ALOK ARYA,KOLKATA V. I.T.O., WARD - 37(4), , KOLKATA

ITA 1757/KOL/2024

AI Insights

The case involves Alok Arya, a trader of medical goods and equipment, who appealed against the order of the National Faceless Appeal Centre, Delhi, which confirmed the addition of bogus commission expenses amounting to \\u20b967,98,098 and further enhanced the income by \\u20b966,84,362 on account of these expenses. The AO had initially disallowed the commission expenses based on a significant increase in the commission paid compared to the previous year, despite the increase in income and gross profit. The CIT (A) upheld the AO's decision, citing non-compliance with summons and notices. However, the Tribunal found that the commission payments were regular business practices and supported by invoices and TDS deductions, leading to the decision in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25040 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHRO DAS
• Assessee Lawyers: MANISH TIWARI
• Keywords: Set aside; TDS; Bogus
• Section: 142(1); 143(2); 143(1); 131; 133(6)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1757/KOL/2024 (Assessment Year:2013-14) Alok Arya 43, Kailash Bose Street, Vivekanand Road, Kolkata, West Bengal, 700006 Vs. I.T.O., Ward - 37(4), Income Tax Office, 3, Govt. Place West, Kolkata, West Bengal, 700001 (Appellant) (Respondent) PAN No. ACTPA8785F Assessee by : Shri Manish Tiwari, AR Revenue by : Shri Subhro Das, DR Date of hearing: 13.02.2025 Date of pronouncement : 25.03.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 21.06.2024 for the AY 2013-14. 02. The issue raised in ground no.1 is general in nature and does not require any specific adjudication. 03. The issue raised in ground Nos.2,3 and 4 is against the order of ld. AO confirming the addition on account of bogus commission expenses amounting to ₹67,98,098/- and further enhancing the income by ₹66,84,362/- on account of bogus commission expenses. Page | 2 ITA No. 1757/KOL/2024 Alok Arya; A.Y. 2013-14 04. The facts in brief are that the assessee filed the return of income on 30.09.2013, disclosing total income of ₹12,24,580/-, which was duly processed u/s 143(1) of the Act. The assessee is engaged in the business of trading of medical goods and equipments under the name and style of M/s Eastern Medical services. The case of the assessee was selected for scrutiny vide Computer Assisted Scrutiny Selection (CASS) and statutory notices u/s 143(2) and 142(1) of the Act were issued and duly served upon the assessee. The ld. AO observed on the basis of Profit and Loss account for A.Y. 2013-14 and 2012-13 that assessee has incurred expenses of ₹1,34,82,460/- as against the turnover of ₹11,38,57,742/- during A.Y. 2013-14, which comes to 11.84% of the turnover, while during A.Y. 2012-13, the commission of expenses of ₹66,69,135/- incurred against the turnover of ₹11,35,98,380/-, which comes to 5.87%. According to the ld. AO, there is a steep increase in the amount of commission expenses from Rs. 66,69,135 to Rs. 1,34,82,460/-, which is more than 100% increase against the marginal increase of 0.23% in the turnover. Accordingly, the assessee was called upon to explain the same. The assessee furnished the list of parties to whom such commission was paid after deduction of tax at source. The assessee submitted before the ld. AO that assessee has received ₹76.25 lacs as commission from the suppliers as against Rs. 66.69 Lacs paid in A.Y. 2012-13, whereas in the current assessment year, the assessee received ₹137.55 lacs from the suppliers against which ₹134.82 lacs were paid as commission. The receipt by the assessee from the suppliers represented the discount receipt/commission. The assessee submitted that whatever the commission and discount were received during the year by virtue of efforts and services by parties and more amount was paid as commission for the services rendered by the various Page | 3 ITA No. 1757/KOL/2024 Alok Arya; A.Y. 2013-14 persons depending upon their procurement of orders. The assessee submitted that during A.Y. 2013-14, the Gross Profit was 5.62%, whereas the same was 4.63% in A.Y. 2012-13. The ld. AO was not convinced with the reply of the assessee and also issued summons u/s 131 of the Act to different parties to whom the commission was paid requiring their personal appearance along with certain documents. However, none appeared in response to the said summons. It is also pertinent to state that the commission was paid through banking channel and finally, the ld. AO was not satisfied with the submissions of the assessee and disallowance of ₹67,98,098/- was made based on the preceding assessment year commission and same was added to the income of the assessee. 05. In the appellate proceedings, the ld. CIT (A) not only affirmed the order of the ld. AO, but also enhanced the income of the assessee by making further disallowance and made enhancement to income by ₹66,84,362/- on account of bogus commission expenses. The ld. CIT (A) also called for the remand report from the ld. AO which was duly furnished by the AO before the ld. CIT (A). The ld. CIT (A) held that the commission expenses were bogus as summons u/s 131 and letters issued u/s 133(6) of the Act were not complied with and hence, commissions were bogus. 06. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is engaged in the business of trading of medical goods and equipments for the last several years and it was regular phenomenon to pay the commission for procuring the sales through agents and hence, commission was paid to these parties. The sale commission was paid for securing the orders and supply of medical equipments in the hospitals and various Page | 4 ITA No. 1757/KOL/2024 Alok Arya; A.Y. 2013-14 other government department and also to secure the timely realization of dues. We note that the commission payment is a regular phenomenon in medial business. The ld. AO made disallowance based on the commission rate paid by the assessee in the preceding assessment year i.e. A.Y. 2012-13 and disallowed a sum of ₹67,98,098/-, whereas the ld. CIT (A) in the appellate proceedings treated the entire commission expenses as bogus and enhanced the commission of income by ₹66,84,362/-. We note that the assessee has paid the commission against the invoices raised by the parties for payment of commission specifying the sales made/ orders for sale procurement for medical equipments from different hospitals and shops. The only reasons cited by the assessee is that since the assessee received more discount/commission from the suppliers on medical goods and equipments, therefore, same was passed on various persons for rendering services to the assessee for procuring orders and supplying the equipments to various medical colleges as well as shops. It was also submitted that the commission is received by the assessee depending on the services rendered and therefore the expenses were wholly and exclusively for the business purpose only. We note that the commission cannot be disallowed merely on the basis that the percentage is more in the current year vis-à-vis the percentage of commission paid in the preceding assessment year. We note that the assessee has received a commission / discount of ₹137.55 lacs during the year as against 76.25 lacs in the preceding assessment year against which the assessee paid Rs. 134.82 lacs during the year vis-à-vis Rs.66.69 lacs in the immediately preceding assessment year. In our opinion, the commission paid which was subjected to TDS and also payments through banking channels cannot be doubted merely on the basis that summons u/s 131 of the Act were Page | 5 ITA No. 1757/KOL/2024 Alok Arya; A.Y. 2013-14 not complied or notices u/s 133(6) of the Act remained non-complied. Considering these facts, further we note that the assessee has been regularly pay commission right from the beginning of the business and also in the subsequent assessment years. Considering all these facts on record, we are of the view that the genuineness of the transactions cannot be doubted when the assessee filed all the evidences before the authorities below. Accordingly, we are inclined to set aside the appellate order and direct the AO to delete the addition. 07. In the result, the appeal of the assesseeis allowed. Order pronounced in the open court on 25.03.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 25.03.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "