SHRI SURESH KUMAR GOYAL, 501 UNIQUE SANGHI APARTMENT DURGAPURA JAIPUR-302018,JAIPUR vs. ACIT CIRCLE-6, JAIPUR, CIRCLE-6, JAIPUR

ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) - 2, Jaipur dated 26-02-2019 for the assessment year 2013-14 raising therein following grounds of appeal. ‘’1. Under the facts and circumstances of the case, the ld. CIT(A) has erred in facts and in law sustaining the disallowance made by the AO of the Sales Incentive (Commission) of Rs.31,31,765/- paid to different persons alleging that the nature of services was not furnished by the assessee.

3. Under the facts and circumstances of the case, the ld. CIT(A) has erred in facts and in law sustaining the 10% disallowance amounting to Rs.28,691/- of DG Fuel Expenses of Rs.2,86,910/- claimed by the proprietary firm M/s. Bajrang Filling Station alleging that the said payment was made in cash hence not verifiable.’’ 2.1 Apropos Ground No. 1 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:- ‘’3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. Disallowance of commission/sales incentive of Rs. 30,31,765/- was made by the Assessing Officer as assessee failed to furnish nature of services rendered and no cogent evidences were filed. Assessee furnished that copy of ledger account and chart of the sales made through these persons before me. But he could not substantiate the nature of service rendered as it was claimed that the incentive was given to 6 persons for promoting the sales of cement in various areas. But neither any confirmation was filed of the recipient nor were services of these persons were confirmed by any of the buyers. All the 6 persons are related parties/family members of assessee including their HUFS. 3.3.1 Assessee further claimed that in A.Y. 2001-02, commission paid to HUF was disallowed but was deleted by appellate authorities including ITAT. In that year, i.e. A.Y. 2001-02, the Assessing Officer's allegation was that HUF being non living person cannot perform any duty. However, no doubts were raised about services rendered and genuineness of commission claimed.

3.3.2 In this year, the Assessing Officer raised serious doubts about the services rendered by any recipient. Thus, the facts are different this year. Further the assessee filed copy of return of income of recipient. Merely because they filed returns showing incentive received does not absolve assessee of proving the genuineness of services rendered by the recipients. Also they are closely related to the assessee and out of 6 persons, 2 persons were ladies namely Smt. Vandana Goyal (Incentive of Rs. 4,58,497/- paid against sales to 43 parties located at different area). In case of Bharti Bnasal, incentive of Rs. 7,09, 166/- was paid for sales to 58 parties located at various places. Their return of income show residence at Swaimadhopur, Rajasthan and it is surprising to see that no expense was claimed against the sales incentive by any of them. These parties to whom sales were made were located outside Sawaimadopur. Thus assessee tried to book bogus expenses in the shape of sales incentive to related parties to avoid tax liability. 3.3.3 Assessee's contention that incentive was paid to same parties in earlier year but no disallowance was made under section 143(3). In this regard, it is seen incentive was paid in those years at highest rates of Rs. 60 per unit which has gone up to Rs. 80 this year without any basis. Further principle of resjudicata does not apply to the income tax proceedings, therefore this plea cannot be accepted. Order of earlier years show that assessee may have substantiate the services rendered with plausible evidences but his has not been done in the year under appeal as neither any confirmation was filed nor it has been established that services were actually rendered by all the recipients. 3.3.4 In view of the above, the disallowance of Rs.30,31,765/- made by the Assessing Officer is confirmed.’’ 2.2 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(A) has erred in confirming the disallowance so made by the AO for which the ld. AR of the assessee filed the following written submission. Submission:

