2017 (1) TMI 510 - AT - Income Tax

Allowability of commission payment - proof that the services rendered to the assessee by the payees - Held that - There is no dispute that the assessee has actually made the impugned commission payments after deducting TDS thereupon at the prescribed rates in furtherance to various agreements with its payees for marketing and other alike services. It has further placed on record their confirmations by way of contra accounts and debit notes. The same is nowhere doubted before both the lower authorities since the Assessing Officer is of the view that there is no evidence of the actual services rendered followed by CIT(A) s opinion that there is not prescribed rate of the commission payments in agreement concerned and further that these payments ranging between 2% to 24% are on extremely higher side. There is no distinction drawn between facts of the impugned assessment year vis- -vis those in earlier years hereinabove. Coming to the CIT(A) s observation terming the assessee s commission payments to be excessive, we notice that there is no comparative tabulation with market rate of such payments; if any before arriving at the said conclusion. We accordingly observe that the ld. CIT(A) has erred in directing the Assessing Officer to restrict assessee s commission payments @3% after observing that the said authority had not been careful before disallowing the impugned payments wherein the assessee has placed on record all possible details in order to discharge its onus on the one hand whereas the commission payments have been held to be excessive without any such comparison on the other. We thus accept assessee s arguments supporting its sole substantive ground and to direct the Assessing Officer to allow its entire claim of commission payments. The Revenue s contentions seeking to restore entire disallowance amount are accordingly rejected. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of commission payments amounting to ?67,77,001/-.
2. Verification and restriction of commission payment rate to 3%.

Detailed Analysis:

1. Disallowance of Commission Payments:
The case revolves around the disallowance of commission payments amounting to ?67,77,001/- made by the assessee, a pharmaceutical company, to 13 parties. The Assessing Officer (AO) disallowed these payments despite the assessee providing all relevant details, including confirmations, PAN particulars, TDS deductions, and agreements. The AO's primary contention was the lack of proof of services rendered by the payees. The CIT(A) partially accepted the assessee's appeal, noting that the AO did not prove the expenditure as non-genuine and failed to gather positive evidence by examining the commission agents. The CIT(A) acknowledged the genuineness of the expenditure but directed the AO to verify the rate of commission and restrict it to 3%.

2. Verification and Restriction of Commission Payment Rate:
The CIT(A) observed that the rate of commission payments ranged from 2% to 24%, which seemed excessively high. The CIT(A) noted that the agreements did not specify the rate of commission and that the assessee failed to produce evidence such as sales details or communications from the commission agents. Consequently, the CIT(A) directed the AO to allow the commission payments after verifying and restricting the rate to 3%. However, the tribunal found no cogent reason for the AO or CIT(A) to adopt a different approach from previous assessments, where such commission expenses were accepted as a routine practice in the pharmaceutical business. The tribunal noted that the assessee had deducted TDS at prescribed rates and provided all necessary confirmations. The tribunal concluded that the CIT(A) erred in restricting the commission payments to 3% without any comparative market rate analysis and directed the AO to allow the entire claim of ?67,77,001/-.

Conclusion:
The tribunal allowed the assessee's appeal, directing the AO to allow the full commission payment claim of ?67,77,001/-. The Revenue's appeal to restore the entire disallowance was dismissed. The judgment emphasized the importance of providing concrete evidence and maintaining consistency with previous assessments.