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2023 (4) TMI 377

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..... considered and merely because the claim has been allowed all these years without being examined, does not make the claim legitimate despite evidences on record proving to the contrary. Contention that the disallowance in any case could not have been made u/s. 40A(2)(b) - We find no merit in this consideration - A.O. has not invoked Section 40A(2)(b) for the purposes of making the disallowance - AO we find has only referred to the Section for pointing out that the agents were closely related to the assessee qualifying as specified persons as per the said section and the disallowance has been made finding the claim to be ingenuine in terms of Section 37(1) of the Act. Therefore this contention of the assessee is also rejected. Addition u/s 40A(2)(b) disallowed by CIT(A) by invoking Section 249(3) - Assessing Officer held that the assessee has not given any justification for excess interest payment @ 18% paid to related parties and hence disallowed interest paid - CIT(A) dismissed the relief granted to the assessee on a technical ground that there is a delay in filing of appeal by the assessee and accordingly he dismissed the appeal of the assessee by invoking the provisio .....

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..... nd on facts in dismissing appeal by invoking section 249(3) of the Act and thereby relief granted of Rs. 20,08,563/- for addition u/s. 40A(2)(b) has no effect in the assessed income of the appellant. 5. Ld. CIT(A) erred in law and on facts in dismissing appeal by invoking section 249(3) of the Act ignoring fact that appellant has filed appeal within statutory time limit and also submitted evidence for the same. Ld. CIT(A) ought to have accepted the appeal of the appellant. It be so held now. Ground Nos. 1 to 3 : Disallowance as Commission Expenses of Rs. 33,92,430/-. 3. The brief facts in relation to the ground of appeals 1 to 3 are that the assessee filed return of income for the year under consideration on 30.09.2014 declaring total income of Rs. 1,69,14,010/-. During the course of assessment proceedings, the Assessing Officer made disallowance on account of sales commission of Rs. 33,92,430/-. The Assessing Officer observed that the assessee has claimed deduction of sales commission expenses of Rs. 33,92,430/- paid to Sonali Traders, which is a sister concern of the assessee firm and partners of the assessee firm are also the partners of Sonali Traders. The Asse .....

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..... ly within the territory but the distributor shall be entitled to commission on all sale made directly by the manufacturer. The distributor is entitled to a commission by way the remuneration for its services calculated @ 4% on all sales by the manufacturer. From the financial statement of M/s. Sonali Traders submitted it is also seen that M/s. Sonali Traders has commission income only and is filing rectum showing profit which is chargeable at maximum marginal rate. M/s. Sonali Traders has shown commission income of Rs. 34,88,977/- and payment to staff is of Rs. 2,86,000/- and travelling expenses of Rs. 1,21,270/-. The Ld. AR has submitted various communications between M/s. Sonali Traders and M/s. Sud Chemie India Pvt. Ltd. which are relation to job work and payments. It has been submitted by the Ld. AR that in the earlier years the Department has accepted the payment of commission to M/s. Sonali Traders. It is seen that the appellant has receipts of Rs. 8,72,23,434/- from job work and Rs. 39,03,557/- from electric power sale on which its net profit is of Rs. 3,14,78,024/- and a payment of Rs. 39,20,215/- as sales commission. It has been stated by the Ld. AR that the appellant .....

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..... to S37. 7.6 Though there are various judgments of the Courts wherein commission paid to agents and hit by section 40A(2)(b) have been held allowable on the ground that relevant bills bore name of agents and purchases placed by them were allowed by the revenue and agents income already fell in the highest tax bracket. With due respect to those judgments it is seen from the agreements in the case that they provide for payment of overriding commission on all sales whereas there is no evidence and other material that the so called distributors are rendering any special services. The agreements appear to be more device to reduce incidence of tax and to arrange income to related persons (even if these persons may be paying taxes at the highest tax bracket). If the agreement to pay commission is not for commercial expediency, the expenditure cannot be allowed. The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on facts and circumstances of each case. The more existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission as .....

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..... rendering service but deleted it on the ground that since the agents have paid taxes on the same it is a revenue neutral exercise. Therefore the fact that the assessee has been claiming and has been allowed the said claim in scrutiny assessment for the past many years, we find does not help the case of the assessee. More particularly when the detailed scrutiny in this year brought out facts revealing that there was no basis and reason for paying the commission to these agents who even otherwise were closely related to the assessee, since the assessee was unable to demonstrate any service rendered by them as distributors. The principle of res judicata does not apply to Income Tax proceedings and the facts of each year have to be considered and merely because the claim has been allowed all these years without being examined, does not make the claim legitimate despite evidences on record proving to the contrary. The case laws relied by the Ld. Counsel for the assessee in this regard, are all distinguishable on facts. Therefore, this contention of the Ld. Counsel for the assessee that following the principle of consistency the claim ought to have been allowed in those years is also rej .....

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..... n any justification for excess interest payment @ 18% paid to related parties and hence disallowed interest paid of Rs. 20,08,563/- over and above 12% rate of interest, which is the normal interest which the banks charge. 8. The assessee filed appeal before the CIT(A) who allowed relief to the assessee on the ground that this issue has been decided in favour assessee in earlier assessment years by his predecessor CIT(A) and therefore, following the same the appeal of the assessee was allowed on this issue. While allowing relief to the assessee, the Ld. CIT(A) made following observations: 4.2 Ground No. 2 relates to disallowance of Rs. 20,08,563/- out of interest expenses. The AO has noted that the appellant paid higher rate of interest to the partner and the other relative, which is covered u/s. 40A(2)(b) and during the assessment proceedings the assessee has not given any justification for excess interest paid @ 18%, hence disallowed interest paid Rs. 20,08,563/- over and above 12% the normal interest bank rate. During the appellate proceedings the Ld. AR has brought to my notice that entire interest expenses paid @ 18% on deposits is fully allowed by Hon'ble CIT(A) in .....

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