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 Jagdish Narayan Sharma vs. ITO (ITAT Jaipur)

DCIT Circle 2(1), Room No. 398D. C. R. Building New Delhi Vs Aspen Diagnostic Pvt. Ltd. B-159, Gujranwala Town-1 Delhi
May, 01st 2014
                                    1                     ITA No. 438/Del/2010

              DELHI BENCH: `A' NEW DELHI


                       (ITA NOS. 438/DEL/2010)
                      ASSESSMENT YEAR: (2006-07)
    DCIT                                Aspen Diagnostic Pvt.
    Circle 2(1), Room No. 398D.         Ltd.
    C. R. Building                   vs B-159, Gujranwala
    New Delhi                           Town-1
    (APPELLANT)                         Delhi

         Appellant by        Ms. Y. Kakkar, DR
         Respondent by       Sh. Suresh Kumar Gupta, CA


    This is Revenue appeal. Sole Ground read as under:-
          "1. Whether in the facts and circumstances of the case, the
          Ld. CIT(A) was right in allowing relief to the Assessee
          Company of Rs.13,12,935/- on account of disallowance of
          commission claimed in profit loss account ignoring that
          (a) there was substantial increase in commission expenditure
          during the year.
          (b) in the absence of agreements and confirmation, it
          could not be proved that the expenditure on commission
          had been incurred wholly and exclusively for business
          2.    The appellant craves leave for reserving the right
          to amend, modify, alter, add or forego any ground(s) of
                                          2                  ITA No. 438/Del/2010

             appeal at any time before or during the hearing of this

2.     Brief facts are: The assessee company, incorporated on 28/1/1995, is
engaged in the business of trading of medical diagnostics kits, instruments,
health care products, reagents and bio chemistry products etc.       During
assessment proceedings the AO       noticed that   the assessee has shown
commission payment of Rs. 52,51,743/- & g.p. rate of 25.02% on turn over
of Rs. 4,95,86,142/- in A.Y. 2006-07 as against commission payment of Rs.
15,99,016/- & g.p. rate of 22.11% on turn over of Rs. 2,33,87,659/- in
previous A.Y. 2005-06. The AO required the assessee to explain steep
increase in commission payment and to file agreements with agents and the
basis for such commission payment. Assessee filed its reply which did not
find favour with AO who found it to be general in nature and observed that
assessee failed to produce any evidence to substantiate the claim of such
huge commission. AO on estimate disallowed an amount Rs. 13,12,935/-
being 25% of expenditure on commission.

2.1.   Aggrieved, assessee preferred appeal before the CIT(A), who deleted
the disallowance by observing as under:
             " In addition to above the assessee company has
             submitted over whelming evidences evidencing the
             genuineness of the expenses incurred. The assessee
             company has submitted a chart showing that all the
             agents are assessed on the records of the Department,
             their PAN and copies of the returns have been filed
             showing that all these persons have included these
             payments in their incomes and the same has been
             assessed and accepted in their respective hands.
             Payments to all these persons have been made by
             account payee cheques, and TDS has been deducted on
                                          3                    ITA No. 438/Del/2010

             all these payments, confirmed copies of the accounts and
             confirmations have been filed from all the payees with
             copy of the TDS certificates issued to all these persons
             have also been filed, their complete address are on
             record. The copies of bills raised by these persons have
             been filed showing the details of same facilitated to these
             persons, copies of invoices and bills raised by the
             assessee company upon its customers have also been
             filed showing that the name of the concerned agent was
             given each and every invoice through whom so ever the
             sale was facilitated. Thus the evidence of services
             rendered has also been given. The services of the agents
             included first of all booking of sales and then approval of
             the product and then arranging the payments. There is
             no evidence with Ld. AO to show that expenses were not
             incurred for the purposes of the business of the assessee
             or that services were not rendered by any of these
             persons. I have gone through to the case laws relied
             upon by the assessee and the judgment of Hon'ble Delhi
             Bench of ITAT, and Hon'ble Delhi High Court are
             directly applicable on this issue. The only grievance with
             Ld. AO was that written agreement with these persons
             were not available, but that cannot be the sole ground to
             make a disallowance specially when adequate evidences
             have been filed showing that expenses have been
             incurred for the purpose of the business of the assessee.
             10. It is a matter of record tht the assessee has been
             paying commission in past also and no disallowance has
             ever been made and therefore, keeping in view the
             totality of facts and circumstances of the case, the
             impugned disallowance is contrary to law and facts and
             the same is deserves to be delete and I hereby delete
             disallowance of Rs.13,12,935/- made by the Ld. AO."

2.2.   Aggrieved, revenue is before us.

3.     Ld. DR contends that from the order of AO it is clear that assessee
did not file agreements executed for commission payment, basis thereof and
                                         4                      ITA No. 438/Del/2010

the reasons for steep increase in the commission when the turnover has
increased only by about double amount. Ld. CIT(A)'s findings are pleaded
to be contradictory in as much as in Para 9 it has been observed that
evidence like a chart showing of the details about agents being assessed has
placed on the record, PAN nos. copies of returns have been filed including
the commission amount in their income, whereas AO has commented that no
evidence was filed. Thus there is a contradiction between the findings of
AO and CIT(A) about the material filed before the respective authorities.
The assessee's reply filed before AO was found to be vague and general and
failed to show the business expediency of payment of commission. Ld. DR
contends that it implies that ld. CIT(A) gave the part relief based on some
additional evidence without any application by the assessee and without
calling for any remand report from AO. The relief has been granted on the
basis of material which was not before AO, therefore, the order of CIT(A)
should be reversed.

4.     Ld. Counsel for the assessee, on the other hand, contends that
accusation of the AO that no submissions were made and the explanation
was vague, is not correct, as proper submissions and details were filed. The
payment of commission is allowed in earlier years.

4.1.   AO has not disputed the fact that all the payments were through a/c
payee cheques, TDS was deducted, payees are assessed to tax. The income-
tax details of payees, their complete addresses, copies of bills raised by them
are on record along with invoices from the agent. The entire expenditure
was incurred wholly and exclusively for business. It has not been alleged
that any payment is to related parties. In such eventualities no ad hoc
                                        5                     ITA No. 438/Del/2010

disallowance can be made out of expenditure which has been incurred
wholly and exclusively for the purpose of business. For holding that
payment was not genuine and not incurred for business purposes, the AO
has to point out the specific payment which is to be disallowed. Therefore,
the order of CIT(A) is justified. Besides, similar issue arose in subsequent
years i.e. A.Y. 2007-08 & 2008-09 in ITA nos. 4503 & 4504/Del/2010
wherein the ITAT vide order dated 27-12-2010 has upheld the CIT(A)'s
order deleting the ad hoc additions out of commission by following
      "In these circumstances, we are of the view that no sufficient
      reason has been shown by the Assessing officer for making
      disallowance. Further, the disallowance has been made on an
      ad hoc basis in a situation where the details have been filed. It
      is not mentioned by the assessing officer as to which payments
      were not genuine or did not relate to the business of the
      assessee. The learned DR has also not been able to displace the
      aforesaid findings of the ld. CIT(A). Therefore, we are of the
      view that the learned CIT(A) has considered the facts in
      entirety and came to the right conclusion that the whole of the
      commission was deductible in computing the income.
      Therefore, we do not find any reason to interfere with his order.
      This finding is equally applicable to the facts of assessment
      year 2008-09, in which disallowance of a smaller sum of Rs. 5
      lacs was made by the Assessing officer. Accordingly, the
      findings of the learned CIT(A) for both the years are upheld."

5.    We have heard rival contentions and perused the material available on
record. Since the department has not raised any issue challenging the
admission of additional evidence, the contention of ld. DR in this context
cannot be entertained. Coming to the issue of merits, we find merit in the
argument of ld. AR that there is no allegation about payments having been
made to specified parties u/s 40A(2)(b). The fact that payments are through
                                         6                       ITA No. 438/Del/2010

a/c payee cheques, payees are assessed to tax, TDS has been deducted,
relevant details filed, have not been disputed. We find merit in the argument
of ld. counsel that unless a specific payment is pointed out to be non-genuine
or not incurred for the purpose of business, the business expenditure cannot
be disallowed on ad hoc basis. On similar issue the similar deletion made by
CIT(A) for A.Y. 2007-08 & 2008-09 has been upheld by ITAT as mentioned
above. In view of these facts and circumstances, we see no reason to
interfere in the order of CIT(A), which is upheld.

6.    In the result, Revenue's appeal is dismissed.

The order is pronounced in the open court on 28th April, 2014.

      Sd/-                                                Sd/-
(J. S. REDDY)                                             (R. P. TOLANI)
ACCOUNTANT MEMBER                                        JUDICIAL MEMBER
Dated:- 28 /04/2014
Copy forwarded to:
1.   Appellant
2.   Respondent
3.   CIT
4.   CIT(Appeals)
5.   DR: ITAT
                                                      ASSISTANT REGISTRAR
                                                           ITAT NEW DELHI
7   ITA No. 438/Del/2010
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