Shri Ajit C. Mehta, Ahmedabad V. The Dy.CIT, Circle-4, Ahmedabad

ITA 746/AHD/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 2611 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: CHANDRAMAULI RAJPARA; BHIMA OBEDARA
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.746/AHD/2016 (ASSESSMENT YEAR : 2012-13) AJIT C. MEHTA AMI JYOT PARMAL SOCIETY, ELLISBRIDGE AHMEDABAD - 380 006 VS. THE DCIT CIRCLE-4 AHMEDABAD [PAN NO.ACAPM 5876A] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI CHANDRAMAULI RAJPARA & SHRI BHIMA OBEDARA RESPONDENT BY : SHRI MUDIT NAGPAL, SR.DR DATE OF HEARING 19/07/2018 DATE OF PRONOUNCEMENT 28/ 09 /2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN FILED BY THE ASSESSEE BEFORE US AGAINST THE ORDER DATED 21.01.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2012 -13 ARISING OUT OF THE ORDER DATED 05.11.2014 PASSED BY THE DCIT, CIRCLE-4, AHMEDABAD WITH THE FOLLOWING GROUND OF APPEAL: 1. THE LEARNED CIT(A) ERRED ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.9,66,659/- (2% OF COMMISSION INCOME OF RS.4,83,32,957/-) WITHOUT APPRECIATING THAT THE ASS ESSEE HAS INCURRED BUSINESS DEVELOPMENT EXPENSE IN TRUE BUSINESS SENSE AND HAVI NG COMMERCIAL EXPEDIENCY WHICH FULFILLS ALL THE CONDITIONS MENTIONED UNDER T HE SECTION 37(1) AS ELIGIBLE BUSINESS EXPENDITURE AND ONCE PAYMENT IS MADE WHOLL Y AND ENTIRELY FOR THE BUSINESS PURPOSE, REASONABLENESS OF THE QUANTUM OF EXPENSE NOT TO BE VIEWED. - 2 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 2. THE ASSESSEE IS RUNNING GENERAL INSURANCE AGENC Y BUSINESS DURING THE YEAR FROM THE OFFICE OF THE AFORESAID COMPANY IN WHICH THE AS SESSEE WAS ONE OF THE DIRECTORS. THE ASSESSEE IS ALSO ONE OF THE DIRECTORS IN INFINIUM M OTORS PRIVATE LTD. HOLDING 30.13% OF SHARES OF THE COMPANY. IT APPEARS FROM THE TRADING & PROFIT & LOSS ACCOUNT AS SUBMITTED BY THE ASSESSEE THAT HE HAS RECEIVED COMMISSION AND PROFESSIONAL FEES INCOME AMOUNTING TO RS.4,83,32,958/- FROM UNITED INDIA INSURANCE COM PANY. AGAINST THE SAID DIRECT INCOME ON ACCOUNT OF COMMISSION AND PROFESSIONAL FEES THE ASSESSEE CLAIMED BUSINESS DEVELOPMENT EXPENDITURE OF RS.41,51,580/-, SALARY E XPENSES OF RS.6,96,282/- AND SALES PROMOTION EXPENSES OF RS.7,36,252/-. THE AMOUNT OF RS.4,27,48,838/- WAS TAKEN TO THE PROFIT & LOSS ACCOUNT. THE MATTER WAS SELECTED FOR SCRUTINY, NOTICE U/S.142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') WAS SERVED UPON THE ASSESSEE DIRECTING HIM TO FURNISH THE DETAILS OF BUSINESS DE VELOPMENT EXPENSES. 3. BEING DISSATISFIED WITH THE REASONING GIVEN BY T HE ASSESSEE AND IN THE ABSENCE OF ANY THIRD PARTY EVIDENCE FOR THE PAYMENT OF BUSINES S DEVELOPMENT EXPENDITURE AND THE CLARITY IN THE INCREASE OF BUSINESS DEVELOPMENT EXP ENDITURE EXPENSES AS WORKED OUT BY THE ASSESSEE PARTICULARLY TOWARDS CASH DISCOUNT PAID TO DIFFERENT PERSONS ON INSURANCE OF THEIR VEHICLES COULD NOT BE VERIFIED AND JUSTIFIED AS HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE, THE LD. AO DISALLOWED 50% OF SUCH DEVELOPMENT EXPENDITURE TO THE TUNE OF RS.20,75,790/- TREATING THE SAME NOT TO HAV E BEEN INCURRED FOR THE BUSINESS PURPOSES AND ADDED TO THE TOTAL INCOME OF THE ASSES SEE. 4. IN APPEAL, THE LD. CIT(A) DISALLOWED A LUMP SUM CLAIM AT @2% OF THE COMMISSION INCOME DERIVED BY THE APPELLANT IN THE YEAR UNDER C ONSIDERATION WHICH WORKED OUT TO RS.9,656,659/- (2% OF RS.4,83,32,957/-), HENCE, T HE INSTANT APPEAL BEFORE US. 5. