Sri. Babulal Dharmichandji, Bangalore V. ACIT, Bangalore

ITA 1001/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63672 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: H GURUSWAMY
• Keywords: Opportunity of being heard; Fair market value
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.1001/BANG/2011 (ASSESSMENT YEAR : 2008-09) SHRI BABULAL DHARMICHANDJI, PROP. MARUDHAR AGENCIES, NO.24, O.K. ROAD, AVENUE ROAD CROSS, BANGALORE-560 002 . APPELLANT. PAN AAMPD7095A VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE3(1), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI H. GURUSWAMY. RESPONDENT BY : SHRI A. SUNDARARAJAN. DATE OF HEARING : 23.08.2012. DATE OF PRONOUNCEMENT : 31.8.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, BANGALORE DATED 8.8.2011 F OR ASSESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, PROPRIETOR OF M/S. MARUDHAR AGENCY, A WHOLESALER DEALING IN TAILORING MATERIAL, FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 ON 30.9.2008 DECLARING TOTAL INCOME OF RS.12,09,710. THE RETURN WAS PROCE SSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED AS 'THE ACT') AND THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECTION 143(2) ON 13.8.2008. THE ASSESSING OFFICER 2 ITA NO.1001/BANG/11 AFTER EXAMINING THE CASE COMPLETED THE ASSESSMENT B Y AN ORDER UNDER SECTION 143(3) OF THE ACT ON 29.12.2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS.21,88,150. THE ASSESSEE WENT IN APPEAL AGAINST THE ORDER OF ASSESS MENT BEFORE THE CIT(A) IN WHICH THE APPEAL WAS CONFINED TO THE SINGLE ISSUE OF DISALLOW ANCE OF RS.7,53,400 ON ACCOUNT OF COMMISSION PAID TO THE ASSESSEES EMPLOYEE RELATIVE S. THE LEARNED CIT(A) DISMISSED THE ASSESSEES APPEAL THEREBY CONFIRMING THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER OF THE PAYMENT OF COMMISSION TO THE ASSESSEES EMPLOYE E RELATIVES. 3.0 THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST THE ORDER OF THE LEARNED CIT(A). IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS : 1. THE APPELLATE ORDER DATED 08-08-2011 PASSED BY T HE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II, BANGALORE, IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) -II, BANGALORE OUGHT TO HAVE NOT CONFIRMED THE DISALLOWANCE OF SALES COM MISSION OF RS. 7,53,400/- PAID TO THE EMPLOYEE RELATIVES RELYING U PON THE APPELLATE ORDER DATED 22-11-2010 RELATING TO THE ASST YEAR 20 07-08. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS )-II, BANGALORE OUGHT TO HAVE NOT CONFIRMED THE DISALLOWANCE OF SALES COM MISSION PAID TO THE EMPLOYEE RELATIVES WITHOUT APPRECIATING THE FACT TH AT THE SAID SALES COMMISSION WAS ALREADY OFFERED TO TAX IN EACH OF TH E INDIVIDUAL EMPLOYEE RELATIVES. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) -II, BANGALORE OUGHT TO HAVE NOT CONFIRMED THE DISALLOWANCE OF SALES COM MISSION WHICH HAS ALREADY SUFFERED TAX SEPARATELY IN EACH INDIVIDUAL CASE OF THE EMPLOYEE RELATIVES WITHOUT APPRECIATING THE FACT THAT THE CO NFIRMATION OF DISALLOWANCE SALES COMMISSION RESULTS IN TAXING THE SAME INCOME TWICE 3 ITA NO.1001/BANG/11 I.E., IN THE CASE OF THE APPELLANT AND ALSO IN THE CASES OF THE EMPLOYEE RELATIVES. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND AND DELETE ANY OF THE GROUNDS AT THE TIME OF HEARING. 4.0 THE GROUNDS OF APPEAL RAISED AT S.NOS.1 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS AT S.NOS.2 TO 4 ARE THE EFFECTIVE GROUNDS OF APPEAL AND RELATE TO T HE DISALLOWANCE OF SALES COMMISSION OF RS.7,53,400 PAI D TO THE ASSESSEES EMPLOYEE RELATIVES MADE UNDER SECTION 40A(2)(B) OF THE ACT. THE SUBMIS SION OF THE ASSESSEE IN THE STATEMENT OF FACTS AND AS REITERATED BY THE LEARNED COUNSEL F OR THE ASSESSEE ARE AS UNDER : THE APPELLANT HAS CLAIMED A SUM OF RS. 7,53,4 00/- BEING THE SALES COMMISSION PAID TO THE EMPLOYEES, WHO ARE RELATIVES OF THE APPELLANT. THE APPELLANT SUBMITS THE DETAILS OF SALE COMMISSION PA ID TO HIS RELATIVES AS UNDER :- SL.NO. NAME OF THE EMPLOYEE RELATIVE RELATIONSHIP WITH THE APPELLANT AMT OF SALE COMMISSION PAID 1 SRI. D SURESH KUMAR BROTHER RS. 1,58,375/- 2 SRI. D BHAWARLAL BROTHER RS. 1,42,925/- 3 SRI. D. PRAVEEN KUMAR BROTHER RS. 1,53,025/- 4 SMT. SHILPA K. JAIN NIECE (BROTHERS DAUGHTER) RS. 1,47,875/- 5 SMT. KAVITHA K. JAIN NIECE (BROTHERS DAUGHTER) RS. 1,52,200/- TOTAL DISALLOWANCE RS. 7,53,400/ - THE LEARNED AO HAS HELD THAT THE BUSINESS WAS CARRIED OUT WITH THE REGULAR CUSTOMERS AND THEREFORE, THERE WAS NO NECES SITY TO PAY COMMISSION TO EMPLOYEES, WHO WERE RELATIVES OF THE APPELLANT. FU RTHER, THE LEARNED AO THAT NO SALES PERSONNEL OTHER THAN THE RELATIVES WERE PAID COMMISSION, WHICH WAS NOT PREVALENT THE SAME LINE OF BUSINESS. IN VIEW OF THE ABOVE REASONS, THE LEARNE D AO HAS HELD THAT IT WAS UNREASONABLE TO CLAIM THE PAYMENT OF COMMISSION TO RELATIVE EMPLOYEES AND ACCORDINGLY, THE APPELLANTS CLAIM FOR WHOLE OF THE EXPENDITURE AMOUNTING TO RS. 7,53,400/- WAS DISALLOWED U/S. 40(A)(2)(B) OF THE A CT. 4 ITA NO.1001/BANG/11 THE APPELLANT BEING AGGRIEVED WITH THE DISALLOWANC E OF EXPENDITURE OF SALES COMMISSION AMOUNTING TO RS. 7,53,400/- PAID T O THE RELATIVE EMPLOYEES NAMED ABOVE, FILED AN APPEAL BEFORE THE LEARNED COM MISSIONER OF INCOME-TAX (APPEALS)-II, BANGALORE AGAINST THE ASSESSMENT ORDE R OF THE LEARNED AO PASSED U/S. 143(3) OF THE ACT, DATED 29-12-2010 DISPUTING THE DISALLOWANCE OF THE SALES COMMISSION. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I I, BANGALORE IN THE APPELLATE ORDER IN ITA NO. 346/AC-3(1)/CIT(A)-II/10 -11, DATED 08-08-2011 HAS CONFIRMED THE DISALLOWANCE OF SALES COMMISSION RELA TING TO THE ASST YEAR 2008-09. THE RELEVANT PORTIONS OF THE APPELLATE ORDER ARE RE -PRODUCED AS UNDER :- 3.7. DURING THE FINANCIAL YEAR 2006-07 RELEVANT T O THE ASST YEAR 2007-08, PAYMENT OF SALARIES AND COMMISSIONS TO RELATED PERSONS HAVE BEEN CLAIMED BY THE APPELLANT AND DISALLOWED BY THE AO. DISALLOWANCE IN RESPECT OF THESE PAYMENTS IN THE ABSENCE OF JUSTIFIABLE DETAILS WAS ADMITTED BY THE APPELLANT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND CONFIRMED BY MY PREDE CESSOR CIT(APPEALS) VIDE ITA.NO.142/AC-3(1)/CIT-(A)-II/09-10 DATED 22-11-201 0. 3.8. THE FACTS FOR THE ASSESSMENT YEAR IN QUESTIO N ARE SIMILAR TO THE PRECEDING ASSESSMENT YEAR EXCEPT THAT THERE IS NO EXPRESS CONSENT BY THE APPELLANT TO THE DISALLOWANCE. 3.14. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE , THE APPELLANT HAS FAILED TO ESTABLISH THE CLAIM REGARDING COMMISSION PAYMENTS M ADE. CONSIDERING ALL THESE FACTS, I AM NOT INCLINED TO INTERFERE WITH THE FIND INGS OF THE AO. THEREFORE, THE DISALLOWANCE OF RS. 7,53,400/- IS CONFIRMED. THE AUTHORITIES BELOW WERE NOT JUSTIFIED TO DISAL LOW THE SALES COMMISSION PAID TO THE EMPLOYEE RELATIVES MERELY ON THE GROUND THAT THE RECIPIENTS OF THE COMMISSION WERE HAPPENED TO BE THE RELATIVES OF THE APPELLANT. THE LEARNED AO AND THE LEARNED CIT(A) HAVE ACCEPTED THE PAYMENT OF COMMISSION OF RS. 1,75,650/- PAID TO THE APPELLANTS BROTHERS SRI. KA NTILAL, WHEREAS THE SALES COMMISSION PAID TO THE OTHER RELATIVES NAMED ABOVE WAS DISALLOWED. THE DISALLOWANCE OF SALES COMMISSION OF RS. 7,53,400/- PAID TO THE EMPLOYEE RELATIVES WAS NOT JUSTIFIABLE IN VIEW OF THE FACT THAT THE A PPELLANT HAS COMPLETELY RELIED UPON THE SAID EMPLOYEE RELATIVES, WHO HAVE RENDERED SATI SFACTORY SERVICES IN CONNECTION WITH THE BUSINESS OF THE APPELLANT. THE APPELLANT SUBMITS THAT THE EMPLOYEE RELATIVES WERE PAID THE SALES COMMISSION ON THE SAM E GROUND ON WHICH THE COMMISSION WAS PAID TO THE BROTHER SRI. KANTILAL, W HICH WAS ACCEPTED BY THE LEARNED AO AND THE LEARNED CIT(A), BANGALORE. THE SALES COMMISSION PAID TO THE EMPLOYEE RELATIV ES WAS ABSOLUTELY INCIDENTAL TO THE BUSINESS AND THE SAME WAS LAID OU T WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE SALES COMMISSION SO P AID AND RECEIVED BY THE EMPLOYEE RELATIVES WAS OFFERED TO TAX IN THE CASE O F EACH INDIVIDUAL EMPLOYEE RELATIVES. ACCORDINGLY, THE AMOUNT O F SALES COMMISSION PAID BY THE APPELLANT AND RECEIVED BY THE EMPLOYEE RELATIVES HAS ALREADY SUFFERED TAX IN THE HAND OF EACH INDIVIDUAL EMPLOYEE RELATIVE AND HENCE THE AM OUNT OF SALES COMMISSION, WHICH WAS SUFFERED TO TAX IN THE HANDS OF EACH EMPL OYEE RELATIVE OUGHT TO HAVE NOT BEEN SUBJECTED TO TAX IN THE CASE OF THE APPELLANT, WHICH AMOUNTS TO TAXING THE SAME AMOUNT TWICE I.E., IN THE HANDS OF THE EMPLOYE E RELATIVES AND ALSO IN THE CASE OF THE APPELLANT. IN THIS VIEW OF THE MATTER, THE DISALLOWANCE OF THE SALES 5 ITA NO.1001/BANG/11 COMMISSION PAID TO THE EMPLOYEE RELATIVES WAS NOT J USTIFIABLE AS IT IS OPPOSED TO THE PRINCIPLES OF TAXATION, WHICH DO NOT PERMIT THE TAXING THE SAME INCOME TWICE. THE LEARNED CIT(A), BANGALORE HAS HELD THAT A SIM ILAR DISALLOWANCE WAS UPHELD BY THE APPELLATE ORDER, DATED 22-11-2010 FOR THE ASST YEAR 2007-08. IN THIS CONNECTION, THE APPELLANT SUBMITS THAT THE DISALLOW ANCE WAS AGREED UPON BY THE APPELLANT FOR THE ASST YEAR 2007-08, WHEREAS FOR TH E ASST YEAR 2008-09 THERE WAS NO EXPRESS CONSENT OF THE APPELLANT FOR DISALLOWANC E. IN FACT, THE LEARNED CIT(A), BANGALORE HAS ALSO HELD THAT THERE WAS NO EXPRESS C ONSENT OF THE APPELLANT AS TO THE DISALLOWANCE OF SALES COMMISSION FOR THE ASST Y EAR 2008-09 UNLIKE IN THE ASST YEAR 2007-08. THEREFORE, THE DISALLOWANCE OF SALES COMMISSION WAS NOT JUSTIFIABLE IN ACCORDANCE WITH THE LAW AND HENCE THE SAME IS LI ABLE TO BE DELETED. THE REQUISITE APPEAL FEE OF RS. 10,000/- IS PAID AND A COPY OF TH E CHALLAN IS SUBMITTED HEREWITH FOR KIND PERUSAL AND CONSIDERATION. 5.2 THE LEARNED COUNSEL FOR THE ASSESSEE CON TENDED THAT THE ASSESSING OFFICER ERRED IN DISALLOWING THE EXPENDITURE INCURRED ON PAYMENT OF SALES COMMISSION TO EMPLOYEE RELATIVES OF THE ASSESSEE UNDER SECTION 40A(2)(B) O F THE ACT WHICH IS NOT THE ENABLING PROVISION FOR MAKING THE SAID DISALLOWANCE. IT WAS FURTHER CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER S FINDING THAT THE PAYMENT OF SALES COMMISSION IS NOT PREVALENT IN THIS LINE OF BUSINES S IS NOT BORNE OUT BY BRINGING ON RECORD EVEN A SINGLE COMPARABLE CASE TO JUSTIFY THE SAID D ISALLOWANCE. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE WAS NO LOSS OF REVENUE AS THE SAID SALES COMMISSION OF RS.7,53,400 PAID TO EMPLOYEE RELATIVE S WAS OFFERED TO TAX IN THE RESPECTIVE CASES OF EACH EMPLOYEE RELATIVE IN THEIR PERSONAL R ETURNS OF INCOME FOR ASSESSMENT YEAR 2008-09 ON THE BASIS OF TDS CERTIFICATES ISSUED BY THE ASSESSEE IN SUPPORT OF TDS DEDUCTED AND REMITTED TO THE INCOME TAX DEPARTMENT. IT IS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT BY DISALLOWING THE CO MMISSION PAID TO EMPLOYEE RELATIVES, THE INCOME TAX DEPARTMENT HAS TAXED THE SAME AMOUNT TWI CE, ONCE IN THE CASE OF THE EMPLOYEE RELATIVES (THE PAYEES) AND AGAIN IN THE CA SE OF THE ASSESSEE (THE PAYER) WHICH IS 6 ITA NO.1001/BANG/11 OPPOSED TO BASIC TAXATION PRINCIPLE. THE LEARNED C OUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSING OFFICER HAS ACCEPTED SALES COMMI SSION OF RS.1,75,650 PAID TO THE ASSESSEES BROTHER, SRI KANTHILAL WHO IS ALSO AN E MPLOYEE, BUT DISALLOWED SIMILAR SALES COMMISSION OF RS.7,53,400 PAID TO OTHER EMPLOYEE RE LATIVES WHICH IS ARBITRARY AND AMOUNTS TO DISCRIMINATION. THE LEARNED COUNSEL FOR THE ASS ESSEE FURTHER SUBMITTED THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE D ISALLOWANCE OF SALES COMMISSION BASED ON THE APPELLATE ORDER OF HER PREDECESSOR IN ITA NO .140/AL-3(1)/CIT(A) II/09-10 DT.22.11.2010 FOR ASSESSMENT YEAR 2007-08 AS EACH A SSESSMENT YEAR IS INDEPENDENT AND SEPARATE AND THE FACTS OF THE PRECEEDING YEAR CANNO T INFLUENCE THE FACTS OF THE SUCCEEDING YEAR. THE LEARNED COUNSEL FOR THE ASSES SEE FURTHER ARGUED THE LEARNED CIT(A) HAD GROSSLY ERRED IN HOLDING THAT THE EXPENDITURE O F SALES COMMISSION IS NOT ALLOWABLE UNDER SECTION 37(1) R.W.S. 40A(2)(B) OF THE ACT, AS THIS WAS CLEARLY NOT THE CASE OF THE ASSESSING OFFICER. 5.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5.4 AFTER HAVING HEARD BOTH PARTIES AND HAVE CAREFULLY PERUSED AND EXAMINED THE MATERIAL ON RECORD. WE ARE OF THE CONSIDERED OPI NION THAT I) IN THE FIRST PLACE, IT IS SEEN THAT THE ASSE SSING OFFICER HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT TO MAKE THE DISALLOWANCE OF SALES COMMISSION 7 ITA NO.1001/BANG/11 PAID TO EMPLOYEE RELATIVES AS IT IS NOT THE ENABLIN G PROVISION AND DOES NOT CONFER ANY POWERS OF THE ASSESSING OFFICER TO MAKE THE SAID DI SALLOWANCE. II) HOWEVER, IT APPEARS FROM THE FACTS ON RECORD A ND THE SURROUNDING CIRCUMSTANCES THAT THE ASSESSING OFFICER PROBABLY INTENDED TO MAKE THE DISALLOWANCE OF SALES COMMISSION PAID TO EMPLOYEE RELATIVES IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 40A(2)(A) OF THE ACT, WHICH READS AS UNDER : 40A(2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITU RE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH E XPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEG ITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED B Y OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. A PLAIN READING OF SECTION 40A(2)(A) OF THE ACT IND ICATES THAT THE ASSESSING OFFICER IS ENTITLED TO DISALLOW ONLY SO MUCH OF THE QUANTUM OF THE EXPENDITURE WHICH HE HOLDS TO BE EXCESSIVE AND UNREASONABLE AND NOT THE ENTIRE EXPEN DITURE. WE FIND THAT THOUGH THE ASSESSING OFFICER STATED IN PAGE 3 OF THE ORDER OF ASSESSMENT THAT THE PAYMENT OF COMMISSION IS NOT PREVALENT IN THE SAME LINE OF BUS INESS, HE HAS NOT SUPPORTED HIS VIEW ON THE BASIS OF COMPARABLE CASES IN THE SAME LINE OF B USINESS IN ORDER TO JUSTIFY THE DISALLOWANCE MADE AND THEREFORE IT APPEARS THAT THE SAID DISALLOWANCE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40A(2)(A) OF THE AC T. III) IT ALSO APPEARS THAT THE ASSESSING OFFICER H AS NOT CONSIDERED THE FACT THAT THERE IS NO LOSS OF REVENUE AND ALL THE FIVE EMPLOYEE RELATI VES TO WHOM SALES COMMISSION HAS BEEN PAID, IN THE RELEVANT PERIOD, HAVE FILED THEIR PERS ONAL RETURNS OF INCOME FOR ASSESSMENT 8 ITA NO.1001/BANG/11 YEAR 2008-09 AND HAVE THEREIN OFFERED TO TAX THE SA LES COMMISSION ETC RECEIVED BY THEM FROM THE ASSESSEE. IT IS ALSO SEEN FROM THE DETAIL S ON RECORD THAT THESE EMPLOYEE RELATIVES HAVE FILED THEIR RETURNS OF INCOME PRIOR TO THE COMPLETION OF SCRUTINY ASSESSMENT IN THE ASSESSEES CASE AND THAT TDS WAS MADE BY THE ASSESSEE ON THE SALES COMMISSION PAID TO THEM AS PER COPIES OF FORM 16A FILED BY THE EMPLOYEE RELATIVES. IV) THE FINDING OF THE LEARNED CIT(A) THAT THE EXPENDITURE ON SALES COMMISSION PAID TO THE FIVE EMPLOYEE RELATIVES OF THE ASSESSEE IS NOT ALLOWABLE UNDER SECTION 37(1) R.W.S. 40A(2)(B) DOES NOT APPEAR TO BE FACTUALLY CORRECT AS IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT HE INVOKED THE PROVISIONS OF SECTION 3 7(1) R.W.S. 40A(2)(B) BUT RATHER MADE THE DISALLOWANCE UNDER SECTION 40A(2)(B) OF THE ACT . 5.5 IN THE LIGHT OF THE OBSERVATIONS AND DISCU SSIONS AT (I) TO (IV) IN PARA 5.4 ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE OF PAY MENT OF SALES COMMISSION OF RS.7,53,400 TO EMPLOYEE RELATIVES NEEDS RE-EXAMINAT ION BY THE ASSESSING OFFICER AS IT HAS NOT BEEN PROPERLY EXAMINED OR ADDRESSED IN ACCORDAN CE WITH THE RELEVANT PROVISIONS OF LAW. WE, THEREFORE, REMIT THE MATTER BACK TO THE F ILE OF THE A.O. WITH THE DIRECTION THAT THIS ISSUE OF PAYMENT OF SALES COMMISSION AMOUNTING TO RS.7,53,400 PAID TO THE FIVE EMPLOYEE RELATIVES BE EXAMINED AFRESH INVOKING THE DISALLOWANCE IF ANY OF THE QUANTUM OF EXPENDITURE FOUND TO BE EXCESSIVE AND UNREASONABLE ON THE BASIS OF COMPARABLE CASES IN THE SAME LINE OF BUSINESS. THE ASSESSING OFFICER W ILL ALSO TAKE INTO CONSIDERATION THE FACT THAT THESE FIVE EMPLOYEE RELATIVES HAVE ALREADY OFF ERED TO TAX THE SALES COMMISSION RECEIVED BY EACH OF THEM FROM THE ASSESSEE IN THEIR RETURNS OF INCOME FOR ASSESSMENT 9 ITA NO.1001/BANG/11 YEAR 2008-09 AS PER TDS CERTIFICATES ISSUED IN FORM 16A. THE ASSESSING OFFICER IS DIRECTED TO DISPOSE OFF THE MATTER EXPEDITIOUSLY IN ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AN D TO FILE DETAILS IN SUPPORT OF HIS CLAIM. IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUG., 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE, DATED: 31.8.2012. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE