M/s Jaipur Colonizers & Developers, 404,4th Floor, Milestone Building, Gandhi Nagar Mode, Tonk road V. Income tax officer, Ward- 6(2), jaipur

ITA 379/JPR/2023

AI Insights

The case involves M/s Jaipur Colonizers & Developers appealing against the order of the National Faceless Appeal Centre (NFAC), which confirmed the addition of Rs.51,65,586 to the assessee's income for the assessment year 2013-14. The addition was initially made by the Assessing Officer, who restricted the commission allowable from 15% to 10% on various transactions, citing lack of evidence of services rendered and business purpose. The CIT(A) upheld this decision, agreeing that payments and TDS deductions alone do not substantiate the business purpose of expenses. The assessee contested the order, claiming it was passed ex parte without proper consideration of their adjournment request. The tribunal, upon reviewing the proceedings, noted the oversight regarding the adjournment request and remanded the case for a fresh hearing.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132155 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-09-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 08-06-2023
• Other Referred Cases: Universal Energies Ltd. Vs DCIT Delhi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; TDS; Set aside
• Section: 37; 143(3); 142(1)

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 379/JP/2023 fu/kZkj.k o"kZ@Assessment Years : 2013-14 M/s Jaipur Colonizers & Developers 404, 4 th Floor, Milestone Building, Gandhi Nagar Mode, Tonk Road, Jaipur cuke Vs. Income Tax Officer Ward-6(2), Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAIFJ 2740 E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Manish Agrawal (CA) jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehra (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 16/08/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 12/09/2023 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre (NFAC), Delhi dated 28/04/2023 [here in after (NFAC)] for assessment year 2013-14 which in turn arise from the order dated 14.03.2016 passed under section 143(3) of the Income Tax Act, by the Assessing Officer. 2 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO 2. In this appeal, the assessee has raised following grounds: - “1. On the facts and in the circumstances of the case and in law, Id.CIT(A) has grossly erred in passing order ex parte on 28.04.2023, even though assessee had sought adjournment on 25.04.2023 upto 10.05.2023. Appellant prays order passed by ld.CIT(A) without rejecting such adjournment request and without intimating it to assessee of rejection, if any is against the principles of natural justice and deserves to be quashed. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition of Rs.51,65,586/- made by restricting the commission allowable @ 10% as against commission actually paid by the assessee @ 15%, arbitrarily. 2.1. That, Id.CIT(A) has further erred in confirming the observations of Id.AO that payment by tax and deduction of TDS are only evidence of payment and not of rendering of services and establishing the business purpose of the expenses. Appellant prays that such observations are contrary to the facts more particularly in the absence of adequate opportunity being provided to the assessee and consequent order passed by ld.CIT(A) is against the principle of natural justice and deserves to be quashed. 3. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the disallowance of interest on TDS claimed by assessee at Rs.92,227/- arbitrarily. Appellant prays that such interest being compensatory in nature and hence allowable as business expenditure. 4. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.” 3. Succinctly, the fact as culled out from the records is that the assessee firm has e-filed its return of income for assessment year 2013-14 on 26/10/2013 declaring total income of Rs. 7,51,610/-. The return was processed u/s 143(1)(a) of Income Tax Act, 1961. The case was selected for scrutiny and notice u/s 142(2) of the Income Tax Act, 1961 was issued on 04/09/2014. Notice u/s 142(1) was issued on 26/10/2015. In response to 3 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO these notices, Sh. Kulbhushan Sharma, CA attended time to time and submitted necessary details and explanations, which are placed record. Books of account and bank statements were also produced, which have been put to test check and the case was discussed with him. The assessee firm is engaged in the business of property developers. The assessee firm was asked to furnish the details of its incomes. The assessee firm has filed the details. During the year, the assessee has debited expenses of Rs. 1,55,96,880/- under the head sales commission in its profit and loss account. The assessee was asked to justify sales commission expenses with relevant evidences based on the letter issued to the assessee. The reply filed by the assessee along with the commission payment details. On perusal of details filed, it is noticed that the assessee paid commission @ 10% to other persons. Further, it is pertinent to mention here that the assessee has made commission payment @ 10% to Sh. Hari Om Gond who is also partner in M/s Prime Value Infrastructure Private Limited with whom the assessee has made agreement to payment commission @ 20%. One side the assessee has paying commission @ 10% and the other side the commission was shown to be paid @20% to the concern in which the person is partner/director. Further, with two separate concerns i.e. M/s Rajasthan Group and M/s JDA Infrastructure Private Limited in which Sh. 4 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO Junaid Siddqui is common partner, the assessee has also made agreement to paid commission @20%. As per detailed ledger of the commission payments, the assessee has shown commission details to be paid to various persons. The business exigency is not proved for making agreement with two concerns in which directors/partner are same. It is not verifiable that commission was paid to whom for which work as the partner/director is the same. The assessee nowhere specified as to who and what services have been rendered by these persons specifically and no supporting evidence thereof is provided. The exact functions performed by these persons were not brought on record by the assessee. In absence of any evidence of rendering of services by any of the party receiving commission, the vital ingredient for allowing any claim of expense is missing. Payments by cheque and deduction of TDS are only evidence of payments and not of rendering of services and establishing of business purposes of the expenses. Any claim of expenses is allowable only when it is incurred wholly and substantially for the purpose of business. Hence, the assessee cannot be allowed to consider such huge commissioner as an expense merely because payments have been made by cheque and TDS has been deducted. In light of the above infirmities found in the commission transaction, such huge amount of commission cannot be allowed as 5 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO expenditure. As a result, the genuineness and reasonable basis of the commission paid is in not open for verification and a colorable design was made thereof. The assessee has claimed that huge expenses are paid to attract the buyers from Delhi City & NCR. Merely making agreement is not sufficient to substantiate the claim of commission payment in excess to market rate. However, considering the facts of the case, it will be reasonable and justifiable to restrict these commissions payments w.r.t sale/booking/installment @ 10% as under- Sr. No. Name Amount of Sale/Booking Installment Amount Paid Commission of Rate Commission Allowable @ 10% Commission Disallowed 1 Rajasthan Group 76296267 11444440 15% 7629627 3814813 2 Md. Kaleem 1949600 292400 15% 194960 97440 3 Sakshi Santhani 2606667 391000 15% 260667 130333 4 Shubha 500000 50000 15% 50000 0 5 Prime Value Infrastructure 5126667 769000 15% 512667 256333 6 JDA Infrastructure 17333333 2600000 15% 1733333 866667 7 Hari Om God 500000 50000 10% 50000 0 104312533 15596840 10431254 5165586 Accordingly, the excess commission paid of Rs. 51,65,586/- was disallowed and added back to the total income of the assessee. 6 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO 4. Aggrieved from the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A)/NFAC. A propose to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below: “5.1 Appellate Findings: 5.1 The grounds of appeal No. 1 is general in nature and no needs to separate adjudication. 5.2 The grounds of appeal No. 2 is against calculation of percentage of the commission paid on the sales value. On perusal of the assessment order, it is found that the Assessing Officer has restricted the commission allowable @ 10% from 15% (i.e at par with payment made to unrelated parties). In support of his reasoning the assessing officer has brought out in his order some significant findings, as listed at page 3 and page 4 of the assessment order dated 14.03.2016. I am in agreement with the findings of the AO that payment by tax and deduction of TDS are only evidence of payment and not of rendering of services and establishing the business purpose of the expenses. Since despite various opportunities, the appellant has chosen not to file any reply or evidences in support of its grounds of appeal, I am in agreement with the AO by which the commission payment have been restricted @ 10% and hence hereby uphold the addition of Rs.5165,586/-. Hence, the ground of appeal No-2 is decided in favour of revenue. 5.3 Ground No.3 is against the disallowance of interest on TDS amounting to Rs. 92,227/-. I have considered the assessment order of the Ld. AO and find that the assessee has claimed interest on TDS of Rs.92,227/- paid on violation of provision of the I.T. Act. The same is disallowed and added back to the income of the appellant. I have gone through the decision of Hon'ble ITAT Delhi Bench "B". New Delhi in the case of Universal Energies Ltd. Vs DCIT Delhi in ITA No. 2761/Del/2018 dated 26.07.2022. The Tribunal considered the question of allowability notwithstanding the contentions of the assessee before the Revenue. Some of the Salient observations made by the Bench are as follows:- 7 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO "Section 201(1-A) of the Income Tax Act mandates assessee to pay simple interest at 1.5% per month or part of the month in case of delay in remittance of TDS amount deducted, to the treasury of the Central Government. For claiming expenditure and arriving at the taxable income, the Income Tax Act states twin conditions- allowance of expenditure as per Section 30 to 37 and non-allowable expenditure as per Sections 40, 438. The same are applicable for claiming the interest paid on late remittance of TDS. Interest as defined in Section 2(28A) of Income Tax Act means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Section 36(1)(iii) of the Act provides deduction of the interest paid in respect of capital borrowed for the purposed of the business or profession. Interest on late payment of TDS is not covered under Section 30-36 of the Act and thus qualifies for consideration under Section 37. It is neither capital expenditure nor personal expenditure of the Assessee. The tribunal pointed out that Courts have time and again held that interest expenses on late payment of taxes which are compensatory in nature, should be treated as expended wholly and exclusively for the purposes of the business or profession, since responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations and the assessee has no right to utilize such monies collected from others on behalf of the government. The Tribunal relied on the judicial pronouncements of Lachmandas Mathuradas v. CIT (2002) 254 ITR 799, CIT Vs Chennai Properties and Investment Ltd. 1998 SCC Online Mad 1095: Velankani Information Systems Ltd. Vs CIT, 2018 SCC Online ITAT 17731 wherein the issues vis a vis disallowance of interest on TDS payments were addressed. The Tribunal observed that, "Payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which renders the assessee liable for payment of interest was in nature of a direct tax and similar to the income tax payable under the I.T Act. The interest paid u/s 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment". I am in agreement with the decision of the Hon'ble ITAT, Delhi. Hence, the interest on TDS is penal in nature and not allowed. ” 8 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO 5. Feeling dissatisfied from the order of the ld. CIT(A), assessee has preferred the present appeal. Apropos to the grounds so raised, the ld. AR of the assessee draw our attention to the chart of appellate proceedings at page No. 7 in para 4.1 i.e. last date of hearing fixed on 25.04.2023. On that date of hearing the assessee has sought adjournment and the request was made online. The screen shot of which is filed by the assessee. Whereas in the order of the ld. CIT(A) order, it is written that the assessee has not responded in the matter. Even there is no mention of adjournment request of the assessee as made in the online portal. In the light of this fact, the ld. AR of the assessee prayed that the order of ld. CIT(A) is against the principle of natural justice and should be set aside. Alternatively, he prayed that since the appeal of the assessee decided ex-party assessee should be given an opportunity of being heard on merits. 6. Per contra, the ld. DR has objected to the prayer of the assessee and relied upon the finding of ld. CIT(A) who has based on the merits of the case and available information on the record decided the case of the assessee. 9 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO 7. We have heard the rival contentions and perused the material placed on record. It is not disputed by the revenue that on 20 th April, 2023 notice, the assessee has filed an adjournment application on 25 th April 2023 stating they are gathering the material to file the detailed submission to contest the merits of the case. We found from the record that ld. CIT(A) has also not dealt with the adjournment request filed by the assessee in online portal. Therefore, we are of the considered view that the assessee is deprived of justice. Based on these set of facts we are inclined to accept the request of the ld. AR of the assessee to set aside the case to the file of the ld. CIT(A), so as to decide the case of the assessee after giving proper opportunity of being heard to the assessee. At the same time, the assessee is directed to represent and present all the facts before the ld. CIT(A) and should not ask for adjournment of trifles grounds. At this stage, we remand back the matter without commenting upon the merits of the case and ld. CIT(A) is directed to pass an order in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposes. 10 ITA No. 379/JP/2023 M/s Jaipur Colonizers & Developers vs. ITO Order pronounced in the open court on 12/09/2023. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 12/09/2023 * Ganesh Kumar, PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- M/s Jaipur Colonizers & Developers, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward-6(2), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 379/JP/2023) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar