MAHALINGA TEXTILES,THENI vs. ITO,WARD-1, THENI
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Income Tax Appellate Tribunal, ‘A’ (SMC
Before: SHRI MAHAVIR SINGH
आदेश/ O R D E R
This appeal by the assessee is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Order No.ITBA/NFAC/S/250/2023- 24/1056528254 (1) dated 26.09.2023. The assessment was framed by the Assessing Officer, National Faceless Assessment Center, Delhi for the assessment year 2015-16 u/s.143(3) r.w.s. 263 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 31.03.2022.
- 2 - ITA No.1296/Chny/2023 2. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO upholding the disallowance of commission expenses of Rs.12,13,960/-, as the expenses are not supported by bills and vouchers and moreover, the expenditure incurred is not exclusively for the purpose of business.
Brief facts are that the assessee is a commission agent for textile mills and declared commission income in its return of income for the assessment year 2015-16 at Rs.86,500/- filed on 01.12.2015. The return of income for assessment year 2015-16 was selected for scrutiny assessment under CASS and notices u/s.143(2) & 142(1) of the Act were issued. In response to above notices, assessee produced books of accounts, bank account statement, vouchers for expenses incurred before the AO and return of income was accepted. Subsequently, a show cause notice was issued u/s.263 of the Act for revising the assessment for the reason that the assessment framed is erroneous insofar as prejudicial to the interest of the Revenue for the reason that the vouchers for commission expenses to the tune of Rs.24,44,407/- has not been verified by the AO and also unsecured loans taken by the assessee and cash introduced by the partners have not been
- 3 - ITA No.1296/Chny/2023 verified. Consequent to the revision order passed by the PCIT u/s.263 of the Act, the AO framed the assessment afresh calling for and examining the records and evidences, the AO required the following documents:- 1. Detailed note on nature of business activities 2. Copies of ledger accounts for the following expenses 3. i)Bank Charges i) Bank Interest ii) Commission received iv) Balance Sheet with annexure (v) Profit & Loss Account 4. Commission Expenses details 5. Details for Unsecured Loans and its Confirmations and 6. Details for Cash introduced by the partners
In view of the above queries, the assessee submitted copies of vouchers for commission expenses incurred, loan confirmation, letter confirming borrowings, ledger account copies, detailed note of business activities etc. The assessee explained before the AO that out of total commission expense of Rs.27,44,407/-, a sum of Rs.12,30,447/- was paid on various dates by cash and balance amount of commission expenses of Rs.12,13,960/- was paid through bank accounts. The assessee uploaded the copies of cash vouchers to the tune of Rs.12,30,447/- through online. Since the balance commission amount of Rs.12,13,960/- has been paid through bank account on various dates, the assessee has not uploaded the vouchers but submitted its bank statement for said period evidencing the fact that the payment for commission
- 4 - ITA No.1296/Chny/2023 expenses have been made and the details of the recipient of the commission along with PAN number. But the AO disallowed the expenses claimed on account of payment of commission u/s.37 of the Act by observing in para 10 & 11 of the assessment order as under:- “10. In this connection, it is also submitted that these deductions u/s 37 cannot be said to have been laid out or expended wholly and exclusively for the purposes of business. The expenses remain under the purview of non- verifiability and hence, can be said to be of personal nature. In this regard, provisions of section 37 is reproduced as:
(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
The Draft Assessment Order along with computation of total income was sent to the assessee through SCN Module on 29.03.2022. In response to the same, the assessee has submitted his reply on 31.03.2022 that commission expenses of Rs.12,13,960/- were made through bank current account. The reply is duly considered but not acceptable as in assessee's reply dated 2.12.2021, it has itself accepted to have failed to deduct TDS on the commission expense of Rs. 12,13,960/-. Therefore, Rs. 12,13,960/- is being hereby disallowed u/s 37(1) of the Act.
Due to non-verifiability of these claims, in absence of submissions by the assessee, in spite of adequate opportunities of being heard given to him, Rs. 12,13,960/- is being hereby disallowed u/s 37(1) of the Act as the assessee has failed to submit any documentary evidence against the said claim. Penalty proceedings u/s 271(1) (c) is hereby initiated for furnishing inaccurate particulars of income.” Aggrieved, assessee preferred appeal before CIT(A).
