Sri Davanam Suryanarayana Panduranga Setty , Bangalore V. The Income Tax Officer Ward-2(2)(1), Bangalore

ITA 3427/BANG/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2817 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-02-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 28-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BALAKRISHNAN N
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 3427 /BANG/201 8 ASSESSMENT YEAR : 20 1 2 - 1 3 SHRI DAVANAM SURYANARAYANA, PANDURANGA SETTY, LEGAL HEIR SRI. D.P. NAGESH, NO. 263, M.G. ROAD, KANAKPURA, BANGALORE 562 117. PAN: ABUPP5932D VS. THE INCOME TAX OFFICER, WARD 2 (2) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : SHRI BALAKRISHNAN .N, ADDL. CIT (DR) DATE OF HEARING : 2 1 .0 2 .2019 DATE OF PRONOUNCEMENT : 28. 0 2 .2019 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-3, BANGALORE DATED 18.06.2018 FOR ASSESS MENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE LEARNED CIT (A) ERRED IN PASSING THE ORDER I N THE MANNER HE DID. 2. THE LEARNED CIT (A) ERRED IN PASSING THE ORDER W ITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (A) OUGHT TO HAVE THAT THE ENTIRE EXPENDITURE INCUR RED IN THE HEADS VIZ., (A) SALES PROMOTION, (B) TRAVELING EXPENSES , (C) VEHICLE MAINTENANCE AND (D) CONVEYANCE WERE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY HE OUGHT TO HAVE REFRAINED FROM MAKING THE DISALLOWANCE OF RS. 3,00,770/-. 4. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT FROM THE MAGNITUDE OF BUSINESS OF THE APPELLANT, THE EXPENDI TURE CLAIMED WAS VERY FAIR AND REASONABLE AND HE OUGHT TO HAVE ALLOW ED THE ITA NO. 3427/BANG/2018 PAGE 2 OF 5 EXPENDITURE, THERE BEING NO EXTRAORDINARY LEAP IN T HE QUANTUM OF EXPENDITURE COMPARED TO THE PAST YEARS. 5. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE PAYMENT OF COMMISSION WAS INCIDENTAL AND FOR THE PURPOSE OF BU SINESS OF THE APPELLANT AND ACCORDINGLY HE OUGHT TO HAVE ACCEPTED THE EXPLANATION OF THE APPELLANT AND REFRAINED FROM MAKING THE IMPU GNED DISALLOWANCE. 6. THE LEARNED CIT (A) ERRED IN LEVYING THE INTERES T U/S 234B AND 234C OF THE ACT. 7. WITHOUT PREJUDICE, THE DISALLOWANCES ARE EXCESSI VE, ARBITRARY AND UNREASONABLE AND LIABLE TO BE DELETED IN TOTO. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL OF THE APPELLANT PRAYS THAT T HE APPEAL MAY BE ALLOWED. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THER E ARE TWO DISPUTED ISSUES IN THE PRESENT APPEAL. SHE SUBMITTED THAT THE FIRST D ISPUTED ISSUE IS IN RESPECT OF DISALLOWANCE OF RS. 3,00,770/- INCLUDING DISALLO WANCE OF RS.87,870/- OUT OF RS. 2,92,900/- CLAIMED BY THE ASSESSEE UNDER THE HEAD SALES PROMOTION, RS. 40,700/- DISALLOWED OUT OF ASSESSEES CLAIM OF RS. 1,62,854/- UNDER THE HEAD TRAVELLING EXPENSES, DISALLOWANCE OF RS. 57,00 0/- OUT OF RS. 1,90,187/- UNDER THE HEAD VEHICLE MAINTENANCE AND R S. 1,15,200/- OUT OF ASSESSEES CLAIM OF RS. 4,60,815/- UNDER THE HEAD C ONVEYANCE. SHE SUBMITTED THAT THIS IS THE BASIS OF THE AO FOR MAKI NG THIS DISALLOWANCE THAT MOST OF THE EXPENSES ARE CLAIMED THROUGH SELF MADE VOUCHERS. SHE SUBMITTED THAT THIS ONLY CANNOT BE A BASIS TO MAKE ANY DISALLOWANCE THAT THE VOUCHERS ARE SELF MADE VOUCHERS. SHE SUBMITTED THA T THE ENTIRE AMOUNT OF THIS DISALLOWANCE SHOULD BE DELETED. 4. SHE SUBMITTED THAT THE SECOND ISSUE INVOLVED IS REGARDING DISALLOWANCE OF ENTIRE AMOUNT OF COMMISSION PAYMENT MADE BY THE ASS ESSEE OF RS. 11,26,727/-. SHE SUBMITTED THAT THE ASSESSEE HAS F URNISHED COMPLETE DETAILS OF THESE EXPENSES AND THE LEDGER EXTRACT OF ALL THE PARTIES TO WHOM THE COMMISSION PAYMENT WAS MADE IS REPRODUCED BY TH E AO ON PAGES 3 TO 6 OF THE ASSESSMENT ORDER. REGARDING THE BASIS OF DISALLOWANCE MADE BY THE AO, SHE SUBMITTED THAT THE REASONING ARE GIVEN BY HE AO ON PAGE NO. 6 IN PARA 5.2 OF THE ASSESSMENT ORDER AND IT CAN BE S EEN THAT ON THE BASIS OF ITA NO. 3427/BANG/2018 PAGE 3 OF 5 THESE REASONINGS, NO DISALLOWANCE IS JUSTIFIED. SH E SUBMITTED THAT THIS DISALLOWANCE SHOULD ALSO BE DELETED. AS AGAINST TH IS, THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, I DECIDE THE FIRST ISSUE REGARDING DISALLOWANCE OF RS. 3,00,770/- MADE BY TH E AO. I FIND THAT IN PARA 4.2 OF THE ASSESSMENT ORDER, IT IS NOTED BY TH E AO THAT ON VERIFICATION OF THE BILLS AND DOCUMENTS PRODUCED, IT IS NOTICED THAT MOST OF THE EXPENSES ARE CLAIMED THROUGH SELF MADE VOUCHERS. THEREAFTER THE AO SAYS THAT CONSIDERING THE NATURE OF THE ASSESSEE BUSINESS AND THE EXPENSES BEING CLAIMED BEING EXCESSIVE UNDER THE FOLLOWING HEADS, DISALLOWANCES ARE BEING MADE. DISALLOWANCE MADE BY HIM IS TO THE EXTENT OF 30% OUT OF SALES PROMOTION EXPENSES AND VEHICLE MAINTENANCE EXPENSES AND 25% OUT OF TRAVELLING EXPENSES AND CONVEYANCE EXPENSES. IN MY CONSIDERED OPINION, SOME ESTIMATED DISALLOWANCE OUT OF VEHICLE MAINTENA NCE IS JUSTIFIED BECAUSE IT CANNOT BE SAID THAT THE VEHICLES WERE NO T USED AT ALL FOR PERSONAL TRAVEL USES BUT STILL 30% DISALLOWANCE APPEARS TO B E EXCESSIVE AND HENCE, I CONFIRM DISALLOWANCE OF 15% OUT OF VEHICLE MAINTENA NCE EXPENSES I.E. RS. 28,500/-. OUT OF REMAINING EXPENSES I.E. SALES PROM OTION EXPENSES,TRAVELLING EXPENSES AND CONVEYANCE EXPENSE S, I FEEL THAT IN GENERAL, NO DISALLOWANCE IS JUSTIFIED ONLY ON THIS BASIS THAT THE CLAIM OF THESE EXPENSES IS ONLY ON THE BASIS OF SELF MADE VOUCHERS AND EVEN IN A GIVEN CASE, SOME ESTIMATED DISALLOWANCE IS CONSIDERED PRO PER THAN ALSO, DISALLOWANCE TO THE EXTENT OF 25/30 % IS EXCESSIVE. IN THE FACTS OF THE PRESENT CASE, I FEEL IT PROPER THAT DISALLOWANCE TO THE EXTENT OF 10% IS REASONABLE AND HENCE, I CONFIRM DISALLOWANCE OF RS. 29,300/- UNDER THE HEAD SALES PROMOTION EXPENSES, RS. 16,300/- UNDER T HE HEAD TRAVELLING EXPENSES AND RS. 46,000/- UNDER THE HEAD CONVEYANCE EXPENSES. THIS GROUND BEING GROUND NO. 3 IS PARTLY ALLOWED. 6. IN RESPECT OF DISALLOWANCE OUT OF COMMISSION PAY MENT OF RS. 11,26,727/-, I FIND THAT THE BASIS GIVEN BY THE AO FOR MAKING THIS DISALLOWANCE IS CONTAINED IN PARA 5.2 ON PAGE NO. 6 OF THE ASSESSMENT ORDER. FOR READY REFERENCE, THIS PARA OF ASSESSMENT ORDER IS REPRODUCED HEREINB ELOW. ITA NO. 3427/BANG/2018 PAGE 4 OF 5 5.2 ON A PERUSAL OF THE LEDGER EXTRACT FURNISHED FO R COMMISSION PAYMENTS, THE FOLLOWING HAVE BEEN NOTICED. I) ALL THE PAYMENTS HAVE BEEN MADE IN CASH FALLING IN THE RANGE OF LESS THAN RS.1500/-AND EACH INDIVIDUAL BEING PAID LESS T HAN RS.5000/- DURING THE YEAR AS CAN BE SEEN FROM THE SAMPLE LEDG ER EXTRACT FURNISHED ABOVE. II) THE LIST FURNISHED FOR PAYMENT OF COMMISSION CO NTAINS AROUND 362 ENTRIES. FOR