhunwala. Hence the same cannot be considered as excessive or unreasonable within the meaning of section 40A(2) of the Act warranting disallowance. Accordingly the grounds raised by the assessee in this regard are allowed.

The Ground No. 3 raised by the assessee was stated to be not pressed by the ld AR in view of smallness of the amount involved therein. The same is reckoned as a statement

In the result, the appeal of the assessee is partly allowed.

Shri Arun Kumar Jhunjhunwala, 86, Salkia School Road, Howrah-711106.

I.T.O., Ward-48(1), Kolkata.

CIT(DR), Kolkata Benches, Kolkata.