2010 (2) TMI 754 - AT - Income Tax

Addition on account of commission payment on services rendered by parties could not be established. - deletion of an addition on the ground that the payment is opposed to public policy. - Held that - The inferences drawn are based on the fact that on issue of cheques by the assessee towards payment of commission, the parties who received the commission had withdrawn the cash. There is no finding that the cash has flown back to the assessee. Withdrawn of cash may be for number of reasons and no adverse inference can be taken. decided in favour of Assessee in the issue of addition made against public Policy, Held that - deletion was based on the findings of the block assessment proceedings. He also gave a finding that no other material was found to come to a conclusion that this claim is not allowable. decided in favour of Assessee.

Issues Involved:
1. Deletion of addition on account of commission payment by the CIT(A) for the assessment year 2000-01.
2. Deletion of addition of Rs.1,75,000/- on the basis of the Explanation to Section 37(1).

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Commission Payment:

The Revenue challenged the CIT(A)'s deletion of an addition of Rs.7,31,737/- related to commission payments, arguing that the services rendered by the parties could not be established. The Assessing Officer (A.O.) had disallowed the commission payments based on findings from a block assessment, which included several observations: no bills were issued for services rendered, no records were maintained by commission agents, contradictions existed between the assessee's and agents' versions, and suspicious cash withdrawals followed commission deposits.

The assessee contended that commission payments to subagents were a usual business practice essential for their operations. They provided detailed explanations of their business activities, emphasizing the competitive nature of the cargo clearing and forwarding industry. The assessee also submitted various documents, including confirmations of commission income, bank statements, and affidavits from the commission agents, who confirmed receiving the commission and rendering services.

The CIT(A) found that the commission payments were genuine, noting that the commission agents were regularly assessed to income tax and had provided substantial evidence supporting the receipt of commission and the services rendered. The appellate authority also observed that these agents had been receiving commissions for several years and had consistently filed tax returns.

The Tribunal upheld the CIT(A)'s decision, stating that the Revenue failed to provide fresh material evidence contradicting the findings. The Tribunal emphasized that the withdrawal of cash by commission agents did not necessarily imply that the cash flowed back to the assessee. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Addition of Rs.1,75,000/-:

The Revenue also contested the deletion of an addition of Rs.1,75,000/-, which the A.O. had disallowed based on the Explanation to Section 37(1), arguing that the expenses were opposed to public policy. The CIT(A) deleted this disallowance, stating that it was based on conjectures and surmises without concrete evidence.

The Tribunal supported the CIT(A)'s findings, noting that the disallowance was primarily based on a disclosure made during block assessment proceedings, which had already been deleted in the block assessment order. The Tribunal found no additional material evidence to support the disallowance and thus upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground as well.

Conclusion:

In conclusion, the Tribunal dismissed both appeals filed by the Revenue, upholding the CIT(A)'s deletion of additions related to commission payments and the disallowance of Rs.1,75,000/-. The Tribunal emphasized the lack of fresh material evidence from the Revenue and the substantial evidence provided by the assessee supporting the genuineness of the commission payments and the legitimacy of the expenses claimed.

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