TaxTMI 
TaxTMI 
2024 (4) TMI 387
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.... to staff members which was debited to commission account without properly considering the facts of the case that the appellant company has compensated the staff for putting their hard work and which was also considered for taxability of salary of employees. 2. The learned CIT(A) NFAC has erred in law and on facts in confirming the disallowance of expenses u/s. 14A amounting to Rs..2,77,702/- without properly considering the facts that the major portion of disallowance is deemed interest expenses of Rs. 2,23,012/- without considering the facts and submissions that the appellant has its own interest free fund available for investment. 4. We proceed to dispose off the appeal by adjudicating the issues ground wise. 5. We observe that Ground No.1 is similar to the Ground No.1 raised by the revenue in ITA No. 3868/MUM/2023 (A.Y. 2013-14) and we proceed to adjudicate the issue together. Ground raised by the revenue is reproduced below: - "1. "Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) is justified in deleting the addition made by the AO on account of nongenuine commission payment without appreciating the fact that during the assessment procee....
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....Opera House 516617 8. JayshreeThakkar Cube 3 1800000 180000 Kandivali 600000 9. Jitendra Tiwari Cube 3 1660000 166000 No add 553333 In this regard, kindly furnish the agreement entered with SBI to supplying CUBE and justify the payments made to the above persons in form of Commission on these transactions, also furnish the ledger account of these persons. No bill raised by the parties submitted till date. Only credit note issued by the assessee have been submitted. In this regard the sales of CUBE to SBI is out of order procured by floating tender and reaching to the successful bid, the assessee had made business with SBI and generated revenue. The contract entered into is Principal to Principal. Under these circumstances the submission of the assessee with the support of mere filing of credit note mentioning 10% on assessable value seems to be evasive. In order to prove the genuineness of these transactions for its allowability as business expenditure the assessee needs to show the following with evidences for the recipients of commission 1) How these persons were in contact of the assessee 2) What is the exact nature of work done by the them 3) The Invoices....
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....all the grass root level work and all the ground work because of which it was possible for us to get an order of such big magnitude. It would be appreciated that getting an order at such big level and that too a Government Bank Order requires a lot of ground work which expertise was possessed by the above persons. We had never handfed such single big orders in the past The above persons were going to take care of generating the requirement, demonstrating our products as end when required through our engineers, make sure our products has all the compliance needed to the requirement best suited to SBI and also helped us in each stage of filling of tender till execution of order. The tender requirement was proposed after 1.5 to 2 years of leg work and meeting with SBI persons at AGM levels in various states along with demonstrating the products. It was business decision to offer them 10% commission which we firmly state helped us grab such a huge order from nowhere. Unfortunately, we did not have competent marketing staff who could handle such work which includes PR, compliance, demonstration (with our engineer) liasioning work in a Govt. sector which is a very special job. 1. We ha....
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....ective nature of services provided for the single largest order in life received by our company. Hence request you not to disallow the commission expenses used for business. We would like to state that all the above commission expenses are incurred for the purpose or the business of the assessee and are therefore u/s 37(1). The expenses are directly incurred for earning of income or the assessee and are therefore allowable. As a result of their efforts we were able to get this order and therefore the commission expense is allowable as deduction. Thus, we request your good self to allow the expenditure as deduction. 8. After considering the submissions of the assessee, Assessing Officer observed that despite the assessee was repeatedly asked to furnish the genuineness of the commission expenses incurred by the assessee, the assessee has chosen not to reply and not provided complete details for the same till 28.03.2016 i.e. at the fag end of the completion of the assessment proceedings. Thus the investigation over the genuineness of the commission could not be carried out in the case of the assessee by the undersigned. Accordingly, Assessing Officer proceeded to complete the asses....
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.... the SBI as per the contract signed with the SBI. d In respect of the commission paid of Rs. 1,42,507/- names of 32 persons have been provided. Their addresses are not provided and even the vouchers and the bills of these individuals have not been provided. In the circumstances, without any evidences, merely providing the names do not substantiate the authenticity of these expenses. Therefore, Rs. 1,42,507/-is not allowable. e The commission paid to Mr. Deepak Kumar of Rs. 24,000/- is supported with the assessee company's invoice number and date. The assessee has stated that the invoice raised fn the name of M/s. Intergold Gems Pvt. Ltd is a very old customer and Mr. Deepak Kumar is associated with this company and hence, the genuinity of this commission is ascertainable and hence, Rs. 24,000/- is allowed. f The bills of these persons produced as evidences itself shows that they are not persons of high skill to execute big orders for various companies. In other words, the bills of these persons indicate that they are not in any way established peoples. g The assessee in its submission has categorically agreed that the transactions are one time and specific order based i....
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....the services rendered for which the commission has been paid. 12. On the other hand, Ld. DR submitted that the issue raised in the appeal is similar to A.Y. 2015-16 wherein the assessee made the payment to nine people and similar to A.Y. 2015-16 and agreed that this issue may be remitted back to the file of Assessing Officer. However, he submitted that services were not provided by the assessee and credentials of the suppliers are not provided. 13. Considered the rival submissions and material placed on record, we observe that the assessee has filed the information before the Ld.CIT(A) and based on that Ld.CIT(A) has given part relief to the assesse and even revenue has filed grievances that the facts were not properly verified and this needs to be verified whether the agents have actually performed the duties of an agent and their credentials were not verified. After considering the facts on record and both the counsels are of the view that this issue needs to verified afresh, we deem it fit to remit this issue back to the file of Assessing Officer for fresh verification of the documents submitted by the assessee before the Ld CIT(A). Accordingly, we remit this issue back to the....
