Case Law Details
Olivine International Vs DCIT (ITAT Kolkata)
The appeal concerned the disallowance of Rs. 23,88,636 towards brokerage and commission for AY 2013-14. The assessee challenged the order of the Commissioner of Income-tax (Appeals), who had upheld the Assessing Officer’s disallowance despite the assessee’s claim that the expenditure was incurred wholly and exclusively for business purposes and was allowable under Section 37(1) of the Income-tax Act.
The assessee, engaged in the business of trading in medicines, surgical goods, chemicals and medical equipment, had claimed brokerage and commission expenditure of Rs. 57,95,566 in its Profit and Loss Account. During scrutiny assessment under Section 143(3), the Assessing Officer sought details of the commission payments, including names and addresses of the recipients. The assessee furnished details of the brokerage and commission paid along with TDS certificates.
The Assessing Officer issued notices under Section 133(6) to three recipients. The notices were initially returned unserved. The assessee subsequently furnished updated addresses of the parties. However, notice issued to one recipient still remained unserved even after the updated address was provided. On this basis, the Assessing Officer treated the commission payments as not proved and disallowed the expenditure.
The Commissioner (Appeals) affirmed the disallowance, holding that the assessee had failed to discharge the statutory burden and that the Assessing Officer had pointed out specific defects during assessment proceedings.
Before the Tribunal, it was observed that the assessee had engaged various persons and entities for procuring sales orders and had paid brokerage and commission after deducting tax at source, which was duly deposited with the Government. The Tribunal noted that the Assessing Officer had disallowed the expenditure solely on the ground that notices issued under Section 133(6) could not be served upon certain recipients.
The Tribunal found that the assessee had produced all relevant documentary evidence, including the names, addresses, PAN details, TDS particulars and bank details of the recipients. It also observed that the books of account had been properly maintained and that the Assessing Officer had not doubted the genuineness of the payments. The payments had been made through banking channels by cheque and tax deducted at source had been deposited with the Government.
Relying on the decision of the Calcutta High Court in CIT v. Inbuilt Merchant Pvt. Ltd., the Tribunal held that non-service of notices or failure of recipients to respond does not establish that the recipients were non-existent or that the payments were fictitious. The High Court had recognised that books of account maintained in the ordinary course of business are relevant evidence and cannot be discarded without valid reasons. It had also held that where books of account are maintained, payments are made by cheque, TDS is deducted and deposited, and recipient particulars are furnished, such evidence cannot be ignored merely on account of non-service of notices.
Applying the same principle, the Tribunal held that once it was established that the commission payments had been made through banking channels after deduction and deposit of TDS, and the assessee had furnished all supporting particulars, no disallowance under Section 37(1) could be sustained merely due to failure of service of notices under Section 133(6).
Accordingly, the Tribunal set aside the order of the Commissioner (Appeals), directed the Assessing Officer to delete the addition of Rs. 23,88,636, and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Panaji(hereinafter referred to as the “Ld. CIT(A)”] dated 31.01.2026 for the AY 2013-14.
2. The only issue raised by the assessee is against the order of ld. CIT (A) confirming the addition of ₹23,88,636/- as made by the ld. AO on account of brokerage and commission without appreciating the fact that the expenditure was incurred wholly and exclusively for the purpose of business and is fully allowable u/s 37(1) of the Act.
3. The facts in brief are that the assessee filed the return of income on 27.09.2013, declaring total income of ₹21,45,890/-. The case of the assessee was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS) and statutory notices along with questionnaire were duly issued and served upon the assessee. The assessee is engaged in the business of trading in medicine, surgical goods, chemicals and medical equipments. The ld. AO on perusal of the Profit and Loss account during the assessment proceedings noted that the assessee has debited a sum of ₹57,95,566/- on account of brokerage and commission and accordingly called upon by the ld. AO to furnish the details of expenses giving names, address of the parties. Accordingly, the assessee submitted the details of brokerage and commission paid to various parties along with details of TDS certificates deducted in respect of brokerage and commission. The ld. AO issued notices u/s 133(6) of the Act to three parties namely; Glix Securities Pvt., Vipul Tiwari (HUF) and Debesh Prasad Nanda, which were not served. Thereafter, called upon the assessee to prove the genuineness of the purchases. The assessee vide letter dated 10.09.2015, furnished the new addresses of the parties, as the earlier addresses have changed, however in respect of one party namely Debesh Prasad Nanda, the notice could not served on new address even. Again the notices were issued but could not be served. Thereafter, the ld. AO disallowed the commission paid and added the same to the income of the assessee in the assessment framed u/s 143(3) of the Act.
