2017 (11) TMI 106 - AT - Income Tax

Commission income - treated as business income OR income from other sources - Held that - The commission paid to the assessee company is a non-genuine transaction and that the directors / employees of the assessee company have played no role in effecting their sales and that all the parties were contacted by him only and even no follow-up for recovery of bills payment was ever made by any of the directors / employees of the assessee company. Moreover, the assessee has even expressed its unwillingness to cross-examine any of the parties, including Shri Amit Gandhi. Therefore, an adverse inference is hereby drawn that the commission income which is alleged to have been earned @5% on sales of M/s.Shree Chem Industries, is of non-genuine character and accordingly the said sum of ₹ 7,33,360/- is hereby treated and taxed under the head Income from Other Sources . No reason to interfere in the order of the lower authorities treating the commission income as income from other sources. Claim of depreciation on the Rolls Royce Car - Loan processing expenditure and interest expenditure on the loan obtained for the purpose of purchasing the said car from Kotak Mahendra Bank Ltd. - Held that - AO pointed out contradiction in the averment made by the assessee during the assessment proceedings vis- -vis statement of the Director Shri Sunil Shah. Further, as admitted by the broker and the sub-broker that Shri M.L.Tandon, Director of the assessee company has never visited their office in respect of the trading in shares / derivatives and that the entire such business takes place mostly through telephonic conversation and that Shri Chopra, employee of the group companies, used to visit the broker / sub-broker only twice or thrice a year. It is hardly believable that an ordinary employee of a company could be provided with such a costly vehicle for the purpose of visiting the broker / sub-broker for carrying out the trading activities. In view of all these facts as a whole, AO held that the car is and has never been used for the Directors of the assessee company wholly and exclusively for the purpose of business of the assessee company and as such the depreciation claimed on Rolls Royce and interest incurred on loan obtained from Kotak Mahindra Bank Limited were disallowed. On similar reasoning, claim of processing charges paid to the bank and expenses incurred on car was also declined. Nothing was brought on record to controvert the findings recorded by the lower authorities to the effect that car was never used for the purpose of business, accordingly we do not find any reason to interfere in the findings of AO which was confirmed by the CIT(A). It is pertinent to mention here that each year is separate and independent, therefore, contention of assessee that assessee-company was having substantial share transaction / income in the subsequent year, the same cannot be considered for allowing depreciation during the year under consideration when it is established that car was not used for the purpose of business during the year under consideration. - Decided against assessee.

Summary

Issues Involved:
1. Classification of Commission Income
2. Disallowance of Car Depreciation, Interest on Car Loan, and Car Expenses

Issue-wise Detailed Analysis:

1. Classification of Commission Income:

The primary issue was whether the commission income of ?7,33,360/- should be classified as "business income" or "income from other sources." The Assessing Officer (AO) had treated this income as "income from other sources" after conducting a detailed inquiry. The AO recorded statements under section 131 of the IT Act from various individuals involved in the transactions and concluded that the commission income was not genuine. The AO's conclusion was based on the fact that the appellant's directors did not render any services to earn the commission and that the transactions were sham and bogus. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the appellant failed to substantiate its claim during the appellate proceedings and did not challenge the statements recorded by the AO.

During the tribunal proceedings, the appellant argued that the commission was genuine and relied on the decision of the Gujarat High Court. However, the tribunal found that the appellant did not provide any positive material to counter the detailed findings of the AO and CIT(A). The tribunal noted that the AO had issued summons under section 133(6) to various parties and recorded statements that confirmed the non-genuine nature of the commission income. The tribunal upheld the lower authorities' decision to treat the commission income as "income from other sources."

2. Disallowance of Car Depreciation, Interest on Car Loan, and Car Expenses:

The second issue involved the disallowance of depreciation on a Rolls Royce car amounting to ?44,09,123/-, interest on a car loan of ?9,26,098/-, and car expenses of ?26,812/-. The AO disallowed these expenses on the grounds that the car was not used wholly and exclusively for business purposes. The AO's conclusion was based on inquiries conducted under section 131, which revealed that the car was not used for business activities. The appellant's directors and brokers confirmed that business transactions were conducted over the phone and not in person, negating the need for the car's use in business operations.

The CIT(A) upheld the AO's decision, noting that the appellant failed to provide evidence supporting the car's use for business purposes. The tribunal also upheld the lower authorities' decision, emphasizing that the appellant did not bring any positive material to counter the findings. The tribunal noted that each assessment year is separate and independent, and the appellant's claim of substantial share transactions in subsequent years could not justify the car's use for business during the year under consideration.

In conclusion, the tribunal dismissed the appeal, upholding the AO's and CIT(A)'s decisions on both issues.

Order Pronouncement:

The appeal of the assessee was dismissed, and the order was pronounced in the open court on 20/06/2017.