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2018 (5) TMI 1943 - AT - Income TaxDisallowance of commission payment - HELD THAT - Assessee has submitted enough evidence in support of utilizing the services of agents in the business and also revenue authorities have not brought any cogent material to show that the payments were come back to assessee and these payments cannot be categorized as gratuitous payments. Therefore, we delete the addition made by the AO. Hence, grounds raised by the assessee are allowed. Reopening of assessment u/s 147 - HELD THAT - AO came to conclusion that the payments of commission claimed by assessee are not genuine in AY 2011-12 and he came to conclusion on the same breath that the payments were made in the earlier years are also not genuine even though these assessments were completed u/s 143(3). The findings of AO are mere presumptions and not reached the logical conclusion and not put to test before any adjudicating authorities. If it is allowed to these actions, there cannot be any completed assessments. The legislature/courts have taken enough precautions to avoid such type of reopening of assessment by mere change of opinion. By relying on the above judicial precedents, in our view, AO has reopened the assessment merely based on presumption and change of opinion. Therefore, the reopening of assessment in AY 2009-10 2010-11 are bad in law. Accordingly, ground raised by the assessee is allowed in both the years under consideration.
Issues Involved:
1. Disallowance of commission expenses claimed by the assessee. 2. Validity of reassessment proceedings under section 147 of the IT Act. Detailed Analysis: Disallowance of Commission Expenses: Facts of the Case: - The assessee, a proprietor of M/s Classic Chemicals, claimed commission expenses of ?52,57,750/- for AY 2011-12. - The Assessing Officer (AO) disallowed the commission expenses, questioning the genuineness of the services rendered by the agents. - The AO's disallowance was based on the lack of credible details from the agents and concluded that the payments were made to reduce tax incidence. Assessee's Argument: - The assessee argued that the commission expenses were essential for business operations and had been accepted in previous years. - The payments were made through banking channels, TDS was deducted, and the agents were income tax assessees. CIT(A)'s Findings: - The CIT(A) analyzed the issue based on commercial expediency, genuineness of expenditure, and compliance with the Income Tax Act. - It was observed that there was no formal contract, and the agents lacked primary knowledge about the business transactions. - The CIT(A) allowed a partial deduction of ?5,00,000/- towards commission expenditure, reducing the disallowance to ?47,57,750/-. Tribunal's Decision: - The Tribunal noted that the assessee had consistently declared profits and commission expenses over the years. - It was observed that the agents confirmed the receipt of commission and declared it in their returns. - The Tribunal found that the CIT(A)'s allowance of ?5,00,000/- was arbitrary and not based on concrete evidence. - The Tribunal concluded that the disallowance was based on presumptions and not on any cogent material. - The Tribunal allowed the assessee's claim for commission expenses, deleting the addition made by the AO. Validity of Reassessment Proceedings: Facts of the Case: - The AO initiated reassessment proceedings under section 147 for AY 2009-10 and 2010-11 based on the findings in AY 2011-12. - The assessee challenged the validity of the reassessment, arguing that the original assessments were completed under section 143(3) and there was no new tangible material. CIT(A)'s Findings: - The CIT(A) upheld the reassessment proceedings, stating that the AO's findings in AY 2011-12 constituted fresh evidence. Tribunal's Decision: - The Tribunal referred to several judicial precedents, emphasizing that reassessment cannot be based on mere change of opinion. - It was noted that the AO had no new tangible material to justify the reassessment. - The Tribunal held that the reassessment proceedings were based on presumptions and were not valid. - The Tribunal quashed the reassessment proceedings for AY 2009-10 and 2010-11. Conclusion: - The Tribunal allowed the appeals for AY 2011-12 and 2012-13, deleting the disallowance of commission expenses. - The reassessment proceedings for AY 2009-10 and 2010-11 were quashed, and the appeals were allowed.
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