TMI Blog2022 (4) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... be disallowed under section 40A(2) of the Act. Accordingly the said issue regarding the payment of commission made by the Assessee to NRG Consultant Pvt. Ltd. is allowed and decided in favour of the assessee. Payment of commission made to Trust Commodities Pvt. Ltd. and Miss. Seema Verma - The average rate of commission paid by the assessee to others in respect of Soybean meal was 12.5, but the rate of commission paid to Trust Commodities Pvt. Ltd. was 45 and the difference of rate of commission is 32.5%. Further, the average rate of commission paid by the assessee to others in respect of rice was 20, but rate of commission paid to Ms. Seema Verma was at 215 and the difference of rate of commission is at 195%. The said deference is not only excessive and the same is unrealistic in the market. The AO has rightly made the comparison of the average rate of commission paid by the assessee himself in the case of non related parties to come to the said conclusion. Further, the Ld. CIT(A) has also given specific opportunity to the counsel of the assessee to explain the reason for commission being extraordinary in excess over the average expenditure, but no substantive reason was furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) has erred on facts and in law in making addition of ₹ 36,08,001/- on estimated basis of alleged excessive commission paid for procuring orders for sale of agricultural commodity by the appellant on the pretext of no commercial expediency and wrongly treating certain parties as related parties and making disallowance of commission. 3.1. That the Id. CIT(A) has erred in upholding the addition made based on surmise and conjecture as disallowance is based on mere estimates and averages dehors facts of the case. 3.2. That the CIT(A) has erred in law and in facts by upholding the order that was not passing a speaking order and also not disclosing full facts in the order like recording of statement of Ms. Seema Verma, hence the order suffers from legal and factual infirmity. 4. Without Prejudice, the CIT(A) has erred confirming the addition that was made against the principles of natural justice without confronting/cross examining to the third parties. 5. That the CIT (A) has erred in law and in facts and circumstances of the case by upholding the charging of interest under section 234B of the Act. 3. Brief facts of the case that, the assessee Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,08,01/- out of total payments of ₹ 43,94,000/-. Further contended that the higher brokerage was paid to the aforesaid three parties viz-a- viz., brokerage paid to other parties, since the transaction were materially different inasmuch as the higher brokerage was paid in case of transaction of finding buyer of products more particularly for export sale and lower brokerage was paid in case of finding seller of goods for domestic purchases. 8. Per contra, Ld. DR vehemently contended that, the addition was made by the Assessing Officer on commission aggregating ₹ 36,08,001/- paid to three parties on the ground that, parties are related and share holders and the commission is highly excessive and unreasonable, which were substantially higher than the average range of commission paid by the assessee to all other parties. The difference in the rate of commission payment in case of Soybean is 32.5% (Trust Commodities Pvt. Ltd.), for sugar it is 189% (NRG Consultant Pvt. Ltd.) and for Rice it is 195%(Miss Seema Verma). Further argued that, even during the CIT(A) proceedings an opportunity has been provided to the assessee to specify the reason as to why higher payment was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 36,08,001 11. In so for commission paid to NRG Consultant Pvt. Ltd. is concerned, we found that, there was no marital available on record to suggest that, the said entity is either the Director or the share holder of the assessee to bring to the purview of related person . The basic requirement of applicability of Section 40A (2) of the Act is that, payment should be made to a related person i.e. to a person referred to in Clause (b), of sub-Section (2) of Section 40A of the Act. 12. In the order of the Coordinate Bench of this Tribunal, reported in [2013] 36 taxmann.com 103 (Delhi Trib. (Hero MotoCorp Ltd. Vs. Additional Commissioner of Income-tax, Range-12, New Delhi), while dealing with the issue regarding applicability of Section 40A(2) of the Act, held as follows:- 13.17. In the present case, it is an undisputed fact that none of the parties fall within the persons specified as defined under clause (b) of section 40A (2) of the Act. Related parties are to be considered in terms of provisions of sec. 40A (2) of the Act and not as mentioned in AS-18 issued by the Institute of Chartered Accountant. Thus, we are of the view that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission made by the Assessee to NRG Consultant Pvt. Ltd. is allowed and decided in favour of the assessee. 15. Now, come to the payment of commission made to Trust Commodities Pvt. Ltd. and Miss. Seema Verma. As per the tax report of the Trust Commodities Pvt. Ltd., it is an entity owned by the Directors of the assessee and Ms. Seema Verma is on the Board of Directors as admitted by the assessee before the AO. The said Trust Commodities Pvt. Ltd. was also having 9% share in the assessee Company. Further, Ms. Seema Verma was 16% share holder of the assessee Company and she was employed with the assessee Company in the relevant FY 2012-13 and later she has also been inducted as Director of the Company in the FY 2015-16. Therefore both the above persons are related persons to the assessee as per Section 40A (2)of the Act. 16. Now come to the quantum of the commission paid to the above two entities. The average rate of commission paid by the assessee to others in respect of Soybean meal was 12.5, but the rate of commission paid to Trust Commodities Pvt. Ltd. was 45 and the difference of rate of commission is 32.5%. Further, the average rate of commission paid by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission being extraordinarily in excess over the average expenditure, but no such reason has been assigned even before appeal proceedings. Further, the Ld.AO has also recorded the specific finding that payment made by assessee is highly excessive or unreasonable in comparison to the payment made by the assessee to all other partied. Therefore, in our opinion, the above cited decisions are not applicable in view of the peculiar facts and circumstances of the case. 20. In view of the above discussion, we uphold the disallowance made in respect of the payment of commission made by the Assessee to Trust Commodities Pvt. Ltd. and Miss. Seema Verma and decide the said issue in favour of the Revenue. Accordingly the Grounds of Appeal No. 1 to 3.2 are partly allowed. 21. In so for as ground No. 4 is concerned, there is no iota of evidence to suggest that, the assessee has sought for cross examination of any of the parties before the lower authorities. Further assessee has became absolutely silent about its rights without seeking for cross examination of any of the parties concerned before the Lower Authorities, now at this stage assessee cannot take such plea before us. Accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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