Income Tax Appellate Tribunal - Pune
Kapil Traders, Ahmednagar vs Assessee on 26 November, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.2498/PN/2012
(Assessment Year: 2009-10)
Kapil Traders
Dattanagar, Shrirampur,
Dist. Ahmednagar.
PAN: AAHFK9754G .... Appellant
Vs.
The Addl. Commissioner of Income Tax,
Ahmednagar Range, Ahmednagar. .... Respondent
Appellant by : Shri S.N. Puranik
Respondent by : Shri Rajesh Damor
Date of hearing : 24-11-2014
Date of pronouncement : 26-11-2014
ORDER
PER SUSHMA CHOWLA, JM:
This appeal filed by the assessee is against the order of CIT(A)-I, Pune dated 05.11.2012 relating to assessment year 2009-10 passed under section 143(3) of the Income-tax Act.
2. The assessee has raised the following grounds of appeal:-
1. Hon. Commissioner (Appeals) erred in confirming the additions at Rs.6,92,112/- paid to two salesman as non genuine. A O had disallowed said expenditure u/s.40A(3), as per his interpretation payment was in cash & in excess of Rs.20,000/- genuineness of said expenditure was verified by A O & not suspected but disallowed merely on account of cash payment.
2. Appellant prays for deletion of interest charged u/s 234, same may be deleted.
3. Appellant prays to add, alter, amend, ratify, explain, and / or withdraw the ground/s as the occasion may demand.2 ITA No.2498/PN/2012
Kapil Traders
3. The only issue raised in the present appeal is against disallowance made under section 40A(3) of the Act at Rs.6,92,112/-.
4. The brief facts of the case are that, during the year under consideration the assessee had claimed expenditure on account of commission of Rs.26,58,342/- paid to various individuals. The claim of the assessee was that the said commission was paid on the basis of sales made by them. On perusal of the copies of accounts of the said persons, the Assessing Officer noted that cash payments exceeding Rs.20,000/- were paid to the said persons as per the tabulated details under para 3.1, totaling Rs.7,94,872/-. The said payments were in contravention to the provisions of section 40A(3) of the Act and hence, same was disallowed by the Assessing Officer.
5. Before the CIT(A), the contention of the assessee was that the cash entries as on 31.03.2009 were actually transfer entries from petty cash account to salesmen account and the petty cash book would demonstrate that each entry was below Rs.20,000/-. The assessee filed the copies of the petty cash Register along with PAN of the concerned persons to whom the cash was paid, before the CIT(A). The CIT(A) on examination of the details furnished by the assessee accepted the cash payments in respect of three parties i.e. S/Shri Arif Patel, Ranjit Kathoria and Kishor Sanap. However, on perusal of the cash payments to two persons i.e. S/Shri Rajesh Arora and S.M. Mantri, the CIT(A) noted that the said cash payments were in the range of Rs.17,500/- to 19,950/-. The date-wise payments made are enlisted at page 3 of the appellate order. In response to various queries raised by the CIT(A) as to how the payments were arrived at 3 ITA No.2498/PN/2012 Kapil Traders considering that they were also cheque payments made to the same persons and whether these were relatable to the sales realized for the corresponding period, the assessee stated that these payments were merely advances paid to the concerned persons. The assessee further stated that the concerned persons were not employees of the assessee but were engaged as commission agents to realize the moneys outstanding to the assessee by way of sales and there was no written contractual agreement with the said persons. The CIT(A) questioned the payments made in cash and in advance to such persons who were not the regular employees of the assessee. Further, it was noted by the CIT(A) that since the persons had bank accounts and cheque payments were made to them, there was no justifiable reason for making the cash payments in a manner structured to avoid the recourse of section 40A(3) of the Act. Thus, the CIT(A) held the said payments totaling Rs.6,92,112/- to be non-genuine expenditure and otherwise liable to be disallowed under section 37(1) of the Act.
