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2012 (9) TMI 368 - AT - Income TaxDisallowance of commission expenses - CIT(A) allowed it - Held that - Considering the written submissions of the assessee before the CIT(A) wherein the assessee submitted the particulars of parties, details of payment and TDS certificates related to the payment of commission on sales in question AO made disallowance on commission payment of sales on the basis of a superficial approach supported by surmises and conjectures without making any due inquiry in regard to the genuineness of the parties and services rendered by the recipients of commission to the assessee in lieu of commission. As AO did not consider all material and the evidence placed before him by the assessee nad the CIT(A) followed a due procedure and admitted the additional evidence following Rule 46A of the Rules and after affording due opportunity to the AO to confront the same allowed the claim - as CIT(A) rightly followed the rule of consistency which was earlier followed by the AO in the preceding years of assessment allowing the payment of commission by the assessee on sales and in the absence of any material to substantiate that the payment of commission as claimed by the assessee are bogus, the disallowance cannot be made and sustained - in favour of assessee.
Issues Involved:
1. Disallowance of commission payments claimed by the assessee. 2. Genuineness of transactions leading to the payment of commission. 3. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962. 4. Principle of consistency in assessment years. Detailed Analysis: Issue 1: Disallowance of Commission Payments Claimed by the Assessee The Revenue appealed against the CIT(A) order which deleted the disallowance of Rs.11,18,679/- out of commission payments claimed by the assessee. The Assessing Officer (AO) had disallowed the commission payments, treating them as bogus due to the assessee's failure to provide the basis of payment and confirmations from the parties. Issue 2: Genuineness of Transactions Leading to the Payment of Commission The AO observed that the assessee did not furnish the basis of payment or confirmations from the parties to whom the commission was paid, despite being asked multiple times. The AO concluded that merely making payments through account payee cheques does not validate the genuineness of the transactions. Consequently, the AO disallowed the commission payments, treating them as bogus. Issue 3: Admissibility of Additional Evidence under Rule 46A of the Income Tax Rules, 1962 The assessee approached the CIT(A) and filed an application under Rule 46A with additional evidence regarding the disallowance of commission payments. The CIT(A) admitted the additional evidence and called for a remand report from the AO. The AO submitted the remand report, and the assessee filed a rejoinder. The CIT(A) considered all submissions and admitted the additional evidence as it was crucial for deciding the matter. Issue 4: Principle of Consistency in Assessment Years The CIT(A) noted that the assessee had been making commission payments in earlier years, and such payments were allowed during those assessments. The CIT(A) relied on the principle of consistency, referencing the Hon'ble Jurisdictional High Court of Delhi's judgment in the case of Friends Clearing Agency (P) Ltd. vs CIT-II, which emphasized following a consistent principle in subsequent assessment years. Judgement Analysis: CIT(A) Observations: The CIT(A) observed that the AO disallowed the commission payments solely because confirmations from the parties were not provided. The CIT(A) noted that the AO did not make any effort to independently verify the details provided by the assessee. The CIT(A) highlighted that the payments were made through cheques and were subjected to TDS, which was not disputed by the AO. The CIT(A) allowed the commission payments except for Rs.15,000/- paid to Sudesh Chandla and Rs.16,000/- paid to Mega Computers due to insufficient details. Tribunal's Findings: The Tribunal reviewed the rival arguments, the material on record, and the paper book filed by the assessee. It noted that the CIT(A) followed a due procedure, admitted additional evidence, called for a remand report, and allowed the assessee to file a rejoinder. The Tribunal emphasized that the AO made the disallowance based on a superficial approach without making due inquiries into the genuineness of the transactions. The Tribunal also acknowledged that the CIT(A) rightly followed the rule of consistency, as the commission payments were allowed in previous assessment years. Legal Precedents: The Tribunal referenced the Hon'ble Karnataka High Court's judgment in Ritz Hotels Ltd. vs CIT, which held that the burden lay on the Revenue to establish that no services were rendered when disallowing commission payments. Additionally, the Tribunal cited the Coordinate ITAT Bench at Indore in ACIT vs Shree Sajjan Mills Ltd., which held that without making any inquiry, it was not open to the AO to disallow commission payments. Conclusion: The Tribunal concluded that the CIT(A) rightly deleted the disallowance of commission payments made by the AO. The Tribunal found no infirmity or perversity in the CIT(A)'s order and dismissed the Revenue's appeal. The appeal filed by the Revenue was deemed devoid of merits and was dismissed. Final Order: The appeal filed by the Revenue is dismissed. Order pronounced in the open court on 31st July, 2012.
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