1.1 Commission Expenses: Fully Justified: With regard to the Sales incentive expenses it is submitted that the assessee this year has paid Sales incentive of Rs. 30,31,765/- as against Rs.35,58,079/- claimed in the preceding year (copy of year wise comparative chart enclosed). It is submitted that because of the cut-thought competition created by the competitors and the new entrants in the market, the assessee was required to pay Sales incentive to his Sales persons, not only to survive but also to increase its sales / turnover on continuous basis. It is because of this continuous efforts and hard work, that the assessee was able to achieve increase in turnover of Rs. 174.04 lacs, thereby resulting into N.P of Rs.22.25 lacs this, as compared to Rs.12.96 Lacs in the preceding year. The comparative GP & NP chart is as follows: (PB 62-107). The low G.P in AY 13-14 is because of the inflated cost of purchases. Notably the AO was satisfied with the declared trading results. Moreover, the accounts were not rejected. (RS.Lacs) Commission Gross Net Asst. Sales %age Paid Profit Profit %age of Year Rs of Rs Rs Rs G.P. N.P. 2011-12 28.76 1895.36 99.18 5.23% 7.32 0.39% 2012-13 35.58 1930.53 159.94 8.28% 12.96 0.67% 2013-14 30.31 2104.57 93.42 4.44% 22.25 1.06% 1.2 It is submitted that in the cement market there is a very stiff competition. The Sales agents are required to constantly watch the market, keep in touch with the retailers, provide better pricing and offers then the competitors, assist in realization payments. 1.3 It is further submitted that the assessee has furnished complete details and basis of payment of Sales Inventive, paid to different persons during the year. The assessee has submitted party-wise detailed charts showing the different buyers, their respective locations, the quantity purchased, the rate per kg, the invoice amount per buyer and his total sales. (PB 12-42) 1.4 Lastly, important aspect to be considered is that there has been no substantial loss to revenue in as much as all the payees have already declared the subjected amount in their hands and paid taxes accordingly. The payments were made paid through banking channels only and even amount of due TDS, was made and deposited.

2. Commission Paid to Relative not denied:

5 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR 1.2 It is contented that simply because such commission payments were made to the persons who happens to be the relative, does not ipso facto means that the firm must have tried to reduce this tax liability, which is not a correct fact. This thinking otherwise goes against the principle of commercial expediency in as much as it has to be appreciated that any relative or specified person shall be a person being more loyal to the principal (firm) and on whom the principal can repose better confidence as against an outsider. The amount and degree of pain which, such persons take, is much better than the outsider, which fact cannot be denied. An outsider could not have made that much effort nor could have taken so much pain. 1.3 Further, it is not the case that the subjected related parties, to whom the commission is paid, is someone who lacks knowledge, educational qualification or caliber. All the persons to whom the commission was paid are well educated and having requisite experience in this line of trade. They made efforts according to their specific knowledge with reference to a particular party or a particular area and tried to convince the buyers so as to make more purchases then the past. It is because of their vast experience and knowledge that the assessee could to achieve these financial results. Section 40A(2)(b) was not invoked.

7 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR 5.2 It is submitted that the assessee was being paying Sales incentives to the subjected related persons for more than 20 years now. A reference can be made to the assessment of A.Y. 2001-02, wherein the AO disallowed the Sales Incentive paid by the assessee to HUFs parties, on the ground that HUFs are non–living persons and thus, cannot perform any duties for which payment as incentive is based on work done. The ld. CIT(A) and the Hon’ble ITAT (PB II 79-88) gave a concurrent finding in the favour of the assessee stating that HUF’s can perform the duties as any other person can do under the Income Tax Act. 5.3 It may be submitted that it is not the objection of the AO that the assessee has paid excess sales incentive or that there is some change in scenario. Rather, in fact, the assessee has followed the same accounting principles and policies, which is following for the last 25 years, and thus, there is no change in the manner in which books of accounts are being prepared. Hence, when there is no change in facts and the Department has been accepting the same all these years, they cannot be allowed to change their stand today and unsettle the already settled legal position. Although the findings of this case it not relevant here, but an important point which one must note is that the AO even then did not doubt the genuineness of the efforts of the same subjected parties and the payments made to them by the assessee. Hence, the rule of consistency requires to follow the settled part history.

