2015 (8) TMI 1493 - AT - Income Tax

Disallowance being payment of commission which was duly supported by evidences - HELD THAT - The strength of sales order is clearly done by the sales team who are moving in the market. These salesmen are the persons who try to arrange orders for the products of the principle. AO has called the director of the company only to record his statement by giving him notice u/s 131. It is quite possible that the company has various types of activities and working as commission agent is also a part and such companies work for many types of clients. Quite possible a director might not be aware of names and details of all the clients of the company. The AO should have enquired through the sales man of the commission agent or through the buyers of the products of the assessee in order to verify the actual commission given to M/s.Wide Angle Packaging System (P)Ltd for doing the sales on behalf of the assessee against commission. The assessee has paid commission by account payee cheque. Due TDS paid, identity of the commission agent is verifiable which are sufficient evidence on record to prove the genuineness of the transaction and creditworthiness and identity of the so called commission agent. The entire commission is allowable. This ground of appeal is allowed. Disallowance made by AO from 15% to 10% out of various revenue expenses - HELD THAT - Looking into the nature of the expenses in which there is always a possibility to inflate the expenditure as well as expenses to some extent incurred for personal purposes also. CIT(A) has also restricted the disallowance from 15% to 10% in the interest of justice and as such find no infirmity in the order of the CIT(A). Thus this ground of appeal is dismissed.

Summary

Issues:
1. Disallowance of commission payment
2. Restriction of estimated disallowance on various expenses

Issue 1: Disallowance of Commission Payment:

The appeal pertains to the disallowance of a commission payment of Rs. 8,41,536 made by the assessee to M/s. Wide Angle Packaging System P. Ltd. The Assessing Officer (AO) found the commission payment to be non-genuine, alleging it was a mere accounting entry to evade tax. The AO highlighted the lack of evidence regarding the services rendered by the commission agent and the failure to establish the genuineness of the transaction. The AO relied on judicial precedents to support the disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the failure to prove the nature of services rendered in exchange for the commission. The CIT(A) dismissed the appeal, stating the lack of evidence linking the commission payment to actual services. However, the Income Tax Appellate Tribunal (ITAT) observed that the assessee had paid the commission through bank transactions, duly deducting TDS, and had shown the income. The ITAT noted that the commission was paid for achieving sales and that the sales team played a crucial role in securing orders. The ITAT found the evidence, including TDS payment and the identity of the commission agent, sufficient to establish the genuineness of the transaction. Consequently, the ITAT allowed the appeal, deeming the entire commission payment as allowable.

Issue 2: Restriction of Estimated Disallowance on Various Expenses:

The second issue concerns the estimated disallowance of expenses by the AO, which was later restricted by the CIT(A) from 15% to 10%. The AO disallowed 15% of certain expenses totaling Rs. 2,32,428, citing personal elements in the expenses and lack of proper supporting documentation. These expenses covered various categories such as carriage charges, general expenses, conveyance expenses, and more. The CIT(A) acknowledged the possibility of inflating expenses based on self-made vouchers but opted to reduce the disallowance to 10% in the interest of justice. Upon appeal to the ITAT, the Departmental Representative (DR) supported the lower authorities' decisions. The ITAT reviewed the nature of the expenses, recognizing the potential for inflated expenditures and personal usage. Considering the CIT(A)'s reduction of the disallowance to 10% in the interest of justice, the ITAT found no fault in the CIT(A)'s order and dismissed the appeal on this ground.

In conclusion, the ITAT partially allowed the assessee's appeal, overturning the disallowance of the commission payment while upholding the restriction of estimated disallowance on various expenses.