TaxTMI 
TaxTMI 
2024 (4) TMI 387
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....lowance of Rs. 5,98,549/- being commission/incentives paid 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 commis....
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.... 841666 Malad 558853 5. P & M trading Cube 8 4200000 420000 Mulund 525000 6. Keon trading LLP Cube 7 3675000 367500 Ghatkopar 525000 7. S.S. Tiwari Cube 6 3100000 310000 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 t....
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....ad done really outstanding work, With due regards to your point, the contract has been entered on e Principal to Principal basis in the normal course of business. However, merely because the contract has been entered on principal to principal basis does not mean that the commission payment was not necessary. The above persons have done 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 ....
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.... 7. If you still fill that you need person for further examination even after above clarification than you may ask us. Copy of ITR of parties are also attached for your reference, where your goodself may note that the commission income is offered to income tax by all the parties concerned and hence there are no evasion of tax from revenue point of view And considering the collective 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 commissio....
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.... marketing skills expertise in getting such big orders for various companies. The agreement of the purchase order with SBI clearly shows that the rate decided with SBI includes all costs of incidental services such as transportation, insurance etc. upto various destination branches, which is reimbursable. In these circumstances, the assessee has not shown anything on record that the commission paid was also reimbursed by 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 ....
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....nd Arpita P Vora. There are two Debit Notes for each person However, inadvertently Ld.CIT(A) has considered one Debit Note only in each case though both the Debit Notes and payment details were submitted with Paper Book and other small payments made to various parties for the sales to other customers not considered by Ld.CIT(A). The list of commission disallowed is on Page No 1 of Paper Book. He prayed that the issue may be sent back to Assessing officer for verification of 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....
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.... part of the total income under this Act." * The term "expenditure" occurring in Section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. * As regards the applicability of Rule 8D of the l.T.Rules, the Hon'ble ITAT in the case of Citicorp Finance (I) Ld. held that "...it is no longer open to the Assessing Officer to apply his discretion in computing 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 i....
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....enditure disallowable u/s.14A of the Act in relation to such income is hereby determined in accordance with the provisions of Rule 8D of the Income Tax Rules, 1962 as under:- I. The amount of expenditure directly relating to income which does not form part of total income --- --- II. Proportionate of interest expenditure computed in accordance with the formula given in rule 8D(2)(ii). (A X B/C) Rs. 1,55,174/- III. Amount equal to one-half percent of the average of the 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. 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....
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....he exempt income earned by the assessee. Therefore, we direct the Assessing Officer to delete the 14A disallowances. 22. In the result, appeal filed by the assessee is partly allowed. ITA No. 3707/MUM/2023 (A.Y. 2014-15) 23. Assessee has raised following grounds in its appeal: - "1. The learned CIT(A) NFAC has erred in law and on facts in confirming the disallowance of Rs. 11,07,600/- out of the commission payment of Rs. 50,42,143/- without properly considering the facts that the appellant has submitted the details of names of the parties to whom the small payment of commission was made against the business services 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 disallow....
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.... for the A.Y. 2013-14. 29. With regard to Ground No. 2, brief facts relating to this ground are, assessee filed its return of income on 30.09.2013 declaring total income at Rs..1,28,31,594/-. The case was selected for scrutiny and notices under section 143(2) and 142(1) of Income-tax Act, 1961 (in short "Act") were issued and served on the assessee along with questionnaire. In response, Authorised Representative attended and submitted the relevant information as called for. 30. Assessee company is engaged in the business of manufacturing, supply and after sales service of electronics weighing scales/balance and instruments. 31. During the course of the assessment proceedings, 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 ....
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....Hon'ble Bombay High Court in the case of PCIT vs. Mohammad Haji Adam & Co. which is accepted by the appellant and not disputed in appeal filed by the appellant. Gross profit percentage even after accounting the said purchases it much higher as compared to earlier years (Page No.206/207 of Paper book) which is again reproduced as under:- Table 1 The gross profit earned by the appellant for last three year [Rupees in crores] Assessment year Turnover Gross Profit % Gross Profit Net profit % Net Profit 2010-2011 25.29 5.89 23.27% 1.08 4.27 2011-2012 20.13 6.15 30.54% 1.00 4.97 2012-2013 24.07 6.20 25.77% 0.77 3.20 2013-2014 27.12 9.16 33.78% 1.50 5.55 2014-2015 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 purch....
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....e pass and excise barriers are not inductive of the software loaded into the equipment, which is claimed to be the main purchase from these concerns. Thus, for an expenditure in form of purchases claimed by the appellant, there is not sufficient proof provided by the appellant, as per the submissions available in the ITBA system. Further, the notices of the AO were not complied with by the said concerns and some returned back. Thus, concrete proof of the genuineness of the transactions is not there. 7.3.3. In light of the above, the AO's action of bringing to tax entire purchases is the only issue for consideration. The AO has relied upon some judicial decisions to establish that the onus is on the appellant. That being established, the issue is of how to treat the bogus purchases when books are accepted and the sales are accepted too. 7.3.4. 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 cor....
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....ction would be impossible to complete and as a necessary corollary, unless the corresponding sale is held to be bogus, the purchase also cannot be held to be bogus, rather it would be a case of purchase from bogus entities/parties. That view has been upheld by the Tribunal in principal while dismissing the appeal of the Revenue. In view of the above, we are of the opinion that the questions of law proposed as (a), (b), and (c) in the appeal cannot be said to be substantial questions of law. Insofar as the question of law framed as (d) is concerned, we find that the Tribunal has not addressed the issue of adopting the gross profit rate of 5% on the alleged Hawala purchase of Rs. 2.45 crores as against the rate of 0.69% declared by the assessee, despite the fact that the CIT (Appeals) had specifically gone into that question in its order dated 18th August, 2015 and had directed the A.O. to make 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 sal....
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....of the boguspurchases. That view of the matter, no purpose is going to be served in interference. There are concurrent findings with sound reasons. 12. This Court in Tax Appeal No. 200 of 2003 in case of Mayank Diamonds (P.) Ltd. (supra) was required to decide the estimation of the gross profit @ 12.5% against the gross profit of 1.03% shown by the assessee. The Court allowed the gross profit rate of 5% holding that 12.5% is drastically higher. In N.K. Industries (P.) Ltd. (supra), where the Court had considered the addition of entire amount on the ground that the fictitious purchases is a factually different than what was already held at Mayank Diamonds (P.) Ltd. (supra). In the other cases of Shri Bhanwarlal Jain also, addition rates are 3% to 5% where no further challenge possibly is there or it has not been processed further. This Court finds that no question of law, much less any substantial question of law arises for consideration of this Court." 7.3.8. Therefore, respectfully following the jurisdictional HC and other HC decisions, the calculation of gross profit on the bogus purchases of Rs. 26,11,034/- is upheld and not the entire addition of the purchase ....