8 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR past experience. Therefore, the benefit of their past experience could not have been denied in this year, at least neither denied nor established so. The allegation that no expenditure was incurred by the payees, dealers and hence no services were established even though sales were effected outside Jaipur, is nothing but a suspicion, more particularly when electronic and social media is such a strong weapon in the hands of the businessman that even without going, he may convince the targeted customers and the lockdown period during COVID-19 is the best example where the concept of work from home strongly and successfully worked and rather even continues till date. The admitted fact of past experience together with the strong electronic media had made it possible for the payees, dealers have reached the customers for getting the sales effected. The Hon’ble Courts have already that the totality of facts and circumstances as also the human probabilities and surrounding circumstances are all important factors to be considered in the cases of CIT V Rameshwar Prasad Bagla (1968) 68 ITR 653 (All), CIT V Durga Prasad More (1971) 82 ITR 540 (SC)and Sumati Dayal V CIT (1995) 214 ITR801. On the other hand, interestingly, there is absolutely no contrary evidence brought on record to show that if any of the buyer party was enquired who denied any contact with the agents thus, the AO made the disallowance on mere suspicion. It is well settled that suspicion howsoever strong, cannot take place of reality. Kindly refer Dhakeshwari Cotton Mills v/s CIT (1954) 26 ITR 775 (SC), wherein it is held as under: “Assessment—Validity—ITO is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under sub-s. (3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all—There must be something more than bare suspicion to support the assessment under s. 23(3)—ITO and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion—In arriving at its estimate of gross profits and sales Tribunal should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the ITO if it is intended to make the estimate on the foot of those enquiries”

7.3 The CIT(A) simply ignoring all the above admitted facts and the judicial guideline alleged the expenditure as bogus without demonstrating how the same was bogus expenditure. Mere suspicion when alleged that out of six, two were ladies only. As if women were not at all capable for doing business. Needless to say such an objection was a result of conservative thinking in the Indian society about women empowerment, whose capabilities, capacities stand established all over the world and even the CIT(A) is herself a woman. She did not at all elaborate as to precisely what type of evidence she wanted.

9 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR 7.4 Non-filing of confirmation of buyer not much relevant: The repeated allegation of non-filing of confirmation is completely irrelevant and is not of much substance. All the six recipients have duly declared the amount of incentive commission so received in their ROI show confirmation of receipt. It is submitted that neither the AO nor the ld. CIT(A) has ever, during the course of proceedings, asked the assessee to furnish the confirmation of the buyer. Hence, the objection of the ld. CIT(A) stating that no confirmation was filed, without asking for it and without giving any opportunity to the assessee to act upon the same, is totaling arbitrary & capricious in nature. 7.5 Another allegation which is not in nature of suspicion is that the rate of commission/incentive increased from Rs. 60 per unit to Rs. 80 per unit this year without any basis. The learned CIT (A) without knowing the correct facts/ without confronting the appellant proceeded on the mere surmises & conjectures. A perusal of chart (PB 13) which shows that these agents were appointed for different geographical areas being Tonk, Sawai Madhopur, Karauli etc. and the payment of commission varied from Rs.15 to Rs. 80 per unit for the reason of the particular areas assigned, the distance from the headquarter, the presence of the level of the competition being the strong competitor against whom, the agent was supposed to get order for the dealers under the increased competitive market. Businessman being the best judge & the revenue should not to interfere.

8. The genuineness and bonafide of payments established: 8.1 It is admittedly undisputed fact that the payments were made through banking channels only and even amount of due TDS, was made and deposited. 8.2 Less than reasonable payment made: It is because of their efforts, the overall N.P. were better than last years. Yet however, the payment of commission to them was made proportionately at a very lower amount then what could have been payable at the prevailing market rate to the other parties had the assessee engaged the other independent parties from the market.

10 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR 8. Counsel for the department has also taken us to the paragraphs 48 and 51 of the judgment of the Tribunal in D.B. Income-tax Appeal No. 327/2005, which read as under: - "48. From the facts discussed above, it is obvious that in the result it would be difficult to conclude as has been done by the Revenue Authorities that no service were rendered by the commission agents to the assessee. Assessee's sales/supplies have shown enormous increase and there is substantial and abnormal increase in income of the assessee. There is documentary evidence to show that the assessee and various parties/commission agents had agreed on some terms and conditions on the basis of which payments of commission is claimed by the assessee. All the parties/commission agents are existing income tax assessees and they are identifiable and verifiable and they have confirmed the payments received by them through cheques and nature of services rendered. In the earlier years similar payments were made. There is no material change in the facts of the case for the assessment year under consideration where the facts, circumstances & mode are identical. The findings of the CIT(A) that the assessee might have spent certain amount, which is prohibited under the law for securing purchase orders through so called commission agents is not based on any evidence.

11 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR 10.2 A useful reference can also be made to the case of CIT V Hind Nihon Proteins (P.) Ltd (2018) 404 ITR 193 (Delhi) (DPB 11-14 ) held as under: Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Commission)- Assessment year 1994-95 - Assessee paid commission to commission-agents on basis of sales - Assessing Officer disallowed commission payments on ground that parties related to directors of assessee were partners in firm which were agents of assessee and commission was paid only to avoid tax - Tribunal deleted addition on ground that assessee had been paying commission to Agents regularly year after year; that it was not doubted by revenue and same was accepted; further, that receipts of same were duly shown by commission agents in their balance sheet and profit and loss accounts and that they had paid tax thereon, which was also accepted by revenue - Whether impugned order of Tribunal could not be treated as perverse - Held, yes [Para 9] [In favour of assessee] 10.3 Voltamp Transformers P. Ltd V CIT (1981) 129 ITR 105 (Guj) (DPB 15). Hence, this disallowance may kindly be deleted. On the other hand, the ld. DR supported the orders of the authorities below. 2.3 2.4 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee is engaged in the business of wholesale trading of cement, fertilizer and LPG agency in his proprietary M/s Agarwal Trading Co and is having Petrol pump under the proprietary M/s Bajrang Filling Station. The assessee file his Return of income dated 29.09.2013 declaring total income of Rs. 50,26,050/-. The case of the assessee was selected for scrutiny assessment through CASS and notice u/s 143(2) was issued on 04.09.2014. During the course of assessment proceedings, the AO noted that the assessee paid Sales Inventive (commission) of Rs. 30,31,765/- to 6 related parties. The AO vide order sheet entry dated 09.03.2016 asked the assessee to furnish the relevant detail

12 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR regarding the commission paid. In response, the assessee provided the AO requisite details. However, the AO feeling dissatisfied with the details so submitted by the assessee, disallowed the whole amount of Rs. 30,31,765/- which has been confirmed by the ld. CIT(A) on the following grounds:-

1. Assessee could not substantiate the nature of services rendered.

2. No confirmation of the buyer filed

3. The assessee has not submitted documentary evidence to justify the geniuses of the claim.

It is noted from the submissions of the assessee that the assessee paid the sales incentives of Rs.30,31,765/- as against Rs.35,58,079/- claimed by the assessee in the preceding year. It is also noted that the assessee was able to achieve increase in turn of Rs.174.04 lacs (2104.57 minus 1930.53) thereby resulting into net profit of Rs.2.25 lacs as compared to 12.96 lacs. It is noted that the books of account were not rejected by the AO. It is also noted from the records that the assessee had furnished complete details and basis of payment of sales incentive paid to different persons during the year and payments were made through banking channels. The amount of due TDS was deposited by the assessee. It is also noteworthy to mention that the assessee had paid sales incentives in the earlier years for the services rendered by them and the Department did not question the same and in the immediately preceding year, the assessee paid sales incentives at Rs.34.74 lacs to the subjected persons which was accepted by the Department and thus

13 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR acknowledged the services rendered by them. The ld. AR also submitted that assessment for A.Y. 2010-11, 2011-12 and 2012-13 were completed u/s 143(3) (PB-89-106) without disallowance. The ld. AR of the assessee also relied upon the decision of ITAT Jaipur Bench dated 22-12-2006 in assessee’s own case for the assessment year 2001-02 in ITA No. 530/JP/2004 wherein the Bench has observed as under:-

‘’6. In Ground No. 2, the Revenue is aggrieved against the deletion of addition of Rs.3,44,286/-on account of sales incentive paid to the HUFs.

‘’6.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. Addition of Rs.88,993/- was made on account of lower household expenses. Assessee has declared Rs.1,11,007/- as house hold expenses which was estimated at Rs.2,00,000/- by the Assessing Officer. The assessee stated that other family members were assessed to tax and made withdrawals too. But no details of contribution made by other family members, was given except return of income/computation of income. Therefore, this pleas cannot be accepted. Addition made by the Assessing Officer is upheld, hence ground of appeal is dismissed.’’ 3.2 During the course of hearing, the ld.AR of the assessee has prayed that the lower authorities have erred in confirming the disallowance of House Hold Expenses of Rs.88,993/-. The relevant written submission filed by the ld.AR of the assessee is reproduced as under”-

15 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR ‘’At outset it is submitted that the both the lower authorities have proceeded on mere surmise and conjectures. They have not demonstrated as to how withdrawal of Rs. 1,11,007/- at that point of time, was low and in what manner and on what basis Rs. 2,00,000/- was estimate to be the reasonable amount. The assesse is a Agarwal family living in small town belonging to a business community. There is no lavish expenditure, membership of club nor so alleged so. Living in their own house need not to pay rent. Such additions are normally in nature of addition u/s 69C and it has been consistently held that onus is always on the department to prove the unexplained expenditure incurred over and above the declared, which in the present case, the AO is completely failed. In the past no such addition is reported. Hence the impugned addition so made and confirmed deserves a complete deletion. Hence, this disallowance may kindly be deleted.’’

On the other hand, the ld. DR supported the orders of the authorities below. 3.3 3.4 The Bench has heard both the parties and perused the materials available on record. It is noted from the record that the AO has made disallowance of Rs.88,993/- as to house hold expenses of the assessee which has been confirmed by the ld. CIT(A). However, during the course of hearing, the ld.AR could not advance any satisfactory reply controverting the order of the ld.CIT(A). In this situation, the Bench has no other alternative except to confirm the order of the ld. CIT(A). Thus Ground No. 2 of the assessee is dismissed.

4.1 Apropos Ground No. 3 of the assessee, brief facts of the case are that the AO has dealt with this issue at page 6 para 9 wherein he alleges that the expense of DG fuel of Rs. 2,86,910/- were incurred in cash and no reply was given by the assessee in response to Show Cause Notice. Further assuming possibility of inflation of such expenditure, the AO made adhoc disallowance of 20% of these

16 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR expenses amounting to Rs.57,382/-. In the first appeal the ld CIT(A) partly reduced the disallowance from 20% to 10% by observing as under:-

‘’7.3 I have perused the facts of the case, the assessment order and submissions of the appellant. Assessing Officer disallowed 20% of DG fuel expenses out of Rs.2,86,910/- in M/s. Bajrang Filing Station. It is seen that payment for DG fuel was made in cash. The Assessing Officer rightly made disallowance but being higher side, the same is restricted to 10%. Assessee gets relief. This ground of appeal is partly allowed.’’ 4.2 During the course of hearing, the ld.AR of the assessee has prayed that the lower authorities have erred in confirming the disallowance to the extent of Rs.28,691/- with following written submission.

‘’Firstly, we strongly rely upon the submission made before the CIT(A) reproduced at page 14 para 7.1. It is not denied that the subjected expenditure has incurred for business purposes. Mere allegation of cash payment is baseless and mere suspicious more particularly when S.40(3) is there take care. No disallowance was made under that provision which permits cash payment upto a limit. On one hand NP are much better than the past which fact impliedly justified the claimed DG fuel expenses. Hence, this disallowance may kindly be deleted. ‘’ 4.5 The Bench has heard both the parties and perused the materials available on record. It is noted from the record that the AO has made disallowance of Rs.57,382/- as to DG Fuel expenses of the assessee i.e. 20% of DG Fuel expenses of Rs.2,86,910/- which has been restricted to 10% by the ld. CIT(A) i.e. amounting to Rs.28,691/-. However, during the course of hearing, the ld.AR could not advance any satisfactory reply controverting the order of the ld.CIT(A). In this 17 SHRI SURESH KUMAR GOYAL VS ACIT, CIRCLE-6, JAIPUR situation, the Bench has no other alternative except to confirm the order of the ld. CIT(A). Thus Ground No. 3 of the assessee is dismissed.

5.0 In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 01 /05/2023.

Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 01 /05/2023 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Suresh Kumar Goyal, Jaipur 2. izR;FkhZ@ The Respondent- The ACIT, Ward 6, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 664/JP/2019) vkns'kkuqlkj@ By order,