ACIT, Bangalore V. Shri. Sandesh Nagaraj, Bangalore

MA 38/BANG/2012

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 9655 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SRINIVASAN
• Assessee Lawyers: FARHAD HUSSAIN QURESHI II ITAT
• Keywords: Business expenditure; Additional evidence
• Section: 37

Judgement Text

PAGE 1 OF 6 M.P. NO.38/BANG/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER M.P.NO.38/BANG/2012 (IN ITA NO.104/BANG/2011) (ASST. YEAR 2007-08) ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), BANGALORE. APPLICANT V SHRI SANDESH NAGARAJ, 64/1, K H ROAD, BANGALORE. PA NO.AJFPS 9116 D RESPONDENT DATE OF HEARING : 14/12/2012 DATE OF PRONOUNCEMENT : 14/12/2012 APPELLANT BY : SHRI FARHAD HUSSAIN QURESHI, CIT(DR-II), ITAT RESPONDENT BY : SHRI SRINIVASAN, CA. O R D E R PER GEORGE GEORGE K : THIS MISCELLANEOUS PETITION FILED BY THE DEPARTME NT ARISE OUT OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.104/BANG/2011 DATED 20/12/2011. 2. THE GRIEVANCE OF THE DEPARTMENT READ AS FOLLOWS :- THE HONBLE INCOME TAX APPELLATE TRIBUNAL HAS DISMISSED THE APPEAL ONLY ON THE GROUND THAT THE ASSESSING OFFICER IN HIS REMAND REPORT HAS PAGE 2 OF 6 M.P. NO.38/BANG/2012 2 ACCEPTED THE CLAIM OF THE ASSESSEE WITH REGARD TO THE PAYMENT OF COMMISSION BY THE ASSESSEE. THE ASSESSING OFFICER THROUGH ON THE SPOT ENQUIRY HAS AGREED WITH THE CONTENTION OF THE ASSESSEE THAT COMMISSION PAYMENT UPTO 30% OF SALES PROCEEDS ARE MADE TO DRIVERS AND COMMISSION AGENTS FOR BRINGING THE TOURISTS TO THE ASSESSEE, WHO RUNS A SILK EMPORIUM. THE REMAND WAS SILENT ABOUT THE TDS DEDUCTION ON THE COMMISSION PAYMENTS BY THE ASSESSEE UNDER SECTION 194H OF THE INCOME-TAX ACT. THE APPEAL WAS FILED BEFORE THE HONBLE INCOME TAX APPELLATE TRIBUNAL INTERALIA ON THE GROUND THAT THE ASSESSEE HAD DENIED THE LIABILITY OF DEDUCTION OF TD S ON COMMISSION PAID DURING THE ASSESSMENT PROCEEDING S. HOWEVER, HE FURNISHED DETAILS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS)-I, BANGALORE, WHICH CLEARLY ESTABLISHED HIS LIABILITY TO DEDUCT TDS ON COMMISSION PAID. THIS WAS BROUGHT TO THE NOTICE OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE GROUNDS OF APPEAL FILED. THE APPELLANT PETITIONER REQUESTS THE HONOURABLE TRIBUNAL TO CONSIDER THE ABOVE AND PRAYS THAT THE ORDER OF THE TRIBUNAL DATED 20.12.2011 BE RECALLED FOR HEARING THE APPELLANT ON THE ABOVE GROUND OF APPEAL AND DECIDE THE GROUND ON MERITS. 3. THE BRIEF FACTS IN RELATION TO THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS AN INDIVIDUAL, WHO IS A TRADER OF SILK SAREES, READYMADE GARMENTS AND HANDICRAFTS. FOR TH E CONCERNED ASSESSMENT YEAR, RETURN OF INCOME WAS FILED DISCLOSI NG AN INCOME OF RS.30,53,320/-. IN THE COURSE OF SCRUTINY ASSESSMEN T, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAI D COMMISSION TO VARIOUS PARTIES AMOUNTING TO RS.1,52,28,784/- ON A TURNOVER OF PAGE 3 OF 6 M.P. NO.38/BANG/2012 3 RS.6,83,31,749/- (22% OF TURNOVER). THE ASSESSING OFFICER DISBELIEVED THAT SUCH HUGE PERCENTAGE OF COMMISSION COULD HAVE BEEN PAID TO TAXI DRIVERS AND BUS DRIVERS FOR BRING ING TOURISTS TO THE SHOP OF THE ASSESSEE. THE ASSESSING OFFICER CO MPLETED THE ASSESSMENT BY HOLDING THAT ONLY 2% OF COMMISSION IS ALLOWABLE. THEREFORE AN AMOUNT OF RS.1,39,50,088/- WAS DISALLO WED OUT OF TOTAL COMMISSION PAYMENT OF RS.1,52,28,784/-. 4. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), ADDITIONAL EVIDENCE WAS FILE D AND THE SAME WAS FORWARDED TO THE ASSESSING OFFICER FOR HIS REPORT. THE ASSESSING OFFICER MADE A SPOT INQUIRY/SURPRISE C HECK ON 28/10/2010 AND DURING THE COURSE OF INQUIRY CONDUCTE D, IT WAS FOUND THAT THE ASSESSEE HAS BEEN INCURRING EXPENDIT URE BY WAY OF COMMISSION TO THE DRIVERS AND THE COMMISSION AGENTS , WHO WERE RESPONSIBLE FOR BRINGING THE CUSTOMERS TO THE BUSIN ESS PREMISES OF THE ASSESSEE. IT WAS ALSO FOUND THAT THE COMMISSIO NS WERE PAID TO THE TUNE OF 20% TO 25%. THE ASSESSING OFFICER, SUB SEQUENT TO THE INQUIRY CONDUCTED, SENT HIS REMAND REPORT TO THE CIT (A). IN VIEW OF THE REMAND REPORT BEING FAVOURABLE TO THE ASSESS EE, THE CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF DISALLOWANC E ON PAYMENT OF COMMISSION. 