Delhi H.C : the claim of the assessee of expenditure incurred by it for payment of commission to taxi drivers, guides and other commission agents

High Court Of Delhi

Saga Departmental Stores Ltd. vs. CIT

Section 37(1)

Asst. Year 2005-06

A.K. Sikri & Valmiki J. Mehta, JJ.

IT Appeal No. 162 of 2009

10th August, 2009

Counsel appeared :

Ajay Vohra, Ms. Kavita Jha, Amit Sachdeva and Sriram Krishna, for the Appellant : Sanjeev Sabharwal with Arvind Vasova and Mohan Prasad Gupta, for the Respondent



This appeal is preferred by the assessee against the order dt. 29th Aug., 2008 of the Income-tax Appellate Tribunal (Tribunal). According to us, no substantial question of law arises and the appeal is therefore, liable to be dismissed.

2. The only issue in this case pertains to the claim of the assessee of expenditure incurred by it for payment of commission to taxi drivers, guides and other commission agents. The assessee carries on the business of Departmental stores in which various handicrafts items, carpets etc. are sold to tourists. For the assessment year in question i.e. 2005-06, the assessee claimed expenditure towards commission paid to the taxi drivers, guides and other commission agent to the tune of Rs. 11,45,47,937. The AO allowed Rs. 1,21,55,213 as expenditure out of the aforesaid amount claimed by the assessee. The assessee declared a total income of only Rs. 1.43 crores on a turnover of Rs. 55,45,91,631. The declared gross profit rate was 54.15 per cent and the net profit rate was only 1.93 per cent. The AO noticed that payment to the middlemen was around 18-20 per cent of the total turnover. The AO noticed that the majority of the expenditure of commission, being Rs. 10,23,92,724 (Rs. 11,45,47,937- 1,21,55,213), was actually the payments made below Rs. 2500 on which TDS is not compulsory. The AO arrived at a finding that the rule of consistency cannot be applied to a case where the business practice is full of flaws and defects and the ratio of profit is unreasonably low. The AO further found in view of the fact that the gross profit rate was 55.14 per cent and net profit rate was only 1.93 per cent which showed that the expenses are unreasonably inflated. It was noticed that in the past also on various grounds, disallowance was made of different amounts from the expenses claimed towards payment of commission. The assessee challenged the order before the CIT(A) and the CIT(A) increased the amount of expenditure allowed from Rs. 1,21,55,213 to 3,69,05,109. The CIT(A) noted that onus is on the assessee to prove that the commission has been paid for rendering the actual services and it was found in the instant case that the assessee had not furnished credible evidence in the form of name, addresses etc. of the person to whom commission was paid. The CIT(A) also noticed that none of the persons who were paid commission were brought for verification before the AO. The CIT(A) noticed that the assessee had shown different number of persons, with reference to each sale, for example, in respect to one sale made on 1st Oct., 2004 (sale value Rs. 1,50,891) the assessee claimed to have paid commission to 26 person and in each case the amount is less than Rs. 2,500. Similarly, on a single sale worth Rs. 3,37,500 the assessee claimed to have made payments to 35 persons wherein the commission is shown at less than Rs. 2,500 i.e. Rs. 2,458 per head. It was further noticed from the details that the name of a person is not repeated in a month and that was an improbability taking the human probability into consideration that any commission agent such as a taxi driver or a guide when he is benefited by commission he would normally visit again by bringing tourists. The CIT(A) further noted that payments were made to various persons in odd figures such as Rs. 2,378, Rs. 2,458 Rs. 2,462 etc. Considering the aforesaid facts, CIT(A) allowed the aforesaid amount of Rs. 3,69,05,109 which works out to a deduction at the rate of Rs. 14 per cent of the total turnover. The Tribunal besides noting the above facts has also noticed that most of the vouchers are self made and the assessee did not produce any of the recipients. The Tribunal noticed that in the earlier years , some disallowance was regularly sustained which in itself indicated that the assessee’s books are not foolproof and on each year the expenditure was estimated. The Tribunal duly noticed that the additional factor in that year under consideration was that both the AO as well as CIT(A) have made a detailed enquiry to highlight the improbability of the payments claimed by the assessee and thus, it was a just case to deviate from the consistent method claimed to have been followed earlier. In view of the facts of the case, especially with regard to paying of TDS, only for an amount of Rs. 1,21,55,213, out of the total expenditure, claimed of Rs. 11,45,47,937; the fact that none of the recipients were produced; various transactions were questionable; extremely low figure of net profit as compared to the gross profit; the fact that there were disallowances also in the earlier years and so on, the Tribunal allowed commission at the rate of 16 per cent of the total turnover as against 14 per cent fixed by the learned CIT(A). Therefore, the very limited dispute is whether the commission amount payable which is allowed as expenditure should be 16 per cent as held by the Tribunal or 18-20 per cent or so, as claimed by the assessee, the Tribunal having in any case increased the expenditure to 16 per cent, from 14 per cent as allowed by the CIT(A).

In view of the insufficiency in the probative value and probability value of the expenditure incurred on account of facts detailed above, the factual findings have been arrived at by the Tribunal The counsel for the appellant has strenuously urged that either the entire commission should have been allowed or the books of accounts should have been rejected. We do not think this contention is correct in the facts of the present case in as much as the authorities below have clearly noted the deficiency in the proofs and that various transactions were found to be questionable. In various cases, where transactions run into huge numbers i.e., of hundreds or thousands, it is not unusual to take a sample basis to arrive at a decision. Having done so, in the facts of the case, and taking such facts in that totality, these findings of facts have been arrived at by the Tribunal to allow expenditure towards commission at 16 per cent. We do not find any valid justification to interfere under s. 260A of the IT Act, 1961 with the order of Tribunal as the aforesaid facts do not raise any substantial question of law. 0The appeal is, therefore, dismissed.

[Citation : 325 ITR 324]

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