4. In the appellate proceedings, the ld. CIT (A) affirmed the order of the ld. AO on this issue by observing that the assessee has not discharged burden cast upon it by the statute and since the AO has brought out specific defect and no compliance during the assessment proceedings, CIT(A) therefore, justified the addition.
5. We have heard the rival contentions and perusing the materials available on record, we find that the assessee is engaged in the business of sale of medicine, medical equipments and surgical goods, etc. The assessee has engaged the services of various person for procuring the sales orders and used to pay the brokerage and commission on the same. During the year the assessee engaged with various persons / entities to whom the commission and brokerage were paid after deduction of tax at source and the same was deposited into the Government Treasury. The ld. AO has disallowed the payment only on the ground that the notices u/s 133(6) of the Act, could not serve. Whereas, on the other hands, the assessee has filed all the evidences, comprising names, addresses, PANs, TDS details, bank details, etc. In our opinion, the assessee has maintained the books of accounts propery. Moreover, the ld. AO has not doubted the genuineness of the payments. Therefore, once it is established that the payments were made by cheque and the tax deducted at source have been deposited then no disallowance can be made in respect of said expenses. The case of the assessee is squarely covered by the decision of Hon’ble Jurisdictional High Court in case of CIT vs. M/s Inbuilt Merchant Pvt. Ltd. in ITAT No. 225 of 2013, GA No. 3825 of 2013 vide order dated 14.03.2014, wherein the Hon’ble Court has held as under:-
“The views expressed by the Assessing Officer are erroneous in law. The Assessing Officer has overlooked the importance of the books of accounts maintained in the ordinary course of business. Reference in this regard may be made to sub-section (2) of Section 32 of the Indian Evidence Act, 1872. The books of accounts maintained in the ordinary course of business are relevant and they cannot be discarded in the absence of appropriate reasons. The mere fact that recipient did not reply in some cases or they were not found at the address furnished by the assessee does not in the least prove the fact that they were non existent or that the payments shown to have been made by the assessee were imaginary. With the advancement of technology, it has become possible to sell goods throughout the country through the internet. For that purpose, agents are required throughout the country. The mechanism in that regard has been disclosed by the assessee and has been recorded in the order of the CIT (Appeals). For the purpose of carrying on its business, the assessee has to recruit the agents. It may not be possible for the assessee to know them personally. Whatever address was furnished to the assessee, has been disclosed to the Income-tax Department. Payments were admittedly made by cheque after deduction of tax. The tax deducted as source has duly been deposited. The judgment in the case of CIT vs. Precision Finance Pvt. Ltd. reported in 208 ITR 465 relied upon by Mr. Bhowmick does not really assist him. The aforesaid judgment is an authority for the proposition that mere payment by account payee cheque cannot establish that the transaction was genuine, but in the case beforeus, besides the fact that payment was made by cheque, there are other pieces of evidence available which are as follows:
a) Books of Accounts maintained by the assessee in the ordinary course of business;
b) Deduction of Tax at source;
c) Deposit of the money deducted at source;
d) Particulars of the recipient were duly furnished;
We are, as such, of the opinion that the views expressed by the learned Tribunal are unexceptionable. We, therefore refuse to admit the appeal. The appeal is thus dismissed.”
6. Therefore, respectfully following the decision of the Hon’ble Calcutta High Court in case of M/s Inbuilt Merchant Pvt. Ltd.(supra), we set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition.
7. In the result, the appeal of the assessee is allowed.
Order pronounced on 25.06.2026.
Author Bio
