CPV Engineer Private Limited Vs ITO (ITAT Bangalore)
Tribunal noted that AO disallowed ₹35,38,382 sales commission paid to six relatives of directors, holding they did not render services & three ladies could not have contributed to sales of industrial pumps. CIT(A) confirmed.
Tribunal examined qualifications & roles (page-wise details visible in record) & found all recipients—engineers, MBA, science graduates—were associated with business, engaged in technical, administrative, customer-related functions. Tribunal held CIT(A)’s remarks about women being unable to handle industrial pump sales were assumptions unsupported by facts, especially since in AY 2016-17 AO allowed 90% of identical commission. Tribunal deleted the entire disallowance. On gratuity provision of ₹3,19,130, Tribunal held it represented unapproved gratuity fund provision as seen in Schedule 26 & therefore disallowance was justified. On notional interest of ₹1,80,000, Tribunal found Assessee had interest-free funds exceeding interest-free advance of ₹15 lakh, hence no disallowance could be made; deletion directed. For AY 2015-16, identical issues followed earlier year: commission allowed, gratuity disallowed, interest disallowance deleted. Both appeals partly allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. ITA No.1486/Bang/2024 is filed by CPV Engineers Pvt. Ltd. (the assessee/appellant) for the assessment year 2014-15 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 14.6.2024 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income- tax Act, 1961 [the Act] dated 22.12.2016 by the ITO, Ward 1[1], Hubballi was party allowed. Therefore assessee is in appeal before us raising the following grounds:-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in upholding the disallowance of Rs.35,38,382/- being the Sales Commission paid under the facts and in the circumstances of the appellant’s case.
2.1 The learned CIT[A] is not justified in holding that the appellant had not given the details of the specific work done by the 6 individuals to whom the commission was paid and further holding with regard to the commission payment made to three ladies that “it is not easy to conceive that these ladies could have been involved in the extracting process of making sales of industrial pumps to manufacturing units” and thereafter, holding that the onus was on the appellant to explain what specific work/ sale had been done by “these three especially”, which findings ought to be vacated under the facts and in the circumstances of the appellant’s case.
3. The learned CIT[A] is not justified in upholding the disallowance of Rs. 3,19,130/- being the amount of Gratuity paid towards settlement of dispute under the facts and in the circumstances of the appellant’s case.
4. The learned CIT[A] is not justified in sustaining the addition of Rs. 1,80,000/- out of the original addition being the 12% computed as notional interest on loan taken by the Director under the facts and in the circumstances of the appellant’s case.
5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
2. The main grievance of the assessee is the confirmation of disallowance of Rs.35,38,382 being the sales commission, disallowance of Rs.3,19,130 being gratuity paid and disallowance of Rs.1,80,000 out of interest expenditure.
