TMI Blog2012 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... been brought on record before authorities below or before us that this increase in turnover has resulted because of services rendered by Shri VKB for which commission payment has been made - Dis-allowance of whole amount confirmed - Decided against assessee Addition on estimate basis treating the same as salary expenditure (staff) as having been incurred out of undisclosed sources of income - salary expenditure accounted for month of May’07 to Aug.’07 only and not for month of April’07 and Sep.07 to Mar.’08 - Held that:- On the one hand, the assessee-company paid the commission of Rs.69 lakh and submitted that the turnover has increased during this year from Rs.788 lakh in preceding year to Rs.4268 lakh in the present year and on the other hand in the month of April’07 and during Sept.’07 to Mar’08, the assessee is not accounting for any salary in its books of account. Addition upheld - Decided against assessee Dis-allowance u/s 40(a)(ia) - assessee contending payment before due date - Held that:- Though amount is paid to the credit of the government in the subsequent year but no exact date of such payment is available in records. Hence, we restore the matter back to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission was paid to Shri Vijaykumar Bansal under the nomenclature of sales commission, when the market of the products generated from ship breaking is readily available and highly liquid. Further, the assessee has not furnished comparative details of such commission paid to others to establish reasonableness of such huge amount of commission paid to Shri Vijaykumar Bansal. Therefore, the assessee was again required to furnish comparative (i) details of such payments made to the persons as specified in section 40A(2)(b) of the Act and others, (ii) details of commission on sales paid to Shri Vijaykumar Bansal during the last three years, (iii) the rate at which such commission was paid to Shri Vijaykumar Bansal and the rate at which commission was paid on consignment sales and (iv) to justify reasonableness of its claim of such commission with reference to its fair market value. In response thereto, the assessee, vide Para No.4 of its submission dated 20.12.2010 stated as under:- 4.1 Shri Vijaykumar bansal, the key person of the company, has been allowed commission of Rs.60\9,00,000/- which is in respect of the valuable services rendered by him for the business of the company. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame are not satisfactory and convincing because of the following observations:- (a) With regard to contention of the assessee relating to valuable services and efforts of Vijaykumar Bansal resulted into increase in turnover from Rs.788.09 lacs to Rs.4268.57 lacs, it is stated that nature of business of ship breaking is such in which a ship breaker is not required to find out the market / customers for the sale off products generated therefrom. In fact, the customers come to the ship breakers and purchase the products generated from ship breaking. Thus, contention of the assessee that on account of commission paid to Shri Vijaykumar Bansal, it has achieved sales from Rs.788.09 lacs to Rs.4268.57 lacs sis snot logical considering the nature of the business of the assessee. In actual sense, so far as the ship breaking industry is concerned, all the products generated therefrom have ready and liquid market and accordingly, there is no need for the assessee to find out the customers. In this industry, to make sales / to achieve sales, the ship breakers must have products generated from the ship breaking readily available on its hand and the, the customers are readily and easily av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at which commission was paid on consignment sales, although it was required to furnish the same. Thus, there does not remain any option with this office to determine the reasonableness of such a huge commission with reference to its fair market value. (v) With regard to commission on consignment sales, it is stated that the assessee has not furnished the rate at which such commission was paid to its consignee i.e. Sai Steel Traders. (vI) The assessee has not furnished comparative details of commissions paid to Vijaykumar Bansal and others. Further, the assessee has also nsot furnished details of commission paid to Vijaykumar Bansal for the last three years. In view of above mentioned observations, reasonableness of huge amount of Rs.69,00,000/- under the nomenclature of sales commission paid to Vijaykumar Bansal with reference to its fair market value can not be determined. Therefore, in the absence of relevant details and information, there does not remain any option with this office except to disallow such a huge amount of commissions u/s. 40A(2)(b) of the Act. Therefore, sales commission of Rs.69,00,000/- paid to Shri Vijaykumar Bansal is disallowed and added back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 lakhs no comparable case was given to show that commission paid was excessive or unreasonable within the meaning of sec. 40A(2); and disallowing the entire payment does not stand to reason. 8.4 The appellant has not been able to justify the basis on which the commission payment was worked out. Sihce Shri Vijaykumar Bansal filed ROI, admitting income of Rs.44 lakhs, to that extent it cannot be said that payment was with a view to avoid tax. Therefore, I consider it reasonable to restrict the disallowance to Rs.25 lakhs (Rs.69 lakhs minus Rs.44 lakhs). Disallowance of balance amount is deleted. This ground of appeal is partly allowed. From the above two paras of the order of Ld. CIT(A), we find that part disallowance is deleted by him on the basis that Shri VKB has filed his return of income admitting income of Rs.44 lakh and therefore, to that extent, it cannot be said that the payment was with a view to avoiding tax. We do not find any merit in this finding of Ld. CIT(A) when we consider the facts of the present case. We find that copy of return along with computation of total income etc., for Shri VKB is available on pages- 61 to 67 of the Paper Book. We find that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased from Rs.788 lakh to Rs.4268 lakh and the same is because of efforts of Shri VKB but no evidence has been brought on record before authorities below or before us that this increase in turnover has resulted because of services rendered by Shri VKB for which commission payment has been made. It is the contention raised before AO in support of this aspect that Shri VKB is very experienced person and is very much capable. It may be but merely because a person is capable and experienced, it cannot be concluded that services were rendered by him unless the evidence is brought on record. Only on establishing of rendering of services by the payee, payment of commission can be considered as allowable business expenditure. Other contentions are that TDS was deducted from the payment and the amount was declared by the respondent in his income. But these aspects are not relevant for the purpose of deciding allowability of commission expenditure in the hands of the payer. One more contention was raised that Shri VKB is holding more than 96% of the total paid-up capital of the assessee-company and he has provided guarantee to the bank for the credit facilities from Indian Oversees Bank, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore clearly does not arise. 10. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A). but without success and now the assessee is in further appeal before us. 11. It was submitted by Ld. Authorized Representative of the assessee that addition made by Assessing Officer and confirmed by Ld. CIT(A) is without any basis and reliance was placed by him on the judgment of Hon ble Supreme Court rendered in the case of CIT v. Shakuntala and two others etc., 1996 AIR 719 (SC). Ld. Departmental Representative of the Revenue supported the orders of authorities below. 12. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below and judgment cited by Ld. AR of the assessee. We find that it is noted by the Assessing Officer in para-9 of the assessment order that assessee has accounted for salary expenditure from May 07 to Aug. 07 and thereafter, no salary is found to be accounted for. The AO asked the assessee to show-cause as to why salary for April 07 and Sep.07 to Mar. 08 amounts to Rs.75,000/- should not be added to the total income on account of unaccounted salary having been paid out of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 14. It was submitted by Ld. Authorized Representative of the assessee that this issue is now covered in favour of assessee by the judgment of Hon ble Calcutta High Court rendered in the case of CIT v. Virgin Creations in GA 3200/2011 dated 23-11-2011. He submitted the copy of the judgment. A query was raised by the Bench as to what is the date of payment of TDS by the assessee-company, no proper reply was furnished. Ld. DR of the Revenue supported the orders of authorities below. 15. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below and judgment cited by Ld. AR of the assessee. As per this judgment, the amendment u/s. 40(a)(ia) is retrospective and hence if the TDS is paid by the assessee before due date of filing of return of income, then no disallowance is called for u/s 40(a)(ia). In the present case, it is noted by Ld. CIT(A) on page-12 of his order that assessee has made deduction of TDS on 31-03-2008 and paid the same to the credit of the government in the subsequent year but no exact date of such payment is available in the orders of authorities below and in the paper book also, no such date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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