2013 (10) TMI 1235 - HC - Income Tax

Genuineness of loan - additions made in the absence of confirmation letters from the parties - Held that - the persons who appeared before the authorities have confirmed having given loans to the assessee in their sworn statements. Once such statements had been given and merely because they have not given any confirmation letter, the said credits cannot be excluded appears to be wrong. - decided against the revenue. Disallowance of Commission paid - Increase the commission from 1% to 2.5% - AO had permitted commission in the absence of any other evidence to prove the same at 1% of the total turnover taking into account the commission paid by similar agencies. - Held that - It is not in dispute that none of the vouchers produced by the assessee was signed by any of the persons who had received the commission. Therefore, normally such amounts are to be added to the income of the assessee. For deletion of such income, necessarily evidence has to be adduced. No evidence worth appreciating was available other than a general contention that commission had been paid - Assessing Officer permitted allowance of 1% as commission and there is no any reason for the appellate authority to have increased the said commission to 2.5% - Such an approach has been made purely based on surmises Decided in favor of Revenue.

Summary

Issues Involved:
1. Disallowance of commission payments.
2. Addition of unproved loan credits.
3. Compliance with Rule 46A of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Payments:
The Assessing Officer disallowed commission payments to agents and two relatives of the assessee by restricting the commission to 1% of the total turnover, citing the absence of signatures on vouchers. The appellate authority, however, allowed 2.5% of the turnover as commission, considering the trade practice and the need for higher commission due to market competition. The Tribunal upheld this decision. However, the High Court found no substantial evidence to support the increase from 1% to 2.5%, deeming the appellate authority's decision as perverse and based on surmises. The High Court set aside this finding, restoring the Assessing Officer's decision to allow only 1% as commission.

2. Addition of Unproved Loan Credits:
The Assessing Officer added Rs.11,91,600/- as unproved loan credits, citing lack of corroboratory evidence and fabricated confirmation letters. The appellate authority deleted most of these additions except for Rs.25,600/-, based on sworn statements from creditors and additional documents produced. The Tribunal confirmed the appellate authority's decision. The High Court observed that the deletion of various amounts was a factual matter, with sufficient evidence provided by the assessee, and thus did not raise any substantial question of law. The High Court upheld the appellate authority's deletion of these additions.

3. Compliance with Rule 46A of the Income Tax Rules:
The Revenue contended that the appellate authority erred in relying on additional documents produced at the appellate stage without complying with Rule 46A. The High Court noted that the appellate authority accepted the confirmation letter from Mr. C.C. Thampi, which was produced at the appellate stage, as sufficient evidence to prove the loan transaction. The High Court concluded that non-compliance with Rule 46A did not amount to a substantial question of law, as the appellate authority was convinced about the genuineness of the transaction based on available evidence.

Conclusion:
The High Court partly allowed the appeal, setting aside the appellate authority's and Tribunal's finding regarding the commission payments, restoring the Assessing Officer's decision to allow 1% as commission. In all other aspects, the High Court confirmed the findings of the CIT (Appeals) and the Tribunal, including the deletion of unproved loan credits and the acceptance of additional evidence under Rule 46A.