2010 (6) TMI 621 - AT - Income Tax

Service agents - payment of commission disallowed - Held that - The commission payments have been proved by the assessee not only by internal evidence in the form of books of account, but also by external evidence in the form of TDS particulars confirmation letters received from the payees. It is to be further seen that the assessee has achieved a high amount of turnover which justifies the payment of commission to procure business. Further the assessee has also received commission from their principal of an amount almost equal to commission payments. Thus CIT(Appeals) is justified in accepting the bona fides of these payments as necessary expenditure incurred for the purpose of carrying on of the business.In favour of assessee. Unexplained cash credit - as per AO advance stated to be received from the said party has not been proved by the assessee - Held that - The circle of the transaction has been established by the assessee by providing the different links of the transactions with documentary evidence. The amount was in fact received by the assessee as advance against supply of machineries. This position is proved by the materials evidencing the sale of machineries to M/s. Kartika Metal Crushers and adjustment of the advance against the billed amount. The accounts itself show that the advance amount has been subsequently converted into sale proceeds of the assessee which has been accepted by the AO as part of the turnover of the assessee. In favour of assessee. Purchase disallowance - Held that - As the assessee had already produced invoices from M/s. Hydrotech Tamilnadu for a sum of Rs. 1,40,400. It was on the basis of the above evidence, the Commissioner of Income-tax (Appeals) has granted commensurate relief to the assessee. In favour of assessee.

Summary

Issues:
1. Addition of unexplained cash credits from M/s. Kartika Metal Crushers, Kerala.
2. Deletion of addition made on account of bogus purchases from M/s. Hydrotech, Tamilnadu.
3. Disallowance of commission payments to various parties.

Issue 1: Addition of Unexplained Cash Credits
The Assessing Officer added Rs. 2,10,000 as unexplained cash credit from M/s. Kartika Metal Crushers, Kerala. However, the Commissioner of Income-tax (Appeals) found that the advance was given against the supply of rock-breaking hammers and was settled against the invoice upon actual delivery. The transaction was supported by documentary evidence establishing the circle of the transaction. The advance was received by the assessee and adjusted against the billed amount, which was accepted as part of the turnover. The Commissioner was justified in deleting this addition based on the evidence provided.

Issue 2: Deletion of Addition for Bogus Purchases
The Commissioner deleted the addition of Rs. 1,40,400 related to purchases from M/s. Hydrotech, Tamilnadu, as the assessee had produced invoices supporting the transactions. The Commissioner granted relief based on the evidence provided by the assessee, which was deemed sufficient. This decision was upheld as appropriate.

Issue 3: Disallowance of Commission Payments
The Commissioner found that the assessee paid commission of Rs. 35,29,282, which significantly contributed to the turnover. The payments were supported by confirmation letters from payees, and TDS was deducted and remitted to the government. Additionally, the assessee received agency commission almost equivalent to the payments made. The Commissioner accepted the genuineness of the payments, considering the internal evidence from books of account, TDS particulars, and confirmation letters. The high turnover justified the commission payments as legitimate business expenses. The Commissioner's decision was deemed reasonable and supported by the evidence presented.

In conclusion, the appeal by the Revenue was dismissed, and the cross-objection filed by the assessee was also dismissed as it supported the Commissioner's order. The judgment affirmed the decisions of the Commissioner of Income-tax (Appeals) regarding the issues of unexplained cash credits, bogus purchases, and commission payments, emphasizing the importance of supporting evidence and justifying expenses in business dealings.