E.G. IN THE ALPHABET P THE FOLLOWING NAMES APPEAR PADMANABHA, PADMA, PANCHAKSHARI, PANKAJ, PANKAJA, PARAMESHWARA, PARMESH, PRABHU, PRADEEP, PRAKASH, PR ALIDHA, PRASAD, PRASHANTHA, PRAVEEN, PRAVESH, PREMA, PRITHV I, PRIYA, PUNEETHA, PUNESH, PURUSHOTHAM, PUSHPARAJU, PUTTA, P UTTAPPA, PUTTARAJU, PUTTASWAMY,.. III) LIKE WISE IN THE ALPHABET A TO Y THERE ARE MORE THAN 15 NAMES IN EACH ALPHABET WITH SIMILAR PATTERN OF PAYMENTS BEIN G REFLECTED. IV) IN SUPPORT OF THE COMMISSION PAYMENTS, SELF MAD E CASH VOUCHERS WERE PRODUCED DURING SCRUTINY PROCEEDINGS. 7. IN ADDITION TO THIS, IN PARA 5.3 OF THE ASSESSME NT ORDER, THE AO HAS STATED THAT IN THE LIGHT OF THESE OBSERVATIONS GIVEN BY HI M IN PARA 5.2 OF THE ASSESSMENT ORDER, HE HAD ASKED THE AR OF ASSESSEE T O EXPLAIN THE NATURE OF ACTIVITY CARRIED OUT BY SUCH INDIVIDUALS IN CONN ECTION WITH THE BUSINESS OF THE ASSESSEE. THEREAFTER HE NOTED THAT IT WAS EXPL AINED BEFORE HIM THAT THE COMMISSIONS WERE PAID TO THE INDIVIDUALS FOR GETTIN G CUSTOMERS TO THEIR SHOP FOR PURCHASE OF JEWELLERY AND THAT THE ASSESSEES S HOP IS IN THE VILLAGE OF KANAKAPURA AND THEY NEED TO ATTRACT CUSTOMERS THROU GH AGENTS AND HENCE, HAVE PAID COMMISSION TO THOSE INDIVIDUALS. IN PARA 5.4 OF THE ASSESSMENT ORDER, THE AO SAYS THAT EXPLANATION OFFERED IS NOT ACCEPTABLE FOR THE REASON THAT IN THE BUSINESS OF JEWELLERY, IT IS THE CUSTOM ERS CHOICE TO PURCHASE AND THEY NEED NOT BE BROUGHT TO THE SHOP TO PURCHASE TH E JEWELLERY THROUGH AGENTS. I FAIL TO UNDERSTAND THIS REASONING GIVEN BY THE AO FOR MAKING THIS DISALLOWANCE BECAUSE NOT ONLY FOR JEWELLERY PURCHAS E BUT FOR ANY PURCHASE, IT IS THE CHOICE OF THE CUSTOMER. BUT IN ORDER TO ATTRACT CUSTOMER TO AT LEAST SEE THE JEWELLERY AVAILABLE IN THE SHOP, IF ANY HEL P IS TAKEN FROM COMMISSION AGENTS THEN THERE IS NOTHING UNUSUAL IN THAT. BUT STILL THIS IS NOT COMING OUT AS TO WHAT IS THE BASIS OF COMMISSION PAYMENT IN TE RMS OF PURCHASE MADE BY THOSE CUSTOMERS WHO WERE BROUGHT INTO SHOP BY TH E SO CALLED ITA NO. 3427/BANG/2018 PAGE 5 OF 5 COMMISSION AGENTS. HENCE IN ORDER TO EXAMINE THIS FACTUAL ASPECT OF THIS ISSUE, I FEEL IT PROPER TO RESTORE BACK THE MATTER TO THE FILE OF AO FOR FRESH DECISION WITH THE DIRECTION THAT THE ASSESSEE SHOUL D BRING DETAILS ON RECORD IN RESPECT OF RATE OF COMMISSION PAID TO EACH OF TH E AGENTS ON THE PURCHASE VALUE BECAUSE IT IS SEEN THAT AS PER THE SELF MADE VOUCHERS AVAILABLE ON PAGE NOS. 37 TO 50 OF PAPER BOOK, THE ONLY DETAIL A VAILABLE IS THE NAME OF THE PERSON TO WHOM THE PAYMENT WAS MADE, DATE OF PA YMENT AND AMOUNT OF PAYMENT ALONG WITH THE SIGNATURE OF THE RECEIVER AND ONLY NARRATION GIVEN IS COMMISSION PAID. THERE IS NO DETAIL AVAILABLE A S TO HOW MUCH WAS THE PURCHASE MADE BY THE CUSTOMER BROUGHT INTO SHOP BY THE SAID COMMISSION AGENTS AND WHAT IS THE COMMISSION PAYMENT IN PERCEN TAGE TERMS. THE ASSESSEE SHOULD BRING THESE DETAILS ON RECORD WITH EVIDENCES AND THEREAFTER THE AO SHOULD DECIDE THE ISSUE AFRESH AND PASS NECE SSARY ORDER AS PER LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEA RD TO ASSESSEE. ACCORDINGLY GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE ME NTIONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 28 TH FEBRUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGAL ORE.