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E ASSESSEE SUBMITTED BEFORE US THAT ALL THE FACTS OF CLAIM FOR BUSINESS DEVELOPMENT EXPENSE S HAS BEEN MENTIONED BEFORE THE - 3 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 AUTHORITIES BELOW SUPPORTED BY VARIOUS DOCUMENTS AN D EXPLANATIONS, THE DISALLOWANCE MADE IS UNWARRANTED AND NON-JUSTIFIED AND NOT TENAB LE IN THE EYE OF LAW. HE FURTHER ADDED THAT THE BUSINESS DEVELOPMENT EXPENDITURE WAS INCUR RED DUE TO COMMERCIAL EXPEDIENCY IN THE COMPETITIVE MARKET AS PER PROVISIONS OF SECTION 37(1) OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER ARGUED THAT THE REASONABLENESS OF THE EXPENDITURE HAS TO BE VIEWED FROM THE POINT OF BUSINESS MAN AND NOT THE REVENUE. THE FACTUM OF SERVICES RENDERED BY THE COMPANY BEING THE SOLE SELLING AGEN T HAS NOT BEEN REFUTED BY THE REVENUE AS CLAIMED BY HIM AND THUS THE COMMISSION COULD NOT BE DISALLOWED ON THE GROUND THAT PAYMENT WAS AT EXCESSIVE RATE. 6. ON THE OTHER HAND, THE LD.REPRESENTATIVE OF THE DEPARTMENT RELIED UPON THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE REPRESENTATIVES OF THE RESPECT IVE PARTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEAR S FROM THE RECORDS THAT THE ASSESSEE FURNISHED THE DETAILS ON 07/10/2014. A CHART SHOWIN G NAME-WISE PREMIUM AMOUNT RECEIVED AND CASH DISCOUNT GIVEN TO 1364 PERSONS WH OSE VEHICLES WERE INSURED WERE ALSO FURNISHED. IT IS RELEVANT TO MENTION THAT THE EN TIRE AMOUNT WAS MADE TO THE SAID 1364 PERSONS IN CASH. APART FROM THAT, 51 SELF MADE INT ERNAL DEBIT VOUCHERS WERE ALSO FURNISHED BY THE ASSESSEE ON SAMPLE BASIS. THE LD.AO CAME TO A FINDING THAT ALL THESE SELF MADE VOUCHERS WERE PREPARED AND SIGNED BY PARTICULAR PER SON ON SINGLE SITTING. HE ALSO TOOK THE TROUBLE TO CLARIFY THE SAME BY EXPLAINING THOSE VO UCHERS IN DETAILS AND RECORDED IN HIS ORDER. SOME OF THE VOUCHERS DO NOT CONTAIN THE FULL SIGNATURE OF THE PAYEES, SOME OF THEM WERE BLANK, SOME OF THE SIGNATURES ARE ILLEGIBLE, SOME OF WHICH WERE NOT SPECIFYING THE NAME UPON WHOM THE PAYMENT OF CASH DISCOUNTS WERE M ADE. SOME OF THE VOUCHERS HAVING NO SIGNATURE AT THE APPROPRIATE PLACE BUT ILLEGIBLE SIGNATURE WAS FOUND UNDER THE HEAD PREPARED, THE NAME OF THE PERSON WHO HAS SIGNED WAS ALSO NOT MENTIONED. THE VOUCHERS ALSO SOMETIMES DO NOT SPEAK ABOUT THE AMOU NT IN THE APPROPRIATE COLUMN. THE - 4 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 VOUCHERS WERE NARRATED ONLY AT RANDOM BASIS. IN F ACT, THESE VOUCHERS WERE SUBMITTED TO ESTABLISH THE CLAIM OF BUSINESS DEVELOPMENT EXPENDI TURE IN THE FORM OF CASH DISCOUNT GIVEN TO THE PERSONS WHOSE VEHICLES WERE INSURED. SINCE THOSE VOUCHERS HAVING NO THIRD PARTY EVIDENCE AND DID NOT PROVIDE THE GENUINENESS OF CAS H DISCOUNT TO THE CONCERNED PERSON, COULD NOT BE VERIFIED BY THE LD. AO. THE ASSESSEE BY AND UNDER HIS WRITTEN SUBMISSIONS BEFORE THE LD.AO PRAYED FOR TIME TO ENABLE HIM TO P ROVIDE FURTHER DETAILS BY WHICH THE PARTIES COULD BE TRACED UPON WHICH ANOTHER OPPORTUN ITY