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TMI Blog2018 (12) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition in part on account of sales commission expenses - Held that:- From the preceding discussion, we note that the assessee has created the provisions for commission expense in the earlier years as evident from the copy of ledger available on page no.16 of the paper book. However, the accounts were settled with the party at ₹ 1,40,000/- during the year under consideration. Therefore the excess sum of ₹ 5,000/- was claimed as commission expenses for the year under consideration. On perusal of the ledger account of the commission, there remains no ambiguity that the provision for commission expenses of ₹ 1,35,000/- was not claimed as a deduction in the year under consideration as alleged by the ld.CIT(A). Once the expenses of ₹ 1,35,000/- has not claimed in the books of accounts, then there is no question making disallowance of such expenses. Therefore, we hold that the ld.CIT(A) has misunderstood the facts of the case and made disallowance of ₹ 1,35,000/- treating the same as provision for commission expenses. - decided in favour of assessee. Ad hoc disallowance at the rate of 25% of the total traveling expenses - Held that- it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the directors towards their salary/remuneration are as under: Sr.No. Name of directors Amount Qualification 1. Mr.D.B. Patel, Director 5,00,000 Engineering Graduate 2. Mr. Rustom Patel (Director 5,00,000 Engineering Graduate 3. Mr.Shivendra Singh Chawla (Relative of director) 11,00,000/- Technical graduate From the above, the AO noted that the qualifications of all the directors are same, but salary to a relative of the director viz. Mr.Shivendra Singh Chawla has been paid excessive by ₹ 6 lakhs. Accordingly, the AO issued a show cause notice to the assessee for justifying salary paid to the relative of the Director. The assessee in compliance with it made written submissions, but the same was not substantiated by supporting evidence. Therefore, the AO treated the salary of ₹ 6 lakhs as excessive/unreasonable. Accordingly, the AO disallowed the same and added to the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of Return of Income of Shri Shivindersingh C. Chawla, it is noticed that he was also employee of Punjab Steel Rolling Mills Pvt. Ltd. and Reinhard Roto Machines during the year under consideration and earned salary of ₹ 3,00,000/- and ₹ 30,000/- respectively. Moreover, he was also carrying out separate business with Frontier Polymers Pvt. Ltd. and earned business income of ₹ 6,00,000/-. From the above mentioned facts, thus it is crystal clear that Shri Shivindersingh C. Chawla was also rendering services at three more places in addition to the appellant company and hence the time devoted to the appellant company was not sufficient to earn salary more than the regular Directors of the appellant company. Accordingly, keeping in view the fair market value of the services rendered and business expediency, I hold that Shri Shivindersingh C. Chawla was not entitled to remuneration more than ₹ 5,00,000/-. Accordingly, the excessive remuneration disallowed by the Assessing Officer at ₹ 6,00,000/- u/s 40A(2)(b) is justified and hence the same is confirmed. Thus, appellant fails in respect of Ground No. 1. Aggrieved, by order of the ld.CIT(A), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reading of the above provisions, disallowance can be made under section 40A(2)(b) of the Act if it is found excessive and unreasonable in comparison to the prevailing market rate. In the case before us, the AO has not made such comparison justifying that salary paid to Shri Shivendra Singh Chawla was excessive in comparison to the market rate. The AO has made a comparison with existing directors of the company to whom a salary was paid of ₹ 6 lakhs each per annum. As per the submissions of the assessee, Shri Shivendra Singh had rich experience of 35 years both in technical and marketing areas. The AO has not pointed out any defect in the submission of the assessee. In our considered view the AO before comparing the salary with other directors, should have also considered experience, qualification and technical competency, which has not been done in the instant case. It is also the fact on record that the salary paid to Shri Shivendra Singh was taxed at the maximum marginal rate, meaning thereby both the assessee and Shri Shivendra Singh were being taxed at the same rate. Therefore, it can be concluded that there is no evasion of tax liability. We find that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year has claimed sales commission expenses of ₹ 12,33,454/- only. However, the assessee during the assessment proceedings failed to justify the commission expenses by documentary evidence. Therefore, the AO disallowed 50% of such expenses of ₹ 6,16,727/- and added to the total income of the assessee. 9. Aggrieved assessee preferred an appeal to the ld.CIT(A) who has deleted the addition made by the AO in part by observing as under: 4.1. Ground No. 2 pertains to 50% disallowance of sales commission resulting Into n addition of ₹ 6,16,727/-. Undisputedly, the appellant has paid commission to as many as 6 persons and also deducted the tax u/s. 194H. Since the Assessing Officer has disallowed only 50% of the commission, the genuineness of the services rendered doubted. On the basis of documentary evidence placed on record, I find that each commission agent has rendered services in respect of procuring purchased order/effecting sales to a specific party/project. The appellant has also furnished confirmation and copy of credit notes In order to justify the payment of commission. In its written submission, the appellant has claimed that the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book. The ld.AR also drew our attention to the credit note dated 18.9.2012 for the payment of commission to the party for ₹ 1,40,000/- which is placed at page no.18 of the paper book. On the other hand, the ld.DR vehemently supported the order of the authorities below. 10. We have considered rival submission and perused the material available on record. In the present case, the AO has noted payment of commissions expenses of ₹ 6,16,727/- as bogus. Therefore the same was disallowed. However, the ld.CIT(A) has deleted entire addition except ₹ 1,35,000/- which was treated as a provision for commission expenses. As per the ld.CIT(A) provisions are not deductible expenses. Therefore the same was disallowed. From the preceding discussion, we note that the assessee has created the provisions for commission expense in the earlier years as evident from the copy of ledger available on page no.16 of the paper book. However, the accounts were settled with the party at ₹ 1,40,000/- during the year under consideration. Therefore the excess sum of ₹ 5,000/- was claimed as commission expenses for the year under consideration. On perusal of the led ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used to furnish details of these expenses after getting approval from the supervisor and director of the company. In case of traveling by directors of the Company, these were booked through travel agents. Therefore, the same was verifiable. The assessee in support of his claim filed a copy of the account of travel agents to the AO. However, the AO disregarded the contentions of the assessee by observing that these expenses were mostly incurred in cash and were supported on the basis of internal vouchers which were not fully verifiable. Therefore, the business exigency was not established by the assessee. Accordingly, the AO disallowed 25% of such traveling expenses amounting to ₹ 3,19,797/- and added to the total income of the assessee. 14. The aggrieved assessee preferred appeal before the ld.CIT(A). The assessee before the ld.CIT(A) submitted that all original invoices of traveling expenses above ₹ 5,000/- were produced at the time of hearing and no defect/discrepancies were pointed out by the AO. In all the traveling vouchers, details of sales and installation work were mentioned against which traveling expense has been incurred. Therefore, the same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A). From the preceding discussion, we note that the assessee has declared total turnover of ₹ 3,58,73,194/- against which travelling expenses of ₹ 12,79,189/- was claimed which works out to be 3.5% of the total turnover. Considering the nature of the business, we note that the assessee is supplying water tanks to various parties located in different areas. The assessee subsequently after supplying water tank is also providing installation services. Any of the lower authorities have not disputed this fact in their order. We also note that the accounts of the assessee were duly audited. The amount of such expenses claimed by the assessee are reasonable in comparison to the volume of the business of the assessee as there is no allegation from the Assessing Officer that the expenses claimed by the assessee are unreasonable or excessive. We also observe that external documents in such kind of expenses are not normally available. Therefore in the absence of external evidence the expenses cannot be disallowed. Accordingly, we are not inclined to uphold the order of Ld. CIT(A). In view of above, it is clear that the AO has not pointed out any specific defec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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