DE vs. ON PRIVATE LIMITED,JAMMUVS.ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2, JAMMU

Per Dr. M. L. Meena, AM:

These appeals have been filed by the assessee against the order

dated 28.12.2018 & 10.04.2019 passed by the Ld. Commissioner of

Income Tax (Appeals), Jammu, in respect of the Assessment Years 2013-

14 and 2014-15, wherein the assessee has challenged the order of ld.

CIT(A) in upholding the addition on account of Sales Commission of

Rs.3,54,311/- and 3,39,083/- in respective assessment year by the

Assessing Officer. Since, there is sole issue of commission payment on

identical facts, both the appeals were heard together and disposed off by

this common order for brevity.

204/Asr/2019:

“1. The order passed by the Learned Commissioner of Income Tax (Appeals) is opposed to law and facts of the case.

3 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT 3. The Learned Commissioner of Income Tax (Appeals) has failed to appreciate that the Sales Commission has been paid to the employees of the company to incentivize them and is part and parcel of their Salary package.

It is prayed, that the addition of Rs.3,54,311/- may please be deleted and appeal allowed.”

549/Asr/2019:

“1. The order passed by the Learned Commissioner of Income Tax (Appeals) is opposed to law and facts of the case.

4 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT

It is prayed, that the addition of Rs.3,39,083/- may please be deleted and appeal allowed.”

appellant has paid Sales Commission to the employees of the assessee

company to incentivize them and is part and parcel of their salary package

as per ground no. 3. He contended that the Commission has been paid to

the employees of the company vis-à-vis Estate Officer, Store Keeper,

Cashier, Asstt. Store Keeper, G.D. Clerks, Accountant, Computer Operator,

Coolie and Peon although they were not directed related to the Sales

Department. The counsel has filed a written note to buttress his contention

raised at the time of hearing which reads as under:

“1. Regarding Disallowance of Rs.3,54,311/- out of Sales Commission : The Assessing Officer has disallowed an amount of Rs.3,54,311/- out of total amount of Rs.5,00,041/- spent on account of Sales Commission paid to its employees on the ground that some of the employees to whom sales commission has been paid do not relate directly to sales department. The Dy. Commissioner of Income Tax, Circle - 2 has upheld the addition by relying on the order of the Assessing Officer.

It is submitted that the Appellant is a wholesaler of liquor and purchases its supplies from different Distilleries/Breweries/ Wholesalers and sell the same to retailers. For running its business the Appellant had 27 employees on its pay rolls during the year. The pay package of these employees is also linked with the sales of the company. More the sales more will be sales incentive and in case of lesser sales the sale incentive will also reduce accordingly. The sales incentive is

5 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT part and parcel of their monthly pay package (list of employees given to Assessing Officer at the time of assessment is given at para 4 of the Assessment Order). The learned CIT (Appeals) has relied upon the order of the Assessing Officer who has ruled that sales incentive given to employees like Estate Officer, Store Keeper, Cashier, Asstt. Store Keeper, G.D. Clerks, Accountant, Computer Operator, Coolie and Peon are not directly related to sales department. The findings of the authorities below are not tenable. The business of the Appellant is sales/purchase of liquor and all these employees are directly or indirectly related to sales of the company. The Secretary is the overall in charge of sales operation whereas persons like Store Keeper, Cashiers, Asstt. Store Keeper, G.D. Clerk, Accountant, Computer Operator, Coolie and Peon are directly related to the conduct of the sales.

Moreover it is for the Appellant to formulate the pay package of the employees which is beneficial to company both employees and employers.

It has been held by the Hon’ble jurisdictional Amritsar ITAT bench in the case of ‘Subash Chander & Co. v. Income Tax Officer/ (2009)121TTJ 718 (copy enclosed) vide para 6 of the order that:

“Moreover, as held in S.A Builders Lt vs. CIT (2006) 206 CTR (SC) 631: (2007) 288 ITR 1(SC), the Revenue cannot justifiably claim to put itself in the armchair of the businessman and assume the role to decide, as to how much the expenditure is reasonable having regard to the circumstances of the case; no businessman can be compelled to maximize his profit; the IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act; and that the authorities must not look at the matter from their view point, but that of a prudent businessman impelled by commercial expediency". The learned CIT (Appeals) has ignored the above judgment of the Hon’ble Tribunal without assigning any reason which is directly related to the case.

Further the learned CIT (Appeals) did not grant personal hearing in the matter and decided the matter on the basis of written submissions submitted by the appellant.

In view of the above submissions, it is requested that disallowance of Rs.3,54,311/- be allowed and appeal accepted.”

6 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT 5. The learned additional CIT DR supported the impugned order. He

contended that what is claimed by the assessee relates to incentives paid

to its employees and no way related to the sales commission. The learned

CIT appeal was therefore justified in confirming the bogus expenditure

claimed by the appellant assessee under the head sales commission. He

prayed that order of the CIT appeal may be sustained.

the material on record and case law cited at the bar. Admittedly, the

appellant assessee has paid sales incentives to its employees as part of

the salary package where he was required to deduct TDS. Since the

assessee has not deducted the TDS on such payments of incentives,

therefore he has claimed, these expenses under the head sales

commission payments vis-a-vis sales incentives being paid to the Estate

Officer, Store Keeper, Cashier, Asstt. Store Keeper, G.D. Clerks,

Accountant, Computer Operator, Coolie and Peon, which are directly or

indirectly not related to sales department. At the time of hearing, the

learned counsel asked whether the appellant assessee has furnished

detailed information regarding the nature of payments of the expenses

claimed as sales commission and whether direct whether any TDS has

been directed on such payments before the authorities below. Since the

7 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT assessee has failed to furnish any information to establish that the

payments were made towards the sales commission relating to promotion

of sales and TDS the deduction on the sales commission thereof before the

authorities below and in the present proceedings as well. Merely, the claim

made by the assessee that the business of the Appellant is sales/purchase

of liquor and all these employees are directly or indirectly related to sales of

the company is not sufficient to hold that the findings of the authorities

below are not tenable. In view of the matter, we do not find any infirmity or

perversity in the observation and finding of the learned CIT appeal on the

facts of the case.

Chander & Co. v. ITO in ITA No. 568/Asr/2008, AY 2006-07(2009)121TTJ

718 dated 13th Jan., 2009 is not applicable to the facts of the present case

of the assessee as in that case the Tribunal has dealt with the issue and

genuineness and payments of 15% interest to the relatives u/s 40A(2)

whereas in the present case, the issue is claim of payment of sales

commission against sales incentives paid as part of salary package to the

employees of the assessee company without deducting TDS.

8 ITA Nos. 204&549/Asr/2019 Devson Pvt. Ltd. v. Asstt./Dy.CIT “S.A Builders Lt vs. CIT”, (2006) 206 CTR (SC) 631: (2007) 288 ITR 1(SC),

on the issue of commercial expediency is of no help to the appellant

assessee because, the issue involved is claim of sales commission without

TDS deduction in violation of provisions of the section 194H of the Income

Tax Act, 1961.

substance in the contentions of the appellants counsel and accordingly, the

orders of the CIT(A) are sustained in upholding the addition on account of

Sales Commission amounting to Rs. 3,54,311/- and Rs.3,39,083/- in ITA no

204/ASR/ 2019 and 549/ASR/2019 in respect of the Assessment Year

2014-15 and 2013-14 respectively.

Order pronounced in the open court on 22.09.2022

Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr/PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order