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2020 (10) TMI 1183 - AT - Income TaxRevision u/s 263 - payment of commission to the related and unrelated parties - whether the order of the AO is erroneous and prejudicial to the interest of revenue? - HELD THAT - Notice alongwith questionnaire was replied by the assessee regarding payment of commission alongwith required confirmations which shows that the commission payment has been made after deducting TDS @ 10% and it is not a case of Pr. CIT that payment of commission has been made by the assessee without making any TDS. This show cause notice and questionnaire issued by the AO and replied filed by the assessee alongwith relevant documents shows that the AO also made enquiry on the issue on payment of commission and TDS thereon and thereafter allowed the claim of the assessee pertaining to payment of commission. Therefore it cannot be alleged that the AO has not made any enquiry before allowing payment of commission to the related and unrelated parties. In reply to show cause notice u/s. 263 of the Act the assessee categorically explained that the assessee earns commission from different companies on procuring order from Government Health Departments Hospital Municipal Corporation and the assessee being individual cannot move from one place to another place for enhancement of business. Different persons received commission against work brought by them and these commission agents against receipt of commission provides services not only to procure orders but also see that proper delivery of goods are made in time and also look after that payments are received from the consignee in time. These facts have not been negated by the ld. Pr. CIT in any manner thus we hold that the payment of commission has direct nexus with the services rendered by the recipient of commission and it was paid against their contribution in the enhancement of business of assessee. Thus it was to be held that the commission has been paid for the business purpose and the AO was right in allowing the same after due verification and examination through proper enquiry. Introduction of capital - AO show caused the assessee regarding eight amounts including amount i.e. introduction of capital by the assessee and from the copy of bank statements which shows that the assessee introduced capital by way of transfer through cheques on 27.3.2014 on 15.11.2013 to the firm Gandhi Agencies which shows that 15 lakhs was introduced through banking channels. So far as which was introduced in cash is concerned from the copy of balance sheet of the assessee as on 31.3.2013 it is clear that the assessee has cash in hand more than 8 lakhs which was brought forward from financial year 2013-14 and apart from this the assessee also received gifts from his daughter and mother. From the copy of saving bank statement we also notice that the assessee also withdrew 1 lakh on 31.12.2013 and the amount of cash in hand was amount withdrawn from the bank and amount of gifts is more than 13 lakhs which self-explained the source of 13 lakhs introduced in cash to the capital account by the assessee during the relevant period. Therefore acceptance of explanation of the assessee by the AO in this regard is also justified proper and reasonable which cannot be held as erroneous and prejudicial to the interest of the revenue in absence of any other adverse materials brought on record during proceedings u/s. 263 of the Act. AO had conducted sufficient and adequate enquiry on all three issues and it is not a case of no enquiry or insufficient enquiry. - Decided in favour of assessee.
Issues Involved:
1. Justification of the order passed by the Pr. CIT under section 263 of the Act. 2. Payment of incentives and its verification. 3. Payment of commission to related and unrelated persons. 4. Introduction of capital during the relevant financial year. Detailed Analysis: 1. Justification of the Order Passed by the Pr. CIT under Section 263 of the Act: The primary grievance of the assessee was that the Pr. CIT, Cuttack, was not justified in holding the order of the AO as erroneous and prejudicial to the interest of revenue. The Pr. CIT invoked section 263 and called for the assessment records, finding discrepancies in the payment of incentives, commission, and the introduction of capital. However, the Tribunal found that the AO had conducted sufficient and adequate inquiries on all three issues, thus the revisionary order passed by the Pr. CIT was without jurisdiction and quashed on merit. 2. Payment of Incentives and Its Verification: The Pr. CIT observed that the assessee claimed an expenditure of ?5,87,407/- towards incentives paid to nine persons for procuring orders from Government Hospital and Municipal offices. The Pr. CIT noted that these payments were not correct as the recipients were not employees, and TDS was not deducted under section 194H. However, the Tribunal found that the AO had made inquiries into the payment of incentives and had even made a partial disallowance of ?53,964/- due to the lack of supporting bills and vouchers. The Tribunal held that the AO’s inquiry was sufficient, and the Pr. CIT's action was not sustainable. 3. Payment of Commission to Related and Unrelated Persons: The Pr. CIT found that the assessee had claimed ?49,96,750/- towards commission, with ?40,50,000/- paid to relatives under section 40A(2)(b) and the rest to unrelated persons. The AO had accepted these payments without verifying the nature of work done by the recipients. The Tribunal noted that the AO had issued a notice under section 142(1) and had received detailed replies from the assessee, including TDS deductions on the commission payments. The Tribunal concluded that the AO had conducted sufficient inquiries, and the Pr. CIT’s revisionary order on this issue was not justified. 4. Introduction of Capital During the Relevant Financial Year: The Pr. CIT observed that the assessee introduced ?28,00,000/- as capital, with ?15,00,000/- received by cheque and ?13,00,000/- in cash. The source of the cash was explained as withdrawals from savings and receipts of gifts. The Pr. CIT noted that the AO had not verified these claims. However, the Tribunal found that the AO had issued a show-cause notice and received a detailed reply from the assessee, including bank statements and balance sheets showing sufficient cash in hand and gifts received. The Tribunal held that the AO’s acceptance of the explanation was justified and not erroneous or prejudicial to the revenue. Conclusion: The Tribunal quashed the revisionary order passed by the Pr. CIT under section 263 of the Act, finding that the AO had conducted sufficient inquiries on all three issues. The appeal of the assessee was allowed. Additionally, the Tribunal addressed the procedural delay in pronouncing the order due to the COVID-19 lockdown, concluding that the period of lockdown should be excluded from the 90-day time limit for pronouncement of orders.
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