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Assessee represented by Shri Parin Shah, CA Department represented by Shri Vinod Kumar, Sr. DR Date of hearing 09/01/2023 Date of pronouncement 27/02/2023 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 Commissioner of Income Tax (Appeals), Valsad (in short, the ld. CIT(A)) dated 26/09/2018 for the Assessment year (AY) 2014-15 wherein the assessee has raised following grounds of appeal: “1. Ld. CIT(A) erred in law and on facts in confirming disallowance of commission expenses of Rs. 8,62,403/- ignoring submission of the assessee. Ld. CIT(A) ought to have allowed the commission as same is genuine business expenses. It be so held now.
2. Ld. CIT(A) erred in law and on facts in passing appellate order in cryptic manner without given any finding on contention of the appellant. Ld. CIT(A) ought to have considered the submission of the appellant and ought to have allowed the appeal. It be so held now.
3. Ld. CIT(A) ought to have considered that appellant paid commission for backward integration to execute customer’s requirement in timely and efficient manner and appellant chose to pay commission instead of service charges/labour Niralkumar K Shah Vs ITO charges. Ld. CIT(A) ought to have considered the submission of the appellant and allow the commission expenses. It be so held now.
4. Without prejudice to the above and in alternative, ld. CIT(A) ought to have allowed commission expenses as payee has already offered the same as income in his return of income and disallowance of commission income in case of assessee would lead to double taxation which is against the principle of natural justice. It be so held now.
Charging of interest u/s 234B and 234C of the Act.
The order passed in illegal and without observing principle of natural justice and required to be quashed. It be so held now and addition/disallowance required to be deleted. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal
at the time of or before the hearing of the appeal.”
2. Brief facts of the case are that the assessee is the proprietor of M/s Shah Industrial Products and engaged in the business of trading of firefighting equipment and industrial products, file his return of income for the A.Y. 2014-15 on 03/09/2014 declaring income of Rs. 14,54,970/-. The case of assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the assessee has debited commission expenses paid to Shri Chintan K Shah of Rs. 4,87,354/- and Shri Kishorekumar K Shah of Rs. 3,75,049/-. Commission was paid on sales. The Assessing Officer prepaid the summary of such commission paid in the following manner: Commission paid to Shri Chintan K Shah (brother of assessee) Sl. No. Party Name Sales Rs. Commission @ 5%
1. Kalpena Industries 9747080 Rs. 487354 Commission paid to Shri Kishor Kumar K Shah (father of the assessee 70 years old) Sl. No. Party Name Sales Rs. Commission @ 3%
1. Deccan Canes & Printers P 2136089 Rs. 64082 ltd.
2. Rotam India Ltd. 1912298 Rs. 57369 2 Niralkumar K Shah Vs ITO 3. Sumintono chemicals 4757172 Rs. 142715 4. Trimurti Polymers 3696089 Rs. 110883 12501648 Rs. 375049 3. To ascertain the genuineness of commission expenses, the assessee was asked to furnish the details of parties to whom sales were made on which the commission was paid. The assessee furnished details on the basis of which the aforesaid summary was prepaid. To verify the commission expenses, the assessing officer issued notice under Section 133(6) of the Income Tax Act, 1961 (in short, the Act) dated 28/10/2016 to Kalpena Industries, Deccan Canes & Printers P. Ltd., Rotam India Ltd., Sumintono Chemicals and Trimurti Polymers. The Assessing Officer recorded that Kalpena Industries and Sumintono Chemicals in their reply, in response to notice under Section 133(6) of the Act responded that there was no role of Shri Chintan K Shah and Shri Kishore Kumar K Shah on purchase from M/s Shah Industrial Products. The Assessing Officer further recorded that summons were issued to M/s Rotam India Ltd. (Presently R3 Crop Care P Ltd.), Director of the said company namely Shri Shashikant N Lad attended and his statement was recorded. In the statement, the Director of said company stated that they do not know Mr. Kishore Kumar K Shah and they made transaction directly with M/s Shah Industrial Products (proprietorship of assessee). M/s Trimurti Polymers not turned up despite service of summons. The Assessing Officer further recorded that summons were issued to Shri Chintan K Niralkumar K Shah Vs ITO Shah (brother of assessee), his statement was recorded under Section 131 of the Act. In the statement, Shri Chintan K Shah stated that he is doing the same business in the name of proprietorship firm namely M/s Shreeji traders. He has no technical qualification, knowledge or experience for installation, monitoring or site execution of firefighting equipment. He has not rendered any type of service. On the basis of his statement, the Assessing Officer was of the view that the services of which commission was paid, required some experience and technical education, which the commission agent does not possess. The assessee in his submission, explained that the commission was paid on the sales. Kalpena Industries denied the role of Shri Chintan K Shah for any transaction. Sh. Chintan K Shah was asked to produce the bills; vouchers or travel details to substantiate the genuineness of rendering his services but he failed to produce despite giving time to produce the same. On the basis of investigation carried out by the Investigating Officer, the Assessing Officer issued show cause notice dated 21/12/2016 as to why the commission expenses should not be disallowed and added back to the total income of assessee. The Assessing Officer recorded that the assessee was provided copy of statement of Sh. Chintan K Shah and Sh. Kishore Kumar K Shah recorded under Section 131 of the Act.