- 5 - ITA No.1296/Chny/2023 4. The CIT(A) noted that the assessee is unable to submit proof of expenses as AO has to strictly examine the issue in all aspects and burden lies on the assessee to prove the same. He noted that the assessee had able to submit only a statement of commission payable as on 31.03.2015 and the relevant bank statement. But according to him, this is not sufficient compliance. Further, he noted that it is found from the statement submitted in respect of commission paid, the date of entry in books is shown as made on 31.03.2015 and the entire impugned amount is shown as outstanding as on 31.03.2015. Majority of the payments shown as paid in the subsequent financial year i.e., 2015-16 mainly from the middle of the year to the end of the FY 2015-16. Also, majority of the commission agents demand the commission payment on or before the business transaction takes place (or) immediately concluding the business transaction. This entry is clearly indicating the pattern of payment which is against the trade practice in the commission business. Further, no proof is submitted before the AO that the impugned amount is paid only for the purposes of business and the amount is in the nature commission paid. All the amounts of commission in each case claimed is also exceeding the threshold limit to deduct tax u/s 194H of the Act. The reason for failure of deduction of TDS is not provided by the assessee. Though non-
- 6 - ITA No.1296/Chny/2023 deduction of tax is one of the reasons for suspect the genuineness of expenditure, various other ways to prove the expenditure claimed as genuine and incurred for the business purpose in the form of commission paid/payable is not substantiated by the assessee. Therefore, the ground of appeal raised to allow the expenditure does not merit consideration and, hence, dismissed. In view of the above, he dismissed this issue of assessee’s appeal. Aggrieved, now assessee is in appeal before the Tribunal.
Before us, the ld.counsel for the assessee filed complete bills and vouchers in its paper-book consisting of pages 1 to 19. The ld.counsel for the assessee filed confirmation certificate from Nisha Afthab Balgis Begum, Anil Babulal Agarwal and Pradeep N. Doijad confirming payment of commission to these parties. Apart from other verbal argument, the ld.counsel requested the Bench to delete the addition.
On the other hand, the ld. Senior DR relied on the assessment order and the order of CIT(A).
I have heard rival contentions and gone through facts and circumstances of the case. I noted that the main argument of the
- 7 - ITA No.1296/Chny/2023 ld.counsel for the assessee is that the assessee’s main business is to canvas the yarn sales for their mill customers and acted as commission agents for them for executing yarn/fiber trading. It takes buying orders from the buyers and ensures the quality of the yarn/fiber for their buying customers. The mills who in turn send their products to the required parties and the assessee is to take care of the quality of the product taken by them and the persons acting from buyer side takes the responsibility of payments for the mills who sends the products. The persons acting from the buyer's side won't receive any commission from the mills who purchased the yarn. It is the trade practice followed in this industry. The assessee used to share the commissions they received up to 50% to the persons who acted on behalf of the buyer side. Most of the commission payments were made through bank account. If the mill who sells the yarn/fiber don't receive the payments from the mills who purchased the products, the assessee’s commission won’t be given/adjusted by the mills. The commission shall be shared by the assessee with the persons who involved from the buyer side, only settling all the issues related to the particular transactions. The assessee has enclosed copy of bank account evidencing the fact that payments were made to the respective persons who involved in the transactions. The AO has not even applied his mind to verify
- 8 - ITA No.1296/Chny/2023 even the bank statements to confirm that commission payments were made. The bank account where the assessee made the commission payments is the conclusive evidence for making the payment. The person who is in the field of commission business cannot do the business without making commission payments to the persons who actively in executing the business transactions. However, the assessee filed confirmation for commission payments made through bank in respect of following three parties:- Name & Address of the Persons PAN of the Person Amount received Anil Babulal Agarwal 102 Malhar Towers AABPA8472H 2,00,000 Mumbai – 400063 Pradeep N. Doijad 9/507, Vrindavan Colony, AARDP6514H 70,000 Jay Sangi Naka Ichalkaranji – 416115 Nisha Afthab Balgis Begum, 12-6-20 Sanakaran Nagar, CBQPB5910F 4,80,000 Nilakottia (HO) Dindigul District - 624208 Total 7,50,000
As regards to balance commission of N. Subbiah - Rs.10,000/-, Sri Lakshmi Textiles –50,000/-, SVK. Vasukrishnan – Rs.19,000/-, R. Sivakami – Rs.3,27,000/- and Irulappa Mills – Rs.50,000 paid on various dates through banking channel, assessee could not obtain the confirmation and could not file even before the Tribunal. Going by the facts of the case and circumstances in the present appeal, I
- 9 - ITA No.1296/Chny/2023 delete the addition of commission expenses made by AO at Rs.7,50,000/- in respect of three recipients who have confirmed the receipt of commission. As regards to balance commission of Rs.4,63,960/-, I make a reasonable estimate of 50% might have been incurred by assessee and balance 50% is disallowed. Hence, addition of Rs.2,31,980/- is sustained and rest of additions are deleted.
In the result, the appeal filed by the assessee is partly- allowed.
Order pronounced in the open court at the time of hearing on 20th February, 2024 at Chennai. Sd/- (महावीर �सह ) (MAHAVIR SINGH) उपा�य� /VICE PRESIDENT चे�ई/Chennai, �दनांक/Dated, the 20th February, 2024 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� /CIT 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF.