TO THE ASSESSEE TO FURNISH RATIONALE AND JUST REASON IN THE CLAIM OF BUSINESS DEVELOPMEN T EXPENDITURE WAS GIVEN BY THE LD.AO. THE DETAILS OF YEAR-WISE NEW POLICY AND RENEWAL POL ICY WITH RATE OF COMMISSION RECEIVED ALONG WITH TOTAL AMOUNT OF COMMISSION RECEIPT WAS A SKED FOR TO MAKE A TRUE AND FAIR COMPARISON OF BUSINESS DEVELOPMENT EXPENDITURE UPO N WHICH THE ASSESSEE BY AND UNDER LETTER DATED 30.10.2014 SUBMITTED THE DETAILS OF NU MBERS OF NEW POLICIES ALONG WITH AMOUNT AND THE COMMISSION AMOUNT OF THE AY 2011-12. THOUGH THE ASSESSEE CLAIMED AN INCREASE IN REVENUE @ 47% APPROXIMATELY IN COMPARIS ON TO THE REVENUE EARNED IN THE LAST YEAR ANY COMPARISON ABOUT THE INCREASE OF BUSINESS DEVELOPMENT EXPENDITURE COMPARE TO THE LAST YEAR, HAS NOT BEEN FURNISHED BY HIM THEREB Y JUSTIFICATION OF INCREASE IN BUSINESS DEVELOPMENT EXPENDITURE HAS BEEN FAILED TO BE FURNI SHED BY THE ASSESSEE. IT APPEARS THAT, THERE WAS INCREASE IN POLICIES AT 124% AND THE INCR EASE IN THE REVENUE WAS ONLY 47%. THE 51 SELF MADE INTERNAL DEBIT VOUCHERS IN SUPPORT OF SUCH CLAIM WERE REALLY NOT OPENED FOR VERIFICATIONS FOR THE REASON AS ALREADY DEALT W ITH BY THE LD. AO AS POINTED OUT BY US AS ABOVE. APART FROM THAT, THE ASSESSEE DURING THE R ELEVANT YEAR RENEWED 1364 POLICIES THE BUSINESS DEVELOPMENT EXPENDITURE WHEREOF WAS RS.41, 51,580/-, WHEREAS FOR RENEWAL OF 488 POLICIES DURING THE AY 2011-12 THE BUSINESS DEV ELOPMENT EXPENDITURE WAS INCURRED TO THE TUNE OF RS.10,15,310/-. THEREFORE, THE INCREAS E IN THE RENEWAL POLICIES IN COMPARISON TO AY 2011-12 IN TERMS OF PERCENTAGE IS 179.5% WHER EAS INCREASE IN THE BUSINESS DEVELOPMENT EXPENDITURE IN THE RELEVANT YEAR IS 30 8.89% WHICH ACCORDING TO US IS EXCESSIVELY HIGH AND DISPROPORTIONATE TOO. THE L D. CIT(A) WHILE DEALING SO CLEARLY OBSERVED AS FOLLOWS: - 5 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 HAVING CONSIDERED THE FACTS AND SUBMISSIONS IT IS NOTICED THAT IN THE YEAR UNDER CONSIDERATION THE CLAIM OF BUSINESS DEVELOPMENT EXP ENDITURE WAS AT RS.41,51,580/- AS COMPARED TO PRECEDING YEARS BUSINESS DEVELOPMEN T EXPENDITURE AT RS.10,15,310/-. THUS THERE WAS SUBSTANTIAL INCREAS E IN THE CLAIM OF BUSINESS EXPENDITURE IN THE YEAR UNDER CONSIDERATION. ALTHO UGH THE INCREASE IN THE COMMISSION INCOME WAS ONLY AT RS.1,53,43,355/-. AS HAS BEEN DISCUSSED IN THE PRECEDING THE ENTIRE CLAIM OF EXPENDITURE HAS BEEN PAID IN CASH BY THE APPELLANT AND IN SUPPORT ONLY VOUCHERS SELF MADE HAD BEEN PRE PARED WHICH ARE NOT SUBJECTED TO VERIFICATION. MOREOVER VARIOUS DETAILS AND INFO RMATION HAVE ALSO NOT BEEN FOUND NOTED ON THE SAID SELF MADE VOUCHERS AND THEY WERE INCOMPLETE. THUS THE CLAIM OF THE APPELLANT WAS NOT FULLY VERIFIABLE. IT HAS BEE N NOTICED THAT IN THE IMMEDIATELY PRECEDING YEAR THE CLAIM WAS 10,15,310/- AS AGAINST THE TOTAL COMMISSION INCOME OF RS.4,83,32,957/- WHICH WAS AT THE RATE3 OF 3.07% WH ICH IN THE YEAR UNDER CONSIDERATION IT WAS 8.58% (RS.41,51,580/4,83,32,95 7). SINCE THE NATURE OF BUSINESS OF THE APPELLANT WAS SAME IN THE YEAR UNDE R CONSIDERATION BUT THE APPELLANT HAS GIVEN THE REASONS FOR INCREASE IN THE CLAIM DUE TO THE HIGH COMPETITION PREVAILING WHICH IS GROWING DAY BY DAY. THUS TO RETAIN AND ATTRACT THE CUSTOMERS THE CASH DISCOUNT HAS TO BE GIVEN WHICH H AS RESULTED ULTIMATELY IN INCREASE OF COMMISSION OF INCOME AND NUMBER OF POLI CIES ISSUED. CONSIDERING BOTH THE ASPECTS FROM THE AO AND APPELLANT IT IS FOUND T HAT THE CLAIM OF THE APPELLANT WAS HIGHLY EXCESSIVE IN THE YEAR UNDER CONSIDERATION BU T CONSIDERING THE SUBMISSION OF THE APPELLANT PARTLY IT WOULD BE FAIR AND REASONABL E TO DISALLOW A LUMPSUM CLAIM @2# OF THE COMMISSION INCOME DERIVED BY THE APPELLA NT IN THE YEAR UNDER CONSIDERATION. THUS DISALLOWANCE WORKS OUT TO RS.9 66659/- (2# OF RS.4,83,32,957/-) WHICH IS CONFIRMED. THE RELIEF IS GRANTED TO THE A PPELLANT ON BALANCE WHICH WORKS TO RS.11,09,131/-. THE GROUND OF THE APPELLANT IS PARTLY ALLOWED. 8. THE ASSESSEE IN SUPPORT OF HIS CONTENTION RELIED UPON THE JUDGEMENT PASSED BY THE CO-ORDINATE BENCH IN ITA NOS.2648/AHD/2011 & 2490/A HD/2011 FOR AY 2008-09 (CROSS- APPEALS) IN THE CASE OF ITO VS. M/S.BUILDCON ENGIN EERS PASSED ON 21/08/2015, PARTICULARLY PARAGRAPH NO.6.1 OF THE SAID JUDGEMENT WHICH IS AS FOLLOWS: 6.1. THE AO HAD MADE DISALLOWANCE OF LABOUR PAYM ENTS ON THE BASIS OF ESTIMATION TO THE EXTENT OF 20% OF THE EXPENDITURE. THE AO HAS NOT GIVEN ANY BASIS ON WHICH HE HAS BASED HIS FINDING TO DISALLOW AT 20 % OF THE EXPENDITURE ON ESTIMATE BASIS. IN OUR CONSIDERED VIEW, IF THE PAYMENT IS B OGUS, IT WOULD BE 10%. THE LD.CIT(A) HAS GIVEN HIS FINDING ON THE FACT THAT TH E PAN FURNISHED DURING THE - 6 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 APPELLATE PROCEEDINGS WAS FOUND TO BE CORRECT. UND ER THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CI T(A) SINCE THE REVENUE HAS NOT PLACED ANY CONTRARY MATERIAL ON RECORD. THUS, GROU ND NO.2 OF REVENUES APPEAL IS REJECTED. 8.1. THE FACTS OF THE CASE IS ENTIRELY DIFFERENT FR OM THE INSTANT APPEAL BEFORE US. THE ASSESSEE FAILED TO FURNISH ADEQUATE DETAILS IN SUPP ORT OF HIS CLAIM AS DISCUSSED ABOVE BY US. THEREFORE, THE JUDGMENT IS NOT APPLICABLE TO THE IN STANT CASE DUE TO CHANGE OF FACTS. 9. TAKING INTO CONSIDERATION THE ENTIRE FACTS OF TH E MATTERS AND THE ORDERS PASSED BY THE AUTHORITIES BELOW AS WELL AS THE FINDINGS AND OBSERVATIONS MADE THE LD. CIT(A). WE FIND THAT THE ASSESSEE FAILED TO FURNISH ADEQUATE D OCUMENTS TO SUPPORT HIS CLAIM OF BUSINESS EXPENDITURE PARTICULARLY FOR PROVIDING CASH DISCOUN T UPON INSURANCE OF VEHICLES WHICH ACCORDING TO US IS EXCESSIVE AND HIGHLY DISPROPORTI ONATE TO THE EXPENDITURE INCURRED ON THIS ACCOUNT IN THE EARLIER YEAR. WE FIND NO JUSTIFICA TION IN INTERFERING WITH THE ORDER PASSED BY THE LD.CIT(A). WE, THEREFORE, CONFIRM THE ORDER P ASSED BY THE LD.CIT(A) ON THE DISALLOWANCE TO THE TUNE OF RS.9,66,659/-. THUS, T HE GROUND OF APPEAL PREFERRED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28 / 09/2018 SD/- SD/- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/ 09 /2018 .., . ../ T.C. NAIR, SR. PS - 7 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-2, AHMEDABAD 5. !'# , $ , / DR, ITAT, AHMEDABAD 6. #() *+ / GUARD FILE. / BY ORDER, ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 27.09.2018 (DICTATION-PAD 2 0-PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.09.2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S..28.9.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.9.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.746/AHD/2016 (ASSESSMENT YEAR : 2012-13) AJIT C. MEHTA AMI JYOT PARMAL SOCIETY, ELLISBRIDGE AHMEDABAD - 380 006 VS. THE DCIT CIRCLE-4 AHMEDABAD [PAN NO.ACAPM 5876A] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI CHANDRAMAULI RAJPARA & SHRI BHIMA OBEDARA RESPONDENT BY : SHRI MUDIT NAGPAL, SR.DR DATE OF HEARING 19/07/2018 DATE OF PRONOUNCEMENT 28/ 09 /2018 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN FILED BY THE ASSESSEE BEFORE US AGAINST THE ORDER DATED 21.01.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2012 -13 ARISING OUT OF THE ORDER DATED 05.11.2014 PASSED BY THE DCIT, CIRCLE-4, AHMEDABAD WITH THE FOLLOWING GROUND OF APPEAL: 1. THE LEARNED CIT(A) ERRED ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.9,66,659/- (2% OF COMMISSION INCOME OF RS.4,83,32,957/-) WITHOUT APPRECIATING THAT THE ASS ESSEE HAS INCURRED BUSINESS DEVELOPMENT EXPENSE IN TRUE BUSINESS SENSE AND HAVI NG COMMERCIAL EXPEDIENCY WHICH FULFILLS ALL THE CONDITIONS MENTIONED UNDER T HE SECTION 37(1) AS ELIGIBLE BUSINESS EXPENDITURE AND ONCE PAYMENT IS MADE WHOLL Y AND ENTIRELY FOR THE BUSINESS PURPOSE, REASONABLENESS OF THE QUANTUM OF EXPENSE NOT TO BE VIEWED. - 2 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 2. THE ASSESSEE IS RUNNING GENERAL INSURANCE AGENC Y BUSINESS DURING THE YEAR FROM THE OFFICE OF THE AFORESAID COMPANY IN WHICH THE AS SESSEE WAS ONE OF THE DIRECTORS. THE ASSESSEE IS ALSO ONE OF THE DIRECTORS IN INFINIUM M OTORS PRIVATE LTD. HOLDING 30.13% OF SHARES OF THE COMPANY. IT APPEARS FROM THE TRADING & PROFIT & LOSS ACCOUNT AS SUBMITTED BY THE ASSESSEE THAT HE HAS RECEIVED COMMISSION AND PROFESSIONAL FEES INCOME AMOUNTING TO RS.4,83,32,958/- FROM UNITED INDIA INSURANCE COM PANY. AGAINST THE SAID DIRECT INCOME ON ACCOUNT OF COMMISSION AND PROFESSIONAL FEES THE ASSESSEE CLAIMED BUSINESS DEVELOPMENT EXPENDITURE OF RS.41,51,580/-, SALARY E XPENSES OF RS.6,96,282/- AND SALES PROMOTION EXPENSES OF RS.7,36,252/-. THE AMOUNT OF RS.4,27,48,838/- WAS TAKEN TO THE PROFIT & LOSS ACCOUNT. THE MATTER WAS SELECTED FOR SCRUTINY, NOTICE U/S.142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') WAS SERVED UPON THE ASSESSEE DIRECTING HIM TO FURNISH THE DETAILS OF BUSINESS DE VELOPMENT EXPENSES. 3. BEING DISSATISFIED WITH THE REASONING GIVEN BY T HE ASSESSEE AND IN THE ABSENCE OF ANY THIRD PARTY EVIDENCE FOR THE PAYMENT OF BUSINES S DEVELOPMENT EXPENDITURE AND THE CLARITY IN THE INCREASE OF BUSINESS DEVELOPMENT EXP ENDITURE EXPENSES AS WORKED OUT BY THE ASSESSEE PARTICULARLY TOWARDS CASH DISCOUNT PAID TO DIFFERENT PERSONS ON INSURANCE OF THEIR VEHICLES COULD NOT BE VERIFIED AND JUSTIFIED AS HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE, THE LD. AO DISALLOWED 50% OF SUCH DEVELOPMENT EXPENDITURE TO THE TUNE OF RS.20,75,790/- TREATING THE SAME NOT TO HAV E BEEN INCURRED FOR THE BUSINESS PURPOSES AND ADDED TO THE TOTAL INCOME OF THE ASSES SEE. 4. IN APPEAL, THE LD. CIT(A) DISALLOWED A LUMP SUM CLAIM AT @2% OF THE COMMISSION INCOME DERIVED BY THE APPELLANT IN THE YEAR UNDER C ONSIDERATION WHICH WORKED OUT TO RS.9,656,659/- (2% OF RS.4,83,32,957/-), HENCE, T HE INSTANT APPEAL BEFORE US. 5. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E ASSESSEE SUBMITTED BEFORE US THAT ALL THE FACTS OF CLAIM FOR BUSINESS DEVELOPMENT EXPENSE S HAS BEEN MENTIONED BEFORE THE - 3 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 AUTHORITIES BELOW SUPPORTED BY VARIOUS DOCUMENTS AN D EXPLANATIONS, THE DISALLOWANCE MADE IS UNWARRANTED AND NON-JUSTIFIED AND NOT TENAB LE IN THE EYE OF LAW. HE FURTHER ADDED THAT THE BUSINESS DEVELOPMENT EXPENDITURE WAS INCUR RED DUE TO COMMERCIAL EXPEDIENCY IN THE COMPETITIVE MARKET AS PER PROVISIONS OF SECTION 37(1) OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FURTHER ARGUED THAT THE REASONABLENESS OF THE EXPENDITURE HAS TO BE VIEWED FROM THE POINT OF BUSINESS MAN AND NOT THE REVENUE. THE FACTUM OF SERVICES RENDERED BY THE COMPANY BEING THE SOLE SELLING AGEN T HAS NOT BEEN REFUTED BY THE REVENUE AS CLAIMED BY HIM AND THUS THE COMMISSION COULD NOT BE DISALLOWED ON THE GROUND THAT PAYMENT WAS AT EXCESSIVE RATE. 6. ON THE OTHER HAND, THE LD.REPRESENTATIVE OF THE DEPARTMENT RELIED UPON THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE REPRESENTATIVES OF THE RESPECT IVE PARTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IT APPEAR S FROM THE RECORDS THAT THE ASSESSEE FURNISHED THE DETAILS ON 07/10/2014. A CHART SHOWIN G NAME-WISE PREMIUM AMOUNT RECEIVED AND CASH DISCOUNT GIVEN TO 1364 PERSONS WH OSE VEHICLES WERE INSURED WERE ALSO FURNISHED. IT IS RELEVANT TO MENTION THAT THE EN TIRE AMOUNT WAS MADE TO THE SAID 1364 PERSONS IN CASH. APART FROM THAT, 51 SELF MADE INT ERNAL DEBIT VOUCHERS WERE ALSO FURNISHED BY THE ASSESSEE ON SAMPLE BASIS. THE LD.AO CAME TO A FINDING THAT ALL THESE SELF MADE VOUCHERS WERE PREPARED AND SIGNED BY PARTICULAR PER SON ON SINGLE SITTING. HE ALSO TOOK THE TROUBLE TO CLARIFY THE SAME BY EXPLAINING THOSE VO UCHERS IN DETAILS AND RECORDED IN HIS ORDER. SOME OF THE VOUCHERS DO NOT CONTAIN THE FULL SIGNATURE OF THE PAYEES, SOME OF THEM WERE BLANK, SOME OF THE SIGNATURES ARE ILLEGIBLE, SOME OF WHICH WERE NOT SPECIFYING THE NAME UPON WHOM THE PAYMENT OF CASH DISCOUNTS WERE M ADE. SOME OF THE VOUCHERS HAVING NO SIGNATURE AT THE APPROPRIATE PLACE BUT ILLEGIBLE SIGNATURE WAS FOUND UNDER THE HEAD PREPARED, THE NAME OF THE PERSON WHO HAS SIGNED WAS ALSO NOT MENTIONED. THE VOUCHERS ALSO SOMETIMES DO NOT SPEAK ABOUT THE AMOU NT IN THE APPROPRIATE COLUMN. THE - 4 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 VOUCHERS WERE NARRATED ONLY AT RANDOM BASIS. IN F ACT, THESE VOUCHERS WERE SUBMITTED TO ESTABLISH THE CLAIM OF BUSINESS DEVELOPMENT EXPENDI TURE IN THE FORM OF CASH DISCOUNT GIVEN TO THE PERSONS WHOSE VEHICLES WERE INSURED. SINCE THOSE VOUCHERS HAVING NO THIRD PARTY EVIDENCE AND DID NOT PROVIDE THE GENUINENESS OF CAS H DISCOUNT TO THE CONCERNED PERSON, COULD NOT BE VERIFIED BY THE LD. AO. THE ASSESSEE BY AND UNDER HIS WRITTEN SUBMISSIONS BEFORE THE LD.AO PRAYED FOR TIME TO ENABLE HIM TO P ROVIDE FURTHER DETAILS BY WHICH THE PARTIES COULD BE TRACED UPON WHICH ANOTHER OPPORTUN ITY TO THE ASSESSEE TO FURNISH RATIONALE AND JUST REASON IN THE CLAIM OF BUSINESS DEVELOPMEN T EXPENDITURE WAS GIVEN BY THE LD.AO. THE DETAILS OF YEAR-WISE NEW POLICY AND