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TMI Blog2014 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... persons specified in section 40A(2)(b) of the Act, as assumed by the Assessing Officer - The Assessing Officer is required to form an opinion that the said expenditure is excessive or unreasonable - the Assessing Officer has failed to prove that the concerns M/s. Systematic Associates and M/s. Image Associates are related parries as defined under section 40A(2)(b) of the Act - the view entertained by the Assessing Officer that the payments made to related parties and claimed as expenditure is required to be disallowed under section 40A(2)(a) is not the correct view - the Assessing Officer has not established that the payments made to the related parties are excessive or unreasonable under the three criterias specified in section 40A(2)(a) of the Act - there is no case for making disallowance of "agents incentive" expenses by invoking the provisions of section 40A(2)(a) of the Act – Decided against Revenue. - ITA No. 468 /Coch/ 2013 - - - Dated:- 3-1-2014 - N.R.S. GANESAN AND B. R.BASKARAN, JJ. For the Appellant : K.K. John, Junior Departmental Representative For the Respondent : Jameskutty Antony ORDER:- The order of the Bench was delivered by: B.R. Bask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the firm named Shri Soby Mathew is the proprietor of M/s. Image Associates and the proprietor of M/s. Systematic Associates named Sri Titus Joseph is near relative of another partner of the firm. M/s. Anson Wealth Management is one of the group companies. Thus, according to the Assessing Officer all three concerns cited above are related parties as defined under section 40A(2)(b) of the Act. Accordingly, the Assessing Officer took the view that the expenses claimed as agents incentive is disallowable under section 40A(2)(b) of the Act. However, since the Assessing Officer disallowed the abovesaid expenses under section 40(a)(ia) of the Act on account of non-payment of tax deducted at source within the due date, he did not consider disallowing the same again under section 40A(2)(b) of the Act. 4.1. The Assessing Officer noticed that the assessee has deducted tax at source from the payments made as agents incentive , but has remitted the same belatedly, i.e., on September 30, 2008. Since the TDS was not paid within the due date prescribed under the Income-tax Rules, the Assessing Officer disallowed agents incentive expenses under section 40(a)(ia) of the Act. 4.2. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contends that the disallowance of agents incentive expenses under section 40A(2) (b) is not warranted. 7. We have heard rival contentions on both issues and carefully perused the record. With regard to the disallowance made from salary expenses, we notice that the Assessing Officer did not express any doubt about the genuineness of expenses claimed. The deficiencies, according to the Assessing Officer were that the vouchers seem to have been prepared at a stretch and further they have not been stamped. Hence, the Assessing Officer has disallowed 10 per cent. of salary expenses to cover up possible deficiencies. The learned Commissioner of Income-tax (Appeals) has reduced the disallowance from 10 per cent. to 5 per cent. with the reasoning that the disallowance of 10 per cent. is on the higher side. Before us, the learned Departmental representative placed reliance on the decision of the hon'ble jurisdictional Kerala High Court rendered in the case of MIL Controls Ltd. v. CIT [2012] 340 ITR 190 (Ker) and submitted that the disallowance of 50 per cent. made in that case was upheld by the High Court. We have gone through the said decision and we notice that the assessee ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cover up possible deficiencies. The learned Commissioner of Income-tax (Appeals) has reduced the said estimate to 5 per cent. Thus, it is seen that the issue under consideration is only that of an estimate for possible deficiencies. Under these set of facts, we do not find any reason to interfere with the decision of the learned Commissioner of Income-tax (Appeals) on this issue. 8. The next issue relates to the claim of disallowance of agents incentive under section 40A(2)(b) of the Act. Under the provisions of the Act, the disallowance if any is required to be made under section 40A(2)(a) of the Act, if the payment is found to have been made to the persons specified in section 40A(2)(b) of the Act. Hence, what is required to be considered is section 40A(2)(a) of the Act. For the sake of convenience, we extract below the provisions of section 40A(2)(a) of the Act. 40A(2)(a). Where the assessee incurs any expenditure in respect of which payment has been made or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to consider these factual aspects. 8.3. According to the assessee, it has shared the commission income at the uniform rate of 60 per cent. with all the three parties. Since the concerns M/s. Systematic Associates and M/s. Image Associates are not related parties, it was contended by the learned authorised representative that the payment made to M/s. Anson Wealth Management at the same level cannot be considered as excessive or unreasonable. We find force in the said contentions of the learned authorised representative. 8.4. Thus, we notice that the Assessing Officer, first of all, has failed to prove that the concerns M/s. Systematic Associates and M/s. Image Associates are related parries as defined under section 40A(2)(b) of the Act. Secondly, the view entertained by the Assessing Officer that the payments made to related parries and claimed as expenditure is required to be disallowed under section 40A(2)(a) is not the correct view. Thirdly, the Assessing Officer has not established that the payments made to the related parties are excessive or unreasonable under the three criterias specified in section 40A(2)(a) of the Act. On the contrary, the contention of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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