2017 (5) TMI 674 - AT - Income Tax

Disallowance of commission expenses - Held that - No work was done by the agents for the assessee warranting payment of commission. This fact has not been controverted by the assessee before us. No evidence whatsoever has been produced before us contradicting this finding of the Commissioner of Income-tax (Appeals). The only evidences on which the learned authorised representative places reliance upon is the Income-tax returns of the agents which do not establish that they had done any work for the assessee. Further the statement of the three agents admitting in so many words that the commission paid was merely an accommodation entry, explaining the manner of execution also coupled with the above facts as found by the Assessing Officer that no evidence of services rendered by the agents was filed by the assessee, the agents had no knowledge of the product sold, had no links with the purchasers, had claimed the receipt of commission only for introducing the buyers and the fact that most of the buyers were known to the assessee and did not require any introduction, seals the matter against the assessee. Thus we uphold the order of the Commissioner of Income-tax (Appeals) confirming the disallowance of commission expenses paid - Decided against assessee.

Summary

Issues: Disallowance of commission expenses as business expenditure.

Analysis:
The judgment involves two appeals by the same assessee against different orders of the Commissioner of Income-tax (Appeals) for the assessment years 2009-10 and 2010-11. The appeals were heard together due to identical issues. The primary issue in the case pertains to the disallowance of commission expenses amounting to ?23,31,537. During assessment, the Assessing Officer found discrepancies in the commission payments made by the assessee to 15 individuals. The Assessing Officer concluded that the commission payments were bogus as the agents had no relevant experience, knowledge, or genuine services provided. The Commissioner of Income-tax (Appeals) upheld the disallowance, stating that the assessee failed to provide evidence of services rendered by the agents and could not rebut the Assessing Officer's findings. The assessee argued that the commission expenses were genuine, supported by TDS deductions and agents' income tax returns. However, the Departmental representative supported the Assessing Officer's decision. The Commissioner of Income-tax (Appeals' order was upheld as it was found that no work was done by the agents justifying the commission payments. The lack of evidence contradicting this finding led to the dismissal of the appeals and confirmation of the disallowance.

The Commissioner of Income-tax (Appeals) detailed various reasons for upholding the disallowance, including the absence of evidence of services rendered by the agents, lack of links between agents and purchasers, and the agents' admission of returning cash against commission cheques. The Commissioner emphasized that the Assessing Officer's detailed investigation established the commission payments as sham arrangements to reduce the assessee's income. The appellate authorities found no infirmity in the Commissioner's decision and upheld the disallowance. The assessee's failure to provide substantial evidence supporting the genuineness of the commission expenses led to the dismissal of the appeals. The judgment highlights the importance of substantiating business expenses with concrete evidence and the consequences of failing to do so in tax assessments.