GOLDEN STABLES LIFESTYLES CENTRES P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 5145/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4588 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 29-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABANI KANTA NAYAR
• Keywords: Retrospective amendment; Additional evidence; Commercial expediency; TDS
• Section: 40(a)(ia); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI PRAMOD KUMAR (A.M.) AND SMT ASHA VIJAYARAGHAVAN (J.M.) ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 GOLDEN STABLES LIFESTYLE CENTER PVT. LTD. 32/125, LAXMI VIJAY, LAXMI INDS. ESTATE, NEW LINK RD.,ANDHERI(W), MUMBAI 400 053. PAN :AABCG3405B VS. CIT- 8(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE RESPONDENT BY : SHRI ABANI KANTA NAYAR O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 12.05.2009 OF THE CIT(A)-III, MUMBAI RELATING TO A SSESSMENT YEAR 2005- 2006. 2. THE FIRST ISSUE IN THE ASSESSEE APPEAL IS AGAINS T THE DISALLOWANCE OF ` .29,52,389/- U/S.40(A)(IA) OF THE I.T. ACT. 3. THE ASSESSING OFFICER FOUND THAT IN ANNEXURE-5 O F THE TAX AUDIT REPORT IT HAS BEEN MENTIONED THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE FROM PAYMENT OF COMMISSION, PROFESSIONAL FEES AND P AYMENT TO DIRECTORS BUT THE SAME HAS BEEN PAID AFTER THE END OF THE FIN ANCIAL YEAR. FURTHER, AS PER BALANCE SHEET THE AMOUNT OF ` .1,64,894/- IS SHOWN AS OUTSTANDING AS ON 31.03.2005 ON ACCOUNT OF TDS. DURING THE ASSESSME NT PROCEEDINGS THE ASSESSING OFFICER HAS ASKED THE ASSESSEE COMPANY TO FURNISH DETAILS OF TDS DEPOSITED AFTER DUE DATE AND ALSO GIVEN A SHOW CAUS E TO EXPLAIN WHY THIS ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 2 AMOUNT MAY NOT BE DISALLOWED U/S.40(A)(IA) OF THE I .T. ACT. IN RESPONSE TO THIS SHOW CAUSE NOTICE THE ASSESSEE HAS SUBMITTED I TS REPLY WHICH IS DISCUSSED AT PAGE 2 PAR 4 OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE THE ASSESSING OFFICER HAS HEL D THAT THE ASSESSEE COMPANY HAS DEPOSITED TDS LATE IN THE GOVERNMENT AC COUNT THEREFORE THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE TO T HIS CASE, ACCORDINGLY ` .29,52,389/- WAS DISALLOWED. THE ASSESSEE SUBMITT ED THAT TDS PAYMENT IS TOWARDS PAYMENT OF COMMISSION OF RES.27,97,190/- , PROFESSIONAL FEE OF ` .1,21,541/- AND PAYMENT TO DIRECTOR OF ` .33,658/-. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A). 5. THE AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT( A) AS UNDER: SECTION 40(A)(IA) AS AMENDED WITH RETROSPECTIVE EF FECT FROM FINANCE ACT, 2008 AND EXPLANATORY NOTES TO THE FINA NCE BILL, 2004 ISSUED BY THE CBDT VIDE CIRCULAR NO.5/2005 DAT ED JULY 15, 2005 ARE BOTH BROUGHT IN TO EXISTENCE AFTER END OF FINANCIAL YEAR 2004-05, WHICH WERE NOT KNOWN TO THE ASSESSEE DURING THE FINANCIAL YEAR 2004-05. CONSIDERING THE FACT THAT THE COMPANY HAD COMPLIED WITH THE VERY INTENSION OF INTRODUCTION OF SECTION 40(A)(IA) I.E. COMPLIANCE OF TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS, SECTION 40(A)(IA) SHOULD NOT ENFORCED UPO N THE ASSESSEE. APPELLANT PRAYS THAT CONSIDERING THE FACT THAT ASSE SSEE HAS PROPERLY DEDUCTED TAX AT SOURCE UNDER VARIOUS SUB S ECTIONS OF SECTION 194 OF THE I.T. ACT, 1961 ON COMMISSION , P ROFESSIONAL FEES AND PAYMENTS TO CONTRACTORS AND DEPOSITED THE SAME AT REGULAR INTERVALS, DISALLOWANCE OF COMMISSION EXPEN SES OF ` .27,97,190/- PROFESSIONAL FEES OF ` .1,21,541/-, PAYMENTS TO CONTRACTORS OF ` .33,658/- TOTALING TO ` .29,52,389/- BEING INCORRECT, UNJUSTIFIED AND UNWARRANTED BE DELETED. 6. THE LEARNED CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE ORDER OF THE ASSESSING OFFICER AND THE DECISION RELIED UPON AS S TATED ABOVE. AS PER THE FACTS OF THE CASE THE ASSESSEE COMPANY H AS DEDUCTED TAX FROM PAYMENT OF COMMISSION, PROFESSION AL FEES AND PAYMENTS TO CONTRACTORS AS PER THE TDS PROVISIO NS. IT WAS THE RESPONSIBILITY OF THE ASSESSEE COMPANY TO DEPOS IT THIS ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 3 AMOUNT WITHIN SPECIFIED DATE IN THE GOVERNMENT ACCO UNT. HOWEVER, THE PAYMENT HAS BEEN MADE IN THE GOVERNME NT ACCOUNT AFTER THE END OF THE FINANCIAL YEAR. THE PROVISIONS OF SECTION 40(A)(IA) HAVE BEEN INTRODUCED AND AMENDED BY THE FINANCE ACT, 2008 W.E.F. 01.04.2005 WHICH ARE APPL ICABLE IN THE PRESENT CASE. AS PER THESE PROVISIONS THE ASSE SSEE COMPANY IS LIABLE TO DEDUCT TAX ON COMMISSION, PROF ESSIONAL FEES AND PAYMENTS TO CONTRACTORS ETC. AND DEPOSIT THE SAME IN THE GOVERNMENT ACCOUNT WITHIN THE SPECIFIED TIME. IF THE TDS IS NOT DEPOSITED WITHIN SPECIFIED TIME THE WHOLE AMOUN T ON WHICH THE TDS WAS DEDUCTED IS TO BE ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE COMPANY,. KEEPING IN VIEW THE FACT S AND CIRCUMSTANCES READ WIT THE PROVISIONS OF SEC.40(A)( IA) THE TOTAL AMOUNT OF ` .29,52,389/- IS TO BE ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE COMPANY. THUS THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THIS AMOUNT AS PER THE PROVI SIONS OF SECTION 40(A)(IA) HENCE, THE ORDER OF ASSESSING OFF ICER IS CONFIRMED AND GROUND OF APPEAL IS DISMISSED. 7. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US AND MA DE FOLLOWING SUBMISSIONS. DISALLOWANCE OF COMMISSION, PROFESSIONAL FEES ETC PAID TO A RESIDENT WAS MADE DISALLOWABLE U/S.40(A)(IA) BE MEA NS OF AMENDMENT TO THAT SUBSECTION BY THE FINANCE ACT, (N O.1) 2004. THE AMENDMENT TO SECTION 40(A)(IA) INTRODUCED IN TH E FINANCE ACT, (NO.2) OF 2004 ACT WHICH GOT THE ASSENT OF THE PRESIDENT ON 10.09.2004. THEREFORE AS PER SECTION 294 ANY PAYM ENT ACCRUED AND CREDITED IN THE BOOKS BOTH PRIOR TO 10. 09.2004 WOULD NOT ATTRACT THE PROVISIONS OF SECTION 40(A)(I A). 8. FURTHER, SECTION 40(A)(IA) HAS BEEN AMENDED BY T HE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 01.04.2005 PROVIDING THAT TAX DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID BEFORE DUE DATE FOR FILING OF THE RETURN U/S.130(1) WAS AL ALLOWABLE DEDUCTION. THE CBDT VIDE THEIR CIRCULAR NO.1 OF 2009 DATED 27.03.2009 (310 ITR 42 STATUES), AT PARA 12.2 HAS CLARIFIED THAT TO MITIGATE ANY HARDSHIP CAUSED BY T HE ABOVE PROVISIONS OF SECTION 40(A)(IA), WHILE MAINTAINING TDS DISCIPLINE , THE ACT HAS AMENDED PROVISIONS OF SUB CLAUSE (IA) OF CLAUSE (A) OF SECT ION 40. THE AMENDMENT ALLOWS ADDITIONAL TIME (TILL DUE DATE OF FILING OF RETURN OF INCOME) FOR DEPOSIT OF TDS PERTAINING TO DEDUCTIONS MADE FOR THE MONTH OF MARCH SO THAT DISALLOWANCE UNDER SUB CLAUSE (IA) OF CLAUSE (A) OF SECTION 40 IS NOT ATTRACTED IN SUCH CASES. ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 4 9. THIS PROVISION HAS BEEN SUBSTITUTED BY FINANCE A CT, 2010 TO READ AS SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION TAX HAS NOT BEEN PAID ON OR BEFORE DUE DATE SPECIFIED IN SECTION 139(1). THUS THE TIME LIMIT FOR PAYMENT OF TDS DEDUCTIBLE IN ANY MONTH DURING THE P REVIOUS YEAR HAS BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN OF DIS ALLOWANCE U/S.40(A)(IA) IS TO BE MADE. 10. IT IS VERY CLEAR THAT WHILE THE FIRST LIMB OF S EC.40(A)(IA) LAYS DOWN THE DISALLOWANCE OF EXPENDITURE IF TDS IS NOT DEDUCTED AND PAID, THE LEGISLATURE HAS INTRODUCED THE SECOND LIMB TO MITIGATE THE HARD SHIP AND RIGOUR OF THE SECTION BY EXTENDING THE TIME LIMIT FOR PAYMENT OF THE TDS. EARLIER BY FINANCE ACT, 2008, TAX DEDUCTED ON THE LAST MONTH W AS PERMITTED TO BE PAID BEFORE DUE DATE FOR FILING OF THE RETURN AND BY THE AMENDMENT BY FINANCE ACT, 2010, THE TIME EXTENDED LIMIT WAS MADE APPLICA BLE TO ALL THE TDS DEDUCTIBLE/PAYABLE DURING THE YEAR. 11. WE HEARD BOTH THE PARTIES. THIS IS SIMILAR TO THE PROVISIONS OF SECTION 43B, WHEREBY IN RESPECT OF CERTAIN STATUTORY AND OT HER PAYMENTS DEDUCTION WAS TO BE ALLOWED ONLY ON ACTUAL PAYMENT. SEC.43B WAS AGAIN AMENDED BY FINANCE ACT, 2003 W.E.F. 1.4.2004, WHEREBY THE BENE FIT OF PAYMENT TILL THE DUE DATE OF FILING RETURN WAS EXTENDED TO ALL PAYME NTS COVERED BY SEC.43B. THIS AMENDMENT WAS AGAIN HELD TO BE RETROSPECTIVE I N NATURE BY THE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. ( 319 ITR 306). THE AMENDMENTS WERE HELD TO BE CURATIVE IN NATURE AND H ENCE RETROSPECTIVE IN OPERATION. SIMILARLY THE AMENDMENTS CARRIED OUT IN FINANCE ACT, 2008 IN SEC.40(A)(IA) FOR EXTENDING TIME LIMIT FOR THE TDS TO BE MADE ON THE LAST MONTH WAS WITH RETROSPECTIVE EFFECT. THIS WOULD S HOW THAT THE AMENDMENT WAS CURATIVE IN NATURE BROUGHT INTO TO AMELIORATE T HE HARDSHIP CAUSED ON ACCOUNT OF NOMINAL DELAY IN PAYMENT OF THE TDS. R ESPECTFULLY APPLYING THE RATIO OF THE APEX COURT IN 319 ITR 306, WE ARE OF T HE OPINION THAT AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2010, WHIC H TOTALLY REPLACES THE EARLIER AMENDMENT AND EXTENDS THE TIME LIMIT FOR AL L TDS PAYABLE THROUGHOUT THE YEAR, HAS ALSO BEEN INTRODUCED AS A CURATIVE MEASURE AND ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 5 THEREFORE WOULD APPLY TO EARLIER YEARS ALSO. WE TH EREFORE DIRECT THE ASSESSING OFFICER NOT TO DISALLOW THE EXPENDITURE ( I) WHICH HAVE ACCRUED PRIOR TO 10.09.2004 WHEN THE FINANCE ACT, (NO.2) 20 04 GOT THE PRESIDENTIAL APPROVAL, UPTO WHICH DATE THE PROVISIONS OF SEC.40( A)(IA) WILL NOT BE APPLICABLE AND (II) EXPENDITURE IN RESPECT OF WHICH TDS HAS BEEN PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FILLING OF THE RETU RN. HOWEVER, EXPENDITURE ON WHICH TDS HAS NOT BEEN PAID BY THE ASSESSEE REQU IRES TO BE DISALLOWED U/S.40(A)(IA). 12. THE NEXT ISSUE IS REGARDING ADDITION TO COMMISS ION INCOME RECEIVED FROM M/S. MAHINDRA HOLIDAYS AND RESORTS INDIA P LTD .(MHRIL). THE ASSESSEE EARNS COMMISSION FROM MARKETING THE MEMBER SHIP OF CLUB MAHINDRA. THE ASSESSEE IS ENTITLED TO COMMISSION AT THE FIXED BASIS IN RESPECT OF MEMBERSHIP INTRODUCED TO MHRIL. DURING THE YEAR THE ASSESSEE HAS OFFERED THE COMMISSION INCOME EARNED FROM MHRIL AT ` .1,69,29,206/-. BUT THE TDS CERTIFICATE ISSUED BY MHRIL SHOWED THE TOTAL COMMISSION ON WHICH TDS HAS BEEN DEDUCTED AND PAID AS ` .1,73,82,260/-. THEREFORE, THE ASSESSING OFFICER ADDED A SUM OF ` .4,63,054/- AS COMMISSION THAT HAS ACCRUED BUT NOT OFFERED BY THE ASSESSEE. 13. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMI TTED THAT THEY ARE OFFERING THE COMMISSION INCOME IN RESPECT OF MEMBER S INTRODUCED AT THE TIME OF JOINING OF THE MEMBERS IN CLUB MAHINDRA AND OFFERING THE SAME AS INCOME. HOWEVER, THE CLUB MAHINDRA COLLECTS FEES FROM MEMBER IN INSTALLMENTS AND PAYS COMMISSION TO THE ASSESSEE AT THE TIME OF RECEIPT OF THE INSTALLMENTS. TAX IS DEDUCTED AT SOURCE BY MHR IL ON THE COMMISSION PAYABLE ONLY AT THE TIME OF RECEIPT OF THE INSTALLM ENTS FROM THE MEMBERS. THEREFORE, THERE IS TIME DIFFERENCE BETWEEN THE COM MISSION INCOME AS OFFERED BY THE ASSESSEE AND COMMISSION INCOME THAT IS DETERMINED /PAYABLE BY MHRIL. THE ASSESSEE SUBMITTED THAT DURING THE FINANCIAL YEAR 2003-04 THE ASSESSEE BOOKED COMMISSION OF ` .97,97,534/- AS AGAINST THE COMMISSION INCOME AS PER TDS CERTIFICATE GIVEN BY M HRIL OF ` .86,68,416/-. THE ASSESSEE THEREFORE SUBMITTED THAT NO ADDITION C AN BE MADE IN RESPECTS ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 6 OF COMMISSION INCOME RECEIVABLE FROM MHRIL PURELY O N THE BASIS OF THE TDS CERTIFICATE. 14. THE LEARNED CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE, ORDER OF THE ASSESSING OFFICER CAREFULLY. IT IS NOTICED THAT AS PER THE TDS CERTIFICATE THE COMMISSION RECEIVED FROM MAHINDRA H OLIDAY AND RESORT INDIA LTD. AS SHOWN AT ` .1,73,82,260/- WHEREAS IN THE PROFIT & LOSS ACCOUNT THE AMOUNT WAS SHOWN AT ` .1,69,19,206/-. THUS THERE WAS A DIFFERENCE OF ` .4,63,054/-. THE ASSESSING OFFICER HAS RIGHTLY GIVEN A SHOW CAUS E NOTICE TO THE ASSESSEE COMPANY TO RECONCILE THIS DIFFERENCE. THE ASSESSEE HAS SUBMITTED WRITTEN REPLY TO THE ASSESSI NG OFFICER WHICH WAS CONSIDERED AND REJECTED IN ABSENCE OF ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE CLAIM OF T HE ASSESSEE. BEFORE ME THE ASSESSEE HAS SUBMITTED THE SAME REPLY AS SUBMITTED BEFORE THE ASSESSING OFFICER AND NO ADDITIONAL EVIDENCE WAS SUBMITTED TO SUBSTANTIATE I TS CLAIM. ON THE FACTS AND CIRCUMSTANCES IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS FAILED TO RECONCILE THIS DIFFERENCE BEF ORE THE ASSESSING OFFICER AND BEFORE ME, THEREFORE, THE ADD ITION MADE BY THE ASSESSING OFFICER OF ` .4,63,054/- IS CONFIRMED AND GROUND OF APPEAL DISMISSED. 15. WE HEARD BOTH THE PARTIES. AS POINTED BY THE ASSESSEE IT APPEARS TO BE TIME DIFFERENCE BETWEEN RECOGNITION OF THE COMMI SSION INCOME BY THE ASSESSEE AND THE CORRESPONDING RECOGNITION OF THE C OMMISSION LIABILITY BY MHRIL. THE LIABILITY TO DEDUCT TAX IN COMMISSION A RISES ONLY WHEN THE AMOUNT IS CREDITED IN THE BOOKS OF THE PAYER. THE ASSESSEE (RECIPIENT) HAS RECOGNIZED AT THE TIME OF ADMISSION OF THE MEMBER I TSELF WHEREAS MHRIL RECOGNIZES THE LIABILITY TO PAY COMMISSION ONLY ON RECEIPT OF INSTALLMENT OF MEMBERSHIP FEES. HENCE, THE TIME OF ACCRUAL OF COM MISSION EXPENDITURE BY MHRIL DIFFERS. 16. WE ARE OF THE OPINION THAT ASSESSING OFFICER CA NNOT MERELY TAKE THE INCOME AS PER TDS STATEMENT AND ARRIVE AT THE UNDIS CLOSED INCOME WITHOUT EXAMINING THE METHOD OF ACCOUNTING OF THE ASSESSEE. SECTION 199 PROVIDES THAT CREDIT FOR TDS SHALL BE GIVEN IN THE YEAR IN W HICH CORRESPONDING INCOME HAS BEEN OFFERED FOR TAXATION. AS POINTED OUT BY T HE LEARNED COUNSEL SHRI ANIL SATHE, SECTION ITSELF CONTEMPLATES TIMING DIFF ERENCE IN RECOGNITION OF THE ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 7 INCOME BY THE RECIPIENT AND DEDUCTION OF TAX AT SOU RCE BY THE PAYER. THEREFORE WITHOUT EXAMINING THE METHOD OF ACCOUNTIN G OF RECOGNITION OF INCOME BY WAY OF COMMISSION AND WHETHER THE ASSESSE E HAS ACCRUED THE ENTIRE COMMISSION INCOME FOLLOWING THE MERCANTILE S YSTEM OF ACCOUNTING, THE ASSESSING OFFICER ERRED IN ADDING THIS AMOUNT O F ` .4,63,054/- PURELY ON THE BASIS OF TDS CERTIFICATE. 17. IN THE CIRCUMSTANCE WE DELETE THE ADDITION MADE ON THE BASIS OF TDS CERTIFICATE. 18. THE NEXT ISSUE IS REGARDING DISALLOWANCE U/S.40 (A)(2)(B) DIRECTORS MAJOR MADHUR KATRAGADDA AND MS SONAL AJMERA WERE PA ID COMMISSION OF ` .5,24,427/- AND ` .2,07,161/- RESPECTIVELY BASED ON 1.5% ON THE COMMISSION RECEIVED AND ADDITIONAL AMOUNT OF ` .25,000/- TO TOTALING TO ` .7,59,588/-. THE ASSESSING OFFICER COMPARING OF 0. 5% SEEMS TO BE REASONABLE AND DISALLOWED THE BALANCE OF ` .5,24,427/- PAYABLE TO THESE PERSONS. 19. ON APPEAL BEFORE CIT(A), THE LEARNED AR SUBMITT ED AS FOLLOWS: 2. THE LEARNED ASSESSING OFFICER HAS GROSSLY ERRED IN DECIDING THE EXTENT OF OPERATIONAL DUTIES AND RESPO NSIBILITIES OF HT DIRECTORS OF THE COMPANY AND NOT JUSTIFIED IN DI SALLOWING COMMISSION TO MADHUKAR KATRAGADDA. MANAGING DIRECT OR OF ` .5,24,427/- AND SONAL AJMERA DIRECTOR OF R.S2,07,16 1/- AND ADDITIONAL AMOUNT OF ` .28,000/- TOTALING TO ` .7,59,588/- UNDER SECTION 40A(2)(B) OF THE I.T. ACT, 1961. 3. THE LEARNED ASSESSING OFFICER HAS DISALLOWED COMMISSION TO DIRECTORS OF ` .7,59,588/- OUT OF TOTAL COMMISSION TO DIRECTORS OF ` .12,42,962/- U/S.40A(2)(B). I.E. DISALLOWANCE OF 61% OF COMMISSION TO DIRECTORS. THE LEARNED ASSESS ING OFFICER WAS GROSSLY UNFAIR IN CONSIDERING THE COMPARING BET WEEN COMMISSION PAID TO TELEMARKING AND SALES PERSONNEL WITH COMMISSION PAID TO DIRECTORS AS THE ONLY GROUND FOR DISALLOWANCE OF COMMISSION BY 61% UNDER SEC.40A(2)( B). THE LEARNED ASSESSING OFFICER WAS GROSSLY ERRED IN COMP LETELY IGNORING THE PROFIT OF MADHUKAR KATRGADDA AND SONAL AJMERA AND THEIR RESPONSIBILITIES IN THE BUSINESS O THE AS SESSEE COMPANY. 4. AS SEEN ABOVE MADHUKAR KATRAGADDA AND SONAL AJMERA HAVE ALREADY PAID TAXES OF COMMISSION CLAIME D AS ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 8 EXPENDITURE BY ASSESSEE COMPANY. HE DISALLOWANCE O F COMMISSION EXPENSES OF ` .7,59,588/- IN THE ASSESSMENT ORDER OF THE ASSESSEE COMPANY HAS RESULTED IN DOUBLE TAXA TION I.E. FIRST IN THE HANDS OF COMPANY AND SECOND IN THE HAN DS OF DIRECTORS. COMMISSION WAS PAID TO DIRECTORS ON THE BASIS OF THEIR POSITION AND RESPONSIBILITIES IN THE BUSINESS OF THE ASSESSEE COMPANY. THE BASIS CONSIDERED BY THE LEAR NED ASSESSING OFFICER FOR DISALLOWANCE OF COMMISSION TO DIRECTORS BY 61% IS NOT IN LINE WITH VARIOUS CIRCULAR ISSUED BY CBDT AND PRINCIPLES LAID DOWN BY SUPREME COURT AND VARIOUS H IGH COURT IN THE CONTEST OF SECTION 40A(2)(B). RELIANCE IS PLACED ON THE DECISION OF S.A. BUILDERS LTD. VS. CIT(A) (2007) 288 ITR 1 (SC) 20. THE CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE, ORDER OF THE ASSESSING OFFICER AND THE FACTS OF THE CASE CAREFUL LY, IT IS NOTICED THAT THE ASSESSEE COMPANY HAS A NUMBER OF E MPLOYEES WORKING AS TELEMARKETING AGENTS. SALES EXECUTIVE, MANAGERS AND CUSTOMER RELATION EXECUTIVES ETC. WHO ARE PROCU RING BUSINESS FOR THE COMPANY AND COMMISSION AT THE RATE OF 0.10% TO 1% IS PAID TO THESE EMPLOYEES. THE DIRECTORS OF THE COMPANY ARE MAINLY ENGAGED IN THE ALL OVER CONTROL OF THE A DMINISTRATION OF THE COMPANY AFFAIRS. BOTH THE DIRECTORS HAVE BE EN PAID COMMISSION AT THE RATE OF 1.5% AND 0.75% WHICH WAS EXCESSIVE AS COMPARED TO COMMISSION PAID TO OTHER EMPLOYEES O F THE COMPANY. BOTH THE DIRECTORS HAVE SPECIFIED AND CO VERED U/S.40A(2)(B) OF THE I.T. ACT. THE ASSESSING OFFIC ER HAS GIVEN A SHOW CASE NOTICE TO EXPLAIN WHAT EXTRA SERVICES ARE RENDERED BY THESE DIRECTORS AND WHY THE COMMISSION PAYMENT M ADE AT THE HIGHER RATE MAY NOT BE DISALLOWED. THE ASSESSE E HAS SUBMITTED ITS REPLY BEFORE THE ASSESSING OFFICER AL MOST THE SAME HAS BEEN SUBMITTED BEFORE ME. FROM THE PERUSA L OF THE REPLY IT IS NOTICED THAT THE ASSESSEE HAS FAILED TO SUBMIT A DOCUMENTARY EVIDENCE TO PROVE THE EXTRA SERVICES RE NDERED BY THE DIRECTORS OF THE COMPANY FOR PAYMENT OF THE COM MISSION AT THE HIGHER RATES. SINCE THE DIRECTORS ARE ENGAGED IN CONTROLLING THE OVER ALL BUSINESS AFFAIRS OF THE COMPANY THEREF ORE THEY HAVE HARDLY ANY EXTRA TIME FOR DOING AGENCY BUSINESS. B OTH THE DIRECTORS ARE COVERED U/S.40A(2)(B) OF THE I.T. ACT , THEREFORE, ON THE FACTS AND CIRCUMSTANCES I AM OF THE VIEW THAT T HE ASSESSING OFFICER HAS VERY REASONABLY DISALLOWED THE ESKERS C OMMISSION PAID TO THE DIRECTORS. TO STRENGTHEN THIS VIEW REL IANCE IS PLACED ON THE RATIO OF FOLLOWING DECISIONS WHICH ARE APPLI CABLE TO THE CASE OF THE ASSESSEE. 1. GANESH SOAP WORKS VS. CIT 161ITR 876 (M.P.) 2. ANANDJI SHAH VS. CIT 181 ITR 171 (KER.) 3. ACIT VS. IVES DRUGS (INDIA) LTD. 59 ITR 625 4. K.R. MOTILAL VS. CIT 240 ITR 810 (MAD) ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 9 KEEPING IN VIEW THE TOTALITY OF THE FACTS AND JUDIC IAL DECISIONS OF THE HONBLE COURTS IT IS HLED THAT THE ASSESSING OF FICER HAS RIGHTLY DISALLOWED ` .7,59,811/- U/S.40(2)(B) OF THE I.T. ACT. THUS THE ORDER OF THE ASSESSING OFFICER IS CONFIRME D AND GROUND OF APPEAL IS DISMISSED. 21. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE US. 22. WE FIND THAT COMPARISON MADE BY THE ASSESSING O FFICER BETWEEN AGENTS AND THE DIRECTOR IS NOT CORRECT. THE COMPAN Y ON THE BASIS OF THE COMMERCIAL EXPEDIENCY MAY DECIDE THE COMMISSION PAY ABLE TO THE DIRECTORS. THE DIRECTORS WOULD CONSTITUTE DRIVING FORCE TO IMP ROVE THE SALES OF THE COMPANY AND OTHER AGENTS MERELY PROCURE ORDERS. TH E WORK AND RESPONSIBILITIES OF DIRECTORS ARE MUCH MORE ONEROUS THAN THAT OF MERE COMMISSION AGENTS. THE MARKETING AGENTS EFFORTS A ND RESPONSIBILITY TO THE ASSESSEE COMPANY CANNOT BE COMPARED TO THAT OF THE DIRECTOR WHO IS FULL TIME EMPLOYEE OF THE COMPANY AND RESPONSIBLE FOR AC TIONS OF ALL EMPLOYEES. THUS COMMISSION PAYABLE TO FREE LANCE COMMISSION AG ENTS CANNOT BE THE BENCH MARK FOR DISALLOWANCE U/S.40A(2)(B) OF THE I. T. ACT AND HOLDING COMMISSION TO BE EXCESSIVE. HENCE WE ALLOW THE ASS ESSEE APPEAL ON THIS ISSUE AND DELETE ADDITION OF ` .7,59,811/- U/S.40A(2)(B). 8. IN THE RESULT THE, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30TH DAY OF SEPTEMBER, 201 0. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER MUMBAI, DATED 30TH SEPTEMBER, 2010. JANHAVI ITA NO.5145/MUM/2009 ASSESSMENT YEAR : 2005-2006 10 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH I, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI