IN INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I.T.A. No.1069/Ahd/2014 (Assessment Year : 2010-11) ACIT M/s.JMSL Websolution Pvt Circle-1(2) Vs. Ltd. Baroda 91, Kunj Society Alkapuri Baroda Pin 390 007 PAN/GIR No. : AABCJ 6990 J (Appellant) .. (Respondent) Appellant by : Shri Prasoon Kabra, Sr.DR /Respondent by : -None- Date of Hearing 03/10/2016 Date of Pronounce ment 04/10/2016 ORDER PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : This appeal by Revenue is directed against order of Commissioner of Income Tax(Appeals)-I Baroda, dated 02/01/2014 for Assessment Year (AY) 2010-11. Revenue has raised following grounds of appeal:- 1. On facts and in circumstances of case and in law, Id. CIT(Appeals) erred in deleting addition/disallowance of consultancy charges of Rs. 31,41,320/- paid to Jeevansuraksha Medicare Services ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -2- Ltd. without appreciating fact that that expenditure was not incurred wholly and exclusively for purpose of business of assessee on fact of assessee's case. 2. On facts and in circumstances of case and in law, Id. CIT(Appeals) erred in deleting addition of Rs.22,67,133/- made on account of disallowance of claim of commission payable to associates without appreciating fact that assessee failed to prove that these expenditures were incurred wholly and exclusively for purpose of business of assessee. 3. On facts and in circumstances of case and in law, Ld. CIT(Appeals) erred in deleting addition of Rs.1,31,860/- made on account of disallowance of claim of good health expenses without appreciating fact that expenditure was not incurred wholly and exclusively for purpose of business of assessee on fact of assessee's case. 2. On date of hearing, none appeared on behalf of respondent- assessee nor any application for adjournment of hearing has been filed. Since there is no appearance on behalf of assessee, we proceed to decide appeal ex-parte, qua assessee, on basis of details available on record. All grounds are inter-connected and therefore same are decided together. 2.1. relevant facts as culled out from materials on record are as under:- 2.2. Assessee is company stated to be engaged in business for providing Industrial Coating and Corrosion Solutions in varied sectors of ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -3- industries. Assessee electronically filed its return of income declaring total income at Rs.30,08,606/- on 30/09/2009. case was selected through CASS for scrutiny and thereafter assessment was framed u/s. 143(3) of Income Tax Act, 1961 (hereinafter referred to as "the Act") vide order dated 17/01/2013 and total income was determined at Rs.29,24,150/-. Aggrieved by order of Assessing Officer (AO), assessee carried matter before ld.CIT(A), who vide order dated 02/01/2014(in Appeal No.CAB-I/325/2012-13) allowed appeal of assessee. relevant findings of ld.CIT(A) are as under:- Ground No.1 7.5. In view of above order u/s.119 of Act of CBDT, due date for filing return of income was extended for AY under consideration from 10/09/2010 to 15/10/2010 and therefore payment of Rs.14,43,275/- as paid by appellant on 01/10/2010 is allowable u/s.43B of IT Act. In view of this disallowance of Rs.14,43,275/- as made by AO u/s.43B of IT Act is hereby deleted. Thus ground of appeal no.2 of appellant is allowed. Ground No.2 7.6 ground no. 3 of appeal of appellant is that Ld. Assessing Officer erred in disallowing commission payable to associates amounting to Rs.22,67,133/-. With regard to this ground of appeal, AO in assessment order has mentioned that commission payable to associates of Rs.22, 67,133/- was asked to be justified vide order sheet entry. As per AO, AR of assessee could not substantiate payables to associates as actually paid in subsequent year. As per AO, moreover details of ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -4- payables were also not verifiable. As per AO, therefore, commission payable to associates being unverifiable liability amounting to Rs. 22,36,133/- was added to returned income. AO in his remand report has further stated that appellant has now produced copies of letters giving advice to its Banks and detailed notes of transferring fund to members during subsequent financial year. As per AO, as per submission of bank remittance details, it is revealed that amount of Rs. 16,20,680 was paid during subsequent year and Rs.6,46,453/- was still unpaid. Thus, as per A.O. amount of Rs.6,46,453/- is still commission payable in subsequent year. AO in his report has mentioned that veracity of payment was not basis of addition. As per AO, disallowance/addition was made due to unverifiable nature of payments (here commission payable) being made. Thus, as per AO now evidence of subsequent payment still do not qualify commission payable amount as payment made for business purpose. It is further stated by AO that during course of assessment proceedings, appellant was asked to justify commission payable to associates of Rs.22,67,275/-. As per AO, though sufficient opportunity was provided to appellant, AR of appellant could not substantiate payables to associates as actually paid in subsequent year. As per AO, moreover details of payables were also not verifiable. As per AO, appellant could not prove business purpose achieved against such liability created. As per AO, therefore, basis of addition was on two counts, i.e. commission payable of Rs.22,67,275/- was unverifiable as to who all were persons to whom such payment was due to be paid. Secondly, business purpose achieved against such commission payable also could not be substantiated. 7.7 From above reasons as mentioned by AO for making addition of Rs. 22,67,275/- it can be seen that veracity of payment was not basis of addition. In other words, AO has not questioned veracity of payment. basis for making addition was that commission payable was unverifiable as to who all were persons to whom such payment was due to be paid. Another reason for making payment is that whether such payment was made for business ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -5- purpose of appellant. But these two grounds on which addition has been made by AO are not found to be sustainable. It is not understandable as to why commission of Rs. 22,67,275/- as made by appellant was not verifiable. It appears that AO has either during course of assessment proceedings or at time of remand proceedings have not made any effort to verify these payments by making examination and cross examination in some of cases of payees. In our opinion AO was not prevented from making verification of above payments. ARs of appellant in their submission as filed in connection with remand report of AO have submitted that company appoints associates/ agents who in turn recruit down line associates (sub-agents) and thereby each associate gets share in contributions (commission) for recruiting members/As per ARs this share in contribution is paid in form of commission to respective agents and IDS is also deducted wherever applicable from payments made to them. As per ARs out of total commission expenses incurred during year amounting to Rs. 3,00,52,584/-, commission of Rs. 22,67,133/- was payable at end of year. As per ARs assessee company has over 5000 to 6000 agents to whom it pays commission varying in amounts. As per ARs number of agents to whom commission of Rs. 22,67,133/- is payable is more than 4000 person. As per ARs to produce all such agents and their confirmations is not possible. As per ARs however appellant had produced names of all associates along with their addresses/PAN and details of commission payable to them at time of assessment proceedings. As per ARs since same had not been verified by Ld. AO at time of assessment proceedings, appellant company had produced same along with copies of confirmations, address and PAN Card of about 18 persons along with which was sent to AO for remand report. As per AR copy of bank statement of appellant company for two months i.e. April and May 2010, which shows commission payments made to these members along with details of payments of outstanding commission made to these members in subsequent financial year were also produced before AO at time of remand report. AO has gone through details and mentioned in his remand report that out of Rs.22,67,133/-, Rs. 16,20,680/- was paid in subsequent year and balance ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -6- Rs.6,46,453/- was remaining unpaid. In this regard, ARs have submitted that AO himself admitted that commission payments were made in subsequent year. As per ARs part of commission which remained unpaid was paid in subsequent years. As per ARs appellant company has paid majority of amount which itself proves its intention to make payments and also confirms fact that payments are genuine. As per ARs they had also requested Ld. AO to call for confirmations u/s 133 (6) to cross verify outstanding with respective third parties. As per ARs however he has not bothered to do so. As per ARs thus, this Itself shows inadequacy and unwillingness on part of Ld. AO to go distance and take efforts to verify transactions in detail. As per ARs during assessment proceedings he did not verify entire payables and disallowed all of same amounting to Rs. 22,67,133/- and now, in appeal proceedings, for remand report he has- verified and found out that majority of payments have been met and balance Rs.6,46,453/- is outstanding. As per ARs further in remand report he has only mentioned that this amount is outstanding in subsequent year and he has not made any adverse remarks and accepted genuineness of transactions. These entire submissions of ARs are found to be tenable. fact is that details were available before AO and he could have made verification on random basis in respect of some of parties. Thus ground of AO that payments of Rs. 22,67,133/- are not verifiable cannot be accepted. veracity of payment has not been doubted. If payments are made in subsequent years and some of payments are shown as outstanding, same cannot be basis for making addition. Making payments of commission in subsequent years can be said to be normal business activities. AO has not brought any material on record to establish that payments were not made for business purpose. In my opinion unless and until there are certain findings on basis of verification and cross verification to establish that payments of commissions were not genuine and same were not for business purpose, addition in such cases are not justifiable. However, without any proper findings, claim of commission cannot be disallowed. Considering all these facts it is held that AO is not correct in making disallowance of commission payments of Rs. ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -7- 22,67,133/- and therefore same is deleted. Thus ground of appeal no. 3 of appellant is allowed. Ground No.3 7.8 ground of appeal no. 4 of appellant is that Ld. Assessing Officer erred in disallowing good health expenses amounting to Rs.1,31,860/-. In this regard AO in his assessment order has mentioned that this amount of Rs.1,31,860/- pertains to payment of Rs.81,860/- and Rs.50,000/- made against certain claims. As per AO, payment of Rs.81,860/- is claimed to have been paid to Mr. Dushyant Fulabhai Patel. As per AO, other payment of Rs. 50,000/- is ostensibly been paid for some awareness programme related with health insurance as mention by AR of appellant. However both these payments could not be verified by AR of appellant. As per AO, business purpose achieved and justification of such expenses could not be proved during course of assessment proceedings. On other hand, ARs in their submission as filed have submitted that appellant company is engaged in business of providing medical related services to members who subscribe to membership of company. As per ARs company appoints associates/ agents who in turn recruit down line associates (sub-agents) and thereby each associate gets share in contributions (commission) for recruiting members. As per ARs furthermore, appellant company takes group insurance for its members from general insurance companies like United India and Oriental Insurance Company Ltd. and members collectively are entitled to benefits of such insurance policies taken. As per ARs but sometimes due to disputes, etc. entire claim is not processed by Insurance Companies. In such circumstances, appellant company bears medical expenses of its members. As per ARs, such situation does not happen every time. As per ARs since appellant company Quarts memberships from various members benefit it gives in return to As Members is in form of group insurance policies taken for members. As per ARs premium is borne by appellant company and it is responsible to pass on benefits of insurance policy to its members. As per ARs, so when some member becomes ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -8- sick and claim is filed, under normal circumstances claim is processed and appellant company gets claim amount from insurance company, which is then passed on to individual member. As per ARs, however in present situation claim of Mr. Dushyant F. Patel was applied which was not processed by insurance company due to some dispute, etc. and therefore appellant company undertook to bear same and paid said amount of Rs.81,860/- to said member. As per AR second entry pertaining to Oriental Insurance Co. Ltd. of Rs.50,000/- was also on account of some dispute with them as result of which Oriental Insurance Co. Ltd. had debited appellant company's account in its books. As per ARs, since appellant company takes insurance policies from Oriental Insurance and files insurance claims for and on behalf of it members, sometime disputes arise with them in processing claim. As per ARs, there are also disputes relating to premium, improper documents, etc. with such insurance companies. As per ARs, in order to give effect of such debit by them appellant company had debited good health expenses and credited Oriental Insurance Co. Ltd. This is one type of damages and therefore is rightly charged as expense in Profit and Loss account. As per ARs, both above transactions of Rs. 81,860/- and Rs. 50,000/- are business expenses of appellant company. Since they are related to medical expenses they are debited in account head of "good health expenses". As per ARs, expenses are incidental and ancillary to appellant company's business and are allowable under Income Tax Act, 961. These submissions of ARs are found to be tenable. As per Ld.ARs, Ld. Assessing Officer has not appreciated nature of transactions and blindly disallowed same. As per ARs in spite of submitting details of transaction by way of ledger account and voucher Ld. Officer has disallowed saying appellant company has not proper explanation. These submissions of ARs of appellant are to be tenable. This is not case of appellant that payment is not genuine. Also details were submitted to AO and AO has not been able to prove that payments were not for business purpose of appellant. Considering these facts, disallowance of Rs. 1,31,860/- as made by AO is hereby deleted. Thus ground of appeal no.4 of appellant is allowed. ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 -9- 3. Aggrieved by order of ld.CIT(A), Revenue is now in appeal before us. 4. ld.DR supported order of AO. 5. We have heard ld.Sr.DR. We find that in instant case, AO has agreed that submissions were duly made and all payments cannot be doubted. In our considered opinion, it is not duty of Department to hold that where expenditure is to be made. It is for business-man to decide where expenditure is to be made for smooth functioning of business. Looking to totality of facts of case, we do not find any ambiguity or irregularities in order passed by ld.CIT(A), same is hereby upheld. Thus, grounds raising by Revenue in this appeal are dismissed. 6. In result, Revenue s appeal is dismissed. This Order pronounced in Open Court on 04 /10/2016 Sd/- Sd/- (N.K. BILLAIYA ) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 04/ 10 /2016 .T.C. NAIR, Sr. PS ITA No.1069/Ahd/2014 ACIT vs. M/s.JMSL Websolution Pvt.Ltd. Asst.Year 390 007 - 10 Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. Concerned CIT 4. CIT(A)-I, Baroda 5. DR, ITAT, Ahmedabad 6. [ / Guard file. BY ORDER, //True Copy// (Dy./Asstt.Registrar) ITAT, Ahmedabad 1. Date of dictation 3.10.16 (dictation-pad 2-pages attached at end of this appeal-file) 2. Date on which typed draft is placed before Dictating Member 3.10.16 3. Other Member 4. Date on which approved draft comes to Sr.P.S./P.S .. 5. Date on which fair order is placed before Dictating Member for pronouncement 6. Date on which fair order comes back to Sr.P.S./P.S .4.10.16 7. Date on which file goes to Bench Clerk 4.10.16 8. Date on which file goes to Head Clerk ... 9. date on which file goes to Assistant Registrar for signature on order .. 10. Date of Despatch of Order ACIT, Circle-1(2), Baroda v. M/s.JMSL Websolution Pvt Ltd