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Assessee represented by Ms. Chaitali Shah, CA Department represented by Shri Vinod Kumar, Sr. DR Date of hearing 26/04/2023 Date of pronouncement 28/04/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A)) dated 29/08/2022. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in disallowing the commission expense of Rs. 8,18,150/-.
2. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of Assessing Officer in disallowing the salary expense of Rs. 5,16,000/-.
3. It is prayed that the disallowance made by the assessing Officer and confirmed by CIT(A) may please be deleted or matter may please be set aside to the file of CIT(A).
4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
2. Brief facts of the case are that the assessee is an individual and while filing return of income for A.Y. 2016-17 declared income of Rs. Dhwani Nainesh Pastagia Vs ITO 3,96,880/-. The case of assessee was selected for scrutiny. During the assessment, the Assessing Officer on perusal of details, noted that the assessee has debited commission expenses of Rs. 8,18,150/-. The assessee was asked to furnish complete name and details of persons to whom commission was paid. The Assessing Officer noted that the assessee failed to furnish complete name and details of the persons to whom commission was paid. The Assessing Officer further recorded that in order to verify the genuineness of commission, the Assessing Officer issued notice under Section 133(6) to some of the parties. Notice under Section 133(6) returned unserved from some of the person and some replies not received. The Assessing Officer by taking a view that the assessee failed to furnish complete details and in absence of evidence, the commission was treated as doubtful and disallowed the entire commission of Rs. 8,18,150/-.
3. The Assessing Officer further noted that the assessee has also debited salary expenses of Rs. 7,56,000/-. The assessee was asked to explain and furnish the complete name and address of the persons to whom such salary was paid. The Assessing Officer recorded that the assessee furnished a list of name and address of the persons to whom salary was paid. The Assessing Officer in order to verify the genuineness of claim, issued notice under Section 133(6) of the Act. The Assessing Officer recorded that some of the notices were returned back. The Assessing Dhwani Nainesh Pastagia Vs ITO Officer treated the salary expenses as doubtful and allowed salary expenses of two person @ Rs. 10,000/- per month thereby allowed only Rs. 2.40 lacs and worked out the disallowance of Rs. 5,16,000/- (7,56,000 – 2,40,000).
4. On appeal before the ld. CIT(A), the assessee filed detailed written submission. In the submission, the assessee stated that she is engaged in the business of financial consultancy in the name of “Jeet Financial Services”. The assesse is “Direct Sales Agent” (DSA). The assessee received commission income from bank and finance companies. The assessee earned commission income of Rs. 22,97,500/- and against such income, the assessee incurred commission expenses of Rs. 8,18,150/-. The details of persons with their name and PAN number and address were furnished. The assessee further stated that the commission was furnished. The assessee further stated that the commission was paid in connection with procurement of business of providing loans. Commission was incurred wholly and exclusively for the purpose of business and fully deductible/allowable. To support her contention, the assessee relied on decision in CIT Vs Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC) on disallowance of employees cost. It was also stated that the assessee furnished complete details consisting name, PAN number and address alongwith the amount of sale deed. The Assessing Officer abruptly and without cogent reason, disallowed the expenses of Rs. 5,16,000/-. The Dhwani Nainesh Pastagia Vs ITO expenses of employees cost/salary were also incurred wholly and exclusively for the purpose of business. To support such submission, the assessee relied upon the decision of Hon'ble Apex Court in the case of CIT Vs Walchand & Co. (P) Ltd. (1967) 65 ITR 381 (SC) and Travancore Titanium Products Ltd. Vs CIT (1966) 60 ITR 227 (SC).
The ld. CIT(A) after considering the submission of assessee, on the disallowance of commission payment held that the assessee failed to furnish copy of agreement with the person to whom commission was paid alongwith terms related to rate of commission and upheld the action of Assessing Officer. On disallowance of salary expenses, the ld. CIT(A) held that the assessee furnished name and address of the persons to whom the salary was paid. On sending notices to six persons some of them did not respond. Thus, the Assessing Officer allowed only Rs. 2.40 lacs and remaining of salary expenses of Rs. 5,16,000/- was disallowed. The ld. CIT(A) held that action of Assessing Officer is justifiable. Further aggrieved, the assessee has filed the present appeal before this Tribunal.
