L.C. Amin & Associates, Ahmedabad V. The ITO, Ward-3(3)(3), Ahmedabad

ITA 13/AHD/2023

AI Insights

L.C. Amin & Associates appealed against the order of the CIT(A), National Faceless Appeal Centre, which upheld the disallowances made by the Assessing Officer on commission and interest expenses for the Assessment Year 2013-14. The Assessing Officer had disallowed Rs.5,99,300 out of commission expenses and Rs.6,95,816 out of interest expenses, alleging that the expenses were not genuine and that there was a diversion of higher interest-bearing funds to loans given at a lower rate. The Tribunal, after reviewing the evidence and arguments presented, concluded that the disallowances were unjustified and reversed the decision, allowing the appeal of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129253 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-04-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 05-01-2023
• Other Referred Cases: Gujarat Gas Financial Services Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 131; 143(2)

Judgement Text

ITA No.13/Ahd/2023 Assessment Year: 2013-14 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.13/Ahd/2023 Assessment Year: 2013-14 L.C. Amin & Associates, vs. Income Tax Officer, 39, Panchshil Soc., Ward –3(3)(3), Near Usmanpura Underbridge, Ahmedabad. Ahmedabad. [PAN – AADFL 3560 F] (Appellant) (Respondent) Assessee by : Shri S.N. Divatia, AR & Shri Samir Vora, AR. Revenue by : Shri Sanjay Kumar, Sr. DR Date of hearing : 05.04.2023 Date of pronouncement : 12.04.2023 O R D E R This appeal is filed by the Assessee against order dated 07.12.2022 passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year 2013-14. 2. The Assessee has raised the following grounds of appeal :- “1.1 The order passed by u/s.250 passed on 07.12.2022 by NFAC, Delhi for A.Y. 2013-14 upholding the disallowance of Rs.5,99,300/- out of commission expenses and Rs.6,95,816/- out of interest expenses made by AO is wholly illegal, unlawful and against the principles of natural justice. 2.1 The ld. NFAC has grievously erred in law and or on facts in not considering fully & properly the explanation and evidence produced repeatedly with regard to the impugned disallowances. The NFAC has erred in not seeking remand report in respect of additional evidence produced by the appellant. Hence there is gross violation of principles of natural justice. 3.1 The ld. NFAC has grievously erred in law and or on facts in upholding the disallowance of Rs.5,99,300/- out of commission expenses and Rs.6,95,816/- out of interest expenses made by A.O. and thereby making addition of Rs.12,95,116/-. 3.2 That in the facts and circumstances of the ld. NFAC ought not to have upheld the addition of Rs.12,95,116/-.. ITA No.13/Ahd/2023 Assessment Year: 2013-14 Page 2 of 4 It is, therefore, prayed that the addition of Rs.12,95,116/- upheld by the NFAC CIT(A) may kindly be deleted.” 3. The return of income was filed on 01.09.2015 declaring total income of Rs.7,24,057/-. The assessee is dealing in manufacturing of Cement. The case was selected for scrutiny under CASS and notice under Section 143(2) of the Income Tax Act, 1961 was issued on 05.09.2014. The Assessing Officer observed that during the previous year the assessee’s firm claimed sales commission expenses of Rs.10,44,397/- and asked the details related to four persons. The assessee furnished the confirmation of payments and other details. The Assessing Officer issued summons under Section 131 of the Act to the said parties. The Assessing Officer further observed that the assessee firm’s income on which the assessee was required to pay the higher tax has been conveniently reduced by debiting the commission expenses and crediting the accounts of the ladies who are related to the partners. The Assessing Officer further observed that the assessee firm’s commission expenses are not proved genuine and, therefore, disallowed the commission expenses to the extent of Rs.5,99,300/-. The Assessing Officer further observed that the assessee firm debited interest expenses of Rs.22,44,498/- paid on the unsecured loans in its Profit & Loss account and interest paid to partner on capital was at Rs.7,19,795/-. The Assessing Officer noticed that the assessee firm has paid interest at the rate of 18% on the unsecured loan received and, therefore, called the details. The Assessing Officer observed that there is diversion of the higher interest bearing fund to the loans given at a lower rate and, therefore, made addition of Rs.6,95,816/- as interest expenses. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A) and the CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that as regards to commission expenses claimed to the extent of Rs.10,44,397/- out of which commission of Rs.5,99,300/- was paid to four parties and the assessee has given the details of their copy of return of income, confirmation of payment, TDS etc. details/documents at the time of assessment proceedings. These four parties, though issued summons under Section 131 of the Act, has not appeared as witness but the confirmation of payments and the relevant details were filed and, therefore, the same should have been taken into account by the ITA No.13/Ahd/2023 Assessment Year: 2013-14 Page 3 of 4 Assessing Officer. The Ld. AR further submitted that the additional evidence filed before the CIT(A) was not taken into account and no remand report was called from the Assessing Officer. The Assessing Officer ignored the fact that the commission expenses are a normal feature of its business looking to its nature and extent of operation. The genuineness of the commission expenses was established by the fact that the payments were made by cheque, TDS was made under Section 194H and was duly accounted for in the return of income by the recipient etc. The nature of services rendered by them included obtaining order, timely delivery of goods, collection of payments and settlement of complaints etc. The Ld. AR submitted that one of the parties has filed its letter in response to the summons issued under Section 131 and similar letter was also given by another party. The Ld. A.R. submitted that from the details it can be seen that the commission was paid to these parties and the parties also paid their taxes accordingly which was pointed out by the Ld. AR from the return of income of the relevant parties. The Ld. AR submitted that as regards to the disallowance and interest expenses which is second issue to the extent of Rs.6,95,816/-, the Assessing Officer failed to take cognisance that the rate of interest paid on unsecured loans depends upon number of factors such as availability of funds, market condition, urgency, terms of repayment, period of repayment etc. The list of parties to whom interest was paid at 18% is pointed out by the Ld. AR through ledger account vis-à-vis the nature of transactions with M. Kumar Enterprise whereas most of the parties of unsecured loans had a few/Nil transactions during the year and C/F balances. Thus, the Ld. AR submitted that in the light of CBDT Circular No. 6P dated 06.07.1968 which was considered in the case of Gujarat Gas Financial Services Limited, the business aspect related to interest expense should be taken into account. 6. The Ld. D.R relied upon the Assessment Order and the order of the CIT(A) . 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that as regards to the commission expenses the assessee has given the details of return of income of those four parties, confirmation of payments as well as the TDS details. The summons issued under Section 131 of the Act was also responded thorough letters and, therefore, the Assessing Officer cannot say that the commission expenses are not actually incurred by the assessee. The Assessing Officer has totally ignored the business expediency for which the commission has been paid to these parties and for which the assessee has given all ITA No.13/Ahd/2023 Assessment Year: 2013-14 Page 4 of 4 the details. Therefore, the Assessing Officer as well as the CIT(A) was not right in disallowing the commission expenses. 8. As related to interest expenses, the assessee has demonstrated before the Assessing Officer as well as before the CIT(A) that the advances taken from the parties were for the business purposes and it was unsecured loans and, therefore, the assessee firm paid interest at the rate of 18% due to exigencies of the business. The Ld. AR pointed out that charging 12% interest to the other parties will not influence the payment of interest while the assessee obtained loans as in need/urgency these parties have given loan to the assessee and, therefore, the assessee was obligated to pay the particular rate of interest. These aspects were totally ignored by the Assessing Officer and hence the appeal of the assessee is allowed. 9. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on this 12 th day of April, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 12 th day of April, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad