DINESHCHANDRA ISHWARLAL BOMBAYWALA,SURAT V. .ITO, WARD-3(2)(1) SURAT, OLD WARD-3, BHARUCH, SURAT

ITA 740/SRT/2024

AI Insights

The case involves Dineshchandra Ishwarlal Bombaywala, who appealed against the order of the Commissioner of Income Tax (Appeals), which upheld various additions made by the Assessing Officer (AO) for the assessment year 2011-12. The main issues revolved around the classification of delivery incentives as 'commission' under section 194H of the Act, the disallowance of freight expenses, and the disallowance of a portion of telephone and conveyance expenses. The Tribunal found that the delivery incentives were part of the salary and not subject to TDS under section 194H, thus reversing the CIT(A)'s decision on this point. The Tribunal also made adjustments to the disallowances on freight and other expenses.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473273 (ITAT-SURAT)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 02-07-2024
• Other Referred Cases: CIT vs. R. Rajendran, CIT vs. S. C. Wadhwa
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MINAL KAMBLE
• Assessee Lawyers: RAMESH MALPANI
• Keywords: Business expenditure; Salary income; TDS
• Section: 148; 250; 192; 133(6); 40(a)(ia)

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.740/SRT/2024 Assessment Year: (2011-12) (Physical Hearing) Dineshchandra Ishwarlal Bombaywala, G-15, Divya Jyoy Flatm, Sumul Dairy Road, B/s Kiran Hospital, Surat - 395004 Vs. The ITO, Ward 3(2)(1), Surat, Old Ward – 3, Bharuch èथायीलेखासं./जीआइआरसं./PAN/GIR No: AGHPB9148F (Appellant) (Respondent) Appellant by Shri Ramesh Malpani, CA Respondent by Shri Minal Kamble, Sr. DR Date of Hearing 05/11/2024 Date of Pronouncement 10/12/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 07.06.2024 by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short, ‘CIT(A)’] for the assessment years (AY) 2011- 12. 2. The grounds of appeal raised by the assessee are as under: “(1) That on the facts and in the circumstances of the case as well as in law, the Id. Addl. CIT (A)/ JCIT (A) has erred in upholding the addition of Rs. 10,01,760/- u/s 40(a)(ia) of the I.T. Act, 1961, (the Act) by wrongly assuming the delivery incentive/ commission paid to employees as 'commission' liable for TDS u/s 194H of the Act and disallowing the same u/s 40(a)(ia) for the reason of non-deduction of TDS u/s 194H of the Act, whereas the delivery incentive/ commission so paid to employees is clearly part of the salary paid to employee as per S. 17 of the Act and is neither covered by S. 194H nor S. 2 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala 40(a)(ia) of the Act. Appellant prays for deleting this wrong and unjustified addition/ disallowance. (2) That on the facts and in the circumstances of the case as well as in law, the Id. Addl. CIT (A)/ JCIT (A) has erred in upholding the disallowance of bonafide business expenses incurred for unloading of Gas Cylinders and debited under the head 'Freight Expenses' of Rs.1,92,360/- by mentioning wrong, unjustified and illogical reasons and by ignoring the vital fact that the expenses are quite fair and reasonable and comparable with similar expenses incurred and accepted in other years. Appellant prays for deleting this addition/disallowance. (3) That on the facts and in the circumstances of the case as well as in law, the Id. Addl. CIT (A)/ JCIT (A) has erred in upholding the addition of Rs.42,300/- by way of disallowance of 20% of Telephone Expenses and Conveyance Expenses by assuming the same to be of personal nature for which there has been no lawful basis or finding. Disallowance so made in ad- hoc manner is wrong and unjustified. Appellant prays for deleting the same. (4) Appellant craves leave to add, alter, delete or modify any ground of appeal.” 3. Brief facts of the case are that the assessee filed his return of income for AY.2011-12 on 01.10.2011, declaring total income of Rs.6,32,162/-. The case was selected for scrutiny and after hearing, Assessing Officer (in short, ‘AO’) had made various additions totalling to Rs.14,20,782/-. The assessee had claimed delivery and transportation expenses of Rs.10,01,760/- in addition to delivery men salary expenses of Rs.6,80,000/-. The AO called information from six delivery persons u/s 133(6) and summoned three persons. In response to the information called for u/s 133(6), they stated that they received commission from the assessee on delivery of gas cylinders. They have also received salary from the assessee. Therefore, a show cause notice was issued by AO asking the assessee as to why the delivery expenses, which was admitted as commission, be not disallowed for failure to make TDS u/s 194H of the Act. The assessee replied that it is making payment of salary 3 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala and delivery charges to the delivery men. Both expenses are properly reflected in the salary register. It is common to make payment on basis of delivery or sales to these persons as commission or incentives for growth of business. Both expenses are towards employment and performance of duty. It was also submitted that definition of salary is inclusive and wide in scope. It includes various commission, bonus, profits in lieu of or in addition to salary etc. Hence, the payment for the services would come within the description of salary. The assessee relied on the decision in case of CIT vs. R. Rajendra, 135 Taxman 95 (Madras - HC) and CIT vs. S. C. Wadhawa, 148 Taxman 95 (P & H - HC). The AO considered the reply but did not find it acceptable because case of the assessee is covered under the provisions of section 194H of the Act and hence he disallowed Rs.10,01,760/- u/s 40(a)(ia) of the Act. 3.1 The AO also found that assessee had made investment of Rs.1,83,684/- on LIC and various tax saving schemes. In reply to the show cause notice, the assessee stated that he had made withdrawals for the investments in the capital account. Hence, no addition is called for. The AO was not satisfied with the reply of assessee and added Rs.1,83,684/- u/s 69 of the Act. The AO also added interests of Rs.13,320/- to total income being interest of ICICI savings bank account. The AO also added freight expenses of Rs.1,92,360/- because AR of the assessee had no objection to said disallowance. The AO further added 20% of the telephone and conveyance amounting to Rs.42,300/-. 4 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). On the issue of disallowance of Rs.10,01,760/-, the AR of the assessee submitted that these expenses are incentive to the employees and not to any outsiders. These incentives were paid over and above the fixed salary to the employees. Hence, these incentives are part of salary as defined u/s 17(1)(iv) r.w.s 15 of the Act; and section 192 and not of section 194H of the Act is applicable. The CIT(A) did not accept claim of the assessee because in their reply u/s 133(6), the employees stated that the impugned sum was in the nature of commission. The claim of the assessee without any documentary evidence were not accepted by CIT(A). On the issue of addition of Rs.1,83,684/- u/s 69 of the Act, the CIT(A) allowed the ground of the assessee. On the ground of disallowance of freight expenses, the appellant had not produced bills, vouchers and substantiated the genuineness of transactions. Hence, disallowance of Rs.1,92,360/- was confirmed. The CIT(A) also confirmed disallowance of Rs.42,300/- out of telephone and conveyance expenses. 5. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee has filed small paper book and mainly relied on the submission made by the appellant before CIT(A). He submitted that as per clause (iv) of sub-section (1) of section 17 of the Act, salary includes any fees, commission, perquisites etc. in addition to any salary or wages. He submitted that provisions of section 192 and not 194H of the Act are applicable in case of assessee. He also stated 5 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala that provisions of section 40(a)(ia) of the Act are not applicable in case of the incentives paid by the assessee. Regarding disallowance of freight expenses, the ld. AR submitted that the expenses are essential business expense without which business of the appellant was not possible. Moreover, it was only 0.46% of the total turnover which cannot be said to be unreasonable. Regarding the ad hoc disallowance @ 20% of telephone and conveyance expenses, the ld. AR submitted that the disallowance is only on presumptive basis. Such ad hoc disallowance is very high and unjustified. 6. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) of the revenue supported the order of lower authorities. 