Income Tax Appellate Tribunal - Chandigarh
M/S Dashmesh Mechanical Works, ... vs Department Of Income Tax on 15 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B' CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 1463/CHD/2010
Assessment Year: 2007-08
ITO-IV(3), V M/s Dashmesh Mechanical
Malerkotla. Works, Raikot Road,
Malerkotla.
PAN: AAAFD-8311M
(Appellant) (Respondent)
Department by: Smt. Jaishree Sharma
Assessee by : None
Date of Hearing : 15.11.2011
Date of Pronouncement : 21.11.2011
ORDER
PER MEHAR SINGH, AM
The present appeal filed by the Revenue is against the order dated 18.10.2010 passed by the ld. CI T(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act').
2. In this appeal, the Revenue has raised the following Grounds of Appeal:
"1. That the CIT(A)-II has erred in law and on f acts in deleting the addition of Rs.11,62,770/- made by the AO by making disallo wance out of commission expenses.
2. That the ld. CIT(A)-II has erred in law and on f acts in deleting the addition of Rs.53,265/- made by the AO by restoring to provision u/s 40( ia).
3) That the order of the CIT(A)-II be set aside and that of the AO be restored.2
4. The appell ant carves leave to add or amend any ground of appeal bef ore it is f inally disposed off .
3. On 25.7.2011, the case was adjourned to 18.10.2011 at the request of the counsel. On 18.10.2011, none attended for the assessee and the case was adjourned for 15.11.2011. On 15.11.2011, none attended on behalf of the assessee. Consequently, the case is adjudicated on the basis of available material on record.
4. The ld. 'DR' placed reliance on the assessment order and also cited one decision of ITAT Jaipur Bench in the case of ACIT V Mehru Electrical & Engg. (P) Ltd. ITA No. 215/jp/2009 dated 26.02.2010 to support her contentions.
5. We have carefully perused the facts of the case and the relevant material available on record. The brief facts necessary for the disposal of the case are that the assessee filed its return of income on 30.10.2007 declaring total income at Rs.4,81,880/-. The AO framed the assessment u/s 143(3) at Rs.17,14,830/- by making addition on account of disallowance of commission at Rs.11,62,770/- and disallowance on account of job charges at Rs.53,265/-.
6. In Ground No.1, the Revenue challenged the deletion of addition of Rs.11,62,770/-. The AO in the assessment order dated 13.12.2009 u/s 143(3) of the Act disallowed commission expenses to Rs.11,62,770/-. In the course of assessment proceedings, statements of three persons namely S/Shri Major Singh, Ashok Loomba and Manish Loomba, to whom commission had been paid, were recorded. The AO 3 was not satisfied about the genuineness of such payment of commission to these persons. He also observed that commission expenses in the year under consideration had been claimed at Rs.16,62,270/- on the sales of 14.45 crores, whereas in the immediately preceding year, commission expenses were claimed at Rs.3,08,000/- on total sales of Rs.8.88 Crores. Consequently, on pro-rata basis of sales qua commission expenses of preceding assessment year, the commission for the assessment year in question was worked out by the AO at Rs.5 lacs and the balance commission claimed by the assessee was disallowed at Rs.11,62,770/-. Ld. CIT(A), on appreciation of the facts of the case and submissions filed by the assessee deleted the impugned addition. The findings of the ld. CIT(A) deleting the said additions are reproduced hereunder :
"Af ter going through the order u/s 143(3) passed by the ld. AO and written arguments f iled by the appellant it is an accepted f act that the commission expenses have been incurred by the appell ant. Name and complete address of all commission agents to whom commission has been paid had been f urnished during assessment proceedings. All these persons were existing assessee and copies of their returns of income f or the year under consideration were also f iled. The details of sales made through such persons were also f urnished. State ments of three commission agents namely Major Singh, Ashok Loomba and Ashish Loomba were recorded during assessment proceedings and all of them conf irmed receipt of commission f rom the appell ant assessee. The commission has been paid through payee's account cheque except to one commission agent Major Singh who has been paid 4 commission in kind and necessary evidence has been produced during the assessment proceedings bef ore the ld. AO. The ld. AO has al lo wed commission expenses of Rs.5,00,000/- as against Rs.16,62,270/- claimed by the appellant and held that commission could be allo wed on total sales of this year Rs.14,45,03,500/- on prorate basis of sales of last year. The ld. AO does not doubt the genuineness of commission expenses but held that commission expenses could be allo wed on total sales of this year on prorate basis of sales of last year. The authorized representative of the appellant assessee has pleaded that methodology adopted f or disallo wing the commission payment is crude and totally unjustif ied as expenses are incurred during the course of regular business and f or incurring expenses no arithmetical formula can be devised. The authorized representative further pleads that commission has been allo wed on prorate basis and this means that commission paid to each person is partly allo wable and partly disallo wable without assigning any reason. The authorized representative of the appellant assessee has relied upon follo wing decisions in support of his written submissions.
1. Sassoon J.David & Company Pvt.Ltd. v CIT reported in 118 ITR 261 (S.C) :
"Ordinarily, it is f or the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred f or promoting the business and to earn prof its, the assessee can claim deduction u/s 10(2)(Xv) of the Act even though there was no compelling necessity to incur such expenditure."
2. Smt.Satinderjeet Kaur v ITO reported in 52 TTJ 388 (ITAT Chandigarh Bench Chandigarh) 5 "It is true that commission has been paid at a unif orm rate and no written agreements have been entered into. It is, ho wever not necessary that there must be written agreement bef ore a particular commission payment is allo wed as a deduction. One has to look into the surrounding circumstances include the aff idavits of the parties, their statements, the details of the parties to whom the sales were effected, copies of the account of the commission agents and their admission that they did receive the commission f rom the assessee.
3. CIT v Dal mia Cement (Bharat) Ltd. reported in 254 ITR 377 (Delhi High Court ) It is to be noted that in the present case the question that has been raised by the Revenue is not one rel ating to the expenditure being not f or the purpose of the business. It is an question of the appropriate amount which would have been paid as commission. In f act the AO himself has allo wed to the extent of Rs.4,35,854/- holding inter al ia, "the payment of Rs.1.75 per MT to cement distributors Ltd. is very much on the excessive side". This in our vie w was impermissible within the f rame work of s.37 of the Act. The jurisdiction of the Revenue is conf ined to 'deciding the real ty of the expenditure" namely whether the amount claimed as deduction was f actually expended or ;laid do wn and whether it was wholly and exclusively f or the purpose of the business. The reasonableness of the expenditure could gone into only f or the purpose of determining whether, in f act, the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of the business, the Revenue cannot justif iably claim to put itself in 6 the armchair of a businessman or in the position of the board of directors and assume the said role to decide ho w much is a reasonable expenditure having regard to the circumstances of the case.
7. Further, the appellant assessee pleaded that the sales during the year increased by Rs.5.50 Crore and if for that purpose it had to incur commission expenses of Rs.13,54 l acs (16.62 (2007-2008 minus 3.08 (2006-2007)=13.54 lacs) cannot be described as unreasonable especially when the identity of the persons to whom commission has been paid and genuineness of payment stands established. It has been f urther pleaded that commission has been paid to persons who affected actual sales of agricultural machinery and not on the value of total sales. No commission has been paid on the sales made directly by the assessee. The appellant assessee f urther pleads that commission of Rs.1662770/- has been paid on total sales of Rs.4,09 crore and no commission has been paid on bal ance sales worth Rs.10.36 crore (14.45 crore minus 4.09 crore = 10.36 crore). Af ter going through the order passed u/s 143(3) and written submissions f iled by the appellant assessee,I am convinced that the Ld. AO was not justif ied in disallo wing commission either on prorate basis or other wise as the appell ant has produced complete evidence discussed supra. All the persons were identif iable, details of sales made through them was avail able; payment was made through account payee cheque incase of all persons except one to whom it has been paid in kind and had been accounted f or by each person in his return of income. The increase in commission expenses cannot be the basis of any disallo wance especially when the genuineness of the same stands established. The expenses have been incurred wholly and exclusively for the purpose of 7 business keeping in vie w the ratio of judgment of Hon'ble Supreme Court in the case of Sassoon J David Company P.Ltd. v CIT 118 ITR 261 and the Hon'ble jurisdictional ITAT in the case of Smt.Satinder jeet Kaur v ITO 52 TTJ 388, it is held that the ld. AO was not justif ied in making disallo wance of commission expenses of Rs.1162770/-. The addition of Rs.1162770/- is theref ore deleted."
7. The ld. CI T(A), on appreciation of the decisions in the case of Sassoon J.David & Company Pvt. Ltd. V CIT, 118 ITR 261 (S.C), Smt.Satinder Kaur V I TO, 52 TTJ 388 (I TAT Chandigarh Bench) and CI T V Dalmia Cement (Bharat) Ltd., 254 I TR 377 (Delhi High Court) and facts of the case held that the AO was not justified in disallowing the commission either on pro-rata basis or otherwise as the appellant had produced complete evidence in the matter. All the persons to whom the commissions were paid, were identifiable and the details of sales made through them were also available. Further, the payment was made through Account Payee cheque in all the cases except one to whom it has been paid in kind and had been accounted for by each person in his return of income. Increasing commission expenses perse cannot be construed as non-genuineness of the transaction. Having regard to the detailed findings of the ld. CIT(A), we are of the considered opinion that there is no infirmity in the order of the CIT(A) and hence, the findings are upheld. This ground of appeal of the Revenue is dismissed.
8. In second ground of appeal, the Revenue contended that the CI T(A) erred in law and on facts in deleting the 8 addition of Rs.53,265/- made by the AO. The AO disallowed an amount of Rs.53,265/- u/s 40(ia) on the ground that the amount pertained to job charges but no tax at source had been deducted inspite of the fact that the payment was more than Rs.50,000/-. The ld. CI T(A) deleted the impugned addition by recording categorical finding that the payment on account of job charges was less than Rs.50,000/- i.e. Rs.43,815/-. The balance payment of Rs.9450/- was made on account of purchase of goods. Consequently, it was held by the ld. CI T(A) that disallowance made by the AO is not covered u/s 40(ia) of the Act. The findings of the CIT(A) are purely based on facts and hence, no interference is called for. Consequently, they are upheld. This ground of appeal of the Revenue is dismissed.
9. Ground Nos. 3 & 4 are general in nature, hence need no adjudication.
10. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 21 s t Nov.,2011.
Sd/- Sd/- (SUSHMA CHOWLA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 21 s t Nov.,2011. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CIT,DR Assistant Registrar, I TAT Chandigarh