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....ting the disallowance or make adhoc disallowance u/s.14A..." as "...sub-sections (2) and (3) seek to achieve the underlying objection of section 14A(1) that any expenditure incurred in relation to exempt income should not be allowed deduction...". * The assessee's plea that it has not earned any exempt income during the year, hence the provision of Section 14A is not applicable to its case, is not acceptable in view of the clear position of law that the nomenclature of the heading of Rule 8D of the Rules, 1962 provides for 'method for determining amount of expenditure in relation to income not includible in total income'. The words used are "income not includible in total income", it is not "income not included in total income". There is a difference between the terms "not Includible" and "not included" as such. Moreover, part 'B' of clause (ii) of sub-rule (2) of Rule 8D also prescribes the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Thus, the intent of legislature is very much clear from the wor....
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....t of the total income as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year. 0.5% of Rs. 36.,31,210/- Rs. 18,156/- Total expenditure disallowed u/s. 14A. Rs. 1,73,330/- Note I. A = Interest (finance cost) = Rs. 36,31,210/- (net) II. B = Average of exempt income-bearing investments = Rs. 75,72,415/- III. C = Average of total assets appearing in the Balance Sheet on the first and last day of the previous year = Rs. 17,72,01,155/- Thus, having regard to the accounts of the assessee company of the previous year relevant to A.Y. 2013-14, the undersigned is not satisfied with the correctness of the assessee's claim. The amount of expenditure attributable to the activity of investments, income from which is not includible in total income of the assessee company, is hereby determined in accordance with Rule 8D of the Income Tax Rules, 1962 at Rs. 1,73,330/-. Thus, the sum of Rs. 1,73,330/- is hereby disallowed u/s. 14A and the same is added to income as well as Book Profit of the assessee company in view of provisions of clause (f) of Explanation 1 to....
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....rendered by them. The learned CIT(A) NAFC has not asked the details during the appellate proceedings and suo moto observed in Para 5.3.2 that the entire commission paid including the other twelve agents is for the single order of State Bank of India Order without considering that there was other business on which the commission was paid. 2. The learned CIT(A) NFAC has erred in law and on facts in confirming the disallowance of expenses u/s 14A amounting to Rs. 1,73,330/- without properly considering the facts that the major portion of disallowance is deemed interest expenses of Rs. 1,55,174/without considering the facts and submissions that the appellant has its own interest free fund available for investment." 24. Coming to the appeal relating to A.Y. 2014-15, since facts in this case are mutatis mutandis, therefore the decision taken in assessee's case for the A.Y. 2013-14 are applicable to this assessment year also. Accordingly, appeal filed by the assessee is partly allowed. 25. In the result, appeal filed by the assessee is partly allowed. REVENUE APPEALS ITA No. 3868/MUM/2023 (A.Y. 2013-14) 26. Revenue has raised following grounds in its appeal: - 1. "Whether on the ....
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....oceedings, Assessing Officer observed that assessee has made purchases from Roshni Marketing, Jay Traders, Padmavati Corporation, Moksh Trading Company, Shubham Enterprise, D & Sons amounting to Rs..4,44,52,336/-. Assessee was asked to prove the genuineness of the purchases made from the dealers as referred in Assessment Order. In response assessee filed its submissions and submitted that the purchases made are genuine. 32. Not convinced with the submissions of the assessee, the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Accordingly, Assessing Officer treated the said purchases made for an amount of Rs..4,44,52,336/- for the A.Y.2013-14 as bogus and non-genuine purchases and added to the total income of the assessee. 33. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee, Ld. CIT(A) deleted the addition made by the Assessing Officer and sustained the GP rate of about 6% on the....
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....-2015 34.68 11.34 32.71% 1.60 4.64 Purchases include body part and software for the purpose of machines manufactured which are the basic raw material for manufacturing the machines. The assessee has given exact stock tally of the purchases with the product manufactured and sold or available in the closing stock. The assessee has also tiled the orders of the excise authority accepting the purchases." 38. In view of the above submissions of the assessee, Ld.AR of the assessee prayed that the order of the Ld. CIT(A) may be sustained. 39. Considered the rival submissions and material placed on record. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and restricted the disallowance to profit ratio for the actual purchases for the year under consideration. While holding so, the Ld.CIT(A) observed as under: - "7.3.1. The appellant had purchased from the following concerns controlled by Shri. Bhimjibhai Shah and Shri. Jayant Chimanlal Shah, which by the investigation report of DGIT, Surat, were found to be indulging in....
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.....4. The principal of taxing income on the non-genuine purchases, rather than adding the entire purchases is upheld by the decision of the jurisdictional High Court of Bombay in case of PCIT vs. M/s. Mohommad Haji Adam &Co.103 taxmann.com 459 (2019), in which the Honourable Court observed as under "...the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot he applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. T....
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....ake 5% addition in the gross profit ratio, while deleting the balance addition." 7.3.6. These decisions are applicable to the current case as the facts and circumstances are similar because here too, only the part of purchases was questioned by the AO, without questioning the sales. The Hon'ble High Court of Bombay has taken the gross profit ratio on purchases at the same rate of other genuine purchases accepted by the department. The Honourable HC has consistently held onto this logic. In the very latest judgement in case of PCIT v. S.V.Jiwani 449 ITR 583 (2022), 290 Taxman 178(2022), the Court held thus: "It also held that the A.O. had not disputed the turnover of the contract work executed by the assessee and that unless the assessee procured the materials and goods, if not from the declared sources but from some other sources, it would not be possible on the part of the assessee to execute work awarded by MCGM. The Tribunal, therefore, held that the entire purchase made by the assessee could not be added back as income, but only profit element embedded therein, be treated as income of the assessee. 7.3.7. The High Court of Gujarat in case of PCIT v.Surya Impex[2023] 148 t....