TMI Blog2013 (2) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... et to be ascertained is that whether the assessee has adopted “exclusive method” or the “inclusive method” and decides on the basis given decided cases – Remand back to A.O. Disallowance of commission - Genuineness of the payment of sales commission – Burden of proving the expense - Ground of commercial expediency for the ultimate benefit of the business – Held that:- Following the decision in case of Shahzada Nand And Sons (1977 (4) TMI 4 - SUPREME COURT) that the requirement of commercial expediency must be judged in the context of socio-economic thinking. In deciding whether a payment was made for the purpose of business, the correct approach would be to see whether it was made on the ground of commercial expediency for the ultimate benefit of the business. As concluding from the facts of the case Assessee contains several correspondence, copies of the debit-notes, information about the work done by those persons, their PANs, the basis of payment of commission on the supply of the machinery or the orders procured and the amount of TDS deducted on the payment of commission – In favour of assessee Disallowance u/s 40(a)(ia) – Fail to deduct TDS u/s 194 J – u/s 194 I - Pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of the year and therefore it is out going and it cannot be considered as income by including same in closing stock. 3. Facts is brief as emerged from the corresponding assessment order passed u/s.143(3) of the IT Act dated 29.12.2009 were that the assessee in individual capacity is in the business of manufacturing of printing machinery, etc. The observation of the AO was that an addition was required since as per clause 22(a) of the Form 3CD of an Audit Report furnished u/s.44AB of IT Act it was mentioned Amount of Modified Value Added Tax credits availed of or utilized during the previous year and its treatment in the profit and loss account and treatment of outstanding Modified Value added Tax credits in the accounts . There was an annexure through which it was noticed that in respect of the rawmaterial, the assessee had shown closing balance of MODVAT CENVAT Credit at Rs.7,48,755/- and the same has also been shown in the balance sheet as CENVAT Receivable. It was also observed that apart from the said MODVAT CENVAT Credit the assessee had also shown two amounts as receivables in the balance-sheet, i.e Service Tax receivable of Rs.1,09,213/- and Input Vat receivable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,755/-, Service Tax receivable at Rs.1,09,213/- and Input Vat receivable at Rs.9,73,031/-, totalling to Rs.18,30,999/- should not be taken into account while valuing the closing stock cannot be accepted and hence the same is herewith rejected. In view of the express provisions of section 145A of the Act the said unutilized balances of taxes, viz.CENVAT/MODVAT credit, balance of Service tax receivable and input Vat receivable need to be included in the value of closing stock. Since the assessee has not included the said sums of Rs.18,30,999/- in value of closing stock, said sum of Rs.18,30,999/- is included in value of closing stock as on 31.0.2007. Accordingly a sum of Rs.18,30,999/-, being the amount of unutilized balances of taxes viz.CENVAT/MODVAT credit, Service tax receivables and Input Vat receivables, are added back to total income. In view of facts mentioned above, I am satisfied .. the assessee has furnished inaccurate particulars of his income and hence penalty proceedings u/s.271(1)(c) of the Act is initiated separately for furnishing inaccurate particulars on this account. (Addition on account of valuation of closing stock - Rs.18,30,999/-) 4. When the matter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certained is that whether the assessee has adopted exclusive method or the inclusive method . While arguing before us, ld.AR has in subtle manner expressed that only for the purpose of verification of this fact the matter can go back to the AO but only after ascertaining the correct position of law. As far as the legal aspect of this issue is concerned, we have already discussed few case laws hereinabove and, therefore, it is expected from the AO to follow the same only after ascertaining the method of accounting adopted by the assessee in respect of the Duties in question. With these directions, we hereby restore this ground for a fresh adjudication as directed, hence to be treated as allowed but for statistical purposes. 6. Ground Nos.2, 2.1 2.2 read as under:- 2. The learned CIT(A) has erred in confirming the addition of commission of Rs.35,57,000 paid to parties mentioned in the order on the ground that the assessee has failed to prove the services with documentary evidences in as much as the assessee has furnished adequate evidences to show the necessity for payment of commission. 2.1. The appellant says and submits that the appellant has furnished the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of evidence furnished by the assessee in respect of each party, he has concluded that the assessee had failed to submit the evidences in respect of the genuineness of the payment of sales commission. Against this addition, the matter was carried before the first appellate authority. 7. The ld.CIT(A) has expressed that the evidence in respect of services rendered by those persons were not furnished and that the assessee has not given confirmations from the parties to whom the machineries were sold. Placing reliance on Laxmirattan Cotton Mills 73 ITR 634 (SC) he has held that the burden of proving that the services were rendered by the agents for earning the commission lay upon the assessee. According to the Hon ble Court, mere existence of an agreement between the assessee and its selling agent does not bind the ITO to hold that the payment was not made exclusively for the purpose of business. The action of the AO was affirmed. 8. In this regard, our attention has been drawn in respect of the debit notes issued by Mamta Enterprise, Kavita H.Patel, Minal H.Patel, Nayan N. Shah and Hanxtex (India) Ltd.. The main explanation of the assessee was that the services of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy must be judged in the context of socio-economic thinking. In deciding whether a payment was made for the purpose of business, the correct approach would be to see whether it was made on the ground of commercial expediency for the ultimate benefit of the business. The compilation filed from the side of the assessee contains several correspondence, copies of the debit-notes, information about the work done by those persons, their PANs, the basis of payment of commission on the supply of the machinery or the orders procured and the amount of TDS deducted on the payment of commission. We have examined all those correspondence and thereafter arrived at the conclusion that the said parties have indeed procured the orders and thereafter followed the transaction and by rendering those services claimed the commission on the fixed percentage as agreed upon by both the sides. Thus, we have concluded that the addition was uncalled, hence direct to delete the same. In the result, this ground is allowed. 9. Ground No.3 reads as under:- 3. The learned CIT(A) has erred in confirming Rs.7,38,500 under Sec.40(a)(ia) on the ground that the assessee has failed to deduct tax at source under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the total addition of Rs.15,44,300/- the matter was carried before the first appellate authority. 9.3. The assessee has pleaded before ld.CIT(A) that most of the payment was made to the Chartered Accountant and the said professional services do not fall under the provisions of section 194J of I.T. Act. In respect of the TDS on rent, it was explained that in respect of a sum of Rs.67,500/- the assessee has received no deduction certificate and the only balance amount could have been considered by the AO. On hearing the submissions, ld.CIT(A) was of the opinion that in respect of payment of Rs.2,04,000/- since it was informed that the TDS had been deducted u/s.194J, therefore he has directed to verify the payment as claimed by the assessee. In respect of the balance amount of Rs.7,38,500/-, ld.CIT(A) was of the view that the assessee should have deducted the TDS. In the result, ld.CIT(A) has affirmed the disallowance. In respect of the payment of rent for the exhibition, ld.CIT(A) has directed that the assessee s claim in respect of Rs.67,500/- to be verified, however, in respect of rest of the amount disallowance was confirmed. Being aggrieved, now the assessee is further in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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