2015 (12) TMI 1232 - AT - Income Tax

Disallowance of commission - Held that - In the absence of proof in support of the services rendered by the commission agent, no commission can be allowed as a deduction. Therefore, we dismiss the appeal filed by the assessee and allow the appeals filed by the Revenue. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of commission payment.
2. Application of Section 14A of the Income Tax Act.
3. Burden of proof for claiming commission expenses.
4. Relevance of previous judgments and principle of res judicata in income tax proceedings.

Detailed Analysis:

1. Disallowance of Commission Payment:
The primary issue revolves around the disallowance of Rs. 2,15,36,567/- claimed by the assessee as commission payments. The Assessing Officer (AO) disallowed the entire amount on the grounds that the assessee failed to provide sufficient evidence of services rendered by the commission agents. The CIT(A) partially allowed the claim, disallowing only 5% of the commission on an ad-hoc basis, citing similar disallowances in previous years.

The tribunal upheld the AO's disallowance, emphasizing that the mere existence of agreements and payment through account payee cheques with TDS compliance does not automatically entitle the assessee to claim the deduction. The tribunal cited the Supreme Court's ruling in Laxmi Narain Mandanlal Vs. CIT, which states that the Income Tax Officer is not bound to allow such expenses without concrete evidence of services rendered.

2. Application of Section 14A of the Income Tax Act:
While the CIT(A) set aside the issue related to Section 14A disallowance to the AO, this judgment primarily focuses on the commission payment disallowance. The tribunal did not delve into the specifics of Section 14A in this judgment.

3. Burden of Proof for Claiming Commission Expenses:
The tribunal reiterated that the burden of proving that an expenditure was incurred wholly and exclusively for the purpose of business lies entirely on the assessee. The assessee failed to provide substantial evidence to demonstrate the services rendered by the commission agents. The tribunal referenced the Supreme Court's decision in CIT Vs. Imperial Chemical Industries (India) Pvt. Ltd., underscoring that the discharge of this burden must be effective and meaningful, not merely based on book entries and paper work.

4. Relevance of Previous Judgments and Principle of Res Judicata:
The tribunal addressed the assessee's reliance on previous favorable judgments, including the Delhi High Court's decision in the assessee's own case for AY 2004-05, where the commission payment was allowed. The tribunal clarified that income tax assessments are independent for each year, and the principle of res judicata does not apply. Therefore, the previous allowance of similar expenses does not guarantee allowance in subsequent years without adequate proof.

The tribunal cited the Delhi High Court's ruling in Schneider Electric (India) Ltd. Vs. CIT, emphasizing that in the absence of material evidence suggesting that commission agents procured sales orders, such commission payments cannot be allowed as deductions.

Conclusion:
The tribunal dismissed the appeal filed by the assessee and allowed the appeals filed by the Revenue, upholding the disallowance of the commission payment. The decision was pronounced in the open court on 16.10.2015.