2012 (12) TMI 23 - AT - Income Tax

Addition u/s 40A(2)(b) - commission of Rs 69 lacs paid to relative( Shri VKB) - part dis-allowance deleted by CIT(A) on the basis that Shri VKB has filed his return of income admitting income of Rs.44 lakh and therefore, to that extent, it cannot be said that the payment was with a view to avoiding tax - Held that - On perusal of return it is found that income declared by Shri VKB under the head income from business or profession is only Rs.25 lacs. On working back of commission income received from TDS deducted of VKB by various parties, commission receipts come out to be more than Rs 1 crore, hence, it is clear that no part of the commission payment by present assessee-company to Shri VKB was forming part of the income declared by Shri VKB in his return of income. For the purpose of allowability of commission payment, what is required to be established by the assessee who is paying commission is this that the person to whom commission was paid has rendered services to the assessee-company for which commission was paid. No evidence has been brought on record before authorities below or before us that this increase in turnover has resulted because of services rendered by Shri VKB for which commission payment has been made - Dis-allowance of whole amount confirmed - Decided against assessee Addition on estimate basis treating the same as salary expenditure (staff) as having been incurred out of undisclosed sources of income - salary expenditure accounted for month of May 07 to Aug. 07 only and not for month of April 07 and Sep.07 to Mar. 08 - Held that - On the one hand, the assessee-company paid the commission of Rs.69 lakh and submitted that the turnover has increased during this year from Rs.788 lakh in preceding year to Rs.4268 lakh in the present year and on the other hand in the month of April 07 and during Sept. 07 to Mar 08, the assessee is not accounting for any salary in its books of account. Addition upheld - Decided against assessee Dis-allowance u/s 40(a)(ia) - assessee contending payment before due date - Held that - Though amount is paid to the credit of the government in the subsequent year but no exact date of such payment is available in records. Hence, we restore the matter back to the file of AO for fresh decision after finding out regarding the date of payment of TDS by the assessee in the next year and if it is found that the same was paid before due date of filing of return income of the present year, no dis-allowance u/s. 40(a)(ia) should be made

Summary

Issues Involved:
1. Disallowance under section 40A(2)(b) of the Income Tax Act.
2. Addition of Rs.75,000/- as salary expenditure incurred out of undisclosed sources.
3. Addition of Rs.23,085/- by invoking section 40(a)(ia) of the Act.
4. Lump-sum addition of Rs.10,500/- for weighment expenditure.

Issue-wise Detailed Analysis:

1. Disallowance under section 40A(2)(b) of the Income Tax Act:
The Revenue raised the issue of the Ld. CIT(A) restricting the disallowance to Rs.25 lakhs out of the total addition of Rs.69 lakhs made by the Assessing Officer (AO) under section 40A(2)(b) of the Act. The assessee challenged the disallowance of Rs.25 lakhs confirmed by the Ld. CIT(A). The AO found that the commission of Rs.69 lakhs paid to Vijaykumar Bansal was excessive and unreasonable, as the assessee failed to provide comparative details of such payments made to other persons. The Ld. CIT(A) deleted Rs.44 lakhs of the addition, reasoning that the payment was not with a view to avoid tax since the recipient had filed a return of income admitting Rs.44 lakhs. However, the Tribunal found this reasoning flawed, as the commission income was not reflected in the recipient's return of income. The Tribunal concluded that the assessee failed to establish the rendering of services by the payee, which is essential for the allowability of commission payments. Consequently, the Tribunal confirmed the full disallowance of Rs.69 lakhs made by the AO, allowing the Revenue's appeal and rejecting the assessee's ground.

2. Addition of Rs.75,000/- as salary expenditure incurred out of undisclosed sources:
The AO made a lump sum addition of Rs.75,000/- on an estimated basis, treating it as salary expenditure incurred out of undisclosed sources for the months of April 2007 and September 2007 to March 2008. The assessee contended that the company had limited activities during these periods and did not incur any salary expenditure. The Ld. CIT(A) upheld the addition, noting the lack of evidence supporting the assessee's claim. The Tribunal agreed with the lower authorities, emphasizing that no evidence was provided to substantiate the claim of no staff employment during the specified months. The Tribunal rejected the assessee's ground, finding no reason to interfere with the Ld. CIT(A)'s order.

3. Addition of Rs.23,085/- by invoking section 40(a)(ia) of the Act:
The AO invoked section 40(a)(ia) of the Act, disallowing Rs.23,085/- for non-compliance with TDS provisions. The assessee cited the judgment of the Hon'ble Calcutta High Court in the case of CIT v. Virgin Creations, which held that the amendment to section 40(a)(ia) is retrospective. The Tribunal noted that the exact date of TDS payment was not available in the records. Therefore, the Tribunal set aside the Ld. CIT(A)'s order on this issue and remanded the matter back to the AO to verify if the TDS was paid before the due date of filing the return of income. If so, the disallowance should not be made as per the cited judgment. This ground was allowed for statistical purposes.

4. Lump-sum addition of Rs.10,500/- for weighment expenditure:
The AO disallowed Rs.10,500/-, being 25% of the total weighment expenditure of Rs.42,030/-, due to a lack of supporting evidence. The Ld. CIT(A) confirmed the addition, and the Tribunal found no evidence provided by the assessee to support the expenditure. The Tribunal upheld the Ld. CIT(A)'s order, rejecting the assessee's ground.

Conclusion:
The Tribunal allowed the Revenue's appeal regarding the full disallowance of Rs.69 lakhs under section 40A(2)(b) and rejected the assessee's grounds related to the salary expenditure of Rs.75,000/- and the weighment expenditure of Rs.10,500/-. The Tribunal remanded the issue of Rs.23,085/- disallowed under section 40(a)(ia) back to the AO for verification of TDS payment dates, allowing this ground for statistical purposes.