7. We have heard both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by the ld. AR. The first issue is treatment of delivery expenses as commission and disallowance of the same u/s 40(a)(ia) of the Act. Both AO and CIT(A) considered the delivery expenses as commission on which TDS should have been deducted u/s 194H of the Act. The ld. AR submitted that the payment was in the nature of salary expenses. We have perused the material and find that the so-called commission was paid to the delivery men who are also drawing regular salary from the assessee. The definition of salary is given in section 17 of the Act. As per clause (iv) of sub-section (1) of section 17, salary includes any fees, commission, perquisites or profits in lieu or in addition to any salary and wages. In the present case, the delivery men are regular employees of the assessee. Therefore, delivery charges have been paid to the 6 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala employees and not to any outsiders. As submitted by the ld. AR, such payments are incentive to these employees on the basis of number of gas cylinders delivered by them. Hence, TDS provisions of section 192 is applicable and not those of section 194H of the Act, which are applicable in case of commission or brokerage. Though the employees stated that they were receiving commission, the nature of the payment is akin to incentive forming part of the definition of salary in section 17 of the Act. The decision in case of CIT vs. R. Rajendran (supra) is directly on the issue. The Hon’ble Madras High Court in the said case held as under: “4. The commission paid to the assessee here was with reference to the volume of sales. The assessee was employed as a regional sales manager and the commission paid was obviously to enthuse the employee to effect a higher volume of sale. The commission so paid in addition to what the employer had fixed as a salary would also form part of salary …..” 7.1 In the present case, the delivery men were paid commission on the basis of number of cylinders delivered by them. Therefore, it was to effect higher volume of sale and was part of the duty in connection with the employment of the delivery men. Hence, the same is part of salary and not any commission liable for TDS u/s 194H of the Act. We also find that the Hon’ble Punjab & Haryana High Court in case of S. C. Wadhwa (supra) has held that the Tribunal was not right in allowing deduction of Development Officer from incentive bonus as expenditure by holding that AO has rightly held that incentive bonus was taxable as salary. In the present case also, the payment to the delivery men is in fact incentive which would take the character of the salary u/s 15 r.w.s. 17 of the Act. In view of the above facts 7 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala and the decisions cited supra, we hold that the payment made by the appellant to the delivery men as commission is actually salary income of the delivery men u/s 15 of the Act and not liable for disallowance u/s 40(a)(ia) of the Act. The ground is accordingly allowed. 7.2 In the result, ground no.1 is allowed. 8. The next ground pertains to the freight expenses of Rs.1,92,360/- debited in the profit and loss account. The ld. AR submitted that these expenses were paid in cash to the unloading labourers on daily basis on number of cylinders uploaded. These amounts are paid in cash on daily basis and debited in the cash book. We find that the above expenses are essential business expenses of the assessee because the trucks of gas cylinders received from IOC are required to be unloaded for which expenses have to be incurred. However, in absence of bills and vouchers, entire expenses cannot be allowed. We find that the expenses are only 4.06% of the turnover. Hence, it would be reasonable if the disallowance is restricted 10% of the expenses i.e., Rs.19,236/-. The AO is directed to add Rs.19,236/- and delete the remaining amount. This ground is partly allowed. 8.1 In the result, ground No.2 is partly allowed. 9. The next ground is disallowance of 20% of telephone and conveyance expenses of Rs.2,11,499/-. The AO has disallowed 20% of above expenses by stating that personal element of these expenses cannot be ruled out. In our view, 10% of such expenses would be reasonable to take care of the personal nature of such expenses. The AO is accordingly directed to disallow 10% of 8 ITA No.740/SRT/2024/AY.2011-12 Dineshchandra I. Bombaywala such expenses amounting to Rs.21,150/- and delete the remaining amount. The ground is partly allowed. 9.1 In the result, ground No.3 is partly allowed. 10. In the combined result, the appeal of the assessee is partly allowed. Order is pronounced in the open court on 10/12/2024. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 10/12/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat "