2015 (12) TMI 104 - AT - Income Tax

Addition on account of commission on sale - deduction of TDS - Held that - When the payments are made through account payee cheques and also furnished PAN of recipients commission the same could have been verified by the AO from the assessment records of the respective recipients. Further this commission is subject to TDS and assessee has either deducted TDS or furnished certificate issued u/s. 197(1) of the Act by the ITO TDS in favour of the commission agents for lower deduction or nil deduction of TDS. The assessee has also filed complete particulars of commission recipients i.e. names and addresses along with confirmations. The complete sale bills and commission bills mentioning the nature of services rendered by these parties are filed and the services rendered includes enquiry for orders translating enquiry in to orders arrangement of supplies collection for payment and also collection for statutory forms i.e. sales tax excise duty etc. In terms of the above facts and circumstances we are of the considered view that the CIT(A) has erred in confirming the addition made by AO and accordingly we delete the disallowance of commission paid to above mentioned parties. Decided in favour of assessee.

Issues Involved:
1. Legitimacy of commission payments made by the assessee.
2. Disallowance of commission payments by the Assessing Officer (AO).
3. Confirmation of the disallowance by the Commissioner of Income Tax (Appeals) [CIT(A)].
4. Appeal by the assessee against the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Legitimacy of Commission Payments:
The assessee, engaged in trading electrical switchgear items under M/s. Deep Enterprises and M/s. Vijay Enterprises, claimed commission payments totaling Rs. 74,35,828/-. The details provided included date-wise commission payments, names, and addresses of recipients, and the nature of services rendered. The AO issued summons under Section 131 of the Income-tax Act, 1961, to verify these payments, but the summons to several parties were returned unserved.

2. Disallowance by the AO:
The AO disallowed the commission payments, totaling Rs. 74,35,828/-, citing the following reasons:
- Summons returned unserved for five parties: Progressive Tech Com Pvt. Ltd., Ranisati Vinimay Pvt. Ltd., Nakshatra Commercial Pvt. Ltd., Rohit Goods Pvt. Ltd., and Reliable Comtrade Pvt. Ltd.
- Payments to related parties, including the assessee's daughter, wife, and other family members, were deemed non-genuine due to lack of evidence of services rendered.
- The AO noted that commission payments were made for transactions with existing clients, which contradicted market practices.
- The AO concluded that the commission expenditure was bogus and not incurred wholly and exclusively for business purposes.

3. Confirmation by CIT(A):
The CIT(A) upheld the AO's disallowance, stating:
- The nature of services rendered by the commission agents was not proven.
- Payments to relatives lacked evidence of business purpose and were made in round sums, indicating non-genuine transactions.
- For two relatives, Vikash Kumar Agarwal and Vinay Kumar Agarwal, CIT(A) allowed the commission payments based on case law, but emphasized that this did not establish the genuineness of the payments.
- Summons issued to six companies were returned unserved, and the assessee failed to prove the business purpose of these payments.

4. Appeal by the Assessee:
The assessee argued that:
- Payments were made through account payee cheques, and TDS was deducted.
- Complete details, including PAN, names, addresses, and nature of services rendered, were provided.
- The companies involved were registered and their financial statements showed the commission as income.
- The CIT(A) had previously allowed similar commission payments in AY 2009-10, which the revenue accepted without further appeal.

Tribunal's Findings:
The Tribunal found that:
- The assessee provided sufficient evidence, including commission bills, sale bills, ledger accounts, audited accounts, and TDS certificates.
- Payments were made through account payee cheques, and the commission was disclosed as income by the recipients.
- The assessee had been claiming such commission payments consistently, and similar disallowances in the past were deleted by the CIT(A).
- The AO could have verified the genuineness of the payments from the assessment records of the recipients.

Conclusion:
The Tribunal concluded that the CIT(A) erred in confirming the AO's disallowance. The disallowance of commission payments was deleted, and the appeal of the assessee was allowed.

Result:
The appeal of the assessee was allowed, and the disallowance of commission payments was deleted. The order was pronounced in the open court on 09.10.2015.

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