RAJENDRA KUMAR DEWANGAN,DURG vs. INCOME TAX OFFICER, WARD-2(2), BHILAI

Controversy involved in the present appeal hinges around two fold issues, viz. (i). the disallowance of the “Commission Expenses” that were claimed as a deduction by the assessee, a stamp vendor;

During the course of the assessment proceedings, it was observed by the A.O that the assessee who was deriving commission income as a stamp vendor had, inter-alia, claimed deduction of commission expenses of Rs.4,86,800/-. Observing that the commission received by the assessee as a stamp vendor from the government would be directly credited in his bank account, and no part of the same would be transferred by him to any customer in any form, therefore, the A.O declined the assessee’s claim for deduction of commission expenses of Rs.4,86,800/-. Apart from that, it was observed by the A.O that as the assessee had neither produced any bank statements nor bills/vouchers or cash book to support his said claim of having incurred commission expenses, therefore, the same was also not to be accepted on the said count. Alternatively, the A.O was of the view that even otherwise as the impugned commission expenditure incurred by the assessee would be nothing but an illegal gratification, therefore, the same was not to be allowed in the garb of business promotion expenses. After observing as hereinabove, the A.O disallowed the assessee’s claim for deduction of commission expenditure of Rs.4,86,800/- and held the same as an unexplained expenditure u/s. 69C of the Act.

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals), who though principally upheld the disallowance of the assessee’s claim for deduction of commission expenditure and invocation of Section 69C of the Act, but restricted the disallowance to 50% i.e. Rs.2,43,400/-.

The assesee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.

At the very outset of hearing of the appeal, it was submitted by the Ld. Authorized Representative (for short ‘AR’) for the assessee that as per instructions he intends to not press the ground of appeal No.2. Considering the aforesaid concession of the Ld. AR, the Ground of appeal No.2 is dismissed as not pressed.

Controversy that now survives in the present appeal lies in a narrow compass i.e., as to whether or not the lower authorities are justified in triggering the provision of Section 69C of the Act qua the disallowance of the assessee’s claim for deduction of commission expenses?.

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 is discernible from the record, the A.O had in

Before proceeding any further, I deem it fit to cull out the provisions of Section 69C of the Act, which reads as under:

Considering the aforesaid facts, now when in the case before me the assessee’s claim for deduction of commission expenditure was raised by debiting the same in his Profit & loss account, I am unable to comprehend as to on what basis the disallowance of the same could have been brought within the realm of Section 69C of the Act, which, as observed by us hereinabove gets triggered only where the assessee fails to come forth with the source of the expenditure or part thereof; or the explanation, if any, offered by him is not in the opinion of the A.O found to be satisfactory.

On the basis of my aforesaid observations, I am unable to persuade myself to subscribe to bring of the disallowance of the assessee’s duly accounted claim for deduction of commission expenses within the realm of Section 69C of the Act.

Before parting, I may herein clarify that though I do not concur with the lower authorities to the extent they had characterized the disallowance of the commission expenses as an unexplained expenditure u/s. 69C of the Act, but considering the concession of the ld. A.R, who as per instructions had foregone his challenge to the maintainability of the disallowance, thus, refrained from adverting to and expressing any view as regards the sustainability of the disallowance to the extent the same had been upheld the CIT(Appeals).

In the result, appeal of the assessee is allowed in terms of the aforesaid observations.