IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH: ‘SMC-1’ NEW DELHI

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND

SHRI O.P. KANT, ACCOUNTANT MEMBER
[Through Video Conferencing]

ITA No.896/Del./2020
Assessment Year: 2015-16

Shri Kunwar Tuli, Vs. ITO,

41A, A-1A, Chanakya Place, Ward-43(4),

Uttam Nagar, New Delhi

New Delhi

PAN :AIPPT3913Q

(Appellant) (Respondent)

Appellant by Shri Jai Sethi, CA
Respondent by Shri Ved Prakash Mishra, Sr. DR

Date of hearing 16.02.2021
Date of pronouncement 18.02.2021

ORDER

PER O.P. KANT, AM:

This appeal by the assessee is directed against the order
dated 04.02.2019 passed by the learned CIT(A)-15, New Delhi [in
short ‘the CIT(A)] for assessment year 2015-16, raising the
following grounds of appeal:

“With reference to the Assessment order dated 04th February, 2019
issued u/s 250 of the Income Tax Act, 1961 and statement of facts, we
humbly request you to resolve the following:-
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1. Whether the contention of Ld. CIT (A) is justified in being completely
ignorant and rejecting the appeal despite of the fact that:

1- The revenue model upon which business is based on.
2- The usual market practice of the industry in which assessee is

dealing with.
3- Agreed Contract between the assessee and his marketing channel.

2.Wherein extract of the CIT (A) order states that:-

“Appellant has filed written submissions, the relevant portion of which
is reproduced as under:-

The revenue model of the assessee is such that it is using the digital
platform of Homeshop 18 (hereinafter referred as 1IS18) for which HS18
collects the amount of sales consideration from customers directly and
remit the same to the assessee after deducting commission and other
agreed charges such as taxes, refunds, shipping & freight charges as
per the Agreement with HS18. Copy of the agreement had already been
submitted by us”.

2. Whether the learned CIT (A) is justified in stating that:-

“No justification of such high commission paid has been offered except
that TDS was deducted on such payments “

And being disallowed expenditure was laid out or expended wholly and
exclusively for the purpose of business in lieu of which sufficient
evidence has been provided by the assessee.

While it was quite clear fact in the case that as per the agreement with
the seller of the assessee, the payments were collected from the third
parties and remitted thereafter to the assessee after deduction of
commission and other agreed charges.

“Section 37(1) states any expenditure (not being expenditure of the
nature described in sections 30 to 36 and not being in the nature of
capital expenditure or personal expenses of the assessee), laid out or
expended wholly and exclusively for the purposes of the business or
profession shall be allowed in computing the income chargeable under
the head "Profits and gains of business or profession".

In the case of J.K. Woollen Manufacturers Vs CIT (1969) 72 ITR 612
(SC), the Apex court held that in applying the test of commercial
expediency for determining whether an expenditure was wholly and
exclusively laid out for the purpose of the business, reasonableness of
the expenditure has to be adjudged from the point of view of the
businessman and not ofthe Income-tax Department. It is, of course, open
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to the Appellate Tribunal to come to a conclusion either that the alleged
payment is not real or that it is not incurred by the assessee in the
character of a trader or it is not laid out wholly and exclusively for the
purpose of the business of the assessee and to disallow it.

THE HONOURABLE SUPREME COURT DECIDED TO ALLOW THE
GENUINE BUSINESS EXPENDITURE OF THE ASSESSEE U/S 37 OF
THE ACT.

Reference of Case Law - CRYSTAL Chemie (P) Ltd versus Assistant
Commissioner of Income Tax. 42 DTR (Ahd) (Tribunal) 197 where it was
held that Commission payable to another company based on the
quantity specified products sold by assessee, for various services
rendered by that company to the assessee is revenue expenditure and
Commission was held to be allowable.

THE TRIBUNAL DECIDED TO ALLOW THE GENUINE REVENUE
BUSINESS EXPENDITURE U/S 37 OF THE ACT.

Whether the contention of the learned AO has been justified wherein he
had erred in law and on facts while making an ad-hoc estimated
addition of Rs. 18, 58, 100.00./- @ 30% of total commission expenses
claimed. The addition is bad in law and is liable to be cancelled. The
entire addition admittedly has been made arbitrarily and on
presumptions, suspicion and conjectures only.

Reference of case law- Commissioner of Income Tax Versus The
Lakshmi Vilas Bank Ltd. Tax Case (Appeal) No.896 of 2013 Dated - 16
April 2014 (4) TMI 827 - MADRAS HIGH COURT.

Whether the order of Ld. AO is not bad in law as it has been ruled time
and again by the honorable Courts and the Tribunal that any addition
on ad-hoc/estimate basis cannot be without invoking Section 145(3) and
rejecting the books of accounts. The Ld. AO has not rejected the books of
accounts, but goes on to make an addition on purely estimate basis. He
has therefore acted in the most mechanical manner without any
application of judicious mind.

The assessee has maintained complete and correct books of accounts
and his financial statements have duly undergone financial and tax
audit, and therefore must be relied on unless AO rejects them on the
basis -of some cogent material indicating their unreliability.

Reliance is placed on judgments in case of Amit Verma, New Delhi vs
Department Of Income Tax (ITAT), where the Tribunal ruled that:

"Assessing Officer has not pointed out any specific defects in the
books/records. Moreover, the books of accounts have been duly audited;
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the details were submitted before the Assessing Officer. The Assessing
Officer has not invoked section 145(3) and he has not rejected the books
of account. Under the circumstances, adhoc disallowance is without any
basis and do not stand the test of judicial scrutiny."

Similar judgment was passed in case of M/s Vijay Infrastructure
Limited Vs ACIT (ITAT, Lucknow) and various other cases.

Whether the contention of the Ld. AO that assessee could not
substantiate the commission expenses to his satisfaction, he has
neither listed in any of the notices, nor mentioned orally to the AR, his
specific requirements in this regard. The Notice dated 05.12.2017 which
was titled as the 'final show cause' merely called for the assessee to
'substantiate the commission expenses'.

The details and explanations furnished by the assessee through his AR

were as per best of his understanding. While the onus of proving

genuineness of the expenses is on the assessee, he cannot

be expected to be a mind-reader and foresee exactly what would satiate

the assessing authority without the AO stating his requirements

expressly. Moreover, the assessee was required to establish the

genuineness of the incurred expenditure, not rationalize its

reasonableness as the same is not relevant for its allowance under

Income Tax law.

Whether the contention of the Ld. AO and the Ld. CIT ’ (A) was justified
in disallowing the genuine business expenditure u/s 37 of the Act?”

2. Briefly stated facts of the case are that the assessee was
engaged in the business of electrical home appliances under the
proprietorship firm, namely, M/s. Golden Sparrow Industries
through online trading from a platform, namely, Home Shop 18.
The assessee filed return of income on 23.10.2015, declaring
income of Rs.3,16,350/-. In the assessment completed on
27.12.2017 under Section 143(3) of the Income-tax Act, 1961 (in
short ‘the Act’), out of the commission expenses of Rs.61,93,667/-
paid by the assessee during the year under consideration, 30% of
the commission expenses which were worked out to
Rs.18,58,100/-, was disallowed by the Assessing Officer in view of
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the non-production of documentary evidences to support high
commission paid. The learned CIT(A) also upheld the
disallowances. Being aggrieved, the assesee is before the Tribunal
raising the grounds as reproduced above.
3. Before us, the parties appeared through Video Conferencing
facility and filed documents electronically.
4. The learned counsel for the assesee submitted that the
commission was paid to the digital platform company i.e.
Homeshop 18, who sold goods of the assessee through their
digital platform. The learned counsel for the assessee further
submitted that the commission has been paid as per the
agreement entered into with the digital platform company which
included charges such as taxes, refunds, shipping & freight
charges etc. According to him, in view of the services rendered by
the digital platform company, the commission paid was justified.
He prayed that the assessee is willing to produce all documentary
evidences, if one more opportunity is provided.
5. On the contrary, the learned DR relied on the order of the
lower authorities.
6. We have heard the rival submissions of the parties on the
issue in dispute. We find that the Assessing Officer has
disallowed the part of the commission expenses paid on the
ground that the assessee failed to produce the requisite
evidences, including contract agreement between the parties and
the assessee sought to justify the commission expenses only in
view of the tax deducted at source by the assessee.
6.1 Before us, the learned counsel for the assesee has submitted
that the commission deducted by the digital platform company,
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namely, Homeshop 18 also included taxes, refunds, shipping and
freight charges etc. as per the agreement with the said company.
The learned counsel for the assessee has undertaken before us
that the relevant document shall be filed before the Assessing
Officer and, therefore, one more opportunity may be provided to
the assessee.
6.2 In view of the submissions of the assessee and in the
interest of substantial justice, we feel it appropriate to restore this
issue back to the file of the Assessing Officer for deciding afresh
in the light of the documentary evidences including, agreement
with the digital platform company to whom the commission has
been paid. Accordingly, the order of the learned CIT(A) is set aside
and the issue in dispute is restored back to the file of the
Assessing Officer for deciding afresh in the light of the above
direction, after affording adequate opportunity of being heard to
the assessee.
7. In result, the appeal of the assessee is allowed for statistical
purposes.

Order pronounced in the open court on 18th February, 2021

Sd/- Sd/-
(BHAVNESH SAINI) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 18th February, 2021. Asst. Registrar, ITAT, New Delhi

RK/-

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A)

5. DR