M/S. METALLOYDS,ANGUL vs. ITO, ANGUL WARD, ANGUL

PDF · subscribers
ITA 23/CTK/2017Status: DisposedITAT Cuttack17 May 2017AY 2012-136 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT(A) failed to examine the services rendered by the HUFs and did not provide reasons for not following a similar decision by another CIT(A). Therefore, the matter was remanded for fresh adjudication.

What were the facts?

The assessee claimed a deduction of Rs. 6,00,000/- paid as commission to the HUFs of two working partners. The Assessing Officer disallowed this deduction, citing a Supreme Court decision that partners cannot take commission. The CIT(A) confirmed this disallowance.

What were the issues?

Whether commission paid to HUFs of working partners for services rendered is a deductible business expense. Whether the CIT(A) properly considered evidence and precedent in confirming the disallowance.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, CUTTACK

Before: SHRI N.S SAINI

For Appellant: Shri Binod Agarwal, AR
For Respondent: Shri D.K.Pradhan, DR
Pronounced: 17/05

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.

2.

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.

3.

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

2 ITA No. 23/ CTK/2017 Asse ssment Year : 2012- 2013

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/-.

4.

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.

5.

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

3 ITA No. 23/ CTK/2017 Asse ssment Year : 2012- 2013

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 “

4 ITA No. 23/ CTK/2017 Asse ssment Year : 2012- 2013

6.

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

7.

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.

8.

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

5 ITA No. 23/ CTK/2017 Asse ssment Year : 2012- 2013

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.

9.

Ld D.R. had no objection to the above submission of ld A.R. of the

assessee.

10.

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

6 ITA No. 23/ CTK/2017 Asse ssment Year : 2012- 2013

and proper opportunity of hearing to the assessee before adjudicating the

issue afresh. Consequently, the appeal of the assessee is allowed for

statistical purposes.

11.

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

More judgments on Section 37(1)

All 6,995 judgments and leading authorities on Section 37(1) →

Recent GST High Court judgments

Search GST case law →