The assessee filed his reply dated 26/12/2016, the contents of reply of assessee is recorded in para 5.5 of the assessment order. The assessee Niralkumar K Shah Vs ITO in his reply, submitted that he has paid commission of Rs. 4,87,354/- to Sh. Chintan K Shah for various services availed from him in respect of sales to Kalpena Industries. Sh. Chintan K shah was also dealing in trading of fire safety equipment as he himself is in the similar nature of business for rendering services, a person is not required to have sound educational background, though such educational background may help in providing better services. Experience in the field of business is counted. He was having 10 years’ experience in the same business and the assessee paid commission to Sh. Chintan K Shah as he possessed required skill to procure and executed the orders. The assessee prayed to treat the commission expenses as genuine business expenses and allowance thereof. Similarly, the commission was paid to Sh. Kishore K Shah (father of assessee) of Rs. 3,75,049/- who is 69 years old and having 40 years of experience in the same profession. He was associated with assessee. Sh. Kishore K Shah was not physically keeping well and was not travelling a long distance and residing in Godhra for which he could not personally appeared before the Assessing Officer. The commission paid to Sh. Kishore K Shah is genuine business expenses.
5. The explanation/reply was not accepted by the Assessing Officer by taking a view that there is no documentary evidence which substantiates that the assessee received any service from Sh. Chintan K Shah and Kishore K Shah. The assessee failed to produce Kishore K Shah for Niralkumar K Shah Vs ITO verification and not furnished anything for the services rendered by him. On the basis of aforesaid observation, the Assessing Officer disallowed the commission paid to Sh. Chintan K Shah and Kishore K Shah aggregating to Rs. 8,62,403/- in the assessment order dated 27/12/2016 passed under Section 143(3) of the Act.
6. Aggrieved by the additions/disallowances of commission payment, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. The submission of assessee is recorded in para 3.2 at page No. 6 to 14 of order of ld. CIT(A). In the submission, the assessee stated that during the period under consideration, the assessee paid commission of Rs. 8,62,403/- to Sh. Chintan K Shah and Kishore K Shah for rendering services in relation to execution, facilitation and timely completion of sales transaction by assessee. The Assessing Officer disallowed such commission payment by observing that no services were rendered by these persons. The Assessing Officer also noted that he issued notice under Section 133(6) of the Act to various vendors of the assessee to enquire the genuineness of commission. The assesse enquired from the vendors, they informed that all of them has replied to Assessing Officer in response to notice under Section 133(6) of the Act. The Assessing Officer noted that the vendors has given information to whom that they do not know either Sh. Chintan K Shah or Sh. Kishore K Shah, on such observation, the Assessing Niralkumar K Shah Vs ITO Officer disallowed the commission expenses. The assessee explained that he is in the business of industrial trading of firefighting equipment. Execution of contract itself is cumbersome activity and it involves alteration in RCC structures fitting of fire extinguisher in multi storied building etc. The assessee received various contracts and for timely completion of such contract required various services. The assessee paid commission to his brother and father who are doing the similar business and doing their help and assistance in completing contract in an efficient and time manner. The commission to both the persons were paid for not facilitating the deals between the vendors and the assessee but paid for facilitating execution of contract received by assessee. The contention of assessee is also supplemented by the percentage of sales to various vendors in calculating the commission paid during the year. The Assessing officer has not treated the expenses as bogus or non-genuine but merely disallowed by observing that the vendors to whom such commission were paid, replied that they do not know Sh. Chintan K Shah and Kishore K Shah to whom the commission was paid. The assessee never stated that the commission was paid to bring the vendor. There was no case of such disallowance. The payee to whom the commission was paid included the commission received in their return of income and the addition of the same in case of assessee would amount to double taxation of the same amount which is against the principles of justice. To Niralkumar K Shah Vs ITO support his contention, the assessee relied on various case laws as has been recorded by the ld. CIT(A).
The ld. CIT(A) after considering the submission of assessee noted that the assessee has paid 5% commission to Sh. Chintan K Shan on sales to Kalpena Industries and 3% of sales to Deccan Canes & Printers P. Ltd., Rotam India Ltd., Sumintono Chemicals and Trimurti Polymers. During the appellate stage, the assessee made similar submission as made before the Assessing Officer during the assessment proceedings. The assessee filed ITR of Sh. Chintan K Shan and ITR of Kishore K Shah was not filed and relied on various case laws. The ld. CIT(A) concluded that the assessee has not file any cogent reply to controvert the finding of Assessing Officer and he merely stressed that the payments were made for the purpose of business whereas enquiry concluded by Assessing Officer disproved the claim of assessee. Various case laws relied by assessee are not applicable on the specific facts of the present case and accordingly confirmed the additions/disallowances. Further aggrieved, the assessee has filed the present appeal before the Tribunal.
