Govindgopal R.Soni, Ahmedabad vs Assessee

ी एन0एस0 सैनी, लेखा सद य एवं ी कुल भारत, या%यक सद य के सम& BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 2379/Ahd/2011 %नधा)रण वष)/Assessment Year: 2008-2009

Govindgopal R. Soni ITO, Ward-6(2) 4th Floor, Sidhhachan Complex Vs Ahmedabad. Nr.T.V. Tower Drive-in-Road Ahmedabad 380 054.

अपीलाथ,/ (Appellant) -.यथ,/ (Respondent)

Assessee(s) by : Shri M.K. Patel Revenue by : Shri M.K. Singh, SR.DR

सन ु वाई क तार ख/ Dateof Hearing : 27/03/2015 घोषणा क तार ख / Date of Pronouncement: 10/04/2015

आदे श/O R D E R

PER N.S. SAINI, ACCOUNTANT MEMBER: This is an appeal filed by

the assessee against the order of the Commissioner of Income-Tax-XI, Ahmedabad dated 1.9.2011.

2. The ground no.1 of appeal of the assessee reads under:

"1. The Ld C.I.T. (Appeals) erred in law and on facts to uphold the disallowance of Rs.6,33,922/- being rate difference paid in the form of commission."

2. The Ld C.I.T. (Appeals) erred in law and on facts to uphold the disallowance of Rs.92,311/-out of interest expenses for not deducting TDS. The learned CIT(A) erred in not following the decision of the jurisdictional High Court cited by the appellant in case of Nirma Industries Ltd."

ITA No.2379/Ahd/2011 2 3. Brief facts of the case are that the AO observed that the assessee had paid commission to Smt. Kajal Somani, Smt. Sangita Somani and Smt. Seema Somani at the rate of 25.1%, 33.89% and 33.89% respectively. He observed that the commission paid to other parties ranged from 1.5% to 2.5%. Since the commission amount paid to three ladies was abnormally high, the AO issued show cause notice to the assessee. In reply to this show cause notice, the assessee submitted that it had entered into an oral contract for supply of goods to them at the agreed price, but since these parties were not having VAT registration, so they insisted that the bills should be made directly in the name of purchasing parties, and the difference be paid to them in the form of commission. It is submitted that, in this case, the billed amount was abnormally higher than what the assessee was generally selling goods to other parties. The assessee filed statement showing the rates at which the goods sold to these parties and the rates at which sold to other parties to support its contentions. The AO after considering the reply of the assessee observed that the assessee had not submitted any evidence to substantiate its claim that the sales have been made at higher rate to the parties introduced by three ladies compared to other commission agents. Therefore, the AO held that the commission paid to three ladies was unreasonable. The AO also observed that the book entry of commission to three ladies was made through JV entries on 31.3.2008, whereas the commission to other person has been entered in regular course of accounting. Therefore, he disallowed commission payment to the extent of Rs.6,33,922/- to the three ladies.

4. On appeal, the CIT(A) observed that the assessee has submitted before him that the payments made to three ladies were debited under the head "commission". However, these are not commission, but these are rate difference. The CIT(A) held that it was difficult to believe this contention of the assessee, as the expenses were debited under the ITA No.2379/Ahd/2011 3

head commission expenses and the assessee had deducted TDS on these payments. By deducting TDS, the assessee was accepting the factum of commission payments and the assessee might have also issued TDS certificates to these ladies showing the amount as commission amount. The CIT(A) held that the assessee cannot be given freedom to recast an entry as suits to its ends. He, therefore, confirmed the action of the AO.

5. The DR relied on the orders of the lower authorities.

6. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The AO observed that the assessee has claimed deduction for commission payment of Rs.6,33,922/- to three ladies. The AO observed that the rate of commission claimed ranges from 25.1% to 33.89% whereas the commission paid to other parties ranges from 1.5% to 2.5%. The AO also observed that the aforesaid commission of Rs.6,33,922/- was entered as a journal entry on the last day of previous year, whereas, in the case of other parties, the commission was paid during the year.

7. On appeal, the CIT(A) observed that the assessee has claimed before him that the aforesaid Rs.6,33,922/- was in fact payment of rate difference to the third parties and not payment of commission. However, the CIT(A) did not accept the above submission of the assessee on the ground that the assessee claimed earlier before the AO that the payment in question was commission and also the assessee in its TDS return claimed the amount as payment of commission.

