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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH AHMEDABAD
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA Nos. 2401 & 2402/Ahd/2016 (Assessment Years: 20012-13 & 2013-14)
Shri Amit Ashokraj Kapoor 3-A, Jaihind Society, Nr. Rambaug, Maninagar, Ahmedabad Appellant Vs. Dy. Commissioner of Income-tax, Circle-6(1), Ahmedabad Respondent
PAN: AGMPK7410N
आवेदक क� ओर से/By Assessee : Shri Nitin M. Pathak, A.R. राज�व क� ओर से/By Revenue : Shri V. K. Singh, Sr. D.R. सुनवाई क� तार�ख/Date of Hearing : 05.10.2017 घोषणा क� तार�ख/Date of Pronouncement : 10.10.2017
ORDER PER S. S. GODARA, JUDICIAL MEMBER
These two assessee’s appeals for assessment years 2012-13 and 2013-14 arise against the CIT(A)-6, Ahmedabad’s common order dated 29.07.2016 in case nos. CIT(A)-6/77/15-16 & CIT(A)-6/273/15-16, upholding Assessing Officer’s action disallowing commission paid to S/Shri Ashokraj Kapoor and Sumit Kapoor amounting to Rs.2,96,223/- each in former and Rs.66,265/- in latter assessment year; respectively by terming the same to be excessive u/s.40A(2)(b), in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short “the Act”.
ITA Nos. 2401 & 2402/Ahd/16 [Shri Amit A. Kapoor vs. DCIT] A.Ys. 2012-13 & 2013-14 - 2 -
Heard both sides. Case file perused.
The assessee’s solitary substantive grievance identically pleaded in both the impugned assessment years seeks to reverse lower authorities’ action in invoking the disallowance in question of commission expenses. It emerges that the assessee; a footwear manufacturer, had paid total commission expenses to the abovestated payees amounting to Rs.7,38,905/- each in former and Rs.6,15,865/- in latter assessment year. The Assessing Officer disallowed the same to the extent of Rs.5,77,810/- and Rs.1,32,530/- in latter assessment year; respectively mainly on the ground that the same was excessive. He further seems to have been influenced by his findings in assessment year 2010-11 qua the very two payees. All this resulted in the impugned disallowance.
The CIT(A) upholds Assessing Officer’s action in his common lower appellate order as under:
“8. I have carefully considered the assessment order and the submission of the appellant. It is seen that the AO has followed the finding of assessment order and appellate order of A.Y. 2010-11 in the year under consideration. In AY 2010-11 the issue of commission payment was Involved and statement of Shri Ashokraj Kapoor was recorded to whom commission was paid ,and assessee's statement was also recorded. The AO made detailed inquiry and disallowed the commission payment. In A.Y. 2011-12, the CIT(A) decided the same issue as under :
"I have considered the facts and submitted filed by the appellant. The A.O. has made the disallowance of Rs. 7,29,716/- out of the commission expenses claimed to have been paid to Shri Sumit Kapoor (Brother of Appellant), and Shri Ashok Kaopor (Father) out of the commission payment of Rs. 7,64,858/- and Rs. 7,64,858/- respectively totaling to Rs. 15,29,716/-. It has been observed that the aforesaid commission payment was claimed in respect of sales to a customer namely Ram Fashion export Ltd to whom around 70% of the total sales have been made. During the course asstt. Proceedings statement of manager of the aforesaid customer was recorded by the AO wherein it was admitted by the manager that no third party was involved in the transactions with the appellant. A copy of statement of the manager was provided to the appellant. At the same time the AO a/so recorded the statement u/s 131(1) IT Act of Shri Ashok Kapoor to whom commission was paid and also of appellant. Both have stated the criteria of paying commission at 1.5% of total sates but the same was having no direct nexus with the sales to aforesaid party. Even Shri Ashok Kapoor denied of his role in making any sale to the aforesaid customer. As per the appellant the commission to Shri Ashok Kapoor was for financial and general administration and commission to Shri Sumit Kapoor was for purchases and sales. Both the recipients were the specified persons u/s 40 A (2)(b) of I.T. Act. The AO also observed that the higher
ITA Nos. 2401 & 2402/Ahd/16 [Shri Amit A. Kapoor vs. DCIT] A.Ys. 2012-13 & 2013-14 - 3 -
salary was paid to one Shri S. K. Sachdev (production manager) of Rs. 1,81,200/-. Considering the salary payment to various employees the remuneration @ Rs. 4 Lakh each to the specified person was treated as reasonable and genuine and allowed such claim as remuneration and balance payment of Rs. 7,29,716/-was disallowed. On the other side appellant has submitted that the appellant since 2004 is in business manufacturing of shoes, and Shri Ashokraj Kapoor and Shri Sumit Kapoor were supporting the business. With the help of these two persons, the sale has gone to -Rs. 8,96,06,020/- Thus,the. business and their reputation has reached to the heights and therefore the. role of both the specified persons is memorable. Thus the payments made to them cannot be said to be higher and no disallowance is required. On going through the facts and submission it is noticed that the two persons have not effected any sale as agent, to the customers for which no commission could be allowed: The manager of the customer and also one of the recipient gamely Shri Ashok Kapoor have denied of their involvement in the transactions. All the transactions have been made directly with the appellant. Hence prime facie the commission claim cannot be said to be genuine. The recipient persons have played their active role in establishing and expanding the business of the appellant. Shri Ashokraj Kapoor was actively involved in financial and general administration matters-and Shri Sumit Kapoor was involved in purchases of raw materials. Thus, they have rendered the services to the business of the appellant for which remuneration to them must be allowable: Since the highest salary of Rs.1,81,200/- has. been paid to Shri Sachadev {Production Manager), but considering the services of both the specified persons a remuneration of Rs. 4 Lakh each was allowed by the A.O., which is justified and correct. The case laws relied upon by the appellant are not identical to the facts of the present case and hence could not be applied. The AO's action for allowing the remuneration is based upon the major role played by these two persons and the same is found reasonable. Hence AO's action for disallowance of the excess payment is found correct and thus same is confirmed. The ground of the appellant is dismissed."
8.1 Since the facts and circumstances involved are exactly same therefore respectfully following the decision of the CIT(A) in A.Y. 2011-12, the disallowance made by the AO in A.Y. 2012-13 is found justifiable and the same is confirmed. The ground of appeal is dismissed.
Since the facts and circumstances are identical in the case of the appellant In A.Y. 2013-14, based on the above findings in para no. 7, the disallowance made by the AO in A.Y. 2013-14 is also confirmed.”
We have given our thoughtful consideration to rival submissions. It is no more an issue that both the lower authorities have invoked the impugned disallowance as per their respective findings in assessment year 2010-11. Case file indicates that a co-ordinate bench in ITA No.1955/Ahd/2014 decided on 30.06.2017 has deleted the said identical disallowance by following hon’ble jurisdictional high court’s decision in PCIT vs. Gujarat Gas Financial Services Ltd. (2015) 60 taxmann.com 483 (Guj) on the ground that Section 40A(2)(b) is not to be
ITA Nos. 2401 & 2402/Ahd/16 [Shri Amit A. Kapoor vs. DCIT] A.Ys. 2012-13 & 2013-14 - 4 -
invoked in case the payer assessee and the payee-recipient are assessed at the same rate. The Revenue fails to dispute all these developments. We therefore accept assessee’s arguments in both assessment years to delete the impugned disallowance.
These two assessee’s appeals are accordingly allowed.
[Pronounced in the open Court on this the 10th day of October, 2017.]
Sd/- Sd/- (MANISH BORAD) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 10/10/2017