I have heard the submissions of the 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. The ld. AR of the assessee submits that during the year under consideration, the assessee paid aggregate Niralkumar K Shah Vs ITO commission of Rs. 8,62,403/- to Sh. Chintan K Shan and Sh. Kishore K Shah for rendering services in relation to execution, facilitation and timely completion of sale transaction done by assessee. The Assessing Officer disallowed commission payment by taking a view that no services were rendered by the recipient of commission. The Assessing Officer investigated the facts from vendor’s party to enquiry about the genuineness of commission expenses. The Assessing officer recorded that the vendors have given information to him that they do not know either Sh. Chintan K Shah or Sh. Kishore K Shah and on the basis of such observation, the Assessing Officer concluded that the commission expenses were debited to evade the tax. The ld. AR of the assessee submits that in response to notice under Section 133(6) of the Act, Sumitomo chemicals India Pvt. Ltd. filed reply and in response to question No. 2 they specifically stated that “we know Mr. Kishore Shah and he was instrumental in sourcing purchases made from Shah Industrial Products during the F.Y. 2013-14.” Similar Khalpana Industries(India) Limited also in response to notice under Section 133(6) replied that they know Mr. Chintan Shah, who was instrumental in sourcing purchase from Shah Industrial products. Copy of such reply is filed on page No. 61 & 62. However, the Assessing Officer observed/recorded otherwise. The ld. AR of the assessee submits that it was not the case of assessee that he paid commission for procuring order from various parties. However, the case Niralkumar K Shah Vs ITO of assessee throughout the proceedings was that he paid commission to his brother and father for timely completion of contract and providing various services and guidance to the assessee, who was in the same business in which the assessee is engaged. The assessee has paid 5% commission to his brother on the total sales to Kalpana Industries and 3% commission on sale consideration to four parties namely Deccan Canes & Printers P. Ltd., Rotam India Ltd., Sumintono Chemicals and Trimurti Polymers. The Assessing Officer has not doubted the genuineness of expenses rather disallowed for want of proof of services. The Assessing Officer nowhere concluded that the expenses are bogus or non-genuine rather held that the notices were issued to vendors, who responded that they do not know Sh. Chintan Shah and Sh. Kishore K Shah. The ld. AR reiterated that the observation of Assessing Officer is contrary to the copy of reply of various vendors which is placed on record. The ld. AR for the assessee further submits that the similar commission expenses were claimed in next financial year and which was accepted and allowed without any variation. The ld. AR submits that the assessee has incurred genuine business expenses which is neither held unreasonable or excessive. The payee to whom commission has been paid has also included commission in their return of income. The ld. AR submits that the assessee is eligible for allowance of entire commission Niralkumar K Shah Vs ITO expenses as genuine business expenses. To support his submission, the ld. AR of the assessee relied on the following case laws: (i) ITO Vs Shri Sandip Kirtibhai Patel order dated 23/08/2013. (ii) CIT Vs Sandip Kirtibhai Patel (2015) 53 taxmann.com 162 (Gujarat). (iii) CIT Vs Gautam Creations (P) Ltd. (2008) 171 Taxman 271 (Delhi) (iv) Voltamp Transformers (P) Ltd. Vs CIT (1981) 5 Taxman 253 (Gujarat) (v) ITA No. 2539/Ahd/2017 Seahorse Pharma P Ltd. Vs ITO order dated 21/05/2020.
On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR for the revenue submits that in para 5.2 of the assessment order, the Assessing Officer clearly recorded that in response to notice issued under Section 133(6) of the Act, M/s Kalpana Industries vide their reply dated 24/11/2016 stated that there was no role of Sh. Chintan K Shah regarding purchases from Shah Industrial products. Similarly Sumitomo Chemicals vide reply dated 21/11/2016 also stated that there is no role of Kishore K Shah on purchases made from Shah Industrial products. Shri Shashikant N Lad, Director of M/s Rotam India Ltd. attended and his statement was recorded and in reply to questions No. 7 and 8, he stated that they do not know Sh. Kishore K Shah and/or they have transaction with Shah Industrial Products directly. None appeared from Trimurti Polymers. Thus, the Assessing Officer after making full-fledged investigation and giving full opportunity to the assessee, disallowed the commission expenses as the assessee failed to 11 Niralkumar K Shah Vs ITO prove the services rendered by the commission agent. The ld. Sr.DR submits that facts of the case laws relied by the ld. AR of the assessee are based on different set of facts and the ratio of the decisions is not applicable on the facts of the present case. In the short rejoinder submission, the ld. AR of the assessee reiterated that it is not case of assessee that he paid commission to bring the vendors rather paid the commission for facilitating the execution of contract being experienced in business carried out by assessee.
I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. I find that the Assessing Officer made disallowance of commissions payment by taking view that the parties have not rendered any services and no evidence is filed by the assessee. The ld CIT(A) also upheld the disallowance by similar observation. Before me the ld AR for the assessee vehemently submitted that commission to both the persons were paid for not facilitating the deals between the vendors and the assessee but paid for facilitating execution of contract received by assessee. There is no finding of the assessing officer the expenses as bogus or non-genuine but merely disallowed by observing that the vendors to whom such commission were paid, replied that they do not know such parties to whom commissions were paid. It is also contention of the assessee never stated that the commission was paid to bring the vendor. And the recipient of