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2015 (4) TMI 867 - ITAT AHMEDABAD

2015 (4) TMI 867 - ITAT AHMEDABAD - TMI - Dis-allowance of commission payment - Dis-allowance of rent on DG set - Held that:- The Revenue had filed an appeal against the order of ld.CIT(A) in AY 2006-07 in ITA No.261/Ahd/2010 [2012 (11) TMI 160 - ITAT, AHMEDABAD], wherein identical ground raised by the Revenue was allowed for statistical purposes by restoring the issue back to the file of AO for decision afresh. The facts are identical in this year as well and the ld.CIT(A) has followed the orde .....

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nual return on such investment. We, however, clarify that in no circumstance the disallowance as made by the Assessing Officer should be enhanced while we are restoring this ground back to the stage of the Assessing Officer with the direction that the assessee shall place on record the basic requirement of business necessity for taking on hire the impugned DG set. With these remarks this ground is restored back to the file of Assessing Officer for De novo decision. Therefore, for this year also, .....

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ent : Ms.Urvashi Shodhan ORDER PER BENCH : This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VIII, Ahmedabad ( CIT(A) in short) dated 01/11/2010 pertaining to Assessment Year (AY) 2007-08. The Revenue has raised the following grounds of appeal:- 1. The Ld.CIT(A)-VIII, Ahmedabad has erred in law and on facts in deleting the disallowance of ₹ 27,46,569/- made by the AO on account of disallowance of commission payment to M/s.Nakoda Enterpri .....

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hout properly appreciating the facts of the case and the material brought on record by the AO. 2.2. In doing so, the Ld.CIT(A) has erred in law and on facts in not appreciating that the order of the ld.CIT(A) for Asst.Year 2006-07 has not been accepted by the department and the matter is subjudice before the Hon ble Tribunal. 3. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 2. Briefly stated facts are that the case of th .....

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of the commission paid to Smt.Roopam Mardia (Nakoda Enterprises) and expenditure related to lease rent on DG set. Aggrieved by the order of the ld.CIT(A), now the Revenue is in appeal before us. 3. At the outset, ld.Sr.DR submitted that the identical issues have been decided by the Coordinate Bench in assessee s own case (ITAT C Bench Ahmedabad) in ITA No.261/Ahd/2010-Revenue s appeal for AY 2006-07, vide order dated 12/10/2012. He drew our attention towards para-6 of the Tribunal s order and su .....

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that goes to demonstrate that the Assessing Officer was not justified in making the addition. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. In respect of ground Nos.1 & 1.2 are against the deletion of disallowance of ₹ 27,46,569/- made on account of commission payment to M/s.Nakoda Enterprises. We find that the ld.CIT(A) has decided this issue following his predecessor s order passed in AY 2006-07 .....

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essment u/s. 143(3) on a total income of ₹ 72,28,340/- by making total additions of ₹ 4546,569/-. The A.O. has made disallowance of ₹ 27,46,569/- on account of payment of commission to Nakoda Enterprises, whose proprietor is Smt. Roopam Mardia. It is observed that in the assessment year 2006-07 also the appellant paid commission to the tune of ₹ 24,30,078/- to M/s. Nakoda Enterprises and the same was disallowed by the A.O. My predecessor Ld. CIT(A) vide order No. CIT(A)-V .....

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d that the contribution of Shri Rajiv Mardia in the business of Smt. Mardia shall not be taken any cognizance of. He has also observed that the other employees of Nakoda Enterprise had played minimum role in its business. He has held that under these circumstances the payment of commission was not wholly and exclusively for the purpose of business. 6.5 The A.O, however, by arriving at this conclusion has not brought on record any evidence to support such findings. On the contrary, it is found th .....

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hey made purchases from the appellant through Nakoda Enterprises. These evidences have also not been controverted by the A. O in the assessment order. 6.6 The appellant has made its entire sales through Nakoda Enterprise and has paid commission at the rate of 100 per metric tonne, the A.O without appreciating the facts correctly has alleged that the appellant has paid ₹ 50 per M. T to other commission agents. In fact the appellant has paid commission @ ₹ 50 per M. T to the parties fr .....

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ent then without assigning any reason, disallowance of commission was not justified - Rendering of services by commission agent not being in dispute payment of commission through account payee cheques against bills raised could not be disallowed even partly ". My Predecessor Ld. CIT(A) has discussed the issue in detail and after giving logical findings on the impugned issue has deleted the addition in the previous assessment year. The A.O. has not brought any additional evidence on record t .....

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n ITA No.261/Ahd/2010, wherein identicalground raised by the Revenue was allowed for statistical purposes by restoring the issue back to the file of AO for decision afresh. The facts are identical in this year as well and the ld.CIT(A) has followed the order of his predecessor which has been set aside by the Coordinate Bench. The Coordinate Bench in ITA No.261/Ahd/2010 pertaining to AY 2006-07 has observed as under:- 6….. . In this regard, certain points are required to be established by .....

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or that what was the basis of satisfaction before making of payment. (v) That the Assessee is required to establish that ah agent has been appointed to look after the sales if not personally doing the marketing. (vi) That the assessee is to establish the existence of commission agency between the two parties, i.e. the principal and the agent. (vii) That the assessee is to establish the principle and agent relationship and for that all the ingredients as prescribed under the law has to be establ .....

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re. (x) That the genuineness of the existence of the selling agency is required to be established and not to be based upon a makebelief document. The Hon'ble Courts have therefore held that mere existence of agreement do not bind the ITO to allow such deduction of payment of commission. (xi) That the assessee is definitely under obligation to establish the necessity for incurring of- expenditure, because an expenditure should not be a gratuitous payment to near-ones. (xii) That the allowabil .....

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hat the points referred hereinabove are not exhaustive but merely suggestive depending upon case to case, therefore the Department is at liberty to investigate thoroughly as per law to examine the correctness of the claim. We have also noted that the Assessing Officer in the present case has started the proceedings by noting the fact that the genuineness of the commission was doubted because the said lady happened to be an interested party as defined u/s.40A(2)(b). The purpose of mentioning of t .....

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he direction given by the Coordinate Bench in ITA No.261/Ahd/2010(supra). Thus, ground Nos.1 & 1.2 of Revenue s appeal are allowed for statistical purposes. 6. Ground Nos.2 & 2.2 are inter-connected. The ld.Sr.DR submitted that the identical issue was also raised for adjudication in the AY 2006- 07, wherein also the Hon ble Tribunal has restored the ground to AO for decision afresh. This fact is not controverted by ld.counsel for the assessee. 6.1. We find that the ld.CIT(A) had followed .....

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of the Ld. A.R carefully. There is no dispute about the fact that the appellant has taken a D.G set on lease from Nakoda Enterprise. The appellant is using the D.G Set for the purpose of its business. It has furnished the lease agreement and details with regard to consumption of fuel and electricity to justify the hiring of D.G set. The A.O has not controverted these facts in the assessment order. It is a well settled proposition of law that once the expenses are held to be incurred during the c .....

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cretions that is left to the authority under the Act is to apply the law on the basis of such established fact or finding. If the purpose for which it is expended is eligible for deduction under a particular head, no discretion is left to the authority either to surmise the quantum that ought to have been spent or to surmise or presume the purpose differently and convert the same to some other head." 7.6 Therefore, in view of the above, the disallowance made by the above cannot be sustained .....

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He also justified that the lease rent has been fixed on arm's length. The A.O. has not brought any extra evidence on record to substantiate the addition. In view of the above facts, there is no reason to deviate from the findings given by my predecessor Ld. CIT(A) in the previous year on the impugned issue. Therefore, the disallowance made by the A.O. is deleted. AS such the appellant gets relief of ₹ 18 lakhs. 6.2. The issue travelled upto the stage of the ITAT C Bench Ahmedabad and .....

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acts have revealed that a generator which costed ₹ 96 lacs was rented out by Smt.Roopam to the assessee-company in terms of an agreement dated 25.02.2004. The allegation of the AO was that the generator was taken on lease from the lady with an intention to pass on an undue benefit. The assessee's reply was that the decision of hiring of generator set was a commercial decision of the assessee-company. The lady has invested a huge amount towards purchase, therefore leased out the D.G.Set .....

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.Set. The assessee's contention is that the AO should not have partly disallowed the claim by invoking the provisions of section 37(1) of IT Act. It is true that the AO has invoked the provisions of section 37(1) of IT Act while disallowing 50% of the claim. We have noted that the lease rent at ₹ 3 lacs p.m. was paid. The investment towards purchase of DG set was ₹ 96 lacs. Due to this reason, the Assessing Officer had worked out that the return on the said investment was more th .....

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services of DG set were imminently required to run the business. Meaning thereby the assessee has to demonstrate the business necessity for hiring of the DG set. Therefore, it was expected that the assessee should place on record certain evidences, such as, the frequency of electricity failure causing business hardship, thus compelling the assessee-company to hire the generator set. The requirement of the generator set can be proved by placing such type of other evidences by the assessee. In a .....

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77; 66 crores but on the other hand, the assessee-company has not demonstrated that why the generator set was not purchased by the assessee-company of its own having dual benefit, i.e. saving of lease-rent and also the benefit of deduction of depreciation. As far as the 50% disallowance is concerned, the action of the Assessing Officer can be said to be duly covered by the section 37 of the I.T.Act. He was not required to invoke the provisions of section 40A(2) as objected by Id.AR. Section 37 e .....

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