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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals)-I, Raipur dated 14.08.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 21.12.2016 for assessment year 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before me:
“1] On the facts and circumstances of the case learned C.I.T.(A) erred in maintaining addition of Rs.8,98,445/- being commission payment made to Shri Maganlal Patel for liasoning with officers of various blocks and Tahasils of Chhattisgarh and for sale, supply of HDPE pipes and sprinklers for installing Drip/Sprinkler irrigation system in agricultural fields under the Govt. Scheme for encouraging drip irrigation. 2] On the facts and circumstances of the case the learned C.I.T.(A) erred in maintaining addition of Rs.7,06,700/- paid to Bharatkumar Patel for Jobwork of processing HDPE pipes and assembly of Drip/sprinkler and installation of equipment in the fields. Said expenses having been allowed in earlier years U/s.143(3) assessments except in A.Y.2010-11 (where the matter is pending before ITAT) there was no reason or basis for disallowing said expenses of Rs.7,06,700/-. 3] Learned C.I.T.(A) erred in maintaining adhoc disallowance of 15% out of vehicle and telephone expenses etc. Expenditure was solely and exclusively for business purposes. Thus, disallowance of Rs.1,84,907/- out of total expenses of Rs.12,32,714/- is wholly unjustified.
3 Shri Deepak Kumar Patel Vs. ITO-3(3)
4] Appellant craves leave to urge additional grounds at the time of hearing as may be necessary.”
Succinctly stated, the assessee who is engaged in the business of manufacturing of HDPE/LDPE Pipes had e-filed his return of income for A.Y.2014-15 on 30.11.2014, declaring an income of Rs.15,23,320/- . Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
Assessment was, thereafter, framed by the A.O vide his order passed u/s. 143(3) dated 21.12.2016 at Rs. 33,63,370/- after, inter alia, making the following disallowances:
Sr. No. Particulars Amount 1. Disallowance of commission Rs.8,98,445/- paid to Shri Maganlal Patel ( person specified u/s.40A(2)(b) of the Act) 2. Disallowance of Job work Rs.7,06,700/- charges paid to Shri Bharatlal Patel (person specified u/s.40A(2)(b) of the Act 3. Ad-hoc disallowance of 15% Rs.1,84,907/- out of vehicles and telephone expenses 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success in so far the aforesaid disallowances were concerned.
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The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. A.R to drive home his contentions.
On a perusal of the orders of the lower authorities, I find that during the course of the assessment proceedings the A.O had called upon the assessee to substantiate his claim of having paid commission of Rs.8,98,445 to his father, viz. Shri Maganlal Patel. On being queried about the details and evidence of work done by the aforesaid person, viz. Shri Maganlal Patel, it was submitted by the assessee that he had looked after the work of District: Mahasamund in connection with supply of pipes. It was the claim of the assessee that commission @2% i.e. Rs.8,98,445/- was paid to the aforementioned person on which tax was deducted at source. However, the A.O was not persuaded to subscribe to the aforesaid claim of the assessee for the following reasons: “(a) While requiring to produce the bills and vouchers signed by the payee the assessee has filed a copy of ledger account showing payment of Rs.8,98,445/- to Shri Maganlal Vastaram Patel. The bill is dated 22-03-2014 which is a typed one and 5 Shri Deepak Kumar Patel Vs. ITO-3(3)
does not bear the mono or letter head of the payee. From this papers it is not proved as to what were the works done by the payee during the year which could entitle him for getting commission. The assessee has not produced any record, bills, fair or rough which could be establish that the supply of goods to the purchasing customer were through said Shri Magan Lal Patel. It shows that Shri Magan Lal Patel has no role to induce the customers to bring to the assessee’s shop for purchasing the goods. (b) No evidence has been produced to show that Shri Magan Lal Patel visited any place of the Mahasamund District for contacting the intended customers, neither any. travelling record or expenses if any incurred to bring the purchasers or any expenditure like entitlement etc. of the customers were furnished. No such details were either furnished by the assessee or the said payee Shri Magan Lal. (c) The ledger account or details maintained do not contain the names and description of the goods sold or supplied through Shri Magan Lal Patel. The bill is a single dated bill issued at the end of the year which also does not contain any details of work or supply orders executed. It simply says 2% commission — Rs.8,98,445/- ". (d) The assessee's contention that Shri Magan Lal Patel is an experienced person and for utilization of his experience, commission was paid. This ground of the assessee is also not acceptable. Though Shri Magan Lal Patel is an' experienced person but in the business of the assessee he has not exerted himself nor done any work for boosting of the sales which could entitle him for the commission. (e) The main reason for claiming the payment as commission is that the payee Shri Magan Lal is father of the assessee and the payment was made to him otherwise than for business consideration and to reduce the burden of taxation. (f) During the course of assessment proceedings, the assessee was requested to produce Shri Magan Lal Patel for examination. The assessee avoided his production on some ground or the other and on the last date of hearing it was reported that he has gone to Gujrat in connection with personal matters and his date of returning back is not definite. This argument of the assessee also leads to prove that he is avoiding production of the payee for cross examination, as the things may further go against him.
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(g) The contention of the assessee that Shri Magan Lal Patel being an experienced person helped him in the business may be correct to the extent and for the reason that Shri Magan Lal Patel is father of the assessee and by virtue of his natural and moral duties, he might have helped the assessee in conducting the business. But this type of mere help would not entitle him for a definite percentage of commission i.e. 2% of the sales of the gross receipts. For earning this commission he has to establish the nature and extent of work done.
On appeal, the CIT(Appeals) upheld the aforesaid disallowance made by the A.O.
I have given a thoughtful consideration to the issue in hand i.e., sustainability of the disallowance of the assessee’s claim for deduction of commission of Rs.8,98,445/- that was stated to have been paid to Shri Maganlal Patel (supra), and do not find any infirmity in the view taken by the lower authorities. As observed by the A.O, and, rightly so, the assessee had failed to produce the records or bills/vouchers etc. which would establish that the supply of goods to the purchasing customer was carried out by availing the services of the aforementioned person. In fact, nothing has been placed on record which would reveal that Shri Maganlal Patel (supra) had visited District : Mahasamund for contacting the prospective customers. As observed by the A.O, the fact that the ledger account or details maintained by the assessee does not even contain the name and description of the goods sold or supplied through the aforementioned person further fortifies the fact that no services were in fact rendered by him. Also,
7 Shri Deepak Kumar Patel Vs. ITO-3(3) the fact that the single date bill that was issued at the end of the year merely makes a mention of the amount of commission, viz. Rs.8,98,445/- @ 2%, and there is no reference at all about the detail of works that were executed, as observed by the A.O, and, rightly so, proves to the hilt that the assessee in the garb of payment of commission to his father had in fact booked a bogus expenditure with an intent to suppress his income. I find that not only the assessee had failed to adduce any documentary evidence which would support his claim of having paid genuine commission to the aforementioned person, viz. Shri. Maganlal Patel for the services rendered by him, but in fact he had despite specific directions of the A.O avoided producing him for necessary examination on the pretext that he was away to Gujarat and the date when he would be back was not to his knowledge. On the basis of the aforesaid facts, I am of a strong conviction that the assesee only in the garb of his bogus claim of having paid commission to his father, viz. Shri Maganlal Patel had tried to suppress his profits. Accordingly, finding no infirmity in the view taken by the lower authorities I uphold the disallowance of Rs.8,98,445/- made /sustained by them. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of the aforesaid observations.
