Income Tax Appellate Tribunal - Ahmedabad
M/S. Mahendra Chemicals,, Ahmedabad vs The Asstt. Commissioner Of Income Tax, ... on 30 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "SMC" BENCH
Before: Shri Amarjit Singh , Accountant Member
And Ms. Madhumita Roy, Judicial Member
ITA No. 2516/Ahd/2016
Assessment Year 2012-13
M/s. Mahendra Che micals, The ACIT,
B-1, 217+218/2, GIDC Circle-7(2),
Estate, NaroDa, Vs Ah medabad
Ah medabad-382330 (Respondent)
PAN: AABFM4908L
(Appellant)
Reve nue by: Shri Sumit Kr. Verma, Sr. D. R.
Assessee by: Shri S.N. Di vetia, A. R.
Date of hearing : 27-07-2018
Date of pronounce ment : 30-08-2018
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2012-13, arises from order of the CIT(A)- 7, Ahmedabad dated 29-07-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The assessee has raised following grounds of appeal:-
"1.1 The order passed u/s. 250 on 29.07.2016 for A.Y. 2012-13 by CIT(A)-7, Abad confirming the disallowance of commission exp. of Rs. 15,50,035/- is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. 2.1 The Ld. CIT(A) has grievously erred in law and or on facts in in confirming the disallowance of commission exp of Rs.15,50,035/-. Though, the appellant had produced necessary material and the parties were also rendering services as employees of the firm and such commission was paid in earlier year.I.T.A No. 2516/Ahd/2016 A.Y. 2012-13 Page No 2
M/s. Mahendra Chemicals vs. ACIT 2.2 That in the facts and circumstances of the case as well as in law, the Id. CIT(A) has grievously erred in confirming the disallowance of commission exp of Rs.15,50,035/-. It is therefore prayed that the disallowance of Rs. 22,07,874/- made by the AO should be deleted."
3. All the grounds of appeal are connected to the solitary issue of disallowance of commission expenses of Rs. 15,50,035/- by the assessing officer.
4. The brief fact of the case is that return of income declaring income of Rs. 17,19,830/- was filed on 19th Sep, 2012. Subsequently, the case was selected under scrutiny u/s. 143(2) of the act on 6th August, 2013. The assessee firm is engaged in the business of manufacturing of bulk drugs. During the course of assessment proceedings, the assessing officer noticed that assessee has debited commission expenses amounting to Rs. 20,73,417/- for the year under consideration. The assessing officer observed that during the year under consideration the gross turnover of the assessee has been reduced to Rs. 629.82 lacs compared to gross turnover of 863.12 lacs to preceding year. He has further observed that commission expenses has been increased from Rs. 16.64 lacs to Rs. 20.73 lacs in spite of decrease in the turnover of the asssessee. Therefore, the assessing officer has asked the assesse to justify the increase in payment of commission as the gross turnover has been reduced during the year under consideration. The assessee explained the nature of commission paid and furnished supporting information. On perusal of the details filed, the assessing officer noticed that commission has been paid to the following two persons:-
Sr. No Name Sales in Kg. Commission Paid Commission paid @ 1 Dipak J. Amin 29975.00 752135 Rs.25 per kg.
2 Jignesh J. Patel 26705.00 797900 Rs.30perkg.I.T.A No. 2516/Ahd/2016 A.Y. 2012-13 Page No 3
M/s. Mahendra Chemicals vs. ACIT Total 15,50,035/-
The assessing officer found that the above two persons were on the payroll of assessee and were covered u/s. 40(A)(2)(b) of the act. The assesse explained that M/s. Dipak J. Amin has been looking after production and environment treatment plant and also participated in the exhibitions at various places and brought new customer for the company. It was explained that Shri Jignesh Patel has been looking after the production and packaging department. He has also carried out marketing work and developed new customers. The assessing officer has not accepted the explanation of the assessee. He was of the view that both of them were squarely covered u/s.40A(2)(b) of the act and the assessee has failed to prove why these persons paid commission over and above the salary. Consequently, the assessing officer has disallowed the entire amount of commission Rs. 15,50,035/- .
5. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee by observing as under:-
"3.2 I have considered the assessment order and the submissions made by the appellant. The AO after a detailed discussion in the assessment order held that the payment of commission to Shri Dipak Amin and Shri Jignesh Patel was excessive and not justifiable. It was noted by him that both these persons were also covered u/s. 40A(2)(b) of the I.T. Act. The appellant on the other hand has stated that the commission was paid as per earlier years and that all debit notes in this regard had been filed by it. After going through the submission made by the appellant and the details filed, I find that there is no written agreement in respect of the commission to be paid to these two persons who are covered u/s. 40A(2)(b) of the Act. It is also seen that the rate of commission of Rs.25/- per kg and Rs.30/-per kg was fixed only in financial year i.e. 2010-11 i.e. just one year before the year under consideration and not "long back" as claimed by the appellant. It is also true that the net profit and the gross sales have decreased substantially during the year under consideration. The appellant has not been able to give instances and details of the orders procured by Shri Dipak Amin and Shri Jignesh Patel to justify the commission of Rs.15,50,035/- paid to them. Moreover, both these persons were employees on the payroll of the appellant firm and have also been paid huge salary on account of their regular work. In view of all these facts, I am inclined to agree with the AO that the payment of commission was excessive and the reasonableness of the same could not be justified by the appellant. The disallowance of commission expenses of Rs.15,50,035/- made by the Assessing Officer is confirmed. Grounds of appeal Nos. 5.1 & 5.2 are dismissed."
I.T.A No. 2516/Ahd/2016 A.Y. 2012-13 Page No 4 M/s. Mahendra Chemicals vs. ACIT
6. During the course of appellate proceedings before us, the ld. counsel has furnished copies of ledger account of commission expenses and details of commission paid during the year under consideration. He has also submitted copy of assessment order u/s. 143(3) passed in the case of assesseee itself for the assessment year 2011-12 stating that no such disallowance of commission expenses were made by the assessing officer. He has also furnished paper book containing details of submission made before assessing officer and ld. CIT(A) during the course of assessment proceedings and appellate proceedings. On the other hand, the ld. departmental representative has supported the order of CIT(A).
7. We have heard both the sides and perused the material on record. It is noticed that the assessing officer has disallowed the entire commission expenses of Rs. 15,50,035/- u/s. 40(A)(2)(b) of the act. The assessee has substantiated the payment of commission with supporting materials, debit notes etc along with the details of services rendered for which commission was paid. It is also undisputed facts that these two persons were also paid commission along with salary in the past years. The provision of section 40(A)(2)(b) provide for disallowance of only the excessive or unreasonable expenditure and not the entire expenditure.
In the light of the above facts and circumstances, we consider that the assessing officer has failed to disprove supporting material furnished by the assessee in support of the aforesaid commission payment. The assessing officer has also failed to substantiate with relevant material that commission payment made by the assessee is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment has been made. We consider that the decision of the assessing officer to disallow the entire commission expenses u/s. 40A(2)(b) of the act without substantiating and restricting the disallowance to the unreasonable and excess payment of expenses is not correct.
I.T.A No. 2516/Ahd/2016 A.Y. 2012-13 Page No 5 M/s. Mahendra Chemicals vs. ACIT In view of the above facts and circumstances we are not inclined with the decision of the ld. CIT(A), therefore, the appeal of the assessee is allowed.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30-08-2018
Sd/- Sd/-
(MADHUMITA ROY) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 30/08/2018
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदेश से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद