ASHISH N. SHAH, MUMBAI V. ITO 24(3)(1), MUMBAI

ITA 7120/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83972 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAJAN
• Assessee Lawyers: K K LALKAKA

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI B R BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 7120/MUM/2012 (ASSESSMENT YEAR: 2008-09) ASHISH N SHAH, 2/12, SONAL APARTMENT, J P ROAD NO. 2, GOREGAON (EAST), MUMBAI -400 063 .: PAN: AAZPS 9454 R VS ITO 24(3)(1), PRATYAKSHAKAR BHAVAN, BLDG. NO. C-11, BKC, BANDRA, MUMBAI -400 051 (APPELLANT-CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI K K LALKAKA RESPONDENT BY : SHRI M RAJAN !'#$% /DATE OF HEARING : 12-08-2014 &'( #$%/ DATE OF PRONOUNCEMENT 29-10-2014 * + * + * + * + O R D E R , , , , -'' -'' -'' -'' '. '. '. '. , . . . . . .. . PER VIVEK VARMA, J.M. : THE APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER O F CIT(A) -34, MUMBAI, DATED 18.10.2012, WHEREIN, THE FOLLOWING GR OUNDS HAVE BEEN TAKEN: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(APPEALS) HAS ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER BY ARBITRARILY UPHOLDING THE DISAL LOWANCE OF INTRODUCTORY COMMISSION OF RS. 7,84,001/- PAID BY TH E APPELLANT TO VARIOUS PARTIES WHO HAVE RENDERED ASSISTANCE IN PROCURING THE INSURANCE POLICY AND MUTUAL FUND INVESTMENT THR OUGH THE AGENCY OF THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(APPEALS) HAS ERRED IN SUSTAINING THE DISALL OWANCE OF ADMINISTRATIVE EXPENSES TO THE EXTENT OF 10% ON AD- HOC BASIS OF THE TOTAL EXPENDITURE YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ONE OR MORE GROUNDS OF APPEAL AT THE TIME OF HEARING OF THE APP EAL PETITION. 2. THE FACTS ARE THAT THE ASSESSEE IS IN THE BUSINE SS OF FINANCIAL AND LIFE INSURANCE ADVISORY SERVICES. AS IN THE PAS T YEARS, THE ASSESSEE ASHISH N SHAH ITA 7120/MUM/2012 2 HAS BEEN PAYING COMMISSION AND BROKERAGE TO VARIOUS PERSONS FOR INTRODUCTION AND REFERENCE OF PROSPECTIVE BUYERS. T HE MODUS OPERANDI IS THAT THE ASSESSEE RECEIVES COMMISSION FROM LIC A ND FINANCIAL INSTITUTIONS TO WHOM THE ASSESSEE CATERS HIS SERVIC ES. THIS IS EVIDENCED BY THE TDS CERTIFICATES, AS RECEIVED BY T HE ASSESSEE. OUT OF THIS REMUNERATION RECEIVED, THE ASSESSEE PAYS COMMI SSION AND/OR BROKERAGE TO HIS CLIENTS IN RETURN OR TO THE INTROD UCERS. NORMALLY, THE ASSESSEE HAS TO SHELL OUT ENTIRE FIRST COMMISSION R ECEIVED, TO THE BENEFICIARY OR THE INTRODUCERS, AS PER THE NORMS OF THE MARKET. SINCE THE ASSESSEE IS IN THIS BUSINESS ITSELF, HE HAD INC URRED SUCH EXPENSES AND CLAIMED THE SAME. 3. IN THE ASSESSMENT PROCEEDINGS, THE AO CALLED FOR AN EXPLANATION AS TO WHY AND SUBSTANTIAL PORTION OF HIS OWN COMMIS SION IS PARTED WITH, THE ASSESSEE EXPLAINED THE MARKET TRENDS AND NORMS, WHICH THE AO DID NOT ACCEPT. THE ASSESSEE, HOWEVER, ACCEPTED THAT CERTAIN PAYMENT MAY BE DISALLOWED. 4. THE ASSESSEE GAVE COMPLETE DETAILS WHICH ARE AS FOLLOWS: S.NO. DETAILS COMMISSION 1 COMMISSION RECEIVED 58,39,523 2 SELF GENERATING COMMISSION 25,52,401 3 COMMISSION PAID 17,94,053 5. BASED ON THE ABOVE DETAILS, THE AO COMPUTED PERC ENTAGE OF SELF GENERATING COMMISSION TO TOTAL COMMISSION, WHICH CA ME TO 43.70%. 6. THE AO THEN, COMPUTED THE DISALLOWANCE ON COMMIS SION PAID AT RS. 17,94,053/- ON THE RATIO ARRIVED BY HIM AT 43.7 0%. HE THEREFORE COMPUTED THE DISALLOWANCE AT RS. 7,84,001/-. 7. IN SO FAR AS EXPENSES WERE CONCERNED, THE AO STR AIGHT AWAY COMPUTED THE DISALLOWANCE AT 20% OF RS. 12,58,059/- AND DISALLOWED RS. 2,51,612/- ON AD-HOC BASIS. ASHISH N SHAH ITA 7120/MUM/2012 3 8. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A) AN D PLEADED THAT THOUGH CERTAIN DISALLOWANCES WERE AGREED UPON BY TH E ASSESSEE, BUT THE DISALLOWANCES COMPUTED BY THE AO WERE ON THE HIGHER SIDE. 9. THE CIT(A) TAKING INTO CONSIDERATION THE ARGUMEN TS OF THE ASSESSEE, REDUCED THE DISALLOWANCE OF 20% ON 12,58,059/- ON E XPENSES TO 10% BUT SUSTAINED THE DISALLOWANCE OF RS. 7,84,001/- ON COM MISSION/BROKERAGE. 10. AGAINST THIS ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 11. BEFORE US, THE AR SUBMITTED THAT THE ASSESSEE A GREED FOR PROPORTIONATE DISALLOWANCE BUT DID NOT AGREE FOR THE DISALLOWANCE OF 43.70% ON COMMISSION. THE AR ALSO SUBMITTED THAT EVEN THE SUS TAINED DISALLOWANCE OF EXPENSES AT 10% IS ON A HIGHER SIDE. 12. THE DR ON THE OTHER HAND SUBMITTED THAT THE DIS ALLOWANCES HAD BEEN AGREED UPON BY THE ASSESSEE AND OVER THAT, THE CIT( A) WAS MORE THAN FAIR TO FURTHER REDUCE THE DISALLOWANCE OF EXPENSES TO 10%. 13. THE DR, THEREFORE, PLEADED THE APPEAL DESERVES TO BE REJECTED. 14. WE HAVE HEARD THE ARGUMENTS AND PERUSED THE ORD ERS OF THE REVENUE AUTHORITIES. 15. IN SO FAR AS DISALLOWANCE OF RS. 7,84,001/-, WE FIND THAT THE REVENUE AUTHORITIES HAVE, IN FACT, ACCEPTED THE FACT IN PRI NCIPLE, THAT COMMISSIONS ARE PARTED WITH AND GIVEN BACK TO THE BENEFICIARIES AN D/OR TO THE INTRODUCERS TO KEEP THEM INTERESTED IN FUTURE. THE DISPUTE PERTAIN S TO THE QUANTUM OF DISALLOWANCE TO BE MADE. THE ASSESSEE, AT THE AO ST AGE HAD AGREED FOR PROPORTIONATE DISALLOWANCE, WHICH THE AO COMPUTED B Y TAKING THE RECEIPTS OVER RECEIPTS AND TAKING THAT PERCENTAGE THEREOF, C OMPUTED THE EXPENSE (OUTGOING). HOWEVER, THE ASSESSEE IS AGGRIEVED BY T HE METHOD USED BY THE AO TO COMPUTE THE DISALLOWANCE. ACCORDING TO THE ASSES SEE, THE EXPENSES PERTAINING TO SELF GENERATING COMMISSION WILL NOT W ORK OUT TO THE FIGURE, AS ASHISH N SHAH ITA 7120/MUM/2012 4 COMPUTED BY THE AO. THE ASSESSEE HAD AGREED FOR DIS ALLOWANCE, BUT THE REVENUE AUTHORITIES, COMPUTED THE DISALLOWANCE ON A N UNIMAGINABLE FIGURE. IN SUCH A CIRCUMSTANCE, WE ARE OF THE CONSIDERED OP INION THAT THE ISSUE REQUIRES FRESH EXAMINATION. WE, THEREFORE, SET ASID E THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THE ISSUE TO THE FILE OF THE AO, WITH THE DIRECTION THAT AO SHALL DELVE ON THE ISSUE, TAKING INTO CONSIDERAT ION THE MARKET TRENDS, AS MENTIONED BY THE ASSESSEE AND CONSIDERED BY THE REV ENUE AUTHORITIES IN THEIR ORDERS. IT IS NEEDLESS TO MENTION, THAT REASONABLE AND ADEQUATE OPPORTUNITY SHALL BE ACCORDED TO THE ASSESSEE TO PRESENT HIS CA SE. 17. GROUND NO. 1 IS THEREFORE ALLOWED FOR STATISTIC AL PURPOSES. 18. GROUND NO. 2 PERTAINS TO ADHOC DISALLOWANCE OF EXPENSES AT 20%, REDUCED TO 10% BY THE CIT(A). 19. WE FIND THAT THE REVENUE AUTHORITIES HAVE ACCEP TED THE EXPENSES TO BE GENUINE BUT DISALLOWED THE SAME ON ADHOC BASIS. 20. SINCE THE EXPENSES HAVE BEEN CONSIDERED AND ACC EPTED TO BE GENUINE, AND NOT ONE DISCREPANCY HAS BEEN POINTED OUT BY THE REVENUE AUTHORITIES, WE ARE OF THE OPINION THAT DISALLOWANCE, AS ACCEPTED B Y THE ASSESSEE, BE RESTRICTED TO 5% ON THE EXPENSES SHOWN IN PARA 4.1 OF THE ASSESSMENT ORDER. 21. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF EXPENSES AT RS. 30,000 /-. AS A RESULT, THE GROUND IS PARTLY ALLOWED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS AL LOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/- SD/- (B R BASKARAN) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 29 TH OCTOBER, 2014 ASHISH N SHAH ITA 7120/MUM/2012 5 $/ COPY TO:- 1) / THE APPLICANT. 2) / THE RESPONDENT. 3) THE CIT (A)-34, MUMBAI. 4) / 24 , MUMBAI / THE CIT-24, MUMBAI. 5) -'01$! A , THE D.R. A BENCH, MUMBAI. 6) 12.3 COPY TO GUARD FILE. *+! / BY ORDER [ 4/56 , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895! '.!. * CHAVAN, SR. PS