6. THE REVENUE BEING AGGRIEVED FILED APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING EFFECTIVE GROUNDS:- PAGE 4 OF 6 M.P. NO.38/BANG/2012 4 (2) THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION AMOUNTING TO RS.1,39,50,088/- MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF COMMISSION PAID, WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT PROVISIONS OF THE IT ACT, 1961. (3) THE LEARNED CIT(A) AS AN AUTHORITY, WHOSE POWERS ARE CO-TERMINUS WITH THAT OF THE ASSESSING OFFICER, HAS ERRED IN DELETING THE ADDITION RELYING ONLY ON THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER, WITHOUT EXAMINING THE DETAILS/EVIDENCE FILED BY THE ASSESSEE IN COURSE OF THE APPEAL PROCEEDINGS, AS PER WHICH PAYMENTS OF COMMISSION WERE MADE TO CERTAIN PARTIES EXCEEDING THE PRESCRIBED LIMIT DURING THE RELEVANT PREVIOUS YEAR ON WHICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCES UNDER SECTION 194H OF THE IT ACT, 1961, BUT WAS NOT DEDUCTED AT SOURCE AND, THEREFORE, SUCH PAYMENTS OF COMMISSION WERE NOT ALLOWABLE AS DEDUCTION UNDER SECTION 40(A)(IA) OF THE IT ACT, 1961. (4) THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THAT AS STATED IN THE RELEVANT ASSESSMENT ORDER, THE ASSESSEE HAD SUBMITTED BEFORE THE ASSESSING OFFICER IN COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT, 1961, WERE NOT APPLICABLE IN RESPECT OF THE COMMISSION PAYMENTS, WHEREAS THE DETAILS/EVIDENCE FILED BEFORE THE CIT(A) IN COURSE OF APPEAL PROCEEDINGS CLEARLY INDICATE THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(IA) WHICH WAS NOT COMMENTED ON BY THE ASSESSING OFFICER IN THE REMAND REPORT SUBMITTED TO THE CIT(A). PAGE 5 OF 6 M.P. NO.38/BANG/2012 5 7. THE TRIBUNAL AFFIRMED THE CIT(A)S ORDER WITH R EGARD TO THE DELETION OF THE ADDITION MADE BY THE ASSESSIN G OFFICER AMOUNTING TO RS.1,39,50,088/-. 8. FOR NON-CONSIDERATION OF GROUND NOS.3 AND 4 MEN TIONED ABOVE, THE REVENUE HAS FILED THIS MISCELLANEOUS PET ITION. 9. THE LEARNED DR AND THE LEARNED COUNSEL FOR THE ASSESSEE WERE DULY HEARD. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. IT IS AN ADMITTED FACT THAT T HE COMMISSION PAYMENTS WERE BY CASH VARYING FROM RS.1500 TO RS.2400/ -. THE ASSESSING OFFICER DISALLOWED THE COMMISSION PAID IN EXCESS OF 2% BY OBSERVING THUS:- THE COMMISSION PAYMENT IS ALLOWABLE BUSINESS EXPENDITURE IF THIS PAYMENT IS OF REASONABLE NATURE AND DOCUMENTARY PROOF IS PROVIDED. BECAUSE OF THE ABOVE MENTIONED FACTS, DISCUSSION AND LEGAL AND TAKING THE NATURE OF BUSINESS, 2% OF COMMISSION ON SALES IS ALLOWED AND BALANCE AMOUNT DISALLOWED AS IT IS NO LONGER AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. THE 2% COMMISSION IS ALLOWED ONLY ON SALES MADE BY PAYING COMMISSION, I.E., TO A TURNOVER OF RS.6,39,34,806/-. 10.1 ON APPEAL, WHEN THE ADDITIONAL EVIDENCE WAS PRODUCED, THE SAME WAS PLACED BEFORE THE ASSESSING OFFICER FO R HIS COMMENTS. IN THE REMAND REPORT OF THE ASSESSING O FFICER TO THE PAGE 6 OF 6 M.P. NO.38/BANG/2012 6 CIT(A), HE HAS ONLY COMMENTED ON THE GENUINENESS OF THE PAYMENT. THE CIT(A) HAS ALSO NOT EXAMINED WHETHER TAX HAS TO BE DEDUCTED WITH REFERENCE TO COMMISSION PAYMENTS. IN SUCH A SI TUATION, THE ISSUE WHETHER TDS HAS TO BE DEDUCTED UNDER SECTION 194H OF THE ACT AND WHETHER SUCH COMMISSION IS DISALLOWABLE BY I NVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT ARISE OUT OF THE ORDER OF THE FIRST APPELLATE AUTHORITY. SINCE THE I SSUE OF TDS DOES NOT ARISE OUT OF CIT(A)S ORDER, THE SAME CANNOT B E CONSIDERED BY THE TRIBUNAL, AS THE TRIBUNALS POWER IS LIMITED TO THE SUBJECT MATTER OF APPEAL BEFORE IT. THEREFORE, THERE IS NO MISTAKE APPARENT IN THE ORDER OF THE TRIBUNAL IN ITA NO.104 /BANG/2011 DATED 20/12/2011 WHICH WARRANTS OUR INTERFERENCE UN DER SECTION 254(2) OF THE ACT. 11. IN THE RESULT, THE MISCELLANEOUS PETITION FILE D BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DAY OF DECEMBER, 2012 SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.