Disallowance for commission paid on sale of stamp papers partly deleted. It was impractical to maintain record or take receipt many times in a day from each and every person.
ABCAUS Case Law Citation:
ABCAUS 2893 (2019) (04) ITAT
In the instant case, the appeal was filed at the instance of the assessee against the orders of Commissioner of Income Tax (Appeals) in confirming disallowance made by the Assessing Officer (AO) of expenditure towards commission/discount paid to customers and/or through Advocates or registry consultants for purchase of stamps.
The appellant assessee was working as a licensed stamp vendor. His return of income was selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Income Tax Act, 1961 (the Act).
During the course of assessment proceedings while examining the financial statements AO observed that the assessee had claimed expenditure for commission which was claimed by the assessee as a genuine expenditure paid to registry consultants and clients in order to increase the sale of stamp.
After considering statements of the assessee, the AO did not find any merit in the submissions as the alleged commission payments were not supported by any vouchers to authenticate the payment of commission. He accordingly disallowed the commission expenditure.
The CIT(A) after considering the additional evidence filed by the assessee and the remand report received from the AO confirmed the disallowance of commission.
Aggrieved assessee went in appeal before the Tribunal.
The assessee submitted that the growth in his line of business solely depends on adopting commercial trade practice and to follow the system prevalent in this line of business of selling the stamp papers with requires that in order to retain and attract the customers, commission/discount to be passed on to customers and clients through registry consultants, since these professionals are the back bone limbs of this business.
It was also pleaded that the licencing rules does not prohibit the vendor to lower the stamps face value, however sale of stamps above the face is prohibited and complete records of stamp purchased and sold are maintained.
The Tribunal observed that the assessee was into business as stamp vendor since last many years. Books of accounts were duly audited by a Chartered Accountant. The AO had not pointed out any mistake/error in the figures of purchase, sales, stock, indirect income and other indirect expenses except the commission expenditure.
The Tribunal observed that the assessee has placed all financial statements, stamp sale registers showing the claim of commission expenditure along with financial statements, income tax returns, affidavits of various registry consultants and also showing the register entering date wise entry of commission paid as and when the stamps are sold.
On the other hand the only allegation made by the AO was that the claim of commission was not supported by any documentary evidence.
The Tribunal opined that it was true that each and every entry of commission payment the assessee had not provided the details and the same seemed to be impractical because the entries of commission payment are multiple times in a day and it is not practically possible to take a receipt from each and every person who may be either a registry consultants or the customer actually using the stamp for himself.
However the Tribunal opined that one cannot deny the fact that the person who is coming to purchase the stamp from a stamp vendor is conscious of the fact that the stamp vendors are earning some commission/income from sale of stamp paper. There being multiple stamp vendors, the customer has a liberty/option to purchase stamp paper from the stamp vendor who gives maximum commission or parts with maximum profits embedded in the stamp value. One of the well known business principle is that for increasing the gross revenue the profit margin needs to be reduced and same seems to be the situation of the assessee.
Therefore the Tribunal pegged the disallowance of commission to the extent of 25% as justified to cover the deficiency of not maintaining necessary vouchers and acknowledgement receipts at the end of the assessee for paying commission to the persons purchasing the stamp from him.