6. The assessee is in appeal against the said order of CIT(A). The learned Authorized Representative for the assessee pointed out that the said commission payments were subject to TDS and the assessee had deducted TDS out of said payments and deposited the same. Our attention was drawn to the Certificate of TDS on commission placed at pages 7 & 8 and 15 & 18 of the Paper Book. It was further pointed out by the learned Authorized Representative for the assessee that since TDS had been deducted on the same, the amounts are allowable as an expenditure and there was no merit in disallowing the same being in contravention of section 40A(3) of the Act. The learned Authorized Representative for the assessee also pointed out that the recipients 4 ITA No.2498/PN/2012 Kapil Traders had already paid taxes on the said commission receipts and the disallowance had resulted in double addition.
7. The learned Departmental Representative for the Revenue has placed reliance on the orders of authorities below.
8. We have heard the rival contentions and perused the record. The assessee was engaged in trading for India made foreign liquor, beer and wine on wholesale basis. During the year under consideration, the assessee had claimed commission expenditure of Rs.26,58,342/- being paid to various individuals. The Assessing Officer on verification of the details and perusal of the copies of accounts of the said persons, noted that the certain payments exceeding Rs.20,000/- were made by the assessee. The person-wise tabulated details totaling Rs.7,94,872/- are as under:-
Sr.No. Name of person Total Cash Percentage to whom commission payment of cash to commission paid paid during cheque the year payment 1 Arif Patel 5,01,118 28,125 5.60% 2 Rajesh Arora 3,23,864 2,38,864 73.75% 3 Ranjit Kathoria 3,68,614 20,813 5.64% 4 S.M. Mantri 6,04,443 4,53,248 74.98% 5 Kishor Sanap 3,78,012 53,822 14.23% Total 7,94,872
9. The Assessing Officer disallowed the said payments being made in violation of the provisions of section 40A(3) of the Act. The CIT(A) deleted the addition on account of persons at Sr. No.1, 3 and 5. However, the CIT(A) while considering the issue noted that in addition to cash payments being made to the said persons, cheques were also being issued to the said persons. The date-wise details of payments, 5 ITA No.2498/PN/2012 Kapil Traders the mode and amount of payments in respect of payments to Shri Rajesh Arora and Shri S.M. Manti are as under:-
Name of the Mode of payment Date Payment
salesman
Rajesh Arora Cash 15-Apr-08 19,950
Cheque No. 176532 7-May-08 50,000
Cash 15-May-08 19,950
Cheque No. 176540 30-May-08 15,000
Cash 15-Jun-08 19,950
Cash 15-Jul-08 19,950
Cheque No. 176575 7-Aug_-08 20,000
Cash 15-Aug-08 19,950
Cash 15-Sept-08 19,950
Cash 15-Oct-08 19,950
Cash 15-Nov-08 19,950
Cash 1 5-Dec-08 19,950
Cash 15-Jan-09 19,950
Cash 15-Feb-09 19,950
Cash 15-Mar-09 19,414
Total 3,23,864
Name of the Mode of payment Date Payment
salesman
S.M. Mantri Cash 6-Apr-08 18,500
Cash 29-Apr-08 18,000
Cash 4-May-08 17,500
Cash 31-May-08 19,000
Cash 1-Jun-08 19,500
Cash 30-Jun-08 19,000
Cash 6-Jul-08 18,500
Cash 31-Jul-08 19,000
Cheque No. 106514 2-Aug-08 93,665
Cash 3-Aug-08 19,500
Cash 31-Aug-08 19,000
Cash 7-Sept-08 18,500
Cash 30-Sept-08 19,000
Cash 5-Oct-08 19,500
Cash 31-Oct-08 19,000
Cash 9-Nov-08 18,500
Cash 30-Nov-OS 19,000
Cash 7-Dec-08 19,500
Cheque No. 119329 10-Dec-08 54,387
Cash 31-Dec-08 19,000
Cash 4-Jan-09 18,500
Cheque No. 016513 22-Jan-09 1,295
Cheque No. 016512 22-Jan-09 1,848
Cash 31-Jan-09 19,000
Cash 1-Feb-09 19,500
Cash 28-Feb-09 19,000
Cash 2-Mar-09 18,748
Cash 31-Mar-09 19,000
Total 6,04,443
6
ITA No.2498/PN/2012
Kapil Traders
10. The claim of the assessee in relation to the said expenditure was that the said persons were collecting the sales amount on behalf of the assessee but were not employees of the assessee and were being paid commission in cash on day-to-day basis and each cash payment did not exceed Rs.20,000/-.
