Shri Piyush Natwarlal Nagar, Ahmedabad V. The Income tax Officer,Ward-2(3), Ahmedabad

ITA 748/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0560 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: S N DIVETIA
• Keywords: Opportunity of being heard; Diversion of income
• Section: 40A(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 748/AHD/2012 ASSESSMENT YEARS :2008-09 PIYUSH NATWARLAL NAGAR 31,JYOTIKA PARK SOCIETY, OPP. POLICE COMMISSIONER OFFICE, SHAHIBAUG, AHMADABAD - 380004 V/S . ITO, WARD 2(3), AHMEDABAD PAN NO. A EZPN9131N (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S.N. DIVETIA, A.R. /BY RESPONDENT SHRI Y.P. VERMA, SR. D.R. /DATE OF HEARING 11.01.2013 /DATE OF PRONOUNCEMENT 28.02.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-6, AHMEDABAD, DATED 28.02. 2012 FOR A.Y. 2008-09. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THAT THE DISALLOWANCE OF RS.3,35,180 U/S . 40A(3) IN RESPECT OF COMMISSION EXPENSES. 2. THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALL OWANCE TO THE EXTENT OF RS.1,10,000 U/S.40A(2)(B). 2. THE ASSESSEE IS HAVING INCOME FROM COMMISSION FR OM ICICI BANK IN THE NAME AND STYLE OF KHUSHAL FINANCE. IT IS OBSERVED BY THE A.O. THAT DURING THE ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 2 COURSE OF ASSESSMENT PROCEEDING, THE DETAILS OF BAN K STATEMENTS AND DETAILS OF COMMISSION EXPENSES CLAIMED BY THE ASSESSEE ETC. WERE CALLED FROM THE ASSESSEE. ON VERIFICATION OF THESE DETAILS, IT WAS FOUND THAT THE ASSESSEE HAD MADE SOME COMMISSION PAYMENT IN SUM EXCEEDING RS.20 ,000/- OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE DRAWN ON BANK ACCOUNT. THEREFORE, TO VERIFY THE CORRECTNESS OF THESE PAYMENTS, LD. A.O. MADE AN INQUIRY U/S. 133(6) FROM THE IT ACT FROM ICICI BANK. IT WAS REVEALED FROM T HE INQUIRY THAT APPELLANT HAD MADE PAYMENT OTHERWISE THAN ACCOUNT PAYEE CHEQUE IN FOLLOWING CASES: SR. NO. NAME OF PARTY DATE OF PAYMENT CHEQUE NO. AMOUNT MODE OF PAYMENT 1 RAJESH DALA 13/12/2007 600500 50,000 OTHERWISE THAN THE ACCOUNT PAYEE CHEQUE 2 NARESH SOLA NKI 2 4 /12/2007 6005 11 23 ,000 --- DO --- 3 MADHU 27/12/2007 600517 49,500 ---DO--- 4 RAJESH DALAL 05/12/2007 600522 50,000 ---DO--- 5 NAINESH SOLANKI 19/12/2007 600509 25,000 ---DO--- 6 VISHAL 30/01/2008 600546 21,000 ---DO--- 7 ALPESH PATEL 01/02/2008 600548 45,000 ---DO--- 8 GANESH 07/02/2008 604857 35,840 ---DO--- 9 IMTIAZ 07/02/2008 604858 35,840 ---DO--- 3,35,180 THE REASONABLE OPPORTUNITY OF BEING HEARD WAS GIVEN TO THE APPELLANT, WHICH WAS RESPONDED BY THE APPELLANT VIDE LETTER DATED 25 .10.2010 BUT THE ASSESSEES REPLY WAS NOT FOUND ACCEPTABLE TO THE A. O. AS THE APPELLANT HAD MADE PAYMENT OF COMMISSION TO THE AGENT IN CASH. I T WAS CLAIMED BY THE APPELLANT BEFORE THE A.O., THERE WAS AN ORAL AGREEM ENT EXECUTED BETWEEN ASSESSEE AND AGENT, WHICH WAS SPECIFICALLY FOR ANY SCHEME INTRODUCED BY THE PRINCIPAL I.E. ICICI BANK PERSONAL LOAN. THE APPEL LANTS CONTENTION THAT THIS PAYMENT WAS INCENTIVE AND SOME PAYMENT INCLUDES REI MBURSEMENT, WAS NOT ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 3 FOUND CORRECT AS THESE PAYMENTS WERE MADE TOWARDS T HE COMMISSION EXPENSES, WHICH HAS BEEN DEBITED IN THE P&L ACCOUNT BY THE APPELLANT. THEREFORE, IT IS A VIOLATION OF SECTION 40A(3) OF T HE IT ACT AND ALSO NOT COVERED EXCEPTIONAL CIRCUMSTANCES GIVEN IN RULE 6DD OF IT R ULES, 1962. THUS, HE MADE ADDITION OF RS.3,35,180/-. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD CONFIRMED THE ADDI TION BY OBSERVING AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANTS SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT MADE PAYMENT OF COMMISSION IN EXCESS OF RS.20,000/- AT A NY POINT OF TIME TO CERTAIN PERSONS. SINCE APPELLANT PAID SUB COMMI SSION ON PERSONAL LOAN SERVICES RENDERED BY THESE PERSONS, I T WAS PAYMENT TO THESE PERSONS ON PRINCIPLE TO PRINCIPLE BASIS. THE CLAIM OF THE APPELLANT THAT THE PAYEES WERE HIS AGE NTS IS NOT CORRECT. THE PAYMENT OF COMMISSION WAS NOT MADE TO THESE PERSONS TO BE PAID TO SOMEBODY ELSE ON BEHALF OF TH E APPELLANT. IN VIEW OF THIS, THESE PERSONS WERE NOT ACTING AS A PPELLANTS AGENT AND ACCORDINGLY THE REQUIREMENTS OF SECTION 40A(3) ARE VERY MUCH THERE. IT IS NOT IN DISPUTE THAT APPELLANT MADE PAYMENT TO THESE PERSONS EXCEEDING RS.20,000/- OTHERWISE THAN CROSS ACCOUNT PAYEE CHEQUE AND ACCORDINGLY THE EXPENSE CANNOT BE ALLOWED. APPELLANT IS NOT COVERED BY ANY EXCEPTION AS DISCUS SED BY ASSESSING OFFICER. THE APPELLANTS ANOTHER ARGUMEN T THAT PAYMENT IN RESPECT OF EACH PERSONAL LOAN ACCOUNT DID NOT EXCEE D RS.20,000 IS NOT RELEVANT BECAUSE PAYMENT EXCEEDING RS.20,000 TO ANY PERSON IS TO BE CONSIDERED RATHER THAN THE PURPOSE OF SUCH PA YMENT. ACCORDINGLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS FULLY ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 4 JUSTIFIED AND DESERVES TO BE CONFIRMED. THEREFORE THE ADDITION IS CONFIRMED. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT ARGUED THAT THESE PAYMENTS ARE GENUINE FOR WHICH HE FILED THE PAPER BOOK ALONGWITH THEIR IDENTITY IN FORM OF EITHER DRIVING LICENSE OR COPY OF PASSPORT OF RECIPIENTS/PAYEES. HE ARGUED THAT THESE PAYMENTS W ERE MADE AS PER THE CONTRACT BETWEEN THEM. HE ALSO RELIED UPON G.A. ROAD CARRIERS VS. ITO, BY CO-ORDINATE B BENCH, HYDERABAD, IN ITA NOS. 1019 & 1020/HYD/2007 FOR A.YS. 2003-04 TO 05-06, ORDER DATED 26 TH MAY, 2010, WHEREIN IDENTICAL DISALLOWANCES WERE MADE U/S. 40A(3) IN CASE OF TRAN SPORTERS AND TDS WAS DEDUCTED BY THE CONSIGNORS FROM THE FREIGHT CHARGES PAID TO THE ASSESSEE FIRM. HE FURTHER RELIED IN CASE OF HABIB AGRO INDUSTRIES VS. ACIT, CO-ORDINATE D BENCH, BANGALORE, DECISION IN ITA NO. 288/BANG/2009 , FOR A.Y. 2006-07 , ORDER DATED 30 TH JUNE, 2009 , WHEREIN ADDITIONS MADE U/S. 40A(3) WERE FOUND EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES IN CASE O F PURCHASE OF RICE BRAN. THE LD. A.O. HAD NOT DOUBTED THE GENUINENESS OF THI S PAYMENT. THEREFORE, CIT(A) WAS NOT RIGHT IN UPHOLDING THE ADDITION AND REQUESTED TO DELETE THE ADDITION. AT THE OUTSET, LD. SR. D.R. VEHEMENTLY R ELIED UPON THE ORDERS OF CIT(A) AND A.O. AND ARGUED THAT THE ASSESSEES CASE IS SQUARELY COVERED U/S. 40A(3) OF THE IT ACT AND THERE IS NO EXCEPTIONAL CI RCUMSTANCES COVERED UNDER RULE 6DD OF IT RULES. THUS, HE ARGUED FOR CONFIRMI NG THE ADDITION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. UNDISPUTEDLY, THESE PAYMENTS WERE MADE FOR COMMISSION EXPENSES IN EXCESS OF RS.20,000/- AT ANY POINT OF TIME TO TH ESE PERSONS. THE CASE LAWS ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 5 REFERRED BY LD. COUNSEL ARE RELATED TO THE TRANSPOR TER WHERE THE ASSESSEE FIRM WAS GETTING ONLY COMMISSION BUT TDS MADE BY THE CON SIGNORS FROM THE FREIGHT CHARGES PAID TO THE ASSESSEE FIRM, WHICH WAS NOT IN COME OF THE FIRM. THUS, SECTION 40A(3) WAS SQUARELY NOT APPLICABLE IN CASE OF TRANSPORTER. SIMILARLY, THE CASE LAWS REFERRED BY THE COUNSEL OF HABIB AGRO INDUSTRIES ARE APPLICABLE FOR EXCEPTIONAL AND UNAVOIDABLE CIRCUMSTANCES, PAYM ENTS MADE TO THE RICE BRAN SUPPLIER WHO HAD COMPELLED THE APPELLANT TO PA Y IN CASH. AS SUCH, NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE APPELLAN T WHICH SHOWS THAT THESE PAYMENTS WERE MADE IN COMPULSION OR COVERED UNDER R ULE 6DD AS EXCEPTIONAL CASES. THUS, WE CONFIRM THE ORDER OF T HE CIT(A). 7. THE SECOND GROUND OF APPEAL IS AGAINST UPHOLDING THE DISALLOWANCE TO THE EXTENT OF RS.1,10,000/- U/S. 40A(2)(B) OF THE I T ACT. THE A.O. STATED THAT THE APPELLANT HAD PAID SALARY TO VARIOUS PERSONS IN CLUDING FAMILY MEMBERS RANGING FROM RS.88,000/- TO RS.1,28,000/- ANNUALLY. BUT SALARY PAID TO THE RELATIVES HAD FOUND UNREASONABLE BECAUSE OF THEIR D UTIES, QUALIFICATION AND SERVICE RENDERED BY THEM U/S. 40A(2)(B) OF THE IT A CT. THUS, HE DISALLOWED AT 20% AT RS.1,30,000/- OF SALARY OUT OF RS.6,50,000/- . 8. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) WHO HAS CONFIRMED THE ADDITION BY OBSERVING AS UNDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANTS SUBMISSION. ASSESSING OFFICER DISALLOW ED 20% OF THE SALARY EXPENSE PAID TO THE RELATIVES ON THE GROUND THAT THE SAME IS EXCESSIVE. THE SALARY WAS PAID TO 6 PERSONS AT DIF FERENT RATES. THE LOGIC OF PAYING SALARY AT DIFFERENT RATES IS NOT GI VEN. MOSTLY LADIES OF THE FAMILY WERE PAID MORE THAN THE MALE M EMBERS WHO ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 6 CAN CONTRIBUTE MORE IN THE BUSINESS OF THE APPELLAN T. THIS CONTRADICTION WAS NOT RESOLVED BY THE APPELLANT. S INCE THE DIFFERENTIAL PAYMENTS WERE MADE TO THE RELATIVES WI THOUT EXPLAINING THE REASONS FOR PAYING MORE, IT IS CLEAR THAT APPEL LANT PAID EXCESS SALARY TO THE RELATIVES WHICH IS COVERED UNDER SECT ION 40A(2B). I CONSIDER ANNUAL SALARY OF RS.90,000 PER PERSON AS R EASONABLE CONSIDERING THE MARKET VALUE OF SERVICES AND REMAIN ING RS.1,10,000 SALARY IS CONSIDERED EXCESS WHICH IS HELD TO BE DIS ALLOWABLE. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFI RMED TO THIS EXTENT. 9. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THIS SALARY WAS PAID TO THE FAMILY M EMBERS WHO HAD PROPER QUALIFICATION FOR RENDERING THEIR SERVICES TO THE A PPELLANT. THE LD. COUNSEL HAS DRAWN OUR ATTENTION ON PAGE NO.43 OF THE PAPER BOOK WHERE QUALIFICATIONS OF THE FAMILY MEMBERS WERE GIVEN. OUT OF SIX FAMILY M EMBERS TWO WERE 10 TH PASS AND REMAINING FOUR WERE GRADUATE AND ABOVE. T HE LD. COUNSEL ALSO HAD GIVEN DETAILS OF THE SERVICE RENDERED BY THEM TO CO LUMN DESIGNATION. THEREFORE, HE REQUESTED TO ALLOW THE WHOLE SALARY. AT THE OUTSET, LD. SR. D.R. OPPOSED THE SUBMISSION MADE BY THE APPELLANT AND AR GUED THAT THIS IS DIVERSION OF INCOME AND NO EVIDENCE HAS BEEN GIVEN BY THE APPELLANT THAT 6 FAMILY MEMBERS WERE ACTUALLY RENDERED THE SERVICE. THUS, HE ARGUED FOR CONFIRMATION OF THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE TWO MEMBERS OUT OF SIX HAD QUALIFICATI ON ONLY 10 TH PASS. THESE ARE THE PARENT OF THE APPELLANT FOR WHICH THE APPEL LANT HAD SHOWN SALARY AT RS. 1,20,000/- AND RS. 98,000/- RESPECTIVELY FOR THE WH OLE YEAR. HOWEVER, THEY ITA NO. 748/AHD/12 A.Y. 08-09 PAGE 7 HAVE LESS KNOWLEDGE BEING LOW QUALIFIED AND ARE NOT ABLE TO RENDER SERVICE AS EFFICIENTLY AS RENDERED BY THE OTHER FOUR PERSONS W HO HAD GRADUATE OR MORE QUALIFICATION. THUS, WE RESTRICT THIS ADDITION IN CASE OF JASUBEN NAGAR AND NATWAR NAGAR I.E. THE ADDITION OF RS.43,600/-. THE REMAINING ADDITION OF RS.86,400/- IS DELETED. THUS, THIS GROUND OF APPEA L IS PARTLY ALLOWED. 11. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28.02.2013 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ;