2014 (5) TMI 472 - AT - Income Tax

Nature of Commission income - business income or income from other sources - shame transaction or not AO observed that none of the expenses are allowable in view of his assessing the income of the appellant as Income from Other Sources as against the Business Income disclosed by the appellant - Held that - The assessee has declared its business to be carrying out the marketing activities for M/s Sarthak Metals Marketing Pvt. Ltd. - Sh. Amit Kumar Aggarwal has stated that the commission was received from the parties but, he could not remember the names of the parties from whom orders were procured for these parties - CIT(A) rightly held that it cannot lead to the conclusion that these were sham transactions - assessee has provided the services to the parties, CIT(A) s order is reasonable in this regard there is no infirmity in the order of the CIT(A) Decided against Revenue. Commission expenses Held that - CIT(A) has rightly observed that these persons have given the general replies to the specific queries and were not able substantiate as to what were the specific activities carried out by them for which they receive commission - They were also not able to produce the books of accounts - No proper books or agreements was provided in ascertaining the commission payment nor it could be proved that they have knowledge / experience in providing such services - the onus is on the assessee to link up the commission payment made to various parties with the particular transactions - AO was justified in disallowing the commission payments Decided against Assessee. Other expenses Held that - CIT(A) has adjudicated the issue granting part relief to the assessee - assessee has claimed that he has submitted voluminous details and submissions before the CIT(A) which have not been properly adjudicated it is true that the CIT(A) has not properly considered the submissions of the assessee thus, the matter related to the claim of expenditure by the assessee except for the claim of commission expenses is remitted back to the AO Decided in favour of Assessee.

Summary

Issues Involved:

1. Disallowance of salary payments.
2. Disallowance of commission expenses.
3. Classification of income as 'Business Income' vs. 'Income from Other Sources.'
4. Disallowance of other expenses (administrative and rent expenses).

Detailed Analysis:

1. Disallowance of Salary Payments:

The Assessing Officer (AO) disallowed the claim of salary payments amounting to Rs. 24,04,200/-, with the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the disallowance of Rs. 18,17,200/-. The AO's disallowance was based on the lack of substantiation of services provided by the employees, with specific reference to one Shri Anirudh Singhal, who allegedly returned Rs. 1,00,000/- out of his salary. The CIT(A) upheld the disallowance to the extent of the returned amount and the salary claimed for Shri Pawan Kumar, who denied working for the company. The CIT(A) directed the AO to verify the genuineness of salary payments made by cheque.

2. Disallowance of Commission Expenses:

The AO disallowed commission expenses of Rs. 5,79,800/- on the grounds that the commission agents did not provide any services to the assessee company, as evidenced by their inability to recall details of transactions. The CIT(A) upheld this disallowance, citing the lack of evidence and proper agreements to substantiate the commission payments.

3. Classification of Income:

The AO classified the income of Rs. 37,09,000/- received from M/s Sarthak Metals Marketing Pvt. Ltd. and M/s Bhayana Builders Pvt. Ltd. as 'Income from Other Sources' instead of 'Business Income,' asserting that no services were provided. The CIT(A) reversed this classification, noting that both companies had confirmed the commission payments and provided transaction details. The CIT(A) found no evidence to support the AO's conclusion that the transactions were sham.

4. Disallowance of Other Expenses:

The AO disallowed other expenses amounting to Rs. 2,21,646/- due to the lack of supporting bills and agreements. The CIT(A) provided partial relief, allowing director's remuneration and administrative expenses based on the evidence produced. However, the CIT(A) upheld the disallowance of rent expenses due to the absence of a rent agreement and the payment being made in cash, directing the AO to verify the claim supported by bank statements.

Separate Judgments:

The ITAT upheld the CIT(A)'s decision regarding the classification of income as 'Business Income' and the disallowance of commission expenses. However, the ITAT remitted the issue of other expenses back to the AO for fresh consideration, directing the AO to re-examine the detailed submissions of the assessee.

Conclusion:

The appeals by both the Assessee and the Revenue were allowed for statistical purposes, with specific directions for the AO to re-evaluate the claims related to other expenses, excluding commission expenses. The ITAT's order emphasized a thorough reassessment of the evidence and submissions provided by the assessee.