10. Adverting to the disallowance of the assessee’s claim for deduction of job work charges of Rs.7,06,700/-, I find that the same
8 Shri Deepak Kumar Patel Vs. ITO-3(3) was stated by him to have been paid to his brother, viz. Shri Bharat Kumar Patel. Although the A.O had specifically directed the assessee to produce Shri Bharat Kumar Patel for verifying the authenticity of his claim of having paid job work charges to him, however, the assessee had evaded his production on the pretext that he was away to Gujarat and was not available. Accordingly, the A.O not finding favor with the aforesaid unsubstantiated claim of the assessee of having paid genuine job work charges to Shri Bharat Kumar Patel (supra) had disallowed the same by observing as under:
“(a) Nature and extract of work done, involvement of labour and machinery could not be furnished. (b) It may be pointed out here that the said payee party though worked for the full year but has not kept any record or noting then how he could remember the total work done at the end of the year. He is a businessman employed labours and must need money to pay the labourers, then why he would spend money from his till without raising a bill or getting payment from the party whose work was done. It may be mentioned here that the only bill raised by the said payee is dated 15-03-2014 which says "manufacturing of HDPE, Pipe and assembling of sprinklers amounting to Rs.7,06,700/-". This bill does not contain as to the dates and nature and extent of work done. (c) Only once in a year the payee raised a simple bill as noted above not supported by any details does not stand the test of truth of the claim. (d) The facts reveal that the pipes require fitting work in the fields. The payee Le. Jai Hind Pipe Industries might have done the fitting work only for which payment of Rs. 1,22,125/- was separately made and that appears to be reasonable for the job. (e) The payee being a relative of the assessee (brother), the payment is covered within the purview' of section 40A(2)(b) also. From the above reasoning and facts it is clear that to reduce the business profit and tax burden, the assessee has diverted a 9 Shri Deepak Kumar Patel Vs. ITO-3(3) substantial amounts of his profit towards his relatives in the name of job work and accordingly a bill-lumpsum amount- indefinite bill of Rs.7,06,700/- was obtained. (f) The assessee's contention that the payment was made through cheque would not alone made the payment genuine unless supported by corroborative documents. (g) Under the above facts and reasons, the claim of the assessee is found not acceptable and disallowed as such”.
On appeal, the CIT(Appeals) finding no infirmity in the view taken by the A.O had upheld the aforesaid disallowance.
I have given a thoughtful consideration to the issue in hand, i.e., sustainability of the disallowance of job work charges of Rs.7,06,700/- (supra) that was claimed by the assessee to have been paid to his brother, viz. Shri Bharat Kumar Patel. As is discernible from the orders of the lower authorities, the assessee by failing to place on record any material/requisite details as regards the nature of job work that was done by the aforesaid person, viz. Shri Bharat Kumar Patel (supra), had failed to discharge the onus that was cast upon him u/s 37(1) of the Act. As such, the assessee had failed to prove his claim of having paid genuine job work charges to Shri. Bharat Kumar Patel (supra). In fact, the assessee in support of his aforesaid claim of deduction had only placed on record a bill, dated 15.03.2014 that was raised by the aforementioned person, which merely stated “manufacturing of HDPE Pipe and assembling of sprinklers amounting to Rs.7,06,700/-.” As 10 Shri Deepak Kumar Patel Vs. ITO-3(3)
observed by the A.O, and, rightly so, as the aforesaid bill did not even mention the nature of job work, therefore, it did not inspire any confidence as regards the authenticity of the same. As the assessee had failed to place on record any documentary evidence which would support the authenticity of his claim of having paid genuine job work charges to his brother, viz. Shri Bharat Kumar Patel, therefore, I am of the considered view that the same had rightly been disallowed by the A.O. Also, I concur with the view of the A.O that the aforesaid expenditure had been booked by the assessee only with an intent to suppress his profits. Accordingly, finding no reason to interfere with the view taken by the lower authorities, I uphold the order of the CIT(Appeals) and sustain the disallowance of Rs.7,06,700/-. Thus, the Ground of appeal No.2 raised by the assessee is dismissed in terms of the aforesaid observations.
13. Apropos, the ad-hoc disallowance of 15% out of vehicles and telephone expenses, I find that the same was made by the A.O primarily for the reason that the expenses booked under the respective heads of expenditure were not supported by proper vouchers. Also, it was observed by the A.O that involvement of personal element in respect of the aforesaid expenses could not also be ruled out. Although, I concur with the A.O that involvement of personal element as regards usage of car and telephone in absence of log book and call register
11 Shri Deepak Kumar Patel Vs. ITO-3(3) could not be ruled out, but at the same time is unable to subscribe to the adverse inferences which had been drawn by him as regards the expenses in question on the ground that the same were not supported by proper vouchers. I, say so, for the reason that the A.O had failed to point out a single voucher which as per him was either not found to be in order or the expenses therein claimed were liable to be disallowed for any other reason. On the basis of my aforesaid observations, I uphold the disallowance of the aforesaid expenses only to the extent of 5%. Thus, the Ground of appeal No.3 raised by the assessee is partly allowed in terms of the aforesaid observations.
Ground of appeal No.4 being general in nature is dismissed as not pressed.
Resultantly, the appeal of the assessee is partly allowed in terms of the aforesaid observations.
Order pronounced in open court on 26th day of December, 2022.