2013 (6) TMI 517 - AT - Income Tax

Introductory Commission & Professional fees - disallowance of claim - Held that - The assessee-company has failed to furnish an iota of evidence qua services, (even the nature & scope of which remains indeterminate), and which it is required to reasonably prove, i.e., beyond reasonable doubt, to press for a valid claim u/s.37(1) - exhibit the assessee to be hand-in-glove with Shri Sandeep Sitani in executing these paper transactions who admitted that no real business was being conducted in the said companies, and that they were only issuing bills for a commission of 0.25%. The payments received were paid back to the beneficiaries after retaining commission, and in most cases through the brokers. At times, even signed cheque books were left with the brokers/agents to facilitate the work, so that the same could be used by them at their convenience, and the tedium involved in withdrawing cash and remitting it back to the beneficiary company, saved. The directors in these companies, as Shri Pradeep Prajapati and Shri Dinanath Yadav were in fact paid employees with nominal salaries, acting on his instructions. They were men of no means without any technical qualifications; rather, hardly literate. Their separate statements were also recorded independently on oath, whereat they confirmed what had been stated by Shri Sandeep Sitani, also admitting to knowing nothing about the business activities of the firms in which they were directors/proprietors. Agreeing with the finding of the Revenue of the impugned transactions as being not genuine and representing bogus claims of expenditure. Further, the assessee s reliance on a comparative chart, showing its gross profit for the year to be comparable and, rather, better than for the other years, is of no consequence inasmuch as what is being impugned is the disallowance of expenditure u/s.37(1). The impugned disallowance is not based primarily on the basis of statement of Shri Sandeep Sitani, but on a consideration of the entirety of the facts and circumstances of the case. There has been rather a complete failure on the part of the assessee to prove the transactions. In fact, the assessee has not even led primary materials in the form of agreements, project reports and confirmations from the clients introduced, etc. It has not shown in any manner as to how the statement of Shri Sandeep Sitani, which is corroborated by the surrounding facts and circumstances of the case, is not correct. The said reliance is, therefore, again misplaced - the assessee s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of introductory commission and professional fees claimed by the assessee.
2. Consideration and appreciation of submissions, evidence, demand for cross-examination, and relevant case laws by the CIT(A).

Issue-wise Detailed Analysis:

1. Disallowance of Introductory Commission and Professional Fees:
The primary issue in this appeal is whether the disallowance of Rs. 3,20,21,417/- under Section 37(1) of the Income Tax Act, 1961, made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], is sustainable in law. The assessee, a financial consultancy and loan syndication company, claimed professional fees totaling Rs. 3,58,30,097/- paid to various parties. During the assessment, notices sent to the parties under Section 133(6) returned unserved for nine parties, and verification revealed them to be nonexistent. The assessee provided account confirmations, consultancy agreements, and payment details but failed to furnish evidence of services rendered. The A.O. found that the companies were managed by a single individual, Shri Sandeep Sitani, who admitted under oath that no real business was conducted, and the companies issued bills for a commission. The CIT(A) upheld the A.O.'s disallowance, stating that the transactions served no commercial purpose and were a scheme for tax advantage.

2. Consideration and Appreciation of Submissions, Evidence, Demand for Cross-examination, and Relevant Case Laws:
The assessee argued that the commission was paid based on the advice of Shri Sandeep Sitani, a Chartered Accountant, and that it was not the assessee's responsibility to verify the payees' tax filings. The assessee also requested cross-examination of Shri Sitani, which was denied. The CIT(A) held that cross-examination was unnecessary as the assessment was not based solely on Shri Sitani's statement but on the entirety of the facts and circumstances. The assessee's failure to produce evidence of services rendered, such as project feasibility reports, further weakened its case. The Tribunal observed that the assessee did not refer to the assessment or impugned order during the hearing and failed to substantiate its claims with credible evidence. The Tribunal concluded that the transactions were not genuine, and the disallowance under Section 37(1) was justified.

Conclusion:
The Tribunal dismissed the assessee's appeal, agreeing with the Revenue's finding that the transactions were not genuine and represented bogus claims of expenditure. The assessee's failure to provide evidence of services rendered and the collusive nature of the transactions with Shri Sandeep Sitani led to the disallowance being upheld. The Tribunal also found no violation of natural justice principles in denying the cross-examination request, as the disallowance was based on the overall facts and circumstances, not solely on Shri Sitani's statement.