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TMI Blog2023 (9) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... t of commission payments - Addition made as Appellant had failed to provide confirmations, supporting bills vouchers, and had failed to provide details regarding the nature of the services provided by parties receiving the commission - HELD THAT:- Appellant has furnished complete details of the dealers (i.e. name, address PAN), amount of commission paid and tax deducted at source along with Letter, filed before the Assessing Officer during the assessment proceedings. Confirmations in respect of 56 major dealers pertaining to commission were also filed with the Assessing Officer. The commission expenses claimed by the Appellant were only 0.085% of the total sales. The Appellant had furnished complete details relating to the commission payments made to the dealers. AO failed to carry out any independent inquiry, even on sample basis, before denying the deduction for entire commission expenses claimed as deduction by the Appellant. It is not the case of the Revenue that the commission payments were made to related parties or group concerns. Thus, we allow deduction for commission expenses as claimed by the Appellant and delete the addition. Ad- hoc disallowance of expenses cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant having filed copies of invoices substantiating the fixed assets acquired during the year and having produced the original invoices for verification. Having regard to the facts and circumstances of the case, the Appellant submits that the said disallowance made by the Assessing Officer is erroneous and requires to be deleted. 2) Without prejudice to Ground No. 1, even assuming though not conceding that any disallowance is justified, the Assessing Officer failed to abide by the directions of the learned DRP and erred in disallowing aggregate amount of the additions made to Fixed Assets during the year under consideration, amounting to Rs. 4,02,60,698/-, instead of disallowing only the depreciation in respect of fixed assets which were not substantiated. 3) The Assessing Officer erred in disallowing the aggregate amount of commission paid, amounting to Rs. 5,66,23,282/- on the ground that original confirmations from the parties had not been produced before him by the Appellant despite the Appellant having filed copies of the confirmations available on record and having produced the original confirmations for verification.. Having regard to the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the Assessing Officer be directed to consider the correct figure of advertisement and sales promotion expenses incurred during the year by the Appellant. 9) The Assessing Officer erred in not granting credit for tax deducted at source aggregating to Rs 4,00,84,439/-, without assigning any reasons for the non-grant of such credit. 10) The Appellant objects to the action of the Assessing Officer in initiating penalty proceedings under section 271(1)(b) and 271(1)(c) of the Act. Ground No. 1 2 4. Ground No. 1 2 raised by the Appellant pertain to the addition of INR. 4,02,60,698/- made by the Assessing Officer in respect of total additions made to the fixed assets during the relevant previous year. 4.1. During the course of assessment proceedings, the Assessing Officer requested the Appellant-Company to provide the details of additions to fixed assets along with supporting documents/invoices evidencing the purchase of the fixed assets during the relevant previous year. The Appellant contends that all the details of assets purchased along with copies of major invoices were furnished during the assessment proceedings. However, the Assessing Officer, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, we restrict the addition INR 4,02,60,698/- made by the Assessing Officer to INR 58,04,262/- being the amount of depreciation claimed by the Appellant. 4.7. Further, on perusal of the details of additions made to the fixed assets during the relevant previous year (placed at page 149 to 153 of the paper book), we find that the Appellant had furnished invoices pertaining to some of additions made to the fixed assets during the relevant previous year which are placed at 154 to 206 of the paper- book. We are of the view that in case the Appellant is able to produce the original of the photocopied invoices placed at page 154 to 206 of the paper-book for verification before the Assessing Officer, then the Appellant should be permitted to claim depreciation in respect of the same. Accordingly, we direct the Appellant to produce the originals of the aforesaid invoices/documents for verification before the Assessing Officer. Subject to verification as aforesaid, the Assessing Officer shall allow depreciation claimed by the Appellant in respect of the same as per law. 4.8. In terms of paragraph 4.6 and 4.7 above, Ground No. 2 raised by the Appellant is allowed whereas Ground No. 1 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, sold within a short span of time. The Appellant is dependent on its dealers all over India for sales and distribution. The dealers, which are independent third parties, are given commission and incentives to stock and sell products. Such commission and incentive payments are, therefore, a business necessity. During the relevant previous year that Appellant had paid commission of INR 5,66,23,282/- which constituted only 0.08% of the total sales. The Learned Authorised Representative for Appellant submitted that commission expenses should be allowed to the Appellant as claimed for the reason that during the assessment proceedings the Appellant had furnished complete details including names, addresses PAN of the parties to whom commission payments were made, along with the details of commission payments and tax deducted at source. The commission was paid to dealers for services rendered, the nature of such services was also explained during the assessment proceedings. The Appellant had also provided account confirmations from major parties/dealers. It was explained to the Assessing Officer that there were no written agreements between the Appellant and the dealers becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09. While allowing Appellant s claim for deduction for commission expenses for the Assessment Year 2005-06, the Tribunal has held as under: 20. We shall now advert to the disallowance of the commission expenditure of Rs. 1,62,05,703/- made by the A.O/DRP. As is discernible from the records, the assessee had during the year under consideration debited Rs. 2,25,96,858/- towards commission expenditure, which comprised of viz. (i) commission paid to various parties in excess of an amount of Rs. 1 lac per party: Rs. 1,62,05,703/-; and (ii) commission paid to parties below an amount of Rs. 1 lac per party: Rs. 62,91,155/-. In the course of the assessment proceedings, the assessee furnished details as regards the names, addresses and the amount of commission paid to various parties during the year. The A.O declined to accept the aforesaid claim of expenditure raised by the assessee for multiple reasons viz. (i) that, the assessee had failed to furnish the confirmations from the concerned parties; (ii) that, the PAN Numbers of the parties were not furnished by the assessee; (iii) that, the assessee had failed to satisfy the nature of services rendered by the parties to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the totality of facts and circumstances of the case, there is not scope to disallow the commission payments, in an ad hoc manner as was done by A.O. The assessee should now furnish confirmation from all the parties where commission paid is Rs. One lakh and above, within a week from the receipt of directions/order of DRP sue motto, Thereafter, A.O can disallow commission paid in respect of parties from whom no confirmation was furnished. In respect of commission payments below Rs. One lakh in each case there is no need to disallow claim without verification as assessee furnished all the relevant details. Hence, the disallowance as proposed by the A.O is not approved. A.O is directed to modify/restrict the disallowance as per directions given herein above. A perusal of the aforesaid observations reveals that, the DRP was convinced that as the commission expenditure was wholly and exclusively incurred by the assessee for the purpose of its business, therefore, the same was not liable to be disallowed. However, the DRP after so concluding, had directed the assessee to file with the A.O the confirmations from the parties to whom commission of Rs. 1 lac and above was paid du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage, we may herein observe, that the payments made by the assessee to the above mentioned parties for the period ended 31.12.2004, pertained to a period of about 7 years ago in context of the date of passing of the assessment order by the A.O under Sec. 153A/143(3) r.w.s. 144C(13), dated 31.10.2011. Accordingly, we find force in the contention advanced by the ld. A.R, that keeping in view the aforesaid substantial time gap of 7 years, it was practically not possible on its part to have obtained the confirmations of the said parties. In our considered view, now when the assessee had furnished complete details along with income tax credentials viz. PAN Numbers of the aforesaid parties with the lower authorities, therefore, merely for the stand alone reason that the confirmations of the said parties for transactions pertaining to a period relating to 7 years ago were not filed by the assessee with the A.O, would not justify disallowance of the commission expenditure so claimed by it. Interestingly, we find that on the basis of similar details filed by the assessee in respect of the parties to whom commission below Rs. 1 lac per party, aggregating to Rs. 62,91,155/-, was paid, the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served by the Hon ble High Court, that in the backdrop of the evidence placed on record by the assessee, it would be unreasonable to hold that the assessee had failed to establish the identity of the commission agents, for the reason, that the said persons were not found available at their respective addresses after an expiry of a period of 4 years from the date of the transactions under consideration. Now, in the case before us, it is an admitted factual position, as is discernible from the order of the DRP and, had not been assailed by the revenue before us viz. (i) that, the commission expenditure was incurred by the assessee wholly and exclusively for the purpose of its business, which was dictated by business needs and was allowable; (ii) that, the fact that the assessee had deducted tax at source on the aforesaid commission payments substantiated the genuineness of the said expenditure; (iii) that, the commission paid by the assessee was not high in relation to the sales made during the year; (iv) that, the names and address of the parties, to whom commission was claimed by the assessee to have been paid was furnished with the A.O and (v) that, the details along with the PAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commission expenses of Rs. 1,09,93,307/-. We, thus, in terms of our aforesaid observations direct the A.O to vacate the disallowance of commission expenses of Rs. 1,09,93,307/-. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. (Emphasis Supplied) 5.7. The facts and circumstances prevailing during the Assessment Year 2009-10 are identical to Assessment Year 2005-06, 2006-07 and 2008-09 as there is no change in the business of the Appellant or its arrangement with the dealers. Further, Appellant s justification for incurring commission expenses on account of business necessity and the reasoning for not having written agreements with the dealers was accepted by the Tribunal in the common order, dated 07/06/2021, passed in appeals for the Assessment Year 2005-06, 2006-07 and 2008-09. For the assessment year under consideration also the Appellant has furnished complete details of the dealers (i.e. name, address PAN), amount of commission paid and tax deducted at source (placed at pages 213 to 222 of the paper-book) along with Letter, dated 15.02.2013, filed before the Assessing Officer during the assessment proceedings. Confirmations in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% 2,79,553/- 6 Travailing Conveyance Expenses 20% 20% 78,15,374/- 7 Repair Maintenance Expenses 20% 20% 16,22,563/- 8 Advertisement Sales Promotion Expenses 20% 5% 27,05,192/- 6.2. We have heard the rival submissions and perused the material on record. We find that the Assessing Officer had made adhoc disallowance of expenditure primarily on the ground that the Appellant had failed to provide details and/or furnished supporting bills, vouchers and other documents during the assessment proceedings. DRP reduce the disallowance in case of Staff Welfare Expenses, Miscellaneous Expenses and Advertisement Sales Promotion Expenses to 5% of the expenses by placing reliance on the order passed by the Commissioner of Income Tax (Appeals) in appeals preferred by the Assessee against the Assessment Order for Assessment Year 2002-03 to 2004-05 and the order passed by DRP for the Assessment Years 2005-06 to Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e we deal in all sorts of computer hardware, software, mobility products some of which are imported or procured locally. All these transactions for purchases are monitored and tracked through the robust material and logistics management system. Our ERP System and Internal Control take care of all purchases right from indenting to purchases order to material receipt, dispatches, payments to vendor, raising various claim/ discounts and related transactions. We make purchases with not less that than 5 lakhs invoices in a year. All such purchases have tax implications for which we are filing periodical returns and information to various Tax authorities like Customs/Service Tax/VAT. Based on the business activities of the Company, the expenses incurred by the company are mainly purchases made for the goods sold, salary paid to the employees, warehouse rent, freight paid for the goods transported from one warehouse to another warehouse as well as freight paid on imported goods and others. The expenses also include Credit insurance, Property insurance, Marine insurance, Repairs and maintenance of IT system, Employee welfare etc. These expenses are incurred during the course of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment/ issuing credit note for their claims etc. We need to collect taxes like VAT/ Service Tax/ Entry Tax/ Octroi etc. From the copy of sale register for the month of July 2008 it can be noted that it runs into approximately 1,28,000 line items and runs into 1900 pages. The number of Invoices generated in a single day is in excess of 1000. We keep the Original Sale invoice copy at our branches/warehouse as per the legal requirement of respective VAT authorities. You will appreciate that producing all invoices for Sales approximating to Rs. 6500 crores is immense in terms of volume and these will have to be collected from various branches. These will not only consume time and energy for obtaining these records but it also will reflect that the audit reports, systems (elaborated above) and the taxes paid to the Government for the transactions are not considered as evidence for the