2017 (8) TMI 1612 - AT - Income Tax

Brokerage and commission disallowance - AO made correspondence with the commission agents and required them to furnish name and address of buyers for whom they have executed commissioning work alongwith nature of services rendered and the basis of claim of commission - HELD THAT - D.R. could not point out any specific error in the findings of the CIT(A) that at times commission agent when approaches the purchasers, he does not identify himself as an agent of the seller and merely identifying himself as representative of the seller, in such circumstances, the buyer cannot be aware that the person who has approached is employee of the seller or agent of the seller. CIT(A) observed that the commission may be paid to an agent for facilitating the trade even when the orders are directly given to the sellers by the purchasers. Non-service of letters to the buyers or non-compliance of the letters by the buyers does not show that the payment of commission was not genuine when the relative sale was considered genuine. Non-furnishing of the name of the buyers by agent in compliance to the notice does not necessarily mean that the agent is not aware of the buyers. In no situation commission can be earned by a person like HUF is also not tenable. We find that no material could be brought before us to show that the person to whom commission was paid were accommodation/entry provider and the money which was paid through banking channel to them came back to the assessee. Absence of any specific defect being pointed out in the order of the CIT(A), we find no good reason to interfere with the order of the CIT(A), which is hereby confirmed and the ground of appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?7,09,10,967 under the head "brokerage and commission" by CIT(A).

Issue-Wise Detailed Analysis:

1. Deletion of Addition under "Brokerage and Commission":

Background:
The Assessing Officer (AO) observed discrepancies in the assessee's claim of brokerage and commission expenses amounting to ?14,13,86,450/-, significantly higher than the previous year's claim of ?6,35,61,976/-. The AO required details of these expenses and conducted verifications, leading to the disallowance of ?7,09,10,967/- under various categories:
- Category I: ?5,08,01,314/- (Buyers denied involvement of agents)
- Category II: ?55,56,819/- (Letters to buyers returned unserved)
- Category III: ?69,14,054/- (Buyers did not respond)
- Category IV: ?29,21,476/- (Agents did not furnish buyers' names)
- Category V: ?47,17,304/- (Payments to HUF concerns)

Assessee's Submission:
The assessee argued that:
- Agents were engaged to facilitate the supply process, and buyers' denial of agents' involvement does not negate the incurred expenses.
- Addresses provided were accurate, and unserved letters were not the assessee's fault.
- Necessary details of agents and buyers were provided, and non-response from agents/buyers should not penalize the assessee.
- Payments to HUFs were legitimate, and the nature of the entity (HUF) should not disqualify the expenses.

CIT(A)'s Findings:
The CIT(A) deleted the disallowance, stating:
- The AO misunderstood the role of agents. Agents need not always be intermediaries; they can facilitate transactions without direct buyer interaction.
- The definition of an agent includes those who help in prospecting clients, even if not directly involved in every sale.
- The AO's presumption that agents must furnish buyers' names or that buyers must acknowledge agents is flawed.
- The AO did not prove that agents did not exist, did not work, or did not receive payments.
- Business decisions on engaging agents and incurring expenses are the prerogative of the business owner, supported by the Supreme Court's ruling in S.A. Builders Limited vs CIT.
- The AO's disallowance based on the assumption that HUFs cannot earn commission is incorrect. HUFs, like individuals, can earn commission, and the payments were legitimate.

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting:
- The AO's findings were based on presumptions without concrete evidence.
- The CIT(A) correctly interpreted the role and definition of agents.
- The AO failed to show that payments were not made or that agents did not perform their duties.
- The business decision to engage agents and the nature of expenses incurred were legitimate and within the business's prerogative.
- The AO's argument against HUFs receiving commission was unfounded.

Final Decision:
The Tribunal confirmed the CIT(A)'s order, finding no material evidence to contradict the assessee's claims or the CIT(A)'s findings. The appeal by the revenue was dismissed, and the deletion of ?7,09,10,967/- was upheld.

Order Pronounced:
The order was pronounced in the open court on 31/08/2017.