Romesh Kumar v. Commissioner Of Income Tax, Ludhiana & Another

[I.T_A. No.11l of 1999 -/- IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH (1) L.T.A. No.l11 of 1999 (O&M).Assessment Year:- 1989-90Decided on:-February 28, 2014. Romesh Kumar. Versus ....... Appellant, Commissioner of Income Tax, Ludhiana & another woe KRESpondents. (2) I.T.A. No.112 of 1999 (O&M).Assessment Year:-1990-91| Romesh Kumar. Versus ....... Appellant, Commissioner of Income Tax, Ludhiana & another woe KRESpondents. CORAM: Hon'ble Mr. Justice Rajive BhallaHon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. 00000 Argued by:- Ms. Supriya Garg, Advocatfor the appellant.for the appellant. Mr. Rajesh Katoch, Advocatefor the respondents.for the respondents. Dr. Bharat Bhushan Parsoon, J. These two appeals arise out of joint order dated 29.4.1999(Annexure P-3) passed by the Income Tax Appellate Tribunal, Chandigarh [I.T_A. No.11l of 1999 -)- Bench, Chandigarh (hereinafter referred to as, the Tribunal) in ITANos.432/Chandi/92 and 493/Chandi/93 pertaining to assessment years 1989-OQ and 1990-91. 2Since a common question of law is involved in both theseappeals and these appeals pertain to the same assessee, they have been takenup tor adjudication together. However, for convenience and clarity, facts arebeing taken from appeal No.111 of 1999. 3The assessee is engaged in supply and maintenance ofsophisticated electronics equipment. He filed his return of income tax for theassessment year 1989-90 on 30.10.1989 declaring his income asRs.24,34,593/- which as per revised return was changed to Rs.20,62,310/-.Pursuant to notice issued under Section 148 of the Income Tax Act, 1961(for short, the Act) on 31.5.1991, the assessee had filed his revised return on1.7.1991 finally declaring his income as Rs.26,66,840/-. 4Thereatter, notices under Section 143(2) and 141(1) of the Actwere served. The Assessing Officer (hereinafter mentioned as, the AQ) afterfinalizing the assessment vide assessment order (Annexure P-1) made anaddition of Rs.1,74,484/-, interalia, on account of commission paid to oneAnil Kumar Gupta, 5.In appeal, the Commissioner of Income Tax (Appeals),Ludhiana |hereinafter mentioned as, the CIT(A)] vide his order dated29.1.1993 (Annexure P-2) affirmed the said addition of Rs.1,74,484/- onaccount of commission paid though gave relief with regard to some otheradditions which had been made by the AO, 6.|Agreeing with this order (Annexure P-2) of the CIT(A), theTribunal vide a joint order (Annexure P-3) upholding the re-opening ofassessment by the CIT(A), gave no relief to the assessee with respect to the [I.T_A. No.11l of 1999 -3- addition made by the AO when it affirmed order of the CIT(A) in thisregard. yd This appeal was admitted for hearing on 21.8.2000. Followingsubstantial questions of law were posed for adjudication by the appellants: 1)Whether in the facts and circumstances of thecase, the orders Annexures Pl, P2 and P3 arelegally sustainable?case, the orders Annexures Pl, P2 and P3 arelegally sustainable? 11)Whether in the facts and circumstances of thecase, in view of the agreement and affidavit onrecord, the disallowance of the commission as anexpenditure is legally sustainable?case, in view of the agreement and affidavit onrecord, the disallowance of the commission as anexpenditure is legally sustainable? 111)Whether in the facts and circumstances of thecase, the relationship of the assessee/appellant andsh. Anil Kumar Gupta not falling within the ambitof Section 40A(2)(b) the disallowance ofexpenditure by ignoring the provision of Section2(41) of the Income Tax Act can be legallysustained?case, the relationship of the assessee/appellant andsh. Anil Kumar Gupta not falling within the ambitof Section 40A(2)(b) the disallowance ofexpenditure by ignoring the provision of Section2(41) of the Income Tax Act can be legallysustained? 111)Whether in the facts and circumstances of thecase, the relationship of the assessee/appellant andsh. Anil Kumar Gupta not falling within the ambitof Section 40A(2)(b) the disallowance ofexpenditure by ignoring the provision of Section2(41) of the Income Tax Act can be legallysustained?case, the relationship of the assessee/appellant andsh. Anil Kumar Gupta not falling within the ambitof Section 40A(2)(b) the disallowance ofexpenditure by ignoring the provision of Section2(41) of the Income Tax Act can be legallysustained? iv)Whether on correct interpretation of Sections2(41) and 40A(2)(b) of Income Tax Act, thedisallowance of expenditure on account ofcommission paid to Sh. Anil Kumar Gupta islegally justified?2(41) and 40A(2)(b) of Income Tax Act, thedisallowance of expenditure on account ofcommission paid to Sh. Anil Kumar Gupta islegally justified? S_We have heard counsel for the parties, while going through thepaper books. QOContention of the assessee is that the income tax authorities hadwrongly construed employment of Anil Kumar Gupta to be that of a relativeof the assessee and thus the said authorities were wrongly alarmed by thequantum of commission paid to him. It is further claimed that this wrongapproach of the revenue resulted in addition of said commission which hadbeen paid to Anil Kumar Gupta, to income of the assessee. It is claimed that [I.T_A. No.11l of 1999 Anil Kumar Gupta is not a relative of the assessee in terms of definition ofterm “relative” given in Section 2(41) of the Act, which reads as under: “Relative”, in relation to an individual, means thehusband, wife, brother or sister or any lineal ascendant ordescendant ofthat individual” 10.It is then urged that when there is no application of provisionsof Section 2 (41) of the Act to the facts of the case, no resort could be madeto provisions of Section 40A (2)(b) of the Act. It is further urged that incometax authorities are not expected to question quantum of remuneration orcommission paid to their employees by the assessee as in the conduct of hisbusiness, the assessee is to pay for the skills and acumen of his employeescommensurate to their abilities| 11.)Per contra, claim of the revenue is that entire evidence given bythe assessee qua engagement of Anil Kumar Gupta and payment of hugecommission to him was analysed and evaluated by the income taxauthorities who then had concurrently come to a finding that payment ofcommission was not genuine and rather was a camouflage for reducingprofits in order to escape liability of taxation. Some tacts worthy ofimportance, are recapitulated hereunder: (1)Anil Kumar Gupta was working with the assessee onSalary;Salary; (11)No such commission as was paid in assessment year1989-90, had ever been paid to him earlier;1989-90, had ever been paid to him earlier; (111)As per statement of Anil Kumar Gupta dated25.3.1991, his duties were confined to liaison workand to entertain customers in Delhi Branch; and,25.3.1991, his duties were confined to liaison workand to entertain customers in Delhi Branch; and, (iv)There is assertion of Anil Kumar Gupta that he wasthinking of resigning from this service but haddropped the idea because the assessee had agreed tothinking of resigning from this service but haddropped the idea because the assessee had agreed to pay him commission @ 2.5% on the gross-receiptsover and above, his salary and allowances. 12.After going through the explanation furnished by the assesseeand statement of Anil Kumar Gupta, the AO had come to the followingconclusion: “1)There was no change in the duties of Shri Anil Guptaprior to the agreement and thereafter, and right from1984 onwards till date these only involved liaisonwork in the Delhi branch.prior to the agreement and thereafter, and right from1984 onwards till date these only involved liaisonwork in the Delhi branch. (iv)There is assertion of Anil Kumar Gupta that he wasthinking of resigning from this service but haddropped the idea because the assessee had agreed tothinking of resigning from this service but haddropped the idea because the assessee had agreed to pay him commission @ 2.5% on the gross-receiptsover and above, his salary and allowances. 12.After going through the explanation furnished by the assesseeand statement of Anil Kumar Gupta, the AO had come to the followingconclusion: “1)There was no change in the duties of Shri Anil Guptaprior to the agreement and thereafter, and right from1984 onwards till date these only involved liaisonwork in the Delhi branch.prior to the agreement and thereafter, and right from1984 onwards till date these only involved liaisonwork in the Delhi branch. 2)There was no change in his job nor could he improvehis qualifications by which it could be said that hehad become more useful to the appellant; and,his qualifications by which it could be said that hehad become more useful to the appellant; and,3)The payment of commission to Shri Gupta was adevice adopted to save the assessee from the taxliability since Shri Gupta had taken a loan of Rs.7lacs for the purchase of a plot from the assessee andon which interest had been paid to the appellant andWhich was sought to be set off by the payment ofcommission which had merely been credited to theaccount of Shri Gupta but factually not paid.”device adopted to save the assessee from the taxliability since Shri Gupta had taken a loan of Rs.7lacs for the purchase of a plot from the assessee andon which interest had been paid to the appellant andWhich was sought to be set off by the payment ofcommission which had merely been credited to theaccount of Shri Gupta but factually not paid.” 13.The AO had also noticed that there was no material on record toprove that there was any contribution made by Anil Kumar Gupta, more thanhis liaison work which he was already doing, to the assessee's business tojustify payment of huge commission to him. It had also been noticed by theAO further that business of the assessee rather had not shown anyimprovement during the assessment years under consideration i.e. 1989-90and 1990-91, when huge commission was allegedly paid by the assessee tosaid Anil Kumar Gupta. 14.It was on the basis of these observations that the AQ haddisallowed the commission claimed in both the assessment years holding [I.T_A. No.11l of 1999 -6- that the commission had been paid on non-business grounds and was adevice to reduce the assessee's taxable income. The CIT(A) had also turneddown the pleas put forth by the assessee that payment of commission to AnilKumar Gupta was a compulsion to retain his services for improvement ofthe business. The CIT(A) had come to a finding that the assessee had failedto prove that Anil Kumar Gupta had contributed anything towards theimprovement of the business to justify payment of huge commission to him,When the entire matter was re-agitated before the Tribunal, its observationsand findings were no different than the ones given by the AO and affirmedby the CIT(A) on this count. The Tribunal had come to a definite finding thatit was not on account of being a nephew of the assessee that he was paidsuch huge commission. It is also clear that it was well within the cognizanceof the Tribunal that a nephew was not included in the term ‘relative’ as persection 2(41) of the Act. This aspect is not at all concerned with regard torejection of plea of the assessee and with making of addition in his income.It was on entirely different grounds. 15.With regard to reference to these provisions made by theCIT(A), it may be mentioned that even though it has no bearing on finaldecision of the matter in controversy, the Tribunal has very ably dealt withthe entire aspect. Following observations made by the Tribunal, withapproval, are reproduced as below: 15.With regard to reference to these provisions made by theCIT(A), it may be mentioned that even though it has no bearing on finaldecision of the matter in controversy, the Tribunal has very ably dealt withthe entire aspect. Following observations made by the Tribunal, withapproval, are reproduced as below: “Much has been argued about the applicability ofSection 40A(2)(a) and whether “nephew” was included in theterm “relative”. In our opinion, this aspect of the matter neednot be gone into as it has been the case of the AO and even ofthe CIT(A) that the agreement is same and entered into onlyforpurposes of reducing the tax liability of the assessee. TheCIT(A) in his wisdom has thought it necessary to refer to thesaid section but, in our opinion, such reference is not fatal tothe case of revenue as we after perusing the record, thearguments advanced by the parties and the factual findingsrecorded by the tax authorities, do in the ultimate analysis hold that the claim on account of commission was not tenable in theassessment years under appeal and the same came to be rightlyrejected.” 16.Completely being in agreement with the reasons given by theAO and affirmed by the CIT(A) in respect of disallowing the commissionpaid to Anil Kumar Gupta claimed for these assessment years, the Tribunalhad rejected the claim of the assessee on this count. 17.Contention of learned counsel for the assessee is that the Courtis concerned with actual action taken by the assessee and not the actionwhich the assessee should have taken under the circumstances. It is furtherurged that it is not permissible in law to bring in suppositions and then tofind out whether the claim is allowable or not? Support has been soughtfromC.LT. Versus Om Parkash Behl 1981 Income Tax Reports 342 (P&H)andSmt. Radha Devi Mohatta Versus Commissioner of Wealth-Tax,Bombay City-IT 1981 Income Tax Reports 229 (Bombay) 18,There is no dispute about the law and there cannot be any. Factsof the case in hand, however, are entirely different. When these facts areappreciated in the context as also in the circumstances in which thecommission was paid, no support from these judgments is available to theassessee. All the three revenue authorities on facts had come to one and thesame conclusion and there is concurrent finding that payment of commissionShown in books of accounts of the assessee was merely a subterfuge toreduce the tax liability of the assessee. It is to be noticed that the Tribunalhad re-assessed the entire issue and without being influenced by the earliertwo concurring findings, had independently also come to a finding that theclaim on account of commission by the assessee was not tenable in theassessment years under appeal and that it had rightly been rejected. 19.As the entire issue in these appeals concerns facts and attendingcircumstances and there is nothing legal much less substantial to be [I.T_A. No.11l of 1999 adjudicated upon, no substantial question of law, in fact, arises forconsideration in these appeals. The questions posed by the assessee thusneed not be answered as the same are based on facts. Consequently, both theappeals, being without any merit, are dismissed. (Dr. Bharat Bhushan Parsoon)Judge (Rajive Bhalla)Judge February 28, 2014‘Yag Dutt} 1.|Whether Reporters of local papers may be allowed to see the judgment? Yes |2Whether to be referred to the Reporters or not? Yes2Whether to be referred to the Reporters or not? Yes cwWhether the judgment should be reported in the Digest? Yes ©