2017 (4) TMI 1584 - AT - Income Tax

Disallowance of commission expenses u/s 37(1) - AO stated that the sale of the assessee increased by merely 10.25% whereas the sale commission has been increased by 87% - HELD THAT - We have gone through the material on record and paper book through the assistance of the representatives. We have noticed that the case of the assessee was set aside by the ITAT 2010 (10) TMI 1236 - ITAT AHMEDABAD because the assessee had not furnished any evidence of services rendered by agents to whom commission had been paid. ITAT Coordinate Bench vide order supra had directed the learned CIT(A) to pass a speaking order keeping in mind inter alia the mandate of provisions of sec. 250(6) of the Act bringing out clearly the nature of services rendered by each of the recipient of commission. We have noticed from the findings of the Ld.CIT(A) that the assessee failed to establish with the relevant documentary evidence that any services had been rendered by those persons to whom commission was paid. We find that part of the compliance regarding the services were actually rendered by commission recipients could not be established in spite of giving further opportunity in the set aside proceeding as per the order of Coordinate Bench of ITAT. In view of these facts and findings we do not find any reason to interfere in the findings of the ld. CIT(A). Appeal of the assessee is dismissed.

Summary

Issues: Disallowance of commission expenses under section 37(1) of the Income Tax Act, 1961.

Analysis:
1. The assessee filed an appeal against the disallowance of commission expenses amounting to ?7,34,054 under section 37(1) of the Income Tax Act, 1961.
2. The assessing officer disallowed the commission expenditure claim as the assessee failed to explain the significant rise in sales commission and did not provide verifiable documents to establish that actual services were rendered by the commission recipients.
3. The CIT(A) upheld the addition made by the assessing officer, emphasizing that the payments made as commission are deductible only when the assessee proves that the amounts were actually expended and the payments were for services rendered.
4. The appellant submitted ledger copies, bank statements, and confirmations of parties as evidence during the appellate proceedings, but failed to establish that services were rendered by the commission recipients in exchange for the payments made.
5. The ITAT had previously directed the CIT(A) to decide the issue afresh, emphasizing the necessity for the assessee to prove both the actual expenditure and services rendered by commission recipients. The ITAT found that the assessee did not provide evidence of services rendered by the agents who received the commission.
6. Despite further opportunities, the assessee could not substantiate that services were actually rendered by the commission recipients. Consequently, the ITAT upheld the CIT(A)'s decision to dismiss the appeal, as the assessee failed to establish the nature of services provided by the recipients of the commission.
7. Ultimately, the ITAT dismissed the appeal, affirming the CIT(A)'s decision, as the assessee could not demonstrate that the commission expenses were incurred for services rendered by the recipients.

This detailed analysis highlights the key legal and factual aspects of the judgment, focusing on the disallowance of commission expenses and the burden of proof on the assessee to establish the actual expenditure and services rendered by the commission recipients.