Sri. Sandeep Kedia, Bangalore V. Income-Tax Officer, Ward-4(3)(4) , Bangalore

ITA 156/BANG/2023

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The case involves an appeal by Sri. Sandeep Kedia against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the disallowance of Rs.93,53,500 as commission paid. The assessee, a proprietor of M/s. Life Line Solutions, engaged in the business of medical equipment, had claimed this commission as a business expense. The A.O. disallowed the commission due to lack of evidence proving the genuineness of the expenditure, despite the assessee providing bank statements and TDS details. The CIT(A) upheld this decision, leading to the current appeal. The Tribunal found that the CIT(A) had not adequately considered the assessee's submissions and evidence, thus remanding the case back to the A.O. for a fresh examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115226 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-04-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 05-03-2023
• Other Referred Cases: Schneider Electric India Ltd. vs. CIT (304 ITR 360), Lachminarayan Madanlal vs. CIT (86 ITR 49)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; TDS; Capital Gains
• Section: 234B; 133(6); 250; 143(2); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM ITA No.156/Bang/2023 : Asst.Year 2016-2017 Sri.Sandeep Kedia #45, 31 st Main, 5 th Cross 1 st Phase, J.P.Nagar Bengaluru – 560 078. PAN : ACNPK9549D. v. The Income Tax Officer Ward 4(3)(4) Bangalore. (Appellant) (Respondent) Appellant by : Sri.S.V.Ravishankar, Advocate Respondent by : Ms.Matta Padma, Addl.CIT-DR Date of Hearing : 25.04.2023 Date of Pronouncement : 26.04.2023 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against CIT(A)’s order dated 27.02.2023 passed u/s 250 of the I.T.Act. The relevant assessment year is 2016-2017. 2. The solitary issue that is raised is whether the CIT(A) is justified in confirming the disallowance of Rs.93,53,500 being commission paid. 3. The brief facts of the case are as follows: The assessee an individual is a proprietor of M/s.Life Line Solutions, which is engaged in the business of dealing in medical equipments and devices. The assessee, during the relevant previous year, apart from earning income from business, had earned income from other sources and also ITA No.156/Bang/2023. Sri.Sandeep Kedia. 2 declared capital gains. For the assessment year 2016-2017, the return of income was filed on 20.09.2016 declaring total income of Rs.23,58,490. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued on 13.07.2017. During the course of assessment proceedings, the assessee was asked to explain the details of commission expenditure incurred aggregating to Rs.1,36,29,700 (commission paid to 20 different parties). In order to verify the genuineness of the commission expenditure incurred by the assessee, the Assessing Officer issued notice u/s 133(6) of the I.T.Act dated 19.11.2018 to all the 20 parties to whom the commissions were paid by the assessee. Out of the 20 parties, only 7 parties responded to the notices issued u/s 133(6) of the I.T.Act. The notices issued u/s 133(6) of the I.T.Act to 4 parties were delivered but there was no response and for the balance 9 parties, the notices issued were returned back as un-served. The assessee was directed vide notice dated 17.12.2018 to produce before the A.O., the parties to whom the commissions were paid in order to prove the genuineness of the commission expenditure and the existence of the said parties (the payees were directed to be produced before the A.O. on 20.12.2018). In response, the assessee filed letter dated 20.12.2018 stating that most of the parties to whom notices were issued u/s 133(6) of the I.T.Act have changed addresses and hence, the notices could not be served on the parties. The submission of the assessee dated 20.12.2018 is reproduced at para 5 of the assessment order, hence, not ITA No.156/Bang/2023. Sri.Sandeep Kedia. 3 reiterated. The A.O. again sent a notice on 23.12.2018 to the assessee directing him to produce the parties to whom the commissions were paid, before the A.O. on 26.12.2018. Since the assessee failed to produce the payee of the commission payments by 26.12.2018, the A.O. treated the commission paid to 13 parties amounting to Rs.93,53,500 as not a genuine expenditure and disallowed the same. The relevant observation of the A.O. in adding the amount of Rs.93,53,500, reads as follows:-  “The assessee has not furnished any written agreements entered with the parties to whom commission was paid.  The assessee has not furnished any written correspondence with these parties regarding the customers introduced by them and sales effected thereof.  In a nutshell the assessee could not produce any documentary evidence in support of the services rendered to support the basis of payment of commission.  Considering the aforesaid facts in the light of the ratios laid down by the Hon’ble Delhi High Court in case of Schneider Electric India Ltd. vs. CIT (304 ITR 360) and by the Hon’ble Supreme Supreme Court in case of Lachminarayan Madanlal vs. CIT (86 ITR 49), it is pertinent to note that:  “even if there is an agreement between the assessee and its selling agents for payment of certain amounts as commission, assuming there was such payment, that does not bind the Assessing Officer to hold that the payment was made exclusively and wholly for the purposes of assessee’s business.”  It may also be noted that, not only there are no agreements; even there are no evidences of any correspondences or personal meetings between the assessee and the commission agents, so as to suggest that there was any relationship on the basis of which the commission agents procured customers for the assessee and for which they are entitled for any commission.  Hence the argument put forth by the assessee that mere payment of commission through account payee cheque (copy of bank account statement) after TDS, in absence of ITA No.156/Bang/2023. Sri.Sandeep Kedia. 4 any other supporting evidence will not absolve the assessee from discharging its burden regarding proving the business purpose of such payment.  The assessee has not furnished even the basis of commission payment and has not furnished party-wise details of sales made through the alleged agents and the resultant working of commission.  The assessee has claimed commission expenses of Rs.1,36,29,700/- on total sales of Rs.5,34,01,103/- which comes to 25.52% of gross sales made and the same is not in line with similar businesses.” 4. Aggrieved by the order of assessment, the assessee preferred an appeal before the first appellate authority. The CIT(A) dismissed the appeal of the assessee primarily holding that the communication sent from the office of the first appellate authority for furnishing the written submission were not complied by the assessee. Further, the CIT(A) held that the assessee has not provided any evidence to substantiate his grounds of appeal before him. Therefore, the CIT(A) concluded that he was constrained to affirm the order of the A.O. in making the disallowance of commission expenditure amounting to Rs.93,53,500. 5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal, raising the following grounds:- “1. The order passed by the authorities below in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The appellant denies himself to be assessed at Rs.1,17,11,290/- as against the returned income of Rs.23,58,420/- for the assessment year 2016-17 under the facts and circumstances of the case. ITA No.156/Bang/2023. Sri.Sandeep Kedia. 5 3. The learned CIT(A) was not justified m confirming the disallowance of Rs.93,53,500/- being commission paid, on the facts and circumstances of the case. 4. The learned CIT(A) was not justified in stating that the appellant has not made any submission, which is an erroneous observation of fact and contrary to record, on the facts and circumstances of the case. 5. The learned CIT(A) was not justified in appreciating that the assessing officer has disallowed the commission expenditure, without appreciating the revised documents filed during the assessment proceedings and ought to have obtained a remand report on the evidences stated to have been filed as per the statement of facts, under the facts and circumstances of the case. 6. The learned CIT was not justified in confirming the addition without appreciating the documents submitted during the course of appellate proceedings, to justify the claim of commission expenditure and has passed the impugned order on the premise that no submissions were made, whereas the documents were available before, both the lower authorities, on the facts and circumstances of the case. 7. The learned CIT(A) ought to have provided one more opportunity of hearing before passing the impugned order under the facts and circumstances of the case. 8. The authorities below failed to appreciate that higher turnover achieved, was on account of expenditure incurred towards commission which was a well settled practice in the nature of business, on the facts and circumstances of the case. 9. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned assessing officer. Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case. 10. The appellant craves to add, alter, amend, substitute, change and delete any of the grounds of appeal. ITA No.156/Bang/2023. Sri.Sandeep Kedia. 6 11. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.” 6. The assessee has filed a paper book comprising of 130 pages enclosing therein the confirmation of the parties to whom the assessee has paid the commission, the details of the TDS amount, the bank statements, the financial statement of the assessee, etc. The learned AR submitted that the parties, to whom the notices u/s 133(6) of the I.T.Act has been issued, have changed the address and the correct address has been furnished by the assessee to the A.O. It was contended that the assessee had provided the confirmation letters from the parties to whom the commissions were paid. It was also contended that the assessee due to paucity of time, could not produce the parties, who had received the commission payment before the A.O. As regards the proceedings before the first appellate authority, the learned AR submitted that the assessee had uploaded on 23.02.2023 the written submissions, the details / confirmations, etc. It was contended that since the impugned order has been passed only on 27.02.2023, the written submission and the documents / evidences furnished in support of assessee’s contention ought to have been taken note by the first appellate authority before rendering the impugned ex parte order. 7. The learned Departmental Representative supported the orders of the A.O. and the CIT(A). ITA No.156/Bang/2023. Sri.Sandeep Kedia. 7 8. We have heard rival submissions and perused the material on record. On the facts on record, it is clear that the assessee had filed written submission and the evidences / documents in support of his case before the first appellate authority. The acknowledgement for the same is placed on record at page 127 to 130 of the paper book submitted by the assessee. The first appellate authority had issued the notice on 15.02.2023 by directing the assessee to file the written submission on or before 22.02.2023. The written submission / documents / evidences were submitted by the assessee belatedly by one day, i.e., on 23.02.2023. However, the first appellate authority’s order is dated 27.02.2023 and the same has not taken note of the documents / written submission filed. 9. The A.O. had issued show cause notice and proposed to make disallowance of the commission paid to 13 parties by stating that there was no response from the said parties. The assessee had made enquiries and ascertained that majority of the parties had moved their residences and present residing in places other than the addresses as provided to the A.O. during the assessment year 2016-2017, along with the details of the bank statements, TDS details etc. The assessee had filed confirmations from all the recipients of the commission payment with new addresses and the same are placed on record. The assessee has also made TDS deduction with respect to the commission payment made by him. The bank ITA No.156/Bang/2023. Sri.Sandeep Kedia. 8 statements are also provided. Since the first appellate authority’s order is an ex parte order, in the interest of justice and equity, we are of the view that one more opportunity ought to be provided to the assessee to prove that commission payments to the extent of Rs.93,53,500 is genuine payment and necessary expenditure for the purpose of his business. Therefore, the issue is restored to the files of the A.O. The A.O. is directed to examine the matter afresh after affording a reasonable opportunity of hearing to the assessee. The assessee shall cooperate with the A.O. and shall not seek unnecessary adjournment. It is ordered accordingly. 10. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 26 th day of April, 2023. Sd/- (Laxmi Prasad Sahu) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 26 th April, 2023. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-NFAC Delhi 4. The Pr.CIT, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore