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Income Tax Appellate Tribunal, DELHI “C” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The captioned appeals are filed by the assessee against the separate orders, both dated 22.12.2023 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-10/10392/2016-17 and in Appeal No.CIT(A), Delhi-10/10525/2016-17 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of separate assessment orders dated 11.03.2016 and 30.12.2016 passed u/s 143(3) of the Act pertaining to Assessment Years 2013-14 & 2014-15 respectively.
The issues being common, interlinked and inter-connected in the both the captioned appeals filed by the assessee for different Assessment Years, therefore, same are heard together and accordingly, adjudicated by a common order.
3. First we take the assessee’s appeal for AY 2013-14 in ITA No. 699/Del/2024.
[Assessment Year 2013-14] 4. Brief facts of the case are that assessee was proprietor of M/s. Gappu Ispat, engaged in the business of trading of iron & steel and filed his return of income on 29.09.2013, declaring total income at INR 31,20,070/-. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued on 02.09.2014. Subsequently, notices u/s 142(1) alongwith questionnaire were issued, in reply to which assessee filed written submissions and required details thereof. Thereafter, AO assessed the income of the assessee at INR 80,71,670/- vide assessment order dated 11.03.2016 passed u/s 143(3) of the Act by making disallowance out of the commission paid by holding the same as bogus.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 22.12.2023, dismissed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That the learned Commissioner of Income-Tax (A) is wrong is determining the total income at Rs.80,71,670/-.
2. That the learned Commissioner of Income-Tax (A) is wrong is ignoring all material fact and evidence produced before her while computing the total income.
That the computation of total income is bad in law and is against the actual facts and evidence on record.
That the learned CIT(A) has erred in not allowing commission of Rs. 49,51,599/-.
5. The appellant craves leave to add, alter, amend, amplify or delete any or all of the grounds of appeal
before or at the time of hearing.
6. That the Learned A.O. has further erred in charging interest u/s 234A and 234B of the Income Tax Act and raising an aggregate demand of Rs. 20,38,330/-. Thus failing to appreciate that no such interest was leviable on the facts of the instant case and in any case and without prejudice the same had to be calculated in accordance with the statutory provisions.
7. That the assessment thus framed is, otherwise bad in law and is totally unsustainable, in as much as the same has been framed by disregarding evidence placed by the assessee in support of its return of income.
8. That the learned A.O. has further erred in levying interest u/s 2348 and 234C of the I.T. Act.”
Ground of appeal Nos.1 to 9 taken by the assessee are with respect to the disallowance of INR 49,51,599/- made out of commission expenses claimed by the assessee therefore, they are taken together for consideration.
8. Heard the contentions of both the parties and perused the material available on record. The AO alleged that assessee has paid total commission of INR 1,25,90,385/- out of which commission of INR 49,51,599/- paid to 10 parties is not genuine. The AO observed that out of 10 parties, 07 parties were not appeared and the notices issued to them were returned unserved and in respect of remaining 03 parties though they appeared but as per the AO, their explanations were not convincing. He thus, disallowed the amount of commission paid to them. The claim of the assessee is that the assessee is engaged in the business of trading of iron and steel and commission was paid to various persons for soliciting the customers.
The assessee filed complete details of the agents which includes their confirmations, copy of invoices, bank statements, their assessment particulars etc. The assessee has discharged the burden by filing all the relevant details in respect of the parties to whom commission was paid. It is also claimed that similar documents were submitted in respect of all the parties out of which commission of INR 75,57,786/- was held as genuine therefore, the commission paid deserves to be allowed.
On perusal of the details filed by the assessee, as available in Paper Book filed before us, it is seen that it contained confirmations, bank statements and ITRs. In some cases, affidavits of the recipients were also filed wherein they have accepted the rendering of services and receipt of commission. All the payments of commission were made through banking channel after deducting tax at source and the recipients parties have included the same in their returns of income and paid taxes thereon. Once the assessee has been able to establish the identity of the parties to whom commission is paid and the payments were made through banking channels and they have accepted the rendering of services to the assessee, the commission paid to them towards such services cannot be disbelieved and should be allowed as genuine expenditure.
It is further seen that AO has accepted the sales declared by the assessee which is around INR 13 crores and the sales to this magnitude could be achieved with the help of middlemen whose services cannot be denied merely because they were not appeared before the AO for which necessary reasons were submitted and their confirmations etc. were also filed.
Looking to the overall facts and circumstances, we find that total commission paid is around 2.01% of the total sales which is very reasonable in this line of trade and once the assessee has filed the confirmations and all other relevant documents, the same cannot be disallowed by holding the same as bogus. In view of above discussion, we direct the AO to delete the disallowance made out of the total commission expenses claimed by the assessee. Accordingly all the Grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Now we take the assessee’s appeal for AY 2014-15 in ITA No. 709/Del/2024.
[Assessment Year 2014-15]
Ground of appeal Nos. 1, 2 & 3 raised by the assessee are general in nature, need no separate adjudication hence, dismissed.
Ground of appeal Nos. 4 & 5 raised by the assessee are with respect to the disallowance of the commission of INR 1,05,63,454/- disallowed by the AO by holding the same as ingenuine and bogus. However, in the final computation of income in assessment order, the AO wrongly disallowed the amount of INR 1,38,60,230/- as against 1,05,63,454/- as discussed in the body of assessment order.
16. 1Before us, both the parties has admitted that the facts and circumstances of the case are the same as existed in preceding year i.e. AY 2013-14 and further admitted that the allegation made by the AO for making disallowance are also same. The ld. AR as well as ld. Sr. DR also relied upon the submission made in on this issue.
7. After considering the submissions of both the parties and perusal of the record, we find that in this year also, assessee has filed all the relevant details to establish the payment of commission as genuine which includes their confirmation, copy of ITR, ledger accounts and in some cases, affidavits of recipients were also filed. The payments were made through banking channels and the necessary TDS was also made. It is not the case of the Revenue that the recipients had not filed their return of income. Thus, looking to the overall facts and circumstances, we find that assessee has been able to discharge the burden casted upon him to establish the payment of commission to various parties as genuine. Accordingly, we hereby direct the AO to delete the disallowance made on this account. It is further seen that assessee has paid the commission of INR 1,05,63,454/- however, the disallowance was made of INR 1,38,60,230/- without providing any reason for change of figure at higher amount. This further proved that the AO has proceeded in a very casual manner in making the disallowance. We accordingly, delete the disallowance made by the AO. Ground of appeal Nos.4 & 5 raised by the assessee are thus allowed.
Ground of appeal Nos. 6 to 8 raised by the assessee are with respect to the disallowance of INR 25,35,808/- made on account of sundry creditors. The AO has made the addition of sundry creditors by holding that these are opening balances and no transactions were carried out in their accounts in the current year therefore, these creditors were bogus and added to the income of the assessee.
19. Heard the contentions of both the parties and perused the material available on record. The reason for making addition is that in respect of four creditors, there were opening balances and no transaction was carried out in the year under appeal. The amounts were also outstanding since previous year. It is seen that the addition was made u/s 68 of the Act. For ready-reference, section 68 of the Act reads as under:- Cash credits. 68. “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”
From the perusal of the provision of section 68 of the Act, it could be seen that this section could be invoked only when there was credit in the books of accounts in the year under reference. However, as observed above, in the instant case, admittedly all the creditors are having opening balances and none of the credit was received during the year. Therefore, provision of section 68 are not applicable under these facts. The Hon’ble Delhi High Court in the case of CIT vs Vardhaman Overseas Ltd. [2011] 16 taxmann.com 350 (Delhi) has held that the application of section 68 cannot be made since no fresh amounts were credited in the bank accounts of the creditors during the relevant year. It is also seen that assessee has not claimed any expenditure in the P&L Account with respect to these creditors and the balances were brought from the preceding years. Therefore, the addition made u/s 68 of the Act by the AO is not permissible in the eyes of law. Accordingly, addition made by the AO is deleted. Ground of appeal Nos. 6 to 8 raised by the assessee are hence, allowed.
In the result, appeal of the assessee is allowed.
In the final result, both the appeals filed by the assessee in [AY 2013-14] and in [AY 2014-15] are allowed.
Order pronounced in the open Court on 26.11.2025.