B.D. KHAITAN & SONS (HUF),KOLKATA vs. ITO, WARD - 34(1), KOLKATA, KOLKATA

The assessee in the present case is a HUF, which is engaged in the business of trading in electronic goods. The return of income for the year under consideration was filed by it on 31.10.2006 declaring total income ./2010 Assessment year: 2006-2007 Page 2 of 6 of Rs.4,64,452/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed deduction on account of commission of Rs.2,51,289/- paid to M/s. Eastern Micro Electronics (P) Limited. In order to verify the said claim of the assessee, summons under section 131 was issued by the Assessing Officer to M/s. Eastern Micro Electronics (P) Limited, in response to which, the Accountant of the said concern was appeared before the Assessing Officer. The statement of the said Accountant was recorded by the Assessing Officer in which he could not explain the nature of services rendered by his Company to the assessee. Similarly, the claim of the assessee for having paid commission of Rs.3,24,853/- to the members of Murarka family was also examined by the Assessing Officer. In this regard, he recorded the statements of the concerned members of the Murarka family, who were found to have no technical knowledge even about the gauge of the wires dealt with by the assessee. They also could not name the parties to whom the sales were made by the assessee through them. In the light of these adverse findings, expenses claimed by the assessee on account of commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarka family members, were disallowed by the Assessing Officer in the assessment completed under section 143(3) vide an order dated 24.11.2008.

Against the order passed under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), certain details and documents were filed by the assessee in support of its claim for commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarka family members. The said details and documents were forwarded by the ld. CIT(Appeals) to the Assessing Officer seeking the later’s comments thereon. In the remand report submitted to the ld. CIT(Appeals), the Assessing Officer offered his comments and after taking into consideration the same as well as the other material available on record, the ld. CIT(Appeals) confirmed the disallowance made by the ./2010 Assessment year: 2006-2007 Page 3 of 6 Assessing Officer on account of commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarka family members observing that there was a failure on the part of the assessee to establish that the services justifying the payment of commission were actually rendered by M/s. Eastern Micro Electronics (P) Limited and Murarka family members. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

We have heard the arguments of both the sides and also perused the material available on record. The main contention raised by the ld. Counsel for the assessee before us is that the relevant details and documents furnished by the assessee before the ld. CIT(Appeals) were sufficient to support and substantiate its claim of commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarka family members and even in the remand report submitted to the ld. CIT(Appeals), this position was not disputed by the Assessing Officer. He has also invited our attention to the copy of remand report placed at pages 31 & 32 of the paper book, the relevant portion of which, containing the comments of the Assessing Officer on the claim of the assessee for payment of commission to M/s. Eastern Micro Electronics (P) Limited and Murarkas’, is reproduced hereunder:- “(a) Disallowed of commission of Rs.2,51,286/- paid to M/s. Eastern Micro Electronics (P) Limited:

The A/R contended that the disallowance was based on the deposition given by the part-time accountant, on behalf of the directors of the company, who appeared in response of summons u/s 131 issued by the AO in course of the assessment proceedings. But according to the A/R, this addition was highly irregular in the absence of the director, the words of the accountant cannot be taken as gospel truth. He was not supposed to know the ins and outs of all the business transactions entered into by the company. Inadequate information from the improperly informed part time accountant cannot form the basis of disallowance of commission actually paid and received. On the other hand, the documentary evidences of sales of copper wire through the payee company as reflected in the books, bank records and ./2010 Assessment year: 2006-2007 Page 4 of 6

A perusal of the relevant portion of the remand report submitted by the Assessing Officer to the ld. CIT(Appeals), as reproduced above, clearly shows that the details and documents furnished by the assessee were found to be sufficient by the Assessing Officer to support and substantiate its claim for commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarkas’. As a matter of fact, the claim of the assessee for such commission was found to be prima facie in order by the Assessing Officer and it was admitted by him that there was no material available on record to prove contrary to the claim of the assessee. This position clearly evident from the relevant portion of the remand report submitted by the Assessing Officer (as highlighted) is not disputed even by the ld. D.R. Keeping in view these categorical findings recorded by the Assessing Officer in the remand report submitted to the ld. CIT(Appeals), we are of the view that there was no justification on the part of the ld. CIT(Appeals) to confirm the disallowance made by the Assessing Officer on account of commission paid to M/s. Eastern Micro Electronics (P) Limited and Murarkas’ and deleting the same, we allow Ground No. 1 of the assessee’s appeal.

As regards the issue involved in Ground No. 2 relating to the addition of Rs.40,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of advance received from one customer M/s. Deepsun Industrial Corporation, it is observed that the said advance received by the assessee was treated by the Assessing Officer as sale made by the assessee to the concerned party as it was found by him on verification that there was no such advance due by the assessee to M/s. Deepsun Industrial Corporation. At the time of hearing before us, ld. Counsel for the assessee has submitted that there was no such sale made by the assessee and, in fact, the advance of Rs.40,000/- received from M/s. Deepsun Industrial Corporation was returned back to the said party by the assessee during the subsequent period. He has contended that the assessee is in a position to establish on evidence this repayment before the Assessing Officer if an opportunity is claimed to do so. Accordingly, ./2010 Assessment year: 2006-2007 Page 6 of 6 this issue is restored to the file of the Assessing Officer for deciding the same afresh after giving the assessee an opportunity to establish that there was no sale of Rs.40,000/- made to M/s. Deepsun Industrial Corporation and the amount of advance of Rs.40,000/ was actually repaid to the said party during the subsequent period. Ground No. 2 is, accordingly, treated as allowed for statistical purposes.

In the result, the appeal of the assessee is allowed as indicated above. Order pronounced in the open Court on November 4th, 2015.