2015 (8) TMI 219 - AT - Income Tax

Disallowance of commission on performance guarantee - Held that - The contention of the assessee is that the expenditure was required to be incurred under a contract, therefore being a contractual liability, the assessee was required to make the payment of commission as per the terms of the agreement. The liability of the expenditure is not disputed and the expenditure has been disallowed on the basis that the details were not available before the authorities below. Under these facts of the case and taking a note of the fact that the assessee has produced copies of various agreements relating to the payment of commission were required to be paid by the assessee, we are of the considered view that the AO should verify the evidences placed before him about the quantum of commission paid and also the nature of services received by the assessee. Thus, grounds raised in this appeal are restored to the file of AO for verification and the appeal of the assessee for AY 2004-05 and for this AY 2005-06 also is treated as allowed but for statistical purposes.

Summary

Issues Involved:
1. Deduction of commission on performance guarantee.
2. Deduction of commission paid on purchases.
3. Disallowance of business expenditure due to absence of a revised return.
4. Addition towards purchase commission due to typographical error.
5. Confirmation of disallowance without considering revised return and evidences.
6. Applicability of TDS provisions on commission payments.
7. Addition of interest received from M/s. United Phosphorous.

Issue-wise Detailed Analysis:

1. Deduction of Commission on Performance Guarantee:
The assessee claimed a deduction of Rs. 1,45,04,757/- for commission on performance guarantee. The AO disallowed this deduction, and the CIT(A) upheld the disallowance, stating that the assessee did not file a revised return and failed to provide full facts and evidence. The Tribunal noted that the assessee had added back the commission in the return and appended a note stating it would be claimed upon actual payment. However, during assessment, the assessee claimed the expense as allowable. The Tribunal directed the AO to verify the evidence regarding the commission payment and the nature of services received, thus restoring the issue to the AO for verification.

2. Deduction of Commission Paid on Purchases:
The assessee claimed a deduction of Rs. 3,20,07,330/- for commission paid on purchases. The AO disallowed this, and the CIT(A) upheld the disallowance for similar reasons as the performance guarantee commission. The Tribunal again noted the necessity of verifying the evidence and the nature of services received. The issue was restored to the AO for verification.

3. Disallowance of Business Expenditure Due to Absence of Revised Return:
The CIT(A) disallowed the business expenditure claims because the assessee did not file a revised return but instead filed a simple letter. The Tribunal found that the liability of the expenditure was not disputed, but the details were not available before the authorities. Therefore, the Tribunal restored the issue to the AO for verification of the evidence.

4. Addition Towards Purchase Commission Due to Typographical Error:
The AO added Rs. 1,11,330/- to the total income due to a typographical error in the commission amount. The CIT(A) upheld this addition. The Tribunal did not find any error in this addition and upheld the AO's decision.

5. Confirmation of Disallowance Without Considering Revised Return and Evidences:
For AY 2005-06, the CIT(A) confirmed the disallowance of Rs. 1,28,55,000/- and Rs. 1,45,80,000/- for purchase commission and performance guarantee commission, respectively. The CIT(A) did not consider the revised return filed electronically and the evidence provided. The Tribunal restored these issues to the AO for verification, similar to the previous assessment year.

6. Applicability of TDS Provisions on Commission Payments:
The CIT(A) held that the commission payments attracted TDS provisions, which the assessee did not comply with. The assessee argued that the payments were business income for the recipients and not subject to TDS under the DTAA between India and the UK. The Tribunal directed the AO to verify the nature of payments and the applicability of TDS provisions.

7. Addition of Interest Received from M/s. United Phosphorous:
The CIT(A) confirmed the addition of Rs. 26,00,000/- made by the AO for interest received from M/s. United Phosphorous. The assessee argued that the interest was already disclosed in previous years. The Tribunal restored this issue to the AO for verification of the evidence provided by the assessee.

Conclusion:
Both appeals for AYs 2004-05 and 2005-06 were allowed for statistical purposes, with the Tribunal directing the AO to verify the evidence and details provided by the assessee regarding the commission payments and other disallowed expenses. The Tribunal emphasized the need for thorough verification of the contractual liabilities and the nature of services rendered.