THE issues before the Bench are - Whether when a close relative
of the assessee has been working with him for several years, the huge payment of
commission in a particular year can be construed as a subterfuge to reduce tax
liablity of the assessee and Whether "nephew" can be considered as a relative as
per the provisions of section 2(41). And the verdict goes against the
assessee.
The assessee, an individual, is
engaged in supply and maintenance of sophisticated electronics equipment. He had
filed his return of income tax for AY 1989-90 declaring his income as
Rs.24,34,593/- which as per revised return was changed to Rs.20,62,310/-.
Pursuant to notice issued u/s 148, assessee had filed his revised return on
1.7.1991 finally declaring his income as Rs.26,66,840/-. Thereafter, notices u/s
143(2) and 141(1) were served. The AO after finalizing the assessment vide
assessment order, made an addition of Rs.1,74,484/-, interalia, on account of
commission paid to one Anil Kumar Gupta. On appeal, CIT(A) affirmed the said
addition made on account of commission paid though gave relief with regard to
some other additions which had been made by the AO. Agreeing with the order of
the CIT(A), Tribunal vide a joint order upholding the re-opening of assessment
by the CIT(A), gave no relief to the assessee with respect to the addition made
by the AO.
Before the HC, the assessee's
counsel contended that the income tax authorities had wrongly construed
employment of Anil Kumar Gupta to be that of a relative of the assessee and thus
the said authorities were wrongly alarmed by the quantum of commission paid to
him. It was further claimed that this wrong approach of the revenue resulted in
addition of said commission which had been paid to Anil Kumar Gupta, to income
of the assessee. It was claimed that Anil Kumar Gupta was not a relative of the
assessee in terms of definition of term “relative” given in Section 2(41). It
was urged that when there was no application of provisions of Section 2 (41) to
the facts of the case, no resort could be made to provisions of Section 40A
(2)(b). It was further urged that income tax authorities were not expected to
question quantum of remuneration or commission paid to their employees by the
assessee as in the conduct of his business, the assessee was to pay for the
skills and acumen of his employees commensurate to their abilities.
On
the other hand, the Revenue's counsel had contended that entire evidence given
by the assessee qua engagement of Anil Kumar Gupta and payment of huge
commission to him was analysed and evaluated by the income tax authorities who
then had concurrently come to a finding that payment of commission was not
genuine and rather was a camouflage for reducing profits in order to escape
liability of taxation.
Held that,
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after going through the explanation furnished by the assessee and statement of
Anil Kumar Gupta, the AO had concluded that there was no change in the duties of
Shri Anil Gupta prior to the agreement and thereafter, and right from 1984
onwards till date these only involved liaison work in the Delhi branch. There
was no change in his job nor could he improve his qualifications by which it
could be said that he had become more useful to the appellant; and the payment
of commission to Shri Gupta was a device adopted to save the assessee from the
tax liability since Shri Gupta had taken a loan of Rs.7 lacs for the purchase of
a plot from the assessee and on which interest had been paid to the appellant
and which was sought to be set off by the payment of commission which had merely
been credited to the account of Shri Gupta but factually not paid. The AO had
also noticed that there was no material on record to prove that there was any
contribution made by Anil Kumar Gupta, more than his liaison work which he was
already doing, to the assessee's business to justify payment of huge commission
to him. It had also been noticed by the AO further that business of the assessee
rather had not shown any improvement during the assessment years under
consideration i.e. 1989-90 and 1990-91, when huge commission was allegedly paid
by the assessee to said Anil Kumar Gupta. It was on the basis of these
observations that the AO had disallowed the commission claimed in both the
assessment years holding that the commission had been paid on non-business
grounds and was a device to reduce the assessee's taxable income. The CIT(A) had
also turned down the pleas put forth by the assessee that payment of commission
to Anil Kumar Gupta was a compulsion to retain his services for improvement of
the business. The CIT(A) had come to a finding that the assessee had failed to
prove that Anil Kumar Gupta had contributed anything towards the improvement of
the business to justify payment of huge commission to him. When the entire
matter was re-agitated before the Tribunal, its observations and findings were
no different than the ones given by the AO and affirmed by the CIT(A) on this
count. The Tribunal had come to a definite finding that it was not on account of
being a nephew of the assessee that he was paid such huge commission. It is also
clear that it was well within the cognizance of the Tribunal that a nephew was
not included in the term 'relative' as per Section 2(41). This aspect is not at
all concerned with regard to rejection of plea of the assessee and with making
of addition in his income. It was on entirely different grounds. With regard to
reference to these provisions made by the CIT(A), it may be mentioned that even
though it has no bearing on final decision of the matter in controversy, the
Tribunal has very ably dealt with the entire aspect. Completely being in
agreement with the reasons given by the AO and affirmed by the CIT(A) in respect
of disallowing the commission paid to Anil Kumar Gupta claimed for these
assessment years, the Tribunal had rejected the claim of the assessee on this
count;
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there is no dispute about the law and there cannot be any. Facts of the case in
hand, however, are entirely different. When these facts are appreciated in the
context as also in the circumstances in which the commission was paid, no
support from these judgments is available to the assessee. All the three revenue
authorities on facts had come to one and the same conclusion and there is
concurrent finding that payment of commission shown in books of accounts of the
assessee was merely a subterfuge to reduce the tax liability of the assessee. It
is to be noticed that the Tribunal had re-assessed the entire issue and without
being influenced by the earlier two concurring findings, had independently also
come to a finding that the claim on account of commission by the assessee was
not tenable in the assessment years under appeal and that it had rightly been
rejected. As the entire issue in these appeals concerns facts and attending
circumstances and there is nothing legal much less substantial to be adjudicated
upon, no substantial question of law, in fact, arises for consideration in these
appeals. The questions posed by the assessee thus need not be answered as the
same are based on facts. Consequently, both the appeals, being without any
merit, are dismissed.
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