2014 (3) TMI 1107 - HC - Income Tax

Disallowance of commission payment in respect of 25 agents, who are the residents of the North East - Held that - The views expressed by the Assessing Officer are erroneous in law. The Assessing Officer has overlooked the importance of the books of accounts maintained in the ordinary course of business. Reference in this regard may be made to sub-section (2) of Section 32 of the Indian Evidence Act, 1872. The books of accounts maintained in the ordinary course of business are relevant and they cannot be discarded in the absence of appropriate reasons. The mere fact that recipient did not reply in some cases or they were not found at the address furnished by the assessee does not in the least prove the fact that they were non existent or that the payments shown to have been made by the assessee were imaginary. With the advancement of technology, it has become possible to sell goods throughout the country through the internet. For that purpose, agents are required throughout the country. The mechanism in that regard has been disclosed by the assessee and has been recorded in the order of the CIT (Appeals). For the purpose of carrying on its business, the assessee has to recruit the agents. It may not be possible for the assessee to know them personally. Whatever address was furnished to the assessee, has been disclosed to the Income-tax Department. Payments were admittedly made by cheque after deduction of tax. The tax deducted as source has duly been deposited.

Summary

Issues:
1. Disallowance of commission payment to agents from North East.
2. Disallowance of expenditure by Assessing Officer.
3. Relevance of books of accounts in proving genuineness of transactions.
4. Importance of evidence beyond payment by account payee cheque.

Issue 1: The High Court addressed the disallowance of commission payment to agents from North East. The Income Tax Appellate Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) regarding the commission payments made through account payee cheques after deducting TDS. The Tribunal found the Commissioner's decision to be correct and dismissed the revenue's appeal. The Court noted that the Assessing Officer disallowed the commission payment for agents from the North East, despite TDS deductions, due to unserved notices and lack of replies. However, the Court held that the Tribunal's decision was appropriate, emphasizing the importance of the Commissioner's findings on this issue.

Issue 2: The Court analyzed the disallowance of expenditure by the Assessing Officer. The Assessing Officer had disallowed an expenditure amounting to a specific sum, citing doubts about the genuineness of the transactions. The Court found the Assessing Officer's views to be erroneous in law. It highlighted the relevance of books of accounts maintained in the ordinary course of business, as per Section 32 of the Indian Evidence Act, 1872. The Court emphasized that the absence of replies from recipients or returned notices did not automatically render the transactions non-genuine. The Court also mentioned the necessity of agents for business operations and the adequacy of evidence provided by the assessee, including maintaining books of accounts, tax deductions, and recipient particulars.

Issue 3: The judgment delved into the significance of books of accounts in proving the genuineness of transactions. The Court cited the Indian Evidence Act, emphasizing that books of accounts maintained in the ordinary course of business hold relevance and cannot be disregarded without proper reasons. It noted that advancements in technology allow for business transactions across the country, necessitating agents in various locations. The Court highlighted that the assessee's disclosure of agent details to the Income-tax Department, along with payments made through cheques after tax deductions, supported the genuineness of the transactions.

Issue 4: Lastly, the Court discussed the importance of evidence beyond payment by account payee cheque in establishing the genuineness of transactions. It differentiated the case at hand from precedents by highlighting additional evidence presented, such as maintaining books of accounts, tax deductions, and depositing the deducted amount. The Court concluded that the views expressed by the Tribunal were valid and refused to admit the appeal, ultimately dismissing it.