RENEWAL POL ICY WITH RATE OF COMMISSION RECEIVED ALONG WITH TOTAL AMOUNT OF COMMISSION RECEIPT WAS A SKED FOR TO MAKE A TRUE AND FAIR COMPARISON OF BUSINESS DEVELOPMENT EXPENDITURE UPO N WHICH THE ASSESSEE BY AND UNDER LETTER DATED 30.10.2014 SUBMITTED THE DETAILS OF NU MBERS OF NEW POLICIES ALONG WITH AMOUNT AND THE COMMISSION AMOUNT OF THE AY 2011-12. THOUGH THE ASSESSEE CLAIMED AN INCREASE IN REVENUE @ 47% APPROXIMATELY IN COMPARIS ON TO THE REVENUE EARNED IN THE LAST YEAR ANY COMPARISON ABOUT THE INCREASE OF BUSINESS DEVELOPMENT EXPENDITURE COMPARE TO THE LAST YEAR, HAS NOT BEEN FURNISHED BY HIM THEREB Y JUSTIFICATION OF INCREASE IN BUSINESS DEVELOPMENT EXPENDITURE HAS BEEN FAILED TO BE FURNI SHED BY THE ASSESSEE. IT APPEARS THAT, THERE WAS INCREASE IN POLICIES AT 124% AND THE INCR EASE IN THE REVENUE WAS ONLY 47%. THE 51 SELF MADE INTERNAL DEBIT VOUCHERS IN SUPPORT OF SUCH CLAIM WERE REALLY NOT OPENED FOR VERIFICATIONS FOR THE REASON AS ALREADY DEALT W ITH BY THE LD. AO AS POINTED OUT BY US AS ABOVE. APART FROM THAT, THE ASSESSEE DURING THE R ELEVANT YEAR RENEWED 1364 POLICIES THE BUSINESS DEVELOPMENT EXPENDITURE WHEREOF WAS RS.41, 51,580/-, WHEREAS FOR RENEWAL OF 488 POLICIES DURING THE AY 2011-12 THE BUSINESS DEV ELOPMENT EXPENDITURE WAS INCURRED TO THE TUNE OF RS.10,15,310/-. THEREFORE, THE INCREAS E IN THE RENEWAL POLICIES IN COMPARISON TO AY 2011-12 IN TERMS OF PERCENTAGE IS 179.5% WHER EAS INCREASE IN THE BUSINESS DEVELOPMENT EXPENDITURE IN THE RELEVANT YEAR IS 30 8.89% WHICH ACCORDING TO US IS EXCESSIVELY HIGH AND DISPROPORTIONATE TOO. THE L D. CIT(A) WHILE DEALING SO CLEARLY OBSERVED AS FOLLOWS: - 5 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 HAVING CONSIDERED THE FACTS AND SUBMISSIONS IT IS NOTICED THAT IN THE YEAR UNDER CONSIDERATION THE CLAIM OF BUSINESS DEVELOPMENT EXP ENDITURE WAS AT RS.41,51,580/- AS COMPARED TO PRECEDING YEARS BUSINESS DEVELOPMEN T EXPENDITURE AT RS.10,15,310/-. THUS THERE WAS SUBSTANTIAL INCREAS E IN THE CLAIM OF BUSINESS EXPENDITURE IN THE YEAR UNDER CONSIDERATION. ALTHO UGH THE INCREASE IN THE COMMISSION INCOME WAS ONLY AT RS.1,53,43,355/-. AS HAS BEEN DISCUSSED IN THE PRECEDING THE ENTIRE CLAIM OF EXPENDITURE HAS BEEN PAID IN CASH BY THE APPELLANT AND IN SUPPORT ONLY VOUCHERS SELF MADE HAD BEEN PRE PARED WHICH ARE NOT SUBJECTED TO VERIFICATION. MOREOVER VARIOUS DETAILS AND INFO RMATION HAVE ALSO NOT BEEN FOUND NOTED ON THE SAID SELF MADE VOUCHERS AND THEY WERE INCOMPLETE. THUS THE CLAIM OF THE APPELLANT WAS NOT FULLY VERIFIABLE. IT HAS BEE N NOTICED THAT IN THE IMMEDIATELY PRECEDING YEAR THE CLAIM WAS 10,15,310/- AS AGAINST THE TOTAL COMMISSION INCOME OF RS.4,83,32,957/- WHICH WAS AT THE RATE3 OF 3.07% WH ICH IN THE YEAR UNDER CONSIDERATION IT WAS 8.58% (RS.41,51,580/4,83,32,95 7). SINCE THE NATURE OF BUSINESS OF THE APPELLANT WAS SAME IN THE YEAR UNDE R CONSIDERATION BUT THE APPELLANT HAS GIVEN THE REASONS FOR INCREASE IN THE CLAIM DUE TO THE HIGH COMPETITION PREVAILING WHICH IS GROWING DAY BY DAY. THUS TO RETAIN AND ATTRACT THE CUSTOMERS THE CASH DISCOUNT HAS TO BE GIVEN WHICH H AS RESULTED ULTIMATELY IN INCREASE OF COMMISSION OF INCOME AND NUMBER OF POLI CIES ISSUED. CONSIDERING BOTH THE ASPECTS FROM THE AO AND APPELLANT IT IS FOUND T HAT THE CLAIM OF THE APPELLANT WAS HIGHLY EXCESSIVE IN THE YEAR UNDER CONSIDERATION BU T CONSIDERING THE SUBMISSION OF THE APPELLANT PARTLY IT WOULD BE FAIR AND REASONABL E TO DISALLOW A LUMPSUM CLAIM @2# OF THE COMMISSION INCOME DERIVED BY THE APPELLA NT IN THE YEAR UNDER CONSIDERATION. THUS DISALLOWANCE WORKS OUT TO RS.9 66659/- (2# OF RS.4,83,32,957/-) WHICH IS CONFIRMED. THE RELIEF IS GRANTED TO THE A PPELLANT ON BALANCE WHICH WORKS TO RS.11,09,131/-. THE GROUND OF THE APPELLANT IS PARTLY ALLOWED. 8. THE ASSESSEE IN SUPPORT OF HIS CONTENTION RELIED UPON THE JUDGEMENT PASSED BY THE CO-ORDINATE BENCH IN ITA NOS.2648/AHD/2011 & 2490/A HD/2011 FOR AY 2008-09 (CROSS- APPEALS) IN THE CASE OF ITO VS. M/S.BUILDCON ENGIN EERS PASSED ON 21/08/2015, PARTICULARLY PARAGRAPH NO.6.1 OF THE SAID JUDGEMENT WHICH IS AS FOLLOWS: 6.1. THE AO HAD MADE DISALLOWANCE OF LABOUR PAYM ENTS ON THE BASIS OF ESTIMATION TO THE EXTENT OF 20% OF THE EXPENDITURE. THE AO HAS NOT GIVEN ANY BASIS ON WHICH HE HAS BASED HIS FINDING TO DISALLOW AT 20 % OF THE EXPENDITURE ON ESTIMATE BASIS. IN OUR CONSIDERED VIEW, IF THE PAYMENT IS B OGUS, IT WOULD BE 10%. THE LD.CIT(A) HAS GIVEN HIS FINDING ON THE FACT THAT TH E PAN FURNISHED DURING THE - 6 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 APPELLATE PROCEEDINGS WAS FOUND TO BE CORRECT. UND ER THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CI T(A) SINCE THE REVENUE HAS NOT PLACED ANY CONTRARY MATERIAL ON RECORD. THUS, GROU ND NO.2 OF REVENUES APPEAL IS REJECTED. 8.1. THE FACTS OF THE CASE IS ENTIRELY DIFFERENT FR OM THE INSTANT APPEAL BEFORE US. THE ASSESSEE FAILED TO FURNISH ADEQUATE DETAILS IN SUPP ORT OF HIS CLAIM AS DISCUSSED ABOVE BY US. THEREFORE, THE JUDGMENT IS NOT APPLICABLE TO THE IN STANT CASE DUE TO CHANGE OF FACTS. 9. TAKING INTO CONSIDERATION THE ENTIRE FACTS OF TH E MATTERS AND THE ORDERS PASSED BY THE AUTHORITIES BELOW AS WELL AS THE FINDINGS AND OBSERVATIONS MADE THE LD. CIT(A). WE FIND THAT THE ASSESSEE FAILED TO FURNISH ADEQUATE D OCUMENTS TO SUPPORT HIS CLAIM OF BUSINESS EXPENDITURE PARTICULARLY FOR PROVIDING CASH DISCOUN T UPON INSURANCE OF VEHICLES WHICH ACCORDING TO US IS EXCESSIVE AND HIGHLY DISPROPORTI ONATE TO THE EXPENDITURE INCURRED ON THIS ACCOUNT IN THE EARLIER YEAR. WE FIND NO JUSTIFICA TION IN INTERFERING WITH THE ORDER PASSED BY THE LD.CIT(A). WE, THEREFORE, CONFIRM THE ORDER P ASSED BY THE LD.CIT(A) ON THE DISALLOWANCE TO THE TUNE OF RS.9,66,659/-. THUS, T HE GROUND OF APPEAL PREFERRED BY THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28 / 09/2018 SD/- SD/- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/ 09 /2018 .., . ../ T.C. NAIR, SR. PS - 7 - ITA NO.746/AHD/2016 AJIT C. MEHTA VS.DCIT ASST.YEAR 2012-13 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-2, AHMEDABAD 5. !'# , $ , / DR, ITAT, AHMEDABAD 6. #() *+ / GUARD FILE. / BY ORDER, ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 27.09.2018 (DICTATION-PAD 2 0-PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.09.2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S..28.9.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.9.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER