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TMI Blog2018 (9) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs. 14,76,000/- and Rs. 5,55,991/- on account of commission expenses and foreign travel expenses respectively without considering the facts that the assessee failed to submit any justification of the purpose and basis of commission payment and whether travel foreign expenses were incurred for the purpose of business?" The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax-Circle 19(3) u/s 143(3) on 31/03/2015 wherein the income of the assessee has been determined at Rs. 354.81 Lacs after certain additions as against returned income of Rs. 127.52 Lacs filed by the assessee on 13/09/2012. None has appeared for assessee. However, the assessee has filed return submissions dated 01/08/2018 in support of his claim. As evident from grounds of appeal, the following additions, as made by Ld. AO but deleted / partially allowed by Ld. CIT(A) are the subject matter of this appeal:- No. Nature of Addition Amount (Rs.) 1. Estimated Gross profit Additions 206.97 Lacs 2. Unjustified Commission 14.76 Lacs 3. Expenses on foreign Travel 5.55 Lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visit to London / Italy & Bangkok stated to be made to remain competitive in the business environment. However, the same could not favor of Ld. AO and accordingly disallowed and added to the income of the assessee. 3. Aggrieved, the assessee contested the same with success before Ld. CIT(A) wherein the matter was concluded in the following manner:- 7.3.3.2 I have carefully considered the above contentions on the issue. Though the AO, in the assessment order, stated that the appellant could not furnish comparison of manufacturing loss with similar industry of the similar locality, at the same time AO also could not bring anything on record about such comparison with other industries and simply by stating that the average loss incurred in the industry is in the range of 3 to 4% and concluded that the appellant booked excessive loss AO has not cited any case in support for the percentage mentioned and as such there is no basis for the conclusion arrived at by the AO. Apart from that, AO's observation that all the gold loss is booked on Diwali day, is also not correct and the appellant could able to show by giving the entire stock details with monthly summary in which loss of gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted. Appellant succeeds on Ground Nos. 2, 3 & 4 of the appeal. 8. In Ground No. 5, the appellant raised the issue of disallowing the expenses incurred by the recipient towards commission paid. In the ground, which is subdivided into three parts, it is stated that AO has erred in disallowing the expenses incurred by the recipient of commission, which is out of context and beyond jurisdiction. It is also stated that in the scrutiny assessment completed in the case of one recipient the expenses incurred for earning commission are duly allowed. 8.1 AO considered the addition after observing that the amount of commission paid is Rs. 56,94,926/- is higher by 1.62 times over the previous year and out of the commission an amount of Rs. 30,95,419/- was paid to the family members of the appellant. During the assessment proceedings, summons were issued to Smt. Kalpana Bhansali, wife of the appellant, who has received commission of Rs. 17,01,319/-. By reproducing the relevant extract of the statement recorded from her, AO concluded that purpose and basis of commission payment is not reflected and such payment is always to be linked to purchase/ sale on certain percentage, thereby certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission income. As there is no basis for the commission payment, AO disallowed the expenses claimed by the recipients to the extent of Rs. 14.76 lakhs which is equivalent to the expenses claimed by the recipients against the commission income offered in the returns. As seen from the evidences furnished the commission paid is duly offered as income by the recipients and in one case the assessment was completed u/s 143(3) by her AO. Correctness of the expenses incurred by the recipients and its allowability is to be considered in their respective hands. Moreover, as stated by my Ld. Predecessor CIT(A), that Ld. AO cannot step into the appellant's shoes as far as reasonability of the commission income is concerned. AO in this case has wrongly considered the expenditure incurred by the in the hands of the appellant. In view of the same, there is no justification to sustain the addition and accordingly the addition of Rs. 14,76,000/- is deleted. Ground No. 5 is treated as 'Allowed'. 9. In Ground No. 6, the appellant raised the issue of disallowance considered towards the expenses incurred under the head 'Foreign Travel Expenses'. In the ground it is stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose as the visits are said to be made to know the latest trends in designing and the places where the appellant visited are the trendsetters for new designs. However, at the same time one cannot ignore the element of the personal expenses in such tours. In view of the same, entire amount cannot be treated as incurred for the purpose of business. To rule out the personal nature of expenses, in my considered opinion, out of the total expenditure incurred towards foreign travel, if 25% of the expenses are treated as personal in nature and is disallowed that will meet the ends of justice. Accordingly, Ld. AO is directed to restrict the disallowance to 25% of the 'Foreign Travel Expenses' of Rs. 5,55,991/-. The ground raised against the 'Foreign Travel Expenses' is treated as 'Partly Allowed.' 10. In the result, for the statistical purposes, the appeal filed for the A.Y 2012-13, is treated as 'Partly Allowed'. Aggrieved the revenue is in further appeal before us. 4. The Ld. Departmental Representative [DR], Shri Rajeev Gubangotra, submitted that the books were rightly rejected since the assessee miserably failed to reconcile the discrepancies as pointed out by Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than 54% of aggregate commission has been paid by the assessee to two of the family members. However, the details of specific sales against which the commission was paid, basis of payment etc. could not be demonstrated by the assessee. So far as deduction of foreign travelling expenses is concerned, no plausible explanation / evidences has been furnished by the assessee to demonstrate that the same were incurred for business purposes of the assessee and thus fulfilled the basic condition of Section 37(1) to claim these expenditures. Hence, the prime onus as casted on the assessee to substantiate the claim has remained un-discharged and the stand of Ld. first appellate authority in providing substantial relief to the assessee was not justified. 7. After considering the above factual matrix, we are of the view that the GP estimation of 15% as made by Ld. AO was slightly on the higher side and therefore we propose a net addition of 0.5% on sales turnover of Rs. 46.29 crores to take care of stock discrepancies, stock-loss and high labor charges. 8. At the same time, the disallowance of commission expenses of Rs. 14.76 Lacs as estimated by Ld. AO, in our opinion, was fair in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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