8. Before us, the AR of the assessee submitted that the payment in question was on account of rate difference. We find that in the instant case, the assessee claimed before the AO that the assessee entered into an oral agreement with three ladies in question for sale of certain goods but as the ladies were not registered with VAT authorities, they insisted ITA No.2379/Ahd/2011 4

for raising of bill in the name of the real purchaser and the difference between the actual and agreed rate and the invoice value was claimed as deduction by the assessee. Thus, though the assessee has now given nomenclature of payment as rate difference but the nature of payment as per the facts explained by the assessee is of commission. The assessee filed a chart showing sales in respect of which the payment in question was made to three ladies, but the said chart was not admitted by the CIT(A), as the same was not filed before the AO, and as fresh evidence filed, for the first time, before the CIT(A).

9. We find that the assessee has not stated any reason as to why these evidences, which were filed before the CIT(A), were not filed before the AO. In fact no argument was advanced before us in respect of non-admission of fresh evidence by the CIT(A). We also observed that no submission was made by the assessee in respect of observation of the lower authorities with regard to the amount in question was only entered as journal entry in the books at the end of the relevant year. No evidence was brought before us to show that any service was in fact rendered by the three ladies in question and fact of actual payment made to these three ladies. In the absence of such material, we do not find any good reason to interfere with the order of the CIT(A), which is hereby confirmed, and the ground of appeal of the assessee is dismissed.

10. The ground no.2 of appeal of the assessee reads under:

2. The Ld C.I.T. (Appeals) erred in law and on facts to uphold the disallowance of Rs.92,311/-out of interest expenses for not deducting TDS. The learned CIT(A) erred in not following the decision of the jurisdictional High Court cited by the appellant in case of Nirma Industries Ltd."

ITA No.2379/Ahd/2011 5 11. Brief facts of the case are that the AO observed that the assessee made interest payment to M/s.Shrekhan and M/s.Kotak Mahendra without deducting TDS, and accordingly, he disallowed the same by invoking the provisions of section 40(a)(ia) of the Act.

12. On appeal, the CIT(A) observed that before him the assessee submitted that the amounts paid as interest was on account of outstanding business dues, and therefore part of purchase consideration. But the assessee failed to substantiate the same by filing any evidence. He noted that the auditor in the audit report has stated that the payments of interest were made without deducting TDS, and inspite of this, the assessee did not disallow the same. He held that in view of specific remark of the auditors and the admission that the payments were on account of interest, he confirmed the action of the AO.

13. Before us, the AR of the assessee contended that the amount paid was interest payment for making delayed payment to the suppliers and therefore was part of purchase price paid for goods. He relied on the decision of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. Vs. DCIT, 283 ITR 402 (Guj), wherein it was held that the interest received on late payment of sale consideration was part of sale consideration. Hence, it was the contention that the disallowance made was not justified, and should be deleted.

14. We have heard rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the assessee made payment of Rs.92,311/- to M/s.Shrekhan and M/s.Kotak Mahendra as interest for making delayed payment of purchase bills. The AO disallowed deduction for the same by invoking the provision of section 40(a)(ia) of the Act as the assessee failed to deduct TDS from this amount. On appeal, the CIT(A) confirmed the action of the AO. The contention of the assessee is that ITA No.2379/Ahd/2011 6

interest paid to suppliers for late payment was in the nature of purchase price, and hence not liable to TDS deduction. We find that the Ahmedabad Bench of the Tribunal in the case of ITO v. Parag Mahasukhlal Shah [2011] 46 SOT 302/12 taxmann.com 37 has held that payment which has a direct link and immediate nexus with the trade liability being connected with the delayed purchase payment, hence, will not fall within the category of 'interest' as defined in section 2(28A) of the Act. Therefore, respectfully following the decision of the Ahmedabad Bench of the Tribunal, we hold that the assessee was not liable to deduct TDS from the payment of Rs.92,311/-, and therefore, the disallowance made under section 40(a)(ia) of the Act was not justified. Hence, we delete the addition of Rs.92,311/-, and accordingly, this ground of the appeal of the assessee is allowed.

16. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the Court on Friday, the 10th April, 2015 at Ahmedabad.

Sd/- Sd/-

(KUL BHARAT) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Ahmedabad; Dated 10 /04/2015