TaxTMI 
TaxTMI 
2012 (12) TMI 23
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....xtent of Rs.25,00,000/- in respect of the aggregate amount of Rs.69,00,000/- originally made by the AO under section 40A(2)(b) of the Act." 3. Brief facts and the decision of the Assessing Officer on this issue is available in para-11 of the assessment order and for the sake of ready reference, the same is reproduced below:- "11. During the course of the proceedings, the assessee was required to furnish comparative details of payments made to the persons as specified in section 40A(2)(b) of the Act and to other persons. In response thereto, the assessee submitted that it has paid commission of Rs.69,00,000/- to Vijaykumar Bansal, being a persons as specified in section 40A(2)(b) of the Act, however, no comparative details of such payments made to other persons were furnished. On perusal of details of commission 69,00,000/- paid to a single persons i.e. Vijaykumar Bansal, seems to be excessive and unreasonable as compared with the fair market value of services rendered by Shri Vijaykumar Bansal as broker. With regard to such a huge sales commission paid to Shri Vijaykumar Bansal, the assessee has not explained as to why such a huge amount of commission was paid to Shri Vijayku....
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....y Commissioner of Income-tax, Central Circle-2(3), Ahmedabad at the relevant point of time. He has very much credited the commission income to his Profit & Loss account so as to offer the resultant profit for taxation in his individual hand. 4.3 It may further be mentioned here that the above said commission expenditure was subjected to deduction of tax at source, as provided under section 194H of the Income-tax Act and the company has also deposited the same to the credit of Central Government. This has also been reflected in the annual return of TDS furnished by the company in due course of time. The expenditure so incurred is thus cross verifiable from all these sources. 4.4 It is further submitted that the company has also paid consignment sales commission to M/s Sai Steel Traders for services rendered by that firm as consignment agent. The consignment sales commission has been paid to that firm as per prevailing rate and the same is very much reasonable. The commission has also been subjected to TDS as per provisions of the Income tax Act, 1961. The explanation on payments of sales commission to Vijaykumar Bansal was duly perused, however, the same are not satisfactory a....
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....for taxation, it is stated that the assessee has not furnished his financial statements. Therefore, recognition of such income in his Profit & Loss A/c. and details of expenses claimed against such income can not be determined. (v) Regarding deduction of tax at source on such commission and deposit thereof with the Central Govt. A/c. as per the provisions of Chapter -XVII-B of the Act, it is sated that the assessee has to comply with the provision of Chapter-XVII-B of the Act otherwise, such commission can not be allowed u/s 40(i)(ia) of the Act. Therefore, compliance with the provisions of TDS on such commissions is not a justifiable explanation for payment of such a huge amount of commission. Here, the assessee is required to establish reasonableness of such commission with reference to its fair market value. Therefore, contention of the assessee regarding compliance with the provisions of TDS on such commission is not a logical explanation so far as the reasonableness of fair market value of services rendered by Shri Vijaykumar Bansal is concerned. (vi) The assessee has not furnished rate at which the commissions was paid to Vijaykumar Bansal and also the rate at which com....
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....e. 6. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below. We find that the addition was deleted by the Ld. CIT(A) as per para-8.3 and 8.4 of his order, which are reproduced below:- "8.3 As seen from para-1 of the assessment order, AO disallowed the entire commission of Rs.69 lakhs paid to Shri Vijaykumar Bansal by invoking the provisions of sec. 40A(2)(b). The contentions of the appellate during assessment and appellate proceedings in brief are as follow. Compared to the immediately preceding year, the turnover of the appellant company increased from Rs.7.88 crores to Rs.42.68 crores; gross profit increased from Rs.0.44 crores to Rs.2.34 crores; Shri Bansal had business experience of over two decades; he owns 96% of the paid-up share capital of the company; out of the six immovable properties offered to I.O.B. (for getting sanction of working capital limit of Rs.43 crores), four properties belonged to him; besides he stood as third party guarantor; genuineness of payment is not doubted; commission revived was admitted by him in his ROI; his gross income was Rs.140 lakhs and income returned was Rs.44 lakhs....
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....y i.e., Bansal Shipping (P) Ltd., and hence, it is clear that no part of the commission payment by present assessee-company to Shri VKB was forming part of the income declared by Shri VKB in his return of income. Therefore, this very basis of the order of Ld. CIT(A) regarding deletion of the addition of Rs.44 lakh is without any valid basis. Moreover, allowability of payment of commission to any person is not dependent upon this fact that the recipient has declared that commissions income as his income but for the purpose of allowability of commission payment, what is required to be established by the assessee who is paying commission is this that the person to whom commission was paid has rendered services to the assessee-company for which commission was paid. In the present case, we have seen that various arguments was made by the assessee before the Assessing Officer as well as before Ld. CIT(A) and the same argument were reiterated before us and those arguments of the assessee made before the AO have already been reproduced above by us. From the same, it is seen that this is one of the argument of the assessee before the AO that the turnover of the assessee-company has increase....
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..... Ground No.4 is as follows: "The learned Addl. CIT has erred in making lump sum addition of Rs.75,000/- on estimate basis treating the same as salary expenditure (staff) as having been incurred out of undisclosed sources of income." 6.1 The AO discussed this issue at paa-9 of the assessment order. Written submission filed I this regard is as under: '4. Regarding the addition of Rs.75,000/- on estimate basis, treating the same as salary expenditure (staff) incurred and paid in the months of April 2007 and September 2007 to March 2008 out of undisclosed sources of income, being Ground of Appeal No.4: 4.1 The AO further observed that no Staff Salary expenditure has been debited in the books in relation to the months of April 2007 and for the months of September 2007 to March 2008. On the strength of this finding, he arbitrarily made an addition of Rs.75,000/- on lump sum basis, treating the same as having been paid out of undisclosed sources of income. 4.2 The Appellant submits that the company had limited activities in the above mentioned period and had accordingly not incurred any salary expenditu9re for staff. The question of making addition of the estimated amount ....
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....nt. Considering all these facts, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. Regarding, judgment of Hon'ble Supreme Court cited by Ld. AR of the assessee we find that in that case, the dispute was regarding taxability of dividend income in the hands of HUF or in the hands of members of the family who were registered share holder of the company. It is held by Hon'ble Supreme Court in that case that as per provisions of Section 23A, the person who was shown as a shareholder in the register of the company, has to be taxed regarding dividend income received by him and section did not talk of beneficial owner of the shares. It is also noted that HUF was not a shareholder of the company. Under these facts, it was held that the fiction enacted by the legislature must be restricted to the plain terms of the statute. The facts in the present case are totally different and therefore this judgment of Hon'ble Apex Court is not applicable in the facts of the present case. This ground of the assessee is rejected. 13. Ground No.2 of the assessee's appeal is as under:- "2. Confirming the addition of Rs.23,085/-, originally made by the AO by invoking secti....