Db Income Tax Appeal v. The Commissioner Of Income Tax, Kota

1 In The High Court Of Judicature For RajasthanBench At Jaipur DB Income Tax Appeal No.297/2009Shanti Lal Jain v. The Commissioner of Income Tax, Kota 16.4.2012 Hon'ble Chief Justice Mr. Arun MishraHon'ble Dr. Justice Meena V. Gomber Mr. N.L. Agarwal, for appellantMr. Mahi Yadav for Mr. Sameer Jain, for respondents By the Court Heard on the question of admission. 2.The appeal has been preferred as against order dated 19.9.2008passed by the Income Tax Appellate Tribunal dismissing the appealno.716/JP/2007. The Assessment Officer has made the addition ofRs.16,47,512/- . The same has been affirmed by the Commissioner ofIncome Tax in appeal as also by Income Tax Appellate Tribunal.Aggrieved by the aforesaid addition, the assessee has come out withthe appeal under Section 260A of the Income Tax Act. 3.The submission raised is that payment of commission paid bythe assessee to Shri Uttam Chand Jain and Smt. Sunita Jain, who areson and daughter-in-law, ought not to have been added. It was abusiness expenditure. 4.Shri Agrawal has submitted that the documents on record provethat the amount paid to Shri Uttam Chand Jain and Smt. Sunita Jainwas towards commission as such business expenditure, though they were related in the capacity of son and daughter-in-law of theassessee. The Assessment Officer, Commissioner of Income Tax(Appeals) and Income Tax Appellate Tribunal have erred in nottreating the same as business expenditure. 5.After hearing learned counsel for the appellant at length andgoing through the material on record, we find that the decision takenby the Assessment Officer, Commissioner of Income Tax (Appeals)and Income Tax Appellate Tribunal, is based upon the facts of thecase and the material which has been placed on record. Thebrokerage given to the son and daughter-in-law, was not mentioned asbrokerage but has been shown as payment made to the familymembers. The Income Tax Appellate Tribunal in its order, hasassigned various grounds for confirming the addition. Paras 16 and17 are thus quoted :- “16. The brief facts of the case are that out of thetotal brokerage/commission of Rs.80,56,910/-received by the , he has shown paymentbrokerage/commissionamountingtoRs.13,44,167/- to Shri Uttam Chand Jain, his sonand Rs.3,03,345/- to Smt. Sunita Jain, hisdaughter in law. The AO asked the assessee toexplain the basis and justification of thesepayments of brokerage/commission to his familymembers. It was explained that these relativeshave made investment through the assessee byusing the specific code number of the assesseeand accordingly brokerage so paid by thecompany has been passed on to these familymembers pm their investment. The AO examinedthe various statements of brokerage furnished bythe assessee before him and he noticed that “16. The brief facts of the case are that out of thetotal brokerage/commission of Rs.80,56,910/-received by the , he has shown paymentbrokerage/commissionamountingtoRs.13,44,167/- to Shri Uttam Chand Jain, his sonand Rs.3,03,345/- to Smt. Sunita Jain, hisdaughter in law. The AO asked the assessee toexplain the basis and justification of thesepayments of brokerage/commission to his familymembers. It was explained that these relativeshave made investment through the assessee byusing the specific code number of the assesseeand accordingly brokerage so paid by thecompany has been passed on to these familymembers pm their investment. The AO examinedthe various statements of brokerage furnished bythe assessee before him and he noticed that investment in the mutual fund have been made byvarious persons by using code number of theassessee. In the case of these various investors,the assessee has not shown any payment ofbrokerage to the investor concern and it has onlyshown payment of brokerage to his familymembers. Thus, the AO observed that thispayment of brokerage to family members is as perthe convenience of the assessee on pick andchoose method and that also without any basisand justification. The AO has gone to the extentof observing that the assessee has apparently doneso to divert his income to his family members,which would otherwise become taxable in hisown hands, whereas Shri Uttam Chand Jain andSmt. Sunita Jain are having huge brought forwardloss, where the income so diverted is adjustedagainst huge loss. The AO vide another letterdated 9-1-06 along with notice u/s 147(1) hasgiven one more opportunity to the assessee toexplain the basis and justification of thesepayment but no explanation was furnished on thedate of hearing. Accordingly, the AO disallowedthe payment of brokerage/commission to thefamily members amounting to Rs.16,47,512/-.The ld. CIT(A) confirmed the action of the AO. 17. We have heard the rival contentions andperused the facts of the case. The assessee hasearned brokerage from various companies onaccount of investments made by the variousinvestors including his relatives Shri UttamChand Jain and Smt. Sunita Jain who are son anddaughter in law of the assessee. The assesseeclaims the brokerage of Rs.16,47,512/- since thesame has been passed over to the said relatives.The case is squarely covered under the Provisionsof Section 40A(2)(b) of the Act. The assessee hasnot passed over the brokerage to any otherinvestors and nothing has been brought on recordthat it is a practice to pass over the brokerage tothe investors whereas the assessee has passedover the total brokerage to his relatives.Therefore, the said expenditure claimed by theassessee is excessive/unreasonable to the fairmarket value. Therefore, we find no infirmity in the order of the ld. CIT(A) who has rightlyconfirmed the action of the AO. Thus GroundNo.3 of the assessee is dismissed.” 6.It is apparent that Assessment Officer has examined variousstatements of the brokerage which were furnished by the assesseebefore him, and in the case of investors, the assessee has not shownany payment of brokerage to the investor concerned and it has onlyshown payment of brokerage to his family members. It has beenfound by the Assessment Officer that it has been done to divert hisincome to his family members which would have otherwise becometaxable in his own hands. Shri Uttam Chand Jain and Smt. SunitaJain were having huge brought forward loss. The income was alsodiverted as against the huge loss. Provisions of Section 40A(2)(b) ofthe Act has been attracted. the order of the ld. CIT(A) who has rightlyconfirmed the action of the AO. Thus GroundNo.3 of the assessee is dismissed.” 6.It is apparent that Assessment Officer has examined variousstatements of the brokerage which were furnished by the assesseebefore him, and in the case of investors, the assessee has not shownany payment of brokerage to the investor concerned and it has onlyshown payment of brokerage to his family members. It has beenfound by the Assessment Officer that it has been done to divert hisincome to his family members which would have otherwise becometaxable in his own hands. Shri Uttam Chand Jain and Smt. SunitaJain were having huge brought forward loss. The income was alsodiverted as against the huge loss. Provisions of Section 40A(2)(b) ofthe Act has been attracted. 7.Shri Agrawal has relied upon the decision of the Madras HighCourt in Commissioner of Income-Tax v. Computer Graphics Ltd.,[2006] 285 ITR 84 (Mad), in which the decision was based upon thematerial which was placed on record so as to treat the payment madeas business expenditure. It depends upon the facts of each case, assuch case has no application. Reliance has also been placed uponCommissioner of Income-Tax v. Print Systems And Products, [2006]285 ITR 337 (Mad). Relevant material was considered. Relevantmaterial in every case differ as such the decision cannot be said to beapplicable in the facts of the case. 8.There are findings of fact recorded by the Assessment Officer,Commissioner of Income Tax (Appeals) and the Income TaxAppellate Tribunal, in this regard and we do not find any infirmity inthe findings of facts. No substantial question arises in the appeal. Appeal is dismissed in limine. (Dr. Meena V. Gomber) J. (Arun Mishra) CJ. db [All corrections made in the judgment/order have been incorporated in thejudgment/order being emailed.] Deepankar BhattacharyaPS