activities conducted by the company. In any case we are submitting the sample sale Invoice copies for the month of July 2008 containing 8 box files for your perusal to appreciate the magnitude of the information solicited. The distribution model of IMIL business entails high turnover low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any specific defect in the details/documents furnished by the Appellant. No further clarification or specific information/documents were called for by the authorities below. Without pointing out any specific expenses, which according to the authorities below were not allowable as deduction, an ad-hoc disallowance was made by the Assessing Officer and sustained by the DRP. 6.7. In our view the claim of deduction of expenses made by the Appellant could not have been dislodged by the authorities below without any basis. We are guided in our view by the common order dated 07/06/2021 passed by the Tribunal in appeal for Assessment Year 2005-06, 2006-07 and 2008-09 (ITA No. 8794, 8795 8797/Mum/2011). In the aforesaid decision, the Tribunal had, in identical facts and circumstances, allowed the grounds raised by the Appellant and deleted the adhoc disallowance of Staff Welfare Expenses, Miscellaneous Expenses and Advertisement Sales Promotion Expenses to the extent confirmed by the DRP, and allowed the Appellant s claim for deduction of expenses. 6.8. In view of the above, we hold that the authorities below erred in making ad-hoc disallowance of expenses. Accordingly we del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such expenditure requires to be allowed as claimed by the Appellant in its Return of Income 4) The learned Commissioner of Income Tax (Appeals) erred in making an adhoc disallowance of Rs.19.776/-, being 5% of the total advertisement and sales promotion expenses incurred by the Appellant. Having regard to the facts and circumstances of [the case, the Appellant submits that the disallowance is unwarranted and requires to be deleted. 5) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in making an adhoc disallowance of Rs.54,38,609/-, being 20% of the aggregate travelling and conveyance expenses incurred by the Appellant Company for the year under consideration. Having regard to the facts and circumstances of the case, the Appellant submits that such expenditure requires to be allowed as claimed by the Appellant in its Return of Income. 6) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in making an adhoc disallowance of Rs. 25,56,212, being 20% of the aggregate repairs and maintenance expenses incurred by the Appellant Company for the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessment Year 2009-10. 11.2. Seeking further relief, the Appellant has filed the present appeal against the order passed by the CIT(A), dated 26/02/2014, challenging disallowance of commission expenses and other expenses to the extent confirmed by the CIT(A). Ground No.1 12. Both the sides agreed that Ground 1 pertaining to disallowance of commission expenses raised in appeal for the Assessment Year 2010-11 is identical to Ground No. 3 raised in appeal for the Assessment Year 2009-10. Since the facts and circumstances prevailing in Assessment Year 2009-10 are identical to the facts and circumstances prevailing in appeal for the Assessment Year 2010-11, our finding/adjudication on Ground No.3 raised in appeal for the Assessment Year 2009-10 shall apply mutatis mutandis to the Ground No. 1 raised in appeal for the Assessment Year 2010-11. Accordingly, in view of paragraph 5 to 5.8 above, deduction for commission expenses as claimed by the Appellant is allowed and addition of INR 1,96,82,801/- is deleted. Ground No. 1 raised on appeal for the Assessment Year 2010-11 is allowed. Ground No. 2 to 6, and 7 8 13. Ground 2 to 8 pertain to ad-hoc disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al for the Assessment Year 2010-11 as agreed by both the sides. The CIT(A) had also relied upon the order passed by the DRP for the Assessment Year 2009-10 while passing the order. Accordingly our findings, reasoning and adjudication on grounds raised in appeal for the Assessment Year 2009-10 shall apply mutatis mutandis to the corresponding grounds raised in appeal for the Assessment Year 2010-11. Further, we find that the 13.5. Accordingly, in view of paragraph 6 to 6.8 above, ad-hoc disallowance (a) Staff Welfare Expenses of INR 15,77,052/-, (b) Miscellaneous Expenses of INR 8,35,722/-, (c) Travelling Conveyance Expenses of INR 54,38,609/-, (d) Repair Maintenance Expenses of INR 25,56,212/- and (e) Advertisement Sales Promotion Expenses of INR 19,776/- stand deleted. As a result, Ground 2 to 6 raised in appeal for the Assessment Year 2010-11 are allowed. 13.6. As regards communication expenses and cash discount expenses, we find that the relevant details and sample documents were furnished by the Appellant (placed at Page 198 to 202 and 19 to 197 in the duplicate copy of paper-book filed on 20.02.2023). Therefore, adopting the reasoning given in paragraph 6 to 6.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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