11. The first aspect of the issue is whether the said expenditure is genuine expenditure allowable under section 37(1) of the Act and second aspect of the issue is whether the said expenditure has been made in violation of the provisions of section 40A(3) of the Act. Admittedly, the assessee has no written contractual agreement with the persons vis-à-vis the arrangement of duties and the responsibilities in relation to the assessee. Further, cash payments have been made on various dates to the said persons by the assessee in the range of Rs.17,500/- and 19,950/-. The assessee claims that it had booked the said expenditure under the head 'commission' on which it had deducted the tax at source. At page 7 of the Paper Book, the assessee has furnished on record the form No.16A issued to Shri S.M. Mantri and page 5 has also enclosed the summary of salesman- wise payments details made from petty cash Ledger made to Shri S.M. Mantri. The perusal of the details on page 5 of the Paper Book i.e. the Petty Cash Ledger reflects that in the month of April, 2008 two payments were made to the said person of Rs.18,500/- and Rs.18,000/-. In the month of May, 2008 two payments again were made of Rs.17,500/- and Rs.19,000/-. The form No.16A on the other hand, reflects a sum of Rs.48,473/- being paid / credited on 30.04.2008 and Rs.58,322/- being paid / credited on 31.05.2008 on which tax was deducted at source and deposited on 23.06.2008. The 7 ITA No.2498/PN/2012 Kapil Traders learned Authorized Representative for the assessee during the course of hearing was asked to reconcile the payments shown in the Petty Cash Register and the payments reflected in the TDS Certificate on which the assessee claims to have deducted TDS. However, the learned Authorized Representative for the assessee was unable to reconcile the figures between Petty Cash Register and the TDS Certificate. Similar, dis-similarities were in the other months of the years 2008 and 2009. For allowing the claim of expenditure in the case of the assessee, the first step to be established is that the expenditure had been incurred for the purpose of carrying on the business. Merely because the payment has been made to a person does not establish the genuineness of the expenditure being relatable to the business carried on by the person. The assessee in the facts and circumstances of the present case has failed to establish the genuineness of the said expenditure incurred by it on account of commission which was being paid to non-employees of the assessee for recovery of the amounts. Further, the amount was being paid in advance to the said persons and it had no connection or relevance to the commission earned by the said persons. In the absence of requisite onus being discharged by the assessee, we find no merit in the claim of the assessee. Further, the booking of the expenditure under the head 'commission' and the deduction being made through Petty Cash Register was not reconciled by the assessee and in the absence of the same, we find no merit in the claim of the assessee. Upholding the order of CIT(A), we hold that the said amount is not allowable in the hands of the assessee being non-genuine expenditure under the provisions of section 37(1) of the Act. Once the expenditure is held to be non-genuine, we are not addressing the issue of 8 ITA No.2498/PN/2012 Kapil Traders applicability of section 40A(3) of the Act. The grounds of appeal raised by the assessee are thus, dismissed.
12. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on this 26th day of November, 2014.
Sd/- Sd/-
(G.S. PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated: 26 th November, 2014.
GCVSR
Copy of the order is forwarded to: -
1) The Assessee;
2) The Department;
3) The CIT(A)-I, Pune;
4) The CIT-I, Pune;
5) The DR "A" Bench, I.T.A.T., Pune;
6) Guard File.
By Order
//True Copy//
Assistant Registrar
I.T.A.T., Pune