2015 (10) TMI 1627 - AT - Income Tax

Disallowance u/s 40A(2)(b) - Held that - whether the payment was excessive or unreasonable having regard to the fair market value of services rendered by the payees. The ld. Assessing Officer has not brought any evidence with regard to the comparability of the services rendered by these persons vis- -vis availability in the open market. The Assessing Officer has simply compared the payments with the payments made by the assessee in earlier years. The requirement of the section is that such payment is to be compared with the fair market value of the services or whether these services can be availed at a lower rate from the persons who are not covered by sub-clause b . No such evidence has been brought on record, therefore, ld. Commissioner of Income Tax (Appeals) has rightly deleted the disallowance. - Decided in favour of assessee. Disallowance of brokerage and commission - CIT(A) allowed the claim - Held that - Out of the four years, the Assessing Officer has himself allowed in three years. Therefore, we do not see any reason to interfere with the order of Ld. Commissioner of Income Tax (Appeals). Ld. Commissioner of Income Tax (Appeals) has rightly deleted the disallowances in this year. We do not find any merit in this appeal.- Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of payments under section 40A(2)(b)
2. Disallowance of brokerage and commission payments

Analysis:

Issue 1: Disallowance of payments under section 40A(2)(b)
The appeal pertains to the order of the ld. Commissioner of Income Tax (Appeals) dated 20-01-2011 for Assessment Year 2007-08. The revenue challenged the deletion of disallowance of payments amounting to Rs. 16,69,190 made by the assessee. The payments included interest, shop rent, and car rent to individuals covered under section 40A(2)(b) of the Income Tax Act. The Assessing Officer disallowed these payments as he deemed them excessive compared to market rates. However, the Commissioner of Income Tax (Appeals) overturned the disallowance, noting the lack of evidence proving the payments were above fair market value. The Tribunal concurred, emphasizing the need to compare payments with fair market value and lack of evidence on comparability with open market rates. As such, the Tribunal upheld the deletion of disallowances, stating the Assessing Officer failed to establish excessiveness or unreasonableness of the payments.

Issue 2: Disallowance of brokerage and commission payments
The second ground of appeal concerned the disallowance of brokerage and commission payments amounting to Rs. 4,74,049. The Assessing Officer disallowed this amount due to the inability of the assessee to prove the genuineness of services despite providing broker details. In contrast, the Commissioner of Income Tax (Appeals) allowed the payments based on consistency with previous years where similar payments were accepted. The Tribunal reviewed the payment history across different assessment years and noted that the Assessing Officer had allowed similar payments in most years. Consequently, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the disallowance for the current assessment year, citing the principle of consistency. The appeal on this ground was dismissed, affirming the deletion of disallowances.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the deletion of disallowances related to payments under section 40A(2)(b) and brokerage/commission payments for the assessment year in question. The judgment emphasizes the importance of evidence, fair market value comparisons, and consistency in treatment of expenses across different assessment years.