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Income Tax Appellate Tribunal, CUTTACK
Before: SHRI N.S SAINI
This is an appeal filed by the assessee against the order of CIT(A)-2,
Bhubaneswar, dated 21.10.2016, for the assessment year 2012-2013.
The sole issue involved in this appeal is that the ld CIT(A) was not
justified in confirming the addition of Rs.6,00,000/- paid as commission to
HUF of two partners.
I have heard the rival submissions and perused the orders of lower
authorities and materials available on record. The Assessing Officer found
that the assessee has claimed to have paid commission of Rs.6,00,000/- to
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Bikram Agarwal (HUF) and Binay Agarwal (HUF) of Rs.3,00,000/- each.
The Assessing Officer held that Bikram Agarwal and Binay Agarwal are
working partners in the firm and they are entitled to draw salary @
Rs.20,000/- per month from the firm. He further found that Bikram Agarwal
is the karta of Bikram Agarwal (HUF) and Binay Agarwal is the kartka of
Binay Agarwal (HUF). He relied on the decision of Hon’ble Supreme Court
in the case of K.S.Subbiah Pillai vs CIT, 237 ITR 11 (SC) and held that
Bikram Agarwal and Binay Agarwal cannot take any commission for doing
any business of the partnership firm as per terms of partnership deed.
Consequently, he disallowed deduction for commission payment of
Rs.6,00,000/-.
On appeal before the CIT(A), the assessee filed ledger copy of
commission account, copy of income tax return of Bikram Agarwal (HUF)
and Binay Agarwal (HUF) and copy of TDS certificate issued by the
assessee. The assessee has also filed order of the CIT(A)-II, Bhubaneswar
in the case of Shree Balajee Ispat where such commission has been
allowed as expenses.
The CIT(A) after considering the submission of the assessee held
that the fact that Bikram Agarwal and Binay Agarwal are working partners
of the assessee is not disputed. They are karta of their respective HUF is
not disputed. During the course of appeal proceedings on 18.10.2016, the
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assessee has filed the following agent commission agreements of the
assessee with Bikram Agarwal (HUF) and Binay Agarwal (HUF):
SI Name Date Commission account of No. 01 Binay Agrawal(HUF) 01.04.2011 L&T 02 Bikram Agrawal (HUF) 01.12.2011 Sagar Sales Coproration 03 Bikram Agrawal(HUF) 39.04.2011 Gayatri Construction 04 Bikram Agrawal (HUF) 15.04.2011 Jagannath Projects (P) Ltd
The text of the agreement is same in all the four agreement, which
is reproduced below:
"Vinay Agarwal(HUF) Shankar Cinema Road, Angul- 759122(Odisha) Dear Sir, We on behalf of the Partnership firm M/s. Metalloyds. Main Road, Angul are pleased to inform you that you have been appointed as Commission Agent with effect from Is' April, 2011 till 31s' March, 2012 under the following terms and conditions: 1. You shall canvas sales, liason and procure orders from M/s. Larsen & Toubro Ltd., various sites on our behalf for the items dealt by us like Welding Electrodes, Special Electrodes, Wires & Fluxes, Industrial Gases, Equipment, PPE Products, Paints, Lubricants, Grinding/Cutting Wheels, etc. 2. You shall be paid a commission of 1% on every completed crore worth of order procured & materials supplied to the above mentioned party during the Financial Year. 3. You shall make all efforts for early payment of pending bills, collection of forms, if any from the customer. 4. You shall be bound to maintain the secrecy of the firm. 5. The management shall be at liberty to revoke your appointment without assigning any reason what so-ever. 6. Any disputes what so-ever arising out of the above with the firm itself shall be subject to Angul Jurisdiction. You are requested to kindly sign the duplicate if this letter as a token of acceptance of the above terms & conditions immediately on receipt of the same. Thanking you,
Yours faithfully, For Mettalloyds “
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The CIT(A) further observed that the assessee has also filed the
following chart regarding the working of the commission.
SI no Commission Amount Commission Business Commission Commissio Total paid to on A/c. of during the basis n commissio F.Y. 2011-12 n
01 Vinay 300000.00 L&T Ltd 33107455.3 1 lakh of 300000.00 300000.00 Agarwal(HUF) 3 every completed Crore 02 Bikram 300000.00 Jagannath 8560045.93 2.5% 212500.00 300000.00 Agarwal Corpn. of every Project completed (p) Ltd lakh Gayatri 1452832.85 3% of every 43500.00 Construction completed s 50 k Sagar 2188061.93 2% per lakh 44000.00 Sales Corporation
The CIT(A) further observed that Hon'ble Supreme Court in the case
of K.S. Subbiah Pillai (supra) has held that when commission was earned
by the Karta of the HUF on account of his personal qualifications and
exertions not on account of the investment of the family funds, such income
will be taxed in the hands of individual and not in the hands of HUF.
Therefore, he confirmed the addition of Rs.6 lakhs on account of
disallowance of commission made by the Assessing Officer.
Before me, ld A.R. of the assessee argued that the assessee had filed
commission agreement before the CIT(A). He further argued that both the
Assessing Officer as well as the CIT (A) has not examined the services
rendered by the HUF to the assessee firm. He argued that the assessee
has detailed evidence in the form of sale invoices evidencing the sales
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procured by the HUF in consideration of which the commission payment
was made. He further argued that similar commission payment has been
allowed in the case of Shree Balajee Ispat by the CIT(A)-II, Bhubaneswar,
which was the submission made by the assessee before the CIT(A) but the
CIT(A) has not given any reasoning as to why the said decision was not
applicable in the case of the assessee before confirming the addition.
Therefore, he prayed that in the interest of justice, the matter should be
restored back to the file of the Assessing Officer for readjudicating the issue
afresh after considering all the evidences on the issue.
Ld D.R. had no objection to the above submission of ld A.R. of the
assessee.
I find that the assessee has relied on the decision of CIT(A)-II,
Bhubaneswar in the case of Shree Balajee Ispat before the CIT(A). The
CIT(A) has not given why the said decision is not applicable to the
assessee’s case. The CIT(A) has not examined the evidence of services
rendered by two HUFs for which commission payment was paid by the
assessee firm. In my considered opinion, this has to be examined and
considered by the CIT(A) while adjudicating the appeal of the assessee
which has not been done. Therefore, in order to render substantial justice,
I set aside the order of the CIT(A) and remand the matter back to his file
for adjudication of the issue afresh in the light of the discussion made
hereinabove. Needless to mention that the CIT(A) shall allow reasonable
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and proper opportunity of hearing to the assessee before adjudicating the
issue afresh. Consequently, the appeal of the assessee is allowed for
statistical purposes.
In the result, the appeal of the assessee is allowed for statistical
purposes.
Order pronounced in the open court on 17/05/2017 in the presence of parties. Sd/- (N.S Saini) ACCOUNTANT MEMBER Cuttack; Dated 17 /05/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. Metalloyds, 1st floor, M.R.towers, Main Road, Angul 2. The Respondent. ITO, Angul Ward, Angul 3. The CIT(A)-2, Bhubaneswar 4. Pr.CIT-2, Bhubaneswar. 5. DR, ITAT, Cuttack 6. Guard file. BY ORDER, //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack