PHRAMA CORPN INC PRIVATE LIMITED,INDORE vs. ACIT CIRECLE 4(1), INDORE

The assessee is a Private Ltd. company engaged in the business of trading of Pharmaceutical Products. During the scrutiny assessment the AO noted that the assessee has claimed commission expenses which are increased 181% during the year whereas the turnover of the assessee is increased only 26% year on year. The AO asked the assessee to explain the abnormal increase in the commission payment during the year. In reply the assessee submitted that the assessee has changed its marketing policy to increase the turnover and appointed C& F agents. The commission has been paid to the C & F agents on the basis of the turnover. The AO issued notices u/s 133(6) to the commission agents to whom the commission was paid calling for confirmation and information. Out of 14 notices only two responses were received by the AO who confirmed the amount paid to them. Thereafter the assessee provided new addresses of commission agents and AO issued fresh notices to them. Out of four notices only two agents responded and no response was received from other two agents namely Gopi Mohan Drug Distributors (Assam) and Ridhi Sidhi Associated (Raipur). The AO further noted that the other eight agents also not responded including Vyali International (Bhiwandi) to whom the assessee has claimed to have paid Rs.3,96,042/- as commission. Page 2 of 6

Before the Tribunal the Ld. AR of the assessee has submitted that the assessee company has changed its marketing policy and appointed C & F agents for increase of turnover. The commission was paid to the C & F agents and relevant details were filed before the AO as well as the before the CIT(A). He has submitted that the AO has disallowed part commission for want of confirmation from the commission agents as they did not response to the notice issued by the AO u/s 133(6) of the Act. However, the assessee produced all the relevant details and even the ledger account of assessee in the books of the commission agents which itself is confirmation of payment of commission by the assesse. Thus, Ld. AR has submitted that when the expenditure was incurred for the purpose of the business of the assessee then the same cannot be disallowed merely, on the ground that the commission agent has not responded to the notice issued by the AO. In support of his contention he has relied upon the following decisions:

Thus, Ld. AR has submitted that when the assessee produced all the relevant details showing the payment of commission to the agents as well as sales made by these agents then the disallowance made by the AO is not justified. He has further contended that the assessee has produced the ledger account of the assessee in the books of the agents in support of his claim but the CIT(A) has not considered the same and confirmed the disallowance made by the AO.

As regard the discrepancy of Rs.95,512/- in respect of Krishna Pharma. The Ld. AR has submitted that this difference is only on account of TDS deducted by the assesse and the commission agent has sent the information to the AO of net commission receipt whereas the assesse has shown in the books the commission paid to the agent inclusive of TDS. Thus, the discrepancy is only on account of TDS amount which was deducted by the assessee and paid to the account. Hence, the Ld. AR has submitted that the matter may be remanded to the record of the AO for verification of the relevant details and then allowed the claim of the assessee.

On the other hand, Ld. DR has fairly submitted that the matter required a proper verification and examination of the Page 4 of 6

Having considered the rival submission as well as relevant material on record we note that the AO disallowed the commission paid to C & F agents for want of confirmations from the commission agents in response to the notice issued u/s 133(6) of the Act. Further the AO has also made disallowance of Rs.95,512/- on account of discrepancy of the claim of commission of the assessee and reply filed by M/s Krishna Pharma admitting receipt of commission of Rs.9,02,861/- as against the claim of the assessee of Rs.9,98,373/-. Ld. AR has clarified that this discrepancy is only due to the TDS amount and the commission agent has shown only net amount of commission instead of the total commission payment. Thus, the said difference is not an excess claim made by the assessee. We further note that the assessee has subsequently filed ledger account of the assessee in the books of account of the commission agents along with details and record showing sales made by them. The said relevant record filed by the assesse before the CIT(A) is required to be verified and examined. Similar difference in case of Krishna Pharma as claimed by the assessee is only on account of TDS is also required to be verified at the level of the AO. Accordingly in the facts and circumstances of the case this issue of disallowance of commission payment is set aside to the record of the AO for proper verification and examination of the relevant record as well as difference on account of TDS in case of Page 5 of 6

In the result, appeal of the assessee is allowed for statistical purposes.