SAKSHI RAJAN GUPTA, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX , MUMBAI

ITA 2095/MUM/2022

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The case involves Sakshi Rajan Gupta, a non-resident licensed insurance agent, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the AO's decision disallowing business expenses claimed by her. The expenses, amounting to Rs.28,79,641, were disallowed as the AO found insufficient evidence to support the claim that these were paid as commission to her brother-in-law, Shatul Kamal Gupta, who operated under an HUF. The Tribunal noted that the assessee was not given a proper opportunity to substantiate her claims during the assessment proceedings and thus remanded the case back to the AO for a fresh assessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 299545 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 05-12-2022
• Assessment Year: misc
• Appeal Filed On: 21-06-2010
• Other Referred Cases: Tin Box Company Vs. CIT (249 ITR 216) (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MILIND CHAVAN
• Assessee Lawyers: PRITESH JOSHI
• Keywords: Business expenditure; Opportunity of being heard; TDS

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI M. BALAGANESH, AM आयकर अपील सं/ I.T.A. No. 2095/Mum/2022 (निर्धारण वर्ा / Assessment Year: 2018-19) Sakshi Rajan Gupta 6, Pankaj Mahal, 2 nd Floor, JT Siphimalani Marg, Churchgate-400020. बिधम/ Vs. ACIT Circle Int Tax- 1(3)(1) Mumbai. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AFJPG9115Q (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 06/12/2022 घोषणा की तारीख /Date of Pronouncement: 16/12/2022 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Delhi-42 dated 09.06.2022 for the assessment year 2018-19. 2. The main grievance of the assessee is against the action of the AO in not giving proper opportunity to the assessee before passing the assessment order wherein he has disallowed the expenses of Rs.28,79,641/- claimed by the assessee (non-resident). 3. Brief facts the AO noted is that the assessee is a non-resident and has filed the return of income on 17.06.2018 for AY. 2018-19 declaring taxable income of Rs.6,67,120/-. Later, the case was selected for scrutiny. The AO noted that though the assessee was a non- resident, she had carried out business activity in India. The AO noted Assessee by: Shri Pritesh Joshi Revenue by: Shri Milind Chavan (Sr. DR) ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 2 from the submission made by the assessee that even though she had no formal agreement with Tata AIA or ICICI Lombard, she is/was a licensed Insurance Agent under part-II of the Insurance Act, 1938 and registered with Tata and ICIC as an Insurance Agent. According to the assessee, since she had the Agency Card issued by both Insurance Companies, she had the authority to market the products of these insurance companies and the rate of commission varied for each policy (sub-type and/or business volume). The AO noted that the assessee during the relevant assessment year has received commission income from ICICI Lombard and Tata AIA to the tune of Rs.30,65,782/- and claimed the business expenses of Rs.28,79,641/-. When the AO asked her to substantiate the expenses claimed by her, the assessee replied that the expenses she claimed to have incurred was the amount paid as commission to Shatul Kamal Gupta as finder’s fee, which was approximately 95% of the commission received by her (assessee) from Tata AIA life insurance from ICICI Lombard. Pursuant to the reply, the AO issued show cause notice as to why the amount of Rs.28,79,641/- should not be considered as taxable under the Income Tax Act, 1961 (hereinafter “the Act”) and added back to the income of the assessee and also asked her to file the agreement of assessee with Shatul Kamal Gupta to whom commission of Rs.28,79,641/- has been paid; and also asked the assessee to file the Income Tax Return (ITR) of Shatul Kamal Gupta and also to provide the details of TDS deducted on it (Rs.28,79,641/-). And also the reasons for claiming the large commission expenses of Rs.28,79,641/- whereas the profit before ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 3 tax is shown of Rs.1,70,194/-. The assessee replied to AO that Shatul Kamal Gupta is her brother-in-law and since the assessee is living overseas with her husband, the agreement is oral agreement; and since Shri Shatul Kamal Gupta has sold the products of Tata AIA and ICICI Lombard, the assessee has compensated her by giving 95% of the commission which she received from both insurance companies. The AO did not agree with the reply of the assessee and disallowed the expenses claimed and added Rs. 28,79,641/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee brought to his notice that the assessee has filed written submission dated 28.09.2021 which was not properly considered while framing the draft/final assessment order. It was also brought to the notice of Ld. CIT(A) that the assessee had sought video conference of the Appellate Proceedings but this request was also not granted to her. 4. It was also brought to the notice of the Ld. CIT(A) that the based on oral agreement between the assessee and her brother-in-law the commission income of approximate 95% was given to the HUF because the entire business of sale of products (insurance policies) of Tata AIA and ICICI Lombard was made by the HUF only through Shri Shatul Kamal Gupta. According to assessee, only because the commission agent was the relative (brother-in-law) the same could not have been disallowed. However, the Ld. CIT(A) observed that since the assessee has not objected before Ld. DRP against the draft assessment order within the 30 days after recipient of it, the AO has ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 4 rightly passed the final assessment order. And according to Ld. CIT(A) the assessee has been given proper opportunity by AO before passing the assessment order. And therefore according to Ld. CIT(A) there is no violation of natural justice. According to the Ld. CIT(A), the assessee has not filed any document to prove that the expenses claimed to have been incurred by the assessee (commission paid to HUF i.e. Shatul Kamal Gupta HUF); and the Ld CIT(A) wondered as to how the commission agent was an HUF and how service/sale of insurance policies could have been rendered by an HUF, when it could have been done only by an individual. Therefore Ld. CIT(A) confirmed the action of the AO. Aggrieved, the assessee is before us. 5. We have heard both the parties and perused the record. Undisputed facts are that the assessee is non-resident who is residing along with her husband at Dubai. She is a licensed agent of Tata AIA and ICICI Lombard. According to the assessee, she received an amount of Rs.30,65,782/- (commission) for the sale of insurance policies of both insurance companies. According to the assessee, the entire business of sale of insurance policies were carried out by the Shatul Kamal Gupta on behalf of HUF; and for that the assessee had paid 95% of the commission income i.e. Rs.28,79,641/-. Balance amount assessee offered/returned in her return as income for taxation Rs.1,70,194/-. The AO disallowed the expenses on the ground that the assessee was not able to bring any evidence to support the claim of expenses incurred to the tune of Rs.28,79,641/- i.e. the assessee failed ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 5 to bring on record any agreement with the commission agent Shri Shatul Kamal Gupta (HUF). The AO noted that the Shatul Kamal Gupta is the brother-in-law of the assessee. Taking into consideration the fact that assessee failed to file any agreement with HUF, and the since Shri Shatul Kamal Gupta was a close relative, the AO disallowed the expenses. On appeal, the Ld. CIT(A), was of the opinion that since the commission agent is an HUF, according to him service/sale of insurance policies could have been rendered only by an individual and not by HUF. Before us, assessee’s main grievance is that no proper opportunity has been granted to the assessee during the assessment proceedings. Further according to the Ld. AR, the assessee has filed the details of Shatul Kamal Gupta HUF and also brought to the notice of both the authorities that Shatul Kamal Gupta (HUF) has offered for taxation the amount which it received i.e. Rs.28,79,641/-. Therefore, according to the Ld. AR, if proper opportunity is granted then the assessee would be able to file relevant documents to substantiate that the payment of Rs.28,79,641/- was given for the services rendered by Shatul Kamal Gupta /HUF for effecting sale of the insurance policies of both Insurance Companies. According to us, assessee could not place before the AO, relevant document to substantiate the expenses incurred by the assessee, which is necessary for adjudication of the appeal. Therefore according to us, proper opportunity need to have been given to the assessee during assessment proceeding. So we restore the assessment back to the file of AO. For that we rely on the decision of the Hon’ble Supreme Court in the case of Tin Box ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 6 Company Vs. CIT (249 ITR 216) (SC), wherein it was held that if an assessee did not get proper opportunity before the AO, then the proper course is that assessment should be restored back to the file of AO for de-novo assessment. The Hon’ble Supreme Court in the case of Tin Box Company (supra) has held as under:- “ It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact-finding authority, that reads thus : "We will straightway agree with the assessee's submission that the ITO had not given to the assessee proper opportunity of being heard." That the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee has been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the matter to the assessing authority for fresh assessment after giving to the assessee a proper opportunity of being heard. 2. Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income-tax Officer had not given a proper opportunity of hearing to the assessee ?" In our opinion, there can only be one answer to this question which is inherent in the question itself: in the negative and in favour of the assessee. 3. The appeals are allowed. The order under challenge is set aside. The assessment orders, that of the Commissioner (Appeals) and of the Tribunal are also set aside. The matter shall now be remanded to the assessing authority for fresh consideration, as aforestated. No order as to costs.” 6. Before parting, we would like to make it clear that the Ld. CIT(A)’s reasoning that the services/selling of Insurance Policies could not have been rendered by HUF cannot be accepted. It is ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 7 common knowledge that the Karta of HUF and coparcenary’s are individuals and they can function on behalf of the HUF. Therefore, the aforesaid reason given by the Ld. CIT(A) for rejecting the claim of the assessee cannot be countenanced. Other than the aforesaid observation, we direct the assessee to file documents to substantiate that Shatul Kamal Gupta on behalf of HUF has rendered services (sale of insurance policies which fetched commission income for non-resident assessse) and for the services rendered by the Agent, the assessee has compensated the HUF (approximately 95% of the total commission assessee received) and claimed it as expenses. And in case before the AO if the assessee is able to file proof that the recipient of Rs.28,79,641/- has reflected the same as income; and the same has been taxed; and also able to show that Shri Shatul Kamal Gupta on behalf of HUF has rendered services for sale of insurance policies, then the expenses claimed to be considered by AO in accordance to law. 7. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 16/12/2022. Sd/- Sd/- (M. BALAGANESH) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 16/12/2022. Vijay Pal Singh, (Sr. PS) ITA No.2095/Mum/2022 A.Y. 2018-19 Sakshi Rajan Gupta 8 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai