TaxTMI 
TaxTMI 
2019 (2) TMI 110
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.... out of commission expenditure paid on purchases made by the assessee; and disallowance of salary paid by the assessee under the head incentives of Rs. 62,000/- to an ex employee on the ground that no TDS was deducted by the assessee. 2. The facts in brief are that assessee is a trader in chemicals which are used in paper industries. During the relevant financial year, assessee has shown sales of Rs. 2,67,45,976/- and purchases of Rs. 1,73,06,954/-.The assessee has debited sum of Rs. 26,50,000/- under the head Commission account, which according to Ld. AO the rate of commission paid was more than 10%. In response to show cause notice, the assessee submitted that the commission was paid to various persons on purchases made on account of i....
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....not limited. The assessee has paid commission @ 2.86% on the sales, whereas on the purchase commission has been paid @ 13% to 15% which itself is illogical. He had summoned u/s 131(1) to three persons, out of which, one, Shri Anuj Sharma appeared and his statement on oath was recorded. In his statement, he gave the nature of services provided to the assessee and how he has introduced the purchasers for procuring good quality material to be used in the paper industry and the manner in which he has to coordinate between the two parties. However, the Ld. AO without finding any discrepancy in his statement observed that, his statement/submission cannot be relied upon. Accordingly, he held that commission payment of three persons of purchases is....
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....t an employee, therefore, such incentive on sales is in the nature of commission for which TDS was required to be deducted. 7. Before us, Ld. Counsel for the assessee, Shri Sanjay Kumar, submitted that, first of all, these parties are not related to the assessee in any manner and do not fall in the category of 'persons' as specified in section 40A (2)(b). Secondly, similar payment of commission on purchases were made in the earlier years and in scrutiny proceedings passed us/143(3) such a quantum and rate of commission on purchases have been allowed. He also drew our attention to the related figures of turnover, purchases, gross profit, commission and net profit for year in appeal and immediately preceding year which is reproduced at pag....
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.... these commission agents who ensure that technical quality of material supplied. In any case, such kind of expenditure has to be stand the test of commercial expediency and it is only businessman who can decide, whether any expenditure has to be incurred or not and if such an expenditure was wholly and exclusively for the purpose of business, then reasonableness of the expenditure has to b e judged from the point of the businessman. 8. In so far as the disallowance of Rs. 62,000/- u/s 40(a)(ia), Sri Sanjay Kumar submitted that, Shri Amit Kumar was earlier employee of the assessee and this year, he has left the job and as and when his services were required for the purpose of promoting the sales, he was given the payment which in fact fal....
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....then how Revenue can decide or disallow on the ground that expenditure incurred is excessive. Here as pointed out by Ld. Counsel that similar rate of commission was paid in the earlier year also which has been accepted by the AO in the scrutiny proceedings for immediately preceding assessment year. It is not the case of the revenue that payment made to these commission agents falls in the category of 'persons' as defined in section 40A(2)(b), wherein expenditure has to be seen with regard to fair market value of services provided for which payment is made to such related persons. In terms of section 40A (2)(b), admittedly all these agents are unrelated persons and, therefore, without any evidence or material on record to show that these pay....
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....d; how he has introduced purchases for providing quality material used in the paper industry; what is the effect if material fails during the trial period; and how the responsibility for losses is to be owned. He has also explained that there is high risk of failure of the product on the basis of quality and why he has paid high commission for the assured quality so that the risk of failure is minimum. Without their being any discrepancy or any inconsistency in his statement, AO cannot discard the said statement and proceeded to make the disallowance of such a claim of payment of commission. Under the facts and circumstances the reasoning given by the authorities below cannot be upheld and accordingly, the disallowance of Rs. 22,33,762/- is....