I have heard the submission of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue and have perused the orders of the lower authorities carefully. Ground No. 1 of the appeal relates to disallowance of commission payment. The ld. AR of the assessee submits that the assessee is in the business and profession of financial consultancy Dhwani Nainesh Pastagia Vs ITO working under the name of “Jeet Financial Services”. The assessee is a DSA of banks and financial institutions. During the period under consideration, the assessee earned commission of Rs. 22,97,500/- on providing various financial services to the banks and their customers. The assessee incurred commission of Rs. 8,18,150/-, such commission was paid to various persons for procurement of business for providing bank loans. The assessee furnished name, address and PAN. Out of 13 persons to whom commission was paid, the Assessing Officer issued notice under Section 133(6) of the Act to two person namely Nayan C. Sutariya and Shubham V. Jariwala, they reply to such notices. As per their reply, they confirmed that they provided services to the assessee and received commission. The Assessing Officer has not clearly recorded in his finding that to whom he has issued notice and if any reply was received or not from such persons. The Assessing Officer vaguely recorded that some of the notices were returned unserved and for some case, reply was not received. The Assessing Officer issued one notice under Section 133(6) of the Act only to two persons, both filed their response, copy of such reply alongwith account confirmation is placed on record. The commission was paid to all parties through banking channel. The payment of commission was not disputed. The Assessing Officer despite receiving reply from two commission agents, recorded that no supporting evidence was furnished by assessee. The assessee Dhwani Nainesh Pastagia Vs ITO discharged his primary onus in furnishing complete details. The commission was paid wholly and exclusively for the purpose of business. Similar commission was paid in earlier years which was not disputed. To support her submission, the ld. AR of the assessee has relied upon the decisions of Hon'ble Supreme Court in Sassoon J. David & Co. Pvt. Ltd. Vs CIT (1979) 118 ITR 261 (SC), CIT Vs Walchand and Co (P) Ltd. (supra) and Travancore Titanium Product Ltd. Vs CIT (supra).
On the other hand, the ld. Sr. DR for the revenue supported the orders of the lower authorities. The ld. Sr.DR submits that no agreement or terms and conditions of such contract for payment of commission or procurement of business was furnished. Merely furnishing name and address is not sufficient. The assessee has shown commission payment only to reduce the taxable income.
I have considered the submission of both the parties and find that while passing the assessment, the Assessing Officer disallowed commission payment by taking a view that the assessee has failed to furnish evidence with regard to nature of work of business provided by those persons. The ld. CIT(A) confirmed the action of Assessing officer without giving any other reasoning. I find that before the Assessing Officer, the assessee furnished complete address of the persons, their PAN and amount of commission paid. The Assessing Officer issued notice to such persons. I find that the Assessing Officer has not specified to whom such Dhwani Nainesh Pastagia Vs ITO notice was send or which notice was returned unserved. Before me, the ld. AR of the assessee vehemently submitted that the Assessing Officer issued notice undersection 133(6) of the Act only to two persons on test check basis, both responded and filed their reply. Copy of their replies are available at page No. 31 and 33 of the paper book which are duly acknowledged by the Assessing Officer. Both the commission agents has also filed their confirmation of commission. One of the parties namely Ketan K. Pastagia who has received Rs. 1.40 lacs as commission has filed his reply as well as confirmation. I find that the Assessing Officer has not doubted the payment of commission to all 13 parties. The disallowance was paid only for want of evidence. The Assessing Officer has not investigated the matter except sending notice to two parties, who ultimately responded and filed their reply confirming the receipt of commission. No adverse material was brought on record even against such person, therefore, in absence of any adverse evidence, I do not find any justification of disallowance of commission payment, accordingly, I direct to delete the same. Hence, ground No. 1 of the appeal is allowed.
Ground No. 2 of the appeal relates to disallowance of salary expenses. The ld. AR of the assessee submits that the assessee has employed six persons and paid salary of Rs. 7,56,000/-. The assessee furnished complete names and address, PAN and amount of salary. The Assessing