CA Prarthana Jalan
The Hon’ble Jaipur ITAT in the case of Smt. Jyoti Mantri vs. ITO , Ward- 2 (2), Jaipur being ITA No. 673/JP/2016 vide order dated 23.11.2016 has allowed the commission payments made by the appellant including that to her sons as “It is natural in Indian culture that if the members of the family are competent to work in the business of the family, naturally they will be required to pay the minimum / the same compensation/benefit/incentive as other employees are paid. Hence, it has no relevance that they were paid the commission expenses”.
The brief facts of the case are that the appellant was engaged in the business of consignment agent and trading of color chemicals. During the assessment proceedings, it was observed by the AO that the appellant had claimed a sum of Rs. 22,57,462/- on account of commission payment.The AO required the appellant to furnish the details of the persons to whom commission was paid, the details of the parties to whom sales were made and the commission was given to these persons. Subsequently, the AO made inquiries from a number of buyers of the appellant. On the basis of these inquiries, the AO concluded that the persons to whom the commission has been paid have no role in the sales made by the appellant and these expenses have been claimed in order to reduce profits. Consequently, the AO disallowed the sum of Rs. 22,57,462/- claimed by the appellant as commission expenses. The appellant submitted that despite cut-throat competition in the market, the appellant had been able to maintain the sales as well as the GP/NP rates and this has been possible only because of the engagement of the agents for fetching business to the appellant. It was further submitted that the commission of Rs. 22,57,462/- included commission of Rs. 6,56,859/- and Rs. 7,24,415/- to Shri Prateek Mantri and Shri Rahul Mantri respectively, the sons of the appellant. It was the contention of the appellant that the commission payments were genuine as TDS was duly deducted and deposited.
The appellant relied on the following cases:-
(i)Mobile Communication (India) (P) Ltd. Vs. DCIT 125 ITD 309 (Del.) (Trib.)
(ii) V.I.P. Industries Ltd. Vs. IAC 36 ITD 70 (Bom)(Trib)(TM).
(iii) Anupam Synthetics (P) Ltd. Vs. JCIT 104 TTJ 119 (Del.(Trib.)
(iv) CIT Vs. Ishwar Prakash & Bros. 159 ITR 843 (P&H) (HC).
(v) CIT Vs. Gautam Creations (P) Ltd. 171 Taxman 271 (Del.) (HC).
(vi) CIT Vs. Shriram Pistons & Rings Ltd. (2012) 206 Taxman 41 (Del.)(HC) (Mag.)
(vii) J.K. Steel & Industries Ltd. Vs. CIT 112 ITR 285 (Cal.) (HC).
(viii) ITO Vs. Desh Rakshak Austhalaya (P) Ltd. 7 ITD 531 (Del.) (Trib.
The Hon’ble ITAT deleted the entire disallowance made and stated that
“It is also noted from the record that out of total commission payment of Rs. 22,57,462/-, the assessee had made payment of Rs. 6,56,859/- and Rs. 7,24,415/- to her sons namely Shri Prateek Mantri and Shri Rahul Mantri respectively. It is natural in Indian culture that if the members of the family are competent to work in the business of the family, naturally they will be required to pay the minimum / the same compensation/benefit/incentive as other employees are paid. Hence, it has no relevance that they were paid the commission expenses. It is given to them for the work accomplished by them and the TDS was deducted from the commission expenses and thus deposited in Govt. Account. Both the sons of the assessee had filed the Income tax Returns for the assessment year 2011-12 and the same is available at pages 81 and 82 of the assessee’s paper book .”