2013 (1) TMI 816 - AT - Income Tax

Disallowance of commision expense and travelling expense - Held that - The assessee claimed 10% commission on sale of fire fighting vehicles to Director of Fire and Emergency Services, JandK which is an undertaking of Government of Jammu and Kashmir (JandK), Srinagar - A.O. disallowed the claim of assessee on the ground that commission was not paid for the purpose of business - the assessee failed to furnish any evidence in support of the claim that commission was paid against the services rendered - settled law that mere payment itself would not entitle the assessee to deduction of such commission unless the same is proved to be paid for commercial consideration and expended wholly and exclusively for the purpose of business. The onus of proof is always on the assessee - When supply of goods is made to Government Departments, commission is not allowable unless it is established that commission was paid for services other than services related to supply of goods to Government Department - Hence commission expenditure in respect of goods supplied to Government Department can not be said to be an expenditure laid out wholly and exclusively for the purpose of business and secondly it would be disqualified under explanation to section 37(1) as being opposed to public policy As regards the traveling expenses claimed by the assessee, it pertains to Commission Agent - Since the commission payment itself is disallowed as non-genuine, therefore, there is no question of allowing traveling expenses on Commission Agent since the expenditures were not incurred wholly and exclusively for the purpose of business - decided in favor of Revenue

Summary

Issues Involved:
1. Deletion of addition made on account of commission paid.
2. Deletion of addition made on account of traveling expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Commission Paid:
The Revenue contended that the CIT(A)-I, Agra erred in law and on the facts of the case by deleting the addition of Rs. 33,69,903/- made on account of commission paid to an individual, arguing that the services rendered were not conclusively proven. The case facts reveal that the assessee-company, engaged in manufacturing fire fighting vehicles and equipment, claimed the commission was paid to an intermediary for services related to sales to the Directorate of Fire and Emergency Services, J&K. The AO conducted inquiries and found discrepancies, including the non-existence of the intermediary in the records of the local tax office and the Directorate. The AO also noted that the assessee failed to produce necessary documentation or the intermediary for verification, leading to the conclusion that the commission was not genuinely paid for business purposes but to reduce tax liability.

The CIT(A) deleted the addition, reasoning that the payments were made through cheques, TDS was deducted, and the intermediary's identity was established through personal appearance and documentation. The CIT(A) also noted that the intermediary's failure to maintain books of accounts or provide bank details was likely to avoid scrutiny, but this did not affect the genuineness of the commission payment.

Upon review, the Tribunal found that the assessee failed to provide substantial evidence of services rendered by the intermediary. The Tribunal emphasized that the burden of proof lies with the assessee to demonstrate that the expenditure was incurred wholly and exclusively for business purposes. The Tribunal concluded that the CIT(A) erroneously shifted the burden of proof to the AO and relied on assumptions rather than concrete evidence. Consequently, the Tribunal restored the AO's order, disallowing the commission payment as a business expenditure.

2. Deletion of Addition on Account of Traveling Expenditure:
The Revenue also challenged the deletion of Rs. 73,365/- on account of traveling expenditure, arguing that the services related to the business of the assessee were not conclusively proven. The traveling expenses were claimed to be incurred for the intermediary's visits to Delhi and Mathura. The AO disallowed these expenses, considering the commission payment itself was disallowed as non-genuine.

The CIT(A) had deleted the addition, reasoning that the expenses were incurred for business purposes. However, the Tribunal, in line with its findings on the commission payment, held that since the commission payment was disallowed as non-genuine, the related traveling expenses could not be allowed either. The Tribunal confirmed the addition of Rs. 73,365/- and restored the AO's order.

Conclusion:
The Tribunal allowed the Revenue's appeal, confirming the additions of Rs. 33,69,903/- on account of commission paid and Rs. 73,365/- on account of traveling expenditure. The Tribunal emphasized the necessity for the assessee to provide substantial evidence to support claims of business expenditure and held that the CIT(A) erred in shifting the burden of proof to the AO and relying on assumptions.