EXIMCORP INDIA PRIVATE LIMITED,KOLKATA vs. DCIT, CIR.-5(2), , KOLKATA

The assessee has taken four grounds of appeal. However, its grievances revolve around a single issue namely, whether the assessee is entitled to expenditure incurred on commission payments to the HUF or not. It emerges out from the record that earlier this appeal was heard ex-parte by the Tribunal and vide its order dated 30.03.2022 it was dismissed. The assessee has filed I.T.A. No.: 2582/KOL/2019 Assessment Year: 2013-14 Eximcorp India Private Limited. a Miscellaneous Application for recall of the ex-parte order and deciding it again after hearing the assessee. But this Miscellaneous Application was also rejected by the Tribunal vide its order dated 11.11.2022.

3. Dissatisfied with the orders of the Tribunal, assessee carried the matter in appeal before Hon'ble High Court and the Hon'ble High Court has set aside both the orders of the Tribunal, restored this appeal to the Tribunal for deciding it afresh.

The brief facts of the case are that assessee has filed its return of income on 28.11.2013 declaring total income at Rs. 4,55,18,897/-. Its case was selected for scrutiny assessment and a notices u/s 143(2) of the Act as well as u/s 142(1) of the Act were issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer (in short ld. 'AO') that assessee has paid commission of Rs. 9,39,434/- & Rs. 2,40,561/- to Asish Kumar (HUF) and Pradip Kumar Patawari (HUF), respectively. He directed the assessee to explain why commission to HUF entities be allowed to it. In response to the query of the AO, assessee has filed a written submission which read as under: “Our sales policy is not to lose a customer to the best of our ability and reward the person who develops or introduces a business for the life time of a relationship with such customer regardless of whether such introducer has a regular role in day to affairs or not. This secures a trust and we are known in a market for such trust and reliability of our commitment. The management of sales requires expert skill to identify of our commitment. The management of sales requires expert skill to identify and determine the product in our range that actually fits the suitability for the end application of the user. With regard to the specific query concerning the accounts of (i) Aashish Kumar, (ii) Aashish Kumar, HUF and Chaitali Tibrewal we would like to state and submit that all the three accounts belong to Sri Aashish Kumar and he has only managed his commission receipts in a manner that minimizes his tax burden and we believe he is entitled to it. He together with Abhishek Rajgaria manages the entire sales of the company including office management, administration. Aashish Kumar is also an attorney of the company holding a power of attorney to discharge all the functions as may arise while managing the day to day affairs.

The ld. AO took note of this submission and thereafter, recorded following finding:

Dissatisfied with the finding of the AO, assessee carried the matter in appeal before ld. CIT(A) and ld. CIT(A) concurred with the AO. The brief finding recorded by ld. CIT(A) read as under:

Before us, ld. Counsel for the assessee submitted that there is no bar under the Rules that HUF cannot claim commission in lieu of rendering services. Therefore, the AO has erred in disallowing the claim of the assessee.

On the other hand, ld. D/R relied upon the orders of Revenue authorities.

We have duly considered the rival contentions and gone through the record carefully. It is pertinent to observe that HUF is an independent identity which is taxable under the Income Tax Act. It affairs are to be looked into by the Karta of the HUF. A perusal of the finding of the AO would reveal that assessing officer has nowhere pointed out the defects about the services rendered by the Karta, Sh. Asish Kumar and Sh. Pradip Kumar Patawari. The AO was under some misconception and by misconstruing the whole affair come to a conclusion that request of the Karta in his individual case to partly make payment in the capacity of a Karta of HUF would suggest that there is no evidence of rendering services. It is pertinent to note that assessee has debited Rs. 1.19 Crore towards commission payment. It has returned an income of more than Rs. 4.55 Crore. There was no occasion for the assessee to indulge in diverting a small amount to an entity which has not performed the services. No doubt it is difficult to draw a line when Karta was working in his individual capacity vis-à-vis working as a Karta of the HUF. But this aspect has not been examined in the assessment order. We have reproduced the finding of the AO. It is not based on any scientific analysis of the total commission payment vis-à-vis benefit availed by the assessee. Rather, the AO only misconstrued the nomenclature of the service provider vis-à-vis the commission payment. If the case of the payee is for scrutiny then in his case it could be examined whether he has diverted his taxable income towards his HUF or not. But, for the purpose of payer i.e. the assessee, it has debited the expenditure for the serviced availed from both these Kartas. Therefore, there is no justification to disallow the alleged commission payment in the hands of the assessee because it has been diverting by its service provider in the hands of HUFs. The AO in the case of payee would examine whether under an overriding title, this income is to be assessed in the hands of individual or in Page 4 of 5