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Sh. Subhash Chander Malik Versus Deputy Commissioner of Income Tax Circle (I) Chandigarh

2015 (4) TMI 268 - PUNJAB & HARYANA HIGH COURT

Disallowance under Section 40A(2)(b) - commission up to 5% aggregating to ₹ 16 lacs to his son, daughter and daughters-in-law - Held that:- Assessing Officer’s finding that the alleged commission was not an expenditure incurred by the appellant wholly and exclusively for the purposes of the business as per the provisions of Section 37 of the Act cannot be faulted. It is an inference which can reasonably and legitimately be drawn. The Assessing Officer accordingly justifiably disallowed the .....

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e alleged commission in the present case had paid tax at the highest level is irrelevant to the question whether the appellant was entitled to deduct the amounts paid to them as commission. - Decided in favour of the Revenue.

Disallowance on account of rent paid - appellant claimed a deduction of a sum of ₹ 10,50,806/- as rent paid to three persons who also fall within the ambit of Section 40A(2)(b) of the Act - Held that:- C.I.T. (Appeals) upheld the disallowance of deduction f .....

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t thereof. - Decided against assessee. - Income Tax Appeal No.66 of 2014 (O&M) - Dated:- 18-3-2015 - S. J. Vazifdar, Acting Chief Justice And G. S. Sandhawalia,JJ. For the Appellant : Mr. Sandeep Goyal, Advocate For the Respondent : Ms. Urvashi Dhugga ORDER S. J. Vazifdar, Acting Chief Justice: This is an appeal against the orders of the Income Tax Appellate Tribunal dated 17.02.2012 and 21.06.2013 in ITA No.1107/CHD/2010 and MA No.61/CHD/2012, respectively, in respect of Assessment Year 2007-08 .....

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377; 16.00 lacs paid as commission to the persons covered under Section 40A(2)(b) ignoring the fact that the persons to whom commission had been paid are income tax assessee paying tax in the highest tax bracket? (ii) Whether on the facts and circumstances of the case, the Ld. ITAT was justified in upholding the order of the AO in disallowing the commission merely on the basis of surmises and conjectures even though the commission had been paid and the TDS had been deducted on such commission? ( .....

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or the shop which would attract the rental income as per the market rate? (v) Whether on the facts and circumstances of the case, the Ld. AO was justified in disallowing the rent and the commission paid to the family members on the basis of Section 37 even though such expenses are specified under Section 36 and therefore provisions of Section 37 are not applicable in such a scenario. The appeal is admitted on the first two questions being substantial questions of law. Re: questions No.(i) and (i .....

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ent has been or is to be made to any person referred to in clause (b) of this subsection, and the Assessing officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonab .....

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lip;… ……. ……. ……. The Assessing Officer called upon the assessee to explain the basis on which the commission was paid including the nature of services rendered by the persons in respect whereof the commission was paid. 4. These persons had also been paid salaries and rent during the relevant period. Further, the payments were made allegedly as commission on the last day of the accounting year in question, namely, 31.03.2009. In other words, the c .....

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5. In view of these facts, the Assessing Officer s finding that the alleged commission was not an expenditure incurred by the appellant wholly and exclusively for the purposes of the business as per the provisions of Section 37 of the Act cannot be faulted. It is an inference which can reasonably and legitimately be drawn. The Assessing Officer accordingly justifiably disallowed the expenditure of ₹ 16 lacs and added the same to the assessed income. He also initiated penalty proceedings u .....

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, the need for paying commission is incomprehensible. This observation does appear to be too wide and general and not based on any material. However, the other observations cannot by any stretch of imagination be held to be perverse. 8. The Income Tax Appellate Tribunal confirmed the assessment order and the order of the CIT (Appeals) also for the following further reasons. The appellant had paid ₹ 4,80,000/- as salary to each of the persons who are his close relatives. The payment of comm .....

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appellant had failed to file any explanation or submission justifying the payment of commission as genuine business expenses. 9. The finding of Tribunal that the mere payment of TDS by the appellant in respect of the said payments is irrelevant is correct. The payment itself is not denied. The question is whether the appellant was entitled to deduct the same from his income. 10. The findings of fact and the appreciation of evidence by the Assessing Officer, C.I.T. (Appeals) and the Tribunal cann .....

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, the appellant in the facts of this case ought to have been allowed the deduction in respect of the amounts paid as commission. 12. The submission is not well founded. Section 36(1)(ii) reads as under:- 36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- xx xx xx xx xx xx xx xx xx (ii) any sum paid to an employee as bonus or commission for services rendered, where such sum wo .....

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tax bracket that the recipients fall in. 13. In the present case, it has been held that the appellant had not established that the payments by him to the said persons were by way of commission. The appellant s case in this regard has been disbelieved. As we mentioned earlier, this was purely an issue of fact and raised no question of law. 14. The fortuitous circumstance in the present case that the said persons belong to the highest tax bracket and the revenue, therefore, had not suffered any l .....

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is not concerned with or even aware of the possible financial consequences to the revenue. Indeed while making the payment, he cannot possibly be aware, except possibly in a rare case, of the financial implications on the revenue. The assessment in respect of the recipients of the alleged commission may not have attained finality when the assessment of the person making the payment is made. The recipient may not accept the assessment order and the challenge thereto may remain pending. Even if th .....

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essment order within the requisite time. The grant of deduction cannot be decided on the basis of conjectures and speculations regarding the recipients assessment or their ability to meet the demand for tax. It would be impossible for an Assessing Officer to determine such questions. The determination of such questions is not expected of the Assessing Officer. 15. In the circumstances, the fact that the recipients of the alleged commission in the present case had paid tax at the highest level is .....

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