2018 (11) TMI 1843 - AT - Income Tax

Disallowance of claim of payment of commission - Denial of claim of payment of commission on sales - assessee has claimed that during the course of business, he has paid commission to a number of parties for the purpose of business - non- appearance of the said commission agents in person - HELD THAT - As decided in MADHUSUDAN RUNGTA SONS (HUF) AND VICE-VERSA 2017 (11) TMI 1074 - ITAT KOLKATA said commission agents even though did not respond to the summons issued by the Ld. AO by making their personal appearance, but had furnished the requisite details to the Ld. AO and had also given confirmation that they had indeed included the subject mentioned commission in their returns and paid taxes thereon. All these facts clearly proved the services rendered by the commission to the assessee achieving the payment of commission. There could be more than one justifiable reason for commission agents for not appearing before the Ld. AO in response to the summons issued thereon. AO is empowered under the law to take necessary action against these commission agents for non-compliance to the summons issued to Section 131 - Statute provides for relevant remedial measures thereon - AO without resorting to such measures, cannot proceed to disbelieve the claim of commission paid by the assessee when the same are supported by various documents and confirmed by the said parties. In the instant case, the primary onus has been duly discharged by the assessee proving the claim of commission payments made by the assessee. There is absolutely no reason for the AO to doubt the veracity of the said transactions. Admittedly none of the commission agents were relatives of the assessee or interested parties with the assessee so as to allege some mala fide on the part of the assessee. Hence, in our considered opinion, there is no case made out by the ld AO to treat the commission transactions as ingenuine transactions in these facts and circumstances. Disallowance of sales promotion, telephone expenses and motor car and travelling expenses - Assessee vehemently contends that no disallowance can be made on the ground that there is an element of personal use of telephone and motor car in the case of a Limited Company as there cannot be any personal use - HELD THAT - After hearing the submission, we confirm the disallowance was made on an estimate basis of sales promotion expenses. We find that the Assessing Officer has disallowed the expenditure on an ad-hoc basis simply because there is a rise in the quantum of expenditure as compared to the expenditure incurred in earlier years. He estimated the expenditure at 60% and 40% of the claim and the balance was disallowed. This, in our view is arbitrary and without any basis. TDS u/s 194C - disallowance u/s 40(a)(ia) - HELD THAT - We find that the ld. CIT(A) has specifically held that in case of conversion charges, the assessee had deducted income tax at source @2% of such contractual payments and deposited the TDS in the Government A/c. On facts he held that there is no valuation of Section 194C of the Act and hence and no disallowance can be made u/s 40(a)(ia) of the Act

Summary

Issues Involved:
1. Disallowance of claim of payment of commission.
2. Ad-hoc disallowance of certain expenses.
3. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Payment of Commission:

The primary issue in both appeals was the disallowance of the claim of payment of commission by the assessee. The assessee provided comprehensive documentation to support the genuineness of the commission payments, including bills, confirmation letters, agreements, and tax details of the commission agents. The Assessing Officer (AO) issued notices under Sections 133(6) and 131 of the Income Tax Act to verify these claims. While most commission agents confirmed receipt of the commission, some notices were returned unserved, and the AO disallowed the commission on the grounds of insufficient proof of services rendered.

For the Assessment Year (AY) 2011-12, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, noting that the commission agents confirmed receipt of the commission and provided detailed evidence of services rendered. The CIT(A) observed that the AO did not allege any relationship between the parties or question the genuineness of the payments, making the AO's reliance on case laws distinguishable based on the facts. The addition of ?92,61,790 was thus deleted.

For AY 2010-11, the CIT(A) confirmed the AO's disallowance of ?9,05,612 paid to Sugandhi Sales Pvt. Ltd., as the notice to the party was returned unserved, and the assessee did not produce the party before the AO. The CIT(A) held that mere filing of confirmation letters and other documents did not prove actual service rendered.

Upon appeal, the Tribunal upheld the CIT(A)'s decision for AY 2011-12, agreeing that the assessee had discharged the burden of proof. For AY 2010-11, the Tribunal also deleted the disallowance, stating that the assessee provided all requisite details to support the genuineness of the claim, and non-appearance of the party before the AO alone was not sufficient to disallow the commission.

2. Ad-hoc Disallowance of Certain Expenses:

For AY 2010-11, the assessee contested the ad-hoc disallowance of sales promotion, telephone, motor car, and traveling expenses. The assessee argued that no disallowance should be made for personal use in the case of a Limited Company, citing the Gujarat High Court judgment in Sayaji Iron and Engg. Co. vs Commissioner of Income-Tax.

The Tribunal confirmed the disallowance of sales promotion expenses made on an estimate basis, finding the AO's estimation arbitrary and without basis. Consequently, the Tribunal allowed the assessee's appeal on this ground, rejecting the disallowance as unsound.

3. Disallowance under Section 40(a)(ia) of the Income Tax Act:

For AY 2011-12, the revenue's appeal included a ground related to disallowance under Section 40(a)(ia) of the Act. The CIT(A) held that the assessee had deducted tax at source for conversion charges and deposited it with the government, thus complying with Section 194C of the Act. The Tribunal upheld the CIT(A)'s factual finding, dismissing the revenue's appeal on this ground.

Conclusion:

The Tribunal allowed the assessee's appeal for AY 2010-11, deleting the disallowance of commission and ad-hoc expenses, and dismissed the revenue's appeal for AY 2011-12, upholding the CIT(A)'s deletion of disallowance under Section 40(a)(ia).