Shri Vijay Narayandas Rizwani, 37, Bhagyanagar, Nanded vs The Commissioner of Income Tax, Aurangabad, Dy. Commissioner of Income Tax, Cir. 3(2), Nanded and Income Tax Officer, Ward 3(6), Nanded

D.G. Karnik, J.—Heard learned Counsel for the parties. These two Tax Appeals are filed by the assessee in respect of the same assessment order and hence are disposed of by this common judgment.

The questions, which according to the assessee are the substantial questions of law, that are urged by the appellant in these appeals are :

(I) Whether the Income Tax Appellate Tribunal (For short, "the Tribunal") was right in disallowing the commission alleged to be paid by the appellant to the sales agent as a deductible expenditure ? and

(II) Whether the Tribunal was right in confirming the order of addition of Rs. 7,50,000/- as an income, though the said amount was received by the assessee as a deposit from various persons ?

In our view, none of the questions are substantial questions of law. The findings recorded by the Tribunal on both these questions are pure findings of fact and no appeal u/s 260A of the Income Tax Act, 1961, is maintainable.

The appellant, who is an assessee, carries on business of distribution of country liquor. For the assessment year 1994-95 (Financial year 1-4-1993 to 31st March 1994), the assessee filed a return of his income, showing total sales of Rs. 6.17 Crores (rounded off). After inspection of the accounts and relevant records, the Assessing Officer noticed that the total sales were to the extent of Rs. 6.37 Crores and the assessee had short showed the sales. In addition thereto, the assessee had received a sum of Rs. 5.55 Lacs as Hamali receipts, which were also not disclosed. According to the assessee, he had paid Rs. 25.46 Lacs as a commission to the sales agent and had shown sales to be Rs. 6.17 Crores after deducting the commission paid. The Assessing Officer noticed that in the audit report, as well as, in the return, the assessee had not shown a sum of Rs. 25.46 Lacs paid as sales commission as item of expenditure, but had deducted the said amount from the sales figure and shown only figure of Rs. 6.17 Crores as gross sales. The Assessing Officer added a sum of Rs. 25.46 Lacs in the income of the assessee which he had deducted from gross sales without showing the same in his books of accounts as commission paid to the sales agents.

The assessee had shown that he had received a sum of Rs. 11.74 Lacs as deposits from various persons including some of the sales agents. He had claimed that he paid interest of Rs. 1.49 Lacs on the said deposits. The Assessing Officer came to the conclusion that out of total deposits of Rs. 11.74 Lacs, only deposits of Rs. 4.24 Lacs were genuine and balance deposits of Rs. 7.50 Lacs were not genuine and added Rs. 7.50 Lacs, as well as, interest alleged to be paid thereon, in the income of the assessee.

Aggrieved by the decision of the Assessment Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [For short "CIT (Appeals)"], who partly allowed the appeals. He held that the assessee could not have achieved turnover of over Rs. 6 Crores without appointing sales agents. He, therefore, believed that the sales agents must have been appointed by the assessee. He, however, came to the conclusion that there was no proof of payment of commission of Rs. 25.46 Lacs to the sales agents which was to the extent of 4% of the gross sales. The CIT (Appeals) also noticed that the commission was not linked up to the individual sales. The assessee had not furnished how much sales were achieved/made by each sales agent and how much commission was paid to him. The assessee had not established any co-relation between the sales made by a sales agent and the commission paid to him. He also noticed that out of total sales commission of Rs 25.46 Lacs, a sum of Rs. 1.25 Lacs was paid by the assessee to himself in the capacity of Karta of HUF and there was no material to show that the assessee as Karta of HUF contributed to any sales. He, therefore, disallowed the claim of sales commission of Rs. 1.25 Lacs given to him as Karta of HUF. The CIT (Appeals) held that it would be appropriate to allow 2% of the sales as commission instead of Rs. 25.46 Lacs which was about 4% of the sales. He, therefore, reduced by 50% the sales commission after excluding Rs. 1.26 Lacs which was paid by the assessee to himself as Karta of HUF which was totally disallowed.

As regards the claim of deposits of Rs. 11.74 Lacs, the CIT (Appeals) confirmed the decision of the Assessing Officer, that deposits of Rs. 7.5 Lacs were not genuine and addition of Rs. 7.5 Lacs and interest thereon, totally amounting to Rs. 8.75 Lacs was proper.

Aggrieved by the decision of the CIT (Appeals), the assessee filed an appeal before the Income Tax Appellate Tribunal, challenging non-allowance of sales commission to the extent of 2% and also challenging addition of Rs. 8.75 Lacs towards the deposits and interest thereon. Aggrieved by the decision of the Commissioner, to the extent of allowance of 2% as sales commission, the Revenue also filed an appeal before Tribunal. The appeal filed by the assessee was dismissed by the Tribunal. Tax Appeal No. 70/2007 is directed against that order. The appeal filed by the Revenue, regarding allowing of 2% commission, as commission to the sales agent, was allowed by the Tribunal. Tax Appeal No. 73/2007 is directed against that decision of the Tribunal.

In our view, the appeals do not involve any question of law, much less, a substantial question of law. It was case of the assessee that he had incurred an expenditure of Rs. 25.46 Lacs as a commission paid to the sales agent. Whether any commission was paid to the sales agent, or not, is a question of fact and not a question of law. Further, the finding recorded by the Tribunal, that the appellant had not proved payment of a commission to the sales agent, is not only a possible but a probable finding of fact. It certainly is not a perverse finding of fact. Admittedly, the appellant had not made any book entry for the payment of commission. He was asked by the Assessing Officer to give addresses of the persons to whom he allegedly had paid the sales commission. He failed to give addresses to the Assessing Officer. The addresses were furnished for the first time to the CIT (Appeals). The order of the CIT (Appeals) shows that the persons (sales agents) were not residing at the addresses given. Despite opportunity being given, the appellant did not produce the persons to whom he allegedly paid commission, before the Assessing Officer or the CIT (Appeals). The finding recorded by the authorities, in our opinion, is clearly a possible finding of fact and certainly not perverse finding of fact giving rise to any question of law.

As regards the deposits, in response to our question, learned Counsel for the assessee states that none of the deposits of Rs. 7.50 Lacs, which have been disallowed, were received by the assessee by cheque. The list of depositors furnished before the authority shows that all deposits were in excess of Rs. 20,000/- . The deposits were contrary to the provisions of Section 269SS of the Income Tax Act. The Assessing Officer as well as CIT (Appeals) has given cogent reasons for rejection of the claim of the assessee, that Rs. 7.50 Lacs were received by him by way of deposits. In the absence of good explanation about receipt of Rs. 7.50 Lacs, the Assessing Officer as well as CIT (Appeals) committed no error in adding Rs. 7.50 Lacs to the income of the assessee. The Tribunal committed no error, much less an error of law, in refusing the claim of the assessee about the deposits and interest paid thereon. Both the Appeals are accordingly dismissed summarily.