2019 (11) TMI 62

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....ry Circle I, Coimbatore (hereinafter called "AO") vide order dated 26.03.2014 passed u/s. 143(3) of the Income Tax Act, 1961 (in short 'the Act') at total income of Rs. 2,28,32,255/-. While doing so, the AO made the following additions:- a) Disallowance of Depreciation on windmill : 2,03,87,136/- b) Disallowance of purchase expenses u/s.40A(3) : 28,17,587/- c) Disallowance of Commission given to M/s, Balakrishnan Minor HUF u/s.40A(2)(b) : 2,00,000/- 3. Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order partly allowed the appeal by deleting the addition on account of disallowance of depreciation on windmill and confirmed the additions made by the Assessing Officer u/s.40A(3) of the Act of Rs. 28,17,587/- and disallowance of commission of Rs. 2,00,000/- paid to Balakrishnan Minor HUF. 4. Being aggrieved by that part of the order of the ld. CIT(A), the appellant is in appeal before us in the present appeal. 5. Ground No.2 relates to disallowance of purchase expenses of Rs. 28,17,587/- made u/s.40A(3) of the Act. During the assessment proceedings, the Assessing Officer on verification of the ledger account of....

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.... which the cash payments are made. In the instant case, the payments were made to the suppliers by the partners of the assessee in the subsequent years and therefore the question of addition for the year under consideration does not arise. 6. On the other hand, ld. Senior Departmental Representative submitted that provisions of Section 40A(3) of the Act are squarely attracted and the lower authorities had rightly made the addition. 7. We heard the rival submissions and perused the material on record. The only issue in the present grounds of appeal relates to the disallowance under the provisions of Section 40A(3) of the Act. Undisputedly, the payments for purchases are made in cash to the tune of Rs. 28,17,587/-. It is the contention of the assessee that provisions of Section 40A(3) of the Act have no application in as much as, the credit balance of the parties were transferred to the partners account and partners in turn settled the claims of the parties in cash. Since assessee firm has not paid cash, the provisions of Section 40A(3) of the Act have no application. We are afraid this submission of the assessee cannot be accepted for the reasons that undisputedly, the p....

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.... (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Assessing Officer as to the, genuineness of the payment and the identity of the payee." As to the validity of section 40A(3), it was urged that, if the price of the purchased material is not allowed to be adjusted against the sale price of the material sold for want of proof of payment by a crossed cheque or a crossed bank draft, then the income-tax levied will not be on the income but it will be on an assumed income. It is said that the provision authorising levy of tax on an assumed income would be a restriction on the right to carry on business, besides being arbitrary. In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restric....

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....allowed the commission payment of Rs. 2,00,000/- paid to Balakrishnan Minor (HUF) under the provisions of Section 40A(2)(b) of the Act for two reasons, first there was no proof of rendering any services by the Balakrishnan Minor (HUF) and secondly the services stated to have been rendered only in individual capacity. 9. Even on appeal before the ld. CIT(A), the ld. CIT(A) confirmed the addition for want of evidence of services rendered. 10. Being aggrieved, the appellant is in appeal before us in the present appeal. The ld. Authorised Representative submitted that the Assessing Officer was not justified in making the addition without brining on record what is the fair market value of the services rendered. 11. On the other hand, the ld. Sr. Departmental Representative placed reliance on the orders of lower authorities. 12. We heard the rival submissions and perused the material on record. It is settled position of law that commission payment cannot be allowed as deduction in the absences of any evidence on record establishing rendition of services. In this connection, reliance can be placed on the decision of Bangalore Bench of the Tribunal in the case of M/s. 3M India ....

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....business of modular kitchen. In this scenario what appears on record is merely book entries coupled with TDS the amount which will be claimed as a refund by the recipient being a loss making concern. In our considered view the assessee has produced only skeletal paper work of the arrangement without any iota of evidence about actual business services rendered. 23. The assessee's claim for allowing similar commission payment in subsequent year caries no merit inasmuch as the learned DR has rightly pleaded that each and every year of assessment is separate and independent unit and principles of resjudicata do not apply. The assessment for the assessment year 2009- 10 is under section 143(1) and for the assessment year 2010-11 there is no mention of the commission at all. Therefore, we are unable to give evidenced to the facts whose record is not before us and not referred to before the lower authorities". 12. Similarly, the Hon'ble Delhi High Court in the case of Schneider Electric (Ind.) Ltd Vs CIT (21008) 304 ITR 360 (Del.) held that in the absence of material on record suggesting that the commission agents had procured the sale orders, no commission shou....