2012 (10) TMI 1152 - AT - Income Tax

Addition u/s.40A(2)(b) - commission paid to agents - AO was not convinced and held that the commission was paid to the beneficiaries of the Trust, hence payment made to persons specified u/s.40A(2)(b) was disallowed - Held that - Trust has availed the services of these persons, therefore the commission was legitimately paid on the business brought by them. Resultantly ground raised by the assessee is allowed.

Summary

Issues:
- Disallowance of commission paid to beneficiaries of the Trust under section 40A(2)(b) for A.Y. 2008-09.

Analysis:
The case involved an appeal by the Assessee against the order of the ld.CIT(A)-6 Ahmedabad for A.Y. 2008-09 regarding the disallowance of commission paid to beneficiaries of the Trust under section 40A(2)(b). The Assessee, a Private-Trust engaged in trading of galvanized pipes and MS pipes, had paid commission to certain parties. The Assessing Officer (AO) disallowed the commission, considering it as payment made to persons specified under section 40A(2)(b). The ld.CIT(A) upheld the addition, stating that the Assessee failed to prove the services rendered by the agents. However, during the appeal, the Assessee provided details of commission paid, TDS deductions, and income tax returns of the parties receiving the commission. The Assessee argued that the commission was paid to increase sales and ensure payment recovery due to increasing competition in the market. The Assessee relied on various case laws to support the claim that the commission was legitimately paid for services rendered in promoting sales. After considering the facts and circumstances, the Tribunal held in favor of the Assessee, allowing the appeal and overturning the disallowance of the commission.

This judgment highlights the importance of substantiating payments made, especially in cases of disallowance under specific sections of the Income Tax Act. The Tribunal emphasized the need to establish the purpose and legitimacy of expenses incurred for business activities. The Assessee's successful appeal underscores the significance of providing detailed documentation and legal arguments to support claims during tax assessments and appeals.